N-14AE

Registration No. 333-                     .

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

o Pre-Effective Amendment No.                      o Post-Effective Amendment No.                     

(Check appropriate box or boxes)

Exact name of Registrant as Specified in Charter:

W&R Target Funds, Inc.

6300 Lamar Avenue
Shawnee Mission, Kansas 66202

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

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

Copy to:

Kathleen L. Prudhomme
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402 R. Darrell Mounts
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue
N.W. Washington, DC 20036

Approximate Date of Proposed Public Offering:
As soon as possible following the effective date of this Registration Statement.
It is proposed that this filing become effective on
July 26, 2003 (30 days after filing) pursuant to Rule 488.

The title of the securities being registered is shares of Common Stock, par value $0.001.

No filing fee is required because an indefinite number of shares of the Registrant have previously been registered on Form N-1A (SEC File Number 033-11466) pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Registrant’s Rule 24f-2 Notice for the fiscal year ended December 31, 2002 was filed on March 7, 2003. Pursuant to Rule 429 under the Securities Act of 1933, this Registration Statement relates to the shares previously registered on the aforesaid Registration Statement on Form N-1A.

ADVANTUS SERIES FUND, INC.

Advantus Asset Allocation Portfolio

Advantus Capital Appreciation Portfolio

Advantus Growth Portfolio

Advantus Core Equity Portfolio

Advantus Value Stock Portfolio

Advantus Small Company Growth Portfolio

Advantus International Stock Portfolio

Advantus Small Company Value Portfolio

Advantus Micro-Cap Growth Portfolio

July      , 2003

Dear Beneficial Owner:

      On September 19, 2003, a special meeting of the shareholders of the mutual funds listed above (each, an “Advantus Fund”) will be held at the offices of Advantus Capital Management, Inc. (“Advantus Capital”) in order to vote on the following two important proposals:

•  Shareholders of each Advantus Fund are being asked to approve an Agreement and Plan of Reorganization (the “Reorganization Plan”) that provides for the reorganization of their Fund into a comparable mutual fund in W&R Target Funds, Inc. (each, a “W&R Fund”) with similar investment objectives and strategies. If the Reorganization Plan is approved, the assets of each Advantus Fund will be acquired by a similar W&R Fund in exchange for newly issued W&R Fund shares. These W&R Fund shares then will be distributed to shareholders of the Advantus Fund, and the Advantus Fund will be liquidated.

•  Shareholders of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio are being asked to approve a definitive investment advisory agreement with Waddell & Reed Investment Management Company (“WRIMCO”). This will replace the interim investment advisory agreement with WRIMCO that has been in effect since May 1, 2003 and that expires on September 27, 2003. The definitive investment advisory agreement will remain in place until the reorganization of these Advantus Funds occurs.

      Each Advantus Fund is a portfolio of Advantus Series Fund, Inc. (“Advantus Series Fund”), which is an underlying investment vehicle used by variable annuity and variable life insurance contracts. As the owner of such a variable life insurance or variable annuity contract (a “Beneficial Owner”), you are an indirect participant in one or more of the Advantus Funds and are eligible to provide instructions on how to vote on these proposals.

      Both of the proposals have been thoroughly reviewed by the Advantus Funds’ Board of Directors, whose role is to protect the interests of shareholders. The Advantus Funds’ Board of Directors believes that the proposals are in the best interest of the each Advantus Fund and its shareholders and unanimously recommends that you vote FOR each proposal.

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

      Thank you for your prompt attention and participation.

Sincerely,

/s/ DIANNE M. ORBISON

Dianne M. Orbison

President

TABLE OF CONTENTS

PROPOSAL ONE APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
	Summary
	Comparison of Fund Expenses
	Comparison of Fund Investment Objectives, Strategies and Risks
	Comparison of Fund Performance
	Comparison of Operations
	Information About the Reorganizations
	Capitalization
	Shareholder Rights
PROPOSAL TWO APPROVAL OF A DEFINITIVE INVESTMENT ADVISORY AGREEMENT WITH WRIMCO
	Background
	The Interim Investment Advisory Agreement
	The Definitive Investment Advisory Agreement
	Additional Information About WRIMCO
	Board Considerations
INFORMATION ABOUT THE W&R FUNDS AND THE ADVANTUS FUNDS
	W&R Funds
	Advantus Funds
VOTING INFORMATION
	General Information
	Voting Rights and Required Vote
	Record Date and Outstanding Shares
	Security Ownership of Certain Beneficial Owners and Management
	Other Business
	Shareholder Proposals
	Board Recommendations
APPENDIX A — AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX B — INVESTMENT ADVISORY AGREEMENT
APPENDIX C — W&R TARGET FUNDS MANAGER DISCUSSIONS
APPENDIX D — W&R TARGET FUNDS PROSPECTUS
APPENDIX E — W&R TARGET FUNDS PROSPECTUS FOR INTERNATIONAL II, SMALL COMPANY VALUE AND MICRO-CAP GROWTH PORTFOLIOS
PART B
I. Additional Information About the W&R Funds and the Advantus Funds
II. Financial Information
III. Pro Forma Financial Statements
PART C
	Item 15. Indemnification.
	Item 16. Exhibits.
	Item 17. Undertakings.
SIGNATURES
EX-(6)(f) Subadvisory Agreement
EX-(11) Opinion/Consent of Waddell & Reed
EX-(14)(a) Consent of Deloitte & Touche LLP
EX-(14)(b) Consent of KPMG LLP
EX-(16) Powers of Attorney
EX-(17)(a) Contract Holder Voting Instructions
EX-(17)(c) Statement of Additional Information
EX-(17)(e) Premliminary Prospectus for W&R Int'l.
EX-(17)(f) Advantus Series Fund, Inc. Prospectus
EX-(17)(g) Advantus Series Fund Statement of Info
EX-(17)(h) W&R Target Funds, Inc. Annual Report
EX-(17)(i) Advantus Series Fund Annual Report

QUESTIONS AND ANSWERS

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

      What am I being asked to vote on at the upcoming special shareholders meetings to be held on September 19, 2003?

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

      Shareholders of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio also are being asked to approve a definitive investment advisory agreement between Advantus Series Fund, on their behalf, and WRIMCO. This definitive agreement will replace an interim investment advisory agreement between Advantus Series Fund and WRIMCO that has been in effect since May 1, 2003 and that expires on September 27, 2003. In April 2003, Advantus Capital and certain companies affiliated Advantus Capital entered into a Strategic Alliance Agreement and a related Purchase Agreement with Waddell & Reed Financial, Inc. (“W&R”), a leading U.S. mutual fund firm, WRIMCO, and certain other companies affiliated with W&R. As a result of entering into these agreements, Advantus Capital no longer had the portfolio management resources necessary to actively manage non-real estate equity assets. Advantus Capital therefore resigned as the investment adviser for the Advantus Funds that are not managed by sub-advisers, and the Board of Directors approved an interim investment advisory agreement with WRIMCO relating to these Advantus Funds. This interim investment advisory agreement expires on September 27, 2003. Shareholders of these Advantus Funds are being asked to approve a definitive investment advisory agreement between Advantus Series Fund and WRIMCO that will remain in effect until the reorganizations.

      Why do I need to vote on a definitive investment advisory agreement with WRIMCO?

      Normally, a mutual fund’s investment advisory agreement must be approved by the fund’s shareholders in advance of the effective date of that agreement. However, federal securities laws allow an investment adviser to serve as the adviser to a mutual fund under an interim contract that has not been approved by shareholders if certain conditions are met. These conditions include the requirement that the interim agreement contain terms that are substantially identical to those of the investment advisory agreement previously in effect, that fees payable under the interim agreement be held in escrow until shareholders approve a definitive investment advisory agreement, and that the interim advisory agreement last no longer than 150 days. Because of this last requirement, the interim advisory agreement between Advantus Series Fund and WRIMCO will expire on September 27, 2003. Because the reorganizations may not occur before this date, shareholders need to approve a definitive investment advisory agreement.

      Why is the reorganization being proposed?

      Under the Strategic Alliance Agreement and Purchase Agreement mentioned above, Advantus Capital agreed to sell to WRIMCO its assets related to the Advantus Funds, which are all of the actively managed, non-real estate equity series of Advantus Series Fund. In order to integrate the Advantus Funds into the family of investment companies managed by WRIMCO and its affiliates, Advantus Capital has recommended to the Advantus Funds’ Board of Directors that each Advantus Fund be merged into a comparable mutual fund in W&R Target Funds, Inc., an investment company managed by WRIMCO. Each Advantus Fund will be merged into an existing portfolio of W&R Target Funds with similar investment objectives and strategies, or, where there is no similar portfolio, into a newly formed portfolio of W&R Target Funds.

      How do the investment objectives and strategies of the Advantus Funds compare to those of the W&R Funds?

      Five of the Advantus Funds — Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio — have been managed by WRIMCO since May 1, 2003 using investment strategies that are substantially identical to those used by WRIMCO in managing the W&R Funds into which they will be reorganized. As a result, each of these Advantus Funds has investment objectives that are substantially similar and investment strategies that are substantially identical to those of its corresponding W&R Fund.

      Advantus International Stock Portfolio, Advantus Small Company Value Portfolio and Advantus Micro Cap Growth Portfolio will continue to be managed by the same sub-advisers following their reorganizations into W&R Funds. Each of these Advantus Funds therefore has investment objectives that are substantially similar and investment strategies that are substantially similar to those of its corresponding W&R Fund.

      Advantus Small Company Growth Fund is currently managed by a sub-adviser. The W&R Fund into which it will be reorganized is managed by WRIMCO. Thus, although the investment objectives and strategies of the Advantus Small Company Growth Fund and its corresponding W&R Fund are similar, there are some differences.

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

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

      Combining your Advantus Fund with a W&R Fund will allow you to continue your investment in a fund with a similar investment objective and similar investment strategies. Although the expense ratios for the W&R Funds are significantly higher than those of the Advantus Funds in most cases due to higher management fees, the expense structures of the W&R Funds are competitive and within industry norms. Also, despite these higher expenses, the performance of the W&R Funds compares favorably to that of the Advantus Funds. In addition, there will be greater and broader distribution opportunities for the combined funds, increasing the likelihood that the funds will grow and net expenses will decline over time. Your Board of Directors has determined that the expected advantages to shareholders more than outweigh the disadvantages, and that the reorganizations will be in the best interests of shareholders.

      When would the reorganization take place for my Advantus Fund?

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

      Will I receive new shares in exchange for my current shares?

      Yes. Upon approval of the reorganization, each W&R Fund will acquire all of the assets of its corresponding Advantus Fund in exchange for newly issued W&R Fund shares. These W&R Fund shares in turn will be distributed pro rata to Advantus Fund shareholders in complete liquidation of the Advantus Fund. Your participating insurance company, on your behalf, will receive shares of the W&R Fund with an aggregate value equal to the aggregate value of your Advantus Fund shares on the effective date of the reorganization.

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

      No. On the closing date of the reorganization, the Advantus Fund shares that fund benefits under your variable annuity or variable life insurance contract automatically will be exchanged for shares of the corresponding W&R Fund. The total value of the W&R Fund shares that a shareholder receives in the reorganization will be the same as the total value of the Advantus Fund shares held by the shareholder immediately before the reorganization.

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

      Yes. You can redeem your Advantus Fund shares before the reorganization takes place and select another fund that is available as an underlying investment for your variable annuity contract or variable life insurance policy. Your participating insurance company can provide you with more information about the consequences of redeeming your shares.

      Who will pay the costs of the reorganization?

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

      Will I incur taxes as a result of the reorganization?

      The reorganization is expected to be tax-free for federal income tax purposes to both the insurance companies whose separate accounts hold Advantus Fund shares and to Beneficial Owners. Generally, neither shareholders nor Beneficial Owners will incur capital gains or losses on the exchange of W&R Fund shares for Advantus Fund shares. Furthermore, the cost basis of each investment will remain the same.

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

      Yes. The Advantus Funds’ Board approved the proposals and recommends that you vote for each proposal.

      When should I vote?

      Please vote as soon as possible, by completing, signing and returning the enclosed voting instruction form(s). A postage-paid envelope is enclosed for this purpose.

ADVANTUS SERIES FUND, INC.

Advantus Asset Allocation Portfolio

Advantus Capital Appreciation Portfolio

Advantus Growth Portfolio

Advantus Core Equity Portfolio

Advantus Value Stock Portfolio

Advantus Small Company Growth Portfolio

Advantus International Stock Portfolio

Advantus Small Company Value Portfolio

Advantus Micro-Cap Growth Portfolio

400 Robert Street North

St. Paul, Minnesota 55101

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On September 19, 2003

       Notice is hereby given that a Special Meeting of Shareholders of the Advantus Funds listed above (each an “Advantus Fund” and collectively, the “Advantus Funds”), will be held at the offices of Advantus Capital Management, Inc., 400 Robert Street North, St. Paul, Minnesota 55101, on September 19, 2003 at                     .m. Central time, for the purposes of considering the proposals set forth below.

      1. For shareholders of each Advantus Fund, to approve an Agreement and Plan of Reorganization providing for the transfer of all assets of each Advantus Fund to a comparable portfolio in W&R Target Funds, Inc., in exchange for shares of that comparable portfolio and the assumption by that portfolio of all of the applicable Advantus Fund’s liabilities. The shares so received will be distributed to shareholders of the applicable Advantus Fund, which will be terminated or dissolved as soon as practicable thereafter. A vote in favor of the Agreement and Plan of Reorganization will also be considered a vote in favor of an amendment to the articles of incorporation of Advantus Series Fund, Inc., which is required to effect the reorganization.

      2. For shareholders of the Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio, to approve a definitive investment advisory agreement between Advantus Series Fund, Inc., on behalf of these Advantus Funds, and Waddell & Reed Investment Management Company.

      Shareholders of record of each Advantus Fund as of the close of business on July 24, 2003 are entitled to notice of, and to vote at, this meeting or any adjournment of this meeting.

      Each Advantus Fund issues and sells its shares to the separate accounts of Minnesota Life Insurance Company (“Minnesota Life”) and to the separate accounts of other life insurance companies, including but not limited to life insurance affiliates of Minnesota Life. The separate accounts hold shares of mutual funds, including the Advantus Funds, which fund benefits under variable annuity contracts or variable life insurance contracts issued by Minnesota Life or the other insurance companies. As the owners of the assets held in the separate accounts, these insurance companies are the sole shareholders of the Advantus Funds and are entitled to vote all of the shares of each Advantus Fund. However, pursuant to applicable laws, contracts, or other arrangements, the insurance companies vote outstanding shares of the Advantus Funds in accordance with instructions received from the owners of the annuity and life insurance contracts (the “Beneficial Owners”). This Notice is being delivered to Beneficial Owners of one or more of the Advantus Funds as of the record date, so that they may instruct the insurance companies how to vote the shares of the Advantus Funds underlying their contracts. Beneficial Owners of each Advantus Fund will vote separately on each proposal. A proposal will be effected as to a particular Advantus Fund only if that Fund’s shareholders approve the proposal.

      Beneficial owners are requested to execute and return promptly the accompanying voting instruction card, which is being solicited by the Board of Directors of the Advantus Funds. You may execute the voting instruction card using the methods described therein. Instructions may be revoked at any time before they are exercised by submitting a written notice of revocation or a subsequently executed instruction card or by attending the meeting and voting in person.

By Order of the Board of Directors

/s/ MICHAEL J. RADMER

Michael J. Radmer

Secretary

Dated: July      , 2003

PROXY STATEMENT/ PROSPECTUS

Dated July      , 2003

RELATING TO THE ACQUISITION OF THE

FOLLOWING SERIES OF ADVANTUS SERIES FUND, INC.:

Advantus Asset Allocation Portfolio

Advantus Capital Appreciation Portfolio

Advantus Growth Portfolio

Advantus Core Equity Portfolio

Advantus Value Stock Portfolio

Advantus Small Company Growth Portfolio

Advantus International Stock Portfolio

Advantus Small Company Value Portfolio

Advantus Micro-Cap Growth Portfolio

400 Robert Street North

St. Paul, Minnesota 55101-2098

800-665-6005

BY AND IN EXCHANGE FOR SHARES OF THE

FOLLOWING SERIES OF W&R TARGET FUNDS, INC.:

W&R Balanced Portfolio

W&R Growth Portfolio

W&R Core Equity Portfolio

W&R Value Portfolio

W&R Small Cap Portfolio

W&R International II Portfolio

W&R Small Company Value Portfolio

W&R Micro-Cap Growth Portfolio

6300 Lamar Avenue

Shawnee Mission, Kansas 66201-9217

888-WADDELL

      This Proxy Statement/ Prospectus is furnished in connection with the solicitation of proxies by the Board of Directors of Advantus Series Fund, Inc. for the Special Meeting of Shareholders of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio, Advantus Value Stock Portfolio, Advantus Small Company Growth Portfolio, Advantus International Stock Portfolio, Advantus Small Company Value Portfolio and Advantus Micro-Cap Growth Portfolio (each an “Advantus Fund” and collectively the “Advantus Funds”), to be held on September 19, 2003 at             .m. Central time, at the offices of Advantus Capital Management, Inc. (“Advantus Capital”), 400 Robert Street North, St. Paul, Minnesota 55101.

      Shareholders of each Advantus Fund, voting separately, will be asked to consider and approve an Agreement and Plan of Reorganization (the “Reorganization Plan”), pursuant to which all of the assets and liabilities of each Advantus Fund would be acquired by a series of W&R Target Funds, Inc. with similar investment objectives and strategies (each a “W&R Fund” and collectively the “W&R Funds”) in return for shares of that W&R Fund.

      Shareholders of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio, and Advantus Value Stock Portfolio, voting separately, also will be asked to approve a definitive investment advisory agreement (the “Definitive Agreement”) between Advantus Series Fund and Waddell & Reed Investment Management Company (“WRIMCO”). The Definitive Agreement will replace an interim investment advisory agreement pursuant to which WRIMCO currently serves as investment adviser to these Advantus Funds.

      The following table illustrates which proposals are to be voted on by shareholders of an Advantus Fund:

Advantus Fund	Proposal
	Approve Agreement and		Approve Definitive Investment
	Plan of Reorganization		Advisory Agreement With WRIMCO
Asset Allocation Portfolio		X		X
Capital Appreciation Portfolio		X		X
Growth Portfolio		X		X
Core Equity Portfolio		X		X
Value Stock Portfolio		X		X
Small Company Growth Portfolio		X
International Stock Portfolio		X
Small Company Value Portfolio		X
Micro-Cap Growth Portfolio		X

      Shares of the Advantus Funds are sold only in connection with investments in and payments under variable annuity contracts and variable life insurance contracts issued by Minnesota Life Insurance Company (“Minnesota Life”) and other life insurance companies, including but not limited to life insurance affiliates of Minnesota Life. Individual contract owners (“Beneficial Owners”) are not the “shareholders” of the Advantus Funds. Rather, the insurance companies and their separate accounts are the shareholders. Each insurance company will offer to Beneficial Owners the opportunity to instruct it as to how it should vote shares held by it and the separate accounts on the items to be considered at the meeting. This Proxy Statement/ Prospectus is therefore furnished to Beneficial Owners entitled to give voting instructions with regard to the Advantus Funds.

      THE BOARD OF DIRECTORS OF THE ADVANTUS FUNDS UNANIMOUSLY RECOMMENDS APPROVAL OF THE REORGANIZATION PLAN AND THE DEFINITIVE AGREEMENT.

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

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

•  Prospectus dated May 1, 2003 of W&R Target Funds, Inc. relating to all of the W&R Funds other than W&R International II Portfolio, W&R Micro Cap Growth Portfolio and W&R Small Company Value Portfolio (SEC File Nos. 811-5017/33-11466). A copy of the prospectus is included as Appendix D to this Proxy Statement/ Prospectus.

•  Prospectus dated July      , 2003 of W&R Target Funds, Inc. relating to the W&R International II Portfolio, W&R Micro Cap Growth Portfolio and W&R Small Company Value Portfolio (SEC File Nos. 811-5017/33-11466). A copy of the prospectus is included as Appendix E to this Proxy Statement/ Prospectus.

•  Prospectus dated May 1, 2003 of Advantus Series Fund, Inc. (SEC File Nos. 811-4279/2-96990).

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•  Advantus Series Fund, Inc. Annual Report for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission on February 28, 2003 (SEC File No. 811-4279).

      This Proxy Statement/ Prospectus, the Notice of Special Meetings and voting instruction card(s) are expected to be sent to Beneficial Owners beginning on or about                     , 2003.

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

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TABLE OF CONTENTS

PROPOSAL ONE APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION		1
	Summary	1
	Comparison of Fund Expenses	2
	Comparison of Fund Investment Objectives, Policies and Risks	6
	Comparison of Fund Performance	16
	Comparison of Operations	25
	Information About the Reorganizations	28
	Capitalization	31
	Shareholder Rights	32
PROPOSAL TWO APPROVAL OF A DEFINITIVE INVESTMENT ADVISORY AGREEMENT WITH WRIMCO		36
	Background	36
	The Interim Investment Advisory Agreement	36
	The Definitive Investment Advisory Agreement	36
	Additional Information About WRIMCO	38
	Board Considerations	39
INFORMATION ABOUT THE W&R FUNDS AND THE ADVANTUS FUNDS		40
	W&R Funds	40
	Advantus Funds	40
VOTING INFORMATION		41
	General Information	41
	Voting Rights and Required Vote	41
	Record Date and Outstanding Shares	42
	Security Ownership of Certain Beneficial Owners and Management	42
	Other Business	42
	Shareholder Proposals	42
	Board Recommendations	42
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION		A-1
APPENDIX B DEFINITIVE INVESTMENT ADVISORY AGREEMENT		B-1
APPENDIX C W&R TARGET FUNDS MANAGER DISCUSSIONS		C-1
APPENDIX D W&R TARGET FUNDS PROSPECTUS		D-1
APPENDIX E W&R TARGET FUNDS PROSPECTUS FOR INTERNATIONAL II, SMALL COMPANY VALUE AND MICRO-CAP GROWTH PORTFOLIOS		E-1

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PROPOSAL ONE

APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION

Summary

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

About the Proposed Reorganization

      The Board of Directors of Advantus Series Fund has voted to recommend approval of the Reorganization Plan to the shareholders of each Advantus Fund. The Reorganization Plan provides that each Advantus Fund will transfer all of its assets and liabilities to the corresponding W&R Fund listed opposite its name in the following chart:

Advantus Fund	W&R Fund
Advantus Asset Allocation Portfolio	W&R Balanced Portfolio
Advantus Capital Appreciation Portfolio	W&R Growth Portfolio
Advantus Growth Portfolio	W&R Growth Portfolio
Advantus Core Equity Portfolio	W&R Core Equity Portfolio
Advantus Value Stock Portfolio	W&R Value Portfolio
Advantus Small Company Growth Portfolio	W&R Small Cap Portfolio
Advantus International Stock Portfolio	W&R International II Portfolio*
Advantus Small Company Value Portfolio	W&R Small Company Value Portfolio*
Advantus Micro-Cap Growth Portfolio	W&R Micro-Cap Growth Portfolio*

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

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

      As a result of the Reorganizations, Beneficial Owners of an Advantus Fund will become Beneficial Owners of the corresponding W&R Fund. Beneficial Owners of each Advantus Fund will vote separately on the Reorganization of their Fund, with each Reorganization separate and distinct from the other. The Reorganization of each Advantus Fund is not contingent upon the Reorganization of any other Advantus Fund.

      The Reorganization of each Fund is intended to qualify as a tax-free reorganization for federal income tax purposes. If it so qualifies, neither the Advantus Funds nor the insurance companies or separate accounts holding Advantus Fund shares will recognize taxable gain or loss as a result of the Reorganizations. Generally, neither shareholders nor Beneficial Owners will incur capital gains or losses on

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the exchange of W&R Fund shares for Advantus Fund shares. Furthermore, the cost basis of each investment will remain the same.

Advantus Series Fund and W&R Target Funds

      Advantus Series Fund, Inc., which was organized as a Minnesota corporation on February 22, 1985, is an open-end management investment company consisting of various investment portfolios or series, each of which is a separate mutual fund. Each of the Advantus Funds is a series of the Advantus Series Fund.

      W&R Target Funds, Inc., which was organized as a Maryland corporation on December 2, 1986, also is an open-end management investment company consisting of various investment portfolios or series. Each of the W&R Funds is a series of W&R Target Funds.

      The investment objectives and strategies of each Advantus Fund are similar to those of its corresponding W&R Fund. Both the Advantus Funds and the W&R Funds offer a single class of shares only to the separate accounts of insurance companies to fund variable life insurance policies and variable annuity contracts issued by those companies. The shares of both the Advantus Funds and the W&R Funds are offered without a front-end or contingent deferred sales charge. Shares of both the Advantus Funds and the W&R Funds are subject to Rule 12b-1 fees equal, on an annual basis, to .25% of average net assets.

Comparison of Fund Expenses

      The Advantus Funds and the W&R Funds, like all mutual funds, incur certain expenses in their operations and shareholders pay these expenses indirectly. These expenses include management fees as well as the costs of maintaining accounts, administration, and other activities. The following tables (a) compare the fees and expenses as of December 31, 2002 for each Advantus Fund and its corresponding W&R Fund (except for the newly formed W&R Funds, W&R International II Portfolio, W&R Micro-Cap Growth Portfolio and W&R Small Company Value Portfolio, which were not in existence on that date) and (b) show the estimated fees and expenses for the W&R Funds on a pro forma basis as of that date after giving effect to the Reorganization. The tables do not reflect the fees and expenses associated with the variable annuity and variable life insurance contracts for which the Advantus Funds and the W&R Funds serve as investment vehicles.

Annual Fund Operating Expenses (As a Percentage of Average Net Assets)

For the Fiscal Year Ended December 31, 2002 (Unaudited)

							W&R Balanced
	W&R			Advantus Asset			Estimated
Annual Fund Operating Expenses	Balanced			Allocation			Combined
Fees Paid Directly From Your Investment
Management Fees		0.70	%		0.35	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.06	%		0.05	%		0.04	%
Total Annual Operating Expenses		1.01	%		0.65	%		0.99	%

				Advantus						W&R Growth
	W&R			Capital			Advantus			Estimated
Annual Fund Operating Expenses	Growth			Appreciation			Growth			Combined
Fees Paid Directly From Your Investment
Management Fees		0.70	%		0.50	%		0.45	%		0.69	%(1)
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%		0.25	%
Other Expenses		0.04	%		0.08	%		0.06	%		0.04	%
Total Annual Operating Expenses		0.99	%		0.83	%		0.76	%		0.98	%(2)

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(1)	If only Advantus Capital Appreciation or Advantus Growth completed its reorganization into W&R Growth, this “Management Fees” figure would change to 0.70%.
(2)	If only Advantus Capital Appreciation or Advantus Growth completed its reorganization into W&R Growth, this “Total Annual Operating Expenses” figure would change to 0.99%.

							W&R Core
	W&R Core			Advantus Core			Equity Estimated
Annual Fund Operating Expenses	Equity			Equity(1)			Combined
Fees Paid Directly From Your Investment
Management Fees		0.70	%		0.50	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.04	%		0.51	%		0.04	%
Total Annual Operating Expenses		0.99	%		1.26	%		0.99	%

(1)  Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.32% of the average net assets of Advantus Core Equity Portfolio. After such absorption, the ratio of total operating expenses to average net assets is 1.07%. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

							W&R Value
				Advantus Value			Estimated
Annual Fund Operating Expenses	W&R Value			Stock			Combined
Fees Paid Directly From Your Investment
Management Fees		0.70	%		0.50	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.09	%		0.08	%		0.05	%
Total Annual Operating Expenses		1.04	%		0.83	%		1.00	%

				Advantus Small			W&R Small Cap
	W&R			Company			Estimated
Annual Fund Operating Expenses	Small Cap			Growth			Combined
Fees Paid Directly From Your Investment
Management Fees		0.85	%		0.65	%		0.85	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.09	%		0.08	%		0.05	%
Total Annual Operating Expenses		1.15	%		0.98	%		1.15	%

							W&R
				Advantus			International II
	W&R			International			Estimated
Annual Fund Operating Expenses	International II(1)			Stock			Combined
Fees Paid Directly From Your Investment
Management Fees		0.85	%		0.60	%		0.85	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.09	%		0.14	%		0.09	%
Total Annual Operating Expenses		1.19	%		0.99	%		1.19	%

(1)  This is a newly organized shell W&R Fund. The management fees are the fees payable by the W&R Fund pursuant to the investment management agreement approved by the W&R Target Funds Board of Directors, including a majority of the disinterested directors, at a special meeting held by telephone on June 24, 2003, subject to re-approval by the W&R Target Funds Board of Directors, and at least a majority of the disinterested directors, at the regular, in-person meeting scheduled for August 20,

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2003. Since the June Board meeting no circumstances have arisen, and no circumstances are anticipated to arise, that would be likely to result in the failure of the investment management agreement to receive re-approval by the Board and by a majority of the disinterested directors at the August Board meeting. “Other expenses” for the shell W&R Fund are estimated, since it has not yet commenced operations.

							W&R Small Company
	W&R Small			Advantus Small			Value Estimated
Annual Fund Operating Expenses	Company Value(1)			Company Value(2)			Combined
Fees Paid Directly From Your Investment
Management Fees		0.85	%		0.70	%		0.85	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.17	%		0.22	%		0.17	%
Total Annual Operating Expenses		1.27	%		1.17	%		1.27	%

(1)

This is a newly organized shell W&R Fund. The management fees are the fees payable by the W&R Fund pursuant to the investment management agreement approved by the W&R Target Funds Board of Directors, including a majority of the disinterested directors, at a special meeting held by telephone on June 24, 2003, subject to re-approval by the W&R Target Funds Board of Directors, and at least a majority of the disinterested directors, at the regular, in-person meeting scheduled for August 20, 2003. Since the June Board meeting no circumstances have arisen, and no circumstances are anticipated to arise, that would be likely to result in the failure of the investment management agreement to receive re- approval by the Board and by a majority of the disinterested directors at the August Board meeting. “Other expenses” for the shell W&R Fund are estimated, since it has not yet commenced operations.

(2)

Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.15% of the average net assets of Advantus Small Company Value Portfolio. After such absorption, the ratio of total operating expenses to average net assets is 1.10%. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

							W&R Micro-Cap
	W&R Micro-Cap			Advantus Micro-Cap			Growth Estimated
Annual Fund Operating Expenses	Growth(1)			Growth(2)			Combined
Fees Paid Directly From Your Investment
Management Fees		0.95	%		0.95	%		0.95	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		0.25	%
Other Expenses		0.14	%		0.25	%		0.14	%
Total Annual Operating Expenses		1.34	%		1.45	%		1.34	%

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(1)

This is a newly organized shell W&R Fund. The management fees are the fees payable by the W&R Fund pursuant to the investment management agreement approved by the W&R Target Funds Board of Directors, including a majority of the disinterested directors, at a special meeting held by telephone on June 24, 2003, subject to re-approval by the W&R Target Funds Board of Directors, and at least a majority of the disinterested directors, at the regular, in-person meeting scheduled for August 20, 2003. Since the June Board meeting no circumstances have arisen, and no circumstances are anticipated to arise, that would be likely to result in the failure of the investment management agreement to receive re- approval by the Board and by a majority of the disinterested directors at the August Board meeting. “Other expenses” for the shell W&R Fund are estimated, since it has not yet commenced operations.

(2)

Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.14% of the average net assets of Advantus Micro-Cap Growth Portfolio. After such absorption, the ratio of total operating expenses to average net assets is 1.34%. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

Examples

      The following examples help you compare the cost of investing in each Advantus Fund with the cost of investing in other mutual funds by showing what your costs may be over time. It uses the same assumptions that other funds use in their prospectuses:

•  $10,000 initial investment

•  5% return for each year

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

•  redemption after the end of each period

•  reinvestment of all dividends and distributions

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

Fund	1 Year		3 Years		5 Years		10 Years
W&R Balanced Portfolio	$	103	$	322	$	558	$	1,236
Advantus Asset Allocation Portfolio		66		208		362		810
Pro Forma Combined		101		315		547		1,213

Fund	1 Year		3 Years		5 Years		10 Years
W&R Growth Portfolio (Fund A)	$	101	$	315	$	547	$	1,213
Advantus Capital Appreciation Portfolio (Fund B)		85		265		460		1,025
Advantus Growth Portfolio (Fund C)		78		243		422		942
Pro Forma Combined Fund A + Fund B + Fund C		100		312		542		1,201
Pro Forma Combined Fund A + Fund B		101		315		547		1213
Pro Forma Combined Fund A + Fund C		101		315		547		1213

Fund	1 Year		3 Years		5 Years		10 Years
W&R Core Equity Portfolio	$	101	$	315	$	547	$	1,213
Advantus Core Equity Portfolio		128		400		692		1,523
Pro Forma Combined		101		315		547		1,213

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Fund	1 Year		3 Years		5 Years		10 Years
W&R Value Portfolio	$	106	$	331	$	574	$	1,271
Advantus Value Stock Portfolio		85		265		460		1,025
Pro Forma Combined		102		318		552		1,225

Fund	1 Year		3 Years		5 Years		10 Years
W&R Small Cap Portfolio	$	117	$	365	$	633	$	1,398
Advantus Small Company Growth Portfolio		100		312		542		1,201
Pro Forma Combined		117		365		633		1,398

Fund	1 Year		3 Years		5 Years		10 Years
W&R International II Portfolio	$	121	$	378	$	654	$	1,443
Advantus International Stock Portfolio		101		315		547		1,213
Pro Forma Combined		121		378		654		1,443

Fund	1 Year		3 Years		5 Years		10 Years
W&R Small Company Value Portfolio	$	129	$	403	$	697	$	1,534
Advantus Small Company Value Portfolio		119		372		644		1,420
Pro Forma Combined		129		403		697		1,534

Fund	1 Year		3 Years		5 Years		10 Years
W&R Micro-Cap Growth Portfolio	$	136	$	425	$	734	$	1,613
Advantus Micro-Cap Growth Portfolio		148		459		792		1,735
Pro Forma Combined		136		425		734		1,613

Comparison of Fund Investment Objectives, Strategies and Risks

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

      Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio have been managed by WRIMCO since May 1, 2003 using investment strategies that are substantially identical to those used by WRIMCO in managing the corresponding W&R Funds into which these Advantus Funds will be reorganized. In addition, the current sub-advisers for Advantus International Stock Portfolio, Advantus Small Company Value Portfolio and Advantus Micro-Cap Growth Portfolio will act as sub-advisers for the corresponding W&R Funds following the Reorganizations. As a result, each of these Advantus Funds has investment policies and risks that are substantially similar to those of its corresponding W&R Fund. Advantus Small Company Growth Fund is currently managed by a sub-adviser, but the W&R Fund into which it will be reorganized is managed by WRIMCO. Therefore, although the investment objectives and strategies of the Advantus Small Company Growth Fund and its corresponding W&R Fund are similar, there are some differences.

      Please be aware that this is only a brief discussion. More complete information may be found in the Advantus Funds’ and W&R Funds’ prospectuses

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Advantus Asset Allocation Portfolio/ W&R Balanced Portfolio

Investment Objectives

•  Advantus Asset Allocation Portfolio: As high a level of long-term total rate of return as is consistent with prudent investment risk.

•  W&R Balanced Portfolio: Current income to the extent that, in WRIMCO’s opinion, market and economic conditions permit. As a secondary goal, the Portfolio seeks long-term appreciation of capital.

Investment Strategies

      Advantus Asset Allocation Portfolio and W& R Balanced Portfolio are managed by WRIMCO using the same investment strategies. Each Portfolio invests primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In general, each Portfolio invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Portfolios own common stocks in order to provide possible appreciation of capital and some dividend income. Each Portfolio ordinarily invests at least 25% of its total assets in fixed income securities.

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

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

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

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

Investment Risks

      Because the investment strategies of Advantus Asset Allocation Portfolio and W&R Balanced Portfolio are the same, each Portfolio is subject to the same types of risk. An investment in either Portfolio may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

7

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

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

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

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

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

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

Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio/ W&R Growth Portfolio

Investment Objectives

•  Advantus Capital Appreciation Portfolio: Growth of capital.

•  Advantus Growth Portfolio: Long-term accumulation of capital. Current income is a factor in the selection of securities, but is a secondary objective.

•  W&R Growth Portfolio: Capital growth, with current income as a secondary goal.

Investment Strategies

      Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio and W&R Growth Portfolio are managed by WRIMCO using the same investment strategies. Each Portfolio seeks to achieve its goals by investing primarily in common stocks of U.S. and, to a lesser extent, foreign companies. Generally, a Portfolio may invest in a wide range of marketable securities that, in WRIMCO’s opinion, offer the potential for growth. Each Portfolio typically invests in companies having a market capitalization of at least $1 billion, although they may invest in companies of any size. The Portfolios generally emphasize investments in the faster growing sectors of the economy, such as the technology, healthcare and consumer-oriented sectors.

      In selecting securities for the Portfolios, WRIMCO utilizes a combination of quantitative and fundamental research. Quantitative research focuses on identifying companies with attractive growth, profitability and valuation measures. Fundamental research analyzes a specific company to examine its competitive position within its industry and to determine its growth expectations. A security may be sold when WRIMCO believes the company’s growth and/or profitability characteristics are deteriorating, it no longer maintains a competitive advantage or more attractive opportunities arise.

      When WRIMCO believes that a temporary defensive position is desirable, each Portfolio may invest up to all of its assets in cash or fixed-income securities or in common stocks chosen for their relative stability, rather than for their growth potential. By taking a defensive position, a Portfolio may not achieve its investment objectives.

Investment Risks

      Because the investment strategies of Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio and W&R Balanced Portfolio are the same, each Portfolio is subject to the same types of risk.

8

An investment in any of these Portfolios may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by WRIMCO’s skill in evaluating and selecting securities for the Portfolio.

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

Advantus Core Equity Portfolio/ W&R Core Equity Portfolio

Investment Objectives

•  Advantus Core Equity Portfolio: High total return.

•  W&R Core Equity Portfolio: Capital growth and income.

Investment Strategies

      Advantus Core Equity Portfolio and W&R Core Equity Portfolio are managed by WRIMCO using the same investment strategies. Portfolio seeks to achieve its goal by primarily investing, during normal market conditions, in common stocks of large, high-quality U.S., and to a lesser extent foreign, companies that have the potential for capital appreciation, or that WRIMCO expects to resist market decline, and that are well known, have been consistently profitable and have dominant market positions in their industries. Advantus Core Equity Portfolio will, under normal market conditions, invest at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in equity securities. Although the Portfolios typically invest in large companies, they may invest in securities of any size company.

      WRIMCO attempts to select securities with growth and income possibilities by looking at many factors including a company’s: (1) profitability record; (2) history of improving sales and profits; (3) management; (4) leadership position in its industry; (5) stock price value; and (6) dividend payment history. Generally, in determining whether to sell a security, WRIMCO uses the same type of analysis that it uses in buying securities in order to determine whether the security has ceased to offer the prospect of significant growth potential and/ or continued dividend payments. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

      When WRIMCO believes that a temporary defensive position is desirable, it may take certain steps with respect to all of a Portfolio’s assets, including any one or more of the following: (1) hold cash, commercial paper, certificates of deposit or other short-term investments; (2) invest in debt securities

9

(including short-term U.S. Government securities); and (3) invest in convertible preferred stock. By taking a temporary defensive position a Portfolio may not achieve its investment objectives.

Investment Risks

      Because the investment strategies of Advantus Core Equity Portfolio and W&R Core Equity Portfolio are the same, each Portfolio is subject to the same types of risk. An investment in either Portfolio may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by WRIMCO’s skill in evaluating and selecting securities for the Portfolio.

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

Advantus Value Stock Portfolio/ W&R Value Portfolio

Investment Objectives

•  Advantus Value Stock Portfolio: Long-term accumulation of capital.

•  W&R Value Portfolio: Long-term capital appreciation.

Investment Strategies

      Advantus Value Stock Portfolio and W&R Value Portfolio are managed by WRIMCO using the same investment strategies. Each Portfolio seeks to achieve its goal by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Portfolios seek to invest in stocks that are, in the opinion of WRIMCO, undervalued relative to the true value of the company, and/or are out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Portfolios typically invests in large-cap companies, they may invest in securities of any size company.

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

      WRIMCO utilizes both a top-down (assess the market environment) and a bottom-up (research individual issuers) analysis in its selection process. WRIMCO considers numerous factors in its analysis of issuers and stocks, including the following: (1) intrinsic value of the company not reflected in stock price; (2) historical earnings growth; (3) future expected earnings growth; (4) company’s position in its respective industry; (5) industry conditions; (6) competitive strategy; (7) management capabilities; and (8) free cash flow potential. A Portfolio will typically sell a stock when it reaches an acceptable price, its fundamental factors have changed or it has performed below WRIMCO’s expectations.

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

10

Investment Risks

      Because the investment strategies of Advantus Value Stock Portfolio and W&R Value Portfolio are the same, each Portfolio is subject to the same types of risk. An investment in either Portfolio may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by WRIMCO’s skill in evaluating and selecting securities for the Portfolio.

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

Advantus Small Company Growth Portfolio/ W&R Small Cap Portfolio

Investment Objective

•  Advantus Small Company Growth Portfolio: Long-term accumulation of capital.

•  W&R Small Cap Portfolio: Growth of capital.

Investment Strategies

      Advantus Small Company Growth Portfolio: The Portfolio primarily invests in various types of equity securities of small capitalization growth companies at the time of purchase. The Portfolio primarily invests in common stocks but may also invest in preferred stocks and securities convertible into equity securities. In selecting equity securities, the Portfolio’s investment sub-adviser employs a growth investment style and looks for either developing or older companies in a growth stage or companies providing products or services with a high unit-volume growth rate.

      Under normal market conditions, the Portfolio will invest at least 80% of net assets plus any borrowings for investment purposes (exclusive of collateral received in connection with securities lending) in equity securities of small companies. The Portfolio considers a “small” company to be one whose market capitalization at the time of purchase is within the range of capitalizations of companies in the Russell 2000 Index.

      In selecting equity securities of growth companies for the Portfolio, the Portfolio’s investment sub-adviser looks for: (1) companies still in the developmental stage; (2) older companies that appear to be entering a new stage of growth; and (3) companies providing products or services with a high unit-volume growth rate.

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

      In an attempt to respond to adverse market, economic, political or other conditions, the Portfolio may invest for temporary defensive purposes in various short-term cash and cash equivalent items, or as

11

otherwise described above. When investing for temporary defensive purposes, the Portfolio may not always achieve its investment objective.

      W&R Small Cap Portfolio: W&R Small Cap Portfolio also invests primarily in small capitalization stocks, although it uses a different index than the corresponding Advantus Fund for determining whether a stock is a small capitalization stock. The Portfolio seeks to achieve its goal by investing primarily in common stocks of domestic and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper Inc. Small Cap Category. The Portfolio emphasizes relatively new or unseasoned companies in their early stages of development, or smaller companies positioned in new or emerging industries where there is opportunity for rapid growth. The Portfolio will, under normal market conditions, invest at least 80% of its net assets in small cap stocks.

      In selecting companies, WRIMCO seeks companies whose earnings, it believes, are likely to grow faster than the economy. WRIMCO may look at a number of factors regarding a company, such as: (1) aggressive or creative management; (2) technological or specialized expertise; (3) new or unique products or services; and (4) entry into new or emerging industries.

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

      When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in debt securities (including commercial paper or short-term U.S. Government securities) or preferred stocks, or both. The Portfolio may also invest in more established companies, those with longer operating histories than many small cap companies. By taking a temporary defensive position, the Portfolio may not achieve its investment objective.

Investment Risks

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

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

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by the adviser’s or sub-adviser’s skill in evaluating and selecting securities for the Portfolio.

      W&R Small Cap Portfolio is also subject to the following type of principal risk:

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

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Advantus International Stock Portfolio/ W&R International II Portfolio

Investment Objectives

•  Advantus International Stock Portfolio and W&R International II Portfolio: Long-term capital growth.

Investment Strategies

      Templeton Investment Counsel, LLC (“Templeton”), acts as the sub-adviser for Advantus International Stock Portfolio, and will act as the sub-adviser for W&R International II Portfolio following the Reorganization. As a result, the investment strategies of the Portfolios are substantially identical.

      Each Portfolio primarily invests in equity securities issued by small, mid and large capitalization foreign companies and governmental agencies. The Portfolios may invest in securities of companies or governments in developed foreign markets or in emerging markets. Under normal circumstances, Advantus International Portfolio will maintain investments in at least three foreign countries and W&R International II Portfolio will invest at least 65% of its total assets in issuers of at least three foreign countries. The Portfolios primarily invest in common stock but may also invest in foreign investment-grade debt securities.

      Equity securities generally entitle the holder to participate in a company’s general operating results and include common stock, preferred stock, warrants or rights to purchase such securities. In selecting equity securities for each Portfolio, Templeton performs a company-by-company analysis, rather than focusing on a specific industry or economic sector. Templeton concentrates on the market price of a company relative to its view regarding the company’s long-term earnings potential. Templeton typically also considers a company’s historical value measures, including price/earnings ratios, profit margins and liquidation value.

      Under normal circumstances, Advantus International Stock Portfolio invests at least 80% of its assets (exclusive of collateral received in connection with securities lending) in equity securities of small, mid and large capitalization foreign companies. W&R International II Portfolio invests at least 80% of its net assets (Exclusive of collateral received in connection with securities lending) in equity securities under normal circumstances.

      When the sub-adviser believes that a temporary defensive position is desirable, Advantus International Stock Portfolio may invest in various short term cash and cash equivalent items. W&R International II Portfolio may invest up to all of its assets in debt securities including commercial paper or short-term U.S. Government securities and/or preferred stocks; it may avoid investment in volatile emerging markets and increase investments in more stable, developed countries and industries; it may use forward currency contracts to hedge specific foreign currencies; and it may invest up to all of its assets in domestic securities. By taking a defensive position, a Fund may not achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus International Stock Portfolio and W&R International II Portfolio are substantially identical, each Portfolio is generally subject to the same types of risk. An investment in either Portfolio may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by the sub-adviser’s skill in evaluating and selecting securities for the Portfolio.

Advantus Small Company Value Portfolio/ W&R Small Company Value Portfolio

Investment Objectives

•  Advantus Small Company Value Portfolio and W&R Small Company Value Portfolio: Long-term accumulation of capital.

Investment Strategies

      State Street Research and Management Company (“State Street Research”), acts as the sub-adviser for Advantus Small Company Value Portfolio, and will act as the sub-adviser for W&R Small Company Value Portfolio following the Reorganization. As a result, the investment strategies of the Portfolios are substantially similar.

      Both Portfolios invest primarily in the securities of small capitalization companies. The Advantus Small Company Value Portfolio primarily invests in various types of equity securities of companies whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000® Value Index. The W&R Small Company Value Portfolio invests primarily in various types of equity securities of companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category. The W&R Small Company Value Portfolio will, under normal market conditions, invest at least 80% of its net assets in small capitalization companies. Equity securities in which the Portfolios invest will consist primarily of common stocks, but may also include preferred stock and other securities convertible into equity securities. From time to time, each Portfolio will also invest a lesser portion of its assets in securities of mid and large capitalization companies (i.e., companies with a market capitalization larger than that defined above). Each Portfolio’s purchases of equity securities may include common stocks that are part of initial public offerings.

      In selecting equity securities, State Street Research searches for those companies that appear to be undervalued or trading below their true worth, and examines such features as a company’s financial condition, business prospects, competitive position and business strategy. State Street Research looks for companies that appear likely to come back into favor with investors, for reasons that may include, for example, good prospective earnings, strong management teams or new products or services.

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

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

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Investment Risks

      Because the investment strategies of Advantus Small Company Value Portfolio and W&R Small Company Value Portfolio are substantially identical, each Portfolio is generally subject to the same types of risk. An investment in either Portfolio may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

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

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by State Street Research’s skill in evaluating and selecting securities for the Portfolio.

Advantus Micro-Cap Growth Portfolio/ W&R Micro-Cap Growth Portfolio

Investment Objectives

•  Advantus Micro-Cap Growth Portfolio and W&R Micro-Cap Growth Portfolio: Long-term capital appreciation.

Investment Strategies

      Wall Street Associates acts as the sub-adviser for Advantus Micro-Cap Growth Portfolio, and will act as the sub-adviser for W&R Micro-Cap Growth Portfolio following the Reorganizations. As a result, the investment strategies of the Portfolios are substantially similar.

      Both Portfolios invest primarily in equity securities of micro-cap companies. The Advantus Portfolio invests primarily in equity securities of companies with a market capitalization of less than $300 million at the time of purchase. The W&R Portfolio invests primarily in equity securities of companies whose market capitalizations are within the range of capitalizations of companies included in the Russell 2000 Growth Index at the time of purchase. The Portfolios primarily invest in common stock but may also invest in preferred stock and securities convertible into equity securities. Each Portfolio’s purchases of equity securities may include common stocks that are part of initial public offerings. In selecting equity securities, the Portfolios invest in securities that Wall Street Associates believes show sustainable earnings growth potential and improving profitability.

      Under normal circumstances, the Advantus Portfolio will invest at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in common stocks of companies which are micro-cap companies at the time of purchase. Similarly, the W&R Portfolio will invest at least 80% of its net assets in micro-cap companies. From time to time, each Portfolio may also invest a lesser portion of its assets in securities of larger capitalization companies.

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      In selecting equity securities for the Portfolios, Wall Street Associates primarily looks to an investment’s potential for sustainable earnings growth and improving profitability. In selecting securities with earnings growth potential, Wall Street Associates considers factors such as a company’s competitive market position, quality of management, growth strategy, internal operating trends (such as profit margins, cash flows and earnings and revenue growth), overall financial condition, and ability to sustain current rate of growth. In seeking to achieve their investment objectives, the Portfolios may also invest in equity securities of companies that Wall Street Associates believes are temporarily undervalued or show promise of improved results due to new management, products, markets or other factors.

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

Investment Risks

      Because the investment strategies of Advantus Micro-Cap Growth Portfolio and W&R Micro-Cap Growth Portfolio are substantially identical, each Portfolio is generally subject to the same types of risk. An investment in either Portfolio may result in the loss of money, and may also be subject to various risks including the following principal risks:

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

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

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

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

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

•  Manager Risk — the Portfolio’s performance will be affected by Wall Street Associates’ skill in evaluating and selecting securities for the Portfolio.

Comparison of Fund Performance

      The bar charts and tables below compare the potential risks and rewards of investing in the Advantus Funds and the W&R Funds. Each bar chart provides an indication of the risks of investing in the respective Fund by showing changes in the Fund’s performance from year to year for the last ten years or since the Fund’s inception. The tables show how each Fund’s average annual total returns for one year, five years and ten years (or since inception) compare to the returns of a broad-based market index. Comparative performance information is only given for Reorganizations in which an Advantus Fund is being acquired by an existing (rather than a newly formed) W&R Fund. The performance of the Funds and the indices varies over time, and past performance is not necessarily indicative of future results. The Funds’ returns assume reinvestment of dividends and distributions and reflect Fund expenses. They do not, however, reflect charges and expenses deducted by your particular variable insurance contract or retirement plan, which would lower performance. Total returns for the indices do not reflect expenses. The indices are

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unmanaged and it is not possible to invest directly in an index. Please note that the average annual total return since a Fund’s inception is given only for those Funds that have been in existence for less than ten calendar years.

Advantus Asset Allocation Portfolio/ W&R Balanced Portfolio

Advantus Asset Allocation Portfolio

Best Quarter:	15.03% (quarter ended 12/31/98)
Worst Quarter:	-16.94% (quarter ended 3/31/01)

W & R Balanced Portfolio

Best Quarter:	9.64% (quarter ended 9/30/97)
Worst Quarter:	-8.36% (quarter ended 9/30/02)

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Average Annual Total Returns as of December 31, 2002

										Since
Fund	1 Year			5 Years			10 Years			Inception(1)
Advantus Asset Allocation Portfolio		(8.98	)%		(0.11	)%		5.74	%		N/A
W&R Balanced Portfolio		(8.41	)%		2.01	%		N/A			7.02	%
S&P 500 Index(2)(3)		(22.10	)%		(0.59	)%		9.33	%		9.96	%
Lehman Brothers Aggregate Bond Index(2)		10.27	%		7.54	%		7.51	%		8.02	%
Blended Index(2)		(9.80	)%		3.10	%		8.93	%		9.56	%
Citigroup Treasury/ Government Sponsored/ Credit Index(3)		10.81	%		7.61	%		N/A	(4)		8.02	%

(1)	As of May 3, 1994 (the portfolio’s inception date) for W&R Balanced Portfolio.
(2)	Benchmark indices for Advantus Asset Allocation Portfolio. The Blended Index is comprised of 60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond Index.
(3)	Benchmark indices for W&R Balanced Portfolio.
(4)	This benchmark index has not been in existence for 10 years.

Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio/ W&R Growth Portfolio

Advantus Capital Appreciation Portfolio

Best Quarter:	29.80% (quarter ended 12/31/99)
Worst Quarter:	-22.97% (quarter ended 9/30/01)

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Advantus Growth Portfolio

Best Quarter:	21.62% (quarter ended 12/31/98)
Worst Quarter:	-25.46% (quarter ended 3/31/01)

W & R Growth Portfolio

Best Quarter:	16.54% (quarter ended 6/30/95)
Worst Quarter:	-16.39% (quarter ended 9/30/02)

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Average Annual Total Returns as of December 31, 2002

Fund	1 Year			5 Years			10 Years
Advantus Capital Appreciation Portfolio		(31.54	)%		(5.92	)%		4.42	%
Advantus Growth Portfolio		(25.44	)%		(5.80	)%		4.28	%
W&R Growth Portfolio		(21.30	)%		3.18	%		9.95	%
S&P 500 Index(1)		(22.10	)%		(0.59	)%		9.33	%
Russell 1000 Growth Index(2)		(27.89	)%		(3.84	)%		6.71	%

(1)	The benchmark index for Advantus Capital Appreciation Portfolio and W&R Growth Portfolio.
(2)	The benchmark index for Advantus Growth Portfolio.

Advantus Core Equity Portfolio/ W&R Core Equity Portfolio

Advantus Core Equity Portfolio

Best Quarter:	20.98% (quarter ended 12/31/98)
Worst Quarter:	-18.17% (quarter ended 9/30/02)

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W & R Core Equity Portfolio

Best Quarter:	16.54% (quarter ended 6/30/95)
Worst Quarter:	-16.40% (quarter ended 9/30/02)

Average Annual Total Returns as of December 31, 2002

										Since Inception
Fund	1 Year			5 Years			10 Years			Advantus Fund(1)
Advantus Core Equity Portfolio		(28.14	)%		(4.17	)%		N/A			(4.40	)%
W&R Core Equity Portfolio		(21.63	)%		(0.13	)%		8.64	%		N/A
S&P 500 Index(2)		(22.10	)%		(0.59	)%		9.34	%		0.01	%

(1)	October 15, 1997.
(2)	The benchmark index for Advantus Core Equity Portfolio and W&R Core Equity Portfolio

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Advantus Value Stock Portfolio/ W&R Value Portfolio

Advantus Value Stock Portfolio

Best Quarter: 15.18% (quarter ended 12/31/98)

Worst Quarter: -18.44% (quarter ended 9/30/02)

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W & R Value Portfolio

Best Quarter: 7.41% (quarter ended 12/31/02)

Worst Quarter: -12.95% (quarter ended 9/30/02)

Average Annual Total Returns as of December 31, 2002

							Since Inception			Since Inception
Fund	1 Year			5 Years			Advantus Fund(1)			W&R Fund(2)
Advantus Value Stock Portfolio		(15.32	)%		(5.31	)%		6.16	%		N/A	%
W&R Value Portfolio		(12.70	)%		N/A	%		N/A	%		(6.70	)%
Russell 1000 Value Index(3)		(15.52	)%		1.16	%		10.74	%		(12.03	)%

(1)	May 2, 1994
(2)	May 1, 2001
(3)	The benchmark index for Advantus Value Stock Portfolio and W&R Value Portfolio.

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Advantus Small Company Growth Portfolio/ W&R Small Cap Portfolio

Advantus Small Company Growth Portfolio

Best Quarter:   45.45% (quarter ended 12/31/99)

Worst Quarter: -27.87% (quarter ended 9/30/98)

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W & R Small Cap Portfolio

Best Quarter:   38.46% (quarter ended 12/31/99)

Worst Quarter: -21.73% (quarter ended 9/30/01)

Average Annual Total Returns as of December 31, 2002

							Since Inception			Since Inception
Fund	1 Year			5 Years			Advantus Fund(1)			W&R Fund(2)
Advantus Small Company Growth Portfolio		(31.80	)%		(5.31	)%		3.82	%		N/A
W&R Small Cap Portfolio		(21.79	)%		2.56	%		N/A			11.61	%
Russell 2000 Growth Index(3)		(30.26	)%		(6.59	)%		3.28	%		2.00	%

(1)	May 3, 1993
(2)	May 3, 1994
(3)	The benchmark index for Advantus Small Company Growth Portfolio and W&R Small Cap Portfolio.

Comparison of Operations

Investment Advisers and Sub-Advisers

      WRIMCO is the investment adviser to the W&R Funds. As of May 1, 2003, WRIMCO began serving as investment adviser to the Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio. WRIMCO is an indirect wholly owned subsidiary of Waddell & Reed Financial, Inc. (“W&R”), a publicly held company. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

      WRIMCO and its predecessor have served as investment manager to each of the registered investment companies in the Waddell & Reed Advisors Funds, W&R Target Funds, Inc., W&R Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. since 1940 or each company’s inception date, whichever is later.

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      Prior to May 1, 2003, Advantus Capital had been the investment adviser to all of the Advantus Funds. Advantus Capital had acted in that capacity since May 1, 1997. Prior to that, the Advantus Funds had obtained advisory services from MIMLIC Asset Management Company, formerly the parent company of Advantus Capital. Advantus Capital continues to serve as investment adviser to the Advantus Small Company Growth Portfolio, Advantus International Stock Portfolio, Advantus Small Company Value Portfolio and Advantus Micro-Cap Growth Portfolio. Advantus Capital will serve as investment adviser to these funds until the Closing Date of the Reorganizations. The address of Advantus Capital is 400 Robert Street North, St. Paul, Minnesota 55101.

      Credit Suisse Asset Management, LLC (“CSAM”) serves as investment sub-adviser to the Advantus Small Company Growth Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. In connection with the Reorganization, CSAM will be terminated as sub-adviser to the Advantus Small Company Growth Portfolio.

      Templeton Investment Counsel, LLC (“Templeton”) serves as investment sub-adviser to the Advantus International Stock Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. Templeton will act as the sub-adviser to the corresponding W&R Fund after the Reorganization.

      Wall Street Associates serves as investment sub-adviser to the Advantus Micro-Cap Growth Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. Wall Street Associates will act as the sub-adviser to the corresponding W&R Fund after the Reorganization.

      State Street Research & Management Company (“State Street Research”) serves as investment sub-adviser to the Advantus Small Company Value Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. State Street Research will act as the sub-adviser to the corresponding W&R Fund after the Reorganization.

Portfolio Managers

      The same individuals who currently are primarily responsible for the day-to-day management of an Advantus Fund will also be responsible for the day-to-day management of the corresponding W&R Fund, except in the case of the reorganization of the Advantus Small Company Growth Portfolio into the W&R Small Cap Portfolio. Grant P. Sarris is primarily responsible for the management of the W&R Small Cap Portfolio. Mr. Sarris has held his responsibilities for W&R Small Cap Portfolio since February 1999. He is Senior Vice President of WRIMCO, Vice President of W&R Target Funds and Vice President of other investment companies for which WRIMCO serves as investment manager. Mr. Sarris served as an investment analyst with WRIMCO and its predecessor from October 1991 to January 1996. From January 1996 to May 1998, Mr. Sarris served as an assistant portfolio manager for WRIMCO and since May 1998 he has served as a portfolio manager. Mr. Sarris has been an employee of WRIMCO and its predecessor since October 1991.

Other Service Providers

Distributor

      Securian Financial Services, Inc. (“Securian”), an affiliate of Advantus Capital, is the principal distributor of the Advantus Funds. The Advantus Funds have adopted a Rule 12b-1 Distribution Plan under which each Fund pays distribution fees equal to .25% per annum of the average daily net assets of the Fund. These fees are paid to Securian to pay for distribution related expenses and activities in connection with the distribution of the Funds’ shares. The address of Securian is 400 Robert Street North, St. Paul, Minnesota 55101.

      Waddell & Reed, Inc. (“WRI”), an affiliate of WRIMCO and W&R, is the distributor of the insurance policies for which the W&R Funds are the underlying investment vehicles. The W&R Funds have a adopted a Rule 12b-1 Service Plan under which each W&R Fund may pay a daily fee to WRI in an amount not to exceed .25% of the Fund’s average annual net assets, to compensate WRI for amounts it

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expends in connection with the provision of personal services to policy owners. The address of WRI is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

Administrative and Accounting Services

      Advantus Series Fund has entered into an agreement with Minnesota Life Insurance Company (“Minnesota Life”) under which Minnesota Life provides accounting oversight, financial reporting, legal and other administrative services to the Advantus Funds. Advantus Series Fund has also entered into separate agreements with State Street Bank and Trust Company under which State Street provides daily accounting and investment administration services for the Funds. Minnesota Life oversees State Street’s performance of these services.

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

Custodial and Auditing Services

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

Buying, Selling and Exchanging Shares

      Neither Advantus Fund shares nor W&R Fund shares are offered directly to the public. Shares of both the Advantus Funds and the W&R Funds are offered to the separate accounts of insurance companies as investment options for certain variable life insurance policies and variable annuity contracts issued by those companies. Orders to purchase and redeem shares are based on, among other things, the amount of premium payments to be invested and the number of surrender and transfer requests to be effected on any day according to the terms of the variable life insurance policies and variable annuity contracts. In the case of both the Advantus Funds and the W&R Funds, shares of a Fund are sold at their net asset value (NAV) next determined after receipt of the order to purchase from the insurance company. No sales charge is required to be paid by the insurance company in connection with the purchase of either Advantus Fund or W&R Fund shares.

      Redemptions of both the Advantus Funds and the W&R Funds are made at the NAV per share of the Fund next determined after receipt of the request to redeem from the insurance company. Neither the Advantus Funds nor the W&R Funds charge a fee to shareholders upon the redemption of Fund shares.

      Owners of variable life insurance policies and variable annuity contracts may exchange shares only among those Funds which are indicated in the respective variable contract prospectus.

Net Asset Value

      NAV is generally calculated for both the Advantus Funds and the W&R Funds as of the close of normal trading on the New York Stock Exchange (“NYSE”) (typically 3:00 p.m. Central time), except that an option or futures contract held by a Portfolio may be priced at the close of the regular session of any other securities or commodities exchange on which that instrument is traded. In calculating the NAV per share of each Advantus Fund and each W&R Fund:

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

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

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

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

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

Dividend Policies

      Both the Advantus Funds and the W&R Funds distribute substantially all of their net investment income and net capital gains each year. Dividends and net capital gains distributions, if any, are generally paid once a year. Distributions are reinvested in additional Advantus Fund or W&R Fund shares, as the case may be. Distributions of these additional shares are made at the NAV as of the payment date. For the W&R Funds and the Advantus Funds, ordinarily, dividends are paid on shares starting on the day after they are issued and through the day they are redeemed.

      From time to time, the Advantus Funds employ a practice known as “consent dividends.” Under this method of “distributing” income, the shareholders of the Advantus Funds consent to treat specified amounts as dividend income for tax purposes even though dividends are not actually paid (either in cash or by reinvestment in additional shares) by the Advantus Funds. The W&R Funds do not employ this practice.

Information About the Reorganizations

Board Considerations

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

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

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

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•  information on W&R’s operations;

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

•  information regarding WRIMCO’s investment management process;

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

•  profitability information.

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

      The Board of Directors gave preliminary approval to the Reorganizations at its meeting held April 23, 2003, subject to, among other things, its discussions with independent directors of the W&R Target Funds and the Board’s review and approval of the Reorganization Plan. The directors met telephonically with certain independent directors of W&R Target Funds and other funds in the W&R fund family. At a meeting held June 25, 2003, the Board of Directors determined that the Reorganizations are in the best interests of the respective Advantus Funds and their shareholders and that the interests of the Advantus Funds will not be diluted as a result of the reorganizations. Therefore, the Board of Directors unanimously approved the Reorganizations and the Reorganization Plan, and recommended their approval by Advantus Fund shareholders. In approving the Reorganizations, the Board determined that participation in the Reorganizations is in the best interests of each Advantus Fund and that the interests of Advantus Fund shareholders would not be diluted as a result of the Reorganizations. In approving the Reorganization Plan, the Board considered the following factors:

•  The investment objectives and strategies of each Advantus Fund and its corresponding W&R Fund are similar. Thus, the Reorganizations will enable Advantus Fund shareholders to continue their current investment programs without substantial disruption.

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

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

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

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

•  The Board noted that W&R Fund expense ratios are significantly higher than those of the Advantus Funds in most cases due to higher management fees. The Board also noted, however, that the expense structures of the W&R Funds are competitive and within industry norms and that, despite higher expense ratios, the performance of the W&R Funds compared favorably to that of that of the Advantus Funds, and the Board determined that the expected benefits to Advantus Fund shareholders more than outweigh the increased expenses.

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

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

Description of the Reorganizations

      The following summary is qualified in its entirety by reference to the Reorganization Plan in Appendix A. The Reorganization Plan provides for the Reorganizations to occur on or about September 22, 2003.

      The Reorganization Plan provides that all of the assets and liabilities of each Advantus Fund will be transferred to the corresponding W&R Fund on the Closing Date of the Reorganizations. In exchange for the transfer of these assets and liabilities, the W&R Funds will simultaneously issue on the Closing Date of the Reorganizations a number of full and fractional shares of each Advantus Fund to the corresponding Advantus Fund equal in value to the aggregate net asset value of the corresponding Advantus Fund calculated at the Effective Time.

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

      Each of the Advantus Funds is a series of Advantus Series Fund. Under Minnesota law, it is necessary for the shareholders of each Advantus Fund to approve an amendment to the articles of incorporation of Advantus Series Fund in order to effect the Reorganization of that Fund. This is necessary in order to bind all shareholders of the Advantus Fund to the Reorganization and, in particular, to bind them to the cancellation and retirement of their outstanding Advantus Fund shares. A vote in favor of the Reorganization also will be deemed a vote in favor of the amendment to the articles of incorporation of Advantus Series Fund, Inc. needed to effect the Reorganization. The form of such amendment is included as a schedule to the Reorganization Plan. It is a condition to the consummation of the Reorganization of each of the Advantus Funds that such amendment has been duly filed with the Minnesota Secretary of State. This condition cannot be waived.

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

Costs of the Reorganizations

      Advantus Capital will bear the costs associated with the Advantus Funds’ participation in the Reorganizations, including the following: (a) expenses associated with the preparation and filing of this Proxy Statement/ Prospectus; (b) postage; (c) printing; (d) accounting fees; (e) legal fees incurred by each Fund (including fees of counsel to the Independent Board Members); (f) solicitation costs; (g) fees payable to the Independent Board Members for participation in any special meetings relating to the

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Reorganizations; and (h) other related administrative or operational costs. The Funds will not pay any of these expenses. The Advantus Funds will pay brokerage costs of any necessary rebalancing of their investment portfolios prior to the effective date of the Reorganizations, and the W&R Funds will pay the registration fees incurred in connection with issuing shares in the Reorganizations.

Federal Income Taxes

      Each Reorganization is intended to qualify for U.S. federal income tax purposes as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If it so qualifies, neither the Advantus Funds nor their shareholders will recognize taxable gain or loss as a result of the Reorganizations; the tax basis of the W&R Fund shares received by shareholders will be the same in the aggregate as the basis of the Advantus Fund shares exchanged; and the holding period of the W&R Fund shares received will include the holding period of the Advantus Fund shares exchanged, provided that the shares exchanged were held as capital assets at the time of the Reorganizations. As a condition to the closing of the Reorganizations, the W&R Target Funds and the Advantus Series Fund will receive a tax opinion to that effect. No tax ruling from the Internal Revenue Service regarding the Reorganizations has been requested. The tax opinion is not binding on the Internal Revenue Service or a court and does not preclude the Internal Revenue Service from asserting or adopting a contrary position.

      The Advantus Funds will continue their investment operations while the Reorganizations are pending. Accordingly, they may realize taxable income and gains, which may have to be distributed to shareholders under the tax rules relating to mutual funds. After the closing, the W&R Funds may dispose of certain securities received from the corresponding Advantus Funds. These sales may result in transaction costs, and in capital gains (or losses) which may have to be distributed to shareholders. However, such income and capital gains distributions should not have any tax consequences to underlying Beneficial Owners.

Capitalization

      The following table sets forth, as of May 31, 2003, the capitalization of each W&R Fund, the capitalization of each Advantus Fund, and the unaudited pro forma combined capitalization of the W&R Funds assuming the Reorganizations have taken place. The capitalizations are likely to be different on the Closing Date as a result of daily share purchase and redemption activity.

			Net Asset
			Value		Shares
Fund	Net Assets		Per Share		Outstanding
	(Millions)				(Millions)
Advantus Asset Allocation Portfolio	$	384	$	1.4412		267
W&R Balanced Portfolio	$	181	$	6.5100		28
Pro Forma Combined	$	565	$	6.5100		87
Advantus Capital Appreciation Portfolio (Fund A)	$	159	$	1.1975		133
Advantus Growth Portfolio (Fund B)	$	211	$	1.2980		163
W&R Growth Portfolio (Fund C)	$	750	$	7.1895		104
Pro Forma Combined Fund A + Fund C	$	909	$	7.1895		126
Pro Forma Combined Fund B + Fund C	$	961	$	7.1895		134
Pro Forma Combined Fund A + Fund B + Fund C	$	1,120	$	7.1895		156
Advantus Core Equity Portfolio	$	21	$	0.7705		27
W&R Core Equity Portfolio	$	663	$	8.5393		78
Pro Forma Combined	$	684	$	8.5393		80
Advantus Value Stock Portfolio	$	119	$	1.3723		87
W&R Value Portfolio	$	88	$	4.6882		19
Pro Forma Combined	$	207	$	4.6882		44
Advantus Small Company Growth Portfolio	$	140	$	0.7769		180
W&R Small Cap Portfolio	$	302	$	7.2423		42
Pro Forma Combined	$	442	$	7.2423		61

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			Net Asset
			Value		Shares
Fund	Net Assets		Per Share		Outstanding
	(Millions)				(Millions)
Advantus International Stock Portfolio	$	239	$	1.2072		198
W&R International II Portfolio	$	0	$	5.0000		0
Pro Forma Combined	$	239	$	5.0000		48
Advantus Small Company Value Portfolio	$	61	$	1.1332		54
W&R Small Company Value Portfolio	$	0	$	5.0000		0
Pro Forma Combined	$	61	$	5.0000		12
Advantus Micro-Cap Growth Portfolio	$	28	$	1.0361		27
W&R Micro-Cap Growth Portfolio	$	0	$	5.0000		0
Pro Forma Combined	$	28	$	5.0000		6

Shareholder Rights

      The following is a summary of the major differences between the governing documents and laws applicable to the Advantus Funds prior to and after the Reorganizations. Except as otherwise noted below, the provisions of Minnesota law and the Articles of Incorporation (the “Advantus Articles”) and Bylaws (the “Advantus Bylaws”) which govern the Advantus Series Fund and the Advantus Funds are substantially similar to the provisions of Maryland law and the Articles of Incorporation and Bylaws (the “W&R Articles” and “W&R Bylaws”) that will govern the Advantus Funds following the Reorganization.

      Shares. The authorized capital of the Advantus Series Fund consists of one trillion shares of capital stock with a par value of $.01 per share; with authorized shares of 100,000,000,000 allocated to each Advantus Fund. The remaining shares may be allocated by the Board of Directors to any new or existing funds. Currently, Advantus Series Fund consists of eighteen separate investment series.

      W&R Target Funds is authorized to issue two billion shares of capital stock, with a par value of $.001 per share, from an unlimited number of series of shares. The Board may change the designation of any W&R Fund and may increase or decrease the numbers of shares of any W&R Fund but may not decrease the number of shares of any W&R Fund below the number of shares then outstanding. Currently, W&R Target Funds consists of fifteen separate investment series.

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

      W&R Target Funds does not hold annual meetings of shareholders; however, certain significant corporate matters, such as the approval of a new investment advisory agreement or a change in a fundamental investment policy, which require shareholder approval, will be presented to shareholders at a meeting called by the Board for such purpose.

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      Quorums. The Advantus Bylaws provide that a majority of the shares outstanding and entitled to vote shall constitute a quorum for the transaction of business at any regular or special meeting. In contrast, the W&R Bylaws provide that the presence in person or by proxy of the holders of record of one-third of the shares of the stock of the W&R Fund issued and outstanding and entitled to vote shall constitutes a quorum at all meetings of the stockholders.

      Number of Directors. The Advantus Articles and Bylaws provide that the initial number of directors of the Advantus Fund shall be five directors. Thereafter, the number of directors may be established by resolution of the shareholders (subject to the authority of the Board of Directors to increase the number of directors as permitted by law). There are currently four directors of Advantus Series Fund. The W&R Articles and Bylaws provide that the initial number of directors shall be twelve directors. Thereafter, the board of directors, by the vote of a majority of the entire Board, may increase the number of directors to a number not exceeding twenty. There are currently twelve directors of W&R Target Funds.

      Removal of Directors. The Advantus Articles and Bylaws provide that a director may be removed with or without cause at any time by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote on the election of directors. The W&R Articles and Bylaws provide that the removal of directors shall be governed by Maryland law, which provides that any director may be removed with or without cause at any meeting of shareholders at which a quorum is present by the affirmative vote of a majority of the votes entitled to be cast generally for the election of directors.

      Shareholder Liability. Minnesota law provides that a shareholder is under no obligation to the corporation or its creditors with respect to his or her shares, except to pay to the corporation the full consideration for which the shares were issued. However, a shareholder who receives a distribution made in violation of Minnesota law is liable to the extent that the distribution received by the shareholder exceeded the amount that could properly have been paid under Minnesota law. Under Maryland law, shareholders who have paid the subscription price for their stock have no personal liability for acts or obligations of the corporation, except to the extent that liability is imposed under any other provision of Maryland law.

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

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

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

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

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

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

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

      Personal Liability of Directors and Officers. The Advantus Articles provide that, to the fullest extent permitted by the Minnesota Business Corporation Act and the Investment Company Act of 1940, a director of an Advantus Fund shall not be liable to the Fund or its shareholders for monetary damages for breach of fiduciary duty as a director. Under Minnesota law, a director may not be excused from personal liability (1) for breach of the director’s duty of loyalty to the Fund or its shareholders, (2) for acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law, (3) for any transaction in which the director derived a personal benefit, or (4) for his or her violation of certain

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Minnesota securities laws or participation or acquiescence in a distribution that was illegal under Minnesota law. Under the 1940 Act, a director or officer may not be excused from personal liability for willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Minnesota law does not permit a corporation to excuse its officers from personal liability for breach of fiduciary duty.

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

      Dissolution. Under Minnesota law, a corporation may be dissolved at a meeting of the shareholders by vote of the majority of the shares entitled to vote. However, this provision is not available to dissolve a separate series of a Minnesota corporation without dissolving the corporation itself, which would be the case if one or more other series of the corporation remained or might remain outstanding after the dissolution of the series in question. Under Maryland law, a W&R Fund may be dissolved, upon submission of a resolution by the majority of the board of directors at a meeting of the shareholders, by the affirmative vote of two-thirds of all the votes entitled to be cast on such resolution.

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

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

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

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PROPOSAL TWO

APPROVAL OF A DEFINITIVE INVESTMENT ADVISORY AGREEMENT WITH WRIMCO

Background

      Proposal Two applies only to Beneficial Owners of the Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio. For purposes of this section of the Proxy Statement/ Prospectus, these Advantus Funds will be referred to as the “Funds.”

      As a result of entering into the Strategic Alliance Agreement and Purchase Agreement, Advantus Capital no longer had the portfolio management resources necessary to manage the Funds. The Board of Directors of the Funds therefore determined that it would be in shareholders’ best interests to appoint WRIMCO to act as the investment adviser to the Funds prior to the Reorganizations, and approved the interim investment advisory agreement between Advantus Series Fund, on behalf of the Funds, and WRIMCO that is described below (the “Interim Agreement”). The Board of Directors also approved, and is recommending that Fund shareholders approve, a definitive investment advisory agreement between Advantus Series Fund, on behalf of each Fund, and WRIMCO (the “Definitive Agreement”). If approved by shareholders, the Definitive Agreement, which is described below, will replace the Interim Agreement and will remain in effect until the Reorganizations.

The Interim Investment Advisory Agreement

      WRIMCO currently acts as investment adviser to the Funds pursuant to an Interim Agreement dated as of May 1, 2003. The Interim Agreement was approved by the Funds’ Board of Directors at a meeting held April 23, 2003. Normally, a mutual fund’s investment advisory agreement also must be approved by the fund’s shareholders in advance of the effective date of such agreement. However, pursuant to Rule 15a-4 under the Investment Company Act of 1940, an investment adviser may serve as the adviser to a mutual fund under an interim contract that has not been approved by shareholders provided the conditions of the rule have been met. As required by Rule 15a-4, the Interim Agreement contains terms substantially identical to those of the investment advisory agreement previously in effect between Advantus Series Fund and Advantus Capital, except for the dates of execution and termination and other non-material changes, and except that advisory fees payable to WRIMCO by each Fund under the Interim Agreement are required to be held in escrow until shareholders of that Fund approve the Definitive Agreement. If shareholders of a Fund do not approve the Definitive Agreement within 150 days of the effective date of the Interim Agreement, WRIMCO will be paid by the Fund the lesser of (i) any costs incurred by WRIMCO in performing the Interim Agreement with respect to that Fund, plus interest on that amount while in escrow, and (ii) the total amount in the escrow account (plus interest earned). The Interim Agreement will remain in effect with respect to a Fund until shareholders of that Fund approve the Definitive Agreement, provided that, as required by Rule 15a-4, each Interim Agreement will automatically terminate on September 27, 2003.

      The Interim Agreement is substantially identical to the Definitive Agreement, which is described below, except for the dates of execution and termination and except that the Definitive Agreement does not require that investment advisory fee payments be held in escrow. Fees payable to WRIMCO under the Interim Agreement and the Definitive Agreement are identical to fees previously payable to Advantus Capital by the Funds.

The Definitive Investment Advisory Agreement

      It is possible that a Fund’s Reorganization will not be approved by shareholders or that, even if such Reorganization is approved, it will not be consummated prior to the automatic termination of the Interim Agreement on September 27, 2003. To avoid the possibility of a Fund being without an investment adviser due to this automatic termination, at a meeting held April 23, 2003, the Funds’ Board of Directors approved the Definitive Agreement, and recommended that shareholders of each Fund approve the

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Definitive Agreement. A form of the Definitive Agreement is included with this Proxy Statement/ Prospectus as Appendix B.

      Under the Definitive Agreement, WRIMCO will act as the investment adviser for, and will manage the affairs, business, and the investment of the assets of the respective Fund. Within the framework of the investment objective and the investment policies and restrictions of a Fund, and subject to the supervision of the Fund’s Board of Directors, WRIMCO will have the sole and exclusive responsibility for the management of the Fund’s portfolio and the making and execution of all investment decisions for the Fund. The Definitive Agreement provides, however, that WRIMCO may, at its own expense, employ one or more sub-advisers or enter into such service agreements as it deems appropriate in connection with the performance of its duties and obligations under the agreement (subject, in the case of any sub-advisory agreement, to the approval of the Board of Directors and shareholders of the Fund as required by the Investment Company Act of 1940).

      The Definitive Agreement provides that WRIMCO will furnish to the Funds office space and all necessary office facilities, equipment and personnel for servicing the investments of the Funds, and will pay the salaries and fees of all officers and directors of the Funds who are affiliated with WRIMCO. Each Fund pays all expenses not expressly assumed by WRIMCO or by the Fund’s distributor under its agreement with Advantus Series.

      The Definitive Agreement will be executed upon or shortly after its approval by shareholders and will terminate automatically in the event of its assignment. In addition, the Definitive Agreement is terminable at any time, without penalty, by the Board of Directors of the Funds or, with respect to any Fund, by vote of a majority of that Fund’s outstanding voting securities on not more than 60 days’ written notice to WRIMCO, and by WRIMCO on 60 days’ written notice to Advantus Series Fund. Unless sooner terminated, the Definitive Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the Funds or by a vote of a majority of each Fund’s outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the definitive advisory agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval.

      The Definitive Agreement provides that each Fund will pay WRIMCO an advisory fee equal on an annual basis to a percentage of the Fund’s average daily net assets as set forth in the following table:

Fund	Advisory Fee (as a Percentage of Average Daily Net Assets)
Advantus Asset Allocation Portfolio	0.35% of assets to $1 billion
	0.30% of assets exceeding $1 billion
Advantus Capital Appreciation Portfolio	0.50% of assets to $1 billion
	0.45% of assets exceeding $1 billion
Advantus Growth Portfolio	0.45% of assets to $1 billion
	0.40% of assets exceeding $1 billion
Advantus Core Equity Portfolio	0.50%
Advantus Value Stock Portfolio	0.50% of assets to $500 million
	0.45% of assets exceeding $500 million to $1 billion
	0.40% of assets exceeding $1 billion

      The Funds did not pay any investment advisory fees or make any other material payments to WRIMCO or its affiliates during the fiscal year ended December 31, 2002. The investment advisory fees

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paid to Advantus Capital by each Fund during such fiscal year under the former investment advisory agreements were as follows:

	Advisory Fees Paid
Fund	to Advantus Capital
Advantus Asset Allocation Portfolio	$	1,488,198
Advantus Capital Appreciation Portfolio	$	965,815
Advantus Growth Portfolio	$	1,090,867
Advantus Core Equity Portfolio	$	115,952	*
Advantus Value Stock Portfolio	$	645,492

*  Before the voluntary absorption of $50,401 in expenses by Advantus Capital.

      The Funds did not pay any commissions to any affiliated brokers during the past fiscal year.

Additional Information About WRIMCO

      The name and principal occupation of the principal executive officer and each director of WRIMCO are set forth below. The address of each such individual is that of WRIMCO and W&R.

Name	Position with WRIMCO	Principal Occupation
Keith A. Tucker	Chairman and Director	Chairman of the Board, Chief Executive Officer and Director of W&R; Chairman of the Board and Director of WRI, WRIMCO and Waddell & Reed Services Company; President, Chairman of the Board, Chief Executive Officer and Director of Waddell & Reed Financial Services, Inc.
Henry J. Herrmann	Director, Chief Investment Officer, President and Chief Executive Officer	President, Chief Investment Officer and Director of W&R; Chairman of the Board, Chief Executive Officer and President of Waddell & Reed Ivy Investment Company; President, Chief Executive Officer and Chief Investment Officer of WRIMCO; Executive Vice President and Chief Investment Officer of Waddell & Reed Financial Services, Inc.; Director of Austin, Calvert and Flavin, Inc., (a WRIMCO subsidiary)
John E. Sundeen, Jr.	Senior Vice President, Treasurer, Director and Principal Financial Officer	Senior Vice President, Chief Financial Officer and Treasurer of Waddell &Reed Financial, Inc.; Senior Vice President and Treasurer of Waddell & Reed, Inc.; Director, Treasurer and Chief Operating Officer of Waddell & Reed Financial Services

      None of the officers or directors of the Advantus Funds are officers, directors or employees of WRIMCO or any of its affiliates.

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      The table below sets forth information regarding mutual funds for which WRIMCO acts as investment adviser that have investment objectives similar to the investment objectives of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio or Advantus Value Stock Portfolio. WRIMCO and Waddell & Reed Ivy Investment Co. (“WRIICO”) have not waived, reduced or otherwise agreed to reduce contractual fees for the funds listed below.

			Approximate
			Net Assets as
		Comparable	of June 24,		Rate of Compensation Payable to WRIMCO or WRIICO (as a
Advantus Portfolio		Portfolio	2003		Percent of Average Daily Net Assets)
	Asset Allocation	W&R Balanced Portfolio	$	185,586,139	0.70% of net assets up to $1 billion
		Waddell & Reed Advisors			0.65% of net assets over $1 billion and up to $2 billion
		Continental Income Fund,   Inc.	$	458,277,280	0.60% of net assets over $2 billion and up to $3 billion
					0.55% of net assets over $3 billion
Capital Appreciation/ Growth		W&R Growth Portfolio	$	760,792,602	0.70% of net assets up to $1 billion
		Waddell & Reed Advisors			0.65% of net assets over $1 billion and up to $2 billion
		Accumulative Fund	$	1,905,949,162	0.60% of net assets over $2 billion and up to $3 billion
		Ivy Large Cap Growth Fund*	$	31,555,051	0.55% of net assets over $3 billion
		(formerly, W&R Funds,   Inc. Large Cap Growth   Fund)
	Core Equity	W&R Core Equity Portfolio	$	669,055,388	0.70% of net assets up to $1 billion
		Waddell & Reed Advisors			0.65% of net assets over $1 billion and up to $2 billion
		Core Investment Fund	$	4,569,382,062	0.60% of net assets over $2 billion and up to $3 billion
		Ivy Core Equity Fund*	$	274,539,920	0.55% of net assets over $3 billion
		(formerly, W&R Funds,   Inc. Core Equity   Fund)
	Value Stock	W&R Value Portfolio	$	90,712,816	0.70% of net assets up to $1 billion
		Waddell & Reed Advisors			0.65% of net assets over $1 billion and up to $2 billion
		Value Fund, Inc.	$	341,291,164	0.60% of net assets over $2 billion and up to $3 billion
					0.55% of net assets over $3 billion
	Small Company Growth	W&R Small Cap Portfolio	$	300,133,411	0.85% of net assets up to $1 billion
		Waddell & Reed Advisors			0.83% of net assets over $1 billion and up to $2 billion
		Small Cap Fund, Inc.	$	686,165,211	0.80% of net assets over $2 billion and up to $3 billion
		Ivy Small Cap Growth Fund*	$	406,356,156	0.76% of net assets over $3 billion
		(formerly, W&R Funds,   Inc. Small Cap Growth   Fund)

*  Funds managed by WRIICO

Board Considerations

      In determining whether to approve the Interim Agreement and the Definitive Agreement, the Board of Directors, including the Independent Directors, considered various materials provided by W&R and Advantus Capital and met with senior representatives of W&R and its affiliates, as described above under “Proposal One — Information About the Reorganizations — Board Considerations.”

      In addition to considering that information, the Board gave weight in the course of its deliberations to the fact that the terms of the Interim Agreement and the Definitive Agreement were substantially identical to those of the investment advisory agreement between Advantus Capital and Advantus Series Fund, as those terms pertain to the Funds, that investment advisory fees paid by each Fund would remain unchanged, and that expense absorptions for Advantus Core Equity Portfolio would continue at their current level until the Portfolio’s reorganization.

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      Based on its review, the Board of Directors approved the Interim Agreement and the Definitive Agreement, concluding, among other things, that the scope and quality of services to be provided under the Interim Agreement and the Definitive Agreement would be at least equivalent to the scope and quality of the services provided under the investment advisory agreement with Advantus Capital, and that the terms of the Interim Agreement and the Definitive Agreement were fair and reasonable and in the best interest of shareholders of the Funds.

      The Board of Directors recommends that the shareholders of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio approve the Definitive Agreement.

INFORMATION ABOUT THE W&R FUNDS AND THE ADVANTUS FUNDS

W&R Funds

      A discussion of the performance of each of the W&R Funds during the fiscal year ended December 31, 2002 (other than W&R International II Portfolio, W&R Small Company Value Portfolio and W&R Micro-Cap Growth Portfolio, which were not yet in existence) is included in this Proxy Statement/ Prospectus as Appendix C.

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

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

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

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

Advantus Funds

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

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

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VOTING INFORMATION

General Information

      This solicitation is being made primarily by the mailing of this Proxy Statement/ Prospectus and the accompanying voting instruction card. Supplementary solicitations may be made by mail, telephone, telegraph, facsimile, electronic means or by personal interview by representatives of Advantus Capital. The cost of preparing, printing and mailing the Proxy Statement/ Prospectus, and all other costs incurred in connection with the solicitation of proxies will be paid by Advantus Capital. Advantus Capital also will reimburse brokerage firms and other financial intermediaries for their reasonable expenses in forwarding solicitation materials to the Beneficial Owners of shares.

Voting Rights and Required Vote

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

      Due to the pass-through voting structure of variable insurance contracts, the insurance companies will vote shares in the separate account(s). However, they are required by law to request voting instructions from Beneficial Owners and must vote shares in the separate account(s) on behalf of the Beneficial Owner(s), including shares for which no instructions have been received, in proportion to the voting instructions received.

      In order for the shareholder meeting to go forward for a Fund, there must be a quorum. This means that at least a majority of that Fund’s shares must be represent at the meeting, either in person or by proxy. Because Minnesota Life holds 100% of the shares of each Advantus Fund, their presence at the meeting in person or by proxy will meet the quorum requirement. If sufficient votes to approve a proposal are not obtained for any Fund, the proxies may propose one or more adjournments of the meeting with respect to that Fund to permit further solicitation of voting instructions. Any adjournment will require a vote in favor of the adjournment by the holders of a majority of the shares present in person or by proxy at the meeting (or any adjournment of the meeting).

      For each Advantus Fund, approval of the Reorganization Plan requires the affirmative vote, in person or by proxy, of a majority of the outstanding shares on the record date. For Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio, approval of the Definitive Agreement requires the affirmative vote of the lesser of (1) 67% of the outstanding shares of that Fund present at the meeting if more than 50% of the shares of the Fund outstanding on the record date are present in person or by proxy or (2) more than 50% of the shares of the Fund outstanding on the record date.

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Record Date and Outstanding Shares

      Only shareholders of record of the Advantus Funds at the close of business on July 25, 2003 are entitled to notice of and to vote at the meeting and any postponement or adjournment thereof. On that date, each Advantus Fund had the following number of shares outstanding and entitled to vote:

	Total Number of
	Shares
Name of Fund	Outstanding
Advantus Asset Allocation Portfolio
Advantus Capital Appreciation Portfolio
Advantus Growth Portfolio
Advantus Core Equity Portfolio
Advantus Value Stock Portfolio
Advantus Small Company Growth Portfolio
Advantus International Stock Portfolio
Advantus Small Company Value Portfolio
Advantus Micro-Cap Growth Portfolio

Security Ownership of Certain Beneficial Owners and Management

      The officers and directors of the Advantus Funds cannot directly own shares of the portfolios without purchasing an insurance contract through a participating insurance company. As a result, as of the record date, the officers and directors of the Advantus Funds as a group beneficially owned less than 1% of the outstanding shares of each Advantus Fund. As of the record date, Minnesota Life owned 100% of the shares of each of the Advantus Funds.

Other Business

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

Shareholder Proposals

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

Board Recommendations

      After carefully considering the issues involved, the Board of Directors of the Advantus Funds has unanimously concluded that the proposed Reorganizations are in the best interests of the shareholders of each Advantus Fund and recommends that you vote to approve the Reorganization Plan. The Board of Directors also recommends that shareholders of Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value

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Stock Portfolio vote to approve the Definitive Agreement. Whether or not you expect to attend the meeting, you are urged to promptly sign, fill in and return the enclosed voting instruction form.

By Order of the Board of Directors,

/s/ MICHAEL J. RADMER

Michael J. Radmer

Secretary

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APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION

      THIS AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is made as of                     , 2003, between W&R Target Funds, Inc., a Maryland corporation (“W&R”), on behalf of each segregated portfolio of assets thereof (“series”) listed on Schedule A to this Agreement (“Schedule A”) (each, an “Acquiring Fund”), and Advantus Series Fund, Inc., a Minnesota corporation (“Advantus”), on behalf of each series thereof listed on Schedule A (each, a “Target Fund”). (Each Acquiring Fund and Target Fund is sometimes referred to herein individually as a “Fund” and collectively as the “Funds,” and W&R and Advantus are sometimes referred to herein individually as an “Investment Company” and collectively as the “Investment Companies.”) All agreements, representations and warranties, actions, and obligations described herein made or to be taken or undertaken by a Fund are made and shall be taken or undertaken by W&R on behalf of each Acquiring Fund and by Advantus on behalf of each Target Fund.

      The Investment Companies wish to effect nine separate reorganizations, each described in section 368(a)(1) of the Internal Revenue Code of 1986, as amended (“Code”), and intend this Agreement to be, and adopt it as, a “plan of reorganization” within the meaning of the regulations under section 368 of the Code (“Regulations”). Each Target Fund and each Acquiring Fund has a single class of shares. Each reorganization will involve the transfer of the assets of a Target Fund to the corresponding Acquiring Fund listed on Schedule A, in exchange solely for shares of common stock of such Acquiring Fund (“Acquiring Fund Shares”) and the assumption by such Acquiring Fund of such Target Fund’s liabilities, followed by the constructive distribution of those shares pro rata to the holders of shares of such Target Fund (“Target Fund Shares”), all on the terms and conditions set forth herein. (All such transactions involving each Target Fund and its corresponding Acquiring Fund are referred to herein as a “Reorganization.”) For convenience, the balance of this Agreement refers only to a single Reorganization, one Acquiring Fund, and one Target Fund, but the provisions of this Agreement shall apply separately to each Reorganization and the Funds participating therein. The consummation of one Reorganization shall not be contingent on the consummation of any other Reorganization.

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

1.     PLAN OF REORGANIZATION

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

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

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

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      1.4.     In order to bind all holders of Target Fund shares to the transactions contemplated hereby, and in particular in order to bind them to the cancellation and retirement of the outstanding Target Fund shares held by them, Advantus shall, prior to the Effective Time, (a) obtain approval pursuant to Minnesota law of an amendment to its Articles of Incorporation substantially in the form attached hereto as Schedule B (“Amendment”), and (b) file the Amendment with the Secretary of State of the State of Minnesota.

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

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

      1.7.     As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.6, Advantus shall wind up the affairs of Target Fund and shall file any required final regulatory reports, including but not limited to any Form N-SAR and Rule 24f-2 filings with respect to Target Fund.

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

2.     VALUATION

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

3.     CLOSING AND EFFECTIVE TIME

      3.1.     The Reorganization, together with related acts necessary to consummate the same (“Closing”), shall occur at the offices of Dorsey & Whitney LLP, 50 South Sixth Street, Minneapolis, Minnesota 55402, on or about                     , 2003, or at such other place and/or on such other date as to which the Investment Companies may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time as to which the Investment Companies may agree (“Effective Time”). If, immediately before the Valuation Time, (a) the

A-2

New York Stock Exchange is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on that exchange or elsewhere is disrupted, so that accurate appraisal of the value of the Assets, the amount of the Liabilities and the NAV of an Acquiring Fund Share is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading has fully resumed and such reporting has been restored.

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

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

      3.4.     Each Investment Company shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipient and dated the Effective Time, to the effect that the representations and warranties it made in this Agreement are true and correct at the Effective Time except as they may be affected by the transactions contemplated by this Agreement.

4.     REPRESENTATIONS AND WARRANTIES

      4.1.     Advantus represents and warrants as follows:

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

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

      4.1.3.     Target Fund is a duly established and designated series of Advantus; and all Target Fund Shares outstanding at the Effective Time will have been duly authorized and duly and validly issued and outstanding shares of Target Fund, fully paid and non-assessable;

      4.1.4.     At the Closing, Target Fund will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and on delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto;

      4.1.5.     Target Fund’s current prospectus and SAI conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (“1933 Act”), and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

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

      4.1.7.     Except as otherwise disclosed in writing to and accepted by W&R, all material contracts and other commitments of or applicable to Target Fund (other than this Agreement and investment contracts, including options, futures, and forward contracts) will be terminated, or provision for discharge of any liabilities of Target Fund thereunder will be made, at or prior to the Effective Time, without either Fund’s incurring any liability or penalty with respect thereto and without diminishing or releasing any rights Target Fund may have had with respect to actions taken or omitted or to be taken by any other party thereto prior to the Closing;

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

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

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

      4.1.11.     No governmental consents, approvals, authorizations, or filings are required under the 1933 Act, the Securities Exchange Act of 1934, as amended (“1934 Act”), the 1940 Act, or applicable state securities laws for the execution or performance of this Agreement by Advantus, except for (a) the filing with the Securities and Exchange Commission (“SEC”) of a registration statement by W&R on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto (“Registration Statement”), including therein a prospectus/proxy statement (“Proxy Statement”), and (b) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time;

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

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      4.1.13.     There are no Liabilities (for purposes of this paragraph, as defined in paragraph 1.3 but excluding “at the Effective Time”) other than Liabilities disclosed or provided for in Advantus’ financial statements referred to in paragraph 4.1.16 and Liabilities incurred by Target Fund in the ordinary course of its business subsequent to December 31, 2002, or otherwise previously disclosed to W&R, none of which has been materially adverse to the business, assets, or results of Target Fund’s operations;

      4.1.14.     Target Fund is a “fund” as defined in section 851(g)(2) of the Code; it qualified for treatment as a regulated investment company under Subchapter M of the Code (“RIC”) for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; the assets of the Target Fund will be invested at all times through the Effective Time in a manner that ensures compliance with the foregoing; and Target Fund has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it;

      4.1.15.     Target Fund’s federal income tax returns, and all applicable state and local tax returns, for all taxable years through and including the taxable year ended December 31, 2001, have been timely filed and all taxes payable pursuant to such returns have been timely paid; and

      4.1.16.     Advantus’ financial statements for the year ended December 31, 2002, as set forth in its annual report on Form N-30D, fairly represent Target Fund’s financial position as of such date and the results of its operations and changes in its net assets for the period then ended.

      4.2.     W&R represents and warrants as follows:

      4.2.1.     W&R is a corporation that is duly organized, validly existing, and in good standing under the laws of the State of Maryland; and its articles of incorporation (“Articles of Incorporation”) are on file with the Secretary of State of the State of Maryland;

      4.2.2.     W&R is duly registered as an open-end management investment company under the 1940 Act, and such registration is in full force and effect;

      4.2.3.     Acquiring Fund is a duly established and designated series of W&R;

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

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

      4.2.6.     Acquiring Fund’s current prospectus and SAI conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

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

      4.2.8.     Except as otherwise disclosed in writing to and accepted by Advantus, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to W&R’s knowledge) threatened against W&R or any of its properties or assets that, if

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adversely determined, would materially and adversely affect Acquiring Fund’s financial condition or the conduct of its business; and W&R knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby;

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

      4.2.10.     No governmental consents, approvals, authorizations, or filings are required under the 1933 Act, the 1934 Act, the 1940 Act, or applicable state securities laws for the execution or performance of this Agreement by W&R, except for (a) the filing with the SEC of the Registration Statement and (b) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time;

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

      4.2.12.     Acquiring Fund is a “fund” as defined in section 851(g)(2) of the Code; it qualified for treatment as a RIC for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M of the Code did not apply to it;

      4.2.13.     Acquiring Fund’s federal income tax returns, and all applicable state and local tax returns, for all taxable years through and including the taxable year ended December 31, 2001, have been timely filed and all taxes payable pursuant to such returns have been timely paid; and

      4.2.14.     W&R’s financial statements for the year ended December 31, 2002, as set forth in its annual report on Form N-30D, fairly represent Acquiring Fund’s financial position as of that date and the results of its operations and changes in its net assets for the year then ended.

      4.3.     Each Investment Company represents and warrants to the other as follows:

      4.3.1.     The fair market value of the Acquiring Fund Shares received by each Shareholder will be approximately equal to the fair market value of its Target Fund Shares constructively surrendered in exchange therefor;

      4.3.2.     The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization;

      4.3.3.     There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount.

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5.     COVENANTS

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

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

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

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

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

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

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

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

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

6.     CONDITIONS PRECEDENT

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

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

      6.2.     The Amendment shall have been duly approved by Advantus’ board of directors and shall have been approved by Target Fund’s shareholders in accordance with Advantus’ Articles of Incorporation and bylaws and applicable law, and the Amendment shall have been duly filed with the Minnesota Secretary of State.

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

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

      6.5.     Advantus shall have received an opinion of Kirkpatrick & Lockhart LLP, counsel to W&R substantially to the effect that:

      6.5.1.     Acquiring Fund is a duly established series of W&R, a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Maryland with power under its articles of incorporation to own all its properties and assets and, to the knowledge of such counsel, to carry on its business as described in its currently effective Registration Statement on Form N-1A;

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

      6.5.3.     The Acquiring Fund Shares to be issued and distributed to the Shareholders under this Agreement have been duly authorized and, assuming their issuance and due delivery as contemplated by this Agreement, will be validly issued, fully paid and non-assessable;

      6.5.4.     The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, violate W&R’s articles of incorporation or bylaws or any provision of any agreement (listed on a schedule to such opinion) to which W&R (with respect to Acquiring Fund) is a party or by which it is bound or (to the knowledge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any such agreement, or, to our knowledge, any judgment, or decree to which W&R (with respect to Acquiring Fund) is a party or by which it is bound, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Advantus;

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

      6.5.6.     W&R is registered with the SEC as an investment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and

      6.5.7.     To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental

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body is pending or threatened as to W&R (with respect to Acquiring Fund) or any of its properties or assets attributable or allocable to Acquiring Fund and (b) W&R (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund’s business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Advantus.

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

      6.6.     W&R shall have received an opinion of Dorsey & Whitney LLP, counsel to Advantus, substantially to the effect that:

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

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

      6.6.3.     The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, violate Advantus’ Articles of Incorporation or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which Advantus (with respect to Target Fund) is a party or by which it is bound or (to the knowledge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Advantus (with respect to Target Fund) is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by W&R;

      6.6.4.     No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Advantus (on behalf of Target Fund) of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws;

      6.6.5.     Advantus is registered with the SEC as an investment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and

      6.6.6.     To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Advantus (with respect to Target Fund) or any of its properties or assets attributable or allocable to Target Fund and (b) Advantus (with respect to Target Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Target Fund’s business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by W&R.

In rendering such opinion, such counsel may (1) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (2) limit such opinion to applicable federal and state law, and (3) define the word “knowledge” and

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related terms to mean the knowledge of attorneys then with such counsel who have devoted substantive attention to matters directly related to this Agreement and the Reorganization.

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

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

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

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

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

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

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

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

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

At any time before the Closing, either Investment Company may waive any of the foregoing conditions (except those set forth in paragraphs 6.1 and 6.2) if, in the judgment of its Board, such waiver will not have a material adverse effect on its Fund’s shareholders’ interests.

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7.     BROKERAGE FEES

      Each Investment Company represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein.

8.     EXPENSES; INDEMNIFICATION

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

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

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

9.     ENTIRE AGREEMENT; NO SURVIVAL

      Neither party has made any representation, warranty, or covenant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warranties, and covenants contained herein or in any document delivered pursuant hereto or in connection herewith shall not survive the Closing.

10.     TERMINATION OF AGREEMENT

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

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

      10.2.     By the parties’ mutual agreement.

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

11.     AMENDMENT

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

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12.     MISCELLANEOUS

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

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

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

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

W&R TARGET FUNDS, INC.

on behalf of its series,

W&R Balanced Portfolio

W&R Growth Portfolio

W&R Core Equity Portfolio

W&R Value Portfolio

W&R Small Cap Portfolio

W&R International II Portfolio

W&R Small Company Value Portfolio

W&R Micro-Cap Growth Portfolio

By:

Its: President

ADVANTUS SERIES FUND, INC.

on behalf of its series,

Advantus Asset Allocation Portfolio

Advantus Capital Appreciation Portfolio

Advantus Growth Portfolio

Advantus Core Equity Portfolio

Advantus Value Stock Portfolio

Advantus Small Company Growth Portfolio

Advantus International Stock Portfolio

Advantus Small Company Value Portfolio

Advantus Micro-Cap Growth Portfolio

By:

Its: President

Agreed and accepted as to paragraph 8.1 only

ADVANTUS CAPITAL MANAGEMENT, INC.

By:

Its: President

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SCHEDULE A

Target Funds	Corresponding Acquiring Funds
Advantus Asset Allocation Portfolio	W&R Balanced Portfolio
Advantus Capital Appreciation Portfolio	W&R Growth Portfolio
Advantus Growth Portfolio	W&R Growth Portfolio
Advantus Core Equity Portfolio	W&R Core Equity Portfolio
Advantus Value Stock Portfolio	W&R Value Portfolio
Advantus Small Company Growth Portfolio	W&R Small Cap Portfolio
Advantus International Stock Portfolio	W&R International II Portfolio
Advantus Small Company Value Portfolio	W&R Small Company Value Portfolio
Advantus Micro-Cap Growth Portfolio	W&R Micro-Cap Growth Portfolio

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SCHEDULE B

ARTICLES OF AMENDMENT

TO

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

ADVANTUS SERIES FUND, INC.

      The undersigned officer of Advantus Series Fund, Inc. (the “Corporation”), a Minnesota corporation which is subject to the provisions of Minnesota Statutes, Chapter 302A, hereby certifies that the following amendment to the Corporation’s amended and restated articles of incorporation has been adopted by the Board of Directors and by the requisite vote of shareholders of the Corporation pursuant to said Chapter 302A:

WHEREAS, the Corporation is registered as an open-end management investment company (i.e., a mutual fund) under the Investment Company Act of 1940 and offers its shares to the public in several series, each of which represents a separate and distinct portfolio of assets.

WHEREAS, it is desirable and in the best interests of the holders of each of the series of Common Shares of the Corporation set forth in the table below (each series hereinafter an “Acquired Fund”) that the assets belonging to such Acquired Fund be sold to the corresponding series of W&R Target Funds, Inc. set forth in such table (each an “Acquiring Fund”), in exchange for common shares of the respective Acquiring Fund, which shares will be distributed pro rata to the former shareholders of the Acquired Funds:

Series of Common Shares of the Corporation	Corresponding Series of W&R Target Funds, Inc.
Series A (“Growth Portfolio”)	W&R Growth Portfolio
Series D (“Asset Allocation Portfolio”)	W&R Balanced Portfolio
Series G (“Capital Appreciation Portfolio”)	W&R Growth Portfolio
Series H (“International Stock Portfolio”)	W&R International II Portfolio
Series I (“Small Company Growth Portfolio”)	W&R Small Cap Portfolio
Series N (“Value Stock Portfolio”)	W&R Value Portfolio
Series O (“Core Equity Portfolio”)	W&R Core Equity Portfolio
Series Q (“Small Company Value Portfolio”)	W&R Small Company Value Portfolio
Series S (“Micro-Cap Growth Portfolio”)	W&R Micro-Cap Growth Portfolio

WHEREAS, the Corporation and W&R Target Funds, Inc. have entered into an Agreement and Plan of Reorganization dated                     , 2003 (the “Reorganization Agreement”) providing for the foregoing transactions.

WHEREAS, the Reorganization Agreement requires that, in order to bind all holders of shares of the respective series of the Corporation to the foregoing transactions, and in particular to bind such holders to the cancellation and retirement of their outstanding shares of the Corporation, it is necessary to adopt an amendment to the Corporation’s amended and restated articles of incorporation.

NOW, THEREFORE, BE IT RESOLVED, that the Corporation’s amended and restated articles of incorporation be, and the same hereby are, amended to add the following Article IVA immediately following Article IV thereof:

      IVA. (a) For purposes of this Article IVA, the following terms shall have the following meanings:

      “Acquired Funds” means the Series A, Series D, Series G, Series H, Series I, Series N, Series O, Series Q and Series S shares of the Corporation (also known as “Growth

A-15

Portfolio,” “Asset Allocation Portfolio,” “Capital Appreciation Portfolio,” “International Stock Portfolio,” “Small Company Growth Portfolio,” “Value Stock Portfolio,” “Core Equity Portfolio,” “Small Company Value Portfolio” and “Micro-Cap Growth Portfolio,” respectively).

      “Acquiring Funds” means the following series of W&R Target Funds, Inc., a Maryland corporation: W&R Growth Portfolio, with respect to the Series A and Series G Common Shares of the Corporation; W&R Balanced Portfolio, with respect to the Series D Common Shares of the Corporation; W&R International II Portfolio, with respect to the Series H Common Shares of the Corporation; W&R Small Cap Portfolio, with respect to the Series I Common Shares of the Corporation; W&R Value Portfolio, with respect to the Series N Common Shares of the Corporation; W&R Core Equity Portfolio, with respect to the Series O Common Shares of the Corporation; W&R Small Company Value Portfolio, with respect to the Series Q Common Shares of the Corporation; and W&R Micro-Cap Growth Portfolio, with respect to the Series S Common Shares of the Corporation.

      “Effective Time” has the meaning set forth in the Reorganization Agreement.

      “Reorganization Agreement” means the Agreement and Plan of Reorganization dated                     , 2003, between the Corporation and W&R Target Funds, Inc.

      (b) At the Effective Time, the assets belonging to each Acquired Fund and the liabilities belonging to such Acquired Fund, shall be transferred to the corresponding Acquiring Fund listed in the Reorganization Agreement in exchange for shares of such Acquiring Fund, all as set forth in the Reorganization Agreement. Such Acquiring Fund shares shall be distributed to Acquired Fund shareholders as set forth in (c) below. For purposes of the foregoing, the terms “assets belonging to” and “liabilities belonging to” have the meanings assigned to them in Articles IV(C)(1) and IV(C)(2) of the Corporation’s amended and restated articles of incorporation.

      (c) At the Effective Time, each issued and outstanding Common Share of each Acquired Fund shall be, without further action, exchanged for that number of common shares of the corresponding Acquiring Fund determined in accordance with Section 1.1 of the Reorganization Agreement, and such Acquired Fund Common Shares shall be cancelled and retired. The distribution of such Acquiring Fund shares to Acquired Fund shareholders shall be accomplished in the manner set forth in Section 1.6 of the Reorganization Agreement.

      (d) From and after the Effective Time, the Acquired Fund shares cancelled and retired pursuant to (c) above shall have the status of authorized and unissued shares of the Corporation, without designation as to series or class.

      IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed these Articles of Amendment on behalf of the Corporation on                     , 2003.

ADVANTUS SERIES FUND, INC.

By 

Its Secretary

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APPENDIX B

INVESTMENT ADVISORY AGREEMENT

      THIS AGREEMENT, made this      day of                     , 2003, by and between Advantus Series Fund, Inc., a Minnesota corporation (the “Fund”) and Waddell & Reed Investment Management Company, a Kansas corporation (“Adviser”).

WITNESSETH:

      WHEREAS, the Fund is engaged in business as a diversified open-end management investment company registered as such under the Investment Company Act of 1940 (the “Investment Company Act”) and offers for sale distinct series of shares of common stock, each of which series pursues its investment objectives through separate policies;

      WHEREAS, the Adviser is engaged in rendering investment advisory services and is registered as an investment adviser under the Investment Advisers Act of 1940; and

      WHEREAS, the Fund desires to appoint the Adviser to provide investment advisory and management services to each series of the Fund set forth in Exhibit A hereto (each such series a “Portfolio” and together the “Portfolios”) in the manner and on the terms hereinafter set forth, and the Adviser is willing to furnish such services.

      NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties do hereby agree as follows:

SECTION 1.     Appointment of Adviser

      The Fund appoints the Adviser to act as the investment adviser to and manager of the Portfolios, to manage the investment and reinvestment of the assets of the Portfolios and to administer each Portfolio’s affairs subject to the supervision of the Board of Directors of the Fund on the terms and conditions set forth in this Agreement. The Adviser accepts such appointment and agrees to render the services and to assume the obligations set forth in this Agreement.

      The Adviser will for all purposes provided in this Agreement be deemed to be an independent contractor and will have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund, unless otherwise expressly provided or authorized either in this Agreement or in another writing by the Fund. The Fund retains the ultimate responsibility and authority for direction and control of the services provided by the Adviser pursuant to this Agreement.

SECTION 2.     Duties of the Adviser

      The investment of the assets of the Portfolios shall at all times be subject to the applicable provisions of the Articles of Incorporation, the Bylaws, the Registration Statement, the current Prospectus and the Statement of Additional Information of the Fund and shall conform to the investment objectives, policies and restrictions of the Portfolios as set forth in such documents and as interpreted from time to time by the Board of Directors of the Fund. Within the framework of the investment objectives, policies and restrictions of the Portfolios, the Adviser shall have the sole and exclusive responsibility for the management of the Portfolios and the making and execution of all investment decisions for the Portfolios.

      In carrying out its obligations to manage the investments and reinvestments of the assets of the Portfolios, the Adviser shall: (1) obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolios or are under consideration for inclusion therein; (2) formulate and implement a continuous investment program for each Portfolio consistent with the investment objective and related investment policies for each such Portfolio as set forth in the Fund’s registration statement, as

B-1

amended; and (3) take such steps as are necessary to implement the aforementioned investment programs by purchase and sale of securities including the placing of orders for such purchases and sales.

      The Adviser shall report to the Board of Directors of the Fund regularly at such times and in such detail as the Board may from time to time determine to be appropriate in order to permit the Board to determine the adherence of the Adviser to the investment objectives, policies and restrictions of the Portfolios.

      The Adviser shall, at its own expense, furnish the Fund office space and all necessary office facilities, equipment and personnel for servicing the investments of the Portfolios. The Adviser shall arrange for officers or employees of the Adviser to serve without compensation from the Fund as directors, officers or employees of the Fund if duly elected or appointed to such positions by the shareholders, directors or officers of the Fund.

      The Adviser shall maintain all records necessary in the operation of the Portfolios including records pertaining to each Portfolio’s shareholders and investments. The Adviser hereby acknowledges that all such records are the property of the Fund, and in the event that a transfer of management or investment advisory services to someone other than the Adviser should ever occur, the Adviser will promptly and at its own cost, take all steps necessary to segregate such records and deliver them to the Fund.

SECTION 3.     Compensation for Services

      In payment for the investment advisory services to be rendered by the Adviser hereunder, the Fund shall pay to the Adviser as full compensation for all services hereunder a fee computed separately for each Portfolio at an annual rate, as set forth in Schedule A to this Agreement.

      The amount of the fees as set forth in Schedule A hereto will be deducted on each business day from the value of each Portfolio prior to determining the Portfolio’s net asset value for the day and it shall be transmitted or credited to the Adviser. The fee shall be based on the net asset values of all of the issued and outstanding shares of such Portfolio as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund.

SECTION 4.     Allocation of Expenses

      In addition to the fee described in Section 3 hereof, the Fund shall pay all its costs and expenses which are not assumed by the Adviser. These Fund expenses include, by way of example, but not by way of limitation, all expenses incurred in the operation of the Fund including, among others, interest, taxes, brokerage fees and commissions, fees of the directors who are not employees of the Adviser or any of its affiliates, expenses of the directors’ and shareholders’ meetings, including the cost of printing and mailing proxies, expenses of insurance premiums for fidelity and other coverage, association membership dues, charges of custodians, auditing and legal expenses. The Fund will also pay the fees and bear the expense of registering and maintaining the registration of the Fund and its shares with the Securities and Exchange Commission and registering or qualifying its shares under state or other securities laws and the expense of preparing and mailing prospectuses and reports to shareholders.

      Each Portfolio will bear all expenses that may be incurred with respect to its individual operation, including but not limited to transaction expenses, advisory fees, brokerage, interest, taxes and the charges of the custodian. The Fund will pay all other expenses not attributable to a specific Portfolio or other series of the Fund, but those expenses will be allocated among such Portfolios and series on the basis of the size of their respective net assets unless otherwise allocated by the Board of Directors of the Fund.

SECTION 5.     Freedom to Deal with Third Parties

      The Adviser shall be free to render services to others, including other investment companies, similar to those rendered under this Agreement or of a different nature except as such services may conflict with the services to be rendered or the duties to be assumed hereunder. It is understood and agreed that the

B-2

officers, directors and employees of the Adviser are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, directors or employees of any other firm or corporation, including other investment companies.

SECTION 6.     Conflicts of Interest

      It is understood that directors, officers, agents and stockholders of the Fund are or may be interested in the Adviser as directors, officers, stockholders, or otherwise; that directors, officers, agents and stockholders of the Adviser are or may be interested in the Fund as directors, officers, stockholders or otherwise; that the Adviser may be interested in the Fund; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Articles of Incorporation of the Fund and the Adviser, respectively, or by specific provision of applicable law.

SECTION 7.     Regulation

      The Adviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations.

SECTION 8.     Effective Date, Duration and Termination of Agreement

      This Agreement shall become effective with respect to each Portfolio on the date of its execution first written above.

      Unless sooner terminated as hereinafter provided, this Agreement shall continue in effect for a period of more than two years from the date of its execution only so long as such continuance is specifically approved at least annually by the Board of Directors of the Fund, or, with respect to each Portfolio, by the vote of a majority of the outstanding voting securities of such Portfolio, provided that in either event such continuance shall also be approved by the vote of a majority of the directors who are not interested persons of the Adviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval.

      This Agreement may be terminated at any time with respect to a Portfolio, without the payment of any penalty, by the Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Portfolio, or by the Adviser, upon sixty days’ written notice to the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act).

      Wherever referred to in this Agreement, the vote or approval of the holders of a majority of the outstanding voting securities of a Portfolio shall mean the vote of 67% or more of such securities if the holders of more than 50% of such securities are present in person or by proxy or the vote of more than 50% of such securities, whichever is the lesser.

SECTION 9.     Amendments to the Agreement

      This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of the Fund and by the vote of a majority of the directors of the Fund who are not interested persons of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Portfolio to which this Agreement relates if a majority of the outstanding voting securities of the capital stock of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of the Fund. Notwithstanding the foregoing, this Agreement may be amended without shareholder approval to the extent such is permitted under then-current regulatory interpretations of the Investment Company Act.

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SECTION 10.     Notice of Information

      Each party hereto shall advise the others promptly of (a) any action of the Securities and Exchange Commission or any authorities of any state or territory, of which it has knowledge, affecting registration or qualification of the Fund, and (b) the happening of any event which makes untrue any statement, or which requires the making of any change, in the registration statement or prospectus in order to make the statements therein not misleading.

SECTION 11.     Entire Agreement

      This Agreement contains the entire understanding and agreement of the parties.

SECTION 12.     Headings

      The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof.

SECTION 13.     Receipt of Notices

      Any notice under this Agreement shall be in writing, addressed, delivered or mailed, postage prepaid, to the other party at such address as such other party may designate in writing for the receipt of such notice.

      IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written.

ADVANTUS SERIES FUND, INC.

By 

Dianne M. Orbison

President

WADDELL & REED INVESTMENT MANAGEMENT COMPANY

By 

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SCHEDULE A

TO THE

INVESTMENT ADVISORY AGREEMENT

                    , 2003

      As compensation for the services to be rendered and the charges and expenses to be assumed and paid by the Adviser, each Portfolio shall pay the Adviser an annual fee based on the average daily net asset value of the respective Portfolio in accordance with Section 3 of the Investment Advisory Agreement and the following schedule:

Portfolio	Fee Rate
Growth Portfolio	0.45% on the first $1 billion in assets
	0.40% on all assets in excess of $1 billion in assets
Asset Allocation Portfolio	0.35% on the first $1 billion in assets
	0.30% on all assets in excess of $1 billion in assets
Capital Appreciation Portfolio	0.50% on the first $1 billion in assets
	0.45% on all assets in excess of $1 billion in assets
Value Stock Portfolio	0.50% on the first $500 million in assets
	0.45% on the next $500 million in assets
	0.40% on all assets in excess of $1 billion in assets
Small Company Value Portfolio	0.70% on the first $1 billion in assets
	0.65% on all assets in excess of $1 billion in assets
Core Equity Portfolio	0.50%

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APPENDIX C

MANAGER’S DISCUSSION
     December 31, 2002

     An interview with Cynthia P. Prince-Fox, portfolio manager of W&R Target Funds, Inc. - Balanced Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Balanced Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio’s performance during that period. Please note that the Portfolio’s performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?

The Portfolio outperformed its stock benchmark index, but underperformed its bond benchmark index. The Portfolio’s one-year return declined 8.41 percent, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent for the year, the Salomon Brothers Treasury/Government Sponsored/Credit Index (generally reflecting the performance of funds in the bond market), which increased 10.81 percent for the year, and the Lipper Variable Annuity Balanced Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 10.34 percent for the period. Multiple indexes are presented because the Portfolio invests in both stocks and bonds. The Salomon Brothers Treasury/Government Sponsored/Credit Index replaces the Salomon Brothers Treasury/Government Sponsored/Corporate Index in this year’s report. We believe that the new index provides a more accurate basis for comparing the Portfolio’s performance to the types of securities in which the Portfolio invests. Both indexes are presented in this year’s report for comparison purposes.

What factors affected the Portfolio’s performance during the fiscal year?

Several factors played into overall performance. First and foremost was the contribution from the fixed income portion of the Portfolio, which significantly outperformed the equity portion, in addition to outperforming its fixed income benchmark. The primary reason for this, we feel, is that the fixed income securities held in the portfolio were primarily high quality, government-issued Treasury bonds. U.S. Treasuries outperformed most other fixed income instruments because they became a safe haven as corporate bonds experienced declines when concerns about the overall recovery in the economy came into question. On the other side of the Portfolio, our equity holdings posted declines, although the declines were not as significant as those experienced by the S&P 500 Index. Many of our defensive holdings performed well, despite a difficult economic environment. Additionally, we maintained a meaningful level of cash during the period, which also helped performance.

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MANAGER’S DISCUSSION (Continued)
     December 31, 2002

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

This marked the third consecutive year of declines for the broad equity markets. Equity investments were simply a difficult place to be, as the S&P 500 Index experienced its sharpest decline since 1974, while the technology-laden Nasdaq Composite Index lost nearly a third of its value. Nearly every industry classification in the S&P 500 saw negative returns during the year. As a result, high quality fixed income instruments were one of the few positive places to invest during most of the year.

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

We attempted to maintain a high quality fixed income portfolio and kept some cash holdings. In addition, we attempted to further protect the downside in the Portfolio by focusing our equity positions in companies with balance sheets that we felt could withstand protracted weakness in the overall economy. Our strategy of maintaining a relatively defensive equity portfolio during the year was based on our belief that equity valuations were still somewhat high and were unsustainable, given the potential for a slower economic environment.

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

Areas of emphasis during the year were in aerospace/defense, health care and energy. We continue to believe that these sectors offer further upside in 2003. However, we remain optimistic about an economic recovery and a rebound in the financial markets. Thus we will likely shift our emphasis to companies that could benefit from a better economic environment as the year progresses.

Respectfully,

Cynthia P. Prince-Fox
Manager
Balanced Portfolio

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Comparison of Change in Value of $10,000 Investment

=====	W&R Target Balanced Portfolio(1)	$	18,007
- - - - -	S&P 500 Index(2)	$	22,768
+++++	Salomon Brothers Treasury/Government Sponsored/Corporate Index(2)	$	19,495
. . . . .	Salomon Brothers Treasury/Government Sponsored/Credit Index(2)	$	19,531
*****	Lipper Variable Annuity Balanced Funds Universe Average(2)	$	18,669

					Salomon		Salomon		Lipper
					Brothers		Brothers		Variable
					Treasury/		Treasury/		Annuity
					Government		Government		Balanced
	W&R Target		S&P		Sponsored/		Sponsored/		Funds
	Balanced		500		Corporate		Credit		Universe
	Portfolio		Index		Index		Index		Average
05/03/94 Purchase	$	10,000	$	10,000	$	10,000	$	10,000	$	10,000
12/31/94		9,963		10,398		10,046		10,046		10,028
12/31/95		12,374		14,306		11,978		11,978		12,524
12/31/96		13,758		17,591		12,327		12,327		14,197
12/31/97		16,301		23,447		13,535		13,535		16,910
12/31/98		17,714		30,176		14,814		14,814		19,310
12/31/99		19,510		36,533		14,514		14,514		21,035
12/31/00		20,903		33,178		16,219		16,219		21,488
12/31/01		19,661		29,227		17,613		17,626		20,822
12/31/02		18,007		22,768		19,495		19,531		18,669

(1)	The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions.
(2)	Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes was effected as of April 30, 1994.
	Please note that the performance of the Salomon Brothers Treasury/Government Sponsored/Credit Index (Credit Index) is substantially similar to the performance of the Salomon Brothers Treasury/Government Sponsored/Corporate Index (Corporate Index). The Credit Index was introduced by Salomon Brothers in April of 2001. In creating the performance history for the Credit Index, Salomon Brothers used the performance history of the Corporate Index for the period prior to April of 2001.

Average Annual Total Return⁽³⁾

1-year period ended 12-31-02	-8.41	%
5-year period ended 12-31-02	2.01	%
8+ year period ended 12-31-02(4)	7.02	%

(3)	Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
(4)	5-3-94 (the initial offering date) through 12-31-02.
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

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MANAGER’S DISCUSSION
     December 31, 2002

     An interview with Philip J. Sanders, portfolio manager of W&R Target Funds, Inc. - Growth Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Growth Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio’s performance during that period. Please note that the Portfolio’s performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?

The fiscal year represented the third consecutive year of broad stock market declines. In the face of this ongoing challenging market, the Portfolio posted a negative return. Nonetheless, it compared favorably with its peer group of large cap growth funds and outperformed its benchmark index. The Portfolio declined 21.30 percent over the fiscal year, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent during the period, and the Lipper Variable Annuity Large-Cap Growth Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 28.64 percent during the period.

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

The Portfolio’s slight outperformance relative to its benchmark can be attributed to several factors. First, we maintained a slightly overweighted position in the energy sector throughout the year. This proved beneficial, as energy stocks benefited from rising oil and natural gas prices. The sector also benefited from increased investor interest in stocks possessing defensive investment characteristics. In addition, we feel that the Portfolio benefited from exposure to the aerospace/defense sector, which gained favor as the country’s war on terrorism moved to the forefront. We maintained minimal exposure to the poor performing telecommunications service sector, which also helped performance somewhat.

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

The Portfolio’s return was negatively influenced by a myriad of economic, fundamental and geopolitical issues. A mostly sluggish economic environment resulted in persistent downward pressure on corporate profits throughout the year. A steady stream of corporate layoffs and several high-profile accounting scandals also affected investor sentiment. Further complicating matters was a significant rise in Middle East tensions and growing prospects for war. Notwithstanding a fourth quarter rally, the environment during the course of the fiscal year resulted in broad-based market weakness throughout the period.

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MANAGER’S DISCUSSION (Continued)
     December 31, 2002

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

Our investment philosophy is based on the belief that premium long-term valuations are awarded to those companies that can generate superior levels of profitability and growth on an ongoing basis. Consequently, we continued to focus on what we feel are high quality, industry-leading companies that possess sustainable competitive advantages and are well-positioned to benefit from secular trends in the marketplace. Macroeconomic considerations and individual stock valuations also were taken into account when evaluating prices for particular securities. While we believe our investment approach is sound, it has not been enough to overcome the negative market environment in absolute terms. We believe our high quality, growth orientation will be rewarded when the investment environment improves. Many of the companies in which we invest have greatly enhanced their unique competitive positions during the economic downturn, while weaker competitors have struggled. We feel our approach likely will bring positive results when the corporate profit recovery gains momentum.

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

During 2002, primary areas of emphasis included health care, technology, financial services and, to a lesser extent, energy. For the time being, the Portfolio is relatively balanced between defensive growth (i.e., health care, consumer staples) and cyclical growth (technology, retail) issues. However, we expect to take on an increasingly cyclical bias as the year progresses. Once the economic recovery takes a firmer hold, technology, consumer cyclical and industrial issues are likely to receive increased investor attention. Most of these companies currently are experiencing below-average levels of profitability and are poised to show a significant acceleration in earnings when market demand improves. Given the relatively low levels of inventory in the system, along with improved balance sheets and cost structures, we believe that the positive earnings leverage for these companies should become increasingly attractive relative to more stable, defensive growth companies. Also, our exposure to financial services holdings is likely to be reduced, as we feel that meaningful interest rate declines are unlikely. We anticipate that our focus will continue to be on high quality companies that possess sustainable competitive advantages (that is, strong barriers to entry, such as proprietary technology and patents, economies of scale, and product differentiation).

Respectfully,

Philip J. Sanders
Manager
Growth Portfolio

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Comparison of Change in Value of $10,000 Investment

- - - - -	W&R Target Growth Portfolio(1)	$	25,825
+++++	S&P 500 Index	$	24,420
*****	Lipper Variable Annuity Large-Cap Growth Funds Universe Average	$	19,840

					Lipper
					Variable
					Annuity
					Large-Cap
	W&R Target		S&P		Growth Funds
	Growth		500		Universe
	Portfolio		Index		Average
12/31/92 Purchase	$	10,000	$	10,000	$	10,000
12/31/93		11,402		11,007		11,212
12/31/94		11,674		11,153		11,031
12/31/95		16,176		15,344		14,784
12/31/96		18,183		18,867		17,689
12/31/97		22,083		25,148		22,189
12/31/98		28,114		32,366		29,851
12/31/99		37,772		39,185		41,437
12/31/00		38,306		35,586		35,521
12/31/01		32,814		31,348		27,804
12/31/02		25,825		24,420		19,840

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

Average Annual Total Return⁽²⁾

1-year period ended 12-31-02	-21.30	%
5-year period ended 12-31-02	3.18	%
10-year period ended 12-31-02	9.95	%

(2)	Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

C-6

MANAGER’S DISCUSSION
     December 31, 2002

     An interview with James D. Wineland, portfolio manager of W&R Target Funds, Inc. - Core Equity Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Core Equity Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio’s performance during that period. Please note that the Portfolio’s performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?

The Portfolio performed fairly well on a relative basis, as it slightly outperformed the benchmark index, although it had a negative return for the fiscal year. The Portfolio’s one-year return declined 21.63 percent during the period, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent for the year, and the Lipper Variable Annuity Large Cap Core Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 23.41 percent during the period.

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

We positioned the Portfolio rather defensively for most of the period, as we had several concerns about the condition of the U.S. economy. Whether warranted or not, a steady erosion of corporate debt ratings by primary rating agencies (including Standard & Poor’s and Moody’s Corporation) created a growing perception that corporations generally were facing a meaningful decline in financial strength. In addition to our primarily defensive positioning, we believe that our holdings in the aerospace/defense sector and some of our pharmaceutical positions made important positive contributions to the Portfolio’s performance during the year.

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

It was a very difficult year for stock investors, as several factors weighed on the market, put pressure on performance and impacted consumer confidence. Potential for a war between the U.S. and Iraq kept a cloud of uncertainty over the global financial markets. In the U.S., financial news was often dominated by corporate scandals, as investor psychology was eroded by the steady stream of reports of violations of corporate accounting and ethical standards. Earnings expectations for U.S. companies continued to be lowered during much of the year, and hopes for a resilient U.S. economy in the second half of 2002 became more subdued as the year progressed.

C-7

MANAGER’S DISCUSSION (Continued)
     December 31, 2002

Finally, concern began to build regarding the strength of the U.S. consumer. While zero percent auto financing and generations-low mortgage rates provided some incentive for consumers to spend, rising rates of unemployment and very high levels of consumer debt relative to disposable income seemed to foretell a slowing rate of U.S. consumption. Global economic problems also weighed heavily on financial markets, as problems in Argentina, Brazil, Japan and Europe all contributed to a rather somber investment environment.

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

As mentioned, we kept the Portfolio positioned rather defensively in the face of difficult market conditions. Preservation of capital was a key objective in this very uncertain time. Financial strength, sustainability of earnings, and market dominance are three characteristics we continue to seek in our investment selections.

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

In the difficult environment, we emphasized a few key sectors, including aerospace/defense, energy, health care and pharmaceuticals, electric utilities and financial services. We believe that valuations and earnings prospects in these sectors are reasonable, given the economic challenges. We do expect the U.S. and global economies to recover as 2003 progresses. However, we also expect market returns to be modest when compared to some of the tremendous growth years we generally have experienced since 1982. Going forward, we intend to continue to invest in what we believe are high quality, large cap companies that are leaders in their respective industries.

Respectfully,

James D. Wineland
Manager
Core Equity Portfolio

C-8

Comparison of Change in Value of $10,000 Investment

- - - - -	W&R Target Core Equity Portfolio(1)	$	22,896
+++++	S&P 500 Index	$	24,420
*****	Lipper Variable Annuity Large-Cap Core Funds Universe Average	$	21,263

					Lipper
					Variable
					Annuity
					Large-Cap
	W&R Target		S&P		Core Funds
	Core Equity		500		Universe
	Portfolio		Index		Average
12/31/92 Purchase	$	10,000	$	10,000	$	10,000
12/31/93		11,730		11,007		11,252
12/31/94		11,597		11,153		11,206
12/31/95		15,257		15,344		14,939
12/31/96		18,270		18,867		18,161
12/31/97		23,049		25,148		23,250
12/31/98		27,921		32,366		28,788
12/31/99		31,418		39,185		34,749
12/31/00		34,334		35,586		32,250
12/31/01		29,216		31,348		27,763
12/31/02		22,896		24,420		21,263

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

Average Annual Total Return⁽²⁾

1-year period ended 12-31-02	-21.63	%
5-year period ended 12-31-02	-0.13	%
10-year period ended 12-31-02	8.64	%

(2)	Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

C-9

MANAGERS’ DISCUSSION
     December 31, 2002

     An interview with Harry M. Flavin and Cynthia P. Prince-Fox, portfolio managers of W&R Target Funds, Inc. - Value Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Value Portfolio for the fiscal period ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio’s performance during that period. Please note that the Portfolio’s performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?

Although it did show a negative return for the year, the Portfolio performed relatively well, as it outperformed its benchmark index. The Portfolio declined 12.70 percent during the period, compared with the Russell 1000 Value Index (reflecting the performance of securities that generally represent the value sector of the stock market), which declined 15.52 percent during the period, and the Lipper Variable Annuity Multi-Cap Value Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 18.73 percent during the same period.

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

Our comparatively better results were, we feel, primarily due to our emphasis on defensive stocks, such as food and aerospace/defense. In addition, we maintained significant levels of cash throughout most of the year. Overall, we believe that we have remained successful in finding good businesses trading at discounts to their intrinsic value.

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

This marked the third consecutive year of declines for the broad equity markets. Equity investments were simply a difficult place to be, as the S&P 500 Index experienced its sharpest decline since 1974, while the technology-laden Nasdaq Composite Index lost nearly a third of its value. Nearly every industry classification in the S&P 500 saw negative returns during the year. As a result, cash was a safe haven during the year.

C-10

MANAGER’S DISCUSSION (Continued)
     December 31, 2002

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

While one of our strategies was to position the Portfolio in more defensive names, we also placed a greater emphasis on stocks that we felt offered higher- than-market dividend yields. We did this because we felt that there was a strong possibility that there would be some form of relief on the double taxation of dividends. As a result, several companies that we currently hold experienced significant rallies during the final quarter of the fiscal year. We continue to believe that this will be an important theme as we move into 2003.

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

During most of the year, we emphasized health care, energy and defense stocks. While energy and defense generally held most of their ground over the year, health care - particularly pharmaceuticals - experienced fairly significant declines, despite their purported defensive characteristics. We believe that the reason for the declines can be traced back to challenges within that industry, such as difficulties with the patent process and the broadening popularity of generic drugs, among others. While many of these issues remain, we continue to believe that pharmaceutical stocks offer attractive valuations, given the aging demographic profile in the United States.

Going forward, our weightings may change as new opportunities present themselves. We intend to continue to focus on value, earnings stability and above-average diversification as the year progresses.

Respectfully,

Harry M. Flavin
Cynthia P. Prince-Fox
Managers
Value Portfolio

Please note: Effective January 2002, Cynthia P. Prince-Fox was added as a co- manager of W&R Target Funds, Inc. - Value Portfolio. Prior to that time, Harry M. Flavin was the sole manager of the Portfolio.

C-11

Comparison of Change in Value of $10,000 Investment

=====	W&R Target Value Portfolio(1)	$	8,907
+++++	Russell 1000 Value Index(2)	$	8,074
- - - - -	Lipper Variable Annuity Multi-Cap Value Funds Universe Average(2)	$	7,902

					Lipper
					Variable
					Annuity
					Multi-Cap
			Russell		Value
	W&R Target		1000		Funds
	Value		Value		Universe
	Portfolio		Index		Average
5/1/01 Purchase		10,000		10,000		10,000
12/31/01		10,203		9,557		9,724
12/31/02		8,907		8,074		7,902

(1)	The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions.
(2)	Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the indexes (including income) are not available, investment in the indexes was effected as of April 30, 2001.

Average Annual Total Return⁽³⁾

1-year period ended 12-31-02	-12.70	%
1+ year period ended 12-31-02(4)	-6.70	%

(3)	Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
(4)	5-1-01 (the initial offering date) through 12-31-02.
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

C-12

MANAGER’S DISCUSSION
     December 31, 2002

     An interview with Grant P. Sarris, portfolio manager of W&R Target Funds, Inc. - - Small Cap Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Small Cap Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio’s performance during that period. Please note that the Portfolio’s performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?

The Portfolio significantly outperformed its benchmark index for the year. Even so, given the difficult environment for stocks overall, it had a negative return for the year. The Portfolio declined 21.79 percent for the fiscal year, compared with the Russell 2000 Growth Index (reflecting the performance of securities that generally represent the small companies sector of the stock market), which declined 30.22 percent for the year, and the Lipper Variable Annuity Small-Cap Growth Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 30.90 percent for the year.

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

The Portfolio remains balanced across most sectors, with some relative emphasis on health care, consumer discretionary and energy. Also, we continue to be slightly underweight in technology and producer durables, which we believe helped our performance during the period.

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

Although the fiscal year overall was a difficult and disappointing time for small cap stocks, the market did rally a bit toward year-end. News from the economic and political fronts stopped getting worse, while corporate earnings grew modestly on a year-over-year basis. Generally, stocks that had suffered the worst up until the fourth calendar quarter of 2002 began to show the strongest growth during that quarter.

C-13

MANAGER’S DISCUSSION (Continued)
     December 31, 2002

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

The Portfolio remained quite defensive through much of the fiscal year, although by year-end we had begun to attempt to increase the risk profile. As mentioned above, we believe that our overall balance, along with our slightly underweight positions in selected sectors - such as technology - ultimately aided our performance. We have begun to gradually decrease the Portfolio’s cash position, as we feel that the market appears to be at least in a sideways trend, as opposed to the downward trend of the last three years.

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

We are now attempting to position the Portfolio for a continued slow recovery in economic activity and corporate earnings. Our current expectation is that the market will increase at a rate very close to earnings growth, implying very little price-to-earnings ratio changes in the near future. We believe that small cap stocks should perform in-line with large caps until the recovery becomes more robust, at which point we would expect small caps to outperform. We anticipate continuing to slowly reduce the cash position of the Portfolio, while potentially increasing the number of holdings. Generally, we intend to continue to look for companies that have lowered their cost structures and that may have the opportunity for revenue growth.

Respectfully,

Grant P. Sarris
Manager
Small Cap Portfolio

Please note that, effective March 18, 2002, Grant P. Sarris became the sole portfolio manager for the Portfolio.

C-14

Comparison of Change in Value of $10,000 Investment

- - - - -	W&R Target Small Cap Portfolio(1)	$	25,908
. . . . .	Russell 2000 Growth Index(2)	$	11,870
*****	Lipper Variable Annuity Small-Cap Growth Funds Universe Average(2)	$	17,352

					Lipper Variable
					Annuity
					Small-Cap
	W&R Target		Russell 2000		Growth Funds
	Small Cap		Growth		Universe
	Portfolio		Index		Average
05/03/94 Purchase	$	10,000	$	10,000	$	10,000
12/31/94		12,091		10,137		10,747
12/31/95		15,999		13,274		14,064
12/31/96		17,360		14,756		16,593
12/31/97		22,834		16,663		19,188
12/31/98		25,315		16,869		20,097
12/31/99		38,537		24,136		32,162
12/31/00		33,779		18,738		28,821
12/31/01		33,126		17,011		25,111
12/31/02		25,908		11,870		17,352

(1)	The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions.
(2)	Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes was effected as of April 30, 1994.

Average Annual Total Return⁽³⁾

1-year period ended 12-31-02	-21.79	%
5-year period ended 12-31-02	2.56	%
8+ year period ended 12-31-02(4)	11.61	%

(3)	Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
(4)	5-3-94 (the initial offering date) through 12-31-02.
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc.
	Investing in small cap stocks may carry more risk than investing in stocks of larger, more well-established companies.

C-15

APPENDIX D

W&R TARGET FUNDS, INC.

PROSPECTUS

6300 Lamar Avenue
P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

913-236-2000

888-WADDELL

May 1, 2003

W&R Target Funds, Inc. (Fund) is a management investment company, commonly known as a mutual fund, that has twelve separate Portfolios, each with separate goals and investment policies.

• Asset Strategy Portfolio seeks high total return over the long term.

• Balanced Portfolio seeks, as a primary goal, current income, with a secondary goal of long-term appreciation of capital.

• Bond Portfolio seeks a reasonable return with emphasis on preservation of capital.

• Core Equity Portfolio seeks capital growth and income.

• Growth Portfolio seeks capital growth, with a secondary goal of current income.

• High Income Portfolio seeks, as a primary goal, high current income, with a secondary goal of capital growth.

• International Portfolio seeks, as a primary goal, long-term appreciation of capital, with a secondary goal of current income.

• Limited-Term Bond Portfolio seeks a high level of current income consistent with preservation of capital.

• Money Market Portfolio seeks maximum current income consistent with stability of principal.

• Science and Technology Portfolio seeks long-term capital growth.

• Small Cap Portfolio seeks growth of capital.

• Value Portfolio seeks long-term capital appreciation.

This Prospectus contains concise information about the Fund of which you should be aware before applying for certain variable life insurance policies and variable annuity contracts (Policies) offered by Participating Insurance Companies. This Prospectus should be read together with the Prospectus for the particular Policy.

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

D-1

An Overview of the Portfolios

Asset Strategy Portfolio

Goal

     Asset Strategy Portfolio seeks high total return over the long term.

Principal Strategy

Asset Strategy Portfolio seeks to achieve its goal by allocating its assets among stocks, bonds and short-term instruments.

• The stock class includes equity securities of all types, although Waddell & Reed Investment Management Company (WRIMCO), the Fund’s investment manager, typically emphasizes a blend of value and growth potential in selecting stocks. Value stocks are those that WRIMCO believes are currently selling below their true worth. Growth stocks are those whose earnings WRIMCO believes are likely to grow faster than the economy. The Portfolio may invest in the securities of any size company.

• The bond class includes all varieties of fixed-income instruments, such as corporate or U.S. Government debt securities, with remaining maturities of more than three years. This asset class may include a significant amount, up to 35% of the Portfolio’s total assets, of high yield/high risk bonds, or junk bonds, which include bonds rated BB and below by Standard & Poor’s (S&P) and Ba and below by Moody’s Corporation (Moody’s) or unrated bonds deemed by WRIMCO to be of comparable quality.

• The short-term class includes all types of short-term instruments with remaining maturities of three years or less, including high-quality money market instruments.

• Within each of these classes, the Portfolio may invest in both domestic and foreign securities.

The Portfolio selects a mix which represents the way the Portfolio’s investments will generally be allocated over the long term as indicated below. This mix will vary over shorter time periods as WRIMCO changes the Portfolio’s holdings based on the current outlook for the different markets. These changes may be based on such factors as interest rate changes, security valuation levels and a rise in the potential for growth stocks.

PORTFOLIO MIX
Stocks — 70%	(can range from 0-100%)
Bonds — 25%	(can range from 0-100%)
Short-term — 5%	(can range from 0-100%)

Principal Risks of Investing in the Portfolio

     A variety of factors can affect the investment performance of Asset Strategy Portfolio. These include:

• WRIMCO’s skill in allocating the Portfolio’s assets among different types of investments

• the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy

• an increase in interest rates, which may cause the value of the Portfolio’s fixed-income securities, especially bonds with longer maturities, to decline

D-2

• prepayment of higher-yielding bonds held by the Portfolio

• the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds

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

Market risk for small or medium sized companies may be greater than the market risk for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. As well, stock of smaller companies may experience volatile trading and price fluctuations.

Investments by the Portfolio in high yield/high risk bonds are more susceptible to the risk of non-payment or default, and their prices may be more volatile than higher-rated bonds.

As well, the Portfolio may invest a significant portion of its assets in foreign securities. Foreign securities present additional risks such as currency fluctuations and political or economic conditions affecting the foreign countries.

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

Who May Want to Invest

Asset allocation funds are designed for investors who want to diversify among stocks, bonds and short-term instruments, in one fund. If you are looking for an investment that uses this technique in pursuit of high total return, this Portfolio may be appropriate for you. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Asset Strategy Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns since these shares were first offered and shows how performance has varied from year to year.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

D-3

AVERAGE ANNUAL TOTAL RETURNS							Life of
as of December 31, 2002 (%)	1 Year			5 Years			Portfolio*
Shares of Asset Strategy Portfolio		3.28	%		9.03	%		8.69	%
S&P 500 Index		-22.10	%		-0.59	%		9.02	%
Citigroup Broad Investment Grade Index		10.09	%		7.53	%		8.10	%
Citigroup Short-Term Index for 1 Month Certificates of Deposit		1.79	%		4.68	%		5.04	%
Lipper Variable Annuity Flexible Portfolio Funds Universe Average		-10.32	%		1.66	%		7.35	%

The indexes shown are broad-based, securities market indexes that are unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goal of the Portfolio.

*Since May 1, 1995, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, index performance is calculated from April 30, 1995.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.70	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.09	%
Total Annual Portfolio Operating Expenses	1.04	%

D-4

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years		5 Years		10 Years
$106	$	331	$	574	$	1,271

BALANCED PORTFOLIO

Goals

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

Principal Strategies

Balanced Portfolio invests primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In its equity investments, the Portfolio invests primarily in medium to large, well-established companies, that typically issue dividend-producing securities. The majority of the Portfolio’s debt holdings are either U.S. Government securities or investment grade corporate bonds, that include bonds rated BBB and higher by S&P or Baa and higher by Moody’s or, if unrated, deemed by WRIMCO to be of comparable quality. The Portfolio has no limitations on the range of maturities of the debt securities in which it may invest.

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

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

Principal Risks of Investing in the Portfolio

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

• WRIMCO’s skill in allocating the Portfolio’s assets among different types of investments

• an increase in interest rates, which may cause the value of the Portfolio’s fixed-income securities, especially bonds with longer maturities, to decline

• the credit quality, earnings performance and other conditions of the issuers whose securities the Portfolio holds

D-5

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

The Portfolio may also invest in foreign securities, which present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

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

Who May Want to Invest

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

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Balanced Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns since these shares were first offered and shows how performance has varied from year to year.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

D-6

AVERAGE ANNUAL TOTAL RETURNS							Life of
as of December 31, 2002 (%)	1 Year			5 Years			Portfolio*
Shares of Balanced Portfolio		-8.41	%		2.01	%		7.02	%
S&P 500 Index		-22.10	%		-0.59	%		9.96	%
Citigroup Treasury/ Government Sponsored/Credit Index		10.81	%		7.61	%		8.02	%
Lipper Variable Annuity Balanced Funds Universe Average		-10.17	%		1.92	%		7.71	%

The indexes shown are broad-based, securities market indexes that are unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goals of the Portfolio.

*Since May 3, 1994, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, index performance is calculated from April 30, 1994.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.70	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.06	%
Total Annual Portfolio Operating Expenses	1.01	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years		5 Years		10 Years
$103	$	322	$	558	$	1,236

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BOND PORTFOLIO

Goal

Bond Portfolio seeks a reasonable return with emphasis on preservation of capital.

Principal Strategies

Bond Portfolio seeks to achieve its goal by investing primarily in domestic, and to a lesser extent foreign, debt securities usually of investment grade, including bonds rated BBB and higher by S&P and Baa and higher by Moody’s or, if unrated, deemed by WRIMCO to be of comparable quality. The Portfolio has no limitations regarding the maturity, duration or dollar weighted average of its holdings; the Portfolio may invest in debt securities with varying maturities and can invest in securities of companies of any size.

In selecting debt securities for the Portfolio, WRIMCO considers yield and relative safety and, in the case of convertible securities, the possibility of capital growth. WRIMCO may also look at many other factors. These include the issuer’s past, present and estimated future:

• financial strength

• cash flow

• management

• borrowing requirements

• responsiveness to changes in interest rates and business conditions

As well, WRIMCO considers the maturity of the obligation and the size or nature of the bond issue.

In general, in determining whether to sell a security, WRIMCO uses the same type of analysis that it uses in buying securities. For example, WRIMCO may sell a holding if the issuer’s financial strength weakens and/or the yield and relative safety of the security declines. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Portfolio

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

• an increase in interest rates, which may cause the value of the Portfolio’s fixed-income securities, especially bonds with longer maturities, to decline

• prepayment of higher-yielding bonds held by the Portfolio

• the credit quality, earnings performance and other conditions of the companies whose securities the Portfolio holds

• changes in the maturities of bonds owned by the Portfolio

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

• WRIMCO’s skill in evaluating and managing the interest rate and credit risks of the Portfolio

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

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

Who May Want to Invest

Bond Portfolio is designed for investors who primarily seek current income while also seeking to preserve investment principal. You should consider whether the Portfolio fits your particular investment objectives.

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PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Bond Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns and shows how performance has varied from year to year over the past ten calendar years.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2002 (%)	1 Year			5 Years			10 Years
Shares of Bond Portfolio		8.98	%		6.36	%		7.01	%
Citigroup Broad Investment Grade Index		10.09	%		7.53	%		7.53	%
Lipper Variable Annuity Corporate Debt Funds Rated Universe Average		8.53	%		6.52	%		6.96	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goal of the Portfolio.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

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There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.52	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.06	%
Total Annual Portfolio Operating Expenses	0.83	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years		5 Years		10 Years
$85	$	265	$	460	$	1,025

CORE EQUITY PORTFOLIO

Goals

Core Equity Portfolio seeks capital growth and income.

Principal Strategies

Core Equity Portfolio seeks to achieve its goals by investing primarily in common stocks of large U.S. and foreign companies with dominant market positions in their industries. The Portfolio invests in securities that have the potential for capital appreciation, or that WRIMCO expects to resist market decline. Although the Portfolio typically invests in large companies, it may invest in securities of any size company.

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

• profitability record

• history of improving sales and profits

• management

• leadership position in its industry

• stock price value

• dividend payment history

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

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Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Core Equity Portfolio. These include:

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

• the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds

• WRIMCO’s skill in evaluating and selecting securities for the Portfolio

Investments in foreign securities may present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

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

Who May Want to Invest

Core Equity Portfolio is designed for investors who seek capital growth and income. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Core Equity Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns and shows how performance has varied from year to year over the past ten calendar years.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

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AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2002 (%)	1 Year			5 Years			10 Years
Shares of Core Equity Portfolio		-21.63	%		-0.13	%		8.64	%
S&P 500 Index		-22.10	%		-0.59	%		9.34	%
Lipper Variable Annuity Large-Cap Core Funds Universe Average		-23.51	%		-2.13	%		7.28	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goals of the Portfolio.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.70	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.04	%
Total Annual Portfolio Operating Expenses	0.99	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years		5 Years		10 Years
$101	$	315	$	547	$	1,213

GROWTH PORTFOLIO

Goals

Growth Portfolio seeks capital growth, with current income as a secondary goal.

Principal Strategies

Growth Portfolio seeks to achieve its goals by investing primarily in common stocks of U.S. and foreign companies. The Portfolio typically invests in companies having a market capitalization of at least $1 billion, although it may invest in companies of any size. The Portfolio generally emphasizes investments

12

D-12

in the faster growing sectors of the economy, such as the technology, healthcare, financial services and consumer-oriented sectors.

In selecting securities for the Portfolio, WRIMCO utilizes a combination of quantitative and fundamental research. Quantitative research focuses on identifying companies with attractive growth, profitability and valuation measures. Fundamental research analyzes a specific company to examine its competitive position within its industry and to determine its growth expectations. A security may be sold when WRIMCO believes the company’s growth and/or profitability characteristics are deteriorating, it no longer maintains a competitive advantage or more attractive investment opportunities arise.

Principal Risks of Investing in the Portfolio

     A variety of factors can affect the investment performance of Growth Portfolio. These include:

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

• the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds

• the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors and industries

• WRIMCO’s skill in evaluating and selecting securities for the Portfolio

The Portfolio may invest, to a lesser degree, in foreign securities, which present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

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

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

Who May Want to Invest

Growth Portfolio is designed for investors seeking long-term capital appreciation from investment in faster-growing companies and sectors of the economy. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Growth Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns and shows how performance has varied from year to year over the past ten calendar years.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

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AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2002 (%)	1 Year			5 Years			10 Years
Shares of Growth Portfolio		-21.30	%		3.18	%		9.95	%
S&P 500 Index		-22.10	%		-0.59	%		9.34	%
Lipper Variable Annuity Large-Cap Growth Funds Universe Average		-28.65	%		-2.80	%		6.45	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goals of the Portfolio.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.70	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.04	%
Total Annual Portfolio Operating Expenses	0.99	%

D-14

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years		5 Years		10 Years
$101	$	315	$	547	$	1,213

HIGH INCOME PORTFOLIO

Goals

High Income Portfolio seeks, as its primary goal, a high level of current income. As a secondary goal, the Portfolio seeks capital growth when consistent with its primary goal.

Principal Strategies

High Income Portfolio seeks to achieve its goals by investing primarily in high-yield, high-risk, fixed-income securities of U.S. and foreign issuers, the risks of which are, in the judgment of WRIMCO, consistent with the Portfolio’s goals. The Portfolio invests primarily in lower quality bonds, commonly called junk bonds, which include bonds rated BB and below by S&P and Ba and below by Moody’s, or if unrated deemed by WRIMCO to be of comparable quality. The Portfolio may invest an unlimited amount of its total assets in junk bonds. The Portfolio may invest in bonds of any maturity and companies of any size.

The Portfolio may invest up to 20% of its total assets in common stocks in order to seek capital growth. The Portfolio emphasizes a blend of value and growth in its selection of common stock. Value stocks are those whose earnings WRIMCO believes are currently selling below their true worth. Growth stocks are those whose earnings WRIMCO believes are likely to grow faster than the economy.

WRIMCO may look at a number of factors in selecting securities for the Portfolio. These factors include the issuer’s past, current and estimated future:

• financial strength

• cash flow

• management

• borrowing requirements

• responsiveness to changes in interest rates and business conditions

Generally, in determining whether to sell a debt security, WRIMCO uses the same type of analysis that it uses in buying debt securities. For example, WRIMCO may sell a holding if the issuer’s financial strength declines, or is anticipated to decline, to an unacceptable level, or if management of the company weakens. WRIMCO may sell a security if the competitive conditions of a particular industry have increased and WRIMCO believes the Portfolio should, therefore, reduce its exposure to such industry. WRIMCO may also sell a security if, in its opinion, the price of the security has risen to fully reflect the issuer’s improved creditworthiness and other investments with greater potential exist. WRIMCO may choose to sell an equity security if the issuer’s growth potential has diminished. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

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Principal Risks of Investing in the Portfolio

     A variety of factors can affect the investment performance of High Income Portfolio. These include:

• the credit quality, earnings performance and other conditions of the companies whose securities the Portfolio holds

• the susceptibility of junk bonds to greater risks of nonpayment or default, price volatility, and lack of liquidity compared to higher-rated bonds

• an increase in interest rates, which may cause the value of a bond, especially bonds with longer maturities, held by the Portfolio to decline

• the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors and industries

• changes in the maturities of bonds owned by the Portfolio

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

• WRIMCO’s skill in evaluating and managing the interest rate and credit risks of the Portfolio

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies may have limited financial resources, limited product lines or inexperienced management.

Investments in foreign securities also present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

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

Who May Want to Invest

High Income Portfolio is designed for investors who primarily seek a level of current income that is higher than is normally available with securities in the higher rated categories and, secondarily, seek capital growth when consistent with the goal of income. The Portfolio is not suitable for all investors. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the High Income Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns and shows how performance has varied from year to year over the past ten calendar years.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

D-16

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2002 (%)	1 Year			5 Years			10 Years
Shares of High Income Portfolio		-2.02	%		0.52	%		5.97	%
Citigroup High Yield Market Index		-1.53	%		0.64	%		6.08	%
Lipper Variable Annuity High Current Yield Funds Universe Average		-0.69	%		-1.12	%		5.10	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goals of the Portfolio.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.63	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.07	%
Total Annual Portfolio Operating Expenses	0.95	%

D-17

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years		5 Years		10 Years
$97	$	303	$	525	$	1,166

INTERNATIONAL PORTFOLIO

Goals

International Portfolio seeks, as a primary goal, long-term appreciation of capital. As a secondary goal, the Portfolio seeks current income.

Principal Strategies

International Portfolio seeks to achieve its goals by investing primarily in common stocks of foreign companies that WRIMCO believes have the potential for long-term growth represented by economic expansion within a country or region and represented by the restructuring and/or privatization of particular industries. The Portfolio emphasizes growth stocks which are securities of companies whose earnings WRIMCO believes are likely to grow faster than the economy. The Portfolio primarily invests in issuers of developed countries, and may invest in companies of any size.

WRIMCO may look at a number of factors in selecting securities for the Portfolio. These include:

• a company’s growth and earnings potential

• management of the company

• industry position of the company

• strength of the industry

• applicable economic, market and political conditions of the country in which the company is located

Generally, in determining whether to sell a security, WRIMCO uses the same type of analysis that it uses in buying securities of that type. For example, WRIMCO may sell a security if it believes the security no longer offers significant growth potential, if it believes the management of the company has weakened, and/or there exists political or economic instability in the issuer’s country. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Portfolio

     A variety of factors can affect the investment performance of International Portfolio. These include:

• changes in foreign exchange rates, which may affect the value of the securities the Portfolio holds

• the earnings performance, credit quality and other conditions of the issuers whose securities the Portfolio holds

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

• WRIMCO’s skill in evaluating and selecting securities for the Portfolio

D-18

Investing in foreign securities presents additional risks, such as currency fluctuations and political or economic conditions affecting the foreign country. Accounting and disclosure standards also differ from country to country, which makes obtaining reliable research information more difficult. There is the possibility that, due to certain international monetary or political conditions, the Portfolio’s assets may be more volatile than other investment choices.

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies may have limited financial resources, limited product lines or inexperienced management.

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

Who May Want to Invest

International Portfolio is designed for investors seeking long-term appreciation of capital by investing primarily in securities issued by foreign companies. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the International Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns since these shares were first offered and shows how performance has varied from year to year.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

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AVERAGE ANNUAL TOTAL RETURNS							Life of
as of December 31, 2002 (%)	1 Year			5 Years			Portfolio*
Shares of International Portfolio		-18.15	%		1.50	%		5.24	%
Morgan Stanley Capital International E.A.FE. Index		-15.94	%		-2.89	%		0.40	%
Lipper Variable Annuity International Funds Universe Average		-16.53	%		-2.28	%		2.11	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goals of the Portfolio.

*Since May 3, 1994, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above index (including income) are not available, index performance is calculated from April 30, 1994.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.85	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.20	%
Total Annual Portfolio Operating Expenses	1.30	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year		3 Years		5 Years		10 Years
$	132	$	412	$	713	$	1,568

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LIMITED-TERM BOND PORTFOLIO

Goal

Limited-Term Bond Portfolio seeks to provide a high level of current income consistent with preservation of capital.

Principal Strategies

Limited-Term Bond Portfolio seeks to achieve its goal by investing primarily in investment-grade debt securities of U.S. issuers, including corporate bonds, mortgage-backed securities and U.S. Government securities. The Portfolio seeks to identify relative value opportunities between these sectors of the fixed-income market. The Portfolio maintains a dollar-weighted average portfolio maturity of not less than two years and not more than five years. The Portfolio may invest in companies of any size.

WRIMCO may look at a number of factors in selecting securities for the Portfolio. These include:

• the security’s current coupon

• the maturity of the security

• the relative value of the security

• the creditworthiness of the particular issuer (if not backed by the full faith and credit of the U.S. Treasury)

• prepayment risks for mortgage-backed securities and other debt securities with call provisions

Generally, in determining whether to sell a security, WRIMCO uses the same type of analysis that it uses in buying securities. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Limited-Term Bond Portfolio. These include:

• an increase in interest rates, which may cause the value of the Portfolio’s fixed-income securities to decline

• the credit quality, earnings performance and other conditions of the issuers whose securities the Portfolio holds

• prepayment of higher-yielding bonds and mortgage-backed securities held by the Portfolio

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

• WRIMCO’s skill in evaluating and managing the interest rate and credit risks of the Portfolio

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies are more likely to have limited financial resources, limited product lines or inexperienced management.

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

Who May Want to Invest

Limited-Term Bond Portfolio is designed for investors seeking a high level of current income consistent with preservation of capital. You should consider whether the Portfolio fits your particular investment objectives.

D-21

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Limited-Term Bond Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns since these shares were first offered and shows how performance has varied from year to year.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

AVERAGE ANNUAL TOTAL RETURNS							Life of
as of December 31, 2002 (%)	1 Year			5 Years			Portfolio*
Shares of Limited-Term Bond Portfolio		5.43	%		6.32	%		6.50	%
Citigroup 1-5 Year Treasury/ Government Sponsored/ Credit Index		8.08	%		7.16	%		7.06	%
Lipper Variable Annuity Short-Intermediate Investment Grade Debt Funds Universe Average		5.82	%		6.05	%		6.17	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goal of the Portfolio.

*Since May 3, 1994, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above index (including income) are not available, index performance is calculated from April 30, 1994.

D-22

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.50	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.12	%
Total Annual Portfolio Operating Expenses	0.87	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year		3 Years		5 Years		10 Years
$	89	$	278	$	482	$	1,073

MONEY MARKET PORTFOLIO

Goal

Money Market Portfolio seeks maximum current income consistent with stability of principal.

Principal Strategies

Money Market Portfolio seeks to achieve its goal by investing in U.S. dollar-denominated, high-quality money market obligations and instruments. High quality indicates that the securities will be rated in one of the two highest categories by the requisite nationally recognized statistical rating organization (NRSRO), as defined in Rule 2a-7 of the Investment Company Act of 1940, as amended (Rule 2a-7), or if unrated, will be of comparable quality as determined by WRIMCO. The Portfolio seeks, as well, to maintain a net asset value (NAV) of $1.00 per share. The Portfolio maintains a dollar-weighted average maturity of 90 days or less, and the Portfolio invests only in securities with a remaining maturity of not more than 397 calendar days.

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Money Market Portfolio. These include:

• an increase in interest rates, which can cause the value of the Portfolio’s holdings, especially securities with longer maturities, to decline

• the credit quality and other conditions of the issuers whose securities the Portfolio holds

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• adverse bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Portfolio’s holdings to fall as part of a broad market decline

• the skill of WRIMCO in evaluating and managing the interest rate and credit risks of the Portfolio

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

Who May Want to Invest

Money Market Portfolio is designed for investors who are risk-averse and seek to preserve principal while earning current income and saving for short-term needs. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Money Market Portfolio by showing changes in the Portfolio’s performance from year to year and by showing the Portfolio’s average annual total returns for the periods shown.

• The bar chart presents the average annual total returns and shows how performance has varied from year to year over the past ten calendar years.

• The performance table shows average annual total returns.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2002 (%)	1 Year			5 Years			10 Years
Shares of Money Market Portfolio		1.12	%		4.05	%		4.22	%

As of December 31, 2002 the 7-day yield was equal to 0.77%. Yields are computed by annualizing the average daily dividend per share during the time period for which the yield is presented.

D-24

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.40	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.10	%
Total Annual Portfolio Operating Expenses	0.75	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year		3 Years		5 Years		10 Years
$	77	$	240	$	417	$	930

SCIENCE AND TECHNOLOGY PORTFOLIO

Goal

Science and Technology Portfolio seeks long-term capital growth.

Principal Strategies

Science and Technology Portfolio seeks to achieve its goal by concentrating its investments primarily in the equity securities of U.S. and foreign science and technology companies. Science and technology companies are companies whose products, processes or services, in the opinion of WRIMCO, are being or are expected to be significantly benefited by the use or commercial application of scientific or technological developments or discoveries. As well, the Fund may invest in companies that utilize science and/or technology to improve their existing business even though the business is not within the science and technology industries. The Portfolio may invest in companies of any size.

WRIMCO typically emphasizes growth potential in selecting stocks; that is, WRIMCO seeks companies in which earnings are likely to grow faster than the economy. WRIMCO may look at a number of factors in selecting securities for the Portfolio. These include the issuer’s:

• growth potential

• earnings potential

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• management

• industry position

• applicable economic and market conditions

Generally, in determining whether to sell a security, WRIMCO uses the same type of analysis that it uses in buying securities in order to determine whether the security has ceased to offer significant growth potential, has become overvalued and/or whether the company prospects of the issuer have deteriorated. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Science and Technology Portfolio. These include:

• the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors of the science and technology industries

• the volatility of securities of science and technology companies due, in part, to the competitiveness of the industry

• rapid obsolescence of products or processes of companies in which the Portfolio invests

• government regulation in the science and technology industry

• the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds

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

• WRIMCO’s skill in evaluating and selecting securities for the Portfolio

Market risk for small to medium sized companies may be greater than the market risk for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. As well, stocks of smaller companies may experience volatile trading and price fluctuations.

The Portfolio may invest, to a lesser extent, in foreign securities. Investments in foreign securities present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

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

Who May Want to Invest

Science and Technology Portfolio is designed for investors who seek long-term capital growth by investing in a portfolio that concentrates in securities of science and technology companies. This Portfolio is not suitable for all investors. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Science and Technology Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

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• The bar chart presents the average annual total returns since these shares were first offered and shows how performance has varied from year to year.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

AVERAGE ANNUAL TOTAL RETURNS							Life of
as of December 31, 2002 (%)	1 Year			5 Years			Portfolio*
Shares of Science and Technology Portfolio		-23.99	%		16.19	%		16.98	%
Goldman Sachs Technology Industry Composite Index		-40.27	%		-3.26	%		1.36	%
Lipper Variable Annuity Specialty/Miscellaneous Funds Universe Average		-30.90	%		-1.20	%		0.95	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goal of the Portfolio.

*Since April 4, 1997, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above index are not available, index performance is calculated from March 31, 1997.

D-27

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.85	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.07	%
Total Annual Portfolio Operating Expenses	1.17	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year		3 Years		5 Years		10 Years
$	119	$	372	$	644	$	1,420

SMALL CAP PORTFOLIO

Goal

Small Cap Portfolio seeks growth of capital.

Principal Strategies

Small Cap Portfolio seeks to achieve its goal by investing primarily in common stocks of domestic and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper Inc. Small Cap Category (small cap stocks). The Portfolio emphasizes relatively new or unseasoned companies in their early stages of development, or smaller companies positioned in new or emerging industries where there is opportunity for rapid growth.

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

• aggressive or creative management

• technological or specialized expertise

• new or unique products or services

• entry into new or emerging industries

• growth in earnings/growth in sales

• security size and liquidity

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

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Small Cap Portfolio. These include:

• the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds

• the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors and industries

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

• WRIMCO’s skill in evaluating and selecting securities for the Portfolio

Market risk for small to medium sized companies may be greater than the market risk for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. Stocks of smaller companies may also experience volatile trading and price fluctuations.

The Portfolio may invest in foreign securities, which present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

Due to the nature of the Portfolio’s permitted investments, primarily the small cap stocks of new and/or unseasoned companies, companies in their early stages of development or smaller companies in new or emerging industries, the Portfolio may be subject to the following additional risks:

• products offered may fail to sell as anticipated

• a period of unprofitability may be experienced before a company develops the expertise and clientele to succeed in an industry

• the company may never achieve profitability

• economic, market and technological factors may cause the new industry to lose favor with the public

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

Who May Want to Invest

Small Cap Portfolio is designed for investors willing to accept greater risks than are present with many other mutual funds. It is not intended for those investors who desire income and conservation of capital. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Small Cap Portfolio by showing changes in the Portfolio’s performance from year to year and by showing how the Portfolio’s average annual total returns for the periods shown compare with those of a broad measure of market performance.

• The bar chart presents the average annual total returns since these shares were first offered and shows how performance has varied from year to year.

D-29

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

AVERAGE ANNUAL TOTAL RETURNS							Life of
as of December 31, 2002 (%)	1 Year			5 Years			Portfolio*
Shares of Small Cap Portfolio		-21.79	%		2.56	%		11.61	%
Russell 2000 Growth Index		-30.22	%		-6.56	%		2.00	%
Lipper Variable Annuity Small-Cap Growth Funds Universe Average		-30.82	%		-3.27	%		4.14	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goal of the Portfolio.

*Since May 3, 1994, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above index are not available, index performance is calculated from April 30, 1994.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

D-30

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.85	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.05	%
Total Annual Portfolio Operating Expenses	1.15	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

	1 Year	3 Years		5 Years		10 Years
$	117	$	365	$	633	$	1,398

VALUE PORTFOLIO

Goal

Value Portfolio seeks long-term capital appreciation.

Principal Strategies

Value Portfolio seeks to achieve its goal by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Portfolio seeks to invest in stocks that are, in the opinion of WRIMCO, undervalued relative to the true value of the company, and/or are out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Portfolio typically invests in large-cap companies, it may invest in securities of any size company.

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

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Value Portfolio. These include:

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

• the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds

• WRIMCO’s skill in evaluating and selecting securities for the Portfolio

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An investment in foreign securities presents additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

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

Who May Want to Invest

Value Portfolio is designed for investors who seek long-term capital appreciation. You should consider whether the Portfolio fits your particular investment objectives.

PERFORMANCE

The bar chart and performance table below provide some indication of the risks of investing in the Value Portfolio by showing changes in the Portfolio’s performance and by showing how the Portfolio’s average annual total return for the period shown compares with those of a broad measure of market performance.

• The bar chart presents the average annual total returns since these shares were first offered.

• The performance table shows average annual total returns and compares them to the market indicators listed.

• The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Portfolio’s past performance does not necessarily indicate how it will perform in the future.

The Portfolio shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. If the sales charges and expenses charged by these contracts were included, the total returns shown would be lower.

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AVERAGE ANNUAL TOTAL RETURNS
				Life of
as of December 31, 2002 (%)	1 Year			Portfolio*
Shares of Value Portfolio		-12.70	%		-6.70	%
Russell 1000 Value Index		-15.52	%		-12.03	%
Lipper Variable Annuity Multi-Cap Value Funds Universe Average		-18.97	%		-13.54	%

The index shown is a broad-based, securities market index that is unmanaged. The Lipper average is a composite of mutual funds with goals similar to the goals of the Portfolio.

*Since May 1, 2001, the date on which the Portfolio commenced operations. Because the Portfolio commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above index (including income) are not available, index performance is calculated from April 30, 2001.

FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. The table and the example below do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contracts through which this Portfolio is offered. See the contract prospectus for a description of those fees and expenses.

There are no fees or charges to buy and sell shares of the Portfolio, reinvest dividends or exchange into other Portfolios.

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees	0.70	%
Distribution and Service (12b-1) Fees	0.25	%
Other Expenses	0.09	%
Total Annual Portfolio Operating Expenses	1.04	%

EXAMPLE

This example is intended to help you compare the cost of investing in the shares of the Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year		3 Years		5 Years		10 Years
$	106	$	331	$	574	$	1,271

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THE INVESTMENT PRINCIPLES OF THE PORTFOLIOS

INVESTMENT GOALS, PRINCIPAL STRATEGIES AND OTHER INVESTMENTS

Asset Strategy Portfolio

The goal of Asset Strategy Portfolio is to seek high total return over the long term. The Portfolio seeks to achieve its goal by allocating its assets among a diversified portfolio of stocks, bonds, and short-term instruments. There is no guarantee, however, that the Portfolio will achieve its goal.

Allocating assets among different types of investments allows the Portfolio to take advantage of opportunities wherever they may occur, but also subjects the Portfolio to the risks of a given investment type. Stock values generally fluctuate in response to the activities of individual companies and general market and economic conditions. The values of bonds and short-term instruments generally fluctuate due to changes in interest rates and in the credit quality of the issuer.

WRIMCO regularly reviews the Portfolio’s allocation of assets and makes changes to favor investments that it believes provide the best opportunity to achieve the Portfolio’s goal. Although WRIMCO uses its expertise and resources in choosing investments and in allocating assets, WRIMCO’s decisions may not always be beneficial to the Portfolio.

Generally, the mix of assets in the Portfolio will change from time to time depending on WRIMCO’s assessment of the market for each asset class. The range and approximate percentage of the mix for each asset class, as a percentage of total assets of the Portfolio, are listed below. Some types of investments, such as indexed securities, can fall into more than one asset class.

Portfolio Mix	Range
Stock class — 70%		0-100	%
Bond class — 25%		0-100	%
Short-term class — 5%		0-100	%

WRIMCO tries to balance the Portfolio’s investment risks against potentially higher total returns by reducing the stock class allocation during stock market down cycles and increasing the stock class allocation during periods of strongly positive market performance. Typically, WRIMCO makes asset shifts among classes gradually over time. WRIMCO considers various factors when it decides to sell a security, such as an individual security’s performance and/or if it is an appropriate time to vary the Portfolio’s mix.

As a defensive measure, the Portfolio may increase its holdings in the bond or short-term classes when WRIMCO believes that there is a potential bear market, prolonged downturn in stock prices or significant loss in stock value. The Portfolio may utilize derivative instruments for both defensive and speculative purposes. The Portfolio may, as well, invest up to all of the Portfolio’s assets, for temporary defensive purposes, in:

• money market instruments rated A-1 by S&P, or Prime 1 by Moody’s, or unrated securities deemed by WRIMCO to be of comparable quality

• precious metals

Although WRIMCO may seek to preserve appreciation in the Portfolio by taking a temporary defensive position, doing so may prevent the Portfolio from achieving its investment objective.

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Balanced Portfolio

The primary goal of Balanced Portfolio is current income to the extent that, in WRIMCO’s opinion, market and economic conditions permit. As a secondary goal, the Portfolio seeks long-term capital appreciation. The Portfolio seeks to achieve these goals by investing primarily in a diversified mix of stocks, fixed-income securities and cash, depending on market conditions. There is no guarantee, however, that the Portfolio will achieve its goals.

In general, the Portfolio invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Portfolio owns common stocks in order to provide possible appreciation of capital and some dividend income. The Portfolio may also invest in convertible securities. The Portfolio ordinarily invests at least 25% of its total assets in fixed-income senior securities.

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

Bond Portfolio

The goal of Bond Portfolio is a reasonable return with emphasis on preservation of capital. The Portfolio seeks to achieve this goal by investing primarily in a diversified portfolio of debt securities of high quality, and, to a lesser extent, non-investment grade securities, convertible securities and debt securities with warrants attached. The Portfolio may use various techniques, such as investing in put bonds, to manage the duration of its holdings. As a result, as interest rates rise the duration, or price sensitivity to rising interest rates, of the Portfolio’s holdings will typically decline. There is no guarantee, however, that the Portfolio will achieve its goal.

The Portfolio limits its acquisition of securities so that at least 90% of its total assets will consist of debt securities. These debt securities primarily include corporate bonds, mostly of investment grade, and securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. The Portfolio may, however, invest in junk bonds, which are more susceptible to the risk of non-payment or default, and their prices may be more volatile than higher rated bonds.

As well, the Portfolio can invest in foreign securities, which present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

When WRIMCO believes that a defensive position is desirable, due to present or anticipated market or economic conditions, WRIMCO may take a number of actions. The Portfolio may sell longer-term bonds and invest the proceeds in shorter-term bonds or money market instruments.

By taking a temporary defensive position, the Portfolio may not achieve its investment objective.

Core Equity Portfolio

The goals of Core Equity Portfolio are to provide capital growth and income. The Portfolio seeks to achieve its goals by primarily investing, during normal market conditions, in common stocks of large, high-quality U.S., and to a lesser extent foreign, companies that are well known, have been consistently profitable and have dominant market positions in their industries. The Portfolio will, under normal market conditions, invest at least 80% of its net assets in equity securities, primarily common stocks and securities convertible into common stocks. There is no guarantee, however, that the Portfolio will achieve its goals.

When WRIMCO believes that a temporary defensive position is desirable, WRIMCO may take certain steps with respect to all of the Portfolio’s assets, including any one or more of the following:

• hold cash, commercial paper, certificates of deposit or other short-term investments

• invest in debt securities (including short-term U.S. Government securities)

• invest in convertible preferred stock

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By taking a temporary defensive position the Portfolio may not achieve its investment objectives.

Growth Portfolio

The primary goal of Growth Portfolio is capital growth. As a secondary goal, the Portfolio seeks current income. The Portfolio seeks to achieve these goals by investing primarily in a diversified portfolio of common stocks of U.S., and to a lesser extent foreign, companies. Generally, the Portfolio may invest in a wide range of marketable securities that, in WRIMCO’s opinion, offer the potential for growth. There is no guarantee, however, that the Portfolio will achieve its goals.

When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in cash or fixed-income securities or in common stocks chosen for their relative stability rather than for their growth potential. By taking a defensive position, the Portfolio may not achieve its investment objective.

High Income Portfolio

The primary goal of High Income Portfolio is to earn a high level of current income. As a secondary goal, the Portfolio seeks capital growth when consistent with its primary goal. The Portfolio seeks to achieve these goals by investing primarily in a diversified portfolio of high-yield, high-risk, fixed-income securities, the risks of which are, in the judgment of WRIMCO, consistent with the Portfolio’s goals. The Portfolio may own bonds with varying maturities. There is no guarantee, however, that the Portfolio will achieve its goals.

The Portfolio primarily owns debt securities; however, it may also own, to a lesser degree, preferred stocks, common stocks and convertible securities. In general, the high income that the Portfolio seeks is paid by debt securities rated in the lower rating categories of the established rating services or unrated securities that are determined by WRIMCO to be of comparable quality; these include securities rated BBB or lower by S&P, or Baa or lower by Moody’s. Lower-quality debt securities (which include junk bonds) are considered to be speculative and involve greater risk of default or price changes due to changes in the issuer’s creditworthiness. The market prices of these securities may fluctuate more than higher-quality securities and may decline significantly in periods of general economic difficulty.

The Portfolio limits its acquisition of common stocks so that no more than 20% of its total assets will consist of common stocks and no more than 10% of its total assets will consist of non-dividend paying common stocks.

When WRIMCO believes that a full or partial temporary defensive position is desirable, due to present or anticipated market or economic conditions, it may take any one or more of the following steps with respect to the assets in the Portfolio:

• shorten the average maturity of the Portfolio’s debt holdings

• hold cash or cash equivalents (short-term investments, such as commercial paper and certificates of deposit)

• emphasize high-grade debt securities

By taking a temporary defensive position in any one or more of these manners, the Portfolio may not achieve its investment objectives.

International Portfolio

The primary goal of International Portfolio is long-term capital appreciation, with current income as a secondary goal. The Portfolio seeks to achieve these goals by investing primarily in a diversified portfolio of common stocks of growth-oriented foreign issuers. The Portfolio may also invest, to a lesser extent, in preferred stocks and debt securities. The debt securities may be of any maturity and will typically be investment grade. There is no guarantee, however, that the Portfolio will achieve its goals.

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Under normal market conditions, the Portfolio invests at least 80% of its net assets in foreign securities and at least 65% of its total assets in issuers of at least three foreign countries. The Portfolio generally limits its holdings so that no more than 75% of its total assets are invested in issuers of a single foreign country.

When WRIMCO believes that a temporary defensive position is desirable, it may invest up to all of the Portfolio’s assets in debt securities including commercial paper or short-term U.S. Government securities and/or preferred stocks; it may avoid investment in volatile emerging markets and increase investments in more stable, developed countries and industries; it may use forward currency contracts to hedge specific foreign currencies; and it may also invest up to all of the Portfolio’s assets in domestic securities. By taking a temporary defensive position, the Portfolio may not achieve its investment objectives.

Limited-Term Bond Portfolio

The goal of Limited-Term Bond Portfolio is to provide a high level of current income consistent with preservation of capital. The Portfolio seeks to achieve its goal by investing primarily in a diversified portfolio of investment-grade, limited-term debt securities (securities with a dollar-weighted average maturity of two to five years) of U.S. issuers, including U.S. Government securities, which are securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, collateralized mortgage obligations and other asset-backed securities. The Portfolio will invest at least 80% of its net assets in bonds with limited-term maturities. The Portfolio may also own, to a lesser extent, common stocks and convertible securities, including convertible preferred stocks in certain circumstances. There is no guarantee, however, that the Portfolio will achieve its goal.

The maturity of an asset-backed security is the estimated average life of the security, based on certain prescribed models or formulas used by WRIMCO. The maturity of other types of debt securities is the earlier of the call date or the maturity date, as appropriate.

When WRIMCO believes that a temporary defensive position is desirable, it may take certain steps with respect to the Portfolio’s assets, including any one or more of the following:

• shorten the average maturity of its investments

• increase its holdings in short-term investments, cash or cash equivalents

• invest up to all of the Portfolio’s assets in U.S. Treasury securities

By taking a temporary defensive position, the Portfolio may not achieve its investment objective.

Money Market Portfolio

The goal of Money Market Portfolio is maximum current income consistent with stability of principal. The Portfolio seeks to achieve its goal by investing in a diversified portfolio of high-quality money market instruments in accordance with the requirements of Rule 2a-7. There is no guarantee, however, that the Portfolio will achieve its goal.

The Portfolio invests only in the following U.S. dollar-denominated money market obligations and instruments:

• U.S. government obligations (including obligations of U.S. government agencies and instrumentalities)

• bank obligations and instruments secured by bank obligations, such as letters of credit

• commercial paper

• corporate debt obligations, including variable rate master demand notes

• Canadian government obligations

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• certain other obligations (including municipal obligations) guaranteed as to principal and interest by a bank in whose obligations the Portfolio may invest or a corporation in whose commercial paper the Portfolio may invest

The Portfolio only invests in bank obligations if they are obligations of a bank subject to regulation by the U.S. Government, including foreign branches of these banks, or obligations of a foreign bank having total assets of at least $500 million, and instruments secured by any such obligation.

WRIMCO may look at a number of factors in selecting securities for the Portfolio. These include:

• the credit quality of the particular issuer or guarantor of the security

• the maturity of the security

• the relative value of the security

Generally, in determining whether to sell a security, WRIMCO uses the same analysis that it uses in buying securities to determine if the security no longer offers adequate return or no longer complies with Rule 2a-7. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Science and Technology Portfolio

The goal of Science and Technology Portfolio is long-term capital growth. The Portfolio seeks to achieve this goal by investing primarily in science and technology companies. Science and technology companies are companies whose products, processes or services, in WRIMCO’s opinion, are being, or are expected to be, significantly benefited by the use or commercial application of scientific or technological discoveries. As well, the Fund may invest in companies that utilize science and/or technology to improve their existing business even though the business, itself, is not within the science and technology industries. Under normal economic and market conditions, the Portfolio will invest at least 80% of its net assets in securities of science or technology companies or companies benefited by the application of science and technology innovations. There is no guarantee, however, that the Portfolio will achieve its goal.

The Portfolio may invest in such areas as:

• aerospace and defense electronics

• biotechnology

• business machines

• cable and broadband access

• communications and electronic equipment

• computer software and services

• computer systems

• electronics and energy

• electronic media

• genomics

• internet and internet-related services

• medical devices and drugs

• medical and hospital supplies and services

• office equipment and supplies

The Portfolio primarily owns common stocks; however, it may invest, to a lesser extent, in preferred stocks, debt securities and convertible securities. The Portfolio may also invest a limited amount of its assets in foreign securities.

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At times, when WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in U.S. Government securities or other debt securities, mostly of investment grade. The Portfolio may also invest in options and futures contracts for hedging purposes. By taking a temporary defensive position, the Portfolio may not achieve its investment objective.

Small Cap Portfolio

The goal of Small Cap Portfolio is growth of capital. The Portfolio seeks to achieve its goal by investing primarily in common stocks of small cap companies that are relatively new or unseasoned, companies in their early stages of development, or smaller companies positioned in new or emerging industries where there is an opportunity for rapid growth. The Portfolio may occasionally invest in securities of larger companies that, in WRIMCO’s opinion, are being fundamentally changed or revitalized, have a position that is considered strong relative to the market as a whole or otherwise offer unusual opportunities for above average growth.

The Portfolio considers a company’s capitalization at the time the Portfolio acquires the company’s common stock. Common stock of a company whose capitalization exceeds the range of Lipper, Inc. Small Cap Category after purchase will not be sold solely because of its increased capitalization. The Portfolio will, under normal market conditions, invest at least 80% of its net assets in small cap stocks. There is no guarantee, however, that the Portfolio will achieve its goal.

In addition to common stocks, the Portfolio may also invest, to a lesser extent, in securities convertible into common stocks, in preferred stocks and debt securities, mostly of investment grade. The Portfolio may also invest up to 20% of its total assets in foreign securities.

When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in debt securities including commercial paper, short-term U.S. Government securities and/or preferred stocks. The Portfolio may also invest in more established companies, those with longer operating histories than many small cap companies. As well, it may increase the number of issuers in which it invests and thereby limit the Fund’s position size in any particular security. By taking a temporary defensive position, the Portfolio may not achieve its investment objective.

Value Portfolio

The goal of Value Portfolio is to seek long-term appreciation of capital. The Portfolio seeks to achieve its goal by investing primarily in the stocks of large U.S. and foreign companies that are undervalued relative to the true worth of the company. The Portfolio may invest in foreign securities, primarily to provide additional opportunities to invest in quality overlooked growth stocks. There is no guarantee, however, that the Portfolio will achieve its goal.

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

• intrinsic value of the company not reflected in stock price

• historical earnings growth

• future expected earnings growth

• company’s position in its respective industry

• industry conditions

• competitive strategy

• management capabilities

• free cash flow potential

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

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When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in debt securities including commercial paper, short-term U.S. government securities and/or preferred stocks. By taking a temporary defensive position, the Portfolio may not achieve its investment objective.

ADDITIONAL INVESTMENT CONSIDERATIONS

The goal(s) and investment policies of each Portfolio may be changed by the Directors of the Fund without a vote of the Portfolio’s shareholders, unless a policy or restriction is otherwise described.

Each Portfolio may also invest in other types of securities and use certain other instruments in seeking to achieve its goal(s). For example, a Portfolio (other than Money Market Portfolio) may invest in options, futures contracts, asset-backed securities and other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured.

You will find more information in the Statement of Additional Information (SAI) about each Portfolio’s permitted investments and strategies, as well as the restrictions that apply to them.

RISK CONSIDERATIONS OF PRINCIPAL STRATEGIES AND OTHER INVESTMENTS

Risks exist in any investment. Each Portfolio is subject to equity risk and other market risk, financial risk and, in some cases, prepayment risk.

• Market risk is the possibility of a change in the price of the security because of market factors, including changes in interest rates. The prices of common stocks and other equity securities generally fluctuate more than those of other investments. A Portfolio may lose a substantial part, or even all, of its investment in a company’s stock. Growth stocks may experience greater price volatility than value stocks. Bonds with longer maturities are more interest-rate sensitive. For example, if interest rates increase, the value of a bond with a longer maturity is more likely to decrease. Because of market risk, the share price of each Portfolio will likely change as well.

• Financial risk is based on the financial situation of the issuer of the security. To the extent a Portfolio invests in debt securities, the Portfolio’s financial risk depends on the credit quality of the securities in which it invests. For an equity investment, a Portfolio’s financial risk may depend, for example, on the earnings performance of the company issuing the stock.

• Prepayment risk is the possibility that, during periods of falling interest rates, a debt security with a high stated interest rate will be prepaid before its expected maturity date.

Certain types of each Portfolio’s authorized investments and strategies, such as foreign securities, junk bonds and derivative instruments, involve special risks. Depending on how much a Portfolio invests or uses these strategies, these special risks may become significant. For example, foreign investments may subject a Portfolio to restrictions on receiving the investment proceeds from a foreign country, to foreign taxes, and to potential difficulties in enforcing contractual obligations, as well as fluctuations in foreign currency values and other developments that may adversely affect a foreign country. Junk bonds pose a greater risk of nonpayment of interest or principal than higher-rated bonds. Derivative instruments may expose a Portfolio to greater volatility than an investment in a more traditional stock, bond or other security.

Because each Portfolio owns different types of investments, its performance will be affected by a variety of factors. The value of each Portfolio’s investments and the income it may generate will vary from day to day, generally reflecting changes in market conditions, interest rates and other company and economic news. Performance will also depend on WRIMCO’s skill in selecting investments.

Asset Strategy Portfolio, High Income Portfolio, International Portfolio and Science and Technology Portfolio may each actively trade securities in seeking to achieve its goals. Doing so may increase transaction costs (which may reduce performance) and increase distributions paid by the Portfolios.

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THE MANAGEMENT OF THE PORTFOLIOS

PORTFOLIO MANAGEMENT

The Portfolios are managed by WRIMCO, subject to the authority of the Fund’s Board of Directors. WRIMCO provides investment advice to each of the Portfolios and supervises each Portfolio’s investments. WRIMCO and/or its predecessor have served as investment manager to the Fund since its inception and to each of the registered investment companies in the Waddell & Reed Advisors Funds, W&R Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. since their inception. WRIMCO is located at 6300 L Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

Michael L. Avery is primarily responsible for the management of the equity portion of the Asset Strategy Portfolio. Mr. Avery has held his responsibilities for the Asset Strategy Portfolio since January 1997. He is Senior Vice President of WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From March 1995 to March 1998, Mr. Avery was Vice President of, and the Director of Research for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Mr. Avery has served as the portfolio manager for investment companies managed by WRIMCO since February 1994, has served as the Director of Research for WRIMCO and its predecessor since August 1987, and has been an employee of such since June 1981.

Daniel J. Vrabac is primarily responsible for the management of the fixed-income portion of the Asset Strategy Portfolio. Mr. Vrabac has held his responsibilities for the Asset Strategy Portfolio since January 1997. He is Senior Vice President of WRIMCO, Vice President of the Fund and Vice President of other investment companies managed by WRIMCO. From May 1994 to March 1998, Mr. Vrabac was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr. Vrabac has been an employee of WRIMCO since May 1994.

Cynthia P. Prince-Fox is primarily responsible for the management of the Balanced Portfolio. Ms. Prince-Fox has held her responsibilities for Balanced Portfolio since July 1994, the Portfolio’s inception. She is Senior Vice President of WRIMCO, Vice President of the Fund, Vice President of other investment companies for which WRIMCO serves as investment manager and Senior Vice President of Waddell & Reed Ivy Investment Company (“WRIICO”), an affiliate of WRIMCO. From January 1993 to March 1998, Ms. Prince-Fox was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. Ms. Prince-Fox is Co-Chief Investment Officer, Vice President and Portfolio Manager for Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO. Ms. Prince-Fox has served as a portfolio manager for investment companies managed by WRIMCO since January 1993. From February 1983 to January 1993 Ms. Prince-Fox served as an investment analyst for WRIMCO and its predecessor.

James C. Cusser is primarily responsible for the management of the Bond Portfolio. Mr. Cusser has held his responsibilities for Bond Portfolio since August 1992. He is Senior Vice President of WRIMCO, Senior Vice President of WRIICO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO or WRIICO serves as investment manager. Mr. Cusser has been an employee of WRIMCO and has served as a portfolio manager for investment companies managed by WRIMCO since August 1992.

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

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Philip J. Sanders is primarily responsible for the management of the Growth Portfolio. Mr. Sanders has held his responsibilities for Growth Portfolio since August 1998. He is Senior Vice President of WRIMCO and WRIICO and Vice President of the Fund. Mr. Sanders has been an employee of WRIMCO since August 1998. Mr. Sanders was formerly Lead Manager with Tradestreet Investment Associates.

William M. Nelson is primarily responsible for the management of the High Income Portfolio. Mr. Nelson has held his responsibilities for High Income Portfolio since January 1999. He is Vice President of WRIMCO and Vice President of the Fund. Mr. Nelson has been an employee of WRIMCO since January 1995.

Thomas A. Mengel is primarily responsible for the management of the International Portfolio. Mr. Mengel has been an employee of WRIMCO and has held his responsibilities for International Portfolio since May 1996. He is Senior Vice President of WRIMCO, Senior Vice President of WRIICO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO or WRIICO serves as investment manager.

W. Patrick Sterner is primarily responsible for the management of the Limited-Term Bond Portfolio. Mr. Sterner has held his responsibilities for Limited-Term Bond Portfolio since July 1994, the Portfolio’s inception. He is Senior Vice President of WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From August 1992 to March 1998, Mr. Sterner was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr. Sterner has served as a portfolio manager for investment companies managed by WRIMCO since September 1992 and has been an employee of WRIMCO since August 1992.

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

Zachary H. Shafran is primarily responsible for the management of the Science and Technology Portfolio. Mr. Shafran has held his responsibilities for Science and Technology Portfolio since February 2001. He is Senior Vice President of WRIMCO, Senior Vice President of WRIICO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. Mr. Shafran has served as the portfolio manager for investment companies managed by WRIMCO or WRIICO since January 1996. He served as an investment analyst with WRIMCO and its predecessor from June 1990 to January 1996.

Grant P. Sarris is primarily responsible for the management of the Small Cap Portfolio. Mr. Sarris has held his responsibilities for Small Cap Portfolio since February 1999. He is Senior Vice President of WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. Mr. Sarris served as an investment analyst with WRIMCO and its predecessor from October 1991 to January 1996. From January 1996 to May 1998, Mr. Sarris served as an assistant portfolio manager for WRIMCO and since May 1998 he has served as a portfolio manager. Mr. Sarris has been an employee of WRIMCO and its predecessor since October 1991.

Harry M. Flavin and Cynthia P. Prince-Fox are primarily responsible for the management of the Value Portfolio. Mr. Flavin has held his responsibilities for Value Portfolio since the Portfolio’s inception. He is Senior Vice President of WRIMCO, Senior Vice President of WRIICO, Vice President of the Fund and of another investment company managed by WRIMCO, and President, Co-Chief Investment Officer and Director of Austin, Calvert & Flavin, Inc.

Ms. Prince-Fox has held her responsibilities for Value Portfolio since January 2002.

Other members of WRIMCO’s investment management department provide input on market outlook, economic conditions, investment research and other considerations relating to the investments of the Portfolios.

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MANAGEMENT AND OTHER FEES

Like all mutual funds, the Portfolios pay fees related to their daily operations. Expenses paid out of each Portfolio’s assets are reflected in its share price or dividends; they are neither billed directly to shareholders nor deducted from shareholder accounts.

Each Portfolio pays a management fee to WRIMCO for providing investment advice and supervising its investments. Each Portfolio also pays other expenses, which are explained in the SAI.

The management fee is payable at the annual rates of:

for Asset Strategy Portfolio, 0.70% of net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of net assets over $3 billion;

for Balanced Portfolio, 0.70% of net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of net assets over $3 billion;

for Bond Portfolio, 0.525% of net assets up to $500 million, 0.50% of net assets over $500 million and up to $1 billion, 0.45% of net assets over $1 billion and up to $1.5 billion, and 0.40% of net assets over $1.5 billion;

for Core Equity Portfolio, 0.70% of net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of net assets over $3 billion;

for Growth Portfolio, 0.70% of net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of net assets over $3 billion;

for High Income Portfolio, 0.625% of net assets up to $500 million, 0.60% of net assets over $500 million and up to $1 billion, 0.55% of net assets over $1 billion and up to $1.5 billion, and 0.50% of net assets over $1.5 billion;

for International Portfolio, 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion;

for Limited-Term Bond Portfolio, 0.50% of net assets up to $500 million, 0.45% of net assets over $500 million and up to $1 billion, 0.40% of net assets over $1 billion and up to $1.5 billion, and 0.35% of net assets over $1.5 billion;

for Money Market Portfolio, 0.40% of net assets;

for Science & Technology Portfolio, 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion;

for Small Cap Portfolio, 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion; and

for Value Portfolio, 0.70% of net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of net assets over $3 billion.

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WRIMCO has voluntarily agreed to waive its management fee for any day that a portfolio’s net assets are less than $25 million, subject to WRIMCO’s right to change or modify this waiver.

For the fiscal year ended December 31, 2002, management fees for each Portfolio as a percent of each such Portfolio’s average net assets are as follows:

	Management Fees
Asset Strategy Portfolio		0.70	%
Balanced Portfolio		0.70	%
Bond Portfolio		0.52	%
Core Equity Portfolio		0.70	%
Growth Portfolio		0.70	%
High Income Portfolio		0.63	%
International Portfolio		0.85	%
Limited-Term Bond Portfolio		0.50	%1
Money Market Portfolio		0.40	%
Science and Technology Portfolio		0.85	%
Small Cap Portfolio		0.85	%
Value Portfolio		0.70	%

¹ This reflects the maximum annual fee payable and excludes the voluntary waiver. Management fees for the Portfolio, including the voluntary waiver, for the fiscal year ended December 31, 2002 were 0.21%.

The Fund has adopted a Service Plan (Plan) pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended. Under the Plan, each Portfolio may pay daily a fee to Waddell & Reed, Inc., an affiliate of WRIMCO and the Distributor of the Policies for which the Fund is the underlying investment vehicle, in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate Waddell & Reed, Inc. for amounts it expends in connection with the provision of personal services to Policyowners.

PURCHASES AND REDEMPTIONS

The separate accounts of the Participating Insurance Companies place orders to purchase and redeem shares of each Portfolio based on, among other things, the amount of premium payments to be invested and the number of surrender and transfer requests to be effected on any day according to the terms of the Policies. Shares of a Portfolio are sold at their NAV per share next determined after receipt of the order to purchase from the Participating Insurance Company. No sales charge is required to be paid by the Participating Insurance Company for purchase of shares.

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Redemptions are made at the NAV per share of the Portfolio next determined after receipt of the request to redeem from the Participating Insurance Company. Payment is generally made within seven days after receipt of a proper request to redeem. No fee is charged to shareholders upon redemption of Portfolio shares. The Fund may suspend the right of redemption of shares of any Portfolio and may postpone payment for any period if any of the following conditions exist:

• the New York Stock Exchange (NYSE) is closed other than customary weekend and holiday closings or trading on the NYSE is restricted

• the Securities and Exchange Commission has determined that a state of emergency exists which may make payment or transfer not reasonably practicable

• the Securities and Exchange Commission has permitted suspension of the right of redemption of shares for the protection of the security holders of the Fund

• applicable laws and regulations otherwise permit the Fund to suspend payment on the redemption of shares

Redemptions are ordinarily made in cash.

Should any conflict between Policyowners arise which would require that a substantial amount of net assets be withdrawn from the Fund, orderly management of portfolio securities could be disrupted to the potential detriment of Policyowners.

NET ASSET VALUE

In the calculation of the NAV per share of each Portfolio:

• The securities in the Portfolio that are listed or traded on an exchange are valued primarily using market prices.

• Bonds are generally valued according to prices quoted by an independent pricing service.

• Short-term debt securities are valued at amortized cost, which approximates market value.

• Other investment assets for which market prices are unavailable are valued at their fair value by or at the direction of the Board of Directors.

The NAV per share of each Portfolio is normally computed daily as of the close of business of the NYSE, typically 4 p.m. Eastern time, except that an option or futures contract held by a Portfolio may be priced at the close of the regular session of any other securities or commodities exchange on which that instrument is traded.

Money Market Portfolio uses the amortized cost method for valuing its portfolio securities. You will find more information in the SAI about this method.

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

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DIVIDENDS AND DISTRIBUTIONS

Each Portfolio distributes substantially all of its net investment income and net capital gains each year.

Dividends from Money Market Portfolio are declared and paid daily in additional full and fractional shares. Dividends declared for a particular day are paid to shareholders of record on the prior business day. However, dividends declared for Saturday and Sunday are paid to shareholders of record on the preceding Thursday. Dividends from Asset Strategy Portfolio, Balanced Portfolio, Bond Portfolio, Growth Portfolio, High Income Portfolio, Core Equity Portfolio, International Portfolio, Limited-Term Bond Portfolio, Science and Technology Portfolio, Small Cap Portfolio and Value Portfolio usually are declared and paid annually in December in additional full and fractional shares of that Portfolio. Ordinarily, dividends are paid on shares starting on the day after they are issued and through the day they are redeemed.

All distributions from net realized long-term or short-term capital gains of each Portfolio, if any, other than Money Market Portfolio, are declared and paid annually in December in additional full and fractional shares of the respective Portfolio. Short-term capital gains of Money Market Portfolio (it does not anticipate realizing any long-term capital gains) are declared and paid daily in additional full and fractional shares of that Portfolio.

You will find information in the SAI about Federal income tax considerations generally affecting the Portfolios.

Because the only shareholders of the Portfolios are the Participating Insurance Companies and their separate accounts, no discussion is included here as to the Federal income tax consequences to the Portfolios’ shareholders. For information concerning the Federal tax consequences to Policyowners, see the applicable prospectus for the Policy. Prospective investors are urged to consult with their tax advisers.

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W&R Target Funds, Inc.

FINANCIAL HIGHLIGHTS

The following information is to help you understand the financial performance of each Portfolio’s shares for the fiscal periods shown. Certain information reflects financial results for a single Portfolio share. Total return shows how much your investment would have increased (or decreased) during each period, assuming reinvestment of all dividends and distributions. This information has been audited by Deloitte & Touche LLP, whose independent auditors’ report, along with the Portfolio’s financial statements for the fiscal year ended December 31, 2002, is included in the Fund’s Annual Report to Shareholders, which is available upon request.

ASSET STRATEGY PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	6.2046		$	7.0540		$	6.2625		$	5.3868		$	5.1969
Income (loss) from investment operations:
	Net investment income		0.1005			0.1323			0.0908			0.1138			0.1391
	Net realized and unrealized gain (loss) on investments		0.1032			(0.8354	)		1.3211			1.1232			0.3779
Total from investment operations			0.2037			(0.7031	)		1.4119			1.2370			0.5170
Less distributions from:
	Net investment income		(0.1005	)		(0.1334	)		(0.0906	)		(0.1136	)		(0.1391	)
	Capital gains		(0.0000	)		(0.0129	)		(0.5298	)		(0.2477	)		(0.1880	)
Total distributions			(0.1005	)		(0.1463	)		(0.6204	)		(0.3613	)		(0.3271	)
Net asset value, end of period		$	6.3078		$	6.2046		$	7.0540		$	6.2625		$	5.3868
RATIOS/SUPPLEMENTAL DATA
Total return			3.28	%		-9.96	%		22.53	%		22.96	%		9.95	%
Net assets, end of period (in millions)		$	167		$	115		$	59		$	22		$	14
Ratio of expenses to average net assets			1.04	%		1.03	%		0.97	%		0.73	%		1.07	%
Ratio of net investment income to average net assets			1.90	%		2.63	%		1.97	%		2.18	%		2.97	%
Portfolio turnover rate			95.22	%		187.87	%		155.27	%		179.63	%		189.02	%

D-47

BALANCED PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	6.7224		$	7.3258		$	7.3120		$	7.1081			6.7686
Income (loss) from investment operations:
	Net investment income		0.1145			0.1593			0.1873			0.1760			0.1865
	Net realized and unrealized gain (loss) on investments		(0.6801	)		(0.5955	)		0.3361			0.5446			0.4003
Total from investment operations			(0.5656	)		(0.4362	)		0.5234			0.7206			0.5868
Less distributions from:
	Net investment income		(0.1145	)		(0.1593	)		(0.1873	)		(0.1759	)		(0.1865	)
	Capital gains		(0.0000	)		(0.0079	)		(0.3223	)		(0.3408	)		(0.0608	)
Total distributions			(0.1145	)		(0.1672	)		(0.5096	)		(0.5167	)		(0.2473	)
Net asset value, end of period		$	6.0423		$	6.7224		$	7.3258		$	7.3120		$	7.1081
RATIOS/SUPPLEMENTAL DATA
Total return			-8.41	%		-5.94	%		7.14	%		10.14	%		8.67	%
Net assets, end of period (in millions)		$	168		$	178		$	158		$	117		$	92
Ratio of expenses to average net assets			1.01	%		1.00	%		1.01	%		0.95	%		0.74	%
Ratio of net investment income to average net assets			1.79	%		2.44	%		2.81	%		2.56	%		2.92	%
Portfolio turnover rate			58.18	%		38.82	%		42.32	%		62.90	%		54.62	%

D-48

BOND PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	5.3615		$	5.2308		$	5.0497		$	5.4451		$	5.3686
Income (loss) from investment operations:
	Net investment income		0.2396			0.2585			0.3172			0.3173			0.3180
	Net realized and unrealized gain (loss) on investments		0.2417			0.1306			0.1811			(0.3954	)		0.0765
Total from investment operations			0.4813			0.3891			0.4983			(0.0781	)		0.3945
Less distributions from net investment income			(0.2396	)		(0.2584	)		(0.3172	)		(0.3173	)		(0.3180	)
Net asset value, end of period		$	5.6032		$	5.3615		$	5.2308		$	5.0497		$	5.4451
RATIOS/SUPPLEMENTAL DATA
Total return			8.98	%		7.47	%		9.83	%		-1.44	%		7.35	%
Net assets, end of period (in millions)		$	247		$	171		$	117		$	111		$	114
Ratio of expenses to average net assets			0.83	%		0.83	%		0.84	%		0.81	%		0.67	%
Ratio of net investment income to average net assets			4.92	%		5.49	%		6.08	%		5.73	%		5.99	%
Portfolio turnover rate			33.75	%		29.06	%		32.68	%		47.27	%		32.75	%

D-49

CORE EQUITY PORTFOLIO*
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	10.3608		$	12.2027		$	12.9609		$	12.3351		$	11.9615
Income (loss) from investment operations:
	Net investment income		0.0476			0.0231			0.0376			0.1571			0.1752
	Net realized and unrealized gain (loss) on investments		(2.2888	)		(1.8418	)		1.1650			1.3879			2.3532
Total from investment operations			(2.2412	)		(1.8187	)		1.2026			1.5450			2.5284
Less distributions from:
	Net investment income		(0.0476	)		(0.0229	)		(0.0360	)		(0.1570	)		(0.1752	)
	Capital gains		(0.0000	)		(0.0003	)		(1.9248	)		(0.7622	)		(1.9796	)
Total distributions			(0.0476	)		(0.0232	)		(1.9608	)		(0.9192	)		(2.1548	)
Net asset value, end of period		$	8.0720		$	10.3608		$	12.2027		$	12.9609		$	12.3351
RATIOS/SUPPLEMENTAL DATA
Total return			-21.63	%		-14.91	%		9.28	%		12.52	%		21.14	%
Net assets, end of period (in millions)		$	650		$	913		$	1,084		$	941		$	811
Ratio of expenses to average net assets			0.99	%		0.98	%		0.98	%		0.96	%		0.80	%
Ratio of net investment income to average net assets			0.50	%		0.21	%		0.28	%		1.23	%		1.35	%
Portfolio turnover rate			38.37	%		30.50	%		49.11	%		70.20	%		62.84	%

*Core Equity Portfolio, formerly Income Portfolio, changed its name and investment objective effective October 16, 2000.

D-50

GROWTH PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	8.3923		$	9.8831		$	10.8751		$	9.2989		$	7.5679
Income (loss) from investment operations:
	Net investment income		0.0009			0.0246			0.0163			0.0056			0.0456
	Net realized and unrealized gain (loss) on investments		(1.7882	)		(1.4417	)		0.1375			3.1886			2.0215
Total from investment operations			(1.7873	)		(1.4171	)		0.1538			3.1942			2.0671
Less distributions from:
	Net investment income		(0.0009	)		(0.0246	)		(0.0163	)		(0.0056	)		(0.0456	)
	Capital gains		(0.0000	)		(0.0491	)		(1.1295	)		(1.6124	)		(0.2905	)
Total distributions			(0.0009	)		(0.0737	)		(1.1458	)		(1.6180	)		(0.3361	)
Net asset value, end of period		$	6.6041		$	8.3923		$	9.8831		$	10.8751		$	9.2989
RATIOS/SUPPLEMENTAL DATA
Total return			-21.30	%		-14.34	%		1.41	%		34.35	%		27.31	%
Net assets, end of period (in millions)		$	705		$	995		$	1,256		$	1,163		$	825
Ratio of expenses to average net assets			0.99	%		0.97	%		0.96	%		0.96	%		0.80	%
Ratio of net investment income to average net assets			0.01	%		0.27	%		0.14	%		0.06	%		0.55	%
Portfolio turnover rate			40.58	%		50.70	%		56.52	%		65.82	%		75.58	%

D-51

HIGH INCOME PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	3.3261		$	3.3542		$	4.1691		$	4.4143		$	4.7402
Income (loss) from investment operations:
	Net investment income		0.2602			0.3346			0.4107			0.4313			0.4185
	Net realized and unrealized gain (loss) on investments		(0.3275	)		(0.0281	)		(0.8149	)		(0.2452	)		(0.3259	)
Total from investment operations			(0.0673	)		0.3065			(0.4042	)		0.1861			0.0926
Less distributions from net investment income			(0.2602	)		(0.3346	)		(0.4107	)		(0.4313	)		(0.4185	)
Net asset value, end of period		$	2.9986		$	3.3261		$	3.3542		$	4.1691		$	4.4143
RATIOS/SUPPLEMENTAL DATA
Total return			-2.02	%		9.18	%		-9.73	%		4.22	%		1.95	%
Net assets, end of period (in millions)		$	128		$	116		$	102		$	121		$	126
Ratio of expenses to average net assets			0.95	%		0.93	%		0.96	%		0.92	%		0.77	%
Ratio of net investment income to average net assets			8.42	%		9.60	%		10.02	%		9.17	%		8.76	%
Portfolio turnover rate			85.17	%		193.71	%		118.96	%		87.84	%		63.64	%

D-52

INTERNATIONAL PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	5.8536		$	7.8610		$	11.9354		$	7.8176		$	6.3842
Income (loss) from investment operations:
	Net investment income		0.0227			0.0498			0.0298			0.0032			0.0353
	Net realized and unrealized gain (loss) on investments		(1.0853	)		(1.7977	)		(2.8531	)		5.1235			2.1283
Total from investment operations			(1.0626	)		(1.7479	)		(2.8233	)		5.1267			2.1636
Less distributions from:
	Net investment income		(0.0227	)		(0.0419	)		(0.0186	)		(0.0000	)		(0.0353	)
	Capital gains		(0.0000	)		(0.2176	)		(1.2325	)		(1.0089	)		(0.6949	)
Total distributions			(0.0227	)		(0.2595	)		(1.2511	)		(1.0089	)		(0.7302	)
Net asset value, end of period		$	4.7683		$	5.8536		$	7.8610		$	11.9354		$	7.8176
RATIOS/SUPPLEMENTAL DATA
Total return			-18.15	%		-22.23	%		-23.66	%		65.58	%		33.89	%
Net assets, end of period (in millions)		$	139		$	187		$	266		$	300		$	169
Ratio of expenses to average net assets			1.30	%		1.25	%		1.23	%		1.21	%		1.02	%
Ratio of net investment income to average net assets			0.41	%		0.71	%		0.31	%		0.04	%		0.47	%
Portfolio turnover rate			116.21	%		99.52	%		116.84	%		118.71	%		88.84	%

D-53

LIMITED-TERM BOND PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	5.4437		$	5.1666		$	5.0405		$	5.2292		$	5.1882
Income (loss) from investment operations:
	Net investment income		0.1327			0.1971			0.3155			0.2799			0.2935
	Net realized and unrealized gain (loss) on investments		0.1631			0.2771			0.1261			(0.1887	)		0.0522
Total from investment operations			0.2958			0.4742			0.4416			0.0912			0.3457
Less distributions from:
	Net investment income		(0.1327	)		(0.1971	)		(0.3155	)		(0.2799	)		(0.2935	)
	Capital gains		(0.0000	)		(0.0000	)		(0.0000	)		(0.0000	)		(0.0112	)
Total distributions			(0.1327	)		(0.1971	)		(0.3155	)		(0.2799	)		(0.3047	)
Net asset value, end of period		$	5.6068		$	5.4437		$	5.1666		$	5.0405		$	5.2292
RATIOS/SUPPLEMENTAL DATA
Total return			5.43	%		9.21	%		8.73	%		1.74	%		6.66	%
Net assets, end of period (in millions)		$	47		$	16		$	6		$	6		$	5
Ratio of expenses to average net assets including voluntary expense waiver			0.69	%		0.38	%		0.40	%		0.64	%		0.79	%
Ratio of net investment income to average net assets including voluntary expense waiver			3.97	%		5.52	%		6.33	%		5.63	%		5.65	%
Ratio of expenses to average net assets excluding voluntary expense waiver			0.87	%		0.88	%		0.90	%		0.91	%		—
Ratio of net investment income to average net assets excluding voluntary expense waiver			3.79	%		5.02	%		5.83	%		5.36	%		—
Portfolio turnover rate			27.36	%		22.43	%		47.32	%		22.81	%		47.11	%

D-54

MONEY MARKET PORTFOLIO
(For a share outstanding throughout each period)

	For the fiscal year ended December 31,
	2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period	$	1.0000		$	1.0000		$	1.0000		$	1.0000		$	1.0000
Net investment income		0.0113			0.0356			0.0571			0.0450			0.0492
Less dividends declared		(0.0113	)		(0.0356	)		(0.0571	)		(0.0450	)		(0.0492	)
Net asset value, end of period	$	1.0000		$	1.0000		$	1.0000		$	1.0000		$	1.0000
RATIOS/SUPPLEMENTAL DATA
Total return		1.12	%		3.62	%		5.87	%		4.62	%		5.04	%
Net assets, end of period (in millions)	$	103		$	99		$	52		$	64		$	54
Ratio of expenses to average net assets		0.75	%		0.73	%		0.75	%		0.77	%		0.68	%
Ratio of net investment income to average net assets		1.13	%		3.31	%		5.67	%		4.51	%		4.90	%

D-55

SCIENCE AND TECHNOLOGY PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	12.4927		$	14.2542		$	22.4087		$	8.2750		$	5.7726
Income (loss) from investment operations:
	Net investment income (loss)		(0.0245	)		0.0584			0.1151			(0.0309	)		0.0032
	Net realized and unrealized gain (loss) on investments		(2.9720	)		(1.7571	)		(4.8532	)		14.4840			2.6551
Total from investment operations			(2.9965	)		(1.6987	)		(4.7381	)		14.4531			2.6583
Less distributions from:
	Net investment income		(0.0001	)		(0.0589	)		(0.1151	)		(0.0000	)		(0.0032	)
	Capital gains		(0.0000	)		(0.0039	)		(3.3013	)		(0.3194	)		(0.1527	)
Total distributions			(0.0001	)		(0.0628	)		(3.4164	)		(0.3194	)		(0.1559	)
Net asset value, end of period		$	9.4961		$	12.4927		$	14.2542		$	22.4087		$	8.2750
RATIOS/SUPPLEMENTAL DATA
Total return			-23.99	%		-11.91	%		-21.15	%		174.66	%		46.05	%
Net assets, end of period (in millions)		$	195		$	267		$	295		$	253		$	35
Ratio of expenses to average net assets			1.17	%		1.15	%		1.14	%		1.10	%		0.92	%
Ratio of net investment income (loss) to average net assets			-0.23	%		0.47	%		0.64	%		-0.38	%		0.07	%
Portfolio turnover rate			92.25	%		93.19	%		93.76	%		47.36	%		64.72	%

D-56

SMALL CAP PORTFOLIO
(For a share outstanding throughout each period)

		For the fiscal year ended December 31,
		2002			2001			2000			1999			1998
PER-SHARE DATA
Net asset value, beginning of period		$	7.9770		$	8.1345		$	11.6130		$	7.9019		$	8.3316
Income (loss) from investment operations:
	Net investment income (loss)		(0.0458	)		(0.0103	)		0.0717			0.0423			0.0798
	Net realized and unrealized gain (loss) on investments		(1.6924	)		(0.1471	)		(1.5051	)		4.0847			0.8255
Total from investment operations			(1.7382	)		(0.1574	)		(1.4334	)		4.1270			0.9053
Less distributions:
	From net investment income		(0.0000	)		(0.0000	)*		(0.0717	)		(0.0421	)		(0.0798	)
	From capital gains		(0.0000	)		(0.0001	)		(1.9734	)		(0.3738	)		(1.2027	)
	In excess of realized capital gains		(0.0000	)		(0.0000	)		(0.0000	)		(0.0000	)		(0.0525	)
Total distributions			(0.0000	)		(0.0001	)		(2.0451	)		(0.4159	)		(1.3350	)
Net asset value, end of period		$	6.2388		$	7.9770		$	8.1345		$	11.6130		$	7.9019
RATIOS/SUPPLEMENTAL DATA
Total return			-21.79	%		-1.93	%		-12.35	%		52.23	%		10.87	%
Net assets, end of period (in millions)		$	279		$	359		$	345		$	318		$	181
Ratio of expenses to average net assets			1.15	%		1.14	%		1.13	%		1.12	%		0.97	%
Ratio of net investment income (loss) to average net assets			-0.66	%		-0.14	%		0.68	%		0.53	%		0.94	%
Portfolio turnover rate			34.54	%		30.31	%		58.35	%		130.99	%		177.32	%

* Not shown due to rounding.

D-57

VALUE PORTFOLIO
(For a share outstanding throughout each period)

					For the
		For the			period from
		fiscal year			5/1/011
		ended			through
		12/31/02			12/31/01
PER-SHARE DATA
Net asset value, beginning of period		$	5.0815		$	5.0000
Income (loss) from investment operations:
	Net investment income		0.0348			0.0198
	Net realized and unrealized gain (loss) on investments		(0.6799	)		0.0815
Total from investment operations			(0.6451	)		0.1013
Less distributions from net investment income			(0.0348	)		(0.0198	)
Net asset value, end of period		$	4.4016		$	5.0815
RATIOS/SUPPLEMENTAL DATA
Total return			-12.70	%		2.03	%
Net assets, end of period (in millions)		$	75		$	44
Ratio of expenses to average net assets including voluntary expense waiver			1.04	%		0.84	%2
Ratio of net investment income to average net assets including voluntary expense waiver			0.92	%		1.39	%2
Ratio of expenses to average net assets excluding voluntary expense waiver			—	3		1.07	%2
Ratio of net investment income to average net assets excluding voluntary expense waiver			—	3		1.16	%2
Portfolio turnover rate			95.73	%		10.91	%

¹Commencement of operations.

²Annualized.

³Because the Portfolio’s net assets exceeded $25 million for the entire period, there was no waiver of expenses. Therefore, no ratio is provided.

D-58

W&R TARGET FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217

PROSPECTUS

Custodian
	UMB Bank, n. a.
	928 Grand Boulevard
	Kansas City, Missouri 64106
Legal Counsel
	Kirkpatrick & Lockhart LLP
	1800 Massachusetts Avenue NW
	Washington, D. C. 20036
Independent Auditors
	Deloitte & Touche LLP
	1010 Grand Boulevard
	Kansas City, Missouri 64106-2232
Investment Manager
	Waddell & Reed Investment Management Company
	6300 Lamar Avenue
	P. O. Box 29217
	Shawnee Mission, Kansas 66201-9217
	913-236-2000
	888-WADDELL
Accounting Services Agent
	Waddell & Reed Services Company
	6300 Lamar Avenue
	P. O. Box 29217
	Shawnee Mission, Kansas 66201-9217
	913-236-2000
	888-WADDELL
Our INTERNET address is:
	http://www.waddell.com

TABLE OF CONTENTS
An Overview of the Portfolios	2
The Investment Principles of the Portfolios	34
The Management of the Portfolios	41
Purchases and Redemptions	44
Net Asset Value	45
Dividends and Distributions	46
Financial Highlights	47

D-59

W&R TARGET FUNDS, INC.
PROSPECTUS

You can get more information about the Portfolios in—

• the Statement of Additional Information (SAI), which contains detailed information about each Portfolio, particularly its investment policies and practices. You may not be aware of important information about a Portfolio unless you read both the Prospectus and the SAI. The current SAI is on file with the Securities and Exchange Commission (SEC) and it is incorporated into this Prospectus by reference (that is, the SAI is legally part of the Prospectus).

• the Annual and Semiannual Reports to Shareholders, which detail each Portfolio’s actual investments and include financial statements as of the close of the particular annual or semiannual period. The annual report also contains a discussion of the market conditions and investment strategies that significantly affected the Portfolios’ performance during the year covered by the report.

To request a copy of the current SAI or copies of the Portfolios’ most recent Annual and Semiannual reports, without charge, or for other inquiries, contact the Fund or Waddell & Reed, Inc. at the address and telephone number below. Copies of the SAI, Annual and/or Semiannual Report may also be requested at request@waddell.com.

Information about the Fund (including its current SAI and most recent Annual and Semiannual Reports) is available from the SEC’s web site at http://www.sec.gov and may also be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov or from the SEC’s Public Reference Room in Washington, D.C. You can find out about the operation of the Public Reference Room and applicable copying charges by calling 202-942-8090.

The Fund’s SEC file number is: 811-5017.

WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL

D-60

APPENDIX E

W&R TARGET FUNDS, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

913-236-2000
888-WADDELL

             , 2003

PROSPECTUS

     W&R Target Funds, Inc. (Fund) is a management investment company, commonly known as a mutual fund. This Prospectus offers three separate Portfolios of the Fund, each with a separate goal and investment policies.

International II Portfolio seeks long-term capital growth.

Micro Cap Growth Portfolio seeks long-term capital appreciation.

Small Company Value Portfolio seeks long-term accumulation of capital.

     Portfolio shares are not sold to you directly but rather are available to you only through certain variable life insurance policies and variable annuity contracts (Policies) offered by Participating Insurance Companies. This Prospectus contains concise information about the Portfolios of which you should be aware before applying for a Policy. This Prospectus should be read together with the Prospectus for the particular Policy.

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

E-1

An Overview of the Portfolios

International II Portfolio

Goal

International II Portfolio seeks long-term capital growth.

Principal Strategy

International II Portfolio seeks to achieve its goal by investing primarily in equity securities of small, mid and large capitalization foreign companies. The Portfolio primarily invests in common stock but may also invest in foreign investment-grade debt securities.

In selecting equity securities for the Portfolio, Templeton Investment Counsel, LLC, the Portfolio’s investment sub-advisor (Sub-Advisor), performs a company-by-company analysis, rather than focusing on a specific industry or economic sector. The Sub-Advisor concentrates on the market price of a company relative to its view regarding the company’s long-term earnings potential.

Generally, in determining whether to sell a security, the Sub-Advisor uses the same type of analysis that it uses in buying securities. For example, the Sub-Advisor may sell a security if it determines that the issuer’s growth and/or profitability characteristics are deteriorating or the issuer no longer maintains a competitive advantage, more attractive investment opportunities arise, or to raise cash.

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of International II Portfolio. These include:

*	changes in foreign exchange rates, which may affect the value of the securities the Portfolio holds
*	the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds
*	adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Portfolio’s holdings to fall as part of a broad market decline
*	the Sub-Advisor’s skill in evaluating and selecting securities for the Portfolio

Investing in foreign securities presents additional risks, such as currency fluctuations and political or economic conditions affecting the foreign country. Accounting and disclosure standards differ from country to country, which makes obtaining reliable research information more difficult. There is the possibility that, due to certain international monetary or political conditions, the Portfolio’s assets may be more volatile than other investment choices.

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies may have limited financial resources, limited product lines or inexperienced management.

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

Who May Want to Invest

International II Portfolio is designed for investors seeking long-term capital growth by investing primarily in securities issued by foreign companies. You should consider whether the Portfolio fits your particular investment objectives.

Performance

International II Portfolio has not been in operation for a full calendar year; therefore, no performance information is provided in this section.

Fees and Expenses

The following table describes the fees and expenses that you may pay if you buy and hold shares of International II Portfolio. The table and the example below do not reflect any fees and expenses imposed under the Policies through which the Portfolio is offered. See the Prospectus for the particular Policy for a description of those fees and expenses.

E-2

There are no fees or charges to buy and sell shares of International II Portfolio, reinvest dividends or exchange into other Portfolios of the Fund.

Annual Portfolio Operating Expenses

(expenses that are deducted from Portfolio assets)

Management Fees	0.85	%
Distribution and Service	0.25	%
(12b-1) Fees
Other Expenses	0.09	%
Total Annual Portfolio	1.19	%
Operating Expenses

Example

This example is intended to help you compare the cost of investing in the shares of International II Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years
$121		$378

E-3

Micro Cap Growth Portfolio

Goal

Micro Cap Growth Portfolio seeks long-term capital appreciation.

Principal Strategy

Micro Cap Growth Portfolio seeks to achieve its goal by investing primarily in equity securities of domestic and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Russell 2000 Growth Index (micro cap companies) at the time of purchase. The Portfolio primarily invests in common stock but may also invest in preferred stock and securities convertible into equity securities.

In selecting equity securities for the Portfolio, Wall Street Associates, the Portfolio’s investment sub-advisor (Sub-Advisor), seeks to invest in securities of companies that it believes show sustainable earnings growth potential and improving profitability.

Generally, in determining whether to sell a security, the Sub-Advisor uses the same type of analysis that it uses in buying securities. For example, the Sub-Advisor may sell a security if it determines that the issuer’s growth and/or profitability characteristics are deteriorating or the issuer no longer maintains a competitive advantage, more attractive investment opportunities arise, or to raise cash.

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Micro Cap Growth Portfolio. These include:

*	potentially greater price volatility of the equity securities of micro cap companies held by the Portfolio
*	adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Portfolio’s holdings to fall as part of a broad market decline
*	the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds
*	the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors and industries
*	the impact of the Portfolio’s investments in initial public offerings (IPOs)
*	the Sub-Advisor’s skill in evaluating and selecting securities for the Portfolio

Market risk for small-sized companies may be greater than that for medium or large companies due to, among other factors, such companies’ small size, limited product lines, limited access to financing sources and limited management depth. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations.

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

Who May Want to Invest

Micro Cap Growth Portfolio is designed for investors seeking long-term capital appreciation from investment in faster-growing companies. You should consider whether the Portfolio fits your particular investment objectives.

Performance

Micro Cap Growth Portfolio has not been in operation for a full calendar year; therefore, no performance information is provided in this section.

Fees and Expenses

The following table describes the fees and expenses that you may pay if you buy and hold shares of Micro Cap Growth Portfolio. The table and the example below do not reflect any fees and expenses imposed under the Policies through which this Portfolio is offered. See the Prospectus for the particular Policy for a description of those fees and expenses.

E-4

There are no fees or charges to buy and sell shares of Micro Cap Growth Portfolio, reinvest dividends or exchange into other Portfolios.

Annual Portfolio Operating Expenses

(expenses that are deducted from Portfolio assets)

Management Fees	0.95	%
Distribution and Service	0.25	%
(12b-1) Fees
Other Expenses	0.14	%
Total Annual Portfolio	1.34	%
Operating Expenses

Example

This example is intended to help you compare the cost of investing in the shares of Micro Cap Growth Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years
$136		$425

E-5

Small Company Value Portfolio

Goal

Small Company Value Portfolio seeks long-term accumulation of capital.

Principal Strategy

Small Company Value Portfolio seeks to achieve its goal by investing primarily in various types of equity securities of domestic and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category (small cap companies). These equity securities will consist primarily of common stocks but may also include preferred stock and securities convertible into equity securities.

In selecting equity securities for the Portfolio, State Street Research & Management Company, the Portfolio’s investment sub-advisor (Sub-Advisor), searches for those companies that appear to be undervalued or trading below their true worth and examines such features as the company’s financial condition, business prospects, competitive position and business strategy. The Sub-Advisor looks for companies that appear likely to come back into favor with investors, for reasons that may include, for example, good prospective earnings, strong management teams or new products or services. The Portfolio may also invest in growth stocks that are, in the Sub-Advisor’s opinion, temporarily undervalued.

The Portfolio will typically sell a stock when it reaches an acceptable price, its fundamental factors have changed or it has performed below the Sub-Advisor’s expectations. The Sub-Advisor may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Portfolio

A variety of factors can affect the investment performance of Small Company Value Portfolio. These include:

*	potentially greater price volatility of the equity securities of small companies held by the Portfolio
*	adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Portfolio’s holdings to fall as part of a broad market decline
*	the earnings performance, credit quality and other conditions of the companies whose securities the Portfolio holds
*	the mix of securities in the Portfolio, particularly the relative weightings in, and exposure to, different sectors and industries
*	the impact of the Portfolio’s investments in initial public offerings (IPOs)
*	the Sub-Advisor’s skill in evaluating and selecting securities for the Portfolio

Market risk for small-sized companies may be greater than that for medium or large companies due to, among other factors, such companies’ small size, limited product lines, limited access to financing sources and limited management depth. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations.

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

Who May Want to Invest

Small Company Value Portfolio is designed for investors seeking long-term accumulation of capital. You should consider whether the Portfolio fits your particular investment objectives.

Performance

Small Company Value Portfolio has not been in operation for a full calendar year; therefore, no performance information is provided in this section.

E-6

Fees and Expenses

The following table describes the fees and expenses that you may pay if you buy and hold shares of Small Company Value Portfolio. The table and the example below do not reflect any fees and expenses imposed under the Policies through which this Portfolio is offered. See the Prospectus for the particular Policy for a description of those fees and expenses. There are no fees or charges to buy and sell shares of Small Company Value Portfolio, reinvest dividends or exchange into other Portfolios.

Annual Portfolio Operating Expenses

(expenses that are deducted from Portfolio assets)

Management Fees	0.85	%
Distribution and Service	0.25	%
(12b-1) Fees
Other Expenses	0.17	%
Total Annual Portfolio	1.27	%
Operating Expenses

Example

This example is intended to help you compare the cost of investing in the shares of Small Company Value Portfolio with the cost of investing in other portfolios. The example assumes that (a) you invest $10,000 in the shares of the Portfolio for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. The costs in this example would be the same whether or not you redeemed all of your shares at the end of these periods. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 Year	3 Years
$129		$403

The Investment Principles of the Portfolios

Investment Goals, Principal Strategies and Other Investments

International II Portfolio

The goal of International II Portfolio is long-term capital growth. The Portfolio seeks to achieve this goal by investing primarily in equity securities of small, mid and large capitalization foreign companies. The Portfolio may invest in securities of companies or governments in developed foreign markets or in developing or emerging markets. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in issuers of at least three foreign countries.

Equity securities generally entitle the holder to participate in a company’s general operating results and include common stock, preferred stock, warrants or rights to purchase such securities. Under normal market conditions, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in equity securities. There is no guarantee, however, that the Portfolio will achieve its goal.

In selecting equity securities for the Portfolio, the Sub-Advisor performs a company-by-company analysis, rather than focusing on a specific industry or economic sector. The Sub-Advisor concentrates primarily on the market price of a company’s securities relative to its view regarding the company’s long-term earnings potential. The Sub-Advisor typically also considers a company’s historical value measures, including price/earnings ratios, profit margins and liquidation value.

When the Sub-Advisor believes that a temporary defensive position is desirable, it may invest up to all of the Portfolio’s assets in debt securities including commercial paper or short-term U.S. Government securities and/or preferred stocks; it may avoid investment in volatile emerging markets and increase investments in more stable, developed countries and industries; it may use forward currency contracts to hedge specific foreign currencies; and it may also invest up to all of the Portfolio’s assets in domestic securities. By taking a defensive position, the Portfolio may not achieve its investment objective.

E-7

Micro Cap Growth Portfolio

The goal of Micro Cap Growth Portfolio is to seek long-term capital appreciation. The Portfolio seeks to achieve this goal by investing primarily in various types of equity securities of micro cap companies. The Portfolio may occasionally invest in equity securities of larger companies.

The Portfolio considers a company’s capitalization at the time the Portfolio acquires the company’s equity securities. Equity securities of a company whose capitalization exceeds the range of the Russell 2000 Growth Index after purchase will not be sold solely because of its increased capitalization. The Portfolio will, under normal market conditions, invest at least 80% of its net assets in micro cap companies. There is no guarantee, however, that the Portfolio will achieve its goal.

In selecting equity securities for the Portfolio, the Sub-Advisor primarily looks to a company’s potential for sustainable earnings growth and improving profitability. In selecting securities with earnings growth potential, the Sub-Advisor considers such factors as a company’s competitive market position, quality of management, growth strategy, internal operating trends (such as profit margins, cash flows and earnings and revenue growth), overall financial condition, and ability to sustain current rate of growth. In seeking to achieve its investment objective, the Portfolio may also invest in equity securities of companies that the Sub-Advisor believes are temporarily undervalued or show promise of improved results due to new management, products, markets or other factors.

The Portfolio’s investment in equity securities may include common stocks that are part of IPOs. In addition to common stocks, the Portfolio may invest, to a lesser extent, in preferred stocks and securities convertible into equity securities.

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

Small Company Value Portfolio

The goal of Small Company Value Portfolio is to seek long-term accumulation of capital. The Portfolio seeks to achieve this goal by investing primarily in various types of equity securities of small cap companies. The Portfolio may occasionally invest in equity securities of mid and large cap companies, companies which fall outside the capitalization range of companies within the Lipper, Inc. Small Cap Category.

The Portfolio considers a company’s capitalization at the time the Portfolio acquires the company’s equity securities. Equity securities of a company whose capitalization exceeds the range of the Lipper, Inc. Small Cap Category after purchase will not be sold solely because of its increased capitalization. The Portfolio will, under normal market conditions, invest at least 80% of its net assets in small cap companies. There is no guarantee, however, that the Portfolio will achieve its goal.

The Sub-Advisor uses both a “top-down” (assess the market environment) and a “bottom-up” (research individual issuers) analysis of issuers and securities, including the following:

*	intrinsic value of the company not reflected in the stock price
*	historical earnings growth
*	future expected earnings growth
*	company’s position in its respective industry
*	industry conditions
*	competitive strategy
*	management capabilities
*	free cash flow potential

The Portfolio’s purchases of equity securities may include common stocks that are part of IPOs. In addition to common stocks, the Portfolio may also invest, to a lesser extent, in preferred stocks and securities convertible into equity securities.

E-8

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

Additional Investment Considerations

The goal and investment policies of each Portfolio may be changed by the Board of Directors of the Fund without a vote of the Portfolio’s shareholders, unless a policy or restriction is otherwise described.

Each Portfolio may also invest in other types of securities and use certain other instruments in seeking to achieve its goal. For example, a Portfolio may invest in options, futures contracts, asset-backed securities and other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured.

You will find more information in the Statement of Additional Information (SAI) about each Portfolio’s permitted investments and strategies, as well as the restrictions that apply to them.

Risk Considerations of Principal Strategies and Other Investments

Risks exist in any investment. Each Portfolio is subject to equity risk and other market risk, financial risk, sector risk, mid size company risk, and small cap company risk. The Portfolios are also subject to risks specific to their respective investment strategies that include, for International II Portfolio particularly, large company risk, foreign securities risk, emerging market risk, and currency risk, and for Micro Cap Growth Portfolio and Small Company Value Portfolio particularly, IPO risk and micro cap company risk.

*	Market risk is the possibility of a change in the price of the security because of market factors, including changes in interest rates. The prices of common stocks and other equity securities generally fluctuate more than those of other investments. A Portfolio may lose a substantial part, or even all, of its investment in a company’s stock. Growth stocks may experience greater price volatility than value stocks. Bonds with longer maturities are more interest-rate sensitive. For example, if interest rates increase, the value of a bond with a longer maturity is more likely to decrease. Because of market risk, the share price of each Portfolio will likely change as well.
*	Financial risk is based on the financial situation of the issuer of the security. For an equity investment, a Portfolio’s financial risk may depend, for example, on the earnings performance of the company issuing the stock. To the extent a Portfolio invests in debt securities, the Portfolio’s financial risk depends on the credit quality of the securities in which it invests.
*	Sector risk is the possibility that securities of companies in specific industries or sectors of the economy perform differently than the overall market. Such different performance may, at times, be due to changes in the regulatory or competitive environment or in investor perception of a company or sector.
*	IPO risk is the risk that a Portfolio will not be able to sustain the positive effect on performance that may result from investments in IPOs. Investments in IPOs can have a significant positive impact on the Portfolio’s performance. The positive effect of investments of IPOs may not be sustainable because of a number of factors. The Portfolio may not be able to buy shares in some IPOs, or may be able to buy only a small number of shares. Also, the Portfolio may not be able to buy the shares at the commencement of the offering, and the general availability and performance of IPOs are dependent on market psychology and economic conditions. The relative performance impact of IPOs is also likely to decline as a Portfolio grows.
*	Large company risk is the risk that a portfolio of large capitalization company securities may underperform the market as a whole.
*	Mid size company risk is the risk that equity securities of mid capitalization companies may be more vulnerable to adverse developments than those of larger companies due to such companies’ limited product lines, limited markets and financial resources and dependence upon a relatively small management group.

E-9

*	Small and micro cap company risk is the risk that equity securities of small and micro cap companies, respectively, are more susceptible to market volatility than larger companies due to more limited management, resources, product lines and available markets. Such securities are also less frequently traded and more likely to experience wider price fluctuations, which could make them more difficult to sell.
*	Currency risk is the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the Portfolio. Attempts by the Portfolio to minimize the effects of currency fluctuations through the use of foreign currency hedging transactions may not be successful or the Portfolio’s hedging strategies may cause the Portfolio to be unable to take advantage of a favorable change in the value of foreign currencies.
*	Foreign securities risk is the risk that the value of foreign companies or foreign government securities held by the Portfolio may be subject to greater volatility than domestic securities. Risks of foreign securities include, among other things:

Political and Economic Risks. Investing in foreign securities is subject to the risk of political, social or economic instability in the country of the issuer of the security, the difficulty of predicting international trade patterns, the possibility of exchange controls, expropriation, limits on currency removal or nationalization of assets.

Foreign Tax Risk. The Portfolio’s income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the Portfolio may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties. To the extent foreign income taxes are paid by the Portfolio, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes.

Foreign Investment Restriction Risk. Some countries, particularly emerging market countries, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies.

Foreign Securities Market Risk. Securities of many foreign companies may be less liquid and their prices more volatile than securities of domestic companies. Securities of companies traded outside the U.S. may be subject to further risks due to the inexperience of local brokers and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. Foreign stock exchanges and brokers are subject to less governmental regulation, and commissions may be higher than in the U.S. In addition, there may be delays in the settlement of foreign stock exchange transactions.

* Emerging markets risk is the risk that the value of securities issued by companies located in emerging market countries may be subject to greater volatility than foreign securities issued by companies in developed markets. Risks of investing in foreign securities issued by companies in emerging market countries include, among other things, greater social, political and economic instability, lack of liquidity and greater price volatility due to small market size and low trading volume, certain national policies that restrict investment opportunities and the lack of legal structures governing private and foreign investments and private property.

Certain types of each Portfolio’s authorized investments and strategies, such as foreign securities, junk bonds and derivative instruments, involve special risks. Depending on how much a Portfolio invests or uses these strategies, these special risks may become significant. For example, foreign investments may subject a Portfolio to restrictions on receiving the investment proceeds from a foreign country, to foreign taxes, and to potential difficulties in enforcing contractual obligations, as well as fluctuations in foreign currency values and other developments that may adversely affect a foreign country. Junk bonds pose a greater risk of nonpayment of interest or principal than higher-rated bonds. Derivative instruments may expose a Portfolio to greater volatility than an investment in a more traditional stock, bond or other security.

E-10

Because each Portfolio owns different types of investments, its performance will be affected by a variety of factors. The value of each Portfolio’s investments and the income it may generate will vary from day to day, generally reflecting changes in market conditions, interest rates and other company and economic news. Performance will also depend on the Sub-Advisor’s skill in selecting investments.

The Management of the Portfolios

Portfolio Management

The Portfolios are managed by Waddell & Reed Investment Management Company (WRIMCO), subject to the authority of the Fund’s Board of Directors. WRIMCO and/or its predecessor have served as investment manager to the Fund since its inception and to each of the registered investment companies in the Waddell & Reed Advisors Funds and Waddell & Reed InvestEd Portfolios, Inc. since their inception. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Prior to June 30, 2003, WRIMCO managed the Ivy Funds, Inc., which is currently managed by an affiliate of WRIMCO.

The investment sub-advisor of International II Portfolio is Templeton Investment Counsel, LLC (Templeton Counsel), 500 East Broward Boulevard, Fort Lauderdale, Florida 33394. Templeton Counsel provides investment advice to, and generally conducts the investment management program for, International II Portfolio. Edgerton Tucker Scott III is primarily responsible for the management of International II Portfolio and has held his responsibilities for the Portfolio since its inception. Mr. Scott is Vice President and Research Analyst, Templeton Counsel, and serves as the portfolio manager for International Stock Portfolio of Advantus Series Fund, Inc. (Advantus).

The investment sub-advisor of Micro Cap Growth Portfolio is Wall Street Associates (WSA), La Jolla Financial Building, Suite 100, 1200 Prospect Street, La Jolla, California 92037. WSA provides investment advice to, and generally conducts the investment management program for, Micro Cap Growth Portfolio. William Jeffery, III, Kenneth F. McCain and David A. Baratta are primarily responsible for the management of Micro Cap Growth Portfolio and have held their responsibilities for the Portfolio since its inception. Messrs. Jeffery and McCain are Principals and Portfolio Managers, WSA, and Mr. Baratta has been Principal and Portfolio Manager, WSA, since June 1999 and, prior to that, Portfolio Manager and Executive Vice President, Morgan Grenfell, Inc., New York, New York, from October 1994 to June 1999. Messrs. Jeffery, McCain and Baratta serves as the portfolio managers for Micro Cap Growth Portfolio of Advantus.

The investment sub-advisor of Small Company Value Portfolio is State Street Research & Management Company (State Street Research), One Financial Center, Boston, Massachusetts 02111. The Sub-Advisor provides investment advice to, and generally conducts the investment management program for, Small Company Value Portfolio. John Burbank, Paul Haagensen and Caroline Evascu are primarily responsible for the management of Small Company Value Portfolio and have held their responsibilities for the Portfolio since its inception. Mr. Burbank is Senior Vice President, State Street Research. Mr. Haagensen has been Senior Vice President, State Street Research, since 2002 and, prior to that, Portfolio Manager and Senior Analyst, Putnam Investments. Ms. Evascu has been Vice President, State Street Research, since 2001 and, prior to that, Vice President and Senior Analyst, SG Cowen Asset Management, and research associate at Donaldson, Lufkin & Jenrette. Messrs. Burbank and Haagensen serves as the portfolio managers, and Ms. Evascu serves as the associate portfolio manager, of Small Company Value Portfolio of Advantus.

Management and Other Fees

Like all mutual funds, the Portfolios pay fees related to their daily operations. Expenses paid out of each Portfolio’s assets are reflected in its share price or dividends; they are neither billed directly to shareholders nor deducted from shareholder accounts.

Each Portfolio pays a management fee to WRIMCO for providing investment advice and supervising its investments. Each Portfolio also pays other expenses, which are explained in the SAI.

E-11

The management fee is payable at the annual rates of:

for International II Portfolio, 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion;

for Micro Cap Growth Portfolio, 0.95% of net assets up to $1 billion, 0.93% of net assets over $1 billion and up to $2 billion, 0.90% of net assets over $2 billion and up to $3 billion, and 0.86% of net assets over $3 billion; and

for Small Company Value Portfolio, 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion.

WRIMCO uses a portion of the management fees it receives from a Portfolio to pay that Portfolio’s Sub-Advisor.

The Fund has adopted a Service Plan (Plan) pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended. Under the Plan, each Portfolio may pay daily a fee to Waddell & Reed, Inc., an affiliate of WRIMCO and the Distributor of the Policies for which the Fund is the underlying investment vehicle, in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate Waddell & Reed, Inc. for amounts it expends in connection with the provision of personal services to Policyowners.

PURCHASES AND REDEMPTIONS

The separate accounts of the Participating Insurance Companies place orders to purchase and redeem shares of each Portfolio based on, among other things, the amount of premium payments to be invested and the number of surrender and transfer requests to be effected on any day according to the terms of the Policies. Shares of a Portfolio are sold at their net asset value (NAV) per share next determined after receipt of the order to purchase from the Participating Insurance Company. No sales charge is required to be paid by the Participating Insurance Company for purchase of shares.

Redemptions are made at the NAV per share of the Portfolio next determined after receipt of the request to redeem from the Participating Insurance Company. Payment is generally made within seven days after receipt of a proper request to redeem. No fee is charged to shareholders upon redemption of Portfolio shares. The Fund may suspend the right of redemption of shares of any Portfolio and may postpone payment for any period if any of the following conditions exist:

*	the New York Stock Exchange (NYSE) is closed other than customary weekend and holiday closings or trading on the NYSE is restricted
*	the Securities and Exchange Commission has determined that a state of emergency exists which may make payment or transfer not reasonably practicable
*	the Securities and Exchange Commission has permitted suspension of the right of redemption of shares for the protection of the security holders of the Fund
*	applicable laws and regulations otherwise permit the Fund to suspend payment on the redemption of shares

Redemptions are ordinarily made in cash.

Should any conflict between Policyowners arise which would require that a substantial amount of net assets be withdrawn from the Fund, orderly management of portfolio securities could be disrupted to the potential detriment of Policyowners.

E-12

NET ASSET VALUE

In the calculation of the NAV per share of each Portfolio:

*	The securities in the Portfolio that are listed or traded on an exchange are valued primarily using market prices.
*	Bonds are generally valued according to prices quoted by an independent pricing service.
*	Short-term debt securities are valued at amortized cost, which approximates market value.
*	Other investment assets for which market prices are unavailable are valued at their fair value by or at the direction of the Board of Directors.

The NAV per share of each Portfolio is normally computed daily as of the close of business of the NYSE, typically 4 p.m. Eastern time, except that an option or futures contract held by a Portfolio may be priced at the close of the regular session of any other securities or commodities exchange on which that instrument is traded.

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

DIVIDENDS AND DISTRIBUTIONS

Each Portfolio distributes substantially all of its net investment income and net capital gains each year.

Dividends from investment income for each of International II Portfolio, Micro Cap Growth Portfolio and Small Company Value Portfolio will usually be declared and paid annually in December. Dividends declared for a particular day are paid to shareholders of record on the prior business day. However, dividends declared for Saturday and Sunday are paid to shareholders of record on the preceding Thursday. Dividends from the Portfolios usually are declared and paid annually in December in additional full and fractional shares of that Portfolio. Ordinarily, dividends are paid on shares starting on the day after they are issued and through the day they are redeemed.

All distributions from net realized long-term or short-term capital gains of a Portfolio, if any, are declared and paid annually in December in additional full and fractional shares of the Portfolio.

You will find information in the SAI about Federal income tax considerations generally affecting the Portfolios.

Because the only shareholders of the Portfolios are the Participating Insurance Companies and their separate accounts, no discussion is included here as to the Federal income tax consequences to the Portfolios’ shareholders. For information concerning the Federal tax consequences to Policyowners, see the applicable prospectus for the Policy. Prospective investors are urged to consult with their tax advisers.

Financial Highlights

None of the Portfolios has been in operation prior to the date of this Prospectus; therefore, no financial highlights are provided in this section.

E-13

W&R TARGET FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217

PROSPECTUS

Custodian
	UMB Bank, n. a. 928 Grand Boulevard Kansas City, Missouri 64106
Legal Counsel
	Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue NW Washington, D. C. 20036
Independent Auditors
	Deloitte & Touche LLP 1010 Grand Boulevard Kansas City, Missouri 64106-2232
Investment Manager
	Waddell & Reed Investment Management Company 6300 Lamar Avenue P. O. Box 29217 Shawnee Mission, Kansas 66201-9217 913-236-2000 888-WADDELL
Investment Sub-Advisors
	Templeton Investment Counsel, LLC 500 East Broward Boulevard Fort Lauderdale, Florida 33394
	Wall Street Associates La Jolla Financial Building, Suite 100 1200 Prospect Street La Jolla, California 92037
	State Street Research & Management Company One Financial Center Boston, Massachusetts 02111
Accounting Services Agent
	Waddell & Reed Services Company 6300 Lamar Avenue P. O. Box 29217 Shawnee Mission, Kansas 66201-9217 913-236-2000 888-WADDELL
Our INTERNET address is:
	http://www.waddell.com
W&R Target Funds, Inc. PROSPECTUS

You can get more information about the Portfolios in—

* the Statement of Additional Information (SAI), which contains detailed information about each Portfolio, particularly its investment policies and practices. You may not be aware of important information about a Portfolio unless you read both the Prospectus and the SAI. The Portfolios’ current SAI is on file with the Securities and Exchange Commission (SEC), and it is incorporated into this Prospectus by reference (that is, the SAI is legally part of the Prospectus).

To request a copy of the current SAI, without charge, or for other inquiries, contact the Fund or Waddell & Reed, Inc. at the address and telephone number below. Copies of the Portfolios’ SAI may also be requested at request@waddell.com.

Information about the Portfolios and the Fund (including the current SAIs and the Fund’s most recent Annual and Semiannual Reports) is available from the SEC’s web site at http://www.sec.gov and may also be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102, or from the SEC’s Public Reference Room in Washington, D.C. You can find out about the operation of the Public Reference Room and applicable copying charges by calling 202-942-8090.

The Fund’s SEC file number is: 811-5017.

WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL

E-14

PART B

STATEMENT OF ADDITIONAL INFORMATION
dated July __, 2003

Acquisition of the Assets of

ADVANTUS ASSET ALLOCATION PORTFOLIO
ADVANTUS CAPITAL APPRECIATION PORTFOLIO
ADVANTUS GROWTH PORTFOLIO
ADVANTUS CORE EQUITY PORTFOLIO
ADVANTUS VALUE STOCK PORTFOLIO
ADVANTUS SMALL COMPANY GROWTH PORTFOLIO
ADVANTUS INTERNATIONAL STOCK PORTFOLIO
ADVANTUS SMALL COMPANY VALUE PORTFOLIO
ADVANTUS MICRO-CAP GROWTH PORTFOLIO.

(each a series of Advantus Series Fund, Inc.)

400 Robert Street North
St. Paul, Minnesota 55101
Telephone: 1-800-995-3850

By and in Exchange for Shares of

W&R BALANCED PORTFOLIO
W&R GROWTH PORTFOLIO
W&R CORE EQUITY PORTFOLIO
W&R VALUE PORTFOLIO
W&R SMALL CAP PORTFOLIO
W&R INTERNATIONAL II PORTFOLIO
W&R SMALL COMPANY VALUE PORTFOLIO
W&R MICRO-CAP GROWTH PORTFOLIO
(each a series of W&R Target Funds, Inc.)

6300 Lamar Avenue
Shawnee Mission, Kansas 66202
Telephone: 1-888-WADDELL

     This Statement of Additional Information relates specifically to the reorganization of the nine series of Advantus Series Fund, Inc. referenced above (each an “Advantus Fund”) into the respective series of W&R Target Funds, Inc. referenced above (each a “W&R Fund”). Pursuant to this reorganization, each W&R Fund would acquire all of the assets of a corresponding Advantus Fund (or, in the case of W&R Growth Portfolio, of two corresponding Advantus Funds) that has similar investment objectives and strategies, except as described in the Prospectus/Proxy Statement dated July __, 2003, and W&R Fund shares would be distributed pro rata by each Advantus Fund to the holders of its shares, in complete liquidation of the Advantus Fund. For the name of the W&R Fund into which your Advantus Fund would be reorganized, see the Prospectus/Proxy Statement dated July __, 2003.

     This Statement of Additional Information is not a prospectus. A Prospectus/Proxy Statement dated July __, 2003, relating to the above-referenced matters may be obtained from the Advantus Funds at the address and telephone number shown above. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement.

Table of Contents

I. Additional Information About the W&R Funds and the Advantus Funds	2
II. Financial Information	2
III. Pro Forma Financial Statements	4

     I.     Additional Information About the W&R Funds and the Advantus Funds

     This Statement of Additional Information is accompanied by the following documents which contain additional information about the W&R Funds and the Advantus Funds and which are incorporated by reference herein:

1.	The Statement of Additional Information dated May 1, 2003 of Advantus Series Fund, Inc. (“Advantus Series Fund”), in the form filed by the Advantus Series Fund with the Securities and Exchange Commission (the “SEC”) on May 8, 2003 pursuant to Rule 497 (SEC File Number 002-96990), EDGAR Accession Number 0000950134-03-007358.
2.	The Statement of Additional Information dated May 1, 2003 of W&R Target Funds, Inc. (“W&R Target Funds”) in the form filed by the W&R Target Funds with the SEC on May 1, 2003 pursuant to Rule 485(b) (SEC File Number 033-11466), EDGAR Accession Number 0001105607-03-000060.
3.	The Statement of Additional Information dated July          , 2003 of the W&R Target Funds in the form filed by the W&R Target Funds with the SEC on June 10, 2003 pursuant to Rule 485(a) (SEC File Number 033-11466), EDGAR Accession Number 0001105607-03-000100.

     II.     Financial Information

     Historical financial information regarding the W&R Funds and the Advantus Funds is included in the following documents which accompany this Statement of Additional Information and which are incorporated by reference herein:

1.	The Advantus Series Fund’s Annual Report for the fiscal year ended December 31, 2002, in the form filed by the Advantus Series Fund with the SEC on February 28, 2003 (SEC File Number 811-04279), EDGAR Accession Number 0001047469-03-007295.
2.	The W&R Target Fund’s Annual Report for the fiscal year ended December 31, 2002, in the form filed by the W&R Target Fund with the SEC on February 27, 2003 (SEC File Number 811-05017), EDGAR Accession Number 0000810016-03-000001.

     III. Pro Forma Financial Statements

     Set forth on the following pages are pro forma financial statements which are presented to show the effect of the proposed acquisition of each Advantus Fund by the corresponding W&R Fund as if such acquisition had taken place as of the close of business on December 31, 2002. Pro forma financial statements are included for the following fund reorganizations: Advantus Asset Allocation Portfolio into W&R Balanced Portfolio, Advantus Capital Appreciation Portfolio into W&R Growth Portfolio, Advantus Growth Portfolio into W&R Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio into W&R Growth Portfolio Advantus Value Stock Portfolio into W&R Value Portfolio, and Advantus Small Company Growth Portfolio into W&R Small Cap Portfolio. Pursuant to Item 14(a)(2) of the instructions to Part B of Form N-14, pro forma financial statements are not included for the reorganization of Advantus Core Equity Portfolio into W&R Core Equity Portfolio because the net asset value of the fund being acquired does not exceed ten percent of the acquiring fund’s net asset value.

2

Pro forma financial statements are not included for the reorganization of Advantus International Stock Portfolio into W&R International II Portfolio, Advantus Small Company Value Portfolio into W&R Small Company Value Portfolio, and Advantus Micro-Cap Growth Portfolio into W&R Micro-Cap Growth Portfolio because the acquiring funds are newly formed W&R Funds that will not have any assets prior to the Reorganization.

3

W&R TARGET BALANCED PORTFOLIO
ADVANTUS ASSET ALLOCATION PORTFOLIO
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of W&R Target Balanced Portfolio and Advantus Asset Allocation Portfolio as of December 31, 2002 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of W&R Target Balanced Portfolio and Advantus Asset Allocation Portfolio as of December 31, 2002.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on December 31, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of W&R Target Balanced Portfolio and Advantus Asset Allocation Portfolio incorporated by reference in this Statement of Additional Information.

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						COMMON STOCKS
						Air Transportation
			296,200		296,200	Northwest Airlines, Inc.*				2,174,108		2,174,108
	80,000				80,000	Southwest Airlines Co.		1,112,000				1,112,000
						Total		1,112,000		2,174,108		3,286,108
						Aircraft
	39,300		9,700		49,000	Lockheed Martin Corporation		2,269,575		560,175		2,829,750
	58,000				58,000	Raytheon Company		1,783,500				1,783,500
			19,900		19,900	United Technologies Corporation				1,232,606		1,232,606
						Total		4,053,075		1,792,781		5,845,856
						Banks
			75,900		75,900	Bank of America Corporation				5,280,363		5,280,363
			62,160		62,160	Charter One Financial, Inc				1,785,857		1,785,857
			168,500		168,500	CitiGroup, Inc.*				5,929,515		5,929,515
			32,800		32,800	Fleet Boston Financial Corporation				797,040		797,040
	74,900		162,800		237,700	U.S. Bancorp		1,589,378		3,454,616		5,043,994
			187,500		187,500	Wachovia Corporation				6,832,500		6,832,500
	48,500		91,600		140,100	Wells Fargo & Company		2,273,195		4,293,292		6,566,487
			26,300		26,300	Zion BanCorporation				1,034,879		1,034,879
						Total		3,862,573		29,408,062		33,270,635
						Beverages
	29,000				29,000	Anheuser-Busch Companies, Inc		1,403,600				1,403,600
	30,000		16,500		46,500	Coca-Cola Company (The)		1,314,600		723,030		2,037,630
						Total		2,718,200		723,030		3,441,230
						Broadcasting
			97,000		97,000	Clear Channel Communications, Inc.*				3,617,130		3,617,130
			80,514		80,514	Comcast Corporation*				1,858,123		1,858,123
	38,979				38,979	Cox Communications, Inc., Class A*		1,107,004				1,107,004
	64,800				64,800	Fox Entertainment Group, Inc., Class A*		1,680,264				1,680,264
			55,100		55,100	Viacom, Inc.*				2,245,876		2,245,876
						Total		2,787,268		7,721,129		10,508,397
						Business Equipment and Services
			63,631		63,631	Brookfield Properties Corporation				1,285,346		1,285,346
			42,000		42,000	Entegris, Inc.*				432,600		432,600
			30,100		30,100	First Data Corporation				1,065,841		1,065,841
	42,000				42,000	Genuine Parts Company		1,293,600				1,293,600
	55,000		77,800		132,800	Manpower Inc.		1,754,500		2,481,820		4,236,320
						Total		3,048,100		5,265,607		8,313,707
						Capital Equipment
	15,000				15,000	Caterpillar Inc.		685,800				685,800
	44,200				44,200	Cooper Cameron Corporation*		2,202,044				2,202,044
	28,300				28,300	Ingersoll-Rand Company Limited, Class A		1,218,598				1,218,598
						Total		4,106,442		0		4,106,442
						Chemicals — Petroleum and Inorganic
	30,000		70,400		100,400	Dow Chemical Company (The)		891,000		2,090,880		2,981,880
	21,100		101,600		122,700	du Pont (E.I.) de Nemours and Company		894,640		4,307,840		5,202,480

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						Total		1,785,640		6,398,720		8,184,360
						Chemicals — Specialty
	30,000		33,600		63,600	Air Products and Chemicals, Inc.		1,282,500		1,436,400		2,718,900
						Communications Equipment
	80,000		168,400		248,400	Cisco Systems, Inc.*		1,047,600		2,206,040		3,253,640
	87,000				87,000	Nokia Corporation, Series A, ADR		1,348,500				1,348,500
			18,900		18,900	Qualcomm, Inc.*				687,771		687,771
						Total		2,396,100		2,893,811		5,289,911
						Computers — Main and Mini
			66,100		66,100	Hewlett-Packard Company				1,147,496		1,147,496
			50,700		50,700	International Business Machines Corporation				3,929,250		3,929,250
						Total		0		5,076,746		5,076,746
						Computers — Micro
	26,100		113,657		139,757	Dell Computer Corporation*		699,089		3,039,188		3,738,277
						Computers — Peripherals
			75,600		75,600	BEA Systems, Inc.*				867,132		867,132
			90,900		90,900	Brocade Communication Systems, Inc.*				376,326		376,326
	205,000				205,000	EMC Corporation*		1,258,700				1,258,700
	70,400		153,500		223,900	Microsoft Corporation*		3,641,088		7,935,950		11,577,038
			166,500		166,500	Oracle Systems*				1,798,200		1,798,200
			31,000		31,000	Peoplesoft, Inc.*				567,300		567,300
	55,000				55,000	SAP Aktiengesellschaft, ADR		1,072,500				1,072,500
			84,400		84,400	Siebel Systems, Inc.*				631,312		631,312
			349,800		349,800	Symbol Technologies, Inc				2,875,356		2,875,356
						Total		5,972,288		15,051,576		21,023,864
						Cosmetics and Toiletries
			34,400		34,400	Avon Products, Inc.				1,853,128		1,853,128
	50,000				50,000	Estee Lauder Companies Inc. (The), Class A		1,320,000				1,320,000
	36,700				36,700	Gillette Company (The)		1,114,212				1,114,212
						Total		2,434,212		1,853,128		4,287,340
						Electrical Equipment
	34,000				34,000	Emerson Electric Co.		1,728,900				1,728,900
			94,400		94,400	Tyco International, Ltd.				1,612,352		1,612,352
			54,600		54,600	WW Grainger, Inc.				2,814,630		2,814,630
						Total		1,728,900		4,426,982		6,155,882
						Electronic Components
	15,500				15,500	Analog Devices, Inc.*		369,985				369,985
			28,500		28,500	Cree, Inc.*				465,975		465,975
	95,000		68,300		163,300	Intel Corporation		1,479,625		1,063,431		2,543,056
			29,900		29,900	Intersil Corporation*				416,806		416,806
			155,300		155,300	LSI Logic Corporation*				896,081		896,081
			85,600		85,600	National Semiconductor Corporation*				1,284,856		1,284,856
	48,000		135,529		183,529	Texas Instruments Incorporated		720,480		2,034,290		2,754,770
			31,300		31,300	Xilinx, Inc.*				644,780		644,780
						Total		2,570,090		6,806,219		9,376,309

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						Electronic Instruments
	82,400		50,300		132,700	Applied Materials, Inc.*		1,073,672		655,409		1,729,081
	50,000				50,000	Molex Incorporated, Class A		998,500				998,500
			15,600		15,600	Novellus Systems, Inc.*				438,048		438,048
						Total		2,072,172		1,093,457		3,165,629
						Food and Related
	51,100				51,100	ConAgra Foods, Inc.		1,278,011				1,278,011
	12,000				12,000	Dean Foods Company*		445,200				445,200
			55,000		55,000	Kraft Foods, Inc.				2,141,150		2,141,150
			83,700		83,700	Sara Lee Corporation				1,884,087		1,884,087
						Total		1,723,211		4,025,237		5,748,448
						Forest and Paper Products
	32,138				32,138	International Paper Company		1,123,866				1,123,866
	53,000				53,000	Sealed Air Corporation*		1,976,900				1,976,900
			26,800		26,800	Weyerhaeuser Company				1,318,828		1,318,828
						Total		3,100,766		1,318,828		4,419,594
						Furniture and Furnishings
	50,000				50,000	Leggett & Platt, Incorporated		1,122,000				1,122,000
						Gold and Precious Metals
	67,184				67,184	Barrick Gold Corporation		1,035,305				1,035,305
						Health Care — Drugs
			21,400		21,400	Abbott Laboratories				856,000		856,000
			69,200		69,200	Amgen, Inc.*				3,345,128		3,345,128
			35,800		35,800	Eli Lilly & Company				2,273,300		2,273,300
			14,300		14,300	Forest Laboratories, Inc.*				1,404,546		1,404,546
	79,850		255,425		335,275	Pfizer Inc.		2,441,015		7,808,342		10,249,357
	68,380				68,380	Pharmacia Corporation		2,858,284				2,858,284
						Total		5,299,299		15,687,316		20,986,615
						Health Care — General
	30,200		84,700		114,900	Johnson & Johnson		1,622,042		4,549,237		6,171,279
			71,500		71,500	St. Jude Medical, Inc.*				2,839,980		2,839,980
	28,000		66,800		94,800	Wyeth		1,047,200		2,498,320		3,545,520
			30,300		30,300	Zimmer Holdings, Inc.*				1,258,056		1,258,056
						Total		2,669,242		11,145,593		13,814,835
						Hospital Supply and Management
			24,500		24,500	Express Scripts, Inc.*				1,176,980		1,176,980
	35,500				35,500	HCA - The Healthcare Company		1,473,250				1,473,250
	90,000				90,000	Health Management Associates, Inc.,		1,611,000				1,611,000
	30,000				30,000	Medtronic, Inc.		1,368,000				1,368,000
						Total		4,452,250		1,176,980		5,629,230
						Hotels and Gaming
			169,200		169,200	Hilton Hotels				2,150,532		2,150,532
						Household — General Products
			71,400		71,400	Colgate-Palmolive Company				3,743,502		3,743,502
			43,800		43,800	Procter & Gamble Company				3,764,172		3,764,172

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						Total		0		7,507,674		7,507,674
						Insurance – Property and Casualty
			84,500		84,500	Allstate Corporation				3,125,655		3,125,655
	26,000		60,700		86,700	American International Group, Inc.		1,504,100		3,511,495		5,015,595
	600				600	Berkshire Hathaway Inc., Class B*		1,453,800				1,453,800
	32,100				32,100	Chubb Corporation (The)		1,675,620				1,675,620
	23,700				23,700	Hartford Financial Services Group Inc. (The)		1,076,691				1,076,691
						Total		5,710,211		6,637,150		12,347,361
						Leisure Time Industry
			277,650		277,650	Brunswick Corporation				5,514,129		5,514,129
	80,800		195,800		276,600	Walt Disney Company (The)*		1,317,848		3,193,498		4,511,346
						Total		1,317,848		8,707,627		10,025,475
						Motion Pictures
			48,700		48,700	AOL Time Warner, Inc.*				637,970		637,970
						Motor Vehicle Parts
			14,600		14,600	Autozone, Inc.*				1,031,490		1,031,490
	20,000				20,000	Danaher Corporation		1,314,000				1,314,000
			18,000		18,000	Eaton Corporation				1,405,980		1,405,980
			21,400		21,400	Magna International, Inc.				1,201,610		1,201,610
						Total		1,314,000		3,639,080		4,953,080
						Multiple Industry
			35,100		35,100	3M Company				4,327,830		4,327,830
			81,900		81,900	Boardwalk Equities, Inc.				785,421		785,421
			43,200		43,200	Fisher Scientific International, Inc.*				1,299,456		1,299,456
			229,256		229,256	General Electric Company				5,582,384		5,582,384
			9,500		9,500	ITT Industries, Inc.				576,555		576,555
						Total		0		12,571,646		11,995,091
						Petroleum — Canada
	35,000		74,891		109,891	Nabors Industries Ltd.*		1,234,450		2,641,405		3,875,855
						Petroleum — Domestic
	58,200				58,200	Burlington Resources Inc.		2,482,230				2,482,230
			13,200		13,200	Devon Energy Corporation				605,880		605,880
						Total		2,482,230		605,880		3,088,110
						Petroleum — International
			18,800		18,800	Chevron Corporation				1,249,824		1,249,824
	57,746		262,300		320,046	Exxon Mobil Corporation		2,017,645		9,164,762		11,182,407
			14,500		14,500	Royal Dutch Petroleum Company				638,290		638,290
						Total		2,017,645		11,052,876		13,070,521
						Petroleum — Services
			67,400		67,400	Ensco International, Inc.				1,984,930		1,984,930
	9,000				9,000	Schlumberger Limited		378,810				378,810
			60,400		60,400	Smith International, Inc.*				1,970,248		1,970,248
			42,600		42,600	Veritas DGC, Inc.*				665,412		665,412
						Total		378,810		4,620,590		4,999,400

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						Publishing
	30,000				30,000	New York Times Company (The), Class A		1,371,900				1,371,900
						Railroad
			23,700		23,700	Canadian National Railway Company				984,972		984,972
						Real Estate Investment Trust
			61,600		61,600	Developers Diversified Realty Corporation				1,354,584		1,354,584
			61,500		61,500	Prologis				1,546,725		1,546,725
			43,420		43,420	Winston Hotels, Inc.				338,676		338,676
						Total		0		3,239,985		3,239,985
						Restaurants
	53,400		39,300		92,700	McDonald’s Corporation		858,672		631,944		1,490,616
						Retail — Food Stores
			65,700		65,700	CVS Corporation				1,640,529		1,640,529
						Retail — General Merchandise
			66,400		66,400	Family Dollar Stores				2,072,344		2,072,344
			12,500		12,500	Kohl’s Corporation*				699,375		699,375
	54,600				54,600	Target Corporation		1,638,000				1,638,000
	16,000		93,400		109,400	Wal-Mart Stores, Inc.		808,160		4,717,634		5,525,794
						Total		2,446,160		7,489,353		9,935,513
						Retail — Specialty Stores
			51,200		51,200	Bed Bath & Beyond, Inc.*				1,767,936		1,767,936
			38,700		38,700	Lowes Companies, Inc.				1,451,250		1,451,250
						Total		0		3,219,186		3,219,186
						Security and Commodity Brokers
			74,500		74,500	American Express Company				2,633,575		2,633,575
	29,700		20,900		50,600	Fannie Mae		1,910,601		1,344,497		3,255,098
			14,600		14,600	Freddie Mac				862,130		862,130
	13,000		19,000		32,000	Goldman Sachs Group, Inc. (The)		885,300		1,293,900		2,179,200
			51,800		51,800	Merrill Lynch & Company				1,965,810		1,965,810
			33,500		33,500	Morgan Stanley				1,337,320		1,337,320
			46,200		46,200	T. Rowe Price Associates, Inc.				1,260,336		1,260,336
						Total		2,795,901		10,697,568		13,493,469
						Tobacco
			28,700		28,700	Phillip Morris Companies, Inc.				1,163,211		1,163,211
						Trucking and Shipping
			48,700		48,700	Expeditor Washington International, Inc.				1,590,055		1,590,055
	12,500				12,500	Hunt (J.B.) Transport Services, Inc.*		366,312				366,312
						Total		366,312		1,590,055		1,956,367
						Utilities — Electric
			21,400		21,400	Entergy Corporation				975,626		975,626
	25,000				25,000	Exelon Corporation		1,319,250				1,319,250
			161,200		161,200	Nisource, Inc.				3,224,000		3,224,000
			104,000		104,000	Pacific Gas and Electric Company*				1,445,600		1,445,600
			23,400		23,400	Public Service Enterprise Group, Inc.				751,140		751,140

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						Total		1,319,250		6,396,366		7,715,616
						Utilities — Gas and Pipeline
			41,100		41,100	Firstenergy Corporation				1,355,067		1,355,067
						Utilities — Telephone
			24,800		24,800	AT&T Corporation				647,528		647,528
			102,100		102,100	AT&T Wireless Services, Inc.*				576,865		576,865
	26,700		89,100		115,800	BellSouth Corporation		690,729		2,305,017		2,995,746
	49,700		56,200		105,900	SBC Communications Inc.		1,347,367		1,523,582		2,870,949
			54,300		54,300	Sprint Corporation				786,264		786,264
			21,700		21,700	Telephone and Data Systems, Inc.				1,020,334		1,020,334
			100,800		100,800	Verizon Communications				3,906,000		3,906,000
	50,000				50,000	Vodafone Group Plc, ADR		906,000				906,000
						Total		2,944,096		10,765,590		13,709,686
						TOTAL COMMON STOCKS		88,588,207		238,461,154		327,049,361
						CORPORATE DEBT SECURITIES
						Agricultural Products
			1,350		1,350	Archer-Daniels-Midland Company
						7.0%, 2-1-31				1,554,455		1,554,455
			1,150		1,150	Cargill, Inc. 144A Issue
						6.375%, 6-1-12 (C)				1,287,555		1,287,555
						Total		0		2,842,010		2,842,010
						Air Transportation
	360				360	Southwest Airlines Co.,
						7.875%, 9-1-07		405,158				405,158
						Aircraft
	2,500				2,500	Raytheon Company,
						6.5%, 7-15-05		2,696,442				2,696,442
						Banks
			2,900		2,900	St. George Bank Capital Note 144A Issue,
						8.485%, 12-29-49 (B)				3,120,670		3,120,670
			1,250		1,250	Wells Fargo & Company,
						7.55%, 6-21-10				1,487,542		1,487,542
						Total		0		4,608,212		4,608,212
						Beverages
	500				500	Coca-Cola Enterprises Inc.,
						6.7%, 10-15-36		549,730				549,730
			1,150		1,150	Diageo Capital PLC
						3.5%, 11-19-07				1,155,860		1,155,860
						Total		549,730		1,155,860		1,705,590
						Business Equipment and Services
			1,500		1,500	Enterprise Rent-A-Car Company,
						7.5%, 6-15-03 (C)				1,533,175		1,533,175
						Broadcasting
			1,600		1,600	TCI Communications,

SHARES OR										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)					DESCRIPTION	VALUE
W&R TARGET	ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED	ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO	ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
					6.375%, 5-1-03				1,600,112		1,600,112
		1,500		1,500	USA Interactive,
					7.0%, 1-15-13				1,551,036		1,551,036
					Total		0		3,151,148		3,151,148
					Computers — Main and Mini
		1,250		1,250	International Business Machines Corporation
					5.875%, 11-29-32				1,236,876		1,236,876
					Construction Materials
		2,150		2,150	Vulcan Materials, Inc.
					6.4%, 2-1-06				2,376,823		2,376,823
					Finance Companies
		0		0	Asset Securitization Corporation,
					7.55%, 1-13-15 (D)				1,559,444		1,559,444
		1,616		1,616	Chase Mortgage Finance Corporation,
					6.75%, 2-25-25				1,653,360		1,653,360
		1,500		1,500	Citibank Credit Card Issuance Trust,
					1.856%, 12-15-05 (G)				1,499,373		1,499,373
		1,050		1,050	CitiCorporation Mortgage Securities, Inc.,
					6.5%, 10-25-23				1,086,221		1,086,221
		3,000		3,000	First Union-Lehman Brothers Company,
					6.65%, 1-18-08				3,358,191		3,358,191
		1,250		1,250	Fleet Credit Card Master Trust II
					1.56%, 4-15-10 (G)				1,250,605		1,250,605
		1,000		1,000	Fortress CBO Investments, Ltd. 144A Issue,
					7.85%, 7-25-38 (B)				1,107,020		1,107,020
		1,550		1,550	General Electric Capital Corporation,
					6.75%, 3-15-32				1,713,664		1,713,664
		1,200		1,200	General Motors Acceptance Corporation,
					6.125%, 8-28-07				1,214,243		1,214,243
		3,001		3,001	Park Avenue Finance Corporation 144A Issue,
					7.58%, 5-12-07 (C)				3,373,910		3,373,910
					Total		0		17,816,031		17,816,031
					Food and Related
		1,450		1,450	Unilever Capital Corporation,
					5.9%, 11-15-32				1,483,254		1,483,254
					Health Care — General
250				250	American Home Products Corporation,
					7.9%, 2-15-05		276,481				276,481
					Insurance
		1,400		1,400	American International Group,
					3.85%, 11-26-07 (C)				1,435,409		1,435,409
		1,100		1,100	MetLife, Inc.,
					6.5%, 12-15-32				1,141,719		1,141,719
		1,500		1,500	Principal Life Global 144A Issue
					6.25%, 2-15-12 (C)				1,589,986		1,589,986
		1,500		1,500	Prudential Insurance Company of America 144A Issue
					6.6%, 5-15-08 (C)				1,660,137		1,660,137
		1,375		1,375	Stancorp Financial Group, Inc.,

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
BALANCED		ASSET		FORMA			BALANCED		ASSET		FORMA
PORTFOLIO		ALLOCATION		COMBINED			PORTFOLIO		ALLOCATION		COMBINED
						6.875%, 10-1-12				1,408,572		1,408,572
						Total		0		7,235,823		7,235,823
						Multiple Industry
2,500					2,500	Household Finance Corporation,
						6.5%, 1-24-06		2,662,305				2,662,305
						Publishing
			1,350		1,350	Gannett Company, Inc.
						5.5%, 4-1-07				1,468,116		1,468,116
						Real Estate and Investment Trusts
			634,157		634,157	American Housing Trust,
						8.125%, 6-25-18				652,823		652,823
			1,500		1,500	Prologis,
						6.7%, 4-15-04				1,562,592		1,562,592
			1,400		1,400	Reckson Operating Partnership LP,
						7.4%, 3-15-04				1,467,063		1,467,063
			1,750		1,750	Vornado Realty Trust,
						5.625, 6-15-07				1,783,136		1,783,136
						Total		0		5,465,614		5,465,614
						Retail — Specialty Stores
			1,500		1,500	American Stores Company,
						7.2%, 6-9-03				1,530,372		1,530,372
						Security and Commodity Brokers
			1,450		1,450	Morgan Stanley
						6.75%, 4-15-11				1,611,340		1,611,340
						Utlities — Electric
			2,500		2,500	Georgia Power Company
						5.5%, 12-1-05				2,688,140		2,688,140
			1,500		1,500	Hydro-Quebec
						8.0%, 2-1-13				1,903,656		1,903,656
						Total		0		4,591,796		4,591,796
						Utilities — Telephone
	150				150	Southwestern Bell Telephone Company,
						5.77%, 10-14-03		154,623				154,623
						Whole Loan Mortgage-Backed
			317		317	Banco Hipotecario Nacional 144A Issue,
						7.916%, 7-25-09 (B)(E)				78,128		78,128
			2,136		2,136	Banco Hipotecario Nacional 144A Issue,
						8.0%, 3-31-11 (B)(E)				422,873		422,873
			1,344		1,344	GE Capital Mortgage Services, Inc.,
						6.5%, 4-25-13				1,378,765		1,378,765
			465		465	Mellon Residential Funding,
						6.75%, 6-26-28				481,267		481,267
			428		428	Paine Webber Mortgage Acceptance Corporation,
						6.938%, 2-25-24				432,342		432,342
			710		710	Paine Webber Mortgage Acceptance Corporation,
						7.0%, 10-25-23				718,430		718,430

SHARES OR
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION			VALUE		(Unaudited)
W&R TARGET	ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
BALANCED	ASSET		FORMA				BALANCED		ASSET		FORMA
PORTFOLIO	ALLOCATION		COMBINED				PORTFOLIO		ALLOCATION		COMBINED
		1,030		1,030	Prudential Home Mortgage Securities 144A Issue, 6.582%, 4-28-24 (C)					1,045,692		1,045,692
		1,371		1,371	Residential Funding Mortgage Securities 7.0%, 10-25-23					1,414,333		1,414,333
						Total		0		5,971,830		5,971,830
					TOTAL CORPORATE DEBT SECURITIES			6,744,739		64,078,280		70,823,019
					S&P DEPOSITORY RECEIPT
		22,400		22,400	S&P Depository Receipt			0		1,977,696		1,977,696
					UNITED STATES GOVERNMENT SECURITIES
					Agency Obligations
5,000				5,000	Federal Home Loan Mortgage Corporation,
						7.0%, 2-15-03		5,033,965				5,033,965
				1,100		5.5%, 12-1-17				1,142,797		1,142,797
					Federal National Mortgage Association:
750				750		6.51%, 5-6-08		762,228				762,228
500				500		6.19%, 7-7-08		511,131				511,131
1,000				1,000		7.25%, 1-15-10		1,211,720				1,211,720
		1,820		1,820		4.0%, 4-25-22				1,834,926		1,834,926
		2,559		2,559		6.0%, 9-1-17				2,678,146		2,678,146
		270		270		6.0%, 10-1-32				279,846		279,846
		993		993		6.0%, 10-1-32				1,027,883		1,027,883
		228		228		6.0%, 11-1-32				235,503		235,503
		1,667		1,667		6.23%, 1-1-08				1,839,605		1,839,605
		1,740		1,740		6.5%, 10-1-28				1,827,640		1,827,640
		1,569		1,569		6.5%, 2-1-29				1,647,447		1,647,447
		1,135		1,135		6.5%, 12-1-31				1,182,703		1,182,703
		4,167		4,167		6.5%, 2-1-32				4,340,681		4,340,681
		1,416		1,416		6.5%, 4-1-32				1,474,943		1,474,943
		1,533		1,533		6.5%, 7-1-32				1,596,450		1,596,450
		1,867		1,867		6.5%, 8-1-32				1,944,439		1,944,439
		493		493		6.5%, 9-1-32				513,069		513,069
		942		942		6.5%, 9-1-32				981,779		981,779
		1,756		1,756		7.0%, 7-1-31				1,858,237		1,858,237
		1,454		1,454		7.0%, 9-1-31				1,538,933		1,538,933
		1,368		1,368		7.0%, 9-1-31				1,438,858		1,438,858
		371		371		7.0%, 11-1-31				390,407		390,407
		2,182		2,182		7.0%, 2-1-32				2,309,056		2,309,056
		1,770		1,770		7.0%, 2-1-32				1,861,578		1,861,578
		1,013		1,013		7.0%, 3-1-32				1,071,489		1,071,489
		1,447		1,447		7.0%, 6-1-32				1,522,203		1,522,203
		2,054		2,054		7.0%, 7-1-32				2,159,912		2,159,912
		802		802		7.5%, 4-1-31				857,037		857,037
					Government National Mortgage Association:
		441		441		6.0%, 8-15-28				460,650		460,650
		1,346		1,346		6.5%, 11-15-28				1,415,145		1,415,145
		733		733		6.5%, 6-15-32				769,410		769,410
		368		368		6.5%, 7-15-32				386,682		386,682
		1,149		1,149		7.0%, 5-15-26				1,223,574		1,223,574
		182		182		7.5%, 5-15-24				195,760		195,760
		25		25		7.5%, 6-15-28				26,323		26,323
						Total		7,519,044		44,033,111		51,552,155

SHARES OR
PRINCIPAL AMOUNT (000 OMITTED)					DESCRIPTION				VALUE		(Unaudited)
W&R TARGET	ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
BALANCED	ASSET		FORMA				BALANCED		ASSET		FORMA
PORTFOLIO	ALLOCATION		COMBINED				PORTFOLIO		ALLOCATION		COMBINED
					Mortgage-Backed Obligations
6,359				6,359	Federal Home Loan Mortgage Corporation Fixed Rate Participation Certificates, 6.0%, 5-1-16			6,658,207			6,658,207
750				750	Federal National Mortgage Association Fixed Rate Pass-Through Certificates, 7.0%, 9-1-25			793,608			793,608
792				792	Government National Mortgage Association Fixed Rate Pass-Through Certificates, 6.5%, 8-15-28			832,255			832,255
		521		521	Vendee Mortgage Trust, United States Department of Veterans Affiars, 8.293%, 12-15-26					581,792	581,792
						Total		8,284,070		581,792	8,865,862
					Treasury Obligations
					United States Treasury Bonds:
4,000				4,000		7.25%, 8-15-22		5,205,780			5,205,780
5,250				5,250		6.25%, 8-15-23		6,167,931			6,167,931
3,000				3,000		6.75%, 8-15-26		3,753,399			3,753,399
		2,975		2,975		3.375%, 1-15-07 (F)				3,211,412	3,211,412
		2,150		2,150		5.25%, 2-15-29				2,246,666	2,246,666
		900		900		5.375%, 2-15-31				981,140	981,140
		2,500		2,500		5.5%, 8-15-28				2,701,172	2,701,172
		3,550		3,550		6.125%, 8-15-29				4,167,643	4,167,643
					United States Treasury Notes:
2,250				2,250		7.5%, 2-15-05		2,522,988			2,522,988
4,000				4,000		6.5%, 8-15-05		4,474,064			4,474,064
						Total		22,124,162		13,308,033	35,432,195
					Treasury Inflation Protected Obligation
1,000				1,000	United States Treasury Note, 3.0%, 7-15-12 (A)			1,062,656			1,062,656
					TOTAL UNITED STATES GOVERNMENT SECURITIES			38,989,932		57,922,936	96,912,868
					SHORT-TERM SECURITIES
					Banks
5,000				5,000	Wells Fargo & Company, 1.29%, 1-16-03			4,997,313			4,997,313
		200		200	Wells Fargo & Company – Cash Investment Fund, current rate 1.326%					199,912	199,912
						Total		4,997,313		199,912	5,197,225
					Chemicals — Petroleum and Inorganic
4,825				4,825	du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note			4,825,000			4,825,000
					Food and Related
		1,200		1,200	Conagra, Inc., 2.12%, 9-10-03 (G)					1,202,756	1,202,756
4,461				4,461	General Mills, Inc., 1.53%, Master Note			4,461,000			4,461,000

SHARES OR
PRINCIPAL AMOUNT (000 OMITTED)					DESCRIPTION				VALUE		(Unaudited)
W&R TARGET	ADVANTUS		PRO			W&R TARGET			ADVANTUS		PRO
BALANCED	ASSET		FORMA			BALANCED			ASSET		FORMA
PORTFOLIO	ALLOCATION		COMBINED			PORTFOLIO			ALLOCATION		COMBINED
5,000				5,000	Sara Lee Corporation,
					1.48%, 1-6-03		4,998,972					4,998,972
					Total		9,459,972			1,202,756		10,662,728
					Health Care -– Drugs
4,000				4,000	Merck & Co., Inc.,
					1.3%, 1-9-03		3,998,844					3,998,844
4,000				4,000	Pfizer Inc.,
					1.29%, 1-16-03		3,997,850					3,997,850
					Total		7,996,694					7,996,694
					Health Care — General
3,500				3,500	Johnson & Johnson,
					1.27%, 2-3-03		3,495,925					3,495,925
					Multiple Industry
		7,243		7,243	Dreyfus Funds – Cash Management Plus,
					current rate 1.266%					7,243,498		7,243,498
		5,706		5,706	Federated Money Market Obligations Trust – Prime
					Obligations Fund,
					current rate 1.37%					5,706		5,706
					Total		0			7,249,204		7,249,204
					Petroleum — International
2,128				2,128	BP America Inc.,
					1.2%, 1-2-03		2,127,929					2,127,929
		1,500		1,500	Conoco, Inc.,
					2.625%, 4-15-03 (G)					1,502,574		1,502,574
					Total		2,127,929			1,502,574		3,630,503
					Utilities — Telephone
907				907	BellSouth Corporation,
					1.28%, 1-23-03		906,291					906,291
					TOTAL SHORT-TERM SECURITIES		33,809,124			10,154,446		43,963,570
					TOTAL INVESTMENT SECURITIES		168,132,002			372,594,512		540,726,514
					LIABILITIES, NET OF CASH AND OTHER ASSETS		(222,491	)		1,673,405		1,450,914
					NET ASSETS		167,909,511			374,267,917		542,177,428
					Notes to Schedule of Investments
					*No dividends were paid during the preceding 12 months.
					(A)The interest rate for this security is a stated rate, but the interest payments are determined by multiplying the inflation-adjusted principal by one half of the stated rate for each semiannual interest payment date.
					(B)Illiquid security.
					(C)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the total value of these securities amounted to $11,925,804 or 3.2% of net assets.
					(D)Interest only security.
					(E)Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy.
					(F)U.S. Treasury inflation-protected security.
					(G)Floating rate bond.

			Advantus
			Asset		Target		Pro Forma			Pro Forma
			Allocation		Balanced		Adjustments			Combined
Statement of Assets and Liabilities (in thousands)
Assets
	Investment Securities		$	372,595	$	168,132	$	—		$	540,727
	Cash			76		1					77
	Dividends and Interest Receivable			1,388		996					2,384
	Receivable for Investment Securities Sold			1,586		—					1,586
	Receivable for Fund Shares Sold			99		54					153
	Other Assets					2					2
	Collateral for securities loaned			25,138		—					25,138
		Total Assets		400,882		169,185		—			570,067
Liabilities
	Payable for Fund Shares Repurchased			120		91					211
	Payable for Investment Securities Purchased			1,146		1,168					2,314
	Payable to Affiliates			210		8					218
	Other Payables					8					8
	Payable Upon Return of Securities Loaned			25,138		—					25,138
		Total Liabilities		26,614		1,275		—			27,889
Net Assets			$	374,268	$	167,910	$	—		$	542,178
Net Assets			$	374,268	$	167,910	$	—		$	542,178
Shares Outstanding				282,796		27,789		(220,855	)		89,730
Net Asset Value per Share			$	1.3235	$	6.0423	$	—		$	6.0423

The following unaudited Pro Forma Combined Statement of Operations for W&R Target Balanced Portfolio and Advantus Asset Allocation Portfolio has been derived from the Statements of Operations of W&R Target Balanced Portfolio and Advantus Asset Allocation Portfolio for the fiscal year ended December 31, 2002. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on January 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

			Advantus
			Asset			Target			Pro Forma			Pro Forma
			Allocation			Balanced			Adjustments			Combined
Statement of Operations (in thousands)
Investment Income
	Dividends		$	4,065		$	1,247		$	—		$	5,312
	Interest & Other			9,136			3,634			—			12,770
		Total Investment Income		13,201			4,881			—			18,082
Expenses
	Investment Advisory Fees			1,488			1,219			1,488			4,195
	Rule 12b-1 Fees			1,063			435			—			1,498
	Other Expenses			212			104			(86	)		230
		Total Expenses		2,763			1,758			1,402			5,923
Net Investment Income (Loss)				10,438			3,123			(1,402	)		12,159
Realized and Unrealized Gain (Loss)
	Realized net loss on securities			(8,991	)		(14,068	)		—			(23,059	)
	Net change in unrealized appreciation (depreciation)
		on investments		(42,776	)		(4,705	)		—			(47,481	)
		Net gain (loss) on investments		(51,767	)		(18,773	)		—			(70,540	)
Net increase (decrease) in net assets resulting from operations			$	(41,329	)	$	(15,650	)	$	(1,402	)	$	(58,381	)

W&R TARGET BALANCED PORTFOLIO AND ADVANTUS ASSET ALLOCATION PORTFOLIO
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 2002
(Unaudited)

NOTE 1 — Significant Accounting Policies

W&R Target Balanced Portfolio and Advantus Asset Allocation Portfolio (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. W&R Target Balanced Portfolio’s investment objective is to seek current income, with a secondary goal of long-term appreciation of capital. Advantus Asset Allocation Portfolio’s investment objective is to seek as high a level of long-term total rate of return as is consistent with prudent investment risk. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.

Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Gold bullion is valued at the last settlement price for current delivery as calculated by the Commodity Exchange, Inc. as of the close of that exchange. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value.

B.

Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes.

	Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.
C.	Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.
D.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes.
E.	Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company (“WRIMCO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as the Fund’s investment manager. The Fund pays a fee for investment management services. The fee is computed daily based

on the net asset value at the close of business. The fee is payable by the Fund at the following annual rates:

	Annual
Fund	Net Asset Breakpoints	Rate
Balanced Portfolio	Up to $1 Billion		0.700	%
	Over $1 Billion up to $2 Billion		0.650	%
	Over $2 Billion up to $3 Billion		0.600	%
	Over $3 Billion		0.550	%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of incremental security-related costs including the cost of using private transportation for WRIMCO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $11,577, which is included in other expenses.

WRIMCO, the Fund’s investment manager, has agreed to waive a Portfolio’s management fee on any day that the Portfolio’s net assets are less than $25 million, subject to its right to change or modify this waiver.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee
Average
Net Asset Level			Annual Fee
(all dollars in millions)		Rate for Each Portfolio
From $0     to $10			$	0
From $10   to $25			$	11,000
From $25   to $50			$	22,000
From $50   to$100			$	33,000
From $100 to $200			$	44,000
From $200 to $350			$	55,000
From $350 to $550			$	66,000
From $550 to $750			$	77,000
From $750 to $1,000			$	93,500
	$1,000 and Over		$	110,000

The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors’ fees of $8,008, which is included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

W&R TARGET GROWTH PORTFOLIO
ADVANTUS CAPITAL APPRECIATION PORTFOLIO
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of W&R Target Growth Portfolio and Advantus Capital Appreciation Portfolio as of December 31, 2002 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of W&R Target Growth Portfolio and Advantus Capital Appreciation Portfolio as of December 31, 2002.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on December 31, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of W&R Target Growth Portfolio and Advantus Capital Appreciation Portfolio incorporated by reference in this Statement of Additional Information.

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
GROWTH		CAPITAL		FORMA			GROWTH		CAPITAL		FORMA
PORTFOLIO		APPRECIATION		COMBINED			PORTFOLIO		APPRECIATION		COMBINED
						COMMON STOCKS
						Aircraft
	390,400				390,400	Lockheed Martin Corporation		22,545,600				22,545,600
	185,000				185,000	Raytheon Company		5,688,750				5,688,750
			45,200		45,200	United Technologies Corporation				2,799,688		2,799,688
						Total		28,234,350		2,799,688		31,034,038
						Banks
	75,200		24,600		99,800	Bank of America Corporation		5,231,664		1,711,422		6,943,086
			59,125		59,125	Charter One Financial, Inc				1,698,662		1,698,662
	350,100				350,100	Citigroup Inc		12,320,019				12,320,019
	150,000				150,000	Mellon Financial Corporation		3,916,500				3,916,500
	250,200		81,100		331,300	Wells Fargo & Company		11,726,874		3,801,157		15,528,031
						Total		33,195,057		7,211,241		40,406,298
						Beverages
	230,000		74,600		304,600	Anheuser-Busch Companies, Inc		11,132,000		3,610,640		14,742,640
	200,000				200,000	Coca-Cola Company (The)		8,764,000				8,764,000
			58,300		58,300	Pepsi Bottling Group, Inc				1,498,310		1,498,310
			70,900		70,900	Pepsico, Inc				2,993,398		2,993,398
						Total		19,896,000		8,102,348		27,998,348
						Broadcasting
	145,000		98,200		243,200	Clear Channel Communications, Inc.*		5,407,050		3,661,878		9,068,928
			95,400		95,400	Comcast Corporation*				2,155,086		2,155,086
			97,500		97,500	Fox Entertainment Group, Inc.*				2,528,175		2,528,175
	210,000				210,000	Fox Entertainment Group, Inc., Class A*		5,445,300				5,445,300
			113,880		113,880	Liberty Media Corporation*				1,018,087		1,018,087
			148,017		148,017	Viacom Inc.*				6,033,173		6,033,173
	258,442				258,442	Viacom Inc., Class B*		10,534,096				10,534,096
						Total		21,386,446		15,396,399		36,782,845
						Business Equipment and Services
	708,000				708,000	Accenture Ltd, Class A*		12,736,920				12,736,920
	250,000				250,000	BearingPoint, Inc.*		1,725,000				1,725,000
	225,000				225,000	Manpower Inc		7,177,500				7,177,500
			40,500		40,500	Omnicom Group				2,616,300		2,616,300
	390,200				390,200	Staples, Inc.*		7,134,807				7,134,807
						Total		28,774,227		2,616,300		31,390,527
						Capital Equipment
	210,200				210,200	Cooper Cameron Corporation*		10,472,164				10,472,164
	180,000				180,000	Parker Hannifin Corporation		8,303,400				8,303,400
						Total		18,775,564		0		18,775,564
						Chemicals — Specialty
	200,000				200,000	Air Products and Chemicals, Inc		8,550,000				8,550,000
	85,000				85,000	Praxair, Inc		4,910,450				4,910,450
						Total		13,460,450		0		13,460,450

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
GROWTH		CAPITAL		FORMA			GROWTH		CAPITAL		FORMA
PORTFOLIO		APPRECIATION		COMBINED			PORTFOLIO		APPRECIATION		COMBINED
						Communications Equipment
	1,541,900		188,300		1,730,200	Cisco Systems, Inc.*		20,191,181		2,466,730		22,657,911
			98,100		98,100	Harris Corporation				2,580,030		2,580,030
	475,000				475,000	Nokia Corporation, Series A, ADR		7,362,500				7,362,500
						Total		27,553,681		5,046,760		32,600,441
						Computers — Micro
	300,200		96,300		396,500	Dell Computer Corporation*		8,040,857		2,575,062		10,615,919
						Computers — Peripherals
	600,300				600,300	BEA Systems, Inc.*		6,888,442				6,888,442
	1,259,200				1,259,200	EMC Corporation*		7,731,488				7,731,488
			45,200		45,200	Intuit, Inc.*				2,120,784		2,120,784
	494,400		153,600		648,000	Microsoft Corporation*		25,570,368		7,941,120		33,511,488
	475,600				475,600	Oracle Corporation*		5,141,236				5,141,236
	675,200		26,000		701,200	SAP Aktiengesellschaft, ADR		13,166,400		507,000		13,673,400
						Total		58,497,934		10,568,904		69,066,838
						Cosmetics and Toiletries
			78,900		78,900	Estee Lauder Company, Inc. (The)				2,082,960		2,082,960
	350,400		34,200		384,600	Gillette Company (The)		10,638,144		1,038,312		11,676,456
						Total		10,638,144		3,121,272		13,759,416
						Defense
	60,000				60,000	General Dynamics Corporation		4,762,200				4,762,200
						Electrical Equipment
			157,400		157,400	Tyco International, Ltd				2,688,392		2,688,392
						Electronic Components
	260,000				260,000	Altera Corporation*		3,218,800				3,218,800
	210,200		99,800		310,000	Analog Devices, Inc.*		5,017,474		2,382,226		7,399,700
			260,400		260,400	Intel Corporation				4,054,428		4,054,428
	135,000				135,000	Maxim Integrated Products, Inc		4,459,050				4,459,050
	375,200				375,200	Microchip Technology Incorporated		9,177,392				9,177,392
	150,000		127,200		277,200	Texas Instruments Incorporated		2,251,500		1,909,272		4,160,772
	160,000				160,000	Xilinx, Inc.*		3,286,400				3,286,400
						Total		27,410,616		8,345,926		35,756,542
						Electronic Instruments
	482,600				482,600	Applied Materials, Inc.*		6,288,278				6,288,278
			52,800		52,800	Novellus Systems, Inc.*				1,482,624		1,482,624
			83,200		83,200	Teradyne, Inc.*				1,082,432		1,082,432
						Total		6,288,278		2,565,056		8,853,334
						Food and Related
	255,200				255,200	Kraft Foods Inc		9,934,936				9,934,936
						Health Care — Drugs
	100,000				100,000	AmerisourceBergen Corporation		5,431,000				5,431,000
	190,400				190,400	Amgen Inc.*		9,206,792				9,206,792

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
GROWTH		CAPITAL		FORMA			GROWTH		CAPITAL		FORMA
PORTFOLIO		APPRECIATION		COMBINED			PORTFOLIO		APPRECIATION		COMBINED
	110,300		14,500		124,800	Forest Laboratories, Inc.*		10,833,666		1,424,190		12,257,856
			66,700		66,700	Genentech, Inc.*				2,211,772		2,211,772
	100,000		50,800		150,800	Gilead Sciences, Inc.*		3,391,500		1,727,200		5,118,700
			50,400		50,400	Medimmune, Inc.*				1,369,368		1,369,368
	1,027,725		222,275		1,250,000	Pfizer Inc		31,417,553		6,794,947		38,212,500
	280,250				280,250	Pharmacia Corporation		11,714,450				11,714,450
						Total		71,994,961		13,527,477		85,522,438
						Health Care — General
	180,000		125,400		305,400	Biomet, Inc		5,164,200		3,593,964		8,758,164
	213,800		87,696		301,496	Johnson & Johnson		11,483,198		4,710,152		16,193,350
			78,700		78,700	Wyeth				2,943,380		2,943,380
	195,000				195,000	Zimmer Holdings, Inc.*		8,096,400				8,096,400
						Total		24,743,798		11,247,496		35,991,294
						Hospital Supply and Management
			36,900		36,900	Anthem, Inc.*				2,321,010		2,321,010
	100,000		51,500		151,500	HCA — The Healthcare Company		4,150,000		2,137,250		6,287,250
	935,700				935,700	Health Management Associates, Inc., Class A		16,749,030				16,749,030
	235,400		108,300		343,700	Medtronic, Inc		10,734,240		4,938,480		15,672,720
						Total		31,633,270		9,396,740		41,030,010
						Hotels and Gaming
	75,000				75,000	International Game Technology*		5,694,000				5,694,000
						Household — General Products
	126,800				126,800	Procter & Gamble Company (The)		10,897,192				10,897,192
						Insurance — Property and Casualty
	108,812		101,500		210,312	American International Group, Inc		6,294,774		5,871,775		12,166,549
			1,380		1,380	Berkshire Hathaway, Inc.*				3,343,740		3,343,740
						Total		6,294,774		9,215,515		15,510,289
						Leisure Time Industry
			52,100		52,100	Carnival Corporation				1,299,895		1,299,895
						Motion Pictures
			194,250		194,250	AOL Time Warner, Inc.*				2,544,675		2,544,675
						Motor Vehicle Parts
	145,200				145,200	AutoZone, Inc.*		10,258,380				10,258,380
	60,000		71,100		131,100	Danaher Corporation		3,942,000		4,671,270		8,613,270
						Total		14,200,380		4,671,270		18,871,650
						Motor Vehicles
	190,800				190,800	Harley-Davidson, Inc		8,814,960				8,814,960
						Multiple Industry
			164,200		164,200	General Electric Company				3,998,270		3,998,270
						Petroleum — Domestic

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
GROWTH		CAPITAL		FORMA			GROWTH		CAPITAL		FORMA
PORTFOLIO		APPRECIATION		COMBINED			PORTFOLIO		APPRECIATION		COMBINED
	235,200				235,200	Anadarko Petroleum Corporation		11,266,080				11,266,080
	290,000				290,000	Burlington Resources Inc		12,368,500				12,368,500
						Total		23,634,580		0		23,634,580
						Petroleum — International
	310,000				310,000	Exxon Mobil Corporation		10,831,400				10,831,400
						Petroleum — Services
	255,000				255,000	Baker Hughes Incorporated		8,208,450				8,208,450
	130,200				130,200	Smith International, Inc.*		4,247,124				4,247,124
			31,900		31,900	Transocean Offshore, Inc				740,080		740,080
			22,800		22,800	Weatherford International, Ltd.*				910,404		910,404
						Total		12,455,574		1,650,484		14,106,058
						Publishing
			30,300		30,300	Gannett Company, Inc				2,175,540		2,175,540
						Restaurants
			58,000		58,000	Wendys International, Inc				1,570,060		1,570,060
						Retail — General Merchandise
	180,000				180,000	Kohl’s Corporation*		10,071,000				10,071,000
	385,300		88,200		473,500	Target Corporation		11,559,000		2,646,000		14,205,000
			63,700		63,700	Wal-Mart Stores, Inc				3,217,487		3,217,487
						Total		21,630,000		5,863,487		27,493,487
						Retail — Specialty Stores
	300,100		114,797		414,897	Home Depot, Inc. (The)		7,190,396		2,750,536		9,940,932
	240,400				240,400	Lowe’s Companies, Inc		9,015,000				9,015,000
						Total		16,205,396		2,750,536		18,955,932
						Security and Commodity Brokers
	330,400				330,400	Charles Schwab Corporation (The)		3,584,840				3,584,840
	233,800				233,800	Fannie Mae		15,040,354				15,040,354
	240,200		28,100		268,300	Freddie Mac		14,183,810		1,659,305		15,843,115
	190,200				190,200	Goldman Sachs Group, Inc. (The)		12,952,620				12,952,620
	240,200				240,200	Prudential Financial, Inc		7,623,948				7,623,948
			32,700		32,700	SLM Corporation				3,396,222		3,396,222
						Total		53,385,572		5,055,527		58,441,099
						Trucking and Shipping
			70,100		70,100	United Parcel Service, Inc				4,421,908		4,421,908
						Utilities — Telephone
	200,000				200,000	Vodafone Group Plc, ADR		3,624,000				3,624,000
						TOTAL COMMON STOCKS		632,888,597		150,426,228		783,314,825
						SHORT-TERM SECURITIES
						Commercial Paper
						Banks

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET			ADVANTUS		PRO
GROWTH		CAPITAL		FORMA			GROWTH			CAPITAL		FORMA
PORTFOLIO		APPRECIATION		COMBINED			PORTFOLIO			APPRECIATION		COMBINED
	10,000				10,000	Bank One Corporation, 1.25%, 1-22-03		9,992,708					9,992,708
						Wells Fargo & Company — Cash Investment Fund
			2,987,763		2,987,763	current rate 1.326%					2,987,763		2,987,763
						Total		9,992,708			2,987,763		12,980,471
						Food and Related
						ConAgra Foods, Inc.,
	6,895				6,895	1.42%, 1-13-03		6,891,737					6,891,737
						General Mills, Inc.,
	1,214				1,214	1.53%, Master Note		1,214,000					1,214,000
						Total		8,105,737			0		8,105,737
						Forest and Paper Products
						Sonoco Products Co.,
	4,000				4,000	1.38%, 1-16-03		3,997,700					3,997,700
						Health Care — Drugs
						Alcon Finance PLC (Nestle S.A.),
	7,000				7,000	1.33%, 1-17-03		6,995,862					6,995,862
						Pfizer Inc.,
	7,000				7,000	1.31%, 1-23-03		6,994,396					6,994,396
						Pharmacia Corporation:
	5,000				5,000	1.32%, 1-21-03		4,996,334					4,996,334
	10,000				10,000	1.35%, 1-21-03		9,992,500					9,992,500
						Total		28,979,092			0		28,979,092
						Health Care — General
						Johnson & Johnson:
	4,500				4,500	1.27%, 2-3-03		4,494,761					4,494,761
	5,000				5,000	1.26%, 2-5-03		4,993,875					4,993,875
						Total		9,488,636			0		9,488,636
						Household — General Products
						Procter & Gamble Company (The),
	7,000				7,000	1.3%, 2-10-03		6,989,889					6,989,889
						Utilities — Telephone
						SBC International Inc.,
	4,500				4,500	1.32%, 1-16-03		4,497,525					4,497,525
						Total Commercial Paper		72,051,287			2,987,763		75,039,050
						United States Government Security
	5,000				5,000	United States Treasury Bill,
						1.24%, 5-8-03		4,978,216					4,978,216
						TOTAL SHORT-TERM SECURITIES		77,029,503			2,987,763		80,017,266
						TOTAL INVESTMENT SECURITIES		709,918,100			153,413,991		863,332,091
						LIABILITIES, NET OF CASH AND OTHER ASSETS		(5,274,053	)		73,903		(5,200,150	)
						NET ASSETS		704,644,047			153,487,894		858,131,941
						Notes to Schedule of Investments

* No income dividends were paid during the preceding 12 months.

			Advantus		Target
			Capital Apprec.		Growth		Pro Forma			Pro Forma
			Portfolio		Portfolio		Adjustments			Combined
Statement of Assets and Liabilities (in thousands)
Assets
	Investment Securities		$	153,414	$	709,918	$	—		$	863,332
	Cash					1					1
	Dividends and Interest Receivable			209		184					393
	Receivable for Investment Securities Sold					2,721					2,721
	Receivable for Fund Shares Sold			81		110					191
	Other Assets					8					8
	Collateral for securities loaned			2,764		—					2,764
		Total Assets		156,468		712,942		—			869,410
Liabilities Payable for Fund Shares Repurchased				111		261					372
	Payable for Investment Securities Purchased					7,980					7,980
	Payable to Affiliates			105		25					130
	Other Payables					32					32
	Payable Upon Return of Securities Loaned			2,764		—					2,764
		Total Liabilities		2,980		8,298		—			11,278
Net Assets			$	153,488	$	704,644	$	—		$	858,132
Net Assets			$	153,488	$	704,644	$	—		$	858,132
Shares Outstanding				140,304		106,698		(117,063	)		129,939
Net Asset Value per Share			$	1.0940	$	6.6041	$	—		$	6.6041

The following unaudited Pro Forma Combined Statement of Operations for W&R Target Growth Portfolio and Advantus Capital Appreciation Portfolio has been derived from the Statements of Operations of W&R Target Growth Portfolio and Advantus Capital Appreciation Portfolio for the fiscal year ended December 31, 2002. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on January 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

			Advantus			Target
			Capital Apprec.			Growth			Pro Forma			Pro Forma
			Portfolio			Portfolio			Adjustments			Combined
Statement of Operations (in thousands)
Investment Income
	Dividends		$	1,350		$	6,981		$	—		$	8,331
	Interest & Other			184			1,434			—			1,618
		Total Investment Income		1,534			8,415			—			9,949
Expenses
	Investment Advisory Fees			966			5,891			369			7,226
	Rule 12b-1 Fees			483			2,104			—			2,587
	Other Expenses			145			328			(49	)		424
		Total Expenses		1,594			8,323			320			10,237
Net Investment Income (Loss)				(60	)		92			(320	)		(288	)
Realized and Unrealized Gain (Loss)
	Realized net loss on securities			(45,440	)		(81,247	)		—			(126,687	)
	Net change in unrealized appreciation (depreciation) on investments			(32,193	)		(126,019	)		—			(158,212	)
		Net gain (loss) on investments		(77,633	)		(207,266	)		—			(284,899	)
Net increase (decrease) in net assets resulting from operations			$	(77,693	)	$	(207,174	)	$	(320	)	$	(285,187	)

W&R TARGET GROWTH PORTFOLIO AND ADVANTUS CAPITAL APPRECIATION PORTFOLIO
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

December 31, 2002
(Unaudited)

NOTE 1 — Significant Accounting Policies

W&R Target Growth Portfolio and Advantus Capital Appreciation Portfolio (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. W&R Target Growth Portfolio’s investment objective is to seek capital growth, with a secondary goal of current income. Advantus Capital Appreciation Portfolio’s investment objective is to seek growth of capital. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A. Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value.

B. Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.

C. Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.

D. Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes.

E. Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company (“WRIMCO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as the Fund’s investment manager. The Fund pays a fee for investment management services. The fee is computed daily based on the net asset value at the close of business. The fee is payable by the Fund at the following annual rates:

	Annual
Fund	Net Asset Breakpoints	Rate
Growth Portfolio	Up to $1 Billion		0.700	%
	Over $1 Billion up to $2 Billion		0.650	%
	Over $2 Billion up to $3 Billion		0.600	%
	Over $3 Billion		0.550	%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of incremental security-related costs including the cost of using private transportation for WRIMCO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $57,486, which is included in other expenses.

WRIMCO, the Fund’s investment manager, has agreed to waive a Portfolio’s management fee on any day that the Portfolio’s net assets are less than $25 million, subject to its right to change or modify this waiver.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee
Average
Net Asset Level		Annual Fee
(all dollars in millions)		Rate for Each Portfolio
From $0 to $10		$	0
From $10 to $25		$	11,000
From $25 to $50		$	22,000
From $50 to $100		$	33,000
From $100 to $200		$	44,000
From $200 to $350		$	55,000
From $350 to $550		$	66,000
From $550 to $750		$	77,000
From $750 to $1,000		$	93,500
	$1,000 and Over	$	110,000

The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors’ fees of $40,421, which is included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

W&R TARGET GROWTH PORTFOLIO
ADVANTUS GROWTH PORTFOLIO
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of W&R Target Growth Portfolio and Advantus Growth Portfolio as of December 31, 2002 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of W&R Target Growth Portfolio and Advantus Growth Portfolio as of December 31, 2002.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on December 31, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of W&R Target Growth Portfolio and Advantus Growth Portfolio incorporated by reference in this Statement of Additional Information.

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
GROWTH		GROWTH		FORMA				GROWTH		GROWTH		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						COMMON STOCKS
						Aircraft
	390,400		11,500		401,900	Lockheed Martin Corporation			22,545,600		664,125		23,209,725
	185,000				185,000	Raytheon Company			5,688,750				5,688,750
			18,600		18,600	United Technologies Corporation					1,152,084		1,152,084
							Total		28,234,350		1,816,209		30,050,559
						Banks
	75,200		14,300		89,500	Bank of America Corporation			5,231,664		994,851		6,226,515
	350,100		43,700		393,800	Citigroup Inc.*			12,320,019		1,537,803		13,857,822
			43,900		43,900	Fifth Third BanCorporation					2,570,345		2,570,345
			60,300		60,300	MBNA Corporation					1,146,906		1,146,906
	150,000				150,000	Mellon Financial Corporation			3,916,500				3,916,500
			13,900		13,900	State Street Corporation					542,100		542,100
	250,200		31,000		281,200	Wells Fargo & Company			11,726,874		1,452,970		13,179,844
			16,300		16,300	Zion BanCorporation					641,389		641,389
							Total		33,195,057		8,886,364		42,081,421
						Beverages
	230,000		38,000		268,000	Anheuser-Busch Companies, Inc			11,132,000		1,839,200		12,971,200
	200,000		72,400		272,400	Coca-Cola Company (The)			8,764,000		3,172,568		11,936,568
			70,790		70,790	Pepsico, Inc					2,988,754		2,988,754
							Total		19,896,000		8,000,522		27,896,522
						Broadcasting
	145,000		60,000		205,000	Clear Channel Communications, Inc.*			5,407,050		2,237,400		7,644,450
	210,000				210,000	Fox Entertainment Group, Inc., Class A*			5,445,300				5,445,300
	258,442		42,000		300,442	Viacom Inc., Class B*			10,534,096		1,711,920		12,246,016
							Total		21,386,446		3,949,320		25,335,766
						Business Equipment and Services
	708,000				708,000	Accenture Ltd, Class A*			12,736,920				12,736,920
	250,000				250,000	BearingPoint, Inc.*			1,725,000				1,725,000
			30,500		30,500	Entegris, Inc.*					314,150		314,150
			85,100		85,100	First Data Corporation					3,013,391		3,013,391
	225,000				225,000	Manpower Inc			7,177,500				7,177,500
			64,300		64,300	Robert Half International, Inc.*					1,035,873		1,035,873
	390,200				390,200	Staples, Inc.*			7,134,807				7,134,807
			12,777		12,777	Sungard Data Systems, Inc.*					301,026		301,026
							Total		28,774,227		4,664,440		33,438,667
						Capital Equipment
	210,200				210,200	Cooper Cameron Corporation*			10,472,164				10,472,164
	180,000				180,000	Parker Hannifin Corporation			8,303,400				8,303,400
							Total		18,775,564		0		18,775,564
						Chemicals — Specialty
	200,000		29,700		229,700	Air Products and Chemicals, Inc			8,550,000		1,269,675		9,819,675
	85,000				85,000	Praxair, Inc			4,910,450				4,910,450
							Total		13,460,450		1,269,675		14,730,125

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
GROWTH		GROWTH		FORMA				GROWTH		GROWTH		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						Communications Equipment
	1,541,900		360,084		1,901,984	Cisco Systems, Inc.*			20,191,181		4,717,100		24,908,281
	475,000				475,000	Nokia Corporation, Series A, ADR			7,362,500				7,362,500
			85,900		85,900	Nokia Oyj					1,331,450		1,331,450
			67,900		67,900	Qualcomm, Inc.*					2,470,881		2,470,881
							Total		27,553,681		8,519,431		36,073,112
						Computers — Main and Mini
			40,100		40,100	International Business Machines Corporation					3,107,750		3,107,750
						Computers — Micro
	300,200		110,140		410,340	Dell Computer Corporation*			8,040,857		2,945,144		10,986,001
						Computers — Peripherals
	600,300		37,800		638,100	BEA Systems, Inc.*			6,888,442		433,566		7,322,008
			38,500		38,500	Brocade Communication Systems, Inc.*					159,390		159,390
	1,259,200		56,800		1,316,000	EMC Corporation*			7,731,488		348,752		8,080,240
			5,602		5,602	Electronic Arts, Inc.*					278,812		278,812
	494,400		197,500		691,900	Microsoft Corporation*			25,570,368		10,210,750		35,781,118
	475,600		189,600		665,200	Oracle Corporation*			5,141,236		2,047,680		7,188,916
			12,700		12,700	Peoplesoft, Inc.*					232,410		232,410
	675,200				675,200	SAP Aktiengesellschaft, ADR			13,166,400				13,166,400
			14,400		14,400	Symantec Corporation*					582,480		582,480
			109,800		109,800	Symbol Technologies, Inc					902,556		902,556
							Total		58,497,934		15,196,396		73,694,330
						Cosmetics and Toiletries
	350,400				350,400	Gillette Company (The)			10,638,144				10,638,144
						Defense
	60,000				60,000	General Dynamics Corporation			4,762,200				4,762,200
						Electrical Equipment
			68,100		68,100	Tyco International, Ltd					1,163,148		1,163,148
			34,700		34,700	WW Grainger, Inc					1,788,785		1,788,785
							Total		0		2,951,933		2,951,933
						Electronic Components
	260,000		24,200		284,200	Altera Corporation*			3,218,800		298,628		3,517,428
	210,200		15,732		225,932	Analog Devices, Inc.*			5,017,474		375,523		5,392,997
			214,490		214,490	Intel Corporation					3,339,609		3,339,609
			14,597		14,597	Linear Technology Corporation					375,435		375,435
	135,000		14,172		149,172	Maxim Integrated Products, Inc.*			4,459,050		468,243		4,927,293
	375,200		18,096		393,296	Microchip Technology Incorporated			9,177,392		442,447		9,619,839
	150,000		133,857		283,857	Texas Instruments Incorporated			2,251,500		2,009,194		4,260,694
	160,000		16,000		176,000	Xilinx, Inc.*			3,286,400		329,600		3,616,000
							Total		27,410,616		7,638,679		35,049,295

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
GROWTH		GROWTH		FORMA				GROWTH		GROWTH		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						Electronic Instruments
	482,600		108,542		591,142	Applied Materials, Inc.*			6,288,278		1,414,302		7,702,580
			17,313		17,313	KLA-Tencor Corporation*					612,361		612,361
			12,900		12,900	Novellus Systems, Inc.*					362,232		362,232
							Total		6,288,278		2,388,895		8,677,173
						Food and Related
	255,200		23,000		278,200	Kraft Foods Inc			9,934,936		895,390		10,830,326
			34,000		34,000	Sysco Corporation					1,012,860		1,012,860
							Total		9,934,936		1,908,250		11,843,186
						Health Care — Drugs
			70,500		70,500	Abbott Laboratories					2,820,000		2,820,000
	100,000		15,000		115,000	AmerisourceBergen Corporation			5,431,000		814,650		6,245,650
	190,400		95,500		285,900	Amgen Inc.*			9,206,792		4,616,470		13,823,262
			46,500		46,500	Eli Lilly & Company					2,952,750		2,952,750
	110,300		17,000		127,300	Forest Laboratories, Inc.*			10,833,666		1,669,740		12,503,406
			9,400		9,400	Genentech, Inc.*					311,704		311,704
	100,000				100,000	Gilead Sciences, Inc.*			3,391,500				3,391,500
	1,027,725		422,325		1,450,050	Pfizer Inc			31,417,553		12,910,475		44,328,028
	280,250				280,250	Pharmacia Corporation			11,714,450				11,714,450
							Total		71,994,961		26,095,789		98,090,750
						Health Care — General
	180,000				180,000	Biomet, Inc			5,164,200				5,164,200
			13,700		13,700	Boston Scientific Corporation*					582,524		582,524
	213,800		144,700		358,500	Johnson & Johnson			11,483,198		7,771,837		19,255,035
			54,400		54,400	St. Jude Medical, Inc.*					2,160,768		2,160,768
			88,100		88,100	Wyeth					3,294,940		3,294,940
	195,000		50,300		245,300	Zimmer Holdings, Inc.*			8,096,400		2,088,456		10,184,856
							Total		24,743,798		15,898,525		40,642,323
						Hospital Supply and Management
			31,000		31,000	Express Scripts, Inc.*					1,489,240		1,489,240
	100,000		18,100		118,100	HCA — The Healthcare Company			4,150,000		751,150		4,901,150
	935,700				935,700	Health Management Associates, Inc., Class A			16,749,030				16,749,030
	235,400		56,500		291,900	Medtronic, Inc			10,734,240		2,576,400		13,310,640
			5,200		5,200	Unitedhealth Group, Inc					434,200		434,200
							Total		31,633,270		5,250,990		36,884,260
						Hotels and Gaming
			35,300		35,300	Harrah’s Entertainment, Inc.*					1,397,880		1,397,880
	75,000				75,000	International Game Technology*			5,694,000				5,694,000
							Total		5,694,000		1,397,880		7,091,880
						Household — General Products
			75,300		75,300	Colgate-Palmolive Company					3,947,979		3,947,979
	126,800		50,600		177,400	Procter & Gamble Company (The)			10,897,192		4,348,564		15,245,756
							Total		10,897,192		8,296,543		19,193,735
						Insurance — Property and Casualty
	108,812		45,900		154,712	American International Group, Inc			6,294,774		2,655,315		8,950,089

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
GROWTH		GROWTH		FORMA				GROWTH		GROWTH		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						Leisure Time Industry
			118,100		118,100	Brunswick Corporation					2,345,466		2,345,466
						Metal Fabrication
			31,100		31,100	Fastenal Company					1,162,829		1,162,829
						Motion Pictures
			93,800		93,800	AOL Time Warner, Inc.*					1,228,780		1,228,780
						Motor Vehicle Parts
	145,200		19,200		164,400	AutoZone, Inc.*			10,258,380		1,356,480		11,614,860
	60,000		20,600		80,600	Danaher Corporation			3,942,000		1,353,420		5,295,420
			15,300		15,300	Eaton Corporation					1,195,083		1,195,083
			29,200		29,200	Lear Corporation*					971,776		971,776
							Total		14,200,380		4,876,759		19,077,139
						Motor Vehicles
	190,800		30,600		221,400	Harley-Davidson, Inc			8,814,960		1,413,720		10,228,680
						Multiple Industry
			30,700		30,700	3M Company					3,785,310		3,785,310
			33,700		33,700	Fisher Scientific International, Inc					1,013,696		1,013,696
			378,600		378,600	General Electric Company					9,218,910		9,218,910
							Total		0		14,017,916		14,017,916
						Petroleum — Canada
			52,960		52,960	Nabors Industries, Ltd.*					1,867,899		1,867,899
						Petroleum — Domestic
	235,200				235,200	Anadarko Petroleum Corporation			11,266,080				11,266,080
	290,000				290,000	Burlington Resources Inc			12,368,500				12,368,500
			13,900		13,900	EOG Resources, Inc					554,888		554,888
							Total		23,634,580		554,888		24,189,468
						Petroleum — International
	310,000				310,000	Exxon Mobil Corporation			10,831,400				10,831,400
						Petroleum — Services
	255,000				255,000	Baker Hughes Incorporated			8,208,450				8,208,450
			40,200		40,200	Ensco International, Inc					1,183,890		1,183,890
	130,200		30,100		160,300	Smith International, Inc.*			4,247,124		981,862		5,228,986
			49,400		49,400	Veritas DCG, Inc.*					771,628		771,628
							Total		12,455,574		2,937,380		15,392,954
						Restaurants
			71,900		71,900	Darden Restaurants, Inc					1,470,355		1,470,355
						Retail — Food Stores
			47,400		47,400	Walgreen Company					1,383,606		1,383,606

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
GROWTH		GROWTH		FORMA				GROWTH		GROWTH		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						Retail — General Merchandise
			75,200		75,200	Family Dollar Stores					2,346,992		2,346,992
	180,000		28,400		208,400	Kohl’s Corporation*			10,071,000		1,588,980		11,659,980
	385,300				385,300	Target Corporation			11,559,000				11,559,000
			117,000		117,000	Wal-Mart Stores, Inc					5,909,670		5,909,670
							Total		21,630,000		9,845,642		31,475,642
						Retail — Specialty Stores
			37,200		37,200	Bed Bath & Beyond, Inc.*					1,284,516		1,284,516
	300,100				300,100	Home Depot, Inc. (The)			7,190,396				7,190,396
	240,400		85,000		325,400	Lowe’s Companies, Inc			9,015,000		3,187,500		12,202,500
							Total		16,205,396		4,472,016		20,677,412
						Security and Commodity Brokers
			36,400		36,400	American Express Company					1,286,740		1,286,740
	330,400				330,400	Charles Schwab Corporation (The)			3,584,840				3,584,840
	233,800				233,800	Fannie Mae			15,040,354				15,040,354
	240,200		38,400		278,600	Freddie Mac			14,183,810		2,267,520		16,451,330
	190,200		14,000		204,200	Goldman Sachs Group, Inc. (The)			12,952,620		953,400		13,906,020
			24,200		24,200	Marsh and McLennan Companies, Inc					1,118,282		1,118,282
	240,200				240,200	Prudential Financial, Inc			7,623,948				7,623,948
			9,900		9,900	SLM Corporation					1,028,214		1,028,214
			36,400		36,400	T. Rowe Price Associates, Inc					992,992		992,992
							Total		53,385,572		7,647,148		61,032,720
						Timesharing and Software
			7,200		7,200	Affiliated Computer Services, Inc.*					379,080		379,080
			24,000		24,000	Automatic Data Processing, Inc					942,000		942,000
			32,025		32,025	eBay, Inc.*					2,171,935		2,171,935
			22,500		22,500	Paychex, Inc					627,750		627,750
							Total		0		4,120,765		4,120,765
						Tobacco
			19,400		19,400	Philip Morris Companies, Inc					786,282		786,282
						Trucking and Shipping
			39,100		39,100	Expeditor Washington International, Inc					1,276,615		1,276,615
			11,600		11,600	United Parcel Service, Inc					731,728		731,728
							Total		0		2,008,343		2,008,343
						Utilities — Telephone
	200,000				200,000	Vodafone Group Plc, ADR			3,624,000				3,624,000
						TOTAL COMMON STOCKS			632,888,597		194,977,844		827,866,441
						S&P DEPOSITORY RECEIPT
			10,900		10,900	S&P Depository Receipt					962,361		962,361
						SHORT-TERM SECURITIES
						Commercial Paper
						Banks
						Bank One Corporation,
	10,000				10,000		1.25%, 1-22-03		9,992,708				9,992,708
			95,336		95,336		Wells Fargo & Company — Cash Investment Fund, current rate 1.326%				95,336		95,336
							Total		9,992,708		95,336		10,088,044

SHARES OR														(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET			ADVANTUS			PRO
GROWTH		GROWTH		FORMA				GROWTH			GROWTH			FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO			PORTFOLIO			COMBINED
						Food and Related
	6,895					ConAgra Foods, Inc.,
	6,895				6,895		1.42%, 1-13-03		6,891,737						6,891,737
	1,214					General Mills, Inc.,
	1,214				1,214		1.53%, Master Note		1,214,000						1,214,000
							Total		8,105,737			0			8,105,737
						Forest and Paper Products
						Sonoco Products Co.,
	4,000				4,000		1.38%, 1-16-03		3,997,700						3,997,700
						Health Care — Drugs
						Alcon Finance PLC (Nestle S.A.),
	7,000				7,000		1.33%, 1-17-03		6,995,862						6,995,862
						Pfizer Inc.,
	7,000				7,000		1.31%, 1-23-03		6,994,396						6,994,396
						Pharmacia Corporation:
	5,000				5,000		1.32%, 1-21-03		4,996,334						4,996,334
	10,000				10,000		1.35%, 1-21-03		9,992,500						9,992,500
							Total		28,979,092			0			28,979,092
						Health Care — General
						Johnson & Johnson:
	4,500				4,500		1.27%, 2-3-03		4,494,761						4,494,761
	5,000				5,000		1.26%, 2-5-03		4,993,875						4,993,875
							Total		9,488,636			0			9,488,636
						Household — General Products
						Procter & Gamble Company (The),
	7,000				7,000		1.3%, 2-10-03		6,989,889						6,989,889
						Multiple Industry
						Federated Money Market Obligations Trust — Prime Obligation Fund,
			69		69		current rate 1.370%					69			69
			3,560,308		3,560,308		Provident Institutional Fund — TempFund Portfolio, current rate 1.220%					3,560,308			3,560,308
							Total		0			3,560,377			3,560,377
						Utilities — Telephone
						SBC International Inc.,
	4,500				4,500		1.32%, 1-16-03		4,497,525						4,497,525
						Total Commercial Paper			72,051,287			3,655,713			75,707,000
						United States Government Security
	5,000				5,000	United States Treasury Bill,
							1.24%, 5-8-03		4,978,216						4,978,216
						TOTAL SHORT-TERM SECURITIES			77,029,503			3,655,713			80,685,216
						TOTAL INVESTMENT SECURITIES			709,918,100			199,595,918			909,514,018
						LIABILITIES, NET OF CASH AND OTHER ASSETS			(5,274,053	)		(1,175,110	)		(6,449,163	)
						NET ASSETS			704,644,047			198,420,808			903,064,855

Notes to Schedule of Investments

*No income dividends were paid during the preceding 12 months.

			Advantus		Target
			Growth		Growth		Pro Forma			Pro Forma
			Portfolio		Portfolio		Adjustments			Combined
Statement of Assets and Liabilities (in thousands)
Assets
	Investment Securities		$	199,596	$	709,918	$	—		$	909,514
	Cash					1					1
	Dividends and Interest Receivable			219		184					403
	Receivable for Investment Securities Sold			3,978		2,721					6,699
	Receivable for Fund Shares Sold			96		110					206
	Other Assets					8					8
	Collateral for securities loaned			9,400		—					9,400
		Total Assets		213,289		712,942		—			926,231
Liabilities
	Payable for Fund Shares Repurchased			144		261					405
	Payable for Investment Securities Purchased			5,193		7,980					13,173
	Payable to Affiliates			131		25					156
	Other Payables					32					32
	Payable Upon Return of Securities Loaned			9,400		—					9,400
		Total Liabilities		14,868		8,298		—			23,166
Net Assets			$	198,421	$	704,644	$	—		$	903,065
Net Assets			$	198,421	$	704,644	$	—		$	903,065
Shares Outstanding				169,559		106,698		(139,514	)		136,743
Net Asset Value per Share			$	1.1702	$	6.6041	$	—		$	6.6041

The following unaudited Pro Forma Combined Statement of Operations for W&R Target Growth Portfolio and Advantus Growth Portfolio has been derived from the Statements of Operations of W&R Target Growth Portfolio and Advantus Growth Portfolio for the fiscal year ended December 31, 2002. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on January 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

			Advantus			Target
			Growth			Growth			Pro Forma			Pro Forma
			Portfolio			Portfolio			Adjustments			Combined
Statement of Operations (in thousands)
Investment Income
	Dividends		$	2,173		$	6,981		$	—		$	9,154
	Interest & Other			118			1,434			—			1,552
		Total Investment Income		2,291			8,415			—			10,706
Expenses
	Investment Advisory Fees			1,091			5,891			564			7,546
	Rule 12b-1 Fees			606			2,104			—			2,710
	Other Expenses			144			328			(35	)		437
		Total Expenses		1,841			8,323			529			10,693
Net Investment Income (Loss)				450			92			(529	)		13
Realized and Unrealized Gain (Loss)
	Realized net loss on securities			(22,254	)		(81,247	)		—			(103,501	)
	Net change in unrealized appreciation (depreciation) on investments			(51,859	)		(126,019	)		—			(177,878	)
		Net gain (loss) on investments		(74,113	)		(207,266	)		—			(281,379	)
Net increase (decrease) in net assets resulting from operations			$	(73,663	)	$	(207,174	)	$	(529	)	$	(281,366	)

W&R TARGET GROWTH PORTFOLIO AND ADVANTUS GROWTH PORTFOLIO
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 2002
(Unaudited)

NOTE 1 — Significant Accounting Policies

      W&R Target Growth Portfolio and Advantus Growth Portfolio (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. W&R Target Growth Portfolio’s investment objective is to seek capital growth, with a secondary goal of current income. Advantus Growth Portfolio’s investment objective is to seek long-term appreciation of capital. Current income is a factor in the selection of securities but is a secondary objective. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A. Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value.

B. Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.

C. Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.

D. Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes.

E. Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

      The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

      Waddell & Reed Investment Management Company (“WRIMCO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as the Fund’s investment manager. The Fund pays a fee for investment management services. The fee is computed daily based on the net asset value at the close of business. The fee is payable by the Fund at the following annual rates:

	Annual
Fund	Net Asset Breakpoints	Rate
Growth Portfolio	Up to $1 Billion		0.700	%
	Over $1 Billion up to $2 Billion		0.650	%
	Over $2 Billion up to $3 Billion		0.600	%
	Over $3 Billion		0.550	%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of incremental security-related costs including the cost of using private transportation for WRIMCO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $57,486, which is included in other expenses.

WRIMCO, the Fund’s investment manager, has agreed to waive a Portfolio’s management fee on any day that the Portfolio’s net assets are less than $25 million, subject to its right to change or modify this waiver.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average
Net Asset Level						Annual Fee
(all dollars in millions)						Rate for Each Portfolio
From	$	0	to	$	10	$	0
From	$	10	to	$	25	$	11,000
From	$	25	to	$	50	$	22,000
From	$	50	to	$	100	$	33,000
From	$	100	to	$	200	$	44,000
From	$	200	to	$	350	$	55,000
From	$	350	to	$	550	$	66,000
From	$	550	to	$	750	$	77,000
From	$	750	to	$	1,000	$	93,500
	$	1,000	and Over			$	110,000

The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors’ fees of $40,421, which is included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

W&R TARGET GROWTH PORTFOLIO,
ADVANTUS CAPITAL APPRECIATION PORTFOLIO
AND ADVANTUS GROWTH PORTFOLIO
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of W&R Target Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio as of December 31, 2002 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of W&R Target Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio, respectively, as of December 31, 2002.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on December 31, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of W&R Target Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio incorporated by reference in this Statement of Additional Information.

SHARES OR																(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)									DESCRIPTION	VALUE
W&R TARGET			ADVANTUS				PRO			W&R TARGET		ADVANTUS				PRO
GROWTH			CAPITAL		ADVANTUS		FORMA			GROWTH		CAPITAL		ADVANTUS		FORMA
PORTFOLIO			APPRECIATION		GROWTH		COMBINED			PORTFOLIO		APPRECIATION		GROWTH		COMBINED
									COMMON STOCKS
									Aircraft
	390,400					11,500		401,900	Lockheed Martin Corporation		22,545,600				664,125		23,209,725
	185,000							185,000	Raytheon Company		5,688,750						5,688,750
				45,200		18,600		63,800	United Technologies Corporation				2,799,688		1,152,084		3,951,772
									Total		28,234,350		2,799,688		1,816,209		32,850,247
									Banks
		75,200		24,600		14,300		114,100	Bank of America Corporation		5,231,664		1,711,422		994,851		7,937,937
				59,125				59,125	Charter One Financial, Inc.				1,698,662				1,698,662
	350,100					43,700		393,800	Citigroup Inc.*		12,320,019				1,537,803		13,857,822
						43,900		43,900	Fifth Third BanCorporation						2,570,345		2,570,345
						60,300		60,300	MBNA Corporation						1,146,906		1,146,906
	150,000							150,000	Mellon Financial Corporation		3,916,500						3,916,500
						13,900		13,900	State Street Corporation						542,100		542,100
	250,200			81,100		31,000		362,300	Wells Fargo & Company		11,726,874		3,801,157		1,452,970		16,981,001
						16,300		16,300	Zion BanCorporation						641,389		641,389
									Total		33,195,057		7,211,241		8,886,364		49,292,662
									Beverages
	230,000			74,600		38,000		342,600	Anheuser-Busch Companies, Inc.		11,132,000		3,610,640		1,839,200		16,581,840
	200,000					72,400		272,400	Coca-Cola Company (The)		8,764,000				3,172,568		11,936,568
				58,300				58,300	Pepsi Bottling Group, Inc.				1,498,310				1,498,310
				70,900		70,790		141,690	Pepsico, Inc.				2,993,398		2,988,754		5,982,152
									Total		19,896,000		8,102,348		8,000,522		35,998,870
									Broadcasting
	145,000			98,200		60,000		303,200	Clear Channel Communications, Inc.*		5,407,050		3,661,878		2,237,400		11,306,328
				95,400				95,400	Comcast Corporation*				2,155,086				2,155,086
				97,500				97,500	Fox Entertainment Group, Inc.*				2,528,175				2,528,175
	210,000							210,000	Fox Entertainment Group, Inc., Class A*		5,445,300						5,445,300
				113,880				113,880	Liberty Media Corporation*				1,018,087				1,018,087
				148,017				148,017	Viacom Inc.*				6,033,173				6,033,173
	258,442					42,000		300,442	Viacom Inc., Class B*		10,534,096				1,711,920		12,246,016
									Total		21,386,446		15,396,399		3,949,320		40,732,165
									Business Equipment and Services
	708,000							708,000	Accenture Ltd, Class A*		12,736,920						12,736,920
	250,000							250,000	BearingPoint, Inc.*		1,725,000						1,725,000
						30,500		30,500	Entegris, Inc.*						314,150		314,150
						85,100		85,100	First Data Corporation						3,013,391		3,013,391
	225,000							225,000	Manpower Inc.		7,177,500						7,177,500
				40,500				40,500	Omnicom Group				2,616,300				2,616,300
						64,300		64,300	Robert Half International, Inc.*						1,035,873		1,035,873
	390,200							390,200	Staples, Inc.*		7,134,807						7,134,807
						12,777		12,777	Sungard Data Systems, Inc.*						301,026		301,026
									Total		28,774,227		2,616,300		4,664,440		36,054,967
									Capital Equipment
	210,200							210,200	Cooper Cameron Corporation*		10,472,164						10,472,164
	180,000							180,000	Parker Hannifin Corporation		8,303,400						8,303,400
									Total		18,775,564		0		0		18,775,564
									Chemicals — Specialty
	200,000					29,700		229,700	Air Products and Chemicals, Inc.		8,550,000				1,269,675		9,819,675
		85,000						85,000	Praxair, Inc.		4,910,450						4,910,450
									Total		13,460,450		0		1,269,675		14,730,125
									Communications Equipment
1,541,900				188,300		360,084		2,090,284	Cisco Systems, Inc.*		20,191,181		2,466,730		4,717,100		27,375,011
				98,100				98,100	Harris Corporation				2,580,030				2,580,030
	475,000							475,000	Nokia Corporation, Series A, ADR		7,362,500						7,362,500
						85,900		85,900	Nokia Oyj						1,331,450		1,331,450
						67,900		67,900	Qualcomm, Inc.*						2,470,881		2,470,881
									Total		27,553,681		5,046,760		8,519,431		41,119,872

SHARES OR																(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)									DESCRIPTION	VALUE
W&R TARGET			ADVANTUS				PRO			W&R TARGET		ADVANTUS				PRO
GROWTH			CAPITAL		ADVANTUS		FORMA			GROWTH		CAPITAL		ADVANTUS		FORMA
PORTFOLIO			APPRECIATION		GROWTH		COMBINED			PORTFOLIO		APPRECIATION		GROWTH		COMBINED
									Computers — Main and Mini
						40,100		40,100	International Business Machines Corporation						3,107,750		3,107,750
									Computers — Micro
	300,200			96,300		110,140		506,640	Dell Computer Corporation*		8,040,857		2,575,062		2,945,144		13,561,063
									Computers — Peripherals
	600,300					37,800		638,100	BEA Systems, Inc.*		6,888,442				433,566		7,322,008
						38,500		38,500	Brocade Communication Systems, Inc.*						159,390		159,390
1,259,200						56,800		1,316,000	EMC Corporation*		7,731,488				348,752		8,080,240
						5,602		5,602	Electronic Arts, Inc.*						278,812		278,812
				45,200				45,200	Intuit, Inc.*				2,120,784				2,120,784
	494,400			153,600		197,500		845,500	Microsoft Corporation*		25,570,368		7,941,120		10,210,750		43,722,238
	475,600					189,600		665,200	Oracle Corporation*		5,141,236				2,047,680		7,188,916
						12,700		12,700	Peoplesoft, Inc.*						232,410		232,410
	675,200			26,000				701,200	SAP Aktiengesellschaft, ADR		13,166,400		507,000				13,673,400
						14,400		14,400	Symantec Corporation*						582,480		582,480
						109,800		109,800	Symbol Technologies, Inc.						902,556		902,556
									Total		58,497,934		10,568,904		15,196,396		84,263,234
									Cosmetics and Toiletries
				78,900				78,900	Estee Lauder Company, Inc. (The)				2,082,960				2,082,960
	350,400			34,200				384,600	Gillette Company (The)		10,638,144		1,038,312				11,676,456
									Total		10,638,144		3,121,272		0		13,759,416
									Defense
		60,000						60,000	General Dynamics Corporation		4,762,200						4,762,200
									Electrical Equipment
				157,400		68,100		225,500	Tyco International, Ltd.				2,688,392		1,163,148		3,851,540
						34,700		34,700	WW Grainger, Inc.						1,788,785		1,788,785
									Total		0		2,688,392		2,951,933		5,640,325
									Electronic Components
	260,000					24,200		284,200	Altera Corporation*		3,218,800				298,628		3,517,428
	210,200			99,800		15,732		325,732	Analog Devices, Inc.*		5,017,474		2,382,226		375,523		7,775,223
				260,400		214,490		474,890	Intel Corporation				4,054,428		3,339,609		7,394,037
						14,597		14,597	Linear Technology Corporation						375,435		375,435
	135,000					14,172		149,172	Maxim Integrated Products, Inc.		4,459,050				468,243		4,927,293
	375,200					18,096		393,296	Microchip Technology Incorporated		9,177,392				442,447		9,619,839
	150,000			127,200		133,857		411,057	Texas Instruments Incorporated		2,251,500		1,909,272		2,009,194		6,169,966
	160,000					16,000		176,000	Xilinx, Inc.*		3,286,400				329,600		3,616,000
									Total		27,410,616		8,345,926		7,638,679		43,395,221
									Electronic Instruments
	482,600					108,542		591,142	Applied Materials, Inc.*		6,288,278				1,414,302		7,702,580
						17,313		17,313	KLA-Tencor Corporation*						612,361		612,361
				52,800		12,900		65,700	Novellus Systems, Inc.*				1,482,624		362,232		1,844,856
				83,200				83,200	Teradyne, Inc.*				1,082,432				1,082,432
									Total		6,288,278		2,565,056		2,388,895		11,242,229
									Food and Related
	255,200					23,000		278,200	Kraft Foods Inc.		9,934,936				895,390		10,830,326
						34,000		34,000	Sysco Corporation						1,012,860		1,012,860
									Total		9,934,936		0		1,908,250		11,843,186
									Health Care — Drugs
						70,500		70,500	Abbott Laboratories						2,820,000		2,820,000
	100,000					15,000		115,000	AmerisourceBergen Corporation		5,431,000				814,650		6,245,650
	190,400					95,500		285,900	Amgen Inc.*		9,206,792				4,616,470		13,823,262
						46,500		46,500	Eli Lilly & Company						2,952,750		2,952,750
	110,300			14,500		17,000		141,800	Forest Laboratories, Inc.*		10,833,666		1,424,190		1,669,740		13,927,596
				66,700		9,400		76,100	Genentech, Inc.*				2,211,772		311,704		2,523,476
	100,000			50,800				150,800	Gilead Sciences, Inc.*		3,391,500		1,727,200				5,118,700
				50,400				50,400	Medimmune, Inc.*				1,369,368				1,369,368
1,027,725				222,275		422,325		1,672,325	Pfizer Inc.		31,417,553		6,794,947		12,910,475		51,122,975
	280,250							280,250	Pharmacia Corporation		11,714,450						11,714,450

SHARES OR															(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)								DESCRIPTION	VALUE
W&R TARGET		ADVANTUS				PRO			W&R TARGET		ADVANTUS				PRO
GROWTH		CAPITAL		ADVANTUS		FORMA			GROWTH		CAPITAL		ADVANTUS		FORMA
PORTFOLIO		APPRECIATION		GROWTH		COMBINED			PORTFOLIO		APPRECIATION		GROWTH		COMBINED
								Total		71,994,961		13,527,477		26,095,789		111,618,227
								Health Care — General
	180,000		125,400				305,400	Biomet, Inc.		5,164,200		3,593,964				8,758,164
					13,700		13,700	Boston Scientific Corporation*						582,524		582,524
	213,800		87,696		144,700		446,196	Johnson & Johnson		11,483,198		4,710,152		7,771,837		23,965,187
					54,400		54,400	St. Jude Medical, Inc.						2,160,768		2,160,768
			78,700		88,100		166,800	Wyeth				2,943,380		3,294,940		6,238,320
	195,000				50,300		245,300	Zimmer Holdings, Inc.*		8,096,400				2,088,456		10,184,856
								Total		24,743,798		11,247,496		15,898,525		51,889,819
								Hospital Supply and Management
			36,900				36,900	Anthem, Inc.*				2,321,010				2,321,010
					31,000		31,000	Express Scripts, Inc.*						1,489,240		1,489,240
	100,000		51,500		18,100		169,600	HCA — The Healthcare Company		4,150,000		2,137,250		751,150		7,038,400
	935,700						935,700	Health Management Associates, Inc., Class A		16,749,030						16,749,030
	235,400		108,300		56,500		400,200	Medtronic, Inc.		10,734,240		4,938,480		2,576,400		18,249,120
					5,200		5,200	Unitedhealth Group, Inc.						434,200		434,200
								Total		31,633,270		9,396,740		5,250,990		46,281,000
								Hotels and Gaming
					35,300		35,300	Harrah’s Entertainment, Inc.*						1,397,880		1,397,880
	75,000						75,000	International Game Technology*		5,694,000						5,694,000
								Total		5,694,000		0		1,397,880		7,091,880
								Household — General Products
					75,300		75,300	Colgate-Palmolive Company						3,947,979		3,947,979
	126,800				50,600		177,400	Procter & Gamble Company (The)		10,897,192				4,348,564		15,245,756
								Total		10,897,192		0		8,296,543		19,193,735
								Insurance — Property and Casualty
	108,812		101,500		45,900		256,212	American International Group, Inc.		6,294,774		5,871,775		2,655,315		14,821,864
			1,380				1,380	Berkshire Hathaway, Inc.*				3,343,740				3,343,740
								Total		6,294,774		9,215,515		2,655,315		18,165,604
								Leisure Time Industry
					118,100		118,100	Brunswick Corporation						2,345,466		2,345,466
			52,100				52,100	Carnival Corporation				1,299,895				1,299,895
								Total		0		1,299,895		2,345,466		3,645,361
								Metal Fabrication
					31,100		31,100	Fastenal Company						1,162,829		1,162,829
								Motion Pictures
			194,250		93,800		288,050	AOL Time Warner, Inc.*				2,544,675		1,228,780		3,773,455
								Motor Vehicle Parts
	145,200				19,200		164,400	AutoZone, Inc.*		10,258,380				1,356,480		11,614,860
	60,000		71,100		20,600		151,700	Danaher Corporation		3,942,000		4,671,270		1,353,420		9,966,690
					15,300		15,300	Eaton Corporation						1,195,083		1,195,083
					29,200		29,200	Lear Corporation*						971,776		971,776
								Total		14,200,380		4,671,270		4,876,759		23,748,409
								Motor Vehicles
	190,800				30,600		221,400	Harley-Davidson, Inc.		8,814,960				1,413,720		10,228,680
								Multiple Industry
					30,700		30,700	3M Company						3,785,310		3,785,310
					33,700		33,700	Fisher Scientific International, Inc.						1,013,696		1,013,696
			164,200		378,600		542,800	General Electric Company				3,998,270		9,218,910		13,217,180
								Total		0		3,998,270		14,017,916		18,016,186
								Petroleum — Canada
					52,960		52,960	Nabors Industries, Ltd.*						1,867,899		1,867,899
								Petroleum — Domestic
	235,200						235,200	Anadarko Petroleum Corporation		11,266,080						11,266,080

SHARES OR															(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)								DESCRIPTION	VALUE
W&R TARGET		ADVANTUS				PRO			W&R TARGET		ADVANTUS				PRO
GROWTH		CAPITAL		ADVANTUS		FORMA			GROWTH		CAPITAL		ADVANTUS		FORMA
PORTFOLIO		APPRECIATION		GROWTH		COMBINED			PORTFOLIO		APPRECIATION		GROWTH		COMBINED
	290,000						290,000	Burlington Resources Inc.		12,368,500						12,368,500
					13,900		13,900	EOG Resources, Inc.						554,888		554,888
								Total		23,634,580		0		554,888		24,189,468
								Petroleum — International
	310,000						310,000	Exxon Mobil Corporation		10,831,400						10,831,400
								Petroleum — Services
	255,000						255,000	Baker Hughes Incorporated		8,208,450						8,208,450
					40,200		40,200	Ensco International, Inc.						1,183,890		1,183,890
	130,200				30,100		160,300	Smith International, Inc.*		4,247,124				981,862		5,228,986
			31,900				31,900	Transocean Offshore, Inc.				740,080				740,080
					49,400		49,400	Veritas DCG, Inc.*						771,628		771,628
			22,800				22,800	Weatherford International, Ltd.*				910,404				910,404
								Total		12,455,574		1,650,484		2,937,380		17,043,438
								Publishing
			30,300				30,300	Gannett Company, Inc.				2,175,540				2,175,540
								Restaurants
					71,900		71,900	Darden Restaurants, Inc.						1,470,355		1,470,355
			58,000				58,000	Wendys International, Inc.				1,570,060				1,570,060
								Total		0		1,570,060		1,470,355		3,040,415
								Retail — Food Stores
					47,400		47,400	Walgreen Company						1,383,606		1,383,606
								Retail — General Merchandise
					75,200		75,200	Family Dollar Stores						2,346,992		2,346,992
	180,000				28,400		208,400	Kohl's Corporation*		10,071,000				1,588,980		11,659,980
	385,300		88,200				473,500	Target Corporation		11,559,000		2,646,000				14,205,000
			63,700		117,000		180,700	Wal-Mart Stores, Inc.				3,217,487		5,909,670		9,127,157
								Total		21,630,000		5,863,487		9,845,642		37,339,129
								Retail — Specialty Stores
					37,200		37,200	Bed Bath & Beyond, Inc.*						1,284,516		1,284,516
	300,100		114,797				414,897	Home Depot, Inc. (The)		7,190,396		2,750,536				9,940,932
	240,400				85,000		325,400	Lowe's Companies, Inc.		9,015,000				3,187,500		12,202,500
								Total		16,205,396		2,750,536		4,472,016		23,427,948
								Security and Commodity Brokers
					36,400		36,400	American Express Company						1,286,740		1,286,740
	330,400						330,400	Charles Schwab Corporation (The)		3,584,840						3,584,840
	233,800						233,800	Fannie Mae		15,040,354						15,040,354
	240,200		28,100		38,400		306,700	Freddie Mac		14,183,810		1,659,305		2,267,520		18,110,635
	190,200				14,000		204,200	Goldman Sachs Group, Inc. (The)		12,952,620				953,400		13,906,020
					24,200		24,200	Marsh and McLennan Companies, Inc.						1,118,282		1,118,282
	240,200						240,200	Prudential Financial, Inc.		7,623,948						7,623,948
			32,700		9,900		42,600	SLM Corporation				3,396,222		1,028,214		4,424,436
					36,400		36,400	T. Rowe Price Associates, Inc.						992,992		992,992
								Total		53,385,572		5,055,527		7,647,148		66,088,247
								Timesharing and Software
					7,200		7,200	Affiliated Computer Services, Inc.*						942,000		942,000
					24,000		24,000	Automatic Data Processing, Inc.						379,080		379,080
					32,025		32,025	eBay, Inc.*						2,171,935		2,171,935
					22,500		22,500	Paychex, Inc.						627,750		627,750
								Total		0		0		4,120,765		4,120,765
								Tobacco
					19,400		19,400	Philip Morris Companies, Inc.						786,282		786,282
								Trucking and Shipping
					39,100		39,100	Expeditor Washington International, Inc.						1,276,615		1,276,615
			70,100		11,600		81,700	United Parcel Service, Inc.				4,421,908		731,728		5,153,636
								Total		0		4,421,908		2,008,343		6,430,251

SHARES OR																			(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)										DESCRIPTION	VALUE
W&R TARGET				ADVANTUS				PRO			W&R TARGET			ADVANTUS					PRO
GROWTH				CAPITAL		ADVANTUS		FORMA			GROWTH			CAPITAL		ADVANTUS			FORMA
PORTFOLIO				APPRECIATION		GROWTH		COMBINED			PORTFOLIO			APPRECIATION		GROWTH			COMBINED
										Utilities — Telephone
	200,000								200,000	Vodafone Group Plc, ADR		3,624,000								3,624,000
										TOTAL COMMON STOCKS		632,888,597			150,426,228		194,977,844			978,292,669
										S&P DEPOSITORY RECEIPT
							10,900		10,900	S&P Depository Receipt							962,361			962,361
										SHORT-TERM SECURITIES
										Commercial Paper
										Banks
										Bank One Corporation,
		10,000							10,000	1.25%, 1-22-03		9,992,708								9,992,708
										Wells Fargo & Company — Cash Investment Fund
					2,987,763		95,336		3,083,099	current rate 1.326%					2,987,763		95,336			3,083,099
										Total		9,992,708			2,987,763		95,336			13,075,807
										Food and Related
										ConAgra Foods, Inc.,
			6,895						6,895	1.42%, 1-13-03		6,891,737								6,891,737
										General Mills, Inc.,
			1,214						1,214	1.53%, Master Note		1,214,000								1,214,000
										Total		8,105,737			0					8,105,737
										Forest and Paper Products
										Sonoco Products Co.,
			4,000						4,000	1.38%, 1-16-03		3,997,700								3,997,700
										Health Care — Drugs
										Alcon Finance PLC (Nestle S.A.),
			7,000						7,000	1.33%, 1-17-03		6,995,862								6,995,862
										Pfizer Inc.,
			7,000						7,000	1.31%, 1-23-03		6,994,396								6,994,396
										Pharmacia Corporation:
			5,000						5,000	1.32%, 1-21-03		4,996,334								4,996,334
		10,000							10,000	1.35%, 1-21-03		9,992,500								9,992,500
										Total		28,979,092			0					28,979,092
										Health Care — General
										Johnson & Johnson:
			4,500						4,500	1.27%, 2-3-03		4,494,761								4,494,761
			5,000						5,000	1.26%, 2-5-03		4,993,875								4,993,875
										Total		9,488,636			0					9,488,636
										Household — General Products
										Procter & Gamble Company (The),
			7,000						7,000	1.3%, 2-10-03		6,989,889								6,989,889
										Multiple Industry
										Federated Money Market Obligations Trust — Prime Obligation Fund,
							69		69	current rate 1.370%							69			69
										Provident Institutional Fund — TempFund Portfolio,										0
							3,560,308		3,560,308	current rate 1.220%							3,560,308			3,560,308
										Total		0			0		3,560,377			3,560,377
										Utilities — Telephone
										SBC International Inc.,
			4,500						4,500	1.32%, 1-16-03		4,497,525								4,497,525
										Total Commercial Paper		72,051,287			2,987,763		3,655,713			78,694,763
										United States Government Security
										United States Treasury Bill,
			5,000						5,000	1.24%, 5-8-03		4,978,216								4,978,216
										TOTAL SHORT-TERM SECURITIES		77,029,503			2,987,763		3,655,713			83,672,979
										TOTAL INVESTMENT SECURITIES		709,918,100			153,413,991		199,595,918			1,062,928,009
										LIABILITIES, NET OF CASH AND OTHER ASSETS		(5,274,053	)		73,903		(1,175,110	)		(6,375,260	)
										NET ASSETS		704,644,047			153,487,894		198,420,808			1,056,552,749
										Notes to Schedule of Investments
										* No income dividends were paid during the preceding 12 months

					Advantus
			Advantus		Capital		Target
			Growth		Apprec.		Growth		Pro Forma			Pro Forma
			Portfolio		Portfolio		Portfolio		Adjustments			Combined
Statement of Assets and Liabilities (in thousands)
Assets
	Investment Securities		$	199,596	$	153,414	$	709,918	$	—		$	1,062,928
	Cash							1					1
	Dividends and Interest Receivable			219		209		184					612
	Receivable for Investment Securities Sold			3,978				2,721					6,699
	Receivable for Fund Shares Sold			96		81		110					287
	Other Assets							8					8
	Collateral for securities loaned			9,400		2,764		—					12,164
		Total Assets		213,289		156,468		712,942		—			1,082,699
Liabilities
	Payable for Fund Shares Repurchased			144		111		261					516
	Payable for Investment Securities Purchased			5,193				7,980					13,173
	Payable to Affiliates			131		105		25					261
	Other Payables							32					32
	Payable Upon Return of Securities Loaned			9,400		2,764		—					12,164
		Total Liabilities		14,868		2,980		8,298		—			26,146
Net Assets			$	198,421	$	153,488	$	704,644	$	—		$	1,056,553
Net Assets			$	198,421	$	153,488	$	704,644	$	—		$	1,056,553
Shares Outstanding				169,559		140,304		106,698		(256,577	)		159,984
Net Asset Value per Share			$	1.1702	$	1.0940	$	6.6041	$	—		$	6.6041

The following unaudited Pro Forma Combined Statement of Operations for W&R Target Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio has been derived from the Statements of Operations of W&R Target Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio for the fiscal year ended December 31, 2002. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on January 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

						Advantus
			Advantus			Capital			Target
			Growth			Apprec.			Growth			Pro Forma			Pro Forma
			Portfolio			Portfolio			Portfolio			Adjustments			Combined
Statement of Operations (in thousands)
Investment Income
	Dividends		$	2,173		$	1,350		$	6,981		$	—		$	10,504
	Interest & Other			118			184			1,434			—			1,736
		Total Investment Income		2,291			1,534			8,415			—			12,240
Expenses
	Investment Advisory Fees			1,091			966			5,891			854			8,802
	Rule 12b-1 Fees			606			483			2,104			—			3,193
	Other Expenses			144			145			328			(125	)		492
		Total Expenses		1,841			1,594			8,323			729			12,487
Net Investment Income (Loss)				450			(60	)		92			(729	)		(247	)
Realized and Unrealized Gain (Loss)
	Realized net loss on securities			(22,254	)		(45,440	)		(81,247	)		—			(148,941	)
	Net change in unrealized appreciation (depreciation) on investments			(51,859	)		(32,193	)		(126,019	)		—			(210,071	)
		Net gain (loss) on investments		(74,113	)		(77,633	)		(207,266	)		—			(359,012	)
Net increase (decrease) in net assets resulting from operations			$	(73,663	)	$	(77,693	)	$	(207,174	)	$	(729	)	$	(359,259	)

W&R TARGET GROWTH PORTFOLIO, ADVANTUS CAPITAL APPRECIATION
PORTFOLIO AND ADVANTUS GROWTH PORTFOLIO
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 2002
(Unaudited)

NOTE 1 — Significant Accounting Policies

W&R Target Growth Portfolio, Advantus Capital Appreciation Portfolio and Advantus Growth Portfolio (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. W&R Target Growth Portfolio’s investment objective is to seek capital growth, with a secondary goal of current income. Advantus Capital Appreciation Portfolio’s investment objective is to seek growth of capital. Advantus Growth Portfolio’s investment objective is to seek long-term appreciation of capital. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.

Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value.

B.

Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded

	as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.
C.	Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.
D.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes.
E.	Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company (“WRIMCO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as the Fund’s investment manager. The Fund pays a fee for investment management services. The fee is computed daily based on the net asset value at the close of business. The fee is payable by the Fund at the following annual rates:

	Annual
Fund	Net Asset Breakpoints	Rate
Growth Portfolio	Up to $1 Billion		0.700	%
	Over $1 Billion up to $2 Billion		0.650	%
	Over $2 Billion up to $3 Billion		0.600	%
	Over $3 Billion		0.550	%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of incremental security-related costs including the cost of using private transportation for WRIMCO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $57,486, which is included in other expenses.

WRIMCO, the Fund’s investment manager, has agreed to waive a Portfolio’s management fee on any day that the Portfolio’s net assets are less than $25 million, subject to its right to change or modify this waiver.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average
Net Asset Level		Annual Fee
(all dollars in millions)		Rate for Each Portfolio
From $0 to $10		$	0
From $10 to $25		$	11,000
From $25 to $50		$	22,000
From $50 to $100		$	33,000
From $100 to $200		$	44,000
From $200 to $350		$	55,000
From $350 to $550		$	66,000
From $550 to $750		$	77,000
From $750 to $1,000		$	93,500
	$1,000 and Over	$	110,000

The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors’ fees of $40,421, which is included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

W&R TARGET VALUE PORTFOLIO
ADVANTUS VALUE STOCK PORTFOLIO
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of W&R Target Value Portfolio and Advantus Value Stock Portfolio as of December 31, 2002 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of W&R Target Value Portfolio and Advantus Value Stock Portfolio as of December 31, 2002.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on December 31, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of W&R Target Value Portfolio and Advantus Value Stock Portfolio incorporated by reference in this Statement of Additional Information.

