REGISTRATION Nos. 333-17361
811-07961
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 2 X
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
AMENDMENT NO. 4 X
MASON STREET FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(414) 271-1444
(REGISTRANT'S TELEPHONE NUMBER)
MERRILL C. LUNDBERG
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
LAW DEPARTMENT
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(NAME AND ADDRESS OF AGENT FOR SERVICE)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
[ X ] ON June 30, 1998 PURSUANT TO PARAGRAPH (b)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(1)
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(2) OF RULE 485
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE
FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
MASON STREET FUNDS, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in Prospectus of information required by
the Items in Part A of Form N-1A.
ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
1 Cover Page
2 Summary
3 Condensed Financial Information
4 The Funds In Detail, Other Information
5 Management Of the Funds
5A <F1>
6 Other Information, Distributions And Taxes
7 Buying And Selling Fund Shares,
Shareholders Guide
8 Buying And Selling Fund Shares,
Shareholders Guide
9 <F1>
<F1> Indicates inapplicable or negative
MASON STREET FUNDS, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in Statement of Additional Information
required by the Items in Part B of Form N-1A.
Heading in Statement
Item Number of Additional Information
- ----------- -------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies
14 Management of MSF
15 Ownership of Shares of MSF
16 Investment Advisory Services,
Distribution Arrangements
17 Portfolio Transactions and
Brokerage Allocation and Other
Practices
18 Other Information About MSF
19 Determination of Net Asset Value,
Purchase and Redemption of Shares
20 Taxes
21 Distribution Arrangements, Underwriter
22 Investment Performance
23 Report of Independent Accountants,
Financial Statements and Schedule of
Investments
BOND FUNDS
MULTI-ASSET FUND
STOCK FUNDS
MASON STREET FUNDS
(LOGO)
JUNE 30, 1998
PROSPECTUS
Mason Street Funds
(Logo)
MASON STREET FUNDS PROSPECTUS
JUNE 30, 1998
THIS PROSPECTUS OFFERS YOU NINE MUTUAL FUNDS PRESENTING YOU WITH A WIDE CHOICE
OF INVESTMENT OBJECTIVES, INCLUDING GROWTH OF CAPITAL, INCOME OR A COMBINATION
OF THE TWO. EACH FUND IDENTIFIED BELOW IS A SERIES OF MASON STREET FUNDS(SM),
INC., AN OPEN-END MANAGEMENT INVESTMENT COMPANY REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION (SEC).
- - AGGRESSIVE GROWTH STOCK FUND
- - INTERNATIONAL EQUITY FUND
- - GROWTH STOCK FUND
- - GROWTH AND INCOME STOCK FUND
- - INDEX 500 STOCK FUND
- - ASSET ALLOCATION FUND
- - HIGH YIELD BOND FUND
- - MUNICIPAL BOND FUND
- - SELECT BOND FUND
Northwestern Mutual Investment Services, LLC, a wholly-owned subsidiary of The
Northwestern Mutual Life Insurance Company, serves as investment advisor to each
of the Funds, with certain of the Funds also being served by a subadvisor.
This Prospectus contains information about each of the Funds that you should
know before investing and should be kept for future reference. Additional
information about the Funds is contained in a Statement of Additional
Information ("SAI") filed with the SEC. The SAI for the Funds dated June 30,
1998, as amended from time to time, is incorporated by reference into this
Prospectus. For a copy of the SAI, write or call the address or phone number
listed on p. 31.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
The High Yield Bond Fund invests primarily in fixed income securities that are
rated below investment-grade by the major rating agencies. Such securities are
sometimes referred to as "junk bonds" and are considered speculative. Investors
should carefully consider the risks associated with such investments, as
described in this Prospectus, and should understand that high yield fixed income
securities are not appropriate for short-term investment purposes.
MASON STREET FUNDS
-------------------
CONTENTS
SUMMARY 3
- --------------------------------------------------------
About the Advisors 3
- --------------------------------------------------------
Funds at a Glance 3
- --------------------------------------------------------
Risk Comparison 5
- --------------------------------------------------------
Description of Classes of Shares 5
- --------------------------------------------------------
Expense Information 5
- --------------------------------------------------------
Financial Highlights 8
PERFORMANCE 10
- --------------------------------------------------------
THE FUNDS IN DETAIL 14
- --------------------------------------------------------
Stock Funds 14
- --------------------------------------------------------
Multi-Asset Fund 16
- --------------------------------------------------------
Bond Funds 17
- --------------------------------------------------------
Other Fund Policies and Associated Risks 19
- --------------------------------------------------------
Investment Restrictions 21
- --------------------------------------------------------
MANAGEMENT OF THE FUNDS 22
- --------------------------------------------------------
BUYING AND SELLING FUND SHARES 25
- --------------------------------------------------------
Investment Minimums 25
- --------------------------------------------------------
Flexible Sales Charge Options 25
- --------------------------------------------------------
How Shares are Priced 28
- --------------------------------------------------------
SHAREHOLDERS' GUIDE 29
- --------------------------------------------------------
How to Buy Shares 29
- --------------------------------------------------------
How to Exchange Shares 30
- --------------------------------------------------------
How to Sell Shares 30
- --------------------------------------------------------
Quick Address and Telephone Reference 31
- --------------------------------------------------------
DISTRIBUTIONS AND TAXES 32
- --------------------------------------------------------
OTHER INFORMATION 33
- --------------------------------------------------------
APPENDIX A - GLOSSARY 34
- --------------------------------------------------------
APPENDIX B 36
- --------------------------------------------------------
JUNE 30, 1998
- --------------------------------------------------------
JUNE 30, 1998
SUMMARY
ABOUT THE ADVISORS
Northwestern Mutual Investment Services, LLC ("NMIS") is the investment advisor
to the Funds. NMIS is a wholly-owned subsidiary of The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual Life"), the fifth largest life insurance
company in the U.S., with more than $71 billion in assets. Founded in 1857,
Northwestern Mutual Life is one of the best established and well respected
companies in operation today. Headquartered in Milwaukee, Wisconsin,
Northwestern Mutual Life has developed its reputation by providing excellence in
both financial management and personal service over the past 141 years. In
addition to the Funds, NMIS has been responsible for directing the investments
of the Northwestern Mutual Series Fund, Inc. ("Series Fund"), which serves as
the investment fund for Northwestern Mutual Life's variable annuity and life
insurance contracts.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") is the subadvisor for the
Growth and Income Stock Fund. Templeton Investment Counsel, Inc. ("Templeton")
is the subadvisor for the International Equity Fund.
FUNDS AT A GLANCE
This section will give you a brief summary of the Funds and their investment
objectives. Please refer to the detailed description of investment objectives
and policies (beginning at p. 14) for those Funds you wish to purchase. Many of
the Funds have the same investment objectives and policies, and the same
portfolio managers, as corresponding Portfolios of the Series Fund (and their
predecessor funds). The investment performance for each of these Portfolios is
shown on pp. 11-13. A glossary of terms is included in Appendix A.
- -----------
STOCK FUNDS
- -----------
AGGRESSIVE GROWTH STOCK FUND
OBJECTIVE: To seek long-term growth of capital primarily by investing in the
common stocks of companies that can be expected to increase their sales and
earnings at a pace that will exceed the growth rate of the U.S. economy over an
extended period.
PORTFOLIO: Primarily common stocks of small- and medium- sized companies.
STRATEGY: To locate and invest in companies with above-average potential for
growth.
FOCUS: To pursue higher returns by accepting a higher risk.
INTERNATIONAL EQUITY FUND
OBJECTIVE: To seek long-term growth of capital by investing primarily in stocks
of companies outside the U.S.
PORTFOLIO: Primarily common stocks of companies in foreign countries.
STRATEGY: To locate and invest in the under-valued stocks of foreign companies
offering the greatest discounts to their long-term values.
FOCUS: To achieve international diversification and long-term total return.
Subadvisor: Templeton
GROWTH STOCK FUND
OBJECTIVE: To seek long-term growth of capital by investing in companies
believed to have above-average earnings growth potential; current income is
secondary.
PORTFOLIO: Diversified mix of high-quality growth stocks in medium and large
companies.
STRATEGY: To analyze economic trends to determine their impact on various
sectors and industries and to select high-quality stocks from industries with
the best earnings potential.