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
VALUE		VALUE STOCK		FORMA				VALUE		VALUE STOCK		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						COMMON STOCKS
						Air Transportation
			116,600		116,600	Northwest Airlines, Inc.*					855,844		855,844
						Aircraft
	26,700				26,700	Lockheed Martin Corporation			1,541,925				1,541,925
	13,000				13,000	Northrop Grumman Corporation			1,261,000				1,261,000
	44,000				44,000	Raytheon Company			1,353,000				1,353,000
			11,900		11,900	United Technologies Corporation					737,086		737,086
							Total		4,155,925		737,086		4,893,011
						Banks
	9,000		59,380		68,380	Bank of America Corporation			626,130		4,131,067		4,757,197
			25,300		25,300	Bank of New York Company, Inc.					606,188		606,188
			28,700		28,700	Bank One Corporation					1,048,985		1,048,985
			18,900		18,900	Charter One Financial, Inc.					542,997		542,997
	27,000		114,206		141,206	Citigroup Inc.*			950,130		4,018,909		4,969,039
			29,700		29,700	Fleet Boston Financial Corporation					721,710		721,710
			26,800		26,800	MBNA Corporation					509,736		509,736
	38,600		163,894		202,494	U.S. Bancorp			819,092		3,477,831		4,296,923
			92,600		92,600	Wachovia Corporation					3,374,344		3,374,344
			64,400		64,400	Wells Fargo & Company					3,018,428		3,018,428
			11,900		11,900	Zion BanCorporation					468,253		468,253
							Total		2,395,352		21,918,448		24,313,800
						Beverages
	21,000		14,100		35,100	Coca-Cola Company (The)			920,220		617,862		1,538,082
						Broadcasting
			31,300		31,300	Clear Channel Communications, Inc.*					1,167,177		1,167,177
			31,004		31,004	Comcast Corporation*					730,764		730,764
			24,500		24,500	Comcast Corporation*					553,455		553,455
			58,300		58,300	Liberty Media Corporation*					521,202		521,202
			18,500		18,500	Viacom, Inc.*					754,060		754,060
							Total		0		3,726,658		3,726,658
						Business Equipment and Services
	24,700				24,700	Dun & Bradstreet Corporation (The)*			851,903				851,903
	28,000				28,000	First Data Corporation			991,480				991,480
	33,000				33,000	Genuine Parts Company			1,016,400				1,016,400
			25,900		25,900	Manpower, Inc.					826,210		826,210
	25,900				25,900	Pitney Bowes Inc.			845,894				845,894
							Total		3,705,677		826,210		4,531,887
						Capital Equipment
	10,000		9,200		19,200	Caterpillar Inc.			457,200		420,624		877,824
	18,700				18,700	Ingersoll-Rand Company Limited, Class A			805,222				805,222
							Total		1,262,422		420,624		1,683,046
						Chemicals — Petroleum and Inorganic
			44,900		44,900	Dow Chemical Company					1,333,530		1,333,530
	20,100		58,100		78,200	du Pont (E.I.) de Nemours and Company			852,240		2,463,440		3,315,680
							Total		852,240		3,796,970		4,649,210

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
VALUE		VALUE STOCK		FORMA				VALUE		VALUE STOCK		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
						Chemicals — Specialty
	19,100		28,400		47,500	Air Products and Chemicals, Inc.			816,525		1,214,100		2,030,625
						Communications Equipment
	45,000				45,000	Cisco Systems, Inc.*			589,275				589,275
			33,800		33,800	Tellabs, Inc.*					245,726		245,726
							Total		589,275		245,726		835,001
						Computers — Main and Mini
			54,500		54,500	Hewlett-Packard Company					946,120		946,120
			33,300		33,300	International Business Machines Corporation					2,580,750		2,580,750
							Total		0		3,526,870		3,526,870
						Computers — Peripherals
	50,800				50,800	Microsoft Corporation*			2,627,376				2,627,376
			83,900		83,900	Oracle Systems*					906,120		906,120
			164,800		164,800	Symbol Technologies, Inc.					1,354,656		1,354,656
							Total		2,627,376		2,260,776		4,888,152
						Cosmetic and Toiletries
			20,100		20,100	Avon Products, Inc.					1,082,787		1,082,787
	35,000				35,000	Estee Lauder Companies Inc. (The), Class A			924,000				924,000
							Total		924,000		1,082,787		2,006,787
						Electrical Equipment
	32,000				32,000	Emerson Electric Co.			1,627,200				1,627,200
			71,300		71,300	Tyco International, Ltd.					1,217,804		1,217,804
			26,200		26,200	WW Grainger, Inc.					1,350,610		1,350,610
							Total		1,627,200		2,568,414		4,195,614
						Electronic Components
			20,100		20,100	Analog Devices, Inc.*					479,787		479,787
	71,000				71,000	Intel Corporation			1,105,825				1,105,825
			36,900		36,900	National Semiconductor Corporation*					553,869		553,869
			75,800		75,800	Texas Instruments, Inc.					1,137,758		1,137,758
							Total		1,105,825		2,171,414		3,277,239
						Food and Related
	40,000				40,000	ConAgra Foods, Inc.			1,000,400				1,000,400
	8,000				8,000	Dean Foods Company*			296,800				296,800
			37,100		37,100	Kraft Foods, Inc.					1,444,303		1,444,303
							Total		1,297,200		1,444,303		2,741,503
						Forest and Paper Products
	19,000				19,000	Boise Cascade Corporation			479,180				479,180
			14,600		14,600	Bowater, Inc.					612,470		612,470
	62,891				62,891	Sealed Air Corporation*			2,345,834				2,345,834
	15,812				15,812	Smurfit-Stone Container Corporation*			243,742				243,742
	20,000				20,000	Temple-Inland Inc.			896,200				896,200
							Total		3,964,956		612,470		4,577,426
						Health Care — Drugs
	51,800		23,100		74,900	Abbott Laboratories			2,072,000		924,000		2,996,000
			8,600		8,600	Eli Lilly & Company					546,100		546,100

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
VALUE		VALUE STOCK		FORMA				VALUE		VALUE STOCK		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
	17,000				17,000	Merck & Co., Inc.			962,370				962,370
			38,700		38,700	Pfizer, Inc.					1,183,059		1,183,059
	50,700				50,700	Pharmacia Corporation			2,119,260				2,119,260
							Total		5,153,630		2,653,159		7,806,789
						Health Care — General
	12,600		18,900		31,500	Becton, Dickinson and Company			386,694		580,041		966,735
	28,000		18,700		46,700	Bristol-Myers Squibb Company			648,200		432,905		1,081,105
	18,100		29,600		47,700	Wyeth			676,940		1,107,040		1,783,980
							Total		1,711,834		2,119,986		3,831,820
						Hospital Supply and Management
			10,700		10,700	Express Scripts, Inc.*					514,028		514,028
						Hotels and Gaming
			98,400		98,400	Hilton Hotels					1,250,664		1,250,664
						Household — General Products
			19,800		19,800	Procter & Gamble Company					1,701,612		1,701,612
						Insurance — Life
			29,800		29,800	MetLife, Inc.					805,792		805,792
						Insurance — Property and Casualty
			49,600		49,600	Allstate Corporation					1,834,704		1,834,704
	25,600		35,350		60,950	American International Group, Inc.			1,480,960		2,044,998		3,525,958
	400				400	Berkshire Hathaway Inc., Class B*			969,200				969,200
	31,600		10,400		42,000	Chubb Corporation (The)			1,649,520		542,880		2,192,400
							Total		4,099,680		4,422,582		8,522,262
						Leisure Time Industry
			141,500		141,500	Brunswick Corporation					2,810,190		2,810,190
	13,900		73,200		87,100	Walt Disney Company (The)*			226,709		1,193,892		1,420,601
							Total		226,709		4,004,082		4,230,791
						Mining
	40,200				40,200	Newmont Mining Corporation			1,167,006				1,167,006
						Motion Pictures
			39,300		39,300	AOL Time Warner, Inc.*					514,830		514,830
						Motor Vehicle Parts
			11,900		11,900	Borg-Warner Automotive, Inc.					599,998		599,998
			9,400		9,400	Eaton Corporation					734,234		734,234
			29,700		29,700	Lear Corporation*					988,416		988,416
							Total		0		2,322,648		2,322,648
						Motor Vehicles
			29,100		29,100	Ford Motor Company					270,630		270,630
			7,800		7,800	General Motors Corporation					287,508		287,508
							Total		0		558,138		558,138
						Multiple Industry
			18,100		18,100	3M Company					2,231,730		2,231,730

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
VALUE		VALUE STOCK		FORMA				VALUE		VALUE STOCK		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
			19,900		19,900	Fisher Scientific International, Inc.*					598,592		598,592
							Total		0		2,830,322		2,830,322
						Petroleum — Canada
	18,800		30,800		49,600	Nabors Industries Ltd.*			663,076		1,086,316		1,749,392
						Petroleum — Domestic
	36,600				36,600	Burlington Resources Inc.			1,560,990				1,560,990
			11,600		11,600	ConocoPhillips					561,324		561,324
			13,200		13,200	Devon Energy Corporation					605,880		605,880
			26,000		26,000	EOG Resources, Inc.					1,037,920		1,037,920
	48,800				48,800	Occidental Petroleum Corporation			1,388,360				1,388,360
							Total		2,949,350		2,205,124		5,154,474
						Petroleum — International
	11,800				11,800	BP p.l.c., ADR			479,670				479,670
			29,560		29,560	Chevron Corporation					1,965,149		1,965,149
	34,000		185,804		219,804	Exxon Mobil Corporation			1,187,960		6,491,991		7,679,951
							Total		1,667,630		8,457,140		10,124,770
						Petroleum — Services
			26,500		26,500	Smith International, Inc.					864,430		864,430
			36,000		36,000	Veritas DGC, Inc.*					562,320		562,320
							Total		0		1,426,750		1,426,750
						Publishing
			8,400		8,400	Gannett Company, Inc.					603,120		603,120
			15,200		15,200	Tribune Company					690,992		690,992
	800				800	Washington Post Company (The), Class B			590,400				590,400
							Total		590,400		1,294,112		1,884,512
						Real Estate Investment Trusts
			29,900		29,900	Developers Diversified Realty Corporation					657,501		657,501
	20,350		29,800		50,150	ProLogis Trust			511,803		749,470		1,261,273
							Total		511,803		1,406,971		1,918,774
						Restaurants
	37,000		35,200		72,200	McDonald’s Corporation			594,960		566,016		1,160,976
						Retail — Food Stores
			13,700		13,700	CVS Corporation					342,089		342,089
			30,800		30,800	Winn-Dixie Stores, Inc.					470,624		470,624
							Total		0		812,713		812,713
						Retail — General Merchandise
			26,400		26,400	JC Penney Company					607,464		607,464
	35,700				35,700	Target Corporation			1,071,000				1,071,000
							Total		1,071,000		607,464		1,678,464
						Security and Commodity Brokers
	28,900		35,000		63,900	American Express Company			1,021,615		1,237,250		2,258,865
			9,800		9,800	Freddie Mac					578,690		578,690
	9,300		13,100		22,400	Goldman Sachs Group, Inc. (The)			633,330		892,110		1,525,440
			23,800		23,800	JP Morgan Chase and Company					571,200		571,200

SHARES OR												(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION		VALUE
W&R TARGET		ADVANTUS		PRO				W&R TARGET		ADVANTUS		PRO
VALUE		VALUE STOCK		FORMA				VALUE		VALUE STOCK		FORMA
PORTFOLIO		PORTFOLIO		COMBINED				PORTFOLIO		PORTFOLIO		COMBINED
	8,700		12,200		20,900	Marsh & McLennan Companies, Inc.			402,027		563,762		965,789
	23,300		13,700		37,000	Merrill Lynch & Co., Inc.			884,235		519,915		1,404,150
	25,100		27,710		52,810	Morgan Stanley			1,001,992		1,106,183		2,108,175
			41,300		41,300	T. Rowe Price Associates, Inc.					1,126,664		1,126,664
							Total		3,943,199		6,595,774		10,538,973
						Tobacco
			11,300		11,300	Philip Morris Companies, Inc.					457,989		457,989
	3,500				3,500	UST Inc.			117,005				117,005
							Total		117,005		457,989		574,994
						Trucking and Shipping
	20,700				20,700	Hunt (J.B.) Transport Services, Inc.*			606,614				606,614
						Utilities — Electric
	16,000				16,000	American Electric Power Company, Inc.			437,280				437,280
	13,500				13,500	Cinergy Corp.			455,220				455,220
			14,200		14,200	Entergy Corporation					647,378		647,378
	17,700		23,300		41,000	Exelon Corporation			934,029		1,229,541		2,163,570
			134,000		134,000	Nisource, Inc.					2,680,000		2,680,000
	18,900				18,900	PPL Corporation			655,452				655,452
			72,800		72,800	Pacific Gas and Electric Company*					1,011,920		1,011,920
			16,600		16,600	Public Service Enterprise Group, Inc.					532,860		532,860
							Total		2,481,981		6,101,699		8,583,680
						Utilities — Gas and Pipeline
	32,000		19,100		51,100	FirstEnergy Corp.			1,055,040		629,727		1,684,767
						Utilities — Telephone
	18,000				18,000	ALLTEL Corporation			918,000				918,000
			8,720		8,720	AT&T Corporation					227,679		227,679
	15,000		64,250		79,250	BellSouth Corporation			388,050		1,662,147		2,050,197
	67,500		105,210		172,710	SBC Communications Inc.			1,829,925		2,852,243		4,682,168
			84,605		84,605	Verizon Communications					3,278,444		3,278,444
							Total		3,135,975		8,020,513		11,156,488
						TOTAL COMMON STOCKS			57,991,085		111,392,713		169,383,798
						PREFERRED STOCKS
						Forest and Paper Products
	18,700				18,700	Sealed Air Corporation, $2, Convertible			796,620				796,620
						Insurance – Property and Casualty
	18,500				18,500	Chubb Corporation (The), 7.0%, Convertible*			443,075				443,075
						TOTAL PREFERRED STOCKS			1,239,695		0		1,239,695
						SHORT-TERM SECURITIES
						Commercial Paper
						Banks
			35,534		35,534	Wells Fargo & Company - Cash Investment Fund

SHARES OR													(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION			VALUE
W&R TARGET		ADVANTUS		PRO					W&R TARGET		ADVANTUS		PRO
VALUE		VALUE STOCK		FORMA					VALUE		VALUE STOCK		FORMA
PORTFOLIO		PORTFOLIO		COMBINED					PORTFOLIO		PORTFOLIO		COMBINED
							current rate 1.326%					35,534		35,534
						Chemicals — Petroleum and Inorganic
						du Pont (E.I.) de Nemours and Company,
	92				92		1.30036%, Master Note			92,000				92,000
						Finance Companies
						USAA Capital Corp.,
	1,328				1,328		1.35%, 1-10-03			1,327,552				1,327,552
						Food and Related
						General Mills, Inc.,
	2,744				2,744		1.53%, Master Note			2,744,000				2,744,000
						Health Care — Drugs
						Alcon Capital Corporation (Nestle S.A.),
	2,700				2,700		1.32%, 2-12-03			2,695,842				2,695,842
						Health Care — General
						Johnson & Johnson,
	2,500				2,500		1.27%, 2-3-03			2,497,089				2,497,089
						Household — General Products
						Kimberly-Clark Worldwide Inc.,
	1,200				1,200		1.28%, 1-22-03			1,199,104				1,199,104
						Procter & Gamble Company (The),
	2,700				2,700		1.3%, 2-10-03			2,696,100				2,696,100
								Total		3,895,204		0		3,895,204
						Multiple Industry
						Dreyfus Funds - Cash Management Plus Fund,
			1,214,760		1,214,760	current rate 1.266%					1,214,760		1,214,760
						Federated Money Market Obligations Trust -
							Prime Obligation Fund,
			12,368		12,368		current rate 1.37%					12,368		12,368
								Total		0		1,227,128		1,227,128
						Total Commercial Paper				13,251,687		1,262,662		14,514,349
						Municipal Obligation
						California
						California Pollution Control Financing
							Authority, Environmental Improvement
							Revenue Bonds, Shell Oil Company Project,
							Series 1998A (Taxable),
	2,200				2,200		1.2%, 1-2-03			2,200,000				2,200,000
						Repurchase Agreement
						J.P. Morgan Securities Inc., 0.97% Repurchase
							Agreement dated 12-31-02, to be
	589				589		repurchased at $589,032 on 1-2-03 (A)			589,000				589,000

SHARES OR										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
W&R TARGET	ADVANTUS	PRO		W&R TARGET			ADVANTUS		PRO
VALUE	VALUE STOCK	FORMA		VALUE			VALUE STOCK		FORMA
PORTFOLIO	PORTFOLIO	COMBINED		PORTFOLIO			PORTFOLIO		COMBINED
			TOTAL SHORT-TERM SECURITIES		16,040,687			1,262,662		17,303,349
			TOTAL INVESTMENT SECURITIES		75,271,467			112,655,375		187,926,842
			LIABILITIES, NET OF CASH AND OTHER ASSETS		(488,701	)		147,302		(341,399	)
			NET ASSETS		74,782,766			112,802,677		187,585,443

Notes to Schedule of Investments

*No income dividends were paid during the preceding 12 months.

(A)Collateralized by $453,000 United States Treasury Bond, 7.5% due 11–15–16; market value and accrued interest aggregate $600,296.

			Advantus
			Value		Target		Pro Forma			Pro Forma
			Stock		Value		Adjustments			Combined
Statement of Assets and Liabilities (in thousands)
Assets
	Investment Securities		$	112,655	$	75,271	$	—		$	187,926
	Cash					1					1
	Dividends and Interest Receivable			181		97					278
	Receivable for Investment Securities Sold			2,217		—					2,217
	Receivable for Fund Shares Sold			64		61					125
	Other Assets					1					1
	Collateral for securities loaned			5,468		—					5,468
		Total Assets		120,585		75,431		—			196,016
Liabilities
	Payable for Fund Shares Repurchased			63		—					63
	Payable for Investment Securities Purchased			2,171		640					2,811
	Payable to Affiliates			80		5					85
	Other Payables					3					3
	Payable Upon Return of Securities Loaned			5,468		—					5,468
		Total Liabilities		7,782		648		—			8,430
Net Assets			$	112,803	$	74,783	$	—		$	187,586
Net Assets			$	112,803	$	74,783	$	—		$	187,586
Shares Outstanding				90,097		16,990		(64,469	)		42,618
Net Asset Value per Share			$	1.2520	$	4.4016	$	—		$	4.4016

The following unaudited Pro Forma Combined Statement of Operations for W&R Target Value Portfolio and Advantus Value Stock Portfolio has been derived from the Statements of Operations of W&R Target Value Portfolio and Advantus Value Stock Portfolio for the fiscal year ended December 31, 2002. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on January 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

			Advantus
			Value			Target			Pro Forma			Pro Forma
			Stock			Value			Adjustments			Combined
Statement of Operations (in thousands)
Investment Income
	Dividends		$	2,654		$	976		$	—		$	3,630
	Interest & Other			48			272			—			320
		Total Investment Income		2,702			1,248			—			3,950
Expenses
	Investment Advisory Fees			645			445			258			1,348
	Rule 12b-1 Fees			323			159			—			482
	Other Expenses			100			58			(59	)		100
		Total Expenses		1,069			662			199			1,930
Net Investment Income (Loss)				1,633			586			(199	)		2,020
Realized and Unrealized Gain (Loss)
	Realized net loss on securities			(12,030	)		(7,029	)		—			(19,059	)
	Net change in unrealized appreciation (depreciation) on investments			(10,871	)		(2,670	)		—			(13,541	)
		Net gain (loss) on investments		(22,901	)		(9,699	)		—			(32,600	)
Net increase (decrease) in net assets resulting from operations			$	(21,268	)	$	(9,113	)	$	(199	)	$	(30,580	)

W&R TARGET VALUE PORTFOLIO AND ADVANTUS VALUE STOCK PORTFOLIO
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 2002
(Unaudited)

NOTE 1 — Significant Accounting Policies

W&R Target Value Portfolio and Advantus Value Stock Portfolio (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. W&R Target Value Portfolio’s investment objective is to seek long-term capital appreciation. Advantus Value Stock Portfolio’s investment objective is to seek long-term accumulation of capital. The production of income is a secondary objective. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.

Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value.

B.

Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.

C.	Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.
D.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes.
E.	Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.
H.	Repurchase agreements — Repurchase agreements are collateralized by the value of the resold securities which, during the entire period of the agreement, remains at least equal to the value of the loan, including accrued interest thereon. The collateral for the repurchase agreement is held by the Fund’s custodian bank.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company (“WRIMCO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves

as the Fund’s investment manager. The Fund pays a fee for investment management services. The fee is computed daily based on the net asset value at the close of business. The fee is payable by the Fund at the following annual rates:

	Annual
Fund	Net Asset Breakpoints	Rate
Value Portfolio	Up to $1 Billion		0.700	%
	Over $1 Billion up to $2 Billion		0.650	%
	Over $2 Billion up to $3 Billion		0.600	%
	Over $3 Billion		0.550	%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of incremental security-related costs including the cost of using private transportation for WRIMCO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $4,229, which is included in other expenses.

WRIMCO, the Fund’s investment manager, has agreed to waive a Portfolio’s management fee on any day that the Portfolio’s net assets are less than $25 million, subject to its right to change or modify this waiver.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

	Average
	Net Asset Level					Annual Fee
(all dollars in millions)						Rate for Each Portfolio
From	$	0	to	$	10	$	0
From	$	10	to	$	25	$	11,000
From	$	25	to	$	50	$	22,000
From	$	50	to	$	100	$	33,000
From	$	100	to	$	200	$	44,000
From	$	200	to	$	350	$	55,000
From	$	350	to	$	550	$	66,000
From	$	550	to	$	750	$	77,000
From	$	750	to	$	1,000	$	93,500
	$	1,000	and Over			$	110,000

The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors’ fees of $1,426, which is included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

W&R TARGET SMALL CAP PORTFOLIO
ADVANTUS SMALL COMPANY GROWTH PORTFOLIO
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of W&R Target Small Cap Portfolio and Advantus Small Company Growth Fund as of December 31, 2002 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of W&R Target Small Cap Portfolio and Advantus Small Company Growth Portfolio as of December 31, 2002.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on December 31, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of W&R Target Small Cap Portfolio and Advantus Small Company Growth Portfolio incorporated by reference in this Statement of Additional Information.

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
SMALL CAP		SMALL COMPANY		FORMA			SMALL CAP		SMALL COMPANY		FORMA
PORTFOLIO		GROWTH		COMBINED			PORTFOLIO		GROWTH		COMBINED
						COMMON STOCKS
						Apparel
			108,900		108,900	Tommy Hilfiger Corporation*				756,855		756,855
						Banks
			35,200		35,200	Westamerica BanCorporation				1,414,336		1,414,336
						Broadcasting
			106,700		106,700	Cumulus Media, Inc.*				1,586,629		1,586,629
			89,900		89,900	Emmis Communications*				1,872,617		1,872,617
			36,800		36,800	Entercom Communications Corporation*				1,726,656		1,726,656
			102,600		102,600	Insight Communications Company, Inc.*				1,270,188		1,270,188
						Total		0		6,456,090		6,456,090
						Business Equipment and Services
	457,100				457,100	Acxiom Corporation*		7,009,628				7,009,628
			66,088		66,088	Advance Paradigm, Inc.*				1,467,815		1,467,815
			69,500		69,500	CACI International, Inc.*				2,476,980		2,476,980
	175,700				175,700	Catalina Marketing Corporation*		3,250,450				3,250,450
	366,155				366,155	CheckFree Corporation*		5,860,311				5,860,311
			56,300		56,300	Education Management Corporation*				2,116,880		2,116,880
	306,400				306,400	ITT Educational Services, Inc.*		7,215,720				7,215,720
	535,000		67,900		602,900	MSC Industrial Direct Co., Inc., Class A*		9,496,250		1,205,225		10,701,475
			258,632		258,632	Manugistics Group, Inc.*				620,717		620,717
	185,500				185,500	MAXIMUS, Inc.*		4,841,550				4,841,550
	81,305				81,305	MemberWorks Incorporated*		1,463,083				1,463,083
			78,300		78,300	Moore Corporation, Ltd.*				712,530		712,530
	230,000				230,000	ProBusiness Services, Inc.*		2,301,150				2,301,150
			40,919		40,919	QRS Corporation*				270,065		270,065
						Total		41,438,142		8,870,212		50,308,354
						Chemicals — Specialty
			61,600		61,600	Airgas, Inc.*				1,062,600		1,062,600
			21,300		21,300	Albemarle Corporation				605,985		605,985
			42,600		42,600	Cambrex Corporation				1,286,946		1,286,946
	480,000				480,000	IMC Global Inc.		5,121,600				5,121,600
			24,300		24,300	Minerals Technologies, Inc.				1,048,545		1,048,545
						Total		5,121,600		4,004,076		9,125,676
						Communications Equipment
	320,000				320,000	Advanced Fibre Communications, Inc.*		5,352,000				5,352,000
			106,400		106,400	InterDigital Communications Corporation*				1,549,184		1,549,184
			131,200		131,200	Polycom, Inc.*				1,249,024		1,249,024
	293,500				293,500	Tekelec*		3,070,010				3,070,010
			113,045		113,045	Valuevision Media, Inc.*				1,693,414		1,693,414
						Total		8,422,010		4,491,622		12,913,632
						Computers — Peripherals
			136,100		136,100	Agile Software Corporation*				1,053,414		1,053,414
			57,200		57,200	Avid Technology, Inc.*				1,312,740		1,312,740
			38,500		38,500	Business Objects SA*				577,500		577,500
			100,000		100,000	Caminus Corporation*				234,000		234,000
			328,900		328,900	Chordiant Software, Inc.*				473,616		473,616
			113,164		113,164	Documentum, Inc.*				1,772,148		1,772,148

SHARES OR										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)					DESCRIPTION	VALUE
W&R TARGET	ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
SMALL CAP	SMALL COMPANY		FORMA			SMALL CAP		SMALL COMPANY		FORMA
PORTFOLIO	GROWTH		COMBINED			PORTFOLIO		GROWTH		COMBINED
		163,700		163,700	Informatica Corporation*				942,912		942,912
		173,300		173,300	Legato Systems, Inc.*				871,699		871,699
180,000		81,400		261,400	NetIQ Corporation*		2,225,700		1,005,290		3,230,990
		362,600		362,600	Openwave Systems, Inc.*				725,200		725,200
		164,900		164,900	Radiant Systems, Inc.*				1,587,987		1,587,987
286,700				286,700	Sanchez Computer Associates, Inc.*		861,534				861,534
177,800				177,800	Take-Two Interactive Software, Inc.*		4,176,522				4,176,522
234,400				234,400	Transaction Systems Architects, Inc., Class A*		1,522,428				1,522,428
					Total		8,786,184		10,556,506		19,342,690
					Containers
		97,700		97,700	Constar International, Inc.*				1,147,975		1,147,975
		191,300		191,300	Crown Cork & Seal Company, Inc.*				1,520,835		1,520,835
					Total		0		2,668,810		2,668,810
					Defense
		43,000		43,000	Kroll, Inc.*				820,440		820,440
					Electrical Equipment
60,300				60,300	Intermagnetics General Corp.*		1,189,116				1,189,116
					Electronic Components
		159,300		159,300	Adaptec, Inc.*				900,045		900,045
		1		1	Anadigics, Inc.*				1		1
		72,368		72,368	Brooks-PRI Automation, Inc.*				829,337		829,337
269,600				269,600	Cree, Inc.*		4,409,308				4,409,308
		55,000		55,000	Integrated Circuit Systems*				1,003,750		1,003,750
		76,600		76,600	Semtech Corporation*				836,472		836,472
		46,600		46,600	Varian Semiconductor Equipment*				1,107,263		1,107,263
					Total		4,409,308		4,676,868		9,086,176
					Electronic Instruments
		214,897		214,897	APW, Ltd.*				4,298		4,298
		42,216		42,216	Cymer, Inc.*				1,361,466		1,361,466
237,800				237,800	Lam Research Corporation*		2,564,673				2,564,673
320,250				320,250	PerkinElmer, Inc		2,642,063				2,642,063
237,200				237,200	Plexus Corp.*		2,084,988				2,084,988
					Total		7,291,724		1,365,764		8,657,488
					Finance Companies
158,200				158,200	Financial Federal Corporation*		3,975,566				3,975,566
					Food and Related
190,000				190,000	American Italian Pasta Company, Class A*		6,836,200				6,836,200
		62,900		62,900	Hain Celestial Group, Inc.*				956,080		956,080
		56,900		56,900	Performance Food Group Company*				1,932,267		1,932,267
95,000				95,000	Smucker (J.M.) Company (The)		3,781,950				3,781,950
					Total		10,618,150		2,888,347		13,506,497
					Health Care — Drugs
202,998		108,300		311,298	Affymetrix, Inc.*		4,647,639		2,478,987		7,126,626
235,000				235,000	Andrx Corporation*		3,448,625				3,448,625
131,100				131,100	Cell Therapeutics, Inc.*		953,752				953,752
		50,900		50,900	Cubist Pharmaceuticals, Inc.*				418,907		418,907

SHARES OR
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION			VALUE		(Unaudited)
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
SMALL CAP		SMALL COMPANY		FORMA			SMALL CAP		SMALL COMPANY		FORMA
PORTFOLIO		GROWTH		COMBINED			PORTFOLIO		GROWTH		COMBINED
	325,700				325,700	Gene Logic Inc.*		2,055,167				2,055,167
			65,900		65,900	K-V Pharmaceutical Company*				1,528,880		1,528,880
			65,849		65,849	Lynx Therapeutics, Inc.*				26,998		26,998
			53,235		53,235	Medicis Pharmaceutical Corporation*				2,644,182		2,644,182
			27,600		27,600	OSI Pharmaceuticals, Inc.*				452,640		452,640
			31,100		31,100	Scios, Inc.*				1,013,238		1,013,238
	460,900		135,800		596,700	Sepracor Inc.*		4,438,467		1,313,186		5,751,653
						Total		15,543,650		9,877,018		25,420,668
						Health Care — General
			66,600		66,600	Alliance Imaging, Inc.*				352,980		352,980
	256,300		67,900		324,200	Apria Healthcare Group Inc.*		5,700,112		1,510,096		7,210,208
	270,000				270,000	ArthroCare Corporation*		2,673,000				2,673,000
	71,200				71,200	Cholestech Corporation*		492,348				492,348
			39,662		39,662	DaVita, Inc.*				978,462		978,462
			39,800		39,800	Henry Schein, Inc.*				1,791,000		1,791,000
	118,957				118,957	IDEXX Laboratories, Inc.*		3,928,555				3,928,555
	283,200				283,200	IMPATH Inc.*		5,591,784				5,591,784
	330,000				330,000	Omnicare, Inc.		7,863,900				7,863,900
			50,800		50,800	Renal Care Group, Inc.*				1,607,312		1,607,312
			50,600		50,600	SonoSite, Inc.*				661,342		661,342
			68,800		68,800	Therasense, Inc.*				574,480		574,480
	240,000				240,000	Urologix, Inc.*		788,400				788,400
	584,200				584,200	VISX, Incorporated*		5,596,636				5,596,636
						Total		32,634,735		7,475,672		40,110,407
						Hospital Supply and Management
	157,179				157,179	American Healthways, Inc.*		2,751,418				2,751,418
	185,000				185,000	Amsurg Corp.*		3,774,000				3,774,000
	141,022				141,022	Cerner Corporation*		4,399,886				4,399,886
			125,500		125,500	Community Health Systems*				2,584,045		2,584,045
			83,700		83,700	Coventry Health Care, Inc.*				2,429,811		2,429,811
			80,300		80,300	Lifepoint Hospitals, Inc.*				2,403,459		2,403,459
			56,300		56,300	Mid Atlantic Medical Services, Inc.*				1,824,120		1,824,120
						Total		10,925,304		9,241,435		20,166,739
						Hotels and Gaming
			69,700		69,700	Penn National Gaming, Inc.*				1,105,442		1,105,442
	56,700				56,700	Vail Resorts, Inc.*		860,139				860,139
						Total		860,139		1,105,442		1,965,581
						Insurance — Property and Casualty
			73,000		73,000	HCC Insurance Holdings, Inc.				1,795,800		1,795,800
			92,400		92,400	USI Holdings Corporation*				1,085,700		1,085,700
						Total		0		2,881,500		2,881,500
						Motor Vehicle Parts
			29,600		29,600	Borg-Warner Automotive, Inc.				1,492,432		1,492,432
	376,000				376,000	Gentex Corporation*		11,894,760				11,894,760
						Total		11,894,760		1,492,432		13,387,192
						Multiple Industry
			36,900		36,900	Fisher Scientific International, Inc.*				1,109,952		1,109,952
			15,900		15,900	Oshkosh Truck Corporation*				977,850		977,850

SHARES OR
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION			VALUE		(Unaudited)
W&R TARGET		ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
SMALL CAP		SMALL COMPANY		FORMA			SMALL CAP		SMALL COMPANY		FORMA
PORTFOLIO		GROWTH		COMBINED			PORTFOLIO		GROWTH		COMBINED
						Total		0		2,087,802		2,087,802
						Non-Residential Construction
			64,550		64,550	Granite Construction, Inc.				1,000,525		1,000,525
						Petroleum — Domestic
	223,700		33,500		257,200	Newfield Exploration Company*		8,064,385		1,207,675		9,272,060
	140,000				140,000	Patterson-UTI Energy, Inc.*		4,224,500				4,224,500
			32,700		32,700	Pogo Producing Company				1,218,075		1,218,075
			73,100		73,100	Remington Oil & Gas Corporation*				1,199,571		1,199,571
			52,200		52,200	Spinnaker Exploration Company*				1,151,010		1,151,010
	155,000		57,196		212,196	Stone Energy Corporation*		5,170,800		1,908,059		7,078,859
						Total		17,459,685		6,684,390		24,144,075
						Petroleum — Services
			60,600		60,600	FMC Technologies, Inc.*				1,238,058		1,238,058
	481,400				481,400	Global Industries, Ltd.*		2,014,659				2,014,659
			243,000		243,000	Newpark Resources, Inc.*				1,057,050		1,057,050
						Total		2,014,659		2,295,108		4,309,767
						Publishing
	312,200		73,412		385,612	Getty Images, Inc.*		9,537,710		2,242,737		11,780,447
			39,200		39,200	Scholastic Corporation*				1,409,240		1,409,240
						Total		9,537,710		3,651,977		13,189,687
						Railroad
	356,600				356,600	Kansas City Southern*		4,279,200				4,279,200
						Restaurants
			130,800		130,800	CKE Restaurants, Inc.*				562,440		562,440
						Retail — Food Stores
			57,700		57,700	Duane Reade, Inc.*				980,900		980,900
						Retail — General Merchandise
			51,900		51,900	Cost Plus, Inc.*				1,487,973		1,487,973
	181,500				181,500	Tuesday Morning Corporation*		3,106,373				3,106,373
						Total		3,106,373		1,487,973		4,594,346
						Retail — Specialty Stores
	155,300				155,300	Borders Group, Inc.*		2,500,330				2,500,330
			65,600		65,600	Delta & Pine Land Company				1,338,896		1,338,896
	158,500		68,900		227,400	Gymboree Corporation (The)*		2,514,603		1,092,754		3,607,357
			65,400		65,400	Hot Topic, Inc.*				1,496,352		1,496,352
			66,600		66,600	Linens n Things, Inc.*				1,505,160		1,505,160
	190,000				190,000	O’Reilly Automotive, Inc.*		4,804,150				4,804,150
						Total		9,819,083		5,433,162		15,252,245
						Security and Commodity Brokers
			26,200		26,200	Affiliated Managers Group*				1,317,860		1,317,860
	49,283				49,283	Chicago Mercantile Exchange Holdings Inc.		2,151,696				2,151,696
			61,800		61,800	IndyMac Bancorp, Inc.*				1,142,682		1,142,682
			41,000		41,000	Raymond James Financial, Inc.				1,212,780		1,212,780
						Total		2,151,696		3,673,322		5,825,018

SHARES OR										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)					DESCRIPTION	VALUE
W&R TARGET	ADVANTUS		PRO			W&R TARGET		ADVANTUS		PRO
SMALL CAP	SMALL COMPANY		FORMA			SMALL CAP		SMALL COMPANY		FORMA
PORTFOLIO	GROWTH		COMBINED			PORTFOLIO		GROWTH		COMBINED
					Timesharing and Software
380,000				380,000	Digital Insight Corporation*		3,321,200				3,321,200
		173,200		173,200	Doubleclick, Inc.*				980,312		980,312
163,900				163,900	FactSet Research Systems, Inc		4,633,453				4,633,453
		148,500		148,500	MatrixOne, Inc.*				638,550		638,550
					Total		7,954,653		1,618,862		9,573,515
					Trucking and Shipping
		45,700		45,700	Hunt (J.B.) Transport Services, Inc.*				1,339,010		1,339,010
		61,900		61,900	Swift Transportation Company, Inc.*				1,239,114		1,239,114
					Total		0		2,578,124		2,578,124
					Utilities — Telephone
155,000				155,000	Commonwealth Telephone Enterprises, Inc.*		5,558,300				5,558,300
					TOTAL COMMON STOCKS		224,991,747		113,098,010		338,089,757
					CORPORATE DEBT SECURITY
					Multiple Industry
1,000				1,000	Kestrel Solutions, Inc.,
					5.5%, 7-15-05, Convertible (A)(B)		80,000				80,000
					SHORT — TERM SECURITIES
					Banks
					Wells Fargo & Company,
8,000				8,000	1.29%, 1-16-03		7,995,700				7,995,700
		6,427,290		6,427,290	1.326%, Cash Investment Fund				6,427,290		6,427,290
		3,395,545		3,395,545	1.261%, Treasury Plus Fund				3,395,545		3,395,545
					Total		7,995,700		9,822,835		17,818,535
					Chemicals — Petroleum and Inorganic
4,522				4,522	du Pont (E.I.) de Nemours and Company,
					1.30036%, Master Note		4,522,000				4,522,000
					Food and Related — 2.49%
5,000				5,000	ConAgra Foods, Inc.,
					1.42%, 1-13-03		4,997,633				4,997,633
1,961				1,961	General Mills, Inc.,
					1.53%, Master Note		1,961,000				1,961,000
					Total		6,958,633		0		6,958,633
					Health Care — Drugs
8,000				8,000	Alcon Capital Corporation (Nestle S.A.),
					1.32%, 2-12-03		7,987,680				7,987,680
					Pfizer Inc.:
5,400				5,400	1.3%, 1-9-03		5,398,440				5,398,440
8,000				8,000	1.3%, 1-29-03		7,991,911				7,991,911
					Total		21,378,031		0		21,378,031
					Health Care — General

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION		VALUE
W&R TARGET	ADVANTUS	PRO				W&R TARGET		ADVANTUS			PRO
SMALL CAP	SMALL COMPANY	FORMA				SMALL CAP		SMALL COMPANY			FORMA
PORTFOLIO	GROWTH	COMBINED				PORTFOLIO		GROWTH			COMBINED
3,354			3,354		Johnson & Johnson,
					1.27%, 2-3-03		3,350,096					3,350,096
					Petroleum - International
9,836			9,836		BP America Inc.,
					1.2%, 1-2-03		9,835,672					9,835,672
					TOTAL SHORT-TERM SECURITIES		54,040,132		9,822,835			63,862,967
					TOTAL INVESTMENT SECURITIES		279,111,879		122,920,845			402,032,724
					CASH AND OTHER ASSETS, NET OF LIABILITIES		140,581		(33,223	)		107,358
					NET ASSETS		279,252,460		122,887,622			402,140,082

Notes to Schedule of Investments

*No income dividends were paid during the preceding 12 months.

(A) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the value of this security amounted to 0.03% of net assets.

(B) Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy.

			Advantus		Target
			Small Company		Small		Pro Forma			Pro Forma
			Growth		Cap		Adjustments			Combined
Statement of Assets and Liabilities (in thousands)
Assets
	Investment Securities		$	122,921	$	279,112	$	—		$	402,033
	Cash					1					1
	Dividends and Interest Receivable			29		21					50
	Receivable for Investment Securities Sold			48		556					604
	Receivable for Fund Shares Sold			63		154					217
	Other Assets					3					3
	Collateral for securities loaned			17,716		—					17,716
		Total Assets		140,777		279,847		—			420,624
Liabilities
	Payable for Fund Shares Repurchased			72		55					127
	Payable for Investment Securities Purchased			—		513					513
	Payable to Affiliates			101		14					115
	Other Payables					13					13
	Payable Upon Return of Securities Loaned			17,716		—					17,716
		Total Liabilities		17,889		595		—			18,484
Net Assets			$	122,888	$	279,252	$	—		$	402,140
Net Assets			$	122,888	$	279,252	$	—		$	402,140
Shares Outstanding				186,021		44,760		(166,323	)		64,458
Net Asset Value per Share			$	0.6606	$	6.2388	$	—		$	6.2388

The following unaudited Pro Forma Combined Statement of Operations for W&R Target Small Cap Portfolio and Advantus Small Company Growth Portfolio has been derived from the Statements of Operations of W&R Target Small Cap Portfolio and Advantus Small Company Growth Portfolio for the fiscal year ended December 31, 2002. Such information has been adjusted to give effect to the Reorganization as if it had occurred on January 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on January 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

			Advantus			Target
			Small Company			Small			Pro Forma			Pro Forma
			Growth			Cap			Adjustments			Combined
Statement of Operations (in thousands)
Investment Income
	Dividends		$	146		$	229		$	—		$	375
	Interest & Other			230			1,302			—			1,532
		Total Investment Income		376			1,531			—			1,907
Expenses
	Investment Advisory Fees			975			2,645			300			3,920
	Rule 12b-1 Fees			375			778			—			1,153
	Other Expenses			120			159			(61	)		218
		Total Expenses		1,470			3,582			239			5,291
Net Investment Income (Loss)				(1,094	)		(2,051	)		(239	)		(3,384	)
Realized and Unrealized Gain (Loss)
	Realized net loss on securities			(29,124	)		(18,965	)		—			(48,089	)
	Net change in unrealized appreciation (depreciation) on investments			(30,287	)		(60,013	)		—			(90,300	)
		Net gain (loss) on investments		(59,411	)		(78,978	)		—			(138,389	)
Net increase (decrease) in net assets resulting from operations			$	(60,505	)	$	(81,029	)	$	(239	)	$	(141,773	)

W&R TARGET SMALL CAP PORTFOLIO AND ADVANTUS SMALL COMPANY GROWTH PORTFOLIO
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 2002
(Unaudited)

NOTE 1 — Significant Accounting Policies

W&R Target Small Cap Portfolio and Advantus Small Company Growth Portfolio (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. W&R Target Small Cap Portfolio’s investment objective is to seek growth of capital. Advantus Small Company Growth Portfolio’s investment objective is to seek long-term accumulation of capital. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.

Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value.

B.

Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.

C.	Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.
D.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes.
E.	Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company (“WRIMCO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as the Fund’s investment manager. The Fund pays a fee for investment management services. The fee is computed daily based on the net asset value at the close of business. The fee is payable by the Fund at the following annual rates:

	Annual
Fund	Net Asset Breakpoints	Rate
Small Cap Portfolio	Up to $1 Billion		0.850	%
	Over $1 Billion up to $2 Billion		0.830	%
	Over $2 Billion up to $3 Billion		0.800	%
	Over $3 Billion		0.760	%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of incremental security-related costs including the cost of using private transportation for WRIMCO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $20,701, which is included in other expenses.

WRIMCO, the Fund’s investment manager, has agreed to waive a Portfolio’s management fee on any day that the Portfolio’s net assets are less than $25 million, subject to its right to change or modify this waiver.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average
Net Asset Level						Annual Fee
(all dollars in millions)						Rate for Each Portfolio
From	$	0	to	$	10	$	0
From	$	10	to	$	25	$	11,000
From	$	25	to	$	50	$	22,000
From	$	50	to	$	100	$	33,000
From	$	100	to	$	200	$	44,000
From	$	200	to	$	350	$	55,000
From	$	350	to	$	550	$	66,000
From	$	550	to	$	750	$	77,000
From	$	750	to	$	1,000	$	93,500
	$	1,000 and Over				$	110,000

The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors’ fees of $14,931, which is included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

PART C

OTHER INFORMATION

Item 15. Indemnification.

     Reference is made to Section 7 of Article SEVENTH of the Articles of Incorporation of Registrant, as amended, filed July 1, 1998 as EX-99.B1-charter to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A and to Paragraph 12 of the Fund Participation Agreement with Nationwide Life Insurance Company, dated December 1, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(e)tgtnwpart to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A, each of which provides for indemnification. Also refer to Section 2-418 of the Maryland General Corporation Law regarding indemnification of directors, officers, employees and agents.

     Registrant undertakes to carry out all indemnification provisions of its Articles of Incorporation, Bylaws, and the above-described contracts in accordance with the Investment Company Act Release No. 11330 (September 4, 1980) and successor releases.

     Insofar as indemnification for liability arising under the 1933 Act, as amended, may be provided to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Item 16. Exhibits.

(1)(a)	Articles of Incorporation, as amended, filed July 1, 1998 as EX-99.B1-charter to Post Effective Amendment No. 21 to the Registration Statement on Form N-1A
(1)(b)	Articles of Amendment, dated May 13, 1998, filed July 1, 1998 as EX-99.B1-tkartsup to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A
(1)(c)	Articles Supplementary, dated May 25, 1999, filed by EDGAR on April 29, 2002 as EX-99.B(a)tmkartsup1 to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(1)(d)	Articles Supplementary, dated July 19, 1999, filed by EDGAR on April 29, 2002 as EX-99.B(a)tmkartsup2 to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A

(1)(e)	Articles Supplementary, dated August 21, 1998, filed by EDGAR on April 29, 2002 as EX-99.B(a)tmkartsup3 to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(1)(f)	Articles Supplementary, dated February 18, 2000, filed by EDGAR on April 27, 2000 as EX-99.B(a)tgtsupp to Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A
(1)(g)	Articles of Amendment, dated September 26, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(a)tgtartamend1 to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(1)(h)	Articles of Amendment, dated November 15, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(a)tgtartamend2 to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(1)(i)	Articles Supplementary, dated February 14, 2001, filed by EDGAR on March 1, 2001 as EX-99.B(a)tgtartsupp to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(1)(j)	Articles of Amendment, dated August 22, 2001, filed by EDGAR on April 29, 2002 as EX-99.B(a)tgtartamend1 to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(1)(k)	Articles of Amendment, dated November 14, 2001, filed by EDGAR on April 29, 2002 as EX-99.B(a)tgtartamend2 to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(1)(l)	Articles of Amendment for Reallocation of Shares, dated November 13, 2002, filed by EDGAR on June 10, 2003 as EX-99.B(a)tgtartamend to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A
(1)(m)	Articles of Amendment for Reallocation of Shares, dated March 26, 2003, filed by EDGAR on June 10, 2003 as EX-99.B(a)tgtartamend2 to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A
(1)(n)	Articles Supplementary, dated May 22, 2003, filed by EDGAR on June 10, 2003 as EX-99.B(a)tgtartsup to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A
(2)(a)	Bylaws filed April 29, 1996 as EX-99.B2-tmkbylaw to Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A
(2)(b)	Amendment to Bylaws, dated February 10, 1999, filed by EDGAR on March 1, 1999 as EX-99.B(b)-bylaw2 to Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A
(2)(c)	Amendment to Bylaws, dated May 17, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(b)tgtbylawamend1 to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A

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(2)(d)	Amendment to Bylaws, dated August 16, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(b)tgtbylawamend2 to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(3)	[Not applicable.]
(4)	Form of Agreement and Plan of Reorganization. (Included as Appendix A to the Prospectus/Proxy Statement comprising Part A of this Registration Statement.)
(5)	Articles Fifth and Seventh of the Articles of Incorporation, as amended, and Articles I and IV of the Bylaws, as amended, each define the rights of shareholders.
(6)(a)	Investment Management Agreement with fee schedule amended to reflect the addition of Science and Technology Portfolio filed October 31, 1996 as EX-99.B5-tmkima to Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A
(6)(b)	Fee Schedule (Exhibit A) to the Investment Management Agreement, as amended, filed by EDGAR on March 1, 2001 as EX-99.B(d)tgtimafees to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(6)(c)	Investment Management Agreement with respect to International II Portfolio, Micro Cap Portfolio and Small Company Value Portfolio, filed by EDGAR on June 10, 2003 as EX-99.B(d)tgtima2 to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A
(6)(d)	Subadvisory Agreement between Waddell & Reed Investment Management Company and Wall Street Associates, filed by EDGAR on June 10, 2003 as EX-99.B(d)tgtsubadv1 to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A
(6)(e)	Subadvisory Agreement between Waddell & Reed Investment Management Company and Templeton Investment Counsel, Inc., filed by EDGAR on June 10, 2003 as EX-99.B(d)tgtsubadv2 to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A
(6)(f)	Subadvisory Agreement between Waddell & Reed Investment Management Company and State Street Research & Management Company.(1)
(7)(a)	Distribution Contract between TMK/United Funds, Inc. and United Investors Life Insurance Company, dated April 4, 1997, filed by EDGAR on March 1, 2001 as EX-99.B(e)tmkdist to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(7)(b)	Agreement Amending Distribution Contract, dated March 3, 1998, reflecting termination of the agreement as of December 31, 1998 filed by EDGAR on March 1, 2001 as EX-99.B(e)tmkterm1 to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A

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(7)(c)	Agreement Amending Distribution Contract, effective December 31, 1998, to rescind the provision to terminate the agreement filed by EDGAR on March 1, 2001 as EX-99.B(e)amnddist to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(7)(d)	Letter Agreement, dated July 8, 1999, filed by EDGAR on March 1, 2001 as EX-99.B(e)amendpua to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(7)(e)	Limited Selling Agreement, dated May 16, 2001, filed by EDGAR on April 29, 2002 as EX-99.B(e)tgtuilicsel to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(7)(f)	Fund Participation Agreement with Nationwide Life Insurance Company, dated December 1, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(e)tgtnwpart to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(8)	Not applicable.
(9)(a)	Custodian Agreement, as amended, filed April 26, 2000 as EX-99.B(g)tgtca to Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A. The Custodian Agreement for Target/United Funds, Inc. Asset Strategy Portfolio was filed as a representative copy. The Custodian Agreements for all portfolios of W&R Target Funds, Inc. are identical with the exception of their respective effective dates.
(9)(b)	Amendment to Custodian Agreement, dated July 1, 2001, filed by EDGAR on March 28, 2003 as EX-99.B(g)tgtcaamend to Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A. The Amendment to the Custodian Agreement for W&R Target Funds, Inc. Asset Strategy Portfolio is being filed as a representative copy. The Amendment to Custodian Agreements for all portfolios of W&R Target Funds, Inc. (except Micro Cap Growth Portfolio, International II Portfolio and Small Company Value Portfolio) are identical with the exception of their respective effective dates.
(9)(c)	Custodian Agreement for Micro Cap Growth Portfolio, filed by EDGAR on June 10, 2003 as EX-99.B(g)mcgpca to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A. The Custodian Agreement for International II Portfolio and for Small Company Value Portfolio is identical to the Custodian Agreement for Micro Cap Growth Portfolio.
(9)(d)	Delegation Agreement, dated July 1, 2001, filed by EDGAR on March 28, 2003 as EX-99B(g)tgtcadel to Post-Effective Amendment No. 28 to the Registration Statement on Form N-1A. Delegation Agreement for W&R Target Funds, Inc. Asset Strategy Portfolio is being filed as a representative copy. The Delegation Agreements for all portfolios of W&R Target Funds, Inc. (except Micro Cap Growth Portfolio, International II Portfolio and Small Company Value Portfolio) are identical with the exception of their respective effective dates.

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(9)(e)	Rule 17f-5 Delegation Agreement for Micro Cap Growth Portfolio, filed by EDGAR on June 10, 2003 as EX-99.B(g)mcgpcadel to Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A. The Rule 17f-5 Delegation Agreement for International II Portfolio and Small Company Value Portfolio is identical to the Rule 17f-5 Delegation Agreement for Micro Cap Growth Portfolio.
(10)	Service Plan filed by EDGAR on March 1, 1999 as EX-99.B(m)-tmksp to Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A
	Service Plan, as revised May 16, 2001, filed by EDGAR on April 29, 2002 as EX-99.B(m)tgtsp to Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(11)	Opinion and consent of Associate General Counsel to W&R Target Funds with respect to the legality of the securities being registered.(1)
(12)	Opinion and consent of Dorsey & Whitney LLP with respect to tax matters.(2)
(13)(a)	Accounting Services Agreement filed October 3, 1995 as EX-99.B9-tmkasa to Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A
(13)(b)	Amendment to Accounting Services Agreement, dated September 1, 2000, filed by EDGAR on March 1, 2001 as EX-99.B(h)tgtasaamend to Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A
(14)(a)	Consent of Deloitte & Touch LLP with respect to financial statements of the Registrant.(1)
(14)(b)	Consent of KPMG LLP with respect to financial statements of Advantus Series Fund, Inc.(1)
(15)	Not applicable.
(16)	Powers of attorney.(1)
(17)(a)	Form of contract holder voting instructions.(1)
(17)(b)	W&R Target Funds, Inc. Prospectus dated May 1, 2003.(3)
(17)(c)	W&R Target Funds, Inc. Statement of Additional Information dated May 1, 2003.(1)
(17)(d)	W&R Target Funds, Inc. Preliminary Prospectus for the W&R International II Portfolio, W&R Micro Cap Growth Portfolio and W&R Small Company Value Portfolio (acceleration of effectiveness to July 18, 2003 will be requested).(4)
(17)(e)	W&R Target Funds, Inc. Preliminary Statement of Additional Information for the W&R International II Portfolio, W&R Micro Cap Growth Portfolio and W&R Small Company Value Portfolio (acceleration of effectiveness to July 18, 2003 will be requested).(1)

5

(17)(f)	Advantus Series Fund, Inc. Prospectus dated May 1, 2003.(1)
(17)(g)	Advantus Series Fund, Inc. Statement of Additional Information dated May 1, 2003.(1)
(17)(h)	W&R Target Funds, Inc. Annual Report for the year ended December 31, 2002.(1)
(17)(i)	Advantus Series Fund, Inc. Annual Report for the year ended December 31, 2002.(1)

(1)	Filed herewith.
(2)	To be filed by amendment.
(3)	Filed herewith as Appendix D to the Proxy Statement/Prospectus.
(4)	Filed herewith as Appendix E to the Proxy Statement/Prospectus.

Item 17. Undertakings.

     (1)  The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

     (2)  The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.

     (3)  The undersigned Registrant agrees to file, by post-effective amendment, an opinion of counsel or a copy of a ruling of the Internal Revenue Service supporting the tax consequences of the proposed reorganization within a reasonable time after receipt of such opinion or ruling.

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SIGNATURES

     As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the city of Shawnee Mission, and the state of Kansas on the 26th day of June, 2003.

W&R Target Funds, Inc.

By/s/ HENRY J. HERRMANN
Name: Henry J. Herrmann
Title: President

     As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures	Title
/s/ Keith A. Tucker* Keith A. Tucker	Chairman of the Board	June 26, 2003
/s/ Henry J. Herrmann Henry J. Herrman	President and Director	June 26, 2003
/s/ Theodore W. Howard Theodore W. Howard	Vice President, Treasurer, Principal Financial Officer and Accounting Officer	June 26, 2003
/s/ James M. Concannon* James M. Concannon	Director	June 26, 2003
/s/ John A. Dillingham* John A. Dillingham	Director	June 26, 2003
/s/ David P. Gardner* David P. Gardner	Director	June 26, 2003
/s /Linda K. Graves* Linda K. Graves	Director	June 26, 2003
/s/ Joseph Harroz, Jr.* Joseph Harroz, Jr.	Director	June 26, 2003

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/s/ John F. Hayes* John F. Hayes	Director	June 26, 2003
/s/ Glendon E. Johnson* Glendon E. Johnson	Director	June 26, 2003
/s/ Frank J. Ross, Jr.* Frank J. Ross, Jr.	Director	June 26, 2003
/s/ Eleanor B. Schwartz* Eleanor B. Schwartz	Director	June 26, 2003
/s/ Frederick Vogel III* Frederick Vogel III	Director	June 26, 2003
*By /s/ Kristen A. Richards Kristen A. Richards Attorney-in-Fact
ATTEST:
/s/ Daniel C. Schulte Daniel C. Schulte Assistant Secretary

• Pursuant to powers of attorney filed herewith.

8 EX-99.6(F) 3 c77852exv99w6xfy.htm EX-(6)(F) SUBADVISORY AGREEMENT

Exhibit 6(f)

INVESTMENT SUB-ADVISORY AGREEMENT

     THIS AGREEMENT, made as of the     day of          , 2003, by and between Waddell & Reed Investment Management Company, a Kansas corporation, registered as an investment adviser under the Investment Advisers Act of 1940 (the “Adviser”) and State Street Research & Management Company, a Delaware corporation, registered as an investment adviser under the Investment Advisers Act of 1940 (the “Sub-Adviser”).

     WHEREAS, the Adviser is the investment manager to W&R Target Funds, Inc. (the “Fund”), an open-end diversified management investment company organized as a series fund, registered under the Investment Company Act of 1940, as amended (the “1940 Act”); and

     WHEREAS, the Adviser desires to retain the Sub-Adviser to furnish it with portfolio selection and related research and statistical services in connection with the Adviser’s investment advisory activities on behalf of the Fund’s Small Company Value Portfolio (hereinafter “Portfolio”), and the Sub-Adviser desires to furnish such services to the Adviser;

     NOW, THEREFORE, in consideration of the premises and the terms and conditions hereinafter set forth, it is agreed as follows:

     1.     Appointment of Sub-Adviser

     In accordance with and subject to the Investment Advisory Agreement between the Fund and the Adviser, the Adviser hereby appoints the Sub-Adviser to perform portfolio selection services described herein for investment and reinvestment of the Portfolio, subject to the control and direction of the Fund’s Board of Directors, for the period and on the terms hereinafter set forth. The Sub-Adviser accepts such appointment and agrees to furnish the services hereinafter set forth for the compensation herein provided. The Sub-Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as expressly provided or authorized, have no authority to act for or represent the Fund or the Adviser in any way or otherwise be deemed an agent of the Fund or the Adviser.

     2.     Obligations of and Services to be Provided by the Sub-Adviser

     (a)  The Sub-Adviser shall provide the following services and assume the following obligations with respect to the Portfolio of the Fund:

(1) The investment of the assets of the Portfolio shall at all times be subject to the applicable provisions of the Articles of Incorporation, the Bylaws, the Registration Statement, the current Prospectus and the Statement of Additional Information of the Fund and shall conform to the investment objectives, policies and restrictions of the Portfolio as set forth in such documents and as interpreted from time to time by the

	Board of Directors of the Fund and by the Adviser and communicated in writing to the Sub-Adviser, including diversification of the holdings of the Portfolio as a segregated asset account in accordance with Section 817 of the Internal Revenue Code, as amended (the “Code”), and Regulation Section 1.817-5 thereunder, provided that the Adviser shall be responsible for ensuring that each Portfolio is “adequately diversified” if and to the extent required by Section 817(h) of the Code and Regulation 1.817-5 thereunder. Within the framework of the investment objectives, policies and restrictions of the Portfolio, and subject to the supervision of the Adviser, the Sub-Adviser shall have the sole and exclusive responsibility for the making and execution of all investment decisions for the Portfolio. The Adviser agrees to promptly inform the Sub-Adviser if such objective, policies or restrictions change and to deliver to the Sub-Adviser updated documents, if prepared.
(2)	In carrying out its obligations to manage the investments and reinvestments of the assets of the Portfolio, the Sub-Adviser shall: (1) obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolio or are under consideration for inclusion therein; (2) formulate and implement a continuous investment program for the Portfolio consistent with the investment objective and related investment policies for such Portfolio as set forth in the Fund’s Registration Statement, as amended; and (3) take such steps as are necessary to implement the aforementioned investment program by purchase and sale of securities including the placing, or directing the placement through an affiliate of the Sub-Adviser, of orders for such purchases and sales.
(3)	In connection with the purchase and sale of securities of the Portfolio, the Sub-Adviser shall arrange for the transmission to the Adviser (or its designee) and the Custodian for the Fund on a daily basis such confirmation, trade tickets and other documents as may be necessary to enable them to perform their administrative responsibilities with respect to the Portfolio. With respect to portfolio securities to be purchased or sold through the Depository Trust Company, the Sub-Adviser shall arrange for the automatic transmission of the I.D. confirmation of the trade to the Custodian of the Portfolio. The Sub-Adviser shall render such reports to the Adviser and/or to the Fund’s Board of Directors concerning the investment activity and portfolio composition of the Portfolio in such form and at such intervals as the Adviser or the Board may from time to time reasonably require.
(4)	The Sub-Adviser shall, in the name of the Fund, place or direct the placement of orders for the execution of portfolio transactions in accordance with the policies with respect thereto, as set forth in the Fund’s Registration Statement, as amended from time to time, and

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under the 1933 Act and the 1940 Act. In connection with the placement of orders for the execution of the Fund’s portfolio transactions, the Sub-Adviser shall create and maintain all necessary brokerage records of the Fund in accordance with all applicable law, rules and regulations, including but not limited to, records required by Section 31(a) of the 1940 Act. All records shall be the property of the Fund and shall be available for inspection and use by the Securities and Exchange Commission, the Fund or any person retained by the Fund. Where applicable, such records shall be maintained by the Sub-Adviser for the period and in the place required by Rule 31a-2 under the 1940 Act.

(5)

In placing orders or directing the placement of orders for the execution of portfolio transactions, the Sub-Adviser shall select brokers and dealers for the execution of the Portfolio’s transactions. In selecting brokers or dealers to execute such orders, the Sub-Adviser is expressly authorized to consider the fact that a broker or dealer has furnished statistical, research or other information or services which enhance the Sub-Adviser’s investment research and portfolio management capability generally. It is further understood in accordance with Section 28(e) of the Securities Exchange Act of 1934, as amended, that the Sub-Adviser may negotiate with and assign to a broker a commission which may exceed the commission which another broker would have charged for effecting the transaction if the Sub-Adviser determines in good faith that the amount of commission charged was reasonable in relation to the value of brokerage and/or research services (as defined in Section 28(e)) provided by such broker, viewed in terms either of the Portfolio or the Sub-Adviser’s overall responsibilities to the Sub-Adviser’s discretionary accounts.

     (b)  The Sub-Adviser shall use the same skill and care in providing services to the Fund as it uses in providing services to other fiduciary accounts for which it has investment responsibility. The Sub-Adviser will comply with all applicable rules and regulations of the Securities and Exchange Commission.

     3.     Expenses

     During the terms of this Agreement, the Sub-Adviser will pay all expenses incurred by it in connection with its activities under this Agreement.

     4.     Compensation

     In payment for the investment sub-advisory services to be rendered by the Sub-Adviser in respect of the Portfolio hereunder, the Adviser shall pay to the Sub-Adviser as full compensation for all services hereunder a fee computed at an annual rate which shall be a percentage of the average daily value of the net assets of the Portfolio. The fee shall be accrued daily and shall be based on the net asset values of all of the issued and

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outstanding shares of the Portfolio as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee shall be payable in arrears on the last day of each calendar month.

     The amount of such annual fee, as applied to the average daily value of the net assets of the Portfolio shall be as described in the schedule below:

Assets* Fee

     *The term “assets” for purposes of each of the breakpoints set forth above shall include all ‘small company value’ assets sub-advised by the Sub-Adviser for the Adviser or its affiliates, in addition to the assets of the Portfolio. The aggregation of the assets for purposes of the breakpoints, shall be calculated quarterly based upon the aggregate assets on March 31^st, June 30^th, September 30^th and December 31^st of each calendar year (or portion thereof) that this agreement is effective.

     5.     Renewal and Termination

     This Agreement shall continue in effect until September 30, 2003, and from year to year thereafter provided such continuance is specifically approved at least annually by a vote of the holders of the majority of the outstanding voting securities of the Portfolio, or by a vote of the majority of the Fund’s Board of Directors. And further provided that such continuance is also approved annually by a vote of the majority of the Fund’s Board of Directors who are not parties to this Agreement or interested persons of parties hereto, cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time without payment of penalty: (i) by the Fund’s Board of Directors or by a vote of a majority of the outstanding voting securities of the class of capital stock of the Portfolio on sixty days’ prior written notice, or (ii) by either party hereto upon sixty days’ prior written notice to the other. This Agreement will terminate automatically upon any termination of the Investment Advisory Agreement between the Fund and the Adviser or in the event of its assignment. The terms “interested person,” “assignment” and “vote of a majority of the outstanding voting securities” shall have the meanings set forth in the 1940 Act.

     6.     General Provisions

     (a)  The Sub-Adviser may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be provided by the 1940 Act, neither the Sub-Adviser nor its officers, directors, employees or agents shall be subject to any liability for any error of judgment or mistake of law or for any loss arising out of any investment or other act or omission in the performance by the Sub-Adviser of its duties under this Agreement or for any loss or damage resulting from the imposition by any government or exchange control restrictions which might affect the liquidity of the

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Portfolio’s assets, or from acts or omissions of custodians or securities depositories, or from any war or political act of any foreign government to which such assets might be exposed, provided that nothing herein shall be deemed to protect, or purport to protect, the Sub-Adviser against any liability to the Fund or to its shareholders to which the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the Sub-Adviser’s reckless disregard of its obligations and duties hereunder.

     (b)  The Adviser and the Fund’s Board of Directors understand that the value of investments made for the Portfolio may go up as well as down, is not guaranteed and that investment decisions will not always be profitable. The Adviser has not made and is not making any guarantees, including any guarantee as to any specific level of performance of the Portfolio. The Adviser and the Fund’s Board of Directors acknowledge that this Portfolio is designed for the described investment objective and is not intended as a complete investment program. They also understand that investment decisions made on behalf of the Portfolio by Sub-Adviser are subject to various market and business risks.

     (c)  This Agreement shall not become effective unless and until it is approved by the Board of Directors of the Fund, including a majority of the members who are not “interested persons” to parties to this Agreement, by a vote cast in person at a meeting called for the purpose of voting such approval.

     (d)  The Adviser understands that the Sub-Adviser now acts, will continue to act, or may act in the future, as investment adviser to fiduciary and other managed accounts, including other investment companies, and the Adviser has no objection to the Sub-Adviser so acting, provided that the Sub-Adviser duly performs all obligations under this Agreement. The Adviser also understands that the Sub-Adviser may give advice and take action with respect to any of its other clients or for its own account which may differ from the timing or nature of action taken by the Sub-Adviser with respect to the Fund. Nothing in this Agreement shall impose upon the Sub-Adviser any obligation to purchase or sell or to recommend for purchase or sale, with respect to the Fund, any security which the Sub-Adviser or its shareholders, directors, officers, employees or affiliates may purchase or sell for its or their own account(s) or for the account of any other client.

     (e)  Except to the extent necessary to perform its obligations hereunder, nothing herein shall be deemed to limit or restrict the right of the Sub-Adviser, or the right of any of its officers, directors or employees who may also be an officer, director or employee of the Fund, or persons otherwise affiliated with the Fund (within the meaning of the 1940 Act) to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other trust, corporation, firm, individual or association.

     (f)  Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Kansas. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

-5-

     (g)  Any notice under this Agreement shall be in writing, addressed and delivered or mailed postage pre-paid to the appropriate party at the following address: The Adviser and the Fund at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, and the Sub-Adviser at One Financial Center, Boston, MA 02111-2690 Attention: General Counsel.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement.

WADDELL & REED INVESTMENT MANAGEMENT COMPANY

By:

Its:

STATE STREET RESEARCH & MANAGEMENT COMPANY

By:

Its:

-6- EX-99.11 4 c77852exv99w11.htm EX-(11) OPINION/CONSENT OF WADDELL & REED

Exhibit 11

June 26, 2003

Securities and Exchange Commission
450 Fifth Street, NW
Judiciary Plaza
Washington DC 20549

Ladies and Gentlemen:

     I have acted as Associate General Counsel to W&R Target Funds, Inc., (the “Fund”) a Maryland Corporation, in connection with the filing with the Securities and Exchange Commission (“SEC”) of a registration statement on Form N-14 (the “Registration Statement”), registering the shares of stock of the W&R Target Portfolios listed in the Attachment, each a series of the Fund (the “Acquiring Funds”), (the “Shares”) to be issued pursuant to an Agreement and Plan of Reorganization (“Plan”) on behalf of the Acquiring Funds and each series of Advantus Series Fund, Inc., a Minnesota Corporation (the “Target”). The Plan provides for the transfer of the Target’s assets to the Acquiring Funds in exchange solely for a number of Shares determined in the manner specified in the Plan and the assumption by the Acquiring Funds of the liabilities of the Target.

     In connection with rendering the opinions set forth below, I have examined the form of Plan that I understand is included as an exhibit to the Registration Statement, the Fund’s Articles of Incorporation, as amended, and Bylaws, and the action of the Fund that provides for the issuance of the Shares; and I have made such other investigation as I have deemed appropriate. In rendering my opinion, I also have made the assumptions that are customary in opinion letters of this kind. I have not verified any of those assumptions.

     My opinion, as set forth herein, is based on the facts in existence and the laws in effect on the date hereof and is limited to the federal laws of the United States of America and the laws of the State of Maryland that, in my experience, generally are applicable to the issuance of shares by entities such as the Fund. I express no opinion with respect to any other laws.

     Based upon and subject to the foregoing, I am of the opinion that:

     1.     The Shares to be issued pursuant to the Plan have been duly authorized for issuance by the Fund; and

     2.     When such Shares have been issued and the consideration for such Shares has been paid in accordance with the Plan, such shares will be validly issued, fully paid and non-assessable.

     This opinion is rendered solely in connection with the filing of the Registration Statement. I hereby consent to the filing of this opinion with the SEC in connection with the Registration

Statement. In giving my consent I do not thereby admit that I am in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the SEC thereunder.

Very truly yours,

/s/ Kristen A. Richards

Kristen A. Richards
Vice President, Associate General
  Counsel and Secretary

Attachment

Series of W&R Target Funds, Inc.:

Balanced Portfolio
Core Equity Portfolio
Growth Portfolio
International II Portfolio
Micro-Cap Growth Portfolio
Small Cap Portfolio
Small Company Value Portfolio
Value Portfolio

EX-99.14(A) 5 c77852exv99w14xay.htm EX-(14)(A) CONSENT OF DELOITTE & TOUCHE LLP

Exhibit 14(a)

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in this Registration Statement of W&R Target Funds, Inc. on Form N-14 of our report dated February 7, 2003 appearing in the Annual Report to Shareholders of Asset Strategy Portfolio, Balanced Portfolio, Bond Portfolio, Core Equity Portfolio, Growth Portfolio, High Income Portfolio, International Portfolio, Limited-Term Bond Portfolio, Money Market Portfolio, Science and Technology Portfolio, Small Cap Portfolio, and Value Portfolio comprising W&R Target Funds, Inc. for the fiscal year ended December 31, 2002, which is also incorporated by reference in the Statement of Additional Information, which is part of such Registration Statement. We also consent to the reference to us under the caption “Custodial and Auditing Services” in the Proxy Statement/Prospectus, which also is a part of such Registration Statement.

/s/ Deloitte & Touche LLP

Kansas City, Missouri
June 24, 2003

EX-99.14(B) 6 c77852exv99w14xby.htm EX-(14)(B) CONSENT OF KPMG LLP

Exhibit 14(b)

Independent Auditors’ Consent

The Board of Directors
Advantus Series Fund, Inc.:

We consent to the use of our report dated February 7, 2003 incorporated by reference herein and to the reference to our Firm under the heading Other Service Providers — Custodial and Auditing Services in this combined proxy and registration statement on Form N-14.

KPMG LLP

Minneapolis, Minnesota
June 25, 2003

EX-99.16 7 c77852exv99w16.htm EX-(16) POWERS OF ATTORNEY

EXHIBIT 16

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC., WADDELL & REED ADVISORS CASH MANAGEMENT, INC., WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC., WADDELL & REED ADVISORS FIXED INCOME FUNDS, INC., WADDELL & REED ADVISORS FUNDS, INC., WADDELL & REED ADVISORS GLOBAL BOND FUND, INC., WADDELL & REED ADVISORS HIGH INCOME FUND, INC., WADDELL & REED ADVISORS INTERNATIONAL GROWTH FUND, INC., WADDELL & REED ADVISORS MUNICIPAL BOND FUND, INC., WADDELL & REED ADVISORS MUNICIPAL HIGH INCOME FUND, INC., WADDELL & REED ADVISORS MUNICIPAL MONEY MARKET FUND, INC., WADDELL & REED ADVISORS NEW CONCEPTS FUND, INC., WADDELL & REED ADVISORS RETIREMENT SHARES, INC., WADDELL & REED ADVISORS SELECT FUNDS, INC., WADDELL & REED ADVISORS SMALL CAP FUND, INC., WADDELL & REED ADVISORS TAX-MANAGED EQUITY FUND, INC., WADDELL & REED ADVISORS VANGUARD FUND, INC., W&R TARGET FUNDS, INC., W&R FUNDS, INC. AND WADDELL & REED INVESTED PORTFOLIOS, INC. (each hereinafter called the Corporation), and certain directors and officers for the Corporation, do hereby constitute and appoint KEITH A. TUCKER, DANIEL C. SCHULTE and KRISTEN A. RICHARDS, and each of them individually, their true and lawful attorneys and agents to take any and all action and execute any and all instruments which said attorneys and agents may deem necessary or advisable to enable each Corporation to comply with the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, and any rules, regulations, orders or other requirements of the United States Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, including specifically, but without limitation of the foregoing, power and authority to sign the names of each of such directors and officers in his/her behalf as such director or officer as indicated below opposite his/her signature hereto, to any Registration Statement and to any amendment or supplement to the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, and to any instruments or documents filed or to be filed as a part of or in connection with such Registration Statement or amendment or supplement thereto; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof.

Date: May 21, 2003 /s/Henry J. Herrmann
Henry J. Herrmann, President

/s/Keith A. Tucker
Keith A. Tucker Chairman of the Board May 21, 2003

/s/Henry J. Herrmann
Henry J. Herrmann President and Director May 21, 2003

/s/Theodore W. Howard Theodore W. Howard	Vice President, Treasurer and Principal Accounting Officer	May 21, 2003
/s/James M. Concannon James M. Concannon	Director	May 21, 2003
/s/John A. Dillingham John A. Dillingham	Director	May 21, 2003
/s/David P. Gardner David P. Gardner	Director	May 21, 2003
/s/Linda K. Graves Linda K. Graves	Director	May 21, 2003
/s/Joseph Harroz, Jr. Joseph Harroz, Jr.	Director	May 21, 2003
/s/John F. Hayes John F. Hayes	Director	May 21, 2003
/s/Glendon E. Johnson Glendon E. Johnson	Director	May 21, 2003
/s/Frank J. Ross, Jr. Frank J. Ross, Jr.	Director	May 21, 2003

/s/Eleanor B. Schwartz Eleanor B. Schwartz	Director	May 21, 2003
/s/Frederick Vogel III Frederick Vogel III	Director	May 21, 2003
Attest:
/s/Kristen A. Richards Kristen A. Richards Secretary

EX-99.17(A) 8 c77852exv99w17xay.htm EX-(17)(A) CONTRACT HOLDER VOTING INSTRUCTIONS

EXHIBIT 17(a)

ADVANTUS SERIES FUND, INC.
[NAME OF ACQUIRED FUND]
VOTING INSTRUCTIONS FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD                     , 2003

THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF
MINNESOTA LIFE INSURANCE COMPANY

The undersigned hereby instructs Minnesota Life Insurance Company (“Minnesota Life”) to represent and vote the number of shares of the series named above (the “Fund”) represented by the number of votes attributable to the undersigned’s variable annuity contract or variable insurance contract as of             , 2003 at a Special Shareholders Meeting to be held at the offices of Advantus Capital Management, Inc., 400 Robert Street North, St. Paul, Minnesota 55101, on September       , 2003 at                  .m. Central time and at any adjournment thereof, upon the matter below as set forth in the Notice of Special Meeting of Shareholders and Prospectus/Proxy Statement.

All previous voting instructions with respect to the meeting are revoked. Receipt of the Notice of Special Meeting of Shareholders and Prospectus/Proxy Statement is acknowledged by your execution of these voting instructions. Mark, sign, date, and return these Voting Instructions in the addressed envelope — no postage required.

VOTES OF CONTRACT AND POLICY OWNERS FOR WHICH NO VOTING INSTRUCTIONS ARE RECEIVED WILL BE VOTED IN THE SAME PROPORTION AS THE VOTES OF CONTRACT AND POLICY OWNERS FOR WHICH VOTING INSTRUCTIONS ARE RECEIVED.

PLEASE FILL IN BOX AS SHOWN USING BLUE OR BLACK INK OR NUMBER 2 PENCIL. PLEASE DO NOT USE FINE POINT PENS. x

THESE VOTING INSTRUCTIONS WILL BE VOTED AS INSTRUCTED ON THE MATTER SET FORTH BELOW. IT IS UNDERSTOOD THAT IF NO CHOICE IS SPECIFIED, THESE VOTING INSTRUCTIONS WILL BE VOTED “FOR” SUCH MATTER. UPON ALL OTHER MATTERS, MINNESOTA LIFE SHALL VOTE ACCORDING TO ITS BEST JUDGMENT. In its discretion, Minnesota Life is authorized to vote upon such other business as may properly come before the meeting and any adjournments or postponements of the meeting unless otherwise prohibited by the undersigned. Contract and policy owners wishing to vote in accordance with the Board of Directors’ recommendation need only sign and date this voting instruction form and return it in the envelope provided.

[Voting item 1 included for beneficial owners of all Acquired Funds]		FOR	AGAINST	ABSTAIN
1.	To approve a proposed Agreement and Plan of Reorganization (“Plan”) that provides for the reorganization of the Fund into a comparable fund in W&R Target Funds, Inc. A vote in favor of the Plan also will be considered a vote in favor of an amendment to the articles of incorporation of Advantus Series Fund, Inc. which is required to effect the reorganization.	o	o	o

[Voting item 2 included only for beneficial owners of the Advantus Asset Allocation Portfolio, Advantus Capital Appreciation Portfolio, Advantus Growth Portfolio, Advantus Core Equity Portfolio and Advantus Value Stock Portfolio]		FOR	AGAINST	ABSTAIN
2.	To approve a definitive investment advisory agreement between Advantus Series Fund, Inc., on behalf of the Fund, and Waddell & Reed Investment Management Company.	o	o	o

Please be sure to sign and date voting instructions

Please sign exactly as name appears to the left. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If signing for a corporation, please sign in full corporate name by authorized person. If a partnership, please sign in partnership name by authorized person.

RECORD DATE SHARES:                    

                                            
Contract owner(s) sign here

                    
Date EX-99.17(C) 9 c77852exv99w17xcy.htm EX-(17)(C) STATEMENT OF ADDITIONAL INFORMATION

EXHIBIT 17(c)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information (SAI) is not a prospectus. Investors should read this SAI in conjunction with the prospectus for W&R Target Funds, Inc. dated May 1, 2003 (Prospectus), which may be obtained from the Fund or its underwriter, Waddell & Reed, Inc. (Waddell & Reed), at the address or telephone number shown above.

The Financial Statements, including notes thereto, are incorporated herein by reference. They are contained in the Fund’s Annual Report to Shareholders, dated December 31, 2002, which may also be obtained from the Fund or Waddell & Reed at the address or telephone number above.

TABLE OF CONTENTS

Fund History
The Fund, Its Investments, Related Risks and Limitations
Management of the Fund
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption and Pricing of Shares
Taxation of the Fund
Performance Information
Financial Statements
Appendix A

FUND HISTORY

W&R Target Funds, Inc. (Fund) was organized as a Maryland corporation on December 2, 1986. Prior to August 31, 1998, the Fund was known as TMK/United Funds, Inc.; prior to October 16, 2000, it was known as Target/United Funds, Inc. The Fund has separate Portfolios (each, a Portfolio, collectively, the Portfolios), each of which has its own goal(s) and investment policies.

THE FUND, ITS INVESTMENTS, RELATED RISKS AND LIMITATIONS

The Fund is a mutual fund, an investment that pools shareholders’ money and invests it toward a specified goal. The Fund is an open-end, diversified management company. The Fund sells its shares only to the separate accounts of Participating Insurance Companies to fund certain variable life insurance policies and variable annuity contracts (Policies).

This SAI supplements the information contained in the Prospectus and contains more detailed information about the investment strategies and policies the Fund’s investment manager, Waddell & Reed Investment Management Company (WRIMCO), may employ and the types of instruments in which a Portfolio may invest, in pursuit of the Portfolio’s goal(s). A summary of the risks associated with instrument types and investment practices is included as well.

WRIMCO might not buy all of these instruments or use all of these techniques, or use them to the full extent permitted by a Fund’s investment policies and restrictions. WRIMCO buys an instrument or uses a technique only if it believes that doing so will help a Fund achieve its goal(s).

Asset Strategy Portfolio

Asset Strategy Portfolio allocates its assets among the following classes, or types, of investments:

The short-term class includes all types of domestic and foreign securities and money market instruments with remaining maturities of three years or less. WRIMCO will seek to maximize total return within the short-term asset class by taking advantage of yield differentials between different instruments, issuers, and currencies. Short-term instruments may include corporate debt securities, such as commercial paper and notes; U.S. Government securities or securities issued by foreign governments or their agencies or instrumentalities; bank deposits and other financial institution obligations; repurchase agreements involving any type of security; and other similar short-term instruments. These instruments may be denominated in U.S. dollars or foreign currency.

The bond class includes all varieties of domestic and foreign fixed-income securities with maturities greater than three years. WRIMCO seeks to maximize total return within the bond class by adjusting the Portfolio’s investments in securities with different credit qualities, maturities, and coupon or dividend rates, and by seeking to take advantage of yield differentials between securities. Securities in this class may include bonds, notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and asset-backed securities, domestic and foreign government and government agency securities, zero coupon securities, and other intermediate and long-term securities. As with the short-term

class, these securities may be denominated in U.S. dollars or foreign currency. The Portfolio may also invest in lower-quality, high-yield debt securities, also known as junk bonds. The Portfolio may not invest, however, more than 35% of its total assets in junk bonds.

WRIMCO intends to take advantage of yield differentials by considering the purchase or sale of instruments when differentials on spreads between various grades and maturities of such instruments approach extreme levels relative to long-term norms.

The stock class includes domestic and foreign equity securities of all types (other than adjustable-rate preferred stocks, which are included in the bond class). WRIMCO seeks to maximize total return within this asset class by actively allocating assets to industry sectors expected to benefit from major trends, and to individual stocks that WRIMCO believes to have superior growth potential and/or value potential. Securities in the stock class may include common stocks, fixed-rate preferred stocks (including convertible preferred stocks), warrants, rights, depository receipts, securities of closed-end investment companies, and other equity securities issued by companies of any size, located world-wide.

In making asset allocation decisions, WRIMCO typically evaluates projections of risk, market conditions, economic conditions, volatility, yields, and returns.

The ability of Asset Strategy Portfolio to purchase and hold precious metals such as gold, silver and platinum may allow it to benefit from a potential increase in the price of precious metals or stability in the price of such metals at a time when the value of securities may be declining. For example, during periods of declining stock prices, the price of gold may increase or remain stable, while the value of the stock market may be subject to a general decline.

Precious metal prices are affected by various factors, such as economic conditions, political events and monetary policies. As a result, the price of gold, silver or platinum may fluctuate widely. The sole source of return to Asset Strategy Portfolio from such investments will be gains realized on sales; a negative return will be realized if the metal is sold at a loss. Investments in precious metals do not provide a yield. Asset Strategy Portfolio’s direct investment in precious metals may be limited by tax considerations. See Taxes below.

High Income Portfolio

High Income Portfolio may invest in certain high-yield, high-risk, non-investment grade debt securities, or junk bonds. The market for such securities may differ from that for investment grade debt securities. See the discussion below for information about the risks associated with non-investment grade debt securities. See Appendix A to this SAI for a description of bond ratings.

Money Market Portfolio

Money Market Portfolio may invest in the money market obligations and instruments listed below. Under Rule 2a-7 (Rule 2a-7) of the Investment Company Act of 1940, as amended (the 1940 Act), investments are limited to those that are U.S. dollar denominated and that are rated in one of the two highest rating categories by the requisite nationally recognized statistical rating organization (NRSRO), as defined in Rule 2a-7, or are comparable unrated securities. See Appendix A to this SAI for a description of some of these ratings. In general, Rule 2a-7 also limits investments in securities of any one issuer (except securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (U.S. Government securities)) to no more than 5% of the Portfolio’s total assets. Investments in securities rated in the second highest rating category by the requisite NRSRO(s) or comparable unrated securities are limited to no more than 5% of the Portfolio’s total assets, with investments in such securities of any one issuer (except U.S. Government securities) being limited to the greater of one percent of the Portfolio’s total assets or $1,000,000. Under Rule 2a-7, the Portfolio may only invest in securities with a remaining maturity of not more than 397 calendar days, as further described in the Rule.

(1)  U.S. Government Securities: See the section entitled U.S. Government Securities.

(2)  Bank Obligations and Instruments Secured Thereby: Subject to the limitations described above, time deposits, certificates of deposit, bankers’ acceptances and other bank obligations if they are obligations of a bank subject to regulation by the U.S. Government (including obligations issued by foreign branches of these banks) or obligations issued by a foreign bank having total assets equal to at least U.S. $500,000,000, and instruments secured by any such obligation. A bank includes commercial banks and savings and loan associations. Time deposits are monies kept on deposit with U.S. banks or other U.S. financial institutions for a stated period of time at a fixed rate of interest. At present, bank time deposits are not considered by the Board of Directors or WRIMCO, to be readily marketable. There may be penalties for the early withdrawal of such time deposits, in which case, the yield of these investments will be reduced.

(3)  Commercial Paper Obligations Including Variable Rate Master Demand Notes: Commercial paper rated as described above. A variable rate master demand note represents a purchasing/selling arrangement of short-term promissory notes under a letter agreement between a commercial paper issuer and an institutional investor.

(4)  Corporate Debt Obligations: Corporate debt obligations if they are rated as described above. See Appendix A to this SAI for a description of some of these bond ratings.

(5)  Canadian Government Obligations: Obligations of, or obligations guaranteed by, the Government of Canada, a Province of Canada or any agency, instrumentality or political subdivision of that Government or any Province. The Portfolio will not invest in Canadian Government obligations if more than 10% of the value of its total assets would then be so invested, subject to the diversification requirements applicable to

the Money Market Portfolio.

(6)  Certain Other Obligations: Obligations other than those listed in (1) through (5) (such as municipal obligations) only if any such other obligation is guaranteed as to principal and interest by either a bank or a corporation whose securities the Portfolio is eligible to hold under the Rule.

The value of the obligations and instruments in which the Portfolio invests will fluctuate depending in large part on changes in prevailing interest rates. If these rates go up after the Portfolio buys an obligation or instrument, its value may go down; if these rates go down, its value may go up. Changes in interest rates will be more quickly reflected in the yield of a portfolio of short-term obligations than in the yield of a portfolio of long-term obligations.

Securities - General

The main types of securities in which the Portfolios (other than Money Market Portfolio) may invest include common stock, preferred stock, debt securities and convertible securities. Although common stocks and other equity securities have a history of long-term growth in value, their prices tend to fluctuate in the short term, particularly those of smaller companies. The equity securities in which a Portfolio invests may include preferred stock that converts into common stock. The Portfolios may invest in preferred stock rated in any rating category of the established rating services or, if unrated, judged by WRIMCO to be of equivalent quality. Debt securities have varying levels of sensitivity to changes in interest rates and varying degrees of quality. As a general matter, however, when interest rates rise, the values of fixed-rate securities fall and, conversely, when interest rates fall, the values of fixed-rate debt securities rise. Similarly, long-term bonds are generally more sensitive to interest rate changes than short-term bonds.

Lower quality debt securities, or junk bonds, are considered to be speculative and involve greater risk of default or price changes due to changes in the issuer’s creditworthiness. The market prices of these securities may fluctuate more than high-quality securities and may decline significantly in periods of general economic difficulty. The market for lower-rated debt securities may be thinner and less active than that for higher-rated debt securities, which can adversely affect the prices at which the former are sold. Adverse publicity and changing investor perceptions may decrease the values and liquidity of lower-rated debt securities, especially in a thinly traded market. Valuation becomes more difficult and judgment plays a greater role in valuing lower-rated debt securities than with respect to securities for which more external sources of quotations and last sale information are available. Since the risk of default is higher for lower-rated debt securities, WRIMCO’s research and credit analysis are an especially important part of managing securities of this type held by a Portfolio. WRIMCO continuously monitors the issuers of lower-rated debt securities in each portfolio in an attempt to determine if the issuers will have sufficient cash flow and profits to meet required principal and interest payments. The Fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the best interest of the shareholders of the affected Portfolio(s).

Subject to its investment restrictions, a Portfolio may invest in debt securities rated in any rating category of the established rating services, including securities rated in the lowest category (securities rated D by Standard & Poor’s (S&P) and D by Moody’s Corporation (Moody’s)). Debt securities rated D by S&P or D by Moody’s are in payment default or are regarded as having extremely poor prospects of ever attaining any real investment standing. Debt securities rated at least BBB by S&P or Baa by Moody’s are considered to be investment grade debt securities; however, securities rated BBB or Baa may have speculative characteristics. In addition, a Portfolio will treat unrated securities judged by WRIMCO to be of equivalent quality to a rated security as having that rating.

While credit ratings are only one factor WRIMCO relies on in evaluating high-yield debt securities, certain risks are associated with credit ratings. Credit ratings evaluate the safety of principal and interest payments, not market value risk. Credit ratings for individual securities may change from time to time, and a Portfolio may retain a portfolio security whose rating has been changed.

The Portfolios may purchase debt securities whose principal amount at maturity is dependent upon the performance of a specified equity security. The issuer of such debt securities, typically an investment banking firm, is unaffiliated with the issuer of the equity security to whose performance the debt security is linked. Equity-linked debt securities differ from ordinary debt securities in that the principal amount received at maturity is not fixed, but is based on the price of the linked equity security at the time the debt security matures. The performance of equity-linked debt securities depends primarily on the performance of the linked equity security and may also be influenced by interest rate changes. In addition, although the debt securities are typically adjusted for diluting events such as stock splits, stock dividends and certain other events affecting the market value of the linked equity security, the debt securities are not adjusted for subsequent issuances of the linked equity security for cash. Such an issuance could adversely affect the price of the debt security. In addition to the equity risk relating to the linked equity security, such debt securities are also subject to credit risk with regard to the issuer of the debt security. In general, however, such debt securities are less volatile than the equity securities to which they are linked.

The Portfolios may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. Convertible securities generally have higher yields than common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities, are less subject to fluctuation in value than the underlying stock because they have fixed income characteristics, and provide the potential for capital appreciation if the market price of the underlying common stock increases.

The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and

increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value.

The Portfolios may also invest in a type of convertible preferred stock that pays a cumulative, fixed dividend that is senior to, and expected to be in excess of, the dividends paid on the common stock of the issuer. At the mandatory conversion date, the preferred stock is converted into not more than one share of the issuer’s common stock at the call price that was established at the time the preferred stock was issued. If the price per share of the related common stock on the mandatory conversion date is less than the call price, the holder of the preferred stock will nonetheless receive only one share of common stock for each share of preferred stock (plus cash in the amount of any accrued but unpaid dividends). At any time prior to the mandatory conversion date, the issuer may redeem the preferred stock upon issuing to the holder a number of shares of common stock equal to the call price of the preferred stock in effect on the date of redemption divided by the market value of the common stock, with such market value typically determined one or two trading days prior to the date notice of redemption is given. The issuer must also pay the holder of the preferred stock cash in an amount equal to any accrued but unpaid dividends on the preferred stock. This convertible preferred stock is subject to the same market risk as the common stock of the issuer, except to the extent that such risk is mitigated by the higher dividend paid on the preferred stock. The opportunity for equity appreciation afforded by an investment in such convertible preferred stock, however, is limited, because in the event the market value of the issuer’s common stock increases to or above the call price of the preferred stock, the issuer may (and would be expected to) call the preferred stock for redemption at the call price. This convertible preferred stock is also subject to credit risk with regard to the ability of the issuer to pay the dividend established upon issuance of the preferred stock. Generally, convertible preferred stock is less volatile than the related common stock of the issuer.

Specific Securities and Investment Practices

Bank Deposits

Among the other debt securities in which the Portfolios may invest are deposits in banks (represented by certificates of deposit or other evidence of deposit issued by such banks) of varying maturities. The Federal Deposit Insurance Corporation insures the principal of certain such deposits, currently to the extent of $100,000 per bank. Bank deposits are not marketable, and a Portfolio may invest in them only within the 10% limit mentioned below under Investment Restrictions and Limitations (15% limit for Asset Strategy Portfolio and Value Portfolio) regarding illiquid securities unless such obligations are payable at principal amount plus accrued interest on demand or within seven days after demand.

Borrowing

Each of the Portfolios, other than Small Cap Portfolio, may borrow money, but only from banks and only for emergency or extraordinary purposes. Small Cap Portfolio may also borrow money, only from banks, to purchase securities and only to the extent that the value of its assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings including the proposed borrowing. If a Portfolio does borrow, its share price may be subject to greater fluctuation until the borrowing is paid off.

Foreign Securities and Currencies

All Portfolios, other than Limited-Term Bond, may invest in the securities of foreign issuers, including depository receipts.

In general, depository receipts are securities convertible into and evidencing ownership of securities of foreign corporate issuers, although depository receipts may not necessarily be denominated in the same currency as the securities into which they may be converted. American Depository Receipts, in registered form, are dollar-denominated receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. International depository receipts and European depository receipts, in bearer form, are foreign receipts evidencing a similar arrangement and are designed for use by non-U.S. investors and traders in non-U.S. markets. Global depository receipts are more recently developed receipts designed to facilitate the trading of foreign issuers by U.S. and non-U.S. investors and traders.

WRIMCO believes that there are investment opportunities as well as risks in investing in foreign securities. Individual foreign economies may differ favorably or unfavorably from the U.S. economy or each other in such matters as gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Individual foreign companies may also differ favorably or unfavorably from domestic companies in the same industry. Foreign currencies may be stronger or weaker than the U.S. dollar or than each other. Thus, the value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. WRIMCO believes that a Portfolio’s ability to invest assets abroad might enable it to take advantage of these differences and strengths where they are favorable.

However, foreign securities and foreign currencies involve additional significant risks, apart from the risks inherent in U.S. investments. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer’s financial conditions and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions and custodial costs, are generally higher than for U.S. investments.

Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers and securities markets may be subject to less government supervision. Foreign security trading practices, including those involving the release of assets in advance of payment, may involve

increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It may also be difficult to enforce legal rights in foreign countries.

Investing abroad also involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There may be greater possibility of default by foreign governments or government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic, or social instability, military action or unrest, or adverse diplomatic developments. There is no assurance that WRIMCO will be able to anticipate these potential events or counter their effects.

The considerations noted above generally are intensified in developing countries. A developing country is a nation that, in WRIMCO’s opinion, is likely to experience long-term gross domestic product growth above that expected to occur in the United States, the United Kingdom, France, Germany, Italy, Japan and Canada. Developing countries may have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities.

Certain foreign securities impose restrictions on transfer within the United States or to U.S. persons. Although securities subject to transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions.

Each of the Portfolios (other than Money Market Portfolio and Limited-Term Bond Portfolio) may also purchase and sell foreign currency and invest in foreign currency deposits. Currency conversion involves dealer spreads and other costs, although commissions are not usually charged. See Options, Futures Contracts and Other Strategies — Forward Currency Contracts.

Investments in obligations of domestic branches of foreign banks will not be considered to be foreign securities if WRIMCO has determined that the nature and extent of federal and state regulation and supervision of the branch in question is substantially equivalent to federal or state chartered domestic banks doing business in the same jurisdiction.

Illiquid Investments

Illiquid investments are investments that cannot be sold or disposed of in the ordinary course of business within seven days at approximately the price at which they are valued. Investments currently considered to be illiquid include:

(1)  repurchase agreements not terminable within seven days;

(2)  restricted securities not determined to be liquid pursuant to guidelines established by or under the direction of the Funds’ Board of Directors;

(3)  non-government stripped fixed-rate mortgage-backed securities;

(4)  bank deposits, unless they are payable at principal amount plus accrued interest on demand or within seven days after demand;

(5)  over-the-counter (OTC) options and their underlying collateral;

(6)  securities for which market quotations are not readily available;

(7)  securities involved in swap, cap, floor and collar transactions; and

(8)  direct debt instruments.

The assets used as cover for OTC options written by a Portfolio will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Portfolio may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option.

If through a change in values, net assets, or other circumstances, a Portfolio were in a position where more than 10% of its net assets (15% with respect to Asset Strategy Portfolio and Value Portfolio) were invested in illiquid securities, it would seek to take appropriate steps to protect liquidity.

Indexed Securities

Each Portfolio may purchase indexed securities subject to each Portfolio’s operating policy regarding derivative instruments and subject, in the case of Money Market Portfolio only, to the requirements of Rule 2a-7. Indexed securities are securities the value of which varies in relation to the value of other securities, securities indexes, currencies, precious metals or other commodities, or other financial indicators,. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or whose coupon rate is determined by reference to a specific instrument or statistic. The performance of indexed securities depends to a great extent on the performance of the security, currency or

other instrument to which they are indexed and may also be influenced by interest rate changes in the United States and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security and their values may decline substantially if the issuer’s creditworthiness deteriorates. Indexed securities may be more volatile than the underlying investments.

Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other.

Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies. WRIMCO will use its judgment in determining whether indexed securities should be treated as short-term instruments, bonds, stocks, or as a separate asset class for purposes of Asset Strategy Portfolio’s investment allocations, depending on the individual characteristics of the securities. Certain indexed securities that are not traded on an established market may be deemed illiquid.

Investment Company Securities

Each Portfolio (other than Money Market Portfolio) may purchase shares of another investment company subject to the restrictions and limitations of the 1940 Act. As a shareholder in an investment company, a Portfolio would bear its pro rata share of that investment company’s expenses, which could result in duplication of certain fees, including management and administrative fees.

Lending Securities

Securities loans may be made on a short-term or long-term basis for the purpose of increasing a Portfolio’s income. If a Portfolio lends securities, the borrower pays the Portfolio an amount equal to the dividends or interest on the securities that the Portfolio would have received if it had not lent the securities. The Portfolio also receives additional compensation. Under a Portfolio’s current securities lending procedures, the Portfolio may lend securities only to broker-dealers and financial institutions deemed creditworthy by WRIMCO.

Any securities loans that a Portfolio makes must be collateralized in accordance with applicable regulatory requirements (Guidelines). At the time of each loan, a Portfolio must receive collateral equal to no less than 100% of the market value of the securities loaned. Under the present Guidelines, the collateral must consist of cash or U.S. Government securities or bank letters of credit, at least equal in value to the market value of the securities lent on each day that the loan is outstanding. If the market value of the lent securities exceeds the value of the collateral, the borrower must add more collateral so that it at least equals the market value of the securities lent. If the market value of the securities decreases, the borrower is entitled to return of the excess collateral.

There are two methods of receiving compensation for making loans. The first is to receive a negotiated loan fee from the borrower. This method is available for all three types of collateral. The second method, which is not available when letters of credit are used as collateral, is for a Portfolio to receive interest on the investment of the cash collateral or to receive interest on the U.S. Government securities used as collateral. Part of the interest received in either case may be shared with the borrower.

The letters of credit that a Portfolio may accept as collateral are agreements by banks (other than the borrowers of the Portfolio’s securities), entered into at the request of the borrower and for its account and risk, under which the banks are obligated to pay to the Portfolio, while the letter is in effect, amounts demanded by the Portfolio if the demand meets the terms of the letter. The Portfolio’s right to make this demand secures the borrower’s obligations to it. The terms of any such letters and the creditworthiness of the banks providing them (which might include the Portfolio’s custodian bank) must be satisfactory to WRIMCO.

The Portfolios will make loans only under rules of the New York Stock Exchange (NYSE), which presently require the borrower to give the securities back to the Portfolio within five business days after the Portfolio gives notice to do so. If a Portfolio loses its voting rights on securities loaned, it will have the securities returned to it in time to vote them if a material event affecting the investment is to be voted on. A Portfolio may pay reasonable finder’s, administrative and custodian fees in connection with loans of securities.

Some, but not all, of these rules are necessary to meet requirements of certain laws relating to securities loans. These rules will not be changed unless the change is permitted under these requirements. These requirements do not cover the present rules, which may be changed without shareholder vote, as to: (1) whom securities may be loaned; (2) the investment of cash collateral; or (3) voting rights.

There may be risks of delay in receiving additional collateral from the borrower if the market value of the securities loaned increases, as well as risks of delay in recovering the securities loaned or even loss of rights in the collateral should the borrower fail financially.

Loans and Other Direct Debt Instruments

Direct debt instruments are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (loans

and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Asset Strategy Portfolio may invest in direct debt instruments, subject to its policies regarding the quality of debt securities.

Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Direct debt instruments may not be rated by any NRSRO. If Asset Strategy Portfolio does not receive scheduled interest or principal payments on such indebtedness, the Portfolio’s share price and yield could be adversely affected. Loans that are fully secured offer the Portfolio more protection than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower’s obligation, or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks, and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Direct indebtedness of developing countries also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and principal when due.

Investments in loans through direct assignment of a financial institution’s interests with respect to a loan may involve additional risks to the Portfolio. For example, if a loan is foreclosed, the Portfolio could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary. Direct debt instruments that are not in the form of securities may offer less legal protection to the Portfolio in the event of fraud or misrepresentation. In the absence of definitive regulatory guidance, the Portfolio relies on WRIMCO’s research in an attempt to avoid situations where fraud or misrepresentation could adversely affect the Portfolio.

A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, the Portfolio has direct recourse against the borrower, it may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of the Portfolio were determined to be subject to the claims of the agent’s general creditors, the Portfolio might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest.

Investments in direct debt instruments may entail less legal protection for the Portfolio. Direct indebtedness purchased by the Portfolio may include letters of credit, revolving credit facilities, or other standby financing commitments obligating the Portfolio to pay additional cash on demand. These commitments may have the effect of requiring the Portfolio to increase its investment in a borrower at a time when it would not otherwise have done so, even if the borrower’s condition makes it unlikely that the amount will ever be repaid. The Portfolio will set aside appropriate liquid assets in a segregated custodial account to cover its potential obligations under standby financing commitments.

For purposes of the limitations on the amount of total assets that Asset Strategy Portfolio will invest in any one issuer or in issuers within the same industry, the Portfolio generally will treat the borrower as the issuer of indebtedness held by the Portfolio. In the case of loan participations where a bank or other lending institution serves as financial intermediary between the Portfolio and the borrower, if the participation does not shift to the Portfolio the direct debtor-creditor relationship with the borrower, Securities and Exchange Commission (SEC) interpretations require the Portfolio, in appropriate circumstances, to treat both the lending bank or other lending institution and the borrower as issuers for these purposes. Treating a financial intermediary as an issuer of indebtedness may restrict the Portfolio’s ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries.

Mortgage-Backed and Asset-Backed Securities

Mortgage-Backed Securities. Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property and include single- and multi-class pass-through securities and collateralized mortgage obligations. Multi-class pass-through securities and collateralized mortgage obligations are collectively referred to in this SAI as CMOs. Some CMOs are directly supported by other CMOs, which in turn are supported by mortgage pools. Investors typically receive payments out of the interest and principal on the underlying mortgages. The portions of the payments that investors receive, as well as the priority of their rights to receive payments, are determined by the specific terms of the CMO class.

The U.S. Government mortgage-backed securities in which the Portfolios may invest include mortgage-backed securities issued or guaranteed as to the payment of principal and interest (but not as to market value) by the Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac). Other mortgage-backed securities are issued by private issuers, generally originators of and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. Payments of principal and interest (but not the market value) of such private mortgage-backed securities may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. Government or one of its agencies or instrumentalities, or they may be issued without any government guarantee of the underlying mortgage assets but with some form of non-government credit enhancement. These credit enhancements do not protect investors from changes in market value.

The Portfolios may purchase mortgage-backed securities issued by both government and non-government entities such as banks, mortgage lenders or other financial institutions. Other types of mortgage-backed securities will likely be developed in the future, and a Portfolio may invest in them if WRIMCO determines they are consistent with the Portfolio’s goal(s) and investment policies.

Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities are created when a U.S. Government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the principal-only security (PO) receives the principal payments made by the underlying mortgage-backed security, while the holder of the interest-only security (IO) receives interest payments from the same underlying security.

For example, IO classes are entitled to receive all or a portion of the interest, but none (or only a nominal amount) of the principal payments, from the underlying mortgage assets. If the mortgage assets underlying an IO experience greater than anticipated principal prepayments, then the total amount of interest allocable to the IO class, and therefore the yield to investors, generally will be reduced. In some instances, an investor in an IO may fail to recoup all of the investor’s initial investment, even if the security is guaranteed by the U.S. Government or considered to be of the highest quality. Conversely, PO classes are entitled to receive all or a portion of the principal payments, but none of the interest, from the underlying mortgage assets. PO classes are purchased at substantial discounts from par, and the yield to investors will be reduced if principal payments are slower than expected. IOs, POs and other CMOs involve special risks, and evaluating them requires special knowledge.

Asset-Backed Securities. Asset-backed securities have structural characteristics similar to mortgage-backed securities, as discussed above. However, the underlying assets are not first lien mortgage loans or interests therein, but include assets such as motor vehicle installment sales contracts, other installment sale contracts, home equity loans, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements. Such assets are securitized through the use of trusts or special purpose corporations. Payments or distributions of principal and interest may be guaranteed up to a certain amount and for a certain time period by a letter of credit or pool insurance policy issued by a financial institution unaffiliated with the issuer, or other credit enhancements may be present. The value of asset-backed securities may also depend on the creditworthiness of the servicing agent for the loan pool, the originator of the loans or the financial institution providing the credit enhancement.

Special Characteristics of Mortgage-Backed and Asset-Backed Securities. The yield characteristics of mortgage-backed and asset-backed securities differ from those of traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other obligations generally may be prepaid at any time. Prepayments on a pool of mortgage loans are influenced by a variety of economic, geographic, social and other factors, including changes in mortgagors’ housing needs, job transfers, unemployment, mortgagors’ net equity in the mortgaged properties and servicing decisions. Generally, however, prepayments on fixed-rate mortgage loans will increase during a period of falling interest rates and decrease during a period of rising interest rates. Similar factors apply to prepayments on asset-backed securities, but the receivables underlying asset-backed securities generally are of a shorter maturity and thus are likely to experience substantial prepayments. Such securities, however, often provide that for a specified time period the issuers will replace receivables in the pool that are repaid with comparable obligations. If the issuer is unable to do so, repayment of principal on the asset-backed securities may commence at an earlier date.

The rate of interest on mortgage-backed securities is lower than the interest rates paid on the mortgages included in the underlying pool due to the annual fees paid to the servicer of the mortgage pool for passing through monthly payments to certificate holders and to any guarantor, and due to any yield retained by the issuer. Actual yield to the holder may vary from the coupon rate, even if adjustable, if the mortgage-backed securities are purchased or traded in the secondary market at a premium or discount. In addition, there is normally some delay between the time the issuer receives mortgage payments from the servicer and the time the issuer makes the payments on the mortgage-backed securities, and this delay reduces the effective yield to the holder of such securities.

Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. The average life of pass-through pools varies with the maturities of the underlying mortgage loans. A pool’s term may be shortened by unscheduled or early payments of principal on the underlying mortgages. Because prepayment rates of individual pools vary widely, it is not possible to predict accurately the average life of a particular pool. In the past, a common industry practice has been to assume that prepayments on pools of fixed rate 30-year mortgages would result in a 12-year average life for the pool. At present, mortgage pools, particularly those with loans with other maturities or different characteristics, are priced on an assumption of average life determined for each pool. In periods of declining interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising interest rates, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. Changes in the rate or speed of these payments can cause the value of the mortgage-backed securities to fluctuate rapidly. However, these effects may not be present, or may differ in degree, if the mortgage loans in the pools have adjustable interest rates or other special payment terms, such as a prepayment charge. Actual prepayment experience may cause the yield of mortgage-backed securities to differ from the assumed average life yield.

The market for privately issued mortgage-backed and asset-backed securities is smaller and less liquid than the market for U.S. Government mortgage-backed securities. CMO classes may be specifically structured in a manner that provides any of a wide variety of investment characteristics, such as yield, effective maturity and interest rate sensitivity. As market conditions change, however, and especially during periods of rapid or unanticipated changes in market interest rates, the attractiveness of some CMO classes and the ability of the structure to provide the anticipated investment characteristics may be reduced. These changes can result in volatility in the market value, and in some instances reduced liquidity, of the CMO class.

Municipal Obligations

Municipal obligations are issued by a wide range of state and local governments, agencies and authorities for various purposes. The two main

kinds of municipal bonds are general obligation bonds and revenue bonds. In general obligation bonds, the issuer has pledged its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from specific sources; these may include revenues from a particular facility or class of facilities or special tax or other revenue source. Industrial development bonds are revenue bonds issued by or on behalf of public authorities to obtain funds to finance privately operated facilities. Their credit quality is generally dependent on the credit standing of the company involved.

Options, Futures and Other Strategies

General. WRIMCO may use certain options, futures contracts (sometimes referred to as futures), options on futures contracts, forward currency contracts, swaps, caps, floors, collars, indexed securities and other derivative instruments (collectively, Financial Instruments) to attempt to enhance income or yield or to attempt to hedge a Portfolio’s investments. The strategies described below may be used in an attempt to manage the risks of a Portfolio’s investments that can affect fluctuation in its net asset value (NAV).

Generally, a Portfolio (other than Money Market Portfolio) may purchase and sell any type of Financial Instrument. However, as an operating policy, a Portfolio will only purchase or sell a particular Financial Instrument if the Portfolio is authorized to invest in the type of asset by which the return on, or value of, the Financial Instrument is primarily measured. Since each Portfolio (other than Money Market Portfolio and Limited-Term Bond Portfolio) is authorized to invest in foreign securities denominated in other currencies, each such Portfolio may purchase and sell foreign currency derivatives.

Hedging strategies can be broadly categorized as short hedges and long hedges. A short hedge is a purchase or sale of a Financial Instrument intended partially or fully to offset potential declines in the value of one or more investments held in a Portfolio’s portfolio. Thus, in a short hedge, the Portfolio takes a position in a Financial Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged.

Conversely, a long hedge is a purchase or sale of a Financial Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that a Portfolio intends to acquire. Thus, in a long hedge, the Portfolio takes a position in a Financial Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an anticipatory hedge transaction, the Portfolio does not own a corresponding security and, therefore, the transaction does not relate to a security the Portfolio owns. Rather, it relates to a security that the Portfolio intends to acquire. If the Portfolio does not complete the hedge by purchasing the security it anticipated purchasing, the effect on the Portfolio’s holdings is the same as if the transaction were entered into for speculative purposes.

Financial Instruments on securities generally are used to attempt to hedge against price movements in one or more particular securities positions that a Portfolio owns or intends to acquire. Financial Instruments on indexes, in contrast, generally are used to attempt to hedge against price movements in market sectors in which a Portfolio has invested or expects to invest. Financial Instruments on debt securities may be used to hedge either individual securities or broad debt market sectors.

The use of Financial Instruments is subject to applicable regulations of the SEC, the several exchanges upon which they are traded and the Commodity Futures Trading Commission (CFTC). In addition, a Portfolio’s ability to use Financial Instruments is limited by tax considerations. See Taxes.

In addition to the instruments, strategies and risks described below, WRIMCO expects to discover additional opportunities in connection with Financial Instruments and other similar or related techniques. These new opportunities may become available as WRIMCO develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new Financial Instruments or other techniques are developed. WRIMCO may utilize these opportunities to the extent that they are consistent with a Portfolio’s goal(s) and permitted by a Portfolio’s investment limitations and applicable regulatory authorities. A Portfolio might not use any of these strategies, and there can be no assurance that any strategy used will succeed. The Portfolios’ Prospectus or SAI will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus.

Special Risks. The use of Financial Instruments involves special considerations and risks, certain of which are described below. In general, these techniques may increase the volatility of a Portfolio and may involve a small investment of cash relative to the magnitude of the risk assumed. Risks pertaining to particular Financial Instruments are described in the sections that follow:

(1)  Successful use of most Financial Instruments depends upon WRIMCO’s ability to predict movements of the overall securities, currency and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed, and use of Financial Instruments could result in a loss, regardless of whether the intent was to reduce risk or increase return.

(2)  There might be imperfect correlation, or even no correlation, between price movements of a Financial Instrument and price movements of the investments being hedged. For example, if the value of a Financial Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculation or other pressures on the markets in which Financial Instruments are traded. The effectiveness of hedges using Financial Instruments on indexes will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged.

Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match a Portfolio’s current or anticipated investments exactly. A Portfolio may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Portfolio’s other investments.

Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match a Portfolio’s investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. A Portfolio may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in a Portfolio’s options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.

(3)  If successful, the above-discussed strategies can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements. However, such strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements. For example, if a Portfolio entered into a short hedge because WRIMCO projected a decline in the price of a security in the Portfolio’s holdings, and the price of that security increased instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Financial Instrument. Moreover, if the price of the Financial Instrument declined by more than the increase in the price of the security, the Portfolio could suffer a loss. In either such case, the Portfolio would have been in a better position had it not attempted to hedge at all.

(4)  As described below, a Portfolio might be required to maintain assets as cover, maintain segregated accounts or make margin payments when it takes positions in Financial Instruments involving obligations to third parties (i.e., Financial Instruments other than purchased options). If the Portfolio were unable to close out its positions in such Financial Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair the Portfolio’s ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Portfolio sell a portfolio security at a disadvantageous time.

(5)  A Portfolio’s ability to close out a position in a Financial Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction (counterparty) to enter into a transaction closing out the position. Therefore, there is no assurance that any position can be closed out at a time and price that is favorable to the Portfolio.

Cover. Transactions using Financial Instruments, other than purchased options, expose a Portfolio to an obligation to another party. Each Portfolio will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or liquid assets in an account with its custodian in the prescribed amount as determined daily. A Portfolio will not enter into any such transactions unless it owns either (1) an offsetting (covered) position in securities, currencies or other options, futures contracts or forward contracts, or (2) cash and liquid assets with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above.

Assets used as cover or held in an account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of a Portfolio’s assets to cover or to segregated accounts could impede portfolio management or the Portfolio’s ability to meet redemption requests or other current obligations.

Options. A call option gives the purchaser the right to buy, and obligates the writer to sell, the underlying investment at the agreed-upon price during the option period. A put option gives the purchaser the right to sell, and obligates the writer to buy, the underlying investment at the agreed-upon price during the option period. Purchasers of options pay an amount, known as a premium, to the option writer in exchange for the right under the option contract.

The purchase of call options can serve as a long hedge, and the purchase of put options can serve as a short hedge. Writing put or call options can enable a Portfolio to enhance income or yield by reason of the premiums paid by the purchasers of such options. However, if the market price of the security underlying a put option declines to less than the exercise price of the option, minus the premium received, the Portfolio would expect to suffer a loss.

Writing call options can serve as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security or currency appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and the Portfolio will be obligated to sell the security or currency at less than its market value. If the call option is an OTC option, the securities or other assets used as cover would be considered illiquid to the extent described under Illiquid Investments.

Writing put options can serve as a limited long hedge because increases in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security or currency depreciates to a price lower than the exercise price of the put

option, it can be expected that the put option will be exercised and the Portfolio will be obligated to purchase the security or currency at more than its market value. If the put option is an OTC option, the securities or other assets used as cover would be considered illiquid to the extent described under Illiquid Investments.

The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options that expire unexercised have no value.

A Portfolio may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, the Portfolio may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option; this is known as a closing purchase transaction. Conversely, the Portfolio may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit the Portfolio to realize profits or limit losses on an option position prior to its exercise or expiration.

A type of put that a Portfolio may purchase is an optional delivery standby commitment, which is entered into by parties selling debt securities to the Portfolio. An optional delivery standby commitment gives the Portfolio the right to sell the security back to the seller on specified terms. This right is provided as an inducement to purchase the security.

Risks of Options on Securities. Options offer large amounts of leverage, which will result in a Portfolio’s NAV being more sensitive to changes in the value of the related instrument. Each Portfolio may purchase or write both exchange-traded and OTC options. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between a Portfolio and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when a Portfolio purchases an OTC option, it relies on the counterparty from whom it purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by the Portfolio as well as the loss of any expected benefit of the transaction.

A Portfolio’s ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market, and there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any such market exists. There can be no assurance that a Portfolio will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, the Portfolio might be unable to close out an OTC option position at any time prior to its expiration.

If a Portfolio were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by a Portfolio could cause material losses because the Portfolio would be unable to sell the investment used as cover for the written option until the option expires or is exercised.

Options on Indexes. Puts and calls on indexes are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When a Portfolio writes a call on an index, it receives a premium and agrees that, prior to the expiration date, the purchaser of the call, upon exercise of the call, will receive from the Portfolio an amount of cash if the closing level of the index upon which the call is based is greater than the exercise price of the call. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call times a specified multiple (multiplier), which determines the total dollar value for each point of such difference. When a Portfolio buys a call on an index, it pays a premium and has the same rights as to such call as are indicated above. When a Portfolio buys a put on an index, it pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Portfolio’s exercise of the put, to deliver to the Portfolio an amount of cash if the closing level of the index upon which the put is based is less than the exercise price of the put, which amount of cash is determined by the multiplier, as described above for calls. When a Portfolio writes a put on an index, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Portfolio to deliver to it an amount of cash equal to the difference between the closing level of the index and the exercise price times the multiplier if the closing level is less than the exercise price.

Risks of Options on Indexes. The risks of investment in options on indexes may be greater than options on securities. Because index options are settled in cash, when a Portfolio writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Portfolio can offset some of the risk of writing a call index option by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, the Portfolio cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will vary from the value of the index.

Even if a Portfolio could assemble a portfolio that exactly reproduced the composition of the underlying index, it still would not be fully covered from a risk standpoint because of the timing risk inherent in writing index options. When an index option is exercised, the amount of cash that the holder is entitled to receive is determined by the difference between the exercise price and the closing index level on the date when the option is exercised. As with other kinds of options, the Portfolio as the call writer will not learn that the Portfolio has been assigned until the next business day at the earliest. The time lag between exercise and notice of assignment poses no risk for the writer of a covered call on a specific underlying security, such as a common stock, because there the writer’s obligation is to deliver the underlying security, not to pay its value as of a fixed time in the past. So long as the writer already owns the underlying security, it can satisfy its settlement obligations by

simply delivering it, and the risk that its value may have declined since the exercise date is borne by the exercising holder. In contrast, even if the writer of an index call holds securities that exactly match the composition of the underlying index, it will not be able to satisfy its assignment obligations by delivering those securities against payment of the exercise price. Instead, it will be required to pay cash in an amount based on the closing index value on the exercise date. By the time it learns that it has been assigned, the index may have declined, with a corresponding decline in the value of its portfolio. This timing risk is an inherent limitation on the ability of index call writers to cover their risk exposure by holding securities positions.

If a Portfolio has purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the Portfolio will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer.

OTC Options. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size and strike price, the terms of OTC options (options not traded on an exchange) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows a Portfolio great flexibility to tailor the option to its needs, OTC options generally involve greater risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded.

Generally, OTC foreign currency options used by a Portfolio are European-style options. This means that the option is only exercisable immediately prior to its expiration. This is in contrast to American-style options, which are exercisable at any time prior to the expiration date of the option.

Futures Contracts and Options on Futures Contracts. The purchase of futures contracts or call options on futures contracts can serve as a long hedge, and the sale of futures contracts or the purchase of put options on a futures contract can serve as a short hedge. Writing call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing call options on securities or indexes. Similarly, writing put options on futures contracts can serve as a limited long hedge. Futures contracts and options on futures contracts can also be purchased and sold to attempt to enhance income or yield.

In addition, futures contract strategies can be used to manage the average duration of a Portfolio’s fixed-income portfolio. If WRIMCO wishes to shorten the average duration of a Portfolio’s fixed-income portfolio, the Portfolio may sell a debt futures contract or a call option thereon, or purchase a put option on that futures contract. If WRIMCO wishes to lengthen the average duration of a Portfolio’s fixed-income portfolio, the Portfolio may buy a debt futures contract or a call option thereon, or sell a put option thereon.

No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract the Portfolio is required to deposit initial margin in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Portfolio at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Portfolio may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action.

Subsequent variation margin payments are made to and from the futures broker daily as the value of the futures position varies, a process known as marking-to-market. Variation margin does not involve borrowing, but rather represents a daily settlement of the Portfolio’s obligations to or from a futures broker. When a Portfolio purchases an option on a futures contract, the premium paid plus transaction costs is all that is at risk. In contrast, when a Portfolio purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Portfolio has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.

Purchasers and sellers of futures contracts and options on futures contracts can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures contracts and options on futures contracts may be closed only on an exchange or board of trade that provides a secondary market. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position.

Under certain circumstances, futures contracts exchanges may establish daily limits on the amount that the price of a futures contract or an option on a futures contract can vary from the previous day’s settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.

If a Portfolio were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Portfolio would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Portfolio would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or option or to maintain cash or liquid assets in an account.

Risks of Futures Contracts and Options Thereon. The ordinary spreads between prices in the cash and futures markets (including the options on futures market), due to differences in the natures of those markets, are subject to the following factors which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate, currency exchange rate or stock market trends by WRIMCO may still not result in a successful transaction. WRIMCO may be incorrect in its expectations as to the extent of various interest rate, currency exchange rate or stock market movements or the time span within which the movements take place.

Index Futures. The risk of imperfect correlation between movements in the price of an index futures contract and movements in the price of the securities that are the subject of the hedge increases as the composition of a Portfolio’s holdings diverges from the securities included in the applicable index. The price of the index futures contract may move more than or less than the price of the securities being hedged. If the price of the index futures contract moves less than the price of the securities that are the subject of the hedge, the hedge will not be fully effective but, if the price of the securities being hedged has moved in an unfavorable direction, the Portfolio would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage will be partially offset by the futures contract. If the price of the futures contract moves more than the price of the securities, the Portfolio will experience either a loss or a gain on the futures contract that will not be completely offset by movements in the price of the securities that are the subject of the hedge. To compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of the index futures contract, a Portfolio may buy or sell index futures contracts in a greater dollar amount than the dollar amount of the securities being hedged if the historical volatility of the prices of the securities being hedged is more than the historical volatility of the prices of the securities included in the index. It is also possible that, where a Portfolio has sold index futures contracts to hedge against decline in the market, the market may advance and the value of the securities held in the portfolio may decline. If this occurred, the Portfolio would lose money on the futures contract and also experience a decline in value of its portfolio securities. However, while this could occur for a very brief period or to a very small degree, over time the value of a diversified portfolio of securities will tend to move in the same direction as the market indexes on which the futures contracts are based.

Where index futures contracts are purchased to hedge against a possible increase in the price of securities before a Portfolio is able to invest in them in an orderly fashion, it is possible that the market may decline instead. If the Portfolio then concludes not to invest in them at that time because of concern as to possible further market decline or for other reasons, it will realize a loss on the futures contract that is not offset by a reduction in the price of the securities it had anticipated purchasing.

To the extent that a Portfolio enters into futures contracts, options on futures contracts or options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are in-the-money at the time of purchase) will not exceed 5% of the liquidation value of the Portfolio’s holdings, after taking into account unrealized profits and unrealized losses on any contracts the Portfolio has entered into. (In general, a call option on a futures contract is in-the-money if the value of the underlying futures contract exceeds the strike, i.e., exercise, price of the call; a put option on a futures contract is in-the-money if the value of the underlying futures contract is exceeded by the strike price of the put.) This policy does not limit to 5% the percentage of the Portfolio’s total assets that are at risk in futures contracts, options on futures contracts and currency options.

Foreign Currency Hedging Strategies — Special Considerations. Each Portfolio (other than Money Market Portfolio and Limited-Term Bond Portfolio) may use options and futures contracts on foreign currencies (including the euro), as described above, and forward foreign currency contracts (forward currency contracts), as described below, to attempt to hedge against movements in the values of the foreign currencies in which the Portfolio’s securities are denominated or to attempt to enhance income or yield. Currency hedges can protect against price movements in a security that a Portfolio owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes.

A Portfolio might seek to hedge against changes in the value of a particular currency when no Financial Instruments on that currency are available or such Financial Instruments are more expensive than certain other Financial Instruments. In such cases, the Portfolio may seek to hedge against price movements in that currency by entering into transactions using Financial Instruments on another currency or a basket of currencies, the values of which WRIMCO believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the Financial Instrument will not correlate perfectly with movements in the price of the currency subject to the hedging transaction is magnified when this strategy is used.

The value of Financial Instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such Financial Instruments, a Portfolio could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through

dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the Financial Instruments until they reopen.

Settlement of transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, a Portfolio might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country.

Forward Currency Contracts. Each Portfolio (other than Money Market Portfolio and Limited-Term Bond Portfolio) may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (term) from the date of the forward currency contract agreed upon by the parties, at a price set at the time of the forward currency contract. These forward currency contracts are traded directly between currency traders (usually large commercial banks) and their customers.

Such transactions may serve as long hedges; for example, a Portfolio may purchase a forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Portfolio intends to acquire. Forward currency contract transactions may also serve as short hedges; for example, a Portfolio may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security or a dividend or interest payment denominated in a foreign currency.

A Portfolio may also use forward currency contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if the Portfolio owned securities denominated in euros, it could enter into a forward currency contract to sell euros in return for U.S. dollars to hedge against possible declines in the euro’s value. Such a hedge, sometimes referred to as a position hedge, would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. The Portfolio could also hedge the position by selling another currency expected to perform similarly to the euro. This type of hedge, sometimes referred to as a proxy hedge, could offer advantages in terms of cost, yield or efficiency, but generally would not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated.

A Portfolio also may use forward currency contracts to attempt to enhance income or yield. The Portfolio could use forward currency contracts to increase its exposure to foreign currencies that WRIMCO believes might rise in value relative to the U.S. dollar, or shift its exposure to foreign currency fluctuations from one country to another. For example, if the Portfolio owned securities denominated in a foreign currency and WRIMCO believed that currency would decline relative to another currency, it might enter into a forward currency contract to sell an appropriate amount of the first foreign currency, with payment to be made in the second foreign currency.

The cost to a Portfolio of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When the Portfolio enters into a forward currency contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result in the loss of any expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of forward currency contracts can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that the Portfolio will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the counterparty, the Portfolio might be unable to close out a forward currency contract at any time prior to maturity. In either event, the Portfolio would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or liquid assets in an account.

The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the forward currency contract has been established. Thus, a Portfolio might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain.

Normally, consideration of the prospect for currency parities will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, WRIMCO believes that it is important to have the flexibility to enter into such forward currency contracts when it determines that the best interests of the Portfolio will be served.

Successful use of forward currency contracts depends on WRIMCO’s skill in analyzing and predicting currency values. Forward currency contracts may substantially change a Portfolio’s exposure to changes in currency exchange rates and could result in losses to the Portfolio if

currencies do not perform as WRIMCO anticipates. There is no assurance that WRIMCO’s use of forward currency contracts will be advantageous to a Portfolio or that WRIMCO will hedge at an appropriate time.

Combined Positions. A Portfolio may purchase and write options in combination with each other, or in combination with futures contracts or forward contracts, to adjust the risk and return characteristics of its overall position. For example, the Portfolio may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.

Turnover. A Portfolio’s options and futures contracts activities may affect its turnover rate and brokerage commission payments. The exercise of calls or puts written by a Portfolio, and the sale or purchase of futures contracts, may cause it to sell or purchase related investments, thus increasing its turnover rate. Once a Portfolio has received an exercise notice on an option it has written, it cannot effect a closing transaction in order to terminate its obligation under the option and must deliver or receive the underlying securities at the exercise price. The exercise of puts purchased by a Portfolio may also cause the sale of related investments, also increasing turnover; although such exercise is within the Portfolio’s control, holding a protective put might cause it to sell the related investments for reasons that would not exist in the absence of the put. A Portfolio will pay a brokerage commission each time it buys or sells a put or call or purchases or sells a futures contract. Such commissions may be higher than those that would apply to direct purchases or sales.

Swaps, Caps, Floors and Collars. Each Portfolio (other than Money Market Portfolio) may enter into swaps, caps, floors and collars to preserve a return or a spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date or to attempt to enhance yield. Swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive cash flows on a notional principal amount, e.g., an exchange of floating rate payments for fixed-rate payments. The purchase of a cap entitles the purchaser, to the extent that a specified index exceeds a predetermined value, to receive payments on a notional principal amount from the party selling the cap. The purchase of a floor entitles the purchaser, to the extent that a specified index falls below a predetermined value, to receive payments on a notional principal amount from the party selling the floor. A collar combines elements of buying a cap and selling a floor.

Swap agreements, including caps, floors and collars, can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease the overall volatility of a Portfolio’s investments and its share price and yield because these agreements may affect the Portfolio’s exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage-backed security values, corporate borrowing rates or other factors such as security prices or inflation rates.

Swap agreements will tend to shift a Portfolio’s investment exposure from one type of investment to another. For example, if a Portfolio agrees to exchange payments in U.S. dollars for payments in foreign currency, the swap agreement would tend to decrease the Portfolio’s exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps, floors and collars have an effect similar to buying or writing options.

The creditworthiness of firms with which a Portfolio enters into swaps, caps, floors or collars will be monitored by WRIMCO. If a firm’s creditworthiness declines, the value of the agreement would be likely to decline, potentially resulting in losses. If a default occurs by the other party to such transaction, the Portfolio will have contractual remedies pursuant to the agreements related to the transaction.

The net amount of the excess, if any, of a Portfolio’s obligations over its entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid assets having an aggregate NAV at least equal to the accrued excess will be maintained in an account with the Portfolio’s custodian that satisfies the requirements of the Investment Company Act of 1940, as amended (1940 Act). Each Portfolio will also establish and maintain such account with respect to its total obligations under any swaps that are not entered into on a net basis and with respect to any caps or floors that are written by the Portfolio. WRIMCO and the Portfolios believe that such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Portfolio’s borrowing restrictions. The position of the SEC is that assets involved in swap transactions are illiquid and are, therefore, subject to the limitations on investing in illiquid securities.

Repurchase Agreements

Each of the Portfolios may purchase securities subject to repurchase agreements, subject to its limitation on investment in illiquid investments. See Investment Restrictions and Limitations. A repurchase agreement is an instrument under which a Portfolio purchases a security and the seller (normally a commercial bank or broker-dealer) agrees, at the time of purchase, that it will repurchase the security at a specified time and price. The amount by which the resale price is greater than the purchase price reflects an agreed-upon market interest rate effective for the period of the agreement. The return on the securities subject to the repurchase agreement may be more or less than the return on the repurchase agreement.

The majority of repurchase agreements in which a Portfolio will engage are overnight transactions, and the delivery pursuant to the resale typically will occur within one to five days of the purchase. The primary risk is that a Portfolio may suffer a loss if the seller fails to pay the agreed-upon amount on the delivery date and that amount is greater than the resale price of the underlying securities and other collateral held by the Portfolio. In the event of bankruptcy or other default by the seller, there may be possible delays and expenses in liquidating the

underlying securities or other collateral, decline in their value or loss of interest. The return on such collateral may be more or less than that from the repurchase agreement. A Portfolio’s repurchase agreements will be structured so as to fully collateralize the loans. In other words, the value of the underlying securities, which will be held by the Portfolio’s custodian bank or by a third party that qualifies as a custodian under section 17(f) of the 1940 Act, is and, during the entire term of the agreement, will remain at least equal to the value of the loan, including the accrued interest earned thereon. Repurchase agreements are entered into only with those entities approved by WRIMCO.

Restricted Securities

Each of the Portfolios may invest in restricted securities. Restricted securities are securities that are subject to legal or contractual restrictions on resale. However, restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, as amended, or in a registered public offering. Where registration is required, a Portfolio may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time the Portfolio may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Portfolio might obtain a less favorable price than prevailed when it decided to seek registration of the security.

There are risks associated with investments in restricted securities in that there can be no assurance of a ready market for resale. Also, the contractual restrictions on resale might prevent a Portfolio from reselling the securities at a time when such sale would be desirable. Restricted securities that are traded in foreign markets are often subject to restrictions that prohibit resale to U.S. persons or entities or permit sales only to foreign broker-dealers who agree to limit their resale to such persons or entities. The buyer of such securities must enter into an agreement that, usually for a limited period of time, it will resell such securities subject to such restrictions. Restricted securities in which a Portfolio seeks to invest need not be listed or admitted to trading on a foreign or domestic exchange and may be less liquid than listed securities. Certain restricted securities, for example Rule 144A securities, may be determined to be liquid in accordance with guidelines adopted by the Board of Directors. See Illiquid Investments.

U.S. Government Securities

Securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (U.S. Government securities) are high quality debt instruments issued or guaranteed as to principal or interest by the U.S. Treasury or an agency or instrumentality of the U.S. Government. These securities include Treasury Bills (which mature within one year of the date they are issued), Treasury Notes (which have maturities of one to ten years) and Treasury Bonds (which generally have maturities of more than ten years). All such Treasury securities are backed by the full faith and credit of the United States.

U.S. Government agencies and instrumentalities that issue or guarantee securities include, but are not limited to, the Federal Housing Administration, Fannie Mae, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Ginnie Mae, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Freddie Mac, Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the Resolution Funding Corporation and the Student Loan Marketing Association.

Securities issued or guaranteed by U.S. Government agencies and instrumentalities are not always supported by the full faith and credit of the United States. Some, such as securities issued by the Federal Home Loan Banks, are backed by the right of the agency or instrumentality to borrow from the Treasury. Other securities, such as securities issued by Fannie Mae, are supported only by the credit of the instrumentality and by a pool of mortgage assets. If the securities are not backed by the full faith and credit of the United States, the owner of the securities must look principally to the agency issuing the obligation for repayment and may not be able to assert a claim against the United States in the event that the agency or instrumentality does not meet its commitment. A Portfolio will invest in securities of agencies and instrumentalities only if WRIMCO is satisfied that the credit risk involved is acceptable.

U.S. Government securities may include mortgage-backed securities issued by U.S. Government agencies or instrumentalities including, but not limited to, Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities include pass-through securities, participation certificates and collateralized mortgage obligations. See Mortgage-Backed and Asset-Backed Securities. Timely payment of principal and interest on Ginnie Mae pass-throughs is guaranteed by the full faith and credit of the United States. Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government, but their obligations are not backed by the full faith and credit of the United States. It is possible that the availability and the marketability (i.e., liquidity) of the securities discussed in this section could be adversely affected by actions of the U.S. Government to tighten the availability of its credit.

Variable or Floating Rate Instruments

Variable or floating rate instruments (including notes purchased directly from issuers) bear variable or floating interest rates and may carry rights that permit holders to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial intermediaries on dates prior to their stated maturities. Floating rate securities have interest rates that change whenever there is a change in a designated base rate while variable rate instruments provide for a specified periodic adjustment in the interest rate. These formulas are designed to result in a market value for the instrument that approximates its par value.

Warrants and Rights

Each Portfolio (other than Money Market Portfolio) may invest in warrants and rights. Warrants are options to purchase equity securities at

specified prices for a specific period of time. The prices do not necessarily move parallel to the prices of the underlying securities. Rights are similar to warrants but normally have a short duration and are distributed directly by the issuer to its shareholders. Rights and warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. Warrants and rights are highly volatile and, therefore, more susceptible to sharp declines in value than the underlying security might be. They are also generally less liquid than an investment in the underlying shares.

When-Issued and Delayed-Delivery Transactions

Each Portfolio may purchase securities in which it may invest on a when-issued or delayed-delivery basis or sell them on a delayed-delivery basis. In either case, payment and delivery for the securities take place at a future date. The securities so purchased or sold by a Portfolio are subject to market fluctuation; their value may be less or more when delivered than the purchase price paid or received. When purchasing securities on a when-issued or delayed-delivery basis, a Portfolio assumes the rights and risks of ownership, including the risk of price and yield fluctuations. No interest accrues to a Portfolio until delivery and payment are completed. When a Portfolio makes a commitment to purchase securities on a when-issued or delayed-delivery basis, it will record the transaction and thereafter reflect the value of the securities in determining its NAV per share. When a Portfolio sells a security on a delayed-delivery basis, the Portfolio does not participate in further gains or losses with respect to the security. When a Portfolio makes a commitment to sell securities on a delayed basis, it will record the transaction and thereafter value the securities at the sales price in determining the Portfolio’s NAV per share. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the Portfolios could miss a favorable price or yield opportunity, or could suffer a loss.

Ordinarily, a Portfolio purchases securities on a when-issued or delayed-delivery basis with the intention of actually taking delivery of the securities. However, before the securities are delivered and before it has paid for them (the settlement date), a Portfolio may sell the securities if WRIMCO decided it was advisable to do so for investment reasons. The Portfolio will hold aside or segregate cash or other securities, other than those purchased on a when-issued or delayed-delivery basis, at least equal in value to the amount it will have to pay on the settlement date; these other securities may, however, be sold at or before the settlement date to pay the purchase price of the when-issued or delayed-delivery securities.

Zero Coupon Securities

Zero coupon securities are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or do not specify a future date when the securities begin to pay current interest; instead, they are sold at a deep discount from their face value and are redeemed at face value when they mature. Because zero coupon securities do not pay current income, their prices can be very volatile when interest rates change and generally are subject to greater price fluctuations in response to changing interest rates than prices of comparable debt obligations that make current distributions of interest in cash.

A Portfolio may invest in zero coupon securities that are stripped U.S. Treasury notes and bonds, zero coupon bonds of corporate issuers and other securities that are issued with original issue discount (OID). The Federal tax law requires that a holder of a security with OID accrue a ratable portion of the OID on the security as income each year, even though the holder may receive no interest payment on the security during the year. Accordingly, although a Portfolio will receive no payments on its zero coupon securities prior to their maturity or disposition, it will have current income attributable to those securities and includable in the dividends paid to its shareholders. Those dividends will be paid from a Portfolio’s cash assets or by liquidation of portfolio securities, if necessary, at a time when a Portfolio otherwise might not have done so.

A broker-dealer creates a derivative zero by separating the interest and principal components of a U.S. Treasury security and selling them as two individual securities. CATS (Certificates of Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are examples of derivative zeros.

The Federal Reserve Bank creates STRIPS (Separate Trading of Registered Interest and Principal of Securities) by separating the interest and principal components of an outstanding U.S. Treasury security and selling them as individual securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be separated in this fashion. Original issue zeros are zero coupon securities originally issued by the U.S. Government, a government agency, or a corporation in zero coupon form.

Investment Restrictions and Limitations

Certain of the Portfolios’ investment restrictions and other limitations are described in this SAI. The following are each Portfolio’s, other than Asset Strategy Portfolio, fundamental investment limitations set forth in their entirety, which cannot be changed without shareholder approval. For this purpose, shareholder approval means the approval, at a meeting of Portfolio shareholders, by the lesser of (1) the holders of 67% or more of the Portfolio’s shares represented at the meeting, if more than 50% of the Portfolio’s outstanding shares are present in person or by proxy or (2) more than 50% of the Portfolio’s outstanding shares. A Portfolio (other than Asset Strategy Portfolio) may not:

(1)     Issue senior securities (except that each Portfolio may borrow money as described below);

(2)     Purchase or sell physical commodities; however, this policy shall not prevent a Portfolio other than Money Market Portfolio from purchasing and selling foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments;

(3)     Buy real estate or any nonliquid interests in real estate investment trusts;

(4)     Make loans, except loans of portfolio securities to the extent allowed, and in accordance with the requirements, under the 1940 Act, and a Portfolio may buy debt securities and other obligations consistent with its goal(s) and its other investment policies and restrictions;

The following interpretation applies to, but is not part of, this fundamental restriction: a Portfolio’s investments in master notes and similar instruments will not be considered to be the making of a loan.

(5)     Invest for the purpose of exercising control or management of other companies;

(6)     Sell securities short (unless, for a Portfolio other than Money Market Portfolio, it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short) or purchase securities on margin, except that, for a Portfolio other than Money Market Portfolio, (1) this policy does not prevent the Portfolio from entering into short positions in foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments, (2) the Portfolio may obtain such short-term credits as are necessary for the clearance of transactions, and (3) the Portfolio may make margin payments in connection with futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments;

(7)     Engage in the underwriting of securities, except insofar as it may be deemed an underwriter in selling shares of a Portfolio and except as it may be deemed such in the sale of restricted securities;

(8)     Except for Small Cap Portfolio (see Borrowing), borrow money except from banks as a temporary measure or for extraordinary or emergency purposes and not for investment purposes, and only up to 5% of the value of a Portfolio’s total assets; or

(9)     With respect to 75% of its total assets, purchase securities of any one issuer (other than cash items and Government securities as defined in the 1940 Act), if immediately after and as a result of such purchase, (a) the value of the holdings of the Portfolio in the securities of such issuer exceeds 5% of the value of the Portfolio’s total assets, or (b) the Portfolio owns more than 10% of the outstanding voting securities of such issuer; or, except for Money Market Portfolio, buy a security if more than 25% of its assets would then be invested in securities of companies in any one industry (U.S. Government securities are not included in this restriction); provided, however, that Science and Technology Portfolio may invest more than 25% of its assets in securities of companies in the science and technology industries.

The following are additional fundamental policies of Money Market Portfolio that may not be changed without shareholder approval. Money Market Portfolio may not:

(1)     Engage in arbitrage transactions;

(2)     Pledge, mortgage or hypothecate assets as security for indebtedness except to secure permitted borrowings; or

(3)     Buy a security if more than 25% of its assets would then be invested in securities of companies in any one industry (U.S. Government securities and bank obligations and instruments are not included in this restriction).

The following are fundamental policies of Asset Strategy Portfolio and may not be changed without shareholder approval. Asset Strategy Portfolio may not:

(1)     With respect to 75% of the Portfolio’s total assets, purchase the securities of any issuer (other than obligations issued or guaranteed by the United States government, or any of its agencies or instrumentalities) if, as a result thereof, (a) more than 5% of the Portfolio’s total assets would be invested in the securities of such issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting securities of such issuer;

(2)     Issue bonds or any other class of securities preferred over shares of the Portfolio in respect to the Portfolio’s assets or earnings, provided that the Portfolio may issue additional classes of shares in accordance with the Fund’s Articles of Incorporation;

(3)     Sell securities short (unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short) or purchase securities on margin, except that (1) this policy does not prevent the Portfolio from entering into short positions in foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments, (2) the Portfolio may obtain such short-term credits as are necessary for the clearance of transactions, and (3) the Portfolio may make margin payments in connection with futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments;

(4)     Borrow money, except that the Portfolio may borrow money for emergency or extraordinary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of the value of its total assets (less liabilities other than borrowings). Any borrowings that come to exceed 33 1/3% of the value of the Portfolio’s total assets by reason of a decline in net assets will be reduced within three days to the extent necessary to comply with the 33 1/3% limitation. For purposes of this limitation, three days means three days, exclusive of Sundays and holidays;

(5)     Underwrite securities issued by others, except to the extent that the Portfolio may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities;

(6)     Purchase the securities of any issuer (other than obligations issued or guaranteed by the United States government or any of its agencies or instrumentalities) if, as a result, more than 25% of the Portfolio’s total assets (taken at current value) would be invested in the securities of issuers having their principal business activities in the same industry;

(7)     Invest in real estate limited partnerships or purchase or sell real estate unless acquired as a result of ownership of securities (but this shall not prevent the Portfolio from purchasing and selling securities issued by companies or other entities or investment vehicles that deal in real estate or interests therein, nor shall this prevent the Portfolio from purchasing interests in pools of real estate mortgage loans);

(8)     Purchase or sell physical commodities, except that the Portfolio may purchase and sell precious metals for temporary, defensive purposes; however, this policy shall not prevent the Portfolio from purchasing and selling foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments; or

(9)     Make loans, except (a) by lending portfolio securities to the extent allowed, and in accordance with the requirements, under the 1940 Act; (b) through the purchase of debt securities and other obligations consistent with its goal and other investment policies and restrictions; and (c) by engaging in repurchase agreements with respect to portfolio securities.

The following investment restrictions are not fundamental and may be changed by the Fund’s Board of Directors without approval of the shareholders of the affected Portfolios:

(1)     At least 80% of each of Bond Portfolio’s and Limited-Term Bond Portfolio’s total assets will be invested during normal market conditions in bonds. Bond Portfolio may not purchase any securities other than debt securities if, as a result of such purchase, more than 10% of its total assets would be invested in non-debt securities. This 10% limit does not include a non-debt security held as a result of a conversion of a debt security or exercise of a warrant;

(2)     At least 80% of Small Cap Portfolio’s total assets will be invested during normal market conditions in companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category at the time their securities are acquired by the Portfolio;

(3)     At least 25% of Balanced Portfolio’s total assets will be invested during normal market conditions in fixed-income senior securities;

(4)     At least 80% of International Portfolio’s total assets will be invested during normal market conditions in foreign securities. International Portfolio may not purchase a foreign security if, as a result of such purchase, more than 75% of its total assets would be invested in issuers of that foreign country. International Portfolio currently intends to have at least 65% of its total assets invested in issuers of at least three different foreign countries;

(5)     Each of Balanced Portfolio, Growth Portfolio, Core Equity Portfolio, International Portfolio, Limited-Term Bond Portfolio, Science and Technology Portfolio, Small Cap Portfolio and Value Portfolio does not currently intend to invest in non-investment grade debt securities if, as a result of such investment, more than 5% of its total assets would consist of such investments. Each of Asset Strategy Portfolio and Bond Portfolio may not invest more than 35% of its total assets in non-investment grade debt securities;

(6)     Money Market Portfolio may not purchase the securities of any one issuer (other than U.S. Government securities) if, as a result of such purchase, more than 5% of its total assets would be invested in the securities of any one issuer, as determined in accordance with Rule 2a-7; provided, however, the Portfolio may invest up to 25% of its total assets in first tier securities of a single issuer for a period of up to 3 business days after the purchase. The Portfolio may rely on this exception only as to one issuer at a time. Money Market Portfolio may not invest more than 5% of its total assets in securities rated in the second highest rating category by the requisite rating organization(s) or comparable unrated securities, with investments in such securities of any one issuer (except U.S. Government securities) limited to the greater of 1% of the Portfolio’s total assets or $1,000,000, as determined in accordance with Rule 2a-7;

(7)     High Income Portfolio may not purchase a common stock if, as a result, more than 20% of its total assets would be invested in common stocks. This 20% limit includes common stocks acquired on conversion of convertible securities, on exercise of warrants or call options or in any other voluntary manner. The Portfolio does not currently intend to invest more than 10% of its total assets in non-dividend paying common stocks;

(8)     Subject to the diversification requirements of Rule 2a-7, Money Market Portfolio may invest up to 10% of its total assets in Canadian Government obligations. Money Market Portfolio may not invest more than 25% of its total assets in a combination of foreign obligations and instruments;

(9)     Asset Strategy Portfolio currently intends to limit its investments in foreign securities, under normal market conditions, to no more than 50% of its total assets;

(10)    Each of Bond Portfolio, Growth Portfolio, High Income Portfolio, Core Equity Portfolio, Science and Technology Portfolio and Small Cap Portfolio may not invest more than 20% of its total assets in foreign securities; Value Portfolio may not invest more than 25% of its total assets in foreign securities. Balanced Portfolio may purchase an unlimited amount of foreign securities; however, the Portfolio intends to have

less than 10% of its total assets invested in foreign securities;

(11)    Each Portfolio may not purchase a security if, as a result, more than 10% (15% for Asset Strategy Portfolio and Value Portfolio) of its net assets would consist of illiquid investments;

(12)    Each Portfolio (other than Money Market Portfolio) may purchase shares of another investment company subject to the restrictions and limitations of the 1940 Act;

(13)    A Portfolio may not participate on a joint, or a joint and several, basis in any trading account in any securities (but this does not prohibit the bunching of orders for the sale or purchase of Portfolio securities with any other Portfolio or with other advisory accounts of WRIMCO or any of its affiliates to reduce brokerage commissions or otherwise to achieve best execution);

(14)    Asset Strategy Portfolio does not currently intend to lend assets other than securities to other parties, except by acquiring loans, loan participations, or other forms of direct debt instruments. This limitation does not apply to purchases of debt securities or to repurchase agreements;

(15)    Asset Strategy Portfolio does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases;

(16)    Asset Strategy Portfolio will not purchase any security while borrowings representing more than 5% of its total assets are outstanding;

(17)     Other than Asset Strategy Portfolio and Money Market Portfolio, none of the other Portfolios may pledge its assets in connection with any permitted borrowings; however, this policy does not prevent a Portfolio from pledging its assets in connection with its purchase and sale of futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments;

(18)     Money Market Portfolio will not invest in any security whose interest rate or principal amount to be repaid, or timing of payments, varies or floats with the value of a foreign currency, the rate of interest payable on foreign currency borrowings, or with any interest rate or index expressed in a currency other than U.S. dollars;

(19)    For Limited-Term Bond Portfolio, the maturity of collateralized mortgage obligations and other asset-backed securities will be deemed to be the estimated average life of such securities, as determined in accordance with certain prescribed models or formulas. The maturity of other debt securities will be deemed to be the earlier of the call date or the maturity date, whichever is appropriate;

(20)    Limited-Term Bond Portfolio may only invest in U.S. dollar denominated securities; and

(21)    To the extent that a Portfolio enters into futures contracts, options on futures contracts or options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are in-the-money at the time of purchase) will not exceed 5% of the liquidation value of the Portfolio, after taking into account unrealized profits and unrealized losses on any contracts the Portfolio has entered into. (In general, a call option on a futures contract is in-the-money if the value of the underlying futures contract is exceeded by the strike price of the put.) This policy does not limit to 5% the percentage of a Portfolio’s total assets that are at risk in futures contracts, options on futures contracts and currency options.

Regarding policies 1, 2 and 4, a Portfolio will notify shareholders at least 60 days prior to a change in the 80% investment policy.

An investment policy or limitation that states a maximum percentage of a Portfolio’s assets that may be so invested or prescribes quality standards is typically applied immediately after, and based on, the Portfolio’s acquisition of an asset. Accordingly, a subsequent change in the asset’s value, net assets, or other circumstances will not be considered when determining whether the investment complies with the Portfolio’s investment policies and limitations.

Portfolio Turnover

A Portfolio turnover rate is, in general, the percentage computed by taking the lesser of purchases or sales of portfolio securities for a year and dividing it by the monthly average of the market value of such securities during the year, excluding certain short-term securities. A Portfolio’s turnover rate may vary greatly from year to year as well as within a particular year.

The portfolio turnover rates for the fiscal years ended December 31, 2002 and December 31, 2001 for each of the Portfolios then in existence were as follows:

	2002			2001
Asset Strategy Portfolio		95.22	%		187.87	%
Balanced Portfolio		58.18	%		38.82	%
Bond Portfolio		33.75	%		29.06	%

	2002			2001
Core Equity Portfolio		38.37	%		30.50	%
Growth Portfolio		40.58	%		50.70	%
High Income Portfolio		85.17	%		193.71	%
International Portfolio		116.21	%		99.52	%
Limited-Term Bond Portfolio		27.36	%		22.43	%
Money Market Portfolio	NA			NA
Science and Technology Portfolio		92.25	%		93.19	%
Small Cap Portfolio		34.54	%		30.31	%
Value Portfolio		95.73	%		10.91	%

The high portfolio turnover rate for Asset Strategy Portfolio, International Portfolio, High Income Portfolio and Science and Technology Portfolio were due to the active management of each Portfolio and the volatility of the markets during this period. A high turnover rate will increase transaction costs and commission costs that will be paid by the Portfolio and may generate taxable income or loss. Because short-term securities are generally excluded from computation of the turnover rate, a rate is not computed for Money Market Portfolio.

MANAGEMENT OF THE FUND

Directors and Officers

Following is a list of the Board of Directors (Board) and the officers of the Fund. The Directors oversee all of the funds in the Fund Complex. The Fund Complex is comprised of the funds in the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. Directors serve until resignation, retirement, death or removal. The Board, in turn, elects the officers who are responsible for administering the Fund’s day to day operations.

Disinterested Directors

The following table provides information regarding each Director who is not an “interested person” as defined in the 1940 Act.

				PRINCIPAL
NAME,	POSITION(S) HELD	TERM OF OFFICE:		OCCUPATION(S)	TOTAL NUMBER OF		OTHER
ADDRESS AND AGE	WITH THE FUND	DIRECTOR SINCE		DURING PAST 5 YEARS	FUNDS OVERSEEN		DIRECTORSHIPS HELD
James M. Concannon Washburn Law School 1700 College Topeka, KS 66621 Age: 55	Director		1997	Professor of Law, Washburn Law School; Formerly, Dean, Washburn Law School		48	Director, Am Vestors CBO II, Inc. (bond investment firm)
John A. Dillingham 4040 Northwest Claymont Drive Kansas City, MO 64116 Age: 64	Director		1997	President and Director, JoDill Corp. and Dillingham Enterprises, Inc., both farming enterprises; formerly, Instructor at Central Missouri State University; formerly, Consultant and Director, McDougal Construction Company		48	None
David P. Gardner 2441 Iron Canyon Drive Park City, UT 84060 Age: 70	Director		1998	Formerly, president, William and Flora Hewlett Foundation		48	None
Linda K. Graves 6300 Lamar Avenue Overland Park, KS 66202 Age: 49	Director		1995	Formerly, First Lady of Kansas		48	Director, American Guaranty Life Insurance Company

				PRINCIPAL
NAME,	POSITION(S) HELD	TERM OF OFFICE:		OCCUPATION(S)	TOTAL NUMBER OF		OTHER
ADDRESS AND AGE	WITH THE FUND	DIRECTOR SINCE		DURING PAST 5 YEARS	FUNDS OVERSEEN		DIRECTORSHIPS HELD
Joseph Harroz, Jr. 6300 Lamar Avenue Overland Park, KS 66202 Age: 36	Director		1998	General Counsel of the University of Oklahoma, Cameron University and Rogers State Univ.; Vice President of the University of Oklahoma; Adjunct Professor, University of Oklahoma Law School; Managing Member, Harroz Investments, LLC, commercial enterprise investments		63	Director, Oklahoma Appleseed Center for Law and Justice; Trustee, Ivy Fund
John F. Hayes 6300 Lamar Avenue Overland Park, KS 66202 Age: 83	Director		1988	Chairman, Gilliland & Hayes, P.A., a law firm		48	Director, Central Bank & Trust; Central Financial Corporation
Glendon E. Johnson 13635 Deering Bay Drive, #284 Miami, FL 33158 Age: 79	Director		1971	Retired; formerly, Chief Executive Officer and Director, John Alden Financial Corporation		48	Chairman of the Board, Bank Assurance Partners (mktng)
Eleanor B. Schwartz 1213 West 95th Court Chartwell #4 Kansas City, MO 64114 Age: 66	Director		1995	Professor, and formerly, Chancellor, University of Missouri at Kansas City		63	Trustee, Ivy Fund
Frederick Vogel III 6300 Lamar Avenue Overland Park, KS 66202 Age: 67	Director		1971	Retired		48	None

Interested Directors

Three of the four interested directors are “interested” by virtue of their current or former engagement as officers of Waddell & Reed Financial, Inc. (WDR) or its wholly-owned subsidiaries, including the funds’ investment advisor, Waddell & Reed Investment Management Company (WRIMCO), the funds’ principal underwriter, Waddell & Reed, Inc. (Waddell & Reed), and the funds’ transfer agent, Waddell & Reed Services Company (WRSCO), as well as by virtue of their personal ownership in shares of WDR. The fourth interested director, Mr. Ross, is a shareholder in a law firm that has represented W&R within the past two years.

		TERM OF OFFICE:		PRINCIPAL
NAME,	POSITION(S) HELD	DIRECTOR/OFFICER		OCCUPATION(S)	TOTAL NUMBER OF		OTHER
ADDRESS AND AGE	WITH THE FUND	SINCE		DURING PAST 5 YEARS	FUNDS OVERSEEN		DIRECTORSHIPS HELD
Keith A. Tucker 6300 Lamar Avenue Overland Park, KS 66202 Age: 58	Chairman of the Board Director		1998 1993	Chairman of the Board, Chief Executive Officer and Director of WDR; formerly, Principal Financial Officer of WDR; Chairman of the Board and Director of Waddell & Reed, WRIMCO and WRSCO; formerly, Vice Chairman of the Board of Directors of Torchmark Corporation		63	Chairman of the Board and Trustee of Ivy Fund
Henry J. Herrmann 6300 Lamar Avenue Overland Park, KS 66202 Age: 60	President Director		2001 1998	President, Chief Investment Officer and Director of WDR; formerly, Treasurer of WDR; Director of Waddell & Reed; President, Chief Executive Officer, Chief Investment Officer and Director of WRIMCO; President, Chief Executive Officer and Director of Waddell & Reed Ivy Investment Company (WRIICO), an affiliate of WDR		63	Director, Austin, Calvert & Flavin, an affiliate of WRIMCO; Director, Ivy Funds Distributor, Inc. (IFDI), an affiliate of WRIMCO; Trustee, Ivy Fund

		TERM OF OFFICE:		PRINCIPAL
NAME,	POSITION(S) HELD	DIRECTOR/OFFICER		OCCUPATION(S)	TOTAL NUMBER OF		OTHER
ADDRESS AND AGE	WITH THE FUND	SINCE		DURING PAST 5 YEARS	FUNDS OVERSEEN		DIRECTORSHIPS HELD
Robert L. Hechler 6300 Lamar Avenue Overland Park, KS 66202 Age: 66	Director		1998	Consultant and Director of WDR; Consultant of W&R; formerly, Executive Vice President and Chief Operating Officer of WDR; formerly, President, Chief Executive Officer, Principal Financial Officer, Treasurer and Director of W&R; formerly, Executive Vice President, Principal Financial Officer, Treasurer and Director of WRIMCO; formerly, President, Treasurer and Director of WRSCO		48	None
Frank J. Ross, Jr. Polsinelli, Shalton & Welte, P.C. 700 West 47th Street Suite 1000 Kansas City, MO 64112 Age: 50	DIrector		1996	Shareholder/Director, Polsinelli, Shalton & Welte, P.C., a law firm		48	Director, Columbian Bank & Trust

Officers

The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Herrmann, who is President, the Fund’s officers are:

				PRINCIPAL
NAME,	POSITION(S) HELD	TERM OF OFFICE:		OCCUPATION(S)
ADDRESS AND AGE	WITH THE FUND	OFFICER SINCE		DURING PAST 5 YEARS
Theodore W. Howard 6300 Lamar Avenue Overland Park KS 66202 Age: 60	Vice President Treasurer Principal Accounting Officer Principal Financial Officer		1987 1976 1976 2002	Senior Vice President of WRSCO; Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer of each of the funds in the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc.; Vice President and Treasurer of Ivy Fund; formerly, Vice President of WRSCO
Kristen A. Richards 6300 Lamar Avenue Overland Park KS 66202 Age: 35	Vice President Secretary Associate General Counsel		2000 2000 2000	Vice President, Associate General Counsel and Chief Compliance Officer of WRIMCO and WRIICO; Vice President, Secretary and Associate General Counsel of each of the funds in the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc. and Ivy Funds; formerly, Assistant Secretary of each of the funds in the Fund Complex; formerly, Compliance Officer of WRIMCO
Daniel C. Schulte 6300 Lamar Avenue Overland Park KS 66202 Age: 37	Vice President General Counsel Assistant Secretary		2000 2000 2000	Vice President, Secretary and General Counsel of WDR; Senior Vice President, Secretary and General Counsel of Waddell & Reed, WRIMCO and WRSCO; Vice President, General Counsel and Assistant Secretary of each of the funds in the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc.; Vice President and Assistant Secretary of Ivy Fund; formerly, Assistant Secretary of WDR; formerly, an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C.

Responsibilities of the Board of Directors

The Board oversees the operations of the Fund, and is responsible for the overall management and supervision of its affairs in accordance with the laws of the State of Maryland, and directs the officers to perform the daily functions of the Fund. The Board similarly oversees the operations of each of the other funds in the Fund Complex.

Committees of the Board of Directors

The Board has established the following committees: Audit Committee, Executive Committee, Nominating Committee, Valuation Committee and Investment Review Committee. The respective duties and current memberships are:

Audit Committee. The Audit Committee meets with the Portfolios’ independent auditors, internal auditors and corporate officers to discuss the scope and results of the annual audit of the Fund, to review financial statements, reports, compliance matters, and to discuss such other matters as the Committee deems appropriate or desirable. The Audit Committee acts as a liaison between the Portfolios’ independent auditors and the full Board of Directors. David P. Gardner, James M. Concannon, Linda K. Graves, Robert L. Hechler, John F. Hayes and Frank J. Ross, Jr. are the members of the Audit Committee. During the fiscal year ended December 31, 2002, the Audit Committee met four times.

Executive Committee. When the Board is not in session, the Executive Committee has and may exercise any or all of the powers of the Board in the management of the business and affairs of the Portfolios except the power to increase or decrease the size of, or fill vacancies on, the Board, and except as otherwise provided by law. Keith A. Tucker, Glendon E. Johnson and John A. Dillingham are the members of the Executive Committee. During the fiscal year ended December 31, 2002, the Executive Committee did not meet.

Nominating Committee. The Nominating Committee evaluates, selects and recommends to the Board candidates for disinterested directors. Glendon E. Johnson, Eleanor B. Schwartz and Frederick Vogel III are the members of the Nominating Committee. During the fiscal year ended December 31, 2002, the Nominating Committee did not meet.

Valuation Committee. The Valuation Committee reviews and considers valuation recommendations by management for securities for which market quotations are not available, and values such securities and other assets at fair value as determined in good faith under procedures established by the Board. Keith A. Tucker and Henry J. Herrmann are the members of the Valuation Committee. During the fiscal year ended December 31, 2002, the Committee met six times.

Investment Review Committee. The Investment Review Committee considers such matters relating to the investment management of the funds in the Fund Complex as the Committee may, from time to time, determine warrant review, such as investment management policies and strategies, investment performance, risk management techniques and securities trading practices, and may make recommendations as to these matters to the full Board. Frederick Vogel III, Joseph Harroz, Jr. and David P. Gardner are the members of the Investment Review Committee. The Investment Review Committee was formed in February 2002; the Committee met once during the fiscal year ended December 31, 2002.

Ownership of Fund Shares

(as of December 31, 2002)

The following table provides information regarding shares of the Funds owned by each Director, as well as the aggregate dollar range of shares owned, by each Director, within the Fund Complex.

Disinterested Directors

			Aggregate Dollar Range
			of Fund Shares Owned in
	Dollar Range of Fund		All Funds within the
Director	Shares Owned		Fund Complex
James M. Concannon	$	0	$50,001 to $100,000
John A. Dillingham	$	0	over $100,000
David P. Gardner	$	0	$	0
Linda K. Graves	$	0	over $100,000
Joseph Harroz, Jr.	$	0	$10,001 to $50,000
John F. Hayes	$	0	over $100,000
Glendon E. Johnson	$	0	over $100,000
Eleanor B. Schwartz	$	0	$	0
Frederick Vogel III	$	0	over $100,000

Interested Directors

			Aggregate Dollar Range
			of Fund Shares Owned in
	Dollar Range of Fund		All Funds within the
Director	Shares Owned		Fund Complex
Robert L. Hechler	$	0	over $100,000
Henry J. Herrmann	$	0	over $100,000
Frank J. Ross, Jr.	$	0	over $100,000
Keith A. Tucker	$	0	over $100,000

The non-affiliated Directors have deferred a portion of their annual compensation. The values of these deferred accounts are:

			Aggregate Dollar Range
			of Shares Deemed to be
	Dollar Range of Fund		Owned in all Funds
Director	Shares Deemed to be Owned		within the Fund Complex
James M. Concannon	$	0	$1 to $10,000
John A. Dillingham	$	0	$1 to $10,000
David P. Gardner	$	0	$10,001 to $50,000
Linda K. Graves	$	0	$1 to $10,000
Joseph Harroz, Jr.	$	0	$50,001 to $100,000
John F. Hayes	$	0	$1 to $10,000
Robert L. Hechler	$	0	$1 to $10,000
Glendon E. Johnson	$	0	$1 to $10,000
Frank J. Ross, Jr.	$	0	$10,001 to $50,000
Eleanor B. Schwartz	$	0	$1 to $10,000
Frederick Vogel III	$	0	$1 to $10,000

Compensation

The funds in the Fund Complex pay to each Director (other than Directors who are affiliates of Waddell & Reed) effective January 1, 2002, an annual base fee of $65,500 (of which at least $7,500 is deferred), plus $4,250 for each meeting of the Board attended, plus reimbursement of expenses for attending such meetings and $500 for each committee meeting attended which is not in conjunction with a Board meeting. The fees to the Directors are divided among the funds in the Fund Complex based on each fund’s relative asset size. During the fiscal year ended December 31, 2002, the Directors received the following fees for service as a director:

COMPENSATION TABLE

			Total
	Aggregate		Compensation
	Compensation		From Fund
	From		and Fund
Director	Fund1		Complex2
Henry J. Herrmann	$	0	$	0
Keith A. Tucker		0		0
James M. Concannon		10,403		81,500
John A. Dillingham		10,403		81,500
David P. Gardner		10,403		81,500
Linda K. Graves		10,403		81,500
Joseph Harroz, Jr.		10,403		81,500
John F. Hayes		10,403		81,500
Robert L. Hechler		9,460		74,000
Glendon E. Johnson		10,403		81,500
William T. Morgan3		9,848		77,250
Frank J. Ross, Jr.		10,403		81,500
Eleanor B. Schwartz		10,403		81,500
Frederick Vogel III		10,403		81,500

¹No pension or retirement benefits have been accrued as a part of Fund expenses.

²Mr. Morgan resigned his position as Director of the Fund and of each of the funds in the Fund Complex effective June 1, 2002.

The officers are paid by WRIMCO and its affiliates.

The Board has created an honorary position of Director Emeritus, whereby an incumbent Director who has attained the age of 70 may, or if

elected on or after May 31, 1993 and has attained the age of 75 must, resign his or her position as Director and, unless he or she elects otherwise, will serve as Director Emeritus provided the Director has served as a Director of the Fund for at least five years which need not have been consecutive. A Director Emeritus receives fees in recognition of his or her past services whether or not services are rendered in his or her capacity as Director Emeritus, but he or she has no authority or responsibility with respect to the management of the Portfolios. Messrs. Henry L. Bellmon, Jay B. Dillingham, William T. Morgan, Doyle Patterson, Ronald K. Richey and Paul S. Wise retired as Directors of the Fund and of each of the funds in the Fund Complex, and each serves as Director Emeritus.

Code of Ethics

The Fund, WRIMCO and Waddell & Reed have adopted a Code of Ethics under Rule 17j-1 of the 1940 Act that permits their respective directors, officers and employees to invest in securities, including securities that may be purchased or held by a Portfolio. The Code of Ethics subjects covered personnel to certain restrictions that include prohibited activities, pre-clearance requirements and reporting obligations.

INVESTMENT advisory AND OTHER SERVICES

The Management Agreement

The Fund has an Investment Management Agreement (the Management Agreement) with WRIMCO. Under the Management Agreement, WRIMCO is employed to supervise the investments of the Portfolios and provide investment advice to the Portfolios. The Agreement obligates WRIMCO to make investments for the account of the Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Internal Revenue Code of 1986, as amended (the Code) relating to regulated investment companies, subject to policy decisions adopted by the Board. WRIMCO also determines the securities to be purchased or sold by the Fund and places the orders.

WRIMCO is a wholly owned subsidiary of Waddell & Reed. Waddell & Reed is a wholly owned subsidiary of Waddell & Reed Financial Services, Inc., a holding company which is a wholly owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

WRIMCO and/or its predecessor have served as investment manager to each of the registered investment companies in the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. since each company’s inception. Waddell & Reed serves as principal underwriter and distributor for each of the investment companies in the Waddell & Reed Advisors Funds, W&R Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc., and acts as principal underwriter and distributor for variable life insurance and variable annuity policies for which W&R Target Funds, Inc. is the underlying investment vehicle.

The Management Agreement was renewed by the Board of Directors at the meeting held August 21, 2002, and will continue in effect for the period from October 1, 2002, through September 30, 2003, unless sooner terminated. The Management Agreement provides that it may be renewed year to year as to each Portfolio, provided that any such renewal has been specifically approved, at least annually, by (i) the Board of Directors, or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Portfolio, and (ii) the vote of a majority of the Directors who are not deemed to be “interested persons” (as defined in the 1940 Act) of the Fund or WRIMCO (the Disinterested Directors). The Management Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days’ written notice by the Fund to WRIMCO and 120 days’ written notice by WRIMCO to the Fund, and that the Management Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act).

In connection with their consideration of the Management Agreement as to each Portfolio, the Disinterested Directors met separately with independent legal counsel. In determining whether to renew the Management Agreement as to each Portfolio, the Disinterested Directors, as well as the full Board of Directors, considered a number of factors, including: the nature and quality of investment management services to be provided to the Portfolio by WRIMCO, including WRIMCO’s investment management expertise and the personnel, resources and experience of WRIMCO; the cost to WRIMCO in providing its services under the Management Agreement and WRIMCO’s profitability; whether the Portfolio and its shareholders will benefit from economies of scale; whether WRIMCO or any of its affiliates will receive ancillary benefits that should be taken into consideration in evaluating the investment management fee payable by the Fund; and the investment management fees paid by comparable investment companies.

The Management Agreement permits WRIMCO, or an affiliate of WRIMCO, to enter into a separate agreement for transfer agency services (the Shareholder Servicing Agreement) and a separate agreement for accounting services (the Accounting Services Agreement) with the Fund. The Management Agreement contains detailed provisions as to the matters to be considered by the Board of Directors prior to approving any Shareholder Servicing Agreement or Accounting Services Agreement.

Accounting Services

Under the Accounting Services Agreement entered into between the Fund and Waddell & Reed Services Company (WRSCO), a subsidiary of Waddell & Reed, WRSCO provides the Fund with bookkeeping and accounting services and assistance including maintenance of the Fund’s records, pricing of the Portfolios’ shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. A new Accounting Services Agreement, or amendments to an existing one, may be approved by the Fund’s Board of Directors without shareholder approval.

Payments by the Fund for Management and Accounting Services

Under the Management Agreement, for WRIMCO’s management services, the Fund pays WRIMCO a fee as described in the Prospectus. The management fees paid to WRIMCO, during the last three fiscal years for each Portfolio then in existence were as follows:

Periods ended December 31,

	2002		2001		2000
Asset Strategy Portfolio	$	965,187	$	639,000	$	246,967
Balanced Portfolio		1,218,838		1,184,961		940,141
Bond Portfolio		1,082,478		749,741		579,442
Core Equity Portfolio		5,347,086		6,665,130		7,228,436
Growth Portfolio		5,890,488,		7,454,768		8,956,561
High Income Portfolio		758,705		692,450		694,287
International Portfolio		1,354,560		1,839,373		2,555,819
Limited-Term Bond Portfolio		87,194		0		29,516
Money Market Portfolio		386,516		315,599		221,777
Science and Technology Portfolio		1,870,513		2,227,381		2,558,988
Small Cap Portfolio		2,644,908		2,862,314		3,036,728
Value Portfolio		445,046		58,185	NA

The Fund accrues and pays this fee daily.

Pursuant to its voluntary waiver of fees for a Portfolio with assets under $25 million on any fee accrual and payment date, WRIMCO waived management fees in the amounts of $50,283 for Limited-Term Bond Portfolio for 2002 and $49,775 and $27,507 for Limited-Term Bond Portfolio and Value Portfolio for 2001, respectively.

Under the Accounting Services Agreement, the Fund pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average Net Asset Level	Annual Fee
(all dollars in millions)	Rate for Each Fund
From $0 to $10	$	0
From $10 to $25	$	11,000
From $25 to $50	$	22,000
From $50 to $100	$	33,000
From $100 to $200	$	44,000
From $200 to $350	$	55,000
From $350 to $550	$	66,000
From $550 to $750	$	77,000
From $750 to $1,000	$	93,500
$1,000 and Over	$	110,000

Fees paid to WRSCO for the last three fiscal years for each Portfolio then in existence were as follows:

Periods ended December 31,

	2002		2001		2000
Asset Strategy Portfolio	$	44,000	$	37,583	$	19,917
Balanced Portfolio		44,000		44,000		41,334
Bond Portfolio		49,500		44,000		41,333
Core Equity Portfolio		85,250		97,625		99,583
Growth Portfolio		88,000		104,500		103,333
High Income Portfolio		44,000		44,000		41,333
International Portfolio		44,000		51,333		52,500
Limited-Term Bond Portfolio		16,500		3,667		—
Money Market Portfolio		37,583		33,917		27,333
Science and Technology Portfolio		51,333		55,000		52,500

Small Cap Portfolio	57,750	59,583		57,667
Value Portfolio	32,083	7,333	NA

Since the Fund pays a management fee for investment supervision and an accounting services fee for accounting services as discussed above, WRIMCO and WRSCO, respectively, pay all of their own expenses in providing these services. Waddell & Reed and affiliates pay the Fund’s Directors and officers who are affiliated with WRIMCO and Waddell & Reed. The Fund pays the fees and expenses of the Fund’s other Directors. The Fund pays all of its other expenses. These include the costs of printing and mailing materials sent to shareholders, audit and outside legal fees, taxes, brokerage commissions, interest, insurance premiums, fees payable under securities laws and to the Investment Company Institute, cost of processing and maintaining shareholder records, cost of systems or services used to price Portfolio securities and nonrecurring and extraordinary expenses, including litigation and indemnification relating to litigation.

Service Plan

Under a Service Plan (Plan) adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, each Portfolio may pay Waddell & Reed a fee not to exceed .25% of the Portfolio’s average annual net assets, paid daily, to compensate Waddell & Reed for its costs and expenses in connection with the provision of personal services to Policyowners.

The Plan permits Waddell & Reed to be compensated for amounts it expends in compensating, training and supporting registered financial advisors, sales managers and/or other appropriate personnel in providing personal services to Policyowners and/or maintenance of Policyowner accounts; increasing services provided to Policyowners by office personnel; engaging in other activities useful in providing personal service to Policyowners; and in compensating broker-dealers who may regularly sell Policies, and other third parties, for providing shareholder services and/or maintenance of Policyowner accounts.

The only Directors or interested persons, as defined in the 1940 Act, of the Fund who have a direct or indirect financial interest in the operation of the Plan are the officers and Directors who are also officers of either Waddell & Reed or its affiliate(s) or who are shareholders of Waddell & Reed Financial, Inc., the indirect parent company of Waddell & Reed. The Plan is anticipated to benefit each Portfolio and the Policyholders through Waddell & Reed’s activities to provide directly, or indirectly, personal services to the Policyholders and thereby promote the maintenance of their accounts with the Fund. The Fund anticipates that Policyholders may benefit to the extent that Waddell & Reed’s activities are successful in increasing the assets of the Fund through reduced redemptions and reducing a Policyholder’s share of Fund and Portfolio expenses. In addition, the Fund anticipates that the revenues from the Plan will provide Waddell & Reed with greater resources to make the financial commitments necessary to continue to improve the quality and level of services to the Fund and Policyholders.

The Plan was approved by the Fund’s Board of Directors, including the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operations of the Plan or any agreement referred to in the Plan (hereafter, Plan Directors). The Plan was also approved as to each Portfolio by the shareholders of the Portfolio.

Among other things, the Plan provides that (1) Waddell & Reed will provide to the Directors of the Fund at least quarterly, and the Directors will review, a report of amounts expended under the Plan and the purposes for which such expenditures were made, (2) the Plan will continue in effect only so long as it is approved at least annually, and any material amendments thereto will be effective only if approved, by the Directors including the Plan Directors acting in person at a meeting called for that purpose, (3) amounts to be paid by a Portfolio under the Plan may not be materially increased without the vote of the holders of a majority of the outstanding shares of the Portfolio, and (4) while the Plan remains in effect, the selection and nomination of the Directors who are Plan Directors will be committed to the discretion of the Plan Directors. During the fiscal year ended December 31, 2002, each Portfolio paid the following amount under the Plan:

Asset Strategy Portfolio	$	344,710
Balanced Portfolio		435,299
Bond Portfolio		515,466
Core Equity Portfolio		1,909,674
Growth Portfolio		2,103,801
High Income Portfolio		303,482
International Portfolio		398,400
Limited-Term Bond Portfolio		68,738
Money Market Portfolio		241,573
Science and Technology Portfolio		550,151
Small Cap Portfolio		777,914
Value Portfolio		158,945

Custodial and Auditing Services

The Portfolios’ custodian is UMB Bank, n.a., and its address is 928 Grand Boulevard, Kansas City, Missouri. In general, the custodian is responsible for holding the Portfolios’ cash and securities. Deloitte & Touche LLP, located at 1010 Grand Boulevard, Kansas City, Missouri, is the Portfolios’ independent auditor, and audits the Portfolios’ financial statements and prepares the Portfolios’ tax returns.

BROKERAGE ALLOCATION AND OTHER PRACTICES

One of the duties undertaken by WRIMCO pursuant to the Management Agreement is to arrange the purchase and sale of securities for the Portfolios. With respect to Bond Portfolio, Limited-Term Bond Portfolio, Money Market Portfolio and High Income Portfolio, many purchases are made directly from issuers or from underwriters, dealers or banks. Purchases from underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers will include the spread between the bid and the asked prices. Otherwise, transactions in securities other than those for which an exchange is the primary market are generally effected with dealers acting as principals or market makers. Brokerage commissions are paid primarily for effecting transactions in securities traded on an exchange and otherwise only if it appears likely that a better price or execution can be obtained. The individuals who manage the Portfolios may manage other advisory accounts with similar investment objectives. It can be anticipated that the manager will frequently, yet not always, place concurrent orders for all or most accounts for which the manager has responsibility or the manager may otherwise combine orders for a Portfolio with those of other Portfolios, funds in the Waddell & Reed Advisors Funds and W&R Funds, Inc. and/or other accounts for which it has investment discretion, including accounts affiliated with WRIMCO. Under current written procedures, transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each fund or advisory account, except where the combined order is not filled completely. In this case, for a transaction not involving an initial public offering (IPO), WRIMCO will ordinarily allocate the transaction pro rata based on the orders placed, subject to certain variances provided for in the written procedures. For a partially filled IPO order, subject to certain variances specified in the written procedures, WRIMCO generally allocates the shares as follows: the IPO shares are initially allocated pro rata among the included portfolios/funds and/or advisory accounts grouped according to investment objective, based on relative total assets of each group; and the shares are then allocated within each group pro rata based on relative total assets of the included portfolios/funds and/or advisory accounts, except that (a) within a group having a small cap-related investment objective, shares are allocated on a rotational basis after taking into account the impact of the anticipated initial gain on the value of the included portfolio/fund or advisory account and (b) within a group having a mid cap-related investment objective, shares are allocated based on the portfolio manager’s judgment, including but not limited to such factors as the portfolio/fund’s or advisory account’s investment strategies and policies, cash availability, any minimum investment policy, liquidity, anticipated term of the investment and current securities positions. In all cases, WRIMCO seeks to implement its allocation procedures to achieve a fair and equitable allocation of securities among its portfolios/funds and other advisory accounts. Sharing in large transactions could affect the price a Portfolio pays or receives or the amount it buys or sells. As well, a better negotiated commission may be available through combined orders.

To effect the portfolio transactions of each Portfolio, WRIMCO is authorized to engage broker-dealers (brokers) which, in its best judgment based on all relevant factors, will implement the policy of the Portfolio to seek best execution (prompt and reliable execution at the best price obtainable) for reasonable and competitive commissions. WRIMCO need not seek competitive commission bidding but is expected to minimize the commissions paid to the extent consistent with the interests and policies of the Portfolio. Subject to review by the Board, such policies include the selection of brokers which provide execution and/or research services and other services, including pricing or quotation services directly or through others (research and brokerage services) considered by WRIMCO to be useful or desirable for its investment management of the Portfolio and/or the other funds and accounts over which WRIMCO has investment discretion.

Research and brokerage services are, in general, defined by reference to Section 28(e) of the Securities Exchange Act of 1934 as including (1) advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities and purchasers or sellers, (2) furnishing analyses and reports, or (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement and custody). Investment discretion is, in general, defined as having authorization to determine what securities shall be purchased or sold for an account, or making those decisions even though someone else has responsibility.

The commissions paid to brokers that provide such research and/or brokerage services may be higher than the commission another qualified broker would charge for effecting comparable transactions and are permissible if a good faith determination is made by WRIMCO that the commission is reasonable in relation to the research or brokerage services provided. Subject to the foregoing considerations, WRIMCO may also consider sales of portfolio/fund shares as a factor in the selection of broker-dealers to execute portfolio transactions. No allocation of brokerage or principal business is made to provide any other benefits to WRIMCO or its affiliates.

The investment research provided by a particular broker may be useful only to one or more of the other advisory accounts of WRIMCO and investment research received for the commissions of those other accounts may be useful both to a Portfolio and one or more of such other accounts. To the extent that electronic or other products provided by such brokers to assist WRIMCO in making investment management decisions are used for administration or other non-research purposes, a reasonable allocation of the cost of the product attributable to its non-research use is made and this cost is paid by WRIMCO.

Such investment research, which may be supplied by a third party at the request of a broker, includes information on particular companies and industries as well as market, economic or institutional activity areas. It serves to broaden the scope and supplement the research activities of WRIMCO; serves to make available additional views for consideration and comparisons; and enables WRIMCO to obtain market information on the price of securities held in a Portfolio or being considered for purchase.

The Fund may also use its brokerage to pay for pricing or quotation services to value securities. The table below sets forth the brokerage commissions paid during the fiscal years ended December 31, 2002, 2001 and 2000:

Periods ended December 31,

	2002		2001		2000
Asset Strategy Portfolio	$	350,738	$	416,802	$	128,428
Balanced Portfolio		245,213		179,523		96,363
Bond Portfolio		—		—		—
Core Equity Portfolio		1,033,111		799,701		930,746
Growth Portfolio		1,076,824		1,090,677		979,913
High Income Portfolio		4,715		7,211		9,748
International Portfolio		858,663		887,617		1,426,823
Limited-Term Bond Portfolio		—		—		—
Money Market Portfolio		—		—		—
Science and Technology Portfolio		558,331		433,245		162,816
Small Cap Portfolio		210,848		160,879		117,059
Value Portfolio		180,663		32,812
	$	4,519,106	$	4,008,467	$	3,851,895

The next table shows the transactions, other than principal transactions, which were directed to broker-dealers who provided research services as well as execution and the brokerage commissions paid for the fiscal year ended December 31, 2002. These transactions were allocated to these broker-dealers by the internal allocation procedures described above.

	Amount of Transactions		Brokerage Commissions
Asset Strategy Portfolio	$	80,397,484	$	184,209
Balanced Portfolio		134,141,986		223,791
Bond Portfolio		—		—
Core Equity Portfolio		489,871,135		776,388
Growth Portfolio		600,892,119		934,825
High Income Portfolio		923,492		2,304
International Portfolio		13,868,818		22,675
Limited-Term Bond Portfolio		—		—
Money Market Portfolio		—		—
Science and Technology Portfolio		152,152,145		334,730
Small Cap Portfolio		51,226,037		118,772
Value Portfolio		116,191,976		169,976
	$	1,639,665,191	$	2,767,670

As of December 31, 2002, each of the Portfolios held securities issued by their respective regular broker-dealers, as follows: Balanced Portfolio owned Goldman Sachs Group, Inc. securities in the aggregate amount of $885,300. Goldman Sachs Group, Inc. is the parent of Goldman, Sachs & Co., a regular broker of the Portfolio. Core Equity Portfolio owned Bank One Corporation and Goldman Sachs Group, Inc. securities in the aggregate amounts of $9,992,708 and $18,087,360, respectively. Bank One Corporation is the parent of Banc One Capital Corporation, a regular broker of the Portfolio. Goldman Sachs Group, Inc. is the parent of Goldman, Sachs & Co., a regular broker of the Portfolio. Growth Portfolio owned Bank of America Corporation, Bank One Corporation, Citigroup Inc., Goldman Sachs Group, Inc., and Prudential Financial, Inc. securities in the aggregate amounts of $5,231,664, $9,992,708, $12,320,019, $12,952,620 and $7,623,948, respectively. Bank of America Corporation is the parent of Banc of America Securities LLC, a regular broker of the Portfolio. Bank One Corporation is the parent of Banc One Capital Corporation, a regular broker of the Portfolio. Citigroup Inc. is the parent of Salomon Smith Barney Inc., a regular broker of the Portfolio. Goldman Sachs Group, Inc. is the parent of Goldman, Sachs & Co., a regular broker of the Portfolio. Prudential Financial, Inc. is the parent of Prudential Securities Inc., a regular broker of the Portfolio. International Portfolio owned Credit Suisse Group securities in the aggregate amount of $1,232,015. Credit Suisse Group is the parent of Credit Suisse First Boston Corporation (The), a regular broker of the Portfolio. Value Portfolio owned Bank of America Corporation, Citigroup Inc., Goldman Sachs Group, Inc., Merrill Lynch & Co., Inc. and Morgan Stanley securities in the aggregate amounts of $626,130, $950,130, $633,330, $884,235 and $1,001,992, respectively. Bank of America Corporation is the parent of Banc of America Securities LLC, a regular broker of the Portfolio. Citigroup Inc. is the parent of Salomon Smith Barney Inc., a regular broker of the Portfolio. Goldman Sachs Group, Inc. is the parent of Goldman, Sachs & Co., a regular broker of the Portfolio. Merrill Lynch & Co., Inc. is the parent of Merrill Lynch, Pierce, Fenner & Smith Inc., a regular broker of the Portfolio. Morgan Stanley is the parent of Morgan Stanley & Co. Incorporated, a regular broker of the Portfolio.

CAPITAL STOCK

Capital stock is currently divided into the following classes which are a type of class designated a series as that term is defined in the Articles of Incorporation of the Fund: Asset Strategy Portfolio, Balanced Portfolio, Bond Portfolio, Growth Portfolio, High Income Portfolio, Core Equity Portfolio, International Portfolio, Limited-Term Bond Portfolio, Money Market Portfolio, Science and Technology Portfolio, Small Cap

Portfolio and Value Portfolio. The Board may change the designation of any Portfolio and may increase or decrease the numbers of shares of any Portfolio but may not decrease the number of shares of any Portfolio below the number of shares then outstanding.

Each issued and outstanding share in a Portfolio is entitled to participate equally in dividends and distributions declared by the Portfolio and, upon liquidation or dissolution, in net assets of such Portfolio remaining after satisfaction of outstanding liabilities. The shares of each Portfolio when issued are fully paid and nonassessable.

The Fund does not hold annual meetings of shareholders; however, certain significant corporate matters, such as the approval of a new investment advisory agreement or a change in a fundamental investment policy, which require shareholder approval, will be presented to shareholders at a meeting called by the Board for such purpose.

Special meetings of shareholders may be called for any purpose upon receipt by the Fund of a request in writing signed by shareholders holding not less than 25% of all shares entitled to vote at such meeting, provided certain conditions stated in the Bylaws are met. There will normally be no meeting of the shareholders for the purpose of electing directors until such time as less than a majority of directors holding office have been elected by shareholders, at which time the directors then in office will call a shareholders’ meeting for the election of directors. To the extent that Section 16(c) of the 1940 Act applies to the Fund, the directors are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any director when requested in writing to do so by the shareholders of record of not less than 10% of the Fund’s outstanding shares.

All shares of the Fund have equal voting rights (regardless of the NAV per share) except that on matters affecting only one Portfolio, only shares of the respective Portfolio are entitled to vote. The shares do not have cumulative voting rights. Accordingly, the holders of more than 50% of the shares of the Fund voting for the election of directors can elect all of the directors of the Fund if they choose to do so, and in such event the holders of the remaining shares would not be able to elect any directors.

Matters in which the interests of all the Portfolios are substantially identical (such as the election of Directors or the approval of independent public accountants) will be voted on by all shareholders without regard to the separate Portfolios. Matters that affect all the Portfolios but where the interests of the Portfolios are not substantially identical (such as approval of the Investment Management Agreement) will be voted on separately by each Portfolio. Matters affecting only one Portfolio, such as a change in its fundamental policies, will be voted on separately by the Portfolio.

Matters requiring separate shareholder voting by a Portfolio shall have been effectively acted upon with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio votes for approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other Portfolio; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Fund.

The phrase a majority of the outstanding voting securities of a Portfolio (or of a Fund) means the vote of the lesser of: (1) 67% of the shares of a Portfolio (or the Fund) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of a series (or a Fund).

To the extent required by law, Policyholders are entitled to give voting instructions with respect to Fund shares held in the separate accounts of Participating Insurance Companies. Participating Insurance Companies will vote the shares in accordance with such instructions unless otherwise legally required or permitted to act with respect to such instructions.

PURCHASE, REDEMPTION AND PRICING OF SHARES

The separate accounts of the Participating Insurance Companies place orders to purchase and redeem shares of each Portfolio based on, among other things, the amount of premium payments to be invested and the number of surrender and transfer requests to be effected on any day according to the terms of the Policies. Shares of a Portfolio are sold at their NAV per share. No sales charge is paid by any Participating Insurance Company for purchase of shares. Redemptions will be made at the NAV per share of the Portfolio. Payment is generally made within seven days after receipt of a proper request to redeem. The Fund may suspend the right of redemption of shares of any Portfolio and may postpone payment for any period if any of the following conditions exist: (1) the NYSE is closed other than customary weekend and holiday closings or trading on the NYSE is restricted; (2) the SEC has determined that a state of emergency exists which may make payment or transfer not reasonably practicable; (3) the SEC has permitted suspension of the right of redemption of shares for the protection of the shareholders of the Fund; or (4) applicable laws and regulations otherwise permit the Fund to suspend payment on the redemption of shares. Redemptions are ordinarily made in cash but under extraordinary conditions the Fund’s Board may determine that the making of cash payments is undesirable. In such case, redemption payments may be made in Portfolio securities. The redeeming shareholders would incur brokerage costs in selling such securities. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder.

Should any conflict between Policyowners arise which would require that a substantial amount of net assets be withdrawn from a Portfolio, orderly portfolio management could be disrupted to the potential detriment of Policyowners. The Fund need not accept any purchase order and it may discontinue offering the shares of any Portfolio.

Shareholder Communications

Policyowners will receive, from the Participating Insurance Companies, financial statements of the Fund as required under the 1940 Act. Each report shows the investments owned by the Portfolio and the market values thereof and provides other information about the Fund and its operations.

Net Asset Value

The NAV of one of the shares of a Portfolio is the value of the Portfolio’s assets, less liabilities, divided by the total number of shares outstanding. For example, if on a particular day a Portfolio owned securities worth $100 and held cash of $15, the total value of the assets would be $115. If it had a liability of $5, the NAV would be $110 ($115 minus $5). If it had 11 shares outstanding, the NAV of one share would be $10 ($110 divided by 11). Money Market Portfolio is designed so that the value of each share of this Portfolio will remain fixed at $1.00 per share, except under extraordinary circumstances, although this may not always be possible.

The NAV per share of each Portfolio is ordinarily computed once each day that the NYSE is open for trading as of the close of the regular session of the NYSE or the close of the regular session of any other securities or commodities exchange on which an option or future held by a Portfolio is traded. The NYSE ordinarily closes at 4:00 p.m. Eastern time. The NYSE annually announces the days on which it will not be open for trading. The most recent announcement indicates that it will not be open on the following days: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may close on other days. The NAV may change every business day, since the value of the assets and the number of shares outstanding typically change every business day.

Under Rule 2a-7, Money Market Portfolio uses the amortized cost method for valuing its portfolio securities provided it meets certain conditions. As a general matter, the primary conditions imposed under Rule 2a-7 relating to the Portfolio’s investments are that the Portfolio must: (1) not maintain a dollar-weighted average portfolio maturity in excess of 90 days; (2) limit its investments, including repurchase agreements, to those instruments which are U.S. dollar denominated and which WRIMCO, pursuant to guidelines established by the Fund’s Board of Directors, determines present minimal credit risks and which are rated in one of the two highest rating categories by the NRSRO(s), as defined in Rule 2a-7; or, in the case of any instrument that is not rated, of comparable quality as determined under procedures established by and under the general supervision and responsibility of the Fund’s Board of Directors; (3) limit its investments in the securities of any one issuer (except U.S. Government securities) to no more than 5% of its assets; (4) limit its investments in securities rated in the second highest rating category by the NRSRO(s) or comparable unrated securities to no more than 5% of its assets; (5) limit its investments in the securities of any one issuer which are rated in the second highest rating category by the NRSRO(s) or comparable unrated securities to the greater of 1% of its assets or $1,000,000; and (6) limit its investments to securities with a remaining maturity of not more than 397 days. Rule 2a-7 sets forth the method by which the maturity of a security is determined. The amortized cost method involves valuing a security at its cost and thereafter assuming a constant amortization rate to maturity of any discount or premium, and does not reflect the impact of fluctuating interest rates on the market value of the security. This method does not take into account unrealized gains or losses.

While the amortized cost method provides some degree of certainty in valuation, there may be periods during which value, as determined by amortized cost, is higher or lower than the price the Portfolio would receive if it sold the instrument. During periods of declining interest rates, the daily yield on the Portfolio’s shares may tend to be higher than a like computation made by a fund with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio instruments and changing its dividends based on these changing prices. Thus, if the use of amortized cost by the Portfolio resulted in a lower aggregate portfolio value on a particular day, a prospective investor in the Portfolio’s shares would be able to obtain a somewhat higher yield than would result from investment in such a fund, and existing investors in the Portfolio’s shares would receive less investment income. The converse would apply in a period of rising interest rates.

Under Rule 2a-7, the Fund’s Board of Directors must establish procedures designed to stabilize, to the extent reasonably possible, the Portfolio’s price per share as computed for the purpose of sales and redemptions at $1.00. Such procedures must include review of the portfolio holdings by the Board of Directors at such intervals as it may deem appropriate and at such intervals as are reasonable in light of current market conditions to determine whether the Portfolio’s NAV calculated by using available market quotations (see below) deviates from the per share value based on amortized cost.

For the purpose of determining whether there is any deviation between the value of the Portfolio based on amortized cost and that determined on the basis of available market quotations, if there are readily available market quotations, investments are valued at the mean between the bid and asked prices. If such market quotations are not available, the investments will be valued at their fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Fund’s Board of Directors, including being valued at prices based on market quotations for investments of similar type, yield and duration.

Under Rule 2a-7, if the extent of any deviation between the NAV per share based upon available market quotations and the NAV per share based on amortized cost exceeds one-half of 1%, the Board of Directors must promptly consider what action, if any, will be initiated. When the Board of Directors believes that the extent of any deviation may result in material dilution or other unfair results to investors or existing shareholders, it is required to take such action as it deems appropriate to eliminate or reduce to the extent reasonably practicable such dilution or unfair results. Such actions could include the sale of portfolio securities prior to maturity to realize capital gains or losses or to shorten average portfolio maturity, withholding dividends or payment of distributions from capital or capital gains, redemptions of shares in kind, or establishing a NAV per share using available market quotations.

The portfolio securities of the Portfolios (other than Money Market Portfolio) that are listed or traded on a stock exchange are valued on the basis of the last sale on that day or, lacking any sales, at the mean of the last bid and asked prices available. In cases where securities or other instruments are traded on more than one exchange, such securities or other instruments generally are valued on the exchange designated by WRIMCO (under procedures established by and under the general supervision and responsibility of the Board of Directors) as the primary market. Securities traded in the OTC market are valued using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks.

Bonds, other than convertible bonds, are valued using a third-party pricing system. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Short-term debt securities held by the Portfolios are valued at amortized cost. When market quotations for options and futures contracts and non-exchange traded foreign securities held by a Portfolio are readily available, those securities will be valued based upon such quotations. Market quotations generally will not be available for options traded in the OTC market. Warrants and rights to purchase securities are valued at market value. When market quotations are not readily available, securities, options, futures contracts and other assets are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Board of Directors.

Foreign currency exchange rates are generally determined prior to the close of trading of the regular session of the NYSE. Occasionally events affecting the value of foreign investments and such exchange rates occur between the time at which they are determined and the close of the regular session of trading on the NYSE, which events will not be reflected in a computation of a Portfolio’s NAV on that day. If events materially affecting the value of such investments or currency exchange rates occur during such time period, investments will be valued at their fair value as determined in good faith by or under the direction of the Board of Directors. The foreign currency exchange transactions of a Portfolio conducted on a spot (that is, cash) basis are valued at the spot rate for purchasing or selling currency prevailing on the foreign exchange market. This rate under normal market conditions differs from the prevailing exchange rate in an amount generally less than one-tenth of one percent due to the costs of converting from one currency to another.

When a Portfolio writes a call or a put option, an amount equal to the premium received is included in that Portfolio’s Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is marked-to-market to reflect the current market value of the option. If an option a Portfolio wrote is exercised, the proceeds received on the sale of the related investment are increased by the amount of the premium that the Portfolio received. If an option written by a Portfolio expires, it has a gain in the amount of the premium; if it enters into a closing transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction.

Optional delivery standby commitments are valued at fair value under the general supervision and responsibility of the Fund’s Board of Directors. They are accounted for in the same manner as exchange-listed puts.

TAXATION OF THE FUND

General

Shares of the Portfolios are offered only to insurance company separate accounts that fund Policies. See the applicable Policy prospectus for a discussion of the special taxation of insurance companies with respect to such accounts and of the Policyholders.

Each Portfolio is treated as a separate corporation for Federal income tax purposes. Each Portfolio has qualified, since inception, for treatment as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (Code), so that it is relieved of Federal income tax on that part of its investment company taxable income (consisting generally of net taxable investment income, net short-term capital gain and, for each Portfolio other than Money Market Portfolio and Limited-Term Bond Portfolio, net gains from certain foreign currency transactions) that it distributes to its shareholders. To continue to qualify for treatment as a RIC, a Portfolio must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (Distribution Requirement), and must meet several additional requirements. With respect to each Portfolio, these requirements include the following: (1) the Portfolio must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of securities or foreign currencies or other income (including gains from options, futures contracts or forward contracts) derived with respect to its business of investing in securities or those currencies (Income Requirement); (2) at the close of each quarter of the Portfolio’s taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities that are limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund’s total assets and that does not represent more than 10% of the issuer’s outstanding voting securities (50% Diversification Requirement); and (3) at the close of each quarter of the Portfolio’s taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or the securities of other RICs) of any one issuer.

Each Portfolio intends to comply with the diversification requirements imposed by section 817(h) of the Code and the regulations thereunder. These requirements, which are in addition to the diversification requirements imposed on the Portfolios by the 1940 Act and Subchapter M of the Code, place certain limitations on the assets of each separate account — and, because section 817(h) and those regulations treat the assets of each Portfolio as assets of the related separate account, of each Portfolio — that may be invested in securities of a single issuer. Specifically, the regulations provide that, except as permitted by the safe harbor described below, as of the end of each calendar quarter or within 30 days thereafter, no more than 55% of a Portfolio’s total assets may be represented by any one investment, no more than 70% by any two investments,

no more than 80% by any three investments and no more than 90% by any four investments. For this purpose, all securities of the same issuer are considered a single investment, and while each U.S. Government agency and instrumentality is considered a separate issuer, a particular foreign government and its agencies, instrumentalities and political subdivisions all will be considered the same issuer. Section 817(h) provides, as a safe harbor, that a separate account will be treated as being adequately diversified if the diversification requirements under Subchapter M are satisfied and no more than 55% of the value of the account’s total assets are cash and cash items, government securities and securities of other RICs. Failure of a Portfolio to satisfy the section 817(h) requirements would result in taxation of the Participating Insurance Companies and treatment of the Policyowners other than as described in the prospectuses for the Policies. If any Portfolio failed to qualify for treatment as a regulated investment company for any taxable year, (1) it would be taxed at corporate rates on the full amount of its taxable income for that year without being able to deduct the distributions it makes to its shareholders, (2) the shareholders would treat all those distributions, including distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), as dividends (that is, ordinary income) to the extent of the Portfolio’s earnings and profits, and (3) most importantly, each insurance company separate account invested therein would fail to satisfy the diversification requirements of Code section 817(h), with the result that the variable annuity contracts supported by that account would no longer be eligible for tax deferral. In addition, the Portfolio could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for regulated investment company treatment.

Dividends and distributions declared by a Portfolio in December of any year and payable to its shareholders of record on a date in that month are deemed to have been paid by the Portfolio and received by the shareholders on December 31 of that year even if they are paid by the Portfolio during the following January. Accordingly, those dividends and distributions will be taxed to the shareholders for the year in which that December 31 falls.

Each Portfolio will be subject to a nondeductible 4% excise tax (Excise Tax) to the extent it fails to distribute, by the end of any calendar year, substantially all of its ordinary income for that year and capital gains net income for the one-year period ending on October 31 of that year, plus certain other amounts. For these purposes, a Portfolio may defer into the next calendar year net capital losses incurred between November 1 and the end of the current calendar year. It is the Portfolio’s policy to pay sufficient dividends and distributions each year to avoid imposition of the Excise Tax.

Income from Foreign Securities

Dividends and interest received, and gains realized, by a Portfolio (other than the Limited-Term Bond Portfolio) may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (foreign taxes) that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United States may reduce or eliminate foreign taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.

Each Portfolio (other than Money Market Portfolio and Limited-Term Bond Portfolio) may invest in the stock of passive foreign investment companies (PFICs). A PFIC is any foreign corporation that (with certain exceptions), in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a Portfolio will be subject to Federal income tax on a portion of any excess distribution received on the stock of a PFIC or of any gain on disposition of the stock (collectively PFIC income), plus interest thereon, even if the Portfolio distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Portfolio’s investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.

If a Portfolio invests in a PFIC and elects to treat the PFIC as a qualified electing fund (QEF), then in lieu of the foregoing tax and interest obligation, the Portfolio will be required to include in income each year its pro rata share of the QEF’s annual ordinary earnings and net capital gain — which probably would have to be distributed by the Portfolio to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax — even if those earnings and gain were not distributed to the Portfolio by the QEF. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof.

The Portfolio may elect to mark to market its stock in any PFIC. Marking-to-market, in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC’s stock over the Portfolio’s adjusted basis therein as of the end of that year. Pursuant to the election, the Portfolio also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included by the Portfolio for prior taxable years under the election (and under regulations proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). The Portfolio’s adjusted basis in each PFIC’s stock with respect to which it makes this election will be adjusted to reflect the amounts of income included and deductions taken under the election.

Foreign Currency Gains and Losses

Gains or losses (1) from the disposition of foreign currencies, including forward currency contracts, (2) on the disposition of each debt security denominated in a foreign currency that are attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition, and (3) that are attributable to fluctuations in exchange rates that occur between the time a Portfolio accrues interest, dividends or other receivables, or expenses or other liabilities, denominated in a foreign currency and the time the Portfolio actually collects the receivables or pays the liabilities, generally are treated as ordinary income or loss. These gains or losses, referred to under the Code as section 988 gains or losses, may increase or decrease the amount of a Portfolio’s investment company taxable income to be distributed to its

shareholders as ordinary income, rather than affecting the amount of its net capital gain.

Income from Options, Futures and Forward Currency Contracts and Foreign Currencies

The use of hedging and option income strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a Portfolio realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options, futures contracts and forward currency contracts derived by a Portfolio with respect to its business of investing in securities or foreign currencies, will qualify as permissible income under the Income Requirement.

Any income a Portfolio earns from writing options is treated as short-term capital gains. If a Portfolio enters into a closing purchase transaction, it will have a short-term capital gain or loss based on the difference between the premium it received for the option it wrote and the premium it pays for the option it buys. If an option written by a Portfolio lapses without being exercised, the premium it receives also will be a short-term capital gain. If such an option is exercised and the Portfolio thus sells the securities subject to the option, the premium the Portfolio receives will be added to the exercise price to determine the gain or loss on the sale.

Certain options, futures contracts and forward currency contracts in which a Portfolio may invest may be section 1256 contracts. Section 1256 contracts held by a Portfolio at the end of its taxable year, other than contracts subject to a mixed straddle election made by the Portfolio, are marked-to-market (that is, treated as sold at that time for their fair market value) for Federal income tax purposes, with the result that unrealized gains or losses are treated as though they were realized. Sixty percent of any net gains or losses recognized on these deemed sales, and 60% of any net realized gains or losses from any actual sales of section 1256 contracts, are treated as long-term capital gains or losses, and the balance is treated as short-term capital gains or losses. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax and other purposes. A Portfolio may need to distribute any mark-to-market gains to its shareholders to satisfy the Distribution Requirement and/or avoid imposition of the Excise Tax, even though it may not have closed the transactions and received cash to pay the distributions.

Code section 1092 (dealing with straddles) may also affect the taxation of options and futures contracts in which a Portfolio may invest. That section defines a straddle as offsetting positions with respect to personal property; for these purposes, options, futures contracts and forward currency contracts are personal property. Section 1092 generally provides that any loss from the disposition of a position in a straddle may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle. In addition, these rules may postpone the recognition of loss that would otherwise be recognized under the mark-to-market rules discussed above. The regulations under section 1092 also provide certain wash sale rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and short sale rules applicable to straddles. If a Portfolio makes certain elections, the amount, character and timing of the recognition of gains and losses from the affected straddle positions will be determined under rules that vary according to the elections made. Because only a few of the regulations implementing the straddle rules have been promulgated, the tax consequences of straddle transactions to a Portfolio are not entirely clear.

If a Portfolio has an appreciated financial position — generally, an interest (including an interest through an option, futures or forward currency contract or short sale) with respect to any stock, debt instrument (other than straight debt) or partnership interest the fair market value of which exceeds its adjusted basis — and enters into a constructive sale of the position, the Portfolio will be treated as having made an actual sale thereof, with the result that gain will be recognized at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or futures or forward currency contract entered into by a Portfolio or a related person with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and a Portfolio holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is a Portfolio’s risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale, or granting an option to buy substantially identical stock or securities).

Zero Coupon and Payment-in-Kind Securities

A Portfolio may acquire zero coupon or other securities issued with OID. As the holder of those securities, a Portfolio must include in its income the OID that accrues on the securities during the taxable year, even if the Portfolio receives no corresponding payment on the securities during the year. Similarly, the Portfolio must include in its gross income securities it receives as interest on payment-in-kind securities. Because each Portfolio annually must distribute substantially all of its investment company taxable income, including any accrued OID and other non-cash income, in order to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax, a Portfolio may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from a Portfolio’s cash assets or from the proceeds of sales of portfolio securities, if necessary. A Portfolio may realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gain.

PERFORMANCE INFORMATION

From time to time, advertisements and sales materials for one or more of the Portfolios may include total return information, yield information and/or performance rankings. Performance data will be accompanied by or used in calculating performance data for the respective separate

accounts that invest in the Portfolio.

Total Return

The following relates to each Portfolio other than Money Market Portfolio. Total return is the overall change in the value of an investment over a given period of time. An average annual total return quotation is computed by finding the average annual compounded rates of return over the one-, five-, and ten-year periods that would equate the initial amount invested to the ending redeemable value. Total return is calculated by assuming an initial $1,000 investment. No sales charge is required to be paid by the Participating Insurance Companies for purchase of shares. All dividends and distributions are assumed to be paid in shares at their at net asset value (NAV) as of the day the dividend or distribution is paid. The formula used to calculate the total return is:

P(1 + T){superscript n} = ERV

Where : P =	$1,000 initial payment
T =	Average annual total return
n =	Number of years
ERV =	Ending redeemable value of the $1,000 investment for the periods shown.

The average annual total return quotations as of December 31, 2002, which is the most recent balance sheet included in this SAI, for the periods shown were as follows:

	One-year period			Five-year period			Ten-year period
	from 1-1-02 to			from 1-1-98 to			from 1-1-93 to
	12-31-02			12-31-02			12-31-02
Asset Strategy Portfolio		3.28	%		9.03	%		8.69	%*
Balanced Portfolio		-8.41	%		2.01	%		7.02	%**
Bond Portfolio		8.98	%		6.36	%		7.01	%
Core Equity Portfolio		-21.63	%		-0.13	%		8.64	%
(formerly, Income Portfolio)
Growth Portfolio		-21.30	%		3.18	%		9.95	%
High Income Portfolio		-2.02	%		0.52	%		5.97	%
International Portfolio		-18.15	%		1.50	%		5.24	%**
Limited-Term Bond Portfolio		5.43	%		6.32	%		6.50	%**
Science and Technology Portfolio		-23.99	%		16.19	%		16.98	%***
Small Cap Portfolio		-21.79	%		2.56	%		11.61	%**
Value Portfolio		-12.70	%		-6.70	%****

*Period from May 1, 1995, commencement of operations, to December 31, 2002.

**Period from May 3, 1994, commencement of operations, to December 31, 2002.

***Period from April 4, 1997, commencement of operations, to December 31, 2002.

****Period from May 1, 2001, commencement of operations, to December 31, 2002

Unaveraged or cumulative total return may also be quoted. Such total return data reflects the change in value of an investment over a stated period of time. Cumulative total returns will be calculated according to the formula indicated above but without averaging the rate for the number of years in the period. The Fund may also provide non-standardized performance information.

Yield

The following relates to Bond Portfolio, High Income Portfolio and Limited-Term Bond Portfolio. A yield quoted for a Portfolio is computed by dividing the net investment income per share earned during the period for which the yield is shown by the maximum offering price per share on the last day of that period according to the following formula:

	Yield = 2((((a-b)/cd)+1) -1){superscript 6}
Where: a =	dividends and interest earned during the period.
b =	expenses accrued for the period (net of reimbursements).
c =	the average daily number of shares outstanding during the period that were entitled to receive dividends.
d =	the maximum offering price per share on the last day of the period.

The yield computed according to the formula for the 30-day period ended on December 31, 2002, the date of the most recent balance sheet included in this SAI, is as follows:

Bond Portfolio	4.09	%
High Income Portfolio	10.02	%
Limited-Term Bond Portfolio	2.66	%

The following relates to Money Market Portfolio. There are two methods by which Money Market Portfolio’s yield for a specified time is calculated. The first method, which results in an amount referred to as the current yield, assumes an account containing exactly one share at the beginning of the period. The NAV of this share will be $1.00 except under extraordinary circumstances. The net change in the value of the account during the period is then determined by subtracting this beginning value from the value of the account at the end of the period which will include all dividends accrued; however, capital changes are excluded from the calculation, i.e., realized gains and losses from the sale of securities and unrealized appreciation and depreciation. However, so that the change will not reflect the capital changes to be excluded, the dividends used in the yield computation may not be the same as the dividends actually declared, as certain realized gains and losses and, under unusual circumstances, unrealized gains and losses (see Purchases and Redemptions), will be taken into account in the calculation of dividends actually declared. Instead, the dividends used in the yield calculation will be those which would have been declared if the capital changes had not affected the dividends.

This net change in the account value is then divided by the value of the account at the beginning of the period (i.e., normally $1.00 as discussed above) and the resulting figure (referred to as the base period return) is then annualized by multiplying it by 365 and dividing it by the number of days in the period with the resulting current yield figure carried to at least the nearest hundredth of one percent.

The second method results in a figure referred to as the effective yield. This represents an annualization of the current yield with dividends reinvested daily. Effective yield is calculated by compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result and rounding the result to the nearest hundredth of one percent according to the following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)]{superscript 365/7} -1

The Money Market Portfolio’s current yield as calculated above for the seven days ended December 31, 2002, the date of the most recent balance sheet included in this SAI, was 0.77% and its effective yield calculated for the same period was 0.77%.

Performance Rankings and Other Information

The following relates to each of the Portfolios. From time to time, advertisements and information furnished to present or prospective Policyholders may include performance rankings as published by recognized independent mutual fund statistical services such as Lipper Analytical Services, Inc., or by publications of general interest such as The Wall Street Journal, Business Week, Barron’s, Fortune, Morningstar, etc. A Portfolio’s performance may also be compared to that of other selected mutual funds or recognized market indicators including the Standard & Poor’s 500 Composite Stock Price Index and the Dow Jones Industrial Average. Performance information may be quoted numerically or presented in a table, graph or other illustration. In connection with a ranking, the Fund may provide additional information, such as the particular category to which it related, the number of funds in the category, the criteria upon which the ranking is based, and the effect of sales charges, fee waivers and/or expense reimbursements.

Performance information for a Portfolio may be accompanied by information about market conditions and other factors that affected the Portfolio’s performance for the period(s) shown.

Change in yields primarily reflect different interest rates received by a Portfolio as its portfolio securities change. Yield is also affected by portfolio quality, portfolio maturity, type of securities held and operating expense ratio.

All performance information included in advertisements or sales material is historical in nature and is not intended to represent or guarantee future results. The value of a Portfolio’s shares when redeemed may be more or less than their original cost.

FINANCIAL STATEMENTS

The Financial Statements, including notes thereto, for the fiscal year ended December 31, 2002 are incorporated herein by reference. They are contained in the Portfolios’ Annual Report to Shareholders, dated December 31, 2002, which is available upon request.

APPENDIX A

The following are descriptions of some of the ratings of securities which the Fund may use. The Fund may also use ratings provided by other nationally recognized statistical rating organizations in determining the eligibility of securities for the Portfolios.

DESCRIPTION OF BOND RATINGS

Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P corporate or municipal bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment of creditworthiness may take into consideration obligors such as guarantors, insurers or lessees.

The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.

The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform any audit in connection with any ratings and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

The ratings are based, in varying degrees, on the following considerations:

1.     Likelihood of default — capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation;

2.     Nature of and provisions of the obligation;

3.     Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

A brief description of the applicable S&P rating symbols and their meanings follow:

AAA — Debt rated AAA has the highest rating assigned by Standard & Poor’s. Capacity to pay interest and repay principal is extremely strong.

AA — Debt rated AA also qualifies as high-quality debt. Capacity to pay interest and repay principal is very strong, and debt rated AA differs from AAA issues only in a small degree.

A — Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

BBB — Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.

BB, B, CCC, CC, C — Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.

BB — Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.

B — Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.

CCC — Debt rated CCC has a currently indefinable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.

CC — The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.

C — The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.

CI — The rating CI is reserved for income bonds on which no interest is being paid.

D — Debt rated D is in payment default. It is used when interest payments or principal payments are not made on a due date even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace periods. The D rating will also

be used upon a filing of a bankruptcy petition if debt service payments are jeopardized.

Plus (+) or Minus (-) — To provide more detailed indications of credit quality, the ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

NR — Indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

Debt Obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories (AAA, AA, A, BBB, commonly known as Investment Grade ratings) are generally regarded as eligible for bank investment. In addition, the Legal Investment Laws of various states governing legal investments may impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies and fiduciaries generally.

Moody’s. A brief description of the applicable Moody’s rating symbols and their meanings follows:

Aaa — Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edge. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

Aa — Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.

A — Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.

Baa — Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Some bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

NOTE: Bonds within the above categories which possess the strongest investment attributes are designated by the symbol 1 following the rating.

Ba — Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during good and bad times over the future. Uncertainty of position characterizes bonds in this class.

B — Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa — Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca — Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

C — Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Description of preferred stock ratings

Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the debt rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer.

The preferred stock ratings are based on the following considerations:

1.     Likelihood of payment — capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation;

2.     Nature of, and provisions of, the issue;

3.     Relative position of the issue in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

AAA — This is the highest rating that may be assigned by S&P to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations.

AA — A preferred stock issue rated AA also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.

A — An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

BBB — An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the ‘A’ category.

BB, B, CCC — Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to the issuer’s capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and CCC the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

CC — The rating CC is reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying.

C — A preferred stock rated C is a non-paying issue.

D — A preferred stock rated D is a non-paying issue with the issuer in default on debt instruments.

NR — This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

Plus (+) or minus (-) — To provide more detailed indications of preferred stock quality, the rating from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

A preferred stock rating is not a recommendation to purchase, sell, or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

Moody’s. Note: Moody’s applies numerical modifiers 1, 2 and 3 in each rating classification; the modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

Preferred stock rating symbols and their definitions are as follows:

aaa — An issue which is rated aaa is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks.

aa — An issue which is rated aa is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well-maintained in the foreseeable future.

a — An issue which is rated a is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the aaa and aa classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels.

baa — An issue which is rated baa is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time.

ba — An issue which is rated ba is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class.

b — An issue which is rated b generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small.

caa — An issue which is rated caa is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments.

ca — An issue which is rated ca is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments.

c — This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to indicate the relative degree of safety. Issues assigned an A rating (the highest rating) are regarded as having the greatest capacity for timely payment. An A-1 designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. An A-2 rating indicates that capacity for timely payment is satisfactory; however, the relative degree of safety is not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment; however, they are more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. A C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default, which occurs when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period.

Moody’s commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody’s employs the designations of Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers. Issuers rated Prime 1 have a superior capacity for repayment of short-term promissory obligations and repayment capacity will normally be evidenced by (1) leading market positions in well established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protection; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime 2 also have a strong capacity for repayment of short-term promissory obligations as will normally be evidenced by many of the characteristics described above for Prime 1 issuers, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation; capitalization characteristics, while still appropriate, may be more affected by external conditions; and ample alternate liquidity is maintained. Issuers rated Prime 3 have an acceptable capacity for repayment of short-term promissory obligations, as will normally be evidenced by many of the characteristics above for Prime 1 issuers, but to a lesser degree. The effect of industry characteristics and market composition may be more pronounced; variability in earnings and profitability may result in changes in the level of debt protection measurements and requirement for relatively high financial leverage; and adequate alternate liquidity is maintained.

DESCRIPTION OF NOTE RATINGS

Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P note rating reflects the liquidity factors and market access risks unique to notes. Notes maturing in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment.

—Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue is to be treated as a note).

—Source of Payment (the more the issue depends on the market for its refinancing, the more likely it is to be treated as a note.)

The note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.

SP-3 Speculative capacity to pay principal and interest.

Moody’s. Moody’s Short-Term Loan Ratings – Moody’s ratings for state and municipal short-term obligations will be designated Moody’s Investment Grade (MIG). This distinction is in recognition of the differences between short-term credit risk and long-term risk. Factors affecting the liquidity of the borrower are uppermost in importance in short-term borrowing, while various factors of major importance in bond risk are of lesser importance over the short run. Rating symbols and their meanings follow:

MIG 1 — This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.

MIG 2 — This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.

MIG 3 — This designation denotes favorable quality. All security elements are accounted for but this is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.

MIG 4 — This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.

Fitch Ratings -National Short-term Credit Ratings

F1-Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Under Fitch Ratings’ national rating scale, this rating is assigned to the best credit risk relative to all others in the same country and is normally assigned to all financial commitments issued or guaranteed by the government. Where the credit risk is particularly strong, a + is added to the assigned rating.

F2-Indicates a satisfactory capacity for timely payment of financial commitments relative other issuers in the same country. However, the margin of safety is not as great as in the case of the higher ratings.

F3-Indicates an adequate capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, such capacity is more susceptible to near-term adverse changes than for financial commitments in higher rated categories.

B-Indicates an uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Such capacity is highly susceptible to near-term adverse changes in financial and economic conditions.

C-Indicates a highly uncertain capacity for timely payment of financial commitments relative to other issues in the same country. Capacity or meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.

D-Indicates actual or imminent payment default.

Notes to Short-term national rating:

+ or - may be appended to a national rating to denote relative status within a major rating category. Such suffixes are not added to Short-term national ratings other than F1.

Ratings Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as Positive, indicating a potential upgrade, Negative, for a potential downgrade, or Evolving, if ratings may be raised, lowered or maintained. Rating Watch is typically resolved over a relatively short period.

EX-99.17(E) 10 c77852exv99w17xey.htm EX-(17)(E) PREMLIMINARY PROSPECTUS FOR W&R INT'L.

EXHIBIT 17(e)

STATEMENT OF ADDITIONAL INFORMATION

     This Statement of Additional Information (SAI) is not a prospectus. Investors should read this SAI in conjunction with the prospectus (Prospectus) for International II Portfolio, Micro Cap Growth Portfolio and Small Company Value Portfolio (each, a Portfolio) of W&R Target Funds, Inc. (Fund) dated      , 2003, which may be obtained by request to the Fund or Waddell & Reed, Inc. at the address or telephone number shown above.

TABLE OF CONTENTS

Performance Information

Investment Strategies, Policies and Practices

Investment Management and Other Services

Net Asset Value

Directors and Officers

Purchases and Redemptions

Shareholder Communications

Taxes

Dividends and Distributions

Portfolio Transactions and Brokerage

Other Information

Appendix A

THE FUND AND ITS HISTORY

     W&R Target Funds, Inc. (Fund) was organized as a Maryland corporation on December 2, 1986. Prior to August 31, 1998, the Fund was known as TMK/United Funds, Inc.; prior to October 16, 2000, it was known as Target/United Funds, Inc. Each of the Portfolios, a series of the Fund, is a mutual fund, an investment that pools shareholders’ money and invests it toward a specified goal. In technical terms, each Portfolio is an open-end, diversified management company. The Fund sells its shares only to the separate accounts of Participating Insurance Companies to fund certain variable life insurance policies and variable annuity contracts (Policies).

PERFORMANCE INFORMATION

     From time to time, advertisements and sales materials for one or more of the Portfolios may include total return information and/or performance rankings. Performance data will be accompanied by or used in calculating performance data for the respective separate accounts that invest in the Portfolio.

Total Return

     The following relates to each Portfolio. Total return is the overall change in the value of an investment over a given period of time. An average annual total return quotation is computed by finding the average annual compounded rates of return over the one-, five-, and ten-year periods that would equate the initial amount invested to the ending redeemable value. Total return is calculated by assuming an initial $1,000 investment. No sales charge is required to be paid by the Participating Insurance Companies for purchase of shares. All dividends and distributions are assumed to be paid in shares at their net asset value (NAV) as of the day the dividend or distribution is paid. The formula used to calculate the total return is:

P(1 + T)n  =	ERV
Where : P =	$1,000 initial payment
T =	Average annual total return
n =	Number of years
ERV =	Ending redeemable value of the $1,000 investment for the periods shown.

     None of the Portfolios has been in operation prior to the date of this SAI; therefore, no average annual total return information is provided.

     Unaveraged or cumulative total return may also be quoted. Such total return data reflects the change in value of an investment over a

stated period of time. Cumulative total returns will be calculated according to the formula indicated above but without averaging the rate for the number of years in the period. The Fund may also provide non-standardized performance information.

Performance Rankings and Other Information

     From time to time, advertisements and information furnished to present or prospective Policyholders may include a Portfolio’s performance rankings as published by recognized independent mutual fund statistical services such as Lipper Analytical Services, Inc., or by publications of general interest such as The Wall Street Journal, Business Week, Barron’s, Fortune, Morningstar, etc. A Portfolio’s performance may also be compared to that of other selected mutual funds or recognized market indicators including the Standard & Poor’s 500 Composite Stock Price Index and the Dow Jones Industrial Average. Performance information may be quoted numerically or presented in a table, graph or other illustration. In connection with a ranking, the Fund may provide additional information, such as the particular category to which it related, the number of funds in the category, the criteria upon which the ranking is based, and the effect of sales charges, fee waivers and/or expense reimbursements.

     Performance information for a Portfolio may be accompanied by information about market conditions and other factors that affected the Portfolio’s performance for the period(s) shown.

     All performance information included in advertisements or sales material is historical in nature and is not intended to represent or guarantee future results. The value of a Portfolio’s shares when redeemed may be more or less than their original cost.

INVESTMENT STRATEGIES, POLICIES AND PRACTICES

     This SAI supplements the information contained in the Portfolios’ Prospectus and contains more detailed information about the investment strategies and policies the investment manager, Waddell & Reed Investment Management Company (WRIMCO), or a Portfolio’s investment sub-advisor (Sub-Advisor), may employ, and the types of instruments in which a Portfolio may invest, in pursuit of the Portfolio’s goal. A summary of the risks associated with these instrument types and investment practices is included as well.

     A Portfolio’s Sub-Advisor might not buy all of these instruments or use all of these techniques, or use them to the full extent permitted by the Portfolio’s investment policies and restrictions. A Sub-Advisor buys an instrument or uses a technique only if it believes that doing so will help the Portfolio achieve its goal. See Investment Restrictions and Limitations for a listing of the fundamental and non-fundamental, or operating, investment restrictions and policies of the Portfolios.

Securities - General

     The main types of securities in which the Portfolios may invest include common stock, preferred stock, debt securities and convertible securities. Although common stocks and other equity securities have a history of long-term growth in value, their prices tend to fluctuate in the short term, particularly those of smaller companies. The equity securities in which a Portfolio invests may include preferred stock that converts into common stock. Each Portfolio may invest in preferred stock rated in any rating category of the established rating services or, if unrated, judged by its Sub-Advisor to be of equivalent quality. Debt securities have varying levels of sensitivity to changes in interest rates and varying degrees of quality. As a general matter, however, when interest rates rise, the values of fixed-rate securities fall and, conversely, when interest rates fall, the values of fixed-rate debt securities rise. Similarly, long-term bonds are generally more sensitive to interest rate changes than short-term bonds.

     Lower quality debt securities, or junk bonds, are considered to be speculative and involve greater risk of default or price changes due to changes in the issuer’s creditworthiness. The market prices of these securities may fluctuate more than high-quality securities and may decline significantly in periods of general economic difficulty. The market for lower-rated debt securities may be thinner and less active than that for higher-rated debt securities, which can adversely affect the prices at which the former are sold. Adverse publicity and changing investor perceptions may decrease the values and liquidity of lower-rated debt securities, especially in a thinly traded market. Valuation becomes more difficult and judgment plays a greater role in valuing lower-rated debt securities than with respect to securities for which more external sources of quotations and last sale information are available. Since the risk of default is higher for lower-rated debt securities, the Sub-Advisor’s research and credit analysis are an especially important part of managing securities of this type held by the Portfolio. The Sub-Advisor continuously monitors the issuers of lower-rated debt securities in the Portfolio in an attempt to determine if the issuers will have sufficient cash flow and profits to meet required principal and interest payments. The Fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the best interest of the shareholders of the affected Portfolio(s).

     Subject to its investment restrictions, a Portfolio may invest in debt securities rated in any rating category of the established rating services, including securities rated in the lowest category (securities rated D by Standard & Poor’s (S&P) and D by Moody’s Corporation (Moody’s)). Debt securities rated D by S&P or D by Moody’s are in payment default or are regarded as having extremely poor prospects of ever attaining any real investment standing. Debt securities rated at least BBB by S&P or Baa by Moody’s are considered to be investment grade debt securities; however, securities rated BBB or Baa may have speculative characteristics. However, International II Portfolio invests, for the most part, in investment-grade debt securities. As an operating policy, International II Portfolio will not invest more than 5% of its net assets in securities (including convertible securities) valid at least BBB by S&P or Baa by Moody’s and may not invest in securities below those ratings. Each Portfolio will treat unrated securities judged by its Sub-Advisor to be of equivalent quality to a rated security as having that rating.

     While credit ratings are only one factor a Sub-Advisor relies on in evaluating high-yield debt securities, certain risks are associated with credit ratings. Credit ratings evaluate the safety of principal and interest payments, not market value risk. Credit ratings for individual securities may change from time to time, and a Portfolio may retain the Portfolio security whose rating has been changed.

     Micro Cap Growth Portfolio and Small Company Value Portfolio may purchase debt securities whose principal amount at maturity is dependent upon the performance of a specified equity security. The issuer of such debt securities, typically an investment banking firm, is unaffiliated with the issuer of the equity security to whose performance the debt security is linked. Equity-linked debt securities differ from ordinary debt securities in that the principal amount received at maturity is not fixed, but is based on the price of the linked equity security at the time the debt security matures. The performance of equity-linked debt securities depends primarily on the performance of the linked equity security and may also be influenced by interest rate changes. In addition, although the debt securities are typically adjusted for diluting events such as stock splits, stock dividends and certain other events affecting the market value of the linked equity security, the debt securities are not adjusted for subsequent issuances of the linked equity security for cash. Such an issuance could adversely affect the price of the debt security. In addition to the equity risk relating to the linked equity security, such debt securities are also subject to credit risk with regard to the issuer of the debt security. In general, however, such debt securities are less volatile than the equity securities to which they are linked.

     The Portfolios may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. Convertible securities generally have higher yields than common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities, are less subject to fluctuation in value than the underlying stock because they have fixed income characteristics, and provide the potential for capital appreciation if the market price of the underlying common stock increases.

     The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value.

     The Portfolios may also invest in a type of convertible preferred stock that pays a cumulative, fixed dividend that is senior to, and expected to be in excess of, the dividends paid on the common stock of the issuer. At the mandatory conversion date, the preferred stock is converted into not more than one share of the issuer’s common stock at the call price that was established at the time the preferred stock was issued. If the price per share of the related common stock on the mandatory conversion date is less than the call price, the holder of the preferred stock will nonetheless receive only one share of common stock for each share of preferred stock (plus cash in the amount of any accrued but unpaid dividends). At any time prior to the mandatory conversion date, the issuer may redeem the preferred stock upon issuing to the holder a number of shares of common stock equal to the call price of the preferred stock in effect on the date of redemption divided by the market value of the common stock, with such market value typically determined one or two trading days prior to the date notice of redemption is given. The issuer must also pay the holder of the preferred stock cash in an amount equal to any accrued but unpaid dividends on the preferred stock. This convertible preferred stock is subject to the same market risk as the common stock of the issuer, except to the extent that such risk is mitigated by the higher dividend paid on the preferred stock. The opportunity for equity appreciation afforded by an investment in such convertible preferred stock, however, is limited, because in the event the market value of the issuer’s common stock increases to or above the call price of the preferred stock, the issuer may (and would be expected to) call the preferred stock for redemption at the call price. This convertible preferred stock is also subject to credit risk with regard to the ability of the issuer to pay the dividend established upon issuance of the preferred stock. Generally, convertible preferred stock is less volatile than the related common stock of the issuer.

Specific Securities and Investment Practices

Bank Deposits

     Among the other debt securities in which the Portfolios may invest are deposits in banks (represented by certificates of deposit or other evidence of deposit issued by such banks) of varying maturities. The Federal Deposit Insurance Corporation insures the principal of certain such deposits, currently to the extent of $100,000 per bank. Bank deposits are not marketable, and a Portfolio may invest in them only within the 15% limit mentioned below under Investment Restrictions and Limitations regarding illiquid securities unless such obligations are payable at principal amount plus accrued interest on demand or within seven days after demand.

Borrowing

     Each Portfolio may borrow money only for temporary, emergency or extraordinary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of the value of its total assets less liabilities (other than borrowings). See Investment Restrictions and Limitations.

Foreign Securities and Currencies

     Micro Cap Growth Portfolio and Small Company Value Portfolio may each invest up to 10% of its total assets in the securities of foreign issuers, including depository receipts. International II Portfolio may invest in the securities of foreign issuers, including depository receipts, without limitation. See Investment Restrictions and Limitations.

     In general, depository receipts are securities convertible into and evidencing ownership of securities of foreign corporate issuers, although depository receipts may not necessarily be denominated in the same currency as the securities into which they may be converted. American Depository Receipts (ADRs), in registered form, are dollar-denominated receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. International depository receipts and European depository receipts, in bearer form, are foreign receipts evidencing a similar arrangement and are designed for use by non-U.S. investors and traders in non-U.S. markets. Global depository receipts are more recently developed receipts designed to facilitate the trading of foreign issuers by U.S. and non-U.S. investors and traders.

     The Sub-Advisors believe that there are investment opportunities as well as risks in investing in foreign securities. Individual foreign economies may differ favorably or unfavorably from the U.S. economy or each other in such matters as gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Individual foreign companies may also differ favorably or unfavorably from domestic companies in the same industry. Foreign currencies may be stronger or weaker than the U.S. dollar or than each other. Thus, the value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. The Sub-Advisors each believe that a Portfolio’s ability to invest assets abroad might enable it to take advantage of these differences and strengths where they are favorable.

     However, foreign securities and foreign currencies involve additional significant risks, apart from the risks inherent in U.S. investments. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer’s financial conditions and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions and custodial costs, are generally higher than for U.S. investments.

     Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers and securities markets may be subject to less government supervision. Foreign security trading practices, including those involving the release of assets in advance of payment, may involve increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It may also be difficult to enforce legal rights in foreign countries.

     Investing abroad also involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There may be greater possibility of default by foreign governments or government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic, or social instability, military action or unrest, or adverse diplomatic developments. These considerations generally are intensified with respect to developing market countries (as described below). There is no assurance that a Sub-Advisor will be able to anticipate these potential events or counter their effects.

     In particular, International II Portfolio may invest in securities issued by governments, governmental agencies and companies located in developing market countries. International II Portfolio’s Sub-Advisor considers countries having developing markets to be all countries that are generally considered to be developing or emerging countries by the International Bank for Reconstruction and Development (more commonly referred to as the World Bank) and the International Finance Corporation, as well as countries that are classified by the United Nations or otherwise regarded by their authorities as developing. Currently, the countries not included in this category are Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United States, Sweden, Finland, Norway, Japan and Switzerland. In addition, developing market securities means (i) securities of companies the principal securities trading market for which is a developing market country, as defined above, (ii) securities, traded in any market, of companies that derive 50% or more of their total revenue from either goods or services produced in such developing market countries or sales made in such developing market countries or (iii) securities of companies organized under the laws of, and with a principal office in, a developing market country. International II Portfolio will at all times, except during temporary defensive periods, maintain investments in at least three countries having developing markets.

     Certain foreign securities impose restrictions on transfer within the United States or to U.S. persons. Although securities subject to transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions.

     Investments in obligations of domestic branches of foreign banks will not be considered to be foreign securities if WRIMCO has determined that the nature and extent of federal and state regulation and supervision of the branch in question is substantially equivalent to federal or state chartered domestic banks doing business in the same jurisdiction.

Illiquid Investments

     Illiquid investments are investments that cannot be sold or disposed of in the ordinary course of business within seven days at approximately the price at which they are valued. Investments currently considered to be illiquid include:

(1)	repurchase agreements not terminable within seven days;
(2)	securities for which market quotations are not readily available;
(3)	over-the-counter (OTC) options and their underlying collateral;
(4)	bank deposits, unless they are payable at principal amount plus accrued interest on demand or within seven days after demand;
(5)	restricted securities not determined to be liquid pursuant to guidelines established by or under the direction of the Fund’s Board of Directors;
(6)	non-government stripped fixed-rate mortgage-backed securities;
(7)	securities involved in swap, cap, floor and collar transactions; and
(8)	direct debt instruments.

     The assets used as cover for OTC options written by a Portfolio will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Portfolio may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option.

     If, through a change in values, net assets, or other circumstances, a Portfolio were in a position where more than 15% of its net assets were invested in illiquid securities, it would seek to take appropriate steps to protect liquidity.

Index Depositary Receipts

     Micro Cap Growth Portfolio and Small Company Value Portfolio each may invest up to 5% of its total assets in one or more types of depositary receipts (DRs) as a means of tracking the performance of a designated stock index while maintaining liquidity. Micro Cap Growth Portfolio and Small Company Value Portfolio each may invest in S&P 500 Depositary Receipts (SPDRs), which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts (MidCap SPDRs), which track the S&P MidCap 400 Index; and “Dow Industrial Diamonds,” which track the Dow Jones Industrial Average, or in other DRs which track indexes, provided that such investments are consistent with the Portfolio’s investment objective as determined by its Sub-Advisor. Each of these securities represents shares of ownership of a long-term unit investment trust (a type of investment company) that holds all of the stock included in the relevant underlying index.

     DRs carry a price that equals a specified fraction of the value of the designated index and are exchange traded. As with other equity transactions, brokers charge a commission in connection with the purchase of DRs. In addition, an asset management fee is charged in connection with the underlying unit investment trust (which is in addition to the asset management fee paid by a Portfolio).

     Trading costs for DRs are somewhat higher than those for stock index futures contracts, but, because DRs trade like other exchange-listed equities, they represent a quick and convenient method of maximizing the use of a Portfolio’s assets to track the return of a particular stock index. DRs share in the same market risks as other equity investments.

Indexed Securities

     Each Portfolio may purchase securities whose prices are indexed to the prices of other securities, securities indexes, currencies, or other financial indicators, subject to the Portfolio’s operating policy regarding derivative instruments. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or whose coupon rate is determined by reference to a specific instrument or statistic. The performance of indexed securities depends to a great extent on the performance of the security, currency or other instrument to which they are indexed and may also be influenced by interest rate changes in the United States and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security and their values may decline substantially if the issuer’s creditworthiness deteriorates. Indexed securities may be more volatile than the underlying investments.

     Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies. The Portfolio’s Sub-Advisor will use its judgment in determining whether indexed securities should be treated as short-term instruments, bonds, stocks, depending on the individual characteristics of the securities. Certain indexed securities that are not traded on an established market may be deemed illiquid.

Investment Company Securities

     Each Portfolio may purchase shares of another investment company subject to the restrictions and limitations of the 1940 Act. As a shareholder in an investment company, a Portfolio would bear its pro rata share of that investment company’s expenses, which could result in duplication of certain fees, including management and administrative fees.

     Closed-End Investment Companies. Some countries, such as South Korea, Chile and India, have authorized the formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance with the 1940 Act, International II Portfolio may invest up to 10% of its total assets in securities of closed-end investment companies. This restriction on investments in securities of closed-end investment companies may limit opportunities for International II Portfolio to invest indirectly in certain developing markets. Shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values.

Lending Securities

     Securities loans may be made on a short-term or long-term basis for the purpose of increasing a Portfolio’s income. If a Portfolio lends securities, the borrower pays the Portfolio an amount equal to the dividends or interest on the securities that the Portfolio would have received if it had not lent the securities. The Portfolio also receives additional compensation. Under the Portfolios’ current securities lending procedures, the Portfolios may lend securities only to broker-dealers and financial institutions deemed creditworthy by WRIMCO.

     Any securities loans that a Portfolio makes must be collateralized in accordance with applicable regulatory requirements (Guidelines). At the time of each of its loan, a Portfolio must receive collateral equal to no less than 100% of the market value of the securities lent. Under the present Guidelines, the collateral must consist of cash or U.S. Government securities or bank letters of credit, at least equal in value to the market value of the securities lent on each day that the loan is outstanding. If the market value of the lent securities exceeds the value of the collateral, the borrower must add more collateral so that it at least equals the market value of the securities lent. If the market value of the securities decreases, the borrower is entitled to return of the excess collateral.

     There are two methods of receiving compensation for making loans. The first is to receive a negotiated loan fee from the borrower. This method is available for all three types of collateral. The second method, which is not available when letters of credit are used as collateral, is for the Portfolio to receive interest on the investment of the cash collateral or to receive interest on the U.S. Government securities used as collateral. Part of the interest received in either case may be shared with the borrower.

     The letters of credit that a Portfolio may accept as collateral are agreements by banks (other than the borrowers of the Portfolio’s securities), entered into at the request of the borrower and for its account and risk, under which the banks are obligated to pay to the Portfolio, while the letter is in effect, amounts demanded by the Portfolio if the demand meets the terms of the letter. The Portfolio’s right to make this demand secures the borrower’s obligations to it. The terms of any such letters and the creditworthiness of the banks providing them (which might include the Portfolio’s custodian bank) must be satisfactory to WRIMCO.

     The Portfolios will make loans only under rules of the New York Stock Exchange (NYSE), which presently require the borrower to give the securities back to the Portfolio within five business days after the Portfolio gives notice to do so. If a Portfolio loses its voting rights with respect to securities on loan, it will have the securities returned to it in time to vote them if a material event affecting the investment is to be voted on. A Portfolio may pay reasonable finder’s, administrative and custodian fees in connection with loans of securities.

     Some, but not all, of these rules are necessary to meet requirements of certain laws relating to securities loans. These rules will not be changed unless the change is permitted under these requirements. These requirements do not cover the present rules, which may be changed without shareholder vote, as to: (1) whom securities may be lent; (2) the investment of cash collateral; or (3) voting rights.

     There may be risks of delay in receiving additional collateral from the borrower if the market value of the securities on loan increases, as well as risks of delay in recovering the securities on loan or even loss of rights in the collateral should the borrower fail financially.

Options, Futures and Other Strategies

     General. A Portfolio’s Sub-Advisor may use certain options, futures contracts (sometimes referred to as futures), options on futures contracts, forward currency contracts, swaps, caps, floors, collars, indexed securities and other derivative instruments (collectively, Financial Instruments) to attempt to enhance income or yield or to attempt to hedge the Portfolio’s investments. The strategies described below may be used in an attempt to manage the risks of a Portfolio’s investments that can affect fluctuation in its NAV.

     Generally, a Portfolio may purchase and sell any type of Financial Instrument. However, as an operating policy, a Portfolio will only purchase or sell a particular Financial Instrument if the Portfolio is authorized to invest in the type of asset by which the return on, or value of, the Financial Instrument is primarily measured. Since each Portfolio is authorized to invest in foreign securities, each Portfolio may purchase and sell foreign currency derivatives.

     Hedging strategies can be broadly categorized as short hedges and long hedges. A short hedge is a purchase or sale of a Financial Instrument intended partially or fully to offset potential declines in the value of one or more investments held in a Portfolio’s portfolio. Thus, in a short hedge, the Portfolio takes a position in a Financial Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged.

     Conversely, a long hedge is a purchase or sale of a Financial Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that the Portfolio intends to acquire. Thus, in a long hedge, the Portfolio takes a position in a Financial Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an anticipatory hedge transaction, the Portfolio does not own a corresponding security and, therefore, the transaction does not relate to a security the Portfolio owns. Rather, it relates to a security that the Portfolio intends to acquire. If the Portfolio does not complete the hedge by purchasing the security it anticipated purchasing, the effect on the Portfolio’s holdings is the same as if the transaction were entered into for speculative purposes.

     Financial Instruments on securities generally are used to attempt to hedge against price movements in one or more particular securities

positions that a Portfolio owns or intends to acquire. Financial Instruments on indexes, in contrast, generally are used to attempt to hedge against price movements in market sectors in which a Portfolio has invested or expects to invest. Financial Instruments on debt securities may be used to hedge either individual securities or broad debt market sectors.

     The use of Financial Instruments is subject to applicable regulations of the SEC, the several exchanges upon which they are traded and the Commodity Futures Trading Commission (CFTC). In addition, a Portfolio’s ability to use Financial Instruments is limited by tax considerations. See Taxes.

     In addition to the instruments, strategies and risks described below, the Sub-Advisors expect to discover additional opportunities in connection with Financial Instruments and other similar or related techniques. These new opportunities may become available as the particular Sub-Advisor develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new Financial Instruments or other techniques are developed. The Sub-Advisor may utilize these opportunities to the extent that they are consistent with the applicable Portfolio’s goal and permitted by that Portfolio’s investment limitations and applicable regulatory authorities. A Portfolio might not use any of these strategies, and there can be no assurance that any strategy used will succeed. The Portfolios’ Prospectus and/or SAI will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus.

     Special Risks. The use of Financial Instruments involves special considerations and risks, certain of which are described below. In general, these techniques may increase the volatility of a Portfolio and may involve a small investment of cash relative to the magnitude of the risk assumed. Risks pertaining to particular Financial Instruments are described in the sections that follow:

     (1)     Successful use of most Financial Instruments depends upon the applicable Sub-Advisor’s ability to predict movements of the overall securities, currency and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed, and use of Financial Instruments could result in a loss, regardless of whether the intent was to reduce risk or increase return.

     (2)     There might be imperfect correlation, or even no correlation, between price movements of a Financial Instrument and price movements of the investments being hedged. For example, if the value of a Financial Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculation or other pressures on the markets in which Financial Instruments are traded. The effectiveness of hedges using Financial Instruments on indexes will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged.

     Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match a Portfolio’s current or anticipated investments exactly. A Portfolio may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Portfolio’s other investments.

     Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match a Portfolio’s investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. A Portfolio may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in a Portfolio’s options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.

     (3)     If successful, the above-discussed strategies can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements. However, such strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements. For example, if a Portfolio entered into a short hedge because its Sub-Advisor projected a decline in the price of a security in the Portfolio’s holdings, and the price of that security increased instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Financial Instrument. Moreover, if the price of the Financial Instrument declined by more than the increase in the price of the security, the Portfolio could suffer a loss. In either such case, the Portfolio would have been in a better position had it not attempted to hedge at all.

     (4)     As described below, a Portfolio might be required to maintain assets as cover, maintain segregated accounts or make margin payments when it takes positions in Financial Instruments involving obligations to third parties (i.e., Financial Instruments other than purchased options). If the Portfolio were unable to close out its positions in such Financial Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair the Portfolio’s ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Portfolio sell a portfolio security at a disadvantageous time.

     (5)     A Portfolio’s ability to close out a position in a Financial Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction

(counterparty) to enter into a transaction closing out the position. Therefore, there is no assurance that any position can be closed out at a time and price that is favorable to the Portfolio.

     Cover. Transactions using Financial Instruments, other than purchased options, expose a Portfolio to an obligation to another party. Each Portfolio will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or liquid assets in an account with its custodian in the prescribed amount as determined daily. A Portfolio will not enter into any such transactions unless it owns either (1) an offsetting (covered) position in securities, currencies or other options, futures contracts or forward contracts, or (2) cash and liquid assets with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above.

     Assets used as cover or held in an account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of a Portfolio’s assets to cover or to segregated accounts could impede portfolio management or the Portfolio’s ability to meet redemption requests or other current obligations.

     Options. A call option gives the purchaser the right to buy, and obligates the writer to sell, the underlying investment at the agreed-upon price during the option period. A put option gives the purchaser the right to sell, and obligates the writer to buy, the underlying investment at the agreed-upon price during the option period. Purchasers of options pay an amount, known as a premium, to the option writer in exchange for the right under the option contract.

     The purchase of call options can serve as a long hedge, and the purchase of put options can serve as a short hedge. Writing put or call options can enable a Portfolio to enhance income or yield by reason of the premiums paid by the purchasers of such options. However, if the market price of the security underlying a put option declines to less than the exercise price of the option, minus the premium received, the Portfolio would expect to suffer a loss.

     Writing call options can serve as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security or currency appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and the Portfolio will be obligated to sell the security or currency at less than its market value. If the call option is an OTC option, the securities or other assets used as cover would be considered illiquid to the extent described under Illiquid Investments.

     Writing put options can serve as a limited long hedge because increases in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security or currency depreciates to a price lower than the exercise price of the put option, it can be expected that the put option will be exercised and the Portfolio will be obligated to purchase the security or currency at more than its market value. If the put option is an OTC option, the securities or other assets used as cover would be considered illiquid to the extent described under Illiquid Investments.

     The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options that expire unexercised have no value.

     A Portfolio may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, the Portfolio may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option; this is known as a closing purchase transaction. Conversely, the Portfolio may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit the Portfolio to realize profits or limit losses on an option position prior to its exercise or expiration.

     A type of put that a Portfolio may purchase is an optional delivery standby commitment, which is entered into by parties selling debt securities to the Portfolio. An optional delivery standby commitment gives the Portfolio the right to sell the security back to the seller on specified terms. This right is provided as an inducement to purchase the security.

     Risks of Options on Securities. Options offer large amounts of leverage, which will result in a Portfolio’s NAV being more sensitive to changes in the value of the related instrument. Each Portfolio may purchase or write both exchange-traded and OTC options. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between a Portfolio and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when a Portfolio purchases an OTC option, it relies on the counterparty from whom it purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by the Portfolio as well as the loss of any expected benefit of the transaction.

     A Portfolio’s ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any such market exists. There can be no assurance that a Portfolio will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, the Portfolio might be unable to close out an OTC option position at any time prior to its expiration.

     If a Portfolio were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by a Portfolio could cause material losses because the Portfolio would be unable to sell the investment used as cover for the written option until the option expires or is exercised.

     Options on Indexes. Puts and calls on indexes are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When a Portfolio writes a call on an index, it receives a premium and agrees that, prior to the expiration date, the purchaser of the call, upon exercise of the call, will receive from the Portfolio an amount of cash if the closing level of the index upon which the call is based is greater than the exercise price of the call. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call times a specified multiple (multiplier), which determines the total dollar value for each point of such difference. When a Portfolio buys a call on an index, it pays a premium and has the same rights as to such call as are indicated above. When a Portfolio buys a put on an index, it pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Portfolio’s exercise of the put, to deliver to the Portfolio an amount of cash if the closing level of the index upon which the put is based is less than the exercise price of the put, which amount of cash is determined by the multiplier, as described above for calls. When a Portfolio writes a put on an index, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Portfolio to deliver to it an amount of cash equal to the difference between the closing level of the index and the exercise price times the multiplier if the closing level is less than the exercise price.

     Risks of Options on Indexes. The risks of investment in options on indexes may be greater than options on securities. Because index options are settled in cash, when a Portfolio writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Portfolio can offset some of the risk of writing a call index option by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, a Portfolio cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will vary from the value of the index.

     Even if a Portfolio could assemble a portfolio that exactly reproduced the composition of the underlying index, it still would not be fully covered from a risk standpoint because of the timing risk inherent in writing index options. When an index option is exercised, the amount of cash that the holder is entitled to receive is determined by the difference between the exercise price and the closing index level on the date when the option is exercised. As with other kinds of options, a Portfolio as the call writer will not learn that the portfolio has been assigned until the next business day at the earliest. The time lag between exercise and notice of assignment poses no risk for the writer of a covered call on a specific underlying security, such as a common stock, because there the writer’s obligation is to deliver the underlying security, not to pay its value as of a fixed time in the past. So long as the writer already owns the underlying security, it can satisfy its settlement obligations by simply delivering it, and the risk that its value may have declined since the exercise date is borne by the exercising holder. In contrast, even if the writer of an index call holds securities that exactly match the composition of the underlying index, it will not be able to satisfy its assignment obligations by delivering those securities against payment of the exercise price. Instead, it will be required to pay cash in an amount based on the closing index value on the exercise date. By the time it learns that it has been assigned, the index may have declined, with a corresponding decline in the value of its portfolio. This timing risk is an inherent limitation on the ability of index call writers to cover their risk exposure by holding securities positions.

     If a Portfolio has purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the Portfolio will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer.

     OTC Options. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size and strike price, the terms of OTC options (options not traded on an exchange) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows a Portfolio great flexibility to tailor the option to its needs, OTC options generally involve greater risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded.

     Generally, OTC foreign currency options used by the Portfolios are European-style options. This means that the option is only exercisable immediately prior to its expiration. This is in contrast to American-style options, which are exercisable at any time prior to the expiration date of the option.

     Futures Contracts and Options on Futures Contracts. The purchase of futures contracts or call options on futures contracts can serve as a long hedge, and the sale of futures contracts or the purchase of put options on a futures contract can serve as a short hedge. Writing call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing call options on securities or indexes. Similarly, writing put options on futures contracts can serve as a limited long hedge. Futures contracts and options on futures contracts can also be purchased and sold to attempt to enhance income or yield.

     In addition, futures contract strategies can be used to manage the average duration of a Portfolio’s fixed-income portfolio. If a Portfolio’s Sub-Advisor wishes to shorten the average duration of the Portfolio’s fixed-income portfolio, the Portfolio may sell a debt futures contract or a call option thereon, or purchase a put option on that futures contract. If the Sub-Advisor wishes to lengthen the average duration of

the Portfolio’s fixed-income portfolio, the Portfolio may buy a debt futures contract or a call option thereon, or sell a put option thereon.

     No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract the Portfolio is required to deposit initial margin in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Portfolio at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Portfolio may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action.

     Subsequent variation margin payments are made to and from the futures broker daily as the value of the futures position varies, a process known as marking-to-market. Variation margin does not involve borrowing, but rather represents a daily settlement of the Portfolio’s obligations to or from a futures broker. When a Portfolio purchases an option on a futures contract, the premium paid plus transaction costs is all that is at risk. In contrast, when a Portfolio purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Portfolio has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.

     Purchasers and sellers of futures contracts and options on futures contracts can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures contracts and options on futures contracts may be closed only on an exchange or board of trade that provides a secondary market. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position.

     Under certain circumstances, futures contracts exchanges may establish daily limits on the amount that the price of a futures contract or an option on a futures contract can vary from the previous day’s settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.

     If a Portfolio were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Portfolio would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Portfolio would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or option or to maintain cash or liquid assets in an account.

     Risks of Futures Contracts and Options Thereon. The ordinary spreads between prices in the cash and futures markets (including the options on futures market), due to differences in the natures of those markets, are subject to the following factors which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate, currency exchange rate or stock market trends by the Portfolio’s Sub-Advisor may still not result in a successful transaction. The Sub-Advisor may be incorrect in its expectations as to the extent of various interest rate, currency exchange rate or stock market movements or the time span within which the movements take place.

     Index Futures. The risk of imperfect correlation between movements in the price of an index futures contract and movements in the price of the securities that are the subject of the hedge increases as the composition of a Portfolio’s holdings diverges from the securities included in the applicable index. The price of the index futures contract may move more than or less than the price of the securities being hedged. If the price of the index futures contract moves less than the price of the securities that are the subject of the hedge, the hedge will not be fully effective but, if the price of the securities being hedged has moved in an unfavorable direction, the Portfolio would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage will be partially offset by the futures contract. If the price of the futures contract moves more than the price of the securities, the Portfolio will experience either a loss or a gain on the futures contract that will not be completely offset by movements in the price of the securities that are the subject of the hedge. To compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of the index futures contract, a Portfolio may buy or sell index futures contracts in a greater dollar amount than the dollar amount of the securities being hedged if the historical volatility of the prices of the securities being hedged is more than the historical volatility of the prices of the securities included in the index. It is also possible that, where a Portfolio has sold index futures contracts to hedge against decline in the market, the market may advance and the value of the securities held in the portfolio may decline. If this occurred, the Portfolio would lose money on the futures contract and also experience a decline in value of its portfolio securities. However, while this could occur for a very brief period or to a very small degree, over time the value of a diversified portfolio of securities will tend to move in the same direction as the market indexes on which the futures contracts are based.

     Where index futures contracts are purchased to hedge against a possible increase in the price of securities before a Portfolio is able to invest in them in an orderly fashion, it is possible that the market may decline instead. If the Portfolio then concludes not to invest in them at that time because of concern as to possible further market decline or for other reasons, it will realize a loss on the futures contract that is not offset by a reduction in the price of the securities it had anticipated purchasing.

     To the extent that a Portfolio enters into futures contracts, options on futures contracts or options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are in-the-money at the time of purchase) will not exceed 5% of the liquidation value of the Portfolio’s holdings, after taking into account unrealized profits and unrealized losses on any contracts the Portfolio has entered into. (In general, a call option on a futures contract is in-the-money if the value of the underlying futures contract exceeds the strike, i.e., exercise, price of the call; a put option on a futures contract is in-the-money if the value of the underlying futures contract is exceeded by the strike price of the put.) This policy does not limit to 5% the percentage of the Portfolio’s total assets that are at risk in futures contracts, options on futures contracts and currency options.

     Foreign Currency Hedging Strategies — Special Considerations. International II Portfolio may use options and futures contracts on foreign currencies (including the euro), as described above, and forward foreign currency contracts (forward currency contracts), as described below, to attempt to hedge against movements in the values of the foreign currencies in which the Portfolio’s securities are denominated or to attempt to enhance income or yield. Currency hedges can protect against price movements in a security that the Portfolio owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes.

     International II Portfolio might seek to hedge against changes in the value of a particular currency when no Financial Instruments on that currency are available or such Financial Instruments are more expensive than certain other Financial Instruments. In such cases, the Portfolio may seek to hedge against price movements in that currency by entering into transactions using Financial Instruments on another currency or a basket of currencies, the values of which its Sub-Advisor believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the Financial Instrument will not correlate perfectly with movements in the price of the currency subject to the hedging transaction is magnified when this strategy is used.

     The value of Financial Instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such Financial Instruments, International Stock Value Portfolio could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots.

     There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the Financial Instruments until they reopen.

     Settlement of transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, the Portfolio might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country.

     Forward Currency Contracts. International II Portfolio may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (term) from the date of the forward currency contract agreed upon by the parties, at a price set at the time of the forward currency contract. These forward currency contracts are traded directly between currency traders (usually large commercial banks) and their customers.

     Such transactions may serve as long hedges; for example, International II Portfolio may purchase a forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Portfolio intends to acquire. Forward currency contract transactions may also serve as short hedges; for example, the Portfolio may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security or a dividend or interest payment denominated in a foreign currency.

     International II Portfolio may also use forward currency contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if the Portfolio owned securities denominated in euros, it could enter into a forward currency contract to sell euros in return for U.S. dollars to hedge against possible declines in the euro’s value. Such a hedge, sometimes referred to as a position hedge, would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. The Portfolio could also hedge the position by selling another currency expected to perform similarly to the euro. This type of hedge, sometimes referred to as a proxy hedge, could offer advantages in terms of cost, yield or efficiency, but generally would not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not

perform similarly to the currency in which the hedged securities are denominated.

     International II Portfolio also may use forward currency contracts to attempt to enhance income or yield. The Portfolio could use forward currency contracts to increase its exposure to foreign currencies that its Sub-Adviser believes might rise in value relative to the U.S. dollar, or shift its exposure to foreign currency fluctuations from one country to another. For example, if the Portfolio owned securities denominated in a foreign currency and its Sub-Adviser believed that currency would decline relative to another currency, it might enter into a forward currency contract to sell an appropriate amount of the first foreign currency, with payment to be made in the second foreign currency.

     The cost to International II Portfolio of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When the Portfolio enters into a forward currency contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result in the loss of any expected benefit of the transaction.

     As is the case with futures contracts, purchasers and sellers of forward currency contracts can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that the Portfolio will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the counterparty, the Portfolio might be unable to close out a forward currency contract at any time prior to maturity. In either event, the Portfolio would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or liquid assets in an account.

     The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the forward currency contract has been established. Thus, the Portfolio might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain.

     Normally, consideration of the prospect for currency parities will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, International II Portfolio’s Sub-Advisor believes that it is important to have the flexibility to enter into such forward currency contracts when it determines that the best interests of the Portfolio will be served.

     Successful use of forward currency contracts depends on the skill of International II Portfolio’s Sub-Advisor in analyzing and predicting currency values. Forward currency contracts may substantially change the Portfolio’s exposure to changes in currency exchange rates and could result in losses to the Portfolio if currencies do not perform as the Sub-Advisor anticipates. There is no assurance that the Sub-Advisor’s use of forward currency contracts will be advantageous to the Portfolio or that the Sub-Advisor will hedge at an appropriate time.

     Combined Positions. A Portfolio may purchase and write options in combination with each other, or in combination with futures contracts or forward contracts, to adjust the risk and return characteristics of its overall position. For example, a Portfolio may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.

     Turnover. A Portfolio’s options and futures contracts activities may affect its turnover rate and brokerage commission payments. The exercise of calls or puts written by a Portfolio, and the sale or purchase of futures contracts, may cause it to sell or purchase related investments, thus increasing its turnover rate. Once a Portfolio has received an exercise notice on an option it has written, it cannot effect a closing transaction in order to terminate its obligation under the option and must deliver or receive the underlying securities at the exercise price. The exercise of puts purchased by a Portfolio may also cause the sale of related investments, also increasing turnover; although such exercise is within the Portfolio’s control, holding a protective put might cause it to sell the related investments for reasons that would not exist in the absence of the put. A Portfolio will pay a brokerage commission each time it buys or sells a put or call or purchases or sells a futures contract. Such commissions may be higher than those that would apply to direct purchases or sales.

Repurchase Agreements

     Each Portfolio may purchase securities subject to repurchase agreements, subject to its limitation on investment in illiquid investments. See Investment Restrictions and Limitations. A repurchase agreement is an instrument under which a Portfolio purchases a security and the seller (normally a commercial bank or broker-dealer) agrees, at the time of purchase, that it will repurchase the security at a specified time and price. The amount by which the resale price is greater than the purchase price reflects an agreed-upon market interest rate effective for the period of the agreement. The return on the securities subject to the repurchase agreement may be more or less than the return on the repurchase agreement.

     The majority of repurchase agreements in which a Portfolio will engage are overnight transactions, and the delivery pursuant to the resale typically will occur within one to five days of the purchase. The primary risk is that a Portfolio may suffer a loss if the seller fails to pay the agreed-upon amount on the delivery date and that amount is greater than the resale price of the underlying securities and other collateral held by the Portfolio. In the event of bankruptcy or other default by the seller, there may be possible delays and expenses in liquidating the underlying securities or other collateral, decline in their value or loss of interest. The return on such collateral may be more or less than that from the repurchase agreement. A Portfolio’s repurchase agreements will be structured so as to fully collateralize the loans. In other words, the value of the underlying securities, which will be held by the Portfolio’s custodian bank or by a third party that qualifies as a custodian under section 17(f) of the Investment Company Act of 1940, as amended (1940 Act), is and, during the entire term of the agreement, will remain at least equal to the value of the loan, including the accrued interest earned thereon. Repurchase agreements are entered into only with those entities approved by WRIMCO.

Restricted Securities

     Each Portfolio may invest in restricted securities. Restricted securities are securities that are subject to legal or contractual restrictions on resale. However, restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, as amended, or in a registered public offering. Where registration is required, a Portfolio may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time the Portfolio may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Portfolio might obtain a less favorable price than prevailed when it decided to seek registration of the security.

     There are risks associated with investments in restricted securities in that there can be no assurance of a ready market for resale. Also, the contractual restrictions on resale might prevent a Portfolio from reselling the securities at a time when such sale would be desirable. Restricted securities that are traded in foreign markets are often subject to restrictions that prohibit resale to U.S. persons or entities or permit sales only to foreign broker-dealers who agree to limit their resale to such persons or entities. The buyer of such securities must enter into an agreement that, usually for a limited period of time, it will resell such securities subject to such restrictions. Restricted securities in which a Portfolio seeks to invest need not be listed or admitted to trading on a foreign or domestic exchange and may be less liquid than listed securities. Certain restricted securities, for example Rule 144A securities, may be determined to be liquid in accordance with guidelines adopted by the Board of Directors. See Illiquid Investments.

Short Sales Against The Box

     Each Portfolio may sell securities “short against the box;” provided, however, that the Portfolio’s aggregate short sales prices may not, at the time of any short sale, exceed 10% of its total assets. Whereas a short sale is the sale of a security a Portfolio does not own, a short sale is “against the box” if, at all times during which the short position is open, the Portfolio owns at least an equal amount of the securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. None of the Portfolios has any present intention to sell securities short in this fashion.

U.S. Government Securities

     Securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (U.S. Government securities) are high quality debt instruments issued or guaranteed as to principal or interest by the U.S. Treasury or an agency or instrumentality of the U.S. Government. These securities include Treasury Bills (which mature within one year of the date they are issued), Treasury Notes (which have maturities of one to ten years) and Treasury Bonds (which generally have maturities of more than ten years). All such Treasury securities are backed by the full faith and credit of the United States.

     U.S. Government agencies and instrumentalities that issue or guarantee securities include, but are not limited to, the Federal Housing Administration, Fannie Mae (also known as the Federal National Mortgage Association), Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association (Ginnie Mae), General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (Freddie Mac), Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the Resolution Funding Corporation and the Student Loan Marketing Association.

     Securities issued or guaranteed by U.S. Government agencies and instrumentalities are not always supported by the full faith and credit of the United States. Some, such as securities issued by the Federal Home Loan Banks, are backed by the right of the agency or instrumentality to borrow from the Treasury. Other securities, such as securities issued by Fannie Mae, are supported only by the credit of the instrumentality and by a pool of mortgage assets. If the securities are not backed by the full faith and credit of the United States, the owner of the securities must look principally to the agency issuing the obligation for repayment and may not be able to assert a claim against the United States in the event that the agency or instrumentality does not meet its commitment.

Variable or Floating Rate Instruments

     Variable or floating rate instruments (including notes purchased directly from issuers) bear variable or floating interest rates and may carry rights that permit holders to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial

intermediaries on dates prior to their stated maturities. Floating rate securities have interest rates that change whenever there is a change in a designated base rate while variable rate instruments provide for a specified periodic adjustment in the interest rate. These formulas are designed to result in a market value for the instrument that approximates its par value.

Warrants and Rights

     Each Portfolio may invest in warrants and rights. Warrants are options to purchase equity securities at specified prices for a specific period of time. The prices do not necessarily move parallel to the prices of the underlying securities. Rights are similar to warrants but normally have a short duration and are distributed directly by the issuer to its shareholders. Rights and warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. Warrants and rights are highly volatile and, therefore, more susceptible to sharp declines in value than the underlying security might be. They are also generally less liquid than an investment in the underlying shares.

     Warrants With Cash Extractions. International II Portfolio may also invest up to 5% of its total assets in warrants used in conjunction with the cash extraction method. If an investor wishes to replicate an underlying share, the investor can use the warrant with cash extraction method by purchasing warrants and holding cash. The cash component would be determined by subtracting the market price of the warrant from the underlying share price.

     For example, assume one share for company “Alpha” has a current share price of $40 and issued warrants can be converted one for one share at an exercise price of $31 exercisable two years from today. Also assume that the market price of the warrant is $10 ($40 - $31 + $1) because investors are willing to pay a premium ($1) for previously stated reasons. If an investor wanted to replicate an underlying share by engaging in a warrant with cash extraction strategy, the amount of cash the investor would need to hold for every warrant would be $30 ($40 - $10 = $30). A warrant with cash extraction is, thus, simply a synthetically created quasi-convertible bond.

     If an underlying share issues no or a low dividend and has an associated warrant with a market price that is low relative to its share price, a warrant with cash extraction may provide attractive cash yields and minimize capital loss risk, provided the underlying share is also considered a worthy investment. For example, assume Alpha’s share is an attractive investment opportunity and its share pays no dividend. Given the information regarding Alpha provided above, also assume that short-term cash currently yields 5% per year and that the investor plans to hold the investment at least two years, barring significant near-term capital appreciation. If the share price were to fall below $30, the warrant with cash extraction strategy would yield a lower loss than the underlying share because an investor cannot lose more than the purchase cost of the warrant (capital risk minimized). The cash component for this strategy would yield $3.08 after two years (compound interest). The total value of the underlying investment would be $43.08 versus $40.00 for the non-yielding underlying share (attractive yield). Finally, it is important to note that this strategy will not be pursued if it is not economically more attractive than underlying shares.

When-Issued and Delayed-Delivery Transactions

     International II Portfolio may purchase securities in which it may invest on a when-issued or delayed-delivery basis or sell them on a delayed-delivery basis. In either case, payment and delivery for the securities take place at a future date. The securities so purchased or sold by the Portfolio are subject to market fluctuation; their value may be less or more when delivered than the purchase price paid or received. When purchasing securities on a when-issued or delayed-delivery basis, the Portfolio assumes the rights and risks of ownership, including the risk of price and yield fluctuations. No interest accrues to the Portfolio until delivery and payment are completed. When the Portfolio makes a commitment to purchase securities on a when-issued or delayed-delivery basis, it will record the transaction and thereafter reflect the value of the securities in determining its NAV per share. When the Portfolio sells a security on a delayed-delivery basis, the Portfolio does not participate in further gains or losses with respect to the security. When the Portfolio makes a commitment to sell securities on a delayed basis, it will record the transaction and thereafter value the securities at the sales price in determining the Portfolio’s NAV per share. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the Portfolio could miss a favorable price or yield opportunity, or could suffer a loss.

     Ordinarily, International II Portfolio purchases securities on a when-issued or delayed-delivery basis with the intention of actually taking delivery of the securities. However, before the securities are delivered and before it has paid for them (the settlement date), the Portfolio may sell the securities if its Sub-Adviser decided it was advisable to do so for investment reasons. The Portfolio will hold aside or segregate cash or other securities, other than those purchased on a when-issued or delayed-delivery basis, at least equal in value to the amount it will have to pay on the settlement date; these other securities may, however, be sold at or before the settlement date to pay the purchase price of the when-issued or delayed-delivery securities.

Currency Exchange Transactions

     Spot Exchange Transactions. International II Portfolio usually effects currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market. However, some price spread on currency exchange will be incurred when the Portfolio converts assets from one currency to another. Further, the Portfolio may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations. For example, in order to realize the value of a foreign investment, the Portfolio must convert that value, as denominated in its foreign currency, into U.S. dollars using the applicable currency exchange rate. The exchange rate represents the current price of a U.S. dollar relative to that foreign currency; that is, the amount of such foreign currency required to buy one U.S. dollar. If the Portfolio holds a foreign security which has appreciated in value as measured in the foreign currency, the level of appreciation actually realized by the Portfolio may be reduced or even eliminated if the foreign currency has decreased in value relative to the

U.S. dollar subsequent to the date of purchase. In such a circumstance, the cost of a U.S. dollar purchased with that foreign currency has gone up and the same amount of foreign currency purchases fewer dollars than at an earlier date.

     Forward Currency Contracts. International II Portfolio also has the authority to deal in forward currency contracts between currencies of the different countries in which it may invest for speculative purposes. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Forward currency contracts are individually negotiated and privately traded by currency traders and their customers. These forward currency contracts may involve the sale of U.S. dollars and the purchase of a foreign currency, or may be foreign cross-currency contracts involving the sale of one foreign currency and the purchase of another foreign currency (such foreign cross-currency contracts may be considered a hedging rather than a speculative strategy if the Portfolio’s commitment to purchase the new (more favorable) currency is limited to the market value of the Portfolio’s securities denominated in the old (less favorable) currency - see “Foreign Currency Hedging Strategies,” above). Because these transactions are not entered into for hedging purposes, the Portfolio’s custodian bank maintains, in a separate account of the Portfolio, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase currency on a forward basis. The prediction of currency movements is extremely difficult and the successful execution of a speculative strategy is highly uncertain.

Investments In Russia

     International II Portfolio may invest in securities of Russian companies, which involves risks and special considerations not typically associated with investing in United States securities markets. Since the breakup of the Soviet Union at the end of 1991, Russia has experienced dramatic political and social change. The political system in Russia is emerging from a long history of extensive state involvement in economic affairs. The country is undergoing a rapid transition from a centrally controlled command system to a market-oriented, democratic model. The Portfolio may be affected unfavorably by political or diplomatic developments, social instability, changes in government policies, taxation and interest rates, currency repatriation restrictions and other political and economic developments in the law or regulations in Russia and, in particular, the risks of expropriation, nationalization and confiscation of assets and changes in legislation relating to foreign ownership.

     The planned economy of the former Soviet Union was run with qualitatively different objectives and assumptions from those prevalent in a market system and Russian businesses do not have any recent history of operating within a market-oriented economy. In general, relative to companies operating in Western economies, companies in Russian are characterized by a lack of: (i) management with experience of operating in a market economy; (ii) modern technology; and, (iii) a sufficient capital base with which to develop and expand their operations. It is unclear what will be the future effect on Russian companies, if any, of Russia’s continued attempts to move toward a more market-oriented economy. Russia’s economy has experienced severe economic recession, if not depression, since 1990 during which time the economy has been characterized by high rates of inflation, high rates of unemployment, declining gross domestic product, deficit government spending, and a devaluing currency. The economic reform program has involved major disruptions and dislocations in various sectors of the economy, and those problems have been exacerbated by growing liquidity problems. Further, Russia presently receives significant financial assistance from a number of countries through various programs. To the extent these programs are reduced or eliminated in the future, Russian economic development may be adversely impacted.

     The Russian securities markets are substantially smaller, less liquid and significantly more volatile than the securities markets in the United States. In addition, there is little historical data on these securities markets because they are of recent origin. A substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges and over-the-counter markets. A limited number of issuers represent a disproportionately large percentage of market capitalization and trading volume. Although evolving rapidly, even the largest of Russia’s stock exchanges are not well developed compared to Western stock exchanges. The actual volume of exchange-based trading in Russia is low and active on-market trading generally occurs only in the shares of a few private companies. Most secondary market trading of equity securities occurs through over-the-counter trading facilitated by a growing number of licensed brokers. Shares are traded on the over-the-counter market primarily by the management of enterprises, investment funds, short-term speculators and foreign investors. The securities of Russian companies are mostly traded over-the-counter and, despite the large number of stock exchanges, there is still no organized public market for such securities. This may increase the difficulty of valuing the Portfolio’s investments. No established secondary markets may exist for many of the securities in which the Portfolio may invest. Reduced secondary market liquidity may have an adverse effect on market price and the Portfolio’s ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for securities may also make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations are generally available on many emerging country securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales.

     Because of the recent formation of the securities markets as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration transactions are subject to significant risks not normally associated with investments in the United States and other more developed markets. Ownership of shares (except where shares are held through depositories that meet the requirements of the 1940 Act) is defined according to entries in the company’s share register and normally evidenced by extracts from the register or in certain limited cases by formal share certificates. However, there is not a central registration system and these services are carried out by the companies themselves or by registrars located throughout Russia. These registrars are not necessarily subject to effective state supervision and its possible for the Portfolio to lose its registration through fraud, negligence and even mere oversight. The laws and regulations in Russia affecting Western investment business continue to evolve in an unpredictable manner. Russian laws and regulations, particularly those involving taxation, foreign investment and trade, title to property or securities, and transfer of title, applicable to the Portfolio’s activities are

relatively new and can change quickly and unpredictably in a manner far more volatile than in the United States or other developed market economies. Although basic commercial laws are in place, they are often unclear or contradictory and subject to varying interpretation, and may at any time be amended, modified, repealed or replaced in a manner adverse to the interest of the Portfolio. There is still lacking a cohesive body of law and precedents normally encountered in business environments. Foreign investment in Russian companies is, in certain cases, legally restricted. Sometimes these restrictions are contained in constitutional documents of an enterprise that are not publicly available. Russian foreign investment legislation currently guarantees the right of foreign investors to transfer abroad income received on investments such as profits, dividends and interest payments. This right is subject to settlement of all applicable taxes and duties. However, more recent legislation governing currency regulation and control guarantees the right to export interest, dividends and other income on investments, but does not expressly permit the repatriation of capital from the realization of investments. Current practice is to recognize the right to repatriation of capital. Authorities currently do not attempt to restrict repatriation beyond the extent of the earlier law. No guarantee can be made, however, that amounts representing realization of capital of income will be capable of being remitted. If, for any reason, the Portfolio were unable to distribute an amount equal to substantially all of its investment company taxable income (as defined for U.S. tax purposes) within applicable time periods, the Portfolio would not qualify for the favorable U.S. federal income tax treatment afforded to regulated investment companies, or, even if it did so qualify, it might become liable for income and excise taxes on undistributed income.

     Russian courts lack experience in commercial dispute resolution and many of the procedural remedies for enforcement and protection of legal rights typically found in Western jurisdictions are not available in Russia. There remains uncertainty as to the extent to which local parties and entities, including Russian state authorities, will recognize the contractual and other rights of the parties with which they deal. Accordingly, there will be difficulty and uncertainty in the Portfolio’s ability to protect and enforce its rights against Russian state and private entities. There is also no assurance that the Russian courts will recognize or acknowledge that the Portfolio has acquired title to any property or securities in which the Portfolio invests, or that the Portfolio is the owner of any property or security held in the name of a nominee which has acquired such property or security on behalf of the Portfolio, because there is at present in Russia no reliable system or legal framework regarding the registration of titles. There can be no assurance that this difficulty in protecting and enforcing rights in Russia will not have a material adverse effect on the Portfolio and its operations. Difficulties are likely to be encountered enforcing judgments of foreign courts within Russia or of Russian courts in foreign jurisdictions due to the limited number of countries which have signed treaties for mutual recognition of court judgments with Russia.

Investment Restrictions and Limitations

     Certain of the Portfolios’ investment restrictions and other limitations are described in this SAI. The following are each Portfolio’s fundamental investment limitations set forth in their entirety, which cannot be changed without shareholder approval. For this purpose, shareholder approval means the approval, at a meeting of Portfolio shareholders, by the lesser of (1) the holders of 67% or more of the Portfolio’s shares represented at the meeting, if more than 50% of the Portfolio’s outstanding shares are present in person or by proxy or (2) more than 50% of the Portfolio’s outstanding shares. A Portfolio may not:

(1)	With respect to 75% of the Portfolio’s total assets, purchase the securities of any issuer (other than obligations issued or guaranteed by the United States government, or any of its agencies or instrumentalities) if, as a result thereof, (a) more than 5% of the Portfolio’s total assets would be invested in the securities of such issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting securities of such issuer;
(2)	Issue bonds or any other class of securities preferred over shares of the Portfolio in respect to the Portfolio’s assets or earnings, provided that the Portfolio may issue additional classes of shares in accordance with the Fund’s Articles of Incorporation;
(3)	Sell securities short (unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short) or purchase securities on margin, except that (1) this policy does not prevent the Portfolio from entering into short positions in foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments, (2) the Portfolio may obtain such short-term credits as are necessary for the clearance of transactions, and (3) the Portfolio may make margin payments in connection with futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments;
(4)	Borrow money, except that the Portfolio may borrow money for temporary, emergency or extraordinary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of the value of its total assets less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the Portfolio’s total assets less liabilities (other than borrowings) will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation.
(5)	Underwrite securities issued by others, except to the extent that the Portfolio may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities;
(6)	Purchase the securities of any issuer (other than obligations issued or guaranteed by the United States government or any of its agencies or instrumentalities) if, as a result, more than 25% of the Portfolio’s total assets (taken at current value) would be invested in the securities of issuers having their principal business activities in the same industry;
(7)	Invest in real estate limited partnerships or purchase or sell real estate unless acquired as a result of ownership of securities (but this shall not prevent the Portfolio from purchasing and selling securities issued by companies or other entities or investment vehicles that deal in real estate or interests therein, nor shall this prevent the Portfolio from purchasing interests in pools of real estate mortgage loans);
(8)	Purchase or sell physical commodities; however, this policy shall not prevent the Portfolio from purchasing and selling foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments; or
(9)	Make loans, except that the Portfolio may purchase or hold debt instruments in accordance with its investment objective and policies, lend Portfolio securities in accordance with its investment objective and policies and enter into repurchase agreements, to the extent allowed,

and in accordance with the requirements, under the 1940 Act. For purposes of this restriction, the participation of the Portfolio in a credit facility whereby the Portfolio may directly lend and borrow money for temporary purposes, provided that the loans are made in accordance with an order of exemption from the SEC and any conditions thereto, will not be considered the making of a loan.

     The following investment restrictions are not fundamental and may be changed by the Fund’s Board of Directors without approval of the shareholders of the affected Portfolio:

(1)	At least 80% of International II Portfolio’s net assets will be invested, under normal market conditions, in foreign securities and at least 65% of its total assets will be invested in at least three different countries outside the United States. The Portfolio may not purchase a foreign security if, as a result, more than 75% of its total assets would be invested in issuers of any one foreign country. International II Portfolio will provide its shareholders with written notice at least 60 days prior to changing this policy;
(2)	At least 80% of Micro Cap Growth Portfolio’s net assets will be invested, under normal market conditions, in the equity securities of micro cap companies. For purposes of this restriction, a micro cap company is a company with a market capitalization that is within the range of capitalizations of companies included in the Russell 2000 Growth Index. Micro Cap Growth Portfolio will provide its shareholders with written notice at least 60 days prior to changing this policy;
(3)	At least 80% of Small Company Value Portfolio’s net assets will be invested, under normal market conditions, in small cap domestic companies and foreign companies that are publicly traded in the United States. For purposes of this restriction, a small cap company is a company with a market capitalization that is within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category. Small Company Value Portfolio will provide its shareholders with written notice at least 60 days prior to changing this policy;
(4)	International II Portfolio does not currently intend to invest more than 5% of its net assets in securities (including convertible securities) rated at least BBB by S&P or Baa by Moody’s and may not invest in securities below those ratings;
(5)	Each of Micro Cap Growth Portfolio and Small Company Value Portfolio does not currently intend to invest more than 10% of its net assets in securities (including convertible securities) rated at least B- by S&P or B3 by Moody’s and may not invest in securities below those ratings;
(6)	Each of Micro Cap Growth Portfolio and Small Company Value Portfolio currently intends to limit its investments in foreign securities that are not traded in the U.S., under normal market conditions, to no more than 10% of its total assets; for this purpose, ADRs are not considered foreign securities, although each of these Portfolios does not intend to invest more than 10% of its total assets in ADRs;
(7)	Micro Cap Growth Portfolio and Small Company Value Portfolio each may invest up to 5% of its total assets in one or more types of DRs;
(8)	International II Portfolio may also invest up to 5% of its total assets in warrants used in conjunction with the cash extraction method;
(9)	No Portfolio may not purchase a security if, as a result, more than 15% of its net assets would consist of illiquid investments;
(10)	Each Portfolio may purchase shares of another investment company subject to the restrictions and limitations of the 1940 Act;
(11)	No Portfolio may participate on a joint, or a joint and several, basis in any trading account in any securities (but this does not prohibit the bunching of orders for the sale or purchase of a Portfolio’s securities with orders for other advisory accounts of the Portfolio’s Sub-Advisor, as applicable, to reduce brokerage commissions or otherwise to achieve best execution);
(12)	No Portfolio currently intends to invest in oil, gas, or other mineral exploration or development programs or leases;
(13)	No Portfolio will purchase any security while borrowings representing more than 5% of its total assets are outstanding;
(14)	To the extent that the Portfolio enters into futures contracts, options on futures contracts or options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are in-the-money at the time of purchase) will not exceed 5% of the liquidation value of the Portfolio, after taking into account unrealized profits and unrealized losses on any contracts the Portfolio has entered into. (In general, a call option on a futures contract is in-the-money if the value of the underlying futures contract is exceeded by the strike price of the put.) This policy does not limit to 5% the percentage of the Portfolio’s total assets that are at risk in futures contracts and options on futures contracts; and
(15)	Each Portfolio may purchase or sell options, futures contracts, options on futures contracts, forward currency contracts, swaps, caps, floors, collars, indexed securities and other derivative instruments only to the extent that the Portfolio is permitted to invest in the type of asset by which the return on, or value of, such instrument is measured.
(16)	The total market value of securities against which International II Portfolio may write, call or put options will not exceed 20% of the Portfolio’s total assets. In addition, the Portfolio will not commit more than 5% of its total assets to premiums when purchasing put or call options.
(17)	A Portfolio’s aggregate short sales prices may not, at the time of any short sale, exceed 10% of its total assets.

     An investment policy or limitation that states a maximum percentage of a Portfolio’s assets that may be so invested or prescribes quality standards is typically applied immediately after, and based on, the Portfolio’s acquisition of an asset. Accordingly, a subsequent change in the asset’s value, net assets, or other circumstances will not be considered when determining whether the investment complies with a Portfolio’s investment policies and limitations, except that International II Portfolio may not hold more than 5% of its net assets in securities that have been downgraded subsequent to purchase where such securities are not otherwise eligible for purchase by the Portfolio. (This is in addition to securities International II Portfolio may purchase under its other investment policies).

Portfolio Turnover

     A Portfolio’s turnover rate is, in general, the percentage computed by taking the lesser of purchases or sales of portfolio securities for a

year and dividing it by the monthly average of the market value of such securities during the year, excluding certain short-term securities. A Portfolio’s turnover rate may vary greatly from year to year as well as within a particular year.

INVESTMENT MANAGEMENT AND OTHER SERVICES

The Management Agreement

     The Fund has an Investment Management Agreement (Management Agreement) with WRIMCO. Under the Management Agreement, WRIMCO is employed to supervise the investments of the Portfolios and provide investment advice to each Portfolio. The address of WRIMCO is 6300 Lamar Avenue, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217.

     WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell & Reed, Inc. (Waddell & Reed) is a wholly owned subsidiary of Waddell & Reed Financial Services, Inc., a holding company which is a wholly owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

     WRIMCO and its predecessor have served as investment manager to each of the registered investment companies in the Fund, Waddell & Reed Advisors Funds and Waddell & Reed InvestEd Portfolios, Inc. since 1940 or each company’s inception date, whichever is later. Waddell & Reed serves as principal underwriter for the investment companies in the Waddell & Reed Advisors Funds and Waddell & Reed InvestEd Portfolios, Inc. and acts as the distributor for Policies for which the Fund is the underlying investment vehicle.

     The Management Agreement with respect to each of International II Portfolio, Micro Cap Growth Portfolio and Small Company Value Portfolio was approved by the Board of Directors at a meeting held      , 2003, and will continue in effect through September 30, 2003, unless sooner terminated. The Management Agreement provides that it may be renewed year to year, provided that any such renewal has been specifically approved, at least annually, by (i) the Board of Directors, or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the applicable Portfolio, and (ii) the vote of a majority of the Directors who are not deemed to be “interested persons” (as defined in the 1940 Act) of the Fund or WRIMCO (the Disinterested Directors). The Management Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days’ written notice to the other party, and that the Management Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act).

     In connection with their consideration of the approval of the proposed Management Agreement as to each Portfolio, the Disinterested Directors met separately with independent legal counsel. In determining whether to approve the Management Agreement, the Disinterested Directors, as well as the Board of Directors, considered a number of factors, including: the nature and quality of investment management services to be provided to the Portfolio by WRIMCO, including WRIMCO’s investment management expertise and the personnel, resources and experience of WRIMCO and, WRIMCO’s anticipated retention of the Sub-Advisor; the cost to WRIMCO in providing its services under the Management Agreement and WRIMCO’s profitability; whether WRIMCO or any of its affiliates receive ancillary benefits that should be taken into consideration in evaluating the investment management fee payable by the Portfolio; and the investment management fees paid by comparable investment companies.

The Sub-Advisory Agreements

     International II Portfolio

     Templeton Investment Counsel, LLC (Templeton Counsel), a Delaware limited liability company with principal offices at 500 East Broward Boulevard, Fort Lauderdale, Florida 33394, has been retained under an investment sub-advisory agreement to provide investment advice for and, in general, conduct the investment management program of International II Portfolio, subject to the general control of the Board of Directors of the Fund. Templeton Counsel is an indirect, wholly owned subsidiary of Templeton Worldwide, Inc., Fort Lauderdale, Florida, which in turn is a wholly owned subsidiary of Franklin Resources, Inc.

     Franklin Resources, Inc. is a global investment organization operating as Franklin Templeton Investments. Franklin Templeton provides global and domestic investment management services through its Franklin, Templeton, Mutual Advisors and Fiduciary Trust subsidiaries with approximately 10 million shareholder accounts. With 51 offices in 28 countries, the company has over 50 years of investment experience and over $256 billion in assets under management as of January 31, 2003. Franklin Resources, Inc. is headquartered at One Franklin Parkway, P.O. Box 7777, San Mateo, California 94403-7777, and its common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol BEN.

     Templeton Counsel acts as investment sub-advisor to International II Portfolio under an Investment Sub-Advisory Agreement (the Templeton Agreement) with WRIMCO, which was approved by the Board of Directors at a meeting held               ,2003. The Templeton Agreement will continue in effect through September 30, 2003, unless sooner terminated.

     The Templeton Agreement will terminate automatically in the event of its assignment or upon the termination of the Management Agreement. In addition, the Templeton Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund or by WRIMCO on 60 days’ written notice to Templeton Counsel, and by Templeton Counsel on 60 days’ written notice to WRIMCO. Unless sooner terminated, the Templeton Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of

the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the Templeton Agreement, cast in person at a meeting called for the purpose of voting on such approval.

     From the management fee received with respect to International II Portfolio, WRIMCO pays to Templeton Counsel a sub-advisory fee computed at an annual rate, which is a percentage of the average daily net assets of International II Portfolio, as follows: 0.70% of net assets up to $10 million, 0.65% of net assets over $10 million and up to $25 million, 0.55% of net assets over $25 million and up to $50 million, and 0.50% of net assets over $50 million and up to $100 million, and 0.40% of net assets over $100 million.

     Micro Cap Growth Portfolio

     Wall Street Associates (WSA), a California corporation with principal offices at La Jolla Financial Building, Suite 100, 1200 Prospect Street, La Jolla, California 92037, has been retained under an investment sub-advisory agreement to provide investment advice for and, in general, conduct the investment management program of Micro Cap Growth Portfolio, subject to the general control of the Board of Directors of the Fund. WSA, founded in 1987, provides investment advisory services for institutional clients and high net worth individuals.

     WSA acts as investment sub-advisor to Micro Cap Growth Portfolio under an Investment Sub-Advisory Agreement (the WSA Agreement) with WRIMCO, which was approved by the Board of Directors at a meeting held                       , 2003. The WSA Agreement will continue in effect through September 30, 2003, unless sooner terminated.

     The WSA Agreement will terminate automatically in the event of its assignment or upon the termination of the Management Agreement. In addition, the WSA Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund or by WRIMCO on 60 days’ written notice to WSA, and by WSA on 60 days’ written notice to WRIMCO. Unless sooner terminated, the WSA Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the WSA Agreement, cast in person at a meeting called for the purpose of voting on such approval.

     From the management fee received with respect to Micro Cap Growth Portfolio, WRIMCO pays to WSA a sub-advisory fee computed at an annual rate, which is a percentage of the average daily net assets of Micro Cap Growth Portfolio, as follows: 0.85% of net assets. The sub-advisory fee is accrued daily and payable in arrears on the last day of each calendar month.

     Small Company Value Portfolio

     State Street Research & Management Company (State Street Research), a Delaware corporation with offices at One Financial Center, Boston, Massachusetts 02111-2690, has been retained under an investment sub-advisory agreement to provide investment advice for and, in general, conduct the investment management program of Small Company Value Portfolio, subject to the general control of the Board of Directors of the Fund.

     State Street Research was founded by Paul Cabot, Richard Saltonstall and Richard Paine to serve as investment adviser to one the nation’s first mutual funds, presently known as State Street Research Investment Trust, which they formed in 1924. Their investment management philosophy emphasized comprehensive fundamental research and analysis, including meetings with the management of companies under consideration for investment. State Street Research’s portfolio management group has extensive investment industry experience managing equity and debt securities. State Street Research is a wholly owned subsidiary of Metropolitan Life Insurance Company.

     State Street Research acts as investment sub-advisor to Small Company Value Portfolio under an Investment Sub-Advisory Agreement (the State Street Research Agreement) with WRIMCO, which was approved by the Board of Directors at a meeting held               ,2003. The State Street Research Agreement will continue in effect through September 30, 2003, unless sooner terminated.

     The State Street Research Agreement will terminate automatically in the event of its assignment or upon the termination of the Management Agreement. In addition, the State Street Research Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund or by WRIMCO on 60 days’ written notice to State Street Research, and by State Street Research on 60 days’ written notice to WRIMCO. Unless sooner terminated, the State Street Research Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the State Street Research Agreement, cast in person at a meeting called for the purpose of voting on such approval.

     From the management fee received with respect to Small Company Value Portfolio, WRIMCO pays to State Street Research a sub-advisory fee computed at an annual rate, which is a percentage of the average daily net assets of Small Company Value Portfolio, as follows: 0.65% of net assets. The sub-advisory fee is accrued daily and payable in arrears on the last day of each calendar month.

Accounting Services

     The Management Agreement permits WRIMCO or an affiliate of WRIMCO to enter into a separate agreement for accounting services (Accounting Services Agreement) with the Fund. The Management Agreement contains detailed provisions as to the matters to be considered by the Fund’s Directors prior to approving any Accounting Services Agreement.

     Under the Accounting Services Agreement entered into between the Fund and Waddell & Reed Services Company (WRSCO), a subsidiary of Waddell & Reed, WRSCO provides the Fund with bookkeeping and accounting services and assistance including maintenance of the Fund’s records, pricing of the Portfolios’ shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. A new Accounting Services Agreement, or amendments to an existing one, may be approved by the Fund’s Board of Directors without shareholder approval.

Payments by the Fund for Management and Accounting Services

     Under the Management Agreement, for WRIMCO’s management services to each Portfolio, the Fund pays WRIMCO a fee as described in the Prospectus. The Fund accrues and pays this fee daily. The Portfolios have not been in operation prior to the date of this SAI; therefore, no management fees were paid to WRIMCO for the Portfolios for the period ended December 31, 2002.

     Under the Accounting Services Agreement, the Fund pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table, based on the assets of each Portfolio.

Accounting Services Fee

Average Net Asset Level	Annual Fee
(all dollars in millions)	for Each Portfolio
From $0 to $10	$	0
From $10 to $25	$	11,000
From $25 to $50	$	22,000
From $50 to $100	$	33,000
From $100 to $200	$	44,000
From $200 to $350	$	55,000
From $350 to $550	$	66,000
From $550 to $750	$	77,000
From $750 to $1,000	$	93,500
$1,000 and Over	$	110,000

     Since the Fund pays a management fee for investment supervision and an accounting services fee for accounting services as discussed above, WRIMCO and WRSCO, respectively, pay all of their own expenses in providing these services. Waddell & Reed and its affiliates pay the Fund’s Directors and officers who are affiliated with WRIMCO and Waddell & Reed. The Fund pays the fees and expenses of the Fund’s other Directors. The Fund pays all of its other expenses. These include the costs of printing and mailing materials sent to shareholders, audit and outside legal fees, taxes, brokerage commissions, interest, insurance premiums, fees payable under securities laws and to the Investment Company Institute, cost of processing and maintaining shareholder records, cost of systems or services used to price Portfolio securities and nonrecurring or extraordinary expenses, including litigation and indemnification relating to litigation.

Service Plan

     Under a Service Plan (Plan) adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, each Portfolio may pay Waddell & Reed a fee not to exceed 0.25% of the Portfolio’s average annual net assets, paid daily, to compensate Waddell & Reed for its costs and expenses in connection with the provision of personal services to Policyowners.

     The Plan permits Waddell & Reed to be compensated for amounts it expends in compensating, training and supporting registered financial advisors, sales managers and/or other appropriate personnel in providing personal services to Policyowners; increasing services provided to Policyowners by office personnel; engaging in other activities useful in providing personal service to Policyowners; and in compensating broker-dealers who may regularly sell Policies, and other third parties, for providing shareholder services.

     The only Directors or interested persons, as defined in the 1940 Act, of the Fund who have a direct or indirect financial interest in the operation of the Plan are the officers and Directors who are also officers of either Waddell & Reed or its affiliate(s) or who are shareholders of Waddell & Reed Financial, Inc., the indirect parent company of Waddell & Reed. The Plan is anticipated to benefit the Portfolio and the Policyholders through Waddell & Reed’s activities to provide directly, or indirectly, personal services to the Policyowners and thereby promote the maintenance of their accounts with the Fund. The Fund anticipates that Policyowners may benefit to the extent that Waddell & Reed’s activities are successful in increasing the assets of the Fund through reduced redemptions and reducing a Policyowner’s share of Fund and Portfolio expenses. In addition, the Fund anticipates that the revenues from the Plan will provide Waddell & Reed with greater resources to make the financial commitments necessary to continue to improve the quality and level of services to the Fund and Policyowners.

     The Plan was approved by the Fund’s Board of Directors, including the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operations of the Plan or any agreement referred to in the Plan (hereafter, Plan Directors).

     Among other things, the Plan provides that (1) Waddell & Reed will provide to the Directors of the Fund at least quarterly, and the Directors will review, a report of amounts expended under the Plan and the purposes for which such expenditures were made, (2) the Plan will continue in effect only so long as it is approved at least annually, and any material amendments thereto will be effective only if approved, by the Directors including the Plan Directors acting in person at a meeting called for that purpose, (3) amounts to be paid by a Portfolio under the Plan may not be materially increased without the vote of the holders of a majority of the outstanding shares of the Portfolio, and (4) while the Plan remains in effect, the selection and nomination of the Directors who are Plan Directors will be committed to the discretion of the Plan Directors.

Custodial and Auditing Services

     The Custodian for each Portfolio is UMB Bank, n.a., 928 Grand Boulevard, Kansas City, Missouri. In general, the Custodian is responsible for holding the Portfolios’ cash and securities. Deloitte & Touche LLP, 1010 Grand Boulevard, Kansas City, Missouri, the Fund’s independent auditors, audits the Fund’s annual financial statements.

NET ASSET VALUE

     The NAV of one of the shares of a Portfolio is the value of its assets, less liabilities, divided by the total number of shares outstanding. For example, if on a particular day a Portfolio owned securities worth $100 and held cash of $15, the total value of the assets would be $115. If it had a liability of $5, the NAV would be $110 ($115 minus $5). If it had 11 shares outstanding, the NAV of one share would be $10 ($110 divided by 11).

     The NAV per share of each Portfolio is ordinarily computed once each day that the NYSE is open for trading as of the close of the regular session of the NYSE or the close of the regular session of any other securities or commodities exchange on which an option or future held by the Portfolio is traded. The NYSE ordinarily closes at 4:00 p.m. Eastern time. The NYSE annually announces the days on which it will not be open for trading. The most recent announcement indicates that it will not be open on the following days: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may close on other days. The NAV may change every business day, since the value of the assets and the number of shares outstanding typically change every business day.

     The portfolio securities of a Portfolio that are listed or traded on a stock exchange are valued on the basis of the last sale on that day or, lacking any sales, at the mean of the last bid and asked prices available. In cases where securities or other instruments are traded on more than one exchange, such securities or other instruments generally are valued on the exchange designated by WRIMCO (under procedures established by and under the general supervision and responsibility of the Board of Directors) as the primary market. Securities traded in the OTC market are valued using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks.

     Bonds, other than convertible bonds, are valued using a third-party pricing system. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Short-term debt securities held by the Portfolios are valued at amortized cost. When market quotations for options and futures contracts and non-exchange traded foreign securities held by a Portfolio are readily available, those securities will be valued based upon such quotations. Market quotations generally will not be available for options traded in the OTC market. Warrants and rights to purchase securities are valued at market value. When market quotations are not readily available, securities, options, futures contracts and other assets are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Board of Directors.

     Foreign currency exchange rates are generally determined prior to the close of trading of the regular session of the NYSE. Occasionally events affecting the value of foreign investments and such exchange rates occur between the time at which they are determined and the close of the regular session of trading on the NYSE, which events will not be reflected in a computation of a Portfolio’s NAV on that day. If events materially affecting the value of such investments or currency exchange rates occur during such time period, investments will be valued at their fair value as determined in good faith by or under the direction of the Board of Directors. The foreign currency exchange transactions of a Portfolio conducted on a spot (that is, cash) basis are valued at the spot rate for purchasing or selling currency prevailing on the foreign exchange market. This rate under normal market conditions differs from the prevailing exchange rate in an amount generally less than one-tenth of one percent due to the costs of converting from one currency to another.

     When a Portfolio writes a call or a put option, an amount equal to the premium received is included in the Portfolio’s Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is marked-to-market to reflect the current market value of the option. If an option a Portfolio wrote is exercised, the proceeds received on the sale of the related investment are increased by the amount of the premium that the Portfolio received. If an option written by a Portfolio expires, it has a gain in the amount of the premium; if it enters into a closing transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction.

     Optional delivery standby commitments are valued at fair value under the general supervision and responsibility of the Fund’s Board of Directors. They are accounted for in the same manner as exchange-listed puts.

DIRECTORS AND OFFICERS

     Following is a list of the Board of Directors (Board) and the officers of the Fund. The Board oversees all of the Portfolios in the Fund, in addition to the other funds in the Family of Investment Companies. The Family of Investment Companies is comprised of the funds in the Fund, Waddell & Reed Advisors Funds, and Waddell & Reed InvestEd Portfolios, Inc. Eleanor B. Schwartz, Joseph Harroz, Jr., Henry J. Herrmann and Keith A. Tucker also serve as directors or trustees of the funds in the Ivy Family of Funds, which together with the Family of Investment Companies, comprise the 66 funds in the Fund Complex. Directors serve until resignation, retirement, death or removal. The Board appoints officers and delegates to them the management of the day-to-day operations of the Fund, based on policies reviewed and approved by the Board.

Disinterested Directors

     The following table provides information regarding each Director who is not an “interested person” as defined in the 1940 Act.

					NUMBER
					OF FUNDS
					IN FUND
	POSITION	TERM OF			COMPLEX		OTHER
NAME,	HELD	OFFICE:			OVERSEEN		DIRECTORSHIPS
ADDRESS	WITH THE	DIRECTOR			BY		HELD BY
AND AGE	FUND	SINCE		PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS	DIRECTOR		DIRECTOR
James M. Concannon Washburn Law School 1700 College Topeka, KS 66621 Age: 55	Director		1997	Professor of Law, Washburn Law School; Formerly, Dean, Washburn Law School		38	Director, Am Vestors CBO II, Inc. (bond investment firm)
John A. Dillingham 4040 Northwest Claymont Drive Kansas City, MO 64116 Age: 64	Director		1997	President and Director, JoDill Corp. and Dillingham Enterprises, Inc., both farming enterprises; formerly, Instructor at Central Missouri State University; formerly, Consultant and Director, McDougal Construction Company		38	None
David P. Gardner 2441 Iron Canyon Drive Park City, UT 84060 Age: 70	Director		1998	Formerly, president, William and Flora Hewlett Foundation		38	None
Linda K. Graves 6300 Lamar Avenue Overland Park, KS 66202 Age: 49	Director		1995	Formerly, First Lady of Kansas		38	Director, American Guaranty Life Insurance Company
Joseph Harroz, Jr. 6300 Lamar Avenue Overland Park, KS 66202 Age: 36	Director		1998	General Counsel of the University of Oklahoma, Cameron University and Rogers State Univ.; Vice President of the University of Oklahoma; Adjunct Professor, University of Oklahoma Law School; Managing Member, Harroz Investments, LLC, commercial enterprise investments		66	Director, Oklahoma Appleseed Center for Law and Justice
John F. Hayes 6300 Lamar Avenue Overland Park, KS 66202 Age: 83	Director		1988	Chairman, Gilliland & Hayes, P.A., a law firm		38	Director, Central Bank & Trust; Central Financial Corporation

					NUMBER
					OF FUNDS
					IN FUND
	POSITION	TERM OF			COMPLEX		OTHER
NAME,	HELD	OFFICE:			OVERSEEN		DIRECTORSHIPS
ADDRESS	WITH THE	DIRECTOR			BY		HELD BY
AND AGE	FUND	SINCE		PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS	DIRECTOR		DIRECTOR
Glendon E. Johnson 13635 Deering Bay Drive, #284 Miami, FL 33158 Age: 79	Director		1971	Retired; formerly, Chief Executive Officer and Director, John Alden Financial Corporation		38	Chairman of the Board, Bank Assurance Partners (marketing)
Eleanor B. Schwartz 1213 West 95th Court Chartwell #4 Kansas City, MO 64114 Age: 66	Director		1995	Professor Emeritus, formerly, Professor of Business Administration, University of Missouri at Kansas City; formerly, Chancellor, University of Missouri at Kansas City		66	None
Frederick Vogel III 6300 Lamar Avenue Overland Park, KS 66202 Age: 67	Director		1971	Retired		38	None

Interested Directors

     Two of the three interested directors are “interested” by virtue of their current or former engagement as officers of Waddell & Reed Financial, Inc. (WDR) or its wholly owned subsidiaries, including the Fund’s investment manager, Waddell & Reed Investment Management Company (WRIMCO), the distributor of the Policies funded by the Fund, Waddell & Reed, Inc. (W&R), and the Fund’s accounting services agent, Waddell & Reed Services Company (WRSCO), as well as by virtue of their personal ownership in shares of WDR. The third interested director, Mr. Ross, is a shareholder in a law firm that has represented Waddell & Reed within the past two years.

					TOTAL
NAME,	POSITION(S)	TERM OF OFFICE:			NUMBER OF		OTHER
ADDRESS AND	HELD WITH	DIRECTOR/OFFICER		PRINCIPAL OCCUPATION(S) DURING	PORTFOLIOS		DIRECTORSHIPS
AGE	THE FUND	SINCE		PAST 5 YEARS	OVERSEEN		HELD
Keith A. Tucker 6300 Lamar Avenue Overland Park, KS 66202 Age: 58	Chairman of the Board Director		1998 1993	Chairman of the Board, Chief Executive Officer and Director of WDR; formerly, Principal Financial Officer of WDR; Chairman of the Board and Director of Waddell & Reed, WRIMCO and WRSCO; formerly, Vice Chairman of the Board of Directors of Torchmark Corporation		66	None
Henry J. Herrmann 6300 Lamar Avenue Overland Park, KS 66202 Age: 60	President Director		2001 1998	President, Chief Investment Officer and Director of WDR; formerly, Treasurer of WDR; Director of Waddell & Reed; President, Chief Executive Officer, Chief Investment Officer and Director of WRIMCO; President, Chief Executive Officer and Director of Waddell & Reed Ivy Investment Company (WRIICO), an affiliate of WDR		66	Director, Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO; Director, Ivy Services Inc. (ISI), an affiliate of WRIICO
Frank J. Ross, Jr. Polsinelli, Shalton & Welte, P.C. 700 West 47th Street Suite 1000 Kansas City, MO 64112 Age: 50	Director		1996	Shareholder/Director, Polsinelli, Shalton & Welte, P.C., a law firm		38	Director, Columbian Bank & Trust

Officers

     The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Herrmann, who is President, the Fund’s officers are:

		TERM OF
NAME,	POSITION(S)	OFFICE:
ADDRESS	HELD WITH	OFFICER
AND AGE	THE FUND	SINCE		PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Theodore W. Howard 6300 Lamar Avenue Overland Park KS 66202 Age: 60	Vice President Treasurer Principal Accounting Officer Principal Financial Officer		1987 1976 1976 2002	Senior Vice President of WRSCO; Vice President, and Treasurer of each of the funds in the Fund Complex; Principal Accounting Officer and Principal Financial Officer of each of the funds in the Family of Investment Companies; formerly, Vice President of WRSCO
Kristen A. Richards 6300 Lamar Avenue Overland Park KS 66202 Age: 35	Vice President Secretary Associate General Counsel		2000 2000 2000	Vice President, Associate General Counsel and Chief Compliance Officer of WRIMCO and WRIICO; Vice President, Secretary and Associate General Counsel of each of the funds in the Fund Complex; formerly, Assistant Secretary of funds in the Fund Complex; formerly, Compliance Officer of WRIMCO
Daniel C. Schulte 6300 Lamar Avenue Overland Park KS 66202 Age: 37	Vice President General Counsel Assistant Secretary		2000 2000 2000	Vice President, Secretary and General Counsel of WDR; Senior Vice President, Secretary and General Counsel of Waddell & Reed, WRIMCO and WRSCO; Senior Vice President, Assistant Secretary and General Counsel of WRIICO and ISI; Vice President, General Counsel and Assistant Secretary of each of the funds in the Fund Complex; formerly, Assistant Secretary of WDR; formerly, an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS

     The Board oversees the operations of the Fund, and is responsible for the overall management and supervision of its affairs in accordance with the laws of the State of Maryland, and directs the officers to perform the daily functions of the Fund. The Board similarly oversees the operations of each of the other funds in the Family of Investment Companies.

Committees of the Board of Directors

     The Board has established the following committees: Audit Committee, Executive Committee, Nominating Committee, Valuation Committee and Investment Review Committee. The respective duties and current memberships are:

AUDIT COMMITTEE: The Audit Committee meets with the Fund’s independent auditors, internal auditors and corporate officers to discuss the scope and results of the annual audit of the Fund, to review financial statements, reports, compliance matters, and to discuss such other matters as the Committee deems appropriate or desirable. The Committee acts as a liaison between the Fund’s independent auditors and the full Board of Directors. James M. Concannon, David P. Gardner, Linda K. Graves, John F. Hayes, and Frank J. Ross, Jr. are the members of the Audit Committee. During the calendar year ended December 31, 2002, the Audit Committee met four times.

EXECUTIVE COMMITTEE: When the Board is not in session, the Executive Committee has and may exercise any or all of the powers of the Board in the management of the business and affairs of the Fund except the power to increase or decrease the size of, or fill vacancies on the Board, and except as otherwise provided by law. Keith A. Tucker, Glendon E. Johnson and John A. Dillingham are the members of the Executive Committee. During the calendar year ended December 31, 2002, the Executive Committee did not meet.

NOMINATING COMMITTEE: The Nominating Committee evaluates, selects and recommends to the Board candidates for disinterested directors. Glendon E. Johnson, Eleanor B. Schwartz and Frederick Vogel III are the members of the Nominating Committee. During the calendar year ended December 31, 2002, the Nominating Committee did not meet.

VALUATION COMMITTEE: The Valuation Committee reviews and considers valuation recommendations by management for securities

for which market quotations are not available, and values such securities and other assets at fair value as determined in good faith under procedures established by the Board. Keith A. Tucker and Henry J. Herrmann are the members of the Valuation Committee. During the calendar year ended December 31, 2002, the Valuation Committee met six times.

INVESTMENT REVIEW COMMITTEE: The Investment Review Committee considers such matters relating to the investment management of the funds in the Family of Investment Companies as the Committee may, from time to time, determine warrant review, such as investment management policies and strategies, investment performance, risk management techniques and securities trading practices, and may make recommendations as to these matters to the Board. Frederick Vogel III, Joseph Harroz, Jr. and David P. Gardner are the members of the Investment Review Committee. The Investment Review Committee was formed in February 2002; the Committee met once during the calendar year ended December 31, 2002.

OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2002

The following table provides information regarding shares of the Portfolio, as well as the aggregate dollar range of shares of all funds overseen by the Director within the Family of Investment Companies.

DISINTERESTED DIRECTORS

	Dollar Range of Portfolios’ Shares		Aggregate Dollar Range of Fund Shares Owned in Funds Overseen by Director in Family
Director	Owned*		of Investment Companies
James M. Concannon		$0	over $100,000
John A. Dillingham		$0	over $100,000
David P. Gardner		$0	$10,001 to $50,000
Linda K. Graves		$0	over $100,000
Joseph Harroz, Jr.		$0	over $100,000
John F. Hayes		$0	over $100,000
Glendon E. Johnson		$0	over $100,000
Eleanor B. Schwartz		$0	$0
Frederick Vogel III		$0	over $100,000

INTERESTED DIRECTORS

	Dollar Range of Portfolios’ Shares		Aggregate Dollar Range of Fund Shares Owned in Funds Overseen by Director in Family of
Director	Owned*		Investment Companies
Henry J. Herrmann		$0	over $100,000
Frank J. Ross, Jr.		$0	over $100,000
Keith A. Tucker		$0	over $100,000

     The Directors who are not “affiliated persons” of the Fund, as defined in the 1940 Act, have deferred a portion of their annual compensation. The values of the Directors’ deferred accounts, as of December 31, 2002 were:

	Dollar Range of Portfolios’ Shares		Aggregate Dollar Range of Fund Shares Deemed Owned in Funds Overseen by
Director	Deemed to be Owned*		Director in Family of Investment Companies
James M. Concannon		$0	$1 to $10,000
John A. Dillingham		$0	$1 to $10,000
David P. Gardner		$0	$10,001 to $50,000
Linda K. Graves		$0	$1 to $10,000

	Dollar Range of Portfolios’ Shares		Aggregate Dollar Range of Fund Shares Deemed Owned in Funds Overseen by
Director	Deemed to be Owned*		Director in Family of Investment Companies
Joseph Harroz, Jr.		$0	$50,001 to $100,000
John F. Hayes		$0	$1 to $10,000
Glendon E. Johnson		$0	$1 to $10,000
Frank J. Ross, Jr.		$0	$10,001 to $50,000
Eleanor B. Schwartz		$0	$1 to $10,000
Frederick Vogel III		$0	$1 to $10,000

* The Portfolios’ shares are available for purchase only by Participating Insurance Companies.

     The Board of Directors of the Fund has created an honorary position of Director Emeritus. The Director Emeritus policy currently provides that an incumbent Director who has attained the age of 70 may, or if initially elected as a Director on or after May 31, 1993, has attained the age of 75 must, resign his or her position as Director and, unless he or she elects otherwise, will serve as Director Emeritus provided that the Director has served as a Director of the Fund for at least five years, which need not have been consecutive. A Director Emeritus receives an annual fee from the Fund in an amount equal to the annual retainer at the time he or she resigned as a Director; provided that a Director initially elected to a Board of Directors on or after May 31, 1993, receives such annual fee only for a period of three years commencing upon the date the Director began his or her service as Director Emeritus, or in an equivalent lump sum. A Director Emeritus receives these fees in recognition of his or her past services, whether or not services are rendered in his or her capacity as Director Emeritus, but he or she has no authority or responsibility with respect to management of the Fund. Messrs. Henry L. Bellmon, Jay B. Dillingham, William T. Morgan, Doyle Patterson, Ronald K. Richey and Paul S. Wise retired as Directors of the Fund and of each of the other funds in the Family of Investment Companies, and each serves as Director Emeritus.

     The funds in the Family of Investment Companies pay to each Director (other than Directors who are affiliates of Waddell & Reed) an annual base fee of $65,500 (of which at least $7,500 is deferred), plus $4,250 for each meeting of the Board attended, plus reimbursement of expenses for attending such meeting, and $500 for each committee meeting attended which is not in conjunction with a Board meeting. The fees to the Directors are divided among the funds in the Family of Investment Companies based on each fund’s relative size. Ivy Fund pays to each of its trustees annual compensation of $30,000, which includes $1,000 for each meeting of the Board attended. It is anticipated that the Directors will receive the following fees for service as a director of the Fund:

COMPENSATION TABLE

Disinterested Directors

			Total
	Aggregate		Compensation
	Compensation		From Fund
	From		and Fund
Director	Portfolio1		Complex2
James M. Concannon	$	0	$	82,500
John A. Dillingham		0		82,500
David P. Gardner		0		82,500
Linda K. Graves		0		82,500
Joseph Harroz, Jr.		0		82,500
John F. Hayes		0		82,500
Glendon E. Johnson		0		82,500
Eleanor B. Schwartz		0		82,500
Frederick Vogel III		0		82,500

Interested Directors

			Total
	Aggregate		Compensation
	Compensation		From Portfolio
	From		and Fund
Director	Portfolio1		Complex2
Henry J. Herrmann		0		0
Frank J. Ross, Jr.		0		82,500
Keith A. Tucker		0		0

¹ For the current fiscal year, the Directors have agreed to not allocate any portion of their total compensation to the Portfolio.

² No pension or retirement benefits have been accrued as a part of Portfolio expenses.

     The officers of the Fund are paid by WRIMCO or its affiliates.

PURCHASES AND REDEMPTIONS

     The separate accounts of the Participating Insurance Companies place orders to purchase and redeem shares of a Portfolio based on, among other things, the amount of premium payments to be invested and the number of surrender and transfer requests to be effected on any day according to the terms of the Policies. Shares of a Portfolio are sold at their NAV per share. No sales charge is paid by any Participating Insurance Company for purchase of shares. Redemptions will be made at the NAV per share of the applicable Portfolio. Payment is generally made within seven days after receipt of a proper request to redeem. The Fund may suspend the right of redemption of shares of the Portfolios and may postpone payment for any period if any of the following conditions exist: (1) the NYSE is closed other than customary weekend and holiday closings or trading on the NYSE is restricted; (2) the SEC has determined that a state of emergency exists which may make payment or transfer not reasonably practicable; (3) the SEC has permitted suspension of the right of redemption of shares for the protection of the shareholders of the Fund; or (4) applicable laws and regulations otherwise permit the Fund to suspend payment on the redemption of shares. Redemptions are ordinarily made in cash but under extraordinary conditions the Fund’s Board may determine that the making of cash payments is undesirable. In such case, redemption payments may be made in Portfolio securities. The redeeming shareholders would incur brokerage costs in selling such securities. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder.

     Should any conflict between Policyowners arise which would require that a substantial amount of net assets be withdrawn from a Portfolio, orderly portfolio management could be disrupted to the potential detriment of Policyowners. The Fund need not accept any purchase order, and it may discontinue offering the shares of any Portfolio.

SHAREHOLDER COMMUNICATIONS

     Policyowners will receive, from the Participating Insurance Companies, financial statements of the Fund as required under the 1940 Act. Each report shows the investments owned by each Portfolio and the market values thereof and provides other information about the Fund and its operations.

TAXES

General

     Shares of the Portfolios are offered only to insurance company separate accounts that fund Policies. See the applicable Policy prospectus for a discussion of the special taxation of insurance companies with respect to such accounts and of the Policyholders.

     Each Portfolio is treated as a separate corporation for Federal income tax purposes. Each Portfolio intends to qualify for treatment as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (Code), so that it is relieved of Federal income tax on that part of its investment company taxable income (consisting generally of net taxable investment income, net short-term capital gain and net gains from certain foreign currency transactions) that it distributes to its shareholders. To continue to qualify for treatment as a RIC, a Portfolio must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (Distribution Requirement) and must meet several additional requirements. With respect to a Portfolio, these requirements include the following: (1) the Portfolio must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of securities or foreign currencies or other income (including gains from options, futures contracts or forward contracts) derived with respect to its business of investing in securities or those currencies (Income Requirement); (2) at the close of each quarter of the Portfolio’s taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities that are limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Portfolio’s total assets and that does not represent more than 10% of the issuer’s outstanding voting securities (50% Diversification Requirement); and (3) at the close of each quarter of the Portfolio’s taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or the securities of other RICs) of any one issuer.

     Each Portfolio intends to comply with the diversification requirements imposed by section 817(h) of the Code and the regulations thereunder. These requirements, which are in addition to the diversification requirements imposed on a Portfolio by the 1940 Act and Subchapter M of the Code, place certain limitations on the assets of each separate account — and, because section 817(h) and those regulations treat the assets of the Portfolio as assets of the related separate account, of the Portfolio — that may be invested in securities of a single issuer. Specifically, the regulations provide that, except as permitted by the safe harbor described below, as of the end of each calendar quarter or within 30 days thereafter, no more than 55% of a Portfolio’s total assets may be represented by any one investment, no more than 70% by any two investments, no more than 80% by any three investments and no more than 90% by any four investments. For this purpose, all securities of the same issuer are considered a single investment, and while each U.S. Government agency and instrumentality is considered a separate issuer, a particular foreign government and its agencies, instrumentalities and political subdivisions all will be considered the same issuer. Section 817(h) provides, as a safe harbor, that a separate account will be treated as being adequately diversified if the diversification requirements

under Subchapter M are satisfied and no more than 55% of the value of the account’s total assets are cash and cash items, government securities and securities of other RICs. Failure of a Portfolio to satisfy the section 817(h) requirements would result in taxation of the Participating Insurance Companies and treatment of the Policyowners other than as described in the prospectuses for the Policies. If a Portfolio failed to qualify for treatment as a regulated investment company for any taxable year, (1) it would be taxed at corporate rates on the full amount of its taxable income for that year without being able to deduct the distributions it makes to its shareholders, (2) the shareholders would treat all those distributions, including distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), as dividends (that is, ordinary income) to the extent of the Portfolio’s earnings and profits, and (3) most importantly, each insurance company separate account invested therein would fail to satisfy the diversification requirements of Code section 817(h), with the result that the variable annuity contracts supported by that account would no longer be eligible for tax deferral. In addition, the Portfolio could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for regulated investment company treatment.

     Dividends and distributions declared by a Portfolio in December of any year and payable to its shareholders of record on a date in that month are deemed to have been paid by the Portfolio and received by the shareholders on December 31 of that year even if they are paid by the Portfolio during the following January. Accordingly, those dividends and distributions will be taxed to the shareholders for the year in which that December 31 falls.

     A Portfolio will be subject to a nondeductible 4% excise tax (Excise Tax) to the extent it fails to distribute, by the end of any calendar year, substantially all of its ordinary income for that year and capital gains net income for the one-year period ending on October 31 of that year, plus certain other amounts. For these purposes, a Portfolio may defer into the next calendar year net capital losses incurred between November 1 and the end of the current calendar year. It is each Portfolio’s policy to pay sufficient dividends and distributions each year to avoid imposition of the Excise Tax.

Income from Foreign Securities

     Dividends and interest received, and gains realized, by a Portfolio may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (foreign taxes) that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United States may reduce or eliminate foreign taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.

     A Portfolio may invest in the stock of passive foreign investment companies (PFICs). A PFIC is any foreign corporation that (with certain exceptions), in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a Portfolio will be subject to Federal income tax on a portion of any excess distribution received on the stock of a PFIC or of any gain on disposition of the stock (collectively PFIC income), plus interest thereon, even if the Portfolio distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Portfolio’s investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.

     If a Portfolio invests in a PFIC and elects to treat the PFIC as a qualified electing fund (QEF), then in lieu of the foregoing tax and interest obligation, the Portfolio will be required to include in income each year its pro rata share of the QEF’s annual ordinary earnings and net capital gain — which probably would have to be distributed by the Portfolio to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax — even if those earnings and gain were not distributed to the Portfolio by the QEF. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof.

     A Portfolio may elect to mark to market its stock in any PFIC. Marking-to-market, in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC’s stock over the Portfolio’s adjusted basis therein as of the end of that year. Pursuant to the election, the Portfolio also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included by the Portfolio for prior taxable years under the election (and under regulations proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). The Portfolio’s adjusted basis in each PFIC’s stock with respect to which it makes this election will be adjusted to reflect the amounts of income included and deductions taken under the election.

Income from Options, Futures and Forward Currency Contracts and Foreign Currencies

     The use of hedging and option income strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a Portfolio realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options, futures contracts and forward currency contracts derived by a Portfolio with respect to its business of investing in securities or foreign currencies, will qualify as permissible income under the Income Requirement.

     Any income the Portfolio earns from writing options is treated as short-term capital gains. If a Portfolio enters into a closing purchase transaction, it will have a short-term capital gain or loss based on the difference between the premium it received for the option it wrote and the premium it pays for the option it buys. If an option written by a Portfolio lapses without being exercised, the premium it receives also will be a

short-term capital gain. If such an option is exercised and the Portfolio thus sells the securities subject to the option, the premium the Portfolio receives will be added to the exercise price to determine the gain or loss on the sale.

     Certain options, futures contracts and forward currency contracts in which a Portfolio may invest may be section 1256 contracts. Section 1256 contracts held by a Portfolio at the end of its taxable year, other than contracts subject to a mixed straddle election made by the Portfolio, are marked-to-market (that is, treated as sold at that time for their fair market value) for Federal income tax purposes, with the result that unrealized gains or losses are treated as though they were realized. Sixty percent of any net gains or losses recognized on these deemed sales, and 60% of any net realized gains or losses from any actual sales of section 1256 contracts, are treated as long-term capital gains or losses, and the balance is treated as short-term capital gains or losses. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax and other purposes. A Portfolio may need to distribute any mark-to-market gains to its shareholders to satisfy the Distribution Requirement and/or avoid imposition of the Excise Tax, even though it may not have closed the transactions and received cash to pay the distributions.

     Code section 1092 (dealing with straddles) may also affect the taxation of options and futures contracts in which a Portfolio may invest. That section defines a straddle as offsetting positions with respect to personal property; for these purposes, options, futures contracts and forward currency contracts are personal property. Section 1092 generally provides that any loss from the disposition of a position in a straddle may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle. In addition, these rules may postpone the recognition of loss that would otherwise be recognized under the mark-to-market rules discussed above. The regulations under section 1092 also provide certain wash sale rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and short sale rules applicable to straddles. If a Portfolio makes certain elections, the amount, character and timing of the recognition of gains and losses from the affected straddle positions will be determined under rules that vary according to the elections made. Because only a few of the regulations implementing the straddle rules have been promulgated, the tax consequences of straddle transactions to a Portfolio are not entirely clear.

     If a Portfolio has an appreciated financial position — generally, an interest (including an interest through an option, futures or forward currency contract or short sale) with respect to any stock, debt instrument (other than straight debt) or partnership interest the fair market value of which exceeds its adjusted basis — and enters into a constructive sale of the position, the Portfolio will be treated as having made an actual sale thereof, with the result that gain will be recognized at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or futures or forward currency contract entered into by a Portfolio or a related person with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Portfolio holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Portfolio’s risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale, or granting an option to buy substantially identical stock or securities).

DIVIDENDS AND DISTRIBUTIONS

     It is the Fund’s intention to distribute substantially all the net investment income, if any, of each Portfolio. For dividend purposes, net investment income of the Portfolio, will consist of all payments of dividends or interest received by the Portfolio less the estimated expenses of the Portfolio.

     Dividends from investment income of each Portfolio will usually be declared and paid annually in December in additional full and fractional shares of the Portfolio. Ordinarily, dividends are paid on shares starting on the day after they are issued and on shares the day they are redeemed.

     All net realized long-term or short-term capital gains of a Portfolio, if any, are declared and distributed annually in December to its shareholders.

     It is the policy of each Portfolio to make annual capital gains distributions to the extent that net capital gains are realized in excess of available capital loss carryovers. Income and expenses are earned and incurred separately by each Portfolio, and gains and losses on portfolio transactions of a Portfolio are attributable only to that Portfolio. For example, capital losses realized by one Portfolio would not affect capital gains realized by another portfolio of the Fund.

PORTFOLIO TRANSACTIONS AND BROKERAGE

     One of the duties undertaken by a Portfolio’s Sub-Advisor, pursuant to its Sub-Advisory Agreement, is to arrange the purchase and sale of securities for the Portfolio. Purchases from underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers will include the spread between the bid and the asked prices. Otherwise, transactions in securities other than those for which an exchange is the primary market are generally effected with dealers acting as principals or market makers. Brokerage commissions are paid primarily for effecting transactions in securities traded on an exchange and otherwise only if it appears likely that a better price or execution can be obtained. A Portfolio’s Sub-Advisor may manage other advisory accounts with investment objectives similar to those of the Portfolio. It can be anticipated that a Sub-Advisor will frequently, yet not always, place concurrent orders for all or most accounts for which it

has responsibility, or the Sub-Advisor may otherwise combine orders for the Portfolio with those of other accounts for which it has investment discretion, including accounts of its affiliates. Under current written procedures, transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each fund or advisory account, except where the combined order is not filled completely. In this case, for a transaction not involving an initial public offering (IPO), a Sub-Advisor will ordinarily allocate the transaction pro rata based on the orders it has placed, subject to certain variances provided for in the written procedures. For a partially filled IPO order, subject to certain variances specified in the written procedures, a Sub-Advisor generally allocates the shares as follows: the IPO shares are initially allocated pro rata among the included portfolios/funds and/or advisory accounts grouped according to investment objective, based on relative total assets of each group; and the shares are then allocated within each group pro rata based on relative total assets of the included portfolios/funds and/or advisory accounts, except that (a) within a group having a small cap-related investment objective, shares are allocated on a rotational basis after taking into account the impact of the anticipated initial gain on the value of the included portfolio/fund or advisory account and (b) within a group having a mid cap-related investment objective, shares are allocated based on the portfolio manager’s judgment, including but not limited to such factors as the portfolio/fund’s or advisory account’s investment strategies and policies, cash availability, any minimum investment policy, liquidity, anticipated term of the investment and current securities positions. In all cases, a Sub-Advisor seeks to implement its allocation procedures to achieve a fair and equitable allocation of securities among its portfolios/funds and other advisory accounts. Sharing in large transactions could affect the price a Portfolio pays or receives or the amount it buys or sells. As well, a better negotiated commission may be available through combined orders.

     To effect the portfolio transactions of a Portfolio, its Sub-Advisor is authorized to engage broker-dealers (brokers) which, in its best judgment based on all relevant factors, will implement the policy of the Portfolio to seek best execution (prompt and reliable execution at the best price obtainable) for reasonable and competitive commissions. The Sub-Advisor need not seek competitive commission bidding but is expected to minimize the commissions paid to the extent consistent with the interests and policies of the Portfolio. Subject to review by the Board, such policies include the selection of brokers which provide execution and/or research services and other services, including pricing or quotation services directly or through others (research and brokerage services) considered by the Sub-Advisor to be useful or desirable for its investment management of the Portfolio and/or the other funds and accounts over which the Sub-Advisor has investment discretion.

     Research and brokerage services are, in general, defined by reference to Section 28(e) of the Securities Exchange Act of 1934 as including (1) advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities and purchasers or sellers, (2) furnishing analyses and reports, or (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement and custody). Investment discretion is, in general, defined as having authorization to determine what securities shall be purchased or sold for an account, or making those decisions even though someone else has responsibility.

     The commissions paid to brokers that provide such research and/or brokerage services may be higher than the commission another qualified broker would charge for effecting comparable transactions and are permissible if a good faith determination is made by the Sub-Advisor that the commission is reasonable in relation to the research or brokerage services provided. No allocation of brokerage or principal business is made to provide any other benefits to the Sub-Advisor or its affiliates.

     The investment research provided by a particular broker may be useful only to one or more of the other advisory accounts of a Sub-Advisor, and investment research received for the commissions of those other accounts may be useful both to the Portfolio and one or more of such other accounts. Such investment research, which may be supplied by a third party at the request of a broker, includes information on particular companies and industries as well as market, economic or institutional activity areas. It serves to broaden the scope and supplement the research activities of the Sub-Advisor; serves to make available additional views for consideration and comparisons; and enables the Sub-Advisor, as applicable, to obtain market information on the price of securities held in the Portfolio or being considered for purchase.

     To the extent that electronic or other products provided by such brokers to assist a Sub-Advisor in making investment management decisions are used for administration or other non-research purposes, a reasonable allocation of the cost of the product attributable to its non-research use is made and this cost is paid by the Sub-Advisor.

     The Fund may also use its brokerage to pay for pricing or quotation services to value securities. The Portfolios have not been in operation prior to the date of this SAI; therefore, no brokerage commissions were paid by the Fund with respect to the Portfolios.

     The Fund, WRIMCO, Waddell & Reed and each of the Sub-Advisors have adopted a Code of Ethics under Rule 17j-1 of the 1940 Act that permits their respective directors, officers and employees to invest in securities, including securities that may be purchased or held by the Portfolio. The Code of Ethics subjects covered personnel to certain restrictions that include prohibited activities, pre-clearance requirements and reporting obligations.

OTHER INFORMATION

Capital Stock

     Capital stock is currently divided into the following classes which are a type of class designated a series as that term is defined in the Articles of Incorporation of the Fund: Asset Strategy Portfolio, Balanced Portfolio, Bond Portfolio, Growth Portfolio, High Income Portfolio, Core Equity Portfolio, International Portfolio, International II Portfolio, Limited-Term Bond Portfolio, Money Market Portfolio, Micro Cap Growth Portfolio, Science and Technology Portfolio, Small Cap Portfolio, Small Company Value Portfolio, and Value Portfolio.

     The Board may change the designation of any Fund series and may increase or decrease the numbers of shares of any Fund series but may not decrease the number of shares of any Fund series below the number of shares then outstanding.

     Each issued and outstanding share in a Fund series is entitled to participate equally in dividends and distributions declared by the Fund series and, upon liquidation or dissolution, in net assets of such Fund series remaining after satisfaction of outstanding liabilities. The shares of each Fund series when issued are fully paid and nonassessable.

     The Fund does not hold annual meetings of shareholders; however, certain significant corporate matters, such as the approval of a new investment advisory agreement or a change in a fundamental investment policy, which require shareholder approval, will be presented to shareholders at a meeting called by the Board for such purpose.

     Special meetings of shareholders may be called for any purpose upon receipt by the Fund of a request in writing signed by shareholders holding not less than 25% of all shares entitled to vote at such meeting, provided certain conditions stated in the Bylaws are met. There will normally be no meeting of the shareholders for the purpose of electing directors until such time as less than a majority of directors holding office have been elected by shareholders, at which time the directors then in office will call a shareholders’ meeting for the election of directors. To the extent that Section 16(c) of the 1940 Act applies to the Fund, the directors are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any director when requested in writing to do so by the shareholders of record of not less than 10% of the Fund’s outstanding shares.

Voting Rights

     All shares of the Fund have equal voting rights (regardless of the NAV per share) except that on matters affecting only one series, only shares of that series are entitled to vote. The shares do not have cumulative voting rights. Accordingly, the holders of more than 50% of the shares of the Fund voting for the election of directors can elect all of the directors of the Fund if they choose to do so, and in such event the holders of the remaining shares would not be able to elect any directors.

     Matters in which the interests of all the Fund series are substantially identical (such as the election of Directors or the approval of independent public accountants) will be voted on by all shareholders without regard to the separate Fund series. Matters that affect all the Fund series but where the interests of the Fund series are not substantially identical (such as approval of the Investment Management Agreement) will be voted on separately by each Fund series. Matters affecting only one Fund series, such as a change in its fundamental policies or its Sub-Advisor, will be voted on separately by that Fund series.

     Matters requiring separate shareholder voting by the Fund series shall have been effectively acted upon with respect to any Fund series if a majority of the outstanding voting securities of that Fund series votes for approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other Fund series; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Fund.

     The phrase “a majority of the outstanding voting securities” of a Fund series (or of the Fund) means the vote of the lesser of: (1) 67% of the shares of the Fund series (or the Fund) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of a series (or the Fund).

     To the extent required by law, Policyholders are entitled to give voting instructions with respect to Fund shares held in the separate accounts of Participating Insurance Companies. Participating Insurance Companies will vote the shares in accordance with such instructions unless otherwise legally required or permitted to act with respect to such instructions.

APPENDIX A

     The following are descriptions of some of the ratings of securities which the Fund may use. The Fund may also use ratings provided by other nationally recognized statistical rating organizations in determining the eligibility of securities for the Portfolios.

DESCRIPTION OF BOND RATINGS

     Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P corporate or municipal bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment of creditworthiness may take into consideration obligors such as guarantors, insurers or lessees.

     The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.

     The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform any audit in connection with any ratings and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

     The ratings are based, in varying degrees, on the following considerations:

1.          Likelihood of default — capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation;

2.          Nature of and provisions of the obligation;

3.          Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

     A brief description of the applicable S&P rating symbols and their meanings follow:

     AAA — Debt rated AAA has the highest rating assigned by Standard & Poor’s. Capacity to pay interest and repay principal is extremely strong.

     AA — Debt rated AA also qualifies as high-quality debt. Capacity to pay interest and repay principal is very strong, and debt rated AA differs from AAA issues only in a small degree.

     A — Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

     BBB — Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.

     BB, B, CCC, CC, C — Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.

     BB — Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.

     B — Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.

     CCC — Debt rated CCC has a currently indefinable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.

     CC — The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.

     C — The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.

     CI — The rating CI is reserved for income bonds on which no interest is being paid.

     D — Debt rated D is in payment default. It is used when interest payments or principal payments are not made on a due date even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace periods. The D rating will also be used upon a filing of a bankruptcy petition if debt service payments are jeopardized.

     Plus (+) or Minus (-) — To provide more detailed indications of credit quality, the ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

     NR — Indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

     Debt Obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.

     Bond Investment Quality Standards: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories (AAA, AA, A, BBB, commonly known as Investment Grade ratings) are generally regarded as eligible for bank investment. In addition, the Legal Investment Laws of various states governing legal investments may impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies and fiduciaries generally.

     Moody’s. A brief description of the applicable Moody’s rating symbols and their meanings follows:

     Aaa — Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edge. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

     Aa — Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.

     A — Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.

     Baa — Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Some bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

NOTE: Bonds within the above categories which possess the strongest investment attributes are designated by the symbol 1 following the rating.

     Ba — Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during good and bad times over the future. Uncertainty of position characterizes bonds in this class.

     B — Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

     Caa — Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

     Ca — Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

     C — Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Description of preferred stock ratings

     Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the debt rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer.

     The preferred stock ratings are based on the following considerations:

1.          Likelihood of payment — capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation;

2.          Nature of, and provisions of, the issue;

3.          Relative position of the issue in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

     AAA — This is the highest rating that may be assigned by S&P to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations.

     AA — A preferred stock issue rated AA also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.

     A — An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

     BBB — An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the ‘A’ category.

     BB, B, CCC — Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to the issuer’s capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and CCC the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

     CC — The rating CC is reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying.

     C — A preferred stock rated C is a non-paying issue.

     D — A preferred stock rated D is a non-paying issue with the issuer in default on debt instruments.

     NR — This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

     Plus (+) or minus (-) — To provide more detailed indications of preferred stock quality, the rating from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

     A preferred stock rating is not a recommendation to purchase, sell, or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

     Moody’s. Note: Moody’s applies numerical modifiers 1, 2 and 3 in each rating classification; the modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

     Preferred stock rating symbols and their definitions are as follows:

     aaa — An issue which is rated aaa is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks.

     aa — An issue which is rated aa is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well-maintained in the foreseeable future.

     a — An issue which is rated a is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the aaa and aa classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels.

     baa — An issue which is rated baa is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time.

     ba — An issue which is rated ba is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class.

     b — An issue which is rated b generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small.

     caa — An issue which is rated caa is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments.

     ca — An issue which is rated ca is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments.

     c — This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

     S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to indicate the relative degree of safety. Issues assigned an A rating (the highest rating) are regarded as having the greatest capacity for timely payment. An A-1 designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. An A-2 rating indicates that capacity for timely payment is satisfactory; however, the relative degree of safety is not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment; however, they are more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. A C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default, which occurs when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period.

     Moody’s commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody’s employs the designations of Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers. Issuers rated Prime 1 have a superior capacity for repayment of short-term promissory obligations and repayment capacity will normally be evidenced by (1) leading market positions in well established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protection; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime 2 also have a strong capacity for repayment of short-term promissory obligations as will normally be evidenced by many of the characteristics described above for Prime 1 issuers, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation; capitalization characteristics, while still appropriate, may be more affected by external conditions; and ample alternate liquidity is maintained. Issuers rated Prime 3 have an acceptable capacity for repayment of short-term promissory obligations, as will normally be evidenced by many of the characteristics above for Prime 1 issuers, but to a lesser degree. The effect of industry characteristics and market composition may be more pronounced; variability in earnings and profitability may result in changes in the level of debt protection measurements and requirement for relatively high financial leverage; and adequate alternate liquidity is maintained.

EX-99.17(F) 11 c77852exv99w17xfy.txt EX-(17)(F) ADVANTUS SERIES FUND, INC. PROSPECTUS [ADVANTUS LOGO] ADVANTUS SERIES FUND, INC. Prospectus dated May 1, 2003 As with all mutual funds, the Securities and Exchange Commission has not determined that the information in this prospectus is accurate or complete, nor has it approved the Fund's securities. It is a criminal offense to state otherwise. ADVANTUS SERIES FUND, INC. Advantus Series Fund, Inc. (Fund) is a Minnesota corporation with various investment portfolios that are each operated as mutual funds (the Portfolios). The Portfolios are as follows: - Growth Portfolio - Bond Portfolio - Money Market Portfolio - Asset Allocation Portfolio - Mortgage Securities Portfolio - Index 500 Portfolio - Capital Appreciation Portfolio - International Stock Portfolio - Small Company Growth Portfolio - Maturing Government Bond Portfolios (two separate portfolios with maturity dates of 2006 and 2010) - Value Stock Portfolio - Small Company Value Portfolio - International Bond Portfolio (formerly the Global Bond Portfolio) - Index 400 Mid-Cap Portfolio - Core Equity Portfolio (formerly the Macro-Cap Value Portfolio) - Micro-Cap Growth Portfolio - Real Estate Securities Portfolio The Fund has issued a separate series of its common stock for each Portfolio. This prospectus provides investors information about the Fund and each Portfolio that investors should know before investing. TABLE OF CONTENTS

Page No. SUMMARY ......................... .......................... 1 Growth Portfolio.................................. 3 Bond Portfolio.................................... 6 Money Market Portfolio............................ 9 Asset Allocation Portfolio........................ 12 Mortgage Securities Portfolio..................... 15 Index 500 Portfolio............................... 18 Capital Appreciation Portfolio.................... 21 International Stock Portfolio..................... 24 Small Company Growth Portfolio.................... 27 Maturing Government Bond Portfolios............... 30 Value Stock Portfolio............................. 35 Small Company Value Portfolio..................... 38 International Bond Portfolio...................... 41 Index 400 Mid-Cap Portfolio....................... 44 Core Equity Portfolio............................. 47 Micro-Cap Growth Portfolio........................ 50 Real Estate Securities Portfolio.................. 53 INVESTING IN THE FUND .................. ................... 56 Managing the Portfolios........................... 56 Advisory Fees..................................... 59 Distribution Fees................................. 59 Voluntary Fee Absorption.......................... 59 Investment Objective, Policies and Practices...... 60 Growth Portfolio............................. 60 Bond Portfolio............................... 60 Money Market Portfolio....................... 62 Asset Allocation Portfolio................... 63 Mortgage Securities Portfolio................ 64 Index 500 Portfolio.......................... 66 Capital Appreciation Portfolio............... 67 International Stock Portfolio................ 68 Small Company Growth Portfolio............... 69 Maturing Government Bond Portfolios.......... 70 Value Stock Portfolio........................ 72 Small Company Value Portfolio................ 73 International Bond Portfolio................. 74 Index 400 Mid-Cap Portfolio.................. 76 Core Equity Portfolio........................ 76 Micro-Cap Growth Portfolio................... 77 Real Estate Securities Portfolio............. 78 Investment Practices Common to the Portfolios.................................... 80 Portfolio Turnover........................... 80 Defining Risks.................................... 80

TABLE OF CONTENTS i

Page No. BUYING AND SELLING SHARES ................ ................. 85 Buying Shares..................................... 85 Selling Shares.................................... 85 Exchanging Shares................................. 85 GENERAL INFORMATION ................... .................... 87 Dividends and Capital Gains Distributions......... 87 Taxes............................................. 87 Mixed and Shared Funding.......................... 87 FINANCIAL HIGHLIGHTS ................... ................... 89 SERVICE PROVIDERS .................... ..................... 107 ADDITIONAL INFORMATION ABOUT THE FUND .......... ........... 108

ii TABLE OF CONTENTS SUMMARY Advantus Series Fund, Inc. (the Fund) consists of various investment portfolios (except International Bond Portfolio) that are each open-end, diversified investment companies (i.e. mutual funds). International Bond Portfolio is an open-end, non-diversified investment company. The Portfolios offer investors a variety of investment objectives. Portfolio shares are not offered directly to the public. Portfolio shares are sold to Minnesota Life Insurance Company (Minnesota Life) in connection with its variable life insurance policies and variable annuity contracts. Portfolio shares are also offered to certain other life insurance companies, including but not limited to life insurance affiliates of Minnesota Life. In April 2003, Advantus Capital Management, Inc. (Advantus Capital), at that time the investment adviser to each of the Portfolios, and certain companies affiliated with Advantus Capital entered into a Strategic Alliance Agreement and a related Purchase Agreement with Waddell & Reed Financial, Inc. (W&R), a leading U.S. mutual fund firm, its affiliate, Waddell & Reed Investment Management Co. (WRIMCO), and certain other companies affiliated with W&R. Under these agreements, Advantus Capital agreed to sell to WRIMCO its assets related to the actively managed equity Portfolios, with the exception of Real Estate Securities Portfolio. Advantus Capital has recommended to the Board of Directors of the Fund that these Portfolios be merged into similar existing portfolios of the W&R Target Funds, Inc. (Target Funds), an investment company managed by WRIMCO, or, where there is not a similar existing portfolio, into a newly formed shell portfolio of the Target Funds, as indicated in the following table:

CORRESPONDING TARGET ADVANTUS PORTFOLIO FUNDS PORTFOLIO - ------------------ -------------------- Growth Portfolio Growth Portfolio Asset Allocation Portfolio Balanced Portfolio Capital Appreciation Portfolio Growth Portfolio International Stock Portfolio shell portfolio Small Company Growth Portfolio Small Cap Portfolio Value Stock Portfolio Value Portfolio Small Company Value Portfolio shell portfolio Core Equity Portfolio Core Equity Portfolio Micro-Cap Growth Portfolio shell portfolio

It is anticipated that, after the mergers, the current sub-advisers of International Stock Portfolio, Small Company Value Portfolio and Micro-Cap Growth Portfolio will continue to act as sub-advisers for the corresponding portfolios of the Target Funds. Each Portfolio's merger will be subject to the approval of the Board of Directors of the Fund and the shareholders of the Portfolio. It is currently anticipated that shareholders of the affected Portfolios will be presented with a merger proposal in August of 2003. In connection with the agreements discussed above, the Board of Directors of the Fund appointed WRIMCO to act as the investment adviser to Asset Allocation Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core Equity Portfolio and Value Stock Portfolio on an interim basis prior to the mergers. In managing these Portfolios, WRIMCO intends to employ investment strategies substantially identical to those used for the corresponding portfolios of the Target Funds set forth in the table above. These strategies differ somewhat from those that have previously been used in managing these Portfolios. Historically, the Portfolios have been substantially fully invested, holding only enough cash to meet redemption requests and operating SUMMARY 1 requirements. There have been periods when certain of the corresponding portfolios of the Target Funds have held significantly greater percentages of cash. In addition, composition of the portfolios of the Target Funds generally has differed from applicable benchmarks more than that of corresponding Portfolios. This approach can result in periods of greater over-performance or under-performance compared to such benchmarks. This section gives investors a brief summary of each Portfolio's investment objective, policies and main risks, as well as performance and financial information. More detailed information about each Portfolio follows this summary. Keep in mind that an investment in each Portfolio is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency and that it is possible to lose money by investing in a Portfolio. An investor should also note that if a Portfolio makes frequent changes in its investment portfolio securities, such changes may result in higher Portfolio costs and may adversely affect an investor's return. 2 SUMMARY GROWTH PORTFOLIO Growth Portfolio seeks long-term accumulation of capital. Current income is a factor in the selection of securities, but is a secondary objective. The Portfolio seeks to achieve its goals by investing primarily in common stocks of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may invest in a wide range of marketable securities that, in WRIMCO's opinion, offer the potential for growth. The Portfolio typically invests in companies having a market capitalization of at least $1 billion, although it may invest in companies of any size. The Portfolio generally emphasizes investments in the faster growing sectors of the economy, such as the technology, healthcare and consumer-oriented sectors. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks, including the following main types of risk: - GROWTH STOCK RISK - the risk that if an assessment by the Portfolio's investment adviser of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Portfolio's investment adviser had placed on them. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's skill in evaluating and selecting securities for the Portfolio. - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Fund - Defining Risks" for a more detailed description of some of these main risks. SUMMARY 3 PORTFOLIO PERFORMANCE. The following bar chart and table show Growth Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 4.68 '94 0.81 '95 24.28 '96 17.15 '97 33.41 '98 34.70 '99 25.67 '00 -21.83 '01 -24.80 '02 -25.44 Best Quarter: (Q4'98) 21.62% Worst Quarter: (Q1'01) -25.46% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Growth Portfolio % -25.44 -5.80 4.28 Russell 1000 Growth Index -27.89 -3.84 6.71

SUMMARY 4 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Growth Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.45 Rule 12b-1 Fees % 0.25 Other Expenses % 0.06 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.76

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $78 243 422 942

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 5 BOND PORTFOLIO Bond Portfolio seeks as high a level of a long-term total rate of return as is consistent with prudent investment risk. The Portfolio also seeks preservation of capital as a secondary objective. The Portfolio invests in a variety of investment-grade debt securities. These debt securities include, among other things, corporate and mortgage-backed securities, debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, asset-backed securities and other debt obligations of U.S. banks or savings and loan associations. In selecting securities, the Portfolio's investment adviser considers factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CALL RISK - the risk that securities with interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - CREDIT RISK - the risk that an issuer of a debt security or fixed income obligation will not make payments on the security or obligation when due. - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INTEREST RATE RISK - the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Fund - Investment Objective, Policies and Practices - Bond Portfolio"). - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 6 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Bond Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 10.25 '94 -4.55 '95 19.75 '96 2.96 '97 9.42 '98 6.08 '99 -2.73 '00 10.44 '01 7.90 '02 10.50 Best Quarter: (Q2'95) 6.81% Worst Quarter: (Q1'94) -3.92% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Bond Portfolio % 10.50 6.32 6.79 Lehman Brothers Aggregate Bond Index 10.27 7.54 7.51

SUMMARY 7 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Bond Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.30 Rule 12b-1 Fees % 0.25 Other Expenses % 0.06 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.61

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $62 195 340 762

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 8 SUMMARY MONEY MARKET PORTFOLIO Money Market Portfolio seeks maximum current income to the extent consistent with liquidity and the preservation of capital. The Portfolio invests in a variety of U.S. dollar denominated money market securities. Although the Portfolio seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CREDIT RISK - the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security or obligation when due. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INFLATION RISK - the risk that inflation will erode the purchasing power of the value of securities held by the Portfolio or the Portfolio's dividends. - INTEREST RATE RISK - the risk that the value of a fixed income obligation will decline due to changes in market interest rates. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 9 PORTFOLIO PERFORMANCE. The following bar chart and table show Money Market Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows the Portfolio's average annual return over a one, five and ten year period. The chart and table assume reinvestment of dividends. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 2.68 '94 3.71 '95 5.43 '96 4.92 '97 5.11 '98 4.97 '99 4.71 '00 5.96 '01 3.75 '02 1.28 Best Quarter: (Q4'00) 1.56% Worst Quarter: (Q4'01) .28% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Money Market Portfolio % 1.28 4.12 4.24

An investor may obtain up-to-date information about the Portfolio's seven-day current yield and seven-day effective yield by calling Minnesota Life at (800) 995-3850. 10 SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Money Market Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.25 Rule 12b-1 Fees % 0.25 Other Expenses % 0.07 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.57

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $58 183 318 714

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 11 ASSET ALLOCATION PORTFOLIO Asset Allocation Portfolio seeks as high a level of long-term total rate of return as is consistent with prudent investment risk. The Portfolio invests primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In its equity investments, the Portfolio invests primarily in medium to large, well- established companies, that typically issue dividend producing securities. The majority of the Portfolio's debt holdings are either U.S. Government securities or investment grade corporate bonds, that include bonds rated BBB and higher by Standard & Poor's Ratings Service or Baa and higher by Moody's Investors Service, Inc. or, if unrated, deemed by WRIMCO to be of comparable quality. The Portfolio has no limitations on the range of maturities of debt securities in which it may invest. The Portfolio may invest in foreign securities. An investment in Asset Allocation Portfolio may result in the loss of money, and may also be subject to various risks including the following main types of risk: - CREDIT RISK - the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security when due. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INTEREST RATE RISK - the risk that the value of a debt security or other fixed income obligation will increase or decrease due to changes in market interest rates. This risk is generally greater for bonds with longer maturities. - MARKET RISK - the risk that equity and debt securities are subject to adverse trends in equity and debt markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's skill in allocating the Portfolio's assets among different types of investments. - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Fund - Defining Risks" for a more detailed description of some of these main risks. 12 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Asset Allocation Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of certain selected broad based indices. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 6.46 '94 -1.40 '95 25.01 '96 12.50 '97 18.99 '98 23.65 '99 15.17 '00 -10.40 '01 -14.36 '02 -8.98 Best Quarter: (Q4'98) 15.03% Worst Quarter: (Q1'01) -16.94% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Asset Allocation Portfolio % -8.98 -0.11 5.74 S&P 500 Index -22.10 -.59 9.33 Lehman Brothers Aggregate Bond Index 10.27 7.54 7.51 Blended Index(1) -9.80 3.10 8.93

(1) The blended index is comprised of 60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond Index. SUMMARY 13 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Asset Allocation Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.35 Rule 12b-1 Fees % 0.25 Other Expenses % 0.05 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.65

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $66 208 362 810

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 14 SUMMARY MORTGAGE SECURITIES PORTFOLIO Mortgage Securities Portfolio seeks a high level of current income consistent with prudent investment risk. The Portfolio invests in mortgage-related securities. The Portfolio invests a major portion of its assets in investment-grade securities representing interests in pools of mortgage loans. In addition, the Portfolio may invest in a variety of other mortgage-related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting securities, the Portfolio's investment adviser considers factors such as prepayment risk, liquidity, credit quality and the type of loan and collateral underlying the security, as well as trends in economic conditions and interest rates. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CALL RISK - the risk that callable securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - CONCENTRATION RISK - the risk that the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Portfolio concentrates its investments in the mortgage and mortgage-finance industry. - CREDIT RISK - the risk that an issuer of a mortgage-backed security or fixed income obligation will not make payments on the security or obligation when due. - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INTEREST RATE RISK - the risk that the value of a mortgage-backed security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Fund - Investment Objective, Policies and Practices - Mortgage Securities Portfolio"). - LIQUIDITY RISK - the risk that mortgage-related securities purchased by the Portfolio, including restricted securities determined by the Portfolio's investment adviser to be liquid at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by the investment adviser. - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 15 PORTFOLIO PERFORMANCE. The following bar chart and table show Mortgage Securities Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 9.25 '94 -3.37 '95 18.01 '96 5.26 '97 9.14 '98 6.57 '99 1.99 '00 11.80 '01 9.04 '02 9.66 Best Quarter: (Q2'95) 5.90% Worst Quarter: (Q1'94) -3.78% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Mortgage Securities Portfolio % 9.66 7.76 7.60 Lehman Brothers Mortgage-Backed Securities Index 8.75 7.34 7.28

SUMMARY 16 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Mortgage Securities Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- ------------------------------------------------------------------------ Management Fees % 0.30 Rule 12b-1 Fees % 0.25 Other Expenses % 0.07 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.62

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $63 199 346 774

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 17 INDEX 500 PORTFOLIO Index 500 Portfolio seeks investment results that correspond generally to the price and yield performance of the common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the S&P 500). The Portfolio invests its assets in all of the common stocks included in the S&P 500. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to replicate the performance of the S&P 500 may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor's Rating Services calculates the S&P 500, the amount and timing of cash flows into and out of the Portfolio, commissions, and other expenses. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 18 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Index 500 Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 9.76 '94 1.18 '95 36.83 '96 21.64 '97 32.36 '98 27.99 '99 20.28 '00 -9.39 '01 -12.25 '02 -22.37 Best Quarter: (Q4'98) 21.29% Worst Quarter: (Q3'02) -17.27% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Index 500 Portfolio % -22.37 -1.02 8.80 S&P 500 (as adjusted for dividend reinvestment) -22.10 -.59 9.33

SUMMARY 19 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Index 500 Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.13 Rule 12b-1 Fees % 0.25 Other Expenses % 0.05 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.43

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $44 138 241 542

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 20 SUMMARY CAPITAL APPRECIATION PORTFOLIO Capital Appreciation Portfolio seeks growth of capital. The Portfolio seeks to achieve its goal by investing primarily in common stocks of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may invest in a wide range of marketable securities that, in WRIMCO's opinion, offer the potential for growth. The Portfolio typically invests in companies having a market capitalization of at least $1 billion, although it may invest in companies of any size. The Portfolio generally emphasizes investments in the faster growing sectors of the economy, such as the technology, healthcare and consumer-oriented sectors. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks, including the following main types of risk: - GROWTH STOCK RISK - the risk that if an assessment by the Portfolio's investment adviser of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Portfolio's investment adviser had placed on them. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's skill in evaluating and selecting securities for the Portfolio. - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Fund - Defining Risks" for a more detailed description of some of these main risks. SUMMARY 21 PORTFOLIO PERFORMANCE. The following bar chart and table show Capital Appreciation Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one, five and ten year period compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 10.44 '94 2.25 '95 22.78 '96 17.61 '97 28.26 '98 30.83 '99 21.51 '00 -10.16 '01 -24.63 '02 -31.54 Best Quarter: (Q4'99) 29.80% Worst Quarter: (Q3'01) -22.97% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ Capital Appreciation Portfolio % -31.54 -5.92 4.42 S&P 500 Index -22.10 -.59 9.33

SUMMARY 22 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Capital Appreciation Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.50 Rule 12b-1 Fees % 0.25 Other Expenses % 0.08 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.83

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $85 265 460 1,025

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 23 INTERNATIONAL STOCK PORTFOLIO International Stock Portfolio seeks long-term capital growth. The Portfolio primarily invests in equity securities issued by small, mid and large capitalization foreign companies and governmental agencies. In addition, the Portfolio may invest lesser portions of its assets in foreign investment-grade debt securities. In selecting equity securities, the Portfolio's investment sub-adviser performs a company-by-company analysis, rather than focusing on a specific industry or economic sector. The Portfolio's investment sub-adviser concentrates on the market price of a company relative to its view regarding the company's long-term earnings potential. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CURRENCY RISK - the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. - FOREIGN SECURITIES RISK - the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 24 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show International Stock Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one and five year period and since the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '93 44.15 '94 -0.32 '95 14.23 '96 19.79 '97 11.94 '98 6.61 '99 21.43 '00 0.81 '01 -11.21 '02 -17.82 Best Quarter: (Q4'98) 14.54% Worst Quarter: (Q2'02) -23.85% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ International Stock Portfolio (inception 5/1/92) % -17.82 -0.97 7.68 Morgan Stanley Capital EAFE Index -15.65 -2.61 4.30

SUMMARY 25 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the International Stock Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) - -------------------------------------------------------------------- Management Fees % 0.60 Rule 12b-1 Fees % 0.25 Other Expenses % 0.14 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.99 EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $101 315 547 1,213 The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 26 SUMMARY SMALL COMPANY GROWTH PORTFOLIO Small Company Growth Portfolio seeks long-term accumulation of capital. The Portfolio primarily invests in various types of equity securities of small capitalization companies at the time of purchase. The Portfolio invests primarily in common and preferred stocks but may also invest in securities convertible into equity securities. In selecting equity securities, the Portfolio's investment sub-adviser employs a growth investment style and looks for either developing or older companies in a growth stage or companies providing products or services with a high unit-volume growth rate. The Portfolio invests primarily in equity securities of small companies. The Portfolio considers a "small" company to be one whose market capitalization is within the range of capitalizations of companies in the Russell 2000 Index. Some companies may outgrow the definition of a small company after the Portfolio has purchased their securities. These companies continue to be considered small for purposes of the Portfolio's investment policies. In addition, the Portfolio may invest a portion of its assets in companies of any size. As a result, the Portfolio's average market capitalization may sometimes exceed that of the largest company in the Russell 2000 Index. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's investment adviser of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Portfolio's investment adviser has placed on it. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - SMALL COMPANY RISK - the risk that equity securities of small companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 27 PORTFOLIO PERFORMANCE. The following bar chart and table show Small Company Growth Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one and five year period and since the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '94 6.16 '95 32.06 '96 6.45 '97 7.75 '98 1.27 '99 45.63 '00 -11.28 '01 -14.70 '02 -31.80 Best Quarter: (Q4'99) 45.45% Worst Quarter: (Q3'98) -27.87% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------- Small Company Growth Portfolio (inception 5/3/93) % -31.80 -5.31 3.82 Russell 2000 Growth Index -30.26 -6.59 3.28

SUMMARY 28 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Small Company Growth Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.65 Rule 12b-1 Fees % 0.25 Other Expenses % 0.08 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.98

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $100 312 542 1,201 The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 29 MATURING GOVERNMENT BOND PORTFOLIOS Each of the Maturing Government Bond Portfolios seeks as high an investment return as is consistent with prudent investment risk for a specified period of time ending on a specified liquidation date. Each of the Portfolios primarily invests in debt securities issued by the United States Treasury that are stripped of their unmatured interest coupons, and in receipts and certificates for stripped debt obligations and stripped interest coupons. In addition, each of the Portfolios may purchase other zero coupon securities issued by the U.S. government and its agencies and instrumentalities, by trusts where payment of principal and interest is guaranteed by the U.S. and by other government corporations. Each Portfolio will mature on a specific target date. The current target maturity dates are September 2006 and 2010. On each target date, the Portfolio will be converted to cash and reinvested in another Fund Portfolio at the direction of the investor. If the investor does not provide reinvestment instructions, then the proceeds will automatically be invested in the Money Market Portfolio. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CREDIT RISK - the risk that an issuer of a fixed income obligation will not make payments on the obligation when due (note: since the payment of principal on Portfolio securities is backed by the full faith and credit of the United States, this risk is less pervasive than other fixed income-oriented mutual funds). - INTEREST RATE RISK - the risk that the value of a debt security will decline due to changes in market interest rates (note: interest rate risk will affect the value of any of the Portfolio's zero coupon securities if the Portfolio desires to redeem a security prior to the security's maturity date. Otherwise, the Portfolio will receive the stated return from a zero coupon security upon maturity that will not be affected by changes in prevailing market interest rates). If an investor redeems Portfolio shares prior to the Portfolio's maturity target date, then the value of such Portfolio shares may be affected by interest rate risk. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 30 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show each of the Maturing Government Bond Portfolio's annual returns and long-term performance. The chart shows how each Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in each of the Portfolios. The table shows how each Portfolio's average annual return over a one and five year period and since the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of each Portfolio does not necessarily indicate how such Portfolio will perform in the future. 2006 PORTFOLIO YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '95 34.72 '96 -1.21 '97 12.62 '98 14.37 '99 -7.81 '00 15.63 '01 8.08 '02 12.99 Best Quarter: (Q2'95) 12.66% Worst Quarter: (Q1'96) -6.91% 2010 PORTFOLIO YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '95 41.22 '96 -3.42 '97 17.87 '98 14.28 '99 -11.54 '00 21.36 '01 4.96 '02 18.85 Best Quarter: (Q2'95) 15.42% Worst Quarter: (Q1'96) -10.09% SUMMARY 31 AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------ 2006 Portfolio (inception 5/2/94) % 12.99 8.28 9.72 Ryan Labs, Inc. September 2006 Index of U.S. Treasury Strips 12.69 9.07 10.27 2010 Portfolio (inception 5/2/94) 18.85 8.89 10.91 Ryan Labs, Inc. September 2010 Index of U.S. Treasury Strips 18.91 9.27 11.31

SUMMARY 32 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Maturing Government Bond 2006 and 2010 Portfolios. These tables describe the fees and expenses that investors pay if they buy and hold shares of the Portfolios, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolios. 2006 PORTFOLIO SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) - -------------------------------------------------------------------- Management Fees % 0.25 Other Expenses % 0.77 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 1.02 EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $104 325 563 1,248 The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 33 2010 PORTFOLIO SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) - -------------------------------------------------------------------- Management Fees % 0.25 Other Expenses % 1.03 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 1.28 EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $130 404 700 1,540 The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 34 SUMMARY VALUE STOCK PORTFOLIO Value Stock Portfolio seeks long-term accumulation of capital. The production of income is a secondary objective of the Portfolio. The Portfolio seeks to achieve its goals by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Portfolio seeks to invest in stocks that are, in the opinion of WRIMCO, undervalued relative to the true value of the company, and/or out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Portfolio typically invests in large-cap companies, it may invest in securities of any size company. An investment in Value Stock Portfolio may result in the loss of money, and may also be subject to various risks, including the following main types of risk: - LARGE COMPANY RISK - the risk that a portfolio of large capitalization company securities may underperform the market as a whole. - VALUE STOCK RISK - the risk that the value of a security believed by the Portfolio's investment adviser to be undervalued may never reach what the adviser believes is its full value, or that the security's value may decrease. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's skill in evaluating and selecting securities for the Portfolio. - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Fund - Defining Risks" for a more detailed description of some of these main risks. SUMMARY 35 PORTFOLIO PERFORMANCE. The following bar chart and table show Value Stock Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one and five year period and since the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '95 32.96 '96 30.95 '97 21.19 '98 1.75 '99 0.27 '00 -1.61 '01 -10.45 '02 -15.32 Best Quarter: (Q4'98) 15.18% Worst Quarter: (Q3'02) -18.44% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------ Value Stock Portfolio (inception 5/2/94) % -15.32 -5.31 6.16 Russell 1000 Value Index -15.52 1.16 10.74

SUMMARY 36 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Value Stock Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) - -------------------------------------------------------------------- Management Fees % 0.50 Rule 12b-1 Fees % 0.25 Other Expenses % 0.08 TOTAL ANNUAL PORTFOLIO OPERATING % 0.83 EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $85 265 460 1,025 The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 37 SMALL COMPANY VALUE PORTFOLIO Small Company Value Portfolio seeks long-term accumulation of capital. The Portfolio primarily invests in various types of equity securities of small capitalization companies. Although a universal definition of small capitalization companies does not exist, the Portfolio generally defines small capitalization companies as those whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000(R) Value Index. These equity securities will consist primarily of value common stocks, but may also include preferred stock and other securities convertible into equity securities. In selecting equity securities, the Portfolio's investment sub-adviser searches for those companies that appear to be undervalued or trading below their true worth, and examines such features as a firm's financial condition, business prospects, competitive position and business strategy. The Portfolio looks for companies that appear likely to come back into favor with investors, for reasons that may range from good prospective earnings or strong management teams to new products or services. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - INITIAL PUBLIC OFFERING RISK - the risk that the Portfolio will not be able to sustain the positive effect on performance that may result from investments in initial public offerings (IPOs). Favorable investments in IPOs have had a significant impact on the Portfolio's performance in some periods. The effect of IPOs on the Portfolio's total returns going forward may not be positive, either as a result of changes in the IPO market or growth of the Portfolio's assets which may reduce its total return. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - SMALL COMPANY RISK - the risk that equity securities of small companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. - VALUE STOCK RISK - the risk that the value of a security believed by the Portfolio's investment adviser to be undervalued may never reach what such investment adviser believes is its full value, or that such security's value may decrease. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 38 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Small Company Value Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one year period and since the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '98 -6.75 '99 -3.07 '00 28.00 '01 15.59 '02 -19.98 Best Quarter: (Q4'01) 20.92% Worst Quarter: (Q3'02) -27.13% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------ Small Company Value Portfolio (inception 10/1/97) % -19.98 1.37 1.74 Russell 2000 Value Index -11.42 2.71 2.96

SUMMARY 39 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Small Company Value Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) - -------------------------------------------------------------------- Management Fees % 0.70 Rule 12b-1 Fees % 0.25 Other Expenses % 0.22 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(A) % 1.17 (a) Advantus Capital Management, Inc. (Advantus Capital), investment adviser to certain of the Fund's Portfolios, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of 0.15% of average net assets of the Portfolio. After such absorption, the ratio of total Portfolio operating expenses to average net assets will be 1.10%. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be: 1 Year 3 Years 5 Years 10 Years $119 372 644 1,420 The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 40 SUMMARY INTERNATIONAL BOND PORTFOLIO (formerly the Global Bond Portfolio) International Bond Portfolio seeks to maximize current income, consistent with the protection of principal. The Portfolio invests mainly in a variety of investment-grade debt securities issued by foreign issuers. These debt securities include, among other things, debt obligations issued or guaranteed by foreign governments or any of their agencies or instrumentalities, debt obligations issued or guaranteed by supranational organizations established or supported by foreign governments and debt obligations issued by foreign companies. In addition, the Portfolio may invest up to 20% of its net assets in U.S. debt obligations issued or guaranteed by the U.S. government. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CALL RISK - the risk that securities with interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. - CREDIT RISK - the risk that an issuer of a debt security or fixed income obligation will not make payments on the security or obligation when due. - CURRENCY RISK - the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. - DIVERSIFICATION RISK - the risk that, because the Portfolio may invest more than 5% of its total assets in the securities of a single issuer, the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than a more diversified investment portfolio. - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities. - FOREIGN SECURITIES RISK - the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities. - INCOME RISK - the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INTEREST RATE RISK - the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Fund - Investment Objective, Policies and Practices - International Bond Portfolio"). - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Portfolio to reinvest the proceeds in other securities with generally lower interest rates. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 41 PORTFOLIO PERFORMANCE. The following bar chart and table show International Bond Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '98 16.18 '99 -7.81 '00 1.42 '01 -1.51 '02 17.94 Best Quarter: (Q2'02) 10.62% Worst Quarter: (Q1'00) -3.71% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------ International Bond Portfolio (inception 10/1/97) % 17.94 4.76 4.54 Salomon Brothers World Government Bond Index(1) 19.50 5.82 5.67 Salomon Brothers Non-U.S. World Government Bond Index 16.37 8.30 4.63

(1) During prior reporting periods, the Portfolio compared its annual total return performance to the Salomon Brothers World Government Bond Index, which includes securities of U.S. issuers. Effective May 1, 2003, the Portfolio changed its name from the Global Bond Portfolio to the International Bond Portfolio and began pursuing a policy of investing primarily in debt securities of foreign issuers, rather than both foreign and domestic issuers as was previously the case. For that reason, the Portfolio now compares its returns to the Salomon Brothers Non-U.S. World Government Bond Index, which excludes securities of U.S. issuers. 42 SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the International Bond Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.60 Rule 12b-1 Fees % 0.25 Other Expenses % 0.39 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 1.24

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $126 393 681 1,500

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 43 INDEX 400 MID-CAP PORTFOLIO Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to the aggregate price and dividend performance of the publicly traded common stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400). The Portfolio invests its assets in all of the common stocks included in the S&P 400. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to replicate the performance of the S&P 400 may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor's Rating Services calculates the S&P 400, the amount and timing of cash flows into and out of the Portfolio, commissions, and other expenses. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 44 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Index 400 Mid-Cap Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '98 16.68 '99 15.96 '00 16.05 '01 -1.07 '02 -15.03 Best Quarter: (Q4'98) 26.59% Worst Quarter: (Q3'02) -16.66% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------ Index 400 Mid-Cap Portfolio (inception 10/1/97) % -15.03 5.71 5.44 S&P 400 MidCap Index -14.52 6.40 .08

SUMMARY 45 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Index 400 Mid-Cap Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.15 Rule 12b-1 Fees % 0.25 Other Expenses % 0.25 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 0.65

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $66 208 362 810

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 46 SUMMARY CORE EQUITY PORTFOLIO (formerly the Macro-Cap Value Portfolio) Core Equity Portfolio seeks high total return. The Portfolio seeks to achieve its goal by primarily investing in common stocks of large, high-quality U.S., and to a lesser extent foreign, companies that have the potential for capital appreciation, or that WRIMCO expects to resist market decline, and that are well known, have been consistently profitable and have dominant market positions in their industries. Although the Portfolio typically invests in large companies, it may invest in securities of any size company. An investment in Core Equity Portfolio may result in the loss of money, and may also be subject to various risks, including the following main types of risk: - LARGE COMPANY RISK - the risk that a portfolio of large capitalization company securities may underperform the market as a whole. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's skill in evaluating and selecting securities for the Portfolio. - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Fund - Defining Risks" for a more detailed description of some of these main risks. SUMMARY 47 PORTFOLIO PERFORMANCE. The following bar chart and table show Core Equity Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and tables assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '98 22.33 '99 7.17 '00 -7.02 '01 -7.74 '02 -28.14 Best Quarter: (Q4'98) 20.98% Worst Quarter: (Q3'02) -18.17% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - ------------------------------------------------------------------------------ Core Equity Portfolio (inception 10/15/97) % -28.14 -4.17 -4.40 S&P 500 Index (as adjusted for dividend reinvestment) -22.10 -.59 .01

SUMMARY 48 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Core Equity Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.50 Rule 12b-1 Fees % 0.25 Other Expenses % 0.51 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(A) % 1.26

(a) Advantus Capital Management, Inc. (Advantus Capital), investment adviser to certain of the Fund's Portfolios, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of 0.32% of average net assets of the Portfolio. After such absorption, the ratio of total Portfolio operating expenses to average net assets will be 1.07%. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $128 400 692 1,523

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 49 MICRO-CAP GROWTH PORTFOLIO Micro-Cap Growth Portfolio seeks long-term capital appreciation. The Portfolio primarily invests in equity securities of micro-cap companies (i.e., companies with a market capitalization of less than $300 million) at the time of purchase. The Portfolio primarily invests in common stock but may also invest in preferred stock and securities convertible into equity securities. In selecting equity securities, the Portfolio invests in securities that the Portfolio's investment sub-adviser believes show sustainable earnings growth potential and improving profitability. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's investment sub-adviser of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Portfolio's investment sub-adviser has placed on it. - INITIAL PUBLIC OFFERING RISK - the risk that the Portfolio will not be able to sustain the positive effect on performance that may result from investments in initial public offerings (IPOs). Favorable investments in IPOs have had a significant impact on the Portfolio's performance in some periods. The effect of IPOs on the Portfolio's total returns going forward may not be positive, either as a result of changes in the IPO market or growth of the Portfolio's assets which may reduce its total return. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - MICRO-CAP COMPANY RISK - the risk that equity securities of micro-cap companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. 50 SUMMARY PORTFOLIO PERFORMANCE. The following bar chart and table show Micro-Cap Growth Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one year period and since the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '98 13.44 '99 148.77 '00 -21.05 '01 -11.33 '02 -43.64 Best Quarter: (Q4'99) 82.84% Worst Quarter: (Q3'02) -34.64% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year 5 Years Inception - -------------------------------------------------------------------------------- Micro-Cap Growth Portfolio (inception 10/1/97) % -43.64 2.17 -.65 Russell 2000 Growth Index -30.26 -6.59 -7.92

SUMMARY 51 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Micro-Cap Growth Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.95 Rule 12b-1 Fees % 0.25 Other Expenses % 0.25 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(A) % 1.45

(a) Advantus Capital Management, Inc. (Advantus Capital), investment adviser to certain of the Fund's Portfolios, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of 0.14% of average net assets of the Portfolio. After such absorption, the ratio of total Portfolio operating expenses to average net assets will be 1.34%. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $148 459 792 1,735

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. 52 SUMMARY REAL ESTATE SECURITIES PORTFOLIO Real Estate Securities Portfolio seeks above average income and long-term growth of capital. The Portfolio invests its assets primarily in real estate and real estate-related securities. "Real estate securities" include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. "Real estate-related securities" include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Most of the Portfolio's real estate securities portfolio will consist of securities issued by Real Estate Investment Trusts (REITs) that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate mortgages or shares issued by other REITs. In selecting securities, the Portfolio's investment adviser considers factors such as a company's financial condition, financial performance, policies and strategies, real estate properties and competitive market condition. An investment in the Portfolio may result in the loss of money, and may also be subject to various risks including the following types of main risk: - CONCENTRATION RISK - the risk that the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry The Portfolio concentrates its investments in the real estate and real estate related industry. - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets. - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed that of the market as a whole. - REAL ESTATE RISK - the risk that the value of the Portfolio's investments may decrease due to a variety of factors related to the construction, development, ownership, financing, repair or servicing or other events affecting the value of real estate, buildings or other real estate fixtures. - REIT-RELATED RISK - the risk that the value of the Portfolio's equity securities issued by REITs will be adversely affected by changes in the value of the underlying property. Please see "Investing in the Fund - Investment Objective, Policies and Practices" and "- Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Portfolio. SUMMARY 53 PORTFOLIO PERFORMANCE. The following bar chart and table show Real Estate Securities Portfolio's annual returns and long-term performance. The chart shows how the Portfolio's performance has varied from year to year, and provides some indication of the risks in investing in the Portfolio. The table shows how the Portfolio's average annual return over a one year period and from the inception of the Portfolio compares to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions. The chart and table do not, however, reflect the charges and other expenses associated with the variable life insurance policies and variable annuity contracts which invest in the Portfolio. If such charges and expenses were included, the returns shown below would be lower. Like other mutual funds, the past performance of the Portfolio does not necessarily indicate how the Portfolio will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) - -------------------------------------------------------------------------------- [LINE GRAPHIC] '99 -3.89 '00 25.61 '01 10.03 '02 6.97 Best Quarter: (Q2'99) 13.98% Worst Quarter: (Q3'99) -10.30% AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 2002) - --------------------------------------------------------------------------------

From 1 Year Inception - ----------------------------------------------------------------------------- Real Estate Securities Portfolio (inception 5/1/98) % 6.97 4.15 Wilshire Associates Real Estate Securities Index 2.64 4.67

SUMMARY 54 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in the Real Estate Securities Portfolio. This table describes the fees and expenses that investors pay if they buy and hold shares of the Portfolio, but it does not reflect charges assessed in connection with the variable life insurance policies or variable annuity contracts that invest in the Portfolio. SHAREHOLDER FEES (fees paid directly from an investment in the Portfolio) ---------------------------------------------------------------------- Not Applicable ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets)

- -------------------------------------------------------------------- Management Fees % 0.60 Rule 12b-1 Fees % 0.25 Other Expenses % 0.33 TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % 1.18

EXAMPLE. This example is intended to help investors compare the costs of investing in the Portfolio with the cost of investing in other Portfolios. The example assumes an investment of $10,000 in the Portfolio for the time periods indicated and then a redemption of all shares at the end of those periods. The example also assumes that the investment has a 5% return each year and that the Portfolio's operating expenses remain the same. Although actual costs may be higher or lower, based on these assumptions, costs would be:

1 Year 3 Years 5 Years 10 Years $120 375 649 1,432

The table and the example above reflect the Portfolio related fees and expenses that an investor would bear indirectly as the owner of a variable life insurance policy or variable annuity contract where a portion of the premiums for such policy or contract have been invested in the Portfolio. There are other fees and expenses related to such policies and contracts that are not reflected in this prospectus. If the table and example included those other fees and expenses, the fees and expenses shown in the table and example would be higher. SUMMARY 55 INVESTING IN THE FUND MANAGING THE PORTFOLIOS ADVANTUS CAPITAL. The investment adviser of the Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities Portfolio is Advantus Capital Management, Inc. (Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101, which has managed the Fund's assets since May 1, 1997. Since its inception in 1994, Advantus Capital has also provided investment advisory services for other Advantus Funds, and has managed investment portfolios for various private accounts, including its affiliate, Minnesota Life Insurance Company (Minnesota Life). Advantus Capital manages the Fund's investments and furnishes all necessary office facilities, equipment and personnel for servicing the Fund's investments. Both Advantus Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc., which is a second-tier subsidiary of a mutual insurance holding company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital also manage Minnesota Life's investment portfolio. In addition, Minnesota Life serves as administrative services agent to the Fund. The Fund and Advantus Capital have obtained an exemptive order from the SEC allowing them to use a "manager of managers" strategy related to management of the Fund. Under this strategy, Advantus Capital may select new Portfolio investment sub-advisers upon the approval of the Fund's Board of Directors and without shareholder approval. Advantus Capital may change the terms of any investment sub-advisory agreement or continue to employ an investment sub-adviser after termination of an investment sub-advisory agreement. Investors will be notified of any investment sub-adviser changes. In any event, Fund shareholders may terminate investment sub-adviser arrangements upon a vote of the majority of the applicable outstanding Portfolio shares. Advantus Capital is responsible for overseeing sub-advisers and for recommending their hiring, termination and replacement and retains ultimate responsibility for the investment performance of each Portfolio employing a sub-adviser. Investors in the Fund (purchasers of variable life insurance policies and variable annuity contracts issued by Minnesota Life or other life insurance companies to which the Fund has sold its shares) are, in effect, electing to have Advantus Capital either manage the investment of a Portfolio's assets or select one or more sub-advisers to achieve that Portfolio's investment objective. The investment sub-adviser of the International Stock Portfolio is Templeton Investment Counsel, LLC (Templeton Counsel), 500 East Broward Boulevard, Fort Lauderdale, Florida 33394. Templeton Counsel provides investment advice and generally conducts the investment management program for the International Stock Portfolio. The investment sub-adviser of the Small Company Growth Portfolio is Credit Suisse Asset Management, LLC (CSAM), 466 Lexington Avenue, New York, New York 10017. CSAM provides investment advice and generally conducts the investment management program for the Small Company Growth Portfolio. The investment sub-adviser of the Small Company Value Portfolio is State Street Research & Management Company (State Street Research), One Financial Center, Boston, Massachusetts 02111. State Street Research provides investment advice and generally conducts the investment management program for the Small Company Value Portfolio. 56 INVESTING IN THE FUND The investment sub-adviser of the International Bond Portfolio is Julius Baer Investment Management Inc. (JBIM), 330 Madison Avenue, New York, New York 10017. JBIM provides investment advice and generally conducts the investment management program for the International Bond Portfolio. The investment sub-adviser of the Micro-Cap Growth Portfolio is Wall Street Associates (WSA), La Jolla Financial Building, Suite 100, 1200 Prospect Street, La Jolla, California 92037. WSA provides investment advice and generally conducts the investment management program for the Micro-Cap Growth Portfolio. WRIMCO. As discussed above, Advantus Capital has agreed to sell to WRIMCO its assets related to the actively managed equity Portfolios of the Fund (with the exception of Real Estate Securities Portfolio) and has recommended to the Fund's Board of Directors that these Portfolios be merged into corresponding portfolios of the W&R Target Funds, Inc. Because Advantus Capital no longer has the resources to actively manage non-real estate equity funds, the Board of Directors has appointed WRIMCO to serve as the investment advisor to Asset Allocation Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core Equity Portfolio and Value Stock Portfolio prior to the mergers. Advisory fees payable by the Portfolios will not change under the interim advisory agreement with WRIMCO, and fee waivers currently in effect for Core Equity Portfolio will remain in place. Advisory fees payable to WRIMCO will be deposited in escrow until shareholders of the Portfolios approve an advisory agreement with WRIMCO. If shareholders do not approve an agreement, WRIMCO will receive the lower of the amount in escrow or its costs for performing services under the interim advisory agreement. WRIMCO and its predecessor have served as the investment manager to W&R Target Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc., W&R Funds, Inc. and each of the registered investment companies in the Waddell & Reed Advisors Funds since 1940 or each company's inception date, whichever is later. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. PORTFOLIO MANAGERS. The following persons serve as the primary portfolio managers for the Portfolios (other than the Index 500 and the Index 400 Mid-Cap Portfolios):

PORTFOLIO MANAGER PRIMARY PORTFOLIO PORTFOLIO AND TITLE MANAGER SINCE BUSINESS EXPERIENCE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------- Growth Philip J. Sanders May 1, 2003 Senior Vice President of WRIMCO; employee of Portfolio Manager WRIMCO since August 1998; prior thereto, Lead Manager, Tradestreet Investment Associates Bond Wayne R. Schmidt May 1, 1991 Vice President of Advantus Capital; Investment Portfolio Manager Officer of MIMLIC Management Money Market Steven S. Nelson May 1, 1999 Vice President of Advantus Capital since Portfolio Manager February 1999, Portfolio Manager of Advantus Capital since September 1998; Vice President of Reliastar Investment Research, Inc. from June 1996 to September 1998 Asset Cynthia P. Prince-Fox May 1, 2003 Senior Vice President of WRIMCO and Co-Chief Allocation Portfolio Manager Investment Officer, Senior Vice President of Austin, Calvert & Flavin, Inc. Mortgage Kent R. Weber January 1, 1990 Vice President of Advantus Capital Securities Portfolio Manager Capital Philip J. Sanders May 1, 2003 Senior Vice President of WRIMCO; employee of Appreciation Portfolio Manager WRIMCO since August 1998; prior thereto, Lead Manager, Tradestreet Investment Associates International Edgerton Tucker Scott February 1, 2000 Vice President and Research Analyst, Templeton Stock III Investment Counsel, LLC Vice President and Research Analyst

INVESTING IN THE FUND 57

PORTFOLIO MANAGER PRIMARY PORTFOLIO PORTFOLIO AND TITLE MANAGER SINCE BUSINESS EXPERIENCE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------- Small Company Elizabeth B. Dater August 10, 2001 Managing Director and Portfolio Manager, CSAM, Growth Co-Portfolio Manager since 1999; prior to that time, Managing Director and Portfolio Manager, Warburg Pincus Asset Management, Inc. ("Warburg Pincus"), from 1988 Sammy Oh March 7, 2000 Managing Director and Portfolio Manager, CSAM, Co-Portfolio Manager from January 2003; Director and Portfolio Manager, CSAM from 1999; Vice President and Portfolio Manager, Warburg Pincus from 1997 Maturing Kent R. Weber April 25, 1994 Vice President of Advantus Capital Government Portfolio Manager Bond - 2006 and 2010 Value Stock Harry M. Flavin May 1, 2003 Senior Vice President of WRIMCO and President, Co-Portfolio Manager Chief Investment Officer and Director of Austin, Calvert & Flavin, Inc. Cynthia P. Prince-Fox May 1, 2003 Senior Vice President of WRIMCO Co-Chief Co-Portfolio Manager Investment Officer, Senior Vice President of Austin, Calvert & Flavin, Inc. Small Company John Burbank May 25, 2001 Senior Vice President, State Street Research Value Portfolio Manager Paul Haagensen May 1, 2003 Senior Vice President, State Street Research, Portfolio Manager since 2002; previously, portfolio manager and senior analyst, Putnam Investments Caroline Evascu May 1, 2003 Vice President, State Street Research, since Associate Portfolio 2001; previously vice president and senior Manager analyst at SG Cowen Asset Management and research associate at Donaldson, Lufkin & Jenrette International Edward C. Dove October 1, 1997 Director, Fixed Income, Julius Baer Investment Bond Director, Chief Management Inc. Investment Officer Core Equity James D. Wineland May 1, 2003 Senior Vice President of WRIMCO; Vice President Portfolio Manager of and Portfolio Manager for Waddell & Reed Asset Management Company from March 1995 to March 1998 Micro-Cap William Jeffery, III October 1, 1997 Principals and Portfolio Managers, Wall Street Growth and Associates Kenneth F. McCain David A. Baratta, June 11, 1999 Principal and Portfolio Manager, Wall Street Principals and Associates, since June 1999; Portfolio Manager Portfolio Managers and Executive Vice President, Morgan Grenfell, Inc., New York, New York, from October 1994 to June 1999 Real Estate Joseph R. Betlej May 1, 1998 Vice President of Advantus Capital Securities Portfolio Manager

INVESTING IN THE FUND 58 ADVISORY FEES The Fund pays Advantus Capital monthly fees calculated on an annual basis for each Portfolio. Advantus Capital uses a portion of the applicable fees to pay sub-advisers. The advisory fee paid to Advantus Capital for each Portfolio during 2002, as a percentage of average daily net assets, was as follows:

AGGREGATE FEE PORTFOLIO PAID DURING 2002 - ---------------------------------------------------------------------- Growth Portfolio 0.45% Bond Portfolio 0.30% Money Market Portfolio 0.25% Asset Allocation Portfolio 0.35% Mortgage Securities Portfolio 0.30% Index 500 Portfolio 0.13% Capital Appreciation Portfolio 0.50% International Stock Portfolio 0.60% Small Company Growth Portfolio 0.65% Maturing Government Bond Portfolios 0.25% Value Stock Portfolio 0.50% Small Company Value Portfolio 0.70% International Bond Portfolio 0.60% Index 400 Mid-Cap Portfolio 0.15% Core Equity Portfolio 0.50% Micro-Cap Growth Portfolio 0.95% Real Estate Securities Portfolio 0.60%

DISTRIBUTION FEES The Fund has adopted a Rule 12b-1 Distribution Plan covering all of its Portfolios except the Maturing Government Bond Portfolios. Each covered Portfolio pays distribution fees equal to .25% per annum of the average daily net assets of the Portfolio. These fees are paid out of the Portfolio's assets on an on-going basis, which affects the Portfolio's share price, and, over time, increases the cost of an investment in the Portfolio. These distribution fees may also cost the purchaser of a variable life insurance policy or variable annuity contract which is invested in the Portfolio more over time than other types of sales charges that may be paid in connection with the variable policy or contract. The fees are paid to Securian Financial Services, Inc. (Securian Financial) the Fund's underwriter, to pay for distribution-related expenses and activities in connection with the distribution of the Portfolio's shares. Securian Financial may also use the fees to pay insurance companies, dealers or others for certain non-distribution services as provided for in the Distribution Plan. VOLUNTARY FEE ABSORPTION Advantus Capital is currently voluntarily absorbing all fees and expenses that exceed 1.10% of average daily net assets for the Small Company Value Portfolio, 1.07% of average daily net assets for the Core Equity INVESTING IN THE FUND 59 Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio. Advantus Capital has not agreed to absorb expenses over a specified period of time and it may cease its absorption of expenses at any time. If it does so, some Portfolio expenses would increase and thereby reduce investment return. INVESTMENT OBJECTIVE, POLICIES AND PRACTICES GROWTH PORTFOLIO Growth Portfolio seeks long-term accumulation of capital. Current income is a factor in the selection of securities, but is a secondary objective. The Portfolio seeks to achieve its goals by investing primarily in common stocks of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may invest in a wide range of marketable securities that, in WRIMCO's opinion, offer the potential for growth. The Portfolio typically invests in companies having a market capitalization of at least $1 billion, although it may invest in companies of any size. The Portfolio generally emphasizes investments in the faster growing sectors of the economy, such as the technology, healthcare and consumer-oriented sectors. In selecting securities for the Portfolio, WRIMCO utilizes a combination of quantitative and fundamental research. Quantitative research focuses on identifying companies with attractive growth, profitability and valuation measures. Fundamental research analyzes a specific company to examine its competitive position within its industry and to determine its growth expectations. A security may be sold when WRIMCO believes the company's growth and/or profitability characteristics are deteriorating, it no longer maintains a competitive advantage or more attractive opportunities arise. When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in cash or fixed-income securities or in common stocks chosen for their relative stability, rather than for their growth potential. By taking a defensive position, the Portfolio may not achieve its investment objectives. In addition to the investments discussed in the Prospectus, the Portfolio may invest in other types of securities and use certain instruments in seeking to achieve its objectives. For example, the Portfolio may invest in options, futures contracts or other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured. Please see the Statement of Additional Information for more information about the Portfolios' permitted investments. RISKS. The main risks of investing in the Portfolio are discussed in the summary. In addition, the Portfolio is subject to risk in connection with its investments in smaller companies. Although the Portfolio typically invests in companies having a market capitalization of at least $1 billion, it may invest in companies of any size. Market risk for small and medium sized companies may be greater than that for large companies. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations. For a more detailed description of these risks, see "Mid Size Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the Fund - Defining Risks." Additional risk information is provided in the Statement of Additional Information. BOND PORTFOLIO Bond Portfolio seeks as high a level of a long-term total rate of return as is consistent with prudent investment risk. The Portfolio also seeks preservation of capital as a secondary objective. 60 INVESTING IN THE FUND It is the Portfolio's policy to invest, under normal circumstances, at least 80% of the value of its net assets (exclusive of collateral received in connection with securities lending) in bonds (for this purpose, "bonds" includes any debt security). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio invests primarily in a variety of investment-grade debt securities which include: - investment-grade corporate debt obligations and mortgage-backed securities - debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities (including U.S. Treasury bills, notes and bonds) - investment-grade mortgage-backed securities issued by governmental agencies and financial institutions - investment-grade asset-backed securities - U.S. dollar denominated investment-grade debt securities issued by foreign governments and companies and publicly traded in the United States - debt obligations of U.S. banks, savings and loan associations and savings banks The Portfolio will invest a portion of its assets in investment-grade debt obligations issued by domestic companies in a variety of industries. The Portfolio may invest in long-term debt securities (i.e., maturities of more than 10 years), intermediate debt securities (i.e., maturities from 3 to 10 years) and short-term debt securities (i.e., maturities of less than 3 years). In selecting corporate debt securities and their maturities, Advantus Capital seeks to maximize current income by engaging in a risk/return analysis that focuses on various factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. The Portfolio may also invest a portion of its assets in government and non-governmental mortgage-related securities, including CMOs, and in stripped mortgage-backed securities and asset-backed securities. CMOs are debt obligations typically issued by a private special-purpose entity that are collateralized by residential or commercial mortgage loans or pools of residential mortgage loans. CMOs allocate the priority of the distribution of principal and interest from the underlying mortgage loans among various series. Each series differs from the other in terms of the priority right to receive cash payments from the underlying mortgage loans. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the interest holder to receive the interest portion of cash payments, while the principal component only allows the interest holder to receive the principal portion of cash payments. Asset-backed securities represent interest in pools of consumer loans (such as credit card, trade or automobile loans). Investors in asset-backed securities are entitled to receive payments of principal and interest received by the pool entity from the underlying consumer loans net of any costs and expenses incurred by the entity. As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Portfolio's duration of its portfolio of debt, mortgage-related and asset-backed securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called or prepaid prior to maturity given current interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter INVESTING IN THE FUND 61 duration. In general, a portfolio of debt, mortgage-related and asset-backed securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Portfolio holds securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Portfolio expects that under normal circumstances the effective duration of its debt, mortgage-related and asset-backed securities portfolio will range from four to seven years. In addition, the Portfolio may invest lesser portions of its assets in interest rate and other bond futures contracts, convertible and non-convertible investment-grade and non-investment grade debt securities issued by domestic governments and companies, restricted and illiquid securities, options (the Portfolio may purchase, sell and write put and call options), stripped asset-backed securities, securities purchased on a when-issued or forward commitment basis, mortgage dollar roll transactions, securities of other mutual funds, preferred stocks and other equity securities obtained upon conversion of debt securities or warrants, repurchase agreement transactions and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Call Risk - Credit Risk - Diversification Risk - Extension Risk - Income Risk - Inflation Risk - Interest Rate Risk - Market Risk - Portfolio Risk - Prepayment Risk - Securities Lending Risk - Short-Term Trading Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. MONEY MARKET PORTFOLIO Money Market Portfolio seeks maximum current income to the extent consistent with liquidity and the preservation of capital. Although the Portfolio seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. An investment in the Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation. The Portfolio invests in a variety of U.S. dollar denominated money market securities, including: - securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities (including bills, notes, bonds and certificates of indebtedness) - obligations of domestic banks, savings and loan associations, savings banks with total assets of at least $2 billion (including certificates of deposit, bank notes, commercial paper, time deposits and bankers' acceptances) - U.S. dollar denominated obligations of U.S. branches or agencies of foreign banks with total assets of at least $2 billion - U.S. dollar denominated obligations of Canadian chartered banks and London branches of U.S. banks with total assets of at least $2 billion 62 INVESTING IN THE FUND - U.S. dollar denominated securities issued by foreign governments and companies and publicly traded in the United States - obligations of supranational entities such as the International Bank for Reconstruction and Development - domestic corporate, domestic limited partnership and affiliated foreign corporate obligations (including commercial paper, notes and bonds) In addition, the Portfolio may invest lesser portions of its assets in securities of other mutual funds and restricted and illiquid securities. The Portfolio invests only in high quality securities. Generally, the Portfolio may purchase only securities rated within the two highest short-term rating categories of one or more national rating agencies. The Portfolio only invests in securities that mature in 397 calendar days or less from the date of purchase. The Portfolio maintains an average weighted maturity of 90 days or less. RISKS. An investment in the Portfolio is subject to the following risks: - Credit Risk - Diversification Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Market Risk - Portfolio Risk - Stable Price Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. ASSET ALLOCATION PORTFOLIO Asset Allocation Portfolio seeks as high a level of long-term total rate of return as is consistent with prudent investment risk. The Portfolio invests primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In general, the Portfolio invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Portfolio owns common stocks in order to provide possible appreciation of capital and some dividend income. The Portfolio ordinarily invests at least 25% of its total assets in fixed income securities. In its equity investments, the Portfolio invests primarily in medium to large, well-established companies, that typically issue dividend producing securities. The majority of the Portfolio's debt holdings are either U.S. Government securities or investment grade corporate bonds, that include bonds rated BBB and higher by Standard & Poor's Ratings Service or Baa and higher by Moody's Investors Service, Inc. or, if unrated, deemed by WRIMCO to be of comparable quality. The Portfolio has no limitations on the range of maturities of debt securities in which it may invest. The Portfolio may invest in foreign securities. WRIMCO may look at a number of factors in selecting securities for the Portfolio. For equity investments, WRIMCO may emphasize a blend of value and growth potential. For value securities, WRIMCO looks for undervalued companies whose asset value or earnings power is not reflected in the price of their stock. In selecting growth securities, WRIMCO seeks to identify securities whose earnings are likely to grow faster than the economy. In selecting debt securities for the Portfolio WRIMCO seeks high-quality securities with minimal credit risk. INVESTING IN THE FUND 63 Generally, in determining whether to sell an equity security, WRIMCO uses the same analysis that it uses in order to determine if the equity security is still undervalued or has ceased to offer the desired growth potential. In determining whether to sell a debt security, WRIMCO will consider whether the debt security continues to maintain its minimal credit risk. WRIMCO may also sell a security if the security ceases to produce income or otherwise to take advantage of attractive investment opportunities and/or to raise cash. When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in debt securities that may be considered equivalent to owning cash because of their safety and liquidity. By taking a temporary defensive position, the Portfolio may not achieve its investment objective. In addition to the investments discussed in the Prospectus, the Portfolio may invest in other types of securities and use certain instruments in seeking to achieve its objective. For example, the Portfolio may invest in options, futures contracts, asset-backed securities or other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured. Please see the Statement of Additional Information for more information about the Portfolios' permitted investments. RISKS. The main risks of investing in the Portfolio are discussed in the Summary. Additional risk information is provided in the Statement of Additional Information. MORTGAGE SECURITIES PORTFOLIO Mortgage Securities Portfolio seeks a high level of current income consistent with prudent investment risk. Under normal circumstances, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in mortgage-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio invests a major portion of its assets in high and investment-grade securities representing interests in pools of mortgage loans. In addition, the Portfolio may invest in a variety of other mortgage-related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting mortgage-related securities, Advantus Capital considers a variety of factors, including prepayment risk, credit quality, liquidity, the collateral securing the underlying loan (i.e., residential versus commercial real estate) and the type of underlying mortgage loan (i.e., a 30-year fully-amortized loan versus a 15-year fully-amortized loan). Advantus Capital also considers current and expected trends in economic conditions, interest rates and the mortgage market, and selects securities which, in its judgment, are likely to perform well in those circumstances. The market for mortgage-related securities is generally liquid, but individual mortgage-related securities purchased by the Portfolio may be subject to the risk of reduced liquidity due to changes in quality ratings or changes in general market conditions which adversely affect particular mortgage-related securities or the broader mortgage securities market as a whole. In addition, the Portfolio may, at the time of purchase, invest up to 15% of its net assets in illiquid securities, and may also invest without limit in securities whose disposition is restricted under the federal securities laws but which have been determined by Advantus Capital to be liquid under liquidity guidelines adopted by the Fund's Board of Directors. Investments in illiquid and restricted securities present greater risks inasmuch as such securities may only be resold subject to statutory or regulatory restrictions, or if the Portfolio bears the costs of registering such securities. The Portfolio may, therefore, be unable to dispose of such securities as quickly as, or at prices as favorable as those for, comparable but liquid or unrestricted securities. As of December 31, 2002, the Portfolio had 5.0% of its net assets invested in illiquid securities, and 19.6% of its net assets invested in restricted securities 64 INVESTING IN THE FUND deemed liquid pursuant to the liquidity guidelines. Advantus Capital continuously monitors the liquidity of portfolio securities and may determine that, because of a reduction in liquidity subsequent to purchase, securities which originally were determined to be liquid have become illiquid. This could result in more than 15% of the Portfolio's net assets being invested in illiquid securities. Interests in pools of mortgage loans provide the security holder the right to receive out of the underlying mortgage loans periodic interest payments at a fixed rate and a full principal payment at a designated maturity or call date. Scheduled principal, interest and other payments on the underlying mortgage loans received by the sponsoring or guarantor entity are then distributed or "passed through" to security holders net of any service fees retained by the sponsor or guarantor. Additional payments passed through to security holders could arise from the prepayment of principal resulting from the sale of residential property, the refinancing of underlying mortgages, or the foreclosure of residential property. In "pass through" mortgage loan pools, payments to security holders will depend on whether mortgagors make payments to the pooling entity on the underlying mortgage loans. To avoid this non-payment risk, the Portfolio may also invest in "modified pass through" mortgage loan pools which provide that the security holder will receive interest and principal payments regardless of whether mortgagors make payments on the underlying mortgage loans. The Portfolio may invest in government or government-related mortgage loan pools or private mortgage loan pools. In government or government-related mortgage loan pools, the U.S. government or certain agencies guarantee to mortgage pool security holders the payment of principal and interest. The principal governmental guarantors of mortgage-related securities are the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). FNMA and FHLMC generally guarantee payment of principal and interest on mortgage loan pool securities issued by certain pre-approved institutions (i.e., savings and loan institutions, commercial banks and mortgage bankers). The Portfolio may also invest in private mortgage loan pools sponsored by commercial banks, insurance companies, mortgage bankers and other private financial institutions. Mortgage pools created by these non-governmental entities offer a higher rate of interest than government or government related securities. Unlike government agency sponsored mortgage loan pools, payment of interest and payment to investors is not guaranteed. The Portfolio may also invest a major portion of its assets in CMOs and stripped mortgage-backed securities. CMOs are debt obligations issued by both government agencies and private special-purpose entities that are collateralized by residential or commercial mortgage loans. Unlike traditional mortgage loan pools, CMOs allocate the priority of the distribution of principal and level of interest from the underlying mortgage loans among various series. Each series differs from another in terms of the priority right to receive cash payments from the underlying mortgage loans. Each series may be further divided into classes in which the principal and interest payments payable to classes in the same series may be allocated. For instance, a certain class in a series may have right of priority over another class to receive principal and interest payments. Moreover, a certain class in a series may be entitled to receive only interest payments while another class in the same series may be only entitled to receive principal payments. As a result, the timing and the type of payments received by a CMO security holder may differ from the payments received by a security holder in a traditional mortgage loan pool. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the security holder to receive the interest portion of cash payments, while the principal component only allows the security holder to receive the principal portion of cash payments. INVESTING IN THE FUND 65 As a rule of thumb, a portfolio of fixed income securities (including mortgage-related securities) experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Portfolio's duration of its portfolio of mortgage-related securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called or prepaid prior to maturity given current interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of mortgage-related securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Portfolio holds securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Portfolio expects that under normal circumstances the effective duration of its investment portfolio will range from one to seven years. In addition, the Portfolio may invest lesser portions of its assets in non-investment grade mortgage-related securities, securities issued or guaranteed by the U.S. government or its agencies and instrumentalities, certificates of deposits, bankers' acceptances, investment-grade commercial paper, convertible and non-convertible investment-grade and non-investment grade corporate debt securities, securities of other mutual funds, direct mortgage investments, interest rate and other bond futures contracts, asset-backed and stripped asset-backed securities, repurchase agreement transactions, when-issued or forward commitment transactions and mortgage dollar rolls. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Call Risk - Concentration Risk - Credit Risk - Diversification Risk - Extension Risk - Income Risk - Inflation Risk - Interest Rate Risk - Market Risk - Portfolio Risk - Prepayment Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INDEX 500 PORTFOLIO Index 500 Portfolio seeks investment results that correspond generally to the price and yield performance of the common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the S&P 500). Under normal conditions, the Portfolio invests its assets in all of the common stocks included in the S&P 500. The Portfolio attempts to achieve a correlation of 100% without considering Portfolio expenses. However, the Portfolio is not required to hold a minimum or maximum number of common stocks included in the S&P 500, and due to changing economic or markets, may invest in less than all of the common stocks included in the S&P 500. Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 500 replication and to round off security weightings. Under normal conditions, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in the common stocks included in the S&P 500 (investments covered by this 80% policy may also include S&P 500 stock index futures contracts or S&P 500 depositary receipts, each of which have economic characteristics similar to an investment in the S&P 500). The 80% investment 66 INVESTING IN THE FUND policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. In addition, the Portfolio may invest lesser portions of its assets in investment-grade short-term fixed income securities, stock index futures contracts, securities of other mutual funds, restricted and illiquid securities, index depositary receipts, repurchase agreement transactions and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. Standard & Poor's Rating Services (S&P), a division of the McGraw-Hill Companies, Inc., designates the stocks included in the S&P 500. From time to time, S&P may add or delete stocks from the S&P 500. Inclusion of a stock in the S&P 500 does not imply an opinion by S&P as to its investment merit. "Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Portfolio. Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations on behalf of S&P. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Diversification Risk - Index Performance Risk - Inflation Risk - Large Company Risk - Market Risk - Portfolio Risk - Sector Risk - Securities Lending Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. CAPITAL APPRECIATION PORTFOLIO Capital Appreciation Portfolio seeks growth of capital. The Portfolio seeks to achieve its goal by investing primarily in common stocks of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may invest in a wide range of marketable securities that, in WRIMCO's opinion, offer the potential for growth. The Portfolio typically invests in companies having a market capitalization of at least $1 billion, although it may invest in companies of any size. The Portfolio generally emphasizes investments in the faster growing sectors of the economy, such as the technology, healthcare and consumer-oriented sectors. In selecting securities for the Portfolio, WRIMCO utilizes a combination of quantitative and fundamental research. Quantitative research focuses on identifying companies with attractive growth, profitability and valuation measures. Fundamental research analyzes a specific company to examine its competitive position within its industry and to determine its growth expectations. A security may be sold when WRIMCO believes the company's growth and/or profitability characteristics are deteriorating, it no longer maintains a competitive advantage or more attractive opportunities arise. When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in cash or fixed-income securities or in common stocks chosen for their relative stability, rather than for their growth potential. By taking a defensive position, the Portfolio may not achieve its investment objective. INVESTING IN THE FUND 67 In addition to the investments discussed in the Prospectus, the Portfolio may invest in other types of securities and use certain instruments in seeking to achieve its objective. For example, the Portfolio may invest in options, futures contracts or other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured. Please see the Statement of Additional Information for more information about the Portfolios' permitted investments. RISKS. The main risks of investing in the Portfolio are discussed in the summary. In addition, the Portfolio is subject to risk in connection with its investments in smaller companies. Although the Portfolio typically invests in companies having a market capitalization of at least $1 billion, it may invest in companies of any size. Market risk for small and medium sized companies may be greater than that for large companies. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations. For a more detailed description of these risks, see "Mid Size Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the Fund - Defining Risks." Additional risk information is provided in the Statement of Additional Information. INTERNATIONAL STOCK PORTFOLIO International Stock Portfolio seeks long-term capital growth. Under normal circumstances, the Portfolio invests at least 80% of its assets (exclusive of collateral received in connection with securities lending) in equity securities of small, mid and large capitalization foreign companies. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio may invest in securities of companies or governments in developed foreign markets or in developing or emerging markets. Under normal circumstances, the Portfolio will maintain investments in at least three foreign countries. The Portfolio invests in equity securities. Equity securities generally entitle the holder to participate in a company's general operating results. These include common stock, preferred stock, warrants or rights to purchase such securities. In selecting equity securities, Templeton Counsel, the Portfolio's investment sub-adviser, performs a company-by-company analysis, rather than focusing on a specific industry or economic sector. Templeton Counsel concentrates primarily on the market price of a company's securities relative to its view regarding the company's long-term earnings potential. A company's historical value measures, including price/earnings ratios, profit margins and liquidation value will also be considered. The Portfolio may also invest a lesser portion of its assets in closed-end investment companies, restricted and illiquid securities, U.S. government, domestic and foreign investment-grade debt securities, American Depositary Receipts, European Depositary Receipts, securities and index futures contracts, forward foreign currency exchange contracts, exchange-traded foreign currency futures contracts, options (the Portfolio may purchase, sell and write put and call options), securities of other mutual funds, non-investment grade debt securities, repurchase agreement transactions, securities purchased on a when-issued or forward commitment basis and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. 68 INVESTING IN THE FUND RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Credit Risk - Currency Risk - Diversification Risk - Emerging Markets Risk - Euro Conversion Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Large Company Risk - Market Risk - Mid Size Company Risk - Portfolio Risk - Sector Risk - Securities Lending Risk - Small Company Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. SMALL COMPANY GROWTH PORTFOLIO Small Company Growth Portfolio seeks long-term accumulation of capital. The Portfolio primarily invests in various types of equity securities of small capitalization growth companies at the time of purchase. The Portfolio primarily invests in common stocks but may also invest in preferred stocks and securities convertible into equity securities. In selecting equity securities, the Portfolio's investment sub-adviser employs a growth investment style and looks for either developing or older companies in a growth stage or companies providing products or services with a high unit-volume growth rate. Under normal market conditions, the Portfolio will invest at least 80% of net assets plus any borrowings for investment purposes (exclusive of collateral received in connection with securities lending) in equity securities of small companies. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio considers a "small" company to be one whose market capitalization at the time of purchase is within the range of capitalizations of companies in the Russell 2000 Index. Some companies may outgrow the definition of a small company after the Portfolio has purchased their securities. These companies continue to be considered small for purposes of the Portfolio's minimum 80% allocation to small company equities. In addition, the Portfolio may invest in companies of any size once the 80% policy is met. As a result, the Portfolio's average market capitalization may sometimes exceed that of the largest company in the Russell 2000 Index. From time to time, the Portfolio may also invest a lesser portion of its assets in securities of mid and large capitalization companies (i.e. companies with market capitalizations in excess of the range of capitalizations of companies in the Russell 2000 Index). In selecting equity securities of growth companies for the Portfolio, CSAM looks for: - Companies still in the developmental stage - Older companies that appear to be entering a new stage of growth - Companies providing products or services with a high unit-volume growth rate INVESTING IN THE FUND 69 The Portfolio may also invest in emerging-growth companies - small or medium-size companies that have passed their start-up phase, show positive earnings, and offer the potential for accelerated earnings growth. Emerging-growth companies generally stand to benefit from new products or services, technological developments, changes in management or other factors. In addition, the Portfolio may invest lesser portions of its assets in restricted and illiquid securities, investment-grade corporate debt securities, foreign securities, warrants, stock index futures contracts, options (the Portfolio may purchase, sell and write put and call options), index depositary receipts, repurchase agreement transactions, securities of other mutual funds and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Diversification Risk - Growth Stock Risk - Inflation Risk - Market Risk - Mid Size Company Risk - Portfolio Risk - Sector Risk - Securities Lending Risk - Short-Term Trading Risk - Small Company Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. MATURING GOVERNMENT BOND PORTFOLIOS Each of the Maturing Government Bond Portfolios seeks as high an investment return as is consistent with prudent investment risk for a specified period of time ending on a specified liquidation date. Each of the Portfolios primarily invests in zero coupon securities. Zero coupon securities include securities issued by the United States Treasury (Stripped Treasury Securities), by the U.S. government and its agencies and instrumentalities (Stripped Government Securities) and by domestic corporations (Stripped Corporate Securities). Under normal circumstances, each Portfolio will invest at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in Stripped Treasury Securities and Stripped Government Securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. "Stripped Treasury Securities" consist of (a) debt obligations issued by the U.S. Treasury that are stripped of their respective unmatured interest coupon and (b) receipts and certificates for such stripped debt obligations and stripped interest coupons. "Stripped Government Securities" consist of zero coupon securities issued by the U.S. government and its agencies and instrumentalities, by trusts to which payment of principal and interest are guaranteed by the U.S., and by other government sponsored corporations. "Stripped Corporate Securities" consist of zero coupon debt securities issued by domestic corporations, interest coupons stripped from corporate debt obligations and receipts and certificates for such stripped debt obligations and stripped coupons. Zero coupon securities are securities that pay no cash income and are sold at a discount from their stated maturity value. When held to maturity, the entire return on zero coupon securities generally consists of the difference between each security's purchase price and its respective maturity value. As a result, an investor knows this difference at the time of purchase and can determine the investment return from such securities. 70 INVESTING IN THE FUND However, since each Portfolio may invest in other non-zero coupon securities and instruments (as discussed below), such Portfolio's total investment return will vary from the aggregate purchase price-maturity value spread of its zero coupon securities. Nevertheless, these non-zero coupon securities will also describe an anticipated yield to a designated maturity date. In order to obtain an amount approximating the anticipated return from each Portfolio's zero coupon holdings, an investor should hold Portfolio shares until the respective maturity date of the applicable Portfolio. The anticipated total return on an investment in each Portfolio will vary if shares of the Portfolio are redeemed prior to the stated maturity date. Generally, the value of zero coupon and non-zero coupon holdings prior to the stated maturity date may increase or decrease with changes in prevailing interest rates. Since shares redeemed prior to maturity are redeemed at net asset value (i.e. a value based on the current market value of the Portfolio's holdings per share), an investor may receive a significantly different investment return than anticipated at the time of purchase upon redemption prior to maturity. Return may also be affected by cash flow transactions affecting the Portfolio (i.e., redemptions by others or purchases of Portfolio shares). Each Portfolio will mature on a specific target date. The current target dates are September 2006 and 2010. On each such target date, the Portfolio will be converted to cash and reinvested in another Fund Portfolio at the direction of the investor. If the investor does not provide reinvestment instructions, then the proceeds will automatically be invested in Money Market Portfolio. As a rule of thumb, a portfolio of fixed income securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Portfolio's duration of its portfolio of fixed income securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called or prepaid prior to maturity given current interest rates. Typically, a security with a longer effective duration is more price sensitive than a security with a shorter duration. In general, a portfolio of fixed income securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Portfolio holds securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. Each Portfolio expects that under normal circumstances the effective duration of its investment portfolio will range within one year of the Portfolio's remaining maturity. Thus, if the time remaining to a Portfolio's target maturity date is five years, the Portfolio's duration will range from four to six years. In addition, each Portfolio may invest lesser portions of its assets in other investment-grade debt obligations, restricted and illiquid securities, securities of other mutual funds, repurchase agreement transactions, cash, cash equivalent items and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in each of the Portfolios is subject to the following risks: - Credit Risk - Diversification Risk - Income Risk - Inflation Risk - Interest Rate Risk - Market Risk - Portfolio Risk - Securities Lending Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUND 71 VALUE STOCK PORTFOLIO Value Stock Portfolio seeks long-term accumulation of capital. The production of income is a secondary objective of the Portfolio. The Portfolio seeks to achieve its goals by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Portfolio seeks to invest in stocks that are, in the opinion of WRIMCO, undervalued relative to the true value of the company, and/or out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Portfolio typically invests in large-cap companies, it may invest in securities of any size company. Under normal circumstances, the Portfolio will invest at least 80% of its total assets (exclusive of collateral received in connection with securities lending) in common stocks issued by mid and large capitalization companies (market capitalizations of at least $1.5 billion) that are publicly traded in the United States. WRIMCO utilizes both fundamental research and quantitative analysis to identify securities for the Portfolio. The Portfolio will typically invest in core value stocks: stocks of companies in industries that have relatively lower price-to-earnings ratios than growth stocks. The Portfolio may also invest in growth stocks that are, in WRIMCO's opinion, temporarily undervalued. WRIMCO utilizes both a top-down (assess the market environment) and a bottom-up (research individual issuers) analysis in its selection process. WRIMCO considers numerous factors in its analysis of issuers and stocks, including the following: - intrinsic value of the company not reflected in stock price - historical earnings growth - future expected earnings growth - company's position in its respective industry - industry conditions - competitive strategy - management capabilities - free cash flow potential The Portfolio will typically sell a stock when it reaches an acceptable price, its fundamental factors have changed or it has performed below WRIMCO's expectations. When WRIMCO believes that a temporary defensive position is desirable, the Portfolio may invest up to all of its assets in debt securities (including commercial paper or short-term U.S. government securities) or preferred stocks, or both, by taking a temporary defensive position, the Portfolio may not achieve its investment objectives. In addition to the investments discussed in the Prospectus, the Portfolio may invest in other types of securities and use certain instruments in seeking to achieve its objectives. For example, the Portfolio may invest in options, futures contracts or other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured. Please see the Statement of Additional Information for more information about the Portfolios' permitted investments. 72 INVESTING IN THE FUND RISKS. The main risks of investing in the Portfolio are discussed in the Summary. In addition, the Portfolio is subject to risk in connection with its investments in smaller companies. Although the Portfolio typically invests in large-cap companies, it may invest in companies of any size. Market risk for small and medium sized companies may be greater than that for large companies. Stocks of smaller companies may experience volatile trading and price fluctuations. For a more detailed description of these risks, see "Mid Size Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the Fund - Defining Risks." Additional risk information is provided in the Statement of Additional Information. SMALL COMPANY VALUE PORTFOLIO Small Company Value Portfolio seeks long-term accumulation of capital. The Portfolio primarily invests in various types of equity securities of small capitalization companies. Although a universal definition of small capitalization companies does not exist, the Portfolio generally defines small capitalization companies as those whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000(R) Value Index. Under normal circumstances, at least 80% of the Portfolio's net assets (exclusive of collateral received in connection with securities lending) will be invested in common stocks of small capitalization domestic companies and foreign companies that are publicly traded in the United States. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. Some companies may outgrow the definition of a small capitalization company after the Portfolio has purchased their securities. These companies continue to be considered small for purposes of the Portfolio's minimum 80% allocation to small capitalization companies. The Portfolio may also invest in preferred stock and other securities convertible into equity securities. From time to time, the Portfolio will also invest a lesser portion of its assets in securities of mid and large capitalization companies (i.e., companies with a market capitalization larger than that defined above). In selecting value stocks and other equity securities, State Street Research primarily looks to equity securities it believes are undervalued or trading below their true worth, but that appear likely to come back into favor with investors. Undervalued securities are securities that State Street Research believes: (a) are undervalued relative to other securities in the market or currently earn low returns with a potential for higher returns, (b) are undervalued relative to the potential for improved operating performance and financial strength, or (c) are issued by companies that have recently undergone a change in management or control, or developed new products or services, that may improve their business prospects or competitive position. In assessing relative value, State Street Research will consider factors such as a company's ratio of market price to earnings, ratio of market price to book value, ratio of market price to assets, ratio of market price to cash flow, estimated earnings growth rate, cash flow, yield, liquidation value, product pricing, quality of management and competitive market position. As a secondary focus, State Street Research may also consider an investment's potential to provide current income. In seeking to achieve its investment objectives, the Portfolio may also invest in equity securities of companies that Advantus Capital believes show potential for sustainable earnings growth above the average market growth rate. The Portfolio's purchases of equity securities may include shares of common stock that are part of a company's initial public offering. In addition, the Portfolio may invest lesser portions of its assets in restricted and illiquid securities, convertible and non-convertible investment-grade and non-investment grade debt securities, securities of other mutual funds, foreign securities, warrants, repurchase agreement transactions, stock index futures contracts, options (the Portfolio may purchase, sell and write put and call options), index INVESTING IN THE FUND 73 depositary receipts and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Diversification Risk - Inflation Risk - Initial Public Offering Risk - Market Risk - Mid Size Company Risk - Portfolio Risk - Sector Risk - Securities Lending Risk - Short-Term Trading Risk - Small Company Risk - Value Stock Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INTERNATIONAL BOND PORTFOLIO International Bond Portfolio seeks to maximize current income, consistent with the protection of principal. Prior to May 1, 2003, the International Bond Portfolio was known as the Global Bond Portfolio and invested in domestic as well as foreign debt securities. Effective as of that date, and pursuant to a change in the investment policies of the Portfolio approved by the Fund's Board of Directors, the Portfolio invests mainly in a variety of investment-grade debt securities issued by foreign issuers. These debt securities include: - investment-grade corporate debt obligations issued by foreign corporate issuers - investment-grade debt securities issued or guaranteed by foreign governments or any of their agencies, instrumentalities or political subdivisions, or by supranational organizations - investment-grade mortgage-backed securities and asset-backed securities issued or sponsored by foreign governmental agencies, financial institutions and other issuers JBIM, the Portfolio's investment sub-adviser, selects and manages the Portfolio's investments. Under normal circumstances, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in bonds and other debt securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. The Portfolio invests primarily in investment-grade debt obligations issued by foreign companies in a variety of industries. However, the Portfolio may invest in investment-grade and non-investment-grade Brady Bonds. The Portfolio may invest in long-term debt securities (i.e., maturities of more than 10 years), intermediate debt securities (i.e., maturities from 3 to 10 years) and short-term debt securities (i.e., maturities of less than 3 years). In selecting corporate debt securities and their maturities, JBIM seeks to maximize current income by engaging in a risk/return analysis that focuses on various factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. Under normal circumstances, the Portfolio will maintain investments in at least three foreign countries. The Portfolio may invest in securities or governments in developed foreign markets or in developing or emerging markets. The Portfolio may also invest up to 20% of its net assets in U.S. debt obligations issued or guaranteed by the U.S. government. The Portfolio may also invest a portion of its assets in CMOs, stripped mortgage-backed securities and asset-backed securities. CMOs are debt obligations typically issued by a private special-purpose entity that are collateralized by residential or commercial mortgage loans or pools of residential mortgage loans. CMOs allocate the priority of the distribution of principal and interest from the underlying mortgage loans among 74 INVESTING IN THE FUND various series. Each series differs from the other in terms of the priority right to receive cash payments from the underlying mortgage loans. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the interest holder to receive the interest portion of cash payments, while the principal component only allows the interest holder to receive the principal portion of cash payments. Asset-backed securities represent interest in pools of consumer loans (such as credit card, trade or automobile loans). Investors in asset-backed securities are entitled to receive payments of principal and interest received by the pool entity from the underlying consumer loans net of any costs and expenses incurred by the entity. As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Portfolio's duration of its portfolio of debt, mortgage-related and asset-backed securities. "Effective" duration takes into consideration the likelihood that a security will be called or prepaid prior to maturity given current interest rates. Duration measures the relative price sensitivity of a security to changes in interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. As a very broad approximation, a portfolio of debt, mortgage-related and asset-backed securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Portfolio holds securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Portfolio expects that under normal circumstances the effective duration of its debt, mortgage-related and asset-backed securities portfolio will range from three to eight years. In addition, the Portfolio may invest lesser portions of its assets in interest rate and securities futures contracts, options on interest rate or securities futures contracts, forward foreign currency exchange contracts, exchange-traded foreign currency futures contracts, options on foreign currency futures contracts, non-investment grade debt securities, securities index futures contracts, options on securities index futures contracts, interest rate and index swap agreement transactions, restricted and illiquid securities, options (the Portfolio may purchase, sell and write put and call options), securities purchased on a when-issued or forward commitment basis, mortgage dollar roll transactions, American Depositary Receipts, Global Depositary Receipts, securities of other mutual funds, warrants, repurchase agreement transactions, reverse repurchase agreement transactions, cash, cash equivalent items and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Call Risk - Credit Risk - Currency Risk - Diversification Risk - Euro Conversion Risk - Extension Risk - Foreign Securities Risk - Income Risk - Inflation Risk - Interest Rate Risk - Market Risk - Portfolio Risk - Prepayment Risk - Securities Lending Risk - Short-Term Trading Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUND 75 INDEX 400 MID-CAP PORTFOLIO Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to the aggregate price and dividend performance of the publicly traded common stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400). Under normal conditions, the Portfolio invests its assets in all of the common stocks included in the S&P 400. The Portfolio attempts to achieve a correlation of 100% without considering Portfolio expenses. However, the Portfolio is not required to hold a minimum or maximum number of common stocks included in the S&P 400, and due to changing economic or markets, may invest in less than all of the common stocks included in the S&P 400. Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 400 replication and to round off security weightings. Under normal conditions, the Portfolio invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in the common stocks included in the S&P 400 (investments covered by this 80% policy may also include S&P 400 stock index futures contracts or S&P 400 depositary receipts, each of which have economic characteristics similar to an investment in the S&P 400). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. In addition, the Portfolio may invest lesser portions of its assets in investment-grade short-term fixed income securities, securities of other mutual funds, restricted and illiquid securities, index depositary receipts, stock index futures contracts, repurchase agreement transactions and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. S&P designates the stocks included in the S&P 400. From time to time, S&P may add or delete stocks from the S&P 400. Inclusion of a stock in the S&P 400 does not imply an opinion by S&P as to its investment merit. "Standard & Poor's," "S&P," "S&P 400" and "Standard & Poor's MidCap 400," are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Portfolio. Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations on behalf of S&P. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Diversification Risk - Index Performance Risk - Inflation Risk - Market Risk - Mid Size Company Risk - Portfolio Risk - Sector Risk - Securities Lending Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. CORE EQUITY PORTFOLIO Core Equity Portfolio seeks high total return. Prior to May 1, 2003, the Core Equity Portfolio was known as the Macro-Cap Value Portfolio. The Portfolio seeks to achieve its goal by primarily investing, during normal market conditions, in common stocks of large, high-quality U.S., and to a lesser extent foreign, companies that have the potential for capital appreciation, or that WRIMCO expects to resist market decline, and that are well known, have been consistently profitable 76 INVESTING IN THE FUND and have dominant market positions in their industries. The Portfolio will, under normal market conditions, invest at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in equity securities. Although the Portfolio typically invests in large companies, it may invest in securities of any size company. WRIMCO attempts to select securities with growth and income possibilities by looking at many factors including a company's: - profitability record - history of improving sales and profits - management - leadership position in its industry - stock price value - dividend payment history Generally, in determining whether to sell a security, WRIMCO uses the same type of analysis that it uses in buying securities in order to determine whether the security has ceased to offer the prospect of significant growth potential and/or continued dividend payments. WRIMCO may also sell a security to take advantage of more attractive investment opportunities or to raise cash. When WRIMCO believes that a temporary defensive position is desirable, WRIMCO may take certain steps with respect to all of the Portfolio's assets, including any one or more of the following: - hold cash, commercial paper, certificates of deposit or other short-term investments - invest in debt securities (including short-term U.S. Government securities) - invest in convertible preferred stock By taking a temporary defensive position the Portfolio may not achieve its investment objective. RISKS. The main risks of investing in the Portfolio are discussed in the Summary. In addition, the Portfolio is subject to risk in connection with its investments in smaller companies. Although the Portfolio typically invests in large companies, it may invest in companies of any size. Market risk for small and medium sized companies may be greater than that for large companies. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations. For a more detailed description of these risks, see "Mid Size Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the Fund - Defining Risks." Additional risk information is provided in the Statement of Additional Information. MICRO-CAP GROWTH PORTFOLIO Micro-Cap Growth Portfolio seeks long-term capital appreciation. The Portfolio primarily invests in various types of equity securities of micro-cap companies (i.e., companies with a float-adjusted market capitalization of less than $300 million) at the time of purchase. "Float-adjusted market capitalization" refers to the market capitalization of the freely-tradable shares of a company available to the public. That is, it is the total market capitalization less the shares not freely and publicly available (i.e., INVESTING IN THE FUND 77 unregistered or restricted shares (including shares subject to "lock ups"), treasury shares held by the company, and other unavailable shares as determined by the Portfolio's sub-adviser). In the first year after a company's initial public offering (IPO), the float-adjusted market capitalization includes all the shares issued in the IPO, as well as all other shares available to the market. If a company's float-adjusted market capitalization exceeds $300 million after the Portfolio purchases the company's securities, the Portfolio may nevertheless hold such securities. The Portfolio primarily invests in common stocks but may also invest in preferred stocks and securities convertible into equity securities. Under normal circumstances, at least 80% of the Portfolio's net assets (exclusive of collateral received in connection with securities lending) will be invested in common stocks of companies which are micro-cap companies at the time of purchase. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. From time to time, the Portfolio may also invest a lesser portion of its assets in securities of larger capitalization companies (i.e., companies with float-adjusted market capitalizations of at least $300 million). In selecting equity securities for the Portfolio, WSA, the Portfolio's investment sub-adviser, primarily looks to an investment's potential for sustainable earnings growth and improving profitability. In selecting securities with earnings growth potential, WSA considers factors such as a company's competitive market position, quality of management, growth strategy, internal operating trends (such as profit margins, cash flows and earnings and revenue growth), overall financial condition, and ability to sustain current rate of growth. In seeking to achieve its investment objective, the Portfolio may also invest in equity securities of companies that WSA believes are temporarily undervalued or show promise of improved results due to new management, products, markets or other factors. The Portfolio's purchases of equity securities may include shares of common stock that are part of a company's initial public offering. In addition, the Portfolio may invest lesser portions of its assets in restricted and illiquid securities, investment-grade and non-investment grade corporate debt securities, foreign securities, warrants, stock index futures contracts, options (the Portfolio may purchase, sell and write put and call options), index depositary receipts, repurchase agreement transactions, securities of other mutual funds and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Diversification Risk - Growth Stock Risk - Inflation Risk - Initial Public Offering Risk - Market Risk - Micro-Cap Company Risk - Portfolio Risk - Sector Risk - Securities Lending Risk - Short-Term Trading Risk A detailed description of these risks is set forth in "- Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. REAL ESTATE SECURITIES PORTFOLIO Real Estate Securities Portfolio seeks above average income and long-term growth of capital. Under normal circumstances, at least 80% of the Portfolio's net assets (exclusive of collateral received in connection with securities lending) will be invested in real estate and real estate-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Portfolio's outstanding shares, but the shareholders will be notified in writing at least 60 days prior to any change of this policy. 78 INVESTING IN THE FUND The Portfolio will primarily invest in real estate and real estate-related equity securities (including securities convertible into equity securities). The Portfolio does not invest directly in real estate. "Real estate securities" include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. Real estate securities issuers typically include real estate investment trusts (REITs), real estate brokers and developers and real estate holding companies. "Real estate-related securities" include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Real estate-related securities issuers typically include construction and related building companies, manufacturers and distributors of building supplies, financial institutions that issue or service mortgages and resort companies. Most of the Portfolio's real estate securities portfolio will consist of securities issued by REITs that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs. REITs may be characterized as equity REITs (i.e., REITs that primarily invest in fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that primarily invest in mortgages on real estate) or hybrid REITs which invest in both fee and leasehold ownership of land and mortgages. The Portfolio mostly invests in equity REITs but also invests lesser portions of its assets in mortgage REITs and hybrid REITs. A REIT that meets the applicable requirements of the Internal Revenue Code of 1986 may deduct dividends paid to shareholders, effectively eliminating any corporate level federal tax. As a result, REITs are able to distribute a larger portion of their earnings to investors than other corporate entities subject to the federal corporate tax. The Portfolio may invest in securities of small, mid and large capitalization companies. Advantus Capital assesses an investment's potential for sustainable earnings growth over time. In selecting securities, Advantus Capital considers factors such as a company's financial condition, financial performance, quality of management, policies and strategies, real estate properties and comparative market position. In addition, the Portfolio may invest lesser portions of its assets in securities issued by companies outside of the real estate industry. The Portfolio may also invest in non-real estate related equity securities, warrants, convertible debt securities, investment-grade fixed income securities, securities of other mutual funds, repurchase agreement transactions, restricted and illiquid securities, stock index futures contracts, options (the Portfolio may purchase, sell and write put and call options), American Depository Receipts, securities purchased on a when issued or forward commitment basis and money market securities. To generate additional income, the Portfolio may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. RISKS. An investment in the Portfolio is subject to the following risks: - Company Risk - Concentration Risk - Credit Risk - Diversification Risk - Extension Risk - Income Risk - Inflation Risk - Interest Rate Risk - Limited Portfolio Risk - Market Risk - Portfolio Risk - Prepayment Risk - Real Estate Risk - REIT-Related Risk - Sector Risk - Securities Lending Risk - Short-Term Trading Risk - Small Company Risk A detailed description of these risks is set forth in "- Defining Risks" below. INVESTING IN THE FUND 79 INVESTMENT PRACTICES COMMON TO THE PORTFOLIOS In an attempt to respond to adverse market, economic, political or other conditions, each of the Portfolios may invest for temporary defensive purposes in various short-term cash and cash equivalent items, or as otherwise described above. When investing for temporary defensive purposes, a Portfolio may not always achieve its investment objective. PORTFOLIO TURNOVER Before investing in a Portfolio, you should review its portfolio turnover rate for an indication of the potential effect of transaction costs on the Portfolio's future returns. In general, the greater the volume of buying and selling by the Portfolio, the greater the impact that brokerage commissions and other transaction costs will have on its return. Portfolio turnover rates for the last five years are presented in the Financial Highlights included in the Summary for each Portfolio, above. The Portfolios, while they generally do not invest or trade for short-term profits, are actively managed and the Portfolio managers may trade securities frequently. As a result, each Portfolio may, from time to time, have an annual portfolio turnover rate of over 100%. Factors contributing to a Portfolio's higher turnover rate may include general market volatility, significant positive or negative developments concerning particular securities holdings, an attempt to maintain the Portfolio's market capitalization target and the need to sell holdings to meet redemption requests. While higher turnover rates may result in increased transaction costs, the managers of the Portfolios attempt to have the benefits of these transactions outweigh the costs, although this cannot be assured. In the case of the International Bond Portfolio, for example, the frequent use of forward foreign currency exchange contracts to hedge against variations in foreign currency exchange rates contributes to substantially higher turnover rates. During the year ended December 31, 2002, the following Portfolios had turnover rates in excess of 100%: Bond (140.8%), Asset Allocation (116.5%), Value Stock (112.4%) and International Bond (304.1%). DEFINING RISKS Investment in each Portfolio involves risks. A Portfolio's yield and price are not guaranteed, and the value of an investment in a Portfolio will go up or down. The value of an investment in a particular Portfolio may be affected by the risks of investing in that Portfolio as identified for each Portfolio in " -Investment Objective, Policies and Practices" above. The following glossary describes those identified risks associated with investing in the Portfolios. - CALL RISK - is the risk that securities with high interest rates (or other attributes that increase debt cost) will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates. In general, an issuer will call its debt securities if they can be refinanced by issuing new securities with a lower interest rate. The Portfolio is subject to the possibility that during periods of falling interest rates, an issuer will call its securities. As a result, the Portfolio would have to reinvest the proceeds in other securities with generally lower interest rates, resulting in a decline in the Portfolio's income. - COMPANY RISK - is the risk that individual securities may perform differently than the overall market. This may be a result of specific factors such as changes in corporate profitability due to the success or failure of specific products or management strategies, or it may be due to changes in investor perceptions regarding a company. - CONCENTRATION RISK - is the risk that the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate 80 INVESTING IN THE FUND its investments in a single industry. The Portfolio is subject to concentration risk if the Portfolio invests more than 25% of its total assets in a particular industry. The Mortgage Securities and Real Estate Securities Portfolios each concentrates its investments in a single industry. - CREDIT RISK - is the risk that an issuer of a debt security, mortgage-backed security or fixed income obligation will not make payments on the security or obligation when due, or that the other party to a contract will default on its obligation. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the Portfolio. Also, a change in the quality rating of a debt security or other fixed income obligation can affect the security's or obligation's liquidity and make it more difficult to sell. The Portfolio may attempt to minimize credit risk by investing in debt securities and other fixed income obligations considered at least investment grade at the time of purchase. However, all of these securities and obligations, especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities and obligations are more likely to have difficulty making principal and interest payments than issuers of higher rated securities and obligations. If the Portfolio purchases unrated securities and obligations, it will depend on its investment adviser's or sub-adviser's analysis of credit risk more heavily than usual. - CURRENCY RISK - is the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the Portfolio. Attempts by the Portfolio to minimize the effects of currency fluctuations through the use of foreign currency hedging transactions may not be successful or the Portfolio's hedging transactions may cause the Portfolio to be unable to take advantage of a favorable change in the value of foreign currencies. - DIVERSIFICATION RISK - is the risk that, as a result of investing more than 5% of its total assets in the securities of a single issuer, the Portfolio's performance may be more susceptible to a single economic, regulatory or technological occurrence than a more diversified investment portfolio. A Portfolio (other than International Bond Portfolio) may not, with respect to 75% of its total assets, invest more than 5% of its total assets in the securities of a single issuer. With respect to the other 25% of its total assets, however, a Portfolio is subject to diversification risk if it invests more than 5% of its total assets in the securities of a single issuer. As a non-diversified investment company, International Bond Portfolio may particularly be subject to diversification risk since the Portfolio may invest more than 5% of its total assets in the securities of a single issuer with respect to 100% of its total investment portfolio. - EMERGING MARKETS RISK - is the risk that the value of securities issued by companies located in emerging market countries may be subject to greater volatility than foreign securities issued by companies in developed markets. Risks of investing in foreign securities issued by companies in emerging market countries include, among other things, greater social, political and economic instability, lack of liquidity and greater price volatility due to small market size and low trading volume, certain national policies that restrict investment opportunities and the lack of legal structures governing private and foreign investments and private property. - EURO CONVERSION RISK - is the risk that the value of foreign securities of companies located in European Monetary Union (EMU) countries may decrease due to market volatility resulting from the conversion of certain EMU country currencies to the Euro. It is not possible to predict the impact of the Euro on the business or financial condition of European issues or on the Portfolio. The transition and the elimination of currency risk among EMU countries may change the economic environment and behavior of investors, particularly in European markets. To the extent the Portfolio holds non-U.S. dollar (Euro or INVESTING IN THE FUND 81 other) denominated securities, it will still be exposed to currency risk due to fluctuations in those currencies versus the U.S. dollar. - EXTENSION RISK - is the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-related securities. - FOREIGN SECURITIES RISK - is the risk that the value of foreign companies or foreign government securities held by the Portfolio may be subject to greater volatility than domestic securities. Risks of foreign securities include, among other things: POLITICAL AND ECONOMIC RISKS. Investing in foreign securities is subject to the risk of political, social or economic instability in the country of the issuer of the security, the difficulty of predicting international trade patterns, the possibility of exchange controls, expropriation, limits on currency removal or nationalization of assets. FOREIGN TAX RISK. The Portfolio's income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the Portfolio may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties. To the extent foreign income taxes are paid by the Portfolio, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. FOREIGN INVESTMENT RESTRICTION RISK. Some countries, particularly emerging market countries, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies. FOREIGN SECURITIES MARKET RISK. Securities of many foreign companies may be less liquid and their prices more volatile than securities of domestic companies. Securities of companies traded outside the U.S. may be subject to further risks due to the inexperience of local brokers and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. Moreover, foreign stock exchanges and brokers are subject to less governmental regulation, and commissions may be higher than in the U.S. In addition, there may be delays in the settlement of foreign stock exchange transactions. INFORMATION AND REMEDIES RISK. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements that apply to domestic companies. As a result, less information may be available to investors concerning foreign issuers. In addition, the Portfolio may have greater difficulty voting proxies, exercising shareholder rights, pursuing legal remedies and obtaining judgments with respect to foreign investments in foreign courts than with domestic companies in domestic courts. - GROWTH STOCK RISK - is the risk that if the assessment by the Portfolio's investment adviser or sub-adviser of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Portfolio's investment adviser or sub-adviser has placed on it. - INCOME RISK - is the risk that the Portfolio may experience a decline in its income due to falling interest rates. - INDEX PERFORMANCE RISK - is the risk that the Portfolio's ability to replicate the performance of a particular securities index may be affected by, among other things, changes in securities markets, the manner in which the index's sponsor calculates the applicable securities index, the amount and timing of cash flows into and out of the Portfolio, commissions and other expenses. 82 INVESTING IN THE FUND - INFLATION RISK - is the risk that inflation will erode the purchasing power of the value of securities held by the Portfolio or the value of the Portfolio's dividends. Fixed-rate debt securities may be more susceptible to this risk than floating-rate debt securities or equity securities, whose value and dividends may increase in the future. - INITIAL PUBLIC OFFERING RISK - is the risk that the Portfolio will not be able to sustain the positive effect on performance that may result from investments in initial public offerings (IPOs). Investments in IPOs can have a significant positive impact on the Portfolio's performance. The positive effect of investments of IPOs may not be sustainable because of a number of factors. The Portfolio may not be able to buy shares in some IPOs, or may be able to buy only a small number of shares. Also, the Portfolio may not be able to buy the shares at the commencement of the offering, and the general availability and performance of IPOs are dependent on market psychology and economic conditions. The relative performance impact of IPOs is also likely to decline as the Portfolio grows. - INTEREST RATE RISK - is the risk that the value of a debt security, mortgage-backed security or fixed income obligation will decline due to changes in market interest rates. Generally, when interest rates rise, the value of such a security or obligation decreases. Conversely, when interest rates decline, the value of a debt security, mortgage-backed security or fixed income obligation generally increases. Long-term debt securities, mortgage-backed securities and fixed income obligations are generally more sensitive to interest rate changes. - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization company securities may underperform the market as a whole. - LIMITED PORTFOLIO RISK - is the risk that an investment in the Portfolio may present greater volatility, due to the limited number of issuers of real estate and real estate-related securities, than an investment in portfolio of securities selected from a greater number of issuers. The Portfolio is subject to limited portfolio risk because the Portfolio may invest in a smaller number of individual issuers than other portfolios. - MARKET RISK - is the risk that equity and debt securities are subject to adverse trends in equity and debt markets. Securities are subject to price movements due to changes in general economic conditions, the level of prevailing interest rates or investor perceptions of the market. In addition, prices are affected by the outlook for overall corporate profitability. Market prices of equity securities are generally more volatile than debt securities. This may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer or the market as a whole. In addition, market risk may affect a portfolio of equity securities of micro, small, mid, large and very large capitalization companies and/or equity securities believed by a Portfolio's investment adviser or sub-adviser to be undervalued or exhibit above average sustainable earnings growth potential. As a result, a portfolio of such equity securities may underperform the market as a whole. - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization companies may be more vulnerable to adverse developments than those of larger companies due to such companies' limited product lines, limited markets and financial resources and dependence upon a relatively small management group. - PORTFOLIO RISK - is the risk that Portfolio performance may not meet or exceed that of the market as a whole. The performance of the Portfolio will depend on the Portfolio's investment adviser's or sub-adviser's judgment of economic and market policies, trends in investment yields and monetary policy. INVESTING IN THE FUND 83 - PREPAYMENT RISK - is the risk that falling interest rates could cause prepayments of mortgage-related securities to occur more quickly than expected. This occurs because, as interest rates fall, more property owners refinance the mortgages underlying these securities. The Portfolio must reinvest the prepayments at a time when interest rates on new mortgage investments are falling, reducing the income of the Portfolio. In addition, when interest rates fall, prices on mortgage-related securities may not rise as much as for other types of comparable debt securities because investors may anticipate an increase in mortgage prepayments. - REAL ESTATE RISK - is the risk that the value of the Portfolio's investments may decrease due to fluctuations in rental income, overbuilding and increased competition, casualty and condemnation losses, environmental costs and liabilities, extended vacancies of property, lack of available mortgage funds, government regulation and limitations, increases in property taxes, cash flow dependency, declines in real estate value, physical depreciation of buildings, inability to obtain project financing, increased operating costs and changes in general or local economic conditions. - REIT-RELATED RISK - is the risk that the value of the Portfolio's equity REIT securities will be adversely affected by changes in the value of the underlying property. In addition, the value of equity or mortgage REITs could be adversely affected if the REIT fails to qualify for tax-free pass through income under the Internal Revenue Code of 1986 (as amended), or maintain its exemption from registration under the Investment Company Act of 1940. - SECTOR RISK - is the risk that the securities of companies within specific industries or sectors of the economy can periodically perform differently than the overall market. This may be due to changes in such things as the regulatory or competitive environment or to changes in investor perceptions regarding a company. - SECURITIES LENDING RISK - is the risk that the Portfolio may experience a delay in the recovery of loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the Portfolio enters into loan arrangements only with institutions that the Portfolio's investment adviser or sub-adviser has determined are creditworthy. - SHORT-TERM TRADING RISK - is the risk that a Portfolio may trade securities frequently and hold securities in its portfolio for one year or less. Frequent purchases and sales of securities will increase the Portfolio's transaction costs. Factors that can lead to short-term trading include market volatility, a significant positive or negative development concerning a security, an attempt to maintain a Portfolio's market capitalization target, and the need to sell a security to meet redemption activity. - SMALL AND MICRO-CAP COMPANY RISK - is the risk that equity securities of small and micro-cap capitalization companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. In addition, the frequency and volume of trading of such securities may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling securities of micro-cap and small capitalization companies at the desired time and place. - STABLE PRICE RISK - is the risk that the Money Market Portfolio will not be able to maintain a stable share price of $1.00. There may be situations where the Portfolio's share price could fall below $1.00, which would reduce the value of an investor's account. - VALUE STOCK RISK - is the risk that the value of a security believed by the Portfolio's investment adviser or sub-adviser to be undervalued may never reach what such investment adviser or sub-adviser believes is its full value, or that such security's value may decrease. 84 INVESTING IN THE FUND BUYING AND SELLING SHARES BUYING SHARES Portfolio shares are not offered directly to the public. Portfolio shares are sold to Minnesota Life in connection with its variable life insurance policies and variable annuity contracts. Portfolio shares are also offered to certain other life insurance companies, including but not limited to life insurance affiliates of Minnesota Life. Securian Financial serves as the underwriter of the Fund's shares. It is possible that the Fund may offer Portfolio shares to other investors in the future. Eligible investors may purchase Portfolio shares on any day the New York Stock Exchange (NYSE) is open for business. The price for Portfolio shares is equal to the Portfolio's net asset value (NAV). NAV is generally calculated as of the close of normal trading on the NYSE (typically 3:00 p.m. Central time). NAV is not calculated on: (a) days in which changes in a Portfolio's investment portfolio do not materially change the Portfolio's NAV, (b) days on which no Portfolio shares are purchased or sold, and (c) customary national business holidays on which the NYSE is closed for trading. The price for shares of Money Market Portfolio will normally be $1.00. However, there is no assurance that Money Market Portfolio will maintain the $1.00 NAV. NAV for one Portfolio share is equal to the Portfolio's total investments less any liabilities divided by the number of Portfolio shares. To determine NAV, a Portfolio (other than Money Market Portfolio) generally values its investments based on market quotations. If market quotations are not available for certain Portfolio investments, the investments are valued based on the fair value of the investments as determined in good faith by the Fund's Board of Directors. Debt securities may be valued based on calculations furnished to the Portfolio by a pricing service or by brokers who make a market in such securities. A Portfolio may hold securities that are listed on foreign stock exchanges. These foreign securities may trade on weekends or other days when the Portfolio typically does not calculate NAV. As a result, the NAV of such Portfolio shares may change on days when an investor will not be able to purchase or sell Portfolio shares. Securities in Money Market Portfolio's investment portfolio are valued on an amortized cost basis. This involves valuing an instrument at its cost and thereafter assuming a constant amortization of any discount or premium until the instrument's maturity, rather than looking at actual changes in the market value of the instrument. A purchase order will be priced at the next NAV calculated after the purchase order is received by the Fund. If a purchase order is received after the close of normal trading on the NYSE, the order will be priced at the NAV calculated on the next day the NYSE is open for trading. SELLING SHARES Portfolio shares will be sold at the NAV next calculated after a sale order is received by the Fund. The amount an investor receives may be more or less than the original purchase price for the applicable shares. EXCHANGING SHARES Owners of the variable life insurance policies and variable annuity contracts who invest in the Fund may exchange shares of a Portfolio for shares of other Portfolios as described below and subject to the terms and BUYING AND SELLING SHARES 85 any specific limitations on the exchange or "transfer" privilege, described in the accompanying prospectus for those policies or contracts. An exchange will be made on the basis of the Portfolios' relative net asset values. Frequent exchanges may interfere with Fund management or operations and drive up Fund costs. The Fund's Portfolios are not designed for market timers, or for large or frequent transfers. To protect shareholders, the Fund may restrict or refuse purchases or exchanges by market timers. A variable annuity contract or variable life insurance policy owner will be considered to be a market timer if that owner has: (i) requested an exchange out of a Portfolio within two weeks of an earlier exchange request, or (ii) exchanged shares out of a Portfolio more than twice in a calendar quarter, or (iii) exchanged shares equal to at least $1 million, or more than 1% of the net assets of the Portfolio, or (iv) followed what otherwise seems to be a timing pattern in the exercise of exchange or transfer rights. Policies or contracts under common control or ownership are combined for the purpose of determining these limitations. The Fund reserves the right to change the terms of or impose other limitations on the exchange privilege. 86 BUYING AND SELLING SHARES GENERAL INFORMATION DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Each Portfolio pays its shareholders dividends from its net investment income, and distributes any net capital gains that it has realized. Except for Money Market Portfolio, dividends and net capital gains distributions, if any, are generally paid once a year. Dividends for Money Market Portfolio are declared daily and paid on the last business day of the month. Distributions will be reinvested in additional Portfolio shares. Distributions of these additional shares are made at the NAV of the payment date. From time to time, however, the Portfolios may employ a practice known as "consent dividends." Under this method of "distributing" income, the shareholders of the Portfolios consent to treat specified amounts as dividend income for tax purposes even though dividends are not actually paid (either in cash or by reinvestment in additional shares) by the Portfolios. TAXES GENERALLY. Each Portfolio is treated as a separate entity for federal income tax purposes. Since Minnesota Life currently is the sole shareholder of the Fund, no discussion regarding the tax consequences to Fund investors is included in this prospectus. For information concerning the tax consequences to purchasers of variable annuity contracts and variable life insurance policies issued by Minnesota Life, please see the accompanying prospectus for those contracts. SPECIAL PORTFOLIO DIVERSIFICATION REQUIREMENTS. To enable a variable annuity contract or variable life insurance policy based on an insurance company separate account to qualify for favorable tax treatment under the Internal Revenue Code, the underlying investments must follow special diversification requirements that limit the percentage of assets that can be invested in securities of particular issuers. The Fund's investment program is managed to meet those requirements, in addition to other diversification requirements under the Internal Revenue Code and the Investment Company Act of 1940. Failure by the Fund to meet those special requirements could cause earnings on a contract or policy owner's interest in an insurance company separate account to be taxable income. Those diversification requirements might also limit, to some degree, the Fund's investment decisions in a way that could reduce its performance. MIXED AND SHARED FUNDING The Fund serves as the underlying investment medium for amounts invested in life insurance company separate accounts funding both variable life insurance policies and variable annuity contracts (mixed funding), and as the investment medium for such policies and contracts issued by both Minnesota Life and other affiliated and unaffiliated life insurance companies (shared funding). Shared funding also occurs when the Fund is used by both a life insurance company to fund its policies or contracts and a participating qualified plan to fund plan benefits. It is possible that there may be circumstances where it is disadvantageous for either: (i) the owners of variable life insurance policies and variable annuity contracts to invest in the Fund at the same time, or (ii) the owners of such policies and contracts issued by different life insurance companies to invest in the Fund at the same time or (iii) participating qualified plans to invest in shares of the Fund at the same time as one or more life insurance companies. Neither the Fund nor Minnesota Life currently foresees any disadvantage, but if the Fund determines that there is any such disadvantage due to a material GENERAL INFORMATION 87 conflict of interest between such policy owners and contract owners, or between different life insurance companies, or between participating qualified plans and one or more life insurance companies, or for any other reason, the Fund's Board of Directors will notify the life insurance companies and participating qualified plans of such conflict of interest or other applicable event. In that event, the life insurance companies or participating qualified plans may be required to sell Fund shares with respect to certain groups of policy owners or contract owners, or certain participants in participating qualified plans, in order to resolve any conflict. The life insurance companies and participating qualified plans will bear the entire cost of resolving any material conflict of interest. 88 GENERAL INFORMATION FINANCIAL HIGHLIGHTS The following tables describe each Portfolio's performance for the fiscal periods indicated. "Total return" shows how much an investment in the Portfolio would have increased (or decreased) during each period, assuming an investor had reinvested all dividends and distributions. These figures have been audited by KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's financial statements, are included in the Fund's annual report, which is available upon request. Per share data for a share of capital stock and selected information for each period are as follows for each Portfolio: GROWTH PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.57 2.52 3.33 2.74 2.40 ----------------------------------------------- Income from Investment Operations: Net Investment Income (Loss) -- -- (.01) -- .01 Net Gains (Losses) on Securities (both realized and unrealized) (.40) (.63) (.68) .67 .74 ----------------------------------------------- Total from Investment Operations (.40) (.63) (.69) .67 .75 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- -- -- (.01) (.02) Distributions from Net Realized Gains -- (.32) (.12) (.07) (.39) ----------------------------------------------- Total Distributions -- (.32) (.12) (.08) (.41) ----------------------------------------------- Net Asset Value, End of Year $ 1.17 1.57 2.52 3.33 2.74 =============================================== Total Return (a) % (25.44) (24.80) (21.83) 25.67 34.70 Net Assets, End of Year (in thousands) $ 198,421 298,635 438,717 594,676 468,382 Ratio of Expenses to Average Daily Net Assets % .76 .75 .68 .53 .53 Ratio of Net Investment Income (Loss) to Average Daily Net Assets % .19 (.11) (.23) .12 .40 Portfolio Turnover Rate (excluding short-term securities) % 98.7 119.9 119.2 65.3 66.4

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 89 BOND PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.18 1.22 1.18 1.31 1.33 ----------------------------------------------- Income from Investment Operations: Net Investment Income .06 .06 .08 .07 .06 Net Gains (Losses) on Securities (Both Realized and Unrealized) .06 .04 .03 (.10) .01 ----------------------------------------------- Total from Investment Operations .12 .10 .11 (.03) .07 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.14) (.07) (.07) (.07) Distributions from Net Realized Gains -- -- -- (.03) (.02) ----------------------------------------------- Total Distributions -- (.14) (.07) (.10) (.09) ----------------------------------------------- Net Asset Value, End of Year $ 1.30 1.18 1.22 1.18 1.31 =============================================== Total Return (a) % 10.50 7.90 10.44 (2.73) 6.08 Net Assets, End of Year (in thousands) $ 276,486 235,318 187,254 181,881 178,793 Ratio of Expenses to Average Daily Net Assets % .61 .60 .61 .56 .55 Ratio of Net Investment Income to Average Daily Net Assets % 5.20 5.96 6.43 5.92 5.84 Portfolio Turnover Rate (excluding short-term securities) % 140.8 197.8 206.8 140.8 252.1

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 90 FINANCIAL HIGHLIGHTS MONEY MARKET PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.00 1.00 1.00 1.00 1.00 ----------------------------------------------- Income from Investment Operations: Net Investment Income .01 .04 .06 .05 .05 ----------------------------------------------- Total from Investment Operations .01 .04 .06 .05 .05 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income (.01) (.04) (.06) (.05) (.05) ----------------------------------------------- Total Distributions (.01) (.04) (.06) (.05) (.05) ----------------------------------------------- Net Asset Value, End of Year $ 1.00 1.00 1.00 1.00 1.00 =============================================== Total Return (a) % 1.28 3.75 5.96 4.71 4.97 Net Assets, End of Year (in thousands) $ 163,703 140,058 184,098 156,580 126,177 Ratio of Expenses to Average Daily Net Assets % .57 .57 .58 .56 .58 Ratio of Net Investment Income to Average Daily Net Assets % 1.26 3.73 5.83 4.61 4.84

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 91 ASSET ALLOCATION PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.45 2.00 2.39 2.28 2.03 ----------------------------------------------- Income From Investment Operations: Net Investment Income .04 .03 .05 .05 .05 Net Gains (Losses) on Securities (both realized and unrealized) (.17) (.33) (.28) .27 .40 ----------------------------------------------- Total from Investment Operations (.13) (.30) (.23) .32 .45 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.03) (.05) (.10) (.06) Distributions from Net Realized Gains -- (.22) (.11) (.11) (.14) ----------------------------------------------- Total Distributions -- (.25) (.16) (.21) (.20) ----------------------------------------------- Net Asset Value, End of Year $ 1.32 1.45 2.00 2.39 2.28 =============================================== Total Return (a) % (8.98) (14.36) (10.40) 15.17 23.65 Net Assets, End of Year (in thousands) $ 374,268 482,160 638,972 750,129 637,997 Ratio of Expenses to Average Daily Net Assets % .65 .64 .61 .53 .53 Ratio of Net Investment Income to Average Daily Net Assets % 2.46 1.93 2.12 2.28 2.51 Portfolio Turnover Rate (excluding short-term securities) % 116.5 169.4 139.3 97.0 129.6

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 92 FINANCIAL HIGHLIGHTS MORTGAGE SECURITIES PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.18 1.22 1.17 1.22 1.21 ----------------------------------------------- Income from Investment Operations: Net Investment Income .08 .07 .09 .07 .08 Net Gains (Losses) on Securities (both realized and unrealized) .03 .04 .04 (.05) -- ----------------------------------------------- Total from Investment Operations .11 .11 .13 .02 .08 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.15) (.08) (.07) (.07) ----------------------------------------------- Total Distributions -- (.15) (.08) (.07) (.07) ----------------------------------------------- Net Asset Value, End of Year $ 1.29 1.18 1.22 1.17 1.22 =============================================== Total Return (a) % 9.66 9.04 11.80 1.99 6.57 Net Assets, End of Year (in thousands) $ 249,802 230,141 151,141 138,815 124,358 Ratio of Expenses to Average Daily Net Assets % .62 .61 .62 .57 .57 Ratio of Net Investment Income to Average Daily Net Assets % 6.41 6.85 7.30 6.88 6.76 Portfolio Turnover Rate (excluding short-term securities) % 82.4 81.9 48.9 79.4 116.7

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 93 INDEX 500 PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 3.47 4.05 4.56 3.91 3.10 ----------------------------------------------- Income from Investment Operations: Net Investment Income .04 .03 .03 .04 .04 Net Gains (Losses) on Securities (both realized and unrealized) (.81) (.54) (.44) .74 .82 ----------------------------------------------- Total from Investment Operations (.77) (.51) (.41) .78 .86 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.03) (.03) (.07) (.03) Distributions from Net Realized Gains -- (.04) (.07) (.06) (.02) ----------------------------------------------- Total Distributions -- (.07) (.10) (.13) (.05) ----------------------------------------------- Net Asset Value, End of Year $ 2.70 3.47 4.05 4.56 3.91 =============================================== Total Return (a) % (22.37) (12.25) (9.39) 20.28 27.99 Net Assets, End of Year (in thousands) $ 418,897 520,644 584,239 657,824 536,859 Ratio of Expenses to Average Daily Net Assets % .43 .42 .44 .45 .44 Ratio of Net Investment Income to Average Daily Net Assets % 1.23 .93 .73 .85 1.08 Portfolio Turnover Rate (excluding short-term securities) % 7.8 6.1 12.8 25.6 30.2

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 94 FINANCIAL HIGHLIGHTS CAPITAL APPRECIATION PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.60 3.06 3.70 3.54 2.85 ----------------------------------------------- Income from Investment Operations: Net Investment Loss -- -- (.01) (.01) -- Net Gains (Losses) on Securities (both realized and unrealized) (.51) (.69) (.30) .64 .86 ----------------------------------------------- Total from Investment Operations (.51) (.69) (.31) .63 .86 ----------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (.77) (.33) (.47) (.17) ----------------------------------------------- Total Distributions -- (.77) (.33) (.47) (.17) ----------------------------------------------- Net Asset Value, End of Year $ 1.09 1.60 3.06 3.70 3.54 =============================================== Total Return (a) % (31.54) (24.63) (10.16) 21.51 30.83 Net Assets, End of Year (in thousands) $ 153,488 256,755 380,983 457,449 392,800 Ratio of Expenses to Average Daily Net Assets % .83 .80 .81 .79 .78 Ratio of Net Investment (Loss) to Average Daily Net Assets % (.03) .11 (.17) (.24) (.21) Portfolio Turnover Rate (excluding short-term securities) % 43.0 90.3 193.1 114.1 82.7

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 95 INTERNATIONAL STOCK PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ 1.34 1.76 1.94 1.73 1.71 ----------------------------------------------- Income from Investment Operations: Net Investment Income .02 .03 .03 .04 .04 Net Gains (Losses) on Securities (both realized and unrealized) (.26) (.23) (.02) .31 .08 ----------------------------------------------- Total from Investment Operations (.24) (.20) .01 .35 .12 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.06) (.03) (.05) (.05) Distributions from Net Realized Gains -- (.16) (.16) (.09) (.05) ----------------------------------------------- Total Distributions -- (.22) (.19) (.14) (.10) ----------------------------------------------- Net Asset Value, End of Year $ 1.10 1.34 1.76 1.94 1.73 =============================================== Total Return (a) % (17.82) (11.21) .81 21.43 6.61 Net Assets, End of Year (in thousands) $ 223,017 278,545 342,930 363,849 310,873 Ratio of Expenses to Average Daily Net Assets % .99 .97 1.07 .90 .94 Ratio of Net Investment Income to Average Daily Net Assets % 1.87 1.60 2.10 2.03 2.55 Portfolio Turnover Rate (excluding short-term securities) % 32.7 39.4 46.8 34.7 22.4

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 96 FINANCIAL HIGHLIGHTS SMALL COMPANY GROWTH PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Year $ .97 2.05 2.44 1.68 1.65 ----------------------------------------------- Income from Investment Operations: Net Investment Loss (.01) (.01) (.01) (.01) -- Net Gains (Losses) on Securities (both realized and unrealized) (.30) (.40) (.22) .77 .03 ----------------------------------------------- Total from Investment Operations (.31) (.41) (.23) .76 .03 ----------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (.67) (.16) -- -- ----------------------------------------------- Total Distributions -- (.67) (.16) -- -- ----------------------------------------------- Net Asset Value, End of Year $ .66 .97 2.05 2.44 1.68 =============================================== Total Return (a) % (31.80) (14.70) (11.28) 45.63 1.27 Net Assets, End of Year (in thousands) $ 122,888 193,705 240,978 269,881 195,347 Ratio of Expenses to Average Daily Net Assets % .98 .97 .92 .80 .79 Ratio of Net Investment Income (Loss) to Average Daily Net Assets % (.73) (.55) (.47) (.45) (.28) Portfolio Turnover Rate (excluding short-term securities) % 61.7 97.8 154.3 105.1 75.5

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 97 MATURING GOVERNMENT BOND 2006 PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(c) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.22 1.18 1.09 1.25 1.16 -------------------------------------------- Income from Investment Operations: Net Investment Income .06 .06 .07 .07 .05 Net Gains (Losses) on Securities (both realized and unrealized) .10 .04 .09 (.16) .11 -------------------------------------------- Total from Investment Operations .16 .10 .16 (.09) .16 Less Distributions: Dividends from Net Investment Income -- (.06) (.07) (.07) (.06) Distributions from Net Realized Gains -- -- -- -- (.01) -------------------------------------------- Total Distributions -- (.06) (.07) (.07) (.07) -------------------------------------------- Net Asset Value, End of Period $ 1.38 1.22 1.18 1.09 1.25 ============================================ Total Return (a) % 12.99 8.08 15.63 (7.81) 14.37 Net Assets, End of Period (in thousands) $ 10,650 8,694 6,429 6,261 6,870 Ratio of Expenses to Average Daily Net Assets (b) % .65 .40 .40 .40 .40 Ratio of Net Investment Income to Average Daily Net Assets (b) % 4.81 5.39 5.92 5.76 5.57 Portfolio Turnover Rate (excluding short-term securities) % 5.9 6.4 3.4 19.8 21.6

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $35,104, $59,498, $61,355, $56,178 and $37,165 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.02%, 1.16%, 1.41%, 1.26% and 1.12%, respectively, and the ratio of net investment income to average daily net assets would have been 4.44%, 4.63%, 4.91% 4.90% and 4.85%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 98 FINANCIAL HIGHLIGHTS MATURING GOVERNMENT BOND 2010 PORTFOLIO

FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(c) 1999 1998 - --------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.27 1.35 1.19 1.41 1.29 -------------------------------------------- Income from Investment Operations: Net Investment Income .05 .07 .08 .08 .06 Net Gains (Losses) on Securities (both realized and unrealized) .19 (.01) .17 (.24) .12 -------------------------------------------- Total from Investment Operations .24 .06 .25 (.16) .18 -------------------------------------------- Less Distributions: Dividends from Net Investment income -- (.14) (.08) (.06) (.06) Distributions from Net Realized Gains -- -- (.01) -- -- -------------------------------------------- Total Distributions -- (.14) (.09) (.06) (.06) -------------------------------------------- Net Asset Value, End of Period $ 1.51 1.27 1.35 1.19 1.41 ============================================ Total Return (a) % 18.85 4.96 21.36 (11.54) 14.28 Net Assets, End of Period (in thousands) $ 9,359 5,855 5,537 4,942 5,648 Ratio of Expenses to Average Daily Net Assets (b) % .65 .40 .40 .40 .40 Ratio of Net Investment Income to Average Daily Net Assets (b) % 4.79 5.49 6.22 5.82 5.48 Portfolio Turnover Rate (excluding short-term securities) % 19.1 17.3 8.3 28.4 28.2

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $44,356, $61,422, $62,524, $55,419 and $39,052 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.28%, 1.42%, 1.66%, 1.43% and 1.33%, respectively, and the ratio of net investment income to average daily net assets would have been 4.16%, 4.47%, 4.96%, 4.79% and 4.55%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 99 VALUE STOCK PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.48 1.67 1.71 1.76 1.73 ----------------------------------------------- Income from Investment Operations: Net Investment Income .02 .02 .01 .02 .03 Net Gains (Losses) on Securities (both realized and unrealized) (.25) (.19) (.03) (.02) -- ----------------------------------------------- Total from Investment Operations (.23) (.17) (.02) -- .03 ----------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.02) (.02) (.05) -- ----------------------------------------------- Total Distributions -- (.02) (.02) (.05) -- ----------------------------------------------- Net Asset Value, End of Period $ 1.25 1.48 1.67 1.71 1.76 =============================================== Total Return (a) % (15.32) (10.45) (1.61) .27 1.75 Net Assets, End of Period (in thousands) $ 112,803 141,601 166,134 191,380 214,046 Ratio of Expenses to Average Daily Net Assets % .83 .84 .83 .80 .79 Ratio of Net Investment Income to Average Daily Net Assets % 1.27 1.10 .84 1.26 1.54 Portfolio Turnover Rate (excluding short-term securities) % 112.4 132.7 163.1 131.2 88.9

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 100 FINANCIAL HIGHLIGHTS SMALL COMPANY VALUE PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(c) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.27 1.16 .91 .95 1.03 ------------------------------------------- Income from Investment Operations: Net Investment Income -- -- -- .01 .01 Net Gains (Losses) on Securities (both realized and unrealized) (.25) .18 .25 (.04) (.08) ------------------------------------------- Total from Investment Operations (.25) .18 .25 (.03) (.07) ------------------------------------------- Less Distributions: Dividends from Net Investment Income -- -- -- (.01) (.01) Distributions from Net Realized Gains -- (.06) -- -- -- Tax Return of Capital -- (.01) -- -- -- ------------------------------------------- Total Distributions -- (.07) -- (.01) (.01) ------------------------------------------- Net Asset Value, End of Period $ 1.02 1.27 1.16 .91 .95 =========================================== Total Return (a) % (19.98) 15.59 28.00 (3.07) (6.75) Net Assets, End of Period (in thousands) $ 54,944 41,337 22,564 12,518 8,646 Ratio of Expenses to Average Daily Net Assets (b) % 1.10 1.10 1.05 .90 .90 Ratio of Net Investment Income to Average Daily Net Assets (b) % (.43) (.16) .29 1.42 1.52 Portfolio Turnover Rate (excluding short-term securities) % 38.8 22.6 122.0 101.5 70.2

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Minnesota Life voluntarily absorbed $40,674, $39,093, $87,809, $67,886 and $58,848 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.17%, 1.22%, 1.58%, 1.56% and 1.83%, respectively, and the ratio of net investment income to average daily net assets would have been (.50)%, (.28)%, (.24)%, .76% and .59%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 101 INTERNATIONAL BOND PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(b) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ .92 .95 .94 1.05 .98 -------------------------------------------- Income from Investment Operations: Net Investment Income (Loss) .05 .04 .04 .05 .05 Net Gains (Losses) on Securities (both realized and unrealized) .12 (.06) (.03) (.13) .11 -------------------------------------------- Total from Investment Operations .17 (.02) .01 (.08) .16 -------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.01) -- (.03) (.03) Distributions from Net Realized Gains -- -- -- -- (.06) -------------------------------------------- Total Distributions -- (.01) -- (.03) (.09) -------------------------------------------- Net Asset Value, End of Period $ 1.09 .92 .95 .94 1.05 ============================================ Total Return (a) % 17.94 (1.51) 1.42 (7.81) 16.18 Net Assets, End of Period (in thousands) $ 53,683 39,958 37,177 32,093 31,152 Ratio of Expenses to Average Daily Net Assets % 1.24 1.20 1.33 .94 1.13 Ratio of Net Investment Income to Average Daily Net Assets % 4.52 4.50 4.85 5.90 4.86 Portfolio Turnover Rate (excluding short-term securities) % 304.1 251.7 306.8 287.4 285.3

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 102 FINANCIAL HIGHLIGHTS INDEX 400 MID-CAP PORTFOLIO

FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(c) 1999 1998 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.13 1.22 1.18 1.15 1.01 -------------------------------------------- Income from Investment Operations: Net Investment Income -- .01 .01 -- .01 Net Gains (Losses) on Securities (both realized and unrealized) (.17) (.03) .19 .15 .16 -------------------------------------------- Total from Investment Operations (.17) (.02) .20 .15 .17 -------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.01) (.01) -- (.01) Distributions from Net Realized Gains -- (.04) (.15) (.12) (.02) Tax Return of Capital -- (.02) -- -- -- -------------------------------------------- Total Distributions -- (.07) (.16) (.12) (.03) -------------------------------------------- Net Asset Value, End of Period $ .96 1.13 1.22 1.18 1.15 ============================================ Total Return (a) % (15.03) (1.07) 16.05 15.96 16.68 Net Assets, End of Period (in thousands) $ 41,835 41,069 35,768 24,357 10,511 Ratio of Expenses to Average Daily Net Assets (b) % .65 .55 .55 .55 .55 Ratio of Net Investment Income to Average Daily Net Assets (b) % .42 .82 1.18 .72 .78 Portfolio Turnover Rate (excluding short-term securities) % 20.0 29.8 78.3 76.6 85.4

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return has not been annualized. (b) Minnesota Life voluntarily absorbed $45,365, $74,402, $70,044 and $52,946 in expenses for the years ended December 31, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been .67%, .80%, 1.00% and 1.36%, respectively, and the ratio of net investment income (loss) to average daily net assets would have been .70%, .93%, .27% and (.03)%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 103 CORE EQUITY PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(c) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ .98 1.06 1.16 1.14 .97 -------------------------------------------- Income from Investment Operations: Net Investment Income -- -- -- .01 .01 Net Gains (Losses) on Securities (both realized and unrealized) (.28) (.08) (.08) .07 .21 -------------------------------------------- Total from Investment Operations (.28) (.08) (.08) .08 .22 -------------------------------------------- Less Distributions: Dividends from Net Investment Income -- -- -- (.01) -- Distributions from Net Realized Gains -- -- (.02) (.05) (.05) -------------------------------------------- Total Distributions -- -- (.02) (.06) (.05) -------------------------------------------- Net Asset Value, End of Period $ .70 .98 1.06 1.16 1.14 ============================================ Total Return (a) % (28.14) (7.74) (7.02) 7.17 22.33 Net Assets, End of Period (in thousands) $ 20,465 26,879 27,865 22,570 11,088 Ratio of Expenses to Average Daily Net Assets (b) % 1.05 .99 .95 .85 .85 Ratio of Net Investment Income to Average Daily Net Assets(b) % .40 .37 .39 .60 .69 Portfolio Turnover Rate (excluding short-term securities) % 32.3 52.6 44.5 103.4 164.0

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Minnesota Life voluntarily absorbed $50,401, $60,312, $84,884, $102,703 and $114,468 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.26%, 1.20%, 1.27%, 1.48% and 2.53%, respectively, and the ratio of net investment income (loss) to average daily net assets would have been .19%, .16%, .07%, (.03)% and (.99)%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 104 FINANCIAL HIGHLIGHTS MICRO-CAP GROWTH PORTFOLIO

FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000(c) 1999 1998 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 1.55 1.75 2.51 1.01 .89 ----------------------------------------------- Income from Investment Operations: Net Investment Loss (.01) (.01) (.01) -- -- Net Gains Losses) on Securities (both realized and unrealized) (.67) (.19) (.44) 1.50 .12 ----------------------------------------------- Total from Investment Operations (.68) (.20) (.45) 1.50 .12 ----------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- -- (.31) -- -- ----------------------------------------------- Total Distributions -- -- (.31) -- -- ----------------------------------------------- Net Asset Value, End of Period $ .87 1.55 1.75 2.51 1.01 =============================================== Total Return (a) % (43.64) (11.33) (21.05) 148.77 13.44 Net Assets, End of Period (in thousands) $ 24,504 45,029 52,176 42,554 8,034 Ratio of Expenses to Average Daily Net Assets (b) % 1.34 1.35 1.30 1.25 1.25 Ratio of Net Investment Loss to Average Daily Net Assets (b) % (1.10) (1.00) (.46) (.47) (.40) Portfolio Turnover Rate (excluding short-term securities) % 67.6 71.2 102.7 108.5 67.4

(a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Minnesota Life voluntarily absorbed $36,055, $24,008, $26,838, $50,020 and $46,960 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.45%, 1.40%, 1.35%, 1.57% and 2.10%, respectively, and the ratio of net investment income (loss) to average daily net assets would have been (1.21)%, (1.05)%, (.50)%, (.79)% and (1.25)%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. FINANCIAL HIGHLIGHTS 105 REAL ESTATE SECURITIES PORTFOLIO

FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------------------------------------- Period From May 1, 1998(a) to Year Ended December 31, December 31, 2002 2001 2000(d) 1999 1998 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ .96 .90 .76 .83 1.02 ------------------------------------------------- Income from Investment Operations: Net Investment Income .03 .03 .04 .04 .03 Net Gains (Losses) on Securities (both realized and unrealized) .03 .06 .15 (.07) (.19) ------------------------------------------------- Total from Investment Operations .06 .09 .19 (.03) (.16) ------------------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.03) (.04) (.03) (.03) Tax Return of Capital -- -- (.01) (.01) -- ------------------------------------------------- Total Distributions -- (.03) (.05) (.04) (.03) ------------------------------------------------- Net Asset Value, End of Period $ 1.02 .96 .90 .76 .83 ================================================= Total Return (b) % 6.97 10.03 25.61 (3.89) (14.90) Net Assets, End of Period (in thousands) $ 33,912 15,638 9,947 5,826 5,322 Ratio of Expenses to Average Daily Net Assets (c) % 1.00 1.00 .97 .90 .90(e) Ratio of Net Investment Income to Average Daily Net Assets (c) % 3.38 4.43 5.32 4.58 5.54(e) Portfolio Turnover Rate (excluding short-term securities) % 70.2 160.4 143.7 106.3 54.0

(a) The inception of the Portfolio was May 1, 1998 when the shares of the Portfolio became effectively registered under the Securities Act of 1933. (b) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return has not been annualized. (c) Minnesota Life voluntarily absorbed $47,820, $71,008, $77,007, $63,511 and $31,736 in expenses for the years ended December 31, 2002, 2001, 2000 and 1999 and the period ended December 31, 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.18%, 1.59%, 2.03%, 2.05% and 1.90%, respectively, and the ratio of net investment income to average daily net assets would have been 3.23%, 3.84%, 4.26%, 3.43% and 4.54%, respectively. (d) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. (e) Adjusted to an annual basis. 106 FINANCIAL HIGHLIGHTS SERVICE PROVIDERS INVESTMENT ADVISERS Advantus Capital Management, Inc. 400 Robert Street North St. Paul, Minnesota 55101 (651) 665-3826 Waddell & Reed Investment Management Co. 6300 Lamar Avenue Shawnee Mission, Kansas 66201 (913) 236-2000 (888) WADDELL INVESTMENT SUB-ADVISERS International Stock Portfolio Templeton Investment Counsel, LLC 500 East Broward Boulevard Fort Lauderdale, Florida 33394 (954) 527-7500 Small Company Growth Portfolio Credit Suisse Asset Management, LLC 466 Lexington Avenue New York, New York 10017 (212) 875-3500 Small Company Value Portfolio State Street Research & Management Company One Financial Center Boston, Massachusetts 02111 (617) 357-1200 International Bond Portfolio Julius Baer Investment Management Inc. 330 Madison Avenue New York, New York 10017 (212) 297-3800 Micro-Cap Growth Portfolio Wall Street Associates La Jolla Financial Building 1200 Prospect Street, Suite 100 La Jolla, California 92037 (800) 925-5787 ADMINISTRATIVE SERVICES AGENT Minnesota Life Insurance Company (800) 995-3850 UNDERWRITER Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101-2098 (651) 665-4833 CUSTODIANS Wells Fargo Bank Minnesota Sixth Street and Marquette Avenue Minneapolis, Minnesota 55479 Growth, Money Market, Asset Allocation, Index 500, Capital Appreciation, Small Company Growth, Value Stock, Small Company Value, Index 400 Mid-Cap, Core Equity, Micro-Cap Growth and Real Estate Securities Portfolios Bankers Trust Company 280 Park Avenue New York, New York 10017 Bond, Mortgage Securities, International Stock, Maturing Government Bond and International Bond Portfolios INDEPENDENT AUDITORS KPMG LLP GENERAL COUNSEL Dorsey & Whitney LLP INDEPENDENT LEGAL COUNSEL TO INDEPENDENT DIRECTORS Faegre & Benson LLP SERVICE PROVIDERS 107 ADDITIONAL INFORMATION ABOUT THE FUND The Fund's annual and semi-annual reports list holdings for each Portfolio, and discuss recent market conditions, economic trends and investment strategies that affected the Portfolios during the latest fiscal year. A Statement of Additional Information (SAI) provides further information about the Fund and the Portfolios. The current SAI is on file with the Securities and Exchange Commission and is incorporated by reference (is legally part of this prospectus). HOW TO OBTAIN ADDITIONAL INFORMATION. The SAI and the Fund's annual and semi-annual reports are available without charge upon request. You may obtain additional information or make any inquiries: By Telephone - Call 1-800-995-3850 By Mail - Write to Minnesota Life Insurance Company, 400 Robert Street North, St. Paul, Minnesota 55101-2098 Information about the Fund (including the SAI and annual and semi-annual reports) can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (telephone 1-202-942-8090 or 1-800-SEC-0330). This information and other reports about the Fund are also available on the SEC's World Wide Web site at http://www.sec.gov. Copies of this information may be obtained by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by electronic request to: publicinfo@sec.gov. You will be charged a duplicating fee for copies. Investment Company Act No. 811-4279 [ADVANTUS LOGO] (C)2003 Minnesota Life Insurance Company. All rights reserved. 108 ADDITIONAL INFORMATION ABOUT THE FUND EX-99.17(G) 12 c77852exv99w17xgy.txt EX-(17)(G) ADVANTUS SERIES FUND STATEMENT OF INFO STATEMENT OF ADDITIONAL INFORMATION ADVANTUS SERIES FUND, INC. May 1, 2003 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the separate Prospectus dated May 1, 2003 and should be read in conjunction therewith. The Fund's audited Annual Report, dated December 31, 2002, which either accompanies this Statement of Additional Information or has previously been provided to the investor to whom this Statement of Additional Information is being sent, is incorporated herein by reference. A copy of the Prospectus and Annual Report may be obtained by telephone from Minnesota Life Insurance Company (Minnesota Life) at (800) 995-3850 or by writing to Minnesota Life at 400 Robert Street North, St. Paul, Minnesota 55101-2098. TABLE OF CONTENTS GENERAL INFORMATION AND HISTORY...................................................................................1 INVESTMENT OBJECTIVES AND POLICIES................................................................................2 Portfolio Names and Investment Policies........................................................................2 Equity Securities of Small Capitalization Companies............................................................2 Debt and Money Market Securities - Non-Money Market Portfolios.................................................3 Low Rated Securities...........................................................................................5 Convertible Securities.........................................................................................6 Money Market Securities - Money Market Portfolio...............................................................7 U.S. Government Obligations....................................................................................8 Obligations of Non-Domestic Banks..............................................................................8 Variable Amount Master Demand Notes............................................................................9 Mortgage-Related Securities....................................................................................9 U.S. Government Mortgage-Related Securities...................................................................10 Non-Governmental Mortgage-Related Securities..................................................................11 Collateralized Mortgage Obligations...........................................................................11 Stripped Mortgage-Backed Securities...........................................................................13 Asset-Backed and Stripped Asset-Backed Securities.............................................................14 Direct Investments in Mortgages - Whole Loans.................................................................15 Zero Coupon Securities........................................................................................16 Pay-in-Kind and Delayed Interest Securities...................................................................17 Foreign Securities............................................................................................17 Foreign Index Linked Securities...............................................................................19 Swap Agreements...............................................................................................20 Currency Exchange Transactions................................................................................21 Foreign Currency Hedging Transactions.........................................................................22 Closed-End Investment Companies...............................................................................23 Loans of Portfolio Securities.................................................................................23 Restricted and Illiquid Securities............................................................................24 When-Issued Securities and Forward Commitments................................................................25 Mortgage Dollar Rolls.........................................................................................27 Real Estate Investment Trust Securities.......................................................................27 Repurchase Agreements.........................................................................................28 Reverse Repurchase Agreements.................................................................................28 Futures Contracts and Options on Futures Contracts............................................................29 Warrants......................................................................................................35 Warrants with Cash Extractions................................................................................35 Index Depositary Receipts.....................................................................................36 Short Sales Against the Box...................................................................................36 Investments in Russia.........................................................................................36 Defensive Purposes............................................................................................39 INVESTMENT RESTRICTIONS..........................................................................................39 Fundamental Restrictions......................................................................................39 Non-Fundamental Restrictions..................................................................................40 i Additional Restrictions.......................................................................................41 PORTFOLIO TURNOVER...............................................................................................42 DIRECTORS AND EXECUTIVE OFFICERS.................................................................................43 DIRECTOR LIABILITY...............................................................................................47 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................47 General.......................................................................................................47 Control and Management of Advantus Capital and Securian Financial.............................................48 The Fund's Investment Advisory Agreement with Advantus Capital................................................49 Sub-Adviser - CSAM............................................................................................53 Small Company Growth Portfolio Investment Sub-Advisory Agreement - CSAM.......................................54 Sub-Adviser - Templeton Counsel...............................................................................55 International Stock Portfolio Investment Sub-Advisory Agreement - Templeton Counsel...........................56 Sub-Adviser - JBIM............................................................................................57 International Bond Portfolio Investment Sub-Advisory Agreement - JBIM.........................................57 Sub-Adviser - WSA.............................................................................................58 Micro-Cap Growth Portfolio Investment Sub-Advisory Agreement - WSA............................................58 Sub-Adviser - State Street Research...........................................................................59 Small Company Value Portfolio Investment Sub-Advisory Agreement-State Street Research.........................59 Annual Approval of Advisory and Sub-Advisory Agreements.......................................................60 Administrative Services.......................................................................................62 Code of Ethics................................................................................................63 Distribution Agreement........................................................................................63 Payment of Certain Distribution Expenses of the Fund..........................................................64 Custodians....................................................................................................67 Independent Auditors..........................................................................................67 Legal Counsel.................................................................................................67 PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE...............................................................67 Adviser.......................................................................................................67 Sub-Advisers..................................................................................................70 PURCHASE AND REDEMPTION OF SHARES................................................................................70 FUND SHARES AND VOTING RIGHTS....................................................................................71 PRINCIPAL SHAREHOLDERS...........................................................................................71 NET ASSET VALUE..................................................................................................72 PERFORMANCE DATA.................................................................................................74 Current Yield Figures for Money Market Portfolio..............................................................74 Current Yield Figures for Other Portfolios....................................................................74 Total Return Figures For All Portfolios.......................................................................75 Predictability of Return......................................................................................78 ii TAXES............................................................................................................79 THE STANDARD & POOR'S LICENSE....................................................................................80 FINANCIAL STATEMENTS.............................................................................................81 APPENDIX A - MORTGAGE-RELATED SECURITIES........................................................................A-1 Underlying Mortgages.........................................................................................A-1 Liquidity and Marketability..................................................................................A-1 Average Life.................................................................................................A-1 Yield Calculations...........................................................................................A-2 APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS..................................................................B-1 Bond Ratings.................................................................................................B-1 Commercial Paper Ratings.....................................................................................B-2 APPENDIX C - FUTURES CONTRACTS..................................................................................C-1 Example of Futures Contract Sale.............................................................................C-1 Example of Futures Contract Purchase.........................................................................C-1 Tax Treatment................................................................................................C-2 APPENDIX D - BRADY BONDS........................................................................................D-1 iii GENERAL INFORMATION AND HISTORY Advantus Series Fund, Inc. ("Fund"), is a Minnesota corporation, each of whose Portfolios operates as a no-load, diversified, open-end management investment company, except that International Bond Portfolio operates as a non-diversified, open-end management investment company. The Fund was organized on February 22, 1985. Prior to a change of its name on May 1, 1997, the Fund was known as MIMLIC Series Fund, Inc. The Fund is a series fund, which means that it has several different Portfolios. The Portfolios of the Fund are as follows: o Growth Portfolio o Bond Portfolio o Money Market Portfolio o Asset Allocation Portfolio o Mortgage Securities Portfolio o Index 500 Portfolio o Capital Appreciation Portfolio o International Stock Portfolio o Small Company Growth Portfolio o Maturing Government Bond Portfolios (two separate portfolios with maturity dates of 2006 and 2010) o Value Stock Portfolio o Small Company Value Portfolio o International Bond Portfolio (prior to May 1, 2003, the Global Bond Portfolio) o Index 400 Mid-Cap Portfolio o Core Equity Portfolio (prior to May 1, 2003, the Macro-Cap Value Portfolio) o Micro-Cap Growth Portfolio o Real Estate Securities Portfolio The investment advisers of the Fund (each an "Investment Adviser" and, collectively, the "Investment Advisers") are Advantus Capital Management, Inc. ("Advantus Capital") and Waddell & Reed Financial Management Co. ("WRIMCO"). Advantus Capital is the investment adviser for the Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities Portfolio. Advantus Capital has entered into investment sub-advisory agreements under which various investment managers provide investment services. Credit Suisse Asset Management, LLC ("CSAM") serves as investment sub-adviser to the Fund's Small Company Growth Portfolio. Templeton Investment Counsel, LLC ("Templeton Counsel") serves as investment sub-adviser to the Fund's International Stock Portfolio. Julius Baer Investment Management Inc. ("JBIM") serves as investment sub-adviser to the Fund's International Bond Portfolio. Wall Street Associates ("WSA") serves as investment sub-adviser to the Fund's Micro-Cap Growth Portfolio. State Street Research & Management Company ("State Street Research") serves as investment sub-adviser for the Small Company Value Portfolio. In April 2003, WRIMCO is the investment adviser to the Growth portfolio, Asset Allocation Portfolio, Capital Appreciation Portfolio, Value Stock Portfolio and Core Equity Portfolio. WRIMCO became the investment adviser for these funds effective May 1, 2003, pursuant to an interim investment advisory agreement (the "Interim Agreement") approved by the Board of Directors in connection with the Fund entering into a Strategic Alliance Agreement and a related Purchase Agreement with Waddell & Reed Financial, Inc. ("W&R"), WRIMCO and certain other companies affiliated with W&R. Currently, the shares of the Fund are sold only to Minnesota Life Insurance Company ("Minnesota Life"), a Minnesota corporation, PFL Life Insurance Company, an Iowa 1 corporation, and AIG Life Insurance Company, a Delaware corporation, through certain of their separate accounts to fund the benefits under variable annuity contracts and variable life insurance policies (collectively, the "Contracts") issued by such companies. The Fund may be used for other purposes in the future. The Fund may also sell its shares to separate accounts of Northstar Life Insurance Company, an indirect wholly-owned subsidiary of Minnesota Life domiciled in the State of New York. The separate accounts, which will be the owners of the shares of the Fund, will invest in the shares of each Portfolio in accordance with instructions received from the owners of the Contracts. Minnesota Life, through its separate accounts which fund the Contracts, owned 100% of the shares outstanding of each Portfolio of the Fund as of December 31, 2002. As a result, Minnesota Life is a controlling person of the Fund and through its ownership of shares of the Fund, may elect all the directors of the Fund and approve other Fund actions. Minnesota Life's address is 400 Robert Street North, St. Paul, Minnesota 55101-2098. INVESTMENT OBJECTIVES AND POLICIES The investment objectives and principal investment policies of each of the Portfolios are set forth in the text of the Fund's Prospectus under "Investing in the Fund - Investment Objective, Policies and Practices." This section contains detailed descriptions of the investment policies of the Portfolios as identified in the Fund's Prospectus. PORTFOLIO NAMES AND INVESTMENT POLICIES The Bond, Mortgage Securities, Index 500, Small Company Growth, Maturing Government Bond 2006, Maturing Government Bond 2010, Small Company Value, Index 400 Mid-Cap, Core Equity, International Stock, Value Stock, International Bond, Micro-Cap Growth and Real Estate Securities Portfolios of the Fund have names that suggest a focus on a particular type of investment or index. In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the "1940 Act"), each of those Portfolios has adopted a policy that it will, under normal circumstances, invest at least 80% of its assets in investments of the type suggested by its name. For this policy, "assets" means net assets plus the amount of any borrowings for investment purposes. In addition, in appropriate circumstances, synthetic investments may be included in the 80% basket if they have economic characteristics similar to the other investments included in the basket. A Portfolio's policy to invest at least 80% of its assets in such a manner is not a "fundamental" one, which means that it may be changed without the vote of a majority of the Portfolio's outstanding shares as defined in the 1940 Act. The names of these Portfolios may be changed at any time by a vote of the Fund's Board of Directors. However, Rule 35d-1 also requires that shareholders be given written notice at least 60 days prior to any change by a Portfolio of its 80% investment policy. EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES Small Company Growth Portfolio, Small Company Value Portfolio and Micro-Cap Growth Portfolio will primarily invest in equity securities issued by small capitalization companies. To the extent specified in the Prospectus, certain other Portfolios may invest in equity securities issued by small capitalization companies. Small capitalization companies may be in a relatively early stage of development or may produce goods and services which have favorable prospects for growth due to increasing demand or developing markets. Frequently, 2 such companies have a small management group and single product or product-line expertise that may result in an enhanced entrepreneurial spirit and greater focus which allow such firms to be successful. The Portfolio's investment adviser or sub-adviser believes that such companies may develop into significant business enterprises and that an investment in such companies offers a greater opportunity for capital appreciation than an investment in larger more established entities. However, small capitalization companies frequently retain a large part of their earnings for research, development and investment in capital assets, so that the prospects for immediate dividend income are limited. While securities issued by smaller capitalization companies have historically produced better market results than the securities of larger issuers, there is no assurance that they will continue to do so or that the Portfolio will invest specifically in those companies which produce those results. Because of the risks involved, the Portfolio is not intended to constitute a complete investment program. DEBT AND MONEY MARKET SECURITIES - NON-MONEY MARKET PORTFOLIOS To the extent specified in the Prospectus, certain non-Money Market Portfolios may invest in long, intermediate and short-term debt securities from various industry classifications and money market instruments. Such instruments may include the following: o Corporate obligations which at the time of purchase are rated within the four highest grades assigned by Standard & Poor's Corporation ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other national rating service, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be. To the extent that the Portfolio invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. As an operating policy, International Stock Portfolio will not invest more than 5% of its assets in debt securities rated BBB by S&P or Baa by Moody's. In addition, Asset Allocation Portfolio, Bond Portfolio and Mortgage Securities Portfolio may invest up to 10% of their respective net assets, and International Stock Portfolio and Core Equity Portfolio may invest up to 5% of their respective net assets, in debt securities rated BB or Ba by S&P or Moody's, respectively; International Bond Portfolio may also invest up to 5% of its net assets in securities rated B or higher by S&P or Moody's; and Value Stock Portfolio, Small Company Value Portfolio and Micro-Cap Growth Portfolio may also invest up to 10% of their respective net assets in debt securities (including convertible securities) rated at least B- by S&P or B3 by Moody's. See "Low Rated Securities," below. For a description of the ratings used by Moody's and S&P, see Appendix B ("Bond and Commercial Paper Ratings") below. o Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. o Debt obligations of banks. 3 Bond Portfolio may also purchase U.S. dollar denominated debt securities of foreign governments and companies which are publicly traded in the United States and rated within the four highest grades assigned by S&P or Moody's. International Bond Portfolio may also purchase debt securities of foreign companies and debt securities issued or guaranteed by foreign governments or any of their agencies, instrumentalities or political subdivisions, or by supranational organizations. The Portfolio may invest in fixed-income securities issued or guaranteed by supranational organizations. Such organizations are entities designated or supported by a government or government entity to promote economic development, and include, among others, the Asian Development Bank, the European Coal and Steel Community, the European Economic Community and the World Bank. These organizations do not have taxing authority and are dependent upon their members for payments of interest and principal. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves and net income. Securities issued by supranational organizations may be denominated in U.S. dollars or in foreign currencies. Securities issued or guaranteed by supranational organizations are considered by the Securities and Exchange Commission to be securities in the same industry. Therefore, the Portfolio will not concentrate 25% or more of the value of its assets in securities of a single supranational organization. International Bond Portfolio may invest in Brady Bonds, which are created through the exchange of existing commercial bank loans to foreign entities for new obligations in connection with debt restructuring under a plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only recently and, accordingly, do not have a long payment history. They may be collateralized or uncollateralized and issued in various currencies (although most are dollar-denominated) and they are actively traded in the over-the-counter secondary market. For a full discussion of Brady Bonds see Appendix D. In addition to the instruments described above, which will generally be long-term, but may be purchased by the Portfolio within one year of the date of a security's maturity, certain Portfolios specified in the Prospectus may also purchase other high quality securities including: o Obligations (including certificates of deposit and bankers acceptances) of U.S. banks, savings and loan associations, savings banks which have total assets (as of the date of their most recent annual financial statements at the time of investment) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks and U.S. branches or agencies of foreign banks which meet the above-stated asset size; and obligations of any U.S. banks, savings and loan associations and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations purchased does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. o Obligations of the International Bank for Reconstruction and Development. 4 o Commercial paper (including variable amount master demand notes) issued by U.S. corporations or affiliated foreign corporations and rated (or guaranteed by a company whose commercial paper is rated) at the date of investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either Moody's or S&P, issued by a corporation having an outstanding debt issue rated Aa or better by Moody's or AA or better by S&P and, if issued by an affiliated foreign corporation, such commercial paper (not to exceed in the aggregate 10% of such Portfolio's (other than Mortgage Securities Portfolio's) net assets) is U.S. dollar denominated and not subject at the time of purchase to foreign tax withholding. The Portfolios may also invest in securities which are unrated if the Portfolio's investment adviser or sub-adviser, as the case may be, determines that such securities are of equivalent investment quality to the rated securities described above. In the case of "split-rated" securities, which result when nationally-recognized rating agencies rate the security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Portfolio's general policy to classify such securities at the higher rating level where, in the judgment of the Portfolio's investment adviser or sub-adviser, such classification reasonably reflects the security's quality and risk. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in each Portfolio's net asset value. These Portfolios may, however, acquire debt securities which, after acquisition, are down-graded by the rating agencies to a rating which is lower than the applicable minimum rating described above. In such an event it is the Portfolios' general policy to dispose of such down-graded securities except when, in the judgment of the Portfolios' investment adviser or sub-adviser, it is to the Portfolios' advantage to continue to hold such securities. In no event, however, will any Portfolio hold in excess of 5% of its net assets in securities which have been down-graded subsequent to purchase where such down-graded securities are not otherwise eligible for purchase by the Portfolio. This 5% is in addition to securities which the Portfolio may otherwise purchase under its usual investment policies. LOW RATED SECURITIES Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio may also invest up to 10% of their respective net assets, and International Stock Portfolio and Core Equity Portfolio may invest up to 5% of their respective net assets, in corporate bonds and mortgage-related securities, including convertible securities, which, at the time of acquisition, are rated BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be. International Bond Portfolio may also invest up to 5% of its net assets in securities rated B or higher by S&P or Moody's. Value Stock Portfolio, Small Company Value Portfolio and Micro-Cap Growth Portfolio may invest up to 10% of their respective net assets in debt securities (including convertible securities) which are rated at least B- by S&P or B3 by Moody's, or rated at a 5 comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser. Each of these Portfolios may also hold an additional 5% of its net assets in securities rated below "investment grade" (i.e. below BBB) where such securities were either investment grade or eligible low rated securities at the time of purchase but subsequently down-graded to a rating not otherwise eligible for purchase by the Portfolio (see "Debt and Money Market Securities - Non-Money Market Portfolios" above). Debt securities rated below the four highest categories (i.e., below BBB) are not considered investment grade obligations and are commonly called "junk bonds." These securities are predominately speculative and present more credit risk than investment grade obligations. Bonds rated below BBB are also regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Portfolios' ability to sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in the financial markets and could adversely affect and cause fluctuations in the daily net asset value of the Portfolios' shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Portfolios to achieve their respective investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Portfolios were investing in higher rated securities. Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Portfolios may incur additional expenses to seek recovery. The low rated bond market is relatively new, and many of the outstanding low rated bonds have not endured a major business recession. CONVERTIBLE SECURITIES To the extent specified in the Prospectus, certain Portfolios may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. The total return and yield of lower quality (high yield/high risk) convertible bonds can be expected to 6 fluctuate more than the total return and yield of higher quality, shorter-term bonds, but not as much as common stocks. Growth Portfolio, Small Company Growth Portfolio, Real Estate Securities Portfolio, Core Equity Portfolio and Capital Appreciation Portfolio will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least BBB or Baa by S&P or Moody's, respectively, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least BB or Ba by S&P or Moody's, respectively, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Portfolio's investment adviser. Value Stock Portfolio, Small Company Value Portfolio and Micro-Cap Growth Portfolio will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. As an operating policy, none of these Portfolios will purchase a non-investment grade convertible debt security if immediately after such purchase such Portfolio would have more than 10% of its total assets invested in such securities. See "Low Rated Securities," above. MONEY MARKET SECURITIES - MONEY MARKET PORTFOLIO Subject to the limitations under Rule 2a-7 of the Investment Company Act of 1940 (as described in "Investment Restrictions - Additional Restrictions" below), Money Market Portfolio will invest in a managed portfolio of money market instruments as follows: o Obligations issued or guaranteed as to principal or interest by the U.S. Government, or any agency or authority controlled or supervised by and acting as an instrumentality of the U.S. Government pursuant to authority granted by Congress. o Obligations (including certificates of deposit and bankers acceptances) of U.S. banks, savings and loan associations and savings banks which at the date of the investment have total assets (as of the date of their most recent annual financial statements) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches or agencies of foreign banks if such banks meet the above-stated asset size; and obligations of any such U.S. banks, savings and loan associations and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation. o Obligations of the International Bank for Reconstruction and Development. o Commercial paper (including variable amount master demand notes) issued by U.S. limited partnerships, corporations or affiliated foreign corporations. o Other corporate debt obligations that at the time of issuance were long-term securities, but that have remaining maturities of 397 calendar days or less. 7 o Repurchase agreements with respect to any of the foregoing obligations. By limiting the maturity of its investments as described above, the Portfolio seeks to lessen the changes in the value of its assets caused by market factors. The Portfolio intends to maintain a constant net asset value of $1.00 per share, but there can be no assurance it will be able to do so. U.S. GOVERNMENT OBLIGATIONS Each of the Portfolios may invest in obligations of the U.S. Government. These obligations are bills, certificates of indebtedness, notes and bonds issued or guaranteed as to principal or interest by the U.S. or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under the authority granted by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct obligations of the U.S. Government and differ in their interest rates, maturities and times of issuance. Securities issued or guaranteed by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under authority granted by Congress include but are not limited to, the Government National Mortgage Association ("GNMA"), the Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage Association. Some obligations of U.S. Government agencies, authorities and other instrumentalities are supported by the full faith and credit of the U.S. Treasury, such as securities of the Government National Mortgage Association and the Student Loan Marketing Association; others by the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Financing Bank and the U.S. Postal Service; and others only by the credit of the issuing agency, authority or other instrumentality, such as securities of the Federal Home Loan Bank and the Federal National Mortgage Association ("FNMA"). OBLIGATIONS OF NON-DOMESTIC BANKS As specified in the Prospectus, certain of the Portfolios may invest in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks, which may involve somewhat greater opportunity for income than the other money market instruments in which the Portfolios invest, but may also involve investment risks in addition to any risks associated with direct obligations of domestic banks. These additional risks include future political and economic developments, the possible imposition of withholding taxes on interest income payable on such obligations, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other governmental restrictions, as well as market and other factors which may affect the market for or the liquidity of such obligations. Generally, Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S. regulatory restrictions than those applicable to domestic banks, and London branches of U.S. banks may be subject to less stringent reserve requirements than domestic branches. Canadian chartered banks, U.S. branches and agencies of foreign banks, and London branches of U.S. banks may provide less public information than, and may not be subject to the same accounting, auditing and 8 financial recordkeeping standards as, domestic banks. Each Portfolio will not invest more than 25% of its total assets in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks. VARIABLE AMOUNT MASTER DEMAND NOTES Money Market Portfolio may invest in variable amount master demand notes. These instruments are short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. They allow the investment of fluctuating amounts by the Portfolio at varying market rates of interest pursuant to direct arrangements between Money Market Portfolio, as lender, and the borrower. Variable amount master demand notes permit a series of short-term borrowings under a single note. The lender has the right to increase the amount under the note at any time up to the full amount provided by the note agreement. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. Because variable amount master demand notes are direct lending arrangements between the lender and borrower, it is not generally contemplated that such instruments will be traded and there is no secondary market for the notes. Typically, agreements relating to such notes provide that the lender shall not sell or otherwise transfer the note without the borrower's consent. Thus, variable amount master demand notes are illiquid assets. Such notes provide that the interest rate on the amount outstanding varies on a daily basis depending upon a stated short-term interest rate barometer. The Portfolio's investment adviser will monitor the creditworthiness of the borrower throughout the term of the variable amount master demand note. MORTGAGE-RELATED SECURITIES Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may invest in mortgage-related securities (including securities which represent interests in pools of mortgage loans) issued by government (some of which may be U.S. Government agency issued or guaranteed securities as described herein) and non-government entities such as banks, mortgage lenders or other financial institutions. These securities may include both collateralized mortgage obligations and stripped mortgage-backed securities. Mortgage loans are originated and formed into pools by various organizations, including the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and various private organizations including commercial banks and other mortgage lenders. Payments on mortgage-related securities generally consist of both principal and interest, with occasional repayments of principal due to refinancings, foreclosures or certain other events. Some mortgage-related securities, such as collateralized mortgage obligations, make payments of both principal and interest at a variety of intervals. Certain mortgage-related securities, such as GNMA securities, entitle the holder to receive such payments, regardless of whether or not the mortgagor makes loan payments; certain mortgage-related securities, such as FNMA securities, guarantee the timely payment of interest and principal; certain mortgage-related securities, such as FHLMC securities, guarantee the timely payment of interest and ultimate collection of principal; and certain mortgage-related securities contain no such guarantees but may offer higher rates of return. No mortgage-related securities guarantee the Portfolio's yield or the price of its shares. 9 Each Portfolio expects its investments in mortgage-related securities to be primarily in high-grade mortgage-related securities either: (a) issued by GNMA, FNMA or FHLMC or other United States Government owned or sponsored corporations or (b) rated A or better by S&P or Moody's, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be. The Portfolio may invest in mortgage-related securities rated BBB or Baa by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser, as the case may be, when deemed by the Portfolio's investment adviser or sub-adviser to be consistent with the Portfolio's respective objective. To the extent that the Portfolio invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. (Each of these Portfolios may also invest a portion of its assets in securities rated below BBB or Baa by S&P or Moody's, respectively. See "Low Rated Securities" and "Convertible Securities," above, for more information.) Mortgage Securities Portfolio may not invest more than 35% of its total assets in securities rated BBB or Baa or lower by S&P or Moody's, respectively. For further information about the characteristics and risks of mortgage-related securities, and for a description of the ratings used by Moody's and S&P, see Appendix A and B ("Mortgage-Related Securities" and "Bond and Commercial Paper Ratings") below. U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES A governmental guarantor (i.e., backed by the full faith and credit of the U.S. Government) of mortgage-related securities is GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases residential mortgages from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government. FHLMC is a corporate instrumentality of the U.S. Government and was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is publicly traded. FHLMC issues Participation Certificates ("PCs") which represent interests in mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and principal on most PCs. There are some PCs, however, on which FHLMC guarantees the timely payment of interest but only the ultimate payment of principal. PCs are not backed by the full faith and credit of the U.S. Government. 10 NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES Mortgage Securities Portfolio, Bond Portfolio, Asset Allocation Portfolio and International Bond Portfolio may invest in non-governmental mortgage-related securities. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential and commercial mortgage loans. Such issuers may in addition be the originators and servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government guarantees of payments in the former pools. However, timely payment of interest and principal of these pools is supported by various forms of insurance, guarantees and credit enhancements, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Portfolio's investment quality standards. There can be no assurance that the private insurers can meet their obligations under the policies. The Portfolio may buy mortgage-related securities without insurance or guarantees if through an examination of the loan experience and practices of the poolers the Portfolio's investment adviser determines that the securities meet the Portfolio's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. The Portfolio will not purchase mortgage-related securities or any other assets which in its investment adviser's opinion are illiquid if, as a result, more than 15% of the value of the Portfolio's net assets will be illiquid. COLLATERALIZED MORTGAGE OBLIGATIONS Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may invest in collateralized mortgage obligations ("CMOs"), in which several different series of bonds or certificates secured by pools of mortgage-backed securities or mortgage loans, are issued. The series differ from each other in terms of the priority rights which each has to receive cash flows with the CMO from the underlying collateral. Each CMO series may also be issued in multiple classes. Each class of a CMO series, often referred to as a "tranche," is usually issued at a specific coupon rate and has a stated maturity. The underlying security for the CMO may consist of mortgage-backed securities issued or guaranteed by U.S. Government agencies or whole loans. CMOs backed by U.S. Government agency securities retain the credit quality of such agency securities and therefore present minimal credit risk. CMOs backed by whole loans typically carry various forms of credit enhancements to protect against credit losses and provide investment grade ratings. Unlike traditional mortgage pass-through securities, which simply pass through interest and principal on a pro rata basis as received, CMOs allocate the principal and interest from the underlying mortgages among the several classes or branches of the CMO in many ways. All residential, and some commercial, mortgage-related securities are subject to prepayment risk. A CMO does not eliminate that risk, but, by establishing an order of priority among the various tranches for the receipt and timing of principal payments, it can reallocate that risk among the tranches. Therefore, the stream of payments received by a CMO bondholder may differ dramatically from that received by an investor holding a traditional pass-through security backed by the same collateral. 11 In the traditional form of CMO, interest is paid currently on all tranches but principal payments are applied sequentially to retire each tranche in order of stated maturity. Traditional sequential payment CMOs have evolved into numerous more flexible forms of CMO structures which can vary frequency of payments, maturities, prepayment risk and performance characteristics. The differences between these new types of CMOs relate primarily to the manner in which each varies the amount and timing of principal and interest received by each tranche from the underlying collateral. Under all but the sequential payment structures, specific tranches of CMOs have priority rights over other tranches with respect to the amount and timing of cash flow from the underlying mortgages. The primary risk associated with any mortgage security is the uncertainty of the timing of cash flows; specifically, uncertainty about the possibility of either the receipt of unanticipated principal in falling interest rate environments (prepayment or call risk) or the failure to receive anticipated principal in rising interest rate environments (extension risk). In a CMO, that uncertainty may be allocated to a greater or lesser degree to specific tranches depending on the relative cash flow priorities of those tranches. By establishing priority rights to receive and reallocate payments of prepaid principal, the higher priority tranches are able to offer better call protection and extension protection relative to the lower priority classes in the same CMO. For example, when insufficient principal is received to make scheduled principal payments on all tranches, the higher priority tranches receive their scheduled premium payments first and thus bear less extension risk than lower priority tranches. Conversely, when principal is received in excess of scheduled principal payments on all tranches (call risk), the lower priority tranches are required to receive such excess principal until they are retired and thus bear greater prepayment risk than the higher priority tranches. Therefore, depending on the type of CMO purchased, an investment may be subject to a greater or lesser risk of prepayment, and experience a greater or lesser volatility in average life, yield, duration and price, than other types of mortgage-related securities. A CMO tranche may also have a coupon rate which resets periodically at a specified increment over an index. These floating rate CMOs are typically issued with lifetime caps on the level to which the floating coupon rate is allowed to rise. The Portfolio may invest in such securities, usually subject to a cap, provided such securities satisfy the same requirements regarding cash flow priority applicable to the Portfolio's purchase of CMOs generally. CMOs are typically traded over the counter rather than on centralized exchanges. Because CMOs of the type purchased by the Portfolio tend to have relatively more predictable yields and are relatively less volatile, they are also generally more liquid than CMOs with greater prepayment risk and more volatile performance profiles. Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio may also purchase CMOs known as "accrual" or "Z" bonds. An accrual or Z bond holder is not entitled to receive cash payments until one or more other classes of the CMO have been paid in full from payments on the mortgage loans underlying the CMO. During the period in which cash payments are not being made on the Z tranche, interest accrues on the Z tranche at a stated rate, and this accrued interest is added to the amount of principal which is due to the holder of the Z tranche. After the other classes have been paid in full, cash payments are made on the Z tranche until its principal (including previously accrued interest which was added to principal, as described above) and accrued interest at the stated rate have been paid in full. Generally, the date upon which cash payments begin to be made on a Z tranche depends on the rate at which the mortgage loans underlying the CMO are prepaid, with a faster prepayment rate resulting in an earlier commencement of cash payments on the Z tranche. Like a zero coupon bond, during its 12 accrual period the Z tranche of a CMO has the advantage of eliminating the risk of reinvesting interest payments at lower rates during a period of declining market interest rates. At the same time, however, and also like a zero coupon bond, the market value of a Z tranche can be expected to fluctuate more widely with changes in market interest rates than would the market value of a tranche which pays interest currently. Changes in market interest rates also can be expected to influence prepayment rates on the mortgage loans underlying the CMO of which a Z tranche is a part. As noted above, such changes in prepayment rates will affect the date at which cash payments begin to be made on a Z tranche, and therefore also will influence its market value. As an operating policy, Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio will not purchase a Z bond if the respective Portfolio's aggregate investment in Z bonds which are then still in their accrual periods would exceed 20% of the Portfolio's total assets (Z bonds which have begun to receive cash payments are not included for purposes of this 20% limitation). Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio may also invest in inverse or reverse floating CMOs. Inverse or reverse floating CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index. Accordingly, the coupon rate will increase as interest rates decrease. The Portfolio would be adversely affected, however, by the purchase of such CMOs in the event of an increase in interest rates since the coupon rate will decrease as interest rates increase, and, like other mortgage-related securities, the value will decrease as interest rates increase. Inverse or reverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs, and usually carry a lower cash flow priority. As an operating policy, Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio will treat inverse floating rate CMOs as illiquid and, therefore, will limit its investments in such securities, together with all other illiquid securities, to 15% of such Portfolio's net assets. STRIPPED MORTGAGE-BACKED SECURITIES Bond Portfolio, Asset Allocation Portfolio, International Bond Portfolio and Mortgage Securities Portfolio may invest in stripped mortgage-backed securities. Stripped mortgage-backed securities represent undivided ownership interests in a pool of mortgages, the cash flow of which has been separated into its interest and principal components. "IOs" (interest only securities) receive the interest portion of the cash flow while "POs" (principal only securities) receive the principal portion. Stripped mortgage-backed securities may be issued by U.S. Government agencies or by private issuers. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates, unlike other mortgage-backed securities (which tend to move in the opposite direction compared to interest rates). Under the Internal Revenue Code of 1986, as amended, POs may generate taxable income from the current accrual of original issue discount, without a corresponding distribution of cash to the Portfolio. The cash flows and yields on standard IO and PO classes are extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. For example, a rapid or slow rate of principal payments may have a material adverse effect on the performance and prices of IOs or POs, respectively. If the underlying mortgage assets experience greater than anticipated prepayments of principal, an investor may fail to recoup fully its initial investment in an IO class of a stripped mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived from a full faith and credit obligation (i.e., a GNMA). Conversely, if the underlying 13 mortgage assets experience slower than anticipated prepayments of principal, the price on a PO class will be affected more severely than would be the case with a traditional mortgage-backed security, but unlike IOs, an investor will eventually recoup fully its initial investment provided no default of the guarantor occurs. As an operating policy, the Portfolio will limit its investments in IOs and POs to 15% of the Portfolio's net assets, and will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of a Portfolio's net assets) except to the extent such securities are deemed liquid by the Portfolio's adviser or sub-adviser in accordance with standards established by the Fund's Board of Directors. See "Restricted and Illiquid Securities" below. ASSET-BACKED AND STRIPPED ASSET-BACKED SECURITIES Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may invest in asset-backed securities rated within the four highest grades assigned by Moody's or S&P, or, if not rated, are of equivalent investment quality as determined by the Portfolio's investment adviser or sub-adviser. Asset-backed securities usually represent interests in pools of consumer loans (typically trade, credit card or automobile receivables). The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, the quality of the servicing of the receivables, and the amount and quality of any credit support provided to the securities. The rate of principal payment on asset-backed securities may depend on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any asset-backed security may be difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Some asset-backed transactions are structured with a "revolving period" during which the principal balance of the asset-backed security is maintained at a fixed level, followed by a period of rapid repayment. This structure is intended to insulate holders of the asset-backed security from prepayment risk to a significant extent. Asset-backed securities may be classified as pass-through certificates or collateralized obligations. Pass-through certificates are asset-backed securities which represent an undivided fractional ownership interest in an underlying pool of assets. Pass-through certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because pass-through certificates represent an ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support. Asset-backed securities issued in the form of debt instruments, also known as collateralized obligations, are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. The assets collateralizing such asset-backed securities are pledged to a trustee or custodian for the benefit of the holders thereof. Such issuers generally hold no assets other than those underlying the asset-backed securities and any credit support provided. As a result, although payments on such asset-backed securities are obligations of the issuers, in the event of defaults on the underlying assets not covered by any credit support, the issuing entities are unlikely to have sufficient assets to satisfy their obligations on the related asset-backed securities. 14 To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two classes: liquidity protection and protection against ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the underlying pool are made in a timely fashion. Protection against ultimate default ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction or through a combination of such approaches. Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio may also invest in stripped asset-backed securities. Asset-backed securities may be stripped to create interest-only and principal-only securities in the same manner as mortgage-backed securities. See "Stripped Mortgage-Backed Securities," above. The value of asset-backed IOs also tends to move in the same direction as changes in interest rates, unlike other asset-backed (or mortgage-backed) securities, which tend to move in the opposite direction compared to interest rates. As with stripped mortgage-backed securities, the cash flows and yields on asset-backed IOs and POs are also extremely sensitive to the rate of principal payments on the related underlying assets. See "Stripped Mortgage-Backed Securities," above. As an operating policy, each of these Portfolios will limit its investments in IOs and POs to 15% of the Portfolio's net assets, and will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of each Portfolio's net assets) except to the extent such securities are deemed liquid by the Portfolio's adviser in accordance with standards established by the Portfolio's Board of Directors. See "Restricted and Illiquid Securities" below. DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS Mortgage Securities, Bond and Asset Allocation Portfolios may each invest up to 10% of the value of its net assets directly in mortgages securing residential or commercial real estate (i.e., the Portfolio becomes the mortgagee). Such investments are not "mortgage-related securities" as described above. They are normally available from lending institutions which group together a number of mortgages for resale (usually from 10 to 50 mortgages) and which act as servicing agent for the purchaser with respect to, among other things, the receipt of principal and interest payments. (Such investments are also referred to as "whole loans".) The vendor of such mortgages receives a fee from the Portfolio for acting as servicing agent. The vendor does not provide any insurance or guarantees covering the repayment of principal or interest on the mortgages. Unlike pass-through securities, whole loans constitute direct investment in mortgages inasmuch as the Portfolio, rather than a financial intermediary, becomes the mortgagee with respect to such loans purchased by the Portfolio. At present, such investments are considered to be illiquid by the Portfolio's investment adviser or sub-adviser. A Portfolio will invest in such mortgages only if its investment adviser has determined through an examination of the mortgage loans and their originators (which may include an examination of such factors as percentage of family income dedicated to loan service and the relationship between loan value and market value) that the purchase of the mortgages should not represent a significant risk of loss to the Portfolio. 15 ZERO COUPON SECURITIES The Maturing Government Bond Portfolios may invest in zero coupon securities. In addition, International Bond Portfolio may invest a lesser portion of its assets in zero coupon securities. When held to maturity, the entire return on zero coupon securities, which consists of the amortization of discount, comes from the difference between their purchase price and their maturity value. This difference is known at the time of purchase, so persons holding a portfolio composed entirely of zero coupon securities, with no expenses until maturity, would know the amount of their investment return at the time of their initial payment. While these Portfolios will have additional holdings, including cash, which will affect performance, they will describe an anticipated yield to maturity from time to time. In order to obtain this return, Contract owners electing to have payments allocated to a Maturing Government Bond Portfolio should plan to maintain their investment until the maturity of that Maturing Government Bond Portfolio. While many factors may affect the yield to maturity of each Maturing Government Bond Portfolio, one such factor which may operate to the detriment of those Contract owners holding interests in such Portfolios until maturity, is the ability of other Contract owners to purchase or redeem shares on any business day. Because each Maturing Government Bond Portfolio will be primarily invested in zero coupon securities, Contract owners whose purchase payments are invested in shares held to maturity, including those obtained through reinvestment of dividends and distributions, will experience a return consisting primarily of the amortization of discount on the underlying securities in the Maturing Government Bond Portfolio. However, the net asset value of the Portfolio's shares will increase or decrease with the daily changes in the market value of that Maturing Government Bond Portfolio's investments which will tend to vary inversely with changes in prevailing interest rates. If shares of a Maturing Government Bond Portfolio are redeemed prior to the maturity date of that Maturing Government Bond Portfolio, a Contract owner may experience a significantly different investment return than was anticipated at the time of purchase. Zero coupon securities, like other investments in debt securities, are subject to certain risks, including credit and market risks. Credit risk is the function of the ability of an issuer of a security to maintain timely interest payments and to pay the principal of a security upon maturity. Securities purchased by the Maturing Government Bond Portfolios will be rated at least single A or better by nationally recognized statistical rating agencies. Securities rated single A are regarded as having an adequate capacity to pay principal and interest, but with greater vulnerability to adverse economic conditions and some speculative characteristics. The Maturing Government Bond Portfolios will also attempt to minimize the impact of individual credit risks by diversifying their portfolio investments. Market risk is the risk of the price fluctuation of a security due primarily to market interest rates prevailing generally in the economy. Market risk may also include elements which take into account the underlying credit rating of an issuer, the maturity length of a security, a security's yield, and general economic and interest rate conditions. Zero coupon securities do not make any periodic payments of interest prior to maturity and the stripping of the securities causes the zero coupon securities to be offered at a discount from their face amounts. The market value of the zero coupon securities and, therefore the net asset value of the shares of the 16 Maturing Government Bond Portfolios, will fluctuate, perhaps markedly, and changes in interest rates and other factors and may be subject to greater fluctuations in response to changing interest rates than would a fund of securities consisting of debt obligations of comparable coupon bearing maturities. The amount of fluctuation increases with longer maturities. Because they do not pay interest, zero coupon securities tend to be subject to greater fluctuation of market value in response to changes in interest rates than interest-paying securities of similar maturities. Contract owners can expect more appreciation of the net asset value of a Maturing Government Bond Portfolio's shares during periods of declining interest rates than from interest-paying securities of similar maturity. Conversely, when interest rates rise, the net asset value of a Maturing Government Bond Portfolio's shares will normally decline more in price than interest-paying securities of a similar maturity. Price fluctuations are expected to be greatest in the longer-maturity Portfolios and are expected to diminish as a Maturing Government Bond Portfolio approaches its target date. These fluctuations may make the Maturing Government Bond Portfolios an inappropriate selection as a basis for variable annuity payments. Interest rates can change suddenly and unpredictably. When held to maturity, the return on zero coupon securities consists entirely of the difference between the maturity value and the purchase price of securities held in the Portfolio. While this difference allows investors to measure initial investment return, it also must be considered in light of changing economic conditions. Inflationary risk, that is the risk attendant to holding fixed-rate investments during a period of generally upward changing price levels in the economy, must be considered in selecting a Maturing Government Bond Portfolio. PAY-IN-KIND AND DELAYED INTEREST SECURITIES International Bond Portfolio may also invest in pay-in-kind securities and delayed interest securities. Pay-in-kind securities pay interest through the issuance to the holders of additional securities. Delayed interest securities are securities that remain zero coupon securities until a predetermined date at which time the stated coupon rate becomes effective and interest becomes payable at regular intervals. Because interest on pay-in-kind and delayed interest securities is not paid on a current basis, the values of securities of this type are subject to greater fluctuations than the values of securities that distribute income regularly and they may be more speculative than such securities. Accordingly, the values of these securities may be highly volatile as interest rates rise or fall. In addition, the Portfolio's investments in pay-in-kind and delayed interest securities will result in special tax consequences. FOREIGN SECURITIES Growth Portfolio, Small Company Growth Portfolio, Value Stock Portfolio, Small Company Value Portfolio, Core Equity and Micro-Cap Growth Portfolio may invest up to 10% and Capital Appreciation Portfolio may invest up to 20% of the market value of their respective total assets in securities of foreign issuers which are not publicly traded in the U.S. (Securities of foreign issuers which are traded in the U.S., usually in the form of sponsored American Depositary Receipts (ADRs), are not considered foreign securities for this purpose and are not subject to such 10% or 20% limitations. Such Portfolios may not, however, invest more than 10% (20% in the case of Capital Appreciation) of their total assets in ADRs.) Bond Portfolio and Mortgage Securities Portfolio may each invest up to 10% of its total assets in 17 foreign securities. In addition, International Stock Portfolio and International Bond Portfolio may invest in such securities without limitation. Investing in securities of foreign issuers may result in greater risk than that incurred in investing in securities of domestic issuers. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the U.S. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the U.S., are likely to be higher. Further, the settlement period of securities transactions in foreign markets may be longer than in domestic markets. In many foreign countries there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the U.S. The foreign securities markets of many of the countries in which the Portfolio may invest may also be smaller, less liquid, and subject to greater price volatility than those in the U.S. Also, some countries may withhold portions of interest, dividends and gains at the source. The Portfolio may also be unfavorably affected by fluctuations in the relative rates of exchange between the currencies of different nations (i.e., when the currency being exchanged has decreased in value relative to the currency being purchased). There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodial banks and depositories. Furthermore, International Stock Portfolio may invest in securities issued by governments, governmental agencies and companies located in developing market countries. The Portfolio considers countries having developing markets to be all countries that are generally considered to be developing or emerging countries by the International Bank for Reconstruction and Development (more commonly referred to as the World Bank) and the International Finance Corporation, as well as countries that are classified by the United Nations or otherwise regarded by their authorities as developing. Currently, the countries not included in this category are Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United States, Sweden, Finland, Norway, 18 Japan and Switzerland. In addition, developing market securities means: (i) securities of companies the principal securities trading market for which is a developing market country, as defined above, (ii) securities, traded in any market, of companies that derive 50% or more of their total revenue from either goods or services produced in such developing market countries or sales made in such developing market countries or (iii) securities of companies organized under the laws of, and with a principal office in, a developing market country. International Stock Portfolio will at all times, except during temporary defensive periods, maintain investments in at least three countries having developing markets. An American Depositary Receipt ("ADR") is a negotiable certificate, usually issued by a U.S. bank, representing ownership of a specific number of shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. An ADR is sponsored if the original issuing company has selected a single U.S. bank to serve as its U.S. depositary and transfer agent. This relationship requires a deposit agreement which defines the rights and duties of both the issuer and depositary. Companies that sponsor ADRs must also provide their ADR investors with English translations of company information made public in their own domiciled country. Sponsored ADR investors also generally have the same voting rights as ordinary shareholders, barring any unusual circumstances. ADRs which meet these requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are created at the initiative of a broker or bank reacting to demand for a specific foreign stock. The broker or bank purchases the underlying shares and deposits them in a depositary. Unsponsored shares issued after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they do not generally include voting rights. In addition, International Stock Portfolio, International Bond Portfolio, Core Equity Portfolio, Asset Allocation Portfolio, Capital Appreciation Portfolio, Growth Portfolio and Value Stock Portfolio may invest in European Depositary Receipts, which are receipts evidencing an arrangement with a European bank similar to that for ADRs and which are designed for use in the European securities markets. Furthermore, International Bond Portfolio may invest in Global Depositary Receipts, which are receipts evidencing an arrangement with a foreign bank similar to that for ADRs and which are designed for use in European and other foreign securities markets. European Depositary Receipts and Global Depositary Receipts are not necessarily denominated in the currency of the underlying security. FOREIGN INDEX LINKED SECURITIES International Bond Portfolio may invest up to 10% of its total assets in instruments that return principal and/or pay interest to investors in amounts which are linked to the level of a particular foreign index ("Foreign Index Linked Securities"). A foreign index may be based upon the exchange rate of a particular currency or currencies or the differential between two currencies, or the level of interest rates in a particular country or countries or the differential in interest rates between particular countries. In the case of Foreign Index Linked Securities linking the principal amount to a foreign index, the amount of principal payable by the issuer at maturity will increase or decrease in response to changes in the level of the foreign index during the term of the Foreign Index Linked Securities. In the case of Foreign Index Linked Securities linking the interest component to a foreign index, the amount of interest payable will adjust periodically in response to changes in the level of the foreign index during the term of the Foreign Index Linked Security. Foreign Index Linked Securities may be issued by a U.S. or foreign governmental agency or instrumentality or by a private domestic or foreign issuer. Only Foreign Index Linked Securities 19 issued by foreign governmental agencies or instrumentalities or by foreign issuers will be considered foreign securities for purposes of the Portfolio's investment policies and restrictions. Foreign Index Linked Securities may offer higher yields than comparable securities linked to purely domestic indexes but also may be more volatile. Foreign Index Linked Securities are relatively recent innovations for which the market has not yet been fully developed and, accordingly, they typically are less liquid than comparable securities linked to purely domestic indexes. In addition, the value of Foreign Index Linked Securities will be affected by fluctuations in foreign exchange rates or in foreign interest rates. If the Portfolio's investment sub-adviser is incorrect in its prediction as to the movements in the direction of particular foreign currencies or foreign interest rates, the return realized by the Portfolio on Foreign Index Linked Securities may be lower than if the Portfolio had invested in a similarly rated domestic security. SWAP AGREEMENTS International Bond Portfolio may enter into interest rate and index swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Portfolio than if the Portfolio had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap;" interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor;" and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. The "notional amount" of the swap agreement is only a fictive basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by the Portfolio would calculate the obligations of the parties to the agreement on a "net basis." Consequently, the Portfolio's obligations (or rights) under a swap agreement will generally be equal to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). The Portfolio's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash or liquid securities to avoid any potential leveraging of the Portfolio's securities. The Portfolio will not enter into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 5% of the Portfolio's assets. Whether the Portfolio's use of swap agreements will be successful in furthering its investment objective will depend on the Portfolio's investment sub-adviser's ability to predict correctly whether certain types of investments are likely to produce greater returns than other 20 investments. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, the Portfolio bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Portfolio's investment sub-adviser will cause the Portfolio to enter into swap agreements only with counterparties that would be eligible for consideration as repurchase agreement counterparties under the Fund's repurchase agreement guidelines. Certain restrictions imposed on the Portfolio by the Internal Revenue Code may limit the Portfolio's ability to use swap agreements. The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a portfolio's ability to terminate existing swap agreements or to realize amounts to be received under such agreements. CURRENCY EXCHANGE TRANSACTIONS Spot Exchange Transactions. International Stock Portfolio and International Bond Portfolio usually effect currency exchange transactions on a spot (i.e. cash) basis at the spot rate prevailing in the foreign exchange market. However, some price spread on currency exchange will be incurred when the Portfolio converts assets from one currency to another. Further, the Portfolio may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations. For example, in order to realize the value of a foreign investment, the Portfolio must convert that value, as denominated in its foreign currency, into U.S. dollars using the applicable currency exchange rate. The exchange rate represents the current price of a U.S. dollar relative to that foreign currency; that is, the amount of such foreign currency required to buy one U.S. dollar. If the Portfolio holds a foreign security which has appreciated in value as measured in the foreign currency, the level of appreciation actually realized by the Portfolio may be reduced or even eliminated if the foreign currency has decreased in value relative to the U.S. dollar subsequent to the date of purchase. In such a circumstance, the cost of a U.S. dollar purchased with that foreign currency has gone up and the same amount of foreign currency purchases fewer dollars than at an earlier date. Forward Exchange Contracts. International Stock Portfolio and International Bond Portfolio also have the authority to deal in forward foreign currency exchange contracts between currencies of the different countries in which such Portfolios may invest for speculative purposes. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Forward exchange contracts are individually negotiated and privately traded by currency traders and their customers. These forward foreign currency exchange contracts may involve the sale of U.S. dollars and the purchase of a foreign currency, or may be foreign cross-currency contracts involving the sale of one foreign currency and the purchase of another foreign currency (such foreign cross-currency contracts may be considered a hedging rather than a speculative strategy if the Portfolio's commitment to purchase the new (more favorable) currency is limited to the market value of the Portfolio's securities denominated in the old (less favorable) currency - see "Foreign Currency Hedging Transactions," below). Because these transactions are not entered into for hedging purposes, the Portfolio's custodian bank maintains, in a separate account of the Portfolio, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase currency on a forward basis. The prediction of currency movements is extremely difficult and the successful execution of a speculative strategy is highly uncertain. 21 FOREIGN CURRENCY HEDGING TRANSACTIONS Forward Exchange Contracts. International Stock Portfolio and International Bond Portfolio have authority to deal in forward foreign currency exchange contracts between currencies of the different countries in which such Portfolios will invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Forward exchange contracts are individually negotiated and privately traded by currency traders and their customers. The Portfolio's dealings in forward foreign exchange contracts entered into for the purpose of hedging will be limited to hedging involving specific transactions, portfolio positions or foreign cross-currency hedging. Transaction hedging is the purchase or sale of forward foreign currency with respect to specific receivables or payables of the Portfolio arising from the purchase and sale of portfolio securities, the sale and redemption of shares of the Portfolio, or the payment of dividends and distributions by the Portfolio. (An example of a transaction hedge is when the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the price of the security in a particular currency.) Position hedging is the sale of forward foreign exchange contracts into U.S. dollars with respect to portfolio security positions denominated or quoted in such foreign currency. (An example of a position hedge is if the Portfolio's sub-adviser believes that a foreign currency -- for example the Japanese yen -- may suffer a decline against another currency -- for example the U.S. dollar -- it may enter into a forward sale contract to sell an amount of the foreign currency expected to decline -- the Japanese yen -- that approximates the value of some or all of the Portfolio's investment securities denominated in the Japanese yen.) Foreign cross-currency hedging occurs when the Portfolio's investment sub-adviser believes a particular foreign currency may enjoy a substantial movement against another foreign currency and the sub-adviser decides to enter into a forward contract to sell the less favorable foreign currency in which certain Portfolio securities are denominated and to buy the more favorable foreign currency in an amount not to exceed the total market value of the Portfolio's securities denominated in the less favorable currency. The prediction of short-term currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the contract. Accordingly, it may be necessary for the Portfolio to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Portfolio is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Portfolio is obligated to deliver. If the Portfolio retains the portfolio security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during 22 the period between the Portfolio entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Portfolio will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Portfolio will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. Currency Futures Contracts. International Stock Portfolio and International Bond Portfolio may also enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies ("foreign currency futures"). This investment technique will be used only to hedge against anticipated future changes in exchange rates which otherwise might adversely affect the value of the Portfolio's securities or adversely affect the prices of securities that the Portfolio intends to purchase at a later date. The successful use of foreign currency futures will usually depend on the ability of the Portfolio's investment sub-adviser to forecast currency exchange rate movements correctly. Should exchange rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of foreign currency futures or may realize losses. CLOSED-END INVESTMENT COMPANIES Some countries, such as South Korea, Chile and India, have authorized the formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance with the Investment Company Act of 1940, International Stock Portfolio may invest up to 10% of its total assets in securities of closed-end investment companies. This restriction on investments in securities of closed-end investment companies may limit opportunities for the International Stock Portfolio to invest indirectly in certain developing markets. Shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values. If the International Stock Portfolio acquires shares of closed-end investment companies, shareholders would bear both their proportionate share of expenses of the International Stock Portfolio (including management and advisory fees) and, indirectly, the expenses of such closed-end investment companies. LOANS OF PORTFOLIO SECURITIES For the purpose of realizing additional income, to the extent specified in the Prospectus, certain Portfolios may make secured loans of Portfolio securities amounting to not more than one-third of their respective total assets (which, for purposes of this limitation, will include the value of collateral received in return for securities loaned). Collateral received in connection with securities lending shall not be considered Portfolio assets, however, for purposes of compliance with any requirement described in the Fund's prospectus that a Portfolio invest a specified minimum percentage of its assets in certain types of securities (e.g., securities of small companies). Securities loans are made to broker-dealers or financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent. The collateral received will consist of cash, letters of credit or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. While the securities are being lent, the Portfolio will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. Although the Portfolio does not expect to pay commissions or other front-end fees (including finders fees) in connection with 23 loans of securities (but in some cases may do so), a portion of the additional income realized will be shared with the Portfolio's custodian for arranging and administering such loans. The Portfolio has a right to call each loan and obtain the securities on five business days' notice. The Portfolio will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by the Portfolio's investment adviser or sub-adviser, as the case may be, to be of good standing and to have sufficient financial responsibility, and will not be made unless, in the judgment of the Portfolio's investment adviser or sub-adviser, the consideration to be earned from such loans would justify the risk. The creditworthiness of entities to which the Portfolio makes loans of portfolio securities is monitored by the Portfolio's investment adviser or sub-adviser throughout the term of each loan. Deutsche Bank AG acts as the securities lending agent on behalf of the International Stock and International Bond Portfolios. It has obtained an SEC exemptive order through its affiliate, Bankers Trust Company, which allows securities lending cash collateral to be invested in a single money market fund (affiliated with Deutsche Bank and Bankers Trust Company) in amounts which are not subject to the limits of sections 12(d)(1)(A) and 12(d)(1)(B) of the Investment Company Act of 1940. The effect of this is that up to one-third of the total assets of the International Stock and International Bond Portfolios can be invested in such a money market fund in connection with the securities lending program. RESTRICTED AND ILLIQUID SECURITIES Each Portfolio may invest up to 15% (10% in the case of Money Market Portfolio) of its respective net assets in securities restricted as to disposition under the federal securities laws or otherwise, or other illiquid assets. An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. "Restricted securities" are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the "1933 Act"). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the "SEC"), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. Because of such restrictions, the Portfolio may not be able to dispose of a block of restricted securities for a substantial period of time or at prices as favorable as those prevailing in the open market should like securities of an unrestricted class of the same issuer be freely traded. The Portfolio may be required to bear the expenses of registration of such restricted securities. The SEC has acknowledged, however, that a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act). Additionally, the Portfolio's investment adviser and sub-adviser, as the case may be, believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act and for certain interest-only and principal-only classes of mortgage-backed and asset-backed securities. Each Portfolio may invest without limitation in these forms of restricted securities if such securities are deemed by the Portfolio's investment adviser or sub-adviser to be liquid in accordance with standards established by the Fund's Board of Directors. Under these guidelines, the Portfolio's 24 investment adviser or sub-adviser must consider: (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in such restricted securities could have the effect of increasing the level of the Portfolio's illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities. If through the appreciation of restricted securities or the depreciation of unrestricted securities, the Portfolio is in a position where more than 15% (10% in the case of Money Market Portfolio) of its net assets are invested in restricted and other illiquid securities, the Portfolio will take appropriate steps to protect liquidity. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio, International Stock Portfolio, International Bond Portfolio, Core Equity Portfolio and Real Estate Securities Portfolio may each purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. Normally, the settlement date occurs within two months after the transaction, but delayed settlements beyond two months may be negotiated. During the period between a commitment to purchase by the Portfolio and settlement, no payment is made for the securities purchased by the Portfolio and, thus, no interest accrues to the Portfolio from the transaction. The use of when-issued transactions and forward commitments enables the Portfolio to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Portfolio might sell securities in its portfolio on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Portfolio might sell a security in its portfolio and purchase the same or a similar security on a when-issued or forward commitment basis, thereby fixing the purchase price to be paid on the settlement date at an amount below that to which the Portfolio anticipates the market price of such security to rise and, in the meantime, obtaining the benefit of investing the proceeds of the sale of its portfolio security at currently higher cash yields. Of course, the success of this strategy depends upon the ability of the Portfolio's investment adviser or sub-adviser to correctly anticipate increases and decreases in interest rates and prices of securities. If the Portfolio's investment adviser or sub-adviser anticipates a rise in interest rates and a decline in prices and, accordingly, the Portfolio sells securities on a forward commitment basis in order to hedge against falling prices, but in fact interest rates decline and prices rise, the Portfolio will have lost the opportunity to profit from the price increase. If the investment adviser or sub-adviser anticipates a decline in interest rates and a rise in prices, and, accordingly, the Portfolio sells a security in its portfolio and purchases the same or a similar security on a when-issued or forward commitment basis in order to enjoy currently high cash yields, but in fact interest rates increase and prices fall, the Portfolio will have lost the opportunity to profit from investment of the proceeds of the sale of the security at the increased interest rates. The likely effect of this 25 hedging strategy, whether the Portfolio's investment adviser or sub-adviser is correct or incorrect in its prediction of interest rate and price movements, is to reduce the chances of large capital gains or losses and thereby reduce the likelihood of wide variations in the Portfolio's net asset value. When-issued securities and forward commitments may be sold prior to the settlement date, but, except for mortgage dollar roll transactions (as discussed below), the Portfolio enters into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. The Portfolio may hold a when-issued security or forward commitment until the settlement date, even if the Portfolio will incur a loss upon settlement. To facilitate transactions in when-issued securities and forward commitments, the Portfolio's custodian bank maintains, in a separate account of the Portfolio, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of the Portfolio, the portfolio securities themselves. If the Portfolio, however, chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it can incur a gain or loss. (At the time the Portfolio makes the commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its net asset value.) The Portfolio may also enter into such transactions to generate incremental income. In some instances, the third-party seller of when-issued or forward commitment securities may determine prior to the settlement date that it will be unable or unwilling to meet its existing transaction commitments without borrowing securities. If advantageous from a yield perspective, the Portfolio may, in that event, agree to resell its purchase commitment to the third-party seller at the current market price on the date of sale and concurrently enter into another purchase commitment for such securities at a later date. As an inducement for the Portfolio to "roll over" its purchase commitment, the Portfolio may receive a negotiated fee. These transactions, referred to as "mortgage dollar rolls," are entered into without the intention of actually acquiring securities. For a description of mortgage dollar rolls and the Portfolios that may invest in such transactions, see "Mortgage Dollar Rolls" below. The purchase of securities on a when-issued or forward commitment basis exposes the Portfolio to risk because the securities may decrease in value prior to their delivery. Purchasing securities on a when-issued or forward commitment basis involves the additional risk that the return available in the market when the delivery takes place will be higher than that obtained in the transaction itself. The Portfolio's purchase of securities on a when-issued or forward commitment basis while remaining substantially fully invested increases the amount of the Portfolio's assets that are subject to market risk to an amount that is greater than the Portfolio's net asset value, which could result in increased volatility of the price of the Portfolio's shares. No more than 30% of the value of such Portfolio's (other than Core Equity Portfolio's) total assets will be committed to when-issued or forward commitment transactions, and of such 30%, no more than two-thirds (i.e., 20% of its total assets) may be invested in mortgage dollar rolls. No more than 15% of the value of Core Equity Portfolio's total assets will be committed to when-issued or forward commitment transactions. 26 MORTGAGE DOLLAR ROLLS In connection with its ability to purchase securities on a when-issued or forward commitment basis, Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities Portfolio and International Bond Portfolio may enter into mortgage "dollar rolls" in which the Portfolio sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. In a mortgage dollar roll, the Portfolio gives up the right to receive principal and interest paid on the securities sold. However, the Portfolio would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase plus any fee income received. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of the Portfolio compared with what such performance would have been without the use of mortgage dollar rolls. The Portfolio will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the ability of the Portfolio's investment adviser or sub-adviser, as the case may be, to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. In addition, the use of mortgage dollar rolls by the Portfolio while remaining substantially fully invested increases the amount of the Portfolio's assets that are subject to market risk to an amount that is greater than the Portfolio's net asset value, which could result in increased volatility of the price of the Portfolio's shares. For financial reporting and tax purposes, mortgage dollar rolls are considered as two separate transactions: one involving the sale of a security and a separate transaction involving a purchase. The Portfolios do not currently intend to enter into mortgage dollar rolls that are accounted for as a "financing" rather than as a separate sale and purchase transactions. REAL ESTATE INVESTMENT TRUST SECURITIES The Real Estate Securities, Growth, Asset Allocation and Value Stock Portfolios may invest in real estate investment trust securities ("REIT"). A REIT is a corporation or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code of 1986, as amended the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. In order to qualify as a REIT, a company must derive at least 75% of its gross income from real estate sources (rents, mortgage interest, and gains from sale of real estate assets), 75% of its assets must be in real estate, mortgages or REIT stock, and must distribute to shareholder annually 95% or more of its otherwise taxable income. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITS. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. A mortgage REIT invests primarily in mortgages on real estate, and derives primarily from interest payments received on credit it has granted. A hybrid REIT combines the characteristics of equity REITs 27 and mortgage REITs. It is anticipated, although not required, that under normal circumstances, a majority of the Portfolio's investments in REITS will consist of equity REITs. REPURCHASE AGREEMENTS Growth Portfolio, Bond Portfolio, Mortgage Securities Portfolio, Asset Allocation Portfolio, Index 500 Portfolio, Capital Appreciation Portfolio, International Stock Portfolio, Small Company Growth Portfolio, the Maturing Government Bond Portfolios, Value Stock Portfolio, Small Company Value Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio, Core Equity Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities Portfolio may enter into repurchase agreements. Repurchase agreements are agreements by which the Portfolio purchases a security and obtains a simultaneous commitment from the seller (a member bank of the Federal Reserve System or, if permitted by law or regulation and if the Board of Directors of the Portfolio has evaluated its creditworthiness through adoption of standards of review or otherwise, a securities dealer) to repurchase the security at an agreed upon price and date. The creditworthiness of entities with whom the Portfolio enters into repurchase agreements is monitored by the Portfolio's investment adviser or sub-adviser throughout the term of the repurchase agreement. The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Portfolio the opportunity to earn a return on temporarily available cash. The Portfolio's custodian, or a duly appointed subcustodian, holds the securities underlying any repurchase agreement in a segregated account or such securities may be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement is determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement (including any accrued interest), the Portfolio promptly receives additional collateral, so that the total collateral is in an amount at least equal to the repurchase price plus accrued interest. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Portfolio could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. REVERSE REPURCHASE AGREEMENTS Money Market Portfolio, Asset Allocation Portfolio and International Bond Portfolio may also enter into reverse repurchase agreements. Reverse repurchase agreements are the counterparts of repurchase agreements, by which the Portfolio sells a security and agrees to repurchase the security from the buyer at an agreed upon price and future date. Because certain of the incidents of ownership of the security are retained by the Portfolio, reverse repurchase agreements may be considered a form of borrowing by the Portfolio from the buyer, collateralized by the security. The Portfolio uses the proceeds of a reverse repurchase agreement to purchase other money market securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. The Portfolio utilizes reverse repurchase agreements when the interest income to be earned from investment of the proceeds of the reverse repurchase transaction exceeds the interest expense of the transaction. 28 The use of reverse repurchase agreements by the Portfolio allows it to leverage its portfolio. While leveraging offers the potential for increased yield, it magnifies the risks associated with the Portfolio's investments and reduces the stability of the Portfolio's net asset value per share. To limit this risk, the Portfolio will not enter into a reverse repurchase agreement if all such transactions, together with any money borrowed, exceed 5% of the Portfolio's net assets. In addition, when entering into reverse repurchase agreements, the Portfolio will deposit and maintain in a segregated account with its custodian liquid assets, such as cash or cash equivalents and other appropriate short-term securities and high grade debt obligations, in an amount equal to the repurchase price (which shall include the interest expense of the transaction). Moreover, Money Market Portfolio will not enter into reverse repurchase agreements if and to the extent such transactions would, as determined by the Portfolio's investment adviser, materially increase the risk of a significant deviation in the Portfolio's net asset value per share. See "Net Asset Value" below. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS FUTURES CONTRACTS. Consistent with their investment objectives and strategies, the Portfolios may enter into interest rate futures contracts, stock index futures contracts and foreign currency futures contracts. (Unless otherwise specified, interest rate futures contracts, stock index futures contracts and foreign currency futures contracts are collectively referred to as "futures contracts.") A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and amount of a financial instrument or foreign currency, or for the making and acceptance of a cash settlement, at a stated time in the future for a fixed price. By its terms, a futures contract provides for a specified settlement date on which, in the case of the majority of interest rate and foreign currency futures contracts, the fixed income securities or currency underlying the contract are delivered by the seller and paid for by the purchaser, or on which, in the case of stock index futures contracts and certain interest rate and foreign currency futures contracts, the difference between the price at which the contract was entered into and the contract's closing value is settled between the purchaser and the seller in cash. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date, and cannot be "exercised" at any other time during their term. Interest rate futures contracts currently are traded on a variety of fixed income securities, including long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage Association modified pass-through mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate futures contracts include contracts on indexes of municipal securities. Foreign currency futures contracts currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits. Stock index futures contracts include contracts on the S&P 500 Index and other broad-based stock market indexes, as well as contracts based on narrower market indexes or indexes of securities of particular industry groups. A stock index assigns relative values to the common stocks included in the index and the index fluctuates with the value of the common stocks so included. The parties to a stock index futures contract agree to make a cash settlement on a 29 specific future date in an amount determined by the value of the stock index on the last trading day of the contract. The amount is a specified dollar amount times the difference between the value of the index on the last trading day and the value on the day the contract was struck. Purchases or sales of stock index futures contracts are used to attempt to protect current or intended stock investments from broad fluctuations in stock prices. Interest rate and foreign currency futures contracts are purchased or sold to attempt to hedge against the effects of interest or exchange rate changes on a Portfolio's current or intended investments in fixed income or foreign securities. In the event that an anticipated decrease in the value of a Portfolio's securities occurs as a result of a general stock market decline, a general increase in interest rates, or a decline in the dollar value of foreign currencies in which portfolio securities are denominated, the adverse effects of such changes may be offset, in whole or in part, by gains on the sale of futures contracts. Conversely, the increased cost of a Portfolio's securities to be acquired, caused by a general rise in the stock market, a general decline in interest rates, or a rise in the dollar value of foreign currencies, may be offset, in whole or in part, by gains on futures contracts purchased by such Portfolio. Although many futures contracts by their terms call for actual delivery or acceptance of the financial instrument, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a short position is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument and the same delivery month. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the trader realizes a loss. Similarly, the closing out of a long position is effected by the purchaser entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain and, if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss. The purchase or sale of a futures contract differs from the purchase or sale of a security in that no purchase price is paid or received. Instead, an amount of cash or cash equivalents, which varies but may be as low as 5% or less of the value of the contract, must be deposited with the broker as "initial margin." Subsequent payments to and from the broker, referred to as "variation margin," are made on a daily basis as the value of the index or instrument underlying the futures contract fluctuates, making positions in the futures contracts more or less valuable, a process known as "marking to the market." U.S. futures contracts may be purchased or sold only on an exchange, known as a "contract market," designated by the Commodity Futures Trading Commission ("CFTC") for the trading of such contract, and only through a registered futures commission merchant which is a member of such contract market. A commission must be paid on each completed purchase and sale transaction. The contract market clearing house guarantees the performance of each party to a futures contract by in effect taking the opposite side of such contract. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the contract market on which the position was entered into, subject to the availability of a secondary market, which will operate to terminate the initial position. At that time, a final determination of variation margin is made and any loss experienced by the trader is required to be paid to the contract market clearing house while any profit due to the trader must be delivered to it. Futures contracts may also be traded on foreign exchanges. 30 OPTIONS ON FUTURES CONTRACTS. The Portfolios also may purchase and sell put and call options on futures contracts and enter into closing transactions with respect to such options to terminate existing positions. The Portfolios may use such options on futures contracts in connection with their hedging strategies in lieu of purchasing and writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. An option on a futures contract provides the holder with the right to enter into a "long" position in the underlying futures contract, in the case of a call option, or a "short" position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position. A position in an option on a futures contract may be terminated by the purchaser or the seller prior to expiration by affecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction. Options on futures contracts that are written or purchased by the Portfolios on United States exchanges are traded on the same contract market as the underlying futures contract and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. In addition, options on futures contracts may be traded on foreign exchanges. RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of futures contracts and options on futures contracts will expose the Portfolios to additional investment risks and transactions costs. Risks include: o the risk that interest rates, securities prices or currency markets will not move in the direction that the Portfolio's investment adviser or sub-adviser anticipates; o an imperfect correlation between the price of the instrument and movements in the prices of any securities or currencies being hedged; o the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits; o leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than a Portfolio's initial investment in that instrument; and 31 o the risk that the counterparty to an instrument will fail to perform its obligations. REGULATORY MATTERS. To the extent required to comply with applicable Securities and Exchange Commission releases and staff positions, when entering into futures contracts each Portfolio will maintain, in a segregated account, cash or liquid securities equal to the value of such contracts. The CFTC, a federal agency, regulates trading activity on the exchanges pursuant to the Commodity Exchange Act, as amended. The CFTC requires the registration of "commodity pool operators," defined as any person engaged in a business which is of the nature of a company, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which meets the requirements of the Rule. Rule 4.5 requires, among other things, that an investment company wishing to avoid commodity pool operator status use futures and options positions only (a) for "bona fide hedging purposes" (as defined in CFTC regulations) or (b) for other purposes so long as aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of the liquidation value of the investment company's portfolio. Any investment company wishing to claim the exclusion provided in Rule 4.5 must file a notice of eligibility with both the CFTC and the National Futures Association. Before engaging in transactions involving interest rate futures contracts, the Fund will file such notices and meet the requirements of Rule 4.5, or such other requirements as the CFTC or its staff may from time to time issue, in order to render registration as a commodity pool operator unnecessary. For examples of futures contracts and their tax treatment, see Appendix C to this Statement of Additional Information. OPTIONS To the extent permitted in the Prospectus, each Portfolio may write (i.e., sell) covered call and secured put options and purchase and sell put and call options written by others. Each Portfolio will limit the total market value of securities against which it may write call or put options to 20% of its total assets. In addition, no Portfolio will commit more than 5% of its total assets to premiums when purchasing put or call options. A put option gives the purchaser the right to sell a security or other instrument to the writer of the option at a stated price during the term of the option. A call option gives the purchaser the right to purchase a security or other instrument from the writer of the option at a stated price during the term of the option. Thus, if a Portfolio writes a call option on a security, it becomes obligated during the term of the option to deliver the security underlying the option upon payment of the exercise price. If a Portfolio writes a put option, it becomes obligated during the term of the option to purchase the security underlying the option at the exercise price if the option is exercised. 32 Portfolios may use put and call options for a variety of purposes. For example, if a portfolio manager wishes to hedge a security a Portfolio owns against a decline in price, the manager may purchase a put option on the underlying security; i.e., purchase the right to sell the security to a third party at a stated price. If the underlying security then declines in price, the manager can exercise the put option, thus limiting the amount of loss resulting from the decline in price. Similarly, if the manager intends to purchase a security at some date in the future, the manager may purchase a call option on the security today in order to hedge against an increase in its price before the intended purchase date. Put and call options also can be used for speculative purposes. For example, if a portfolio manager believes that the price of stocks generally is going to rise, the manager may purchase a call option on a stock index, the components of which are unrelated to the stocks held or intended to be purchased. Finally, a portfolio manager may write options on securities owned in order to realize additional income. Portfolios receive premiums from writing call or put options, which they retain whether or not the options are exercised. By writing a call option, a Portfolio might lose the potential for gain on the underlying security while the option is open, and by writing a put option a Portfolio might become obligated to purchase the underlying security for more than its current market price upon exercise. If a Portfolio purchases a put or call option, any loss to the Portfolio is limited to the premium paid for, and transaction costs paid in connection with, the option. OPTIONS ON SECURITIES. An option on a security provides the purchaser, or "holder," with the right, but not the obligation, to purchase, in the case of a "call" option, or sell, in the case of a "put" option, the security or securities underlying the option, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a nonrefundable purchase price for the option, known as the "premium." The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or "writer," however, is potentially unlimited, unless the option is "covered." A call option written by a Portfolio is "covered" if the Portfolio owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Portfolio holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Portfolio in cash and liquid securities in a segregated account with its custodian. A put option written by a Portfolio is "covered" if the Portfolio maintains cash and liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer's obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise. Upon exercise of the option, the holder is required to pay the purchase price of the underlying security, in the case of a call option, or to deliver the security in return for the purchase price in the case of a put option. Conversely, the writer is required to deliver the security, in the case of a call option, or to purchase the security, in the case of a put option. Options on securities which have been purchased or written may be closed out prior to exercise 33 or expiration by entering into an offsetting transaction on the exchange on which the initial position was established, subject to the availability of a liquid secondary market. Options on securities and options on indexes of securities, discussed below, are traded on national securities exchanges, such as the Chicago Board Options Exchange and the New York Stock Exchange, which are regulated by the SEC. The Options Clearing Corporation guarantees the performance of each party to an exchange-traded option, by in effect taking the opposite side of each such option. A holder or writer may engage in transactions in exchange-traded options on securities and options on indexes of securities only through a registered broker-dealer which is a member of the exchange on which the option is traded. In addition, options on securities and options on indexes of securities may be traded on exchanges located outside the United States and over-the-counter through financial institutions dealing in such options as well as the underlying instruments. While exchange-traded options have a continuous liquid market, over-the-counter options may not. OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an option on a stock index provides the holder with the right to make or receive a cash settlement upon exercise of the option, rather than the right to purchase or sell a security. The amount of this settlement is equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a call) or is below (in the case of a put) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed "index multiplier." The purchaser of the option receives this cash settlement amount if the closing level of the stock index on the day of exercise is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated, in return for the premium received, to make delivery of this amount if the option is exercised. As in the case of options on securities, the writer or holder may liquidate positions in stock index options prior to exercise or expiration by entering into closing transactions on the exchange on which such positions were established, subject to the availability of a liquid secondary market. A Portfolio will cover all options on stock indexes by owning securities whose price changes, in the opinion of the Portfolio's adviser or sub-adviser, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where a Portfolio covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Portfolio will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Portfolios will secure put options on stock indexes by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The index underlying a stock option index may be a "broad-based" index, such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in general. In contrast, certain options may be based upon narrower market indexes, such as the Standard & Poor's 100 Index, or on indexes of securities of particular industry groups, such as those of oil and gas or technology companies. A stock index assigns relative values to the stocks included in the index and the index fluctuates with changes in the market values of the stocks so included. 34 WARRANTS Growth Portfolio, Asset Allocation Portfolio, Bond Portfolio, Capital Appreciation Portfolio, International Stock Portfolio, Small Company Growth Portfolio, Value Stock Portfolio, Small Company Value Portfolio, International Bond Portfolio, Core Equity Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities Portfolio may invest in warrants. Warrants are instruments that allow investors to purchase underlying shares at a specified price (exercise price) at a given future date. The market price of a warrant is determined by market participants by the addition of two distinct components: (1) the price of the underlying shares less the warrant's exercise price, and (2) the warrant's premium that is attributed to volatility and leveraging power. Warrants are pure speculation in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. It is not expected that Bond Fund or International Bond Portfolio will invest in common stocks or equity securities other than warrants, but it may retain for reasonable periods of time up to 5% of their respective total assets in common stocks acquired upon conversion of debt securities or preferred stocks or upon exercise of warrants. WARRANTS WITH CASH EXTRACTIONS International Stock Portfolio may also invest up to 5% of its assets in warrants used in conjunction with the cash extraction method. If an investor wishes to replicate an underlying share, the investor can use the warrant with cash extraction method by purchasing warrants and holding cash. The cash component would be determined by subtracting the market price of the warrant from the underlying share price. For example, ASSUME one share for company "Alpha" has a current share price of $40 and issued warrants can be converted one for one share at an exercise price of $31 exercisable two years from today. Also ASSUME that the market price of the warrant is $10 ($40 - $31 + $1) because investors are willing to pay a premium ($1) for previously stated reasons. If an investor wanted to replicate an underlying share by engaging in a warrant with cash extraction strategy, the amount of cash the investor would need to hold for every warrant would be $30 ($40 - $10 = $30). A warrant with cash extraction is, thus, simply a synthetically created quasi-convertible bond. If an underlying share issues no or a low dividend and has an associated warrant with a market price that is low relative to its share price, a warrant with cash extraction may provide attractive cash yields and minimize capital loss risk, provided the underlying share is also considered a worthy investment. For example, ASSUME Alpha's share is an attractive investment opportunity and its share pays no dividend. Given the information regarding Alpha provided above, also ASSUME that short-term cash currently yields 5% per year and that the investor plans to hold the investment at least two years, barring significant near-term capital appreciation. If the share price were to fall below $30, the warrant with cash extraction strategy would yield a lower loss than the underlying share because an investor cannot lose more than the purchase cost of the warrant (capital risk minimized). The cash component for this strategy would yield $3.08 after two years (compound interest). The total value of the underlying 35 investment would be $43.08 versus $40.00 for the non-yielding underlying share (attractive yield). Finally, it is important to note that this strategy will not be pursued if it is not economically more attractive than underlying shares. INDEX DEPOSITARY RECEIPTS Growth Portfolio, Asset Allocation Portfolio, Index 500 Portfolio, Capital Appreciation Portfolio, Small Company Growth Portfolio, Value Stock Portfolio, Small Company Value Portfolio, Index 400 Mid-Cap Portfolio, Core Equity Portfolio and Micro-Cap Growth Portfolio may each invest up to 5% of its total assets in one or more types of depositary receipts ("DRs") as a means of tracking the performance of a designated stock index while maintaining liquidity. The Portfolio may invest in S&P 500 Depositary Receipts ("SPDRs"), which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track the Dow Jones Industrial Average, or in other DRs which track indexes, provided that such investments are consistent with the Portfolio's investment objective as determined by the Portfolio's investment adviser or sub-adviser. Each of these securities represents shares of ownership of a long term unit investment trust (a type of investment company) that holds all of the stock included in the relevant underlying index. DRs carry a price which equals a specified fraction of the value of the designated index and are exchange traded. As with other equity transactions, brokers charge a commission in connection with the purchase of DRs. In addition, an asset management fee is charged in connection with the underlying unit investment trust (which is in addition to the asset management fee paid by the Portfolio). Trading costs for DRs are somewhat higher than those for stock index futures contracts, but, because DRs trade like other exchange-listed equities, they represent a quick and convenient method of maximizing the use of the Portfolio's assets to track the return of a particular stock index. DRs share in the same market risks as other equity investments. SHORT SALES AGAINST THE BOX Each Portfolio may sell securities "short against the box"; provided that each Portfolio will not at the time of any short sales aggregate in total sales price more than 10% of its total assets. Whereas a short sale is the sale of a security the Portfolio does not own, a short sale is "against the box" if, at all times during which the short position is open, the Portfolio owns at least an equal amount of the securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. The Portfolios have no present intention to sell securities short in this fashion. INVESTMENTS IN RUSSIA International Stock Portfolio may invest in securities of Russian companies, which involves risks and special considerations not typically associated with investing in United States securities markets. Since the breakup of the Soviet Union at the end of 1991, Russia has 36 experienced dramatic political and social change. The political system in Russia is emerging from a long history of extensive state involvement in economic affairs. The country is undergoing a rapid transition from a centrally-controlled command system to a market-oriented, democratic model. The Portfolio may be affected unfavorably by political or diplomatic developments, social instability, changes in government policies, taxation and interest rates, currency repatriation restrictions and other political and economic developments in the law or regulations in Russia and, in particular, the risks of expropriation, nationalization and confiscation of assets and changes in legislation relating to foreign ownership. The planned economy of the former Soviet Union was run with qualitatively different objectives and assumptions from those prevalent in a market system and Russian businesses do not have any recent history of operating within a market-oriented economy. In general, relative to companies operating in Western economies, companies in Russian are characterized by a lack of: (i) management with experience of operating in a market economy; (ii) modern technology; and, (iii) a sufficient capital base with which to develop and expand their operations. It is unclear what will be the future effect on Russian companies, if any, of Russia's continued attempts to move toward a more market-oriented economy. Russia's economy has experienced severe economic recession, if not depression, since 1990 during which time the economy has been characterized by high rates of inflation, high rates of unemployment, declining gross domestic product, deficit government spending, and a devaluing currency. The economic reform program has involved major disruptions and dislocations in various sectors of the economy, and those problems have been exacerbated by growing liquidity problems. Further, Russian presently receives significant financial assistance from a number of countries through various programs. To the extent these programs are reduced or eliminated in the future, Russian economic development may be adversely impacted. The Russian securities markets are substantially smaller, less liquid and significantly more volatile than the securities markets in the United States. In addition, there is little historical data on these securities markets because they are of recent origin. A substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges and over-the-counter markets. A limited number of issuers represent a disproportionately large percentage of market capitalization and trading volume. Although evolving rapidly, even the largest of Russia's stock exchanges are not well developed compared to Western stock exchanges. The actual volume of exchange-based trading in Russia is low and active on-market trading generally occurs only in the shares of a few private companies. Most secondary market trading of equity securities occurs through over-the-counter trading facilitated by a growing number of licensed brokers. Shares are traded on the over-the-counter market primarily by the management of enterprises, investment funds, short-term speculators and foreign investors. The securities of Russian companies are mostly traded over-the-counter and, despite the large number of stock exchanges, there is still no organized public market for such securities. This may increase the difficulty of valuing the Portfolio's investments. No established secondary markets may exist for many of the securities in which the Portfolio may invest. Reduced secondary market liquidity may have an adverse effect on market price and the Portfolio's ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for securities may also make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations are generally available on many emerging country securities only from a limited 37 number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. Because of the recent formation of the securities markets as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration transactions are subject to significant risks not normally associated with investments in the United States and other more developed markets. Ownership of shares (except where shares are held through depositories that meet the requirements of the 1940 Act) is defined according to entries in the company's share register and normally evidenced by extracts from the register or in certain limited cases by formal share certificates. However, there is not a central registration system and these services are carried out by the companies themselves or by registrars located throughout Russia. These registrars are not necessarily subject to effective state supervision and its possible for the Portfolio to lose its registration through fraud, negligence and even mere oversight. The laws and regulations in Russia affecting Western investment business continue to evolve in an unpredictable manner. Russian laws and regulations, particularly those involving taxation, foreign investment and trade, title to property or securities, and transfer of title, applicable to the Portfolio's activities are relatively new and can change quickly and unpredictably in a manner far more volatile than in the United States or other developed market economies. Although basic commercial laws are in place, they are often unclear or contradictory and subject to varying interpretation, and may at any time be amended, modified, repealed or replaced in a manner adverse to the interest of the Portfolio. There is still lacking a cohesive body of law and precedents normally encountered in business environments. Foreign investment in Russian companies is, in certain cases, legally restricted. Sometimes these restrictions are contained in constitutional documents of an enterprise which are not publicly available. Russian foreign investment legislation currently guarantees the right of foreign investors to transfer abroad income received on investments such as profits, dividends and interest payments. This right is subject to settlement of all applicable taxes and duties. However, more recent legislation governing currency regulation and control guarantees the right to export interest, dividends and other income on investments, but does not expressly permit the repatriation of capital from the realization of investments. Current practice is to recognize the right to repatriation of capital. Authorities currently do not attempt to restrict repatriation beyond the extent of the earlier law. No guarantee can be made, however, that amounts representing realization of capital of income will be capable of being remitted. If, for any reason, the Portfolio were unable to distribute an amount equal to substantially all of its investment company taxable income (as defined for U.S. tax purposes) within applicable time periods, the Portfolio would not qualify for the favorable U.S. federal income tax treatment afforded to regulated investment companies, or, even if it did so qualify, it might become liable for income and excise taxes on undistributed income. Russian courts lack experience in commercial dispute resolution and many of the procedural remedies for enforcement and protection of legal rights typically found in Western jurisdictions are not available in Russia. There remains uncertainty as to the extent to which local parties and entities, including Russian state authorities, will recognize the contractual and other rights of the parties with which they deal. Accordingly, there will be difficulty and uncertainty in the Portfolio's ability to protect and enforce its rights against Russian state and private entities. There is also no assurance that the Russian courts will recognize or acknowledge that the Portfolio has acquired title to any property or securities in which the Portfolio invests, or that the Portfolio is the owner of any property or security held in the name of a nominee which has acquired such property or security on behalf of the Portfolio, because there 38 is at present in Russia no reliable system or legal framework regarding the registration of titles. There can be no assurance that this difficulty in protecting and enforcing rights in Russia will not have a material adverse effect on the Portfolio and its operations. Difficulties are likely to be encountered enforcing judgments of foreign courts within Russia or of Russian courts in foreign jurisdictions due to the limited number of countries which have signed treaties for mutual recognition of court judgments with Russia. DEFENSIVE PURPOSES Each Portfolio may invest up to 20% of its respective net assets in cash or cash items. In addition, for temporary or defensive purposes, the Portfolio may invest in cash or cash items without limitation. The "cash items" in which the Portfolio may invest, include short-term obligations such as rated commercial paper and variable amount master demand notes; United States dollar-denominated time and savings deposits (including certificates of deposit); bankers' acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of a Portfolio; securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to the advisory fee); and other similar high-quality short-term United States dollar-denominated obligations. INVESTMENT RESTRICTIONS The Fund has adopted the following restrictions relating to the investment of the assets of the Portfolios. Each Portfolio is subject to certain "fundamental" investment restrictions which may not be changed without the affirmative vote of a majority of the outstanding voting securities of each Portfolio affected by the change. With respect to the submission of a change in an investment restriction to the holders of the Fund's outstanding voting securities, such matter shall be deemed to have been effectively acted upon with respect to a particular Portfolio if a majority of the outstanding voting securities of such Portfolio vote for the approval of such matter, notwithstanding (1) that such matter has not been approved by the holders of a majority of the outstanding voting securities of any other Portfolio affected by such matter, and (2) that such matter has not been approved by the vote of a majority of the outstanding voting securities of the Fund. For this purpose and under the Investment Company Act of 1940, a majority of the outstanding voting shares of each Portfolio means the lesser of (i) 67% of the voting shares represented at a meeting which more than 50% of the outstanding voting shares are represented or (ii) more than 50% of the outstanding voting shares. An investment restriction which is not fundamental may be changed by a vote of the Board of Directors without further shareholder approval. Except as otherwise noted, each of the investment restrictions below is fundamental. FUNDAMENTAL RESTRICTIONS 1. The Portfolios will not borrow money or issue senior securities except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 39 2. The Portfolios will not concentrate their investments in a particular industry, except that: (a) with respect to Money Market Portfolio, this limitation does not apply to investments in domestic banks; (b) under normal market conditions, Mortgage Securities Portfolio will concentrate its investments in the mortgage and mortgage-finance industry. Mortgage Securities Portfolio will not concentrate its investments in any other particular industry; (c) under normal market conditions, Real Estate Securities Portfolio will concentrate its investments in the real estate or real estate related industry. Real Estate Portfolio will not concentrate its investments in any other particular industry; (d) Index 500 Portfolio may concentrate its investments in a particular industry if the S&P 500 Index is so concentrated; and (e) Index 400 Mid-Cap Portfolio may concentrate its investments in a particular industry if the S&P 400 Mid-Cap Index is so concentrated. For purposes of this limitation, the U.S. Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether a Portfolio is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 3. The Portfolios will not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments, but this shall not prevent the Portfolios from investing in securities or other instruments backed by real estate investments therein or in securities of companies that deal in real estate or mortgages. 4. The Portfolios will not purchase physical commodities or contracts relating to physical commodities. 5. The Portfolios may not make loans except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 6. The Portfolios may not act as an underwriter of securities, except to the extent the Fund may be deemed to be an underwriter in connection with the disposition of Portfolio securities. NON-FUNDAMENTAL RESTRICTIONS The Fund has adopted a number of non-fundamental policies which appear below. 40 7. The Portfolios will not acquire any new securities while borrowings, including borrowings through reverse repurchase agreements, exceed 5% of total assets. 8. The Portfolios will use futures contracts and options on futures contracts only (a) for "bona fide hedging purposes" (as defined in regulations of the Commodity Futures Trading Commission) or (b) for other purposes so long as the aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of the liquidation value of the Portfolio. 9. The Portfolios may mortgage, pledge or hypothecate their assets only to secure permitted borrowings. Collateral arrangements with respect to futures contracts, options thereon and certain options transactions are not considered pledges for purposes of this limitation. 10. The Portfolios may not make short sales of securities, other than short sales "against the box." 11. The Portfolios may not purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of securities transactions and it may make margin deposits in connection with futures contracts. 12. The Portfolios will not invest more than 15% (10% in the case of Money Market Portfolio) of their net assets in illiquid securities. 13. The total market value of securities against which a Portfolio may write call or put options will not exceed 20% of the Portfolios' total assets. In addition, a Portfolio will not commit more than 5% of its total assets to premiums when purchasing put or call options. If a percentage restriction described above or in the Fund's Prospectus is adhered to at the time of an investment, a later increase or decrease in the investment's percentage of the value of a Portfolio's total assets resulting from a change in such values or assets will not constitute a violation of the percentage restriction. ADDITIONAL RESTRICTIONS The Money Market Portfolio is subject to the investment restrictions of Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), in addition to its other policies and restrictions discussed below. Pursuant to Rule 2a-7, the Fund is required to invest exclusively in securities that mature within 397 days from the date of purchase and to maintain an average weighted maturity of not more than 90 days. Rule 2a-7 also requires that all investments by the Portfolio be limited to United States dollar-denominated investments that (a) present "minimal credit risk" and (b) are at the time of acquisition "Eligible Securities." Eligible Securities include, among others, securities that are rated by two Nationally Recognized Statistical Rating Organizations ("NRSROs") in one of the two highest categories for short-term debt obligations, such as A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's. 41 Rule 2a-7 also requires, among other things, that the Money Market Portfolio may not invest, other than in U.S. "Government Securities" (as defined in the 1940 Act), (a) more than 5% of its total assets in Second Tier Securities (i.e., Eligible Securities that are not rated by two NRSROs in the highest category such as A-1 and Prime-1 and (b) more than the greater of 1% of its total assets or $1,000,000 in Second Tier Securities of any one issuer. The present practice is not to purchase any Second Tier Securities. PORTFOLIO TURNOVER Portfolio turnover is the ratio of the lesser of annual purchases or sales of portfolio securities to the average monthly value of portfolio securities, not including short-term securities. A 100% portfolio turnover rate would occur, for example, if the lesser of the value of purchases or sales of portfolio securities for a particular year were equal to the average monthly value of the portfolio securities owned during such year. Each Portfolio has a different expected annual rate of portfolio turnover. A high rate of turnover in a Portfolio generally involves correspondingly greater brokerage commission expenses, which must be borne directly by the Portfolio. Turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of each Portfolio's shares and by requirements which enable the Fund to receive favorable tax treatment. The portfolio turnover rates associated with each Portfolio will, of course, be affected by the level of purchases and redemptions of shares of each Portfolio. However, because rate of portfolio turnover is not a limiting factor, particular holdings may be sold at any time, if in the opinion of Advantus Capital or a Portfolio's sub-adviser such a sale is advisable. The Money Market Portfolio, consistent with its investment objective, will attempt to maximize yield through trading. This may involve selling instruments and purchasing different instruments to take advantage of disparities of yields in different segments of the high grade money market or among particular instruments within the same segment of the market. Since the Portfolio's assets will be invested in securities with short maturities and the Portfolio will manage its assets as described above, the Portfolio's holdings of money market instruments will turn over several times a year. However, this does not generally increase the Portfolio's brokerage costs, since brokerage commissions as such are not usually paid in connection with the purchase or sale of the instruments in which the Portfolio invests since such securities will be purchased on a net basis. For each of the last three calendar years, the portfolio turnover rates for the various Portfolios were as follows: 42

Portfolio Turnover Rate ----------------------- Portfolio 2002 2001 2000 --------- ---- ---- ---- Growth 98.7% 119.9% 119.2% Bond 140.8 197.8 206.8 Money Market N/A N/A N/A Asset Allocation 116.5 169.4 139.3 Mortgage Securities 82.4 81.9 48.9 Index 500 7.8 6.1 12.8 Capital Appreciation 43.0 90.3 193.1 International Stock 32.7 39.4 46.8 Small Company Growth 61.7 97.8 154.3 Maturing Government Bond -- 2006 Portfolio 5.9 6.4 3.4 2010 Portfolio 19.1 17.3 8.3 Value Stock 112.4 132.7 163.1 Small Company Value 38.8 22.6 122.0 International Bond 304.1 251.7 306.8 Index 400 Mid-Cap 20.0 29.8 78.3 Core Equity 32.3 52.6 44.5 Micro-Cap Growth 67.6 71.2 102.7 Real Estate Securities 70.2 160.4 143.7

DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of the Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund and its Portfolios. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of the Fund, and also serve in the same capacity for each of the other eleven Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Fund are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 43 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

Position with Fund Name, Address(1) and Length of Principal Occupation(s) and Age Time Served During Past 5 Years - ------------------------------------------------------------------------------------------------------------------- Interested Directors - ------------------------------------------------------------------------------------------------------------------- William N. Westhoff Director since Retired since July 2002, prior thereto Age: 55 July 23, 1998 President, Treasurer and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company since April 1998; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 - ------------------------------------------------------------------------------------------------------------------- Independent Directors - ------------------------------------------------------------------------------------------------------------------- Ralph D. Ebbott Director since Retired, Vice President and Treasurer Age: 76 October 22, 1985 of Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989

44

William C. Melton Director since Founder and President of Melton Age: 55 April 25, 2002 Research Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology at the Age: 66 October 22, 1985 University of Minnesota - ------------------------------------------------------------------------------------------------------------------- Other Executive Officers - ------------------------------------------------------------------------------------------------------------------- Dianne M. Orbison President since President and Treasurer, Advantus Capital Age: 50 July 25, 2002 Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP April 16, 1998 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 58

(1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Fund has both an Audit Committee and a Nominations Committee of the Board of Directors, the members of which are all directors who are not "interested persons" of the Fund. Ms. Berscheid and Messrs. Melton and Ebbott comprise the members of both committees. The Board of Directors also has a Dividend Declaration Committee, the sole member of which is Frederick P. Feuerherm. Mr. Feuerherm, an officer of Advantus Capital, Securian Financial Services, Inc. and Minnesota Life, served as a Director of the Fund until April 23, 2003. Upon his resignation, the Board of Directors determined that he should continue to serve as the sole member of the Dividend Declaration Commitee. The function of the Audit Committee is to recommend the engagement of the Fund's independent auditor and oversee its activities. The Audit Committee also receives reports from the Internal Audit Department of Minnesota Life and from the Director of Compliance for Advantus Capital about compliance matters affecting the Fund. The Audit Committee met two (2) times during the last fiscal year. The Nominations Committee selects and recommends to the Board of Directors individuals for nomination as Independent Directors. The names of potential Independent Director candidates are drawn from a number of sources, including recommendations from management of Advantus Capital. Inasmuch as the Fund does not hold annual meetings of shareholders and meetings of shareholders occur only intermittently, the Nominations Committee does not at present consider nominees recommended by shareholders. The Nominations Committee met one (1) time during the last fiscal year. The function of the Dividend Declaration Committee is to oversee the distribution of the Fund's dividends and capital gains distributions. The Dividend Declaration Committee met four (4) times during the last fiscal year. 45 The Directors owned shares in the Fund, and in all Advantus Funds for which they serve on the Board of Directors, in the following dollar ranges as of December 31, 2002:

Aggregate Dollar Range Dollar Range of of Equity Securities in all Equity Securities Advantus Funds Name of Director in the Fund* Overseen by Director - ---------------- ------------ -------------------- William N. Westhoff Over $100,000 Over $100,000 Frederick P. Feuerherm $1 - $10,000 $1 - $10,000 Ralph D. Ebbott None None William C. Melton None None Ellen S. Berscheid $1 - $10,000 $1 - $10,000

* The Fund's shares are sold only to separate accounts of Minnesota Life and certain other life insurance companies. Certain of the Directors own Contracts issued by those companies which entitle the Directors to give voting instructions with respect to shares of the Fund attributable to such Contracts. Legal fees and expenses are paid to the law firm of which Michael J. Radmer is a partner. No compensation is paid by the Fund to any of its officers or directors who is affiliated with Advantus Capital. Each director of the Fund who is not affiliated with Advantus Capital is also a director of eleven other investment companies of which Advantus Capital is the investment adviser (the "Fund Complex"). As of the date hereof, such directors receive compensation in connection with all such investment companies which, in the aggregate, is equal to $8,000 per year plus $2,000 per board meeting and committee meeting attended (and reimbursement of travel expenses to attend directors' meetings). The portion of such compensation borne by the Fund is a pro rata portion based on the ratio that the Fund's total net assets bears to the total net assets of the Fund Complex. During the fiscal year ended December 31, 2002, each Director not affiliated with Advantus Capital was compensated by the Fund in accordance with the following table:

Pension or Total Retirement Compensation Aggregate Benefits Estimated From Fund and Compensation Accrued as Annual Fund Complex from Part of Fund Benefits Upon Paid to Name of Director the Fund Expenses Retirement Directors - ---------------- -------- -------- ---------- --------- William C. Melton* $12,562 n/a n/a $16,000 Ellen S. Berscheid $20,937 n/a n/a $22,000 Ralph D. Ebbott $20,937 n/a n/a $22,000 William N. Westhoff** $ 4,187 n/a n/a $ 4,000 Charles Arner $ 8,375 n/a n/a $12,000

*Mr. Melton was elected a Director on April 25, 2002, and, therefore, received compensation for only a portion of the year ended December 31, 2002. **Prior to July 26, 2002, William N. Westhoff was president of and therefore affiliated with Advantus Capital, but since his retirement from Advantus Capital as of that date he has received compensation as a Director of the Fund as described above. 46 DIRECTOR LIABILITY Under Minnesota law, the Board of Directors of the Fund owes certain fiduciary duties to the Fund and to its shareholders. Minnesota law provides that a director "shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances." Fiduciary duties of a director of a Minnesota corporation include, therefore, both a duty of "loyalty" (to act in good faith and act in a manner reasonably believed to be in the best interests of the corporation) and a duty of "care" (to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances). Minnesota law also authorizes corporations to eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for breach of the fiduciary duty of "care." Minnesota law does not, however, permit a corporation to eliminate or limit the liability of a director (i) for any breach of the directors' duty of "loyalty" to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for authorizing a dividend, stock repurchase or redemption or other distribution in violation of Minnesota law or for violation of certain provisions of Minnesota securities laws, or (iv) for any transaction from which the director derived an improper personal benefit. The Articles of Incorporation of the Fund limit the liability of directors to the fullest extent permitted by Minnesota statutes, except to the extent that such liability cannot be limited as provided in the Investment Company Act of 1940 (which prohibits any provisions which purport to limit the liability of directors arising from such directors' willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as directors). Minnesota law does not eliminate the duty of "care" imposed upon a director. It only authorizes a corporation to eliminate monetary liability for violations of that duty. Minnesota law, further, does not permit elimination or limitation of liability of "officers" to the corporation for breach of their duties as officers (including the liability of directors who serve as officers for breach of their duties as officers). Minnesota law does not permit elimination or limitation of the availability of equitable relief, such as injunctive or recessionary relief. Further, Minnesota law does not permit elimination or limitation of a director's liability under the Securities Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to what extent the elimination of monetary liability would extend to violations of duties imposed on directors by the Investment Company Act of 1940 and the rules and regulations adopted under such Act. INVESTMENT ADVISORY AND OTHER SERVICES GENERAL Advantus Capital Management, Inc. ("Advantus Capital") has been the investment adviser and manager of the Fund and Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities Portfolio since May 1, 1997. Securian Financial Services, Inc. ("Securian Financial") acts as the Fund's underwriter. Both Advantus Capital and Securian Financial act as such pursuant to written agreements that will be periodically considered for approval by the directors or shareholders of the Fund. The address of both Advantus Capital and Securian Financial is 400 Robert Street North, St. Paul, Minnesota 55101. 47 The Fund and Advantus Capital have obtained an exemptive order from the Securities and Exchange Commission which permits Advantus Capital to employ a "manager of managers" strategy in connection with its management of the Fund. The exemptive order permits Advantus Capital, subject to certain conditions, to select new investment sub-advisers with the approval of the Fund's Board of Directors, but without obtaining shareholder approval. The order also permits Advantus Capital to change the terms of agreements with the investment sub-advisers or continue the employment of an investment sub-adviser after an event which would otherwise cause the automatic termination of services. Shareholders would be notified of any investment sub-adviser changes. Shareholders have the right to terminate arrangements with an investment sub-adviser by vote of a majority of the outstanding shares of a Portfolio. In the case of a Portfolio which employs more than one investment sub-adviser, the order also permits the Fund to disclose such investment sub-advisers' fees only in the aggregate in its registration statement. Advantus Capital has the ultimate responsibility for the investment performance of each Portfolio employing investment sub-advisers due to its responsibility to oversee the investment sub-advisers and recommend their hiring, termination and replacement. Waddell & Reed Investment Management Co. ("WRIMCO") is the investment adviser of the Growth Portfolio, Asset Allocation Portfolio, Capital Appreciation Portfolio, Value Stock Portfolio and Core Equity Portfolio. As discussed in the Prospectus, Advantus Capital has agreed to sell to WRIMCO its assets related to the actively managed equity Portfolios of the Fund (with the exception of Real Estate Securities Portfolio) and has recommended to the Fund's Board of Directors that these Portfolios be merged into corresponding Portfolios of the W&R Target Funds, Inc. Because Advantus Capital no longer has the resources to actively manage non-real estate equity funds, the Board of Directors approved an interim investment advisory agreement, effective May 1, 2003, under which WRIMCO will serve as the investment adviser to the Portfolios listed above until the mergers. WRIMCO and its predecessor have served as the investment manager to the W&R Target Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc., W&R Funds, Inc. and each of the registered investment companies in the Waddell & Reed Advisors Funds since 1940 or each company's inception date, whichever is later. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Credit Suisse Asset Management, LLC ("CSAM") serves as investment sub-adviser to the Fund's Small Company Growth Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. Templeton Investment Counsel, LLC serves as investment sub-adviser to the Fund's International Stock Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. Julius Baer Investment Management Inc. ("Julius Baer") serves as investment sub-adviser to the Fund's International Bond Portfolio, pursuant to an investment sub-advisory agreement with Advantus Capital. Wall Street Associates serves as investment sub-adviser to the Fund's Micro-Cap Growth Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. State Street Research & Management Company ("State Street Research") serves as investment sub-adviser to the Fund's Small Company Value Portfolio pursuant to an investment sub-advisory agreement with Advantus Capital. CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL Advantus Capital was incorporated in Minnesota in June 1994, and is an affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." The Minnesota Mutual Life Insurance Company continued its corporate existence following conversion to a Minnesota stock life insurance company named "Minnesota Life Insurance Company". All of the shares of the voting stock of Minnesota Life are owned by a second tier intermediate stock holding company named "Securian Financial Group, Inc.", which in turn is a wholly-owned subsidiary of a first tier intermediate stock holding company named "Securian Holding Company", which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and Securian Financial are also wholly-owned subsidiaries of Securian Financial Group, Inc. 48 Dianne M. Orbison, President of the Fund, is President, Treasurer and Director of Advantus Capital. Frederick P. Feuerherm, Vice President and Treasurer of the Fund, is a Vice President, Assistant Secretary and Director of Advantus Capital. William N. Westhoff, a Director of the Fund, was President, Treasurer and Director of Advantus Capital prior to July 26, 2002. CONTROL AND MANAGEMENT OF WRIMCO WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell & Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services, Inc., a holding company which is a wholly owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. THE FUND'S INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL Advantus Capital acts as investment adviser and manager of the Bond Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities Portfolio under an Investment Advisory Agreement dated May 1, 2000 (the "Investment Advisory Agreement"), which became effective the same date, and was approved by shareholders on April 17, 2000. The Investment Advisory Agreement was last approved by the Board of Directors of the Fund (including a majority of the directors who are not parties to the contract, or interested persons of any such party) on January 30, 2003. Prior to May 1, 1997, the Fund obtained advisory services from MIMLIC Asset Management Company ("MIMLIC Management"), formerly the parent company of Advantus Capital. Advantus Capital commenced its business in June 1994, and provides investment advisory services to eleven other Advantus funds and various private accounts. The Investment Advisory Agreement, will terminate automatically in the event of assignment. In addition, the Investment Advisory Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund or by vote of a majority of the Fund's outstanding voting securities on 60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days' written notice to the Fund. Unless sooner terminated, the Investment Advisory Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not interested persons of any party to the Investment Advisory Agreement, cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of any continuance of the Investment Advisory Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the class of capital stock of that Portfolio votes to approve such continuance, notwithstanding that such continuance may not have been approved by a majority of the outstanding voting securities of the Fund. If the shareholders of a class of capital stock of any Portfolio subject to the Investment Advisory Agreement fail to approve any continuance of the Investment Advisory Agreement, Advantus Capital will continue to act as investment adviser with respect to such Portfolio pending the required approval of its continuance, or a new contract with Advantus Capital or a different investment adviser or other definitive action; provided that the compensation received by Advantus Capital in respect of such Portfolio during such period will be no more than its actual costs incurred in furnishing investment advisory and management services to such Portfolio or the amount it would have received under the Investment Advisory Agreement in respect of such Portfolio, whichever is less. The Investment Advisory Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of the Fund and by the vote of a majority of the directors of the Fund who are not interested persons of any party to the Investment Advisory Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the class of capital stock of that Portfolio vote to approve the amendment, notwithstanding that the 49 amendment may not have been approved by a majority of the outstanding voting securities of the Fund. THE FUND'S INVESTMENT ADVISORY AGREEMENT WITH WRIMCO As discussed in the Prospectus, Advantus Capital has agreed to sell to WRIMCO its assets related to the actively managed equity Portfolios of the Fund (with the exception of Real Estate Securities Portfolio) and has recommended to the Board of Directors that these Portfolios be merged into corresponding portfolios of the W&R Target Funds, Inc. Because the Advantus Capital no longer has the resources to actively manage non-real estate equity funds, the Board of Directors determined that it would be in shareholders' best interests to appoint a new investment adviser to manage certain of the equity Portfolios on an interim basis prior to the mergers. The Board of Directors approved an interim investment advisory agreement (the "Interim Agreement"), effective May 1, 2003, under which WRIMCO will serve as the investment adviser to the Asset Allocation Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core Equity Portfolio and Value Stock Portfolio, effective May 1, 2003. The terms of the Interim Agreement are substantially identical to those of the Investment Advisory Agreement between the Fund and Advantus Capital, except for the dates of execution and termination and other non-material changes, and except that advisory fees payable to WRIMCO will be deposited in escrow until shareholders of the Portfolios approve the Interim Agreement. Normally, a mutual fund's investment advisory agreements must be approved by the fund's shareholders in advance of the effective date of such agreements. However, pursuant to Rule 15a-4 under the 1940 Act, an investment adviser may serve as adviser to a mutual fund under an interim contract with a term of no more than 150 days, so long as prior to the expiration of such term, shareholders approve a new agreement with the investment adviser. Under Rule 15a-4, the interim contract must be identical in all material respects to the agreement that was previously approved by shareholders (except for the effective date and termination date). In addition, under Rule 15a-4, during the term of the interim agreement, advisory fees otherwise payable under the interim agreement are required to be deposited into an interest-bearing escrow account. If shareholders approve a new advisory agreement, such fees (plus interest) may be paid to the adviser. If, on the other hand, shareholders do not approve a new advisory agreement, the adviser will be reimbursed only for the lesser of its costs of providing services during the term of the interim agreement (plus interest) or amounts held in escrow. Accordingly and in accordance with Rule 15a-4, the fees otherwise payable to WRIMCO under the Interim Agreement are being held in escrow pending shareholder approval of the Interim Agreement. Fees payable to WRIMCO under the Interim Agreement are identical to fees previously payable to Advantus Capital by the applicable Portfolios under the Investment Advisory Agreement. THE FUND'S INVESTMENT ADVISORY FEES Pursuant to the investment advisory agreements, each Portfolio pays its Investment Adviser an advisory fee equal on an annual basis to a percentage of the Portfolio's average daily net assets as set forth in the following table:

Advisory Fee (as a percentage of Portfolio average daily net assets) --------- ------------------------- Growth Portfolio 0.45% of assets to $1 billion; and 0.40% of assets exceeding $1 billion Bond Portfolio 0.30% of assets to $500 million; 0.25% of assets exceeding $500 million to $1 billion; and 0.20% of assets exceeding $1 billion Money Market Portfolio 0.25% of assets to $1 billion; and 0.20% of assets exceeding $1 billion Asset Allocation Portfolio 0.35% of assets to $1 billion; and 0.30% of assets exceeding $1 billion Mortgage Securities Portfolio 0.30% of assets to $1 billion; and 0.25% of assets exceeding $1 billion Index 500 Portfolio 0.15% of assets to $250 million; 0.10% of assets exceeding $250 million to $1 billion; and 0.075% of assets exceeding $1 billion Capital Appreciation Portfolio 0.50% of assets to $1 billion; and 0.45% of assets exceeding $1 billion International Stock Portfolio 0.60% of assets to $250 million; 0.55% of assets exceeding $250 million to $500 million; 0.50% of assets exceeding $500 million to $1 billion; and 0.45% of assets exceeding $1 billion Small Company Growth 0.65% of assets to $1 billion; and Portfolio 0.60% of assets exceeding $1 billion

50 Maturing Government Bond Portfolios 0.25% Value Stock Portfolio 0.50% of assets to $500 million; 0.45% of assets exceeding $500 million to $1 billion; and 0.40% of assets exceeding $1 billion Small Company Value Portfolio 0.70% of assets to $1 billion; and 0.65% of assets exceeding $1 billion International Bond Portfolio 0.60% of assets to $1 billion; and 0.55% of assets exceeding $1 billion Index 400 Mid-Cap Portfolio 0.15% of assets to $250 million; 0.10% of assets exceeding $250 million to $1 billion; and 0.075% of assets exceeding $1 billion Core Equity Portfolio 0.50% Micro-Cap Growth Portfolio 0.95% Real Estate Securities Portfolio 0.60% of assets to $1 billion; and 0.55% of assets exceeding $1 billion The fees paid by the Portfolios during the fiscal years ended December 31, 2002, 2001 and 2000 (before absorption of certain expenses, described below) were as follows:

Advisory Fees Paid ------------------ Portfolio 2002 2001 2000 --------- ---- ---- ---- Growth Portfolio $1,090,867 $1,516,012 $2,667,290 Bond Portfolio 763,666 669,529 651,344 Money Market Portfolio 387,449 376,713 519,410 Asset Allocation Portfolio 1,488,198 1,872,775 2,944,888 Mortgage Securities Portfolio 709,265 563,046 511,475 Index 500 Portfolio 584,983 663,033 1,359,130 Capital Appreciation Portfolio 965,815 1,489,610 2,563,696 International Stock Portfolio 1,539,322 1,767,777 2,167,527 Small Company Growth Portfolio 975,136 1,232,895 1,880,499 Maturing Government Bond - 2006 Portfolio 23,609 19,698 15,207 2010 Portfolio 17,470 15,039 12,342 Value Stock Portfolio 645,492 755,893 1,001,481 Small Company Value Portfolio 367,199 223,959 117,606

51 International Bond Portfolio 274,308 232,026 200,417 Index 400 Mid-Cap Portfolio 64,008 56,402 66,748 Core Equity Portfolio 115,952 140,265 149,882 Micro-Cap Growth Portfolio 310,437 423,736 571,445 Real Estate Securities Portfolio 155,406 72,531 46,927 Under the investment advisory agreements, the Investment Advisers furnish the Fund office space and all necessary office facilities, equipment and personnel for servicing the investments of the Fund. The Fund pays all its costs and expenses which are not assumed by the Investment Advisers. These Fund expenses include, by way of example, but not by way of limitation, all expenses incurred in the operation of the Fund including, among others, interest, taxes, brokerage fees and commissions, fees of the directors who are not employees of the Investment Advisers or any of its affiliates, expenses of directors' and shareholders' meetings, including the cost of printing and mailing proxies, expenses of insurance premiums for fidelity and other coverage, association membership dues, charges of custodians, auditing and legal expenses. The Fund will also pay the fees and bear the expense of registering and maintaining the registration of the Fund and its shares with the Securities and Exchange Commission and registering or qualifying its shares under state or other securities laws and the expense of preparing and mailing prospectuses and reports to shareholders. Securian Financial shall bear all advertising and promotional expenses in connection with the distribution of the Fund's shares, including paying for the printing of Prospectuses and Statements of Additional Information for new shareholders and the costs of sales literature. Advantus Capital also bears all costs under its agreement with Wilshire Associates for the use by Advantus Capital, in connection with the Index 500 Portfolio, of Wilshire Associates' proprietary index fund statistical sampling technique. Advantus Capital is currently voluntarily absorbing all fees and expenses that exceed 1.10% of average daily net assets for the Small Company Value Portfolio, 1.07% of average daily net assets for the Core Equity Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio. Although WRIMCO is the Investment Adviser for Core Equity Portfolio, Advantus Capital intends to reimburse that Portfolio for fees and expenses in order to maintain expenses at current levels. For each of the last three calendar years, the expenses voluntarily absorbed by Advantus Capital (or Minnesota Life prior to May 1, 2000) for the various Portfolios were as follows:

Expenses Voluntarily Absorbed ----------------------------- Portfolio 2002 2001 2000 --------- ---- ---- ---- Growth Portfolio $ -0- $ -0- $ -0- Bond Portfolio -0- -0- -0- Money Market Portfolio -0- -0- -0- Asset Allocation Portfolio -0- -0- -0- Mortgage Securities Portfolio -0- -0- -0- Index 500 Portfolio -0- -0- -0- Capital Appreciation Portfolio -0- -0- -0- International Stock Portfolio -0- -0- -0- Small Company Growth Portfolio -0- -0- -0- Maturing Government Bond -

52 2006 Portfolio 35,104 59,498 61,355 2010 Portfolio 44,356 61,422 62,524 Value Stock Portfolio -0- -0- -0- Small Company Value Portfolio 40,674 39,093 87,809 International Bond Portfolio -0- -0- -0- Index 400 Mid-Cap Portfolio -0- 45,365 74,402 Core Equity Portfolio 50,401 60,312 84,884 Micro-Cap Growth Portfolio 36,055 24,088 26,838 Real Estate Securities Portfolio 47,820 71,008 77,007 There is no specified or minimum period of time during which Advantus Capital has agreed to continue its voluntary absorption of these expenses, and Advantus Capital may in its discretion cease its absorption of expenses at any time. Should Advantus Capital cease absorbing expenses the effect would be to increase substantially Fund expenses and thereby reduce investment return. Each Portfolio will bear all expenses that may be incurred with respect to its individual operation, including but not limited to transaction expenses, advisory fees, brokerage, interest, taxes and the charges of the custodian. The Fund will pay all other expenses not attributable to a specific Portfolio, but those expenses will be allocated among the Portfolios on the basis of the size of their respective net assets unless otherwise allocated by the Board of Directors of the Fund. SUB-ADVISER - CSAM Credit Suisse Asset Management, LLC ("CSAM") has been retained under separate investment sub-advisory agreements to provide investment advice and, in general, to conduct the management and investment program of the Small Company Growth Portfolio, subject to the general control of the Board of Directors of the Fund. CSAM is a registered investment adviser under the Investment Advisers Act of 1940. CSAM is an indirect wholly-owned subsidiary of Credit Suisse Group and an institutional and mutual fund asset management arm of Credit Suisse First Boston, part of the Credit Suisse Group. CSAM is a diversified investment adviser managing global and domestic equity and fixed income portfolios for retail investors as well as institutional clients such as corporate pension and profit-sharing plans, state pension funds, union funds, endowments and charitable institutions. Together with its predecessor firms, CSAM has been engaged in the investment advisory business for over 60 years. As of September 30, 2002, CSAM and its global affiliates managed approximately $284.3 billion in assets, $55.8 billion of which was managed in the U.S. CSAM's principal business address is 466 Lexington Avenue, New York, New York 10017. 53 SMALL COMPANY GROWTH PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - CSAM CSAM acts as investment sub-adviser to the Fund's Small Company Growth Portfolio under an Investment Sub-Advisory Agreement (the "CSAM Small Company Growth Agreement") with Advantus Capital dated March 7, 2000, which became effective the same date. Amendments to the CSAM Small Company Growth Agreement, adjusting the level of sub-advisory fees payable by Advantus Capital to CSAM under such Agreement, were approved by the Board of Directors of the Fund on October 25, 2001, July 25, 2002 and January 30, 2003. The CSAM Small Company Growth Agreement will terminate automatically upon the termination of the Investment Advisory Agreement and in the event of its assignment. In addition, the CSAM Small Company Growth Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or, and by CSAM on 60 days' written notice to Advantus Capital. Unless sooner terminated, the CSAM Small Company Growth Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the CSAM Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by CSAM to the Small Company Growth Portfolio, the Adviser pays to CSAM, a fee computed at an annual rate which is a percentage of the average daily net assets of the Portfolio. The fee is accrued daily and based on the net asset value of all of the issued and outstanding shares of the Portfolio as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears at the end of each calendar quarter. The amount of such annual fee, as applied to the total assets of the Portfolio, is equal to 0.54%. SUB-ADVISER - TEMPLETON COUNSEL Templeton Investment Counsel, LLC (hereinafter "Templeton Counsel"), a Delaware limited liability company with principal offices at 500 East Broward Boulevard, Ft. Lauderdale, Florida 33394, has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management investment program of International Stock Portfolio, subject to the general control of the Board of Directors of the Fund. Templeton Counsel is an indirect, wholly-owned subsidiary of Templeton Worldwide, Inc., Ft. Lauderdale, Florida, which in turn is a wholly-owned subsidiary of Franklin Resources, Inc. 54 Franklin Resources, Inc. is a global investment organization operating as Franklin Templeton Investments. Franklin Templeton provides global and domestic investment management services through its Franklin, Templeton, Mutual Advisors and Fiduciary Trust subsidiaries with approximately 10 million shareholder accounts. With 51 offices in 28 countries, the company has over 50 years of investment experience and over $256 billion in assets under management as of January 31, 2003. Franklin Resources, Inc. is headquartered at One Franklin Parkway, P.O. Box 7777, San Mateo, California 94403-7777, and its common stock is listed on the New York Stock Exchange under the ticker symbol BEN. INTERNATIONAL STOCK PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - TEMPLETON COUNSEL Templeton Counsel acts as an investment sub-adviser to the Fund's International Stock Portfolio under an Investment Sub-Advisory Agreement (the "Templeton Agreement") with Advantus Capital dated May 1, 1997, which became effective the same date, and was approved by shareholders of International Stock Portfolio on April 24, 1997. The Templeton Agreement will terminate automatically upon the termination of the Investment Advisory Agreement and in the event of its assignment. In addition, the Templeton Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by a vote of the majority of the International Stock Portfolio's outstanding voting securities on 60 days' written notice to Templeton Counsel and by Templeton Counsel on 60 days' written notice to Advantus Capital. Unless sooner terminated, the Templeton Agreement shall continue in effect from year to year if approved at least annually by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of International Stock Portfolio, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not interested persons of any party to the Templeton Agreement, cast in person at a meeting called for the purpose of voting on such approval. From the advisory fee received from International Stock Portfolio, Advantus Capital pays Templeton Counsel a sub-advisory fee equal to .70% on the first $10 million of International Stock Portfolio's average daily net assets, ..65% on the next $15 million, .55% on the next $25 million, .50% on the next $50 million, and .40% on the next $100 million and thereafter. For the purpose of establishing the appropriate breakpoints at which the Portfolio's sub-advisory fee shall be calculated, the Portfolio will benefit from the aggregation of the monthly market value of any non-mutual fund account of Minnesota Life or any affiliate thereof, advised or sub-advised by Templeton Counsel or any advisory affiliate by Advantus and sub-advised by Templeton Counsel or any advisory affiliate. For fee-stacking purposes, the asset classes so managed with the highest fee schedules shall be counted first as assets of this Portfolio in order to determine this Portfolio's appropriate starting breakpoint when the following conditions are satisfied: (i) Franklin Advisors, Inc., and affiliate of Templeton Counsel, provides other sub-advisory services to Advantus Capital, covering small company domestic equities in an amount in excess of $100 million; and (ii) Minnesota Life, offers as investment options in its registered variable insurance contracts the Templeton Developing Markets Securities Fund and any other two funds in the Franklin Templeton Variable Insurance Products Trust. 55 SUB-ADVISER - JBIM Julius Baer Investment Management Inc. ("JBIM"), with principal offices at 330 Madison Avenue, New York, New York 10017, has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management investment program for the International Bond Portfolio's foreign securities, subject to the general control of the Board of Directors of the Fund. JBIM is a majority owned subsidiary of Julius Baer Securities, Inc., a registered broker-dealer and investment adviser, which in turn is a wholly-owned subsidiary of Baer Holding Ltd. Julius Baer Securities, Inc. owns 93% of the outstanding stock of JBIM and 7% is owned by three employees of JBIM. JBIM has been registered as an investment adviser since April 1983. Directly and through Julius Baer Securities, Inc., JBIM provides investment management services to a wide variety of individual and institutional clients, including registered investment companies. INTERNATIONAL BOND PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - JBIM JBIM acts as investment sub-adviser to the Fund's International Bond Portfolio under an Investment Sub-Advisory Agreement (the "JBIM Agreement") with Advantus Capital dated May 1, 2003, which became effective the same date. The JBIM Agreement will terminate automatically upon the termination of the Investment Advisory Agreement and in the event of its assignment. In addition, the JBIM Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the International Bond Portfolio's outstanding voting securities on 60 days' written notice to JBIM and by JBIM on 60 days' written notice to Advantus Capital. Unless sooner terminated, the JBIM Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the International Bond Portfolio, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the JBIM Agreement, cast in person at a meeting called for the purpose of voting on such approval. From the advisory fee received from International Bond Portfolio, Advantus Capital pays JBIM a sub-advisory fee equal to .30% of International Bond Portfolio's average daily net assets. 56 SUB-ADVISER - WSA Wall Street Associates ("WSA"), a California corporation with principal offices at La Jolla Financial Building, Suite 100, 1200 Prospect Street, La Jolla, California 92037, has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management investment program of the Micro-Cap Growth Portfolio, subject to the general control of the Board of Directors of the Fund. WSA, founded in 1987, provides investment advisory services for institutional clients and high net worth individuals. MICRO-CAP GROWTH PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - WSA WSA acts as investment sub-adviser to the Fund's Micro-Cap Growth Portfolio under an Investment Sub-Advisory Agreement (the "WSA Agreement") with Advantus Capital dated May 1, 1997 and became effective after it was approved by shareholders on September 15, 1997. 57 The WSA Agreement will terminate automatically upon the termination of the Investment Advisory Agreement and in the event of its assignment. In addition, the WSA Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the Micro-Cap Growth Portfolio's outstanding voting securities on 60 days' written notice to WSA and by WSA on 60 days' written notice to Advantus Capital. Unless sooner terminated, the WSA Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the Micro-Cap Growth Portfolio, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the WSA Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by WSA to the Micro-Cap Growth Portfolio, the Adviser pays to WSA, a fee computed at an annual rate which is a percentage of the average daily net assets of the Portfolio. The fee is accrued daily and based on the net asset value of all of the issued and outstanding shares of the Portfolio as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears on the last day of each calendar month. From the advisory fee received from Micro-Cap Growth Portfolio, Advantus Capital pays WSA a sub-advisory fee equal to .85% of Micro-Cap Growth Portfolio's average daily net assets. SUB-ADVISER - STATE STREET RESEARCH State Street Research & Management Company ("State Street Research") has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management and investment program of the Small Company Value Portfolio, subject to the general control of the Board of Directors of the Fund. State Street Research is a registered investment adviser under the Investment Advisers Act of 1940. State Street Research, a Delaware corporation, with offices at One Financial Center, Boston, Massachusetts 02111-2690, acts as the investment sub-adviser to the Portfolio. State Street Research was founded by Paul Cabot, Richard Saltonstall and Richard Paine to serve as investment adviser to one of the nation's first mutual funds, presently known as State Street Research Investment Trust, which they had formed in 1924. Their investment management philosophy emphasized comprehensive fundamental research and analysis, including meetings with the management of companies under consideration for investment. State Street Research's portfolio management group has extensive investment industry experience managing equity and debt securities. State Street Research is an indirect wholly-owned subsidiary of Metropolitan Life Insurance Company. SMALL COMPANY VALUE PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT-STATE STREET RESEARCH State Street Research acts as investment sub-adviser to the Fund's Small Company Value Portfolio under an Investment Sub-Advisory Agreement (the "State Street Research Agreement") with Advantus Capital dated March 7, 2000, which became effective the same date. An amendment to the State Street Research Agreement, adjusting the level of sub-advisory fees 58 payable by Advantus Capital to State Street Research under such Agreement, was approved by the Board of Directors of the Fund on October 25, 2001. The State Street Research Agreement will terminate automatically upon the termination of the Investment Advisory Agreement and in the event of its assignment. In addition, the State Street Research Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital on 60 days' written notice to State Street Research, and by State Street Research on 60 days' written notice to Advantus Capital. Unless sooner terminated, the State Street Research Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the State Street Research Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by State Street Research to the Small Company Value Portfolio, the Adviser pays to State Street Research a fee computed at an annual rate which is a percentage of the average daily net assets of the Portfolio. The fee is accrued daily and shall be based on the net asset value of all of the issued and outstanding shares of the Portfolio as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears on the last day of each calendar month. The amount of such annual fee, as applied to the average daily net assets of the Portfolio is: on the first $100 million, 0.65%; on all assets in excess of $100 million, 0.60%. For the purpose of the fee calculation and the indicated breakpoints, the term "assets" shall include all 'small company value' assets sub-advised by State Street Research for Advantus Capital, in addition to the assets of the Portfolio. The aggregation of those assets for purposes of the breakpoints, shall be calculated quarterly based upon the aggregate assets on March 31st, June 30th, September 30th, and December 31st of each calendar year (or portion thereof) that the State Street Small Company Value Agreement is effective. ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS At a meeting held on January 30, 2003, the Board of Directors of the Fund, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940) of the Fund (the "Independent Directors"), approved the continuation of the Fund's investment advisory agreement with Advantus Capital for an additional one-year period. In connection with such approval, the Directors considered, with the assistance of independent counsel, their legal responsibilities and reviewed the nature and quality of Advantus Capital's services provided to the Fund and Advantus Capital's experience and qualifications. In addition to quarterly evaluations of the investment performance of each of the Fund's Portfolios relative to broad-based index and industry benchmarks and at least annual in person meetings with and presentations by each portfolio manager or managers for the Fund's Portfolios (including personnel from Advantus Capital and each sub-adviser), the Directors on January 30, 2003 reviewed and considered: o analyses prepared and compiled by Advantus Capital (i) setting forth the Fund's advisory fee for each Portfolio (as a percentage of assets) on a contractual and after-waiver basis (ii) comparing each Portfolio's contractual advisory fees with standard 59 fee schedules for private (non-mutual fund) accounts managed by Advantus Capital and with the contractual fee schedules of other funds represented by Advantus Capital to be of comparable size and complexity (with a description of the bases upon which funds were selected for comparison), (iii) comparing each Portfolio's total returns with the Portfolio's benchmark index or indices and with such comparable funds (again, with a description of the bases upon which funds were selected for comparison); o descriptions of brokerage allocation practices (including any soft dollar arrangements) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; o assurances that Advantus Capital and its personnel are in compliance with the Fund's codes of ethics, policies and procedures and exemptive orders and with applicable laws and regulations; and o a report on Advantus Capital's profitability related to providing advisory services to the Fund and each of its Portfolios after taking into account (i) advisory fees and any other benefits realized by Advantus Capital or any of its affiliates as a result of Advantus Capital's role as adviser to the Fund, and (ii) the direct and indirect expenses incurred by Advantus Capital in providing such advisory services to the Fund. After discussion, the Board of Directors concluded that Advantus Capital has the capabilities, resources and personnel necessary to manage the Fund and each of its Portfolios. The Board of Directors also concluded that, based on the services that Advantus Capital would provide to the Fund under the Fund's investment advisory agreement and the expenses incurred by Advantus Capital in the performance of such services, the compensation to be paid to Advantus Capital is fair and equitable with respect to the Fund and each of its Portfolios. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it is in the best interests of the Fund to continue its investment advisory agreement with Advantus Capital for an additional one-year period. At the January 30, 2003 meeting, the Fund's Board of Directors, including a majority of the Independent Directors, also approved the continuation of the sub-advisory agreements between Advantus Capital and each of the following sub-advisers (with respect to the Portfolio set forth opposite the sub-adviser's name in the table below), each for an additional one-year period:

Sub-Adviser Portfolio ----------- --------- Templeton Investment Counsel, LLC International Stock Credit Suisse Asset Management, LLC Small Company Growth State Street Research & Management Company Small Company Value Julius Baer Investment Management Inc. International Bond Wall Street Associates Micro-Cap Growth

60 In approving the continuation of the sub-advisory agreements, the Board of Directors considered the quality of the services being rendered by each sub-adviser, its investment management style, the experience and qualifications of each sub-adviser's personnel and the sub-adviser's fee structure. The Board of Directors also reviewed written reports provided by each sub-adviser, which contained, among other items: o descriptions of brokerage allocation practices (including soft dollar arrangements, if any) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; and o assurances that the sub-adviser and its personnel are in compliance with the sub-adviser's code of ethics and with the laws and regulations that apply to its relationship as sub-adviser to the applicable Portfolio. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it was in the best interests of each of the foregoing Portfolios engaging a sub-adviser to continue its sub-advisory agreement for an additional one-year period. APPROVAL OF THE INTERIM AGREEMENT At a meeting held on April 23, 2003, the Board of Directors of the Fund, including a majority of the Independent Directors, approved the Interim Agreement. Prior to such meeting, Advantus Capital had informed the Board that, as a result of entering into the Strategic Alliance Agreement and related Purchase Agreement discussed in the Prospectus, it would no longer have the resources to actively manage non-real estate equity funds after May 1, 2003. Advantus Capital therefore recommended to the Board that it appoint WRIMCO to act as the investment adviser for Asset Allocation Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core Equity Portfolio and Value Stock Portfolio for the period from May 1, 2003 until the time of the proposed mergers of those Portfolios into portfolios of the W&R Target Funds, Inc. (as discussed in the Prospectus). Advantus Capital and WRIMCO provided to the Board of Directors such information as the Directors, upon the advice of counsel, determined to be relevant, including, among other things o general information concerning WRIMCO and its affiliates and their operations, o information concerning the ethical profile and compliance history of WRIMCO and its affiliates, o information regarding WRIMCO's investment management process, style and performance, including performance information regarding similar funds currently managed by WRIMCO, and o profitability information. At meetings held on March 6, March 21, April 8, April 17 and April 23, 2003, the Directors reviewed, analyzed and asked questions concerning such information. During certain of these meetings, and during a due diligence trip to WRIMCO's headquarters on March 25, 2003, Directors also met, either telephonically or in person, with senior officers of WRIMCO and its affiliates and with proposed portfolio managers for the Portfolios. The Board also considered that the terms of the Interim Agreement do not differ materially from those of the Investment Advisory Agreement with Advantus Capital and that investment advisory fees paid by the Portfolios will remain unchanged. Based on its review, the Board of Directors concluded, among other things, that the scope and quality of services to be provided under the Interim Agreement will be at least equivalent to the scope and quality of the services provided under the Investment Advisory Agreement, and the Board approved the Interim Agreement. ADMINISTRATIVE SERVICES The Fund has entered into an agreement with Minnesota Life under which Minnesota Life provides accounting oversight, financial reporting, legal and other administrative services to the Fund. Minnesota Life currently provides such services at a monthly cost of $2,100 per Portfolio. Prior to April 1, 2003, Minnesota Life provided additional accounting and administrative services which are now performed by State Street Bank and Trust Company (see below). However, under the Fund's agreement with Minnesota Life, Minnesota Life continues to oversee State Street's performance of these services. During each of the last three calendar years the amounts paid by each Portfolio to Minnesota Life for these services were as follows:

Portfolio 2002 2001 2000 --------- ---- ---- ---- Growth Portfolio $51,600 $51,600 $51,200 Bond Portfolio 51,600 51,600 51,200 Money Market Portfolio 51,600 51,600 51,200 Asset Allocation Portfolio 51,600 51,600 51,200 Mortgage Securities Portfolio 51,600 51,600 51,200 Index 500 Portfolio 51,600 51,600 51,200 Capital Appreciation Portfolio 51,600 51,600 51,200 International Stock Portfolio 37,200 37,200 36,900 Small Company Growth Portfolio 51,600 51,600 51,200

61 International Bond Portfolio 37,200 37,200 36,900 Index 400 Mid-Cap Portfolio 51,600 51,600 51,200 Core Equity Portfolio 37,200 37,200 36,900 Micro-Cap Growth Portfolio 51,600 51,600 51,200 Real Estate Securities Portfolio 51,600 51,600 51,200 The Fund has also entered into separate agreements with State Street Bank and Trust Company ("State Street") pursuant to which State Street provides daily accounting and investment administration services for the Fund's Portfolios. Each Portfolio pays State Street an accounting and administration fee, equal on an annual basis to a percentage of such Portfolio's net assets, and other fixed-dollar costs in exchange for State Street's services. Prior to April 1, 2003, the Fund was party to an agreement with SEI Investments Mutual Fund Services ("SEI") pursuant to which SEI provided daily accounting services for the International Stock, International Bond and Core Equity Portfolios. Under the agreement with SEI, the cost to each Portfolio for SEI's services was an annual fee equal to the greater of $45,000 or .06% of the Portfolio's first $150 million of net assets, .05% of the next $850 million of net assets, and ..04% of net assets in excess of $1 billion. During the last three calendar years, the amounts paid by each Portfolio to SEI and State Street for these services were as follows:

Portfolio 2002 2001 2000 --------- ---- ---- ---- Growth Portfolio n/a n/a n/a Bond Portfolio n/a n/a n/a Money Market Portfolio n/a n/a n/a Asset Allocation Portfolio n/a n/a n/a Mortgage Securities Portfolio n/a n/a n/a Index 500 Portfolio n/a n/a n/a Capital Appreciation Portfolio n/a n/a n/a International Stock Portfolio $146,004 $164,077 $198,437 Small Company Growth Portfolio n/a n/a n/a Maturing Government Bond - 2006 Portfolio n/a n/a n/a 2010 Portfolio n/a n/a n/a Value Stock Portfolio n/a n/a n/a Small Company Value Portfolio n/a n/a n/a International Bond Portfolio 49,908 50,271 50,858 Index 400 Mid-Cap Portfolio n/a n/a n/a Core Equity Portfolio 49,908 50,271 50,858 Micro-Cap Growth Portfolio n/a n/a n/a Real Estate Securities Portfolio n/a n/a n/a

CODE OF ETHICS Advantus Capital, WRIMCO, Securian Financial and the Fund, together with each of the Fund's sub-advisers, has each adopted a Code of Ethics in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder. The private investment activities of personnel covered by the Code of Ethics are restricted in accordance with the Code's provisions, but, subject to such provisions, personnel may invest in securities including securities that may be purchased or held by the Fund. DISTRIBUTION AGREEMENT Securian Financial Services, Inc. ("Securian Financial") acts as the underwriter of the Funds' shares, pursuant to a written agreement. The Board of Directors of the Fund, including a majority of the directors who are not parties to the agreement, or interested persons of any such party, last approved the Fund's Underwriting and Distribution Agreement dated May 1, 2000 with Securian Financial (the "Distribution Agreement") on January 30, 2003. Under the Distribution Agreement, Securian Financial does not receive any compensation for its services as principal underwriter for the Fund, except for certain fees paid pursuant to the Fund's Rule 12b-1 Plan of Distribution. See "Payment of Certain Distribution Expenses of the Fund," below. The Distribution Agreement may be terminated by the Fund or Securian Financial at any time by the giving of 60 days' written notice, and terminates automatically in the event of its assignment. Unless sooner terminated, the Distribution Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by 62 the vote of a majority of the directors who are not parties to the Distribution Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. In the Distribution Agreement, Securian Financial undertakes to indemnify the Fund against all costs of litigation and other legal proceedings, and against any liability incurred by or imposed upon the Fund in any way arising out of or in connection with the sale or distribution of the Fund's shares, except to the extent that such liability is the result of information which was obtainable by Securian Financial only from persons affiliated with the Fund but not with Securian Financial. PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUND The Fund has adopted a Plan of Distribution (the "Plan") relating to the payment of certain distribution and/or shareholder servicing expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, each Portfolio of the Fund, with the exception of the Maturing Government Bond Portfolio 2006 and the Maturing Government Bond Portfolio 2010 (each of which is not part of the Plan), pays a fee to Securian Financial, or to life insurance companies ("Insurance Companies") whose variable insurance contracts ("Variable Contracts") offer shares of the Fund, which, on an annual basis, is equal to ..25% of each Portfolio's average daily net assets, and is to be used to pay certain expenses incurred in connection with servicing shareholder accounts and to promote the distribution of the Fund's shares. The distribution fees may be used by Securian Financial for the purpose of financing any activity, which is primarily intended to result in the sale of shares of the Fund or Variable Contracts offering such shares. Distribution-related payments made under the Plan may be used for, among other things, the printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, education of Variable Contract owners or dealers and their representatives, trail commissions, and other distribution-related expenses, including a prorated portion of the overhead expenses of the Distributor or the Insurance Companies which are attributable to the distribution of the Variable Contracts. Payments under the Plan may also be used to pay Insurance Companies, dealers or others for non-distribution services, including, among other things, responding to inquiries from owners of Variable Contracts regarding the Fund, printing and mailing Fund prospectuses and other shareholder communications to existing Variable Contract owners, direct communications with Variable Contract owners regarding Fund operations and Portfolio composition and performance, furnishing personal services or such other enhanced services as the Fund or a Variable Contract owner may require, or maintaining customer accounts and records. In addition, the Plan contains, among other things, provisions complying with the requirements of Rule 12b-1 discussed below. In particular, the Plan provides that (1) the Plan will not take effect until it has been approved by a vote of a majority of the outstanding voting securities of the Portfolios of the Fund covered by the Plan, except for the voting securities attributable to the Maturing Government Bond Portfolio 2006 and the Maturing Government Bond Portfolio 2010 (each of which is not part of the Plan), and by a majority vote of both the full Board of Directors of the Fund and those directors who are not interested persons of the Fund and who have no direct or indirect financial 63 interest in the operation of the Plan or in any agreements relating to it (the Independent Directors), (2) the Plan will continue in effect from one year to another so long as its continuance is specifically approved annually by a majority vote of both the full Board of Directors and the Independent Directors, (3) the Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Directors or by a vote of a majority of the outstanding voting securities of the Fund, (4) the Plan may not be amended to increase materially the amount of the fees payable thereunder unless the amendment is approved by a vote of a majority of the outstanding voting securities of the Fund, and all material amendments must be approved by a majority vote of both the full Board of Directors and the Independent Directors, (5) while the Plan is in effect, the selection and nomination of any new Independent Directors is committed to the discretion of the Independent Directors then in office, and (6) the Fund's underwriter, the Insurance Companies or others will prepare and furnish to the Board of Directors, and the Board of Directors will review, at least quarterly, written reports which set forth the amounts expended under the Plan and the purposes for which those expenditures were made. Rule 12b-1(b) provides that any payments made by an investment company in connection with the distribution of its shares may only be made pursuant to a written plan describing all material aspects of the proposed financing of distribution and also requires that all agreements with any person relating to implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2) requires that such plan, together with any related agreements, be approved by a vote of the Board of Directors and of the directors who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan, cast in person at a meeting called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that the plan or agreement provide, in substance: (1) that it shall continue in effect for a period of more than one year from the date of its execution or adoption only so long as such continuance is specifically approved at least annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person authorized to direct the disposition of monies paid or payable by the investment company pursuant to the plan or any related agreement shall provide to the investment company's Board of Directors, and the directors shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made; and (3) in the case of a plan, that it may be terminated at any time by vote of a majority of the members of the Board of Directors of the investment company who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan or by vote of a majority of the outstanding voting securities of the investment company. Rule 12b-1(b)(4) requires that such plans may not be amended to increase materially the amount to be spent for distribution without shareholder approval and that all material amendments of the plan must be approved in the manner described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that the investment company may rely upon Rule 12b-1(b) only if selection and nomination of the investment company's disinterested directors are committed to the discretion of such disinterested directors. Rule 12b-1(e) provides that the investment company may implement or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to approve such implementation or continuation conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties under state law, and under Sections 36(a) and (b) of the Investment Company Act of 1940, that there is a reasonable likelihood that the plan will benefit the investment company and its shareholders. At the Board of Directors meeting held January 30, 2003, the Board of Directors of the Fund so concluded. 64 During the fiscal year ended December 31, 2002, each Portfolio covered by the Plan of Distribution paid the following amount to Securian Financial in accordance with the Plan:

Portfolio Amount Paid --------- ----------- Growth $ 606,037 Bond 636,388 Money Market 387,449 Asset Allocation 1,062,998 Mortgage Securities 591,054 Index 500 1,149,955 Capital Appreciation 482,907 International Stock 642,874 Small Company Growth 375,052 Value Stock 322,746 Small Company Value 131,142 International Bond 114,295 Index 400 Mid-Cap 106,680 Core Equity 57,975 Micro-Cap Growth 81,694 Real Estate Securities 64,753

In accordance with the Plan of Distribution, Securian Financial has entered into separate Fund Shareholder Services Agreements with Minnesota Life Insurance Company (Minnesota Life), dated May 1, 2000, PFL Life Insurance Company (PFL), dated October 18, 2000, and AIG Life Insurance Company (AIG), dated April 1, 2002. These Agreements provide that Minnesota Life, PFL and AIG will provide to the Fund, on behalf of Securian Financial, distribution and non-distribution related services, of the type described above. Securian Financial agrees to pay Minnesota Life an amount equal, on an annual basis, to 0.25% of the average combined daily net assets of all the designated Portfolios of the Fund which are attributable to the Contracts issued by Minnesota Life and are a part of the Plan of Distribution. Securian Financial pays PFL an amount equal, on an annual basis, to 0.20% of the average combined daily net assets of all the designated Portfolios of the Fund which are attributable to the Contracts issued by PFL and are a part of the Plan of Distribution. Securian Financial pays AIG an amount equal, on an annual basis, to 0.25% of the average combined daily net assets of all the designated Portfolios of the Fund which are attributable to the Contracts issued by AIG and are a part of the Plan of Distribution. These Agreements were last approved by a vote of the Board of Directors, including a majority of the Independent Directors, on January 30, 2003. The Plan of Distribution could be construed as a "compensation plan" because Securian Financial is paid a fixed fee and is given discretion concerning what expenses are payable under the Plan of Distribution. Under a compensation plan, the fee to the distributor is not directly tied to distribution expenses actually incurred by the distributor, thereby permitting the distributor to receive a profit if amounts received exceed expenses. Securian Financial may spend more or less for the distribution and promotion of the Fund's shares than it receives as distribution fees pursuant to the Plan of Distribution for the Portfolios covered by the Plan. However, to the extent fees received exceed expenses, including indirect expense such as overhead, Securian Financial could be said to have received a profit. 65 CUSTODIANS The assets of each Portfolio of the Fund are held in custody by an independent custodian pursuant to a custodian agreement approved by the Fund's Board of Directors. Wells Fargo Bank Minnesota, Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, is the custodian for the Money Market, Growth, Asset Allocation, Index 500, Capital Appreciation, Small Company Growth, Value Stock, Small Company Value, Index 400 Mid-Cap, Core Equity, Micro-Cap Growth and Real Estate Securities Portfolios. Bankers Trust Company, 280 Park Avenue, New York, New York 10017, is the custodian for the Bond, Mortgage, Maturing Government Bond, International Stock and International Bond Portfolios. INDEPENDENT AUDITORS KPMG LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402, acts as the Fund's independent auditors, providing audit services including audits of the Fund's annual financial statements and assistance and consultation in connection with SEC filings. LEGAL COUNSEL The Fund's general counsel is Dorsey & Whitney LLP. The firm of Faegre & Benson LLP serves as independent legal counsel to the Fund's independent directors. PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE INVESTMENT ADVISERS The Investment Advisers select and (where applicable) negotiate commissions with the brokers who execute the transactions for their respective Portfolios of the Fund, except for those Portfolios which have entered into sub-advisory agreements. The primary criteria for the selection of a broker is the ability of the broker, in the opinion of the Investment Adviser, to secure prompt execution of the transactions on favorable terms, including the reasonableness of the commission and considering the state of the market at the time. In selecting a broker, the Investment Adviser considers the quality and expertise of that brokerage and any research services (as defined in the Securities Exchange Act of 1934), and generally the Fund pays higher than the lowest commission rates available. Such research services include advice, both directly and in writing, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, as well as analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts. By allocating brokerage business in order to obtain research services for the Investment Advisers, the Fund enables the Investment Advisers to supplement their own investment research activities and allows the Investment Advisers to obtain the views and information of individuals and research staffs of many different securities research firms prior to making investment decisions for the Fund. To the extent such commissions are directed to these other brokers who furnish research 66 services to the Investment Advisers, the Investment Advisers receive a benefit, not capable of evaluation in dollar amounts, without providing any direct monetary benefit to the Fund from these commissions. There is no formula for the allocation by the Investment Advisers of the Fund's brokerage business to any broker-dealers for brokerage and research services. However, an Investment Adviser will authorize the Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker would have charged only if the Investment Adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker viewed in terms of either that particular transaction or the Investment Adviser's overall responsibilities with respect to the accounts as to which it exercises investment discretion. To the extent research services are used by the Investment Advisers in rendering investment advice to the Fund, such services would tend to reduce the Investment Adviser's expenses. However, the Investment Advisers do not believe that an exact dollar amount can be assigned to these services. Research services received by the Investment Advisers from brokers or dealers executing transactions for the Fund will be available also for the benefit of other portfolios managed by the Investment Advisers, and conversely, research services received by the Investment Advisers in respect of transactions for such other portfolios will be available for the benefit of the Fund. During the fiscal years ended December 31, 2002, 2001 and 2000, brokerage commissions paid were:

Brokerage Commissions Paid Portfolio 2002 2001 2000 --------- ---- ---- ---- Growth Portfolio $ 750,920 $ 713,677 $ 768,475 Bond Portfolio -- -- -- Money Market Portfolio -- -- -- Asset Allocation Portfolio 1,201,437 1,210,412 1,022,865 Mortgage Securities Portfolio -- -- -- Index 500 Portfolio 67,598 39,557 54,145 Capital Appreciation Portfolio 242,079 548,772 980,533 International Stock Portfolio 389,592 540,298 544,173 Small Company Growth Portfolio 396,802 261,073 376,042 Maturing Government Bond -- 2006 Portfolio -- -- -- 2010 Portfolio -- -- -- Value Stock Portfolio 496,093 530,718 598,678 Small Company Value Portfolio 197,174 31,268 41,621 International Bond Portfolio -- -- -- Index 400 Mid-Cap Portfolio 45,408 13,586 34,186 Core Equity Portfolio 19,332 26,107 21,582 Micro-Cap Growth Portfolio 273,469 30,129 21,551 Real Estate Securities Portfolio 99,237 94,691 55,897

67 Most transactions in money market instruments will be purchases from issuers of or dealers in money market instruments acting as principal. There usually will be no brokerage commissions paid by the Fund for such purchases since securities will be purchased on a net price basis. Trading does, however, involve transaction costs. Transactions with dealers serving as primary market makers reflect the spread between the bid and asked prices of securities. Purchases of underwritten issues may be made which will reflect a fee paid to the underwriter. The Fund will not execute portfolio transactions through any affiliate, except as described below. The Investment Advisers believe that most research services obtained by them generally benefit one or more of the investment companies which they managed and also benefits accounts which they manage. Normally research services obtained through managed funds and managed accounts investing in common stocks would primarily benefit such funds and accounts; similarly, services obtained from transactions in fixed income securities would be of greater benefit to the managed funds and managed accounts investing in debt securities. Consistent with achieving best execution, the Fund may participate in so-called "directed brokerage" (or "Commission recapture") programs, under which brokers (or dealers) used by the Fund remit a portion of brokerage commissions (or credits on fixed income transactions) to the particular Portfolio from which they were generated. Subject to oversight by the Fund's Board of Directors, either Investment Adviser or the sub-adviser, if any, is responsible for the selection of brokers or dealers and for ensuring that a Portfolio receives best price and execution in connection with its portfolio brokerage transactions. Participation in such programs may increase Portfolio returns. Although the rules of the National Association of Securities Dealers, Inc. prohibit its members from seeking orders for the execution of investment company portfolio transactions on the basis of their sales of investment company shares, under such rules, sales of investment company shares may be considered by the investment company as a factor in selecting brokers to effect portfolio transactions. Accordingly, some portfolio transactions are, subject to such rules and to obtaining best prices and executions, executed through dealers who sell shares of funds in the fund complex or who agree to transmit a portion of the brokerage commissions on transactions executed by them to broker/dealers who sell fund shares. In addition to providing investment management services to the Fund, Advantus Capital provides investment advisory services for three insurance companies, namely Minnesota Life and its subsidiary life insurance companies and certain associated separate accounts. It also provides investment advisory services to qualified pension and profit sharing plans, corporations, partnerships, investment companies and various private accounts. Frequently, investments deemed advisable for the Fund are also deemed advisable for one or more of such accounts, so that Advantus Capital may decide to purchase or sell the same security at or about the same time for both the Fund and one of those accounts. In such circumstances, orders for a purchase or sale of the same security for one or more of those accounts may be combined with an order for the Fund, in which event the transactions will be averaged as to price and normally allocated as nearly as practicable in proportion to the amounts desired to be purchased or sold for each account. While in some instances combined orders could adversely affect the price or volume of a security, it is believed that the Fund's participation in such transactions on balance will produce better net results for the Fund. In addition to providing investment advisory services to the Fund, WRIMCO provides such services to other investment companies and may also serve as investment adviser to other institutional clients. WRIMCO may manage other advisory accounts with similar investment objectives to those of the Portfolios advised by WRIMCO. It can be anticipated that WRIMCO will frequently, yet not always, place concurrent orders for all or most accounts for which WRIMCO has responsibility or WRIMCO may otherwise combine orders for a Portfolio with those of other Portfolios, funds in the W&R Target Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc., W&R Funds, Inc., each of the registered investment companies in the Waddell & Reed Advisors Funds and/or other accounts for which it has investment discretion, including accounts affiliated with WRIMCO. Under current procedures, transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each fund or advisory account, except where the combined order is not filled completely. In this case, for a transaction not involving an initial public offering, WRIMCO will ordinarily allocate the transaction pro rata based on the orders placed, subject to certain variances provided for in the written procedures. 68 The Fund's acquisition during the fiscal year ended December 31, 2002, of securities of its regular brokers or dealers or of the parent of those brokers or dealers that derive more than 15 percent of gross revenue from securities-related activities is presented below:

Value of Securities Owned in the Portfolios at Name of Issuer End of Fiscal Year -------------- -------------------------- CitiGroup, Inc. $ 21,515 Morgan Stanley 5,810 Goldman Sachs Group, Inc. 4,966 Merrill Lynch & Company, Inc. 4,151 T Rowe Price Associates, Inc. 3,549 Affiliated Managers 1,318 Charles Schwab Corporation 817 Lehman Brothers, Inc. 644 Bear Stearns Mortgage, Inc. 289 Digital Insight Corporation 228 GMAC 196 Legg Mason, Inc. 176 AG Edwards, Inc. 146 E-trade Group, Inc. 119 Waddell and Reed Financial 87 Investment Technology Group, Inc. 58

SUB-ADVISERS Except as indicated below, each of the investment advisory firms having a sub-advisory relationship with Advantus Capital, in managing the affected Portfolios, intends to follow the same brokerage practices as those described above for the Investment Advisers. Templeton Counsel, in managing the International Stock Portfolio, follows the same basic brokerage practices as those described above for Advantus Capital. In addition, in selecting brokers for portfolio transactions, Templeton Counsel takes into account its past experience as to brokers qualified to achieve "best execution," including the ability to effect transactions at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, the financial strength and stability of the broker, and whether the broker specializes in foreign securities held by the International Stock Portfolio. Purchases and sales of portfolio securities within the United States other than on a securities exchange are executed with primary market makers acting as principal, except where, in the judgment of Templeton Counsel, better prices and execution may be obtained on a commission basis or from other sources. PURCHASE AND REDEMPTION OF SHARES Shares of the Fund are currently offered continuously at prices equal to the respective net asset values of the Portfolios only to Minnesota Life, and to certain of its life insurance affiliates, in connection with its variable life insurance policies and variable annuity contracts. Securian Financial serves as the Fund's underwriter. It is possible that at some later date the Fund may offer its shares to other investors and it reserves the right to do so. 69 Shares of the Fund are sold and redeemed at their net asset value next computed after a purchase or redemption order is received by the Fund. Depending upon the net asset values at that time, the amount paid upon redemption may be more or less than the cost of the shares redeemed. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption. The right to redeem shares or to receive payment with respect to any redemption may only be suspended for any period during which: (a) trading on the New York Stock Exchange is restricted as determined by the Securities and Exchange Commission or such exchange is closed for other than weekends and holidays; (b) an emergency exists, as determined by the Securities and Exchange Commission, as a result of which disposal of Portfolio securities or determination of the net asset value of a Portfolio is not reasonably practicable; and (c) the Securities and Exchange Commission by order permits postponement for the protection of shareholders. FUND SHARES AND VOTING RIGHTS The authorized capital of the Fund consists of one trillion shares of capital stock with a par value of $.01 per share; with authorized shares of 100,000,000,000 allocated to each Portfolio. The remaining shares may be allocated by the Board of Directors to any new or existing Portfolios. All shares of all Portfolios have equal voting rights, except that only shares of a particular Portfolio are entitled to vote certain matters pertaining only to that Portfolio. Pursuant to the Investment Company Act of 1940 (as amended) and the rules and regulations thereunder, certain matters approved by a vote of all Fund shareholders may not be binding on a Portfolio whose shareholders have not approved such matter. Each issued and outstanding share is entitled to one vote and to participate equally in dividends and distributions declared by the respective Portfolio and in net assets of such Portfolio upon liquidation or dissolution remaining after satisfaction of outstanding liabilities. The shares of each Portfolio, when issued, are fully paid and non-assessable, have no preemptive, conversion, or similar rights, and are freely transferable. Fund shares do not have cumulative voting rights, which means that the holders of more than half of the Fund shares voting for election of directors can elect all of the directors if they so choose. In such event, the holders of the remaining shares would not be able to elect any directors. The Fund will not hold periodically scheduled shareholder meetings. Minnesota corporate law does not require an annual meeting. Instead, it provides for the Board of Directors to convene shareholder meetings when it deems appropriate. In addition, if a regular meeting of shareholders has not been held during the immediately preceding fifteen months, a shareholder or shareholders holding three percent or more of the voting shares of a Fund may demand a regular meeting of shareholders of the Fund by written notice of demand given to the chief executive officer or the chief financial officer of the Fund. Within thirty days after receipt of the demand by one of those officers, the Board of Directors shall cause a regular meeting of shareholders to be called and held no later than ninety days after receipt of the demand, all at the expense of the Fund. A special meeting may also be called at any time by the chief executive officer, two or more directors, or a shareholder or shareholders holding ten percent of the voting shares of the Fund. At a meeting, called for the purpose, shareholders may remove any director 70 by a vote of two-thirds of the outstanding shares. Additionally, the Investment Company Act of 1940 requires shareholder votes for all amendments to fundamental investment policies and restrictions, and for all investment advisory contracts and amendments thereto. PRINCIPAL SHAREHOLDERS The officers and directors of the Fund cannot directly own shares of the Portfolios, but may own shares indirectly by purchasing a variable life insurance policy or variable annuity contract through Minnesota Life or another participating life insurance company. As a result, such officers and directors as a group own less than 1% of the outstanding shares of each Portfolio. No shareholder owns 5% or more of the outstanding shares of any Portfolio except as set forth below. As of March 31, 2003, all of the outstanding shares of each Portfolio were owned by Minnesota Life Insurance Company, 400 Robert Street North, St. Paul, Minnesota 55101-2098, in the following amounts:

Number of Percent Name of Portfolio Shares Owned Owned ---------------------- ------------ ------- Growth 164,266,585 100% Bond 215,917,918 100% Money Market 157,353,192 100% Asset Allocation 271,993,976 100% Mortgage Securities 196,995,958 100% Index 500 152,656,948 100% Capital Appreciation 134,744,070 100% International Stock 198,723,807 100% Small Company Growth 181,025,849 100% Maturing Government Bond 2006 8,319,078 100% Maturing Government Bond 2010 6,806,294 100% Value Stock 87,366,449 100% Small Company Value 53,293,556 100% International Bond 54,477,834 100% Index 400 Mid-Cap 42,451,122 100% Core Equity 27,897,101 100% Micro-Cap Growth 27,343,669 100% Real Estate Securities 33,483,913 100%

NET ASSET VALUE The net asset value of the shares of the Portfolios is computed once daily, and, in the case of Money Market Portfolio, after the declaration of the daily dividend, as of the primary closing time for business on the New York Stock Exchange (as of the date hereof the primary close of trading is 3:00 p.m. (Central Time), but this time may be changed) on each day, Monday through Friday, except (i) days on which changes in the value of such Fund's portfolio securities will not materially affect the current net asset value of such Fund's shares, (ii) days during which no such Fund's shares are tendered for redemption and no order to purchase or sell such Fund's shares is received by such Fund and (iii) customary national business holidays on which the New York Stock Exchange is closed for trading (as of the date hereof, New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day). The net asset value per share of each Portfolio is computed by adding the sum of the value of the securities held by that Portfolio plus any cash or other assets that it holds, subtracting all of its liabilities, and dividing the result by the total number of shares outstanding in that Portfolio at that time. Expenses, including the investment advisory fee payable to Advantus Capital, are accrued daily. Securities, except securities held by the Money Market Portfolio, including put and call options, which are traded over-the-counter and on a national exchange will be valued according to the broadest and most representative market. A security which is only listed or traded on an exchange, or for which an exchange is the most representative market, is valued at its last sale price (prior to the time as of which assets are valued) on the exchange where it is principally traded. Lacking any sales on the exchange where it is principally traded on the date of valuation, prior to the time as of which assets are valued, the security generally is valued at the last bid price on that exchange. Futures contracts will be valued in a like manner, except that open futures contracts sales will be valued using the closing settlement price or in the absence of such a price, the most recent quoted bid price. All other securities for which over-the-counter market quotations are readily available are valued on the basis of the last current bid price. When market quotations are not readily available, such securities are valued at fair value as determined in good faith by the Board of Directors. Other assets also are valued at fair value as determined in good faith by the Board of Directors. However, debt securities may be valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional-size trading units of debt securities, without regard to sale or bid prices, when such valuations are believed to more accurately reflect the fair market value of such securities. Short-term investments in debt securities are valued daily at market, except that debt obligations with remaining maturities of sixty days or less held by the International Stock, International Bond and Core Equity Portfolios may be valued at their amortized cost, which approximates market value. All instruments held by the Money Market Portfolio are valued on an amortized cost basis. This involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating 71 interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which the value of an instrument in the Portfolio, as determined by amortized cost, is higher or lower than the price the Portfolio would receive if it sold the instrument. During periods of declining interest rates, the daily yield on shares of the Portfolio computed by dividing the annualized daily income of the Portfolio by the net asset value computed as described above may tend to be higher than a like computation made by a portfolio with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its securities. The Money Market Portfolio values its portfolio securities at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940, as amended. Pursuant to Rule 2a-7, the Board of Directors of the Fund has determined, in good faith based upon a full consideration of all material factors, that it is in the best interests of the Money Market Portfolio and its shareholders to maintain a stable net asset value per share for such Portfolio of a constant $ 1.00 per share by virtue of the amortized cost method of valuation. The Money Market Portfolio will continue to use this method only so long as the Board of Directors believes that it fairly reflects the market-based net asset value per share. In accordance with Rule 2a-7, the Board of Directors has undertaken, as a particular responsibility within the overall duty of care owed to the Portfolio's shareholders, to establish procedures reasonably designed, taking into account current market conditions and the Portfolio's investment objective, to stabilize the Portfolio's net asset value per share at a single value. These procedures include the periodic determination of any deviation of current net asset value per-share calculated using available market quotations from the Portfolio's amortized cost price per-share, the periodic review by the Board of the amount of any such deviation and the method used to calculate any such deviation, the maintenance of records of such determinations and the Board's review thereof, the prompt consideration by the Board if any such deviation exceeds 1/2 of 1%, and the taking of such remedial action by the Board as it deems appropriate where it believes the extent of any such deviation may result in material dilution or other unfair results to investors or existing shareholders. Such remedial action may include reverse share splits, redemptions in kind, selling portfolio instruments prior to maturity to realize capital gains or losses, shortening the average portfolio maturity, withholding dividends or utilizing a net asset value per share as determined by using available market quotations. The Portfolio will, in further compliance with Rule 2a-7, maintain a dollar-weighted average Portfolio maturity not exceeding 90 days and will limit its Portfolio investments to those United States dollar-denominated instruments which the Board determines present minimal credit risks and which are eligible securities. The Portfolio will limit its investments in the securities of any one issuer to no more than 5% of Portfolio assets and it will limit investment in securities of less than the highest rated categories to 5% of Portfolio assets. Investment in the securities of any issuer of less than the highest rated categories will be limited to the greater of 1% of Portfolio assets or one million dollars. In addition, the Fund will reassess promptly any security which is in default or downgraded from its rating category to determine whether that security then presents minimal credit risks and whether continuing to hold the securities is in the best interests of the Portfolio in the Fund. In addition, the Fund will record, maintain, and preserve a written copy of the above-described procedures and a written record of the Board's considerations and actions taken in connection with the discharge of its above-described responsibilities. 72 PERFORMANCE DATA CURRENT YIELD FIGURES FOR MONEY MARKET PORTFOLIO Current annualized yield quotations for the Money Market Portfolio are based on the Portfolio's net investment income for a seven-day or other specified period and exclude any realized or unrealized gains or losses on portfolio securities. Current annualized yield is computed by determining the net change (exclusive of realized gains and losses from the sale of securities and unrealized appreciation and depreciation) in the value of a hypothetical account having a balance of one share at the beginning of the specified period, dividing such net change in account value by the value of the account at the beginning of the period, and annualizing this quotient on a 365-day basis. The net change in account value reflects the value of any additional shares purchased with dividends from the original share in the account during the specified period, any dividends declared on such original share and any such additional shares during the period, and expenses accrued during the period. The Fund may also quote the effective yield of the Money Market Portfolio for a seven-day or other specified period for which the current annualized yield is computed by expressing the unannualized return on a compounded, annualized basis. Purchasers of variable contracts issued by Minnesota Life should recognize that the yield on the assets relating to such a contract which are invested in shares of the Money Market Portfolio would be lower than the Money Market Portfolio's yield for the same period since charges assessed against such assets are not reflected in the Portfolio's yield. The current yield and effective yield of the Money Market Portfolio for the seven-day period ended December 31, 2002 were .57% and .58%, respectively. CURRENT YIELD FIGURES FOR OTHER PORTFOLIOS Yield quotations for Portfolios other than the Money Market Portfolio are determined by dividing the Portfolio's net investment income per share for a 30-day period, excluding realized or unrealized gains or losses, by the net asset value per share on the last day of the period. In computing net investment income dividends are accrued daily based on the stated dividend rate of each dividend-paying security, and interest reflects an amortization of discount or premium on debt obligations (other than installment debt obligations) based upon the market value of each obligation on the last day of the preceding 30-day period. Undeclared earned income (net investment income which at the end of the base period has not been declared as a dividend but is expected to be declared shortly thereafter) is subtracted from the net asset value per share on the last day of the period. An annualized yield figure is determined under a formula which assumes that the net investment income is earned and reinvested at a constant rate and annualized at the end of a six-month period. The yield figures published by the Fund will reflect Advantus Capital's voluntary absorption of certain Fund expenses (as previously discussed in "Investment Advisory and Other Services - Investment Advisory Agreement" above). For the 30-day period ended December 31, 2002, the yields of the Portfolios are shown in the table below. The figures in parentheses show what the yield would have been had Advantus Capital not absorbed Fund expenses as described above.

Portfolio Yield --------- ----- Growth Portfolio .35% (.35%) Bond Portfolio 4.57 (4.55)

73 Money Market Portfolio N/A N/A Asset Allocation Portfolio 2.43 (2.43) Mortgage Securities Portfolio 5.97 (5.95) Index 500 Portfolio 1.56 (1.56) Capital Appreciation Portfolio .07 (.07) International Stock Portfolio -1.08 (-1.08) Small Company Growth Portfolio -.67 (-.67) Maturing Government Bond -- 2006 Portfolio 2.32 (1.91) 2010 Portfolio 3.62 (3.12) Value Stock Portfolio 1.72 (1.72) Small Company Value Portfolio -.49 (-.50) International Bond Portfolio 3.74 (3.74) Index 400 Mid-Cap Portfolio .36 (.36) Core Equity Portfolio .61 (.61) Micro-Cap Growth Portfolio -1.14 (-1.32) Real Estate Securities Portfolio 1.46 (1.31) TOTAL RETURN FIGURES FOR ALL PORTFOLIOS Cumulative total return quotations for the Portfolios represent the total return for the period since shares of the Portfolio became available for sale pursuant to the Fund's registration statement. Cumulative total return is equal to the percentage change between the net asset value of a hypothetical $1,000 investment at the beginning of the period and the net asset value of that same investment at the end of the period with dividend and capital gain distributions treated as reinvested. The cumulative total return figures published by the Fund will reflect the voluntary absorption of certain Fund expenses by Advantus Capital and Minnesota Life (as previously discussed in "Investment Advisory and Other Services - Investment Advisory Agreement" above). The cumulative total returns for the Portfolios for the specified periods ended December 31, 2002 are shown in the table below. The figures in parentheses show what the cumulative total returns would have been had Advantus Capital and Minnesota Life not absorbed Fund expenses as described above.

From Inception Date of to 12/31/02 Inception --------------- --------- Growth Portfolio 232.75% (228.97%) 12/3/85 Bond Portfolio 270.08 (266.89) 12/3/85 Money Market Portfolio 129.98 (119.80) 12/3/85 Asset Allocation Portfolio 266.81 (265.69) 12/3/85 Mortgage Securities Portfolio 257.12 (255.89) 5/1/87 Index 500 Portfolio 307.71 (306.15) 5/1/87 Capital Appreciation Portfolio 209.61 (205.33) 5/1/87

74 International Stock Portfolio 95.28 (95.19) 5/1/92 Small Company Growth Portfolio 43.61 (43.58) 5/3/93 Maturing Government Bond - 2006 Portfolio 123.38 (107.45) 5/2/94 2010 Portfolio 145.26 (120.64) 5/2/94 Value Stock Portfolio 67.93 (67.42) 5/2/94 Small Company Value Portfolio 9.46 (7.85) 10/1/97 International Bond Portfolio 26.26 (25.87) 10/1/97 Index 400 Mid-Cap Portfolio 32.05 (30.55) 10/1/97 Core Equity Portfolio -20.89 (-22.83) 10/15/97 Micro-Cap Growth Portfolio -3.36 (-3.50) 10/1/97 Real Estate Securities Portfolio 20.91 (17.11) 5/1/98 Yield quotations for Portfolios other than the Money Market Portfolio and all quotations of cumulative total return figures will be accompanied by average annual total return figures for a one year period and for the period since shares of the Portfolio became available pursuant to the Fund's registration statement. Average annual total return figures are the average annual compounded rates of return required for an account with an initial investment of $1,000 to equal the redemption value of the account at the end of the period. The average annual total return figures published by the Fund will reflect the voluntary absorption of certain Fund expenses by Advantus Capital and Minnesota Life (as discussed in "Investment Advisory and Other Services -- The Fund's Investment Advisory Agreement" above). The average annual rates of return for the Portfolios for the specified periods ended December 31, 2002 are shown in the table below. The figures in parentheses show what the average annual rates of return would have been had Advantus Capital and Minnesota Life not absorbed Fund expenses as described above. 75

Year Ended Five Years Ten Years From Inception Date of 12/31/02 Ended 12/31/02 Ended 12/31/02 to 12/31/02 Inception -------- -------------- -------------- ----------- --------- Growth Portfolio -25.44% (-25.44%) -5.80% (-5.80%) 4.28% (4.28%) 7.29% (7.22%) 12/3/85 Bond Portfolio 10.50 (10.50) 6.32 (6.32) 6.79 (6.79) 7.96 (7.91) 12/3/85 Money Market Portfolio 1.28 (1.28) 4.12 (4.12) 4.24 (4.22) 5.00 (4.80) 12/3/85 Asset Allocation Portfolio -8.98 (-8.98) -.11 (-.11) 5.74 (5.74) 7.91 (7.89) 12/3/85 Mortgage Securities Portfolio 9.66 (9.66) 7.76 (7.75) 7.60 (7.59) 8.46 (8.44) 5/1/87 Index 500 Portfolio -22.37 (-22.37) -1.02 (-1.02) 8.80 (8.80) 9.44 (9.41) 5/1/87 Capital Appreciation Portfolio -31.54 (-31.54) -5.92 (-5.92) 4.42 (4.42) 7.48 (7.38) 5/1/87 International Stock Portfolio -17.82 (-17.82) -.97 (-.97) 7.68 (7.68) 6.48 (6.47) 5/1/92 Small Company Growth Portfolio -31.80 (-31.80) -5.31 (-5.31) N/A N/A 3.82 (3.81) 5/3/93 Maturing Government Bond- 2006 Portfolio 12.99 (12.62) 8.28 (7.61) N/A N/A 9.72 (8.79) 5/2/94 2010 Portfolio 18.85 (18.22) 8.89 (7.90) N/A N/A 10.91 (9.56) 5/2/94 Value Stock Portfolio -15.32 (-15.32) -5.31 (-5.31) N/A N/A 6.16 (6.13) 5/2/94 Small Company Value Portfolio -19.98 (-20.06) 1.37 (1.07) N/A N/A 1.74 (1.45) 10/1/97 International Bond Portfolio 17.94 (17.94) 4.76 (4.70) N/A N/A 4.54 (4.48) 10/1/97 Index 400 Mid-Cap Portfolio -15.03 (-15.03) 5.71 (5.47) N/A N/A 5.44 (5.21) 10/1/97 Core Equity Portfolio -28.14 (-28.36) -4.17 (-4.56) N/A N/A -4.40 (-4.85) 10/15/97 Micro-Cap Growth Portfolio -43.64 (-43.75) 2.17 (1.78) N/A N/A -.65 (-.68) 10/1/97 Real Estate Securities Portfolio 6.97 (6.79) N/A N/A N/A N/A 4.15 (3.44) 5/1/98

76 Purchasers of variable contracts issued by Minnesota Life or other life insurance companies should recognize that the yield, cumulative total return and average annual total return on the assets relating to such a contract which are invested in shares of any of the above Portfolios would be lower than the yield, cumulative total return and average annual total return of such Portfolio for the same period since charges assessed by the life insurance companies against such assets are not reflected in the Portfolios' quotations. TAXES The Fund and each Portfolio qualified for the year ended December 31, 2002, and intends to continue to qualify as a "regulated investment company" under the provisions of Subchapter M of the Internal Revenue Code, as amended (the "Code"). Each Portfolio of the Fund is treated as a separate entity for federal income tax purposes. If each Portfolio of the Fund qualifies as a "regulated investment company" and complies with the provisions of the Code relieving regulated investment companies which distribute substantially all of their net income (both ordinary income and capital gain) from federal income tax, each Portfolio of the Fund will be relieved of such tax on the amounts distributed. To qualify for treatment as a regulated investment company, each Portfolio must, among other things, derive in each taxable year at least 90% of its gross income from dividends, interest payments with respect to securities, and gains (without deduction for losses) from the sale or other disposition of securities. Each Portfolio of the Fund with outstanding shares which were purchased to provide the Portfolio's initial capital (in an amount in excess of that specified in the Code) and which are not attributable to any of the contracts is subject to a non-deductible excise tax equal to 4 percent of the excess, if any, of the amount required to be distributed pursuant to the Code for each calendar year over the amount actually distributed. Currently, only the Maturing Government Bond 2006 Portfolio, Small Company Value Portfolio, Index 400 Mid-Cap Portfolio, Core Equity Portfolio, Micro-Cap Growth Portfolio, International Bond Portfolio and Real Estate Securities Portfolio are subject to these distribution requirements. In order to avoid the imposition of this excise tax, each Portfolio generally must declare dividends by the end of a calendar year representing 98 percent of that Portfolio's ordinary income for the calendar year and 98 percent of its capital gain net income (both long-term and short-term capital gains) for the twelve-month period ending October 31 of the calendar year. The foregoing is a general summary of applicable provisions of the Code and Treasury Regulations now in effect and as currently interpreted by the courts and the Internal Revenue Service. The Code and these Regulations, as well as current interpretations thereof, may be changed at any time by legislative, judicial or administrative action. As the sole shareholder of the Fund will be Minnesota Life and the separate accounts of Minnesota Life, this statement does not discuss federal income tax consequences to the shareholder. For tax information with respect to an owner of a contract issued in connection with the separate accounts, see the Prospectus for those contracts. THE STANDARD & POOR'S LICENSE Standard & Poor's ("S&P") is a division of the McGraw-Hill Companies, Inc. S&P has trademark rights to the marks "Standard & Poor's(R)," "S&P(R)," "S&P 500(R), "S&P 400(R)," "Standard & Poor's 500," "Standard & Poor's MidCap 400," and "500" and has licensed the use of such marks by the Fund, the Index 500 Portfolio and the Index 400 Mid-Cap Portfolio. The Index 500 Portfolio and the Index 400 Mid-Cap Portfolio (collectively, the "Portfolios") are not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the owners of the Portfolios or any member of the public regarding the advisability of investing in securities generally or in the Portfolios particularly or the ability of the S&P 500 Index or the S&P MidCap 400 Index to track general stock market performance. S&P's only relationship to the Portfolios is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index and the S&P MidCap 400 Index which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Portfolios or the owners of the Fund into consideration in 77 determining, composing or calculating the S&P 500 Index or the S&P MidCap 400 Index. S&P is not responsible for and has not participated in the determination of the net asset value or public offering price of the Portfolios nor is S&P a distributor of the Fund. S&P has no obligation or liability in connection with the administration, marketing or trading of the Portfolios. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE PORTFOLIOS, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX, THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX, THE S&P 400 MIDCAP INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. FINANCIAL STATEMENTS The Fund's financial statements for the year ended December 31, 2002, including the financial highlights for each of the respective periods presented, appearing in the Fund's Annual Report to Shareholders, and the report thereon of the Fund's independent auditors, KPMG LLP, also appearing therein, are incorporated by reference in this Statement of Additional Information. 78 APPENDIX A - MORTGAGE-RELATED SECURITIES Mortgage-related securities represent an ownership interest in a pool of residential mortgage loans. These securities are designed to provide monthly payments of interest and principal to the investor. The mortgagor's monthly payments to his lending institution are "passed-through" to investors such as the Fund. Most insurers or services provide guarantees of payments, regardless of whether or not the mortgagor actually makes the payment. The guarantees made by issuers or servicers are backed by various forms of credit, insurance and collateral. UNDERLYING MORTGAGES Pools consist of whole mortgage loans or participations in loans. The majority of these loans are made to purchasers of 1-4 family homes. Some of these loans are made to purchasers of mobile homes. The terms and characteristics of the mortgage instruments are generally uniform within a pool buy may vary among pools. For example, in addition to fixed-rate fixed-term mortgages, the fund may purchase pools of variable rate mortgages, growing equity mortgages, graduated payment mortgages and other types. All servicers apply standards for qualification to local lending institutions which originate mortgages for the pools. Servicers also establish credit standards and underwriting criteria for individual mortgages included in the pools. In addition, many mortgages included in pools are insured through private mortgage insurance companies. LIQUIDITY AND MARKETABILITY Since the inception of the mortgage-related pass-through security in 1970, the market for these securities has expanded considerably. The size of the primary issuance market and active participation in the secondary market by securities dealers and many types of investors makes government and government-related pass-through pools highly liquid. The recently introduced private conventional pools of mortgages (pooled by commercial banks, savings and loans institutions and others, with no relationship with government and government-related entities) have also achieved broad market acceptance and consequently an active secondary market has emerged. However, the market for conventional pools is smaller and less liquid than the market for the government and government-related mortgage pools. The Fund may purchase some mortgage-related securities through private placements, in which case only a limited secondary market exists, and the security is considered illiquid. AVERAGE LIFE The average life of pass-through pools varies with the maturities of the underlying mortgage instruments. In addition, a pool's term may be shortened by unscheduled or early payments of principal and interest on the underlying mortgages. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. A-1 As prepayment rates of individual pools vary widely, it is not possible to accurately predict the average life of a particular pool. For pools of fixed-rate 30-year mortgages, common industry practice is to assume that prepayments will result in a 12-year average life. Pools of mortgages with other maturities or different characteristics will have varying assumptions for average life. The assumed average life of pools of mortgages having terms of less than 30 years is less than 12 years, but typically not less than 5 years. YIELD CALCULATIONS Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. In periods of falling interest rates the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising rates and the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. Historically, actual average life has been consistent with the 12-year assumption referred to above. Actual prepayment experience may cause the yield to differ from the assumed average life yield. Reinvestment of prepayments may occur at higher or lower interest rates than the original investment, thus affecting the yield of the Fund. The compounding effect from reinvestments of monthly payments received by the Fund will increase the yield to shareholders compared to bonds that pay interest semi-annually. A-2 APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS BOND RATINGS Moody's Investors Service, Inc. describes its six highest ratings for corporate bonds and mortgage-related securities as follows: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Bonds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3, in each of these generic rating classifications. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Standard & Poor's Corporation describes its six highest ratings for corporate bonds and mortgage-related securities as follows: B-1 AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A. Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB. Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. B. Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. Standard & Poor's Corporation applies indicators "+", no character, and "-" to the above rating categories. The indicators show relative standing within the major rating categories. COMMERCIAL PAPER RATINGS The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. Among the factors considered by Moody's Investors Service, Inc. in assigning the ratings are the following: (1) evaluation of the management of the issuer, (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; an (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. The rating A-1 is the highest rating assigned by Standard & Poor's Corporation to commercial paper which is considered by Standard & Poor's Corporation to have the following characteristics: B-2 Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. B-3 APPENDIX C - FUTURES CONTRACTS EXAMPLE OF FUTURES CONTRACT SALE The Fund would engage in a futures contract sale to maintain the income advantage from continued holding of a long-term security while endeavoring to avoid part or all of the loss in market value that would otherwise accompany a decline in long-term securities prices. Assume that the market value of a certain security in the Fund's portfolio tends to move in concert with the futures market prices of long-term United States Treasury bonds ("Treasury bonds"). The Fund wishes to fix the current market value of this portfolio security until some point in the future. Assume the portfolio security has a market value of $100, and the Fund believes that, because of an anticipated rise in interest rates, the value will decline to $95. The Fund might enter into futures contract sales of Treasury bonds for a price of $98. If the market value of the portfolio security does indeed decline from $100 to $95, the futures market price for the Treasury bonds might also decline from $98 to $93. In that case, the $5 loss in the market value of the portfolio security would be offset by the $5 gain realized by closing out the futures contract sale. Of course, the futures market price of Treasury bonds might decline to more than $93 or to less than $93 because of the imperfect correlation between cash and futures prices mentioned above. The Fund could be wrong in its forecast of interest rates and the futures market price could rise above $98. In this case, the market value of the portfolio securities, including the portfolio security being protected, would increase. The benefit of this increase would be reduced by the loss realized on closing out the futures contract sale. If interest rate levels did not change prior to settlement date, the Fund, in the above example, would incur a loss of $2 if it delivered the portfolio security on the settlement date (which loss might be reduced by an offsetting transaction prior to the settlement date). In each transaction, nominal transaction expenses would also be incurred. EXAMPLE OF FUTURES CONTRACT PURCHASE The Fund would engage in a futures contract purchase when it is not fully invested in long-term securities but wishes to defer for a time the purchase of long-term securities in light of the availability of advantageous interim investments, e.g., short-term securities whose yields are greater than those available on long-term securities. The Fund's basic motivation would be to maintain for a time the income advantage from investing in the short-term securities; the Fund would be endeavoring at the same time to eliminate the effect of all or part of the increases in market price of the long-term securities that the Fund may purchase. For example, assume that the market price of a long-term security that the Fund may purchase, currently yielding 10%, tends to move in concert with futures market prices of Treasury bonds. The Fund wishes to fix the current market price (and thus 10% yield) of the long-term security until the time (four months away in this example) when it may purchase the security. C-1 Assuming the long-term security has a market price of $100, and the Fund believes that, because of an anticipated fall in interest rates, the price will have risen to $105 (and the yield will have dropped to about 9-1/2%) in four months, the Fund might enter into futures contracts purchases of Treasury bonds for a price of $98. At the same time, the Fund would assign a pool of investments in short-term securities that are either maturing in four months or earmarked for sale in four months, for purchase of the long-term security at an assumed market price of $100. Assume these short-term securities are yielding 15%. If the market price of the long-term bond does indeed rise from $100 to $105, the futures market price for Treasury bonds might also rise from $98 to $103. In that case, the $5 increase in the price that the Fund pays for the long-term security would be offset by the $5 gain realized by closing out the futures contract purchase. The Fund could be wrong in its forecast of interest rates; long-term interest rates might rise to above 10%, and the futures market price could fall below $98. If short-term rates at the same time fall to 10% or below, it is possible that the Fund would continue with its purchase program for long-term securities. The market prices of available long-term securities would have decreased. The benefit of this price decrease, and thus yield increase, will be reduced by the loss realized on closing out the futures contract purchase. If, however, short-term rates remained above available long-term rates, it is possible that the Fund would discontinue its purchase program for long-term securities. The yields on short-term securities in the portfolio, including those originally in the pool assigned to the particular long-term security, would remain higher than yields on long-term bonds. The benefit of this continued incremental income will be reduced by the loss realized on closing out the futures contract purchase. In each transaction, nominal transaction expenses would also be incurred. TAX TREATMENT The amount of any gain or loss realized by the Fund on closing out a futures contract may result in a capital gain or loss for federal income tax purposes. Generally, futures contracts held by the Fund at the close of the Fund's taxable year will be treated for federal income tax purposes as sold for their fair market value on the last business day of such year. Forty percent of any gain or loss resulting from such constructive sale will be treated as short-term capital gain or loss and 60 percent of such gain or loss will be treated as long-term capital gain or loss. The amount of any capital gain or loss actually realized by the Fund in a subsequent sale or other disposition of these futures contracts will be adjusted to reflect any capital gain or loss taken into account by the Fund in a prior year as a result of the constructive sale of the contract. Notwithstanding the rules described above, with respect to futures contracts which are part of futures contract sales, and in certain other situations, the Fund may make an election which may have the effect of exempting all or a part of those identified future contracts from being treated for federal income tax purposes as sold on the last business day of the Fund's taxable year; all or part of any gain or loss otherwise realized by the Fund on any closing transaction may be deferred until all of the Fund's positions with respect to the futures contract sales are closed; and, all or part of any gain or loss may be treated as short-term capital gain or loss. C-2 Under the Federal income tax provisions applicable to regulated investment companies, at least 90% of the Fund's annual gross income must be derived from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of securities ("qualifying income"). Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include gains from forward contracts in determining qualifying income. In addition, in order that the Fund continue to qualify as a regulated investment company for Federal income tax purposes, less than 30% of its gross income for any year must be derived from gains realized on the sale or other disposition of securities held by the Fund for less than three months. For this purpose, the Fund will treat gains realized on the closing out of futures contracts as gains derived from the sale of securities. This treatment could, under certain circumstances, require the Fund to defer the closing out of futures contracts until after three months from the date the fund acquired the contracts, even if it would be more advantageous to close out the contracts prior to that time. However, under the Code, a special rule is provided with respect to certain hedging transactions which has the effect of allowing the Fund to engage in such short-term transactions in limited circumstances. Any gains realized by the Fund as a result of the constructive sales of futures contacts held by the Fund at the end of its taxable year, as described in the preceding paragraph, will in all instances be treated as derived from the sale of securities held for three months or more, regardless of the actual period for which the Fund has held the futures contracts at the end of the year. C-3 APPENDIX D - BRADY BONDS Brady Bonds are debt securities issued under the framework of the Brady Plan, an initiative announced by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external indebtedness. The Brady Plan contemplates, among other things, the adoption by debtor nations of certain economic reforms and the exchange of commercial bank debt. Under the Brady Plan framework, a debtor nation negotiates with its existing bank lenders as well as the World Bank and/or the IMF. The World Bank and/or the IMF support the restructuring by providing funds pursuant to loan agreements or other arrangements which enable the debtor nation to collateralize the new Brady Bonds or to replenish reserves used to reduce outstanding bank debt. Under these loan agreements or other arrangements with the World Bank or the IMF, debtor nations have been required to agree to the implementation of certain domestic monetary and fiscal reforms. The Brady Plan only sets forth general guiding principles for economic reform and debt reduction, emphasizing that solutions must be negotiated on a case-by-case basis between debtor nations and their creditors. Brady Bonds have been issued only recently, and accordingly do not have a long payment history. Agreements implemented under the Brady Plan to date are designed to achieve debt and debt-service reduction through specific options negotiated by a debtor nation with its creditors. As a result, the financial packages offered by each country differ. The types of options have included the exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt, and bonds bearing an interest rate which increases over time and the advancement of the new money for bonds. The principal of certain Brady Bonds has been collateralized by Treasury zero coupon bonds with a maturity equal to the final maturity of such Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and the debtor nations' reserves. In addition, the first two or three interest payments on certain types of Brady Bonds may be collateralized by cash or securities agreed upon by creditors. D-1 EX-99.17(H) 13 c77852exv99w17xhy.txt EX-(17)(H) W&R TARGET FUNDS, INC. ANNUAL REPORT EXHIBIT 17(h) W&R TARGET FUNDS Asset Strategy Portfolio Balanced Portfolio Bond Portfolio Core Equity Portfolio Growth Portfolio High Income Portfolio International Portfolio Limited-Term Bond Portfolio Money Market Portfolio Science and Technology Portfolio Small Cap Portfolio Value Portfolio Annual Report ------ December 31, 2002 CONTENTS 3 Asset Strategy Portfolio 17 Balanced Portfolio 30 Bond Portfolio 46 Core Equity Portfolio 57 Growth Portfolio 69 High Income Portfolio 86 International Portfolio 98 Limited-Term Bond Portfolio 110 Money Market Portfolio 121 Science and Technology Portfolio 133 Small Cap Portfolio 144 Value Portfolio 156 Notes to Financial Statements 169 Independent Auditors' Report 170 Directors & Officers 181 Annual Privacy Notice MANAGERS' DISCUSSION December 31, 2002 An interview with Michael L. Avery and Daniel J. Vrabac, portfolio managers of W&R Target Funds, Inc. - Asset Strategy Portfolio This report relates to the operation of W&R Target Funds, Inc. - Asset Strategy Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? In a year that brought a consistently difficult environment for equities, the Portfolio performed fairly well, as it had a positive return and significantly outperformed its stock benchmark index and its peer group. Given that the environment was much more conducive to fixed income investments, however, it underperformed its bond benchmark index. The Portfolio increased 3.28 percent during the fiscal year, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent for the year, the Salomon Brothers Broad Investment Grade Index (reflecting the performance of securities that generally represent the bond market), which increased 10.09 percent, the Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit (reflecting the performance of securities that generally represent one-month certificates of deposit), which increased 1.79 percent, and the Lipper Variable Annuity Flexible Portfolio Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 10.89 percent during the year. A variety of indexes is presented because the Portfolio invests in stocks, bonds and other instruments. What factors impacted the Portfolio's performance during the fiscal year? Primarily, we believe that our ongoing focus on asset preservation helped the Portfolio outperform its stock benchmark and its peer group. The Portfolio has generally been heavily weighted in short-term treasury securities, gold bullion and gold-related equities. Given that we did hold some equities, and the market environment was more friendly to fixed income investments, we did not perform as well as the bond benchmark index. What other market conditions or events influenced the Portfolio's performance during the fiscal year? Geopolitics was a major theme impacting the markets throughout the period. In addition, we believe that monetary policy -- as a tool to stimulate domestic economic growth -- influenced the equity markets, as many stocks continued to grasp for traction in a weak and sluggish economic environment. The best way we can think of to describe the fiscal year overall is as an environment of high valuations, low earnings growth, lack of trust in corporate management, and lost credibility on Wall Street. Additionally, the U.S. dollar peaked, and then began to decline, relative to European currencies (and gold), resulting in marginal capital flows away from the U.S. What strategies and techniques did you employ that specifically affected the Portfolio's performance? The Portfolio remains invested primarily in short-term U.S. Treasuries (approximately 50 percent of our holdings). Also, we remain focused on gold- related equities and gold bullion, which, together, represent approximately 20 percent of portfolio holdings. As noted above, this is a rather defensive strategy, aimed at asset preservation, but we believe it has served us well in the challenging environment. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? We do not anticipate many changes to our current strategy in the near term. However, we are mindful that our shareholders only truly win when we achieve a respectable absolute return. Unfortunately, we continue to believe that it may be harder to achieve a more dramatically positive absolute return. We intend to continue to focus on finding what we believe are appropriate income-producing securities, recognizing that returns may be dependent upon this portion of the calculation. We also remain respectful of the market environment, which we believe mandates an adherence to asset preservation. Respectfully, Michael L. Avery Daniel J. Vrabac Managers Asset Strategy Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Asset Strategy Portfolio, The S&P 500 Index, The Salomon Brothers Broad Investment Grade Index, Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit and Lipper Variable Annuity Flexible Portfolio Funds Universe Average

Lipper Salomon Variable Salomon Brothers Annuity Brothers Short-Term Flexible W&R Target Broad Index Portfolio Asset S&P Investment for 1 Month Funds Strategy 500 Grade Certificates Universe Portfolio Index Index of Deposit Average --------- ------- ---------- ------------ --------- 05/01/95 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/95 10,182 12,179 11,130 10,401 11,540 12/31/96 10,795 14,975 11,533 10,976 13,228 12/31/97 12,307 19,961 12,644 11,599 15,804 12/31/98 13,531 25,689 13,746 12,257 18,053 12/31/99 16,639 31,102 13,632 12,909 20,241 12/31/00 20,388 28,245 15,212 13,753 20,499 12/31/01 18,358 24,882 16,508 14,322 19,554 12/31/02 18,960 19,383 18,173 14,578 17,425

=== W&R Target Asset Strategy Portfolio(1) -- $18,960 +++ S&P 500 Index(2) -- $19,383 .... Salomon Brothers Broad Investment Grade Index(2) -- $18,173 *-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit(2) - - $14,578 ****Lipper Variable Annuity Flexible Portfolio Funds Universe Average(2) -- $17,425 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes was effected as of April 30, 1995. Average Annual Total Return(3) 1-year period ended 12-31-02 3.28% 5-year period ended 12-31-02 9.03% 7+ year period ended 12-31-02(4) 8.69% (3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)5-1-95 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO December 31, 2002

Troy Ounces Value BULLION - 5.80% Gold ............................................... 27,836 $ 9,688,356 (Cost: $8,885,492) ------------- Shares COMMON STOCKS Business Equipment and Services - 0.40% SI International, Inc.* ............................ 61,150 660,726 ------------- Communications Equipment - 0.47% Nokia Corporation, Series A, ADR ................... 50,300 779,650 ------------- Computers -- Peripherals - 0.47% Electronic Arts Inc.* .............................. 15,800 785,813 ------------- Food and Related - 0.19% American Italian Pasta Company, Class A* 8,800 316,624 ------------- Gold and Precious Metals - 10.19% Agnico-Eagle Mines Limited ......................... 129,500 1,924,370 Barrick Gold Corporation ........................... 375,605 5,788,073 Glamis Gold Ltd.* .................................. 84,600 959,364 Meridian Gold Inc. (A)* ............................ 79,540 1,397,100 Placer Dome Inc. ................................... 605,501 6,963,261 ------------- 17,032,168 ------------- Hospital Supply and Management - 0.31% Health Management Associates, Inc., Class A .......................................... 29,400 526,260 ------------- Mining -- 3.67% Newmont Mining Corporation ......................... 211,079 6,127,623 ------------- Petroleum -- Canada - 0.37% Nabors Industries Ltd. (B)* ........................ 17,400 613,698 ------------- Petroleum -- Domestic - 2.79% Anadarko Petroleum Corporation ..................... 40,323 1,931,472 Burlington Resources Inc. .......................... 47,110 2,009,241 Patterson-UTI Energy, Inc. (B)* .................... 24,200 730,235 ------------- 4,670,948 ------------- Petroleum -- International - 1.19% Exxon Mobil Corporation ............................ 57,091 1,994,760 ------------- Petroleum -- Services - 1.06% Baker Hughes Incorporated (B) ...................... 55,095 1,773,508 ------------- TOTAL COMMON STOCKS - 21.11% $ 35,281,778 (Cost: $34,542,238)

Principal Amount in Thousands CORPORATE DEBT SECURITIES Aircraft - 0.32% Raytheon Company, 6.5%, 7-15-05 .................................... $ 500 539,289 ------------- Banks - 0.96% Banco Nacional de Comercio Exterior, S.N.C., 7.25%, 2-2-04 .................................... 1,000 1,048,750 Norwest Financial, Inc., 7.6%, 5-3-05 ..................................... 500 558,961 ------------- 1,607,711 ------------- Beverages - 0.55% Companhia Brasileira de Bebidas, 10.5%, 12-15-11 .................................. 500 452,500 Diageo Capital plc, 6.0%, 3-27-03 .................................... 200 201,875 Pepsi-Gemex, S.A. de C.V., 9.75%, 3-30-04 ................................... 250 271,250 ------------- 925,625 ------------- Construction Materials - 0.64% Hanson Overseas B.V., 6.75%, 9-15-05 ................................... 500 542,691 Stanley Works (The), 5.75%, 3-1-04 .................................... 500 521,384 ------------- 1,064,075 ------------- Cosmetics and Toiletries - 0.31% Gillette Company (The), 3.75%, 12-1-04 (C) ............................... 500 516,451 ------------- Finance Companies - 0.49% Exxon Capital Corporation, 6.0%, 7-1-05 ..................................... 750 817,252 ------------- Food and Related - 1.98% ConAgra, Inc., 7.4%, 9-15-04 .................................... 300 325,076 GRUMA, S.A. de C.V., 7.625%, 10-15-07 ................................. 350 343,000 Kellogg Company, 6.625%, 1-29-04 .................................. 2,000 2,088,894 Sara Lee Corporation, 6.45%, 9-26-05 ................................... 500 552,304 ------------- 3,309,274 ------------- Health Care -- Drugs - 0.96% Abbott Laboratories, 5.125%, 7-1-04 ................................... 500 524,873 Merck & Co., Inc., 6.75%, 9-19-05 .................................. 500 555,276 Pfizer Inc., 3.625%, 11-1-04 .................................. 500 515,368 ------------- 1,595,517 ------------- Household -- General Products - 0.33% Procter & Gamble Company (The), 6.6%, 12-15-04 ................................... 500 545,068 ------------- Multiple Industry - 1.04% Ford Motor Credit Company, 6.125%, 4-28-03 .................................. 1,000 1,005,856 National Rural Utilities Cooperative Finance Corporation, 5.5%, 1-15-05 .................................... 500 529,865 Tyco International Group S.A., 6.25%, 6-15-03 ................................... 200 198,500 ------------- 1,734,221 ------------- Petroleum -- Services - 0.65% Pemex Finance Ltd. and Petroleos Mexicanos, 8.02%, 5-15-07 ................................... 500 562,055 Petroleos Mexicanos, 6.5%, 2-1-05 (C) ................................. 500 529,375 ------------- 1,091,430 ------------- Railroad - 0.43% Union Pacific Corporation, 5.84%, 5-25-04 ................................... 685 718,800 ------------- Retail -- Specialty Stores - 0.32% Home Depot, Inc. (The), 6.5%, 9-15-04 .................................... 500 535,843 ------------- Trucking and Shipping - 0.73% WMX Technologies, Inc., 6.375%, 12-1-03 .................................. 1,200 1,222,931 ------------- Utilities -- Electric - 0.66% Wisconsin Energy Corporation, 5.875%, 4-1-06 ................................... 500 543,299 Wisconsin Power and Light Company, 7.6%, 7-1-05 ..................................... 500 554,324 ------------- 1,097,623 ------------- Utilities -- Gas and Pipeline - 1.03% Consolidated Natural Gas Company, 7.25%, 10-1-04 ................................... 500 538,566 Sonat Inc., 6.875%, 6-1-05 ................................... 500 370,000 Wisconsin Gas Company, 6.375%, 11-1-05 .................................. 750 817,880 ------------- 1,726,446 ------------- Utilities -- Telephone - 0.77% Comtel Brasileira Ltda., 10.75%, 9-26-04 .................................. 350 302,461 Telefonos de Mexico, S.A. de C.V., 8.25%, 1-26-06 ................................... 400 438,000 Verizon Global Funding Corp. and Verizon Communications Inc., 6.75%, 12-1-05 ................................... 500 552,454 ------------- 1,292,915 ------------- TOTAL CORPORATE DEBT SECURITIES - 12.17% $ 20,340,471 (Cost: $20,145,347) OTHER GOVERNMENT SECURITIES Brazil - 1.00% Federative Republic of Brazil (The), 11.0%, 1-11-12 .................................. 2,500 1,662,500 ------------- Canada - 0.32% Her Majesty in right of Canada, 6.375%, 11-30-04 ................................. 500 541,080 ------------- Mexico - 0.17% United Mexican States, 8.625%, 3-12-08 .................................. 250 287,250 ------------- TOTAL OTHER GOVERNMENT SECURITIES - 1.49% $ 2,490,830 (Cost: $2,792,722) UNITED STATES GOVERNMENT SECURITIES Mortgage-Backed Obligations - 2.91% Government National Mortgage Association Pass-Through Certificates: 5.5%, 11-15-16 ................................... 1,235 1,291,431 5.5%, 12-15-16 ................................... 3,407 3,562,567 ------------- 4,853,998 ------------- United States Treasury - 47.87% United States Treasury Notes: 2.75%, 10-31-03 (D) .............................. 40,225 40,730,950 3.0%, 2-29-04 .................................... 24,000 24,478,128 3.375%, 4-30-04 .................................. 9,500 9,757,165 7.5%, 2-15-05 .................................... 4,500 5,045,976 ------------- 80,012,219 ------------- TOTAL UNITED STATES GOVERNMENT SECURITIES - 50.78% $ 84,866,217 (Cost: $83,205,007)

Face Amount in Thousands UNREALIZED LOSS ON OPEN FORWARD CURRENCY CONTRACTS - (0.12%) Eurodollar, 11-7-03 (E) .......................... EUR1,602 (80,793) Eurodollar, 11-7-03 (E) .......................... 1,602 (70,338) Eurodollar, 11-7-03 (E) .......................... 1,602 (52,233) ------------- $ (203,364) -------------

Number of Contracts PUT OPTION - 0.03% Cisco Systems, Inc., January 15, Expires 1-18-03 .................................. 282 $ 56,400 ------------- (Cost: $36,096)

Principal Amount in Thousands SHORT-TERM SECURITIES Chemicals -- Petroleum and Inorganic - 3.72% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note .......................... $ 6,218 6,218,000 ------------- Finance Companies - 1.20% USAA Capital Corp., 1.35%, 1-10-03 ................................. 2,000 1,999,325 ------------- Health Care -- Drugs - 2.39% Merck & Co., Inc., 1.3%, 1-9-03 ................................... 4,000 3,998,844 ------------- Security and Commodity Brokers - 1.93% UBS Finance Delaware LLC, 1.2%, 1-2-03 ................................... 3,226 3,225,893 ------------- TOTAL SHORT-TERM SECURITIES - 9.24% $ 15,442,062 (Cost: $15,442,062) TOTAL INVESTMENTS - 100.50% $ 167,962,750 (Cost: $165,048,964) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.50%) (828,998) NET ASSETS - 100.00% $ 167,133,752

Notes to Schedule of Investments *No dividends were paid during the preceding 12 months. (A)Listed on an exchange outside of the United States. (B)These securities serve as collateral for the following open futures contracts at December 31, 2002 (See Note 6 to financial statements):

Number of Expiration Market Description Contracts Date Value - ----------- --------- ---------- ---------- S&P 500 7 3/20/03 $1,538,075 ==========

(C)Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the total value of these securities amounted to $1,045,826 or 0.63% of net assets. (D)As of December 31, 2002, a portion of the security was used as cover for the following written call option (See Note 5 to financial statements):

Contracts Underlying Subject Expiration Month/Premium Market Security to Call Exercise Price Received Value ---------- ------------------------ -------- -------- Cheesecake Factory Incorporated (The) 454 April/35 $173,655 $172,066 ======== ========

(E)Principal amounts are denominated in the indicated foreign currency, where applicable (EUR - Euro). See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES ASSET STRATEGY PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investments--at value (Notes 1 and 3): Bullion (cost - $8,886) ............................ $ 9,688 Securities (cost - $156,163) ....................... 158,275 -------- 167,963 Cash ................................................. 1 Receivables: Dividends and interest ............................. 1,210 Fund shares sold ................................... 329 Investment securities sold ......................... 97 Prepaid insurance premium ............................ 1 -------- Total assets ...................................... 169,601 -------- LIABILITIES Payable for investment securities purchased .......... 2,255 Outstanding call options--at value (Note 5) .......... 172 Payable to Fund shareholders ......................... 20 Accrued accounting services fee (Note 2) ............. 4 Accrued management fee (Note 2) ...................... 3 Variation margin payable (Note 6) .................... 2 Accrued service fee (Note 2) ......................... 1 Other ................................................ 10 -------- Total liabilities ................................. 2,467 -------- Total net assets ................................ $167,134 NET ASSETS ======== $0.001 par value capital stock: Capital stock ...................................... $ 26 Additional paid-in capital ......................... 171,205 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ........................... (7,043) Net unrealized appreciation in value of securities . 3,097 Net unrealized appreciation in value of written options ........................................... 2 Net unrealized appreciation in value of purchased options ........................................... 20 Net unrealized appreciation in value of futures contracts ......................................... 30 Net unrealized depreciation in value of forward currency contracts ................................ (203) -------- Net assets applicable to outstanding units of capital ................................ $167,134 ======== Net asset value, redemption and offering price per share ...................................... $ 6.3078 ======= Capital shares outstanding ............................ 26,496 Capital shares authorized ............................. 45,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS ASSET STRATEGY PORTFOLIO For the Fiscal Year Ended December 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization .......................... $3,658 Dividends (net of foreign withholding taxes of $15) 362 ------ Total income ...................................... 4,020 ------ Expenses (Note 2): Investment management fee .......................... 965 Service fee ........................................ 345 Accounting services fee ............................ 44 Custodian fees ..................................... 40 Audit fees ......................................... 6 Legal fees ......................................... 3 Other .............................................. 26 ------ Total expenses ................................. 1,429 ------ Net investment income ........................ 2,591 ------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net gain on securities ...................... 1,405 Realized net loss on written options ................. (1,302) Realized net gain on purchased options ............... 88 Realized net gain on futures contracts ............... 282 Realized net gain on foreign currency transactions.... 25 ------ Realized net gain on investments ................... 498 ------ Unrealized appreciation in value of securities during the period .................................. 1,693 Unrealized depreciation in value of written options during the period .......................... (29) Unrealized appreciation in value of purchased options during the period .......................... 20 Unrealized appreciation in value of futures contracts during the period ................ 30 Unrealized depreciation in value of forward currency contracts during the period ............... (306) ------ Unrealized appreciation in value of investments during the period ..................... 1,408 ------ Net gain on investments ........................... 1,906 ------ Net increase in net assets resulting from operations ................................ $4,497 ====== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS ASSET STRATEGY PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ------------------------- 2002 2001 --------- --------- INCREASE IN NET ASSETS Operations: Net investment income .................... $ 2,591 $ 2,398 Realized net gain (loss) on investments 498 (7,262) Unrealized appreciation (depreciation) 1,408 (3,329) --------- --------- Net increase (decrease) in net assets resulting from operations .............. 4,497 (8,193) --------- --------- Dividends to shareholders from (Note 1E):(1) Net investment income .................... (2,616) (2,418) Realized gains on securities transactions ................. --- (234) --------- --------- (2,616) (2,652) --------- --------- Capital share transactions(2) .............. 50,063 66,933 --------- --------- Total increase .......................... 51,944 56,088 NET ASSETS Beginning of period ........................ 115,190 59,102 --------- --------- End of period .............................. $ 167,134 $ 115,190 ========= ========= Undistributed net investment income........ $ --- $ --- ========= ========= (1)See "Financial Highlights" on page 16. (2)Shares issued from sale of shares ....... 11,528 16,814 Shares issued from reinvestment of dividend and/or capital gains distribution.......... 415 428 Shares redeemed ............................ (4,012) (7,055) --------- --------- Increase in outstanding capital shares...... 7,931 10,187 ========= ========= Value issued from sale of shares............ $ 72,762 $ 110,309 Value issued from reinvestment of dividend and/or capital gains distribution.......... 2,616 2,652 Value redeemed ............................. (25,315) (46,028) --------- --------- Increase in outstanding capital............. $ 50,063 $ 66,933 ========= =========

See Notes to Financial Statements. FINANCIAL HIGHLIGHTS ASSET STRATEGY PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ----------------------------------------------- 2002 2001 2000 1999 1998 ------- ------- ------- ------- ------- Net asset value, beginning of period...................... $6.2046 $7.0540 $6.2625 $5.3868 $5.1969 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income.................... 0.1005 0.1323 0.0908 0.1138 0.1391 Net realized and unrealized gain (loss) on investments............ 0.1032 (0.8354) 1.3211 1.1232 0.3779 ------- ------- ------- ------- ------- Total from investment operations.................. 0.2037 (0.7031) 1.4119 1.2370 0.5170 ------- ------- ------- ------- ------- Less distributions from: Net investment income.................... (0.1005) (0.1334) (0.0906) (0.1136) (0.1391) Capital gains............... (0.0000) (0.0129) (0.5298) (0.2477) (0.1880) ------- ------- ------- ------- ------- Total distributions (0.1005) (0.1463) (0.6204) (0.3613) (0.3271) ------- ------- ------- ------- ------- Net asset value, end of period............... $6.3078 $6.2046 $7.0540 $6.2625 $5.3868 ======= ======= ======= ======= ======= Total return................. 3.28% -9.96% 22.53% 22.96% 9.95% Net assets, end of period (in millions)................... $ 167 $ 115 $ 59 $ 22 $ 14 Ratio of expenses to average net assets...................... 1.04% 1.03% 0.97% 0.73% 1.07% Ratio of net investment income to average net assets.................. 1.90% 2.63% 1.97% 2.18% 2.97% Portfolio turnover rate........................ 95.22% 187.87% 155.27% 179.63% 189.02%

See Notes to Financial Statements. MANAGER'S DISCUSSION December 31, 2002 An interview with Cynthia P. Prince-Fox, portfolio manager of W&R Target Funds, Inc. - Balanced Portfolio This report relates to the operation of W&R Target Funds, Inc. - Balanced Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The Portfolio outperformed its stock benchmark index, but underperformed its bond benchmark index. The Portfolio's one-year return declined 8.41 percent, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent for the year, the Salomon Brothers Treasury/Government Sponsored/Credit Index (generally reflecting the performance of funds in the bond market), which increased 10.81 percent for the year, and the Lipper Variable Annuity Balanced Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 10.34 percent for the period. Multiple indexes are presented because the Portfolio invests in both stocks and bonds. The Salomon Brothers Treasury/Government Sponsored/Credit Index replaces the Salomon Brothers Treasury/Government Sponsored/Corporate Index in this year's report. We believe that the new index provides a more accurate basis for comparing the Portfolio's performance to the types of securities in which the Portfolio invests. Both indexes are presented in this year's report for comparison purposes. What factors affected the Portfolio's performance during the fiscal year? Several factors played into overall performance. First and foremost was the contribution from the fixed income portion of the Portfolio, which significantly outperformed the equity portion, in addition to outperforming its fixed income benchmark. The primary reason for this, we feel, is that the fixed income securities held in the portfolio were primarily high quality, government-issued Treasury bonds. U.S. Treasuries outperformed most other fixed income instruments because they became a safe haven as corporate bonds experienced declines when concerns about the overall recovery in the economy came into question. On the other side of the Portfolio, our equity holdings posted declines, although the declines were not as significant as those experienced by the S&P 500 Index. Many of our defensive holdings performed well, despite a difficult economic environment. Additionally, we maintained a meaningful level of cash during the period, which also helped performance. What other market conditions or events influenced the Portfolio's performance during the fiscal year? This marked the third consecutive year of declines for the broad equity markets. Equity investments were simply a difficult place to be, as the S&P 500 Index experienced its sharpest decline since 1974, while the technology-laden Nasdaq Composite Index lost nearly a third of its value. Nearly every industry classification in the S&P 500 saw negative returns during the year. As a result, high quality fixed income instruments were one of the few positive places to invest during most of the year. What strategies and techniques did you employ that specifically affected the Portfolio's performance? We attempted to maintain a high quality fixed income portfolio and kept some cash holdings. In addition, we attempted to further protect the downside in the Portfolio by focusing our equity positions in companies with balance sheets that we felt could withstand protracted weakness in the overall economy. Our strategy of maintaining a relatively defensive equity portfolio during the year was based on our belief that equity valuations were still somewhat high and were unsustainable, given the potential for a slower economic environment. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? Areas of emphasis during the year were in aerospace/defense, health care and energy. We continue to believe that these sectors offer further upside in 2003. However, we remain optimistic about an economic recovery and a rebound in the financial markets. Thus we will likely shift our emphasis to companies that could benefit from a better economic environment as the year progresses. Respectfully, Cynthia P. Prince-Fox Manager Balanced Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Balanced Portfolio, The S&P 500 Index Salomon Brothers Treasury/Government Sponsored/Corporate Index, Salomon Brothers Treasury/Government Sponsored/Credit Index and Lipper Variable Annuity Balanced Funds Universe Average

Salomon Salomon Lipper Brothers Brothers Variable Treasury/ Treasury/ Annuity Government Government Balanced W&R Target S&P Sponsored/ Sponsored/ Funds Balanced 500 Corporate Credit Universe Portfolio Index Index Index Average ---------- ------- ---------- ---------- ---------- 05/03/94 Purchase $10,000 $10,000 $10,000 $10,000 $10,000 12/31/94 9,963 10,398 10,046 10,046 10,028 12/31/95 12,374 14,306 11,978 11,978 12,524 12/31/96 13,758 17,591 12,327 12,327 14,197 12/31/97 16,301 23,447 13,535 13,535 16,910 12/31/98 17,714 30,176 14,814 14,814 19,310 12/31/99 19,510 36,533 14,514 14,514 21,035 12/31/00 20,903 33,178 16,219 16,219 21,488 12/31/01 19,661 29,227 17,613 17,626 20,822 12/31/02 18,007 22,768 19,495 19,531 18,669

===== W&R Target Balanced Portfolio(1) -- $18,007 ----- S&P 500 Index(2) -- $22,768 +++++ Salomon Brothers Treasury/Government Sponsored/Corporate Index(2) -- $19,495 ...... Salomon Brothers Treasury/Government Sponsored/Credit Index(2) -- $19,531 ***** Lipper Variable Annuity Balanced Funds Universe Average(2) -- $18,669 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes was effected as of April 30, 1994. Please note that the performance of the Salomon Brothers Treasury/Government Sponsored/Credit Index (Credit Index) is substantially similar to the performance of the Salomon Brothers Treasury/Government Sponsored/Corporate Index (Corporate Index). The Credit Index was introduced by Salomon Brothers in April of 2001. In creating the performance history for the Credit Index, Salomon Brothers used the performance history of the Corporate Index for the period prior to April of 2001. Average Annual Total Return(3) 1-year period ended 12-31-02 -8.41% 5-year period ended 12-31-02 2.01% 8+ year period ended 12-31-02(4) 7.02% (3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)5-3-94 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE BALANCED PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Air Transportation - 0.66% Southwest Airlines Co. ............................ 80,000 $ 1,112,000 ----------- Aircraft - 2.41% Lockheed Martin Corporation ....................... 39,300 2,269,575 Raytheon Company .................................. 58,000 1,783,500 ----------- 4,053,075 ----------- Banks - 2.30% U.S. Bancorp ...................................... 74,900 1,589,378 Wells Fargo & Company ............................. 48,500 2,273,195 ----------- 3,862,573 ----------- Beverages - 1.62% Anheuser-Busch Companies, Inc. .................... 29,000 1,403,600 Coca-Cola Company (The) ........................... 30,000 1,314,600 ----------- 2,718,200 ----------- Broadcasting - 1.66% Cox Communications, Inc., Class A* ................ 38,979 1,107,004 Fox Entertainment Group, Inc., Class A* ........... 64,800 1,680,264 ----------- 2,787,268 ----------- Business Equipment and Services - 1.81% Genuine Parts Company ............................. 42,000 1,293,600 Manpower Inc. ..................................... 55,000 1,754,500 ----------- 3,048,100 ----------- Capital Equipment - 2.45% Caterpillar Inc. .................................. 15,000 685,800 Cooper Cameron Corporation* ....................... 44,200 2,202,044 Ingersoll-Rand Company Limited, Class A ........... 28,300 1,218,598 ----------- 4,106,442 ----------- Chemicals -- Petroleum and Inorganic - 1.06% Dow Chemical Company (The) ........................ 30,000 891,000 du Pont (E.I.) de Nemours and Company ............. 21,100 894,640 ----------- 1,785,640 ----------- Chemicals -- Specialty - 0.76% Air Products and Chemicals, Inc. .................. 30,000 1,282,500 ----------- Communications Equipment - 1.43% Cisco Systems, Inc.* .............................. 80,000 1,047,600 Nokia Corporation, Series A, ADR .................. 87,000 1,348,500 ----------- 2,396,100 ----------- Computers -- Micro - 0.42% Dell Computer Corporation* ........................ 26,100 699,089 ----------- Computers -- Peripherals - 3.56% EMC Corporation* .................................. 205,000 1,258,700 Microsoft Corporation* ............................ 70,400 3,641,088 SAP Aktiengesellschaft, ADR ....................... 55,000 1,072,500 ----------- 5,972,288 ----------- Cosmetics and Toiletries - 1.45% Estee Lauder Companies Inc. (The), Class A ......................................... 50,000 1,320,000 Gillette Company (The) ............................ 36,700 1,114,212 ----------- 2,434,212 ----------- Electrical Equipment - 1.03% Emerson Electric Co. .............................. 34,000 1,728,900 ----------- Electronic Components - 1.53% Analog Devices, Inc.* ............................. 15,500 369,985 Intel Corporation ................................. 95,000 1,479,625 Texas Instruments Incorporated .................... 48,000 720,480 ----------- 2,570,090 ----------- Electronic Instruments - 1.23% Applied Materials, Inc.* .......................... 82,400 1,073,672 Molex Incorporated, Class A ....................... 50,000 998,500 ----------- 2,072,172 ----------- Food and Related - 1.03% ConAgra Foods, Inc. ............................... 51,100 1,278,011 Dean Foods Company* ............................... 12,000 445,200 ----------- 1,723,211 ----------- Forest and Paper Products - 1.85% International Paper Company ....................... 32,138 1,123,866 Sealed Air Corporation* ........................... 53,000 1,976,900 ----------- 3,100,766 ----------- Furniture and Furnishings - 0.67% Leggett & Platt, Incorporated ..................... 50,000 1,122,000 ----------- Gold and Precious Metals - 0.62% Barrick Gold Corporation .......................... 67,184 1,035,305 ----------- Health Care -- Drugs - 3.16% Pfizer Inc. ....................................... 79,850 2,441,015 Pharmacia Corporation ............................. 68,380 2,858,284 ----------- 5,299,299 ----------- Health Care -- General - 1.59% Johnson & Johnson ................................. 30,200 1,622,042 Wyeth ............................................. 28,000 1,047,200 ----------- 2,669,242 ----------- Hospital Supply and Management - 2.65% HCA - The Healthcare Company ...................... 35,500 1,473,250 Health Management Associates, Inc., Class A ......................................... 90,000 1,611,000 Medtronic, Inc. ................................... 30,000 1,368,000 ----------- 4,452,250 ----------- Insurance - Property and Casualty - 3.40% American International Group, Inc. ................ 26,000 1,504,100 Berkshire Hathaway Inc., Class B* ................. 600 1,453,800 Chubb Corporation (The) ........................... 32,100 1,675,620 Hartford Financial Services Group Inc. (The) 23,700 1,076,691 ----------- 5,710,211 ----------- Leisure Time Industry - 0.78% Walt Disney Company (The)* ........................ 80,800 1,317,848 ----------- Motor Vehicle Parts - 0.78% Danaher Corporation ............................... 20,000 1,314,000 ----------- Petroleum -- Canada - 0.73% Nabors Industries Ltd.* ........................... 35,000 1,234,450 ----------- Petroleum -- Domestic - 1.48% Burlington Resources Inc. ......................... 58,200 2,482,230 ----------- Petroleum -- International - 1.20% Exxon Mobil Corporation ........................... 57,746 2,017,645 ----------- Petroleum -- Services - 0.23% Schlumberger Limited .............................. 9,000 378,810 ----------- Publishing - 0.82% New York Times Company (The), Class A ............. 30,000 1,371,900 ----------- Restaurants - 0.51% McDonald's Corporation ............................ 53,400 858,672 ----------- Retail -- General Merchandise - 1.46% Target Corporation ................................ 54,600 1,638,000 Wal-Mart Stores, Inc. ............................. 16,000 808,160 ----------- 2,446,160 ----------- Security and Commodity Brokers - 1.66% Fannie Mae ........................................ 29,700 1,910,601 Goldman Sachs Group, Inc. (The) ................... 13,000 885,300 ----------- 2,795,901 ----------- Trucking and Shipping - 0.22% Hunt (J.B.) Transport Services, Inc.* ............. 12,500 366,312 ----------- Utilities -- Electric - 0.79% Exelon Corporation ................................ 25,000 1,319,250 ----------- Utilities -- Telephone - 1.75% BellSouth Corporation ............................. 26,700 690,729 SBC Communications Inc. ........................... 49,700 1,347,367 Vodafone Group Plc, ADR ........................... 50,000 906,000 ----------- 2,944,096 ----------- TOTAL COMMON STOCKS - 52.76% ....................... $88,588,207 (Cost: $91,572,880)

Principal Amount in Thousands CORPORATE DEBT SECURITIES Air Transportation - 0.24% Southwest Airlines Co., 7.875%, 9-1-07 .................................. $ 360 405,158 ------------- Aircraft - 1.61% Raytheon Company, 6.5%, 7-15-05 ................................... 2,500 2,696,442 ------------- Beverages - 0.33% Coca-Cola Enterprises Inc., 6.7%, 10-15-36 .................................. 500 549,730 ------------- Health Care -- General - 0.16% American Home Products Corporation, 7.9%, 2-15-05 ................................... 250 276,481 ------------- Multiple Industry - 1.59% Household Finance Corporation, 6.5%, 1-24-06 ................................... 2,500 2,662,305 ------------- Utilities -- Telephone - 0.09% Southwestern Bell Telephone Company, 5.77%, 10-14-03 ................................. 150 154,623 ------------- TOTAL CORPORATE DEBT SECURITIES - 4.02% $ 6,744,739 (Cost: $6,324,193) UNITED STATES GOVERNMENT SECURITIES Agency Obligations - 4.48% Federal Home Loan Mortgage Corporation, 7.0%, 2-15-03 ................................... 5,000 5,033,965 Federal National Mortgage Association: 6.51%, 5-6-08 ................................... 750 762,228 6.19%, 7-7-08 ................................... 500 511,131 7.25%, 1-15-10 .................................. 1,000 1,211,720 ------------- 7,519,044 ------------- Mortgage-Backed Obligations - 4.93% Federal Home Loan Mortgage Corporation Fixed Rate Participation Certificates, 6.0%, 5-1-16 .................................... 6,359 6,658,207 Federal National Mortgage Association Fixed Rate Pass-Through Certificates, 7.0%, 9-1-25 .................................... 750 793,608 Government National Mortgage Association Fixed Rate Pass-Through Certificates, 6.5%, 8-15-28 ................................... 792 832,255 ------------- 8,284,070 ------------- Treasury Obligations - 13.18% United States Treasury Bonds: 7.25%, 8-15-22 .................................. 4,000 5,205,780 6.25%, 8-15-23 .................................. 5,250 6,167,931 6.75%, 8-15-26 .................................. 3,000 3,753,399 United States Treasury Notes: 7.5%, 2-15-05 ................................... 2,250 2,522,988 6.5%, 8-15-05 ................................... 4,000 4,474,064 ------------- 22,124,162 ------------- Treasury Inflation Protected Obligation - 0.63% United States Treasury Note, 3.0%, 7-15-12 (A) ............................... 1,000 1,062,656 ------------- TOTAL UNITED STATES GOVERNMENT SECURITIES - 23.22% $ 38,989,932 (Cost: $36,043,233) SHORT-TERM SECURITIES Banks - 2.98% Wells Fargo & Company, 1.29%, 1-16-03 .................................. 5,000 4,997,313 ------------- Chemicals -- Petroleum and Inorganic - 2.87% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note ........................... 4,825 4,825,000 ------------- Food and Related - 5.63% General Mills, Inc., 1.53%, Master Note .............................. 4,461 4,461,000 Sara Lee Corporation, 1.48%, 1-6-03 ................................... 5,000 4,998,972 ------------- 9,459,972 ------------- Health Care -- Drugs - 4.76% Merck & Co., Inc., 1.3%, 1-9-03 .................................... 4,000 3,998,844 Pfizer Inc., 1.29%, 1-16-03 .................................. 4,000 3,997,850 ------------- 7,996,694 ------------- Health Care -- General - 2.08% Johnson & Johnson, 1.27%, 2-3-03 ................................... 3,500 3,495,925 ------------- Petroleum -- International - 1.27% BP America Inc., 1.2%, 1-2-03 .................................... 2,128 2,127,929 ------------- Utilities -- Telephone - 0.54% BellSouth Corporation, 1.28%, 1-23-03 .................................. 907 906,291 ------------- TOTAL SHORT-TERM SECURITIES - 20.13% $ 33,809,124 (Cost: $33,809,124) TOTAL INVESTMENT SECURITIES - 100.13% $ 168,132,002 (Cost: $167,749,430) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.13%) (222,491) NET ASSETS - 100.00% $ 167,909,511

Notes to Schedule of Investments *No dividends were paid during the preceding 12 months. (A)The interest rate for this security is a stated rate, but the interest payments are determined by multiplying the inflation-adjusted principal by one half of the stated rate for each semiannual interest payment date. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES BALANCED PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3) ..... $ 168,132 Cash ................................................ 1 Receivables: Dividends and interest ............................ 996 Fund shares sold .................................. 54 Prepaid insurance premium ........................... 2 --------- Total assets ..................................... 169,185 --------- LIABILITIES Payable for investment securities purchased ......... 1,168 Payable to Fund shareholders ........................ 91 Accrued accounting services fee (Note 2) ............ 4 Accrued management fee (Note 2) ..................... 3 Accrued service fee (Note 2) ........................ 1 Other ............................................... 8 --------- Total liabilities ................................ 1,275 --------- Total net assets ............................... $ 167,910 ========= NET ASSETS $0.001 par value capital stock: Capital stock ..................................... $ 28 Additional paid-in capital ........................ 188,900 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions .......................... (21,401) Net unrealized appreciation in value of investments 383 --------- Net assets applicable to outstanding units of capital ..................................... $ 167,910 ========= Net asset value, redemption and offering price per share ........................ $ 6.0423 ========= Capital shares outstanding ........................... 27,789 Capital shares authorized ............................ 50,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS BALANCED PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization .......................... $ 3,634 Dividends (net of foreign withholding taxes of $3) . 1,247 -------- Total income ...................................... 4,881 -------- Expenses (Note 2): Investment management fee .......................... 1,219 Service fee ........................................ 435 Accounting services fee ............................ 44 Custodian fees ..................................... 15 Audit fees ......................................... 7 Legal fees ......................................... 3 Other .............................................. 35 -------- Total expenses .................................... 1,758 -------- Net investment income ........................... 3,123 -------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments .................... (14,068) Unrealized depreciation in value of investments during the period ................................. (4,705) -------- Net loss on investments ........................... (18,773) -------- Net decrease in net assets resulting from operations ................................ $(15,650) ======== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS BALANCED PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ---------------------- 2002 2001 --------- --------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income .................... $ 3,123 $ 4,123 Realized net loss on investments ......... (14,068) (7,129) Unrealized depreciation .................. (4,705) (7,291) --------- --------- Net decrease in net assets resulting from operations ............. (15,650) (10,297) --------- --------- Dividends to shareholders from (Note 1E):(1) Net investment income .................... (3,123) (4,123) Realized gains on securities transactions ............................ --- (204) --------- --------- (3,123) (4,327) --------- --------- Capital share transactions(2) .............. 8,303 35,032 --------- --------- Total increase (decrease) ............. (10,470) 20,408 NET ASSETS Beginning of period ........................ 178,380 157,972 --------- --------- End of period .............................. $ 167,910 $ 178,380 ========= ========= Undistributed net investment income ...... $ --- $ --- ========= ========= (1)See "Financial Highlights" on page 29..... (2)Shares issued from sale of shares ........ 6,716 14,523 Shares issued from reinvestment of dividend and/or capital gains distribution .......... 517 643 Shares redeemed ............................. (5,979) (10,195) --------- --------- Increase in outstanding capital shares ...... 1,254 4,971 ========= ========= Value issued from sale of shares ............ $ 43,362 $ 101,894 Value issued from reinvestment of dividend and/or capital gains distribution .......... 3,123 4,327 Value redeemed .............................. (38,182) (71,189) --------- --------- Increase in outstanding capital ............. $ 8,303 $ 35,032 ========= =========

SEE NOTES TO FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS BALANCED PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, --------------------------------------------------- 2002 2001 2000 1999 1998 ------- ------- ------- ------- ------- Net asset value, beginning of period ........... $ 6.7224 $ 7.3258 $ 7.3120 $ 7.1081 $ 6.7686 Income (loss) from investment operations: Net investment income .......... 0.1145 0.1593 0.1873 0.1760 0.1865 Net realized and unrealized gain (loss) on investments .. (0.6801) (0.5955) 0.3361 0.5446 0.4003 Total from investment operations ....... (0.5656) (0.4362) 0.5234 0.7206 0.5868 -------- -------- -------- -------- -------- Less distributions from: Net investment income .......... (0.1145) (0.1593) (0.1873) (0.1759) (0.1865) Capital gains ..... (0.0000) (0.0079) (0.3223) (0.3408) (0.0608) -------- -------- -------- -------- -------- Total distributions (0.1145) (0.1672) (0.5096) (0.5167) (0.2473) -------- -------- -------- -------- -------- Net asset value, end of period .... $ 6.0423 $ 6.7224 $ 7.3258 $ 7.3120 $ 7.1081 ======== ======== ======== ======== ======== Total return ....... -8.41% -5.94% 7.14% 10.14% 8.67% Net assets, end of period (in millions) .... $ 168 $ 178 $ 158 $ 117 $ 92 Ratio of expenses to average net assets ........... 1.01% 1.00% 1.01% 0.95% 0.74% Ratio of net investment income to average net assets ....... 1.79% 2.44% 2.81% 2.56% 2.92% Portfolio turnover rate ............. 58.18% 38.82% 42.32% 62.90% 54.62%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with James C. Cusser, CFA, portfolio manager of W&R Target Funds, Inc. - Bond Portfolio This report relates to the operation of W&R Target Funds, Inc. - Bond Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The Portfolio performed about on par with its peer group during the period, although it underperformed its benchmark index. The Portfolio increased 8.98 percent for the year, compared with the Salomon Brothers Broad Investment Grade Index (reflecting the performance of securities that generally represent the bond market), which increased 10.09 percent, and the Lipper Variable Annuity Corporate Debt Funds A-Rated Universe Average (reflecting the universe of funds with similar investment objectives), which increased 8.54 percent for the year. Why did the Portfolio slightly lag its benchmark index during the fiscal year? The Portfolio focused generally on higher credit quality than similar funds and, while that helped us perform on par with the peer group, we didn't quite achieve the earnings of the benchmark index. The Portfolio is typically focused on corporate bonds, but during the fiscal year we decided to emphasize higher credit quality Treasury securities, U.S. government collateralized mortgage obligations, and U.S. agency debentures. Performance was therefore more like a general taxable bond market fund than a traditional corporate bond fund. We believe that this strategy, however, helped us avoid a most miserable year among corporate bond issuers. What other market conditions or events influenced the Portfolio's performance during the fiscal year? Accounting scandals and the threats of war took their toll on corporate bond issuers. Nonetheless, higher-credit-quality issuers, such as the U.S. government, did well with the significant decline in interest rates. Furthermore, we feel that the Portfolio's "elastic" response to interest rate movements proved valuable this year. For example, the Portfolio has an approximately 13 percent weighting in "put bonds," or bonds that can be sold back to the issuer prior to maturity when interest rates rise, and bond prices fall. These bonds thereby do well when interest rates are volatile over the course of the year. This year was especially interest-rate volatile, and the put bonds' optionality thus generally increased in value. The Portfolio's longer-term bonds became more sensitive to interest rates, that is they went up in value more, as yields declined in response to the slowing economy, falling stock prices and the increasing fear of war. What strategies and techniques did you employ that specifically affected Portfolio performance? The Portfolio remains well balanced and diversified, we believe, which should help mitigate some of the uncertainty in the markets. It also is fairly liquid and nimble in order to take advantage of opportunities as they arise. We'd expect in 2003 that the economy will improve and, with it, corporate credit quality will improve, although we feel that interest rates likely will rise. We think that the Federal government will spend more money on both domestic and, especially, international affairs. We would expect this to help the economy and raise longer-term interest rates as well. Therefore we intend to return the Portfolio to a greater weighting in corporate bonds, even some non-investment grade, high yield corporate bonds, and keep the sensitivity to interest rates lower than usual. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? We think the Federal Reserve is through lowering money market rates, and that corporate bond issuance will decline. We believe that a wave of financing activity took place in 2002 in response to a greater liquidity need on corporate balance sheets. This fact, plus the improving economy, likely will bring more focus to corporate bond investments. Initially, we intend to seek out higher quality corporate credits and, as the corporate economy proves itself, we likely will add more and more cyclical, lower-rated, credits. During the fiscal year, we emphasized the highest quality among corporate issuers. In the coming year, we would expect to seek out issuers among more cyclical industries, such as paper and forest products, automotive and chemical industries. We believe that higher current yield will be important in a year that likely will feature rising interest rates. Furthermore, with the expected decline in mortgage refinancings, we would anticipate a better environment for mortgage-backed securities, which represent more than 30 percent of the portfolio's holdings. Respectfully, James C. Cusser Manager Bond Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Bond Portfolio, Salomon Brothers Broad Investment Grade Index and Lipper Variable Annuity Corporate Debt Funds A-Rated Universe Average

Lipper Variable Annuity Salomon Corporate Brothers Debt Funds W&R Target Broad A-Rated Bond Investment Universe Portfolio Grade Index Average ---------- ----------- ---------- 12/31/92 Purchase $10,000 $10,000 $10,000 12/31/93 10,905 10,989 11,113 12/31/94 10,572 10,676 10,687 12/31/95 12,749 12,657 12,744 12/31/96 13,182 13,115 13,106 12/31/97 14,470 14,377 14,339 12/31/98 15,533 15,629 15,489 12/31/99 15,310 15,500 15,211 12/31/00 16,816 17,296 16,793 12/31/01 18,073 18,770 18,084 12/31/02 19,695 20,663 19,628

+++++ W&R Target Bond Portfolio(1) - $19,695 ...... Salomon Brothers Broad Investment Grade Index - $20,663 ***** Lipper Variable Annuity Corporate Debt Funds A-Rated Universe Average -- $19,628 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. AVERAGE ANNUAL TOTAL RETURN(2) 1-year period ended 12-31-02 8.98% 5-year period ended 12-31-02 6.36% 10-year period ended 12-31-02 7.01% (2)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE BOND PORTFOLIO December 31, 2002

Principal Amount in Thousands Value CORPORATE DEBT SECURITIES Aircraft - 0.57% Raytheon Company, 6.5%, 7-15-05 .................................. $ 1,300 $ 1,402,150 ------------- Banks - 6.00% AmSouth Bancorporation, 6.75%, 11-1-25 ................................. 2,000 2,192,620 Banco Nacional de Comercio Exterior, S.N.C., 7.25%, 2-2-04 .................................. 1,000 1,048,750 First Union Corporation, 6.824%, 8-1-26 ................................. 1,132 1,333,231 HSBC Holdings plc, 5.25%, 12-12-12 ................................ 1,250 1,281,224 ING Groep N.V., 5.5%, 5-11-05 (A) .............................. EUR1,000 1,101,704 NBD Bank, National Association, 8.25%, 11-1-24 ................................. $ 1,000 1,264,728 NationsBank Corporation, 8.57%, 11-15-24 ................................ 1,000 1,287,519 Nordic Investment Bank, 2.75%, 1-11-06 ................................. 750 757,630 SouthTrust Bank of Alabama, National Association, 7.69%, 5-15-25 ................................. 3,000 3,480,996 Wachovia Corporation, 6.605%, 10-1-25 ................................ 1,000 1,087,530 ------------- 14,835,932 ------------- Beverages - 1.00% Coca-Cola Company (The), 4.0%, 6-1-05 ................................... 500 523,455 Coca-Cola Enterprises Inc., 6.7%, 10-15-36 ................................. 400 439,784 Diageo Capital plc, 3.5%, 11-19-07 ................................. 1,500 1,507,644 ------------- 2,470,883 ------------- Broadcasting - 0.52% British Sky Broadcasting Group plc, 7.3%, 10-15-06 ................................. 1,250 1,300,000 ------------- Business Equipment and Services - 1.43% Pemex Project Funding Master Trust: 8.5%, 2-15-08 .................................. 800 892,000 9.125%, 10-13-10 ............................... 500 572,500 Postal Square Limited Partnership, 6.5%, 6-15-22 .................................. 225 254,791 Quebecor Printing Capital Corporation, 6.5%, 8-1-27 ................................... 1,750 1,810,503 ------------- 3,529,794 ------------- Communications Equipment - 0.47% Norse CBO, Ltd. and Norse CBO, Inc., 6.515%, 8-13-10 (B) ............................ 1,154 1,154,488 ------------- Computers - Main and Mini - 0.44% International Business Machines Corporation, 5.375%, 3-31-05 (A) ............................ EUR1,000 1,095,897 ------------- Containers - 0.29% Owens-Illinois, Inc., 7.15%, 5-15-05 ................................. $ 750 720,938 ------------- Finance Companies - 7.30% Abitibi-Consolidated Company of Canada, 6.95%, 12-15-06 ................................ 1,000 1,038,745 Asset Securitization Corporation, 7.49%, 4-14-29 ................................. 1,244 1,431,483 Associates Corporation of North America, 6.25%, 11-1-08 ................................. 750 826,772 Bell Atlantic Financial Services, Inc., 7.6%, 3-15-07 .................................. 2,950 3,364,378 California Infrastructure and Economic Development Bank, Special Purpose Trust PG&E-1, 6.42%, 9-25-08 ................................. 1,000 1,088,564 Chase Manhattan - First Union Commercial Mortgage Trust, 7.439%, 7-15-09 ................................ 1,500 1,757,844 Countrywide Home Loans, Inc., 6.5%, 8-25-29 .................................. 1,984 2,036,315 First Union National Bank Commercial Mortgage, 7.841%, 3-15-10 ................................ 2,500 3,008,501 General Motors Acceptance Corporation: 5.5%, 2-2-05 (A) ............................... EUR1,250 1,318,441 6.125%, 9-15-06 ................................ $ 1,000 1,016,126 8.875%, 6-1-10 ................................. 500 552,602 Westinghouse Electric Corporation, 8.875%, 6-14-14 ................................ 500 628,374 ------------- 18,068,145 ------------- Food and Related - 0.99% ConAgra, Inc., 7.125%, 10-1-26 ................................ 1,750 1,961,502 GRUMA, S.A. de C.V., 7.625%, 10-15-07 ............................... 500 490,000 ------------- 2,451,502 ------------- Forest and Paper Products - 2.08% Abitibi-Consolidated Inc., 8.3%, 8-1-05 ................................... 750 799,228 Bowater Canada Finance Corporation, 7.95%, 11-15-11 ................................ 1,000 1,056,664 Champion International Corporation: 6.4%, 2-15-26 .................................. 1,500 1,625,018 6.65%, 12-15-37 ................................ 1,500 1,669,911 ------------- 5,150,821 ------------- Health Care -- General - 0.86% Bristol-Myers Squibb Company, 5.75%, 10-1-11 ................................. 2,000 2,129,710 ------------- Hospital Supply and Management - 1.09% Anthem, Inc., 4.875%, 8-1-05 ................................. 1,500 1,557,445 HCA - The Healthcare Company, 8.75%, 9-1-10 .................................. 1,000 1,150,897 ------------- 2,708,342 ------------- Household -- General Products - 1.69% Kimberly-Clark Corporation, 4.5%, 7-30-05 (B) .............................. 1,500 1,584,137 Procter & Gamble Company (The), 8.0%, 9-1-24 ................................... 2,000 2,598,282 ------------- 4,182,419 ------------- Insurance -- Life - 0.01% Reliance Group Holdings, Inc., 9.0%, 11-15-00 (C) ............................. 250 10,000 ------------- Motor Vehicle Parts - 0.03% Federal-Mogul Corporation, 7.75%, 7-1-06 (C) .............................. 500 75,000 ------------- Multiple Industry - 4.04% CHYPS CBO 1997-1 Ltd., 6.72%, 1-15-10 (B) ............................. 1,458 947,375 Chevy Chase Savings Bank, F.S.B., 9.25%, 12-1-05 ................................. 500 495,000 Ford Motor Credit Company, 7.6%, 8-1-05 ................................... 2,000 2,042,090 General Electric Capital Corporation, 5.0%, 6-15-07 .................................. 2,750 2,911,832 Tele-Communications, Inc., 8.35%, 2-15-05 ................................. 1,000 1,057,751 Tyco International Group S.A., 6.375%, 2-15-06 ................................ 1,000 970,000 Union Electric Co., 8.25%, 10-15-22 ................................ 1,500 1,565,874 ------------- 9,989,922 ------------- Petroleum -- Domestic - 0.42% Ocean Energy, Inc., 8.375%, 7-1-08 ................................. 1,000 1,052,500 ------------- Petroleum -- International - 0.95% ChevronTexaco Capital Company, 3.5%, 9-17-07 .................................. 2,300 2,341,280 ------------- Petroleum -- Services - 0.81% Halliburton Company, 6.75%, 2-1-27 .................................. 2,000 2,000,000 ------------- Restaurants - 0.20% Host Marriott, L.P., 8.375%, 2-15-06 ................................ 500 495,000 ------------- Retail -- General Merchandise - 0.85% Wal-Mart Stores, Inc., 4.375%, 7-12-07 ................................ 2,000 2,108,422 ------------- Retail -- Specialty Stores - 0.57% Fred Meyer, Inc., 7.45%, 3-1-08 .................................. 1,250 1,420,785 ------------- Security and Commodity Brokers - 0.66% CIT Group, Inc. (The), 7.375%, 4-2-07 ................................. 1,500 1,635,313 ------------- Utilities --Electric - 2.61% Cleveland Electric Illuminating Co. (The), 9.5%, 5-15-05 .................................. 678 680,258 Dominion Resources, Inc., 7.82%, 9-15-04 ................................. 2,250 2,410,632 Entergy Arkansas, Inc., 7.5%, 8-1-07 ................................... 750 763,981 HQI Transelec Chile S.A., 7.875%, 4-15-11 ................................ 750 830,770 Kansas Gas and Electric Company, 7.6%, 12-15-03 ................................. 1,000 1,013,834 Niagara Mohawk Power Corporation, 7.375%, 7-1-03 ................................. 756 773,810 ------------- 6,473,285 ------------- Utilities -- Gas and Pipeline - 0.94% Tennessee Gas Pipeline Company, 7.0%, 3-15-27 .................................. 2,000 1,820,000 Williams Companies, Inc. (The), 6.5%, 8-1-06 ................................... 500 347,500 Williams Holdings of Delaware, Inc., 6.5%, 12-1-08 .................................. 250 160,000 ------------- 2,327,500 ------------- Utilities -- Telephone - 2.11% AirTouch Communications, Inc., 6.65%, 5-1-08 .................................. 1,500 1,696,870 BellSouth Corporation, 5.0%, 10-15-06 ................................. 500 533,870 Deutsche Telekom International Finance B.V., 8.75%, 6-15-30 ................................. 1,000 1,155,151 Pacific Bell, 7.25%, 11-1-27 ................................. 750 815,878 Qwest Communications International Inc., 7.5%, 11-1-08 .................................. 1,250 1,012,500 ------------- 5,214,269 ------------- TOTAL CORPORATE DEBT SECURITIES - 38.93% .......... $ 96,344,297 (Cost: $92,466,003) OTHER GOVERNMENT SECURITIES Canada - 1.28% Hydro-Quebec, 8.05%, 7-7-24 .................................. 1,000 1,310,425 Province de Quebec, 7.14%, 2-27-26 ................................. 1,500 1,843,038 ------------- 3,153,463 ------------- Supranational - 0.51% Inter-American Development Bank, 8.4%, 9-1-09 ................................... 1,000 1,267,687 ------------- TOTAL OTHER GOVERNMENT SECURITIES - 1.79% $ 4,421,150 (Cost: $3,580,324) UNITED STATES GOVERNMENT SECURITIES Agency Obligations - 10.81% Federal Home Loan Bank: 3.1%, 12-16-05 ................................. 1,500 1,516,011 4.375%, 8-15-07 ................................ 1,500 1,527,402 Federal Home Loan Mortgage Corporation: 4.625%, 4-11-05 ................................ 1,000 1,008,054 5.95%, 1-19-06 ................................. 2,000 2,220,214 Federal National Mortgage Association: 4.0%, 12-10-04 ................................. 1,000 1,012,326 3.75%, 7-29-05 ................................. 1,000 1,025,464 3.0%, 11-28-05 ................................. 1,500 1,506,678 5.5%, 2-15-06 .................................. 5,000 5,468,048 5.25%, 8-14-06 ................................. 1,500 1,535,568 6.25%, 7-19-11 ................................. 1,000 1,057,106 6.0%, 12-21-11 ................................. 4,750 5,052,000 Tennessee Valley Authority: 4.875%, 12-15-16 ............................... 2,500 2,688,990 5.88%, 4-1-36 .................................. 1,000 1,143,056 ------------- 26,760,917 ------------- Mortgage-Backed Obligations - 33.95% Federal Home Loan Mortgage Corporation Agency REMIC/CMO: 6.5%, 9-25-18 .................................. 483 497,021 6.25%, 1-15-21 ................................. 2,166 2,174,547 6.5%, 11-25-21 ................................. 2,088 2,187,996 6.5%, 1-15-27 .................................. 2,424 2,501,268 6.5%, 7-15-28 .................................. 2,018 2,065,210 7.5%, 9-15-29 .................................. 638 720,787 6.5%, 11-15-29 ................................. 1,665 1,752,724 Federal Home Loan Mortgage Corporation Fixed Rate Participation Certificates: 5.5%, 9-1-08 ................................... 3,376 3,501,345 6.5%, 1-1-18 ................................... 3,500 3,691,408 9.0%, 6-1-27 ................................... 930 1,036,948 7.0%, 5-1-31 ................................... 914 960,579 6.5%, 10-1-31 .................................. 1,542 1,607,231 6.0%, 2-1-32 ................................... 2,339 2,421,997 6.5%, 6-1-32 ................................... 2,210 2,303,360 6.0%, 1-1-33 ................................... 3,500 3,618,125 Federal Home Loan Mortgage Corporation Non-Agency REMIC/CMO: 5.5%, 3-15-14 .................................. 3,500 3,734,599 5.5%, 2-15-29 .................................. 1,000 1,033,710 6.0%, 3-15-29 .................................. 3,139 3,250,522 6.5%, 11-15-29 ................................. 3,082 3,254,770 Federal National Mortgage Association Agency REMIC/CMO: 6.0%, 3-25-14 .................................. 3,500 3,755,997 6.0%, 2-25-28 .................................. 1,634 1,679,190 Federal National Mortgage Association Fixed Rate Pass-Through Certificates: 6.09%, 4-1-09 .................................. 1,919 2,125,727 5.5%, 1-1-17 ................................... 4,786 4,968,715 6.0%, 1-1-17 ................................... 2,187 2,289,834 6.0%, 2-1-17 ................................... 857 896,770 5.5%, 7-1-17 ................................... 1,837 1,907,246 7.0%, 6-1-24 ................................... 983 1,042,137 6.0%, 12-1-28 .................................. 1,506 1,563,469 Federal National Mortgage Association Non-Agency REMIC/CMO: 5.0%, 4-25-15 .................................. 3,500 3,633,438 5.5%, 12-25-15 ................................. 1,000 1,053,986 6.0%, 2-25-24 .................................. 500 513,238 4.0%, 11-25-32 ................................. 3,464 3,466,003 Government National Mortgage Association Fixed Rate Pass-Through Certificates: 8.0%, 11-15-17 ................................. 1,142 1,253,543 7.5%, 7-15-23 .................................. 334 359,248 7.5%, 12-15-23 ................................. 600 645,419 8.0%, 9-15-25 .................................. 336 367,453 7.0%, 7-20-27 .................................. 201 212,804 7.0%, 8-20-27 .................................. 388 410,132 6.5%, 7-15-28 .................................. 1,773 1,864,105 6.5%, 5-15-29 .................................. 809 850,295 7.5%, 7-15-29 .................................. 557 594,213 7.75%, 10-15-31 ................................ 307 344,069 United States Department of Veterans Affairs, Guaranteed Remic Pass-Through Certificates, Vendee Mortgage Trust: 2000-1 Class 2-C, 7.25%, 11-15-21 ................................ 500 520,957 2000-2 Class 1-D, 7.5%, 9-15-26 .................................. 2,000 2,166,060 2001-2 Class 1-D, 6.75%, 9-15-19 ................................. 750 776,648 2001-3 Class G, 6.5%, 4-15-27 .................................. 500 543,948 2002-1 Class 2-G, 6.5%, 10-15-25 ................................. 1,750 1,901,274 ------------- 84,020,065 ------------- Treasury Obligations - 10.92% United States Treasury Bonds: 11.25%, 2-15-15 ................................ 3,250 5,412,394 8.75%, 5-15-17 ................................. 1,000 1,445,781 8.875%, 8-15-17 ................................ 1,000 1,461,523 6.125%, 11-15-27 ............................... 7,000 8,178,786 United States Treasury Notes: 6.5%, 8-15-05 .................................. 1,250 1,398,145 5.75%, 11-15-05 ................................ 2,000 2,210,860 7.0%, 7-15-06 .................................. 3,000 3,478,242 6.5%, 10-15-06 ................................. 3,000 3,445,782 ------------- 27,031,513 ------------- TOTAL UNITED STATES GOVERNMENT SECURITIES - 55.68% $ 137,812,495 (Cost: $131,379,415) SHORT-TERM SECURITIES Chemicals -- Petroleum and Inorganic - 1.71% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note .......................... 4,232 4,232,000 ------------- Finance Companies - 0.63% PACCAR Financial Corp., 1.3%, 1-27-03 .................................. 1,562 1,560,534 ------------- Food and Related - 0.80% General Mills, Inc., 1.53%, Master Note ............................. 1,972 1,972,000 ------------- Petroleum -- Internationals - 2.22% BP America Inc., 1.2%, 1-2-03 ................................... 5,511 5,510,816 ------------- TOTAL SHORT-TERM SECURITIES - 5.36% ............... $ 13,275,350 (Cost: $13,275,350) TOTAL INVESTMENT SECURITIES - 101.76% ............. $ 251,853,292 (Cost: $240,701,092) LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.76%) (4,365,596) NET ASSETS - 100.00% .............................. $ 247,487,696

NOTES TO SCHEDULE OF INVESTMENTS (A)Principal amounts are denominated in the indicated foreign currency, where applicable (EUR-Euro). (B)Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the total value of these securities amounted to $3,686,000 or 1.49% of net assets. (C)Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES BOND PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3) $ 251,853 Cash .......................................... 18 Receivables: Interest .................................... 2,838 Fund shares sold ............................ 65 Prepaid insurance premium ..................... 2 --------- Total assets ............................... 254,776 --------- LIABILITIES Payable for investment securities purchased ... 7,231 Payable to Fund shareholders .................. 23 Accrued accounting services fee (Note 2) ...... 5 Accrued management fee (Note 2) ............... 4 Accrued service fee (Note 2) .................. 2 Other ......................................... 23 --------- Total liabilities .......................... 7,288 --------- Total net assets ......................... $ 247,488 ========= NET ASSETS $0.001 par value capital stock: Capital stock ............................... $ 44 Additional paid-in capital .................. 237,982 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ................. (1,702) Net unrealized appreciation in value of investments ............................. 11,164 --------- Net assets applicable to outstanding units of capital ............................... $ 247,488 ========= Net asset value, redemption and offering price per share .................. $ 5.6032 ========= Capital shares outstanding ..................... 44,169 Capital shares authorized ...................... 80,000 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS BOND PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization .......................... $ 11,824 -------- Expenses (Note 2): Investment management fee .......................... 1,083 Service fee ........................................ 515 Accounting services fee ............................ 50 Custodian fees ..................................... 17 Audit fees ......................................... 7 Legal fees ......................................... 4 Other .............................................. 44 -------- Total expenses .................................... 1,720 -------- Net investment income ........................... 10,104 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities ...................... (668) Realized net gain on foreign currency transactions ... 44 -------- Realized net loss on investments ................... (624) Unrealized appreciation in value of investments during the period ..................... 8,420 -------- Net gain on investments ........................... 7,796 -------- Net increase in net assets resulting from operations ...................... $ 17,900 ======== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS BOND PORTFOLIO (IN THOUSANDS)

For the fiscal year ended December 31, ---------------------- 2002 2001 --------- --------- INCREASE IN NET ASSETS Operations: Net investment income .................... $ 10,104 $ 7,842 Realized net loss on investments ......... (624) (59) Unrealized appreciation .................. 8,420 1,937 --------- --------- Net increase in net assets resulting from operations ....................... 17,900 9,720 --------- --------- Dividends to shareholders from net investment income (Note 1E):(1) .......... (10,148) (7,838) --------- --------- Capital share transactions(2) ............. 69,232 51,392 --------- --------- Total increase ........................ 76,984 53,274 NET ASSETS Beginning of period ....................... 170,504 117,230 --------- --------- End of period ............................. $ 247,488 $ 170,504 ========= ========= Undistributed net investment income ...... $ --- $ --- ========= ========= (1)See "Financial Highlights" on page 45. (2)Shares issued from sale of shares ...... 18,149 19,079 Shares issued from reinvestment of dividend 1,811 1,462 Shares redeemed ........................... (7,593) (11,150) --------- --------- Increase in outstanding capital shares .... 12,367 9,391 ========= ========= Value issued from sale of shares .......... $ 101,434 $ 104,584 Value issued from reinvestment of dividend 10,148 7,838 Value redeemed ............................ (42,350) (61,030) --------- --------- Increase in outstanding capital ........... $ 69,232 $ 51,392 ========= =========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS BOND PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ---------------------------------------------- 2002 2001 2000 1999 1998 ------- ------- ------- ------- ------- Net asset value, beginning of period ........... $5.3615 $5.2308 $5.0497 $5.4451 $5.3686 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income .......... 0.2396 0.2585 0.3172 0.3173 0.3180 Net realized and unrealized gain (loss) on investments ..... 0.2417 0.1306 0.1811 (0.3954) 0.0765 ------- ------- ------- ------- ------- Total from investment operations ....... 0.4813 0.3891 0.4983 (0.0781) 0.3945 ------- ------- ------- ------- ------- Less distributions from net investment income (0.2396) (0.2584) (0.3172) (0.3173) (0.3180) ------- ------- ------- ------- ------- Net asset value, end of period .... $5.6032 $5.3615 $5.2308 $5.0497 $5.4451 ======= ======= ======= ======= ======= Total return ....... 8.98% 7.47% 9.83% -1.44% 7.35% Net assets, end of period (in millions) ........ $ 247 $ 171 $ 117 $ 111 $ 114 Ratio of expenses to average net assets ........... 0.83% 0.83% 0.84% 0.81% 0.67% Ratio of net investment income to average net assets ....... 4.92% 5.49% 6.08% 5.73% 5.99% Portfolio turnover rate ............. 33.75% 29.06% 32.68% 47.27% 32.75%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with James D. Wineland, portfolio manager of W&R Target Funds, Inc. - - Core Equity Portfolio This report relates to the operation of W&R Target Funds, Inc. - Core Equity Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The Portfolio performed fairly well on a relative basis, as it slightly outperformed the benchmark index, although it had a negative return for the fiscal year. The Portfolio's one-year return declined 21.63 percent during the period, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent for the year, and the Lipper Variable Annuity Large Cap Core Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 23.41 percent during the period. What helped the Portfolio outperform its benchmark index during the fiscal year? We positioned the Portfolio rather defensively for most of the period, as we had several concerns about the condition of the U.S. economy. Whether warranted or not, a steady erosion of corporate debt ratings by primary rating agencies (including Standard & Poor's and Moody's Corporation) created a growing perception that corporations generally were facing a meaningful decline in financial strength. In addition to our primarily defensive positioning, we believe that our holdings in the aerospace/defense sector and some of our pharmaceutical positions made important positive contributions to the Portfolio's performance during the year. What other market conditions or events influenced the Portfolio's performance during the fiscal year? It was a very difficult year for stock investors, as several factors weighed on the market, put pressure on performance and impacted consumer confidence. Potential for a war between the U.S. and Iraq kept a cloud of uncertainty over the global financial markets. In the U.S., financial news was often dominated by corporate scandals, as investor psychology was eroded by the steady stream of reports of violations of corporate accounting and ethical standards. Earnings expectations for U.S. companies continued to be lowered during much of the year, and hopes for a resilient U.S. economy in the second half of 2002 became more subdued as the year progressed. Finally, concern began to build regarding the strength of the U.S. consumer. While zero percent auto financing and generations-low mortgage rates provided some incentive for consumers to spend, rising rates of unemployment and very high levels of consumer debt relative to disposable income seemed to foretell a slowing rate of U.S. consumption. Global economic problems also weighed heavily on financial markets, as problems in Argentina, Brazil, Japan and Europe all contributed to a rather somber investment environment. What strategies and techniques did you employ that specifically affected the Portfolio's performance? As mentioned, we kept the Portfolio positioned rather defensively in the face of difficult market conditions. Preservation of capital was a key objective in this very uncertain time. Financial strength, sustainability of earnings, and market dominance are three characteristics we continue to seek in our investment selections. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? In the difficult environment, we emphasized a few key sectors, including aerospace/defense, energy, health care and pharmaceuticals, electric utilities and financial services. We believe that valuations and earnings prospects in these sectors are reasonable, given the economic challenges. We do expect the U.S. and global economies to recover as 2003 progresses. However, we also expect market returns to be modest when compared to some of the tremendous growth years we generally have experienced since 1982. Going forward, we intend to continue to invest in what we believe are high quality, large cap companies that are leaders in their respective industries. Respectfully, James D. Wineland Manager Core Equity Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Core Equity Portfolio, S&P 500 Index and Lipper Variable Annuity Large-Cap Core Funds Universe Average