FOCUS: To achieve attractive total return by investing in stocks with above-
average earnings growth potential.
MASON STREET FUNDS
-------- -----------
GROWTH AND INCOME STOCK FUND
OBJECTIVE: To seek long-term growth of capital and income by investing
primarily in dividend-paying common stocks.
PORTFOLIO: Primarily common stocks of medium and large companies identified as
strong candidates for significant long-term returns.
STRATEGY: To actively manage a portfolio of selected equity securities with a
goal of out-performing the total return of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500R Index").
FOCUS: To remain fully-invested, during ordinary market conditions, in equity
securities of fundamentally sound companies to maximize long-term total returns.
Subadvisor: J.P. Morgan
INDEX 500 STOCK FUND
OBJECTIVE: To seek investment results that approximate the performance of the
S&P 500R Index, by investing in stocks included in the S&P 500R Index. During
the ten-year period ended March 31, 1998, the S&P 500R Index had an average
annual return of 18.92%. Because the S&P 500R Index is an unmanaged index, this
return does not reflect the deduction of expenses that would exist with a mutual
fund.
FOCUS: To capture broad market performance, at low cost, by investing in a
portfolio modeled after a broadly based stock index.
- -----------------
MULTI-ASSET FUND
- -----------------
ASSET ALLOCATION FUND
OBJECTIVE: To seek to realize as high a level of total return, including
current income and capital appreciation, as is consistent with reasonable
investment risk. The Fund will follow a flexible policy for allocating assets
among common stocks, bonds and cash.
PORTFOLIO: The normal range of investments is 50-70% stocks, 25-35% bonds and
0-15% cash. Up to 50% of its stock allocation may be invested in foreign stocks.
See "Foreign Securities," p. 19.
STRATEGY: To adjust the mix between asset sectors to capitalize on the changing
financial markets and economic conditions.
FOCUS: To achieve diversification and long-term total return.
- -----------
BOND FUNDS
- -----------
HIGH YIELD BOND FUND
OBJECTIVE: To seek high current income and capital appreciation by investing
primarily in fixed income securities that are rated below investment-grade by
the major rating agencies.
PORTFOLIO: Diversified mix of below investment-grade fixed income securities,
commonly known as "junk bonds."
STRATEGY: To identify attractive investment opportunities through rigorous
industry and credit analysis and to generate superior performance by selecting
companies with stable or improving credit fundamentals.
FOCUS: Actively manage to maximize total return within prudent investment risk
parameters.
MUNICIPAL BOND FUND
OBJECTIVE: To seek a high level of current income exempt from federal income
taxes, consistent with the preservation of capital, by investing primarily in
investment-grade municipal obligations.
PORTFOLIO: Diversified investment-grade bonds, with the ability to invest up to
20% of its assets in lower-rated securities.
STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality, sector and maturity of fixed income securities.
FOCUS: To provide a competitive level of federally tax-exempt income and an
attractive total return plus a degree of safety.
SELECT BOND FUND
OBJECTIVE: To seek high income and capital appreciation, consistent with
preservation of capital.
PORTFOLIO: Diversified investment-grade corporate, Treasury and government
agency bonds with maturities generally exceeding one year.
STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality and maturity of fixed income securities.
FOCUS: To provide a stable, high rate of return plus a degree of safety.
JUNE 30, 1998
RISK COMPARISON
You should select the Funds that reflect your special financial goals,
investment time horizon and willingness to accept risk. When you invest in a
Fund, you assume the risks of investing in the types of securities held by the
Fund. Investing in securities involves varying degrees of market or interest
rate risk, credit or financial risk and prepayment risk. Market or interest rate
risk is the risk that market conditions, including interest rates, will change
and adversely affect the security. With common stock, market risk is the risk
that the value may fluctuate in response to general market and/or economic
conditions. The prices of bonds generally move in the opposite direction from
interest rates. Credit or financial risk is the risk that the issuer of a bond
may fail to pay principal and interest when due or, with stocks, that the
company will have adverse financial experience. Prepayment risk is the risk that
bonds which include the ability on the part of the issuer to prepay the amount
owed, will be prepaid at a time when interest rates have gone down, and that the
cash received can only be reinvested at a lower rate of return. Certain
instruments such as foreign securities, "junk bonds" and derivatives present
additional special risks. The risks that are specific to certain types of
securities are discussed in greater detail under "The Funds in Detail" on p. 14.