Lipper Variable Annuity Large-Cap W&R Target S&P Core Funds Core Equity 500 Universe Portfolio Index Average ----------- ----- ----------- 12/31/92 Purchase $10,000 $10,000 $10,000 12/31/93 11,730 11,007 11,252 12/31/94 11,597 11,153 11,206 12/31/95 15,257 15,344 14,939 12/31/96 18,270 18,867 18,161 12/31/97 23,049 25,148 23,250 12/31/98 27,921 32,366 28,788 12/31/99 31,418 39,185 34,749 12/31/00 34,334 35,586 32,250 12/31/01 29,216 31,348 27,763 12/31/02 22,896 24,420 21,263

- ----- W&R Target Core Equity Portfolio(1) -- $22,896 +++++ S&P 500 Index -- $24,420 ***** Lipper Variable Annuity Large-Cap Core Funds Universe Average -- $21,263 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. AVERAGE ANNUAL TOTAL RETURN(2) 1-year period ended 12-31-02 -21.63% 5-year period ended 12-31-02 -0.13% 10-year period ended 12-31-02 8.64% (2)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE CORE EQUITY PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Aircraft - 8.09% Lockheed Martin Corporation ....................... 659,000 $ 38,057,250 Raytheon Company .................................. 471,500 14,498,625 ------------ 52,555,875 ------------ Aluminum - 2.51% Alcoa Incorporated ................................ 716,800 16,328,704 ------------ Banks - 5.47% U.S. Bancorp ...................................... 1,002,000 21,262,440 Wells Fargo & Company ............................. 304,600 14,276,602 ------------ 35,539,042 ------------ Beverages - 1.68% Anheuser-Busch Companies, Inc. .................... 225,300 10,904,520 ------------ Broadcasting - 3.03% Cox Communications, Inc., Class A* ................ 367,627 10,440,607 Viacom Inc., Class B* ............................. 226,800 9,244,368 ------------ 19,684,975 ------------ Business Equipment and Services - 1.38% Accenture Ltd, Class A* ........................... 497,000 8,941,030 ------------ Capital Equipment - 1.11% Caterpillar Inc. .................................. 157,800 7,214,616 ------------ Chemicals -- Petroleum and Inorganic - 1.23% du Pont (E.I.) de Nemours and Company ............. 188,100 7,975,440 ------------ Chemicals -- Specialty - 2.06% Air Products and Chemicals, Inc. .................. 312,900 13,376,475 ------------ Communications Equipment - 1.29% Cisco Systems, Inc.* .............................. 640,600 8,388,657 ------------ Computers -- Peripherals - 6.07% Microsoft Corporation* ............................ 473,100 24,468,732 SAP Aktiengesellschaft, ADR ....................... 768,900 14,993,550 ------------ 39,462,282 ------------ Electronic Components - 1.94% Analog Devices, Inc.* ............................. 255,200 6,091,624 Intel Corporation ................................. 416,500 6,486,987 ------------ 12,578,611 ------------ Farm Machinery - 1.88% Deere & Company ................................... 265,800 12,186,930 ------------ Health Care -- Drugs - 7.64% Forest Laboratories, Inc.* ........................ 169,700 16,667,934 Pfizer Inc. ....................................... 637,450 19,486,846 Pharmacia Corporation ............................. 322,527 13,481,629 ------------ 49,636,409 ------------ Health Care -- General - 1.17% Johnson & Johnson ................................. 141,900 7,621,449 ------------ Hospital Supply and Management - 0.92% Medtronic, Inc. ................................... 130,900 5,969,040 ------------ Insurance -- Property and Casualty - 5.82% American International Group, Inc. ................ 223,037 12,902,690 Berkshire Hathaway Inc., Class B* ................. 4,200 10,176,600 Chubb Corporation (The) ........................... 281,700 14,704,740 ------------ 37,784,030 ------------ Leisure Time Industry - 1.07% Walt Disney Company (The)* ........................ 426,100 6,949,691 ------------ Petroleum -- Canada - 1.00% Nabors Industries Ltd.* ........................... 184,600 6,510,842 ------------ Petroleum -- Domestic - 5.47% Anadarko Petroleum Corporation .................... 401,600 19,236,640 Burlington Resources Inc. ......................... 382,300 16,305,095 ------------ 35,541,735 ------------ Petroleum -- International - 3.73% Exxon Mobil Corporation ........................... 434,958 15,197,433 Royal Dutch Petroleum Company, NY Shares .......... 205,500 9,046,110 ------------ 24,243,543 ------------ Petroleum -- Services - 4.81% Baker Hughes Incorporated ......................... 651,800 20,981,442 Schlumberger Limited .............................. 244,200 10,278,378 ------------ 31,259,820 ------------ Retail -- General Merchandise - 2.14% Target Corporation ................................ 462,700 13,881,000 ------------ Retail -- Specialty Stores - 1.01% Best Buy Co., Inc.* ............................... 272,400 6,578,460 ------------ Security and Commodity Brokers - 4.93% Fannie Mae ........................................ 103,300 6,645,289 Freddie Mac ....................................... 124,100 7,328,105 Goldman Sachs Group, Inc. (The) ................... 265,600 18,087,360 ------------ 32,060,754 ------------ Trucking and Shipping - 1.81% United Parcel Service, Inc., Class B ............... 186,500 11,764,420 ------------ Utilities -- Electric - 3.99% Dominion Resources, Inc. .......................... 336,500 18,473,850 Duke Energy Corporation ........................... 381,900 7,462,326 ------------ 25,936,176 ------------ Utilities -- Telephone - 5.13% BellSouth Corporation ............................. 336,500 8,705,255 SBC Communications Inc. ........................... 543,900 14,745,129 Vodafone Group Plc, ADR ........................... 544,800 9,871,776 ------------ 33,322,160 ------------ TOTAL COMMON STOCKS - 88.38% $574,196,686 (Cost: $527,216,181)

Principal Amount in Thousands SHORT-TERM SECURITIES Banks - 1.54% Bank One Corporation, 1.25%, 1-22-03 .................................. $ 10,000 9,992,708 ------------ Chemicals -- Petroleum and Inorganic - 0.18% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note ........................... 1,172 1,172,000 ------------ Electronic Equipment - 1.23% Emerson Electric Co., 1.42%, 1-9-03 ................................... 8,000 7,997,476 ------------ Finance Companies - 1.03% PACCAR Financial Corp., 1.3%, 1-27-03 ................................... 1,000 999,061 USAA Capital Corp., 1.35%, 1-10-03 .................................. 5,672 5,670,086 ------------ 6,669,147 ------------ Food and Related - 1.28% General Mills, Inc., 1.53%, Master Note .............................. 3,285 3,285,000 Sara Lee Corporation, 1.39%, 1-28-03 .................................. 5,000 4,994,788 ------------ 8,279,788 ------------ Health Care -- Drugs - 3.13% Alcon Capital Corporation (Nestle S.A.): 1.33%, 1-17-03 .................................. 10,000 9,994,089 1.32%, 2-12-03 .................................. 4,350 4,343,301 Merck & Co., Inc., 1.3%, 1-9-03 .................................... 6,000 5,998,267 ------------ 20,335,657 ------------ Health Care -- General - 0.69% Johnson & Johnson, 1.27%, 2-3-03 ................................... 4,500 4,494,761 ------------ Household -- General Products - 0.92% Procter & Gamble Company (The), 1.3%, 2-10-03 ................................... 6,000 5,991,333 ------------ Petroleum -- International - 0.27% BP America Inc., 1.2%, 1-2-03 .................................... 1,775 1,774,941 ------------ Security and Commodity Brokers - 1.23% UBS Finance Delaware LLC, 1.2%, 1-2-03 .................................... 7,979 7,978,734 ------------ TOTAL SHORT-TERM SECURITIES - 11.50% $ 74,686,545 (Cost: $74,686,545) TOTAL INVESTMENT SECURITIES - 99.88% $648,883,231 (Cost: $601,902,726) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.12% 807,865 NET ASSETS - 100.00% $649,691,096

Notes to Schedule of Investments *No dividends were paid during the preceding 12 months. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES CORE EQUITY PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3) ..... $ 648,883 Cash ............................................... 1 Receivables: Dividends and interest ............................. 946 Fund shares sold ................................... 70 Prepaid insurance premium ........................... 7 --------- Total assets ..................................... 649,907 --------- LIABILITIES Payable to Fund shareholders ........................ 159 Accrued management fee (Note 2) ..................... 12 Accrued accounting services fee (Note 2) ............ 6 Accrued service fee (Note 2) ........................ 4 Other ............................................... 35 --------- Total liabilities ................................ 216 --------- Total net assets ................................ $ 649,691 ========= NET ASSETS $0.001 par value capital stock: Capital stock ...................................... $ 80 Additional paid-in capital ......................... 797,366 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions .......................... (194,753) Net unrealized appreciation in value of investments ...................................... 46,998 --------- Net assets applicable to outstanding units of capital ...................................... $ 649,691 ========= Net asset value, redemption and offering price per share ........................ $ 8.0720 ========= Capital shares outstanding ............................ 80,487 Capital shares authorized ............................. 160,000 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS CORE EQUITY PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Dividends (net of foreign withholding taxes of $100) .......................................... $ 9,796 Interest and amortization .......................... 1,577 --------- Total income ...................................... 11,373 --------- Expenses (Note 2): Investment management fee .......................... 5,347 Service fee ........................................ 1,910 Accounting services fee ............................ 85 Custodian fees ..................................... 60 Audit fees ......................................... 10 Legal fees ......................................... 10 Other .............................................. 162 --------- Total expenses .................................... 7,584 --------- Net investment income ........................... 3,789 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities ...................... (117,256) Realized net gain on foreign currency transactions ... 22 --------- Realized net loss on investments ................... (117,234) Unrealized depreciation in value of investments during the period ................................. (82,463) --------- Net loss on investments ......................... (199,697) --------- Net decrease in net assets resulting from operations .............................. $(195,908) ========= SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS CORE EQUITY PORTFOLIO (In Thousands)

For the fiscal year ended December 31, -------------------------- 2002 2001 ----------- ----------- DECREASE IN NET ASSETS Operations: Net investment income .................... $ 3,789 $ 2,027 Realized net loss on investments ......... (117,234) (77,485) Unrealized depreciation .................. (82,463) (89,874) ----------- ----------- Net decrease in net assets resulting from operations ............. (195,908) (165,332) ----------- ----------- Dividends to shareholders from (Note 1E): (1) Net investment income .................... (3,811) (2,015) Realized gains on securities transactions ................ -- (24) ----------- ----------- (3,811) (2,039) ----------- ----------- Capital share transactions(2) ............. (63,102) (4,068) ----------- ----------- Total decrease ........................ (262,821) (171,439) NET ASSETS Beginning of period ....................... 912,512 1,083,951 ----------- ----------- End of period ............................. $ 649,691 $ 912,512 =========== =========== Undistributed net investment income ...... $ -- $ -- =========== =========== (1)See "Financial Highlights" on page 56... (2)Shares issued from sale of shares ...... 12,333 32,587 Shares issued from reinvestment of dividend and/or capital gains distribution 472 197 Shares redeemed ........................... (20,391) (33,540) ----------- ----------- Decrease in outstanding capital shares ........................... (7,586) (756) =========== =========== Value issued from sale of shares .......... $ 113,722 $ 346,389 Value issued from reinvestment of dividend and/or capital gains distribution 3,811 2,039 Value redeemed ............................ (180,635) (352,496) ----------- ----------- Decrease in outstanding capital .................................. $ (63,102) $ (4,068) =========== ===========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS CORE EQUITY PORTFOLIO For a Share of Capital Stock Outstanding Throughout Each Period:

For the fiscal year ended December 31, ------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- --------- --------- --------- Net asset value, beginning of period........... $10.3608 $12.2027 $ 12.9609 $ 12.3351 $ 11.9615 -------- -------- --------- --------- --------- Income (loss) from investment operations: Net investment income......... 0.0476 0.0231 0.0376 0.1571 0.1752 Net realized and unrealized gain (loss) on investments.............. (2.2888) (1.8418) 1.1650 1.3879 2.3532 -------- -------- --------- --------- --------- Total from investment operations.................... (2.2412) (1.8187) 1.2026 1.5450 2.5284 -------- -------- --------- --------- --------- Less distributions from: Net investment income...................... (0.0476) (0.0229) (0.0360) (0.1570) (0.1752) Capital gains................. (0.0000) (0.0003) (1.9248) (0.7622) (1.9796) -------- -------- --------- --------- --------- Total distributions. (0.0476) (0.0232) (1.9608) (0.9192) (2.1548) -------- -------- --------- --------- --------- Net asset value, end of period................. $ 8.0720 $10.3608 $ 12.2027 $ 12.9609 $ 12.3351 ======== ======== ========= ========= ========= Total return................... -21.63% -14.91% 9.28% 12.52% 21.14% Net assets, end of period (in millions)..................... $ 650 $ 913 $ 1,084 $ 941 $ 811 Ratio of expenses to average net assets ................... 0.99% 0.98% 0.98% 0.96% 0.80% Ratio of net investment income to average net assets.. 0.50% 0.21% 0.28% 1.23% 1.35% Portfolio turnover rate........ 38.37% 30.50% 49.11% 70.20% 62.84%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with Philip J. Sanders, portfolio manager of W&R Target Funds, Inc. - - Growth Portfolio This report relates to the operation of W&R Target Funds, Inc. - Growth Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The fiscal year represented the third consecutive year of broad stock market declines. In the face of this ongoing challenging market, the Portfolio posted a negative return. Nonetheless, it compared favorably with its peer group of large cap growth funds and outperformed its benchmark index. The Portfolio declined 21.30 percent over the fiscal year, compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 22.10 percent during the period, and the Lipper Variable Annuity Large-Cap Growth Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 28.64 percent during the period. What helped the Portfolio outperform its benchmark index during the fiscal year? The Portfolio's slight outperformance relative to its benchmark can be attributed to several factors. First, we maintained a slightly overweighted position in the energy sector throughout the year. This proved beneficial, as energy stocks benefited from rising oil and natural gas prices. The sector also benefited from increased investor interest in stocks possessing defensive investment characteristics. In addition, we feel that the Portfolio benefited from exposure to the aerospace/defense sector, which gained favor as the country's war on terrorism moved to the forefront. We maintained minimal exposure to the poor performing telecommunications service sector, which also helped performance somewhat. What other market conditions or events influenced the Portfolio's performance during the fiscal year? The Portfolio's return was negatively influenced by a myriad of economic, fundamental and geopolitical issues. A mostly sluggish economic environment resulted in persistent downward pressure on corporate profits throughout the year. A steady stream of corporate layoffs and several high-profile accounting scandals also affected investor sentiment. Further complicating matters was a significant rise in Middle East tensions and growing prospects for war. Notwithstanding a fourth quarter rally, the environment during the course of the fiscal year resulted in broad-based market weakness throughout the period. What strategies and techniques did you employ that specifically affected the Portfolio's performance? Our investment philosophy is based on the belief that premium long-term valuations are awarded to those companies that can generate superior levels of profitability and growth on an ongoing basis. Consequently, we continued to focus on what we feel are high quality, industry-leading companies that possess sustainable competitive advantages and are well-positioned to benefit from secular trends in the marketplace. Macroeconomic considerations and individual stock valuations also were taken into account when evaluating prices for particular securities. While we believe our investment approach is sound, it has not been enough to overcome the negative market environment in absolute terms. We believe our high quality, growth orientation will be rewarded when the investment environment improves. Many of the companies in which we invest have greatly enhanced their unique competitive positions during the economic downturn, while weaker competitors have struggled. We feel our approach likely will bring positive results when the corporate profit recovery gains momentum. What industries or securities did you emphasize during the fiscal year, and what looks attractive to you going forward? During 2002, primary areas of emphasis included health care, technology, financial services and, to a lesser extent, energy. For the time being, the Portfolio is relatively balanced between defensive growth (i.e., health care, consumer staples) and cyclical growth (technology, retail) issues. However, we expect to take on an increasingly cyclical bias as the year progresses. Once the economic recovery takes a firmer hold, technology, consumer cyclical and industrial issues are likely to receive increased investor attention. Most of these companies currently are experiencing below-average levels of profitability and are poised to show a significant acceleration in earnings when market demand improves. Given the relatively low levels of inventory in the system, along with improved balance sheets and cost structures, we believe that the positive earnings leverage for these companies should become increasingly attractive relative to more stable, defensive growth companies. Also, our exposure to financial services holdings is likely to be reduced, as we feel that meaningful interest rate declines are unlikely. We anticipate that our focus will continue to be on high quality companies that possess sustainable competitive advantages (that is, strong barriers to entry, such as proprietary technology and patents, economies of scale, and product differentiation). Respectfully, Philip J. Sanders Manager Growth Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Growth Portfolio, S&P 500 Index and Lipper Variable Annuity Large-Cap Growth Funds Universe Average

Lipper Variable Annuity Large-Cap W&R Target S&P Growth Funds Growth 500 Universe Portfolio Index Average ---------- ----- ----------- 12/31/92 Purchase $10,000 $10,000 $10,000 12/31/93 11,402 11,007 11,212 12/31/94 11,674 11,153 11,031 12/31/95 16,176 15,344 14,784 12/31/96 18,183 18,867 17,689 12/31/97 22,083 25,148 22,189 12/31/98 28,114 32,366 29,851 12/31/99 37,772 39,185 41,437 12/31/00 38,306 35,586 35,521 12/31/01 32,814 31,348 27,804 12/31/02 25,825 24,420 19,840

- ----- W&R Target Growth Portfolio(1) -- $25,825 +++++ S&P 500 Index -- $24,420 ***** Lipper Variable Annuity Large-Cap Growth Funds Universe Average -- $19,840 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. AVERAGE ANNUAL TOTAL RETURN(2) 1-year period ended 12-31-02 -21.30% 5-year period ended 12-31-02 3.18% 10-year period ended 12-31-02 9.95% (2)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE GROWTH PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Aircraft - 4.01% Lockheed Martin Corporation ....................... 390,400 $ 22,545,600 Raytheon Company .................................. 185,000 5,688,750 ------------- 28,234,350 ------------- Banks - 4.71% Bank of America Corporation ....................... 75,200 5,231,664 Citigroup Inc. .................................... 350,100 12,320,019 Mellon Financial Corporation ...................... 150,000 3,916,500 Wells Fargo & Company ............................. 250,200 11,726,874 ------------- 33,195,057 ------------- Beverages - 2.82% Anheuser-Busch Companies, Inc. .................... 230,000 11,132,000 Coca-Cola Company (The) ........................... 200,000 8,764,000 ------------- 19,896,000 ------------- Broadcasting - 3.04% Clear Channel Communications, Inc.* ............... 145,000 5,407,050 Fox Entertainment Group, Inc., Class A* 210,000 5,445,300 Viacom Inc., Class B* ............................. 258,442 10,534,096 ------------- 21,386,446 ------------- Business Equipment and Services - 4.08% Accenture Ltd, Class A* ........................... 708,000 12,736,920 BearingPoint, Inc.* ............................... 250,000 1,725,000 Manpower Inc. ..................................... 225,000 7,177,500 Staples, Inc.* .................................... 390,200 7,134,807 ------------- 28,774,227 ------------- Capital Equipment - 2.66% Cooper Cameron Corporation* ....................... 210,200 10,472,164 Parker Hannifin Corporation ....................... 180,000 8,303,400 ------------- 18,775,564 ------------- Chemicals -- Specialty - 1.91% Air Products and Chemicals, Inc. .................. 200,000 8,550,000 Praxair, Inc. ..................................... 85,000 4,910,450 ------------- 13,460,450 ------------- Communications Equipment - 3.91% Cisco Systems, Inc.* .............................. 1,541,900 20,191,181 Nokia Corporation, Series A, ADR .................. 475,000 7,362,500 ------------- 27,553,681 ------------- Computers -- Micro - 1.14% Dell Computer Corporation* ........................ 300,200 8,040,857 ------------- Computers - Peripherals - 8.30% BEA Systems, Inc.* ................................ 600,300 6,888,442 EMC Corporation* .................................. 1,259,200 7,731,488 Microsoft Corporation* ............................ 494,400 25,570,368 Oracle Corporation* ............................... 475,600 5,141,236 SAP Aktiengesellschaft, ADR ....................... 675,200 13,166,400 ------------- 58,497,934 ------------- Cosmetics and Toiletries - 1.51% Gillette Company (The) ............................ 350,400 10,638,144 ------------- Defense - 0.68% General Dynamics Corporation ...................... 60,000 4,762,200 ------------- Electronic Components - 3.89% Altera Corporation* ............................... 260,000 3,218,800 Analog Devices, Inc.* ............................. 210,200 5,017,474 Maxim Integrated Products, Inc. ................... 135,000 4,459,050 Microchip Technology Incorporated ................. 375,200 9,177,392 Texas Instruments Incorporated .................... 150,000 2,251,500 Xilinx, Inc.* ..................................... 160,000 3,286,400 ------------- 27,410,616 ------------- Electronic Instruments - 0.89% Applied Materials, Inc.* .......................... 482,600 6,288,278 ------------- Food and Related - 1.41% Kraft Foods Inc. .................................. 255,200 9,934,936 ------------- Health Care -- Drugs - 10.22% AmerisourceBergen Corporation ..................... 100,000 5,431,000 Amgen Inc.* ....................................... 190,400 9,206,792 Forest Laboratories, Inc.* ........................ 110,300 10,833,666 Gilead Sciences, Inc.* ............................ 100,000 3,391,500 Pfizer Inc. ....................................... 1,027,725 31,417,553 Pharmacia Corporation ............................. 280,250 11,714,450 ------------- 71,994,961 ------------- Health Care -- General - 3.51% Biomet, Inc. ...................................... 180,000 5,164,200 Johnson & Johnson ................................. 213,800 11,483,198 Zimmer Holdings, Inc.* ............................ 195,000 8,096,400 ------------- 24,743,798 ------------- Hospital Supply and Management - 4.49% HCA - The Healthcare Company ...................... 100,000 4,150,000 Health Management Associates, Inc., Class A ......................................... 935,700 16,749,030 Medtronic, Inc. ................................... 235,400 10,734,240 ------------- 31,633,270 ------------- Hotels and Gaming - 0.81% International Game Technology* .................... 75,000 5,694,000 ------------- Household -- General Products - 1.55% Procter & Gamble Company (The) .................... 126,800 10,897,192 ------------- Insurance -- Property and Casualty - 0.89% American International Group, Inc. ................ 108,812 6,294,774 ------------- Motor Vehicle Parts - 2.02% AutoZone, Inc.* ................................... 145,200 10,258,380 Danaher Corporation ............................... 60,000 3,942,000 ------------- 14,200,380 ------------- Motor Vehicles - 1.25% Harley-Davidson, Inc. ............................. 190,800 8,814,960 ------------- Petroleum -- Domestic - 3.35% Anadarko Petroleum Corporation .................... 235,200 11,266,080 Burlington Resources Inc. ......................... 290,000 12,368,500 ------------- 23,634,580 ------------- Petroleum -- International - 1.54% Exxon Mobil Corporation ........................... 310,000 10,831,400 ------------- Petroleum -- Services - 1.77% Baker Hughes Incorporated ......................... 255,000 8,208,450 Smith International, Inc.* ........................ 130,200 4,247,124 ------------- 12,455,574 ------------- Retail -- General Merchandise - 3.07% Kohl's Corporation* ............................... 180,000 10,071,000 Target Corporation ................................ 385,300 11,559,000 ------------- 21,630,000 ------------- Retail -- Specialty Stores - 2.30% Home Depot, Inc. (The) ............................ 300,100 7,190,396 Lowe's Companies, Inc. ............................ 240,400 9,015,000 ------------- 16,205,396 ------------- Security and Commodity Brokers - 7.58% Charles Schwab Corporation (The) .................. 330,400 3,584,840 Fannie Mae ........................................ 233,800 15,040,354 Freddie Mac ....................................... 240,200 14,183,810 Goldman Sachs Group, Inc. (The) ................... 190,200 12,952,620 Prudential Financial, Inc. ........................ 240,200 7,623,948 ------------- 53,385,572 ------------- Utilities -- Telephone - 0.51% Vodafone Group Plc, ADR ........................... 200,000 3,624,000 ------------- TOTAL COMMON STOCKS - 89.82% ....................... $ 632,888,597 (Cost: $607,565,687)

Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Banks - 1.42% Bank One Corporation, 1.25%, 1-22-03 .................................. 10,000 9,992,708 ------------- Food and Related - 1.15% ConAgra Foods, Inc., 1.42%, 1-13-03 .................................. 6,895 6,891,737 General Mills, Inc., 1.53%, Master Note .............................. 1,214 1,214,000 ------------- 8,105,737 ------------- Forest and Paper Products - 0.57% Sonoco Products Co., 1.38%, 1-16-03 .................................. 4,000 3,997,700 ------------- Health Care -- Drugs - 4.11% Alcon Finance PLC (Nestle S.A.), 1.33%, 1-17-03 .................................. 7,000 6,995,862 Pfizer Inc., 1.31%, 1-23-03 .................................. 7,000 6,994,396 Pharmacia Corporation: 1.32%, 1-21-03 .................................. 5,000 4,996,334 1.35%, 1-21-03 .................................. 10,000 9,992,500 ------------- 28,979,092 ------------- Health Care -- General - 1.34% Johnson & Johnson: 1.27%, 2-3-03 ................................... 4,500 4,494,761 1.26%, 2-5-03 ................................... 5,000 4,993,875 ------------- 9,488,636 ------------- Household -- General Products - 0.99% Procter & Gamble Company (The), 1.3%, 2-10-03 ................................... 7,000 6,989,889 ------------- Utilities -- Telephone - 0.64% SBC International Inc., 1.32%, 1-16-03 .................................. 4,500 4,497,525 ------------- Total Commercial Paper - 10.22% 72,051,287 United States Government Security - 0.71% United States Treasury Bill, 1.24%, 5-8-03 ................................... 5,000 4,978,216 ------------- TOTAL SHORT-TERM SECURITIES - 10.93% $ 77,029,503 (Cost: $77,029,503) TOTAL INVESTMENT SECURITIES - 100.75% $ 709,918,100 (Cost: $684,595,190) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.75%) (5,274,053) NET ASSETS - 100.00% ............................... $ 704,644,047

NOTES TO SCHEDULE OF INVESTMENTS *No dividends were paid during the preceding 12 months. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES GROWTH PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3). $ 709,918 Cash ........................................... 1 Receivables: Investment securities sold ................... 2,721 Dividends and interest ....................... 184 Fund shares sold ............................. 110 Prepaid insurance premium ...................... 8 --------- Total assets ................................ 712,942 --------- LIABILITIES Payable for investment securities purchased .... 7,980 Payable to Fund shareholders ................... 261 Accrued management fee (Note 2) ................ 14 Accrued accounting services fee (Note 2) ....... 6 Accrued service fee (Note 2) ................... 5 Other .......................................... 32 --------- Total liabilities ........................... 8,298 --------- Total net assets .......................... $ 704,644 ========= NET ASSETS $0.001 par value capital stock: Capital stock ................................ $ 107 Additional paid-in capital ................... 845,238 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ..................... (166,024) Net unrealized appreciation in value of investments ........................ 25,323 --------- Net assets applicable to outstanding units of capital ................................ $ 704,644 ========= Net asset value, redemption and offering price per share ................... $ 6.6041 ========= Capital shares outstanding ...................... 106,698 Capital shares authorized ....................... 190,000 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS GROWTH PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Dividends (net of foreign withholding taxes of $16) $ 6,981 Interest and amortization ............................ 1,434 --------- Total income ........................................ 8,415 --------- Expenses (Note 2): Investment management fee ............................ 5,891 Service fee .......................................... 2,104 Accounting services fee .............................. 88 Custodian fees ....................................... 42 Legal fees ........................................... 10 Audit fees ........................................... 9 Other ................................................ 179 --------- Total expenses ...................................... 8,323 --------- Net investment income ............................. 92 --------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments ....................... (81,247) Unrealized depreciation in value of investments during the period .................................... (126,019) --------- Net loss on investments .............................. (207,266) --------- Net decrease in net assets resulting from operations ................................... $(207,174) ========= SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS GROWTH PORTFOLIO (In Thousands)

For the fiscal year ended December 31, -------------------------- 2002 2001 ----------- ----------- DECREASE IN NET ASSETS Operations: Net investment income ..................... $ 92 $ 2,900 Realized net loss on investments .......... (81,247) (78,995) Unrealized depreciation ................... (126,019) (106,389) ----------- ----------- Net decrease in net assets resulting from operations .............. (207,174) (182,484) ----------- ----------- Dividends to shareholders from (Note 1E):(1) Net investment income ..................... (92) (2,900) Realized gains on securities transactions ............................ -- (5,782) ----------- ----------- (92) (8,682) ----------- ----------- Capital share transactions(2) .............. (83,472) (69,828) ----------- ----------- Total decrease .......................... (290,738) (260,994) NET ASSETS Beginning of period ........................ 995,382 1,256,376 ----------- ----------- End of period .............................. $ 704,644 $ 995,382 =========== =========== Undistributed net investment income ....... $ -- $ -- =========== =========== (1)See "Financial Highlights" on page 68.... (2)Shares issued from sale of shares ....... 17,139 39,502 Shares issued from reinvestment of dividend and/or capital gains distribution 14 1,035 Shares redeemed ............................ (29,061) (49,054) ----------- ----------- Decrease in outstanding capital shares ..... (11,908) (8,517) =========== =========== Value issued from sale of shares ........... $ 130,482 $ 339,919 Value issued from reinvestment of dividend and/or capital gains distribution 92 8,682 Value redeemed ............................. (214,046) (418,429) ----------- ----------- Decrease in outstanding capital ............ $ (83,472) $ (69,828) =========== ===========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS GROWTH PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- ------- Net asset value, beginning of period ..................... $ 8.3923 $ 9.8831 $10.8751 $ 9.2989 $ 7.5679 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income ................... 0.0009 0.0246 0.0163 0.0056 0.0456 Net realized and unrealized gain (loss) on investments ............ (1.7882) (1.4417) 0.1375 3.1886 2.0215 -------- -------- -------- -------- -------- Total from investment operations ................. (1.7873) (1.4171) 0.1538 3.1942 2.0671 -------- -------- -------- -------- -------- Less distributions from: Net investment income .................... (0.0009) (0.0246) (0.0163) (0.0056) (0.0456) Capital gains .............. (0.0000) (0.0491) (1.1295) (1.6124) (0.2905) -------- -------- -------- -------- -------- Total distributions (0.0009) (0.0737) (1.1458) (1.6180) (0.3361) -------- -------- -------- -------- -------- Net asset value, end of period .............. $ 6.6041 $ 8.3923 $ 9.8831 $10.8751 $ 9.2989 ======== ======== ======== ======== ======== Total return ................. -21.30% -14.34% 1.41% 34.35% 27.31% Net assets, end of period (in millions) .................. $ 705 $ 995 $ 1,256 $ 1,163 $ 825 Ratio of expenses to average net assets ..................... 0.99% 0.97% 0.96% 0.96% 0.80% Ratio of net investment income to average net assets ................. 0.01% 0.27% 0.14% 0.06% 0.55% Portfolio turnover rate ....................... 40.58% 50.70% 56.52% 65.82% 75.58%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with William M. Nelson, portfolio manager of W&R Target Funds, Inc. - - High Income Portfolio This report relates to the operation of W&R Target Funds, Inc. - High Income Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the fiscal year? The Portfolio maintained a more defensive posture for most of the year and performed relatively well, but a rally in the equity markets in late 2002 hindered results, causing a slight underperformance to the benchmark index. For the fiscal year, the Portfolio declined 2.02 percent, compared with the Salomon Brothers High Yield Market Index (generally reflecting the performance of securities that represent the high yield bond market), which declined 1.53 percent during the period, and the Lipper Variable Annuity High Current Yield Funds Universe Average (reflecting the performance of the universe of funds with similar objectives), which declined 0.72 percent for the fiscal year. Why did the Portfolio slightly lag its benchmark index during the fiscal year? A number of factors affected Portfolio performance. Monthly returns in the high yield sector were extremely volatile. Returns in general appeared to be predicated on whether investors were allocating assets to a particular sector, and also on the general direction equity markets were moving. The Portfolio entered 2002 more defensive than the benchmark. Liquidity became more constrained and spreads widened on those credits that appeared "tainted" with any negative issue. Cable and wireless were no exception, and we significantly reduced our exposure in these sectors. What other market conditions or events influenced the Portfolio's performance during the fiscal year? The Portfolio's return was significantly impacted by the general uneasiness in most of the markets, as well as the continuing geopolitical risks. Two major market conditions that affected returns in general were the more than 10 percent default rate that occurred again in 2002 and the numerous "fallen angels" of investment grade and crossover markets. Investments in general were tested with the numerous accounting and fraud scandals that plagued all markets, especially those that were more leveraged. What strategies and techniques did you employ that specifically affected the Portfolio's performance? In response to these issues plaguing the high yield market over the last few years, the Portfolio continued to hold higher quality credits, typically rated B. We also purchased securities of shorter duration in an effort to minimize price volatility. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? During most of the year, the Portfolio was more defensive in nature. As 2003 opens, we believe the Federal Reserve rate cuts are near or at the end. We believe that the default rate will decline from its recent high. Even though we are not anticipating that interest rates will move upward appreciably in the early part of 2003, we feel that it is possible that they will do so later in 2003. We are looking to become a bit more aggressive in restructuring the Portfolio so that risk is more balanced, as we believe the economy likely will rebound sometime in 2003. In general, we intend to continue to favor quality credits, including those that may be less sensitive to increasing interest rates, which may provide more upside potential in a rebounding economy. Respectfully, William M. Nelson Manager High Income Portfolio Comparison of Change in Value of $10,000 Investment W&R Target High Income Portfolio, Salomon Brothers High Yield Market Index and Lipper Variable Annuity High Current Yield Funds Universe Average

Lipper Salomon Variable Brothers Annuity High High Current W&R Target Yield Yield Funds High Income Market Universe Portfolio Index Average ----------- --------- ------------ 12/31/92 Purchase $10,000 $10,000 $10,000 12/31/93 11,788 11,738 11,851 12/31/94 11,490 11,592 11,555 12/31/95 13,584 13,878 13,665 12/31/96 15,270 15,443 15,563 12/31/97 17,413 17,481 17,667 12/31/98 17,754 18,111 17,837 12/31/99 18,502 18,425 18,422 12/31/00 16,703 17,379 17,062 12/31/01 18,236 18,324 17,211 12/31/02 17,867 18,044 17,087

+++++ W&R Target High Income Portfolio(1) -- $17,867 - ----- Salomon Brothers High Yield Market Index -- $18,044 ***** Lipper Variable Annuity High Current Yield Funds Universe Average -- $17,087 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. AVERAGE ANNUAL TOTAL RETURN(2) 1-year period ended 12-31-02 -2.02% 5-year period ended 12-31-02 0.52% 10-year period ended 12-31-02 5.97% (2)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. Investing in high income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS, RIGHTS AND WARRANTS Communications Equipment - 0.00% Primus Telecommunications Group, Incorporated, Warrants* ......................... 500 $ 563 ------------ Petroleum -- Services - 0.21% Baker Hughes Incorporated ......................... 5,000 160,950 Schlumberger Limited .............................. 2,500 105,225 ------------ 266,175 ------------ Retail -- General Merchandise - 0.14% United Auto Group, Inc.* .......................... 15,000 187,050 ------------ Security and Commodity Brokers - 0.00% ONO Finance Plc, Rights (A)* ...................... 250 3 ------------ Trucking and Shipping - 0.21% Pacer International, Inc.* ........................ 20,000 266,300 ------------ Utilities -- Telephone - 0.00% GT Group Telecom, Inc., Warrants (A)* ............. 300 300 IWO Holdings, Inc., Warrants (A)* ................. 1,500 15 Leap Wireless International, Inc., Warrants (A)* ................................... 1,250 12 ------------ 327 ------------ TOTAL COMMON STOCKS, RIGHTS AND WARRANTS - 0.56% $ 720,418 (Cost: $1,441,123) PREFERRED STOCKS Broadcasting - 0.01% Adelphia Communications Corporation, 13.0% 12,500 9,375 ------------ Multiple Industry - 0.93% Anvil Holdings, Inc., 13.0%* ...................... 65,626 1,197,684 ------------ Savings and Loans - 0.41% California Federal Preferred Capital Corporation, 9.125% ............................. 20,000 520,200 ------------ Utilities -- Telephone - 0.00% Intermedia Communications Inc., 13.5%* ............ 1 3 ------------ TOTAL PREFERRED STOCKS - 1.35% $ 1,727,262 (Cost: $2,427,775)

Principal Amount in Thousands CORPORATE DEBT SECURITIES Broadcasting - 3.92% Gray Communications Systems, Inc., 9.25%, 12-15-11 ................................. $ 500 538,125 Insight Communications Company, Inc., 0.0%, 2-15-11 (B) ............................... 1,000 551,250 LIN Television Corporation, 8.0%, 1-15-08 ................................... 1,000 1,058,750 Mediacom Broadband LLC and Mediacom Broadband Corporation, 11.0%, 7-15-13 .................................. 50 50,750 PanAmSat Corporation: 6.0%, 1-15-03 ................................... 50 50,000 8.75%, 2-1-12 (A) ............................... 1,250 1,193,750 Sinclair Broadcast Group, Inc., 8.75%, 12-15-11 ................................. 500 538,125 Spanish Broadcasting System, Inc., 9.625%, 11-1-09 ................................. 1,000 1,035,000 ------------ 5,015,750 ------------ Business Equipment and Services - 10.27% Alderwoods Group, Inc., 12.25%, 1-2-09 .................................. 500 455,000 Allbritton Communications Company, 9.75%, 11-30-07 ................................. 500 517,500 Allied Waste North America, Inc.: 8.5%, 12-1-08 ................................... 2,000 2,010,000 10.0%, 8-1-09 ................................... 2,000 1,985,000 Avis Rent A Car, Inc., 11.0%, 5-1-09 ................................... 1,746 1,911,870 Browning-Ferris Industries, Inc., 6.1%, 1-15-03 ................................... 470 470,072 Graphic Packaging Corporation, 8.625%, 2-15-12 ................................. 400 421,000 IESI Corporation, 10.25%, 6-15-12 (A) ............................. 1,150 1,109,750 Lamar Advertising Company, 9.625%, 12-1-06 ................................. 1,000 1,032,500 R.H. Donnelley Finance Corporation I: 8.875%, 12-15-10 (A) ............................ 250 267,500 10.875%, 12-15-12 (A) ........................... 400 436,000 Salem Communications Corporation, 9.5%, 10-1-07 ................................... 45 47,081 Vertis, Inc.: 10.875%, 6-15-09 ................................ 1,000 1,040,000 10.875%, 6-15-09 (A) ............................ 400 416,000 Waste Management, 6.375%, 11-15-12 (A) ............................ 1,000 1,029,049 ------------ 13,148,322 ------------ Capital Equipment - 3.03% AAF-McQuay Inc., 8.875%, 2-15-03 ................................. 2,000 2,000,000 CSK Auto, Inc., 12.0%, 6-15-06 .................................. 1,500 1,605,000 Cummins Inc., 9.5%, 12-1-10 (A) ............................... 250 266,250 ------------ 3,871,250 ------------ Chemicals -- Petroleum and Inorganic - 2.43% Berry Plastics Corporation, 10.75%, 7-15-12 ................................. 300 319,500 Lyondell Chemical Company, 9.5%, 12-15-08 (A) .............................. 3,000 2,790,000 ------------ 3,109,500 ------------ Chemicals -- Specialty - 1.66% Buckeye Cellulose Corporation, 8.5%, 12-15-05 .................................. 1,750 1,583,750 Salt Holdings Corporation, 0.0%, 12-15-12 (A) (B) .......................... 1,000 540,000 ------------ 2,123,750 ------------ Communications Equipment - 1.13% EchoStar DBS Corporation, 9.375%, 2-1-09 .................................. 500 528,750 Pliant Corporation, 13.0%, 6-1-10 ................................... 1,000 915,000 ------------ 1,443,750 ------------ Construction Materials - 1.48% Brand Services, Inc., 12.0%, 10-15-12 (A) ............................. 650 682,500 Interface, Inc., 10.375%, 2-1-10 ................................. 1,250 1,212,500 ------------ 1,895,000 ------------ Consumer Electronics - 3.46% ACME Television, LLC and ACME Finance Corporation, 10.875%, 9-30-04 ................................ 26 26,455 LIN Holdings Corp.: 0.0%, 3-1-08 (B) ................................ 2,275 2,323,344 0.0%, 3-1-08 (B) ................................ 2,000 2,077,500 ------------ 4,427,299 ------------ Containers - 2.91% BWAY Corporation, 10.0%, 10-15-10 (A) ............................. 1,000 1,037,500 MDP Acquisitions plc, 9.625%, 10-1-12 (A) ............................. 650 676,000 Owens-Illinois, Inc., 7.15%, 5-15-05 .................................. 1,000 961,250 Silgan Holdings Inc., 9.0%, 6-1-09 .................................... 1,000 1,042,500 ------------ 3,717,250 ------------ Cosmetics and Toiletries - 0.02% Chattem, Inc., 8.875%, 4-1-08 .................................. 21 21,630 ------------ Electrical Equipment - 3.97% Integrated Electrical Services, Inc., 9.375%, 2-1-09 .................................. 1,500 1,380,000 Nortek, Inc., 9.875%, 6-15-11 ................................. 1,000 1,001,250 Rexnord Corporation, 10.125%, 12-15-12 (A) ........................... 1,400 1,435,000 SPX Corporation, 7.5%, 1-1-13 .................................... 1,250 1,267,188 ------------ 5,083,438 ------------ Finance Companies - 4.88% American Seafoods Group LLC and American Seafoods, Inc., 10.125%, 4-15-10 ................................ 860 877,200 Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., 8.75%, 6-15-12 .................................. 2,000 2,070,000 NMHG Holding Co., 10.0%, 5-15-09 .................................. 2,000 2,000,000 Nexstar Finance, L.L.C. and Nexstar Finance, Inc., 12.0%, 4-1-08 ................................... 500 542,500 Owens-Brockway Glass Container Inc., 8.75%, 11-15-12 (A) ............................. 750 761,250 ------------ 6,250,950 ------------ Food and Related - 1.67% Aurora Foods Inc., 9.875%, 2-15-07 ................................. 2,250 1,113,750 Chiquita Brands International, Inc., 10.56%, 3-15-09 ................................. 1,000 1,023,750 ------------ 2,137,500 ------------ Forest and Paper Products - 1.20% Jefferson Smurfit Corporation, 8.25%, 10-1-12 (A) .............................. 1,500 1,530,000 ------------ Furniture and Furnishings - 0.41% Associated Materials Incorporated, 9.75%, 4-15-12 .................................. 500 527,500 ------------ Health Care -- Drugs - 1.17% aaiPharma Inc., 11.0%, 4-1-10 ................................... 1,500 1,500,000 ------------ Health Care -- General - 2.61% Alliance Imaging, Inc., 10.375%, 4-15-11 ................................ 750 731,250 AmerisourceBergen Corporation, 8.125%, 9-1-08 .................................. 30 31,950 Bergen Brunswig Corporation, 7.25%, 6-1-05 ................................... 250 255,000 MedQuest, Inc., 11.875%, 8-15-12 (A) ............................ 1,500 1,462,500 Sybron Dental Specialties, Inc., 8.125%, 6-15-12 ................................. 850 858,500 ------------ 3,339,200 ------------ Homebuilders, Mobile Homes - 1.51% M.D.C. Holdings, Inc., 7.0%, 12-1-12 ................................... 1,000 965,000 WCI Communities, Inc., 10.625%, 2-15-11 ................................ 1,000 965,000 ------------ 1,930,000 ------------ Hospital Supply and Management - 5.81% Columbia/HCA Healthcare Corporation: 7.0%, 7-1-07 .................................... 2,111 2,241,375 7.25%, 5-20-08 .................................. 500 535,399 Coventry Health Care, Inc., 8.125%, 2-15-12 ................................. 1,500 1,560,000 Extendicare Health Services, Inc., 9.35%, 12-15-07 ................................. 1,000 830,000 Insight Health Services Corp., 9.875%, 11-1-11 ................................. 1,250 1,200,000 Triad Hospitals, Inc., 8.75%, 5-1-09 ................................... 45 48,206 United Surgical Partners Holdings, Inc., 10.0%, 12-15-11 ................................. 1,000 1,025,000 ------------ 7,439,980 ------------ Hotels and Gaming - 3.40% Ameristar Casinos, Inc., 10.75%, 2-15-09 ................................. 250 273,750 CapStar Hotel Company, 8.75%, 8-15-07 .................................. 500 335,000 Circus and Eldorado Joint Venture and Silver Legacy Capital Corp., 10.125%, 3-1-12 ................................. 400 394,000 John Q Hammons Hotels, L.P. and John Q Hammons Hotels Finance Corporation III, 8.875%, 5-15-12 ................................. 250 251,250 Mandalay Resort Group, 9.375%, 2-15-10 ................................. 250 268,750 Mohegan Tribal Gaming Authority, 8.0%, 4-1-12 .................................... 600 625,500 Prime Hospitality Corp., 8.375%, 5-1-12 .................................. 650 630,500 Venetian Casino Resort, LLC and Las Vegas Sands, Inc., 11.0%, 6-15-10 (A) .............................. 1,500 1,567,500 ------------ 4,346,250 ------------ Household -- General Products - 6.79% B & G Foods, Inc., 9.625%, 8-1-07 .................................. 1,500 1,543,125 Cott Beverages Inc., 8.0%, 12-15-11 .................................. 1,000 1,060,000 Del Monte Corporation, 8.625%, 12-15-12 (A) ............................ 400 408,000 JohnsonDiversey, Inc., 9.625%, 5-15-12 (A) ............................. 1,000 1,052,500 Levi Strauss & Co., 12.25%, 12-15-12 (A) ............................ 500 490,000 Sealy Mattress Company: 9.875%, 12-15-07 ................................ 300 288,000 10.875%, 12-15-07 ............................... 1,250 1,212,500 Simmons Company, 10.25%, 3-15-09 ................................. 1,510 1,600,600 Susquehanna Media Co., 8.5%, 5-15-09 ................................... 1,000 1,032,500 ------------ 8,687,225 ------------ Leisure Time Industry - 1.49% Premier Parks Inc., 9.75%, 6-15-07 .................................. 1,000 970,000 Six Flags, Inc., 8.875%, 2-1-10 .................................. 1,000 940,000 ------------ 1,910,000 ------------ Metal Fabrication - 0.40% Wolverine Tube, Inc., 10.5%, 4-1-09 ................................... 500 510,000 ------------ Mining - 1.71% Compass Minerals Group, Inc., 10.0%, 8-15-11 .................................. 2,000 2,190,000 ------------ Motion Pictures - 2.88% AMC Entertainment Inc., 9.5%, 3-15-09 ................................... 2,000 1,980,000 Cinemark USA, Inc.: 8.5%, 8-1-08 .................................... 1,000 952,500 9.625%, 8-1-08 .................................. 750 750,000 ------------ 3,682,500 ------------ Motor Vehicle Parts - 0.39% Collins & Aikman Floorcoverings, Inc., 9.75%, 2-15-10 .................................. 500 500,000 ------------ Motor Vehicles - 0.24% Sonic Automotive, Inc., 11.0%, 8-1-08 ................................... 300 306,000 ------------ Multiple Industry - 3.15% Fisher Scientific International Inc., 8.125%, 5-1-12 .................................. 1,500 1,552,500 Phoenix Color Corp., 10.375%, 2-1-09 ................................. 1,500 1,275,000 WESCO Distribution, Inc., 9.125%, 6-1-08 .................................. 1,500 1,200,000 ------------ 4,027,500 ------------ Petroleum -- Domestic - 2.31% Chesapeake Energy Corporation: 7.875%, 3-15-04 ................................. 1,500 1,560,000 9.0%, 8-15-12 (A) ............................... 500 530,000 Giant Industries, Inc., 11.0%, 5-15-12 .................................. 500 335,000 Westport Resources Corporation, 8.25%, 11-1-11 (A) .............................. 500 525,000 ------------ 2,950,000 ------------ Petroleum -- Services - 1.21% Key Energy Services, Inc., 8.375%, 3-1-08 .................................. 750 783,750 SESI, L.L.C., 8.875%, 5-15-11 ................................. 750 765,000 ------------ 1,548,750 ------------ Publishing - 2.70% Dex Media East LLC and Dex Media East Finance Co.: 9.875%, 11-15-09 (A) ............................ 525 561,750 12.125%, 11-15-12 (A) ........................... 525 581,438 Hollinger International Publishing Inc., 9.0%, 12-15-10 (A) .............................. 1,000 1,008,750 TransWestern Publishing Company LLC, 9.625%, 11-15-07 ................................ 1,250 1,306,250 ------------ 3,458,188 ------------ Railroad - 0.74% Kansas City Southern Railway Company (The), 7.5%, 6-15-09 ................................... 900 949,500 ------------ Real Estate Investment Trusts - 1.03% Meritage Corporation, 9.75%, 6-1-11 ................................... 1,260 1,316,700 ------------ Retail -- General Merchandise - 3.24% Advance Stores Company, Incorporated, 10.25%, 4-15-08 ................................. 750 795,000 Domino's, Inc., 10.375%, 1-15-09 ................................ 1,750 1,890,000 Roundy's, Inc.: 8.875%, 6-15-12 (A) ............................. 750 735,000 8.875%, 6-15-12 ................................. 250 245,000 United Auto Group, Inc., 9.625%, 3-15-12 (A) ............................. 500 485,000 ------------ 4,150,000 ------------ Retail -- Specialty Stores - 2.64% American Achievement Corporation, 11.625%, 1-1-07 ................................. 1,000 1,061,250 Cole National Group, Inc., 8.875%, 5-15-12 ................................. 900 846,000 Jo-Ann Stores, Inc., 10.375%, 5-1-07 ................................. 400 415,500 Michaels Stores, Inc., 9.25%, 7-1-09 ................................... 1,000 1,055,000 ------------ 3,377,750 ------------ Timesharing and Software - 0.78% NDCHealth Corporation, 10.5%, 12-1-12 (A) .............................. 1,000 1,000,000 ------------ Trucking and Shipping - 0.40% Stena AB, 9.625%, 12-1-12 (A) ............................. 500 516,250 ------------ Utilities -- Electric - 0.80% National Waterworks, Inc., 10.5%, 12-1-12 (A) .............................. 500 521,875 Nevada Power Company, 10.875%, 10-15-09 (A) ........................... 500 505,000 ------------ 1,026,875 ------------ Utilities -- Gas and Pipeline - 2.83% AmeriGas Partners, L.P. and AP Eagle Finance Corp.: 8.875%, 5-20-11 ................................. 500 520,000 8.875%, 5-20-11 (A) ............................. 2,500 2,600,000 Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp., 12.0%, 11-1-10 .................................. 500 505,000 ------------ 3,625,000 ------------ Utilities -- Telephone - 0.98% Triton PCS, Inc., 0.0%, 5-1-08 (B) ................................ 1,500 1,248,750 ------------ TOTAL CORPORATE DEBT SECURITIES - 93.65% $119,839,307 (Cost: $119,454,347) TOTAL SHORT-TERM SECURITIES - 2.72% $ 3,477,572 (Cost $3,477,572) TOTAL INVESTMENT SECURITIES - 98.28% $125,764,559 (Cost: $126,800,817) CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.72% 2,203,311 NET ASSETS - 100.00% $127,967,870

Notes to Schedule of Investments *No dividends were paid during the preceding 12 months. (A)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the total value of these securities amounted to $28,721,442 or 22.44% of net assets. (B)The security does not bear interest for an initial period of time and subsequently becomes interest bearing. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES HIGH INCOME PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts)

ASSETS Investment securities--at value (Notes 1 and 3) $ 125,765 Cash .......................................... 1 Receivables: Dividends and interest ...................... 2,210 Fund shares sold ............................ 33 Prepaid insurance premium ..................... 2 --------- Total assets ................................ 128,011 --------- LIABILITIES Payable to Fund shareholders .................. 30 Accrued accounting services fee (Note 2) ...... 4 Accrued management fee (Note 2) ............... 2 Accrued service fee (Note 2) .................. 1 Other ......................................... 6 --------- Total liabilities ........................... 43 --------- Total net assets ........................... $ 127,968 ========= NET ASSETS $0.001 par value capital stock: Capital stock ............................... $ 43 Additional paid-in capital .................. 173,052 Accumulated undistributed loss: Accumulated undistributed net realized loss on investment transactions ................. (44,091) Net unrealized depreciation in value of investments ....................... (1,036) --------- Net assets applicable to outstanding units of capital ............................... $ 127,968 ========= Net asset value, redemption and offering price per share .................. $ 2.9986 ========= Capital shares outstanding ..................... 42,676 Capital shares authorized ...................... 70,000

SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS HIGH INCOME PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization ................... $ 11,242 Dividends ................................... 128 -------- Total income ............................... 11,370 -------- Expenses (Note 2): Investment management fee ................... 759 Service fee ................................. 303 Accounting services fee ..................... 44 Custodian fees .............................. 14 Audit fees .................................. 7 Legal fees .................................. 2 Other ....................................... 24 -------- Total expenses ............................. 1,153 -------- Net investment income .................... 10,217 -------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments .............. (11,835) Unrealized depreciation in value of investments during the period ........................... (847) -------- Net loss on investments ..................... (12,682) -------- Net decrease in net assets resulting from operations .......................... $ (2,465) ======== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS HIGH INCOME PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ----------------------- 2002 2001 --------- ---------- INCREASE IN NET ASSETS Operations: Net investment income .................. $ 10,217 $ 10,635 Realized net loss on investments ....... (11,835) (10,744) Unrealized appreciation (depreciation) . (847) 9,495 --------- --------- Net increase (decrease) in net assets resulting from operations ........... (2,465) 9,386 --------- --------- Dividends to shareholders from net investment income (Note 1E)(1) ......... (10,217) (10,635) --------- --------- Capital share transactions(2) ........... 24,323 15,749 --------- --------- Total increase ....................... 11,641 14,500 NET ASSETS Beginning of period ..................... 116,327 101,827 --------- --------- End of period ........................... $ 127,968 $ 116,327 ========= ========= Undistributed net investment income .... $ --- $ --- ========= ========= (1)See "Financial Highlights" on page 85 (2)Shares issued from sale of shares .... 12,223 15,528 Shares issued from reinvestment of dividend ............................... 3,407 3,197 Shares redeemed ......................... (7,928) (14,109) --------- --------- Increase in outstanding capital shares .. 7,702 4,616 ========= ========= Value issued from sale of shares ........ $ 39,863 $ 55,473 Value issued from reinvestment of dividend ............................... 10,217 10,635 Value redeemed .......................... (25,757) (50,359) --------- --------- Increase in outstanding capital ......... $ 24,323 $ 15,749 ========= =========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS HIGH INCOME PORTFOLIO For a Share of Capital Stock Outstanding Throughout Each Period:

For the fiscal year ended December 31, ---------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of period ........... $ 3.3261 $ 3.3542 $ 4.1691 $ 4.4143 $ 4.7402 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income .......... 0.2602 0.3346 0.4107 0.4313 0.4185 Net realized and unrealized loss on investments .. (0.3275) (0.0281) (0.8149) (0.2452) (0.3259) -------- -------- -------- -------- -------- Total from investment operations ....... (0.0673) 0.3065 (0.4042) 0.1861 0.0926 -------- -------- -------- -------- -------- Less distributions from net investment income (0.2602) (0.3346) (0.4107) (0.4313) (0.4185) -------- -------- -------- -------- -------- Net asset value, end of period .... $ 2.9986 $ 3.3261 $ 3.3542 $ 4.1691 $ 4.4143 ======== ======== ======== ======== ======== Total return ....... -2.02% 9.18% -9.73% 4.22% 1.95% Net assets, end of period (in millions) ........ $ 128 $ 116 $ 102 $ 121 $ 126 Ratio of expenses to average net assets ........... 0.95% 0.93% 0.96% 0.92% 0.77% Ratio of net investment income to average net assets ....... 8.42% 9.60% 10.02% 9.17% 8.76% Portfolio turnover rate ............. 85.17% 193.71% 118.96% 87.84% 63.64%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with Thomas A. Mengel, portfolio manager of W&R Target Funds, Inc. - - International Portfolio This report relates to the operation of W&R Target Funds, Inc. - International Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The Portfolio declined 18.15 percent for the fiscal year, underperforming its benchmark index. The Morgan Stanley Capital International E.A.FE. Index (Europe, Australia, Far East -- the index that generally reflects the performance of the international securities markets) declined 15.94 percent during the period, and the Lipper Variable Annuity International Funds Universe Average (reflecting the performance of the universe of funds with similar objectives) declined 16.64 percent for the year. Why did the Portfolio lag its benchmark index during the fiscal year? The Portfolio was underweight in Japanese equities and generally overweight in continental Europe during the fiscal year. However, Japan ended 2002 as the best performing developed market, largely because broad market expectations of severe financial stress did not materialize. Continental Europe suffered some of the weakest equity market returns last year, thus affecting overall Portfolio performance. What other market conditions or events influenced the Portfolio's performance during the fiscal year? Early in the fiscal year, it appeared as though the unprecedented amount of global monetary ease had pulled the world economy out of a sharp but short downturn. Continental Europe enjoyed a successful introduction of euro notes and coins in January 2002, which we felt was a major step in reducing transaction costs and barriers to business. Consumer and business sentiment in major countries improved for several months in early 2002. Also, purchasing manager indexes, late in the first calendar quarter, broadly reflected what appeared to be a return to economic growth. In the second half of the fiscal year, however, investor sentiment grew more uncertain, becoming risk-averse at times. Economic growth began to slow again by mid-year, and U.S. employment declined. Structural problems in Europe and Japan (such as inflexible labor markets) tend to become more pronounced during periods of U.S. economic weakness, resulting in relatively weaker foreign stock markets. Major central banks continued to reduce interest rates, but rising budget deficits suggested that fiscal stimulus would be limited, especially in Europe. Adding to the challenges, global geopolitical turmoil increased late in the year, led by concerns surrounding a potential military conflict in Iraq. Because the Portfolio holds primarily foreign investments, the strong U.S. dollar had a negative impact on our valuation early in the fiscal year. Since that time, we have generally enjoyed a positive currency impact from the dollar's weaker trend. The euro has now stabilized in value and become an acceptable part of European life. What strategies and techniques did you employ that specifically affected the Portfolio's performance? Early in the fiscal year we increased our holdings of cyclical and growth shares, as global economic growth rebounded. However, we believe that many of our large cap stocks were hurt by broad corporate profit concerns and by corporate accounting issues that remained in the spotlight. The Portfolio continues to hold what we feel are fundamentally sound growth companies that were negatively impacted by these factors. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? We have continued to emphasize growth companies in continental Europe that we feel possess defensive characteristics (consumer products, led by strong management, solid balance sheets, attractive dividend yield, competitive position). In Britain, we have focused on growth stocks that have benefited from the strong domestic economy. Despite continuing imbalances within Japan's economy, we believe that the country still offers good companies with solid balance sheets, good management and growth prospects, especially some of the larger exporters we have selected. In Asia, we have concentrated our holdings on industry leaders that we feel should benefit from continued strong Chinese business demand. Overall, the difficult business climate of the last few years has forced many foreign companies to accelerate restructuring efforts. This is a positive improvement that we feel should be an important focus for investors once the broader financial and geopolitical environment improves. Respectfully, Thomas A. Mengel Manager International Portfolio Comparison of Change in Value of $10,000 Investment W&R Target International Portfolio, Morgan Stanley Capital International E.A.FE. Index and Lipper Variable Annuity International Funds Universe Average

Lipper Morgan Variable Stanley Annuity Capital International W&R Target International Funds International E.A.FE. Universe Portfolio Index Average ------------- -------------- ------------- 05/03/94 Purchase $10,000 $10,000 $10,000 12/31/94 10,026 9,990 9,821 12/31/95 10,756 11,110 11,065 12/31/96 12,381 11,782 12,646 12/31/97 14,448 11,991 13,385 12/31/98 19,345 14,389 15,256 12/31/99 32,031 18,269 21,853 12/31/00 24,454 15,681 18,587 12/31/01 19,017 12,318 14,566 12/31/02 15,565 10,354 12,142

- ----- W&R Target International Portfolio(1) -- $15,565 +++++ Morgan Stanley Capital International E.A.FE. Index(2) -- $10,354 ***** Lipper Variable Annuity International Funds Universe Average(2) -- $12,142 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes were effected as of April 30, 1994. Average Annual Total Return(3)

1-year period ended 12-31-02 -18.15% 5-year period ended 12-31-02 1.50% 8+ year period ended 12-31-02(4) 5.24%

(3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)5-3-94 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. International investing involves special risks, including political, economic and currency risks. THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Bermuda - 0.48% Johnson Electric Holdings Limited (A) ............. 600,000 $ 661,657 ------------ Denmark - 0.75% Novo Nordisk A/S, Class B (A) ..................... 36,000 1,039,361 ------------ Finland - 3.44% Nokia Oyj (A) ..................................... 151,400 2,404,955 Stora Enso Oyj, R Shares (A) ...................... 93,400 984,196 UPM-Kymmene Oyj (A) ............................... 43,000 1,379,616 ------------ 4,768,767 ------------ France - 10.56% AXA (A) ........................................... 30,000 402,309 Accor SA (A) ...................................... 34,280 1,037,303 Aventis S.A. (A) .................................. 18,800 1,021,071 BNP Paribas SA (A) ................................ 56,500 2,300,299 Carrefour SA (A) .................................. 32,200 1,432,509 Lafarge S.A. (A) .................................. 8,900 670,012 Publicis Groupe S.A. (A) .......................... 41,170 871,968 Renault SA (A) .................................... 23,100 1,084,587 Societe Generale, Class A (A) ..................... 20,300 1,181,293 Suez (A) .......................................... 110,000 1,907,641 TotalFinaElf, S.A. (A) ............................ 19,200 2,739,856 ------------ 14,648,848 ------------ Germany - 7.91% Altana AG (A) ..................................... 32,700 1,479,439 BASF Aktiengesellschaft (A) ....................... 37,400 1,407,779 Deutsche Boerse AG (A) ............................ 36,000 1,430,573 GEHE AG (A) ....................................... 29,838 1,154,422 Henkel Kommanditgesellschaft auf Aktien (A) .................................. 26,000 1,643,838 Linde AG (A) ...................................... 23,800 873,401 Munchener Ruckversicherungs - Gesellschaft Aktiengesellschaft (A) .......................... 13,000 1,552,514 Siemens AG (A) .................................... 5,950 252,662 VOLKSWAGEN AKTIENGESELLSCHAFT (A) ................. 32,800 1,186,483 ------------ 10,981,111 ------------ Hong Kong - 0.95% Cheung Kong (Holdings) Limited (A) ................ 100,000 650,758 Hutchison Whampoa Limited, Ordinary Shares (A) ............................. 106,000 663,299 ------------ 1,314,057 ------------ Ireland - 2.00% Bank of Ireland (The) (A) ......................... 111,501 1,144,537 DePfa Deutsche Pfandbriefbank AG (A) .............. 31,080 1,629,369 ------------ 2,773,906 ------------ Israel - 0.04% vi[z]rt (A)(B)* ................................... 60,000 53,473 ------------ Italy - 10.12% Assicurazioni Generali S.p.A. (A) ................. 120,100 2,468,127 Eni S.p.A. (A) .................................... 152,900 2,428,782 Saipem S.p.A. (A) ................................. 333,700 2,228,764 Telecom Italia Mobile S.p.A. (A) .................. 413,400 1,885,507 Telecom Italia S.p.A., Ordinary Shares (A) ...................................... 364,700 2,764,665 UniCredito Italiano SpA (A) ....................... 566,100 2,261,448 ------------ 14,037,293 ------------ Japan - 12.04% Canon Inc. (A) .................................... 39,000 1,468,289 Daito Trust Construction Co., Ltd. (A) ............ 71,100 1,571,949 Eisai Co., Ltd. (A) ............................... 35,600 799,074 Fuji Photo Film Co., Ltd. (A) ..................... 27,000 880,064 Honda Motor Co., Ltd. (A) ......................... 34,300 1,268,230 Kao Corporation (A) ............................... 75,000 1,645,540 Nintendo Co., Ltd. (A) ............................ 7,100 663,177 Nissan Motor Co., Ltd. (A) ........................ 178,800 1,394,498 Nomura Holdings, Inc. (A) ......................... 190,000 2,134,760 Sony Corporation (A) .............................. 30,100 1,257,441 Takeda Chemical Industries, Ltd. (A) .............. 55,000 2,297,650 Toyota Motor Corporation (A) ...................... 49,400 1,327,264 ------------ 16,707,936 ------------ Luxembourg - 1.32% ARCELOR (A)* ...................................... 148,800 1,828,517 ------------ Netherlands - 3.44% ABN AMRO Holding N.V. (A) ......................... 28,000 457,398 Koninklijke KPN N.V. (A)* ......................... 216,200 1,405,451 Royal Dutch Petroleum Company (A)* ................ 19,000 835,707 Unilever N.V. - Certicaaten Van Aandelen (A) .................................... 33,800 2,074,971 ------------ 4,773,527 ------------ Portugal - 1.91% Banco Comercial Portugues, S.A. (A)(B) ............ 183,600 438,910 Portugal Telecom, SGPS, S.A. (A) .................. 321,300 2,206,584 ------------ 2,645,494 ------------ Spain - 2.11% Banco Bilbao Vizcaya Argentaria, S.A. (A) ......... 144,100 1,377,930 Banco Santander Central Hispano, S.A. (A) ......... 103,000 706,291 Telefonica, S.A. (A)* ............................. 94,000 840,708 ------------ 2,924,929 ------------ Sweden - 0.83% Nordea AB (A) ..................................... 262,200 1,157,975 ------------ Switzerland - 3.37% Clariant AG, Registered Shares (A) ................ 66,300 1,059,381 Credit Suisse Group, Registered Shares (A)* ..................................... 56,800 1,232,015 Nestle S.A., Registered Shares (A) ................ 6,470 1,370,624 Novartis AG, Registered Shares (A) ................ 17,300 631,035 Roche Holdings AG, Genussschein (A) ............... 5,600 390,109 ------------ 4,683,164 ------------ United Kingdom - 20.82% BHP Billiton Plc (A) .............................. 162,200 866,123 British American Tobacco Plc (A) .................. 75,000 749,068 British Sky Broadcasting Group plc (A)* ........... 225,800 2,322,431 British Sky Broadcasting Group plc (A)(B)* ........ 43,000 442,270 Capita Group plc (The) (A) ........................ 149,100 593,979 Capita Group Plc (The) (A)(B) ..................... 215,610 858,938 Compass Group PLC (A) ............................. 140,200 744,698 Diageo plc (A) .................................... 299,000 3,248,575 HSBC Holdings plc (A) ............................. 147,600 1,630,966 John Wood Group PLC (A) ........................... 450,600 1,165,897 Lloyds TSB Group plc (A) .......................... 154,464 1,108,869 NEXT Group Plc (A) ................................ 48,500 574,953 Pearson plc (A) ................................... 108,786 1,005,961 Reckitt Benckiser plc (A) ......................... 183,000 3,549,409 Reed Elsevier plc (A) ............................. 263,200 2,253,801 Rio Tinto plc (A) ................................. 108,600 2,167,552 Royal Bank of Scotland Group plc (The) (A) 119,679 2,866,414 Vodafone Group Plc (A) ............................ 1,499,300 2,733,032 ------------ 28,882,936 ------------ TOTAL COMMON STOCKS - 82.09% ....................... $113,882,951 (Cost: $122,915,109) PREFERRED STOCK - 0.44% Germany Fresenius AG (A) .................................. 16,400 $ 613,876 ------------ (Cost: $590,280)

Principal Amount in Thousands OTHER GOVERNMENT SECURITY - 6.01% Germany Bundesschwatzanweisungen Treasury Note, 4.25%, 6-13-03 (C) .............................. EUR7,900 $ 8,335,334 ------------ (Cost: $7,872,714)

Face Amount in Thousands UNREALIZED LOSS ON OPEN FORWARD CURRENCY CONTRACTS - (0.35%) Japanese Yen, 1-28-03 (C) ......................... Y472,211 (119,544) Japanese Yen, 1-28-03 (C) ......................... 472,211 (369,011) ------------ $ (488,555) ------------

Principal Amount in Thousands SHORT-TERM SECURITIES Chemicals -- Petroleum and Inorganic - 0.62% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note ........................... $ 864 864,000 ------------ Food and Related - 1.29% General Mills, Inc., 1.53%, Master Note .............................. 285 284,671 Unilever Capital Corporation, 1.3%, 1-21-03 ................................... 1,501 1,499,916 ------------ 1,784,587 ------------ Forest and Paper Products - 1.80% Sonoco Products Co., 1.38%, 1-16-03 .................................. 2,500 2,498,562 ------------ Health Care -- Drugs - 5.21% Alcon Finance PLC (Nestle S.A.), 1.3%, 1-13-03 ................................... 5,225 5,222,736 Pharmacia Corporation, 1.3%, 1-16-03 ................................... 2,000 1,998,917 ------------ 7,221,653 ------------ Security and Commodity Brokers - 2.62% UBS Finance Delaware LLC, 1.2%, 1-2-03 .................................... 3,634 3,633,879 ------------ TOTAL SHORT-TERM SECURITIES - 11.54% ............... $ 16,002,681 (Cost: $16,002,681) TOTAL INVESTMENT SECURITIES - 99.73% ............... $138,346,287 (Cost: $147,380,784) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.27% .. 380,927 NET ASSETS - 100.00% ............................... $138,727,214

SEE NOTES TO SCHEDULE OF INVESTMENTS ON PAGE. THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO December 31, 2002 NOTES TO SCHEDULE OF INVESTMENTS *No dividends were paid during the preceding 12 months. (A)Not listed on an exchange in the United States. (B)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the total value of these securities amounted to $1,793,591 or 1.29% of net assets. (C)Principal amounts are denominated in the indicated foreign currency, where applicable(EUR - Euro, Y - Japanese Yen). See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. As a shareholder of W&R Target International Portfolio, for every $100 you had invested on December 31, 2002, your Portfolio was invested by industry, as follows: $19.81 Financial Services Stocks 15.64 Consumer Goods Stocks 11.46 Cash and Cash Equivalents and Unrealized Loss on Open Forward Currency Contracts 9.91 Utilities Stocks 6.47 Raw Materials Stocks 6.35 Health Care Stocks 6.01 Other Government Security 5.17 Energy Stocks 5.09 Consumer Services Stocks 3.38 Capital Goods Stocks 3.30 Shelter Stocks 2.73 Business Equipment and Services Stocks 2.25 Miscellaneous Stocks 1.99 Retail Stocks 0.44 Preferred Stock STATEMENT OF ASSETS AND LIABILITIES INTERNATIONAL PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3)... $ 138,346 Receivables: Dividends and interest ......................... 426 Fund shares sold ............................... 15 Prepaid insurance premium ........................ 2 --------- Total assets .................................. 138,789 --------- LIABILITIES Payable to Fund shareholders ..................... 11 Accrued accounting services fee (Note 2) ......... 4 Accrued management fee (Note 2) .................. 3 Accrued service fee (Note 2) ..................... 1 Other ............................................ 43 --------- Total liabilities ............................. 62 --------- Total net assets ............................ $ 138,727 ========= NET ASSETS $0.001 par value capital stock: Capital stock .................................. $ 29 Additional paid-in capital ..................... 221,138 Accumulated undistributed loss: Accumulated undistributed net realized loss on investment transactions ....................... (73,445) Net unrealized depreciation in value of investments ................................ (8,995) --------- Net assets applicable to outstanding units of capital .................................. $ 138,727 ========= Net asset value, redemption and offering price per share .................................. $ 4.7683 ========= Capital shares outstanding ........................ 29,094 Capital shares authorized ......................... 55,000 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS INTERNATIONAL PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Dividends (net of foreign withholding taxes of $218).......... $ 2,376 Interest and amortization .................................... 513 -------- Total income ................................................ 2,889 -------- Expenses (Note 2): Investment management fee .................................... 1,355 Service fee .................................................. 398 Custodian fees ............................................... 235 Accounting services fee ...................................... 44 Audit fees ................................................... 9 Legal fees ................................................... 2 Other ........................................................ 35 -------- Total expenses .............................................. 2,078 -------- Net investment income ..................................... 811 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities ................................ (36,738) Realized net loss on foreign currency transactions ............. (153) -------- Realized net loss on investments ............................. (36,891) -------- Unrealized appreciation in value of securities during the period ............................................ 3,881 Unrealized depreciation in value of foreign currency transactions during the period ...................... (454) -------- Unrealized appreciation in value of investments during the period ............................... 3,427 -------- Net loss on investments ..................................... (33,464) -------- Net decrease in net assets resulting from operations .......................................... $(32,653) ======== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS INTERNATIONAL PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ---------------------- 2002 2001 --------- --------- DECREASE IN NET ASSETS Operations: Net investment income ..................... $ 811 $ 1,530 Realized net loss on investments .......... (36,891) (30,312) Unrealized appreciation (depreciation) .......................... 3,427 (28,369) --------- --------- Net decrease in net assets resulting from operations ........................ (32,653) (57,151) --------- --------- Dividends to shareholders from (Note 1E):(1) Net investment income ..................... (658) (1,278) Realized gains on securities transactions ................. --- (6,647) --------- --------- (658) (7,925) --------- --------- Capital share transactions(2) .............. (14,513) (14,802) --------- --------- Total decrease ......................... (47,824) (79,878) NET ASSETS Beginning of period ........................ 186,551 266,429 --------- --------- End of period .............................. $ 138,727 $ 186,551 ========= ========= Undistributed net investment income ....... $ --- $ --- ========= ========= (1)See "Financial Highlights" on page 97.... (2)Shares issued from sale of shares ....... 5,726 10,052 Shares issued from reinvestment of dividend and/or capital gains distribution ......... 138 1,354 Shares redeemed ............................ (8,639) (13,430) --------- --------- Decrease in outstanding capital shares ..... (2,775) (2,024) ========= ========= Value issued from sale of shares ........... $ 30,256 $ 66,669 Value issued from reinvestment of dividend and/or capital gains distribution ......... 658 7,925 Value redeemed ............................. (45,427) (89,396) --------- --------- Decrease in outstanding capital ............ $ (14,513) $ (14,802) ========= =========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS INTERNATIONAL PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ---------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of period ........... $ 5.8536 $ 7.8610 $11.9354 $ 7.8176 $ 6.3842 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income .......... 0.0227 0.0498 0.0298 0.0032 0.0353 Net realized and unrealized gain (loss) on investments... (1.0853) (1.7977) (2.8531) 5.1235 2.1283 -------- -------- -------- -------- -------- Total from investment operations ....... (1.0626) (1.7479) (2.8233) 5.1267 2.1636 -------- -------- -------- -------- -------- Less distributions from: Net investment income .......... (0.0227) (0.0419) (0.0186) (0.0000) (0.0353) Capital gains ..... (0.0000) (0.2176) (1.2325) (1.0089) (0.6949) -------- -------- -------- -------- -------- Total distributions. (0.0227) (0.2595) (1.2511) (1.0089) (0.7302) -------- -------- -------- -------- -------- Net asset value, end of period .... $ 4.7683 $ 5.8536 $ 7.8610 $11.9354 $ 7.8176 ======== ======== ======== ======== ======== Total return ....... -18.15% -22.23% -23.66% 65.58% 33.89% Net assets, end of period (in millions) ........ $ 139 $ 187 $ 266 $ 300 $ 169 Ratio of expenses to average net assets ........... 1.30% 1.25% 1.23% 1.21% 1.02% Ratio of net investment income to average net assets ....... 0.41% 0.71% 0.31% 0.04% 0.47% Portfolio turnover rate ............. 116.21% 99.52% 116.84% 118.71% 88.84%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with W. Patrick Sterner, portfolio manager of W&R Target Funds, Inc. - Limited-Term Bond Portfolio This report relates to the operation of W&R Target Funds, Inc. - Limited-Term Bond Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The Portfolio turned in a positive performance during the fiscal year, although it ultimately underperformed its benchmark index. The Portfolio's one-year return increased 5.43 percent, compared with the Salomon Brothers 1-5 Year Treasury/Government-Sponsored/Credit Index (reflecting the performance of securities that generally represent the short-maturity sector of the bond market), which increased 8.08 percent for the year, and the Lipper Variable Annuity Short-Intermediate Investment Grade Debt Funds Universe Average (reflecting the performance of the universe of funds with similar objectives), which increased 5.83 percent during the year. The Salomon Brothers 1-5 Year Treasury/Government Sponsored/Credit Index replaces the Salomon Brothers 1-5 Year Treasury/Government Sponsored/Corporate Index in this year's report. We believe that the new index provides a more accurate basis for comparing the Fund's performance to the types of securities in which the Fund invests. Both indexes are presented in this year's report for comparison purposes. Why did the Portfolio lag its benchmark index during the fiscal year? There were several factors that contributed negatively to the Portfolio's performance. The most prominent factor, we feel, was our 1 percent position in Worldcom bonds. We failed to react quickly enough to the deteriorating financial condition, and thus suffered a substantial loss upon the sale of the securities. In addition, the Portfolio held the securities of several troubled utility companies with energy trading operations. Although we sold the bonds before major losses were incurred, and the overall exposure to the sector was small, performance was still adversely impacted. What other market conditions or events influenced the Portfolio's performance during the fiscal year? Another factor that impacted relative performance was a shorter duration during a period of falling interest rates. We had expected rates to rise along with an improving economy during the latter part of the fiscal year. Economic growth, however, was disappointing and relatively sluggish. As a result, the Federal Reserve cut short-term interest rates from 1.75 percent to 1.25 percent in November, and market rates moved lower. In addition, we believe that a substantial weighting in mortgage-backed securities hurt performance during the second half of the fiscal year as rates moved sharply lower. What strategies and techniques did you employ that specifically affected the Portfolio's performance? Our management style attempts to identify relative value opportunities between sectors of the market. Those sectors include U.S. Treasuries, government agencies, corporate bonds and mortgage-backed securities. Based on our determination that intermediate maturity corporate bonds offered good value, we overweighted that sector. Although corporate bonds outperformed at the very end of the fiscal year, for the year as a whole they lagged, with certain sectors, including utilities and telecommunications, turning in especially poor performances. Although we feel that this strategy still holds some merit over the longer term, it did bring some negative impact to the Portfolio during the period. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? Although we feel that the next move in interest rates is likely to be upward, we also believe that rates will probably stay in a range around current levels until the economic numbers signal a sustained recovery is in place. We intend to continue to watch initial unemployment claims, capital-spending trends and the size and makeup of the fiscal stimulus plan coming out of Washington. In the current environment, we are of the opinion that both mortgage-backed securities and corporate bonds should provide superior total return potential over Treasuries. We also intend to continue to maintain a shorter duration to help protect against rising yields. Respectfully, W. Patrick Sterner Manager Limited-Term Bond Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Limited-Term Bond Portfolio and Salomon Brothers 1 - 5 Year Treasury/Government Sponsored/Corporate Index, Salomon Brothers 1 - 5 Year Treasury/Government Sponsored/Credit Index and Lipper Variable Annuity Short-Intermediate Investment Grade Debt Funds Universe Average

Lipper Variable Salomon Salomon Annuity Brothers Brothers Short- 1-5 Year 1-5 Year Intermediate Treasury/ Treasury/ Investment W&R Target Government Government Grade Limited-Term Sponsored/ Sponsored/ Debt Funds Bond Corporate Credit Universe Portfolio Index Index Average ------------ ---------- ---------- ----------- 05/03/94Purchase $10,000 $10,000 $10,000 $10,000 12/31/94 10,026 10,105 10,105 10,080 12/31/95 11,462 11,404 11,404 11,247 12/31/96 11,892 11,938 11,938 11,707 12/31/97 12,707 12,791 12,791 12,497 12/31/98 13,553 13,769 13,769 13,300 12/31/99 13,790 14,065 14,065 13,570 12/31/00 14,993 15,328 15,328 14,600 12/31/01 16,375 16,722 16,727 15,729 12/31/02 17,264 18,056 18,079 16,646

+++++ W&R Target Limited-Term Bond Portfolio(1) -- $17,264 ..... Salomon Brothers 1 - 5 Year Treasury/Government Sponsored/Corporate Index(2) -- $18,056 ===== Salomon Brothers 1 - 5 Year Treasury/Government Sponsored/Credit Index(2) - -- $18,079 ***** Lipper Variable Annuity Short-Intermediate Investment Grade Debt Funds Universe Average(2) -- $16,646 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes were effected as of April 30, 1994.

AVERAGE ANNUAL TOTAL RETURN(3) ------------------------------ 1-year period ended 12-31-02 5.43% 5-year period ended 12-31-02 6.32% 8+ year period ended 12-31-02(4) 6.50%

(3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)5-3-94 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO December 31, 2002

Principal Amount in Thousands Value CORPORATE DEBT SECURITIES Aircraft - 3.55% Lockheed Martin Corporation, 7.25%, 5-15-06 .................................. $ 1,000 $ 1,126,211 Raytheon Company, 6.75%, 8-15-07 .................................. 500 554,434 ----------- 1,680,645 ----------- Banks - 2.83% First Union Corporation, 6.875%, 9-15-05 ................................. 1,200 1,339,640 ----------- Chemicals -- Specialty - 0.96% Praxair, Inc., 6.75%, 3-1-03 ................................... 450 453,400 ----------- Construction Materials - 1.02% Black & Decker Corp., 7.5%, 4-1-03 .................................... 475 480,830 ----------- Finance Companies - 3.88% Aristar, Inc., 5.85%, 1-27-04 .................................. 250 260,406 General Motors Acceptance Corporation, 6.625%, 10-15-05 ................................ 800 824,166 Grand Metropolitan Investment Corp., 7.125%, 9-15-04 ................................. 379 411,329 John Deere Capital Corporation, 5.125%, 10-19-06 ................................ 320 341,126 ----------- 1,837,027 ----------- Food and Related - 2.75% ConAgra, Inc., 7.4%, 9-15-04 ................................... 1,200 1,300,303 ----------- Forest and Paper Products - 1.53% International Paper Company, 6.125%, 11-1-03 ................................. 700 722,280 ----------- Household -- General Products - 2.84% CPC International Inc., 6.15%, 1-15-06 .................................. 1,218 1,341,407 ----------- Insurance -- Life - 1.25% American General Finance Corporation, 6.75%, 11-15-04 ................................. 550 589,484 ----------- Multiple Industry - 9.28% Ford Motor Credit Company, 6.7%, 7-16-04 ................................... 900 916,944 General Electric Capital Corporation, 7.25%, 2-1-05 ................................... 1,000 1,100,718 Honeywell International Inc., 6.875%, 10-3-05 ................................. 400 443,013 Household Finance Corporation: 7.25%, 7-15-03 .................................. 300 307,800 6.5%, 1-24-06 ................................... 500 532,461 National Rural Utilities Cooperative Finance Corporation, 6.0%, 5-15-06 ................................... 1,000 1,090,910 ----------- 4,391,846 ----------- Petroleum -- Domestic - 1.85% Anadarko Petroleum Corporation, 6.5%, 5-15-05 ................................... 805 873,758 ----------- Petroleum -- International - 1.87% Chevron Corporation Profit Sharing/Savings Plan Trust Fund, 8.11%, 12-1-04 .................................. 47 49,595 Conoco Inc., 5.9%, 4-15-04 ................................... 800 837,435 ----------- 887,030 ----------- Railroad - 4.12% Norfolk Southern Corporation, 7.35%, 5-15-07 .................................. 783 899,138 Union Pacific Corporation, 5.84%, 5-25-04 .................................. 1,000 1,049,343 ----------- 1,948,481 ----------- Retail -- Food Stores - 2.28% Safeway Inc., 7.25%, 9-15-04 .................................. 1,000 1,076,258 ----------- Retail -- General Merchandise - 1.07% Sears Roebuck Acceptance Corp., 6.9%, 8-1-03 .................................... 500 504,431 ----------- Security and Commodity Brokers - 4.03% CIT Group Holdings, Inc. (The), 6.625%, 6-15-05 ................................. 900 939,407 Salomon Smith Barney Holdings Inc., 6.25%, 6-15-05 .................................. 900 966,818 ----------- 1,906,225 ----------- Trucking and Shipping - 2.40% WMX Technologies, Inc., 7.0%, 5-15-05 ................................... 1,080 1,136,146 ----------- Utilities -- Electric - 5.19% Dominion Resources, Inc., 3.875%, 1-15-04 ................................. 1,300 1,309,162 Wisconsin Energy Corporation, 5.875%, 4-1-06 .................................. 1,055 1,146,361 ----------- 2,455,523 ----------- Utilities -- Telephone - 2.50% GTE Corporation, 6.36%, 4-15-06 .................................. 1,095 1,182,477 ----------- TOTAL CORPORATE DEBT SECURITIES - 55.20% ........... $26,107,191 (Cost: $25,361,550) UNITED STATES GOVERNMENT SECURITIES Agency Obligations - 8.97% Federal Farm Credit Bank, 4.125%, 2-14-05 ................................. 1,000 1,003,394 Federal Home Loan Bank: 5.125%, 1-13-03 ................................. 350 350,409 4.875%, 5-14-04 ................................. 550 574,864 5.6%, 3-7-05 .................................... 500 504,132 Federal National Mortgage Association: 5.0%, 2-14-03 ................................... 200 200,863 5.125%, 2-13-04 ................................. 1,100 1,146,066 Tennessee Valley Authority, 5.0%, 12-18-03 .................................. 450 464,806 ----------- 4,244,534 -----------

Mortgage-Backed Obligations - 22.84% Federal Home Loan Mortgage Corporation Fixed Rate Participation Certificates: 7.0%, 8-1-07 .................................... 32 32,690 5.5%, 2-1-16 .................................... 305 317,120 6.0%, 5-1-16 .................................... 159 166,455 5.5%, 1-1-17 .................................... 455 472,630 5.5%, 5-1-17 .................................... 563 584,249 Federal National Mortgage Association Fixed Rate Pass-Through Certificates: 6.5%, 12-1-10 ................................... 27 28,786 6.0%, 1-1-11 .................................... 25 26,917 6.5%, 2-1-11 .................................... 30 31,507 7.0%, 5-1-11 .................................... 15 16,393 7.0%, 7-1-11 .................................... 20 21,471 7.0%, 9-1-12 .................................... 20 21,389 6.0%, 11-1-13 ................................... 116 122,062 7.0%, 9-1-14 .................................... 60 63,411 7.0%, 10-1-14 ................................... 85 90,419 6.0%, 3-1-16 .................................... 585 613,900 6.0%, 6-1-16 .................................... 199 207,805 6.5%, 6-1-16 .................................... 161 169,707 5.5%, 2-1-17 .................................... 988 1,025,568 5.0%, 12-1-17 ................................... 1,194 1,226,226 7.0%, 4-1-26 .................................... 24 25,667 Government National Mortgage Association Fixed Rate Pass-Through Certificates: 6.5%, 1-15-14 ................................... 70 74,620 7.5%, 3-15-15 ................................... 87 93,807 6.0%, 8-15-16 ................................... 310 327,005 6.0%, 12-15-16 .................................. 502 529,276 5.5%, 1-15-17 ................................... 520 543,444 6.0%, 1-15-17 ................................... 422 444,675 5.5%, 7-15-17 ................................... 754 788,176 5.5%, 10-15-17 .................................. 989 1,034,349 5.0%, 12-15-17 .................................. 1,300 1,345,094 7.0%, 6-15-28 ................................... 222 235,791 7.0%, 7-15-29 ................................... 114 121,224 ----------- 10,801,833 ----------- Treasury Obligation - 5.48% United States Treasury Notes: 3.875%, 6-30-03 ................................. 1,000 1,013,164 3.625%, 3-31-04 ................................. 1,000 1,028,750 5.0%, 8-15-11 ................................... 500 548,281 ----------- 2,590,195 ----------- Treasury Inflation Protected Obligation - 1.12% United States Treasury Note, 3.0%, 7-15-12 (A) ............................... 500 531,328 ----------- TOTAL UNITED STATES GOVERNMENT SECURITIES - 38.41%.. $18,167,890 (Cost: $17,750,474) SHORT-TERM SECURITIES Chemicals -- Petroleum and Inorganic - 2.74% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note ........................... 1,297 1,297,000 ----------- Food and Related - 0.24% General Mills, Inc., 1.53%, Master Note .............................. 114 114,000 ----------- Health Care -- Drugs - 2.11% Pfizer Inc., 1.3%, 1-29-03 ................................... 1,000 998,989 ----------- TOTAL SHORT-TERM SECURITIES - 5.09% ................ $ 2,409,989 (Cost: $2,409,989) TOTAL INVESTMENT SECURITIES - 98.70% ............... $46,685,070 (Cost: $45,522,013) CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.30% .. 613,090 NET ASSETS - 100.00% ............................... $47,298,160 Notes to Schedule of Investments (A)The interest rate for this security is a stated rate, but the interest payments are determined by multiplying the inflation-adjusted principal by one half of the stated rate for each semiannual interest payment date. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES LIMITED-TERM BOND PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3) $ 46,685 Cash .......................................... 1 Receivables: Interest .................................... 540 Fund shares sold ............................ 77 -------- Total assets ............................... 47,303 -------- LIABILITIES Accrued accounting services fee (Note 2) ...... 2 Accrued management fee (Note 2) ............... 1 Accrued service fee (Note 2) .................. ---* Other ......................................... 2 -------- Total liabilities .......................... 5 -------- Total net assets ......................... $ 47,298 ======== NET ASSETS $0.001 par value capital stock: Capital stock ............................... $ 8 Additional paid-in capital .................. 46,567 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ................. (440) Net unrealized appreciation in value of investments ............................. 1,163 -------- Net assets applicable to outstanding units of capital ............................... $ 47,298 ======== Net asset value, redemption and offering price per share .................. $ 5.6068 ======== Capital shares outstanding ..................... 8,436 Capital shares authorized ...................... 15,000 *Not shown due to rounding. See Notes to Financial Statements. STATEMENT OF OPERATIONS LIMITED-TERM BOND PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization .......................... $ 1,281 ------- Expenses (Note 2): Investment management fee .......................... 137 Service fee ........................................ 69 Accounting services fee ............................ 17 Custodian fees ..................................... 6 Audit fees ......................................... 5 Other .............................................. 5 ------- Total ............................................. 239 Less expenses in excess of voluntary waiver of investment management fee (Note 2) ... (50) ------- Total expenses ................................. 189 ------- Net investment income ........................ 1,092 ------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments ..................... (429) Unrealized appreciation in value of investments during the period ...................... 955 ------- Net gain on investments ............................ 526 ------- Net increase in net assets resulting from operations ................................. $ 1,618 ======= SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS LIMITED-TERM BOND PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ------------------------- 2002 2001 -------- -------- INCREASE IN NET ASSETS Operations: Net investment income .................... $ 1,092 $ 549 Realized net gain (loss) on investments .. (429) 5 Unrealized appreciation .................. 955 227 -------- -------- Net increase in net assets resulting from operations ............. 1,618 781 -------- -------- Dividends to shareholders from net investment income (Note 1E)(1) ....... (1,092) (549) -------- -------- Capital share transactions(2) ............. 31,241 8,823 -------- -------- Total increase ........................ 31,767 9,055 NET ASSETS Beginning of period ....................... 15,531 6,476 -------- -------- End of period ............................. $ 47,298 $ 15,531 ======== ======== Undistributed net investment income ...... $ --- $ --- ======== ========

(1)See "Financial Highlights" on page 109. (2)Shares issued from sale of shares ...... 6,611 2,367 Shares issued from reinvestment of dividend 195 101 Shares redeemed ........................... (1,223) (868) -------- -------- Increase in outstanding capital shares .... 5,583 1,600 ======== ======== Value issued from sale of shares .......... $ 36,979 $ 13,044 Value issued from reinvestment of dividend 1,092 549 Value redeemed ............................ (6,830) (4,770) -------- -------- Increase in outstanding capital ........... $ 31,241 $ 8,823 ======== ======== SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND PORTFOLIO For a Share of Capital Stock Outstanding Throughout Each Period:

For the fiscal year ended December 31, ---------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, -------- -------- -------- -------- -------- beginning of period ........... $ 5.4437 $ 5.1666 $ 5.0405 $ 5.2292 $ 5.1882 Income (loss) from -------- -------- -------- -------- -------- investment operations: Net investment income 0.1327 0.1971 0.3155 0.2799 0.2935 Net realized and unrealized gain (loss) on investments .. 0.1631 0.2771 0.1261 (0.1887) 0.0522 Total from investment -------- -------- -------- -------- -------- operations ....... 0.2958 0.4742 0.4416 0.0912 0.3457 -------- -------- -------- -------- -------- Less distributions from: Net investment income .......... (0.1327) (0.1971) (0.3155) (0.2799) (0.2935) Capital gains ..... (0.0000) (0.0000) (0.0000) (0.0000) (0.0112) -------- -------- -------- -------- -------- Total distributions (0.1327) (0.1971) (0.3155) (0.2799) (0.3047) Net asset value, -------- -------- -------- -------- -------- end of period .... $ 5.6068 $ 5.4437 $ 5.1666 $ 5.0405 $ 5.2292 ======== ======== ======== ======== ========= Total return ....... 5.43% 9.21% 8.73% 1.74% 6.66% Net assets, end of period (in millions) $ 47 $ 16 $ 6 $ 6 $ 5 Ratio of expenses to average net assets including voluntary expense waiver .... 0.69% 0.38% 0.40% 0.64% 0.79% Ratio of net investment income to average net assets including voluntary expense waiver ........... 3.97% 5.52% 6.33% 5.63% 5.65% Ratio of expenses to average net assets excluding voluntary expense waiver ... 0.87% 0.88% 0.90% 0.91% --- Ratio of net investment income to average net assets excluding voluntary expense waiver ... 3.79% 5.02% 5.83% 5.36% --- Portfolio turnover rate ............. 27.36% 22.43% 47.32% 22.81% 47.11%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with Mira Stevovich, portfolio manager of W&R Target Funds, Inc. - Money Market Portfolio This report relates to the operation of W&R Target Funds, Inc. - Money Market Portfolio for the fiscal year ended December 31, 2002. The following discussion and tables provide you with information regarding the Portfolio's performance during that period. How did the Portfolio perform during the last fiscal year? Overall return was lower during the fiscal year compared with the previous year, primarily due to the sustained low short-term interest rates. The Federal Reserve maintained a Federal Funds rate of 1.75 percent throughout most of the year, then lowered it further to 1.25 percent in November. This long period of historically low money market interest rates has made for a challenging environment for all money market funds. What market conditions or events influenced the Portfolio's performance during the fiscal year? As the fiscal year began, interest rates stood at 1.75 percent, having been lowered by the Federal Reserve a total of 4.75 percent during the previous fiscal year. Although rates remained fairly constant until the one-half percent decrease in November, market sentiment fluctuated throughout the year. At times, when the market anticipated a rebound in the economy, interest rates would occasionally move up with that anticipation. During these periods, we would attempt to take advantage of any increase in market rates to increase the yield of the Portfolio. In addition to interest rates, credit quality played a role in the management and performance of the Portfolio during the fiscal year. The weak economy has played havoc on the credit quality of many companies. As a result, we have chosen to extend our overall maturity with very select securities of the highest quality, based on our strict credit risk constraints. We have remained vigilant in our review of the companies whose securities we purchase, due to the weak economic environment and risk potential. What strategies and techniques did you employ that specifically affected the Portfolio's performance? We have maintained a defensive posture during the weak economic period. We have maintained the average maturity of the Portfolio by carefully selecting securities in which to invest, choosing those with the highest credit quality. Overall, we believe that this strategy helped performance. However, securities issued by the highest quality companies are issued at premium rates of interest (lowest-yielding securities). This, of course, affects ultimate Portfolio yield. To attempt to compensate for this, we timed the purchase of our longer- maturing securities during periods in which the overall market anticipated higher future rates of interest, generally attempting to take advantage of temporary rate increases. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? We intend to continue to invest in securities of the highest quality companies, as well as U.S. Treasury and government agency securities, when we feel that they look attractive on a relative basis. In light of the current interest rate climate, and uncertainties regarding the U.S. economy, we intend to review security purchases on a case-by-case basis, following closely the developments in all industries and their effects on each company in which we invest. Respectfully, Mira Stevovich Manager Money Market Portfolio Please remember that an investment in the Portfolio is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO December 31, 2002

Principal Amount in Thousands Value CORPORATE OBLIGATIONS Commercial Paper Beverages - 3.81% Diageo Capital plc, 1.31%, 1-13-03 ................................ $ 3,913 $ 3,911,291 ------------ Electrical Equipment - 3.32% Emerson Electric Co.: 1.3%, 1-9-03 .................................. 1,000 999,711 1.42%, 1-9-03 ................................. 900 899,716 1.3%, 1-14-03 ................................. 1,500 1,499,296 ------------ 3,398,723 ------------ Finance Companies - 5.80% Caterpillar Financial Services Corp.: 1.32%, 1-2-03 ................................. 2,000 1,999,927 1.3%, 1-9-03 .................................. 2,200 2,199,364 PACCAR Financial Corp., 1.33%, 1-13-03 ................................ 1,000 999,557 USAA Capital Corp., 1.35%, 1-10-03 ................................ 750 749,747 ------------ 5,948,595 ------------ Food and Related - 3.80% Golden Peanut Co.: 1.32%, 3-14-03 ................................ 700 698,152 1.33%, 3-26-03 ................................ 700 697,828 Unilever Capital Corporation, 1.3%, 1-30-03 ................................. 2,500 2,497,382 ------------ 3,893,362 ------------ Health Care -- Drugs - 16.79% Alcon Finance PLC (Nestle S.A.): 1.3%, 1-13-03 ................................. 1,400 1,399,393 1.31%, 1-13-03 ................................ 2,000 1,999,127 1.33%, 1-17-03 ................................ 1,500 1,499,113 GlaxoSmithKline Finance plc: 1.32%, 1-13-03 ................................ 2,777 2,775,778 1.32%, 1-29-03 ................................ 551 550,434 Merck & Co., Inc.: 1.3%, 1-9-03 .................................. 1,000 999,711 1.3%, 1-23-03 ................................. 1,500 1,498,808 Pfizer Inc.: 1.29%, 1-16-03 ................................ 1,000 999,463 1.29%, 1-21-03 ................................ 2,000 1,998,567 1.3%, 1-29-03 ................................. 1,000 998,989 Pharmacia Corporation: 1.32%, 1-6-03 ................................. 1,500 1,499,725 1.32%, 1-21-03 ................................ 1,000 999,267 ------------ 17,218,375 ------------ Health Care -- General - 0.97% Johnson & Johnson, 1.27%, 2-3-03 ................................. 1,000 998,836 ------------ Household -- General Products - 6.37% Kimberly-Clark Corporation, 1.26%, 1-6-03 ................................. 1,000 999,825 Kimberly-Clark Worldwide Inc., 1.3%, 2-10-03 ................................. 1,545 1,542,768 Procter & Gamble Company (The), 1.3%, 2-10-03 ................................. 4,000 3,994,222 ------------ 6,536,815 ------------ Petroleum -- International - 3.66% BP America Inc.: 1.3%, 1-16-03 ................................. 3,000 2,998,375 1.33%, 1-16-03 ................................ 750 749,584 ------------ 3,747,959 ------------ Utilities -- Telephone - 6.36% BellSouth Corporation, 1.27%, 1-2-03 ................................. 1,822 1,821,936 SBC International Inc.: 1.33%, 1-8-03 ................................. 3,200 3,199,173 1.32%, 1-16-03 ................................ 1,500 1,499,175 ------------ 6,520,284 ------------ Total Commercial Paper - 50.88% .................. 52,174,240 Commercial Paper (backed by letter of credit) Utilities -- Electric - 4.09% AES Shady Point Inc. (Bank of America N.A.), 1.38%, 1-16-03 ............................... 4,200 4,197,585 ------------ Notes Banks - 1.46% Wells Fargo & Company, 1.42125%, 1-2-03 ............................. 1,500 1,500,000 ------------ Business Equipment and Services - 1.61% Playworld Systems Incorporated (Wachovia Bank, N.A.), 1.52%, 1-1-03 ................................. 1,650 1,650,000 ------------ Health Care -- Drugs - 4.30% Lilly (Eli) and Company, 4.226%, 3-22-03 (A) ........................... 2,650 2,657,701 Merck & Co., Inc., 4.54%, 2-24-03 (A) ............................ 1,750 1,755,348 ------------ 4,413,049 ------------ Hospital Supply and Management - 1.61% Meriter Management Services, Inc. (U.S. Bank Milwaukee, National Association), 1.6%, 1-1-03 .................................. 1,650 1,650,000 ------------ Leisure Time Industry - 1.48% Ansley Golf Club, Inc. (Wachovia Bank, N.A.), 1.52%, 1-2-03 ................................. 1,510 1,510,000 ------------ Retail - General Merchandise - 1.48% Wal-Mart Stores, Inc., 4.878%, 6-1-03 ................................ 1,500 1,513,872 ------------ Trucking and Shipping - 1.46% Volpe Family Partnership, L.P. (Wachovia Bank, N.A.), 1.47%, 1-2-03 ................................. 1,500 1,500,000 ------------ Utilities - Telephone - 2.45% BellSouth Corporation, 4.105%, 4-26-03 ............................... 2,500 2,510,679 ------------ Total Notes - 15.85% ............................. 16,247,600 TOTAL CORPORATE OBLIGATIONS - 70.82% ............. $ 72,619,425 (Cost: $72,619,425) MUNICIPAL OBLIGATIONS California - 3.98% California Pollution Control Financing Authority, Environmental Improvement Revenue Bonds: Air Products Manufacturing Corporation, Taxable Series 1997A, 1.41%, 1-9-03 ................................. 2,832 2,832,000 Air Products and Chemicals, Inc./Wilmington Facility, Taxable Series 1997A, 1.41%, 1-14-03 ................................ 1,250 1,250,000 ------------ 4,082,000 ------------ Colorado - 2.44% Colorado Agricultural Development Authority, Adjustable Rate Industrial Development Revenue Bonds (Royal Crest Dairy, Inc. Project), Series 1998, 1.85%, 1-1-03 ................................. 2,500 2,500,000 ------------ Louisiana - 2.97% Industrial Development Board of the Parish of Calcasieu, Inc., Environmental Revenue Bonds (CITGO Petroleum Corporation Project), Series 1996 (Taxable), (Westdeutsche Landesbank Girozentrale), 1.38%, 1-21-03 ................................ 3,050 3,050,000 ------------ New York - 1.95% The City of New York, General Obligation Bonds, Fiscal 1995 Series B, Taxable Adjustable Rate Bonds (Bayerische Landesbank Girozentrale, New York Branch), 1.7%, 1-14-03 ................................. 2,000 2,000,000 ------------ Washington - 3.86% Washington State Housing Finance Commission, Taxable Variable Rate Demand Multifamily Revenue Bonds (Brittany Park Project), Series 1996B (U.S. Bank of Washington, National Association), 1.4%, 1-2-03 .................................. 2,290 2,290,000 Watts Brothers Frozen Foods, L.L.C., Variable Rate Demand Taxable Revenue Bonds, 1997 (U.S. Bank of Washington, National Association), 1.5%, 1-2-03 .................................. 1,169 1,169,000 Wenatchee Valley Clinic, P.S., Floating Rate Taxable Bonds, Series 1998 (U.S. Bank, National Association), 1.5%, 1-2-03 .................................. 500 500,000 ------------ 3,959,000 ------------ Wisconsin - 1.71% Sheboygan County, Wisconsin, Taxable General Obligation Promissory Notes, 2.5%, 2-1-03 .................................. 1,000 1,000,000 City of Green Bay, Brown County, Wisconsin, General Obligation Refunding Bonds, Series 2003A, 1.65%, 6-17-03 ................................ 750 750,000 ------------ 1,750,000 ------------ TOTAL MUNICIPAL OBLIGATIONS - 16.91% $ 17,341,000 (Cost: $17,341,000) UNITED STATES GOVERNMENT SECURITIES Federal Farm Credit Bank, 1.48%, 10-31-03 ............................... 2,500 2,468,964 Federal Home Loan Bank: 1.49%, 4-16-03 ................................ 1,432 1,425,777 2.0%, 11-14-03 ................................ 1,000 1,000,000 Federal Home Loan Mortgage Corporation: 2.45%, 1-16-03 ................................ 2,000 2,000,000 1.65%, 12-25-03 ............................... 2,200 2,200,000 United States Treasury Bill, 1.24%, 5-8-03 ................................. 400 398,257 United States Treasury Notes: 5.25%, 8-15-03 ................................ 1,600 1,634,322 2.75%, 10-31-03 ............................... 1,000 1,007,695 TOTAL UNITED STATES GOVERNMENT SECURITIES - 11.84% $ 12,135,015 (Cost: $12,135,015) TOTAL INVESTMENT SECURITIES - 99.57% $102,095,440 (Cost: $102,095,440) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.43% 441,514 NET ASSETS - 100.00% $102,536,954

NOTES TO SCHEDULE OF INVESTMENTS (A)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the total value of these securities amounted to $4,413,049 or 4.30% of net assets. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MONEY MARKET PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts)

ASSETS Investment securities--at value (Notes 1 and 3) ............... $102,095 Cash .......................................................... 1 Receivables: Interest .................................................... 391 Fund shares sold ............................................ 149 Prepaid insurance premium ..................................... 9 -------- Total assets ............................................... 102,645 -------- LIABILITIES Payable to Fund shareholders .................................. 98 Accrued accounting services fee (Note 2) ...................... 4 Accrued management fee (Note 2) ............................... 1 Accrued service fee (Note 2) .................................. 1 Other ......................................................... 4 -------- Total liabilities .......................................... 108 -------- Total net assets ......................................... $102,537 ======== NET ASSETS $0.001 par value capital stock: Capital stock ............................................... $ 103 Additional paid-in capital .................................. 102,434 -------- Net assets applicable to outstanding units of capital ............................................... $102,537 ======== Net asset value, redemption and offering price per share .................................. $ 1.0000 ======== Capital shares outstanding ..................................... 102,537 Capital shares authorized ...................................... 185,000

SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS MONEY MARKET PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT INCOME Interest and amortization (Note 1B) ............................. $1,813 ------ Expenses (Note 2): Investment management fee ..................................... 386 Service fee ................................................... 242 Accounting services fee ....................................... 38 Custodian fees ................................................ 17 Audit fees .................................................... 4 Legal fees .................................................... 2 Other ......................................................... 31 ------ Total expenses ............................................... 720 ------ Net investment income ...................................... 1,093 ------ Net increase in net assets resulting from operations .............................................. $1,093 ====== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS MONEY MARKET PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ------------------------- 2002 2001 ---------- ---------- INCREASE IN NET ASSETS Operations: Net investment income ........................... $ 1,093 $ 2,610 --------- --------- Net increase in net assets resulting from operations ..................... 1,093 2,610 --------- --------- Dividends to shareholders from net investment income (Note 1E)(1) ............ (1,093) (2,610) --------- --------- Capital share transactions(2) .................... 3,660 47,175 --------- --------- Total increase ............................. 3,660 47,175 NET ASSETS Beginning of period .............................. 98,877 51,702 --------- --------- End of period .................................... $ 102,537 $ 98,877 ========= ========= Undistributed net investment income ............. $ --- $ --- ========= =========

(1)See "Financial Highlights" on page 120. (2)Shares issued from sale of shares ............. 147,301 174,935 Shares issued from reinvestment of dividends ..... 1,093 2,610 Shares redeemed .................................. (144,734) (130,370) --------- --------- Increase in outstanding capital shares .................................. 3,660 47,175 ========= ========= Value issued from sale of shares ................. $ 147,301 $ 174,935 Value issued from reinvestment of dividends ...... 1,093 2,610 Value redeemed ................................... (144,734) (130,370) --------- --------- Increase in outstanding capital ......................................... $ 3,660 $ 47,175 ========= ========= SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS MONEY MARKET PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ------------------------------------------------------------------ 2002 2001 2000 1999 1998 ---------- ----------- ---------- ---------- ---------- Net asset value, beginning of period ................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 --------- --------- --------- --------- --------- Net investment income ................... 0.0113 0.0356 0.0571 0.0450 0.0492 Less dividends declared ................. (0.0113) (0.0356) (0.0571) (0.0450) (0.0492) --------- --------- --------- --------- --------- Net asset value, end of period ............ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ========= ========= ========= ========= ========= Total return .............. 1.12% 3.62% 5.87% 4.62% 5.04% Net assets, end of period (in millions) ................ $ 103 $ 99 $ 52 $ 64 $ 54 Ratio of expenses to average net assets ................... 0.75% 0.73% 0.75% 0.77% 0.68% Ratio of net investment income to average net assets ............... 1.13% 3.31% 5.67% 4.51% 4.90%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with Zachary H. Shafran, portfolio manager of W&R Target Funds, Inc. - Science and Technology Portfolio This report relates to the operation of W&R Target Funds, Inc. - Science and Technology Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform over the last fiscal year? The Portfolio did relatively well, as it outperformed its benchmark index during the fiscal year. Even so, given the very challenging environment for the technology sector, it had a negative return for the year. The Portfolio declined 23.99 percent for the fiscal year, compared with the Goldman Sachs Technology Industry Composite Index (reflecting the performance of securities that generally represent the technology sector of the stock market), which declined 40.27 percent for the year, and the Lipper Variable Annuity Specialty/Miscellaneous Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 31.19 percent for the year. What helped the Portfolio outperform its benchmark index during the fiscal year? We were able to outperform our benchmark due primarily, we believe, to our relative underweight position in technology and a higher than normal cash reserve. Our generally defensive and diversified approach throughout the year proved to be beneficial. What other market conditions or events influenced the Portfolio's return during the fiscal year? The global economy remained soft throughout the year, yet that softness was cushioned by strong domestic consumer confidence. Rising geopolitical tensions spread beyond the Middle East, including the general strike in Venezuela, growing anti-American sentiment in both North and South Korea and the increased threat of terrorist attacks around the globe. Information Technology (IT) spending by corporations was under pressure for most of the period, and consumer-related spending began to slow late in the year. What strategies and techniques did you employ that specifically affected the Portfolio's performance? The Portfolio remained well diversified, and we were largely successful in avoiding the wrong areas during the year. Our underweight position in technology worked out well despite the late year rally. We were overweight in health care, which also was relatively helpful to overall performance. Higher than normal cash reserves allowed us to be both defensive and opportunistic. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? Consistent with our mandate, we continued to focus on science and technology holdings during the fiscal year. However, we continue to take a broader view in two ways. We are looking more globally for opportunities and for industries that we feel are benefiting from advances in science and technology. A good example of this would be the energy sector, particularly natural gas in North America. We believe that supply will remain tight and that a key to new exploration and production efforts will be new technology. Science, particularly health care, likely will remain a focus within the Portfolio, as we feel that the opportunities to practice better medicine and address unmet clinical needs have never been greater. Overall, we continue to look for companies that we feel are well positioned to prosper in an ever-changing environment. Respectfully, Zachary H. Shafran Manager Science and Technology Portfolio Comparison of Change in Value of $10,000 Investment W&R Target Science and Technology Portfolio, Goldman Sachs Technology Industry Composite Index and Lipper Variable Annuity Specialty/Miscellaneous Funds Universe Average

Lipper Variable Goldman Annuity Sachs Specialty/ W&R Target Technology Miscellaneous Science and Industry Funds Technology Composite Universe Portfolio Index Average ----------- ---------- ------------- 4/4/97 Purchase $ 10,000 $ 10,000 $ 10,000 12/31/97 11,623 12,760 12,376 12/31/98 16,976 21,580 15,920 12/31/99 46,626 40,757 24,836 12/31/00 36,766 25,336 22,762 12/31/01 32,386 18,098 17,414 12/31/02 24,618 10,809 11,982

===== W&R Target Science and Technology Portfolio(1) -- $24,618 ***** Goldman Sachs Technology Industry Composite Index(2) -- $10,809 ..... Lipper Variable Annuity Specialty/Miscellaneous Funds Universe Average(2) -- $11,982 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes (including income) was effected as of March 31, 1997. AVERAGE ANNUAL TOTAL RETURN(3) 1-year period ended 12-31-02 -23.99% 5-year period ended 12-31-02 16.19% 5+ year period ended 12-31-02(4) 16.98% (3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)4-4-97 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. Investing in companies involved in one specified sector may involve a greater degree of risk than an investment with greater diversification. THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Aircraft - 4.09% Northrop Grumman Corporation ...................... 64,100 $ 6,217,700 Raytheon Company .................................. 57,200 1,758,900 ------------ 7,976,600 ------------ Broadcasting - 0.01% Adelphia Communications Corporation, Class A* ........................................ 324,400 27,574 ------------ Business Equipment and Services - 1.38% Edison Schools Inc.* .............................. 345,800 558,467 Euronet Worldwide, Inc.* .......................... 176,550 1,297,642 RSA Security Inc.* ................................ 139,300 834,407 ------------ 2,690,516 ------------ Capital Equipment - 0.46% Cooper Cameron Corporation* ....................... 18,000 896,760 ------------ Chemicals -- Specialty - 1.97% Pall Corporation .................................. 230,200 3,839,736 ------------ Communications Equipment - 1.21% ADC Telecommunications, Inc.* ..................... 249,800 523,331 Cisco Systems, Inc.* .............................. 139,400 1,825,443 ------------ 2,348,774 ------------ Computers -- Peripherals - 4.09% PeopleSoft, Inc.* ................................. 212,100 3,880,370 Symbol Technologies, Inc. ......................... 496,700 4,082,874 ------------ 7,963,244 ------------ Consumer Electronics - 1.71% Sony Corporation, ADR ............................. 80,600 3,329,586 ------------ Electronic Components - 2.13% Agere Systems Inc.* ............................... 716,000 1,031,040 IXYS Corporation* ................................. 111,860 791,969 United Microelectronics Corporation* .............. 694,285 2,332,798 ------------ 4,155,807 ------------ Health Care -- Drugs - 19.68% Abbott Laboratories ............................... 117,500 4,700,000 Alcon, Inc.* ...................................... 150,200 5,925,390 Biogen, Inc. (A)* ................................. 145,300 5,827,256 Forest Laboratories, Inc. (A)* .................... 100,200 9,841,644 Genzyme Corporation - General Division* ........... 125,400 3,708,705 IVAX Corporation* ................................. 192,600 2,336,238 Incyte Genomics, Inc.* ............................ 60,000 273,900 Pfizer Inc. (A) ................................... 148,300 4,533,531 SICOR Inc.* ....................................... 77,460 1,228,128 ------------ 38,374,792 ------------ Hospital Supply and Management - 14.34% Anthem, Inc.* ..................................... 67,300 4,233,170 Cerner Corporation* ............................... 27,400 854,880 Guidant Corporation* .............................. 231,300 7,135,605 HCA - The Healthcare Company ...................... 204,000 8,466,000 Province Healthcare Company* ...................... 337,600 3,284,848 UnitedHealth Group Incorporated ................... 47,700 3,982,950 ------------ 27,957,453 ------------ Mining - 2.07% Newmont Mining Corporation ........................ 139,100 4,038,073 ------------ Multiple Industry - 1.29% Garmin Ltd.* ...................................... 86,100 2,520,577 ------------ Petroleum -- Domestic - 7.88% Apache Corporation ................................ 70,650 4,026,343 Burlington Resources Inc. ......................... 60,215 2,568,170 ConocoPhillips .................................... 26,900 1,301,691 Newfield Exploration Company* ..................... 57,800 2,083,690 Noble Energy, Inc. ................................ 85,200 3,199,260 Unocal Corporation ................................ 71,600 2,189,528 ------------ 15,368,682 ------------ Petroleum -- Services - 1.11% Baker Hughes Incorporated ......................... 67,400 2,169,606 ------------ Publishing - 1.14% Getty Images, Inc.* ............................... 72,500 2,214,875 ------------ Steel - 0.22% Lone Star Technologies, Inc.* ..................... 29,200 434,788 ------------ Timesharing and Software - 4.94% Concord EFS, Inc.* ................................ 560,500 8,822,270 Manhattan Associates, Inc.* ....................... 9,700 230,036 Micromuse Inc.* ................................... 150,100 581,638 ------------ 9,633,944 ------------ Utilities -- Telephone - 2.36% Vodafone Group Plc, ADR ......................... 253,500 4,593,420 ------------ TOTAL COMMON STOCKS - 72.08% ....................... $140,534,807 (Cost: $171,927,826)

Number of Contracts PUT OPTIONS - 0.00% Biogen, Inc., January 30, Expires 1-18-03 .................... 567 1,016 Forest Laboratories, Inc., January 65, Expires 1-18-03 .................... 361 72 ------ $1,088 ------

(Cost: $387,803)

Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Chemicals -- Petroleum and Inorganic - 3.18% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note .......................... $ 6,210 6,210,000 ------------- Food and Related - 5.95% General Mills, Inc., 1.53%, Master Note ............................. 6,608 6,608,000 Sara Lee Corporation, 1.48%, 1-6-03 .................................. 5,000 4,998,972 ------------- 11,606,972 ------------- Health Care -- Drugs - 6.23% GlaxoSmithKline Finance plc, 1.32%, 1-29-03 ................................. 2,145 2,142,798 Merck & Co., Inc., 1.3%, 1-9-03 ................................... 8,000 7,997,689 Pfizer Inc., 1.3%, 1-9-03 ................................... 2,000 1,999,422 ------------- 12,139,909 ------------- Health Care -- General - 4.10% Johnson & Johnson, 1.27%, 2-3-03 .................................. 8,000 7,990,687 ------------- Household -- General Products - 3.48% Kimberly-Clark Worldwide Inc., 1.28%, 1-22-03 ................................. 6,800 6,794,922 ------------- Security and Commodity Brokers - 2.65% UBS Finance Delaware LLC, 1.2%, 1-2-03 ................................... 5,161 5,160,828 ------------- Total Commercial Paper - 25.59% ................... 49,903,318 United States Government Security - 3.59% United States Treasury Bill, 1.48%, 1-30-03 ................................. 7,000 6,991,683 ------------- TOTAL SHORT-TERM SECURITIES - 29.18% $ 56,895,001 (Cost: $56,895,001) TOTAL INVESTMENT SECURITIES - 101.26% $ 197,430,896 (Cost: $229,210,630) LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.26%) (2,464,778) NET ASSETS - 100.00% $ 194,966,118

NOTES TO SCHEDULE OF INVESTMENTS *No dividends were paid during the preceding 12 months. (A)As of December 31, 2002, all or a portion of these securities was used as cover for the following written call options (See Note 5 to financial statements):

Underlying Subject Expiration Month/ Premium Market Security to Call Exercise Price Received Value - ------------------ --------- ----------------- ---------- ---------- Biogen, Inc.: 886 April/45 $ 380,980 $ 194,731 567 January/35 207,275 324,802 Forest Laboratories, Inc. 672 January/75 379,967 1,565,928 Transkaryotic Therapies, Inc. 272 January/35 129,117 1,360 ---------- ---------- $1,097,339 $2,086,821 ========== ==========

See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES SCIENCE AND TECHNOLOGY PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3) ... $ 197,431 Cash .............................................. 1 Receivables: Fund shares sold ................................ 84 Dividends and interest .......................... 66 Prepaid insurance premium ......................... 2 --------- Total assets ................................... 197,584 --------- LIABILITIES Outstanding call options--at value (Note 5) ....... 2,087 Payable for investment securities purchased ....... 383 Payable to Fund shareholders ...................... 125 Accrued management fee (Note 2) ................... 5 Accrued accounting services fee (Note 2) .......... 4 Accrued service fee (Note 2) ...................... 1 Other ............................................. 13 --------- Total liabilities .............................. 2,618 --------- Total net assets ............................. $ 194,966 ========= NET ASSETS $0.001 par value capital stock: Capital stock ................................... $ 21 Additional paid-in capital ...................... 292,987 Accumulated undistributed loss: Accumulated undistributed net investment loss ... (3) Accumulated undistributed net realized loss on investment transactions ........................ (65,270) Net unrealized depreciation in value of securities ..................................... (31,393) Net unrealized depreciation in value of written options ........................................ (989) Net unrealized depreciation in value of purchased options ........................................ (387) --------- Net assets applicable to outstanding units of capital ................................... $ 194,966 Net asset value, redemption ========= and offering price per share ...................... $ 9.4961 ========= Capital shares outstanding ......................... 20,531 Capital shares authorized .......................... 40,000 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS SCIENCE AND TECHNOLOGY PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT LOSS Income (Note 1B): Interest and amortization .......................... $ 1,279 Dividends (net of foreign withholding taxes of $23). 788 -------- Total income ...................................... 2,067 -------- Expenses (Note 2): Investment management fee .......................... 1,871 Service fee ........................................ 550 Accounting services fee ............................ 51 Custodian fees ..................................... 39 Audit fees ......................................... 7 Legal fees ......................................... 3 Other .............................................. 48 -------- Total expenses .................................... 2,569 -------- Net investment loss ............................. (502) -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities ...................... (28,479) Realized net gain on written options ................. 1,579 Realized net loss on purchased options ............... (798) Realized net loss on foreign currency transactions ... (18) -------- Realized net loss on investments ................... (27,716) -------- Unrealized depreciation in value of securities during the period ....................... (36,989) Unrealized appreciation in value of written options during the period .......................... 869 Unrealized depreciation in value of purchased options during the period ................ (187) -------- Unrealized depreciation in value of investments during the period ................................. (36,307) -------- Net loss on investments ........................... (64,023) -------- Net decrease in net assets resulting from operations ...................... $(64,525) ======== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS SCIENCE AND TECHNOLOGY PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ------------------------- 2002 2001 ---------- ---------- DECREASE IN NET ASSETS Operations: Net investment income (loss) ...................... $ (502) $ 1,244 Realized net loss on investments .................. (27,716) (37,478) Unrealized depreciation ........................... (36,307) (217) --------- --------- Net decrease in net assets resulting from operations ...................... (64,525) (36,451) Dividends to shareholders from (Note 1E):(1) -------- -------- Net investment income ............................. (2) (1,254) Realized gains on securities transactions ......................... --- (84) --------- --------- (2) (1,338) --------- --------- Capital share transactions(2) ...................... (7,970) 9,896 --------- --------- Total decrease ................................. (72,497) (27,893) NET ASSETS Beginning of period ................................ 267,463 295,356 --------- --------- End of period ...................................... $ 194,966 $ 267,463 ========= ========= Undistributed net investment income (loss) $ (3) $ --- ========= ========= (1)See "Financial Highlights" on page 132. (2)Shares issued from sale of shares ............... 4,531 9,581 Shares issued from reinvestment of dividend and/or capital gains distribution ................. ---* 107 Shares redeemed .................................... (5,410) (8,999) Increase (decrease) in outstanding ................. --------- --------- capital shares .................................... (879) 689 ========= ========= Value issued from sale of shares ................... $ 47,962 $ 117,460 Value issued from reinvestment of dividend and/or capital gains distribution ................. 2 1,338 Value redeemed ..................................... (55,934) (108,902) Increase (decrease) in outstanding --------- --------- capital ........................................... $ (7,970) $ 9,896 ========= =========

*Not shown due to rounding. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ------------------------------------------------------------------ 2002 2001 2000 1999 1998 ---------- ---------- ---------- --------- ---------- Net asset value, beginning of period .... $ 12.4927 $ 14.2542 $ 22.4087 $ 8.2750 $ 5.7726 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss) ........ (0.0245) 0.0584 0.1151 (0.0309) 0.0032 Net realized and unrealized gain (loss) on investments ....... (2.9720) (1.7571) (4.8532) 14.4840 2.6551 --------- --------- --------- --------- --------- Total from investment operations ............. (2.9965) (1.6987) (4.7381) 14.4531 2.6583 --------- --------- --------- --------- --------- Less distributions from: Net investment income ............... (0.0001) (0.0589) (0.1151) (0.0000) (0.0032) Capital gains .......... (0.0000) (0.0039) (3.3013) (0.3194) (0.1527) --------- --------- --------- --------- --------- Total distributions ..... (0.0001) (0.0628) (3.4164) (0.3194) (0.1559) --------- --------- --------- --------- --------- Net asset value, end of period .......... $ 9.4961 $ 12.4927 $ 14.2542 $ 22.4087 $ 8.2750 ========= ========= ========= ========= ========= Total return ............ - 23.99% -11.91% -21.15% 174.66% 46.05% Net assets, end of period (in millions) .............. $ 195 $ 267 $ 295 $ 253 $ 35 Ratio of expenses to average net assets ................. 1.17% 1.15% 1.14% 1.10% 0.92% Ratio of net investment income (loss) to average net assets ............. - 0.23% 0.47% 0.64% -0.38% 0.07% Portfolio turnover rate ................... 92.25% 93.19% 93.76% 47.36% 64.72%

SEE NOTES TO FINANCIAL STATEMENTS. MANAGER'S DISCUSSION December 31, 2002 An interview with Grant P. Sarris, portfolio manager of W&R Target Funds, Inc. - Small Cap Portfolio This report relates to the operation of W&R Target Funds, Inc. - Small Cap Portfolio for the fiscal year ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? The Portfolio significantly outperformed its benchmark index for the year. Even so, given the difficult environment for stocks overall, it had a negative return for the year. The Portfolio declined 21.79 percent for the fiscal year, compared with the Russell 2000 Growth Index (reflecting the performance of securities that generally represent the small companies sector of the stock market), which declined 30.22 percent for the year, and the Lipper Variable Annuity Small-Cap Growth Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 30.90 percent for the year. What helped the Portfolio outperform its benchmark index during the fiscal year? The Portfolio remains balanced across most sectors, with some relative emphasis on health care, consumer discretionary and energy. Also, we continue to be slightly underweight in technology and producer durables, which we believe helped our performance during the period. What other market conditions or events influenced the Portfolio's performance during the fiscal year? Although the fiscal year overall was a difficult and disappointing time for small cap stocks, the market did rally a bit toward year-end. News from the economic and political fronts stopped getting worse, while corporate earnings grew modestly on a year-over-year basis. Generally, stocks that had suffered the worst up until the fourth calendar quarter of 2002 began to show the strongest growth during that quarter. What strategies and techniques did you employ that specifically affected the Portfolio's performance? The Portfolio remained quite defensive through much of the fiscal year, although by year-end we had begun to attempt to increase the risk profile. As mentioned above, we believe that our overall balance, along with our slightly underweight positions in selected sectors -- such as technology -- ultimately aided our performance. We have begun to gradually decrease the Portfolio's cash position, as we feel that the market appears to be at least in a sideways trend, as opposed to the downward trend of the last three years. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? We are now attempting to position the Portfolio for a continued slow recovery in economic activity and corporate earnings. Our current expectation is that the market will increase at a rate very close to earnings growth, implying very little price-to-earnings ratio changes in the near future. We believe that small cap stocks should perform in-line with large caps until the recovery becomes more robust, at which point we would expect small caps to outperform. We anticipate continuing to slowly reduce the cash position of the Portfolio, while potentially increasing the number of holdings. Generally, we intend to continue to look for companies that have lowered their cost structures and that may have the opportunity for revenue growth. Respectfully, Grant P. Sarris Manager Small Cap Portfolio Please note that, effective March 18, 2002, Grant P. Sarris became the sole portfolio manager for the Portfolio. Comparison of Change in Value of $10,000 Investment W&R Target Small Cap Portfolio, Russell 2000 Growth Index and Lipper Variable Annuity Small-Cap Growth Funds Universe Average

Lipper Variable Annuity Small-Cap W&R Target Russell 2000 Growth Funds Small Cap Growth Universe Portfolio Index Average ---------- ------------ ------------- 05/03/94 Purchase $10,000 $10,000 $10,000 12/31/94 12,091 10,137 10,747 12/31/95 15,999 13,274 14,064 12/31/96 17,360 14,756 16,593 12/31/97 22,834 16,663 19,188 12/31/98 25,315 16,869 20,097 12/31/99 38,537 24,136 32,162 12/31/00 33,779 18,738 28,821 12/31/01 33,126 17,011 25,111 12/31/02 25,908 11,870 17,352

- ----- W&R Target Small Cap Portfolio(1) -- $25,908 ..... Russell 2000 Growth Index(2) -- $11,870 ***** Lipper Variable Annuity Small-Cap Growth Funds Universe Average(2) -- $17,352 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the above indexes (including income) are not available, investment in the indexes was effected as of April 30, 1994. AVERAGE ANNUAL TOTAL RETURN(3) 1-year period ended 12-31-02 -21.79% 5-year period ended 12-31-02 2.56% 8+ year period ended 12-31-02(4) 11.61% (3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)5-3-94 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. Investing in small cap stocks may carry more risk than investing in stocks of larger, more well-established companies. THE INVESTMENTS OF THE SMALL CAP PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Business Equipment and Services - 14.84% Acxiom Corporation* ..................... 457,100 $ 7,009,628 Catalina Marketing Corporation* ......... 175,700 3,250,450 CheckFree Corporation* .................. 366,155 5,860,311 ITT Educational Services, Inc.* ......... 306,400 7,215,720 MSC Industrial Direct Co., Inc., Class A* 535,000 9,496,250 MAXIMUS, Inc.* .......................... 185,500 4,841,550 MemberWorks Incorporated* ............... 81,305 1,463,083 ProBusiness Services, Inc.* ............. 230,000 2,301,150 ------------ 41,438,142 ------------ Chemicals -- Specialty - 1.83% IMC Global Inc. ......................... 480,000 5,121,600 ------------ Communications Equipment - 3.02% Advanced Fibre Communications, Inc.* .... 320,000 5,352,000 Tekelec* ................................ 293,500 3,070,010 ------------ 8,422,010 ------------ Computers -- Peripherals - 3.15% NetIQ Corporation* ...................... 180,000 2,225,700 Sanchez Computer Associates, Inc.* ...... 286,700 861,534 Take-Two Interactive Software, Inc.* .... 177,800 4,176,522 Transaction Systems Architects, Inc., Class A* .............................. 234,400 1,522,428 ------------ 8,786,184 ------------ Electrical Equipment - 0.43% Intermagnetics General Corp.* ........... 60,300 1,189,116 ------------ Electronic Components - 1.58% Cree, Inc.* ............................. 269,600 4,409,308 ------------ Electronic Instruments - 2.61% Lam Research Corporation* ............... 237,800 2,564,673 PerkinElmer, Inc. ....................... 320,250 2,642,063 Plexus Corp.* ........................... 237,200 2,084,988 ------------ 7,291,724 ------------ Finance Companies - 1.42% Financial Federal Corporation* .......... 158,200 3,975,566 ------------ Food and Related - 3.80% American Italian Pasta Company, Class A* 190,000 6,836,200 Smucker (J.M.) Company (The) ............ 95,000 3,781,950 ------------ 10,618,150 ------------ Health Care -- Drugs - 5.57% Affymetrix, Inc.* ....................... 202,998 4,647,639 Andrx Corporation* ...................... 235,000 3,448,625 Cell Therapeutics, Inc.* ................ 131,100 953,752 Gene Logic Inc.* ........................ 325,700 2,055,167 Sepracor Inc.* .......................... 460,900 4,438,467 ------------ 15,543,650 ------------ Health Care -- General - 11.69% Apria Healthcare Group Inc.* ............ 256,300 5,700,112 ArthroCare Corporation* ................. 270,000 2,673,000 Cholestech Corporation* ................. 71,200 492,348 IDEXX Laboratories, Inc.* ............... 118,957 3,928,555 IMPATH Inc.* ............................ 283,200 5,591,784 Omnicare, Inc. .......................... 330,000 7,863,900 Urologix, Inc.* ......................... 240,000 788,400 VISX, Incorporated* ..................... 584,200 5,596,636 ------------ 32,634,735 ------------ Hospital Supply and Management - 3.91% American Healthways, Inc.* .............. 157,179 2,751,418 Amsurg Corp.* ........................... 185,000 3,774,000 Cerner Corporation* ..................... 141,022 4,399,886 ------------ 10,925,304 ------------ Hotels and Gaming - 0.31% Vail Resorts, Inc.* ..................... 56,700 860,139 ------------ Motor Vehicle Parts - 4.26% Gentex Corporation* ..................... 376,000 11,894,760 ------------ Petroleum -- Domestic - 6.25% Newfield Exploration Company* ........... 223,700 8,064,385 Patterson-UTI Energy, Inc.* ............. 140,000 4,224,500 Stone Energy Corporation* ............... 155,000 5,170,800 ------------ 17,459,685 ------------ Petroleum -- Services - 0.72% Global Industries, Ltd.* ................ 481,400 2,014,659 ------------ Publishing - 3.41% Getty Images, Inc.* ..................... 312,200 9,537,710 ------------ Railroad - 1.53% Kansas City Southern* ................... 356,600 4,279,200 ------------ Retail -- General Merchandise - 1.11% Tuesday Morning Corporation* ............ 181,500 3,106,373 ------------ Retail -- Specialty Stores - 3.52% Borders Group, Inc.* .................... 155,300 2,500,330 Gymboree Corporation (The)* ............. 158,500 2,514,603 O'Reilly Automotive, Inc.* .............. 190,000 4,804,150 ------------ 9,819,083 ------------ Security and Commodity Brokers - 0.77% Chicago Mercantile Exchange Holdings Inc. 49,283 2,151,696 ------------ Timesharing and Software - 2.85% Digital Insight Corporation* ............ 380,000 3,321,200 FactSet Research Systems, Inc. .......... 163,900 4,633,453 ------------ 7,954,653 ------------ Utilities -- Telephone - 1.99% Commonwealth Telephone Enterprises, Inc.* 155,000 5,558,300 ------------ TOTAL COMMON STOCKS - 80.57% $224,991,747 (Cost: $265,221,128)

Principal Amount in Thousands CORPORATE DEBT SECURITY - 0.03% Multiple Industry Kestrel Solutions, Inc., 5.5%, 7-15-05, Convertible (A)(B) ............. $ 1,000 $ 80,000 ------------ (Cost: $1,000,000) SHORT-TERM SECURITIES Banks - 2.86% Wells Fargo & Company, 1.29%, 1-16-03 ................................ 8,000 7,995,700 ------------ Chemicals - Petroleum and Inorganic - 1.62% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note ......................... 4,522 4,522,000 ------------ Food and Related - 2.49% ConAgra Foods, Inc., 1.42%, 1-13-03 ................................ 5,000 4,997,633 General Mills, Inc., 1.53%, Master Note ............................ 1,961 1,961,000 ------------ 6,958,633 ------------ Health Care - Drugs - 7.66% Alcon Capital Corporation (Nestle S.A.), 1.32%, 2-12-03 ................................ 8,000 7,987,680 Pfizer Inc.: 1.3%, 1-9-03 .................................. 5,400 5,398,440 1.3%, 1-29-03 ................................. 8,000 7,991,911 ------------ 21,378,031 ------------ Health Care - General - 1.20% Johnson & Johnson, 1.27%, 2-3-03 ................................. 3,354 3,350,096 ------------ Petroleum - International - 3.52% BP America Inc., 1.2%, 1-2-03 .................................. 9,836 9,835,672 ------------ TOTAL SHORT-TERM SECURITIES - 19.35% $ 54,040,132 (Cost: $54,040,132) TOTAL INVESTMENT SECURITIES - 99.95% $279,111,879 (Cost: $320,261,260) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.05% 140,581 NET ASSETS - 100.00% $279,252,460

SEE NOTES TO SCHEDULE OF INVESTMENTS ON PAGE . THE INVESTMENTS OF THE SMALL CAP PORTFOLIO December 31, 2002 NOTES TO SCHEDULE OF INVESTMENTS *No dividends were paid during the preceding 12 months. (A)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the value of this security amounted to 0.03% of net assets. (B)Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES SMALL CAP PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (Notes 1 and 3). $ 279,112 Cash ........................................... 1 Receivables: Investment securities sold ................... 556 Fund shares sold ............................. 154 Dividends and interest ....................... 21 Prepaid insurance premium ...................... 3 --------- Total assets ................................ 279,847 --------- LIABILITIES Payable for investment securities purchased .... 513 Payable to Fund shareholders ................... 55 Accrued management fee (Note 2) ................ 7 Accrued accounting services fee (Note 2) ....... 5 Accrued service fee (Note 2) ................... 2 Other .......................................... 13 --------- Total liabilities ........................... 595 --------- Total net assets .......................... $ 279,252 ========= NET ASSETS $0.001 par value capital stock: Capital stock ................................ $ 45 Additional paid-in capital ................... 385,107 Accumulated undistributed loss: Accumulated undistributed net investment loss. (4) Accumulated undistributed net realized loss on investment transactions ..................... (64,747) Net unrealized depreciation in value of investments ................................. (41,149) --------- Net assets applicable to outstanding units of capital ................................ $ 279,252 ========= Net asset value, redemption and offering price per share ................... $ 6.2388 ========= Capital shares outstanding ...................... 44,760 Capital shares authorized ....................... 80,000 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS SMALL CAP PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands) INVESTMENT LOSS Income (Note 1B): Interest and amortization .................... $ 1,302 Dividends .................................... 229 -------- Total income ................................ 1,531 -------- Expenses (Note 2): Investment management fee .................... 2,645 Service fee .................................. 778 Accounting services fee ...................... 58 Custodian fees ............................... 24 Audit fees ................................... 7 Legal fees ................................... 4 Other ........................................ 66 -------- Total expenses .............................. 3,582 -------- Net investment loss ....................... (2,051) -------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments ................ (18,965) Unrealized depreciation in value of investments during the period ................. (60,013) -------- Net loss on investments ....................... (78,978) -------- Net decrease in net assets resulting from operations .................. $(81,029) ======== SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS SMALL CAP PORTFOLIO (In Thousands)

For the fiscal year ended December 31, ------------------------- 2002 2001 ---------- ---------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment loss ............................... $ (2,051) $ (465) Realized net loss on investments .................. (18,965) (45,780) Unrealized appreciation (depreciation) ............ (60,013) 39,983 --------- --------- Net decrease in net assets resulting from operations ................................ (81,029) (6,262) Dividends to shareholders from (Note 1E):(1) -------- --------- Net investment income ............................. --- (1) Realized gains on securities transactions ......................... --- (2) --------- --------- --- (3) --------- --------- Capital share transactions(2) ...................... 1,084 20,255 --------- --------- Total increase (decrease) ...................... (79,945) 13,990 NET ASSETS Beginning of period ................................ 359,197 345,207 --------- --------- End of period ...................................... $ 279,252 $ 359,197 ========= ========= Undistributed net investment loss ................. $ (4) $ (2) ========= ========= (1)See "Financial Highlights" on page 143. (2)Shares issued from sale of shares ............... 15,643 18,777 Shares issued from reinvestment of dividend and/or capital gains distribution ................. --- 1 Shares redeemed .................................... (15,912) (16,186) Increase (decrease) in outstanding ------ ------ capital shares .................................... (269) 2,592 ========= ========= Value issued from sale of shares ................... $ 110,132 $ 143,499 Value issued from reinvestment of dividend and/or capital gains distribution ................. --- 3 Value redeemed ..................................... (109,048) (123,247) --------- --------- Increase in outstanding capital .................... $ 1,084 $ 20,255 ========= =========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS SMALL CAP PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the fiscal year ended December 31, ------------------------------------------------------------------ 2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ---------- Net asset value, beginning of period ........................ $ 7.9770 $ 8.1345 $ 11.6130 $ 7.9019 $ 8.3316 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss) .................. (0.0458) (0.0103) 0.0717 0.0423 0.0798 Net realized and unrealized gain (loss) on investments ................. (1.6924) (0.1471) (1.5051) 4.0847 0.8255 --------- --------- --------- --------- --------- Total from investment operations ....................... (1.7382) (0.1574) (1.4334) 4.1270 0.9053 --------- --------- --------- --------- --------- Less distributions: From net investment income ......................... (0.0000) (0.0000)* (0.0717) (0.0421) (0.0798) From capital gains ............... (0.0000) (0.0001) (1.9734) (0.3738) (1.2027) In excess of capital gains .................. (0.0000) (0.0000) (0.0000) (0.0000) (0.0525) --------- --------- --------- --------- --------- Total distributions ............... (0.0000) (0.0001) (2.0451) (0.4159) (1.3350) --------- --------- --------- --------- --------- Net asset value, end of period .................... $ 6.2388 $ 7.9770 $ 8.1345 $ 11.6130 $ 7.9019 ========= ========= ========= ========= ========= Total return ...................... -21.79% -1.93% -12.35% 52.23% 10.87% Net assets, end of period (in millions) .................... $ 279 $ 359 $ 345 $ 318 $ 181 Ratio of expenses to average net assets ........................... 1.15% 1.14% 1.13% 1.12% 0.97% Ratio of net investment income (loss) to average net assets ....................... -0.66% -0.14% 0.68% 0.53% 0.94% Portfolio turnover

rate ...... 34.54% 30.31% 58.35% 130.99% 177.32% *Not shown due to rounding. SEE NOTES TO FINANCIAL STATEMENTS. MANAGERS' DISCUSSION December 31, 2002 An interview with Harry M. Flavin and Cynthia P. Prince-Fox, portfolio managers of W&R Target Funds, Inc. - Value Portfolio This report relates to the operation of W&R Target Funds, Inc. - Value Portfolio for the fiscal period ended December 31, 2002. The following discussion, graphs and tables provide you with information regarding the Portfolio's performance during that period. Please note that the Portfolio's performance data does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. How did the Portfolio perform during the last fiscal year? Although it did show a negative return for the year, the Portfolio performed relatively well, as it outperformed its benchmark index. The Portfolio declined 12.70 percent during the period, compared with the Russell 1000 Value Index (reflecting the performance of securities that generally represent the value sector of the stock market), which declined 15.52 percent during the period, and the Lipper Variable Annuity Multi-Cap Value Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 18.73 percent during the same period. What helped the Portfolio outperform its benchmark index during the fiscal year? Our comparatively better results were, we feel, primarily due to our emphasis on defensive stocks, such as food and aerospace/defense. In addition, we maintained significant levels of cash throughout most of the year. Overall, we believe that we have remained successful in finding good businesses trading at discounts to their intrinsic value. What other market conditions or events influenced the Portfolio's performance during the fiscal year? This marked the third consecutive year of declines for the broad equity markets. Equity investments were simply a difficult place to be, as the S&P 500 Index experienced its sharpest decline since 1974, while the technology-laden Nasdaq Composite Index lost nearly a third of its value. Nearly every industry classification in the S&P 500 saw negative returns during the year. As a result, cash was a safe haven during the year. What strategies and techniques did you employ that specifically affected the Portfolio's performance? While one of our strategies was to position the Portfolio in more defensive names, we also placed a greater emphasis on stocks that we felt offered higher- than-market dividend yields. We did this because we felt that there was a strong possibility that there would be some form of relief on the double taxation of dividends. As a result, several companies that we currently hold experienced significant rallies during the final quarter of the fiscal year. We continue to believe that this will be an important theme as we move into 2003. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? During most of the year, we emphasized health care, energy and defense stocks. While energy and defense generally held most of their ground over the year, health care -- particularly pharmaceuticals -- experienced fairly significant declines, despite their purported defensive characteristics. We believe that the reason for the declines can be traced back to challenges within that industry, such as difficulties with the patent process and the broadening popularity of generic drugs, among others. While many of these issues remain, we continue to believe that pharmaceutical stocks offer attractive valuations, given the aging demographic profile in the United States. Going forward, our weightings may change as new opportunities present themselves. We intend to continue to focus on value, earnings stability and above-average diversification as the year progresses. Respectfully, Harry M. Flavin Cynthia P. Prince-Fox Managers Value Portfolio Please note: Effective January 2002, Cynthia P. Prince-Fox was added as a co- manager of W&R Target Funds, Inc. - Value Portfolio. Prior to that time, Harry M. Flavin was the sole manager of the Portfolio. Comparison of Change in Value of $10,000 Investment W&R Target Value Portfolio, Russell 1000 Value Index and Lipper Variable Annuity Multi-Cap Value Funds Universe Average

Lipper Variable Annuity Multi-Cap Russell Value W&R Target 1000 Funds Value Value Universe Portfolio Index Average ---------- ------- --------- 5/1/01 Purchase 10,000 10,000 10,000 12/31/01 10,203 9,557 9,724 12/31/02 8,907 8,074 7,902

===== W&R Target Value Portfolio(1) -- $8,907 +++++ Russell 1000 Value Index(2) -- $8,074 - ----- Lipper Variable Annuity Multi-Cap Value Funds Universe Average(2) -- $7,902 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (2)Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the indexes (including income) are not available, investment in the indexes was effected as of April 30, 2001. AVERAGE ANNUAL TOTAL RETURN(3) 1-year period ended 12-31-02 -12.70% 1+ year period ended 12-31-02(4) -6.70% (3)Performance data quoted represents past performance. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)5-1-01 (the initial offering date) through 12-31-02. Past performance is not necessarily indicative of future performance. Indexes are unmanaged. Performance data quoted does not take into account any expenses or charges associated with owning a variable life or annuity policy invested in the W&R Target Funds, Inc. THE INVESTMENTS OF THE VALUE PORTFOLIO December 31, 2002

Shares Value COMMON STOCKS Aircraft - 5.56% Lockheed Martin Corporation ..................... 26,700 $ 1,541,925 Northrop Grumman Corporation .................... 13,000 1,261,000 Raytheon Company ................................ 44,000 1,353,000 ----------- 4,155,925 ----------- Banks - 3.20% Bank of America Corporation ..................... 9,000 626,130 Citigroup Inc. .................................. 27,000 950,130 U.S. Bancorp .................................... 38,600 819,092 ----------- 2,395,352 ----------- Beverages - 1.23% Coca-Cola Company (The) ......................... 21,000 920,220 ----------- Business Equipment and Services - 4.96% Dun & Bradstreet Corporation (The)* ............. 24,700 851,903 First Data Corporation .......................... 28,000 991,480 Genuine Parts Company ........................... 33,000 1,016,400 Pitney Bowes Inc. ............................... 25,900 845,894 ----------- 3,705,677 ----------- Capital Equipment - 1.69% Caterpillar Inc. ................................ 10,000 457,200 Ingersoll-Rand Company Limited, Class A ......... 18,700 805,222 ----------- 1,262,422 ----------- Chemicals -- Petroleum and Inorganic - 1.14% du Pont (E.I.) de Nemours and Company ........... 20,100 852,240 ----------- Chemicals -- Specialty - 1.09% Air Products and Chemicals, Inc. ................ 19,100 816,525 ----------- Communications Equipment - 0.79% Cisco Systems, Inc.* ............................ 45,000 589,275 ----------- Computers -- Peripherals - 3.51% Microsoft Corporation* .......................... 50,800 2,627,376 ----------- Cosmetic and Toiletries - 1.24% Estee Lauder Companies Inc. (The), Class A ...... 35,000 924,000 ----------- Electrical Equipment - 2.18% Emerson Electric Co. ............................ 32,000 1,627,200 ----------- Electronic Components - 1.48% Intel Corporation ............................... 71,000 1,105,825 ----------- Food and Related - 1.73% ConAgra Foods, Inc. ............................. 40,000 1,000,400 Dean Foods Company* ............................. 8,000 296,800 ----------- 1,297,200 ----------- Forest and Paper Products - 5.30% Boise Cascade Corporation ....................... 19,000 479,180 Sealed Air Corporation* ......................... 62,891 2,345,834 Smurfit-Stone Container Corporation* ............ 15,812 243,742 Temple-Inland Inc. .............................. 20,000 896,200 ----------- 3,964,956 ----------- Health Care -- Drugs - 6.89% Abbott Laboratories ............................. 51,800 2,072,000 Merck & Co., Inc. ............................... 17,000 962,370 Pharmacia Corporation ........................... 50,700 2,119,260 ----------- 5,153,630 ----------- Health Care -- General - 2.29% Becton, Dickinson and Company ................... 12,600 386,694 Bristol-Myers Squibb Company .................... 28,000 648,200 Wyeth ........................................... 18,100 676,940 ----------- 1,711,834 ----------- Insurance -- Property and Casualty - 5.48% American International Group, Inc. .............. 25,600 1,480,960 Berkshire Hathaway Inc., Class B* ............... 400 969,200 Chubb Corporation (The) ......................... 31,600 1,649,520 ----------- 4,099,680 ----------- Leisure Time Industry - 0.30% Walt Disney Company (The)* ...................... 13,900 226,709 ----------- Mining - 1.56% Newmont Mining Corporation ...................... 40,200 1,167,006 ----------- Petroleum -- Canada - 0.89% Nabors Industries Ltd.* ......................... 18,800 663,076 ----------- Petroleum -- Domestic - 3.94% Burlington Resources Inc. ....................... 36,600 1,560,990 Occidental Petroleum Corporation ................ 48,800 1,388,360 ----------- 2,949,350 ----------- Petroleum -- International - 2.23% BP p.l.c., ADR .................................. 11,800 479,670 Exxon Mobil Corporation ......................... 34,000 1,187,960 ----------- 1,667,630 ----------- Publishing - 0.79% Washington Post Company (The), Class B .......... 800 590,400 ----------- Real Estate Investment Trusts - 0.68% ProLogis Trust .................................. 20,350 511,803 ----------- Restaurants - 0.80% McDonald's Corporation .......................... 37,000 594,960 ----------- Retail -- General Merchandise - 1.43% Target Corporation .............................. 35,700 1,071,000 ----------- Security and Commodity Brokers - 5.27% American Express Company ........................ 28,900 1,021,615 Goldman Sachs Group, Inc. (The) ................. 9,300 633,330 Marsh & McLennan Companies, Inc. ................ 8,700 402,027 Merrill Lynch & Co., Inc. ....................... 23,300 884,235 Morgan Stanley .................................. 25,100 1,001,992 ----------- 3,943,199 ----------- Tobacco - 0.16% UST Inc. ........................................ 3,500 117,005 ----------- Trucking and Shipping - 0.81% Hunt (J.B.) Transport Services, Inc.* ........... 20,700 606,614 ----------- Utilities -- Electric - 3.32% American Electric Power Company, Inc. ........... 16,000 437,280 Cinergy Corp. ................................... 13,500 455,220 Exelon Corporation .............................. 17,700 934,029 PPL Corporation ................................. 18,900 655,452 ----------- 2,481,981 ----------- Utilities -- Gas and Pipeline - 1.41% FirstEnergy Corp. ............................... 32,000 1,055,040 ----------- Utilities -- Telephone - 4.19% ALLTEL Corporation .............................. 18,000 918,000 BellSouth Corporation ........................... 15,000 388,050 SBC Communications Inc. ......................... 67,500 1,829,925 ----------- 3,135,975 ----------- TOTAL COMMON STOCKS - 77.54% ..................... $57,991,085 (Cost: $59,551,105) PREFERRED STOCKS Forest and Paper Products - 1.07% Sealed Air Corporation, $2, Convertible ................................... 18,700 796,620 ----------- Insurance - Property and Casualty - 0.59% Chubb Corporation (The), 7.0%, Convertible* .................................. 18,500 443,075 ----------- TOTAL PREFERRED STOCKS - 1.66% ................... $ 1,239,695 (Cost: $1,291,028) Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Chemicals -- Petroleum and Inorganic - 0.12% du Pont (E.I.) de Nemours and Company, 1.30036%, Master Note ......................... $ 92 92,000 ----------- Finance Companies - 1.78% USAA Capital Corp., 1.35%, 1-10-03 ................................ 1,328 1,327,552 ----------- Food and Related - 3.67% General Mills, Inc., 1.53%, Master Note ............................ 2,744 2,744,000 ----------- Health Care -- Drugs - 3.60% Alcon Capital Corporation (Nestle S.A.), 1.32%, 2-12-03 ................................ 2,700 2,695,842 ----------- Health Care -- General - 3.34% Johnson & Johnson, 1.27%, 2-3-03 ................................. 2,500 2,497,089 ----------- Household -- General Products - 5.21% Kimberly-Clark Worldwide Inc., 1.28%, 1-22-03 ................................ 1,200 1,199,104 Procter & Gamble Company (The), 1.3%, 2-10-03 ................................. 2,700 2,696,100 ----------- 3,895,204 ----------- Total Commercial Paper - 17.72% .................. 13,251,687 Municipal Obligation - 2.94% California California Pollution Control Financing Authority, Environmental Improvement Revenue Bonds, Shell Oil Company Project, Series 1998A (Taxable), 1.2%, 1-2-03 .................................. 2,200 2,200,000 ----------- Repurchase Agreement - 0.79% J.P. Morgan Securities Inc., 0.97% Repurchase Agreement dated 12-31-02, to be repurchased at $589,032 on 1-2-03 (A) .................................... 589 589,000 ----------- TOTAL SHORT-TERM SECURITIES - 21.45% $16,040,687 (Cost: $16,040,687) TOTAL INVESTMENT SECURITIES - 100.65% $75,271,467 (Cost: $76,882,820) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.65%) (488,701) NET ASSETS - 100.00% $74,782,766

NOTES TO SCHEDULE OF INVESTMENTS *No income dividends were paid during the preceding 12 months. (A)Collateralized by $453,000 United States Treasury Bond, 7.5% due 11-15-16; market value and accrued interest aggregate $600,296. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES VALUE PORTFOLIO December 31, 2002 (In Thousands, Except for Per Share Amounts)

ASSETS Investment securities--at value (Notes 1 and 3) ...... $ 75,271 Cash ................................................. 1 Receivables: Dividends and interest ............................. 97 Fund shares sold ................................... 61 Prepaid insurance premium ............................ 1 -------- Total assets ...................................... 75,431 -------- LIABILITIES Payable for investment securities purchased .......... 640 Accrued accounting services fee (Note 2) ............. 3 Accrued management fee (Note 2) ...................... 1 Accrued service fee (Note 2) ......................... 1 Other ................................................ 3 -------- Total liabilities ................................. 648 -------- Total net assets ................................ $ 74,783 ======== NET ASSETS $0.001 par value capital stock: Capital stock ...................................... $ 17 Additional paid-in capital ......................... 83,491 Accumulated undistributed loss: Accumulated undistributed net realized loss on investment transactions ................... (7,114) Net unrealized depreciation in value of investments ....................................... (1,611) -------- Net assets applicable to outstanding units of capital ...................................... $ 74,783 ======== Net asset value, redemption and offering price per share ......................... $ 4.4016 ======== Capital shares outstanding ............................ 16,990 Capital shares authorized ............................. 30,000

SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS VALUE PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 (In Thousands)

INVESTMENT INCOME Income (Note 1B): Dividends (net of foreign withholding taxes of $2) ...... $ 976 Interest and amortization ............................... 272 ------- Total income ........................................... 1,248 ------- Expenses (Note 2): Investment management fee ............................... 445 Service fee ............................................. 159 Accounting services fee ................................. 32 Custodian fees .......................................... 10 Audit fees .............................................. 5 Legal fees .............................................. 1 Other ................................................... 10 ------- Total expenses ......................................... 662 ------- Net investment income ................................ 586 ------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments .......................... (7,029) Unrealized depreciation in value of investments during the period ........................... (2,670) ------- Net loss on investments ................................. (9,699) ------- Net decrease in net assets resulting from operations ............................ $(9,113) =======

SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS VALUE PORTFOLIO (In Thousands)

For the For the fiscal period from year 5-1-01(1) ended through 12-31-02 12-31-01 ---------- ----------- INCREASE IN NET ASSETS Operations: Net investment income ................................ $ 586 $ 170 Realized net loss on investments ..................... (7,029) (85) Unrealized appreciation (depreciation) ..................................... (2,670) 1,059 -------- -------- Net increase (decrease) in net assets resulting from operations ......................... (9,113) 1,144 -------- -------- Dividends to shareholders from net investment income (Note 1E)(2) ....................... (586) (170) -------- -------- Capital share transactions(3) ......................... 40,266 43,232 -------- -------- Total increase .................................... 30,567 44,206 NET ASSETS Beginning of period ................................... 44,216 10 -------- -------- End of period ......................................... $ 74,783 $ 44,216 ======== ======== Undistributed net investment income .................. $ --- $ --- ======== ======== (1)Commencement of operations (2)See "Financial Highlights" on page 155. (3)Shares issued from sale of shares................... 8,920 8,723 Shares issued from reinvestment of dividend............ 133 33 Shares redeemed ....................................... (764) (57) -------- -------- Increase in outstanding capital shares 8,289 8,699 ======== ======== Value issued from sale of shares....................... $ 43,095 $ 43,342 Value issued from reinvestment of dividend............. 586 170 Value redeemed......................................... (3,415) (280) -------- -------- Increase in outstanding capital........................ $ 40,266 $ 43,232 ======== ========

SEE NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS VALUE PORTFOLIO FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:

For the For the fiscal period from year 5-1-01(1) ended through 12-31-02 12-31-01 -------- ------------ Net asset value, beginning of period .............. $ 5.0815 $ 5.0000 -------- -------- Income (loss) from investment operations: Net investment income 0.0348 0.0198 Net realized and unrealized gain (loss) on investments ................. (0.6799) 0.0815 -------- -------- Total from investment operations ....................... (0.6451) 0.1013 -------- -------- Less distributions from net investment income ........................... (0.0348) (0.0198) -------- -------- Net asset value, end of period .................... $ 4.4016 $ 5.0815 ======== ======== Total return ...................... -12.70% 2.03% Net assets end of period (in millions) ............. $ 75 $ 44 Ratio of expenses to average net assets including voluntary expense waiver ................... 1.04% 0.84%(2) Ratio of net investment income to average net assets including voluntary expense waiver ................... 0.92% 1.39%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ................... ---(3) 1.07%(2) Ratio of net investment income to average net assets excluding voluntary expense waiver ................... ---(3) 1.16%(2) Portfolio turnover rate ........... 95.73% 10.91%

(1)Commencement of operations. (2)Annualized. (3)Because the Portfolio's net assets exceeded $25 million for the entire period, there was no waiver of expenses. Therefore, no ratio was provided. See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS W&R TARGET FUNDS, INC. December 31, 2002 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES W&R Target Funds, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. Capital stock is currently divided into the twelve classes that are designated the Asset Strategy Portfolio, the Balanced Portfolio, the Bond Portfolio, the Core Equity Portfolio, the Growth Portfolio, the High Income Portfolio, the International Portfolio, the Limited-Term Bond Portfolio, the Money Market Portfolio, the Science and Technology Portfolio, the Small Cap Portfolio and the Value Portfolio. The assets belonging to each Portfolio are held separately by the Custodian. The capital shares of each Portfolio represent a pro rata beneficial interest in the principal, net income (loss), and realized and unrealized capital gains or losses of its respective investments and other assets. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. A. Security valuation -- Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Gold bullion is valued at the last settlement price for current delivery as calculated by the Commodity Exchange, Inc. as of the close of that exchange. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value. B. Security transactions and related investment income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex- dividend date. Interest income is recorded on the accrual basis. See Note 3 -- Investment Securities Transactions. C. Foreign currency translations -- All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments. D. Federal income taxes -- It is the Fund's policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under the Internal Revenue Code. Accordingly, provision has not been made for Federal income taxes. See Note 4 -- Federal Income Tax Matters. E. Dividends and distributions -- Dividends and distributions to shareholders are recorded by each Portfolio on the record date. Net investment income distributions and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers. At December 31, 2002, the following amounts were reclassified:

Accumulated Accumulated Undistributed Undistributed Net Investment Net Realized Additional Income Gain (Loss) Paid-in Capital - ---------------------------------------------------------------------------- Bond Portfolio $ --- $1,337,337 $1,337,337 Science and Technology Portfolio 519,314 --- 519,314 Small Cap Portfolio 2,049,088 --- 2,049,088

F. Options -- See Note 5 -- Options G. Futures -- See Note 6 -- Futures H. Repurchase agreements -- Repurchase agreements are collateralized by the value of the resold securities which, during the entire period of the agreement, remains at least equal to the value of the loan, including accrued interest thereon. The collateral for the repurchase agreement is held by the Fund's custodian bank. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. NOTE 2 -- INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned subsidiary of Waddell & Reed, Inc. ("W&R"), serves as the Fund's investment manager. The Fund pays a fee for investment management services. The fee is computed daily based on the net asset value at the close of business. The fee is payable by each Portfolio at the following annual rates:

Annual Fund Net Asset Breakpoints Rate - ------------------------------------------------------------------------ Asset Strategy Portfolio Up to $1 Billion 0.700% Over $1 Billion up to $2 Billion 0.650% Over $2 Billion up to $3 Billion 0.600% Over $3 Billion 0.550% Balanced Portfolio Up to $1 Billion 0.700% Over $1 Billion up to $2 Billion 0.650% Over $2 Billion up to $3 Billion 0.600% Over $3 Billion 0.550% Bond Portfolio Up to $500 Million 0.525% Over $500 Million up to $1 Billion 0.500% Over $1 Billion up to $1.5 Billion 0.450% Over $1.5 Billion 0.400% Core Equity Portfolio Up to $1 Billion 0.700% Over $1 Billion up to $2 Billion 0.650% Over $2 Billion up to $3 Billion 0.600% Over $3 Billion 0.550% Growth Portfolio Up to $1 Billion 0.700% Over $1 Billion up to $2 Billion 0.650% Over $2 Billion up to $3 Billion 0.600% Over $3 Billion 0.550% High Income Portfolio Up to $500 Million 0.625% Over $500 Million up to $1 Billion 0.600% Over $1 Billion up to $1.5 Billion 0.550% Over $1.5 Billion 0.500% International Portfolio Up to $1 Billion 0.850% Over $1 Billion up to $2 Billion 0.830% Over $2 Billion up to $3 Billion 0.800% Over $3 Billion 0.760% Limited-Term Bond Up to $500 Million 0.500% Portfolio Over $500 Million up to $1 Billion 0.450% Over $1 Billion up to $1.5 Billion 0.400% Over $1.5 Billion 0.350% Money Market Portfolio All Net Assets 0.400% Science and Technology Up to $1 Billion 0.850% Portfolio Over $1 Billion up to $2 Billion 0.830% Over $2 Billion up to $3 Billion 0.800% Over $3 Billion 0.760% Small Cap Portfolio Up to $1 Billion 0.850% Over $1 Billion up to $2 Billion 0.830% Over $2 Billion up to $3 Billion 0.800% Over $3 Billion 0.760% Value Portfolio Up to $1 Billion 0.700% Over $1 Billion up to $2 Billion 0.650% Over $2 Billion up to $3 Billion 0.600% Over $3 Billion 0.550%

The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund's share of incremental security-related costs including the cost of using private transportation for WRIMCO's personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At December 31, 2002, additional security costs amounted to $210,088, which is included in other expenses. WRIMCO, the Fund's investment manager, has agreed to waive a Portfolio's management fee on any day that the Portfolio's net assets are less than $25 million, subject to its right to change or modify this waiver. During the period ended December 31, 2002, WRIMCO voluntarily waived its fee (000 omitted) as shown in the following table: LIMITED-TERM BOND PORTFOLIO $50 The Fund has an Accounting Services Agreement with Waddell & Reed Services Company ("WRSCO"), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table. Accounting Services Fee Average Net Asset Level Annual Fee (all dollars in millions)Rate for Each Portfolio - ----------------------------------- From $ 0 to $ 10 $ 0 From $ 10 to $ 25 $ 11,000 From $ 25 to $ 50 $ 22,000 From $ 50 to $ 100 $ 33,000 From $ 100 to $ 200 $ 44,000 From $ 200 to $ 350 $ 55,000 From $ 350 to $ 550 $ 66,000 From $ 550 to $ 750 $ 77,000 From $ 750 to $1,000 $ 93,500 $1,000 and Over $110,000 The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed 0.25% of the Portfolio's average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts. The Fund paid Directors' fees of $145,760, which are included in other expenses. W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company. NOTE 3 -- INVESTMENT SECURITIES TRANSACTIONS Investment securities transactions for the fiscal year ended December 31, 2002 are summarized as follows:

Asset Strategy Balanced Bond Portfolio Portfolio Portfolio -------------- --------- --------- Purchases of investment securities, excluding short-term and United States Government obligations $ 78,646,340 $ 90,147,399 $ 42,387,560 Purchases of United States Government obligations 78,582,686 991,540 98,148,169 Purchases of short-term securities 561,755,621 1,423,589,939 457,376,939 Purchases of options 11,213,881 --- --- Purchases of bullion 11,345,771 --- --- Proceeds from maturities and sales of investment securities, excluding short-term and United States Government obligations 54,778,830 71,920,989 10,902,460 Proceeds from maturities and sales of United States Government obligations 58,164,792 10,090,673 54,148,087 Proceeds from maturities and sales of short-term securities 561,373,262 1,423,205,271 456,089,000 Proceeds from bullion 5,732,088 --- --- Proceeds from options 9,921,042 --- ---

High Core Equity Growth Income Portfolio Portfolio Portfolio ----------- --------- --------- Purchases of investment securities, excluding short- term and United States Government obligations $ 260,403,792 $ 308,465,604 $ 116,493,678 Purchases of United States Government obligations --- --- --- Purchases of short-term securities 3,399,574,161 3,026,244,685 1,370,500,347 Proceeds from maturities and sales of investment securities, excluding short-term and United States Government obligations 377,019,718 412,171,412 89,168,594 Proceeds from maturities and sales of United States Government obligations --- --- 2,825,671 Proceeds from maturities and sales of short-term securities 3,347,688,896 3,002,124,140 1,372,643,596

Limited- Science and International Term Bond Technology Portfolio Portfolio Portfolio ------------- --------- ----------- Purchases of investment securities, excluding short- term and United States Government obligations $ 156,582,552 $ 21,653,886 $ 141,003,617 Purchases of United States Government obligations --- 13,138,806 --- Purchases of short-term securities 1,531,104,449 64,922,152 2,504,487,436 Purchases of options --- --- 5,251,240 Proceeds from maturities and sales of investment securities, excluding short-term and United States Government obligations 175,218,741 4,128,435 139,000,618 Proceeds from maturities and sales of United States Government obligations --- 2,859,170 --- Proceeds from maturities and sales of short-term securities 1,527,344,746 62,294,953 2,509,622,866 Proceeds from options --- --- 7,398,644

Small Cap Value Portfolio Portfolio ----------- --------- Purchases of investment securities, excluding short-term and United States Government obligations $ 110,171,204 $ 86,956,407 Purchases of United States Government obligations --- --- Purchases of short-term securities 2,669,997,558 1,475,856,299 Proceeds from maturities and sales of investment securities, excluding short-term and United States Government obligations 83,855,147 45,297,514 Proceeds from maturities and sales of United States Government obligations --- --- Proceeds from maturities and sales of short-term securities 2,698,677,313 1,476,398,000

For Federal income tax purposes, cost of investments owned at December 31, 2002 and the related unrealized appreciation (depreciation) were as follows:

Aggregate Appreciation CostAppreciationDepreciation(Depreciation) ---------------------------------------------------------- Asset Strategy Portfolio $165,430,073 $ 5,132,991 $ 2,396,950 $ 2,736,041 Balanced Portfolio 168,006,128 8,474,792 8,348,918 125,874 Bond Portfolio 240,701,092 13,043,358 1,891,158 11,152,200 Core Equity Portfolio 601,916,788 95,100,662 48,134,219 46,966,443 Growth Portfolio 684,595,267 93,608,527 68,285,694 25,322,833 High Income Portfolio 126,858,420 3,596,745 4,690,606 (1,093,861) International Portfolio 147,843,678 4,884,911 13,893,747 (9,008,836) Limited-Term Bond Portfolio 45,522,013 1,172,381 9,324 1,163,057 Money Market Portfolio 102,095,440 --- --- --- Science and Technology Portfolio 229,279,681 11,406,022 43,254,807 (31,848,785) Small Cap Portfolio 324,746,966 25,149,128 70,784,215 (45,635,087) Value Portfolio 76,882,820 2,431,115 4,042,468 (1,611,353)

NOTE 4 -- FEDERAL INCOME TAX MATTERS For Federal income tax purposes, the Portfolios' distributed and undistributed earnings and profit for the fiscal year ended December 31, 2002 and the related Capital Loss Carryover and Post-October activity were as follows:

Asset Strategy Balanced Bond Portfolio Portfolio Portfolio ---------------------------------------- Net ordinary income ...................... $ 2,616,614 $ 3,124,160 $10,170,248 Distributed ordinary income .............. 2,615,962 3,123,111 10,148,255 Undistributed ordinary income ............ 978 1,889 22,667 Realized long-term capital gains ......... --- --- --- Distributed long-term capital gains ...... --- --- --- Undistributed long-term capital gains .... --- --- --- Capital loss carryover ................... 350,900 13,987,503 668,343 Post-October losses deferred ............. --- --- ---

Core High Equity Growth Income Portfolio Portfolio Portfolio ------------------------------------------ Net ordinary income ...................... $ 3,816,386 $ 97,482 $ 10,217,520 Distributed ordinary income .............. 3,810,945 91,557 10,216,847 Undistributed ordinary income ............ 11,139 12,806 31,279 Realized long-term capital gains ......... --- --- --- Distributed long-term capital gains ...... --- --- --- Undistributed long-term capital gains .... --- --- --- Capital loss carryover ................... 117,005,003 79,094,360 13,911,720 Post-October losses deferred ............. 2,620,944 6,092,111 492,960

Limited- Money International Term Bond Market Portfolio Portfolio Portfolio ----------------------------------------- Net ordinary income ...................... $ 658,931 $ 1,091,886 $ 1,093,272 Distributed ordinary income .............. 657,832 1,091,807 1,092,710 Undistributed ordinary income ............ 2,587 118 910 Realized long-term capital gains ......... --- --- --- Distributed long-term capital gains ...... --- --- --- Undistributed long-term capital gains .... --- --- --- Capital loss carryover ................... 33,377,007 422,851 --- Post-October losses deferred ............. 3,514,734 7,001 ---

Science and Small Technology Cap Value Portfolio Portfolio Portfolio ----------------------------------- Net ordinary income ...................... $ --- $--- $586,274 Distributed ordinary income .............. 1,619 --- 586,274 Undistributed ordinary income ............ --- --- --- Realized long-term capital gains ......... --- --- --- Distributed long-term capital gains ...... --- --- --- Undistributed long-term capital gains .... --- --- ---

Capital loss carryover ......... 28,805,115 16,908,229 6,826,049 Post-October losses deferred ... 1,019,133 2,003,407 203,246 Internal Revenue Code regulations permit each Portfolio to defer into its next fiscal year net capital losses or net long-term capital losses incurred between each November 1 and the end of its fiscal year ("post-October losses"). Capital loss carryovers are available to offset future realized capital gain net income for Federal income tax purposes. The following shows the totals by year in which the capital loss carryovers will expire if not utilized.

Asset Core Strategy Balanced Bond Equity Portfolio Portfolio Portfolio Portfolio ----------- ---------------------------------------- December 31, 2004....... $ --- $ --- $ 16,696 $ --- December 31, 2008....... --- --- 962,383 --- December 31, 2009....... 6,107,622 7,156,738 54,574 75,112,594 December 31, 2010....... 350,900 13,987,503 668,343 117,005,003 ---------- ----------- ---------- ------------ Total carryover......... $6,458,522 $21,144,241 $1,701,996 $192,117,597 ========== =========== ========== ============

High Limited- Growth Income International Term Bond Portfolio Portfolio Portfolio Portfolio ------------ --------------------------------------- December 31, 2006 ..... $ --- $ 65,442 $ --- $ --- December 31, 2007 ..... --- 6,542,253 --- --- December 31, 2008 ..... --- 13,383,162 --- 9,954 December 31, 2009 ..... 80,837,850 9,637,801 36,579,000 --- December 31, 2010 ..... 79,094,360 13,911,720 33,377,007 422,851 ------------ ----------- ----------- -------- Total carryover ..... $159,932,210 $43,540,378 $69,956,007 $432,805 ============ =========== =========== ========

Science and Small Technology Cap Value Portfolio Portfolio Portfolio ----------------------------------------- December 31, 2009 ... $ 35,158,646 $41,349,713 $ 85,194 December 31, 2010 ... 28,805,115 16,908,229 6,826,049 ------------ ----------- ----------- Total carryover ..... $ 63,963,761 $58,257,942 $ 6,911,243 ============ =========== ===========

NOTE 5 -- OPTIONS Options purchased by a Portfolio are accounted for in the same manner as marketable portfolio securities. The cost of portfolio securities acquired through the exercise of call options is increased by the premium paid to purchase the call. The proceeds from securities sold through the exercise of put options are decreased by the premium paid to purchase the put. When the Portfolio writes (sells) an option, an amount equal to the premium received by the Portfolio is recorded as a liability. The amount of the liability is subsequently adjusted to reflect the current market value of the option written. The current market value of an option is the last sales price on the principal exchange on which the option is traded or, in the absence of transactions, the mean between the bid and asked prices or at a value supplied by a broker-dealer. When an option expires on its stipulated expiration date or the Portfolio enters into a closing purchase transaction, the Portfolio realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the call option was sold) and the liability related to such option is extinguished. When a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Portfolio has realized a gain or loss. For the Portfolio, when a written put option is exercised, the cost basis of the securities purchased by the Portfolio is reduced by the amount of the premium received. For Asset Strategy Portfolio, transactions in call options written were as follows:

Number of Premiums Contracts Received ---------- ---------- Outstanding at December 31, 2001 .......... 727 $ 215,919 Options written .............. 28,782 7,213,616 Options terminated in closing purchase transactions ............... (29,055) (7,255,880) Options exercised ............ --- --- Options expired .............. --- --- ----------- ----------- Outstanding at December 31, 2002 .......... 454 $ 173,655 =========== ===========

For Asset Strategy Portfolio, transactions in put options written were as follows:

Number of Premiums Contracts Received --------- -------- Outstanding at December 31, 2001 .......... --- $ --- Options written .............. 1,300 254,592 Options terminated in closing purchase transactions ............... (1,300) (254,592) Options exercised ............ --- --- Options expired .............. --- --- --------- -------- Outstanding at December 31, 2002 .......... --- $ --- ========= ========

For Science and Technology Portfolio, transactions in call options written were as follows:

Number of Premiums Contracts Received --------- -------- Outstanding at December 31, 2001 .......... 6,880 $ 1,722,986 Options written .............. 20,901 4,383,212 Options terminated in closing purchase transactions ............... (19,251) (3,827,672) Options exercised ............ (4,703) (1,015,749) Options expired .............. (1,430) (165,438) --------- ----------- Outstanding at December 31, 2002 .......... 2,397 $ 1,097,339 ========= ===========

For Science and Technology Portfolio, transactions in put options written were as follows:

Number of Premiums Contracts Received --------- -------- Outstanding at December 31, 2001 .......... --- $ --- Options written .............. 7,719 1,198,735 Options terminated in closing purchase transactions ............... (5,358) (912,913) Options exercised ............ (551) (56,753) Options expired .............. (1,810) (229,069) --------- ---------- Outstanding at December 31, 2002 .......... --- $ --- ========= ==========

NOTE 6 -- FUTURES No price is paid upon entering into a futures contract. Instead, upon entering into a futures contract, the Portfolio is required to deposit, in a segregated account, an amount of cash or United States Treasury Bills equal to a varying specified percentage of the contract amount. This amount is known as the initial margin. Subsequent payments ("variation margins") are made or received by the Portfolio each day, dependent on the daily fluctuations in the value of the underlying debt security or index. These changes in the variation margins are recorded by the Portfolio as unrealized gains or losses. Upon the closing of the contracts, the cumulative net change in the variation margin is recorded as realized gain or loss. The Portfolio uses futures to attempt to reduce the overall risk of its investments. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, W&R Target Funds, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Asset Strategy Portfolio, Balanced Portfolio, Bond Portfolio, Core Equity Portfolio, Growth Portfolio, High Income Portfolio, International Portfolio, Limited-Term Bond Portfolio, Money Market Portfolio, Science and Technology Portfolio, Small Cap Portfolio and Value Portfolio (collectively the "Portfolios") comprising W&R Target Funds, Inc., as of December 31, 2002, and the related statements of operations for the fiscal year then ended, the statements of changes in net assets for each of the two fiscal years in the period then ended (for the fiscal year ended December 31, 2002 and the fiscal period from May 1, 2001 (commencement of operations) through December 31, 2001 for Value Portfolio), and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of each of the respective Portfolios of W&R Target Funds, Inc. as of December 31, 2002, the results of their operations for the fiscal year then ended, the changes in their net assets for each of the two fiscal years in the period then ended (for the fiscal year ended December 31, 2002 and the fiscal period from May 1, 2001 (commencement of operations) through December 31, 2001 for Value Portfolio), and their financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri February 7, 2003 THE BOARD OF DIRECTORS OF W&R Target Funds, Inc. Each of the individuals listed below serves as a director for each of the portfolios within the Waddell & Reed Advisors Funds, W&R Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc. and W&R Target Funds, Inc. for a total of 47 portfolios served. Three of the four interested directors are "interested" by virtue of their current or former engagement as officers of Waddell & Reed Financial, Inc. (WDR) or its wholly-owned subsidiaries, including the funds' investment advisor, Waddell & Reed Investment Management Company (WRIMCO); the funds' principal underwriter, Waddell & Reed, Inc. (W&R); and the funds' transfer agent, Waddell & Reed Services Company (WRSCO), as well as by virtue of their personal ownership of shares of WDR. The fourth interested director is a partner in a law firm that has represented W&R within the past two years. The other directors (more than a majority of the total number) are disinterested; that is, they are not employees or officers of, and have no financial interest in, WDR or any of its wholly-owned subsidiaries, including W&R, WRIMCO and WRSCO. DISINTERESTED DIRECTORS James M. Concannon (55) Washburn Law School, 1700 College, Topeka, KS 66621 Position held with Fund: Director Director since: 1997 Principal Occupations During Past 5 Years: Professor of Law, Washburn Law School; formerly, Dean, Washburn Law School Other Directorships held by Director: Director, Am Vestors CBO II, Inc., a bond investment firm John A. Dillingham (64) 4040 Northwest Claymont Drive, Kansas City, MO 64116 Position held with Fund: Director Director since: 1997 Principal Occupations During Past 5 Years: President and Director, JoDill Corp. and Dillingham Enterprises, Inc., both farming enterprises; formerly, Instructor at Central Missouri State University; formerly, Consultant and Director, McDougal Construction Co. Other Directorships held by Director: Chairman, Clay Co. IDA and Kansas City Municipal Assistance Corp., both bonding authorities; Director, American Royal and Salvation Army David P. Gardner (69) 2441 Iron Canyon Drive, Park City UT 84060 Position held with Fund: Director Director since: 1998 Principal Occupation During Past 5 Years: formerly, President, William and Flora Hewlett Foundation Other Directorships held by Director: Chairman, J. Paul Getty Trust; Director, Fluor Corp., Campus Pipeline, John & Karen Huntsman Foundation and Huntsman Cancer Foundation; formerly, Chairman, George S. and Dolores Dor'e Eccles Foundation; formerly, Director, First Security Corp., Digital Ventures and Charitableway Linda K. Graves (49) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1995 Principal Occupation During Past 5 Years: formerly, First Lady of Kansas Other Directorships held by Director: Chairman & Director, Community Foundation of Johnson County; Director, Greater Kansas City Community Foundation; Director, American Guaranty Life Insurance Company Joseph Harroz, Jr. (36) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1998 Principal Occupations During Past 5 Years: General Counsel, University of Oklahoma, Cameron University and Rogers State University; Vice President, University of Oklahoma; Adjunct Professor, University of Oklahoma Law School; Managing Member, Harroz Investments, LLC, commercial enterprise investments Other Directorships held by Director: Treasurer, Oklahoma Appleseed (Center for Law and Justice); Trustee, Ivy Fund John F. Hayes (83) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1988 Principal Occupation During Past 5 Years: Chairman, Gilliland & Hayes, PA, a law firm Other Directorships held by Director: Director, Central Bank & Trust and Central Financial Corp.; formerly, Director, Central Properties, Inc. Glendon E. Johnson (79) 13635 Deering Bay Drive, Unit 284, Miami, FL 33158 Position held with Fund: Director Director since: 1971 Principal Occupations During Past 5 Years: Retired; formerly, Chief Executive Officer and Director, John Alden Financial Corp. Other Directorships held by Director: Manager, Castle Valley Ranches LLC; Chairman, Wellness Council of America; Chairman, Bank Assurance Partners, marketing; Executive Board and Advisory Committee, Boy Scouts of America Eleanor B. Schwartz (66) 1213 W. 95th Ct., Chartwell #4, Kansas City, MO 64114 Position held with Fund: Director Director since: 1995 Principal Occupations During Past 5 Years: Professor, University of Missouri at Kansas City; formerly, Chancellor, University of Missouri at Kansas City Other Directorships held by Director: Trustee, Ivy Fund Frederick Vogel III (67) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1971 Principal Occupation During Past 5 Years: Retired Other Directorships held by Director: None INTERESTED DIRECTORS Robert L. Hechler (66) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Director; formerly, President, Principal Financial Officer; formerly, Vice President Director since: 1998 Principal Occupations During Past 5 Years: Consultant of WDR and W&R (2001 to present); Director of WDR (1998 to present); Executive Vice President and Chief Operating Officer of WDR (1998 to 2001); Director, Principal Financial Officer and Treasurer of W&R (1981 to 2001); Chief Executive Officer and President of W&R (1993 to 2001); Director, Executive Vice President, Principal Financial Officer and Treasurer of WRIMCO (1985 to 2001); Director and Treasurer of WRSCO (1981 to 2001); President of WRSCO (1981 to 1999) Other Directorships held by Director: None Henry J. Herrmann (60) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Director and President; formerly, Vice President Director since: 1998; President since: 2001 Principal Occupation(s) During Past 5 Years: Director, President and Chief Investment Officer of WDR (1998 to present); Treasurer of WDR (1998 to 1999); Director of W&R (1993 to present); Director of WRIMCO (1992 to present); President and Chief Executive Officer of WRIMCO (1993 to present); Chief Investment Officer of WRIMCO (1991 to present); President and Chief Executive Officer of Waddell & Reed Ivy Investment Company (WRIICO), an affiliate of WDR (2002 to present); President of Ivy Fund (2002 to present) Other Directorships held by Director: Director, Austin, Calvert & Flavin, an affiliate of WRIMCO; Chairman and Director, Ivy Services. Inc., an affiliate of WRIICO; Director, WRIICO; Trustee, Ivy Fund Frank J. Ross, Jr. (49) Polsinelli, Shalton & Welte,700 West 47th Street, Suite 1000, Kansas City, MO 64112 Position held with Fund: Director Director since: 1996 Principal Occupation During Past 5 Years: Shareholder/Director, Polsinelli, Shalton & Welte, a law firm Other Directorships held by Director: Director, Columbian Bank & Trust Keith A. Tucker (58) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Chairman of the Board of Directors and Director; formerly, President Director since: 1993; Chairman of the Board of Directors since: 1998 Principal Occupation(s) During Past 5 Years: Chairman of the Board of Directors, Director and Chief Executive Officer of WDR (1998 to present); Principal Financial Officer of WDR (1998 to 1999); Chairman of the Board of Directors and Director of W&R, WRIMCO and WRSCO (1993 to present); Vice Chairman of the Board of Directors of Torchmark Corporation (1991 to 1998) Other Directorships held by Director: Chairman of the Board and Trustee, Ivy Fund OFFICERS Theodore W. Howard (60) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice President, Treasurer, Principal Accounting Officer, and Principal Financial Officer Length of Time Served: Vice President, Treasurer and Principal Accounting Officer, 16 years; Principal Financial Officer, 1 year Principal Occupation(s) During Past 5 Years: Senior Vice President of WRSCO (2001 to present); Vice President of WRSCO (1988 to 2001); Vice President and Assistant Treasurer of Ivy Fund (2002 to present) Directorships held: None Kristen A. Richards (35) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice President, Secretary and Associate General Counsel Length of Time Served: 3 years Principal Occupation(s) During Past 5 Years: Vice President, Associate General Counsel and Chief Compliance Officer of WRIMCO (2000 to present); Vice President, Associate General Counsel and Chief Compliance Officer of WRIICO (2002 to present); Vice President and Secretary of Ivy Fund (2002 to present); Assistant Secretary of each of the funds in the Fund Complex (1998 to 2000); Compliance Officer of WRIMCO (1995 to 1998) Directorships held: None Daniel C. Schulte (37) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice President, Assistant Secretary and General Counsel Length of Time Served: 3 years Principal Occupation(s) During Past 5 Years: Vice President, Secretary and General Counsel of WDR (2000 to present); Senior Vice President, Secretary and General Counsel of W&R, WRIMCO and WRSCO (2000 to present); Senior Vice President, General Counsel and Assistant Secretary of Ivy Services, Inc. (2002 to present); Vice President, General Counsel and Assistant Secretary of WRIICO (2002 to present); Vice President and Assistant Secretary of Ivy Fund (2002 to present); Assistant Secretary of WDR (1998 to 2000); an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C. (1994 to 1998) Directorships held: None Michael D. Strohm (51) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President Length of Time Served: 1 year Principal Occupation(s) During Past 5 Years: Senior Vice President of WDR (1998 to present); Chief Operations Officer of WDR (2002 to present); President, Director, Chief Executive Officer and Chief Financial Officer of W&R (2002 to present); Senior Vice President of W&R (1994 to 2002); President and Director of WRSCO (1999 to present); President and Chief Executive Officer of Ivy Services, Inc. (2002 to present); Vice President of Ivy Fund (2002 to present) Directorships held: Director of WRIICO and Ivy Services, Inc. Michael L. Avery (49) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 6 years Principal Occupation(s) During Past 5 Years: Senior Vice President/Vice President and Director of Research for WRIMCO (1987 to present); portfolio manager for investment companies managed by WRIMCO (1994 to present) Directorships held: None James C. Cusser (53) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 11 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO (1992 to 2000); portfolio manager for investment companies managed by WRIMCO (1992 to present); Senior Vice President of WRIICO (2002 to present); portfolio manager for investment companies managed by WRIICO (2002 to present) Directorships held: None Harry M. Flavin (59) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 2 years Principal Occupation(s) During Past 5 Years: President, Co-Chief Investment Officer of Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO; Senior Vice President of WRIMCO (2000 to present); portfolio manager for investment companies managed by WRIMCO (2000 to present) Directorships held: Director of Austin, Calvert & Flavin, Inc. Thomas A. Mengel (45) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 7 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO (1996 to 2000); portfolio manager for investment companies managed by WRIMCO (1996 to present); Senior Vice President of WRIICO (2002 to present); portfolio manager for investment companies managed by WRIICO (2002 to present) Directorships held: None William M. Nelson (42) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 4 years Principal Occupation(s) During Past 5 Years: Vice President of WRIMCO (1999 to present); employee of WRIMCO (1995 to present) Directorships held: None Cynthia P. Prince-Fox (44) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 9 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Co-Chief Investment Officer and Vice President of Austin, Calvert & Flavin (2001 to present); Vice President of WRIMCO (1993 to 2000); portfolio manager for investment companies managed by WRIMCO (1993 to present) Directorships held: None Philip J. Sanders (43) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 5 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Vice President of WRIMCO (1998 to 2000); portfolio manager for investment companies managed by WRIMCO (1998 to present) Directorships held: None Grant P. Sarris (36) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 4 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO (1998 to 2000); portfolio manager for investment companies managed by WRIMCO (1998 to present); assistant portfolio manager for investment companies managed by WRIMCO (1996 to 1998); Senior Vice President of WRIICO (2002 to present); portfolio manager for investment companies managed by WRIICO (2002 to present) Directorships held: None Zachary H. Shafran (37) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 2 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO (1996 to 2000); portfolio manager for investment companies managed by WRIMCO (1996 to present); Senior Vice President of WRIICO (2002 to present); portfolio manager for investment companies managed by WRIICO (2002 to present) Directorships held: None W. Patrick Sterner (54) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 9 years Principal Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to present); Vice President of WRIMCO (1992 to 2000); portfolio manager for investment companies managed by WRIMCO (1992 to present) Directorships held: None Mira Stevovich (49) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President, Assistant Treasurer and portfolio manager Length of Time Served: 5 years Principal Occupation(s) During Past 5 Years: Vice President and Assistant Treasurer of WRIMCO (1998 to present); Vice President and Assistant Treasurer of Ivy Fund (2002 to present); Senior Vice President of WRIICO (2002 to present); portfolio manager for investment companies managed by WRIMCO (1998 to present); portfolio manager for investment companies managed by WRIICO (2002 to present); assistant portfolio manager for investment companies managed by WRIMCO and its predecessor (1989 to 1998) Directorships held: None Daniel J. Vrabac (48) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 6 years Principal Occupation(s) During Past 5 Years: Senior Vice President and Head of Fixed Income for WRIMCO (2000 to present); portfolio manager for investment companies managed by WRIMCO (1997 to present); Vice President of WRIMCO (1997 to 2000) Directorships held: None James D. Wineland (51) 6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice President and portfolio manager Length of Time Served: 6 years Principal Occupation(s) During Past 5 Years: Senior Vice President/Vice President of WRIMCO (1988 to present); Vice President of Ivy Fund (2002 to present); portfolio manager for investment companies managed by WRIMCO and its predecessor (1988 to present); Senior Vice President of WRIICO (2002 to present); portfolio manager for investment companies managed by WRIICO (2002 to present) Directorships held: None ANNUAL PRIVACY NOTICE Waddell & Reed, Inc., Waddell & Reed Advisors Group of Mutual Funds and W&R Funds, Inc. ("Waddell & Reed") are committed to ensuring their customers have access to a broad range of products and services to help them achieve their personal financial goals. In the course of doing business with Waddell & Reed, customers are requested to share financial information and they may be asked to provide other personal details. Customers can be assured that Waddell & Reed is diligent in its efforts to keep such information confidential. Recognition of a Customer's Expectation of Privacy At Waddell & Reed, we believe the confidentiality and protection of customer information is one of our fundamental responsibilities. And while information is critical to providing quality service, we recognize that one of our most important assets is our customers' trust. Thus, the safekeeping of customer information is a priority for Waddell & Reed. Information Collected In order to tailor available financial products to your specific needs, Waddell & Reed may request that you complete a variety of forms that require nonpublic personal information about your financial history and other personal details, including but not limited to, your name, address, social security number, assets, income and investments. Waddell & Reed may also gather information about your transactions with us, our affiliates and others. Categories of Information that may be Disclosed While Waddell & Reed may disclose information it collects from applications and other forms, as described above, we at Waddell & Reed also want to assure all of our customers that whenever information is used, it is done with discretion. The safeguarding of customer information is an issue we take seriously. Categories of Parties to whom we disclose nonpublic personal information Waddell & Reed may disclose nonpublic personal information about you to the following types of third parties: selectively chosen financial service providers, whom we believe have valuable products or services that could benefit you. Whenever we do this, we carefully review the company and the product or service to make sure that it provides value to our customers. We share the minimum amount of information necessary for that company to offer its product or service. We may also share information with unaffiliated companies that assist us in providing our products and services to our customers; in the normal course of our business (for example, with consumer reporting agencies and government agencies); when legally required or permitted in connection with fraud investigations and litigation; and at the request or with the permission of a customer. Opt Out Right If you prefer that we not disclose nonpublic personal information about you to nonaffiliated third parties, you may opt out of those disclosures, that is, you may direct us not to make those disclosures (other than disclosures permitted by law). If you wish to opt out of disclosures to nonaffiliated third parties, please provide a written request to opt-out with your name and social security number to your financial advisor. Confidentiality and Security We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products and services to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. This report is submitted for the general information of the shareholders of W&R Target Funds, Inc. It is not authorized for distribution to prospective investors in the Fund unless accompanied with or preceded by the W&R Target Funds, Inc. current prospectus and current Fund performance information. ASSET STRATEGY Portfolio Goal: To seek high total return over the long term. Invested In: An allocation of its assets among stocks, bonds (of any quality) and short-term instruments. BALANCED Portfolio Goals: To seek current income, with a secondary goal of long-term appreciation of capital. Invested in: Primarily a mix of stocks, fixed-income securities and cash, depending on market conditions. BOND Portfolio Goal: To seek a reasonable return with emphasis on preservation of capital. Invested In: Primarily domestic debt securities, usually of investment grade. CORE EQUITY Portfolio Goals: To seek capital growth and income. Invested In: Primarily common stocks of large, high-quality U.S. and foreign companies that are well known, have been consistently profitable and have dominant market positions in their industries. GROWTH Portfolio Goals: To seek capital growth, with a secondary goal of current income. Invested In: Primarily common stocks of U.S. and foreign companies with market capitalization of at least $1 billion representing faster growing sectors of the economy, such as the technology, health care and consumer-oriented sectors. HIGH INCOME Portfolio Goals: To seek a high level of current income, with a secondary goal of capital growth. Invested In: Primarily high-yield, high-risk, fixed-income securities of U.S. and foreign issuers. INTERNATIONAL Portfolio Goals: To seek long-term appreciation of capital, with a secondary goal of current income. Invested in: Primarily common stocks of foreign companies that may have the potential for long-term growth. LlMITED-TERM BOND Portfolio Goal: To seek a high level of current income consistent with preservation of capital. Invested in: Primarily investment-grade debt securities of U.S. issuers, including U.S. Government securities. The Portfolio maintains a dollar-weighted average portfolio maturity of 2-5 years. MONEY MARKET Portfolio Goal: To seek maximum current income consistent with stability of principal. Invested In: U.S. dollar-denominated, high-quality money market obligations and instruments. SCIENCE AND TECHNOLOGY Portfolio Goal: To seek long-term capital growth. Invested in: Primarily in the equity securities of U.S. and foreign science and technology companies whose products, processes or services are being or are expected to be significantly benefited by the use or commercial application of scientific or technological developments or discoveries. SMALL CAP Portfolio Goal: To seek growth of capital. Invested in: Primarily common stocks of relatively new or unseasoned companies in their early stages of development, or smaller companies positioned in new or in emerging industries where the opportunity for rapid growth is above average. VALUE Portfolio Goal: To seek long-term capital appreciation. Invested in: Primarily stocks of large U.S. and foreign companies that are undervalued relative to the true worth of the company. FOR MORE INFORMATION: Contact your financial advisor, or your local office as listed on your Account Statement, or contact: United Investors Life Nationwide Financial, Inc. Variable Products Division or P.O. Box 182449 P.O. Box 156 One Nationwide Plaza Birmingham, AL 35201-0156 Columbus, OH 43218-2449 (205)325-4300 1-888-867-5175 OR CALL 1-888-WADDELL For more complete information regarding the W&R Target Funds, including charges and expenses, please obtain the Fund's prospectus by calling or writing to the number or address listed above. Please read the prospectus carefully before investing. NUR1016A(12-02) EX-99.17(I) 14 c77852exv99w17xiy.txt EX-(17)(I) ADVANTUS SERIES FUND ANNUAL REPORT EXHIBIT 17(i) [GRAPHIC] DECEMBER 31, 2002 ANNUAL REPORT ADVANTUS SERIES FUND, INC. OFFERED IN MINNESOTA LIFE VARIABLE PRODUCTS [ADVANTUS{TM} SERIES FUND, INC. LOGO] EQUITIES MICRO-CAP GROWTH PORTFOLIO SMALL COMPANY GROWTH PORTFOLIO INTERNATIONAL STOCK PORTFOLIO CAPITAL APPRECIATION PORTFOLIO SMALL COMPANY VALUE PORTFOLIO INDEX 400 MID-CAP PORTFOLIO GROWTH PORTFOLIO INDEX 500 PORTFOLIO VALUE STOCK PORTFOLIO MACRO-CAP VALUE PORTFOLIO REAL ESTATE SECURITIES PORTFOLIO FIXED INCOME/HYBRID ASSET ALLOCATION PORTFOLIO GLOBAL BOND PORTFOLIO BOND PORTFOLIO MORTGAGE SECURITIES PORTFOLIO MATURING GOVERNMENT BOND 2002 PORTFOLIO MATURING GOVERNMENT BOND 2006 PORTFOLIO MATURING GOVERNMENT BOND 2010 PORTFOLIO MONEY MARKET MONEY MARKET PORTFOLIO MINNESOTA LIFE VARIABLE LIFE INSURANCE* VARIABLE ADJUSTABLE LIFE VARIABLE ADJUSTABLE LIFE-SECOND DEATH VARIABLE ADJUSTABLE LIFE-HORIZON VARIABLE ANNUITIES* MULTIOPTION(R) ACHIEVER MULTIOPTION(R) CLASSIC MULTIOPTION(R) SELECT MULTIOPTION(R) SINGLE MULTIOPTION(R) FLEXIBLE MEGANNUITY UNIVERSITY OF MINNESOTA MULTIOPTION(R) ANNUITY ADJUSTABLE INCOME ANNUITY FLEXANNUITY PLUS INVESTANNUITY PLUS INDIVIDUAL ACCUMULATION ANNUITY GROUP ACCUMULATION ANNUITY GROUP VARIABLE LIFE* VARIABLE GROUP UNIVERSAL LIFE *SECURITIES OFFERED THROUGH SECURIAN FINANCIAL SERVICES, INC. MEMBER NASD/SIPC SUPPLEMENT DATED FEBRUARY 3, 2003 TO THE ADVANTUS SERIES FUND, INC. PROSPECTUS DATED MAY 1, 2002. 1. At its meeting held January 30, 2003, the Board of Directors of Advantus Series Fund, Inc. (the "Fund") approved the following changes: - - Effective May 1, 2003, the current investment sub-advisor for the Capital Appreciation Portfolio, Credit Suisse Asset Management LLC, will be replaced by a new sub-advisor, Voyageur Asset Management, Inc. ("Voyageur"), 90 South Seventh Street, Suite 4300, Minneapolis, Minnesota 55406. Voyageur will provide investment advice and generally conduct the investment management program for the Capital Appreciation Portfolio. There will be no changes in the investment objective or the principal investment policies of the Capital Appreciation Portfolio under Voyageur, although it is anticipated that the number of issuers whose securities will be held by the Portfolio will be fewer than is currently the case. The Portfolio will be managed by a team of Voyageur investment professionals. - - Effective May 1, 2003, the investment sub-advisory agreement covering the Macro-Cap Value Portfolio between the Portfolio's current sub-advisor, J.P. Morgan Investment Management, Inc., and the Fund's investment advisor, Advantus Capital Management, Inc. ("Advantus Capital"), will terminate. Thereafter, the Portfolio will be managed directly by Advantus Capital. Also effective May 1, 2003, the name of the Portfolio will be changed to the Core Equity Portfolio. There will be no change in the investment objective of the Portfolio. Under its current name, however, the Portfolio follows a policy of investing, under normal circumstances, at least 80% of its net assets in common stocks of very large capitalization companies (i.e., companies with a market capitalization of at least $8 billion). Under its new name, the Portfolio will no longer follow that 80% investment policy. Rather, the Core Equity Portfolio will normally invest at least 75% of its net assets in common stocks of large capitalization companies with market capitalizations of at least $7 billion. Consistent with this new policy, the Core Equity Portfolio will invest in securities of companies that Advantus Capital believes are undervalued relative to either their potential for improved operating performance and financial strength or their future growth potential. The Core Equity Portfolio will be managed by Alan D. Steinkopf, Senior Investment Officer, Equities and Portfolio Manager of Advantus Capital since May 2000; Assistant Portfolio Manager, Advantus Capital, From June 1998 to April 2000; and Investment Officer, Advantus Capital, from June 1993 to June 1998. - - Effective May 1, 2003, the Global Bond Portfolio will change its name to the International Bond Portfolio. There will be no change in the investment objective of the Portfolio. However, certain of the investment policies of the Portfolio will change as it will no longer, under normal circumstances, invest a portion of its assets in securities or debt obligations issued or guaranteed by the U.S. government and its agencies or by domestic corporate issuers. Julius Baer Investment Management Inc. will continue to serve as the Portfolio's investment sub-advisor, and will be solely responsible for the Portfolio's investment management program. 2. Effective January 10, 2003, Edgerton Tucker Scott III, Vice President and Research Analyst with Templeton Investment Counsel, LLC, is the sole portfolio manager for the International Stock Portfolio. Mr. Scott has served as a co-portfolio manager of the Portfolio since February 1, 2000. 3. The paragraph captioned "Voluntary Fee Absorption" on page 59 of the prospectus is amended to read as follows: Advantus Capital is currently voluntarily absorbing all fees and expenses that exceed 1.10% of average daily net assets for the Small Company Value Portfolio, 1.07% of average daily net assets for the Macro-Cap Value Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio. Advantus Capital has not agreed to absorb expenses over a specified period of time and it may cease its absorption of expenses at any time. If it does so, some Portfolio expenses would increase and thereby reduce investment return. Investors should retain this supplement for future reference. F. 58815 2-2003 TABLE OF CONTENTS

PAGE NO. HOW TO USE THIS REPORT 1 PORTFOLIO TOTAL RETURN 2 PRESIDENT'S LETTER 3 PORTFOLIO MANAGER REVIEWS Growth Portfolio 4 Bond Portfolio 6 Money Market Portfolio 8 Asset Allocation Portfolio 10 Mortgage Securities Portfolio 12 Index 500 Portfolio 14 Capital Appreciation Portfolio 16 International Stock Portfolio 18 Small Company Growth Portfolio 20 Maturing Government Bond 2006 Portfolio 22 Maturing Government Bond 2010 Portfolio 22 Value Stock Portfolio 26 Small Company Value Portfolio 28 Global Bond Portfolio 30 Index 400 Mid-Cap Portfolio 32 Macro-Cap Value Portfolio 34 Micro-Cap Growth Portfolio 36 Real Estate Securities Portfolio 38 INDEPENDENT AUDITORS' REPORT 40 INVESTMENTS IN SECURITIES Growth Portfolio 41 Bond Portfolio 45 Money Market Portfolio 51 Asset Allocation Portfolio 54 Mortgage Securities Portfolio 62 Index 500 Portfolio 67 Capital Appreciation Portfolio 78 International Stock Portfolio 80 Small Company Growth Portfolio 83 Maturing Government Bond 2006 Portfolio 86 Maturing Government Bond 2010 Portfolio 87 Value Stock Portfolio 88 Small Company Value Portfolio 91 Global Bond Portfolio 96 Index 400 Mid-Cap Portfolio 101 Macro-Cap Value Portfolio 110 Micro-Cap Growth Portfolio 114 Real Estate Securities Portfolio 117 FINANCIAL STATEMENTS Statements of Assets and Liabilities 120 Statements of Operations 124 Statements of Changes in Net Assets 128 Notes to Financial Statements 136 DIRECTORS AND EXECUTIVE OFFICERS 171

HOW TO USE THIS REPORT Some of our clients prefer a narrative account of their Advantus Series Fund investments while other clients prefer full financial statements. This report is designed to meet both preferences. For a narrative account of each Portfolio's performance, investment strategies and holdings by the Portfolio Manager, refer to the front section of the report. Comprehensive investment holdings, market values and financial reports begin on page 41. Performance charts graphically compare each Portfolio's performance with select investment indices and other benchmarks. This comparison provides you with more information about your investments. The charts are useful because they illustrate performance over the same time frame and over a long period. There are limitations, however. An index may reflect the performance of securities that the Portfolio may not hold. Also, the index does not deduct investment advisory fees and other fund expenses--whereas your Portfolio does. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. This report is just one of several tools you can use to learn more about your investment(s) in the Advantus Series Fund. Your Securian Sales Representative, who understands your personal financial situation, can best explain the features of your investment and how they apply to your financial needs. 1 PORTFOLIO TOTAL RETURN [CHART] YEAR ENDED DECEMBER 31, 2002

PERCENTAGE OF RETURN Growth -25.4% Bond 10.5% Money Market 1.3% Asset Allocation -9.0% Mortgage Securities 9.7% Index 500 -22.4% Capital Appreciation -31.5% International Stock -17.8% Small Company Growth -31.8% MGB 2006 13.0% MGB 2010 18.9% Value Stock -15.3% Small Company Value -20.0% Global Bond 17.9% Index 400 Mid-Cap -15.0% Macro-Cap Value -28.1% Micro-Cap Growth -43.6% Real Estate Securities 7.0%

Historical results are not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. Please refer to the individual Portfolio reviews contained within the prospectus for information regarding the standardized performance for 1, 5 and 10 years. 2 LETTER FROM THE PRESIDENT [PHOTO OF DIANNE ORBISON] Dear Shareholders: Although economic growth has slowed dramatically, we believe it has not stopped, and THAT is reason for optimism. Growth drives our economy and markets. In the first six months of the year, growth, as measured by the gross national product, dropped from 5 percent to 1.3 percent, with a similar up and down pattern in the second half, as well. Over the past 18 months, we've had unprecedented levels of fiscal and monetary stimuli that simply have not taken hold. Stimulative fiscal and monetary policies--together with low inflation--are in place. We feel these are powerful tools to help mend an ailing economy, but these policies have generated a limited economic rebound so far. Staying optimistic was a daunting task for equity investors. The S&P 500* ended the year at -22.10 percent. This was the third consecutive year of negative returns in this broad market index, which hasn't occurred since the period from 1939 through 1941. Missed or reduced earnings, accounting fraud, and no distinct catalyst for an equity market recovery impacted investor sentiment. Market upswings came in short limited spurts in the second half of the year, but nothing that resembled a dramatic recovery. As sentiment sank lower, more uncertainty was unleashed in the market. Fallout from corporate scandals and accounting problems was not limited to the stock market. The corporate bond sector of the fixed income market was also adversely affected by numerous defaults and bankruptcies. In 2002, slowing U.S. and global economies, continued equity market volatility, and growing global tensions have all contributed to an environment of extreme uncertainty. In periods of uncertainty, we feel investors become defensive. On the domestic front, Treasuries were the year's strongest performers. Under our forecasted scenario for 2003, we expect that the capital markets should perform marginally better than they did in 2002. We believe that in the upcoming year: * Corporate profits will improve, however, investors will not be convinced until they are both reported and CONFIRMED. It will be important that perception of corporate governance and fiduciary integrity improve before the main street investor feels comfortable reentering the market en masse. * The Federal Reserve has aggressively eased monetary policy over the past two years, and we expect the highly stimulative policy to remain in place until a "confirmed" pattern of historic trend growth is evident. Under this circumstance, we believe bonds will remain in a trading range with only moderate upward pressure on the front end of the yield curve as the Fed gradually puts the brakes to its policy of easing. We expect this to happen late in the year. The Fed will probably not complete the process of restoring the funds rate to neutral until 2004 or later. * Corporate credits will very slowly improve as debt is reduced and profits begin to improve. We believe this will result in narrowing yield spreads which consequently will result in corporate bonds outperforming U.S. Treasury bonds. Over all, in 2003, we believe investors will begin to recapture some of the equity losses incurred over the past three painful years. Sincerely, /s/ Dianne Orbison Dianne Orbison President, Advantus Series Fund Past performance is not necessarily indicative of future results. * The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. 3 GROWTH PORTFOLIO PERFORMANCE UPDATE [PHOTO OF THOMAS A. GUNDERSON] THOMAS A. GUNDERSON, CFA PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. The Growth Portfolio seeks the long-term accumulation of capital, with current income as a secondary objective. It invests primarily in common stocks and other equity securities. PERFORMANCE The Growth Portfolio posted a return of -25.44 percent* for the year ended December 31, 2002. The Portfolio's benchmark, the Russell 1000 Growth Index**, posted a return of -27.89 percent for the same period. PERFORMANCE ANALYSIS Wide spread turmoil in the stock market occurred over the past 12 months as a result of an uncertain economic recovery, numerous accounting issues, and a sharp deterioration in the credibility of corporate America. The market traded broadly lower, with growth stocks declining more than value stocks. The Portfolio was able to exceed its performance benchmark by superior stock selection combined with underweights in the hardest hit areas of the market - Technology, Communication Services and Growth Utilities. Health Care was broadly lower due to slowing earnings growth rates in pharmaceuticals and biotech products. The strongest areas in Health Care were in the equipment area where the Portfolio had several successful stocks. Zimmer Holdings, Inc., an orthopedics manufacturer, gained over 33 percent for the year as earnings grew over 30 percent the past three quarters. Boston Scientific, medical devices, was another winner gaining over 45 percent as they became well positioned to participate in the emerging drug coated stent market. Looking ahead, we believe a strong demographic tail wind, combined with lower valuation levels, and a possible prescription drug benefit for seniors make the Health Care sector one of increasing interest. As of December 31, 2002, Health Care is the largest sector comprising 24.30 percent of net assets. A continued lack of revenue or earnings growth led Technology stocks lower during the period. Corporations are not spending much on Technology investments in today's uncertain environment. Many companies in this sector are in the process of being "right sized" to meet the likely demand going forward. While the current environment is tough, history indicates that as corporate earnings growth improves Technology spending will accelerate along with a general pick up in capital spending. The stock selection process is focused on the companies that are well positioned for strong and sustained growth in the years ahead when spending comes back to more normal levels. The strongest sector was Consumer Staples, posting a relatively modest 5 percent decline for the year. Steady growing and well managed companies like Sysco Corporation, food distribution, and Colgate-Palmolive Company, personal care products, contributed to Portfolio performance. Due to price strength some positions have been cut back in this area. Overall, a disciplined stock selection approach and a focus on sustainable growth allowed the Portfolio to select attractive companies for investment and avoid or minimize the worst hit portions of the market. Underweights in the Technology, Communication Services, and higher growth Utility sectors added 100 basis points to performance over the past year. OUTLOOK The Portfolio continues to be fully invested, as it has all year, with cash remaining in the 1-3 percent range. We continue to invest in companies that can show real and sustainable growth that is the result of high returns on company investments, not from financial maneuvering to boost short-term earnings per share. The Portfolio is also taking a diversified approach to manage risk in this market, having a little over 100 names in the Portfolio. In addition, the Portfolio is positioned to excel regardless of the timing or strength of an economic recovery (or a "double dip" scenario) as it remains well diversified across the major economic sectors. 4 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- --------- ------------ ---------- Pfizer, Inc. 422,325 $ 12,910,475 6.6% Microsoft Corporation 197,500 10,210,750 5.2% General Electric Company 378,600 9,218,910 4.7% Johnson & Johnson 144,700 7,771,837 4.0% Wal-Mart Stores, Inc. 117,000 5,909,670 3.0% Cisco Systems, Inc. 360,084 4,717,100 2.4% Amgen, Inc. 95,500 4,616,470 2.4% Procter & Gamble Company 50,600 4,348,564 2.2% Colgate-Palmolive Company 75,300 3,947,979 2.0% 3M Company 30,700 3,785,310 1.9% ------------ -------- $ 67,437,065 34.4% ============ ========

[CHART] Cash and Other Assets/Liabilities 1.2% Transportation 0.4% Basic Materials 0.6% Communication Services 1.3% Energy 2.7% Capital Goods 8.1% Financial 10.7% Consumer Staples 13.5% Consumer Cyclical 14.5% Technology 22.7% Health Care 24.3% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN GROWTH PORTFOLIO, RUSSELL 1000 GROWTH INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -25.44% Five year -5.80% Ten year 4.28%

RUSSELL 1000 GROWTH PORTFOLIO CPI GROWTH INDEX 12/31/92 $10,000 $10,000 $10,000 12/31/93 $11,518 $10,579 $10,288 12/31/94 $11,610 $10,876 $10,562 12/31/95 $14,429 $11,151 $14,491 12/31/96 $16,904 $11,520 $17,841 12/31/97 $22,552 $11,723 $23,278 12/31/98 $30,378 $11,912 $32,290 12/31/99 $38,174 $12,223 $38,922 12/31/00 $29,840 $12,643 $30,195 12/31/01 $22,440 $12,839 $24,031 12/31/02 $15,208 $13,150 $19,145

On the chart above you can see how the Growth Portfolio's total return compared to the Russell 1000 Growth Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Russell 1000 Growth Index contains those stocks from the Russell 1000 with a greater than average growth orientation. The Russell 1000 is the 1,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market. 5 BOND PORTFOLIO PERFORMANCE UPDATE [PHOTO OF WAYNE SCHMIDT] WAYNE SCHMIDT, CFA PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. The Bond Portfolio seeks as high a level of long-term total return as is consistent with prudent investment risk. Preservation of capital is a secondary objective. The Bond Portfolio invests in long-term, fixed income, high quality debt instruments. PERFORMANCE The Bond Portfolio returned 10.50 percent* for the year ended December 31, 2002. The Portfolio's benchmark, the Lehman Brothers Aggregate Bond Index,** returned 10.27 percent for the same period. PERFORMANCE ANALYSIS The past year surprised many investors in the fixed income market. At the start of the year, very few believed that fixed income would generate returns greater than ten percent and even fewer foresaw the magnitude of credit problems that befell the corporate bond market. In the U.S. Treasury market, the yield on the five-year U.S. Treasury note decreased 156 basis points (1.56 percent) to yield just 2.73 percent at year end. The yield on the 30-year U.S. Treasury bond fell 71 basis points (.71 percent) to yield 4.76 percent. Short-term interest rates continued their decline as the Federal Reserve cut the Fed Funds rate one more time, by 50 basis points (.50 percent) at their November meeting. The rate cut was the twelfth time the Fed has eased monetary policy to bolster a sluggish economy over the past two years. The corporate bond sector came back to life in the fourth quarter as fixed income investors purchased corporate bonds at attractive spreads, but that did not make up for the dismal first nine months of the year in this sector. Investment grade corporate bonds did manage to return a respectable 10.52 percent for the year, while U.S. Government securities generated an 11.50 percent total return. In the shorter duration mortgage-backed sector returns were 8.75 percent for the year, an excellent result given the shorter duration and the rapid prepayments that the mortgage market endured throughout the year. OUTLOOK Throughout the past year, our bias to higher quality issuers benefited the Portfolio. The Portfolio was overweight mortgage-backed securities and U.S. Treasury Inflation Indexed notes early in the year when they performed exceptionally well. The avoidance of credit problems was the key factor for the Portfolio's success in 2002. In the fourth quarter, we began to purchase some higher yielding BBB rated credits. The purchase of Public Service Company of Colorado first mortgage bonds, USA Interactive, BF Goodrich, Oncor Electric Delivery, and Stancorp Financial Group were all done at acquisition yields higher than seven percent. These types of specific credit opportunities will hold the key to 2003 performance. We believe yield and principal preservation will be important components to 2003 fixed income returns. We will overweight the corporate and mortgage-backed sectors and underweight U.S. Government securities while being careful not to expose the Portfolio to unnecessary interest rate risk. We feel fixed income return expectations need to be lowered to align them with the realities of today's marketplace. Interest rates are low, yet we believe the additional yield available in the corporate and mortgage-backed market is attractive on a historical basis. We also believe there is limited capital appreciation potential left in fixed income and 2003 looks to be a year where investors will "earn the coupon". As the year progresses, we expect the easy monetary policy coupled with another round of fiscal stimulus should begin to put upward pressure on interest rates. 6 TEN LARGEST BOND HOLDINGS

COMPANY MARKET VALUE % OF BOND PORTFOLIO ------- ------------ ------------------- Federal National Mortgage Association 6.5%, 09/01/32 $ 8,805,644 3.3% U.S. Treasury Bond 6.0%, 02/15/26 6,130,977 2.3% Federal National Mortgage Association 7.0%, 06/01/32 4,566,609 1.7% Federal National Mortgage Association 7.0%, 11/01/31 4,424,610 1.6% Federal National Mortgage Association 7.0%, 09/01/31 4,336,539 1.6% U.S. Treasury Bond 5.5%, 08/15/28 4,159,806 1.6% Metropolitan Asset Funding 144A Issue 7.5%, 4/20/27 3,850,831 1.4% Federal National Mortgage Association 6.0%, 11/01/32 3,749,457 1.4% St. George Bank Capital Note 144A Issue 8.4%, 12/29/49 3,658,716 1.4% USA Interactive 7.0%, 01/15/13 3,619,084 1.3% ------------ --------- $ 47,302,273 17.6% ============ =========

[CHART] U.S. Treasury 6.8% U.S. Goverment Agencies 34.7% AAA Rated 12.4% AA Rated 9.6% A Rated 17.1% BBB Rated 17.5% D Rated 0.1% Cash and Other Assets/Liabilities 1.8% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN BOND PORTFOLIO, LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX, LEHMAN BROTHERS AGGREGATE BOND INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year 10.50% Five year 6.32% Ten year 6.79%

LEHMAN BROTHERS AGGREGATE BOND PORTFOLIO BOND INDEX CPI 12/31/92 $10,000 $10,000 $10,000 12/31/93 $11,570 $10,975 $10,579 12/31/94 $11,043 $10,654 $10,876 12/31/95 $13,224 $12,622 $11,151 12/31/96 $13,616 $13,081 $11,520 12/31/97 $14,899 $14,344 $11,723 12/31/98 $15,804 $15,590 $11,912 12/31/99 $15,373 $15,461 $12,223 12/31/00 $16,978 $17,260 $12,643 12/31/01 $18,319 $18,713 $12,839 12/31/02 $19,289 $20,630 $13,150

On the chart above you can see how the Bond Portfolio's total return compared to the Lehman Brothers Government/Corporate Bond Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Lehman Brothers Aggregate Bond Index is an unmanaged benchmark composite representing average market-weighted performance of U.S. Treasury and agency securities, investment-grade corporate bonds and mortgage-backed securities with maturities greater than one year. 7 MONEY MARKET PORTFOLIO PERFORMANCE UPDATE [PHOTO OF STEVE NELSON] STEVE NELSON PORTFOLIO MANAGER The Money Market Portfolio seeks maximum current income to the extent consistent with liquidity and the preservation of capital. It invests in short-term money market instruments and other debt securities that mature within 397 days. INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE PORTFOLIO. PERFORMANCE The Money Market Portfolio returned 1.28 percent* for the year ended December 31, 2002. This compares to the Portfolio's benchmark, the three-month U.S. Treasury Bill, which returned 1.79 percent over the same period. PERFORMANCE ANALYSIS Short-term interest rates continued their decline during the fourth quarter as the Federal Reserve cut the Fed Funds rate by 50 basis points (.50 percent) at their November meeting. The rate cut was the twelfth time over the past two years the Fed has eased monetary policy to bolster the sluggish U.S. economy. As a result, during the fourth quarter the yield on the three month T-bill declined another .37 percent to 1.19 percent while the yield on the six month T-bill declined .30 percent to 1.20 percent. The Portfolio's low absolute returns were a function of the extremely low level of short-term interest rates and the yield curve remaining very steep. As a result of rates remaining so low, the yields offered in the commercial paper market have steadily declined, with most issuers now offering only around 1.30 percent yields. After cutting the Fed Funds rate in November the Federal Reserve changed its bias to "balanced" from "weakness" as it relates to the state of the economy and future rate moves. We feel at this point another drop in rates by the Fed, though possible, seems unlikely. However, given a lackluster U.S. economy and anemic global growth, we also feel the chance of the Fed hiking rates anytime soon seems equally unlikely. We believe Investor sentiment going into 2003 seems to anticipate the easy monetary policy of the past two years coupled with the latest round of fiscal stimulus will put upward pressure on interest rates sometime later in the year. In fact, as a reflection of this sentiment the fourth quarter of 2002 marked a change in the direction of intermediate and longer-term interest rates. For example, the yield on the five-year U.S. Treasury note increased .17 percent to yield 2.73 percent while the yield on the 30-year US Treasury bond increased .09 percent to yield 4.76 percent. OUTLOOK Going into 2003, we feel high-quality U.S. corporate commercial paper remains a sound, albeit low-yielding alternative for investors seeking a high degree of safety and liquidity. We believe this is particularly true given the current state of the global economy and the potential for further volatility in respect to the high probability of war with Iraq. The Portfolio has over 91 percent of its assets invested in high quality corporate commercial paper (i.e., commercial paper that is rated A-1 or higher by Standard and Poor's and P-1 by Moody's) or U.S. Government obligations. In addition, we feel the Portfolio's holdings are well diversified over a variety of stable industries. While we expect money market returns will remain low over the next several months, investors should consider the Portfolio's benefits of excellent liquidity and principal preservation as they make their asset allocation decisions. The investment approach applied to the Portfolio is unchanged. In other words, despite a dearth of attractive yields, the Portfolio's safety and liquidity is not compromised to marginally enhance returns. Principal preservation and minimal credit risk remain our primary focus as always. 8 [CHART] AVERAGE DAYS TO MATURITY Jan 53 Jan 48 Jan 48 Jan 49 Jan 48 Feb 46 Feb 52 Feb 54 Feb 47 Mar 43 Mar 36 Mar 35 Mar 31 Apr 34 Apr 35 Apr 36 Apr 40 Apr 43 May 45 May 44 May 46 May 39 Jun 33 Jun 47 Jun 54 Jun 47 Jul 55 Jul 56 Jul 53 Jul 48 Jul 53 Aug 48 Aug 49 Aug 54 Aug 53 Sept 49 Sept 49 Sept 47 Sept 45 Oct 48 Oct 44 Oct 41 Oct 39 Oct 37 Nov 32 Nov 55 Nov 60 Nov 59 Dec 52 Dec 56 Dec 56 Dec 58 Dec 52 SEVEN-DAY COMPOUND YIELD* Jan 1.59% Jan 1.59% Jan 1.52% Jan 1.33% Jan 1.51% Feb 1.42% Feb 1.39% Feb 1.31% Feb 1.43% Mar 1.40% Mar 1.39% Mar 1.38% Mar 1.38% Apr 1.35% Apr 1.37% Apr 1.32% Apr 1.12% Apr 1.29% May 1.33% May 1.38% May 1.32% May 1.28% Jun 1.40% Jun 1.33% Jun 1.34% Jun 1.27% Jul 1.20% Jul 1.33% Jul 1.29% Jul 1.33% Jul 1.32% Aug 1.30% Aug 1.30% Aug 1.29% Aug 1.28% Sept 1.21% Sept 1.33% Sept 1.27% Sept 1.27% Oct 1.21% Oct 1.33% Oct 1.25% Oct 1.27% Oct 1.26% Nov 1.23% Nov 1.18% Nov 1.27% Nov 1.09% Dec 1.01% Dec 0.97% Dec 0.90% Dec 0.89% Dec 0.84% The yield quotation more closely represents the current earnings of the Money Market Portfolio than the total return quotation. The seven-day compound yield is computed by determining the net change in the value of a hypothetical account having a balance of one share at the beginning of a seven calendar day period, dividing that change by seven, adding one to the quotient, raising the sum to the 365th power and subtracting one from the result. * Historical performance is not an indication of future performance. Investment in the Money Market Portfolio is neither insured nor guaranteed by the U.S. Government or any other agency, and there can be no assurance that the Portfolio will be able to maintain a stable net asset value of $1.00 per share. Shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. 9 ASSET ALLOCATION PORTFOLIO PERFORMANCE UPDATE [PHOTOS OF MATTHEW D. FINN, WAYNE R. SCHMIDT, AND ALLEN D. STEINKOPF] MATTHEW D. FINN, CFA, WAYNE R. SCHMIDT, CFA AND ALLEN D. STEINKOPF, CFA PORTFOLIO MANAGERS ADVANTUS CAPITAL MANAGEMENT, INC. The Asset Allocation Portfolio seeks as high a level of long-term total rate of return as is consistent with prudent investment risk. It invests in common stocks and other equity securities, bonds and money market instruments. The mix of investments is varied by the Portfolio's management as economic conditions indicate. PERFORMANCE The Asset Allocation Portfolio returned -8.98 percent* for the year ended December 31, 2002. The Portfolio's benchmark, a blended index comprised of 60 percent S&P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index, returned -9.80 percent for the year ended. The S&P 500 Index and the Lehman Brothers Aggregate Bond Index returned -22.10 percent and 10.27 percent, respectively, for the same period. PERFORMANCE ANALYSIS The Portfolio performed better than its benchmark for the year. Equities within the Portfolio were down 18 percent compared to a negative 22 percent for the S&P 500 and the fixed income portion was up approximately 10 percent. The Portfolio started the year more heavily concentrated in equities. Good stock selection kept the Portfolio performing well. The biggest contributor to performance was our positive position in the major banks. Large, well run and well capitalized banks such as Wachovia Corporation, U.S. Bancorp and Bank of America Corporation were up for the year, while many of their peers were caught with too much exposure to poor credits or too much capital market exposure and were down for the year. Good stock selection in Health Care punctuated by Forest Labs (up 20 percent) contributed nicely to performance. Our analysis on GE and AOL led us to believe that they would have a hard time meeting expectations. We sold those positions out of the Portfolio and both stocks subsequently sold off sharply at -38 percent and -58 percent, respectively. In the Industrial sector, we liked 3M over GE which was up 6.30 percent for the year, boosting the Portfolio by 83 basis points. We owned a number of high quality REITs during the year, which were the single best performing sector posting a positive 16 percent return during the year. REITs, with their stable earnings and high dividends, were attractive during a period of rapidly deteriorating fundamentals and questionable management practices in the broader market. OUTLOOK The Portfolio is positioned to perform well in up or down markets with a bias toward a positive stock market and a lagging bond market. The Portfolio went from a low of 58 percent equities in September to its current 64.5 percent equity weight during September and October, as valuations became compelling and operating metrics in most industries began to level out after a sub-par summer. We feel the macro environment is already being stimulated by low interest rates with more macro stimulus on the way. We believe the Portfolio should be at its maximum equity weight in this environment. As always, good fundamental research with proper risk management practices will allow us to navigate through the best and worst of times. 10 FIVE LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO ------- ------------ ------------ ----------- Exxon Mobil Corporation 262,300 $ 9,164,762 3.8% Microsoft Corporation 153,500 7,935,950 3.3% Pfizer, Inc. 255,425 7,808,342 3.3% Wachovla Corporation 187,500 6,832,500 2.8% Citigroup, Inc. 168,500 5,929,515 2.5% ------------ ------- $ 37,671,069 15.7% ============ =======

BOND PORTFOLIO CHARACTERISTICS - QUALITY BREAKDOWN

% OF BOND RATING PORTFOLIO ------ --------- U.S. Treasury 10.9% U.S. Government Agencies 36.6% AAA rated 14.3% AA rated 8.1% A rated 16.6% BBB rated 13.1% C rated 0.3% D rated 0.1% ------ 100.0% ======

[CHART] Bonds 32.6% Common Stocks 64.3% Cash and Other Assets/Liabilities 3.1% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN ASSET ALLOCATION PORTFOLIO, S&P 500 INDEX, LEHMAN BROTHERS AGGREGATE BOND INDEX, A BLENDED INDEX OF 60 PERCENT S&P 500 INDEX AND 40 PERCENT LEHMAN BROTHERS AGGREGATE BOND INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -8.98% Five year -0.11% Ten year 5.74%

ASSET ALLOCATION LEHMAN BROTHERS BLENDED S&P 500 & PORTFOLIO CPI AGGREGATE BOND INDEX S&P 500 LEHMAN AGGREGATE 12/31/92 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 12/31/93 $ 11,597 $ 10,579 $ 10,975 $ 11,848 $ 11,499 12/31/94 $ 11,435 $ 10,876 $ 10,654 $ 11,996 $ 11,459 12/31/95 $ 14,295 $ 11,151 $ 12,622 $ 16,484 $ 14,939 12/31/96 $ 16,082 $ 11,520 $ 13,081 $ 19,603 $ 16,994 12/31/97 $ 19,136 $ 11,723 $ 14,344 $ 26,140 $ 21,422 12/31/98 $ 23,661 $ 11,912 $ 15,590 $ 33,610 $ 26,402 12/31/99 $ 27,251 $ 12,223 $ 15,461 $ 40,673 $ 30,588 12/31/00 $ 24,416 $ 12,643 $ 17,260 $ 36,955 $ 29,077 12/31/01 $ 20,909 $ 12,839 $ 18,713 $ 32,559 $ 27,020 12/31/02 $ 17,471 $ 13,150 $ 20,630 $ 24,400 $ 23,522

On the chart above you can see how the Asset Allocation Portfolio's total return compared to the S&P 500 Index, Lehman Brothers Aggregate Bond Index, a blended index of 60 percent S&P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index and the Consumer Price Index. The lines represent the cumulative total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. + The S&P 500 Index is a broad unmanaged index of 500 common stocks which are representative of the overall U.S. stock market. ++ The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers Government/Corporate Index, the Lehman Brothers Mortgage-Backed Securities Index and the Lehman Brothers Asset-Backed Securities Index. 11 MORTGAGE SECURITIES PORTFOLIOS PERFORMANCE UPDATE [PHOTO OF KENT WEBER] KENT WEBER, CFA PORTFOLIO MANAGER The Mortgage Securities Portfolio seeks a high level of current income consistent with prudent investment risk. The Mortgage Securities Portfolio will invest primarily in mortgage-related securities. The risks incurred by Mortgage Securities Portfolio include, but are not limited to, reinvestment of prepaid loans at low rates of return. In addition, the net asset value of Mortgage Securities Portfolio may fluctuate in response to changes in interest rates and are not guaranteed. PERFORMANCE The Mortgage Securities Portfolio generated a total return of 9.66 percent* for the year ended December 31, 2002. This compares favorably to the Portfolio's benchmark, the Lehman Brothers Mortgage-Backed Securities Index,** which returned 8.75 percent for the same period. PERFORMANCE ANALYSIS Even with historically low interest rates and the biggest refinancing wave in history, 2002 turned out to be one of the best years ever for the mortgage market relative to matched maturity Treasuries and other short duration fixed income assets. In this low interest rate environment, solid security selection and active management have proven critical to effectively manage prepayments and credit risks. Throughout the year, fundamental differences in security prepayment profiles and credit exposures have continuously emerged and gone on to drive relative performance. Your portfolio had a 37 percent weighting to the agency pass through market and a 27 percent allocation within the residential mortgage markets to the non-agency CMO market. It was a banner year for commercial mortgage backed securities in which performance - both absolute and duration adjusted - topped all major fixed income sectors. While loan level delinquency and liquidation rates did inch higher, the magnitude of change was minor and was overshadowed by the lack of prepayment risk and solid credit fundamentals. The Portfolio had an 18 percent weighting to the CMBS market. In the land of asset backed securities, it was a different story. Issuer credit concerns and softening in consumer credit overshadowed the sector's impressive prepayment characteristics and led to wider yield premium (over Treasuries) across the sector. Fortunately, events such as these often create opportunities for those who are able to focus on relative value, stick to the fundamentals, and patiently wait for liquidity to once again return to the markets. These bouts of illiquidity can make for a bumpy ride, but ultimately fundamentals and relative value rule. The Portfolio allocation to this sector slowly increased from 2 to 14 percent over the year. INVESTMENT ACTIVITY: The bulk of our excess returns were driven by our overall strategy of relative value investing throughout the mortgage universe and our opportunistic mortgage investing process which is driven by fundamentals and prudent diversification. Three of the strategies we emphasized throughout the year were reducing prepayment, improving credit and riding the duration/yield curve. PREPAYMENT STRATEGY: Next to our people, intense security analysis and selection are the driving virtues of value in our strategy. The search for prepayment-challenged mortgage securities only intensified throughout the year as rates moved lower. Our strategy focused on underweighting the highest coupon securities in the index, selling seasoned securities and purchasing newly issued pools of mortgages and mortgage securities with low average loan balances (less than $85,000). The low loan balance agency pass through story proved to be one of the better call protection stories in the agency pass through market during 2002. CREDIT STRATEGY: Valuing and trading prepayment risk for credit risk was a value-added means of building a solid portfolio. Here our search emphasized credit upgrade opportunities and structure that reduced our prepayment exposure. We believe these investment activities are important because they offer multiple ways to add value to the Portfolio and to generate relative performance from a given security. We feel the credit rating trends in the residential and commercial market remain favorable and the upgrade to downgrade ratio remains healthy. DURATION/YIELD CURVE STRATEGY: We rode our duration on the positive side of the Index throughout most of the year. This duration difference was driven more by the fact that the duration of the index shortened faster and more than the Portfolio as rates marched lower and prepayments were driven higher. We believe at this point there is not a lot of duration left in the mortgage market, which means most of the sector's return will come from yield and not price appreciation should rates continue to move lower. Throughout the year, the yield curve was extremely steep and to take advantage of a positive slope to the yield curve we emphasize structured mortgage assets like CMBS and CMO's and worked to capture the total returns available from these securities rolling down (shortening) in maturity with time and then trading off shorter parts of the yield curve. By their nature, pass throughs do not offer this opportunity. The nature of these structured securities also works to protect against extension risk embedded in pass through securities, which can occur in a rising rate environment. Finally, we remained fully invested, as cash - like instruments yielded 2 to 3 percent less than short duration alternatives available in the mortgage universe. OUTLOOK We expect the economic recovery that everyone wants to believe is just around the corner is likely to remain uneven and slow early into 2003. Ultimately, we feel aggressive fiscal and monetary stimulation should generate renewed growth by the second half of the year. We believe it's at this point that we look for interest rates to gradually move higher and bring a renewed focus on buying and structuring extension protection into one's mortgage portfolio. In the meantime, we believe mortgages remain an attractive fixed income asset class even at these low levels of interest rates, especially for those who pursue it opportunistically and on all fronts. You deserve all the mortgage market has to offer and that's what we continue to offer you at Advantus - a unique, holistic, active style that incorporates selective securities from numerous sectors of the mortgage market. We consistently apply a disciplined investment style that actively incorporates prepayment, credit, structure, liquidity and yield curve risk from those securities and sectors that offer the best pricing for the given risks. Going forward, we feel investors would be wise to lower their future return expectations for their fixed income holdings and remember that bond prices move inversely with the direction of interest rates. 12 [CHART] HIGH QUALITY ASSETS AAA rated 56.9% AA rated 13.4% A rated 11.3% BBB rated 13.7% BB rated 1.9% D rated 0.2% Cash and Other Assets/Liabilities 2.6% [CHART] SOLID LIQUIDITY Public Issues 72.8% Liquid 144A Issues 19.6% Illiquid 144A and Other Private Placement Illiquid Issues 5.0% Cash and Other Assets/Liabilities 2.6% [CHART] PRUDENT SECTOR DIVERSIFICATION FHLMC 5.0% FNMA 35.0% GNMA 0.4% Vendee Mortage Trust 0.3% Non-Agency Sub-prime Residential MBS 1.0% Non-Agency Commercial MBS 12.9% Other Agency Obligations 0.7% Non-Agency Prime Residental MBS 42.1% Cash and Other Assets/Liabilities 2.6% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN MORTGAGE SECURITIES PORTOLIO, LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year 9.66% Five year 7.76% Ten year 7.60%

MORTGAGE LEHMAN BROTHERS SECURITIES MORTGAGE-BACKED PORTFOLIO SECURITIES INDEX CPI 12/31/92 $ 10,000 $ 10,000 $ 10,000 12/31/93 $ 11,621 $ 10,684 $ 10,579 12/31/94 $ 11,229 $ 10,511 $ 10,876 12/31/95 $ 13,251 $ 12,276 $ 11,151 12/31/96 $ 13,947 $ 12,916 $ 11,520 12/31/97 $ 15,222 $ 14,142 $ 11,723 12/31/98 $ 16,223 $ 15,126 $ 11,912 12/31/99 $ 16,545 $ 15,405 $ 12,223 12/31/00 $ 18,498 $ 17,125 $ 12,643 12/31/01 $ 20,169 $ 18,531 $ 12,839 12/31/02 $ 20,795 $ 20,192 $ 13,150

On the chart above you can see how the Mortgage Securities Portfolio's total return compared to the Lehman Brothers Mortgage-Backed Securities Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged benchmark composite which includes all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). 13 INDEX 500 PORTFOLIO PERFORMANCE UPDATE [PHOTO OF JAMES SEIFERT] JAMES SEIFERT PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT INC. The Index 500 Portfolio seeks investment results that correspond generally to the price and yield performance of the common stocks included in the Standard and Poor's Corporation 500 Composite Stock Index (S&P 500). It is designed to provide an economical and convenient means of maintaining a broad position in the equity market as part of an overall investment strategy. PERFORMANCE For the year ended December 31, 2002, the Portfolio ended with a -22.37 percent* return. This compares to the Portfolio's benchmark, the S&P 500 Index,** which returned -22.10 percent for the same period. PERFORMANCE ANALYSIS For the third consecutive year, the S&P 500** ended the calendar year with a negative return (-22.10 percent) due in part to a sharp decline in household net worth, post September 11th repercussions, corporate misconduct, and an increase in unemployment. All eleven sectors posted negative returns for the 12 month period. Technology led the sectors that detracted from the index return with a - -6.70 percent contribution on a return of -35.90 percent. The largest size stocks, sorted in quintiles by market cap, had the worst return for the year. OUTLOOK Looking ahead to 2003, we see a moderate acceleration in U.S. economic growth. We expect the pace for growth, however, to remain well below potential as the result of weak business capital spending, a crisis of confidence associated with corporate accounting scandals, and uncertainties associated with global war and the threat of terrorism. In addition, we foresee little help will be forth coming from both Europe and Japan as the result of their long-standing anti-growth tax and regulatory policies. We believe that inflation in most industrial nations to be well below the long-term trend as the result of the overhang of excess global investment in both labor and productive capacity. We expect that currency volatility will also continue as countries seek to increase their competitive advantage by weakening their currencies. Weaker currency, although attractive in the short run, we believe will ultimately reduce a country's standard of living by increasing their domestic prices. The strong U.S. dollar has kept inflation at bay for more than 10 years. However, we feel that current fiscal policies may result in a weaker U.S. dollar in the near term. Stimulative monetary and fiscal policies have generated a limited economic rebound. We anticipate the pace of the rebound will remain subdued by the continued adjustments to the 1990's excess, the substantial declines in the stock market, and the rise in risk premium. As we move through 2003, we expect some of these restraints to dissipate and economic growth to reaccelerate and provide the base for the expansion. Under our forecasted scenario for 2003, we expect that the capital markets should perform marginally better than they did in 2002. We believe that in the upcoming year: * Corporate profits will improve, however, investors will not be convinced until they are both reported and CONFIRMED. It will be important that perception of corporate governance and fiduciary integrity improve before the main street investor feels comfortable reentering the market enmasse. * The Federal Reserve has aggressively eased monetary policy over the past two years, and we expect the highly stimulative policy to remain in place until a "confirmed" pattern of historic trend growth is evident. Under this circumstance, we believe bonds will remain in a trading range with only moderate upward pressure on the front end of the yield curve as the Fed gradually puts the brakes to its policy of easing. We expect this to happen late in the year. We believe the Fed will probably not complete the process of restoring the funds rate to neutral until 2004 or later. * Corporate credits will very slowly improve as debt is reduced and profits begin to improve. We believe this will result in narrowing yield spreads which consequently will result in corporate bonds outperforming U.S. Treasury bonds. Founding father, Benjamin Franklin once said, "There are no gains without pains." All in all, we believe investors will begin to recapture some of the losses incurred over the past three painful years. 14 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- -------- ------------ ---------- Microsoft Corporation 271,386 $ 14,030,656 3.4% General Electric Company 505,116 12,229,575 3.0% Exxon Mobil Corporation 341,559 11,934,070 2.9% Wal-Mart Stores, Inc. 224,053 11,316,917 2.7% Pfizer, Inc. 312,792 9,562,051 2.3% CitiGroup, Inc. 260,717 9,174,631 2.2% Johnson & Johnson 150,787 8,098,770 2.0% American International Group 132,413 7,660,092 1.9% International Business Machines Corporation 85,769 6,648,648 1.6% Merck & Company, Inc. 113,985 6,452,691 1.6% ------------ ------- $ 97,108,101 23.6% ============ =======

[CHART] Cash and Other Assets/Liabilities 1.7% Transportation 1.7% Utilities 2.8% Basic Materials 3.8% Communication Services 4.5% Energy 6.0% Capital Goods 7.9% Consumer Cyclical 10.2% Consumer Staples 12.5% Health Care 14.8% Technology 14.9% Financial 19.2% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN INDEX 500 PORTFOLIO, S&P 500 INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -22.37% Five year -1.02% Ten year 8.80%

INDEX 500 PORTFOLIO S&P 500 CPI 12/31/92 $ 10,000 $ 10,000 $ 10,000 12/31/93 $ 10,976 $ 11,009 $ 10,274 12/31/94 $ 11,105 $ 11,146 $ 10,563 12/31/95 $ 15,195 $ 15,317 $ 10,830 12/31/96 $ 18,484 $ 18,215 $ 11,188 12/31/97 $ 24,466 $ 24,290 $ 11,385 12/31/98 $ 31,313 $ 31,231 $ 11,568 12/31/99 $ 37,664 $ 37,793 $ 11,871 12/31/00 $ 34,128 $ 34,339 $ 12,278 12/31/01 $ 29,946 $ 30,254 $ 12,468 12/31/02 $ 23,248 $ 24,400 $ 12,771

On the chart above you can see how the Index 500 Portfolio's total return compared to the S&P 500 Index (as adjusted for dividend reinvestment) and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002.#Capital Appreciation Portfolio * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Advantus Series Fund, Inc.-Index 500 Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio. 15 CAPITAL APPRECIATION PORTFOLIO PERFORMANCE UPDATE [PHOTOS OF SUSAN L. BLACK, JEFFREY T. ROSE] SUSAN L. BLACK, CFA JEFFREY T. ROSE CREDIT SUISSE ASSET MANAGEMENT, INC. The Capital Appreciation Portfolio seeks growth of capital. Investments will be made based upon their potential for capital appreciation. While Advantus Capital Management, Inc. acts as investment adviser for the Portfolio, Credit Suisse Asset Management, Inc. provides investment advice to the Capital Appreciation Portfolio under a sub-advisory agreement. PERFORMANCE The Capital Appreciation Portfolio had a return of -31.54 percent* for the year ended December 31, 2002. This compares with the S&P 500 Index,** which returned -22.10 percent for the same period. PERFORMANCE ANALYSIS The year was another poor one for the U.S. stock market. While equities ended 2001 on a positive note, recovering from their post-September 11 plunge, a confluence of negative developments sent equities spiraling downward again through much of 2002. Despite some encouraging economic data--the U.S. avoided a feared recession--investors seemed increasingly concerned about lackluster profits, geopolitical tensions and, most importantly for the U.S. market, a decreased confidence in corporate management and Wall Street analysts. Those general worries temporarily faded in October and November, but stocks struggled in December and prominent equity indexes ended the year with double-digit declines. The Portfolio was clearly hurt by the broad and intense sell-off in stocks and by weakness in certain of its communications, health-care and technology holdings. On the positive side--relatively speaking--stocks that aided the Portfolio included its financial services holdings. OUTLOOK In the wake of three successive years of stock market declines, we see several reasons, both political and economic, that 2003 could prove to be the year that the equity market reverses its trend. The Bush administration now seems intent on making economic growth a key priority. In addition, we believe that corporate governance and market oversight is becoming more transparent. We feel this, along with a possible stimulus package that eliminates the double taxation of dividends and the ongoing use of monetary tools could create an environment more conducive for equity investments. One key factor in our opinion will be how smoothly a consumer-driven economic recovery can shift into an investment-driven one. Much depends on a rebound in earnings, which admittedly could take some time to gain traction. But when corporate profits recover more fully, we expect to see systems upgrades and other capital outlays made by the nation's businesses. We will continue to monitor consumer and corporate spending patterns closely. In terms of sector focus, one area we favor at present is the Media sector, based in part on an upward advertising-revenue trend. That said, we believe these stocks could be quite vulnerable if a war with Iraq proceeds, as ad spending tends to drop off in times of crisis. We think that stock selection will be critical here. Other Consumer-related stocks we own include home-supply, beverages and discount-retail companies. We think such businesses should weather any general slowdown in consumer spending fairly well. In the Health Care area, we like medical-device companies, which in our view will continue to have more pricing power than pharmaceutical companies. Elsewhere of note, we maintained a roughly neutral position in Technology. We believe the group contains a number of high-quality companies that have good long-term earnings potential. But until we see more evidence that business spending is picking up, we do not intend to have an aggressive exposure here. We ended the quarter with a neutral weighting in the Financial Services sector; we may begin to trim this position based on credit concerns. In these sectors and elsewhere, we will continue to strive to identify reasonably priced companies we deem to have compelling long-term growth prospects. 16 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------- ------------ ---------- Microsoft Corporation 153,600 $ 7,941,120 5.3% Pfizer, Inc. 222,275 6,794,947 4.5% Viacom, Inc. 148,017 6,033,173 4.0% American International Group 101,500 5,871,775 3.9% Medtronic, Inc. 108,300 4,938,480 3.3% Johnson & Johnson 87,696 4,710,152 3.1% Danaher Corporation 71,100 4,671,270 3.1% United Parcel Service, Inc. 70,100 4,421,908 2.9% Intel Corporation 260,400 4,054,428 2.7% General Electric Company 164,200 3,998,270 2.7% ------------ ----- $ 53,435,523 35.5% ============ =====

[CHART] Cash and Other Assets/Liabilities 2.0% Energy 1.1% Transportation 2.9% Capital Goods 6.1% Consumer Cyclical 11.7% Financial 14.0% Consumer Staples 19.2% Technology 20.7% Health Care 22.3% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN CAPITAL APPRECIATION PORTFOLIO, S&P 500 INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -31.54% Five year -5.92% Ten year 4.42%

CAPITAL APPRECIATION PORTFOLIO S&P 500 INDEX CPI 12/31/92 $ 10,000 $ 10,000 $ 10,000 12/31/93 $ 11,044 $ 11,848 $ 10,579 12/31/94 $ 11,292 $ 11,996 $ 10,876 12/31/95 $ 13,864 $ 16,484 $ 11,151 12/31/96 $ 16,306 $ 19,603 $ 11,520 12/31/97 $ 20,914 $ 26,140 $ 11,723 12/31/98 $ 27,363 $ 33,610 $ 11,912 12/31/99 $ 33,248 $ 40,673 $ 12,223 12/31/00 $ 29,871 $ 36,955 $ 12,643 12/31/01 $ 22,514 $ 32,559 $ 12,839 12/31/02 $ 15,413 $ 24,400 $ 13,150

On the chart above you can see how the Capital Appreciation Portfolio's total return compared to the S&P 500 Index and the Consumer Price Index. The four lines represent the total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. 17 INTERNATIONAL STOCK PORTFOLIO PERFORMANCE UPDATE [PHOTOS OF GARY R. CLEMONS, ALEXANDER CALVO, AND EDGERTON TUCKER SCOTT III] GARY R. CLEMONS ALEXANDER CALVO EDGERTON TUCKER SCOTT III, CFA FRANKLIN TEMPLETON INVESTMENT COUNSEL, INC. The International Stock Portfolio seeks long-term capital growth. The Portfolio will invest primarily in common stocks of companies and governments outside the United States. While Advantus Capital Management, Inc. acts as investment adviser for the portfolio, Franklin Templeton Investment Counsel, Inc. provides investment advice to the International Stock Portfolio under a subadvisory agreement. Investment risks associated with international investing, in addition to other risks, include currency fluctuations, political and economic instability, and differences in accounting standards when investing in foreign markets. PERFORMANCE The International Stock Portfolio returned -17.82 percent* for the year ended December 31, 2002. This compared to the Morgan Stanley Capital EAFE Index** return of -15.65 percent for the same period. PERFORMANCE ANALYSIS Throughout 2002, global equity markets experienced uncertainty, and the U.S. market in particular was the focus of worldwide attention. The final quarter of 2002 ended in aggregate with positive investment returns, but this contrasted sharply with the dismal returns of the third quarter, one of the worst on record. While the year-end rally helped, it could not mitigate what had begun earlier in 2001: declines in employment, corporate earnings and gross domestic product (GDP) growth in Asia, Europe and the Americas. In our opinion, the year-end rally resulted primarily from the combination of three factors. First, a cut of 50 basis points (.50 percent) in short-term interest rates in the United States (mirrored by a similar cut in Europe) helped investor sentiment. Before the latest cut, U.S. interest rates were already at a four-decade low and the most recent move signaled the determination by the Federal Reserve Board to combat the risk of deflation. Second, corporate earnings growth in the United States, albeit modest, showed positive year-over-year comparisons during the first three quarters of 2002, which also helped investor psychology. And third, as the summer sell-off extended into early October, many stocks became oversold and experienced a technical rebound. In the U.S., the effects of monetary easing became apparent during the fourth quarter of 2001, as GDP grew at a 2.70 percent annualized rate. This trend continued in the first and second quarters of 2002, with annualized growth rates of 5 percent and 1.10 percent. However, relatively healthy economic data on the consumer side contrasted with negative news on the corporate side. The Enron scandal raised concerns about the potential of widespread corruption and investors became skeptical about corporate reporting. Partly as a result, stock market volatility spiked to levels not seen since the terrorist attacks on September 11th. Also contributing to the drop in stock prices were gloomy outlooks on major sectors such as Information Technology and Telecommunications Services. In addition, ongoing terrorist fears and geopolitical conflicts added uncertainty to the global financial markets. All considered, equity markets generally declined during 2002. Industry sectors that declined sharply in the broad market, such as Financials, Health Care, Information Technology and Industrials, negatively affected the Portfolio's performance. The Portfolio's relative underperformance was specifically linked to certain holdings within the Health Care, Telecommunication Services and Industrial sectors. On the positive side, based on strong stock selection, our consumer-related sectors delivered solid investment results. This was not the case for the Index, as media, hotel and leisure-related stocks faced challenges during the period and generated negative returns within the Index. Geographically, the Portfolio benefited from our exposure in the Pacific Basin Region. Specifically, holdings in Australia (BHP Billiton), South Korea (Samsung Electronics and KT Corporation) and New Zealand (Telecom Corporation of New Zealand) drove much of the Portfolio's outperformance in the region. On a relative basis, our underweight to Japan also contributed to the Portfolio's overall performance. During the period, we remained unconvinced about the prospects of measurable corporate reforms in Japan. OUTLOOK Last year, the outlook for the global economy and for equity markets was expected to improve, but with the exception of the fourth quarter, it actually deteriorated. We believe however, that the sell-off during the summer was, as in many cases, caused by emotion, not logical thinking. While there are a number of uncertainties going forward, particularly the direction of consumer spending, we feel the extreme volatility of equity markets continues to provide us with the opportunity to identify quality companies with good operating prospects, often with attractive dividend yields, at prices that we find compelling. In the longer term, we believe our investment philosophy of buying when others are blindly selling should benefit our investors and we remain comfortable with the Portfolio's long-term holdings. 18 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------ ------------ Nippon Telephone & Telegraph 1,291 $ 4,688,809 2.2% Korea Telecom ADR 216,960 4,675,488 2.2% ING Group 251,394 4,257,940 2.0% Shell Transportation & Trading Company PLC 632,900 4,167,324 2.0% Sampo Insurance 512,800 3,901,459 1.8% Samsung GDR 29,000 3,864,250 1.8% Pechiney 109,780 3,852,393 1.8% Total Fina Elf 26,117 3,730,117 1.7% Check Point Software 287,000 3,722,390 1.7% Kidde PLC 3,180,400 3,622,489 1.7% ------------ ----- $ 40,482,659 18.9% ============ =====

[CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN INTERNATIONAL STOCK PORTFOLIO, MORGAN STANLEY CAPITAL EAFE INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -17.82% Five year -0.97% Ten year 7.68%

INTERNATIONAL MORGAN STANLEY STOCK PORTFOLIO CAPITAL EAFE CPI 12/31/92 $ 10,000 $ 10,000 $ 10,000 12/31/93 $ 13,144 $ 10,843 $ 10,458 12/31/94 $ 13,102 $ 11,722 $ 10,752 12/31/95 $ 14,966 $ 13,088 $ 11,024 12/31/96 $ 17,928 $ 13,916 $ 11,388 12/31/97 $ 20,069 $ 14,198 $ 11,589 12/31/98 $ 21,394 $ 17,084 $ 11,775 12/31/99 $ 25,979 $ 21,747 $ 12,083 12/31/00 $ 26,189 $ 18,702 $ 12,498 12/31/01 $ 23,249 $ 14,735 $ 12,691 12/31/02 $ 20,960 $ 15,235 $ 12,999

On the chart above you can see how the International Stock Portfolio's total return compared to the Morgan Stanley Capital EAFE Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on December 31, 1992 through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Morgan Stanley Capital EAFE Index is an unmanaged index of common stocks from European, Australian and Far Eastern markets. 19 SMALL COMPANY GROWTH PORTFOLIO PERFORMANCE UPDATE [PHOTOS OF ELIZABETH B. DATER AND SAMMY OH] ELIZABETH B. DATER AND SAMMY OH PORTFOLIO MANAGERS CREDIT SUISSE ASSET MANAGEMENT, INC. The Small Company Growth Portfolio seeks long-term accumulation of capital. It invests primarily in common stocks of small companies whose market capitalization are within the range of capitalization of companies in the Russell 2000 Growth Index**. While Advantus Capital Management acts as investment advisor for the Portfolio, Credit Suisse Asset Management, Inc. provides investment advice to the Small Company Growth Portfolio under a sub-advisory agreement. Small company securities have varying degrees of risk. Investments in smaller company and micro-cap stocks carry a higher level of volatility and risk over the short-term. Refer to the prospectus for portfolio risks associated with each investment option. PERFORMANCE The Small Company Growth portfolio returned -31.80 percent* for the year ended December 31, 2002. Its benchmark, the Russell 2000 Growth Index**, returned - -30.26 percent. PERFORMANCE ANALYSIS The year was another poor one for stocks. While equity markets rallied in late 2001, rebounding from their post-September 11 plunge, conditions steadily worsened well into 2002. Despite the avoidance of recession, markets were overwhelmed by ethical and accounting irregularities, combined with heightened geopolitical risks, a fading of economic optimism and a clouded profit outlook. Selling pressure was broad-based, and most sectors of the stock market had significant losses for the 12 months. The Portfolio's performance reflected the difficult investment environment in the period, with most of its holdings suffering losses amid the sell-off. The Portfolio's Technology holdings had the largest declines, reflecting a broader market trend. One factor that hurt the Portfolio's relative return was its underweighting in the Financial Services sector, which outperformed most sectors for the year. On a positive note, the Portfolio's Transportation holdings had a gain for the year. OUTLOOK As we look ahead, our view is that the economy should remain on a growth path, though the recovery might be a sluggish one for a few months at least. The Federal Reserve's aggressive reduction of interest rates over the past year has appeared to be less and less stimulative, and we expect it may take time for other stimulative catalysts (e.g., tax cuts--now on the table in Washington--or an increase in corporate investment spending) to support investor confidence. Of course, the threat of war remains a wild card and we think it could continue to unsettle markets on an ongoing basis. For our part, we will remain focused on what we believe are well-managed companies that can successfully execute their business models. Companies we favor at present include Media names, especially radio companies that are picking up market share from newspapers. We believe that advertising revenues will remain supportive as 2003 progresses. Elsewhere of note, we intend to remain overweighted in Health Care, at least over the near-to-intermediate term. Our holdings continue to include medical-devices and services companies that are delivering good earnings results. Regarding the Consumer area, we have some concerns over retailers in general, and have trimmed certain positions. We continue to view Technology cautiously, and do not plan to have an aggressive weighting anytime soon. However, we are identifying companies trading at what we consider to be compelling valuations, and will look for opportunities to selectively increase our exposure going forward. 20 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- -------- ------------ ---------- Medicis Pharmaceutical Corporation 53,235 $ 2,644,182 2.3% Community Health Systems 125,500 2,584,045 2.3% Affymetrix, Inc. 108,300 2,478,987 2.2% CACI International, Inc. 69,500 2,476,980 2.2% Coventry Health Care, Inc. 83,700 2,429,811 2.1% Lifepoint Hospitals, Inc. 80,300 2,403,459 2.1% Getty Images, Inc. 73,412 2,242,737 2.0% Education Management Corporation 56,300 2,116,880 1.9% Performance Food Group Company 56,900 1,932,267 1.7% Stone Energy Corporation 57,196 1,908,059 1.7% ------------ ----- $ 23,217,407 20.5% ============ =====

[CHART] Cash and Other Assets/Liabilities 8.0% Communication Services 1.0% Transportation 2.1% Capital Goods 3.4% Basic Materials 5.3% Energy 7.3% Financial 7.9% Consumer Staples 10.7% Consumer Cyclical 14.0% Technology 17.9% Health Care 22.4% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN SMALL COMPANY GROWTH PORTFOLIO, RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -31.80% Five year -5.31% Since inception (5/3/93) 3.82%

SMALL COMPANY RUSSELL 2000 GROWTH PORTFOLIO CPI GROWTH INDEX 5/3/93 $ 10,000 $ 10,000 $ 10,000 12/31/93 $ 11,733 $ 10,132 $ 12,234 12/31/94 $ 12,456 $ 10,416 $ 11,938 12/31/95 $ 16,449 $ 10,680 $ 15,641 12/31/96 $ 17,509 $ 11,033 $ 17,401 12/31/97 $ 18,867 $ 11,227 $ 19,654 12/31/98 $ 19,106 $ 11,408 $ 19,898 12/31/99 $ 27,824 $ 11,706 $ 28,474 12/31/00 $ 24,686 $ 12,108 $ 22,088 12/31/01 $ 21,058 $ 12,295 $ 20,048 12/31/02 $ 14,362 $ 12,594 $ 13,981

On the chart above you can see how the Small Company Growth Portfolio's total return compared to the Russell 2000 Growth Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Small Company Growth Portfolio (May 3, 1993) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Russell 2000 Growth Index contains those stocks from the Russell 2000 with a greater than average growth orientation. The Russell 2000 is the 2,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market. 21 Maturing Government Bond 2006 Portfolio Maturing Government Bond 2010 Portfolio PERFORMANCE UPDATE [PHOTO KENT WEBER] KENT WEBER PORTFOLIO MANAGER, ADVANTUS CAPITAL MANAGEMENT The Maturing Government Bond 2006 and 2010 Portfolios seek as high of an investment return as is consistent with prudent investment risk. The Portfolios invest primarily in U.S. Government and Agency zero coupon fixed income securities with maturities near the 2006 and 2010 liquidation dates of each Portfolio. PERFORMANCE For the year ended December 31, 2002, the Maturing Government Bond Portfolios generated the following returns: Maturing Government Bond 2006 Portfolio* 12.99 percent Maturing Government Bond 2010 Portfolio* 18.85 percent For the year ended December 31, 2002, the Ryan Lab's U.S. Treasury Strip Indexes of comparable maturity generated the following returns: Ryan Lab's Inc. September 2006 Index** 12.69 percent Ryan Lab's Inc. September 2010 Index** 18.91 percent PERFORMANCE ANALYSIS As time passes, the duration of each Portfolio continues to roll forward toward its respective maturity. The effective duration of each Portfolio is as follows: Maturing Government Bond 2006 Portfolio 3.93 years Maturing Government Bond 2010 Portfolio 7.69 years The performance of the Portfolios continued to benefit from their concentration in high quality spread product, which provided increased yield over their benchmarks and allowed the Portfolios to benefit from the rally in both Treasuries and high quality spread product, such as agency debentures. OUTLOOK While the U.S. economy has not completely found its footing, we believe the foundation is currently being established (i.e., very aggressive monetary and fiscal policies), so the U.S. economy should show signs of growth by the second half of 2003. We feel this transition should result in moderately higher rates across the yield curve, as the market begins to forecast an increase in growth, employment, and ultimately inflation. We believe this will make the fundamentals of the spread sector even more attractive versus Treasuries. We will maintain the current overweight to spread product and look for additional opportunities to take advantage of this developing situation. The Maturing Government Bond 2002 Portfolio matured on the third Friday in September of 2002 (September 20, 2002), at which time the Portfolio's assets were liquidated and, in accordance with instructions from the owners of the variable life insurance and annuity contracts funded by the Portfolio, reallocated to other investment sub-accounts available under such variable contracts. 22 [CHART] MATURING GOVERNMENT BOND 2006 PORTFOLIO U.S. Treasury Strip 35.8% FICO Strip 23.0% Israel State Aid Strip 8.4% RFC Strip 8.2% FNMA Strip 22.4% Government Trust Certificate 0.8% Cash and Other Assets/Liabilities 1.4% [CHART] MATURING GOVERNMENT BOND 2010 PORTFOLIO U.S. Treasury Strip 35.2% FICO Strip 10.4% Turkey GTC 4.0% Israel State Aid 12.2% Israel GTC 3.8% RFC Strip 7.8% FNMA Strip 21.5% Tennessee Valley Authority 3.7% Cash and Other Assets/Liabilities 1.4% 23 [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN MATURING GOVERNMENT BOND 2006 PORTFOLIO, RYAN LABS, INC. SEPTEMBER 2006 INDEX OF TREASURY STRIPS AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year 12.99% Five year 8.28% Since inception (5/2/94) 9.72%

MATURING GOVERNMENT BOND 2006 PORTFOLIO RYAN LABS INDEX CPI 5/2/94 $ 10,000 $ 10,000 $ 10,000 12/31/94 $ 10,013 $ 9,988 $ 10,190 12/31/95 $ 13,490 $ 13,532 $ 10,447 12/31/96 $ 13,327 $ 13,351 $ 10,793 12/31/97 $ 15,009 $ 15,116 $ 10,983 12/31/98 $ 17,165 $ 17,380 $ 11,160 12/31/99 $ 15,825 $ 16,087 $ 11,451 12/31/00 $ 18,298 $ 18,808 $ 11,845 12/31/01 $ 19,775 $ 20,705 $ 12,028 12/31/02 $ 22,344 $ 23,333 $ 12,320

On the chart above you can see how the Maturing Government Bond 2006 Portfolio's total return compared to the Ryan Labs, Inc. September 2006 Index of Treasury Strips and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Maturing Government Bond 2006 Portfolio (May 2, 1994) through December 31, 2002. [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN MATURING GOVERNMENT BOND 2010 PORTFOLIO, RYAN LABS, INC. SEPTEMBER 2010 INDEX OF TREASURY STRIPS AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year 18.85% Five year 8.89% Since inception (5/2/94) 10.91%

MATURING GOVERNMENT BOND 2010 PORTFOLIO RYAN LABS INDEX CPI 5/2/94 $ 10,000 $ 10,000 $ 10,000 12/31/94 $ 9,970 $ 9,931 $ 10,190 12/31/95 $ 14,080 $ 14,313 $ 10,447 12/31/96 $ 13,599 $ 13,880 $ 10,793 12/31/97 $ 16,028 $ 16,251 $ 10,983 12/31/98 $ 18,317 $ 18,824 $ 11,160 12/31/99 $ 16,204 $ 16,686 $ 11,451 12/31/00 $ 19,665 $ 20,656 $ 11,845 12/31/01 $ 20,641 $ 21,285 $ 12,028 12/31/02 $ 24,533 $ 25,309 $ 12,320

On the chart above you can see how the Maturing Government Bond 2010 Portfolio's total return compared to the Ryan Labs, Inc. September 2010 Index of Treasury Strips and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Maturing Government Bond 2010 Portfolio (May 2, 1994) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** Ryan Labs, Inc. September 2006 and 2010 Index of U.S. Treasury Strips consists of all active zero-coupon U.S. Treasury issues with maturities in September 2006 and 2010, respectively. 24 (This page has been left blank intentionally.) 25 VALUE STOCK PORTFOLIO PERFORMANCE UPDATE [PHOTOS OF MATTHEW D. FINN AND MATTHEW NORRIS] MATTHEW D. FINN, CFA AND MATTHEW NORRIS, CFA PORTFOLIO MANAGERS ADVANTUS CAPITAL MANAGEMENT, INC. The Value Stock Portfolio seeks long-term accumulation of capital. The secondary objective is the production of income. The Portfolio invests primarily in equity securities of companies which, in the opinion of the Adviser, have market values which appear low relative to their underlying value or future growth potential. PERFORMANCE The Value Stock Portfolio returned -15.32 percent* for the year ended December 31, 2002. While negative performance is disappointing, this was almost exactly equal our benchmark, the Russell 1000 Value Index**, which returned -15.52 percent. PERFORMANCE ANALYSIS All of the major economic sectors of the market were negative for the year. The Technology, Telecommunications and Utility sectors were all down over 20 percent. The best performing sectors (down less than 10 percent) were Consumer Staples, Industrials and Basic Materials. The areas of strength in the Portfolio include Financials and Telecommunications. In Financials, a number of banking stocks aided performance, while in Telecom performance was helped by ownership of certain companies and the avoidance of others. The largest area of weakness was Technology. The Portfolio's holdings of various technology hardware stocks hurt performance, primarily in the semiconductor area. OUTLOOK The equity markets have closed a third consecutive year of negative performance. We feel that most of the overvaluation of the late 1990's has been worked off, and better market returns are in front of us. However, it is our strong belief that predicting the future course of the economy or the markets is nearly impossible. Thus, we focus on selecting individual securities we feel are undervalued, have stable or improving operating metrics, and a near term catalyst to increase the stock price. This steadfast focus on individual corporations has paid off over time, as the Portfolio owned 45 securities in the past year with an absolute positive return, even when the market indices were negative. 26 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- -------- ------------ ------------ Exxon Mobil Corporation 185,804 $ 6,491,991 5.8% Bank of America Corporation 59,380 4,131,067 3.7% CitiGroup, Inc. 114,206 4,018,909 3.6% U.S. Bancorp 163,894 3,477,831 3.1% Wachovia Corporation 92,600 3,374,344 3.0% Verizon Communications 84,605 3,278,444 3.0% Wells Fargo & Company 64,400 3,018,428 2.7% SBC Communications, Inc. 105,210 2,852,243 2.6% Brunswick Corporation 141,500 2,810,190 2.5% Nisource, Inc. 134,000 2,680,000 2.4% ------------ ----- $ 36,133,447 32.4% ============ =====

[CHART] Cash and Other Assets/Liabilities 1.2% Transportation 0.8% Capital Goods 4.2% Basic Materials 4.9% Health Care 5.2% Utilities 6.0% Communication Services 7.1% Consumer Cyclical 7.8% Technology 8.9% Consumer Staples 11.0% Energy 11.7% Financial 31.2% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN VALUE STOCK PORTFOLIO, RUSSELL 1000 VALUE INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -15.32% Five year - 5.31% Since inception (5/2/94) 6.16%

VALUE STOCK RUSSELL 1000 PORTFOLIO CPI VALUE INDEX 5/2/94 $ 10,000 $ 10,000 $ 10,000 12/31/94 $ 10,457 $ 10,190 $ 10,209 12/31/95 $ 13,904 $ 10,448 $ 14,124 12/31/96 $ 18,207 $ 10,793 $ 17,181 12/31/97 $ 22,065 $ 10,984 $ 23,223 12/31/98 $ 22,452 $ 11,160 $ 26,855 12/31/99 $ 22,513 $ 11,452 $ 28,826 12/31/00 $ 22,149 $ 11,845 $ 30,847 12/31/01 $ 19,834 $ 12,028 $ 29,121 12/31/02 $ 16,795 $ 12,320 $ 24,601

On the chart above you can see how the Value Stock Portfolio's total return compared to the Russell 1000 Value Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Value Stock Portfolio (May 2, 1994) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Russell 1000 Value Index contains those stocks from the Russell 1000 with low book to price ratio. The Russell 1000 is the 1,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks which represents approximately 98 percent of the U.S. market. 27 SMALL COMPANY VALUE PORTFOLIO PERFORMANCE UPDATE [PHOTOS OF JOHN BURBANK AND PAUL HAAGENSEN ] JOHN BURBANK, CFA PAUL HAAGENSEN STATE STREET RESEARCH AND MANAGEMENT COMPANY The Small Company Value Portfolio seeks the long-term accumulation of capital. It invests primarily in the equity securities of small companies, defined in terms of market capitalization and which appear to have market values that are low relative to their underlying value or future earnings and growth potential. Investments in smaller company and micro-cap stocks generally carry a higher level of volatility and risk over the short term. Refer to the Portfolio's prospectus for specific information about risks associated with the investment, as well as charges and expenses. While Advantus Capital Management, Inc. serves as investment adviser to the Portfolio, State Street Research & Management Company provides investment advice to the Small Company Value Portfolio under a sub-advisory agreement. PERFORMANCE For the year ended December 31,2002, the Small Company Value Portfolio returned - -19.98 percent.* The Russell 2000 Value Index** returned -11.42 percent for the same period. PERFORMANCE ANALYSIS In 2002, the Russell 2000 Value Index** posted negative returns (-11.42 percent) in a difficult economic and geopolitical environment. Financial Services, led by smaller regional banks, was the only sector to post gains during the year. Many of the Portfolio's investments were based on the valuations of companies positioned to benefit from an economic turnaround and increased business spending. This opportunity, however, never came to fruition in 2002. While stock selection was additive to performance in a number of sectors, including Consumer Discretionary, Materials and Energy, weaker stock selection in Technology, Transportation and in particular, Producer Durables meaningfully detracted from performance over the 12-month period. Throughout the year, the valuations of cyclical names that had been hurt in the economic downtown appeared to offer potential. As a result, we invested heavily in many production technology equipment positions that turned in disappointing results over the 12-month period. Within the industry, Therma-Wave, Brooks-PRI Automation and Credence Systems were all down in excess of 50 percent during the year. Within the same sector, Veeco Instruments also hurt relative returns. In Technology, Triquint Semiconductor, Inc., Kemet Corporation and Globespan Virata contributed to the Portfolio's underperformance. In contrast, strong stock selection in Consumer Discretionary and Energy sectors lessened the impact of losses in the Technology-related sectors. Solid gains in the casinos and gambling industry positively contributed to return comparisons. International Game Technology, Mandalay Resort Group and Harrah's all posted double-digit gains despite a difficult economic operating environment. Energy holdings Cabot Oil and Gas Corporation, Ocean Energy, Inc. and Peabody Holding Company also ended the year with positive returns as they benefited from favorable fundamentals now prevalent in the industry. OUTLOOK While smaller-cap and value have outperformed the general market over the last several years, we would not expect that kind of significant outperformance to persist going forward. We feel our investment approach has tended to perform well regardless of whether the asset class is "in" or "out" of favor. In fact, we are finding many more value candidates for investment today than we did a year ago. We continue to focus our efforts on buying good companies with compelling valuations and are optimistic that an adherence to this strategy will continue to produce favorable long-term results. We remain committed to our bottom-up investment approach in which stocks are selected on a stock-by-stock basis. While the market favored more defensive names this year, we remained committed to buying fundamentally attractive stocks. We believe many of the more attractive opportunities, based on valuations, have come in cyclically-oriented industries, resulting in the cyclical bias in the Portfolio. As a result of our bottom-up process, we believe many of the most attractive opportunities lie within cyclically oriented industries. The Portfolio remains overweight in Transportation, Materials, Producer Durables, and Technology. In contrast, we are underweight in more defensive sectors, including Utilities, Consumer Staples and Health Care. 28 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- -------- ------------ ---------- Agrium, Inc. 102,100 $ 1,154,751 2.3% Wabtec Corporation 80,200 1,126,008 2.2% Navistar International Corporation 44,600 1,084,226 2.1% Varian Semiconductor Equipment 45,400 1,078,749 2.1% Phelps Dodge Corporation 32,800 1,038,120 2.0% Readers Digest Association 66,800 1,008,680 2.0% EGL, Inc. 70,100 998,925 2.0% Technitrol, Inc. 57,700 931,278 1.8% American Axle & Manufacturing Holdings 35,600 833,752 1.6% Peabody Holding Company 26,900 786,287 1.6% ------------ ----- $ 10,040,776 19.7% ============ =====

[CHART] Cash and Other Assets/Liabilities 7.2% Communication Services 0.5% Health Care 1.2% Financial 2.6% Consumer Staples 4.5% Energy 6.8% Transportation 7.0% Consumer Cyclical 11.6% Basic Materials 15.7% Capital Goods 20.8% Technology 22.1% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN SMALL COMPANY VALUE PORTFOLIO, RUSSELL 2000 VALUE INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -19.98% Five year 1.37% Since inception (10/1/97) 1.74% (Thousands)

SMALL COMPANY RUSSELL 2000 VALUE PORTFOLIO VALUE INDEX CPI 10/1/97 $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 10,229 $ 10,168 $ 10,019 12/31/98 $ 9,539 $ 9,513 $ 10,179 12/31/99 $ 9,246 $ 9,371 $ 10,446 12/31/00 $ 11,835 $ 11,508 $ 10,804 12/31/01 $ 13,679 $ 13,121 $ 10,972 12/31/02 $ 10,947 $ 11,623 $ 11,238

On the chart above you can see how the Small Company Value Portfolio's total return compared to the Russell 2000 Value Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Small Company Value Portfolio (October 1, 1997) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Russell 2000 Value Index contains those stocks from the Russell 2000 with a low price to book ratios. The Russell 2000 is the 2,000 smallest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3000 common stocks, which represent approximately 98 percent of the U.S. Market. 29 GLOBAL BOND PORTFOLIO PERFORMANCE UPDATE [PHOTO OF EDWARD DOVE] [PHOTO OF WAYNE SCHMIDT] EDWARD DOVE JULIUS BAER INVESTMENT MANAGEMENT, INC. WAYNE SCHMIDT, CFA ADVANTUS CAPITAL MANAGEMENT, INC. The Global Bond Portfolio seeks to maximize current income consistent with protection of principal. The Portfolio pursues its objective by investing primarily in debt securities issued by issuers located anywhere in the world. While Advantus Capital Management, Inc. acts as the investment adviser for the portfolio, Julius Baer Investment Management, Inc. provides investment advice to the Global Bond Portfolio under a sub-advisory agreement. Investment risks associated with international investing in addition to other risks, include currency fluctuations, political and economic instability, and differences in accounting standards when investing in foreign markets. PERFORMANCE The Global Bond Portfolio returned 17.94 percent* for the year ended December 31, 2002. This compares to the Portfolio's benchmark, the Salomon Brothers World Government Bond Index**, which returned 19.50 percent for the same period. PERFORMANCE ANALYSIS Generally, 2002 was a year of increasingly healthy conditions for Global Bond markets. After a mixed start in the first quarter, when it seemed that there was a likelihood of a strong economic recovery, the trend for the rest of the year was generally positive. The volatility in equity markets certainly had their effect on other markets, but, with the Federal Reserve cutting rates to levels not seen in decades, bond markets managed to shrug off equity woes. The U.S. 10-year bond reached a low yield of 3.70 percent during the year and returned 16 percent; meanwhile, the S & P 500 lost 22 percent. However, the steam in the U.S. market seems to have peaked. The Portfolio benefited substantially with the U.S. dollar declining by double-digit amounts during the year, (4.50 percent in December alone). With a continually growing current account deficit, and a decline in investor appetite to fund this by the purchase of U.S. assets, the outlook for the dollar is for further decline. Returns were excellent for the Portfolio. This was attributable as much to avoidance of pitfalls in certain market sectors, for example the Portfolio had a token exposure to credit in a year when credit experienced something of a meltdown, as it was to the benefits of bond market fundamentals. The combination of improving markets in the Euro zone, and the strengthening of the Euro made for a potent cocktail. The Euro finished the year in the region of 1.05 to the U.S. dollar, up by over 10 percent. We expect further strengthening in 2003. OUTLOOK We remain cautious on the outlook for U.S. Treasuries in the near term, as U.S. growth begins to show signs of life, and given the perception that the Federal Reserve could respond later this year by raising rates. However we feel with inflation under control and the threat of a military strike on Iraq potentially very close, any set back is likely to be modest as we remain more positive on the outlook in Europe where the economic backdrop is more fragile and the ECB is expected to cut interest rates further. We believe the appreciating euro makes this more likely as it continues to tighten monetary conditions in Europe. Elsewhere, we continue to dislike the Japanese Bond market, with 10-year yields close to historic lows. The key event in the near term is likely to be the choice of new Central Bank governor. In terms of the currency markets our key theme going into 2003 continues to be to underweight the dollar. We believe the U.S. has lost its ability to suck in global savings. We expect this will prove to be bad news for the world's biggest debtor. Without a stellar macro performance and a big improvement in return on assets, we think the dollar will weaken by up to 10 percent this year. This forms one of our key strategic views for 2003. We also dislike the yen on a more tactical view. The yen often tends to weaken ahead of the Japanese fiscal year. 30 TEN LARGEST BOND HOLDINGS

MARKET % OF BOND ISSUER VALUE PORTFOLIO - ------ ----------- ------------ Bundesrepublic (Euro)-- 5.000%, 07/04/12 $ 4,474,870 8.7% Bundesrepublic (Euro)-- 3.250%, 02/17/04 3,296,719 6.4% Sweden (Swedish Krona)-- 5.500%, 10/08/12 2,991,636 5.8% Japan Finance Corporation (Japanese Yen)-- 1.550%, 02/21/12 2,542,273 5.0% Buoni Poliennali Del Tesoro (Euro)-- 4.750%, 03/15/06 2,072,326 4.0% Greek Government (Euro)-- 6.300%, 01/29/09 2,068,675 4.0% UK Treasury (British Sterling Pound)-- 9.000%, 07/12/11 1,916,595 3.7% Denmark (Dannish Krona)-- 8.000%, 05/15/03 1,509,752 3.0% U.S. Treasury Bond (U.S. Dollar)-- 6.000%, 02/15/26 1,432,463 2.8% FNMA (U.S. Dollar)-- 6.500%, 01/01/32 1,301,173 2.5% ------------ ---- $ 23,606,482 45.9% ============ ====

[CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN GLOBAL BOND PORTFOLIO, SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year 17.94% Five year 4.76% Since inception (104.54%)

GLOBAL BOND PORTFOLIO SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX CPI 10/1/97 $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 10,008 $ 10,021 $ 10,019 12/31/98 $ 11,626 $ 11,555 $ 10,446 12/31/99 $ 10,719 $ 11,061 $ 10,179 12/31/00 $ 10,870 $ 11,237 $ 10,804 12/31/01 $ 10,706 $ 11,125 $ 10,972 12/31/02 $ 12,627 $ 13,294 $ 11,238

On the chart above you can see how the Global Bond Portfolio's total return compared to the Salomon Brothers World Government Bond Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Global Bond Portfolio (October 1, 1997) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Salomon Brothers World Government Bond Index is a market value-weighted index of government debt securities issued by twelve different nations: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, The Netherlands, Spain, United Kingdom and the United States. The goal of the index is to include all fixed-rate institutionally traded bonds issued by the above governments. The minimum maturity is one year, and the minimum outstanding must be at least $25 million U.S. dollars. Also included in the index are zero-coupon renewable securities. Floating rate and private placement issues are excluded from the index. Returns are available in both U.S. dollars and local currency terms. 31 INDEX 400 MID-CAP PORTFOLIO PERFORMANCE UPDATE [PHOTO OF JIM SEIFERT] JIM SEIFERT, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. The Index 400 Mid-Cap Portfolio seeks to provide investment results generally corresponding to the aggregate price and dividend performance of publicly traded common stocks that comprise the Standard & Poor's 400 MidCap Index (S&P 400) . It is designed to provide an economical and convenient means of maintaining a diversified portfolio in this equity security area as part of an over-all investment strategy. PERFORMANCE The Index 400 Mid-Cap Portfolio posted a return of -15.03 percent* for the year ended December 31, 2002. This compares to the S&P 400 MidCap Index** return of -14.52 percent for the same period. PERFORMANCE ANALYSIS The S&P 400 MidCap Index** ended the year down 14.52 percent. Due in part to a sharp decline in household net worth, post September 11th repercussions, corporate misconduct, and an increase in unemployment. Two of the eleven sectors posted positive returns for the period: Energy (8.20 percent) and Consumer Staples (3.70 percent). Technology led the sectors that detracted from the Index return with a -7.53 percent contribution on a return of -39.10 percent. However, the Communication Services sector ended the year with the worst return: -50.90 percent. OUTLOOK Looking ahead to 2003, we see a moderate acceleration in U.S. economic growth. We expect the pace for growth, however, to remain well below potential as the result of weak business capital spending, a crisis of confidence associated with corporate accounting scandals, and uncertainties associated with global war and the threat of terrorism. In addition, we foresee little help will be forth coming from both Europe and Japan as the result of their long-standing anti-growth tax and regulatory policies. We believe that inflation in most industrial nations to be well below the long-term trend as the result of the overhang of excess global investment in both labor and productive capacity. We expect that currency volatility will also continue as countries seek to increase their competitive advantage by weakening their currencies. Weaker currency, although attractive in the short run, we believe will ultimately reduce a country's standard of living by increasing their domestic prices. The strong U.S. dollar has kept inflation at bay for more than 10 years. However, we feel that current fiscal policies may result in a weaker U.S. dollar in the near term. Stimulative monetary and fiscal policies have generated a limited economic rebound. We anticipate the pace of the rebound will remain subdued by the continued adjustments to the 1990's excess, the substantial declines in the stock market, and the rise in risk premium. As we move through 2003, we expect some of these restraints to dissipate and economic growth to reaccelerate and provide the base for the expansion. Under our forecasted scenario for 2003, we expect that the capital markets should perform marginally better than they did in 2002. We believe that in the upcoming year: * Corporate profits will improve, however, investors will not be convinced until they are both reported and CONFIRMED. It will be important that perception of corporate governance and fiduciary integrity improve before the main street investor feels comfortable reentering the market enmasse. * The Federal Reserve has aggressively eased monetary policy over the past two years, and we expect the highly stimulative policy to remain in place until a OconfirmedO pattern of historic trend growth is evident. Under this circumstance, we believe bonds will remain in a trading range with only moderate upward pressure on the front end of the yield curve as the Fed gradually puts the brakes to its policy of easing. We expect this to happen late in the year. We feel the Fed will probably not complete the process of restoring the funds rate to neutral until 2004 or later. * Corporate credits will very slowly improve as debt is reduced and profits begin to improve. We believe this will result in narrowing yield spreads which consequently will result in corporate bonds outperforming U.S. Treasury bonds. Founding father, Benjamin Franklin once said, "THERE ARE NO GAINS WITHOUT PAINS." All in all, we believe investors will begin to recapture some of the losses incurred over the past three painful years. 32 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - -------- -------- ------------ ---------- Washington Post 625 $ 461,250 1.2% M & T Bank 5,158 409,287 1.0% Affiliated Computer Services, Inc. 7,417 390,505 1.0% Gilead Sciences, Inc. 11,037 375,258 1.0% Symantec Corporation 8,118 328,373 0.8% MidCap S & P Depository Receipt 3,900 306,735 0.8% Weatherford International, Ltd. 7,302 291,569 0.7% Idec Pharmaceuticals Corporation 8,588 284,864 0.7% Microchip Technology, Inc. 11,397 278,657 0.7% National Commerce BanCorporation 11,518 274,704 0.7% ------------ --- $ 3,401,202 8.6% ============ ===

[CHART] Cash and Other Assets/Liabilities 5.00% Communication Services 0.90% Transportation 1.50% Basic Materials 4.50% Capital Goods 6.00% Energy 6.90% Utilities 7.00% Consumer Staples 10.50% Health Care 11.10% Technology 13.20% Consumer Cyclical 13.70% Financial 19.70% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN INDEX 400 MID-CAP PORTFOLIO, S&P 400 MIDCAP INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -15.03% Five year 5.71% Since inception (10/1/97) 5.44%

INDEX 400 MID-CAP PORTFOLIO S&P 400 MIDCAP INDEX CPI 10/1/97 $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 10,006 $ 10,083 $ 10,019 12/31/98 $ 11,675 $ 12,008 $ 10,179 12/31/99 $ 13,541 $ 13,775 $ 10,446 12/31/00 $ 15,714 $ 16,187 $ 10,804 12/31/01 $ 15,546 $ 16,088 $ 10,972 12/31/02 $ 13,209 $ 13,752 $ 11,238

On the chart above you can see how the Index 400 Mid-Cap Portfolio's total return compared to the S&P 400 MidCap Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Index 400 Mid-Cap Portfolio (October 1, 1997) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** S&P 400 MidCap Index consists of 400 domestic stocks chosen for market size (median market capitalization of about $610 million), liquidity and industry group representation. It is a market-weighted index (stock price times shares outstanding), with each stock affecting the index in proportion to its market value. + "Standard & Poor's", "S&P", "Standard & Poor's MidCap 400" and "S&P MidCap 400" are trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by the Advantus Series Fund, Inc.- Index 400 Mid-Cap Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio. 33 MACRO-CAP VALUE PORTFOLIO PERFORMANCE UPDATE [PHOTO OF HENRY D. CAVANNA] [PHOTO OF JONATHAN GOLUB] [PHOTO OF JAMES RUSSO] HENRY D. CAVANNA, JONATHAN GOLUB AND JAMES RUSSO, CFA PORTFOLIO MANAGERS J.P. MORGAN INVESTMENT MANAGEMENT, INC. The Macro-Cap Value Portfolio seeks to provide high total return. It pursues this objective by investing in equity securities that the sub-adviser believes, through the use of dividend discount models, to be undervalued relative to their long-term earnings power, creating a diversified portfolio of equity securities which typically will have a price/earnings ratio and price to book ratio that reflects a value orientation. While Advantus Capital Management, Inc. acts as investment adviser for the Portfolio, J.P. Morgan Investment Management, Inc. provides investment advice to the Macro-Cap Value Portfolio under a subadvisory agreement. PERFORMANCE The Macro-Cap Value Portfolio returned -28.14 percent* for the year ended December 31, 2002. The S&P 500 Index** returned -22.10 percent for the same period. PERFORMANCE ANALYSIS The nation's equity markets hit a multi-year low on October 9th, then rallied strongly until the end of November, as investors welcomed actual earnings that slightly exceeded reduced forecasts. They also applauded the Fed's surprising 50 basis point (.50 percent) rate cut on November 6. In December, however, equities gave back roughly half their October-November gains, as investors grew cautious over the slow pace of U.S. economic recovery and renewed geopolitical friction. The Portfolio began the reporting period trailing the benchmark's performance for the first quarter as solid stock selection in Systems Hardware, Semiconductors and Consumer Staples was negated by difficulties in Services, Telecommunications and Pharmaceuticals. As the reporting period ended, strong stock selection within the Software and Services, Health Services and Systems and Insurance sectors were offset by weakness within the Retail, Consumer Cyclicals and Telecommunications sectors. OUTLOOK We believe it increasingly appears likely that the U.S. economy will find its footing over the course of 2003. We feel corporations have strengthened balance sheets and cut costs to the bone. We also feel the Fed is clearly committed to restoring growth. We think a fiscal stimulus package soon to be before Congress could unleash considerable liquidity. However, we believe geopolitical risks will likely keep investors cautious until major, outstanding issues are resolved. If they are, we feel 2003 could be the first positive year in four for U.S. equities. 34 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ------------ ---------- CitiGroup, Inc. 24,226 $ 852,513 4.3% Microsoft Corporation 15,700 811,690 4.1% General Electric Company 30,800 749,980 3.8% Exxon Mobil Corporation 14,648 511,801 2.6% Pfizer, Inc. 16,100 492,177 2.5% Chevron Corporation 6,700 445,416 2.2% U.S. Bancorp 20,910 443,710 2.2% Tyco International, Ltd. 25,320 432,466 2.2% Cisco Systems, Inc. 32,500 425,750 2.2% Wal-Mart Stores, Inc. 8,300 419,233 2.1% ------------ ---- $ 5,584,736 28.2% ============ ====

[CHART] Cash and Other Assets/Liabilities 3.20% Basic Materials 3.30% Utilities 3.30% Communication Services 6.70% Energy 6.80% Capital Goods 9.10% Consumer Staples 9.80% Health Care 10.70% Consumer Cyclical 11.70% Technology 14.90% Financial 20.50% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN MACRO-CAP VALUE PORTFOLIO, S&P 500 INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -28.14% Five year -4.17% Since inception (10/15/97) -4.40%

MACRO-CAP VALUE PORTFOLIO S&P 500 INDEX CPI 10/15/97 $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 9,787 $ 10,287 $ 10,019 12/31/98 $ 11,973 $ 13,227 $ 10,179 12/31/99 $ 12,831 $ 16,006 $ 10,446 12/31/00 $ 11,931 $ 14,543 $ 10,804 12/31/01 $ 11,007 $ 12,813 $ 10,972 12/31/02 $ 7,910 $ 9,981 $ 11,238

On the chart above you can see how the Macro-Cap Value Portfolio's total return compared to the S&P 500 Index (as adjusted for dividend reinvestment) and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Macro-Cap Value Portfolio (October 15, 1997) through December 31, 2002 and on October 1, 1997 through December 31, 2002 for the S&P 500 Index and the Consumer Price Index. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. + Price/earnings ratio is the price of a stock divided by its annual earnings per share. ++ Price/book ratio is a ratio of a stock's current price to the company's net worth per share. 35 MICRO-CAP GROWTH PORTFOLIO PERFORMANCE UPDATE [PHOTO OF WILLIAM JEFFREY III] [PHOTO OF KENNETH F. MCCAIN] [PHOTO OF DAVID A. BARATTA] WILLIAM JEFFREY III, KENNETH F. MCCAIN AND DAVID A. BARATTA PORTFOLIO MANAGERS WALL STREET ASSOCIATES The Micro-Cap Growth Portfolio seeks long-term capital appreciation. It pursues this objective by investing primarily in equity securities of smaller companies which the sub-adviser believes are in an early stage or transitional point in their development and have demonstrated or have the potential for above average revenue growth. It will invest primarily in common stocks and stock equivalents of micro-cap companies. While Advantus Capital Management, Inc. acts as investment adviser for the Portfolio, Wall Street Associates provides investment advice to the Micro-Cap Growth Portfolio under a subadvisory agreement. Portfolios have varying degrees of risk. Investments in smaller company and micro-cap stocks carry a higher level of volatility and risk over the short-term. Refer to the prospectus for portfolio risks associated with each investment option. PERFORMANCE The Micro-Cap Growth Portfolio posted a return of -43.64 percent* for the year ended December 31, 2002. By comparison, the Russell 2000 Growth Index** posted a return of -30.26 percent for the same period. PERFORMANCE ANALYSIS Investors suffered a third consecutive year of stock market decline in 2002 ~ something that has not happened in more than 60 years. The Russell 2000 Growth Index** endured its worst annual decline since the inception of the benchmark. The index declined 30.26 percent and posted negative returns in every economic sector. Technology (-50 percent) and Health Care (-39 percent) stocks were the largest detractors from performance. Consumer Discretionary and Telecom stocks also declined significantly. The one bright spot was the Energy sector where the Portfolio was significantly overweight and stock selection provided positive returns. After gaining more than 26 percent in the fourth quarter of 2001, small-cap growth stocks as a group posted lackluster results in the first quarter of the year. Investments in the Health Care and Technology sectors declined significantly during the quarter, while investments in the Energy sector soared as commodity prices rose. Producer Durables (including semi-conductor capital equipment companies) also performed well and Consumer stocks posted modest gains. The stock market fell precipitously in the second quarter as the Enron and WorldCom fiascos, coupled with the ongoing threat of terrorism, caused investors to seek the safety of Treasury bonds. Investments in the Health Care and Technology sectors again produced the largest drag on Portfolio performance while investments in the Consumer and Energy sectors proved to be beneficial as they declined less than the broad market. In the third quarter, stocks posted double-digit declines across all capitalization and style segments and suffered the worst quarterly decline since the 1987 crash. The anticipation of disappointing third quarter profits, a potential war with Iraq and the ongoing saga of corporate corruption caused investors to flee the equity market. Growth stocks rallied in October and November, but posted negative results in December. Despite the year-end sell off, Technology stocks were the top performers during the quarter and all economic sectors were in positive territory. Virtually all sectors in the Portfolio posted positive returns for the quarter with several sectors posting double-digit gains. Investments in the Technology and Producer Durables sectors produced the largest gains. Investments in the Consumer sector were modest as consumer spending declined during the quarter. Value was added via the Portfolio's overweight position in Technology and Energy. OUTLOOK We feel the positive factors are: * The economy is showing signs of recovery. * Corporate profits are slowly increasing and should continue to do so. * Inflation is not a concern. * Housing remains strong. * Interest rates remain low. We feel the potential risks to the recovery are: * War with Iraq or North Korea. * Terrorism remains a threat. * Capital spending is still slow. * Consumer spending has slowed. We believe that the economy will continue to recover, as will stock prices. We feel corporate balance sheets are improving and we anticipate continued modest earnings gains. We expect even a small improvement in profitability and somewhat healthier corporate balance sheets should provide for a recovery in capital spending. We feel valuations are attractive, especially for growth stocks. We anticipate that smaller capitalization growth stocks will lead the recovery and ultimately outperform, as they have historically done during such periods. We have invested the Portfolio in those areas that we believe offer the greatest potential for growth. The Portfolio will have a continued emphasis on the Technology, Health Care and Consumer sectors. Additionally, we will continue to overweight the Energy sector, which we expect will produce dramatic gains due to the supply/demand imbalance for natural gas. 36 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ------------ ----------- Connetics Corporation 59,000 $ 709,180 3.1% Ultra Petroleum Corporation 62,700 620,730 2.7% Superior Energy Services, Inc. 67,900 556,780 2.5% Hydril Company 23,200 546,824 2.4% Coinstar, Inc. 22,800 516,420 2.3% Artisan Components, Inc. 31,500 486,045 2.1% aaiPharma, Inc. 34,400 482,288 2.1% Evergreen Resources, Inc. 10,700 479,895 2.1% Multimedia Games, Inc. 16,400 450,344 2.0% Red Robin Gourmet Burgers 33,800 430,612 1.9% ------------ ---- $ 5,279,118 23.2% ============ ====

[CHART] Cash and Other Assets/Liabilities 7.00% Transportation 0.10% Communication Services 0.80% Financial 0.90% Basic Materials 1.20% Capital Goods 5.30% Consumer Staples 9.40% Energy 9.70% Consumer Cyclical 15.50% Health Care 23.10% Technology 27.00% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN MICRO-CAP GROWTH PORTFOLIO, RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year -43.64% Five year 2.17% Since inception (10/1/97) -0.65%

MICRO-CAP GROWTH PORTFOLIO RUSSELL 2000 GROWTH INDEX CPI 10/1/97 $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 8,680 $ 9,181 $ 10,019 12/31/98 $ 9,846 $ 9,295 $ 10,179 12/31/99 $ 24,494 $ 13,301 $ 10,446 12/31/00 $ 19,338 $ 10,318 $ 10,804 12/31/01 $ 17,147 $ 9,365 $ 10,972 12/31/02 $ 9,664 $ 6,531 $ 11,238

On the chart above you can see how the Micro-Cap Growth Portfolio's total return compared to the Russell 2000 Growth Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Micro-Cap Growth Portfolio (October 1, 1997) through December 31, 2002. * Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. ** The Russell 2000 Growth Index contains those stocks from the Russell 2000 with a greater than average growth orientation. The Russell 2000 Value Index contains those stocks from the Russell 2000 with a low price to book ratio. The Russell 2000 is the 2,000 smallest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market. 37 REAL ESTATE SECURITIES PORTFOLIO PERFORMANCE UPDATE [PHOTO OF JOE BETLEJ] JOE BETLEJ, CFA PORTFOLIO MANAGER The Real Estate Securities Portfolio seeks above-average income and long-term growth of capital. The Portfolio intends to pursue its objective by investing primarily in equity securities of companies in the real estate industry. Investment risks associated with investing in the Real Estate Portfolio, in addition to other risks, include rental income fluctuations, depreciation, property tax value changes, and differences in real estate market value. PERFORMANCE The Real Estate Securities Portfolio earned a total return of 6.97 percent* for the year ended December 31, 2002. The Portfolio's performance compares to the Wilshire Associates Real Estate Securities Index (WARESI)**, which provided a return of 2.64 percent over the same period. PERFORMANCE ANALYSIS 2002 was a story of two seasons for real estate securities. During the first five months of the year, real estate stocks were considered a defensive place to hide within the turbulence of the broader equity markets. The high dividends and discounts to the underlying value of assets made investing in this group very attractive to the market. Our benchmark Index, the Wilshire Associates Real Estate Securities Index, peaked in May at approximately fourteen percent. Subsequently, these stocks corrected as valuations reflected the deteriorating real estate fundamentals. By year end, our benchmark was up only 2.64 percent--effectively down on a price-only basis. We were fortunate that our style stresses fundamental analysis, which steered us away from lesser quality property types and focused us on stocks that have the best potential. There was a tremendous disparity in performance among different property types during the year. The best performing sectors were those with solid operating fundamentals, including Outlet Malls (up 32 percent), Regional Malls (up 24 percent), and Industrial companies (up 16 percent). Property types with increasing vacancies and deteriorating rental rates were the worst performers. These included C-corporation Hotels (down 17 percent), Apartments (down 6 percent), and Manufactured Home Community companies (down 6 percent). We were fortunate to be over four percent overweight versus our benchmark Index in the best performing property types, and underweight nearly 7 percent in the three worst performing groups. This positioning significantly enhanced performance for the year. OUTLOOK When looked at in the aggregate, we feel valuation of most property types reflects the current state of the economy and the underlying fundamentals. We believe apartments, however, are an exception as investors have deemed this group as "first to recover", and therefore are placing an extraordinarily high multiple on this group while fundamentals continue to deteriorate. We remain significantly underweight to apartments as we see continued new development without significant job growth to generate demand for new apartments. We are skeptical of an earnings rebound in Apartments in the near term as we anticipate further reductions in collected rents at properties. In this context of valuation, we expect that 2003 will be a year of stockpicking. In our opinion individual companies that have business plans that will exceed earnings consensus or those trading at significant discounts to underlying value of assets will show outperformance, regardless of economic conditions. We are waiting to see Othe whites of their eyesO in terms of the economic recovery before we will be significantly aggressive on real estate stocks, as we feel their fundamentals lag the economy. In most instances, we will avoid companies with high lease turnover, big development pipelines, weak tenant credit and lesser-quality balance sheets until signs that real estate occupancies and rental rates have bottomed. We thank you for your continued confidence. 38 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ------------ ----------- Prologis 85,700 $ 2,155,355 6.6% General Growth Properties, Inc. 23,200 1,206,400 3.7% Simon Property Group, Inc. 35,100 1,195,857 3.7% Brookfield Properties Corporation 57,000 1,151,400 3.6% Equity Office Properties Trust 45,400 1,134,092 3.5% Carramerica Realty Corporation 43,100 1,079,655 3.3% The Rouse Company 32,000 1,014,400 3.1% Apartment Investment & Management Company 26,960 1,010,461 3.1% Developers Diversified Realty Corporation 44,000 967,560 3.0% P.S. Business Parks, Inc. 27,900 887,220 2.7% ------------ ---- $ 11,802,400 36.3% ============ ====

[CHART] Consumer Cyclical 2.00% Real Estate 11.10% Real Estate Investment Trust-Apartments 10.30% Real Estate Investment Trust-Diversified 9.50% Real Estate Investment Trust-Hotels 4.70% Real Estate Investment Trust-Office Property 17.30% Real Estate Investment Trust-Shopping Centers 28.10% Real Estate Investment Trust-Warehouse/Industrial 13.00% Cash and Other Assets/Liabilities 4.00% [CHART] COMPARISON OF CHANGE IN INVESTMENT VALUE* A HYPOTHETICAL $10,000 INVESTMENT IN REAL ESTATE SECURITIES PORTFOLIO, WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX SEC AVERAGE ANNUAL TOTAL RETURN: One year 6.97% Since inception (5/1/98) 4.15%

REAL ESTATE SECURITIES PORTFOLIO WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX CPI 5/1/98 $ 10,000 $ 10,000 $ 10,000 12/31/98 $ 8,510 $ 8,568 $ 10,098 12/31/99 $ 8,179 $ 8,294 $ 10,362 12/31/00 $ 10,274 $ 10,843 $ 10,718 12/31/01 $ 11,305 $ 11,964 $ 10,884 12/31/02 $ 12,092 $ 12,280 $ 11,148

On the chart above you can see how the Real Estate Securities Portfolio's total return compared to the Wilshire Associates Real Estate Securities Index and the Consumer Price Index. The three lines represent the total return of a hypothetical $10,000 investment made on the inception date of the Real Estate Securities Portfolio (May 1, 1998) through December 31, 2002. *Historical performance is not an indication of future performance. Investment returns on principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. Performance figures of the Portfolio do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. **The Wilshire Associates Real Estate Securities Index is a market capitalization-weighted index of equity securities whose primary business is equity ownership of commercial real estate (REITS). 39 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Advantus Series Fund, Inc. We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation, International Stock, Small Company Growth, Maturing Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth and Real Estate Securities Portfolios of Advantus Series Fund, Inc. as of December 31, 2002, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and the financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation, International Stock, Small Company Growth, Maturing Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth and Real Estate Securities Portfolios of Advantus Series Fund, Inc. as of December 31, 2002 and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota February 7, 2003 40 Growth Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) ------ ------------ COMMON STOCK (98.3%) BASIC MATERIALS (.6%) Chemicals (.6%) 29,700 Air Products and Chemicals, Inc. $ 1,269,675 ------------ CAPITAL GOODS (8.1%) Aerospace/Defense (.9%) 11,500 Lockheed Martin Corporation 664,125 18,600 United Technologies Corporation 1,152,084 ------------ 1,816,209 ------------ Electrical Equipment (4.7%) 378,600 General Electric Company 9,218,910 ------------ Manufacturing (2.5%) 30,700 3M Company 3,785,310 68,100 Tyco International, Ltd. (c) 1,163,148 ------------ 4,948,458 ------------ COMMUNICATION SERVICES (1.3%) Telecommunication (1.3%) 67,900 Qualcomm, Inc. (b) 2,470,881 ------------ CONSUMER CYCLICAL (14.5%) Auto (2.5%) 20,600 Danaher Corporation 1,353,420 15,300 Eaton Corporation 1,195,083 30,600 Harley-Davidson, Inc. 1,413,720 29,200 Lear Corporation (b) 971,776 ------------ 4,933,999 ------------ Leisure (1.2%) 118,100 Brunswick Corporation 2,345,466 ------------ Retail (9.6%) 19,200 Autozone, Inc. (b) 1,356,480 37,200 Bed Bath & Beyond, Inc. (b) 1,284,516 32,025 eBay, Inc. (b) 2,171,935 75,200 Family Dollar Stores 2,346,992 31,100 Fastenal Company 1,162,829 28,400 Kohl's Corporation (b) 1,588,980 85,000 Lowes Companies, Inc. 3,187,500 117,000 Wal-Mart Stores, Inc. 5,909,670 ------------ 19,008,902 ------------ Service (1.2%) 35,300 Harrah's Entertainment, Inc. (b) 1,397,880 64,300 Robert Half International, Inc. (b) $ 1,035,873 ------------ 2,433,753 ------------ CONSUMER STAPLES (13.5%) Beverage (4.0%) 38,000 Anheuser-Busch Companies, Inc. 1,839,200 70,790 Pepsico, Inc. 2,988,754 72,400 The Coca-Cola Company 3,172,568 ------------ 8,000,522 ------------ Broadcasting (1.1%) 60,000 Clear Channel Communications, Inc. (b) 2,237,400 ------------ Entertainment (.9%) 42,000 Viacom, Inc. (b) 1,711,920 ------------ Food (.5%) 23,000 Kraft Foods, Inc. 895,390 ------------ Food & Health (.5%) 34,000 Sysco Corporation 1,012,860 ------------ Household Products (4.2%) 75,300 Colgate-Palmolive Company 3,947,979 50,600 Procter & Gamble Company 4,348,564 ------------ 8,296,543 ------------ Restaurants (.7%) 71,900 Darden Restaurants, Inc. 1,470,355 Retail (.7%) 47,400 Walgreen Company 1,383,606 ------------ Service (.5%) 24,000 Automatic Data Processing, Inc. 942,000 ------------ Tobacco (.4%) 19,400 Philip Morris Companies, Inc. 786,282 ------------ ENERGY (2.7%) Oil & Gas (2.7%) 40,200 Ensco International, Inc. 1,183,890 13,900 EOG Resources, Inc. 554,888 52,960 Nabors Industries, Ltd. (b)(c) 1,867,899 30,100 Smith International, Inc. (b) 981,862

See accompanying notes to investments in securities. 41

MARKET SHARES VALUE(a) - ------ ------------ ENERGY--CONTINUED 49,400 Veritas DGC, Inc. (b) $ 771,628 ------------ 5,360,167 ------------ FINANCIAL (10.2%) Banks (3.1%) 14,300 Bank of America Corporation 994,851 43,900 Fifth Third BanCorporation 2,570,345 13,900 State Street Corporation 542,100 31,000 Wells Fargo & Company 1,452,970 16,300 Zion BanCorporation 641,389 ------------ 6,201,655 ------------ Consumer Finance (1.7%) 36,400 American Express Company 1,286,740 60,300 MBNA Corporation 1,146,906 9,900 SLM Corporation 1,028,214 ------------ 3,461,860 ------------ Finance-- Diversified (1.1%) 38,400 Freddie Mac 2,267,520 ------------ Insurance (2.5%) 45,900 American International Group 2,655,315 39,100 Expeditor Washington International, Inc. 1,276,615 24,200 Marsh and McLennan Companies, Inc. 1,118,282 ------------ 5,050,212 ------------ Investment Bankers/Brokers (1.8%) 43,700 CitiGroup, Inc. (b) 1,537,803 14,000 Goldman Sachs Group, Inc. 953,400 36,400 T. Rowe Price Associates, Inc. 992,992 ------------ 3,484,195 ------------ HEALTH CARE (24.3%) Biotechnology (2.5%) 95,500 Amgen, Inc. (b) 4,616,470 9,400 Genentech, Inc. (b) 311,704 ------------ 4,928,174 ------------ Drugs (10.5%) 46,500 Eli Lilly & Company 2,952,750 17,000 Forest Laboratories, Inc. (b) 1,669,740 422,325 Pfizer, Inc. 12,910,475 88,100 Wyeth $ 3,294,940 ------------ 20,827,905 ------------ Health Care-- Diversified (5.3%) 70,500 Abbott Laboratories 2,820,000 144,700 Johnson & Johnson 7,771,837 ------------ 10,591,837 ------------ Hospital Management (.4%) 18,100 The HCA - Healthcare Company 751,150 ------------ Managed Care (1.0%) 31,000 Express Scripts, Inc. (b) 1,489,240 5,200 Unitedhealth Group, Inc. 434,200 ------------ 1,923,440 ------------ Medical Products/Supplies (4.1%) 15,000 AmerisourceBergen Corporation 814,650 13,700 Boston Scientific Corporation (b) 582,524 56,500 Medtronic, Inc. 2,576,400 54,400 St. Jude Medical, Inc. (b) 2,160,768 50,300 Zimmer Holdings, Inc. (b) 2,088,456 ------------ 8,222,798 ------------ Special Services (.5%) 33,700 Fisher Scientific International, Inc. 1,013,696 ------------ TECHNOLOGY (22.7%) Communications Equipment (.8%) 38,500 Brocade Communication Systems, Inc. (b) 159,390 85,900 Nokia Oyj (c) 1,331,450 ------------ 1,490,840 ------------ Computer Hardware (3.5%) 110,140 Dell Computer Corporation (b) 2,945,144 40,100 International Business Machines Corporation 3,107,750 109,800 Symbol Technologies, Inc. 902,556 ------------ 6,955,450 ------------ Computer Networking (2.6%) 7,200 Affiliated Computer Services, Inc. (b) 379,080 360,084 Cisco Systems, Inc. (b) 4,717,100 ------------ 5,096,180 ------------

See accompanying notes to investments in securities. 42

MARKET SHARES VALUE(a) ------ ------------- TECHNOLOGY--CONTINUED Computer Peripherals (.2%) 56,800 EMC Corporation (b) $ 348,752 ------------- Computer Services & Software (7.7%) 93,800 AOL Time Warner, Inc. (b) 1,228,780 37,800 BEA Systems, Inc. (b) 433,566 5,602 Electronic Arts, Inc. (b) 278,812 197,500 Microsoft Corporation (b) 10,210,750 189,600 Oracle Systems (b) 2,047,680 12,700 Peoplesoft, Inc. (b) 232,410 12,777 Sungard Data Systems, Inc. (b) 301,026 14,400 Symantec Corporation (b) 582,480 ------------- 15,315,504 ------------- Electrical Semiconductor (4.7%) 24,200 Altera Corporation (b) 298,628 15,732 Analog Devices, Inc. (b) 375,523 108,542 Applied Materials, Inc. (b) 1,414,302 30,500 Entegris, Inc. (b) 314,150 214,490 Intel Corporation 3,339,609 14,597 Linear Technology Corporation 375,435 18,096 Microchip Technology, Inc. 442,447 12,900 Novellus Systems, Inc. (b) $ 362,232 133,857 Texas Instruments, Inc. 2,009,194 16,000 Xilinx, Inc. (b) 329,600 ------------- 9,261,120 ------------- Electronics-- Computer Distribution (1.1%) 14,172 Maxim Integrated Products (b) 468,243 34,700 WW Grainger, Inc. 1,788,785 ------------- 2,257,028 ------------- Equipment Semiconductor (.3%) 17,313 KLA-Tencor Corporation (b) 612,361 ------------- Service-- Data Processing (1.8%) 85,100 First Data Corporation 3,013,391 22,500 Paychex, Inc. 627,750 ------------- 3,641,141 ------------- TRANSPORTATION (.4%) Air Freight (.4%) 11,600 United Parcel Service, Inc. 731,728 ------------- Total common stock (cost: $195,051,795) 194,977,844 -------------

See accompanying notes to investments in securities. 43

MARKET SHARES VALUE(a) ------ ------------- S & P DEPOSITORY RECEIPT (.5%) 10,900 S & P Depository Receipt $ 962,361 ------------- Total S & P Depository Receipt (cost: $889,495) 962,361 ------------- SHORT-TERM SECURITIES (1.8%) 69 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.370% 69 3,560,308 Provident Institutional Fund-- TempFund Portfolio, current rate 1.220% 3,560,308 95,336 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 95,336 ------------- Total short-term securities (cost: $3,655,713) 3,655,713 ------------- Total investments in securities (cost: $199,597,003) (d) $ 199,595,918 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 2.2% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $211,096,244. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 12,437,132 Gross unrealized depreciation (23,937,458) ------------- Net unrealized depreciation $ (11,500,326) ============= See accompanying notes to investments in securities. 44 Bond Portfolio Investments In Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- -------------- LONG-TERM DEBT SECURITIES (97.2%) GOVERNMENT OBLIGATIONS (42.4%) U.S. Government and Agencies Obligations (41.5%) Federal Home Loan Mortgage Corporation (FHLMC) (4.2%) $ 2,750,000 2.500% 04/22/05 $ 2,768,326 3,000,000 2.750% 12/30/05 3,022,353 1,750,000 (g) 5.500% 12/01/17 1,818,086 1,828,386 6.000% 09/01/32 1,893,244 759,963 6.500% 06/01/29 792,056 1,188,861 6.500% 09/01/32 1,238,926 -------------- $ 11,532,991 -------------- Federal National Mortgage Association (FNMA) (27.8%) 2,150,000 2.750% 05/04/05 2,171,403 700,000 3.100% 05/19/06 703,943 539,785 5.500% 09/01/17 560,436 1,099,793 5.500% 11/01/17 1,141,870 2,937,400 6.000% 09/01/17 3,073,781 3,419,013 6.000% 10/01/32 3,539,229 2,159,708 6.000% 10/01/32 2,235,646 3,622,100 6.000% 11/01/32 3,749,457 1,000,000 (g) 6.000% 01/01/33 1,033,438 1,666,808 6.230% 01/01/08 1,839,605 288,699 6.500% 10/01/28 303,209 2,270,731 6.500% 12/01/31 2,365,407 1,135,957 6.500% 02/01/32 1,183,320 584,525 6.500% 02/01/32 608,886 1,115,926 6.500% 03/01/32 1,162,433 899,003 6.500% 03/01/32 936,470 3,394,487 6.500% 04/01/32 3,535,956 2,192,840 6.500% 07/01/32 2,284,229 1,336,937 6.500% 05/01/32 1,400,183 2,962,623 6.500% 08/01/32 3,086,093 1,388,968 6.500% 09/01/32 1,446,855 634,775 6.500% 09/01/32 661,230 8,453,342 6.500% 09/01/32 8,805,644 2,183,453 6.500% 10/01/32 2,274,451 2,778,473 7.000% 07/01/31 2,939,794 4,098,522 7.000% 09/01/31 4,336,539 358,548 7.000% 09/01/31 377,137 4,206,527 7.000% 11/01/31 4,424,610 1,309,372 7.000% 02/01/32 1,385,434 3,309,176 7.000% 02/01/32 3,480,621 501,850 7.000% 03/01/32 531,003 4,341,671 7.000% 06/01/32 4,566,609 1,793,881 7.000% 07/01/32 1,886,820 1,899,821 7.500% 04/01/31 2,030,751 786,774 7.500% 05/01/31 840,955 -------------- 76,903,447 --------------

See accompanying notes to investments in securities. 45

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ --------- -------------- GOVERNMENT OBLIGATIONS--CONTINUED Government National Mortgage Association (GNMA) (2.7%) $ 2,596,115 6.000% 02/17/30 $ 2,642,712 1,132,816 6.500% 07/15/32 1,189,790 977,840 6.500% 07/15/32 1,027,019 255,161 7.000% 11/15/23 272,428 171,540 7.000% 05/15/26 182,611 1,500,000 7.099% 07/13/07 1,636,809 491,800 7.500% 10/15/28 525,138 44,810 8.500% 10/15/22 49,350 54,490 8.500% 12/15/22 60,010 -------------- 7,585,867 -------------- U.S. Treasury (6.8%) 2,975,050 Inflationary Index Bond (f) 3.375% 01/15/07 3,211,412 1,825,000 Bond 5.250% 02/15/29 1,907,054 3,850,000 Bond 5.500% 08/15/28 4,159,806 5,350,000 Bond 6.000% 02/15/26 6,130,977 2,895,000 Bond 6.125% 08/15/29 3,398,684 -------------- 18,807,933 -------------- Other Government Obligations (.9%) 1,000,000 Manitoba (b) 2.750% 01/17/06 1,008,765 1,500,000 Quebec Province of Canada (b) 5.500% 04/11/06 1,599,609 -------------- 2,608,374 -------------- Total government obligations (cost: $114,057,968) 117,438,612 -------------- CORPORATE OBLIGATIONS (54.8%) BASIC MATERIALS (4.8%) Agriculture Products (1.8%) 2,050,000 Archer-Daniels-Midland Company 7.000% 02/01/31 2,360,468 2,250,000 Cargill, Inc. 144A Issue (d) 6.375% 06/01/12 2,519,129 -------------- 4,879,597 -------------- Aluminum (1.0%) 2,750,000 Alcoa, Inc. 4.250% 08/15/07 2,863,146 -------------- Construction (1.0%) 2,500,000 Vulcan Materials, Inc. 6.400% 02/01/06 2,763,747 -------------- Paper and Forest (1.0%) 2,500,000 Weyerhaeuser Company 6.000% 08/01/06 2,637,985 -------------- CAPITAL GOODS (.9%) Aerospace/Defense (.9%) 2,500,000 B.F. Goodrich Company 7.625% 12/15/12 2,581,432 -------------- CONSUMER CYCLICAL (2.3%) Publishing (1.2%) 2,000,000 Gannett Company, Inc. 5.500% 04/01/07 2,174,986 1,000,000 Scholastic Corporation 5.750% 01/15/07 1,067,135 -------------- 3,242,121 --------------

See accompanying notes to investments in securities. 46

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ --------- -------------- CONSUMER CYCLICAL--CONTINUED Retail (.5%) $ 1,250,000 Kohl's Corporation 6.000% 01/15/33 $ 1,256,637 -------------- Service (.6%) 1,750,000 Hertz Corporation 7.625% 06/01/12 1,670,434 -------------- CONSUMER STAPLES (4.1%) Beverage (.8%) 2,300,000 Diageo Capital PLC (b) 3.500% 11/19/07 2,311,721 -------------- Broadcasting (2.4%) 2,935,000 TCI Communications Inc 6.375% 05/01/03 2,935,205 3,500,000 USA Interactive 7.000% 01/15/13 3,619,084 -------------- 6,554,289 -------------- Food (.9%) 2,450,000 Unilever Capital Corporation 5.900% 11/15/32 2,506,188 -------------- ENERGY (1.0%) Oil (1.0%) 2,500,000 Husky Energy, Inc. (b) 6.250% 06/15/12 2,688,777 -------------- FINANCIAL (34.0%) Asset-Backed Securities (2.2%) 1,046,455 First Marble Head 7.240% 09/20/14 1,093,712 1,000,000 Fortress CBO Investments I, Ltd. 144A Issue (c) 7.850% 07/25/38 1,107,020 3,550,000 Metropolitan Asset Funding 144A Issue (d) 7.525% 04/20/27 3,850,831 -------------- 6,051,563 -------------- Auto Finance (1.6%) 1,750,000 AmeriCredit Corporation (h) 1.700% 03/06/07 1,757,747 2,750,000 General Motors Acceptance Corporation 6.125% 08/28/07 2,782,640 -------------- 4,540,387 -------------- Banks (2.2%) 3,400,000 St. George Bank Capital Note 144A Issue (b) (c) 8.485% 12/29/49 3,658,716 2,100,000 Wells Fargo & Company 7.550% 06/21/10 2,499,071 -------------- 6,157,787 -------------- Collateralized Mortgage Obligations/Mortgage Revenue Bonds (9.5%) 687,033 BA Mortgage Securities, Inc. 6.500% 06/25/13 719,231 1,095,689 Banco Hipotecario Nacional 144A Issue (b) (c) (i) 7.916% 07/25/09 273,922 962,052 Chase Mortgage Finance Corporation 6.500% 09/25/13 994,787 2,348,374 Chase Mortgage Finance Corporation 6.750% 08/25/28 2,404,698 758,246 CitiCorporation Mortgage Securities, Inc. 6.750% 03/25/25 784,090 1,749,606 Countrywide Home Loan 6.500% 06/25/13 1,798,564 796,186 Countrywide Mortgage Backed Securities, Inc. 6.750% 03/25/24 812,426 973,653 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.500% 04/25/24 994,945 1,994,159 GMAC Commercial Mortgage Securities, Inc. 144A Issue (d) 7.350% 10/15/06 2,214,703 1,719,393 Mellon Residential Funding 6.750% 06/26/28 1,780,690 1,705,950 Nationsbanc Montgomery Funding 6.000% 11/25/13 1,805,526

See accompanying notes to investments in securities. 47

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- -------------- FINANCIAL--CONTINUED $ 1,012,225 Norwest Asset Securities Corporation 7.000% 06/25/12 $ 1,023,278 442,999 Paine Webber Mortgage Acceptance Corporation 144A Issue (d) 6.278% 05/29/14 454,714 2,500,000 Paine Webber Mortgage Acceptance Corporation 144A Issue (d) 7.655% 01/02/12 2,735,440 839,396 Park Avenue Finance Corporation 144A Issue (d) 7.580% 05/12/07 943,751 2,400,000 Park Avenue Finance Corporation 144A Issue (d) 7.680% 05/12/07 2,748,389 1,000,794 Prudential Home Mortgage Securities 6.050% 04/25/24 1,023,702 910,992 Prudential Home Mortgage Securities 144A Issue (d) 6.582% 04/28/24 924,611 1,716,810 Residential Funding Mortgage Securities 6.500% 01/25/29 1,773,048 -------------- 26,210,515 -------------- Commercial Finance (1.0%) 2,500,000 General Electric Capital Corporation 6.750% 03/15/32 2,763,975 -------------- Commercial Mortgage-Backed Securities (2.6%) -- Asset Securitization Corporation (e) 7.250% 04/14/29 1,524,191 -- Asset Securitization Corporation 144A Issue (d) (e) 6.500% 10/13/26 1,367,041 1,000,000 Eastview Credit 144A Issue (d) 6.950% 06/15/04 1,033,456 795,818 Nationsbanc Montgomery Funding 6.000% 11/25/13 823,091 2,500,000 Sequoia Mortgage Funding Company 144A Issue (d) 6.380% 07/31/31 2,515,625 -------------- 7,263,404 -------------- Consumer Finance (4.5%) 2,750,000 Citibank Credit Card Issuance Trust (h) 1.856% 12/15/05 2,748,850 1,400,000 Fleet Credit Card Master Trust II (h) 1.560% 04/15/10 1,400,678 2,667,897 Green Tree Financial Corporation 6.400% 10/15/18 2,759,155 2,800,000 Green Tree Financial Corporation 8.300% 05/15/19 2,928,078 2,500,000 Household Finance Corporation (h) 3.300% 12/16/04 2,498,078 -------------- 12,334,839 -------------- Corporate Bonds (.3%) 640,481 Associates Manufactured Housing 6.900% 06/15/27 674,605 -------------- Finance-- Diversified (1.0%) 2,750,000 TIAA Global Markets 144A Issue (c) 4.125% 11/15/07 2,844,537 -------------- Insurance (4.6%) 2,750,000 American International Group 144A Issue (d) 3.850% 11/26/07 2,819,553 2,650,000 MetLife, Inc. 6.500% 12/15/32 2,750,504 2,200,000 Principal Life Global 144A Issue (d) 6.250% 02/15/12 2,331,980 1,750,000 Prudential Insurance Company of America 144A Issue (d) 6.600% 05/15/08 1,936,827 2,900,000 Stancorp Financial Group, Inc. 6.875% 10/01/12 2,970,806 -------------- 12,809,670 -------------- Investment Bankers/Brokers (.3%) 850,000 Morgan Stanley 6.750% 04/15/11 944,579 --------------

See accompanying notes to investments in securities. 48

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ --------- -------------- FINANCIAL--CONTINUED Real Estate Investment Trust (3.1%) $ 1,250,000 New Plan Excel Realty Trust 5.875% 06/15/07 $ 1,309,241 2,150,000 Prologis 6.700% 04/15/04 2,239,715 2,000,000 Reckson Operating Partnership LP 7.400% 03/15/04 2,095,804 2,950,000 Vornado Realty Trust 5.625% 06/15/07 3,005,858 -------------- 8,650,618 -------------- Savings and Loans (1.1%) 2,750,000 Washington Mutual, Inc. 6.875% 05/15/11 3,069,195 -------------- TECHNOLOGY (.7%) Computer Hardware (.7%) 1,800,000 International Business Machines Corporation 5.875% 11/29/32 1,781,102 -------------- TRANSPORTATION (1.9%) Airlines (1.0%) 2,650,000 American Airlines, Inc. 2.020% 09/23/07 2,647,302 -------------- Railroads (.9%) 2,325,000 CSX Corporation 7.250% 05/01/04 2,474,772 -------------- UTILITIES (5.1%) Electric Companies (5.1%) 1,000,000 Appalachian Power Company 4.800% 06/15/05 1,004,097 1,400,000 Entergy Louisiana, Inc. 8.500% 06/01/03 1,432,115 2,250,000 Georgia Power Company 5.500% 12/01/05 2,419,326 2,750,000 Hydro-Quebec (b) 8.000% 02/01/13 3,490,036 2,750,000 Oncor Electric Delivery 144A Issue (d) 7.250% 01/15/33 2,800,540 2,750,000 Public Service Company of Colorado 144A Issue (d) 7.875% 10/01/12 3,069,809 -------------- 14,215,923 -------------- Total corporate obligations (cost: $145,327,989) 151,390,847 -------------- Total long-term debt securities (cost: $259,385,957) 268,829,459 --------------

SHARES/PAR ---------- SHORT-TERM SECURITIES (2.7%) $ 2,250,000 Conagra, Inc. (h) 2.12% 9/10/03 2,255,168 2,000,000 Conoco, Inc. (h) 2.63% 4/15/03 2,003,432 3,029,433 Dreyfus Funds-- Cash Management Plus Fund, current rate 1.360% 3,029,433 1,360 Federated Money Market Obligation Trust -- Prime Obligation Fund, current rate 1.370% 1,360 -------------- Total short-term securities (cost: $7,284,183) 7,289,393 -------------- Total investments in securities (cost: $266,670,140) (j) $ 276,118,852 ==============

See accompanying notes to investments in securities. 49 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) The fund held 5.4% Of net assets in foreign securities as of december 31, 2002. (c) Represents ownership in an illiquid security. (See note 9 to the financial statements.) Information concerning the illiquid securities held at december 31, 2002, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY: DATE COST --------- ------------ ------------- St. George Bank Capital Note 144A Issue* 6/12/97 $ 3,401,136 Banco Hipotecario Nacional 144A Issue* 1/8/01 1,081,021 Fortress CBO Investments I, Ltd. 144A Issue* 1/16/01 990,412 TIAA Global Markets 144A Issue* various 2,742,007 ------------- $ 8,214,576 =============

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (d) Long term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933 as amended, and may be sold to dealers in that program or other accredited investors. These securities have been determined to be liquid under guidelines established by the board of directors. At December 31, 2002 these securities total $35,261,344, or 12.8% of net assets. (e) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principal payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimated timing and amount of future cash flows. (f) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (g) At December 31, 2002 the total cost of investments purchased on a when-issued or forward commitment basis is $2,852,930. (h) Floating rate bond. (i) Security is in default with respect to interest payments. Income is not being accrued on this security and any payments received are treated as a reduction of principal. This security is being fair-valued according to procedures approved by the board of directors. (j) At December 31, 2002 the cost of securities for federal income tax purposes was $267,003,096. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 10,523,308 Gross unrealized depreciation (1,407,552) ------------- Net unrealized appreciation $ 9,115,756 ------------- See accompanying notes to investments in securities. 50 Money Market Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL RATE MATURITY VALUE(a) --------- ------ -------- -------------- COMMERCIAL PAPER (66.2%) BASIC MATERIALS (6.7%) Agriculture Products (5.6%) $ 2,300,000 Archer-Daniels-Midland Company (c) 1.629% 02/05/03 $ 2,296,412 2,000,000 Archer-Daniels-Midland Company (c) 1.335% 04/08/03 1,992,928 2,800,000 Cargill, Inc.(c) 1.700% 01/06/03 2,799,348 2,000,000 Cargill, Inc. (c) 1.313% 02/18/03 1,996,553 -------------- 9,085,241 -------------- Aluminum (.7%) 1,200,000 Alcoa, Inc. (c) 1.340% 01/09/03 1,199,648 -------------- Paper and Forest (.4%) 665,000 Kimberly-Clark Corporation (c) 1.291% 01/17/03 664,624 -------------- COMMUNICATION SERVICES (2.4%) Telephone (2.4%) 4,000,000 Verizon Communications 1.343% 02/28/03 3,991,482 -------------- CONSUMER CYCLICAL (6.0%) Publishing (6.0%) 2,000,000 Gannett Company, Inc. (c) 1.290% 01/10/03 1,999,364 1,100,000 Gannett Company, Inc. (c) 1.290% 01/13/03 1,099,534 1,200,000 Gannett Company, Inc. (c) 1.320% 01/17/03 1,199,306 2,000,000 McGraw-Hill Companies, Inc. 1.337% 06/02/03 1,988,927 3,500,000 McGraw-Hill Companies, Inc. 1.337% 06/12/03 3,479,356 -------------- 9,766,487 -------------- CONSUMER STAPLES (12.3%) Beverage (2.4%) 4,000,000 The Coca-Cola Company 1.278% 02/21/03 3,992,869 -------------- Food (8.7%) 7,500,000 H.J. Heinz Company 144A Issue 6.560% 11/15/03 7,780,901 4,000,000 Nestle SA (c) 1.324% 03/05/03 3,990,882 2,500,000 Nestle SA (c) 1.303% 03/31/03 2,492,085 -------------- 14,263,868 -------------- Household Products (1.2%) 2,000,000 Gillette Company (c) 1.718% 02/14/03 1,995,868 -------------- FINANCIAL (19.2%) Banks (2.4%) 4,000,000 Wells Fargo & Company 1.310% 01/24/03 3,996,700 -------------- Commercial Finance (4.9%) 4,000,000 Bellsouth Capital Funding Coporation (c) 1.301% 02/11/03 3,994,164 4,000,000 General Electric Capital Corporation 1.375% 04/04/03 3,986,035 -------------- 7,980,199 -------------- Consumer Finance (7.6%) 3,000,000 American General Finance Corporation 1.536% 01/29/03 2,996,468 1,000,000 American General Finance Corporation 1.281% 03/03/03 997,863

See accompanying notes to investments in securities. 51

MARKET PRINCIPAL RATE MATURITY VALUE(a) --------- ------ -------- -------------- FINANCIAL--CONTINUED $ 1,500,000 Barton Capital (c) 1.731% 01/06/03 $ 1,499,645 3,000,000 Barton Capital (c) 1.782% 01/08/03 2,998,975 1,000,000 Edison International (c) 1.726% 01/13/03 999,433 2,936,000 Edison International (c) 1.841% 01/16/03 2,933,780 -------------- 12,426,164 -------------- Insurance (4.3%) 1,000,000 American International Group 1.281% 02/04/03 998,808 6,000,000 American International Group 1.271% 03/12/03 5,985,407 -------------- 6,984,215 -------------- HEALTH CARE (17.0%) Drugs (10.0%) 3,900,000 Merck & Company, Inc. (c) 1.300% 01/17/03 3,897,779 6,000,000 Pfizer, Inc. (c) 1.290% 01/14/03 5,997,244 1,000,000 Pfizer, Inc. (c) 1.301% 02/13/03 998,470 1,000,000 Schering-Plough Corporation 1.745% 01/24/03 998,902 3,000,000 Schering-Plough Corporation 1.302% 02/03/03 2,996,473 1,500,000 Schering-Plough Corporation 1.321% 02/13/03 1,497,669 -------------- 16,386,537 -------------- Health Care-- Diversified (7.0%) 3,500,000 Abbott Laboratories (c) 1.291% 01/21/03 3,497,526 1,000,000 Abbott Laboratories (c) 1.290% 02/07/03 998,694 3,000,000 Johnson & Johnson (c) 1.272% 03/21/03 2,991,765 4,000,000 Johnson & Johnson (c) 1.317% 06/18/03 3,975,907 -------------- 11,463,892 -------------- TRANSPORTATION (2.6%) Air Freight (2.6%) 1,000,000 United Parcel Service, Inc. 1.200% 02/28/03 998,098 3,300,000 United Parcel Service, Inc. 1.192% 06/02/03 3,283,697 -------------- 4,281,795 -------------- Total commercial paper (cost: $ 108,479,589) 108,479,589 -------------- U.S. GOVERNMENT OBLIGATIONS (25.3%) Discount Note (21.1%) 3,000,000 Federal Home Loan Bank 1.634% 1/15/03 2,998,121 2,200,000 Federal Home Loan Bank 1.445% 2/7/03 2,196,782 7,000,000 Federal Home Loan Mortgage Corporation 1.747% 1/8/03 6,997,655 4,000,000 Federal Home Loan Mortgage Corporation 1.290% 2/13/03 3,993,930 2,255,000 Federal National Mortgage Association 1.659% 1/10/03 2,254,078 7,000,000 Federal National Mortgage Association 1.684% 1/15/03 6,995,481 7,100,000 Federal National Mortgage Association 1.736% 1/22/03 7,092,917 2,000,000 Federal National Mortgage Association 1.271% 2/12/03 1,997,080 -------------- 34,526,044 --------------

See accompanying notes to investments in securities. 52

MARKET PRINCIPAL RATE MATURITY VALUE(a) --------- ------ -------- -------------- U.S. GOVERNMENT OBLIGATIONS--CONTINUED U.S. Treasury Bill (4.2%) $ 4,500,000 U.S. Treasury Bill 1.542% 02/06/03 $ 4,493,074 2,300,000 U.S. Treasury Bill 1.205% 02/13/03 2,296,739 -------------- 6,789,813 -------------- Total U.S. government obligations (cost: $41,315,857) 41,315,857 --------------

SHARES ------ MONEY MARKET FUNDS (8.3%) 8,292,135 Dreyfus Funds--Cash Management Plus Fund, current rate 1.266% 8,292,135 5,349,815 Federated Investors Prime Obligation Fund, current rate 1.370% 5,349,815 14,213 Wells Fargo & Company--Cash Investment Fund, current rate 1.326% 14,213 -------------- Total short-term securities (cost: $13,656,163) 13,656,163 -------------- Total investments in securities (cost: $163,451,609) (b) $ 163,451,609 ==============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Also represents the cost of securities for federal income tax purposes at December 31, 2002. (c) Commercial paper sold within terms of a private placement memorandum exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board of directors. In aggregate, such securities represent 35.8% of the Portfolio's net assets at December 31, 2002. See accompanying notes to investments in securities. 53 Asset Allocation Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) ------ -------- COMMON STOCK (63.7%) BASIC MATERIALS (2.4%) Chemicals (2.1%) 33,600 Air Products and Chemicals, Inc. $ 1,436,400 70,400 Dow Chemical Company 2,090,880 101,600 EI Dupont De Nemours & Company 4,307,840 -------------- 7,835,120 -------------- Paper and Forest (.3%) 26,800 Weyerhaeuser Company 1,318,828 -------------- CAPITAL GOODS (3.6%) Aerospace/Defense (.5%) 19,900 United Technologies Corporation 1,232,606 9,700 Lockheed Martin Corporation 560,175 -------------- 1,792,781 -------------- Electrical Equipment (1.5%) 229,256 General Electric Company 5,582,384 -------------- Manufacturing (1.6%) 35,100 3M Company 4,327,830 94,400 Tyco International, Ltd. (c) 1,612,352 -------------- 5,940,182 -------------- COMMUNICATION SERVICES (3.1%) Cellular (.2%) 102,100 AT&T Wireless Services, Inc. (b) 576,865 -------------- Telecommunication (.4%) 18,900 Qualcomm, Inc. (b) 687,771 54,300 Sprint Corporation 786,264 -------------- 1,474,035 -------------- Telephone (2.5%) 24,800 AT&T Corporation 647,528 89,100 Bellsouth Corporation 2,305,017 56,200 SBC Communications, Inc. 1,523,582 21,700 Telephone and Data Systems, Inc. 1,020,334 100,800 Verizon Communications 3,906,000 -------------- 9,402,461 -------------- CONSUMER CYCLICAL (6.0%) Auto (.8%) 18,000 Eaton Corporation 1,405,980 9,500 ITT Industries, Inc. 576,555 21,400 Magna International, Inc. (c) $ 1,201,610 -------------- 3,184,145 -------------- Leisure (1.5%) 277,650 Brunswick Corporation 5,514,129 -------------- Lodging-Hotel (.6%) 169,200 Hilton Hotels 2,150,532 -------------- Retail (3.1%) 14,600 Autozone, Inc. (b) 1,031,490 51,200 Bed Bath & Beyond, Inc. (b) 1,767,936 66,400 Family Dollar Stores 2,072,344 12,500 Kohl's Corporation (b) 699,375 38,700 Lowes Companies, Inc. 1,451,250 93,400 Wal-Mart Stores, Inc. 4,717,634 -------------- 11,740,029 -------------- CONSUMER STAPLES (8.4%) Beverage (.2%) 16,500 The Coca-Cola Company 723,030 -------------- Broadcasting (1.5%) 97,000 Clear Channel Communications, Inc. (b) 3,617,130 40,114 Comcast Corporation (b) 945,487 40,400 Comcast Corporation (b) 912,636 -------------- 5,475,253 -------------- Entertainment (1.5%) 195,800 The Walt Disney Company 3,193,498 55,100 Viacom, Inc. (b) 2,245,876 -------------- 5,439,374 -------------- Food (1.1%) 55,000 Kraft Foods, Inc. 2,141,150 83,700 Sara Lee Corporation 1,884,087 -------------- 4,025,237 -------------- Household Products (2.0%) 71,400 Colgate-Palmolive Company 3,743,502 43,800 Procter & Gamble Company 3,764,172 -------------- 7,507,674 -------------- Personal Care (.5%) 34,400 Avon Products, Inc. 1,853,128 --------------

See accompanying notes to investments in securities. 54

MARKET SHARES VALUE(a) ------ -------- CONSUMER STAPLES--CONTINUED Restaurants (.2%) 39,300 McDonald's Corporation $ 631,944 -------------- Retail (.4%) 65,700 CVS Corporation 1,640,529 -------------- Service (.7%) 77,800 Manpower, Inc. 2,481,820 -------------- Tobacco (.3%) 28,700 Philip Morris Companies, Inc. 1,163,211 -------------- ENERGY (5.0%) Oil (3.1%) 18,800 Chevron Corporation 1,249,824 13,200 Devon Energy Corporation 605,880 262,300 Exxon Mobil Corporation 9,164,762 14,500 Royal Dutch Petroleum Company (c) 638,290 -------------- 11,658,756 -------------- Oil & Gas (1.9%) 67,400 Ensco International, Inc. 1,984,930 74,891 Nabors Industries, Ltd. (b)(c) 2,641,405 60,400 Smith International, Inc. (b) 1,970,248 42,600 Veritas DGC, Inc. (b) 665,412 -------------- 7,261,995 -------------- FINANCIAL (14.3%) Auto Finance (.2%) 32,800 Fleet Boston Financial Corporation 797,040 -------------- Banks (5.6%) 75,900 Bank of America Corporation 5,280,363 162,800 U.S. Bancorp 3,454,616 187,500 Wachovia Corporation 6,832,500 91,600 Wells Fargo & Company 4,293,292 26,300 Zion BanCorporation 1,034,879 -------------- 20,895,650 -------------- Consumer Finance (.7%) 74,500 American Express Company 2,633,575 -------------- Finance--Diversified (.6%) 20,900 Fannie Mae 1,344,497 14,600 Freddie Mac 862,130 -------------- 2,206,627 -------------- Insurance (2.2%) 84,500 Allstate Corporation $ 3,125,655 60,700 American International Group 3,511,495 48,700 Expeditor Washington International, Inc. 1,590,055 -------------- 8,227,205 -------------- Investment Bankers/Brokers (3.1%) 168,500 CitiGroup, Inc. (b) 5,929,515 19,000 Goldman Sachs Group, Inc. 1,293,900 51,800 Merrill Lynch & Company, Inc. 1,965,810 33,500 Morgan Stanley 1,337,320 46,200 T. Rowe Price Associates, Inc. 1,260,336 -------------- 11,786,881 -------------- Real Estate (.5%) 81,900 Boardwalk Equities, Inc. (c) 785,421 63,631 Brookfield Properties Corporation (c) 1,285,346 -------------- 2,070,767 -------------- Real Estate Investment Trust (.9%) 61,600 Developers Diversified Realty Corporation 1,354,584 61,500 Prologis 1,546,725 43,420 Winston Hotels, Inc. 338,676 -------------- 3,239,985 -------------- Savings and Loans (.5%) 62,160 Charter One Financial, Inc. 1,785,857 -------------- HEALTH CARE (7.7%) Biotechnology (.9%) 69,200 Amgen, Inc. (b) 3,345,128 -------------- Drugs (3.7%) 35,800 Eli Lilly & Company 2,273,300 14,300 Forest Laboratories, Inc. (b) 1,404,546 255,425 Pfizer, Inc. 7,808,342 66,800 Wyeth 2,498,320 -------------- 13,984,508 -------------- Health Care--Diversified (1.4%) 21,400 Abbott Laboratories 856,000 84,700 Johnson & Johnson 4,549,237 -------------- 5,405,237 --------------

See accompanying notes to investments in securities. 55

MARKET SHARES VALUE(a) ------ -------- HEALTH CARE--CONTINUED Managed Care (.3%) 24,500 Express Scripts, Inc. (b) $ 1,176,980 -------------- Medical Products/Supplies (1.1%) 71,500 St. Jude Medical, Inc. (b) 2,839,980 30,300 Zimmer Holdings, Inc. (b) 1,258,056 -------------- 4,098,036 -------------- Special Services (.3%) 43,200 Fisher Scientific International, Inc. (b) 1,299,456 -------------- TECHNOLOGY (10.2%) Communications Equipment (.1%) 90,900 Brocade Communication Systems, Inc. (b) 376,326 -------------- Computer Hardware (2.9%) 113,657 Dell Computer Corporation (b) 3,039,188 66,100 Hewlett-Packard Company 1,147,496 50,700 International Business Machines Corporation 3,929,250 349,800 Symbol Technologies, Inc. 2,875,356 -------------- 10,991,290 -------------- Computer Networking (.6%) 168,400 Cisco Systems, Inc. (b) 2,206,040 -------------- Computer Services & Software (3.3%) 48,700 AOL Time Warner, Inc. (b) 637,970 75,600 BEA Systems, Inc. (b) 867,132 153,500 Microsoft Corporation (b) 7,935,950 166,500 Oracle Systems (b) 1,798,200 31,000 Peoplesoft, Inc. (b) 567,300 84,400 Siebel Systems, Inc. (b) 631,312 -------------- 12,437,864 -------------- Electrical Semiconductor (2.1%) 50,300 Applied Materials, Inc. (b) 655,409 42,000 Entegris, Inc. (b) 432,600 68,300 Intel Corporation 1,063,431 29,900 Intersil Corporation (b) 416,806 155,300 LSI Logic Corporation (b) 896,081 85,600 National Semiconductor Corporation (b) 1,284,856 15,600 Novellus Systems, Inc. (b) 438,048 135,529 Texas Instruments, Inc. 2,034,290 31,300 Xilinx, Inc. (b) 644,780 -------------- 7,866,301 -------------- Electronics-- Computer Distribution (.9%) 28,500 Cree, Inc. (b) $ 465,975 54,600 WW Grainger, Inc. 2,814,630 -------------- 3,280,605 -------------- Service-- Data Processing (.3%) 30,100 First Data Corporation 1,065,841 -------------- TRANSPORTATION (.9%) Airlines (.6%) 296,200 Northwest Airlines, Inc. (b) 2,174,108 -------------- Railroads (.3%) 23,700 Canadian National Railway Company (c) 984,972 -------------- UTILITIES (2.1%) Electric Companies (2.1%) 21,400 Entergy Corporation 975,626 41,100 Firstenergy Corporation 1,355,067 161,200 Nisource, Inc. 3,224,000 104,000 Pacific Gas and Electric Company (b) 1,445,600 23,400 Public Service Enterprise Group, Inc. 751,140 -------------- 7,751,433 -------------- Total common stock (cost: $239,849,655) 238,461,154 -------------- S&P DEPOSITORY RECEIPT (.6%) 22,400 S&P Depository Receipt 1,977,696 -------------- Total S&P Depository Receipt (cost: $2,014,925) 1,977,696 --------------

See accompanying notes to investments in securities. 56

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- -------- LONG-TERM DEBT SECURITIES (32.6%) GOVERNMENT OBLIGATIONS (15.6%) Federal Home Loan Mortgage Corporation (FHLMC) (.3%) $ 1,100,000 5.500% 12/01/17 $ 1,142,797 ------------ Federal National Mortgage Association (FNMA) (10.3%) 1,820,473 4.000% 04/25/22 1,834,926 2,559,319 6.000% 09/01/17 2,678,146 270,341 6.000% 10/01/32 279,846 992,969 6.000% 10/01/32 1,027,883 227,504 6.000% 11/01/32 235,503 1,666,808 6.230% 01/01/08 1,839,605 1,740,180 6.500% 10/01/28 1,827,640 1,568,611 6.500% 02/01/29 1,647,447 1,135,366 6.500% 12/01/31 1,182,703 4,167,016 6.500% 02/01/32 4,340,681 1,415,933 6.500% 04/01/32 1,474,943 1,532,578 6.500% 07/01/32 1,596,450 1,866,644 6.500% 08/01/32 1,944,439 492,542 6.500% 09/01/32 513,069 942,499 6.500% 09/01/32 981,779 1,756,266 7.000% 07/01/31 1,858,237 1,454,466 7.000% 09/01/31 1,538,933 1,367,939 7.000% 09/01/31 1,438,858 371,164 7.000% 11/01/31 390,407 2,182,287 7.000% 02/01/32 2,309,056 1,769,882 7.000% 02/01/32 1,861,578 1,012,662 7.000% 03/01/32 1,071,489 1,447,224 7.000% 06/01/32 1,522,203 2,053,522 7.000% 07/01/32 2,159,912 801,781 7.500% 04/01/31 857,037 ------------ 38,412,770 ------------ Government National Mortgage Association (GNMA) (1.2%) 440,590 6.000% 08/15/28 460,650 1,346,235 6.500% 11/15/28 1,415,145 732,566 6.500% 06/15/32 769,410 368,165 6.500% 07/15/32 386,682 1,149,396 7.000% 05/15/26 1,223,574 182,391 7.500% 05/15/24 195,760 24,652 7.500% 06/15/28 26,323 ------------ 4,477,544 ------------ U.S. Treasury (3.6%) 2,975,050 Inflationary Index Bond (h) 3.375% 01/15/07 3,211,412 2,150,000 Bond 5.250% 02/15/29 2,246,666 900,000 Bond 5.375% 02/15/31 981,140 2,500,000 Bond 5.500% 08/15/28 2,701,172 3,550,000 Bond 6.125% 08/15/29 4,167,643 ------------ 13,308,033 ------------

See accompanying notes to investments in securities. 57

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- -------- GOVERNMENT OBLIGATIONS--CONTINUED Vendee Mortgage Trust (.2%) $ 520,757 U.S. Department of Veteran Affairs 8.293% 12/15/26 $ 581,792 ------------ Total government obligations (cost: $56,025,179) 57,922,936 ------------ CORPORATE OBLIGATIONS (17.0%) BASIC MATERIALS (1.4%) Agriculture Products (.8%) 1,350,000 Archer-Daniels-Midland Company 7.000% 02/01/31 1,554,455 1,150,000 Cargill, Inc. 144A Issue (e) 6.375% 06/01/12 1,287,555 ------------ 2,842,010 ------------ Construction (.6%) 2,150,000 Vulcan Materials, Inc. 6.400% 02/01/06 2,376,823 ------------ CONSUMER CYCLICAL (.4%) Publishing (.4%) 1,350,000 Gannett Company, Inc. 5.500% 04/01/07 1,468,116 ------------ CONSUMER STAPLES (2.3%) Beverage (.3%) 1,150,000 Diageo Capital PLC 3.500% 11/19/07 1,155,860 ------------ Broadcasting (.8%) 1,600,000 TCI Communications, Inc. 6.375% 05/01/03 1,600,112 1,500,000 USA Interactive 7.000% 01/15/13 1,551,036 ------------ 3,151,148 ------------ Food (.4%) 1,450,000 Unilever Capital Corporation 5.900% 11/15/32 1,483,254 ------------ Retail (.4%) 1,500,000 American Stores Company 7.200% 06/09/03 1,530,372 ------------ Service (.4%) 1,500,000 Enterprise Rent-A-Car Company (e) 7.500% 06/15/03 1,533,175 ------------ FINANCIAL (11.4%) Auto Finance (.3%) 1,200,000 General Motors Acceptance Corporation 6.125% 08/28/07 1,214,243 ------------ Banks (1.2%) 2,900,000 St. George Bank Capital Note 144A Issue (d) 8.485% 12/29/49 3,120,670 1,250,000 Wells Fargo & Company 7.550% 06/21/10 1,487,542 ------------ 4,608,212 ------------ Commercial Finance (.5%) 1,550,000 General Electric Capital Corporation 6.750% 03/15/32 1,713,664 ------------ Commercial Mortgage-Backed Securities (3.3%) -- Asset Securitization Corporation (f) 7.550% 01/13/15 1,559,444 1,616,465 Chase Mortgage Finance Corporation 6.750% 02/25/25 1,653,360 1,050,403 CitiCorporation Mortgage Securities, Inc. 6.500% 10/25/23 1,086,221 3,000,000 First Union-Lehman Brothers Company 6.650% 01/18/08 3,358,191 1,000,000 Fortress CBO Investments, Ltd. 144A Issue (d) 7.850% 07/25/38 1,107,020

See accompanying notes to investments in securities. 58

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- -------- FINANCIAL--CONTINUED $ 3,000,842 Park Avenue Finance Corporation 144A Issue (e) 7.580% 05/12/07 $ 3,373,910 ------------ 12,138,146 ------------ Consumer Finance (.7%) 1,500,000 Citibank Credit Card Issuance Trust (i) 1.856% 12/15/05 1,499,373 1,250,000 Fleet Credit Card Master Trust II (i) 1.560% 04/15/10 1,250,605 ------------ 2,749,978 ------------ Insurance (1.9%) 1,400,000 American International Group (e) 3.850% 11/26/07 1,435,409 1,100,000 MetLife, Inc. 6.500% 12/15/32 1,141,719 1,500,000 Principal Life Global 144A Issue (e) 6.250% 02/15/12 1,589,986 1,500,000 Prudential Insurance Company of America 144A Issue (e) 6.600% 05/15/08 1,660,137 1,375,000 Stancorp Financial Group, Inc. 6.875% 10/01/12 1,408,572 ------------ 7,235,823 ------------ Investment Bankers/Brokers (.4%) 1,450,000 Morgan Stanley 6.750% 04/15/11 1,611,340 ------------ Mortgage Revenue Bonds (.2%) 634,157 American Housing Trust 8.125% 06/25/18 652,823 ------------ Real Estate Investment Trust (1.3%) 1,500,000 Prologis 6.700% 04/15/04 1,562,592 1,400,000 Reckson Operating Partnership LP 7.400% 03/15/04 1,467,063 1,750,000 Vornado Realty Trust 5.625% 06/15/07 1,783,136 ------------ 4,812,791 ------------ Whole Loan Mortgage-Backed (1.6%) 317,173 Banco Hipotecario Nacional 144A Issue (c) (d) (g) 7.916% 07/25/09 78,128 2,136,200 Banco Hipotecario Nacional 144A Issue (c) (d) (g) 8.000% 03/31/11 422,873 1,343,608 GE Capital Mortgage Services, Inc. 6.500% 04/25/13 1,378,765 464,701 Mellon Residential Funding 6.750% 06/26/28 481,267 427,651 Paine Webber Mortgage Acceptance Corporation 6.938% 02/25/24 432,342 710,446 Paine Webber Mortgage Acceptance Corporation 7.000% 10/25/23 718,430 1,030,289 Prudential Home Mortgage Securities 144A Issue (e) 6.582% 04/28/24 1,045,692 1,370,819 Residential Funding Mortgage Securities 7.000% 10/25/23 1,414,333 ------------ 5,971,830 ------------ TECHNOLOGY (.3%) Computer Hardware (.3%) 1,250,000 International Business Machines Corporation 5.875% 11/29/32 1,236,876 ------------ UTILITIES (1.2%) Electric Companies (1.2%) 2,500,000 Georgia Power Company 5.500% 12/01/05 2,688,140 1,500,000Hydro-Quebec (c) 8.000% 02/01/13 1,903,656 ------------ 4,591,796 ------------ Total corporate obligations (cost: $61,989,735) 64,078,280 ------------ Total long-term debt securities (cost: $118,014,914) 122,001,216 ------------

See accompanying notes to investments in securities. 59

MARKET SHARES/PAR RATE MATURITY VALUE(a) ---------- ------ -------- ------------- SHORT-TERM SECURITIES (2.7%) $ 1,200,000 Conagra, Inc. (i) 2.120% 09/10/03 $ 1,202,756 1,500,000 Conoco, Inc. (i) 2.625% 04/15/03 1,502,574 7,243,498 Dreyfus Funds-- Cash Management Plus, current rate 1.266% 7,243,498 5,706 Federated Money Market Obligations Trust -- Prime Obligations Fund, current rate 1.370% 5,706 199,912 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 199,912 ------------- Total short-term securities (cost: $10,151,664) 10,154,446 ------------- Total investments in securities (cost: $370,031,158) (j) $ 372,594,512 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 3.1% of net assets in foreign securities as of December 31, 2002. (d) Represents ownership in an illiquid security. (See note 9 to the financial statements.) Information concerning the illiquid securities held at December 31, 2002, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY DATE COST -------- ----------- ----------- Banco Hipotecario Nacional 144A Issue* 4/1/99 $ 302,782 Banco Hipotecario Nacional 144A Issue* 3/7/00 2,042,407 Fortress CBO Investments, Ltd. 144A Issue* 1/16/01 990,412 St. George Bank Capital Note 144A Issue* various 2,873,242 ----------- $ 6,208,843 ===========

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (e) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933 as amended, and may be sold to dealers in that program or other accredited investors. These securities have been determined to be liquid under guidelines established by the board of directors. At December 31, 2002 these securities total $11,925,804, or 3.2% of net assets. (f) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principal payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimated timing and amount of future cash flows. (g) Security is in default with respect to interest payments. Income is not being accrued on this security and any payments received are treated as a reduction of principal. This security is being fair-valued according to procedures approved by the board of directors. (h) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (i) Floating rate bond. See accompanying notes to investments in securities. 60 (j) At December 31, 2002 the cost of securities for federal income tax purposes was $385,674,626. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 15,835,457 Gross unrealized depreciation (28,915,571) -------------- Net unrealized depreciation $ (13,080,114) ============== See accompanying notes to investments in securities. 61 Mortgage Securities Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- ------------- LONG-TERM DEBT SECURITIES (97.4%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (41.4%) Federal Home Loan Mortgage Corporation (FHLMC) (5.0%) $ 5,000,000 (g) 5.500% 12/01/17 $ 5,194,531 2,172,076 6.000% 09/01/32 2,249,126 4,755,444 6.500% 09/01/32 4,955,705 ------------- 12,399,362 ------------- Federal National Mortgage Association (FNMA) (35.0%) 1,989,654 5.500% 11/01/17 2,065,776 492,108 6.000% 09/01/32 509,411 3,737,061 6.000% 10/01/32 3,868,459 2,733,866 6.000% 10/01/32 2,829,992 893,672 6.000% 10/01/32 925,095 3,143,145 6.000% 11/01/32 3,253,661 499,089 6.000% 11/01/32 516,638 750,000 (g) 6.000% 01/01/33 775,078 10,627,022 6.500% 12/01/31 11,070,105 1,656,957 6.500% 02/01/32 1,735,347 1,156,078 6.500% 02/01/32 1,210,767 2,407,609 6.500% 02/01/32 2,507,949 3,236,411 6.500% 03/01/32 3,371,292 2,083,913 6.500% 04/01/32 2,170,762 2,891,657 6.500% 07/01/32 3,012,170 954,955 6.500% 05/01/32 1,000,131 1,487,242 6.500% 07/01/32 1,549,224 2,036,106 6.500% 08/01/32 2,120,962 709,497 6.500% 08/01/32 739,066 3,666,798 6.500% 08/01/32 3,819,615 1,339,714 6.500% 09/01/32 1,395,548 4,566,748 6.500% 09/01/32 4,757,072 911,055 7.000% 02/01/29 966,609 5,846,624 7.000% 09/01/31 6,186,161 3,215,240 7.000% 09/01/31 3,381,931 412,405 7.000% 11/01/31 433,785 3,928,116 7.000% 02/01/32 4,156,301 2,212,352 7.000% 02/01/32 2,326,972 7,200,656 7.000% 03/01/32 7,618,950 232,015 7.000% 05/01/32 245,490 2,917,790 7.000% 06/01/32 3,068,958 2,361,234 7.000% 07/01/32 2,483,568 637,174 7.500% 04/01/31 681,086 700,000 7.853% 11/25/10 720,511 2,699 8.000% 05/01/22 2,948 ------------- 87,477,390 ------------- Government National Mortgage Association (GNMA) (.4%) -- (e) 7.000% 07/16/40 1,097,193 1,176 8.500% 03/15/22 1,296 ------------- 1,098,489 -------------

See accompanying notes to investments in securities. 62

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- ------------- U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED Other Agency Obligations (.7%) $ 1,506,000 Pleasant Hill California 7.950% 09/20/15 $ 1,632,926 ------------- Vendee Mortgage Trust (.3%) 689,159 Vendee Mortgage Trust Participation Certificates (b) 7.793% 02/15/25 744,726 ------------- Total U.S. government and agencies obligations (cost: $101,539,086) 103,352,893 ------------- OTHER MORTGAGE-BACKED SECURITIES (56.0%) Non-Agency Commercial Mortgage-Backed Securities (12.9%) -- Asset Securitization Corporation (e) 7.250% 04/14/29 2,292,938 -- Asset Securitization Corporation (e) 7.550% 01/13/15 1,532,657 -- Asset Securitization Corporation (c)(e) 7.550% 01/13/15 1,389,683 -- Asset Securitization Corporation 144A Issue (d)(e) 6.500% 10/13/26 1,760,920 1,166,000 Covenant Retirement Community 6.750% 06/01/04 1,188,837 2,250,000 Covenant Retirement Community 7.000% 06/01/06 2,411,365 85,123 FFCA Secured Lending Corporation 144A Issue (d) 2.220% 01/18/05 84,756 1,278,350 FFCA Secured Lending Corporation 144A Issue (c) 7.450% 10/18/11 1,349,996 4,936,000 FFCA Secured Lending Corporation 144A Issue (d) 8.910% 06/25/14 5,287,680 4,150,000 Fortress CBO Investments I, Limited 144A Issue (c) 7.850% 07/25/38 4,594,133 5,350,000 Park Avenue Finance Corporation 144A Issue (d) 7.680% 05/12/07 6,126,617 1,745,968 Securitized Asset Sales, Inc. 144A Issue (d) 6.781% 11/28/23 1,804,057 2,250,000 Vanderbilt Mortgage and Finance, Inc. 7.955% 12/07/24 2,506,806 ------------- 32,330,445 ------------- Non-Agency Prime Residential Mortgage-Backed Securities (42.1%) 2,000,000 GS Mortgage Securities Corporation II 7.099% 07/13/07 2,182,412 2,200,000 Associates Manufactured Housing 7.900% 03/15/27 2,278,340 5,291,000 BankAmerica Manufactured Housing Contract 7.800% 10/10/26 5,370,042 2,561,745 Bear Stearns & Company, Inc. 6.750% 04/30/30 2,676,870 1,657,985 Bear Stearns Mortgage Securities, Inc. 6.750% 04/30/30 1,718,402 1,080,830 Bear Stearns Mortgage Securities, Inc. 8.000% 11/25/29 1,149,668 2,773,752 Bear Stearns Structured Products, Inc. 144A Issue (d) 6.293% 11/30/13 2,867,280 483,157 Chase Mortgage Finance Corporation 6.500% 09/25/13 499,597 1,549,372 Chase Mortgage Finance Corporation 6.750% 03/25/25 1,592,212 153,872 Chase Mortgage Finance Corporation (c) 6.787% 08/28/24 162,540 1,471,846 Chase Mortgage Finance Corporation 144A Issue (d) 6.640% 03/28/25 1,513,031 1,174,599 Chase Mortgage Finance Corporation 144A Issue(d) 6.640% 03/28/25 1,207,467 2,137,278 CitiCorporation Mortgage Securities, Inc. 6.750% 08/25/28 2,244,398 683,908 Countrywide Funding Corporation 6.625% 02/25/24 700,268 725,880 Countrywide Funding Corporation 6.625% 02/25/24 741,893 1,654,403 Countrywide Funding Corporation 7.000% 06/25/24 1,692,652 305,170 Countrywide Funding Corporation 144A Issue (d) 6.250% 02/25/09 298,392 735,462 Countrywide Home Loan 6.250% 08/25/14 751,598 1,883,032 Countrywide Home Loan 7.250% 02/25/28 1,897,626 957,887 Countrywide Mortgage Backed Securities, Inc. 6.500% 03/25/24 973,922 349,522 CSFB Mortgage Securities 144A Issue (d) 7.723% 05/30/23 361,905

See accompanying notes to investments in securities. 63

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- ------------- OTHER MORTGAGE-BACKED SECURITIES--CONTINUED $ 798,268 DLJ Mortgage Acceptance Corporation 144A Issue (c) 6.856% 09/29/23 $ 817,641 364,538 FBS Mortgage Corporation 7.130% 08/25/24 363,845 1,200,000 First Boston Mortgage Securities Corporation 7.449% 09/25/06 1,200,000 757,247 First Union Corporation 6.843% 09/25/26 795,980 1,309,898 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.500% 04/25/24 1,338,543 608,487 GE Capital Mortgage Services, Inc 144A Issue (d) 6.500% 01/25/24 617,067 1,138,477 GE Capital Mortgage Services, Inc 144A Issue (d) 7.000% 03/25/26 1,147,232 554,653 GE Capital Mortgage Services, Inc. 6.250% 07/25/14 578,858 442,372 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.000% 10/25/08 450,255 430,547 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.000% 11/25/08 439,054 451,104 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.500% 09/25/23 456,432 1,004,042 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.500% 04/25/24 1,028,008 923,106 GE Capital Mortgage Services, Inc. 144A Issue (d) 6.500% 05/25/24 939,080 1,268,660 GMAC Commercial Mortgage Securities (c) 5.940% 07/01/13 1,273,814 1,908,926 Green Tree Financial Corporation 6.400% 10/15/18 1,974,223 3,750,000 Green Tree Financial Corporation 8.300% 05/15/19 3,921,533 1,400,000 Green Tree Financial Corporation 8.300% 11/15/19 1,449,321 1,418,442 Green Tree Financial Corporation (g) 9.100% 04/15/25 1,425,162 509,973 Housing Securities, Inc. 7.000% 06/25/23 521,458 565,745 JP Morgan Chase and Company 7.250% 01/25/26 564,658 2,600,000 Lehman ABS Manufactured Housing Contract 5.873% 05/15/22 2,683,041 649,234 Lehman Structured Securities 144A Issue (d) 6.305% 04/28/24 667,309 1,104,742 Metropolitan Asset Funding 144A Issue (d) 6.980% 05/20/12 1,138,205 1,099,620 Metropolitan Asset Funding 144A Issue (d) 7.130% 06/20/12 1,129,403 4,600,000 Mid-State Trust 7.340% 07/01/35 4,928,049 3,454,245 Mid-State Trust 7.790% 07/01/35 3,640,121 1,257,763 Morgan Stanley Capital Markets 144A Issue (d) 6.842% 06/29/26 1,307,646 1,943,481 Morgan Stanley Capital Markets 144A Issue (d) 6.842% 06/29/26 2,033,115 454,754 Nationsbanc Montgomery Funding 6.000% 11/25/13 455,518 682,684 Norwest Asset Securities Corporation 6.250% 05/25/29 707,019 2,012,849 Norwest Asset Securities Corporation 6.500% 06/25/29 2,064,056 474,933 Norwest Asset Securities Corporation 144A Issue (d) 7.000% 09/25/11 482,114 808,468 Paine Webber Mortgage Acceptance Corporation 6.750% 01/25/24 817,782 5,300,000 Paine Webber Mortgage Acceptance Corporation (d) 7.655% 01/02/12 5,799,133 417,444 Paine Webber Mortgage Acceptance Corporation 8.125% 07/25/09 418,420 1,133,450 Paine Webber Mortgage Acceptance Corporation 144A Issue (d) 6.460% 04/29/24 1,178,074 1,054,703 Paine Webber Mortgage Acceptance Corporation 144A Issue (d) 6.460% 04/29/24 1,078,195 1,123,817 Prudential Home Mortgage 6.050% 04/25/24 1,149,541 463,933 Prudential Home Mortgage 8.000% 06/25/22 483,933 78,531 Prudential Home Mortgage 8.000% 10/25/22 78,695 321,065 Prudential Home Mortgage 144A Issue (d) 7.900% 04/28/22 321,566 964,644 Prudential Home Mortgage 144A Issue (d) 7.900% 04/28/22 964,538

See accompanying notes to investments in securities. 64

MARKET PRINCIPAL COUPON MATURITY VALUE(a) --------- ------ -------- ------------- OTHER MORTGAGE-BACKED SECURITIES--CONTINUED $ 91,392 Prudential Home Mortgage Securities 7.500% 08/25/07 $ 94,795 629,510 Prudential Home Mortgage Securities 144A Issue (c) 6.304% 08/28/09 646,294 506,007 Prudential Home Mortgage Securities 144A Issue (d) 6.500% 04/25/26 512,145 805,786 Prudential Home Mortgage Securities 144A Issue (d) 7.238% 09/28/24 832,844 492,553 Prudential Home Mortgage Securities 144A Issue (d) 7.250% 09/25/25 491,588 807,493 Prudential Home Mortgage Security Company 6.500% 02/25/24 827,346 520,530 Residential Accredit Loans, Inc. 144A Issue (d) 6.250% 03/25/14 532,228 758,580 Residential Funding Mortgage Securities 6.500% 12/25/12 777,391 463,006 Residential Funding Mortgage Securities 6.500% 11/25/23 482,781 1,429,835 Residential Funding Mortgage Securities 6.500% 12/25/28 1,486,800 2,479,837 Residential Funding Mortgage Securities 6.500% 01/25/29 2,561,069 1,109,661 Residential Funding Mortgage Securities 7.000% 09/25/23 1,135,916 972,315 Residential Funding Mortgage Securities 7.000% 08/25/29 1,007,154 3,721,000 Sequoia Mortgage Funding Company 144A Issue (d) 6.380% 07/31/31 3,744,256 2,242,651 Structured Asset Mortgage Investments 6.750% 05/02/30 2,249,649 ------------- 105,090,408 ------------- Non-Agency Sub-Prime Residential Mortgage-Backed Securities (1.0%) 176,103 Banco Hipotecario Nacional 144A Issue (c)(f)(h) 2.830% 03/25/11 35,221 1,408,898 Banco Hipotecario Nacional 144A Issue (c)(f)(h) 7.540% 05/31/17 281,780 979,969 Banco Hipotecario Nacional 144A Issue (c)(f)(h) 7.916% 07/25/09 244,992 1,035,698 Black Diamond Capital Management LLC 144A Issue (c) 6.587% 01/29/13 1,078,814 568,498 Black Diamond Capital Management LLC 144A Issue (c) 6.587% 01/29/13 563,569 232,065 Black Diamond Capital Management LLC 144A Issue (d) 6.587% 01/29/13 239,561 ------------- 2,443,937 ------------- Total other mortgage-backed securities (cost: $135,076,492) 139,864,790 ------------- Total long-term debt securities (cost: $236,615,578) 243,217,683 -------------

SHARES ------ SHORT-TERM SECURITIES (3.5%) 8,796,795 Dreyfus Funds -- Cash Management Plus Fund, current rate 1.266% 8,796,795 2,307 Federated Money Market Obligation Trust Prime Obligation Fund, current rate 1.370% 2,307 ------------- Total short-term securities (cost: $8,799,102) 8,799,102 ------------- Total investments in securities (cost: $245,414,680) (i) $ 252,016,785 =============

See accompanying notes to investments in securities. 65 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Represents a debt security with a weighted average net pass-through rate which varies based on the interest rates of the securities in the pool of underlying collateral. The rate disclosed is the rate in effect at December 31, 2002. (c) Represents ownership in an illiquid security. (See note 9 to the financial statements.) Information concerning the illiquid securities held at December 31, 2002, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY: DATE COST --------- ----------- ------------ Asset Securitization Corporation various $ 1,329,031 Banco Hipotecario Nacional 144A Issue* 09/06/02 13,145 Banco Hipotecario Nacional 144A Issue* various 1,323,585 Banco Hipotecario Nacional 144A Issue* various 940,322 Black Diamond Mortgage Trust 144A Issue* various 482,274 Black Diamond Mortgage Trust 144A Issue* 03/1/00 977,694 Chase Mortgage Finance Corporation 6/16/97 148,762 DLJ Mortgage Acceptance Corporation 144A Issue* various 779,988 Fortress CBO Investments I, Limited 144A Issue* various 3,877,651 GMAC Commercial Mortgage Services various 1,215,585 Prudential Home Mortgage Securities 144A Issue* 08/02/99 592,601 FFCA Secured Lending Corporation 144A Issue* 11/26/02 1,299,391 ------------ $ 12,980,029 ============

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (d) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other Oaccredited investorsO. These securities have been determined to be liquid under guidelines established by the Board of Directors. At December 31, 2002 these securities represent $49,032,464, or 19.6% of net assets. (e) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principle payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimate timing and amount of future cash flows. (f) The Portfolio held 0.2% of net assets in foreign securities at December 31, 2002. (g) At December 31, 2002 the total cost of investments issued on a when-issued or forward commitment basis is $7,147,402. (h) Security is in default with respect to interest payments. Income is not being accrued on this security and any payments received are treated as a reduction of principal. This security is being fair-valued according to procedures approved by the board of directors. (i) At December 31, 2002 the cost of securities for federal income tax purposes was $245,531,440. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 8,867,770 Gross unrealized depreciation (2,382,425) ------------ Net unrealized appreciation $ 6,485,345 ============ See accompanying notes to investments in securities. 66 Index 500 Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) ------ --------------- COMMON STOCK (98.3%) BASIC MATERIALS (3.8%) Agriculture Products (.2%) 32,828 Archer-Daniels-Midland Company $ 407,067 13,269 Monsanto Company 255,428 --------------- 662,495 --------------- Aluminum (.2%) 42,855 Alcoa, Inc. 976,237 --------------- Chemicals (2.2%) 11,534 Air Products and Chemicals, Inc. 493,078 46,248 Dow Chemical Company 1,373,566 3,928 Eastman Chemical Company 144,433 6,577 Ecolab, Inc. 325,561 50,429 EI Dupont De Nemours & Company 2,138,190 6,486 Engelhard Corporation 144,962 2,556 Great Lakes Chemical Corporation 61,037 5,543 Hercules, Inc. (b) 48,778 4,789 International Flavors and Fragrances, Inc. 168,094 65,629 Pharmacia Corporation 2,743,292 8,601 PPG Industries, Inc 431,340 8,209 Praxair, Inc. 474,234 4,964 Quest Diagnostics, Inc. (b) 282,452 11,223 Rohm & Haas Company 364,523 3,637 Sigma-Aldrich Corporation 177,122 --------------- 9,370,662 --------------- Construction ( -- ) 5,153 Vulcan Materials, Inc. 193,237 --------------- Iron and Steel (.1%) 4,093 Allegheny Technologies, Inc. 25,499 3,968 Nucor Corporation 163,878 5,192 United States Steel Corporation 68,119 4,351 Worthington Industries, Inc. 66,309 --------------- 323,805 --------------- Mining (.2%) 7,354 Freeport-McMoran, Inc. (b) 123,400 20,390 Newmont Mining $ 591,922 4,513 Phelps Dodge Corporation (b) 142,836 --------------- 858,158 --------------- Paper and Forest (.9%) 2,689 Bemis Company, Inc. 133,455 2,958 Boise Cascade Corporation 74,601 12,693 Georgia-Pacific Corporation 205,119 24,349 International Paper Company 851,485 26,108 Kimberly-Clark Corporation 1,239,347 5,308 Louisiana-Pacific Corporation (b) 42,782 10,153 MeadWestvaco Corporation 250,881 9,383 Plum Creek Timber Company, Inc. 221,439 2,769 Temple Inland, Inc. 124,079 11,114 Weyerhaeuser Company546,920 --------------- 3,690,108 --------------- CAPITAL GOODS (7.9%) Aerospace/Defense (1.7%) 5,842 B.F. Goodrich Company 107,025 10,200 General Dynamics Corporation 809,574 23,151 Lockheed Martin Corporation 1,336,970 9,241 Northrop Grumman Corporation 896,377 20,603 Raytheon Company 633,542 9,286 Rockwell Collins 215,992 9,436 Rockwell International Corporation 195,420 42,614 The Boeing Company 1,405,836 24,043 United Technologies Corporation 1,489,223 --------------- 7,089,959 --------------- Containers-- Metal/Glass ( -- ) 2,892 Ball Corporation 148,041 --------------- Electrical Equipment (3.6%) 9,954 American Power Conversion Corporation (b) 150,803 4,677 Cooper Industries, Inc. 170,477

See accompanying notes to investments in securities. 67

MARKET SHARES VALUE(a) ------ --------------- CAPITAL GOODS--CONTINUED 21,373 Emerson Electric Company $ 1,086,817 505,116 General Electric Company (d) 12,299,575 41,676 Honeywell International, Inc. 1,000,224 9,758 Molex, Inc. 224,824 41,927 Solectron Corporation (b) 148,841 8,300 Thermo Electron Corporation (b) 166,996 --------------- 15,248,557 --------------- Engineering/Construction (.2%) 17,471 Caterpillar, Inc. 798,774 --------------- Machinery (.3%) 12,112 Deere & Company 555,335 10,270 Dover Corporation 299,473 8,588 Ingersoll Rand Company (c) 369,799 --------------- 1,224,607 --------------- Manufacturing (1.6%) 19,807 3M Company 2,442,203 5,574 Avery Dennison Corporation 340,460 15,555 Illinois Tool Works, Inc. 1,008,897 4,506 Johnson Controls, Inc. 361,246 2,457 Millipore Corporation 83,538 5,992 Parker Hannifin Corporation 276,411 4,261 Sealed Air Corporation (b) 158,935 6,978 Textron, Inc. 299,984 101,275 Tyco International, Ltd. (c) 1,729,777 --------------- 6,701,451 --------------- Office Equipment (.2%) 6,392 Lexmark International Group, Inc. (b) 386,716 12,007 Pitney Bowes, Inc. 392,149 --------------- 778,865 --------------- Trucks and Parts (.1%) 2,106 Cummins Engine Company, Inc. 59,242 3,069 Navistar International Corporation (b) 74,607 5,882 Paccar, Inc. 271,337 --------------- 405,186 --------------- Waste Management (.2%) 10,008 Allied Waste Industries (b) $ 100,080 30,896 Waste Management, Inc. 708,136 --------------- 808,216 --------------- COMMUNICATION SERVICES (4.5%) Cellular (.4%) 137,511 AT&T Wireless Services, Inc. (b) 776,937 14,325 Citizens Utilities Company (b) 151,129 48,887 Nextel Communications, Inc. (b) 564,645 --------------- 1,492,711 --------------- Telecommunication (.7%) 39,851 Qualcomm, Inc. (b) 1,450,178 86,056 Qwest Communications International, Inc. 430,280 45,407 Sprint Corporation -FON Group 657,493 50,713 Sprint Corporation -PCS Group (b) 222,123 --------------- 2,760,074 --------------- Telephone (3.4%) 15,788 Alltel Corporation 805,188 39,105 AT&T Corporation 1,021,032 94,341 Bellsouth Corporation 2,440,602 7,239 Centurytel, Inc. 212,682 168,534 SBC Communications, Inc. 4,568,957 138,868 Verizon Communications5,381,135 --------------- 14,429,596 --------------- CONSUMER CYCLICAL (10.2%) Auto (1.0%) 3,733 Cooper Tire and Rubber Company 57,264 7,540 Dana Corporation 88,670 7,736 Danaher Corporation 508,255 28,344 Delphi Corporation 228,169 3,630 Eaton Corporation 283,539 93,150 Ford Motor Company 866,295 28,448 General Motors Corporation 1,048,593 8,898 Goodyear Tire & Rubber Company 60,595

See accompanying notes to investments in securities. 68

MARKET SHARES VALUE(a) ------ --------------- CONSUMER CYCLICAL--CONTINUED 15,363 Harley-Davidson, Inc. $ 709,771 4,660 ITT Industries, Inc. 282,815 2,964 Snap-On, Inc. 83,318 6,603 Visteon Corporation 45,957 --------------- 4,263,241 --------------- Building Materials (.3%) 3,678 American Standard Companies, Inc. (b) 261,653 3,128 Centex Corporation 157,026 2,939 Crane Company 58,574 2,452 Kaufman and Broad Home Corporation 105,068 24,974 Masco Corporation 525,703 3,107 Pulte Corporation 148,732 --------------- 1,256,756 --------------- Distribution Durables (.1%) 8,865 Genuine Parts Company273,042 Hardware and Tools (.1%) 4,089 Black & Decker Corporation 175,377 4,480 The Stanley Works 154,918 --------------- 330,295 --------------- Houseware (.2%) 58,272 Corning, Inc. (b) 192,880 9,879 Leggett & Platt, Inc. 221,685 3,961 Maytag Corporation 112,888 3,505 Whirlpool Corporation 183,031 --------------- 710,484 --------------- Leisure (.2%) 4,576 Brunswick Corporation 90,879 8,789 Hasbro, Inc. 101,513 4,399 International Game Technology (b) 333,972 22,194 Mattel, Inc. 425,015 --------------- 951,379 --------------- Lodging-- Hotel (.2%) 19,100 Hilton Hotels 242,761 12,069 Marriott International, Inc. 396,708 --------------- 639,469 --------------- Photography/Imagery (.1%) 14,810 Eastman Kodak Company 518,942 --------------- Publishing (.8%) 4,193 Dow Jones and Company, Inc. $ 181,263 13,567 Gannett Company, Inc. 974,111 4,183 Knight-Ridder, Inc. 264,575 9,837 McGraw-Hill Companies, Inc. 594,548 2,518 Meredith Corporation 103,515 5,752 RR Donnelly & Sons Company 125,221 7,688 The New York Times Company 351,572 15,471 Tribune Company 703,312 --------------- 3,298,117 --------------- Retail (6.4%) 3,341 American Greetings Corporation (b) 52,788 5,003 Autozone, Inc. (b) 353,462 14,852 Bed Bath & Beyond, Inc. (b) 512,840 16,323 Best Buy Company, Inc. (b) 394,200 5,894 Big Lots, Inc. (b) 77,978 10,664 Circuit City Stores, Inc. 79,127 23,134 Costco Wholesale Corporation (b) 649,140 4,297 Dillards, Inc. 68,150 16,916 Dollar General Corporation 202,146 15,671 eBay, Inc. (b) 1,062,807 8,779 Family Dollar Stores 273,993 9,912 Federated Department Stores (b) 285,069 44,866 Gap, Inc. 696,320 118,055 Home Depot, Inc. 2,828,598 13,600 JC Penney Company 312,936 17,116 Kohl's Corporation (b) 957,640 26,540 Limited Brands, Inc. 369,702 39,613 Lowes Companies, Inc. 1,485,487 14,631 May Department Stores Company 336,220 13,466 Nike, Inc. 598,833 6,874 Nordstrom, Inc. 130,400 15,662 Office Depot, Inc. (b) 231,171 8,549 Radioshack Corporation 160,208 3,043 Reebok International, Ltd. (b) 89,464

See accompanying notes to investments in securities. 69

MARKET SHARES VALUE(a) ------ --------------- CONSUMER CYCLICAL--CONTINUED 16,056 Sears Roebuck Company $ 384,541 23,887 Staples, Inc. (b) 437,132 46,110 Target Corporation 1,383,300 7,608 The Sherwin-Williams Company 214,926 7,382 Tiffany & Company 176,504 26,812 TJX Companies, Inc. 523,370 10,785 Toys `R' Us, Inc. (b) 107,850 224,053 Wal-Mart Stores, Inc. 11,316,917 --------------- 26,755,219 --------------- Service (.7%) 8,855 Apollo Group, Inc. (b) 389,620 9,172 Block Financial Corporation 368,714 8,798 Convergys Corporation (b) 133,290 52,612 CUC International (b) 551,374 4,081 Fluor Corporation 114,268 5,674 Harrah's Entertainment, Inc. (b) 224,690 19,575 Interpublic Group Companies, Inc. 275,616 9,546 Omnicom Group 616,672 5,974 Quintiles Transnational Corporation (b) 72,285 8,796 Robert Half International, Inc. (b) 141,704 7,242 Sabre Holdings Corporation (b) 131,153 5,643 TMP Worldwide, Inc. (b) 63,822 --------------- 3,083,208 --------------- Textiles (.1%) 6,541 Jones Apparel Group, Inc. (b) 231,813 5,423 Liz Clairborne, Inc. 160,792 5,515 VF Corporation 198,816 --------------- 591,421 --------------- CONSUMER STAPLES (12.5%) Beverage (3.0%) 43,446 Anheuser-Busch Companies, Inc. 2,102,786 3,479 Brown-Forman Corporation 227,387 22,810 Coca-Cola Enterprises, Inc. 495,433 1,824 Coors Company 111,720 14,236 Pepsi Bottling Group, Inc. $ 365,865 87,665 Pepsico, Inc. 3,701,216 125,840 The Coca-Cola Company 5,514,309 --------------- 12,518,716 --------------- Broadcasting (1.0%) 31,102 Clear Channel Communications, Inc. (b) 1,159,794 117,154 Comcast Corporation 2,761,320 11,629 Univision Communications, Inc. (b)284,910 --------------- 4,206,024 --------------- Entertainment (1.4%) 29,785 Carnival Corporation 743,136 103,660 The Walt Disney Company 1,690,695 89,393 Viacom, Inc. (b) 3,643,659 --------------- 6,077,490 --------------- Food (1.3%) 20,804 Campbell Soup Company 488,270 27,260 Conagra, Inc. 681,773 18,675 General Mills, Inc. 876,791 17,821 H.J. Heinz Company 585,776 6,911 Hershey Foods Corporation 466,078 20,723 Kellogg Company 710,177 39,578 Sara Lee Corporation 890,901 11,438 William Wrigley Jr. Company 627,717 --------------- 5,327,483 --------------- Food & Health (.2%) 33,339 Sysco Corporation 993,169 --------------- Household Products (2.3%) 11,168 Clorox Company 460,680 27,322 Colgate-Palmolive Company 1,432,492 53,551 Gillette Compay 1,625,808 13,570 Newell Rubbermaid, Inc. 411,578 8,044 Pactiv Corporation (b) 175,842

See accompanying notes to investments in securities. 70

MARKET SHARES VALUE(a) ------ -------------- CONSUMER STAPLES--CONTINUED 65,953 Procter & Gamble Company $ 5,668,001 2,960 Tupperware Corporation 44,637 -------------- 9,819,038 -------------- Personal Care (.2%) 2,949 Alberto-Culver Company 148,630 11,940 Avon Products, Inc. 643,208 -------------- 791,838 -------------- Restaurants (.5%) 8,674 Darden Restaurants, Inc. 177,383 64,430 McDonald's Corporation 1,036,034 19,712 Starbucks Corporation(b) 401,731 5,858 Wendy's International, Inc. 158,576 15,001 Yum! Brands, Inc.(b) 363,324 -------------- 2,137,048 -------------- Retail (.9%) 19,245 Albertson's, Inc. 428,394 19,945 CVS Corporation 498,027 39,249 Kroger Company(b) 606,397 22,390 Safeway, Inc.(b) 523,030 6,782 Supervalu, Inc. 111,971 52,024 Walgreen Company 1,518,581 7,145 Winn-Dixie Stores, Inc. 109,176 -------------- 3,795,576 -------------- Service (.5%) 30,399 Automatic Data Processing, Inc. 1,193,161 8,638 Cintas Corporation 395,188 25,823 Concord EFS, Inc.(b) 406,454 3,177 Deluxe Corporation 133,752 -------------- 2,128,555 -------------- Tobacco (1.2%) 7,576 Fortune Brands, Inc. 352,360 105,004 Philip Morris Companies, Inc. 4,255,812 4,508 R.J. Reynolds Tobacco Holdings, Inc. 189,832 8,574 UST, Inc. 286,629 -------------- 5,084,633 -------------- ENERGY (6.0%) Oil (4.5%) 4,528 Amerada Hess $ 249,266 54,220 Chevron Corporation 3,604,546 34,356 ConocoPhillips 1,662,487 7,952 Devon Energy Corporation 364,997 341,559 Exxon Mobil Corporation 11,934,070 15,845 Marathon Oil Corporation 337,340 19,134 Occidental Petroleum Corporation 544,362 -------------- 18,697,068 -------------- Oil & Gas (1.5%) 12,620 Anadarko Petroleum Corporation 604,498 7,308 Apache Finance Property 416,483 3,431 Ashland, Inc. 97,886 17,040 Baker Hughes, Inc. 548,518 7,957 BJ Services Company(b) 257,091 10,220 Burlington Resources, Inc. 435,883 5,865 EOG Resources, Inc. 234,131 22,151 Halliburton Company 414,445 5,095 Kerr-McGee Corporation 225,709 3,236 McDermott International, Inc.(b) 14,174 7,347 Nabor's Industries, Ltd.(b)(c) 259,129 6,794 Noble Corporation(b) 238,809 4,748 Rowan Companies, Inc. 107,780 29,474 Schlumberger, Ltd. 1,240,561 3,874 Sunoco, Inc.(b) 128,539 16,203 Transocean Offshore, Inc. 375,910 13,091 Unocal Corporation 400,323 20,892 Veritas DGC, Inc.(b) 326,333 -------------- 6,326,202 --------------

See accompanying notes to investments in securities. 71

MARKET SHARES VALUE(a) ------ ------------- FINANCIAL (19.2%) Auto Finance (.3%) 53,277 Fleet Boston Financial Corporation $ 1,294,631 ------------- Banks (7.0%) 18,040 Amsouth BanCorporation 346,368 75,973 Bank of America Corporation 5,285,410 59,116 Bank One Corporation 2,160,690 24,308 BB&T Corporation 899,153 8,869 Comerica Bank 383,496 29,329 Fifth Third BanCorporation 1,717,213 6,374 First Tennessee National Corporation 229,082 11,956 Huntington Bancshares, Inc. 223,697 101,343 JP Morgan Chase and Company 2,432,232 21,568 KeyCorporation 542,220 11,083 Marshal & Ilsley Corporation 303,453 21,874 Mellon Bank NA 571,130 31,060 National City Bancorp 848,559 11,214 Northern Trust Corporation 393,051 8,197 Northfork Bancorporation 276,567 11,225 Regions Financial Corporation 374,466 17,606 SouthTrust Corporation 437,509 16,465 State Street Corporation 642,135 14,398 Suntrust Banks, Inc. 819,534 15,220 Synovus Financial Corporation 295,268 36,866 The Bank of New York Company, Inc. 883,309 97,234 U.S. Bancorp 2,063,305 10,057 Union Planters Corporation 283,004 69,049 Wachovia Corporation 2,516,146 85,881 Wells Fargo & Company 4,025,242 4,568 Zion BanCorporation 179,746 ------------- 29,131,985 ------------- Consumer Finance (1.5%) 66,715 American Express Company $ 2,358,375 11,262 Capital One Financial Corporation 334,707 6,415 Countrywide Financial Corporation 331,335 24,036 Household International, Inc. 668,437 64,854 MBNA Corporation 1,233,523 14,416 PNC Financial Services Group 604,030 7,794 SLM Corporation 809,485 ------------- 6,339,892 ------------- Finance -- Diversified (.4%) 5,380 AMBAC Financial Group, Inc. 302,571 11,293 Janus Capital Group, Inc 147,600 14,624 John Hancock Financial Services, Inc. 408,010 5,055 MGIC Investment Corporation 208,772 7,646 Moody's Corporation 315,703 14,671 Providian Financial Corporation(b) 95,215 ------------- 1,477,871 ------------- Insurance (5.0%) 13,332 ACE, Ltd.(c) 391,161 7,642 Aetna, Inc. 314,239 26,201 Aflac, Inc. 789,174 35,682 Allstate Corporation 1,319,877 132,413 American International Group 7,660,092 15,723 AON Corporation 297,007 8,683 Chubb Corporation 453,253 7,075 Cigna Corporation 290,924 8,197 Cincinnati Financial Corporation 307,797 12,952 Hartford Financial Services Group, Inc. 588,409 7,276 Jefferson-Pilot Corporation 277,288 8,967 Lincoln National Corporation 283,178 9,413 Loews Corporation 418,502 27,261 Marsh and McLennan Companies, Inc. 1,259,731

See accompanying notes to investments in securities. 72

MARKET SHARES VALUE(a) ------ ------------- FINANCIAL--CONTINUED 7,366 MBIA, Inc. $ 323,073 35,546 MetLife, Inc. 961,164 11,054 Progressive Corporation 548,610 28,737 Prudential Insurance Company of America 912,112 7,041 Safeco Corporation 244,111 17,075 The Principal Financial Group(b) 514,470 11,495 The St.Paul Companies, Inc. 391,416 6,012 Torchmark Corporation 219,618 50,946 Traveler's Property Casualty Corporation(b) 746,359 12,258 Unumprovident Corporation 215,005 7,551 Wellpoint Health Networks, Inc.(b) 537,329 6,896 XL Capital, Ltd.(c) 532,716 ------------- 20,796,615 ------------- Investment Bankers/Brokers (4.1%) 4,858 Bear Stearns & Company, Inc. 288,565 68,203 Charles Schwab Corporation 740,003 260,717 CitiGroup, Inc.(b) 9,174,631 13,193 Franklin Resources, Inc. 449,617 24,236 Goldman Sachs Group, Inc. 1,650,472 12,088 Lehman Brothers Holdings, Inc. 644,170 43,880 Merrill Lynch & Company, Inc. 1,665,246 55,106 Morgan Stanley 2,199,832 6,212 T. Rowe Price Associates, Inc. 169,463 ------------- 16,981,999 ------------- Real Estate Investment Trust (.3%) 20,896 Equity Office Properties Trust 521,982 13,748 Equity Residential 337,926 9,524 Simon Property Group, Inc. 324,483 10,125 Starwood Hotels & Resorts Worldwide, Inc. 240,368 ------------- 1,424,759 ------------- Savings and Loans (.6%) 11,471 Charter One Financial, Inc. $329,562 7,790 Golden West Financial Corporation 559,400 48,053 Washington Mutual, Inc. 1,659,270 ------------- 2,548,232 ------------- HEALTH CARE (14.8%) Biotechnology (.9%) 65,332 Amgen, Inc.(b) 3,158,149 7,567 Biogen, Inc.(b) 303,134 10,891 Genzyme Surgical Products(b) 322,047 ------------- 3,783,330 ------------- Drugs (7.0%) 98,324 Bristol-Myers Squibb Company 2,276,201 22,462 Cardinal Health, Inc. 1,329,526 9,549 Chiron Corporation(b) 359,042 57,023 Eli Lilly & Company 3,620,961 9,187 Forest Laboratories, Inc.(b) 902,347 12,220 King Pharmaceuticals, Inc.(b) 210,062 12,741 Medimmune, Inc.(b) 346,173 113,985 Merck & Company, Inc. 6,452,691 312,792 Pfizer, Inc. 9,562,051 74,446 Schering-Plough Corporation 1,652,701 5,425 Watson Pharmaceuticals, Inc.(b) 153,365 67,290 Wyeth 2,516,646 ------------- 29,381,766 ------------- Finance -- Diversified (1.3%) 50,507 Fannie Mae 3,249,115 35,314 Freddie Mac 2,085,292 ------------- 5,334,407 ------------- Health Care -- Diversified (2.9%) 79,315 Abbott Laboratories 3,172,600 6,570 Allergan, Inc. 378,563 20,122 Healthsouth Corporation(b) 84,512 150,787 Johnson & Johnson 8,098,770

See accompanying notes to investments in securities. 73

MARKET SHARES VALUE(a) ------ ------------- HEALTH CARE--CONTINUED 24,755 Tenet Healthcare Corporation(b) $ 405,982 ------------- 12,140,427 ------------- Hospital Management (.3%) 12,100 Health Management Associates, Inc.(b) 216,590 26,050 The HCA - Healthcare Company 1,081,075 ------------- 1,297,665 ------------- Managed Care (.4%) 8,192 Humana, Inc.(b) 81,920 4,840 Manor Care, Inc.(b) 90,072 14,777 McKesson HBOC, Inc. 399,422 15,454 Unitedhealth Group, Inc. 1,290,409 ------------- 1,861,823 ------------- Medical Products/Supplies (1.9%) 5,375 AmerisourceBergen Corporation 291,916 2,738 Bausch & Lomb, Inc. 98,568 30,115 Baxter International, Inc. 843,220 13,031 Becton Dickinson and Company 399,921 13,187 Biomet, Inc. 377,939 20,702 Boston Scientific Corporation(b) 880,249 2,603 CR Bard, Inc. 150,974 15,517 Guidant Corporation(b) 478,699 61,933 Medtronic, Inc. 2,824,145 6,235 Pall Corporation 104,000 9,013 St. Jude Medical, Inc.(b) 357,996 10,049 Stryker Corporation 674,489 9,900 Zimmer Holdings, Inc.(b) 411,048 ------------- 7,893,164 ------------- Special Services (.1%) 7,180 Anthem, Inc.(b) 451,622 ------------- TECHNOLOGY (14.9%) Communications Equipment (.4%) 40,433 ADC Telecommunications, Inc.(b) 84,505 4,978 Andrew Corporation(b) 51,174 18,371 Avaya, Inc.(b) 45,009 21,910 Ciena Corporation(b) 112,617 9,523 Comverse Technology, Inc.(b) $ 95,420 174,243 Lucent Technologies, Inc.(b) 219,546 116,797 Motorola, Inc. 1,010,294 7,833 Scientific-Atlanta, Inc. 92,899 20,913 Tellabs, Inc.(b) 152,038 ------------- 1,863,502 ------------- Computer Hardware (3.5%) 18,217 Apple Computer, Inc.(b) 261,050 29,098 Computer Associates International, Inc. 392,823 131,460 Dell Computer Corporation(b) 3,515,240 16,448 Gateway, Inc.(b) 51,647 154,892 Hewlett-Packard Company 2,688,925 85,789 International Business Machines Corporation 6,648,648 4,952 NCR Coporation(b) 117,560 7,767 Nvidia Corporation(b) 89,398 158,099 Sun Microsystems, Inc.(b) 491,688 11,703 Symbol Technologies, Inc. 96,199 37,323 Xerox Corporation(b) 300,450 ------------- 14,653,628 ------------- Computer Networking (1.3%) 366,748 Cisco Systems, Inc.(b) 4,804,399 29,993 Yahoo!, Inc.(b) 490,386 ------------- 5,294,785 ------------- Computer Peripherals (.2%) 111,661 EMC Corporation(b) 685,599 17,106 Network Appliance, Inc.(b) 171,060 4,745 Qlogic Corporation(b) 163,750 ------------- 1,020,409 ------------- Computer Services & Software (5.4%) 11,993 Adobe Systems, Inc. 298,746 226,905 AOL Time Warner, Inc.(b) 2,972,456 5,725 Autodesk, Inc. 81,868 11,868 BMC Software, Inc.(b) 203,061 8,612 Citrix Systems, Inc.(b) 106,100 8,713 Computer Sciences Corporation(b) 300,163

See accompanying notes to investments in securities. 74

MARKET SHARES VALUE(a) ------ --------------- TECHNOLOGY--CONTINUED 19,183 Compuware Corporation (b) $ 92,078 7,172 Electronic Arts, Inc. (b) 356,950 14,259 IMS Health, Inc. 228,144 4,287 Mercury Interactive Corporation (b) 127,110 271,386 Microsoft Corporation (b) 14,030,656 18,497 Novell, Inc. (b) 61,780 271,867 Oracle Systems (b) 2,936,164 13,258 Parametric Technology Corporation (b) 33,410 15,887 Peoplesoft, Inc. (b) 290,732 9,906 Rational Software Corporation (b) 102,923 24,596 Siebel Systems, Inc. (b) 183,978 16,470 Unisys Corporation (b) 163,053 --------------- 22,569,372 --------------- Electrical Instruments (.3%) 23,690 Agilent Technologies, Inc. (b) 425,472 10,619 Applied Biosystems Group - Applera Corporation 186,257 71,807 JDS Uniphase Corporation (b) 177,363 6,413 PerkinElmer, Inc. 52,907 4,386 Tektronix, Inc. (b) 79,781 6,557 Waters Corporation (b) 142,811 --------------- 1,064,591 --------------- Electrical Semiconductor (2.5%) 17,434 Advanced Micro Devices (b) 112,624 19,417 Altera Corporation (b) 239,606 18,563 Analog Devices, Inc. (b) 443,099 83,652 Applied Materials, Inc. (b) 1,089,986 15,335 Applied Micro Circuits Corporation (b) 56,586 14,002 Broadcom Corporation (b) 210,870 336,285 Intel Corporation 5,235,957 15,837 Linear Technology Corporation 407,328 18,875 LSI Logic Corporation (b) 108,909 30,712 Micron Technology, Inc. (b) 299,135 9,184 National Semiconductor Corporation (b) $ 137,852 7,546 Novellus Systems, Inc. (b) 211,892 8,499 PMC-Sierra, Inc. (b) 47,254 4,056 Power-One, Inc. (b) 22,998 87,866 Texas Instruments, Inc. 1,318,869 17,111 Xilinx, Inc. (b) 352,487 --------------- 10,295,452 --------------- Electronics-- Computer Distribution (.2%) 16,261 Maxim Integrated Products (b) 537,263 26,812 Sanmina Corporation (b) 120,386 2,861 Thomas and Betts Corporation (b) 48,351 4,662 WW Grainger, Inc. 240,326 --------------- 946,326 --------------- Equipment Semiconductor (.2%) 10,054 Jabil Circuit, Inc. (b) 180,168 9,578 KLA-Tencor Corporation (b) 338,774 9,293 Teradyne, Inc. (b) 120,902 --------------- 639,844 --------------- Service-- Data Processing (.8%) 24,181 Electronic Data Systems Corporation 445,656 7,221 Equifax, Inc. 167,094 38,179 First Data Corporation 1,351,918 9,713 Fiserv, Inc. (b) 329,756 10,417 Intuit, Inc. (b) 488,766 19,091 Paychex, Inc. 532,639 --------------- 3,315,829 --------------- Software (.1%) 14,373 Sungard Data Systems, Inc. (b) 338,628 --------------- TRANSPORTATION (1.7%) Air Freight (1.0%) 15,137 FedEx Corporation 820,728 56,678 United Parcel Service, Inc. 3,575,248 --------------- 4,395,976 ---------------

See accompanying notes to investments in securities. 75

MARKET SHARES VALUE(a) ------ ------------- TRANSPORTATION--CONTINUED Airlines (.2%) 7,918 AMR Corporation (b) $ 52,259 6,261 Delta Air Lines, Inc. 75,758 39,321 Southwest Airlines Company 546,562 ------------- 674,579 ------------- Railroads (.5%) 19,161 Burlington Northern Santa Fe Corporation 498,378 10,813 CSX Corporation 306,116 19,727 Norfolk Southern Railway Company 394,343 12,857 Union Pacific Corporation 769,749 ------------- 1,968,586 ------------- Trucking (-- ) 3,090 Ryder System, Inc. 69,340 ------------- UTILITIES (2.8%) Electric Companies (2.4%) 27,603 AES Corporation (b) 83,361 6,379 Allegheny Energy, Inc. 48,225 7,797 Ameren Corporation 324,121 17,199 American Electric Power Company, Inc. 470,049 8,362 Baltimore Gas & Electric 232,631 15,435 Centerpoint Energy, Inc. 131,198 8,544 Cinergy Corporation 288,104 10,844 Consolidated Edison Company of New York, Inc. 464,340 7,313 Consumer's Energy Company 69,035 15,595 Dominion Resources, Inc. 856,166 8,500 DTE Energy Company 394,400 45,257 Duke Energy Corporation 884,322 16,538 Edison International (b) 195,975 11,269 Entergy Corporation 513,754 16,395 Exelon Corporation 865,164 15,108 Firstenergy Corporation 498,111 9,265 FPL Group, Inc. 557,104 12,374 Nisource, Inc. 247,480 20,542 Pacific Gas and Electric Company (b) 285,534 4,591 Pinnacle West Capital Corporation 156,507 8,348 PPL Corporation $ 289,509 12,023 Progress Energy, Inc. 521,197 11,290 Public Service Enterprise Group, Inc. 362,409 36,216 Southern Company 1,028,172 8,915 Teco Energy, Inc. 137,915 16,351 TXU Electric & Gas 305,437 ------------- 10,210,220 ------------- Natural Gas (.3%) 18,850 Dynegy, Inc. 22,243 30,403 El Paso Energy Corporation (b) 211,605 7,209 Keyspan Corporation 254,045 6,178 Kinder Morgan Energy Partners 261,144 2,257 Nicor, Inc. 76,806 1,806 Peoples Energy Corporation 69,802 10,399 Sempra Energy 245,936 26,226 William's Companies, Inc. 70,810 ------------- 1,212,391 ------------- Power Products-- Industrial (.1%) 19,187 Calpine Corporation (b) 62,550 20,452 Mirant Corporation (b) 38,654 20,238 Xcel Energy, Inc. 222,618 ------------- 323,822 ------------- Total common stock (cost: $332,002,270) 411,530,620 -------------

See accompanying notes to investments in securities. 76

MARKET SHARES VALUE(a) ------ ------------- SHORT-TERM SECURITIES (1.6%) 6,768,077 Dreyfus Funds-- Cash Management Plus Fund, current rate 1.266% $ 6,768,077 42,705 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 42,705 Total short-term securities (cost: $6,810,782) 6,810,782 ------------- Total investments in securities (cost: $338,813,052) (e) $ 418,341,402 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 0.8% of net assets in foreign securities as of December 31, 2002. (d) Partially pledged as initial margin deposits on open stock index futures purchase contracts (see note 6 to the financial statements). (e) At December 31, 2002 the cost of securities for federal income tax purposes was $344,262,587. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 149,470,396 Gross unrealized depreciation (75,391,581) ------------- Net unrealized appreciation $ 74,078,815 ============= See accompanying notes to investments in securities. 77 Capital Appreciation Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) ------ ------------- COMMON STOCK (98.0%) CAPITAL GOODS (6.1%) Aerospace/Defense (1.8%) 45,200 United Technologies Corporation $ 2,799,688 ------------- Electrical Equipment (2.6%) 164,200 General Electric Company 3,998,270 ------------- Manufacturing (1.7%) 157,400 Tyco International, Ltd.(c) 2,688,392 ------------- CONSUMER CYCLICAL (11.7%) Auto (3.0%) 71,100 Danaher Corporation 4,671,270 ------------- Publishing (1.4%) 30,300 Gannett Company, Inc. 2,175,540 ------------- Retail (5.6%) 114,797 Home Depot, Inc. 2,750,536 88,200 Target Corporation 2,646,000 63,700 Wal-Mart Stores, Inc. 3,217,487 ------------- 8,614,023 ------------- Service (1.7%) 40,500 Omnicom Group 2,616,300 ------------- CONSUMER STAPLES (19.2%) Beverage (5.3%) 74,600 Anheuser-Busch Companies, Inc. 3,610,640 58,300 Pepsi Bottling Group, Inc. 1,498,310 70,900 Pepsico, Inc. 2,993,398 ------------- 8,102,348 ------------- Broadcasting (6.1%) 98,200 Clear Channel Communications, Inc. (b) 3,661,878 95,400 Comcast Corporation (b) 2,155,086 97,500 Fox Entertainment Group, Inc. (b) 2,528,175 113,880 Liberty Media Corporation (b) 1,018,087 ------------- 9,363,226 ------------- Entertainment (4.8%) 52,100 Carnival Corporation 1,299,895 148,017 Viacom, Inc. (b) 6,033,173 ------------- 7,333,068 ------------- Household Products (.7%) 34,200 Gillette Company $ 1,038,312 ------------- Personal Care (1.3%) 78,900 The Estee Lauder Company, Inc. 2,082,960 ------------- Restaurants (1.0%) 58,000 Wendys International, Inc. 1,570,060 ------------- ENERGY (1.1%) Oil & Gas (1.1%) 31,900 Transocean Offshore, Inc. (c) 740,080 22,800 Weatherford International, Ltd. (b) (c) 910,404 ------------- 1,650,484 ------------- FINANCIAL (14.0%) Banks (3.6%) 24,600 Bank of America Corporation 1,711,422 81,100 Wells Fargo & Company 3,801,157 ------------- 5,512,579 ------------- Consumer Finance (2.2%) 32,700 SLM Corporation 3,396,222 ------------- Finance-- Diversified (1.1%) 28,100 Freddie Mac 1,659,305 ------------- Insurance (6.0%) 101,500 American International Group 5,871,775 1,380 Berkshire Hathaway, Inc. (b) 3,343,740 ------------- 9,215,515 ------------- Savings and Loans (1.1%) 59,125 Charter One Financial, Inc. 1,698,662 ------------- HEALTH CARE (22.3%) Biotechnology (2.6%) 66,700 Genentech, Inc. (b) 2,211,772 50,800 Gilead Sciences, Inc. (b) 1,727,200 ------------- 3,938,972 -------------

See accompanying notes to investments in securities. 78

MARKET SHARES VALUE(a) ------ ------------- HEALTH CARE--CONTINUED Drugs (8.2%) 14,500 Forest Laboratories, Inc. (b) $ 1,424,190 50,400 Medimmune, Inc. (b) 1,369,368 222,275 Pfizer, Inc. 6,794,947 78,700 Wyeth 2,943,380 ------------- 12,531,885 ------------- Health Care-- Diversified (3.1%) 87,696 Johnson & Johnson 4,710,152 ------------- Hospital Management (1.4%) 51,500 The HCA - Healthcare Company 2,137,250 ------------- Medical Products/Supplies (5.5%) 125,400 Biomet, Inc. 3,593,964 108,300 Medtronic, Inc. 4,938,480 ------------- 8,532,444 ------------- Special Services (1.5%) 36,900 Anthem, Inc. (b) 2,321,010 ------------- TECHNOLOGY (20.7%) Communications Equipment (1.7%) 98,100 Harris Corporation 2,580,030 ------------- Computer Hardware (1.7%) 96,300 Dell Computer Corporation (b) 2,575,062 ------------- Computer Networking (1.6%) 188,300 Cisco Systems, Inc. (b) $ 2,466,730 ------------- Computer Services & Software (7.2%) 194,250 AOL Time Warner, Inc. (b) 2,544,675 153,600 Microsoft Corporation (b) 7,941,120 26,000 SAP AG (c) 507,000 ------------- 10,992,795 ------------- Electrical Semiconductor (6.4%) 99,800 Analog Devices, Inc. (b) 2,382,226 260,400 Intel Corporation 4,054,428 52,800 Novellus Systems, Inc. (b) 1,482,624 127,200 Texas Instruments, Inc. 1,909,272 ------------- 9,828,550 ------------- Equipment Semiconductor (.7%) 83,200 Teradyne, Inc. (b) 1,082,432 ------------- Service-- Data Processing (1.4%) 45,200 Intuit, Inc. (b) 2,120,784 ------------- TRANSPORTATION (2.9%) Air Freight (2.9%) 70,100 United Parcel Service, Inc. 4,421,908 ------------- Total common stock (cost: $179,818,809) 150,426,228 -------------

SHARES SHORT-TERM SECURITIES (1.9%) 2,987,763 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 2,987,763 ------------- Total short-term securities (cost: $2,987,763) 2,987,763 ------------- Total investments in securities (cost: $182,806,572) (d) $ 153,413,991 ============= NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 3.2% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $186,647,845. The aggregate unrealized appreciation and depreciation of Gross unrealized appreciation $ 9,542,215 Gross unrealized depreciation (42,776,069) ------------- Net unrealized depreciation $ (33,233,854) ============= See accompanying notes to investments in securities. 79 International Stock Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) ------ ------------- COMMON STOCK (95.1%) AUSTRALIA (1.1%) Mining (1.1%) 924,000 Iluka Resources, Ltd. $ 2,393,400 ------------- BERMUDA (1.3%) Insurance (1.3%) 37,200 XL Capital, Ltd. 2,873,700 ------------- CANADA (4.5%) Chemicals (1.1%) 228,239 Husky Energy 2,379,476 Electrical Equipment (2.6%) 2,008,000 Nortel Networks Corporation 3,232,880 138,000 BCE Incorporated 2,489,556 Shipping (.8%) 118,020 Transcanada Pipelines, Ltd. 1,712,254 ------------- 9,814,166 ------------- CHINA (1.4%) Oil & Gas (1.4%) 15,405,860 Petrochina 3,062,049 ------------- DENMARK (2.1%) Machinery (1.0%) 222,700 Vestas Wind Systems 2,218,065 ------------- Telecommunication (1.1%) 98,000 Tele Danmark 'B' 2,381,329 ------------- 4,599,394 ------------- FINLAND (4.2%) Insurance (1.7%) 512,800 Sampo Insurance 3,901,459 ------------- Paper and Forest (2.5%) 211,680 Metso Corporation 2,288,011 71,073 Stora Enso 738,194 247,300 Stora Enso-Oyj 2,608,142 ------------- 9,535,806 ------------- FRANCE (8.5%) Chemicals (1.6%) 66,025 Aventis 3,589,048 Electrical Equipment (.8%) 392,000 Alcatel A 1,719,505 Investment Bankers/Brokers (1.6%) 261,980 Axa-Uap 3,516,250 Machinery (.4%) 191,312 Alstom 953,623 Manufacturing (.7%) 46,590 Michelin $ 1,606,576 Mining (1.7%) 109,780 Pechiney 3,852,393 Oil & Gas (1.7%) 26,117 Total Fina Elf 3,730,117 ------------- 18,967,512 ------------- GERMANY (7.8%) Banks (1.6%) 75,166 Deutsche Bank 3,462,797 Chemicals (1.3%) 138,000 Bayer 2,961,512 Electric Companies (1.0%) 52,900 E.On Ag 2,134,485 246,000 Deutsche Post 2,581,524 Manufacturing (1.3%) 32,790 Adidas-Salomon 2,831,929 Real Estate (.4%) 306,000 WCM Beteiligungs 802,791 Technology (1.0%) 28,900 SAP 2,290,345 ------------- 17,065,383 ------------- HONG KONG (4.6%) Chemicals ( -- ) 16,920 CK Life Sciences International 3,038 Diversified Operations (.5%) 1,787,300 Swire Pacific 'B' 1,140,210 Electric Companies (.8%) 465,000 CLP Holdings Limited 1,872,307 Investment Bankers/Brokers ( -- ) 113,000 Peregrine 0 Real Estate (2.2%) 423,000 Cheung Kong 2,752,776 351,100 Hutchison Whampoa 2,197,076 Telecommunication (1.1%) 201,000 China Mobile ADR (b) 2,428,080 ------------- 10,393,487 ------------- INDIA (.7%) 123,000 Satyam Computer ADR 1,580,550 ------------- ISRAEL (1.7%) Technology (1.7%) 287,000 Check Point Software 3,722,390 -------------

See accompanying notes to investments in securities. 80

MARKET SHARES VALUE(a) ------ ------------- ITALY (1.5%) Banks (.8%) 285,000 San Paolo-Imi $ 1,854,290 Oil & Gas (.7%) 94,000 Eni Spa 1,494,450 ------------- 3,348,740 ------------- JAPAN (8.5%) Drugs (1.4%) 105,000 Ono Pharmaceutical 3,176,456 Electrical Equipment (2.4%) 588,000 Hitachi 2,254,487 75,600 Sony 3,159,821 Investment Bankers/Brokers (.7%) 146,200 Nomura Securities 1,643,472 Machinery (1.0%) 659,000 Komatsu 2,149,094 Telecommunication (2.1%) 1,291 Nippon Telephone & Telegraph 4,688,809 Water Utilities (.9%) 201,000 Kurita Water Industries 2,024,058 ------------- 19,096,197 ------------- MEXICO (2.1%) Mining (.9%) 790,620 Grupo Carso S.A. (b) 1,934,238 Telecommunication (1.2%) 86,220 Telefonos De Mexico ADR 2,757,316 ------------- 4,691,554 ------------- NETHERLANDS (6.5%) Chemicals (1.6%) 110,380 Akzo Nobel 3,501,625 Electrical Equipment (1.6%) 199,110 Philips Electronics 3,489,399 Insurance (1.9%) 251,394 ING Group 4,257,940 Investment Bankers/Brokers (1.4%) 73,350 Rodamco Europe 3,098,183 ------------- 14,347,147 ------------- NEW ZEALAND (.9%) Telecommunication (.9%) 882,800 Telecom Corporation of New Zealand 2,091,921 ------------- SOUTH KOREA (5.1%) Electric Companies (1.3%) 330,700 Korea Electric Power 2,810,950 Electrical Equipment (1.7%) 29,000 Samsung GDR $ 3,864,250 Technology (2.1%) 216,960 Korea Telecom ADR 4,675,488 ------------- 11,350,688 ------------- SPAIN (3.3%) Electric Companies (1.2%) 196,000 Iberdrola SA 2,745,860 Oil & Gas (1.2%) 202,000 Repsol 2,670,933 Telecommunication (.9%) 71,956 Telefonica SA (b) 1,911,871 ------------- 7,328,664 ------------- SWEDEN (6.1%) Banks (3.0%) 305,700 Foreningssparbaken 3,613,682 698,900 Nordic 3,131,728 Machinery (.8%) 93,000 Atlas Copco 1,814,468 Trucks and Parts (2.3%) 109,900 Autoliv, Inc. 2,300,207 178,500 Volvo Free 'B' 2,909,001 ------------- 13,769,086 ------------- SWITZERLAND (4.0%) Banks (1.3%) 58,000 UBS AG (b) 2,818,833 Food (1.6%) 16,700 Nestle SA 3,538,801 Insurance (1.1%) 37,180 Swiss Reinsurance 2,438,870 ------------- 8,796,504 ------------- UNITED KINGDOM (18.8%) Auto (1.0%) 1,244,600 Rolls-Royce 2,143,939 Chemicals (3.4%) 733,000 Imperial Chemical 2,714,130 301,480 Nycomed Amersham 2,676,321 339,000 Shire Pharmaceuticals (b) 2,169,380 Electrical Equipment (2.6%) 1,148,600 BAE Systems PLC 2,292,923 1,567,000 Chubb PLC 2,213,681 3,180,400 Kidde PLC 3,622,489 341,000 WPP Group 2,604,891 Food (.9%) 461,300 J Sainsbury PLC 2,070,128

See accompanying notes to investments in securities. 81

MARKET SHARES VALUE(a) ------ ------------- UNITED KINGDOM--CONTINUED Investment Bankers/Brokers (.8%) 218,000 Abbey National $ 1,817,963 Manufacturing (.8%) 166,000 Smiths Industries 1,858,678 Mining (1.6%) 654,584 BHP Billiton PLC 3,496,031 Oil & Gas (2.9%) 332,000 Lloyds TSB Group 2,383,811 632,900 Shell Transportation & Trading Company PLC 4,167,324 Publishing (1.1%) 539,411 United Business Media PLC 2,518,354 Retail (.9%) 375,329 Marks & Spencer Group 1,903,363 Telecommunication (.7%) 2,263,800 Cable & Wireless PLC $ 1,630,910 ------------- 42,284,316 ------------- UNITED STATES (.4%) Service (.4%) 51,000 Accenture, Ltd. (b) 917,490 ------------- Total common stock (cost: $258,114,988) 212,030,144 ------------- PREFERRED STOCK (1.0%) GERMANY (1.0%) Trucks and Parts (1.0%) 88,735 Volkswagen 2,327,963 ------------- Total preferred stock (cost: $2,322,877) 2,327,963 -------------

SHARES/PAR RATE MATURITY ---------- ---- -------- SHORT-TERM SECURITIES (3.9%) UNITED STATES (3.9%) 5,098,302 Bankers Trust Institutional Liquid Assets, current rate 1.360% 5,098,302 $ 3,500,000 United States Treasury Bill 1.131% 3/13/03 3,492,104 ------------- Total short-term securities (cost: $8,590,233) 8,590,406 ------------- Total investments in securities (cost: $269,028,098) (c) $ 222,948,513 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) At December 31, 2002 the cost of securities for federal income tax purposes was $268,352,251. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 18,255,395 Gross unrealized depreciation (63,659,133) ------------- Net unrealized depreciation $ (45,403,738) ============= See accompanying notes to investments in securities. 82 Small Company Growth Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) ------ ------------- COMMON STOCK (92.0%) BASIC MATERIALS (5.3%) Chemicals (3.3%) 61,600 Airgas, Inc. (b) $ 1,062,600 21,300 Albemarle Corporation 605,985 42,600 Cambrex Corporation 1,286,946 24,300 Minerals Technologies, Inc. 1,048,545 ------------- 4,004,076 ------------- Paper and Forest (2.0%) 97,700 Constar International, Inc. (b) 1,147,975 65,600 Delta & Pine Land Company 1,338,896 ------------- 2,486,871 ------------- CAPITAL GOODS (3.4%) Containers-Metal/Glass (1.2%) 191,300 Crown Cork & Seal Company, Inc. (b) 1,520,835 ------------- Engineering/Construction (.8%) 64,550 Granite Construction, Inc. 1,000,525 ------------- Office Equipment (.6%) 78,300 Moore Corporation, Ltd. (b)(c) 712,530 ------------- Trucks and Parts (.8%) 15,900 Oshkosh Truck Corporation (b) 977,850 ------------- COMMUNICATION SERVICES (1.0%) Telecommunication (1.0%) 131,200 Polycom, Inc. (b) 1,249,024 ------------- CONSUMER CYCLICAL (14.0%) Auto (1.2%) 29,600 Borg-Warner Automotive, Inc. 1,492,432 ------------- Distribution Durables (1.0%) 67,900 MSC Industrial Direct Company, Inc. (b) 1,205,225 ------------- Publishing (1.1%) 39,200 Scholastic Corporation (b) 1,409,240 ------------- Retail (4.7%) 51,900 Cost Plus, Inc. (b) 1,487,973 68,900 Gymboree Corporation (b) 1,092,754 65,400 Hot Topic, Inc. (b) 1,496,352 113,045 Valuevision Media, Inc. (b) $ 1,693,414 ------------- 5,770,493 ------------- Service (4.2%) 173,200 Doubleclick, Inc. (b) 980,312 73,412 Getty Images, Inc. (b) 2,242,737 43,000 Kroll, Inc. (b) 820,440 69,700 Penn National Gaming, Inc. (b) 1,105,442 ------------- 5,148,931 ------------- Textiles (1.8%) 66,600 Linens n Things, Inc. (b) 1,505,160 108,900 Tommy Hilfiger Corporation (b)(c) 756,855 ------------- 2,262,015 ------------- CONSUMER STAPLES (10.7%) Broadcasting (5.3%) 106,700 Cumulus Media, Inc. (b) 1,586,629 89,900 Emmis Communications (b) 1,872,617 36,800 Entercom Communications Corporation (b) 1,726,656 102,600 Insight Communications Company, Inc. (b) 1,270,188 ------------- 6,456,090 ------------- Food (1.6%) 56,900 Performance Food Group Company (b) 1,932,267 ------------- Food & Health (.8%) 62,900 Hain Celestial Group, Inc. (b) 956,080 ------------- Retail (1.3%) 130,800 CKE Restaurants, Inc. (b)562,440 57,700 Duane Reade, Inc. (b) 980,900 ------------- 1,543,340 ------------- Service (1.7%) 56,300 Education Management Corporation (b) 2,116,880 ------------- ENERGY (7.3%) Oil (.9%) 243,000 Newpark Resources, Inc. (b) 1,057,050 -------------

See accompanying notes to investments in securities. 83

MARKET SHARES VALUE(a) ------ ------------- ENERGY--CONTINUED Oil & Gas (6.4%) 60,600 FMC Technologies, Inc. (b) $ 1,238,058 33,500 Newfield Exploration Company (b) 1,207,675 32,700 Pogo Producing Company1,218,075 73,100 Remington Oil & Gas Corporation (b) 1,199,571 52,200 Spinnaker Exploration Company (b) 1,151,010 57,196 Stone Energy Corporation (b) 1,908,059 ------------- 7,922,448 ------------- FINANCIAL (7.9%) Banks (1.1%) 35,200 Westamerica BanCorporation 1,414,336 ------------- Finance-- Diversified (1.0%) 41,000 Raymond James Financial, Inc. 1,212,780 ------------- Insurance (3.8%) 73,000 HCC Insurance Holdings, Inc. 1,795,800 56,300 Mid Atlantic Medical Services, Inc. (b) 1,824,120 92,400 USI Holdings Corporation (b) 1,085,700 ------------- 4,705,620 ------------- Investment Bankers/Brokers (1.1%) 26,200 Affiliated Managers Group (b) 1,317,860 ------------- Savings and Loans (.9%) 61,800 IndyMac Bancorp, Inc. (b) 1,142,682 ------------- HEALTH CARE (22.4%) Biotechnology (2.9%) 108,300 Affymetrix, Inc. (b) 2,478,987 65,849 Lynx Therapeutics, Inc. (b) 26,998 31,100 Scios, Inc. (b) 1,013,238 ------------- 3,519,223 ------------- Drugs (5.2%) 50,900 Cubist Pharmaceuticals, Inc. (b) 418,907 65,900 K-V Pharmaceutical Company (b) 1,528,880 53,235 Medicis Pharmaceutical Corporation (b) 2,644,182 27,600 OSI Pharmaceuticals, Inc. (b) $ 452,640 135,800 Sepracor, Inc. (b) 1,313,186 ------------- 6,357,795 ------------- Hospital Management (4.1%) 125,500 Community Health Systems (b) 2,584,045 80,300 Lifepoint Hospitals, Inc. (b) 2,403,459 ------------- 4,987,504 ------------- Managed Care (3.2%) 66,088 Advance Paradigm, Inc. (b) 1,467,815 83,700 Coventry Health Care, Inc. (b) 2,429,811 ------------- 3,897,626 ------------- Medical Products/Supplies (1.3%) 66,600 Alliance Imaging, Inc. (b) 352,980 50,600 SonoSite, Inc. (b) 661,342 68,800 Therasense, Inc. (b) 574,480 ------------- 1,588,802 ------------- Special Services (5.7%) 67,900 Apria Healthcare Group, Inc. (b) 1,510,096 39,662 DaVita, Inc. (b) 978,462 36,900 Fisher Scientific International, Inc. (b) 1,109,952 39,800 Henry Schein, Inc. (b) 1,791,000 50,800 Renal Care Group, Inc. (b) 1,607,312 ------------- 6,996,822 ------------- TECHNOLOGY (17.9%) Communications Equipment (1.8%) 106,400 InterDigital Communications Corporation (b) 1,549,184 362,600 Openwave Systems, Inc. (b) 725,200 ------------- 2,274,384 ------------- Computer Networking (2.7%) 159,300 Adaptec, Inc. (b) 900,045 173,300 Legato Systems, Inc. (b) 871,699 164,900 Radiant Systems, Inc. (b) 1,587,987 ------------- 3,359,731 -------------

See accompanying notes to investments in securities. 84

MARKET SHARES VALUE(a) ------ ----------- TECHNOLOGY-CONTINUED Computer Services & Software (7.8%) 136,100 Agile Software Corporation (b) $ 1,053,414 57,200 Avid Technology, Inc. (b) 1,312,740 38,500 Business Objects SA (b)(c) 577,500 69,500 CACI International, Inc. (b) 2,476,980 100,000 Caminus Corporation (b) 234,000 328,900 Chordiant Software, Inc. (b) 473,616 163,700 Informatica Corporation (b) 942,912 258,632 Manugistics Group, Inc. (b) 620,717 148,500 MatrixOne, Inc. (b) 638,550 81,400 NetIQ Corporation (b) 1,005,290 40,919 QRS Corporation (b) 270,065 ----------- 9,605,784 ----------- Electrical Instruments (-- ) 214,897 APW, Ltd. (b) 4,298 ----------- Electrical Semiconductor (2.4%) 1 Anadigics, Inc. (b) 1 55,000 Integrated Circuit Systems (b) 1,003,750 76,600 Semtech Corporation (b) 836,472 46,600 Varian Semiconductor Equipment (b) $ 1,107,263 ----------- 2,947,486 ----------- Equipment Semiconductor (1.8%) 72,368 Brooks-PRI Automation, Inc. (b) 829,337 42,216 Cymer, Inc. (b) 1,361,466 ----------- 2,190,803 ----------- Service-- Data Processing (1.4%) 113,164 Documentum, Inc. (b) 1,772,148 ----------- TRANSPORTATION (2.1%) Trucking (2.1%) 45,700 JB Hunt Transport Services, Inc. (b) 1,339,010 61,900 Swift Transportation Company, Inc. (b) 1,239,114 ----------- 2,578,124 ----------- Total common stock (cost: $153,278,196) 113,098,010 -----------

SHARES ------ SHORT-TERM SECURITIES (8.0%) 6,427,290 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 6,427,290 3,395,545 Wells Fargo & Company-- Treasury Plus Fund, current rate 1.261% 3,395,545 --------------- Total short-term securities (cost: $9,822,835) 9,822,835 --------------- Total investments in securities (cost: $163,101,031) (d) $ 122,920,845 ===============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 1.7% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002, the cost of securities for federal income tax purposes was $163,847,202. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 11,838,237 Gross unrealized depreciation (52,764,594) --------------- Net unrealized depreciation $ (40,926,357) =============== See accompanying notes to investments in securities. 85 Maturing Government Bond 2006 Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL RATE MATURITY VALUE (a) --------- ------- -------- ------------- LONG-TERM DEBT SECURITIES (98.6%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (98.6%) $ 200,000 Financial Corporation Strip (b) 2.980% 05/11/06 $ 181,826 686,000 Financial Corporation Strip (b) 5.118% 11/11/06 612,557 1,000,000 Financial Corporation Strip (b) 5.369% 08/03/07 861,704 921,000 Financial Corporation Strip (b) 7.665% 09/07/07 792,023 910,000 FNMA Strip (b) 7.006% 08/01/05 858,494 450,000 FNMA Strip (b) 3.660% 08/15/06 409,076 650,000 FNMA Strip (b) 5.230% 01/15/07 578,913 613,000 FNMA Strip (b) 5.745% 04/08/07 537,320 100,000 Israel Government Trust Certificate (b) 3.010% 11/15/06 89,416 1,000,000 Israel State Aid Strip (b) 6.578% 11/15/06 897,581 1,000,000 Resolution Funding Corporation Strip (b) 7.461% 07/15/07 877,587 2,690,000 U.S. Treasury Principal Strip (b) 6.010% 11/15/06 2,451,693 1,500,000 U.S. Treasury Principal Strip (b) 5.694% 02/15/07 1,350,127 ------------- Total U.S. government and agencies obligations (cost: $9,252,681) 10,498,317 ------------- Total long-term debt securities (cost: $9,252,681) 10,498,317 ------------- SHARES - ------ SHORT-TERM SECURITIES (1.3%) 140,548 Dreyfus Funds--Cash Management Plus Fund, current rate 1.266% 140,548 ------------- Total short-term securities (cost: $140,548) 140,548 ------------- Total investments in securities (cost: $9,393,229) (c) $ 10,638,865 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) For zero coupon issues (strips) the interest rate disclosed is the effective yield at the date of acquisition. (c) At December 31, 2002 the cost of securities for federal income tax purposes was $9,427,841. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 1,211,024 Gross unrealized depreciation -- ------------- Net unrealized appreciation $ 1,211,024 ============= See accompanying notes to financial statements. 86 Maturing Government Bond 2010 Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE (a) --------- ------- -------- ------------- LONG-TERM DEBT SECURITIES (98.6%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (98.6%) $ 412,000 Financial Corporation Strip (b) 5.490% 11/2/10 $ 292,492 1,000,000 Financial Corporation Strip (b) 5.742% 4/5/11 684,974 719,000 FNMA Strip (b) 6.000% 11/29/09 547,147 1,350,000 FNMA Strip (b) 5.240% 9/23/10 971,903 717,000 FNMA Strip (b) 4.906% 5/15/11 495,285 132,000 Israel Government Trust Certificate (b) 7.650% 5/15/10 96,602 350,000 Israel Government Trust Certificate (b) 6.590% 5/15/10 256,141 515,000 Israel State Aid Strip (b) 8.264% 3/15/10 383,548 1,100,000 Israel State Aid Strip (b) 6.850% 8/15/11 753,908 1,032,000 Resolution Funding Corporation Strip (b) 5.393% 4/15/11 731,241 475,000 Tennessee Valley Authority (b) 4.340% 4/15/10 349,438 524,000 Turkey Government Trust Certificate (b) 6.687% 11/15/10 375,157 2,050,000 U.S. Treasury Principal Strip (b) 5.358% 5/15/10 1,555,458 1,900,000 U.S. Treasury Principal Strip (b) 4.856% 2/15/11 1,380,658 505,000 U.S. Treasury Principal Strip (b) 6.330% 8/15/11 358,002 ------------- Total U.S. government and agencies obligations (cost: $8,232,360) 9,231,954 ------------- Total long-term debt securities (cost: $8,232,360) 9,231,954 ------------- SHARES - ------ SHORT-TERM SECURITIES (.9%) 75,737 Dreyfus Funds--Cash Management Plus Fund, current rate 1.266% 75,737 5,025 Federated Money Market Obligations Trust -- Prime Obligation Fund, current rate 1.370% 5,025 ------------- Total short-term securities (cost: $80,762) 80,762 ------------- Total investments in securities (cost: $8,313,122) (c) $ 9,312,716 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) For zero coupon issues (strips) the interest rate disclosed is the effective yield at the date of acquisition. (c) At December 31, 2002 the cost of securities for federal income tax purposes was $8,341,922. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 974,327 Gross unrealized depreciation (3,533) ------------- Net unrealized appreciation $ 970,794 ============= See accompanying notes to financial statements. 87 Value Stock Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE (a) ------ ----------- COMMON STOCK (98.8%) BASIC MATERIALS (4.9%) Chemicals (4.4%) 28,400 Air Products and Chemicals, Inc. $ 1,214,100 44,900 Dow Chemical Company 1,333,530 58,100 EI Dupont De Nemours & Company 2,463,440 ----------- 5,011,070 ----------- Paper and Forest (.5%) 14,600 Bowater, Inc. 612,470 ----------- CAPITAL GOODS (4.2%) Aerospace/Defense (.7%) 11,900 United Technologies Corporation 737,086 ----------- Engineering/Construction (.4%) 9,200 Caterpillar, Inc. 420,624 ----------- Manufacturing (3.1%) 18,100 3M Company 2,231,730 71,300 Tyco International, Ltd. (c) 1,217,804 ----------- 3,449,534 ----------- COMMUNICATION SERVICES (7.1%) Telephone (7.1%) 8,720 AT&T Corporation 227,679 64,250 Bellsouth Corporation 1,662,147 105,210 SBC Communications, Inc. 2,852,243 84,605 Verizon Communications 3,278,444 ----------- 8,020,513 ----------- CONSUMER CYCLICAL (7.8%) Auto (2.6%) 11,900 Borg-Warner Automotive, Inc. 599,998 9,400 Eaton Corporation 734,234 29,100 Ford Motor Company 270,630 7,800 General Motors Corporation 287,508 29,700 Lear Corporation (b) 988,416 ----------- 2,880,786 ----------- Leisure (2.5%) 141,500 Brunswick Corporation 2,810,190 ----------- Lodging--Hotel (1.1%) 98,400 Hilton Hotels $ 1,250,664 ----------- Publishing (1.1%) 8,400 Gannett Company, Inc. 603,120 15,200 Tribune Company 690,992 ----------- 1,294,112 ----------- Retail (.5%) 26,400 JC Penney Company 607,464 ----------- CONSUMER STAPLES (11.0%) Beverage (.6%) 14,100 The Coca-Cola Company 617,862 ----------- Broadcasting (2.6%) 31,300 Clear Channel Communications, Inc. (b) 1,167,177 31,004 Comcast Corporation (b) 730,764 24,500 Comcast Corporation (b) 553,455 58,300 Liberty Media Corporation (b) 521,202 ----------- 2,972,598 ----------- Entertainment (1.7%) 73,200 The Walt Disney Company 1,193,892 18,500 Viacom, Inc. (b) 754,060 ----------- 1,947,952 ----------- Food (1.3%) 37,100 Kraft Foods, Inc. 1,444,303 ----------- Household Products (1.5%) 19,800 Procter & Gamble Company 1,701,612 ----------- Personal Care (1.0%) 20,100 Avon Products, Inc. 1,082,787 ----------- Restaurants (.5%) 35,200 McDonald's Corporation 566,016 Retail (.7%) 13,700 CVS Corporation 342,089 30,800 Winn-Dixie Stores, Inc. 470,624 ----------- 812,713 ----------- Service (.7%) 25,900 Manpower, Inc. 826,210 -----------

See accompanying notes to investments in securities. 88

MARKET SHARES VALUE (a) ------ ----------- CONSUMER STAPLES--CONTINUED Tobacco (.4%) 11,300 Philip Morris Companies, Inc. $ 457,989 ----------- ENERGY (11.7%) Oil (8.5%) 29,560 Chevron Corporation 1,965,149 11,600 ConocoPhillips 561,324 13,200 Devon Energy Corporation 605,880 185,804 Exxon Mobil Corporation 6,491,991 ----------- 9,624,344 ----------- Oil & Gas (3.2%) 26,000 EOG Resources, Inc. 1,037,920 30,800 Nabors Industries, Ltd. (b)(c) 1,086,316 26,500 Smith International, Inc. (b) 864,430 36,000 Veritas DGC, Inc. (b) 562,320 ----------- 3,550,986 ----------- FINANCIAL (31.2%) Auto Finance (.6%) 29,700 Fleet Boston Financial Corporation 721,710 ----------- Banks (14.8%) 59,380 Bank of America Corporation 4,131,067 28,700 Bank One Corporation 1,048,985 23,800 JP Morgan Chase and Company 571,200 25,300 The Bank of New York Company, Inc. 606,188 163,894 U.S. Bancorp 3,477,831 92,600 Wachovia Corporation 3,374,344 64,400 Wells Fargo & Company 3,018,428 11,900 Zion BanCorporation 468,253 ----------- 16,696,296 ----------- Consumer Finance (1.6%) 35,000 American Express Company 1,237,250 26,800 MBNA Corporation 509,736 ----------- 1,746,986 ----------- Finance--Diversified (.5%) 9,800 Freddie Mac 578,690 ----------- Insurance (5.1%) 49,600 Allstate Corporation $ 1,834,704 35,350 American International Group 2,044,998 10,400 Chubb Corporation 542,880 12,200 Marsh and McLennan Companies, Inc. 563,762 29,800 MetLife, Inc. 805,792 ----------- 5,792,136 ----------- Investment Bankers/Brokers (6.8%) 114,206 Citigroup, Inc. (b) 4,018,909 13,100 Goldman Sachs Group, Inc. 892,110 13,700 Merrill Lynch & Company, Inc. 519,915 27,710 Morgan Stanley 1,106,183 41,300 T. Rowe Price Associates, Inc. 1,126,664 ----------- 7,663,781 ----------- Real Estate Investment Trust (1.3%) 29,900 Developers Diversified Realty Corporation 657,501 29,800 Prologis 749,470 ----------- 1,406,971 ----------- Savings and Loans (.5%) 18,900 Charter One Financial, Inc. 542,997 ----------- HEALTH CARE (5.2%) Drugs (2.9%) 18,700 Bristol-Myers Squibb Company 432,905 8,600 Eli Lilly & Company 546,100 38,700 Pfizer, Inc. 1,183,059 29,600 Wyeth 1,107,040 ----------- 3,269,104 ----------- Health Care--Diversified (.8%) 23,100 Abbott Laboratories 924,000 ----------- Managed Care (.5%) 10,700 Express Scripts, Inc. (b) 514,028 ----------- Medical Products/Supplies (.5%) 18,900 Becton Dickinson and Company 580,041 -----------

See accompanying notes to investments in securities. 89

MARKET SHARES VALUE (a) ------ ----------- HEALTH CARE--CONTINUED Special Services (.5%) 19,900 Fisher Scientific International, Inc. (b) $ 598,592 ----------- TECHNOLOGY (8.9%) Communications Equipment (.2%) 33,800 Tellabs, Inc. (b) 245,726 ----------- Computer Hardware (4.3%) 54,500 Hewlett-Packard Company 946,120 33,300 International Business Machines Corporation 2,580,750 164,800 Symbol Technologies, Inc. 1,354,656 ----------- 4,881,526 ----------- Computer Services & Software (1.3%) 39,300 AOL Time Warner, Inc. (b) 514,830 83,900 Oracle Systems (b) 906,120 ----------- 1,420,950 ----------- Electrical Semiconductor (1.9%) 20,100 Analog Devices, Inc. (b) 479,787 36,900 National Semiconductor Corporation (b) 553,869 75,800 Texas Instruments, Inc. $ 1,137,758 ----------- 2,171,414 ----------- Electronics-- Computer Distribution (1.2%) 26,200 WW Grainger, Inc. 1,350,610 ----------- TRANSPORTATION (.8%) Airlines (.8%) 116,600 Northwest Airlines, Inc. (b) 855,844 ----------- UTILITIES (6.0%) Electric Companies (6.0%) 14,200 Entergy Corporation 647,378 23,300 Exelon Corporation 1,229,541 19,100 Firstenergy Corporation 629,727 134,000 Nisource, Inc. 2,680,000 72,800 Pacific Gas and Electric Company (b) 1,011,920 16,600 Public Service Enterprise Group, Inc. 532,860 ----------- 6,731,426 ----------- Total common stock (cost: $111,947,634) 111,392,713 -----------

SHARES ------ SHORT-TERM SECURITIES (1.1%) 1,214,760 Dreyfus Funds -- Cash Management Plus Fund, current rate 1.266% 1,214,760 12,368 Federated Money Market Obligations Trust -- Prime Obligation Fund, current rate 1.370% 12,368 35,534 Wells Fargo & Company -- Cash Investment Fund, current rate 1.326% 35,534 ------------- Total short-term securities (cost: $1,262,662) 1,262,662 ------------- Total investments in securities (cost: $113,210,296) (d) $ 112,655,375 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 2.0% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $115,416,615. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 6,316,331 Gross unrealized depreciation (9,077,571) ------------ Net unrealized depreciation $ (2,761,240) ============ See accompanying notes to investments in securities. 90 Small Company Value Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE (a) ------ ----------- COMMON STOCK (92.8%) BASIC MATERIALS (15.7%) Agriculture Products (2.0%) 9,900 Bunge, Ltd. $ 238,194 10,500 Corn Products International, Inc. 316,365 19,500 NCO Group, Inc. (b) 311,025 12,400 Valmont Industries, Inc. (b) 240,560 ----------- 1,106,144 ----------- Chemicals (6.1%) 102,100 Agrium, Inc. (c) 1,154,751 22,300 American Pacific Corporation (b) 220,547 2,300 Cabot Microelectronics Corporation (b) 108,560 3,700 Cambrex Corporation 111,777 27,500 IMC Global, Inc. 293,425 63,200 Methanex Corporation (c) 529,616 12,100 Minerals Technologies, Inc. 522,115 36,800 Omnova Solutions, Inc. (b) 148,304 19,500 PolyOne Corporation 76,440 2,200 Spartech Corporation 45,386 5,400 Stepan Company 135,000 ----------- 3,345,921 ----------- Construction (1.0%) 17,600 Martin Marietta Materials, Inc. 539,616 ----------- Iron and Steel (1.9%) 21,000 AK Steel Corporation (b) 168,000 38,800 Allegheny Technologies, Inc. 241,724 4,400 Cleveland-Cliffs, Inc. 87,340 4,000 GrafTech International, Ltd. (b) 23,840 17,300 NS Group, Inc. (b) 112,796 30,600 United States Steel Corporation 401,472 ----------- 1,035,172 ----------- Mining (2.6%) 32,800 Phelps Dodge Corporation (b) 1,038,120 57,700 Stillwater Mining Company (b) 308,695 53,600 Titanium Metals Corporation $ 102,376 ----------- 1,449,191 ----------- Paper and Forest (2.1%) 12,100 Caraustar Industries, Inc. 114,708 58,300 Graphic Packaging International Corporation (b) 328,812 21,500 Louisiana-Pacific Corporation (b) 173,290 22,600 Packaging Corporation of America (b) 412,224 3,100 Rayonier, Inc. 140,275 ----------- 1,169,309 ----------- CAPITAL GOODS (20.8%) Aerospace/Defense (2.4%) 67,500 AAR Corporation 347,625 12,200 Esterline Technologies Corporation (b) 215,574 24,900 Orbital Science (b) 105,078 6,500 Precision Castparts Corporation 157,625 17,500 Teledyne Technologies, Inc. (b) 274,400 8,800 United Defense Industries, Inc. (b) 205,040 ----------- 1,305,342 ----------- Electrical Equipment (2.1%) 57,700 Technitrol, Inc. 931,278 19,700 Trimble Navigation, Ltd. (b) 246,053 ----------- 1,177,331 ----------- Engineering/Construction (2.0%) 16,800 Dycom Industries, Inc. (b) 222,600 18,200 ElkCorp 314,860 19,200 Granite Construction, Inc. 297,600 21,500 Joy Global, Inc. (b) 242,090 ----------- 1,077,150 Machinery (5.3%) 11,500 Agco Corporation 254,150 22,700 Asyst Technologies, Inc. (b) 166,845

See accompanying notes to investments in securities. 91

MARKET SHARES VALUE (a) ------ ----------- CAPITAL GOODS--CONTINUED 3,300 Denison International PLC (b)(c) $ 52,800 35,400 Hanover Compressor Company (b) 324,972 63,600 JLG Industries, Inc. 478,908 26,400 Kadant, Inc. (b) 396,000 4,600 Regal Beloit 95,220 80,200 Wabtec Corporation 1,126,008 ----------- 2,894,903 ----------- Manufacturing (4.9%) 7,900 Excel Technology, Inc. (b) 141,331 16,200 Flowserve Corporation (b) 239,598 1,287 GSI Group, Inc. (b)(c) 7,761 27,200 Maverick Tube Corporation (b) 354,416 5,900 Pentair, Inc. 203,845 6,300 Roper Industries, Inc. 230,580 13,500 RTI International Metals, Inc. (b) 136,350 20,100 Steelcase, Inc. 220,296 19,400 Stewart & Stevenson Services, Inc. (b) 274,316 14,100 Tredegar Corporation 211,500 27,900 Trinity Industries, Inc. 528,984 6,000 York International Corporation 153,420 ----------- 2,702,397 ----------- Metal Fabrication (1.5%) 39,175 Ladish Company, Inc. (b) 315,750 13,508 Penn Engineering & Manufacturing Corporation 143,860 11,000 Triumph Group, Inc. (b) 351,340 ----------- 810,950 ----------- Office Equipment (.2%) 5,400 Wallace Computer Services, Inc. 116,154 ----------- Trucks and Parts (2.4%) 8,100 Cummins Engine Company, Inc. 227,853 44,600 Navistar International Corporation (b) 1,084,226 ----------- 1,312,079 ----------- COMMUNICATION SERVICES (.5%) Telephone (.5%) 68,000 PTEK Holdings, Inc. (b) $ 299,200 ----------- CONSUMER CYCLICAL (11.6%) Auto (3.3%) 35,600 American Axle & Manufacturing Holdings (b) 833,752 6,100 Borg-Warner Automotive, Inc. 307,562 18,700 Cooper Tire and Rubber Company 286,858 9,500 Lear Corporation (b) 316,160 67,600 Titan International, Inc. (b) 90,584 ----------- 1,834,916 ----------- Leisure (2.1%) 12,500 Callaway Golf Company 165,625 3,500 International Game Technology (b) 265,720 42,500 Six Flags, Inc. (b) 242,675 31,000 Steinway Musical Instruments, Inc. (b) 504,370 ----------- 1,178,390 ----------- Publishing (3.6%) 5,200 Bowne & Company, Inc. 62,140 52,500 Hollinger International, Inc. 533,400 21,000 Journal Register Company (b) 373,380 66,800 Readers Digest Association 1,008,680 ----------- 1,977,600 ----------- Retail (.4%) 1,000 Brookstone, Inc. (b) 14,460 7,900 Dillards, Inc. 125,294 9,189 Whitehall Jewellers, Inc. (b) 87,296 ----------- 227,050 ----------- Service (1.9%) 31,300 Argosy Gaming Company (b) 592,509 42,800 Integrated Electrical Services, Inc. (b) 164,780 34,100 Stewart Enterprises, Inc. (b) 189,971

See accompanying notes to investments in securities. 92

MARKET SHARES VALUE (a) ------ ----------- CONSUMER CYCLICAL--CONTINUED 5,000 Viad Corporation $ 111,750 ----------- 1,059,010 ----------- Textiles (.3%) 5,500 Kellwood Company 143,000 ----------- CONSUMER STAPLES (4.5%) Broadcasting (.5%) 2,700 Cox Enterprises (b) 61,587 11,000 Entravision Communications (b) 109,780 11,600 Gray Television, Inc. 113,100 ----------- 284,467 ----------- Food (.8%) 6,300 Del Monte Foods Company (b) 48,510 9,300 Interstate Bakeries Corporation 141,825 24,100 Wild Oats Markets, Inc. (b) 248,712 ----------- 439,047 ----------- Household Products (.3%) 9,100 Tupperware Corporation 137,228 ----------- Personal Care (.7%) 17,600 Bally Total Fitness Holdings (b) 124,784 18,200 Steiner Leisure, Ltd. (b) 253,708 ----------- 378,492 ----------- Retail (.6%) 7,600 Duane Reade, Inc. (b) 129,200 9,000 Longs Drug Stores Corporation 186,660 ----------- 315,860 ----------- Service (1.6%) 26,300 Heidrick & Struggles International (b) 385,821 6,300 John H. Harland Company 139,419 29,400 Tetra Tech, Inc. (b) 358,680 ----------- 883,920 ----------- ENERGY (6.8%) Mining (1.4%) 26,900 Peabody Holding Company 786,287 ----------- Oil (.8%) 43,200 Newpark Resources, Inc. (b) $ 187,920 15,500 NUI Corporation 267,530 ----------- 455,450 ----------- Oil & Gas (4.6%) 23,900 Cabot Oil & Gas Corporation 592,242 45,400 Canadian 88 Energy Corporation (b)(c) 72,640 18,900 Core Laboratories NV (b) (c) 214,515 45,700 Global Industries, Ltd. (b) 190,569 8,000 Nuevo Energy Company (b) 88,800 25,500 Ocean Energy, Inc. 509,235 5,500 Patterson-UTI Energy, Inc. (b) 165,935 4,200 Stone Energy Corporation (b) 140,112 18,300 Vintage Petroleum, Inc. 193,065 26,000 W-H Energy Services, Inc. (b) 379,340 ----------- 2,546,453 ----------- FINANCIAL (2.6%) Banks (.4%) 11,400 Staten Island BanCorporation, Inc. 229,596 ----------- Consumer Finance (.3%) 8,500 American Capital Strategies Limited 183,515 ----------- Finance -- Diversified (.3%) 8,000 Dollar Thrifty Auto Group, Inc. (b) 169,200 ----------- Insurance (1.0%) 4,983 Fidelity National Finance 163,592 14,500 Hub International, Ltd. (c) 186,035 3,700 Odyssey Reinsurance Holdings Corporation 65,490 3,300 Platinum Underwriters Holdings (b)(c) 86,955 2,100 RLI Corporation 58,590 ----------- 560,662 -----------

See accompanying notes to investments in securities. 93

MARKET SHARES VALUE (a) ------ ----------- FINANCIAL--CONTINUED Real Estate Investment Trust (.5%) 9,900 Heritage Property Investment Trust $ 247,203 ----------- Savings and Loans (.1%) 1,989 New York Community Bancorp, Inc. 57,442 ----------- HEALTH CARE (1.2%) Biotechnology (.1%) 4,318 Invivo Corporation (b) 60,625 ----------- Drugs (.4%) 2,200 Atrix Laboratories, Inc. (b) 33,746 14,100 Sangstat Medical Corporation (b) 159,330 ----------- 193,076 ----------- Hospital Management (.5%) 5,500 Community Health Systems (b) 113,245 19,400 Province Healthcare Company (b) 188,762 ----------- 302,007 ----------- Medical Products/Supplies (.2%) 41,900 Aradigm Corporation (b) 67,878 4,800 ArthoCare Corporation (b) 47,280 ----------- 115,158 ----------- TECHNOLOGY (22.1%) Communications Equipment (2.1%) 22,900 Anaren Microwave, Inc. (b) 201,520 6,100 Anixter International, Inc. (b) 141,825 20,200 Commscope, Inc. (b) 159,580 28,500 Inet Technologies, Inc. (b) 173,850 30,900 Plantronics, Inc. (b) 467,517 ----------- 1,144,292 ----------- Computer Hardware (.6%) 51,600 Natural Microsystems Corporation (b) 99,072 3,900 SanDisk Corporation (b) 79,170 42,600 Simple Technology (b) 128,652 ----------- 306,894 ----------- Computer Peripherals (1.5%) 28,500 Electronics For Imaging, Inc. (b) $ 463,439 17,400 Hutchinson Technology, Inc. (b) 360,180 ----------- 823,619 ----------- Computer Services & Software (2.8%) 33,600 Carreker Corporation (b) 152,208 39,000 Earthlink, Inc. (b) 212,550 8,100 Hall Kinion & Associates, Inc. (b) 45,287 43,900 McData Corporation (b) 311,690 22,200 Micros Systems, Inc. (b) 497,724 46,500 Numerical Technologies, Inc. (b) 160,890 7,900 Proquest Company (b) 154,840 ----------- 1,535,189 ----------- Electrical Instruments (3.9%) 35,700 BEI Technologies, Inc. 399,483 14,500 Benchmark Electronics Inc. (b) 415,570 26,600 Cognex Corporation (b) 490,238 21,300 Coherent, Inc. (b) 424,935 16,000 Credence Systems Corporation (b) 149,280 15,100 LeCroy Corporation (b) 167,610 6,500 Littelfuse, Inc. (b) 109,590 3,850 OpticNet, Inc. (b) 308 ----------- 2,157,014 ----------- Electrical Semiconductor (5.4%) 22,000 Actel Corporation (b) 356,840 21,900 Aware, Inc. (b) 47,742 43,700 ChipPAC, Inc. (b) 155,135 30,300 Cypress Semiconductor Corporation (b) 173,316 12,800 Entegris, Inc. (b) 131,840 21,500 Helix Technology Corporation 240,800 12,100 Metron Technology NV (b) 18,634 47,900 Triquint Semiconductor, Inc. (b) 203,096 45,400 Varian Semiconductor Equipment (b) 1,078,749 46,900 Veeco Instruments, Inc. (b) 542,164 ----------- 2,948,316 -----------

See accompanying notes to investments in securities. 94

MARKET SHARES VALUE (a) ------ ----------- TECHNOLOGY--CONTINUED Electronics -- Computer Distribution (2.4%) 800 Avnet, Inc. $ 8,664 11,900 AVX Corporation 116,620 13,000 CoorsTek, Inc. (b) 332,150 58,000 Kemet Corporation (b) 506,920 19,400 Thomas and Betts Corporation (b) 327,860 ------------ 1,292,214 ------------ Equipment Semiconductor (3.0%) 22,800 August Technology Corporation (b) 115,368 52,300 Brooks-PRI Automation, Inc. (b) 599,358 33,200 John H. Harland Company (b) 614,864 20,000 MKS Instruments, Inc. (b) 328,600 ------------ 1,658,190 ------------ Service -- Data Processing (.4%) 39,900 Ciber, Inc. (b) 205,485 ------------ TRANSPORTATION (7.0%) Air Freight (1.8%) 70,100 EGL, Inc. (b) 998,925 ------------ Airlines (2.7%) 15,600 Alaska Airgroup, Inc. (b) $ 337,740 27,900 ExpressJet Holdings, Inc. (b) 285,975 32,700 Frontier Airlines, Inc. (b) 221,052 120,400 Mesa Air Group, Inc. (b) 490,028 29,600 Midwest Express Holdings, Inc. (b) 158,360 ------------ 1,493,155 ------------ Railroads (1.2%) 22,300 GATX Corporation 508,886 19,800 RailAmerica, Inc. (b) 141,966 ------------ 650,852 ------------ Shipping (.6%) 8,100 Teekay Shipping Corporation (c) 329,670 ------------ Transport Services (.7%) 88,900 OMI Corporation (b) 365,379 ------------ Total common stock (cost: $59,835,491) 51,015,707 ------------

SHARES/PAR RATE MATURITY ---------- ---- -------- SHORT-TERM SECURITIES (7.8%) $ 2,000,000 American Express Company 1.309% 1/14/03 1,998,945 2,265,103 Wells Fargo & Company -- Cash Investment Fund, current rate 1.326% 2,265,103 ------------- Total short-term securities (cost: $4,264,171) 4,264,048 ------------- Total investments in securities (cost: $64,099,662) (d) $ 55,279,755 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 4.8% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $64,442,923. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 3,785,546 Gross unrealized depreciation (12,948,714) ------------- Net unrealized depreciation $ (9,163,168) ============= See accompanying notes to investments in securities. 95 Global Bond Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL (b) COUPON MATURITY VALUE (a) ------------- ------ -------- ----------- LONG-TERM DEBT SECURITIES (95.9%) AUSTRIA (.5%) Government (.5%) 250,000 Republic of Austria (Euro) 5.000% 07/15/12 $ 277,094 ----------- BELGIUM (1.2%) Government (1.2%) 570,000 Kingdom Of Belgium (Euro) 5.750% 03/28/08 659,037 ----------- BRAZIL (.3%) Government (.3%) 1,000,000 International Bank of Reconstruction and Developement (Brazilian Real) (c) 5.202% 04/04/05 142,175 ----------- CANADA (1.0%) Electric Companies (.5%) 200,000 Hydro-Quebec (U.S. Dollar) 8.000% 02/01/13 253,821 Government (.5%) 250,000 Manitoba (U.S. Dollar) 2.750% 01/17/06 252,191 ----------- 506,012 ----------- DENMARK (2.8%) Government (2.8%) 10,500,000 Denmark (Dannish Krona) 8.000% 05/15/03 1,509,752 ----------- FRANCE (3.6%) Government (3.6%) 320,000 Government of France (Euro) 5.000% 01/12/06 354,697 2,500,000 Government of France (Euro) (c) 5.104% 10/25/25 827,339 580,000 Government of France (Euro) 3.500% 07/12/04 615,449 100,000 Government of France (Euro) 5.000% 04/25/12 111,142 ----------- 1,908,627 ----------- GERMANY (16.9%) Government (16.9%) 4,010,000 Bundesrepublic (Euro) 5.000% 07/04/12 4,474,870 260,000 Bundesrepublic (Euro) 5.500% 01/04/31 300,238 780,000 Bundesrepublic (Euro) 6.250% 01/04/30 986,658 3,120,000 Bundesrepublic (Euro) 3.250% 02/17/04 3,296,719 ----------- 9,058,485 ----------- GREECE (3.9%) Electrical Equipment (.1%) 80,000 Public Power Corporation (Euro) 4.500% 03/12/09 83,134 Government (3.8%) 1,750,000 Greek Government (Euro) 6.300% 01/29/09 2,068,675 ----------- 2,151,809 ----------- ITALY (3.9%) Government (3.9%) 1,880,000 Buoni Poliennali Del Tesoro (Euro) 4.750% 03/15/06 2,072,326 -----------

See accompanying notes to investments in securities. 96

MARKET PRINCIPAL (b) COUPON MATURITY VALUE (a) ------------- -------- ---------- ----------- JAPAN (5.7%) Finance-- Diversified (5.7%) 62,000,000 Developmental Bank of Japan (Japanese Yen) 1.400% 06/20/12 $ 545,023 84,000,000 Japan Finance Corporation (Japanese Yen) 1.550% 02/21/12 2,542,273 ---------- 3,087,296 ---------- LUXEMBOURG ( -- ) Finance -- Diversified 30,000 Sanitec International (Euro) 9.000% 05/15/12 29,593 ---------- MEXICO (3.9%) Government (3.9%) 6,400,000 Mexican Bonos (Mexican Peso) 9.500% 03/08/07 610,398 6,400,000 Mexican Bonos (Mexican Peso) 10.500% 8/24/06 633,524 100,000,000 United Mexican States (Japanese Yen) 3.000% 12/01/03 853,427 ---------- 2,097,349 ---------- NETHERLANDS (.3%) Chemicals (.3%) 170,000 Carmeuse Lime (Euro) 10.750% 07/15/12 158,774 ---------- NEW ZEALAND (.2%) Food (.2%) 100,000 Fonterra (Euro) 5.250% 05/21/07 110,638 ---------- SUPRANATIONAL (1.4%) Supranational Bank (1.4%) 2,430,000 European Bank of Reconstruction and Development (U.S. Dollar) (c) 5.100% 05/12/05 780,516 ---------- SWEDEN (8.8%) Government (8.8%) 5,400,000 Sweden (Swedish Krona) 3.500% 04/20/06 610,135 6,100,000 Sweden (Swedish Krona) 5.000% 01/15/04 709,530 3,700,000 Sweden (Swedish Krona) 5.000% 01/28/09 438,741 24,600,000 Sweden (Swedish Krona) 5.500% 10/08/12 2,991,636 ---------- 4,750,042 ---------- UNITED KINGDOM (4.7%) Finance-Diversified (.1%) 50,000 RHM Financial, Ltd. (British Sterling Pound) 11.500% 02/28/11 81,300 Government (4.6%) 340,000 UK Treasury (British Sterling Pound) 4.250% 06/07/32 529,741 900,000 UK Treasury (British Sterling Pound) 9.000% 07/12/11 1,916,595 ---------- 2,527,636 ---------- UNITED STATES (36.6%) Aerospace/Defense (.2%) 100,000 B.F. Goodrich Company 7.625% 12/15/12 103,257 Agriculture Products (.7%) 250,000 Archer-Daniels-Midland Company 7.000% 02/01/31 287,862 100,000 Cargill, Inc. 144A Issue (g) 6.375% 06/01/12 111,961

See accompanying notes to investments in securities. 97

MARKET PRINCIPAL (b) COUPON MATURITY VALUE (a) ------------ ------ -------- ---------- UNITED STATES--CONTINUED Airlines (.3%) 150,000 American Airlines, Inc. 2.020% 09/23/07 $ 149,847 Aluminum (.2%) 100,000 Alcoa, Inc. 4.250% 08/15/07 104,114 Banks (.7%) 300,000 Wells Fargo Bank NA 7.550% 06/21/10 357,010 Broadcasting (.8%) 200,000 TCI Communications Inc 6.375% 05/01/03 200,014 250,000 USA Interactive 7.000% 01/15/13 258,506 Chemicals (.1%) 80,000 Fresenius Med (Euro) 7.375% 06/15/11 78,075 Collateralized Mortgage Obligations/Mortgage Revenue Bonds (.5%) 250,000 Countrywide Home Loan 5.625% 07/15/09 264,536 Commercial Finance (.4%) 200,000 General Electric Capital Corporation 6.750% 03/15/32 221,118 Commercial Mortgage-Backed Securities (.8%) 200,000 First Union Lehman Brothers Commercial Mortgage 6.560% 11/18/35 226,241 200,000 Eastview Credit 144A Issue (g) 6.950% 06/15/04 206,691 Construction (.3%) 150,000 Vulcan Materials, Inc. 6.400% 02/01/06 165,825 Consumer Finance (.4%) 200,000 Citibank Credit Card Issuance Trust (d) 1.440% 12/15/05 199,916 Corporate Bonds (.4%) 200,000 Fleet Credit Card Master Trust II (d) 1.920% 04/15/10 200,097 Electric Companies (1.3%) 250,000 Appalachian Power Company 4.800% 06/15/05 251,024 150,000 Energy Louisiana, Inc. 8.500% 06/01/03 153,441 250,000 Wisconsin Power & Light 7.000% 06/15/07 276,700 Food (.5%) 250,000 Unilever Capital Corporation 5.900% 11/15/32 255,733 Health Care -- Diversified (.5%) 246,211 Rosewood Care Centers Capital Funding Corporation 7.250% 11/01/13 256,534 Insurance (.5%) 250,000 Prudential Insurance Company of America 144A Issue (g) 6.600% 05/15/08 276,690 Investment Bankers/Brokers (.8%) 180,000 GMAC (Euro) 5.000% 01/18/05 195,569 200,000 Morgan Stanley 6.750% 04/15/11 222,254 Publishing (.4%) 200,000 Gannett Company, Inc. 5.500% 04/01/07 217,499 Real Estate Investment Trust (1.2%) 150,000 Prologis 6.700% 04/15/04 156,259 200,000 Reckson Operating Partnership LP 7.400% 03/15/04 209,580 250,000 Vornado Realty Trust 5.625% 06/15/07 254,734

See accompanying notes to investments in securities. 98

MARKET PRINCIPAL (b) COUPON MATURITY VALUE (a) ------------ ------ -------- ----------- UNITED STATES--CONTINUED Retail (.7%) 100,000 American Stores Company 7.200% 06/09/03 $ 102,025 250,000 Kohls Corporation 6.000% 01/15/33 251,327 Savings and Loans (.5%) 250,000 Washington Mutual, Inc. 6.875% 05/15/11 279,018 Technology (.5%) 250,000 IBM Corporation 5.875% 11/29/32 247,375 U.S. Government and Agencies Obligations (23.9%) 250,000 FHLMC 2.750% 12/30/05 252,414 197,663 FHLMC 6.000% 09/01/32 204,675 495,359 FHLMC 6.500% 09/01/32 516,219 500,000 FNMA 2.625% 06/27/05 502,225 500,000 FNMA 2.750% 05/04/05 505,000 250,000 FNMA 3.100% 05/19/06 251,563 500,000 FNMA (e) 5.500% 01/01/18 519,197 368,387 FNMA 6.000% 09/01/17 385,491 407,499 FNMA 6.000% 10/01/32 421,827 149,120 FNMA 6.000% 10/01/32 154,363 344,249 FNMA 6.000% 11/01/32 356,353 750,000 FNMA (e) 6.000% 01/01/33 772,266 98,048 FNMA 6.230% 01/01/08 108,212 1,250,000 FNMA (e) 6.500% 01/01/32 1,301,173 584,352 FNMA 6.500% 03/01/32 608,706 95,495 FNMA 6.500% 05/01/32 100,013 547,575 FNMA 6.500% 08/01/32 570,406 97,165 FNMA 6.500% 09/01/32 101,214 196,708 FNMA 6.500% 10/01/32 204,906 223,466 FNMA 7.000% 02/01/29 237,092 500,000 FNMA (e) 7.000% 01/01/31 525,781 618,607 FNMA 7.000% 11/01/31 650,678 349,166 FNMA 7.000% 02/01/32 369,449 1,143,305 Inflationary Index Bond (f) 3.375% 01/15/07 1,238,164 500,000 U.S. Treasury Bond 5.250% 02/15/29 522,481 1,250,000 U.S. Treasury Bond 6.000% 02/15/26 1,432,463 ----------- 19,553,163 ----------- VENEZUELA (.2%) Government (.2%) 200,000 Venezulea (Deutche Mark) 10.250% 10/4/03 99,637 ----------- Total long-term debt securities (cost: $49,258,585) 51,479,961 -----------

See accompanying notes to investments in securities. 99

MARKET SHARES/PRINCIPAL COUPON MATURITY VALUE(a) ---------------- ------ -------- ------------ SHORT-TERM SECURITIES (6.7%) 118,185 Bankers Trust Institutional Liquid Assets, current rate 1.420% $ 118,185 150,257 Conoco, Inc. (d) 2.625% 04/15/03 150,257 2,421,005 Dreyfus Funds -- Cash Management Plus, current rate 1.266% 2,421,005 30,276 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 2.140% 30,276 900,000 Gannet Company (h) 1.183% 01/14/03 899,586 ------------ Total short-term securities (cost: $3,618,883) 3,619,309 ------------ Total investments in securities (cost: $52,877,468) (i) $ 55,099,270 ============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Principal amounts for debt securities are denominated in the currencies indicated. (c) For zero coupon issues (strips) the interest rate disclosed is the effective yield at the date of acquisition. (d) Floating rate bond. (e) At December 31, 2002 the total cost of investments issued on a when-issued or forward commitment basis is $3,105,723 (f) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principle amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principle amount. (g) Long term debt securities sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold to dealers in that program or other accredited investors. These securities have been determined to be liquid under guidelines established by the board of directors. At December 31, 2002 these securities totaled $595,342, or 1.1% of net assets. (h) Commercial paper sold within terms of a private placement memorandum exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors". This security has been determined to be liquid under guidelines established by the board of directors. At December 31, 2002 this security represents 1.7% of net assets. (i) At December 31, 2002 the cost of securities for federal income tax purposes was $52,915,562. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,762,603 Gross unrealized depreciation (578,895) ----------- Net unrealized appreciation $ 2,183,708 =========== See accompanying notes to investments in securities. 100 Index 400 Mid-Cap Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE (a) ------ ----------- COMMON STOCK (94.3%) BASIC MATERIALS (4.5%) Chemicals (2.8%) 1,653 A Schulman, Inc. $ 30,762 4,016 Airgas, Inc. (b) 69,276 2,338 Albemarle Corporation 66,516 3,448 Cabot Corporation 91,510 1,350 Cabot Microelectronics Corporation (b) 63,720 6,385 Crompton Corporation 37,992 2,112 Cytec Industries, Inc. (b) 57,615 2,269 Ferro Corporation 55,432 1,969 FMC Corporation (b) 53,793 1,591 HB Fuller Company 41,175 6,451 IMC Global, Inc. 68,832 2,887 Lubrizol Corporation 88,053 8,970 Lyondell Petrochemical Company 113,381 1,140 Minerals Technologies, Inc. 49,191 3,217 Olin Corporation 50,024 6,448 RPM International, Inc. 98,525 5,880 Solutia, Inc. 21,344 2,811 Valspar Corporation 124,190 ----------- 1,181,331 ----------- Construction (.2%) 2,739 Martin Marietta Materials, Inc. 83,978 ----------- Iron and Steel (.2%) 6,055 AK Steel Corporation (b)48,440 1,253 Carpenter Technology Corporation 15,600 3,150 GrafTech International, Ltd. (b) 18,774 ----------- 82,814 ----------- Paper and Forest (1.3%) 3,102 Bowater, Inc. 130,129 2,866 Longview Fibre Company 20,721 5,861 Packaging Corporation of America (b) 106,905 2,448 PH Glatfelter Company 32,216 1,600 Potlatch Corporation 38,208 1,546 Rayonier, Inc. 69,956 5,421 Sonoco Products Company 124,304 2,892 Wausau-Mosinee Paper Corporation 32,448 ----------- 554,887 ----------- CAPITAL GOODS (6.0%) Aerospace/Defense (.2%) 2,935 Precision Castparts Corporation $ 71,174 577 Sequa Corporation (b) 22,566 ----------- 93,740 ----------- Electrical Equipment (.9%) 4,045 Diebold, Inc. 166,735 3,318 Hubbell, Inc. 116,595 8,964 Vishay Intertechnology, Inc. (b) (d) 100,218 ----------- 383,548 ----------- Engineering/Construction (.8%) 2,686 Dycom Industries, Inc. (b) 35,589 2,316 Granite Construction, Inc. 35,898 3,052 Jacobs Engineering Group, Inc. (b) 108,651 3,903 Quanta Services, Inc. (b) 13,660 4,296 United Rentals, Inc. (b) 46,225 5,437 Varco International, Inc. (b) 94,604 ----------- 334,627 ----------- Machinery (1.1%) 4,210 Agco Corporation 93,041 1,815 Albany International Corporation 37,498 3,050 Cooper Cameron Corporation (b) 151,951 3,733 Hanover Compressor Company (b) 34,269 1,685 Kaydon Corporation 35,739 1,970 Kennametal, Inc. 67,926 1,038 Tecumseh Products Company 45,807 ----------- 466,231 ----------- Manufacturing (2.0%) 1,853 Ametek, Inc. 71,322 1,694 Carlisle Companies, Inc. 70,098 2,466 Donaldson Company, Inc.88,776 2,580 Federal Signal Corporation 50,104 3,098 Flowserve Corporation (b) 45,819 1,882 Nordson Corporation 46,730 2,762 Pentair, Inc. 95,427 4,519 SPX Corporation (b) 169,237 2,209 Teleflex, Inc. 94,744 2,575 Trinity Industries, Inc. 48,822

See accompanying notes to investments in securities. 101

MARKET SHARES VALUE (a) ------ ----------- CAPITAL GOODS--CONTINUED 2,213 York International Corporation $ 56,586 ----------- 837,665 ----------- Office Equipment (.5%) 4,200 Herman Miller, Inc. 77,280 3,307 Hon Industries, Inc. 93,522 2,347 Wallace Computer Services, Inc. 50,484 ----------- 221,286 ----------- Waste Management (.5%) 9,195 Republic Services, Inc. (b) 192,911 ----------- COMMUNICATION SERVICES (.9%) Cellular (.1%) 3,060 Price Communications Corporation (b) 42,320 ----------- Telecommunication (.1%) 5,583 Polycom, Inc. (b) 53,150 ----------- Telephone (.7%) 4,716 Advanced Fibre Communication, Inc. (b) 78,663 12,283 Broadwing, Inc. (b) (d) 43,236 3,293 Telephone and Data Systems, Inc. 154,837 ----------- 276,736 ----------- CONSUMER CYCLICAL (13.7%) Auto (1.1%) 3,812 ArvinMeritor, Inc. 63,546 1,033 Bandag, Inc. 39,956 1,481 Borg-Warner Automotive, Inc. 74,672 2,273 Harsco Corporation 72,486 3,689 Lear Corporation (b) 122,770 1,887 Modine Manufacturing Company 33,362 1,553 Superior Industries International, Inc. 64,232 ----------- 471,024 ----------- Building Materials (.6%) 7,628 Clayton Homes, Inc. 92,909 8,221 DR Horton, Inc. 142,634 ----------- 235,543 ----------- Construction (.2%) 2,048 Lancaster Colony Corporation 80,036 ----------- Houseware (.2%) 3,158 Furniture Brands International, Inc. (b) $ 75,318 ----------- Leisure (.4%) 4,264 Callaway Golf Company 56,498 3,203 Gtech Holdings Corporation (b) 89,236 5,197 Six Flags, Inc. (b) 29,675 ----------- 175,409 ----------- Lodging-- Hotel (.2%) 5,265 Extended Stay America, Inc. (b) 77,659 ----------- Publishing (2.4%) 6,319 A.H. Belo Corporation 134,721 5,108 Harte-Hanks, Inc. 95,366 2,485 Lee Enterprises, Inc. 83,297 1,292 Media General, Inc. 77,455 5,491 Readers Digest Association 82,914 2,195 Scholastic Corporation (b) 78,910 625 Washington Post 461,250 ----------- 1,013,913 ----------- Retail (6.2%) 3,933 99 Cents Only Stores (b) 105,640 5,478 Abercrombie and Fitch Company (b) 112,080 4,028 American Eagle Outfitters, Inc. (b) 55,506 3,785 Barnes & Noble, Inc. (b) 68,395 3,843 BJ's Wholesale Club, Inc. (b) (d) 70,327 4,412 Borders Group, Inc. (b) 71,033 4,710 CDW Computer Centers, Inc. (b) (d) 206,533 5,783 Circuit City Stores, Inc. (b) 103,400 2,737 Claire's Stores, Inc. 60,406 4,979 Coach, Inc. (b) 163,909 6,407 Dollar Tree Stores, Inc. (b) 157,420 5,089 Energizer Holdings, Inc. (b) 141,983 4,258 Fastenal Company 159,207 3,764 Michael's Stores, Inc. (b) 117,813 2,692 Neiman-Marcus Group, Inc. (b) 81,810 1,274 Payless ShoeSource, Inc. (b) 65,573

See accompanying notes to investments in securities. 102

MARKET SHARES VALUE (a) ------ ----------- CONSUMER CYCLICAL--CONTINUED 7,735 Petsmart, Inc. (b) $ 132,501 5,195 Pier 1 Imports, Inc. 98,341 4,364 Ross Stores, Inc. 184,990 8,028 Saks, Inc. (b) 94,249 3,167 Tech Data Corporation (b) 85,382 2,011 The Timerberland Company (b) 71,612 6,508 Williams-Sonoma, Inc. (b) 176,692 ----------- 2,584,802 ----------- Service (1.9%) 5,006 Acxiom Corporation (b) 76,992 3,055 Catalina Marketing Corporation (b) 56,517 5,177 Copart, Inc. (b) 61,296 3,924 Devry, Inc. (b) 65,178 3,860 Mandalay Resort Group (b) 118,155 16,866 Park Place Entertainment Corporation (b) (d) 141,674 3,044 Pittston Brinks Group 56,253 2,358 Plexus Corporation (b) 20,703 1,583 Rollins, Inc. 40,287 3,450 Sothebys Holdings (b) 31,050 4,943 Viad Corporation 110,476 ----------- 778,581 ----------- Textiles (.5%) 3,723 Mohawk Industries, Inc. (b) 212,025 3,022 Unifi, Inc. (b) 15,865 ----------- 227,890 ----------- CONSUMER STAPLES (10.5%) Beverage (.6%) 5,066 Constellation Brands, Inc. (b) 120,115 8,434 Pepsiamericas, Inc. 113,269 ----------- 233,384 ----------- Broadcasting (1.3%) 2,985 Emmis Communications (b) 62,178 2,795 Entercom Communications Corporation (b) 131,141 6,106 Hispanic Broadcasting Corporation (b) 125,478 5,954 Westwood One, Inc. (b) 222,441 ----------- 541,238 ----------- Entertainment (.4%) 2,985 International Speedway Corporation $ 111,311 2,652 Macrovision Corporation (b) 42,538 153,849 Food (2.9%) 5,122 Dean Foods Company (b) 190,026 3,152 Dole Food Company, Inc. 102,692 1,936 Dreyers Grand Ice Cream, Inc. 137,379 7,782 Hormel Foods Corporation1 81,554 2,480 Interstate Bakeries Corporation 37,820 7,852 McCormick & Company, Inc. 182,166 2,660 Sensient Technologies Corporation 59,770 6,139 Smithfield Foods, Inc. (b) 121,798 2,782 The JM Smucker Company 110,751 2,895 Tootsie Roll Industries, Inc. 88,819 ----------- 1,212,775 ----------- Household Products (.6%) 2,599 Blythe Industries, Inc. 69,549 2,238 Church & Dwight Company, Inc. 68,102 5,336 Dial Corporation 108,694 ----------- 246,345 ----------- Personal Care (.1%) 3,810 Perrigo Company (b) 46,291 ----------- Restaurants (1.4%) 1,979 Bob Evan's Farms 46,210 5,464 Brinker International, Inc. (b) 176,214 2,731 CBRL Group, Inc. 82,285 2,842 Cheesecake Factory (b) 102,738 4,253 Outback Steakhouse, Inc. 146,473 951 Papa John's International, Inc. (b) 26,514 ----------- 580,434 ----------- Retail (1.4%) 3,110 Krispy Kreme Doughnuts, Inc. (b) 105,025 2,152 Longs Drug Stores Corporation 44,632 2,612 Ruddick Corporation 35,758

See accompanying notes to investments in securities. 103

MARKET SHARES VALUE (a) ------ ----------- CONSUMER STAPLES--CONTINUED 19,800 Tyson Foods, Inc. (d) $ 222,156 3,256 Whole Foods Market, Inc. (b) 171,689 ----------- 579,260 ----------- Service (1.7%) 1,397 Banta Corporation 43,684 2,583 Career Education Corporation (b) 103,320 8,329 Ceridian Corporation (b) 120,104 1,979 Education Management Corporation (b) 74,410 1,907 Kelly Services, Inc. 47,122 2,124 Korn/Ferry International (b) 15,888 4,305 Manpower, Inc. 137,330 5,756 MPS Group, Inc. (b) 31,888 2,263 Sylvan Learning Systems, Inc. (b) 37,113 2,874 Valassis Communications, Inc. (b) 84,582 ----------- 695,441 ----------- Tobacco (.1%) 1,360 Universal Corporation 50,266 ENERGY (6.9%) Mining (.3%) 2,939 Arch Coal, Inc. 63,453 2,935 Peabody Holding Company 85,790 ----------- 149,243 ----------- Oil (.2%) 6,808 Grant Prideco, Inc. (b) 79,245 ----------- Oil & Gas (6.4%) 8,358 Ensco International, Inc. 246,143 3,507 Equitable Resources, Inc. 122,885 3,669 FMC Technologies, Inc. (b) 74,958 2,636 Forest Oil Corporation (b) 72,648 2,804 Helmerich & Payne, Inc. 78,260 5,144 Murphy Oil Corporation 220,420 4,545 National-Oilwell, Inc. (b) 99,263 3,215 Noble Energy, Inc. 120,723 9,893 Ocean Energy, Inc. 197,563 4,443 Patterson-UTI Energy, Inc. (b) 134,045 6,566 Pioneer Natural Resources Company (b) 165,792 7,544 Pride International, Inc. (b) 112,406 5,697 Smith International, Inc. (b) 185,836 3,399 Tidewater, Inc. 105,709 5,980 Valero Energy Corporation $ 220,901 7,302 Weatherford International, Ltd. (b) (c) (d) 291,569 1,854 Western Gas Resources, Inc. 68,320 7,106 XTO Energy Company 175,518 ----------- 2,692,959 ----------- FINANCIAL (19.0%) Auto Finance (.2%) 8,579 AmeriCredit Corporation (b) 66,401 ----------- Banks (7.0%) 4,184 Associated Banc-Corporation 142,005 3,575 Bank of Hawaii 108,644 8,297 Banknorth Group, Inc. 187,512 2,801 City National Corporation 123,216 6,941 Colonial Bancgroup, Inc. 82,806 3,787 Commerce Bancorp, Inc. 163,561 7,194 Compass Bancshares, Inc. (d) 224,956 4,023 First Virginia Banks, Inc. 149,776 4,741 Firstmerit Corporation 102,690 2,889 Greater Bay Bancorp 49,951 8,840 Hibernia Corporation 170,082 3,624 Investors Financial Services 99,261 5,158 M & T Bank (d) 409,287 3,863 Mercantile Bankshares Corporation 149,073 11,518 National Commerce BanCorporation (d) 274,704 2,735 Provident Financial Group, Inc. 71,192 2,398 Silicon Valley Bancshares (b) 43,764 4,159 TCF Financial Corporation 181,707 1,881 Westamerica BanCorporation 75,579 3,679 Wilmington Trust Corporation 116,551 ----------- 2,926,317 ----------- Commercial Finance (.6%) 3,634 Certegy, Inc. (b) 89,215

See accompanying notes to investments in securities. 104

MARKET SHARES VALUE (a) ------ ----------- FINANCIAL--CONTINUED 4,171 Dun & Bradstreet Corporation (b) $ 143,858 ----------- 233,073 ----------- Consumer Finance (-- ) 3,233 Metris Companies, Inc. 7,986 ----------- Finance--Diversified (.9%) 3,893 Eaton Vance Corporation 109,977 3,915 Neuberger Berman, Inc. 131,113 5,066 PMI Group, Inc. 152,183 ----------- 393,273 ----------- Insurance (4.8%) 2,968 Allmerica Financial Corporation 29,977 3,876 American Financial Group, Inc. 89,419 2,144 AmerUs Group Company 60,611 3,882 Brown & Brown 125,466 2,862 Everest Re Group, Ltd. (c) 158,269 5,840 Expeditor Washington International, Inc. 190,676 4,936 Expeditor Washington International, Inc. 145,020 5,361 Fidelity National Finance 176,002 3,496 HCC Insurance Holdings, Inc. 86,002 2,292 Horace Mann Educators Corporation 35,136 3,106 Leucadial National 115,885 2,574 Mony Group, Inc. 61,622 3,406 Ohio Casualty Corporation (b) 44,108 6,765 Old Republic International Corporation 189,420 3,854 Protective Life Corporation 106,062 5,245 Radian Group, Inc. (d) 194,852 1,655 Stancorp Financial Group, Inc. 80,847 3,798 Unitrin, Inc. 110,978 ----------- 2,000,352 ----------- Investment Bankers/Brokers (1.6%) 4,423 AG Edwards, Inc. 145,782 20,283 E*trade Group, Inc. (b) (d) 98,575 2,598 Investment Technology Group, Inc. (b) $ 58,091 3,339 LaBranche & Company, Inc. (b) 88,951 3,635 Legg Mason, Inc. 176,443 4,505 Waddell & Reed Financial, Inc. 88,613 ----------- 656,455 ----------- Real Estate Investment Trust (1.3%) 3,510 Hospitality Properties Trust 123,552 3,640 Lennar Corporation 187,824 4,284 Liberty Property Trust 136,831 5,437 New Plan Excel Realty Trust 103,792 ----------- 551,999 ----------- Savings and Loans (2.6%) 4,886 Astoria Financial Corporation 132,655 5,477 Greenpoint Financial Corporation (d) 247,451 3,208 Independence Community Bank 81,419 3,089 IndyMac Bancorp, Inc. (b) 57,116 6,014 New York Community Bancorp, Inc. 173,684 4,655 Roslyn BanCorporation, Inc. 83,930 14,658 Sovereign BanCorporation, Inc. (d) 205,945 2,588 Webster Financial Corporation (b) 90,062 ----------- 1,072,262 ----------- HEALTH CARE (11.1%) Biotechnology (2.3%) 2,533 Charles River Laboratories International (b) 97,470 11,037 Gilead Sciences, Inc. (b) (d) 375,258 8,588 Idec Pharmaceuticals Corporation (b) (d) 284,864 3,812 Incyte Pharmaceuticals, Inc. (b) 17,383 16,150 Millennium Pharmaceuticals, Inc. (b) (d) 128,231

See accompanying notes to investments in securities. 105

MARKET SHARES VALUE (a) ------ ----------- HEALTH CARE--CONTINUED 4,998 Protein Design Labs, Inc. (b) $ 42,483 ----------- 945,689 ----------- Drugs (1.8%) 2,462 Barr Laboratories, Inc. (b) 160,252 4,699 ICN Pharmaceuticals, Inc. 51,266 6,874 Mylan Laboratories, Inc. 239,903 4,723 Sepracor, Inc. (b) (d) 45,671 6,569 Sicor, Inc. (b) 104,119 3,894 Steris Corporation (b) 94,430 4,285 Vertex Pharmaceuticals, Inc. (b) 67,917 ----------- 763,558 ----------- Health Care -- Diversified (.3%) 10,921 IVAX Corporation (b) (d) 132,472 ----------- Hospital Management (1.0%) 2,216 Lifepoint Hospitals, Inc. (b) 66,327 2,008 Pacificare Health Systems, Inc. (b) 56,425 4,192 Triad Hospitals, Inc. (b) 125,047 3,397 Universal Health Services, Inc. (b) 153,205 ----------- 401,004 ----------- Managed Care (2.0%) 4,989 Advance Paradigm, Inc. (b) 110,806 4,372 Express Scripts, Inc. (b) 210,031 5,692 First Health Group Corporation (b) 138,600 6,948 Health Net, Inc. (b) 183,427 4,907 Oxford Health Plans (b) 178,860 ----------- 821,724 ----------- Medical Products/Supplies (2.8%) 6,001 Apogent Technologies, Inc. (b) 124,821 6,502 Cytyc Corporation (b) 66,320 4,396 Dentsply International, Inc. 163,703 3,370 Edwards Lifesciences Corporation (b) 85,834 3,462 Hillenbrand Industries, Inc. 167,249 5,932 Lincare Holdings, Inc. (b) $ 187,570 3,828 Patterson Dental Company (b) 167,437 3,813 Varian Medical Systems, Inc. (b) 189,125 2,879 Visx, Inc. (b) 27,581 ----------- 1,179,640 ----------- Special Services (.9%) 3,080 Apria Healthcare Group, Inc. (b) 68,499 3,259 Covance, Inc. (b) 80,139 2,411 Henry Schein, Inc. (b) 108,495 5,290 Omnicare, Inc. 126,061 ----------- 383,194 ----------- TECHNOLOGY (13.2%) Communications Equipment (1.2%) 2,039 Adtran, Inc. (b) 67,083 3,232 Commscope, Inc. (b) 25,533 2,895 CSG Systems International, Inc. (b) 39,517 3,723 Harris Corporation 97,915 5,301 L-3 Communications Holdings, Inc. (b) 238,068 2,477 Plantronics, Inc. (b) 37,477 3,687 Powerwave Technologies, Inc. (b) 19,910 ----------- 525,503 ----------- Computer Hardware (.5%) 8,870 Quantum Corporation (b) 23,683 3,897 Reynolds & Reynolds 99,257 3,869 SanDisk Corporation (b) 78,541 ----------- 201,481 ----------- Computer Networking (2.1%) 20,626 3COM Corporation (b) (d) 95,498 7,417 Affiliated Computer Services, Inc. (b) 390,505 4,759 Choicepoint, Inc. (b) 187,933 6,511 Legato Systems, Inc. (b) 32,750 5,951 SEI Investments Company 161,748 ----------- 868,434 ----------- Computer Peripherals (.5%) 2,529 Avocent Corporation (b) 56,194 2,207 Infocus Corporation (b) 13,595

See accompanying notes to investments in securities. 106

MARKET SHARES VALUE (a) ------ ----------- TECHNOLOGY--CONTINUED 5,977 Storage Technology Corporation (b) $ 128,027 ----------- 197,816 ----------- Computer Services & Software (3.7%) 3,764 Activision, Inc. (b) 54,917 1,763 Advent Software (b) 24,030 13,534 Ascential Software Corporation (b) (d) 32,482 15,089 Cadence Design Systems, Inc. (b) (d) 177,899 4,415 Checkfree Corporation (b) 70,644 4,880 Jack Henry & Associates 58,755 3,979 Keane, Inc. (b) 35,771 3,384 Macromedia, Inc. (b) 36,040 6,364 McData Corporation (b) 45,184 3,736 Mentor Graphics Corporation (b) 29,365 2,771 National Instruments Corporation (b) 90,030 8,778 Networks Associates, Inc. (b) 141,238 3,278 Overture Services (b) 89,522 2,984 Retek, Inc. (b) 8,116 3,192 RSA Security, Inc. (b) 19,120 5,239 Sybase, Inc. (b) 70,203 8,118 Symantec Corporation (b) 328,373 4,245 Synopsys, Inc. (b) 195,907 1,987 Transaction Systems Architects, Inc. (b) 12,916 4,441 Wind River Systems (b) 18,208 ----------- 1,538,720 ----------- Electrical Defense (.1%) 4,378 Titan Corporation (b) 45,531 ----------- Electrical Instruments (.6%) 3,495 Beckman Instruments, Inc. 103,172 3,416 Credence Systems Corporation (b) 31,871 1,829 FEI Company (b) 27,965 2,766 LTX Corporation (b) 16,679 2,158 Newport Corporation (b) 27,104 1,901 Varian, Inc. (b) 54,540 ----------- 261,331 ----------- Electrical Semiconductor (2.2%) 26,130 Atmel Corporation (b) (d) 58,270 4,684 Cirrus Logic, Inc. (b) 13,490 6,947 Cypress Semiconductor Corporation (b) $ 39,737 6,563 Fairchild Semiconductor International (b) 70,290 5,790 Integrated Device Technology, Inc. (b) 48,462 3,583 International Rectifier Corporation (b) 66,142 7,678 Intersil Corporation (b) 107,031 6,302 Lattice Semiconductor Corporation (b) 55,269 5,144 Micrel, Inc. (b) 46,193 11,397 Microchip Technology, Inc. (d) 278,657 9,493 RF Micro Devices, Inc. (b) 69,584 4,131 Semtech Corporation (b) 45,111 7,435 Triquint Semiconductor, Inc. (b) 31,524 ----------- 929,760 ----------- Electronics-- Computer Distribution (.9%) 5,606 Arrow Electronics, Inc. (b) 71,701 6,701 Avnet, Inc. 72,572 4,083 Cree, Inc. (b) 66,757 4,269 Gentex Corporation (b) 135,071 4,836 Kemet Corporation (b) 42,267 ----------- 388,368 ----------- Equipment Semiconductor (.3%) 1,979 Imation Corporation (b) 69,423 7,035 Lam Research Corporation (b) 75,978 ----------- 145,401 ----------- Service-- Data Processing (1.1%) 6,750 Bisys Group, Inc. (b) 107,325 6,709 DST Systems, Inc. (b) 238,505 4,644 Gartner Group, Inc. (b) 43,886 2,777 Internet Security Systems, Inc. (b) 50,902 2,266 Sykes Enterprises, Inc. (b) 7,432 ----------- 448,050 ----------- TRANSPORTATION (1.5%) Air Freight (.5%) 2,717 Airborne Freight Corporation 40,293 4,741 CH Robinson Worldwide, Inc. 147,919 2,572 EGL, Inc. (b) 36,651 ----------- 224,863 ----------- Airlines (.1%) 1,489 Alaska Airgroup, Inc. (b) 32,237 -----------

See accompanying notes to investments in securities. 107

MARKET SHARES VALUE (a) ------ ----------- TRANSPORTATION--CONTINUED Railroads (.1%) 2,748 GATX Corporation $ 62,709 ------------ Shipping (.2%) 2,312 Alexander & Baldwin, Inc. 59,626 1,932 Overseas Shipholding Group, Inc. 34,583 ------------ 94,209 ------------ Trucking (.6%) 2,681 CNF Transportation, Inc. 89,116 2,129 JB Hunt Transport Services, Inc. (b) 62,380 4,623 Swift Transportation Company, Inc. (b) 92,543 ------------ 244,039 ------------ UTILITIES (7.0%) Electric Companies (4.8%) 4,795 Allete, Inc. 108,751 5,145 Alliant Energy Resources 85,150 10,192 Aquila, Inc. 18,040 1,509 Black Hills Corporation 40,019 2,639 CLECO Utility Group 36,946 7,099 DPL, Inc. 108,899 4,170 DQE, Inc. 63,551 8,122 Energy East Corporation1 79,415 3,832 Great Plains Energy, Inc. 87,676 2,017 Hawaiian Electric Industries 88,708 2,124 IDACorporation, Inc. 52,739 7,618 Northeast Utilities 115,565 4,402 Oge Energy Corporation 77,475 9,183 Pepco Holdings, Inc. 178,058 2,195 PNM Resources, Inc. 52,285 5,201 Puget Sound Energy, Inc. $ 114,682 6,214 Scana Corporation 192,385 5,731 Sierra Pacific Resources 37,252 3,804 Vectren Corporation 87,492 4,011 Westar Energy, Inc. 39,709 6,485 Wisconsin Energy Corporation 163,422 1,759 WPS Resources Corporation 68,284 ------------ 31,996,503 ------------ Natural Gas (1.3%) 3,160 AGL Resources, Inc. 76,788 4,022 MDU Resources Group, Inc. 103,808 4,497 National Fuel Gas Company 93,223 3,391 Oneok, Inc. 65,107 4,596 Questar Corporation 127,861 2,725 WGL Holdings, Inc. 65,182 ------------ 531,969 ------------ Power Products-- Industrial (.3%) 2,976 NSTAR 132,105 ------------ Water Utilities (.6%) 5,616 American Water Works Company, Inc. (d) 255,416 ------------ Total common stock (cost: $45,058,414) 39,445,973 ------------ S&P DEPOSITORY RECEIPT (.7%) 3,900 MidCap S & P Depository Receipt 306,735 ------------ Total S&P Depository Receipt (cost: $308,299) 306,735 ------------

See accompanying notes to investments in securities. 108

MARKET SHARES VALUE (a) ------ ------------- SHORT-TERM SECURITIES (4.9%) 1,842,386 Dreyfus Fund-- Cash Management Plus, current rate 1.360% $ 1,842,386 143,032 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.370% 143,032 52,335 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 52,335 ------------- Total short-term securities (cost: $2,037,753) 2,037,753 ------------- Total investments in securities (cost: $47,404,466) (e) $ 41,790,461 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Porfolio held 1.1% of net assets in foreign securities as of December 31, 2002. (d) Fully or partially pledged as initial margin deposits on open stock index futures purchase contracts (see note 6 to the financial statements). (e) At December 31, 2002 the cost of securities for federal income tax purposes was $47,975,296. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 4,990,057 Gross unrealized depreciation (11,174,892) ------------- Net unrealized depreciation $ (6,184,835) ============= See accompanying notes to investments in securities. 109 Macro-Cap Value Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE (a) ------ ------------ COMMON STOCK (96.8%) BASIC MATERIALS (3.3%) Agriculture Products (.3%) 3,170 Monsanto Company $ 61,022 ------------ Aluminum (.9%) 7,864 Alcoa, Inc. 179,142 ------------ Chemicals (1.6%) 6,476 Pharmacia Corporation 270,697 1,100 PPG Industries, Inc. 55,165 ------------ 325,862 ------------ Paper and Forest (.5%) 2,500 Temple Inland, Inc. 112,025 ------------ CAPITAL GOODS (9.1%) Aerospace/Defense (1.3%) 1,800 Lockheed Martin Corporation 103,950 2,600 United Technologies Corporation 161,044 ------------ 264,994 ------------ Electrical Equipment (3.7%) 30,800 General Electric Company 749,980 ------------ Machinery (.5%) 2,100 Cooper Cameron Corporation (b) 104,622 ------------ Manufacturing (2.1%) 25,320 Tyco International, Ltd. (c) 432,466 ------------ Office Equipment ( -- ) 3,600 Seagate Escrow Security (b) 1,023 ------------ Waste Management (1.5%) 12,955 Waste Management, Inc. 296,929 ------------ COMMUNICATION SERVICES (6.7%) Broadcasting (2.6%) 13,300 American Tower Corporation (b) 46,949 4,270 Comcast Corporation Class A (b) 100,644 4,200 Comcast Corporation Special Class A (b) 94,878 32,900 Liberty Media Corporation (b) 294,126 ------------ 536,597 ------------ Cellular (.4%) 14,600 AT&T Wireless Services, Inc. (b) $ 82,490 ------------ Telecommunication (.5%) 24,700 Sprint Corporation (b) 108,186 ------------ Telephone (3.2%) 1,380 AT&T Corporation (b) 36,032 9,406 SBC Communications, Inc. 254,997 9,164 Verizon Communications 355,105 ------------ 646,134 ------------ CONSUMER CYCLICAL (11.7%) Auto (.5%) 3,200 Lear Corporation (b) 106,496 ------------ Leisure (1.1%) 11,700 Mattel, Inc. 224,055 ------------ Lodging-- Hotel (.5%) 3,000 Marriott International, Inc. 98,610 ------------ Publishing (.7%) 3,100 Tribune Company 140,926 ------------ Retail (7.2%) 5,000 Abercrombie and Fitch Company (b) 102,300 2,600 Federated Department Stores (b) 74,776 10,600 Home Depot, Inc. 253,976 2,200 Nike, Inc. 97,834 9,700 Target Corporation 291,000 11,900 TJX Companies, Inc. 232,288 8,300 Wal-Mart Stores, Inc. 419,233 ------------ 1,471,407 ------------ Service (1.1%) 5,000 Accenture Limited (b) 89,950 12,970 Cendant Corporation (b) 135,926 ------------ 225,876 ------------ Textiles (.6%) 3,200 Jones Apparel Group, Inc. (b) 113,408 ------------ CONSUMER STAPLES (9.8%) Beverage (1.5%) 7,000 The Coca-Cola Company 306,740 ------------

See accompanying notes to investments in securities. 110

MARKET SHARES VALUE (a) ------ ------------ CONSUMER STAPLES--CONTINUED Entertainment (.9%) 4,500 Viacom, Inc. (b) $ 183,420 ------------ Food (2.1%) 5,000 Kraft Foods, Inc. 194,650 3,800 Unilever NV (c) 234,498 ------------ 429,148 ------------ Household Products (3.5%) 10,400 Gillette Compay (c) 315,744 4,700 Procter & Gamble Company 403,918 ------------ 719,662 ------------ Retail (.5%) 3,700 CVS Corporation 92,389 ------------ Tobacco (1.3%) 6,500 Philip Morris Companies, Inc. 263,445 ------------ ENERGY (6.8%) Oil (5.9%) 6,700 Chevron Corporation 445,416 3,527 ConocoPhillips 170,671 1,900 Devon Energy Corporation 87,210 14,648 Exxon Mobil Corporation (b) 511,801 ------------ 1,215,098 ------------ Oil & Gas (.9%) 1,500 Anadarko Petroleum Corporation 71,850 4,815 Global Santa Fe Corporation 117,101 ------------ 188,951 ------------ FINANCIAL (20.5%) Banks (3.6%) 8,000 Bank One Corporation 292,400 20,910 U.S. Bancorp 443,710 ------------ 736,110 ------------ Consumer Finance (2.7%) 6,300 Capital One Financial Corporation 187,236 4,000 CIT Group, Inc. 78,400 5,400 Countrywide Financial Corporation 278,910 ------------ 544,546 ------------ Finance-- Diversified (4.6%) 6,844 AMBAC Financial Group, Inc. $ 384,907 6,500 Federal Home Loan Mortgage Corporation 383,825 2,800 Federal National Mortgage Association 180,124 ------------ 948,856 ------------ Insurance (3.2%) 2,600 American International Group 150,410 5,800 AON Corporation 109,562 5,100 Cigna Corporation (b) 209,712 13,199 Travelers Property Casualty Corporation, Class A (b) 193,365 ------------ 663,049 ------------ Investment Bankers/Brokers (5.5%) 7,100 Charles Schwab Corporation 77,035 24,226 CitiGroup, Inc. (b) 852,513 4,100 E*trade Group, Inc. (b) 19,926 2,600 Goldman Sachs Group, Inc. 177,060 ------------ 1,126,534 ------------ Savings and Loans (.9%) 5,550 Washington Mutual, Inc. 191,641 ------------ HEALTH CARE (10.7%) Biotechnology (1.2%) 4,900 Amgen, Inc. (b) 236,866 ------------ Drugs (6.0%) 5,200 Eli Lilly & Company 330,200 16,100 Pfizer, Inc. 492,177 3,700 Schering-Plough Corporation 82,140 8,500 Wyeth 317,900 ------------ 1,222,417 ------------ Health Care -- Diversified (2.9%) 5,000 Abbott Laboratories 200,000 1,220 Human Genome Sciences, Inc. (b) 10,748 6,496 Johnson & Johnson 348,900 2,650 Tenet Healthcare Corporation (b) 43,460 ------------ 603,108 ------------

See accompanying notes to investments in securities. 111

MARKET SHARES VALUE (a) ------ ------------ HEALTH CARE--CONTINUED Medical Products/Supplies (.6%) 4,200 Baxter International, Inc. $ 117,600 ------------ TECHNOLOGY (14.9%) Communications Equipment (.5%) 4,100 Ciena Corporation (b) 21,074 9,800 Motorola, Inc. 84,770 ------------ 105,844 ------------ Computer Hardware (4.3%) 6,000 Dell Computer Corporation (b) 160,440 10,607 Hewlett-Packard Company 184,137 4,200 International Business Machines Corporation 325,500 6,300 NCR Coporation (b) 149,562 19,500 Sun Microsystems, Inc. (b) 60,645 ------------ 880,284 ------------ Computer Networking (2.1%) 32,500 Cisco Systems, Inc. (b) 425,750 ------------ Computer Services & Software (5.4%) 15,650 AOL Time Warner, Inc. (b) 205,015 15,700 Microsoft Corporation (b) 811,690 9,100 Oracle Systems (b) 98,280 ------------ 1,114,985 Electrical Semiconductor (2.6%) 7,200 Altera Corporation (b) $ 88,776 3,800 Analog Devices, Inc. (b) 90,706 3,800 Applied Materials, Inc. (b) 49,514 18,800 Intel Corporation 292,716 ------------ 521,712 ------------ UTILITIES (3.3%) Electric Companies (3.0%) 2,400 Dominion Resources, Inc. 131,760 2,400 DTE Energy Company 111,360 3,348 Edison International (b) 39,674 9,700 Pacific Gas and Electric Company (b) 134,830 6,039 Pinnacle West Capital Corporation 205,869 ------------ 623,493 ------------ Natural Gas (.3%) 8,400 El Paso Energy Corporation 58,464 ------------ Total common stock (cost: $26,930,146) 19,802,362 ------------

See accompanying notes to investments in securities. 112

MARKET PRINCIPAL RATE MATURITY VALUE(a) --------- ------ -------- ----------- SHORT-TERM SECURITIES (3.2%) $ 11,000 United States Treasury Bill 0.910% 01/02/03 $ 10,999 49,000 United States Treasury Bill 0.880% 01/09/03 48,986 16,000 United States Treasury Bill 0.968% 01/16/03 15,989 92,000 United States Treasury Bill 1.042% 01/23/03 91,927 55,000 United States Treasury Bill 1.105% 01/30/03 54,935 6,000 United States Treasury Bill 1.096% 02/20/03 5,990 1,000 United States Treasury Bill 1.131% 03/13/03 998 145,000 United States Treasury Bill 1.124% 03/20/03 144,643 93,000 United States Treasury Bill 1.181% 04/10/03 92,698 53,000 United States Treasury Bill 1.236% 05/08/03 52,777 7,000 United States Treasury Bill 1.640% 04/17/03 6,976 39,391 Wells Fargo Money Market, current rate 1.229% 39,391 ----------- Total short-term securities (cost: $666,292) 666,309 ----------- Total investments in securities (cost: $27,596,438) (d) $20,468,671 ===========

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 4.8% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $28,031,845. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 518,807 Gross unrealized depreciation (8,081,981) ----------- Net unrealized depreciation $(7,563,174) =========== See accompanying notes to investments in securities. 113 Micro-Cap Growth Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE (a) ------ ------------ COMMON STOCK (93.0%) BASIC MATERIALS (1.2%) Iron and Steel (1.2%) 45,400 NS Group, Inc. (b) $ 296,008 ------------ CAPITAL GOODS (5.3%) Aerospace/Defense (.9%) 12,200 Herley Industries, Inc. (b) 212,377 ------------ Machinery (1.4%) 47,800 Asyst Technologies, Inc. (b) 351,330 ------------ Manufacturing (2.3%) 23,200 Hydril Company (b) 546,824 2,300 Maverick Tube Corporation (b) 29,969 ------------ 576,793 ------------ Metal Fabrication (.7%) 38,100 Tower Automotive, Inc. (b) 171,450 ------------ COMMUNICATION SERVICES (.8%) Telecommunication (.8%) 64,900 Raindance Communications, Inc. (b) 209,627 ------------ CONSUMER CYCLICAL (15.5%) Leisure (3.0%) 2,700 Leapfrog Enterprises, Inc. (b) 67,905 16,400 Multimedia Games, Inc. (b) 450,344 38,300 Tweeter Home Entertainment Group, Inc. (b) 221,374 ------------ 739,623 ------------ Lodging-- Hotel (1.1%) 19,400 Monarch Casino & Resort, Inc. (b) 266,362 ------------ Retail (5.2%) 30,700 Charlotte Russe Holding, Inc. (b) 325,727 25,200 Children's Place Retail Stores, Inc. (b) 268,128 36,300 Goody's Family Clothing, Inc. (b) 161,172 31,800 The Finish Line, Inc. (b) 335,490 17,700 Ultimate Electronics, Inc. (b) 179,655 ------------ 1,270,172 ------------ Service (5.0%) 22,800 Coinstar, Inc. (b) 516,420 39,100 MTR Gaming Group, Inc. (b) 311,236 53,800 Scientific Games Corporation (b) $ 390,588 ------------ 1,218,244 ------------ Textiles (1.2%) 47,700 Ashworth, Inc. (b) 305,280 ------------ CONSUMER STAPLES (9.4%) Beverage (1.6%) 27,000 The Boston Beer Company, Inc. (b) 386,100 ------------ Entertainment (1.3%) 34,400 Marvel Enterprise, Inc. (b) 308,912 ------------ Personal Care (1.1%) 13,000 Chattem, Inc. (b) 267,150 ------------ Restaurants (2.0%) 11,200 AFC Enterprises, Inc. (b) 235,312 30,000 Buca, Inc. (b) 249,600 ------------ 484,912 ------------ Retail (1.8%) 33,800 Red Robin Gourmet Burgers (b) 430,612 ------------ Service (1.6%) 60,300 Labor Ready, Inc. (b) 387,126 ------------ ENERGY (9.7%) Oil (1.2%) 58,800 Horizon Offshore, Inc. (b) 292,824 ------------ Oil & Gas (8.5%) 10,700 Evergreen Resources, Inc. (b) 479,895 26,600 Natco Group, Inc. (b) 167,048 59,300 Petroquest Energy (b) 248,378 67,900 Superior Energy Services, Inc. (b) 556,780 62,700 Ultra Petroleum Corporation (b) 620,730 ------------ 2,072,831 FINANCIAL (.9%) Investment Bankers/Brokers (.9%) 26,200 Digital Insight Corporation (b) 227,678 ------------ HEALTH CARE (23.1%) Biotechnology (1.6%) 31,300 Cell Therapeutics, Inc. (b) 227,551 18,000 Lifecore Biomedical, Inc. (b) 154,440 ------------ 381,991 ------------

See accompanying notes to investments in securities. 114

MARKET SHARES VALUE (a) ------ ------------ HEALTH CARE (23.1%) Drugs (9.3%) 46,100 Bentley Pharmaceuticals, Inc. (b) $ 371,105 44,000 Biomar Pharmaceutical, Inc. (b) 310,200 10,000 CIMA Labs, Inc. (b) 241,910 31,600 Cubist Pharmaceuticals, Inc. (b) 260,068 31,100 First Horizon Pharmaceutical Corporation (b) 232,566 49,200 Genta, Inc. (b) 378,348 14,800 Ilex Oncology, Inc. (b) 104,488 74,300 POZEN, Inc. (b) 382,645 ------------ 2,281,330 ------------ Medical Products/Supplies (8.4%) 22,400 Conceptus, Inc. (b) 268,352 59,000 Connetics Corporation (b) 709,180 27,900 MedSource Technologies, Inc. (b) 181,071 6,400 Penwest Pharmaceuticals Co (b) 67,840 13,200 Polymedica Corporation (b) 407,088 1,800 Possis Medical Inc (b) 32,400 13,300 Rita Medical Systems, Inc. (b) 67,165 11,500 Wilson Greatbatch Technologies, Inc. (b) 335,800 ------------ 2,068,896 ------------ Special Services (3.8%) 34,400 aaiPharma, Inc. (b) 482,288 15,300 American Healthways, Inc. (b) 267,750 10,700 AMN Healthcare Services, Inc. (b) 180,937 ------------ 930,975 ------------ TECHNOLOGY (27.0%) Communications Equipment (1.7%) 21,800 Verisity, Ltd. (b) 415,508 ------------ Computer Hardware (1.4%) 44,200 Cray, Inc. (b) 339,014 ------------ Computer Networking (1.4%) 32,500 Alloy Online, Inc. (b) 355,875 ------------ Computer Peripherals (1.5%) 57,900 Lexar Media, Inc. (b) 363,033 ------------ Computer Services & Software (6.4%) 34,800 Centillium Communications, Inc. (b) $ 78,648 17,400 Group 1 Software, Inc. (b) 207,930 16,100 Lawson Software, Inc. (b) 92,575 7,900 Manhattan Associates, Inc. (b) 186,914 12,300 Nassda Corporation (b) 138,006 4,200 NetFlix.com, Inc. (b) 46,242 17,200 NetScreen Technologies, Inc. (b) 289,648 5,200 Per Se Technologies, Inc. (b) 46,639 16,200 PracticeWorks, Inc. (b) 127,980 53,900 Watchdog Technologies, Inc. (b) 343,936 ------------ 1,558,518 ------------ Electrical Defense (1.3%) 16,000 EDO Corporation 332,480 ------------ Electrical Instruments (.9%) 16,300 Genesis Microchip, Inc. (b) 212,715 ------------ Electrical Semiconductor (8.0%) 21,100 02Micro International, Ltd. (b) (c) 205,704 11,100 Actel Corporation (b) 180,042 31,500 Artisan Components, Inc. (b) 486,045 80,600 ChipPAC, Inc. (b) 286,130 17,100 Exar Corporation (b) 212,040 43,800 Integrated Silicon Solution, Inc. (b) 190,968 19,900 Virage Logic Corporation (b) 199,597 13,500 Zoran Corporation (b) 189,945 ------------ 1,950,471 ------------ Electronics-- Computer Distribution (.8%) 3,800 ScanSource, Inc. (b) 187,340 ------------ Equipment Semiconductor (1.9%) 25,100 Mykrolis Corporation (b) 183,230 21,700 Nanometrics, Inc. (b) 90,923 14,900 Photronics, Inc. (b) 204,130 ------------ 478,283 ------------ Service-- Data Processing (1.7%) 24,500 Intercept, Inc. (b) 414,809 ------------ TRANSPORTATION (.1%) Trucking (.1%) 1,700 Covenant Transport Inc. (b) 31,688 ------------ Total common stock (cost: $30,928,404) 22,778,337 ------------

See accompanying notes to investments in securities. 115

MARKET SHARES VALUE (a) ------ ------------ SHORT-TERM SECURITIES (9.0%) 1,137,864 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% $ 1,137,864 1,067,887 Wells Fargo & Company-- Treasury Plus Fund, current rate 1.261% 1,067,887 ------------- Total short-term securities (cost: $2,205,751) 2,205,751 ------------- Total investments in securities (cost: $33,134,155) (d) $ 24,984,088 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 0.8% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $33,199,049. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,010,278 Gross unrealized depreciation (10,225,239) ------------- Net unrealized depreciation $ (8,214,961) ============= See accompanying notes to investments in securities. 116 Real Estate Securities Portfolio Investments in Securities DECEMBER 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE (a) ------ ------------ COMMON STOCK (96.0%) CONSUMER CYCLICAL (2.0%) Lodging -- Hotel (2.0%) 20,600 Extended Stay America, Inc. (b) $ 303,850 18,300 Hilton Hotels 232,593 16,400 Prime Hospitality Corporation (b) 133,660 ------------ 670,103 ------------ FINANCIAL (94.0%) Real Estate (11.1%) 83,610 Boardwalk Equities, Inc. (c) 801,820 57,000 Brookfield Properties Corporation (c) 1,151,400 41,500 Catellus Development Corporation (b) 823,775 18,800 Forest City Enterprises 626,980 12,300 St. Joe Company 369,000 ------------ 3,772,975 ------------ Real Estate Investment Trust-- Apartments (10.3%) 26,960 Apartment Investment & Management Company 1,010,461 21,400 Archstone Communities Trust 503,756 6,750 Avalonbay Communities, Inc. 264,195 8,600 Camden Property Trust 283,800 28,000 Equity Residential 688,240 9,000 Essex Property Trust, Inc. 457,650 6,500 Gables Residential Trust 162,045 6,600 Summit Properties, Inc. 117,480 ------------ 3,487,627 ------------ Real Estate Investment Trust-- Diversified (9.5%) 14,100 American Mortgage Acceptance Corporation 198,669 10,350 Capital Automotive REIT 245,295 3,900 Duke Realty Corporation 99,255 24,600 Entertainment Properties Trust 578,592 20,100 iStar Financial, Inc. 563,805 5,800 Liberty Property Trust 185,252 21,800 NewCastle Investment Corporation 348,146 16,800 Vencor, Inc. 192,360 21,900 Vornado Realty Trust $ 814,680 ------------ 3,226,054 ------------ Real Estate Investment Trust -- Hotels (4.7%) 36,200 Host Marriott Corporation (b) 320,370 28,300 Innkeepers USA Trust 216,778 15,500 Meristar Hospitality Corporation 102,300 13,300 Starwood Hotels & Resorts Worldwide, Inc. 315,742 83,100 Winston Hotels, Inc. 648,180 ------------ 1,603,370 ------------ Real Estate Investment Trust -- Office Property (17.3%) 2,400 Alexandria Real Estate Equities 102,240 15,400 Arden Realty, Inc. 341,110 20,300 Boston Properties, Inc. 748,258 19,600 Brandywine Realty Trust 427,476 43,100 Carramerica Realty Corporation 1,079,655 45,400 Equity Office Properties Trust 1,134,092 18,100 Great Lakes REIT, Inc. 301,365 30,900 Highwoods Properties, Inc. 682,890 12,100 Mission West Properties, Inc. 119,790 12,300 Prentiss Properties Trust 347,844 7,900 Reckson Associates Realty Corporation 166,295 7,826 Reckson Associates Realty Corporation 175,302 7,000 SL Green Realty Corporation 221,200 ------------ 5,847,517 ------------ Real Estate Investment Trust-- Shopping Centers (28.1%) 21,700 CBL & Associates Properties, Inc. 869,085 8,400 Chelsea Property Group, Inc. 279,804 44,000 Developers Diversified Realty Corporation 967,560 40,600 Equity One, Inc. 542,010 23,200 General Growth Properties, Inc. 1,206,400 26,900 Glimcher Realty Trust 477,475

See accompanying notes to investments in securities. 117

MARKET SHARES VALUE (a) ------ ------------ FINANCIAL--CONTINUED 24,450 Kimco Realty Corporation $ 749,148 29,500 Mid-Atlantic Realty Trust 513,300 27,800 Mills Corporation 815,652 8,600 Pan Pacific Retail Properties, Inc. 314,158 17,800 Ramco Gershenson 351,550 35,100 Simon Property Group, Inc. 1,195,857 32,000 The Rouse Company 1,014,400 21,000 Urstadt Biddle Properties 232,680 ------------ 9,529,079 ------------ Real Estate Investment Trust-- Warehouse/Industrial (13.0%) 19,700 First Industrial Realty Trust $ 551,600 27,900 P.S. Business Parks, Inc. 887,220 85,700 Prologis 2,155,355 21,000 Public Storage, Inc. 678,510 4,000 Sun Communities, Inc. 146,280 ------------ 4,418,965 ------------ Total common stock (cost: $31,017,887) 32,555,690 ------------

SHARES SHORT-TERM SECURITIES (2.4%) 591 Provident Institutional Fund-- TempFund Portfolio, current rate 1.220% 591 803,050 Dreyfus Funds-- Cash Management Plus, current rate 1.266% 803,050 727 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.370% 727 19,660 Wells Fargo & Company-- Cash Investment Fund, current rate 1.326% 19,660 ------------ Total short-term securities (cost: $824,028) 824,028 ------------ Total investments in securities (cost: $31,841,915) (d) $ 33,379,718 ============ NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Portfolio held 5.8% of net assets in foreign securities as of December 31, 2002. (d) At December 31, 2002 the cost of securities for federal income tax purposes was $32,462,066. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,000,147 Gross unrealized depreciation (1,082,495) ------------ Net unrealized appreciation $ 917,652 ============ See accompanying notes to investments in securities. 118 (This page has been left blank intentionally.) 119 Advantus Series Fund, Inc. Statements of Assets and Liabilities DECEMBER 31, 2002

MONEY GROWTH BOND MARKET PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------ ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing * + $ 199,595,918 $276,118,852 $163,451,609 Cash in bank on demand deposit - 93,223 - Receivable for Fund shares sold 96,181 114,062 707,332 Receivable for investment securities sold (including paydowns) 3,977,594 1,195,066 - Dividends and accrued interest receivable 219,310 2,149,540 78,011 Receivable for refundable foreign income taxes withheld - - - Collateral for securities loaned (note 7) 9,400,146 - - Variation margin receivable - - - ------------- ------------ ------------ Total assets 213,289,149 279,670,743 164,236,952 ------------- ------------ ------------ LIABILITIES Bank overdraft - - - Payable for Fund shares repurchased 144,612 172,526 447,227 Dividends payable to shareholders - - 5,041 Payable for investment securities purchased 5,192,862 2,860,444 - Payable to Adviser 130,721 151,724 81,489 Payable upon return of securities loaned (note 7) 9,400,146 - - ------------- ------------ ------------ Total liabilities 14,868,341 3,184,694 533,757 ------------- ------------ ------------ Net assets applicable to outstanding capital stock $ 198,420,808 $276,486,049 $163,703,195 -============ ============ ============ Represented by: Capital stock - authorized 10 trillion shares of $.01 par value $ 1,695,592 $ 2,122,988 $ 1,637,032 Additional paid-in capital 316,976,069 269,612,930 162,066,163 Undistributed net investment income - - - Accumulated net realized gains (losses) from investments and foreign currency transactions (120,249,768) (4,698,581) - Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (1,085) 9,448,712 - ------------- ------------ ------------ Total - representing net assets applicable to outstanding capital stock $ 198,420,808 $276,486,049 $163,703,195 ============= ============ ============ Net asset value per share of outstanding capital stock $ 1.17 $ 1.30 $ 1.00 ============= ============ ============ * Identified cost $ 199,597,003 $266,670,140 $163,451,609 ** Shares outstanding 169,559,189 212,298,839 163,703,195 + Including securities on loan of $ 9,110,646 $ - $ -

See accompanying notes to financial statements. 120

ASSET MORTGAGE ALLOCATION SECURITIES INDEX 500 PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $372,594,512 $252,016,785 $418,341,402 Cash in bank on demand deposit 76,065 629,345 - Receivable for Fund shares sold 99,653 267,608 275,145 Receivable for investment securities sold (including paydowns) 1,586,405 5,736,106 - Dividends and accrued interest receivable 1,387,701 1,416,444 779,136 Receivable for refundable foreign income taxes withheld - - 12,855 Collateral for securities loaned (note 7) 25,137,654 - 28,716,578 Variation margin receivable - - 10,157 ------------ ------------ ------------ Total assets 400,881,990 260,066,288 448,135,273 ------------ ------------ ------------ LIABILITIES Bank overdraft - - - Payable for Fund shares repurchased 120,585 170,844 354,465 Dividends payable to shareholders - - - Payable for investment securities purchased 1,145,675 9,952,987 - Payable to Adviser 210,159 140,557 166,851 Payable upon return of securities loaned (note 7) 25,137,654 - 28,716,578 ------------ ------------ ------------ Total liabilities 26,614,073 10,264,388 29,237,894 ------------ ------------ ------------ Net assets applicable to outstanding capital stock $374,267,917 $249,801,900 $418,897,379 ============ ============ ============ Represented by: Capital stock - authorized 10 trillion shares of $.01 par value $ 2,827,956 $ 1,939,172 $ 1,553,039 Additional paid-in capital 484,022,669 241,853,939 364,050,532 Undistributed net investment income - - - Accumulated net realized gains (losses) from investments and foreign currency transactions (115,146,062) (593,316) (26,086,103) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies 2,563,354 6,602,105 79,379,911 ------------ ------------ ------------ Total - representing net assets applicable to outstanding capital stock $374,267,917 $249,801,900 $418,897,379 ============ ============ ============ Net asset value per share of outstanding capital stock $ 1.32 $ 1.29 $ 2.70 ============ ============ ============ * Identified cost $370,031,158 $245,414,680 $338,813,052 ** Shares outstanding 282,795,575 193,917,249 155,303,857 + Including securities on loan of $ 24,159,907 $ - $ 27,127,002

SMALL CAPITAL INTERNATIONAL COMPANY APPRECIATION STOCK GROWTH PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 153,413,991 $ 222,948,513 $122,920,845 Cash in bank on demand deposit - - - Receivable for Fund shares sold 81,180 48,860 62,400 Receivable for investment securities sold (including paydowns) - - 47,878 Dividends and accrued interest receivable 208,857 327,520 28,938 Receivable for refundable foreign income taxes withheld - 148,369 - Collateral for securities loaned (note 7) 2,763,997 35,121,075 17,716,318 Variation margin receivable - - - ------------- ------------- ------------ Total assets 156,468,025 258,594,337 140,776,379 ------------- ------------- ------------ LIABILITIES Bank overdraft - 161,566 - Payable for Fund shares repurchased 110,725 111,291 71,600 Dividends payable to shareholders - - - Payable for investment securities purchased - - - Payable to Adviser 105,409 183,406 100,839 Payable upon return of securities loaned (note 7) 2,763,997 35,121,075 17,716,318 ------------- ------------- ------------ Total liabilities 2,980,131 35,577,338 17,888,757 ------------- ------------- ------------ Net assets applicable to outstanding capital stock $ 153,487,894 $ 223,016,999 $122,887,622 ============= ============= ============ Represented by: Capital stock - authorized 10 trillion shares of $.01 par value $ 1,403,037 $ 2,029,113 $ 1,860,212 Additional paid-in capital 287,192,744 290,877,175 225,906,819 Undistributed net investment income - - - Accumulated net realized gains (losses) from investments and foreign currency transactions (105,715,306) (23,834,289) (64,699,223) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (29,392,581) (46,055,000) (40,180,186) ------------- ------------- ------------ Total - representing net assets applicable to outstanding capital stock $ 153,487,894 $223,016,999 $122,887,622 ============= ============= ============ Net asset value per share of outstanding capital stock $ 1.09 $ 1.10 $ 0.66 ============= ============= ============ * Identified cost $ 182,806,572 $ 269,028,098 $163,101,031 ** Shares outstanding 140,303,736 202,911,313 186,021,184 + Including securities on loan of $ 2,690,495 $ 32,725,722 $ 16,784,097

See accompanying notes to financial statements. 121

MATURING MATURING GOVERNMENT GOVERNMENT VALUE BOND 2006 BOND 2010 STOCK PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 10,638,865 $ 9,312,716 $112,655,375 Cash in bank on demand deposit 16,772 51,303 - Receivable for Fund shares sold 56 207 63,371 Receivable for investment securities sold (including paydowns) - - 2,217,294 Dividends and accrued interest receivable 227 395 180,939 Unrealized appreciation on forward foreign currency contracts held, at value (note 4) - - - Collateral for securities loaned (note 7) - - 5,467,680 Other receivables - - - Foreign currency in bank on deposit (cost: $127,806) - - - Variation margin receivable - - - ------------ ------------ ------------ Total assets 10,655,920 9,364,621 120,584,659 ------------ ------------ ------------ LIABILITIES Bank overdraft - - - Payable for Fund shares repurchased 495 581 63,392 Payable for investment securities purchased - - 2,171,219 Unrealized depreciation on forward foreign currency contracts held, at value (note 4) - - - Payable to Adviser 5,849 5,155 79,691 Variation margin payable (note 6) - - - Other payable - - - Payable upon return of securities loaned (note 7) - - 5,467,680 ------------ ------------ ------------ Total liabilities 6,344 5,736 7,781,982 ------------ ------------ ------------ Net assets applicable to outstanding capital stock $ 10,649,576 $ 9,358,885 $112,802,677 ============ ============ ============ Represented by: Capital stock - authorized 10 trillion shares of $.01 par value $ 77,407 $ 62,041 $ 900,974 Additional paid-in capital 9,409,040 8,326,050 143,027,514 Undistributed net investment income - - - Accumulated net realized gains (losses) from investments and foreign currency transactions (82,507) (28,800) (30,570,890) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies 1,245,636 999,594 (554,921) ------------ ------------ ------------ Total - representing net assets applicable to outstanding capital stock $ 10,649,576 $ 9,358,885 $112,802,677 ============ ============ ============ Net asset value per share of outstanding capital stock $ 1.38 $ 1.51 $ 1.25 ============ ============ ============ * Identified cost $ 9,393,229 $ 8,313,122 $113,210,296 ** Shares outstanding 7,740,709 6,204,078 90,097,406 + Including securities on loan of $ - $ - $ 5,289,370

See accompanying notes to financial statements. 122

SMALL COMPANY GLOBAL INDEX 400 VALUE BOND MID-CAP PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 55,279,755 $ 55,099,270 $ 41,790,461 Cash in bank on demand deposit 3,324 45,014 857 Receivable for Fund shares sold 23,347 96,863 59,596 Receivable for investment securities sold (including paydowns) 11,818 319,919 - Dividends and accrued interest receivable 28,109 958,152 35,817 Unrealized appreciation on forward foreign currency contracts held, at value (note 4) - 1,255,716 - Collateral for securities loaned (note 7) 9,188,771 - 7,277,084 Other receivables - - - Foreign currency in bank on deposit (cost: $127,806) - 128,986 - Variation margin receivable - - 11,676 ------------ ------------ ------------ Total assets 64,535,124 57,903,920 49,175,491 ------------ ------------ ------------ LIABILITIES Bank overdraft - - - Payable for Fund shares repurchased 13,929 11,223 38,658 Payable for investment securities purchased 339,424 3,368,223 - Unrealized depreciation on forward foreign currency contracts held, at value (note 4) - 763,099 - Payable to Adviser 49,238 67,795 24,255 Variation margin payable (note 6) - - - Other payable - 10,937 - Payable upon return of securities loaned (note 7) 9,188,771 - 7,277,084 ------------ ------------ ------------ Total liabilities 9,591,362 4,221,277 7,339,997 ------------ ------------ ------------ Net assets applicable to outstanding capital stock $ 54,943,762 $ 53,682,643 $ 41,835,494 ============ ============ ============ Represented by: Capital stock - authorized 10 trillion shares of $.01 par value $ 540,267 $ 494,332 $ 434,895 Additional paid-in capital 63,566,663 50,965,390 48,486,623 Undistributed net investment income - (492,617) - Accumulated net realized gains (losses) from investments and foreign currency transactions (343,261) (38,094) (1,445,514) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (8,819,907) 2,753,632 (5,640,510) ------------ ------------ ------------ Total - representing net assets applicable to outstanding capital stock $ 54,943,762 $ 53,682,643 $ 41,835,494 ============ ============ ============ Net asset value per share of outstanding capital stock $ 1.02 $ 1.09 $ 0.96 ============ ============ ============ * Identified cost $ 64,099,662 $ 52,877,468 $ 47,404,466 ** Shares outstanding 54,026,662 49,433,173 43,489,514 + Including securities on loan of $ 8,539,840 $ - $ 6,983,119

MACRO-CAP MICRO-CAP REAL ESTATE VALUE GROWTH SECURITIES PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------- ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 20,468,671 $ 24,984,088 $ 33,379,718 Cash in bank on demand deposit - - 4,811 Receivable for Fund shares sold 12,467 13,176 24,436 Receivable for investment securities sold (including paydowns) - 91,293 451,094 Dividends and accrued interest receivable 26,671 5,498 216,841 Unrealized appreciation on forward foreign currency contracts held, at value (note 4) - - - Collateral for securities loaned (note 7) 1,186,674 5,840,540 2,411,288 Other receivables 449 - - Foreign currency in bank on deposit (cost: $127,806) - - - Variation margin receivable - - - ------------ ------------- ------------ Total assets 21,694,932 30,934,595 36,488,188 ------------ ------------- ------------ LIABILITIES Bank overdraft 5,316 21,813 - Payable for Fund shares repurchased 4,132 18,269 10,151 Payable for investment securities purchased - 524,119 140,300 Unrealized depreciation on forward foreign currency contracts held, at value (note 4) - - - Payable to Adviser 33,378 26,001 14,435 Variation margin payable (note 6) - - - Other payable - - - Payable upon return of securities loaned (note 7) 1,186,674 5,840,540 2,411,288 ------------ ------------- ------------ Total liabilities 1,229,500 6,430,742 2,576,174 ------------ ------------- ------------ Net assets applicable to outstanding capital stock $ 20,465,432 $ 24,503,853 $ 33,912,014 ============ ============= ============ Represented by: Capital stock - authorized 10 trillion shares of $.01 par value $ 291,080 $ 281,292 $ 331,302 Additional paid-in capital 31,605,038 51,733,105 32,923,438 Undistributed net investment income - - - Accumulated net realized gains (losses) from investments and foreign currency transactions (4,302,919) (19,360,477) (880,529) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (7,127,767) (8,150,067) 1,537,803 ------------ ------------- ------------ Total - representing net assets applicable to outstanding capital stock $ 20,465,432 $ 24,503,853 $ 33,912,014 ============ ============= ============ Net asset value per share of outstanding capital stock $ 0.70 $ 0.87 $ 1.02 ============ ============= ============ * Identified cost $ 27,596,438 $ 33,134,155 $ 31,841,915 ** Shares outstanding 29,108,003 28,129,247 33,130,219 + Including securities on loan of $ 1,112,434 $ 5,466,860 $ 2,319,732

123 Advantus Series Fund, Inc. Statements of Operations YEAR ENDED DECEMBER 31, 2002

MONEY GROWTH BOND MARKET PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------- Investment Income Interest $ 92,184 $ 14,786,862 $ 2,846,015 Dividends (net of foreign withholding taxes of $788,860 for International Stock Portfolio) 2,172,649 - - Income from securities lending activities 26,590 15,622 - Commission reimbursement income (note 10) - - - ------------- ------------- ------------- Total investment income 2,291,423 14,802,484 2,846,015 ------------- ------------- ------------- Expenses (note 5): Investment advisory fee 1,090,867 763,666 387,449 Rule 12b-1 fees 606,037 636,388 387,449 Custodian fees 7,112 25,254 4,175 Administrative services fee 51,600 51,600 51,600 Auditing and accounting services 18,258 16,308 11,458 Legal fees 8,112 11,822 5,244 Printing and shareholder reports 34,192 30,604 19,029 Directors' fees 6,144 6,003 3,573 Insurance licensing 4,650 5,340 3,715 S&P lisensing fee - - - Other 14,481 9,982 9,413 ------------- ------------- ------------- Total expenses 1,841,453 1,556,967 883,105 ------------- ------------- ------------- Less fees and expenses waived or absorbed by Adviser - - - ------------- ------------- ------------- Total net expenses 1,841,453 1,556,967 883,105 ------------- ------------- ------------- Investment income (loss) - net 449,970 13,245,517 1,962,910 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) (22,254,054) 4,131,638 - Foreign currency transactions - - - Futures transactions - - - Net change in unrealized appreciation or depreciation on: Investments (51,859,190) 8,271,980 - Translation of assets and liabilities in foreign currency - - - ------------- ------------- ------------- Net gains (losses) on investments (74,113,244) 12,403,618 - ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations $ (73,663,274) $ 25,649,135 $ 1,962,910 ============= ============= =============

See accompanying notes to financial statements. 124

ASSET MORTGAGE CAPITAL ALLOCATION SECURITIES INDEX 500 APPRECIATION PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------- ------------- Investment Income Interest $ 9,087,646 $ 16,604,872 $ 108,197 $ 124,075 Dividends (net of foreign withholding taxes of $788,860 for International Stock Portfolio) 4,064,988 414 7,456,511 1,350,405 Income from securities lending activities 48,110 1,105 65,881 34,249 Commission reimbursement income (note 10) - - - 26,002 ------------- ------------- ------------- ------------- Total investment income 13,200,744 16,606,391 7,630,589 1,534,731 ------------- ------------- ------------- ------------- Expenses (note 5): Investment advisory fee 1,488,198 709,265 584,983 965,815 Rule 12b-1 fees 1,062,998 591,054 1,149,955 482,907 Custodian fees 17,034 26,674 19,516 5,225 Administrative services fee 51,600 51,600 51,600 51,600 Auditing and accounting services 25,808 18,408 17,208 17,483 Legal fees 16,230 14,166 15,393 6,491 Printing and shareholder reports 57,037 28,300 61,740 34,723 Directors' fees 10,424 5,711 11,151 7,825 Insurance licensing 8,022 4,271 10,074 3,521 S&P lisensing fee - - 16,240 - Other 25,550 12,183 38,973 18,528 ------------- ------------- ------------- ------------- Total expenses 2,762,901 1,461,632 1,976,833 1,594,118 ------------- ------------- ------------- ------------- Less fees and expenses waived or absorbed by Adviser - - - - ------------- ------------- ------------- ------------- Total net expenses 2,762,901 1,461,632 1,976,833 1,594,118 ------------- ------------- ------------- ------------- Investment income (loss) - net 10,437,843 15,144,759 5,653,756 (59,387) Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) (8,991,230) 1,347,761 (13,621,635) (45,440,110) Foreign currency transactions - - - - Futures transactions - - (458,803) - Net change in unrealized appreciation or depreciation on: Investments (42,776,099) 4,802,232 (111,250,609) (32,193,205) Translation of assets and liabilities in foreign currency - - - - ------------- ------------- ------------- ------------- Net gains (losses) on investments (51,767,329) 6,149,993 (125,331,047) (77,633,315) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations $ (41,329,486) $ 21,294,752 $(119,677,291) $ (77,692,702) ============= ============= ============= =============

SMALL MATURING INTERNATIONAL COMPANY GOVERNMENT STOCK GROWTH BOND 2002 PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------- Investment Income Interest $ 100,773 $ 179,143 $ 246,646 Dividends (net of foreign withholding taxes of $788,860 for International Stock Portfolio) 6,826,823 146,501 - Income from securities lending activities 359,917 50,870 - Commission reimbursement income (note 10) 70,842 - - ------------- ------------- ------------- Total investment income 7,358,355 376,514 246,646 ------------- ------------- ------------- Expenses (note 5): Investment advisory fee 1,539,322 975,136 13,069 Rule 12b-1 fees 642,874 375,052 - Custodian fees 89,598 10,226 7,411 Administrative services fee 37,200 51,600 38,700 Auditing and accounting services 163,737 14,608 6,958 Legal fees 8,799 5,054 160 Printing and shareholder reports 46,557 22,097 1,758 Directors' fees 5,192 3,249 97 Insurance licensing 5,767 3,018 21 S&P lisensing fee - - - Other 12,923 10,278 138 ------------- ------------- ------------- Total expenses 2,551,969 1,470,318 68,312 ------------- ------------- ------------- Less fees and expenses waived or absorbed by Adviser - - (34,386) ------------- ------------- ------------- Total net expenses 2,551,969 1,470,318 33,926 ------------- ------------- ------------- Investment income (loss) - net 4,806,386 (1,093,804) 212,720 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) (22,447,204) (29,123,438) 96,678 Foreign currency transactions (240,411) - - Futures transactions - - - Net change in unrealized appreciation or depreciation on: Investments (31,600,676) (30,287,303) (189,513) Translation of assets and liabilities in foreign currency 46,386 - - ------------- ------------- ------------- Net gains (losses) on investments (76,735,495) (59,410,741) (92,835) ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations $ (49,435,519) $ (60,504,545) $ 119,885 ============= ============= =============

125

MATURING MATURING GOVERNMENT GOVERNMENT VALUE BOND 2006 BOND 2010 STOCK PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ Investment Income Interest $ 515,476 $ 380,056 $ 35,725 Dividends (net of foreign withholding taxes of $10,041 for Global Bond Portfolio) - - 2,654,217 Income from securities lending activities - - 11,913 ------------ ------------ ------------ Total investment income 515,476 380,056 2,701,855 ------------ ------------ ------------ Expenses (note 5): Investment advisory fee 23,609 17,470 645,492 Rule 12b-1 fees - - 322,746 Custodian fees 8,231 8,264 5,656 Administrative services fee 51,600 51,600 51,600 Auditing and accounting services 10,008 10,058 14,458 Legal fees 319 213 4,337 Printing and shareholder reports 1,939 1,597 17,753 Directors' fees 192 139 2,673 Insurance 160 102 2,684 S&P licensing fee - - - Other 428 333 1,110 ------------ ------------ ------------ Total expenses 96,486 89,776 1,068,509 ------------ ------------ ------------ Less fees and expenses waived or absorbed by Adviser (35,104) (44,356) - ------------ ------------ ------------ Total net expenses 61,382 45,420 1,068,509 ------------ ------------ ------------ Investment income (loss) - net 454,094 334,636 1,633,346 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) (2,018) 146,915 (12,030,116) Foreign currency transactions - - - Futures transactions - - - Net change in unrealized appreciation or depreciation on: Investments 683,743 668,644 (10,871,046) Translation of assets and liabilities in foreign currency - - - ------------ ------------ ------------ Net gains (losses) on investments 681,725 815,559 (22,901,162) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 1,135,819 $ 1,150,195 $(21,267,816) ============ ============ ============

See accompanying notes to financial statements. 126

SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP VALUE BOND MID-CAP VALUE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ------------ Investment Income Interest $ 72,899 $ 2,635,522 $ 58,459 $ 13,697 Dividends (net of foreign withholding taxes of $10,041 for Global Bond Portfolio) 261,914 - 385,986 319,477 Income from securities lending activities 16,401 - 11,635 2,221 ------------ ------------ ------------ ------------ Total investment income 351,214 2,635,522 456,080 335,395 ------------ ------------ ------------ ------------ Expenses (note 5): Investment advisory fee 367,199 274,308 64,008 115,952 Rule 12b-1 fees 131,142 114,295 106,680 57,975 Custodian fees 13,810 50,873 15,114 9,321 Administrative services fee 51,600 37,200 51,600 37,200 Auditing and accounting services 17,808 71,091 18,258 65,916 Legal fees 1,750 1,527 1,426 775 Printing and shareholder reports 7,185 6,057 6,045 3,969 Directors' fees 982 899 860 485 Insurance 2,446 1,010 1,046 534 S&P licensing fee - - 10,000 - Other 20,673 11,114 844 766 ------------ ------------ ------------ ------------ Total expenses 614,595 568,374 275,881 292,893 ------------ ------------ ------------ ------------ Less fees and expenses waived or absorbed by Adviser (40,674) - - (50,401) ------------ ------------ ------------ ------------ Total net expenses 573,921 568,374 275,881 242,492 ------------ ------------ ------------ ------------ Investment income (loss) - net (222,707) 2,067,148 180,199 92,903 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) 785,620 2,810,278 (309,655) (2,487,222) Foreign currency transactions - (880,109) - - Futures transactions - - (513,835) - Net change in unrealized appreciation or depreciation on: Investments (15,359,753) 2,819,442 (6,897,612) (5,495,748) Translation of assets and liabilities in foreign currency - 887,465 - - ------------ ------------ ------------ ------------ Net gains (losses) on investments (14,574,133) 5,637,076 (7,721,102) (7,982,970) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations $(14,796,840) $ 7,704,224 $ (7,540,903) $ (7,890,067) ============ ============ ============ ============

MICRO-CAP REAL ESTATE GROWTH SECURITIES PORTFOLIO PORTFOLIO ------------ ------------ Investment Income Interest $ 22,422 $ 16,659 Dividends (net of foreign withholding taxes of $10,041 for Global Bond Portfolio) 14,341 1,114,878 Income from securities lending activities 41,272 2,941 ------------ ------------ Total investment income 78,035 1,134,478 ------------ ------------ Expenses (note 5): Investment advisory fee 310,437 155,406 Rule 12b-1 fees 81,694 64,753 Custodian fees 4,220 11,291 Administrative services fee 51,600 51,600 Auditing and accounting services 16,958 16,658 Legal fees 1,102 867 Printing and shareholder reports 5,894 3,486 Directors' fees 720 499 Insurance 710 1,138 S&P licensing fee - - Other 985 1,133 ------------ ------------ Total expenses 474,320 306,831 ------------ ------------ Less fees and expenses waived or absorbed by Adviser (36,055) (47,820) ------------ ------------ Total net expenses 438,265 259,011 ------------ ------------ Investment income (loss) - net (360,230) 875,467 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) (7,005,781) (131,672) Foreign currency transactions - - Futures transactions - - Net change in unrealized appreciation or depreciation on: Investments (11,905,885) 96,138 Translation of assets and liabilities in foreign currency - - ------------ ------------ Net gains (losses) on investments (18,911,666) (35,534) ------------ ------------ Net increase (decrease) in net assets resulting from operations $(19,271,896) $ 839,933 ============ ============

127 Advantus Series Fund, Inc. Statements of Changes in Net Assets YEARS ENDED DECEMBER 31, 2002 AND 2001

GROWTH BOND PORTFOLIO PORTFOLIO --------------------------------- --------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- --------------- Operations: Investment income (loss) - net $ 449,970 $ (364,706) $ 13,245,517 $ 13,301,725 Net realized gains (losses) on investments (22,254,054) (87,287,783) 4,131,638 4,237,119 Net change in unrealized appreciation or depreciation of investments (51,859,190) (19,261,271) 8,271,980 (1,203,562) --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations (73,663,274) (106,913,760) 25,649,135 16,335,282 --------------- --------------- --------------- --------------- Distributions to shareholders from: Investment income - net -- -- -- (24,738,440) Net realized gains -- (54,563,377) -- -- --------------- --------------- --------------- --------------- Total distributions -- (54,563,377) -- (24,738,440) --------------- --------------- --------------- --------------- Capital share transactions (note 6): Proceeds from sales 41,897,261 54,812,012 66,758,093 69,997,695 Shares issued as a result of reinvested distributions -- 54,563,377 -- 24,738,440 Payments for redemption of shares (68,448,327) (87,980,316) (51,239,338) (38,268,362) --------------- --------------- --------------- --------------- Increase (decrease) in net assets from capital share transactions (26,551,066) 21,395,073 15,518,755 56,467,773 --------------- --------------- --------------- --------------- Total increase (decrease) in net assets (100,214,340) (140,082,064) 41,167,890 48,064,615 Net assets at beginning of year 298,635,148 438,717,212 235,318,159 187,253,544 --------------- --------------- --------------- --------------- Net assets at end of year* $ 198,420,808 $ 298,635,148 $ 276,486,049 $ 235,318,159 =============== =============== =============== =============== * including (distributions in excess of) undistributed net investment income of $ -- $ -- $ -- $ --

See accompanying notes to financial statements. 128

MONEY ASSET MARKET ALLOCATION PORTFOLIO PORTFOLIO --------------------------------- --------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- --------------- Operations: Investment income (loss) - net $ 1,962,910 $ 5,624,781 $ 10,437,843 $ 10,320,252 Net realized gains (losses) on investments -- -- (8,991,230) (83,098,519) Net change in unrealized appreciation or depreciation of investments -- -- (42,776,099) (20,500,647) --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations 1,962,910 5,624,781 (41,329,486) (93,278,914) --------------- --------------- --------------- --------------- Distributions to shareholders from: Investment income - net (1,962,910) (5,624,781) -- (10,364,000) Net realized gains -- -- -- (67,682,594) --------------- --------------- --------------- --------------- Total distributions (1,962,910) (5,624,781) -- (78,046,594) --------------- --------------- --------------- --------------- Capital share transactions (note 6): Proceeds from sales 143,102,900 141,077,027 50,961,636 70,205,653 Shares issued as a result of reinvested distributions 1,959,381 5,682,900 -- 78,046,594 Payments for redemption of shares (121,416,680) (190,800,049) (117,524,365) (133,738,287) --------------- --------------- --------------- --------------- Increase (decrease) in net assets from capital share transactions 23,645,601 (44,040,122) (66,562,729) 14,513,960 --------------- --------------- --------------- --------------- Total increase (decrease) in net assets 23,645,601 (44,040,122) (107,892,215) (156,811,548) Net assets at beginning of year 140,057,594 184,097,716 482,160,132 638,971,680 --------------- --------------- --------------- --------------- Net assets at end of year* $ 163,703,195 $ 140,057,594 $ 374,267,917 $ 482,160,132 =============== =============== =============== =============== * including (distributions in excess of) undistributed net investment income of $ -- $ -- $ -- $ --

MORTGAGE SECURITIES PORTFOLIO --------------------------------- 2002 2001 --------------- --------------- Operations: Investment income (loss) - net $ 15,144,759 $ 12,865,451 Net realized gains (losses) on investments 1,347,761 4,409,940 Net change in unrealized appreciation or depreciation of investments 4,802,232 (2,420,687) --------------- --------------- Net increase (decrease) in net assets resulting from operations 21,294,752 14,854,704 --------------- --------------- Distributions to shareholders from: Investment income - net (149,451) (22,990,172) Net realized gains -- -- --------------- --------------- Total distributions (149,451) (22,990,172) --------------- --------------- Capital share transactions (note 6): Proceeds from sales 84,155,070 95,517,681 Shares issued as a result of reinvested distributions 149,451 22,990,172 Payments for redemption of shares (85,789,175) (31,372,302) --------------- --------------- Increase (decrease) in net assets from capital share transactions (1,484,654) 87,135,551 --------------- --------------- Total increase (decrease) in net assets 19,660,647 79,000,083 Net assets at beginning of year 230,141,253 151,141,170 --------------- --------------- Net assets at end of year* $ 249,801,900 $ 230,141,253 =============== =============== * including (distributions in excess of) undistributed net investment income of $ -- $ 149,451

129

CAPITAL INDEX 500 APPRECIATION PORTFOLIO PORTFOLIO --------------------------------- --------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- --------------- Operations: Investment income (loss) - net $ 5,653,756 $ 5,021,650 $ (59,387) $ 340,333 Net realized gains (losses) on investments (14,080,438) (8,316,253) (45,440,110) (50,312,335) Net change in unrealized appreciation or depreciation of investments (111,250,609) (70,124,371) (32,193,205) (41,198,605) --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations (119,677,291) (73,418,974) (77,692,702) (91,170,607) --------------- --------------- --------------- --------------- Distributions to shareholders from: Investment income - net -- (5,078,231) -- (270,000) Net realized gains -- (6,116,192) -- (93,368,126) --------------- --------------- --------------- --------------- Total distributions -- (11,194,423) -- (93,638,126) --------------- --------------- --------------- --------------- Capital share transactions (note 6): Proceeds from sales 150,581,510 135,214,173 29,697,407 38,497,494 Shares issued as a result of reinvested distributions -- 11,194,423 -- 93,638,126 Payments for redemption of shares (132,651,131) (125,390,272) (55,271,553) (71,554,857) --------------- --------------- --------------- --------------- Increase (decrease) in net assets from capital share transactions 17,930,379 21,018,324 (25,574,146) 60,580,763 --------------- --------------- --------------- --------------- Total increase (decrease) in net assets (101,746,912) (63,595,073) (103,266,848) (124,227,970) Net assets at beginning of year 520,644,291 584,239,364 256,754,742 380,982,712 --------------- --------------- --------------- --------------- Net assets at end of year* $ 418,897,379 $ 520,644,291 $ 153,487,894 $ 256,754,742 =============== =============== =============== =============== * including (distributions in excess of) undistributed net investment income of $ -- $ -- $ -- $ --

See accompanying notes to financial statements. 130

INTERNATIONAL SMALL COMPANY STOCK GROWTH PORTFOLIO PORTFOLIO --------------------------------- --------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- --------------- Operations: Investment income (loss) - net $ 4,806,386 $ 4,778,467 $ (1,093,804) $ (1,039,098) Net realized gains (losses) on investments (22,687,615) 5,375,544 (29,123,438) (34,900,836) Net change in unrealized appreciation or depreciation of investments (31,554,290) (48,196,132) (30,287,303) 232,181 --------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations (49,435,519) (38,042,121) (60,504,545) (35,707,753) --------------- --------------- --------------- --------------- Distributions to shareholders from: Investment income - net -- (12,624,142) -- -- Net realized gains -- (30,986,267) -- (77,689,231) --------------- --------------- --------------- --------------- Total distributions -- (43,610,409) -- (77,689,231) --------------- --------------- --------------- --------------- Capital share transactions (note 6): Proceeds from sales 64,539,470 47,884,120 33,323,885 38,722,688 Shares issued as a result of reinvested distributions -- 43,610,409 -- 77,689,231 Payments for redemption of shares (70,632,109) (74,226,528) (43,636,884) (50,287,336) --------------- --------------- --------------- --------------- Increase (decrease) in net assets from capital share transactions (6,092,639) 17,268,001 (10,312,999) 66,124,583 --------------- --------------- --------------- --------------- Total increase (decrease) in net assets (55,528,158) (64,384,529) (70,817,544) (47,272,401) Net assets at beginning of year 278,545,157 342,929,686 193,705,166 240,977,567 --------------- --------------- --------------- --------------- Net assets at end of year* $ 223,016,999 $ 278,545,157 $ 122,887,622 $ 193,705,166 =============== =============== =============== =============== * including (distributions in excess of) undistributed net investment income of $ -- $ -- $ -- $ --

MATURING GOVERNMENT BOND 2002 PORTFOLIO --------------------------------- 2002** 2001 --------------- --------------- Operations: Investment income (loss) - net $ 212,720 $ 400,194 Net realized gains (losses) on investments 96,678 50,510 Net change in unrealized appreciation or depreciation of investments (189,513) 99,290 --------------- --------------- Net increase (decrease) in net assets resulting from operations 119,885 549,994 --------------- --------------- Distributions to shareholders from: Investment income - net (212,720) (409,119) Net realized gains (76,462) -- --------------- --------------- Total distributions (289,182) (409,119) --------------- --------------- Capital share transactions (note 6): Proceeds from sales 379,426 1,016,744 Shares issued as a result of reinvested distributions -- 409,119 Payments for redemption of shares (7,905,794) (2,452,305) --------------- --------------- Increase (decrease) in net assets from capital share transactions (7,526,368) (1,026,442) --------------- --------------- Total increase (decrease) in net assets (7,695,665) (885,567) Net assets at beginning of year 7,695,665 8,581,232 --------------- --------------- Net assets at end of year* $ -- $ 7,695,665 =============== =============== * including (distributions in excess of) undistributed net investment income of $ -- $ --

** For the period January 1, 2002 to September 20, 2002. Pursuant to the terms of the prospectus, the Maturing Government Bond 2002 Portfolio made a liquidating distribution and ceased operations on September 20, 2002. Payments for redemptions of shares includes the liquidating distribution of $4,074,018. 131

MATURING GOVERNMENT MATURING GOVERNMENT BOND 2006 BOND 2010 PORTFOLIO PORTFOLIO ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Operations: Investment income (loss) - net $ 454,094 $ 424,635 $ 334,636 $ 330,251 Net realized gains (losses) on investments (2,018) 10,144 146,915 15,809 Net change in unrealized appreciation or depreciation of investments 683,743 147,222 668,644 (105,364) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 1,135,819 582,001 1,150,195 240,696 ------------- ------------- ------------- ------------- Distributions to shareholders from: Investment income - net - (426,050) (5,251) (632,006) Net realized gains - - - - Tax return of capital - - - - ------------- ------------- ------------- ------------- Total distributions - (426,050) (5,251) (632,006) ------------- ------------- ------------- ------------- Capital share transactions (note 6): Proceeds from sales 2,842,650 3,243,297 4,504,972 1,969,348 Shares issued as a result of reinvested distributions - 426,050 5,251 632,006 Payments for redemption of shares (2,023,006) (1,559,790) (2,151,071) (1,892,327) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 819,644 2,109,557 2,359,152 709,027 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 1,955,463 2,265,508 3,504,096 317,717 Net assets at beginning of year 8,694,113 6,428,605 5,854,789 5,537,072 ------------- ------------- ------------- ------------- Net assets at end of year* $ 10,649,576 $ 8,694,113 $ 9,358,885 $ 5,854,789 ============= ============= ============= ============= * including (distributions in excess of) undistributed net investment income of $ - $ - $ - $ 5,250

See accompanying notes to financial statements. 132

VALUE SMALL COMPANY STOCK VALUE PORTFOLIO PORTFOLIO ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Operations: Investment income (loss) - net $ 1,633,346 $ 1,663,360 $ (222,707) $ (48,768) Net realized gains (losses) on investments (12,030,116) (11,055,053) 785,620 1,476,282 Net change in unrealized appreciation or depreciation of investments (10,871,046) (7,664,798) (15,359,753) 2,846,609 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (21,267,816) (17,056,491) (14,796,840) 4,274,123 ------------- ------------- ------------- ------------- Distributions to shareholders from: Investment income - net - (1,680,699) - - Net realized gains - - - (1,677,879) Tax return of capital - - - (329,723) ------------- ------------- ------------- ------------- Total distributions - (1,680,699) - (2,007,602) ------------- ------------- ------------- ------------- Capital share transactions (note 6): Proceeds from sales 27,010,207 30,754,074 47,828,722 26,422,993 Shares issued as a result of reinvested distributions - 1,680,699 - 2,007,602 Payments for redemption of shares (34,540,569) (38,230,381) (19,425,312) (11,923,855) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions (7,530,362) (5,795,608) 28,403,410 16,506,740 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (28,798,178) (24,532,798) 13,606,570 18,773,261 Net assets at beginning of year 141,600,855 166,133,653 41,337,192 22,563,931 ------------- ------------- ------------- ------------- Net assets at end of year* $ 112,802,677 $ 141,600,855 $ 54,943,762 $ 41,337,192 ============= ============= ============= ============= * including (distributions in excess of) undistributed net investment income of $ - $ - $ - $ - ------------- ------------- ------------- -------------

GLOBAL BOND PORTFOLIO ------------------------------ 2002 2001 ------------- ------------- Operations: Investment income (loss) - net $ 2,067,148 $ 1,738,402 Net realized gains (losses) on investments 1,930,169 (603,028) Net change in unrealized appreciation or depreciation of investments 3,706,907 (1,575,890) ------------- ------------- Net increase (decrease) in net assets resulting from operations 7,704,224 (440,516) ------------- ------------- Distributions to shareholders from: Investment income - net (121,774) (432,056) Net realized gains - - Tax return of capital - - ------------- ------------- Total distributions (121,774) (432,056) ------------- ------------- Capital share transactions (note 6): Proceeds from sales 13,831,379 8,012,751 Shares issued as a result of reinvested distributions 121,774 432,056 Payments for redemption of shares (7,810,703) (4,791,957) ------------- ------------- Increase (decrease) in net assets from capital share transactions 6,142,450 3,652,850 ------------- ------------- Total increase (decrease) in net assets 13,724,900 2,780,278 Net assets at beginning of year 39,957,743 37,177,465 ------------- ------------- Net assets at end of year* $ 53,682,643 $ 39,957,743 ============= ============= * including (distributions in excess of) undistributed net investment income of $ (492,617) $ (635,104)

133

INDEX 400 MID-CAP MACRO-CAP VALUE PORTFOLIO PORTFOLIO ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Operations: Investment income (loss) - net $ 180,199 $ 308,309 $ 92,903 $ 104,651 Net realized gains (losses) on investments (823,490) 526,223 (2,487,222) (1,279,162) Net change in unrealized appreciation or depreciation of investments (6,897,612) (1,069,495) (5,495,748) (1,040,899) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (7,540,903) (234,963) (7,890,067) (2,215,410) ------------- ------------- ------------- ------------- Distributions to shareholders from: Investment income - net - (344,749) - (73,922) Net realized gains - (1,274,449) - - Tax return of capital - (622,161) - - ------------- ------------- ------------- ------------- Total distributions - (2,241,359) - (73,922) ------------- ------------- ------------- ------------- Capital share transactions (note 6): Proceeds from sales 23,581,687 16,022,345 8,725,818 11,187,951 Shares issued as a result of reinvested distributions - 2,241,359 - 73,922 Payments for redemption of shares (15,273,980) (10,486,711) (7,249,004) (9,958,841) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 8,307,707 7,776,993 1,476,814 1,303,032 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 766,804 5,300,671 (6,413,253) (986,300) Net assets at beginning of year 41,068,690 35,768,019 26,878,685 27,864,985 ------------- ------------- ------------- ------------- Net assets at end of year* $ 41,835,494 $ 41,068,690 $ 20,465,432 $ 26,878,685 ============= ============= ============= ============= * including (distributions in excess of) undistributed net investment income of $ - $ - $ - $ -

See accompanying notes to financial statements. 134

MICRO-CAP GROWTH REAL ESTATE PORTFOLIO SECURITIES PORTFOLIO ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Operations: Investment income (loss) - net $ (360,230) $ (446,200) $ 875,467 $ 500,146 Net realized gains (losses) on investments (7,005,781) (12,126,732) (131,672) 385,404 Net change in unrealized appreciation or depreciation of investments (11,905,885) 6,637,385 96,138 333,586 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (19,271,896) (5,935,547) 839,933 1,219,136 ------------- ------------- ------------- ------------- Distributions to shareholders from: Investment income - net - - (4,101) (496,045) Net realized gains - (145,400) - - Tax return of capital - - - - ------------- ------------- ------------- ------------- Total distributions - (145,400) (4,101) (496,045) ------------- ------------- ------------- ------------- Capital share transactions (note 6): Proceeds from sales 10,767,492 13,109,564 26,881,306 7,724,138 Shares issued as a result of reinvested distributions - 145,400 4,101 496,045 Payments for redemption of shares (12,020,683) (14,321,414) (9,447,280) (3,252,393) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions (1,253,191) (1,066,450) 17,438,127 4,967,791 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (20,525,087) (7,147,397) 18,273,959 5,690,882 Net assets at beginning of year 45,028,940 52,176,337 15,638,055 9,947,173 ------------- ------------- ------------- ------------- Net assets at end of year* $ 24,503,853 $ 45,028,940 $ 33,912,014 $ 15,638,055 ============= ============= ============= ============= * including (distributions in excess of) undistributed net investment income of $ - $ - $ - $ 4,101

See accompanying notes to financial statements. 135 Advantus Series Fund, Inc. Notes to Financial Statements DECEMBER 31, 2002 (1) ORGANIZATION Advantus Series Fund, Inc. (the Fund) is registered under the Investment Company Act of 1940 (as amended) as a diversified (except for Global Bond Portfolio), open-end management investment company with a series of eighteen portfolios (Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation, International Stock, Small Company Growth, Maturing Government Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth and Real Estate Securities). The Fund's prospectus provides a detailed description of each Portfolio's investment objective, policies and strategies. Pursuant to the terms of its prospectus, the Maturing Government Bond 2002 Portfolio made a liquidating distribution and ceased operations on September 20, 2002. The Fund accounts for the assets, liabilities and operations of each Portfolio separately. Shares of the Fund will not be offered directly to the public, but sold only to Minnesota Life Insurance Company's (Minnesota Life) separate accounts in connection with Minnesota Life variable contracts and policies. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Fund are as follows: USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, as of the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENTS IN SECURITIES Each Portfolio's net asset value is generally calculated as of the close of normal trading on the New York Stock Exchange (typically 3:00 p.m. Central Time). Investments in securities traded on a U.S. or foreign securities exchange are valued at the last sales price on that exchange prior to the time when assets are valued; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued on the basis of the last current bid price, by an independent pricing service or at a price deemed best to reflect fair value quoted by dealers who make markets in these securities. The pricing service may use models that price securities based on current yields and relative security characteristics, such as coupon rate, maturity date, issuer credit quality, and prepayment speeds as applicable. When market quotations are not readily available, securities are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Short-term securities, with the exception of those held in Money Market, International Stock, Macro-Cap Value and Global Bond Portfolios, are valued at market. For International Stock, Macro-Cap Value and Global Bond Portfolios, short-term securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost which approximates market value. Pursuant to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all securities in Money Market are valued at amortized cost, which approximates market value, in order to maintain a constant net asset value of $1 per share. However, there is no assurance the portfolio will maintain the $1 net asset value. 136 Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Paydowns of securities are recorded as receivables as of the due date, which varies by issuer. Dividend income is recognized on the ex-dividend date, or upon dividend notification for certain foreign securities, and interest income, including amortization of bond premium and discount computed on a level yield basis, is accrued daily. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities, income and expenses are translated at the exchange rate on the transaction date. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities. Such fluctuations are included with net realized and unrealized gains or losses from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between trade and settlement dates on security transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rates. International Stock and Global Bond also may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuations. Global Bond may also enter into these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. The net U.S. dollar value of foreign currency underlying all contractual commitments held by International Stock or Global Bond and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. International Stock and Global Bond are subject to the credit risk that the other party will not complete the obligations of the contract. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Portfolios may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolios may also buy and write put and call options on these future contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may correlate with changes in the value of the underlying securities. Upon entering into a futures contract, a Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expired. 137 FEDERAL TAXES Each Portfolio's policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Each Portfolio within the Fund is treated as a separate entity for federal income tax purposes. Each Portfolio's policy is to make the required minimum distributions prior to December 31, in order to avoid Federal excise tax. For federal income tax purposes, the following Portfolios had capital loss carryovers and/or post October losses at December 31, 2002 which, if not offset by subsequent capital gains, will expire December 31, 2003 through 2009. It is unlikely the Board of Directors will authorize a distribution of any net realized capital gains until the available capital loss carryovers have been offset or expire: Growth $ 108,750,527 Bond 4,365,625 Asset Allocation 99,502,598 Mortgage Securities 476,556 Index 500 20,785,007 Capital Appreciation 101,874,033 International Stock 22,990,348 Small Company Growth 63,953,052 Maturing Government Bond 2006 47,895 Value Stock 28,364,571 Index 400 Mid Cap. 901,189 Macro-cap Value 3,867,512 Micro-cap Growth 19,295,583 Real Estate Securities 260,378 Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of temporary book-to-tax differences. The character of distributions made during the year from net investment income or realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Portfolio. 138 On the statements of assets and liabilities, as a result of permanent book-to-tax differences, reclassification adjustments were made as follows:

UNDISTRIBUTED NET ACCUMULATED ADDITIONAL PAID-IN INVESTMENT INCOME REALIZED GAIN (LOSS) CAPITAL ----------------- -------------------- ------------------ Growth $ (449,970) $ - $ 449,970 Bond (13,245,517) - 13,245,517 Asset Allocation (10,437,843) - 10,437,843 Mortgage Securities (15,144,759) - 15,144,759 Index 500 (5,653,756) - 5,653,756 Capital Appreciation 59,387 - (59,387) International Stock (4,806,386) 1,081,727 3,724,659 Small Company Growth 1,093,804 - (1,093,804) Maturing Government Bond 2006 (454,094) - 454,094 Maturing Government Bond 2010 (334,635) (102,411) 437,046 Value Stock (1,633,346) - 1,633,346 Small Company Value 222,707 (715,403) 492,696 Global Bond (1,802,887) (864,563) 2,667,450 Index 400 Mid-cap (180,199) 622,161 (441,962) Macro-cap Value (92,903) - 92,903 Micro-cap Growth 360,230 - (360,230) Real Estate Securities (875,467) - 875,467

Included in the reclassification adjustments above are $449,970, $13,245,517, $10,437,843, $15,144,759, $5,653,756, $3,724,659, $454,094, $437,046, $1,633,346, $3,753,037, $180,199, $92,903 and $875,467 in consent dividends for Growth, Bond, Asset Allocation, Mortgage Securities, Index 500, International Stock, Maturing Government Bond 2006, Maturing Government Bond 2010, Value Stock, Global Bond, Index 400 Mid-Cap, Macro-Cap Value and Real Estate Securities, respectively. The shareholders of the portfolios consent to treat these amounts as dividend income for tax purposes although they are not paid (either in cash or reinvested distributions) by the Portfolios. The tax character of distributions paid for the periods indicated is as follows:

YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 ------- -------------- Growth Distributions paid from: Ordinary income $ - $ 1,109,033 Long-term capital gain - 53,454,344 Bond Distributions paid from: Ordinary income - 24,738,440 Long-term capital gain - -

139

YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 ----------- ------------ Money Market Distributions paid from: Ordinary income $ 1,962,910 $ 5,624,781 Long-term capital gain - - Asset Allocation Distributions paid from: Ordinary income - 24,476,623 Long-term capital gain - 53,569,971 Mortgage Securities Distributions paid from: Ordinary income 149,451 22,990,172 Long-term capital gain - - Index 500 Distributions paid from: Ordinary income - 5,078,231 Long-term capital gain - 6,116,192 Capital Appreciation Distributions paid from: Ordinary income - 46,177,011 Long-term capital gain - 47,191,115 International Stock Distributions paid from: Ordinary income - 17,426,210 Long-term capital gain - 26,184,199 Small Company Growth Distributions paid from: Ordinary income - 20,048,512 Long-term capital gain - 57,640,719 Maturing Government Bond 2002 Distributions paid from: Ordinary income 212,720 409,119 Long-term capital gain 76,462 - Maturing Government Bond 2006 Distributions paid from: Ordinary income - 426,050 Long-term capital gain - - Maturing Government Bond 2010 Distributions paid from: Ordinary income 5,251 632,006 Long-term capital gain - -

140

YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 ----------- ------------ Value Stock Distributions paid from: Ordinary income $ - $ 1,680,699 Long-term capital gain - - Small Company Value Distributions paid from: Ordinary income - 620,845 Long-term capital gain - 1,057,034 Tax return of capital - 329,723 Global Bond Distributions paid from: Ordinary income 121,774 432,056 Long-term capital gain - - Index 400 Mid-Cap Distributions paid from: Ordinary income - 344,749 Long-term capital gain - 1,274,449 Tax return of capital - 622,161 Macro-Cap Value Distributions paid from: Ordinary income - 73,922 Long-term capital gain - - Micro-Cap Growth Distributions paid from: Ordinary income - - Long-term capital gain - 145,400 Real Estate Securities Distributions paid from: Ordinary income 4,101 496,054 Long-term capital gain - -

141 As of December 31, 2002, the components of distributable earnings on a tax basis for each Portfolio are as follows:

ACCUMULATED UNREALIZED UNDISTRIBUTED LONG-TERM APPRECIATION ORDINARY INCOME GAIN (LOSS) (DEPRECIATION) --------------- ------------------ ------------------ Growth $ - $ (108,750,527) $ (11,500,326) Bond - (4,365,625) 9,115,756 Money Market - - - Asset Allocation - (99,502,598) (13,080,114) Mortgage Securities - (476,556) 6,485,345 Index 500 - (20,785,007) 74,078,815 Capital Appreciation - (101,874,033) (33,233,854) International Stock - (22,990,348) (45,403,738) Small Company Growth - (63,953,052) (40,926,357) Maturing Government Bond 2006 - (47,895) 1,211,024 Maturing Government Bond 2010 - - 970,794 Value Stock - (28,364,571) (2,761,240) Small Company Value - - (9,163,168) Global Bond - - 1,691,091 Index 400 Mid-Cap - (901,189) (6,184,835) Macro-Cap Value - (3,867,512) (7,563,174) Micro-Cap Growth - (19,295,583) (8,214,961) Real Estate Securities - (260,378) 917,652

DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net investment income for Money Market are declared and reinvested daily in additional shares of capital stock. For Portfolios other than Money Market, distributions from net investment income and realized gains, if any, will generally be declared and reinvested in additional shares on an annual basis. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS Delivery and payment for securities which have been purchased by the Portfolio on a forward commitment or when-issued basis can take place a month or more after the transaction date. During this period, such securities are subject to market fluctuations. As of December 31, 2002, the Bond, Mortgage Securities and Global Bond Portfolios had entered into outstanding, when-issued or forward commitments of $2,852,930, $7,147,402 and $3,105,723, respectively. Each Portfolio has segregated assets with the custodian to cover such when-issued and forward commitments. 142 (3) INVESTMENT SECURITY TRANSACTIONS For the year ended December 31, 2002, the cost of purchases and proceeds from sales of investment securities aggregated $1,533,595,484 and $1,511,085,494 respectively, for Money Market Portfolio. For the other Portfolios, the cost of purchases and proceeds from sales of investment securities, other than temporary investments in short-term securities, for the year ended December 31, 2002 were as follows: INVESTMENT SECURITY TRANSACTIONS

PURCHASES SALES ------------- ------------- Growth $ 234,653,987 $ 254,420,297 Bond 380,421,308 347,289,289 Asset Allocation 489,859,895 544,628,711 Mortgage Securities 206,830,863 190,995,962 Index 500 57,823,642 35,627,116 Capital Appreciation 80,496,777 96,217,790 International Stock 82,075,460 81,443,566 Small Company Growth 86,894,432 97,900,522 Maturing Government Bond 2002 - 7,704,162 Maturing Government Bond 2006 1,243,346 570,612 Maturing Government Bond 2010 3,541,985 1,324,898 Value Stock 143,317,106 146,312,295 Small Company Value 43,826,612 18,883,862 Global Bond 141,064,364 131,742,476 Index 400 Mid Cap 16,784,988 7,935,351 Macro-Cap Value 9,481,383 7,248,748 Micro-Cap Growth 21,127,988 23,226,435 Real Estate Securities 35,349,950 17,497,425

143 (4) FORWARD FOREIGN CURRENCY CONTRACTS On December 31, 2002, Global Bond had entered into forward currency contracts that obligate Global Bond to deliver currencies at specified future dates. Unrealized appreciation and depreciation on these contracts is included in the accompanying financial statements. The terms of the open contracts were as follows:

EXCHANGE CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION - ------- ---------------------- ----------------------- --------------- ------------ 1/03/03 69,684 EUR 73,050 US$ $ - $ 66 1/03/03 68,380 EUR 71,272 US$ - 475 1/07/03 6,768,668 JPY 56,760 US$ - 296 1/09/03 1,682,739 US$ 17,100,000 MXP - 51,291 1/09/03 9,800,000 MXP 939,057 US$ 4,075 - 1/09/03 3,000,000 MXP 296,018 US$ 9,799 - 1/09/03 4,300,000 MXP 425,911 US$ 15,664 - 1/15/03 112,584 EUR 400,000 BRL - 5,067 1/15/03 400,000 BRL 149,549 EUR 43,831 - 1/21/03 15,000,000 SEK 1,644,592 EUR 4,273 - 1/21/03 13,400,000 SEK 1,472,854 EUR 7,680 - 1/21/03 12,000,000 SEK 1,330,332 EUR 18,786 - 1/21/03 760,322 EUR 6,900,000 SEK - 5,959 1/21/03 1,411,958 EUR 12,700,000 SEK - 24,099 1/24/03 256,147 US$ 400,000 CAD - 3,180 1/24/03 1,544,498 US$ 2,460,000 CAD 11,251 - 1/24/03 2,989,182 US$ 4,670,000 CAD - 35,789 1/24/03 770,000 CAD 482,456 EUR 18,748 - 1/24/03 2,900,000 CAD 1,835,675 US$ 1,662 - 1/24/03 1,800,000 CAD 1,151,594 US$ 13,242 - 1/31/03 5,200,000 NZD 2,589,241 EUR 4,786 - 1/31/03 1,370,000 NZD 685,000 EUR 4,231 - 1/31/03 515,040 EUR 1,050,000 NZD 7,193 - 1/31/03 2,753,501 EUR 5,520,000 NZD - 10,238 2/24/03 2,492,500 US$ 2,500,000 EUR 124,749 - 2/24/03 2,528,287 US$ 2,500,000 EUR 88,961 - 2/24/03 2,831,304 US$ 2,800,000 EUR 100,015 - 2/24/03 9,500,000 EUR 9,472,640 US$ - 472,906 3/03/03 1,330,000 GBP 2,055,641 EUR 19,681 - 3/03/03 2,075,193 EUR 1,330,000 GBP - 40,145 3/03/03 124,020,600 JFY 660,000 GBP 10,164 - 3/03/03 660,000 GBP 127,761,480 JPY 21,439 - 3/05/03 1,500,000 GBP 2,344,849 EUR 50,026 - 3/05/03 1,230,400 US$ 800,000 GBP 51,689 - 3/10/03 19,000,000 JPY 274,685 AUD - 6,901 3/10/03 184,700,000 JPY 2,395,652 CAD - 48,276 3/10/03 37,000,000 JPY 298,777 EUR - 43 3/10/03 187,900,000 JPY 974,153 GBP - 27,156 3/10/03 8,043,758 US$ 1,000,000,000 JPY 406,408 - 3/10/03 2,462,601 US$ 308,000,000 JPY 140,050 - 3/10/03 2,376,021 CAD 184,700,000 JPY 60,670 - 3/10/03 1,614,238 US$ 193,000,000 JPY 16,643 - 3/10/03 193,000,000 JPY 1,600,198 US$ - 30,683 7/15/03 400,000 BRL 107,941 EUR - 529 ----------- --------- $ 1,255,716 $ 763,099 =========== =========

144 AUD Australian Dollar BRL Brazilian Real CAD Canadian Dollar EUR Euro GBP British Sterling Pound JPY Japanese Yen MXP Mexican Peso NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona US$ United States Dollar ZAR South African Rand (5) EXPENSES AND RELATED PARTY TRANSACTIONS The Fund has an investment advisory agreement with Advantus Capital Management, Inc. (Advantus Capital), a wholly-owned subsidiary of Securian Financial Group. Under the advisory agreement, Advantus Capital manages the Fund's assets and provides research, statistical and advisory services and pays related office rental and executive expenses and salaries. 145 Each Portfolio of the Fund pays Advantus Capital an annual fee, based on average net assets, in the following amounts:

ANNUAL FEE ----------------------------------------------- Growth .45% of assets to $1 billion; and .40% of assets exceeding $1 billion Bond .30% of assets to $500 million; and.25% of assets exceeding $500 million to $1 billion and .20% of assets exceeding $1 billion Money Market .25% of assets to $1 billion; and .20% of assets exceeding $1 billion Asset Allocation .35% of assets to $1 billion; and .30% of assets exceeding $1 billion Mortgage Securities .30% of assets to $1 billion; and .25% of assets exceeding $1 billion Index 500 .15% of assets to $250 million; and .10% of assets exceeding $250 million to $1 billion; and .075% of assets exceeding $1 billion Capital Appreciation .50% of assets to $1 billion; and .45% of assets to $1 billion International Stock .60% of assets to $ 250 million; .55% of assets exceeding $250 million to $500 million; .50% of assets exceeding $500 million to $1 billion; and .45% of assets exceeding $1 billion Small Company Growth .65% of assets to $1 billion; and .60% of assets exceeding $1 billion Maturing Government Bond 2006 .25% Maturing Government Bond 2010 .25% Value Stock .50% of assets to $500 million; and .45% of assets exceeding $500 million to $1 billion; and .40% of assets exceeding $1 billion Small Company Value .70% of assets to $1 billion; and .65% of assets exceeding $1 billion Global Bond .60% of assets to $1 billion; and .55% of assets exceeding $1 billion Index 400 Mid-Cap .15% of assets to $ 250 million; .10% of assets exceeding $250 million to $1 billion; and .075% of assets exceeding $1 billion Macro-Cap Value .50% Micro-Cap Growth .95% Real Estate Securities .60% of assets to $1 billion; and .55% of assets exceeding $1 billion

146 Advantus Capital has sub-advisory agreements with the following registered investment advisers. Under the sub-advisory agreements, Advantus Capital pays the sub-advisers an annual fee based on average daily net assets, in the following amounts:

PORTFOLIO SUB-ADVISOR FEE - --------- ----------- ----------------------------------------- Capital Appreciation Credit Suisse Asset Management, LLC .50% of average daily net assets to $150 million; .49% of average daily net assets to $200 million International Stock Templeton Investment Counsel, Inc. .70% of average daily net assets to $10 million; .65% of average daily net assets exceeding $10 million to $25 million; .55% of average daily net assets exceeding $25 million to $50; .50% of average daily net assets exceeding $50 million to $100 million; and .40% of average daily net assets exceeding $100 million Small Company Growth Credit Suisse Asset Management, LLC .65% of average daily net assets to $150 million; .64% of average daily net assets to $200 million Small Company Value State Street Research & Management .65% on the first $100 million of total assets; .60% of total assets in excess of $100 million Global Bond Julius Baer Investment Management, Inc. .30% of average daily net assets Macro-Cap Value J.P. Morgan Investment Management, Inc. .45% of average daily net assets Micro-Cap Growth Wall Street Associates .85% of average daily net assets

Effective May 1, 2003, the current sub-advisor for the Capital Appreciation Portfolio will be replaced by a new sub-advisor, Voyageur Asset Management, Inc. Effective May 1, 2003, the current sub-advisory aggrement for the Macro-Cap Value Portfolio will terminate, and the Portfolio will be managed directly by Advantus Capital. 147 The Fund bears certain other operating expenses including outside directors' fees, federal registration fees, printing and shareholder report expenses, legal fees, audit fees, custodian fees, and other miscellaneous expenses. Each Portfolio will pay all expenses directly related to its individual operations. Operating expenses not attributable to a specific Portfolio will be allocated based upon the proportionate net asset size of each Portfolio. Advantus Capital directly incurs and pays these operating expenses relating to the Fund and the Fund in turn reimburses Advantus Capital. VOLUNTARY FEE ABSORPTION Advantus Capital voluntarily absorbed all fees and expenses that exceeded, 1.10% of average daily net assets for the Small Company Value Portfolio, 1.00% of average daily net assets for the Real Estate Securities Portfolio, .65% of average daily net assets for each of the three Maturing Government Bond Portfolios, 1.05% of average daily net assets for the Macro-Cap Value Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio. Advantus Capital has not agreed to absorb expenses over a specific period of time and it may cease its absorption of expenses at any time. If it does so, some Portfolio expenses would increase and thereby reduce investment return. During the year ended December 31, 2002, Advantus Capital Management voluntarily agreed to absorb $34,386, $35,104, $44,356, $40,674, $50,401, $36,055 and $47,820 in expenses that were otherwise payable by Maturing Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond 2010, Small Company Value, Macro-Cap Value, Micro-Cap Growth, and Real Estate Securities Portfolios, respectively. ADMINISTRATIVE SERVICE FEE Each Portfolio pays an administrative services fee to Minnesota Life for accounting, legal and other administrative services which Minnesota Life provides. The administrative services fee for each Portfolio is $4,300 per month, except for International Stock, Global Bond and Macro-Cap Value Portfolios. For International Stock, Global Bond and Macro-Cap Value, the administrative services fee is $3,100 per month for each Portfolio. ACCOUNTING SERVICES The Fund has an agreement with SEI Investments Mutual Fund Services (SEI) whereby SEI provides daily fund accounting services for International Stock, Global Bond and Macro-Cap Value Portfolios. Under this agreement, the annual fee for each Portfolio is equal to the greater of $45,000 or .06% of the first $150 million in net assets, .05% of net assets from $150 million to $1 billion and ..04% of net assets in excess of $1 billion. DISTRIBUTION FEES The Fund has adopted a Rule 12b-1 Distribution Plan covering all of its Portfolios except the Maturing Government Bond Portfolios. Each covered Portfolio pays distribution fees equal to .25% per annum of the average daily net assets of the Portfolio. These fees are paid out of the Portfolio's assets, which affects the Portfolios share price. The fees are paid to Securian Financial Services, Inc. (Securian) the Fund's underwriter, to pay for distribution-related expenses and activities in connection with the distribution of the Portfolios shares. Securian may also use the fees to pay insurance companies, dealers or others for certain non-distribution services as provided for in the Distribution Plan. (6) STOCK INDEX FUTURES CONTRACTS Investments in securities as of December 31, 2002, included securities valued at $16,032,000 in the Index 500 Portfolio and $3,517,160 in the Index 400 Mid-Cap Portfolio that were used as collateral to cover initial margin deposits on 26 open March 2003 S&P 500 and 13 open March 2003 EMINI Futures purchase contracts in the Index 500 Portfolio and 47 open March 2003 Mid-Cap 400 Futures purchase contracts in the Index 400 Mid-Cap Portfolio. The market value of the open purchase contracts as of December 31, 2002, was $5,516,160 in the Index 500 Portfolio and $2,020,530 in the Index 400 Mid-Cap Portfolio with a net unrealized loss of $148,439 in the Index 500 Portfolio and a net unrealized loss of $26,505 in the Index 400 Mid-Cap Portfolio. 148 (7) SECURITIES LENDING To enhance returns, certain portfolio's of the Fund loan securities to brokers in exchange for collateral. The Portfolios receive a fee from the brokers measured as a percent of the loaned securities. At December 31, 2002, the collateral is invested in cash equivalents and repurchase agreements and must be 102% of the value of securities loaned. The risks to the portfolios of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. The value of securities on loan and collateral held for each of the portfolios loaning securities at December 31, 2002, were:

MARKET VALUE MARKET VALUE OF SECURITIES OF COLLATERAL LOANED HELD ------------- ------------- Growth $ 9,110,646 $ 9,400,146 Asset Allocation 24,159,907 25,137,654 Index 500 27,127,002 28,716,578 Capital Appreciation 2,690,495 2,763,997 International Stock 32,725,722 35,121,075 Small Company Growth 16,784,097 17,716,318 Value Stock 5,289,370 5,467,680 Small Company Value 8,539,840 9,188,771 Index 400 Mid-Cap 6,983,119 7,277,084 Macro-Cap Value 1,112,434 1,186,674 Micro-Cap Growth 5,466,860 5,840,540 Real Estate Securities 2,319,732 2,411,288

(8) CAPITAL SHARE TRANSACTIONS Transactions in shares of Portfolios for the years ended December 31, 2002 and December 31, 2001 were as follows:

GROWTH BOND --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ------------ ----------- ----------- Sold 30,683,449 30,696,483 55,927,804 56,598,327 Issued for reinvested distributions - 35,260,552 - 20,922,065 Redeemed (51,403,156) (49,455,376) (43,278,128) (30,978,844) ----------- ------------ ----------- ----------- (20,719,707) 16,501,659 12,649,676 46,541,548 =========== ============ =========== ===========

MONEY MARKET ASSET ALLOCATION ---------------------------- -------------------------- 2002 2001 2002 2001 ------------ ------------ ----------- ----------- Sold 143,102,900 141,076,862 34,613,682 43,181,355 Issued for reinvested distribution 1,959,381 5,682,900 - 54,326,458 Redeemed (121,416,680) (190,799,884) (83,428,552) (85,517,405) ------------ ------------ ----------- ----------- 23,645,601 (44,040,122) (48,814,870) 11,990,408 ============ ============ =========== ===========

149

MORTGAGE SECURITIES INDEX 500 --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ------------ ----------- ----------- Sold 70,887,702 77,693,868 50,204,423 36,921,915 Issued for reinvested distributions 122,215 19,534,032 - 3,201,911 Redeemed 72,842,734 (25,544,820) (44,752,389) (34,685,594) ----------- ------------ ----------- ----------- (1,832,817) 71,683,079 5,452,034 5,438,232 =========== ============ =========== ===========

CAPITAL APPRECIATION INTERNATIONAL STOCK --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ------------ ----------- ----------- Sold 23,602,544 20,571,738 51,760,827 33,380,351 Issued for reinvested distributions - 53,663,688 - 32,112,130 Redeemed (43,934,951) (38,034,517) (57,121,165) (51,796,614) ----------- ------------ ----------- ----------- (20,332,407) 36,200,909 (5,360,338) 13,695,867 =========== ============ =========== ===========

MATURING GOVERNMENT SMALL COMPANY GROWTH BOND 2002 --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ------------ ----------- ----------- Sold 43,512,133 37,329,384 341,728 903,511 Issued for reinvested distributions - 93,003,571 - 372,812 Redeemed (57,471,236) (48,068,203) (7,354,127) (2,226,306) ----------- ------------ ----------- ----------- (13,959,103) 82,264,752 (7,012,399) (949,983) =========== ============ =========== ===========

MATURING GOVERNMENT MATURING GOVERNMENT BOND 2006 BOND 2010 --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ------------ ----------- ----------- Sold 2,170,329 2,616,176 3,138,308 1,435,044 Issued for reinvested distributions - 351,814 4,183 490,461 Redeemed (1,569,941) (1,259,321) (1,547,115) (1,421,532) ----------- ------------ ----------- ----------- 600,388 1,708,669 1,595,376 503,973 =========== ============ =========== ===========

VALUE STOCK SMALL COMPANY VALUE ---------------------------- -------------------------- 2002 2001 2002 2001 ------------ ------------ ----------- ----------- Sold 20,073,522 19,744,562 38,656,403 21,112,837 Issued for reinvested distributions - 1,127,330 - 1,584,207 Redeemed (25,746,571) (24,559,462) (17,157,172) (9,642,067) ------------ ------------ ----------- ----------- (5,673,049) (3,687,570) 21,499,231 13,054,977 ============ ============ =========== ===========

150

GLOBAL BOND INDEX 400 MID-CAP --------------------------- --------------------------- 2002 2001 2002 2001 ----------- ------------- ----------- ------------- Sold 13,936,749 8,533,523 22,067,302 14,161,041 Issued for reinvested distributions 133,589 470,634 - 2,021,105 Redeemed (7,842,322) (5,089,064) (14,848,099) (9,338,185) ----------- ------------- ----------- ------------- 6,228,016 3,915,093 7,219,203 6,843,961 =========== ============= =========== =============

MACRO-CAP VALUE MICRO-CAP GROWTH ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------- ------------ ------------- Sold 10,997,254 11,344,341 9,491,980 8,789,224 Issued for reinvested distributions - 74,740 - 107,840 Redeemed (9,360,785) (10,153,610) (10,493,737) (9,574,375) ------------ ------------- ------------ ------------- 1,636,469 1,265,471 (1,001,757) (677,311) ============ ============= ============ =============

REAL ESTATE SECURITIES ---------------------------- 2002 2001 ------------ ------------- Sold 26,219,738 8,342,175 Issued for reinvested distributions 3,890 517,118 Redeemed (9,427,201) (3,552,654) ------------ ------------- 16,796,427 5,306,639 ============ =============

(9) ILLIQUID SECURITIES Each Portfolio of the Fund currently limits investments in illiquid securities to 15% of net assets at the time of purchase, except for Money Market which limits the investment in illiquid securities to 10% of net assets. At December 31, 2002, investments in securities of Bond, Asset Allocation and Mortgage Securities include issues that are illiquid. The aggregate values of illiquid securities held by Bond, Asset Allocation and Mortgage Securities were $7,884,195, $4,728,691 and $12,438,477, respectively, which represent 2.9%, 1.3% and 5.0% of net assets, respectively. Pursuant to guidelines adopted by the Fund's Board of Directors, certain unregistered securities are determined to be liquid and are not included within the percent limitations specified above. (10) COMMISSION RECAPTURE The Capital Appreciation Portfolio and International Stock Portfolio participate in commission recapture agreements with certain brokers whereby a portion of brokerage commissions on Security trades are refunded. The commission recapture is reported as commission reimbursement income on the statement of operations. For the year ended December 31, 2002, the Capital Appreciation Portfolio and International Stock Portfolio had participated in such agreements and recaptured $26,002 and $70,842, respectively, in brokerage commissions. 151 (11) FINANCIAL HIGHLIGHTS GROWTH PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000(b) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.57 $ 2.52 $ 3.33 $ 2.74 $ 2.40 --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) - - (.01) - .01 Net gains (losses) on securities (both realized and unrealized) (.40) (.63) (.68) .67 .74 --------- --------- --------- --------- --------- Total from investment operations (.40) (.63) (.69) .67 .75 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - - (.01) (.02) Distributions from net realized gains - (.32) (.12) (.07) (.39) --------- --------- --------- --------- --------- Total distributions - (.32) (.12) (.08) (.41) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.17 $ 1.57 $ 2.52 $ 3.33 $ 2.74 ========= ========= ========= ========= ========= Total return (a) (25.44)% (24.80)% (21.83)% 25.67% 34.70% Net assets, end of year (in thousands) $ 198,421 $ 298,635 $ 438,717 $ 594,676 $ 468,382 Ratio of expenses to average daily net assets .76% .75% .68% .53% .53% Ratio of net investment (loss) income to average daily net assets .19% (.11)% (.23)% .12% .40% Portfolio turnover rate (excluding short-term securities) 98.7% 119.9% 119.2% 65.3% 66.4%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 152 BOND PORTFOLIO

YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2002 2001 2000(b) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.18 $ 1.22 $ 1.18 $ 1.31 $ 1.33 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .06 .06 .08 .07 .06 Net gains (losses) on securities (both realized and unrealized) .06 .04 .03 (.10) .01 --------- --------- --------- --------- --------- Total from investment operations .12 .10 .11 (.03) .07 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.14) (.07) (.07) (.07) Distributions from net realized gains - - - (.03) (.02) --------- --------- --------- --------- --------- Total distributions - (.14) (.07) (.10) (.09) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.30 $ 1.18 $ 1.22 $ 1.18 $ 1.31 ========= ========= ========= ========= ========= Total return (a) 10.50% 7.90% 10.44% (2.73)% 6.08% Net assets, end of year (in thousands) $ 276,486 $ 235,318 $ 187,254 $ 181,881 $ 178,793 Ratio of expenses to average daily net assets .61% .60% .61% .56% .55% Ratio of net investment income to average daily net assets 5.20% 5.96% 6.43% 5.92% 5.84% Portfolio turnover rate (excluding short-term securities) 140.8% 197.8% 206.8% 140.8% 252.1%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 153 MONEY MARKET PORTFOLIO

YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2002 2001 2000(b) 1999 1998 ---------- --------- --------- --------- --------- Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .01 .04 .06 .05 .05 --------- --------- --------- --------- --------- Total from investment operations .01 .04 .06 .05 .05 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income (.01) (.04) (.06) (.05) (.05) --------- --------- --------- --------- --------- Total distributions (.01) (.04) (.06) (.05) (.05) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ========= ========= ========= ========= Total return (a) 1.28% 3.75% 5.96% 4.71% 4.97% Net assets, end of year (in thousands) $ 163,703 $ 140,058 $ 184,098 $ 156,580 $ 126,177 Ratio of expenses to average daily net assets .57% .57% .58% .56% .58% Ratio of net investment income to average daily net assets 1.26% 3.73% 5.83% 4.61% 4.84%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 154 ASSET ALLOCATION PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 2002 2001 2000(b) 1999 1998 ---------- --------- --------- --------- --------- Net asset value beginning of year $ 1.45 $ 2.00 $ 2.39 $ 2.28 $ 2.03 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .04 .03 .05 .05 .05 Net gains (losses) on securities (both realized and unrealized) (.17) (.33) (.28) .27 .40 --------- --------- --------- --------- --------- Total from investment operations (.13) (.30) (.23) .32 .45 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.03) (.05) (.10) (.06) Distributions from net realized gains - (.22) (.11) (.11) (.14) --------- --------- --------- --------- --------- Total distributions - (.25) (.16) (.21) (.20) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.32 $ 1.45 $ 2.00 $ 2.39 $ 2.28 ========= ========= ========= ========= ========= Total return (a) (8.98)% (14.36)% (10.40)% 15.17% 23.65% Net assets, end of year (in thousands) $ 374,268 $ 482,160 $ 638,972 $ 750,129 $ 637,997 Ratio of expenses to average daily net assets .65% .64% .61% .53% .53% Ratio of net investment income to average daily net assets 2.46% 1.93% 2.12% 2.28% 2.51% Portfolio turnover rate (excluding short-term securities) 116.5% 169.4% 139.3% 97.0% 129.6%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio`s shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 155 MORTGAGE SECURITIES PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------ 2002 2001 2000(b) 1999 1998 ---------- --------- --------- --------- --------- Net asset value beginning of year $ 1.18 $ 1.22 $ 1.17$ 1.22 $ 1.21 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .08 .07 .09 .07 .08 Net gains (losses) on securities (both realized and unrealized) .03 .04 .04 (.05) - --------- --------- --------- --------- --------- Total from investment operations .11 .11 .13 .02 .08 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.15) (.08) (.07) (.07) --------- --------- --------- --------- --------- Total distributions - (.15) (.08) (.07) (.07) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.29 $ 1.18 $ 1.22 $ 1.17 $ 1.22 ========= ========= ========= ========= ========= Total return (a) 9.66% 9.04% 11.80% 1.99% 6.57% Net assets, end of year (in thousands) $ 249,802 $ 230,141 $ 151,141 $ 138,815 $ 124,358 Ratio of expenses to average daily net assets .62% .61% .62% .57% .57% Ratio of net investment income to average daily net assets 6.41% 6.85% 7.30% 6.88% 6.76% Portfolio turnover rate (excluding short-term securities) 82.4% 81.9% 48.9% 79.4% 116.7%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 156 INDEX 500 PORTFOLIO

YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000(b) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 3.47 $ 4.05 $ 4.56 $ 3.91 $ 3.10 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .04 .03 .03 .04 .04 Net gains (losses) on securities (both realized and unrealized) (.81) (.54) (.44) .74 .82 --------- --------- --------- --------- --------- Total from investment operations (.77) (.51) (.41) .78 .86 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.03) (.03) (.07) (.03) Distributions from net realized gains - (.04) (.07) (.06) (.02) --------- --------- --------- --------- --------- Total distributions - (.07) (.10) (.13) (.05) --------- --------- --------- --------- --------- Net asset value, end of year $ 2.70 $ 3.47 $ 4.05 $ 4.56 $ 3.91 ========= ========= ========= ========= ========= Total return (a) (22.37)% (12.25)% (9.39)% 20.28% 27.99% Net assets, end of year (in thousands) $ 418,897 $ 520,644 $ 584,239 $ 657,824 $ 536,859 Ratio of expenses to average daily net assets .43% .42% .44% .45% .44% Ratio of net investment income to average daily net assets 1.23% .93% .73% .85% 1.08% Portfolio turnover rate (excluding short-term securities) 7.8% 6.1% 12.8% 25.6% 30.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Fund's shares. (b) Effective May, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital prior investment advisory agreement. 157 CAPITAL APPRECIATION PORTFOLIO

YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000(b) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.60 $ 3.06 $ 3.70 $ 3.54 $ 2.85 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss - - (.01) (.01) - Net gains (losses) on securities (both realized and unrealized) (.51) (.69) (.30) .64 .86 --------- --------- --------- --------- --------- Total from investment operations (.51) (.69) (.31) .63 .86 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains - (.77) (.33) (.47) (.17) --------- --------- --------- --------- --------- Total distributions - (.77) (.33) (.47) (.17) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.09 $ 1.60 $ 3.06 $ 3.70 $ 3.54 =========== ========= ========= ========= ========= Total return (a) (31.54)% (24.63)% (10.16)% 21.51% 30.83% Net assets, end of year (in thousands) $ 153,488 $ 256,755 $ 380,983 $ 457,449 $ 392,800 Ratio of expenses to average daily net assets .83% .80% .81% .79% .78% Ratio of net investment income to average daily net assets (.03)% .11% (.17)% (.24)% (.21)% Portfolio turnover rate (excluding short-term securities) 43.0% 90.3% 193.1% 114.1% 82.7%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective, May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 158 INTERNATIONAL STOCK PORTFOLIO

YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000(b) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.34 $ 1.76 $ 1.94 $ 1.73 $ 1.71 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .02 .03 .03 .04 .04 Net gains (losses) on securities (both realized and unrealized) (.26) (.23) (.02) .31 .08 --------- --------- --------- --------- --------- Total from investment operations (.24) (.20) .01 .35 .12 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.06) (.03) (.05) (.05) Distributions from net realized gains - (.16) (.16) (.09) (.05) --------- --------- --------- --------- --------- Total distributions - (.22) (.19) (.14) (.10) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.10 $ 1.34 $ 1.76 $ 1.94 $ 1.73 ========= ========= ========= ========= ========= Total return (a) (17.82)% (11.21)% .81% 21.43% 6.61% Net assets, end of year (in thousands) $ 223,017 $ 278,545 $ 342,930 $ 363,849 $ 310,873 Ratio of expenses to average daily net assets .99% .97% 1.07% .90% .94% Ratio of net investment income to average daily net assets 1.87% 1.60% 2.10% 2.03% 2.55% Portfolio turnover rate (excluding short-term securities) 32.7% 39.4% 46.8% 34.7% 22.4%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 159 SMALL COMPANY GROWTH PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 2002 2001 2000(b) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ .97 $ 2.05 $ 2.44 $ 1.68 $ 1.65 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.01) (.01) (.01) (.01) - Net gains (losses) on securities (both realized and unrealized) (.30) (.40) (.22) .77 .03 --------- --------- --------- --------- --------- Total from investment operations (.31) (.41) (.23) .76 .03 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains - (.67) (.16) - - --------- --------- --------- --------- --------- Total distributions - (.67) (.16) - - --------- --------- --------- --------- --------- Net asset value, end of year $ 0.66 $ 0.97 $ 2.05 $ 2.44 $ 1.68 ========= ========= ========= ========= ========= Total return (a) (31.80)% (14.70)% (11.28)% 45.63% 1.27% Net assets, end of year (in thousands) $ 122,888 $ 193,705 $ 240,978 $ 269,881 $ 195,347 Ratio of expenses to average daily net assets .98% .97% .92% .80% .79% Ratio of net investment income (loss) to average daily net assets (0.73)% (0.55)% (0.47)% (0.45)% (0.28)% Portfolio turnover rate (excluding short-term securities) 61.7% 97.8% 154.3% 105.1% 75.5%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 160 MATURING GOVERNMENT BOND 2002 PORTFOLIO

YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 2002(e) 2001 2000(c) 1999 1998 1997(f) --------- ------- -------- --------- ------- --------- Net asset value beginning of year $ 1.10 $ 1.08 $ 1.05 $ 1.11 $ 1.07 $ 1.05 --------- ------- ------- --------- ------- -------- Income from investment operations: Net investment income .03 .06 .06 .05 .05 .06 Net gains (losses) on securities (both realized and unrealized) .06 .02 .03 (.06) .06 .02 --------- ------- ------- --------- ------- -------- Total from investment operations .09 .08 .09 (.01) .11 .08 --------- ------- ------- --------- ------- -------- Less distributions: Dividends from net investment income (.03) (.06) (.06) (.05) (.06) (.05) Distributions from net realized gains (.06) - - - (.01) (.01) Liquidating distributions (1.10) - - - - - --------- ------- ------- --------- ------- -------- Total distributions (1.19) (.06) (.06) (.05) (.07) (.06) --------- ------- ------- --------- ------- -------- Net asset value, end of year - $ 1.10 $ 1.08 $ 1.05 $ 1.11 $ 1.07 ========= ======= ======= ========= ======= ======== Total return (a) 1.58% 7.55% 8.20% (.48)% 9.61% 8.50% Net assets, end of year (in thousands) - $ 7,696 $ 8,581 $ 10,161 $ 6,854 $ 4,208 Ratio of expenses to average daily net assets (b) .65%(d) .40% .40% .40% .34% .20% Ratio of net investment income to average daily net assets (b) 4.07%(d) 5.33% 5.60% 5.37% 5.74% 5.99% Portfolio turnover rate (excluding short-term securities) 3.2% 24.9% 49.5% 21.1% 35.2% 36.9%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year total return presented has not been annualized. (b) Minnesota Life voluntarily absorbed $34,386, $60,379, $60,401, $53,336, $37,949 and $36,833 in expenses for the period ended September 20, 2002, and the years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.31%, 1.20%, 1.10%, 1.08%, 1.07% and 1.14% respectively, and the ratio of net investment income to average daily net assets would have been 4.73%, 4.53%, 4.90%, 4.69%, 5.01%, and 5.05%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. (d) Annualized. (e) Pursuant to the terms of it's prospectus, the Maturing Government Bond 2002 Portfolio made a liquidating distribution and ceased operations on September 20, 2002. (f) Effective May 1, 1997, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc. Prior to May 1, 1997, the Portfolio had an investment advisory agreement with MIMLICAsset Management Company. 161 MATURING GOVERNMENT BOND 2006 PORTFOLIO

YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.22 $ 1.18 $ 1.09 $ 1.25 $ 1.16 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .06 .06 .07 .07 .05 Net gains (losses) on securities (both realized and unrealized) .10 .04 .09 (.16) .11 --------- --------- --------- --------- --------- Total from investment operations .16 .10 .16 (.09) .16 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.06) (.07) (.07) (.06) Excess distributions of net investment income - - - - (.01) --------- --------- --------- --------- --------- Total distributions - (.06) (.07) (.07) (.07) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.38 $ 1.22 $ 1.18 $ 1.09 $ 1.25 ========= ========= ========= ========= ========= Total return (a) 12.99% 8.08% 15.63% (7.81)% 14.37% Net assets, end of year (in thousands) $ 10,650 $ 8,694 $ 6,429 $ 6,261 $ 6,870 Ratio of expenses to average daily net assets (b) .65% .40% .40% .40% .40% Ratio of net investment income to average daily net assets (b) 4.81% 5.39% 5.92% 5.76% 5.57% Portfolio turnover rate (excluding short-term securities) 5.9% 6.4% 3.4% 19.8% 21.6%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $35,104, $59,498, $61,355, $56,178 and $37,165 in expenses for the years ended December 31, 2002, 2001, 2000, 1999, and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.02%, 1.16%, 1.41%, 1.26% and 1.12%, respectively, and the ratio of net investment income to average daily net assets would have been 4.44%, 4.63%, 4.91%, 4.90% and 4.85%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 162 MATURING GOVERNMENT BOND 2010 PORTFOLIO

YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.27 $ 1.35 $ 1.19 $ 1.41 $ 1.29 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .05 .07 .08 .08 .06 Net gains (losses) on securities (both realized and unrealized) .19 (.01) .17 (.24) .12 --------- --------- --------- --------- --------- Total from investment operations .24 .06 .25 (.16) .18 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.14) (.08) (.06) (.06) Distributions from net realized gains - - (.01) - - --------- --------- --------- --------- --------- Total distributions - (.14) (.09) (.06) (.06) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.51 $ 1.27 $ 1.35 $ 1.19 $ 1.41 ========= ========= ========= ========= ======== Total return (a) 18.85% 4.96% 21.36% (11.54)% 14.28% Net assets, end of year (in thousands) $ 9,359 $ 5,855 $ 5,537 $ 4,942 $ 5,648 Ratio of expenses to average daily net assets (b) .65% .40% .40% .40% .40% Ratio of net investment income to average daily net assets (b) 4.79% 5.49% 6.22% 5.82% 5.48% Portfolio turnover rate (excluding short-term securities) 19.1% 17.3% 8.3% 28.4% 28.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $44,356, $61,422, $62,524, $55,419 and $39,052 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.28%, 1.42%, 1.66%, 1.43% and 1.33%, respectively, and the ratio of net investment income to average daily net assets would have been 4.16%, 4.47%, 4.96%, 4.79% and 4.55%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 163 VALUE STOCK PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.48 $ 1.67 $ 1.71 $ 1.76 $ 1.73 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .02 .02 .01 .02 .03 Net losses on securities (both realized and unrealized) (.25) (.19) (.03) (.02) - --------- --------- --------- --------- --------- Total from investment operations (.23) (.17) (.02) - .03 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.02) (.02) (.05) - --------- --------- --------- --------- --------- Total distributions - (.02) (.02) (.05) - --------- --------- --------- --------- --------- Net asset value, end of year $ 1.25 $ 1.48 $ 1.67 $ 1.71 $ 1.76 ========= ========= ========= ========= ========= Total return (a) (15.32)% (10.45)% (1.61)% .27% 1.75% Net assets, end of year (in thousands) $ 112,803 $ 141,601 $ 166,134 $ 191,380 $ 214,046 Ratio of expenses to average daily net assets .83% .84% .83% .80% .79% Ratio of net investment income to average daily net assets 1.27% 1.10% .84% 1.26% 1.54% Portfolio turnover rate (excluding short-term securities) 112.4% 132.7% 163.1% 131.2% 88.9%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 164 SMALL COMPANY VALUE PORTFOLIO

YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.27 $ 1.16 $ 0.91 $ 0.95 $ 1.03 --------- --------- --------- --------- --------- Income from investment operations: Net investment income - - - .01 .01 Net gains (losses) on securities (both realized and unrealized) (.25) .18 .25 (.04) (.08) --------- --------- --------- --------- --------- Total from investment operations (.25) .18 .25 (.03) (.07) --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - - (.01) (.01) Distributions from net realized gains - (.06) - - - Tax return of capital - (.01) - - - --------- --------- --------- --------- --------- Total distributions - (.07) - (.01) (.01) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.02 $ 1.27 $ 1.16 $ .91 $ .95 ========= ========= ========= ========= ========= Total return (a) (19.98)% 15.59% 28.00% (3.07)% (6.75)% Net assets, end of year (in thousands) $ 54,944 $ 41,337 $ 22,564 $ 12,518 $ 8,646 Ratio of expenses to average daily net assets (b) 1.10% 1.10% 1.05% .90% .90% Ratio of net investment income (loss) to average daily net assets (b) (.43)% (.16)% .29% 1.42% 1.52% Portfolio turnover rate (excluding short-term securities) 38.8% 22.6% 122.0% 101.5% 70.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (b) Minnesota Life voluntarily absorbed $40,674, $39,093, $87,809, $67,886 and $58,848 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.17%, 1.22%, 1.58%, 1.56% and 1.83%, respectively, and the ratio of net investment income to average daily net assets would have been (.50)%, (.28)%, (.24)%, .76% and .59%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 165 GLOBAL BOND PORTFOLIO

YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ .92 $ .95 $ .94 $ 1.05 $ .98 --------- --------- --------- --------- --------- Income from investment operations: Net investment income .05 .04 .04 .05 .05 Net gains (losses) on securities (both realized and unrealized) .12 (.06) (.03) (.13) .11 --------- --------- --------- --------- --------- Total from investment operations .17 (.02) .01 (.08) .16 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.01) - (0.03) (0.03) Distributions from net realized gains - - - - (0.06) Excess distributions of net investment income - - - - - --------- --------- --------- --------- --------- Total distributions - (.01) - (.03) (.09) --------- --------- --------- --------- --------- Net asset value, end of year $ 1.09 $ .92 $ .95 $ .94 $ 1.05 ========= ========= ========= ========= ========= Total return (a) 17.94% (1.51)% 1.42% (7.81)% 16.18 Net assets, end of year (in thousands) $ 53,683 $ 39,958 $ 37,177 $ 32,093 $ 31,152 Ratio of expenses to average daily net assets 1.24% 1.20% 1.33% .94% 1.13 Ratio of net investment income to average daily net assets 4.52% 4.50% 4.85% 5.90% 4.86 Portfolio turnover rate (excluding short-term securities) 304.1% 251.7% 306.8% 287.4% 285.3

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 166 INDEX 400 MID-CAP PORTFOLIO

YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.13 $ 1.22 $ 1.18 $ 1.15 $ 1.01 --------- --------- --------- --------- --------- Income from investment operations: Net investment income - .01 .01 - .01 Net gains (losses) on securities (both realized and unrealized) (.17) (.03) .19 .15 .16 --------- --------- --------- --------- --------- Total from investment operations (.17) (.02) .20 .15 .17 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - (.01) (.01) - (.01) Distributions from net realized gains - (.04) (.15) (.12) (.02) Tax return of capital - (.02) - - - --------- --------- --------- --------- --------- Total distributions - (.07) (.16) (.12) (.03) --------- --------- --------- --------- --------- Net asset value, end of year $ .96 $ 1.13 $ 1.22 $ 1.18 $ 1.15 ========= ========= ========= ========= ========= Total return (a) (15.03)% (1.07)% 16.05% 15.96% 16.68% Net assets, end of year (in thousands) $ 41,835 $ 41,069 $ 35,768 $ 24,357 $ 10,511 Ratio of expenses to average daily net assets (b) .65% .55% .55% .55% .55% Ratio of net investment income to average daily net assets (b) .42% .82% 1.18% .72% .78% Portfolio turnover rate (excluding short-term securities) 20.0% 29.8% 78.3% 76.6% 85.4%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms to the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $45,365, $74,402, $70,044 and $52,946 in expenses for the years ended December 31, 2001, 2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expense to average daily net assets would have been .67%, .80%, 1.00%, and 1.36%, respectively, and the ratio of net investment income (loss) to average daily net assets would have been .70%, .93%, .27%, and (.03)% respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc. which replaces the prior investment advisory agreement. 167 MACRO-CAP VALUE PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ .98 $ 1.06 $ 1.16 $ 1.14 $ .97 --------- --------- --------- --------- --------- Income from investment operations: Net investment income - - - .01 .01 Net gains (losses) on securities (both realized and unrealized) (.28) (.08) (.08) .07 .21 --------- --------- --------- --------- --------- Total from investment operations (.28) (.08) (.08) .08 .22 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - - (.01) - Distributions from net realized gains - - (.02) (.05) (.05) --------- --------- --------- --------- --------- Total distributions - - (.02) (.06) (.05) --------- --------- --------- --------- --------- Net asset value, end of year $ .70 $ .98 $ 1.06 $ 1.16 $ 1.14 ========= ========= ========= ========= ========= Total return (a) (28.14)% (7.74)% (7.02)% 7.17% 22.33% Net assets, end of year (in thousands) $ 20,465 $ 26,879 $ 27,865 $ 22,570 $ 11,088 Ratio of expenses to average daily net assets (b) 1.05% .99% .95% .85% .85% Ratio of net investment income to average daily net assets (b) .40% .37% .39% .60% .69% Portfolio turnover rate (excluding short-term securities) 32.3% 52.6% 44.5% 103.4% 164.0%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $50,401, $60,312, $84,884, $102,703 and $114,468 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and 1998. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.26%, 1.20%, 1.27%, 1.48% and 2.53%, respectively, and the ratio of net investment income (loss) to average daily net assets would have been .19%, .16%, .07%, (.03)% and (.99)%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 168 MICRO-CAP GROWTH PORTFOLIO

YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 2002 2001 2000(c) 1999 1998 --------- --------- --------- --------- --------- Net asset value beginning of year $ 1.55 $ 1.75 $ 2.51 $ 1.01 $ 0.89 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.01) (.01) (.01) - - Net gains (losses) on securities (both realized and unrealized) (.67) (.19) (.44) 1.50 .12 --------- --------- --------- --------- --------- Total from investment operations (.68) (.20) (.45) 1.50 .12 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains - - (.31) - - --------- --------- --------- --------- --------- Total distributions - - (.31) - - --------- --------- --------- --------- --------- Net asset value, end of year $ .87 $ 1.55 $ 1.75 $ 2.51 $ 1.01 ========= ========= ========= ========= ========= Total return (a) (43.64)% (11.33)% (21.05)% 148.77% 13.44% Net assets, end of year (in thousands) $ 24,504 $ 45,029 $ 52,176 $ 42,554 $ 8,034 Ratio of expenses to average daily net assets (b) 1.34% 1.35% 1.30% 1.25% 1.25% Ratio of net investment income (loss) to average daily net assets (b) (1.10)% (1.00)% (.46)% (.47)% (.40)% Portfolio turnover rate (excluding short-term securities) 67.6% 71.2% 102.7% 108.5% 67.4%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. (b) Minnesota Life voluntarily absorbed $36,055, $24,008, $26,838, $50,020 and $46,960 in expenses for the years ended December 31, 2002, 2001, 2000, and 1999, respectively. Had the Portfolio paid all fees and expenses, the ratio of expense to average daily net assets would have been 1.45%, 1.40%, 1.35%, 1.57%, and 2.10%, respectively, and the ratio of net investment income (loss) to average daily net assets would have been (1.21)%, (1.05)%, (.50)%, (.79)% and (1.25)%, respectively. (c) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. 169 REAL ESTATE SECURITIES PORTFOLIO

PERIOD FROM MAY 1, YEAR ENDED DECEMBER 31, 1998(a) TO ----------------------------------------------- DECEMBER 31, 2002 2001 2000(d) 1999 1998 -------- -------- -------- -------- ------------ Net asset value beginning of period $ .96 $ .90 $ .76 $ .83 $ 1.02 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .03 .03 .04 .04 .03 Net gains (losses) on securities (both realized and unrealized) .03 .06 .15 (.07) (.19) -------- -------- -------- -------- -------- Total from investment operations .06 .09 .19 (.03) (.16) -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income - (.03) (.04) (.03) (.03) Tax return of capital - - (.01) (.01) - -------- -------- -------- -------- -------- Total distributions - (.03) (.05) (.04) (.03) -------- -------- -------- -------- -------- Net asset value, end of period $ 1.02 $ .96 $ .90 $ 0.76 $ 0.83 ======== ======== ======== ======== ======== Total return (b) 6.97% 10.03% 25.61% (3.89)% (14.90)% Net assets, end of year (in thousands) $ 33,912 $ 15,638 $ 9,947 $ 5,826 $ 5,322 Ratio of expenses to average daily net assets (c) 1.00% 1.00% .97% .90% .90%(e) Ratio of net investment income to average daily net assets (c) 3.38% 4.43% 5.32% 4.58% 5.54%(e) Portfolio turnover rate (excluding short-term securities) 70.2% 160.4% 143.7% 106.3% 54.0%

- ---------- (a) The inception of the Portfolio was May 1, 1998, when the shares of the Portfolio became effectively registered under the Securities Act of 1933. (b) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect charges pursuant to the terms of the variable life insurance policies and variable annuity contracts funded by separate accounts that invest in the Portfolio's shares. For periods less than one year, total return presented has not been annualized. (c) Minnesota Life voluntarily absorbed $47,820, $71,008, $77,007, $63,511 and $31,736 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and the period ended December 31, 1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of expenses to average daily net assets would have been 1.18%, 1.59%, 2.03%, 2.05% and 1.90%, respectively, and the ratio of net investment income to average daily net assets would have been 3.23%, 3.84%, 4.26%, 3.43% and 4.54%, respectively. (d) Effective May 1, 2000, the Portfolio entered into a new investment advisory agreement with Advantus Capital Management, Inc., which replaces the prior investment advisory agreement. (e) Adjusted to an annual basis. 170 Advantus Series Fund, Inc. Directors and Executive Officers Under Minnesota law, the Board of Directors of the Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund and its Portfolios. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of the Fund, and also serve in the same capacity for each of the other eleven Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Fund are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS William N. Westhoff Director since Retired since July 2002, prior there to Age: 55 July 23, 1998 President, Treasurer and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company since April 1998; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 Frederick P. Feuerherm Vice President, Vice President, Assistant Secretary and Age: 56 Director and Director, Advantus Capital Management, Treasurer since Inc.; Vice President, Minnesota Life July 13, 1994 Insurance Company; Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company

171

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS Ralph D. Ebbott Director since Retired, Vice President and Treasurer of Age: 75 October 22, 1985 Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Research Age: 55 April 25, 2002 Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology at the Age: 66 October 22, 1985 University of Minnesota OTHER EXECUTIVE OFFICERS Dianne M. Orbison President since President and Treasurer, Advantus Capital Age: 50 July 25, 2002 Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital)

172

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------- OTHER EXECUTIVE OFFICERS -- CONTINUED Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Dorsey & Whitney LLP April 16, 1998 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- ---------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Fund's Statement of Additional Information (SAI) includes additional information about Fund directors, and is available, without charge, upon request. You may request a copy of the current SAI by telephoning Minnesota Life, toll free, at (800) 995-3850. 173 (This page has been left blank intentionally.) THIS OFFERING IS AVAILABLE THROUGH SECURIAN FINANCIAL SERVICES, INC., A REGISTERED BROKER/DEALER. SECURIAN FINANCIAL SERVICES, INC. IS AN AFFILIATE OF MINNESOTA LIFE. THIS REPORT MAY BE USED AS SALES LITERATURE IN CONNECTION WITH THE OFFER OR SALE OF VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS FUNDED BY ADVANTUS SERIES FUND, INC. ("FUND") IF PRECEDED OR ACCOMPANIED BY (a) THE CURRENT PROSPECTUS FOR THE FUND AND SUCH CONTRACTS AND (b) THE CURRENT VARIABLE ANNUITY PERFORMANCE REPORT, ADJUSTABLE INCOME ANNUITY PERFORMANCE REPORT, VARIABLE FUND D PERFORMANCE REPORT, VARIABLE GROUP UNIVERSAL LIFE PORTFOLIO PERFORMANCE AND HISTORICAL POLICY VALUES REPORT AND VARIABLE ADJUSTABLE LIFE PORTFOLIO PERFORMANCE AND HISTORICAL POLICY VALUES REPORT, RESPECTIVELY. [SECURIAN FINANCIAL SERVICES LOGO] SECURIAN FINANCIAL SERVICES, INC. SECURITIES DEALER, MEMBER NASD/SIPC 400 ROBERT STREET NORTH ST. PAUL, MN 55101-2098 (1.888.237.1838) 3010-2003-5959N ABOUT MINNESOTA LIFE FOUNDED IN 1880, MINNESOTA LIFE INSURANCE COMPANY SERVES MILLIONS OF PEOPLE WITH A WIDE RANGE OF INSURANCE AND INVESTMENT PRODUCTS FOR INDIVIDUALS, FAMILIES AND BUSINESSES. WE PROVIDE MORE THAN $220 BILLION OF LIFE INSURANCE PROTECTION AND MANAGE MORE THAN $20 BILLION IN ASSETS. ONE OF THE MOST HIGHLY-RATED LIFE INSURERS IN AMERICA, WE WILL BE THERE WHEN OUR CLIENTS NEED US. [MINNESOTA LIFE LOGO] PRESORTED STANDARD A MINNESOTA MUTUAL COMPANY U.S. POSTAGE PAID ST. PAUL MN 400 Robert Street North PERMIT NO. 3547 St. Paul, MN 55101-2098 www.minnesotalife.com ADDRESS SERVICE REQUESTED (C)2001 Minnesota Life Insurance Company. All rights reserved. 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EX-99.6(F)

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EX-99.11

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EX-99.14(A)

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EX-99.14(B)

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EX-99.16

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EX-99.17(A)

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EX-99.17(C)

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                                                      [ADVANTUS LOGO]

                                           ADVANTUS SERIES FUND, INC.

                                         Prospectus dated May 1, 2003

                            As with all mutual funds, the Securities
                            and Exchange Commission has not
                            determined that the information in this
                            prospectus is accurate or complete, nor
                            has it approved the Fund's securities. It
                            is a criminal offense to state otherwise.


ADVANTUS SERIES FUND, INC.

Advantus Series Fund, Inc. (Fund) is a Minnesota corporation with various
investment portfolios that are each operated as mutual funds (the Portfolios).
The Portfolios are as follows:

   - Growth Portfolio

   - Bond Portfolio

   - Money Market Portfolio

   - Asset Allocation Portfolio

   - Mortgage Securities Portfolio

   - Index 500 Portfolio

   - Capital Appreciation Portfolio

   - International Stock Portfolio

   - Small Company Growth Portfolio

   - Maturing Government Bond Portfolios (two separate portfolios with maturity
     dates of 2006 and 2010)

   - Value Stock Portfolio

   - Small Company Value Portfolio

   - International Bond Portfolio (formerly the Global Bond Portfolio)

   - Index 400 Mid-Cap Portfolio

   - Core Equity Portfolio (formerly the Macro-Cap Value Portfolio)

   - Micro-Cap Growth Portfolio

   - Real Estate Securities Portfolio

The Fund has issued a separate series of its common stock for each Portfolio.
This prospectus provides investors information about the Fund and each Portfolio
that investors should know before investing.


TABLE OF CONTENTS



                                                             Page No.
                                                          
SUMMARY ......................... ..........................        1
          Growth Portfolio..................................        3
          Bond Portfolio....................................        6
          Money Market Portfolio............................        9
          Asset Allocation Portfolio........................       12
          Mortgage Securities Portfolio.....................       15
          Index 500 Portfolio...............................       18
          Capital Appreciation Portfolio....................       21
          International Stock Portfolio.....................       24
          Small Company Growth Portfolio....................       27
          Maturing Government Bond Portfolios...............       30
          Value Stock Portfolio.............................       35
          Small Company Value Portfolio.....................       38
          International Bond Portfolio......................       41
          Index 400 Mid-Cap Portfolio.......................       44
          Core Equity Portfolio.............................       47
          Micro-Cap Growth Portfolio........................       50
          Real Estate Securities Portfolio..................       53
INVESTING IN THE FUND .................. ...................       56
          Managing the Portfolios...........................       56
          Advisory Fees.....................................       59
          Distribution Fees.................................       59
          Voluntary Fee Absorption..........................       59
          Investment Objective, Policies and Practices......       60
               Growth Portfolio.............................       60
               Bond Portfolio...............................       60
               Money Market Portfolio.......................       62
               Asset Allocation Portfolio...................       63
               Mortgage Securities Portfolio................       64
               Index 500 Portfolio..........................       66
               Capital Appreciation Portfolio...............       67
               International Stock Portfolio................       68
               Small Company Growth Portfolio...............       69
               Maturing Government Bond Portfolios..........       70
               Value Stock Portfolio........................       72
               Small Company Value Portfolio................       73
               International Bond Portfolio.................       74
               Index 400 Mid-Cap Portfolio..................       76
               Core Equity Portfolio........................       76
               Micro-Cap Growth Portfolio...................       77
               Real Estate Securities Portfolio.............       78
               Investment Practices Common to the
              Portfolios....................................       80
               Portfolio Turnover...........................       80
          Defining Risks....................................       80


                                                     TABLE OF CONTENTS         i




                                                             Page No.
                                                          
BUYING AND SELLING SHARES ................ .................       85
          Buying Shares.....................................       85
          Selling Shares....................................       85
          Exchanging Shares.................................       85
GENERAL INFORMATION ................... ....................       87
          Dividends and Capital Gains Distributions.........       87
          Taxes.............................................       87
          Mixed and Shared Funding..........................       87
FINANCIAL HIGHLIGHTS ................... ...................       89
SERVICE PROVIDERS .................... .....................      107
ADDITIONAL INFORMATION ABOUT THE FUND .......... ...........      108


 ii     TABLE OF CONTENTS


                                    SUMMARY

Advantus Series Fund, Inc. (the Fund) consists of various investment portfolios
(except International Bond Portfolio) that are each open-end, diversified
investment companies (i.e. mutual funds). International Bond Portfolio is an
open-end, non-diversified investment company. The Portfolios offer investors a
variety of investment objectives. Portfolio shares are not offered directly to
the public. Portfolio shares are sold to Minnesota Life Insurance Company
(Minnesota Life) in connection with its variable life insurance policies and
variable annuity contracts. Portfolio shares are also offered to certain other
life insurance companies, including but not limited to life insurance affiliates
of Minnesota Life.

In April 2003, Advantus Capital Management, Inc. (Advantus Capital), at that
time the investment adviser to each of the Portfolios, and certain companies
affiliated with Advantus Capital entered into a Strategic Alliance Agreement and
a related Purchase Agreement with Waddell & Reed Financial, Inc. (W&R), a
leading U.S. mutual fund firm, its affiliate, Waddell & Reed Investment
Management Co. (WRIMCO), and certain other companies affiliated with W&R. Under
these agreements, Advantus Capital agreed to sell to WRIMCO its assets related
to the actively managed equity Portfolios, with the exception of Real Estate
Securities Portfolio. Advantus Capital has recommended to the Board of Directors
of the Fund that these Portfolios be merged into similar existing portfolios of
the W&R Target Funds, Inc. (Target Funds), an investment company managed by
WRIMCO, or, where there is not a similar existing portfolio, into a newly formed
shell portfolio of the Target Funds, as indicated in the following table:



                                           CORRESPONDING TARGET
ADVANTUS PORTFOLIO                         FUNDS PORTFOLIO
- ------------------                         --------------------
                                        
Growth Portfolio                           Growth Portfolio
Asset Allocation Portfolio                 Balanced Portfolio
Capital Appreciation Portfolio             Growth Portfolio
International Stock Portfolio              shell portfolio
Small Company Growth Portfolio             Small Cap Portfolio
Value Stock Portfolio                      Value Portfolio
Small Company Value Portfolio              shell portfolio
Core Equity Portfolio                      Core Equity Portfolio
Micro-Cap Growth Portfolio                 shell portfolio


It is anticipated that, after the mergers, the current sub-advisers of
International Stock Portfolio, Small Company Value Portfolio and Micro-Cap
Growth Portfolio will continue to act as sub-advisers for the corresponding
portfolios of the Target Funds.

Each Portfolio's merger will be subject to the approval of the Board of
Directors of the Fund and the shareholders of the Portfolio. It is currently
anticipated that shareholders of the affected Portfolios will be presented with
a merger proposal in August of 2003.

In connection with the agreements discussed above, the Board of Directors of the
Fund appointed WRIMCO to act as the investment adviser to Asset Allocation
Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core Equity
Portfolio and Value Stock Portfolio on an interim basis prior to the mergers. In
managing these Portfolios, WRIMCO intends to employ investment strategies
substantially identical to those used for the corresponding portfolios of the
Target Funds set forth in the table above. These strategies differ somewhat from
those that have previously been used in managing these Portfolios. Historically,
the Portfolios have been substantially fully invested, holding only enough cash
to meet redemption requests and operating

                                                               SUMMARY         1


requirements. There have been periods when certain of the corresponding
portfolios of the Target Funds have held significantly greater percentages of
cash. In addition, composition of the portfolios of the Target Funds generally
has differed from applicable benchmarks more than that of corresponding
Portfolios. This approach can result in periods of greater over-performance or
under-performance compared to such benchmarks.

This section gives investors a brief summary of each Portfolio's investment
objective, policies and main risks, as well as performance and financial
information. More detailed information about each Portfolio follows this
summary. Keep in mind that an investment in each Portfolio is not a deposit of a
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency and that it is possible to lose
money by investing in a Portfolio. An investor should also note that if a
Portfolio makes frequent changes in its investment portfolio securities, such
changes may result in higher Portfolio costs and may adversely affect an
investor's return.

 2      SUMMARY


GROWTH PORTFOLIO

Growth Portfolio seeks long-term accumulation of capital. Current income is a
factor in the selection of securities, but is a secondary objective.

The Portfolio seeks to achieve its goals by investing primarily in common stocks
of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may
invest in a wide range of marketable securities that, in WRIMCO's opinion, offer
the potential for growth. The Portfolio typically invests in companies having a
market capitalization of at least $1 billion, although it may invest in
companies of any size. The Portfolio generally emphasizes investments in the
faster growing sectors of the economy, such as the technology, healthcare and
consumer-oriented sectors.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks, including the following main types of risk:

   - GROWTH STOCK RISK - the risk that if an assessment by the Portfolio's
     investment adviser of a company's prospective earnings growth or judgment
     of how other investors assess the company's earnings growth is wrong, then
     the value of the company's securities may decrease or not approach the
     value that the Portfolio's investment adviser had placed on them.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's
     skill in evaluating and selecting securities for the Portfolio.

   - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may
     be subject to greater volatility than domestic securities due to factors
     such as currency fluctuations and political or economic conditions
     affecting the foreign country.

Please see "Investing in the Fund - Defining Risks" for a more detailed
description of some of these main risks.

                                                               SUMMARY         3


PORTFOLIO PERFORMANCE. The following bar chart and table show Growth Portfolio's
annual returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period compares to the return of a
broad based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                               4.68
'94                                                                               0.81
'95                                                                              24.28
'96                                                                              17.15
'97                                                                              33.41
'98                                                                              34.70
'99                                                                              25.67
'00                                                                             -21.83
'01                                                                             -24.80
'02                                                                             -25.44



                          
Best Quarter:          (Q4'98)    21.62%
Worst Quarter:         (Q1'01)   -25.46%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Growth Portfolio                         %    -25.44    -5.80      4.28
     Russell 1000 Growth Index                     -27.89    -3.84      6.71


        SUMMARY
 4


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Growth Portfolio. This table describes the fees and expenses that
investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.45

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.06

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.76


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $78        243       422       942


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                               SUMMARY         5


BOND PORTFOLIO

Bond Portfolio seeks as high a level of a long-term total rate of return as is
consistent with prudent investment risk. The Portfolio also seeks preservation
of capital as a secondary objective.

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

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - CALL RISK - the risk that securities with interest rates will be prepaid by
     the issuer prior to maturity, particularly during periods of falling
     interest rates, causing the Portfolio to reinvest the proceeds in other
     securities with generally lower interest rates.

   - CREDIT RISK - the risk that an issuer of a debt security or fixed income
     obligation will not make payments on the security or obligation when due.

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

   - INCOME RISK - the risk that the Portfolio may experience a decline in its
     income due to falling interest rates.

   - INTEREST RATE RISK - the risk that the value of a debt security or fixed
     income obligation will decline due to changes in market interest rates
     (note: one measure of interest rate risk is effective duration, explained
     under "Investing in the Fund - Investment Objective, Policies and
     Practices - Bond Portfolio").

   - PREPAYMENT RISK - the risk that falling interest rates could cause
     prepayments of securities to occur more quickly than expected, causing the
     Portfolio to reinvest the proceeds in other securities with generally lower
     interest rates.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 6      SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show Bond Portfolio's
annual returns and long-term performance. The chart shows how the Portfolio's
performance has varied from year to year, and provides some indication of the
risks in investing in the Portfolio. The table shows how the Portfolio's average
annual return over a one, five and ten year period compares to the return of a
broad based index. The chart and table assume reinvestment of dividends and
distributions. The chart and table do not, however, reflect the charges and
other expenses associated with the variable life insurance policies and variable
annuity contracts which invest in the Portfolio. If such charges and expenses
were included, the returns shown below would be lower. Like other mutual funds,
the past performance of the Portfolio does not necessarily indicate how the
Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                              10.25
'94                                                                              -4.55
'95                                                                              19.75
'96                                                                               2.96
'97                                                                               9.42
'98                                                                               6.08
'99                                                                              -2.73
'00                                                                              10.44
'01                                                                               7.90
'02                                                                              10.50



                          
Best Quarter:          (Q2'95)    6.81%
Worst Quarter:         (Q1'94)   -3.92%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Bond Portfolio                           %    10.50     6.32       6.79
     Lehman Brothers Aggregate Bond Index          10.27     7.54       7.51


                                                               SUMMARY         7


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Bond Portfolio. This table describes the fees and expenses that investors
pay if they buy and hold shares of the Portfolio, but it does not reflect
charges assessed in connection with the variable life insurance policies or
variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.30

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.06

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.61


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $62        195       340       762


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 8      SUMMARY


MONEY MARKET PORTFOLIO

Money Market Portfolio seeks maximum current income to the extent consistent
with liquidity and the preservation of capital.

The Portfolio invests in a variety of U.S. dollar denominated money market
securities.

Although the Portfolio seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Portfolio. An investment
in the Portfolio may result in the loss of money, and may also be subject to
various risks including the following types of main risk:

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

   - INCOME RISK - the risk that the Portfolio may experience a decline in its
     income due to falling interest rates.

   - INFLATION RISK - the risk that inflation will erode the purchasing power of
     the value of securities held by the Portfolio or the Portfolio's dividends.

   - INTEREST RATE RISK - the risk that the value of a fixed income obligation
     will decline due to changes in market interest rates.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

                                                               SUMMARY         9


PORTFOLIO PERFORMANCE. The following bar chart and table show Money Market
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows the
Portfolio's average annual return over a one, five and ten year period. The
chart and table assume reinvestment of dividends. The chart and table do not,
however, reflect the charges and other expenses associated with the variable
life insurance policies and variable annuity contracts which invest in the
Portfolio. If such charges and expenses were included, the returns shown below
would be lower. Like other mutual funds, the past performance of the Portfolio
does not necessarily indicate how the Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                              2.68
'94                                                                              3.71
'95                                                                              5.43
'96                                                                              4.92
'97                                                                              5.11
'98                                                                              4.97
'99                                                                              4.71
'00                                                                              5.96
'01                                                                              3.75
'02                                                                              1.28



                          
Best Quarter:          (Q4'00)    1.56%
Worst Quarter:         (Q4'01)     .28%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Money Market Portfolio                   %     1.28     4.12       4.24


An investor may obtain up-to-date information about the Portfolio's seven-day
current yield and seven-day effective yield by calling Minnesota Life at (800)
995-3850.

 10     SUMMARY


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Money Market Portfolio. This table describes the fees and expenses that
investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.25

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.07

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.57


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $58        183       318       714


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         11


ASSET ALLOCATION PORTFOLIO

Asset Allocation Portfolio seeks as high a level of long-term total rate of
return as is consistent with prudent investment risk.

The Portfolio invests primarily in a mix of stocks, debt securities and
short-term instruments, depending on market conditions. In its equity
investments, the Portfolio invests primarily in medium to large, well-
established companies, that typically issue dividend producing securities. The
majority of the Portfolio's debt holdings are either U.S. Government securities
or investment grade corporate bonds, that include bonds rated BBB and higher by
Standard & Poor's Ratings Service or Baa and higher by Moody's Investors
Service, Inc. or, if unrated, deemed by WRIMCO to be of comparable quality. The
Portfolio has no limitations on the range of maturities of debt securities in
which it may invest. The Portfolio may invest in foreign securities.

An investment in Asset Allocation Portfolio may result in the loss of money, and
may also be subject to various risks including the following main types of risk:

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

   - INCOME RISK - the risk that the Portfolio may experience a decline in its
     income due to falling interest rates.

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

   - MARKET RISK - the risk that equity and debt securities are subject to
     adverse trends in equity and debt markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's
     skill in allocating the Portfolio's assets among different types of
     investments.

   - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may
     be subject to greater volatility than domestic securities due to factors
     such as currency fluctuations and political or economic conditions
     affecting the foreign country.

Please see "Investing in the Fund - Defining Risks" for a more detailed
description of some of these main risks.

 12     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show Asset Allocation
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one, five and ten year period compares
to the return of certain selected broad based indices. The chart and table
assume reinvestment of dividends and distributions. The chart and table do not,
however, reflect the charges and other expenses associated with the variable
life insurance policies and variable annuity contracts which invest in the
Portfolio. If such charges and expenses were included, the returns shown below
would be lower. Like other mutual funds, the past performance of the Portfolio
does not necessarily indicate how the Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                               6.46
'94                                                                              -1.40
'95                                                                              25.01
'96                                                                              12.50
'97                                                                              18.99
'98                                                                              23.65
'99                                                                              15.17
'00                                                                             -10.40
'01                                                                             -14.36
'02                                                                              -8.98



                          
Best Quarter:          (Q4'98)    15.03%
Worst Quarter:         (Q1'01)   -16.94%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Asset Allocation Portfolio               %    -8.98     -0.11      5.74
     S&P 500 Index                                 -22.10     -.59      9.33
     Lehman Brothers Aggregate Bond Index          10.27      7.54      7.51
     Blended Index(1)                              -9.80      3.10      8.93


(1) The blended index is comprised of 60% S&P 500 Index and 40% Lehman Brothers
    Aggregate Bond Index.

                                                              SUMMARY         13


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Asset Allocation Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.35

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.05

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.65


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $66        208       362       810


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 14     SUMMARY


MORTGAGE SECURITIES PORTFOLIO

Mortgage Securities Portfolio seeks a high level of current income consistent
with prudent investment risk.

The Portfolio invests in mortgage-related securities. The Portfolio invests a
major portion of its assets in investment-grade securities representing
interests in pools of mortgage loans. In addition, the Portfolio may invest in a
variety of other mortgage-related securities including collateralized mortgage
obligations (CMOs) and stripped mortgage-backed securities. In selecting
securities, the Portfolio's investment adviser considers factors such as
prepayment risk, liquidity, credit quality and the type of loan and collateral
underlying the security, as well as trends in economic conditions and interest
rates.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - CALL RISK - the risk that callable securities with high interest rates will
     be prepaid by the issuer prior to maturity, particularly during periods of
     falling interest rates, causing the Portfolio to reinvest the proceeds in
     other securities with generally lower interest rates.

   - CONCENTRATION RISK - the risk that the Portfolio's performance may be more
     susceptible to a single economic, regulatory or technological occurrence
     than an investment portfolio that does not concentrate its investments in a
     single industry. The Portfolio concentrates its investments in the mortgage
     and mortgage-finance industry.

   - CREDIT RISK - the risk that an issuer of a mortgage-backed security or
     fixed income obligation will not make payments on the security or
     obligation when due.

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

   - INCOME RISK - the risk that the Portfolio may experience a decline in its
     income due to falling interest rates.

   - INTEREST RATE RISK - the risk that the value of a mortgage-backed security
     or fixed income obligation will decline due to changes in market interest
     rates (note: one measure of interest rate risk is effective duration,
     explained under "Investing in the Fund - Investment Objective, Policies and
     Practices - Mortgage Securities Portfolio").

   - LIQUIDITY RISK - the risk that mortgage-related securities purchased by the
     Portfolio, including restricted securities determined by the Portfolio's
     investment adviser to be liquid at the time of purchase, may prove to be
     illiquid or otherwise subject to reduced liquidity due to changes in market
     conditions or quality ratings, or to errors in judgment by the investment
     adviser.

   - PREPAYMENT RISK - the risk that falling interest rates could cause
     prepayments of securities to occur more quickly than expected, causing the
     Portfolio to reinvest the proceeds in other securities with generally lower
     interest rates.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

                                                              SUMMARY         15


PORTFOLIO PERFORMANCE. The following bar chart and table show Mortgage
Securities Portfolio's annual returns and long-term performance. The chart shows
how the Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one, five and ten year period compares
to the return of a broad based index. The chart and table assume reinvestment of
dividends and distributions. The chart and table do not, however, reflect the
charges and other expenses associated with the variable life insurance policies
and variable annuity contracts which invest in the Portfolio. If such charges
and expenses were included, the returns shown below would be lower. Like other
mutual funds, the past performance of the Portfolio does not necessarily
indicate how the Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                               9.25
'94                                                                              -3.37
'95                                                                              18.01
'96                                                                               5.26
'97                                                                               9.14
'98                                                                               6.57
'99                                                                               1.99
'00                                                                              11.80
'01                                                                               9.04
'02                                                                               9.66



                          
Best Quarter:          (Q2'95)    5.90%
Worst Quarter:         (Q1'94)   -3.78%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Mortgage Securities Portfolio            %     9.66     7.76       7.60
     Lehman Brothers Mortgage-Backed
      Securities Index                              8.75     7.34       7.28


        SUMMARY
 16


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Mortgage Securities Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                              
- ------------------------------------------------------------------------
     Management Fees                                            %   0.30

     Rule 12b-1 Fees                                            %   0.25

     Other Expenses                                             %   0.07

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES                  %   0.62


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $63        199       346       774


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         17


INDEX 500 PORTFOLIO

Index 500 Portfolio seeks investment results that correspond generally to the
price and yield performance of the common stocks included in the Standard &
Poor's 500 Composite Stock Price Index (the S&P 500).

The Portfolio invests its assets in all of the common stocks included in the S&P
500.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to replicate
     the performance of the S&P 500 may be affected by, among other things,
     changes in securities markets, the manner in which Standard & Poor's Rating
     Services calculates the S&P 500, the amount and timing of cash flows into
     and out of the Portfolio, commissions, and other expenses.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 18     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show Index 500
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one, five and ten year period compares
to the return of a broad based index. The chart and table assume reinvestment of
dividends and distributions. The chart and table do not, however, reflect the
charges and other expenses associated with the variable life insurance policies
and variable annuity contracts which invest in the Portfolio. If such charges
and expenses were included, the returns shown below would be lower. Like other
mutual funds, the past performance of the Portfolio does not necessarily
indicate how the Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                               9.76
'94                                                                               1.18
'95                                                                              36.83
'96                                                                              21.64
'97                                                                              32.36
'98                                                                              27.99
'99                                                                              20.28
'00                                                                              -9.39
'01                                                                             -12.25
'02                                                                             -22.37



                          
Best Quarter:          (Q4'98)    21.29%
Worst Quarter:         (Q3'02)   -17.27%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Index 500 Portfolio                      %    -22.37    -1.02      8.80
     S&P 500
      (as adjusted for dividend
      reinvestment)                                -22.10     -.59      9.33


                                                              SUMMARY         19


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Index 500 Portfolio. This table describes the fees and expenses that
investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.13

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.05

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.43


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $44        138       241       542


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 20     SUMMARY


CAPITAL APPRECIATION PORTFOLIO

Capital Appreciation Portfolio seeks growth of capital.

The Portfolio seeks to achieve its goal by investing primarily in common stocks
of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may
invest in a wide range of marketable securities that, in WRIMCO's opinion, offer
the potential for growth. The Portfolio typically invests in companies having a
market capitalization of at least $1 billion, although it may invest in
companies of any size. The Portfolio generally emphasizes investments in the
faster growing sectors of the economy, such as the technology, healthcare and
consumer-oriented sectors.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks, including the following main types of risk:

   - GROWTH STOCK RISK - the risk that if an assessment by the Portfolio's
     investment adviser of a company's prospective earnings growth or judgment
     of how other investors assess the company's earnings growth is wrong, then
     the value of the company's securities may decrease or not approach the
     value that the Portfolio's investment adviser had placed on them.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's
     skill in evaluating and selecting securities for the Portfolio.

   - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may
     be subject to greater volatility than domestic securities due to factors
     such as currency fluctuations and political or economic conditions
     affecting the foreign country.

Please see "Investing in the Fund - Defining Risks" for a more detailed
description of some of these main risks.

                                                              SUMMARY         21


PORTFOLIO PERFORMANCE. The following bar chart and table show Capital
Appreciation Portfolio's annual returns and long-term performance. The chart
shows how the Portfolio's performance has varied from year to year, and provides
some indication of the risks in investing in the Portfolio. The table shows how
the Portfolio's average annual return over a one, five and ten year period
compares to the return of a broad based index. The chart and table assume
reinvestment of dividends and distributions. The chart and table do not,
however, reflect the charges and other expenses associated with the variable
life insurance policies and variable annuity contracts which invest in the
Portfolio. If such charges and expenses were included, the returns shown below
would be lower. Like other mutual funds, the past performance of the Portfolio
does not necessarily indicate how the Portfolio will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                              10.44
'94                                                                               2.25
'95                                                                              22.78
'96                                                                              17.61
'97                                                                              28.26
'98                                                                              30.83
'99                                                                              21.51
'00                                                                             -10.16
'01                                                                             -24.63
'02                                                                             -31.54



                          
Best Quarter:          (Q4'99)    29.80%
Worst Quarter:         (Q3'01)   -22.97%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     Capital Appreciation Portfolio           %    -31.54    -5.92      4.42
     S&P 500 Index                                 -22.10     -.59      9.33


        SUMMARY
 22


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Capital Appreciation Portfolio. This table describes the fees and
expenses that investors pay if they buy and hold shares of the Portfolio, but it
does not reflect charges assessed in connection with the variable life insurance
policies or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.50

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.08

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.83


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                       
     1 Year    3 Years   5 Years   10 Years
      $85        265       460      1,025


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         23


INTERNATIONAL STOCK PORTFOLIO

International Stock Portfolio seeks long-term capital growth.

The Portfolio primarily invests in equity securities issued by small, mid and
large capitalization foreign companies and governmental agencies. In addition,
the Portfolio may invest lesser portions of its assets in foreign
investment-grade debt securities. In selecting equity securities, the
Portfolio's investment sub-adviser performs a company-by-company analysis,
rather than focusing on a specific industry or economic sector. The Portfolio's
investment sub-adviser concentrates on the market price of a company relative to
its view regarding the company's long-term earnings potential.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - CURRENCY RISK - the risk that changes in foreign currency exchange rates
     will increase or decrease the value of foreign securities or the amount of
     income or gain received on such securities.

   - FOREIGN SECURITIES RISK - the risk that the value of foreign companies or
     foreign government securities may be subject to greater volatility than
     domestic securities due to additional factors related to investing in
     foreign securities.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 24     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show International
Stock Portfolio's annual returns and long-term performance. The chart shows how
the Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one and five year period and since the
inception of the Portfolio compares to the return of a broad based index. The
chart and table assume reinvestment of dividends and distributions. The chart
and table do not, however, reflect the charges and other expenses associated
with the variable life insurance policies and variable annuity contracts which
invest in the Portfolio. If such charges and expenses were included, the returns
shown below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'93                                                                              44.15
'94                                                                              -0.32
'95                                                                              14.23
'96                                                                              19.79
'97                                                                              11.94
'98                                                                               6.61
'99                                                                              21.43
'00                                                                               0.81
'01                                                                             -11.21
'02                                                                             -17.82



                          
Best Quarter:          (Q4'98)    14.54%
Worst Quarter:         (Q2'02)   -23.85%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                   1 Year   5 Years   10 Years
- ------------------------------------------------------------------------------
                                                          
     International Stock Portfolio
      (inception 5/1/92)                      %    -17.82    -0.97      7.68
     Morgan Stanley Capital EAFE Index             -15.65    -2.61      4.30


                                                              SUMMARY         25


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the International Stock Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)

                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.60

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.14

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.99



EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:

                        
     1 Year     3 Years   5 Years   10 Years
      $101        315       547      1,213



The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 26     SUMMARY


SMALL COMPANY GROWTH PORTFOLIO

Small Company Growth Portfolio seeks long-term accumulation of capital.

The Portfolio primarily invests in various types of equity securities of small
capitalization companies at the time of purchase. The Portfolio invests
primarily in common and preferred stocks but may also invest in securities
convertible into equity securities. In selecting equity securities, the
Portfolio's investment sub-adviser employs a growth investment style and looks
for either developing or older companies in a growth stage or companies
providing products or services with a high unit-volume growth rate.

The Portfolio invests primarily in equity securities of small companies. The
Portfolio considers a "small" company to be one whose market capitalization is
within the range of capitalizations of companies in the Russell 2000 Index.

Some companies may outgrow the definition of a small company after the Portfolio
has purchased their securities. These companies continue to be considered small
for purposes of the Portfolio's investment policies. In addition, the Portfolio
may invest a portion of its assets in companies of any size. As a result, the
Portfolio's average market capitalization may sometimes exceed that of the
largest company in the Russell 2000 Index.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's
     investment adviser of a company's prospective earnings growth or judgment
     of how other investors assess the company's earnings growth is wrong, then
     the value of the company's securities may decrease or not approach the
     value that the Portfolio's investment adviser has placed on it.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - SMALL COMPANY RISK - the risk that equity securities of small companies are
     subject to greater price volatility due to, among other things, such
     companies' small size, limited product lines, limited access to financing
     sources and limited management depth.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

                                                              SUMMARY         27


PORTFOLIO PERFORMANCE. The following bar chart and table show Small Company
Growth Portfolio's annual returns and long-term performance. The chart shows how
the Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one and five year period and since the
inception of the Portfolio compares to the return of a broad based index. The
chart and table assume reinvestment of dividends and distributions. The chart
and table do not, however, reflect the charges and other expenses associated
with the variable life insurance policies and variable annuity contracts which
invest in the Portfolio. If such charges and expenses were included, the returns
shown below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'94                                                                               6.16
'95                                                                              32.06
'96                                                                               6.45
'97                                                                               7.75
'98                                                                               1.27
'99                                                                              45.63
'00                                                                             -11.28
'01                                                                             -14.70
'02                                                                             -31.80



                          
Best Quarter:          (Q4'99)    45.45%
Worst Quarter:         (Q3'98)   -27.87%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                        From
                                                   1 Year   5 Years   Inception
- -------------------------------------------------------------------------------
                                                          
     Small Company Growth Portfolio
      (inception 5/3/93)                      %    -31.80    -5.31       3.82
     Russell 2000 Growth Index                     -30.26    -6.59       3.28


        SUMMARY
 28


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Small Company Growth Portfolio. This table describes the fees and
expenses that investors pay if they buy and hold shares of the Portfolio, but it
does not reflect charges assessed in connection with the variable life insurance
policies or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.65

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.08

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.98


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:

                        
     1 Year     3 Years   5 Years   10 Years
      $100        312       542      1,201



The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         29


MATURING GOVERNMENT BOND PORTFOLIOS

Each of the Maturing Government Bond Portfolios seeks as high an investment
return as is consistent with prudent investment risk for a specified period of
time ending on a specified liquidation date.

Each of the Portfolios primarily invests in debt securities issued by the United
States Treasury that are stripped of their unmatured interest coupons, and in
receipts and certificates for stripped debt obligations and stripped interest
coupons. In addition, each of the Portfolios may purchase other zero coupon
securities issued by the U.S. government and its agencies and instrumentalities,
by trusts where payment of principal and interest is guaranteed by the U.S. and
by other government corporations. Each Portfolio will mature on a specific
target date. The current target maturity dates are September 2006 and 2010. On
each target date, the Portfolio will be converted to cash and reinvested in
another Fund Portfolio at the direction of the investor. If the investor does
not provide reinvestment instructions, then the proceeds will automatically be
invested in the Money Market Portfolio.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - CREDIT RISK - the risk that an issuer of a fixed income obligation will not
     make payments on the obligation when due (note: since the payment of
     principal on Portfolio securities is backed by the full faith and credit of
     the United States, this risk is less pervasive than other fixed
     income-oriented mutual funds).

   - INTEREST RATE RISK - the risk that the value of a debt security will
     decline due to changes in market interest rates (note: interest rate risk
     will affect the value of any of the Portfolio's zero coupon securities if
     the Portfolio desires to redeem a security prior to the security's maturity
     date. Otherwise, the Portfolio will receive the stated return from a zero
     coupon security upon maturity that will not be affected by changes in
     prevailing market interest rates). If an investor redeems Portfolio shares
     prior to the Portfolio's maturity target date, then the value of such
     Portfolio shares may be affected by interest rate risk.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 30     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show each of the
Maturing Government Bond Portfolio's annual returns and long-term performance.
The chart shows how each Portfolio's performance has varied from year to year,
and provides some indication of the risks in investing in each of the
Portfolios. The table shows how each Portfolio's average annual return over a
one and five year period and since the inception of the Portfolio compares to
the return of a broad based index. The chart and table assume reinvestment of
dividends and distributions. The chart and table do not, however, reflect the
charges and other expenses associated with the variable life insurance policies
and variable annuity contracts which invest in the Portfolio. If such charges
and expenses were included, the returns shown below would be lower. Like other
mutual funds, the past performance of each Portfolio does not necessarily
indicate how such Portfolio will perform in the future.

2006 PORTFOLIO

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'95                                                                              34.72
'96                                                                              -1.21
'97                                                                              12.62
'98                                                                              14.37
'99                                                                              -7.81
'00                                                                              15.63
'01                                                                               8.08
'02                                                                              12.99



                          
Best Quarter:          (Q2'95)   12.66%
Worst Quarter:         (Q1'96)   -6.91%



2010 PORTFOLIO

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'95                                                                              41.22
'96                                                                              -3.42
'97                                                                              17.87
'98                                                                              14.28
'99                                                                             -11.54
'00                                                                              21.36
'01                                                                               4.96
'02                                                                              18.85



                          
Best Quarter:          (Q2'95)    15.42%
Worst Quarter:         (Q1'96)   -10.09%



                                                              SUMMARY         31


   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                       From
                                                  1 Year   5 Years   Inception
- ------------------------------------------------------------------------------
                                                         
     2006 Portfolio
      (inception 5/2/94)                     %    12.99     8.28        9.72
     Ryan Labs, Inc. September 2006 Index
      of U.S. Treasury Strips                     12.69     9.07       10.27
     2010 Portfolio
      (inception 5/2/94)                          18.85     8.89       10.91
     Ryan Labs, Inc. September 2010 Index
      of U.S. Treasury Strips                     18.91     9.27       11.31


        SUMMARY
 32


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Maturing Government Bond 2006 and 2010 Portfolios. These tables describe
the fees and expenses that investors pay if they buy and hold shares of the
Portfolios, but it does not reflect charges assessed in connection with the
variable life insurance policies or variable annuity contracts that invest in
the Portfolios.

2006 PORTFOLIO

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)

                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.25

     Other Expenses                                         %   0.77

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   1.02



EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:

                        
     1 Year     3 Years   5 Years   10 Years
      $104        325       563      1,248



The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         33


2010 PORTFOLIO

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)

                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.25

     Other Expenses                                         %   1.03

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   1.28



EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:

                        
     1 Year     3 Years   5 Years   10 Years
      $130        404       700      1,540



The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 34     SUMMARY


VALUE STOCK PORTFOLIO

Value Stock Portfolio seeks long-term accumulation of capital. The production of
income is a secondary objective of the Portfolio.

The Portfolio seeks to achieve its goals by investing, for the long term, in the
common stocks of large-cap U.S. and foreign companies. The Portfolio seeks to
invest in stocks that are, in the opinion of WRIMCO, undervalued relative to the
true value of the company, and/or out of favor in the financial markets but have
a favorable outlook for capital appreciation. Although the Portfolio typically
invests in large-cap companies, it may invest in securities of any size company.

An investment in Value Stock Portfolio may result in the loss of money, and may
also be subject to various risks, including the following main types of risk:

   - LARGE COMPANY RISK - the risk that a portfolio of large capitalization
     company securities may underperform the market as a whole.

   - VALUE STOCK RISK - the risk that the value of a security believed by the
     Portfolio's investment adviser to be undervalued may never reach what the
     adviser believes is its full value, or that the security's value may
     decrease.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's
     skill in evaluating and selecting securities for the Portfolio.

   - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may
     be subject to greater volatility than domestic securities due to factors
     such as currency fluctuations and political or economic conditions
     affecting the foreign country.

Please see "Investing in the Fund - Defining Risks" for a more detailed
description of some of these main risks.

                                                              SUMMARY         35


PORTFOLIO PERFORMANCE. The following bar chart and table show Value Stock
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one and five year period and since the
inception of the Portfolio compares to the return of a broad based index. The
chart and table assume reinvestment of dividends and distributions. The chart
and table do not, however, reflect the charges and other expenses associated
with the variable life insurance policies and variable annuity contracts which
invest in the Portfolio. If such charges and expenses were included, the returns
shown below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'95                                                                              32.96
'96                                                                              30.95
'97                                                                              21.19
'98                                                                               1.75
'99                                                                               0.27
'00                                                                              -1.61
'01                                                                             -10.45
'02                                                                             -15.32



                          
Best Quarter:          (Q4'98)    15.18%
Worst Quarter:         (Q3'02)   -18.44%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                       From
                                                  1 Year   5 Years   Inception
- ------------------------------------------------------------------------------
                                                         
     Value Stock Portfolio (inception
      5/2/94)                                %    -15.32    -5.31       6.16
     Russell 1000 Value Index                     -15.52     1.16      10.74


        SUMMARY
 36


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Value Stock Portfolio. This table describes the fees and expenses that
investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)

                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.50

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.08

     TOTAL ANNUAL PORTFOLIO OPERATING                       %   0.83



EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:

                        
     1 Year     3 Years   5 Years   10 Years
       $85        265       460      1,025



The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         37


SMALL COMPANY VALUE PORTFOLIO

Small Company Value Portfolio seeks long-term accumulation of capital.

The Portfolio primarily invests in various types of equity securities of small
capitalization companies. Although a universal definition of small
capitalization companies does not exist, the Portfolio generally defines small
capitalization companies as those whose market capitalizations are similar to
the market capitalizations of companies in the Russell 2000(R) Value Index.
These equity securities will consist primarily of value common stocks, but may
also include preferred stock and other securities convertible into equity
securities. In selecting equity securities, the Portfolio's investment
sub-adviser searches for those companies that appear to be undervalued or
trading below their true worth, and examines such features as a firm's financial
condition, business prospects, competitive position and business strategy. The
Portfolio looks for companies that appear likely to come back into favor with
investors, for reasons that may range from good prospective earnings or strong
management teams to new products or services.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - INITIAL PUBLIC OFFERING RISK - the risk that the Portfolio will not be able
     to sustain the positive effect on performance that may result from
     investments in initial public offerings (IPOs). Favorable investments in
     IPOs have had a significant impact on the Portfolio's performance in some
     periods. The effect of IPOs on the Portfolio's total returns going forward
     may not be positive, either as a result of changes in the IPO market or
     growth of the Portfolio's assets which may reduce its total return.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - SMALL COMPANY RISK - the risk that equity securities of small companies are
     subject to greater price volatility due to, among other things, such
     companies' small size, limited product lines, limited access to financing
     sources and limited management depth.

   - VALUE STOCK RISK - the risk that the value of a security believed by the
     Portfolio's investment adviser to be undervalued may never reach what such
     investment adviser believes is its full value, or that such security's
     value may decrease.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 38     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show Small Company
Value Portfolio's annual returns and long-term performance. The chart shows how
the Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one year period and since the inception
of the Portfolio compares to the return of a broad based index. The chart and
table assume reinvestment of dividends and distributions. The chart and table do
not, however, reflect the charges and other expenses associated with the
variable life insurance policies and variable annuity contracts which invest in
the Portfolio. If such charges and expenses were included, the returns shown
below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'98                                                                              -6.75
'99                                                                              -3.07
'00                                                                              28.00
'01                                                                              15.59
'02                                                                             -19.98



                          
Best Quarter:          (Q4'01)    20.92%
Worst Quarter:         (Q3'02)   -27.13%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                       From
                                                  1 Year   5 Years   Inception
- ------------------------------------------------------------------------------
                                                         
     Small Company Value Portfolio
      (inception 10/1/97)                    %    -19.98    1.37       1.74
     Russell 2000 Value Index                     -11.42    2.71       2.96


                                                              SUMMARY         39


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Small Company Value Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)

                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.70

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.22

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(A)           %   1.17



(a) Advantus Capital Management, Inc. (Advantus Capital), investment adviser to
    certain of the Fund's Portfolios, has voluntarily agreed to absorb "other
    expenses", excluding advisory fees and Rule 12b-1 fees, in excess of 0.15%
    of average net assets of the Portfolio. After such absorption, the ratio of
    total Portfolio operating expenses to average net assets will be 1.10%.
    Advantus Capital reserves the right to discontinue such absorption at any
    time at its sole discretion.

EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:

                        
     1 Year     3 Years   5 Years   10 Years
      $119        372       644      1,420



The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 40     SUMMARY


INTERNATIONAL BOND PORTFOLIO

(formerly the Global Bond Portfolio)

International Bond Portfolio seeks to maximize current income, consistent with
the protection of principal.

The Portfolio invests mainly in a variety of investment-grade debt securities
issued by foreign issuers. These debt securities include, among other things,
debt obligations issued or guaranteed by foreign governments or any of their
agencies or instrumentalities, debt obligations issued or guaranteed by
supranational organizations established or supported by foreign governments and
debt obligations issued by foreign companies. In addition, the Portfolio may
invest up to 20% of its net assets in U.S. debt obligations issued or guaranteed
by the U.S. government.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - CALL RISK - the risk that securities with interest rates will be prepaid by
     the issuer prior to maturity, particularly during periods of falling
     interest rates, causing the Portfolio to reinvest the proceeds in other
     securities with generally lower interest rates.

   - CREDIT RISK - the risk that an issuer of a debt security or fixed income
     obligation will not make payments on the security or obligation when due.

   - CURRENCY RISK - the risk that changes in foreign currency exchange rates
     will increase or decrease the value of foreign securities or the amount of
     income or gain received on such securities.

   - DIVERSIFICATION RISK - the risk that, because the Portfolio may invest more
     than 5% of its total assets in the securities of a single issuer, the
     Portfolio's performance may be more susceptible to a single economic,
     regulatory or technological occurrence than a more diversified investment
     portfolio.

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

   - FOREIGN SECURITIES RISK - the risk that the value of foreign companies or
     foreign government securities may be subject to greater volatility than
     domestic securities due to additional factors related to investing in
     foreign securities.

   - INCOME RISK - the risk that the Portfolio may experience a decline in its
     income due to falling interest rates.

   - INTEREST RATE RISK - the risk that the value of a debt security or fixed
     income obligation will decline due to changes in market interest rates
     (note: one measure of interest rate risk is effective duration, explained
     under "Investing in the Fund - Investment Objective, Policies and
     Practices - International Bond Portfolio").

   - PREPAYMENT RISK - the risk that falling interest rates could cause
     prepayments of securities to occur more quickly than expected, causing the
     Portfolio to reinvest the proceeds in other securities with generally lower
     interest rates.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

                                                              SUMMARY         41


PORTFOLIO PERFORMANCE. The following bar chart and table show International Bond
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one year period and from the inception
of the Portfolio compares to the return of a broad based index. The chart and
table assume reinvestment of dividends and distributions. The chart and table do
not, however, reflect the charges and other expenses associated with the
variable life insurance policies and variable annuity contracts which invest in
the Portfolio. If such charges and expenses were included, the returns shown
below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'98                                                                              16.18
'99                                                                              -7.81
'00                                                                               1.42
'01                                                                              -1.51
'02                                                                              17.94



                          
Best Quarter:          (Q2'02)    10.62%
Worst Quarter:         (Q1'00)    -3.71%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                       From
                                                  1 Year   5 Years   Inception
- ------------------------------------------------------------------------------
                                                         
     International Bond Portfolio
      (inception 10/1/97)                    %    17.94     4.76       4.54
     Salomon Brothers World Government
      Bond Index(1)                               19.50     5.82       5.67
     Salomon Brothers Non-U.S. World
      Government Bond Index                       16.37     8.30       4.63


(1) During prior reporting periods, the Portfolio compared its annual total
    return performance to the Salomon Brothers World Government Bond Index,
    which includes securities of U.S. issuers. Effective May 1, 2003, the
    Portfolio changed its name from the Global Bond Portfolio to the
    International Bond Portfolio and began pursuing a policy of investing
    primarily in debt securities of foreign issuers, rather than both foreign
    and domestic issuers as was previously the case. For that reason, the
    Portfolio now compares its returns to the Salomon Brothers Non-U.S. World
    Government Bond Index, which excludes securities of U.S. issuers.

 42     SUMMARY


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the International Bond Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.60

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.39

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   1.24


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
      $126        393       681      1,500


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         43


INDEX 400 MID-CAP PORTFOLIO

Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to
the aggregate price and dividend performance of the publicly traded common
stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400).

The Portfolio invests its assets in all of the common stocks included in the S&P
400.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - INDEX PERFORMANCE RISK - the risk that the Portfolio's ability to replicate
     the performance of the S&P 400 may be affected by, among other things,
     changes in securities markets, the manner in which Standard & Poor's Rating
     Services calculates the S&P 400, the amount and timing of cash flows into
     and out of the Portfolio, commissions, and other expenses.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 44     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show Index 400 Mid-Cap
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one year period and from the inception
of the Portfolio compares to the return of a broad based index. The chart and
table assume reinvestment of dividends and distributions. The chart and table do
not, however, reflect the charges and other expenses associated with the
variable life insurance policies and variable annuity contracts which invest in
the Portfolio. If such charges and expenses were included, the returns shown
below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'98                                                                              16.68
'99                                                                              15.96
'00                                                                              16.05
'01                                                                              -1.07
'02                                                                             -15.03



                          
Best Quarter:          (Q4'98)    26.59%
Worst Quarter:         (Q3'02)   -16.66%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                       From
                                                  1 Year   5 Years   Inception
- ------------------------------------------------------------------------------
                                                         
     Index 400 Mid-Cap Portfolio
      (inception 10/1/97)                    %    -15.03    5.71       5.44
     S&P 400 MidCap Index                         -14.52    6.40        .08


                                                              SUMMARY         45


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Index 400 Mid-Cap Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.15

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.25

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   0.65


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
       $66        208       362       810


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 46     SUMMARY


CORE EQUITY PORTFOLIO

(formerly the Macro-Cap Value Portfolio)

Core Equity Portfolio seeks high total return.

The Portfolio seeks to achieve its goal by primarily investing in common stocks
of large, high-quality U.S., and to a lesser extent foreign, companies that have
the potential for capital appreciation, or that WRIMCO expects to resist market
decline, and that are well known, have been consistently profitable and have
dominant market positions in their industries. Although the Portfolio typically
invests in large companies, it may invest in securities of any size company.

An investment in Core Equity Portfolio may result in the loss of money, and may
also be subject to various risks, including the following main types of risk:

   - LARGE COMPANY RISK - the risk that a portfolio of large capitalization
     company securities may underperform the market as a whole.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - MANAGER RISK - the Portfolio's performance will be affected by WRIMCO's
     skill in evaluating and selecting securities for the Portfolio.

   - FOREIGN SECURITIES RISK - the risk that the value of foreign securities may
     be subject to greater volatility than domestic securities due to factors
     such as currency fluctuations and political or economic conditions
     affecting the foreign country.

Please see "Investing in the Fund - Defining Risks" for a more detailed
description of some of these main risks.

                                                              SUMMARY         47


PORTFOLIO PERFORMANCE. The following bar chart and table show Core Equity
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one year period and from the inception
of the Portfolio compares to the return of a broad based index. The chart and
tables assume reinvestment of dividends and distributions. The chart and table
do not, however, reflect the charges and other expenses associated with the
variable life insurance policies and variable annuity contracts which invest in
the Portfolio. If such charges and expenses were included, the returns shown
below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'98                                                                              22.33
'99                                                                               7.17
'00                                                                              -7.02
'01                                                                              -7.74
'02                                                                             -28.14



                          
Best Quarter:          (Q4'98)    20.98%
Worst Quarter:         (Q3'02)   -18.17%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                       From
                                                  1 Year   5 Years   Inception
- ------------------------------------------------------------------------------
                                                         
     Core Equity Portfolio (inception
      10/15/97)                              %    -28.14    -4.17      -4.40
     S&P 500 Index (as adjusted for
      dividend reinvestment)                      -22.10     -.59        .01


        SUMMARY
 48


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Core Equity Portfolio. This table describes the fees and expenses that
investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.50

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.51

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(A)           %   1.26


(a)  Advantus Capital Management, Inc. (Advantus Capital), investment adviser to
     certain of the Fund's Portfolios, has voluntarily agreed to absorb "other
     expenses", excluding advisory fees and Rule 12b-1 fees, in excess of 0.32%
     of average net assets of the Portfolio. After such absorption, the ratio of
     total Portfolio operating expenses to average net assets will be 1.07%.
     Advantus Capital reserves the right to discontinue such absorption at any
     time at its sole discretion.

EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
      $128        400       692      1,523


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         49


MICRO-CAP GROWTH PORTFOLIO

Micro-Cap Growth Portfolio seeks long-term capital appreciation.

The Portfolio primarily invests in equity securities of micro-cap companies
(i.e., companies with a market capitalization of less than $300 million) at the
time of purchase. The Portfolio primarily invests in common stock but may also
invest in preferred stock and securities convertible into equity securities. In
selecting equity securities, the Portfolio invests in securities that the
Portfolio's investment sub-adviser believes show sustainable earnings growth
potential and improving profitability.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - GROWTH STOCK RISK - the risk that if the assessment by the Portfolio's
     investment sub-adviser of a company's prospective earnings growth or
     judgment of how other investors assess the company's earnings growth is
     wrong, then the value of the company's securities may decrease or not
     approach the value that the Portfolio's investment sub-adviser has placed
     on it.

   - INITIAL PUBLIC OFFERING RISK - the risk that the Portfolio will not be able
     to sustain the positive effect on performance that may result from
     investments in initial public offerings (IPOs). Favorable investments in
     IPOs have had a significant impact on the Portfolio's performance in some
     periods. The effect of IPOs on the Portfolio's total returns going forward
     may not be positive, either as a result of changes in the IPO market or
     growth of the Portfolio's assets which may reduce its total return.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - MICRO-CAP COMPANY RISK - the risk that equity securities of micro-cap
     companies are subject to greater price volatility due to, among other
     things, such companies' small size, limited product lines, limited access
     to financing sources and limited management depth.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

 50     SUMMARY


PORTFOLIO PERFORMANCE. The following bar chart and table show Micro-Cap Growth
Portfolio's annual returns and long-term performance. The chart shows how the
Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one year period and since the inception
of the Portfolio compares to the return of a broad based index. The chart and
table assume reinvestment of dividends and distributions. The chart and table do
not, however, reflect the charges and other expenses associated with the
variable life insurance policies and variable annuity contracts which invest in
the Portfolio. If such charges and expenses were included, the returns shown
below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'98                                                                              13.44
'99                                                                             148.77
'00                                                                             -21.05
'01                                                                             -11.33
'02                                                                             -43.64



                          
Best Quarter:          (Q4'99)    82.84%
Worst Quarter:         (Q3'02)   -34.64%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                         From
                                                  1 Year   5 Years    Inception
- --------------------------------------------------------------------------------
                                                          
     Micro-Cap Growth Portfolio
      (inception 10/1/97)                    %    -43.64     2.17        -.65
     Russell 2000 Growth Index                    -30.26    -6.59       -7.92


                                                              SUMMARY         51


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Micro-Cap Growth Portfolio. This table describes the fees and expenses
that investors pay if they buy and hold shares of the Portfolio, but it does not
reflect charges assessed in connection with the variable life insurance policies
or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.95

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.25

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(A)           %   1.45


(a) Advantus Capital Management, Inc. (Advantus Capital), investment adviser to
    certain of the Fund's Portfolios, has voluntarily agreed to absorb "other
    expenses", excluding advisory fees and Rule 12b-1 fees, in excess of 0.14%
    of average net assets of the Portfolio. After such absorption, the ratio of
    total Portfolio operating expenses to average net assets will be 1.34%.
    Advantus Capital reserves the right to discontinue such absorption at any
    time at its sole discretion.

EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
      $148        459       792      1,735


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

 52     SUMMARY


REAL ESTATE SECURITIES PORTFOLIO

Real Estate Securities Portfolio seeks above average income and long-term growth
of capital.

The Portfolio invests its assets primarily in real estate and real
estate-related securities. "Real estate securities" include securities issued by
companies that receive at least 50% of their gross revenue from the
construction, ownership, management, financing or sale of residential,
commercial or industrial real estate. "Real estate-related securities" include
securities issued by companies primarily engaged in businesses that sell or
offer products or services that are closely related to the real estate industry.

Most of the Portfolio's real estate securities portfolio will consist of
securities issued by Real Estate Investment Trusts (REITs) that are listed on a
securities exchange or traded over-the-counter. A REIT is a corporation or trust
that invests in fee or leasehold ownership of real estate mortgages or shares
issued by other REITs. In selecting securities, the Portfolio's investment
adviser considers factors such as a company's financial condition, financial
performance, policies and strategies, real estate properties and competitive
market condition.

An investment in the Portfolio may result in the loss of money, and may also be
subject to various risks including the following types of main risk:

   - CONCENTRATION RISK - the risk that the Portfolio's performance may be more
     susceptible to a single economic, regulatory or technological occurrence
     than an investment portfolio that does not concentrate its investments in a
     single industry The Portfolio concentrates its investments in the real
     estate and real estate related industry.

   - MARKET RISK - the risk that equity securities are subject to adverse trends
     in equity markets.

   - PORTFOLIO RISK - the risk that Portfolio performance may not meet or exceed
     that of the market as a whole.

   - REAL ESTATE RISK - the risk that the value of the Portfolio's investments
     may decrease due to a variety of factors related to the construction,
     development, ownership, financing, repair or servicing or other events
     affecting the value of real estate, buildings or other real estate
     fixtures.

   - REIT-RELATED RISK - the risk that the value of the Portfolio's equity
     securities issued by REITs will be adversely affected by changes in the
     value of the underlying property.

Please see "Investing in the Fund - Investment Objective, Policies and
Practices" and "- Defining Risks" for a more detailed description of these main
risks and additional risks in connection with investing in the Portfolio.

                                                              SUMMARY         53


PORTFOLIO PERFORMANCE. The following bar chart and table show Real Estate
Securities Portfolio's annual returns and long-term performance. The chart shows
how the Portfolio's performance has varied from year to year, and provides some
indication of the risks in investing in the Portfolio. The table shows how the
Portfolio's average annual return over a one year period and from the inception
of the Portfolio compares to the return of a broad based index. The chart and
table assume reinvestment of dividends and distributions. The chart and table do
not, however, reflect the charges and other expenses associated with the
variable life insurance policies and variable annuity contracts which invest in
the Portfolio. If such charges and expenses were included, the returns shown
below would be lower. Like other mutual funds, the past performance of the
Portfolio does not necessarily indicate how the Portfolio will perform in the
future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)
- --------------------------------------------------------------------------------
[LINE GRAPHIC]

                                                           
'99                                                                              -3.89
'00                                                                              25.61
'01                                                                              10.03
'02                                                                               6.97



                          
Best Quarter:          (Q2'99)    13.98%
Worst Quarter:         (Q3'99)   -10.30%



   AVERAGE ANNUAL TOTAL RETURN
   (FOR PERIODS ENDING DECEMBER 31, 2002)
- --------------------------------------------------------------------------------



                                                                      From
                                                           1 Year   Inception
- -----------------------------------------------------------------------------
                                                           
     Real Estate Securities Portfolio (inception
      5/1/98)                                         %     6.97      4.15
     Wilshire Associates Real Estate Securities
      Index                                                 2.64      4.67


        SUMMARY
 54


FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in the Real Estate Securities Portfolio. This table describes the fees and
expenses that investors pay if they buy and hold shares of the Portfolio, but it
does not reflect charges assessed in connection with the variable life insurance
policies or variable annuity contracts that invest in the Portfolio.

          SHAREHOLDER FEES

          (fees paid directly from an investment in the Portfolio)
          ----------------------------------------------------------------------
              Not Applicable

          ANNUAL PORTFOLIO OPERATING EXPENSES

          (expenses that are deducted from Portfolio assets)




                                                          
- --------------------------------------------------------------------
     Management Fees                                        %   0.60

     Rule 12b-1 Fees                                        %   0.25

     Other Expenses                                         %   0.33

     TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES              %   1.18


EXAMPLE. This example is intended to help investors compare the costs of
investing in the Portfolio with the cost of investing in other Portfolios.

The example assumes an investment of $10,000 in the Portfolio for the time
periods indicated and then a redemption of all shares at the end of those
periods. The example also assumes that the investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although actual
costs may be higher or lower, based on these assumptions, costs would be:



                        
     1 Year     3 Years   5 Years   10 Years
      $120        375       649      1,432


The table and the example above reflect the Portfolio related fees and expenses
that an investor would bear indirectly as the owner of a variable life insurance
policy or variable annuity contract where a portion of the premiums for such
policy or contract have been invested in the Portfolio. There are other fees and
expenses related to such policies and contracts that are not reflected in this
prospectus. If the table and example included those other fees and expenses, the
fees and expenses shown in the table and example would be higher.

                                                              SUMMARY         55


                             INVESTING IN THE FUND

MANAGING THE PORTFOLIOS

ADVANTUS CAPITAL. The investment adviser of the Bond Portfolio, Money Market
Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International
Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond
Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index
400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities
Portfolio is Advantus Capital Management, Inc. (Advantus Capital), 400 Robert
Street North, St. Paul, Minnesota 55101, which has managed the Fund's assets
since May 1, 1997. Since its inception in 1994, Advantus Capital has also
provided investment advisory services for other Advantus Funds, and has managed
investment portfolios for various private accounts, including its affiliate,
Minnesota Life Insurance Company (Minnesota Life). Advantus Capital manages the
Fund's investments and furnishes all necessary office facilities, equipment and
personnel for servicing the Fund's investments. Both Advantus Capital and
Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc.,
which is a second-tier subsidiary of a mutual insurance holding company called
Minnesota Mutual Companies, Inc. Personnel of Advantus Capital also manage
Minnesota Life's investment portfolio. In addition, Minnesota Life serves as
administrative services agent to the Fund.

The Fund and Advantus Capital have obtained an exemptive order from the SEC
allowing them to use a "manager of managers" strategy related to management of
the Fund. Under this strategy, Advantus Capital may select new Portfolio
investment sub-advisers upon the approval of the Fund's Board of Directors and
without shareholder approval. Advantus Capital may change the terms of any
investment sub-advisory agreement or continue to employ an investment
sub-adviser after termination of an investment sub-advisory agreement. Investors
will be notified of any investment sub-adviser changes. In any event, Fund
shareholders may terminate investment sub-adviser arrangements upon a vote of
the majority of the applicable outstanding Portfolio shares. Advantus Capital is
responsible for overseeing sub-advisers and for recommending their hiring,
termination and replacement and retains ultimate responsibility for the
investment performance of each Portfolio employing a sub-adviser. Investors in
the Fund (purchasers of variable life insurance policies and variable annuity
contracts issued by Minnesota Life or other life insurance companies to which
the Fund has sold its shares) are, in effect, electing to have Advantus Capital
either manage the investment of a Portfolio's assets or select one or more
sub-advisers to achieve that Portfolio's investment objective.

The investment sub-adviser of the International Stock Portfolio is Templeton
Investment Counsel, LLC (Templeton Counsel), 500 East Broward Boulevard, Fort
Lauderdale, Florida 33394. Templeton Counsel provides investment advice and
generally conducts the investment management program for the International Stock
Portfolio.

The investment sub-adviser of the Small Company Growth Portfolio is Credit
Suisse Asset Management, LLC (CSAM), 466 Lexington Avenue, New York, New York
10017. CSAM provides investment advice and generally conducts the investment
management program for the Small Company Growth Portfolio.

The investment sub-adviser of the Small Company Value Portfolio is State Street
Research & Management Company (State Street Research), One Financial Center,
Boston, Massachusetts 02111. State Street Research provides investment advice
and generally conducts the investment management program for the Small Company
Value Portfolio.

 56     INVESTING IN THE FUND


The investment sub-adviser of the International Bond Portfolio is Julius Baer
Investment Management Inc. (JBIM), 330 Madison Avenue, New York, New York 10017.
JBIM provides investment advice and generally conducts the investment management
program for the International Bond Portfolio.

The investment sub-adviser of the Micro-Cap Growth Portfolio is Wall Street
Associates (WSA), La Jolla Financial Building, Suite 100, 1200 Prospect Street,
La Jolla, California 92037. WSA provides investment advice and generally
conducts the investment management program for the Micro-Cap Growth Portfolio.

WRIMCO. As discussed above, Advantus Capital has agreed to sell to WRIMCO its
assets related to the actively managed equity Portfolios of the Fund (with the
exception of Real Estate Securities Portfolio) and has recommended to the Fund's
Board of Directors that these Portfolios be merged into corresponding portfolios
of the W&R Target Funds, Inc. Because Advantus Capital no longer has the
resources to actively manage non-real estate equity funds, the Board of
Directors has appointed WRIMCO to serve as the investment advisor to Asset
Allocation Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core
Equity Portfolio and Value Stock Portfolio prior to the mergers. Advisory fees
payable by the Portfolios will not change under the interim advisory agreement
with WRIMCO, and fee waivers currently in effect for Core Equity Portfolio will
remain in place. Advisory fees payable to WRIMCO will be deposited in escrow
until shareholders of the Portfolios approve an advisory agreement with WRIMCO.
If shareholders do not approve an agreement, WRIMCO will receive the lower of
the amount in escrow or its costs for performing services under the interim
advisory agreement.

WRIMCO and its predecessor have served as the investment manager to W&R Target
Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc., W&R Funds, Inc. and each
of the registered investment companies in the Waddell & Reed Advisors Funds
since 1940 or each company's inception date, whichever is later. WRIMCO is
located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas
66201-9217.

PORTFOLIO MANAGERS. The following persons serve as the primary portfolio
managers for the Portfolios (other than the Index 500 and the Index 400 Mid-Cap
Portfolios):



                         PORTFOLIO MANAGER      PRIMARY PORTFOLIO
     PORTFOLIO               AND TITLE            MANAGER SINCE        BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------------------
                                                           
     Growth           Philip J. Sanders         May 1, 2003         Senior Vice President of WRIMCO; employee of
                      Portfolio Manager                             WRIMCO since August 1998; prior thereto, Lead
                                                                    Manager, Tradestreet Investment Associates

     Bond             Wayne R. Schmidt          May 1, 1991         Vice President of Advantus Capital; Investment
                      Portfolio Manager                             Officer of MIMLIC Management

     Money Market     Steven S. Nelson          May 1, 1999         Vice President of Advantus Capital since
                      Portfolio Manager                             February 1999, Portfolio Manager of Advantus
                                                                    Capital since September 1998; Vice President of
                                                                    Reliastar Investment Research, Inc. from June
                                                                    1996 to September 1998

     Asset            Cynthia P. Prince-Fox     May 1, 2003         Senior Vice President of WRIMCO and Co-Chief
     Allocation       Portfolio Manager                             Investment Officer, Senior Vice President of
                                                                    Austin, Calvert & Flavin, Inc.

     Mortgage         Kent R. Weber             January 1, 1990     Vice President of Advantus Capital
     Securities       Portfolio Manager

     Capital          Philip J. Sanders         May 1, 2003         Senior Vice President of WRIMCO; employee of
     Appreciation     Portfolio Manager                             WRIMCO since August 1998; prior thereto, Lead
                                                                    Manager, Tradestreet Investment Associates

     International    Edgerton Tucker Scott     February 1, 2000    Vice President and Research Analyst, Templeton
     Stock            III                                           Investment Counsel, LLC
                      Vice President and
                      Research Analyst


                                                INVESTING IN THE FUND         57




                         PORTFOLIO MANAGER      PRIMARY PORTFOLIO
     PORTFOLIO               AND TITLE            MANAGER SINCE        BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------------------
                                                           


     Small Company    Elizabeth B. Dater        August 10, 2001     Managing Director and Portfolio Manager, CSAM,
     Growth           Co-Portfolio Manager                          since 1999; prior to that time, Managing
                                                                    Director and Portfolio Manager, Warburg Pincus
                                                                    Asset Management, Inc. ("Warburg Pincus"), from
                                                                    1988

                      Sammy Oh                  March 7, 2000       Managing Director and Portfolio Manager, CSAM,
                      Co-Portfolio Manager                          from January 2003; Director and Portfolio
                                                                    Manager, CSAM from 1999; Vice President and
                                                                    Portfolio Manager, Warburg Pincus from 1997

     Maturing         Kent R. Weber             April 25, 1994      Vice President of Advantus Capital
     Government       Portfolio Manager
     Bond - 2006
     and 2010

     Value Stock      Harry M. Flavin           May 1, 2003         Senior Vice President of WRIMCO and President,
                      Co-Portfolio Manager                          Chief Investment Officer and Director of Austin,
                                                                    Calvert & Flavin, Inc.
                      Cynthia P. Prince-Fox     May 1, 2003         Senior Vice President of WRIMCO Co-Chief
                      Co-Portfolio Manager                          Investment Officer, Senior Vice President of
                                                                    Austin, Calvert & Flavin, Inc.

     Small Company    John Burbank              May 25, 2001        Senior Vice President, State Street Research
     Value            Portfolio Manager

                      Paul Haagensen            May 1, 2003         Senior Vice President, State Street Research,
                      Portfolio Manager                             since 2002; previously, portfolio manager and
                                                                    senior analyst, Putnam Investments

                      Caroline Evascu           May 1, 2003         Vice President, State Street Research, since
                      Associate Portfolio                           2001; previously vice president and senior
                      Manager                                       analyst at SG Cowen Asset Management and
                                                                    research associate at Donaldson, Lufkin &
                                                                    Jenrette

     International    Edward C. Dove            October 1, 1997     Director, Fixed Income, Julius Baer Investment
     Bond             Director, Chief                               Management Inc.
                      Investment Officer

     Core Equity      James D. Wineland         May 1, 2003         Senior Vice President of WRIMCO; Vice President
                      Portfolio Manager                             of and Portfolio Manager for Waddell & Reed
                                                                    Asset Management Company from March 1995 to
                                                                    March 1998

     Micro-Cap        William Jeffery, III      October 1, 1997     Principals and Portfolio Managers, Wall Street
     Growth           and                                           Associates
                      Kenneth F. McCain

                      David A. Baratta,         June 11, 1999       Principal and Portfolio Manager, Wall Street
                      Principals and                                Associates, since June 1999; Portfolio Manager
                      Portfolio Managers                            and Executive Vice President, Morgan Grenfell,
                                                                    Inc., New York, New York, from October 1994 to
                                                                    June 1999

     Real Estate      Joseph R. Betlej          May 1, 1998         Vice President of Advantus Capital
     Securities       Portfolio Manager


        INVESTING IN THE FUND
 58


ADVISORY FEES

The Fund pays Advantus Capital monthly fees calculated on an annual basis for
each Portfolio. Advantus Capital uses a portion of the applicable fees to pay
sub-advisers. The advisory fee paid to Advantus Capital for each Portfolio
during 2002, as a percentage of average daily net assets, was as follows:



                                                       AGGREGATE FEE
PORTFOLIO                                             PAID DURING 2002
- ----------------------------------------------------------------------
                                                   
     Growth Portfolio                                      0.45%
     Bond Portfolio                                        0.30%
     Money Market Portfolio                                0.25%
     Asset Allocation Portfolio                            0.35%
     Mortgage Securities Portfolio                         0.30%
     Index 500 Portfolio                                   0.13%
     Capital Appreciation Portfolio                        0.50%
     International Stock Portfolio                         0.60%
     Small Company Growth Portfolio                        0.65%
     Maturing Government Bond Portfolios                   0.25%
     Value Stock Portfolio                                 0.50%
     Small Company Value Portfolio                         0.70%
     International Bond Portfolio                          0.60%
     Index 400 Mid-Cap Portfolio                           0.15%
     Core Equity Portfolio                                 0.50%
     Micro-Cap Growth Portfolio                            0.95%
     Real Estate Securities Portfolio                      0.60%


DISTRIBUTION FEES

The Fund has adopted a Rule 12b-1 Distribution Plan covering all of its
Portfolios except the Maturing Government Bond Portfolios. Each covered
Portfolio pays distribution fees equal to .25% per annum of the average daily
net assets of the Portfolio. These fees are paid out of the Portfolio's assets
on an on-going basis, which affects the Portfolio's share price, and, over time,
increases the cost of an investment in the Portfolio. These distribution fees
may also cost the purchaser of a variable life insurance policy or variable
annuity contract which is invested in the Portfolio more over time than other
types of sales charges that may be paid in connection with the variable policy
or contract. The fees are paid to Securian Financial Services, Inc. (Securian
Financial) the Fund's underwriter, to pay for distribution-related expenses and
activities in connection with the distribution of the Portfolio's shares.
Securian Financial may also use the fees to pay insurance companies, dealers or
others for certain non-distribution services as provided for in the Distribution
Plan.

VOLUNTARY FEE ABSORPTION

Advantus Capital is currently voluntarily absorbing all fees and expenses that
exceed 1.10% of average daily net assets for the Small Company Value Portfolio,
1.07% of average daily net assets for the Core Equity

                                                INVESTING IN THE FUND         59


Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth
Portfolio. Advantus Capital has not agreed to absorb expenses over a specified
period of time and it may cease its absorption of expenses at any time. If it
does so, some Portfolio expenses would increase and thereby reduce investment
return.

INVESTMENT OBJECTIVE,
POLICIES AND PRACTICES

GROWTH PORTFOLIO

Growth Portfolio seeks long-term accumulation of capital. Current income is a
factor in the selection of securities, but is a secondary objective.

The Portfolio seeks to achieve its goals by investing primarily in common stocks
of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may
invest in a wide range of marketable securities that, in WRIMCO's opinion, offer
the potential for growth. The Portfolio typically invests in companies having a
market capitalization of at least $1 billion, although it may invest in
companies of any size. The Portfolio generally emphasizes investments in the
faster growing sectors of the economy, such as the technology, healthcare and
consumer-oriented sectors.

In selecting securities for the Portfolio, WRIMCO utilizes a combination of
quantitative and fundamental research. Quantitative research focuses on
identifying companies with attractive growth, profitability and valuation
measures. Fundamental research analyzes a specific company to examine its
competitive position within its industry and to determine its growth
expectations. A security may be sold when WRIMCO believes the company's growth
and/or profitability characteristics are deteriorating, it no longer maintains a
competitive advantage or more attractive opportunities arise.

When WRIMCO believes that a temporary defensive position is desirable, the
Portfolio may invest up to all of its assets in cash or fixed-income securities
or in common stocks chosen for their relative stability, rather than for their
growth potential. By taking a defensive position, the Portfolio may not achieve
its investment objectives.

In addition to the investments discussed in the Prospectus, the Portfolio may
invest in other types of securities and use certain instruments in seeking to
achieve its objectives. For example, the Portfolio may invest in options,
futures contracts or other derivative instruments if it is permitted to invest
in the type of asset by which the return on, or value of, the derivative is
measured. Please see the Statement of Additional Information for more
information about the Portfolios' permitted investments.

RISKS. The main risks of investing in the Portfolio are discussed in the
summary. In addition, the Portfolio is subject to risk in connection with its
investments in smaller companies. Although the Portfolio typically invests in
companies having a market capitalization of at least $1 billion, it may invest
in companies of any size. Market risk for small and medium sized companies may
be greater than that for large companies. Stocks of smaller companies, as well
as stocks of companies with high-growth expectations reflected in their stock
price, may experience volatile trading and price fluctuations. For a more
detailed description of these risks, see "Mid Size Company Risk" and "Small and
Micro-Cap Company Risk" under "Investing in the Fund - Defining Risks."
Additional risk information is provided in the Statement of Additional
Information.

BOND PORTFOLIO

Bond Portfolio seeks as high a level of a long-term total rate of return as is
consistent with prudent investment risk. The Portfolio also seeks preservation
of capital as a secondary objective.

 60     INVESTING IN THE FUND


It is the Portfolio's policy to invest, under normal circumstances, at least 80%
of the value of its net assets (exclusive of collateral received in connection
with securities lending) in bonds (for this purpose, "bonds" includes any debt
security). The 80% investment policy is not fundamental, which means it may be
changed without the vote of a majority of the Portfolio's outstanding shares,
but the shareholders will be notified in writing at least 60 days prior to any
change of this policy. The Portfolio invests primarily in a variety of
investment-grade debt securities which include:

   - investment-grade corporate debt obligations and mortgage-backed securities

   - debt securities issued or guaranteed by the U.S. government or any of its
     agencies or instrumentalities (including U.S. Treasury bills, notes and
     bonds)

   - investment-grade mortgage-backed securities issued by governmental agencies
     and financial institutions

   - investment-grade asset-backed securities

   - U.S. dollar denominated investment-grade debt securities issued by foreign
     governments and companies and publicly traded in the United States

   - debt obligations of U.S. banks, savings and loan associations and savings
     banks

The Portfolio will invest a portion of its assets in investment-grade debt
obligations issued by domestic companies in a variety of industries. The
Portfolio may invest in long-term debt securities (i.e., maturities of more than
10 years), intermediate debt securities (i.e., maturities from 3 to 10 years)
and short-term debt securities (i.e., maturities of less than 3 years). In
selecting corporate debt securities and their maturities, Advantus Capital seeks
to maximize current income by engaging in a risk/return analysis that focuses on
various factors such as industry outlook, current and anticipated market and
economic conditions, general levels of debt prices and issuer operations.

The Portfolio may also invest a portion of its assets in government and
non-governmental mortgage-related securities, including CMOs, and in stripped
mortgage-backed securities and asset-backed securities. CMOs are debt
obligations typically issued by a private special-purpose entity that are
collateralized by residential or commercial mortgage loans or pools of
residential mortgage loans. CMOs allocate the priority of the distribution of
principal and interest from the underlying mortgage loans among various series.
Each series differs from the other in terms of the priority right to receive
cash payments from the underlying mortgage loans.

Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
interest holder to receive the interest portion of cash payments, while the
principal component only allows the interest holder to receive the principal
portion of cash payments.

Asset-backed securities represent interest in pools of consumer loans (such as
credit card, trade or automobile loans). Investors in asset-backed securities
are entitled to receive payments of principal and interest received by the pool
entity from the underlying consumer loans net of any costs and expenses incurred
by the entity.

As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed
securities experiences a decrease in principal value with an increase in
interest rates. The extent of the decrease in principal value may be affected by
the Portfolio's duration of its portfolio of debt, mortgage-related and
asset-backed securities. Duration measures the relative price sensitivity of a
security to changes in interest rates. "Effective" duration takes into
consideration the likelihood that a security will be called or prepaid prior to
maturity given current interest rates. Typically, a security with a longer
duration is more price sensitive than a security with a shorter

                                                INVESTING IN THE FUND         61


duration. In general, a portfolio of debt, mortgage-related and asset-backed
securities experiences a percentage decrease in principal value equal to its
effective duration for each 1% increase in interest rates. For example, if the
Portfolio holds securities with an effective duration of five years and interest
rates rise 1%, the principal value of such securities could be expected to
decrease by approximately 5%. The Portfolio expects that under normal
circumstances the effective duration of its debt, mortgage-related and
asset-backed securities portfolio will range from four to seven years.

In addition, the Portfolio may invest lesser portions of its assets in interest
rate and other bond futures contracts, convertible and non-convertible
investment-grade and non-investment grade debt securities issued by domestic
governments and companies, restricted and illiquid securities, options (the
Portfolio may purchase, sell and write put and call options), stripped
asset-backed securities, securities purchased on a when-issued or forward
commitment basis, mortgage dollar roll transactions, securities of other mutual
funds, preferred stocks and other equity securities obtained upon conversion of
debt securities or warrants, repurchase agreement transactions and money market
securities. To generate additional income, the Portfolio may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Call Risk

   - Credit Risk

   - Diversification Risk

   - Extension Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Market Risk

   - Portfolio Risk

   - Prepayment Risk

   - Securities Lending Risk

   - Short-Term Trading Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

MONEY MARKET PORTFOLIO

Money Market Portfolio seeks maximum current income to the extent consistent
with liquidity and the preservation of capital.

Although the Portfolio seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Portfolio. An investment
in the Portfolio is not insured or guaranteed by the Federal Deposit Insurance
Corporation.

The Portfolio invests in a variety of U.S. dollar denominated money market
securities, including:

   - securities issued or guaranteed by the U.S. government or one of its
     agencies or instrumentalities (including bills, notes, bonds and
     certificates of indebtedness)

   - obligations of domestic banks, savings and loan associations, savings banks
     with total assets of at least $2 billion (including certificates of
     deposit, bank notes, commercial paper, time deposits and bankers'
     acceptances)

   - U.S. dollar denominated obligations of U.S. branches or agencies of foreign
     banks with total assets of at least $2 billion

   - U.S. dollar denominated obligations of Canadian chartered banks and London
     branches of U.S. banks with total assets of at least $2 billion

 62     INVESTING IN THE FUND


   - U.S. dollar denominated securities issued by foreign governments and
     companies and publicly traded in the United States

   - obligations of supranational entities such as the International Bank for
     Reconstruction and Development

   - domestic corporate, domestic limited partnership and affiliated foreign
     corporate obligations (including commercial paper, notes and bonds)

In addition, the Portfolio may invest lesser portions of its assets in
securities of other mutual funds and restricted and illiquid securities.

The Portfolio invests only in high quality securities. Generally, the Portfolio
may purchase only securities rated within the two highest short-term rating
categories of one or more national rating agencies. The Portfolio only invests
in securities that mature in 397 calendar days or less from the date of
purchase. The Portfolio maintains an average weighted maturity of 90 days or
less.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Credit Risk

   - Diversification Risk

   - Foreign Securities Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Market Risk

   - Portfolio Risk

   - Stable Price Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

ASSET ALLOCATION PORTFOLIO

Asset Allocation Portfolio seeks as high a level of long-term total rate of
return as is consistent with prudent investment risk.

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

In its equity investments, the Portfolio invests primarily in medium to large,
well-established companies, that typically issue dividend producing securities.
The majority of the Portfolio's debt holdings are either U.S. Government
securities or investment grade corporate bonds, that include bonds rated BBB and
higher by Standard & Poor's Ratings Service or Baa and higher by Moody's
Investors Service, Inc. or, if unrated, deemed by WRIMCO to be of comparable
quality. The Portfolio has no limitations on the range of maturities of debt
securities in which it may invest. The Portfolio may invest in foreign
securities.

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

                                                INVESTING IN THE FUND         63


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

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

In addition to the investments discussed in the Prospectus, the Portfolio may
invest in other types of securities and use certain instruments in seeking to
achieve its objective. For example, the Portfolio may invest in options, futures
contracts, asset-backed securities or other derivative instruments if it is
permitted to invest in the type of asset by which the return on, or value of,
the derivative is measured. Please see the Statement of Additional Information
for more information about the Portfolios' permitted investments.

RISKS. The main risks of investing in the Portfolio are discussed in the
Summary. Additional risk information is provided in the Statement of Additional
Information.

MORTGAGE SECURITIES PORTFOLIO

Mortgage Securities Portfolio seeks a high level of current income consistent
with prudent investment risk.

Under normal circumstances, the Portfolio invests at least 80% of its net assets
(exclusive of collateral received in connection with securities lending) in
mortgage-related securities. The 80% investment policy is not fundamental, which
means it may be changed without the vote of a majority of the Portfolio's
outstanding shares, but the shareholders will be notified in writing at least 60
days prior to any change of this policy. The Portfolio invests a major portion
of its assets in high and investment-grade securities representing interests in
pools of mortgage loans. In addition, the Portfolio may invest in a variety of
other mortgage-related securities including collateralized mortgage obligations
(CMOs) and stripped mortgage-backed securities.

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

The market for mortgage-related securities is generally liquid, but individual
mortgage-related securities purchased by the Portfolio may be subject to the
risk of reduced liquidity due to changes in quality ratings or changes in
general market conditions which adversely affect particular mortgage-related
securities or the broader mortgage securities market as a whole. In addition,
the Portfolio may, at the time of purchase, invest up to 15% of its net assets
in illiquid securities, and may also invest without limit in securities whose
disposition is restricted under the federal securities laws but which have been
determined by Advantus Capital to be liquid under liquidity guidelines adopted
by the Fund's Board of Directors. Investments in illiquid and restricted
securities present greater risks inasmuch as such securities may only be resold
subject to statutory or regulatory restrictions, or if the Portfolio bears the
costs of registering such securities. The Portfolio may, therefore, be unable to
dispose of such securities as quickly as, or at prices as favorable as those
for, comparable but liquid or unrestricted securities. As of December 31, 2002,
the Portfolio had 5.0% of its net assets invested in illiquid securities, and
19.6% of its net assets invested in restricted securities

 64     INVESTING IN THE FUND


deemed liquid pursuant to the liquidity guidelines. Advantus Capital
continuously monitors the liquidity of portfolio securities and may determine
that, because of a reduction in liquidity subsequent to purchase, securities
which originally were determined to be liquid have become illiquid. This could
result in more than 15% of the Portfolio's net assets being invested in illiquid
securities.

Interests in pools of mortgage loans provide the security holder the right to
receive out of the underlying mortgage loans periodic interest payments at a
fixed rate and a full principal payment at a designated maturity or call date.
Scheduled principal, interest and other payments on the underlying mortgage
loans received by the sponsoring or guarantor entity are then distributed or
"passed through" to security holders net of any service fees retained by the
sponsor or guarantor. Additional payments passed through to security holders
could arise from the prepayment of principal resulting from the sale of
residential property, the refinancing of underlying mortgages, or the
foreclosure of residential property. In "pass through" mortgage loan pools,
payments to security holders will depend on whether mortgagors make payments to
the pooling entity on the underlying mortgage loans. To avoid this non-payment
risk, the Portfolio may also invest in "modified pass through" mortgage loan
pools which provide that the security holder will receive interest and principal
payments regardless of whether mortgagors make payments on the underlying
mortgage loans.

The Portfolio may invest in government or government-related mortgage loan pools
or private mortgage loan pools. In government or government-related mortgage
loan pools, the U.S. government or certain agencies guarantee to mortgage pool
security holders the payment of principal and interest. The principal
governmental guarantors of mortgage-related securities are the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). FNMA and FHLMC generally guarantee payment of principal and interest on
mortgage loan pool securities issued by certain pre-approved institutions (i.e.,
savings and loan institutions, commercial banks and mortgage bankers).

The Portfolio may also invest in private mortgage loan pools sponsored by
commercial banks, insurance companies, mortgage bankers and other private
financial institutions. Mortgage pools created by these non-governmental
entities offer a higher rate of interest than government or government related
securities. Unlike government agency sponsored mortgage loan pools, payment of
interest and payment to investors is not guaranteed.

The Portfolio may also invest a major portion of its assets in CMOs and stripped
mortgage-backed securities. CMOs are debt obligations issued by both government
agencies and private special-purpose entities that are collateralized by
residential or commercial mortgage loans. Unlike traditional mortgage loan
pools, CMOs allocate the priority of the distribution of principal and level of
interest from the underlying mortgage loans among various series. Each series
differs from another in terms of the priority right to receive cash payments
from the underlying mortgage loans. Each series may be further divided into
classes in which the principal and interest payments payable to classes in the
same series may be allocated. For instance, a certain class in a series may have
right of priority over another class to receive principal and interest payments.
Moreover, a certain class in a series may be entitled to receive only interest
payments while another class in the same series may be only entitled to receive
principal payments. As a result, the timing and the type of payments received by
a CMO security holder may differ from the payments received by a security holder
in a traditional mortgage loan pool.

Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
security holder to receive the interest portion of cash payments, while the
principal component only allows the security holder to receive the principal
portion of cash payments.

                                                INVESTING IN THE FUND         65


As a rule of thumb, a portfolio of fixed income securities (including
mortgage-related securities) experiences a decrease in principal value with an
increase in interest rates. The extent of the decrease in principal value may be
affected by the Portfolio's duration of its portfolio of mortgage-related
securities. Duration measures the relative price sensitivity of a security to
changes in interest rates. "Effective" duration takes into consideration the
likelihood that a security will be called or prepaid prior to maturity given
current interest rates. Typically, a security with a longer duration is more
price sensitive than a security with a shorter duration. In general, a portfolio
of mortgage-related securities experiences a percentage decrease in principal
value equal to its effective duration for each 1% increase in interest rates.
For example, if the Portfolio holds securities with an effective duration of
five years and interest rates rise 1%, the principal value of such securities
could be expected to decrease by approximately 5%. The Portfolio expects that
under normal circumstances the effective duration of its investment portfolio
will range from one to seven years.

In addition, the Portfolio may invest lesser portions of its assets in
non-investment grade mortgage-related securities, securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities,
certificates of deposits, bankers' acceptances, investment-grade commercial
paper, convertible and non-convertible investment-grade and non-investment grade
corporate debt securities, securities of other mutual funds, direct mortgage
investments, interest rate and other bond futures contracts, asset-backed and
stripped asset-backed securities, repurchase agreement transactions, when-issued
or forward commitment transactions and mortgage dollar rolls. To generate
additional income, the Portfolio may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Call Risk

   - Concentration Risk

   - Credit Risk

   - Diversification Risk

   - Extension Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Market Risk

   - Portfolio Risk

   - Prepayment Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

INDEX 500 PORTFOLIO

Index 500 Portfolio seeks investment results that correspond generally to the
price and yield performance of the common stocks included in the Standard &
Poor's 500 Composite Stock Price Index (the S&P 500).

Under normal conditions, the Portfolio invests its assets in all of the common
stocks included in the S&P 500. The Portfolio attempts to achieve a correlation
of 100% without considering Portfolio expenses. However, the Portfolio is not
required to hold a minimum or maximum number of common stocks included in the
S&P 500, and due to changing economic or markets, may invest in less than all of
the common stocks included in the S&P 500.

Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 500
replication and to round off security weightings.

Under normal conditions, the Portfolio invests at least 80% of its net assets
(exclusive of collateral received in connection with securities lending) in the
common stocks included in the S&P 500 (investments covered by this 80% policy
may also include S&P 500 stock index futures contracts or S&P 500 depositary
receipts, each of which have economic characteristics similar to an investment
in the S&P 500). The 80% investment

 66     INVESTING IN THE FUND


policy is not fundamental, which means it may be changed without the vote of a
majority of the Portfolio's outstanding shares, but the shareholders will be
notified in writing at least 60 days prior to any change of this policy. In
addition, the Portfolio may invest lesser portions of its assets in
investment-grade short-term fixed income securities, stock index futures
contracts, securities of other mutual funds, restricted and illiquid securities,
index depositary receipts, repurchase agreement transactions and money market
securities. To generate additional income, the Portfolio may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.

Standard & Poor's Rating Services (S&P), a division of the McGraw-Hill
Companies, Inc., designates the stocks included in the S&P 500. From time to
time, S&P may add or delete stocks from the S&P 500. Inclusion of a stock in the
S&P 500 does not imply an opinion by S&P as to its investment merit. "Standard &
Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio.
The Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes
no representation regarding the advisability of investing in the Portfolio.
Please see the Statement of Additional Information which sets forth certain
additional disclaimers and limitations on behalf of S&P.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Diversification Risk

   - Index Performance Risk

   - Inflation Risk

   - Large Company Risk

   - Market Risk

   - Portfolio Risk

   - Sector Risk

   - Securities Lending Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

CAPITAL APPRECIATION PORTFOLIO

Capital Appreciation Portfolio seeks growth of capital.

The Portfolio seeks to achieve its goal by investing primarily in common stocks
of U.S. and, to a lesser extent, foreign companies. Generally, the Portfolio may
invest in a wide range of marketable securities that, in WRIMCO's opinion, offer
the potential for growth. The Portfolio typically invests in companies having a
market capitalization of at least $1 billion, although it may invest in
companies of any size. The Portfolio generally emphasizes investments in the
faster growing sectors of the economy, such as the technology, healthcare and
consumer-oriented sectors.

In selecting securities for the Portfolio, WRIMCO utilizes a combination of
quantitative and fundamental research. Quantitative research focuses on
identifying companies with attractive growth, profitability and valuation
measures. Fundamental research analyzes a specific company to examine its
competitive position within its industry and to determine its growth
expectations. A security may be sold when WRIMCO believes the company's growth
and/or profitability characteristics are deteriorating, it no longer maintains a
competitive advantage or more attractive opportunities arise.

When WRIMCO believes that a temporary defensive position is desirable, the
Portfolio may invest up to all of its assets in cash or fixed-income securities
or in common stocks chosen for their relative stability, rather than for their
growth potential. By taking a defensive position, the Portfolio may not achieve
its investment objective.

                                                INVESTING IN THE FUND         67


In addition to the investments discussed in the Prospectus, the Portfolio may
invest in other types of securities and use certain instruments in seeking to
achieve its objective. For example, the Portfolio may invest in options, futures
contracts or other derivative instruments if it is permitted to invest in the
type of asset by which the return on, or value of, the derivative is measured.
Please see the Statement of Additional Information for more information about
the Portfolios' permitted investments.

RISKS. The main risks of investing in the Portfolio are discussed in the
summary. In addition, the Portfolio is subject to risk in connection with its
investments in smaller companies. Although the Portfolio typically invests in
companies having a market capitalization of at least $1 billion, it may invest
in companies of any size. Market risk for small and medium sized companies may
be greater than that for large companies. Stocks of smaller companies, as well
as stocks of companies with high-growth expectations reflected in their stock
price, may experience volatile trading and price fluctuations. For a more
detailed description of these risks, see "Mid Size Company Risk" and "Small and
Micro-Cap Company Risk" under "Investing in the Fund - Defining Risks."
Additional risk information is provided in the Statement of Additional
Information.

INTERNATIONAL STOCK PORTFOLIO

International Stock Portfolio seeks long-term capital growth.

Under normal circumstances, the Portfolio invests at least 80% of its assets
(exclusive of collateral received in connection with securities lending) in
equity securities of small, mid and large capitalization foreign companies. The
80% investment policy is not fundamental, which means it may be changed without
the vote of a majority of the Portfolio's outstanding shares, but the
shareholders will be notified in writing at least 60 days prior to any change of
this policy. The Portfolio may invest in securities of companies or governments
in developed foreign markets or in developing or emerging markets. Under normal
circumstances, the Portfolio will maintain investments in at least three foreign
countries.

The Portfolio invests in equity securities. Equity securities generally entitle
the holder to participate in a company's general operating results. These
include common stock, preferred stock, warrants or rights to purchase such
securities. In selecting equity securities, Templeton Counsel, the Portfolio's
investment sub-adviser, performs a company-by-company analysis, rather than
focusing on a specific industry or economic sector. Templeton Counsel
concentrates primarily on the market price of a company's securities relative to
its view regarding the company's long-term earnings potential. A company's
historical value measures, including price/earnings ratios, profit margins and
liquidation value will also be considered.

The Portfolio may also invest a lesser portion of its assets in closed-end
investment companies, restricted and illiquid securities, U.S. government,
domestic and foreign investment-grade debt securities, American Depositary
Receipts, European Depositary Receipts, securities and index futures contracts,
forward foreign currency exchange contracts, exchange-traded foreign currency
futures contracts, options (the Portfolio may purchase, sell and write put and
call options), securities of other mutual funds, non-investment grade debt
securities, repurchase agreement transactions, securities purchased on a
when-issued or forward commitment basis and money market securities. To generate
additional income, the Portfolio may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

 68     INVESTING IN THE FUND


RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Credit Risk

   - Currency Risk

   - Diversification Risk

   - Emerging Markets Risk

   - Euro Conversion Risk

   - Foreign Securities Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Large Company Risk

   - Market Risk

   - Mid Size Company Risk

   - Portfolio Risk

   - Sector Risk

   - Securities Lending Risk

   - Small Company Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

SMALL COMPANY GROWTH PORTFOLIO

Small Company Growth Portfolio seeks long-term accumulation of capital.

The Portfolio primarily invests in various types of equity securities of small
capitalization growth companies at the time of purchase. The Portfolio primarily
invests in common stocks but may also invest in preferred stocks and securities
convertible into equity securities. In selecting equity securities, the
Portfolio's investment sub-adviser employs a growth investment style and looks
for either developing or older companies in a growth stage or companies
providing products or services with a high unit-volume growth rate.

Under normal market conditions, the Portfolio will invest at least 80% of net
assets plus any borrowings for investment purposes (exclusive of collateral
received in connection with securities lending) in equity securities of small
companies. The 80% investment policy is not fundamental, which means it may be
changed without the vote of a majority of the Portfolio's outstanding shares,
but the shareholders will be notified in writing at least 60 days prior to any
change of this policy. The Portfolio considers a "small" company to be one whose
market capitalization at the time of purchase is within the range of
capitalizations of companies in the Russell 2000 Index.

Some companies may outgrow the definition of a small company after the Portfolio
has purchased their securities. These companies continue to be considered small
for purposes of the Portfolio's minimum 80% allocation to small company
equities. In addition, the Portfolio may invest in companies of any size once
the 80% policy is met. As a result, the Portfolio's average market
capitalization may sometimes exceed that of the largest company in the Russell
2000 Index.

From time to time, the Portfolio may also invest a lesser portion of its assets
in securities of mid and large capitalization companies (i.e. companies with
market capitalizations in excess of the range of capitalizations of companies in
the Russell 2000 Index).

In selecting equity securities of growth companies for the Portfolio, CSAM looks
for:

   - Companies still in the developmental stage

   - Older companies that appear to be entering a new stage of growth

   - Companies providing products or services with a high unit-volume growth
     rate

                                                INVESTING IN THE FUND         69


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

In addition, the Portfolio may invest lesser portions of its assets in
restricted and illiquid securities, investment-grade corporate debt securities,
foreign securities, warrants, stock index futures contracts, options (the
Portfolio may purchase, sell and write put and call options), index depositary
receipts, repurchase agreement transactions, securities of other mutual funds
and money market securities. To generate additional income, the Portfolio may
lend securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Diversification Risk

   - Growth Stock Risk

   - Inflation Risk

   - Market Risk

   - Mid Size Company Risk

   - Portfolio Risk

   - Sector Risk

   - Securities Lending Risk

   - Short-Term Trading Risk

   - Small Company Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

MATURING GOVERNMENT BOND PORTFOLIOS

Each of the Maturing Government Bond Portfolios seeks as high an investment
return as is consistent with prudent investment risk for a specified period of
time ending on a specified liquidation date.

Each of the Portfolios primarily invests in zero coupon securities. Zero coupon
securities include securities issued by the United States Treasury (Stripped
Treasury Securities), by the U.S. government and its agencies and
instrumentalities (Stripped Government Securities) and by domestic corporations
(Stripped Corporate Securities). Under normal circumstances, each Portfolio will
invest at least 80% of its net assets (exclusive of collateral received in
connection with securities lending) in Stripped Treasury Securities and Stripped
Government Securities. The 80% investment policy is not fundamental, which means
it may be changed without the vote of a majority of the Portfolio's outstanding
shares, but the shareholders will be notified in writing at least 60 days prior
to any change of this policy.

"Stripped Treasury Securities" consist of (a) debt obligations issued by the
U.S. Treasury that are stripped of their respective unmatured interest coupon
and (b) receipts and certificates for such stripped debt obligations and
stripped interest coupons. "Stripped Government Securities" consist of zero
coupon securities issued by the U.S. government and its agencies and
instrumentalities, by trusts to which payment of principal and interest are
guaranteed by the U.S., and by other government sponsored corporations.
"Stripped Corporate Securities" consist of zero coupon debt securities issued by
domestic corporations, interest coupons stripped from corporate debt obligations
and receipts and certificates for such stripped debt obligations and stripped
coupons.

Zero coupon securities are securities that pay no cash income and are sold at a
discount from their stated maturity value. When held to maturity, the entire
return on zero coupon securities generally consists of the difference between
each security's purchase price and its respective maturity value. As a result,
an investor knows this difference at the time of purchase and can determine the
investment return from such securities.

 70     INVESTING IN THE FUND


However, since each Portfolio may invest in other non-zero coupon securities and
instruments (as discussed below), such Portfolio's total investment return will
vary from the aggregate purchase price-maturity value spread of its zero coupon
securities. Nevertheless, these non-zero coupon securities will also describe an
anticipated yield to a designated maturity date. In order to obtain an amount
approximating the anticipated return from each Portfolio's zero coupon holdings,
an investor should hold Portfolio shares until the respective maturity date of
the applicable Portfolio.

The anticipated total return on an investment in each Portfolio will vary if
shares of the Portfolio are redeemed prior to the stated maturity date.
Generally, the value of zero coupon and non-zero coupon holdings prior to the
stated maturity date may increase or decrease with changes in prevailing
interest rates. Since shares redeemed prior to maturity are redeemed at net
asset value (i.e. a value based on the current market value of the Portfolio's
holdings per share), an investor may receive a significantly different
investment return than anticipated at the time of purchase upon redemption prior
to maturity. Return may also be affected by cash flow transactions affecting the
Portfolio (i.e., redemptions by others or purchases of Portfolio shares).

Each Portfolio will mature on a specific target date. The current target dates
are September 2006 and 2010. On each such target date, the Portfolio will be
converted to cash and reinvested in another Fund Portfolio at the direction of
the investor. If the investor does not provide reinvestment instructions, then
the proceeds will automatically be invested in Money Market Portfolio.

As a rule of thumb, a portfolio of fixed income securities experiences a
decrease in principal value with an increase in interest rates. The extent of
the decrease in principal value may be affected by the Portfolio's duration of
its portfolio of fixed income securities. Duration measures the relative price
sensitivity of a security to changes in interest rates. "Effective" duration
takes into consideration the likelihood that a security will be called or
prepaid prior to maturity given current interest rates. Typically, a security
with a longer effective duration is more price sensitive than a security with a
shorter duration. In general, a portfolio of fixed income securities experiences
a percentage decrease in principal value equal to its effective duration for
each 1% increase in interest rates. For example, if the Portfolio holds
securities with an effective duration of five years and interest rates rise 1%,
the principal value of such securities could be expected to decrease by
approximately 5%. Each Portfolio expects that under normal circumstances the
effective duration of its investment portfolio will range within one year of the
Portfolio's remaining maturity. Thus, if the time remaining to a Portfolio's
target maturity date is five years, the Portfolio's duration will range from
four to six years.

In addition, each Portfolio may invest lesser portions of its assets in other
investment-grade debt obligations, restricted and illiquid securities,
securities of other mutual funds, repurchase agreement transactions, cash, cash
equivalent items and money market securities. To generate additional income, the
Portfolio may lend securities representing up to one-third of the value of its
total assets to broker-dealers, banks and other institutions.

RISKS. An investment in each of the Portfolios is subject to the following
risks:

   - Credit Risk

   - Diversification Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Market Risk

   - Portfolio Risk

   - Securities Lending Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                                INVESTING IN THE FUND         71


VALUE STOCK PORTFOLIO

Value Stock Portfolio seeks long-term accumulation of capital. The production of
income is a secondary objective of the Portfolio.

The Portfolio seeks to achieve its goals by investing, for the long term, in the
common stocks of large-cap U.S. and foreign companies. The Portfolio seeks to
invest in stocks that are, in the opinion of WRIMCO, undervalued relative to the
true value of the company, and/or out of favor in the financial markets but have
a favorable outlook for capital appreciation. Although the Portfolio typically
invests in large-cap companies, it may invest in securities of any size company.
Under normal circumstances, the Portfolio will invest at least 80% of its total
assets (exclusive of collateral received in connection with securities lending)
in common stocks issued by mid and large capitalization companies (market
capitalizations of at least $1.5 billion) that are publicly traded in the United
States.

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

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

   - intrinsic value of the company not reflected in stock price

   - historical earnings growth

   - future expected earnings growth

   - company's position in its respective industry

   - industry conditions

   - competitive strategy

   - management capabilities

   - free cash flow potential

The Portfolio will typically sell a stock when it reaches an acceptable price,
its fundamental factors have changed or it has performed below WRIMCO's
expectations.

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

In addition to the investments discussed in the Prospectus, the Portfolio may
invest in other types of securities and use certain instruments in seeking to
achieve its objectives. For example, the Portfolio may invest in options,
futures contracts or other derivative instruments if it is permitted to invest
in the type of asset by which the return on, or value of, the derivative is
measured. Please see the Statement of Additional Information for more
information about the Portfolios' permitted investments.

 72     INVESTING IN THE FUND


RISKS. The main risks of investing in the Portfolio are discussed in the
Summary. In addition, the Portfolio is subject to risk in connection with its
investments in smaller companies. Although the Portfolio typically invests in
large-cap companies, it may invest in companies of any size. Market risk for
small and medium sized companies may be greater than that for large companies.
Stocks of smaller companies may experience volatile trading and price
fluctuations. For a more detailed description of these risks, see "Mid Size
Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the
Fund - Defining Risks." Additional risk information is provided in the Statement
of Additional Information.

SMALL COMPANY VALUE PORTFOLIO

Small Company Value Portfolio seeks long-term accumulation of capital.

The Portfolio primarily invests in various types of equity securities of small
capitalization companies. Although a universal definition of small
capitalization companies does not exist, the Portfolio generally defines small
capitalization companies as those whose market capitalizations are similar to
the market capitalizations of companies in the Russell 2000(R) Value Index.
Under normal circumstances, at least 80% of the Portfolio's net assets
(exclusive of collateral received in connection with securities lending) will be
invested in common stocks of small capitalization domestic companies and foreign
companies that are publicly traded in the United States. The 80% investment
policy is not fundamental, which means it may be changed without the vote of a
majority of the Portfolio's outstanding shares, but the shareholders will be
notified in writing at least 60 days prior to any change of this policy. Some
companies may outgrow the definition of a small capitalization company after the
Portfolio has purchased their securities. These companies continue to be
considered small for purposes of the Portfolio's minimum 80% allocation to small
capitalization companies.

The Portfolio may also invest in preferred stock and other securities
convertible into equity securities. From time to time, the Portfolio will also
invest a lesser portion of its assets in securities of mid and large
capitalization companies (i.e., companies with a market capitalization larger
than that defined above).

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

The Portfolio's purchases of equity securities may include shares of common
stock that are part of a company's initial public offering. In addition, the
Portfolio may invest lesser portions of its assets in restricted and illiquid
securities, convertible and non-convertible investment-grade and non-investment
grade debt securities, securities of other mutual funds, foreign securities,
warrants, repurchase agreement transactions, stock index futures contracts,
options (the Portfolio may purchase, sell and write put and call options), index

                                                INVESTING IN THE FUND         73


depositary receipts and money market securities. To generate additional income,
the Portfolio may lend securities representing up to one-third of its total
assets to broker-dealers, banks and other institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Diversification Risk

   - Inflation Risk

   - Initial Public Offering Risk

   - Market Risk

   - Mid Size Company Risk

   - Portfolio Risk

   - Sector Risk

   - Securities Lending Risk

   - Short-Term Trading Risk

   - Small Company Risk

   - Value Stock Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

INTERNATIONAL BOND PORTFOLIO

International Bond Portfolio seeks to maximize current income, consistent with
the protection of principal.

Prior to May 1, 2003, the International Bond Portfolio was known as the Global
Bond Portfolio and invested in domestic as well as foreign debt securities.
Effective as of that date, and pursuant to a change in the investment policies
of the Portfolio approved by the Fund's Board of Directors, the Portfolio
invests mainly in a variety of investment-grade debt securities issued by
foreign issuers. These debt securities include:

   - investment-grade corporate debt obligations issued by foreign corporate
     issuers

   - investment-grade debt securities issued or guaranteed by foreign
     governments or any of their agencies, instrumentalities or political
     subdivisions, or by supranational organizations

   - investment-grade mortgage-backed securities and asset-backed securities
     issued or sponsored by foreign governmental agencies, financial
     institutions and other issuers

JBIM, the Portfolio's investment sub-adviser, selects and manages the
Portfolio's investments.

Under normal circumstances, the Portfolio invests at least 80% of its net assets
(exclusive of collateral received in connection with securities lending) in
bonds and other debt securities. The 80% investment policy is not fundamental,
which means it may be changed without the vote of a majority of the Portfolio's
outstanding shares, but the shareholders will be notified in writing at least 60
days prior to any change of this policy. The Portfolio invests primarily in
investment-grade debt obligations issued by foreign companies in a variety of
industries. However, the Portfolio may invest in investment-grade and
non-investment-grade Brady Bonds. The Portfolio may invest in long-term debt
securities (i.e., maturities of more than 10 years), intermediate debt
securities (i.e., maturities from 3 to 10 years) and short-term debt securities
(i.e., maturities of less than 3 years). In selecting corporate debt securities
and their maturities, JBIM seeks to maximize current income by engaging in a
risk/return analysis that focuses on various factors such as industry outlook,
current and anticipated market and economic conditions, general levels of debt
prices and issuer operations.

Under normal circumstances, the Portfolio will maintain investments in at least
three foreign countries. The Portfolio may invest in securities or governments
in developed foreign markets or in developing or emerging markets. The Portfolio
may also invest up to 20% of its net assets in U.S. debt obligations issued or
guaranteed by the U.S. government.

The Portfolio may also invest a portion of its assets in CMOs, stripped
mortgage-backed securities and asset-backed securities. CMOs are debt
obligations typically issued by a private special-purpose entity that are
collateralized by residential or commercial mortgage loans or pools of
residential mortgage loans. CMOs allocate the priority of the distribution of
principal and interest from the underlying mortgage loans among

 74     INVESTING IN THE FUND


various series. Each series differs from the other in terms of the priority
right to receive cash payments from the underlying mortgage loans.

Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
interest holder to receive the interest portion of cash payments, while the
principal component only allows the interest holder to receive the principal
portion of cash payments.

Asset-backed securities represent interest in pools of consumer loans (such as
credit card, trade or automobile loans). Investors in asset-backed securities
are entitled to receive payments of principal and interest received by the pool
entity from the underlying consumer loans net of any costs and expenses incurred
by the entity.

As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed
securities experiences a decrease in principal value with an increase in
interest rates. The extent of the decrease in principal value may be affected by
the Portfolio's duration of its portfolio of debt, mortgage-related and
asset-backed securities. "Effective" duration takes into consideration the
likelihood that a security will be called or prepaid prior to maturity given
current interest rates. Duration measures the relative price sensitivity of a
security to changes in interest rates. Typically, a security with a longer
duration is more price sensitive than a security with a shorter duration. As a
very broad approximation, a portfolio of debt, mortgage-related and asset-backed
securities experiences a percentage decrease in principal value equal to its
effective duration for each 1% increase in interest rates. For example, if the
Portfolio holds securities with an effective duration of five years and interest
rates rise 1%, the principal value of such securities could be expected to
decrease by approximately 5%. The Portfolio expects that under normal
circumstances the effective duration of its debt, mortgage-related and
asset-backed securities portfolio will range from three to eight years.

In addition, the Portfolio may invest lesser portions of its assets in interest
rate and securities futures contracts, options on interest rate or securities
futures contracts, forward foreign currency exchange contracts, exchange-traded
foreign currency futures contracts, options on foreign currency futures
contracts, non-investment grade debt securities, securities index futures
contracts, options on securities index futures contracts, interest rate and
index swap agreement transactions, restricted and illiquid securities, options
(the Portfolio may purchase, sell and write put and call options), securities
purchased on a when-issued or forward commitment basis, mortgage dollar roll
transactions, American Depositary Receipts, Global Depositary Receipts,
securities of other mutual funds, warrants, repurchase agreement transactions,
reverse repurchase agreement transactions, cash, cash equivalent items and money
market securities. To generate additional income, the Portfolio may lend
securities representing up to one-third of its total assets to broker-dealers,
banks and other institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Call Risk

   - Credit Risk

   - Currency Risk

   - Diversification Risk

   - Euro Conversion Risk

   - Extension Risk

   - Foreign Securities Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Market Risk

   - Portfolio Risk

   - Prepayment Risk

   - Securities Lending Risk

   - Short-Term Trading Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                                INVESTING IN THE FUND         75


INDEX 400 MID-CAP PORTFOLIO

Index 400 Mid-Cap Portfolio seeks investment results generally corresponding to
the aggregate price and dividend performance of the publicly traded common
stocks that comprise the Standard & Poor's 400 MidCap Index (the S&P 400).

Under normal conditions, the Portfolio invests its assets in all of the common
stocks included in the S&P 400. The Portfolio attempts to achieve a correlation
of 100% without considering Portfolio expenses. However, the Portfolio is not
required to hold a minimum or maximum number of common stocks included in the
S&P 400, and due to changing economic or markets, may invest in less than all of
the common stocks included in the S&P 400.

Advantus Capital utilizes a computer program to confirm the Portfolio's S&P 400
replication and to round off security weightings.

Under normal conditions, the Portfolio invests at least 80% of its net assets
(exclusive of collateral received in connection with securities lending) in the
common stocks included in the S&P 400 (investments covered by this 80% policy
may also include S&P 400 stock index futures contracts or S&P 400 depositary
receipts, each of which have economic characteristics similar to an investment
in the S&P 400). The 80% investment policy is not fundamental, which means it
may be changed without the vote of a majority of the Portfolio's outstanding
shares, but the shareholders will be notified in writing at least 60 days prior
to any change of this policy. In addition, the Portfolio may invest lesser
portions of its assets in investment-grade short-term fixed income securities,
securities of other mutual funds, restricted and illiquid securities, index
depositary receipts, stock index futures contracts, repurchase agreement
transactions and money market securities. To generate additional income, the
Portfolio may lend securities representing up to one-third of the value of its
total assets to broker-dealers, banks and other institutions.

S&P designates the stocks included in the S&P 400. From time to time, S&P may
add or delete stocks from the S&P 400. Inclusion of a stock in the S&P 400 does
not imply an opinion by S&P as to its investment merit. "Standard & Poor's,"
"S&P," "S&P 400" and "Standard & Poor's MidCap 400," are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by the Portfolio. The
Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes no
representation regarding the advisability of investing in the Portfolio. Please
see the Statement of Additional Information which sets forth certain additional
disclaimers and limitations on behalf of S&P.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Diversification Risk

   - Index Performance Risk

   - Inflation Risk

   - Market Risk

   - Mid Size Company Risk

   - Portfolio Risk

   - Sector Risk

   - Securities Lending Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

CORE EQUITY PORTFOLIO

Core Equity Portfolio seeks high total return.

Prior to May 1, 2003, the Core Equity Portfolio was known as the Macro-Cap Value
Portfolio. The Portfolio seeks to achieve its goal by primarily investing,
during normal market conditions, in common stocks of large, high-quality U.S.,
and to a lesser extent foreign, companies that have the potential for capital
appreciation, or that WRIMCO expects to resist market decline, and that are well
known, have been consistently profitable

 76     INVESTING IN THE FUND


and have dominant market positions in their industries. The Portfolio will,
under normal market conditions, invest at least 80% of its net assets (exclusive
of collateral received in connection with securities lending) in equity
securities. Although the Portfolio typically invests in large companies, it may
invest in securities of any size company.

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

   - profitability record

   - history of improving sales and profits

   - management

   - leadership position in its industry

   - stock price value

   - dividend payment history

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

When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to all of the Portfolio's assets, including
any one or more of the following:

   - hold cash, commercial paper, certificates of deposit or other short-term
     investments

   - invest in debt securities (including short-term U.S. Government securities)

   - invest in convertible preferred stock

By taking a temporary defensive position the Portfolio may not achieve its
investment objective.

RISKS. The main risks of investing in the Portfolio are discussed in the
Summary. In addition, the Portfolio is subject to risk in connection with its
investments in smaller companies. Although the Portfolio typically invests in
large companies, it may invest in companies of any size. Market risk for small
and medium sized companies may be greater than that for large companies. Stocks
of smaller companies, as well as stocks of companies with high-growth
expectations reflected in their stock price, may experience volatile trading and
price fluctuations. For a more detailed description of these risks, see "Mid
Size Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in
the Fund - Defining Risks." Additional risk information is provided in the
Statement of Additional Information.

MICRO-CAP GROWTH PORTFOLIO

Micro-Cap Growth Portfolio seeks long-term capital appreciation.

The Portfolio primarily invests in various types of equity securities of
micro-cap companies (i.e., companies with a float-adjusted market capitalization
of less than $300 million) at the time of purchase. "Float-adjusted market
capitalization" refers to the market capitalization of the freely-tradable
shares of a company available to the public. That is, it is the total market
capitalization less the shares not freely and publicly available (i.e.,

                                                INVESTING IN THE FUND         77


unregistered or restricted shares (including shares subject to "lock ups"),
treasury shares held by the company, and other unavailable shares as determined
by the Portfolio's sub-adviser). In the first year after a company's initial
public offering (IPO), the float-adjusted market capitalization includes all the
shares issued in the IPO, as well as all other shares available to the market.
If a company's float-adjusted market capitalization exceeds $300 million after
the Portfolio purchases the company's securities, the Portfolio may nevertheless
hold such securities.

The Portfolio primarily invests in common stocks but may also invest in
preferred stocks and securities convertible into equity securities. Under normal
circumstances, at least 80% of the Portfolio's net assets (exclusive of
collateral received in connection with securities lending) will be invested in
common stocks of companies which are micro-cap companies at the time of
purchase. The 80% investment policy is not fundamental, which means it may be
changed without the vote of a majority of the Portfolio's outstanding shares,
but the shareholders will be notified in writing at least 60 days prior to any
change of this policy. From time to time, the Portfolio may also invest a lesser
portion of its assets in securities of larger capitalization companies (i.e.,
companies with float-adjusted market capitalizations of at least $300 million).

In selecting equity securities for the Portfolio, WSA, the Portfolio's
investment sub-adviser, primarily looks to an investment's potential for
sustainable earnings growth and improving profitability. In selecting securities
with earnings growth potential, WSA considers factors such as a company's
competitive market position, quality of management, growth strategy, internal
operating trends (such as profit margins, cash flows and earnings and revenue
growth), overall financial condition, and ability to sustain current rate of
growth. In seeking to achieve its investment objective, the Portfolio may also
invest in equity securities of companies that WSA believes are temporarily
undervalued or show promise of improved results due to new management, products,
markets or other factors.

The Portfolio's purchases of equity securities may include shares of common
stock that are part of a company's initial public offering. In addition, the
Portfolio may invest lesser portions of its assets in restricted and illiquid
securities, investment-grade and non-investment grade corporate debt securities,
foreign securities, warrants, stock index futures contracts, options (the
Portfolio may purchase, sell and write put and call options), index depositary
receipts, repurchase agreement transactions, securities of other mutual funds
and money market securities. To generate additional income, the Portfolio may
lend securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Diversification Risk

   - Growth Stock Risk

   - Inflation Risk

   - Initial Public Offering Risk

   - Market Risk

   - Micro-Cap Company Risk

   - Portfolio Risk

   - Sector Risk

   - Securities Lending Risk

   - Short-Term Trading Risk

A detailed description of these risks is set forth in "- Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

REAL ESTATE SECURITIES PORTFOLIO

Real Estate Securities Portfolio seeks above average income and long-term growth
of capital.

Under normal circumstances, at least 80% of the Portfolio's net assets
(exclusive of collateral received in connection with securities lending) will be
invested in real estate and real estate-related securities. The 80% investment
policy is not fundamental, which means it may be changed without the vote of a
majority of the Portfolio's outstanding shares, but the shareholders will be
notified in writing at least 60 days prior to any change of this policy.

 78     INVESTING IN THE FUND


The Portfolio will primarily invest in real estate and real estate-related
equity securities (including securities convertible into equity securities). The
Portfolio does not invest directly in real estate.

"Real estate securities" include securities issued by companies that receive at
least 50% of their gross revenue from the construction, ownership, management,
financing or sale of residential, commercial or industrial real estate. Real
estate securities issuers typically include real estate investment trusts
(REITs), real estate brokers and developers and real estate holding companies.

"Real estate-related securities" include securities issued by companies
primarily engaged in businesses that sell or offer products or services that are
closely related to the real estate industry. Real estate-related securities
issuers typically include construction and related building companies,
manufacturers and distributors of building supplies, financial institutions that
issue or service mortgages and resort companies.

Most of the Portfolio's real estate securities portfolio will consist of
securities issued by REITs that are listed on a securities exchange or traded
over-the-counter. A REIT is a corporation or trust that invests in fee or
leasehold ownership of real estate, mortgages or shares issued by other REITs.
REITs may be characterized as equity REITs (i.e., REITs that primarily invest in
fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that
primarily invest in mortgages on real estate) or hybrid REITs which invest in
both fee and leasehold ownership of land and mortgages. The Portfolio mostly
invests in equity REITs but also invests lesser portions of its assets in
mortgage REITs and hybrid REITs. A REIT that meets the applicable requirements
of the Internal Revenue Code of 1986 may deduct dividends paid to shareholders,
effectively eliminating any corporate level federal tax. As a result, REITs are
able to distribute a larger portion of their earnings to investors than other
corporate entities subject to the federal corporate tax.

The Portfolio may invest in securities of small, mid and large capitalization
companies. Advantus Capital assesses an investment's potential for sustainable
earnings growth over time. In selecting securities, Advantus Capital considers
factors such as a company's financial condition, financial performance, quality
of management, policies and strategies, real estate properties and comparative
market position.

In addition, the Portfolio may invest lesser portions of its assets in
securities issued by companies outside of the real estate industry. The
Portfolio may also invest in non-real estate related equity securities,
warrants, convertible debt securities, investment-grade fixed income securities,
securities of other mutual funds, repurchase agreement transactions, restricted
and illiquid securities, stock index futures contracts, options (the Portfolio
may purchase, sell and write put and call options), American Depository
Receipts, securities purchased on a when issued or forward commitment basis and
money market securities. To generate additional income, the Portfolio may lend
securities representing up to one-third of the value of its total assets to
broker-dealers, banks and other institutions.

RISKS. An investment in the Portfolio is subject to the following risks:

   - Company Risk

   - Concentration Risk

   - Credit Risk

   - Diversification Risk

   - Extension Risk

   - Income Risk

   - Inflation Risk

   - Interest Rate Risk

   - Limited Portfolio Risk

   - Market Risk

   - Portfolio Risk

   - Prepayment Risk

   - Real Estate Risk

   - REIT-Related Risk

   - Sector Risk

   - Securities Lending Risk

   - Short-Term Trading Risk

   - Small Company Risk

A detailed description of these risks is set forth in "- Defining Risks" below.

                                                INVESTING IN THE FUND         79


INVESTMENT PRACTICES COMMON TO THE PORTFOLIOS

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

PORTFOLIO TURNOVER

Before investing in a Portfolio, you should review its portfolio turnover rate
for an indication of the potential effect of transaction costs on the
Portfolio's future returns. In general, the greater the volume of buying and
selling by the Portfolio, the greater the impact that brokerage commissions and
other transaction costs will have on its return. Portfolio turnover rates for
the last five years are presented in the Financial Highlights included in the
Summary for each Portfolio, above.

The Portfolios, while they generally do not invest or trade for short-term
profits, are actively managed and the Portfolio managers may trade securities
frequently. As a result, each Portfolio may, from time to time, have an annual
portfolio turnover rate of over 100%. Factors contributing to a Portfolio's
higher turnover rate may include general market volatility, significant positive
or negative developments concerning particular securities holdings, an attempt
to maintain the Portfolio's market capitalization target and the need to sell
holdings to meet redemption requests. While higher turnover rates may result in
increased transaction costs, the managers of the Portfolios attempt to have the
benefits of these transactions outweigh the costs, although this cannot be
assured. In the case of the International Bond Portfolio, for example, the
frequent use of forward foreign currency exchange contracts to hedge against
variations in foreign currency exchange rates contributes to substantially
higher turnover rates. During the year ended December 31, 2002, the following
Portfolios had turnover rates in excess of 100%: Bond (140.8%), Asset Allocation
(116.5%), Value Stock (112.4%) and International Bond (304.1%).

DEFINING RISKS

Investment in each Portfolio involves risks. A Portfolio's yield and price are
not guaranteed, and the value of an investment in a Portfolio will go up or
down. The value of an investment in a particular Portfolio may be affected by
the risks of investing in that Portfolio as identified for each Portfolio in
" -Investment Objective, Policies and Practices" above. The following glossary
describes those identified risks associated with investing in the Portfolios.

   - CALL RISK - is the risk that securities with high interest rates (or other
     attributes that increase debt cost) will be prepaid by the issuer prior to
     maturity, particularly during periods of falling interest rates. In
     general, an issuer will call its debt securities if they can be refinanced
     by issuing new securities with a lower interest rate. The Portfolio is
     subject to the possibility that during periods of falling interest rates,
     an issuer will call its securities. As a result, the Portfolio would have
     to reinvest the proceeds in other securities with generally lower interest
     rates, resulting in a decline in the Portfolio's income.

   - COMPANY RISK - is the risk that individual securities may perform
     differently than the overall market. This may be a result of specific
     factors such as changes in corporate profitability due to the success or
     failure of specific products or management strategies, or it may be due to
     changes in investor perceptions regarding a company.

   - CONCENTRATION RISK - is the risk that the Portfolio's performance may be
     more susceptible to a single economic, regulatory or technological
     occurrence than an investment portfolio that does not concentrate

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     its investments in a single industry. The Portfolio is subject to
     concentration risk if the Portfolio invests more than 25% of its total
     assets in a particular industry. The Mortgage Securities and Real Estate
     Securities Portfolios each concentrates its investments in a single
     industry.

   - CREDIT RISK - is the risk that an issuer of a debt security,
     mortgage-backed security or fixed income obligation will not make payments
     on the security or obligation when due, or that the other party to a
     contract will default on its obligation. There is also the risk that an
     issuer could suffer adverse changes in financial condition that could lower
     the credit quality of a security. This could lead to greater volatility in
     the price of the security and in shares of the Portfolio. Also, a change in
     the quality rating of a debt security or other fixed income obligation can
     affect the security's or obligation's liquidity and make it more difficult
     to sell. The Portfolio may attempt to minimize credit risk by investing in
     debt securities and other fixed income obligations considered at least
     investment grade at the time of purchase. However, all of these securities
     and obligations, especially those in the lower investment grade rating
     categories, have credit risk. In adverse economic or other circumstances,
     issuers of these lower rated securities and obligations are more likely to
     have difficulty making principal and interest payments than issuers of
     higher rated securities and obligations. If the Portfolio purchases unrated
     securities and obligations, it will depend on its investment adviser's or
     sub-adviser's analysis of credit risk more heavily than usual.

   - CURRENCY RISK - is the risk that changes in foreign currency exchange rates
     will increase or decrease the value of foreign securities or the amount of
     income or gain received on such securities. A strong U.S. dollar relative
     to these other currencies will adversely affect the value of the Portfolio.
     Attempts by the Portfolio to minimize the effects of currency fluctuations
     through the use of foreign currency hedging transactions may not be
     successful or the Portfolio's hedging transactions may cause the Portfolio
     to be unable to take advantage of a favorable change in the value of
     foreign currencies.

   - DIVERSIFICATION RISK - is the risk that, as a result of investing more than
     5% of its total assets in the securities of a single issuer, the
     Portfolio's performance may be more susceptible to a single economic,
     regulatory or technological occurrence than a more diversified investment
     portfolio. A Portfolio (other than International Bond Portfolio) may not,
     with respect to 75% of its total assets, invest more than 5% of its total
     assets in the securities of a single issuer. With respect to the other 25%
     of its total assets, however, a Portfolio is subject to diversification
     risk if it invests more than 5% of its total assets in the securities of a
     single issuer. As a non-diversified investment company, International Bond
     Portfolio may particularly be subject to diversification risk since the
     Portfolio may invest more than 5% of its total assets in the securities of
     a single issuer with respect to 100% of its total investment portfolio.

   - EMERGING MARKETS RISK - is the risk that the value of securities issued by
     companies located in emerging market countries may be subject to greater
     volatility than foreign securities issued by companies in developed
     markets. Risks of investing in foreign securities issued by companies in
     emerging market countries include, among other things, greater social,
     political and economic instability, lack of liquidity and greater price
     volatility due to small market size and low trading volume, certain
     national policies that restrict investment opportunities and the lack of
     legal structures governing private and foreign investments and private
     property.

   - EURO CONVERSION RISK - is the risk that the value of foreign securities of
     companies located in European Monetary Union (EMU) countries may decrease
     due to market volatility resulting from the conversion of certain EMU
     country currencies to the Euro. It is not possible to predict the impact of
     the Euro on the business or financial condition of European issues or on
     the Portfolio. The transition and the elimination of currency risk among
     EMU countries may change the economic environment and behavior of
     investors, particularly in European markets. To the extent the Portfolio
     holds non-U.S. dollar (Euro or

                                                INVESTING IN THE FUND         81


     other) denominated securities, it will still be exposed to currency risk
     due to fluctuations in those currencies versus the U.S. dollar.

   - EXTENSION RISK - is the risk that rising interest rates could cause
     property owners to prepay their mortgages more slowly than expected,
     resulting in slower prepayments of mortgage-related securities.

   - FOREIGN SECURITIES RISK - is the risk that the value of foreign companies
     or foreign government securities held by the Portfolio may be subject to
     greater volatility than domestic securities. Risks of foreign securities
     include, among other things:

     POLITICAL AND ECONOMIC RISKS. Investing in foreign securities is subject to
     the risk of political, social or economic instability in the country of the
     issuer of the security, the difficulty of predicting international trade
     patterns, the possibility of exchange controls, expropriation, limits on
     currency removal or nationalization of assets.

     FOREIGN TAX RISK. The Portfolio's income from foreign issuers may be
     subject to non-U.S. withholding taxes. In some countries, the Portfolio may
     be subject to taxes on trading profits and, on certain securities
     transactions, transfer or stamp duties. To the extent foreign income taxes
     are paid by the Portfolio, U.S. shareholders may be entitled to a credit or
     deduction for U.S. tax purposes.

     FOREIGN INVESTMENT RESTRICTION RISK. Some countries, particularly emerging
     market countries, restrict to varying degrees foreign investment in their
     securities markets. In some circumstances, these restrictions may limit or
     preclude investment in certain countries or may increase the cost of
     investing in securities of particular companies.

     FOREIGN SECURITIES MARKET RISK. Securities of many foreign companies may be
     less liquid and their prices more volatile than securities of domestic
     companies. Securities of companies traded outside the U.S. may be subject
     to further risks due to the inexperience of local brokers and financial
     institutions, the possibility of permanent or temporary termination of
     trading, and greater spreads between bid and asked prices for securities.
     Moreover, foreign stock exchanges and brokers are subject to less
     governmental regulation, and commissions may be higher than in the U.S. In
     addition, there may be delays in the settlement of foreign stock exchange
     transactions.

     INFORMATION AND REMEDIES RISK. Foreign companies generally are not subject
     to uniform accounting, auditing and financial reporting standards or to
     other regulatory requirements that apply to domestic companies. As a
     result, less information may be available to investors concerning foreign
     issuers. In addition, the Portfolio may have greater difficulty voting
     proxies, exercising shareholder rights, pursuing legal remedies and
     obtaining judgments with respect to foreign investments in foreign courts
     than with domestic companies in domestic courts.

   - GROWTH STOCK RISK - is the risk that if the assessment by the Portfolio's
     investment adviser or sub-adviser of a company's prospective earnings
     growth or judgment of how other investors assess the company's earnings
     growth is wrong, then the value of the company's securities may decrease or
     not approach the value that the Portfolio's investment adviser or
     sub-adviser has placed on it.

   - INCOME RISK - is the risk that the Portfolio may experience a decline in
     its income due to falling interest rates.

   - INDEX PERFORMANCE RISK - is the risk that the Portfolio's ability to
     replicate the performance of a particular securities index may be affected
     by, among other things, changes in securities markets, the manner in which
     the index's sponsor calculates the applicable securities index, the amount
     and timing of cash flows into and out of the Portfolio, commissions and
     other expenses.

 82     INVESTING IN THE FUND


   - INFLATION RISK - is the risk that inflation will erode the purchasing power
     of the value of securities held by the Portfolio or the value of the
     Portfolio's dividends. Fixed-rate debt securities may be more susceptible
     to this risk than floating-rate debt securities or equity securities, whose
     value and dividends may increase in the future.

   - INITIAL PUBLIC OFFERING RISK - is the risk that the Portfolio will not be
     able to sustain the positive effect on performance that may result from
     investments in initial public offerings (IPOs). Investments in IPOs can
     have a significant positive impact on the Portfolio's performance. The
     positive effect of investments of IPOs may not be sustainable because of a
     number of factors. The Portfolio may not be able to buy shares in some
     IPOs, or may be able to buy only a small number of shares. Also, the
     Portfolio may not be able to buy the shares at the commencement of the
     offering, and the general availability and performance of IPOs are
     dependent on market psychology and economic conditions. The relative
     performance impact of IPOs is also likely to decline as the Portfolio
     grows.

   - INTEREST RATE RISK - is the risk that the value of a debt security,
     mortgage-backed security or fixed income obligation will decline due to
     changes in market interest rates. Generally, when interest rates rise, the
     value of such a security or obligation decreases. Conversely, when interest
     rates decline, the value of a debt security, mortgage-backed security or
     fixed income obligation generally increases. Long-term debt securities,
     mortgage-backed securities and fixed income obligations are generally more
     sensitive to interest rate changes.

   - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization
     company securities may underperform the market as a whole.

   - LIMITED PORTFOLIO RISK - is the risk that an investment in the Portfolio
     may present greater volatility, due to the limited number of issuers of
     real estate and real estate-related securities, than an investment in
     portfolio of securities selected from a greater number of issuers. The
     Portfolio is subject to limited portfolio risk because the Portfolio may
     invest in a smaller number of individual issuers than other portfolios.

   - MARKET RISK - is the risk that equity and debt securities are subject to
     adverse trends in equity and debt markets. Securities are subject to price
     movements due to changes in general economic conditions, the level of
     prevailing interest rates or investor perceptions of the market. In
     addition, prices are affected by the outlook for overall corporate
     profitability. Market prices of equity securities are generally more
     volatile than debt securities. This may cause a security to be worth less
     than the price originally paid for it, or less than it was worth at an
     earlier time. Market risk may affect a single issuer or the market as a
     whole. In addition, market risk may affect a portfolio of equity securities
     of micro, small, mid, large and very large capitalization companies and/or
     equity securities believed by a Portfolio's investment adviser or
     sub-adviser to be undervalued or exhibit above average sustainable earnings
     growth potential. As a result, a portfolio of such equity securities may
     underperform the market as a whole.

   - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization
     companies may be more vulnerable to adverse developments than those of
     larger companies due to such companies' limited product lines, limited
     markets and financial resources and dependence upon a relatively small
     management group.

   - PORTFOLIO RISK - is the risk that Portfolio performance may not meet or
     exceed that of the market as a whole. The performance of the Portfolio will
     depend on the Portfolio's investment adviser's or sub-adviser's judgment of
     economic and market policies, trends in investment yields and monetary
     policy.

                                                INVESTING IN THE FUND         83


   - PREPAYMENT RISK - is the risk that falling interest rates could cause
     prepayments of mortgage-related securities to occur more quickly than
     expected. This occurs because, as interest rates fall, more property owners
     refinance the mortgages underlying these securities. The Portfolio must
     reinvest the prepayments at a time when interest rates on new mortgage
     investments are falling, reducing the income of the Portfolio. In addition,
     when interest rates fall, prices on mortgage-related securities may not
     rise as much as for other types of comparable debt securities because
     investors may anticipate an increase in mortgage prepayments.

   - REAL ESTATE RISK - is the risk that the value of the Portfolio's
     investments may decrease due to fluctuations in rental income, overbuilding
     and increased competition, casualty and condemnation losses, environmental
     costs and liabilities, extended vacancies of property, lack of available
     mortgage funds, government regulation and limitations, increases in
     property taxes, cash flow dependency, declines in real estate value,
     physical depreciation of buildings, inability to obtain project financing,
     increased operating costs and changes in general or local economic
     conditions.

   - REIT-RELATED RISK - is the risk that the value of the Portfolio's equity
     REIT securities will be adversely affected by changes in the value of the
     underlying property. In addition, the value of equity or mortgage REITs
     could be adversely affected if the REIT fails to qualify for tax-free pass
     through income under the Internal Revenue Code of 1986 (as amended), or
     maintain its exemption from registration under the Investment Company Act
     of 1940.

   - SECTOR RISK - is the risk that the securities of companies within specific
     industries or sectors of the economy can periodically perform differently
     than the overall market. This may be due to changes in such things as the
     regulatory or competitive environment or to changes in investor perceptions
     regarding a company.

   - SECURITIES LENDING RISK - is the risk that the Portfolio may experience a
     delay in the recovery of loaned securities, or even the loss of rights in
     the collateral deposited by the borrower if the borrower should fail
     financially. To reduce these risks, the Portfolio enters into loan
     arrangements only with institutions that the Portfolio's investment adviser
     or sub-adviser has determined are creditworthy.

   - SHORT-TERM TRADING RISK - is the risk that a Portfolio may trade securities
     frequently and hold securities in its portfolio for one year or less.
     Frequent purchases and sales of securities will increase the Portfolio's
     transaction costs. Factors that can lead to short-term trading include
     market volatility, a significant positive or negative development
     concerning a security, an attempt to maintain a Portfolio's market
     capitalization target, and the need to sell a security to meet redemption
     activity.

   - SMALL AND MICRO-CAP COMPANY RISK - is the risk that equity securities of
     small and micro-cap capitalization companies are subject to greater price
     volatility due to, among other things, such companies' small size, limited
     product lines, limited access to financing sources and limited management
     depth. In addition, the frequency and volume of trading of such securities
     may be less than is typical of larger companies, making them subject to
     wider price fluctuations. In some cases, there could be difficulties in
     selling securities of micro-cap and small capitalization companies at the
     desired time and place.

   - STABLE PRICE RISK - is the risk that the Money Market Portfolio will not be
     able to maintain a stable share price of $1.00. There may be situations
     where the Portfolio's share price could fall below $1.00, which would
     reduce the value of an investor's account.

   - VALUE STOCK RISK - is the risk that the value of a security believed by the
     Portfolio's investment adviser or sub-adviser to be undervalued may never
     reach what such investment adviser or sub-adviser believes is its full
     value, or that such security's value may decrease.

 84     INVESTING IN THE FUND


                           BUYING AND SELLING SHARES

BUYING SHARES

Portfolio shares are not offered directly to the public. Portfolio shares are
sold to Minnesota Life in connection with its variable life insurance policies
and variable annuity contracts. Portfolio shares are also offered to certain
other life insurance companies, including but not limited to life insurance
affiliates of Minnesota Life. Securian Financial serves as the underwriter of
the Fund's shares. It is possible that the Fund may offer Portfolio shares to
other investors in the future.

Eligible investors may purchase Portfolio shares on any day the New York Stock
Exchange (NYSE) is open for business. The price for Portfolio shares is equal to
the Portfolio's net asset value (NAV). NAV is generally calculated as of the
close of normal trading on the NYSE (typically 3:00 p.m. Central time). NAV is
not calculated on: (a) days in which changes in a Portfolio's investment
portfolio do not materially change the Portfolio's NAV, (b) days on which no
Portfolio shares are purchased or sold, and (c) customary national business
holidays on which the NYSE is closed for trading. The price for shares of Money
Market Portfolio will normally be $1.00. However, there is no assurance that
Money Market Portfolio will maintain the $1.00 NAV.

NAV for one Portfolio share is equal to the Portfolio's total investments less
any liabilities divided by the number of Portfolio shares. To determine NAV, a
Portfolio (other than Money Market Portfolio) generally values its investments
based on market quotations. If market quotations are not available for certain
Portfolio investments, the investments are valued based on the fair value of the
investments as determined in good faith by the Fund's Board of Directors. Debt
securities may be valued based on calculations furnished to the Portfolio by a
pricing service or by brokers who make a market in such securities. A Portfolio
may hold securities that are listed on foreign stock exchanges. These foreign
securities may trade on weekends or other days when the Portfolio typically does
not calculate NAV. As a result, the NAV of such Portfolio shares may change on
days when an investor will not be able to purchase or sell Portfolio shares.
Securities in Money Market Portfolio's investment portfolio are valued on an
amortized cost basis. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization of any discount or premium until the
instrument's maturity, rather than looking at actual changes in the market value
of the instrument.

A purchase order will be priced at the next NAV calculated after the purchase
order is received by the Fund. If a purchase order is received after the close
of normal trading on the NYSE, the order will be priced at the NAV calculated on
the next day the NYSE is open for trading.

SELLING SHARES

Portfolio shares will be sold at the NAV next calculated after a sale order is
received by the Fund. The amount an investor receives may be more or less than
the original purchase price for the applicable shares.

EXCHANGING SHARES

Owners of the variable life insurance policies and variable annuity contracts
who invest in the Fund may exchange shares of a Portfolio for shares of other
Portfolios as described below and subject to the terms and

                                            BUYING AND SELLING SHARES         85


any specific limitations on the exchange or "transfer" privilege, described in
the accompanying prospectus for those policies or contracts. An exchange will be
made on the basis of the Portfolios' relative net asset values.

Frequent exchanges may interfere with Fund management or operations and drive up
Fund costs. The Fund's Portfolios are not designed for market timers, or for
large or frequent transfers. To protect shareholders, the Fund may restrict or
refuse purchases or exchanges by market timers. A variable annuity contract or
variable life insurance policy owner will be considered to be a market timer if
that owner has: (i) requested an exchange out of a Portfolio within two weeks of
an earlier exchange request, or (ii) exchanged shares out of a Portfolio more
than twice in a calendar quarter, or (iii) exchanged shares equal to at least $1
million, or more than 1% of the net assets of the Portfolio, or (iv) followed
what otherwise seems to be a timing pattern in the exercise of exchange or
transfer rights. Policies or contracts under common control or ownership are
combined for the purpose of determining these limitations. The Fund reserves the
right to change the terms of or impose other limitations on the exchange
privilege.

 86     BUYING AND SELLING SHARES


                              GENERAL INFORMATION

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Portfolio pays its shareholders dividends from its net investment income,
and distributes any net capital gains that it has realized. Except for Money
Market Portfolio, dividends and net capital gains distributions, if any, are
generally paid once a year. Dividends for Money Market Portfolio are declared
daily and paid on the last business day of the month. Distributions will be
reinvested in additional Portfolio shares. Distributions of these additional
shares are made at the NAV of the payment date. From time to time, however, the
Portfolios may employ a practice known as "consent dividends." Under this method
of "distributing" income, the shareholders of the Portfolios consent to treat
specified amounts as dividend income for tax purposes even though dividends are
not actually paid (either in cash or by reinvestment in additional shares) by
the Portfolios.

TAXES

GENERALLY. Each Portfolio is treated as a separate entity for federal income tax
purposes. Since Minnesota Life currently is the sole shareholder of the Fund, no
discussion regarding the tax consequences to Fund investors is included in this
prospectus. For information concerning the tax consequences to purchasers of
variable annuity contracts and variable life insurance policies issued by
Minnesota Life, please see the accompanying prospectus for those contracts.

SPECIAL PORTFOLIO DIVERSIFICATION REQUIREMENTS. To enable a variable annuity
contract or variable life insurance policy based on an insurance company
separate account to qualify for favorable tax treatment under the Internal
Revenue Code, the underlying investments must follow special diversification
requirements that limit the percentage of assets that can be invested in
securities of particular issuers. The Fund's investment program is managed to
meet those requirements, in addition to other diversification requirements under
the Internal Revenue Code and the Investment Company Act of 1940.

Failure by the Fund to meet those special requirements could cause earnings on a
contract or policy owner's interest in an insurance company separate account to
be taxable income. Those diversification requirements might also limit, to some
degree, the Fund's investment decisions in a way that could reduce its
performance.

MIXED AND SHARED FUNDING

The Fund serves as the underlying investment medium for amounts invested in life
insurance company separate accounts funding both variable life insurance
policies and variable annuity contracts (mixed funding), and as the investment
medium for such policies and contracts issued by both Minnesota Life and other
affiliated and unaffiliated life insurance companies (shared funding). Shared
funding also occurs when the Fund is used by both a life insurance company to
fund its policies or contracts and a participating qualified plan to fund plan
benefits. It is possible that there may be circumstances where it is
disadvantageous for either: (i) the owners of variable life insurance policies
and variable annuity contracts to invest in the Fund at the same time, or (ii)
the owners of such policies and contracts issued by different life insurance
companies to invest in the Fund at the same time or (iii) participating
qualified plans to invest in shares of the Fund at the same time as one or more
life insurance companies. Neither the Fund nor Minnesota Life currently foresees
any disadvantage, but if the Fund determines that there is any such disadvantage
due to a material

                                                  GENERAL INFORMATION         87


conflict of interest between such policy owners and contract owners, or between
different life insurance companies, or between participating qualified plans and
one or more life insurance companies, or for any other reason, the Fund's Board
of Directors will notify the life insurance companies and participating
qualified plans of such conflict of interest or other applicable event. In that
event, the life insurance companies or participating qualified plans may be
required to sell Fund shares with respect to certain groups of policy owners or
contract owners, or certain participants in participating qualified plans, in
order to resolve any conflict. The life insurance companies and participating
qualified plans will bear the entire cost of resolving any material conflict of
interest.

 88     GENERAL INFORMATION


                              FINANCIAL HIGHLIGHTS

The following tables describe each Portfolio's performance for the fiscal
periods indicated. "Total return" shows how much an investment in the Portfolio
would have increased (or decreased) during each period, assuming an investor had
reinvested all dividends and distributions. These figures have been audited by
KPMG LLP, the Fund's independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.

Per share data for a share of capital stock and selected information for each
period are as follows for each Portfolio:

GROWTH PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.57      2.52      3.33      2.74      2.40
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income (Loss)                               --        --      (.01)       --       .01
        Net Gains (Losses) on Securities
         (both realized and unrealized)                          (.40)     (.63)     (.68)      .67       .74
                                                              -----------------------------------------------
           Total from Investment Operations                      (.40)     (.63)     (.69)      .67       .75
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --        --        --      (.01)     (.02)
        Distributions from Net Realized Gains                      --      (.32)     (.12)     (.07)     (.39)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.32)     (.12)     (.08)     (.41)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.17      1.57      2.52      3.33      2.74
                                                              ===============================================
     Total Return (a)                                    %     (25.44)   (24.80)   (21.83)    25.67     34.70
     Net Assets, End of Year (in thousands)              $    198,421   298,635   438,717   594,676   468,382
     Ratio of Expenses to Average Daily Net Assets       %        .76       .75       .68       .53       .53
     Ratio of Net Investment Income (Loss) to Average
      Daily Net Assets                                   %        .19      (.11)     (.23)      .12       .40
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %       98.7     119.9     119.2      65.3      66.4


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                 FINANCIAL HIGHLIGHTS         89


BOND PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.18      1.22      1.18      1.31      1.33
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                     .06       .06       .08       .07       .06
        Net Gains (Losses) on Securities
         (Both Realized and Unrealized)                           .06       .04       .03      (.10)      .01
                                                              -----------------------------------------------
           Total from Investment Operations                       .12       .10       .11      (.03)      .07
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --      (.14)     (.07)     (.07)     (.07)
        Distributions from Net Realized Gains                      --        --        --      (.03)     (.02)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.14)     (.07)     (.10)     (.09)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.30      1.18      1.22      1.18      1.31
                                                              ===============================================
     Total Return (a)                                    %      10.50      7.90     10.44     (2.73)     6.08
     Net Assets, End of Year (in thousands)              $    276,486   235,318   187,254   181,881   178,793
     Ratio of Expenses to Average Daily Net Assets       %        .61       .60       .61       .56       .55
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       5.20      5.96      6.43      5.92      5.84
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %      140.8     197.8     206.8     140.8     252.1


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 90     FINANCIAL HIGHLIGHTS


MONEY MARKET PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.00      1.00      1.00      1.00      1.00
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                     .01       .04       .06       .05       .05
                                                              -----------------------------------------------
           Total from Investment Operations                       .01       .04       .06       .05       .05
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                     (.01)     (.04)     (.06)     (.05)     (.05)
                                                              -----------------------------------------------
           Total Distributions                                   (.01)     (.04)     (.06)     (.05)     (.05)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.00      1.00      1.00      1.00      1.00
                                                              ===============================================
     Total Return (a)                                    %       1.28      3.75      5.96      4.71      4.97
     Net Assets, End of Year (in thousands)              $    163,703   140,058   184,098   156,580   126,177
     Ratio of Expenses to Average Daily Net Assets       %        .57       .57       .58       .56       .58
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       1.26      3.73      5.83      4.61      4.84


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                 FINANCIAL HIGHLIGHTS         91


ASSET ALLOCATION PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.45      2.00      2.39      2.28      2.03
                                                              -----------------------------------------------
     Income From Investment Operations:
        Net Investment Income                                     .04       .03       .05       .05       .05
        Net Gains (Losses) on Securities
         (both realized and unrealized)                          (.17)     (.33)     (.28)      .27       .40
                                                              -----------------------------------------------
           Total from Investment Operations                      (.13)     (.30)     (.23)      .32       .45
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --      (.03)     (.05)     (.10)     (.06)
        Distributions from Net Realized Gains                      --      (.22)     (.11)     (.11)     (.14)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.25)     (.16)     (.21)     (.20)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.32      1.45      2.00      2.39      2.28
                                                              ===============================================
     Total Return (a)                                    %      (8.98)   (14.36)   (10.40)    15.17     23.65
     Net Assets, End of Year (in thousands)              $    374,268   482,160   638,972   750,129   637,997
     Ratio of Expenses to Average Daily Net Assets       %        .65       .64       .61       .53       .53
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       2.46      1.93      2.12      2.28      2.51
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %      116.5     169.4     139.3      97.0     129.6


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 92     FINANCIAL HIGHLIGHTS


MORTGAGE SECURITIES PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.18      1.22      1.17      1.22      1.21
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                     .08       .07       .09       .07       .08
        Net Gains (Losses) on Securities
         (both realized and unrealized)                           .03       .04       .04      (.05)       --
                                                              -----------------------------------------------
           Total from Investment Operations                       .11       .11       .13       .02       .08
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --      (.15)     (.08)     (.07)     (.07)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.15)     (.08)     (.07)     (.07)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.29      1.18      1.22      1.17      1.22
                                                              ===============================================
     Total Return (a)                                    %       9.66      9.04     11.80      1.99      6.57
     Net Assets, End of Year (in thousands)              $    249,802   230,141   151,141   138,815   124,358
     Ratio of Expenses to Average Daily Net Assets       %        .62       .61       .62       .57       .57
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       6.41      6.85      7.30      6.88      6.76
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %       82.4      81.9      48.9      79.4     116.7


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                 FINANCIAL HIGHLIGHTS         93


INDEX 500 PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       3.47      4.05      4.56      3.91      3.10
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                     .04       .03       .03       .04       .04
        Net Gains (Losses) on Securities (both
         realized and unrealized)                                (.81)     (.54)     (.44)      .74       .82
                                                              -----------------------------------------------
           Total from Investment Operations                      (.77)     (.51)     (.41)      .78       .86
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --      (.03)     (.03)     (.07)     (.03)
        Distributions from Net Realized Gains                      --      (.04)     (.07)     (.06)     (.02)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.07)     (.10)     (.13)     (.05)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       2.70      3.47      4.05      4.56      3.91
                                                              ===============================================
     Total Return (a)                                    %     (22.37)   (12.25)    (9.39)    20.28     27.99
     Net Assets, End of Year (in thousands)              $    418,897   520,644   584,239   657,824   536,859
     Ratio of Expenses to Average Daily Net Assets       %        .43       .42       .44       .45       .44
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       1.23       .93       .73       .85      1.08
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %        7.8       6.1      12.8      25.6      30.2


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 94     FINANCIAL HIGHLIGHTS


CAPITAL APPRECIATION PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.60      3.06      3.70      3.54      2.85
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Loss                                        --        --      (.01)     (.01)       --
        Net Gains (Losses) on Securities (both
         realized and unrealized)                                (.51)     (.69)     (.30)      .64       .86
                                                              -----------------------------------------------
           Total from Investment Operations                      (.51)     (.69)     (.31)      .63       .86
                                                              -----------------------------------------------
     Less Distributions:
        Distributions from Net Realized Gains                      --      (.77)     (.33)     (.47)     (.17)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.77)     (.33)     (.47)     (.17)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.09      1.60      3.06      3.70      3.54
                                                              ===============================================
     Total Return (a)                                    %     (31.54)   (24.63)   (10.16)    21.51     30.83
     Net Assets, End of Year (in thousands)              $    153,488   256,755   380,983   457,449   392,800
     Ratio of Expenses to Average Daily Net Assets       %        .83       .80       .81       .79       .78
     Ratio of Net Investment (Loss) to Average Daily
      Net Assets                                         %       (.03)      .11      (.17)     (.24)     (.21)
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %       43.0      90.3     193.1     114.1      82.7


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                 FINANCIAL HIGHLIGHTS         95


INTERNATIONAL STOCK PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $       1.34      1.76      1.94      1.73      1.71
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                     .02       .03       .03       .04       .04
        Net Gains (Losses) on Securities (both
         realized and unrealized)                                (.26)     (.23)     (.02)      .31       .08
                                                              -----------------------------------------------
           Total from Investment Operations                      (.24)     (.20)      .01       .35       .12
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --      (.06)     (.03)     (.05)     (.05)
        Distributions from Net Realized Gains                      --      (.16)     (.16)     (.09)     (.05)
                                                              -----------------------------------------------
           Total Distributions                                     --      (.22)     (.19)     (.14)     (.10)
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $       1.10      1.34      1.76      1.94      1.73
                                                              ===============================================
     Total Return (a)                                    %     (17.82)   (11.21)      .81     21.43      6.61
     Net Assets, End of Year (in thousands)              $    223,017   278,545   342,930   363,849   310,873
     Ratio of Expenses to Average Daily Net Assets       %        .99       .97      1.07       .90       .94
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       1.87      1.60      2.10      2.03      2.55
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %       32.7      39.4      46.8      34.7      22.4


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 96     FINANCIAL HIGHLIGHTS


SMALL COMPANY GROWTH PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Year                  $        .97      2.05      2.44      1.68      1.65
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Loss                                      (.01)     (.01)     (.01)     (.01)       --
        Net Gains (Losses) on Securities
         (both realized and unrealized)                          (.30)     (.40)     (.22)      .77       .03
                                                              -----------------------------------------------
           Total from Investment Operations                      (.31)     (.41)     (.23)      .76       .03
                                                              -----------------------------------------------
     Less Distributions:
        Distributions from Net Realized Gains                      --      (.67)     (.16)       --        --
                                                              -----------------------------------------------
           Total Distributions                                     --      (.67)     (.16)       --        --
                                                              -----------------------------------------------
     Net Asset Value, End of Year                        $        .66       .97      2.05      2.44      1.68
                                                              ===============================================
     Total Return (a)                                    %     (31.80)   (14.70)   (11.28)    45.63      1.27
     Net Assets, End of Year (in thousands)              $    122,888   193,705   240,978   269,881   195,347
     Ratio of Expenses to Average Daily Net Assets       %        .98       .97       .92       .80       .79
     Ratio of Net Investment Income (Loss) to Average
      Daily Net Assets                                   %       (.73)     (.55)     (.47)     (.45)     (.28)
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %       61.7      97.8     154.3     105.1      75.5


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                 FINANCIAL HIGHLIGHTS         97


MATURING GOVERNMENT BOND 2006 PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                           Year Ended December 31,
                                                                  2002     2001     2000(c)   1999     1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Period                   $      1.22     1.18      1.09     1.25     1.16
                                                                 --------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                       .06      .06       .07      .07      .05
        Net Gains (Losses) on Securities
         (both realized and unrealized)                             .10      .04       .09     (.16)     .11
                                                                 --------------------------------------------
           Total from Investment Operations                         .16      .10       .16     (.09)     .16
     Less Distributions:
        Dividends from Net Investment Income                         --     (.06)     (.07)    (.07)    (.06)
        Distributions from Net Realized Gains                        --       --        --       --     (.01)
                                                                 --------------------------------------------
           Total Distributions                                       --     (.06)     (.07)    (.07)    (.07)
                                                                 --------------------------------------------
     Net Asset Value, End of Period                         $      1.38     1.22      1.18     1.09     1.25
                                                                 ============================================
     Total Return (a)                                       %     12.99     8.08     15.63    (7.81)   14.37
     Net Assets, End of Period (in thousands)               $    10,650    8,694     6,429    6,261    6,870
     Ratio of Expenses to Average Daily Net Assets (b)      %       .65      .40       .40      .40      .40
     Ratio of Net Investment Income to Average Daily Net
      Assets (b)                                            %      4.81     5.39      5.92     5.76     5.57
     Portfolio Turnover Rate (excluding short-term
      securities)                                           %       5.9      6.4       3.4     19.8     21.6


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Minnesota Life voluntarily absorbed $35,104, $59,498, $61,355, $56,178
         and $37,165 in expenses for the years ended December 31, 2002, 2001,
         2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and
         expenses, the ratio of expenses to average daily net assets would have
         been 1.02%, 1.16%, 1.41%, 1.26% and 1.12%, respectively, and the ratio
         of net investment income to average daily net assets would have been
         4.44%, 4.63%, 4.91% 4.90% and 4.85%, respectively.
     (c) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 98     FINANCIAL HIGHLIGHTS


MATURING GOVERNMENT BOND 2010 PORTFOLIO



FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------
                                                                             Year Ended December 31,
                                                                   2002     2001     2000(c)    1999     1998
- ---------------------------------------------------------------------------------------------------------------
                                                                                      
     Net Asset Value, Beginning of Period                     $     1.27     1.35      1.19      1.41     1.29
                                                                   --------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                        .05      .07       .08       .08      .06
        Net Gains (Losses) on Securities
         (both realized and unrealized)                              .19     (.01)      .17      (.24)     .12
                                                                   --------------------------------------------
           Total from Investment Operations                          .24      .06       .25      (.16)     .18
                                                                   --------------------------------------------
     Less Distributions:
        Dividends from Net Investment income                          --     (.14)     (.08)     (.06)    (.06)
        Distributions from Net Realized Gains                         --       --      (.01)       --       --
                                                                   --------------------------------------------
           Total Distributions                                        --     (.14)     (.09)     (.06)    (.06)
                                                                   --------------------------------------------
     Net Asset Value, End of Period                           $     1.51     1.27      1.35      1.19     1.41
                                                                   ============================================
     Total Return (a)                                         %    18.85     4.96     21.36    (11.54)   14.28
     Net Assets, End of Period (in thousands)                 $    9,359    5,855     5,537     4,942    5,648
     Ratio of Expenses to Average Daily Net Assets (b)        %      .65      .40       .40       .40      .40
     Ratio of Net Investment Income to Average Daily Net
      Assets (b)                                              %     4.79     5.49      6.22      5.82     5.48
     Portfolio Turnover Rate (excluding short-term
      securities)                                             %     19.1     17.3       8.3      28.4     28.2


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Minnesota Life voluntarily absorbed $44,356, $61,422, $62,524, $55,419
         and $39,052 in expenses for the years ended December 31, 2002, 2001,
         2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and
         expenses, the ratio of expenses to average daily net assets would have
         been 1.28%, 1.42%, 1.66%, 1.43% and 1.33%, respectively, and the ratio
         of net investment income to average daily net assets would have been
         4.16%, 4.47%, 4.96%, 4.79% and 4.55%, respectively.
     (c) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                 FINANCIAL HIGHLIGHTS         99


VALUE STOCK PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(b)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Period                $       1.48      1.67      1.71      1.76      1.73
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                     .02       .02       .01       .02       .03
        Net Gains (Losses) on Securities
         (both realized and unrealized)                          (.25)     (.19)     (.03)     (.02)       --
                                                              -----------------------------------------------
           Total from Investment Operations                      (.23)     (.17)     (.02)       --       .03
                                                              -----------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                       --      (.02)     (.02)     (.05)       --
                                                              -----------------------------------------------
           Total Distributions                                     --      (.02)     (.02)     (.05)       --
                                                              -----------------------------------------------
     Net Asset Value, End of Period                      $       1.25      1.48      1.67      1.71      1.76
                                                              ===============================================
     Total Return (a)                                    %     (15.32)   (10.45)    (1.61)      .27      1.75
     Net Assets, End of Period (in thousands)            $    112,803   141,601   166,134   191,380   214,046
     Ratio of Expenses to Average Daily Net Assets       %        .83       .84       .83       .80       .79
     Ratio of Net Investment Income to Average Daily
      Net Assets                                         %       1.27      1.10       .84      1.26      1.54
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %      112.4     132.7     163.1     131.2      88.9


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 100    FINANCIAL HIGHLIGHTS


SMALL COMPANY VALUE PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                            Year Ended December 31,
                                                                   2002     2001     2000(c)    1999    1998
- -------------------------------------------------------------------------------------------------------------
                                                                                      
     Net Asset Value, Beginning of Period                    $      1.27     1.16       .91       .95    1.03
                                                                  -------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                         --       --        --       .01     .01
        Net Gains (Losses) on Securities
         (both realized and unrealized)                             (.25)     .18       .25      (.04)   (.08)
                                                                  -------------------------------------------
           Total from Investment Operations                         (.25)     .18       .25      (.03)   (.07)
                                                                  -------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                          --       --        --      (.01)   (.01)
        Distributions from Net Realized Gains                         --     (.06)       --        --      --
        Tax Return of Capital                                         --     (.01)       --        --      --
                                                                  -------------------------------------------
           Total Distributions                                        --     (.07)       --      (.01)   (.01)
                                                                  -------------------------------------------
     Net Asset Value, End of Period                          $      1.02     1.27      1.16       .91     .95
                                                                  ===========================================
     Total Return (a)                                        %    (19.98)   15.59     28.00     (3.07)  (6.75)
     Net Assets, End of Period (in thousands)                $    54,944   41,337    22,564    12,518   8,646
     Ratio of Expenses to Average Daily Net Assets (b)       %      1.10     1.10      1.05       .90     .90
     Ratio of Net Investment Income to Average Daily Net
      Assets (b)                                             %      (.43)    (.16)      .29      1.42    1.52
     Portfolio Turnover Rate (excluding short-term
      securities)                                            %      38.8     22.6     122.0     101.5    70.2


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares. For
         periods less than one year, total return presented has not been
         annualized.
     (b) Minnesota Life voluntarily absorbed $40,674, $39,093, $87,809, $67,886
         and $58,848 in expenses for the years ended December 31, 2002, 2001,
         2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and
         expenses, the ratio of expenses to average daily net assets would have
         been 1.17%, 1.22%, 1.58%, 1.56% and 1.83%, respectively, and the ratio
         of net investment income to average daily net assets would have been
         (.50)%, (.28)%, (.24)%, .76% and .59%, respectively.
     (c) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                FINANCIAL HIGHLIGHTS         101


INTERNATIONAL BOND PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                           Year Ended December 31,
                                                                  2002     2001     2000(b)    1999     1998
- -------------------------------------------------------------------------------------------------------------
                                                                                     
     Net Asset Value, Beginning of Period                   $       .92      .95       .94      1.05      .98
                                                                 --------------------------------------------
     Income from Investment Operations:
        Net Investment Income (Loss)                                .05      .04       .04       .05      .05
        Net Gains (Losses) on Securities (both realized
         and unrealized)                                            .12     (.06)     (.03)     (.13)     .11
                                                                 --------------------------------------------
           Total from Investment Operations                         .17     (.02)      .01      (.08)     .16
                                                                 --------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                         --     (.01)       --      (.03)    (.03)
        Distributions from Net Realized Gains                        --       --        --        --     (.06)
                                                                 --------------------------------------------
           Total Distributions                                       --     (.01)       --      (.03)    (.09)
                                                                 --------------------------------------------
     Net Asset Value, End of Period                         $      1.09      .92       .95       .94     1.05
                                                                 ============================================
     Total Return (a)                                       %     17.94    (1.51)     1.42     (7.81)   16.18
     Net Assets, End of Period (in thousands)               $    53,683   39,958    37,177    32,093   31,152
     Ratio of Expenses to Average Daily Net Assets          %      1.24     1.20      1.33       .94     1.13
     Ratio of Net Investment Income to Average Daily Net
      Assets                                                %      4.52     4.50      4.85      5.90     4.86
     Portfolio Turnover Rate (excluding short-term
      securities)                                           %     304.1    251.7     306.8     287.4    285.3


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares. For
         periods less than one year, total return presented has not been
         annualized.
     (b) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 102    FINANCIAL HIGHLIGHTS


INDEX 400 MID-CAP PORTFOLIO



FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------
                                                                            Year Ended December 31,
                                                                   2002     2001     2000(c)    1999     1998
- --------------------------------------------------------------------------------------------------------------
                                                                                      
     Net Asset Value, Beginning of Period                    $      1.13     1.22      1.18      1.15     1.01
                                                                  --------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                         --      .01       .01        --      .01
        Net Gains (Losses) on Securities
         (both realized and unrealized)                             (.17)    (.03)      .19       .15      .16
                                                                  --------------------------------------------
           Total from Investment Operations                         (.17)    (.02)      .20       .15      .17
                                                                  --------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                          --     (.01)     (.01)       --     (.01)
        Distributions from Net Realized Gains                         --     (.04)     (.15)     (.12)    (.02)
        Tax Return of Capital                                         --     (.02)       --        --       --
                                                                  --------------------------------------------
           Total Distributions                                        --     (.07)     (.16)     (.12)    (.03)
                                                                  --------------------------------------------
     Net Asset Value, End of Period                          $       .96     1.13      1.22      1.18     1.15
                                                                  ============================================
     Total Return (a)                                        %    (15.03)   (1.07)    16.05     15.96    16.68
     Net Assets, End of Period (in thousands)                $    41,835   41,069    35,768    24,357   10,511
     Ratio of Expenses to Average Daily Net Assets (b)       %       .65      .55       .55       .55      .55
     Ratio of Net Investment Income to Average Daily Net
      Assets (b)                                             %       .42      .82      1.18       .72      .78
     Portfolio Turnover Rate (excluding short-term
      securities)                                            %      20.0     29.8      78.3      76.6     85.4


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares. For
         periods less than one year, total return has not been annualized.
     (b) Minnesota Life voluntarily absorbed $45,365, $74,402, $70,044 and
         $52,946 in expenses for the years ended December 31, 2001, 2000, 1999
         and 1998, respectively. Had the Portfolio paid all fees and expenses,
         the ratio of expenses to average daily net assets would have been .67%,
         .80%, 1.00% and 1.36%, respectively, and the ratio of net investment
         income (loss) to average daily net assets would have been .70%, .93%,
         .27% and (.03)%, respectively.
     (c) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                FINANCIAL HIGHLIGHTS         103


CORE EQUITY PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                           Year Ended December 31,
                                                                  2002     2001     2000(c)    1999     1998
- -------------------------------------------------------------------------------------------------------------
                                                                                     
     Net Asset Value, Beginning of Period                   $       .98     1.06      1.16      1.14      .97
                                                                 --------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                        --       --        --       .01      .01
        Net Gains (Losses) on Securities
         (both realized and unrealized)                            (.28)    (.08)     (.08)      .07      .21
                                                                 --------------------------------------------
           Total from Investment Operations                        (.28)    (.08)     (.08)      .08      .22
                                                                 --------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                         --       --        --      (.01)      --
        Distributions from Net Realized Gains                        --       --      (.02)     (.05)    (.05)
                                                                 --------------------------------------------
           Total Distributions                                       --       --      (.02)     (.06)    (.05)
                                                                 --------------------------------------------
     Net Asset Value, End of Period                         $       .70      .98      1.06      1.16     1.14
                                                                 ============================================
     Total Return (a)                                       %    (28.14)   (7.74)    (7.02)     7.17    22.33
     Net Assets, End of Period (in thousands)               $    20,465   26,879    27,865    22,570   11,088
     Ratio of Expenses to Average Daily Net Assets (b)      %      1.05      .99       .95       .85      .85
     Ratio of Net Investment Income to Average Daily Net
      Assets(b)                                             %       .40      .37       .39       .60      .69
     Portfolio Turnover Rate (excluding short-term
      securities)                                           %      32.3     52.6      44.5     103.4    164.0


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares. For
         periods less than one year, total return presented has not been
         annualized.
     (b) Minnesota Life voluntarily absorbed $50,401, $60,312, $84,884, $102,703
         and $114,468 in expenses for the years ended December 31, 2002, 2001,
         2000, 1999 and 1998. Had the Portfolio paid all fees and expenses, the
         ratio of expenses to average daily net assets would have been 1.26%,
         1.20%, 1.27%, 1.48% and 2.53%, respectively, and the ratio of net
         investment income (loss) to average daily net assets would have been
         .19%, .16%, .07%, (.03)% and (.99)%, respectively.
     (c) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

 104    FINANCIAL HIGHLIGHTS


MICRO-CAP GROWTH PORTFOLIO



FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                               2002      2001     2000(c)    1999      1998
- -------------------------------------------------------------------------------------------------------------
                                                                                    
     Net Asset Value, Beginning of Period                $       1.55      1.75      2.51      1.01       .89
                                                              -----------------------------------------------
     Income from Investment Operations:
        Net Investment Loss                                      (.01)     (.01)     (.01)       --        --
        Net Gains Losses) on Securities
         (both realized and unrealized)                          (.67)     (.19)     (.44)     1.50       .12
                                                              -----------------------------------------------
           Total from Investment Operations                      (.68)     (.20)     (.45)     1.50       .12
                                                              -----------------------------------------------
     Less Distributions:
        Distributions from Net Realized Gains                      --        --      (.31)       --        --
                                                              -----------------------------------------------
           Total Distributions                                     --        --      (.31)       --        --
                                                              -----------------------------------------------
     Net Asset Value, End of Period                      $        .87      1.55      1.75      2.51      1.01
                                                              ===============================================
     Total Return (a)                                    %     (43.64)   (11.33)   (21.05)   148.77     13.44
     Net Assets, End of Period (in thousands)            $     24,504    45,029    52,176    42,554     8,034
     Ratio of Expenses to Average Daily Net Assets
      (b)                                                %       1.34      1.35      1.30      1.25      1.25
     Ratio of Net Investment Loss to Average Daily
      Net Assets (b)                                     %      (1.10)    (1.00)     (.46)     (.47)     (.40)
     Portfolio Turnover Rate (excluding short-term
      securities)                                        %       67.6      71.2     102.7     108.5      67.4


     (a) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares. For
         periods less than one year, total return presented has not been
         annualized.
     (b) Minnesota Life voluntarily absorbed $36,055, $24,008, $26,838, $50,020
         and $46,960 in expenses for the years ended December 31, 2002, 2001,
         2000, 1999 and 1998, respectively. Had the Portfolio paid all fees and
         expenses, the ratio of expenses to average daily net assets would have
         been 1.45%, 1.40%, 1.35%, 1.57% and 2.10%, respectively, and the ratio
         of net investment income (loss) to average daily net assets would have
         been (1.21)%, (1.05)%, (.50)%, (.79)% and (1.25)%, respectively.
     (c) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.

                                                FINANCIAL HIGHLIGHTS         105


REAL ESTATE SECURITIES PORTFOLIO



FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------
                                                                                                  Period From
                                                                                                     May 1,
                                                                                                   1998(a) to
                                                                  Year Ended December 31,         December 31,
                                                              2002     2001     2000(d)   1999        1998
- --------------------------------------------------------------------------------------------------------------
                                                                                
     Net Asset Value, Beginning of Period               $       .96      .90       .76      .83        1.02
                                                             -------------------------------------------------
     Income from Investment Operations:
        Net Investment Income                                   .03      .03       .04      .04         .03
        Net Gains (Losses) on Securities
         (both realized and unrealized)                         .03      .06       .15     (.07)       (.19)
                                                             -------------------------------------------------
           Total from Investment Operations                     .06      .09       .19     (.03)       (.16)
                                                             -------------------------------------------------
     Less Distributions:
        Dividends from Net Investment Income                     --     (.03)     (.04)    (.03)       (.03)
        Tax Return of Capital                                    --       --      (.01)    (.01)         --
                                                             -------------------------------------------------
           Total Distributions                                   --     (.03)     (.05)    (.04)       (.03)
                                                             -------------------------------------------------
     Net Asset Value, End of Period                     $      1.02      .96       .90      .76         .83
                                                             =================================================
     Total Return (b)                                   %      6.97    10.03     25.61    (3.89)     (14.90)
     Net Assets, End of Period (in thousands)           $    33,912   15,638     9,947    5,826       5,322
     Ratio of Expenses to Average Daily Net Assets
      (c)                                               %      1.00     1.00       .97      .90         .90(e)
     Ratio of Net Investment Income to Average Daily
      Net Assets (c)                                    %      3.38     4.43      5.32     4.58        5.54(e)
     Portfolio Turnover Rate (excluding short-term
      securities)                                       %      70.2    160.4     143.7    106.3        54.0


     (a) The inception of the Portfolio was May 1, 1998 when the shares of the
         Portfolio became effectively registered under the Securities Act of
         1933.
     (b) Total return figures are based on a share outstanding throughout the
         period and assume reinvestment of distributions at net asset value.
         Total return figures do not reflect charges pursuant to the terms of
         the variable life insurance policies and variable annuity contracts
         funded by separate accounts that invest in the Portfolio's shares. For
         periods less than one year, total return has not been annualized.
     (c) Minnesota Life voluntarily absorbed $47,820, $71,008, $77,007, $63,511
         and $31,736 in expenses for the years ended December 31, 2002, 2001,
         2000 and 1999 and the period ended December 31, 1998, respectively.
         Had the Portfolio paid all fees and expenses, the ratio of expenses to
         average daily net assets would have been 1.18%, 1.59%, 2.03%, 2.05%
         and 1.90%, respectively, and the ratio of net investment income to
         average daily net assets would have been 3.23%, 3.84%, 4.26%, 3.43%
         and 4.54%, respectively.
     (d) Effective May 1, 2000, the Portfolio entered into a new investment
         advisory agreement with Advantus Capital Management, Inc., which
         replaces the prior investment advisory agreement.
     (e) Adjusted to an annual basis.

 106    FINANCIAL HIGHLIGHTS


                               SERVICE PROVIDERS

INVESTMENT ADVISERS

Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826

Waddell & Reed Investment Management Co.
6300 Lamar Avenue
Shawnee Mission, Kansas 66201
(913) 236-2000
(888) WADDELL
INVESTMENT SUB-ADVISERS

International Stock Portfolio

Templeton Investment Counsel, LLC
500 East Broward Boulevard
Fort Lauderdale, Florida 33394
(954) 527-7500

Small Company Growth Portfolio

Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, New York 10017
(212) 875-3500

Small Company Value Portfolio

State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(617) 357-1200

International Bond Portfolio

Julius Baer Investment Management Inc.
330 Madison Avenue
New York, New York 10017
(212) 297-3800

Micro-Cap Growth Portfolio

Wall Street Associates
La Jolla Financial Building
1200 Prospect Street, Suite 100
La Jolla, California 92037
(800) 925-5787

ADMINISTRATIVE SERVICES AGENT

Minnesota Life Insurance Company
(800) 995-3850

UNDERWRITER

Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833

CUSTODIANS

Wells Fargo Bank Minnesota
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
     Growth, Money Market, Asset Allocation, Index 500, Capital Appreciation,
     Small Company Growth, Value Stock, Small Company Value, Index 400 Mid-Cap,
     Core Equity, Micro-Cap Growth and Real Estate Securities Portfolios

Bankers Trust Company
280 Park Avenue
New York, New York 10017
     Bond, Mortgage Securities, International Stock, Maturing Government Bond
     and International Bond Portfolios

INDEPENDENT AUDITORS

KPMG LLP

GENERAL COUNSEL

Dorsey & Whitney LLP

INDEPENDENT LEGAL COUNSEL TO
  INDEPENDENT DIRECTORS

Faegre & Benson LLP

                                                   SERVICE PROVIDERS         107


                     ADDITIONAL INFORMATION ABOUT THE FUND

The Fund's annual and semi-annual reports list holdings for each Portfolio, and
discuss recent market conditions, economic trends and investment strategies that
affected the Portfolios during the latest fiscal year.

A Statement of Additional Information (SAI) provides further information about
the Fund and the Portfolios. The current SAI is on file with the Securities and
Exchange Commission and is incorporated by reference (is legally part of this
prospectus).

HOW TO OBTAIN ADDITIONAL INFORMATION. The SAI and the Fund's annual and
semi-annual reports are available without charge upon request. You may obtain
additional information or make any inquiries:

By Telephone - Call 1-800-995-3850

By Mail - Write to Minnesota Life Insurance Company, 400 Robert Street North,
          St. Paul, Minnesota 55101-2098

Information about the Fund (including the SAI and annual and semi-annual
reports) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-202-942-8090 or 1-800-SEC-0330). This information
and other reports about the Fund are also available on the SEC's World Wide Web
site at http://www.sec.gov. Copies of this information may be obtained by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102 or
obtained by electronic request to: publicinfo@sec.gov. You will be charged a
duplicating fee for copies.

Investment Company Act No. 811-4279

[ADVANTUS LOGO]

(C)2003 Minnesota Life Insurance Company. All rights reserved.

 108    ADDITIONAL INFORMATION ABOUT THE FUND

EX-99.17(G)

                       STATEMENT OF ADDITIONAL INFORMATION






                           ADVANTUS SERIES FUND, INC.








                                   May 1, 2003









       This Statement of Additional Information is not a prospectus. This
           Statement of Additional Information relates to the separate
         Prospectus dated May 1, 2003 and should be read in conjunction
                                   therewith.

     The Fund's audited Annual Report, dated December 31, 2002, which either
   accompanies this Statement of Additional Information or has previously been
  provided to the investor to whom this Statement of Additional Information is
                being sent, is incorporated herein by reference.

  A copy of the Prospectus and Annual Report may be obtained by telephone from
   Minnesota Life Insurance Company (Minnesota Life) at (800) 995-3850 or by
   writing to Minnesota Life at 400 Robert Street North, St. Paul, Minnesota
                                  55101-2098.









                                TABLE OF CONTENTS

                                                                                                              
GENERAL INFORMATION AND HISTORY...................................................................................1

INVESTMENT OBJECTIVES AND POLICIES................................................................................2
   Portfolio Names and Investment Policies........................................................................2
   Equity Securities of Small Capitalization Companies............................................................2
   Debt and Money Market Securities - Non-Money Market Portfolios.................................................3
   Low Rated Securities...........................................................................................5
   Convertible Securities.........................................................................................6
   Money Market Securities - Money Market Portfolio...............................................................7
   U.S. Government Obligations....................................................................................8
   Obligations of Non-Domestic Banks..............................................................................8
   Variable Amount Master Demand Notes............................................................................9
   Mortgage-Related Securities....................................................................................9
   U.S. Government Mortgage-Related Securities...................................................................10
   Non-Governmental Mortgage-Related Securities..................................................................11
   Collateralized Mortgage Obligations...........................................................................11
   Stripped Mortgage-Backed Securities...........................................................................13
   Asset-Backed and Stripped Asset-Backed Securities.............................................................14
   Direct Investments in Mortgages - Whole Loans.................................................................15
   Zero Coupon Securities........................................................................................16
   Pay-in-Kind and Delayed Interest Securities...................................................................17
   Foreign Securities............................................................................................17
   Foreign Index Linked Securities...............................................................................19
   Swap Agreements...............................................................................................20
   Currency Exchange Transactions................................................................................21
   Foreign Currency Hedging Transactions.........................................................................22
   Closed-End Investment Companies...............................................................................23
   Loans of Portfolio Securities.................................................................................23
   Restricted and Illiquid Securities............................................................................24
   When-Issued Securities and Forward Commitments................................................................25
   Mortgage Dollar Rolls.........................................................................................27
   Real Estate Investment Trust Securities.......................................................................27
   Repurchase Agreements.........................................................................................28
   Reverse Repurchase Agreements.................................................................................28
   Futures Contracts and Options on Futures Contracts............................................................29
   Warrants......................................................................................................35
   Warrants with Cash Extractions................................................................................35
   Index Depositary Receipts.....................................................................................36
   Short Sales Against the Box...................................................................................36
   Investments in Russia.........................................................................................36
   Defensive Purposes............................................................................................39

INVESTMENT RESTRICTIONS..........................................................................................39
   Fundamental Restrictions......................................................................................39
   Non-Fundamental Restrictions..................................................................................40




                                       i




                                                                                                              
   Additional Restrictions.......................................................................................41

PORTFOLIO TURNOVER...............................................................................................42

DIRECTORS AND EXECUTIVE OFFICERS.................................................................................43

DIRECTOR LIABILITY...............................................................................................47

INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................47
   General.......................................................................................................47
   Control and Management of Advantus Capital and Securian Financial.............................................48
   The Fund's Investment Advisory Agreement with Advantus Capital................................................49
   Sub-Adviser - CSAM............................................................................................53
   Small Company Growth Portfolio Investment Sub-Advisory Agreement - CSAM.......................................54
   Sub-Adviser - Templeton Counsel...............................................................................55
   International Stock Portfolio Investment Sub-Advisory Agreement - Templeton Counsel...........................56
   Sub-Adviser - JBIM............................................................................................57
   International Bond Portfolio Investment Sub-Advisory Agreement - JBIM.........................................57
   Sub-Adviser - WSA.............................................................................................58
   Micro-Cap Growth Portfolio Investment Sub-Advisory Agreement - WSA............................................58
   Sub-Adviser - State Street Research...........................................................................59
   Small Company Value Portfolio Investment Sub-Advisory Agreement-State Street Research.........................59
   Annual Approval of Advisory and Sub-Advisory Agreements.......................................................60
   Administrative Services.......................................................................................62
   Code of Ethics................................................................................................63
   Distribution Agreement........................................................................................63
   Payment of Certain Distribution Expenses of the Fund..........................................................64
   Custodians....................................................................................................67
   Independent Auditors..........................................................................................67
   Legal Counsel.................................................................................................67

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE...............................................................67
   Adviser.......................................................................................................67
   Sub-Advisers..................................................................................................70

PURCHASE AND REDEMPTION OF SHARES................................................................................70

FUND SHARES AND VOTING RIGHTS....................................................................................71

PRINCIPAL SHAREHOLDERS...........................................................................................71

NET ASSET VALUE..................................................................................................72

PERFORMANCE DATA.................................................................................................74
   Current Yield Figures for Money Market Portfolio..............................................................74
   Current Yield Figures for Other Portfolios....................................................................74
   Total Return Figures For All Portfolios.......................................................................75
   Predictability of Return......................................................................................78




                                       ii





                                                                                                              
TAXES............................................................................................................79

THE STANDARD & POOR'S LICENSE....................................................................................80

FINANCIAL STATEMENTS.............................................................................................81

APPENDIX A - MORTGAGE-RELATED SECURITIES........................................................................A-1
   Underlying Mortgages.........................................................................................A-1
   Liquidity and Marketability..................................................................................A-1
   Average Life.................................................................................................A-1
   Yield Calculations...........................................................................................A-2

APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS..................................................................B-1
   Bond Ratings.................................................................................................B-1
   Commercial Paper Ratings.....................................................................................B-2

APPENDIX C - FUTURES CONTRACTS..................................................................................C-1
   Example of Futures Contract Sale.............................................................................C-1
   Example of Futures Contract Purchase.........................................................................C-1
   Tax Treatment................................................................................................C-2

APPENDIX D - BRADY BONDS........................................................................................D-1





                                       iii



                         GENERAL INFORMATION AND HISTORY

         Advantus Series Fund, Inc. ("Fund"), is a Minnesota corporation, each
of whose Portfolios operates as a no-load, diversified, open-end management
investment company, except that International Bond Portfolio operates as a
non-diversified, open-end management investment company. The Fund was organized
on February 22, 1985. Prior to a change of its name on May 1, 1997, the Fund was
known as MIMLIC Series Fund, Inc. The Fund is a series fund, which means that it
has several different Portfolios. The Portfolios of the Fund are as follows:

       o        Growth Portfolio
       o        Bond Portfolio
       o        Money Market Portfolio
       o        Asset Allocation Portfolio
       o        Mortgage Securities Portfolio
       o        Index 500 Portfolio
       o        Capital Appreciation Portfolio
       o        International Stock Portfolio
       o        Small Company Growth Portfolio
       o        Maturing Government Bond Portfolios (two separate portfolios
                with maturity dates of 2006 and 2010)
       o        Value Stock Portfolio
       o        Small Company Value Portfolio
       o        International Bond Portfolio (prior to May 1, 2003, the Global
                Bond Portfolio)
       o        Index 400 Mid-Cap Portfolio
       o        Core Equity Portfolio (prior to May 1, 2003, the Macro-Cap Value
                Portfolio)
       o        Micro-Cap Growth Portfolio
       o        Real Estate Securities Portfolio

         The investment advisers of the Fund (each an "Investment Adviser" and,
collectively, the "Investment Advisers") are Advantus Capital Management, Inc.
("Advantus Capital") and Waddell & Reed Financial Management Co. ("WRIMCO").
Advantus Capital is the investment adviser for the Bond Portfolio, Money Market
Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International
Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond
Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index
400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities
Portfolio. Advantus Capital has entered into investment sub-advisory agreements
under which various investment managers provide investment services. Credit
Suisse Asset Management, LLC ("CSAM") serves as investment sub-adviser to the
Fund's Small Company Growth Portfolio. Templeton Investment Counsel, LLC
("Templeton Counsel") serves as investment sub-adviser to the Fund's
International Stock Portfolio. Julius Baer Investment Management Inc. ("JBIM")
serves as investment sub-adviser to the Fund's International Bond Portfolio.
Wall Street Associates ("WSA") serves as investment sub-adviser to the Fund's
Micro-Cap Growth Portfolio. State Street Research & Management Company ("State
Street Research") serves as investment sub-adviser for the Small Company Value
Portfolio. In April 2003, WRIMCO is the investment adviser to the Growth
portfolio, Asset Allocation Portfolio, Capital Appreciation Portfolio, Value
Stock Portfolio and Core Equity Portfolio. WRIMCO became the investment adviser
for these funds effective May 1, 2003, pursuant to an interim investment
advisory agreement (the "Interim Agreement") approved by the Board of Directors
in connection with the Fund entering into a Strategic Alliance Agreement and a
related Purchase Agreement with Waddell & Reed Financial, Inc. ("W&R"), WRIMCO
and certain other companies affiliated with W&R.
         Currently, the shares of the Fund are sold only to Minnesota Life
Insurance Company ("Minnesota Life"), a Minnesota corporation, PFL Life
Insurance Company, an Iowa

                                       1




corporation, and AIG Life Insurance Company, a Delaware corporation, through
certain of their separate accounts to fund the benefits under variable annuity
contracts and variable life insurance policies (collectively, the "Contracts")
issued by such companies. The Fund may be used for other purposes in the future.
The Fund may also sell its shares to separate accounts of Northstar Life
Insurance Company, an indirect wholly-owned subsidiary of Minnesota Life
domiciled in the State of New York. The separate accounts, which will be the
owners of the shares of the Fund, will invest in the shares of each Portfolio in
accordance with instructions received from the owners of the Contracts.
Minnesota Life, through its separate accounts which fund the Contracts, owned
100% of the shares outstanding of each Portfolio of the Fund as of December 31,
2002. As a result, Minnesota Life is a controlling person of the Fund and
through its ownership of shares of the Fund, may elect all the directors of the
Fund and approve other Fund actions. Minnesota Life's address is 400 Robert
Street North, St. Paul, Minnesota 55101-2098.


                       INVESTMENT OBJECTIVES AND POLICIES

         The investment objectives and principal investment policies of each of
the Portfolios are set forth in the text of the Fund's Prospectus under
"Investing in the Fund - Investment Objective, Policies and Practices." This
section contains detailed descriptions of the investment policies of the
Portfolios as identified in the Fund's Prospectus.

PORTFOLIO NAMES AND INVESTMENT POLICIES

         The Bond, Mortgage Securities, Index 500, Small Company Growth,
Maturing Government Bond 2006, Maturing Government Bond 2010, Small Company
Value, Index 400 Mid-Cap, Core Equity, International Stock, Value Stock,
International Bond, Micro-Cap Growth and Real Estate Securities Portfolios of
the Fund have names that suggest a focus on a particular type of investment or
index. In accordance with Rule 35d-1 under the Investment Company Act of 1940
(the "1940 Act"), each of those Portfolios has adopted a policy that it will,
under normal circumstances, invest at least 80% of its assets in investments of
the type suggested by its name. For this policy, "assets" means net assets plus
the amount of any borrowings for investment purposes. In addition, in
appropriate circumstances, synthetic investments may be included in the 80%
basket if they have economic characteristics similar to the other investments
included in the basket. A Portfolio's policy to invest at least 80% of its
assets in such a manner is not a "fundamental" one, which means that it may be
changed without the vote of a majority of the Portfolio's outstanding shares as
defined in the 1940 Act. The names of these Portfolios may be changed at any
time by a vote of the Fund's Board of Directors. However, Rule 35d-1 also
requires that shareholders be given written notice at least 60 days prior to any
change by a Portfolio of its 80% investment policy.

EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES

         Small Company Growth Portfolio, Small Company Value Portfolio and
Micro-Cap Growth Portfolio will primarily invest in equity securities issued by
small capitalization companies. To the extent specified in the Prospectus,
certain other Portfolios may invest in equity securities issued by small
capitalization companies. Small capitalization companies may be in a relatively
early stage of development or may produce goods and services which have
favorable prospects for growth due to increasing demand or developing markets.
Frequently,


                                       2




such companies have a small management group and single product or product-line
expertise that may result in an enhanced entrepreneurial spirit and greater
focus which allow such firms to be successful. The Portfolio's investment
adviser or sub-adviser believes that such companies may develop into significant
business enterprises and that an investment in such companies offers a greater
opportunity for capital appreciation than an investment in larger more
established entities. However, small capitalization companies frequently retain
a large part of their earnings for research, development and investment in
capital assets, so that the prospects for immediate dividend income are limited.

         While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the
Portfolio will invest specifically in those companies which produce those
results. Because of the risks involved, the Portfolio is not intended to
constitute a complete investment program.

DEBT AND MONEY MARKET SECURITIES - NON-MONEY MARKET PORTFOLIOS

         To the extent specified in the Prospectus, certain non-Money Market
Portfolios may invest in long, intermediate and short-term debt securities from
various industry classifications and money market instruments. Such instruments
may include the following:

     o    Corporate obligations which at the time of purchase are rated within
          the four highest grades assigned by Standard & Poor's Corporation
          ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other
          national rating service, or, if not rated, are of equivalent
          investment quality as determined by the Portfolio's investment adviser
          or sub-adviser, as the case may be. To the extent that the Portfolio
          invests in securities rated BBB or Baa by S&P or Moody's,
          respectively, it will be investing in securities which have
          speculative elements. As an operating policy, International Stock
          Portfolio will not invest more than 5% of its assets in debt
          securities rated BBB by S&P or Baa by Moody's. In addition, Asset
          Allocation Portfolio, Bond Portfolio and Mortgage Securities Portfolio
          may invest up to 10% of their respective net assets, and International
          Stock Portfolio and Core Equity Portfolio may invest up to 5% of their
          respective net assets, in debt securities rated BB or Ba by S&P or
          Moody's, respectively; International Bond Portfolio may also invest up
          to 5% of its net assets in securities rated B or higher by S&P or
          Moody's; and Value Stock Portfolio, Small Company Value Portfolio and
          Micro-Cap Growth Portfolio may also invest up to 10% of their
          respective net assets in debt securities (including convertible
          securities) rated at least B- by S&P or B3 by Moody's. See "Low Rated
          Securities," below. For a description of the ratings used by Moody's
          and S&P, see Appendix B ("Bond and Commercial Paper Ratings") below.

     o    Obligations of, or guaranteed by, the U.S. Government, its agencies or
          instrumentalities.

     o    Debt obligations of banks.



                                       3





         Bond Portfolio may also purchase U.S. dollar denominated debt
securities of foreign governments and companies which are publicly traded in the
United States and rated within the four highest grades assigned by S&P or
Moody's.

         International Bond Portfolio may also purchase debt securities of
foreign companies and debt securities issued or guaranteed by foreign
governments or any of their agencies, instrumentalities or political
subdivisions, or by supranational organizations. The Portfolio may invest in
fixed-income securities issued or guaranteed by supranational organizations.
Such organizations are entities designated or supported by a government or
government entity to promote economic development, and include, among others,
the Asian Development Bank, the European Coal and Steel Community, the European
Economic Community and the World Bank. These organizations do not have taxing
authority and are dependent upon their members for payments of interest and
principal. Each supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. Securities issued by
supranational organizations may be denominated in U.S. dollars or in foreign
currencies. Securities issued or guaranteed by supranational organizations are
considered by the Securities and Exchange Commission to be securities in the
same industry. Therefore, the Portfolio will not concentrate 25% or more of the
value of its assets in securities of a single supranational organization.

         International Bond Portfolio may invest in Brady Bonds, which are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds have been issued only recently and, accordingly, do
not have a long payment history. They may be collateralized or uncollateralized
and issued in various currencies (although most are dollar-denominated) and they
are actively traded in the over-the-counter secondary market. For a full
discussion of Brady Bonds see Appendix D.

         In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Portfolio within one year of the date of
a security's maturity, certain Portfolios specified in the Prospectus may also
purchase other high quality securities including:

     o    Obligations (including certificates of deposit and bankers
          acceptances) of U.S. banks, savings and loan associations, savings
          banks which have total assets (as of the date of their most recent
          annual financial statements at the time of investment) of not less
          than $2,000,000,000; U.S. dollar denominated obligations of Canadian
          chartered banks, London branches of U.S. banks and U.S. branches or
          agencies of foreign banks which meet the above-stated asset size; and
          obligations of any U.S. banks, savings and loan associations and
          savings banks, regardless of the amount of their total assets,
          provided that the amount of the obligations purchased does not exceed
          $100,000 for any one U.S. bank, savings and loan association or
          savings bank and the payment of the principal is insured by the
          Federal Deposit Insurance Corporation or the Federal Savings and Loan
          Insurance Corporation.

     o    Obligations of the International Bank for Reconstruction and
          Development.



                                       4




     o    Commercial paper (including variable amount master demand notes)
          issued by U.S. corporations or affiliated foreign corporations and
          rated (or guaranteed by a company whose commercial paper is rated) at
          the date of investment Prime-1 by Moody's or A-1 by S&P or, if not
          rated by either Moody's or S&P, issued by a corporation having an
          outstanding debt issue rated Aa or better by Moody's or AA or better
          by S&P and, if issued by an affiliated foreign corporation, such
          commercial paper (not to exceed in the aggregate 10% of such
          Portfolio's (other than Mortgage Securities Portfolio's) net assets)
          is U.S. dollar denominated and not subject at the time of purchase to
          foreign tax withholding.

         The Portfolios may also invest in securities which are unrated if the
Portfolio's investment adviser or sub-adviser, as the case may be, determines
that such securities are of equivalent investment quality to the rated
securities described above. In the case of "split-rated" securities, which
result when nationally-recognized rating agencies rate the security at different
rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Portfolio's
general policy to classify such securities at the higher rating level where, in
the judgment of the Portfolio's investment adviser or sub-adviser, such
classification reasonably reflects the security's quality and risk.

         The market value of debt securities generally varies in response to
changes in interest rates and the financial condition of each issuer. During
periods of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in each Portfolio's net asset value.

         These Portfolios may, however, acquire debt securities which, after
acquisition, are down-graded by the rating agencies to a rating which is lower
than the applicable minimum rating described above. In such an event it is the
Portfolios' general policy to dispose of such down-graded securities except
when, in the judgment of the Portfolios' investment adviser or sub-adviser, it
is to the Portfolios' advantage to continue to hold such securities. In no
event, however, will any Portfolio hold in excess of 5% of its net assets in
securities which have been down-graded subsequent to purchase where such
down-graded securities are not otherwise eligible for purchase by the Portfolio.
This 5% is in addition to securities which the Portfolio may otherwise purchase
under its usual investment policies.

LOW RATED SECURITIES

         Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also invest up to 10% of their respective net assets, and
International Stock Portfolio and Core Equity Portfolio may invest up to 5% of
their respective net assets, in corporate bonds and mortgage-related securities,
including convertible securities, which, at the time of acquisition, are rated
BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by
another independent publicly-recognized rating agency, or, if not rated, are of
equivalent investment quality as determined by the Portfolio's investment
adviser or sub-adviser, as the case may be. International Bond Portfolio may
also invest up to 5% of its net assets in securities rated B or higher by S&P or
Moody's. Value Stock Portfolio, Small Company Value Portfolio and Micro-Cap
Growth Portfolio may invest up to 10% of their respective net assets in debt
securities (including convertible securities) which are rated at least B- by S&P
or B3 by Moody's, or rated at a


                                       5





comparable level by another independent publicly-recognized rating agency, or,
if not rated, are of equivalent investment quality as determined by the
Portfolio's investment adviser. Each of these Portfolios may also hold an
additional 5% of its net assets in securities rated below "investment grade"
(i.e. below BBB) where such securities were either investment grade or eligible
low rated securities at the time of purchase but subsequently down-graded to a
rating not otherwise eligible for purchase by the Portfolio (see "Debt and Money
Market Securities - Non-Money Market Portfolios" above). Debt securities rated
below the four highest categories (i.e., below BBB) are not considered
investment grade obligations and are commonly called "junk bonds." These
securities are predominately speculative and present more credit risk than
investment grade obligations. Bonds rated below BBB are also regarded as
predominately speculative with respect to the issuer's continuing ability to
meet principal and interest payments.

         Low rated and unrated debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated debt securities are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish the Portfolios' ability
to sell the securities at fair value either to meet redemption requests or to
respond to changes in the economy or in the financial markets and could
adversely affect and cause fluctuations in the daily net asset value of the
Portfolios' shares.

         Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Portfolios
to achieve their respective investment objective may, to the extent of
investment in low rated debt securities, be more dependent upon such
creditworthiness analysis than would be the case if the Portfolios were
investing in higher rated securities.

         Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Portfolios may incur additional expenses
to seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.

CONVERTIBLE SECURITIES

         To the extent specified in the Prospectus, certain Portfolios may
invest in debt or preferred equity securities convertible into or exchangeable
for equity securities. Traditionally, convertible securities have paid dividends
or interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree.
The total return and yield of lower quality (high yield/high risk) convertible
bonds can be expected to


                                       6




fluctuate more than the total return and yield of higher quality, shorter-term
bonds, but not as much as common stocks. Growth Portfolio, Small Company Growth
Portfolio, Real Estate Securities Portfolio, Core Equity Portfolio and Capital
Appreciation Portfolio will each limit its purchase of convertible debt
securities to those that, at the time of purchase, are rated at least BBB or Baa
by S&P or Moody's, respectively, or if not rated by S&P or Moody's, are of
equivalent investment quality as determined by the Portfolio's investment
adviser or sub-adviser. Bond Portfolio, Asset Allocation Portfolio and Mortgage
Securities Portfolio will each limit its purchase of convertible debt securities
to those that, at the time of purchase, are rated at least BB or Ba by S&P or
Moody's, respectively, or if not rated by S&P or Moody's, are of equivalent
investment quality as determined by the Portfolio's investment adviser. Value
Stock Portfolio, Small Company Value Portfolio and Micro-Cap Growth Portfolio
will each limit its purchase of convertible debt securities to those that, at
the time of purchase, are rated at least B- by S&P or B3 by Moody's, or if not
rated by S&P or Moody's, are of equivalent investment quality as determined by
the Portfolio's investment adviser or sub-adviser. As an operating policy, none
of these Portfolios will purchase a non-investment grade convertible debt
security if immediately after such purchase such Portfolio would have more than
10% of its total assets invested in such securities. See "Low Rated Securities,"
above.

MONEY MARKET SECURITIES - MONEY MARKET PORTFOLIO

         Subject to the limitations under Rule 2a-7 of the Investment Company
Act of 1940 (as described in "Investment Restrictions - Additional Restrictions"
below), Money Market Portfolio will invest in a managed portfolio of money
market instruments as follows:

     o    Obligations issued or guaranteed as to principal or interest by the
          U.S. Government, or any agency or authority controlled or supervised
          by and acting as an instrumentality of the U.S. Government pursuant to
          authority granted by Congress.

     o    Obligations (including certificates of deposit and bankers
          acceptances) of U.S. banks, savings and loan associations and savings
          banks which at the date of the investment have total assets (as of the
          date of their most recent annual financial statements) of not less
          than $2,000,000,000; U.S. dollar denominated obligations of Canadian
          chartered banks, London branches of U.S. banks, and U.S. branches or
          agencies of foreign banks if such banks meet the above-stated asset
          size; and obligations of any such U.S. banks, savings and loan
          associations and savings banks, regardless of the amount of their
          total assets, provided that the amount of the obligations does not
          exceed $100,000 for any one U.S. bank, savings and loan association or
          savings bank and the payment of the principal is insured by the
          Federal Deposit Insurance Corporation.

     o    Obligations of the International Bank for Reconstruction and
          Development.

     o    Commercial paper (including variable amount master demand notes)
          issued by U.S. limited partnerships, corporations or affiliated
          foreign corporations.

     o    Other corporate debt obligations that at the time of issuance were
          long-term securities, but that have remaining maturities of 397
          calendar days or less.


                                       7






     o    Repurchase agreements with respect to any of the foregoing
          obligations.

         By limiting the maturity of its investments as described above, the
Portfolio seeks to lessen the changes in the value of its assets caused by
market factors. The Portfolio intends to maintain a constant net asset value of
$1.00 per share, but there can be no assurance it will be able to do so.

U.S. GOVERNMENT OBLIGATIONS

         Each of the Portfolios may invest in obligations of the U.S.
Government. These obligations are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the U.S. or by
agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government established under the authority granted
by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct
obligations of the U.S. Government and differ in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by agencies or
authorities controlled or supervised by and acting as instrumentalities of the
U.S. Government established under authority granted by Congress include but are
not limited to, the Government National Mortgage Association ("GNMA"), the
Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal
Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers
Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the
Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks
and the Federal National Mortgage Association. Some obligations of U.S.
Government agencies, authorities and other instrumentalities are supported by
the full faith and credit of the U.S. Treasury, such as securities of the
Government National Mortgage Association and the Student Loan Marketing
Association; others by the right of the issuer to borrow from the U.S. Treasury,
such as securities of the Federal Financing Bank and the U.S. Postal Service;
and others only by the credit of the issuing agency, authority or other
instrumentality, such as securities of the Federal Home Loan Bank and the
Federal National Mortgage Association ("FNMA").

OBLIGATIONS OF NON-DOMESTIC BANKS

         As specified in the Prospectus, certain of the Portfolios may invest in
obligations of Canadian chartered banks, London branches of U.S. banks, and U.S.
branches and agencies of foreign banks, which may involve somewhat greater
opportunity for income than the other money market instruments in which the
Portfolios invest, but may also involve investment risks in addition to any
risks associated with direct obligations of domestic banks. These additional
risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other governmental
restrictions, as well as market and other factors which may affect the market
for or the liquidity of such obligations. Generally, Canadian chartered banks,
London branches of U.S. banks, and U.S. branches and agencies of foreign banks
are subject to fewer U.S. regulatory restrictions than those applicable to
domestic banks, and London branches of U.S. banks may be subject to less
stringent reserve requirements than domestic branches. Canadian chartered banks,
U.S. branches and agencies of foreign banks, and London branches of U.S. banks
may provide less public information than, and may not be subject to the same
accounting, auditing and



                                       8




financial recordkeeping standards as, domestic banks. Each Portfolio will not
invest more than 25% of its total assets in obligations of Canadian chartered
banks, London branches of U.S. banks, and U.S. branches and agencies of foreign
banks.

VARIABLE AMOUNT MASTER DEMAND NOTES

         Money Market Portfolio may invest in variable amount master demand
notes. These instruments are short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. They allow the investment of
fluctuating amounts by the Portfolio at varying market rates of interest
pursuant to direct arrangements between Money Market Portfolio, as lender, and
the borrower. Variable amount master demand notes permit a series of short-term
borrowings under a single note. The lender has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement.
Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. Because variable amount master demand
notes are direct lending arrangements between the lender and borrower, it is not
generally contemplated that such instruments will be traded and there is no
secondary market for the notes. Typically, agreements relating to such notes
provide that the lender shall not sell or otherwise transfer the note without
the borrower's consent. Thus, variable amount master demand notes are illiquid
assets. Such notes provide that the interest rate on the amount outstanding
varies on a daily basis depending upon a stated short-term interest rate
barometer. The Portfolio's investment adviser will monitor the creditworthiness
of the borrower throughout the term of the variable amount master demand note.

MORTGAGE-RELATED SECURITIES

         Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities
Portfolio and International Bond Portfolio may invest in mortgage-related
securities (including securities which represent interests in pools of mortgage
loans) issued by government (some of which may be U.S. Government agency issued
or guaranteed securities as described herein) and non-government entities such
as banks, mortgage lenders or other financial institutions. These securities may
include both collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage loans are originated and formed into pools by various
organizations, including the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and various private organizations including
commercial banks and other mortgage lenders. Payments on mortgage-related
securities generally consist of both principal and interest, with occasional
repayments of principal due to refinancings, foreclosures or certain other
events. Some mortgage-related securities, such as collateralized mortgage
obligations, make payments of both principal and interest at a variety of
intervals. Certain mortgage-related securities, such as GNMA securities, entitle
the holder to receive such payments, regardless of whether or not the mortgagor
makes loan payments; certain mortgage-related securities, such as FNMA
securities, guarantee the timely payment of interest and principal; certain
mortgage-related securities, such as FHLMC securities, guarantee the timely
payment of interest and ultimate collection of principal; and certain
mortgage-related securities contain no such guarantees but may offer higher
rates of return. No mortgage-related securities guarantee the Portfolio's yield
or the price of its shares.


                                       9




         Each Portfolio expects its investments in mortgage-related securities
to be primarily in high-grade mortgage-related securities either: (a) issued by
GNMA, FNMA or FHLMC or other United States Government owned or sponsored
corporations or (b) rated A or better by S&P or Moody's, or rated at a
comparable level by another independent publicly-recognized rating agency, or,
if not rated, are of equivalent investment quality as determined by the
Portfolio's investment adviser or sub-adviser, as the case may be. The Portfolio
may invest in mortgage-related securities rated BBB or Baa by S&P or Moody's,
respectively, or rated at a comparable level by another independent
publicly-recognized rating agency, or, if not rated, are of equivalent
investment quality as determined by the Portfolio's investment adviser or
sub-adviser, as the case may be, when deemed by the Portfolio's investment
adviser or sub-adviser to be consistent with the Portfolio's respective
objective. To the extent that the Portfolio invests in securities rated BBB or
Baa by S&P or Moody's, respectively, it will be investing in securities which
have speculative elements. (Each of these Portfolios may also invest a portion
of its assets in securities rated below BBB or Baa by S&P or Moody's,
respectively. See "Low Rated Securities" and "Convertible Securities," above,
for more information.) Mortgage Securities Portfolio may not invest more than
35% of its total assets in securities rated BBB or Baa or lower by S&P or
Moody's, respectively. For further information about the characteristics and
risks of mortgage-related securities, and for a description of the ratings used
by Moody's and S&P, see Appendix A and B ("Mortgage-Related Securities" and
"Bond and Commercial Paper Ratings") below.

U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES

         A governmental guarantor (i.e., backed by the full faith and credit of
the U.S. Government) of mortgage-related securities is GNMA. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.

         Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.

         FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is publicly traded. FHLMC
issues Participation Certificates ("PCs") which represent interests in mortgages
from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest
and principal on most PCs. There are some PCs, however, on which FHLMC
guarantees the timely payment of interest but only the ultimate payment of
principal. PCs are not backed by the full faith and credit of the U.S.
Government.


                                       10



NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES

         Mortgage Securities Portfolio, Bond Portfolio, Asset Allocation
Portfolio and International Bond Portfolio may invest in non-governmental
mortgage-related securities. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers also create pass-through pools of conventional residential and
commercial mortgage loans. Such issuers may in addition be the originators and
servicers of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and principal of these
pools is supported by various forms of insurance, guarantees and credit
enhancements, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers and
the mortgage poolers. Such insurance and guarantees and the creditworthiness of
the issuers thereof will be considered in determining whether a mortgage-related
security meets the Portfolio's investment quality standards. There can be no
assurance that the private insurers can meet their obligations under the
policies. The Portfolio may buy mortgage-related securities without insurance or
guarantees if through an examination of the loan experience and practices of the
poolers the Portfolio's investment adviser determines that the securities meet
the Portfolio's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. The Portfolio will not purchase mortgage-related
securities or any other assets which in its investment adviser's opinion are
illiquid if, as a result, more than 15% of the value of the Portfolio's net
assets will be illiquid.

COLLATERALIZED MORTGAGE OBLIGATIONS

         Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities
Portfolio and International Bond Portfolio may invest in collateralized mortgage
obligations ("CMOs"), in which several different series of bonds or certificates
secured by pools of mortgage-backed securities or mortgage loans, are issued.
The series differ from each other in terms of the priority rights which each has
to receive cash flows with the CMO from the underlying collateral. Each CMO
series may also be issued in multiple classes. Each class of a CMO series, often
referred to as a "tranche," is usually issued at a specific coupon rate and has
a stated maturity. The underlying security for the CMO may consist of
mortgage-backed securities issued or guaranteed by U.S. Government agencies or
whole loans. CMOs backed by U.S. Government agency securities retain the credit
quality of such agency securities and therefore present minimal credit risk.
CMOs backed by whole loans typically carry various forms of credit enhancements
to protect against credit losses and provide investment grade ratings. Unlike
traditional mortgage pass-through securities, which simply pass through interest
and principal on a pro rata basis as received, CMOs allocate the principal and
interest from the underlying mortgages among the several classes or branches of
the CMO in many ways. All residential, and some commercial, mortgage-related
securities are subject to prepayment risk. A CMO does not eliminate that risk,
but, by establishing an order of priority among the various tranches for the
receipt and timing of principal payments, it can reallocate that risk among the
tranches. Therefore, the stream of payments received by a CMO bondholder may
differ dramatically from that received by an investor holding a traditional
pass-through security backed by the same collateral.


                                       11




         In the traditional form of CMO, interest is paid currently on all
tranches but principal payments are applied sequentially to retire each tranche
in order of stated maturity. Traditional sequential payment CMOs have evolved
into numerous more flexible forms of CMO structures which can vary frequency of
payments, maturities, prepayment risk and performance characteristics. The
differences between these new types of CMOs relate primarily to the manner in
which each varies the amount and timing of principal and interest received by
each tranche from the underlying collateral. Under all but the sequential
payment structures, specific tranches of CMOs have priority rights over other
tranches with respect to the amount and timing of cash flow from the underlying
mortgages.

         The primary risk associated with any mortgage security is the
uncertainty of the timing of cash flows; specifically, uncertainty about the
possibility of either the receipt of unanticipated principal in falling interest
rate environments (prepayment or call risk) or the failure to receive
anticipated principal in rising interest rate environments (extension risk). In
a CMO, that uncertainty may be allocated to a greater or lesser degree to
specific tranches depending on the relative cash flow priorities of those
tranches. By establishing priority rights to receive and reallocate payments of
prepaid principal, the higher priority tranches are able to offer better call
protection and extension protection relative to the lower priority classes in
the same CMO. For example, when insufficient principal is received to make
scheduled principal payments on all tranches, the higher priority tranches
receive their scheduled premium payments first and thus bear less extension risk
than lower priority tranches. Conversely, when principal is received in excess
of scheduled principal payments on all tranches (call risk), the lower priority
tranches are required to receive such excess principal until they are retired
and thus bear greater prepayment risk than the higher priority tranches.
Therefore, depending on the type of CMO purchased, an investment may be subject
to a greater or lesser risk of prepayment, and experience a greater or lesser
volatility in average life, yield, duration and price, than other types of
mortgage-related securities. A CMO tranche may also have a coupon rate which
resets periodically at a specified increment over an index. These floating rate
CMOs are typically issued with lifetime caps on the level to which the floating
coupon rate is allowed to rise. The Portfolio may invest in such securities,
usually subject to a cap, provided such securities satisfy the same requirements
regarding cash flow priority applicable to the Portfolio's purchase of CMOs
generally. CMOs are typically traded over the counter rather than on centralized
exchanges. Because CMOs of the type purchased by the Portfolio tend to have
relatively more predictable yields and are relatively less volatile, they are
also generally more liquid than CMOs with greater prepayment risk and more
volatile performance profiles.

         Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also purchase CMOs known as "accrual" or "Z" bonds. An accrual or
Z bond holder is not entitled to receive cash payments until one or more other
classes of the CMO have been paid in full from payments on the mortgage loans
underlying the CMO. During the period in which cash payments are not being made
on the Z tranche, interest accrues on the Z tranche at a stated rate, and this
accrued interest is added to the amount of principal which is due to the holder
of the Z tranche. After the other classes have been paid in full, cash payments
are made on the Z tranche until its principal (including previously accrued
interest which was added to principal, as described above) and accrued interest
at the stated rate have been paid in full. Generally, the date upon which cash
payments begin to be made on a Z tranche depends on the rate at which the
mortgage loans underlying the CMO are prepaid, with a faster prepayment rate
resulting in an earlier commencement of cash payments on the Z tranche. Like a
zero coupon bond, during its



                                       12




accrual period the Z tranche of a CMO has the advantage of eliminating the risk
of reinvesting interest payments at lower rates during a period of declining
market interest rates. At the same time, however, and also like a zero coupon
bond, the market value of a Z tranche can be expected to fluctuate more widely
with changes in market interest rates than would the market value of a tranche
which pays interest currently. Changes in market interest rates also can be
expected to influence prepayment rates on the mortgage loans underlying the CMO
of which a Z tranche is a part. As noted above, such changes in prepayment rates
will affect the date at which cash payments begin to be made on a Z tranche, and
therefore also will influence its market value. As an operating policy, Bond
Portfolio, Asset Allocation Portfolio and Mortgage Securities Portfolio will not
purchase a Z bond if the respective Portfolio's aggregate investment in Z bonds
which are then still in their accrual periods would exceed 20% of the
Portfolio's total assets (Z bonds which have begun to receive cash payments are
not included for purposes of this 20% limitation).

         Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also invest in inverse or reverse floating CMOs. Inverse or
reverse floating CMOs constitute a tranche of a CMO with a coupon rate that
moves in the reverse direction to an applicable index. Accordingly, the coupon
rate will increase as interest rates decrease. The Portfolio would be adversely
affected, however, by the purchase of such CMOs in the event of an increase in
interest rates since the coupon rate will decrease as interest rates increase,
and, like other mortgage-related securities, the value will decrease as interest
rates increase. Inverse or reverse floating rate CMOs are typically more
volatile than fixed or floating rate tranches of CMOs, and usually carry a lower
cash flow priority. As an operating policy, Bond Portfolio, Asset Allocation
Portfolio and Mortgage Securities Portfolio will treat inverse floating rate
CMOs as illiquid and, therefore, will limit its investments in such securities,
together with all other illiquid securities, to 15% of such Portfolio's net
assets.

STRIPPED MORTGAGE-BACKED SECURITIES

         Bond Portfolio, Asset Allocation Portfolio, International Bond
Portfolio and Mortgage Securities Portfolio may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities represent
undivided ownership interests in a pool of mortgages, the cash flow of which has
been separated into its interest and principal components. "IOs" (interest only
securities) receive the interest portion of the cash flow while "POs" (principal
only securities) receive the principal portion. Stripped mortgage-backed
securities may be issued by U.S. Government agencies or by private issuers. As
interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates, unlike other mortgage-backed securities (which tend
to move in the opposite direction compared to interest rates). Under the
Internal Revenue Code of 1986, as amended, POs may generate taxable income from
the current accrual of original issue discount, without a corresponding
distribution of cash to the Portfolio.

         The cash flows and yields on standard IO and PO classes are extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets. For example, a rapid or slow rate of
principal payments may have a material adverse effect on the performance and
prices of IOs or POs, respectively. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, an investor may fail to
recoup fully its initial investment in an IO class of a stripped mortgage-backed
security, even if the IO class is rated AAA or Aaa or is derived from a full
faith and credit obligation (i.e., a GNMA). Conversely, if the underlying



                                       13




mortgage assets experience slower than anticipated prepayments of principal, the
price on a PO class will be affected more severely than would be the case with a
traditional mortgage-backed security, but unlike IOs, an investor will
eventually recoup fully its initial investment provided no default of the
guarantor occurs. As an operating policy, the Portfolio will limit its
investments in IOs and POs to 15% of the Portfolio's net assets, and will treat
them as illiquid securities (which, in the aggregate, may not exceed 15% of a
Portfolio's net assets) except to the extent such securities are deemed liquid
by the Portfolio's adviser or sub-adviser in accordance with standards
established by the Fund's Board of Directors. See "Restricted and Illiquid
Securities" below.

ASSET-BACKED AND STRIPPED ASSET-BACKED SECURITIES

         Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities
Portfolio and International Bond Portfolio may invest in asset-backed securities
rated within the four highest grades assigned by Moody's or S&P, or, if not
rated, are of equivalent investment quality as determined by the Portfolio's
investment adviser or sub-adviser. Asset-backed securities usually represent
interests in pools of consumer loans (typically trade, credit card or automobile
receivables). The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such securities, how
well the entity issuing the security is insulated from the credit risk of the
originator or any other affiliated entities, the quality of the servicing of the
receivables, and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities may depend
on the rate of principal payments received on the underlying assets which in
turn may be affected by a variety of economic and other factors. As a result,
the yield on any asset-backed security may be difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity. Some asset-backed transactions are structured with a
"revolving period" during which the principal balance of the asset-backed
security is maintained at a fixed level, followed by a period of rapid
repayment. This structure is intended to insulate holders of the asset-backed
security from prepayment risk to a significant extent. Asset-backed securities
may be classified as pass-through certificates or collateralized obligations.

         Pass-through certificates are asset-backed securities which represent
an undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.

         Asset-backed securities issued in the form of debt instruments, also
known as collateralized obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. The assets collateralizing such asset-backed securities
are pledged to a trustee or custodian for the benefit of the holders thereof.
Such issuers generally hold no assets other than those underlying the
asset-backed securities and any credit support provided. As a result, although
payments on such asset-backed securities are obligations of the issuers, in the
event of defaults on the underlying assets not covered by any credit support,
the issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.



                                       14





         To lessen the effect of failures by obligors on underlying assets to
make payments, such securities may contain elements of credit support. Such
credit support falls into two classes: liquidity protection and protection
against ultimate default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets, to ensure that scheduled payments on the
underlying pool are made in a timely fashion. Protection against ultimate
default ensures ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction or through a combination of such
approaches.

         Bond Portfolio, Asset Allocation Portfolio and Mortgage Securities
Portfolio may also invest in stripped asset-backed securities. Asset-backed
securities may be stripped to create interest-only and principal-only securities
in the same manner as mortgage-backed securities. See "Stripped Mortgage-Backed
Securities," above. The value of asset-backed IOs also tends to move in the same
direction as changes in interest rates, unlike other asset-backed (or
mortgage-backed) securities, which tend to move in the opposite direction
compared to interest rates. As with stripped mortgage-backed securities, the
cash flows and yields on asset-backed IOs and POs are also extremely sensitive
to the rate of principal payments on the related underlying assets. See
"Stripped Mortgage-Backed Securities," above. As an operating policy, each of
these Portfolios will limit its investments in IOs and POs to 15% of the
Portfolio's net assets, and will treat them as illiquid securities (which, in
the aggregate, may not exceed 15% of each Portfolio's net assets) except to the
extent such securities are deemed liquid by the Portfolio's adviser in
accordance with standards established by the Portfolio's Board of Directors. See
"Restricted and Illiquid Securities" below.

DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS

         Mortgage Securities, Bond and Asset Allocation Portfolios may each
invest up to 10% of the value of its net assets directly in mortgages securing
residential or commercial real estate (i.e., the Portfolio becomes the
mortgagee). Such investments are not "mortgage-related securities" as described
above. They are normally available from lending institutions which group
together a number of mortgages for resale (usually from 10 to 50 mortgages) and
which act as servicing agent for the purchaser with respect to, among other
things, the receipt of principal and interest payments. (Such investments are
also referred to as "whole loans".) The vendor of such mortgages receives a fee
from the Portfolio for acting as servicing agent. The vendor does not provide
any insurance or guarantees covering the repayment of principal or interest on
the mortgages. Unlike pass-through securities, whole loans constitute direct
investment in mortgages inasmuch as the Portfolio, rather than a financial
intermediary, becomes the mortgagee with respect to such loans purchased by the
Portfolio. At present, such investments are considered to be illiquid by the
Portfolio's investment adviser or sub-adviser. A Portfolio will invest in such
mortgages only if its investment adviser has determined through an examination
of the mortgage loans and their originators (which may include an examination of
such factors as percentage of family income dedicated to loan service and the
relationship between loan value and market value) that the purchase of the
mortgages should not represent a significant risk of loss to the Portfolio.



                                       15





ZERO COUPON SECURITIES

         The Maturing Government Bond Portfolios may invest in zero coupon
securities. In addition, International Bond Portfolio may invest a lesser
portion of its assets in zero coupon securities. When held to maturity, the
entire return on zero coupon securities, which consists of the amortization of
discount, comes from the difference between their purchase price and their
maturity value. This difference is known at the time of purchase, so persons
holding a portfolio composed entirely of zero coupon securities, with no
expenses until maturity, would know the amount of their investment return at the
time of their initial payment. While these Portfolios will have additional
holdings, including cash, which will affect performance, they will describe an
anticipated yield to maturity from time to time. In order to obtain this return,
Contract owners electing to have payments allocated to a Maturing Government
Bond Portfolio should plan to maintain their investment until the maturity of
that Maturing Government Bond Portfolio.

         While many factors may affect the yield to maturity of each Maturing
Government Bond Portfolio, one such factor which may operate to the detriment of
those Contract owners holding interests in such Portfolios until maturity, is
the ability of other Contract owners to purchase or redeem shares on any
business day.

         Because each Maturing Government Bond Portfolio will be primarily
invested in zero coupon securities, Contract owners whose purchase payments are
invested in shares held to maturity, including those obtained through
reinvestment of dividends and distributions, will experience a return consisting
primarily of the amortization of discount on the underlying securities in the
Maturing Government Bond Portfolio. However, the net asset value of the
Portfolio's shares will increase or decrease with the daily changes in the
market value of that Maturing Government Bond Portfolio's investments which will
tend to vary inversely with changes in prevailing interest rates. If shares of a
Maturing Government Bond Portfolio are redeemed prior to the maturity date of
that Maturing Government Bond Portfolio, a Contract owner may experience a
significantly different investment return than was anticipated at the time of
purchase.

         Zero coupon securities, like other investments in debt securities, are
subject to certain risks, including credit and market risks. Credit risk is the
function of the ability of an issuer of a security to maintain timely interest
payments and to pay the principal of a security upon maturity. Securities
purchased by the Maturing Government Bond Portfolios will be rated at least
single A or better by nationally recognized statistical rating agencies.
Securities rated single A are regarded as having an adequate capacity to pay
principal and interest, but with greater vulnerability to adverse economic
conditions and some speculative characteristics. The Maturing Government Bond
Portfolios will also attempt to minimize the impact of individual credit risks
by diversifying their portfolio investments.

         Market risk is the risk of the price fluctuation of a security due
primarily to market interest rates prevailing generally in the economy. Market
risk may also include elements which take into account the underlying credit
rating of an issuer, the maturity length of a security, a security's yield, and
general economic and interest rate conditions. Zero coupon securities do not
make any periodic payments of interest prior to maturity and the stripping of
the securities causes the zero coupon securities to be offered at a discount
from their face amounts. The market value of the zero coupon securities and,
therefore the net asset value of the shares of the



                                       16




Maturing Government Bond Portfolios, will fluctuate, perhaps markedly, and
changes in interest rates and other factors and may be subject to greater
fluctuations in response to changing interest rates than would a fund of
securities consisting of debt obligations of comparable coupon bearing
maturities. The amount of fluctuation increases with longer maturities.

         Because they do not pay interest, zero coupon securities tend to be
subject to greater fluctuation of market value in response to changes in
interest rates than interest-paying securities of similar maturities. Contract
owners can expect more appreciation of the net asset value of a Maturing
Government Bond Portfolio's shares during periods of declining interest rates
than from interest-paying securities of similar maturity. Conversely, when
interest rates rise, the net asset value of a Maturing Government Bond
Portfolio's shares will normally decline more in price than interest-paying
securities of a similar maturity. Price fluctuations are expected to be greatest
in the longer-maturity Portfolios and are expected to diminish as a Maturing
Government Bond Portfolio approaches its target date. These fluctuations may
make the Maturing Government Bond Portfolios an inappropriate selection as a
basis for variable annuity payments. Interest rates can change suddenly and
unpredictably.

         When held to maturity, the return on zero coupon securities consists
entirely of the difference between the maturity value and the purchase price of
securities held in the Portfolio. While this difference allows investors to
measure initial investment return, it also must be considered in light of
changing economic conditions. Inflationary risk, that is the risk attendant to
holding fixed-rate investments during a period of generally upward changing
price levels in the economy, must be considered in selecting a Maturing
Government Bond Portfolio.

PAY-IN-KIND AND DELAYED INTEREST SECURITIES

         International Bond Portfolio may also invest in pay-in-kind securities
and delayed interest securities. Pay-in-kind securities pay interest through the
issuance to the holders of additional securities. Delayed interest securities
are securities that remain zero coupon securities until a predetermined date at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Because interest on pay-in-kind and delayed interest
securities is not paid on a current basis, the values of securities of this type
are subject to greater fluctuations than the values of securities that
distribute income regularly and they may be more speculative than such
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. In addition, the Portfolio's investments in
pay-in-kind and delayed interest securities will result in special tax
consequences.

FOREIGN SECURITIES

         Growth Portfolio, Small Company Growth Portfolio, Value Stock
Portfolio, Small Company Value Portfolio, Core Equity and Micro-Cap Growth
Portfolio may invest up to 10% and Capital Appreciation Portfolio may invest up
to 20% of the market value of their respective total assets in securities of
foreign issuers which are not publicly traded in the U.S. (Securities of foreign
issuers which are traded in the U.S., usually in the form of sponsored American
Depositary Receipts (ADRs), are not considered foreign securities for this
purpose and are not subject to such 10% or 20% limitations. Such Portfolios may
not, however, invest more than 10% (20% in the case of Capital Appreciation) of
their total assets in ADRs.) Bond Portfolio and Mortgage Securities Portfolio
may each invest up to 10% of its total assets in



                                       17




foreign securities. In addition, International Stock Portfolio and International
Bond Portfolio may invest in such securities without limitation.

         Investing in securities of foreign issuers may result in greater risk
than that incurred in investing in securities of domestic issuers. There is the
possibility of expropriation, nationalization or confiscatory taxation, taxation
of income earned in foreign nations or other taxes imposed with respect to
investments in foreign nations; foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), default in
foreign government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. Further, the Portfolio
may encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. Commission rates in foreign countries, which are
sometimes fixed rather than subject to negotiation as in the U.S., are likely to
be higher. Further, the settlement period of securities transactions in foreign
markets may be longer than in domestic markets. In many foreign countries there
is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S. The
foreign securities markets of many of the countries in which the Portfolio may
invest may also be smaller, less liquid, and subject to greater price volatility
than those in the U.S. Also, some countries may withhold portions of interest,
dividends and gains at the source. The Portfolio may also be unfavorably
affected by fluctuations in the relative rates of exchange between the
currencies of different nations (i.e., when the currency being exchanged has
decreased in value relative to the currency being purchased). There are further
risk considerations, including possible losses through the holding of securities
in domestic and foreign custodial banks and depositories.



         Furthermore, International Stock Portfolio may invest in securities
issued by governments, governmental agencies and companies located in developing
market countries. The Portfolio considers countries having developing markets to
be all countries that are generally considered to be developing or emerging
countries by the International Bank for Reconstruction and Development (more
commonly referred to as the World Bank) and the International Finance
Corporation, as well as countries that are classified by the United Nations or
otherwise regarded by their authorities as developing. Currently, the countries
not included in this category are Ireland, Spain, New Zealand, Australia, the
United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada,
Germany, Denmark, the United States, Sweden, Finland, Norway,



                                       18




Japan and Switzerland. In addition, developing market securities means: (i)
securities of companies the principal securities trading market for which is a
developing market country, as defined above, (ii) securities, traded in any
market, of companies that derive 50% or more of their total revenue from either
goods or services produced in such developing market countries or sales made in
such developing market countries or (iii) securities of companies organized
under the laws of, and with a principal office in, a developing market country.
International Stock Portfolio will at all times, except during temporary
defensive periods, maintain investments in at least three countries having
developing markets.

         An American Depositary Receipt ("ADR") is a negotiable certificate,
usually issued by a U.S. bank, representing ownership of a specific number of
shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in
the U.S. securities market. An ADR is sponsored if the original issuing company
has selected a single U.S. bank to serve as its U.S. depositary and transfer
agent. This relationship requires a deposit agreement which defines the rights
and duties of both the issuer and depositary. Companies that sponsor ADRs must
also provide their ADR investors with English translations of company
information made public in their own domiciled country. Sponsored ADR investors
also generally have the same voting rights as ordinary shareholders, barring any
unusual circumstances. ADRs which meet these requirements can be listed on U.S.
stock exchanges. Unsponsored ADRs are created at the initiative of a broker or
bank reacting to demand for a specific foreign stock. The broker or bank
purchases the underlying shares and deposits them in a depositary. Unsponsored
shares issued after 1983 are not eligible for U.S. stock exchange listings.
Furthermore, they do not generally include voting rights.

         In addition, International Stock Portfolio, International Bond
Portfolio, Core Equity Portfolio, Asset Allocation Portfolio, Capital
Appreciation Portfolio, Growth Portfolio and Value Stock Portfolio may invest in
European Depositary Receipts, which are receipts evidencing an arrangement with
a European bank similar to that for ADRs and which are designed for use in the
European securities markets. Furthermore, International Bond Portfolio may
invest in Global Depositary Receipts, which are receipts evidencing an
arrangement with a foreign bank similar to that for ADRs and which are designed
for use in European and other foreign securities markets. European Depositary
Receipts and Global Depositary Receipts are not necessarily denominated in the
currency of the underlying security.

FOREIGN INDEX LINKED SECURITIES

         International Bond Portfolio may invest up to 10% of its total assets
in instruments that return principal and/or pay interest to investors in amounts
which are linked to the level of a particular foreign index ("Foreign Index
Linked Securities"). A foreign index may be based upon the exchange rate of a
particular currency or currencies or the differential between two currencies, or
the level of interest rates in a particular country or countries or the
differential in interest rates between particular countries. In the case of
Foreign Index Linked Securities linking the principal amount to a foreign index,
the amount of principal payable by the issuer at maturity will increase or
decrease in response to changes in the level of the foreign index during the
term of the Foreign Index Linked Securities. In the case of Foreign Index Linked
Securities linking the interest component to a foreign index, the amount of
interest payable will adjust periodically in response to changes in the level of
the foreign index during the term of the Foreign Index Linked Security. Foreign
Index Linked Securities may be issued by a U.S. or foreign governmental agency
or instrumentality or by a private domestic or foreign issuer. Only Foreign
Index Linked Securities


                                       19




issued by foreign governmental agencies or instrumentalities or by foreign
issuers will be considered foreign securities for purposes of the Portfolio's
investment policies and restrictions.

         Foreign Index Linked Securities may offer higher yields than comparable
securities linked to purely domestic indexes but also may be more volatile.
Foreign Index Linked Securities are relatively recent innovations for which the
market has not yet been fully developed and, accordingly, they typically are
less liquid than comparable securities linked to purely domestic indexes. In
addition, the value of Foreign Index Linked Securities will be affected by
fluctuations in foreign exchange rates or in foreign interest rates. If the
Portfolio's investment sub-adviser is incorrect in its prediction as to the
movements in the direction of particular foreign currencies or foreign interest
rates, the return realized by the Portfolio on Foreign Index Linked Securities
may be lower than if the Portfolio had invested in a similarly rated domestic
security.

SWAP AGREEMENTS

         International Bond Portfolio may enter into interest rate and index
swap agreements for purposes of attempting to obtain a particular desired return
at a lower cost to the Portfolio than if the Portfolio had invested directly in
an instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate or in a
"basket" of securities representing a particular index. Commonly used swap
agreements include interest rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap;" interest rate floors, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor;" and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.

         The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Portfolio would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Portfolio's obligations (or rights) under a swap agreement
will generally be equal to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Portfolio's obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Portfolio)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities to avoid any potential leveraging of the Portfolio's securities. The
Portfolio will not enter into a swap agreement with any single party if the net
amount owed or to be received under existing contracts with that party would
exceed 5% of the Portfolio's assets.

         Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective will depend on the Portfolio's investment
sub-adviser's ability to predict correctly whether certain types of investments
are likely to produce greater returns than other



                                       20




investments. Because they are two-party contracts and because they may have
terms of greater than seven days, swap agreements may be considered to be
illiquid. Moreover, the Portfolio bears the risk of loss of the amount expected
to be received under a swap agreement in the event of the default or bankruptcy
of a swap agreement counterparty. The Portfolio's investment sub-adviser will
cause the Portfolio to enter into swap agreements only with counterparties that
would be eligible for consideration as repurchase agreement counterparties under
the Fund's repurchase agreement guidelines. Certain restrictions imposed on the
Portfolio by the Internal Revenue Code may limit the Portfolio's ability to use
swap agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a portfolio's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.

CURRENCY EXCHANGE TRANSACTIONS

         Spot Exchange Transactions. International Stock Portfolio and
International Bond Portfolio usually effect currency exchange transactions on a
spot (i.e. cash) basis at the spot rate prevailing in the foreign exchange
market. However, some price spread on currency exchange will be incurred when
the Portfolio converts assets from one currency to another. Further, the
Portfolio may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations. For
example, in order to realize the value of a foreign investment, the Portfolio
must convert that value, as denominated in its foreign currency, into U.S.
dollars using the applicable currency exchange rate. The exchange rate
represents the current price of a U.S. dollar relative to that foreign currency;
that is, the amount of such foreign currency required to buy one U.S. dollar. If
the Portfolio holds a foreign security which has appreciated in value as
measured in the foreign currency, the level of appreciation actually realized by
the Portfolio may be reduced or even eliminated if the foreign currency has
decreased in value relative to the U.S. dollar subsequent to the date of
purchase. In such a circumstance, the cost of a U.S. dollar purchased with that
foreign currency has gone up and the same amount of foreign currency purchases
fewer dollars than at an earlier date.

         Forward Exchange Contracts. International Stock Portfolio and
International Bond Portfolio also have the authority to deal in forward foreign
currency exchange contracts between currencies of the different countries in
which such Portfolios may invest for speculative purposes. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. Forward
exchange contracts are individually negotiated and privately traded by currency
traders and their customers. These forward foreign currency exchange contracts
may involve the sale of U.S. dollars and the purchase of a foreign currency, or
may be foreign cross-currency contracts involving the sale of one foreign
currency and the purchase of another foreign currency (such foreign
cross-currency contracts may be considered a hedging rather than a speculative
strategy if the Portfolio's commitment to purchase the new (more favorable)
currency is limited to the market value of the Portfolio's securities
denominated in the old (less favorable) currency - see "Foreign Currency Hedging
Transactions," below). Because these transactions are not entered into for
hedging purposes, the Portfolio's custodian bank maintains, in a separate
account of the Portfolio, liquid assets, such as cash, short-term securities and
other liquid securities (marked to the market daily), having a value equal to,
or greater than, any commitments to purchase currency on a forward basis. The
prediction of currency movements is extremely difficult and the successful
execution of a speculative strategy is highly uncertain.



                                       21





FOREIGN CURRENCY HEDGING TRANSACTIONS

         Forward Exchange Contracts. International Stock Portfolio and
International Bond Portfolio have authority to deal in forward foreign currency
exchange contracts between currencies of the different countries in which such
Portfolios will invest as a hedge against possible variations in the foreign
exchange rate between these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Forward exchange contracts are
individually negotiated and privately traded by currency traders and their
customers. The Portfolio's dealings in forward foreign exchange contracts
entered into for the purpose of hedging will be limited to hedging involving
specific transactions, portfolio positions or foreign cross-currency hedging.

         Transaction hedging is the purchase or sale of forward foreign currency
with respect to specific receivables or payables of the Portfolio arising from
the purchase and sale of portfolio securities, the sale and redemption of shares
of the Portfolio, or the payment of dividends and distributions by the
Portfolio. (An example of a transaction hedge is when the Portfolio enters into
a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the price of the security in a particular
currency.) Position hedging is the sale of forward foreign exchange contracts
into U.S. dollars with respect to portfolio security positions denominated or
quoted in such foreign currency. (An example of a position hedge is if the
Portfolio's sub-adviser believes that a foreign currency -- for example the
Japanese yen -- may suffer a decline against another currency -- for example the
U.S. dollar -- it may enter into a forward sale contract to sell an amount of
the foreign currency expected to decline -- the Japanese yen -- that
approximates the value of some or all of the Portfolio's investment securities
denominated in the Japanese yen.) Foreign cross-currency hedging occurs when the
Portfolio's investment sub-adviser believes a particular foreign currency may
enjoy a substantial movement against another foreign currency and the
sub-adviser decides to enter into a forward contract to sell the less favorable
foreign currency in which certain Portfolio securities are denominated and to
buy the more favorable foreign currency in an amount not to exceed the total
market value of the Portfolio's securities denominated in the less favorable
currency.

         The prediction of short-term currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.

         It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for the Portfolio to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Portfolio is
obligated to deliver.

         If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If the Portfolio
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during


                                       22




the period between the Portfolio entering into a forward contract for the sale
of a foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.

         Currency Futures Contracts. International Stock Portfolio and
International Bond Portfolio may also enter into exchange-traded contracts for
the purchase or sale for future delivery of foreign currencies ("foreign
currency futures"). This investment technique will be used only to hedge against
anticipated future changes in exchange rates which otherwise might adversely
affect the value of the Portfolio's securities or adversely affect the prices of
securities that the Portfolio intends to purchase at a later date. The
successful use of foreign currency futures will usually depend on the ability of
the Portfolio's investment sub-adviser to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of foreign currency futures or may
realize losses.

CLOSED-END INVESTMENT COMPANIES

         Some countries, such as South Korea, Chile and India, have authorized
the formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. In accordance with the Investment Company
Act of 1940, International Stock Portfolio may invest up to 10% of its total
assets in securities of closed-end investment companies. This restriction on
investments in securities of closed-end investment companies may limit
opportunities for the International Stock Portfolio to invest indirectly in
certain developing markets. Shares of certain closed-end investment companies
may at times be acquired only at market prices representing premiums to their
net asset values. If the International Stock Portfolio acquires shares of
closed-end investment companies, shareholders would bear both their
proportionate share of expenses of the International Stock Portfolio (including
management and advisory fees) and, indirectly, the expenses of such closed-end
investment companies.

LOANS OF PORTFOLIO SECURITIES

         For the purpose of realizing additional income, to the extent specified
in the Prospectus, certain Portfolios may make secured loans of Portfolio
securities amounting to not more than one-third of their respective total assets
(which, for purposes of this limitation, will include the value of collateral
received in return for securities loaned). Collateral received in connection
with securities lending shall not be considered Portfolio assets, however, for
purposes of compliance with any requirement described in the Fund's prospectus
that a Portfolio invest a specified minimum percentage of its assets in certain
types of securities (e.g., securities of small companies). Securities loans are
made to broker-dealers or financial institutions pursuant to agreements
requiring that the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent. The collateral received will
consist of cash, letters of credit or securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. While the securities are
being lent, the Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as interest
on the investment of the collateral or a fee from the borrower. Although the
Portfolio does not expect to pay commissions or other front-end fees (including
finders fees) in connection with


                                       23




loans of securities (but in some cases may do so), a portion of the additional
income realized will be shared with the Portfolio's custodian for arranging and
administering such loans. The Portfolio has a right to call each loan and obtain
the securities on five business days' notice. The Portfolio will not have the
right to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by the Portfolio's investment adviser or
sub-adviser, as the case may be, to be of good standing and to have sufficient
financial responsibility, and will not be made unless, in the judgment of the
Portfolio's investment adviser or sub-adviser, the consideration to be earned
from such loans would justify the risk. The creditworthiness of entities to
which the Portfolio makes loans of portfolio securities is monitored by the
Portfolio's investment adviser or sub-adviser throughout the term of each loan.

         Deutsche Bank AG acts as the securities lending agent on behalf of the
International Stock and International Bond Portfolios. It has obtained an SEC
exemptive order through its affiliate, Bankers Trust Company, which allows
securities lending cash collateral to be invested in a single money market fund
(affiliated with Deutsche Bank and Bankers Trust Company) in amounts which are
not subject to the limits of sections 12(d)(1)(A) and 12(d)(1)(B) of the
Investment Company Act of 1940. The effect of this is that up to one-third of
the total assets of the International Stock and International Bond Portfolios
can be invested in such a money market fund in connection with the securities
lending program.

RESTRICTED AND ILLIQUID SECURITIES

         Each Portfolio may invest up to 15% (10% in the case of Money Market
Portfolio) of its respective net assets in securities restricted as to
disposition under the federal securities laws or otherwise, or other illiquid
assets. An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the investment company is valuing the
investment. "Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid by the staff of the Securities and Exchange Commission (the "SEC"),
since such securities may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. Because of such restrictions, the
Portfolio may not be able to dispose of a block of restricted securities for a
substantial period of time or at prices as favorable as those prevailing in the
open market should like securities of an unrestricted class of the same issuer
be freely traded. The Portfolio may be required to bear the expenses of
registration of such restricted securities.

         The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to certain
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act).
Additionally, the Portfolio's investment adviser and sub-adviser, as the case
may be, believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act and
for certain interest-only and principal-only classes of mortgage-backed and
asset-backed securities. Each Portfolio may invest without limitation in these
forms of restricted securities if such securities are deemed by the Portfolio's
investment adviser or sub-adviser to be liquid in accordance with standards
established by the Fund's Board of Directors. Under these guidelines, the
Portfolio's


                                       24




investment adviser or sub-adviser must consider: (a) the frequency of trades and
quotes for the security, (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). At the present time, it is not possible to predict with accuracy how
the markets for certain restricted securities will develop. Investing in such
restricted securities could have the effect of increasing the level of the
Portfolio's illiquidity to the extent that qualified purchasers of the
securities become, for a time, uninterested in purchasing these securities.

         If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Portfolio is in a position where
more than 15% (10% in the case of Money Market Portfolio) of its net assets are
invested in restricted and other illiquid securities, the Portfolio will take
appropriate steps to protect liquidity.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

         Bond Portfolio, Asset Allocation Portfolio, Mortgage Securities
Portfolio, International Stock Portfolio, International Bond Portfolio, Core
Equity Portfolio and Real Estate Securities Portfolio may each purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When such transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities takes place at a
later date. Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be negotiated. During
the period between a commitment to purchase by the Portfolio and settlement, no
payment is made for the securities purchased by the Portfolio and, thus, no
interest accrues to the Portfolio from the transaction.

         The use of when-issued transactions and forward commitments enables the
Portfolio to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Portfolio
might sell securities in its portfolio on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest rates and rising
prices, the Portfolio might sell a security in its portfolio and purchase the
same or a similar security on a when-issued or forward commitment basis, thereby
fixing the purchase price to be paid on the settlement date at an amount below
that to which the Portfolio anticipates the market price of such security to
rise and, in the meantime, obtaining the benefit of investing the proceeds of
the sale of its portfolio security at currently higher cash yields. Of course,
the success of this strategy depends upon the ability of the Portfolio's
investment adviser or sub-adviser to correctly anticipate increases and
decreases in interest rates and prices of securities. If the Portfolio's
investment adviser or sub-adviser anticipates a rise in interest rates and a
decline in prices and, accordingly, the Portfolio sells securities on a forward
commitment basis in order to hedge against falling prices, but in fact interest
rates decline and prices rise, the Portfolio will have lost the opportunity to
profit from the price increase. If the investment adviser or sub-adviser
anticipates a decline in interest rates and a rise in prices, and, accordingly,
the Portfolio sells a security in its portfolio and purchases the same or a
similar security on a when-issued or forward commitment basis in order to enjoy
currently high cash yields, but in fact interest rates increase and prices fall,
the Portfolio will have lost the opportunity to profit from investment of the
proceeds of the sale of the security at the increased interest rates. The likely
effect of this


                                       25




hedging strategy, whether the Portfolio's investment adviser or sub-adviser is
correct or incorrect in its prediction of interest rate and price movements, is
to reduce the chances of large capital gains or losses and thereby reduce the
likelihood of wide variations in the Portfolio's net asset value.

         When-issued securities and forward commitments may be sold prior to the
settlement date, but, except for mortgage dollar roll transactions (as discussed
below), the Portfolio enters into when-issued and forward commitments only with
the intention of actually receiving or delivering the securities, as the case
may be. The Portfolio may hold a when-issued security or forward commitment
until the settlement date, even if the Portfolio will incur a loss upon
settlement. To facilitate transactions in when-issued securities and forward
commitments, the Portfolio's custodian bank maintains, in a separate account of
the Portfolio, liquid assets, such as cash, short-term securities and other
liquid securities (marked to the market daily), having a value equal to, or
greater than, any commitments to purchase securities on a when-issued or forward
commitment basis and, with respect to forward commitments to sell portfolio
securities of the Portfolio, the portfolio securities themselves. If the
Portfolio, however, chooses to dispose of the right to acquire a when-issued
security prior to its acquisition or dispose of its right to deliver or receive
against a forward commitment, it can incur a gain or loss. (At the time the
Portfolio makes the commitment to purchase or sell a security on a when-issued
or forward commitment basis, it records the transaction and reflects the value
of the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value.)

         The Portfolio may also enter into such transactions to generate
incremental income. In some instances, the third-party seller of when-issued or
forward commitment securities may determine prior to the settlement date that it
will be unable or unwilling to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, the Portfolio
may, in that event, agree to resell its purchase commitment to the third-party
seller at the current market price on the date of sale and concurrently enter
into another purchase commitment for such securities at a later date. As an
inducement for the Portfolio to "roll over" its purchase commitment, the
Portfolio may receive a negotiated fee. These transactions, referred to as
"mortgage dollar rolls," are entered into without the intention of actually
acquiring securities. For a description of mortgage dollar rolls and the
Portfolios that may invest in such transactions, see "Mortgage Dollar Rolls"
below.

         The purchase of securities on a when-issued or forward commitment basis
exposes the Portfolio to risk because the securities may decrease in value prior
to their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. The Portfolio's purchase of securities on a when-issued or forward
commitment basis while remaining substantially fully invested increases the
amount of the Portfolio's assets that are subject to market risk to an amount
that is greater than the Portfolio's net asset value, which could result in
increased volatility of the price of the Portfolio's shares. No more than 30% of
the value of such Portfolio's (other than Core Equity Portfolio's) total assets
will be committed to when-issued or forward commitment transactions, and of such
30%, no more than two-thirds (i.e., 20% of its total assets) may be invested in
mortgage dollar rolls. No more than 15% of the value of Core Equity Portfolio's
total assets will be committed to when-issued or forward commitment
transactions.


                                       26





MORTGAGE DOLLAR ROLLS

         In connection with its ability to purchase securities on a when-issued
or forward commitment basis, Bond Portfolio, Asset Allocation Portfolio,
Mortgage Securities Portfolio and International Bond Portfolio may enter into
mortgage "dollar rolls" in which the Portfolio sells securities for delivery in
the current month and simultaneously contracts with the same counterparty to
repurchase similar (same type, coupon and maturity) but not identical securities
on a specified future date. In a mortgage dollar roll, the Portfolio gives up
the right to receive principal and interest paid on the securities sold.
However, the Portfolio would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase plus any fee income received. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of the
Portfolio compared with what such performance would have been without the use of
mortgage dollar rolls. The Portfolio will hold and maintain in a segregated
account until the settlement date cash or liquid securities in an amount equal
to the forward purchase price. The benefits derived from the use of mortgage
dollar rolls may depend upon the ability of the Portfolio's investment adviser
or sub-adviser, as the case may be, to predict correctly mortgage prepayments
and interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. In addition, the use of mortgage dollar rolls by the
Portfolio while remaining substantially fully invested increases the amount of
the Portfolio's assets that are subject to market risk to an amount that is
greater than the Portfolio's net asset value, which could result in increased
volatility of the price of the Portfolio's shares.

         For financial reporting and tax purposes, mortgage dollar rolls are
considered as two separate transactions: one involving the sale of a security
and a separate transaction involving a purchase. The Portfolios do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
"financing" rather than as a separate sale and purchase transactions.

REAL ESTATE INVESTMENT TRUST SECURITIES

         The Real Estate Securities, Growth, Asset Allocation and Value Stock
Portfolios may invest in real estate investment trust securities ("REIT"). A
REIT is a corporation or a business trust that would otherwise be taxed as a
corporation, which meets certain requirements of the Internal Revenue Code of
1986, as amended the "Code"). The Code permits a qualifying REIT to deduct
dividends paid, thereby effectively eliminating corporate level federal income
tax and making the REIT a pass-through vehicle for federal income tax purposes.
In order to qualify as a REIT, a company must derive at least 75% of its gross
income from real estate sources (rents, mortgage interest, and gains from sale
of real estate assets), 75% of its assets must be in real estate, mortgages or
REIT stock, and must distribute to shareholder annually 95% or more of its
otherwise taxable income.

         REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITS. An equity REIT invests primarily in the fee ownership or
leasehold ownership of land and buildings and derives its income primarily from
rental income. A mortgage REIT invests primarily in mortgages on real estate,
and derives primarily from interest payments received on credit it has granted.
A hybrid REIT combines the characteristics of equity REITs


                                       27




and mortgage REITs. It is anticipated, although not required, that under normal
circumstances, a majority of the Portfolio's investments in REITS will consist
of equity REITs.

REPURCHASE AGREEMENTS

         Growth Portfolio, Bond Portfolio, Mortgage Securities Portfolio, Asset
Allocation Portfolio, Index 500 Portfolio, Capital Appreciation Portfolio,
International Stock Portfolio, Small Company Growth Portfolio, the Maturing
Government Bond Portfolios, Value Stock Portfolio, Small Company Value
Portfolio, International Bond Portfolio, Index 400 Mid-Cap Portfolio, Core
Equity Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities
Portfolio may enter into repurchase agreements. Repurchase agreements are
agreements by which the Portfolio purchases a security and obtains a
simultaneous commitment from the seller (a member bank of the Federal Reserve
System or, if permitted by law or regulation and if the Board of Directors of
the Portfolio has evaluated its creditworthiness through adoption of standards
of review or otherwise, a securities dealer) to repurchase the security at an
agreed upon price and date. The creditworthiness of entities with whom the
Portfolio enters into repurchase agreements is monitored by the Portfolio's
investment adviser or sub-adviser throughout the term of the repurchase
agreement. The resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the purchased security.
Such transactions afford the Portfolio the opportunity to earn a return on
temporarily available cash. The Portfolio's custodian, or a duly appointed
subcustodian, holds the securities underlying any repurchase agreement in a
segregated account or such securities may be part of the Federal Reserve Book
Entry System. The market value of the collateral underlying the repurchase
agreement is determined on each business day. If at any time the market value of
the collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the Portfolio promptly receives additional
collateral, so that the total collateral is in an amount at least equal to the
repurchase price plus accrued interest. While the underlying security may be a
bill, certificate of indebtedness, note or bond issued by an agency, authority
or instrumentality of the United States Government, the obligation of the seller
is not guaranteed by the United States Government. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Portfolio could
experience both delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying security during
the period while the Portfolio seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights.

REVERSE REPURCHASE AGREEMENTS

         Money Market Portfolio, Asset Allocation Portfolio and International
Bond Portfolio may also enter into reverse repurchase agreements. Reverse
repurchase agreements are the counterparts of repurchase agreements, by which
the Portfolio sells a security and agrees to repurchase the security from the
buyer at an agreed upon price and future date. Because certain of the incidents
of ownership of the security are retained by the Portfolio, reverse repurchase
agreements may be considered a form of borrowing by the Portfolio from the
buyer, collateralized by the security. The Portfolio uses the proceeds of a
reverse repurchase agreement to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreement. The Portfolio utilizes
reverse repurchase agreements when the interest income to be earned from
investment of the proceeds of the reverse repurchase transaction exceeds the
interest expense of the transaction.


                                       28



         The use of reverse repurchase agreements by the Portfolio allows it to
leverage its portfolio. While leveraging offers the potential for increased
yield, it magnifies the risks associated with the Portfolio's investments and
reduces the stability of the Portfolio's net asset value per share. To limit
this risk, the Portfolio will not enter into a reverse repurchase agreement if
all such transactions, together with any money borrowed, exceed 5% of the
Portfolio's net assets. In addition, when entering into reverse repurchase
agreements, the Portfolio will deposit and maintain in a segregated account with
its custodian liquid assets, such as cash or cash equivalents and other
appropriate short-term securities and high grade debt obligations, in an amount
equal to the repurchase price (which shall include the interest expense of the
transaction). Moreover, Money Market Portfolio will not enter into reverse
repurchase agreements if and to the extent such transactions would, as
determined by the Portfolio's investment adviser, materially increase the risk
of a significant deviation in the Portfolio's net asset value per share. See
"Net Asset Value" below.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

         FUTURES CONTRACTS. Consistent with their investment objectives and
strategies, the Portfolios may enter into interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts. (Unless
otherwise specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively referred to as
"futures contracts.")

         A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and the seller in
cash. Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.

         Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate
futures contracts include contracts on indexes of municipal securities. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits.

         Stock index futures contracts include contracts on the S&P 500 Index
and other broad-based stock market indexes, as well as contracts based on
narrower market indexes or indexes of securities of particular industry groups.
A stock index assigns relative values to the common stocks included in the index
and the index fluctuates with the value of the common stocks so included. The
parties to a stock index futures contract agree to make a cash settlement on a


                                       29




specific future date in an amount determined by the value of the stock index on
the last trading day of the contract. The amount is a specified dollar amount
times the difference between the value of the index on the last trading day and
the value on the day the contract was struck.

         Purchases or sales of stock index futures contracts are used to attempt
to protect current or intended stock investments from broad fluctuations in
stock prices. Interest rate and foreign currency futures contracts are purchased
or sold to attempt to hedge against the effects of interest or exchange rate
changes on a Portfolio's current or intended investments in fixed income or
foreign securities. In the event that an anticipated decrease in the value of a
Portfolio's securities occurs as a result of a general stock market decline, a
general increase in interest rates, or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects of
such changes may be offset, in whole or in part, by gains on the sale of futures
contracts. Conversely, the increased cost of a Portfolio's securities to be
acquired, caused by a general rise in the stock market, a general decline in
interest rates, or a rise in the dollar value of foreign currencies, may be
offset, in whole or in part, by gains on futures contracts purchased by such
Portfolio.

         Although many futures contracts by their terms call for actual delivery
or acceptance of the financial instrument, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out a short position is effected by purchasing a futures contract for
the same aggregate amount of the specific type of financial instrument and the
same delivery month. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the trader realizes a loss. Similarly, the
closing out of a long position is effected by the purchaser entering into a
futures contract sale. If the offsetting sale price exceeds the purchase price,
the purchaser realizes a gain and, if the purchase price exceeds the offsetting
sale price, the purchaser realizes a loss.

         The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received. Instead, an
amount of cash or cash equivalents, which varies but may be as low as 5% or less
of the value of the contract, must be deposited with the broker as "initial
margin." Subsequent payments to and from the broker, referred to as "variation
margin," are made on a daily basis as the value of the index or instrument
underlying the futures contract fluctuates, making positions in the futures
contracts more or less valuable, a process known as "marking to the market."

         U.S. futures contracts may be purchased or sold only on an exchange,
known as a "contract market," designated by the Commodity Futures Trading
Commission ("CFTC") for the trading of such contract, and only through a
registered futures commission merchant which is a member of such contract
market. A commission must be paid on each completed purchase and sale
transaction. The contract market clearing house guarantees the performance of
each party to a futures contract by in effect taking the opposite side of such
contract. At any time prior to the expiration of a futures contract, a trader
may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin is made and
any loss experienced by the trader is required to be paid to the contract market
clearing house while any profit due to the trader must be delivered to it.
Futures contracts may also be traded on foreign exchanges.


                                       30





         OPTIONS ON FUTURES CONTRACTS. The Portfolios also may purchase and sell
put and call options on futures contracts and enter into closing transactions
with respect to such options to terminate existing positions. The Portfolios may
use such options on futures contracts in connection with their hedging
strategies in lieu of purchasing and writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts.

         An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option by
the holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of variation margin
deposits. In addition, the writer of an option on a futures contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.

         A position in an option on a futures contract may be terminated by the
purchaser or the seller prior to expiration by affecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.

         Options on futures contracts that are written or purchased by the
Portfolios on United States exchanges are traded on the same contract market as
the underlying futures contract and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, options on futures contracts may be traded on foreign
exchanges.

         RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of
futures contracts and options on futures contracts will expose the Portfolios to
additional investment risks and transactions costs. Risks include:

     o    the risk that interest rates, securities prices or currency markets
          will not move in the direction that the Portfolio's investment adviser
          or sub-adviser anticipates;

     o    an imperfect correlation between the price of the instrument and
          movements in the prices of any securities or currencies being hedged;

     o    the possible absence of a liquid secondary market for any particular
          instrument and possible exchange imposed price fluctuation limits;

     o    leverage risk, which is the risk that adverse price movements in an
          instrument can result in a loss substantially greater than a
          Portfolio's initial investment in that instrument; and



                                       31





     o    the risk that the counterparty to an instrument will fail to perform
          its obligations.

         REGULATORY MATTERS. To the extent required to comply with applicable
Securities and Exchange Commission releases and staff positions, when entering
into futures contracts each Portfolio will maintain, in a segregated account,
cash or liquid securities equal to the value of such contracts.

         The CFTC, a federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended. The CFTC requires the
registration of "commodity pool operators," defined as any person engaged in a
business which is of the nature of a company, syndicate or a similar form of
enterprise, and who, in connection therewith, solicits, accepts or receives from
others, funds, securities or property for the purpose of trading in any
commodity for future delivery on or subject to the rules of any contract market.
The CFTC has adopted Rule 4.5, which provides an exclusion from the definition
of commodity pool operator for any registered investment company which meets the
requirements of the Rule. Rule 4.5 requires, among other things, that an
investment company wishing to avoid commodity pool operator status use futures
and options positions only (a) for "bona fide hedging purposes" (as defined in
CFTC regulations) or (b) for other purposes so long as aggregate initial margins
and premiums required in connection with non-hedging positions do not exceed 5%
of the liquidation value of the investment company's portfolio. Any investment
company wishing to claim the exclusion provided in Rule 4.5 must file a notice
of eligibility with both the CFTC and the National Futures Association. Before
engaging in transactions involving interest rate futures contracts, the Fund
will file such notices and meet the requirements of Rule 4.5, or such other
requirements as the CFTC or its staff may from time to time issue, in order to
render registration as a commodity pool operator unnecessary.

         For examples of futures contracts and their tax treatment, see Appendix
C to this Statement of Additional Information.

OPTIONS

         To the extent permitted in the Prospectus, each Portfolio may write
(i.e., sell) covered call and secured put options and purchase and sell put and
call options written by others. Each Portfolio will limit the total market value
of securities against which it may write call or put options to 20% of its total
assets. In addition, no Portfolio will commit more than 5% of its total assets
to premiums when purchasing put or call options.

         A put option gives the purchaser the right to sell a security or other
instrument to the writer of the option at a stated price during the term of the
option. A call option gives the purchaser the right to purchase a security or
other instrument from the writer of the option at a stated price during the term
of the option. Thus, if a Portfolio writes a call option on a security, it
becomes obligated during the term of the option to deliver the security
underlying the option upon payment of the exercise price. If a Portfolio writes
a put option, it becomes obligated during the term of the option to purchase the
security underlying the option at the exercise price if the option is exercised.


                                       32




         Portfolios may use put and call options for a variety of purposes. For
example, if a portfolio manager wishes to hedge a security a Portfolio owns
against a decline in price, the manager may purchase a put option on the
underlying security; i.e., purchase the right to sell the security to a third
party at a stated price. If the underlying security then declines in price, the
manager can exercise the put option, thus limiting the amount of loss resulting
from the decline in price. Similarly, if the manager intends to purchase a
security at some date in the future, the manager may purchase a call option on
the security today in order to hedge against an increase in its price before the
intended purchase date. Put and call options also can be used for speculative
purposes. For example, if a portfolio manager believes that the price of stocks
generally is going to rise, the manager may purchase a call option on a stock
index, the components of which are unrelated to the stocks held or intended to
be purchased. Finally, a portfolio manager may write options on securities owned
in order to realize additional income. Portfolios receive premiums from writing
call or put options, which they retain whether or not the options are exercised.

         By writing a call option, a Portfolio might lose the potential for gain
on the underlying security while the option is open, and by writing a put option
a Portfolio might become obligated to purchase the underlying security for more
than its current market price upon exercise. If a Portfolio purchases a put or
call option, any loss to the Portfolio is limited to the premium paid for, and
transaction costs paid in connection with, the option.

         OPTIONS ON SECURITIES. An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the case of
a "call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a nonrefundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered." A call option written by a Portfolio is "covered" if
the Portfolio owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds a call on the
same security and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash and liquid
securities in a segregated account with its custodian. A put option written by a
Portfolio is "covered" if the Portfolio maintains cash and liquid securities
with a value equal to the exercise price in a segregated account with its
custodian, or else holds a put on the same security and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.

         Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise


                                       33




or expiration by entering into an offsetting transaction on the exchange on
which the initial position was established, subject to the availability of a
liquid secondary market.

         Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.

         In addition, options on securities and options on indexes of securities
may be traded on exchanges located outside the United States and
over-the-counter through financial institutions dealing in such options as well
as the underlying instruments. While exchange-traded options have a continuous
liquid market, over-the-counter options may not.

         OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an
option on a stock index provides the holder with the right to make or receive a
cash settlement upon exercise of the option, rather than the right to purchase
or sell a security. The amount of this settlement is equal to (a) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
call) or is below (in the case of a put) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier." The
purchaser of the option receives this cash settlement amount if the closing
level of the stock index on the day of exercise is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount if the option is exercised. As in the case of
options on securities, the writer or holder may liquidate positions in stock
index options prior to exercise or expiration by entering into closing
transactions on the exchange on which such positions were established, subject
to the availability of a liquid secondary market.

         A Portfolio will cover all options on stock indexes by owning
securities whose price changes, in the opinion of the Portfolio's adviser or
sub-adviser, are expected to be similar to those of the index, or in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, where a
Portfolio covers a call option on a stock index through ownership of securities,
such securities may not match the composition of the index. In that event, the
Portfolio will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. The Portfolios will secure
put options on stock indexes by segregating assets equal to the option's
exercise price, or in such other manner as may be in accordance with the rules
of the exchange on which the option is traded and applicable laws and
regulations.

         The index underlying a stock option index may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based upon narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included.


                                       34





WARRANTS

         Growth Portfolio, Asset Allocation Portfolio, Bond Portfolio, Capital
Appreciation Portfolio, International Stock Portfolio, Small Company Growth
Portfolio, Value Stock Portfolio, Small Company Value Portfolio, International
Bond Portfolio, Core Equity Portfolio, Micro-Cap Growth Portfolio and Real
Estate Securities Portfolio may invest in warrants. Warrants are instruments
that allow investors to purchase underlying shares at a specified price
(exercise price) at a given future date. The market price of a warrant is
determined by market participants by the addition of two distinct components:
(1) the price of the underlying shares less the warrant's exercise price, and
(2) the warrant's premium that is attributed to volatility and leveraging power.
Warrants are pure speculation in that they have no voting rights, pay no
dividends and have no rights with respect to the assets of the corporation
issuing them. The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.

         It is not expected that Bond Fund or International Bond Portfolio will
invest in common stocks or equity securities other than warrants, but it may
retain for reasonable periods of time up to 5% of their respective total assets
in common stocks acquired upon conversion of debt securities or preferred stocks
or upon exercise of warrants.

WARRANTS WITH CASH EXTRACTIONS

         International Stock Portfolio may also invest up to 5% of its assets in
warrants used in conjunction with the cash extraction method. If an investor
wishes to replicate an underlying share, the investor can use the warrant with
cash extraction method by purchasing warrants and holding cash. The cash
component would be determined by subtracting the market price of the warrant
from the underlying share price.

         For example, ASSUME one share for company "Alpha" has a current share
price of $40 and issued warrants can be converted one for one share at an
exercise price of $31 exercisable two years from today. Also ASSUME that the
market price of the warrant is $10 ($40 - $31 + $1) because investors are
willing to pay a premium ($1) for previously stated reasons. If an investor
wanted to replicate an underlying share by engaging in a warrant with cash
extraction strategy, the amount of cash the investor would need to hold for
every warrant would be $30 ($40 - $10 = $30). A warrant with cash extraction is,
thus, simply a synthetically created quasi-convertible bond.

         If an underlying share issues no or a low dividend and has an
associated warrant with a market price that is low relative to its share price,
a warrant with cash extraction may provide attractive cash yields and minimize
capital loss risk, provided the underlying share is also considered a worthy
investment. For example, ASSUME Alpha's share is an attractive investment
opportunity and its share pays no dividend. Given the information regarding
Alpha provided above, also ASSUME that short-term cash currently yields 5% per
year and that the investor plans to hold the investment at least two years,
barring significant near-term capital appreciation. If the share price were to
fall below $30, the warrant with cash extraction strategy would yield a lower
loss than the underlying share because an investor cannot lose more than the
purchase cost of the warrant (capital risk minimized). The cash component for
this strategy would yield $3.08 after two years (compound interest). The total
value of the underlying


                                       35




investment would be $43.08 versus $40.00 for the non-yielding underlying share
(attractive yield). Finally, it is important to note that this strategy will not
be pursued if it is not economically more attractive than underlying shares.

INDEX DEPOSITARY RECEIPTS

         Growth Portfolio, Asset Allocation Portfolio, Index 500 Portfolio,
Capital Appreciation Portfolio, Small Company Growth Portfolio, Value Stock
Portfolio, Small Company Value Portfolio, Index 400 Mid-Cap Portfolio, Core
Equity Portfolio and Micro-Cap Growth Portfolio may each invest up to 5% of its
total assets in one or more types of depositary receipts ("DRs") as a means of
tracking the performance of a designated stock index while maintaining
liquidity. The Portfolio may invest in S&P 500 Depositary Receipts ("SPDRs"),
which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts ("MidCap
SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial Diamonds,"
which track the Dow Jones Industrial Average, or in other DRs which track
indexes, provided that such investments are consistent with the Portfolio's
investment objective as determined by the Portfolio's investment adviser or
sub-adviser. Each of these securities represents shares of ownership of a long
term unit investment trust (a type of investment company) that holds all of the
stock included in the relevant underlying index.

         DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded. As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs. In addition,
an asset management fee is charged in connection with the underlying unit
investment trust (which is in addition to the asset management fee paid by the
Portfolio).

         Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the
Portfolio's assets to track the return of a particular stock index. DRs share in
the same market risks as other equity investments.

SHORT SALES AGAINST THE BOX

         Each Portfolio may sell securities "short against the box"; provided
that each Portfolio will not at the time of any short sales aggregate in total
sales price more than 10% of its total assets. Whereas a short sale is the sale
of a security the Portfolio does not own, a short sale is "against the box" if,
at all times during which the short position is open, the Portfolio owns at
least an equal amount of the securities sold short or other securities
convertible into or exchangeable without further consideration for securities of
the same issue as the securities sold short. Short sales against the box are
typically used by sophisticated investors to defer recognition of capital gains
or losses. The Portfolios have no present intention to sell securities short in
this fashion.

INVESTMENTS IN RUSSIA

         International Stock Portfolio may invest in securities of Russian
companies, which involves risks and special considerations not typically
associated with investing in United States securities markets. Since the breakup
of the Soviet Union at the end of 1991, Russia has


                                       36




experienced dramatic political and social change. The political system in Russia
is emerging from a long history of extensive state involvement in economic
affairs. The country is undergoing a rapid transition from a
centrally-controlled command system to a market-oriented, democratic model. The
Portfolio may be affected unfavorably by political or diplomatic developments,
social instability, changes in government policies, taxation and interest rates,
currency repatriation restrictions and other political and economic developments
in the law or regulations in Russia and, in particular, the risks of
expropriation, nationalization and confiscation of assets and changes in
legislation relating to foreign ownership.

         The planned economy of the former Soviet Union was run with
qualitatively different objectives and assumptions from those prevalent in a
market system and Russian businesses do not have any recent history of operating
within a market-oriented economy. In general, relative to companies operating in
Western economies, companies in Russian are characterized by a lack of: (i)
management with experience of operating in a market economy; (ii) modern
technology; and, (iii) a sufficient capital base with which to develop and
expand their operations. It is unclear what will be the future effect on Russian
companies, if any, of Russia's continued attempts to move toward a more
market-oriented economy. Russia's economy has experienced severe economic
recession, if not depression, since 1990 during which time the economy has been
characterized by high rates of inflation, high rates of unemployment, declining
gross domestic product, deficit government spending, and a devaluing currency.
The economic reform program has involved major disruptions and dislocations in
various sectors of the economy, and those problems have been exacerbated by
growing liquidity problems. Further, Russian presently receives significant
financial assistance from a number of countries through various programs. To the
extent these programs are reduced or eliminated in the future, Russian economic
development may be adversely impacted.

         The Russian securities markets are substantially smaller, less liquid
and significantly more volatile than the securities markets in the United
States. In addition, there is little historical data on these securities markets
because they are of recent origin. A substantial proportion of securities
transactions in Russia are privately negotiated outside of stock exchanges and
over-the-counter markets. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Although evolving rapidly, even the largest of Russia's stock exchanges are not
well developed compared to Western stock exchanges. The actual volume of
exchange-based trading in Russia is low and active on-market trading generally
occurs only in the shares of a few private companies. Most secondary market
trading of equity securities occurs through over-the-counter trading facilitated
by a growing number of licensed brokers. Shares are traded on the
over-the-counter market primarily by the management of enterprises, investment
funds, short-term speculators and foreign investors. The securities of Russian
companies are mostly traded over-the-counter and, despite the large number of
stock exchanges, there is still no organized public market for such securities.
This may increase the difficulty of valuing the Portfolio's investments. No
established secondary markets may exist for many of the securities in which the
Portfolio may invest. Reduced secondary market liquidity may have an adverse
effect on market price and the Portfolio's ability to dispose of particular
instruments when necessary to meet its liquidity requirements or in response to
specific economic events such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for securities may also make it more
difficult for the Portfolio to obtain accurate market quotations for purposes of
valuing its portfolio and calculating its net asset value. Market quotations are
generally available on many emerging country securities only from a limited



                                       37




number of dealers and may not necessarily represent firm bids of those dealers
or prices for actual sales.

         Because of the recent formation of the securities markets as well as
the underdeveloped state of the banking and telecommunications systems,
settlement, clearing and registration transactions are subject to significant
risks not normally associated with investments in the United States and other
more developed markets. Ownership of shares (except where shares are held
through depositories that meet the requirements of the 1940 Act) is defined
according to entries in the company's share register and normally evidenced by
extracts from the register or in certain limited cases by formal share
certificates. However, there is not a central registration system and these
services are carried out by the companies themselves or by registrars located
throughout Russia. These registrars are not necessarily subject to effective
state supervision and its possible for the Portfolio to lose its registration
through fraud, negligence and even mere oversight. The laws and regulations in
Russia affecting Western investment business continue to evolve in an
unpredictable manner. Russian laws and regulations, particularly those involving
taxation, foreign investment and trade, title to property or securities, and
transfer of title, applicable to the Portfolio's activities are relatively new
and can change quickly and unpredictably in a manner far more volatile than in
the United States or other developed market economies. Although basic commercial
laws are in place, they are often unclear or contradictory and subject to
varying interpretation, and may at any time be amended, modified, repealed or
replaced in a manner adverse to the interest of the Portfolio. There is still
lacking a cohesive body of law and precedents normally encountered in business
environments. Foreign investment in Russian companies is, in certain cases,
legally restricted. Sometimes these restrictions are contained in constitutional
documents of an enterprise which are not publicly available. Russian foreign
investment legislation currently guarantees the right of foreign investors to
transfer abroad income received on investments such as profits, dividends and
interest payments. This right is subject to settlement of all applicable taxes
and duties. However, more recent legislation governing currency regulation and
control guarantees the right to export interest, dividends and other income on
investments, but does not expressly permit the repatriation of capital from the
realization of investments. Current practice is to recognize the right to
repatriation of capital. Authorities currently do not attempt to restrict
repatriation beyond the extent of the earlier law. No guarantee can be made,
however, that amounts representing realization of capital of income will be
capable of being remitted. If, for any reason, the Portfolio were unable to
distribute an amount equal to substantially all of its investment company
taxable income (as defined for U.S. tax purposes) within applicable time
periods, the Portfolio would not qualify for the favorable U.S. federal income
tax treatment afforded to regulated investment companies, or, even if it did so
qualify, it might become liable for income and excise taxes on undistributed
income.

         Russian courts lack experience in commercial dispute resolution and
many of the procedural remedies for enforcement and protection of legal rights
typically found in Western jurisdictions are not available in Russia. There
remains uncertainty as to the extent to which local parties and entities,
including Russian state authorities, will recognize the contractual and other
rights of the parties with which they deal. Accordingly, there will be
difficulty and uncertainty in the Portfolio's ability to protect and enforce its
rights against Russian state and private entities. There is also no assurance
that the Russian courts will recognize or acknowledge that the Portfolio has
acquired title to any property or securities in which the Portfolio invests, or
that the Portfolio is the owner of any property or security held in the name of
a nominee which has acquired such property or security on behalf of the
Portfolio, because there


                                       38




is at present in Russia no reliable system or legal framework regarding the
registration of titles. There can be no assurance that this difficulty in
protecting and enforcing rights in Russia will not have a material adverse
effect on the Portfolio and its operations. Difficulties are likely to be
encountered enforcing judgments of foreign courts within Russia or of Russian
courts in foreign jurisdictions due to the limited number of countries which
have signed treaties for mutual recognition of court judgments with Russia.

DEFENSIVE PURPOSES

         Each Portfolio may invest up to 20% of its respective net assets in
cash or cash items. In addition, for temporary or defensive purposes, the
Portfolio may invest in cash or cash items without limitation. The "cash items"
in which the Portfolio may invest, include short-term obligations such as rated
commercial paper and variable amount master demand notes; United States
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government or
its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of a Portfolio; securities of other mutual funds which
invest primarily in debt obligations with remaining maturities of 13 months or
less (which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations.


                             INVESTMENT RESTRICTIONS

         The Fund has adopted the following restrictions relating to the
investment of the assets of the Portfolios.

         Each Portfolio is subject to certain "fundamental" investment
restrictions which may not be changed without the affirmative vote of a majority
of the outstanding voting securities of each Portfolio affected by the change.
With respect to the submission of a change in an investment restriction to the
holders of the Fund's outstanding voting securities, such matter shall be deemed
to have been effectively acted upon with respect to a particular Portfolio if a
majority of the outstanding voting securities of such Portfolio vote for the
approval of such matter, notwithstanding (1) that such matter has not been
approved by the holders of a majority of the outstanding voting securities of
any other Portfolio affected by such matter, and (2) that such matter has not
been approved by the vote of a majority of the outstanding voting securities of
the Fund. For this purpose and under the Investment Company Act of 1940, a
majority of the outstanding voting shares of each Portfolio means the lesser of
(i) 67% of the voting shares represented at a meeting which more than 50% of the
outstanding voting shares are represented or (ii) more than 50% of the
outstanding voting shares. An investment restriction which is not fundamental
may be changed by a vote of the Board of Directors without further shareholder
approval. Except as otherwise noted, each of the investment restrictions below
is fundamental.

FUNDAMENTAL RESTRICTIONS

         1.    The Portfolios will not borrow money or issue senior securities
               except as permitted under the Investment Company Act of 1940, as
               amended, and as interpreted or modified from time to time by any
               regulatory authority having jurisdiction.


                                       39




         2.    The Portfolios will not concentrate their investments in a
               particular industry, except that:

               (a)  with respect to Money Market Portfolio, this limitation
                    does not apply to investments in domestic banks;

               (b)  under normal market conditions, Mortgage Securities
                    Portfolio will concentrate its investments in the mortgage
                    and mortgage-finance industry. Mortgage Securities Portfolio
                    will not concentrate its investments in any other particular
                    industry;

               (c)  under normal market conditions, Real Estate Securities
                    Portfolio will concentrate its investments in the real
                    estate or real estate related industry. Real Estate
                    Portfolio will not concentrate its investments in any other
                    particular industry;

               (d)  Index 500 Portfolio may concentrate its investments in a
                    particular industry if the S&P 500 Index is so concentrated;
                    and

               (e)  Index 400 Mid-Cap Portfolio may concentrate its investments
                    in a particular industry if the S&P 400 Mid-Cap Index is so
                    concentrated.

               For purposes of this limitation, the U.S. Government, and state
               or municipal governments and their political subdivisions, are
               not considered members of any industry. Whether a Portfolio is
               concentrating in an industry shall be determined in accordance
               with the Investment Company Act of 1940, as amended, and as
               interpreted or modified from time to time by any regulatory
               authority having jurisdiction.

         3.    The Portfolios will not purchase or sell real estate unless
               acquired as a result of ownership of securities or other
               instruments, but this shall not prevent the Portfolios from
               investing in securities or other instruments backed by real
               estate investments therein or in securities of companies that
               deal in real estate or mortgages.

         4.    The Portfolios will not purchase physical commodities or
               contracts relating to physical commodities.

         5.    The Portfolios may not make loans except as permitted under the
               Investment Company Act of 1940, as amended, and as interpreted or
               modified from time to time by any regulatory authority having
               jurisdiction.

         6.    The Portfolios may not act as an underwriter of securities,
               except to the extent the Fund may be deemed to be an underwriter
               in connection with the disposition of Portfolio securities.

NON-FUNDAMENTAL RESTRICTIONS

The Fund has adopted a number of non-fundamental policies which appear below.


                                       40




         7.    The Portfolios will not acquire any new securities while
               borrowings, including borrowings through reverse repurchase
               agreements, exceed 5% of total assets.

         8.    The Portfolios will use futures contracts and options on futures
               contracts only (a) for "bona fide hedging purposes" (as defined
               in regulations of the Commodity Futures Trading Commission) or
               (b) for other purposes so long as the aggregate initial margins
               and premiums required in connection with non-hedging positions do
               not exceed 5% of the liquidation value of the Portfolio.

         9.    The Portfolios may mortgage, pledge or hypothecate their assets
               only to secure permitted borrowings. Collateral arrangements with
               respect to futures contracts, options thereon and certain options
               transactions are not considered pledges for purposes of this
               limitation.

         10.   The Portfolios may not make short sales of securities, other than
               short sales "against the box."

         11.   The Portfolios may not purchase securities on margin, but it may
               obtain such short-term credits as may be necessary for the
               clearance of securities transactions and it may make margin
               deposits in connection with futures contracts.

         12.   The Portfolios will not invest more than 15% (10% in the case of
               Money Market Portfolio) of their net assets in illiquid
               securities.

         13.   The total market value of securities against which a Portfolio
               may write call or put options will not exceed 20% of the
               Portfolios' total assets. In addition, a Portfolio will not
               commit more than 5% of its total assets to premiums when
               purchasing put or call options.

         If a percentage restriction described above or in the Fund's Prospectus
is adhered to at the time of an investment, a later increase or decrease in the
investment's percentage of the value of a Portfolio's total assets resulting
from a change in such values or assets will not constitute a violation of the
percentage restriction.

ADDITIONAL RESTRICTIONS

         The Money Market Portfolio is subject to the investment restrictions of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"),
in addition to its other policies and restrictions discussed below. Pursuant to
Rule 2a-7, the Fund is required to invest exclusively in securities that mature
within 397 days from the date of purchase and to maintain an average weighted
maturity of not more than 90 days. Rule 2a-7 also requires that all investments
by the Portfolio be limited to United States dollar-denominated investments that
(a) present "minimal credit risk" and (b) are at the time of acquisition
"Eligible Securities." Eligible Securities include, among others, securities
that are rated by two Nationally Recognized Statistical Rating Organizations
("NRSROs") in one of the two highest categories for short-term debt obligations,
such as A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's.


                                       41




         Rule 2a-7 also requires, among other things, that the Money Market
Portfolio may not invest, other than in U.S. "Government Securities" (as defined
in the 1940 Act), (a) more than 5% of its total assets in Second Tier Securities
(i.e., Eligible Securities that are not rated by two NRSROs in the highest
category such as A-1 and Prime-1 and (b) more than the greater of 1% of its
total assets or $1,000,000 in Second Tier Securities of any one issuer. The
present practice is not to purchase any Second Tier Securities.


                               PORTFOLIO TURNOVER

         Portfolio turnover is the ratio of the lesser of annual purchases or
sales of portfolio securities to the average monthly value of portfolio
securities, not including short-term securities. A 100% portfolio turnover rate
would occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.

         Each Portfolio has a different expected annual rate of portfolio
turnover. A high rate of turnover in a Portfolio generally involves
correspondingly greater brokerage commission expenses, which must be borne
directly by the Portfolio. Turnover rates may vary greatly from year to year and
within a particular year and may also be affected by cash requirements for
redemptions of each Portfolio's shares and by requirements which enable the Fund
to receive favorable tax treatment. The portfolio turnover rates associated with
each Portfolio will, of course, be affected by the level of purchases and
redemptions of shares of each Portfolio. However, because rate of portfolio
turnover is not a limiting factor, particular holdings may be sold at any time,
if in the opinion of Advantus Capital or a Portfolio's sub-adviser such a sale
is advisable.

         The Money Market Portfolio, consistent with its investment objective,
will attempt to maximize yield through trading. This may involve selling
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market. Since the
Portfolio's assets will be invested in securities with short maturities and the
Portfolio will manage its assets as described above, the Portfolio's holdings of
money market instruments will turn over several times a year. However, this does
not generally increase the Portfolio's brokerage costs, since brokerage
commissions as such are not usually paid in connection with the purchase or sale
of the instruments in which the Portfolio invests since such securities will be
purchased on a net basis.

         For each of the last three calendar years, the portfolio turnover rates
for the various Portfolios were as follows:


                                       42




                                                   Portfolio Turnover Rate
                                                   -----------------------
       Portfolio                            2002           2001            2000
       ---------                            ----           ----            ----
                                                                  
       Growth                               98.7%          119.9%          119.2%
       Bond                                140.8           197.8           206.8
       Money Market                          N/A             N/A             N/A
       Asset Allocation                    116.5           169.4           139.3
       Mortgage Securities                  82.4            81.9            48.9
       Index 500                             7.8             6.1            12.8
       Capital Appreciation                 43.0            90.3           193.1
       International Stock                  32.7            39.4            46.8
       Small Company Growth                 61.7            97.8           154.3
       Maturing Government Bond --
         2006 Portfolio                      5.9             6.4             3.4
         2010 Portfolio                     19.1            17.3             8.3
       Value Stock                         112.4           132.7           163.1
       Small Company Value                  38.8            22.6           122.0
       International Bond                  304.1           251.7           306.8
       Index 400 Mid-Cap                    20.0            29.8            78.3
       Core Equity                          32.3            52.6            44.5
       Micro-Cap Growth                     67.6            71.2           102.7
       Real Estate Securities               70.2           160.4           143.7



                        DIRECTORS AND EXECUTIVE OFFICERS

         Under Minnesota law, the Board of Directors of the Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund and its Portfolios. Certain of the directors
are considered "interested persons" (as defined in the Investment Company Act of
1940) of the Fund primarily by reason of their engagement as officers of the
Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus
Capital"), or as officers of companies affiliated with Advantus Capital,
including Minnesota Life Insurance Company ("Minnesota Life"). The remaining
directors, because they are not interested persons of the Fund, are considered
independent ("Independent Directors") and are not employees or officers of, and
have no financial interest in, Advantus Capital, Minnesota Life or their other
affiliates. A majority of the Board of Directors is comprised of Independent
Directors.

         The individuals listed in the table below serve as directors and
officers of the Fund, and also serve in the same capacity for each of the other
eleven Advantus Funds (the Advantus Funds are the twelve registered investment
companies, consisting of 29 portfolios, for which Advantus Capital serves as the
investment adviser). Only executive officers and other officers who perform
policy-making functions with the Fund are listed. None of the directors is a
director of any public company (a company required to file reports under the
Securities Exchange Act of


                                       43




1934) or of any registered investment companies other than the Advantus Funds.
Each director serves for an indefinite term, until his or her resignation, death
or removal.



                                       Position with Fund
Name, Address(1)                       and Length of               Principal Occupation(s)
and Age                                Time Served                 During Past 5 Years

- -------------------------------------------------------------------------------------------------------------------
Interested Directors
- -------------------------------------------------------------------------------------------------------------------
                                                             
William N. Westhoff                    Director since              Retired since July 2002, prior thereto
Age:  55                               July 23, 1998               President, Treasurer and Director, Advantus
                                                                   Capital Management, Inc.; Senior Vice
                                                                   President and Treasurer, Minnesota Life
                                                                   Insurance Company since April 1998; Senior
                                                                   Vice President, Global Investments, American
                                                                   Express Financial Corporation, Minneapolis,
                                                                   Minnesota, from August 1994 to October 1997

- -------------------------------------------------------------------------------------------------------------------
Independent Directors
- -------------------------------------------------------------------------------------------------------------------

Ralph D. Ebbott                        Director since              Retired, Vice President and Treasurer
Age:  76                               October 22, 1985            of Minnesota Mining and
                                                                   Manufacturing Company
                                                                   (industrial and consumer products) through
                                                                   June 1989




                                       44






                                                             
William C. Melton                      Director since              Founder and President of Melton
Age:  55                               April 25, 2002              Research Inc. since 1997; member of the
                                                                   Advisory Board of Macroeconomic Advisors
                                                                   LLC since 1998; member, Minneapolis StarTribune
                                                                   Board of Economists since 1986; member, State
                                                                   of Minnesota Council of Economic Advisors from
                                                                   1988 to 1994; various senior positions at American
                                                                   Express Financial Advisors (formerly Investors
                                                                   Diversified Services and, thereafter, IDS/American Express)
                                                                   from 1982 through 1997, including Chief Economist and,
                                                                   thereafter, Chief International Economist

Ellen S. Berscheid                     Director since              Regents' Professor of Psychology at the
Age:  66                               October 22, 1985            University of Minnesota

- -------------------------------------------------------------------------------------------------------------------
Other Executive Officers
- -------------------------------------------------------------------------------------------------------------------

Dianne M. Orbison                      President since             President and Treasurer, Advantus Capital
Age: 50                                July 25, 2002               Management, Inc.; Vice President and Treasurer,
                                                                   Minnesota Life Insurance Company; Vice President and
                                                                   Treasurer, Minnesota Mutual Companies, Inc.; Vice President
                                                                   and Treasurer, Securian Financial Group, Inc.; Vice
                                                                   President and Treasurer, Securian Holding Company;
                                                                   President and Treasurer, MIMLIC Funding, Inc. (entity
                                                                   holding legal title to bonds beneficially owned by certain
                                                                   clients of Advantus Capital); President and Treasurer, MCM
                                                                   Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities
                                                                   holding legal title to mortgages beneficially owned by certain
                                                                   clients of Advantus Capital)

Michael J. Radmer                      Secretary since             Partner with the law firm of
Dorsey & Whitney LLP                   April 16, 1998              Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota 55402
Age:  58


(1) Unless otherwise noted, the address of each director and officer is the
address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

         The Fund has both an Audit Committee and a Nominations Committee of the
Board of Directors, the members of which are all directors who are not
"interested persons" of the Fund. Ms. Berscheid and Messrs. Melton and Ebbott
comprise the members of both committees. The Board of Directors also has a
Dividend Declaration Committee, the sole member of which is Frederick P.
Feuerherm. Mr. Feuerherm, an officer of Advantus Capital, Securian Financial
Services, Inc. and Minnesota Life, served as a Director of the Fund until April
23, 2003. Upon his resignation, the Board of Directors determined that he should
continue to serve as the sole member of the Dividend Declaration Commitee. The
function of the Audit Committee is to recommend the engagement of the Fund's
independent auditor and oversee its activities. The Audit Committee also
receives reports from the Internal Audit Department of Minnesota Life and from
the Director of Compliance for Advantus Capital about compliance matters
affecting the Fund. The Audit Committee met two (2) times during the last fiscal
year. The Nominations Committee selects and recommends to the Board of Directors
individuals for nomination as Independent Directors. The names of potential
Independent Director candidates are drawn from a number of sources, including
recommendations from management of Advantus Capital. Inasmuch as the Fund does
not hold annual meetings of shareholders and meetings of shareholders occur only
intermittently, the Nominations Committee does not at present consider nominees
recommended by shareholders. The Nominations Committee met one (1) time during
the last fiscal year. The function of the Dividend Declaration Committee is to
oversee the distribution of the Fund's dividends and capital gains
distributions. The Dividend Declaration Committee met four (4) times during the
last fiscal year.


                                       45





         The Directors owned shares in the Fund, and in all Advantus Funds for
which they serve on the Board of Directors, in the following dollar ranges as of
December 31, 2002:



                                                                         Aggregate Dollar Range
                                        Dollar Range of                of Equity Securities in all
                                       Equity Securities                     Advantus Funds
Name of Director                         in the Fund*                     Overseen by Director
- ----------------                         ------------                     --------------------
                                                                 
William N. Westhoff                      Over $100,000                        Over $100,000
Frederick P. Feuerherm                   $1 - $10,000                         $1 - $10,000
Ralph D. Ebbott                              None                                 None
William C. Melton                            None                                 None
Ellen S. Berscheid                       $1 - $10,000                         $1 - $10,000


* The Fund's shares are sold only to separate accounts of Minnesota Life and
certain other life insurance companies. Certain of the Directors own Contracts
issued by those companies which entitle the Directors to give voting
instructions with respect to shares of the Fund attributable to such Contracts.

         Legal fees and expenses are paid to the law firm of which Michael J.
Radmer is a partner. No compensation is paid by the Fund to any of its officers
or directors who is affiliated with Advantus Capital. Each director of the Fund
who is not affiliated with Advantus Capital is also a director of eleven other
investment companies of which Advantus Capital is the investment adviser (the
"Fund Complex"). As of the date hereof, such directors receive compensation in
connection with all such investment companies which, in the aggregate, is equal
to $8,000 per year plus $2,000 per board meeting and committee meeting attended
(and reimbursement of travel expenses to attend directors' meetings). The
portion of such compensation borne by the Fund is a pro rata portion based on
the ratio that the Fund's total net assets bears to the total net assets of the
Fund Complex. During the fiscal year ended December 31, 2002, each Director not
affiliated with Advantus Capital was compensated by the Fund in accordance with
the following table:



                                                       Pension or                                       Total
                                                       Retirement                                   Compensation
                                  Aggregate             Benefits               Estimated            From Fund and
                                Compensation           Accrued as               Annual              Fund Complex
                                    from              Part of Fund           Benefits Upon             Paid to
Name of Director                  the Fund              Expenses              Retirement              Directors
- ----------------                  --------              --------              ----------              ---------
                                                                                        
William C. Melton*                 $12,562                 n/a                    n/a                  $16,000
Ellen S. Berscheid                 $20,937                 n/a                    n/a                  $22,000
Ralph D. Ebbott                    $20,937                 n/a                    n/a                  $22,000
William N. Westhoff**              $ 4,187                 n/a                    n/a                  $ 4,000
Charles Arner                      $ 8,375                 n/a                    n/a                  $12,000


*Mr. Melton was elected a Director on April 25, 2002, and, therefore, received
compensation for only a portion of the year ended December 31, 2002.

**Prior to July 26, 2002, William N. Westhoff was president of and therefore
affiliated with Advantus Capital, but since his retirement from Advantus Capital
as of that date he has received compensation as a Director of the Fund as
described above.



                                       46




                               DIRECTOR LIABILITY

         Under Minnesota law, the Board of Directors of the Fund owes certain
fiduciary duties to the Fund and to its shareholders. Minnesota law provides
that a director "shall discharge the duties of the position of director in good
faith, in a manner the director reasonably believes to be in the best interest
of the corporation, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances." Fiduciary duties of a
director of a Minnesota corporation include, therefore, both a duty of "loyalty"
(to act in good faith and act in a manner reasonably believed to be in the best
interests of the corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances). Minnesota law also authorizes corporations to eliminate or limit
the personal liability of a director to the corporation or its shareholders for
monetary damages for breach of the fiduciary duty of "care." Minnesota law does
not, however, permit a corporation to eliminate or limit the liability of a
director (i) for any breach of the directors' duty of "loyalty" to the
corporation or its shareholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) for
authorizing a dividend, stock repurchase or redemption or other distribution in
violation of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived an
improper personal benefit. The Articles of Incorporation of the Fund limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided in the
Investment Company Act of 1940 (which prohibits any provisions which purport to
limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their role as directors).

         Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or recessionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.


                     INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

         Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of the Fund and Bond Portfolio, Money Market
Portfolio, Mortgage Securities Portfolio, Index 500 Portfolio, International
Stock Portfolio, Small Company Growth Portfolio, Maturing Government Bond
Portfolios, Small Company Value Portfolio, International Bond Portfolio, Index
400 Mid-Cap Portfolio, Micro-Cap Growth Portfolio and Real Estate Securities
Portfolio since May 1, 1997. Securian Financial Services, Inc. ("Securian
Financial") acts as the Fund's underwriter. Both Advantus Capital and Securian
Financial act as such pursuant to written agreements that will be periodically
considered for approval by the directors or shareholders of the Fund. The
address of both Advantus Capital and Securian Financial is 400 Robert Street
North, St. Paul, Minnesota 55101.


                                       47





         The Fund and Advantus Capital have obtained an exemptive order from the
Securities and Exchange Commission which permits Advantus Capital to employ a
"manager of managers" strategy in connection with its management of the Fund.
The exemptive order permits Advantus Capital, subject to certain conditions, to
select new investment sub-advisers with the approval of the Fund's Board of
Directors, but without obtaining shareholder approval. The order also permits
Advantus Capital to change the terms of agreements with the investment
sub-advisers or continue the employment of an investment sub-adviser after an
event which would otherwise cause the automatic termination of services.
Shareholders would be notified of any investment sub-adviser changes.
Shareholders have the right to terminate arrangements with an investment
sub-adviser by vote of a majority of the outstanding shares of a Portfolio. In
the case of a Portfolio which employs more than one investment sub-adviser, the
order also permits the Fund to disclose such investment sub-advisers' fees only
in the aggregate in its registration statement. Advantus Capital has the
ultimate responsibility for the investment performance of each Portfolio
employing investment sub-advisers due to its responsibility to oversee the
investment sub-advisers and recommend their hiring, termination and replacement.

         Waddell & Reed Investment Management Co. ("WRIMCO") is the investment
adviser of the Growth Portfolio, Asset Allocation Portfolio, Capital
Appreciation Portfolio, Value Stock Portfolio and Core Equity Portfolio. As
discussed in the Prospectus, Advantus Capital has agreed to sell to WRIMCO its
assets related to the actively managed equity Portfolios of the Fund (with the
exception of Real Estate Securities Portfolio) and has recommended to the Fund's
Board of Directors that these Portfolios be merged into corresponding Portfolios
of the W&R Target Funds, Inc. Because Advantus Capital no longer has the
resources to actively manage non-real estate equity funds, the Board of
Directors approved an interim investment advisory agreement, effective May 1,
2003, under which WRIMCO will serve as the investment adviser to the Portfolios
listed above until the mergers. WRIMCO and its predecessor have served as the
investment manager to the W&R Target Funds, Inc., Waddell & Reed InvestEd
Portfolios, Inc., W&R Funds, Inc. and each of the registered investment
companies in the Waddell & Reed Advisors Funds since 1940 or each company's
inception date, whichever is later. WRIMCO is located at 6300 Lamar Avenue, P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.


         Credit Suisse Asset Management, LLC ("CSAM") serves as investment
sub-adviser to the Fund's Small Company Growth Portfolio pursuant to an
investment sub-advisory agreement with Advantus Capital. Templeton Investment
Counsel, LLC serves as investment sub-adviser to the Fund's International Stock
Portfolio pursuant to an investment sub-advisory agreement with Advantus
Capital. Julius Baer Investment Management Inc. ("Julius Baer") serves as
investment sub-adviser to the Fund's International Bond Portfolio, pursuant to
an investment sub-advisory agreement with Advantus Capital. Wall Street
Associates serves as investment sub-adviser to the Fund's Micro-Cap Growth
Portfolio pursuant to an investment sub-advisory agreement with Advantus
Capital. State Street Research & Management Company ("State Street Research")
serves as investment sub-adviser to the Fund's Small Company Value Portfolio
pursuant to an investment sub-advisory agreement with Advantus Capital.

CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL

         Advantus Capital was incorporated in Minnesota in June 1994, and is an
affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective
October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by
forming a mutual insurance holding company named "Minnesota Mutual Companies,
Inc." The Minnesota Mutual Life Insurance Company continued its corporate
existence following conversion to a Minnesota stock life insurance company named
"Minnesota Life Insurance Company". All of the shares of the voting stock of
Minnesota Life are owned by a second tier intermediate stock holding company
named "Securian Financial Group, Inc.", which in turn is a wholly-owned
subsidiary of a first tier intermediate stock holding company named "Securian
Holding Company", which in turn is a wholly-owned subsidiary of the ultimate
parent, Minnesota Mutual Companies, Inc. Advantus Capital and Securian Financial
are also wholly-owned subsidiaries of Securian Financial Group, Inc.


                                       48




         Dianne M. Orbison, President of the Fund, is President, Treasurer and
Director of Advantus Capital. Frederick P. Feuerherm, Vice President and
Treasurer of the Fund, is a Vice President, Assistant Secretary and Director of
Advantus Capital. William N. Westhoff, a Director of the Fund, was President,
Treasurer and Director of Advantus Capital prior to July 26, 2002.

CONTROL AND MANAGEMENT OF WRIMCO

         WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company which is a wholly owned subsidiary of Waddell & Reed
Financial, Inc., a publicly held company. The address of these companies is 6300
Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

THE FUND'S INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL

         Advantus Capital acts as investment adviser and manager of the Bond
Portfolio, Money Market Portfolio, Mortgage Securities Portfolio, Index 500
Portfolio, International Stock Portfolio, Small Company Growth Portfolio,
Maturing Government Bond Portfolios, Small Company Value Portfolio,
International Bond Portfolio, Index 400 Mid-Cap Portfolio, Micro-Cap Growth
Portfolio and Real Estate Securities Portfolio under an Investment Advisory
Agreement dated May 1, 2000 (the "Investment Advisory Agreement"), which became
effective the same date, and was approved by shareholders on April 17, 2000. The
Investment Advisory Agreement was last approved by the Board of Directors of the
Fund (including a majority of the directors who are not parties to the contract,
or interested persons of any such party) on January 30, 2003. Prior to May 1,
1997, the Fund obtained advisory services from MIMLIC Asset Management Company
("MIMLIC Management"), formerly the parent company of Advantus Capital. Advantus
Capital commenced its business in June 1994, and provides investment advisory
services to eleven other Advantus funds and various private accounts.

         The Investment Advisory Agreement, will terminate automatically in the
event of assignment. In addition, the Investment Advisory Agreement is
terminable at any time, without penalty, by the Board of Directors of the Fund
or by vote of a majority of the Fund's outstanding voting securities on 60 days'
written notice to Advantus Capital, and by Advantus Capital on 60 days' written
notice to the Fund. Unless sooner terminated, the Investment Advisory Agreement
shall continue in effect for more than two years after its execution only so
long as such continuance is specifically approved at least annually either by
the Board of Directors of the Fund or by a vote of a majority of the outstanding
voting securities, provided that in either event such continuance is also
approved by the vote of a majority of the directors who are not interested
persons of any party to the Investment Advisory Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The required
shareholder approval of any continuance of the Investment Advisory Agreement
shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the class of capital stock of that Portfolio
votes to approve such continuance, notwithstanding that such continuance may not
have been approved by a majority of the outstanding voting securities of the
Fund.

         If the shareholders of a class of capital stock of any Portfolio
subject to the Investment Advisory Agreement fail to approve any continuance of
the Investment Advisory Agreement, Advantus Capital will continue to act as
investment adviser with respect to such Portfolio pending the required approval
of its continuance, or a new contract with Advantus Capital or a different
investment adviser or other definitive action; provided that the compensation
received by Advantus Capital in respect of such Portfolio during such period
will be no more than its actual costs incurred in furnishing investment advisory
and management services to such Portfolio or the amount it would have received
under the Investment Advisory Agreement in respect of such Portfolio, whichever
is less.

         The Investment Advisory Agreement may be amended by the parties only if
such amendment is specifically approved by the vote of a majority of the
outstanding voting securities of the Fund and by the vote of a majority of the
directors of the Fund who are not interested persons of any party to the
Investment Advisory Agreement cast in person at a meeting called for the purpose
of voting on such approval. The required shareholder approval shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of the class of capital stock of that Portfolio vote to approve the amendment,
notwithstanding that the


                                       49

amendment may not have been approved by a majority of the outstanding voting
securities of the Fund.

THE FUND'S INVESTMENT ADVISORY AGREEMENT WITH WRIMCO

         As discussed in the Prospectus, Advantus Capital has agreed to sell to
WRIMCO its assets related to the actively managed equity Portfolios of the Fund
(with the exception of Real Estate Securities Portfolio) and has recommended to
the Board of Directors that these Portfolios be merged into corresponding
portfolios of the W&R Target Funds, Inc. Because the Advantus Capital no longer
has the resources to actively manage non-real estate equity funds, the Board of
Directors determined that it would be in shareholders' best interests to appoint
a new investment adviser to manage certain of the equity Portfolios on an
interim basis prior to the mergers. The Board of Directors approved an interim
investment advisory agreement (the "Interim Agreement"), effective May 1, 2003,
under which WRIMCO will serve as the investment adviser to the Asset Allocation
Portfolio, Capital Appreciation Portfolio, Growth Portfolio, Core Equity
Portfolio and Value Stock Portfolio, effective May 1, 2003. The terms of the
Interim Agreement are substantially identical to those of the Investment
Advisory Agreement between the Fund and Advantus Capital, except for the dates
of execution and termination and other non-material changes, and except that
advisory fees payable to WRIMCO will be deposited in escrow until shareholders
of the Portfolios approve the Interim Agreement.

         Normally, a mutual fund's investment advisory agreements must be
approved by the fund's shareholders in advance of the effective date of such
agreements. However, pursuant to Rule 15a-4 under the 1940 Act, an investment
adviser may serve as adviser to a mutual fund under an interim contract with a
term of no more than 150 days, so long as prior to the expiration of such term,
shareholders approve a new agreement with the investment adviser. Under Rule
15a-4, the interim contract must be identical in all material respects to the
agreement that was previously approved by shareholders (except for the effective
date and termination date). In addition, under Rule 15a-4, during the term of
the interim agreement, advisory fees otherwise payable under the interim
agreement are required to be deposited into an interest-bearing escrow account.
If shareholders approve a new advisory agreement, such fees (plus interest) may
be paid to the adviser. If, on the other hand, shareholders do not approve a new
advisory agreement, the adviser will be reimbursed only for the lesser of its
costs of providing services during the term of the interim agreement (plus
interest) or amounts held in escrow. Accordingly and in accordance with Rule
15a-4, the fees otherwise payable to WRIMCO under the Interim Agreement are
being held in escrow pending shareholder approval of the Interim Agreement. Fees
payable to WRIMCO under the Interim Agreement are identical to fees previously
payable to Advantus Capital by the applicable Portfolios under the Investment
Advisory Agreement.

THE FUND'S INVESTMENT ADVISORY FEES

         Pursuant to the investment advisory agreements, each Portfolio pays its
Investment Adviser an advisory fee equal on an annual basis to a percentage of
the Portfolio's average daily net assets as set forth in the following table:



                                                                        Advisory Fee
                                                                    (as a percentage of
         Portfolio                                                average daily net assets)
         ---------                                                -------------------------

                                                           
         Growth Portfolio                                     0.45% of assets to $1 billion; and
                                                              0.40% of assets exceeding $1 billion

         Bond Portfolio                                       0.30% of assets to $500 million;
                                                              0.25% of assets exceeding $500
                                                              million to $1 billion; and
                                                              0.20% of assets exceeding $1 billion

         Money Market Portfolio                               0.25% of assets to $1 billion; and
                                                              0.20% of assets exceeding $1 billion

         Asset Allocation Portfolio                           0.35% of assets to $1 billion; and
                                                              0.30% of assets exceeding $1 billion

         Mortgage Securities Portfolio                        0.30% of assets to $1 billion; and
                                                              0.25% of assets exceeding $1 billion

         Index 500 Portfolio                                  0.15% of assets to $250 million;
                                                              0.10% of assets exceeding $250
                                                              million to $1 billion; and
                                                              0.075% of assets exceeding $1 billion

         Capital Appreciation Portfolio                       0.50% of assets to $1 billion; and
                                                              0.45% of assets exceeding $1 billion

         International Stock Portfolio                        0.60% of assets to $250 million;
                                                              0.55% of assets exceeding $250
                                                              million to $500 million;
                                                              0.50% of assets exceeding $500
                                                              million to $1 billion; and
                                                              0.45% of assets exceeding $1 billion

         Small Company Growth                                 0.65% of assets to $1 billion; and
           Portfolio                                          0.60% of assets exceeding $1 billion



                                       50


                                                           

         Maturing Government Bond Portfolios                  0.25%

         Value Stock Portfolio                                0.50% of assets to $500 million;
                                                              0.45% of assets exceeding $500
                                                              million to $1 billion; and
                                                              0.40% of assets exceeding $1 billion

         Small Company Value Portfolio                        0.70% of assets to $1 billion; and
                                                              0.65% of assets exceeding $1 billion

         International Bond Portfolio                         0.60% of assets to $1 billion; and
                                                              0.55% of assets exceeding $1 billion

         Index 400 Mid-Cap Portfolio                          0.15% of assets to $250 million;
                                                              0.10% of assets exceeding $250
                                                              million to $1 billion; and
                                                              0.075% of assets exceeding $1 billion

         Core Equity Portfolio                                0.50%

         Micro-Cap Growth Portfolio                           0.95%

         Real Estate Securities Portfolio                     0.60% of assets to $1 billion; and
                                                              0.55% of assets exceeding $1 billion



         The fees paid by the Portfolios during the fiscal years ended December
31, 2002, 2001 and 2000 (before absorption of certain expenses, described below)
were as follows:



                                                                            Advisory Fees Paid
                                                                            ------------------
         Portfolio                                            2002                 2001               2000
         ---------                                            ----                 ----               ----
                                                                                         
         Growth Portfolio                                 $1,090,867           $1,516,012         $2,667,290
         Bond Portfolio                                      763,666              669,529            651,344
         Money Market Portfolio                              387,449              376,713            519,410
         Asset Allocation Portfolio                        1,488,198            1,872,775          2,944,888
         Mortgage Securities Portfolio                       709,265              563,046            511,475
         Index 500 Portfolio                                 584,983              663,033          1,359,130
         Capital Appreciation Portfolio                      965,815            1,489,610          2,563,696
         International Stock Portfolio                     1,539,322            1,767,777          2,167,527
         Small Company Growth Portfolio                      975,136            1,232,895          1,880,499
         Maturing Government Bond -
           2006 Portfolio                                     23,609               19,698             15,207
           2010 Portfolio                                     17,470               15,039             12,342
         Value Stock Portfolio                               645,492              755,893          1,001,481
         Small Company Value Portfolio                       367,199              223,959            117,606



                                       51


                                                                                            
         International Bond Portfolio                             274,308         232,026            200,417
         Index 400 Mid-Cap Portfolio                               64,008          56,402             66,748
         Core Equity Portfolio                                    115,952         140,265            149,882
         Micro-Cap Growth Portfolio                               310,437         423,736            571,445
         Real Estate Securities Portfolio                         155,406          72,531             46,927




         Under the investment advisory agreements, the Investment Advisers
furnish the Fund office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Fund. The Fund pays all its costs
and expenses which are not assumed by the Investment Advisers. These Fund
expenses include, by way of example, but not by way of limitation, all expenses
incurred in the operation of the Fund including, among others, interest, taxes,
brokerage fees and commissions, fees of the directors who are not employees of
the Investment Advisers or any of its affiliates, expenses of directors' and
shareholders' meetings, including the cost of printing and mailing proxies,
expenses of insurance premiums for fidelity and other coverage, association
membership dues, charges of custodians, auditing and legal expenses. The Fund
will also pay the fees and bear the expense of registering and maintaining the
registration of the Fund and its shares with the Securities and Exchange
Commission and registering or qualifying its shares under state or other
securities laws and the expense of preparing and mailing prospectuses and
reports to shareholders. Securian Financial shall bear all advertising and
promotional expenses in connection with the distribution of the Fund's shares,
including paying for the printing of Prospectuses and Statements of Additional
Information for new shareholders and the costs of sales literature. Advantus
Capital also bears all costs under its agreement with Wilshire Associates for
the use by Advantus Capital, in connection with the Index 500 Portfolio, of
Wilshire Associates' proprietary index fund statistical sampling technique.

         Advantus Capital is currently voluntarily absorbing all fees and
expenses that exceed 1.10% of average daily net assets for the Small Company
Value Portfolio, 1.07% of average daily net assets for the Core Equity
Portfolio, and 1.34% of average daily net assets for the Micro-Cap Growth
Portfolio. Although WRIMCO is the Investment Adviser for Core Equity Portfolio,
Advantus Capital intends to reimburse that Portfolio for fees and expenses in
order to maintain expenses at current levels. For each of the last three
calendar years, the expenses voluntarily absorbed by Advantus Capital (or
Minnesota Life prior to May 1, 2000) for the various Portfolios were as follows:



                                                                         Expenses Voluntarily Absorbed
                                                                         -----------------------------
         Portfolio                                                2002                 2001                 2000
         ---------                                                ----                 ----                 ----
                                                                                              
         Growth Portfolio                                      $   -0-             $    -0-             $    -0-
         Bond Portfolio                                            -0-                  -0-                  -0-
         Money Market Portfolio                                    -0-                  -0-                  -0-
         Asset Allocation Portfolio                                -0-                  -0-                  -0-
         Mortgage Securities Portfolio                             -0-                  -0-                  -0-
         Index 500 Portfolio                                       -0-                  -0-                  -0-
         Capital Appreciation Portfolio                            -0-                  -0-                  -0-
         International Stock Portfolio                             -0-                  -0-                  -0-
         Small Company Growth Portfolio                            -0-                  -0-                  -0-
         Maturing Government Bond -




                                       52

                                                                                              

           2006 Portfolio                                      35,104                 59,498             61,355
           2010 Portfolio                                      44,356                 61,422             62,524
         Value Stock Portfolio                                    -0-                    -0-                -0-
         Small Company Value Portfolio                         40,674                 39,093             87,809
         International Bond Portfolio                             -0-                    -0-                -0-
         Index 400 Mid-Cap Portfolio                              -0-                 45,365             74,402
         Core Equity Portfolio                                 50,401                 60,312             84,884
         Micro-Cap Growth Portfolio                            36,055                 24,088             26,838
         Real Estate Securities Portfolio                      47,820                 71,008             77,007



         There is no specified or minimum period of time during which Advantus
Capital has agreed to continue its voluntary absorption of these expenses, and
Advantus Capital may in its discretion cease its absorption of expenses at any
time. Should Advantus Capital cease absorbing expenses the effect would be to
increase substantially Fund expenses and thereby reduce investment return.

         Each Portfolio will bear all expenses that may be incurred with respect
to its individual operation, including but not limited to transaction expenses,
advisory fees, brokerage, interest, taxes and the charges of the custodian. The
Fund will pay all other expenses not attributable to a specific Portfolio, but
those expenses will be allocated among the Portfolios on the basis of the size
of their respective net assets unless otherwise allocated by the Board of
Directors of the Fund.

SUB-ADVISER - CSAM

         Credit Suisse Asset Management, LLC ("CSAM") has been retained under
separate investment sub-advisory agreements to provide investment advice and, in
general, to conduct the management and investment program of the Small Company
Growth Portfolio, subject to the general control of the Board of Directors of
the Fund. CSAM is a registered investment adviser under the Investment Advisers
Act of 1940.

         CSAM is an indirect wholly-owned subsidiary of Credit Suisse Group and
an institutional and mutual fund asset management arm of Credit Suisse First
Boston, part of the Credit Suisse Group. CSAM is a diversified investment
adviser managing global and domestic equity and fixed income portfolios for
retail investors as well as institutional clients such as corporate pension and
profit-sharing plans, state pension funds, union funds, endowments and
charitable institutions. Together with its predecessor firms, CSAM has been
engaged in the investment advisory business for over 60 years. As of September
30, 2002, CSAM and its global affiliates managed approximately $284.3 billion in
assets, $55.8 billion of which was managed in the U.S. CSAM's principal business
address is 466 Lexington Avenue, New York, New York 10017.





                                       53




SMALL COMPANY GROWTH PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - CSAM

         CSAM acts as investment sub-adviser to the Fund's Small Company Growth
Portfolio under an Investment Sub-Advisory Agreement (the "CSAM Small Company
Growth Agreement") with Advantus Capital dated March 7, 2000, which became
effective the same date. Amendments to the CSAM Small Company Growth Agreement,
adjusting the level of sub-advisory fees payable by Advantus Capital to CSAM
under such Agreement, were approved by the Board of Directors of the Fund on
October 25, 2001, July 25, 2002 and January 30, 2003. The CSAM Small Company
Growth Agreement will terminate automatically upon the termination of the
Investment Advisory Agreement and in the event of its assignment. In addition,
the CSAM Small Company Growth Agreement is terminable at any time, without
penalty, by the Board of Directors of the Fund, by Advantus Capital or, and by
CSAM on 60 days' written notice to Advantus Capital. Unless sooner terminated,
the CSAM Small Company Growth Agreement shall continue in effect from year to
year if approved at least annually either by the Board of Directors of the Fund,
provided that in either event such continuance is also approved by the vote of a
majority of the Directors who are not interested persons of any party to the
CSAM Agreement, cast in person at a meeting called for the purpose of voting on
such approval.

         In payment for the investment sub-advisory services to be rendered by
CSAM to the Small Company Growth Portfolio, the Adviser pays to CSAM, a fee
computed at an annual rate which is a percentage of the average daily net assets
of the Portfolio. The fee is accrued daily and based on the net asset value of
all of the issued and outstanding shares of the Portfolio as determined as of
the close of each business day pursuant to the Articles of Incorporation, Bylaws
and currently effective Prospectus and Statement of Additional Information of
the Fund. The fee is payable in arrears at the end of each calendar quarter.
The amount of such annual fee, as applied to the total assets of the Portfolio,
is equal to 0.54%.


SUB-ADVISER - TEMPLETON COUNSEL

         Templeton Investment Counsel, LLC (hereinafter "Templeton Counsel"), a
Delaware limited liability company with principal offices at 500 East Broward
Boulevard, Ft. Lauderdale, Florida 33394, has been retained under an investment
sub-advisory agreement to provide investment advice and, in general, to conduct
the management investment program of International Stock Portfolio, subject to
the general control of the Board of Directors of the Fund. Templeton Counsel is
an indirect, wholly-owned subsidiary of Templeton Worldwide, Inc., Ft.
Lauderdale, Florida, which in turn is a wholly-owned subsidiary of Franklin
Resources, Inc.


                                       54





         Franklin Resources, Inc. is a global investment organization operating
as Franklin Templeton Investments. Franklin Templeton provides global and
domestic investment management services through its Franklin, Templeton, Mutual
Advisors and Fiduciary Trust subsidiaries with approximately 10 million
shareholder accounts. With 51 offices in 28 countries, the company has over 50
years of investment experience and over $256 billion in assets under management
as of January 31, 2003. Franklin Resources, Inc. is headquartered at One
Franklin Parkway, P.O. Box 7777, San Mateo, California 94403-7777, and its
common stock is listed on the New York Stock Exchange under the ticker symbol
BEN.

INTERNATIONAL STOCK PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - TEMPLETON
COUNSEL

         Templeton Counsel acts as an investment sub-adviser to the Fund's
International Stock Portfolio under an Investment Sub-Advisory Agreement (the
"Templeton Agreement") with Advantus Capital dated May 1, 1997, which became
effective the same date, and was approved by shareholders of International Stock
Portfolio on April 24, 1997. The Templeton Agreement will terminate
automatically upon the termination of the Investment Advisory Agreement and in
the event of its assignment. In addition, the Templeton Agreement is terminable
at any time, without penalty, by the Board of Directors of the Fund, by Advantus
Capital or by a vote of the majority of the International Stock Portfolio's
outstanding voting securities on 60 days' written notice to Templeton Counsel
and by Templeton Counsel on 60 days' written notice to Advantus Capital. Unless
sooner terminated, the Templeton Agreement shall continue in effect from year to
year if approved at least annually by the Board of Directors of the Fund or by a
vote of a majority of the outstanding voting securities of International Stock
Portfolio, provided that in either event such continuance is also approved by
the vote of a majority of the directors who are not interested persons of any
party to the Templeton Agreement, cast in person at a meeting called for the
purpose of voting on such approval.

         From the advisory fee received from International Stock Portfolio,
Advantus Capital pays Templeton Counsel a sub-advisory fee equal to .70% on the
first $10 million of International Stock Portfolio's average daily net assets,
..65% on the next $15 million, .55% on the next $25 million, .50% on the next $50
million, and .40% on the next $100 million and thereafter. For the purpose of
establishing the appropriate breakpoints at which the Portfolio's sub-advisory
fee shall be calculated, the Portfolio will benefit from the aggregation of the
monthly market value of any non-mutual fund account of Minnesota Life or any
affiliate thereof, advised or sub-advised by Templeton Counsel or any advisory
affiliate by Advantus and sub-advised by Templeton Counsel or any advisory
affiliate. For fee-stacking purposes, the asset classes so managed with the
highest fee schedules shall be counted first as assets of this Portfolio in
order to determine this Portfolio's appropriate starting breakpoint when the
following conditions are satisfied: (i) Franklin Advisors, Inc., and affiliate
of Templeton Counsel, provides other sub-advisory services to Advantus Capital,
covering small company domestic equities in an amount in excess of $100 million;
and (ii) Minnesota Life, offers as investment options in its registered variable
insurance contracts the Templeton Developing Markets Securities Fund and any
other two funds in the Franklin Templeton Variable Insurance Products Trust.


                                       55





SUB-ADVISER - JBIM

         Julius Baer Investment Management Inc. ("JBIM"), with principal offices
at 330 Madison Avenue, New York, New York 10017, has been retained under an
investment sub-advisory agreement to provide investment advice and, in general,
to conduct the management investment program for the International Bond
Portfolio's foreign securities, subject to the general control of the Board of
Directors of the Fund. JBIM is a majority owned subsidiary of Julius Baer
Securities, Inc., a registered broker-dealer and investment adviser, which in
turn is a wholly-owned subsidiary of Baer Holding Ltd. Julius Baer Securities,
Inc. owns 93% of the outstanding stock of JBIM and 7% is owned by three
employees of JBIM. JBIM has been registered as an investment adviser since April
1983. Directly and through Julius Baer Securities, Inc., JBIM provides
investment management services to a wide variety of individual and institutional
clients, including registered investment companies.

INTERNATIONAL BOND PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - JBIM

         JBIM acts as investment sub-adviser to the Fund's International Bond
Portfolio under an Investment Sub-Advisory Agreement (the "JBIM Agreement") with
Advantus Capital dated May 1, 2003, which became effective the same date.

         The JBIM Agreement will terminate automatically upon the termination of
the Investment Advisory Agreement and in the event of its assignment. In
addition, the JBIM Agreement is terminable at any time, without penalty, by the
Board of Directors of the Fund, by Advantus Capital or by vote of a majority of
the International Bond Portfolio's outstanding voting securities on 60 days'
written notice to JBIM and by JBIM on 60 days' written notice to Advantus
Capital. Unless sooner terminated, the JBIM Agreement shall continue in effect
from year to year if approved at least annually either by the Board of Directors
of the Fund or by a vote of a majority of the outstanding voting securities of
the International Bond Portfolio, provided that in either event such continuance
is also approved by the vote of a majority of the Directors who are not
interested persons of any party to the JBIM Agreement, cast in person at a
meeting called for the purpose of voting on such approval.

         From the advisory fee received from International Bond Portfolio,
Advantus Capital pays JBIM a sub-advisory fee equal to .30% of International
Bond Portfolio's average daily net assets.





                                       56







SUB-ADVISER - WSA

         Wall Street Associates ("WSA"), a California corporation with principal
offices at La Jolla Financial Building, Suite 100, 1200 Prospect Street, La
Jolla, California 92037, has been retained under an investment sub-advisory
agreement to provide investment advice and, in general, to conduct the
management investment program of the Micro-Cap Growth Portfolio, subject to the
general control of the Board of Directors of the Fund. WSA, founded in 1987,
provides investment advisory services for institutional clients and high net
worth individuals.

MICRO-CAP GROWTH PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT - WSA

         WSA acts as investment sub-adviser to the Fund's Micro-Cap Growth
Portfolio under an Investment Sub-Advisory Agreement (the "WSA Agreement") with
Advantus Capital dated May 1, 1997 and became effective after it was approved by
shareholders on September 15, 1997.


                                       57




         The WSA Agreement will terminate automatically upon the termination of
the Investment Advisory Agreement and in the event of its assignment. In
addition, the WSA Agreement is terminable at any time, without penalty, by the
Board of Directors of the Fund, by Advantus Capital or by vote of a majority of
the Micro-Cap Growth Portfolio's outstanding voting securities on 60 days'
written notice to WSA and by WSA on 60 days' written notice to Advantus Capital.
Unless sooner terminated, the WSA Agreement shall continue in effect from year
to year if approved at least annually either by the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting securities of the
Micro-Cap Growth Portfolio, provided that in either event such continuance is
also approved by the vote of a majority of the Directors who are not interested
persons of any party to the WSA Agreement, cast in person at a meeting called
for the purpose of voting on such approval.

         In payment for the investment sub-advisory services to be rendered by
WSA to the Micro-Cap Growth Portfolio, the Adviser pays to WSA, a fee computed
at an annual rate which is a percentage of the average daily net assets of the
Portfolio. The fee is accrued daily and based on the net asset value of all of
the issued and outstanding shares of the Portfolio as determined as of the close
of each business day pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus and Statement of Additional Information of the
Fund. The fee is payable in arrears on the last day of each calendar month. From
the advisory fee received from Micro-Cap Growth Portfolio, Advantus Capital pays
WSA a sub-advisory fee equal to .85% of Micro-Cap Growth Portfolio's average
daily net assets.

SUB-ADVISER - STATE STREET RESEARCH

         State Street Research & Management Company ("State Street Research")
has been retained under an investment sub-advisory agreement to provide
investment advice and, in general, to conduct the management and investment
program of the Small Company Value Portfolio, subject to the general control of
the Board of Directors of the Fund. State Street Research is a registered
investment adviser under the Investment Advisers Act of 1940.

         State Street Research, a Delaware corporation, with offices at One
Financial Center, Boston, Massachusetts 02111-2690, acts as the investment
sub-adviser to the Portfolio. State Street Research was founded by Paul Cabot,
Richard Saltonstall and Richard Paine to serve as investment adviser to one of
the nation's first mutual funds, presently known as State Street Research
Investment Trust, which they had formed in 1924. Their investment management
philosophy emphasized comprehensive fundamental research and analysis, including
meetings with the management of companies under consideration for investment.
State Street Research's portfolio management group has extensive investment
industry experience managing equity and debt securities. State Street Research
is an indirect wholly-owned subsidiary of Metropolitan Life Insurance Company.

SMALL COMPANY VALUE PORTFOLIO INVESTMENT SUB-ADVISORY AGREEMENT-STATE STREET
RESEARCH

         State Street Research acts as investment sub-adviser to the Fund's
Small Company Value Portfolio under an Investment Sub-Advisory Agreement (the
"State Street Research Agreement") with Advantus Capital dated March 7, 2000,
which became effective the same date. An amendment to the State Street Research
Agreement, adjusting the level of sub-advisory fees



                                       58




payable by Advantus Capital to State Street Research under such Agreement, was
approved by the Board of Directors of the Fund on October 25, 2001. The State
Street Research Agreement will terminate automatically upon the termination of
the Investment Advisory Agreement and in the event of its assignment. In
addition, the State Street Research Agreement is terminable at any time, without
penalty, by the Board of Directors of the Fund, by Advantus Capital on 60 days'
written notice to State Street Research, and by State Street Research on 60
days' written notice to Advantus Capital. Unless sooner terminated, the State
Street Research Agreement shall continue in effect from year to year if approved
at least annually either by the Board of Directors of the Fund, provided that in
either event such continuance is also approved by the vote of a majority of the
Directors who are not interested persons of any party to the State Street
Research Agreement, cast in person at a meeting called for the purpose of voting
on such approval.

         In payment for the investment sub-advisory services to be rendered by
State Street Research to the Small Company Value Portfolio, the Adviser pays to
State Street Research a fee computed at an annual rate which is a percentage of
the average daily net assets of the Portfolio. The fee is accrued daily and
shall be based on the net asset value of all of the issued and outstanding
shares of the Portfolio as determined as of the close of each business day
pursuant to the Articles of Incorporation, Bylaws and currently effective
Prospectus and Statement of Additional Information of the Fund. The fee is
payable in arrears on the last day of each calendar month.

         The amount of such annual fee, as applied to the average daily net
assets of the Portfolio is: on the first $100 million, 0.65%; on all assets in
excess of $100 million, 0.60%. For the purpose of the fee calculation and the
indicated breakpoints, the term "assets" shall include all 'small company value'
assets sub-advised by State Street Research for Advantus Capital, in addition to
the assets of the Portfolio. The aggregation of those assets for purposes of the
breakpoints, shall be calculated quarterly based upon the aggregate assets on
March 31st, June 30th, September 30th, and December 31st of each calendar year
(or portion thereof) that the State Street Small Company Value Agreement is
effective.



ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS

         At a meeting held on January 30, 2003, the Board of Directors of the
Fund, including a majority of the Directors who are not "interested persons" (as
defined under the Investment Company Act of 1940) of the Fund (the "Independent
Directors"), approved the continuation of the Fund's investment advisory
agreement with Advantus Capital for an additional one-year period. In connection
with such approval, the Directors considered, with the assistance of independent
counsel, their legal responsibilities and reviewed the nature and quality of
Advantus Capital's services provided to the Fund and Advantus Capital's
experience and qualifications. In addition to quarterly evaluations of the
investment performance of each of the Fund's Portfolios relative to broad-based
index and industry benchmarks and at least annual in person meetings with and
presentations by each portfolio manager or managers for the Fund's Portfolios
(including personnel from Advantus Capital and each sub-adviser), the Directors
on January 30, 2003 reviewed and considered:

     o    analyses prepared and compiled by Advantus Capital (i) setting forth
          the Fund's advisory fee for each Portfolio (as a percentage of assets)
          on a contractual and after-waiver basis (ii) comparing each
          Portfolio's contractual advisory fees with standard



                                       59




          fee schedules for private (non-mutual fund) accounts managed by
          Advantus Capital and with the contractual fee schedules of other funds
          represented by Advantus Capital to be of comparable size and
          complexity (with a description of the bases upon which funds were
          selected for comparison), (iii) comparing each Portfolio's total
          returns with the Portfolio's benchmark index or indices and with such
          comparable funds (again, with a description of the bases upon which
          funds were selected for comparison);

     o    descriptions of brokerage allocation practices (including any soft
          dollar arrangements) and assurances that such practices and
          arrangements are accurately described in the Fund's registration
          statement;

     o    assurances that Advantus Capital and its personnel are in compliance
          with the Fund's codes of ethics, policies and procedures and exemptive
          orders and with applicable laws and regulations; and

     o    a report on Advantus Capital's profitability related to providing
          advisory services to the Fund and each of its Portfolios after taking
          into account (i) advisory fees and any other benefits realized by
          Advantus Capital or any of its affiliates as a result of Advantus
          Capital's role as adviser to the Fund, and (ii) the direct and
          indirect expenses incurred by Advantus Capital in providing such
          advisory services to the Fund.

         After discussion, the Board of Directors concluded that Advantus
Capital has the capabilities, resources and personnel necessary to manage the
Fund and each of its Portfolios. The Board of Directors also concluded that,
based on the services that Advantus Capital would provide to the Fund under the
Fund's investment advisory agreement and the expenses incurred by Advantus
Capital in the performance of such services, the compensation to be paid to
Advantus Capital is fair and equitable with respect to the Fund and each of its
Portfolios. Based upon such information as it considered necessary to the
exercise of its reasonable business judgment, the Board of Directors concluded
unanimously that it is in the best interests of the Fund to continue its
investment advisory agreement with Advantus Capital for an additional one-year
period.

         At the January 30, 2003 meeting, the Fund's Board of Directors,
including a majority of the Independent Directors, also approved the
continuation of the sub-advisory agreements between Advantus Capital and each of
the following sub-advisers (with respect to the Portfolio set forth opposite the
sub-adviser's name in the table below), each for an additional one-year period:



         Sub-Adviser                                                     Portfolio
         -----------                                                     ---------

                                                                      
         Templeton Investment Counsel, LLC                               International Stock
         Credit Suisse Asset Management, LLC                             Small Company Growth
         State Street Research & Management Company                      Small Company Value
         Julius Baer Investment Management Inc.                          International Bond
         Wall Street Associates                                          Micro-Cap Growth



                                       60


         In approving the continuation of the sub-advisory agreements, the Board
of Directors considered the quality of the services being rendered by each
sub-adviser, its investment management style, the experience and qualifications
of each sub-adviser's personnel and the sub-adviser's fee structure. The Board
of Directors also reviewed written reports provided by each sub-adviser, which
contained, among other items:

     o    descriptions of brokerage allocation practices (including soft dollar
          arrangements, if any) and assurances that such practices and
          arrangements are accurately described in the Fund's registration
          statement; and

     o    assurances that the sub-adviser and its personnel are in compliance
          with the sub-adviser's code of ethics and with the laws and
          regulations that apply to its relationship as sub-adviser to the
          applicable Portfolio.

         Based upon such information as it considered necessary to the exercise
of its reasonable business judgment, the Board of Directors concluded
unanimously that it was in the best interests of each of the foregoing
Portfolios engaging a sub-adviser to continue its sub-advisory agreement for an
additional one-year period.

APPROVAL OF THE INTERIM AGREEMENT

         At a meeting held on April 23, 2003, the Board of Directors of the
Fund, including a majority of the Independent Directors, approved the Interim
Agreement. Prior to such meeting, Advantus Capital had informed the Board that,
as a result of entering into the Strategic Alliance Agreement and related
Purchase Agreement discussed in the Prospectus, it would no longer have the
resources to actively manage non-real estate equity funds after May 1, 2003.
Advantus Capital therefore recommended to the Board that it appoint WRIMCO to
act as the investment adviser for Asset Allocation Portfolio, Capital
Appreciation Portfolio, Growth Portfolio, Core Equity Portfolio and Value Stock
Portfolio for the period from May 1, 2003 until the time of the proposed mergers
of those Portfolios into portfolios of the W&R Target Funds, Inc. (as discussed
in the Prospectus). Advantus Capital and WRIMCO provided to the Board of
Directors such information as the Directors, upon the advice of counsel,
determined to be relevant, including, among other things

         o        general information concerning WRIMCO and its affiliates and
                  their operations,

         o        information concerning the ethical profile and compliance
                  history of WRIMCO and its affiliates,

         o        information regarding WRIMCO's investment management process,
                  style and performance, including performance information
                  regarding similar funds currently managed by WRIMCO, and

         o        profitability information.

         At meetings held on March 6, March 21, April 8, April 17 and April 23,
2003, the Directors reviewed, analyzed and asked questions concerning such
information. During certain of these meetings, and during a due diligence trip
to WRIMCO's headquarters on March 25, 2003, Directors also met, either
telephonically or in person, with senior officers of WRIMCO and its affiliates
and with proposed portfolio managers for the Portfolios. The Board also
considered that the terms of the Interim Agreement do not differ materially from
those of the Investment Advisory Agreement with Advantus Capital and that
investment advisory fees paid by the Portfolios will remain unchanged.

         Based on its review, the Board of Directors concluded, among other
things, that the scope and quality of services to be provided under the Interim
Agreement will be at least equivalent to the scope and quality of the services
provided under the Investment Advisory Agreement, and the Board approved the
Interim Agreement.

ADMINISTRATIVE SERVICES

         The Fund has entered into an agreement with Minnesota Life under which
Minnesota Life provides accounting oversight, financial reporting, legal and
other administrative services to the Fund. Minnesota Life currently provides
such services at a monthly cost of $2,100 per Portfolio. Prior to April 1, 2003,
Minnesota Life provided additional accounting and administrative services which
are now performed by State Street Bank and Trust Company (see below). However,
under the Fund's agreement with Minnesota Life, Minnesota Life continues to
oversee State Street's performance of these services. During each of the last
three calendar years the amounts paid by each Portfolio to Minnesota Life for
these services were as follows:



         Portfolio                                            2002                 2001                 2000
         ---------                                            ----                 ----                 ----
                                                                                               
         Growth Portfolio                                    $51,600               $51,600              $51,200
         Bond Portfolio                                       51,600                51,600               51,200
         Money Market Portfolio                               51,600                51,600               51,200
         Asset Allocation Portfolio                           51,600                51,600               51,200
         Mortgage Securities Portfolio                        51,600                51,600               51,200
         Index 500 Portfolio                                  51,600                51,600               51,200
         Capital Appreciation Portfolio                       51,600                51,600               51,200
         International Stock Portfolio                        37,200                37,200               36,900
         Small Company Growth Portfolio                       51,600                51,600               51,200



                                       61



                                                                                             
         International Bond Portfolio                           37,200                37,200           36,900
         Index 400 Mid-Cap Portfolio                            51,600                51,600           51,200
         Core Equity Portfolio                                  37,200                37,200           36,900
         Micro-Cap Growth Portfolio                             51,600                51,600           51,200
         Real Estate Securities Portfolio                       51,600                51,600           51,200



         The Fund has also entered into separate agreements with State Street
Bank and Trust Company ("State Street") pursuant to which State Street provides
daily accounting and investment administration services for the Fund's
Portfolios. Each Portfolio pays State Street an accounting and administration
fee, equal on an annual basis to a percentage of such Portfolio's net assets,
and other fixed-dollar costs in exchange for State Street's services. Prior to
April 1, 2003, the Fund was party to an agreement with SEI Investments Mutual
Fund Services ("SEI") pursuant to which SEI provided daily accounting services
for the International Stock, International Bond and Core Equity Portfolios.
Under the agreement with SEI, the cost to each Portfolio for SEI's services was
an annual fee equal to the greater of $45,000 or .06% of the Portfolio's first
$150 million of net assets, .05% of the next $850 million of net assets, and
..04% of net assets in excess of $1 billion. During the last three calendar
years, the amounts paid by each Portfolio to SEI and State Street for these
services were as follows:




         Portfolio                                2002         2001            2000
         ---------                                ----         ----            ----
                                                                  

         Growth Portfolio                          n/a           n/a            n/a
         Bond Portfolio                            n/a           n/a            n/a
         Money Market Portfolio                    n/a           n/a            n/a
         Asset Allocation Portfolio                n/a           n/a            n/a
         Mortgage Securities Portfolio             n/a           n/a            n/a
         Index 500 Portfolio                       n/a           n/a            n/a
         Capital Appreciation Portfolio            n/a           n/a            n/a
         International Stock Portfolio        $146,004      $164,077       $198,437
         Small Company Growth Portfolio            n/a           n/a            n/a
         Maturing Government Bond -
          2006 Portfolio                           n/a           n/a            n/a
          2010 Portfolio                           n/a           n/a            n/a
         Value Stock Portfolio                     n/a           n/a            n/a
         Small Company Value Portfolio             n/a           n/a            n/a
         International Bond Portfolio           49,908        50,271         50,858
         Index 400 Mid-Cap Portfolio               n/a           n/a            n/a
         Core Equity Portfolio                  49,908        50,271         50,858
         Micro-Cap Growth Portfolio                n/a           n/a            n/a
         Real Estate Securities Portfolio          n/a           n/a            n/a

CODE OF ETHICS

         Advantus Capital, WRIMCO, Securian Financial and the Fund, together
with each of the Fund's sub-advisers, has each adopted a Code of Ethics in
accordance with the Investment Company Act of 1940 and the rules and regulations
thereunder. The private investment activities of personnel covered by the Code
of Ethics are restricted in accordance with the Code's provisions, but, subject
to such provisions, personnel may invest in securities including securities that
may be purchased or held by the Fund.

DISTRIBUTION AGREEMENT

         Securian Financial Services, Inc. ("Securian Financial") acts as the
underwriter of the Funds' shares, pursuant to a written agreement. The Board of
Directors of the Fund, including a majority of the directors who are not parties
to the agreement, or interested persons of any such party, last approved the
Fund's Underwriting and Distribution Agreement dated May 1, 2000 with Securian
Financial (the "Distribution Agreement") on January 30, 2003. Under the
Distribution Agreement, Securian Financial does not receive any compensation for
its services as principal underwriter for the Fund, except for certain fees paid
pursuant to the Fund's Rule 12b-1 Plan of Distribution. See "Payment of Certain
Distribution Expenses of the Fund," below.

         The Distribution Agreement may be terminated by the Fund or Securian
Financial at any time by the giving of 60 days' written notice, and terminates
automatically in the event of its assignment. Unless sooner terminated, the
Distribution Agreement shall continue in effect for more than two years after
its execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors of the Fund or by a vote of a majority
of the outstanding voting securities, provided that in either event such
continuance is also approved by



                                       62




the vote of a majority of the directors who are not parties to the Distribution
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.

         In the Distribution Agreement, Securian Financial undertakes to
indemnify the Fund against all costs of litigation and other legal proceedings,
and against any liability incurred by or imposed upon the Fund in any way
arising out of or in connection with the sale or distribution of the Fund's
shares, except to the extent that such liability is the result of information
which was obtainable by Securian Financial only from persons affiliated with the
Fund but not with Securian Financial.

PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUND

         The Fund has adopted a Plan of Distribution (the "Plan") relating to
the payment of certain distribution and/or shareholder servicing expenses
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan,
each Portfolio of the Fund, with the exception of the Maturing Government Bond
Portfolio 2006 and the Maturing Government Bond Portfolio 2010 (each of which is
not part of the Plan), pays a fee to Securian Financial, or to life insurance
companies ("Insurance Companies") whose variable insurance contracts ("Variable
Contracts") offer shares of the Fund, which, on an annual basis, is equal to
..25% of each Portfolio's average daily net assets, and is to be used to pay
certain expenses incurred in connection with servicing shareholder accounts and
to promote the distribution of the Fund's shares.

         The distribution fees may be used by Securian Financial for the purpose
of financing any activity, which is primarily intended to result in the sale of
shares of the Fund or Variable Contracts offering such shares.
Distribution-related payments made under the Plan may be used for, among other
things, the printing of prospectuses and reports used for sales purposes,
preparing and distributing sales literature and related expenses,
advertisements, education of Variable Contract owners or dealers and their
representatives, trail commissions, and other distribution-related expenses,
including a prorated portion of the overhead expenses of the Distributor or the
Insurance Companies which are attributable to the distribution of the Variable
Contracts. Payments under the Plan may also be used to pay Insurance Companies,
dealers or others for non-distribution services, including, among other things,
responding to inquiries from owners of Variable Contracts regarding the Fund,
printing and mailing Fund prospectuses and other shareholder communications to
existing Variable Contract owners, direct communications with Variable Contract
owners regarding Fund operations and Portfolio composition and performance,
furnishing personal services or such other enhanced services as the Fund or a
Variable Contract owner may require, or maintaining customer accounts and
records.

         In addition, the Plan contains, among other things, provisions
complying with the requirements of Rule 12b-1 discussed below. In particular,
the Plan provides that (1) the Plan will not take effect until it has been
approved by a vote of a majority of the outstanding voting securities of the
Portfolios of the Fund covered by the Plan, except for the voting securities
attributable to the Maturing Government Bond Portfolio 2006 and the Maturing
Government Bond Portfolio 2010 (each of which is not part of the Plan), and by a
majority vote of both the full Board of Directors of the Fund and those
directors who are not interested persons of the Fund and who have no direct or
indirect financial



                                       63




interest in the operation of the Plan or in any agreements relating to it (the
Independent Directors), (2) the Plan will continue in effect from one year to
another so long as its continuance is specifically approved annually by a
majority vote of both the full Board of Directors and the Independent Directors,
(3) the Plan may be terminated at any time, without penalty, by vote of a
majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the Fund, (4) the Plan may not be amended to
increase materially the amount of the fees payable thereunder unless the
amendment is approved by a vote of a majority of the outstanding voting
securities of the Fund, and all material amendments must be approved by a
majority vote of both the full Board of Directors and the Independent Directors,
(5) while the Plan is in effect, the selection and nomination of any new
Independent Directors is committed to the discretion of the Independent
Directors then in office, and (6) the Fund's underwriter, the Insurance
Companies or others will prepare and furnish to the Board of Directors, and the
Board of Directors will review, at least quarterly, written reports which set
forth the amounts expended under the Plan and the purposes for which those
expenditures were made.

         Rule 12b-1(b) provides that any payments made by an investment company
in connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating to
implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2)
requires that such plan, together with any related agreements, be approved by a
vote of the Board of Directors and of the directors who are not interested
persons of the investment company and have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the plan,
cast in person at a meeting called for the purpose of voting on such plan or
agreements. Rule 12b-1(b)(3) requires that the plan or agreement provide, in
substance: (1) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such continuance
is specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule 12b-1; (2) that any person authorized to direct the disposition
of monies paid or payable by the investment company pursuant to the plan or any
related agreement shall provide to the investment company's Board of Directors,
and the directors shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made; and
(3) in the case of a plan, that it may be terminated at any time by vote of a
majority of the members of the Board of Directors of the investment company who
are not interested persons of the investment company and have no direct or
indirect financial interest in the operation of the plan or in any agreements
related to the plan or by vote of a majority of the outstanding voting
securities of the investment company. Rule 12b-1(b)(4) requires that such plans
may not be amended to increase materially the amount to be spent for
distribution without shareholder approval and that all material amendments of
the plan must be approved in the manner described in paragraph (b)(2) of Rule
12b-1. Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that the investment company may implement or
continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to
approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under state
law, and under Sections 36(a) and (b) of the Investment Company Act of 1940,
that there is a reasonable likelihood that the plan will benefit the investment
company and its shareholders. At the Board of Directors meeting held January 30,
2003, the Board of Directors of the Fund so concluded.



                                       64




         During the fiscal year ended December 31, 2002, each Portfolio covered
by the Plan of Distribution paid the following amount to Securian Financial in
accordance with the Plan:



         Portfolio                                                                Amount Paid
         ---------                                                                -----------
                                                                              
         Growth                                                                   $  606,037
         Bond                                                                        636,388
         Money Market                                                                387,449
         Asset Allocation                                                          1,062,998
         Mortgage Securities                                                         591,054
         Index 500                                                                 1,149,955
         Capital Appreciation                                                        482,907
         International Stock                                                         642,874
         Small Company Growth                                                        375,052
         Value Stock                                                                 322,746
         Small Company Value                                                         131,142
         International Bond                                                          114,295
         Index 400 Mid-Cap                                                           106,680
         Core Equity                                                                  57,975
         Micro-Cap Growth                                                             81,694
         Real Estate Securities                                                       64,753


         In accordance with the Plan of Distribution, Securian Financial has
entered into separate Fund Shareholder Services Agreements with Minnesota Life
Insurance Company (Minnesota Life), dated May 1, 2000, PFL Life Insurance
Company (PFL), dated October 18, 2000, and AIG Life Insurance Company (AIG),
dated April 1, 2002. These Agreements provide that Minnesota Life, PFL and AIG
will provide to the Fund, on behalf of Securian Financial, distribution and
non-distribution related services, of the type described above. Securian
Financial agrees to pay Minnesota Life an amount equal, on an annual basis, to
0.25% of the average combined daily net assets of all the designated Portfolios
of the Fund which are attributable to the Contracts issued by Minnesota Life and
are a part of the Plan of Distribution. Securian Financial pays PFL an amount
equal, on an annual basis, to 0.20% of the average combined daily net assets of
all the designated Portfolios of the Fund which are attributable to the
Contracts issued by PFL and are a part of the Plan of Distribution. Securian
Financial pays AIG an amount equal, on an annual basis, to 0.25% of the average
combined daily net assets of all the designated Portfolios of the Fund which are
attributable to the Contracts issued by AIG and are a part of the Plan of
Distribution. These Agreements were last approved by a vote of the Board of
Directors, including a majority of the Independent Directors, on January 30,
2003.

         The Plan of Distribution could be construed as a "compensation plan"
because Securian Financial is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plan of Distribution. Under a
compensation plan, the fee to the distributor is not directly tied to
distribution expenses actually incurred by the distributor, thereby permitting
the distributor to receive a profit if amounts received exceed expenses.
Securian Financial may spend more or less for the distribution and promotion of
the Fund's shares than it receives as distribution fees pursuant to the Plan of
Distribution for the Portfolios covered by the Plan. However, to the extent fees
received exceed expenses, including indirect expense such as overhead, Securian
Financial could be said to have received a profit.


                                       65





CUSTODIANS

         The assets of each Portfolio of the Fund are held in custody by an
independent custodian pursuant to a custodian agreement approved by the Fund's
Board of Directors.

         Wells Fargo Bank Minnesota, Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479, is the custodian for the Money Market, Growth,
Asset Allocation, Index 500, Capital Appreciation, Small Company Growth, Value
Stock, Small Company Value, Index 400 Mid-Cap, Core Equity, Micro-Cap Growth and
Real Estate Securities Portfolios.

         Bankers Trust Company, 280 Park Avenue, New York, New York 10017, is
the custodian for the Bond, Mortgage, Maturing Government Bond, International
Stock and International Bond Portfolios.

INDEPENDENT AUDITORS

         KPMG LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402, acts
as the Fund's independent auditors, providing audit services including audits of
the Fund's annual financial statements and assistance and consultation in
connection with SEC filings.

LEGAL COUNSEL

         The Fund's general counsel is Dorsey & Whitney LLP. The firm of Faegre
& Benson LLP serves as independent legal counsel to the Fund's independent
directors.


               PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

INVESTMENT ADVISERS

         The Investment Advisers select and (where applicable) negotiate
commissions with the brokers who execute the transactions for their respective
Portfolios of the Fund, except for those Portfolios which have entered into
sub-advisory agreements. The primary criteria for the selection of a broker is
the ability of the broker, in the opinion of the Investment Adviser, to secure
prompt execution of the transactions on favorable terms, including the
reasonableness of the commission and considering the state of the market at the
time. In selecting a broker, the Investment Adviser considers the quality and
expertise of that brokerage and any research services (as defined in the
Securities Exchange Act of 1934), and generally the Fund pays higher than the
lowest commission rates available. Such research services include advice, both
directly and in writing, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. By allocating brokerage
business in order to obtain research services for the Investment Advisers, the
Fund enables the Investment Advisers to supplement their own investment research
activities and allows the Investment Advisers to obtain the views and
information of individuals and research staffs of many different securities
research firms prior to making investment decisions for the Fund. To the extent
such commissions are directed to these other brokers who furnish research



                                       66




services to the Investment Advisers, the Investment Advisers receive a benefit,
not capable of evaluation in dollar amounts, without providing any direct
monetary benefit to the Fund from these commissions.

         There is no formula for the allocation by the Investment Advisers of
the Fund's brokerage business to any broker-dealers for brokerage and research
services. However, an Investment Adviser will authorize the Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker would have charged only if the Investment
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or the Investment
Adviser's overall responsibilities with respect to the accounts as to which it
exercises investment discretion.

         To the extent research services are used by the Investment Advisers in
rendering investment advice to the Fund, such services would tend to reduce the
Investment Adviser's expenses. However, the Investment Advisers do not believe
that an exact dollar amount can be assigned to these services. Research services
received by the Investment Advisers from brokers or dealers executing
transactions for the Fund will be available also for the benefit of other
portfolios managed by the Investment Advisers, and conversely, research services
received by the Investment Advisers in respect of transactions for such other
portfolios will be available for the benefit of the Fund.

         During the fiscal years ended December 31, 2002, 2001 and 2000,
brokerage commissions paid were:



                                                        Brokerage Commissions Paid

         Portfolio                              2002              2001                 2000
         ---------                              ----              ----                 ----
                                                                           
         Growth Portfolio                   $  750,920         $  713,677           $  768,475
         Bond Portfolio                             --                 --                   --
         Money Market Portfolio                     --                 --                   --
         Asset Allocation Portfolio          1,201,437          1,210,412            1,022,865
         Mortgage Securities Portfolio              --                 --                   --
         Index 500 Portfolio                    67,598             39,557               54,145
         Capital Appreciation Portfolio        242,079            548,772              980,533
         International Stock Portfolio         389,592            540,298              544,173
         Small Company Growth Portfolio        396,802            261,073              376,042
         Maturing Government Bond --
           2006 Portfolio                           --                 --                   --
           2010 Portfolio                           --                 --                   --
         Value Stock Portfolio                 496,093            530,718              598,678
         Small Company Value Portfolio         197,174             31,268               41,621
         International Bond Portfolio               --                 --                   --
         Index 400 Mid-Cap Portfolio            45,408             13,586               34,186
         Core Equity Portfolio                  19,332             26,107               21,582
         Micro-Cap Growth Portfolio            273,469             30,129               21,551
         Real Estate Securities Portfolio       99,237             94,691               55,897


                                       67


         Most transactions in money market instruments will be purchases from
issuers of or dealers in money market instruments acting as principal. There
usually will be no brokerage commissions paid by the Fund for such purchases
since securities will be purchased on a net price basis. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices of securities.
Purchases of underwritten issues may be made which will reflect a fee paid to
the underwriter.

         The Fund will not execute portfolio transactions through any affiliate,
except as described below. The Investment Advisers believe that most research
services obtained by them generally benefit one or more of the investment
companies which they managed and also benefits accounts which they manage.
Normally research services obtained through managed funds and managed accounts
investing in common stocks would primarily benefit such funds and accounts;
similarly, services obtained from transactions in fixed income securities would
be of greater benefit to the managed funds and managed accounts investing in
debt securities.

         Consistent with achieving best execution, the Fund may participate in
so-called "directed brokerage" (or "Commission recapture") programs, under which
brokers (or dealers) used by the Fund remit a portion of brokerage commissions
(or credits on fixed income transactions) to the particular Portfolio from which
they were generated. Subject to oversight by the Fund's Board of Directors,
either Investment Adviser or the sub-adviser, if any, is responsible for the
selection of brokers or dealers and for ensuring that a Portfolio receives best
price and execution in connection with its portfolio brokerage transactions.
Participation in such programs may increase Portfolio returns.

         Although the rules of the National Association of Securities Dealers,
Inc. prohibit its members from seeking orders for the execution of investment
company portfolio transactions on the basis of their sales of investment company
shares, under such rules, sales of investment company shares may be considered
by the investment company as a factor in selecting brokers to effect portfolio
transactions. Accordingly, some portfolio transactions are, subject to such
rules and to obtaining best prices and executions, executed through dealers who
sell shares of funds in the fund complex or who agree to transmit a portion of
the brokerage commissions on transactions executed by them to broker/dealers who
sell fund shares.

         In addition to providing investment management services to the Fund,
Advantus Capital provides investment advisory services for three insurance
companies, namely Minnesota Life and its subsidiary life insurance companies and
certain associated separate accounts. It also provides investment advisory
services to qualified pension and profit sharing plans, corporations,
partnerships, investment companies and various private accounts. Frequently,
investments deemed advisable for the Fund are also deemed advisable for one or
more of such accounts, so that Advantus Capital may decide to purchase or sell
the same security at or about the same time for both the Fund and one of those
accounts. In such circumstances, orders for a purchase or sale of the same
security for one or more of those accounts may be combined with an order for the
Fund, in which event the transactions will be averaged as to price and normally
allocated as nearly as practicable in proportion to the amounts desired to be
purchased or sold for each account. While in some instances combined orders
could adversely affect the price or volume of a security, it is believed that
the Fund's participation in such transactions on balance will produce better net
results for the Fund.

         In addition to providing investment advisory services to the Fund,
WRIMCO provides such services to other investment companies and may also serve
as investment adviser to other institutional clients.  WRIMCO may manage other
advisory accounts with similar investment objectives to those of the Portfolios
advised by WRIMCO. It can be anticipated that WRIMCO will frequently, yet not
always, place concurrent orders for all or most accounts for which WRIMCO has
responsibility or WRIMCO may otherwise combine orders for a Portfolio with those
of other Portfolios, funds in the W&R Target Funds, Inc., Waddell & Reed
InvestEd Portfolios, Inc., W&R Funds, Inc., each of the registered investment
companies in the Waddell & Reed Advisors Funds and/or other accounts for which
it has investment discretion, including accounts affiliated with WRIMCO.  Under
current procedures, transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each fund or advisory account, except where the
combined order is not filled completely. In this case, for a transaction not
involving an initial public offering, WRIMCO will ordinarily allocate the
transaction pro rata based on the orders placed, subject to certain variances
provided for in the written procedures.



                                       68





         The Fund's acquisition during the fiscal year ended December 31, 2002,
of securities of its regular brokers or dealers or of the parent of those
brokers or dealers that derive more than 15 percent of gross revenue from
securities-related activities is presented below:



                                                                           Value of Securities Owned
                                                                             in the Portfolios at
                  Name of Issuer                                              End of Fiscal Year
                  --------------                                           --------------------------
                                                                        
                  CitiGroup, Inc.                                                $    21,515
                  Morgan Stanley                                                       5,810
                  Goldman Sachs Group, Inc.                                            4,966
                  Merrill Lynch & Company, Inc.                                        4,151
                  T Rowe Price Associates, Inc.                                        3,549
                  Affiliated Managers                                                  1,318
                  Charles Schwab Corporation                                             817
                  Lehman Brothers, Inc.                                                  644
                  Bear Stearns Mortgage, Inc.                                            289
                  Digital Insight Corporation                                            228
                  GMAC                                                                   196
                  Legg Mason, Inc.                                                       176
                  AG Edwards, Inc.                                                       146
                  E-trade Group, Inc.                                                    119
                  Waddell and Reed Financial                                              87
                  Investment Technology Group, Inc.                                       58



SUB-ADVISERS

         Except as indicated below, each of the investment advisory firms having
a sub-advisory relationship with Advantus Capital, in managing the affected
Portfolios, intends to follow the same brokerage practices as those described
above for the Investment Advisers. Templeton Counsel, in managing the
International Stock Portfolio, follows the same basic brokerage practices as
those described above for Advantus Capital. In addition, in selecting brokers
for portfolio transactions, Templeton Counsel takes into account its past
experience as to brokers qualified to achieve "best execution," including the
ability to effect transactions at all where a large block is involved,
availability of the broker to stand ready to execute possibly difficult
transactions in the future, the financial strength and stability of the broker,
and whether the broker specializes in foreign securities held by the
International Stock Portfolio. Purchases and sales of portfolio securities
within the United States other than on a securities exchange are executed with
primary market makers acting as principal, except where, in the judgment of
Templeton Counsel, better prices and execution may be obtained on a commission
basis or from other sources.


                        PURCHASE AND REDEMPTION OF SHARES

         Shares of the Fund are currently offered continuously at prices equal
to the respective net asset values of the Portfolios only to Minnesota Life, and
to certain of its life insurance affiliates, in connection with its variable
life insurance policies and variable annuity contracts. Securian Financial
serves as the Fund's underwriter. It is possible that at some later date the
Fund may offer its shares to other investors and it reserves the right to do so.


                                       69




         Shares of the Fund are sold and redeemed at their net asset value next
computed after a purchase or redemption order is received by the Fund. Depending
upon the net asset values at that time, the amount paid upon redemption may be
more or less than the cost of the shares redeemed. Payment for shares redeemed
will generally be made within seven days after receipt of a proper notice of
redemption. The right to redeem shares or to receive payment with respect to any
redemption may only be suspended for any period during which: (a) trading on the
New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or such exchange is closed for other than weekends and
holidays; (b) an emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of Portfolio securities or
determination of the net asset value of a Portfolio is not reasonably
practicable; and (c) the Securities and Exchange Commission by order permits
postponement for the protection of shareholders.


                          FUND SHARES AND VOTING RIGHTS

         The authorized capital of the Fund consists of one trillion shares of
capital stock with a par value of $.01 per share; with authorized shares of
100,000,000,000 allocated to each Portfolio. The remaining shares may be
allocated by the Board of Directors to any new or existing Portfolios.

         All shares of all Portfolios have equal voting rights, except that only
shares of a particular Portfolio are entitled to vote certain matters pertaining
only to that Portfolio. Pursuant to the Investment Company Act of 1940 (as
amended) and the rules and regulations thereunder, certain matters approved by a
vote of all Fund shareholders may not be binding on a Portfolio whose
shareholders have not approved such matter.

         Each issued and outstanding share is entitled to one vote and to
participate equally in dividends and distributions declared by the respective
Portfolio and in net assets of such Portfolio upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities. The shares of each
Portfolio, when issued, are fully paid and non-assessable, have no preemptive,
conversion, or similar rights, and are freely transferable. Fund shares do not
have cumulative voting rights, which means that the holders of more than half of
the Fund shares voting for election of directors can elect all of the directors
if they so choose. In such event, the holders of the remaining shares would not
be able to elect any directors.

         The Fund will not hold periodically scheduled shareholder meetings.
Minnesota corporate law does not require an annual meeting. Instead, it provides
for the Board of Directors to convene shareholder meetings when it deems
appropriate. In addition, if a regular meeting of shareholders has not been held
during the immediately preceding fifteen months, a shareholder or shareholders
holding three percent or more of the voting shares of a Fund may demand a
regular meeting of shareholders of the Fund by written notice of demand given to
the chief executive officer or the chief financial officer of the Fund. Within
thirty days after receipt of the demand by one of those officers, the Board of
Directors shall cause a regular meeting of shareholders to be called and held no
later than ninety days after receipt of the demand, all at the expense of the
Fund. A special meeting may also be called at any time by the chief executive
officer, two or more directors, or a shareholder or shareholders holding ten
percent of the voting shares of the Fund. At a meeting, called for the purpose,
shareholders may remove any director


                                       70

by a vote of two-thirds of the outstanding shares. Additionally, the Investment
Company Act of 1940 requires shareholder votes for all amendments to fundamental
investment policies and restrictions, and for all investment advisory contracts
and amendments thereto.

                             PRINCIPAL SHAREHOLDERS

     The officers and directors of the Fund cannot directly own shares of the
Portfolios, but may own shares indirectly by purchasing a variable life
insurance policy or variable annuity contract through Minnesota Life or another
participating life insurance company. As a result, such officers and directors
as a group own less than 1% of the outstanding shares of each Portfolio.

     No shareholder owns 5% or more of the outstanding shares of any Portfolio
except as set forth below. As of March 31, 2003, all of the outstanding shares
of each Portfolio were owned by Minnesota Life Insurance Company, 400 Robert
Street North, St. Paul, Minnesota 55101-2098, in the following amounts:



                                       Number of             Percent
     Name of Portfolio                Shares Owned            Owned
     ----------------------           ------------           -------
                                                       
     Growth                            164,266,585             100%
     Bond                              215,917,918             100%
     Money Market                      157,353,192             100%
     Asset Allocation                  271,993,976             100%
     Mortgage Securities               196,995,958             100%
     Index 500                         152,656,948             100%
     Capital Appreciation              134,744,070             100%
     International Stock               198,723,807             100%
     Small Company Growth              181,025,849             100%
     Maturing Government
      Bond 2006                          8,319,078             100%
     Maturing Government
      Bond 2010                          6,806,294             100%
     Value Stock                        87,366,449             100%
     Small Company Value                53,293,556             100%
     International Bond                 54,477,834             100%
     Index 400 Mid-Cap                  42,451,122             100%
     Core Equity                        27,897,101             100%
     Micro-Cap Growth                   27,343,669             100%
     Real Estate Securities             33,483,913             100%

                                 NET ASSET VALUE

         The net asset value of the shares of the Portfolios is computed once
daily, and, in the case of Money Market Portfolio, after the declaration of the
daily dividend, as of the primary closing time for business on the New York
Stock Exchange (as of the date hereof the primary close of trading is 3:00 p.m.
(Central Time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of such Fund's portfolio
securities will not materially affect the current net asset value of such Fund's
shares, (ii) days during which no such Fund's shares are tendered for redemption
and no order to purchase or sell such Fund's shares is received by such Fund and
(iii) customary national business holidays on which the New York Stock Exchange
is closed for trading (as of the date hereof, New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day). The net asset value per share of each
Portfolio is computed by adding the sum of the value of the securities held by
that Portfolio plus any cash or other assets that it holds, subtracting all of
its liabilities, and dividing the result by the total number of shares
outstanding in that Portfolio at that time. Expenses, including the investment
advisory fee payable to Advantus Capital, are accrued daily.

         Securities, except securities held by the Money Market Portfolio,
including put and call options, which are traded over-the-counter and on a
national exchange will be valued according to the broadest and most
representative market. A security which is only listed or traded on an exchange,
or for which an exchange is the most representative market, is valued at its
last sale price (prior to the time as of which assets are valued) on the
exchange where it is principally traded. Lacking any sales on the exchange where
it is principally traded on the date of valuation, prior to the time as of which
assets are valued, the security generally is valued at the last bid price on
that exchange. Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing settlement price
or in the absence of such a price, the most recent quoted bid price. All other
securities for which over-the-counter market quotations are readily available
are valued on the basis of the last current bid price. When market quotations
are not readily available, such securities are valued at fair value as
determined in good faith by the Board of Directors. Other assets also are valued
at fair value as determined in good faith by the Board of Directors. However,
debt securities may be valued on the basis of valuations furnished by a pricing
service which utilizes electronic data processing techniques to determine
valuations for normal institutional-size trading units of debt securities,
without regard to sale or bid prices, when such valuations are believed to more
accurately reflect the fair market value of such securities. Short-term
investments in debt securities are valued daily at market, except that debt
obligations with remaining maturities of sixty days or less held by the
International Stock, International Bond and Core Equity Portfolios may be valued
at their amortized cost, which approximates market value.

         All instruments held by the Money Market Portfolio are valued on an
amortized cost basis. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating



                                       71




interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which the value of an
instrument in the Portfolio, as determined by amortized cost, is higher or lower
than the price the Portfolio would receive if it sold the instrument. During
periods of declining interest rates, the daily yield on shares of the Portfolio
computed by dividing the annualized daily income of the Portfolio by the net
asset value computed as described above may tend to be higher than a like
computation made by a portfolio with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
securities.

         The Money Market Portfolio values its portfolio securities at amortized
cost in accordance with Rule 2a-7 under the Investment Company Act of 1940, as
amended. Pursuant to Rule 2a-7, the Board of Directors of the Fund has
determined, in good faith based upon a full consideration of all material
factors, that it is in the best interests of the Money Market Portfolio and its
shareholders to maintain a stable net asset value per share for such Portfolio
of a constant $ 1.00 per share by virtue of the amortized cost method of
valuation. The Money Market Portfolio will continue to use this method only so
long as the Board of Directors believes that it fairly reflects the market-based
net asset value per share. In accordance with Rule 2a-7, the Board of Directors
has undertaken, as a particular responsibility within the overall duty of care
owed to the Portfolio's shareholders, to establish procedures reasonably
designed, taking into account current market conditions and the Portfolio's
investment objective, to stabilize the Portfolio's net asset value per share at
a single value. These procedures include the periodic determination of any
deviation of current net asset value per-share calculated using available market
quotations from the Portfolio's amortized cost price per-share, the periodic
review by the Board of the amount of any such deviation and the method used to
calculate any such deviation, the maintenance of records of such determinations
and the Board's review thereof, the prompt consideration by the Board if any
such deviation exceeds 1/2 of 1%, and the taking of such remedial action by the
Board as it deems appropriate where it believes the extent of any such deviation
may result in material dilution or other unfair results to investors or existing
shareholders. Such remedial action may include reverse share splits, redemptions
in kind, selling portfolio instruments prior to maturity to realize capital
gains or losses, shortening the average portfolio maturity, withholding
dividends or utilizing a net asset value per share as determined by using
available market quotations.

         The Portfolio will, in further compliance with Rule 2a-7, maintain a
dollar-weighted average Portfolio maturity not exceeding 90 days and will limit
its Portfolio investments to those United States dollar-denominated instruments
which the Board determines present minimal credit risks and which are eligible
securities. The Portfolio will limit its investments in the securities of any
one issuer to no more than 5% of Portfolio assets and it will limit investment
in securities of less than the highest rated categories to 5% of Portfolio
assets. Investment in the securities of any issuer of less than the highest
rated categories will be limited to the greater of 1% of Portfolio assets or one
million dollars. In addition, the Fund will reassess promptly any security which
is in default or downgraded from its rating category to determine whether that
security then presents minimal credit risks and whether continuing to hold the
securities is in the best interests of the Portfolio in the Fund. In addition,
the Fund will record, maintain, and preserve a written copy of the
above-described procedures and a written record of the Board's considerations
and actions taken in connection with the discharge of its above-described
responsibilities.


                                       72





                                PERFORMANCE DATA

CURRENT YIELD FIGURES FOR MONEY MARKET PORTFOLIO

         Current annualized yield quotations for the Money Market Portfolio are
based on the Portfolio's net investment income for a seven-day or other
specified period and exclude any realized or unrealized gains or losses on
portfolio securities. Current annualized yield is computed by determining the
net change (exclusive of realized gains and losses from the sale of securities
and unrealized appreciation and depreciation) in the value of a hypothetical
account having a balance of one share at the beginning of the specified period,
dividing such net change in account value by the value of the account at the
beginning of the period, and annualizing this quotient on a 365-day basis. The
net change in account value reflects the value of any additional shares
purchased with dividends from the original share in the account during the
specified period, any dividends declared on such original share and any such
additional shares during the period, and expenses accrued during the period. The
Fund may also quote the effective yield of the Money Market Portfolio for a
seven-day or other specified period for which the current annualized yield is
computed by expressing the unannualized return on a compounded, annualized
basis. Purchasers of variable contracts issued by Minnesota Life should
recognize that the yield on the assets relating to such a contract which are
invested in shares of the Money Market Portfolio would be lower than the Money
Market Portfolio's yield for the same period since charges assessed against such
assets are not reflected in the Portfolio's yield. The current yield and
effective yield of the Money Market Portfolio for the seven-day period ended
December 31, 2002 were .57% and .58%, respectively.

CURRENT YIELD FIGURES FOR OTHER PORTFOLIOS

         Yield quotations for Portfolios other than the Money Market Portfolio
are determined by dividing the Portfolio's net investment income per share for a
30-day period, excluding realized or unrealized gains or losses, by the net
asset value per share on the last day of the period. In computing net investment
income dividends are accrued daily based on the stated dividend rate of each
dividend-paying security, and interest reflects an amortization of discount or
premium on debt obligations (other than installment debt obligations) based upon
the market value of each obligation on the last day of the preceding 30-day
period. Undeclared earned income (net investment income which at the end of the
base period has not been declared as a dividend but is expected to be declared
shortly thereafter) is subtracted from the net asset value per share on the last
day of the period. An annualized yield figure is determined under a formula
which assumes that the net investment income is earned and reinvested at a
constant rate and annualized at the end of a six-month period. The yield figures
published by the Fund will reflect Advantus Capital's voluntary absorption of
certain Fund expenses (as previously discussed in "Investment Advisory and Other
Services - Investment Advisory Agreement" above). For the 30-day period ended
December 31, 2002, the yields of the Portfolios are shown in the table below.
The figures in parentheses show what the yield would have been had Advantus
Capital not absorbed Fund expenses as described above.



                  Portfolio                                                           Yield
                  ---------                                                           -----
                                                                                        
         Growth Portfolio                                                       .35%          (.35%)
         Bond Portfolio                                                        4.57          (4.55)


                                       73




                                                                                        
         Money Market Portfolio                                                 N/A            N/A
         Asset Allocation Portfolio                                            2.43          (2.43)
         Mortgage Securities Portfolio                                         5.97          (5.95)
         Index 500 Portfolio                                                   1.56          (1.56)
         Capital Appreciation Portfolio                                         .07           (.07)
         International Stock Portfolio                                        -1.08         (-1.08)
         Small Company Growth Portfolio                                        -.67          (-.67)
         Maturing Government Bond --
           2006 Portfolio                                                      2.32          (1.91)
           2010 Portfolio                                                      3.62          (3.12)
         Value Stock Portfolio                                                 1.72          (1.72)
         Small Company Value Portfolio                                         -.49          (-.50)
         International Bond Portfolio                                          3.74          (3.74)
         Index 400 Mid-Cap Portfolio                                            .36           (.36)
         Core Equity Portfolio                                                  .61           (.61)
         Micro-Cap Growth Portfolio                                           -1.14         (-1.32)
         Real Estate Securities Portfolio                                      1.46          (1.31)


TOTAL RETURN FIGURES FOR ALL PORTFOLIOS

         Cumulative total return quotations for the Portfolios represent the
total return for the period since shares of the Portfolio became available for
sale pursuant to the Fund's registration statement. Cumulative total return is
equal to the percentage change between the net asset value of a hypothetical
$1,000 investment at the beginning of the period and the net asset value of that
same investment at the end of the period with dividend and capital gain
distributions treated as reinvested.

         The cumulative total return figures published by the Fund will reflect
the voluntary absorption of certain Fund expenses by Advantus Capital and
Minnesota Life (as previously discussed in "Investment Advisory and Other
Services - Investment Advisory Agreement" above). The cumulative total returns
for the Portfolios for the specified periods ended December 31, 2002 are shown
in the table below. The figures in parentheses show what the cumulative total
returns would have been had Advantus Capital and Minnesota Life not absorbed
Fund expenses as described above.




                                                                    From Inception                   Date of
                                                                      to 12/31/02                   Inception
                                                                    ---------------                 ---------
                                                                                            
Growth Portfolio                                                  232.75%     (228.97%)              12/3/85
Bond Portfolio                                                    270.08      (266.89)               12/3/85
Money Market Portfolio                                            129.98      (119.80)               12/3/85
Asset Allocation Portfolio                                        266.81      (265.69)               12/3/85
Mortgage Securities Portfolio                                     257.12      (255.89)                5/1/87
Index 500 Portfolio                                               307.71      (306.15)                5/1/87
Capital Appreciation Portfolio                                    209.61      (205.33)                5/1/87


                                       74





                                                                                            
International Stock Portfolio                                      95.28       (95.19)                5/1/92
Small Company Growth Portfolio                                     43.61       (43.58)                5/3/93
Maturing Government Bond -
     2006 Portfolio                                               123.38      (107.45)                5/2/94
     2010 Portfolio                                               145.26      (120.64)                5/2/94
Value Stock Portfolio                                              67.93       (67.42)                5/2/94
Small Company Value Portfolio                                       9.46        (7.85)               10/1/97
International Bond Portfolio                                       26.26       (25.87)               10/1/97
Index 400 Mid-Cap Portfolio                                        32.05       (30.55)               10/1/97
Core Equity Portfolio                                             -20.89      (-22.83)              10/15/97
Micro-Cap Growth Portfolio                                         -3.36       (-3.50)               10/1/97
Real Estate Securities Portfolio                                   20.91       (17.11)                5/1/98



Yield quotations for Portfolios other than the Money Market Portfolio and all
quotations of cumulative total return figures will be accompanied by average
annual total return figures for a one year period and for the period since
shares of the Portfolio became available pursuant to the Fund's registration
statement. Average annual total return figures are the average annual compounded
rates of return required for an account with an initial investment of $1,000 to
equal the redemption value of the account at the end of the period. The average
annual total return figures published by the Fund will reflect the voluntary
absorption of certain Fund expenses by Advantus Capital and Minnesota Life (as
discussed in "Investment Advisory and Other Services -- The Fund's Investment
Advisory Agreement" above).

         The average annual rates of return for the Portfolios for the specified
periods ended December 31, 2002 are shown in the table below. The figures in
parentheses show what the average annual rates of return would have been had
Advantus Capital and Minnesota Life not absorbed Fund expenses as described
above.



                                       75






                                         Year Ended            Five Years           Ten Years          From Inception       Date of
                                          12/31/02           Ended 12/31/02       Ended 12/31/02         to 12/31/02       Inception
                                          --------           --------------       --------------         -----------       ---------
                                                                                                
Growth Portfolio                     -25.44%   (-25.44%)    -5.80%   (-5.80%)     4.28%    (4.28%)     7.29%     (7.22%)    12/3/85
Bond Portfolio                        10.50     (10.50)      6.32     (6.32)      6.79     (6.79)      7.96      (7.91)     12/3/85
Money Market Portfolio                 1.28      (1.28)      4.12     (4.12)      4.24     (4.22)      5.00      (4.80)     12/3/85
Asset Allocation Portfolio            -8.98     (-8.98)      -.11     (-.11)      5.74     (5.74)      7.91      (7.89)     12/3/85
Mortgage Securities Portfolio          9.66      (9.66)      7.76     (7.75)      7.60     (7.59)      8.46      (8.44)      5/1/87
Index 500 Portfolio                  -22.37    (-22.37)     -1.02    (-1.02)      8.80     (8.80)      9.44      (9.41)      5/1/87
Capital Appreciation Portfolio       -31.54    (-31.54)     -5.92    (-5.92)      4.42     (4.42)      7.48      (7.38)      5/1/87
International Stock Portfolio        -17.82    (-17.82)      -.97     (-.97)      7.68     (7.68)      6.48      (6.47)      5/1/92
Small Company Growth
  Portfolio                          -31.80    (-31.80)     -5.31    (-5.31)       N/A       N/A       3.82      (3.81)      5/3/93
Maturing Government Bond-
   2006 Portfolio                     12.99     (12.62)      8.28     (7.61)       N/A       N/A       9.72      (8.79)      5/2/94
   2010 Portfolio                     18.85     (18.22)      8.89     (7.90)       N/A       N/A      10.91      (9.56)      5/2/94
Value Stock Portfolio                -15.32    (-15.32)     -5.31    (-5.31)       N/A       N/A       6.16      (6.13)      5/2/94
Small Company Value
   Portfolio                         -19.98    (-20.06)      1.37     (1.07)       N/A       N/A       1.74      (1.45)     10/1/97
International Bond Portfolio          17.94     (17.94)      4.76     (4.70)       N/A       N/A       4.54      (4.48)     10/1/97
Index 400 Mid-Cap Portfolio          -15.03    (-15.03)      5.71     (5.47)       N/A       N/A       5.44      (5.21)     10/1/97
Core Equity Portfolio                -28.14    (-28.36)     -4.17    (-4.56)       N/A       N/A      -4.40     (-4.85)    10/15/97
Micro-Cap Growth Portfolio           -43.64    (-43.75)      2.17     (1.78)       N/A       N/A       -.65      (-.68)     10/1/97
Real Estate Securities Portfolio       6.97      (6.79)       N/A       N/A        N/A       N/A       4.15      (3.44)      5/1/98



                                       76


         Purchasers of variable contracts issued by Minnesota Life or other life
insurance companies should recognize that the yield, cumulative total return and
average annual total return on the assets relating to such a contract which are
invested in shares of any of the above Portfolios would be lower than the yield,
cumulative total return and average annual total return of such Portfolio for
the same period since charges assessed by the life insurance companies against
such assets are not reflected in the Portfolios' quotations.

                                     TAXES

         The Fund and each Portfolio qualified for the year ended December 31,
2002, and intends to continue to qualify as a "regulated investment company"
under the provisions of Subchapter M of the Internal Revenue Code, as amended
(the "Code"). Each Portfolio of the Fund is treated as a separate entity for
federal income tax purposes. If each Portfolio of the Fund qualifies as a
"regulated investment company" and complies with the provisions of the Code
relieving regulated investment companies which distribute substantially all of
their net income (both ordinary income and capital gain) from federal income
tax, each Portfolio of the Fund will be relieved of such tax on the amounts
distributed.

         To qualify for treatment as a regulated investment company, each
Portfolio must, among other things, derive in each taxable year at least 90% of
its gross income from dividends, interest payments with respect to securities,
and gains (without deduction for losses) from the sale or other disposition of
securities.

         Each Portfolio of the Fund with outstanding shares which were purchased
to provide the Portfolio's initial capital (in an amount in excess of that
specified in the Code) and which are not attributable to any of the contracts is
subject to a non-deductible excise tax equal to 4 percent of the excess, if any,
of the amount required to be distributed pursuant to the Code for each calendar
year over the amount actually distributed. Currently, only the Maturing
Government Bond 2006 Portfolio, Small Company Value Portfolio, Index 400 Mid-Cap
Portfolio, Core Equity Portfolio, Micro-Cap Growth Portfolio, International Bond
Portfolio and Real Estate Securities Portfolio are subject to these distribution
requirements. In order to avoid the imposition of this excise tax, each
Portfolio generally must declare dividends by the end of a calendar year
representing 98 percent of that Portfolio's ordinary income for the calendar
year and 98 percent of its capital gain net income (both long-term and
short-term capital gains) for the twelve-month period ending October 31 of the
calendar year.

         The foregoing is a general summary of applicable provisions of the Code
and Treasury Regulations now in effect and as currently interpreted by the
courts and the Internal Revenue Service. The Code and these Regulations, as well
as current interpretations thereof, may be changed at any time by legislative,
judicial or administrative action.

         As the sole shareholder of the Fund will be Minnesota Life and the
separate accounts of Minnesota Life, this statement does not discuss federal
income tax consequences to the shareholder. For tax information with respect to
an owner of a contract issued in connection with the separate accounts, see the
Prospectus for those contracts.


                          THE STANDARD & POOR'S LICENSE

         Standard & Poor's ("S&P") is a division of the McGraw-Hill Companies,
Inc. S&P has trademark rights to the marks "Standard & Poor's(R)," "S&P(R),"
"S&P 500(R), "S&P 400(R)," "Standard & Poor's 500," "Standard & Poor's MidCap
400," and "500" and has licensed the use of such marks by the Fund, the Index
500 Portfolio and the Index 400 Mid-Cap Portfolio.

The Index 500 Portfolio and the Index 400 Mid-Cap Portfolio (collectively, the
"Portfolios") are not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolios
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolios particularly or the ability of the S&P
500 Index or the S&P MidCap 400 Index to track general stock market performance.
S&P's only relationship to the Portfolios is the licensing of certain trademarks
and trade names of S&P and of the S&P 500 Index and the S&P MidCap 400 Index
which are determined, composed and calculated by S&P without regard to the Fund.
S&P has no obligation to take the needs of the Portfolios or the owners of the
Fund into consideration in


                                       77




determining, composing or calculating the S&P 500 Index or the S&P MidCap 400
Index. S&P is not responsible for and has not participated in the determination
of the net asset value or public offering price of the Portfolios nor is S&P a
distributor of the Fund. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Portfolios.

         S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P
HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE
PORTFOLIOS, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500 INDEX, THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX, THE S&P 400 MIDCAP INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.


                              FINANCIAL STATEMENTS



         The Fund's financial statements for the year ended December 31, 2002,
including the financial highlights for each of the respective periods presented,
appearing in the Fund's Annual Report to Shareholders, and the report thereon of
the Fund's independent auditors, KPMG LLP, also appearing therein, are
incorporated by reference in this Statement of Additional Information.



                                       78




                    APPENDIX A - MORTGAGE-RELATED SECURITIES

         Mortgage-related securities represent an ownership interest in a pool
of residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his lending institution are "passed-through" to investors such as
the Fund. Most insurers or services provide guarantees of payments, regardless
of whether or not the mortgagor actually makes the payment. The guarantees made
by issuers or servicers are backed by various forms of credit, insurance and
collateral.

UNDERLYING MORTGAGES

         Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. Some of
these loans are made to purchasers of mobile homes. The terms and
characteristics of the mortgage instruments are generally uniform within a pool
buy may vary among pools. For example, in addition to fixed-rate fixed-term
mortgages, the fund may purchase pools of variable rate mortgages, growing
equity mortgages, graduated payment mortgages and other types.

         All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.

LIQUIDITY AND MARKETABILITY

         Since the inception of the mortgage-related pass-through security in
1970, the market for these securities has expanded considerably. The size of the
primary issuance market and active participation in the secondary market by
securities dealers and many types of investors makes government and
government-related pass-through pools highly liquid. The recently introduced
private conventional pools of mortgages (pooled by commercial banks, savings and
loans institutions and others, with no relationship with government and
government-related entities) have also achieved broad market acceptance and
consequently an active secondary market has emerged. However, the market for
conventional pools is smaller and less liquid than the market for the government
and government-related mortgage pools. The Fund may purchase some
mortgage-related securities through private placements, in which case only a
limited secondary market exists, and the security is considered illiquid.

AVERAGE LIFE

         The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.



                                      A-1




         As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.

YIELD CALCULATIONS

         Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
and the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has been consistent
with the 12-year assumption referred to above.

         Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of
the Fund. The compounding effect from reinvestments of monthly payments received
by the Fund will increase the yield to shareholders compared to bonds that pay
interest semi-annually.




                                      A-2




                 APPENDIX B - BOND AND COMMERCIAL PAPER RATINGS

BOND RATINGS

         Moody's Investors Service, Inc. describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:

         Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

         Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

         Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.

         Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

         Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

         Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

         Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2,
and 3, in each of these generic rating classifications. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

         Standard & Poor's Corporation describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:



                                      B-1





         AAA.  Debt rated "AAA" has the highest rating assigned by Standard &
Poor's.  Capacity to pay interest and repay principal is extremely strong.

         AA. Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.

         A. Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

         BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

         BB. Debt rated "BB" has less near-term vulnerability to default than
other speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.

         B. Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.

         Standard & Poor's Corporation applies indicators "+", no character, and
"-" to the above rating categories. The indicators show relative standing within
the major rating categories.

COMMERCIAL PAPER RATINGS

         The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following: (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.

         The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:


                                      B-2




         Liquidity ratios of the issuer are adequate to meet cash redemptions.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.



                                      B-3





                         APPENDIX C - FUTURES CONTRACTS

EXAMPLE OF FUTURES CONTRACT SALE

         The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term securities prices. Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds"). The Fund wishes to fix the current market value of this portfolio
security until some point in the future. Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated rise
in interest rates, the value will decline to $95. The Fund might enter into
futures contract sales of Treasury bonds for a price of $98. If the market value
of the portfolio security does indeed decline from $100 to $95, the futures
market price for the Treasury bonds might also decline from $98 to $93.

         In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale. Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation between
cash and futures prices mentioned above.

         The Fund could be wrong in its forecast of interest rates and the
futures market price could rise above $98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.

         If interest rate levels did not change prior to settlement date, the
Fund, in the above example, would incur a loss of $2 if it delivered the
portfolio security on the settlement date (which loss might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
nominal transaction expenses would also be incurred.

EXAMPLE OF FUTURES CONTRACT PURCHASE

         The Fund would engage in a futures contract purchase when it is not
fully invested in long-term securities but wishes to defer for a time the
purchase of long-term securities in light of the availability of advantageous
interim investments, e.g., short-term securities whose yields are greater than
those available on long-term securities. The Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of the increases in market price of the long-term
securities that the Fund may purchase.

         For example, assume that the market price of a long-term security that
the Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Fund wishes to fix the current
market price (and thus 10% yield) of the long-term security until the time (four
months away in this example) when it may purchase the security.



                                      C-1






         Assuming the long-term security has a market price of $100, and the
Fund believes that, because of an anticipated fall in interest rates, the price
will have risen to $105 (and the yield will have dropped to about 9-1/2%) in
four months, the Fund might enter into futures contracts purchases of Treasury
bonds for a price of $98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term security at an
assumed market price of $100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from $100 to
$105, the futures market price for Treasury bonds might also rise from $98 to
$103. In that case, the $5 increase in the price that the Fund pays for the
long-term security would be offset by the $5 gain realized by closing out the
futures contract purchase.

         The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could fall
below $98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
securities. The market prices of available long-term securities would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.

         If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term securities. The yields on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
security, would remain higher than yields on long-term bonds. The benefit of
this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase.

         In each transaction, nominal transaction expenses would also be
incurred.

TAX TREATMENT

         The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes. Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold for
their fair market value on the last business day of such year. Forty percent of
any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60 percent of such gain or loss will be
treated as long-term capital gain or loss. The amount of any capital gain or
loss actually realized by the Fund in a subsequent sale or other disposition of
these futures contracts will be adjusted to reflect any capital gain or loss
taken into account by the Fund in a prior year as a result of the constructive
sale of the contract. Notwithstanding the rules described above, with respect to
futures contracts which are part of futures contract sales, and in certain other
situations, the Fund may make an election which may have the effect of exempting
all or a part of those identified future contracts from being treated for
federal income tax purposes as sold on the last business day of the Fund's
taxable year; all or part of any gain or loss otherwise realized by the Fund on
any closing transaction may be deferred until all of the Fund's positions with
respect to the futures contract sales are closed; and, all or part of any gain
or loss may be treated as short-term capital gain or loss.


                                      C-2




         Under the Federal income tax provisions applicable to regulated
investment companies, at least 90% of the Fund's annual gross income must be
derived from dividends, interest, payments with respect to loans of securities,
and gains from the sale or other disposition of securities ("qualifying
income"). Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund may include gains from forward contracts in determining qualifying income.
In addition, in order that the Fund continue to qualify as a regulated
investment company for Federal income tax purposes, less than 30% of its gross
income for any year must be derived from gains realized on the sale or other
disposition of securities held by the Fund for less than three months. For this
purpose, the Fund will treat gains realized on the closing out of futures
contracts as gains derived from the sale of securities. This treatment could,
under certain circumstances, require the Fund to defer the closing out of
futures contracts until after three months from the date the fund acquired the
contracts, even if it would be more advantageous to close out the contracts
prior to that time. However, under the Code, a special rule is provided with
respect to certain hedging transactions which has the effect of allowing the
Fund to engage in such short-term transactions in limited circumstances. Any
gains realized by the Fund as a result of the constructive sales of futures
contacts held by the Fund at the end of its taxable year, as described in the
preceding paragraph, will in all instances be treated as derived from the sale
of securities held for three months or more, regardless of the actual period for
which the Fund has held the futures contracts at the end of the year.



                                      C-3




                            APPENDIX D - BRADY BONDS

         Brady Bonds are debt securities issued under the framework of the Brady
Plan, an initiative announced by U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding external
indebtedness. The Brady Plan contemplates, among other things, the adoption by
debtor nations of certain economic reforms and the exchange of commercial bank
debt. Under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as the World Bank and/or the IMF. The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to replenish reserves used to reduce outstanding bank
debt. Under these loan agreements or other arrangements with the World Bank or
the IMF, debtor nations have been required to agree to the implementation of
certain domestic monetary and fiscal reforms. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors. Brady Bonds have been issued only recently, and accordingly
do not have a long payment history. Agreements implemented under the Brady Plan
to date are designed to achieve debt and debt-service reduction through specific
options negotiated by a debtor nation with its creditors. As a result, the
financial packages offered by each country differ. The types of options have
included the exchange of outstanding commercial bank debt for bonds issued at
100% of face value of such debt, and bonds bearing an interest rate which
increases over time and the advancement of the new money for bonds. The
principal of certain Brady Bonds has been collateralized by Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds.
Collateral purchases are financed by the IMF, the World Bank and the debtor
nations' reserves. In addition, the first two or three interest payments on
certain types of Brady Bonds may be collateralized by cash or securities agreed
upon by creditors.


                                       D-1

EX-99.17(H)

                                                                   EXHIBIT 17(h)

                                W&R TARGET FUNDS

                            Asset Strategy Portfolio
                               Balanced Portfolio
                                 Bond Portfolio
                              Core Equity Portfolio
                                Growth Portfolio
                              High Income Portfolio
                             International Portfolio
                           Limited-Term Bond Portfolio
                             Money Market Portfolio
                        Science and Technology Portfolio
                               Small Cap Portfolio
                                 Value Portfolio

                                     Annual
                                     Report
                                     ------
                                December 31, 2002



CONTENTS

  3     Asset Strategy Portfolio

 17     Balanced Portfolio

 30     Bond Portfolio

 46     Core Equity Portfolio

 57     Growth Portfolio

 69     High Income Portfolio

 86     International Portfolio

 98     Limited-Term Bond Portfolio

110     Money Market Portfolio

121     Science and Technology Portfolio

133     Small Cap Portfolio

144     Value Portfolio

156     Notes to Financial Statements

169     Independent Auditors' Report

170     Directors & Officers

181     Annual Privacy Notice



MANAGERS' DISCUSSION

                                December 31, 2002

An interview with Michael L. Avery and Daniel J. Vrabac, portfolio managers of
W&R Target Funds, Inc. - Asset Strategy Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Asset Strategy
Portfolio for the fiscal year ended December 31, 2002. The following
discussion, graphs and tables provide you with information regarding the
Portfolio's performance during that period. Please note that the Portfolio's
performance data does not take into account any expenses or charges associated
with owning a variable life or annuity policy invested in the W&R Target Funds,
Inc.

How did the Portfolio perform during the last fiscal year? In a year that
brought a consistently difficult environment for equities, the Portfolio
performed fairly well, as it had a positive return and significantly
outperformed its stock benchmark index and its peer group. Given that the
environment was much more conducive to fixed income investments, however, it
underperformed its bond benchmark index. The Portfolio increased 3.28 percent
during the fiscal year, compared with the S&P 500 Index (reflecting the
performance of securities that generally represent the stock market), which
declined 22.10 percent for the year, the Salomon Brothers Broad Investment Grade
Index (reflecting the performance of securities that generally represent the
bond market), which increased 10.09 percent, the Salomon Brothers Short-Term
Index for 1 Month Certificates of Deposit (reflecting the performance of
securities that generally represent one-month certificates of deposit), which
increased 1.79 percent, and the Lipper Variable Annuity Flexible Portfolio Funds
Universe Average (generally reflecting the performance of the universe of funds
with similar investment objectives), which declined 10.89 percent during the
year. A variety of indexes is presented because the Portfolio invests in stocks,
bonds and other instruments.

What factors impacted the Portfolio's performance during the fiscal year?
Primarily, we believe that our ongoing focus on asset preservation helped the
Portfolio outperform its stock benchmark and its peer group. The Portfolio has
generally been heavily weighted in short-term treasury securities, gold bullion
and gold-related equities. Given that we did hold some equities, and the market
environment was more friendly to fixed income investments, we did not perform as
well as the bond benchmark index.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year?
Geopolitics was a major theme impacting the markets throughout the period. In
addition, we believe that monetary policy -- as a tool to stimulate domestic
economic growth -- influenced the equity markets, as many stocks continued to
grasp for traction in a weak and sluggish economic environment. The best way we
can think of to describe the fiscal year overall is as an environment of high
valuations, low earnings growth, lack of trust in corporate management, and lost
credibility on Wall Street. Additionally, the U.S. dollar peaked, and then began
to decline, relative to European currencies (and gold), resulting in marginal
capital flows away from the U.S.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance?
The Portfolio remains invested primarily in short-term U.S. Treasuries
(approximately 50 percent of our holdings). Also, we remain focused on gold-
related equities and gold bullion, which, together, represent approximately 20
percent of portfolio holdings. As noted above, this is a rather defensive
strategy, aimed at asset preservation, but we believe it has served us well in
the challenging environment.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
We do not anticipate many changes to our current strategy in the near term.
However, we are mindful that our shareholders only truly win when we achieve a
respectable absolute return. Unfortunately, we continue to believe that it may
be harder to achieve a more dramatically positive absolute return. We intend to
continue to focus on finding what we believe are appropriate income-producing
securities, recognizing that returns may be dependent upon this portion of the
calculation. We also remain respectful of the market environment, which we
believe mandates an adherence to asset preservation.

Respectfully,

Michael L. Avery
Daniel J. Vrabac
Managers
Asset Strategy Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target Asset Strategy
Portfolio, The S&P 500 Index, The Salomon Brothers Broad Investment Grade Index,
Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit and Lipper
Variable Annuity Flexible Portfolio Funds Universe Average



                                                             Lipper
                                                Salomon     Variable
                                  Salomon       Brothers     Annuity
                                  Brothers     Short-Term   Flexible
            W&R Target             Broad        Index       Portfolio
              Asset      S&P     Investment   for 1 Month    Funds
             Strategy    500       Grade      Certificates  Universe
            Portfolio   Index      Index       of Deposit   Average
            ---------  -------   ----------   ------------  ---------
                                             
05/01/95     $10,000   $10,000     $10,000       $10,000     $10,000
12/31/95      10,182    12,179      11,130        10,401      11,540
12/31/96      10,795    14,975      11,533        10,976      13,228
12/31/97      12,307    19,961      12,644        11,599      15,804
12/31/98      13,531    25,689      13,746        12,257      18,053
12/31/99      16,639    31,102      13,632        12,909      20,241
12/31/00      20,388    28,245      15,212        13,753      20,499
12/31/01      18,358    24,882      16,508        14,322      19,554
12/31/02      18,960    19,383      18,173        14,578      17,425


=== W&R Target Asset Strategy Portfolio(1) -- $18,960 +++ S&P 500 Index(2) --
$19,383

.... Salomon Brothers Broad Investment Grade Index(2) -- $18,173 *-*-Salomon
Brothers Short-Term Index for 1 Month Certificates of Deposit(2) - - $14,578

****Lipper Variable Annuity Flexible Portfolio Funds Universe Average(2) --
$17,425

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above indexes
(including income) are not available, investment in the indexes was effected as
of April 30, 1995.

          Average Annual Total Return(3)

                               
1-year period ended
     12-31-02                     3.28%
5-year period ended
     12-31-02                     9.03%
7+ year period ended
    12-31-02(4)                   8.69%



(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)5-1-95 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
     December 31, 2002



                                                             Troy
                                                            Ounces            Value
                                                                    
BULLION - 5.80%
 Gold ...............................................          27,836     $   9,688,356
 (Cost: $8,885,492)                                                       -------------

                                                              Shares

COMMON STOCKS
Business Equipment and Services - 0.40%
 SI International, Inc.* ............................          61,150           660,726
                                                                          -------------

Communications Equipment - 0.47%
 Nokia Corporation, Series A, ADR ...................          50,300           779,650
                                                                          -------------

Computers -- Peripherals - 0.47%
 Electronic Arts Inc.* ..............................          15,800           785,813
                                                                          -------------

Food and Related - 0.19%
 American Italian Pasta Company, Class A*                       8,800           316,624
                                                                          -------------

Gold and Precious Metals - 10.19%
 Agnico-Eagle Mines Limited .........................         129,500         1,924,370
 Barrick Gold Corporation ...........................         375,605         5,788,073
 Glamis Gold Ltd.* ..................................          84,600           959,364
 Meridian Gold Inc. (A)* ............................          79,540         1,397,100
 Placer Dome Inc. ...................................         605,501         6,963,261
                                                                          -------------
                                                                             17,032,168
                                                                          -------------

Hospital Supply and Management - 0.31%
 Health Management Associates, Inc.,
   Class A ..........................................          29,400           526,260
                                                                          -------------

Mining -- 3.67%
 Newmont Mining Corporation .........................         211,079         6,127,623
                                                                          -------------

Petroleum -- Canada - 0.37%
 Nabors Industries Ltd. (B)* ........................          17,400           613,698
                                                                          -------------

Petroleum -- Domestic - 2.79%
 Anadarko Petroleum Corporation .....................          40,323         1,931,472
 Burlington Resources Inc. ..........................          47,110         2,009,241
 Patterson-UTI Energy, Inc. (B)* ....................          24,200           730,235
                                                                          -------------
                                                                              4,670,948
                                                                          -------------

Petroleum -- International - 1.19%
 Exxon Mobil Corporation ............................          57,091         1,994,760
                                                                          -------------

Petroleum -- Services - 1.06%
 Baker Hughes Incorporated (B) ......................          55,095         1,773,508
                                                                          -------------

TOTAL COMMON STOCKS - 21.11%                                              $  35,281,778
 (Cost: $34,542,238)




                                                         Principal
                                                         Amount in
                                                         Thousands
                                                                    
CORPORATE DEBT SECURITIES
Aircraft - 0.32%
 Raytheon Company,
   6.5%, 7-15-05 ....................................   $         500           539,289
                                                                          -------------

Banks - 0.96%
 Banco Nacional de Comercio Exterior,
   S.N.C.,
   7.25%, 2-2-04 ....................................           1,000         1,048,750
 Norwest Financial, Inc.,
   7.6%, 5-3-05 .....................................             500           558,961
                                                                          -------------
                                                                              1,607,711
                                                                          -------------

Beverages - 0.55%
 Companhia Brasileira de Bebidas,
   10.5%, 12-15-11 ..................................             500           452,500
 Diageo Capital plc,
   6.0%, 3-27-03 ....................................             200           201,875
 Pepsi-Gemex, S.A. de C.V.,
   9.75%, 3-30-04 ...................................             250           271,250
                                                                          -------------
                                                                                925,625
                                                                          -------------

Construction Materials - 0.64%
 Hanson Overseas B.V.,
   6.75%, 9-15-05 ...................................             500           542,691
 Stanley Works (The),
   5.75%, 3-1-04 ....................................             500           521,384
                                                                          -------------
                                                                              1,064,075
                                                                          -------------

Cosmetics and Toiletries - 0.31%
 Gillette Company (The),
   3.75%, 12-1-04 (C) ...............................             500           516,451
                                                                          -------------

Finance Companies - 0.49%
 Exxon Capital Corporation,
   6.0%, 7-1-05 .....................................             750           817,252
                                                                          -------------

Food and Related - 1.98%
 ConAgra, Inc.,
   7.4%, 9-15-04 ....................................             300           325,076
 GRUMA, S.A. de C.V.,
   7.625%, 10-15-07 .................................             350           343,000
 Kellogg Company,
   6.625%, 1-29-04 ..................................           2,000         2,088,894
 Sara Lee Corporation,
   6.45%, 9-26-05 ...................................             500           552,304
                                                                          -------------
                                                                              3,309,274
                                                                          -------------

Health Care -- Drugs - 0.96%
 Abbott Laboratories,
   5.125%, 7-1-04 ...................................             500           524,873
 Merck & Co., Inc.,
    6.75%, 9-19-05 ..................................             500           555,276
 Pfizer Inc.,
   3.625%, 11-1-04 ..................................             500           515,368
                                                                          -------------
                                                                              1,595,517
                                                                          -------------

Household -- General Products - 0.33%
 Procter & Gamble Company (The),
   6.6%, 12-15-04 ...................................             500           545,068
                                                                          -------------

Multiple Industry - 1.04%
 Ford Motor Credit Company,
   6.125%, 4-28-03 ..................................           1,000         1,005,856
 National Rural Utilities Cooperative
   Finance Corporation,
   5.5%, 1-15-05 ....................................             500           529,865
 Tyco International Group S.A.,
   6.25%, 6-15-03 ...................................             200           198,500
                                                                          -------------
                                                                              1,734,221
                                                                          -------------

Petroleum -- Services - 0.65%
 Pemex Finance Ltd. and Petroleos
   Mexicanos,
   8.02%, 5-15-07 ...................................             500           562,055
 Petroleos Mexicanos,
   6.5%, 2-1-05 (C) .................................             500           529,375
                                                                          -------------
                                                                              1,091,430
                                                                          -------------

Railroad - 0.43%
 Union Pacific Corporation,
   5.84%, 5-25-04 ...................................             685           718,800
                                                                          -------------

Retail -- Specialty Stores - 0.32%
 Home Depot, Inc. (The),
   6.5%, 9-15-04 ....................................             500           535,843
                                                                          -------------

Trucking and Shipping - 0.73%
 WMX Technologies, Inc.,
   6.375%, 12-1-03 ..................................           1,200         1,222,931
                                                                          -------------

Utilities -- Electric - 0.66%
 Wisconsin Energy Corporation,
   5.875%, 4-1-06 ...................................             500           543,299
 Wisconsin Power and Light Company,
   7.6%, 7-1-05 .....................................             500           554,324
                                                                          -------------
                                                                              1,097,623
                                                                          -------------

Utilities -- Gas and Pipeline - 1.03%
 Consolidated Natural Gas Company,
   7.25%, 10-1-04 ...................................             500           538,566
 Sonat Inc.,
   6.875%, 6-1-05 ...................................             500           370,000
 Wisconsin Gas Company,
   6.375%, 11-1-05 ..................................             750           817,880
                                                                          -------------
                                                                              1,726,446
                                                                          -------------

Utilities -- Telephone - 0.77%
 Comtel Brasileira Ltda.,
   10.75%, 9-26-04 ..................................             350           302,461
 Telefonos de Mexico, S.A. de C.V.,
   8.25%, 1-26-06 ...................................             400           438,000
 Verizon Global Funding Corp. and
   Verizon Communications Inc.,
   6.75%, 12-1-05 ...................................             500           552,454
                                                                          -------------
                                                                              1,292,915
                                                                          -------------

TOTAL CORPORATE DEBT SECURITIES - 12.17%                                  $  20,340,471
 (Cost: $20,145,347)

OTHER GOVERNMENT SECURITIES
Brazil - 1.00%
 Federative Republic of Brazil (The),
    11.0%, 1-11-12 ..................................           2,500         1,662,500
                                                                          -------------

Canada - 0.32%
 Her Majesty in right of Canada,
   6.375%, 11-30-04 .................................             500           541,080
                                                                          -------------

Mexico - 0.17%
 United Mexican States,
   8.625%, 3-12-08 ..................................             250           287,250
                                                                          -------------

TOTAL OTHER GOVERNMENT SECURITIES - 1.49%                                 $   2,490,830
 (Cost: $2,792,722)

UNITED STATES GOVERNMENT SECURITIES
Mortgage-Backed Obligations - 2.91%
 Government National Mortgage Association
   Pass-Through Certificates:
   5.5%, 11-15-16 ...................................           1,235         1,291,431
   5.5%, 12-15-16 ...................................           3,407         3,562,567
                                                                          -------------
                                                                              4,853,998
                                                                          -------------

United States Treasury - 47.87%
 United States Treasury Notes:
   2.75%, 10-31-03 (D) ..............................          40,225        40,730,950
   3.0%, 2-29-04 ....................................          24,000        24,478,128
   3.375%, 4-30-04 ..................................           9,500         9,757,165
   7.5%, 2-15-05 ....................................           4,500         5,045,976
                                                                          -------------
                                                                             80,012,219
                                                                          -------------

TOTAL UNITED STATES GOVERNMENT SECURITIES - 50.78%                        $  84,866,217
 (Cost: $83,205,007)




                                                             Face
                                                          Amount in
                                                          Thousands
                                                                    
UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS - (0.12%)
   Eurodollar, 11-7-03 (E) ..........................       EUR1,602            (80,793)
   Eurodollar, 11-7-03 (E) ..........................          1,602            (70,338)
   Eurodollar, 11-7-03 (E) ..........................          1,602            (52,233)
                                                                          -------------
                                                                          $    (203,364)
                                                                          -------------




                                                          Number of
                                                          Contracts
                                                                    
PUT OPTION - 0.03%
 Cisco Systems, Inc., January 15,
   Expires 1-18-03 ..................................         282         $      56,400
                                                                          -------------

(Cost: $36,096)




                                                          Principal
                                                          Amount in
                                                          Thousands
                                                                    
SHORT-TERM SECURITIES
Chemicals -- Petroleum and Inorganic - 3.72%
   du Pont (E.I.) de Nemours and Company,
     1.30036%, Master Note ..........................   $       6,218         6,218,000
                                                                          -------------

  Finance Companies - 1.20%
   USAA Capital Corp.,
     1.35%, 1-10-03 .................................           2,000         1,999,325
                                                                          -------------

  Health Care -- Drugs - 2.39%
   Merck & Co., Inc.,
     1.3%, 1-9-03 ...................................           4,000         3,998,844
                                                                          -------------

  Security and Commodity Brokers - 1.93%
   UBS Finance Delaware LLC,
     1.2%, 1-2-03 ...................................           3,226         3,225,893
                                                                          -------------

  TOTAL SHORT-TERM SECURITIES - 9.24%                                     $  15,442,062
   (Cost: $15,442,062)

  TOTAL INVESTMENTS - 100.50%                                             $ 167,962,750
   (Cost: $165,048,964)

  LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.50%)                          (828,998)

  NET ASSETS - 100.00%                                                    $ 167,133,752


Notes to Schedule of Investments
*No dividends were paid during the preceding 12 months.

(A)Listed on an exchange outside of the United States.

(B)These securities serve as collateral for the following open futures contracts
   at December 31, 2002 (See Note 6 to financial statements):



             Number of  Expiration     Market
Description  Contracts     Date        Value
- -----------  ---------  ----------   ----------
                            
  S&P 500       7        3/20/03     $1,538,075
                                     ==========


(C)Securities were purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, the total value of these
securities amounted to $1,045,826 or 0.63% of net assets.

(D)As of December 31, 2002, a portion of the security was used as cover for the
following written call option (See Note 5 to financial statements):



                         Contracts
     Underlying           Subject   Expiration Month/Premium   Market
      Security            to Call   Exercise Price  Received   Value
     ----------          ------------------------   --------  --------
                                                  
Cheesecake Factory
  Incorporated (The)        454       April/35      $173,655  $172,066
                                                    ========  ========


(E)Principal amounts are denominated in the indicated foreign currency, where
applicable (EUR - Euro).

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
ASSET STRATEGY PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                      
ASSETS
 Investments--at value (Notes 1 and 3):
   Bullion (cost - $8,886) ............................  $  9,688
   Securities (cost - $156,163) .......................   158,275
                                                         --------
                                                          167,963
 Cash .................................................         1
 Receivables:
   Dividends and interest .............................     1,210
   Fund shares sold ...................................       329
   Investment securities sold .........................        97
 Prepaid insurance premium ............................         1
                                                         --------
    Total assets ......................................   169,601
                                                         --------
LIABILITIES
 Payable for investment securities purchased ..........     2,255
 Outstanding call options--at value (Note 5) ..........       172
 Payable to Fund shareholders .........................        20
 Accrued accounting services fee (Note 2) .............         4
 Accrued management fee (Note 2) ......................         3
 Variation margin payable (Note 6) ....................         2
 Accrued service fee (Note 2) .........................         1
 Other ................................................        10
                                                         --------
    Total liabilities .................................     2,467
                                                         --------
      Total net assets ................................  $167,134
NET ASSETS                                               ========
 $0.001 par value capital stock:
   Capital stock ......................................  $     26
   Additional paid-in capital .........................   171,205
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss on
    investment transactions ...........................    (7,043)
   Net unrealized appreciation in value of securities .     3,097
   Net unrealized appreciation in value of written
    options ...........................................         2
   Net unrealized appreciation in value of purchased
    options ...........................................        20
   Net unrealized appreciation in value of futures
    contracts .........................................        30
   Net unrealized depreciation in value of forward
    currency contracts ................................      (203)
                                                         --------
    Net assets applicable to outstanding
      units of capital ................................  $167,134
                                                         ========
Net asset value, redemption and offering
 price per share ......................................  $ 6.3078
                                                          =======
Capital shares outstanding ............................    26,496
Capital shares authorized .............................    45,000



See Notes to Financial Statements.



STATEMENT OF OPERATIONS
ASSET STRATEGY PORTFOLIO
For the Fiscal Year Ended December 31, 2002

                                 (In Thousands)

                                                        
INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ..........................    $3,658
   Dividends (net of foreign withholding taxes of $15)        362
                                                           ------
    Total income ......................................     4,020
                                                           ------
 Expenses (Note 2):
   Investment management fee ..........................       965
   Service fee ........................................       345
   Accounting services fee ............................        44
   Custodian fees .....................................        40
   Audit fees .........................................         6
   Legal fees .........................................         3
   Other ..............................................        26
                                                           ------
       Total expenses .................................     1,429
                                                           ------
         Net investment income ........................     2,591
                                                           ------
REALIZED AND UNREALIZED GAIN (LOSS)
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net gain on securities ......................     1,405
 Realized net loss on written options .................    (1,302)
 Realized net gain on purchased options ...............        88
 Realized net gain on futures contracts ...............       282
 Realized net gain on foreign currency transactions....        25
                                                           ------
   Realized net gain on investments ...................       498
                                                           ------
 Unrealized appreciation in value of securities
   during the period ..................................     1,693
 Unrealized depreciation in value of written
   options during the period ..........................       (29)
 Unrealized appreciation in value of purchased
   options during the period ..........................        20
 Unrealized appreciation in value of
   futures contracts during the period ................        30
 Unrealized depreciation in value of forward
   currency contracts during the period ...............      (306)
                                                           ------
   Unrealized appreciation in value of
    investments during the period .....................     1,408
                                                           ------
    Net gain on investments ...........................     1,906
                                                           ------
      Net increase in net assets resulting
       from operations ................................    $4,497
                                                           ======



See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS
ASSET STRATEGY PORTFOLIO

                                 (In Thousands)



                                              For the fiscal year ended
                                                     December 31,
                                              -------------------------
                                                2002             2001
                                              ---------       ---------
                                                        
INCREASE IN NET ASSETS
Operations:
 Net investment income  ....................  $   2,591       $   2,398
 Realized net gain (loss) on investments            498          (7,262)
 Unrealized appreciation (depreciation)           1,408          (3,329)
                                              ---------       ---------
   Net increase (decrease) in net assets
    resulting from operations ..............      4,497          (8,193)
                                              ---------       ---------
Dividends to shareholders from (Note 1E):(1)
 Net investment income  ....................     (2,616)         (2,418)
 Realized gains on
   securities transactions .................        ---            (234)
                                              ---------       ---------
                                                 (2,616)         (2,652)
                                              ---------       ---------
Capital share transactions(2) ..............     50,063          66,933
                                              ---------       ---------
   Total increase ..........................     51,944          56,088
NET ASSETS
Beginning of period ........................    115,190          59,102
                                              ---------       ---------
End of period ..............................  $ 167,134       $ 115,190
                                              =========       =========
 Undistributed net investment income........  $     ---       $     ---
                                              =========       =========

(1)See "Financial Highlights" on page 16.

(2)Shares issued from sale of shares .......     11,528          16,814
Shares issued from reinvestment of dividend
 and/or capital gains distribution..........        415             428
Shares redeemed ............................     (4,012)         (7,055)
                                              ---------       ---------
Increase in outstanding capital shares......      7,931          10,187
                                              =========       =========
Value issued from sale of shares............  $  72,762       $ 110,309
Value issued from reinvestment of dividend
 and/or capital gains distribution..........      2,616           2,652
Value redeemed .............................    (25,315)        (46,028)
                                              ---------       ---------
Increase in outstanding capital.............  $  50,063       $  66,933
                                              =========       =========


See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS
ASSET STRATEGY PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                    For the fiscal year ended December 31,
                               -----------------------------------------------
                                 2002      2001     2000      1999      1998
                               -------   -------   -------   -------   -------
                                                        
Net asset value,
 beginning of
 period......................  $6.2046   $7.0540   $6.2625   $5.3868   $5.1969
                               -------   -------   -------   -------   -------
Income (loss) from investment
 operations:
 Net investment
   income....................   0.1005    0.1323    0.0908    0.1138    0.1391
 Net realized and
   unrealized gain (loss)
   on investments............   0.1032   (0.8354)   1.3211    1.1232    0.3779
                               -------   -------   -------   -------   -------
Total from investment
 operations..................   0.2037   (0.7031)   1.4119    1.2370    0.5170
                               -------   -------   -------   -------   -------
Less distributions from:
 Net investment
   income....................  (0.1005)  (0.1334)  (0.0906)  (0.1136)  (0.1391)
 Capital gains...............  (0.0000)  (0.0129)  (0.5298)  (0.2477)  (0.1880)
                               -------   -------   -------   -------   -------
Total distributions            (0.1005)  (0.1463)  (0.6204)  (0.3613)  (0.3271)
                               -------   -------   -------   -------   -------
Net asset value,
 end of period...............  $6.3078   $6.2046   $7.0540   $6.2625   $5.3868
                               =======   =======   =======   =======   =======
Total return.................     3.28%    -9.96%    22.53%    22.96%     9.95%
Net assets, end of
 period (in
 millions)...................  $   167   $   115   $    59   $    22   $    14
Ratio of expenses
 to average net
 assets......................     1.04%     1.03%     0.97%     0.73%     1.07%
Ratio of net investment
 income to average
 net assets..................     1.90%     2.63%     1.97%     2.18%     2.97%
Portfolio turnover
 rate........................    95.22%   187.87%   155.27%   179.63%   189.02%


See Notes to Financial Statements.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with Cynthia P. Prince-Fox, portfolio manager of W&R Target Funds,
Inc. - Balanced Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Balanced
Portfolio for the fiscal year ended December 31, 2002. The following
discussion, graphs and tables provide you with information regarding the
Portfolio's performance during that period. Please note that the Portfolio's
performance data does not take into account any expenses or charges associated
with owning a variable life or annuity policy invested in the W&R Target Funds,
Inc.

How did the Portfolio perform during the last fiscal year? The Portfolio
outperformed its stock benchmark index, but underperformed its bond benchmark
index. The Portfolio's one-year return declined 8.41 percent, compared with the
S&P 500 Index (reflecting the performance of securities that generally represent
the stock market), which declined 22.10 percent for the year, the Salomon
Brothers Treasury/Government Sponsored/Credit Index (generally reflecting the
performance of funds in the bond market), which increased 10.81 percent for the
year, and the Lipper Variable Annuity Balanced Funds Universe Average
(reflecting the universe of funds with similar investment objectives), which
declined 10.34 percent for the period. Multiple indexes are presented because
the Portfolio invests in both stocks and bonds. The Salomon Brothers
Treasury/Government Sponsored/Credit Index replaces the Salomon Brothers
Treasury/Government Sponsored/Corporate Index in this year's report. We believe
that the new index provides a more accurate basis for comparing the Portfolio's
performance to the types of securities in which the Portfolio invests. Both
indexes are presented in this year's report for comparison purposes.

What factors affected the Portfolio's performance during the fiscal year?
Several factors played into overall performance. First and foremost was the
contribution from the fixed income portion of the Portfolio, which significantly
outperformed the equity portion, in addition to outperforming its fixed income
benchmark. The primary reason for this, we feel, is that the fixed income
securities held in the portfolio were primarily high quality, government-issued
Treasury bonds. U.S. Treasuries outperformed most other fixed income instruments
because they became a safe haven as corporate bonds experienced declines when
concerns about the overall recovery in the economy came into question. On the
other side of the Portfolio, our equity holdings posted declines, although the
declines were not as significant as those experienced by the S&P 500 Index. Many
of our defensive holdings performed well, despite a difficult economic
environment. Additionally, we maintained a meaningful level of cash during the
period, which also helped performance.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year?
This marked the third consecutive year of declines for the broad equity markets.
Equity investments were simply a difficult place to be, as the S&P 500 Index
experienced its sharpest decline since 1974, while the technology-laden Nasdaq
Composite Index lost nearly a third of its value. Nearly every industry
classification in the S&P 500 saw negative returns during the year. As a result,
high quality fixed income instruments were one of the few positive places to
invest during most of the year.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance?
We attempted to maintain a high quality fixed income portfolio and kept some
cash holdings. In addition, we attempted to further protect the downside in the
Portfolio by focusing our equity positions in companies with balance sheets that
we felt could withstand protracted weakness in the overall economy. Our strategy
of maintaining a relatively defensive equity portfolio during the year was based
on our belief that equity valuations were still somewhat high and were
unsustainable, given the potential for a slower economic environment.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
Areas of emphasis during the year were in aerospace/defense, health care and
energy. We continue to believe that these sectors offer further upside in 2003.
However, we remain optimistic about an economic recovery and a rebound in the
financial markets. Thus we will likely shift our emphasis to companies that
could benefit from a better economic environment as the year progresses.

Respectfully,

Cynthia P. Prince-Fox
Manager
Balanced Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target Balanced
Portfolio, The S&P 500 Index Salomon Brothers Treasury/Government
Sponsored/Corporate Index, Salomon Brothers Treasury/Government Sponsored/Credit
Index and Lipper Variable Annuity Balanced Funds Universe Average



                                          Salomon     Salomon      Lipper
                                          Brothers    Brothers    Variable
                                          Treasury/   Treasury/    Annuity
                                         Government  Government   Balanced
                   W&R Target    S&P     Sponsored/  Sponsored/    Funds
                    Balanced     500      Corporate    Credit     Universe
                    Portfolio   Index       Index      Index       Average
                   ----------  -------   ----------  ----------  ----------
                                                  
05/03/94 Purchase   $10,000    $10,000    $10,000     $10,000      $10,000
12/31/94              9,963     10,398     10,046      10,046       10,028
12/31/95             12,374     14,306     11,978      11,978       12,524
12/31/96             13,758     17,591     12,327      12,327       14,197
12/31/97             16,301     23,447     13,535      13,535       16,910
12/31/98             17,714     30,176     14,814      14,814       19,310
12/31/99             19,510     36,533     14,514      14,514       21,035
12/31/00             20,903     33,178     16,219      16,219       21,488
12/31/01             19,661     29,227     17,613      17,626       20,822
12/31/02             18,007     22,768     19,495      19,531       18,669


===== W&R Target Balanced Portfolio(1) -- $18,007 ----- S&P 500 Index(2) --
$22,768

+++++ Salomon Brothers Treasury/Government Sponsored/Corporate Index(2) --
$19,495

...... Salomon Brothers Treasury/Government Sponsored/Credit Index(2) -- $19,531

***** Lipper Variable Annuity Balanced Funds Universe Average(2) -- $18,669

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above indexes
(including income) are not available, investment in the indexes was effected as
of April 30, 1994.

Please note that the performance of the Salomon Brothers Treasury/Government
Sponsored/Credit Index (Credit Index) is substantially similar to the
performance of the Salomon Brothers Treasury/Government Sponsored/Corporate
Index (Corporate Index). The Credit Index was introduced by Salomon Brothers in
April of 2001. In creating the performance history for the Credit Index, Salomon
Brothers used the performance history of the Corporate Index for the period
prior to April of 2001.

       Average Annual Total Return(3)

                            
1-year period ended
     12-31-02                  -8.41%
5-year period ended
     12-31-02                   2.01%
8+ year period ended
    12-31-02(4)                 7.02%



(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)5-3-94 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE BALANCED PORTFOLIO

     December 31, 2002



                                                           Shares       Value
                                                               
COMMON STOCKS
Air Transportation - 0.66%
 Southwest Airlines Co. ............................        80,000   $ 1,112,000
                                                                     -----------

Aircraft - 2.41%
 Lockheed Martin Corporation .......................        39,300     2,269,575
 Raytheon Company ..................................        58,000     1,783,500
                                                                     -----------
                                                                       4,053,075
                                                                     -----------

Banks - 2.30%
 U.S. Bancorp ......................................        74,900     1,589,378
 Wells Fargo & Company .............................        48,500     2,273,195
                                                                     -----------
                                                                       3,862,573
                                                                     -----------

Beverages - 1.62%
 Anheuser-Busch Companies, Inc. ....................        29,000     1,403,600
 Coca-Cola Company (The) ...........................        30,000     1,314,600
                                                                     -----------
                                                                       2,718,200
                                                                     -----------

Broadcasting - 1.66%
 Cox Communications, Inc., Class A* ................        38,979     1,107,004
 Fox Entertainment Group, Inc., Class A* ...........        64,800     1,680,264
                                                                     -----------
                                                                       2,787,268
                                                                     -----------

Business Equipment and Services - 1.81%
 Genuine Parts Company .............................        42,000     1,293,600
 Manpower Inc. .....................................        55,000     1,754,500
                                                                     -----------
                                                                       3,048,100
                                                                     -----------

Capital Equipment - 2.45%
 Caterpillar Inc. ..................................        15,000       685,800
 Cooper Cameron Corporation* .......................        44,200     2,202,044
 Ingersoll-Rand Company Limited, Class A ...........        28,300     1,218,598
                                                                     -----------
                                                                       4,106,442
                                                                     -----------

Chemicals -- Petroleum and Inorganic - 1.06%
 Dow Chemical Company (The) ........................        30,000       891,000
 du Pont (E.I.) de Nemours and Company .............        21,100       894,640
                                                                     -----------
                                                                       1,785,640
                                                                     -----------

Chemicals -- Specialty - 0.76%
 Air Products and Chemicals, Inc. ..................        30,000     1,282,500
                                                                     -----------

Communications Equipment - 1.43%
 Cisco Systems, Inc.* ..............................        80,000     1,047,600
 Nokia Corporation, Series A, ADR ..................        87,000     1,348,500
                                                                     -----------
                                                                       2,396,100
                                                                     -----------

Computers -- Micro - 0.42%
 Dell Computer Corporation* ........................        26,100       699,089
                                                                     -----------

Computers -- Peripherals - 3.56%
 EMC Corporation* ..................................       205,000     1,258,700
 Microsoft Corporation* ............................        70,400     3,641,088
 SAP Aktiengesellschaft, ADR .......................        55,000     1,072,500
                                                                     -----------
                                                                       5,972,288
                                                                     -----------

Cosmetics and Toiletries - 1.45%
 Estee Lauder Companies Inc. (The),
   Class A .........................................        50,000     1,320,000
 Gillette Company (The) ............................        36,700     1,114,212
                                                                     -----------
                                                                       2,434,212
                                                                     -----------

Electrical Equipment - 1.03%
 Emerson Electric Co. ..............................        34,000     1,728,900
                                                                     -----------

Electronic Components - 1.53%
 Analog Devices, Inc.* .............................        15,500       369,985
 Intel Corporation .................................        95,000     1,479,625
 Texas Instruments Incorporated ....................        48,000       720,480
                                                                     -----------
                                                                       2,570,090
                                                                     -----------

Electronic Instruments - 1.23%
 Applied Materials, Inc.* ..........................        82,400     1,073,672
 Molex Incorporated, Class A .......................        50,000       998,500
                                                                     -----------
                                                                       2,072,172
                                                                     -----------

Food and Related - 1.03%
 ConAgra Foods, Inc. ...............................        51,100     1,278,011
 Dean Foods Company* ...............................        12,000       445,200
                                                                     -----------
                                                                       1,723,211
                                                                     -----------

Forest and Paper Products - 1.85%
 International Paper Company .......................        32,138     1,123,866
 Sealed Air Corporation* ...........................        53,000     1,976,900
                                                                     -----------
                                                                       3,100,766
                                                                     -----------

Furniture and Furnishings - 0.67%
 Leggett & Platt, Incorporated .....................        50,000     1,122,000
                                                                     -----------

Gold and Precious Metals - 0.62%
 Barrick Gold Corporation ..........................        67,184     1,035,305
                                                                     -----------

Health Care -- Drugs - 3.16%
 Pfizer Inc. .......................................        79,850     2,441,015
 Pharmacia Corporation .............................        68,380     2,858,284
                                                                     -----------
                                                                       5,299,299
                                                                     -----------

Health Care -- General - 1.59%
 Johnson & Johnson .................................        30,200     1,622,042
 Wyeth .............................................        28,000     1,047,200
                                                                     -----------
                                                                       2,669,242
                                                                     -----------

Hospital Supply and Management - 2.65%
 HCA - The Healthcare Company ......................        35,500     1,473,250
 Health Management Associates, Inc.,
   Class A .........................................        90,000     1,611,000
 Medtronic, Inc. ...................................        30,000     1,368,000
                                                                     -----------
                                                                       4,452,250
                                                                     -----------

Insurance - Property and Casualty - 3.40%
 American International Group, Inc. ................        26,000     1,504,100
 Berkshire Hathaway Inc., Class B* .................           600     1,453,800
 Chubb Corporation (The) ...........................        32,100     1,675,620
 Hartford Financial Services Group Inc. (The)               23,700     1,076,691
                                                                     -----------
                                                                       5,710,211
                                                                     -----------

Leisure Time Industry - 0.78%
 Walt Disney Company (The)* ........................        80,800     1,317,848
                                                                     -----------

Motor Vehicle Parts - 0.78%
 Danaher Corporation ...............................        20,000     1,314,000
                                                                     -----------

Petroleum -- Canada - 0.73%
 Nabors Industries Ltd.* ...........................        35,000     1,234,450
                                                                     -----------

Petroleum -- Domestic - 1.48%
 Burlington Resources Inc. .........................        58,200     2,482,230
                                                                     -----------

Petroleum -- International - 1.20%
 Exxon Mobil Corporation ...........................        57,746     2,017,645
                                                                     -----------

Petroleum -- Services - 0.23%
 Schlumberger Limited ..............................         9,000       378,810
                                                                     -----------

Publishing - 0.82%
 New York Times Company (The), Class A .............        30,000     1,371,900
                                                                     -----------

Restaurants - 0.51%
 McDonald's Corporation ............................        53,400       858,672
                                                                     -----------

Retail -- General Merchandise - 1.46%
 Target Corporation ................................        54,600     1,638,000
 Wal-Mart Stores, Inc. .............................        16,000       808,160
                                                                     -----------
                                                                       2,446,160
                                                                     -----------

Security and Commodity Brokers - 1.66%
 Fannie Mae ........................................        29,700     1,910,601
 Goldman Sachs Group, Inc. (The) ...................        13,000       885,300
                                                                     -----------
                                                                       2,795,901
                                                                     -----------

Trucking and Shipping - 0.22%
 Hunt (J.B.) Transport Services, Inc.* .............        12,500       366,312
                                                                     -----------

Utilities -- Electric - 0.79%
 Exelon Corporation ................................        25,000     1,319,250
                                                                     -----------

Utilities -- Telephone - 1.75%
 BellSouth Corporation .............................        26,700       690,729
 SBC Communications Inc. ...........................        49,700     1,347,367
 Vodafone Group Plc, ADR ...........................        50,000       906,000
                                                                     -----------
                                                                       2,944,096
                                                                     -----------

TOTAL COMMON STOCKS - 52.76% .......................                 $88,588,207
 (Cost: $91,572,880)




                                                         Principal
                                                         Amount in
                                                         Thousands
                                                                  
CORPORATE DEBT SECURITIES
Air Transportation - 0.24%
 Southwest Airlines Co.,
   7.875%, 9-1-07 ..................................   $         360          405,158
                                                                        -------------

Aircraft - 1.61%
 Raytheon Company,
   6.5%, 7-15-05 ...................................           2,500        2,696,442
                                                                        -------------

Beverages - 0.33%
 Coca-Cola Enterprises Inc.,
   6.7%, 10-15-36 ..................................             500          549,730
                                                                        -------------

Health Care -- General - 0.16%
 American Home Products Corporation,
   7.9%, 2-15-05 ...................................             250          276,481
                                                                        -------------

Multiple Industry - 1.59%
 Household Finance Corporation,
   6.5%, 1-24-06 ...................................           2,500        2,662,305
                                                                        -------------

Utilities -- Telephone - 0.09%
 Southwestern Bell Telephone Company,
   5.77%, 10-14-03 .................................             150          154,623
                                                                        -------------

TOTAL CORPORATE DEBT SECURITIES - 4.02%                                 $   6,744,739
 (Cost: $6,324,193)

UNITED STATES GOVERNMENT SECURITIES
Agency Obligations - 4.48%
 Federal Home Loan Mortgage Corporation,
   7.0%, 2-15-03 ...................................           5,000        5,033,965
 Federal National Mortgage Association:
   6.51%, 5-6-08 ...................................             750          762,228
   6.19%, 7-7-08 ...................................             500          511,131
   7.25%, 1-15-10 ..................................           1,000        1,211,720
                                                                        -------------
                                                                            7,519,044
                                                                        -------------

Mortgage-Backed Obligations - 4.93%
 Federal Home Loan Mortgage Corporation Fixed Rate
   Participation Certificates,
   6.0%, 5-1-16 ....................................           6,359        6,658,207
 Federal National Mortgage Association Fixed Rate
   Pass-Through Certificates,
   7.0%, 9-1-25 ....................................             750          793,608
 Government National Mortgage Association Fixed Rate

   Pass-Through Certificates,
   6.5%, 8-15-28 ...................................             792          832,255
                                                                        -------------
                                                                            8,284,070
                                                                        -------------

Treasury Obligations - 13.18%
 United States Treasury Bonds:
   7.25%, 8-15-22 ..................................           4,000        5,205,780
   6.25%, 8-15-23 ..................................           5,250        6,167,931
   6.75%, 8-15-26 ..................................           3,000        3,753,399
 United States Treasury Notes:
   7.5%, 2-15-05 ...................................           2,250        2,522,988
   6.5%, 8-15-05 ...................................           4,000        4,474,064
                                                                        -------------
                                                                           22,124,162
                                                                        -------------

Treasury Inflation Protected Obligation - 0.63%
United States Treasury Note,
   3.0%, 7-15-12 (A) ...............................           1,000        1,062,656
                                                                        -------------

TOTAL UNITED STATES GOVERNMENT
 SECURITIES - 23.22%                                                    $  38,989,932
 (Cost: $36,043,233)

SHORT-TERM SECURITIES
Banks - 2.98%
 Wells Fargo & Company,
   1.29%, 1-16-03 ..................................           5,000        4,997,313
                                                                        -------------

Chemicals -- Petroleum and Inorganic - 2.87%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note ...........................           4,825        4,825,000
                                                                        -------------

Food and Related - 5.63%
 General Mills, Inc.,
   1.53%, Master Note ..............................           4,461        4,461,000
 Sara Lee Corporation,
   1.48%, 1-6-03 ...................................           5,000        4,998,972
                                                                        -------------
                                                                            9,459,972
                                                                        -------------

Health Care -- Drugs - 4.76%
 Merck & Co., Inc.,
   1.3%, 1-9-03 ....................................           4,000        3,998,844
 Pfizer Inc.,
   1.29%, 1-16-03 ..................................           4,000        3,997,850
                                                                        -------------
                                                                            7,996,694
                                                                        -------------

Health Care -- General - 2.08%
 Johnson & Johnson,
   1.27%, 2-3-03 ...................................           3,500        3,495,925
                                                                        -------------

Petroleum -- International - 1.27%
 BP America Inc.,
   1.2%, 1-2-03 ....................................           2,128        2,127,929
                                                                        -------------

Utilities -- Telephone - 0.54%
 BellSouth Corporation,
   1.28%, 1-23-03 ..................................             907          906,291
                                                                        -------------

TOTAL SHORT-TERM SECURITIES - 20.13%                                    $  33,809,124
 (Cost: $33,809,124)

TOTAL INVESTMENT SECURITIES - 100.13%                                   $ 168,132,002
 (Cost: $167,749,430)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.13%)                          (222,491)

NET ASSETS - 100.00%                                                    $ 167,909,511


Notes to Schedule of Investments
*No dividends were paid during the preceding 12 months.

(A)The interest rate for this security is a stated rate, but the interest
payments are determined by multiplying the inflation-adjusted principal by one
half of the stated rate for each semiannual interest payment date.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
BALANCED PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                      
ASSETS
 Investment securities--at value (Notes 1 and 3) .....   $ 168,132
 Cash ................................................           1
 Receivables:
   Dividends and interest ............................         996
   Fund shares sold ..................................          54
 Prepaid insurance premium ...........................           2
                                                         ---------
    Total assets .....................................     169,185
                                                         ---------
LIABILITIES
 Payable for investment securities purchased .........       1,168
 Payable to Fund shareholders ........................          91
 Accrued accounting services fee (Note 2) ............           4
 Accrued management fee (Note 2) .....................           3
 Accrued service fee (Note 2) ........................           1
 Other ...............................................           8
                                                         ---------
    Total liabilities ................................       1,275
                                                         ---------
      Total net assets ...............................   $ 167,910
                                                         =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock .....................................   $      28
   Additional paid-in capital ........................     188,900
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss on
    investment transactions ..........................     (21,401)
   Net unrealized appreciation in value of investments         383
                                                         ---------
    Net assets applicable to outstanding units
      of capital .....................................   $ 167,910
                                                         =========
Net asset value, redemption
 and offering price per share ........................   $  6.0423
                                                         =========
Capital shares outstanding ...........................      27,789
Capital shares authorized ............................      50,000



See Notes to Financial Statements.



STATEMENT OF OPERATIONS
BALANCED PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

INVESTMENT INCOME

                                                       
Income (Note 1B):
  Interest and amortization ..........................   $  3,634
  Dividends (net of foreign withholding taxes of $3) .      1,247
                                                         --------
   Total income ......................................      4,881
                                                         --------
Expenses (Note 2):
  Investment management fee ..........................      1,219
  Service fee ........................................        435
  Accounting services fee ............................         44
  Custodian fees .....................................         15
  Audit fees .........................................          7
  Legal fees .........................................          3
  Other ..............................................         35
                                                         --------
   Total expenses ....................................      1,758
                                                         --------
     Net investment income ...........................      3,123
                                                         --------
REALIZED AND UNREALIZED LOSS
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments ....................    (14,068)
 Unrealized depreciation in value of investments
   during the period .................................     (4,705)
                                                         --------
   Net loss on investments ...........................    (18,773)
                                                         --------
    Net decrease in net assets resulting
      from operations ................................   $(15,650)
                                                         ========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
BALANCED PORTFOLIO
                                 (In Thousands)



                                               For the fiscal year ended
                                                     December 31,
                                                ----------------------
                                                  2002         2001
                                                ---------    ---------
                                                       
INCREASE (DECREASE) IN NET ASSETS
 Operations:
   Net investment income ....................   $   3,123    $   4,123
   Realized net loss on investments .........     (14,068)      (7,129)
   Unrealized depreciation ..................      (4,705)      (7,291)
                                                ---------    ---------
    Net decrease in net assets
      resulting from operations .............     (15,650)     (10,297)
                                                ---------    ---------
 Dividends to shareholders from (Note 1E):(1)
   Net investment income ....................      (3,123)      (4,123)
   Realized gains on securities
    transactions ............................         ---         (204)
                                                ---------    ---------
                                                   (3,123)      (4,327)
                                                ---------    ---------
 Capital share transactions(2) ..............       8,303       35,032
                                                ---------    ---------
      Total increase (decrease) .............     (10,470)      20,408
NET ASSETS
 Beginning of period ........................     178,380      157,972
                                                ---------    ---------
 End of period ..............................   $ 167,910    $ 178,380
                                                =========    =========
   Undistributed net investment income ......   $     ---    $     ---
                                                =========    =========
(1)See "Financial Highlights" on page 29.....
(2)Shares issued from sale of shares ........       6,716       14,523
Shares issued from reinvestment of dividend
 and/or capital gains distribution ..........         517          643
Shares redeemed .............................      (5,979)     (10,195)
                                                ---------    ---------
Increase in outstanding capital shares ......       1,254        4,971
                                                =========    =========
Value issued from sale of shares ............   $  43,362    $ 101,894
Value issued from reinvestment of dividend
 and/or capital gains distribution ..........       3,123        4,327
Value redeemed ..............................     (38,182)     (71,189)
                                                ---------    ---------
Increase in outstanding capital .............   $   8,303    $  35,032
                                                =========    =========


SEE NOTES TO FINANCIAL STATEMENTS



FINANCIAL HIGHLIGHTS
BALANCED PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                      For the fiscal year ended December 31,
                               ---------------------------------------------------
                                 2002       2001      2000       1999       1998
                               -------    -------    -------    -------    -------
                                                            
Net asset value,
 beginning of
 period  ...........           $ 6.7224   $ 7.3258   $ 7.3120   $ 7.1081   $ 6.7686

Income (loss) from investment
operations:
 Net investment
   income ..........             0.1145     0.1593     0.1873     0.1760     0.1865
 Net realized and
   unrealized gain (loss)
   on investments ..            (0.6801)   (0.5955)    0.3361     0.5446     0.4003

Total from investment
 operations  .......            (0.5656)   (0.4362)    0.5234     0.7206     0.5868
                               --------   --------   --------   --------   --------
Less distributions from:
 Net investment
   income ..........            (0.1145)   (0.1593)   (0.1873)   (0.1759)   (0.1865)
 Capital gains .....            (0.0000)   (0.0079)   (0.3223)   (0.3408)   (0.0608)
                               --------   --------   --------   --------   --------
Total distributions             (0.1145)   (0.1672)   (0.5096)   (0.5167)   (0.2473)
                               --------   --------   --------   --------   --------
Net asset value,
 end of period  ....           $ 6.0423   $ 6.7224   $ 7.3258   $ 7.3120   $ 7.1081
                               ========   ========   ========   ========   ========
Total return .......              -8.41%     -5.94%      7.14%     10.14%      8.67%
Net assets, end of period
 (in millions)  ....           $    168   $    178   $    158   $    117   $     92
Ratio of expenses
 to average net
 assets  ...........               1.01%      1.00%      1.01%      0.95%      0.74%
Ratio of net investment
 income to average
 net assets  .......               1.79%      2.44%      2.81%      2.56%      2.92%
Portfolio turnover
 rate  .............              58.18%     38.82%     42.32%     62.90%     54.62%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with James C. Cusser, CFA, portfolio manager of W&R Target Funds,
Inc. - Bond Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Bond Portfolio
for the fiscal year ended December 31, 2002. The following discussion, graphs
and tables provide you with information regarding the Portfolio's performance
during that period. Please note that the Portfolio's performance data does not
take into account any expenses or charges associated with owning a variable life
or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?
The Portfolio performed about on par with its peer group during the period,
although it underperformed its benchmark index. The Portfolio increased 8.98
percent for the year, compared with the Salomon Brothers Broad Investment Grade
Index (reflecting the performance of securities that generally represent the
bond market), which increased 10.09 percent, and the Lipper Variable Annuity
Corporate Debt Funds A-Rated Universe Average (reflecting the universe of funds
with similar investment objectives), which increased 8.54 percent for the year.

Why did the Portfolio slightly lag its benchmark index during the fiscal year?
The Portfolio focused generally on higher credit quality than similar funds and,
while that helped us perform on par with the peer group, we didn't quite achieve
the earnings of the benchmark index. The Portfolio is typically focused on
corporate bonds, but during the fiscal year we decided to emphasize higher
credit quality Treasury securities, U.S. government collateralized mortgage
obligations, and U.S. agency debentures. Performance was therefore more like a
general taxable bond market fund than a traditional corporate bond fund. We
believe that this strategy, however, helped us avoid a most miserable year among
corporate bond issuers.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year?
Accounting scandals and the threats of war took their toll on corporate bond
issuers. Nonetheless, higher-credit-quality issuers, such as the U.S.
government, did well with the significant decline in interest rates.
Furthermore, we feel that the Portfolio's "elastic" response to interest rate
movements proved valuable this year. For example, the Portfolio has an
approximately 13 percent weighting in "put bonds," or bonds that can be sold
back to the issuer prior to maturity when interest rates rise, and bond prices
fall. These bonds thereby do well when interest rates are volatile over the
course of the year. This year was especially interest-rate volatile, and the put
bonds' optionality thus generally increased in value. The Portfolio's
longer-term bonds became more sensitive to interest rates, that is they went up
in value more, as yields declined in response to the slowing economy, falling
stock prices and the increasing fear of war.

What strategies and techniques did you employ that specifically affected
Portfolio performance?
The Portfolio remains well balanced and diversified, we believe, which should
help mitigate some of the uncertainty in the markets. It also is fairly liquid
and nimble in order to take advantage of opportunities as they arise. We'd
expect in 2003 that the economy will improve and, with it, corporate credit
quality will improve, although we feel that interest rates likely will rise. We
think that the Federal government will spend more money on both domestic and,
especially, international affairs. We would expect this to help the economy and
raise longer-term interest rates as well. Therefore we intend to return the
Portfolio to a greater weighting in corporate bonds, even some non-investment
grade, high yield corporate bonds, and keep the sensitivity to interest rates
lower than usual.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
We think the Federal Reserve is through lowering money market rates, and that
corporate bond issuance will decline. We believe that a wave of financing
activity took place in 2002 in response to a greater liquidity need on corporate
balance sheets. This fact, plus the improving economy, likely will bring more
focus to corporate bond investments. Initially, we intend to seek out higher
quality corporate credits and, as the corporate economy proves itself, we likely
will add more and more cyclical, lower-rated, credits. During the fiscal year,
we emphasized the highest quality among corporate issuers. In the coming year,
we would expect to seek out issuers among more cyclical industries, such as
paper and forest products, automotive and chemical industries. We believe that
higher current yield will be important in a year that likely will feature rising
interest rates. Furthermore, with the expected decline in mortgage refinancings,
we would anticipate a better environment for mortgage-backed securities, which
represent more than 30 percent of the portfolio's holdings.

Respectfully,

James C. Cusser
Manager
Bond Portfolio



Comparison of Change in Value of $10,000 Investment
                           W&R Target Bond Portfolio,
               Salomon Brothers Broad Investment Grade Index and
     Lipper Variable Annuity Corporate Debt Funds A-Rated Universe Average



                                                     Lipper
                                                    Variable
                                                    Annuity
                                    Salomon        Corporate
                                   Brothers        Debt Funds
                     W&R Target      Broad           A-Rated
                       Bond        Investment       Universe
                     Portfolio    Grade Index       Average
                     ----------   -----------      ----------
                                       
12/31/92  Purchase    $10,000       $10,000         $10,000
12/31/93               10,905        10,989          11,113
12/31/94               10,572        10,676          10,687
12/31/95               12,749        12,657          12,744
12/31/96               13,182        13,115          13,106
12/31/97               14,470        14,377          14,339
12/31/98               15,533        15,629          15,489
12/31/99               15,310        15,500          15,211
12/31/00               16,816        17,296          16,793
12/31/01               18,073        18,770          18,084
12/31/02               19,695        20,663          19,628


+++++ W&R Target Bond Portfolio(1) - $19,695
...... Salomon Brothers Broad Investment Grade Index - $20,663
***** Lipper Variable Annuity Corporate Debt Funds A-Rated Universe
Average -- $19,628

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

    AVERAGE ANNUAL TOTAL RETURN(2)

                          
1-year period ended
  12-31-02                   8.98%
5-year period ended
  12-31-02                   6.36%
10-year period ended
  12-31-02                   7.01%



(2)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE BOND PORTFOLIO

       December 31, 2002



                                                         Principal
                                                         Amount in
                                                         Thousands          Value
                                                                 
CORPORATE DEBT SECURITIES
Aircraft - 0.57%
 Raytheon Company,
   6.5%, 7-15-05 ..................................   $       1,300    $   1,402,150
                                                                       -------------

Banks - 6.00%
 AmSouth Bancorporation,
   6.75%, 11-1-25 .................................           2,000        2,192,620
 Banco Nacional de Comercio Exterior,
   S.N.C.,
   7.25%, 2-2-04 ..................................           1,000        1,048,750
 First Union Corporation,
   6.824%, 8-1-26 .................................           1,132        1,333,231
 HSBC Holdings plc,
   5.25%, 12-12-12 ................................           1,250        1,281,224
 ING Groep N.V.,
   5.5%, 5-11-05 (A) ..............................        EUR1,000        1,101,704
 NBD Bank, National Association,
   8.25%, 11-1-24 .................................   $       1,000        1,264,728
 NationsBank Corporation,
   8.57%, 11-15-24 ................................           1,000        1,287,519
 Nordic Investment Bank,
   2.75%, 1-11-06 .................................             750          757,630
 SouthTrust Bank of Alabama, National
   Association,
   7.69%, 5-15-25 .................................           3,000        3,480,996
 Wachovia Corporation,
   6.605%, 10-1-25 ................................           1,000        1,087,530
                                                                       -------------
                                                                          14,835,932
                                                                       -------------

Beverages - 1.00%
 Coca-Cola Company (The),
   4.0%, 6-1-05 ...................................             500          523,455
 Coca-Cola Enterprises Inc.,
   6.7%, 10-15-36 .................................             400          439,784
 Diageo Capital plc,
   3.5%, 11-19-07 .................................           1,500        1,507,644
                                                                       -------------
                                                                           2,470,883
                                                                       -------------

Broadcasting - 0.52%
 British Sky Broadcasting Group plc,
   7.3%, 10-15-06 .................................           1,250        1,300,000
                                                                       -------------

Business Equipment and Services - 1.43%
 Pemex Project Funding Master Trust:
   8.5%, 2-15-08 ..................................             800          892,000
   9.125%, 10-13-10 ...............................             500          572,500
 Postal Square Limited Partnership,
   6.5%, 6-15-22 ..................................             225          254,791
 Quebecor Printing Capital Corporation,
   6.5%, 8-1-27 ...................................           1,750        1,810,503
                                                                       -------------
                                                                           3,529,794
                                                                       -------------

Communications Equipment - 0.47%
 Norse CBO, Ltd. and Norse CBO, Inc.,
   6.515%, 8-13-10 (B) ............................           1,154        1,154,488
                                                                       -------------

Computers - Main and Mini - 0.44%
 International Business Machines Corporation,
   5.375%, 3-31-05 (A) ............................        EUR1,000        1,095,897
                                                                       -------------

Containers - 0.29%
 Owens-Illinois, Inc.,
   7.15%, 5-15-05 .................................   $         750          720,938
                                                                       -------------

Finance Companies - 7.30%
 Abitibi-Consolidated Company of Canada,
   6.95%, 12-15-06 ................................           1,000        1,038,745
 Asset Securitization Corporation,
   7.49%, 4-14-29 .................................           1,244        1,431,483
 Associates Corporation of North America,
   6.25%, 11-1-08 .................................             750          826,772
 Bell Atlantic Financial Services, Inc.,
   7.6%, 3-15-07 ..................................           2,950        3,364,378
 California Infrastructure and Economic
   Development Bank, Special Purpose
   Trust PG&E-1,
   6.42%, 9-25-08 .................................           1,000        1,088,564
 Chase Manhattan - First Union Commercial
   Mortgage Trust,
   7.439%, 7-15-09 ................................           1,500        1,757,844
 Countrywide Home Loans, Inc.,
   6.5%, 8-25-29 ..................................           1,984        2,036,315
 First Union National Bank Commercial Mortgage,
   7.841%, 3-15-10 ................................           2,500        3,008,501
 General Motors Acceptance Corporation:
   5.5%, 2-2-05 (A) ...............................        EUR1,250        1,318,441
   6.125%, 9-15-06 ................................   $       1,000        1,016,126
   8.875%, 6-1-10 .................................             500          552,602
 Westinghouse Electric Corporation,
   8.875%, 6-14-14 ................................             500          628,374
                                                                       -------------
                                                                          18,068,145
                                                                       -------------

Food and Related - 0.99%
 ConAgra, Inc.,
   7.125%, 10-1-26 ................................           1,750        1,961,502
 GRUMA, S.A. de C.V.,
   7.625%, 10-15-07 ...............................             500          490,000
                                                                       -------------
                                                                           2,451,502
                                                                       -------------

Forest and Paper Products - 2.08%
 Abitibi-Consolidated Inc.,
   8.3%, 8-1-05 ...................................             750          799,228
 Bowater Canada Finance Corporation,
   7.95%, 11-15-11 ................................           1,000        1,056,664
 Champion International Corporation:
   6.4%, 2-15-26 ..................................           1,500        1,625,018
   6.65%, 12-15-37 ................................           1,500        1,669,911
                                                                       -------------
                                                                           5,150,821
                                                                       -------------

Health Care -- General - 0.86%
 Bristol-Myers Squibb Company,
   5.75%, 10-1-11 .................................           2,000        2,129,710
                                                                       -------------

Hospital Supply and Management - 1.09%
 Anthem, Inc.,
   4.875%, 8-1-05 .................................           1,500        1,557,445
 HCA - The Healthcare Company,
   8.75%, 9-1-10 ..................................           1,000        1,150,897
                                                                       -------------
                                                                           2,708,342
                                                                       -------------

Household -- General Products - 1.69%
 Kimberly-Clark Corporation,
   4.5%, 7-30-05 (B) ..............................           1,500        1,584,137
 Procter & Gamble Company (The),
   8.0%, 9-1-24 ...................................           2,000        2,598,282
                                                                       -------------
                                                                           4,182,419
                                                                       -------------

Insurance -- Life - 0.01%
 Reliance Group Holdings, Inc.,
   9.0%, 11-15-00 (C) .............................             250           10,000
                                                                       -------------

Motor Vehicle Parts - 0.03%
 Federal-Mogul Corporation,
   7.75%, 7-1-06 (C) ..............................             500           75,000
                                                                       -------------

Multiple Industry - 4.04%
 CHYPS CBO 1997-1 Ltd.,
   6.72%, 1-15-10 (B) .............................           1,458          947,375
 Chevy Chase Savings Bank, F.S.B.,
   9.25%, 12-1-05 .................................             500          495,000
 Ford Motor Credit Company,
   7.6%, 8-1-05 ...................................           2,000        2,042,090
 General Electric Capital Corporation,
   5.0%, 6-15-07 ..................................           2,750        2,911,832
 Tele-Communications, Inc.,
   8.35%, 2-15-05 .................................           1,000        1,057,751
 Tyco International Group S.A.,
   6.375%, 2-15-06 ................................           1,000          970,000
 Union Electric Co.,
   8.25%, 10-15-22 ................................           1,500        1,565,874
                                                                       -------------
                                                                           9,989,922
                                                                       -------------

Petroleum -- Domestic - 0.42%
 Ocean Energy, Inc.,
   8.375%, 7-1-08 .................................           1,000        1,052,500
                                                                       -------------

Petroleum -- International - 0.95%
 ChevronTexaco Capital Company,
   3.5%, 9-17-07 ..................................           2,300        2,341,280
                                                                       -------------

Petroleum -- Services - 0.81%
 Halliburton Company,
   6.75%, 2-1-27 ..................................           2,000        2,000,000
                                                                       -------------

Restaurants - 0.20%
 Host Marriott, L.P.,
   8.375%, 2-15-06 ................................             500          495,000
                                                                       -------------

Retail -- General Merchandise - 0.85%
 Wal-Mart Stores, Inc.,
   4.375%, 7-12-07 ................................           2,000        2,108,422
                                                                       -------------

Retail -- Specialty Stores - 0.57%
 Fred Meyer, Inc.,
   7.45%, 3-1-08 ..................................           1,250        1,420,785
                                                                       -------------

Security and Commodity Brokers - 0.66%
 CIT Group, Inc. (The),
   7.375%, 4-2-07 .................................           1,500        1,635,313
                                                                       -------------

Utilities --Electric - 2.61%
 Cleveland Electric Illuminating Co. (The),
   9.5%, 5-15-05 ..................................             678          680,258
 Dominion Resources, Inc.,
   7.82%, 9-15-04 .................................           2,250        2,410,632
 Entergy Arkansas, Inc.,
   7.5%, 8-1-07 ...................................             750          763,981
 HQI Transelec Chile S.A.,
   7.875%, 4-15-11 ................................             750          830,770
 Kansas Gas and Electric Company,
   7.6%, 12-15-03 .................................           1,000        1,013,834
 Niagara Mohawk Power Corporation,
   7.375%, 7-1-03 .................................             756          773,810
                                                                       -------------
                                                                           6,473,285
                                                                       -------------

Utilities -- Gas and Pipeline - 0.94%
 Tennessee Gas Pipeline Company,
   7.0%, 3-15-27 ..................................           2,000        1,820,000
 Williams Companies, Inc. (The),
   6.5%, 8-1-06 ...................................             500          347,500
 Williams Holdings of Delaware, Inc.,
   6.5%, 12-1-08 ..................................             250          160,000
                                                                       -------------
                                                                           2,327,500
                                                                       -------------

Utilities -- Telephone - 2.11%
 AirTouch Communications, Inc.,
   6.65%, 5-1-08 ..................................           1,500        1,696,870
 BellSouth Corporation,
   5.0%, 10-15-06 .................................             500          533,870
 Deutsche Telekom International Finance B.V.,
   8.75%, 6-15-30 .................................           1,000        1,155,151
 Pacific Bell,
   7.25%, 11-1-27 .................................             750          815,878
 Qwest Communications International Inc.,
   7.5%, 11-1-08 ..................................           1,250        1,012,500
                                                                       -------------
                                                                           5,214,269
                                                                       -------------

TOTAL CORPORATE DEBT SECURITIES - 38.93% ..........                    $  96,344,297
 (Cost: $92,466,003)

OTHER GOVERNMENT SECURITIES
Canada - 1.28%
 Hydro-Quebec,
   8.05%, 7-7-24 ..................................           1,000        1,310,425
 Province de Quebec,
   7.14%, 2-27-26 .................................           1,500        1,843,038
                                                                       -------------
                                                                           3,153,463
                                                                       -------------

Supranational - 0.51%
 Inter-American Development Bank,
   8.4%, 9-1-09 ...................................           1,000        1,267,687
                                                                       -------------

TOTAL OTHER GOVERNMENT SECURITIES - 1.79%                              $   4,421,150
 (Cost: $3,580,324)

UNITED STATES GOVERNMENT SECURITIES
Agency Obligations - 10.81%
 Federal Home Loan Bank:
   3.1%, 12-16-05 .................................           1,500        1,516,011
   4.375%, 8-15-07 ................................           1,500        1,527,402
 Federal Home Loan Mortgage Corporation:
   4.625%, 4-11-05 ................................           1,000        1,008,054
   5.95%, 1-19-06 .................................           2,000        2,220,214
 Federal National Mortgage Association:
   4.0%, 12-10-04 .................................           1,000        1,012,326
   3.75%, 7-29-05 .................................           1,000        1,025,464
   3.0%, 11-28-05 .................................           1,500        1,506,678
   5.5%, 2-15-06 ..................................           5,000        5,468,048
   5.25%, 8-14-06 .................................           1,500        1,535,568
   6.25%, 7-19-11 .................................           1,000        1,057,106
   6.0%, 12-21-11 .................................           4,750        5,052,000
 Tennessee Valley Authority:
   4.875%, 12-15-16 ...............................           2,500        2,688,990
   5.88%, 4-1-36 ..................................           1,000        1,143,056
                                                                       -------------
                                                                          26,760,917
                                                                       -------------

Mortgage-Backed Obligations - 33.95%
 Federal Home Loan Mortgage Corporation Agency
   REMIC/CMO:
   6.5%, 9-25-18 ..................................             483          497,021
   6.25%, 1-15-21 .................................           2,166        2,174,547
   6.5%, 11-25-21 .................................           2,088        2,187,996
   6.5%, 1-15-27 ..................................           2,424        2,501,268
   6.5%, 7-15-28 ..................................           2,018        2,065,210
   7.5%, 9-15-29 ..................................             638          720,787
   6.5%, 11-15-29 .................................           1,665        1,752,724
 Federal Home Loan Mortgage Corporation Fixed
   Rate Participation Certificates:
   5.5%, 9-1-08 ...................................           3,376        3,501,345
   6.5%, 1-1-18 ...................................           3,500        3,691,408
   9.0%, 6-1-27 ...................................             930        1,036,948
   7.0%, 5-1-31 ...................................             914          960,579
   6.5%, 10-1-31 ..................................           1,542        1,607,231
   6.0%, 2-1-32 ...................................           2,339        2,421,997
   6.5%, 6-1-32 ...................................           2,210        2,303,360
   6.0%, 1-1-33 ...................................           3,500        3,618,125
 Federal Home Loan Mortgage Corporation
   Non-Agency REMIC/CMO:
   5.5%, 3-15-14 ..................................           3,500        3,734,599
   5.5%, 2-15-29 ..................................           1,000        1,033,710
   6.0%, 3-15-29 ..................................           3,139        3,250,522
   6.5%, 11-15-29 .................................           3,082        3,254,770
 Federal National Mortgage Association Agency
   REMIC/CMO:
   6.0%, 3-25-14 ..................................           3,500        3,755,997
   6.0%, 2-25-28 ..................................           1,634        1,679,190
 Federal National Mortgage Association Fixed Rate
   Pass-Through Certificates:
   6.09%, 4-1-09 ..................................           1,919        2,125,727
   5.5%, 1-1-17 ...................................           4,786        4,968,715
   6.0%, 1-1-17 ...................................           2,187        2,289,834
   6.0%, 2-1-17 ...................................             857          896,770
   5.5%, 7-1-17 ...................................           1,837        1,907,246
   7.0%, 6-1-24 ...................................             983        1,042,137
   6.0%, 12-1-28 ..................................           1,506        1,563,469
 Federal National Mortgage Association
   Non-Agency REMIC/CMO:
   5.0%, 4-25-15 ..................................           3,500        3,633,438
   5.5%, 12-25-15 .................................           1,000        1,053,986
   6.0%, 2-25-24 ..................................             500          513,238
   4.0%, 11-25-32 .................................           3,464        3,466,003
 Government National Mortgage Association Fixed
   Rate Pass-Through Certificates:
   8.0%, 11-15-17 .................................           1,142        1,253,543
   7.5%, 7-15-23 ..................................             334          359,248
   7.5%, 12-15-23 .................................             600          645,419
   8.0%, 9-15-25 ..................................             336          367,453
   7.0%, 7-20-27 ..................................             201          212,804
   7.0%, 8-20-27 ..................................             388          410,132
   6.5%, 7-15-28 ..................................           1,773        1,864,105
   6.5%, 5-15-29 ..................................             809          850,295
   7.5%, 7-15-29 ..................................             557          594,213
   7.75%, 10-15-31 ................................             307          344,069
 United States Department of Veterans Affairs,
   Guaranteed Remic Pass-Through Certificates,
   Vendee Mortgage Trust:
   2000-1 Class 2-C,
   7.25%, 11-15-21 ................................             500          520,957
   2000-2 Class 1-D,
   7.5%, 9-15-26 ..................................           2,000        2,166,060
   2001-2 Class 1-D,
   6.75%, 9-15-19 .................................             750          776,648
   2001-3 Class G,
   6.5%, 4-15-27 ..................................             500          543,948
   2002-1 Class 2-G,
   6.5%, 10-15-25 .................................           1,750        1,901,274
                                                                       -------------
                                                                          84,020,065
                                                                       -------------

Treasury Obligations - 10.92%
 United States Treasury Bonds:
   11.25%, 2-15-15 ................................           3,250        5,412,394
   8.75%, 5-15-17 .................................           1,000        1,445,781
   8.875%, 8-15-17 ................................           1,000        1,461,523
   6.125%, 11-15-27 ...............................           7,000        8,178,786
 United States Treasury Notes:
   6.5%, 8-15-05 ..................................           1,250        1,398,145
   5.75%, 11-15-05 ................................           2,000        2,210,860
   7.0%, 7-15-06 ..................................           3,000        3,478,242
   6.5%, 10-15-06 .................................           3,000        3,445,782
                                                                       -------------
                                                                          27,031,513
                                                                       -------------

TOTAL UNITED STATES GOVERNMENT SECURITIES - 55.68%                     $ 137,812,495
 (Cost: $131,379,415)

SHORT-TERM SECURITIES
Chemicals -- Petroleum and Inorganic - 1.71%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note ..........................           4,232        4,232,000
                                                                       -------------

Finance Companies - 0.63%
 PACCAR Financial Corp.,
   1.3%, 1-27-03 ..................................           1,562        1,560,534
                                                                       -------------

Food and Related - 0.80%
 General Mills, Inc.,
   1.53%, Master Note .............................           1,972        1,972,000
                                                                       -------------

Petroleum -- Internationals - 2.22%
 BP America Inc.,
   1.2%, 1-2-03 ...................................           5,511        5,510,816
                                                                       -------------

TOTAL SHORT-TERM SECURITIES - 5.36% ...............                    $  13,275,350
 (Cost: $13,275,350)

TOTAL INVESTMENT SECURITIES - 101.76% .............                    $ 251,853,292
 (Cost: $240,701,092)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.76%)                       (4,365,596)

NET ASSETS - 100.00% ..............................                    $ 247,487,696


NOTES TO SCHEDULE OF INVESTMENTS

(A)Principal amounts are denominated in the indicated foreign currency, where
applicable (EUR-Euro).

(B)Securities were purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, the total value of these
securities amounted to $3,686,000 or 1.49% of net assets.

(C)Non-income producing as the issuer has either missed its most recent interest
payment or declared bankruptcy.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
BOND PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                
ASSETS
 Investment securities--at value (Notes 1 and 3)   $ 251,853
 Cash ..........................................          18
 Receivables:
   Interest ....................................       2,838
   Fund shares sold ............................          65
 Prepaid insurance premium .....................           2
                                                   ---------
    Total assets ...............................     254,776
                                                   ---------
LIABILITIES
 Payable for investment securities purchased ...       7,231
 Payable to Fund shareholders ..................          23
 Accrued accounting services fee (Note 2) ......           5
 Accrued management fee (Note 2) ...............           4
 Accrued service fee (Note 2) ..................           2
 Other .........................................          23
                                                   ---------
    Total liabilities ..........................       7,288
                                                   ---------
      Total net assets .........................   $ 247,488
                                                   =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ...............................   $      44
   Additional paid-in capital ..................     237,982
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss
    on investment transactions .................      (1,702)
   Net unrealized appreciation in value
    of investments .............................      11,164
                                                   ---------
    Net assets applicable to outstanding units
      of capital ...............................   $ 247,488
                                                   =========
Net asset value, redemption
 and offering price per share ..................   $  5.6032
                                                   =========
Capital shares outstanding .....................      44,169
Capital shares authorized ......................      80,000



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
BOND PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

INVESTMENT INCOME

                                                       
 Income (Note 1B):
   Interest and amortization ..........................   $ 11,824
                                                          --------
 Expenses (Note 2):
   Investment management fee ..........................      1,083
   Service fee ........................................        515
   Accounting services fee ............................         50
   Custodian fees .....................................         17
   Audit fees .........................................          7
   Legal fees .........................................          4
   Other ..............................................         44
                                                          --------
    Total expenses ....................................      1,720
                                                          --------
      Net investment income ...........................     10,104
                                                          --------
REALIZED AND UNREALIZED GAIN (LOSS)
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities ......................       (668)
 Realized net gain on foreign currency transactions ...         44
                                                          --------
   Realized net loss on investments ...................       (624)
   Unrealized appreciation in value of
    investments during the period .....................      8,420
                                                          --------
    Net gain on investments ...........................      7,796
                                                          --------
      Net increase in net assets
       resulting from operations ......................   $ 17,900
                                                          ========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
BOND PORTFOLIO

                                 (IN THOUSANDS)



                                            For the fiscal year ended
                                                   December 31,
                                             ----------------------
                                                2002         2001
                                             ---------    ---------
                                                    
INCREASE IN NET ASSETS
Operations:
 Net investment income ....................   $  10,104    $   7,842
 Realized net loss on investments .........        (624)         (59)
 Unrealized appreciation ..................       8,420        1,937
                                              ---------    ---------
   Net increase in net assets resulting
    from operations .......................      17,900        9,720
                                              ---------    ---------
Dividends to shareholders from net
 investment income (Note 1E):(1) ..........     (10,148)      (7,838)
                                              ---------    ---------
Capital share transactions(2) .............      69,232       51,392
                                              ---------    ---------
    Total increase ........................      76,984       53,274
NET ASSETS
Beginning of period .......................     170,504      117,230
                                              ---------    ---------
End of period .............................   $ 247,488    $ 170,504
                                              =========    =========
 Undistributed net investment income ......   $     ---    $     ---
                                              =========    =========

(1)See "Financial Highlights" on page 45.

(2)Shares issued from sale of shares ......      18,149       19,079
Shares issued from reinvestment of dividend       1,811        1,462
Shares redeemed ...........................      (7,593)     (11,150)
                                              ---------    ---------
Increase in outstanding capital shares ....      12,367        9,391
                                              =========    =========
Value issued from sale of shares ..........   $ 101,434    $ 104,584
Value issued from reinvestment of dividend       10,148        7,838
Value redeemed ............................     (42,350)     (61,030)
                                              ---------    ---------
Increase in outstanding capital ...........   $  69,232    $  51,392
                                              =========    =========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
BOND PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                    For the fiscal year ended December 31,
                               ----------------------------------------------
                                2002       2001      2000     1999     1998
                               -------   -------   -------  -------   -------
                                                       
Net asset value,
 beginning of
 period  ...........           $5.3615   $5.2308   $5.0497  $5.4451   $5.3686
                               -------   -------   -------  -------   -------
Income (loss) from investment
 operations:
 Net investment
   income ..........            0.2396    0.2585    0.3172   0.3173    0.3180
 Net realized and
   unrealized gain
   (loss) on
   investments .....            0.2417    0.1306    0.1811  (0.3954)   0.0765
                               -------   -------   -------  -------   -------
Total from investment
 operations  .......            0.4813    0.3891    0.4983  (0.0781)   0.3945
                               -------   -------   -------  -------   -------
Less distributions from net
 investment income             (0.2396)  (0.2584)  (0.3172) (0.3173)  (0.3180)
                               -------   -------   -------  -------   -------
Net asset value,
 end of period  ....           $5.6032   $5.3615   $5.2308  $5.0497   $5.4451
                               =======   =======   =======  =======   =======
Total return .......              8.98%     7.47%     9.83%   -1.44%     7.35%
Net assets, end of
 period (in
 millions)  ........           $   247   $   171   $   117  $   111   $   114
Ratio of expenses
 to average net
 assets  ...........              0.83%     0.83%     0.84%    0.81%     0.67%
Ratio of net investment
 income to average
 net assets  .......              4.92%     5.49%     6.08%    5.73%     5.99%
Portfolio turnover
 rate  .............             33.75%    29.06%    32.68%   47.27%    32.75%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with James D. Wineland, portfolio manager of W&R Target Funds, Inc.
- - Core Equity Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Core Equity
Portfolio for the fiscal year ended December 31, 2002. The following discussion,
graphs and tables provide you with information regarding the Portfolio's
performance during that period. Please note that the Portfolio's performance
data does not take into account any expenses or charges associated with owning a
variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year? The Portfolio
performed fairly well on a relative basis, as it slightly outperformed the
benchmark index, although it had a negative return for the fiscal year. The
Portfolio's one-year return declined 21.63 percent during the period, compared
with the S&P 500 Index (reflecting the performance of securities that generally
represent the stock market), which declined 22.10 percent for the year, and the
Lipper Variable Annuity Large Cap Core Funds Universe Average (reflecting the
universe of funds with similar investment objectives), which declined 23.41
percent during the period.

What helped the Portfolio outperform its benchmark index during the fiscal year?
We positioned the Portfolio rather defensively for most of the period, as we had
several concerns about the condition of the U.S. economy. Whether warranted or
not, a steady erosion of corporate debt ratings by primary rating agencies
(including Standard & Poor's and Moody's Corporation) created a growing
perception that corporations generally were facing a meaningful decline in
financial strength. In addition to our primarily defensive positioning, we
believe that our holdings in the aerospace/defense sector and some of our
pharmaceutical positions made important positive contributions to the
Portfolio's performance during the year.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year? It was a very difficult year for stock investors, as
several factors weighed on the market, put pressure on performance and impacted
consumer confidence. Potential for a war between the U.S. and Iraq kept a cloud
of uncertainty over the global financial markets. In the U.S., financial news
was often dominated by corporate scandals, as investor psychology was eroded by
the steady stream of reports of violations of corporate accounting and ethical
standards. Earnings expectations for U.S. companies continued to be lowered
during much of the year, and hopes for a resilient U.S. economy in the second
half of 2002 became more subdued as the year progressed.

Finally, concern began to build regarding the strength of the U.S. consumer.
While zero percent auto financing and generations-low mortgage rates provided
some incentive for consumers to spend, rising rates of unemployment and very
high levels of consumer debt relative to disposable income seemed to foretell a
slowing rate of U.S. consumption. Global economic problems also weighed heavily
on financial markets, as problems in Argentina, Brazil, Japan and Europe all
contributed to a rather somber investment environment.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance? As mentioned, we kept the Portfolio positioned rather
defensively in the face of difficult market conditions. Preservation of capital
was a key objective in this very uncertain time. Financial strength,
sustainability of earnings, and market dominance are three characteristics we
continue to seek in our investment selections.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward? In the difficult environment, we
emphasized a few key sectors, including aerospace/defense, energy, health care
and pharmaceuticals, electric utilities and financial services. We believe that
valuations and earnings prospects in these sectors are reasonable, given the
economic challenges. We do expect the U.S. and global economies to recover as
2003 progresses. However, we also expect market returns to be modest when
compared to some of the tremendous growth years we generally have experienced
since 1982. Going forward, we intend to continue to invest in what we believe
are high quality, large cap companies that are leaders in their respective
industries.

Respectfully,

James D. Wineland
Manager
Core Equity Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target Core Equity
Portfolio, S&P 500 Index and Lipper Variable Annuity Large-Cap Core Funds
Universe Average



                                                 Lipper
                                                Variable
                                                 Annuity
                                                Large-Cap
                      W&R Target      S&P      Core Funds
                     Core Equity      500       Universe
                      Portfolio      Index      Average
                     -----------     -----    -----------
                                  
12/31/92  Purchase     $10,000      $10,000     $10,000
12/31/93                11,730       11,007      11,252
12/31/94                11,597       11,153      11,206
12/31/95                15,257       15,344      14,939
12/31/96                18,270       18,867      18,161
12/31/97                23,049       25,148      23,250
12/31/98                27,921       32,366      28,788
12/31/99                31,418       39,185      34,749
12/31/00                34,334       35,586      32,250
12/31/01                29,216       31,348      27,763
12/31/02                22,896       24,420      21,263


- ----- W&R Target Core Equity Portfolio(1) -- $22,896

+++++ S&P 500 Index -- $24,420

***** Lipper Variable Annuity Large-Cap Core Funds Universe Average -- $21,263

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

        AVERAGE ANNUAL TOTAL RETURN(2)

                                 
1-year period ended
     12-31-02                       -21.63%
5-year period ended
     12-31-02                        -0.13%
10-year period ended
     12-31-02                         8.64%



(2)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE CORE EQUITY PORTFOLIO

     December 31, 2002



                                                            Shares       Value
                                                                
COMMON STOCKS
Aircraft - 8.09%
 Lockheed Martin Corporation .......................        659,000   $ 38,057,250
 Raytheon Company ..................................        471,500     14,498,625
                                                                      ------------
                                                                        52,555,875
                                                                      ------------

Aluminum - 2.51%
 Alcoa Incorporated ................................        716,800     16,328,704
                                                                      ------------

Banks - 5.47%
 U.S. Bancorp ......................................      1,002,000     21,262,440
 Wells Fargo & Company .............................        304,600     14,276,602
                                                                      ------------
                                                                        35,539,042
                                                                      ------------

Beverages - 1.68%
 Anheuser-Busch Companies, Inc. ....................        225,300     10,904,520
                                                                      ------------

Broadcasting - 3.03%
 Cox Communications, Inc., Class A* ................        367,627     10,440,607
 Viacom Inc., Class B* .............................        226,800      9,244,368
                                                                      ------------
                                                                        19,684,975
                                                                      ------------

Business Equipment and Services - 1.38%
 Accenture Ltd, Class A* ...........................        497,000      8,941,030
                                                                      ------------

Capital Equipment - 1.11%
 Caterpillar Inc. ..................................        157,800      7,214,616
                                                                      ------------

Chemicals -- Petroleum and Inorganic - 1.23%
 du Pont (E.I.) de Nemours and Company .............        188,100      7,975,440
                                                                      ------------

Chemicals -- Specialty - 2.06%
 Air Products and Chemicals, Inc. ..................        312,900     13,376,475
                                                                      ------------

Communications Equipment - 1.29%
 Cisco Systems, Inc.* ..............................        640,600      8,388,657
                                                                      ------------

Computers -- Peripherals - 6.07%
 Microsoft Corporation* ............................        473,100     24,468,732
 SAP Aktiengesellschaft, ADR .......................        768,900     14,993,550
                                                                      ------------
                                                                        39,462,282
                                                                      ------------

Electronic Components - 1.94%
 Analog Devices, Inc.* .............................        255,200      6,091,624
 Intel Corporation .................................        416,500      6,486,987
                                                                      ------------
                                                                        12,578,611
                                                                      ------------

Farm Machinery - 1.88%
 Deere & Company ...................................        265,800     12,186,930
                                                                      ------------

Health Care -- Drugs - 7.64%
 Forest Laboratories, Inc.* ........................        169,700     16,667,934
 Pfizer Inc. .......................................        637,450     19,486,846
 Pharmacia Corporation .............................        322,527     13,481,629
                                                                      ------------
                                                                        49,636,409
                                                                      ------------

Health Care -- General - 1.17%
 Johnson & Johnson .................................        141,900      7,621,449
                                                                      ------------

Hospital Supply and Management - 0.92%
 Medtronic, Inc. ...................................        130,900      5,969,040
                                                                      ------------

Insurance -- Property and Casualty - 5.82%
 American International Group, Inc. ................        223,037     12,902,690
 Berkshire Hathaway Inc., Class B* .................          4,200     10,176,600
 Chubb Corporation (The) ...........................        281,700     14,704,740
                                                                      ------------
                                                                        37,784,030
                                                                      ------------

Leisure Time Industry - 1.07%
 Walt Disney Company (The)* ........................        426,100      6,949,691
                                                                      ------------

Petroleum -- Canada - 1.00%
 Nabors Industries Ltd.* ...........................        184,600      6,510,842
                                                                      ------------

Petroleum -- Domestic - 5.47%
 Anadarko Petroleum Corporation ....................        401,600     19,236,640
 Burlington Resources Inc. .........................        382,300     16,305,095
                                                                      ------------
                                                                        35,541,735
                                                                      ------------

Petroleum -- International - 3.73%
 Exxon Mobil Corporation ...........................        434,958     15,197,433
 Royal Dutch Petroleum Company, NY Shares ..........        205,500      9,046,110
                                                                      ------------
                                                                        24,243,543
                                                                      ------------

Petroleum -- Services - 4.81%
 Baker Hughes Incorporated .........................        651,800     20,981,442
 Schlumberger Limited ..............................        244,200     10,278,378
                                                                      ------------
                                                                        31,259,820
                                                                      ------------

Retail -- General Merchandise - 2.14%
 Target Corporation ................................        462,700     13,881,000
                                                                      ------------

Retail -- Specialty Stores - 1.01%
 Best Buy Co., Inc.* ...............................        272,400      6,578,460
                                                                      ------------

Security and Commodity Brokers - 4.93%
 Fannie Mae ........................................        103,300      6,645,289
 Freddie Mac .......................................        124,100      7,328,105
 Goldman Sachs Group, Inc. (The) ...................        265,600     18,087,360
                                                                      ------------
                                                                        32,060,754
                                                                      ------------

Trucking and Shipping - 1.81%
United Parcel Service, Inc., Class B ...............        186,500     11,764,420
                                                                      ------------

Utilities -- Electric - 3.99%
 Dominion Resources, Inc. ..........................        336,500     18,473,850
 Duke Energy Corporation ...........................        381,900      7,462,326
                                                                      ------------
                                                                        25,936,176
                                                                      ------------

Utilities -- Telephone - 5.13%
 BellSouth Corporation .............................        336,500      8,705,255
 SBC Communications Inc. ...........................        543,900     14,745,129
 Vodafone Group Plc, ADR ...........................        544,800      9,871,776
                                                                      ------------
                                                                        33,322,160
                                                                      ------------

TOTAL COMMON STOCKS - 88.38%                                          $574,196,686
(Cost: $527,216,181)




                                                          Principal
                                                          Amount in
                                                          Thousands
                                                                
SHORT-TERM SECURITIES
Banks - 1.54%
 Bank One Corporation,
   1.25%, 1-22-03 ..................................   $     10,000      9,992,708
                                                                      ------------

Chemicals -- Petroleum and Inorganic - 0.18%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note ...........................          1,172      1,172,000
                                                                      ------------

Electronic Equipment - 1.23%
 Emerson Electric Co.,
   1.42%, 1-9-03 ...................................          8,000      7,997,476
                                                                      ------------

Finance Companies - 1.03%
 PACCAR Financial Corp.,
   1.3%, 1-27-03 ...................................          1,000        999,061
 USAA Capital Corp.,
   1.35%, 1-10-03 ..................................          5,672      5,670,086
                                                                      ------------
                                                                         6,669,147
                                                                      ------------

Food and Related - 1.28%
 General Mills, Inc.,
   1.53%, Master Note ..............................          3,285      3,285,000
 Sara Lee Corporation,
   1.39%, 1-28-03 ..................................          5,000      4,994,788
                                                                      ------------
                                                                         8,279,788
                                                                      ------------

Health Care -- Drugs - 3.13%
 Alcon Capital Corporation (Nestle S.A.):
   1.33%, 1-17-03 ..................................         10,000      9,994,089
   1.32%, 2-12-03 ..................................          4,350      4,343,301
 Merck & Co., Inc.,
   1.3%, 1-9-03 ....................................          6,000      5,998,267
                                                                      ------------
                                                                        20,335,657
                                                                      ------------

Health Care -- General - 0.69%
 Johnson & Johnson,
   1.27%, 2-3-03 ...................................          4,500      4,494,761
                                                                      ------------

Household -- General Products - 0.92%
 Procter & Gamble Company (The),
   1.3%, 2-10-03 ...................................          6,000      5,991,333
                                                                      ------------

Petroleum -- International - 0.27%
 BP America Inc.,
   1.2%, 1-2-03 ....................................          1,775      1,774,941
                                                                      ------------

Security and Commodity Brokers - 1.23%
 UBS Finance Delaware LLC,
   1.2%, 1-2-03 ....................................          7,979      7,978,734
                                                                      ------------

TOTAL SHORT-TERM SECURITIES - 11.50%                                  $ 74,686,545
 (Cost: $74,686,545)

TOTAL INVESTMENT SECURITIES - 99.88%                                  $648,883,231
 (Cost: $601,902,726)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.12%                          807,865

NET ASSETS - 100.00%                                                  $649,691,096


Notes to Schedule of Investments
*No dividends were paid during the preceding 12 months.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
CORE EQUITY PORTFOLIO

                        December 31, 2002
          (In Thousands, Except for Per Share Amounts)

ASSETS

                                                      
 Investment securities--at value (Notes 1 and 3)  .....  $ 648,883
 Cash   ...............................................          1
 Receivables:
   Dividends and interest .............................        946
   Fund shares sold ...................................         70
 Prepaid insurance premium  ...........................          7
                                                         ---------
    Total assets  .....................................    649,907
                                                         ---------
LIABILITIES
 Payable to Fund shareholders  ........................        159
 Accrued management fee (Note 2)  .....................         12
 Accrued accounting services fee (Note 2)  ............          6
 Accrued service fee (Note 2)  ........................          4
 Other  ...............................................         35
                                                         ---------
    Total liabilities  ................................        216
                                                         ---------
      Total net assets ................................  $ 649,691
                                                         =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ......................................  $      80
   Additional paid-in capital .........................    797,366
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss on
    investment transactions  ..........................   (194,753)
   Net unrealized appreciation in value of
    investments  ......................................     46,998
                                                         ---------
    Net assets applicable to outstanding units
      of capital ......................................  $ 649,691
                                                         =========
Net asset value, redemption
 and offering price per share  ........................  $  8.0720
                                                         =========
Capital shares outstanding ............................     80,487
Capital shares authorized .............................    160,000



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
CORE EQUITY PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

                                                       
INVESTMENT INCOME
 Income (Note 1B):
   Dividends (net of foreign withholding taxes
    of $100) ..........................................   $   9,796
   Interest and amortization ..........................       1,577
                                                          ---------
    Total income ......................................      11,373
                                                          ---------
 Expenses (Note 2):
   Investment management fee ..........................       5,347
   Service fee ........................................       1,910
   Accounting services fee ............................          85
   Custodian fees .....................................          60
   Audit fees .........................................          10
   Legal fees .........................................          10
   Other ..............................................         162
                                                          ---------
    Total expenses ....................................       7,584
                                                          ---------
      Net investment income ...........................       3,789
                                                          ---------
REALIZED AND UNREALIZED GAIN (LOSS)
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities ......................    (117,256)
 Realized net gain on foreign currency transactions ...          22
                                                          ---------
   Realized net loss on investments ...................    (117,234)
   Unrealized depreciation in value of investments
    during the period .................................     (82,463)
                                                          ---------
      Net loss on investments .........................    (199,697)
                                                          ---------
       Net decrease in net assets resulting
         from operations ..............................   $(195,908)
                                                          =========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
CORE EQUITY PORTFOLIO
         (In Thousands)



                                                 For the fiscal year ended
                                                         December 31,
                                                 --------------------------
                                                    2002            2001
                                                 -----------    -----------
                                                          
DECREASE IN NET ASSETS
Operations:
 Net investment income ....................      $     3,789    $     2,027
 Realized net loss on investments .........         (117,234)       (77,485)
 Unrealized depreciation ..................          (82,463)       (89,874)
                                                 -----------    -----------
   Net decrease in net assets
    resulting from operations .............         (195,908)      (165,332)
                                                 -----------    -----------
Dividends to shareholders from (Note 1E): (1)
 Net investment income ....................           (3,811)        (2,015)
 Realized gains on
   securities transactions ................               --            (24)
                                                 -----------    -----------
                                                      (3,811)        (2,039)
                                                 -----------    -----------
Capital share transactions(2) .............          (63,102)        (4,068)
                                                 -----------    -----------
    Total decrease ........................         (262,821)      (171,439)
NET ASSETS
Beginning of period .......................          912,512      1,083,951
                                                 -----------    -----------
End of period .............................      $   649,691    $   912,512
                                                 ===========    ===========
 Undistributed net investment income ......      $        --    $        --
                                                 ===========    ===========

(1)See "Financial Highlights" on page 56...

(2)Shares issued from sale of shares ......           12,333         32,587
Shares issued from reinvestment of
 dividend and/or capital gains distribution              472            197
Shares redeemed ...........................          (20,391)       (33,540)
                                                 -----------    -----------
Decrease in outstanding
 capital shares ...........................           (7,586)          (756)
                                                 ===========    ===========
Value issued from sale of shares ..........      $   113,722    $   346,389
Value issued from reinvestment of
 dividend and/or capital gains distribution            3,811          2,039
Value redeemed ............................         (180,635)      (352,496)
                                                 -----------    -----------
Decrease in outstanding
 capital ..................................      $   (63,102)   $    (4,068)
                                                 ===========    ===========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
CORE EQUITY PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:



                                           For the fiscal year ended December 31,
                                 -------------------------------------------------------
                                   2002       2001       2000        1999        1998
                                 --------   --------   ---------   ---------   ---------
                                                                
Net asset value,
 beginning of period...........  $10.3608   $12.2027   $ 12.9609   $ 12.3351   $ 11.9615
                                 --------   --------   ---------   ---------   ---------
Income (loss) from investment
 operations:
 Net investment income.........    0.0476     0.0231      0.0376      0.1571      0.1752
 Net realized and
   unrealized gain (loss)
   on investments..............   (2.2888)   (1.8418)     1.1650      1.3879      2.3532
                                 --------   --------   ---------   ---------   ---------
Total from investment
 operations....................   (2.2412)   (1.8187)     1.2026      1.5450      2.5284
                                 --------   --------   ---------   ---------   ---------
Less distributions from:
 Net investment
   income......................   (0.0476)   (0.0229)    (0.0360)    (0.1570)    (0.1752)
 Capital gains.................   (0.0000)   (0.0003)    (1.9248)    (0.7622)    (1.9796)
                                 --------   --------   ---------   ---------   ---------
Total distributions.              (0.0476)   (0.0232)    (1.9608)    (0.9192)    (2.1548)
                                 --------   --------   ---------   ---------   ---------
Net asset value,
 end of period.................  $ 8.0720   $10.3608   $ 12.2027   $ 12.9609   $ 12.3351
                                 ========   ========   =========   =========   =========
Total return...................    -21.63%    -14.91%       9.28%      12.52%      21.14%
Net assets, end of period (in
 millions).....................  $    650   $    913   $   1,084   $     941   $     811
Ratio of expenses to average
 net assets ...................      0.99%      0.98%       0.98%       0.96%       0.80%
Ratio of net investment
 income to average net assets..      0.50%      0.21%       0.28%       1.23%       1.35%
Portfolio turnover rate........     38.37%     30.50%      49.11%      70.20%      62.84%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with Philip J. Sanders, portfolio manager of W&R Target Funds, Inc.
- - Growth Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Growth
Portfolio for the fiscal year ended December 31, 2002. The following discussion,
graphs and tables provide you with information regarding the Portfolio's
performance during that period. Please note that the Portfolio's performance
data does not take into account any expenses or charges associated with owning a
variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year? The fiscal year
represented the third consecutive year of broad stock market declines. In the
face of this ongoing challenging market, the Portfolio posted a negative return.
Nonetheless, it compared favorably with its peer group of large cap growth funds
and outperformed its benchmark index. The Portfolio declined 21.30 percent over
the fiscal year, compared with the S&P 500 Index (reflecting the performance of
securities that generally represent the stock market), which declined 22.10
percent during the period, and the Lipper Variable Annuity Large-Cap Growth
Funds Universe Average (reflecting the universe of funds with similar investment
objectives), which declined 28.64 percent during the period.

What helped the Portfolio outperform its benchmark index during the fiscal year?
The Portfolio's slight outperformance relative to its benchmark can be
attributed to several factors. First, we maintained a slightly overweighted
position in the energy sector throughout the year. This proved beneficial, as
energy stocks benefited from rising oil and natural gas prices. The sector also
benefited from increased investor interest in stocks possessing defensive
investment characteristics. In addition, we feel that the Portfolio benefited
from exposure to the aerospace/defense sector, which gained favor as the
country's war on terrorism moved to the forefront. We maintained minimal
exposure to the poor performing telecommunications service sector, which also
helped performance somewhat.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year? The Portfolio's return was negatively influenced by a
myriad of economic, fundamental and geopolitical issues. A mostly sluggish
economic environment resulted in persistent downward pressure on corporate
profits throughout the year. A steady stream of corporate layoffs and several
high-profile accounting scandals also affected investor sentiment. Further
complicating matters was a significant rise in Middle East tensions and growing
prospects for war. Notwithstanding a fourth quarter rally, the environment
during the course of the fiscal year resulted in broad-based market weakness
throughout the period.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance? Our investment philosophy is based on the belief that
premium long-term valuations are awarded to those companies that can generate
superior levels of profitability and growth on an ongoing basis. Consequently,
we continued to focus on what we feel are high quality, industry-leading
companies that possess sustainable competitive advantages and are
well-positioned to benefit from secular trends in the marketplace. Macroeconomic
considerations and individual stock valuations also were taken into account when
evaluating prices for particular securities. While we believe our investment
approach is sound, it has not been enough to overcome the negative market
environment in absolute terms. We believe our high quality, growth orientation
will be rewarded when the investment environment improves. Many of the companies
in which we invest have greatly enhanced their unique competitive positions
during the economic downturn, while weaker competitors have struggled. We feel
our approach likely will bring positive results when the corporate profit
recovery gains momentum.

What industries or securities did you emphasize during the fiscal year, and what
looks attractive to you going forward? During 2002, primary areas of emphasis
included health care, technology, financial services and, to a lesser extent,
energy. For the time being, the Portfolio is relatively balanced between
defensive growth (i.e., health care, consumer staples) and cyclical growth
(technology, retail) issues. However, we expect to take on an increasingly
cyclical bias as the year progresses. Once the economic recovery takes a firmer
hold, technology, consumer cyclical and industrial issues are likely to receive
increased investor attention. Most of these companies currently are experiencing
below-average levels of profitability and are poised to show a significant
acceleration in earnings when market demand improves. Given the relatively low
levels of inventory in the system, along with improved balance sheets and cost
structures, we believe that the positive earnings leverage for these companies
should become increasingly attractive relative to more stable, defensive growth
companies. Also, our exposure to financial services holdings is likely to be
reduced, as we feel that meaningful interest rate declines are unlikely. We
anticipate that our focus will continue to be on high quality companies that
possess sustainable competitive advantages (that is, strong barriers to entry,
such as proprietary technology and patents, economies of scale, and product
differentiation).

Respectfully,

Philip J. Sanders
Manager
Growth Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target Growth Portfolio,
S&P 500 Index and Lipper Variable Annuity Large-Cap Growth Funds Universe
Average



                                                   Lipper
                                                  Variable
                                                  Annuity
                                                 Large-Cap
                      W&R Target        S&P     Growth Funds
                        Growth          500       Universe
                      Portfolio        Index      Average
                      ----------       -----    -----------
                                       
12/31/92  Purchase     $10,000        $10,000     $10,000
12/31/93                11,402         11,007      11,212
12/31/94                11,674         11,153      11,031
12/31/95                16,176         15,344      14,784
12/31/96                18,183         18,867      17,689
12/31/97                22,083         25,148      22,189
12/31/98                28,114         32,366      29,851
12/31/99                37,772         39,185      41,437
12/31/00                38,306         35,586      35,521
12/31/01                32,814         31,348      27,804
12/31/02                25,825         24,420      19,840


- ----- W&R Target Growth Portfolio(1) -- $25,825

+++++ S&P 500 Index -- $24,420

***** Lipper Variable Annuity Large-Cap Growth Funds Universe Average -- $19,840

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

       AVERAGE ANNUAL TOTAL RETURN(2)

                              
1-year period ended
  12-31-02                       -21.30%
5-year period ended
  12-31-02                         3.18%
10-year period ended
  12-31-02                         9.95%



(2)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE GROWTH PORTFOLIO

     December 31, 2002



                                                             Shares         Value
                                                                  
COMMON STOCKS
Aircraft - 4.01%
 Lockheed Martin Corporation .......................         390,400    $  22,545,600
 Raytheon Company ..................................         185,000        5,688,750
                                                                        -------------
                                                                           28,234,350
                                                                        -------------

Banks - 4.71%
 Bank of America Corporation .......................          75,200        5,231,664
 Citigroup Inc. ....................................         350,100       12,320,019
 Mellon Financial Corporation ......................         150,000        3,916,500
 Wells Fargo & Company .............................         250,200       11,726,874
                                                                        -------------
                                                                           33,195,057
                                                                        -------------

Beverages - 2.82%
 Anheuser-Busch Companies, Inc. ....................         230,000       11,132,000
 Coca-Cola Company (The) ...........................         200,000        8,764,000
                                                                        -------------
                                                                           19,896,000
                                                                        -------------

Broadcasting - 3.04%
 Clear Channel Communications, Inc.* ...............         145,000        5,407,050
 Fox Entertainment Group, Inc., Class A*                     210,000        5,445,300
 Viacom Inc., Class B* .............................         258,442       10,534,096
                                                                        -------------
                                                                           21,386,446
                                                                        -------------

Business Equipment and Services - 4.08%
 Accenture Ltd, Class A* ...........................         708,000       12,736,920
 BearingPoint, Inc.* ...............................         250,000        1,725,000
 Manpower Inc. .....................................         225,000        7,177,500
 Staples, Inc.* ....................................         390,200        7,134,807
                                                                        -------------
                                                                           28,774,227
                                                                        -------------

Capital Equipment - 2.66%
 Cooper Cameron Corporation* .......................         210,200       10,472,164
 Parker Hannifin Corporation .......................         180,000        8,303,400
                                                                        -------------
                                                                           18,775,564
                                                                        -------------

Chemicals -- Specialty - 1.91%
 Air Products and Chemicals, Inc. ..................         200,000        8,550,000
 Praxair, Inc. .....................................          85,000        4,910,450
                                                                        -------------
                                                                           13,460,450
                                                                        -------------

Communications Equipment - 3.91%
 Cisco Systems, Inc.* ..............................       1,541,900       20,191,181
 Nokia Corporation, Series A, ADR ..................         475,000        7,362,500
                                                                        -------------
                                                                           27,553,681
                                                                        -------------

Computers -- Micro - 1.14%
 Dell Computer Corporation* ........................         300,200        8,040,857
                                                                        -------------

Computers - Peripherals - 8.30%
 BEA Systems, Inc.* ................................         600,300        6,888,442
 EMC Corporation* ..................................       1,259,200        7,731,488
 Microsoft Corporation* ............................         494,400       25,570,368
 Oracle Corporation* ...............................         475,600        5,141,236
 SAP Aktiengesellschaft, ADR .......................         675,200       13,166,400
                                                                        -------------
                                                                           58,497,934
                                                                        -------------

Cosmetics and Toiletries - 1.51%
 Gillette Company (The) ............................         350,400       10,638,144
                                                                        -------------

Defense - 0.68%
 General Dynamics Corporation ......................          60,000        4,762,200
                                                                        -------------

Electronic Components - 3.89%
 Altera Corporation* ...............................         260,000        3,218,800
 Analog Devices, Inc.* .............................         210,200        5,017,474
 Maxim Integrated Products, Inc. ...................         135,000        4,459,050
 Microchip Technology Incorporated .................         375,200        9,177,392
 Texas Instruments Incorporated ....................         150,000        2,251,500
 Xilinx, Inc.* .....................................         160,000        3,286,400
                                                                        -------------
                                                                           27,410,616
                                                                        -------------

Electronic Instruments - 0.89%
 Applied Materials, Inc.* ..........................         482,600        6,288,278
                                                                        -------------

Food and Related - 1.41%
 Kraft Foods Inc. ..................................         255,200        9,934,936
                                                                        -------------

Health Care -- Drugs - 10.22%
 AmerisourceBergen Corporation .....................         100,000        5,431,000
 Amgen Inc.* .......................................         190,400        9,206,792
 Forest Laboratories, Inc.* ........................         110,300       10,833,666
 Gilead Sciences, Inc.* ............................         100,000        3,391,500
 Pfizer Inc. .......................................       1,027,725       31,417,553
 Pharmacia Corporation .............................         280,250       11,714,450
                                                                        -------------
                                                                           71,994,961
                                                                        -------------

Health Care -- General - 3.51%
 Biomet, Inc. ......................................         180,000        5,164,200
 Johnson & Johnson .................................         213,800       11,483,198
 Zimmer Holdings, Inc.* ............................         195,000        8,096,400
                                                                        -------------
                                                                           24,743,798
                                                                        -------------

Hospital Supply and Management - 4.49%
 HCA - The Healthcare Company ......................         100,000        4,150,000
 Health Management Associates, Inc.,
   Class A .........................................         935,700       16,749,030
 Medtronic, Inc. ...................................         235,400       10,734,240
                                                                        -------------
                                                                           31,633,270
                                                                        -------------

Hotels and Gaming - 0.81%
 International Game Technology* ....................          75,000        5,694,000
                                                                        -------------

Household -- General Products - 1.55%
 Procter & Gamble Company (The) ....................         126,800       10,897,192
                                                                        -------------

Insurance -- Property and Casualty - 0.89%
 American International Group, Inc. ................         108,812        6,294,774
                                                                        -------------

Motor Vehicle Parts - 2.02%
 AutoZone, Inc.* ...................................         145,200       10,258,380
 Danaher Corporation ...............................          60,000        3,942,000
                                                                        -------------
                                                                           14,200,380
                                                                        -------------

Motor Vehicles - 1.25%
 Harley-Davidson, Inc. .............................         190,800        8,814,960
                                                                        -------------

Petroleum -- Domestic - 3.35%
 Anadarko Petroleum Corporation ....................         235,200       11,266,080
 Burlington Resources Inc. .........................         290,000       12,368,500
                                                                        -------------
                                                                           23,634,580
                                                                        -------------

Petroleum -- International - 1.54%
 Exxon Mobil Corporation ...........................         310,000       10,831,400
                                                                        -------------

Petroleum -- Services - 1.77%
 Baker Hughes Incorporated .........................         255,000        8,208,450
 Smith International, Inc.* ........................         130,200        4,247,124
                                                                        -------------
                                                                           12,455,574
                                                                        -------------

Retail -- General Merchandise - 3.07%
 Kohl's Corporation* ...............................         180,000       10,071,000
 Target Corporation ................................         385,300       11,559,000
                                                                        -------------
                                                                           21,630,000
                                                                        -------------

Retail -- Specialty Stores - 2.30%
 Home Depot, Inc. (The) ............................         300,100        7,190,396
 Lowe's Companies, Inc. ............................         240,400        9,015,000
                                                                        -------------
                                                                           16,205,396
                                                                        -------------

Security and Commodity Brokers - 7.58%
 Charles Schwab Corporation (The) ..................         330,400        3,584,840
 Fannie Mae ........................................         233,800       15,040,354
 Freddie Mac .......................................         240,200       14,183,810
 Goldman Sachs Group, Inc. (The) ...................         190,200       12,952,620
 Prudential Financial, Inc. ........................         240,200        7,623,948
                                                                        -------------
                                                                           53,385,572
                                                                        -------------

Utilities -- Telephone - 0.51%
 Vodafone Group Plc, ADR ...........................         200,000        3,624,000
                                                                        -------------

TOTAL COMMON STOCKS - 89.82% .......................                    $ 632,888,597
 (Cost: $607,565,687)




                                                         Principal
                                                         Amount in
                                                         Thousands
                                                                  
SHORT-TERM SECURITIES
Commercial Paper
 Banks - 1.42%
 Bank One Corporation,
   1.25%, 1-22-03 ..................................          10,000        9,992,708
                                                                        -------------

 Food and Related - 1.15%
 ConAgra Foods, Inc.,
   1.42%, 1-13-03 ..................................           6,895        6,891,737
 General Mills, Inc.,
   1.53%, Master Note ..............................           1,214        1,214,000
                                                                        -------------
                                                                            8,105,737
                                                                        -------------

 Forest and Paper Products - 0.57%
 Sonoco Products Co.,
   1.38%, 1-16-03 ..................................           4,000        3,997,700
                                                                        -------------

 Health Care -- Drugs - 4.11%
 Alcon Finance PLC (Nestle S.A.),
   1.33%, 1-17-03 ..................................           7,000        6,995,862
 Pfizer Inc.,
   1.31%, 1-23-03 ..................................           7,000        6,994,396
 Pharmacia Corporation:
   1.32%, 1-21-03 ..................................           5,000        4,996,334
   1.35%, 1-21-03 ..................................          10,000        9,992,500
                                                                        -------------
                                                                           28,979,092
                                                                        -------------

 Health Care -- General - 1.34%
 Johnson & Johnson:
   1.27%, 2-3-03 ...................................           4,500        4,494,761
   1.26%, 2-5-03 ...................................           5,000        4,993,875
                                                                        -------------
                                                                            9,488,636
                                                                        -------------

 Household -- General Products - 0.99%
 Procter & Gamble Company (The),
   1.3%, 2-10-03 ...................................           7,000        6,989,889
                                                                        -------------

 Utilities -- Telephone - 0.64%
 SBC International Inc.,
   1.32%, 1-16-03 ..................................           4,500        4,497,525
                                                                        -------------

Total Commercial Paper - 10.22%                                            72,051,287

United States Government Security - 0.71%
 United States Treasury Bill,
   1.24%, 5-8-03 ...................................           5,000        4,978,216
                                                                        -------------

TOTAL SHORT-TERM SECURITIES - 10.93%                                    $  77,029,503
 (Cost: $77,029,503)

TOTAL INVESTMENT SECURITIES - 100.75%                                   $ 709,918,100
 (Cost: $684,595,190)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.75%)                        (5,274,053)

NET ASSETS - 100.00% ...............................                    $ 704,644,047


NOTES TO SCHEDULE OF INVESTMENTS

*No dividends were paid during the preceding 12 months.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
GROWTH PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                 
ASSETS
 Investment securities--at value (Notes 1 and 3).   $ 709,918
 Cash ...........................................           1
 Receivables:
   Investment securities sold ...................       2,721
   Dividends and interest .......................         184
   Fund shares sold .............................         110
 Prepaid insurance premium ......................           8
                                                    ---------
    Total assets ................................     712,942
                                                    ---------
LIABILITIES
 Payable for investment securities purchased ....       7,980
 Payable to Fund shareholders ...................         261
 Accrued management fee (Note 2) ................          14
 Accrued accounting services fee (Note 2) .......           6
 Accrued service fee (Note 2) ...................           5
 Other ..........................................          32
                                                    ---------
    Total liabilities ...........................       8,298
                                                    ---------
      Total net assets ..........................   $ 704,644
                                                    =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ................................   $     107
   Additional paid-in capital ...................     845,238
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss on
    investment transactions .....................    (166,024)
   Net unrealized appreciation in
    value of investments ........................      25,323
                                                    ---------
    Net assets applicable to outstanding units
      of capital ................................   $ 704,644
                                                    =========
Net asset value, redemption
 and offering price per share ...................   $  6.6041
                                                    =========
Capital shares outstanding ......................     106,698
Capital shares authorized .......................     190,000



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
GROWTH PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

                                                         
INVESTMENT INCOME
 Income (Note 1B):
   Dividends (net of foreign withholding taxes of $16)      $   6,981
   Interest and amortization ............................       1,434
                                                            ---------
    Total income ........................................       8,415
                                                            ---------
 Expenses (Note 2):
   Investment management fee ............................       5,891
   Service fee ..........................................       2,104
   Accounting services fee ..............................          88
   Custodian fees .......................................          42
   Legal fees ...........................................          10
   Audit fees ...........................................           9
   Other ................................................         179
                                                            ---------
    Total expenses ......................................       8,323
                                                            ---------
      Net investment income .............................          92
                                                            ---------
REALIZED AND UNREALIZED LOSS
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments .......................     (81,247)
 Unrealized depreciation in value of investments
   during the period ....................................    (126,019)
                                                            ---------
   Net loss on investments ..............................    (207,266)
                                                            ---------
    Net decrease in net assets resulting
      from operations ...................................   $(207,174)
                                                            =========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
GROWTH PORTFOLIO

                                 (In Thousands)



                                                For the fiscal year ended
                                                       December 31,
                                               --------------------------
                                                  2002            2001
                                               -----------    -----------
                                                        
DECREASE IN NET ASSETS
Operations:
 Net investment income .....................   $        92    $     2,900
 Realized net loss on investments ..........       (81,247)       (78,995)
 Unrealized depreciation ...................      (126,019)      (106,389)
                                               -----------    -----------
   Net decrease in net assets
    resulting from operations ..............      (207,174)      (182,484)
                                               -----------    -----------
Dividends to shareholders from (Note 1E):(1)
 Net investment income .....................           (92)        (2,900)
 Realized gains on securities
   transactions ............................            --         (5,782)
                                               -----------    -----------
                                                       (92)        (8,682)
                                               -----------    -----------
Capital share transactions(2) ..............       (83,472)       (69,828)
                                               -----------    -----------
   Total decrease ..........................      (290,738)      (260,994)
NET ASSETS
Beginning of period ........................       995,382      1,256,376
                                               -----------    -----------
End of period ..............................   $   704,644    $   995,382
                                               ===========    ===========
 Undistributed net investment income .......   $        --    $        --
                                               ===========    ===========
(1)See "Financial Highlights" on page 68....
(2)Shares issued from sale of shares .......        17,139         39,502
Shares issued from reinvestment of
dividend and/or capital gains distribution              14          1,035
Shares redeemed ............................       (29,061)       (49,054)
                                               -----------    -----------
Decrease in outstanding capital shares .....       (11,908)        (8,517)
                                               ===========    ===========
Value issued from sale of shares ...........   $   130,482    $   339,919
Value issued from reinvestment of
dividend and/or capital gains distribution              92          8,682
Value redeemed .............................      (214,046)      (418,429)
                                               -----------    -----------
Decrease in outstanding capital ............   $   (83,472)   $   (69,828)
                                               ===========    ===========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                          For the fiscal year ended December 31,
                                -------------------------------------------------------
                                  2002       2001        2000        1999        1998
                                --------   --------   --------   --------     -------
                                                               
Net asset value,
 beginning of
 period  .....................  $ 8.3923   $ 9.8831   $10.8751    $ 9.2989     $ 7.5679
                                --------   --------   --------    --------     --------
Income (loss) from investment
 operations:
 Net investment
   income  ...................    0.0009     0.0246     0.0163      0.0056       0.0456
 Net realized and
   unrealized gain (loss)
   on investments ............   (1.7882)   (1.4417)    0.1375      3.1886       2.0215
                                --------   --------   --------    --------     --------
Total from investment
 operations  .................   (1.7873)   (1.4171)    0.1538      3.1942       2.0671
                                --------   --------   --------    --------     --------
Less distributions from:
 Net investment
   income ....................   (0.0009)   (0.0246)   (0.0163)    (0.0056)     (0.0456)
 Capital gains  ..............   (0.0000)   (0.0491)   (1.1295)    (1.6124)     (0.2905)
                                --------   --------   --------    --------     --------
Total distributions              (0.0009)   (0.0737)   (1.1458)    (1.6180)     (0.3361)
                                --------   --------   --------    --------     --------
Net asset value,
 end of period  ..............  $ 6.6041   $ 8.3923   $ 9.8831    $10.8751     $ 9.2989
                                ========   ========   ========    ========     ========
Total return .................    -21.30%    -14.34%      1.41%      34.35%       27.31%
Net assets, end of
 period (in
 millions)  ..................  $    705   $    995   $  1,256    $  1,163     $    825
Ratio of expenses
 to average net
 assets  .....................      0.99%      0.97%      0.96%       0.96%        0.80%
Ratio of net investment
 income to average
 net assets  .................      0.01%      0.27%      0.14%       0.06%        0.55%
Portfolio turnover
 rate  .......................     40.58%     50.70%     56.52%      65.82%       75.58%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with William M. Nelson, portfolio manager of W&R Target Funds, Inc.
- - High Income Portfolio

This report relates to the operation of W&R Target Funds, Inc. - High Income
Portfolio for the fiscal year ended December 31, 2002. The following discussion,
graphs and tables provide you with information regarding the Portfolio's
performance during that period. Please note that the Portfolio's performance
data does not take into account any expenses or charges associated with owning a
variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the fiscal year? The Portfolio maintained a
more defensive posture for most of the year and performed relatively well, but a
rally in the equity markets in late 2002 hindered results, causing a slight
underperformance to the benchmark index. For the fiscal year, the Portfolio
declined 2.02 percent, compared with the Salomon Brothers High Yield Market
Index (generally reflecting the performance of securities that represent the
high yield bond market), which declined 1.53 percent during the period, and the
Lipper Variable Annuity High Current Yield Funds Universe Average (reflecting
the performance of the universe of funds with similar objectives), which
declined 0.72 percent for the fiscal year.

Why did the Portfolio slightly lag its benchmark index during the fiscal year? A
number of factors affected Portfolio performance. Monthly returns in the high
yield sector were extremely volatile. Returns in general appeared to be
predicated on whether investors were allocating assets to a particular sector,
and also on the general direction equity markets were moving. The Portfolio
entered 2002 more defensive than the benchmark. Liquidity became more
constrained and spreads widened on those credits that appeared "tainted" with
any negative issue. Cable and wireless were no exception, and we significantly
reduced our exposure in these sectors.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year? The Portfolio's return was significantly impacted by the
general uneasiness in most of the markets, as well as the continuing
geopolitical risks. Two major market conditions that affected returns in general
were the more than 10 percent default rate that occurred again in 2002 and the
numerous "fallen angels" of investment grade and crossover markets. Investments
in general were tested with the numerous accounting and fraud scandals that
plagued all markets, especially those that were more leveraged.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance? In response to these issues plaguing the high yield
market over the last few years, the Portfolio continued to hold higher quality
credits, typically rated B. We also purchased securities of shorter duration in
an effort to minimize price volatility.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward? During most of the year, the Portfolio
was more defensive in nature. As 2003 opens, we believe the Federal Reserve rate
cuts are near or at the end. We believe that the default rate will decline from
its recent high. Even though we are not anticipating that interest rates will
move upward appreciably in the early part of 2003, we feel that it is possible
that they will do so later in 2003. We are looking to become a bit more
aggressive in restructuring the Portfolio so that risk is more balanced, as we
believe the economy likely will rebound sometime in 2003. In general, we intend
to continue to favor quality credits, including those that may be less sensitive
to increasing interest rates, which may provide more upside potential in a
rebounding economy.

Respectfully,

William M. Nelson
Manager
High Income Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target High Income
Portfolio, Salomon Brothers High Yield Market Index and Lipper Variable Annuity
High Current Yield Funds Universe Average



                                                   Lipper
                                    Salomon       Variable
                                   Brothers       Annuity
                                     High       High Current
                    W&R Target       Yield       Yield Funds
                   High Income      Market         Universe
                    Portfolio       Index          Average
                   -----------     ---------    ------------
                                       
12/31/92  Purchase   $10,000        $10,000        $10,000
12/31/93              11,788         11,738         11,851
12/31/94              11,490         11,592         11,555
12/31/95              13,584         13,878         13,665
12/31/96              15,270         15,443         15,563
12/31/97              17,413         17,481         17,667
12/31/98              17,754         18,111         17,837
12/31/99              18,502         18,425         18,422
12/31/00              16,703         17,379         17,062
12/31/01              18,236         18,324         17,211
12/31/02              17,867         18,044         17,087


+++++ W&R Target High Income Portfolio(1) -- $17,867

- ----- Salomon Brothers High Yield Market Index -- $18,044

***** Lipper Variable Annuity High Current Yield Funds Universe Average --
$17,087

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

       AVERAGE ANNUAL TOTAL RETURN(2)

                              
1-year period ended
  12-31-02                       -2.02%
5-year period ended
  12-31-02                        0.52%
10-year period ended
  12-31-02                        5.97%



(2)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.

Investing in high income securities may carry a greater risk of nonpayment of
interest or principal than higher-rated bonds.



THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO

                                December 31, 2002



                                                          Shares         Value
                                                                
COMMON STOCKS, RIGHTS AND WARRANTS
Communications Equipment - 0.00%
 Primus Telecommunications Group,
   Incorporated, Warrants* .........................            500   $        563
                                                                      ------------

Petroleum -- Services - 0.21%
 Baker Hughes Incorporated .........................          5,000        160,950
 Schlumberger Limited ..............................          2,500        105,225
                                                                      ------------
                                                                           266,175
                                                                      ------------

Retail -- General Merchandise - 0.14%
 United Auto Group, Inc.* ..........................         15,000        187,050
                                                                      ------------

Security and Commodity Brokers - 0.00%
 ONO Finance Plc, Rights (A)* ......................            250              3
                                                                      ------------

Trucking and Shipping - 0.21%
 Pacer International, Inc.* ........................         20,000        266,300
                                                                      ------------

Utilities -- Telephone - 0.00%
 GT Group Telecom, Inc., Warrants (A)* .............            300            300
 IWO Holdings, Inc., Warrants (A)* .................          1,500             15
 Leap Wireless International, Inc.,
   Warrants (A)* ...................................          1,250             12
                                                                      ------------
                                                                               327
                                                                      ------------

TOTAL COMMON STOCKS, RIGHTS AND WARRANTS - 0.56%                      $    720,418
 (Cost: $1,441,123)

PREFERRED STOCKS
Broadcasting - 0.01%
 Adelphia Communications Corporation, 13.0%                  12,500          9,375
                                                                      ------------

Multiple Industry - 0.93%
 Anvil Holdings, Inc., 13.0%* ......................         65,626      1,197,684
                                                                      ------------

Savings and Loans - 0.41%
 California Federal Preferred Capital
   Corporation, 9.125% .............................         20,000        520,200
                                                                      ------------

Utilities -- Telephone - 0.00%
 Intermedia Communications Inc., 13.5%* ............              1              3
                                                                      ------------

TOTAL PREFERRED STOCKS - 1.35%                                        $  1,727,262
 (Cost: $2,427,775)




                                                        Principal
                                                        Amount in
                                                        Thousands
                                                                
CORPORATE DEBT SECURITIES
Broadcasting - 3.92%
 Gray Communications Systems, Inc.,
   9.25%, 12-15-11 .................................   $        500        538,125
 Insight Communications Company, Inc.,
   0.0%, 2-15-11 (B) ...............................          1,000        551,250
 LIN Television Corporation,
   8.0%, 1-15-08 ...................................          1,000      1,058,750
 Mediacom Broadband LLC and Mediacom
   Broadband Corporation,
   11.0%, 7-15-13 ..................................             50         50,750
 PanAmSat Corporation:
   6.0%, 1-15-03 ...................................             50         50,000
   8.75%, 2-1-12 (A) ...............................          1,250      1,193,750
 Sinclair Broadcast Group, Inc.,
   8.75%, 12-15-11 .................................            500        538,125
 Spanish Broadcasting System, Inc.,
   9.625%, 11-1-09 .................................          1,000      1,035,000
                                                                      ------------
                                                                         5,015,750
                                                                      ------------

Business Equipment and Services - 10.27%
 Alderwoods Group, Inc.,
   12.25%, 1-2-09 ..................................            500        455,000
 Allbritton Communications Company,
   9.75%, 11-30-07 .................................            500        517,500
 Allied Waste North America, Inc.:
   8.5%, 12-1-08 ...................................          2,000      2,010,000
   10.0%, 8-1-09 ...................................          2,000      1,985,000
 Avis Rent A Car, Inc.,
   11.0%, 5-1-09 ...................................          1,746      1,911,870
 Browning-Ferris Industries, Inc.,
   6.1%, 1-15-03 ...................................            470        470,072
 Graphic Packaging Corporation,
   8.625%, 2-15-12 .................................            400        421,000
 IESI Corporation,
   10.25%, 6-15-12 (A) .............................          1,150      1,109,750
 Lamar Advertising Company,
   9.625%, 12-1-06 .................................          1,000      1,032,500
 R.H. Donnelley Finance Corporation I:
   8.875%, 12-15-10 (A) ............................            250        267,500
   10.875%, 12-15-12 (A) ...........................            400        436,000
 Salem Communications Corporation,
   9.5%, 10-1-07 ...................................             45         47,081
 Vertis, Inc.:
   10.875%, 6-15-09 ................................          1,000      1,040,000
   10.875%, 6-15-09 (A) ............................            400        416,000
 Waste Management,
   6.375%, 11-15-12 (A) ............................          1,000      1,029,049
                                                                      ------------
                                                                        13,148,322
                                                                      ------------

Capital Equipment - 3.03%
 AAF-McQuay Inc.,
   8.875%, 2-15-03 .................................          2,000      2,000,000
 CSK Auto, Inc.,
   12.0%, 6-15-06 ..................................          1,500      1,605,000
 Cummins Inc.,
   9.5%, 12-1-10 (A) ...............................            250        266,250
                                                                      ------------
                                                                         3,871,250
                                                                      ------------

Chemicals -- Petroleum and Inorganic - 2.43%
 Berry Plastics Corporation,
   10.75%, 7-15-12 .................................            300        319,500
 Lyondell Chemical Company,
   9.5%, 12-15-08 (A) ..............................          3,000      2,790,000
                                                                      ------------
                                                                         3,109,500
                                                                      ------------

Chemicals -- Specialty - 1.66%
 Buckeye Cellulose Corporation,
   8.5%, 12-15-05 ..................................          1,750      1,583,750
 Salt Holdings Corporation,
   0.0%, 12-15-12 (A) (B) ..........................          1,000        540,000
                                                                      ------------
                                                                         2,123,750
                                                                      ------------

Communications Equipment - 1.13%
 EchoStar DBS Corporation,
   9.375%, 2-1-09 ..................................            500        528,750
 Pliant Corporation,
   13.0%, 6-1-10 ...................................          1,000        915,000

                                                                      ------------
                                                                         1,443,750
                                                                      ------------

Construction Materials - 1.48%
 Brand Services, Inc.,
   12.0%, 10-15-12 (A) .............................            650        682,500
 Interface, Inc.,
   10.375%, 2-1-10 .................................          1,250      1,212,500
                                                                      ------------
                                                                         1,895,000
                                                                      ------------

Consumer Electronics - 3.46%
 ACME Television, LLC and ACME Finance
   Corporation,
   10.875%, 9-30-04 ................................             26         26,455
 LIN Holdings Corp.:
   0.0%, 3-1-08 (B) ................................          2,275      2,323,344
   0.0%, 3-1-08 (B) ................................          2,000      2,077,500
                                                                      ------------
                                                                         4,427,299
                                                                      ------------

Containers - 2.91%
 BWAY Corporation,
   10.0%, 10-15-10 (A) .............................          1,000      1,037,500
 MDP Acquisitions plc,
   9.625%, 10-1-12 (A) .............................            650        676,000
 Owens-Illinois, Inc.,
   7.15%, 5-15-05 ..................................          1,000        961,250
 Silgan Holdings Inc.,
   9.0%, 6-1-09 ....................................          1,000      1,042,500
                                                                      ------------
                                                                         3,717,250
                                                                      ------------

Cosmetics and Toiletries - 0.02%
 Chattem, Inc.,
   8.875%, 4-1-08 ..................................             21         21,630
                                                                      ------------

Electrical Equipment - 3.97%
 Integrated Electrical Services, Inc.,
   9.375%, 2-1-09 ..................................          1,500      1,380,000
 Nortek, Inc.,
   9.875%, 6-15-11 .................................          1,000      1,001,250
 Rexnord Corporation,
   10.125%, 12-15-12 (A) ...........................          1,400      1,435,000
 SPX Corporation,
   7.5%, 1-1-13 ....................................          1,250      1,267,188
                                                                      ------------
                                                                         5,083,438
                                                                      ------------

Finance Companies - 4.88%
 American Seafoods Group LLC and
   American Seafoods, Inc.,
   10.125%, 4-15-10 ................................            860        877,200
 Ferrellgas Partners, L.P. and Ferrellgas
   Partners Finance Corp.,
   8.75%, 6-15-12 ..................................          2,000      2,070,000
 NMHG Holding Co.,
   10.0%, 5-15-09 ..................................          2,000      2,000,000
 Nexstar Finance, L.L.C. and Nexstar
   Finance, Inc.,
   12.0%, 4-1-08 ...................................            500        542,500
 Owens-Brockway Glass Container Inc.,
   8.75%, 11-15-12 (A) .............................            750        761,250
                                                                      ------------
                                                                         6,250,950
                                                                      ------------

Food and Related - 1.67%
 Aurora Foods Inc.,
   9.875%, 2-15-07 .................................          2,250      1,113,750
 Chiquita Brands International, Inc.,
   10.56%, 3-15-09 .................................          1,000      1,023,750
                                                                      ------------
                                                                         2,137,500
                                                                      ------------

Forest and Paper Products - 1.20%
 Jefferson Smurfit Corporation,
   8.25%, 10-1-12 (A) ..............................          1,500      1,530,000
                                                                      ------------

Furniture and Furnishings - 0.41%
 Associated Materials Incorporated,
   9.75%, 4-15-12 ..................................            500        527,500
                                                                      ------------

Health Care -- Drugs - 1.17%
 aaiPharma Inc.,
   11.0%, 4-1-10 ...................................          1,500      1,500,000
                                                                      ------------

Health Care -- General - 2.61%
 Alliance Imaging, Inc.,
   10.375%, 4-15-11 ................................            750        731,250
 AmerisourceBergen Corporation,
   8.125%, 9-1-08 ..................................             30         31,950
 Bergen Brunswig Corporation,
   7.25%, 6-1-05 ...................................            250        255,000
 MedQuest, Inc.,
   11.875%, 8-15-12 (A) ............................          1,500      1,462,500
 Sybron Dental Specialties, Inc.,
   8.125%, 6-15-12 .................................            850        858,500
                                                                      ------------
                                                                         3,339,200
                                                                      ------------

Homebuilders, Mobile Homes - 1.51%
 M.D.C. Holdings, Inc.,
   7.0%, 12-1-12 ...................................          1,000        965,000
 WCI Communities, Inc.,
   10.625%, 2-15-11 ................................          1,000        965,000
                                                                      ------------
                                                                         1,930,000
                                                                      ------------

Hospital Supply and Management - 5.81%
 Columbia/HCA Healthcare Corporation:
   7.0%, 7-1-07 ....................................          2,111      2,241,375
   7.25%, 5-20-08 ..................................            500        535,399
 Coventry Health Care, Inc.,
   8.125%, 2-15-12 .................................          1,500      1,560,000
 Extendicare Health Services, Inc.,
   9.35%, 12-15-07 .................................          1,000        830,000
 Insight Health Services Corp.,
   9.875%, 11-1-11 .................................          1,250      1,200,000
 Triad Hospitals, Inc.,
   8.75%, 5-1-09 ...................................             45         48,206
 United Surgical Partners Holdings, Inc.,
   10.0%, 12-15-11 .................................          1,000      1,025,000
                                                                      ------------
                                                                         7,439,980
                                                                      ------------

Hotels and Gaming - 3.40%
 Ameristar Casinos, Inc.,
   10.75%, 2-15-09 .................................            250        273,750
 CapStar Hotel Company,
   8.75%, 8-15-07 ..................................            500        335,000
 Circus and Eldorado Joint Venture
   and Silver Legacy Capital Corp.,
   10.125%, 3-1-12 .................................            400        394,000
 John Q Hammons Hotels, L.P. and John Q
   Hammons Hotels Finance Corporation III,
   8.875%, 5-15-12 .................................            250        251,250
 Mandalay Resort Group,
   9.375%, 2-15-10 .................................            250        268,750
 Mohegan Tribal Gaming Authority,
   8.0%, 4-1-12 ....................................            600        625,500
 Prime Hospitality Corp.,
   8.375%, 5-1-12 ..................................            650        630,500
 Venetian Casino Resort,
   LLC and Las Vegas Sands, Inc.,
   11.0%, 6-15-10 (A) ..............................          1,500      1,567,500
                                                                      ------------
                                                                         4,346,250
                                                                      ------------

Household -- General Products - 6.79%
 B & G Foods, Inc.,
   9.625%, 8-1-07 ..................................          1,500      1,543,125
 Cott Beverages Inc.,
   8.0%, 12-15-11 ..................................          1,000      1,060,000
 Del Monte Corporation,
   8.625%, 12-15-12 (A) ............................            400        408,000
 JohnsonDiversey, Inc.,
   9.625%, 5-15-12 (A) .............................          1,000      1,052,500
 Levi Strauss & Co.,
   12.25%, 12-15-12 (A) ............................            500        490,000
 Sealy Mattress Company:
   9.875%, 12-15-07 ................................            300        288,000
   10.875%, 12-15-07 ...............................          1,250      1,212,500
 Simmons Company,
   10.25%, 3-15-09 .................................          1,510      1,600,600
 Susquehanna Media Co.,
   8.5%, 5-15-09 ...................................          1,000      1,032,500
                                                                      ------------
                                                                         8,687,225
                                                                      ------------

Leisure Time Industry - 1.49%
 Premier Parks Inc.,
   9.75%, 6-15-07 ..................................          1,000        970,000
 Six Flags, Inc.,
   8.875%, 2-1-10 ..................................          1,000        940,000
                                                                      ------------
                                                                         1,910,000
                                                                      ------------

Metal Fabrication - 0.40%
 Wolverine Tube, Inc.,
   10.5%, 4-1-09 ...................................            500        510,000
                                                                      ------------

Mining - 1.71%
 Compass Minerals Group, Inc.,
   10.0%, 8-15-11 ..................................          2,000      2,190,000
                                                                      ------------

Motion Pictures - 2.88%
 AMC Entertainment Inc.,
   9.5%, 3-15-09 ...................................          2,000      1,980,000
 Cinemark USA, Inc.:
   8.5%, 8-1-08 ....................................          1,000        952,500
   9.625%, 8-1-08 ..................................            750        750,000
                                                                      ------------
                                                                         3,682,500
                                                                      ------------
Motor Vehicle Parts - 0.39%
 Collins & Aikman Floorcoverings, Inc.,
   9.75%, 2-15-10 ..................................            500        500,000
                                                                      ------------

Motor Vehicles - 0.24%
 Sonic Automotive, Inc.,
   11.0%, 8-1-08 ...................................            300        306,000
                                                                      ------------

Multiple Industry - 3.15%
 Fisher Scientific International Inc.,
   8.125%, 5-1-12 ..................................          1,500      1,552,500
 Phoenix Color Corp.,
   10.375%, 2-1-09 .................................          1,500      1,275,000
 WESCO Distribution, Inc.,
   9.125%, 6-1-08 ..................................          1,500      1,200,000
                                                                      ------------
                                                                         4,027,500
                                                                      ------------

Petroleum -- Domestic - 2.31%
 Chesapeake Energy Corporation:
   7.875%, 3-15-04 .................................          1,500      1,560,000
   9.0%, 8-15-12 (A) ...............................            500        530,000
 Giant Industries, Inc.,
   11.0%, 5-15-12 ..................................            500        335,000
 Westport Resources Corporation,
   8.25%, 11-1-11 (A) ..............................            500        525,000
                                                                      ------------
                                                                         2,950,000
                                                                      ------------

Petroleum -- Services - 1.21%
 Key Energy Services, Inc.,
   8.375%, 3-1-08 ..................................            750        783,750
 SESI, L.L.C.,
   8.875%, 5-15-11 .................................            750        765,000
                                                                      ------------
                                                                         1,548,750
                                                                      ------------

Publishing - 2.70%
 Dex Media East LLC and Dex Media East
   Finance Co.:
   9.875%, 11-15-09 (A) ............................            525        561,750
   12.125%, 11-15-12 (A) ...........................            525        581,438
 Hollinger International Publishing Inc.,
   9.0%, 12-15-10 (A) ..............................          1,000      1,008,750
 TransWestern Publishing Company LLC,
   9.625%, 11-15-07 ................................          1,250      1,306,250
                                                                      ------------
                                                                         3,458,188
                                                                      ------------

Railroad - 0.74%
 Kansas City Southern Railway Company (The),
   7.5%, 6-15-09 ...................................            900        949,500
                                                                      ------------

Real Estate Investment Trusts - 1.03%
 Meritage Corporation,
   9.75%, 6-1-11 ...................................          1,260      1,316,700
                                                                      ------------

Retail -- General Merchandise - 3.24%
 Advance Stores Company, Incorporated,
   10.25%, 4-15-08 .................................            750        795,000
 Domino's, Inc.,
   10.375%, 1-15-09 ................................          1,750      1,890,000
 Roundy's, Inc.:
   8.875%, 6-15-12 (A) .............................            750        735,000
   8.875%, 6-15-12 .................................            250        245,000
 United Auto Group, Inc.,
   9.625%, 3-15-12 (A) .............................            500        485,000
                                                                      ------------
                                                                         4,150,000
                                                                      ------------

Retail -- Specialty Stores - 2.64%
 American Achievement Corporation,
   11.625%, 1-1-07 .................................          1,000      1,061,250
 Cole National Group, Inc.,
   8.875%, 5-15-12 .................................            900        846,000
 Jo-Ann Stores, Inc.,
   10.375%, 5-1-07 .................................            400        415,500
 Michaels Stores, Inc.,
   9.25%, 7-1-09 ...................................          1,000      1,055,000
                                                                      ------------
                                                                         3,377,750
                                                                      ------------

Timesharing and Software - 0.78%
 NDCHealth Corporation,
   10.5%, 12-1-12 (A) ..............................          1,000      1,000,000
                                                                      ------------

Trucking and Shipping - 0.40%
 Stena AB,
   9.625%, 12-1-12 (A) .............................            500        516,250
                                                                      ------------

Utilities -- Electric - 0.80%
 National Waterworks, Inc.,
   10.5%, 12-1-12 (A) ..............................            500        521,875
 Nevada Power Company,
   10.875%, 10-15-09 (A) ...........................            500        505,000
                                                                      ------------
                                                                         1,026,875
                                                                      ------------

Utilities -- Gas and Pipeline - 2.83%
 AmeriGas Partners, L.P. and AP Eagle
   Finance Corp.:
   8.875%, 5-20-11 .................................            500        520,000
   8.875%, 5-20-11 (A) .............................          2,500      2,600,000
 Wynn Las Vegas, LLC and Wynn Las Vegas
   Capital Corp.,
   12.0%, 11-1-10 ..................................            500        505,000
                                                                      ------------
                                                                         3,625,000
                                                                      ------------

Utilities -- Telephone - 0.98%
 Triton PCS, Inc.,
   0.0%, 5-1-08 (B) ................................          1,500      1,248,750
                                                                      ------------

TOTAL CORPORATE DEBT SECURITIES - 93.65%                              $119,839,307
 (Cost: $119,454,347)

TOTAL SHORT-TERM SECURITIES - 2.72%                                   $  3,477,572
 (Cost $3,477,572)

TOTAL INVESTMENT SECURITIES - 98.28%                                  $125,764,559
 (Cost: $126,800,817)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.72%                        2,203,311

NET ASSETS - 100.00%                                                  $127,967,870


Notes to Schedule of Investments

*No dividends were paid during the preceding 12 months.

(A)Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, the total value of these
securities amounted to $28,721,442 or 22.44% of net assets.

(B)The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
HIGH INCOME PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)



ASSETS
                                                
 Investment securities--at value (Notes 1 and 3)   $ 125,765
 Cash ..........................................           1
 Receivables:
   Dividends and interest ......................       2,210
   Fund shares sold ............................          33
 Prepaid insurance premium .....................           2
                                                   ---------
   Total assets ................................     128,011
                                                   ---------
LIABILITIES
 Payable to Fund shareholders ..................          30
 Accrued accounting services fee (Note 2) ......           4
 Accrued management fee (Note 2) ...............           2
 Accrued service fee (Note 2) ..................           1
 Other .........................................           6
                                                   ---------
   Total liabilities ...........................          43
                                                   ---------
    Total net assets ...........................   $ 127,968
                                                   =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ...............................   $      43
   Additional paid-in capital ..................     173,052
 Accumulated undistributed loss:
   Accumulated undistributed net realized loss
    on investment transactions .................     (44,091)
   Net unrealized depreciation in
    value of investments .......................      (1,036)
                                                   ---------
    Net assets applicable to outstanding units
      of capital ...............................   $ 127,968
                                                   =========
Net asset value, redemption
 and offering price per share ..................   $  2.9986
                                                   =========
Capital shares outstanding .....................      42,676
Capital shares authorized ......................      70,000


SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
HIGH INCOME PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

INVESTMENT INCOME

                                                
 Income (Note 1B):
   Interest and amortization ...................   $ 11,242
   Dividends ...................................        128
                                                   --------
    Total income ...............................     11,370
                                                   --------
 Expenses (Note 2):
   Investment management fee ...................        759
   Service fee .................................        303
   Accounting services fee .....................         44
   Custodian fees ..............................         14
   Audit fees ..................................          7
   Legal fees ..................................          2
   Other .......................................         24
                                                   --------
    Total expenses .............................      1,153
                                                   --------
      Net investment income ....................     10,217
                                                   --------
REALIZED AND UNREALIZED LOSS
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments ..............    (11,835)
 Unrealized depreciation in value of investments
   during the period ...........................       (847)
                                                   --------
   Net loss on investments .....................    (12,682)
                                                   --------
    Net decrease in net assets resulting
      from operations ..........................   $ (2,465)
                                                   ========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
HIGH INCOME PORTFOLIO

                         (In Thousands)



                                           For the fiscal year ended
                                                   December 31,
                                            -----------------------
                                              2002          2001
                                            ---------    ----------
                                                   
INCREASE IN NET ASSETS
Operations:
 Net investment income ..................   $  10,217    $  10,635
 Realized net loss on investments .......     (11,835)     (10,744)
 Unrealized appreciation (depreciation) .        (847)       9,495
                                            ---------    ---------
   Net increase (decrease) in net assets
    resulting from operations ...........      (2,465)       9,386
                                            ---------    ---------
Dividends to shareholders from net
 investment income (Note 1E)(1) .........     (10,217)     (10,635)
                                            ---------    ---------
Capital share transactions(2) ...........      24,323       15,749
                                            ---------    ---------
   Total increase .......................      11,641       14,500
NET ASSETS
Beginning of period .....................     116,327      101,827
                                            ---------    ---------
End of period ...........................   $ 127,968    $ 116,327
                                            =========    =========
 Undistributed net investment income ....   $     ---    $     ---
                                            =========    =========
(1)See "Financial Highlights" on page 85

(2)Shares issued from sale of shares ....      12,223       15,528
Shares issued from reinvestment of
 dividend ...............................       3,407        3,197
Shares redeemed .........................      (7,928)     (14,109)
                                            ---------    ---------
Increase in outstanding capital shares ..       7,702        4,616
                                            =========    =========
Value issued from sale of shares ........   $  39,863    $  55,473
Value issued from reinvestment of
 dividend ...............................      10,217       10,635
Value redeemed ..........................     (25,757)     (50,359)
                                            ---------    ---------
Increase in outstanding capital .........   $  24,323    $  15,749
                                            =========    =========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
HIGH INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:



                                       For the fiscal year ended December 31,
                               ----------------------------------------------------
                                 2002       2001       2000       1999       1998
                               --------   --------   --------   --------   --------
                                                            
Net asset value,
 beginning of
 period  ...........           $ 3.3261   $ 3.3542   $ 4.1691   $ 4.4143   $ 4.7402
                               --------   --------   --------   --------   --------
Income (loss) from investment
 operations:
 Net investment
   income ..........             0.2602     0.3346     0.4107     0.4313     0.4185
 Net realized and
   unrealized loss
   on investments ..            (0.3275)   (0.0281)   (0.8149)   (0.2452)   (0.3259)
                               --------   --------   --------   --------   --------
Total from investment
 operations  .......            (0.0673)    0.3065    (0.4042)    0.1861     0.0926
                               --------   --------   --------   --------   --------
Less distributions from
 net investment income          (0.2602)   (0.3346)   (0.4107)   (0.4313)   (0.4185)
                               --------   --------   --------   --------   --------
Net asset value,
 end of period  ....           $ 2.9986   $ 3.3261   $ 3.3542   $ 4.1691   $ 4.4143
                               ========   ========   ========   ========   ========
Total return .......              -2.02%      9.18%     -9.73%      4.22%      1.95%
Net assets, end of
 period (in
 millions)  ........           $    128   $    116   $    102   $    121   $    126
Ratio of expenses
 to average net
 assets  ...........               0.95%      0.93%      0.96%      0.92%      0.77%
Ratio of net investment
 income to average
 net assets  .......               8.42%      9.60%     10.02%      9.17%      8.76%
Portfolio turnover
 rate  .............              85.17%    193.71%    118.96%     87.84%     63.64%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with Thomas A. Mengel, portfolio manager of W&R Target Funds, Inc.
- - International Portfolio

This report relates to the operation of W&R Target Funds, Inc. - International
Portfolio for the fiscal year ended December 31, 2002. The following discussion,
graphs and tables provide you with information regarding the Portfolio's
performance during that period. Please note that the Portfolio's performance
data does not take into account any expenses or charges associated with owning a
variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?
The Portfolio declined 18.15 percent for the fiscal year, underperforming its
benchmark index. The Morgan Stanley Capital International E.A.FE. Index
(Europe, Australia, Far East -- the index that generally reflects the
performance of the international securities markets) declined 15.94 percent
during the period, and the Lipper Variable Annuity International Funds Universe
Average (reflecting the performance of the universe of funds with similar
objectives) declined 16.64 percent for the year.

Why did the Portfolio lag its benchmark index during the fiscal year?
The Portfolio was underweight in Japanese equities and generally overweight in
continental Europe during the fiscal year. However, Japan ended 2002 as the
best performing developed market, largely because broad market expectations of
severe financial stress did not materialize. Continental Europe suffered some
of the weakest equity market returns last year, thus affecting overall Portfolio
performance.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year?
Early in the fiscal year, it appeared as though the unprecedented amount of
global monetary ease had pulled the world economy out of a sharp but short
downturn. Continental Europe enjoyed a successful introduction of euro notes and
coins in January 2002, which we felt was a major step in reducing transaction
costs and barriers to business. Consumer and business sentiment in major
countries improved for several months in early 2002. Also, purchasing manager
indexes, late in the first calendar quarter, broadly reflected what appeared to
be a return to economic growth.

In the second half of the fiscal year, however, investor sentiment grew more
uncertain, becoming risk-averse at times. Economic growth began to slow again by
mid-year, and U.S. employment declined. Structural problems in Europe and Japan
(such as inflexible labor markets) tend to become more pronounced during periods
of U.S. economic weakness, resulting in relatively weaker foreign stock markets.
Major central banks continued to reduce interest rates, but rising budget
deficits suggested that fiscal stimulus would be limited, especially in Europe.
Adding to the challenges, global geopolitical turmoil increased late in the
year, led by concerns surrounding a potential military conflict in Iraq.

Because the Portfolio holds primarily foreign investments, the strong U.S.
dollar had a negative impact on our valuation early in the fiscal year. Since
that time, we have generally enjoyed a positive currency impact from the
dollar's weaker trend. The euro has now stabilized in value and become an
acceptable part of European life.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance? Early in the fiscal year we increased our holdings of
cyclical and growth shares, as global economic growth rebounded. However, we
believe that many of our large cap stocks were hurt by broad corporate profit
concerns and by corporate accounting issues that remained in the spotlight. The
Portfolio continues to hold what we feel are fundamentally sound growth
companies that were negatively impacted by these factors.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
We have continued to emphasize growth companies in continental Europe that we
feel possess defensive characteristics (consumer products, led by strong
management, solid balance sheets, attractive dividend yield, competitive
position). In Britain, we have focused on growth stocks that have benefited
from the strong domestic economy. Despite continuing imbalances within Japan's
economy, we believe that the country still offers good companies with solid
balance sheets, good management and growth prospects, especially some of the
larger exporters we have selected. In Asia, we have concentrated our holdings
on industry leaders that we feel should benefit from continued strong Chinese
business demand.

Overall, the difficult business climate of the last few years has forced many
foreign companies to accelerate restructuring efforts. This is a positive
improvement that we feel should be an important focus for investors once the
broader financial and geopolitical environment improves.

Respectfully,

Thomas A. Mengel
Manager
International Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target International
Portfolio, Morgan Stanley Capital International E.A.FE. Index and Lipper
Variable Annuity International Funds Universe Average



                                                       Lipper
                                       Morgan         Variable
                                       Stanley         Annuity
                                       Capital      International
                      W&R Target    International       Funds
                    International      E.A.FE.        Universe
                      Portfolio        Index           Average
                    -------------  --------------   -------------
                                           
05/03/94  Purchase     $10,000        $10,000         $10,000
12/31/94                10,026          9,990           9,821
12/31/95                10,756         11,110          11,065
12/31/96                12,381         11,782          12,646
12/31/97                14,448         11,991          13,385
12/31/98                19,345         14,389          15,256
12/31/99                32,031         18,269          21,853
12/31/00                24,454         15,681          18,587
12/31/01                19,017         12,318          14,566
12/31/02                15,565         10,354          12,142


- ----- W&R Target International Portfolio(1) -- $15,565 +++++ Morgan Stanley
Capital International E.A.FE. Index(2) -- $10,354 ***** Lipper Variable Annuity
International Funds Universe Average(2) -- $12,142

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above indexes
(including income) are not available, investment in the indexes were effected as
of April 30, 1994.

       Average Annual Total Return(3)



                              
1-year period ended
  12-31-02                       -18.15%
5-year period ended
  12-31-02                         1.50%
8+ year period ended
  12-31-02(4)                      5.24%


(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)5-3-94 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.

International investing involves special risks, including political, economic
and currency risks.



THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO

     December 31, 2002



                                                          Shares         Value
                                                                
COMMON STOCKS
Bermuda - 0.48%
 Johnson Electric Holdings Limited (A) .............      600,000     $    661,657
                                                                      ------------

Denmark - 0.75%
 Novo Nordisk A/S, Class B (A) .....................         36,000      1,039,361
                                                                      ------------

Finland - 3.44%
 Nokia Oyj (A) .....................................        151,400      2,404,955
 Stora Enso Oyj, R Shares (A) ......................         93,400        984,196
 UPM-Kymmene Oyj (A) ...............................         43,000      1,379,616
                                                                      ------------
                                                                         4,768,767
                                                                      ------------

France - 10.56%
 AXA (A) ...........................................         30,000        402,309
 Accor SA (A) ......................................         34,280      1,037,303
 Aventis S.A. (A) ..................................         18,800      1,021,071
 BNP Paribas SA (A) ................................         56,500      2,300,299
 Carrefour SA (A) ..................................         32,200      1,432,509
 Lafarge S.A. (A) ..................................          8,900        670,012
 Publicis Groupe S.A. (A) ..........................         41,170        871,968
 Renault SA (A) ....................................         23,100      1,084,587
 Societe Generale, Class A (A) .....................         20,300      1,181,293
 Suez (A) ..........................................        110,000      1,907,641
 TotalFinaElf, S.A. (A) ............................         19,200      2,739,856
                                                                      ------------
                                                                        14,648,848
                                                                      ------------

Germany - 7.91%
 Altana AG (A) .....................................         32,700      1,479,439
 BASF Aktiengesellschaft (A) .......................         37,400      1,407,779
 Deutsche Boerse AG (A) ............................         36,000      1,430,573
 GEHE AG (A) .......................................         29,838      1,154,422
 Henkel Kommanditgesellschaft
   auf Aktien (A) ..................................         26,000      1,643,838
 Linde AG (A) ......................................         23,800        873,401
 Munchener Ruckversicherungs - Gesellschaft
   Aktiengesellschaft (A) ..........................         13,000      1,552,514
 Siemens AG (A) ....................................          5,950        252,662
 VOLKSWAGEN AKTIENGESELLSCHAFT (A) .................         32,800      1,186,483
                                                                      ------------
                                                                        10,981,111
                                                                      ------------

Hong Kong - 0.95%
 Cheung Kong (Holdings) Limited (A) ................        100,000        650,758
 Hutchison Whampoa Limited,
   Ordinary Shares (A) .............................        106,000        663,299
                                                                      ------------
                                                                         1,314,057
                                                                      ------------

Ireland - 2.00%
 Bank of Ireland (The) (A) .........................        111,501      1,144,537
 DePfa Deutsche Pfandbriefbank AG (A) ..............         31,080      1,629,369
                                                                      ------------
                                                                         2,773,906
                                                                      ------------

Israel - 0.04%
 vi[z]rt (A)(B)* ...................................         60,000         53,473
                                                                      ------------

Italy - 10.12%
 Assicurazioni Generali S.p.A. (A) .................        120,100      2,468,127
 Eni S.p.A. (A) ....................................        152,900      2,428,782
 Saipem S.p.A. (A) .................................        333,700      2,228,764
 Telecom Italia Mobile S.p.A. (A) ..................        413,400      1,885,507
 Telecom Italia S.p.A., Ordinary
   Shares (A) ......................................        364,700      2,764,665
 UniCredito Italiano SpA (A) .......................        566,100      2,261,448
                                                                      ------------
                                                                        14,037,293
                                                                      ------------

Japan - 12.04%
 Canon Inc. (A) ....................................         39,000      1,468,289
 Daito Trust Construction Co., Ltd. (A) ............         71,100      1,571,949
 Eisai Co., Ltd. (A) ...............................         35,600        799,074
 Fuji Photo Film Co., Ltd. (A) .....................         27,000        880,064
 Honda Motor Co., Ltd. (A) .........................         34,300      1,268,230
 Kao Corporation (A) ...............................         75,000      1,645,540
 Nintendo Co., Ltd. (A) ............................          7,100        663,177
 Nissan Motor Co., Ltd. (A) ........................        178,800      1,394,498
 Nomura Holdings, Inc. (A) .........................        190,000      2,134,760
 Sony Corporation (A) ..............................         30,100      1,257,441
 Takeda Chemical Industries, Ltd. (A) ..............         55,000      2,297,650
 Toyota Motor Corporation (A) ......................         49,400      1,327,264
                                                                      ------------
                                                                        16,707,936
                                                                      ------------

Luxembourg - 1.32%
 ARCELOR (A)* ......................................        148,800      1,828,517
                                                                      ------------

Netherlands - 3.44%
 ABN AMRO Holding N.V. (A) .........................         28,000        457,398
 Koninklijke KPN N.V. (A)* .........................        216,200      1,405,451
 Royal Dutch Petroleum Company (A)* ................         19,000        835,707
 Unilever N.V. - Certicaaten Van
   Aandelen (A) ....................................         33,800      2,074,971
                                                                      ------------
                                                                         4,773,527
                                                                      ------------

Portugal - 1.91%
 Banco Comercial Portugues, S.A. (A)(B) ............        183,600        438,910
 Portugal Telecom, SGPS, S.A. (A) ..................        321,300      2,206,584
                                                                      ------------
                                                                         2,645,494
                                                                      ------------

Spain - 2.11%
 Banco Bilbao Vizcaya Argentaria, S.A. (A) .........        144,100      1,377,930
 Banco Santander Central Hispano, S.A. (A) .........        103,000        706,291
 Telefonica, S.A. (A)* .............................         94,000        840,708
                                                                      ------------
                                                                         2,924,929
                                                                      ------------

Sweden - 0.83%
 Nordea AB (A) .....................................        262,200      1,157,975
                                                                      ------------

Switzerland - 3.37%
 Clariant AG, Registered Shares (A) ................         66,300      1,059,381
 Credit Suisse Group, Registered
   Shares (A)* .....................................         56,800      1,232,015
 Nestle S.A., Registered Shares (A) ................          6,470      1,370,624
 Novartis AG, Registered Shares (A) ................         17,300        631,035
 Roche Holdings AG, Genussschein (A) ...............          5,600        390,109
                                                                      ------------
                                                                         4,683,164
                                                                      ------------

United Kingdom - 20.82%
 BHP Billiton Plc (A) ..............................        162,200        866,123
 British American Tobacco Plc (A) ..................         75,000        749,068
 British Sky Broadcasting Group plc (A)* ...........        225,800      2,322,431
 British Sky Broadcasting Group plc (A)(B)* ........         43,000        442,270
 Capita Group plc (The) (A) ........................        149,100        593,979
 Capita Group Plc (The) (A)(B) .....................        215,610        858,938
 Compass Group PLC (A) .............................        140,200        744,698
 Diageo plc (A) ....................................        299,000      3,248,575
 HSBC Holdings plc (A) .............................        147,600      1,630,966
 John Wood Group PLC (A) ...........................        450,600      1,165,897
 Lloyds TSB Group plc (A) ..........................        154,464      1,108,869
 NEXT Group Plc (A) ................................         48,500        574,953
 Pearson plc (A) ...................................        108,786      1,005,961
 Reckitt Benckiser plc (A) .........................        183,000      3,549,409
 Reed Elsevier plc (A) .............................        263,200      2,253,801
 Rio Tinto plc (A) .................................        108,600      2,167,552
 Royal Bank of Scotland Group plc (The) (A)                 119,679      2,866,414
 Vodafone Group Plc (A) ............................      1,499,300      2,733,032
                                                                      ------------
                                                                        28,882,936
                                                                      ------------

TOTAL COMMON STOCKS - 82.09% .......................                  $113,882,951
 (Cost: $122,915,109)

PREFERRED STOCK - 0.44%
Germany
 Fresenius AG (A) ..................................         16,400   $    613,876
                                                                      ------------
 (Cost: $590,280)




                                                        Principal
                                                        Amount in
                                                        Thousands
                                                                
OTHER GOVERNMENT SECURITY - 6.01%
Germany
 Bundesschwatzanweisungen Treasury Note,
   4.25%, 6-13-03 (C) ..............................     EUR7,900     $  8,335,334
                                                                      ------------
 (Cost: $7,872,714)




                                                          Face
                                                        Amount in
                                                        Thousands
                                                                
UNREALIZED LOSS ON OPEN FORWARD
 CURRENCY CONTRACTS - (0.35%)
 Japanese Yen, 1-28-03 (C) .........................       Y472,211       (119,544)
 Japanese Yen, 1-28-03 (C) .........................        472,211       (369,011)
                                                                      ------------
                                                                      $   (488,555)
                                                                      ------------





                                                        Principal
                                                        Amount in
                                                        Thousands
                                                                
SHORT-TERM SECURITIES
Chemicals -- Petroleum and Inorganic - 0.62%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note ...........................   $        864        864,000
                                                                      ------------

Food and Related - 1.29%
 General Mills, Inc.,
   1.53%, Master Note ..............................            285        284,671
 Unilever Capital Corporation,
   1.3%, 1-21-03 ...................................          1,501      1,499,916
                                                                      ------------
                                                                         1,784,587
                                                                      ------------

Forest and Paper Products - 1.80%
 Sonoco Products Co.,
   1.38%, 1-16-03 ..................................          2,500      2,498,562
                                                                      ------------

Health Care -- Drugs - 5.21%
 Alcon Finance PLC (Nestle S.A.),
   1.3%, 1-13-03 ...................................          5,225      5,222,736
 Pharmacia Corporation,
   1.3%, 1-16-03 ...................................          2,000      1,998,917
                                                                      ------------
                                                                         7,221,653
                                                                      ------------

Security and Commodity Brokers - 2.62%
 UBS Finance Delaware LLC,
   1.2%, 1-2-03 ....................................          3,634      3,633,879
                                                                      ------------

TOTAL SHORT-TERM SECURITIES - 11.54% ...............                  $ 16,002,681
 (Cost: $16,002,681)

TOTAL INVESTMENT SECURITIES - 99.73% ...............                  $138,346,287
 (Cost: $147,380,784)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.27% ..                       380,927

NET ASSETS - 100.00% ...............................                  $138,727,214


SEE NOTES TO SCHEDULE OF INVESTMENTS ON PAGE.




THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
December 31, 2002

NOTES TO SCHEDULE OF INVESTMENTS

*No dividends were paid during the preceding 12 months.

(A)Not listed on an exchange in the United States.

(B)Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, the total value of these
securities amounted to $1,793,591 or 1.29% of net assets.

(C)Principal amounts are denominated in the indicated foreign currency, where
applicable(EUR - Euro, Y - Japanese Yen).

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.

As a shareholder of W&R Target International Portfolio, for every $100 you had
invested on December 31, 2002, your Portfolio was invested by industry, as
follows:

    $19.81  Financial Services Stocks
     15.64  Consumer Goods Stocks
     11.46  Cash and Cash Equivalents and Unrealized Loss on
            Open Forward Currency Contracts
      9.91  Utilities Stocks
      6.47  Raw Materials Stocks
      6.35  Health Care Stocks
      6.01  Other Government Security
      5.17  Energy Stocks
      5.09  Consumer Services Stocks
      3.38  Capital Goods Stocks
      3.30  Shelter Stocks
      2.73  Business Equipment and Services Stocks
      2.25  Miscellaneous Stocks
      1.99  Retail Stocks
      0.44  Preferred Stock



STATEMENT OF ASSETS AND LIABILITIES
INTERNATIONAL PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

ASSETS

                                                  
 Investment securities--at value (Notes 1 and 3)...  $ 138,346
 Receivables:
   Dividends and interest .........................        426
   Fund shares sold ...............................         15
 Prepaid insurance premium ........................          2
                                                     ---------
    Total assets ..................................    138,789
                                                     ---------
LIABILITIES
 Payable to Fund shareholders .....................         11
 Accrued accounting services fee (Note 2) .........          4
 Accrued management fee (Note 2) ..................          3
 Accrued service fee (Note 2) .....................          1
 Other ............................................         43
                                                     ---------
    Total liabilities .............................         62
                                                     ---------
      Total net assets ............................  $ 138,727
                                                     =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ..................................  $      29
   Additional paid-in capital .....................    221,138
 Accumulated undistributed loss:
   Accumulated undistributed net realized loss on
    investment transactions .......................    (73,445)
   Net unrealized depreciation in value
    of investments ................................     (8,995)
                                                     ---------
    Net assets applicable to outstanding units
      of capital ..................................  $ 138,727
                                                     =========
Net asset value, redemption and offering
 price per share ..................................  $  4.7683
                                                     =========
Capital shares outstanding ........................     29,094
Capital shares authorized .........................     55,000



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
INTERNATIONAL PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

INVESTMENT INCOME

                                                                 
Income (Note 1B):
   Dividends (net of foreign withholding taxes of $218)..........   $  2,376
   Interest and amortization ....................................        513
                                                                    --------
    Total income ................................................      2,889
                                                                    --------
 Expenses (Note 2):
   Investment management fee ....................................      1,355
   Service fee ..................................................        398
   Custodian fees ...............................................        235
   Accounting services fee ......................................         44
   Audit fees ...................................................          9
   Legal fees ...................................................          2
   Other ........................................................         35
                                                                    --------
    Total expenses ..............................................      2,078
                                                                    --------
      Net investment income .....................................        811
                                                                    --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
 INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities ................................    (36,738)
 Realized net loss on foreign currency transactions .............       (153)
                                                                    --------
   Realized net loss on investments .............................    (36,891)
                                                                    --------
 Unrealized appreciation in value of securities
   during the period ............................................      3,881
 Unrealized depreciation in value of foreign
   currency transactions during the period ......................       (454)
                                                                    --------
   Unrealized appreciation in value of
    investments during the period ...............................      3,427
                                                                    --------
    Net loss on investments .....................................    (33,464)
                                                                    --------
      Net decrease in net assets resulting
       from operations ..........................................   $(32,653)
                                                                    ========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
     INTERNATIONAL PORTFOLIO

                         (In Thousands)



                                              For the fiscal year ended
                                                     December 31,
                                               ----------------------
                                                  2002       2001
                                               ---------    ---------
                                                      
DECREASE IN NET ASSETS
Operations:
 Net investment income .....................   $     811    $   1,530
 Realized net loss on investments ..........     (36,891)     (30,312)
 Unrealized appreciation
   (depreciation) ..........................       3,427      (28,369)
                                               ---------    ---------
   Net decrease in net assets resulting
    from operations ........................     (32,653)     (57,151)
                                               ---------    ---------
Dividends to shareholders from (Note 1E):(1)
 Net investment income .....................        (658)      (1,278)
 Realized gains on
   securities transactions .................         ---       (6,647)
                                               ---------    ---------
                                                    (658)      (7,925)
                                               ---------    ---------
Capital share transactions(2) ..............     (14,513)     (14,802)
                                               ---------    ---------
    Total decrease .........................     (47,824)     (79,878)
NET ASSETS
Beginning of period ........................     186,551      266,429
                                               ---------    ---------
End of period ..............................   $ 138,727    $ 186,551
                                               =========    =========
 Undistributed net investment income .......   $     ---    $     ---
                                               =========    =========

(1)See "Financial Highlights" on page 97....

(2)Shares issued from sale of shares .......       5,726       10,052
Shares issued from reinvestment of dividend
 and/or capital gains distribution .........         138        1,354
Shares redeemed ............................      (8,639)     (13,430)
                                               ---------    ---------
Decrease in outstanding capital shares .....      (2,775)      (2,024)
                                               =========    =========
Value issued from sale of shares ...........   $  30,256    $  66,669
Value issued from reinvestment of dividend
 and/or capital gains distribution .........         658        7,925
Value redeemed .............................     (45,427)     (89,396)
                                               ---------    ---------
Decrease in outstanding capital ............   $ (14,513)   $ (14,802)
                                               =========    =========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
INTERNATIONAL PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                       For the fiscal year ended December 31,
                               ----------------------------------------------------
                                 2002       2001      2000        1999      1998
                               --------   --------   --------   --------   --------
                                                            
Net asset value,
 beginning of
 period  ...........           $ 5.8536   $ 7.8610   $11.9354   $ 7.8176   $ 6.3842
                               --------   --------   --------   --------   --------
Income (loss) from investment
 operations:
 Net investment
   income ..........             0.0227     0.0498     0.0298     0.0032     0.0353
 Net realized and
   unrealized gain (loss)
   on investments...            (1.0853)   (1.7977)   (2.8531)    5.1235     2.1283
                               --------   --------   --------   --------   --------
Total from investment
 operations  .......            (1.0626)   (1.7479)   (2.8233)    5.1267     2.1636
                               --------   --------   --------   --------   --------
Less distributions from:
 Net investment
   income ..........            (0.0227)   (0.0419)   (0.0186)   (0.0000)   (0.0353)
 Capital gains .....            (0.0000)   (0.2176)   (1.2325)   (1.0089)   (0.6949)
                               --------   --------   --------   --------   --------
Total distributions.            (0.0227)   (0.2595)   (1.2511)   (1.0089)   (0.7302)
                               --------   --------   --------   --------   --------
Net asset value,
 end of period  ....           $ 4.7683   $ 5.8536   $ 7.8610   $11.9354   $ 7.8176
                               ========   ========   ========   ========   ========
Total return .......             -18.15%    -22.23%    -23.66%     65.58%     33.89%
Net assets, end of
 period (in
 millions)  ........           $    139   $    187   $    266   $    300   $    169
Ratio of expenses
 to average net
 assets  ...........               1.30%      1.25%      1.23%      1.21%      1.02%
Ratio of net investment
 income to average
 net assets  .......               0.41%      0.71%      0.31%      0.04%      0.47%
Portfolio turnover
 rate  .............             116.21%     99.52%    116.84%    118.71%     88.84%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with W. Patrick Sterner, portfolio manager of W&R Target Funds,
Inc. - Limited-Term Bond Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Limited-Term
Bond Portfolio for the fiscal year ended December 31, 2002. The following
discussion, graphs and tables provide you with information regarding the
Portfolio's performance during that period. Please note that the Portfolio's
performance data does not take into account any expenses or charges associated
with owning a variable life or annuity policy invested in the W&R Target Funds,
Inc.

How did the Portfolio perform during the last fiscal year? The Portfolio turned
in a positive performance during the fiscal year, although it ultimately
underperformed its benchmark index. The Portfolio's one-year return increased
5.43 percent, compared with the Salomon Brothers 1-5 Year
Treasury/Government-Sponsored/Credit Index (reflecting the performance of
securities that generally represent the short-maturity sector of the bond
market), which increased 8.08 percent for the year, and the Lipper Variable
Annuity Short-Intermediate Investment Grade Debt Funds Universe Average
(reflecting the performance of the universe of funds with similar objectives),
which increased 5.83 percent during the year. The Salomon Brothers 1-5 Year
Treasury/Government Sponsored/Credit Index replaces the Salomon Brothers 1-5
Year Treasury/Government Sponsored/Corporate Index in this year's report. We
believe that the new index provides a more accurate basis for comparing the
Fund's performance to the types of securities in which the Fund invests. Both
indexes are presented in this year's report for comparison purposes.

Why did the Portfolio lag its benchmark index during the fiscal year? There were
several factors that contributed negatively to the Portfolio's performance. The
most prominent factor, we feel, was our 1 percent position in Worldcom bonds. We
failed to react quickly enough to the deteriorating financial condition, and
thus suffered a substantial loss upon the sale of the securities. In addition,
the Portfolio held the securities of several troubled utility companies with
energy trading operations. Although we sold the bonds before major losses were
incurred, and the overall exposure to the sector was small, performance was
still adversely impacted.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year? Another factor that impacted relative performance was a
shorter duration during a period of falling interest rates. We had expected
rates to rise along with an improving economy during the latter part of the
fiscal year. Economic growth, however, was disappointing and relatively
sluggish. As a result, the Federal Reserve cut short-term interest rates from
1.75 percent to 1.25 percent in November, and market rates moved lower. In
addition, we believe that a substantial weighting in mortgage-backed securities
hurt performance during the second half of the fiscal year as rates moved
sharply lower.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance? Our management style attempts to identify relative
value opportunities between sectors of the market. Those sectors include U.S.
Treasuries, government agencies, corporate bonds and mortgage-backed securities.
Based on our determination that intermediate maturity corporate bonds offered
good value, we overweighted that sector. Although corporate bonds outperformed
at the very end of the fiscal year, for the year as a whole they lagged, with
certain sectors, including utilities and telecommunications, turning in
especially poor performances. Although we feel that this strategy still holds
some merit over the longer term, it did bring some negative impact to the
Portfolio during the period.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward? Although we feel that the next move in
interest rates is likely to be upward, we also believe that rates will probably
stay in a range around current levels until the economic numbers signal a
sustained recovery is in place. We intend to continue to watch initial
unemployment claims, capital-spending trends and the size and makeup of the
fiscal stimulus plan coming out of Washington. In the current environment, we
are of the opinion that both mortgage-backed securities and corporate bonds
should provide superior total return potential over Treasuries. We also intend
to continue to maintain a shorter duration to help protect against rising
yields.

Respectfully,

W. Patrick Sterner
Manager
Limited-Term Bond Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target Limited-Term Bond
Portfolio and Salomon Brothers 1 - 5 Year Treasury/Government
Sponsored/Corporate Index, Salomon Brothers 1 - 5 Year Treasury/Government
Sponsored/Credit Index and Lipper Variable Annuity Short-Intermediate Investment
Grade Debt Funds

                                Universe Average



                                                                        Lipper
                                                                       Variable
                                     Salomon          Salomon           Annuity
                                     Brothers         Brothers           Short-
                                     1-5 Year         1-5 Year       Intermediate
                                     Treasury/        Treasury/       Investment
                   W&R Target       Government       Government          Grade
                  Limited-Term      Sponsored/       Sponsored/       Debt Funds
                     Bond            Corporate         Credit          Universe
                   Portfolio           Index            Index          Average
                  ------------      ----------       ----------       -----------
                                                          
05/03/94Purchase     $10,000         $10,000          $10,000           $10,000
12/31/94              10,026          10,105           10,105            10,080
12/31/95              11,462          11,404           11,404            11,247
12/31/96              11,892          11,938           11,938            11,707
12/31/97              12,707          12,791           12,791            12,497
12/31/98              13,553          13,769           13,769            13,300
12/31/99              13,790          14,065           14,065            13,570
12/31/00              14,993          15,328           15,328            14,600
12/31/01              16,375          16,722           16,727            15,729
12/31/02              17,264          18,056           18,079            16,646


+++++ W&R Target Limited-Term Bond Portfolio(1) -- $17,264 ..... Salomon
Brothers 1 - 5 Year Treasury/Government Sponsored/Corporate Index(2) -- $18,056

===== Salomon Brothers 1 - 5 Year Treasury/Government Sponsored/Credit Index(2)
- -- $18,079

***** Lipper Variable Annuity Short-Intermediate Investment Grade Debt Funds
Universe Average(2) -- $16,646

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above indexes
(including income) are not available, investment in the indexes were effected as
of April 30, 1994.



     AVERAGE ANNUAL TOTAL RETURN(3)
     ------------------------------
                             
1-year period ended
  12-31-02                      5.43%
5-year period ended
  12-31-02                      6.32%
8+ year period ended
  12-31-02(4)                   6.50%


(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)5-3-94 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO

   December 31, 2002



                                                        Principal
                                                        Amount in
                                                        Thousands       Value
                                                               
CORPORATE DEBT SECURITIES
Aircraft - 3.55%
 Lockheed Martin Corporation,
   7.25%, 5-15-06 ..................................   $     1,000   $ 1,126,211
 Raytheon Company,
   6.75%, 8-15-07 ..................................           500       554,434
                                                                     -----------
                                                                       1,680,645
                                                                     -----------

Banks - 2.83%
 First Union Corporation,
   6.875%, 9-15-05 .................................         1,200     1,339,640
                                                                     -----------

Chemicals -- Specialty - 0.96%
 Praxair, Inc.,
   6.75%, 3-1-03 ...................................           450       453,400
                                                                     -----------

Construction Materials - 1.02%
 Black & Decker Corp.,
   7.5%, 4-1-03 ....................................           475       480,830
                                                                     -----------

Finance Companies - 3.88%
 Aristar, Inc.,
   5.85%, 1-27-04 ..................................           250       260,406
 General Motors Acceptance Corporation,
   6.625%, 10-15-05 ................................           800       824,166
 Grand Metropolitan Investment Corp.,
   7.125%, 9-15-04 .................................           379       411,329
 John Deere Capital Corporation,
   5.125%, 10-19-06 ................................           320       341,126
                                                                     -----------
                                                                       1,837,027
                                                                     -----------

Food and Related - 2.75%
 ConAgra, Inc.,
   7.4%, 9-15-04 ...................................         1,200     1,300,303
                                                                     -----------

Forest and Paper Products - 1.53%
 International Paper Company,
   6.125%, 11-1-03 .................................           700       722,280
                                                                     -----------

Household -- General Products - 2.84%
 CPC International Inc.,
   6.15%, 1-15-06 ..................................         1,218     1,341,407
                                                                     -----------

Insurance -- Life - 1.25%
 American General Finance Corporation,
   6.75%, 11-15-04 .................................           550       589,484
                                                                     -----------

Multiple Industry - 9.28%
 Ford Motor Credit Company,
   6.7%, 7-16-04 ...................................           900       916,944
 General Electric Capital Corporation,
   7.25%, 2-1-05 ...................................         1,000     1,100,718
 Honeywell International Inc.,
   6.875%, 10-3-05 .................................           400       443,013
 Household Finance Corporation:
   7.25%, 7-15-03 ..................................           300       307,800
   6.5%, 1-24-06 ...................................           500       532,461
 National Rural Utilities Cooperative
   Finance Corporation,
   6.0%, 5-15-06 ...................................         1,000     1,090,910
                                                                     -----------
                                                                       4,391,846
                                                                     -----------

Petroleum -- Domestic - 1.85%
 Anadarko Petroleum Corporation,
   6.5%, 5-15-05 ...................................           805       873,758
                                                                     -----------

Petroleum -- International - 1.87%
 Chevron Corporation Profit Sharing/Savings
   Plan Trust Fund,
   8.11%, 12-1-04 ..................................            47        49,595
 Conoco Inc.,
   5.9%, 4-15-04 ...................................           800       837,435
                                                                     -----------
                                                                         887,030
                                                                     -----------

Railroad - 4.12%
 Norfolk Southern Corporation,
   7.35%, 5-15-07 ..................................           783       899,138
 Union Pacific Corporation,
   5.84%, 5-25-04 ..................................         1,000     1,049,343
                                                                     -----------
                                                                       1,948,481
                                                                     -----------

Retail -- Food Stores - 2.28%
 Safeway Inc.,
   7.25%, 9-15-04 ..................................         1,000     1,076,258
                                                                     -----------

Retail -- General Merchandise - 1.07%
 Sears Roebuck Acceptance Corp.,
   6.9%, 8-1-03 ....................................           500       504,431
                                                                     -----------

Security and Commodity Brokers - 4.03%
 CIT Group Holdings, Inc. (The),
   6.625%, 6-15-05 .................................           900       939,407
 Salomon Smith Barney Holdings Inc.,
   6.25%, 6-15-05 ..................................           900       966,818
                                                                     -----------
                                                                       1,906,225
                                                                     -----------

Trucking and Shipping - 2.40%
 WMX Technologies, Inc.,
   7.0%, 5-15-05 ...................................         1,080     1,136,146
                                                                     -----------

Utilities -- Electric - 5.19%
 Dominion Resources, Inc.,
   3.875%, 1-15-04 .................................         1,300     1,309,162
 Wisconsin Energy Corporation,
   5.875%, 4-1-06 ..................................         1,055     1,146,361
                                                                     -----------
                                                                       2,455,523
                                                                     -----------

Utilities -- Telephone - 2.50%
 GTE Corporation,
   6.36%, 4-15-06 ..................................         1,095     1,182,477
                                                                     -----------

TOTAL CORPORATE DEBT SECURITIES - 55.20% ...........                 $26,107,191
 (Cost: $25,361,550)

UNITED STATES GOVERNMENT SECURITIES
Agency Obligations - 8.97%
 Federal Farm Credit Bank,
   4.125%, 2-14-05 .................................         1,000     1,003,394
 Federal Home Loan Bank:
   5.125%, 1-13-03 .................................           350       350,409
   4.875%, 5-14-04 .................................           550       574,864
   5.6%, 3-7-05 ....................................           500       504,132
 Federal National Mortgage Association:
   5.0%, 2-14-03 ...................................           200       200,863
   5.125%, 2-13-04 .................................         1,100     1,146,066
 Tennessee Valley Authority,
   5.0%, 12-18-03 ..................................           450       464,806
                                                                     -----------
                                                                       4,244,534
                                                                     -----------


                                                               
Mortgage-Backed Obligations - 22.84%
Federal Home Loan Mortgage Corporation Fixed Rate

   Participation Certificates:
   7.0%, 8-1-07 ....................................            32        32,690
   5.5%, 2-1-16 ....................................           305       317,120
   6.0%, 5-1-16 ....................................           159       166,455
   5.5%, 1-1-17 ....................................           455       472,630
   5.5%, 5-1-17 ....................................           563       584,249
 Federal National Mortgage Association Fixed Rate
   Pass-Through Certificates:
   6.5%, 12-1-10 ...................................            27        28,786
   6.0%, 1-1-11 ....................................            25        26,917
   6.5%, 2-1-11 ....................................            30        31,507
   7.0%, 5-1-11 ....................................            15        16,393
   7.0%, 7-1-11 ....................................            20        21,471
   7.0%, 9-1-12 ....................................            20        21,389
   6.0%, 11-1-13 ...................................           116       122,062
   7.0%, 9-1-14 ....................................            60        63,411
   7.0%, 10-1-14 ...................................            85        90,419
   6.0%, 3-1-16 ....................................           585       613,900
   6.0%, 6-1-16 ....................................           199       207,805
   6.5%, 6-1-16 ....................................           161       169,707
   5.5%, 2-1-17 ....................................           988     1,025,568
   5.0%, 12-1-17 ...................................         1,194     1,226,226
   7.0%, 4-1-26 ....................................            24        25,667
 Government National Mortgage Association Fixed Rate
   Pass-Through Certificates:
   6.5%, 1-15-14 ...................................            70        74,620
   7.5%, 3-15-15 ...................................            87        93,807
   6.0%, 8-15-16 ...................................           310       327,005
   6.0%, 12-15-16 ..................................           502       529,276
   5.5%, 1-15-17 ...................................           520       543,444
   6.0%, 1-15-17 ...................................           422       444,675
   5.5%, 7-15-17 ...................................           754       788,176
   5.5%, 10-15-17 ..................................           989     1,034,349
   5.0%, 12-15-17 ..................................         1,300     1,345,094
   7.0%, 6-15-28 ...................................           222       235,791
   7.0%, 7-15-29 ...................................           114       121,224
                                                                     -----------
                                                                      10,801,833
                                                                     -----------

Treasury Obligation - 5.48%
 United States Treasury Notes:
   3.875%, 6-30-03 .................................         1,000     1,013,164
   3.625%, 3-31-04 .................................         1,000     1,028,750
   5.0%, 8-15-11 ...................................           500       548,281
                                                                     -----------
                                                                       2,590,195
                                                                     -----------

Treasury Inflation Protected Obligation - 1.12%
United States Treasury Note,
   3.0%, 7-15-12 (A) ...............................           500       531,328
                                                                     -----------

TOTAL UNITED STATES GOVERNMENT SECURITIES - 38.41%..                 $18,167,890
 (Cost: $17,750,474)

SHORT-TERM SECURITIES
Chemicals -- Petroleum and Inorganic - 2.74%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note ...........................         1,297     1,297,000
                                                                     -----------

Food and Related - 0.24%
 General Mills, Inc.,
   1.53%, Master Note ..............................           114       114,000
                                                                     -----------

Health Care -- Drugs - 2.11%
 Pfizer Inc.,
   1.3%, 1-29-03 ...................................         1,000       998,989
                                                                     -----------

TOTAL SHORT-TERM SECURITIES - 5.09% ................                 $ 2,409,989
 (Cost: $2,409,989)

TOTAL INVESTMENT SECURITIES - 98.70% ...............                 $46,685,070
 (Cost: $45,522,013)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.30% ..                     613,090

NET ASSETS - 100.00% ...............................                 $47,298,160



Notes to Schedule of Investments

(A)The interest rate for this security is a stated rate, but the interest
payments are determined by multiplying the inflation-adjusted principal by one
half of the stated rate for each semiannual interest payment date.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
LIMITED-TERM BOND PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                
ASSETS
 Investment securities--at value (Notes 1 and 3)   $ 46,685
 Cash ..........................................          1
 Receivables:
   Interest ....................................        540
   Fund shares sold ............................         77
                                                   --------
    Total assets ...............................     47,303
                                                   --------
LIABILITIES
 Accrued accounting services fee (Note 2) ......          2
 Accrued management fee (Note 2) ...............          1
 Accrued service fee (Note 2) ..................        ---*
 Other .........................................          2
                                                   --------
    Total liabilities ..........................          5
                                                   --------
      Total net assets .........................   $ 47,298
                                                   ========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ...............................   $      8
   Additional paid-in capital ..................     46,567
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss
    on investment transactions .................       (440)
   Net unrealized appreciation in value
    of investments .............................      1,163
                                                   --------
    Net assets applicable to outstanding units
      of capital ...............................   $ 47,298
                                                   ========
Net asset value, redemption
 and offering price per share ..................   $ 5.6068
                                                   ========
Capital shares outstanding .....................      8,436
Capital shares authorized ......................     15,000



*Not shown due to rounding.

See Notes to Financial Statements.



STATEMENT OF OPERATIONS
LIMITED-TERM BOND PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

                                                       
INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ..........................   $ 1,281
                                                          -------
 Expenses (Note 2):
   Investment management fee ..........................       137
   Service fee ........................................        69
   Accounting services fee ............................        17
   Custodian fees .....................................         6
   Audit fees .........................................         5
   Other ..............................................         5
                                                          -------
    Total .............................................       239
      Less expenses in excess of voluntary
       waiver of investment management fee (Note 2) ...       (50)
                                                          -------
       Total expenses .................................       189
                                                          -------
         Net investment income ........................     1,092
                                                          -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
 INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments .....................      (429)
 Unrealized appreciation in value of
   investments during the period ......................       955
                                                          -------
   Net gain on investments ............................       526
                                                          -------
    Net increase in net assets resulting
      from operations .................................   $ 1,618
                                                          =======



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
LIMITED-TERM BOND PORTFOLIO

                                 (In Thousands)



                                             For the fiscal year ended
                                                    December 31,
                                             -------------------------
                                                2002        2001
                                              --------    --------
                                                    
INCREASE IN NET ASSETS
Operations:
 Net investment income ....................   $  1,092    $    549
 Realized net gain (loss) on investments ..       (429)          5
 Unrealized appreciation ..................        955         227
                                              --------    --------
   Net increase in net assets
    resulting from operations .............      1,618         781
                                              --------    --------
Dividends to shareholders from
 net investment income (Note 1E)(1) .......     (1,092)       (549)
                                              --------    --------
Capital share transactions(2) .............     31,241       8,823
                                              --------    --------
    Total increase ........................     31,767       9,055
NET ASSETS
Beginning of period .......................     15,531       6,476
                                              --------    --------
End of period .............................   $ 47,298    $ 15,531
                                              ========    ========
 Undistributed net investment income ......   $    ---    $    ---
                                              ========    ========


                                                    
(1)See "Financial Highlights" on page 109.

(2)Shares issued from sale of shares ......      6,611       2,367
Shares issued from reinvestment of dividend        195         101
Shares redeemed ...........................     (1,223)       (868)
                                              --------    --------
Increase in outstanding capital shares ....      5,583       1,600
                                              ========    ========
Value issued from sale of shares ..........   $ 36,979    $ 13,044
Value issued from reinvestment of dividend       1,092         549
Value redeemed ............................     (6,830)     (4,770)
                                              --------    --------
Increase in outstanding capital ...........   $ 31,241    $  8,823
                                              ========    ========



SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
LIMITED-TERM BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:



                                       For the fiscal year ended December 31,
                               ----------------------------------------------------
                                 2002       2001       2000       1999       1998
                               --------   --------   --------   --------   --------
                                                            
Net asset value,               --------   --------   --------   --------   --------
 beginning of
 period  ...........           $ 5.4437   $ 5.1666   $ 5.0405   $ 5.2292   $ 5.1882
Income (loss) from             --------   --------   --------   --------   --------
 investment operations:
 Net investment income           0.1327     0.1971     0.3155     0.2799     0.2935
 Net realized and
   unrealized gain (loss)
   on investments ..             0.1631     0.2771     0.1261    (0.1887)    0.0522
Total from investment          --------   --------   --------   --------   --------
 operations  .......             0.2958     0.4742     0.4416     0.0912     0.3457
                               --------   --------   --------   --------   --------
Less distributions from:
 Net investment
   income ..........            (0.1327)   (0.1971)   (0.3155)   (0.2799)   (0.2935)
 Capital gains .....            (0.0000)   (0.0000)   (0.0000)   (0.0000)   (0.0112)
                               --------   --------   --------   --------   --------
Total distributions             (0.1327)   (0.1971)   (0.3155)   (0.2799)   (0.3047)
Net asset value,               --------   --------   --------   --------   --------
 end of period  ....           $ 5.6068   $ 5.4437   $ 5.1666   $ 5.0405   $ 5.2292
                               ========   ========   ========   ========  =========
Total return .......               5.43%      9.21%      8.73%      1.74%      6.66%
Net assets, end of
 period (in millions)          $     47   $     16   $      6   $      6   $      5
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver ....               0.69%      0.38%      0.40%      0.64%      0.79%
Ratio of net investment
 income to average
 net assets including
 voluntary expense
 waiver  ...........               3.97%      5.52%      6.33%      5.63%      5.65%
Ratio of expenses
 to average net assets
 excluding voluntary
 expense waiver  ...               0.87%      0.88%      0.90%      0.91%       ---
Ratio of net investment
 income to average net
 assets excluding voluntary
 expense waiver  ...               3.79%      5.02%      5.83%      5.36%       ---
Portfolio turnover
 rate  .............              27.36%     22.43%     47.32%     22.81%     47.11%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with Mira Stevovich, portfolio manager of W&R Target Funds, Inc. -
Money Market Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Money Market
Portfolio for the fiscal year ended December 31, 2002. The following discussion
and tables provide you with information regarding the Portfolio's performance
during that period.

How did the Portfolio perform during the last fiscal year?
Overall return was lower during the fiscal year compared with the previous year,
primarily due to the sustained low short-term interest rates. The Federal
Reserve maintained a Federal Funds rate of 1.75 percent throughout most of the
year, then lowered it further to 1.25 percent in November. This long period of
historically low money market interest rates has made for a challenging
environment for all money market funds.

What market conditions or events influenced the Portfolio's performance during
the fiscal year?
As the fiscal year began, interest rates stood at 1.75 percent, having been
lowered by the Federal Reserve a total of 4.75 percent during the previous
fiscal year. Although rates remained fairly constant until the one-half percent
decrease in November, market sentiment fluctuated throughout the year. At times,
when the market anticipated a rebound in the economy, interest rates would
occasionally move up with that anticipation. During these periods, we would
attempt to take advantage of any increase in market rates to increase the yield
of the Portfolio.

In addition to interest rates, credit quality played a role in the management
and performance of the Portfolio during the fiscal year. The weak economy has
played havoc on the credit quality of many companies. As a result, we have
chosen to extend our overall maturity with very select securities of the highest
quality, based on our strict credit risk constraints. We have remained vigilant
in our review of the companies whose securities we purchase, due to the weak
economic environment and risk potential.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance?
We have maintained a defensive posture during the weak economic period. We have
maintained the average maturity of the Portfolio by carefully selecting
securities in which to invest, choosing those with the highest credit quality.
Overall, we believe that this strategy helped performance. However, securities
issued by the highest quality companies are issued at premium rates of interest
(lowest-yielding securities). This, of course, affects ultimate Portfolio yield.
To attempt to compensate for this, we timed the purchase of our longer- maturing
securities during periods in which the overall market anticipated higher future
rates of interest, generally attempting to take advantage of temporary rate
increases.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
We intend to continue to invest in securities of the highest quality companies,
as well as U.S. Treasury and government agency securities, when we feel that
they look attractive on a relative basis. In light of the current interest rate
climate, and uncertainties regarding the U.S. economy, we intend to review
security purchases on a case-by-case basis, following closely the developments
in all industries and their effects on each company in which we invest.

Respectfully,

Mira Stevovich
Manager
Money Market Portfolio

Please remember that an investment in the Portfolio is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.



THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO

     December 31, 2002



                                                     Principal
                                                     Amount in
                                                     Thousands       Value
                                                           
CORPORATE OBLIGATIONS
Commercial Paper
 Beverages - 3.81%
 Diageo Capital plc,
   1.31%, 1-13-03 ................................   $ 3,913     $  3,911,291
                                                                 ------------
Electrical Equipment - 3.32%
Emerson Electric Co.:
   1.3%, 1-9-03 ..................................     1,000          999,711
   1.42%, 1-9-03 .................................       900          899,716
   1.3%, 1-14-03 .................................     1,500        1,499,296
                                                                 ------------
                                                                    3,398,723
                                                                 ------------

Finance Companies - 5.80%
Caterpillar Financial Services Corp.:
   1.32%, 1-2-03 .................................     2,000        1,999,927
   1.3%, 1-9-03 ..................................     2,200        2,199,364
PACCAR Financial Corp.,
   1.33%, 1-13-03 ................................     1,000          999,557
USAA Capital Corp.,
   1.35%, 1-10-03 ................................       750          749,747
                                                                 ------------
                                                                    5,948,595
                                                                 ------------

Food and Related - 3.80%
Golden Peanut Co.:
   1.32%, 3-14-03 ................................       700          698,152
   1.33%, 3-26-03 ................................       700          697,828
Unilever Capital Corporation,
   1.3%, 1-30-03 .................................     2,500        2,497,382
                                                                 ------------
                                                                    3,893,362
                                                                 ------------

Health Care -- Drugs - 16.79%
Alcon Finance PLC (Nestle S.A.):
   1.3%, 1-13-03 .................................     1,400        1,399,393
   1.31%, 1-13-03 ................................     2,000        1,999,127
   1.33%, 1-17-03 ................................     1,500        1,499,113
GlaxoSmithKline Finance plc:
   1.32%, 1-13-03 ................................     2,777        2,775,778
   1.32%, 1-29-03 ................................       551          550,434
Merck & Co., Inc.:
   1.3%, 1-9-03 ..................................     1,000          999,711
   1.3%, 1-23-03 .................................     1,500        1,498,808
Pfizer Inc.:
   1.29%, 1-16-03 ................................     1,000          999,463
   1.29%, 1-21-03 ................................     2,000        1,998,567
   1.3%, 1-29-03 .................................     1,000          998,989
Pharmacia Corporation:
   1.32%, 1-6-03 .................................     1,500        1,499,725
   1.32%, 1-21-03 ................................     1,000          999,267
                                                                 ------------
                                                                   17,218,375
                                                                 ------------

Health Care -- General - 0.97%
Johnson & Johnson,
   1.27%, 2-3-03 .................................     1,000          998,836
                                                                 ------------

Household -- General Products - 6.37%
Kimberly-Clark Corporation,
   1.26%, 1-6-03 .................................     1,000          999,825
Kimberly-Clark Worldwide Inc.,
   1.3%, 2-10-03 .................................     1,545        1,542,768
Procter & Gamble Company (The),
   1.3%, 2-10-03 .................................     4,000        3,994,222
                                                                 ------------
                                                                    6,536,815
                                                                 ------------

Petroleum -- International - 3.66%
BP America Inc.:
   1.3%, 1-16-03 .................................     3,000        2,998,375
   1.33%, 1-16-03 ................................       750          749,584
                                                                 ------------
                                                                    3,747,959
                                                                 ------------

Utilities -- Telephone - 6.36%
BellSouth Corporation,
   1.27%, 1-2-03 .................................     1,822        1,821,936
SBC International Inc.:
   1.33%, 1-8-03 .................................     3,200        3,199,173
   1.32%, 1-16-03 ................................     1,500        1,499,175
                                                                 ------------
                                                                    6,520,284
                                                                 ------------

Total Commercial Paper - 50.88% ..................                 52,174,240

Commercial Paper (backed by letter of credit)
Utilities -- Electric - 4.09%
  AES Shady Point Inc. (Bank of America N.A.),
    1.38%, 1-16-03 ...............................     4,200        4,197,585
                                                                 ------------

Notes
  Banks - 1.46%
  Wells Fargo & Company,
    1.42125%, 1-2-03 .............................     1,500        1,500,000
                                                                 ------------

Business Equipment and Services - 1.61%
Playworld Systems Incorporated
   (Wachovia Bank, N.A.),
   1.52%, 1-1-03 .................................     1,650        1,650,000
                                                                 ------------

Health Care -- Drugs - 4.30%
Lilly (Eli) and Company,
   4.226%, 3-22-03 (A) ...........................     2,650        2,657,701
Merck & Co., Inc.,
   4.54%, 2-24-03 (A) ............................     1,750        1,755,348
                                                                 ------------
                                                                    4,413,049
                                                                 ------------

Hospital Supply and Management - 1.61%
Meriter Management Services, Inc. (U.S. Bank
   Milwaukee, National Association),
   1.6%, 1-1-03 ..................................     1,650        1,650,000
                                                                 ------------

Leisure Time Industry - 1.48%
Ansley Golf Club, Inc. (Wachovia Bank, N.A.),
   1.52%, 1-2-03 .................................     1,510        1,510,000
                                                                 ------------

Retail - General Merchandise - 1.48%
Wal-Mart Stores, Inc.,
   4.878%, 6-1-03 ................................     1,500        1,513,872
                                                                 ------------

Trucking and Shipping - 1.46%
Volpe Family Partnership, L.P.
   (Wachovia Bank, N.A.),
   1.47%, 1-2-03 .................................     1,500        1,500,000
                                                                 ------------

Utilities - Telephone - 2.45%
BellSouth Corporation,
   4.105%, 4-26-03 ...............................     2,500        2,510,679
                                                                 ------------

Total Notes - 15.85% .............................                 16,247,600

TOTAL CORPORATE OBLIGATIONS - 70.82% .............               $ 72,619,425
 (Cost: $72,619,425)

MUNICIPAL OBLIGATIONS
California - 3.98%
 California Pollution Control Financing Authority,
   Environmental Improvement Revenue Bonds:
   Air Products Manufacturing Corporation,
   Taxable Series 1997A,
   1.41%, 1-9-03 .................................     2,832        2,832,000
   Air Products and Chemicals, Inc./Wilmington
   Facility, Taxable Series 1997A,
   1.41%, 1-14-03 ................................     1,250        1,250,000
                                                                 ------------
                                                                    4,082,000
                                                                 ------------

Colorado - 2.44%
 Colorado Agricultural Development Authority,
   Adjustable Rate Industrial Development Revenue
   Bonds (Royal Crest Dairy, Inc. Project),
   Series 1998,
   1.85%, 1-1-03 .................................     2,500        2,500,000
                                                                 ------------

Louisiana - 2.97%
 Industrial Development Board of the Parish
   of Calcasieu, Inc., Environmental Revenue
   Bonds (CITGO Petroleum Corporation Project),
   Series 1996 (Taxable), (Westdeutsche
   Landesbank Girozentrale),
   1.38%, 1-21-03 ................................     3,050        3,050,000
                                                                 ------------

New York - 1.95%
 The City of New York, General Obligation Bonds,
   Fiscal 1995 Series B, Taxable Adjustable Rate
   Bonds (Bayerische Landesbank Girozentrale,
   New York Branch),
   1.7%, 1-14-03 .................................     2,000        2,000,000
                                                                 ------------

Washington - 3.86%
 Washington State Housing Finance Commission,
   Taxable Variable Rate Demand Multifamily
   Revenue Bonds (Brittany Park Project),
   Series 1996B (U.S. Bank of Washington,
   National Association),
   1.4%, 1-2-03 ..................................     2,290        2,290,000
Watts Brothers Frozen Foods, L.L.C., Variable
   Rate Demand Taxable Revenue Bonds, 1997 (U.S.
   Bank of Washington, National Association),
   1.5%, 1-2-03 ..................................     1,169        1,169,000
Wenatchee Valley Clinic, P.S., Floating Rate
   Taxable Bonds, Series 1998 (U.S. Bank,
   National Association),
   1.5%, 1-2-03 ..................................       500          500,000
                                                                 ------------
                                                                    3,959,000
                                                                 ------------

Wisconsin - 1.71%
 Sheboygan County, Wisconsin, Taxable
   General Obligation Promissory Notes,
   2.5%, 2-1-03 ..................................     1,000        1,000,000
City of Green Bay, Brown County, Wisconsin,
   General Obligation Refunding Bonds,
   Series 2003A,
   1.65%, 6-17-03 ................................       750          750,000
                                                                 ------------
                                                                    1,750,000
                                                                 ------------

TOTAL MUNICIPAL OBLIGATIONS - 16.91%                             $ 17,341,000
 (Cost: $17,341,000)

UNITED STATES GOVERNMENT SECURITIES
 Federal Farm Credit Bank,
   1.48%, 10-31-03 ...............................     2,500        2,468,964
 Federal Home Loan Bank:
   1.49%, 4-16-03 ................................     1,432        1,425,777
   2.0%, 11-14-03 ................................     1,000        1,000,000
 Federal Home Loan Mortgage Corporation:
   2.45%, 1-16-03 ................................     2,000        2,000,000
   1.65%, 12-25-03 ...............................     2,200        2,200,000
 United States Treasury Bill,
   1.24%, 5-8-03 .................................       400          398,257
 United States Treasury Notes:
   5.25%, 8-15-03 ................................     1,600        1,634,322
   2.75%, 10-31-03 ...............................     1,000        1,007,695

TOTAL UNITED STATES GOVERNMENT SECURITIES - 11.84%               $ 12,135,015
 (Cost: $12,135,015)

TOTAL INVESTMENT SECURITIES - 99.57%                             $102,095,440
 (Cost: $102,095,440)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.43%                     441,514

NET ASSETS - 100.00%                                             $102,536,954


NOTES TO SCHEDULE OF INVESTMENTS

(A)Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be resold in transactions exempt from registration, normally to

qualified institutional buyers. At December 31, 2002, the total value of

these securities amounted to $4,413,049 or 4.30% of net assets.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
MONEY MARKET PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)



                                                                     
ASSETS
 Investment securities--at value (Notes 1 and 3) ...............        $102,095
 Cash ..........................................................               1
 Receivables:
   Interest ....................................................             391
   Fund shares sold ............................................             149
 Prepaid insurance premium .....................................               9
                                                                        --------
    Total assets ...............................................         102,645
                                                                        --------
LIABILITIES
 Payable to Fund shareholders ..................................              98
 Accrued accounting services fee (Note 2) ......................               4
 Accrued management fee (Note 2) ...............................               1
 Accrued service fee (Note 2) ..................................               1
 Other .........................................................               4
                                                                        --------
    Total liabilities ..........................................             108
                                                                        --------
      Total net assets .........................................        $102,537
                                                                        ========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ...............................................        $    103
   Additional paid-in capital ..................................         102,434
                                                                        --------
    Net assets applicable to outstanding units
      of capital ...............................................        $102,537
                                                                        ========
Net asset value, redemption
 and offering price per share ..................................        $ 1.0000
                                                                        ========
Capital shares outstanding .....................................         102,537
Capital shares authorized ......................................         185,000


SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
MONEY MARKET PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

                                                                       
INVESTMENT INCOME
Interest and amortization (Note 1B) .............................         $1,813
                                                                          ------
Expenses (Note 2):
  Investment management fee .....................................            386
  Service fee ...................................................            242
  Accounting services fee .......................................             38
  Custodian fees ................................................             17
  Audit fees ....................................................              4
  Legal fees ....................................................              2
  Other .........................................................             31
                                                                          ------
   Total expenses ...............................................            720
                                                                          ------
     Net investment income ......................................          1,093
                                                                          ------
      Net increase in net assets resulting from
        operations ..............................................         $1,093
                                                                          ======



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
MONEY MARKET PORTFOLIO

                                 (In Thousands)



                                                       For the fiscal year ended
                                                             December 31,
                                                       -------------------------
                                                          2002           2001
                                                       ----------     ----------
                                                                
INCREASE IN NET ASSETS
Operations:
 Net investment income ...........................     $   1,093      $   2,610
                                                       ---------      ---------
 Net increase in net assets
   resulting from operations .....................         1,093          2,610
                                                       ---------      ---------
Dividends to shareholders from
   net investment income (Note 1E)(1) ............        (1,093)        (2,610)
                                                       ---------      ---------
Capital share transactions(2) ....................         3,660         47,175
                                                       ---------      ---------
      Total increase .............................         3,660         47,175
NET ASSETS
Beginning of period ..............................        98,877         51,702
                                                       ---------      ---------
End of period ....................................     $ 102,537      $  98,877
                                                       =========      =========
 Undistributed net investment income .............     $     ---      $     ---
                                                       =========      =========


                                                                
(1)See "Financial Highlights" on page 120.

(2)Shares issued from sale of shares .............       147,301        174,935
Shares issued from reinvestment of dividends .....         1,093          2,610
Shares redeemed ..................................      (144,734)      (130,370)
                                                       ---------      ---------
Increase in outstanding
 capital shares ..................................         3,660         47,175
                                                       =========      =========
Value issued from sale of shares .................     $ 147,301      $ 174,935
Value issued from reinvestment of dividends ......         1,093          2,610
Value redeemed ...................................      (144,734)      (130,370)
                                                       ---------      ---------
Increase in outstanding
 capital .........................................     $   3,660      $  47,175
                                                       =========      =========



SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
MONEY MARKET PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                             For the fiscal year ended December 31,
                              ------------------------------------------------------------------
                                 2002          2001          2000          1999          1998
                              ----------    -----------   ----------    ----------    ----------
                                                                       
Net asset value,
 beginning of
 period ...................   $  1.0000     $  1.0000     $  1.0000     $  1.0000     $  1.0000
                              ---------     ---------     ---------     ---------     ---------
Net investment
 income ...................      0.0113        0.0356        0.0571        0.0450        0.0492
Less dividends
 declared .................     (0.0113)      (0.0356)      (0.0571)      (0.0450)      (0.0492)
                              ---------     ---------     ---------     ---------     ---------
Net asset value,
 end of period ............   $  1.0000     $  1.0000     $  1.0000     $  1.0000     $  1.0000
                              =========     =========     =========     =========     =========
Total return ..............        1.12%         3.62%         5.87%         4.62%         5.04%
Net assets, end of
 period (in
 millions) ................   $     103     $      99     $      52     $      64     $      54
Ratio of expenses
 to average net
 assets ...................        0.75%         0.73%         0.75%         0.77%         0.68%
Ratio of net investment
 income to average
 net assets ...............        1.13%         3.31%         5.67%         4.51%         4.90%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with Zachary H. Shafran, portfolio manager of W&R Target Funds,
Inc. - Science and Technology Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Science and
Technology Portfolio for the fiscal year ended December 31, 2002. The following
discussion, graphs and tables provide you with information regarding the
Portfolio's performance during that period. Please note that the Portfolio's
performance data does not take into account any expenses or charges associated
with owning a variable life or annuity policy invested in the W&R Target Funds,
Inc.

How did the Portfolio perform over the last fiscal year?
The Portfolio did relatively well, as it outperformed its benchmark index during
the fiscal year. Even so, given the very challenging environment for the
technology sector, it had a negative return for the year. The Portfolio declined
23.99 percent for the fiscal year, compared with the Goldman Sachs Technology
Industry Composite Index (reflecting the performance of securities that
generally represent the technology sector of the stock market), which declined
40.27 percent for the year, and the Lipper Variable Annuity
Specialty/Miscellaneous Funds Universe Average (reflecting the universe of funds
with similar investment objectives), which declined 31.19 percent for the year.

What helped the Portfolio outperform its benchmark index during the fiscal year?
We were able to outperform our benchmark due primarily, we believe, to our
relative underweight position in technology and a higher than normal cash
reserve. Our generally defensive and diversified approach throughout the year
proved to be beneficial.

What other market conditions or events influenced the Portfolio's return during
the fiscal year?
The global economy remained soft throughout the year, yet that softness was
cushioned by strong domestic consumer confidence. Rising geopolitical tensions
spread beyond the Middle East, including the general strike in Venezuela,
growing anti-American sentiment in both North and South Korea and the increased
threat of terrorist attacks around the globe. Information Technology (IT)
spending by corporations was under pressure for most of the period, and
consumer-related spending began to slow late in the year.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance?
The Portfolio remained well diversified, and we were largely successful in
avoiding the wrong areas during the year. Our underweight position in technology
worked out well despite the late year rally. We were overweight in health care,
which also was relatively helpful to overall performance. Higher than normal
cash reserves allowed us to be both defensive and opportunistic.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
Consistent with our mandate, we continued to focus on science and technology
holdings during the fiscal year. However, we continue to take a broader view in
two ways. We are looking more globally for opportunities and for industries that
we feel are benefiting from advances in science and technology. A good example
of this would be the energy sector, particularly natural gas in North America.
We believe that supply will remain tight and that a key to new exploration and
production efforts will be new technology. Science, particularly health care,
likely will remain a focus within the Portfolio, as we feel that the
opportunities to practice better medicine and address unmet clinical needs have
never been greater. Overall, we continue to look for companies that we feel are
well positioned to prosper in an ever-changing environment.

Respectfully,

Zachary H. Shafran
Manager
Science and Technology Portfolio



Comparison of Change in Value of $10,000 Investment W&R Target Science and
Technology Portfolio, Goldman Sachs Technology Industry Composite Index and
Lipper Variable Annuity Specialty/Miscellaneous Funds Universe Average



                                                     Lipper
                                                   Variable
                                      Goldman       Annuity
                                       Sachs       Specialty/
                       W&R Target   Technology   Miscellaneous
                      Science and    Industry        Funds
                      Technology    Composite      Universe
                       Portfolio       Index        Average
                      -----------   ----------   -------------
                                        
4/4/97    Purchase     $ 10,000      $ 10,000     $ 10,000
12/31/97                 11,623        12,760       12,376
12/31/98                 16,976        21,580       15,920
12/31/99                 46,626        40,757       24,836
12/31/00                 36,766        25,336       22,762
12/31/01                 32,386        18,098       17,414
12/31/02                 24,618        10,809       11,982


===== W&R Target Science and Technology Portfolio(1) -- $24,618 ***** Goldman
Sachs Technology Industry Composite Index(2) -- $10,809 ..... Lipper Variable
Annuity Specialty/Miscellaneous Funds Universe Average(2) -- $11,982

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above indexes
(including income) are not available, investment in the indexes (including
income) was effected as of March 31, 1997.

               AVERAGE ANNUAL TOTAL RETURN(3)

                        
1-year period ended
  12-31-02                 -23.99%
5-year period ended
  12-31-02                  16.19%
5+ year period ended
  12-31-02(4)               16.98%



(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)4-4-97 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.

Investing in companies involved in one specified sector may involve a greater
degree of risk than an investment with greater diversification.



THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO

                                December 31, 2002



                                                        Shares       Value
                                                           
COMMON STOCKS
Aircraft - 4.09%
 Northrop Grumman Corporation ......................    64,100   $  6,217,700
 Raytheon Company ..................................    57,200      1,758,900
                                                                 ------------
                                                                    7,976,600
                                                                 ------------

Broadcasting - 0.01%
 Adelphia Communications Corporation,
   Class A* ........................................   324,400         27,574
                                                                 ------------

Business Equipment and Services - 1.38%
 Edison Schools Inc.* ..............................   345,800        558,467
 Euronet Worldwide, Inc.* ..........................   176,550      1,297,642
 RSA Security Inc.* ................................   139,300        834,407
                                                                 ------------
                                                                    2,690,516
                                                                 ------------

Capital Equipment - 0.46%
 Cooper Cameron Corporation* .......................    18,000        896,760
                                                                 ------------

Chemicals -- Specialty - 1.97%
 Pall Corporation ..................................   230,200      3,839,736
                                                                 ------------

Communications Equipment - 1.21%
 ADC Telecommunications, Inc.* .....................   249,800        523,331
 Cisco Systems, Inc.* ..............................   139,400      1,825,443
                                                                 ------------
                                                                    2,348,774
                                                                 ------------

Computers -- Peripherals - 4.09%
 PeopleSoft, Inc.* .................................   212,100      3,880,370
 Symbol Technologies, Inc. .........................   496,700      4,082,874
                                                                 ------------
                                                                    7,963,244
                                                                 ------------

Consumer Electronics - 1.71%
 Sony Corporation, ADR .............................    80,600      3,329,586
                                                                 ------------

Electronic Components - 2.13%
 Agere Systems Inc.* ...............................   716,000      1,031,040
 IXYS Corporation* .................................   111,860        791,969
 United Microelectronics Corporation* ..............   694,285      2,332,798
                                                                 ------------
                                                                    4,155,807
                                                                 ------------

Health Care -- Drugs - 19.68%
 Abbott Laboratories ...............................   117,500      4,700,000
 Alcon, Inc.* ......................................   150,200      5,925,390
 Biogen, Inc. (A)* .................................   145,300      5,827,256
 Forest Laboratories, Inc. (A)* ....................   100,200      9,841,644
 Genzyme Corporation - General Division* ...........   125,400      3,708,705
 IVAX Corporation* .................................   192,600      2,336,238
 Incyte Genomics, Inc.* ............................    60,000        273,900
 Pfizer Inc. (A) ...................................   148,300      4,533,531
 SICOR Inc.* .......................................    77,460      1,228,128
                                                                 ------------
                                                                   38,374,792
                                                                 ------------

Hospital Supply and Management - 14.34%
 Anthem, Inc.* .....................................    67,300      4,233,170
 Cerner Corporation* ...............................    27,400        854,880
 Guidant Corporation* ..............................   231,300      7,135,605
 HCA - The Healthcare Company ......................   204,000      8,466,000
 Province Healthcare Company* ......................   337,600      3,284,848
 UnitedHealth Group Incorporated ...................    47,700      3,982,950
                                                                 ------------
                                                                   27,957,453
                                                                 ------------

Mining - 2.07%
 Newmont Mining Corporation ........................   139,100      4,038,073
                                                                 ------------

Multiple Industry - 1.29%
 Garmin Ltd.* ......................................    86,100      2,520,577
                                                                 ------------

Petroleum -- Domestic - 7.88%
 Apache Corporation ................................    70,650      4,026,343
 Burlington Resources Inc. .........................    60,215      2,568,170
 ConocoPhillips ....................................    26,900      1,301,691
 Newfield Exploration Company* .....................    57,800      2,083,690
 Noble Energy, Inc. ................................    85,200      3,199,260
 Unocal Corporation ................................    71,600      2,189,528
                                                                 ------------
                                                                   15,368,682
                                                                 ------------

Petroleum -- Services - 1.11%
 Baker Hughes Incorporated .........................    67,400      2,169,606
                                                                 ------------

Publishing - 1.14%
 Getty Images, Inc.* ...............................    72,500      2,214,875
                                                                 ------------

Steel - 0.22%
 Lone Star Technologies, Inc.* .....................    29,200        434,788
                                                                 ------------

Timesharing and Software - 4.94%
 Concord EFS, Inc.* ................................   560,500      8,822,270
 Manhattan Associates, Inc.* .......................     9,700        230,036
 Micromuse Inc.* ...................................   150,100        581,638
                                                                 ------------
                                                                    9,633,944
                                                                 ------------

Utilities -- Telephone - 2.36%
   Vodafone Group Plc, ADR .........................   253,500      4,593,420
                                                                 ------------

TOTAL COMMON STOCKS - 72.08% .......................             $140,534,807
 (Cost: $171,927,826)




                                           Number of
                                           Contracts
                                                 
PUT OPTIONS - 0.00%
 Biogen, Inc., January 30,
   Expires 1-18-03 ....................       567       1,016
 Forest Laboratories, Inc., January 65,
   Expires 1-18-03 ....................       361          72
                                                       ------
                                                       $1,088
                                                       ------


(Cost: $387,803)



                                                            Principal
                                                            Amount in
                                                            Thousands
                                                                  
SHORT-TERM SECURITIES
Commercial Paper
 Chemicals -- Petroleum and Inorganic - 3.18%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note ..........................          $ 6,210        6,210,000
                                                                        -------------

 Food and Related - 5.95%
 General Mills, Inc.,
   1.53%, Master Note .............................            6,608        6,608,000
 Sara Lee Corporation,
   1.48%, 1-6-03 ..................................            5,000        4,998,972
                                                                        -------------
                                                                           11,606,972
                                                                        -------------

 Health Care -- Drugs - 6.23%
 GlaxoSmithKline Finance plc,
   1.32%, 1-29-03 .................................            2,145        2,142,798
 Merck & Co., Inc.,
   1.3%, 1-9-03 ...................................            8,000        7,997,689
 Pfizer Inc.,
   1.3%, 1-9-03 ...................................            2,000        1,999,422
                                                                        -------------
                                                                           12,139,909
                                                                        -------------

 Health Care -- General - 4.10%
 Johnson & Johnson,
   1.27%, 2-3-03 ..................................            8,000        7,990,687
                                                                        -------------

 Household -- General Products - 3.48%
 Kimberly-Clark Worldwide Inc.,
   1.28%, 1-22-03 .................................            6,800        6,794,922
                                                                        -------------

 Security and Commodity Brokers - 2.65%
 UBS Finance Delaware LLC,
   1.2%, 1-2-03 ...................................            5,161        5,160,828
                                                                        -------------

Total Commercial Paper - 25.59% ...................                        49,903,318

United States Government Security - 3.59%
 United States Treasury Bill,
   1.48%, 1-30-03 .................................            7,000        6,991,683
                                                                        -------------

TOTAL SHORT-TERM SECURITIES - 29.18%                                    $  56,895,001
 (Cost: $56,895,001)

TOTAL INVESTMENT SECURITIES - 101.26%                                   $ 197,430,896
 (Cost: $229,210,630)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.26%)                        (2,464,778)

NET ASSETS - 100.00%                                                    $ 194,966,118


NOTES TO SCHEDULE OF INVESTMENTS

*No dividends were paid during the preceding 12 months.

(A)As of December 31, 2002, all or a portion of these securities was used as
cover for the following written call options (See Note 5 to financial
statements):




     Underlying              Subject    Expiration Month/    Premium       Market
      Security               to Call     Exercise Price      Received       Value
- ------------------          ---------   -----------------   ----------   ----------
                                                             
Biogen, Inc.:                  886         April/45         $  380,980   $  194,731
                               567         January/35          207,275      324,802
Forest Laboratories, Inc.      672         January/75          379,967    1,565,928
Transkaryotic Therapies,
 Inc.                          272         January/35          129,117        1,360
                                                            ----------   ----------
                                                            $1,097,339   $2,086,821
                                                            ==========   ==========


See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
SCIENCE AND TECHNOLOGY PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                    
ASSETS
 Investment securities--at value (Notes 1 and 3) ...   $ 197,431
 Cash ..............................................           1
 Receivables:
   Fund shares sold ................................          84
   Dividends and interest ..........................          66
 Prepaid insurance premium .........................           2
                                                       ---------
    Total assets ...................................     197,584
                                                       ---------
LIABILITIES
 Outstanding call options--at value (Note 5) .......       2,087
 Payable for investment securities purchased .......         383
 Payable to Fund shareholders ......................         125
 Accrued management fee (Note 2) ...................           5
 Accrued accounting services fee (Note 2) ..........           4
 Accrued service fee (Note 2) ......................           1
 Other .............................................          13
                                                       ---------
    Total liabilities ..............................       2,618
                                                       ---------
      Total net assets .............................   $ 194,966
                                                       =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ...................................   $      21
   Additional paid-in capital ......................     292,987
 Accumulated undistributed loss:
   Accumulated undistributed net investment loss ...          (3)
   Accumulated undistributed net realized loss on
    investment transactions ........................     (65,270)
   Net unrealized depreciation in value of
    securities .....................................     (31,393)
   Net unrealized depreciation in value of written
    options ........................................        (989)
   Net unrealized depreciation in value of purchased
    options ........................................        (387)
                                                       ---------
    Net assets applicable to outstanding units
      of capital ...................................   $ 194,966
Net asset value, redemption                            =========
 and offering price per share ......................   $  9.4961
                                                       =========
Capital shares outstanding .........................      20,531
Capital shares authorized ..........................      40,000



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
SCIENCE AND TECHNOLOGY PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

                                                       
INVESTMENT LOSS
Income (Note 1B):
   Interest and amortization ..........................   $  1,279
   Dividends (net of foreign withholding taxes of $23).        788
                                                          --------
    Total income ......................................      2,067
                                                          --------
 Expenses (Note 2):
   Investment management fee ..........................      1,871
   Service fee ........................................        550
   Accounting services fee ............................         51
   Custodian fees .....................................         39
   Audit fees .........................................          7
   Legal fees .........................................          3
   Other ..............................................         48
                                                          --------
    Total expenses ....................................      2,569
                                                          --------
      Net investment loss .............................       (502)
                                                          --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
 INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities ......................    (28,479)
 Realized net gain on written options .................      1,579
 Realized net loss on purchased options ...............       (798)
 Realized net loss on foreign currency transactions ...        (18)
                                                          --------
   Realized net loss on investments ...................    (27,716)
                                                          --------
 Unrealized depreciation in value of
   securities during the period .......................    (36,989)
 Unrealized appreciation in value of written
   options during the period ..........................        869
 Unrealized depreciation in value of
   purchased options during the period ................       (187)
                                                          --------
   Unrealized depreciation in value of investments
    during the period .................................    (36,307)
                                                          --------
    Net loss on investments ...........................    (64,023)
                                                          --------
      Net decrease in net assets
       resulting from operations ......................   $(64,525)
                                                          ========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
SCIENCE AND TECHNOLOGY PORTFOLIO

                                 (In Thousands)



                                                       For the fiscal year ended
                                                             December 31,
                                                       -------------------------
                                                          2002          2001
                                                       ----------    ----------
                                                               
DECREASE IN NET ASSETS
Operations:
 Net investment income (loss) ......................   $    (502)    $   1,244
 Realized net loss on investments ..................     (27,716)      (37,478)
 Unrealized depreciation ...........................     (36,307)         (217)
                                                       ---------     ---------
   Net decrease in net assets
    resulting from operations ......................     (64,525)      (36,451)
Dividends to shareholders from (Note 1E):(1)            --------      --------
 Net investment income .............................          (2)       (1,254)
 Realized gains on
   securities transactions .........................         ---           (84)
                                                       ---------     ---------
                                                              (2)       (1,338)
                                                       ---------     ---------
Capital share transactions(2) ......................      (7,970)        9,896
                                                       ---------     ---------
    Total decrease .................................     (72,497)      (27,893)
NET ASSETS
Beginning of period ................................     267,463       295,356
                                                       ---------     ---------
End of period ......................................   $ 194,966     $ 267,463
                                                       =========     =========
 Undistributed net investment income (loss)            $      (3)    $     ---
                                                       =========     =========
(1)See "Financial Highlights" on page 132.
(2)Shares issued from sale of shares ...............       4,531         9,581
Shares issued from reinvestment of dividend
 and/or capital gains distribution .................         ---*           107
Shares redeemed ....................................      (5,410)       (8,999)
Increase (decrease) in outstanding .................   ---------     ---------
 capital shares ....................................        (879)          689
                                                       =========     =========
Value issued from sale of shares ...................   $  47,962     $ 117,460
Value issued from reinvestment of dividend
 and/or capital gains distribution .................           2         1,338
Value redeemed .....................................     (55,934)     (108,902)
Increase (decrease) in outstanding                     ---------     ---------
 capital ...........................................   $  (7,970)    $   9,896
                                                       =========     =========


*Not shown due to rounding.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS
SCIENCE AND TECHNOLOGY PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                                       For the fiscal
                                                  year ended December 31,
                            ------------------------------------------------------------------
                               2002          2001          2000          1999          1998
                            ----------    ----------    ----------    ---------     ----------
                                                                     
Net asset value,
 beginning of period ....   $ 12.4927     $ 14.2542     $ 22.4087     $  8.2750     $  5.7726
                            ---------     ---------     ---------     ---------     ---------
Income (loss) from
 investment operations:

 Net investment
   income (loss) ........     (0.0245)       0.0584        0.1151       (0.0309)       0.0032
 Net realized and
   unrealized gain (loss)
   on investments .......     (2.9720)      (1.7571)      (4.8532)      14.4840        2.6551
                            ---------     ---------     ---------     ---------     ---------
Total from investment
 operations .............     (2.9965)      (1.6987)      (4.7381)      14.4531        2.6583
                            ---------     ---------     ---------     ---------     ---------
Less distributions from:
 Net investment
   income ...............     (0.0001)      (0.0589)      (0.1151)      (0.0000)      (0.0032)
 Capital gains ..........     (0.0000)      (0.0039)      (3.3013)      (0.3194)      (0.1527)
                            ---------     ---------     ---------     ---------     ---------
Total distributions .....     (0.0001)      (0.0628)      (3.4164)      (0.3194)      (0.1559)
                            ---------     ---------     ---------     ---------     ---------
Net asset value,
 end of period ..........   $  9.4961     $ 12.4927     $ 14.2542     $ 22.4087     $  8.2750
                            =========     =========     =========     =========     =========
Total return ............     - 23.99%       -11.91%       -21.15%       174.66%        46.05%
Net assets, end of
 period (in
 millions) ..............   $     195     $     267     $     295     $     253     $      35
Ratio of expenses
 to average net
 assets .................        1.17%         1.15%         1.14%         1.10%         0.92%
Ratio of net investment
 income (loss) to average
 net assets .............      - 0.23%         0.47%         0.64%        -0.38%         0.07%
Portfolio turnover
 rate ...................       92.25%        93.19%        93.76%        47.36%        64.72%


SEE NOTES TO FINANCIAL STATEMENTS.



MANAGER'S DISCUSSION

                                December 31, 2002

An interview with Grant P. Sarris, portfolio manager of W&R Target Funds, Inc. -
Small Cap Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Small Cap
Portfolio for the fiscal year ended December 31, 2002. The following discussion,
graphs and tables provide you with information regarding the Portfolio's
performance during that period. Please note that the Portfolio's performance
data does not take into account any expenses or charges associated with owning a
variable life or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?
The Portfolio significantly outperformed its benchmark index for the year. Even
so, given the difficult environment for stocks overall, it had a negative return
for the year. The Portfolio declined 21.79 percent for the fiscal year, compared
with the Russell 2000 Growth Index (reflecting the performance of securities
that generally represent the small companies sector of the stock market), which
declined 30.22 percent for the year, and the Lipper Variable Annuity Small-Cap
Growth Funds Universe Average (reflecting the universe of funds with similar
investment objectives), which declined 30.90 percent for the year.

What helped the Portfolio outperform its benchmark index during the fiscal year?
The Portfolio remains balanced across most sectors, with some relative emphasis
on health care, consumer discretionary and energy. Also, we continue to be
slightly underweight in technology and producer durables, which we believe
helped our performance during the period.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year?
Although the fiscal year overall was a difficult and disappointing time for
small cap stocks, the market did rally a bit toward year-end. News from the
economic and political fronts stopped getting worse, while corporate earnings
grew modestly on a year-over-year basis. Generally, stocks that had suffered the
worst up until the fourth calendar quarter of 2002 began to show the strongest
growth during that quarter.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance?
The Portfolio remained quite defensive through much of the fiscal year, although
by year-end we had begun to attempt to increase the risk profile. As mentioned
above, we believe that our overall balance, along with our slightly underweight
positions in selected sectors -- such as technology -- ultimately aided our
performance. We have begun to gradually decrease the Portfolio's cash position,
as we feel that the market appears to be at least in a sideways trend, as
opposed to the downward trend of the last three years.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
We are now attempting to position the Portfolio for a continued slow recovery in
economic activity and corporate earnings. Our current expectation is that the
market will increase at a rate very close to earnings growth, implying very
little price-to-earnings ratio changes in the near future. We believe that small
cap stocks should perform in-line with large caps until the recovery becomes
more robust, at which point we would expect small caps to outperform. We
anticipate continuing to slowly reduce the cash position of the Portfolio, while
potentially increasing the number of holdings. Generally, we intend to continue
to look for companies that have lowered their cost structures and that may have
the opportunity for revenue growth.

Respectfully,

Grant P. Sarris
Manager
Small Cap Portfolio

Please note that, effective March 18, 2002, Grant P. Sarris became the sole
portfolio manager for the Portfolio.



Comparison of Change in Value of $10,000 Investment W&R Target Small Cap
Portfolio, Russell 2000 Growth Index and Lipper Variable Annuity Small-Cap
Growth Funds Universe Average



                                                   Lipper Variable
                                                       Annuity
                                                      Small-Cap
                       W&R Target   Russell 2000    Growth Funds
                       Small Cap       Growth         Universe
                       Portfolio       Index          Average
                       ----------   ------------   -------------
                                          
05/03/94  Purchase      $10,000        $10,000        $10,000
12/31/94                 12,091         10,137         10,747
12/31/95                 15,999         13,274         14,064
12/31/96                 17,360         14,756         16,593
12/31/97                 22,834         16,663         19,188
12/31/98                 25,315         16,869         20,097
12/31/99                 38,537         24,136         32,162
12/31/00                 33,779         18,738         28,821
12/31/01                 33,126         17,011         25,111
12/31/02                 25,908         11,870         17,352


- ----- W&R Target Small Cap Portfolio(1) -- $25,908 ..... Russell 2000 Growth
Index(2) -- $11,870 ***** Lipper Variable Annuity Small-Cap Growth Funds
Universe Average(2) -- $17,352

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above indexes
(including income) are not available, investment in the indexes was effected as
of April 30, 1994.

                         AVERAGE ANNUAL TOTAL RETURN(3)

                        
1-year period ended
  12-31-02                 -21.79%
5-year period ended
  12-31-02                   2.56%
8+ year period ended
  12-31-02(4)               11.61%



(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)5-3-94 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.

Investing in small cap stocks may carry more risk than investing in stocks of
larger, more well-established companies.



THE INVESTMENTS OF THE SMALL CAP PORTFOLIO

            December 31, 2002



                                                  Shares        Value
                                                      
COMMON STOCKS
Business Equipment and Services - 14.84%
 Acxiom Corporation* .....................        457,100   $  7,009,628
 Catalina Marketing Corporation* .........        175,700      3,250,450
 CheckFree Corporation* ..................        366,155      5,860,311
 ITT Educational Services, Inc.* .........        306,400      7,215,720
 MSC Industrial Direct Co., Inc., Class A*        535,000      9,496,250
 MAXIMUS, Inc.* ..........................        185,500      4,841,550
 MemberWorks Incorporated* ...............         81,305      1,463,083
 ProBusiness Services, Inc.* .............        230,000      2,301,150
                                                            ------------
                                                              41,438,142
                                                            ------------

Chemicals -- Specialty - 1.83%
 IMC Global Inc. .........................        480,000      5,121,600
                                                            ------------

Communications Equipment - 3.02%
 Advanced Fibre Communications, Inc.* ....        320,000      5,352,000
 Tekelec* ................................        293,500      3,070,010
                                                            ------------
                                                               8,422,010
                                                            ------------

Computers -- Peripherals - 3.15%
 NetIQ Corporation* ......................        180,000      2,225,700
 Sanchez Computer Associates, Inc.* ......        286,700        861,534
 Take-Two Interactive Software, Inc.* ....        177,800      4,176,522
 Transaction Systems Architects, Inc.,
   Class A* ..............................        234,400      1,522,428
                                                            ------------
                                                               8,786,184
                                                            ------------

Electrical Equipment - 0.43%
 Intermagnetics General Corp.* ...........         60,300      1,189,116
                                                            ------------

Electronic Components - 1.58%
 Cree, Inc.* .............................        269,600      4,409,308
                                                            ------------

Electronic Instruments - 2.61%
 Lam Research Corporation* ...............        237,800      2,564,673
 PerkinElmer, Inc. .......................        320,250      2,642,063
 Plexus Corp.* ...........................        237,200      2,084,988
                                                            ------------
                                                               7,291,724
                                                            ------------

Finance Companies - 1.42%
 Financial Federal Corporation* ..........        158,200      3,975,566
                                                            ------------

Food and Related - 3.80%
 American Italian Pasta Company, Class A*         190,000      6,836,200
 Smucker (J.M.) Company (The) ............         95,000      3,781,950
                                                            ------------
                                                              10,618,150
                                                            ------------

Health Care -- Drugs - 5.57%
 Affymetrix, Inc.* .......................        202,998      4,647,639
 Andrx Corporation* ......................        235,000      3,448,625
 Cell Therapeutics, Inc.* ................        131,100        953,752
 Gene Logic Inc.* ........................        325,700      2,055,167
 Sepracor Inc.* ..........................        460,900      4,438,467
                                                            ------------
                                                              15,543,650
                                                            ------------

Health Care -- General - 11.69%
 Apria Healthcare Group Inc.* ............        256,300      5,700,112
 ArthroCare Corporation* .................        270,000      2,673,000
 Cholestech Corporation* .................         71,200        492,348
 IDEXX Laboratories, Inc.* ...............        118,957      3,928,555
 IMPATH Inc.* ............................        283,200      5,591,784
 Omnicare, Inc. ..........................        330,000      7,863,900
 Urologix, Inc.* .........................        240,000        788,400
 VISX, Incorporated* .....................        584,200      5,596,636
                                                            ------------
                                                              32,634,735
                                                            ------------

Hospital Supply and Management - 3.91%
 American Healthways, Inc.* ..............        157,179      2,751,418
 Amsurg Corp.* ...........................        185,000      3,774,000
 Cerner Corporation* .....................        141,022      4,399,886
                                                            ------------
                                                              10,925,304
                                                            ------------

Hotels and Gaming - 0.31%
 Vail Resorts, Inc.* .....................         56,700        860,139
                                                            ------------

Motor Vehicle Parts - 4.26%
 Gentex Corporation* .....................        376,000     11,894,760
                                                            ------------

Petroleum -- Domestic - 6.25%
 Newfield Exploration Company* ...........        223,700      8,064,385
 Patterson-UTI Energy, Inc.* .............        140,000      4,224,500
 Stone Energy Corporation* ...............        155,000      5,170,800
                                                            ------------
                                                              17,459,685
                                                            ------------

Petroleum -- Services - 0.72%
 Global Industries, Ltd.* ................        481,400      2,014,659
                                                            ------------

Publishing - 3.41%
 Getty Images, Inc.* .....................        312,200      9,537,710
                                                            ------------

Railroad - 1.53%
 Kansas City Southern* ...................        356,600      4,279,200
                                                            ------------

Retail -- General Merchandise - 1.11%
 Tuesday Morning Corporation* ............        181,500      3,106,373
                                                            ------------

Retail -- Specialty Stores - 3.52%
 Borders Group, Inc.* ....................        155,300      2,500,330
 Gymboree Corporation (The)* .............        158,500      2,514,603
 O'Reilly Automotive, Inc.* ..............        190,000      4,804,150
                                                            ------------
                                                               9,819,083
                                                            ------------

Security and Commodity Brokers - 0.77%
 Chicago Mercantile Exchange Holdings Inc.         49,283      2,151,696
                                                            ------------

Timesharing and Software - 2.85%
 Digital Insight Corporation* ............        380,000      3,321,200
 FactSet Research Systems, Inc. ..........        163,900      4,633,453
                                                            ------------
                                                               7,954,653
                                                            ------------

Utilities -- Telephone - 1.99%
 Commonwealth Telephone Enterprises, Inc.*        155,000      5,558,300
                                                            ------------

TOTAL COMMON STOCKS - 80.57%                                $224,991,747
 (Cost: $265,221,128)




                                                        Principal
                                                        Amount in
                                                        Thousands
                                                              
CORPORATE DEBT SECURITY - 0.03%
Multiple Industry
 Kestrel Solutions, Inc.,
   5.5%, 7-15-05, Convertible (A)(B) .............      $   1,000   $     80,000
                                                                    ------------
 (Cost: $1,000,000)

SHORT-TERM SECURITIES
Banks - 2.86%
 Wells Fargo & Company,
   1.29%, 1-16-03 ................................          8,000      7,995,700
                                                                    ------------

Chemicals - Petroleum and Inorganic - 1.62%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note .........................          4,522      4,522,000
                                                                    ------------

Food and Related - 2.49%
 ConAgra Foods, Inc.,
   1.42%, 1-13-03 ................................          5,000      4,997,633
 General Mills, Inc.,
   1.53%, Master Note ............................          1,961      1,961,000
                                                                    ------------
                                                                       6,958,633
                                                                    ------------

Health Care - Drugs - 7.66%
 Alcon Capital Corporation (Nestle S.A.),
   1.32%, 2-12-03 ................................          8,000      7,987,680
 Pfizer Inc.:
   1.3%, 1-9-03 ..................................          5,400      5,398,440
   1.3%, 1-29-03 .................................          8,000      7,991,911
                                                                    ------------
                                                                      21,378,031
                                                                    ------------

Health Care - General - 1.20%
 Johnson & Johnson,
   1.27%, 2-3-03 .................................          3,354      3,350,096
                                                                    ------------

Petroleum - International - 3.52%
 BP America Inc.,
   1.2%, 1-2-03 ..................................          9,836      9,835,672
                                                                    ------------

TOTAL SHORT-TERM SECURITIES - 19.35%                                $ 54,040,132
 (Cost: $54,040,132)

TOTAL INVESTMENT SECURITIES - 99.95%                                $279,111,879
 (Cost: $320,261,260)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.05%                        140,581

NET ASSETS - 100.00%                                                $279,252,460


SEE NOTES TO SCHEDULE OF INVESTMENTS ON PAGE .



THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
December 31, 2002

NOTES TO SCHEDULE OF INVESTMENTS

*No dividends were paid during the preceding 12 months.

(A)Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, the value of this security
amounted to 0.03% of net assets.

(B)Non-income producing as the issuer has either missed its most recent interest
payment or declared bankruptcy.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
SMALL CAP PORTFOLIO

                                December 31, 2002
                  (In Thousands, Except for Per Share Amounts)

                                                 
ASSETS
 Investment securities--at value (Notes 1 and 3).   $ 279,112
 Cash ...........................................           1
 Receivables:
   Investment securities sold ...................         556
   Fund shares sold .............................         154
   Dividends and interest .......................          21
 Prepaid insurance premium ......................           3
                                                    ---------
    Total assets ................................     279,847
                                                    ---------
LIABILITIES
 Payable for investment securities purchased ....         513
 Payable to Fund shareholders ...................          55
 Accrued management fee (Note 2) ................           7
 Accrued accounting services fee (Note 2) .......           5
 Accrued service fee (Note 2) ...................           2
 Other ..........................................          13
                                                    ---------
    Total liabilities ...........................         595
                                                    ---------
      Total net assets ..........................   $ 279,252
                                                    =========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ................................   $      45
   Additional paid-in capital ...................     385,107
 Accumulated undistributed loss:
   Accumulated undistributed net investment loss.          (4)
   Accumulated undistributed net realized loss on
    investment transactions .....................     (64,747)
   Net unrealized depreciation in value of
    investments .................................     (41,149)
                                                    ---------
    Net assets applicable to outstanding units
      of capital ................................   $ 279,252
                                                    =========
Net asset value, redemption
 and offering price per share ...................   $  6.2388
                                                    =========
Capital shares outstanding ......................      44,760
Capital shares authorized .......................      80,000



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
SMALL CAP PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                 (In Thousands)

                                                  
 INVESTMENT LOSS
 Income (Note 1B):
    Interest and amortization ....................   $  1,302
    Dividends ....................................        229
                                                     --------
     Total income ................................      1,531
                                                     --------
  Expenses (Note 2):
    Investment management fee ....................      2,645
    Service fee ..................................        778
    Accounting services fee ......................         58
    Custodian fees ...............................         24
    Audit fees ...................................          7
    Legal fees ...................................          4
    Other ........................................         66
                                                     --------
     Total expenses ..............................      3,582
                                                     --------
       Net investment loss .......................     (2,051)
                                                     --------
REALIZED AND UNREALIZED LOSS
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments ................    (18,965)
 Unrealized depreciation in value of
   investments during the period .................    (60,013)
                                                     --------
   Net loss on investments .......................    (78,978)
                                                     --------
    Net decrease in net assets
      resulting from operations ..................   $(81,029)
                                                     ========



SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
SMALL CAP PORTFOLIO

                                 (In Thousands)



                                                       For the fiscal year ended
                                                              December 31,
                                                       -------------------------
                                                          2002          2001
                                                       ----------    ----------
                                                               
INCREASE (DECREASE) IN NET ASSETS
Operations:
 Net investment loss ...............................   $  (2,051)    $    (465)
 Realized net loss on investments ..................     (18,965)      (45,780)
 Unrealized appreciation (depreciation) ............     (60,013)       39,983
                                                       ---------     ---------
   Net decrease in net assets resulting
    from operations ................................     (81,029)       (6,262)
Dividends to shareholders from (Note 1E):(1)            --------     ---------
 Net investment income .............................         ---            (1)
 Realized gains on
   securities transactions .........................         ---            (2)
                                                       ---------     ---------
                                                             ---            (3)
                                                       ---------     ---------
Capital share transactions(2) ......................       1,084        20,255
                                                       ---------     ---------
    Total increase (decrease) ......................     (79,945)       13,990
NET ASSETS
Beginning of period ................................     359,197       345,207
                                                       ---------     ---------
End of period ......................................   $ 279,252     $ 359,197
                                                       =========     =========
 Undistributed net investment loss .................   $      (4)    $      (2)
                                                       =========     =========
(1)See "Financial Highlights" on page 143.
(2)Shares issued from sale of shares ...............      15,643        18,777
Shares issued from reinvestment of dividend
 and/or capital gains distribution .................         ---             1
Shares redeemed ....................................     (15,912)      (16,186)
Increase (decrease) in outstanding                        ------        ------
 capital shares ....................................        (269)        2,592
                                                       =========     =========
Value issued from sale of shares ...................   $ 110,132     $ 143,499
Value issued from reinvestment of dividend
 and/or capital gains distribution .................         ---             3
Value redeemed .....................................    (109,048)     (123,247)
                                                       ---------     ---------
Increase in outstanding capital ....................   $   1,084     $  20,255
                                                       =========     =========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
SMALL CAP PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                                      For the fiscal year ended December 31,
                                      ------------------------------------------------------------------
                                          2002          2001          2000          1999         1998
                                      -----------   -----------   -----------   -----------   ----------
                                                                               
Net asset value, beginning
 of period ........................   $  7.9770     $  8.1345     $ 11.6130     $  7.9019     $  8.3316
                                      ---------     ---------     ---------     ---------     ---------
Income (loss) from investment
 operations:
 Net investment
   income (loss) ..................     (0.0458)      (0.0103)       0.0717        0.0423        0.0798
 Net realized and
   unrealized gain (loss)
   on investments .................     (1.6924)      (0.1471)      (1.5051)       4.0847        0.8255
                                      ---------     ---------     ---------     ---------     ---------
Total from investment
 operations .......................     (1.7382)      (0.1574)      (1.4334)       4.1270        0.9053
                                      ---------     ---------     ---------     ---------     ---------
Less distributions:
 From net investment
   income .........................     (0.0000)      (0.0000)*     (0.0717)      (0.0421)      (0.0798)
 From capital gains ...............     (0.0000)      (0.0001)      (1.9734)      (0.3738)      (1.2027)
 In excess of
   capital gains ..................     (0.0000)      (0.0000)      (0.0000)      (0.0000)      (0.0525)
                                      ---------     ---------     ---------     ---------     ---------
Total distributions ...............     (0.0000)      (0.0001)      (2.0451)      (0.4159)      (1.3350)
                                      ---------     ---------     ---------     ---------     ---------
Net asset value,
 end of period ....................   $  6.2388     $  7.9770     $  8.1345     $ 11.6130     $  7.9019
                                      =========     =========     =========     =========     =========
Total return ......................      -21.79%        -1.93%       -12.35%        52.23%        10.87%
Net assets, end of period
 (in millions) ....................   $     279     $     359     $     345     $     318     $     181
Ratio of expenses
 to average net
 assets ...........................        1.15%         1.14%         1.13%         1.12%         0.97%
Ratio of net investment
 income (loss) to average
 net assets .......................       -0.66%        -0.14%         0.68%         0.53%         0.94%
Portfolio turnover


rate ...... 34.54% 30.31% 58.35% 130.99% 177.32%

*Not shown due to rounding.

SEE NOTES TO FINANCIAL STATEMENTS.



MANAGERS' DISCUSSION

                                December 31, 2002

An interview with Harry M. Flavin and Cynthia P. Prince-Fox, portfolio managers
of W&R Target Funds, Inc. - Value Portfolio

This report relates to the operation of W&R Target Funds, Inc. - Value Portfolio
for the fiscal period ended December 31, 2002. The following discussion, graphs
and tables provide you with information regarding the Portfolio's performance
during that period. Please note that the Portfolio's performance data does not
take into account any expenses or charges associated with owning a variable life
or annuity policy invested in the W&R Target Funds, Inc.

How did the Portfolio perform during the last fiscal year?
Although it did show a negative return for the year, the Portfolio performed
relatively well, as it outperformed its benchmark index. The Portfolio declined
12.70 percent during the period, compared with the Russell 1000 Value Index
(reflecting the performance of securities that generally represent the value
sector of the stock market), which declined 15.52 percent during the period, and
the Lipper Variable Annuity Multi-Cap Value Funds Universe Average (generally
reflecting the performance of the universe of funds with similar investment
objectives), which declined 18.73 percent during the same period.

What helped the Portfolio outperform its benchmark index during the fiscal year?
Our comparatively better results were, we feel, primarily due to our emphasis on
defensive stocks, such as food and aerospace/defense. In addition, we maintained
significant levels of cash throughout most of the year. Overall, we believe that
we have remained successful in finding good businesses trading at discounts to
their intrinsic value.

What other market conditions or events influenced the Portfolio's performance
during the fiscal year?
This marked the third consecutive year of declines for the broad equity markets.
Equity investments were simply a difficult place to be, as the S&P 500 Index
experienced its sharpest decline since 1974, while the technology-laden Nasdaq
Composite Index lost nearly a third of its value. Nearly every industry
classification in the S&P 500 saw negative returns during the year. As a result,
cash was a safe haven during the year.

What strategies and techniques did you employ that specifically affected the
Portfolio's performance?
While one of our strategies was to position the Portfolio in more defensive
names, we also placed a greater emphasis on stocks that we felt offered higher-
than-market dividend yields. We did this because we felt that there was a strong
possibility that there would be some form of relief on the double taxation of
dividends. As a result, several companies that we currently hold experienced
significant rallies during the final quarter of the fiscal year. We continue to
believe that this will be an important theme as we move into 2003.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
During most of the year, we emphasized health care, energy and defense stocks.
While energy and defense generally held most of their ground over the year,
health care -- particularly pharmaceuticals -- experienced fairly significant
declines, despite their purported defensive characteristics. We believe that the
reason for the declines can be traced back to challenges within that industry,
such as difficulties with the patent process and the broadening popularity of
generic drugs, among others. While many of these issues remain, we continue to
believe that pharmaceutical stocks offer attractive valuations, given the aging
demographic profile in the United States.

Going forward, our weightings may change as new opportunities present
themselves. We intend to continue to focus on value, earnings stability and
above-average diversification as the year progresses.

Respectfully,

Harry M. Flavin
Cynthia P. Prince-Fox
Managers
Value Portfolio

Please note: Effective January 2002, Cynthia P. Prince-Fox was added as a co-
manager of W&R Target Funds, Inc. - Value Portfolio. Prior to that time, Harry
M. Flavin was the sole manager of the Portfolio.



Comparison of Change in Value of $10,000 Investment W&R Target Value Portfolio,
Russell 1000 Value Index and Lipper Variable Annuity Multi-Cap Value Funds
Universe Average



                                            Lipper
                                           Variable
                                            Annuity
                                           Multi-Cap
                                 Russell     Value
                    W&R Target    1000       Funds
                      Value       Value    Universe
                    Portfolio     Index     Average
                    ----------   -------   ---------
                                  
5/1/01   Purchase     10,000     10,000      10,000
12/31/01              10,203      9,557       9,724
12/31/02               8,907      8,074       7,902


===== W&R Target Value Portfolio(1) -- $8,907

+++++ Russell 1000 Value Index(2) -- $8,074

- ----- Lipper Variable Annuity Multi-Cap Value Funds Universe
Average(2) -- $7,902

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

(2)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the indexes
(including income) are not available, investment in the indexes was effected as
of April 30, 2001.

                         AVERAGE ANNUAL TOTAL RETURN(3)

                        
1-year period ended
  12-31-02                 -12.70%
1+ year period ended
  12-31-02(4)               -6.70%



(3)Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.

(4)5-1-01 (the initial offering date) through 12-31-02.

Past performance is not necessarily indicative of future performance. Indexes
are unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested in
the W&R Target Funds, Inc.



THE INVESTMENTS OF THE VALUE PORTFOLIO

                  December 31, 2002



                                                         Shares       Value
                                                             
COMMON STOCKS
Aircraft - 5.56%
 Lockheed Martin Corporation .....................        26,700   $ 1,541,925
 Northrop Grumman Corporation ....................        13,000     1,261,000
 Raytheon Company ................................        44,000     1,353,000
                                                                   -----------
                                                                     4,155,925
                                                                   -----------

Banks - 3.20%
 Bank of America Corporation .....................         9,000       626,130
 Citigroup Inc. ..................................        27,000       950,130
 U.S. Bancorp ....................................        38,600       819,092
                                                                   -----------
                                                                     2,395,352
                                                                   -----------

Beverages - 1.23%
 Coca-Cola Company (The) .........................        21,000       920,220
                                                                   -----------

Business Equipment and Services - 4.96%
 Dun & Bradstreet Corporation (The)* .............        24,700       851,903
 First Data Corporation ..........................        28,000       991,480
 Genuine Parts Company ...........................        33,000     1,016,400
 Pitney Bowes Inc. ...............................        25,900       845,894
                                                                   -----------
                                                                     3,705,677
                                                                   -----------

Capital Equipment - 1.69%
 Caterpillar Inc. ................................        10,000       457,200
 Ingersoll-Rand Company Limited, Class A .........        18,700       805,222
                                                                   -----------
                                                                     1,262,422
                                                                   -----------

Chemicals -- Petroleum and Inorganic - 1.14%
 du Pont (E.I.) de Nemours and Company ...........        20,100       852,240
                                                                   -----------

Chemicals -- Specialty - 1.09%
 Air Products and Chemicals, Inc. ................        19,100       816,525
                                                                   -----------

Communications Equipment - 0.79%
 Cisco Systems, Inc.* ............................        45,000       589,275
                                                                   -----------

Computers -- Peripherals - 3.51%
 Microsoft Corporation* ..........................        50,800     2,627,376
                                                                   -----------

Cosmetic and Toiletries - 1.24%
 Estee Lauder Companies Inc. (The), Class A ......        35,000       924,000
                                                                   -----------

Electrical Equipment - 2.18%
 Emerson Electric Co. ............................        32,000     1,627,200
                                                                   -----------

Electronic Components - 1.48%
 Intel Corporation ...............................        71,000     1,105,825
                                                                   -----------

Food and Related - 1.73%
 ConAgra Foods, Inc. .............................        40,000     1,000,400
 Dean Foods Company* .............................         8,000       296,800
                                                                   -----------
                                                                     1,297,200
                                                                   -----------

Forest and Paper Products - 5.30%
 Boise Cascade Corporation .......................        19,000       479,180
 Sealed Air Corporation* .........................        62,891     2,345,834
 Smurfit-Stone Container Corporation* ............        15,812       243,742
 Temple-Inland Inc. ..............................        20,000       896,200
                                                                   -----------
                                                                     3,964,956
                                                                   -----------

Health Care -- Drugs - 6.89%
 Abbott Laboratories .............................        51,800     2,072,000
 Merck & Co., Inc. ...............................        17,000       962,370
 Pharmacia Corporation ...........................        50,700     2,119,260
                                                                   -----------
                                                                     5,153,630
                                                                   -----------

Health Care -- General - 2.29%
 Becton, Dickinson and Company ...................        12,600       386,694
 Bristol-Myers Squibb Company ....................        28,000       648,200
 Wyeth ...........................................        18,100       676,940
                                                                   -----------
                                                                     1,711,834
                                                                   -----------

Insurance -- Property and Casualty - 5.48%
 American International Group, Inc. ..............        25,600     1,480,960
 Berkshire Hathaway Inc., Class B* ...............           400       969,200
 Chubb Corporation (The) .........................        31,600     1,649,520
                                                                   -----------
                                                                     4,099,680
                                                                   -----------

Leisure Time Industry - 0.30%
 Walt Disney Company (The)* ......................        13,900       226,709
                                                                   -----------

Mining - 1.56%
 Newmont Mining Corporation ......................        40,200     1,167,006
                                                                   -----------

Petroleum -- Canada - 0.89%
 Nabors Industries Ltd.* .........................        18,800       663,076
                                                                   -----------

Petroleum -- Domestic - 3.94%
 Burlington Resources Inc. .......................        36,600     1,560,990
 Occidental Petroleum Corporation ................        48,800     1,388,360
                                                                   -----------
                                                                     2,949,350
                                                                   -----------

Petroleum -- International - 2.23%
 BP p.l.c., ADR ..................................        11,800       479,670
 Exxon Mobil Corporation .........................        34,000     1,187,960
                                                                   -----------
                                                                     1,667,630
                                                                   -----------

Publishing - 0.79%
 Washington Post Company (The), Class B ..........           800       590,400
                                                                   -----------

Real Estate Investment Trusts - 0.68%
 ProLogis Trust ..................................        20,350       511,803
                                                                   -----------

Restaurants - 0.80%
 McDonald's Corporation ..........................        37,000       594,960
                                                                   -----------

Retail -- General Merchandise - 1.43%
 Target Corporation ..............................        35,700     1,071,000
                                                                   -----------

Security and Commodity Brokers - 5.27%
 American Express Company ........................        28,900     1,021,615
 Goldman Sachs Group, Inc. (The) .................         9,300       633,330
 Marsh & McLennan Companies, Inc. ................         8,700       402,027
 Merrill Lynch & Co., Inc. .......................        23,300       884,235
 Morgan Stanley ..................................        25,100     1,001,992
                                                                   -----------
                                                                     3,943,199
                                                                   -----------

Tobacco - 0.16%
 UST Inc. ........................................         3,500       117,005
                                                                   -----------

Trucking and Shipping - 0.81%
 Hunt (J.B.) Transport Services, Inc.* ...........        20,700       606,614
                                                                   -----------

Utilities -- Electric - 3.32%
 American Electric Power Company, Inc. ...........        16,000       437,280
 Cinergy Corp. ...................................        13,500       455,220
 Exelon Corporation ..............................        17,700       934,029
 PPL Corporation .................................        18,900       655,452
                                                                   -----------
                                                                     2,481,981
                                                                   -----------

Utilities -- Gas and Pipeline - 1.41%
 FirstEnergy Corp. ...............................        32,000     1,055,040
                                                                   -----------

Utilities -- Telephone - 4.19%
 ALLTEL Corporation ..............................        18,000       918,000
 BellSouth Corporation ...........................        15,000       388,050
 SBC Communications Inc. .........................        67,500     1,829,925
                                                                   -----------
                                                                     3,135,975
                                                                   -----------

TOTAL COMMON STOCKS - 77.54% .....................                 $57,991,085
 (Cost: $59,551,105)

PREFERRED STOCKS
Forest and Paper Products - 1.07%
 Sealed Air Corporation, $2,
   Convertible ...................................        18,700       796,620
                                                                   -----------

Insurance - Property and Casualty - 0.59%
 Chubb Corporation (The), 7.0%,
   Convertible* ..................................        18,500       443,075
                                                                   -----------

TOTAL PREFERRED STOCKS - 1.66% ...................                 $ 1,239,695
(Cost: $1,291,028)

Principal Amount in Thousands

SHORT-TERM SECURITIES

Commercial Paper
 Chemicals -- Petroleum and Inorganic - 0.12%
 du Pont (E.I.) de Nemours and Company,
   1.30036%, Master Note .........................      $     92        92,000
                                                                   -----------

 Finance Companies - 1.78%
 USAA Capital Corp.,
   1.35%, 1-10-03 ................................         1,328     1,327,552
                                                                   -----------

 Food and Related - 3.67%
 General Mills, Inc.,
   1.53%, Master Note ............................         2,744     2,744,000
                                                                   -----------

Health Care -- Drugs - 3.60%
Alcon Capital Corporation (Nestle S.A.),
   1.32%, 2-12-03 ................................         2,700     2,695,842
                                                                   -----------

 Health Care -- General - 3.34%
 Johnson & Johnson,
   1.27%, 2-3-03 .................................         2,500     2,497,089
                                                                   -----------

 Household -- General Products - 5.21%
 Kimberly-Clark Worldwide Inc.,
   1.28%, 1-22-03 ................................         1,200     1,199,104
 Procter & Gamble Company (The),
   1.3%, 2-10-03 .................................         2,700     2,696,100
                                                                   -----------
                                                                     3,895,204
                                                                   -----------

Total Commercial Paper - 17.72% ..................                  13,251,687

Municipal Obligation - 2.94%
 California
 California Pollution Control Financing
   Authority, Environmental Improvement
   Revenue Bonds, Shell Oil Company Project,
   Series 1998A (Taxable),
   1.2%, 1-2-03 ..................................         2,200     2,200,000
                                                                   -----------

Repurchase Agreement - 0.79%
 J.P. Morgan Securities Inc., 0.97% Repurchase
   Agreement dated 12-31-02, to be
   repurchased at $589,032 on
   1-2-03 (A) ....................................           589       589,000
                                                                   -----------

TOTAL SHORT-TERM SECURITIES - 21.45%                               $16,040,687
 (Cost: $16,040,687)

TOTAL INVESTMENT SECURITIES - 100.65%                              $75,271,467
 (Cost: $76,882,820)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.65%)                   (488,701)

NET ASSETS - 100.00%                                               $74,782,766


NOTES TO SCHEDULE OF INVESTMENTS

*No income dividends were paid during the preceding 12 months.

(A)Collateralized by $453,000 United States Treasury Bond, 7.5% due 11-15-16;
market value and accrued interest aggregate $600,296.

See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.

See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES
VALUE PORTFOLIO

                      December 31, 2002
       (In Thousands, Except for Per Share Amounts)



                        ASSETS

                                                       
 Investment securities--at value (Notes 1 and 3) ......   $ 75,271
 Cash .................................................          1
 Receivables:
   Dividends and interest .............................         97
   Fund shares sold ...................................         61
 Prepaid insurance premium ............................          1
                                                          --------
    Total assets ......................................     75,431
                                                          --------
LIABILITIES

 Payable for investment securities purchased ..........        640
 Accrued accounting services fee (Note 2) .............          3
 Accrued management fee (Note 2) ......................          1
 Accrued service fee (Note 2) .........................          1
 Other ................................................          3
                                                          --------
    Total liabilities .................................        648
                                                          --------
      Total net assets ................................   $ 74,783
                                                          ========
NET ASSETS
 $0.001 par value capital stock:
   Capital stock ......................................   $     17
   Additional paid-in capital .........................     83,491
 Accumulated undistributed loss:
   Accumulated undistributed net realized
    loss on investment transactions ...................     (7,114)
   Net unrealized depreciation in value of
    investments .......................................     (1,611)
                                                          --------
    Net assets applicable to outstanding units
      of capital ......................................   $ 74,783
                                                          ========
Net asset value, redemption
 and offering price per share .........................   $ 4.4016
                                                          ========
Capital shares outstanding ............................     16,990
Capital shares authorized .............................     30,000


SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS
VALUE PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
                             (In Thousands)



                       INVESTMENT INCOME
                                                            
Income (Note 1B):
   Dividends (net of foreign withholding taxes of $2) ......   $   976
   Interest and amortization ...............................       272
                                                               -------
    Total income ...........................................     1,248
                                                               -------
 Expenses (Note 2):
   Investment management fee ...............................       445
   Service fee .............................................       159
   Accounting services fee .................................        32
   Custodian fees ..........................................        10
   Audit fees ..............................................         5
   Legal fees ..............................................         1
   Other ...................................................        10
                                                               -------
    Total expenses .........................................       662
                                                               -------
      Net investment income ................................       586
                                                               -------
REALIZED AND UNREALIZED LOSS
 ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments ..........................    (7,029)
 Unrealized depreciation in value of
   investments during the period ...........................    (2,670)
                                                               -------
   Net loss on investments .................................    (9,699)
                                                               -------
    Net decrease in net assets
      resulting from operations ............................   $(9,113)
                                                               =======


SEE NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF CHANGES IN NET ASSETS
VALUE PORTFOLIO
                                 (In Thousands)



                                                           For the      For the
                                                           fiscal     period from
                                                            year       5-1-01(1)
                                                            ended       through
                                                           12-31-02     12-31-01
                                                          ----------  -----------
                                                                
INCREASE IN NET ASSETS
Operations:
 Net investment income ................................   $    586     $    170
 Realized net loss on investments .....................     (7,029)         (85)
 Unrealized appreciation

   (depreciation) .....................................     (2,670)       1,059
                                                          --------     --------
   Net increase (decrease) in net assets
    resulting from operations .........................     (9,113)       1,144
                                                          --------     --------
Dividends to shareholders from net
 investment income (Note 1E)(2) .......................       (586)        (170)
                                                          --------     --------
Capital share transactions(3) .........................     40,266       43,232
                                                          --------     --------
    Total increase ....................................     30,567       44,206
NET ASSETS
Beginning of period ...................................     44,216           10
                                                          --------     --------
End of period .........................................   $ 74,783     $ 44,216
                                                          ========     ========
 Undistributed net investment income ..................   $    ---     $    ---
                                                          ========     ========

(1)Commencement of operations
(2)See "Financial Highlights" on page 155.
(3)Shares issued from sale of shares...................      8,920        8,723
Shares issued from reinvestment of dividend............        133           33
Shares redeemed .......................................       (764)         (57)
                                                          --------     --------
Increase in outstanding capital shares                       8,289        8,699
                                                          ========     ========
Value issued from sale of shares.......................   $ 43,095     $ 43,342
Value issued from reinvestment of dividend.............        586          170
Value redeemed.........................................     (3,415)        (280)
                                                          --------     --------
Increase in outstanding capital........................   $ 40,266     $ 43,232
                                                          ========     ========


SEE NOTES TO FINANCIAL STATEMENTS.



FINANCIAL HIGHLIGHTS
VALUE PORTFOLIO
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:



                                       For the        For the
                                       fiscal       period from
                                        year         5-1-01(1)
                                       ended          through
                                      12-31-02        12-31-01
                                      --------      ------------
                                              
Net asset value,
 beginning of period ..............   $ 5.0815       $ 5.0000
                                      --------       --------
Income (loss) from
 investment operations:
 Net investment income                  0.0348         0.0198
 Net realized and
   unrealized gain (loss)
   on investments .................    (0.6799)        0.0815
                                      --------       --------

Total from investment
 operations .......................    (0.6451)        0.1013
                                      --------       --------
Less distributions from
 net investment
 income ...........................    (0.0348)       (0.0198)
                                      --------       --------
Net asset value,
 end of period ....................   $ 4.4016       $ 5.0815
                                      ========       ========
Total return ......................     -12.70%          2.03%
Net assets end of
 period (in millions) .............   $     75       $     44
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver ...................       1.04%          0.84%(2)
Ratio of net investment
 income to average net
 assets including voluntary
 expense waiver ...................       0.92%          1.39%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver ...................        ---(3)        1.07%(2)
Ratio of net investment
 income to average net
 assets excluding voluntary
 expense waiver ...................        ---(3)        1.16%(2)
Portfolio turnover rate ...........      95.73%         10.91%


(1)Commencement of operations.

(2)Annualized.

(3)Because the Portfolio's net assets exceeded $25 million for the entire
period, there was no waiver of expenses. Therefore, no ratio was provided.
See Notes to Financial Statements.



NOTES TO FINANCIAL STATEMENTS
W&R TARGET FUNDS, INC.
December 31, 2002

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

W&R Target Funds, Inc. (the "Fund") is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment company. Capital
stock is currently divided into the twelve classes that are designated the Asset
Strategy Portfolio, the Balanced Portfolio, the Bond Portfolio, the Core Equity
Portfolio, the Growth Portfolio, the High Income Portfolio, the International
Portfolio, the Limited-Term Bond Portfolio, the Money Market Portfolio, the
Science and Technology Portfolio, the Small Cap Portfolio and the Value
Portfolio. The assets belonging to each Portfolio are held separately by the
Custodian. The capital shares of each Portfolio represent a pro rata beneficial
interest in the principal, net income (loss), and realized and unrealized
capital gains or losses of its respective investments and other assets. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America.

A. Security valuation -- Each stock and convertible bond is valued at the latest
sale price thereof on each business day of the fiscal period as reported by the
principal securities exchange on which the issue is traded or, if no sale is
reported for a stock, the average of the latest bid and asked prices. Bonds,
other than convertible bonds, are valued using a pricing system provided by a
pricing service or dealer in bonds. Convertible bonds are valued using this
pricing system only on days when there is no sale reported. Stocks which are
traded over-the-counter are priced using the Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks. Gold
bullion is valued at the last settlement price for current delivery as
calculated by the Commodity Exchange, Inc. as of the close of that exchange.
Restricted securities and securities for which quotations are not readily
available are valued as determined in good faith in accordance with procedures
established by and under the general supervision of the Fund's Board of
Directors. Short-term debt securities are valued at amortized cost, which
approximates market value.

B. Security transactions and related investment income -- Security transactions
are accounted for on the trade date (date the order to buy or sell is executed).
Securities gains and losses are calculated on the identified cost basis. Premium
and discount on the purchase of bonds are amortized for both financial and tax
reporting purposes. Dividend income is recorded on the ex-dividend date except
that certain dividends from foreign securities are recorded as soon as the Fund
is informed of the ex- dividend date. Interest income is recorded on the accrual
basis. See Note 3 -- Investment Securities Transactions.

C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and sales
of investment securities and accruals of income and expenses are translated at
the rate of exchange prevailing on the date of the transaction. For assets and
liabilities other than investments in securities, net realized and unrealized
gains and losses from foreign currency translations arise from changes in
currency exchange rates. The Fund combines fluctuations from currency exchange
rates and fluctuations in market value when computing net realized and
unrealized gain or loss from investments.

D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify as a
regulated investment company under the Internal Revenue Code. Accordingly,
provision has not been made for Federal income taxes. See Note 4 -- Federal
Income Tax Matters.

E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Portfolio on the record date. Net investment income
distributions and capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting principles generally
accepted in the United States of America. These differences are due to differing
treatments for items such as deferral of wash sales and post-October losses,
foreign currency transactions, net operating losses and expiring capital loss
carryovers. At December 31, 2002, the following amounts were reclassified:



                            Accumulated      Accumulated
                           Undistributed    Undistributed
                           Net Investment    Net Realized      Additional
                               Income        Gain (Loss)    Paid-in Capital
- ----------------------------------------------------------------------------
                                                   
Bond Portfolio               $      ---       $1,337,337       $1,337,337
Science and Technology
  Portfolio                     519,314              ---          519,314
Small Cap Portfolio           2,049,088              ---        2,049,088


F. Options -- See Note 5 -- Options

G. Futures -- See Note 6 -- Futures

H. Repurchase agreements -- Repurchase agreements are collateralized by the
value of the resold securities which, during the entire period of the agreement,
remains at least equal to the value of the loan, including accrued interest
thereon. The collateral for the repurchase agreement is held by the Fund's
custodian bank.

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.

NOTE 2 -- INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS

Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned
subsidiary of Waddell & Reed, Inc. ("W&R"), serves as the Fund's investment
manager. The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee is
payable by each Portfolio at the following annual rates:



                                                                  Annual
         Fund                     Net Asset Breakpoints            Rate
- ------------------------------------------------------------------------
                                                            
Asset Strategy Portfolio    Up to $1 Billion                      0.700%
                            Over $1 Billion up to $2 Billion      0.650%
                            Over $2 Billion up to $3 Billion      0.600%
                            Over $3 Billion                       0.550%

Balanced Portfolio          Up to $1 Billion                      0.700%
                            Over $1 Billion up to $2 Billion      0.650%
                            Over $2 Billion up to $3 Billion      0.600%
                            Over $3 Billion                       0.550%

Bond Portfolio              Up to $500 Million                    0.525%
                            Over $500 Million up to $1 Billion    0.500%
                            Over $1 Billion up to $1.5 Billion    0.450%
                            Over $1.5 Billion                     0.400%

Core Equity Portfolio       Up to $1 Billion                      0.700%
                            Over $1 Billion up to $2 Billion      0.650%
                            Over $2 Billion up to $3 Billion      0.600%
                            Over $3 Billion                       0.550%

Growth Portfolio            Up to $1 Billion                      0.700%
                            Over $1 Billion up to $2 Billion      0.650%
                            Over $2 Billion up to $3 Billion      0.600%
                            Over $3 Billion                       0.550%

High Income Portfolio       Up to $500 Million                    0.625%
                            Over $500 Million up to $1 Billion    0.600%
                            Over $1 Billion up to $1.5 Billion    0.550%
                            Over $1.5 Billion                     0.500%

International Portfolio     Up to $1 Billion                      0.850%
                            Over $1 Billion up to $2 Billion      0.830%
                            Over $2 Billion up to $3 Billion      0.800%
                            Over $3 Billion                       0.760%

Limited-Term Bond           Up to $500 Million                    0.500%
    Portfolio               Over $500 Million up to $1 Billion    0.450%
                            Over $1 Billion up to $1.5 Billion    0.400%
                            Over $1.5 Billion                     0.350%

Money Market Portfolio      All Net Assets                        0.400%

Science and Technology      Up to $1 Billion                      0.850%
    Portfolio               Over $1 Billion up to $2 Billion      0.830%
                            Over $2 Billion up to $3 Billion      0.800%
                            Over $3 Billion                       0.760%

Small Cap Portfolio         Up to $1 Billion                      0.850%
                            Over $1 Billion up to $2 Billion      0.830%
                            Over $2 Billion up to $3 Billion      0.800%
                            Over $3 Billion                       0.760%

Value Portfolio             Up to $1 Billion                      0.700%
                            Over $1 Billion up to $2 Billion      0.650%
                            Over $2 Billion up to $3 Billion      0.600%
                            Over $3 Billion                       0.550%


The Fund accrues and pays this fee daily. The Fund also reimburses WRIMCO for
certain expenses, including additional Fund-related security costs incurred by
WRIMCO as a result of the September 11, 2001 terrorist activities. The amount
reimbursed represents the Fund's share of incremental security-related costs
including the cost of using private transportation for WRIMCO's personnel in
lieu of commercial transportation, certain security-related personnel and
facilities costs. At December 31, 2002, additional security costs amounted to
$210,088, which is included in other expenses.

WRIMCO, the Fund's investment manager, has agreed to waive a Portfolio's
management fee on any day that the Portfolio's net assets are less than $25
million, subject to its right to change or modify this waiver. During the period
ended December 31, 2002, WRIMCO voluntarily waived its fee (000 omitted) as
shown in the following table:

                         LIMITED-TERM BOND PORTFOLIO $50

The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WRSCO"), a wholly owned subsidiary of W&R. Under the agreement, WRSCO
acts as the agent in providing bookkeeping and accounting services and
assistance to the Fund, including maintenance of Fund records, pricing of Fund
shares, preparation of prospectuses for existing shareholders, preparation of
proxy statements and certain shareholder reports. For these services, each
Portfolio pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.

Accounting Services Fee Average
Net Asset Level Annual Fee (all dollars in millions)Rate for Each Portfolio

                        
- -----------------------------------
From $    0 to $   10      $      0
From $   10 to $   25      $ 11,000
From $   25 to $   50      $ 22,000
From $   50 to $  100      $ 33,000
From $  100 to $  200      $ 44,000
From $  200 to $  350      $ 55,000
From $  350 to $  550      $ 66,000
From $  550 to $  750      $ 77,000
From $  750 to $1,000      $ 93,500
     $1,000 and Over       $110,000



The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act.
Under the Plan, each Portfolio may pay a fee to W&R in an amount not to exceed

0.25% of the Portfolio's average annual net assets. The fee is to be paid to
compensate W&R for amounts it expends in connection with the provision of
personal services to Policyowners and/or maintenance of Policyowner accounts.

The Fund paid Directors' fees of $145,760, which are included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.

NOTE 3 -- INVESTMENT SECURITIES TRANSACTIONS

Investment securities transactions for the fiscal year ended December 31, 2002
are summarized as follows:



                                        Asset Strategy    Balanced          Bond
                                           Portfolio      Portfolio       Portfolio
                                        --------------    ---------       ---------
                                                                
Purchases of investment securities,
excluding short-term and United
States Government obligations          $ 78,646,340    $   90,147,399    $ 42,387,560
Purchases of United States Government
obligations                              78,582,686           991,540      98,148,169
Purchases of short-term
 securities                             561,755,621     1,423,589,939     457,376,939
Purchases of options                     11,213,881               ---             ---
Purchases of bullion                     11,345,771               ---             ---
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government obligations                  54,778,830        71,920,989      10,902,460
Proceeds from maturities
 and sales of United States
 Government obligations                  58,164,792        10,090,673      54,148,087
Proceeds from maturities
 and sales of short-term
 securities                             561,373,262     1,423,205,271     456,089,000
Proceeds from bullion                     5,732,088               ---             ---
Proceeds from options                     9,921,042               ---             ---






                                                                          High
                                         Core Equity       Growth        Income
                                          Portfolio       Portfolio     Portfolio
                                        -----------       ---------     ---------
                                                              
Purchases of investment
securities, excluding short-
term and United States Government
obligations                          $  260,403,792   $  308,465,604   $  116,493,678
Purchases of United States
Government obligations                          ---              ---              ---
Purchases of short-term
 securities                           3,399,574,161    3,026,244,685    1,370,500,347
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government obligations                 377,019,718      412,171,412       89,168,594
Proceeds from maturities
 and sales of United States
 Government obligations                         ---              ---        2,825,671
Proceeds from maturities
 and sales of short-term
 securities                           3,347,688,896    3,002,124,140    1,372,643,596






                                                        Limited-      Science and
                                        International   Term Bond     Technology
                                          Portfolio     Portfolio     Portfolio
                                        -------------   ---------     -----------
                                                            
Purchases of investment
securities, excluding short-
term and United States Government
obligations                          $  156,582,552    $ 21,653,886  $  141,003,617
Purchases of United States
Government obligations                          ---      13,138,806             ---
Purchases of short-term securities    1,531,104,449      64,922,152   2,504,487,436
Purchases of options                            ---             ---       5,251,240
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government obligations                 175,218,741       4,128,435     139,000,618
Proceeds from maturities
 and sales of United States
 Government obligations                         ---       2,859,170             ---
Proceeds from maturities
 and sales of short-term
 securities                           1,527,344,746      62,294,953   2,509,622,866
Proceeds from options                           ---             ---       7,398,644




                                          Small Cap        Value
                                          Portfolio      Portfolio
                                         -----------     ---------
                                                
Purchases of investment securities,
excluding short-term and United
States Government
obligations                          $  110,171,204   $   86,956,407
Purchases of United States
 Government obligations                         ---             ---
Purchases of short-term
 securities                           2,669,997,558    1,475,856,299
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government obligations                  83,855,147       45,297,514
Proceeds from maturities
 and sales of United States
 Government obligations                         ---              ---
Proceeds from maturities
 and sales of short-term
 securities                           2,698,677,313    1,476,398,000



For Federal income tax purposes, cost of investments owned at December 31, 2002
and the related unrealized appreciation (depreciation) were as follows:



                                                             Aggregate
                                                            Appreciation
                                               CostAppreciationDepreciation(Depreciation)
                                       ----------------------------------------------------------
                                                                         
Asset Strategy
  Portfolio                            $165,430,073   $  5,132,991   $  2,396,950    $  2,736,041
Balanced Portfolio                      168,006,128      8,474,792      8,348,918         125,874
Bond Portfolio                          240,701,092     13,043,358      1,891,158      11,152,200
Core Equity Portfolio                   601,916,788     95,100,662     48,134,219      46,966,443
Growth Portfolio                        684,595,267     93,608,527     68,285,694      25,322,833
High Income Portfolio                   126,858,420      3,596,745      4,690,606      (1,093,861)
International
  Portfolio                             147,843,678      4,884,911     13,893,747      (9,008,836)
Limited-Term Bond
  Portfolio                              45,522,013      1,172,381          9,324       1,163,057
Money Market
  Portfolio                             102,095,440            ---            ---             ---
Science and Technology
  Portfolio                             229,279,681     11,406,022     43,254,807     (31,848,785)
Small Cap Portfolio                     324,746,966     25,149,128     70,784,215     (45,635,087)
Value Portfolio                          76,882,820      2,431,115      4,042,468      (1,611,353)


NOTE 4 -- FEDERAL INCOME TAX MATTERS

For Federal income tax purposes, the Portfolios' distributed and undistributed
earnings and profit for the fiscal year ended December 31, 2002 and the related
Capital Loss Carryover and Post-October activity were as follows:



                                              Asset
                                             Strategy      Balanced         Bond
                                             Portfolio     Portfolio      Portfolio
                                             ----------------------------------------
                                                                
Net ordinary income ......................   $ 2,616,614   $ 3,124,160   $10,170,248
Distributed ordinary income ..............     2,615,962     3,123,111    10,148,255
Undistributed ordinary income ............           978         1,889        22,667

Realized long-term capital gains .........           ---           ---           ---
Distributed long-term capital gains ......           ---           ---           ---
Undistributed long-term capital gains ....           ---           ---           ---

Capital loss carryover ...................       350,900    13,987,503       668,343

Post-October losses deferred .............           ---           ---           ---




                                                 Core                          High
                                                Equity         Growth         Income
                                               Portfolio      Portfolio      Portfolio
                                             ------------------------------------------
                                                                  
Net ordinary income ......................   $  3,816,386   $     97,482   $ 10,217,520
Distributed ordinary income ..............      3,810,945         91,557     10,216,847
Undistributed ordinary income ............         11,139         12,806         31,279

Realized long-term capital gains .........            ---            ---            ---
Distributed long-term capital gains ......            ---            ---            ---
Undistributed long-term capital gains ....            ---            ---            ---

Capital loss carryover ...................    117,005,003     79,094,360     13,911,720

Post-October losses deferred .............      2,620,944      6,092,111        492,960




                                                              Limited-       Money
                                             International    Term Bond      Market
                                               Portfolio      Portfolio     Portfolio
                                             -----------------------------------------
                                                                  
Net ordinary income ......................   $   658,931     $ 1,091,886   $ 1,093,272
Distributed ordinary income ..............       657,832       1,091,807     1,092,710
Undistributed ordinary income ............         2,587             118           910

Realized long-term capital gains .........           ---             ---           ---
Distributed long-term capital gains ......           ---             ---           ---
Undistributed long-term capital gains ....           ---             ---           ---

Capital loss carryover ...................    33,377,007         422,851           ---

Post-October losses deferred .............     3,514,734           7,001           ---




                                              Science and     Small
                                              Technology       Cap        Value
                                               Portfolio    Portfolio   Portfolio
                                              -----------------------------------
                                                               
Net ordinary income ......................    $   ---         $---      $586,274
Distributed ordinary income ..............      1,619          ---       586,274
Undistributed ordinary income ............        ---          ---           ---

Realized long-term capital gains .........        ---          ---           ---
Distributed long-term capital gains ......        ---          ---           ---
Undistributed long-term capital gains ....        ---          ---           ---


Capital loss carryover ......... 28,805,115 16,908,229 6,826,049

Post-October losses deferred ... 1,019,133 2,003,407 203,246

Internal Revenue Code regulations permit each Portfolio to defer into its next
fiscal year net capital losses or net long-term capital losses incurred between
each November 1 and the end of its fiscal year ("post-October losses").

Capital loss carryovers are available to offset future realized capital gain net
income for Federal income tax purposes. The following shows the totals by year
in which the capital loss carryovers will expire if not utilized.



                              Asset                                      Core
                            Strategy      Balanced         Bond         Equity
                            Portfolio     Portfolio      Portfolio     Portfolio
                           -----------   ----------------------------------------
                                                         
December 31, 2004.......   $      ---    $       ---    $   16,696   $        ---
December 31, 2008.......          ---            ---       962,383            ---
December 31, 2009.......    6,107,622      7,156,738        54,574     75,112,594
December 31, 2010.......      350,900     13,987,503       668,343    117,005,003
                           ----------    -----------    ----------   ------------
Total carryover.........   $6,458,522    $21,144,241    $1,701,996   $192,117,597
                           ==========    ===========    ==========   ============




                                             High                       Limited-
                              Growth        Income      International   Term Bond
                             Portfolio     Portfolio      Portfolio     Portfolio
                           ------------   ---------------------------------------
                                                            
December 31, 2006 .....    $        ---   $    65,442    $       ---     $    ---
December 31, 2007 .....             ---     6,542,253            ---          ---
December 31, 2008 .....             ---    13,383,162            ---        9,954
December 31, 2009 .....      80,837,850     9,637,801     36,579,000          ---
December 31, 2010 .....      79,094,360    13,911,720     33,377,007      422,851
                           ------------   -----------    -----------     --------
Total carryover .....      $159,932,210   $43,540,378    $69,956,007     $432,805
                           ============   ===========    ===========     ========




                                  Science and     Small
                                   Technology      Cap            Value
                                   Portfolio     Portfolio      Portfolio
                                 -----------------------------------------
                                                      
December 31, 2009 ...            $ 35,158,646   $41,349,713    $    85,194
December 31, 2010 ...              28,805,115    16,908,229      6,826,049
                                 ------------   -----------    -----------
Total carryover .....            $ 63,963,761   $58,257,942    $ 6,911,243
                                 ============   ===========    ===========


NOTE 5 -- OPTIONS

Options purchased by a Portfolio are accounted for in the same manner as
marketable portfolio securities. The cost of portfolio securities acquired
through the exercise of call options is increased by the premium paid to
purchase the call. The proceeds from securities sold through the exercise of put
options are decreased by the premium paid to purchase the put.

When the Portfolio writes (sells) an option, an amount equal to the premium
received by the Portfolio is recorded as a liability. The amount of the
liability is subsequently adjusted to reflect the current market value of the
option written. The current market value of an option is the last sales price on
the principal exchange on which the option is traded or, in the absence of
transactions, the mean between the bid and asked prices or at a value supplied
by a broker-dealer. When an option expires on its stipulated expiration date or
the Portfolio enters into a closing purchase transaction, the Portfolio realizes
a gain (or loss if the cost of a closing purchase transaction exceeds the
premium received when the call option was sold) and the liability related to
such option is extinguished. When a written call option is exercised, the
premium is added to the proceeds from the sale of the underlying security in
determining whether the Portfolio has realized a gain or loss. For the
Portfolio, when a written put option is exercised, the cost basis of the
securities purchased by the Portfolio is reduced by the amount of the premium
received.

For Asset Strategy Portfolio, transactions in call options written were as
follows:



                                   Number of      Premiums
                                   Contracts      Received
                                  ----------     ----------
                                          
Outstanding at
  December 31, 2001 ..........           727    $   215,919
Options written ..............        28,782      7,213,616
Options terminated
  in closing purchase
  transactions ...............       (29,055)    (7,255,880)
Options exercised ............           ---            ---
Options expired ..............           ---            ---
                                 -----------    -----------
Outstanding at
  December 31, 2002 ..........           454    $   173,655
                                 ===========    ===========


For Asset Strategy Portfolio, transactions in put options written were as
follows:



                                 Number of     Premiums
                                 Contracts     Received
                                 ---------     --------
                                         
Outstanding at
  December 31, 2001 ..........         ---     $    ---
Options written ..............       1,300      254,592
Options terminated
  in closing purchase
  transactions ...............      (1,300)    (254,592)
Options exercised ............         ---          ---
Options expired ..............         ---          ---
                                 ---------     --------
Outstanding at
  December 31, 2002 ..........         ---     $    ---
                                 =========     ========


For Science and Technology Portfolio, transactions in call options written were
as follows:



                                   Number of      Premiums
                                   Contracts      Received
                                   ---------      --------
                                          
Outstanding at
  December 31, 2001 ..........         6,880    $ 1,722,986
Options written ..............        20,901      4,383,212
Options terminated
  in closing purchase
  transactions ...............       (19,251)    (3,827,672)
Options exercised ............        (4,703)    (1,015,749)
Options expired ..............        (1,430)      (165,438)
                                   ---------    -----------
Outstanding at
  December 31, 2002 ..........         2,397    $ 1,097,339
                                   =========    ===========


For Science and Technology Portfolio, transactions in put options written were
as follows:



                                   Number of      Premiums
                                   Contracts      Received
                                   ---------      --------
                                           
Outstanding at
  December 31, 2001 ..........           ---     $      ---
Options written ..............         7,719      1,198,735
Options terminated
  in closing purchase
  transactions ...............        (5,358)      (912,913)
Options exercised ............          (551)       (56,753)
Options expired ..............        (1,810)      (229,069)
                                   ---------     ----------
Outstanding at
  December 31, 2002 ..........           ---     $      ---
                                   =========     ==========


NOTE 6 -- FUTURES

No price is paid upon entering into a futures contract. Instead, upon entering
into a futures contract, the Portfolio is required to deposit, in a segregated
account, an amount of cash or United States Treasury Bills equal to a varying
specified percentage of the contract amount. This amount is known as the initial
margin. Subsequent payments ("variation margins") are made or received by the
Portfolio each day, dependent on the daily fluctuations in the value of the
underlying debt security or index. These changes in the variation margins are
recorded by the Portfolio as unrealized gains or losses. Upon the closing of the
contracts, the cumulative net change in the variation margin is recorded as
realized gain or loss. The Portfolio uses futures to attempt to reduce the
overall risk of its investments.



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders, W&R Target Funds, Inc.:

We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Asset Strategy Portfolio, Balanced Portfolio,
Bond Portfolio, Core Equity Portfolio, Growth Portfolio, High Income Portfolio,
International Portfolio, Limited-Term Bond Portfolio, Money Market Portfolio,
Science and Technology Portfolio, Small Cap Portfolio and Value Portfolio
(collectively the "Portfolios") comprising W&R Target Funds, Inc., as of
December 31, 2002, and the related statements of operations for the fiscal year
then ended, the statements of changes in net assets for each of the two fiscal
years in the period then ended (for the fiscal year ended December 31, 2002 and
the fiscal period from May 1, 2001 (commencement of operations) through December
31, 2001 for Value Portfolio), and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective Portfolios of W&R Target Funds, Inc. as of December 31, 2002,
the results of their operations for the fiscal year then ended, the changes in
their net assets for each of the two fiscal years in the period then ended (for
the fiscal year ended December 31, 2002 and the fiscal period from May 1, 2001
(commencement of operations) through December 31, 2001 for Value Portfolio), and
their financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
Kansas City, Missouri
February 7, 2003



THE BOARD OF DIRECTORS OF W&R Target Funds, Inc.

Each of the individuals listed below serves as a director for each of the
portfolios within the Waddell & Reed Advisors Funds, W&R Funds, Inc., Waddell &
Reed InvestEd Portfolios, Inc. and W&R Target Funds, Inc. for a total of 47
portfolios served. Three of the four interested directors are "interested" by
virtue of their current or former engagement as officers of Waddell & Reed
Financial, Inc. (WDR) or its wholly-owned subsidiaries, including the funds'
investment advisor, Waddell & Reed Investment Management Company (WRIMCO); the
funds' principal underwriter, Waddell & Reed, Inc. (W&R); and the funds'
transfer agent, Waddell & Reed Services Company (WRSCO), as well as by virtue of
their personal ownership of shares of WDR. The fourth interested director is a
partner in a law firm that has represented W&R within the past two years.

The other directors (more than a majority of the total number) are
disinterested; that is, they are not employees or officers of, and have no
financial interest in, WDR or any of its wholly-owned subsidiaries, including
W&R, WRIMCO and WRSCO.



DISINTERESTED DIRECTORS

James M. Concannon (55)
Washburn Law School, 1700 College, Topeka, KS 66621 Position held with Fund:
Director
Director since: 1997
Principal Occupations During Past 5 Years: Professor of Law, Washburn Law
School; formerly, Dean, Washburn Law School
Other Directorships held by Director: Director, Am Vestors CBO II, Inc., a bond
investment firm

John A. Dillingham (64)
4040 Northwest Claymont Drive, Kansas City, MO 64116
Position held with Fund: Director
Director since: 1997
Principal Occupations During Past 5 Years: President and Director, JoDill Corp.
and Dillingham Enterprises, Inc., both farming enterprises; formerly, Instructor
at Central Missouri State University; formerly, Consultant and Director,
McDougal Construction Co.
Other Directorships held by Director: Chairman, Clay Co. IDA and Kansas City
Municipal Assistance Corp., both bonding authorities; Director, American Royal
and Salvation Army

David P. Gardner (69)
2441 Iron Canyon Drive, Park City UT 84060
Position held with Fund: Director
Director since: 1998
Principal Occupation During Past 5 Years: formerly, President, William and Flora
Hewlett Foundation
Other Directorships held by Director: Chairman, J. Paul Getty Trust; Director,
Fluor Corp., Campus Pipeline, John & Karen Huntsman Foundation and Huntsman
Cancer Foundation; formerly, Chairman, George S. and Dolores Dor'e Eccles
Foundation; formerly, Director, First Security Corp., Digital Ventures and
Charitableway

Linda K. Graves (49)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund: Director
Director since: 1995
Principal Occupation During Past 5 Years: formerly, First Lady of Kansas
Other Directorships held by Director: Chairman & Director, Community Foundation
of Johnson County; Director, Greater Kansas City Community Foundation; Director,
American Guaranty Life Insurance Company

Joseph Harroz, Jr. (36)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund: Director
Director since: 1998
Principal Occupations During Past 5 Years: General Counsel, University of
Oklahoma, Cameron University and Rogers State University; Vice President,
University of Oklahoma; Adjunct Professor, University of Oklahoma Law School;
Managing Member, Harroz Investments, LLC, commercial enterprise investments
Other Directorships held by Director: Treasurer, Oklahoma Appleseed (Center for
Law and Justice); Trustee, Ivy Fund

John F. Hayes (83)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund: Director
Director since: 1988
Principal Occupation During Past 5 Years: Chairman, Gilliland & Hayes, PA, a law
firm
Other Directorships held by Director: Director, Central Bank & Trust and Central
Financial Corp.; formerly, Director, Central Properties, Inc.

Glendon E. Johnson (79)
13635 Deering Bay Drive, Unit 284, Miami, FL 33158
Position held with Fund: Director
Director since: 1971
Principal Occupations During Past 5 Years: Retired; formerly, Chief Executive
Officer and Director, John Alden Financial Corp.
Other Directorships held by Director: Manager, Castle Valley Ranches LLC;
Chairman, Wellness Council of America; Chairman, Bank Assurance Partners,
marketing; Executive Board and Advisory Committee, Boy Scouts of America

Eleanor B. Schwartz (66)
1213 W. 95th Ct., Chartwell #4, Kansas City, MO 64114
Position held with Fund: Director
Director since: 1995
Principal Occupations During Past 5 Years: Professor, University of Missouri at
Kansas City; formerly, Chancellor, University of Missouri at Kansas City
Other Directorships held by Director: Trustee, Ivy Fund

Frederick Vogel III (67)
6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director
Director since: 1971
Principal Occupation During Past 5 Years: Retired Other Directorships held by
Director: None



INTERESTED DIRECTORS

Robert L. Hechler (66)
6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Director;
formerly, President, Principal Financial Officer; formerly, Vice President
Director since: 1998
Principal Occupations During Past 5 Years: Consultant of WDR and W&R (2001 to
present); Director of WDR (1998 to present); Executive Vice President and Chief
Operating Officer of WDR (1998 to 2001); Director, Principal Financial Officer
and Treasurer of W&R (1981 to 2001); Chief Executive Officer and President of
W&R (1993 to 2001); Director, Executive Vice President, Principal Financial
Officer and Treasurer of WRIMCO (1985 to 2001); Director and Treasurer of WRSCO
(1981 to 2001); President of WRSCO (1981 to 1999) Other Directorships held by
Director: None

Henry J. Herrmann (60)
6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Director
and President; formerly, Vice President Director since: 1998; President since:
2001 Principal Occupation(s) During Past 5 Years: Director, President and Chief
Investment Officer of WDR (1998 to present); Treasurer of WDR (1998 to 1999);
Director of W&R (1993 to present); Director of WRIMCO (1992 to present);
President and Chief Executive Officer of WRIMCO (1993 to present); Chief
Investment Officer of WRIMCO (1991 to present); President and Chief Executive
Officer of Waddell & Reed Ivy Investment Company (WRIICO), an affiliate of WDR
(2002 to present); President of Ivy Fund (2002 to present) Other Directorships
held by Director: Director, Austin, Calvert & Flavin, an affiliate of WRIMCO;
Chairman and Director, Ivy Services. Inc., an affiliate of WRIICO; Director,
WRIICO; Trustee, Ivy Fund

Frank J. Ross, Jr. (49)
Polsinelli, Shalton & Welte,700 West 47th Street, Suite 1000, Kansas City, MO
64112 Position held with Fund: Director Director since: 1996 Principal
Occupation During Past 5 Years: Shareholder/Director, Polsinelli,
Shalton & Welte, a law firm
Other Directorships held by Director: Director, Columbian Bank & Trust

Keith A. Tucker (58)
6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Chairman of
the Board of Directors and Director; formerly, President Director since: 1993;
Chairman of the Board of Directors since: 1998 Principal Occupation(s) During
Past 5 Years: Chairman of the Board of Directors, Director and Chief Executive
Officer of WDR (1998 to present); Principal Financial Officer of WDR (1998 to
1999); Chairman of the Board of Directors and Director of W&R, WRIMCO and WRSCO
(1993 to present); Vice Chairman of the Board of Directors of Torchmark
Corporation (1991 to 1998) Other Directorships held by Director: Chairman of the
Board and Trustee, Ivy Fund



OFFICERS

Theodore W. Howard (60)
6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice
President, Treasurer, Principal Accounting Officer, and Principal Financial
Officer Length of Time Served: Vice President, Treasurer and Principal
Accounting Officer, 16 years; Principal Financial Officer, 1 year Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRSCO (2001 to
present); Vice President of WRSCO (1988 to 2001); Vice President and Assistant
Treasurer of Ivy Fund (2002 to present) Directorships held: None

Kristen A. Richards (35)
6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice
President, Secretary and Associate General Counsel
Length of Time Served: 3 years
Principal Occupation(s) During Past 5 Years: Vice President, Associate General
Counsel and Chief Compliance Officer of WRIMCO (2000 to present); Vice
President, Associate General Counsel and Chief Compliance Officer of WRIICO
(2002 to present); Vice President and Secretary of Ivy Fund (2002 to present);
Assistant Secretary of each of the funds in the Fund Complex (1998 to 2000);
Compliance Officer of WRIMCO (1995 to 1998) Directorships held: None

Daniel C. Schulte (37)
6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice
President, Assistant Secretary and General Counsel
Length of Time Served: 3 years
Principal Occupation(s) During Past 5 Years: Vice President, Secretary and
General Counsel of WDR (2000 to present); Senior Vice President, Secretary and
General Counsel of W&R, WRIMCO and WRSCO (2000 to present); Senior Vice
President, General Counsel and Assistant Secretary of Ivy Services, Inc. (2002
to present); Vice President, General Counsel and Assistant Secretary of WRIICO
(2002 to present); Vice President and Assistant Secretary of Ivy Fund (2002 to
present); Assistant Secretary of WDR (1998 to 2000); an attorney with Klenda,
Mitchell, Austerman & Zuercher, L.L.C. (1994 to 1998) Directorships held: None

Michael D. Strohm (51)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President Length of Time Served: 1 year
Principal Occupation(s) During Past 5 Years: Senior Vice President of WDR (1998
to present); Chief Operations Officer of WDR (2002 to present); President,
Director, Chief Executive Officer and Chief Financial Officer of W&R (2002 to
present); Senior Vice President of W&R (1994 to 2002); President and Director of
WRSCO (1999 to present); President and Chief Executive Officer of Ivy Services,
Inc. (2002 to present); Vice President of Ivy Fund (2002 to present)
Directorships held: Director of WRIICO and Ivy Services, Inc.

Michael L. Avery (49)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 6 years Principal
Occupation(s) During Past 5 Years: Senior Vice President/Vice President and
Director of Research for WRIMCO (1987 to present); portfolio manager for
investment companies managed by WRIMCO (1994 to present) Directorships held:
None

James C. Cusser (53)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 11 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO
(1992 to 2000); portfolio manager for investment companies managed by WRIMCO
(1992 to present); Senior Vice President of WRIICO (2002 to present); portfolio
manager for investment companies managed by WRIICO (2002 to present)
Directorships held: None

Harry M. Flavin (59)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 2 years Principal
Occupation(s) During Past 5 Years: President, Co-Chief Investment Officer of
Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO; Senior Vice President of
WRIMCO (2000 to present); portfolio manager for investment companies managed by
WRIMCO (2000 to present) Directorships held: Director of Austin, Calvert &
Flavin, Inc.

Thomas A. Mengel (45)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 7 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO
(1996 to 2000); portfolio manager for investment companies managed by WRIMCO
(1996 to present); Senior Vice President of WRIICO (2002 to present); portfolio
manager for investment companies managed by WRIICO (2002 to present)
Directorships held: None

William M. Nelson (42)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 4 years Principal
Occupation(s) During Past 5 Years: Vice President of WRIMCO (1999 to present);
employee of WRIMCO (1995 to present) Directorships held: None

Cynthia P. Prince-Fox (44)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 9 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Co-Chief Investment Officer and Vice President of Austin, Calvert &
Flavin (2001 to present); Vice President of WRIMCO (1993 to 2000); portfolio
manager for investment companies managed by WRIMCO (1993 to present)
Directorships held: None

Philip J. Sanders (43)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 5 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Vice President of WRIMCO (1998 to 2000); portfolio manager for
investment companies managed by WRIMCO (1998 to present) Directorships held:
None

Grant P. Sarris (36)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 4 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO
(1998 to 2000); portfolio manager for investment companies managed by WRIMCO
(1998 to present); assistant portfolio manager for investment companies managed
by WRIMCO (1996 to 1998); Senior Vice President of WRIICO (2002 to present);
portfolio manager for investment companies managed by WRIICO (2002 to present)
Directorships held: None

Zachary H. Shafran (37)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 2 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Vice President of Ivy Fund (2002 to present); Vice President of WRIMCO
(1996 to 2000); portfolio manager for investment companies managed by WRIMCO
(1996 to present); Senior Vice President of WRIICO (2002 to present); portfolio
manager for investment companies managed by WRIICO (2002 to present)
Directorships held: None

W. Patrick Sterner (54)
6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 9 years Principal
Occupation(s) During Past 5 Years: Senior Vice President of WRIMCO (2000 to
present); Vice President of WRIMCO (1992 to 2000); portfolio manager for
investment companies managed by WRIMCO (1992 to present) Directorships held:
None

Mira Stevovich (49)

6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President, Assistant Treasurer and portfolio manager Length of Time Served: 5
years
Principal Occupation(s) During Past 5 Years: Vice President and Assistant
Treasurer of WRIMCO (1998 to present); Vice President and Assistant Treasurer of
Ivy Fund (2002 to present); Senior Vice President of WRIICO (2002 to present);
portfolio manager for investment companies managed by WRIMCO (1998 to present);
portfolio manager for investment companies managed by WRIICO (2002 to present);
assistant portfolio manager for investment companies managed by WRIMCO and its
predecessor (1989 to 1998)
Directorships held: None

Daniel J. Vrabac (48)

6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 6 years Principal
Occupation(s) During Past 5 Years: Senior Vice President and Head of Fixed
Income for WRIMCO (2000 to present); portfolio manager for investment companies
managed by WRIMCO (1997 to present); Vice President of WRIMCO (1997 to 2000)
Directorships held: None

James D. Wineland (51)

6300 Lamar Avenue, Overland Park KS 66202 Position held with Fund: Vice
President and portfolio manager Length of Time Served: 6 years Principal
Occupation(s) During Past 5 Years: Senior Vice President/Vice President of
WRIMCO (1988 to present); Vice President of Ivy Fund (2002 to present);
portfolio manager for investment companies managed by WRIMCO and its predecessor
(1988 to present); Senior Vice President of WRIICO (2002 to present); portfolio
manager for investment companies managed by WRIICO (2002 to present)
Directorships held: None



ANNUAL PRIVACY NOTICE

Waddell & Reed, Inc., Waddell & Reed Advisors Group of Mutual Funds and W&R
Funds, Inc. ("Waddell & Reed") are committed to ensuring their customers have
access to a broad range of products and services to help them achieve their
personal financial goals. In the course of doing business with Waddell & Reed,
customers are requested to share financial information and they may be asked to
provide other personal details. Customers can be assured that Waddell & Reed is
diligent in its efforts to keep such information confidential.

Recognition of a Customer's Expectation of Privacy At Waddell & Reed, we believe
the confidentiality and protection of customer information is one of our
fundamental responsibilities. And while information is critical to providing
quality service, we recognize that one of our most important assets is our
customers' trust. Thus, the safekeeping of customer information is a priority
for Waddell & Reed.

Information Collected

In order to tailor available financial products to your specific needs, Waddell
& Reed may request that you complete a variety of forms that require nonpublic
personal information about your financial history and other personal details,
including but not limited to, your name, address, social security number,
assets, income and investments. Waddell & Reed may also gather information about
your transactions with us, our affiliates and others.

Categories of Information that may be Disclosed While Waddell & Reed may
disclose information it collects from applications and other forms, as described
above, we at Waddell & Reed also want to assure all of our customers that
whenever information is used, it is done with discretion. The safeguarding of
customer information is an issue we take seriously.

Categories of Parties to whom we disclose nonpublic personal information Waddell
& Reed may disclose nonpublic personal information about you to the following
types of third parties: selectively chosen financial service providers, whom we
believe have valuable products or services that could benefit you. Whenever we
do this, we carefully review the company and the product or service to make sure
that it provides value to our customers. We share the minimum amount of
information necessary for that company to offer its product or service. We may
also share information with unaffiliated companies that assist us in providing
our products and services to our customers; in the normal course of our business
(for example, with consumer reporting agencies and government agencies); when
legally required or permitted in connection with fraud investigations and
litigation; and at the request or with the permission of a customer.

Opt Out Right

If you prefer that we not disclose nonpublic personal information about you to
nonaffiliated third parties, you may opt out of those disclosures, that is, you
may direct us not to make those disclosures (other than disclosures permitted by
law). If you wish to opt out of disclosures to nonaffiliated third parties,
please provide a written request to opt-out with your name and social security
number to your financial advisor.

Confidentiality and Security

We restrict access to nonpublic personal information about you to those
employees who need to know that information to provide products and services to
you. We maintain physical, electronic, and procedural safeguards that comply
with federal standards to guard your nonpublic personal information. If you
decide to close your account(s) or become an inactive customer, we will adhere
to the privacy policies and practices as described in this notice.

This report is submitted for the general information of the shareholders of W&R
Target Funds, Inc. It is not authorized for distribution to prospective
investors in the Fund unless accompanied with or preceded by the W&R Target
Funds, Inc. current prospectus and current Fund performance information.



ASSET STRATEGY Portfolio
Goal: To seek high total return over the long term.

Invested In: An allocation of its assets among stocks, bonds (of any quality)
and short-term instruments.

BALANCED Portfolio
Goals: To seek current income, with a secondary goal of long-term
appreciation of capital.

Invested in: Primarily a mix of stocks, fixed-income securities and cash,
depending on market conditions.

BOND Portfolio
Goal: To seek a reasonable return with emphasis on preservation of capital.

Invested In: Primarily domestic debt securities, usually of investment grade.

CORE EQUITY Portfolio
Goals: To seek capital growth and income.

Invested In: Primarily common stocks of large, high-quality U.S. and foreign
companies that are well known, have been consistently profitable and
have dominant market positions in their industries.

GROWTH Portfolio
Goals: To seek capital growth, with a secondary goal of current income.

Invested In: Primarily common stocks of U.S. and foreign companies with market
capitalization of at least $1 billion representing faster growing
sectors of the economy, such as the technology, health care and
consumer-oriented sectors.

HIGH INCOME Portfolio
Goals: To seek a high level of current income, with a secondary goal
of capital growth.

Invested In: Primarily high-yield, high-risk, fixed-income securities of U.S.
and foreign issuers.

INTERNATIONAL Portfolio
Goals: To seek long-term appreciation of capital, with a secondary
goal of current income.

Invested in: Primarily common stocks of foreign companies that may have the
potential for long-term growth.

LlMITED-TERM BOND Portfolio
Goal: To seek a high level of current income consistent with
preservation of capital.

Invested in: Primarily investment-grade debt securities of U.S. issuers,
including U.S. Government securities. The Portfolio maintains a
dollar-weighted average portfolio maturity of 2-5 years.

MONEY MARKET Portfolio
Goal: To seek maximum current income consistent with stability of principal.

Invested In: U.S. dollar-denominated, high-quality money market obligations and
instruments.

SCIENCE AND TECHNOLOGY Portfolio
Goal: To seek long-term capital growth.

Invested in: Primarily in the equity securities of U.S. and foreign science and
technology companies whose products, processes or services are being or
are expected to be significantly benefited by the use or commercial
application of scientific or technological developments or discoveries.

SMALL CAP Portfolio
Goal: To seek growth of capital.

Invested in: Primarily common stocks of relatively new or unseasoned companies
in their early stages of development, or smaller companies positioned
in new or in emerging industries where the opportunity for rapid growth
is above average.

VALUE Portfolio
Goal: To seek long-term capital appreciation.

Invested in: Primarily stocks of large U.S. and foreign companies that are
undervalued relative to the true worth of the company.

FOR MORE INFORMATION:
Contact your financial advisor, or your local office as listed on your Account
Statement, or contact:
        United Investors Life                      Nationwide Financial, Inc.
        Variable Products Division            or   P.O. Box 182449
        P.O. Box 156                               One Nationwide Plaza
        Birmingham, AL 35201-0156                  Columbus, OH 43218-2449
        (205)325-4300                              1-888-867-5175

                              OR CALL 1-888-WADDELL

For more complete information regarding the W&R Target Funds, including charges
and expenses, please obtain the Fund's prospectus by calling or writing to the
number or address listed above. Please read the prospectus carefully before
investing.

NUR1016A(12-02)

EX-99.17(I)

                                                                   EXHIBIT 17(i)

                                   [GRAPHIC]

                               DECEMBER 31, 2002

                                 ANNUAL REPORT
                           ADVANTUS SERIES FUND, INC.
                  OFFERED IN MINNESOTA LIFE VARIABLE PRODUCTS

                     [ADVANTUS{TM} SERIES FUND, INC. LOGO]

                                    EQUITIES
                           MICRO-CAP GROWTH PORTFOLIO
                         SMALL COMPANY GROWTH PORTFOLIO
                         INTERNATIONAL STOCK PORTFOLIO
                         CAPITAL APPRECIATION PORTFOLIO
                         SMALL COMPANY VALUE PORTFOLIO
                          INDEX 400 MID-CAP PORTFOLIO
                                GROWTH PORTFOLIO
                              INDEX 500 PORTFOLIO
                             VALUE STOCK PORTFOLIO
                           MACRO-CAP VALUE PORTFOLIO
                        REAL ESTATE SECURITIES PORTFOLIO

                              FIXED INCOME/HYBRID
                           ASSET ALLOCATION PORTFOLIO
                             GLOBAL BOND PORTFOLIO
                                 BOND PORTFOLIO
                         MORTGAGE SECURITIES PORTFOLIO
                    MATURING GOVERNMENT BOND 2002 PORTFOLIO
                    MATURING GOVERNMENT BOND 2006 PORTFOLIO
                    MATURING GOVERNMENT BOND 2010 PORTFOLIO

                                  MONEY MARKET
                             MONEY MARKET PORTFOLIO

                                 MINNESOTA LIFE

                            VARIABLE LIFE INSURANCE*
                            VARIABLE ADJUSTABLE LIFE
                     VARIABLE ADJUSTABLE LIFE-SECOND DEATH
                        VARIABLE ADJUSTABLE LIFE-HORIZON

                              VARIABLE ANNUITIES*
                            MULTIOPTION(R) ACHIEVER
                             MULTIOPTION(R) CLASSIC
                             MULTIOPTION(R) SELECT
                             MULTIOPTION(R) SINGLE
                            MULTIOPTION(R) FLEXIBLE
                                   MEGANNUITY
                 UNIVERSITY OF MINNESOTA MULTIOPTION(R) ANNUITY
                           ADJUSTABLE INCOME ANNUITY
                                FLEXANNUITY PLUS
                               INVESTANNUITY PLUS
                        INDIVIDUAL ACCUMULATION ANNUITY
                           GROUP ACCUMULATION ANNUITY

                              GROUP VARIABLE LIFE*
                         VARIABLE GROUP UNIVERSAL LIFE

*SECURITIES OFFERED THROUGH SECURIAN FINANCIAL SERVICES, INC. MEMBER NASD/SIPC



SUPPLEMENT DATED FEBRUARY 3, 2003 TO THE ADVANTUS SERIES FUND, INC. PROSPECTUS
DATED MAY 1, 2002.

1. At its meeting held January 30, 2003, the Board of Directors of Advantus
Series Fund, Inc. (the "Fund") approved the following changes:

- - Effective May 1, 2003, the current investment sub-advisor for the Capital
Appreciation Portfolio, Credit Suisse Asset Management LLC, will be replaced by
a new sub-advisor, Voyageur Asset Management, Inc. ("Voyageur"), 90 South
Seventh Street, Suite 4300, Minneapolis, Minnesota 55406. Voyageur will provide
investment advice and generally conduct the investment management program for
the Capital Appreciation Portfolio. There will be no changes in the investment
objective or the principal investment policies of the Capital Appreciation
Portfolio under Voyageur, although it is anticipated that the number of issuers
whose securities will be held by the Portfolio will be fewer than is currently
the case. The Portfolio will be managed by a team of Voyageur investment
professionals.

- - Effective May 1, 2003, the investment sub-advisory agreement covering the
Macro-Cap Value Portfolio between the Portfolio's current sub-advisor, J.P.
Morgan Investment Management, Inc., and the Fund's investment advisor, Advantus
Capital Management, Inc. ("Advantus Capital"), will terminate. Thereafter, the
Portfolio will be managed directly by Advantus Capital. Also effective May 1,
2003, the name of the Portfolio will be changed to the Core Equity Portfolio.
There will be no change in the investment objective of the Portfolio. Under its
current name, however, the Portfolio follows a policy of investing, under normal
circumstances, at least 80% of its net assets in common stocks of very large
capitalization companies (i.e., companies with a market capitalization of at
least $8 billion). Under its new name, the Portfolio will no longer follow that
80% investment policy. Rather, the Core Equity Portfolio will normally invest at
least 75% of its net assets in common stocks of large capitalization companies
with market capitalizations of at least $7 billion. Consistent with this new
policy, the Core Equity Portfolio will invest in securities of companies that
Advantus Capital believes are undervalued relative to either their potential for
improved operating performance and financial strength or their future growth
potential. The Core Equity Portfolio will be managed by Alan D. Steinkopf,
Senior Investment Officer, Equities and Portfolio Manager of Advantus Capital
since May 2000; Assistant Portfolio Manager, Advantus Capital, From June 1998 to
April 2000; and Investment Officer, Advantus Capital, from June 1993 to June
1998.

- - Effective May 1, 2003, the Global Bond Portfolio will change its name to the
International Bond Portfolio. There will be no change in the investment
objective of the Portfolio. However, certain of the investment policies of the
Portfolio will change as it will no longer, under normal circumstances, invest a
portion of its assets in securities or debt obligations issued or guaranteed by
the U.S. government and its agencies or by domestic corporate issuers. Julius
Baer Investment Management Inc. will continue to serve as the Portfolio's
investment sub-advisor, and will be solely responsible for the Portfolio's
investment management program.

2. Effective January 10, 2003, Edgerton Tucker Scott III, Vice President and
Research Analyst with Templeton Investment Counsel, LLC, is the sole portfolio
manager for the International Stock Portfolio. Mr. Scott has served as a
co-portfolio manager of the Portfolio since February 1, 2000.

3. The paragraph captioned "Voluntary Fee Absorption" on page 59 of the
prospectus is amended to read as follows:

Advantus Capital is currently voluntarily absorbing all fees and expenses that
exceed 1.10% of average daily net assets for the Small Company Value Portfolio,
1.07% of average daily net assets for the Macro-Cap Value Portfolio, and 1.34%
of average daily net assets for the Micro-Cap Growth Portfolio. Advantus Capital
has not agreed to absorb expenses over a specified period of time and it may
cease its absorption of expenses at any time. If it does so, some Portfolio
expenses would increase and thereby reduce investment return.

Investors should retain this supplement for future reference.

F. 58815 2-2003



                               TABLE OF CONTENTS



                                                            PAGE NO.
                                                            
HOW TO USE THIS REPORT                                           1
PORTFOLIO TOTAL RETURN                                           2
PRESIDENT'S LETTER                                               3
PORTFOLIO MANAGER REVIEWS
     Growth Portfolio                                            4
     Bond Portfolio                                              6
     Money Market Portfolio                                      8
     Asset Allocation Portfolio                                 10
     Mortgage Securities Portfolio                              12
     Index 500 Portfolio                                        14
     Capital Appreciation Portfolio                             16
     International Stock Portfolio                              18
     Small Company Growth Portfolio                             20
     Maturing Government Bond 2006 Portfolio                    22
     Maturing Government Bond 2010 Portfolio                    22
     Value Stock Portfolio                                      26
     Small Company Value Portfolio                              28
     Global Bond Portfolio                                      30
     Index 400 Mid-Cap Portfolio                                32
     Macro-Cap Value Portfolio                                  34
     Micro-Cap Growth Portfolio                                 36
     Real Estate Securities Portfolio                           38
INDEPENDENT AUDITORS' REPORT                                    40
INVESTMENTS IN SECURITIES
     Growth Portfolio                                           41
     Bond Portfolio                                             45
     Money Market Portfolio                                     51
     Asset Allocation Portfolio                                 54
     Mortgage Securities Portfolio                              62
     Index 500 Portfolio                                        67
     Capital Appreciation Portfolio                             78
     International Stock Portfolio                              80
     Small Company Growth Portfolio                             83
     Maturing Government Bond 2006 Portfolio                    86
     Maturing Government Bond 2010 Portfolio                    87
     Value Stock Portfolio                                      88
     Small Company Value Portfolio                              91
     Global Bond Portfolio                                      96
     Index 400 Mid-Cap Portfolio                               101
     Macro-Cap Value Portfolio                                 110
     Micro-Cap Growth Portfolio                                114
     Real Estate Securities Portfolio                          117
FINANCIAL STATEMENTS
     Statements of Assets and Liabilities                      120
     Statements of Operations                                  124
     Statements of Changes in Net Assets                       128
     Notes to Financial Statements                             136
DIRECTORS AND EXECUTIVE OFFICERS                               171




                             HOW TO USE THIS REPORT

Some of our clients prefer a narrative account of their Advantus Series Fund
investments while other clients prefer full financial statements. This report is
designed to meet both preferences.

For a narrative account of each Portfolio's performance, investment strategies
and holdings by the Portfolio Manager, refer to the front section of the report.
Comprehensive investment holdings, market values and financial reports begin on
page 41.

Performance charts graphically compare each Portfolio's performance with select
investment indices and other benchmarks. This comparison provides you with more
information about your investments.

The charts are useful because they illustrate performance over the same time
frame and over a long period. There are limitations, however. An index may
reflect the performance of securities that the Portfolio may not hold. Also, the
index does not deduct investment advisory fees and other fund expenses--whereas
your Portfolio does. Individuals cannot invest in the index itself, nor can they
invest in any fund which seeks to track the performance of the index without
incurring some charges and expenses.

This report is just one of several tools you can use to learn more about your
investment(s) in the Advantus Series Fund. Your Securian Sales Representative,
who understands your personal financial situation, can best explain the features
of your investment and how they apply to your financial needs.

                                        1



                             PORTFOLIO TOTAL RETURN

[CHART]

                          YEAR ENDED DECEMBER 31, 2002



                                        PERCENTAGE OF RETURN
                                     
Growth                                         -25.4%
Bond                                            10.5%
Money Market                                     1.3%
Asset Allocation                                -9.0%
Mortgage Securities                              9.7%
Index 500                                      -22.4%
Capital Appreciation                           -31.5%
International Stock                            -17.8%
Small Company Growth                           -31.8%
MGB 2006                                        13.0%
MGB 2010                                        18.9%
Value Stock                                    -15.3%
Small Company Value                            -20.0%
Global Bond                                     17.9%
Index 400 Mid-Cap                              -15.0%
Macro-Cap Value                                -28.1%
Micro-Cap Growth                               -43.6%
Real Estate Securities                           7.0%


Historical results are not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower. Please
refer to the individual Portfolio reviews contained within the prospectus for
information regarding the standardized performance for 1, 5 and 10 years.

                                        2



LETTER FROM THE PRESIDENT

[PHOTO OF DIANNE ORBISON]

Dear Shareholders:
Although economic growth has slowed dramatically, we believe it has not stopped,
and THAT is reason for optimism. Growth drives our economy and markets. In the
first six months of the year, growth, as measured by the gross national product,
dropped from 5 percent to 1.3 percent, with a similar up and down pattern in the
second half, as well. Over the past 18 months, we've had unprecedented levels of
fiscal and monetary stimuli that simply have not taken hold. Stimulative fiscal
and monetary policies--together with low inflation--are in place. We feel these
are powerful tools to help mend an ailing economy, but these policies have
generated a limited economic rebound so far.

Staying optimistic was a daunting task for equity investors. The S&P 500* ended
the year at -22.10 percent. This was the third consecutive year of negative
returns in this broad market index, which hasn't occurred since the period from
1939 through 1941. Missed or reduced earnings, accounting fraud, and no distinct
catalyst for an equity market recovery impacted investor sentiment. Market
upswings came in short limited spurts in the second half of the year, but
nothing that resembled a dramatic recovery. As sentiment sank lower, more
uncertainty was unleashed in the market. Fallout from corporate scandals and
accounting problems was not limited to the stock market. The corporate bond
sector of the fixed income market was also adversely affected by numerous
defaults and bankruptcies. In 2002, slowing U.S. and global economies, continued
equity market volatility, and growing global tensions have all contributed to an
environment of extreme uncertainty. In periods of uncertainty, we feel investors
become defensive. On the domestic front, Treasuries were the year's strongest
performers.

Under our forecasted scenario for 2003, we expect that the capital markets
should perform marginally better than they did in 2002. We believe that in the
upcoming year:

* Corporate profits will improve, however, investors will not be convinced until
they are both reported and CONFIRMED. It will be important that perception of
corporate governance and fiduciary integrity improve before the main street
investor feels comfortable reentering the market en masse.

* The Federal Reserve has aggressively eased monetary policy over the past two
years, and we expect the highly stimulative policy to remain in place until a
"confirmed" pattern of historic trend growth is evident. Under this
circumstance, we believe bonds will remain in a trading range with only moderate
upward pressure on the front end of the yield curve as the Fed gradually puts
the brakes to its policy of easing. We expect this to happen late in the year.
The Fed will probably not complete the process of restoring the funds rate to
neutral until 2004 or later.

* Corporate credits will very slowly improve as debt is reduced and profits
begin to improve. We believe this will result in narrowing yield spreads which
consequently will result in corporate bonds outperforming U.S. Treasury bonds.

Over all, in 2003, we believe investors will begin to recapture some of the
equity losses incurred over the past three painful years. Sincerely,

                                    /s/ Dianne Orbison

                                    Dianne Orbison
                                    President, Advantus Series Fund

Past performance is not necessarily indicative of future results.
* The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

                                        3



GROWTH PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF THOMAS A. GUNDERSON]

THOMAS A. GUNDERSON, CFA
PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

The Growth Portfolio seeks the long-term accumulation of capital, with current
income as a secondary objective. It invests primarily in common stocks and other
equity securities.

PERFORMANCE

The Growth Portfolio posted a return of -25.44 percent* for the year ended
December 31, 2002. The Portfolio's benchmark, the Russell 1000 Growth Index**,
posted a return of -27.89 percent for the same period.

PERFORMANCE ANALYSIS

Wide spread turmoil in the stock market occurred over the past 12 months as a
result of an uncertain economic recovery, numerous accounting issues, and a
sharp deterioration in the credibility of corporate America. The market traded
broadly lower, with growth stocks declining more than value stocks.

The Portfolio was able to exceed its performance benchmark by superior stock
selection combined with underweights in the hardest hit areas of the market -
Technology, Communication Services and Growth Utilities.

Health Care was broadly lower due to slowing earnings growth rates in
pharmaceuticals and biotech products. The strongest areas in Health Care were in
the equipment area where the Portfolio had several successful stocks. Zimmer
Holdings, Inc., an orthopedics manufacturer, gained over 33 percent for the year
as earnings grew over 30 percent the past three quarters. Boston Scientific,
medical devices, was another winner gaining over 45 percent as they became well
positioned to participate in the emerging drug coated stent market. Looking
ahead, we believe a strong demographic tail wind, combined with lower valuation
levels, and a possible prescription drug benefit for seniors make the Health
Care sector one of increasing interest. As of December 31, 2002, Health Care is
the largest sector comprising 24.30 percent of net assets.

A continued lack of revenue or earnings growth led Technology stocks lower
during the period. Corporations are not spending much on Technology investments
in today's uncertain environment. Many companies in this sector are in the
process of being "right sized" to meet the likely demand going forward. While
the current environment is tough, history indicates that as corporate earnings
growth improves Technology spending will accelerate along with a general pick up
in capital spending. The stock selection process is focused on the companies
that are well positioned for strong and sustained growth in the years ahead when
spending comes back to more normal levels.

The strongest sector was Consumer Staples, posting a relatively modest 5 percent
decline for the year. Steady growing and well managed companies like Sysco
Corporation, food distribution, and Colgate-Palmolive Company, personal care
products, contributed to Portfolio performance. Due to price strength some
positions have been cut back in this area.

Overall, a disciplined stock selection approach and a focus on sustainable
growth allowed the Portfolio to select attractive companies for investment and
avoid or minimize the worst hit portions of the market. Underweights in the
Technology, Communication Services, and higher growth Utility sectors added 100
basis points to performance over the past year.

OUTLOOK

The Portfolio continues to be fully invested, as it has all year, with cash
remaining in the 1-3 percent range. We continue to invest in companies that can
show real and sustainable growth that is the result of high returns on company
investments, not from financial maneuvering to boost short-term earnings per
share. The Portfolio is also taking a diversified approach to manage risk in
this market, having a little over 100 names in the Portfolio. In addition, the
Portfolio is positioned to excel regardless of the timing or strength of an
economic recovery (or a "double dip" scenario) as it remains well diversified
across the major economic sectors.

                                        4



TEN LARGEST STOCK HOLDINGS



                                             MARKET        % OF STOCK
COMPANY                          SHARES       VALUE         PORTFOLIO
- -------                        ---------   ------------    ----------
                                                  
Pfizer, Inc.                     422,325   $ 12,910,475        6.6%
Microsoft Corporation            197,500     10,210,750        5.2%
General Electric Company         378,600      9,218,910        4.7%
Johnson & Johnson                144,700      7,771,837        4.0%
Wal-Mart Stores, Inc.            117,000      5,909,670        3.0%
Cisco Systems, Inc.              360,084      4,717,100        2.4%
Amgen, Inc.                       95,500      4,616,470        2.4%
Procter & Gamble Company          50,600      4,348,564        2.2%
Colgate-Palmolive Company         75,300      3,947,979        2.0%
3M Company                        30,700      3,785,310        1.9%
                                           ------------     --------
                                           $ 67,437,065       34.4%
                                           ============     ========


[CHART]

                                              
Cash and Other Assets/Liabilities                 1.2%
Transportation                                    0.4%
Basic Materials                                   0.6%
Communication Services                            1.3%
Energy                                            2.7%
Capital Goods                                     8.1%
Financial                                        10.7%
Consumer Staples                                 13.5%
Consumer Cyclical                                14.5%
Technology                                       22.7%
Health Care                                      24.3%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
             A HYPOTHETICAL $10,000 INVESTMENT IN GROWTH PORTFOLIO,
               RUSSELL 1000 GROWTH INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                                                   
One year                                              -25.44%
Five year                                              -5.80%
Ten year                                                4.28%





                                        RUSSELL 1000
           GROWTH PORTFOLIO     CPI     GROWTH INDEX
                               
12/31/92       $10,000        $10,000     $10,000
12/31/93       $11,518        $10,579     $10,288
12/31/94       $11,610        $10,876     $10,562
12/31/95       $14,429        $11,151     $14,491
12/31/96       $16,904        $11,520     $17,841
12/31/97       $22,552        $11,723     $23,278
12/31/98       $30,378        $11,912     $32,290
12/31/99       $38,174        $12,223     $38,922
12/31/00       $29,840        $12,643     $30,195
12/31/01       $22,440        $12,839     $24,031
12/31/02       $15,208        $13,150     $19,145


On the chart above you can see how the Growth Portfolio's total return compared
to the Russell 1000 Growth Index and the Consumer Price Index. The three lines
represent the total return of a hypothetical $10,000 investment made on December
31, 1992 through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower. ** The
Russell 1000 Growth Index contains those stocks from the Russell 1000 with a
greater than average growth orientation. The Russell 1000 is the 1,000 largest
companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000
common stocks, which represents approximately 98 percent of the U.S. market.

                                        5



BOND PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF WAYNE SCHMIDT]

WAYNE SCHMIDT, CFA
PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

The Bond Portfolio seeks as high a level of long-term total return as is
consistent with prudent investment risk. Preservation of capital is a secondary
objective. The Bond Portfolio invests in long-term, fixed income, high quality
debt instruments.

PERFORMANCE

The Bond Portfolio returned 10.50 percent* for the year ended December 31, 2002.
The Portfolio's benchmark, the Lehman Brothers Aggregate Bond Index,** returned
10.27 percent for the same period.

PERFORMANCE ANALYSIS

The past year surprised many investors in the fixed income market. At the start
of the year, very few believed that fixed income would generate returns greater
than ten percent and even fewer foresaw the magnitude of credit problems that
befell the corporate bond market. In the U.S. Treasury market, the yield on the
five-year U.S. Treasury note decreased 156 basis points (1.56 percent) to yield
just 2.73 percent at year end. The yield on the 30-year U.S. Treasury bond fell
71 basis points (.71 percent) to yield 4.76 percent. Short-term interest rates
continued their decline as the Federal Reserve cut the Fed Funds rate one more
time, by 50 basis points (.50 percent) at their November meeting. The rate cut
was the twelfth time the Fed has eased monetary policy to bolster a sluggish
economy over the past two years.

The corporate bond sector came back to life in the fourth quarter as fixed
income investors purchased corporate bonds at attractive spreads, but that did
not make up for the dismal first nine months of the year in this sector.
Investment grade corporate bonds did manage to return a respectable 10.52
percent for the year, while U.S. Government securities generated an 11.50
percent total return. In the shorter duration mortgage-backed sector returns
were 8.75 percent for the year, an excellent result given the shorter duration
and the rapid prepayments that the mortgage market endured throughout the year.

OUTLOOK

Throughout the past year, our bias to higher quality issuers benefited the
Portfolio. The Portfolio was overweight mortgage-backed securities and U.S.
Treasury Inflation Indexed notes early in the year when they performed
exceptionally well. The avoidance of credit problems was the key factor for the
Portfolio's success in 2002. In the fourth quarter, we began to purchase some
higher yielding BBB rated credits. The purchase of Public Service Company of
Colorado first mortgage bonds, USA Interactive, BF Goodrich, Oncor Electric
Delivery, and Stancorp Financial Group were all done at acquisition yields
higher than seven percent. These types of specific credit opportunities will
hold the key to 2003 performance. We believe yield and principal preservation
will be important components to 2003 fixed income returns. We will overweight
the corporate and mortgage-backed sectors and underweight U.S. Government
securities while being careful not to expose the Portfolio to unnecessary
interest rate risk.

We feel fixed income return expectations need to be lowered to align them with
the realities of today's marketplace. Interest rates are low, yet we believe the
additional yield available in the corporate and mortgage-backed market is
attractive on a historical basis. We also believe there is limited capital
appreciation potential left in fixed income and 2003 looks to be a year where
investors will "earn the coupon". As the year progresses, we expect the easy
monetary policy coupled with another round of fiscal stimulus should begin to
put upward pressure on interest rates.

                                        6



TEN LARGEST BOND HOLDINGS



                     COMPANY                              MARKET VALUE   % OF BOND PORTFOLIO
                     -------                              ------------   -------------------
                                                                   
Federal National Mortgage Association 6.5%, 09/01/32      $  8,805,644          3.3%
U.S. Treasury Bond 6.0%, 02/15/26                            6,130,977          2.3%
Federal National Mortgage Association 7.0%, 06/01/32         4,566,609          1.7%
Federal National Mortgage Association 7.0%, 11/01/31         4,424,610          1.6%
Federal National Mortgage Association 7.0%, 09/01/31         4,336,539          1.6%
U.S. Treasury Bond 5.5%, 08/15/28                            4,159,806          1.6%
Metropolitan Asset Funding
  144A Issue 7.5%, 4/20/27                                   3,850,831          1.4%
Federal National Mortgage Association 6.0%, 11/01/32         3,749,457          1.4%
St. George Bank Capital
  Note 144A Issue 8.4%, 12/29/49                             3,658,716          1.4%
USA Interactive 7.0%, 01/15/13                               3,619,084          1.3%
                                                          ------------       ---------
                                                          $ 47,302,273         17.6%
                                                          ============       =========


[CHART]

                                         
U.S. Treasury                                6.8%
U.S. Goverment Agencies                     34.7%
AAA Rated                                   12.4%
AA Rated                                     9.6%
A Rated                                     17.1%
BBB Rated                                   17.5%
D Rated                                      0.1%
Cash and Other Assets/Liabilities            1.8%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
              A HYPOTHETICAL $10,000 INVESTMENT IN BOND PORTFOLIO,
                LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX,
          LEHMAN BROTHERS AGGREGATE BOND INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

         
One year    10.50%
Five year    6.32%
Ten year     6.79%





                             LEHMAN BROTHERS
                               AGGREGATE
            BOND PORTFOLIO     BOND INDEX        CPI
                                      
12/31/92       $10,000          $10,000        $10,000
12/31/93       $11,570          $10,975        $10,579
12/31/94       $11,043          $10,654        $10,876
12/31/95       $13,224          $12,622        $11,151
12/31/96       $13,616          $13,081        $11,520
12/31/97       $14,899          $14,344        $11,723
12/31/98       $15,804          $15,590        $11,912
12/31/99       $15,373          $15,461        $12,223
12/31/00       $16,978          $17,260        $12,643
12/31/01       $18,319          $18,713        $12,839
12/31/02       $19,289          $20,630        $13,150


On the chart above you can see how the Bond Portfolio's total return compared to
the Lehman Brothers Government/Corporate Bond Index and the Consumer Price
Index. The three lines represent the total return of a hypothetical $10,000
investment made on December 31, 1992 through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower. ** The
Lehman Brothers Aggregate Bond Index is an unmanaged benchmark composite
representing average market-weighted performance of U.S. Treasury and agency
securities, investment-grade corporate bonds and mortgage-backed securities with
maturities greater than one year.

                                        7



MONEY MARKET PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF STEVE NELSON]

STEVE NELSON
PORTFOLIO MANAGER

The Money Market Portfolio seeks maximum current income to the extent consistent
with liquidity and the preservation of capital. It invests in short-term money
market instruments and other debt securities that mature within 397 days.

INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE PORTFOLIO.

PERFORMANCE

The Money Market Portfolio returned 1.28 percent* for the year ended December
31, 2002. This compares to the Portfolio's benchmark, the three-month U.S.
Treasury Bill, which returned 1.79 percent over the same period.

PERFORMANCE ANALYSIS

Short-term interest rates continued their decline during the fourth quarter as
the Federal Reserve cut the Fed Funds rate by 50 basis points (.50 percent) at
their November meeting. The rate cut was the twelfth time over the past two
years the Fed has eased monetary policy to bolster the sluggish U.S. economy. As
a result, during the fourth quarter the yield on the three month T-bill declined
another .37 percent to 1.19 percent while the yield on the six month T-bill
declined .30 percent to 1.20 percent.

The Portfolio's low absolute returns were a function of the extremely low level
of short-term interest rates and the yield curve remaining very steep. As a
result of rates remaining so low, the yields offered in the commercial paper
market have steadily declined, with most issuers now offering only around 1.30
percent yields.

After cutting the Fed Funds rate in November the Federal Reserve changed its
bias to "balanced" from "weakness" as it relates to the state of the economy and
future rate moves. We feel at this point another drop in rates by the Fed,
though possible, seems unlikely. However, given a lackluster U.S. economy and
anemic global growth, we also feel the chance of the Fed hiking rates anytime
soon seems equally unlikely.

We believe Investor sentiment going into 2003 seems to anticipate the easy
monetary policy of the past two years coupled with the latest round of fiscal
stimulus will put upward pressure on interest rates sometime later in the year.
In fact, as a reflection of this sentiment the fourth quarter of 2002 marked a
change in the direction of intermediate and longer-term interest rates. For
example, the yield on the five-year U.S. Treasury note increased .17 percent to
yield 2.73 percent while the yield on the 30-year US Treasury bond increased .09
percent to yield 4.76 percent.

OUTLOOK

Going into 2003, we feel high-quality U.S. corporate commercial paper remains a
sound, albeit low-yielding alternative for investors seeking a high degree of
safety and liquidity. We believe this is particularly true given the current
state of the global economy and the potential for further volatility in respect
to the high probability of war with Iraq. The Portfolio has over 91 percent of
its assets invested in high quality corporate commercial paper (i.e., commercial
paper that is rated A-1 or higher by Standard and Poor's and P-1 by Moody's) or
U.S. Government obligations. In addition, we feel the Portfolio's holdings are
well diversified over a variety of stable industries. While we expect money
market returns will remain low over the next several months, investors should
consider the Portfolio's benefits of excellent liquidity and principal
preservation as they make their asset allocation decisions.

The investment approach applied to the Portfolio is unchanged. In other words,
despite a dearth of attractive yields, the Portfolio's safety and liquidity is
not compromised to marginally enhance returns. Principal preservation and
minimal credit risk remain our primary focus as always.

                                        8



[CHART]

                            AVERAGE DAYS TO MATURITY

                   
Jan                   53
Jan                   48
Jan                   48
Jan                   49
Jan                   48
Feb                   46
Feb                   52
Feb                   54
Feb                   47
Mar                   43
Mar                   36
Mar                   35
Mar                   31
Apr                   34
Apr                   35
Apr                   36
Apr                   40
Apr                   43
May                   45
May                   44
May                   46
May                   39
Jun                   33
Jun                   47
Jun                   54
Jun                   47
Jul                   55
Jul                   56
Jul                   53
Jul                   48
Jul                   53
Aug                   48
Aug                   49
Aug                   54
Aug                   53
Sept                  49
Sept                  49
Sept                  47
Sept                  45
Oct                   48
Oct                   44
Oct                   41
Oct                   39
Oct                   37
Nov                   32
Nov                   55
Nov                   60
Nov                   59
Dec                   52
Dec                   56
Dec                   56
Dec                   58
Dec                   52



                            SEVEN-DAY COMPOUND YIELD*

                
Jan                1.59%
Jan                1.59%
Jan                1.52%
Jan                1.33%
Jan                1.51%
Feb                1.42%
Feb                1.39%
Feb                1.31%
Feb                1.43%
Mar                1.40%
Mar                1.39%
Mar                1.38%
Mar                1.38%
Apr                1.35%
Apr                1.37%
Apr                1.32%
Apr                1.12%
Apr                1.29%
May                1.33%
May                1.38%
May                1.32%
May                1.28%
Jun                1.40%
Jun                1.33%
Jun                1.34%
Jun                1.27%
Jul                1.20%
Jul                1.33%
Jul                1.29%
Jul                1.33%
Jul                1.32%
Aug                1.30%
Aug                1.30%
Aug                1.29%
Aug                1.28%
Sept               1.21%
Sept               1.33%
Sept               1.27%
Sept               1.27%
Oct                1.21%
Oct                1.33%
Oct                1.25%
Oct                1.27%
Oct                1.26%
Nov                1.23%
Nov                1.18%
Nov                1.27%
Nov                1.09%
Dec                1.01%
Dec                0.97%
Dec                0.90%
Dec                0.89%
Dec                0.84%



The yield quotation more closely represents the current earnings of the Money
Market Portfolio than the total return quotation.

The seven-day compound yield is computed by determining the net change in the
value of a hypothetical account having a balance of one share at the beginning
of a seven calendar day period, dividing that change by seven, adding one to the
quotient, raising the sum to the 365th power and subtracting one from the
result.

* Historical performance is not an indication of future performance. Investment
in the Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government or any other agency, and there can be no assurance that the Portfolio
will be able to maintain a stable net asset value of $1.00 per share. Shares
upon redemption may be worth more or less than their original cost. Performance
figures of the Portfolio do not reflect charges pursuant to the terms of the
variable life insurance policies and variable annuity contracts funded by
separate accounts that invest in the Portfolio's shares. When such charges are
deducted, actual investment performance in a variable policy or contract will be
lower.

                                        9



ASSET ALLOCATION PORTFOLIO

PERFORMANCE UPDATE

[PHOTOS OF MATTHEW D. FINN, WAYNE R. SCHMIDT, AND ALLEN D. STEINKOPF]

MATTHEW D. FINN, CFA, WAYNE R. SCHMIDT, CFA AND ALLEN D. STEINKOPF, CFA
PORTFOLIO MANAGERS ADVANTUS CAPITAL MANAGEMENT, INC.

The Asset Allocation Portfolio seeks as high a level of long-term total rate of
return as is consistent with prudent investment risk. It invests in common
stocks and other equity securities, bonds and money market instruments. The mix
of investments is varied by the Portfolio's management as economic conditions
indicate.

PERFORMANCE

The Asset Allocation Portfolio returned -8.98 percent* for the year ended
December 31, 2002. The Portfolio's benchmark, a blended index comprised of 60
percent S&P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index,
returned -9.80 percent for the year ended. The S&P 500 Index and the Lehman
Brothers Aggregate Bond Index returned -22.10 percent and 10.27 percent,
respectively, for the same period.

PERFORMANCE ANALYSIS

The Portfolio performed better than its benchmark for the year. Equities within
the Portfolio were down 18 percent compared to a negative 22 percent for the S&P
500 and the fixed income portion was up approximately 10 percent.

The Portfolio started the year more heavily concentrated in equities. Good stock
selection kept the Portfolio performing well. The biggest contributor to
performance was our positive position in the major banks. Large, well run and
well capitalized banks such as Wachovia Corporation, U.S. Bancorp and Bank of
America Corporation were up for the year, while many of their peers were caught
with too much exposure to poor credits or too much capital market exposure and
were down for the year.

Good stock selection in Health Care punctuated by Forest Labs (up 20 percent)
contributed nicely to performance. Our analysis on GE and AOL led us to believe
that they would have a hard time meeting expectations. We sold those positions
out of the Portfolio and both stocks subsequently sold off sharply at -38
percent and -58 percent, respectively. In the Industrial sector, we liked 3M
over GE which was up 6.30 percent for the year, boosting the Portfolio by 83
basis points.

We owned a number of high quality REITs during the year, which were the single
best performing sector posting a positive 16 percent return during the year.
REITs, with their stable earnings and high dividends, were attractive during a
period of rapidly deteriorating fundamentals and questionable management
practices in the broader market.

OUTLOOK

The Portfolio is positioned to perform well in up or down markets with a bias
toward a positive stock market and a lagging bond market. The Portfolio went
from a low of 58 percent equities in September to its current 64.5 percent
equity weight during September and October, as valuations became compelling and
operating metrics in most industries began to level out after a sub-par summer.
We feel the macro environment is already being stimulated by low interest rates
with more macro stimulus on the way. We believe the Portfolio should be at its
maximum equity weight in this environment. As always, good fundamental research
with proper risk management practices will allow us to navigate through the best
and worst of times.

                                       10



FIVE LARGEST STOCK HOLDINGS



                                            MARKET       % OF STOCK
    COMPANY                  SHARES         VALUE        PORTFOLIO
    -------               ------------   ------------   -----------
                                               
Exxon Mobil Corporation     262,300      $  9,164,762       3.8%
Microsoft Corporation       153,500         7,935,950       3.3%
Pfizer, Inc.                255,425         7,808,342       3.3%
Wachovla Corporation        187,500         6,832,500       2.8%
Citigroup, Inc.             168,500         5,929,515       2.5%
                                         ------------     -------
                                         $ 37,671,069      15.7%
                                         ============     =======


BOND PORTFOLIO CHARACTERISTICS - QUALITY BREAKDOWN



                             % OF BOND
      RATING                 PORTFOLIO
      ------                 ---------
                          
U.S. Treasury                 10.9%
U.S. Government Agencies      36.6%
AAA rated                     14.3%
AA rated                       8.1%
A rated                       16.6%
BBB rated                     13.1%
C rated                        0.3%
D rated                        0.1%
                             ------
                             100.0%
                             ======


[CHART]

                                   
Bonds                                 32.6%
Common Stocks                         64.3%
Cash and Other Assets/Liabilities      3.1%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
A HYPOTHETICAL $10,000 INVESTMENT IN ASSET ALLOCATION PORTFOLIO, S&P 500 INDEX,
LEHMAN BROTHERS AGGREGATE BOND INDEX, A BLENDED INDEX OF 60 PERCENT S&P 500
INDEX AND 40 PERCENT LEHMAN BROTHERS AGGREGATE BOND INDEX AND

                              CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                     
One year                -8.98%
Five year               -0.11%
Ten year                 5.74%





             ASSET ALLOCATION               LEHMAN BROTHERS                  BLENDED S&P 500 &
                 PORTFOLIO         CPI    AGGREGATE BOND INDEX     S&P 500   LEHMAN AGGREGATE
                                                              
12/31/92         $  10,000     $  10,000        $  10,000        $  10,000       $  10,000
12/31/93         $  11,597     $  10,579        $  10,975        $  11,848       $  11,499
12/31/94         $  11,435     $  10,876        $  10,654        $  11,996       $  11,459
12/31/95         $  14,295     $  11,151        $  12,622        $  16,484       $  14,939
12/31/96         $  16,082     $  11,520        $  13,081        $  19,603       $  16,994
12/31/97         $  19,136     $  11,723        $  14,344        $  26,140       $  21,422
12/31/98         $  23,661     $  11,912        $  15,590        $  33,610       $  26,402
12/31/99         $  27,251     $  12,223        $  15,461        $  40,673       $  30,588
12/31/00         $  24,416     $  12,643        $  17,260        $  36,955       $  29,077
12/31/01         $  20,909     $  12,839        $  18,713        $  32,559       $  27,020
12/31/02         $  17,471     $  13,150        $  20,630        $  24,400       $  23,522


On the chart above you can see how the Asset Allocation Portfolio's total return
compared to the S&P 500 Index, Lehman Brothers Aggregate Bond Index, a blended
index of 60 percent S&P 500 Index and 40 percent Lehman Brothers Aggregate Bond
Index and the Consumer Price Index. The lines represent the cumulative total
return of a hypothetical $10,000 investment made on December 31, 1992 through
December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower. + The S&P
500 Index is a broad unmanaged index of 500 common stocks which are
representative of the overall U.S. stock market.

++ The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers
Government/Corporate Index, the Lehman Brothers Mortgage-Backed Securities Index
and the Lehman Brothers Asset-Backed Securities Index.

                                       11



MORTGAGE SECURITIES PORTFOLIOS

PERFORMANCE UPDATE

[PHOTO OF KENT WEBER]

KENT WEBER, CFA
PORTFOLIO MANAGER

The Mortgage Securities Portfolio seeks a high level of current income
consistent with prudent investment risk. The Mortgage Securities Portfolio will
invest primarily in mortgage-related securities. The risks incurred by Mortgage
Securities Portfolio include, but are not limited to, reinvestment of prepaid
loans at low rates of return. In addition, the net asset value of Mortgage
Securities Portfolio may fluctuate in response to changes in interest rates and
are not guaranteed.

PERFORMANCE

The Mortgage Securities Portfolio generated a total return of 9.66 percent* for
the year ended December 31, 2002. This compares favorably to the Portfolio's
benchmark, the Lehman Brothers Mortgage-Backed Securities Index,** which
returned 8.75 percent for the same period.

PERFORMANCE ANALYSIS

Even with historically low interest rates and the biggest refinancing wave in
history, 2002 turned out to be one of the best years ever for the mortgage
market relative to matched maturity Treasuries and other short duration fixed
income assets. In this low interest rate environment, solid security selection
and active management have proven critical to effectively manage prepayments and
credit risks. Throughout the year, fundamental differences in security
prepayment profiles and credit exposures have continuously emerged and gone on
to drive relative performance. Your portfolio had a 37 percent weighting to the
agency pass through market and a 27 percent allocation within the residential
mortgage markets to the non-agency CMO market.

It was a banner year for commercial mortgage backed securities in which
performance - both absolute and duration adjusted - topped all major fixed
income sectors. While loan level delinquency and liquidation rates did inch
higher, the magnitude of change was minor and was overshadowed by the lack of
prepayment risk and solid credit fundamentals. The Portfolio had an 18 percent
weighting to the CMBS market.

In the land of asset backed securities, it was a different story. Issuer credit
concerns and softening in consumer credit overshadowed the sector's impressive
prepayment characteristics and led to wider yield premium (over Treasuries)
across the sector. Fortunately, events such as these often create opportunities
for those who are able to focus on relative value, stick to the fundamentals,
and patiently wait for liquidity to once again return to the markets. These
bouts of illiquidity can make for a bumpy ride, but ultimately fundamentals and
relative value rule. The Portfolio allocation to this sector slowly increased
from 2 to 14 percent over the year.

INVESTMENT ACTIVITY:

The bulk of our excess returns were driven by our overall strategy of relative
value investing throughout the mortgage universe and our opportunistic mortgage
investing process which is driven by fundamentals and prudent diversification.
Three of the strategies we emphasized throughout the year were reducing
prepayment, improving credit and riding the duration/yield curve.

PREPAYMENT STRATEGY:

Next to our people, intense security analysis and selection are the driving
virtues of value in our strategy. The search for prepayment-challenged mortgage
securities only intensified throughout the year as rates moved lower. Our
strategy focused on underweighting the highest coupon securities in the index,
selling seasoned securities and purchasing newly issued pools of mortgages and
mortgage securities with low average loan balances (less than $85,000). The low
loan balance agency pass through story proved to be one of the better call
protection stories in the agency pass through market during 2002.

CREDIT STRATEGY:

Valuing and trading prepayment risk for credit risk was a value-added means of
building a solid portfolio. Here our search emphasized credit upgrade
opportunities and structure that reduced our prepayment exposure. We believe
these investment activities are important because they offer multiple ways to
add value to the Portfolio and to generate relative performance from a given
security. We feel the credit rating trends in the residential and commercial
market remain favorable and the upgrade to downgrade ratio remains healthy.

DURATION/YIELD CURVE STRATEGY:

We rode our duration on the positive side of the Index throughout most of the
year. This duration difference was driven more by the fact that the duration of
the index shortened faster and more than the Portfolio as rates marched lower
and prepayments were driven higher. We believe at this point there is not a lot
of duration left in the mortgage market, which means most of the sector's return
will come from yield and not price appreciation should rates continue to move
lower. Throughout the year, the yield curve was extremely steep and to take
advantage of a positive slope to the yield curve we emphasize structured
mortgage assets like CMBS and CMO's and worked to capture the total returns
available from these securities rolling down (shortening) in maturity with time
and then trading off shorter parts of the yield curve. By their nature, pass
throughs do not offer this opportunity. The nature of these structured
securities also works to protect against extension risk embedded in pass through
securities, which can occur in a rising rate environment. Finally, we remained
fully invested, as cash - like instruments yielded 2 to 3 percent less than
short duration alternatives available in the mortgage universe.

OUTLOOK

We expect the economic recovery that everyone wants to believe is just around
the corner is likely to remain uneven and slow early into 2003. Ultimately, we
feel aggressive fiscal and monetary stimulation should generate renewed growth
by the second half of the year. We believe it's at this point that we look for
interest rates to gradually move higher and bring a renewed focus on buying and
structuring extension protection into one's mortgage portfolio.

In the meantime, we believe mortgages remain an attractive fixed income asset
class even at these low levels of interest rates, especially for those who
pursue it opportunistically and on all fronts. You deserve all the mortgage
market has to offer and that's what we continue to offer you at Advantus - a
unique, holistic, active style that incorporates selective securities from
numerous sectors of the mortgage market. We consistently apply a disciplined
investment style that actively incorporates prepayment, credit, structure,
liquidity and yield curve risk from those securities and sectors that offer the
best pricing for the given risks.

Going forward, we feel investors would be wise to lower their future return
expectations for their fixed income holdings and remember that bond prices move
inversely with the direction of interest rates.

                                       12



[CHART]

HIGH QUALITY ASSETS

                                   
AAA rated                             56.9%
AA rated                              13.4%
A rated                               11.3%
BBB rated                             13.7%
BB rated                               1.9%
D rated                                0.2%
Cash and Other Assets/Liabilities      2.6%



[CHART]

SOLID LIQUIDITY

                                                            
Public Issues                                                  72.8%
Liquid 144A Issues                                             19.6%
Illiquid 144A and Other Private Placement Illiquid Issues       5.0%
Cash and Other Assets/Liabilities                               2.6%



[CHART]

PRUDENT SECTOR DIVERSIFICATION

                                        
FHLMC                                       5.0%
FNMA                                       35.0%
GNMA                                        0.4%
Vendee Mortage Trust                        0.3%
Non-Agency Sub-prime Residential MBS        1.0%
Non-Agency Commercial MBS                  12.9%
Other Agency Obligations                    0.7%
Non-Agency Prime Residental MBS            42.1%
Cash and Other Assets/Liabilities           2.6%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
    A HYPOTHETICAL $10,000 INVESTMENT IN MORTGAGE SECURITIES PORTOLIO, LEHMAN
       BROTHERS MORTGAGE-BACKED SECURITIES INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                   
One year              9.66%
Five year             7.76%
Ten year              7.60%





                 MORTGAGE    LEHMAN BROTHERS
                SECURITIES   MORTGAGE-BACKED
                 PORTFOLIO   SECURITIES INDEX      CPI
                                       
12/31/92         $  10,000       $  10,000      $  10,000
12/31/93         $  11,621       $  10,684      $  10,579
12/31/94         $  11,229       $  10,511      $  10,876
12/31/95         $  13,251       $  12,276      $  11,151
12/31/96         $  13,947       $  12,916      $  11,520
12/31/97         $  15,222       $  14,142      $  11,723
12/31/98         $  16,223       $  15,126      $  11,912
12/31/99         $  16,545       $  15,405      $  12,223
12/31/00         $  18,498       $  17,125      $  12,643
12/31/01         $  20,169       $  18,531      $  12,839
12/31/02         $  20,795       $  20,192      $  13,150


On the chart above you can see how the Mortgage Securities Portfolio's total
return compared to the Lehman Brothers Mortgage-Backed Securities Index and the
Consumer Price Index. The three lines represent the total return of a
hypothetical $10,000 investment made on December 31, 1992 through December 31,
2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower. ** The
Lehman Brothers Mortgage-Backed Securities Index is an unmanaged benchmark
composite which includes all fixed-rate securities backed by mortgage pools of
the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Federal National Mortgage Association (FNMA).

                                       13



INDEX 500 PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF JAMES SEIFERT]

JAMES SEIFERT
PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT INC.

The Index 500 Portfolio seeks investment results that correspond generally to
the price and yield performance of the common stocks included in the Standard
and Poor's Corporation 500 Composite Stock Index (S&P 500). It is designed to
provide an economical and convenient means of maintaining a broad position in
the equity market as part of an overall investment strategy.

PERFORMANCE

For the year ended December 31, 2002, the Portfolio ended with a -22.37 percent*
return. This compares to the Portfolio's benchmark, the S&P 500 Index,** which
returned -22.10 percent for the same period.

PERFORMANCE ANALYSIS

For the third consecutive year, the S&P 500** ended the calendar year with a
negative return (-22.10 percent) due in part to a sharp decline in household net
worth, post September 11th repercussions, corporate misconduct, and an increase
in unemployment. All eleven sectors posted negative returns for the 12 month
period. Technology led the sectors that detracted from the index return with a
- -6.70 percent contribution on a return of -35.90 percent. The largest size
stocks, sorted in quintiles by market cap, had the worst return for the year.

OUTLOOK

Looking ahead to 2003, we see a moderate acceleration in U.S. economic growth.
We expect the pace for growth, however, to remain well below potential as the
result of weak business capital spending, a crisis of confidence associated with
corporate accounting scandals, and uncertainties associated with global war and
the threat of terrorism. In addition, we foresee little help will be forth
coming from both Europe and Japan as the result of their long-standing
anti-growth tax and regulatory policies.

We believe that inflation in most industrial nations to be well below the
long-term trend as the result of the overhang of excess global investment in
both labor and productive capacity. We expect that currency volatility will also
continue as countries seek to increase their competitive advantage by weakening
their currencies. Weaker currency, although attractive in the short run, we
believe will ultimately reduce a country's standard of living by increasing
their domestic prices. The strong U.S. dollar has kept inflation at bay for more
than 10 years. However, we feel that current fiscal policies may result in a
weaker U.S. dollar in the near term.

Stimulative monetary and fiscal policies have generated a limited economic
rebound. We anticipate the pace of the rebound will remain subdued by the
continued adjustments to the 1990's excess, the substantial declines in the
stock market, and the rise in risk premium. As we move through 2003, we expect
some of these restraints to dissipate and economic growth to reaccelerate and
provide the base for the expansion.

Under our forecasted scenario for 2003, we expect that the capital markets
should perform marginally better than they did in 2002. We believe that in the
upcoming year:

* Corporate profits will improve, however, investors will not be convinced until
they are both reported and CONFIRMED. It will be important that perception of
corporate governance and fiduciary integrity improve before the main street
investor feels comfortable reentering the market enmasse.

* The Federal Reserve has aggressively eased monetary policy over the past two
years, and we expect the highly stimulative policy to remain in place until a
"confirmed" pattern of historic trend growth is evident. Under this
circumstance, we believe bonds will remain in a trading range with only moderate
upward pressure on the front end of the yield curve as the Fed gradually puts
the brakes to its policy of easing. We expect this to happen late in the year.
We believe the Fed will probably not complete the process of restoring the funds
rate to neutral until 2004 or later.

* Corporate credits will very slowly improve as debt is reduced and profits
begin to improve. We believe this will result in narrowing yield spreads which
consequently will result in corporate bonds outperforming U.S. Treasury bonds.

Founding father, Benjamin Franklin once said, "There are no gains without
pains." All in all, we believe investors will begin to recapture some of the
losses incurred over the past three painful years.

                                       14



TEN LARGEST STOCK HOLDINGS



                                              MARKET       % OF STOCK
COMPANY                          SHARES        VALUE       PORTFOLIO
- -------                         --------   ------------   ----------
                                                 
Microsoft Corporation            271,386   $ 14,030,656       3.4%
General Electric Company         505,116     12,229,575       3.0%
Exxon Mobil Corporation          341,559     11,934,070       2.9%
Wal-Mart Stores, Inc.            224,053     11,316,917       2.7%
Pfizer, Inc.                     312,792      9,562,051       2.3%
CitiGroup, Inc.                  260,717      9,174,631       2.2%
Johnson & Johnson                150,787      8,098,770       2.0%
American International Group     132,413      7,660,092       1.9%
International Business
   Machines Corporation           85,769      6,648,648       1.6%
Merck & Company, Inc.            113,985      6,452,691       1.6%
                                           ------------     -------
                                           $ 97,108,101      23.6%
                                           ============     =======


[CHART]

                                    
Cash and Other Assets/Liabilities       1.7%
Transportation                          1.7%
Utilities                               2.8%
Basic Materials                         3.8%
Communication Services                  4.5%
Energy                                  6.0%
Capital Goods                           7.9%
Consumer Cyclical                      10.2%
Consumer Staples                       12.5%
Health Care                            14.8%
Technology                             14.9%
Financial                              19.2%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
            A HYPOTHETICAL $10,000 INVESTMENT IN INDEX 500 PORTFOLIO,
                     S&P 500 INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                  
One year             -22.37%
Five year             -1.02%
Ten year               8.80%





            INDEX 500 PORTFOLIO    S&P 500       CPI
                                     
12/31/92         $  10,000        $  10,000   $  10,000
12/31/93         $  10,976        $  11,009   $  10,274
12/31/94         $  11,105        $  11,146   $  10,563
12/31/95         $  15,195        $  15,317   $  10,830
12/31/96         $  18,484        $  18,215   $  11,188
12/31/97         $  24,466        $  24,290   $  11,385
12/31/98         $  31,313        $  31,231   $  11,568
12/31/99         $  37,664        $  37,793   $  11,871
12/31/00         $  34,128        $  34,339   $  12,278
12/31/01         $  29,946        $  30,254   $  12,468
12/31/02         $  23,248        $  24,400   $  12,771


On the chart above you can see how the Index 500 Portfolio's total return
compared to the S&P 500 Index (as adjusted for dividend reinvestment) and the
Consumer Price Index. The three lines represent the total return of a
hypothetical $10,000 investment made on December 31, 1992 through December 31,
2002.#Capital Appreciation Portfolio

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower. ** The
S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall. "Standard & Poor's(R)",
"S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by the Advantus
Series Fund, Inc.-Index 500 Portfolio. The Portfolio is not sponsored, endorsed,
sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Portfolio.

                                       15



CAPITAL APPRECIATION PORTFOLIO

PERFORMANCE UPDATE

[PHOTOS OF SUSAN L. BLACK, JEFFREY T. ROSE]

SUSAN L. BLACK, CFA
JEFFREY T. ROSE
CREDIT SUISSE ASSET MANAGEMENT, INC.

The Capital Appreciation Portfolio seeks growth of capital. Investments will be
made based upon their potential for capital appreciation. While Advantus Capital
Management, Inc. acts as investment adviser for the Portfolio, Credit Suisse
Asset Management, Inc. provides investment advice to the Capital Appreciation
Portfolio under a sub-advisory agreement.

PERFORMANCE

         The Capital Appreciation Portfolio had a return of -31.54
         percent* for the year ended December 31, 2002. This compares
         with the S&P 500 Index,** which returned -22.10 percent for
         the same period.

PERFORMANCE ANALYSIS

The year was another poor one for the U.S. stock market. While equities ended
2001 on a positive note, recovering from their post-September 11 plunge, a
confluence of negative developments sent equities spiraling downward again
through much of 2002. Despite some encouraging economic data--the U.S. avoided a
feared recession--investors seemed increasingly concerned about lackluster
profits, geopolitical tensions and, most importantly for the U.S. market, a
decreased confidence in corporate management and Wall Street analysts. Those
general worries temporarily faded in October and November, but stocks struggled
in December and prominent equity indexes ended the year with double-digit
declines.

The Portfolio was clearly hurt by the broad and intense sell-off in stocks and
by weakness in certain of its communications, health-care and technology
holdings. On the positive side--relatively speaking--stocks that aided the
Portfolio included its financial services holdings.

OUTLOOK

In the wake of three successive years of stock market declines, we see several
reasons, both political and economic, that 2003 could prove to be the year that
the equity market reverses its trend. The Bush administration now seems intent
on making economic growth a key priority. In addition, we believe that corporate
governance and market oversight is becoming more transparent. We feel this,
along with a possible stimulus package that eliminates the double taxation of
dividends and the ongoing use of monetary tools could create an environment more
conducive for equity investments.

One key factor in our opinion will be how smoothly a consumer-driven economic
recovery can shift into an investment-driven one. Much depends on a rebound in
earnings, which admittedly could take some time to gain traction. But when
corporate profits recover more fully, we expect to see systems upgrades and
other capital outlays made by the nation's businesses. We will continue to
monitor consumer and corporate spending patterns closely.

In terms of sector focus, one area we favor at present is the Media sector,
based in part on an upward advertising-revenue trend. That said, we believe
these stocks could be quite vulnerable if a war with Iraq proceeds, as ad
spending tends to drop off in times of crisis. We think that stock selection
will be critical here. Other Consumer-related stocks we own include home-supply,
beverages and discount-retail companies. We think such businesses should weather
any general slowdown in consumer spending fairly well.

In the Health Care area, we like medical-device companies, which in our view
will continue to have more pricing power than pharmaceutical companies.
Elsewhere of note, we maintained a roughly neutral position in Technology. We
believe the group contains a number of high-quality companies that have good
long-term earnings potential. But until we see more evidence that business
spending is picking up, we do not intend to have an aggressive exposure here. We
ended the quarter with a neutral weighting in the Financial Services sector; we
may begin to trim this position based on credit concerns.

In these sectors and elsewhere, we will continue to strive to identify
reasonably priced companies we deem to have compelling long-term growth
prospects.

                                       16



TEN LARGEST STOCK HOLDINGS



                                             MARKET      % OF STOCK
COMPANY                         SHARES        VALUE       PORTFOLIO
- -------                         -------   ------------   ----------
                                                
Microsoft Corporation           153,600   $  7,941,120       5.3%
Pfizer, Inc.                    222,275      6,794,947       4.5%
Viacom, Inc.                    148,017      6,033,173       4.0%
American International Group    101,500      5,871,775       3.9%
Medtronic, Inc.                 108,300      4,938,480       3.3%
Johnson & Johnson                87,696      4,710,152       3.1%
Danaher Corporation              71,100      4,671,270       3.1%
United Parcel Service, Inc.      70,100      4,421,908       2.9%
Intel Corporation               260,400      4,054,428       2.7%
General Electric Company        164,200      3,998,270       2.7%
                                          ------------     -----
                                          $ 53,435,523      35.5%
                                          ============     =====


[CHART]

                                   
Cash and Other Assets/Liabilities      2.0%
Energy                                 1.1%
Transportation                         2.9%
Capital Goods                          6.1%
Consumer Cyclical                     11.7%
Financial                             14.0%
Consumer Staples                      19.2%
Technology                            20.7%
Health Care                           22.3%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
      A HYPOTHETICAL $10,000 INVESTMENT IN CAPITAL APPRECIATION PORTFOLIO,
                     S&P 500 INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

              
One year         -31.54%
Five year         -5.92%
Ten year           4.42%





                  CAPITAL
               APPRECIATION
                 PORTFOLIO   S&P 500 INDEX       CPI
                                    
12/31/92         $  10,000     $  10,000     $  10,000
12/31/93         $  11,044     $  11,848     $  10,579
12/31/94         $  11,292     $  11,996     $  10,876
12/31/95         $  13,864     $  16,484     $  11,151
12/31/96         $  16,306     $  19,603     $  11,520
12/31/97         $  20,914     $  26,140     $  11,723
12/31/98         $  27,363     $  33,610     $  11,912
12/31/99         $  33,248     $  40,673     $  12,223
12/31/00         $  29,871     $  36,955     $  12,643
12/31/01         $  22,514     $  32,559     $  12,839
12/31/02         $  15,413     $  24,400     $  13,150


On the chart above you can see how the Capital Appreciation Portfolio's total
return compared to the S&P 500 Index and the Consumer Price Index. The four
lines represent the total return of a hypothetical $10,000 investment made on
December 31, 1992 through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

                                       17



INTERNATIONAL STOCK PORTFOLIO

PERFORMANCE UPDATE

[PHOTOS OF GARY R. CLEMONS, ALEXANDER CALVO, AND EDGERTON TUCKER SCOTT III]

GARY R. CLEMONS
ALEXANDER CALVO
EDGERTON TUCKER SCOTT III, CFA
FRANKLIN TEMPLETON INVESTMENT COUNSEL, INC.

The International Stock Portfolio seeks long-term capital growth. The Portfolio
will invest primarily in common stocks of companies and governments outside the
United States. While Advantus Capital Management, Inc. acts as investment
adviser for the portfolio, Franklin Templeton Investment Counsel, Inc. provides
investment advice to the International Stock Portfolio under a subadvisory
agreement. Investment risks associated with international investing, in addition
to other risks, include currency fluctuations, political and economic
instability, and differences in accounting standards when investing in foreign
markets.

PERFORMANCE

The International Stock Portfolio returned -17.82 percent* for the year ended
December 31, 2002. This compared to the Morgan Stanley Capital EAFE Index**
return of -15.65 percent for the same period.

PERFORMANCE ANALYSIS

Throughout 2002, global equity markets experienced uncertainty, and the U.S.
market in particular was the focus of worldwide attention. The final quarter of
2002 ended in aggregate with positive investment returns, but this contrasted
sharply with the dismal returns of the third quarter, one of the worst on
record. While the year-end rally helped, it could not mitigate what had begun
earlier in 2001: declines in employment, corporate earnings and gross domestic
product (GDP) growth in Asia, Europe and the Americas.

In our opinion, the year-end rally resulted primarily from the combination of
three factors. First, a cut of 50 basis points (.50 percent) in short-term
interest rates in the United States (mirrored by a similar cut in Europe) helped
investor sentiment. Before the latest cut, U.S. interest rates were already at a
four-decade low and the most recent move signaled the determination by the
Federal Reserve Board to combat the risk of deflation. Second, corporate
earnings growth in the United States, albeit modest, showed positive
year-over-year comparisons during the first three quarters of 2002, which also
helped investor psychology. And third, as the summer sell-off extended into
early October, many stocks became oversold and experienced a technical rebound.

In the U.S., the effects of monetary easing became apparent during the fourth
quarter of 2001, as GDP grew at a 2.70 percent annualized rate. This trend
continued in the first and second quarters of 2002, with annualized growth rates
of 5 percent and 1.10 percent. However, relatively healthy economic data on the
consumer side contrasted with negative news on the corporate side. The Enron
scandal raised concerns about the potential of widespread corruption and
investors became skeptical about corporate reporting. Partly as a result, stock
market volatility spiked to levels not seen since the terrorist attacks on
September 11th. Also contributing to the drop in stock prices were gloomy
outlooks on major sectors such as Information Technology and Telecommunications
Services. In addition, ongoing terrorist fears and geopolitical conflicts added
uncertainty to the global financial markets. All considered, equity markets
generally declined during 2002.

Industry sectors that declined sharply in the broad market, such as Financials,
Health Care, Information Technology and Industrials, negatively affected the
Portfolio's performance. The Portfolio's relative underperformance was
specifically linked to certain holdings within the Health Care,
Telecommunication Services and Industrial sectors. On the positive side, based
on strong stock selection, our consumer-related sectors delivered solid
investment results. This was not the case for the Index, as media, hotel and
leisure-related stocks faced challenges during the period and generated negative
returns within the Index.

Geographically, the Portfolio benefited from our exposure in the Pacific Basin
Region. Specifically, holdings in Australia (BHP Billiton), South Korea (Samsung
Electronics and KT Corporation) and New Zealand (Telecom Corporation of New
Zealand) drove much of the Portfolio's outperformance in the region. On a
relative basis, our underweight to Japan also contributed to the Portfolio's
overall performance. During the period, we remained unconvinced about the
prospects of measurable corporate reforms in Japan.

OUTLOOK

Last year, the outlook for the global economy and for equity markets was
expected to improve, but with the exception of the fourth quarter, it actually
deteriorated. We believe however, that the sell-off during the summer was, as in
many cases, caused by emotion, not logical thinking.

While there are a number of uncertainties going forward, particularly the
direction of consumer spending, we feel the extreme volatility of equity markets
continues to provide us with the opportunity to identify quality companies with
good operating prospects, often with attractive dividend yields, at prices that
we find compelling. In the longer term, we believe our investment philosophy of
buying when others are blindly selling should benefit our investors and we
remain comfortable with the Portfolio's long-term holdings.

                                       18



TEN LARGEST STOCK HOLDINGS



                                                   MARKET      % OF STOCK
COMPANY                             SHARES         VALUE        PORTFOLIO
- -------                           ----------   ------------   ------------
                                                     
Nippon Telephone & Telegraph           1,291   $  4,688,809        2.2%
Korea Telecom ADR                    216,960      4,675,488        2.2%
ING Group                            251,394      4,257,940        2.0%
Shell Transportation & Trading
  Company PLC                        632,900      4,167,324        2.0%
Sampo Insurance                      512,800      3,901,459        1.8%
Samsung GDR                           29,000      3,864,250        1.8%
Pechiney                             109,780      3,852,393        1.8%
Total Fina Elf                        26,117      3,730,117        1.7%
Check Point Software                 287,000      3,722,390        1.7%
Kidde PLC                          3,180,400      3,622,489        1.7%
                                               ------------      -----
                                               $ 40,482,659       18.9%
                                               ============      =====


[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
       A HYPOTHETICAL $10,000 INVESTMENT IN INTERNATIONAL STOCK PORTFOLIO,
           MORGAN STANLEY CAPITAL EAFE INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

            
One year       -17.82%
Five year       -0.97%
Ten year         7.68%





              INTERNATIONAL    MORGAN STANLEY
             STOCK PORTFOLIO    CAPITAL EAFE       CPI
                                       
12/31/92        $  10,000         $  10,000     $  10,000
12/31/93        $  13,144         $  10,843     $  10,458
12/31/94        $  13,102         $  11,722     $  10,752
12/31/95        $  14,966         $  13,088     $  11,024
12/31/96        $  17,928         $  13,916     $  11,388
12/31/97        $  20,069         $  14,198     $  11,589
12/31/98        $  21,394         $  17,084     $  11,775
12/31/99        $  25,979         $  21,747     $  12,083
12/31/00        $  26,189         $  18,702     $  12,498
12/31/01        $  23,249         $  14,735     $  12,691
12/31/02        $  20,960         $  15,235     $  12,999


On the chart above you can see how the International Stock Portfolio's total
return compared to the Morgan Stanley Capital EAFE Index and the Consumer Price
Index. The three lines represent the total return of a hypothetical $10,000
investment made on December 31, 1992 through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** The Morgan Stanley Capital EAFE Index is an unmanaged index of common stocks
from European, Australian and Far Eastern markets.

                                       19



SMALL COMPANY GROWTH PORTFOLIO

PERFORMANCE UPDATE

[PHOTOS OF ELIZABETH B. DATER AND SAMMY OH]

ELIZABETH B. DATER AND SAMMY OH
PORTFOLIO MANAGERS
CREDIT SUISSE ASSET MANAGEMENT, INC.

The Small Company Growth Portfolio seeks long-term accumulation of capital. It
invests primarily in common stocks of small companies whose market
capitalization are within the range of capitalization of companies in the
Russell 2000 Growth Index**. While Advantus Capital Management acts as
investment advisor for the Portfolio, Credit Suisse Asset Management, Inc.
provides investment advice to the Small Company Growth Portfolio under a
sub-advisory agreement. Small company securities have varying degrees of risk.
Investments in smaller company and micro-cap stocks carry a higher level of
volatility and risk over the short-term. Refer to the prospectus for portfolio
risks associated with each investment option.

PERFORMANCE

The Small Company Growth portfolio returned -31.80 percent* for the year ended
December 31, 2002. Its benchmark, the Russell 2000 Growth Index**, returned
- -30.26 percent.

PERFORMANCE ANALYSIS

The year was another poor one for stocks. While equity markets rallied in late
2001, rebounding from their post-September 11 plunge, conditions steadily
worsened well into 2002. Despite the avoidance of recession, markets were
overwhelmed by ethical and accounting irregularities, combined with heightened
geopolitical risks, a fading of economic optimism and a clouded profit outlook.
Selling pressure was broad-based, and most sectors of the stock market had
significant losses for the 12 months.

The Portfolio's performance reflected the difficult investment environment in
the period, with most of its holdings suffering losses amid the sell-off. The
Portfolio's Technology holdings had the largest declines, reflecting a broader
market trend. One factor that hurt the Portfolio's relative return was its
underweighting in the Financial Services sector, which outperformed most sectors
for the year. On a positive note, the Portfolio's Transportation holdings had a
gain for the year.

OUTLOOK

As we look ahead, our view is that the economy should remain on a growth path,
though the recovery might be a sluggish one for a few months at least. The
Federal Reserve's aggressive reduction of interest rates over the past year has
appeared to be less and less stimulative, and we expect it may take time for
other stimulative catalysts (e.g., tax cuts--now on the table in Washington--or
an increase in corporate investment spending) to support investor confidence. Of
course, the threat of war remains a wild card and we think it could continue to
unsettle markets on an ongoing basis.

For our part, we will remain focused on what we believe are well-managed
companies that can successfully execute their business models. Companies we
favor at present include Media names, especially radio companies that are
picking up market share from newspapers. We believe that advertising revenues
will remain supportive as 2003 progresses.

Elsewhere of note, we intend to remain overweighted in Health Care, at least
over the near-to-intermediate term. Our holdings continue to include
medical-devices and services companies that are delivering good earnings
results. Regarding the Consumer area, we have some concerns over retailers in
general, and have trimmed certain positions. We continue to view Technology
cautiously, and do not plan to have an aggressive weighting anytime soon.
However, we are identifying companies trading at what we consider to be
compelling valuations, and will look for opportunities to selectively increase
our exposure going forward.

                                       20



TEN LARGEST STOCK HOLDINGS



                                                    MARKET      % OF STOCK
COMPANY                                SHARES        VALUE       PORTFOLIO
- -------                               --------   ------------   ----------
                                                       
Medicis Pharmaceutical Corporation      53,235   $  2,644,182        2.3%
Community Health Systems               125,500      2,584,045        2.3%
Affymetrix, Inc.                       108,300      2,478,987        2.2%
CACI International, Inc.                69,500      2,476,980        2.2%
Coventry Health Care, Inc.              83,700      2,429,811        2.1%
Lifepoint Hospitals, Inc.               80,300      2,403,459        2.1%
Getty Images, Inc.                      73,412      2,242,737        2.0%
Education Management Corporation        56,300      2,116,880        1.9%
Performance Food Group Company          56,900      1,932,267        1.7%
Stone Energy Corporation                57,196      1,908,059        1.7%
                                                 ------------      -----
                                                 $ 23,217,407       20.5%
                                                 ============      =====


[CHART]

                                  
Cash and Other Assets/Liabilities     8.0%
Communication Services                1.0%
Transportation                        2.1%
Capital Goods                         3.4%
Basic Materials                       5.3%
Energy                                7.3%
Financial                             7.9%
Consumer Staples                     10.7%
Consumer Cyclical                    14.0%
Technology                           17.9%
Health Care                          22.4%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
      A HYPOTHETICAL $10,000 INVESTMENT IN SMALL COMPANY GROWTH PORTFOLIO,
               RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                           
One year                      -31.80%
Five year                      -5.31%
Since inception (5/3/93)        3.82%





               SMALL COMPANY                 RUSSELL 2000
             GROWTH PORTFOLIO      CPI       GROWTH INDEX
                                    
  5/3/93        $   10,000     $   10,000     $   10,000
12/31/93        $   11,733     $   10,132     $   12,234
12/31/94        $   12,456     $   10,416     $   11,938
12/31/95        $   16,449     $   10,680     $   15,641
12/31/96        $   17,509     $   11,033     $   17,401
12/31/97        $   18,867     $   11,227     $   19,654
12/31/98        $   19,106     $   11,408     $   19,898
12/31/99        $   27,824     $   11,706     $   28,474
12/31/00        $   24,686     $   12,108     $   22,088
12/31/01        $   21,058     $   12,295     $   20,048
12/31/02        $   14,362     $   12,594     $   13,981


On the chart above you can see how the Small Company Growth Portfolio's total
return compared to the Russell 2000 Growth Index and the Consumer Price Index.
The three lines represent the total return of a hypothetical $10,000 investment
made on the inception date of the Small Company Growth Portfolio (May 3, 1993)
through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** The Russell 2000 Growth Index contains those stocks from the Russell 2000
with a greater than average growth orientation. The Russell 2000 is the 2,000
largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of
3,000 common stocks, which represents approximately 98 percent of the U.S.
market.

                                       21



Maturing Government Bond 2006 Portfolio
Maturing Government Bond 2010 Portfolio

PERFORMANCE UPDATE

[PHOTO KENT WEBER]

KENT WEBER
PORTFOLIO MANAGER,
ADVANTUS CAPITAL MANAGEMENT

The Maturing Government Bond 2006 and 2010 Portfolios seek as high of an
investment return as is consistent with prudent investment risk. The Portfolios
invest primarily in U.S. Government and Agency zero coupon fixed income
securities with maturities near the 2006 and 2010 liquidation dates of each
Portfolio.

PERFORMANCE

For the year ended December 31, 2002, the Maturing Government Bond Portfolios
generated the following returns:

                                            
Maturing Government Bond 2006 Portfolio*       12.99 percent
Maturing Government Bond 2010 Portfolio*       18.85 percent



For the year ended December 31, 2002, the Ryan Lab's U.S. Treasury Strip Indexes
of comparable maturity generated the following returns:

                                            
Ryan Lab's Inc. September 2006 Index**         12.69 percent
Ryan Lab's Inc. September 2010 Index**         18.91 percent



PERFORMANCE ANALYSIS

As time passes, the duration of each Portfolio continues to roll forward toward
its respective maturity.

The effective duration of each Portfolio is as follows:

                                            
Maturing Government Bond 2006 Portfolio        3.93 years
Maturing Government Bond 2010 Portfolio        7.69 years



The performance of the Portfolios continued to benefit from their concentration
in high quality spread product, which provided increased yield over their
benchmarks and allowed the Portfolios to benefit from the rally in both
Treasuries and high quality spread product, such as agency debentures.

OUTLOOK

While the U.S. economy has not completely found its footing, we believe the
foundation is currently being established (i.e., very aggressive monetary and
fiscal policies), so the U.S. economy should show signs of growth by the second
half of 2003. We feel this transition should result in moderately higher rates
across the yield curve, as the market begins to forecast an increase in growth,
employment, and ultimately inflation. We believe this will make the fundamentals
of the spread sector even more attractive versus Treasuries. We will maintain
the current overweight to spread product and look for additional opportunities
to take advantage of this developing situation.

The Maturing Government Bond 2002 Portfolio matured on the third Friday in
September of 2002 (September 20, 2002), at which time the Portfolio's assets
were liquidated and, in accordance with instructions from the owners of the
variable life insurance and annuity contracts funded by the Portfolio,
reallocated to other investment sub-accounts available under such variable
contracts.

                                       22



[CHART]

MATURING GOVERNMENT BOND 2006 PORTFOLIO

                                   
U.S. Treasury Strip                   35.8%
FICO Strip                            23.0%
Israel State Aid Strip                 8.4%
RFC Strip                              8.2%
FNMA Strip                            22.4%
Government Trust Certificate           0.8%
Cash and Other Assets/Liabilities      1.4%



[CHART]

MATURING GOVERNMENT BOND 2010 PORTFOLIO

                                    
U.S. Treasury Strip                    35.2%
FICO Strip                             10.4%
Turkey GTC                              4.0%
Israel State Aid                       12.2%
Israel GTC                              3.8%
RFC Strip                               7.8%
FNMA Strip                             21.5%
Tennessee Valley Authority              3.7%
Cash and Other Assets/Liabilities       1.4%



                                       23



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
       A HYPOTHETICAL $10,000 INVESTMENT IN MATURING GOVERNMENT BOND 2006
       PORTFOLIO, RYAN LABS, INC. SEPTEMBER 2006 INDEX OF TREASURY STRIPS
                            AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                          
One year                     12.99%
Five year                     8.28%
Since inception (5/2/94)      9.72%





            MATURING GOVERNMENT
            BOND 2006 PORTFOLIO   RYAN LABS INDEX         CPI
                                            
  5/2/94       $     10,000         $     10,000     $     10,000
12/31/94       $     10,013         $      9,988     $     10,190
12/31/95       $     13,490         $     13,532     $     10,447
12/31/96       $     13,327         $     13,351     $     10,793
12/31/97       $     15,009         $     15,116     $     10,983
12/31/98       $     17,165         $     17,380     $     11,160
12/31/99       $     15,825         $     16,087     $     11,451
12/31/00       $     18,298         $     18,808     $     11,845
12/31/01       $     19,775         $     20,705     $     12,028
12/31/02       $     22,344         $     23,333     $     12,320


On the chart above you can see how the Maturing Government Bond 2006 Portfolio's
total return compared to the Ryan Labs, Inc. September 2006 Index of Treasury
Strips and the Consumer Price Index. The three lines represent the total return
of a hypothetical $10,000 investment made on the inception date of the Maturing
Government Bond 2006 Portfolio (May 2, 1994) through December 31, 2002.

[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
       A HYPOTHETICAL $10,000 INVESTMENT IN MATURING GOVERNMENT BOND 2010
       PORTFOLIO, RYAN LABS, INC. SEPTEMBER 2010 INDEX OF TREASURY STRIPS
                            AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                          
One year                     18.85%
Five year                     8.89%
Since inception (5/2/94)     10.91%





            MATURING GOVERNMENT
            BOND 2010 PORTFOLIO   RYAN LABS INDEX         CPI
                                            
  5/2/94       $     10,000         $     10,000     $     10,000
12/31/94       $      9,970         $      9,931     $     10,190
12/31/95       $     14,080         $     14,313     $     10,447
12/31/96       $     13,599         $     13,880     $     10,793
12/31/97       $     16,028         $     16,251     $     10,983
12/31/98       $     18,317         $     18,824     $     11,160
12/31/99       $     16,204         $     16,686     $     11,451
12/31/00       $     19,665         $     20,656     $     11,845
12/31/01       $     20,641         $     21,285     $     12,028
12/31/02       $     24,533         $     25,309     $     12,320


On the chart above you can see how the Maturing Government Bond 2010 Portfolio's
total return compared to the Ryan Labs, Inc. September 2010 Index of Treasury
Strips and the Consumer Price Index. The three lines represent the total return
of a hypothetical $10,000 investment made on the inception date of the Maturing
Government Bond 2010 Portfolio (May 2, 1994) through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** Ryan Labs, Inc. September 2006 and 2010 Index of U.S. Treasury Strips
consists of all active zero-coupon U.S. Treasury issues with maturities in
September 2006 and 2010, respectively.

                                       24



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                                       25



VALUE STOCK PORTFOLIO

PERFORMANCE UPDATE

[PHOTOS OF MATTHEW D. FINN AND MATTHEW NORRIS]

MATTHEW D. FINN, CFA AND
MATTHEW NORRIS, CFA
PORTFOLIO MANAGERS
ADVANTUS CAPITAL MANAGEMENT, INC.

The Value Stock Portfolio seeks long-term accumulation of capital. The secondary
objective is the production of income. The Portfolio invests primarily in equity
securities of companies which, in the opinion of the Adviser, have market values
which appear low relative to their underlying value or future growth potential.

PERFORMANCE

The Value Stock Portfolio returned -15.32 percent* for the year ended December
31, 2002. While negative performance is disappointing, this was almost exactly
equal our benchmark, the Russell 1000 Value Index**, which returned -15.52
percent.

PERFORMANCE ANALYSIS

All of the major economic sectors of the market were negative for the year. The
Technology, Telecommunications and Utility sectors were all down over 20
percent. The best performing sectors (down less than 10 percent) were Consumer
Staples, Industrials and Basic Materials.

The areas of strength in the Portfolio include Financials and
Telecommunications. In Financials, a number of banking stocks aided performance,
while in Telecom performance was helped by ownership of certain companies and
the avoidance of others. The largest area of weakness was Technology. The
Portfolio's holdings of various technology hardware stocks hurt performance,
primarily in the semiconductor area.

OUTLOOK

The equity markets have closed a third consecutive year of negative performance.
We feel that most of the overvaluation of the late 1990's has been worked off,
and better market returns are in front of us. However, it is our strong belief
that predicting the future course of the economy or the markets is nearly
impossible. Thus, we focus on selecting individual securities we feel are
undervalued, have stable or improving operating metrics, and a near term
catalyst to increase the stock price. This steadfast focus on individual
corporations has paid off over time, as the Portfolio owned 45 securities in the
past year with an absolute positive return, even when the market indices were
negative.

                                       26



TEN LARGEST STOCK HOLDINGS



                                                  MARKET          % OF STOCK
COMPANY                            SHARES          VALUE          PORTFOLIO
- -------                           --------      ------------     ------------
                                                        
Exxon Mobil Corporation            185,804      $  6,491,991         5.8%
Bank of America Corporation         59,380         4,131,067         3.7%
CitiGroup, Inc.                    114,206         4,018,909         3.6%
U.S. Bancorp                       163,894         3,477,831         3.1%
Wachovia Corporation                92,600         3,374,344         3.0%
Verizon Communications              84,605         3,278,444         3.0%
Wells Fargo & Company               64,400         3,018,428         2.7%
SBC Communications, Inc.           105,210         2,852,243         2.6%
Brunswick Corporation              141,500         2,810,190         2.5%
Nisource, Inc.                     134,000         2,680,000         2.4%
                                                ------------       -----
                                                $ 36,133,447        32.4%
                                                ============       =====


[CHART]

                                     
Cash and Other Assets/Liabilities        1.2%
Transportation                           0.8%
Capital Goods                            4.2%
Basic Materials                          4.9%
Health Care                              5.2%
Utilities                                6.0%
Communication Services                   7.1%
Consumer Cyclical                        7.8%
Technology                               8.9%
Consumer Staples                        11.0%
Energy                                  11.7%
Financial                               31.2%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
           A HYPOTHETICAL $10,000 INVESTMENT IN VALUE STOCK PORTFOLIO,
                RUSSELL 1000 VALUE INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                          
One year                     -15.32%
Five year                    - 5.31%
Since inception (5/2/94)       6.16%





                VALUE STOCK                      RUSSELL 1000
                 PORTFOLIO          CPI          VALUE INDEX
                                        
  5/2/94       $     10,000     $     10,000     $     10,000
12/31/94       $     10,457     $     10,190     $     10,209
12/31/95       $     13,904     $     10,448     $     14,124
12/31/96       $     18,207     $     10,793     $     17,181
12/31/97       $     22,065     $     10,984     $     23,223
12/31/98       $     22,452     $     11,160     $     26,855
12/31/99       $     22,513     $     11,452     $     28,826
12/31/00       $     22,149     $     11,845     $     30,847
12/31/01       $     19,834     $     12,028     $     29,121
12/31/02       $     16,795     $     12,320     $     24,601


On the chart above you can see how the Value Stock Portfolio's total return
compared to the Russell 1000 Value Index and the Consumer Price Index. The three
lines represent the total return of a hypothetical $10,000 investment made on
the inception date of the Value Stock Portfolio (May 2, 1994) through December
31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** The Russell 1000 Value Index contains those stocks from the Russell 1000 with
low book to price ratio. The Russell 1000 is the 1,000 largest companies in the
Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks
which represents approximately 98 percent of the U.S. market.

                                       27



SMALL COMPANY VALUE PORTFOLIO

PERFORMANCE UPDATE

[PHOTOS OF JOHN BURBANK AND PAUL HAAGENSEN ]

JOHN BURBANK, CFA
PAUL HAAGENSEN
STATE STREET RESEARCH AND MANAGEMENT COMPANY

The Small Company Value Portfolio seeks the long-term accumulation of capital.
It invests primarily in the equity securities of small companies, defined in
terms of market capitalization and which appear to have market values that are
low relative to their underlying value or future earnings and growth potential.
Investments in smaller company and micro-cap stocks generally carry a higher
level of volatility and risk over the short term. Refer to the Portfolio's
prospectus for specific information about risks associated with the investment,
as well as charges and expenses. While Advantus Capital Management, Inc. serves
as investment adviser to the Portfolio, State Street Research & Management
Company provides investment advice to the Small Company Value Portfolio under a
sub-advisory agreement.

PERFORMANCE

For the year ended December 31,2002, the Small Company Value Portfolio returned
- -19.98 percent.* The Russell 2000 Value Index** returned -11.42 percent for the
same period.

PERFORMANCE ANALYSIS

In 2002, the Russell 2000 Value Index** posted negative returns (-11.42 percent)
in a difficult economic and geopolitical environment. Financial Services, led by
smaller regional banks, was the only sector to post gains during the year.

Many of the Portfolio's investments were based on the valuations of companies
positioned to benefit from an economic turnaround and increased business
spending. This opportunity, however, never came to fruition in 2002. While stock
selection was additive to performance in a number of sectors, including Consumer
Discretionary, Materials and Energy, weaker stock selection in Technology,
Transportation and in particular, Producer Durables meaningfully detracted from
performance over the 12-month period.

Throughout the year, the valuations of cyclical names that had been hurt in the
economic downtown appeared to offer potential. As a result, we invested heavily
in many production technology equipment positions that turned in disappointing
results over the 12-month period. Within the industry, Therma-Wave, Brooks-PRI
Automation and Credence Systems were all down in excess of 50 percent during the
year. Within the same sector, Veeco Instruments also hurt relative returns. In
Technology, Triquint Semiconductor, Inc., Kemet Corporation and Globespan Virata
contributed to the Portfolio's underperformance.

In contrast, strong stock selection in Consumer Discretionary and Energy sectors
lessened the impact of losses in the Technology-related sectors. Solid gains in
the casinos and gambling industry positively contributed to return comparisons.
International Game Technology, Mandalay Resort Group and Harrah's all posted
double-digit gains despite a difficult economic operating environment. Energy
holdings Cabot Oil and Gas Corporation, Ocean Energy, Inc. and Peabody Holding
Company also ended the year with positive returns as they benefited from
favorable fundamentals now prevalent in the industry.

OUTLOOK

While smaller-cap and value have outperformed the general market over the last
several years, we would not expect that kind of significant outperformance to
persist going forward. We feel our investment approach has tended to perform
well regardless of whether the asset class is "in" or "out" of favor. In fact,
we are finding many more value candidates for investment today than we did a
year ago. We continue to focus our efforts on buying good companies with
compelling valuations and are optimistic that an adherence to this strategy will
continue to produce favorable long-term results.

We remain committed to our bottom-up investment approach in which stocks are
selected on a stock-by-stock basis. While the market favored more defensive
names this year, we remained committed to buying fundamentally attractive
stocks. We believe many of the more attractive opportunities, based on
valuations, have come in cyclically-oriented industries, resulting in the
cyclical bias in the Portfolio.

As a result of our bottom-up process, we believe many of the most attractive
opportunities lie within cyclically oriented industries. The Portfolio remains
overweight in Transportation, Materials, Producer Durables, and Technology. In
contrast, we are underweight in more defensive sectors, including Utilities,
Consumer Staples and Health Care.

                                       28



TEN LARGEST STOCK HOLDINGS



                                                                  MARKET         % OF STOCK
COMPANY                                           SHARES           VALUE          PORTFOLIO
- -------                                          --------      ------------      ----------
                                                                        
Agrium, Inc.                                      102,100      $  1,154,751          2.3%
Wabtec Corporation                                 80,200         1,126,008          2.2%
Navistar International Corporation                 44,600         1,084,226          2.1%
Varian Semiconductor Equipment                     45,400         1,078,749          2.1%
Phelps Dodge Corporation                           32,800         1,038,120          2.0%
Readers Digest Association                         66,800         1,008,680          2.0%
EGL, Inc.                                          70,100           998,925          2.0%
Technitrol, Inc.                                   57,700           931,278          1.8%
American Axle & Manufacturing
  Holdings                                         35,600           833,752          1.6%
Peabody Holding Company                            26,900           786,287          1.6%
                                                               ------------        -----
                                                               $ 10,040,776         19.7%
                                                               ============        =====


[CHART]

                                          
Cash and Other Assets/Liabilities             7.2%
Communication Services                        0.5%
Health Care                                   1.2%
Financial                                     2.6%
Consumer Staples                              4.5%
Energy                                        6.8%
Transportation                                7.0%
Consumer Cyclical                            11.6%
Basic Materials                              15.7%
Capital Goods                                20.8%
Technology                                   22.1%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
       A HYPOTHETICAL $10,000 INVESTMENT IN SMALL COMPANY VALUE PORTFOLIO,
                RUSSELL 2000 VALUE INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                                     
One year                                -19.98%
Five year                                 1.37%
Since inception (10/1/97)                 1.74%



(Thousands)



               SMALL COMPANY    RUSSELL 2000
              VALUE PORTFOLIO   VALUE INDEX          CPI
                                        
 10/1/97       $     10,000     $     10,000     $     10,000
12/31/97       $     10,229     $     10,168     $     10,019
12/31/98       $      9,539     $      9,513     $     10,179
12/31/99       $      9,246     $      9,371     $     10,446
12/31/00       $     11,835     $     11,508     $     10,804
12/31/01       $     13,679     $     13,121     $     10,972
12/31/02       $     10,947     $     11,623     $     11,238


On the chart above you can see how the Small Company Value Portfolio's total
return compared to the Russell 2000 Value Index and the Consumer Price Index.
The three lines represent the total return of a hypothetical $10,000 investment
made on the inception date of the Small Company Value Portfolio (October 1,
1997) through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** The Russell 2000 Value Index contains those stocks from the Russell 2000 with
a low price to book ratios. The Russell 2000 is the 2,000 smallest companies in
the Russell 3000. The Russell 3000 is an unmanaged index of 3000 common stocks,
which represent approximately 98 percent of the U.S. Market.

                                       29



GLOBAL BOND PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF EDWARD DOVE]

[PHOTO OF WAYNE SCHMIDT]

EDWARD DOVE
JULIUS BAER
INVESTMENT MANAGEMENT, INC.
WAYNE SCHMIDT, CFA
ADVANTUS CAPITAL
MANAGEMENT, INC.

The Global Bond Portfolio seeks to maximize current income consistent with
protection of principal. The Portfolio pursues its objective by investing
primarily in debt securities issued by issuers located anywhere in the world.
While Advantus Capital Management, Inc. acts as the investment adviser for the
portfolio, Julius Baer Investment Management, Inc. provides investment advice to
the Global Bond Portfolio under a sub-advisory agreement. Investment risks
associated with international investing in addition to other risks, include
currency fluctuations, political and economic instability, and differences in
accounting standards when investing in foreign markets.

PERFORMANCE

The Global Bond Portfolio returned 17.94 percent* for the year ended December
31, 2002. This compares to the Portfolio's benchmark, the Salomon Brothers World
Government Bond Index**, which returned 19.50 percent for the same period.

PERFORMANCE ANALYSIS

Generally, 2002 was a year of increasingly healthy conditions for Global Bond
markets. After a mixed start in the first quarter, when it seemed that there was
a likelihood of a strong economic recovery, the trend for the rest of the year
was generally positive. The volatility in equity markets certainly had their
effect on other markets, but, with the Federal Reserve cutting rates to levels
not seen in decades, bond markets managed to shrug off equity woes. The U.S.
10-year bond reached a low yield of 3.70 percent during the year and returned 16
percent; meanwhile, the S & P 500 lost 22 percent. However, the steam in the
U.S. market seems to have peaked.

The Portfolio benefited substantially with the U.S. dollar declining by
double-digit amounts during the year, (4.50 percent in December alone). With a
continually growing current account deficit, and a decline in investor appetite
to fund this by the purchase of U.S. assets, the outlook for the dollar is for
further decline.

Returns were excellent for the Portfolio. This was attributable as much to
avoidance of pitfalls in certain market sectors, for example the Portfolio had a
token exposure to credit in a year when credit experienced something of a
meltdown, as it was to the benefits of bond market fundamentals. The combination
of improving markets in the Euro zone, and the strengthening of the Euro made
for a potent cocktail. The Euro finished the year in the region of 1.05 to the
U.S. dollar, up by over 10 percent. We expect further strengthening in 2003.

OUTLOOK

We remain cautious on the outlook for U.S. Treasuries in the near term, as U.S.
growth begins to show signs of life, and given the perception that the Federal
Reserve could respond later this year by raising rates. However we feel with
inflation under control and the threat of a military strike on Iraq potentially
very close, any set back is likely to be modest as we remain more positive on
the outlook in Europe where the economic backdrop is more fragile and the ECB is
expected to cut interest rates further. We believe the appreciating euro makes
this more likely as it continues to tighten monetary conditions in Europe.
Elsewhere, we continue to dislike the Japanese Bond market, with 10-year yields
close to historic lows. The key event in the near term is likely to be the
choice of new Central Bank governor.

In terms of the currency markets our key theme going into 2003 continues to be
to underweight the dollar. We believe the U.S. has lost its ability to suck in
global savings. We expect this will prove to be bad news for the world's biggest
debtor. Without a stellar macro performance and a big improvement in return on
assets, we think the dollar will weaken by up to 10 percent this year. This
forms one of our key strategic views for 2003. We also dislike the yen on a more
tactical view. The yen often tends to weaken ahead of the Japanese fiscal year.

                                       30



TEN LARGEST BOND HOLDINGS



                                                              MARKET       % OF BOND
ISSUER                                                         VALUE       PORTFOLIO
- ------                                                      -----------   ------------
                                                                    
Bundesrepublic (Euro)--
5.000%, 07/04/12                                           $  4,474,870       8.7%
Bundesrepublic (Euro)--
3.250%, 02/17/04                                              3,296,719       6.4%
Sweden (Swedish Krona)--
5.500%, 10/08/12                                              2,991,636       5.8%
Japan Finance Corporation (Japanese Yen)--
1.550%, 02/21/12                                              2,542,273       5.0%
Buoni Poliennali Del Tesoro (Euro)--
4.750%, 03/15/06                                              2,072,326       4.0%
Greek Government (Euro)--
6.300%, 01/29/09                                              2,068,675       4.0%
UK Treasury (British Sterling Pound)--
9.000%, 07/12/11                                              1,916,595       3.7%
Denmark (Dannish Krona)--
8.000%, 05/15/03                                              1,509,752       3.0%
U.S. Treasury Bond (U.S. Dollar)--
6.000%, 02/15/26                                              1,432,463       2.8%
FNMA (U.S. Dollar)--
6.500%, 01/01/32                                              1,301,173       2.5%
                                                           ------------      ----
                                                           $ 23,606,482      45.9%
                                                           ============      ====


[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
  A HYPOTHETICAL $10,000 INVESTMENT IN GLOBAL BOND PORTFOLIO, SALOMON BROTHERS
              WORLD GOVERNMENT BOND INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                   
One year                17.94%
Five year                4.76%
Since inception       (104.54%)





                GLOBAL BOND PORTFOLIO    SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX         CPI
                                                                                  
 10/1/97              $  10,000                          $  10,000                         $  10,000
12/31/97              $  10,008                          $  10,021                         $  10,019
12/31/98              $  11,626                          $  11,555                         $  10,446
12/31/99              $  10,719                          $  11,061                         $  10,179
12/31/00              $  10,870                          $  11,237                         $  10,804
12/31/01              $  10,706                          $  11,125                         $  10,972
12/31/02              $  12,627                          $  13,294                         $  11,238


On the chart above you can see how the Global Bond Portfolio's total return
compared to the Salomon Brothers World Government Bond Index and the Consumer
Price Index. The three lines represent the total return of a hypothetical
$10,000 investment made on the inception date of the Global Bond Portfolio
(October 1, 1997) through December 31, 2002.

* Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

** The Salomon Brothers World Government Bond Index is a market value-weighted
index of government debt securities issued by twelve different nations:

Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, The
Netherlands, Spain, United Kingdom and the United States. The goal of the index
is to include all fixed-rate institutionally traded bonds issued by the above
governments. The minimum maturity is one year, and the minimum outstanding must
be at least $25 million U.S. dollars. Also included in the index are zero-coupon
renewable securities. Floating rate and private placement issues are excluded
from the index. Returns are available in both U.S. dollars and local currency
terms.

                                       31



INDEX 400 MID-CAP PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF JIM SEIFERT]

JIM SEIFERT,
PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

The Index 400 Mid-Cap Portfolio seeks to provide investment results generally
corresponding to the aggregate price and dividend performance of publicly traded
common stocks that comprise the Standard & Poor's 400 MidCap Index (S&P 400) .
It is designed to provide an economical and convenient means of maintaining a
diversified portfolio in this equity security area as part of an over-all
investment strategy.

PERFORMANCE

         The Index 400 Mid-Cap Portfolio posted a return of -15.03 percent* for
         the year ended December 31, 2002. This compares to the S&P 400 MidCap
         Index** return of -14.52 percent for the same period.

PERFORMANCE ANALYSIS

The S&P 400 MidCap Index** ended the year down 14.52 percent. Due in part to a
sharp decline in household net worth, post September 11th repercussions,
corporate misconduct, and an increase in unemployment. Two of the eleven sectors
posted positive returns for the period: Energy (8.20 percent) and Consumer
Staples (3.70 percent). Technology led the sectors that detracted from the Index
return with a -7.53 percent contribution on a return of -39.10 percent. However,
the Communication Services sector ended the year with the worst return: -50.90
percent.

OUTLOOK

Looking ahead to 2003, we see a moderate acceleration in U.S. economic growth.
We expect the pace for growth, however, to remain well below potential as the
result of weak business capital spending, a crisis of confidence associated with
corporate accounting scandals, and uncertainties associated with global war and
the threat of terrorism. In addition, we foresee little help will be forth
coming from both Europe and Japan as the result of their long-standing
anti-growth tax and regulatory policies.

We believe that inflation in most industrial nations to be well below the
long-term trend as the result of the overhang of excess global investment in
both labor and productive capacity. We expect that currency volatility will also
continue as countries seek to increase their competitive advantage by weakening
their currencies. Weaker currency, although attractive in the short run, we
believe will ultimately reduce a country's standard of living by increasing
their domestic prices. The strong U.S. dollar has kept inflation at bay for more
than 10 years. However, we feel that current fiscal policies may result in a
weaker U.S. dollar in the near term.

Stimulative monetary and fiscal policies have generated a limited economic
rebound. We anticipate the pace of the rebound will remain subdued by the
continued adjustments to the 1990's excess, the substantial declines in the
stock market, and the rise in risk premium. As we move through 2003, we expect
some of these restraints to dissipate and economic growth to reaccelerate and
provide the base for the expansion.

Under our forecasted scenario for 2003, we expect that the capital markets
should perform marginally better than they did in 2002. We believe that in the
upcoming year:

* Corporate profits will improve, however, investors will not be convinced until
they are both reported and CONFIRMED. It will be important that perception of
corporate governance and fiduciary integrity improve before the main street
investor feels comfortable reentering the market enmasse.

* The Federal Reserve has aggressively eased monetary policy over the past two
years, and we expect the highly stimulative policy to remain in place until a
OconfirmedO pattern of historic trend growth is evident. Under this
circumstance, we believe bonds will remain in a trading range with only moderate
upward pressure on the front end of the yield curve as the Fed gradually puts
the brakes to its policy of easing. We expect this to happen late in the year.
We feel the Fed will probably not complete the process of restoring the funds
rate to neutral until 2004 or later.

* Corporate credits will very slowly improve as debt is reduced and profits
begin to improve. We believe this will result in narrowing yield spreads which
consequently will result in corporate bonds outperforming U.S. Treasury bonds.

Founding father, Benjamin Franklin once said, "THERE ARE NO GAINS WITHOUT
PAINS." All in all, we believe investors will begin to recapture some of the
losses incurred over the past three painful years.

                                       32



TEN LARGEST STOCK HOLDINGS



                                                              MARKET     % OF STOCK
COMPANY                                          SHARES        VALUE      PORTFOLIO
- --------                                        --------   ------------  ----------
                                                                
Washington Post                                     625    $    461,250     1.2%
M & T Bank                                        5,158         409,287     1.0%
Affiliated Computer Services, Inc.                7,417         390,505     1.0%
Gilead Sciences, Inc.                            11,037         375,258     1.0%
Symantec Corporation                              8,118         328,373     0.8%
MidCap S & P Depository Receipt                   3,900         306,735     0.8%
Weatherford International, Ltd.                   7,302         291,569     0.7%
Idec Pharmaceuticals Corporation                  8,588         284,864     0.7%
Microchip Technology, Inc.                       11,397         278,657     0.7%
National Commerce BanCorporation                 11,518         274,704     0.7%
                                                           ------------     ---
                                                           $  3,401,202     8.6%
                                                           ============     ===


[CHART]

                                      
Cash and Other Assets/Liabilities         5.00%
Communication Services                    0.90%
Transportation                            1.50%
Basic Materials                           4.50%
Capital Goods                             6.00%
Energy                                    6.90%
Utilities                                 7.00%
Consumer Staples                         10.50%
Health Care                              11.10%
Technology                               13.20%
Consumer Cyclical                        13.70%
Financial                                19.70%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
        A HYPOTHETICAL $10,000 INVESTMENT IN INDEX 400 MID-CAP PORTFOLIO,
                  S&P 400 MIDCAP INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                             
One year                        -15.03%
Five year                         5.71%
Since inception (10/1/97)         5.44%





               INDEX 400 MID-CAP PORTFOLIO         S&P 400 MIDCAP INDEX         CPI
                                                                   
 10/1/97               $   10,000                      $   10,000           $   10,000
12/31/97               $   10,006                      $   10,083           $   10,019
12/31/98               $   11,675                      $   12,008           $   10,179
12/31/99               $   13,541                      $   13,775           $   10,446
12/31/00               $   15,714                      $   16,187           $   10,804
12/31/01               $   15,546                      $   16,088           $   10,972
12/31/02               $   13,209                      $   13,752           $   11,238


On the chart above you can see how the Index 400 Mid-Cap Portfolio's total
return compared to the S&P 400 MidCap Index and the Consumer Price Index. The
three lines represent the total return of a hypothetical $10,000 investment made
on the inception date of the Index 400 Mid-Cap Portfolio (October 1, 1997)
through December 31, 2002.

* Historical performance is not an indication of future performance.

Investment returns on principal values will fluctuate so that shares upon
redemption may be worth more or less than their original cost. Performance
figures of the Portfolio do not reflect charges pursuant to the terms of the
variable life insurance policies and variable annuity contracts funded by
separate accounts that invest in the Portfolio's shares. When such charges are
deducted, actual investment performance in a variable policy or contract will be
lower.

** S&P 400 MidCap Index consists of 400 domestic stocks chosen for market size
(median market capitalization of about $610 million), liquidity and industry
group representation. It is a market-weighted index (stock price times shares
outstanding), with each stock affecting the index in proportion to its market
value.

+ "Standard & Poor's", "S&P", "Standard & Poor's MidCap 400" and "S&P MidCap
400" are trademarks of the McGraw-Hill Companies, Inc. and have been licensed
for use by the Advantus Series Fund, Inc.- Index 400 Mid-Cap Portfolio. The
Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Portfolio.

                                       33



MACRO-CAP VALUE PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF HENRY D. CAVANNA]

[PHOTO OF JONATHAN GOLUB]

[PHOTO OF JAMES RUSSO]

HENRY D. CAVANNA,
JONATHAN GOLUB AND
JAMES RUSSO, CFA
PORTFOLIO MANAGERS
J.P. MORGAN INVESTMENT MANAGEMENT, INC.

The Macro-Cap Value Portfolio seeks to provide high total return. It pursues
this objective by investing in equity securities that the sub-adviser believes,
through the use of dividend discount models, to be undervalued relative to their
long-term earnings power, creating a diversified portfolio of equity securities
which typically will have a price/earnings ratio and price to book ratio that
reflects a value orientation. While Advantus Capital Management, Inc. acts as
investment adviser for the Portfolio, J.P. Morgan Investment Management, Inc.
provides investment advice to the Macro-Cap Value Portfolio under a subadvisory
agreement.

PERFORMANCE

The Macro-Cap Value Portfolio returned -28.14 percent* for the year ended
December 31, 2002. The S&P 500 Index** returned -22.10 percent for the same
period.

PERFORMANCE ANALYSIS

The nation's equity markets hit a multi-year low on October 9th, then rallied
strongly until the end of November, as investors welcomed actual earnings that
slightly exceeded reduced forecasts. They also applauded the Fed's surprising 50
basis point (.50 percent) rate cut on November 6. In December, however, equities
gave back roughly half their October-November gains, as investors grew cautious
over the slow pace of U.S. economic recovery and renewed geopolitical friction.

The Portfolio began the reporting period trailing the benchmark's performance
for the first quarter as solid stock selection in Systems Hardware,
Semiconductors and Consumer Staples was negated by difficulties in Services,
Telecommunications and Pharmaceuticals.

As the reporting period ended, strong stock selection within the Software and
Services, Health Services and Systems and Insurance sectors were offset by
weakness within the Retail, Consumer Cyclicals and Telecommunications sectors.

OUTLOOK

We believe it increasingly appears likely that the U.S. economy will find its
footing over the course of 2003. We feel corporations have strengthened balance
sheets and cut costs to the bone. We also feel the Fed is clearly committed to
restoring growth. We think a fiscal stimulus package soon to be before Congress
could unleash considerable liquidity. However, we believe geopolitical risks
will likely keep investors cautious until major, outstanding issues are
resolved. If they are, we feel 2003 could be the first positive year in four for
U.S. equities.

                                       34



TEN LARGEST STOCK HOLDINGS



                                                 MARKET       % OF STOCK
COMPANY                             SHARES       VALUE        PORTFOLIO
- -------                             ------    ------------    ----------
                                                     
CitiGroup, Inc.                     24,226    $    852,513       4.3%
Microsoft Corporation               15,700         811,690       4.1%
General Electric Company            30,800         749,980       3.8%
Exxon Mobil Corporation             14,648         511,801       2.6%
Pfizer, Inc.                        16,100         492,177       2.5%
Chevron Corporation                  6,700         445,416       2.2%
U.S. Bancorp                        20,910         443,710       2.2%
Tyco International, Ltd.            25,320         432,466       2.2%
Cisco Systems, Inc.                 32,500         425,750       2.2%
Wal-Mart Stores, Inc.                8,300         419,233       2.1%
                                              ------------      ----
                                              $  5,584,736      28.2%
                                              ============      ====


[CHART]

                                      
Cash and Other Assets/Liabilities         3.20%
Basic Materials                           3.30%
Utilities                                 3.30%
Communication Services                    6.70%
Energy                                    6.80%
Capital Goods                             9.10%
Consumer Staples                          9.80%
Health Care                              10.70%
Consumer Cyclical                        11.70%
Technology                               14.90%
Financial                                20.50%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
         A HYPOTHETICAL $10,000 INVESTMENT IN MACRO-CAP VALUE PORTFOLIO,
                     S&P 500 INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                                 
One year                            -28.14%
Five year                            -4.17%
Since inception (10/15/97)           -4.40%





            MACRO-CAP VALUE PORTFOLIO     S&P 500 INDEX         CPI
                                                    
10/15/97            $  10,000               $  10,000        $  10,000
12/31/97            $   9,787               $  10,287        $  10,019
12/31/98            $  11,973               $  13,227        $  10,179
12/31/99            $  12,831               $  16,006        $  10,446
12/31/00            $  11,931               $  14,543        $  10,804
12/31/01            $  11,007               $  12,813        $  10,972
12/31/02            $   7,910               $   9,981        $  11,238


On the chart above you can see how the Macro-Cap Value Portfolio's total return
compared to the S&P 500 Index (as adjusted for dividend reinvestment) and the
Consumer Price Index. The three lines represent the total return of a
hypothetical $10,000 investment made on the inception date of the Macro-Cap
Value Portfolio (October 15, 1997) through December 31, 2002 and on October 1,
1997 through December 31, 2002 for the S&P 500 Index and the Consumer Price
Index.

* Historical performance is not an indication of future performance.
Investment returns on principal values will fluctuate so that shares upon
redemption may be worth more or less than their original cost. Performance
figures of the Portfolio do not reflect charges pursuant to the terms of the
variable life insurance policies and variable annuity contracts funded by
separate accounts that invest in the Portfolio's shares. When such charges are
deducted, actual investment performance in a variable policy or contract will be
lower.

** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

+ Price/earnings ratio is the price of a stock divided by its annual earnings
per share.

++ Price/book ratio is a ratio of a stock's current price to the company's net
worth per share.

                                       35



MICRO-CAP GROWTH PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF WILLIAM JEFFREY III]

[PHOTO OF KENNETH F. MCCAIN]

[PHOTO OF DAVID A. BARATTA]

WILLIAM JEFFREY III,
KENNETH F. MCCAIN
AND DAVID A. BARATTA
PORTFOLIO MANAGERS
WALL STREET ASSOCIATES

The Micro-Cap Growth Portfolio seeks long-term capital appreciation. It pursues
this objective by investing primarily in equity securities of smaller companies
which the sub-adviser believes are in an early stage or transitional point in
their development and have demonstrated or have the potential for above average
revenue growth. It will invest primarily in common stocks and stock equivalents
of micro-cap companies. While Advantus Capital Management, Inc. acts as
investment adviser for the Portfolio, Wall Street Associates provides investment
advice to the Micro-Cap Growth Portfolio under a subadvisory agreement.
Portfolios have varying degrees of risk. Investments in smaller company and
micro-cap stocks carry a higher level of volatility and risk over the
short-term. Refer to the prospectus for portfolio risks associated with each
investment option.

PERFORMANCE

The Micro-Cap Growth Portfolio posted a return of -43.64 percent* for the year
ended December 31, 2002. By comparison, the Russell 2000 Growth Index** posted a
return of -30.26 percent for the same period.

PERFORMANCE ANALYSIS

Investors suffered a third consecutive year of stock market decline in 2002 ~
something that has not happened in more than 60 years. The Russell 2000
Growth Index** endured its worst annual decline since the inception of the
benchmark. The index declined 30.26 percent and posted negative returns in
every economic sector. Technology (-50 percent) and Health Care (-39 percent)
stocks were the largest detractors from performance. Consumer Discretionary
and Telecom stocks also declined significantly. The one bright spot was the
Energy sector where the Portfolio was significantly overweight and stock
selection provided positive returns. After gaining more than 26 percent in
the fourth quarter of 2001, small-cap growth stocks as a group posted
lackluster results in the first quarter of the year. Investments in the
Health Care and Technology sectors declined significantly during the quarter,
while investments in the Energy sector soared as commodity prices rose.
Producer Durables (including semi-conductor capital equipment companies) also
performed well and Consumer stocks posted modest gains.

The stock market fell precipitously in the second quarter as the Enron and
WorldCom fiascos, coupled with the ongoing threat of terrorism, caused investors
to seek the safety of Treasury bonds. Investments in the Health Care and
Technology sectors again produced the largest drag on Portfolio performance
while investments in the Consumer and Energy sectors proved to be beneficial as
they declined less than the broad market.

In the third quarter, stocks posted double-digit declines across all
capitalization and style segments and suffered the worst quarterly decline
since the 1987 crash. The anticipation of disappointing third quarter
profits, a potential war with Iraq and the ongoing saga of corporate
corruption caused investors to flee the equity market.

Growth stocks rallied in October and November, but posted negative results in
December. Despite the year-end sell off, Technology stocks were the top
performers during the quarter and all economic sectors were in positive
territory. Virtually all sectors in the Portfolio posted positive returns for
the quarter with several sectors posting double-digit gains. Investments in the
Technology and Producer Durables sectors produced the largest gains. Investments
in the Consumer sector were modest as consumer spending declined during the
quarter. Value was added via the Portfolio's overweight position in Technology
and Energy.

OUTLOOK

We feel the positive factors are:

* The economy is showing signs of recovery.

* Corporate profits are slowly increasing and should continue to do so.

* Inflation is not a concern.

* Housing remains strong.

* Interest rates remain low.

We feel the potential risks to the recovery are:

* War with Iraq or North Korea.

* Terrorism remains a threat.

* Capital spending is still slow.

* Consumer spending has slowed.

We believe that the economy will continue to recover, as will stock prices. We
feel corporate balance sheets are improving and we anticipate continued modest
earnings gains. We expect even a small improvement in profitability and somewhat
healthier corporate balance sheets should provide for a recovery in capital
spending. We feel valuations are attractive, especially for growth stocks. We
anticipate that smaller capitalization growth stocks will lead the recovery and
ultimately outperform, as they have historically done during such periods.

We have invested the Portfolio in those areas that we believe offer the greatest
potential for growth. The Portfolio will have a continued emphasis on the
Technology, Health Care and Consumer sectors. Additionally, we will continue to
overweight the Energy sector, which we expect will produce dramatic gains due to
the supply/demand imbalance for natural gas.

                                       36



TEN LARGEST STOCK HOLDINGS



                                                              MARKET      % OF STOCK
COMPANY                                          SHARES        VALUE       PORTFOLIO
- -------                                          ------    ------------   -----------
                                                                 
Connetics Corporation                            59,000    $    709,180       3.1%
Ultra Petroleum Corporation                      62,700         620,730       2.7%
Superior Energy Services, Inc.                   67,900         556,780       2.5%
Hydril Company                                   23,200         546,824       2.4%
Coinstar, Inc.                                   22,800         516,420       2.3%
Artisan Components, Inc.                         31,500         486,045       2.1%
aaiPharma, Inc.                                  34,400         482,288       2.1%
Evergreen Resources, Inc.                        10,700         479,895       2.1%
Multimedia Games, Inc.                           16,400         450,344       2.0%
Red Robin Gourmet Burgers                        33,800         430,612       1.9%
                                                           ------------      ----
                                                           $  5,279,118      23.2%
                                                           ============      ====


[CHART]

                                      
Cash and Other Assets/Liabilities         7.00%
Transportation                            0.10%
Communication Services                    0.80%
Financial                                 0.90%
Basic Materials                           1.20%
Capital Goods                             5.30%
Consumer Staples                          9.40%
Energy                                    9.70%
Consumer Cyclical                        15.50%
Health Care                              23.10%
Technology                               27.00%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
        A HYPOTHETICAL $10,000 INVESTMENT IN MICRO-CAP GROWTH PORTFOLIO,
               RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                                 
One year                            -43.64%
Five year                             2.17%
Since inception (10/1/97)            -0.65%





            MICRO-CAP GROWTH PORTFOLIO     RUSSELL 2000 GROWTH INDEX         CPI
                                                                 
 10/1/97             $ 10,000                      $ 10,000               $ 10,000
12/31/97             $  8,680                      $  9,181               $ 10,019
12/31/98             $  9,846                      $  9,295               $ 10,179
12/31/99             $ 24,494                      $ 13,301               $ 10,446
12/31/00             $ 19,338                      $ 10,318               $ 10,804
12/31/01             $ 17,147                      $  9,365               $ 10,972
12/31/02             $  9,664                      $  6,531               $ 11,238


On the chart above you can see how the Micro-Cap Growth Portfolio's total return
compared to the Russell 2000 Growth Index and the Consumer Price Index. The
three lines represent the total return of a hypothetical $10,000 investment made
on the inception date of the Micro-Cap Growth Portfolio (October 1, 1997)
through December 31, 2002.

* Historical performance is not an indication of future performance.
Investment returns on principal values will fluctuate so that shares upon
redemption may be worth more or less than their original cost. Performance
figures of the Portfolio do not reflect charges pursuant to the terms of the
variable life insurance policies and variable annuity contracts funded by
separate accounts that invest in the Portfolio's shares. When such charges are
deducted, actual investment performance in a variable policy or contract will be
lower.

** The Russell 2000 Growth Index contains those stocks from the Russell 2000
with a greater than average growth orientation. The Russell 2000 Value Index
contains those stocks from the Russell 2000 with a low price to book ratio. The
Russell 2000 is the 2,000 smallest companies in the Russell 3000. The Russell
3000 is an unmanaged index of 3,000 common stocks, which represents
approximately 98 percent of the U.S. market.

                                       37



REAL ESTATE SECURITIES PORTFOLIO

PERFORMANCE UPDATE

[PHOTO OF JOE BETLEJ]

JOE BETLEJ, CFA
PORTFOLIO MANAGER

The Real Estate Securities Portfolio seeks above-average income and long-term
growth of capital. The Portfolio intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry.
Investment risks associated with investing in the Real Estate Portfolio, in
addition to other risks, include rental income fluctuations, depreciation,
property tax value changes, and differences in real estate market value.

PERFORMANCE

The Real Estate Securities Portfolio earned a total return of 6.97 percent* for
the year ended December 31, 2002. The Portfolio's performance compares to the
Wilshire Associates Real Estate Securities Index (WARESI)**, which provided a
return of 2.64 percent over the same period.

PERFORMANCE ANALYSIS

2002 was a story of two seasons for real estate securities. During the first
five months of the year, real estate stocks were considered a defensive place to
hide within the turbulence of the broader equity markets. The high dividends and
discounts to the underlying value of assets made investing in this group very
attractive to the market. Our benchmark Index, the Wilshire Associates Real
Estate Securities Index, peaked in May at approximately fourteen percent.
Subsequently, these stocks corrected as valuations reflected the deteriorating
real estate fundamentals. By year end, our benchmark was up only 2.64
percent--effectively down on a price-only basis.

We were fortunate that our style stresses fundamental analysis, which steered us
away from lesser quality property types and focused us on stocks that have the
best potential. There was a tremendous disparity in performance among different
property types during the year. The best performing sectors were those with
solid operating fundamentals, including Outlet Malls (up 32 percent), Regional
Malls (up 24 percent), and Industrial companies (up 16 percent). Property types
with increasing vacancies and deteriorating rental rates were the worst
performers. These included C-corporation Hotels (down 17 percent), Apartments
(down 6 percent), and Manufactured Home Community companies (down 6 percent). We
were fortunate to be over four percent overweight versus our benchmark Index in
the best performing property types, and underweight nearly 7 percent in the
three worst performing groups. This positioning significantly enhanced
performance for the year.

OUTLOOK

When looked at in the aggregate, we feel valuation of most property types
reflects the current state of the economy and the underlying fundamentals. We
believe apartments, however, are an exception as investors have deemed this
group as "first to recover", and therefore are placing an extraordinarily high
multiple on this group while fundamentals continue to deteriorate. We remain
significantly underweight to apartments as we see continued new development
without significant job growth to generate demand for new apartments. We are
skeptical of an earnings rebound in Apartments in the near term as we anticipate
further reductions in collected rents at properties.

In this context of valuation, we expect that 2003 will be a year of
stockpicking. In our opinion individual companies that have business plans that
will exceed earnings consensus or those trading at significant discounts to
underlying value of assets will show outperformance, regardless of economic
conditions. We are waiting to see Othe whites of their eyesO in terms of the
economic recovery before we will be significantly aggressive on real estate
stocks, as we feel their fundamentals lag the economy. In most instances, we
will avoid companies with high lease turnover, big development pipelines, weak
tenant credit and lesser-quality balance sheets until signs that real estate
occupancies and rental rates have bottomed.

We thank you for your continued confidence.

                                       38



TEN LARGEST STOCK HOLDINGS



                                                              MARKET     % OF STOCK
COMPANY                                          SHARES        VALUE      PORTFOLIO
- -------                                          ------    ------------  -----------
                                                                
Prologis                                         85,700    $  2,155,355      6.6%
General Growth Properties, Inc.                  23,200       1,206,400      3.7%
Simon Property Group, Inc.                       35,100       1,195,857      3.7%
Brookfield Properties Corporation                57,000       1,151,400      3.6%
Equity Office Properties Trust                   45,400       1,134,092      3.5%
Carramerica Realty Corporation                   43,100       1,079,655      3.3%
The Rouse Company                                32,000       1,014,400      3.1%
Apartment Investment &
  Management Company                             26,960       1,010,461      3.1%
Developers Diversified Realty
  Corporation                                    44,000         967,560      3.0%
P.S. Business Parks, Inc.                        27,900         887,220      2.7%
                                                           ------------     ----
                                                           $ 11,802,400     36.3%
                                                           ============     ====


[CHART]

                                                         
Consumer Cyclical                                            2.00%
Real Estate                                                 11.10%
Real Estate Investment Trust-Apartments                     10.30%
Real Estate Investment Trust-Diversified                     9.50%
Real Estate Investment Trust-Hotels                          4.70%
Real Estate Investment Trust-Office Property                17.30%
Real Estate Investment Trust-Shopping Centers               28.10%
Real Estate Investment Trust-Warehouse/Industrial           13.00%
Cash and Other Assets/Liabilities                            4.00%



[CHART]

                    COMPARISON OF CHANGE IN INVESTMENT VALUE*
     A HYPOTHETICAL $10,000 INVESTMENT IN REAL ESTATE SECURITIES PORTFOLIO,
    WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             6.97%
Since inception (5/1/98)             4.15%





                        REAL ESTATE SECURITIES PORTFOLIO   WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX          CPI
                                                                                                         
5/1/98                             $  10,000                                   $  10,000                          $  10,000
12/31/98                           $   8,510                                   $   8,568                          $  10,098
12/31/99                           $   8,179                                   $   8,294                          $  10,362
12/31/00                           $  10,274                                   $  10,843                          $  10,718
12/31/01                           $  11,305                                   $  11,964                          $  10,884
12/31/02                           $  12,092                                   $  12,280                          $  11,148


On the chart above you can see how the Real Estate Securities Portfolio's total
return compared to the Wilshire Associates Real Estate Securities Index and the
Consumer Price Index. The three lines represent the total return of a
hypothetical $10,000 investment made on the inception date of the Real Estate
Securities Portfolio (May 1, 1998) through December 31, 2002.

*Historical performance is not an indication of future performance. Investment
returns on principal values will fluctuate so that shares upon redemption may be
worth more or less than their original cost. Performance figures of the
Portfolio do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. When such charges are deducted, actual
investment performance in a variable policy or contract will be lower.

**The Wilshire Associates Real Estate Securities Index is a market
capitalization-weighted index of equity securities whose primary business is
equity ownership of commercial real estate (REITS).

                                       39



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Advantus Series Fund, Inc.

We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of Growth, Bond, Money Market, Asset
Allocation, Mortgage Securities, Index 500, Capital Appreciation, International
Stock, Small Company Growth, Maturing Government Bond 2002, Maturing Government
Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company Value,
Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth and Real
Estate Securities Portfolios of Advantus Series Fund, Inc. as of December 31,
2002, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company Growth, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap,
Macro-Cap Value, Micro-Cap Growth and Real Estate Securities Portfolios of
Advantus Series Fund, Inc. as of December 31, 2002 and the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.

                                    KPMG LLP

Minneapolis, Minnesota
February 7, 2003

                                       40



Growth Portfolio Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                       MARKET
                SHARES                                VALUE(a)
                ------                              ------------
                                                 
COMMON STOCK (98.3%)
   BASIC MATERIALS (.6%)
     Chemicals (.6%)
    29,700   Air Products and
              Chemicals, Inc.                       $  1,269,675
                                                    ------------
   CAPITAL GOODS (8.1%)
     Aerospace/Defense (.9%)
    11,500   Lockheed Martin
              Corporation                                664,125
    18,600   United Technologies
              Corporation                              1,152,084
                                                    ------------
                                                       1,816,209
                                                    ------------
     Electrical Equipment (4.7%)
   378,600   General Electric
              Company                                  9,218,910
                                                    ------------
     Manufacturing (2.5%)
    30,700   3M Company                                3,785,310
    68,100   Tyco International, Ltd. (c)              1,163,148
                                                    ------------
                                                       4,948,458
                                                    ------------
   COMMUNICATION SERVICES (1.3%)
     Telecommunication (1.3%)
    67,900   Qualcomm, Inc. (b)                        2,470,881
                                                    ------------
   CONSUMER CYCLICAL (14.5%)
     Auto (2.5%)
    20,600   Danaher Corporation                       1,353,420
    15,300   Eaton Corporation                         1,195,083
    30,600   Harley-Davidson, Inc.                     1,413,720
    29,200   Lear Corporation (b)                        971,776
                                                    ------------
                                                       4,933,999
                                                    ------------
     Leisure (1.2%)
   118,100   Brunswick Corporation                     2,345,466
                                                    ------------
     Retail (9.6%)
    19,200   Autozone, Inc. (b)                        1,356,480
    37,200   Bed Bath & Beyond,
              Inc. (b)                                 1,284,516
    32,025   eBay, Inc. (b)                            2,171,935
    75,200   Family Dollar Stores                      2,346,992
    31,100   Fastenal Company                          1,162,829
    28,400   Kohl's Corporation (b)                    1,588,980
    85,000   Lowes Companies, Inc.                     3,187,500
   117,000   Wal-Mart Stores, Inc.                     5,909,670
                                                    ------------
                                                      19,008,902
                                                    ------------
     Service (1.2%)
    35,300   Harrah's Entertainment,
              Inc. (b)                                 1,397,880
    64,300   Robert Half International,
              Inc. (b)                              $  1,035,873
                                                    ------------
                                                       2,433,753
                                                    ------------
   CONSUMER STAPLES (13.5%)
     Beverage (4.0%)
    38,000   Anheuser-Busch

              Companies, Inc.                          1,839,200
    70,790   Pepsico, Inc.                             2,988,754
    72,400   The Coca-Cola Company                     3,172,568
                                                    ------------
                                                       8,000,522
                                                    ------------
     Broadcasting (1.1%)
    60,000   Clear Channel
              Communications, Inc. (b)                 2,237,400
                                                    ------------
     Entertainment (.9%)
    42,000   Viacom, Inc. (b)                          1,711,920
                                                    ------------
     Food (.5%)
    23,000   Kraft Foods, Inc.                           895,390
                                                    ------------
     Food & Health (.5%)
    34,000   Sysco Corporation                         1,012,860
                                                    ------------
     Household Products (4.2%)
    75,300   Colgate-Palmolive
              Company                                  3,947,979
    50,600   Procter & Gamble
              Company                                  4,348,564
                                                    ------------
                                                       8,296,543
                                                    ------------
     Restaurants (.7%)
    71,900   Darden Restaurants, Inc.                  1,470,355

     Retail (.7%)
    47,400   Walgreen Company                          1,383,606
                                                    ------------
     Service (.5%)
    24,000   Automatic Data
              Processing, Inc.                           942,000
                                                    ------------
     Tobacco (.4%)
    19,400   Philip Morris Companies,
              Inc.                                       786,282
                                                    ------------
   ENERGY (2.7%)
     Oil & Gas (2.7%)
    40,200   Ensco International, Inc.                 1,183,890
    13,900   EOG Resources, Inc.                         554,888
    52,960   Nabors Industries,
              Ltd. (b)(c)                              1,867,899
    30,100   Smith International,
              Inc. (b)                                   981,862


              See accompanying notes to investments in securities.

                                       41





                                                    MARKET
SHARES                                             VALUE(a)
- ------                                           ------------
                                              
 ENERGY--CONTINUED
 49,400   Veritas DGC, Inc. (b)                  $    771,628
                                                 ------------
                                                    5,360,167
                                                 ------------
FINANCIAL (10.2%)
  Banks (3.1%)
 14,300   Bank of America
           Corporation                                994,851
 43,900   Fifth Third BanCorporation                2,570,345
 13,900   State Street Corporation                    542,100
 31,000   Wells Fargo & Company                     1,452,970
 16,300   Zion BanCorporation                         641,389
                                                 ------------
                                                    6,201,655
                                                 ------------
  Consumer Finance (1.7%)
 36,400   American Express
           Company                                  1,286,740
 60,300   MBNA Corporation                          1,146,906
  9,900   SLM Corporation                           1,028,214
                                                 ------------
                                                    3,461,860
                                                 ------------
  Finance-- Diversified (1.1%)
 38,400   Freddie Mac                               2,267,520
                                                 ------------
  Insurance (2.5%)
 45,900   American International
           Group                                    2,655,315
 39,100   Expeditor Washington
           International, Inc.                      1,276,615
 24,200   Marsh and McLennan
           Companies, Inc.                          1,118,282
                                                 ------------
                                                    5,050,212
                                                 ------------
  Investment Bankers/Brokers (1.8%)
 43,700   CitiGroup, Inc. (b)                       1,537,803
 14,000   Goldman Sachs Group,
           Inc.                                       953,400
 36,400   T. Rowe Price Associates,
           Inc.                                       992,992
                                                 ------------
                                                    3,484,195
                                                 ------------
HEALTH CARE (24.3%)
  Biotechnology (2.5%)
 95,500   Amgen, Inc. (b)                           4,616,470
  9,400   Genentech, Inc. (b)                         311,704
                                                 ------------
                                                    4,928,174
                                                 ------------
  Drugs (10.5%)
 46,500   Eli Lilly & Company                       2,952,750
 17,000   Forest Laboratories,
           Inc. (b)                                 1,669,740
422,325   Pfizer, Inc.                             12,910,475
 88,100   Wyeth                                  $  3,294,940
                                                 ------------
                                                   20,827,905
                                                 ------------
  Health Care-- Diversified (5.3%)
 70,500   Abbott Laboratories                       2,820,000
144,700   Johnson & Johnson                         7,771,837
                                                 ------------
                                                   10,591,837
                                                 ------------
  Hospital Management (.4%)
 18,100   The HCA - Healthcare
           Company                                    751,150
                                                 ------------
  Managed Care (1.0%)
 31,000   Express Scripts, Inc. (b)                 1,489,240
  5,200   Unitedhealth Group, Inc.                    434,200
                                                 ------------
                                                    1,923,440
                                                 ------------
  Medical Products/Supplies (4.1%)
 15,000   AmerisourceBergen
           Corporation                                814,650
 13,700   Boston Scientific
           Corporation (b)                            582,524
 56,500   Medtronic, Inc.                           2,576,400
 54,400   St. Jude Medical, Inc. (b)                2,160,768
 50,300   Zimmer Holdings, Inc. (b)                 2,088,456
                                                 ------------
                                                    8,222,798
                                                 ------------
  Special Services (.5%)
 33,700   Fisher Scientific
           International, Inc.                      1,013,696
                                                 ------------
TECHNOLOGY (22.7%)
  Communications Equipment (.8%)
 38,500   Brocade Communication
           Systems, Inc. (b)                          159,390
 85,900   Nokia Oyj (c)                             1,331,450
                                                 ------------
                                                    1,490,840
                                                 ------------
  Computer Hardware (3.5%)
110,140   Dell Computer
           Corporation (b)                          2,945,144
 40,100   International Business
           Machines Corporation                     3,107,750
109,800   Symbol Technologies, Inc.                   902,556
                                                 ------------
                                                    6,955,450
                                                 ------------
  Computer Networking (2.6%)
  7,200   Affiliated Computer
           Services, Inc. (b)                         379,080
360,084   Cisco Systems, Inc. (b)                   4,717,100
                                                 ------------
                                                    5,096,180
                                                 ------------


              See accompanying notes to investments in securities.

                                       42





                                                      MARKET
                SHARES                               VALUE(a)
                ------                             -------------
                                                
   TECHNOLOGY--CONTINUED
     Computer Peripherals (.2%)
    56,800   EMC Corporation (b)                   $     348,752
                                                   -------------
     Computer Services & Software (7.7%)
    93,800   AOL Time Warner, Inc. (b)                 1,228,780
    37,800   BEA Systems, Inc. (b)                       433,566
     5,602   Electronic Arts, Inc. (b)                   278,812
   197,500   Microsoft Corporation (b)                10,210,750
   189,600   Oracle Systems (b)                        2,047,680
    12,700   Peoplesoft, Inc. (b)                        232,410
    12,777   Sungard Data Systems,
              Inc. (b)                                   301,026
    14,400   Symantec
              Corporation (b)                            582,480
                                                   -------------
                                                      15,315,504
                                                   -------------
     Electrical Semiconductor (4.7%)
    24,200   Altera Corporation (b)                      298,628
    15,732   Analog Devices, Inc. (b)                    375,523
   108,542   Applied Materials, Inc. (b)               1,414,302
    30,500   Entegris, Inc. (b)                          314,150
   214,490   Intel Corporation                         3,339,609
    14,597   Linear Technology
              Corporation                                375,435
    18,096   Microchip Technology, Inc.                  442,447
    12,900   Novellus Systems, Inc. (b)            $     362,232
   133,857   Texas Instruments, Inc.                   2,009,194
    16,000   Xilinx, Inc. (b)                            329,600
                                                   -------------
                                                       9,261,120
                                                   -------------
     Electronics-- Computer
      Distribution (1.1%)
    14,172   Maxim Integrated

              Products (b)                               468,243
    34,700   WW Grainger, Inc.                         1,788,785
                                                   -------------
                                                       2,257,028
                                                   -------------
     Equipment Semiconductor (.3%)
    17,313   KLA-Tencor
              Corporation (b)                            612,361
                                                   -------------
     Service-- Data Processing (1.8%)
    85,100   First Data Corporation                    3,013,391
    22,500   Paychex, Inc.                               627,750
                                                   -------------
                                                       3,641,141
                                                   -------------
   TRANSPORTATION (.4%)
     Air Freight (.4%)
    11,600   United Parcel Service, Inc.                 731,728
                                                   -------------
Total common stock
  (cost: $195,051,795)                               194,977,844
                                                   -------------


See accompanying notes to investments in securities.

                                       43





                                                                                                         MARKET
                                  SHARES                                                                VALUE(a)
                                  ------                                                             -------------
                                                                                                  
S & P DEPOSITORY RECEIPT (.5%)
        10,900   S & P Depository Receipt                                                            $     962,361
                                                                                                     -------------
                 Total S & P Depository Receipt (cost: $889,495)                                           962,361
                                                                                                     -------------
SHORT-TERM SECURITIES (1.8%)
            69   Federated Money Market Obligations Trust-- Prime Obligation Fund,
                  current rate 1.370%                                                                           69
     3,560,308   Provident Institutional Fund-- TempFund Portfolio,
                  current rate 1.220%                                                                    3,560,308
        95,336   Wells Fargo & Company-- Cash Investment Fund,
                  current rate 1.326%                                                                       95,336
                                                                                                     -------------
                 Total short-term securities (cost: $3,655,713)                                          3,655,713
                                                                                                     -------------
                 Total investments in securities (cost: $199,597,003) (d)                            $ 199,595,918
                                                                                                     =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 2.2% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $211,096,244. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                           
Gross unrealized appreciation                 $  12,437,132
Gross unrealized depreciation                   (23,937,458)
                                              -------------
Net unrealized depreciation                   $ (11,500,326)
                                              =============



              See accompanying notes to investments in securities.

                                       44



Bond Portfolio Investments In Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                                                                       MARKET
                        PRINCIPAL                                              COUPON   MATURITY      VALUE(a)
                        ---------                                              ------   --------    --------------
                                                                                           
LONG-TERM DEBT SECURITIES (97.2%)
   GOVERNMENT OBLIGATIONS (42.4%)
     U.S. Government and Agencies Obligations (41.5%)
     Federal Home Loan Mortgage Corporation (FHLMC) (4.2%)
$    2,750,000                                                                 2.500%   04/22/05    $    2,768,326
     3,000,000                                                                 2.750%   12/30/05         3,022,353
     1,750,000   (g)                                                           5.500%   12/01/17         1,818,086
     1,828,386                                                                 6.000%   09/01/32         1,893,244
       759,963                                                                 6.500%   06/01/29           792,056
     1,188,861                                                                 6.500%   09/01/32         1,238,926
                                                                                                    --------------
                                                                                                    $   11,532,991
                                                                                                    --------------
     Federal National Mortgage Association (FNMA) (27.8%)
     2,150,000                                                                 2.750%   05/04/05         2,171,403
       700,000                                                                 3.100%   05/19/06           703,943
       539,785                                                                 5.500%   09/01/17           560,436
     1,099,793                                                                 5.500%   11/01/17         1,141,870
     2,937,400                                                                 6.000%   09/01/17         3,073,781
     3,419,013                                                                 6.000%   10/01/32         3,539,229
     2,159,708                                                                 6.000%   10/01/32         2,235,646
     3,622,100                                                                 6.000%   11/01/32         3,749,457
     1,000,000   (g)                                                           6.000%   01/01/33         1,033,438
     1,666,808                                                                 6.230%   01/01/08         1,839,605
       288,699                                                                 6.500%   10/01/28           303,209
     2,270,731                                                                 6.500%   12/01/31         2,365,407
     1,135,957                                                                 6.500%   02/01/32         1,183,320
       584,525                                                                 6.500%   02/01/32           608,886
     1,115,926                                                                 6.500%   03/01/32         1,162,433
       899,003                                                                 6.500%   03/01/32           936,470
     3,394,487                                                                 6.500%   04/01/32         3,535,956
     2,192,840                                                                 6.500%   07/01/32         2,284,229
     1,336,937                                                                 6.500%   05/01/32         1,400,183
     2,962,623                                                                 6.500%   08/01/32         3,086,093
     1,388,968                                                                 6.500%   09/01/32         1,446,855
       634,775                                                                 6.500%   09/01/32           661,230
     8,453,342                                                                 6.500%   09/01/32         8,805,644
     2,183,453                                                                 6.500%   10/01/32         2,274,451
     2,778,473                                                                 7.000%   07/01/31         2,939,794
     4,098,522                                                                 7.000%   09/01/31         4,336,539
       358,548                                                                 7.000%   09/01/31           377,137
     4,206,527                                                                 7.000%   11/01/31         4,424,610
     1,309,372                                                                 7.000%   02/01/32         1,385,434
     3,309,176                                                                 7.000%   02/01/32         3,480,621
       501,850                                                                 7.000%   03/01/32           531,003
     4,341,671                                                                 7.000%   06/01/32         4,566,609
     1,793,881                                                                 7.000%   07/01/32         1,886,820
     1,899,821                                                                 7.500%   04/01/31         2,030,751
       786,774                                                                 7.500%   05/01/31           840,955
                                                                                                    --------------
                                                                                                        76,903,447
                                                                                                    --------------


              See accompanying notes to investments in securities.

                                       45





                                                                                                       MARKET
                             PRINCIPAL                                         COUPON   MATURITY       VALUE(a)
                             ---------                                         ------   ---------   --------------
                                                                                           
   GOVERNMENT OBLIGATIONS--CONTINUED
     Government National Mortgage Association (GNMA) (2.7%)
$    2,596,115                                                                 6.000%   02/17/30    $    2,642,712
     1,132,816                                                                 6.500%   07/15/32         1,189,790
       977,840                                                                 6.500%   07/15/32         1,027,019
       255,161                                                                 7.000%   11/15/23           272,428
       171,540                                                                 7.000%   05/15/26           182,611
     1,500,000                                                                 7.099%   07/13/07         1,636,809
       491,800                                                                 7.500%   10/15/28           525,138
        44,810                                                                 8.500%   10/15/22            49,350
        54,490                                                                 8.500%   12/15/22            60,010
                                                                                                    --------------
                                                                                                         7,585,867
                                                                                                    --------------
     U.S. Treasury (6.8%)
     2,975,050   Inflationary Index Bond (f)                                   3.375%   01/15/07         3,211,412
     1,825,000   Bond                                                          5.250%   02/15/29         1,907,054
     3,850,000   Bond                                                          5.500%   08/15/28         4,159,806
     5,350,000   Bond                                                          6.000%   02/15/26         6,130,977
     2,895,000   Bond                                                          6.125%   08/15/29         3,398,684
                                                                                                    --------------
                                                                                                        18,807,933
                                                                                                    --------------
     Other Government Obligations (.9%)
     1,000,000   Manitoba (b)                                                  2.750%   01/17/06         1,008,765
     1,500,000   Quebec Province of Canada (b)                                 5.500%   04/11/06         1,599,609
                                                                                                    --------------
                                                                                                         2,608,374
                                                                                                    --------------
                 Total government obligations (cost: $114,057,968)                                     117,438,612
                                                                                                    --------------
CORPORATE OBLIGATIONS (54.8%)
   BASIC MATERIALS (4.8%)
     Agriculture Products (1.8%)
     2,050,000   Archer-Daniels-Midland Company                                7.000%   02/01/31         2,360,468
     2,250,000   Cargill, Inc. 144A Issue (d)                                  6.375%   06/01/12         2,519,129
                                                                                                    --------------
                                                                                                         4,879,597
                                                                                                    --------------
     Aluminum (1.0%)
     2,750,000   Alcoa, Inc.                                                   4.250%   08/15/07         2,863,146
                                                                                                    --------------
     Construction (1.0%)
     2,500,000   Vulcan Materials, Inc.                                        6.400%   02/01/06         2,763,747
                                                                                                    --------------
     Paper and Forest (1.0%)
     2,500,000   Weyerhaeuser Company                                          6.000%   08/01/06         2,637,985
                                                                                                    --------------
   CAPITAL GOODS (.9%)
     Aerospace/Defense (.9%)
     2,500,000   B.F. Goodrich Company                                         7.625%   12/15/12         2,581,432
                                                                                                    --------------
   CONSUMER CYCLICAL (2.3%)
     Publishing (1.2%)
     2,000,000   Gannett Company, Inc.                                         5.500%   04/01/07         2,174,986
     1,000,000   Scholastic Corporation                                        5.750%   01/15/07         1,067,135
                                                                                                    --------------
                                                                                                         3,242,121
                                                                                                    --------------


              See accompanying notes to investments in securities.

                                       46





                                                                                                       MARKET
                               PRINCIPAL                                       COUPON   MATURITY       VALUE(a)
                               ---------                                       ------   ---------   --------------
                                                                                           
CONSUMER CYCLICAL--CONTINUED
     Retail (.5%)
$    1,250,000   Kohl's Corporation                                            6.000%   01/15/33    $    1,256,637
                                                                                                    --------------
     Service (.6%)
     1,750,000   Hertz Corporation                                             7.625%   06/01/12         1,670,434
                                                                                                    --------------
   CONSUMER STAPLES (4.1%)
     Beverage (.8%)
     2,300,000   Diageo Capital PLC (b)                                        3.500%   11/19/07         2,311,721
                                                                                                    --------------
     Broadcasting (2.4%)
     2,935,000   TCI Communications Inc                                        6.375%   05/01/03         2,935,205
     3,500,000   USA Interactive                                               7.000%   01/15/13         3,619,084
                                                                                                    --------------
                                                                                                         6,554,289
                                                                                                    --------------
     Food (.9%)
     2,450,000   Unilever Capital Corporation                                  5.900%   11/15/32         2,506,188
                                                                                                    --------------
   ENERGY (1.0%)
     Oil (1.0%)
     2,500,000   Husky Energy, Inc. (b)                                        6.250%   06/15/12         2,688,777
                                                                                                    --------------
   FINANCIAL (34.0%)
     Asset-Backed Securities (2.2%)
     1,046,455   First Marble Head                                             7.240%   09/20/14         1,093,712
     1,000,000   Fortress CBO Investments I, Ltd. 144A Issue (c)               7.850%   07/25/38         1,107,020
     3,550,000   Metropolitan Asset Funding 144A Issue (d)                     7.525%   04/20/27         3,850,831
                                                                                                    --------------
                                                                                                         6,051,563
                                                                                                    --------------
     Auto Finance (1.6%)
     1,750,000   AmeriCredit Corporation (h)                                   1.700%   03/06/07         1,757,747
     2,750,000   General Motors Acceptance Corporation                         6.125%   08/28/07         2,782,640
                                                                                                    --------------
                                                                                                         4,540,387
                                                                                                    --------------
     Banks (2.2%)
     3,400,000   St. George Bank Capital Note 144A Issue (b) (c)               8.485%   12/29/49         3,658,716
     2,100,000   Wells Fargo & Company                                         7.550%   06/21/10         2,499,071
                                                                                                    --------------
                                                                                                         6,157,787
                                                                                                    --------------
     Collateralized Mortgage Obligations/Mortgage Revenue Bonds (9.5%)
       687,033   BA Mortgage Securities, Inc.                                  6.500%   06/25/13           719,231
     1,095,689   Banco Hipotecario Nacional 144A Issue (b) (c) (i)             7.916%   07/25/09           273,922
       962,052   Chase Mortgage Finance Corporation                            6.500%   09/25/13           994,787
     2,348,374   Chase Mortgage Finance Corporation                            6.750%   08/25/28         2,404,698
       758,246   CitiCorporation Mortgage Securities, Inc.                     6.750%   03/25/25           784,090
     1,749,606   Countrywide Home Loan                                         6.500%   06/25/13         1,798,564
       796,186   Countrywide Mortgage Backed Securities, Inc.                  6.750%   03/25/24           812,426
       973,653   GE Capital Mortgage Services, Inc. 144A Issue (d)             6.500%   04/25/24           994,945
     1,994,159   GMAC Commercial Mortgage Securities,
                  Inc. 144A Issue (d)                                          7.350%   10/15/06         2,214,703
     1,719,393   Mellon Residential Funding                                    6.750%   06/26/28         1,780,690
     1,705,950   Nationsbanc Montgomery Funding                                6.000%   11/25/13         1,805,526


              See accompanying notes to investments in securities.

                                       47





                                                                                                        MARKET
                             PRINCIPAL                                         COUPON   MATURITY       VALUE(a)
                             ---------                                         ------   --------    --------------
                                                                                           
FINANCIAL--CONTINUED
$    1,012,225   Norwest Asset Securities Corporation                          7.000%   06/25/12    $    1,023,278
       442,999   Paine Webber Mortgage Acceptance Corporation
                  144A Issue (d)                                               6.278%   05/29/14           454,714
     2,500,000   Paine Webber Mortgage Acceptance Corporation
                  144A Issue (d)                                               7.655%   01/02/12         2,735,440
       839,396   Park Avenue Finance Corporation 144A Issue (d)                7.580%   05/12/07           943,751
     2,400,000   Park Avenue Finance Corporation 144A Issue (d)                7.680%   05/12/07         2,748,389
     1,000,794   Prudential Home Mortgage Securities                           6.050%   04/25/24         1,023,702
       910,992   Prudential Home Mortgage Securities
                  144A Issue (d)                                               6.582%   04/28/24           924,611
     1,716,810   Residential Funding Mortgage Securities                       6.500%   01/25/29         1,773,048
                                                                                                    --------------
                                                                                                        26,210,515
                                                                                                    --------------
     Commercial Finance (1.0%)
     2,500,000   General Electric Capital Corporation                          6.750%   03/15/32         2,763,975
                                                                                                    --------------
     Commercial Mortgage-Backed Securities (2.6%)
            --   Asset Securitization Corporation (e)                          7.250%   04/14/29         1,524,191
            --   Asset Securitization Corporation
                  144A Issue (d) (e)                                           6.500%   10/13/26         1,367,041
     1,000,000   Eastview Credit 144A Issue (d)                                6.950%   06/15/04         1,033,456
       795,818   Nationsbanc Montgomery Funding                                6.000%   11/25/13           823,091
     2,500,000   Sequoia Mortgage Funding Company
                  144A Issue (d)                                               6.380%   07/31/31         2,515,625
                                                                                                    --------------
                                                                                                         7,263,404
                                                                                                    --------------
     Consumer Finance (4.5%)
     2,750,000   Citibank Credit Card Issuance Trust (h)                       1.856%   12/15/05         2,748,850
     1,400,000   Fleet Credit Card Master Trust II (h)                         1.560%   04/15/10         1,400,678
     2,667,897   Green Tree Financial Corporation                              6.400%   10/15/18         2,759,155
     2,800,000   Green Tree Financial Corporation                              8.300%   05/15/19         2,928,078
     2,500,000   Household Finance Corporation (h)                             3.300%   12/16/04         2,498,078
                                                                                                    --------------
                                                                                                        12,334,839
                                                                                                    --------------
     Corporate Bonds (.3%)
       640,481   Associates Manufactured Housing                               6.900%   06/15/27           674,605
                                                                                                    --------------
     Finance-- Diversified (1.0%)
     2,750,000   TIAA Global Markets 144A Issue (c)                            4.125%   11/15/07         2,844,537
                                                                                                    --------------
     Insurance (4.6%)
     2,750,000   American International Group 144A Issue (d)                   3.850%   11/26/07         2,819,553
     2,650,000   MetLife, Inc.                                                 6.500%   12/15/32         2,750,504
     2,200,000   Principal Life Global 144A Issue (d)                          6.250%   02/15/12         2,331,980
     1,750,000   Prudential Insurance Company of America
                  144A Issue (d)                                               6.600%   05/15/08         1,936,827
     2,900,000   Stancorp Financial Group, Inc.                                6.875%   10/01/12         2,970,806
                                                                                                    --------------
                                                                                                        12,809,670
                                                                                                    --------------
     Investment Bankers/Brokers (.3%)
       850,000   Morgan Stanley                                                6.750%   04/15/11           944,579
                                                                                                    --------------


              See accompanying notes to investments in securities.

                                       48





                                                                                                        MARKET
                               PRINCIPAL                                       COUPON   MATURITY       VALUE(a)
                               ---------                                       ------  ---------    --------------
                                                                                           
FINANCIAL--CONTINUED
     Real Estate Investment Trust (3.1%)
$    1,250,000   New Plan Excel Realty Trust                                   5.875%   06/15/07    $    1,309,241
     2,150,000   Prologis                                                      6.700%   04/15/04         2,239,715
     2,000,000   Reckson Operating Partnership LP                              7.400%   03/15/04         2,095,804
     2,950,000   Vornado Realty Trust                                          5.625%   06/15/07         3,005,858
                                                                                                    --------------
                                                                                                         8,650,618
                                                                                                    --------------
     Savings and Loans (1.1%)
     2,750,000   Washington Mutual, Inc.                                       6.875%   05/15/11         3,069,195
                                                                                                    --------------
   TECHNOLOGY (.7%)
     Computer Hardware (.7%)
     1,800,000   International Business Machines Corporation                   5.875%   11/29/32         1,781,102
                                                                                                    --------------
   TRANSPORTATION (1.9%)
     Airlines (1.0%)
     2,650,000   American Airlines, Inc.                                       2.020%   09/23/07         2,647,302
                                                                                                    --------------
     Railroads (.9%)
     2,325,000   CSX Corporation                                               7.250%   05/01/04         2,474,772
                                                                                                    --------------
   UTILITIES (5.1%)
     Electric Companies (5.1%)
     1,000,000   Appalachian Power Company                                     4.800%   06/15/05         1,004,097
     1,400,000   Entergy Louisiana, Inc.                                       8.500%   06/01/03         1,432,115
     2,250,000   Georgia Power Company                                         5.500%   12/01/05         2,419,326
     2,750,000   Hydro-Quebec (b)                                              8.000%   02/01/13         3,490,036
     2,750,000   Oncor Electric Delivery 144A Issue (d)                        7.250%   01/15/33         2,800,540
     2,750,000   Public Service Company of Colorado 144A
                  Issue (d)                                                    7.875%   10/01/12         3,069,809
                                                                                                    --------------
                                                                                                        14,215,923
                                                                                                    --------------
                 Total corporate obligations (cost: $145,327,989)                                      151,390,847
                                                                                                    --------------
                 Total long-term debt securities (cost: $259,385,957)                                  268,829,459
                                                                                                    --------------




                                 SHARES/PAR
                                 ----------
                                                                                           
SHORT-TERM SECURITIES (2.7%)
$    2,250,000   Conagra, Inc. (h)                                              2.12%    9/10/03         2,255,168
     2,000,000   Conoco, Inc. (h)                                               2.63%    4/15/03         2,003,432
     3,029,433   Dreyfus Funds-- Cash Management Plus Fund,
                  current rate 1.360%                                                                    3,029,433
         1,360   Federated Money Market Obligation Trust -- Prime
                  Obligation Fund, current rate 1.370%                                                       1,360
                                                                                                    --------------
                 Total short-term securities (cost: $7,284,183)                                          7,289,393
                                                                                                    --------------
                 Total investments in securities (cost: $266,670,140) (j)                           $  276,118,852
                                                                                                    ==============


              See accompanying notes to investments in securities.

                                       49



NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) The fund held 5.4% Of net assets in foreign securities as of december 31,
2002.

(c) Represents ownership in an illiquid security. (See note 9 to the financial
statements.) Information concerning the illiquid securities held at december 31,
2002, which includes acquisition date and cost, is as follows:



                                                         ACQUISITION
                SECURITY:                                   DATE            COST
                ---------                                ------------   -------------
                                                                  
St. George Bank Capital Note 144A Issue*                   6/12/97      $   3,401,136
Banco Hipotecario Nacional 144A Issue*                      1/8/01          1,081,021
Fortress CBO Investments I, Ltd. 144A Issue*               1/16/01            990,412
TIAA Global Markets 144A Issue*                            various          2,742,007
                                                                        -------------
                                                                        $   8,214,576
                                                                        =============


* A 144A Issue represents a security which has not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.

(d) Long term debt security sold within terms of a private placement memorandum
exempt from registration under Section 144A of the Securities Act of 1933 as
amended, and may be sold to dealers in that program or other accredited
investors. These securities have been determined to be liquid under guidelines
established by the board of directors. At December 31, 2002 these securities
total $35,261,344, or 12.8% of net assets.

(e) Interest-only security that entitles holders to receive only interest on the
underlying mortgages. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The yield to maturity
of an interest-only security is sensitive to the rate of principal payments on
the underlying mortgage assets. The rate disclosed represents the market yield
based upon the current cost basis and estimated timing and amount of future cash
flows.

(f) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semi-annual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.

(g) At December 31, 2002 the total cost of investments purchased on a
when-issued or forward commitment basis is $2,852,930.

(h) Floating rate bond.

(i) Security is in default with respect to interest payments. Income is not
being accrued on this security and any payments received are treated as a
reduction of principal. This security is being fair-valued according to
procedures approved by the board of directors.

(j) At December 31, 2002 the cost of securities for federal income tax purposes
was $267,003,096. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                   
Gross unrealized appreciation                                         $  10,523,308
Gross unrealized depreciation                                            (1,407,552)
                                                                      -------------
Net unrealized appreciation                                           $   9,115,756
                                                                      -------------



              See accompanying notes to investments in securities.

                                       50



Money Market Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                                                                        MARKET
                        PRINCIPAL                                               RATE    MATURITY       VALUE(a)
                        ---------                                              ------   --------    --------------
                                                                                           
COMMERCIAL PAPER (66.2%)
   BASIC MATERIALS (6.7%)
     Agriculture Products (5.6%)
$    2,300,000   Archer-Daniels-Midland Company (c)                            1.629%   02/05/03    $    2,296,412
     2,000,000   Archer-Daniels-Midland Company (c)                            1.335%   04/08/03         1,992,928
     2,800,000   Cargill, Inc.(c)                                              1.700%   01/06/03         2,799,348
     2,000,000   Cargill, Inc. (c)                                             1.313%   02/18/03         1,996,553
                                                                                                    --------------
                                                                                                         9,085,241
                                                                                                    --------------
     Aluminum (.7%)
     1,200,000   Alcoa, Inc. (c)                                               1.340%   01/09/03         1,199,648
                                                                                                    --------------
     Paper and Forest (.4%)
       665,000   Kimberly-Clark Corporation (c)                                1.291%   01/17/03           664,624
                                                                                                    --------------
   COMMUNICATION SERVICES (2.4%)
     Telephone (2.4%)
     4,000,000   Verizon Communications                                        1.343%   02/28/03         3,991,482
                                                                                                    --------------
   CONSUMER CYCLICAL (6.0%)
     Publishing (6.0%)
     2,000,000   Gannett Company, Inc. (c)                                     1.290%   01/10/03         1,999,364
     1,100,000   Gannett Company, Inc. (c)                                     1.290%   01/13/03         1,099,534
     1,200,000   Gannett Company, Inc. (c)                                     1.320%   01/17/03         1,199,306
     2,000,000   McGraw-Hill Companies, Inc.                                   1.337%   06/02/03         1,988,927
     3,500,000   McGraw-Hill Companies, Inc.                                   1.337%   06/12/03         3,479,356
                                                                                                    --------------
                                                                                                         9,766,487
                                                                                                    --------------
   CONSUMER STAPLES (12.3%)
     Beverage (2.4%)
     4,000,000   The Coca-Cola Company                                         1.278%   02/21/03         3,992,869
                                                                                                    --------------
     Food (8.7%)
     7,500,000   H.J. Heinz Company 144A Issue                                 6.560%   11/15/03         7,780,901
     4,000,000   Nestle SA (c)                                                 1.324%   03/05/03         3,990,882
     2,500,000   Nestle SA (c)                                                 1.303%   03/31/03         2,492,085
                                                                                                    --------------
                                                                                                        14,263,868
                                                                                                    --------------
     Household Products (1.2%)
     2,000,000   Gillette Company (c)                                          1.718%   02/14/03         1,995,868
                                                                                                    --------------
   FINANCIAL (19.2%)
     Banks (2.4%)
     4,000,000   Wells Fargo & Company                                         1.310%   01/24/03         3,996,700
                                                                                                    --------------
     Commercial Finance (4.9%)
     4,000,000   Bellsouth Capital Funding Coporation (c)                      1.301%   02/11/03         3,994,164
     4,000,000   General Electric Capital Corporation                          1.375%   04/04/03         3,986,035
                                                                                                    --------------
                                                                                                         7,980,199
                                                                                                    --------------
     Consumer Finance (7.6%)
     3,000,000   American General Finance Corporation                          1.536%   01/29/03         2,996,468
     1,000,000   American General Finance Corporation                          1.281%   03/03/03           997,863


              See accompanying notes to investments in securities.

                                       51





                                                                                                        MARKET
                          PRINCIPAL                                             RATE    MATURITY       VALUE(a)
                          ---------                                            ------   --------    --------------
                                                                                           
   FINANCIAL--CONTINUED
$    1,500,000   Barton Capital (c)                                            1.731%   01/06/03    $    1,499,645
     3,000,000   Barton Capital (c)                                            1.782%   01/08/03         2,998,975
     1,000,000   Edison International (c)                                      1.726%   01/13/03           999,433
     2,936,000   Edison International (c)                                      1.841%   01/16/03         2,933,780
                                                                                                    --------------
                                                                                                        12,426,164
                                                                                                    --------------
     Insurance (4.3%)
     1,000,000   American International Group                                  1.281%   02/04/03           998,808
     6,000,000   American International Group                                  1.271%   03/12/03         5,985,407
                                                                                                    --------------
                                                                                                         6,984,215
                                                                                                    --------------
   HEALTH CARE (17.0%)
     Drugs (10.0%)
     3,900,000   Merck & Company, Inc. (c)                                     1.300%   01/17/03         3,897,779
     6,000,000   Pfizer, Inc. (c)                                              1.290%   01/14/03         5,997,244
     1,000,000   Pfizer, Inc. (c)                                              1.301%   02/13/03           998,470
     1,000,000   Schering-Plough Corporation                                   1.745%   01/24/03           998,902
     3,000,000   Schering-Plough Corporation                                   1.302%   02/03/03         2,996,473
     1,500,000   Schering-Plough Corporation                                   1.321%   02/13/03         1,497,669
                                                                                                    --------------
                                                                                                        16,386,537
                                                                                                    --------------
     Health Care-- Diversified (7.0%)
     3,500,000   Abbott Laboratories (c)                                       1.291%   01/21/03         3,497,526
     1,000,000   Abbott Laboratories (c)                                       1.290%   02/07/03           998,694
     3,000,000   Johnson & Johnson (c)                                         1.272%   03/21/03         2,991,765
     4,000,000   Johnson & Johnson (c)                                         1.317%   06/18/03         3,975,907
                                                                                                    --------------
                                                                                                        11,463,892
                                                                                                    --------------
   TRANSPORTATION (2.6%)
     Air Freight (2.6%)
     1,000,000   United Parcel Service, Inc.                                   1.200%   02/28/03           998,098
     3,300,000   United Parcel Service, Inc.                                   1.192%   06/02/03         3,283,697
                                                                                                    --------------
                                                                                                         4,281,795
                                                                                                    --------------
                 Total commercial paper (cost: $ 108,479,589)                                          108,479,589
                                                                                                    --------------
U.S. GOVERNMENT OBLIGATIONS (25.3%)
     Discount Note (21.1%)
     3,000,000   Federal Home Loan Bank                                        1.634%    1/15/03         2,998,121
     2,200,000   Federal Home Loan Bank                                        1.445%     2/7/03         2,196,782
     7,000,000   Federal Home Loan Mortgage Corporation                        1.747%     1/8/03         6,997,655
     4,000,000   Federal Home Loan Mortgage Corporation                        1.290%    2/13/03         3,993,930
     2,255,000   Federal National Mortgage Association                         1.659%    1/10/03         2,254,078
     7,000,000   Federal National Mortgage Association                         1.684%    1/15/03         6,995,481
     7,100,000   Federal National Mortgage Association                         1.736%    1/22/03         7,092,917
     2,000,000   Federal National Mortgage Association                         1.271%    2/12/03         1,997,080
                                                                                                    --------------
                                                                                                        34,526,044
                                                                                                    --------------


              See accompanying notes to investments in securities.

                                       52





                                                                                                        MARKET
                               PRINCIPAL                                        RATE    MATURITY       VALUE(a)
                               ---------                                       ------   --------    --------------
                                                                                           
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
     U.S. Treasury Bill (4.2%)
$    4,500,000   U.S. Treasury Bill                                            1.542%   02/06/03    $    4,493,074
     2,300,000   U.S. Treasury Bill                                            1.205%   02/13/03         2,296,739
                                                                                                    --------------
                                                                                                         6,789,813
                                                                                                    --------------
                 Total U.S. government obligations (cost: $41,315,857)                                  41,315,857
                                                                                                    --------------




                                SHARES
                                ------
                                                                                                 
MONEY MARKET FUNDS (8.3%)
     8,292,135   Dreyfus Funds--Cash Management Plus Fund,
                 current rate 1.266%                                                                     8,292,135
     5,349,815   Federated Investors Prime Obligation Fund,
                 current rate 1.370%                                                                     5,349,815
        14,213   Wells Fargo & Company--Cash Investment Fund,
                  current rate 1.326%                                                                       14,213
                                                                                                    --------------
                 Total short-term securities (cost: $13,656,163)                                        13,656,163
                                                                                                    --------------
                 Total investments in securities (cost: $163,451,609) (b)                           $  163,451,609
                                                                                                    ==============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Also represents the cost of securities for federal income tax purposes at
December 31, 2002.

(c) Commercial paper sold within terms of a private placement memorandum exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board of directors. In aggregate, such securities represent 35.8% of the
Portfolio's net assets at December 31, 2002.

              See accompanying notes to investments in securities.

                                       53



Asset Allocation Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                  MARKET
                 SHARES                          VALUE(a)
                 ------                          --------
                                           
COMMON STOCK (63.7%)
   BASIC MATERIALS (2.4%)
     Chemicals (2.1%)
    33,600   Air Products and
              Chemicals, Inc.                 $    1,436,400
    70,400   Dow Chemical Company                  2,090,880
   101,600   EI Dupont De Nemours &
              Company                              4,307,840
                                              --------------
                                                   7,835,120
                                              --------------
     Paper and Forest (.3%)
    26,800   Weyerhaeuser Company                  1,318,828
                                              --------------
   CAPITAL GOODS (3.6%)
     Aerospace/Defense (.5%)
    19,900   United Technologies
              Corporation                          1,232,606
     9,700   Lockheed Martin
              Corporation                            560,175
                                              --------------
                                                   1,792,781
                                              --------------
     Electrical Equipment (1.5%)
   229,256   General Electric Company              5,582,384
                                              --------------
     Manufacturing (1.6%)
    35,100   3M Company                            4,327,830
    94,400   Tyco International, Ltd. (c)          1,612,352
                                              --------------
                                                   5,940,182
                                              --------------
   COMMUNICATION SERVICES (3.1%)
     Cellular (.2%)
   102,100   AT&T Wireless Services,
              Inc. (b)                               576,865
                                              --------------
     Telecommunication (.4%)
    18,900   Qualcomm, Inc. (b)                      687,771
    54,300   Sprint Corporation                      786,264
                                              --------------
                                                   1,474,035
                                              --------------
     Telephone (2.5%)
    24,800   AT&T Corporation                        647,528
    89,100   Bellsouth Corporation                 2,305,017
    56,200   SBC Communications,
              Inc.                                 1,523,582
    21,700   Telephone and Data
              Systems, Inc.                        1,020,334
   100,800   Verizon Communications                3,906,000
                                              --------------
                                                   9,402,461
                                              --------------
   CONSUMER CYCLICAL (6.0%)
     Auto (.8%)
    18,000   Eaton Corporation                     1,405,980
     9,500   ITT Industries, Inc.                    576,555
    21,400   Magna International,
              Inc. (c)                        $    1,201,610
                                              --------------
                                                   3,184,145
                                              --------------
     Leisure (1.5%)
   277,650   Brunswick Corporation                 5,514,129
                                              --------------
     Lodging-Hotel (.6%)
   169,200   Hilton Hotels                         2,150,532
                                              --------------
     Retail (3.1%)
    14,600   Autozone, Inc. (b)                    1,031,490
    51,200   Bed Bath & Beyond,
              Inc. (b)                             1,767,936
    66,400   Family Dollar Stores                  2,072,344
    12,500   Kohl's Corporation (b)                  699,375
    38,700   Lowes Companies, Inc.                 1,451,250
    93,400   Wal-Mart Stores, Inc.                 4,717,634
                                              --------------
                                                  11,740,029
                                              --------------
   CONSUMER STAPLES (8.4%)
     Beverage (.2%)
    16,500   The Coca-Cola Company                   723,030
                                              --------------
     Broadcasting (1.5%)
    97,000   Clear Channel
              Communications, Inc. (b)             3,617,130
    40,114   Comcast Corporation (b)                 945,487
    40,400   Comcast Corporation (b)                 912,636
                                              --------------
                                                   5,475,253
                                              --------------
     Entertainment (1.5%)
   195,800   The Walt Disney Company               3,193,498
    55,100   Viacom, Inc. (b)                      2,245,876
                                              --------------
                                                   5,439,374
                                              --------------
     Food (1.1%)
    55,000   Kraft Foods, Inc.                     2,141,150
    83,700   Sara Lee Corporation                  1,884,087
                                              --------------
                                                   4,025,237
                                              --------------
     Household Products (2.0%)
    71,400   Colgate-Palmolive
              Company                              3,743,502
    43,800   Procter & Gamble
              Company                              3,764,172
                                              --------------
                                                   7,507,674
                                              --------------
     Personal Care (.5%)
    34,400   Avon Products, Inc.                   1,853,128
                                              --------------


              See accompanying notes to investments in securities.

                                       54





                                                  MARKET
                 SHARES                          VALUE(a)
                 ------                          --------
                                           
CONSUMER STAPLES--CONTINUED
     Restaurants (.2%)
    39,300   McDonald's Corporation           $      631,944
                                              --------------
     Retail (.4%)
    65,700   CVS Corporation                       1,640,529
                                              --------------
     Service (.7%)
    77,800   Manpower, Inc.                        2,481,820
                                              --------------
     Tobacco (.3%)
    28,700   Philip Morris
              Companies, Inc.                      1,163,211
                                              --------------
   ENERGY (5.0%)
     Oil (3.1%)
    18,800   Chevron Corporation                   1,249,824
    13,200   Devon Energy Corporation                605,880
   262,300   Exxon Mobil Corporation               9,164,762
    14,500   Royal Dutch Petroleum
             Company (c)                             638,290
                                              --------------
                                                  11,658,756
                                              --------------
     Oil & Gas (1.9%)
    67,400   Ensco International, Inc.             1,984,930
    74,891   Nabors Industries,
              Ltd. (b)(c)                          2,641,405
    60,400   Smith International, Inc. (b)         1,970,248
    42,600   Veritas DGC, Inc. (b)                   665,412
                                              --------------
                                                   7,261,995
                                              --------------
   FINANCIAL (14.3%)
     Auto Finance (.2%)
    32,800   Fleet Boston Financial
              Corporation                            797,040
                                              --------------
     Banks (5.6%)
    75,900   Bank of America
              Corporation                          5,280,363
   162,800   U.S. Bancorp                          3,454,616
   187,500   Wachovia Corporation                  6,832,500
    91,600   Wells Fargo & Company                 4,293,292
    26,300   Zion BanCorporation                   1,034,879
                                              --------------
                                                  20,895,650
                                              --------------
     Consumer Finance (.7%)
    74,500   American Express
              Company                              2,633,575
                                              --------------
     Finance--Diversified (.6%)
    20,900   Fannie Mae                            1,344,497
    14,600   Freddie Mac                             862,130
                                              --------------
                                                   2,206,627
                                              --------------
     Insurance (2.2%)
    84,500   Allstate Corporation             $    3,125,655
    60,700   American International
              Group                                3,511,495
    48,700   Expeditor Washington
              International, Inc.                  1,590,055
                                              --------------
                                                   8,227,205
                                              --------------
     Investment Bankers/Brokers (3.1%)
   168,500   CitiGroup, Inc. (b)                   5,929,515
    19,000   Goldman Sachs Group,
              Inc.                                 1,293,900
    51,800   Merrill Lynch & Company,
              Inc.                                 1,965,810
    33,500   Morgan Stanley                        1,337,320
    46,200   T. Rowe Price Associates,
              Inc.                                 1,260,336
                                              --------------
                                                  11,786,881
                                              --------------
     Real Estate (.5%)
    81,900   Boardwalk Equities,
              Inc. (c)                               785,421
    63,631   Brookfield Properties
              Corporation (c)                      1,285,346
                                              --------------
                                                   2,070,767
                                              --------------
     Real Estate Investment Trust (.9%)
    61,600   Developers Diversified
              Realty Corporation                   1,354,584
    61,500   Prologis                              1,546,725
    43,420   Winston Hotels, Inc.                    338,676
                                              --------------
                                                   3,239,985
                                              --------------
     Savings and Loans (.5%)
    62,160   Charter One Financial, Inc.           1,785,857
                                              --------------
   HEALTH CARE (7.7%)
     Biotechnology (.9%)
    69,200   Amgen, Inc. (b)                       3,345,128
                                              --------------
     Drugs (3.7%)
    35,800   Eli Lilly & Company                   2,273,300
    14,300   Forest Laboratories, Inc. (b)         1,404,546
   255,425   Pfizer, Inc.                          7,808,342
    66,800   Wyeth                                 2,498,320
                                              --------------
                                                  13,984,508
                                              --------------
     Health Care--Diversified (1.4%)
    21,400   Abbott Laboratories                     856,000
    84,700   Johnson & Johnson                     4,549,237
                                              --------------
                                                   5,405,237
                                              --------------


              See accompanying notes to investments in securities.

                                       55





                                                  MARKET
                   SHARES                        VALUE(a)
                   ------                        --------
                                           
   HEALTH CARE--CONTINUED
     Managed Care (.3%)
    24,500   Express Scripts, Inc. (b)        $    1,176,980
                                              --------------
     Medical Products/Supplies (1.1%)
    71,500   St. Jude Medical, Inc. (b)            2,839,980
    30,300   Zimmer Holdings, Inc. (b)             1,258,056
                                              --------------
                                                   4,098,036
                                              --------------
     Special Services (.3%)
    43,200   Fisher Scientific
              International, Inc. (b)              1,299,456
                                              --------------
   TECHNOLOGY (10.2%)
     Communications Equipment (.1%)
    90,900   Brocade Communication
              Systems, Inc. (b)                      376,326
                                              --------------
     Computer Hardware (2.9%)
   113,657   Dell Computer
              Corporation (b)                      3,039,188
    66,100   Hewlett-Packard Company               1,147,496
    50,700   International Business
              Machines Corporation                 3,929,250
   349,800   Symbol Technologies, Inc.             2,875,356
                                              --------------
                                                  10,991,290
                                              --------------
     Computer Networking (.6%)
   168,400   Cisco Systems, Inc. (b)               2,206,040
                                              --------------
     Computer Services & Software (3.3%)
    48,700   AOL Time Warner, Inc. (b)               637,970
    75,600   BEA Systems, Inc. (b)                   867,132
   153,500   Microsoft Corporation (b)             7,935,950
   166,500   Oracle Systems (b)                    1,798,200
    31,000   Peoplesoft, Inc. (b)                    567,300
    84,400   Siebel Systems, Inc. (b)                631,312
                                              --------------
                                                  12,437,864
                                              --------------
     Electrical Semiconductor (2.1%)
    50,300   Applied Materials, Inc. (b)             655,409
    42,000   Entegris, Inc. (b)                      432,600
    68,300   Intel Corporation                     1,063,431
    29,900   Intersil Corporation (b)                416,806
   155,300   LSI Logic Corporation (b)               896,081
    85,600   National Semiconductor
              Corporation (b)                      1,284,856
    15,600   Novellus Systems, Inc. (b)              438,048
   135,529   Texas Instruments, Inc.               2,034,290
    31,300   Xilinx, Inc. (b)                        644,780
                                              --------------
                                                   7,866,301
                                              --------------
     Electronics-- Computer Distribution (.9%)
    28,500   Cree, Inc. (b)                   $      465,975
    54,600   WW Grainger, Inc.                     2,814,630
                                              --------------
                                                   3,280,605
                                              --------------
     Service-- Data Processing (.3%)
    30,100   First Data Corporation                1,065,841
                                              --------------
   TRANSPORTATION (.9%)
     Airlines (.6%)
   296,200   Northwest Airlines, Inc. (b)          2,174,108
                                              --------------
     Railroads (.3%)
    23,700   Canadian National
              Railway Company (c)                    984,972
                                              --------------
   UTILITIES (2.1%)
     Electric Companies (2.1%)
    21,400   Entergy Corporation                     975,626
    41,100   Firstenergy Corporation               1,355,067
   161,200   Nisource, Inc.                        3,224,000
   104,000   Pacific Gas and Electric
              Company (b)                          1,445,600
    23,400   Public Service Enterprise
              Group, Inc.                            751,140
                                              --------------
                                                   7,751,433
                                              --------------
Total common stock
  (cost: $239,849,655)                           238,461,154
                                              --------------
S&P DEPOSITORY RECEIPT (.6%)
    22,400   S&P Depository Receipt                1,977,696
                                              --------------
Total S&P Depository Receipt
  (cost: $2,014,925)                               1,977,696
                                              --------------


              See accompanying notes to investments in securities.

                                       56





                                                                                                      MARKET
                        PRINCIPAL                                            COUPON   MATURITY        VALUE(a)
                        ---------                                            ------   --------        --------
                                                                                           
LONG-TERM DEBT SECURITIES (32.6%)
   GOVERNMENT OBLIGATIONS (15.6%)
    Federal Home Loan Mortgage Corporation (FHLMC) (.3%)
 $ 1,100,000                                                                 5.500%   12/01/17      $  1,142,797
                                                                                                    ------------
    Federal National Mortgage Association (FNMA) (10.3%)
   1,820,473                                                                 4.000%   04/25/22         1,834,926
   2,559,319                                                                 6.000%   09/01/17         2,678,146
     270,341                                                                 6.000%   10/01/32           279,846
     992,969                                                                 6.000%   10/01/32         1,027,883
     227,504                                                                 6.000%   11/01/32           235,503
   1,666,808                                                                 6.230%   01/01/08         1,839,605
   1,740,180                                                                 6.500%   10/01/28         1,827,640
   1,568,611                                                                 6.500%   02/01/29         1,647,447
   1,135,366                                                                 6.500%   12/01/31         1,182,703
   4,167,016                                                                 6.500%   02/01/32         4,340,681
   1,415,933                                                                 6.500%   04/01/32         1,474,943
   1,532,578                                                                 6.500%   07/01/32         1,596,450
   1,866,644                                                                 6.500%   08/01/32         1,944,439
     492,542                                                                 6.500%   09/01/32           513,069
     942,499                                                                 6.500%   09/01/32           981,779
   1,756,266                                                                 7.000%   07/01/31         1,858,237
   1,454,466                                                                 7.000%   09/01/31         1,538,933
   1,367,939                                                                 7.000%   09/01/31         1,438,858
     371,164                                                                 7.000%   11/01/31           390,407
   2,182,287                                                                 7.000%   02/01/32         2,309,056
   1,769,882                                                                 7.000%   02/01/32         1,861,578
   1,012,662                                                                 7.000%   03/01/32         1,071,489
   1,447,224                                                                 7.000%   06/01/32         1,522,203
   2,053,522                                                                 7.000%   07/01/32         2,159,912
     801,781                                                                 7.500%   04/01/31           857,037
                                                                                                    ------------
                                                                                                      38,412,770
                                                                                                    ------------
    Government National Mortgage Association (GNMA) (1.2%)
     440,590                                                                 6.000%   08/15/28           460,650
   1,346,235                                                                 6.500%   11/15/28         1,415,145
     732,566                                                                 6.500%   06/15/32           769,410
     368,165                                                                 6.500%   07/15/32           386,682
   1,149,396                                                                 7.000%   05/15/26         1,223,574
     182,391                                                                 7.500%   05/15/24           195,760
      24,652                                                                 7.500%   06/15/28            26,323
                                                                                                    ------------
                                                                                                       4,477,544
                                                                                                    ------------
    U.S. Treasury (3.6%)
   2,975,050   Inflationary Index Bond (h)                                   3.375%   01/15/07         3,211,412
   2,150,000   Bond                                                          5.250%   02/15/29         2,246,666
     900,000   Bond                                                          5.375%   02/15/31           981,140
   2,500,000   Bond                                                          5.500%   08/15/28         2,701,172
   3,550,000   Bond                                                          6.125%   08/15/29         4,167,643
                                                                                                    ------------
                                                                                                      13,308,033
                                                                                                    ------------


              See accompanying notes to investments in securities.

                                       57





                                                                                                      MARKET
                          PRINCIPAL                                          COUPON   MATURITY        VALUE(a)
                          ---------                                          ------   --------        --------
                                                                                           
   GOVERNMENT OBLIGATIONS--CONTINUED
    Vendee Mortgage Trust (.2%)
  $ 520,757   U.S. Department of Veteran Affairs                             8.293%   12/15/26      $    581,792
                                                                                                    ------------
              Total government obligations (cost: $56,025,179)                                        57,922,936
                                                                                                    ------------
CORPORATE OBLIGATIONS (17.0%)
   BASIC MATERIALS (1.4%)
    Agriculture Products (.8%)
  1,350,000   Archer-Daniels-Midland Company                                 7.000%   02/01/31         1,554,455
  1,150,000   Cargill, Inc. 144A Issue (e)                                   6.375%   06/01/12         1,287,555
                                                                                                    ------------
                                                                                                       2,842,010
                                                                                                    ------------
    Construction (.6%)
  2,150,000   Vulcan Materials, Inc.                                         6.400%   02/01/06         2,376,823
                                                                                                    ------------
CONSUMER CYCLICAL (.4%)
    Publishing (.4%)
  1,350,000   Gannett Company, Inc.                                          5.500%   04/01/07         1,468,116
                                                                                                    ------------
CONSUMER STAPLES (2.3%)
    Beverage (.3%)
  1,150,000   Diageo Capital PLC                                             3.500%   11/19/07         1,155,860
                                                                                                    ------------
    Broadcasting (.8%)
  1,600,000   TCI Communications, Inc.                                       6.375%   05/01/03         1,600,112
  1,500,000   USA Interactive                                                7.000%   01/15/13         1,551,036
                                                                                                    ------------
                                                                                                       3,151,148
                                                                                                    ------------
    Food (.4%)
  1,450,000   Unilever Capital Corporation                                   5.900%   11/15/32         1,483,254
                                                                                                    ------------
    Retail (.4%)
  1,500,000   American Stores Company                                        7.200%   06/09/03         1,530,372
                                                                                                    ------------
    Service (.4%)
  1,500,000   Enterprise Rent-A-Car Company (e)                              7.500%   06/15/03         1,533,175
                                                                                                    ------------
FINANCIAL (11.4%)
    Auto Finance (.3%)
  1,200,000   General Motors Acceptance Corporation                          6.125%   08/28/07         1,214,243
                                                                                                    ------------
    Banks (1.2%)
  2,900,000   St. George Bank Capital Note 144A Issue (d)                    8.485%   12/29/49         3,120,670
  1,250,000   Wells Fargo & Company                                          7.550%   06/21/10         1,487,542
                                                                                                    ------------
                                                                                                       4,608,212
                                                                                                    ------------
    Commercial Finance (.5%)
  1,550,000   General Electric Capital Corporation                           6.750%   03/15/32         1,713,664
                                                                                                    ------------
    Commercial Mortgage-Backed Securities (3.3%)
         --   Asset Securitization Corporation (f)                           7.550%   01/13/15         1,559,444
  1,616,465   Chase Mortgage Finance Corporation                             6.750%   02/25/25         1,653,360
  1,050,403   CitiCorporation Mortgage Securities, Inc.                      6.500%   10/25/23         1,086,221
  3,000,000   First Union-Lehman Brothers Company                            6.650%   01/18/08         3,358,191
  1,000,000   Fortress CBO Investments, Ltd. 144A Issue (d)                  7.850%   07/25/38         1,107,020


              See accompanying notes to investments in securities.

                                       58





                                                                                                      MARKET
                          PRINCIPAL                                          COUPON   MATURITY        VALUE(a)
                          ---------                                          ------   --------        --------
                                                                                           
   FINANCIAL--CONTINUED
$ 3,000,842   Park Avenue Finance Corporation 144A Issue (e)                 7.580%   05/12/07      $  3,373,910
                                                                                                    ------------
                                                                                                      12,138,146
                                                                                                    ------------
    Consumer Finance (.7%)
  1,500,000   Citibank Credit Card Issuance Trust (i)                        1.856%   12/15/05         1,499,373
  1,250,000   Fleet Credit Card Master Trust II (i)                          1.560%   04/15/10         1,250,605
                                                                                                    ------------
                                                                                                       2,749,978
                                                                                                    ------------
    Insurance (1.9%)
  1,400,000   American International Group (e)                               3.850%   11/26/07         1,435,409
  1,100,000   MetLife, Inc.                                                  6.500%   12/15/32         1,141,719
  1,500,000   Principal Life Global 144A Issue (e)                           6.250%   02/15/12         1,589,986
  1,500,000   Prudential Insurance Company of America
               144A Issue (e)                                                6.600%   05/15/08         1,660,137
  1,375,000   Stancorp Financial Group, Inc.                                 6.875%   10/01/12         1,408,572
                                                                                                    ------------
                                                                                                       7,235,823
                                                                                                    ------------
    Investment Bankers/Brokers (.4%)
  1,450,000   Morgan Stanley                                                 6.750%   04/15/11         1,611,340
                                                                                                    ------------
    Mortgage Revenue Bonds (.2%)
    634,157   American Housing Trust                                         8.125%   06/25/18           652,823
                                                                                                    ------------
    Real Estate Investment Trust (1.3%)
  1,500,000   Prologis                                                       6.700%   04/15/04         1,562,592
  1,400,000   Reckson Operating Partnership LP                               7.400%   03/15/04         1,467,063
  1,750,000   Vornado Realty Trust                                           5.625%   06/15/07         1,783,136
                                                                                                    ------------
                                                                                                       4,812,791
                                                                                                    ------------
    Whole Loan Mortgage-Backed (1.6%)
    317,173   Banco Hipotecario Nacional 144A Issue (c) (d) (g)              7.916%   07/25/09            78,128
  2,136,200   Banco Hipotecario Nacional 144A Issue (c) (d) (g)              8.000%   03/31/11           422,873
  1,343,608   GE Capital Mortgage Services, Inc.                             6.500%   04/25/13         1,378,765
    464,701   Mellon Residential Funding                                     6.750%   06/26/28           481,267
    427,651   Paine Webber Mortgage Acceptance Corporation                   6.938%   02/25/24           432,342
    710,446   Paine Webber Mortgage Acceptance Corporation                   7.000%   10/25/23           718,430
  1,030,289   Prudential Home Mortgage Securities
              144A Issue (e)                                                 6.582%   04/28/24         1,045,692
  1,370,819   Residential Funding Mortgage Securities                        7.000%   10/25/23         1,414,333
                                                                                                    ------------
                                                                                                       5,971,830
                                                                                                    ------------
  TECHNOLOGY (.3%)
    Computer Hardware (.3%)
  1,250,000   International Business Machines Corporation                    5.875%   11/29/32         1,236,876
                                                                                                    ------------
  UTILITIES (1.2%)
    Electric Companies (1.2%)
  2,500,000   Georgia Power Company                                          5.500%   12/01/05         2,688,140
  1,500,000Hydro-Quebec (c)                                                  8.000%   02/01/13         1,903,656
                                                                                                    ------------
                                                                                                       4,591,796
                                                                                                    ------------
                  Total corporate obligations (cost: $61,989,735)                                     64,078,280
                                                                                                    ------------
                  Total long-term debt securities (cost: $118,014,914)                               122,001,216
                                                                                                    ------------


              See accompanying notes to investments in securities.

                                       59





                                                                                                      MARKET
                              SHARES/PAR                                     RATE    MATURITY        VALUE(a)
                              ----------                                     ------  --------      -------------
                                                                                          
SHORT-TERM SECURITIES (2.7%)
$  1,200,000   Conagra, Inc. (i)                                             2.120%   09/10/03     $   1,202,756
   1,500,000   Conoco, Inc. (i)                                              2.625%   04/15/03         1,502,574
   7,243,498   Dreyfus Funds-- Cash Management Plus,
                current rate 1.266%                                                                    7,243,498
       5,706   Federated Money Market Obligations Trust -- Prime

                Obligations Fund, current rate 1.370%                                                      5,706
     199,912   Wells Fargo & Company-- Cash Investment Fund,
                current rate 1.326%                                                                      199,912
                                                                                                   -------------
               Total short-term securities (cost: $10,151,664)                                        10,154,446
                                                                                                   -------------
               Total investments in securities (cost: $370,031,158) (j)                            $ 372,594,512
                                                                                                   =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 3.1% of net assets in foreign securities as of December
31, 2002.

(d) Represents ownership in an illiquid security. (See note 9 to the financial
statements.) Information concerning the illiquid securities held at December 31,
2002, which includes acquisition date and cost, is as follows:



                                                            ACQUISITION
                SECURITY                                       DATE           COST
                --------                                    -----------    -----------
                                                                     
Banco Hipotecario Nacional 144A Issue*                         4/1/99      $   302,782
Banco Hipotecario Nacional 144A Issue*                         3/7/00        2,042,407
Fortress CBO Investments, Ltd. 144A Issue*                    1/16/01          990,412
St. George Bank Capital Note 144A Issue*                      various        2,873,242
                                                                           -----------
                                                                           $ 6,208,843
                                                                           ===========


* A 144A Issue represents a security which has not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.

(e) Long-term debt security sold within terms of a private placement memorandum
exempt from registration under Section 144A of the Securities Act of 1933 as
amended, and may be sold to dealers in that program or other accredited
investors. These securities have been determined to be liquid under guidelines
established by the board of directors. At December 31, 2002 these securities
total $11,925,804, or 3.2% of net assets.

(f) Interest-only security that entitles holders to receive only interest on the
underlying mortgages. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The yield to maturity
of an interest-only security is sensitive to the rate of principal payments on
the underlying mortgage assets. The rate disclosed represents the market yield
based upon the current cost basis and estimated timing and amount of future cash
flows.

(g) Security is in default with respect to interest payments. Income is not
being accrued on this security and any payments received are treated as a
reduction of principal. This security is being fair-valued according to
procedures approved by the board of directors.

(h) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semi-annual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.

(i) Floating rate bond.

              See accompanying notes to investments in securities.

                                       60



(j) At December 31, 2002 the cost of securities for federal income tax purposes
was $385,674,626. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                       
Gross unrealized appreciation             $   15,835,457
Gross unrealized depreciation                (28,915,571)
                                          --------------
Net unrealized depreciation               $  (13,080,114)
                                          ==============



              See accompanying notes to investments in securities.

                                       61



Mortgage Securities Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                                                                       MARKET
                        PRINCIPAL                                             COUPON   MATURITY        VALUE(a)
                        ---------                                             ------   --------     -------------
                                                                                           
LONG-TERM DEBT SECURITIES (97.4%)
    U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (41.4%)
      Federal Home Loan Mortgage Corporation (FHLMC) (5.0%)
$   5,000,000    (g)                                                          5.500%   12/01/17     $   5,194,531
    2,172,076                                                                 6.000%   09/01/32         2,249,126
    4,755,444                                                                 6.500%   09/01/32         4,955,705
                                                                                                    -------------
                                                                                                       12,399,362
                                                                                                    -------------
    Federal National Mortgage Association (FNMA) (35.0%)
    1,989,654                                                                 5.500%   11/01/17         2,065,776
      492,108                                                                 6.000%   09/01/32           509,411
    3,737,061                                                                 6.000%   10/01/32         3,868,459
    2,733,866                                                                 6.000%   10/01/32         2,829,992
      893,672                                                                 6.000%   10/01/32           925,095
    3,143,145                                                                 6.000%   11/01/32         3,253,661
      499,089                                                                 6.000%   11/01/32           516,638
      750,000    (g)                                                          6.000%   01/01/33           775,078
   10,627,022                                                                 6.500%   12/01/31        11,070,105
    1,656,957                                                                 6.500%   02/01/32         1,735,347
    1,156,078                                                                 6.500%   02/01/32         1,210,767
    2,407,609                                                                 6.500%   02/01/32         2,507,949
    3,236,411                                                                 6.500%   03/01/32         3,371,292
    2,083,913                                                                 6.500%   04/01/32         2,170,762
    2,891,657                                                                 6.500%   07/01/32         3,012,170
      954,955                                                                 6.500%   05/01/32         1,000,131
    1,487,242                                                                 6.500%   07/01/32         1,549,224
    2,036,106                                                                 6.500%   08/01/32         2,120,962
      709,497                                                                 6.500%   08/01/32           739,066
    3,666,798                                                                 6.500%   08/01/32         3,819,615
    1,339,714                                                                 6.500%   09/01/32         1,395,548
    4,566,748                                                                 6.500%   09/01/32         4,757,072
      911,055                                                                 7.000%   02/01/29           966,609
    5,846,624                                                                 7.000%   09/01/31         6,186,161
    3,215,240                                                                 7.000%   09/01/31         3,381,931
      412,405                                                                 7.000%   11/01/31           433,785
    3,928,116                                                                 7.000%   02/01/32         4,156,301
    2,212,352                                                                 7.000%   02/01/32         2,326,972
    7,200,656                                                                 7.000%   03/01/32         7,618,950
      232,015                                                                 7.000%   05/01/32           245,490
    2,917,790                                                                 7.000%   06/01/32         3,068,958
    2,361,234                                                                 7.000%   07/01/32         2,483,568
      637,174                                                                 7.500%   04/01/31           681,086
      700,000                                                                 7.853%   11/25/10           720,511
        2,699                                                                 8.000%   05/01/22             2,948
                                                                                                    -------------
                                                                                                       87,477,390
                                                                                                    -------------
      Government National Mortgage Association (GNMA) (.4%)
           --    (e)                                                          7.000%   07/16/40         1,097,193
        1,176                                                                 8.500%   03/15/22             1,296
                                                                                                    -------------
                                                                                                        1,098,489
                                                                                                    -------------


              See accompanying notes to investments in securities.

                                       62





                                                                                                       MARKET
                             PRINCIPAL                                        COUPON   MATURITY        VALUE(a)
                             ---------                                        ------   --------     -------------
                                                                                           
    U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED
      Other Agency Obligations (.7%)
$   1,506,000    Pleasant Hill California                                     7.950%   09/20/15     $   1,632,926
                                                                                                    -------------
      Vendee Mortgage Trust (.3%)
      689,159    Vendee Mortgage Trust Participation Certificates (b)         7.793%   02/15/25           744,726
                                                                                                    -------------
                 Total U.S. government and agencies obligations
                  (cost: $101,539,086)                                                                103,352,893
                                                                                                    -------------
    OTHER MORTGAGE-BACKED SECURITIES (56.0%)
      Non-Agency Commercial Mortgage-Backed Securities (12.9%)
           --    Asset Securitization Corporation (e)                         7.250%   04/14/29         2,292,938
           --    Asset Securitization Corporation (e)                         7.550%   01/13/15         1,532,657
           --    Asset Securitization Corporation (c)(e)                      7.550%   01/13/15         1,389,683
           --    Asset Securitization Corporation 144A Issue (d)(e)           6.500%   10/13/26         1,760,920
    1,166,000    Covenant Retirement Community                                6.750%   06/01/04         1,188,837
    2,250,000    Covenant Retirement Community                                7.000%   06/01/06         2,411,365
       85,123    FFCA Secured Lending Corporation 144A Issue (d)              2.220%   01/18/05            84,756
    1,278,350    FFCA Secured Lending Corporation
                  144A Issue (c)                                              7.450%   10/18/11         1,349,996
    4,936,000    FFCA Secured Lending Corporation 144A Issue (d)              8.910%   06/25/14         5,287,680
    4,150,000    Fortress CBO Investments I, Limited
                  144A Issue (c)                                              7.850%   07/25/38         4,594,133
    5,350,000    Park Avenue Finance Corporation 144A Issue (d)               7.680%   05/12/07         6,126,617
    1,745,968    Securitized Asset Sales, Inc. 144A Issue (d)                 6.781%   11/28/23         1,804,057
    2,250,000    Vanderbilt Mortgage and Finance, Inc.                        7.955%   12/07/24         2,506,806
                                                                                                    -------------
                                                                                                       32,330,445
                                                                                                    -------------
      Non-Agency Prime Residential Mortgage-Backed Securities (42.1%)
    2,000,000    GS Mortgage Securities Corporation II                        7.099%   07/13/07         2,182,412
    2,200,000    Associates Manufactured Housing                              7.900%   03/15/27         2,278,340
    5,291,000    BankAmerica Manufactured Housing Contract                    7.800%   10/10/26         5,370,042
    2,561,745    Bear Stearns & Company, Inc.                                 6.750%   04/30/30         2,676,870
    1,657,985    Bear Stearns Mortgage Securities, Inc.                       6.750%   04/30/30         1,718,402
    1,080,830    Bear Stearns Mortgage Securities, Inc.                       8.000%   11/25/29         1,149,668
    2,773,752    Bear Stearns Structured Products, Inc.
                  144A Issue (d)                                              6.293%   11/30/13         2,867,280
      483,157    Chase Mortgage Finance Corporation                           6.500%   09/25/13           499,597
    1,549,372    Chase Mortgage Finance Corporation                           6.750%   03/25/25         1,592,212
      153,872    Chase Mortgage Finance Corporation (c)                       6.787%   08/28/24           162,540
    1,471,846    Chase Mortgage Finance Corporation
                  144A Issue (d)                                              6.640%   03/28/25         1,513,031
    1,174,599    Chase Mortgage Finance Corporation
                  144A Issue(d)                                               6.640%   03/28/25         1,207,467
    2,137,278    CitiCorporation Mortgage Securities, Inc.                    6.750%   08/25/28         2,244,398
      683,908    Countrywide Funding Corporation                              6.625%   02/25/24           700,268
      725,880    Countrywide Funding Corporation                              6.625%   02/25/24           741,893
    1,654,403    Countrywide Funding Corporation                              7.000%   06/25/24         1,692,652
      305,170    Countrywide Funding Corporation 144A Issue (d)               6.250%   02/25/09           298,392
      735,462    Countrywide Home Loan                                        6.250%   08/25/14           751,598
    1,883,032    Countrywide Home Loan                                        7.250%   02/25/28         1,897,626
      957,887    Countrywide Mortgage Backed Securities, Inc.                 6.500%   03/25/24           973,922
      349,522    CSFB Mortgage Securities 144A Issue (d)                      7.723%   05/30/23           361,905


              See accompanying notes to investments in securities.

                                       63





                                                                                                       MARKET
                            PRINCIPAL                                         COUPON   MATURITY       VALUE(a)
                            ---------                                         ------   --------     -------------
                                                                                           
    OTHER MORTGAGE-BACKED SECURITIES--CONTINUED
$     798,268    DLJ Mortgage Acceptance Corporation
                  144A Issue (c)                                              6.856%   09/29/23     $     817,641
      364,538    FBS Mortgage Corporation                                     7.130%   08/25/24           363,845
    1,200,000    First Boston Mortgage Securities Corporation                 7.449%   09/25/06         1,200,000
      757,247    First Union Corporation                                      6.843%   09/25/26           795,980
    1,309,898    GE Capital Mortgage Services, Inc. 144A Issue (d)            6.500%   04/25/24         1,338,543
      608,487    GE Capital Mortgage Services, Inc 144A Issue (d)             6.500%   01/25/24           617,067
    1,138,477    GE Capital Mortgage Services, Inc 144A Issue (d)             7.000%   03/25/26         1,147,232
      554,653    GE Capital Mortgage Services, Inc.                           6.250%   07/25/14           578,858
      442,372    GE Capital Mortgage Services, Inc. 144A Issue (d)            6.000%   10/25/08           450,255
      430,547    GE Capital Mortgage Services, Inc.
                  144A Issue (d)                                              6.000%   11/25/08           439,054
      451,104    GE Capital Mortgage Services, Inc. 144A Issue (d)            6.500%   09/25/23           456,432
    1,004,042    GE Capital Mortgage Services, Inc. 144A Issue (d)            6.500%   04/25/24         1,028,008
      923,106    GE Capital Mortgage Services, Inc. 144A Issue (d)            6.500%   05/25/24           939,080
    1,268,660    GMAC Commercial Mortgage Securities (c)                      5.940%   07/01/13         1,273,814
    1,908,926    Green Tree Financial Corporation                             6.400%   10/15/18         1,974,223
    3,750,000    Green Tree Financial Corporation                             8.300%   05/15/19         3,921,533
    1,400,000    Green Tree Financial Corporation                             8.300%   11/15/19         1,449,321
    1,418,442    Green Tree Financial Corporation (g)                         9.100%   04/15/25         1,425,162
      509,973    Housing Securities, Inc.                                     7.000%   06/25/23           521,458
      565,745    JP Morgan Chase and Company                                  7.250%   01/25/26           564,658
    2,600,000    Lehman ABS Manufactured Housing Contract                     5.873%   05/15/22         2,683,041
      649,234    Lehman Structured Securities 144A Issue (d)                  6.305%   04/28/24           667,309
    1,104,742    Metropolitan Asset Funding 144A Issue (d)                    6.980%   05/20/12         1,138,205
    1,099,620    Metropolitan Asset Funding 144A Issue (d)                    7.130%   06/20/12         1,129,403
    4,600,000    Mid-State Trust                                              7.340%   07/01/35         4,928,049
    3,454,245    Mid-State Trust                                              7.790%   07/01/35         3,640,121
    1,257,763    Morgan Stanley Capital Markets 144A Issue (d)                6.842%   06/29/26         1,307,646
    1,943,481    Morgan Stanley Capital Markets 144A Issue (d)                6.842%   06/29/26         2,033,115
      454,754    Nationsbanc Montgomery Funding                               6.000%   11/25/13           455,518
      682,684    Norwest Asset Securities Corporation                         6.250%   05/25/29           707,019
    2,012,849    Norwest Asset Securities Corporation                         6.500%   06/25/29         2,064,056
      474,933    Norwest Asset Securities Corporation
                  144A Issue (d)                                              7.000%   09/25/11           482,114
      808,468    Paine Webber Mortgage Acceptance
                  Corporation                                                 6.750%   01/25/24           817,782
    5,300,000    Paine Webber Mortgage Acceptance
                  Corporation (d)                                             7.655%   01/02/12         5,799,133
      417,444    Paine Webber Mortgage Acceptance
                  Corporation                                                 8.125%   07/25/09           418,420
    1,133,450    Paine Webber Mortgage Acceptance
                  Corporation 144A Issue (d)                                  6.460%   04/29/24         1,178,074
    1,054,703    Paine Webber Mortgage Acceptance Corporation
                  144A Issue (d)                                              6.460%   04/29/24         1,078,195
    1,123,817    Prudential Home Mortgage                                     6.050%   04/25/24         1,149,541
      463,933    Prudential Home Mortgage                                     8.000%   06/25/22           483,933
       78,531    Prudential Home Mortgage                                     8.000%   10/25/22            78,695
      321,065    Prudential Home Mortgage 144A Issue (d)                      7.900%   04/28/22           321,566
      964,644    Prudential Home Mortgage 144A Issue (d)                      7.900%   04/28/22           964,538


              See accompanying notes to investments in securities.

                                       64





                                                                                                      MARKET
                               PRINCIPAL                                    COUPON   MATURITY        VALUE(a)
                               ---------                                    ------   --------     -------------
                                                                                         
  OTHER MORTGAGE-BACKED SECURITIES--CONTINUED
$    91,392    Prudential Home Mortgage Securities                          7.500%   08/25/07     $      94,795
    629,510    Prudential Home Mortgage Securities
                144A Issue (c)                                              6.304%   08/28/09           646,294
    506,007    Prudential Home Mortgage Securities
                144A Issue (d)                                              6.500%   04/25/26           512,145
    805,786    Prudential Home Mortgage Securities
                144A Issue (d)                                              7.238%   09/28/24           832,844
    492,553    Prudential Home Mortgage Securities
                144A Issue (d)                                              7.250%   09/25/25           491,588
    807,493    Prudential Home Mortgage Security
                Company                                                     6.500%   02/25/24           827,346
    520,530    Residential Accredit Loans, Inc. 144A Issue (d)              6.250%   03/25/14           532,228
    758,580    Residential Funding Mortgage Securities                      6.500%   12/25/12           777,391
    463,006    Residential Funding Mortgage Securities                      6.500%   11/25/23           482,781
  1,429,835    Residential Funding Mortgage Securities                      6.500%   12/25/28         1,486,800
  2,479,837    Residential Funding Mortgage Securities                      6.500%   01/25/29         2,561,069
  1,109,661    Residential Funding Mortgage Securities                      7.000%   09/25/23         1,135,916
    972,315    Residential Funding Mortgage Securities                      7.000%   08/25/29         1,007,154
  3,721,000    Sequoia Mortgage Funding Company
                144A Issue (d)                                              6.380%   07/31/31         3,744,256
  2,242,651    Structured Asset Mortgage Investments                        6.750%   05/02/30         2,249,649
                                                                                                  -------------
                                                                                                    105,090,408
                                                                                                  -------------
    Non-Agency Sub-Prime Residential Mortgage-Backed Securities (1.0%)
    176,103    Banco Hipotecario Nacional 144A Issue (c)(f)(h)              2.830%   03/25/11            35,221
  1,408,898    Banco Hipotecario Nacional 144A Issue (c)(f)(h)              7.540%   05/31/17           281,780
    979,969    Banco Hipotecario Nacional 144A Issue (c)(f)(h)              7.916%   07/25/09           244,992
  1,035,698    Black Diamond Capital Management LLC
                144A Issue (c)                                              6.587%   01/29/13         1,078,814
    568,498    Black Diamond Capital Management LLC
                144A Issue (c)                                              6.587%   01/29/13           563,569
    232,065    Black Diamond Capital Management LLC
                144A Issue (d)                                              6.587%   01/29/13           239,561
                                                                                                  -------------
                                                                                                      2,443,937
                                                                                                  -------------
               Total other mortgage-backed securities (cost: $135,076,492)                          139,864,790
                                                                                                  -------------
               Total long-term debt securities (cost: $236,615,578)                                 243,217,683
                                                                                                  -------------




                                 SHARES
                                 ------
                                                                               
SHORT-TERM SECURITIES (3.5%)
    8,796,795    Dreyfus Funds -- Cash Management Plus Fund,
                  current rate 1.266%                                                 8,796,795
        2,307    Federated Money Market Obligation Trust Prime Obligation
                  Fund, current rate 1.370%                                               2,307
                                                                                  -------------
                 Total short-term securities (cost: $8,799,102)                       8,799,102
                                                                                  -------------
                 Total investments in securities (cost: $245,414,680) (i)         $ 252,016,785
                                                                                  =============


              See accompanying notes to investments in securities.

                                       65



NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Represents a debt security with a weighted average net pass-through rate
which varies based on the interest rates of the securities in the pool of
underlying collateral. The rate disclosed is the rate in effect at December 31,
2002.

(c) Represents ownership in an illiquid security. (See note 9 to the financial
statements.) Information concerning the illiquid securities held at December 31,
2002, which includes acquisition date and cost, is as follows:



                                                       ACQUISITION
                  SECURITY:                               DATE           COST
                  ---------                            -----------   ------------
                                                               
Asset Securitization Corporation                         various     $  1,329,031
Banco Hipotecario Nacional 144A Issue*                   09/06/02          13,145
Banco Hipotecario Nacional 144A Issue*                   various        1,323,585
Banco Hipotecario Nacional 144A Issue*                   various          940,322
Black Diamond Mortgage Trust 144A Issue*                 various          482,274
Black Diamond Mortgage Trust 144A Issue*                 03/1/00          977,694
Chase Mortgage Finance Corporation                       6/16/97          148,762

DLJ Mortgage Acceptance Corporation 144A Issue*          various          779,988
Fortress CBO Investments I, Limited 144A Issue*          various        3,877,651
GMAC Commercial Mortgage Services                        various        1,215,585
Prudential Home Mortgage Securities 144A Issue*          08/02/99         592,601
FFCA Secured Lending Corporation 144A Issue*             11/26/02       1,299,391
                                                                     ------------
                                                                     $ 12,980,029
                                                                     ============


* A 144A Issue represents a security which has not been registered with the
Securities and Exchange Commission under the Securities Act of 1933.

(d) Long-term debt security sold within terms of a private placement memorandum
exempt from registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other Oaccredited
investorsO. These securities have been determined to be liquid under guidelines
established by the Board of Directors. At December 31, 2002 these securities
represent $49,032,464, or 19.6% of net assets.

(e) Interest-only security that entitles holders to receive only interest on the
underlying mortgages. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The yield to maturity
of an interest-only security is sensitive to the rate of principle payments on
the underlying mortgage assets. The rate disclosed represents the market yield
based upon the current cost basis and estimate timing and amount of future cash
flows.

(f) The Portfolio held 0.2% of net assets in foreign securities at December 31,
2002.

(g) At December 31, 2002 the total cost of investments issued on a when-issued
or forward commitment basis is $7,147,402.

(h) Security is in default with respect to interest payments. Income is not
being accrued on this security and any payments received are treated as a
reduction of principal. This security is being fair-valued according to
procedures approved by the board of directors.

(i) At December 31, 2002 the cost of securities for federal income tax purposes
was $245,531,440. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                            
Gross unrealized appreciation                  $  8,867,770
Gross unrealized depreciation                    (2,382,425)
                                               ------------
Net unrealized appreciation                    $  6,485,345
                                               ============



              See accompanying notes to investments in securities.

                                       66



Index 500 Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                        MARKET
                SHARES                                 VALUE(a)
                ------                              ---------------
                                                 
COMMON STOCK (98.3%)
   BASIC MATERIALS (3.8%)
     Agriculture Products (.2%)
    32,828   Archer-Daniels-Midland
              Company                               $       407,067
    13,269   Monsanto Company                               255,428
                                                    ---------------
                                                            662,495
                                                    ---------------
     Aluminum (.2%)
    42,855   Alcoa, Inc.                                    976,237
                                                    ---------------
     Chemicals (2.2%)
    11,534   Air Products and
              Chemicals, Inc.                               493,078
    46,248   Dow Chemical
              Company                                     1,373,566
     3,928   Eastman Chemical
              Company                                       144,433
     6,577   Ecolab, Inc.                                   325,561
    50,429   EI Dupont De Nemours &
              Company                                     2,138,190
     6,486   Engelhard Corporation                          144,962
     2,556   Great Lakes Chemical
              Corporation                                    61,037
     5,543   Hercules, Inc. (b)                              48,778
     4,789   International Flavors
              and Fragrances, Inc.                          168,094
    65,629   Pharmacia Corporation                        2,743,292
     8,601   PPG Industries, Inc                            431,340
     8,209   Praxair, Inc.                                  474,234
     4,964   Quest Diagnostics,
              Inc. (b)                                      282,452
    11,223   Rohm & Haas Company                            364,523
     3,637   Sigma-Aldrich
              Corporation                                   177,122
                                                    ---------------
                                                          9,370,662
                                                    ---------------
     Construction ( -- )
     5,153   Vulcan Materials, Inc.                         193,237
                                                    ---------------
     Iron and Steel (.1%)
     4,093   Allegheny Technologies,
              Inc.                                           25,499
     3,968   Nucor Corporation                              163,878
     5,192   United States Steel
              Corporation                                    68,119
     4,351   Worthington Industries,
              Inc.                                           66,309
                                                    ---------------
                                                            323,805
                                                    ---------------
     Mining (.2%)
     7,354   Freeport-McMoran,
              Inc. (b)                                      123,400
    20,390   Newmont Mining                         $       591,922
     4,513   Phelps Dodge
              Corporation (b)                               142,836
                                                    ---------------
                                                            858,158
                                                    ---------------
     Paper and Forest (.9%)
     2,689   Bemis Company, Inc.                            133,455
     2,958   Boise Cascade
              Corporation                                    74,601
    12,693   Georgia-Pacific
              Corporation                                   205,119
    24,349   International Paper
              Company                                       851,485
    26,108   Kimberly-Clark
              Corporation                                 1,239,347
     5,308   Louisiana-Pacific
              Corporation (b)                                42,782
    10,153   MeadWestvaco
              Corporation                                   250,881
     9,383   Plum Creek Timber
              Company, Inc.                                 221,439
     2,769   Temple Inland, Inc.                            124,079
    11,114   Weyerhaeuser Company546,920
                                                    ---------------
                                                          3,690,108
                                                    ---------------
   CAPITAL GOODS (7.9%)
     Aerospace/Defense (1.7%)
     5,842   B.F. Goodrich Company                          107,025
    10,200   General Dynamics
              Corporation                                   809,574
    23,151   Lockheed Martin
              Corporation                                 1,336,970
     9,241   Northrop Grumman
              Corporation                                   896,377
    20,603   Raytheon Company                               633,542
     9,286   Rockwell Collins                               215,992
     9,436   Rockwell International
              Corporation                                   195,420
    42,614   The Boeing Company                           1,405,836
    24,043   United Technologies
              Corporation                                 1,489,223
                                                    ---------------
                                                          7,089,959
                                                    ---------------
     Containers-- Metal/Glass ( -- )
     2,892   Ball Corporation                               148,041
                                                    ---------------
     Electrical Equipment (3.6%)
     9,954   American Power
              Conversion
              Corporation (b)                               150,803
     4,677   Cooper Industries, Inc.                        170,477


              See accompanying notes to investments in securities.

                                       67





                                                     MARKET
             SHARES                                 VALUE(a)
             ------                              ---------------
                                              
CAPITAL GOODS--CONTINUED
 21,373   Emerson Electric
           Company                               $     1,086,817
505,116   General Electric
           Company (d)                                12,299,575
 41,676   Honeywell International,
           Inc.                                        1,000,224
  9,758   Molex, Inc.                                    224,824
 41,927   Solectron Corporation (b)                      148,841
  8,300   Thermo Electron
           Corporation (b)                               166,996
                                                 ---------------
                                                      15,248,557
                                                 ---------------
  Engineering/Construction (.2%)
 17,471   Caterpillar, Inc.                              798,774
                                                 ---------------
  Machinery (.3%)
 12,112   Deere & Company                                555,335
 10,270   Dover Corporation                              299,473
  8,588   Ingersoll Rand
           Company (c)                                   369,799
                                                 ---------------
                                                       1,224,607
                                                 ---------------
  Manufacturing (1.6%)
 19,807   3M Company                                   2,442,203
  5,574   Avery Dennison
           Corporation                                   340,460
 15,555   Illinois Tool Works, Inc.                    1,008,897
  4,506   Johnson Controls, Inc.                         361,246
  2,457   Millipore Corporation                           83,538
  5,992   Parker Hannifin
           Corporation                                   276,411
  4,261   Sealed Air Corporation (b)                     158,935
  6,978   Textron, Inc.                                  299,984
101,275   Tyco International, Ltd. (c)                 1,729,777
                                                 ---------------
                                                       6,701,451
                                                 ---------------
  Office Equipment (.2%)
  6,392   Lexmark International
          Group, Inc. (b)                                386,716
 12,007   Pitney Bowes, Inc.                             392,149
                                                 ---------------
                                                         778,865
                                                 ---------------
  Trucks and Parts (.1%)
  2,106   Cummins Engine
           Company, Inc.                                  59,242
  3,069   Navistar International
           Corporation (b)                                74,607
  5,882   Paccar, Inc.                                   271,337
                                                 ---------------
                                                         405,186
                                                 ---------------
  Waste Management (.2%)
 10,008   Allied Waste
           Industries (b)                        $       100,080
 30,896   Waste Management,
           Inc.                                          708,136
                                                 ---------------
                                                         808,216
                                                 ---------------
COMMUNICATION SERVICES (4.5%)
  Cellular  (.4%)
137,511   AT&T Wireless
          Services, Inc. (b)                             776,937
 14,325   Citizens Utilities
           Company (b)                                   151,129
 48,887   Nextel Communications,
           Inc. (b)                                      564,645
                                                 ---------------
                                                       1,492,711
                                                 ---------------
  Telecommunication (.7%)
 39,851   Qualcomm, Inc. (b)                           1,450,178
 86,056   Qwest Communications
           International, Inc.                           430,280
 45,407   Sprint Corporation
          -FON Group                                     657,493
 50,713   Sprint Corporation
          -PCS Group (b)                                 222,123
                                                 ---------------
                                                       2,760,074
                                                 ---------------
  Telephone (3.4%)
 15,788   Alltel Corporation                             805,188
 39,105   AT&T Corporation                             1,021,032
 94,341   Bellsouth Corporation                        2,440,602
  7,239   Centurytel, Inc.                               212,682
168,534   SBC Communications,
           Inc.                                        4,568,957
138,868   Verizon Communications5,381,135
                                                 ---------------
                                                      14,429,596
                                                 ---------------
CONSUMER CYCLICAL (10.2%)
  Auto (1.0%)
  3,733   Cooper Tire and Rubber
           Company                                        57,264
  7,540   Dana Corporation                                88,670
  7,736   Danaher Corporation                            508,255
 28,344   Delphi Corporation                             228,169
  3,630   Eaton Corporation                              283,539
 93,150   Ford Motor Company                             866,295
 28,448   General Motors
           Corporation                                 1,048,593
  8,898   Goodyear Tire & Rubber
           Company                                        60,595


              See accompanying notes to investments in securities.

                                       68





                                                     MARKET
                SHARES                              VALUE(a)
                ------                           ---------------
                                              
CONSUMER CYCLICAL--CONTINUED
 15,363   Harley-Davidson, Inc.                  $       709,771
  4,660   ITT Industries, Inc.                           282,815
  2,964   Snap-On, Inc.                                   83,318
  6,603   Visteon Corporation                             45,957
                                                 ---------------
                                                       4,263,241
                                                 ---------------
  Building Materials (.3%)
  3,678   American Standard
           Companies, Inc. (b)                           261,653
  3,128   Centex Corporation                             157,026
  2,939   Crane Company                                   58,574
  2,452   Kaufman and Broad
           Home Corporation                              105,068
 24,974   Masco Corporation                              525,703
  3,107   Pulte Corporation                              148,732
                                                 ---------------
                                                       1,256,756
                                                 ---------------
  Distribution Durables (.1%)
  8,865   Genuine Parts Company273,042
  Hardware and Tools (.1%)
  4,089   Black & Decker
           Corporation                                   175,377
  4,480   The Stanley Works                              154,918
                                                 ---------------
                                                         330,295
                                                 ---------------
  Houseware (.2%)
 58,272   Corning, Inc. (b)                              192,880
  9,879   Leggett & Platt, Inc.                          221,685
  3,961   Maytag Corporation                             112,888
  3,505   Whirlpool Corporation                          183,031
                                                 ---------------
                                                         710,484
                                                 ---------------
  Leisure (.2%)
  4,576   Brunswick Corporation                           90,879
  8,789   Hasbro, Inc.                                   101,513
  4,399   International Game
           Technology (b)                                333,972
 22,194   Mattel, Inc.                                   425,015
                                                 ---------------
                                                         951,379
                                                 ---------------
  Lodging-- Hotel (.2%)
 19,100   Hilton Hotels                                  242,761
 12,069   Marriott International,
           Inc.                                          396,708
                                                 ---------------
                                                         639,469
                                                 ---------------
  Photography/Imagery (.1%)
 14,810   Eastman Kodak
           Company                                       518,942
                                                 ---------------
  Publishing (.8%)
  4,193   Dow Jones and
           Company, Inc.                         $       181,263
 13,567   Gannett Company, Inc.                          974,111
  4,183   Knight-Ridder, Inc.                            264,575
  9,837   McGraw-Hill
           Companies, Inc.                               594,548
  2,518   Meredith Corporation                           103,515
  5,752   RR Donnelly & Sons
           Company                                       125,221
  7,688   The New York Times
           Company                                       351,572
 15,471   Tribune Company                                703,312
                                                 ---------------
                                                       3,298,117
                                                 ---------------
  Retail (6.4%)
  3,341   American Greetings
           Corporation (b)                                52,788
  5,003   Autozone, Inc. (b)                             353,462
 14,852   Bed Bath & Beyond,
           Inc. (b)                                      512,840
 16,323   Best Buy Company,
           Inc. (b)                                      394,200
  5,894   Big Lots, Inc. (b)                              77,978
 10,664   Circuit City Stores, Inc.                       79,127
 23,134   Costco Wholesale
           Corporation (b)                               649,140
  4,297   Dillards, Inc.                                  68,150
 16,916   Dollar General
           Corporation                                   202,146
 15,671   eBay, Inc. (b)                               1,062,807
  8,779   Family Dollar Stores                           273,993
  9,912   Federated Department
           Stores (b)                                    285,069
 44,866   Gap, Inc.                                      696,320
118,055   Home Depot, Inc.                             2,828,598
 13,600   JC Penney Company                              312,936
 17,116   Kohl's Corporation (b)                         957,640
 26,540   Limited Brands, Inc.                           369,702
 39,613   Lowes Companies, Inc.                        1,485,487
 14,631   May Department
           Stores Company                                336,220
 13,466   Nike, Inc.                                     598,833
  6,874   Nordstrom, Inc.                                130,400
 15,662   Office Depot, Inc. (b)                         231,171
  8,549   Radioshack Corporation                         160,208
  3,043   Reebok International,
           Ltd. (b)                                       89,464


              See accompanying notes to investments in securities.

                                       69





                                                     MARKET
                 SHARES                             VALUE(a)
                 ------                          ---------------
                                              
CONSUMER CYCLICAL--CONTINUED
 16,056   Sears Roebuck
          Company                                $       384,541
 23,887   Staples, Inc. (b)                              437,132
 46,110   Target Corporation                           1,383,300
  7,608   The Sherwin-Williams
           Company                                       214,926
  7,382   Tiffany & Company                              176,504
 26,812   TJX Companies, Inc.                            523,370
 10,785   Toys `R' Us, Inc. (b)                          107,850
224,053   Wal-Mart Stores, Inc.                       11,316,917
                                                 ---------------
                                                      26,755,219
                                                 ---------------
  Service (.7%)
  8,855   Apollo Group, Inc. (b)                         389,620
  9,172   Block Financial
           Corporation                                   368,714
  8,798   Convergys
           Corporation (b)                               133,290
 52,612   CUC International (b)                          551,374
  4,081   Fluor Corporation                              114,268
  5,674   Harrah's Entertainment,
           Inc. (b)                                      224,690
 19,575   Interpublic Group
           Companies, Inc.                               275,616
  9,546   Omnicom Group                                  616,672
  5,974   Quintiles Transnational
           Corporation (b)                                72,285
  8,796   Robert Half
           International, Inc. (b)                       141,704
  7,242   Sabre Holdings
           Corporation (b)                               131,153
  5,643   TMP Worldwide, Inc. (b)                         63,822
                                                 ---------------
                                                       3,083,208
                                                 ---------------
  Textiles (.1%)
  6,541   Jones Apparel Group,
           Inc. (b)                                      231,813
  5,423   Liz Clairborne, Inc.                           160,792
  5,515   VF Corporation                                 198,816
                                                 ---------------
                                                         591,421
                                                 ---------------
CONSUMER STAPLES (12.5%)
  Beverage (3.0%)
 43,446   Anheuser-Busch
           Companies, Inc.                             2,102,786
  3,479   Brown-Forman
           Corporation                                   227,387
 22,810   Coca-Cola Enterprises,
           Inc.                                          495,433
  1,824   Coors Company                                  111,720
 14,236   Pepsi Bottling Group,
           Inc.                                  $       365,865
 87,665   Pepsico, Inc.                                3,701,216
125,840   The Coca-Cola
           Company                                     5,514,309
                                                 ---------------
                                                      12,518,716
                                                 ---------------
  Broadcasting (1.0%)
 31,102   Clear Channel
           Communications,
           Inc. (b)                                    1,159,794
117,154   Comcast Corporation                          2,761,320
 11,629   Univision
          Communications, Inc. (b)284,910
                                                 ---------------
                                                       4,206,024
                                                 ---------------
  Entertainment (1.4%)
 29,785   Carnival Corporation                           743,136
103,660   The Walt Disney
           Company                                     1,690,695
 89,393   Viacom, Inc. (b)                             3,643,659
                                                 ---------------
                                                       6,077,490
                                                 ---------------
  Food (1.3%)
 20,804   Campbell Soup
           Company                                       488,270
 27,260   Conagra, Inc.                                  681,773
 18,675   General Mills, Inc.                            876,791
 17,821   H.J. Heinz Company                             585,776
  6,911   Hershey Foods
           Corporation                                   466,078
 20,723   Kellogg Company                                710,177
 39,578   Sara Lee Corporation                           890,901
 11,438   William Wrigley Jr.
           Company                                       627,717
                                                 ---------------
                                                       5,327,483
                                                 ---------------
  Food & Health (.2%)
 33,339   Sysco Corporation                              993,169
                                                 ---------------
  Household Products (2.3%)
 11,168   Clorox Company                                 460,680
 27,322   Colgate-Palmolive
           Company                                     1,432,492
 53,551   Gillette Compay                              1,625,808
 13,570   Newell Rubbermaid,
           Inc.                                          411,578
  8,044   Pactiv Corporation (b)                         175,842


              See accompanying notes to investments in securities.

                                       70





                                                             MARKET
              SHARES                                        VALUE(a)
              ------                                     --------------
                                                      
CONSUMER STAPLES--CONTINUED
  65,953      Procter & Gamble
               Company                                   $    5,668,001
   2,960      Tupperware
               Corporation                                       44,637
                                                         --------------
                                                              9,819,038
                                                         --------------
 Personal Care (.2%)
   2,949      Alberto-Culver Company                            148,630
  11,940      Avon Products, Inc.                               643,208
                                                         --------------
                                                                791,838
                                                         --------------
 Restaurants (.5%)
   8,674      Darden Restaurants,
               Inc.                                             177,383
  64,430      McDonald's
               Corporation                                    1,036,034
  19,712      Starbucks
               Corporation(b)                                   401,731
   5,858      Wendy's International,
               Inc.                                             158,576
  15,001      Yum! Brands, Inc.(b)                              363,324
                                                         --------------
                                                              2,137,048
                                                         --------------
 Retail (.9%)
  19,245      Albertson's, Inc.                                 428,394
  19,945      CVS Corporation                                   498,027
  39,249      Kroger Company(b)                                 606,397
  22,390      Safeway, Inc.(b)                                  523,030
   6,782      Supervalu, Inc.                                   111,971
  52,024      Walgreen Company                                1,518,581
   7,145      Winn-Dixie Stores, Inc.                           109,176
                                                         --------------
                                                              3,795,576
                                                         --------------
 Service (.5%)
  30,399      Automatic Data
               Processing, Inc.                               1,193,161
   8,638      Cintas Corporation                                395,188
  25,823      Concord EFS, Inc.(b)                              406,454
   3,177      Deluxe Corporation                                133,752
                                                         --------------
                                                              2,128,555
                                                         --------------
 Tobacco (1.2%)
   7,576      Fortune Brands, Inc.                              352,360
 105,004      Philip Morris
               Companies, Inc.                                4,255,812
   4,508      R.J. Reynolds Tobacco
               Holdings, Inc.                                   189,832
   8,574      UST, Inc.                                         286,629
                                                         --------------
                                                              5,084,633
                                                         --------------
ENERGY (6.0%)
 Oil (4.5%)
   4,528      Amerada Hess                               $      249,266
  54,220      Chevron Corporation                             3,604,546
  34,356      ConocoPhillips                                  1,662,487
   7,952      Devon Energy
               Corporation                                      364,997
 341,559      Exxon Mobil
               Corporation                                   11,934,070
  15,845      Marathon Oil
               Corporation                                      337,340
  19,134      Occidental Petroleum
               Corporation                                      544,362
                                                         --------------
                                                             18,697,068
                                                         --------------
 Oil & Gas (1.5%)
  12,620      Anadarko Petroleum
               Corporation                                      604,498
   7,308      Apache Finance
               Property                                         416,483
   3,431      Ashland, Inc.                                      97,886
  17,040      Baker Hughes, Inc.                                548,518
   7,957      BJ Services
               Company(b)                                       257,091
  10,220      Burlington Resources,
               Inc.                                             435,883
   5,865      EOG Resources, Inc.                               234,131
  22,151      Halliburton Company                               414,445
   5,095      Kerr-McGee
               Corporation                                      225,709
   3,236      McDermott
               International, Inc.(b)                            14,174
   7,347      Nabor's Industries,
               Ltd.(b)(c)                                       259,129
   6,794      Noble Corporation(b)                              238,809
   4,748      Rowan Companies,
               Inc.                                             107,780
  29,474      Schlumberger, Ltd.                              1,240,561
   3,874      Sunoco, Inc.(b)                                   128,539
  16,203      Transocean Offshore,
               Inc.                                             375,910
  13,091      Unocal Corporation                                400,323
  20,892      Veritas DGC, Inc.(b)                              326,333
                                                         --------------
                                                              6,326,202
                                                         --------------


              See accompanying notes to investments in securities.

                                       71





                                                            MARKET
              SHARES                                       VALUE(a)
              ------                                     -------------
                                                      
FINANCIAL (19.2%)
   Auto Finance (.3%)
  53,277   Fleet Boston Financial
            Corporation                                  $   1,294,631
                                                         -------------
   Banks (7.0%)
  18,040   Amsouth
            BanCorporation                                     346,368
  75,973   Bank of America
            Corporation                                      5,285,410
  59,116   Bank One Corporation                              2,160,690
  24,308   BB&T Corporation                                    899,153
   8,869   Comerica Bank                                       383,496
  29,329   Fifth Third
            BanCorporation                                   1,717,213
   6,374   First Tennessee National
            Corporation                                        229,082
  11,956   Huntington Bancshares,
            Inc.                                               223,697
 101,343   JP Morgan Chase and
            Company                                          2,432,232
  21,568   KeyCorporation                                      542,220
  11,083   Marshal & Ilsley
            Corporation                                        303,453
  21,874   Mellon Bank NA                                      571,130
  31,060   National City Bancorp                               848,559
  11,214   Northern Trust
            Corporation                                        393,051
   8,197   Northfork
            Bancorporation                                     276,567
  11,225   Regions Financial
            Corporation                                        374,466
  17,606   SouthTrust
            Corporation                                        437,509
  16,465   State Street
            Corporation                                        642,135
  14,398   Suntrust Banks, Inc.                                819,534
  15,220   Synovus Financial
            Corporation                                        295,268
  36,866   The Bank of New York
            Company, Inc.                                      883,309
  97,234   U.S. Bancorp                                      2,063,305
  10,057   Union Planters
            Corporation                                        283,004
  69,049   Wachovia Corporation                              2,516,146
  85,881   Wells Fargo &
            Company                                          4,025,242
   4,568   Zion BanCorporation                                 179,746
                                                         -------------
                                                            29,131,985
                                                         -------------
   Consumer Finance (1.5%)
  66,715   American Express
            Company                                      $   2,358,375
  11,262   Capital One Financial
            Corporation                                        334,707
   6,415   Countrywide Financial
            Corporation                                        331,335
  24,036   Household
            International, Inc.                                668,437
  64,854   MBNA Corporation                                  1,233,523
  14,416   PNC Financial Services
            Group                                              604,030
   7,794   SLM Corporation                                     809,485
                                                         -------------
                                                             6,339,892
                                                         -------------
   Finance -- Diversified (.4%)
   5,380   AMBAC Financial Group,
            Inc.                                               302,571
  11,293   Janus Capital Group,
            Inc                                                147,600
  14,624   John Hancock Financial
            Services, Inc.                                     408,010
   5,055   MGIC Investment
            Corporation                                        208,772
   7,646   Moody's Corporation                                 315,703
  14,671   Providian Financial
            Corporation(b)                                      95,215
                                                         -------------
                                                             1,477,871
                                                         -------------
   Insurance (5.0%)
  13,332   ACE, Ltd.(c)                                        391,161
   7,642   Aetna, Inc.                                         314,239
  26,201   Aflac, Inc.                                         789,174
  35,682   Allstate Corporation                              1,319,877
 132,413   American International
            Group                                            7,660,092
  15,723   AON Corporation                                     297,007
   8,683   Chubb Corporation                                   453,253
   7,075   Cigna Corporation                                   290,924
   8,197   Cincinnati Financial
            Corporation                                        307,797
  12,952   Hartford Financial
            Services Group, Inc.                               588,409
   7,276   Jefferson-Pilot
            Corporation                                        277,288
   8,967   Lincoln National
            Corporation                                        283,178
   9,413   Loews Corporation                                   418,502
  27,261   Marsh and McLennan
            Companies, Inc.                                  1,259,731


              See accompanying notes to investments in securities.

                                       72





                                                             MARKET
                SHARES                                      VALUE(a)
                ------                                   -------------
                                                      
FINANCIAL--CONTINUED
   7,366   MBIA, Inc.                                    $     323,073
  35,546   MetLife, Inc.                                       961,164
  11,054   Progressive
            Corporation                                        548,610
  28,737   Prudential Insurance
            Company of America                                 912,112
   7,041   Safeco Corporation                                  244,111
  17,075   The Principal
            Financial Group(b)                                 514,470
  11,495   The St.Paul Companies,
            Inc.                                               391,416
   6,012   Torchmark Corporation                               219,618
  50,946   Traveler's Property Casualty
            Corporation(b)                                     746,359
  12,258   Unumprovident
            Corporation                                        215,005
   7,551   Wellpoint Health
            Networks, Inc.(b)                                  537,329
   6,896   XL Capital, Ltd.(c)                                 532,716
                                                         -------------
                                                            20,796,615
                                                         -------------
   Investment Bankers/Brokers (4.1%)
   4,858   Bear Stearns &
            Company, Inc.                                      288,565
  68,203   Charles Schwab
            Corporation                                        740,003
 260,717   CitiGroup, Inc.(b)                                9,174,631
  13,193   Franklin Resources, Inc.                            449,617
  24,236   Goldman Sachs Group,
            Inc.                                             1,650,472
  12,088   Lehman Brothers
            Holdings, Inc.                                     644,170
  43,880   Merrill Lynch &
            Company, Inc.                                    1,665,246
  55,106   Morgan Stanley                                    2,199,832
   6,212   T. Rowe Price
            Associates, Inc.                                   169,463
                                                         -------------
                                                            16,981,999
                                                         -------------
   Real Estate Investment Trust (.3%)
  20,896   Equity Office Properties
            Trust                                              521,982
  13,748   Equity Residential                                  337,926
   9,524   Simon Property Group,
            Inc.                                               324,483
  10,125   Starwood Hotels &
            Resorts Worldwide,
            Inc.                                               240,368
                                                         -------------
                                                             1,424,759
                                                         -------------
   Savings and Loans (.6%)
  11,471   Charter One Financial,
            Inc.                                              $329,562
   7,790   Golden West Financial
            Corporation                                        559,400
  48,053   Washington Mutual,
            Inc.                                             1,659,270
                                                         -------------
                                                             2,548,232
                                                         -------------
 HEALTH CARE (14.8%)
   Biotechnology (.9%)
  65,332   Amgen, Inc.(b)                                    3,158,149
   7,567   Biogen, Inc.(b)                                     303,134
  10,891   Genzyme Surgical
            Products(b)                                        322,047
                                                         -------------
                                                             3,783,330
                                                         -------------
   Drugs (7.0%)
  98,324   Bristol-Myers Squibb
            Company                                          2,276,201
  22,462   Cardinal Health, Inc.                             1,329,526
   9,549   Chiron Corporation(b)                               359,042
  57,023   Eli Lilly & Company                               3,620,961
   9,187   Forest Laboratories,
            Inc.(b)                                            902,347
  12,220   King Pharmaceuticals,
            Inc.(b)                                            210,062
  12,741   Medimmune, Inc.(b)                                  346,173
 113,985   Merck & Company, Inc.                             6,452,691
 312,792   Pfizer, Inc.                                      9,562,051
  74,446   Schering-Plough
            Corporation                                      1,652,701
   5,425   Watson Pharmaceuticals,
            Inc.(b)                                            153,365
  67,290   Wyeth                                             2,516,646
                                                         -------------
                                                            29,381,766
                                                         -------------
   Finance -- Diversified (1.3%)
  50,507   Fannie Mae                                        3,249,115
  35,314   Freddie Mac                                       2,085,292
                                                         -------------
                                                             5,334,407
                                                         -------------
   Health Care -- Diversified (2.9%)
  79,315   Abbott Laboratories                               3,172,600
   6,570   Allergan, Inc.                                      378,563
  20,122   Healthsouth
            Corporation(b)                                      84,512
 150,787   Johnson & Johnson                                 8,098,770


              See accompanying notes to investments in securities.

                                       73





                                                             MARKET
               SHARES                                       VALUE(a)
               ------                                    -------------
                                                      
HEALTH CARE--CONTINUED
  24,755   Tenet Healthcare
            Corporation(b)                               $     405,982
                                                         -------------
                                                            12,140,427
                                                         -------------
   Hospital Management (.3%)
  12,100   Health Management
            Associates, Inc.(b)                                216,590
  26,050   The HCA - Healthcare
            Company                                          1,081,075
                                                         -------------
                                                             1,297,665
                                                         -------------
   Managed Care (.4%)
   8,192   Humana, Inc.(b)                                      81,920
   4,840   Manor Care, Inc.(b)                                  90,072
  14,777   McKesson HBOC, Inc.                                 399,422
  15,454   Unitedhealth Group,
            Inc.                                             1,290,409
                                                         -------------
                                                             1,861,823
                                                         -------------
   Medical Products/Supplies (1.9%)
   5,375   AmerisourceBergen
            Corporation                                        291,916
   2,738   Bausch & Lomb, Inc.                                  98,568
  30,115   Baxter International,
            Inc.                                               843,220
  13,031   Becton Dickinson and
            Company                                            399,921
  13,187   Biomet, Inc.                                        377,939
  20,702   Boston Scientific
            Corporation(b)                                     880,249
   2,603   CR Bard, Inc.                                       150,974
  15,517   Guidant Corporation(b)                              478,699
  61,933   Medtronic, Inc.                                   2,824,145
   6,235   Pall Corporation                                    104,000
   9,013   St. Jude Medical,
            Inc.(b)                                            357,996
  10,049   Stryker Corporation                                 674,489
   9,900   Zimmer Holdings,
            Inc.(b)                                            411,048
                                                         -------------
                                                             7,893,164
                                                         -------------
   Special Services (.1%)
   7,180   Anthem, Inc.(b)                                     451,622
                                                         -------------
 TECHNOLOGY (14.9%)
   Communications Equipment (.4%)
  40,433   ADC Telecommunications,
            Inc.(b)                                             84,505
   4,978   Andrew Corporation(b)                                51,174
  18,371   Avaya, Inc.(b)                                       45,009
  21,910   Ciena Corporation(b)                                112,617
   9,523   Comverse Technology,
            Inc.(b)                                      $      95,420
 174,243   Lucent Technologies,
            Inc.(b)                                            219,546
 116,797   Motorola, Inc.                                    1,010,294
   7,833   Scientific-Atlanta, Inc.                             92,899
  20,913   Tellabs, Inc.(b)                                    152,038
                                                         -------------
                                                             1,863,502
                                                         -------------
   Computer Hardware (3.5%)
  18,217   Apple Computer,
            Inc.(b)                                            261,050
  29,098   Computer Associates
            International, Inc.                                392,823
 131,460   Dell Computer
            Corporation(b)                                   3,515,240
  16,448   Gateway, Inc.(b)                                     51,647
 154,892   Hewlett-Packard
            Company                                          2,688,925
  85,789   International Business
            Machines Corporation                             6,648,648
   4,952   NCR Coporation(b)                                   117,560
   7,767   Nvidia Corporation(b)                                89,398
 158,099   Sun Microsystems,
            Inc.(b)                                            491,688
  11,703   Symbol Technologies,
            Inc.                                                96,199
  37,323   Xerox Corporation(b)                                300,450
                                                         -------------
                                                            14,653,628
                                                         -------------
   Computer Networking (1.3%)
 366,748   Cisco Systems, Inc.(b)                            4,804,399
  29,993   Yahoo!, Inc.(b)                                     490,386
                                                         -------------
                                                             5,294,785
                                                         -------------
   Computer Peripherals (.2%)
 111,661   EMC Corporation(b)                                  685,599
  17,106   Network Appliance,
            Inc.(b)                                            171,060
   4,745   Qlogic Corporation(b)                               163,750
                                                         -------------
                                                             1,020,409
                                                         -------------
   Computer Services & Software (5.4%)
  11,993   Adobe Systems, Inc.                                 298,746
 226,905   AOL Time Warner,
            Inc.(b)                                          2,972,456
   5,725   Autodesk, Inc.                                       81,868
  11,868   BMC Software, Inc.(b)                               203,061
   8,612   Citrix Systems, Inc.(b)                             106,100
   8,713   Computer Sciences
            Corporation(b)                                     300,163


              See accompanying notes to investments in securities.

                                       74





                                                      MARKET
                  SHARES                             VALUE(a)
                  ------                         ---------------
                                              
TECHNOLOGY--CONTINUED
 19,183   Compuware
           Corporation (b)                       $        92,078
  7,172   Electronic Arts, Inc. (b)                      356,950
 14,259   IMS Health, Inc.                               228,144
  4,287   Mercury Interactive
           Corporation (b)                               127,110
271,386   Microsoft
           Corporation (b)                            14,030,656
 18,497   Novell, Inc. (b)                                61,780
271,867   Oracle Systems (b)                           2,936,164
 13,258   Parametric Technology
           Corporation (b)                                33,410
 15,887   Peoplesoft, Inc. (b)                           290,732
  9,906   Rational Software
           Corporation (b)                               102,923
 24,596   Siebel Systems, Inc. (b)                       183,978
 16,470   Unisys Corporation (b)                         163,053
                                                 ---------------
                                                      22,569,372
                                                 ---------------
  Electrical Instruments (.3%)
 23,690   Agilent Technologies,
           Inc. (b)                                      425,472
 10,619   Applied Biosystems
           Group - Applera
           Corporation                                   186,257
 71,807   JDS Uniphase
           Corporation (b)                               177,363
  6,413   PerkinElmer, Inc.                               52,907
  4,386   Tektronix, Inc. (b)                             79,781
  6,557   Waters Corporation (b)                         142,811
                                                 ---------------
                                                       1,064,591
                                                 ---------------
  Electrical Semiconductor (2.5%)
 17,434   Advanced Micro
           Devices (b)                                   112,624
 19,417   Altera Corporation (b)                         239,606
 18,563   Analog Devices, Inc. (b)                       443,099
 83,652   Applied Materials,
           Inc. (b)                                    1,089,986
 15,335   Applied Micro Circuits
           Corporation (b)                                56,586
 14,002   Broadcom
           Corporation (b)                               210,870
336,285   Intel Corporation                            5,235,957
 15,837   Linear Technology
           Corporation                                   407,328
 18,875   LSI Logic
           Corporation (b)                               108,909
 30,712   Micron Technology,
           Inc. (b)                                      299,135
  9,184   National Semiconductor
          Corporation (b)                        $       137,852
  7,546   Novellus Systems,
           Inc. (b)                                      211,892
  8,499   PMC-Sierra, Inc. (b)                            47,254
  4,056   Power-One, Inc. (b)                             22,998
 87,866   Texas Instruments, Inc.                      1,318,869
 17,111   Xilinx, Inc. (b)                               352,487
                                                 ---------------
                                                      10,295,452
                                                 ---------------
  Electronics-- Computer Distribution (.2%)
 16,261   Maxim Integrated
           Products (b)                                  537,263
 26,812   Sanmina
           Corporation (b)                               120,386
  2,861   Thomas and Betts
           Corporation (b)                                48,351
  4,662   WW Grainger, Inc.                              240,326
                                                 ---------------
                                                         946,326
                                                 ---------------
  Equipment Semiconductor (.2%)
 10,054   Jabil Circuit, Inc. (b)                        180,168
  9,578   KLA-Tencor
           Corporation (b)                               338,774
  9,293   Teradyne, Inc. (b)                             120,902
                                                 ---------------
                                                         639,844
                                                 ---------------
  Service-- Data Processing (.8%)
 24,181   Electronic Data Systems
           Corporation                                   445,656
  7,221   Equifax, Inc.                                  167,094
 38,179   First Data Corporation                       1,351,918
  9,713   Fiserv, Inc. (b)                               329,756
 10,417   Intuit, Inc. (b)                               488,766
 19,091   Paychex, Inc.                                  532,639
                                                 ---------------
                                                       3,315,829
                                                 ---------------
  Software (.1%)
 14,373   Sungard Data Systems,
           Inc. (b)                                      338,628
                                                 ---------------
TRANSPORTATION (1.7%)
  Air Freight (1.0%)
 15,137   FedEx Corporation                              820,728
 56,678   United Parcel Service,
           Inc.                                        3,575,248
                                                 ---------------
                                                       4,395,976
                                                 ---------------


              See accompanying notes to investments in securities.

                                       75





                                            MARKET
               SHARES                      VALUE(a)
               ------                    -------------
                                      
TRANSPORTATION--CONTINUED
     Airlines (.2%)
     7,918   AMR Corporation (b)         $      52,259
     6,261   Delta Air Lines, Inc.              75,758
    39,321   Southwest Airlines
              Company                          546,562
                                         -------------
                                               674,579
                                         -------------
     Railroads (.5%)
    19,161   Burlington Northern
              Santa Fe Corporation             498,378
    10,813   CSX Corporation                   306,116
    19,727   Norfolk Southern
              Railway Company                  394,343
    12,857   Union Pacific
              Corporation                      769,749
                                         -------------
                                             1,968,586
                                         -------------
     Trucking (-- )
     3,090   Ryder System, Inc.                 69,340
                                         -------------
   UTILITIES (2.8%)
     Electric Companies (2.4%)
    27,603   AES Corporation (b)                83,361
     6,379   Allegheny Energy, Inc.             48,225
     7,797   Ameren Corporation                324,121
    17,199   American Electric Power
              Company, Inc.                    470,049
     8,362   Baltimore Gas &
              Electric                         232,631
    15,435   Centerpoint Energy, Inc.          131,198
     8,544   Cinergy Corporation               288,104
    10,844   Consolidated Edison
              Company of New York,
              Inc.                             464,340
     7,313   Consumer's Energy
              Company                           69,035
    15,595   Dominion Resources,
              Inc.                             856,166
     8,500   DTE Energy Company                394,400
    45,257   Duke Energy
              Corporation                      884,322
    16,538   Edison International (b)          195,975
    11,269   Entergy Corporation               513,754
    16,395   Exelon Corporation                865,164
    15,108   Firstenergy Corporation           498,111
     9,265   FPL Group, Inc.                   557,104
    12,374   Nisource, Inc.                    247,480
    20,542   Pacific Gas and Electric
              Company (b)                      285,534
     4,591   Pinnacle West Capital
              Corporation                      156,507
     8,348   PPL Corporation                 $ 289,509
    12,023   Progress Energy, Inc.             521,197
    11,290   Public Service
              Enterprise Group, Inc.           362,409
    36,216   Southern Company                1,028,172
     8,915   Teco Energy, Inc.                 137,915
    16,351   TXU Electric & Gas                305,437
                                         -------------
                                            10,210,220
                                         -------------
     Natural Gas (.3%)
    18,850   Dynegy, Inc.                       22,243
    30,403   El Paso Energy
              Corporation (b)                  211,605
     7,209   Keyspan Corporation               254,045
     6,178   Kinder Morgan Energy
              Partners                         261,144
     2,257   Nicor, Inc.                        76,806
     1,806   Peoples Energy
              Corporation                       69,802
    10,399   Sempra Energy                     245,936
    26,226   William's Companies,
              Inc.                              70,810
                                         -------------
                                             1,212,391
                                         -------------
     Power Products-- Industrial (.1%)
    19,187   Calpine Corporation (b)            62,550
    20,452   Mirant Corporation (b)             38,654
    20,238   Xcel Energy, Inc.                 222,618
                                         -------------
                                               323,822
                                         -------------
Total common stock
  (cost: $332,002,270)                     411,530,620
                                         -------------


              See accompanying notes to investments in securities.

                                       76





                                                                                       MARKET
                                    SHARES                                            VALUE(a)
                                    ------                                          -------------
                                                                                 
SHORT-TERM SECURITIES (1.6%)
     6,768,077   Dreyfus Funds-- Cash Management Plus Fund, current rate 1.266%     $   6,768,077
        42,705   Wells Fargo & Company-- Cash Investment Fund,
                  current rate 1.326%                                                      42,705
                 Total short-term securities (cost: $6,810,782)                         6,810,782
                                                                                    -------------
                 Total investments in securities (cost: $338,813,052) (e)           $ 418,341,402
                                                                                    =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 0.8% of net assets in foreign securities as of December
31, 2002.

(d) Partially pledged as initial margin deposits on open stock index futures
purchase contracts (see note 6 to the financial statements).

(e) At December 31, 2002 the cost of securities for federal income tax purposes
was $344,262,587. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                   
Gross unrealized appreciation         $ 149,470,396
Gross unrealized depreciation           (75,391,581)
                                      -------------
Net unrealized appreciation           $  74,078,815
                                      =============



             See accompanying notes to investments in securities.

                                       77



Capital Appreciation Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                            MARKET
               SHARES                      VALUE(a)
               ------                    -------------
                                      
COMMON STOCK (98.0%)
   CAPITAL GOODS (6.1%)
     Aerospace/Defense (1.8%)
    45,200   United Technologies
              Corporation                $   2,799,688
                                         -------------
     Electrical Equipment (2.6%)
   164,200   General Electric
              Company                        3,998,270
                                         -------------
     Manufacturing (1.7%)
   157,400   Tyco International,
              Ltd.(c)                        2,688,392
                                         -------------
   CONSUMER CYCLICAL (11.7%)
     Auto (3.0%)
    71,100   Danaher Corporation             4,671,270
                                         -------------
     Publishing (1.4%)
    30,300   Gannett Company, Inc.           2,175,540
                                         -------------
     Retail (5.6%)
   114,797   Home Depot, Inc.                2,750,536
    88,200   Target Corporation              2,646,000
    63,700   Wal-Mart Stores, Inc.           3,217,487
                                         -------------
                                             8,614,023
                                         -------------
     Service (1.7%)
    40,500   Omnicom Group                   2,616,300
                                         -------------
   CONSUMER STAPLES (19.2%)
     Beverage (5.3%)
    74,600   Anheuser-Busch
              Companies, Inc.                3,610,640
    58,300   Pepsi Bottling Group,
              Inc.                           1,498,310
    70,900   Pepsico, Inc.                   2,993,398
                                         -------------
                                             8,102,348
                                         -------------
     Broadcasting (6.1%)
    98,200   Clear Channel
              Communications, Inc. (b)       3,661,878
    95,400   Comcast Corporation (b)         2,155,086
    97,500   Fox Entertainment
              Group, Inc. (b)                2,528,175
   113,880   Liberty Media
              Corporation (b)                1,018,087
                                         -------------
                                             9,363,226
                                         -------------
     Entertainment (4.8%)
    52,100   Carnival Corporation            1,299,895
   148,017   Viacom, Inc. (b)                6,033,173
                                         -------------
                                             7,333,068
                                         -------------
     Household Products (.7%)
    34,200   Gillette Company            $   1,038,312
                                         -------------
     Personal Care (1.3%)
    78,900   The Estee Lauder
              Company, Inc.                  2,082,960
                                         -------------
     Restaurants (1.0%)
    58,000   Wendys International,
              Inc.                           1,570,060
                                         -------------
   ENERGY (1.1%)
     Oil & Gas (1.1%)
    31,900   Transocean Offshore,
              Inc. (c)                         740,080
    22,800   Weatherford International,
              Ltd. (b) (c)                     910,404
                                         -------------
                                             1,650,484
                                         -------------
   FINANCIAL (14.0%)
     Banks (3.6%)
    24,600   Bank of America
              Corporation                    1,711,422
    81,100   Wells Fargo &
              Company                        3,801,157
                                         -------------
                                             5,512,579
                                         -------------
     Consumer Finance (2.2%)
    32,700   SLM Corporation                 3,396,222
                                         -------------
     Finance-- Diversified (1.1%)
    28,100   Freddie Mac                     1,659,305
                                         -------------
     Insurance (6.0%)
   101,500   American International
              Group                          5,871,775
     1,380   Berkshire Hathaway,
              Inc. (b)                       3,343,740
                                         -------------
                                             9,215,515
                                         -------------
     Savings and Loans (1.1%)
    59,125   Charter One Financial,
              Inc.                           1,698,662
                                         -------------
   HEALTH CARE (22.3%)
     Biotechnology (2.6%)
    66,700   Genentech, Inc. (b)             2,211,772
    50,800   Gilead Sciences, Inc. (b)       1,727,200
                                         -------------
                                             3,938,972
                                         -------------


              See accompanying notes to investments in securities.

                                       78





                                               MARKET
                SHARES                        VALUE(a)
                ------                      -------------
                                         
HEALTH CARE--CONTINUED
      Drugs (8.2%)
    14,500   Forest Laboratories,
              Inc. (b)                      $   1,424,190
    50,400   Medimmune, Inc. (b)                1,369,368
   222,275   Pfizer, Inc.                       6,794,947
    78,700   Wyeth                              2,943,380
                                            -------------
                                               12,531,885
                                            -------------
     Health Care-- Diversified (3.1%)
    87,696   Johnson & Johnson                  4,710,152
                                            -------------
     Hospital Management (1.4%)
    51,500   The HCA - Healthcare
              Company                           2,137,250
                                            -------------
     Medical Products/Supplies (5.5%)
   125,400   Biomet, Inc.                       3,593,964
   108,300   Medtronic, Inc.                    4,938,480
                                            -------------
                                                8,532,444
                                            -------------
     Special Services (1.5%)
    36,900   Anthem, Inc. (b)                   2,321,010
                                            -------------
   TECHNOLOGY (20.7%)
     Communications Equipment (1.7%)
    98,100   Harris Corporation                 2,580,030
                                            -------------
     Computer Hardware (1.7%)
    96,300   Dell Computer
              Corporation (b)                   2,575,062
                                            -------------
     Computer Networking (1.6%)
   188,300   Cisco Systems, Inc. (b)        $   2,466,730
                                            -------------
     Computer Services & Software (7.2%)
   194,250   AOL Time Warner, Inc. (b)          2,544,675
   153,600   Microsoft Corporation (b)          7,941,120
    26,000   SAP AG (c)                           507,000
                                            -------------
                                               10,992,795
                                            -------------
     Electrical Semiconductor (6.4%)
    99,800   Analog Devices, Inc. (b)           2,382,226
   260,400   Intel Corporation                  4,054,428
    52,800   Novellus Systems, Inc. (b)         1,482,624
   127,200   Texas Instruments, Inc.            1,909,272
                                            -------------
                                                9,828,550
                                            -------------
     Equipment Semiconductor (.7%)
    83,200   Teradyne, Inc. (b)                 1,082,432
                                            -------------
     Service-- Data Processing (1.4%)
    45,200   Intuit, Inc. (b)                   2,120,784
                                            -------------
   TRANSPORTATION (2.9%)
     Air Freight (2.9%)
    70,100   United Parcel Service,
               Inc.                             4,421,908
                                            -------------
Total common stock
  (cost: $179,818,809)                        150,426,228
                                            -------------


                                                                              
SHARES

SHORT-TERM SECURITIES (1.9%)

     2,987,763   Wells Fargo & Company-- Cash Investment Fund,
                  current rate 1.326%                                                2,987,763
                                                                                 -------------
                 Total short-term securities (cost: $2,987,763)                      2,987,763
                                                                                 -------------
                 Total investments in securities (cost: $182,806,572) (d)        $ 153,413,991
                                                                                 =============



NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 3.2% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $186,647,845. The aggregate unrealized appreciation and depreciation of

                                   
Gross unrealized appreciation         $   9,542,215
Gross unrealized depreciation           (42,776,069)
                                      -------------
Net unrealized depreciation           $ (33,233,854)
                                      =============



              See accompanying notes to investments in securities.

                                       79



International Stock Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                  MARKET
               SHARES                            VALUE(a)
               ------                         -------------
                                           
COMMON STOCK (95.1%)
   AUSTRALIA (1.1%)
     Mining (1.1%)
   924,000   Iluka Resources, Ltd.            $   2,393,400
                                              -------------
   BERMUDA (1.3%)
     Insurance (1.3%)
    37,200   XL Capital, Ltd.                     2,873,700
                                              -------------
   CANADA (4.5%)
     Chemicals (1.1%)
   228,239   Husky Energy                         2,379,476
     Electrical Equipment (2.6%)
 2,008,000   Nortel Networks
              Corporation                         3,232,880
   138,000   BCE Incorporated                     2,489,556
     Shipping (.8%)
   118,020   Transcanada Pipelines,
              Ltd.                                1,712,254
                                              -------------
                                                  9,814,166
                                              -------------
   CHINA (1.4%)
     Oil & Gas (1.4%)
15,405,860   Petrochina                           3,062,049
                                              -------------
   DENMARK (2.1%)
     Machinery (1.0%)
   222,700   Vestas Wind Systems                  2,218,065
                                              -------------
     Telecommunication (1.1%)
    98,000   Tele Danmark 'B'                     2,381,329
                                              -------------
                                                  4,599,394
                                              -------------
   FINLAND (4.2%)
     Insurance (1.7%)
   512,800   Sampo Insurance                      3,901,459
                                              -------------
     Paper and Forest (2.5%)
   211,680   Metso Corporation                    2,288,011
    71,073   Stora Enso                             738,194
   247,300   Stora Enso-Oyj                       2,608,142
                                              -------------
                                                  9,535,806
                                              -------------
   FRANCE (8.5%)
     Chemicals (1.6%)
    66,025   Aventis                              3,589,048
     Electrical Equipment (.8%)
   392,000   Alcatel A                            1,719,505
     Investment Bankers/Brokers (1.6%)
   261,980   Axa-Uap                              3,516,250
     Machinery (.4%)
   191,312   Alstom                                 953,623
     Manufacturing (.7%)
    46,590   Michelin                         $   1,606,576
      Mining (1.7%)
   109,780   Pechiney                             3,852,393
     Oil & Gas (1.7%)
    26,117   Total Fina Elf                       3,730,117
                                              -------------
                                                 18,967,512
                                              -------------
   GERMANY (7.8%)
     Banks (1.6%)
    75,166   Deutsche Bank                        3,462,797
     Chemicals (1.3%)
   138,000   Bayer                                2,961,512
     Electric Companies (1.0%)
    52,900   E.On Ag                              2,134,485
   246,000   Deutsche Post                        2,581,524
     Manufacturing (1.3%)
    32,790   Adidas-Salomon                       2,831,929
     Real Estate (.4%)
   306,000   WCM Beteiligungs                       802,791
     Technology (1.0%)
    28,900   SAP                                  2,290,345
                                              -------------
                                                 17,065,383
                                              -------------
   HONG KONG (4.6%)
     Chemicals ( -- )
    16,920   CK Life Sciences
              International                           3,038
     Diversified Operations (.5%)
 1,787,300   Swire Pacific 'B'                    1,140,210
     Electric Companies (.8%)
   465,000   CLP Holdings Limited                 1,872,307
     Investment Bankers/Brokers ( -- )
   113,000   Peregrine                                    0
     Real Estate (2.2%)
   423,000   Cheung Kong                          2,752,776
   351,100   Hutchison Whampoa                    2,197,076
     Telecommunication (1.1%)
   201,000   China Mobile ADR (b)                 2,428,080
                                              -------------
                                                 10,393,487
                                              -------------
   INDIA (.7%)
   123,000   Satyam Computer ADR                  1,580,550
                                              -------------
   ISRAEL (1.7%)
     Technology (1.7%)
   287,000   Check Point Software                 3,722,390
                                              -------------


              See accompanying notes to investments in securities.

                                       80





                                                 MARKET
               SHARES                           VALUE(a)
               ------                         -------------
                                           
ITALY (1.5%)
     Banks (.8%)
   285,000   San Paolo-Imi                    $   1,854,290
      Oil & Gas (.7%)
    94,000   Eni Spa                              1,494,450
                                              -------------
                                                  3,348,740
                                              -------------
   JAPAN (8.5%)
     Drugs (1.4%)
   105,000   Ono Pharmaceutical                   3,176,456
     Electrical Equipment (2.4%)
   588,000   Hitachi                              2,254,487
    75,600   Sony                                 3,159,821
     Investment Bankers/Brokers (.7%)
   146,200   Nomura Securities                    1,643,472
     Machinery (1.0%)
   659,000   Komatsu                              2,149,094
     Telecommunication (2.1%)
     1,291   Nippon Telephone &
              Telegraph                           4,688,809
     Water Utilities (.9%)
   201,000   Kurita Water Industries              2,024,058
                                              -------------
                                                 19,096,197
                                              -------------
   MEXICO (2.1%)
     Mining (.9%)
   790,620   Grupo Carso S.A. (b)                 1,934,238
     Telecommunication (1.2%)
    86,220   Telefonos De Mexico
              ADR                                 2,757,316
                                              -------------
                                                  4,691,554
                                              -------------
   NETHERLANDS (6.5%)
     Chemicals (1.6%)
   110,380   Akzo Nobel                           3,501,625
     Electrical Equipment (1.6%)
   199,110   Philips Electronics                  3,489,399
     Insurance (1.9%)
   251,394   ING Group                            4,257,940
     Investment Bankers/Brokers (1.4%)
    73,350   Rodamco Europe                       3,098,183
                                              -------------
                                                 14,347,147
                                              -------------
   NEW ZEALAND (.9%)
     Telecommunication (.9%)
   882,800   Telecom Corporation of
              New Zealand                         2,091,921
                                              -------------
   SOUTH KOREA (5.1%)
     Electric Companies (1.3%)
   330,700   Korea Electric Power                 2,810,950
     Electrical Equipment (1.7%)
    29,000   Samsung GDR                      $   3,864,250
     Technology (2.1%)
   216,960   Korea Telecom ADR                    4,675,488
                                              -------------
                                                 11,350,688
                                              -------------
   SPAIN (3.3%)
     Electric Companies (1.2%)
   196,000   Iberdrola SA                         2,745,860
     Oil & Gas (1.2%)
   202,000   Repsol                               2,670,933
     Telecommunication (.9%)
    71,956   Telefonica SA (b)                    1,911,871
                                              -------------
                                                  7,328,664
                                              -------------
   SWEDEN (6.1%)
     Banks (3.0%)
   305,700   Foreningssparbaken                   3,613,682
   698,900   Nordic                               3,131,728
     Machinery (.8%)
    93,000   Atlas Copco                          1,814,468
     Trucks and Parts (2.3%)
   109,900   Autoliv, Inc.                        2,300,207
   178,500   Volvo Free 'B'                       2,909,001
                                              -------------
                                                 13,769,086
                                              -------------
   SWITZERLAND (4.0%)
     Banks (1.3%)
    58,000   UBS AG (b)                           2,818,833
     Food (1.6%)
    16,700   Nestle SA                            3,538,801
     Insurance (1.1%)
    37,180   Swiss Reinsurance                    2,438,870
                                              -------------
                                                  8,796,504
                                              -------------
   UNITED KINGDOM (18.8%)
     Auto (1.0%)
 1,244,600   Rolls-Royce                          2,143,939
     Chemicals (3.4%)
   733,000   Imperial Chemical                    2,714,130
   301,480   Nycomed Amersham                     2,676,321
   339,000   Shire Pharmaceuticals (b)            2,169,380
     Electrical Equipment (2.6%)
 1,148,600   BAE Systems PLC                      2,292,923
 1,567,000   Chubb PLC                            2,213,681
 3,180,400   Kidde PLC                            3,622,489
   341,000   WPP Group                            2,604,891
     Food (.9%)
   461,300   J Sainsbury PLC                      2,070,128


              See accompanying notes to investments in securities.

                                       81





                                                 MARKET
               SHARES                           VALUE(a)
               ------                         -------------
                                           
UNITED KINGDOM--CONTINUED
     Investment Bankers/Brokers (.8%)
   218,000   Abbey National                   $   1,817,963
     Manufacturing (.8%)
   166,000   Smiths Industries                    1,858,678
     Mining (1.6%)
   654,584   BHP Billiton PLC                     3,496,031
     Oil & Gas (2.9%)
   332,000   Lloyds TSB Group                     2,383,811
   632,900   Shell Transportation &
              Trading Company PLC                 4,167,324
     Publishing (1.1%)
   539,411   United Business Media
              PLC                                 2,518,354
     Retail (.9%)
   375,329   Marks & Spencer
              Group                               1,903,363
     Telecommunication (.7%)
 2,263,800   Cable & Wireless PLC             $   1,630,910
                                              -------------
                                                 42,284,316
                                              -------------
   UNITED STATES (.4%)
     Service (.4%)
    51,000   Accenture, Ltd. (b)                    917,490
                                              -------------
Total common stock
  (cost: $258,114,988)                          212,030,144
                                              -------------
PREFERRED STOCK (1.0%)
   GERMANY (1.0%)
     Trucks and Parts (1.0%)
    88,735   Volkswagen                           2,327,963
                                              -------------
Total preferred stock
  (cost: $2,322,877)                              2,327,963
                                              -------------




                                 SHARES/PAR                                    RATE    MATURITY
                                 ----------                                    ----    --------
                                                                                            
SHORT-TERM SECURITIES (3.9%)
   UNITED STATES (3.9%)
     5,098,302   Bankers Trust Institutional Liquid Assets,
                  current rate 1.360%                                                                    5,098,302
$    3,500,000   United States Treasury Bill                                   1.131%   3/13/03          3,492,104
                                                                                                     -------------
                 Total short-term securities (cost: $8,590,233)                                          8,590,406
                                                                                                     -------------
                 Total investments in securities (cost: $269,028,098) (c)                            $ 222,948,513
                                                                                                     =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) At December 31, 2002 the cost of securities for federal income tax purposes
was $268,352,251. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                   
Gross unrealized appreciation         $  18,255,395
Gross unrealized depreciation           (63,659,133)
                                      -------------
Net unrealized depreciation           $ (45,403,738)
                                      =============



              See accompanying notes to investments in securities.

                                       82



Small Company Growth Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                          MARKET
                   SHARES                                VALUE(a)
                   ------                             -------------
                                                   
COMMON STOCK (92.0%)
   BASIC MATERIALS (5.3%)
     Chemicals (3.3%)
    61,600   Airgas, Inc. (b)                         $   1,062,600
    21,300   Albemarle Corporation                          605,985
    42,600   Cambrex Corporation                          1,286,946
    24,300   Minerals Technologies, Inc.                  1,048,545
                                                      -------------
                                                          4,004,076
                                                      -------------
     Paper and Forest (2.0%)
    97,700   Constar International,
              Inc. (b)                                    1,147,975
    65,600   Delta & Pine Land
              Company                                     1,338,896
                                                      -------------
                                                          2,486,871
                                                      -------------
   CAPITAL GOODS (3.4%)
     Containers-Metal/Glass (1.2%)
   191,300   Crown Cork & Seal
              Company, Inc. (b)                           1,520,835
                                                      -------------
     Engineering/Construction (.8%)
    64,550   Granite Construction,
              Inc.                                        1,000,525
                                                      -------------
     Office Equipment (.6%)
    78,300   Moore Corporation,
              Ltd. (b)(c)                                   712,530
                                                      -------------
     Trucks and Parts (.8%)
    15,900   Oshkosh Truck
              Corporation (b)                               977,850
                                                      -------------
   COMMUNICATION SERVICES (1.0%)
     Telecommunication (1.0%)
   131,200   Polycom, Inc. (b)                            1,249,024
                                                      -------------
   CONSUMER CYCLICAL (14.0%)
     Auto (1.2%)
    29,600   Borg-Warner Automotive,
              Inc.                                        1,492,432
                                                      -------------
     Distribution Durables (1.0%)
    67,900   MSC Industrial Direct
              Company, Inc. (b)                           1,205,225
                                                      -------------
     Publishing (1.1%)
    39,200   Scholastic Corporation (b)                   1,409,240
                                                      -------------
     Retail (4.7%)
    51,900   Cost Plus, Inc. (b)                          1,487,973
    68,900   Gymboree Corporation (b)                     1,092,754
    65,400   Hot Topic, Inc. (b)                          1,496,352
   113,045   Valuevision Media,
              Inc. (b)                                $   1,693,414
                                                      -------------
                                                          5,770,493
                                                      -------------
     Service (4.2%)
   173,200   Doubleclick, Inc. (b)                          980,312
    73,412   Getty Images, Inc. (b)                       2,242,737
    43,000   Kroll, Inc. (b)                                820,440
    69,700   Penn National Gaming,
              Inc. (b)                                    1,105,442
                                                      -------------
                                                          5,148,931
                                                      -------------
     Textiles (1.8%)
    66,600   Linens n Things, Inc. (b)                    1,505,160
   108,900   Tommy Hilfiger
              Corporation (b)(c)                            756,855
                                                      -------------
                                                          2,262,015
                                                      -------------
   CONSUMER STAPLES (10.7%)
     Broadcasting (5.3%)
   106,700   Cumulus Media, Inc. (b)                      1,586,629
    89,900   Emmis
              Communications (b)                          1,872,617
    36,800   Entercom
              Communications
              Corporation (b)                             1,726,656
   102,600   Insight Communications
              Company, Inc. (b)                           1,270,188
                                                      -------------
                                                          6,456,090
                                                      -------------
     Food (1.6%)
    56,900   Performance Food Group
              Company (b)                                 1,932,267
                                                      -------------
     Food & Health (.8%)
    62,900   Hain Celestial Group,
              Inc. (b)                                      956,080
                                                      -------------
     Retail (1.3%)
   130,800   CKE Restaurants, Inc. (b)562,440
    57,700   Duane Reade, Inc. (b)                          980,900
                                                      -------------
                                                          1,543,340
                                                      -------------
     Service (1.7%)
    56,300   Education Management
              Corporation (b)                             2,116,880
                                                      -------------
   ENERGY (7.3%)
     Oil (.9%)
   243,000   Newpark Resources,
              Inc. (b)                                    1,057,050
                                                      -------------


              See accompanying notes to investments in securities.

                                       83





                                                      MARKET
                 SHARES                              VALUE(a)
                 ------                            -------------
                                                
 ENERGY--CONTINUED
  Oil & Gas (6.4%)
 60,600   FMC Technologies,
           Inc. (b)                                $   1,238,058
 33,500   Newfield Exploration
           Company (b)                                 1,207,675
 32,700   Pogo Producing Company1,218,075
 73,100   Remington Oil & Gas
           Corporation (b)                             1,199,571
 52,200   Spinnaker Exploration
           Company (b)                                 1,151,010
 57,196   Stone Energy
           Corporation (b)                             1,908,059
                                                   -------------
                                                       7,922,448
                                                   -------------
FINANCIAL (7.9%)
  Banks (1.1%)
 35,200   Westamerica
           BanCorporation                              1,414,336
                                                   -------------
  Finance-- Diversified (1.0%)
 41,000   Raymond James Financial,
           Inc.                                        1,212,780
                                                   -------------
  Insurance (3.8%)
 73,000   HCC Insurance Holdings,
           Inc.                                        1,795,800
 56,300   Mid Atlantic Medical
           Services, Inc. (b)                          1,824,120
 92,400   USI Holdings
           Corporation (b)                             1,085,700
                                                   -------------
                                                       4,705,620
                                                   -------------
  Investment Bankers/Brokers (1.1%)
 26,200   Affiliated Managers
           Group (b)                                   1,317,860
                                                   -------------
  Savings and Loans (.9%)
 61,800   IndyMac Bancorp, Inc. (b)                    1,142,682
                                                   -------------
HEALTH CARE (22.4%)
  Biotechnology (2.9%)
108,300   Affymetrix, Inc. (b)                         2,478,987
 65,849   Lynx Therapeutics, Inc. (b)                     26,998
 31,100   Scios, Inc. (b)                              1,013,238
                                                   -------------
                                                       3,519,223
                                                   -------------
  Drugs (5.2%)
 50,900   Cubist Pharmaceuticals,
           Inc. (b)                                      418,907
 65,900   K-V Pharmaceutical
           Company (b)                                 1,528,880
 53,235   Medicis Pharmaceutical
           Corporation (b)                             2,644,182
 27,600   OSI Pharmaceuticals,
           Inc. (b)                                $     452,640
135,800   Sepracor, Inc. (b)                           1,313,186
                                                   -------------
                                                       6,357,795
                                                   -------------
  Hospital Management (4.1%)
125,500   Community Health
           Systems (b)                                 2,584,045
 80,300   Lifepoint Hospitals,
           Inc. (b)                                    2,403,459
                                                   -------------
                                                       4,987,504
                                                   -------------
  Managed Care (3.2%)
 66,088   Advance Paradigm,
           Inc. (b)                                    1,467,815
 83,700   Coventry Health Care,
           Inc. (b)                                    2,429,811
                                                   -------------
                                                       3,897,626
                                                   -------------
  Medical Products/Supplies (1.3%)
 66,600   Alliance Imaging, Inc. (b)                     352,980
 50,600   SonoSite, Inc. (b)                             661,342
 68,800   Therasense, Inc. (b)                           574,480
                                                   -------------
                                                       1,588,802
                                                   -------------
  Special Services (5.7%)
 67,900   Apria Healthcare Group,
           Inc. (b)                                    1,510,096
 39,662   DaVita, Inc. (b)                               978,462
 36,900   Fisher Scientific
           International, Inc. (b)                     1,109,952
 39,800   Henry Schein, Inc. (b)                       1,791,000
 50,800   Renal Care Group, Inc. (b)                   1,607,312
                                                   -------------
                                                       6,996,822
                                                   -------------
TECHNOLOGY (17.9%)
  Communications Equipment (1.8%)
106,400   InterDigital
           Communications
           Corporation (b)                             1,549,184
362,600   Openwave Systems,
           Inc. (b)                                      725,200
                                                   -------------
                                                       2,274,384
                                                   -------------
  Computer Networking (2.7%)
159,300   Adaptec, Inc. (b)                              900,045
173,300   Legato Systems, Inc. (b)                       871,699
164,900   Radiant Systems, Inc. (b)                    1,587,987
                                                   -------------
                                                       3,359,731
                                                   -------------


              See accompanying notes to investments in securities.

                                       84





                                           MARKET
                SHARES                    VALUE(a)
                ------                   -----------
                                      
 TECHNOLOGY-CONTINUED
   Computer Services & Software (7.8%)
 136,100   Agile Software
            Corporation (b)              $ 1,053,414
  57,200   Avid Technology, Inc. (b)       1,312,740
  38,500   Business Objects SA (b)(c)        577,500
  69,500   CACI International, Inc. (b)    2,476,980
 100,000   Caminus Corporation (b)           234,000
 328,900   Chordiant Software,
            Inc. (b)                         473,616
 163,700   Informatica
            Corporation (b)                  942,912
 258,632   Manugistics Group,
            Inc. (b)                         620,717
 148,500   MatrixOne, Inc. (b)               638,550
  81,400   NetIQ Corporation (b)           1,005,290
  40,919   QRS Corporation (b)               270,065
                                         -----------
                                           9,605,784
                                         -----------
   Electrical Instruments (-- )
 214,897   APW, Ltd. (b)                       4,298
                                         -----------
   Electrical Semiconductor (2.4%)
       1   Anadigics, Inc. (b)                     1
  55,000   Integrated Circuit
            Systems (b)                    1,003,750
  76,600   Semtech Corporation (b)           836,472
  46,600   Varian Semiconductor
           Equipment (b)                 $ 1,107,263
                                         -----------
                                           2,947,486
                                         -----------
   Equipment Semiconductor (1.8%)
  72,368   Brooks-PRI Automation,
            Inc. (b)                         829,337
  42,216   Cymer, Inc. (b)                 1,361,466
                                         -----------
                                           2,190,803
                                         -----------
   Service-- Data Processing (1.4%)
 113,164   Documentum, Inc. (b)            1,772,148
                                         -----------
 TRANSPORTATION (2.1%)
   Trucking (2.1%)
  45,700   JB Hunt Transport
            Services, Inc. (b)             1,339,010
  61,900   Swift Transportation
            Company, Inc. (b)              1,239,114
                                         -----------
                                           2,578,124
                                         -----------
Total common stock
 (cost: $153,278,196)                    113,098,010
                                         -----------




                                 SHARES
                                 ------
                                                                             
SHORT-TERM SECURITIES (8.0%)
     6,427,290   Wells Fargo & Company-- Cash Investment Fund,
                 current rate 1.326%                                                  6,427,290
     3,395,545   Wells Fargo & Company-- Treasury Plus Fund,
                 current rate 1.261%                                                  3,395,545
                                                                                ---------------
                 Total short-term securities (cost: $9,822,835)                       9,822,835
                                                                                ---------------
                 Total investments in securities (cost: $163,101,031) (d)       $   122,920,845
                                                                                ===============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 1.7% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002, the cost of securities for federal income tax purposes
was $163,847,202. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                      
Gross unrealized appreciation            $    11,838,237
Gross unrealized depreciation                (52,764,594)
                                         ---------------
Net unrealized depreciation              $   (40,926,357)
                                         ===============



              See accompanying notes to investments in securities.

                                     85



Maturing Government Bond 2006 Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                                                                         MARKET
                             PRINCIPAL                                        RATE      MATURITY        VALUE (a)
                             ---------                                       -------    --------     -------------
                                                                                            
LONG-TERM DEBT SECURITIES (98.6%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (98.6%)
     $ 200,000   Financial Corporation Strip (b)                              2.980%    05/11/06     $     181,826
       686,000   Financial Corporation Strip (b)                              5.118%    11/11/06           612,557
     1,000,000   Financial Corporation Strip (b)                              5.369%    08/03/07           861,704
       921,000   Financial Corporation Strip (b)                              7.665%    09/07/07           792,023
       910,000   FNMA Strip (b)                                               7.006%    08/01/05           858,494
       450,000   FNMA Strip (b)                                               3.660%    08/15/06           409,076
       650,000   FNMA Strip (b)                                               5.230%    01/15/07           578,913
       613,000   FNMA Strip (b)                                               5.745%    04/08/07           537,320
       100,000   Israel Government Trust Certificate (b)                      3.010%    11/15/06            89,416
     1,000,000   Israel State Aid Strip (b)                                   6.578%    11/15/06           897,581
     1,000,000   Resolution Funding Corporation Strip (b)                     7.461%    07/15/07           877,587
     2,690,000   U.S. Treasury Principal Strip (b)                            6.010%    11/15/06         2,451,693
     1,500,000   U.S. Treasury Principal Strip (b)                            5.694%    02/15/07         1,350,127
                                                                                                     -------------
                 Total U.S. government and agencies obligations
                  (cost: $9,252,681)                                                                    10,498,317
                                                                                                     -------------
                 Total long-term debt securities (cost: $9,252,681)                                     10,498,317
                                                                                                     -------------

SHARES
- ------
SHORT-TERM SECURITIES (1.3%)
       140,548   Dreyfus Funds--Cash Management Plus Fund,
                  current rate 1.266%                                                                      140,548
                                                                                                     -------------
                 Total short-term securities (cost: $140,548)                                              140,548
                                                                                                     -------------
                 Total investments in securities (cost: $9,393,229) (c)                              $  10,638,865
                                                                                                     =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) For zero coupon issues (strips) the interest rate disclosed is the effective
yield at the date of acquisition.

(c) At December 31, 2002 the cost of securities for federal income tax purposes
was $9,427,841. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                                                  
Gross unrealized appreciation                                                                        $   1,211,024
Gross unrealized depreciation                                                                                   --
                                                                                                     -------------
 Net unrealized appreciation                                                                         $   1,211,024
                                                                                                     =============



See accompanying notes to financial statements.

                                       86



Maturing Government Bond 2010 Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                                                                        MARKET
                       PRINCIPAL                                             COUPON     MATURITY       VALUE (a)
                       ---------                                             -------    --------     -------------
                                                                                            
LONG-TERM DEBT SECURITIES (98.6%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (98.6%)
     $ 412,000   Financial Corporation Strip (b)                              5.490%     11/2/10     $     292,492
     1,000,000   Financial Corporation Strip (b)                              5.742%      4/5/11           684,974
       719,000   FNMA Strip (b)                                               6.000%    11/29/09           547,147
     1,350,000   FNMA Strip (b)                                               5.240%     9/23/10           971,903
       717,000   FNMA Strip (b)                                               4.906%     5/15/11           495,285
       132,000   Israel Government Trust Certificate (b)                      7.650%     5/15/10            96,602
       350,000   Israel Government Trust Certificate (b)                      6.590%     5/15/10           256,141
       515,000   Israel State Aid Strip (b)                                   8.264%     3/15/10           383,548
     1,100,000   Israel State Aid Strip (b)                                   6.850%     8/15/11           753,908
     1,032,000   Resolution Funding Corporation Strip (b)                     5.393%     4/15/11           731,241
       475,000   Tennessee Valley Authority (b)                               4.340%     4/15/10           349,438
       524,000   Turkey Government Trust Certificate (b)                      6.687%    11/15/10           375,157
     2,050,000   U.S. Treasury Principal Strip (b)                            5.358%     5/15/10         1,555,458
     1,900,000   U.S. Treasury Principal Strip (b)                            4.856%     2/15/11         1,380,658
       505,000   U.S. Treasury Principal Strip (b)                            6.330%     8/15/11           358,002
                                                                                                     -------------
                 Total U.S. government and agencies obligations
                  (cost: $8,232,360)                                                                     9,231,954
                                                                                                     -------------
                 Total long-term debt securities (cost: $8,232,360)                                      9,231,954
                                                                                                     -------------

SHARES
- ------
SHORT-TERM SECURITIES (.9%)
        75,737   Dreyfus Funds--Cash Management Plus Fund,
                  current rate 1.266%                                                                       75,737
         5,025   Federated Money Market Obligations Trust -- Prime
                  Obligation Fund, current rate 1.370%                                                       5,025
                                                                                                     -------------
                 Total short-term securities (cost: $80,762)                                                80,762
                                                                                                     -------------
                 Total investments in securities (cost: $8,313,122) (c)                              $   9,312,716
                                                                                                     =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) For zero coupon issues (strips) the interest rate disclosed is the effective
yield at the date of acquisition.

(c) At December 31, 2002 the cost of securities for federal income tax purposes
was $8,341,922. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                                                  
Gross unrealized appreciation                                                                        $     974,327
Gross unrealized depreciation                                                                               (3,533)
                                                                                                     -------------
Net unrealized appreciation                                                                          $     970,794
                                                                                                     =============



See accompanying notes to financial statements.

                                       87



Value Stock Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                               MARKET
            SHARES                           VALUE (a)
            ------                          -----------
                                         
COMMON STOCK (98.8%)
   BASIC MATERIALS (4.9%)
     Chemicals (4.4%)
    28,400   Air Products and
              Chemicals, Inc.               $ 1,214,100
    44,900   Dow Chemical
              Company                         1,333,530
    58,100   EI Dupont De
              Nemours & Company               2,463,440
                                            -----------
                                              5,011,070
                                            -----------
     Paper and Forest (.5%)
    14,600   Bowater, Inc.                      612,470
                                            -----------
   CAPITAL GOODS (4.2%)
     Aerospace/Defense (.7%)
    11,900   United Technologies
              Corporation                       737,086
                                            -----------
     Engineering/Construction (.4%)
     9,200   Caterpillar, Inc.                  420,624
                                            -----------
     Manufacturing (3.1%)
    18,100   3M Company                       2,231,730
    71,300   Tyco International,
              Ltd. (c)                        1,217,804
                                            -----------
                                              3,449,534
                                            -----------
   COMMUNICATION SERVICES (7.1%)
     Telephone (7.1%)
     8,720   AT&T Corporation                   227,679
    64,250   Bellsouth Corporation            1,662,147
   105,210   SBC Communications,
              Inc.                            2,852,243
    84,605   Verizon
              Communications                  3,278,444
                                            -----------
                                              8,020,513
                                            -----------
   CONSUMER CYCLICAL (7.8%)
     Auto (2.6%)
    11,900   Borg-Warner
              Automotive, Inc.                  599,998
     9,400   Eaton Corporation                  734,234
    29,100   Ford Motor Company                 270,630
     7,800   General Motors
              Corporation                       287,508
    29,700   Lear Corporation (b)               988,416
                                            -----------
                                              2,880,786
                                            -----------
     Leisure (2.5%)
   141,500   Brunswick Corporation            2,810,190
                                            -----------
     Lodging--Hotel (1.1%)
    98,400   Hilton Hotels                  $ 1,250,664
                                            -----------
     Publishing (1.1%)
     8,400   Gannett Company, Inc.              603,120
    15,200   Tribune Company                    690,992
                                            -----------
                                              1,294,112
                                            -----------
     Retail (.5%)
    26,400   JC Penney Company                  607,464
                                            -----------
   CONSUMER STAPLES (11.0%)
     Beverage (.6%)
    14,100   The Coca-Cola
              Company                           617,862
                                            -----------
     Broadcasting (2.6%)
    31,300   Clear Channel
              Communications,
              Inc. (b)                        1,167,177
    31,004   Comcast
              Corporation (b)                   730,764
    24,500   Comcast
              Corporation (b)                   553,455
    58,300   Liberty Media
              Corporation (b)                   521,202
                                            -----------
                                              2,972,598
                                            -----------
     Entertainment (1.7%)
    73,200   The Walt Disney
              Company                         1,193,892
    18,500   Viacom, Inc. (b)                   754,060
                                            -----------
                                              1,947,952
                                            -----------
     Food (1.3%)
    37,100   Kraft Foods, Inc.                1,444,303
                                            -----------
     Household Products (1.5%)
    19,800   Procter & Gamble
              Company                         1,701,612
                                            -----------
     Personal Care (1.0%)
    20,100   Avon Products, Inc.              1,082,787
                                            -----------
     Restaurants (.5%)
    35,200   McDonald's Corporation 566,016
     Retail (.7%)
    13,700   CVS Corporation                    342,089
    30,800   Winn-Dixie Stores, Inc.            470,624
                                            -----------
                                                812,713
                                            -----------
     Service (.7%)
    25,900   Manpower, Inc.                     826,210
                                            -----------


See accompanying notes to investments in securities.

                                       88





                                          MARKET
           SHARES                        VALUE (a)
           ------                       -----------
                                     
CONSUMER STAPLES--CONTINUED
  Tobacco (.4%)
 11,300   Philip Morris
           Companies, Inc.              $   457,989
                                        -----------
ENERGY (11.7%)
  Oil (8.5%)
 29,560   Chevron Corporation             1,965,149
 11,600   ConocoPhillips                    561,324
 13,200   Devon Energy
           Corporation                      605,880
185,804   Exxon Mobil
           Corporation                    6,491,991
                                        -----------
                                          9,624,344
                                        -----------
  Oil & Gas (3.2%)
 26,000   EOG Resources, Inc.             1,037,920
 30,800   Nabors Industries,
           Ltd. (b)(c)                    1,086,316
 26,500   Smith International,
           Inc. (b)                         864,430
 36,000   Veritas DGC, Inc. (b)             562,320
                                        -----------
                                          3,550,986
                                        -----------
FINANCIAL (31.2%)
  Auto Finance (.6%)
 29,700   Fleet Boston Financial
           Corporation                      721,710
                                        -----------
  Banks (14.8%)
 59,380   Bank of America
           Corporation                    4,131,067
 28,700   Bank One Corporation            1,048,985
 23,800   JP Morgan Chase and
           Company                          571,200
 25,300   The Bank of New York
           Company, Inc.                    606,188
163,894   U.S. Bancorp                    3,477,831
 92,600   Wachovia Corporation            3,374,344
 64,400   Wells Fargo & Company           3,018,428
 11,900   Zion BanCorporation               468,253
                                        -----------
                                         16,696,296
                                        -----------
  Consumer Finance (1.6%)
 35,000   American Express
           Company                        1,237,250
 26,800   MBNA Corporation                  509,736
                                        -----------
                                          1,746,986
                                        -----------
  Finance--Diversified (.5%)
  9,800   Freddie Mac                       578,690
                                        -----------
  Insurance (5.1%)
 49,600   Allstate Corporation          $ 1,834,704
 35,350   American International
           Group                          2,044,998
 10,400   Chubb Corporation                 542,880
 12,200   Marsh and McLennan
           Companies, Inc.                  563,762
 29,800   MetLife, Inc.                     805,792
                                        -----------
                                          5,792,136
                                        -----------
  Investment Bankers/Brokers (6.8%)
114,206   Citigroup, Inc. (b)             4,018,909
 13,100   Goldman Sachs Group,
           Inc.                             892,110
 13,700   Merrill Lynch &
           Company, Inc.                    519,915
 27,710   Morgan Stanley                  1,106,183
 41,300   T. Rowe Price
           Associates, Inc.               1,126,664
                                        -----------
                                          7,663,781
                                        -----------
  Real Estate Investment Trust (1.3%)
 29,900   Developers Diversified
           Realty Corporation               657,501
 29,800   Prologis                          749,470
                                        -----------
                                          1,406,971
                                        -----------
  Savings and Loans (.5%)
 18,900   Charter One Financial,
           Inc.                             542,997
                                        -----------
HEALTH CARE (5.2%)
  Drugs (2.9%)
 18,700   Bristol-Myers Squibb
           Company                          432,905
  8,600   Eli Lilly & Company               546,100
 38,700   Pfizer, Inc.                    1,183,059
 29,600   Wyeth                           1,107,040
                                        -----------
                                          3,269,104
                                        -----------
  Health Care--Diversified (.8%)
 23,100   Abbott Laboratories               924,000
                                        -----------
  Managed Care (.5%)
 10,700   Express Scripts,
           Inc. (b)                         514,028
                                        -----------
  Medical Products/Supplies (.5%)
 18,900   Becton Dickinson and
           Company                          580,041
                                        -----------


See accompanying notes to investments in securities.

                                       89





                                             MARKET
                SHARES                      VALUE (a)
                ------                     -----------
                                        
   HEALTH CARE--CONTINUED
     Special Services (.5%)
    19,900   Fisher Scientific
             International, Inc. (b)       $   598,592
                                           -----------
   TECHNOLOGY (8.9%)
     Communications Equipment (.2%)
    33,800   Tellabs, Inc. (b)                 245,726
                                           -----------
     Computer Hardware (4.3%)
    54,500   Hewlett-Packard
              Company                          946,120
    33,300   International Business
              Machines Corporation           2,580,750
   164,800   Symbol Technologies,
              Inc.                           1,354,656
                                           -----------
                                             4,881,526
                                           -----------
     Computer Services & Software (1.3%)
    39,300   AOL Time Warner,
              Inc. (b)                         514,830
    83,900   Oracle Systems (b)                906,120
                                           -----------
                                             1,420,950
                                           -----------
     Electrical Semiconductor (1.9%)
    20,100   Analog Devices, Inc. (b)          479,787
    36,900   National Semiconductor
              Corporation (b)                  553,869
    75,800   Texas Instruments, Inc.       $ 1,137,758
                                           -----------
                                             2,171,414
                                           -----------
     Electronics-- Computer
       Distribution (1.2%)
    26,200   WW Grainger, Inc.               1,350,610
                                           -----------
   TRANSPORTATION (.8%)
     Airlines (.8%)
   116,600   Northwest Airlines,
              Inc. (b)                         855,844
                                           -----------
   UTILITIES (6.0%)
     Electric Companies (6.0%)
    14,200   Entergy Corporation               647,378
    23,300   Exelon Corporation              1,229,541
    19,100   Firstenergy Corporation           629,727
   134,000   Nisource, Inc.                  2,680,000
    72,800   Pacific Gas and Electric
              Company (b)                    1,011,920
    16,600   Public Service
              Enterprise Group, Inc.           532,860
                                           -----------
                                             6,731,426
                                           -----------
Total common stock
   (cost: $111,947,634)                    111,392,713
                                           -----------




                                     SHARES
                                     ------
                                                                                    
SHORT-TERM SECURITIES (1.1%)
     1,214,760   Dreyfus Funds -- Cash Management Plus Fund,
                  current rate 1.266%                                                      1,214,760
        12,368   Federated Money Market Obligations Trust -- Prime
                  Obligation Fund, current rate 1.370%                                        12,368
        35,534   Wells Fargo & Company -- Cash Investment
                  Fund, current rate 1.326%                                                   35,534
                                                                                       -------------
                 Total short-term securities (cost: $1,262,662)                            1,262,662
                                                                                       -------------
                 Total investments in securities (cost: $113,210,296) (d)              $ 112,655,375
                                                                                       =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 2.0% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $115,416,615. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                                    
Gross unrealized appreciation                                                          $  6,316,331
Gross unrealized depreciation                                                            (9,077,571)
                                                                                       ------------
Net unrealized depreciation                                                            $ (2,761,240)
                                                                                       ============



See accompanying notes to investments in securities.

                                       90



Small Company Value Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                             MARKET
                SHARES                      VALUE (a)
                ------                     -----------
                                        
COMMON STOCK (92.8%)
   BASIC MATERIALS (15.7%)
     Agriculture Products (2.0%)
     9,900   Bunge, Ltd.                   $   238,194
    10,500   Corn Products
              International, Inc.              316,365
    19,500   NCO Group, Inc. (b)               311,025
    12,400   Valmont Industries,
              Inc. (b)                         240,560
                                           -----------
                                             1,106,144
                                           -----------
     Chemicals (6.1%)
   102,100   Agrium, Inc. (c)                1,154,751
    22,300   American Pacific
              Corporation (b)                  220,547
     2,300   Cabot Microelectronics
              Corporation (b)                  108,560
     3,700   Cambrex Corporation               111,777
    27,500   IMC Global, Inc.                  293,425
    63,200   Methanex
              Corporation (c)                  529,616
    12,100   Minerals Technologies,
              Inc.                             522,115
    36,800   Omnova Solutions,
              Inc. (b)                         148,304
    19,500   PolyOne Corporation                76,440
     2,200   Spartech Corporation               45,386
     5,400   Stepan Company                    135,000
                                           -----------
                                             3,345,921
                                           -----------
     Construction (1.0%)
    17,600   Martin Marietta
              Materials, Inc.                  539,616
                                           -----------
     Iron and Steel (1.9%)
    21,000   AK Steel Corporation (b)          168,000
    38,800   Allegheny Technologies,
              Inc.                             241,724
     4,400   Cleveland-Cliffs, Inc.             87,340
     4,000   GrafTech International,
              Ltd. (b)                          23,840
    17,300   NS Group, Inc. (b)                112,796
    30,600   United States Steel
              Corporation                      401,472
                                           -----------
                                             1,035,172
                                           -----------
     Mining (2.6%)
    32,800   Phelps Dodge
              Corporation (b)                1,038,120
    57,700   Stillwater Mining
              Company (b)                      308,695
    53,600   Titanium Metals
              Corporation                  $   102,376
                                           -----------
                                             1,449,191
                                           -----------
     Paper and Forest (2.1%)
    12,100   Caraustar Industries,
              Inc.                             114,708
    58,300   Graphic Packaging
              International
              Corporation (b)                  328,812
    21,500   Louisiana-Pacific
              Corporation (b)                  173,290
    22,600   Packaging Corporation
              of America (b)                   412,224
     3,100   Rayonier, Inc.                    140,275
                                           -----------
                                             1,169,309
                                           -----------
   CAPITAL GOODS (20.8%)
     Aerospace/Defense (2.4%)
    67,500   AAR Corporation                   347,625
    12,200   Esterline Technologies
              Corporation (b)                  215,574
    24,900   Orbital Science (b)               105,078
     6,500   Precision Castparts
              Corporation                      157,625
    17,500   Teledyne Technologies,
              Inc. (b)                         274,400
     8,800   United Defense
              Industries, Inc. (b)             205,040
                                           -----------
                                             1,305,342
                                           -----------
     Electrical Equipment (2.1%)
    57,700   Technitrol, Inc.                  931,278
    19,700   Trimble Navigation,
              Ltd. (b)                         246,053
                                           -----------
                                             1,177,331
                                           -----------
     Engineering/Construction (2.0%)
    16,800   Dycom Industries,
              Inc. (b)                         222,600
    18,200   ElkCorp                           314,860
    19,200   Granite Construction,
              Inc.                             297,600
    21,500   Joy Global, Inc. (b)              242,090
                                           -----------
                                             1,077,150
     Machinery (5.3%)
    11,500   Agco Corporation                  254,150
    22,700   Asyst Technologies,
              Inc. (b)                         166,845


See accompanying notes to investments in securities.

                                       91





                                             MARKET
               SHARES                       VALUE (a)
               ------                      -----------
                                        
CAPITAL GOODS--CONTINUED
     3,300   Denison International
              PLC (b)(c)                   $    52,800
    35,400   Hanover Compressor
              Company (b)                      324,972
    63,600   JLG Industries, Inc.              478,908
    26,400   Kadant, Inc. (b)                  396,000
     4,600   Regal Beloit                       95,220
    80,200   Wabtec Corporation              1,126,008
                                           -----------
                                             2,894,903
                                           -----------
     Manufacturing (4.9%)
     7,900   Excel Technology,
              Inc. (b)                         141,331
    16,200   Flowserve
              Corporation (b)                  239,598
     1,287   GSI Group, Inc. (b)(c)              7,761
    27,200   Maverick Tube
              Corporation (b)                  354,416
     5,900   Pentair, Inc.                     203,845
     6,300   Roper Industries, Inc.            230,580
    13,500   RTI International
              Metals, Inc. (b)                 136,350
    20,100   Steelcase, Inc.                   220,296
    19,400   Stewart & Stevenson
              Services, Inc. (b)               274,316
    14,100   Tredegar Corporation              211,500
    27,900   Trinity Industries, Inc.          528,984
     6,000   York International
              Corporation                      153,420
                                           -----------
                                             2,702,397
                                           -----------
     Metal Fabrication (1.5%)
    39,175   Ladish Company,
              Inc. (b)                         315,750
    13,508   Penn Engineering &
              Manufacturing
              Corporation                      143,860
    11,000   Triumph Group, Inc. (b)           351,340
                                           -----------
                                               810,950
                                           -----------
     Office Equipment (.2%)
     5,400   Wallace Computer
              Services, Inc.                   116,154
                                           -----------
     Trucks and Parts (2.4%)
     8,100   Cummins Engine
              Company, Inc.                    227,853
    44,600   Navistar International
              Corporation (b)                1,084,226
                                           -----------
                                             1,312,079
                                           -----------
COMMUNICATION SERVICES (.5%)
     Telephone (.5%)
    68,000   PTEK Holdings, Inc. (b)       $   299,200
                                           -----------
   CONSUMER CYCLICAL (11.6%)
     Auto (3.3%)
    35,600   American Axle &
              Manufacturing
              Holdings (b)                     833,752
     6,100   Borg-Warner
              Automotive, Inc.                 307,562
    18,700   Cooper Tire and
              Rubber Company                   286,858
     9,500   Lear Corporation (b)              316,160
    67,600   Titan International,
              Inc. (b)                          90,584
                                           -----------
                                             1,834,916
                                           -----------
     Leisure (2.1%)
    12,500   Callaway Golf
              Company                          165,625
     3,500   International Game
              Technology (b)                   265,720
    42,500   Six Flags, Inc. (b)               242,675
    31,000   Steinway Musical
              Instruments, Inc. (b)            504,370
                                           -----------
                                             1,178,390
                                           -----------
     Publishing (3.6%)
     5,200   Bowne & Company, Inc.              62,140
    52,500   Hollinger International,
              Inc.                             533,400
    21,000   Journal Register
              Company (b)                      373,380
    66,800   Readers Digest
              Association                    1,008,680
                                           -----------
                                             1,977,600
                                           -----------
     Retail (.4%)
     1,000   Brookstone, Inc. (b)               14,460
     7,900   Dillards, Inc.                    125,294
     9,189   Whitehall Jewellers,
              Inc. (b)                          87,296
                                           -----------
                                               227,050
                                           -----------
     Service (1.9%)
    31,300   Argosy Gaming
              Company (b)                      592,509
    42,800   Integrated Electrical
              Services, Inc. (b)               164,780
    34,100   Stewart Enterprises,
              Inc. (b)                         189,971


See accompanying notes to investments in securities.

                                       92





                                          MARKET
            SHARES                       VALUE (a)
            ------                      -----------
                                     
CONSUMER CYCLICAL--CONTINUED
  5,000   Viad Corporation              $   111,750
                                        -----------
                                          1,059,010
                                        -----------
  Textiles (.3%)
  5,500   Kellwood Company                  143,000
                                        -----------
CONSUMER STAPLES (4.5%)
  Broadcasting (.5%)
  2,700   Cox Enterprises (b)                61,587
 11,000   Entravision
           Communications (b)               109,780
 11,600   Gray Television, Inc.             113,100
                                        -----------
                                            284,467
                                        -----------
  Food (.8%)
  6,300   Del Monte Foods
           Company (b)                       48,510
  9,300   Interstate Bakeries
           Corporation                      141,825
 24,100   Wild Oats Markets,
           Inc. (b)                         248,712
                                        -----------
                                            439,047
                                        -----------
  Household Products (.3%)
  9,100   Tupperware
           Corporation                      137,228
                                        -----------
  Personal Care (.7%)
 17,600   Bally Total Fitness
           Holdings (b)                     124,784
 18,200   Steiner Leisure, Ltd. (b)         253,708
                                        -----------
                                            378,492
                                        -----------
  Retail (.6%)
  7,600   Duane Reade, Inc. (b)             129,200
  9,000   Longs Drug Stores
           Corporation                      186,660
                                        -----------
                                            315,860
                                        -----------
  Service (1.6%)
 26,300   Heidrick & Struggles
           International (b)                385,821
  6,300   John H. Harland
           Company                          139,419
 29,400   Tetra Tech, Inc. (b)              358,680
                                        -----------
                                            883,920
                                        -----------
ENERGY (6.8%)
  Mining (1.4%)
 26,900   Peabody Holding
           Company                          786,287
                                        -----------
  Oil (.8%)
 43,200   Newpark Resources,
           Inc. (b)                     $   187,920
 15,500   NUI Corporation                   267,530
                                        -----------
                                            455,450
                                        -----------
Oil & Gas (4.6%)
 23,900   Cabot Oil & Gas
           Corporation                      592,242
 45,400   Canadian 88 Energy
           Corporation (b)(c)                72,640
 18,900   Core Laboratories
           NV (b) (c)                       214,515
 45,700   Global Industries,
           Ltd. (b)                         190,569
  8,000   Nuevo Energy
           Company (b)                       88,800
 25,500   Ocean Energy, Inc.                509,235
  5,500   Patterson-UTI Energy,
           Inc. (b)                         165,935
  4,200   Stone Energy
           Corporation (b)                  140,112
 18,300   Vintage Petroleum, Inc.           193,065
 26,000   W-H Energy Services,
           Inc. (b)                         379,340
                                        -----------
                                          2,546,453
                                        -----------
FINANCIAL (2.6%)
  Banks (.4%)
 11,400   Staten Island

           BanCorporation, Inc.             229,596
                                        -----------
  Consumer Finance (.3%)
  8,500   American Capital
           Strategies Limited               183,515
                                        -----------
  Finance -- Diversified (.3%)
  8,000   Dollar Thrifty Auto
           Group, Inc. (b)                  169,200
                                        -----------
  Insurance (1.0%)
  4,983   Fidelity National
           Finance                          163,592
 14,500   Hub International,
           Ltd. (c)                         186,035
  3,700   Odyssey Reinsurance
           Holdings Corporation              65,490
  3,300   Platinum Underwriters
           Holdings (b)(c)                   86,955
  2,100   RLI Corporation                    58,590
                                        -----------
                                            560,662
                                        -----------


See accompanying notes to investments in securities.

                                       93





                                           MARKET
              SHARES                     VALUE (a)
              ------                    -----------
                                     
FINANCIAL--CONTINUED
  Real Estate Investment Trust (.5%)
  9,900   Heritage Property
           Investment Trust             $   247,203
                                        -----------
  Savings and Loans (.1%)
  1,989   New York Community
           Bancorp, Inc.                     57,442
                                        -----------
HEALTH CARE (1.2%)
  Biotechnology (.1%)
  4,318   Invivo Corporation (b)             60,625
                                        -----------
  Drugs (.4%)
  2,200   Atrix Laboratories,
           Inc. (b)                          33,746
 14,100   Sangstat Medical
           Corporation (b)                  159,330
                                        -----------
                                            193,076
                                        -----------
  Hospital Management (.5%)
  5,500   Community Health
           Systems (b)                      113,245
 19,400   Province Healthcare
           Company (b)                      188,762
                                        -----------
                                            302,007
                                        -----------
  Medical Products/Supplies (.2%)
 41,900   Aradigm
           Corporation (b)                   67,878
  4,800   ArthoCare
           Corporation (b)                   47,280
                                        -----------
                                            115,158
                                        -----------
TECHNOLOGY (22.1%)
  Communications Equipment (2.1%)
 22,900   Anaren Microwave,
           Inc. (b)                         201,520
  6,100   Anixter International,
           Inc. (b)                         141,825
 20,200   Commscope, Inc. (b)               159,580
 28,500   Inet Technologies,
           Inc. (b)                         173,850
 30,900   Plantronics, Inc. (b)             467,517
                                        -----------
                                          1,144,292
                                        -----------
  Computer Hardware (.6%)
 51,600   Natural Microsystems
           Corporation (b)                   99,072
  3,900   SanDisk Corporation (b)            79,170
 42,600   Simple Technology (b)             128,652
                                        -----------
                                            306,894
                                        -----------
  Computer Peripherals (1.5%)
 28,500   Electronics For
           Imaging, Inc. (b)            $   463,439
 17,400   Hutchinson Technology,
           Inc. (b)                         360,180
                                        -----------
                                            823,619
                                        -----------
  Computer Services & Software (2.8%)
 33,600   Carreker Corporation (b)          152,208
 39,000   Earthlink, Inc. (b)               212,550
  8,100   Hall Kinion &
           Associates, Inc. (b)              45,287
 43,900   McData Corporation (b)            311,690
 22,200   Micros Systems, Inc. (b)          497,724
 46,500   Numerical
           Technologies, Inc. (b)           160,890
  7,900   Proquest Company (b)              154,840
                                        -----------
                                          1,535,189
                                        -----------
  Electrical Instruments (3.9%)
 35,700   BEI Technologies, Inc.            399,483
 14,500   Benchmark Electronics
           Inc. (b)                         415,570
 26,600   Cognex Corporation (b)            490,238
 21,300   Coherent, Inc. (b)                424,935
 16,000   Credence Systems
           Corporation (b)                  149,280
 15,100   LeCroy Corporation (b)            167,610
  6,500   Littelfuse, Inc. (b)              109,590
  3,850   OpticNet, Inc. (b)                    308
                                        -----------
                                          2,157,014
                                        -----------
  Electrical Semiconductor (5.4%)
 22,000   Actel Corporation (b)             356,840
 21,900   Aware, Inc. (b)                    47,742
 43,700   ChipPAC, Inc. (b)                 155,135
 30,300   Cypress Semiconductor
           Corporation (b)                  173,316
 12,800   Entegris, Inc. (b)                131,840
 21,500   Helix Technology
           Corporation                      240,800
 12,100   Metron Technology
           NV (b)                            18,634
 47,900   Triquint
           Semiconductor, Inc. (b)          203,096
 45,400   Varian Semiconductor
           Equipment (b)                  1,078,749
 46,900   Veeco Instruments,
           Inc. (b)                         542,164
                                        -----------
                                          2,948,316
                                        -----------


See accompanying notes to investments in securities.

                                       94





                                                       MARKET
                       SHARES                        VALUE (a)
                       ------                       -----------
                                                 
   TECHNOLOGY--CONTINUED
     Electronics -- Computer Distribution (2.4%)
       800   Avnet, Inc.                            $      8,664
    11,900   AVX Corporation                             116,620
    13,000   CoorsTek, Inc. (b)                          332,150
    58,000   Kemet Corporation (b)                       506,920
    19,400   Thomas and Betts
              Corporation (b)                            327,860
                                                    ------------
                                                       1,292,214
                                                    ------------
     Equipment Semiconductor (3.0%)
    22,800   August Technology
              Corporation (b)                            115,368
    52,300   Brooks-PRI Automation,
              Inc. (b)                                   599,358
    33,200   John H. Harland
              Company (b)                                614,864
    20,000   MKS Instruments,
              Inc. (b)                                   328,600
                                                    ------------
                                                       1,658,190
                                                    ------------
     Service -- Data Processing (.4%)
    39,900   Ciber, Inc. (b)                             205,485
                                                    ------------
   TRANSPORTATION (7.0%)
     Air Freight (1.8%)
    70,100   EGL, Inc. (b)                               998,925
                                                    ------------
     Airlines (2.7%)
    15,600   Alaska Airgroup,
              Inc. (b)                              $    337,740
    27,900   ExpressJet Holdings,
              Inc. (b)                                   285,975
    32,700   Frontier Airlines,
              Inc. (b)                                   221,052
   120,400   Mesa Air Group,
              Inc. (b)                                   490,028
    29,600   Midwest Express
              Holdings, Inc. (b)                         158,360
                                                    ------------
                                                       1,493,155
                                                    ------------
     Railroads (1.2%)
    22,300   GATX Corporation                            508,886
    19,800   RailAmerica, Inc. (b)                       141,966
                                                    ------------
                                                         650,852
                                                    ------------
     Shipping (.6%)
     8,100   Teekay Shipping
              Corporation (c)                            329,670
                                                    ------------
     Transport Services (.7%)
    88,900   OMI Corporation (b)                         365,379
                                                    ------------
Total common stock
  (cost: $59,835,491)                                 51,015,707
                                                    ------------




                              SHARES/PAR                                        RATE     MATURITY
                              ----------                                        ----     --------
                                                                                            
SHORT-TERM SECURITIES (7.8%)
$    2,000,000   American Express Company                                      1.309%     1/14/03        1,998,945
     2,265,103   Wells Fargo & Company -- Cash Investment
                  Fund, current rate 1.326%                                                              2,265,103
                                                                                                     -------------
                 Total short-term securities (cost: $4,264,171)                                          4,264,048
                                                                                                     -------------
                 Total investments in securities (cost: $64,099,662) (d)                             $  55,279,755
                                                                                                     =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 4.8% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $64,442,923. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                
Gross unrealized appreciation                      $   3,785,546
Gross unrealized depreciation                        (12,948,714)
                                                   -------------
Net unrealized depreciation                        $  (9,163,168)
                                                   =============



See accompanying notes to investments in securities.

                                       95



Global Bond Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                                                                         MARKET
                      PRINCIPAL (b)                                            COUPON   MATURITY        VALUE (a)
                      -------------                                            ------   --------       -----------
                                                                                              
LONG-TERM DEBT SECURITIES (95.9%)
   AUSTRIA (.5%)
     Government (.5%)
         250,000   Republic of Austria (Euro)                                  5.000%   07/15/12       $   277,094
                                                                                                       -----------
   BELGIUM (1.2%)
     Government (1.2%)
         570,000   Kingdom Of Belgium (Euro)                                   5.750%   03/28/08           659,037
                                                                                                       -----------
   BRAZIL (.3%)
     Government (.3%)
       1,000,000   International Bank of Reconstruction and
                    Developement (Brazilian Real) (c)                          5.202%   04/04/05           142,175
                                                                                                       -----------
   CANADA (1.0%)
     Electric Companies (.5%)
         200,000   Hydro-Quebec (U.S. Dollar)                                  8.000%   02/01/13           253,821
     Government (.5%)
         250,000   Manitoba (U.S. Dollar)                                      2.750%   01/17/06           252,191
                                                                                                       -----------
                                                                                                           506,012
                                                                                                       -----------
   DENMARK (2.8%)
     Government (2.8%)
      10,500,000   Denmark (Dannish Krona)                                     8.000%   05/15/03         1,509,752
                                                                                                       -----------
   FRANCE (3.6%)
     Government (3.6%)
         320,000   Government of France (Euro)                                 5.000%   01/12/06           354,697
       2,500,000   Government of France (Euro) (c)                             5.104%   10/25/25           827,339
         580,000   Government of France (Euro)                                 3.500%   07/12/04           615,449
         100,000   Government of France (Euro)                                 5.000%   04/25/12           111,142
                                                                                                       -----------
                                                                                                         1,908,627
                                                                                                       -----------
   GERMANY (16.9%)
     Government (16.9%)
       4,010,000   Bundesrepublic (Euro)                                       5.000%   07/04/12         4,474,870
         260,000   Bundesrepublic (Euro)                                       5.500%   01/04/31           300,238
         780,000   Bundesrepublic (Euro)                                       6.250%   01/04/30           986,658
       3,120,000   Bundesrepublic (Euro)                                       3.250%   02/17/04         3,296,719
                                                                                                       -----------
                                                                                                         9,058,485
                                                                                                       -----------
   GREECE (3.9%)
     Electrical Equipment (.1%)
          80,000   Public Power Corporation (Euro)                             4.500%   03/12/09            83,134
     Government (3.8%)
       1,750,000   Greek Government (Euro)                                     6.300%   01/29/09         2,068,675
                                                                                                       -----------
                                                                                                         2,151,809
                                                                                                       -----------
   ITALY (3.9%)
     Government (3.9%)
       1,880,000   Buoni Poliennali Del Tesoro (Euro)                          4.750%   03/15/06         2,072,326
                                                                                                       -----------


See accompanying notes to investments in securities.

                                       96





                                                                                                   MARKET
                     PRINCIPAL (b)                                         COUPON    MATURITY     VALUE (a)
                     -------------                                        --------  ----------   -----------
                                                                                        
 JAPAN (5.7%)
   Finance-- Diversified (5.7%)
   62,000,000   Developmental Bank of Japan (Japanese Yen)                  1.400%   06/20/12    $  545,023
   84,000,000   Japan Finance Corporation (Japanese Yen)                    1.550%   02/21/12     2,542,273
                                                                                                 ----------
                                                                                                  3,087,296
                                                                                                 ----------
 LUXEMBOURG ( -- )
  Finance -- Diversified
       30,000   Sanitec International (Euro)                                9.000%   05/15/12        29,593
                                                                                                 ----------
 MEXICO (3.9%)
  Government (3.9%)
    6,400,000   Mexican Bonos (Mexican Peso)                                9.500%   03/08/07       610,398
    6,400,000   Mexican Bonos (Mexican Peso)                               10.500%    8/24/06       633,524
  100,000,000   United Mexican States (Japanese Yen)                        3.000%   12/01/03       853,427
                                                                                                 ----------
                                                                                                  2,097,349
                                                                                                 ----------
 NETHERLANDS (.3%)
  Chemicals (.3%)
      170,000   Carmeuse Lime (Euro)                                       10.750%   07/15/12       158,774
                                                                                                 ----------
 NEW ZEALAND (.2%)
  Food (.2%)
      100,000   Fonterra (Euro)                                             5.250%   05/21/07       110,638
                                                                                                 ----------
 SUPRANATIONAL (1.4%)
  Supranational Bank (1.4%)
    2,430,000   European Bank of Reconstruction and
                 Development (U.S. Dollar) (c)                              5.100%   05/12/05       780,516
                                                                                                 ----------
 SWEDEN (8.8%)
  Government (8.8%)
    5,400,000   Sweden (Swedish Krona)                                      3.500%   04/20/06       610,135
    6,100,000   Sweden (Swedish Krona)                                      5.000%   01/15/04       709,530
    3,700,000   Sweden (Swedish Krona)                                      5.000%   01/28/09       438,741
   24,600,000   Sweden (Swedish Krona)                                      5.500%   10/08/12     2,991,636
                                                                                                 ----------
                                                                                                  4,750,042
                                                                                                 ----------
 UNITED KINGDOM (4.7%)
  Finance-Diversified (.1%)
       50,000   RHM Financial, Ltd. (British Sterling Pound)               11.500%   02/28/11        81,300
  Government (4.6%)
      340,000   UK Treasury (British Sterling Pound)                        4.250%   06/07/32       529,741
      900,000   UK Treasury (British Sterling Pound)                        9.000%   07/12/11     1,916,595
                                                                                                 ----------
                                                                                                  2,527,636
                                                                                                 ----------
UNITED STATES (36.6%)
   Aerospace/Defense (.2%)
      100,000   B.F. Goodrich Company                                       7.625%   12/15/12       103,257
  Agriculture Products (.7%)
      250,000   Archer-Daniels-Midland Company                              7.000%   02/01/31       287,862
      100,000   Cargill, Inc. 144A Issue (g)                                6.375%   06/01/12       111,961


See accompanying notes to investments in securities.

                                       97





                                                                                                      MARKET
                   PRINCIPAL (b)                                            COUPON     MATURITY      VALUE (a)
                   ------------                                             ------     --------     ----------
                                                                                           
UNITED STATES--CONTINUED
  Airlines (.3%)
      150,000   American Airlines, Inc.                                     2.020%     09/23/07     $  149,847
  Aluminum (.2%)
      100,000   Alcoa, Inc.                                                 4.250%     08/15/07        104,114
  Banks (.7%)
      300,000   Wells Fargo Bank NA                                         7.550%     06/21/10        357,010
  Broadcasting (.8%)
      200,000   TCI Communications Inc                                      6.375%     05/01/03        200,014
      250,000   USA Interactive                                             7.000%     01/15/13        258,506
  Chemicals (.1%)
       80,000   Fresenius Med (Euro)                                        7.375%     06/15/11         78,075
  Collateralized Mortgage Obligations/Mortgage
   Revenue Bonds (.5%)
      250,000   Countrywide Home Loan                                       5.625%     07/15/09        264,536
  Commercial Finance (.4%)
      200,000   General Electric Capital Corporation                        6.750%     03/15/32        221,118
  Commercial Mortgage-Backed Securities (.8%)
      200,000   First Union Lehman Brothers Commercial
                 Mortgage                                                   6.560%     11/18/35        226,241
      200,000   Eastview Credit 144A Issue (g)                              6.950%     06/15/04        206,691
  Construction (.3%)
      150,000   Vulcan Materials, Inc.                                      6.400%     02/01/06        165,825
  Consumer Finance (.4%)
      200,000   Citibank Credit Card Issuance Trust (d)                     1.440%     12/15/05        199,916
  Corporate Bonds (.4%)
      200,000   Fleet Credit Card Master Trust II (d)                       1.920%     04/15/10        200,097
  Electric Companies (1.3%)
      250,000   Appalachian Power Company                                   4.800%     06/15/05        251,024
      150,000   Energy Louisiana, Inc.                                      8.500%     06/01/03        153,441
      250,000   Wisconsin Power & Light                                     7.000%     06/15/07        276,700
  Food (.5%)
      250,000   Unilever Capital Corporation                                5.900%     11/15/32        255,733
  Health Care -- Diversified (.5%)
      246,211   Rosewood Care Centers Capital Funding
                 Corporation                                                7.250%     11/01/13        256,534
  Insurance (.5%)
      250,000   Prudential Insurance Company of
                 America 144A Issue (g)                                     6.600%     05/15/08        276,690
  Investment Bankers/Brokers (.8%)
      180,000   GMAC (Euro)                                                 5.000%     01/18/05        195,569
      200,000   Morgan Stanley                                              6.750%     04/15/11        222,254
  Publishing (.4%)
      200,000   Gannett Company, Inc.                                       5.500%     04/01/07        217,499
  Real Estate Investment Trust (1.2%)
      150,000   Prologis                                                    6.700%     04/15/04        156,259
      200,000   Reckson Operating Partnership LP                            7.400%     03/15/04        209,580
      250,000   Vornado Realty Trust                                        5.625%     06/15/07        254,734


See accompanying notes to investments in securities.

                                       98





                                                                                                      MARKET
                 PRINCIPAL (b)                                              COUPON     MATURITY      VALUE (a)
                 ------------                                               ------     --------     -----------
                                                                                           
UNITED STATES--CONTINUED
  Retail (.7%)
      100,000   American Stores Company                                     7.200%     06/09/03     $   102,025
      250,000   Kohls Corporation                                           6.000%     01/15/33         251,327
  Savings and Loans (.5%)
      250,000   Washington Mutual, Inc.                                     6.875%     05/15/11         279,018
  Technology (.5%)
      250,000   IBM Corporation                                             5.875%     11/29/32         247,375
  U.S. Government and Agencies Obligations (23.9%)
      250,000   FHLMC                                                       2.750%     12/30/05         252,414
      197,663   FHLMC                                                       6.000%     09/01/32         204,675
      495,359   FHLMC                                                       6.500%     09/01/32         516,219
      500,000   FNMA                                                        2.625%     06/27/05         502,225
      500,000   FNMA                                                        2.750%     05/04/05         505,000
      250,000   FNMA                                                        3.100%     05/19/06         251,563
      500,000   FNMA (e)                                                    5.500%     01/01/18         519,197
      368,387   FNMA                                                        6.000%     09/01/17         385,491
      407,499   FNMA                                                        6.000%     10/01/32         421,827
      149,120   FNMA                                                        6.000%     10/01/32         154,363
      344,249   FNMA                                                        6.000%     11/01/32         356,353
      750,000   FNMA (e)                                                    6.000%     01/01/33         772,266
       98,048   FNMA                                                        6.230%     01/01/08         108,212
    1,250,000   FNMA (e)                                                    6.500%     01/01/32       1,301,173
      584,352   FNMA                                                        6.500%     03/01/32         608,706
       95,495   FNMA                                                        6.500%     05/01/32         100,013
      547,575   FNMA                                                        6.500%     08/01/32         570,406
       97,165   FNMA                                                        6.500%     09/01/32         101,214
      196,708   FNMA                                                        6.500%     10/01/32         204,906
      223,466   FNMA                                                        7.000%     02/01/29         237,092
      500,000   FNMA (e)                                                    7.000%     01/01/31         525,781
      618,607   FNMA                                                        7.000%     11/01/31         650,678
      349,166   FNMA                                                        7.000%     02/01/32         369,449
    1,143,305   Inflationary Index Bond (f)                                 3.375%     01/15/07       1,238,164
      500,000   U.S. Treasury Bond                                          5.250%     02/15/29         522,481
    1,250,000   U.S. Treasury Bond                                          6.000%     02/15/26       1,432,463
                                                                                                    -----------
                                                                                                     19,553,163
                                                                                                    -----------
VENEZUELA (.2%)
  Government (.2%)
      200,000   Venezulea (Deutche Mark)                                   10.250%      10/4/03          99,637
                                                                                                    -----------
                Total long-term debt securities (cost: $49,258,585)                                  51,479,961
                                                                                                    -----------


See accompanying notes to investments in securities.

                                       99





                                                                                                       MARKET
                              SHARES/PRINCIPAL                                 COUPON   MATURITY      VALUE(a)
                              ----------------                                 ------   --------    ------------
                                                                                           
SHORT-TERM SECURITIES (6.7%)
         118,185   Bankers Trust Institutional Liquid Assets,
                    current rate 1.420%                                                             $    118,185
         150,257   Conoco, Inc. (d)                                            2.625%   04/15/03         150,257
       2,421,005   Dreyfus Funds -- Cash Management Plus,
                    current rate 1.266%                                                                2,421,005
          30,276   Federated Money Market Obligations Trust--
                    Prime Obligation Fund, current rate 2.140%                                            30,276
         900,000   Gannet Company (h)                                          1.183%   01/14/03         899,586
                                                                                                    ------------
                   Total short-term securities (cost: $3,618,883)                                      3,619,309
                                                                                                    ------------
                   Total investments in securities (cost: $52,877,468) (i)                          $ 55,099,270
                                                                                                    ============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Principal amounts for debt securities are denominated in the currencies
indicated.

(c) For zero coupon issues (strips) the interest rate disclosed is the effective
yield at the date of acquisition.

(d) Floating rate bond.

(e) At December 31, 2002 the total cost of investments issued on a when-issued
or forward commitment basis is $3,105,723

(f) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principle amount is adjusted for inflation and the semi-annual interest
payments equal a fixed percentage of the inflation-adjusted principle amount.

(g) Long term debt securities sold within terms of a private placement
memorandum exempt from registration under Section 144A of the Securities Act of
1933, as amended, and may be sold to dealers in that program or other accredited
investors. These securities have been determined to be liquid under guidelines
established by the board of directors. At December 31, 2002 these securities
totaled $595,342, or 1.1% of net assets.

(h) Commercial paper sold within terms of a private placement memorandum exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors".
This security has been determined to be liquid under guidelines established by
the board of directors. At December 31, 2002 this security represents 1.7% of
net assets.

(i) At December 31, 2002 the cost of securities for federal income tax purposes
was $52,915,562. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                              
Gross unrealized appreciation                                                    $ 2,762,603
Gross unrealized depreciation                                                       (578,895)
                                                                                 -----------
Net unrealized appreciation                                                      $ 2,183,708
                                                                                 ===========



See accompanying notes to investments in securities.

                                       100



Index 400 Mid-Cap Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                 MARKET
                 SHARES                        VALUE (a)
                 ------                       -----------
                                           
COMMON STOCK (94.3%)
   BASIC MATERIALS (4.5%)
     Chemicals (2.8%)
     1,653   A Schulman, Inc.                 $    30,762
     4,016   Airgas, Inc. (b)                      69,276
     2,338   Albemarle Corporation                 66,516
     3,448   Cabot Corporation                     91,510
     1,350   Cabot Microelectronics
              Corporation (b)                      63,720
     6,385   Crompton Corporation                  37,992
     2,112   Cytec Industries, Inc. (b)            57,615
     2,269   Ferro Corporation                     55,432
     1,969   FMC Corporation (b)                   53,793
     1,591   HB Fuller Company                     41,175
     6,451   IMC Global, Inc.                      68,832
     2,887   Lubrizol Corporation                  88,053
     8,970   Lyondell Petrochemical
              Company                             113,381
     1,140   Minerals
              Technologies, Inc.                   49,191
     3,217   Olin Corporation                      50,024
     6,448   RPM International, Inc.               98,525
     5,880   Solutia, Inc.                         21,344
     2,811   Valspar Corporation                  124,190
                                              -----------
                                                1,181,331
                                              -----------
     Construction (.2%)
     2,739   Martin Marietta
              Materials, Inc.                      83,978
                                              -----------

     Iron and Steel (.2%)
     6,055   AK Steel Corporation (b)48,440
     1,253   Carpenter Technology
              Corporation                          15,600
     3,150   GrafTech
              International, Ltd. (b)              18,774
                                              -----------
                                                   82,814
                                              -----------
     Paper and Forest (1.3%)
     3,102   Bowater, Inc.                        130,129
     2,866   Longview Fibre Company                20,721
     5,861   Packaging Corporation
              of America (b)                      106,905
     2,448   PH Glatfelter Company                 32,216
     1,600   Potlatch Corporation                  38,208
     1,546   Rayonier, Inc.                        69,956
     5,421   Sonoco Products Company              124,304
     2,892   Wausau-Mosinee Paper
              Corporation                          32,448
                                              -----------
                                                  554,887
                                              -----------
   CAPITAL GOODS (6.0%)
     Aerospace/Defense (.2%)
     2,935   Precision Castparts

              Corporation                     $    71,174
       577   Sequa Corporation (b)                 22,566
                                              -----------
                                                   93,740
                                              -----------

     Electrical Equipment (.9%)
     4,045   Diebold, Inc.                        166,735
     3,318   Hubbell, Inc.                        116,595
     8,964   Vishay Intertechnology,
              Inc. (b) (d)                        100,218
                                              -----------
                                                  383,548
                                              -----------
     Engineering/Construction (.8%)
     2,686   Dycom Industries, Inc. (b)            35,589
     2,316   Granite Construction, Inc.            35,898
     3,052   Jacobs Engineering
              Group, Inc. (b)                     108,651
     3,903   Quanta Services, Inc. (b)             13,660
     4,296   United Rentals, Inc. (b)              46,225
     5,437   Varco International, Inc. (b)         94,604
                                              -----------
                                                  334,627
                                              -----------
     Machinery (1.1%)
     4,210   Agco Corporation                      93,041
     1,815   Albany International
              Corporation                          37,498
     3,050   Cooper Cameron
              Corporation (b)                     151,951
     3,733   Hanover Compressor
              Company (b)                          34,269
     1,685   Kaydon Corporation                    35,739
     1,970   Kennametal, Inc.                      67,926
     1,038   Tecumseh Products
              Company                              45,807
                                              -----------
                                                  466,231
                                              -----------
     Manufacturing (2.0%)
     1,853   Ametek, Inc.                          71,322
     1,694   Carlisle Companies, Inc.              70,098
     2,466   Donaldson Company, Inc.88,776
     2,580   Federal Signal Corporation            50,104
     3,098    Flowserve Corporation (b)            45,819
     1,882   Nordson Corporation                   46,730
     2,762   Pentair, Inc.                         95,427
     4,519   SPX Corporation (b)                  169,237
     2,209   Teleflex, Inc.                        94,744
     2,575   Trinity Industries, Inc.              48,822


See accompanying notes to investments in securities.

                                       101





                                              MARKET
               SHARES                       VALUE (a)
               ------                      -----------
                                        
CAPITAL GOODS--CONTINUED
  2,213   York International
           Corporation                     $    56,586
                                           -----------
                                               837,665
                                           -----------
  Office Equipment (.5%)
  4,200   Herman Miller, Inc.                   77,280
  3,307   Hon Industries, Inc.                  93,522
  2,347   Wallace Computer
           Services, Inc.                       50,484
                                           -----------
                                               221,286
                                           -----------
  Waste Management (.5%)
  9,195   Republic Services, Inc. (b)          192,911
                                           -----------
COMMUNICATION SERVICES (.9%)
  Cellular (.1%)
  3,060   Price Communications
           Corporation (b)                      42,320
                                           -----------
  Telecommunication (.1%)
  5,583    Polycom, Inc. (b)                    53,150
                                           -----------
  Telephone (.7%)
  4,716   Advanced Fibre
           Communication, Inc. (b)              78,663
 12,283   Broadwing, Inc. (b) (d)               43,236
  3,293   Telephone and Data
           Systems, Inc.                       154,837
                                           -----------
                                               276,736
                                           -----------
CONSUMER CYCLICAL (13.7%)
  Auto (1.1%)
  3,812   ArvinMeritor, Inc.                    63,546
  1,033   Bandag, Inc.                          39,956
  1,481   Borg-Warner Automotive,
           Inc.                                 74,672
  2,273   Harsco Corporation                    72,486
  3,689   Lear Corporation (b)                 122,770
  1,887   Modine Manufacturing
           Company                              33,362
  1,553   Superior Industries
           International, Inc.                  64,232
                                           -----------
                                               471,024
                                           -----------
  Building Materials (.6%)
  7,628   Clayton Homes, Inc.                   92,909
  8,221   DR Horton, Inc.                      142,634
                                           -----------
                                               235,543
                                           -----------
  Construction (.2%)
  2,048   Lancaster Colony
           Corporation                          80,036
                                           -----------
  Houseware (.2%)
  3,158   Furniture Brands
           International, Inc. (b)         $    75,318
                                           -----------
  Leisure (.4%)
  4,264   Callaway Golf Company                 56,498
  3,203   Gtech Holdings
           Corporation (b)                      89,236
  5,197   Six Flags, Inc. (b)                   29,675
                                           -----------
                                               175,409
                                           -----------
  Lodging-- Hotel (.2%)
  5,265   Extended Stay America,
           Inc. (b)                             77,659
                                           -----------
  Publishing (2.4%)
  6,319   A.H. Belo Corporation                134,721
  5,108   Harte-Hanks, Inc.                     95,366
  2,485   Lee Enterprises, Inc.                 83,297
  1,292   Media General, Inc.                   77,455
  5,491   Readers Digest
           Association                          82,914
  2,195   Scholastic
           Corporation (b)                      78,910
    625   Washington Post                      461,250
                                           -----------
                                             1,013,913
                                           -----------
  Retail (6.2%)
  3,933   99 Cents Only Stores (b)             105,640
  5,478   Abercrombie and Fitch
           Company (b)                         112,080
  4,028   American Eagle Outfitters,
           Inc. (b)                             55,506
  3,785   Barnes & Noble, Inc. (b)              68,395
  3,843   BJ's Wholesale Club,
           Inc. (b) (d)                         70,327
  4,412   Borders Group, Inc. (b)               71,033
  4,710   CDW Computer Centers,
           Inc. (b) (d)                        206,533
  5,783   Circuit City Stores, Inc. (b)        103,400
  2,737   Claire's Stores, Inc.                 60,406
  4,979   Coach, Inc. (b)                      163,909
  6,407   Dollar Tree Stores, Inc. (b)         157,420
  5,089   Energizer Holdings,
           Inc. (b)                            141,983
  4,258   Fastenal Company                     159,207
  3,764   Michael's Stores, Inc. (b)           117,813
  2,692   Neiman-Marcus Group,
           Inc. (b)                             81,810
  1,274   Payless ShoeSource,
           Inc. (b)                             65,573


See accompanying notes to investments in securities.

                                       102





                                              MARKET
            SHARES                          VALUE (a)
            ------                         -----------
                                        
CONSUMER CYCLICAL--CONTINUED
  7,735   Petsmart, Inc. (b)               $   132,501
  5,195   Pier 1 Imports, Inc.                  98,341
  4,364   Ross Stores, Inc.                    184,990
  8,028   Saks, Inc. (b)                        94,249
  3,167   Tech Data
           Corporation (b)                      85,382
  2,011   The Timerberland
           Company (b)                          71,612
  6,508   Williams-Sonoma, Inc. (b)            176,692
                                           -----------
                                             2,584,802
                                           -----------
  Service (1.9%)
  5,006   Acxiom Corporation (b)                76,992
  3,055   Catalina Marketing
           Corporation (b)                      56,517
  5,177   Copart, Inc. (b)                      61,296
  3,924   Devry, Inc. (b)                       65,178
  3,860   Mandalay Resort
           Group (b)                           118,155
 16,866   Park Place Entertainment
           Corporation (b) (d)                 141,674
  3,044   Pittston Brinks Group                 56,253
  2,358   Plexus Corporation (b)                20,703
  1,583   Rollins, Inc.                         40,287
  3,450   Sothebys Holdings (b)                 31,050
  4,943   Viad Corporation                     110,476
                                           -----------
                                               778,581
                                           -----------
  Textiles (.5%)
  3,723   Mohawk Industries,
           Inc. (b)                            212,025
  3,022   Unifi, Inc. (b)                       15,865
                                           -----------
                                               227,890
                                           -----------
CONSUMER STAPLES (10.5%)
  Beverage (.6%)
  5,066   Constellation Brands,
           Inc. (b)                            120,115
  8,434   Pepsiamericas, Inc.                  113,269
                                           -----------
                                               233,384
                                           -----------
  Broadcasting (1.3%)
  2,985   Emmis Communications (b)              62,178
  2,795   Entercom Communications
           Corporation (b)                     131,141
  6,106   Hispanic Broadcasting
           Corporation (b)                     125,478
  5,954   Westwood One,
           Inc. (b)                            222,441
                                           -----------
                                               541,238
                                           -----------
  Entertainment (.4%)
  2,985   International Speedway
           Corporation                     $   111,311
  2,652   Macrovision
           Corporation (b)                      42,538

                                               153,849

  Food (2.9%)
  5,122   Dean Foods Company (b)               190,026
  3,152   Dole Food Company, Inc.              102,692
  1,936   Dreyers Grand Ice
           Cream, Inc.                         137,379
  7,782   Hormel Foods Corporation1             81,554
  2,480   Interstate Bakeries
           Corporation                          37,820
  7,852   McCormick & Company,
           Inc.                                182,166
  2,660   Sensient Technologies
           Corporation                          59,770
  6,139   Smithfield Foods, Inc. (b)           121,798
  2,782   The JM Smucker Company               110,751
  2,895   Tootsie Roll Industries, Inc.         88,819
                                           -----------
                                             1,212,775
                                           -----------
  Household Products (.6%)
  2,599   Blythe Industries, Inc.               69,549
  2,238   Church & Dwight Company,
           Inc.                                 68,102
  5,336   Dial Corporation                     108,694
                                           -----------
                                               246,345
                                           -----------
  Personal Care (.1%)
  3,810   Perrigo Company (b)                   46,291
                                           -----------
  Restaurants (1.4%)
  1,979   Bob Evan's Farms                      46,210
  5,464   Brinker International,
           Inc. (b)                            176,214
  2,731   CBRL Group, Inc.                      82,285
  2,842   Cheesecake Factory (b)               102,738
  4,253   Outback Steakhouse, Inc.             146,473
    951   Papa John's International,
           Inc. (b)                             26,514
                                           -----------
                                               580,434
                                           -----------
  Retail (1.4%)
  3,110   Krispy Kreme Doughnuts,
           Inc. (b)                            105,025
  2,152   Longs Drug Stores
           Corporation                          44,632
  2,612   Ruddick Corporation                   35,758


See accompanying notes to investments in securities.

                                       103





                                             MARKET
                SHARES                      VALUE (a)
                ------                     -----------
                                        
CONSUMER STAPLES--CONTINUED
 19,800   Tyson Foods, Inc. (d)            $   222,156
  3,256   Whole Foods Market,
           Inc. (b)                            171,689
                                           -----------
                                               579,260
                                           -----------
  Service (1.7%)
  1,397   Banta Corporation                     43,684
  2,583   Career Education
           Corporation (b)                     103,320
  8,329   Ceridian Corporation (b)             120,104
  1,979   Education Management
           Corporation (b)                      74,410
  1,907   Kelly Services, Inc.                  47,122
  2,124   Korn/Ferry International (b)          15,888
  4,305   Manpower, Inc.                       137,330
  5,756   MPS Group, Inc. (b)                   31,888
  2,263   Sylvan Learning Systems,
           Inc. (b)                             37,113
  2,874   Valassis Communications,
           Inc. (b)                             84,582
                                           -----------
                                               695,441
                                           -----------
  Tobacco (.1%)
  1,360   Universal Corporation                 50,266

ENERGY (6.9%)
  Mining (.3%)
  2,939   Arch Coal, Inc.                       63,453
  2,935   Peabody Holding
           Company                              85,790
                                           -----------
                                               149,243
                                           -----------
  Oil (.2%)
  6,808   Grant Prideco, Inc. (b)               79,245
                                           -----------
  Oil & Gas (6.4%)
  8,358   Ensco International, Inc.            246,143
  3,507   Equitable Resources, Inc.            122,885
  3,669   FMC Technologies, Inc. (b)            74,958
  2,636   Forest Oil Corporation (b)            72,648
  2,804   Helmerich & Payne, Inc.               78,260
  5,144   Murphy Oil Corporation               220,420
  4,545   National-Oilwell, Inc. (b)            99,263
  3,215   Noble Energy, Inc.                   120,723
  9,893   Ocean Energy, Inc.                   197,563
  4,443   Patterson-UTI Energy,
           Inc. (b)                            134,045
  6,566   Pioneer Natural Resources
           Company (b)                         165,792
  7,544   Pride International, Inc. (b)        112,406
  5,697   Smith International, Inc. (b)        185,836
  3,399 Tidewater, Inc.                        105,709
  5,980   Valero Energy Corporation        $   220,901
  7,302   Weatherford International,
           Ltd. (b) (c) (d)                    291,569
  1,854   Western Gas Resources,
           Inc.                                 68,320
  7,106   XTO Energy Company                   175,518
                                           -----------
                                             2,692,959
                                           -----------
FINANCIAL (19.0%)
  Auto Finance (.2%)
  8,579   AmeriCredit
           Corporation (b)                      66,401
                                           -----------
  Banks (7.0%)
  4,184   Associated
           Banc-Corporation                    142,005
  3,575   Bank of Hawaii                       108,644
  8,297   Banknorth Group, Inc.                187,512
  2,801   City National
           Corporation                         123,216
  6,941   Colonial Bancgroup,
           Inc.                                 82,806
  3,787   Commerce Bancorp,
           Inc.                                163,561
  7,194   Compass Bancshares,
           Inc. (d)                            224,956
  4,023   First Virginia Banks, Inc.           149,776
  4,741   Firstmerit Corporation               102,690
  2,889   Greater Bay Bancorp                   49,951
  8,840   Hibernia Corporation                 170,082
  3,624   Investors Financial
           Services                             99,261
  5,158   M & T Bank (d)                       409,287
  3,863   Mercantile Bankshares
           Corporation                         149,073
 11,518   National Commerce
           BanCorporation (d)                  274,704
  2,735   Provident Financial Group,
           Inc.                                 71,192
  2,398   Silicon Valley
           Bancshares (b)                       43,764
  4,159   TCF Financial
           Corporation                         181,707
  1,881   Westamerica
           BanCorporation                       75,579
  3,679   Wilmington Trust
           Corporation                         116,551
                                           -----------
                                             2,926,317
                                           -----------
  Commercial Finance (.6%)
  3,634   Certegy, Inc. (b)                     89,215


See accompanying notes to investments in securities.

                                       104





                                             MARKET
              SHARES                        VALUE (a)
              ------                       -----------
                                        
FINANCIAL--CONTINUED
  4,171   Dun & Bradstreet
           Corporation (b)                 $   143,858
                                           -----------
                                               233,073
                                           -----------
  Consumer Finance (-- )
  3,233   Metris Companies, Inc.                 7,986
                                           -----------
  Finance--Diversified (.9%)
  3,893   Eaton Vance
           Corporation                         109,977
  3,915   Neuberger Berman, Inc.               131,113
  5,066   PMI Group, Inc.                      152,183
                                           -----------
                                               393,273
                                           -----------
  Insurance (4.8%)
  2,968   Allmerica Financial
           Corporation                          29,977
  3,876   American Financial Group,
           Inc.                                 89,419
  2,144   AmerUs Group
           Company                              60,611
  3,882   Brown & Brown                        125,466
  2,862   Everest Re Group,
           Ltd. (c)                            158,269
  5,840   Expeditor Washington
           International, Inc.                 190,676
  4,936   Expeditor Washington
           International, Inc.                 145,020
  5,361   Fidelity National
           Finance                             176,002
  3,496   HCC Insurance Holdings,
           Inc.                                 86,002
  2,292   Horace Mann Educators
           Corporation                          35,136
  3,106   Leucadial National                   115,885
  2,574   Mony Group, Inc.                      61,622
  3,406   Ohio Casualty
           Corporation (b)                      44,108
  6,765   Old Republic International
           Corporation                         189,420
  3,854   Protective Life
           Corporation                         106,062
  5,245   Radian Group, Inc. (d)               194,852
  1,655   Stancorp Financial Group,
           Inc.                                 80,847
  3,798   Unitrin, Inc.                        110,978
                                           -----------
                                             2,000,352
                                           -----------
  Investment Bankers/Brokers (1.6%)
  4,423   AG Edwards, Inc.                     145,782
 20,283   E*trade Group, Inc. (b) (d)           98,575
  2,598   Investment Technology
           Group, Inc. (b)                 $    58,091
  3,339   LaBranche & Company,
           Inc. (b)                             88,951
  3,635   Legg Mason, Inc.                     176,443
  4,505   Waddell & Reed Financial,
           Inc.                                 88,613
                                           -----------
                                               656,455
                                           -----------
  Real Estate Investment Trust (1.3%)
  3,510   Hospitality Properties
           Trust                               123,552
  3,640   Lennar Corporation                   187,824
  4,284   Liberty Property Trust               136,831
  5,437   New Plan Excel Realty
           Trust                               103,792
                                           -----------
                                               551,999
                                           -----------
  Savings and Loans (2.6%)
  4,886   Astoria Financial
           Corporation                         132,655
  5,477   Greenpoint Financial
           Corporation (d)                     247,451
  3,208   Independence Community
           Bank                                 81,419
  3,089   IndyMac Bancorp,
           Inc. (b)                             57,116
  6,014   New York Community
           Bancorp, Inc.                       173,684
  4,655   Roslyn BanCorporation,
           Inc.                                 83,930
 14,658   Sovereign BanCorporation,
           Inc. (d)                            205,945
  2,588   Webster Financial
           Corporation (b)                      90,062
                                           -----------
                                             1,072,262
                                           -----------
HEALTH CARE (11.1%)
  Biotechnology (2.3%)
  2,533   Charles River Laboratories
           International (b)                    97,470
 11,037   Gilead Sciences, Inc. (b) (d)        375,258
  8,588   Idec Pharmaceuticals
           Corporation (b) (d)                 284,864
  3,812   Incyte Pharmaceuticals,
           Inc. (b)                             17,383
 16,150   Millennium
           Pharmaceuticals, Inc. (b) (d)       128,231


See accompanying notes to investments in securities.

                                       105





                                             MARKET
               SHARES                       VALUE (a)
               ------                      -----------
                                        
HEALTH CARE--CONTINUED
  4,998   Protein Design Labs,
           Inc. (b)                        $    42,483
                                           -----------
                                               945,689
                                           -----------
  Drugs (1.8%)
  2,462   Barr Laboratories,
           Inc. (b)                            160,252
  4,699   ICN Pharmaceuticals,
           Inc.                                 51,266
  6,874   Mylan Laboratories, Inc.             239,903
  4,723   Sepracor, Inc. (b) (d)                45,671
  6,569   Sicor, Inc. (b)                      104,119
  3,894   Steris Corporation (b)                94,430
  4,285   Vertex Pharmaceuticals,
           Inc. (b)                             67,917
                                           -----------
                                               763,558
                                           -----------
  Health Care -- Diversified (.3%)
 10,921   IVAX Corporation (b) (d)             132,472
                                           -----------
  Hospital Management (1.0%)
  2,216   Lifepoint Hospitals,
           Inc. (b)                             66,327
  2,008   Pacificare Health Systems,
           Inc. (b)                             56,425
  4,192   Triad Hospitals, Inc. (b)            125,047
  3,397   Universal Health Services,
           Inc. (b)                            153,205
                                           -----------
                                               401,004
                                           -----------
  Managed Care (2.0%)
  4,989   Advance Paradigm,
           Inc. (b)                            110,806
  4,372   Express Scripts,
           Inc. (b)                            210,031
  5,692   First Health Group
           Corporation (b)                     138,600
  6,948   Health Net, Inc. (b)                 183,427
  4,907   Oxford Health Plans (b)              178,860
                                           -----------
                                               821,724
                                           -----------
  Medical Products/Supplies (2.8%)
  6,001   Apogent Technologies,
           Inc. (b)                            124,821
  6,502   Cytyc Corporation (b)                 66,320
  4,396   Dentsply International,
           Inc.                                163,703
  3,370   Edwards Lifesciences
           Corporation (b)                      85,834
  3,462   Hillenbrand Industries,
           Inc.                                167,249
  5,932   Lincare Holdings,
           Inc. (b)                        $   187,570
  3,828   Patterson Dental
           Company (b)                         167,437
  3,813   Varian Medical Systems,
           Inc. (b)                            189,125
  2,879   Visx, Inc. (b)                        27,581
                                           -----------
                                             1,179,640
                                           -----------
  Special Services (.9%)
  3,080   Apria Healthcare Group,
           Inc. (b)                             68,499
  3,259   Covance, Inc. (b)                     80,139
  2,411   Henry Schein, Inc. (b)               108,495
  5,290   Omnicare, Inc.                       126,061
                                           -----------
                                               383,194
                                           -----------
  TECHNOLOGY (13.2%)
  Communications Equipment (1.2%)
  2,039   Adtran, Inc. (b)                      67,083
  3,232   Commscope, Inc. (b)                   25,533
  2,895   CSG Systems
           International, Inc. (b)              39,517
  3,723   Harris Corporation                    97,915
  5,301   L-3 Communications
           Holdings, Inc. (b)                  238,068
  2,477   Plantronics, Inc. (b)                 37,477
  3,687   Powerwave Technologies,
           Inc. (b)                             19,910
                                           -----------
                                               525,503
                                           -----------
  Computer Hardware (.5%)
  8,870   Quantum Corporation (b)               23,683
  3,897   Reynolds & Reynolds                   99,257
  3,869   SanDisk Corporation (b)               78,541
                                           -----------
                                               201,481
                                           -----------
  Computer Networking (2.1%)
 20,626   3COM Corporation (b) (d)              95,498
  7,417   Affiliated Computer
           Services, Inc. (b)                  390,505
  4,759   Choicepoint, Inc. (b)                187,933
  6,511   Legato Systems, Inc. (b)              32,750
  5,951   SEI Investments
           Company                             161,748
                                           -----------
                                               868,434
                                           -----------
  Computer Peripherals (.5%)
  2,529   Avocent Corporation (b)               56,194
  2,207   Infocus Corporation (b)               13,595


See accompanying notes to investments in securities.

                                       106





                                               MARKET
                  SHARES                      VALUE (a)
                  ------                     -----------
                                          
TECHNOLOGY--CONTINUED
  5,977   Storage Technology
           Corporation (b)                   $   128,027
                                             -----------
                                                 197,816
                                             -----------
  Computer Services & Software (3.7%)
  3,764   Activision, Inc. (b)                    54,917
  1,763   Advent Software (b)                     24,030
 13,534   Ascential Software
           Corporation (b) (d)                    32,482
 15,089   Cadence Design Systems,
           Inc. (b) (d)                          177,899
  4,415   Checkfree Corporation (b)               70,644
  4,880   Jack Henry & Associates                 58,755
  3,979   Keane, Inc. (b)                         35,771
  3,384   Macromedia, Inc. (b)                    36,040
  6,364   McData Corporation (b)                  45,184
  3,736   Mentor Graphics
           Corporation (b)                        29,365
  2,771   National Instruments
           Corporation (b)                        90,030
  8,778   Networks Associates,
           Inc. (b)                              141,238
  3,278   Overture Services (b)                   89,522
  2,984   Retek, Inc. (b)                          8,116
  3,192   RSA Security, Inc. (b)                  19,120
  5,239   Sybase, Inc. (b)                        70,203
  8,118   Symantec Corporation (b)               328,373
  4,245   Synopsys, Inc. (b)                     195,907
  1,987   Transaction Systems
           Architects, Inc. (b)                   12,916
  4,441   Wind River Systems (b)                  18,208
                                             -----------
                                               1,538,720
                                             -----------
  Electrical Defense (.1%)
  4,378   Titan Corporation (b)                   45,531
                                             -----------
  Electrical Instruments (.6%)
  3,495   Beckman Instruments,
           Inc.                                  103,172
  3,416   Credence Systems
           Corporation (b)                        31,871
  1,829   FEI Company (b)                         27,965
  2,766   LTX Corporation (b)                     16,679
  2,158   Newport
           Corporation (b)                        27,104
  1,901   Varian, Inc. (b)                        54,540
                                             -----------
                                                 261,331
                                             -----------
  Electrical Semiconductor (2.2%)
 26,130   Atmel Corporation (b) (d)               58,270
  4,684   Cirrus Logic, Inc. (b)                  13,490
  6,947   Cypress Semiconductor
           Corporation (b)                   $    39,737
  6,563   Fairchild Semiconductor
           International (b)                      70,290
  5,790   Integrated Device
           Technology, Inc. (b)                   48,462
  3,583   International Rectifier
           Corporation (b)                        66,142
  7,678   Intersil Corporation (b)               107,031
  6,302   Lattice Semiconductor
           Corporation (b)                        55,269
  5,144   Micrel, Inc. (b)                        46,193
 11,397   Microchip Technology, Inc. (d)         278,657
  9,493   RF Micro Devices, Inc. (b)              69,584
  4,131   Semtech Corporation (b)                 45,111
  7,435   Triquint Semiconductor,
           Inc. (b)                               31,524
                                             -----------
                                                 929,760
                                             -----------
  Electronics-- Computer Distribution (.9%)
  5,606   Arrow Electronics, Inc. (b)             71,701
  6,701   Avnet, Inc.                             72,572
  4,083   Cree, Inc. (b)                          66,757
  4,269   Gentex Corporation (b)                 135,071
  4,836   Kemet Corporation (b)                   42,267
                                             -----------
                                                 388,368
                                             -----------
  Equipment Semiconductor (.3%)
  1,979   Imation Corporation (b)                 69,423
  7,035   Lam Research
           Corporation (b)                        75,978
                                             -----------
                                                 145,401
                                             -----------
  Service-- Data Processing (1.1%)
  6,750   Bisys Group, Inc. (b)                  107,325
  6,709   DST Systems, Inc. (b)                  238,505
  4,644   Gartner Group, Inc. (b)                 43,886
  2,777   Internet Security Systems,
           Inc. (b)                               50,902
  2,266   Sykes Enterprises, Inc. (b)              7,432
                                             -----------
                                                 448,050
                                             -----------
TRANSPORTATION (1.5%)
  Air Freight (.5%)
  2,717   Airborne Freight Corporation            40,293
  4,741   CH Robinson Worldwide, Inc.            147,919
  2,572   EGL, Inc. (b)                           36,651
                                             -----------
                                                 224,863
                                             -----------
  Airlines (.1%)
  1,489   Alaska Airgroup, Inc. (b)               32,237
                                             -----------


See accompanying notes to investments in securities.

                                       107





                                               MARKET
                 SHARES                       VALUE (a)
                 ------                      -----------
                                          
   TRANSPORTATION--CONTINUED
     Railroads (.1%)
     2,748   GATX Corporation                $     62,709
                                             ------------
     Shipping (.2%)
     2,312   Alexander & Baldwin, Inc.             59,626
     1,932   Overseas Shipholding
              Group, Inc.                          34,583
                                             ------------
                                                   94,209
                                             ------------
     Trucking (.6%)
     2,681   CNF Transportation, Inc.              89,116
     2,129   JB Hunt Transport Services,
              Inc. (b)                             62,380
     4,623   Swift Transportation Company,
              Inc. (b)                             92,543
                                             ------------
                                                  244,039
                                             ------------
   UTILITIES (7.0%)
     Electric Companies (4.8%)
     4,795   Allete, Inc.                         108,751
     5,145   Alliant Energy
              Resources                            85,150
    10,192   Aquila, Inc.                          18,040
     1,509   Black Hills Corporation               40,019
     2,639   CLECO Utility Group                   36,946
     7,099   DPL, Inc.                            108,899
     4,170   DQE, Inc.                             63,551
     8,122   Energy East Corporation1              79,415
     3,832   Great Plains Energy, Inc.             87,676
     2,017   Hawaiian Electric
              Industries                           88,708
     2,124   IDACorporation, Inc.                  52,739
     7,618   Northeast Utilities                  115,565
     4,402   Oge Energy Corporation                77,475
     9,183   Pepco Holdings, Inc.                 178,058
     2,195   PNM Resources, Inc.                   52,285
     5,201   Puget Sound Energy, Inc.        $    114,682
     6,214   Scana Corporation                    192,385
     5,731   Sierra Pacific Resources              37,252
     3,804   Vectren Corporation                   87,492
     4,011   Westar Energy, Inc.                   39,709
     6,485   Wisconsin Energy
              Corporation                         163,422
     1,759   WPS Resources
              Corporation                          68,284
                                             ------------
                                               31,996,503
                                             ------------
     Natural Gas (1.3%)
     3,160   AGL Resources, Inc.                   76,788
     4,022   MDU Resources Group,
              Inc.                                103,808
     4,497   National Fuel Gas
              Company                              93,223
     3,391   Oneok, Inc.                           65,107
     4,596   Questar Corporation                  127,861
     2,725   WGL Holdings, Inc.                    65,182
                                             ------------
                                                  531,969
                                             ------------
     Power Products-- Industrial (.3%)
     2,976   NSTAR                                132,105
                                             ------------
     Water Utilities (.6%)
     5,616   American Water Works
              Company, Inc. (d)                   255,416
                                             ------------
Total common stock
  (cost: $45,058,414)                          39,445,973
                                             ------------
S&P DEPOSITORY RECEIPT (.7%)
     3,900   MidCap S & P Depository
              Receipt                             306,735
                                             ------------
Total S&P Depository Receipt
  (cost: $308,299)                                306,735
                                             ------------


See accompanying notes to investments in securities.

                                       108





                                                                                        MARKET
                                      SHARES                                           VALUE (a)
                                      ------                                         -------------
                                                                                  
SHORT-TERM SECURITIES (4.9%)
     1,842,386   Dreyfus Fund-- Cash Management Plus, current rate 1.360%            $   1,842,386
       143,032   Federated Money Market Obligations Trust--
                  Prime Obligation Fund, current rate 1.370%                               143,032
        52,335   Wells Fargo & Company-- Cash Investment Fund,
                  current rate 1.326%                                                       52,335
                                                                                     -------------
                 Total short-term securities (cost: $2,037,753)                          2,037,753
                                                                                     -------------
                 Total investments in securities (cost: $47,404,466) (e)             $  41,790,461
                                                                                     =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Porfolio held 1.1% of net assets in foreign securities as of December
31, 2002.

(d) Fully or partially pledged as initial margin deposits on open stock index
futures purchase contracts (see note 6 to the financial statements).

(e) At December 31, 2002 the cost of securities for federal income tax purposes
was $47,975,296. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                             
Gross unrealized appreciation                                                   $   4,990,057
Gross unrealized depreciation                                                     (11,174,892)
                                                                                -------------
Net unrealized depreciation                                                     $  (6,184,835)
                                                                                =============



See accompanying notes to investments in securities.

                                       109



Macro-Cap Value Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                  MARKET
                 SHARES                         VALUE (a)
                 ------                        ------------
                                            
COMMON STOCK (96.8%)
   BASIC MATERIALS (3.3%)
     Agriculture Products (.3%)
     3,170   Monsanto Company                  $     61,022
                                               ------------
     Aluminum (.9%)
     7,864   Alcoa, Inc.                            179,142
                                               ------------
     Chemicals (1.6%)
     6,476   Pharmacia Corporation                  270,697
     1,100   PPG Industries, Inc.                    55,165
                                               ------------
                                                    325,862
                                               ------------
     Paper and Forest (.5%)
     2,500   Temple Inland, Inc.                    112,025
                                               ------------
   CAPITAL GOODS (9.1%)
     Aerospace/Defense (1.3%)
     1,800   Lockheed Martin
              Corporation                           103,950
     2,600   United Technologies
              Corporation                           161,044
                                               ------------
                                                    264,994
                                               ------------
     Electrical Equipment (3.7%)
    30,800   General Electric
              Company                               749,980
                                               ------------
     Machinery (.5%)
     2,100   Cooper Cameron
              Corporation (b)                       104,622
                                               ------------
     Manufacturing (2.1%)
    25,320   Tyco International, Ltd. (c)           432,466
                                               ------------
     Office Equipment ( -- )
     3,600   Seagate Escrow
              Security (b)                            1,023
                                               ------------
     Waste Management (1.5%)
    12,955   Waste Management, Inc.                 296,929
                                               ------------
   COMMUNICATION SERVICES (6.7%)
     Broadcasting (2.6%)
    13,300   American Tower
              Corporation (b)                        46,949
     4,270   Comcast Corporation
              Class A (b)                           100,644
     4,200   Comcast Corporation
              Special Class A (b)                    94,878
    32,900   Liberty Media
              Corporation (b)                       294,126
                                               ------------
                                                    536,597
                                               ------------
     Cellular (.4%)
    14,600   AT&T Wireless
              Services, Inc. (b)               $     82,490
                                               ------------
     Telecommunication (.5%)
    24,700   Sprint Corporation (b)                 108,186
                                               ------------
     Telephone (3.2%)
     1,380   AT&T Corporation (b)                    36,032
     9,406   SBC Communications,
              Inc.                                  254,997
     9,164   Verizon Communications                 355,105
                                               ------------
                                                    646,134
                                               ------------
   CONSUMER CYCLICAL (11.7%)
     Auto (.5%)
     3,200   Lear Corporation (b)                   106,496
                                               ------------
     Leisure (1.1%)
    11,700   Mattel, Inc.                           224,055
                                               ------------
     Lodging-- Hotel (.5%)
     3,000   Marriott International,
              Inc.                                   98,610
                                               ------------
     Publishing (.7%)
     3,100   Tribune Company                        140,926
                                               ------------
     Retail (7.2%)
     5,000   Abercrombie and Fitch
              Company (b)                           102,300
     2,600   Federated Department
              Stores (b)                             74,776
    10,600   Home Depot, Inc.                       253,976
     2,200   Nike, Inc.                              97,834
     9,700   Target Corporation                     291,000
    11,900   TJX Companies, Inc.                    232,288
     8,300   Wal-Mart Stores, Inc.                  419,233
                                               ------------
                                                  1,471,407
                                               ------------
     Service (1.1%)
     5,000   Accenture Limited (b)                   89,950
    12,970   Cendant Corporation (b)                135,926
                                               ------------
                                                    225,876
                                               ------------
     Textiles (.6%)
     3,200   Jones Apparel
              Group, Inc. (b)                       113,408
                                               ------------
   CONSUMER STAPLES (9.8%)
     Beverage (1.5%)
     7,000   The Coca-Cola Company                  306,740
                                               ------------


See accompanying notes to investments in securities.

                                       110





                                              MARKET
              SHARES                         VALUE (a)
              ------                        ------------
                                         
CONSUMER STAPLES--CONTINUED
  Entertainment (.9%)
  4,500   Viacom, Inc. (b)                     $ 183,420
                                            ------------
  Food (2.1%)
  5,000   Kraft Foods, Inc.                      194,650
  3,800   Unilever NV (c)                        234,498
                                            ------------
                                                 429,148
                                            ------------
  Household Products (3.5%)
 10,400   Gillette Compay (c)                    315,744
  4,700   Procter & Gamble Company               403,918
                                            ------------
                                                 719,662
                                            ------------
  Retail (.5%)
  3,700   CVS Corporation                         92,389
                                            ------------
   Tobacco (1.3%)
  6,500   Philip Morris
           Companies, Inc.                       263,445
                                            ------------
ENERGY (6.8%)
  Oil (5.9%)

  6,700   Chevron Corporation                    445,416
  3,527   ConocoPhillips                         170,671
  1,900   Devon Energy Corporation                87,210
 14,648   Exxon Mobil
           Corporation (b)                       511,801
                                            ------------
                                               1,215,098
                                            ------------
  Oil & Gas (.9%)
  1,500   Anadarko Petroleum
           Corporation                            71,850
  4,815   Global Santa Fe
           Corporation                           117,101
                                            ------------
                                                 188,951
                                            ------------
FINANCIAL (20.5%)
  Banks (3.6%)
  8,000   Bank One Corporation                   292,400
 20,910   U.S. Bancorp                           443,710
                                            ------------
                                                 736,110
                                            ------------
  Consumer Finance (2.7%)
  6,300   Capital One Financial
           Corporation                           187,236
  4,000   CIT Group, Inc.                         78,400
  5,400   Countrywide Financial
           Corporation                           278,910
                                            ------------
                                                 544,546
                                            ------------
  Finance-- Diversified (4.6%)
  6,844   AMBAC Financial Group,
           Inc.                             $    384,907
  6,500   Federal Home Loan
           Mortgage Corporation                  383,825
  2,800   Federal National
           Mortgage Association                  180,124
                                            ------------
                                                 948,856
                                            ------------
  Insurance (3.2%)
  2,600   American International
           Group                                 150,410
  5,800   AON Corporation                        109,562
  5,100   Cigna Corporation (b)                  209,712
 13,199   Travelers Property
           Casualty Corporation,
           Class A (b)                           193,365
                                            ------------
                                                 663,049
                                            ------------
  Investment Bankers/Brokers (5.5%)
  7,100   Charles Schwab
           Corporation                            77,035
 24,226   CitiGroup, Inc. (b)                    852,513
  4,100   E*trade Group, Inc. (b)                 19,926
  2,600   Goldman Sachs Group,
           Inc.                                  177,060
                                            ------------
                                               1,126,534
                                            ------------
  Savings and Loans (.9%)
  5,550   Washington Mutual, Inc.                191,641
                                            ------------
HEALTH CARE (10.7%)
  Biotechnology (1.2%)
  4,900   Amgen, Inc. (b)                        236,866
                                            ------------
  Drugs (6.0%)
  5,200   Eli Lilly & Company                    330,200
 16,100   Pfizer, Inc.                           492,177
  3,700   Schering-Plough
           Corporation                            82,140
  8,500   Wyeth                                  317,900
                                            ------------
                                               1,222,417
                                            ------------
  Health Care -- Diversified (2.9%)
  5,000   Abbott Laboratories                    200,000
  1,220   Human Genome
           Sciences, Inc. (b)                     10,748
  6,496   Johnson & Johnson                      348,900
  2,650   Tenet Healthcare
           Corporation (b)                        43,460
                                            ------------
                                                 603,108
                                            ------------


See accompanying notes to investments in securities.

                                       111





                                                  MARKET
                SHARES                           VALUE (a)
                ------                         ------------
                                            
HEALTH CARE--CONTINUED
     Medical Products/Supplies (.6%)
     4,200   Baxter International, Inc.        $    117,600
                                               ------------
   TECHNOLOGY (14.9%)
     Communications Equipment (.5%)
     4,100   Ciena Corporation (b)                   21,074
     9,800   Motorola, Inc.                          84,770
                                               ------------
                                                    105,844
                                               ------------
     Computer Hardware (4.3%)
     6,000   Dell Computer
              Corporation (b)                       160,440
    10,607   Hewlett-Packard Company                184,137
     4,200   International Business
              Machines Corporation                  325,500
     6,300   NCR Coporation (b)                     149,562
    19,500   Sun Microsystems, Inc. (b)              60,645
                                               ------------
                                                    880,284
                                               ------------
     Computer Networking (2.1%)
    32,500   Cisco Systems, Inc. (b)                425,750
                                               ------------
     Computer Services & Software (5.4%)
    15,650   AOL Time Warner, Inc. (b)              205,015
    15,700   Microsoft Corporation (b)              811,690
     9,100   Oracle Systems (b)                      98,280
                                               ------------
                                                  1,114,985
     Electrical Semiconductor (2.6%)
     7,200   Altera Corporation (b)            $     88,776
     3,800   Analog Devices, Inc. (b)                90,706
     3,800   Applied Materials, Inc. (b)             49,514
    18,800   Intel Corporation                      292,716
                                               ------------
                                                    521,712
                                               ------------
   UTILITIES (3.3%)
     Electric Companies (3.0%)
     2,400   Dominion Resources, Inc.               131,760
     2,400   DTE Energy Company                     111,360
     3,348   Edison International (b)                39,674
     9,700   Pacific Gas and Electric
              Company (b)                           134,830
     6,039   Pinnacle West Capital
              Corporation                           205,869
                                               ------------
                                                    623,493
                                               ------------
     Natural Gas (.3%)
     8,400   El Paso Energy
              Corporation                            58,464
                                               ------------
Total common stock
  (cost: $26,930,146)                            19,802,362
                                               ------------


See accompanying notes to investments in securities.

                                       112





                                                                                                         MARKET
                                    PRINCIPAL                                   RATE      MATURITY      VALUE(a)
                                    ---------                                  ------     --------     -----------
                                                                                              
SHORT-TERM SECURITIES (3.2%)
$   11,000   United States Treasury Bill                                       0.910%     01/02/03     $    10,999
    49,000   United States Treasury Bill                                       0.880%     01/09/03          48,986
    16,000   United States Treasury Bill                                       0.968%     01/16/03          15,989
    92,000   United States Treasury Bill                                       1.042%     01/23/03          91,927
    55,000   United States Treasury Bill                                       1.105%     01/30/03          54,935
     6,000   United States Treasury Bill                                       1.096%     02/20/03           5,990
     1,000   United States Treasury Bill                                       1.131%     03/13/03             998
   145,000   United States Treasury Bill                                       1.124%     03/20/03         144,643
    93,000   United States Treasury Bill                                       1.181%     04/10/03          92,698
    53,000   United States Treasury Bill                                       1.236%     05/08/03          52,777
     7,000   United States Treasury Bill                                       1.640%     04/17/03           6,976
    39,391   Wells Fargo Money Market,
               current rate 1.229%                                                                          39,391
                                                                                                       -----------
               Total short-term securities (cost: $666,292)                                                666,309
                                                                                                       -----------
               Total investments in securities (cost: $27,596,438) (d)                                 $20,468,671
                                                                                                       ===========


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 4.8% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $28,031,845. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                      
Gross unrealized appreciation                            $   518,807
Gross unrealized depreciation                             (8,081,981)
                                                         -----------
Net unrealized depreciation                              $(7,563,174)
                                                         ===========



See accompanying notes to investments in securities.

                                       113



Micro-Cap Growth Portfolio
Investments in Securities
DECEMBER 31, 2002

(Percentages of each investment category relate to total net assets.)



                                                 MARKET
                    SHARES                     VALUE (a)
                    ------                    ------------
                                           
COMMON STOCK (93.0%)
  BASIC MATERIALS (1.2%)
    Iron and Steel (1.2%)
   45,400   NS Group, Inc. (b)                $    296,008
                                              ------------
  CAPITAL GOODS (5.3%)
    Aerospace/Defense (.9%)
   12,200   Herley Industries, Inc. (b)            212,377
                                              ------------
    Machinery (1.4%)
   47,800   Asyst Technologies, Inc. (b)           351,330
                                              ------------
    Manufacturing (2.3%)
   23,200   Hydril Company (b)                     546,824
    2,300   Maverick Tube
             Corporation (b)                        29,969
                                              ------------
                                                   576,793
                                              ------------
    Metal Fabrication (.7%)
   38,100   Tower Automotive, Inc. (b)             171,450
                                              ------------
  COMMUNICATION SERVICES (.8%)
    Telecommunication (.8%)
   64,900   Raindance Communications,
             Inc. (b)                              209,627
                                              ------------
  CONSUMER CYCLICAL (15.5%)
    Leisure (3.0%)
    2,700   Leapfrog Enterprises, Inc. (b)          67,905
   16,400   Multimedia Games, Inc. (b)             450,344
   38,300   Tweeter Home Entertainment
             Group, Inc. (b)                       221,374
                                              ------------
                                                   739,623
                                              ------------
    Lodging-- Hotel (1.1%)
   19,400   Monarch Casino & Resort,
             Inc. (b)                              266,362
                                              ------------
    Retail (5.2%)
   30,700   Charlotte Russe Holding,
             Inc. (b)                              325,727
   25,200   Children's Place Retail
             Stores, Inc. (b)                      268,128
   36,300   Goody's Family Clothing,
             Inc. (b)                              161,172
   31,800   The Finish Line, Inc. (b)              335,490
   17,700   Ultimate Electronics, Inc. (b)         179,655
                                              ------------
                                                 1,270,172
                                              ------------
    Service (5.0%)
   22,800   Coinstar, Inc. (b)                     516,420
   39,100   MTR Gaming Group, Inc. (b)             311,236
   53,800   Scientific Games
             Corporation (b)                  $    390,588
                                              ------------
                                                 1,218,244
                                              ------------
    Textiles (1.2%)
   47,700   Ashworth, Inc. (b)                     305,280
                                              ------------
  CONSUMER STAPLES (9.4%)
    Beverage (1.6%)
   27,000   The Boston Beer
             Company, Inc. (b)                     386,100
                                              ------------
    Entertainment (1.3%)
   34,400   Marvel Enterprise, Inc. (b)            308,912
                                              ------------
    Personal Care (1.1%)
   13,000   Chattem, Inc. (b)                      267,150
                                              ------------
    Restaurants (2.0%)
   11,200   AFC Enterprises, Inc. (b)              235,312
   30,000   Buca, Inc. (b)                         249,600
                                              ------------
                                                   484,912
                                              ------------
    Retail (1.8%)
   33,800   Red Robin Gourmet
             Burgers (b)                           430,612
                                              ------------
    Service (1.6%)
   60,300   Labor Ready, Inc. (b)                  387,126
                                              ------------
  ENERGY (9.7%)
    Oil (1.2%)
   58,800   Horizon Offshore, Inc. (b)             292,824
                                              ------------
    Oil & Gas (8.5%)
   10,700   Evergreen Resources, Inc. (b)          479,895
   26,600   Natco Group, Inc. (b)                  167,048
   59,300   Petroquest Energy (b)                  248,378
   67,900   Superior Energy
             Services, Inc. (b)                    556,780
   62,700   Ultra Petroleum
             Corporation (b)                       620,730
                                              ------------
                                                 2,072,831

  FINANCIAL (.9%)
    Investment Bankers/Brokers (.9%)
   26,200   Digital Insight
             Corporation (b)                       227,678
                                              ------------
  HEALTH CARE (23.1%)
    Biotechnology (1.6%)
   31,300   Cell Therapeutics, Inc. (b)            227,551
   18,000   Lifecore Biomedical, Inc. (b)          154,440
                                              ------------
                                                   381,991
                                              ------------


See accompanying notes to investments in securities.

                                       114





                                                      MARKET
                      SHARES                        VALUE (a)
                      ------                       ------------
                                                
HEALTH CARE (23.1%)
     Drugs (9.3%)
    46,100   Bentley Pharmaceuticals,
              Inc. (b)                             $    371,105
    44,000   Biomar Pharmaceutical,
              Inc. (b)                                  310,200
    10,000   CIMA Labs, Inc. (b)                        241,910
    31,600   Cubist Pharmaceuticals,
              Inc. (b)                                  260,068
    31,100   First Horizon Pharmaceutical
              Corporation (b)                           232,566
    49,200   Genta, Inc. (b)                            378,348
    14,800   Ilex Oncology, Inc. (b)                    104,488
    74,300   POZEN, Inc. (b)                            382,645
                                                   ------------
                                                      2,281,330
                                                   ------------
     Medical Products/Supplies (8.4%)
    22,400   Conceptus, Inc. (b)                        268,352
    59,000   Connetics Corporation (b)                  709,180
    27,900   MedSource Technologies,
              Inc. (b)                                  181,071
     6,400   Penwest Pharmaceuticals
              Co (b)                                     67,840
    13,200   Polymedica Corporation (b)                 407,088
     1,800   Possis Medical Inc (b)                      32,400
    13,300   Rita Medical Systems,
              Inc. (b)                                   67,165
    11,500   Wilson Greatbatch
              Technologies, Inc. (b)                    335,800
                                                   ------------
                                                      2,068,896
                                                   ------------
     Special Services (3.8%)
    34,400   aaiPharma, Inc. (b)                        482,288
    15,300   American Healthways,
              Inc. (b)                                  267,750
    10,700   AMN Healthcare Services,
              Inc. (b)                                  180,937
                                                   ------------
                                                        930,975
                                                   ------------
   TECHNOLOGY (27.0%)
     Communications Equipment (1.7%)
    21,800   Verisity, Ltd. (b)                         415,508
                                                   ------------
     Computer Hardware (1.4%)
    44,200   Cray, Inc. (b)                             339,014
                                                   ------------
     Computer Networking (1.4%)
    32,500   Alloy Online, Inc. (b)                     355,875
                                                   ------------
     Computer Peripherals (1.5%)
    57,900   Lexar Media, Inc. (b)                      363,033
                                                   ------------
     Computer Services & Software (6.4%)
    34,800   Centillium Communications,
              Inc. (b)                             $     78,648
    17,400   Group 1 Software, Inc. (b)                 207,930
    16,100   Lawson Software, Inc. (b)                   92,575
     7,900   Manhattan Associates,
              Inc. (b)                                  186,914
    12,300   Nassda Corporation (b)                     138,006
     4,200   NetFlix.com, Inc. (b)                       46,242
    17,200   NetScreen Technologies,
              Inc. (b)                                  289,648
     5,200   Per Se Technologies, Inc. (b)               46,639
    16,200   PracticeWorks, Inc. (b)                    127,980
    53,900   Watchdog Technologies,
              Inc. (b)                                  343,936
                                                   ------------
                                                      1,558,518
                                                   ------------
     Electrical Defense (1.3%)
    16,000   EDO Corporation                            332,480
                                                   ------------
     Electrical Instruments (.9%)
    16,300   Genesis Microchip, Inc. (b)                212,715
                                                   ------------
     Electrical Semiconductor (8.0%)
    21,100   02Micro International,
             Ltd. (b) (c)                               205,704
    11,100   Actel Corporation (b)                      180,042
    31,500   Artisan Components, Inc. (b)               486,045
    80,600   ChipPAC, Inc. (b)                          286,130
    17,100   Exar Corporation (b)                       212,040
    43,800   Integrated Silicon
              Solution, Inc. (b)                        190,968
    19,900   Virage Logic Corporation (b)               199,597
    13,500   Zoran Corporation (b)                      189,945
                                                   ------------
                                                      1,950,471
                                                   ------------
     Electronics-- Computer Distribution (.8%)
     3,800   ScanSource, Inc. (b)                       187,340
                                                   ------------
     Equipment Semiconductor (1.9%)
    25,100   Mykrolis Corporation (b)                   183,230
    21,700   Nanometrics, Inc. (b)                       90,923
    14,900   Photronics, Inc. (b)                       204,130
                                                   ------------
                                                        478,283
                                                   ------------
     Service-- Data Processing (1.7%)
    24,500   Intercept, Inc. (b)                        414,809
                                                   ------------
   TRANSPORTATION (.1%)
     Trucking (.1%)
     1,700   Covenant Transport Inc. (b)                 31,688
                                                   ------------
Total common stock
  (cost: $30,928,404)                                22,778,337
                                                   ------------


See accompanying notes to investments in securities.

                                       115





                                                                                       MARKET
                                    SHARES                                            VALUE (a)
                                    ------                                          ------------
                                                                                 
SHORT-TERM SECURITIES (9.0%)

     1,137,864   Wells Fargo & Company-- Cash Investment Fund,
                  current rate 1.326%                                               $   1,137,864
     1,067,887   Wells Fargo & Company-- Treasury Plus Fund,
                  current rate 1.261%                                                   1,067,887
                                                                                    -------------
                 Total short-term securities (cost: $2,205,751)                         2,205,751
                                                                                    -------------
                 Total investments in securities (cost: $33,134,155) (d)            $  24,984,088
                                                                                    =============


NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 0.8% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $33,199,049. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                                            
Gross unrealized appreciation                                                  $   2,010,278
Gross unrealized depreciation                                                    (10,225,239)
                                                                               -------------
Net unrealized depreciation                                                    $  (8,214,961)
                                                                               =============



See accompanying notes to investments in securities.

                                       116



Real Estate Securities Portfolio Investments in Securities
DECEMBER 31, 2002

      (Percentages of each investment category relate to total net assets.)



                                                  MARKET
               SHARES                            VALUE (a)
               ------                          ------------
                                            
COMMON STOCK (96.0%)
   CONSUMER CYCLICAL (2.0%)
     Lodging -- Hotel (2.0%)
    20,600   Extended Stay America,
              Inc. (b)                         $    303,850
    18,300   Hilton Hotels                          232,593
    16,400   Prime Hospitality
              Corporation (b)                       133,660
                                               ------------
                                                    670,103
                                               ------------
   FINANCIAL (94.0%)
     Real Estate (11.1%)
    83,610   Boardwalk Equities,
              Inc. (c)                              801,820
    57,000   Brookfield Properties
              Corporation (c)                     1,151,400
    41,500   Catellus Development
              Corporation (b)                       823,775
    18,800   Forest City Enterprises                626,980
    12,300   St. Joe Company                        369,000
                                               ------------
                                                  3,772,975
                                               ------------
     Real Estate Investment
      Trust-- Apartments (10.3%)
    26,960   Apartment Investment &
              Management Company                  1,010,461
    21,400   Archstone Communities
              Trust                                 503,756
     6,750   Avalonbay Communities,
              Inc.                                  264,195
     8,600   Camden Property Trust                  283,800
    28,000   Equity Residential                     688,240
     9,000   Essex Property Trust, Inc.             457,650
     6,500   Gables Residential Trust               162,045
     6,600   Summit Properties, Inc.                117,480
                                               ------------
                                                  3,487,627
                                               ------------
     Real Estate Investment
      Trust-- Diversified (9.5%)
    14,100   American Mortgage
              Acceptance Corporation                198,669
    10,350   Capital Automotive REIT                245,295
     3,900   Duke Realty Corporation                 99,255
    24,600   Entertainment Properties
              Trust                                 578,592
    20,100   iStar Financial, Inc.                  563,805
     5,800   Liberty Property Trust                 185,252
    21,800   NewCastle Investment
              Corporation                           348,146
    16,800   Vencor, Inc.                           192,360
    21,900   Vornado Realty Trust                 $ 814,680
                                               ------------
                                                  3,226,054
                                               ------------
     Real Estate Investment
     Trust -- Hotels (4.7%)
    36,200   Host Marriott
              Corporation (b)                       320,370
    28,300   Innkeepers USA Trust                   216,778
    15,500   Meristar Hospitality
              Corporation                           102,300
    13,300   Starwood Hotels &
              Resorts Worldwide, Inc.               315,742
    83,100   Winston Hotels, Inc.                   648,180
                                               ------------
                                                  1,603,370
                                               ------------
     Real Estate Investment
     Trust -- Office Property (17.3%)
     2,400   Alexandria Real
              Estate Equities                       102,240
    15,400   Arden Realty, Inc.                     341,110
    20,300   Boston Properties, Inc.                748,258
    19,600   Brandywine Realty Trust                427,476
    43,100   Carramerica Realty
              Corporation                         1,079,655
    45,400   Equity Office Properties
              Trust                               1,134,092
    18,100   Great Lakes REIT, Inc.                 301,365
    30,900   Highwoods Properties, Inc.             682,890
    12,100   Mission West
              Properties, Inc.                      119,790
    12,300   Prentiss Properties Trust              347,844
     7,900   Reckson Associates
              Realty Corporation                    166,295
     7,826   Reckson Associates
              Realty Corporation                    175,302
     7,000   SL Green Realty
              Corporation                           221,200
                                               ------------
                                                  5,847,517
                                               ------------
     Real Estate Investment
      Trust-- Shopping Centers (28.1%)
    21,700   CBL & Associates
              Properties, Inc.                      869,085
     8,400   Chelsea Property Group, Inc.           279,804
    44,000   Developers Diversified
              Realty Corporation                    967,560
    40,600   Equity One, Inc.                       542,010
    23,200   General Growth
              Properties, Inc.                    1,206,400
    26,900   Glimcher Realty Trust                  477,475


See accompanying notes to investments in securities.

                                       117





                                                  MARKET
                 SHARES                          VALUE (a)
                 ------                        ------------
                                            
    FINANCIAL--CONTINUED
    24,450   Kimco Realty Corporation          $    749,148
    29,500   Mid-Atlantic Realty Trust              513,300
    27,800   Mills Corporation                      815,652
     8,600   Pan Pacific Retail
              Properties, Inc.                      314,158
    17,800   Ramco Gershenson                       351,550
    35,100   Simon Property Group,
              Inc.                                1,195,857
    32,000   The Rouse Company                    1,014,400
    21,000   Urstadt Biddle Properties              232,680
                                               ------------
                                                  9,529,079
                                               ------------
     Real Estate Investment
      Trust-- Warehouse/Industrial (13.0%)
    19,700   First Industrial Realty Trust     $    551,600
    27,900   P.S. Business Parks, Inc.              887,220
    85,700   Prologis                             2,155,355
    21,000   Public Storage, Inc.                   678,510
     4,000   Sun Communities, Inc.                  146,280
                                               ------------
                                                  4,418,965
                                               ------------
Total common stock
  (cost: $31,017,887)                            32,555,690
                                               ------------


SHARES

                                                                                        
SHORT-TERM SECURITIES (2.4%)
           591   Provident Institutional Fund-- TempFund Portfolio, current rate 1.220%             591
       803,050   Dreyfus Funds-- Cash Management Plus, current rate 1.266%                      803,050
           727   Federated Money Market Obligations Trust-- Prime Obligation Fund,
                  current rate 1.370%                                                               727
        19,660   Wells Fargo & Company-- Cash Investment Fund,
                  current rate 1.326%                                                            19,660
                                                                                           ------------
                 Total short-term securities (cost: $824,028)                                   824,028
                                                                                           ------------
                 Total investments in securities (cost: $31,841,915) (d)                   $ 33,379,718
                                                                                           ============



NOTES TO INVESTMENTS IN SECURITIES

(a) Securities are valued by procedures described in note 2 to the financial
statements.

(b) Presently non-income producing.

(c) The Portfolio held 5.8% of net assets in foreign securities as of December
31, 2002.

(d) At December 31, 2002 the cost of securities for federal income tax purposes
was $32,462,066. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were:

                                                           
Gross unrealized appreciation                                 $  2,000,147
Gross unrealized depreciation                                   (1,082,495)
                                                              ------------
Net unrealized appreciation                                   $    917,652
                                                              ============



See accompanying notes to investments in securities.

                                       118



                 (This page has been left blank intentionally.)

                                       119



Advantus Series Fund, Inc.
Statements of Assets and Liabilities
DECEMBER 31, 2002



                                                                                                           MONEY
                                                                       GROWTH             BOND             MARKET
                                                                      PORTFOLIO         PORTFOLIO        PORTFOLIO
                                                                    -------------     ------------      ------------
                                                                                               
                           ASSETS

Investments in securities, at market value - see accompanying
  schedule for detailed listing * +                                 $ 199,595,918     $276,118,852      $163,451,609
Cash in bank on demand deposit                                                  -           93,223                 -
Receivable for Fund shares sold                                            96,181          114,062           707,332
Receivable for investment securities sold
  (including paydowns)                                                  3,977,594        1,195,066                 -
Dividends and accrued interest receivable                                 219,310        2,149,540            78,011
Receivable for refundable foreign income taxes withheld                         -                -                 -
Collateral for securities loaned (note 7)                               9,400,146                -                 -
Variation margin receivable                                                     -                -                 -
                                                                    -------------     ------------      ------------
     Total assets                                                     213,289,149      279,670,743       164,236,952
                                                                    -------------     ------------      ------------

                         LIABILITIES

Bank overdraft                                                                  -                -                 -
Payable for Fund shares repurchased                                       144,612          172,526           447,227
Dividends payable to shareholders                                               -                -             5,041
Payable for investment securities purchased                             5,192,862        2,860,444                 -
Payable to Adviser                                                        130,721          151,724            81,489
Payable upon return of securities loaned (note 7)                       9,400,146                -                 -
                                                                    -------------     ------------      ------------
     Total liabilities                                                 14,868,341        3,184,694           533,757
                                                                    -------------     ------------      ------------
Net assets applicable to outstanding
  capital stock                                                     $ 198,420,808     $276,486,049      $163,703,195
                                                                    -============     ============      ============
Represented by:
   Capital stock - authorized 10 trillion shares of $.01 par value  $   1,695,592     $  2,122,988      $  1,637,032
   Additional paid-in capital                                         316,976,069      269,612,930       162,066,163
   Undistributed net investment income                                          -                -                 -
   Accumulated net realized gains (losses) from
    investments and foreign currency transactions                    (120,249,768)      (4,698,581)                -
   Unrealized appreciation (depreciation) on investments and
    translation of assets and liabilities in foreign currencies            (1,085)       9,448,712                 -
                                                                    -------------     ------------      ------------
     Total - representing net assets applicable to outstanding
      capital stock                                                 $ 198,420,808     $276,486,049      $163,703,195
                                                                    =============     ============      ============
Net asset value per share of outstanding capital stock              $        1.17     $       1.30      $       1.00
                                                                    =============     ============      ============

 * Identified cost                                                  $ 199,597,003     $266,670,140      $163,451,609
** Shares outstanding                                                 169,559,189      212,298,839       163,703,195
 + Including securities on loan of                                  $   9,110,646     $          -      $          -


See accompanying notes to financial statements.

                                       120





                                                                       ASSET        MORTGAGE
                                                                     ALLOCATION    SECURITIES     INDEX 500
                                                                      PORTFOLIO     PORTFOLIO     PORTFOLIO
                                                                    ------------  ------------  ------------
                                                                                       
                           ASSETS

Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                   $372,594,512  $252,016,785  $418,341,402
Cash in bank on demand deposit                                            76,065       629,345             -
Receivable for Fund shares sold                                           99,653       267,608       275,145
Receivable for investment securities sold
  (including paydowns)                                                 1,586,405     5,736,106             -
Dividends and accrued interest receivable                              1,387,701     1,416,444       779,136
Receivable for refundable foreign income taxes withheld                        -             -        12,855
Collateral for securities loaned (note 7)                             25,137,654             -    28,716,578
Variation margin receivable                                                    -             -        10,157
                                                                    ------------  ------------  ------------
     Total assets                                                    400,881,990   260,066,288   448,135,273
                                                                    ------------  ------------  ------------

                         LIABILITIES

Bank overdraft                                                                 -             -             -
Payable for Fund shares repurchased                                      120,585       170,844       354,465
Dividends payable to shareholders                                              -             -             -
Payable for investment securities purchased                            1,145,675     9,952,987             -
Payable to Adviser                                                       210,159       140,557       166,851
Payable upon return of securities loaned (note 7)                     25,137,654             -    28,716,578
                                                                    ------------  ------------  ------------
     Total liabilities                                                26,614,073    10,264,388    29,237,894
                                                                    ------------  ------------  ------------
Net assets applicable to outstanding
  capital stock                                                     $374,267,917  $249,801,900  $418,897,379
                                                                    ============  ============  ============
Represented by:
   Capital stock - authorized 10 trillion shares of $.01 par value  $  2,827,956  $  1,939,172  $  1,553,039
   Additional paid-in capital                                        484,022,669   241,853,939   364,050,532
   Undistributed net investment income                                         -             -             -
   Accumulated net realized gains (losses) from
    investments and foreign currency transactions                   (115,146,062)     (593,316)  (26,086,103)
   Unrealized appreciation (depreciation) on investments and
    translation of assets and liabilities in foreign currencies        2,563,354     6,602,105    79,379,911
                                                                    ------------  ------------  ------------
     Total - representing net assets applicable to outstanding
      capital stock                                                 $374,267,917  $249,801,900  $418,897,379
                                                                    ============  ============  ============
Net asset value per share of outstanding capital stock              $       1.32  $       1.29  $       2.70
                                                                    ============  ============  ============

 * Identified cost                                                  $370,031,158  $245,414,680  $338,813,052
** Shares outstanding                                                282,795,575   193,917,249   155,303,857
 + Including securities on loan of                                  $ 24,159,907  $          -  $ 27,127,002




                                                                                                    SMALL
                                                                        CAPITAL    INTERNATIONAL    COMPANY
                                                                     APPRECIATION      STOCK        GROWTH
                                                                      PORTFOLIO      PORTFOLIO     PORTFOLIO
                                                                    -------------  -------------  ------------
                                                                                         
                           ASSETS

Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                   $ 153,413,991  $ 222,948,513  $122,920,845
Cash in bank on demand deposit                                                  -              -             -
Receivable for Fund shares sold                                            81,180         48,860        62,400
Receivable for investment securities sold
  (including paydowns)                                                          -              -        47,878
Dividends and accrued interest receivable                                 208,857        327,520        28,938
Receivable for refundable foreign income taxes withheld                         -        148,369             -
Collateral for securities loaned (note 7)                               2,763,997     35,121,075    17,716,318
Variation margin receivable                                                     -              -             -
                                                                    -------------  -------------  ------------
     Total assets                                                     156,468,025    258,594,337   140,776,379
                                                                    -------------  -------------  ------------

                         LIABILITIES

Bank overdraft                                                                  -        161,566             -
Payable for Fund shares repurchased                                       110,725        111,291        71,600
Dividends payable to shareholders                                               -              -             -
Payable for investment securities purchased                                     -              -             -
Payable to Adviser                                                        105,409        183,406       100,839
Payable upon return of securities loaned (note 7)                       2,763,997     35,121,075    17,716,318
                                                                    -------------  -------------  ------------
     Total liabilities                                                  2,980,131     35,577,338    17,888,757
                                                                    -------------  -------------  ------------
Net assets applicable to outstanding
  capital stock                                                     $ 153,487,894  $ 223,016,999  $122,887,622
                                                                    =============  =============  ============
Represented by:
   Capital stock - authorized 10 trillion shares of $.01 par value  $   1,403,037  $   2,029,113  $  1,860,212
   Additional paid-in capital                                         287,192,744    290,877,175   225,906,819
   Undistributed net investment income                                          -              -             -
   Accumulated net realized gains (losses) from
    investments and foreign currency transactions                    (105,715,306)   (23,834,289)  (64,699,223)
   Unrealized appreciation (depreciation) on investments and
    translation of assets and liabilities in foreign currencies       (29,392,581)   (46,055,000)  (40,180,186)
                                                                    -------------  -------------  ------------
     Total - representing net assets applicable to outstanding
      capital stock                                                 $ 153,487,894   $223,016,999  $122,887,622
                                                                    =============  =============  ============
Net asset value per share of outstanding capital stock              $        1.09  $        1.10  $       0.66
                                                                    =============  =============  ============
 * Identified cost                                                  $ 182,806,572  $ 269,028,098  $163,101,031
** Shares outstanding                                                 140,303,736    202,911,313   186,021,184
 + Including securities on loan of                                  $   2,690,495  $  32,725,722  $ 16,784,097


See accompanying notes to financial statements.

                                       121





                                                                   MATURING      MATURING
                                                                  GOVERNMENT     GOVERNMENT     VALUE
                                                                  BOND 2006      BOND 2010      STOCK
                                                                  PORTFOLIO      PORTFOLIO    PORTFOLIO
                                                                 ------------  ------------  ------------
                                                                                    
                           ASSETS

Investments in securities, at market value - see
  accompanying schedule for detailed listing*+                   $ 10,638,865  $  9,312,716  $112,655,375
Cash in bank on demand deposit                                         16,772        51,303             -
Receivable for Fund shares sold                                            56           207        63,371
Receivable for investment securities sold
  (including paydowns)                                                      -             -     2,217,294
Dividends and accrued interest receivable                                 227           395       180,939
Unrealized appreciation on forward foreign currency
  contracts held, at value (note 4)                                         -             -             -
Collateral for securities loaned (note 7)                                   -             -     5,467,680
Other receivables                                                           -             -             -
Foreign currency in bank on deposit (cost: $127,806)                        -             -             -
Variation margin receivable                                                 -             -             -
                                                                 ------------  ------------  ------------
     Total assets                                                  10,655,920     9,364,621   120,584,659
                                                                 ------------  ------------  ------------

                         LIABILITIES

Bank overdraft                                                              -             -             -
Payable for Fund shares repurchased                                       495           581        63,392
Payable for investment securities purchased                                 -             -     2,171,219
Unrealized depreciation on forward foreign currency
  contracts held, at value (note 4)                                         -             -             -
Payable to Adviser                                                      5,849         5,155        79,691
Variation margin payable (note 6)                                           -             -             -
Other payable                                                               -             -             -
Payable upon return of securities loaned (note 7)                           -             -     5,467,680
                                                                 ------------  ------------  ------------
     Total liabilities                                                  6,344         5,736     7,781,982
                                                                 ------------  ------------  ------------
Net assets applicable to outstanding capital stock               $ 10,649,576  $  9,358,885  $112,802,677
                                                                 ============  ============  ============
Represented by:
   Capital stock - authorized 10 trillion shares of $.01
    par value                                                    $     77,407  $     62,041  $    900,974
   Additional paid-in capital                                       9,409,040     8,326,050   143,027,514
   Undistributed net investment income                                      -             -             -
   Accumulated net realized gains (losses) from
    investments and foreign currency transactions                     (82,507)      (28,800)  (30,570,890)
   Unrealized appreciation (depreciation) on investments and
    translation of assets and liabilities in foreign currencies     1,245,636       999,594      (554,921)
                                                                 ------------  ------------  ------------

     Total - representing net assets applicable to
      outstanding capital stock                                  $ 10,649,576  $  9,358,885  $112,802,677
                                                                 ============  ============  ============
Net asset value per share of outstanding capital stock           $       1.38  $       1.51  $       1.25
                                                                 ============  ============  ============
  * Identified cost                                              $  9,393,229  $  8,313,122  $113,210,296
 ** Shares outstanding                                              7,740,709     6,204,078    90,097,406
  + Including securities on loan of                              $          -  $          -  $  5,289,370


See accompanying notes to financial statements.

                                       122





                                                                     SMALL
                                                                     COMPANY       GLOBAL       INDEX 400
                                                                      VALUE         BOND         MID-CAP
                                                                    PORTFOLIO     PORTFOLIO     PORTFOLIO
                                                                   ------------  ------------  ------------
                                                                                      
                           ASSETS

Investments in securities, at market value - see
  accompanying schedule for detailed listing*+                     $ 55,279,755  $ 55,099,270  $ 41,790,461
Cash in bank on demand deposit                                            3,324        45,014           857
Receivable for Fund shares sold                                          23,347        96,863        59,596
Receivable for investment securities sold
  (including paydowns)                                                   11,818       319,919             -
Dividends and accrued interest receivable                                28,109       958,152        35,817
Unrealized appreciation on forward foreign currency
  contracts held, at value (note 4)                                           -     1,255,716             -
Collateral for securities loaned (note 7)                             9,188,771             -     7,277,084
Other receivables                                                             -             -             -
Foreign currency in bank on deposit (cost: $127,806)                          -       128,986             -
Variation margin receivable                                                   -             -        11,676
                                                                   ------------  ------------  ------------
     Total assets                                                    64,535,124    57,903,920    49,175,491
                                                                   ------------  ------------  ------------

                         LIABILITIES

Bank overdraft                                                                -             -             -
Payable for Fund shares repurchased                                      13,929        11,223        38,658
Payable for investment securities purchased                             339,424     3,368,223             -
Unrealized depreciation on forward foreign currency
  contracts held, at value (note 4)                                           -       763,099             -
Payable to Adviser                                                       49,238        67,795        24,255
Variation margin payable (note 6)                                             -             -             -
Other payable                                                                 -        10,937             -
Payable upon return of securities loaned (note 7)                     9,188,771             -     7,277,084
                                                                   ------------  ------------  ------------
     Total liabilities                                                9,591,362     4,221,277     7,339,997
                                                                   ------------  ------------  ------------
Net assets applicable to outstanding capital stock                 $ 54,943,762  $ 53,682,643  $ 41,835,494
                                                                   ============  ============  ============
Represented by:
   Capital stock - authorized 10 trillion shares of $.01
    par value                                                      $    540,267  $    494,332  $    434,895
   Additional paid-in capital                                        63,566,663    50,965,390    48,486,623
   Undistributed net investment income                                        -      (492,617)            -
   Accumulated net realized gains (losses) from
    investments and foreign currency transactions                      (343,261)      (38,094)   (1,445,514)
   Unrealized appreciation (depreciation) on investments and
    translation of assets and liabilities in foreign currencies      (8,819,907)    2,753,632    (5,640,510)
                                                                   ------------  ------------  ------------
     Total - representing net assets applicable to
      outstanding capital stock                                    $ 54,943,762  $ 53,682,643  $ 41,835,494
                                                                   ============  ============  ============
Net asset value per share of outstanding capital stock             $       1.02  $       1.09  $       0.96
                                                                   ============  ============  ============
  * Identified cost                                                $ 64,099,662  $ 52,877,468  $ 47,404,466
 ** Shares outstanding                                               54,026,662    49,433,173    43,489,514
  + Including securities on loan of                                $  8,539,840  $          -  $  6,983,119




                                                                      MACRO-CAP     MICRO-CAP    REAL ESTATE
                                                                       VALUE         GROWTH      SECURITIES
                                                                      PORTFOLIO     PORTFOLIO     PORTFOLIO
                                                                    ------------  -------------  ------------
                                                                                        
                           ASSETS

Investments in securities, at market value - see
  accompanying schedule for detailed listing*+                      $ 20,468,671  $  24,984,088  $ 33,379,718
Cash in bank on demand deposit                                                 -              -         4,811
Receivable for Fund shares sold                                           12,467         13,176        24,436
Receivable for investment securities sold
  (including paydowns)                                                         -         91,293       451,094
Dividends and accrued interest receivable                                 26,671          5,498       216,841
Unrealized appreciation on forward foreign currency
  contracts held, at value (note 4)                                            -              -             -
Collateral for securities loaned (note 7)                              1,186,674      5,840,540     2,411,288
Other receivables                                                            449              -             -
Foreign currency in bank on deposit (cost: $127,806)                           -              -             -
Variation margin receivable                                                    -              -            -
                                                                    ------------  -------------  ------------
     Total assets                                                     21,694,932     30,934,595    36,488,188
                                                                    ------------  -------------  ------------

                         LIABILITIES

Bank overdraft                                                             5,316         21,813             -
Payable for Fund shares repurchased                                        4,132         18,269        10,151
Payable for investment securities purchased                                    -        524,119       140,300
Unrealized depreciation on forward foreign currency
  contracts held, at value (note 4)                                            -              -             -
Payable to Adviser                                                        33,378         26,001        14,435
Variation margin payable (note 6)                                              -              -             -
Other payable                                                                  -              -             -
Payable upon return of securities loaned (note 7)                      1,186,674      5,840,540     2,411,288
                                                                    ------------  -------------  ------------
     Total liabilities                                                 1,229,500      6,430,742     2,576,174
                                                                    ------------  -------------  ------------
Net assets applicable to outstanding capital stock                  $ 20,465,432  $  24,503,853  $ 33,912,014
                                                                    ============  =============  ============
Represented by:
   Capital stock - authorized 10 trillion shares of $.01
    par value                                                       $    291,080  $     281,292  $    331,302
   Additional paid-in capital                                         31,605,038     51,733,105    32,923,438
   Undistributed net investment income                                         -              -             -
   Accumulated net realized gains (losses) from
    investments and foreign currency transactions                     (4,302,919)   (19,360,477)     (880,529)
   Unrealized appreciation (depreciation) on investments and
    translation of assets and liabilities in foreign currencies       (7,127,767)    (8,150,067)    1,537,803
                                                                    ------------  -------------  ------------
     Total - representing net assets applicable to
      outstanding capital stock                                     $ 20,465,432  $  24,503,853  $ 33,912,014
                                                                    ============  =============  ============
Net asset value per share of outstanding capital stock              $       0.70  $        0.87  $       1.02
                                                                    ============  =============  ============
  * Identified cost                                                 $ 27,596,438  $  33,134,155  $ 31,841,915
 ** Shares outstanding                                                29,108,003     28,129,247    33,130,219
  + Including securities on loan of                                 $  1,112,434  $   5,466,860  $  2,319,732


                                       123



Advantus Series Fund, Inc.
Statements of Operations
YEAR ENDED DECEMBER 31, 2002



                                                                                                   MONEY
                                                                     GROWTH          BOND          MARKET
                                                                    PORTFOLIO      PORTFOLIO      PORTFOLIO
                                                                  -------------  -------------  -------------
                                                                                       
Investment Income
  Interest                                                        $      92,184  $  14,786,862  $   2,846,015
  Dividends (net of foreign withholding taxes of $788,860 for
   International Stock Portfolio)                                     2,172,649              -              -
  Income from securities lending activities                              26,590         15,622              -
  Commission reimbursement income (note 10)                                   -              -              -
                                                                  -------------  -------------  -------------
     Total investment income                                          2,291,423     14,802,484      2,846,015
                                                                  -------------  -------------  -------------

Expenses (note 5):
  Investment advisory fee                                             1,090,867        763,666        387,449
  Rule 12b-1 fees                                                       606,037        636,388        387,449
  Custodian fees                                                          7,112         25,254          4,175
  Administrative services fee                                            51,600         51,600         51,600
  Auditing and accounting services                                       18,258         16,308         11,458
  Legal fees                                                              8,112         11,822          5,244
  Printing and shareholder reports                                       34,192         30,604         19,029
  Directors' fees                                                         6,144          6,003          3,573
  Insurance licensing                                                     4,650          5,340          3,715
  S&P lisensing fee                                                           -              -              -
  Other                                                                  14,481          9,982          9,413
                                                                  -------------  -------------  -------------
     Total expenses                                                   1,841,453      1,556,967        883,105
                                                                  -------------  -------------  -------------
  Less fees and expenses waived or absorbed by Adviser                        -              -              -
                                                                  -------------  -------------  -------------
     Total net expenses                                               1,841,453      1,556,967        883,105
                                                                  -------------  -------------  -------------
     Investment income (loss) - net                                     449,970     13,245,517      1,962,910
Realized and unrealized gains (losses) on investments
  and foreign currencies:
  Net realized gains (losses) from:
    Investments (note 3)                                            (22,254,054)     4,131,638              -
    Foreign currency transactions                                             -              -              -
    Futures transactions                                                      -              -              -
  Net change in unrealized appreciation or depreciation on:
    Investments                                                     (51,859,190)     8,271,980              -
    Translation of assets and liabilities in foreign currency                 -              -              -
                                                                  -------------  -------------  -------------
Net gains (losses) on investments                                   (74,113,244)    12,403,618              -
                                                                  -------------  -------------  -------------
Net increase (decrease) in net assets resulting from operations   $ (73,663,274) $  25,649,135  $   1,962,910
                                                                  =============  =============  =============


See accompanying notes to financial statements.

                                       124





                                                                      ASSET         MORTGAGE                        CAPITAL
                                                                    ALLOCATION     SECURITIES     INDEX 500    APPRECIATION
                                                                    PORTFOLIO      PORTFOLIO      PORTFOLIO      PORTFOLIO
                                                                  -------------  -------------  -------------  -------------
                                                                                                   
Investment Income
  Interest                                                        $   9,087,646  $  16,604,872  $     108,197  $     124,075
  Dividends (net of foreign withholding taxes of $788,860 for
   International Stock Portfolio)                                     4,064,988            414      7,456,511      1,350,405
  Income from securities lending activities                              48,110          1,105         65,881         34,249
  Commission reimbursement income (note 10)                                   -              -              -         26,002
                                                                  -------------  -------------  -------------  -------------
     Total investment income                                         13,200,744     16,606,391      7,630,589      1,534,731
                                                                  -------------  -------------  -------------  -------------

Expenses (note 5):
  Investment advisory fee                                             1,488,198        709,265        584,983        965,815
  Rule 12b-1 fees                                                     1,062,998        591,054      1,149,955        482,907
  Custodian fees                                                         17,034         26,674         19,516          5,225
  Administrative services fee                                            51,600         51,600         51,600         51,600
  Auditing and accounting services                                       25,808         18,408         17,208         17,483
  Legal fees                                                             16,230         14,166         15,393          6,491
  Printing and shareholder reports                                       57,037         28,300         61,740         34,723
  Directors' fees                                                        10,424          5,711         11,151          7,825
  Insurance licensing                                                     8,022          4,271         10,074          3,521
  S&P lisensing fee                                                           -              -         16,240              -
  Other                                                                  25,550         12,183         38,973         18,528
                                                                  -------------  -------------  -------------  -------------
     Total expenses                                                   2,762,901      1,461,632      1,976,833      1,594,118
                                                                  -------------  -------------  -------------  -------------
  Less fees and expenses waived or absorbed by Adviser                        -              -              -              -
                                                                  -------------  -------------  -------------  -------------
     Total net expenses                                               2,762,901      1,461,632      1,976,833      1,594,118
                                                                  -------------  -------------  -------------  -------------
     Investment income (loss) - net                                  10,437,843     15,144,759      5,653,756        (59,387)
Realized and unrealized gains (losses) on investments
  and foreign currencies:
  Net realized gains (losses) from:
    Investments (note 3)                                             (8,991,230)     1,347,761    (13,621,635)   (45,440,110)
    Foreign currency transactions                                             -              -              -              -
    Futures transactions                                                      -              -       (458,803)             -
  Net change in unrealized appreciation or depreciation on:
    Investments                                                     (42,776,099)     4,802,232   (111,250,609)   (32,193,205)
    Translation of assets and liabilities in foreign currency                 -              -              -              -
                                                                  -------------  -------------  -------------  -------------
Net gains (losses) on investments                                   (51,767,329)     6,149,993   (125,331,047)   (77,633,315)
                                                                  -------------  -------------  -------------  -------------
Net increase (decrease) in net assets resulting from operations   $ (41,329,486) $  21,294,752  $(119,677,291) $ (77,692,702)
                                                                  =============  =============  =============  =============




                                                                                    SMALL          MATURING
                                                                  INTERNATIONAL    COMPANY        GOVERNMENT
                                                                      STOCK         GROWTH         BOND 2002
                                                                    PORTFOLIO      PORTFOLIO       PORTFOLIO
                                                                  -------------  -------------   -------------
                                                                                        
Investment Income
  Interest                                                        $     100,773  $     179,143   $     246,646
  Dividends (net of foreign withholding taxes of $788,860 for
   International Stock Portfolio)                                     6,826,823        146,501               -
  Income from securities lending activities                             359,917         50,870               -
  Commission reimbursement income (note 10)                              70,842              -               -
                                                                  -------------  -------------   -------------
     Total investment income                                          7,358,355        376,514         246,646
                                                                  -------------  -------------   -------------

Expenses (note 5):
  Investment advisory fee                                             1,539,322        975,136          13,069
  Rule 12b-1 fees                                                       642,874        375,052               -
  Custodian fees                                                         89,598         10,226           7,411
  Administrative services fee                                            37,200         51,600          38,700
  Auditing and accounting services                                      163,737         14,608           6,958
  Legal fees                                                              8,799          5,054             160
  Printing and shareholder reports                                       46,557         22,097           1,758
  Directors' fees                                                         5,192          3,249              97
  Insurance licensing                                                     5,767          3,018              21
  S&P lisensing fee                                                           -              -               -
  Other                                                                  12,923         10,278             138
                                                                  -------------  -------------   -------------
     Total expenses                                                   2,551,969      1,470,318          68,312
                                                                  -------------  -------------   -------------
  Less fees and expenses waived or absorbed by Adviser                        -              -         (34,386)
                                                                  -------------  -------------   -------------
     Total net expenses                                               2,551,969      1,470,318          33,926
                                                                  -------------  -------------   -------------
     Investment income (loss) - net                                   4,806,386     (1,093,804)        212,720
Realized and unrealized gains (losses) on investments
  and foreign currencies:
  Net realized gains (losses) from:
    Investments (note 3)                                            (22,447,204)   (29,123,438)         96,678
    Foreign currency transactions                                      (240,411)             -               -
    Futures transactions                                                      -              -               -
  Net change in unrealized appreciation or depreciation on:
    Investments                                                     (31,600,676)   (30,287,303)       (189,513)
    Translation of assets and liabilities in foreign currency            46,386              -               -
                                                                  -------------  -------------   -------------
Net gains (losses) on investments                                   (76,735,495)   (59,410,741)        (92,835)
                                                                  -------------  -------------   -------------
Net increase (decrease) in net assets resulting from operations   $ (49,435,519) $ (60,504,545)  $     119,885
                                                                  =============  =============   =============


                                       125





                                                                    MATURING      MATURING
                                                                   GOVERNMENT    GOVERNMENT        VALUE
                                                                    BOND 2006     BOND 2010        STOCK
                                                                    PORTFOLIO     PORTFOLIO      PORTFOLIO
                                                                  ------------  ------------   ------------
                                                                                      
Investment Income
  Interest                                                        $    515,476  $    380,056   $     35,725
  Dividends (net of foreign withholding taxes of $10,041 for
   Global Bond Portfolio)                                                    -             -      2,654,217
  Income from securities lending activities                                  -             -         11,913
                                                                  ------------  ------------   ------------
     Total investment income                                           515,476       380,056      2,701,855
                                                                  ------------  ------------   ------------

Expenses (note 5):
  Investment advisory fee                                               23,609        17,470        645,492
  Rule 12b-1 fees                                                            -             -        322,746
  Custodian fees                                                         8,231         8,264          5,656
  Administrative services fee                                           51,600        51,600         51,600
  Auditing and accounting services                                      10,008        10,058         14,458
  Legal fees                                                               319           213          4,337
  Printing and shareholder reports                                       1,939         1,597         17,753
  Directors' fees                                                          192           139          2,673
  Insurance                                                                160           102          2,684
  S&P licensing fee                                                          -             -              -
  Other                                                                    428           333          1,110
                                                                  ------------  ------------   ------------
     Total expenses                                                     96,486        89,776      1,068,509
                                                                  ------------  ------------   ------------
  Less fees and expenses waived or absorbed by Adviser                 (35,104)      (44,356)             -
                                                                  ------------  ------------   ------------
     Total net expenses                                                 61,382        45,420      1,068,509
                                                                  ------------  ------------   ------------
     Investment income (loss) - net                                    454,094       334,636      1,633,346
Realized and unrealized gains (losses) on investments
  and foreign currencies:
  Net realized gains (losses) from:
    Investments (note 3)                                                (2,018)      146,915    (12,030,116)
    Foreign currency transactions                                            -             -              -
    Futures transactions                                                     -             -              -
  Net change in unrealized appreciation or depreciation on:
    Investments                                                        683,743       668,644    (10,871,046)
    Translation of assets and liabilities in foreign currency                -             -              -
                                                                  ------------  ------------   ------------
Net gains (losses) on investments                                      681,725       815,559    (22,901,162)
                                                                  ------------  ------------   ------------
Net increase (decrease) in net assets resulting from operations   $  1,135,819  $  1,150,195   $(21,267,816)
                                                                  ============  ============   ============


See accompanying notes to financial statements.

                                       126





                                                                      SMALL
                                                                     COMPANY       GLOBAL       INDEX 400     MACRO-CAP
                                                                      VALUE         BOND         MID-CAP        VALUE
                                                                    PORTFOLIO     PORTFOLIO     PORTFOLIO     PORTFOLIO
                                                                  ------------  ------------  ------------  ------------
                                                                                                
Investment Income
  Interest                                                        $     72,899  $  2,635,522  $     58,459  $     13,697
  Dividends (net of foreign withholding taxes of $10,041 for
   Global Bond Portfolio)                                              261,914             -       385,986       319,477
  Income from securities lending activities                             16,401             -        11,635         2,221
                                                                  ------------  ------------  ------------  ------------
     Total investment income                                           351,214     2,635,522       456,080       335,395
                                                                  ------------  ------------  ------------  ------------

Expenses (note 5):
  Investment advisory fee                                              367,199       274,308        64,008       115,952
  Rule 12b-1 fees                                                      131,142       114,295       106,680        57,975
  Custodian fees                                                        13,810        50,873        15,114         9,321
  Administrative services fee                                           51,600        37,200        51,600        37,200
  Auditing and accounting services                                      17,808        71,091        18,258        65,916
  Legal fees                                                             1,750         1,527         1,426           775
  Printing and shareholder reports                                       7,185         6,057         6,045         3,969
  Directors' fees                                                          982           899           860           485
  Insurance                                                              2,446         1,010         1,046           534
  S&P licensing fee                                                          -             -        10,000             -
  Other                                                                 20,673        11,114           844           766
                                                                  ------------  ------------  ------------  ------------
     Total expenses                                                    614,595       568,374       275,881       292,893
                                                                  ------------  ------------  ------------  ------------
  Less fees and expenses waived or absorbed by Adviser                 (40,674)            -             -       (50,401)
                                                                  ------------  ------------  ------------  ------------
     Total net expenses                                                573,921       568,374       275,881       242,492
                                                                  ------------  ------------  ------------  ------------
     Investment income (loss) - net                                   (222,707)    2,067,148       180,199        92,903
Realized and unrealized gains (losses) on investments
  and foreign currencies:
  Net realized gains (losses) from:
    Investments (note 3)                                               785,620     2,810,278      (309,655)   (2,487,222)
    Foreign currency transactions                                            -      (880,109)            -             -
    Futures transactions                                                     -             -      (513,835)            -
  Net change in unrealized appreciation or depreciation on:
    Investments                                                    (15,359,753)    2,819,442    (6,897,612)   (5,495,748)
    Translation of assets and liabilities in foreign currency                -       887,465             -             -
                                                                  ------------  ------------  ------------  ------------
Net gains (losses) on investments                                  (14,574,133)    5,637,076    (7,721,102)   (7,982,970)
                                                                  ------------  ------------  ------------  ------------
Net increase (decrease) in net assets resulting from operations   $(14,796,840) $  7,704,224  $ (7,540,903) $ (7,890,067)
                                                                  ============  ============  ============  ============




                                                                    MICRO-CAP    REAL ESTATE
                                                                     GROWTH      SECURITIES
                                                                    PORTFOLIO     PORTFOLIO
                                                                  ------------  ------------
                                                                          
Investment Income
  Interest                                                        $     22,422  $     16,659
  Dividends (net of foreign withholding taxes of $10,041 for
   Global Bond Portfolio)                                               14,341     1,114,878
  Income from securities lending activities                             41,272         2,941
                                                                  ------------  ------------
     Total investment income                                            78,035     1,134,478
                                                                  ------------  ------------

Expenses (note 5):
  Investment advisory fee                                              310,437       155,406
  Rule 12b-1 fees                                                       81,694        64,753
  Custodian fees                                                         4,220        11,291
  Administrative services fee                                           51,600        51,600
  Auditing and accounting services                                      16,958        16,658
  Legal fees                                                             1,102           867
  Printing and shareholder reports                                       5,894         3,486
  Directors' fees                                                          720           499
  Insurance                                                                710         1,138
  S&P licensing fee                                                          -             -
  Other                                                                    985         1,133
                                                                  ------------  ------------
     Total expenses                                                    474,320       306,831
                                                                  ------------  ------------
  Less fees and expenses waived or absorbed by Adviser                 (36,055)      (47,820)
                                                                  ------------  ------------
     Total net expenses                                                438,265       259,011
                                                                  ------------  ------------
     Investment income (loss) - net                                   (360,230)      875,467
Realized and unrealized gains (losses) on investments
  and foreign currencies:
  Net realized gains (losses) from:
    Investments (note 3)                                            (7,005,781)     (131,672)
    Foreign currency transactions                                            -             -
    Futures transactions                                                     -             -
  Net change in unrealized appreciation or depreciation on:
    Investments                                                    (11,905,885)       96,138
    Translation of assets and liabilities in foreign currency                -             -
                                                                  ------------  ------------
Net gains (losses) on investments                                  (18,911,666)      (35,534)
                                                                  ------------  ------------
Net increase (decrease) in net assets resulting from operations   $(19,271,896) $    839,933
                                                                  ============  ============


                                       127



Advantus Series Fund, Inc.
Statements of Changes in Net Assets
YEARS ENDED DECEMBER 31, 2002 AND 2001



                                                                GROWTH                              BOND
                                                              PORTFOLIO                           PORTFOLIO
                                                  ---------------------------------   ---------------------------------
                                                         2002             2001              2002              2001
                                                  ---------------   ---------------   ---------------   ---------------
                                                                                            
Operations:
   Investment income (loss) - net                 $       449,970   $      (364,706)  $    13,245,517   $    13,301,725
   Net realized gains (losses) on investments         (22,254,054)      (87,287,783)        4,131,638         4,237,119
   Net change in unrealized appreciation or
    depreciation of investments                       (51,859,190)      (19,261,271)        8,271,980        (1,203,562)
                                                  ---------------   ---------------   ---------------   ---------------
    Net increase (decrease) in net assets
     resulting from operations                        (73,663,274)     (106,913,760)       25,649,135        16,335,282
                                                  ---------------   ---------------   ---------------   ---------------
Distributions to shareholders from:
   Investment income - net                                     --                --                --       (24,738,440)
   Net realized gains                                          --       (54,563,377)               --                --
                                                  ---------------   ---------------   ---------------   ---------------
     Total distributions                                       --       (54,563,377)               --       (24,738,440)
                                                  ---------------   ---------------   ---------------   ---------------
Capital share transactions (note 6):
   Proceeds from sales                                 41,897,261        54,812,012        66,758,093        69,997,695
   Shares issued as a result of reinvested
    distributions                                              --        54,563,377                --        24,738,440
   Payments for redemption of shares                  (68,448,327)      (87,980,316)      (51,239,338)      (38,268,362)
                                                  ---------------   ---------------   ---------------   ---------------
     Increase (decrease) in net assets from
      capital share transactions                      (26,551,066)       21,395,073        15,518,755        56,467,773
                                                  ---------------   ---------------   ---------------   ---------------
     Total increase (decrease) in net assets         (100,214,340)     (140,082,064)       41,167,890        48,064,615
Net assets at beginning of year                       298,635,148       438,717,212       235,318,159       187,253,544
                                                  ---------------   ---------------   ---------------   ---------------
Net assets at end of year*                        $   198,420,808   $   298,635,148   $   276,486,049   $   235,318,159
                                                  ===============   ===============   ===============   ===============

*  including (distributions in excess of)
   undistributed net investment income of         $            --   $            --   $            --   $            --


                 See accompanying notes to financial statements.

                                       128





                                                                MONEY                               ASSET
                                                                MARKET                            ALLOCATION
                                                              PORTFOLIO                           PORTFOLIO
                                                  ---------------------------------   ---------------------------------
                                                         2002             2001              2002              2001
                                                  ---------------   ---------------   ---------------   ---------------
                                                                                            
Operations:
   Investment income (loss) - net                 $     1,962,910   $     5,624,781   $    10,437,843   $    10,320,252
   Net realized gains (losses) on investments                  --                --        (8,991,230)      (83,098,519)
   Net change in unrealized appreciation or
    depreciation of investments                                --                --       (42,776,099)      (20,500,647)
                                                  ---------------   ---------------   ---------------   ---------------
    Net increase (decrease) in net assets
     resulting from operations                          1,962,910         5,624,781       (41,329,486)      (93,278,914)
                                                  ---------------   ---------------   ---------------   ---------------
Distributions to shareholders from:
   Investment income - net                             (1,962,910)       (5,624,781)               --       (10,364,000)
   Net realized gains                                          --                --                --       (67,682,594)
                                                  ---------------   ---------------   ---------------   ---------------
     Total distributions                               (1,962,910)       (5,624,781)               --       (78,046,594)
                                                  ---------------   ---------------   ---------------   ---------------
Capital share transactions (note 6):
   Proceeds from sales                                143,102,900       141,077,027        50,961,636        70,205,653
   Shares issued as a result of reinvested
    distributions                                       1,959,381         5,682,900                --        78,046,594
   Payments for redemption of shares                 (121,416,680)     (190,800,049)     (117,524,365)     (133,738,287)
                                                  ---------------   ---------------   ---------------   ---------------
     Increase (decrease) in net assets from
      capital share transactions                       23,645,601       (44,040,122)      (66,562,729)       14,513,960
                                                  ---------------   ---------------   ---------------   ---------------
     Total increase (decrease) in net assets           23,645,601       (44,040,122)     (107,892,215)     (156,811,548)
Net assets at beginning of year                       140,057,594       184,097,716       482,160,132       638,971,680
                                                  ---------------   ---------------   ---------------   ---------------
Net assets at end of year*                        $   163,703,195   $   140,057,594   $   374,267,917   $   482,160,132
                                                  ===============   ===============   ===============   ===============

*  including (distributions in excess of)
   undistributed net investment income of         $            --   $            --   $            --   $            --




                                                              MORTGAGE
                                                             SECURITIES
                                                              PORTFOLIO
                                                  ---------------------------------
                                                         2002            2001
                                                  ---------------   ---------------
                                                              
Operations:
   Investment income (loss) - net                 $    15,144,759   $    12,865,451
   Net realized gains (losses) on investments           1,347,761         4,409,940
   Net change in unrealized appreciation or
    depreciation of investments                         4,802,232        (2,420,687)
                                                  ---------------   ---------------
    Net increase (decrease) in net assets
     resulting from operations                         21,294,752        14,854,704
                                                  ---------------   ---------------
Distributions to shareholders from:
   Investment income - net                               (149,451)      (22,990,172)
   Net realized gains                                          --                --
                                                  ---------------   ---------------
     Total distributions                                 (149,451)      (22,990,172)
                                                  ---------------   ---------------
Capital share transactions (note 6):
   Proceeds from sales                                 84,155,070        95,517,681
   Shares issued as a result of reinvested
    distributions                                         149,451        22,990,172
   Payments for redemption of shares                  (85,789,175)      (31,372,302)
                                                  ---------------   ---------------
     Increase (decrease) in net assets from
      capital share transactions                       (1,484,654)       87,135,551
                                                  ---------------   ---------------
     Total increase (decrease) in net assets           19,660,647        79,000,083
Net assets at beginning of year                       230,141,253       151,141,170
                                                  ---------------   ---------------
Net assets at end of year*                        $   249,801,900   $   230,141,253
                                                  ===============   ===============

*  including (distributions in excess of)
   undistributed net investment income of         $            --   $       149,451


                                       129





                                                                                                   CAPITAL
                                                              INDEX 500                          APPRECIATION
                                                              PORTFOLIO                           PORTFOLIO
                                                  ---------------------------------   ---------------------------------
                                                         2002            2001             2002             2001
                                                  ---------------   ---------------   ---------------   ---------------
                                                                                            
Operations:
   Investment income (loss) - net                 $     5,653,756   $     5,021,650   $       (59,387)  $       340,333
   Net realized gains (losses) on investments         (14,080,438)       (8,316,253)      (45,440,110)      (50,312,335)
   Net change in unrealized appreciation or
    depreciation of investments                      (111,250,609)      (70,124,371)      (32,193,205)      (41,198,605)
                                                  ---------------   ---------------   ---------------   ---------------
    Net increase (decrease) in net assets
     resulting from operations                       (119,677,291)      (73,418,974)      (77,692,702)      (91,170,607)
                                                  ---------------   ---------------   ---------------   ---------------
Distributions to shareholders from:
   Investment income - net                                     --        (5,078,231)               --          (270,000)
   Net realized gains                                          --        (6,116,192)               --       (93,368,126)
                                                  ---------------   ---------------   ---------------   ---------------
     Total distributions                                       --       (11,194,423)               --       (93,638,126)
                                                  ---------------   ---------------   ---------------   ---------------
Capital share transactions (note 6):
   Proceeds from sales                                150,581,510       135,214,173        29,697,407        38,497,494
   Shares issued as a result of reinvested
    distributions                                              --        11,194,423                --        93,638,126
   Payments for redemption of shares                 (132,651,131)     (125,390,272)      (55,271,553)      (71,554,857)
                                                  ---------------   ---------------   ---------------   ---------------
     Increase (decrease) in net assets from
      capital share transactions                       17,930,379        21,018,324       (25,574,146)       60,580,763
                                                  ---------------   ---------------   ---------------   ---------------
     Total increase (decrease) in net assets         (101,746,912)      (63,595,073)     (103,266,848)     (124,227,970)
Net assets at beginning of year                       520,644,291       584,239,364       256,754,742       380,982,712
                                                  ---------------   ---------------   ---------------   ---------------
Net assets at end of year*                        $   418,897,379   $   520,644,291   $   153,487,894   $   256,754,742
                                                  ===============   ===============   ===============   ===============

*  including (distributions in excess of)
   undistributed net investment income of         $            --   $            --   $            --   $            --


See accompanying notes to financial statements.

                                       130





                                                            INTERNATIONAL                       SMALL COMPANY
                                                                STOCK                               GROWTH
                                                              PORTFOLIO                           PORTFOLIO
                                                  ---------------------------------   ---------------------------------
                                                         2002             2001              2002              2001
                                                  ---------------   ---------------   ---------------   ---------------
                                                                                            
Operations:
   Investment income (loss) - net                 $     4,806,386   $     4,778,467   $    (1,093,804)  $    (1,039,098)
   Net realized gains (losses) on investments         (22,687,615)        5,375,544       (29,123,438)      (34,900,836)
   Net change in unrealized appreciation or
    depreciation of investments                       (31,554,290)      (48,196,132)      (30,287,303)          232,181
                                                  ---------------   ---------------   ---------------   ---------------
    Net increase (decrease) in net assets
     resulting from operations                        (49,435,519)      (38,042,121)      (60,504,545)      (35,707,753)
                                                  ---------------   ---------------   ---------------   ---------------
Distributions to shareholders from:
   Investment income - net                                     --       (12,624,142)               --                --
   Net realized gains                                          --       (30,986,267)               --       (77,689,231)
                                                  ---------------   ---------------   ---------------   ---------------
     Total distributions                                       --       (43,610,409)               --       (77,689,231)
                                                  ---------------   ---------------   ---------------   ---------------
Capital share transactions (note 6):
   Proceeds from sales                                 64,539,470        47,884,120        33,323,885        38,722,688
   Shares issued as a result of reinvested
    distributions                                              --        43,610,409                --        77,689,231
   Payments for redemption of shares                  (70,632,109)      (74,226,528)      (43,636,884)      (50,287,336)
                                                  ---------------   ---------------   ---------------   ---------------
     Increase (decrease) in net assets from
      capital share transactions                       (6,092,639)       17,268,001       (10,312,999)       66,124,583
                                                  ---------------   ---------------   ---------------   ---------------
     Total increase (decrease) in net assets          (55,528,158)      (64,384,529)      (70,817,544)      (47,272,401)
Net assets at beginning of year                       278,545,157       342,929,686       193,705,166       240,977,567
                                                  ---------------   ---------------   ---------------   ---------------
Net assets at end of year*                        $   223,016,999   $   278,545,157   $   122,887,622   $   193,705,166
                                                  ===============   ===============   ===============   ===============

*  including (distributions in excess of)
   undistributed net investment income of         $            --   $            --   $            --   $            --




                                                          MATURING GOVERNMENT
                                                              BOND 2002
                                                              PORTFOLIO
                                                  ---------------------------------
                                                       2002**            2001
                                                  ---------------   ---------------
                                                              
Operations:
   Investment income (loss) - net                 $       212,720   $       400,194
   Net realized gains (losses) on investments              96,678            50,510
   Net change in unrealized appreciation or
    depreciation of investments                          (189,513)           99,290
                                                  ---------------   ---------------
    Net increase (decrease) in net assets
     resulting from operations                            119,885           549,994
                                                  ---------------   ---------------
Distributions to shareholders from:
   Investment income - net                               (212,720)         (409,119)
   Net realized gains                                     (76,462)               --
                                                  ---------------   ---------------
     Total distributions                                 (289,182)         (409,119)
                                                  ---------------   ---------------
Capital share transactions (note 6):
   Proceeds from sales                                    379,426         1,016,744
   Shares issued as a result of reinvested
    distributions                                              --           409,119
   Payments for redemption of shares                   (7,905,794)       (2,452,305)
                                                  ---------------   ---------------
     Increase (decrease) in net assets from
      capital share transactions                       (7,526,368)       (1,026,442)
                                                  ---------------   ---------------
     Total increase (decrease) in net assets           (7,695,665)         (885,567)
Net assets at beginning of year                         7,695,665         8,581,232
                                                  ---------------   ---------------
Net assets at end of year*                        $            --   $     7,695,665
                                                  ===============   ===============

*  including (distributions in excess of)
   undistributed net investment income of         $            --   $            --


** For the period January 1, 2002 to September 20, 2002. Pursuant to the terms
   of the prospectus, the Maturing Government Bond 2002 Portfolio made a
   liquidating distribution and ceased operations on September 20, 2002.

   Payments for redemptions of shares includes the liquidating distribution of
   $4,074,018.

                                       131





                                                      MATURING GOVERNMENT               MATURING GOVERNMENT
                                                          BOND 2006                         BOND 2010
                                                          PORTFOLIO                         PORTFOLIO
                                                ------------------------------    ------------------------------
                                                     2002            2001             2002             2001
                                                -------------    -------------    -------------    -------------
                                                                                       
Operations:
   Investment income (loss) - net               $     454,094    $     424,635    $     334,636    $     330,251
   Net realized gains (losses) on investments          (2,018)          10,144          146,915           15,809
   Net change in unrealized appreciation or
    depreciation of investments                       683,743          147,222          668,644         (105,364)
                                                -------------    -------------    -------------    -------------
    Net increase (decrease) in net assets
     resulting from operations                      1,135,819          582,001        1,150,195          240,696
                                                -------------    -------------    -------------    -------------
Distributions to shareholders from:
   Investment income - net                                  -         (426,050)          (5,251)        (632,006)
   Net realized gains                                       -                -                -                -
   Tax return of capital                                    -                -                -                -
                                                -------------    -------------    -------------    -------------
     Total distributions                                    -         (426,050)          (5,251)        (632,006)
                                                -------------    -------------    -------------    -------------
Capital share transactions (note 6):
   Proceeds from sales                              2,842,650        3,243,297        4,504,972        1,969,348
   Shares issued as a result of reinvested
    distributions                                           -          426,050            5,251          632,006
   Payments for redemption of shares               (2,023,006)      (1,559,790)      (2,151,071)      (1,892,327)
                                                -------------    -------------    -------------    -------------
     Increase (decrease) in net assets from
   capital share transactions                         819,644        2,109,557        2,359,152          709,027
                                                -------------    -------------    -------------    -------------
     Total increase (decrease) in net assets        1,955,463        2,265,508        3,504,096          317,717
Net assets at beginning of year                     8,694,113        6,428,605        5,854,789        5,537,072
                                                -------------    -------------    -------------    -------------
Net assets at end of year*                      $  10,649,576    $   8,694,113    $   9,358,885    $   5,854,789
                                                =============    =============    =============    =============
* including (distributions in excess of)
  undistributed net investment income of        $           -    $           -    $           -    $       5,250


See accompanying notes to financial statements.

                                       132





                                                            VALUE                         SMALL COMPANY
                                                            STOCK                             VALUE
                                                          PORTFOLIO                         PORTFOLIO
                                                ------------------------------    ------------------------------
                                                     2002            2001             2002             2001
                                                -------------    -------------    -------------    -------------
                                                                                       
Operations:
   Investment income (loss) - net               $   1,633,346    $   1,663,360    $    (222,707)   $     (48,768)
   Net realized gains (losses) on investments     (12,030,116)     (11,055,053)         785,620        1,476,282
   Net change in unrealized appreciation or
    depreciation of investments                   (10,871,046)      (7,664,798)     (15,359,753)       2,846,609
                                                -------------    -------------    -------------    -------------
    Net increase (decrease) in net assets
     resulting from operations                    (21,267,816)     (17,056,491)     (14,796,840)       4,274,123
                                                -------------    -------------    -------------    -------------
Distributions to shareholders from:
   Investment income - net                                  -       (1,680,699)               -                -
   Net realized gains                                       -                -                -       (1,677,879)
   Tax return of capital                                    -                -                -         (329,723)
                                                -------------    -------------    -------------    -------------
     Total distributions                                    -       (1,680,699)               -       (2,007,602)
                                                -------------    -------------    -------------    -------------
Capital share transactions (note 6):
   Proceeds from sales                             27,010,207       30,754,074       47,828,722       26,422,993
   Shares issued as a result of reinvested
    distributions                                           -        1,680,699                -        2,007,602
   Payments for redemption of shares              (34,540,569)     (38,230,381)     (19,425,312)     (11,923,855)
                                                -------------    -------------    -------------    -------------
     Increase (decrease) in net assets from
   capital share transactions                      (7,530,362)      (5,795,608)      28,403,410       16,506,740
                                                -------------    -------------    -------------    -------------
     Total increase (decrease) in net assets      (28,798,178)     (24,532,798)      13,606,570       18,773,261
Net assets at beginning of year                   141,600,855      166,133,653       41,337,192       22,563,931
                                                -------------    -------------    -------------    -------------
Net assets at end of year*                      $ 112,802,677    $ 141,600,855    $  54,943,762    $  41,337,192
                                                =============    =============    =============    =============
* including (distributions in excess of)
  undistributed net investment income of        $           -    $           -    $           -    $           -
                                                -------------    -------------    -------------    -------------




                                                         GLOBAL BOND
                                                          PORTFOLIO
                                                ------------------------------
                                                     2002            2001
                                                -------------    -------------
                                                           
Operations:
   Investment income (loss) - net               $   2,067,148    $   1,738,402
   Net realized gains (losses) on investments       1,930,169         (603,028)
   Net change in unrealized appreciation or
    depreciation of investments                     3,706,907       (1,575,890)
                                                -------------    -------------
    Net increase (decrease) in net assets
     resulting from operations                      7,704,224         (440,516)
                                                -------------    -------------
Distributions to shareholders from:
   Investment income - net                           (121,774)        (432,056)
   Net realized gains                                       -                -
   Tax return of capital                                    -                -
                                                -------------    -------------
     Total distributions                             (121,774)        (432,056)
                                                -------------    -------------
Capital share transactions (note 6):
   Proceeds from sales                             13,831,379        8,012,751
   Shares issued as a result of reinvested
    distributions                                     121,774          432,056
   Payments for redemption of shares               (7,810,703)      (4,791,957)
                                                -------------    -------------
     Increase (decrease) in net assets from
   capital share transactions                       6,142,450        3,652,850
                                                -------------    -------------
     Total increase (decrease) in net assets       13,724,900        2,780,278
Net assets at beginning of year                    39,957,743       37,177,465
                                                -------------    -------------
Net assets at end of year*                      $  53,682,643    $  39,957,743
                                                =============    =============
* including (distributions in excess of)
  undistributed net investment income of        $    (492,617)   $    (635,104)


                                       133





                                                         INDEX 400 MID-CAP                MACRO-CAP VALUE
                                                             PORTFOLIO                       PORTFOLIO
                                                   -----------------------------   -----------------------------
                                                        2002            2001            2002            2001
                                                   -------------   -------------   -------------   -------------
                                                                                       
Operations:
   Investment income (loss) - net                  $     180,199   $     308,309   $      92,903   $     104,651
   Net realized gains (losses) on investments           (823,490)        526,223      (2,487,222)     (1,279,162)
   Net change in unrealized appreciation or
    depreciation of investments                       (6,897,612)     (1,069,495)     (5,495,748)     (1,040,899)
                                                   -------------   -------------   -------------   -------------
    Net increase (decrease) in net assets
     resulting from operations                        (7,540,903)       (234,963)     (7,890,067)     (2,215,410)
                                                   -------------   -------------   -------------   -------------
Distributions to shareholders from:
   Investment income - net                                     -        (344,749)              -         (73,922)
   Net realized gains                                          -      (1,274,449)              -               -
   Tax return of capital                                       -        (622,161)              -               -
                                                   -------------   -------------   -------------   -------------
     Total distributions                                       -      (2,241,359)              -         (73,922)
                                                   -------------   -------------   -------------   -------------
Capital share transactions (note 6):
   Proceeds from sales                                23,581,687      16,022,345       8,725,818      11,187,951
   Shares issued as a result of reinvested
    distributions                                              -       2,241,359               -          73,922
   Payments for redemption of shares                 (15,273,980)    (10,486,711)     (7,249,004)     (9,958,841)
                                                   -------------   -------------   -------------   -------------
     Increase (decrease) in net assets from
   capital share transactions                          8,307,707       7,776,993       1,476,814       1,303,032
                                                   -------------   -------------   -------------   -------------
     Total increase (decrease) in net assets             766,804       5,300,671      (6,413,253)       (986,300)
Net assets at beginning of year                       41,068,690      35,768,019      26,878,685      27,864,985
                                                   -------------   -------------   -------------   -------------
Net assets at end of year*                         $  41,835,494   $  41,068,690   $  20,465,432   $  26,878,685
                                                   =============   =============   =============   =============
* including (distributions in excess of)
  undistributed net investment income of           $           -   $           -   $           -   $           -


See accompanying notes to financial statements.

                                       134





                                                         MICRO-CAP GROWTH                   REAL ESTATE
                                                             PORTFOLIO                 SECURITIES PORTFOLIO
                                                   -----------------------------   -----------------------------
                                                        2002            2001            2002            2001
                                                   -------------   -------------   -------------   -------------
                                                                                       
Operations:
   Investment income (loss) - net                  $    (360,230)  $    (446,200)  $     875,467   $     500,146
   Net realized gains (losses) on investments         (7,005,781)    (12,126,732)       (131,672)        385,404
   Net change in unrealized appreciation or
    depreciation of investments                      (11,905,885)      6,637,385          96,138         333,586
                                                   -------------   -------------   -------------   -------------
    Net increase (decrease) in net assets
     resulting from operations                       (19,271,896)     (5,935,547)        839,933       1,219,136
                                                   -------------   -------------   -------------   -------------
Distributions to shareholders from:
   Investment income - net                                     -               -          (4,101)       (496,045)
   Net realized gains                                          -        (145,400)              -               -
   Tax return of capital                                       -               -               -               -
                                                   -------------   -------------   -------------   -------------
     Total distributions                                       -        (145,400)         (4,101)       (496,045)
                                                   -------------   -------------   -------------   -------------
Capital share transactions (note 6):
   Proceeds from sales                                10,767,492      13,109,564      26,881,306       7,724,138
   Shares issued as a result of reinvested
    distributions                                              -         145,400           4,101         496,045
   Payments for redemption of shares                 (12,020,683)    (14,321,414)     (9,447,280)     (3,252,393)
                                                   -------------   -------------   -------------   -------------
     Increase (decrease) in net assets from
   capital share transactions                         (1,253,191)     (1,066,450)     17,438,127       4,967,791
                                                   -------------   -------------   -------------   -------------
     Total increase (decrease) in net assets         (20,525,087)     (7,147,397)     18,273,959       5,690,882
Net assets at beginning of year                       45,028,940      52,176,337      15,638,055       9,947,173
                                                   -------------   -------------   -------------   -------------
Net assets at end of year*                         $  24,503,853   $  45,028,940   $  33,912,014   $  15,638,055
                                                   =============   =============   =============   =============
* including (distributions in excess of)
  undistributed net investment income of           $           -   $           -   $           -   $       4,101


                 See accompanying notes to financial statements.

                                       135



Advantus Series Fund, Inc.
Notes to Financial Statements
DECEMBER 31, 2002

(1) ORGANIZATION

Advantus Series Fund, Inc. (the Fund) is registered under the Investment Company
Act of 1940 (as amended) as a diversified (except for Global Bond Portfolio),
open-end management investment company with a series of eighteen portfolios
(Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company Growth, Maturing
Government Bond 2006, Maturing Government Bond 2010, Value Stock, Small Company
Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth and
Real Estate Securities). The Fund's prospectus provides a detailed description
of each Portfolio's investment objective, policies and strategies.

Pursuant to the terms of its prospectus, the Maturing Government Bond 2002
Portfolio made a liquidating distribution and ceased operations on September 20,
2002.

The Fund accounts for the assets, liabilities and operations of each Portfolio
separately. Shares of the Fund will not be offered directly to the public, but
sold only to Minnesota Life Insurance Company's (Minnesota Life) separate
accounts in connection with Minnesota Life variable contracts and policies.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed by the Fund are as follows:

                                USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, including disclosure of contingent assets and liabilities, as of
the balance sheet date and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

                            INVESTMENTS IN SECURITIES

Each Portfolio's net asset value is generally calculated as of the close of
normal trading on the New York Stock Exchange (typically 3:00 p.m. Central
Time). Investments in securities traded on a U.S. or foreign securities exchange
are valued at the last sales price on that exchange prior to the time when
assets are valued; securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued on the basis
of the last current bid price, by an independent pricing service or at a price
deemed best to reflect fair value quoted by dealers who make markets in these
securities. The pricing service may use models that price securities based on
current yields and relative security characteristics, such as coupon rate,
maturity date, issuer credit quality, and prepayment speeds as applicable. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith under procedures adopted by the Board of Directors.
Short-term securities, with the exception of those held in Money Market,
International Stock, Macro-Cap Value and Global Bond Portfolios, are valued at
market. For International Stock, Macro-Cap Value and Global Bond Portfolios,
short-term securities with maturities of less than 60 days when acquired, or
which subsequently are within 60 days of maturity, are valued at amortized cost
which approximates market value. Pursuant to Rule 2a-7 of the Investment Company
Act of 1940 (as amended), all securities in Money Market are valued at amortized
cost, which approximates market value, in order to maintain a constant net asset
value of $1 per share. However, there is no assurance the portfolio will
maintain the $1 net asset value.

                                       136



Security transactions are accounted for on the date the securities are purchased
or sold. Realized gains and losses are calculated on the identified-cost basis.
Paydowns of securities are recorded as receivables as of the due date, which
varies by issuer. Dividend income is recognized on the ex-dividend date, or upon
dividend notification for certain foreign securities, and interest income,
including amortization of bond premium and discount computed on a level yield
basis, is accrued daily.

      FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS

Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities, income and
expenses are translated at the exchange rate on the transaction date. The Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities. Such fluctuations are included with
net realized and unrealized gains or losses from investments.

Net realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, currency gains or losses
realized between trade and settlement dates on security transactions, the
difference between the amounts of dividends, interest and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rates.

International Stock and Global Bond also may enter into forward foreign currency
exchange contracts for operational purposes and to protect against adverse
exchange rate fluctuations. Global Bond may also enter into these contracts for
purposes of increasing exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by
International Stock or Global Bond and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. International Stock and Global Bond are subject to
the credit risk that the other party will not complete the obligations of the
contract.

                              FUTURES TRANSACTIONS

To gain exposure to or protect itself from market changes, the Portfolios may
buy and sell financial futures contracts traded on any U.S. or foreign exchange.
The Portfolios may also buy and write put and call options on these future
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may correlate with changes in the value of the underlying
securities.

Upon entering into a futures contract, a Portfolio is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Portfolio each day. The variation margin payments are equal to
the daily changes in the contract value and are recorded as unrealized gains and
losses. The Portfolio recognizes a realized gain or loss when the contract is
closed or expired.

                                       137



                                  FEDERAL TAXES

Each Portfolio's policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no income tax provision is
required. Each Portfolio within the Fund is treated as a separate entity for
federal income tax purposes. Each Portfolio's policy is to make the required
minimum distributions prior to December 31, in order to avoid Federal excise
tax.

For federal income tax purposes, the following Portfolios had capital loss
carryovers and/or post October losses at December 31, 2002 which, if not offset
by subsequent capital gains, will expire December 31, 2003 through 2009. It is
unlikely the Board of Directors will authorize a distribution of any net
realized capital gains until the available capital loss carryovers have been
offset or expire:

                             
Growth                          $  108,750,527
Bond                                 4,365,625
Asset Allocation                    99,502,598
Mortgage Securities                    476,556
Index 500                           20,785,007
Capital Appreciation               101,874,033
International Stock                 22,990,348
Small Company Growth                63,953,052
Maturing Government Bond 2006           47,895
Value Stock                         28,364,571
Index 400 Mid Cap.                     901,189
Macro-cap Value                      3,867,512
Micro-cap Growth                    19,295,583
Real Estate Securities                 260,378



Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains were recorded by the
Portfolio.

                                       138



On the statements of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments were made as follows:



                                UNDISTRIBUTED NET        ACCUMULATED       ADDITIONAL PAID-IN
                                INVESTMENT INCOME   REALIZED GAIN (LOSS)         CAPITAL
                                -----------------   --------------------   ------------------
                                                                  
Growth                            $    (449,970)        $          -          $    449,970
Bond                                (13,245,517)                   -            13,245,517
Asset Allocation                    (10,437,843)                   -            10,437,843
Mortgage Securities                 (15,144,759)                   -            15,144,759
Index 500                            (5,653,756)                   -             5,653,756
Capital Appreciation                     59,387                    -               (59,387)
International Stock                  (4,806,386)           1,081,727             3,724,659
Small Company Growth                  1,093,804                    -            (1,093,804)
Maturing Government Bond 2006          (454,094)                   -               454,094
Maturing Government Bond 2010          (334,635)            (102,411)              437,046
Value Stock                          (1,633,346)                   -             1,633,346
Small Company Value                     222,707             (715,403)              492,696
Global Bond                          (1,802,887)            (864,563)            2,667,450
Index 400 Mid-cap                      (180,199)             622,161              (441,962)
Macro-cap Value                         (92,903)                   -                92,903
Micro-cap Growth                        360,230                    -              (360,230)
Real Estate Securities                 (875,467)                   -               875,467


Included in the reclassification adjustments above are $449,970, $13,245,517,
$10,437,843, $15,144,759, $5,653,756, $3,724,659, $454,094, $437,046,
$1,633,346, $3,753,037, $180,199, $92,903 and $875,467 in consent dividends for
Growth, Bond, Asset Allocation, Mortgage Securities, Index 500, International
Stock, Maturing Government Bond 2006, Maturing Government Bond 2010, Value
Stock, Global Bond, Index 400 Mid-Cap, Macro-Cap Value and Real Estate
Securities, respectively. The shareholders of the portfolios consent to treat
these amounts as dividend income for tax purposes although they are not paid
(either in cash or reinvested distributions) by the Portfolios.

The tax character of distributions paid for the periods indicated is as follows:



                                YEAR ENDED DECEMBER 31,
                                -----------------------
                                 2002           2001
                                -------  --------------
                                   
Growth
Distributions paid from:
Ordinary income                  $   -   $    1,109,033
Long-term capital gain               -       53,454,344

Bond
Distributions paid from:
Ordinary income                      -       24,738,440
Long-term capital gain               -                -


                                       139





                                      YEARS ENDED DECEMBER 31,
                                  ------------------------------
                                     2002               2001
                                  -----------       ------------
                                              
Money Market
Distributions paid from:
Ordinary income                   $ 1,962,910        $ 5,624,781
Long-term capital gain                      -                  -

Asset Allocation
Distributions paid from:
Ordinary income                             -         24,476,623
Long-term capital gain                      -         53,569,971

Mortgage Securities
Distributions paid from:
Ordinary income                       149,451         22,990,172
Long-term capital gain                      -                  -

Index 500
Distributions paid from:
Ordinary income                             -          5,078,231
Long-term capital gain                      -          6,116,192

Capital Appreciation
Distributions paid from:
Ordinary income                             -         46,177,011
Long-term capital gain                      -         47,191,115

International Stock
Distributions paid from:
Ordinary income                             -         17,426,210
Long-term capital gain                      -         26,184,199

Small Company Growth
Distributions paid from:
Ordinary income                             -         20,048,512
Long-term capital gain                      -         57,640,719

Maturing Government Bond 2002
Distributions paid from:
Ordinary income                       212,720            409,119
Long-term capital gain                 76,462                  -

Maturing Government Bond 2006
Distributions paid from:
Ordinary income                             -            426,050
Long-term capital gain                      -                  -

Maturing Government Bond 2010
Distributions paid from:
Ordinary income                         5,251            632,006
Long-term capital gain                      -                  -


                                       140





                                     YEARS ENDED DECEMBER 31,
                                  ------------------------------
                                      2002              2001
                                  -----------       ------------
                                              
Value Stock
Distributions paid from:
Ordinary income                   $         -       $  1,680,699
Long-term capital gain                      -                  -

Small Company Value
Distributions paid from:
Ordinary income                             -            620,845
Long-term capital gain                      -          1,057,034
Tax return of capital                       -            329,723

Global Bond
Distributions paid from:
Ordinary income                       121,774            432,056
Long-term capital gain                      -                  -

Index 400 Mid-Cap
Distributions paid from:
Ordinary income                             -            344,749
Long-term capital gain                      -          1,274,449
Tax return of capital                       -            622,161

Macro-Cap
Value Distributions paid from:
Ordinary income                             -             73,922
Long-term capital gain                      -                  -

Micro-Cap Growth
Distributions paid from:
Ordinary income                             -                  -
Long-term capital gain                      -            145,400

Real Estate Securities
Distributions paid from:
Ordinary income                         4,101            496,054
Long-term capital gain                      -                  -


                                       141



As of December 31, 2002, the components of distributable earnings on a tax basis
for each Portfolio are as follows:



                                                       ACCUMULATED         UNREALIZED
                                   UNDISTRIBUTED        LONG-TERM         APPRECIATION
                                  ORDINARY INCOME      GAIN (LOSS)       (DEPRECIATION)
                                  ---------------  ------------------  ------------------
                                                              
Growth                                   $     -     $ (108,750,527)     $ (11,500,326)
Bond                                           -         (4,365,625)         9,115,756
Money Market                                   -                  -                  -
Asset Allocation                               -        (99,502,598)       (13,080,114)
Mortgage Securities                            -           (476,556)         6,485,345
Index 500                                      -        (20,785,007)        74,078,815
Capital Appreciation                           -       (101,874,033)       (33,233,854)
International Stock                            -        (22,990,348)       (45,403,738)
Small Company Growth                           -        (63,953,052)       (40,926,357)
Maturing Government Bond 2006                  -            (47,895)         1,211,024
Maturing Government Bond 2010                  -                  -            970,794
Value Stock                                    -        (28,364,571)        (2,761,240)
Small Company Value                            -                  -         (9,163,168)
Global Bond                                    -                  -          1,691,091
Index 400 Mid-Cap                              -           (901,189)        (6,184,835)
Macro-Cap Value                                -         (3,867,512)        (7,563,174)
Micro-Cap Growth                               -        (19,295,583)        (8,214,961)
Real Estate Securities                         -           (260,378)           917,652


                          DISTRIBUTIONS TO SHAREHOLDERS

Distributions to shareholders from net investment income for Money Market are
declared and reinvested daily in additional shares of capital stock. For
Portfolios other than Money Market, distributions from net investment income and
realized gains, if any, will generally be declared and reinvested in additional
shares on an annual basis.

                   SECURITIES PURCHASED ON A WHEN-ISSUED BASIS

Delivery and payment for securities which have been purchased by the Portfolio
on a forward commitment or when-issued basis can take place a month or more
after the transaction date. During this period, such securities are subject to
market fluctuations. As of December 31, 2002, the Bond, Mortgage Securities and
Global Bond Portfolios had entered into outstanding, when-issued or forward
commitments of $2,852,930, $7,147,402 and $3,105,723, respectively. Each
Portfolio has segregated assets with the custodian to cover such when-issued and
forward commitments.

                                       142



(3) INVESTMENT SECURITY TRANSACTIONS

For the year ended December 31, 2002, the cost of purchases and proceeds from
sales of investment securities aggregated $1,533,595,484 and $1,511,085,494
respectively, for Money Market Portfolio. For the other Portfolios, the cost of
purchases and proceeds from sales of investment securities, other than temporary
investments in short-term securities, for the year ended December 31, 2002 were
as follows:

INVESTMENT SECURITY TRANSACTIONS



                                    PURCHASES        SALES
                                  -------------  -------------
                                           
Growth                            $ 234,653,987  $ 254,420,297
Bond                                380,421,308    347,289,289
Asset Allocation                    489,859,895    544,628,711
Mortgage Securities                 206,830,863    190,995,962
Index 500                            57,823,642     35,627,116
Capital Appreciation                 80,496,777     96,217,790
International Stock                  82,075,460     81,443,566
Small Company Growth                 86,894,432     97,900,522
Maturing Government Bond 2002                 -      7,704,162
Maturing Government Bond 2006         1,243,346        570,612
Maturing Government Bond 2010         3,541,985      1,324,898
Value Stock                         143,317,106    146,312,295
Small Company Value                  43,826,612     18,883,862
Global Bond                         141,064,364    131,742,476
Index 400 Mid Cap                    16,784,988      7,935,351
Macro-Cap Value                       9,481,383      7,248,748
Micro-Cap Growth                     21,127,988     23,226,435
Real Estate Securities               35,349,950     17,497,425


                                       143



(4) FORWARD FOREIGN CURRENCY CONTRACTS

On December 31, 2002, Global Bond had entered into forward currency contracts
that obligate Global Bond to deliver currencies at specified future dates.
Unrealized appreciation and depreciation on these contracts is included in the
accompanying financial statements. The terms of the open contracts were as
follows:



EXCHANGE      CURRENCY TO BE           CURRENCY TO BE         UNREALIZED     UNREALIZED
  DATE          DELIVERED                 RECEIVED           APPRECIATION   DEPRECIATION
- -------   ----------------------  -----------------------  ---------------  ------------
                                                                
1/03/03          69,684   EUR            73,050   US$       $         -       $      66
1/03/03          68,380   EUR            71,272   US$                 -             475
1/07/03       6,768,668   JPY            56,760   US$                 -             296
1/09/03       1,682,739   US$        17,100,000   MXP                 -          51,291
1/09/03       9,800,000   MXP           939,057   US$             4,075               -
1/09/03       3,000,000   MXP           296,018   US$             9,799               -
1/09/03       4,300,000   MXP           425,911   US$            15,664               -
1/15/03         112,584   EUR           400,000   BRL                 -           5,067
1/15/03         400,000   BRL           149,549   EUR            43,831               -
1/21/03      15,000,000   SEK         1,644,592   EUR             4,273               -
1/21/03      13,400,000   SEK         1,472,854   EUR             7,680               -
1/21/03      12,000,000   SEK         1,330,332   EUR            18,786               -
1/21/03         760,322   EUR         6,900,000   SEK                 -           5,959
1/21/03       1,411,958   EUR        12,700,000   SEK                 -          24,099
1/24/03         256,147   US$           400,000   CAD                 -           3,180
1/24/03       1,544,498   US$         2,460,000   CAD            11,251               -
1/24/03       2,989,182   US$         4,670,000   CAD                 -          35,789
1/24/03         770,000   CAD           482,456   EUR            18,748               -
1/24/03       2,900,000   CAD         1,835,675   US$             1,662               -
1/24/03       1,800,000   CAD         1,151,594   US$            13,242               -
1/31/03       5,200,000   NZD         2,589,241   EUR             4,786               -
1/31/03       1,370,000   NZD           685,000   EUR             4,231               -
1/31/03         515,040   EUR         1,050,000   NZD             7,193               -
1/31/03       2,753,501   EUR         5,520,000   NZD                 -          10,238
2/24/03       2,492,500   US$         2,500,000   EUR           124,749               -
2/24/03       2,528,287   US$         2,500,000   EUR            88,961               -
2/24/03       2,831,304   US$         2,800,000   EUR           100,015               -
2/24/03       9,500,000   EUR         9,472,640   US$                 -         472,906
3/03/03       1,330,000   GBP         2,055,641   EUR            19,681               -
3/03/03       2,075,193   EUR         1,330,000   GBP                 -          40,145
3/03/03     124,020,600   JFY           660,000   GBP            10,164               -
3/03/03         660,000   GBP       127,761,480   JPY            21,439               -
3/05/03       1,500,000   GBP         2,344,849   EUR            50,026               -
3/05/03       1,230,400   US$           800,000   GBP            51,689               -
3/10/03      19,000,000   JPY           274,685   AUD                 -           6,901
3/10/03     184,700,000   JPY         2,395,652   CAD                 -          48,276
3/10/03      37,000,000   JPY           298,777   EUR                 -              43
3/10/03     187,900,000   JPY           974,153   GBP                 -          27,156
3/10/03       8,043,758   US$     1,000,000,000   JPY           406,408               -
3/10/03       2,462,601   US$       308,000,000   JPY           140,050               -
3/10/03       2,376,021   CAD       184,700,000   JPY            60,670               -
3/10/03       1,614,238   US$       193,000,000   JPY            16,643               -
3/10/03     193,000,000   JPY         1,600,198   US$                 -          30,683
7/15/03         400,000   BRL           107,941   EUR                 -             529
                                                            -----------       ---------
                                                            $ 1,255,716       $ 763,099
                                                            ===========       =========


                                       144



AUD               Australian Dollar
BRL                  Brazilian Real
CAD                 Canadian Dollar
EUR                            Euro
GBP          British Sterling Pound
JPY                    Japanese Yen
MXP                    Mexican Peso
NOK                 Norwegian Krone
NZD              New Zealand Dollar
SEK                   Swedish Krona
US$            United States Dollar
ZAR              South African Rand

(5) EXPENSES AND RELATED PARTY TRANSACTIONS

The Fund has an investment advisory agreement with Advantus Capital Management,
Inc. (Advantus Capital), a wholly-owned subsidiary of Securian Financial Group.
Under the advisory agreement, Advantus Capital manages the Fund's assets and
provides research, statistical and advisory services and pays related office
rental and executive expenses and salaries.

                                       145



Each Portfolio of the Fund pays Advantus Capital an annual fee, based on average
net assets, in the following amounts:



                                                    ANNUAL FEE
                                      -----------------------------------------------
                                   
Growth                                .45% of assets to $1 billion; and .40% of
                                      assets exceeding $1 billion
Bond                                  .30% of assets to $500 million; and.25% of
                                      assets exceeding $500 million to $1 billion and
                                      .20% of assets exceeding $1 billion
Money Market                          .25% of assets to $1 billion; and .20% of
                                      assets exceeding $1 billion
Asset Allocation                      .35% of assets to $1 billion; and
                                      .30% of assets exceeding $1 billion
Mortgage Securities                   .30% of assets to $1 billion; and .25% of
                                      assets exceeding $1 billion
Index 500                             .15% of assets to $250 million; and .10%
                                      of assets exceeding $250 million to
                                      $1 billion; and .075% of assets exceeding
                                      $1 billion
Capital Appreciation                  .50% of assets to $1 billion; and .45% of
                                      assets to $1 billion
International Stock                   .60% of assets to $ 250 million; .55% of assets
                                      exceeding $250 million to $500 million; .50% of
                                      assets exceeding $500 million to $1 billion; and
                                      .45% of assets exceeding $1 billion
Small Company Growth                  .65% of assets to $1 billion; and .60% of
                                      assets exceeding $1 billion
Maturing Government Bond 2006         .25%
Maturing Government Bond 2010         .25%
Value Stock                           .50% of assets to $500 million; and .45% of
                                      assets exceeding $500 million to $1 billion; and
                                      .40% of assets exceeding $1 billion
Small Company Value                   .70% of assets to $1 billion; and .65% of
                                      assets exceeding $1 billion
Global Bond                           .60% of assets to $1 billion; and .55% of
                                      assets exceeding $1 billion
Index 400 Mid-Cap                     .15% of assets to $ 250 million; .10% of
                                      assets exceeding $250
                                      million to $1 billion; and .075% of
                                      assets exceeding $1 billion
Macro-Cap Value                       .50%
Micro-Cap Growth                      .95%
Real Estate Securities                .60% of assets to $1 billion; and .55% of
                                      assets exceeding $1 billion


                                       146



Advantus Capital has sub-advisory agreements with the following registered
investment advisers. Under the sub-advisory agreements, Advantus Capital pays
the sub-advisers an annual fee based on average daily net assets, in the
following amounts:



PORTFOLIO                   SUB-ADVISOR                            FEE
- ---------                   -----------          -----------------------------------------
                                           
Capital Appreciation   Credit Suisse Asset
                       Management, LLC           .50% of average daily net assets
                                                 to $150 million; .49% of average daily
                                                 net assets to $200 million
International Stock    Templeton Investment
                       Counsel, Inc.             .70% of average daily net assets to
                                                 $10 million; .65% of average daily net
                                                 assets exceeding $10 million to
                                                 $25 million; .55% of average daily net
                                                 assets exceeding $25 million to $50;
                                                 .50% of average daily net assets
                                                 exceeding $50 million to $100 million;
                                                 and .40% of average daily net assets
                                                 exceeding $100 million
Small Company Growth   Credit Suisse Asset
                       Management, LLC           .65% of average daily net assets to
                                                 $150 million; .64% of average daily net
                                                 assets to $200 million
Small Company Value    State Street Research &
                       Management                .65% on the first $100 million of total
                                                 assets; .60% of total assets in excess
                                                 of $100 million
Global Bond            Julius Baer Investment
                       Management, Inc.          .30% of average daily net assets
Macro-Cap Value        J.P. Morgan Investment
                       Management, Inc.          .45% of average daily net assets
Micro-Cap Growth       Wall Street Associates    .85% of average daily net assets


Effective May 1, 2003, the current sub-advisor for the Capital Appreciation
Portfolio will be replaced by a new sub-advisor, Voyageur Asset Management, Inc.

Effective May 1, 2003, the current sub-advisory aggrement for the Macro-Cap
Value Portfolio will terminate, and the Portfolio will be managed directly by
Advantus Capital.

                                       147



The Fund bears certain other operating expenses including outside directors'
fees, federal registration fees, printing and shareholder report expenses, legal
fees, audit fees, custodian fees, and other miscellaneous expenses. Each
Portfolio will pay all expenses directly related to its individual operations.
Operating expenses not attributable to a specific Portfolio will be allocated
based upon the proportionate net asset size of each Portfolio. Advantus Capital
directly incurs and pays these operating expenses relating to the Fund and the
Fund in turn reimburses Advantus Capital.

                            VOLUNTARY FEE ABSORPTION

Advantus Capital voluntarily absorbed all fees and expenses that exceeded, 1.10%
of average daily net assets for the Small Company Value Portfolio, 1.00% of
average daily net assets for the Real Estate Securities Portfolio, .65% of
average daily net assets for each of the three Maturing Government Bond
Portfolios, 1.05% of average daily net assets for the Macro-Cap Value Portfolio,
and 1.34% of average daily net assets for the Micro-Cap Growth Portfolio.
Advantus Capital has not agreed to absorb expenses over a specific period of
time and it may cease its absorption of expenses at any time. If it does so,
some Portfolio expenses would increase and thereby reduce investment return.

During the year ended December 31, 2002, Advantus Capital Management voluntarily
agreed to absorb $34,386, $35,104, $44,356, $40,674, $50,401, $36,055 and
$47,820 in expenses that were otherwise payable by Maturing Government Bond
2002, Maturing Government Bond 2006, Maturing Government Bond 2010, Small
Company Value, Macro-Cap Value, Micro-Cap Growth, and Real Estate Securities
Portfolios, respectively.

                           ADMINISTRATIVE SERVICE FEE

Each Portfolio pays an administrative services fee to Minnesota Life for
accounting, legal and other administrative services which Minnesota Life
provides. The administrative services fee for each Portfolio is $4,300 per
month, except for International Stock, Global Bond and Macro-Cap Value
Portfolios. For International Stock, Global Bond and Macro-Cap Value, the
administrative services fee is $3,100 per month for each Portfolio.

                               ACCOUNTING SERVICES

The Fund has an agreement with SEI Investments Mutual Fund Services (SEI)
whereby SEI provides daily fund accounting services for International Stock,
Global Bond and Macro-Cap Value Portfolios. Under this agreement, the annual fee
for each Portfolio is equal to the greater of $45,000 or .06% of the first $150
million in net assets, .05% of net assets from $150 million to $1 billion and
..04% of net assets in excess of $1 billion.

                                DISTRIBUTION FEES

The Fund has adopted a Rule 12b-1 Distribution Plan covering all of its
Portfolios except the Maturing Government Bond Portfolios. Each covered
Portfolio pays distribution fees equal to .25% per annum of the average daily
net assets of the Portfolio. These fees are paid out of the Portfolio's assets,
which affects the Portfolios share price. The fees are paid to Securian
Financial Services, Inc. (Securian) the Fund's underwriter, to pay for
distribution-related expenses and activities in connection with the distribution
of the Portfolios shares. Securian may also use the fees to pay insurance
companies, dealers or others for certain non-distribution services as provided
for in the Distribution Plan.

(6) STOCK INDEX FUTURES CONTRACTS

Investments in securities as of December 31, 2002, included securities valued at
$16,032,000 in the Index 500 Portfolio and $3,517,160 in the Index 400 Mid-Cap
Portfolio that were used as collateral to cover initial margin deposits on 26
open March 2003 S&P 500 and 13 open March 2003 EMINI Futures purchase contracts
in the Index 500 Portfolio and 47 open March 2003 Mid-Cap 400 Futures purchase
contracts in the Index 400 Mid-Cap Portfolio. The market value of the open
purchase contracts as of December 31, 2002, was $5,516,160 in the Index 500
Portfolio and $2,020,530 in the Index 400 Mid-Cap Portfolio with a net
unrealized loss of $148,439 in the Index 500 Portfolio and a net unrealized loss
of $26,505 in the Index 400 Mid-Cap Portfolio.

                                       148



(7) SECURITIES LENDING

To enhance returns, certain portfolio's of the Fund loan securities to brokers
in exchange for collateral. The Portfolios receive a fee from the brokers
measured as a percent of the loaned securities. At December 31, 2002, the
collateral is invested in cash equivalents and repurchase agreements and must be
102% of the value of securities loaned. The risks to the portfolios of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due. The value of securities on loan
and collateral held for each of the portfolios loaning securities at December
31, 2002, were:



                          MARKET VALUE    MARKET VALUE
                          OF SECURITIES   OF COLLATERAL
                              LOANED          HELD
                          -------------   -------------
                                    
Growth                    $  9,110,646    $   9,400,146
Asset Allocation            24,159,907       25,137,654
Index 500                   27,127,002       28,716,578
Capital Appreciation         2,690,495        2,763,997
International Stock         32,725,722       35,121,075
Small Company Growth        16,784,097       17,716,318
Value Stock                  5,289,370        5,467,680
Small Company Value          8,539,840        9,188,771
Index 400 Mid-Cap            6,983,119        7,277,084
Macro-Cap Value              1,112,434        1,186,674
Micro-Cap Growth             5,466,860        5,840,540
Real Estate Securities       2,319,732        2,411,288


(8) CAPITAL SHARE TRANSACTIONS

Transactions in shares of Portfolios for the years ended December 31, 2002 and
December 31, 2001 were as follows:



                                                 GROWTH                        BOND
                                       ---------------------------   --------------------------
                                          2002            2001          2002            2001
                                       -----------    ------------   -----------    -----------
                                                                        
Sold                                    30,683,449      30,696,483    55,927,804     56,598,327
Issued for reinvested distributions              -      35,260,552             -     20,922,065
Redeemed                               (51,403,156)    (49,455,376)  (43,278,128)   (30,978,844)
                                       -----------    ------------   -----------    -----------
                                       (20,719,707)     16,501,659    12,649,676     46,541,548
                                       ===========    ============   ===========    ===========




                                               MONEY MARKET                ASSET ALLOCATION
                                       ----------------------------   --------------------------
                                           2002            2001          2002            2001
                                       ------------    ------------   -----------    -----------
                                                                         
Sold                                    143,102,900     141,076,862    34,613,682     43,181,355
Issued for reinvested distribution        1,959,381       5,682,900             -     54,326,458
Redeemed                               (121,416,680)   (190,799,884)  (83,428,552)   (85,517,405)
                                       ------------    ------------   -----------    -----------
                                         23,645,601     (44,040,122)  (48,814,870)    11,990,408
                                       ============    ============   ===========    ===========


                                       149





                                           MORTGAGE SECURITIES                INDEX 500
                                       ---------------------------   --------------------------
                                          2002            2001           2002           2001
                                       -----------    ------------   -----------    -----------
                                                                        
Sold                                    70,887,702      77,693,868    50,204,423     36,921,915
Issued for reinvested distributions        122,215      19,534,032             -      3,201,911
Redeemed                                72,842,734     (25,544,820)  (44,752,389)   (34,685,594)
                                       -----------    ------------   -----------    -----------
                                        (1,832,817)     71,683,079     5,452,034      5,438,232
                                       ===========    ============   ===========    ===========




                                           CAPITAL APPRECIATION          INTERNATIONAL STOCK
                                       ---------------------------   --------------------------
                                          2002            2001           2002           2001
                                       -----------    ------------   -----------    -----------
                                                                        
Sold                                    23,602,544      20,571,738    51,760,827     33,380,351
Issued for reinvested distributions              -      53,663,688             -     32,112,130
Redeemed                               (43,934,951)    (38,034,517)  (57,121,165)   (51,796,614)
                                       -----------    ------------   -----------    -----------
                                       (20,332,407)     36,200,909    (5,360,338)    13,695,867
                                       ===========    ============   ===========    ===========




                                                                        MATURING GOVERNMENT
                                          SMALL COMPANY GROWTH               BOND 2002
                                       ---------------------------   --------------------------
                                          2002            2001          2002           2001
                                       -----------    ------------   -----------    -----------
                                                                        
Sold                                    43,512,133      37,329,384       341,728        903,511
Issued for reinvested distributions              -      93,003,571             -        372,812
Redeemed                               (57,471,236)    (48,068,203)   (7,354,127)    (2,226,306)
                                       -----------    ------------   -----------    -----------
                                       (13,959,103)     82,264,752    (7,012,399)      (949,983)
                                       ===========    ============   ===========    ===========




                                           MATURING GOVERNMENT           MATURING GOVERNMENT
                                                BOND 2006                     BOND 2010
                                       ---------------------------   --------------------------
                                          2002            2001           2002           2001
                                       -----------    ------------   -----------    -----------
                                                                        
Sold                                     2,170,329       2,616,176     3,138,308      1,435,044
Issued for reinvested distributions              -         351,814         4,183        490,461
Redeemed                                (1,569,941)     (1,259,321)   (1,547,115)    (1,421,532)
                                       -----------    ------------   -----------    -----------
                                           600,388       1,708,669     1,595,376        503,973
                                       ===========    ============   ===========    ===========




                                                VALUE STOCK               SMALL COMPANY VALUE
                                       ----------------------------   --------------------------
                                           2002            2001           2002           2001
                                       ------------    ------------   -----------    -----------
                                                                         
Sold                                     20,073,522      19,744,562    38,656,403     21,112,837
Issued for reinvested distributions               -       1,127,330             -      1,584,207
Redeemed                                (25,746,571)    (24,559,462)  (17,157,172)    (9,642,067)
                                       ------------    ------------   -----------    -----------
                                         (5,673,049)     (3,687,570)   21,499,231     13,054,977
                                       ============    ============   ===========    ===========


                                       150





                                              GLOBAL BOND                INDEX 400 MID-CAP
                                       ---------------------------   ---------------------------
                                         2002            2001          2002            2001
                                       -----------   -------------   -----------   -------------
                                                                       
Sold                                   13,936,749       8,533,523     22,067,302     14,161,041
Issued for reinvested distributions       133,589         470,634              -      2,021,105
Redeemed                               (7,842,322)     (5,089,064)   (14,848,099)    (9,338,185)
                                       -----------   -------------   -----------   -------------
                                        6,228,016       3,915,093      7,219,203      6,843,961
                                       ===========   =============   ===========   =============




                                             MACRO-CAP VALUE              MICRO-CAP GROWTH
                                       ----------------------------  ----------------------------
                                          2002            2001          2002            2001
                                       ------------   -------------  ------------   -------------
                                                                        
Sold                                    10,997,254      11,344,341      9,491,980      8,789,224
Issued for reinvested distributions              -          74,740              -        107,840
Redeemed                                (9,360,785)    (10,153,610)   (10,493,737)    (9,574,375)
                                       ------------   -------------  ------------   -------------
                                         1,636,469       1,265,471     (1,001,757)      (677,311)
                                       ============   =============  ============   =============




                                          REAL ESTATE SECURITIES
                                       ----------------------------
                                          2002            2001
                                       ------------   -------------
                                                
Sold                                    26,219,738       8,342,175
Issued for reinvested distributions          3,890         517,118
Redeemed                                (9,427,201)     (3,552,654)
                                       ------------   -------------
                                        16,796,427       5,306,639
                                       ============   =============


(9) ILLIQUID SECURITIES

Each Portfolio of the Fund currently limits investments in illiquid securities
to 15% of net assets at the time of purchase, except for Money Market which
limits the investment in illiquid securities to 10% of net assets. At December
31, 2002, investments in securities of Bond, Asset Allocation and Mortgage
Securities include issues that are illiquid. The aggregate values of illiquid
securities held by Bond, Asset Allocation and Mortgage Securities were
$7,884,195, $4,728,691 and $12,438,477, respectively, which represent 2.9%, 1.3%
and 5.0% of net assets, respectively. Pursuant to guidelines adopted by the
Fund's Board of Directors, certain unregistered securities are determined to be
liquid and are not included within the percent limitations specified above.

(10) COMMISSION RECAPTURE

The Capital Appreciation Portfolio and International Stock Portfolio participate
in commission recapture agreements with certain brokers whereby a portion of
brokerage commissions on Security trades are refunded. The commission recapture
is reported as commission reimbursement income on the statement of operations.
For the year ended December 31, 2002, the Capital Appreciation Portfolio and
International Stock Portfolio had participated in such agreements and recaptured
$26,002 and $70,842, respectively, in brokerage commissions.

                                       151



(11) FINANCIAL HIGHLIGHTS

GROWTH PORTFOLIO



                                                                 YEAR ENDED DECEMBER 31,
                                              ------------------------------------------------------------
                                                 2002         2001       2000(b)        1999        1998
                                              ---------    ---------    ---------    ---------   ---------
                                                                                  
Net asset value beginning of year             $    1.57    $    2.52    $    3.33    $    2.74   $    2.40
                                              ---------    ---------    ---------    ---------   ---------
Income from investment operations:
   Net investment income (loss)                       -            -         (.01)           -         .01
   Net gains (losses) on securities
     (both realized and unrealized)                (.40)        (.63)        (.68)         .67         .74
                                              ---------    ---------    ---------    ---------   ---------
      Total from investment operations             (.40)        (.63)        (.69)         .67         .75
                                              ---------    ---------    ---------    ---------   ---------
Less distributions:
   Dividends from net investment income               -            -            -         (.01)       (.02)
   Distributions from net realized gains              -         (.32)        (.12)        (.07)       (.39)
                                              ---------    ---------    ---------    ---------   ---------
      Total distributions                             -         (.32)        (.12)        (.08)       (.41)
                                              ---------    ---------    ---------    ---------   ---------
Net asset value, end of year                  $    1.17    $    1.57    $    2.52    $    3.33   $    2.74
                                              =========    =========    =========    =========   =========
Total return (a)                                 (25.44)%     (24.80)%     (21.83)%      25.67%      34.70%
Net assets, end of year (in thousands)        $ 198,421    $ 298,635    $ 438,717    $ 594,676   $ 468,382
Ratio of expenses to average
  daily net assets                                  .76%         .75%         .68%         .53%        .53%
Ratio of net investment (loss) income to
  average daily net assets                          .19%        (.11)%       (.23)%        .12%        .40%
Portfolio turnover rate (excluding
  short-term securities)                           98.7%       119.9%       119.2%        65.3%       66.4%


- ----------

(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       152



BOND PORTFOLIO



                                                               YEAR ENDED DECEMBER 31,
                                             ----------------------------------------------------------
                                                 2002        2001      2000(b)       1999        1998
                                              ---------   ---------   ---------   ---------   ---------
                                                                               
Net asset value beginning of year             $    1.18   $    1.22   $    1.18   $    1.31   $    1.33
                                              ---------   ---------   ---------   ---------   ---------
Income from investment operations:
   Net investment income                            .06         .06         .08         .07         .06
   Net gains (losses) on securities
     (both realized and unrealized)                 .06         .04         .03        (.10)        .01
                                              ---------   ---------   ---------   ---------   ---------
      Total from investment operations              .12         .10         .11        (.03)        .07
                                              ---------   ---------   ---------   ---------   ---------
Less distributions:
   Dividends from net investment income               -        (.14)       (.07)       (.07)       (.07)
   Distributions from net realized gains              -           -           -        (.03)       (.02)
                                              ---------   ---------   ---------   ---------   ---------
     Total distributions                              -        (.14)       (.07)       (.10)       (.09)
                                              ---------   ---------   ---------   ---------   ---------
Net asset value, end of year                  $    1.30   $    1.18   $    1.22   $    1.18   $    1.31
                                              =========   =========   =========   =========   =========

Total return (a)                                  10.50%       7.90%      10.44%      (2.73)%      6.08%
Net assets, end of year (in thousands)        $ 276,486   $ 235,318   $ 187,254   $ 181,881   $ 178,793
Ratio of expenses to average daily
  net assets                                        .61%        .60%        .61%        .56%        .55%
Ratio of net investment income to
  average daily net assets                         5.20%       5.96%       6.43%       5.92%       5.84%
Portfolio turnover rate (excluding
  short-term securities)                          140.8%      197.8%      206.8%      140.8%      252.1%


- ----------

(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       153



MONEY MARKET PORTFOLIO



                                                                YEAR  ENDED DECEMBER 31,
                                             ----------------------------------------------------------
                                                 2002        2001      2000(b)       1999        1998
                                             ----------   ---------   ---------   ---------   ---------
                                                                               
Net asset value beginning of year             $    1.00   $    1.00   $    1.00   $    1.00   $    1.00
                                              ---------   ---------   ---------   ---------   ---------
Income from investment operations:
   Net investment income                            .01         .04         .06         .05         .05
                                              ---------   ---------   ---------   ---------   ---------
      Total from investment operations              .01         .04         .06         .05         .05
                                              ---------   ---------   ---------   ---------   ---------
Less distributions:
   Dividends from net investment income            (.01)       (.04)       (.06)       (.05)       (.05)
                                              ---------   ---------   ---------   ---------   ---------
      Total distributions                          (.01)       (.04)       (.06)       (.05)       (.05)
                                              ---------   ---------   ---------   ---------   ---------
Net asset value, end of year                  $    1.00   $    1.00   $    1.00   $    1.00   $    1.00
                                              =========   =========   =========   =========   =========
Total return (a)                                   1.28%       3.75%       5.96%       4.71%       4.97%
Net assets, end of year (in thousands)        $ 163,703   $ 140,058   $ 184,098   $ 156,580   $ 126,177
Ratio of expenses to average daily
  net assets                                        .57%        .57%        .58%        .56%        .58%
Ratio of net investment income to
  average daily net assets                         1.26%       3.73%       5.83%       4.61%       4.84%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       154



ASSET ALLOCATION PORTFOLIO



                                                                  YEAR ENDED DECEMBER 31,
                                             -------------------------------------------------------------
                                                 2002         2001       2000(b)        1999        1998
                                             ----------    ---------    ---------    ---------   ---------
                                                                                  
Net asset value beginning of year             $    1.45    $    2.00    $    2.39    $    2.28   $    2.03
                                              ---------    ---------    ---------    ---------   ---------
Income from investment operations:
   Net investment income                            .04          .03          .05          .05         .05
   Net gains (losses) on securities
     (both realized and unrealized)                (.17)        (.33)        (.28)         .27         .40
                                              ---------    ---------    ---------    ---------   ---------
      Total from investment operations             (.13)        (.30)        (.23)         .32         .45
                                              ---------    ---------    ---------    ---------   ---------
Less distributions:
   Dividends from net investment income               -         (.03)        (.05)        (.10)       (.06)
   Distributions from net realized gains              -         (.22)        (.11)        (.11)       (.14)
                                              ---------    ---------    ---------    ---------   ---------
      Total distributions                             -         (.25)        (.16)        (.21)       (.20)
                                              ---------    ---------    ---------    ---------   ---------
Net asset value, end of year                  $    1.32    $    1.45    $    2.00    $    2.39   $    2.28
                                              =========    =========    =========    =========   =========
Total return (a)                                  (8.98)%     (14.36)%     (10.40)%      15.17%      23.65%
Net assets, end of year
  (in thousands)                              $ 374,268    $ 482,160    $ 638,972    $ 750,129   $ 637,997
Ratio of expenses to average daily
  net assets                                        .65%         .64%         .61%         .53%        .53%
Ratio of net investment income to
  average daily net assets                         2.46%        1.93%        2.12%        2.28%       2.51%
Portfolio turnover rate (excluding
  short-term securities)                          116.5%       169.4%       139.3%        97.0%      129.6%


- ----------

(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio`s shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       155



MORTGAGE SECURITIES PORTFOLIO



                                                                YEAR ENDED DECEMBER 31,
                                              ------------------------------------------------------
                                                  2002       2001     2000(b)      1999       1998
                                              ----------  ---------  ---------  ---------  ---------
                                                                            
Net asset value beginning of year              $    1.18  $    1.22  $    1.17$      1.22  $    1.21
                                               ---------  ---------  ---------  ---------  ---------
Income from investment operations:

   Net investment income                             .08        .07        .09       .07         .08
   Net gains (losses) on securities
     (both realized and unrealized)                  .03        .04        .04       (.05)         -
                                               ---------  ---------  ---------  ---------  ---------
      Total from investment operations               .11        .11        .13        .02        .08
                                               ---------  ---------  ---------  ---------  ---------
Less distributions:
   Dividends from net investment income                -       (.15)      (.08)      (.07)      (.07)
                                               ---------  ---------  ---------  ---------  ---------
      Total distributions                              -       (.15)      (.08)      (.07)      (.07)
                                               ---------  ---------  ---------  ---------  ---------
Net asset value, end of year                   $    1.29  $    1.18  $    1.22  $    1.17  $    1.22
                                               =========  =========  =========  =========  =========
Total return (a)                                    9.66%      9.04%     11.80%      1.99%      6.57%
Net assets, end of year (in thousands)         $ 249,802  $ 230,141  $ 151,141  $ 138,815  $ 124,358
Ratio of expenses to average daily
  net assets                                         .62%       .61%       .62%       .57%       .57%
Ratio of net investment income to average
  daily net assets                                  6.41%      6.85%      7.30%      6.88%      6.76%
Portfolio turnover rate (excluding
  short-term securities)                            82.4%      81.9%      48.9%      79.4%     116.7%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       156



INDEX 500 PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                             ---------------------------------------------------------
                                                2002        2001      2000(b)       1999        1998
                                             ---------   ---------   ---------   ---------   ---------
                                                                              
Net asset value beginning of year            $    3.47   $    4.05   $    4.56   $    3.91   $    3.10
                                             ---------   ---------   ---------   ---------   ---------
Income from investment operations:
   Net investment income                           .04         .03         .03         .04         .04
   Net gains (losses) on securities
     (both realized and unrealized)               (.81)       (.54)       (.44)        .74         .82
                                             ---------   ---------   ---------   ---------   ---------
      Total from investment operations            (.77)       (.51)       (.41)        .78         .86
                                             ---------   ---------   ---------   ---------   ---------
Less distributions:
   Dividends from net investment income              -        (.03)       (.03)       (.07)       (.03)
   Distributions from net realized gains             -        (.04)       (.07)       (.06)       (.02)
                                             ---------   ---------   ---------   ---------   ---------
      Total distributions                            -        (.07)       (.10)       (.13)       (.05)
                                             ---------   ---------   ---------   ---------   ---------
Net asset value, end of year                 $    2.70   $    3.47   $    4.05   $    4.56   $    3.91
                                             =========   =========   =========   =========   =========

Total return (a)                                (22.37)%    (12.25)%     (9.39)%    20.28%      27.99%
Net assets, end of year
  (in thousands)                             $ 418,897   $ 520,644   $ 584,239   $ 657,824   $ 536,859
Ratio of expenses to average daily
  net assets                                       .43%        .42%        .44%        .45%        .44%
Ratio of net investment income to
  average daily net assets                        1.23%        .93%        .73%        .85%       1.08%
Portfolio turnover rate (excluding
  short-term securities)                           7.8%        6.1%       12.8%       25.6%       30.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Fund's shares.

(b) Effective May, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital prior investment advisory agreement.

                                       157



CAPITAL APPRECIATION PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                             ---------------------------------------------------------
                                                2002        2001      2000(b)       1999        1998
                                             ---------   ---------   ---------   ---------   ---------
                                                                              
Net asset value beginning of year            $    1.60   $    3.06   $    3.70   $    3.54   $    2.85
                                             ---------   ---------   ---------   ---------   ---------
Income from investment operations:
   Net investment loss                               -           -        (.01)       (.01)          -
   Net gains (losses) on securities
     (both realized and unrealized)               (.51)       (.69)       (.30)        .64         .86
                                             ---------   ---------   ---------   ---------   ---------
      Total from investment operations            (.51)       (.69)       (.31)        .63         .86
                                             ---------   ---------   ---------   ---------   ---------
Less distributions:
   Distributions from net realized gains             -        (.77)       (.33)       (.47)       (.17)
                                             ---------   ---------   ---------   ---------   ---------
      Total distributions                            -        (.77)       (.33)       (.47)       (.17)
                                             ---------   ---------   ---------   ---------   ---------
Net asset value, end of year                 $      1.09 $    1.60   $    3.06   $    3.70   $    3.54
                                             =========== =========   =========   =========   =========
Total return (a)                                (31.54)%    (24.63)%    (10.16)%     21.51%      30.83%
Net assets, end of year
  (in thousands)                             $ 153,488   $ 256,755   $ 380,983   $ 457,449   $ 392,800
Ratio of expenses to average daily
  net assets                                       .83%        .80%        .81%        .79%        .78%
Ratio of net investment income to
  average daily net assets                        (.03)%       .11%       (.17)%      (.24)%      (.21)%
Portfolio turnover rate (excluding
  short-term securities)                          43.0%       90.3%      193.1%      114.1%       82.7%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective, May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       158



INTERNATIONAL STOCK PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------------
                                              2002         2001       2000(b)       1999        1998
                                           ---------    ---------    ---------   ---------   ---------
                                                                              
Net asset value beginning of year          $    1.34    $    1.76    $    1.94   $    1.73   $    1.71
                                           ---------    ---------    ---------   ---------   ---------
Income from investment operations:
   Net investment income                         .02          .03          .03         .04         .04
   Net gains (losses) on securities
     (both realized and unrealized)             (.26)        (.23)        (.02)        .31         .08
                                           ---------    ---------    ---------   ---------   ---------
      Total from investment operations          (.24)        (.20)         .01         .35         .12
                                           ---------    ---------    ---------   ---------   ---------
Less distributions:
   Dividends from net investment income            -         (.06)        (.03)       (.05)       (.05)
   Distributions from net realized gains           -         (.16)        (.16)       (.09)       (.05)
                                           ---------    ---------    ---------   ---------   ---------
      Total distributions                          -         (.22)        (.19)       (.14)       (.10)
                                           ---------    ---------    ---------   ---------   ---------
Net asset value, end of year               $    1.10    $    1.34    $    1.76   $    1.94   $    1.73
                                           =========    =========    =========   =========   =========
Total return (a)                              (17.82)%     (11.21)%        .81%      21.43%       6.61%
Net assets, end of year (in thousands)     $ 223,017    $ 278,545    $ 342,930   $ 363,849   $ 310,873
Ratio of expenses to average daily
  net assets                                     .99%         .97%        1.07%        .90%        .94%
Ratio of net investment income to
  average daily net assets                      1.87%        1.60%        2.10%       2.03%       2.55%
Portfolio turnover rate (excluding
  short-term securities)                        32.7%        39.4%        46.8%       34.7%       22.4%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       159



SMALL COMPANY GROWTH PORTFOLIO



                                                                 YEAR ENDED DECEMBER 31,
                                             -------------------------------------------------------------
                                                2002         2001       2000(b)        1999         1998
                                             ---------    ---------    ---------    ---------    ---------
                                                                                  
Net asset value beginning of year            $     .97    $    2.05    $    2.44    $    1.68    $    1.65
                                             ---------    ---------    ---------    ---------    ---------
Income from investment operations:
   Net investment loss                            (.01)        (.01)        (.01)        (.01)           -
   Net gains (losses) on securities
     (both realized and unrealized)               (.30)        (.40)        (.22)         .77          .03
                                             ---------    ---------    ---------    ---------    ---------
      Total from investment operations            (.31)        (.41)        (.23)         .76          .03
                                             ---------    ---------    ---------    ---------    ---------
Less distributions:
   Distributions from net realized gains             -         (.67)        (.16)           -            -
                                             ---------    ---------    ---------    ---------    ---------
      Total distributions                            -         (.67)        (.16)           -            -
                                             ---------    ---------    ---------    ---------    ---------
Net asset value, end of year                 $    0.66    $    0.97    $    2.05    $    2.44    $    1.68
                                             =========    =========    =========    =========    =========
Total return (a)                                (31.80)%     (14.70)%     (11.28)%      45.63%        1.27%
Net assets, end of year (in thousands)       $ 122,888    $ 193,705    $ 240,978    $ 269,881    $ 195,347
Ratio of expenses to average daily
  net assets                                       .98%         .97%         .92%         .80%         .79%
Ratio of net investment income (loss) to
  average daily net assets                       (0.73)%      (0.55)%      (0.47)%      (0.45)%      (0.28)%
Portfolio turnover rate (excluding
  short-term securities)                          61.7%        97.8%       154.3%       105.1%        75.5%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       160



MATURING GOVERNMENT BOND 2002 PORTFOLIO



                                                                    YEAR ENDED DECEMBER 31,
                                           --------------------------------------------------------------------
                                             2002(e)        2001     2000(c)      1999       1998      1997(f)
                                           ---------      -------   --------   ---------    -------   ---------
                                                                                    
Net asset value beginning of year          $    1.10      $  1.08    $  1.05   $    1.11    $  1.07    $   1.05
                                           ---------      -------    -------   ---------    -------    --------
Income from investment operations:
   Net investment income                         .03          .06        .06         .05        .05         .06
   Net gains (losses) on securities
     (both realized and unrealized)              .06          .02        .03        (.06)       .06         .02
                                           ---------      -------    -------   ---------    -------    --------
      Total from investment operations           .09          .08        .09        (.01)       .11         .08
                                           ---------      -------    -------   ---------    -------    --------
Less distributions:
   Dividends from net investment income         (.03)        (.06)      (.06)       (.05)      (.06)       (.05)
   Distributions from net realized gains        (.06)           -          -           -       (.01)       (.01)
   Liquidating distributions                   (1.10)           -          -           -          -           -
                                           ---------      -------    -------   ---------    -------    --------
      Total distributions                      (1.19)        (.06)      (.06)       (.05)      (.07)       (.06)
                                           ---------      -------    -------   ---------    -------    --------
Net asset value, end of year                       -      $  1.10    $  1.08   $    1.05    $  1.11    $   1.07
                                           =========      =======    =======   =========    =======    ========

Total return (a)                                1.58%        7.55%      8.20%       (.48)%     9.61%       8.50%
Net assets, end of year (in thousands)             -      $ 7,696    $ 8,581   $  10,161    $ 6,854    $  4,208
Ratio of expenses to average daily
  net assets (b)                                 .65%(d)      .40%       .40%        .40%       .34%        .20%
Ratio of net investment income to
  average daily net assets (b)                  4.07%(d)     5.33%      5.60%       5.37%      5.74%       5.99%
Portfolio turnover rate (excluding
  short-term securities)                         3.2%        24.9%      49.5%       21.1%      35.2%       36.9%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. For periods less than one year total
return presented has not been annualized.

(b) Minnesota Life voluntarily absorbed $34,386, $60,379, $60,401, $53,336,
$37,949 and $36,833 in expenses for the period ended September 20, 2002, and the
years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively. Had the
Portfolio paid all fees and expenses, the ratio of expenses to average daily net
assets would have been 1.31%, 1.20%, 1.10%, 1.08%, 1.07% and 1.14% respectively,
and the ratio of net investment income to average daily net assets would have
been 4.73%, 4.53%, 4.90%, 4.69%, 5.01%, and 5.05%, respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

(d) Annualized.

(e) Pursuant to the terms of it's prospectus, the Maturing Government Bond 2002
Portfolio made a liquidating distribution and ceased operations on September 20,
2002.

(f) Effective May 1, 1997, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc. Prior to May 1, 1997, the
Portfolio had an investment advisory agreement with MIMLICAsset Management
Company.

                                       161



MATURING GOVERNMENT BOND 2006 PORTFOLIO



                                                             YEAR ENDED DECEMBER 31,
                                            ----------------------------------------------------------
                                               2002        2001      2000(c)       1999         1998
                                            ---------   ---------   ---------   ---------    ---------
                                                                              
Net asset value beginning of year           $    1.22   $    1.18   $    1.09   $    1.25    $    1.16
                                            ---------   ---------   ---------   ---------    ---------
Income from investment operations:
   Net investment income                          .06         .06         .07         .07          .05
   Net gains (losses) on securities
     (both realized and unrealized)               .10         .04         .09        (.16)         .11
                                            ---------   ---------   ---------   ---------    ---------
      Total from investment operations            .16         .10         .16        (.09)         .16
                                            ---------   ---------   ---------   ---------    ---------
Less distributions:
   Dividends from net investment income             -        (.06)       (.07)       (.07)        (.06)
   Excess distributions of net
     investment income                              -           -           -           -         (.01)
                                            ---------   ---------   ---------   ---------    ---------
      Total distributions                           -        (.06)       (.07)       (.07)        (.07)
                                            ---------   ---------   ---------   ---------    ---------
Net asset value, end of year                $    1.38   $    1.22   $    1.18   $    1.09    $    1.25
                                            =========   =========   =========   =========    =========
Total return (a)                                12.99%       8.08%      15.63%      (7.81)%      14.37%
Net assets, end of year (in thousands)      $  10,650   $   8,694   $   6,429   $   6,261    $   6,870
Ratio of expenses to average daily
  net assets (b)                                  .65%        .40%        .40%        .40%         .40%
Ratio of net investment income to
  average daily net assets (b)                   4.81%       5.39%       5.92%       5.76%        5.57%
Portfolio turnover rate (excluding
  short-term securities)                          5.9%        6.4%        3.4%       19.8%        21.6%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Minnesota Life voluntarily absorbed $35,104, $59,498, $61,355, $56,178 and
$37,165 in expenses for the years ended December 31, 2002, 2001, 2000, 1999, and
1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 1.02%, 1.16%, 1.41%, 1.26%
and 1.12%, respectively, and the ratio of net investment income to average daily
net assets would have been 4.44%, 4.63%, 4.91%, 4.90% and 4.85%, respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       162



MATURING GOVERNMENT BOND 2010 PORTFOLIO



                                                               YEAR ENDED DECEMBER 31,
                                              ---------------------------------------------------------
                                                 2002        2001      2000(c)       1999        1998
                                              ---------   ---------   ---------   ---------   ---------
                                                                               
Net asset value beginning of year             $    1.27   $    1.35   $    1.19   $    1.41   $    1.29
                                              ---------   ---------   ---------   ---------   ---------
Income from investment operations:
   Net investment income                            .05         .07         .08         .08         .06
   Net gains (losses) on securities
     (both realized and unrealized)                 .19        (.01)        .17        (.24)        .12
                                              ---------   ---------   ---------   ---------   ---------
      Total from investment operations              .24         .06         .25        (.16)        .18
                                              ---------   ---------   ---------   ---------   ---------
Less distributions:
   Dividends from net investment income               -        (.14)       (.08)       (.06)       (.06)
   Distributions from net realized gains              -           -        (.01)          -           -
                                              ---------   ---------   ---------   ---------   ---------
      Total distributions                             -        (.14)       (.09)       (.06)       (.06)
                                              ---------   ---------   ---------   ---------   ---------
Net asset value, end of year                  $    1.51   $    1.27   $    1.35   $    1.19   $   1.41
                                              =========   =========   =========   =========   ========
Total return (a)                                  18.85%       4.96%      21.36%     (11.54)%     14.28%
Net assets, end of year (in thousands)        $   9,359   $   5,855   $   5,537   $   4,942   $   5,648
Ratio of expenses to average daily
  net assets (b)                                    .65%        .40%        .40%        .40%        .40%
Ratio of net investment income to average
  daily net assets (b)                             4.79%       5.49%       6.22%       5.82%       5.48%
Portfolio turnover rate (excluding
  short-term securities)                           19.1%       17.3%        8.3%       28.4%       28.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Minnesota Life voluntarily absorbed $44,356, $61,422, $62,524, $55,419 and
$39,052 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and
1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 1.28%, 1.42%, 1.66%, 1.43%
and 1.33%, respectively, and the ratio of net investment income to average daily
net assets would have been 4.16%, 4.47%, 4.96%, 4.79% and 4.55%, respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       163



VALUE STOCK PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                           ------------------------------------------------------------
                                              2002         2001       2000(c)        1999        1998
                                           ---------    ---------    ---------    ---------   ---------
                                                                               
Net asset value beginning of year          $    1.48    $    1.67    $    1.71    $    1.76   $    1.73
                                           ---------    ---------    ---------    ---------   ---------
Income from investment operations:
   Net investment income                         .02          .02          .01          .02         .03
   Net losses on securities
     (both realized and unrealized)             (.25)        (.19)        (.03)        (.02)          -
                                           ---------    ---------    ---------    ---------   ---------
      Total from investment operations          (.23)        (.17)        (.02)           -         .03
                                           ---------    ---------    ---------    ---------   ---------
Less distributions:
   Dividends from net investment income            -         (.02)        (.02)        (.05)          -
                                           ---------    ---------    ---------    ---------   ---------
      Total distributions                          -         (.02)        (.02)        (.05)          -
                                           ---------    ---------    ---------    ---------   ---------
Net asset value, end of year               $    1.25    $    1.48    $    1.67    $    1.71   $    1.76
                                           =========    =========    =========    =========   =========
Total return (a)                              (15.32)%     (10.45)%      (1.61)%        .27%       1.75%
Net assets, end of year (in thousands)     $ 112,803    $ 141,601    $ 166,134    $ 191,380   $ 214,046
Ratio of expenses to average
  daily net assets                               .83%         .84%         .83%         .80%        .79%
Ratio of net investment income to
  average daily net assets                      1.27%        1.10%         .84%        1.26%       1.54%
Portfolio turnover rate (excluding
  short-term securities)                       112.4%       132.7%       163.1%       131.2%       88.9%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       164



SMALL COMPANY VALUE PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                            -----------------------------------------------------------
                                               2002         2001      2000(c)       1999        1998
                                            ---------    ---------   ---------   ---------    ---------
                                                                               
Net asset value beginning of year           $    1.27    $    1.16   $    0.91   $    0.95    $    1.03
                                            ---------    ---------   ---------   ---------    ---------
Income from investment operations:
   Net investment income                            -            -           -         .01          .01
   Net gains (losses) on securities
     (both realized and unrealized)              (.25)         .18         .25        (.04)        (.08)
                                            ---------    ---------   ---------   ---------    ---------
      Total from investment operations           (.25)         .18         .25        (.03)        (.07)
                                            ---------    ---------   ---------   ---------    ---------
Less distributions:
   Dividends from net investment income             -            -           -        (.01)        (.01)
   Distributions from net realized gains            -         (.06)          -           -            -
   Tax return of capital                            -         (.01)          -           -            -
                                            ---------    ---------   ---------   ---------    ---------
      Total distributions                           -         (.07)          -        (.01)        (.01)
                                            ---------    ---------   ---------   ---------    ---------
Net asset value, end of year                $    1.02    $    1.27   $    1.16   $     .91    $     .95
                                            =========    =========   =========   =========    =========
Total return (a)                               (19.98)%      15.59%      28.00%      (3.07)%      (6.75)%
Net assets, end of year (in thousands)      $  54,944    $  41,337   $  22,564   $  12,518    $   8,646
Ratio of expenses to average daily
  net assets (b)                                 1.10%        1.10%       1.05%        .90%         .90%
Ratio of net investment income (loss) to
  average daily net assets (b)                   (.43)%       (.16)%       .29%       1.42%        1.52%
Portfolio turnover rate (excluding
  short-term securities)                         38.8%        22.6%      122.0%      101.5%        70.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. For periods less than one year, total
return presented has not been annualized.

(b) Minnesota Life voluntarily absorbed $40,674, $39,093, $87,809, $67,886 and
$58,848 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and
1998, respectively. Had the Portfolio paid all fees and expenses, the ratio of
expenses to average daily net assets would have been 1.17%, 1.22%, 1.58%, 1.56%
and 1.83%, respectively, and the ratio of net investment income to average daily
net assets would have been (.50)%, (.28)%, (.24)%, .76% and .59%, respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       165



GLOBAL BOND PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                            -----------------------------------------------------------
                                               2002        2001       2000(c)       1999         1998
                                            ---------   ---------    ---------   ---------    ---------
                                                                               
Net asset value beginning of year           $     .92   $     .95    $     .94   $    1.05    $     .98
                                            ---------   ---------    ---------   ---------    ---------
Income from investment operations:
   Net investment income                          .05         .04          .04         .05          .05
   Net gains (losses) on securities
     (both realized and unrealized)               .12        (.06)        (.03)       (.13)         .11
                                            ---------   ---------    ---------   ---------    ---------
      Total from investment operations            .17        (.02)         .01        (.08)         .16
                                            ---------   ---------    ---------   ---------    ---------
Less distributions:
   Dividends from net investment income             -        (.01)           -       (0.03)       (0.03)
   Distributions from net realized gains            -           -            -           -        (0.06)
   Excess distributions of net
     investment income                              -           -            -           -            -
                                            ---------   ---------    ---------   ---------    ---------
      Total distributions                           -        (.01)           -        (.03)        (.09)
                                            ---------   ---------    ---------   ---------    ---------
Net asset value, end of year                $    1.09   $     .92    $     .95   $     .94    $    1.05
                                            =========   =========    =========   =========    =========
Total return (a)                                17.94%      (1.51)%       1.42%      (7.81)%      16.18
Net assets, end of year (in thousands)      $  53,683   $  39,958    $  37,177   $  32,093    $  31,152
Ratio of expenses to average daily
  net assets                                     1.24%       1.20%        1.33%        .94%        1.13
Ratio of net investment income to
  average daily net assets                       4.52%       4.50%        4.85%       5.90%        4.86
Portfolio turnover rate (excluding
  short-term securities)                        304.1%      251.7%       306.8%      287.4%       285.3


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       166



INDEX 400 MID-CAP PORTFOLIO



                                                              YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------------
                                              2002         2001       2000(c)       1999        1998
                                           ---------    ---------    ---------   ---------   ---------
                                                                              
Net asset value beginning of year          $    1.13    $    1.22    $    1.18   $    1.15   $    1.01
                                           ---------    ---------    ---------   ---------   ---------
Income from investment operations:
   Net investment income                           -          .01          .01           -         .01
   Net gains (losses) on securities
     (both realized and unrealized)             (.17)        (.03)         .19         .15         .16
                                           ---------    ---------    ---------   ---------   ---------
      Total from investment operations          (.17)        (.02)         .20         .15         .17
                                           ---------    ---------    ---------   ---------   ---------
Less distributions:
   Dividends from net investment income            -         (.01)      (.01)            -        (.01)
   Distributions from net realized gains           -         (.04)      (.15)         (.12)       (.02)
   Tax return of capital                           -         (.02)         -             -           -
                                           ---------    ---------    ---------   ---------   ---------
      Total distributions                          -         (.07)        (.16)       (.12)       (.03)
                                           ---------    ---------    ---------   ---------   ---------
Net asset value, end of year               $     .96    $    1.13    $    1.22   $    1.18   $    1.15
                                           =========    =========    =========   =========   =========
Total return (a)                              (15.03)%      (1.07)%      16.05%      15.96%      16.68%
Net assets, end of year (in thousands)     $  41,835    $  41,069    $  35,768   $  24,357   $  10,511
Ratio of expenses to average daily
  net assets (b)                                 .65%         .55%         .55%        .55%        .55%
Ratio of net investment income to
  average daily net assets (b)                   .42%         .82%        1.18%        .72%        .78%
Portfolio turnover rate (excluding
  short-term securities)                        20.0%        29.8%        78.3%       76.6%       85.4%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms to the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Minnesota Life voluntarily absorbed $45,365, $74,402, $70,044 and $52,946 in
expenses for the years ended December 31, 2001, 2000, 1999 and 1998,
respectively. Had the Portfolio paid all fees and expenses, the ratio of expense
to average daily net assets would have been .67%, .80%, 1.00%, and 1.36%,
respectively, and the ratio of net investment income (loss) to average daily net
assets would have been .70%, .93%, .27%, and (.03)% respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc. which replaces the prior
investment advisory agreement.

                                       167



MACRO-CAP VALUE PORTFOLIO



                                                             YEAR ENDED DECEMBER 31,
                                           ------------------------------------------------------------
                                              2002         2001       2000(c)        1999        1998
                                           ---------    ---------    ---------    ---------   ---------
                                                                               
Net asset value beginning of year          $     .98    $    1.06    $    1.16    $    1.14   $     .97
                                           ---------    ---------    ---------    ---------   ---------
Income from investment operations:
   Net investment income                           -            -            -          .01         .01
   Net gains (losses) on securities
     (both realized and unrealized)             (.28)        (.08)        (.08)         .07         .21
                                           ---------    ---------    ---------    ---------   ---------
      Total from investment operations          (.28)        (.08)        (.08)         .08         .22
                                           ---------    ---------    ---------    ---------   ---------
Less distributions:
   Dividends from net investment income            -            -            -         (.01)          -
   Distributions from net realized gains           -            -         (.02)        (.05)       (.05)
                                           ---------    ---------    ---------    ---------   ---------
      Total distributions                          -            -         (.02)        (.06)       (.05)
                                           ---------    ---------    ---------    ---------   ---------
Net asset value, end of year               $     .70    $     .98    $    1.06    $    1.16   $    1.14
                                           =========    =========    =========    =========   =========
Total return (a)                              (28.14)%      (7.74)%      (7.02)%       7.17%      22.33%
Net assets, end of year (in thousands)     $  20,465    $  26,879    $  27,865    $  22,570   $  11,088
Ratio of expenses to average daily
  net assets (b)                                1.05%         .99%         .95%         .85%        .85%
Ratio of net investment income to
  average daily net assets (b)                   .40%         .37%         .39%         .60%        .69%
Portfolio turnover rate (excluding
  short-term securities)                        32.3%        52.6%        44.5%       103.4%      164.0%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Minnesota Life voluntarily absorbed $50,401, $60,312, $84,884, $102,703 and
$114,468 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and
1998. Had the Portfolio paid all fees and expenses, the ratio of expenses to
average daily net assets would have been 1.26%, 1.20%, 1.27%, 1.48% and 2.53%,
respectively, and the ratio of net investment income (loss) to average daily net
assets would have been .19%, .16%, .07%, (.03)% and (.99)%, respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       168



MICRO-CAP GROWTH PORTFOLIO



                                                                 YEAR ENDED DECEMBER 31,
                                             -------------------------------------------------------------
                                                2002         2001       2000(c)        1999         1998
                                             ---------    ---------    ---------    ---------    ---------
                                                                                  
Net asset value beginning of year            $    1.55    $    1.75    $    2.51    $    1.01    $    0.89
                                             ---------    ---------    ---------    ---------    ---------
Income from investment operations:
   Net investment loss                            (.01)        (.01)        (.01)           -            -
   Net gains (losses) on securities
     (both realized and unrealized)               (.67)        (.19)        (.44)        1.50          .12
                                             ---------    ---------    ---------    ---------    ---------
      Total from investment operations            (.68)        (.20)        (.45)        1.50          .12
                                             ---------    ---------    ---------    ---------    ---------
Less distributions:
   Distributions from net realized gains             -            -         (.31)           -            -
                                             ---------    ---------    ---------    ---------    ---------
      Total distributions                            -            -         (.31)           -            -
                                             ---------    ---------    ---------    ---------    ---------
Net asset value, end of year                 $     .87    $    1.55    $    1.75    $    2.51    $    1.01
                                             =========    =========    =========    =========    =========
Total return (a)                                (43.64)%     (11.33)%     (21.05)%     148.77%       13.44%
Net assets, end of year (in thousands)       $  24,504    $  45,029    $  52,176    $  42,554    $   8,034
Ratio of expenses to average daily
  net assets (b)                                  1.34%        1.35%        1.30%        1.25%        1.25%
Ratio of net investment income (loss) to
  average daily net assets (b)                   (1.10)%      (1.00)%       (.46)%       (.47)%       (.40)%
Portfolio turnover rate (excluding
  short-term securities)                          67.6%        71.2%       102.7%       108.5%        67.4%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares.

(b) Minnesota Life voluntarily absorbed $36,055, $24,008, $26,838, $50,020 and
$46,960 in expenses for the years ended December 31, 2002, 2001, 2000, and 1999,
respectively. Had the Portfolio paid all fees and expenses, the ratio of expense
to average daily net assets would have been 1.45%, 1.40%, 1.35%, 1.57%, and
2.10%, respectively, and the ratio of net investment income (loss) to average
daily net assets would have been (1.21)%, (1.05)%, (.50)%, (.79)% and (1.25)%,
respectively.

(c) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

                                       169



REAL ESTATE SECURITIES PORTFOLIO



                                                                                                PERIOD FROM
                                                                                                   MAY 1,
                                                        YEAR ENDED DECEMBER 31,                  1998(a) TO
                                            -----------------------------------------------     DECEMBER 31,
                                              2002         2001        2000(d)       1999           1998
                                            --------     --------     --------     --------     ------------
                                                                                   
Net asset value beginning of period         $    .96     $    .90     $    .76     $    .83       $   1.02
                                            --------     --------     --------     --------       --------
Income from investment operations:
   Net investment income                         .03          .03          .04          .04             .03
   Net gains (losses) on securities
     (both realized and unrealized)              .03          .06          .15         (.07)          (.19)
                                            --------     --------     --------     --------       --------
      Total from investment operations           .06          .09          .19         (.03)          (.16)
                                            --------     --------     --------     --------       --------
Less distributions:
   Dividends from net investment income            -         (.03)        (.04)        (.03)          (.03)
   Tax return of capital                           -            -         (.01)        (.01)             -
                                            --------     --------     --------     --------       --------
      Total distributions                          -         (.03)        (.05)        (.04)          (.03)
                                            --------     --------     --------     --------       --------
Net asset value, end of period              $   1.02     $    .96     $    .90     $   0.76       $   0.83
                                            ========     ========     ========     ========       ========
Total return (b)                                6.97%       10.03%       25.61%       (3.89)%       (14.90)%
Net assets, end of year (in thousands)      $ 33,912     $ 15,638     $  9,947     $  5,826       $  5,322
Ratio of expenses to average daily
  net assets (c)                                1.00%        1.00%        .97%         .90%            .90%(e)
Ratio of net investment income to
  average daily net assets (c)                  3.38%        4.43%        5.32%        4.58%          5.54%(e)
Portfolio turnover rate (excluding
  short-term securities)                        70.2%       160.4%       143.7%       106.3%          54.0%


- ----------
(a) The inception of the Portfolio was May 1, 1998, when the shares of the
Portfolio became effectively registered under the Securities Act of 1933.

(b) Total return figures are based on a share outstanding throughout the period
and assume reinvestment of distributions at net asset value. Total return
figures do not reflect charges pursuant to the terms of the variable life
insurance policies and variable annuity contracts funded by separate accounts
that invest in the Portfolio's shares. For periods less than one year, total
return presented has not been annualized.

(c) Minnesota Life voluntarily absorbed $47,820, $71,008, $77,007, $63,511 and
$31,736 in expenses for the years ended December 31, 2002, 2001, 2000, 1999 and
the period ended December 31, 1998, respectively. Had the Portfolio paid all
fees and expenses, the ratio of expenses to average daily net assets would have
been 1.18%, 1.59%, 2.03%, 2.05% and 1.90%, respectively, and the ratio of net
investment income to average daily net assets would have been 3.23%, 3.84%,
4.26%, 3.43% and 4.54%, respectively.

(d) Effective May 1, 2000, the Portfolio entered into a new investment advisory
agreement with Advantus Capital Management, Inc., which replaces the prior
investment advisory agreement.

(e) Adjusted to an annual basis.

                                       170



Advantus Series Fund, Inc.

                        Directors and Executive Officers

Under Minnesota law, the Board of Directors of the Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund and its Portfolios. Certain of the directors
are considered "interested persons" (as defined in the Investment Company Act of
1940) of the Fund primarily by reason of their engagement as officers of the
Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus
Capital"), or as officers of companies affiliated with Advantus Capital,
including Minnesota Life Insurance Company ("Minnesota Life"). The remaining
directors, because they are not interested persons of the Fund, are considered
independent ("Independent Directors") and are not employees or officers of, and
have no financial interest in, Advantus Capital, Minnesota Life or their other
affiliates. A majority of the Board of Directors is comprised of Independent
Directors.

The individuals listed in the table below serve as directors and officers of the
Fund, and also serve in the same capacity for each of the other eleven Advantus
Funds (the Advantus Funds are the twelve registered investment companies,
consisting of 29 portfolios, for which Advantus Capital serves as the investment
adviser). Only executive officers and other officers who perform policy-making
functions with the Fund are listed. None of the directors is a director of any
public company (a company required to file reports under the Securities Exchange
Act of 1934) or of any registered investment companies other than the Advantus
Funds. Each director serves for an indefinite term, until his or her
resignation, death or removal.



                          POSITION WITH FUND
NAME, ADDRESS(1)          AND LENGTH OF           PRINCIPAL OCCUPATION(S)
AND AGE                   TIME SERVED             DURING PAST 5 YEARS
- --------------------------------------------------------------------------------------------------
                                            
INTERESTED DIRECTORS

William N. Westhoff       Director since          Retired since July 2002, prior there to
Age: 55                   July 23, 1998           President, Treasurer and Director, Advantus
                                                  Capital Management, Inc.; Senior Vice
                                                  President and Treasurer, Minnesota Life
                                                  Insurance Company since April 1998;
                                                  Senior Vice President, Global Investments,
                                                  American Express Financial Corporation,
                                                  Minneapolis, Minnesota, from
                                                  August 1994 to October 1997

Frederick P. Feuerherm    Vice President,         Vice President, Assistant Secretary and
Age: 56                   Director and            Director, Advantus Capital Management,
                          Treasurer since         Inc.; Vice President, Minnesota Life
                          July 13, 1994           Insurance Company; Vice President,
                                                  Minnesota Mutual Companies, Inc.; Vice
                                                  President, Securian Financial Group, Inc.;
                                                  Vice President, Securian Holding Company;
                                                  Vice President and Director, MIMLIC
                                                  Funding, Inc. (entity holding legal title to
                                                  bonds beneficially owned by certain clients
                                                  of Advantus Capital); Vice President and
                                                  Assistant Secretary, MCM Funding 1997-1,
                                                  Inc. and MCM Funding 1998-1, Inc. (entities
                                                  holding legal title to mortgages beneficially
                                                  owned by certain clients of Advantus
                                                  Capital); Treasurer, Ministers Life Resources,
                                                  Inc.; Treasurer, The Ministers Life
                                                  Insurance Company


                                      171





                              POSITION WITH FUND
NAME, ADDRESS(1)              AND LENGTH OF          PRINCIPAL OCCUPATION(S)
AND AGE                       TIME SERVED            DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------
                                               
INDEPENDENT DIRECTORS

Ralph D. Ebbott               Director since         Retired, Vice President and Treasurer of
Age: 75                       October 22, 1985       Minnesota Mining and Manufacturing
                                                     Company (industrial and consumer
                                                     products) through June 1989

William C. Melton             Director since         Founder and President of Melton Research
Age: 55                       April 25, 2002         Inc. since 1997; member of the Advisory
                                                     Board of Macroeconomic Advisors LLC since
                                                     1998; member, Minneapolis StarTribune
                                                     Board of Economists since 1986; member,
                                                     State of Minnesota Council of Economic
                                                     Advisors from 1988 to 1994; various
                                                     senior positions at American Express
                                                     Financial Advisors (formerly Investors
                                                     Diversified Services and, thereafter,
                                                     IDS/American Express) from 1982 through
                                                     1997, including Chief Economist and,
                                                     thereafter, Chief International Economist

Ellen S. Berscheid            Director since         Regents' Professor of Psychology at the
Age: 66                       October 22, 1985       University of Minnesota

OTHER EXECUTIVE OFFICERS

Dianne M. Orbison             President since        President and Treasurer, Advantus Capital
Age: 50                       July 25, 2002          Management, Inc.; Vice President and
                                                     Treasurer, Minnesota Life Insurance
                                                     Company; Vice President and Treasurer,
                                                     Minnesota Mutual Companies, Inc.; Vice
                                                     President and Treasurer, Securian Financial
                                                     Group, Inc.; Vice President and Treasurer,
                                                     Securian Holding Company; President and
                                                     Treasurer, MIMLIC Funding, Inc. (entity
                                                     holding legal title to bonds beneficially
                                                     owned by certain clients of Advantus
                                                     Capital); President and Treasurer, MCM
                                                     Funding 1997-1, Inc. and MCM Funding
                                                     1998-1, Inc. (entities holding legal title to
                                                     mortgages beneficially owned by certain
                                                     clients of Advantus Capital)


                                      172





                                         POSITION WITH FUND
NAME, ADDRESS(1)                         AND LENGTH OF          PRINCIPAL OCCUPATION(S)
AND AGE                                  TIME SERVED            DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
                                                          
OTHER EXECUTIVE OFFICERS -- CONTINUED

Michael J. Radmer                        Secretary since        Partner with the law firm of Dorsey &
Dorsey & Whitney LLP                     April 16, 1998         Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota 55402
Age: 57


- ----------
(1) Unless otherwise noted, the address of each director and officer is the
address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

The Fund's Statement of Additional Information (SAI) includes additional
information about Fund directors, and is available, without charge, upon
request. You may request a copy of the current SAI by telephoning Minnesota
Life, toll free, at (800) 995-3850.

                                      173



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THIS OFFERING IS AVAILABLE THROUGH SECURIAN FINANCIAL SERVICES, INC., A
REGISTERED BROKER/DEALER. SECURIAN FINANCIAL SERVICES, INC. IS AN AFFILIATE OF
MINNESOTA LIFE.

THIS REPORT MAY BE USED AS SALES LITERATURE IN CONNECTION WITH THE OFFER OR SALE
OF VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS FUNDED BY ADVANTUS SERIES FUND,
INC. ("FUND") IF PRECEDED OR ACCOMPANIED BY (a) THE CURRENT PROSPECTUS FOR THE
FUND AND SUCH CONTRACTS AND (b) THE CURRENT VARIABLE ANNUITY PERFORMANCE REPORT,
ADJUSTABLE INCOME ANNUITY PERFORMANCE REPORT, VARIABLE FUND D PERFORMANCE
REPORT, VARIABLE GROUP UNIVERSAL LIFE PORTFOLIO PERFORMANCE AND HISTORICAL
POLICY VALUES REPORT AND VARIABLE ADJUSTABLE LIFE PORTFOLIO PERFORMANCE AND
HISTORICAL POLICY VALUES REPORT, RESPECTIVELY.

[SECURIAN FINANCIAL SERVICES LOGO]

SECURIAN FINANCIAL SERVICES, INC.
SECURITIES DEALER, MEMBER NASD/SIPC
400 ROBERT STREET NORTH
ST. PAUL, MN 55101-2098
(1.888.237.1838)

3010-2003-5959N



ABOUT MINNESOTA LIFE

FOUNDED IN 1880, MINNESOTA LIFE INSURANCE COMPANY SERVES MILLIONS OF PEOPLE WITH
A WIDE RANGE OF INSURANCE AND INVESTMENT PRODUCTS FOR INDIVIDUALS, FAMILIES AND
BUSINESSES. WE PROVIDE MORE THAN $220 BILLION OF LIFE INSURANCE PROTECTION AND
MANAGE MORE THAN $20 BILLION IN ASSETS. ONE OF THE MOST HIGHLY-RATED LIFE
INSURERS IN AMERICA, WE WILL BE THERE WHEN OUR CLIENTS NEED US.

      [MINNESOTA LIFE LOGO]                             PRESORTED STANDARD
      A MINNESOTA MUTUAL COMPANY                        U.S. POSTAGE PAID
                                                        ST. PAUL MN
      400 Robert Street North                           PERMIT NO. 3547
      St. Paul, MN 55101-2098
      www.minnesotalife.com

      ADDRESS SERVICE REQUESTED

      (C)2001 Minnesota Life Insurance Company.
      All rights reserved.

      F. 38897 Rev. 1-2003