Each Fund's net asset value (NAV) per share (i.e., share price) will fluctuate
to reflect changes in the value of the securities in its portfolio. The value
you receive upon redemption of a Fund's shares may be higher or lower than their
original cost.
DESCRIPTION OF
CLASSES OF SHARES
To provide you with more flexibility, each Fund has adopted a purchase program
that offers you two alternative ways to purchase shares, Class A or Class B,
each with a different combination of sales charges, ongoing fees, eligibility
requirements and other features. This program is designed to permit you to
choose the method of purchasing shares that you believe is most beneficial given
the amounts of your investment and current holdings of Fund shares, the length
of time you expect to hold your investment and other relevant circumstances.
Under the purchase program, Class A shares may be purchased subject to an
initial sales charge. Class B shares are not subject to a sales charge at the
time of purchase but may be subject to a contingent deferred sales charge at the
time they are sold. Please see "Buying and Selling Fund Shares" on p. 25 for a
description of the specific sales charges or contingent deferred sales charges
which might apply to your purchase.
EXPENSE INFORMATION
The expense tables and the example below are intended to help you understand the
direct or indirect costs and expenses that you will bear as an investor in a
Fund. Shareholder Transaction Expenses are charged to your account directly when
you buy or sell shares. Annual Fund Operating Expenses are paid out of a Fund's
assets and include fees for advisory services, distribution services and
expenses relating to the maintenance of shareholder accounts, such as transfer
agent, administrative and similar expenses.
- -------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES (ALL FUNDS)
- -------------------------------------------------------
Class A Class B
- -------------------------------------------------------
MAXIMUM SALES CHARGE
ON PURCHASES (AS % OF
OFFERING PRICE)<F1> 4.75% 0.00%
- -------------------------------------------------------
MAXIMUM CONTINGENT
DEFERRED SALES CHARGE<F2> 0.00% 5.00% first year
4.00% second year
3.00% third year
3.00% fourth year
2.00% fifth year
1.00% sixth year
- -------------------------------------------------------
REDEMPTION FEE<F3> None None
- -------------------------------------------------------
EXCHANGE FEE None None
- -------------------------------------------------------
<F1> The maximum sales charge is applied only to purchases of less than $50,000.
Larger purchases are subject to lower sales charges. Purchases of $1
million or more incur no sales charge, but may be subject to a contingent
deferred sales charge ("CDSC") if the shares are redeemed within 18 months
of purchase.
<F2> The CDSC is computed as a percentage of the redemption proceeds when you
redeem your shares. The maximum CDSC only applies if you sell your shares
during the first year after the purchase of less than $50,000. Larger
purchases of Class B shares may be subject to a reduced CDSC. See
"Contingent Deferred Sales Charge" on p. 27.
<F3> A wire transfer fee (currently $15) may be imposed on a redemption when you
have the proceeds wire transferred.
MASON STREET FUNDS
-------- ----------
<TABLE>
<CAPTION>
- ------------------------------------
ANNUAL FUND OPERATING EXPENSES<F1>
- ------------------------------------
Aggressive Growth International Growth Growth and Income Index 500
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
MAGAX<F2> _ MEQAX<F2> _ MGSAX<F2> _ MSKAX<F2> _ MISAX<F2> _
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT FEES 0.75% 0.75% 0.85% 0.85% 0.75% 0.75% 0.65% 0.65% 0.30% 0.30%
- ---------------------------------------------------------------------------------------------------------------------------------
12B-1 DISTRIBUTION AND
SERVICE FEES<F3> 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
(AFTER REIMBURSEMENT) <F4> 0.20% 0.20% 0.45% 0.45% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES
(AFTER REIMBURSEMENT) <F4> 1.30% 1.95% 1.65% 2.30% 1.30% 1.95% 1.20% 1.85% 0.85% 1.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Asset Allocation High Yield Bond Municipal Bond Select Bond
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
MASSX<F2> _ MHYAX<F2> _ MMBAX<F2> _ MBDAX<F2> _
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT FEES 0.70% 0.70% 0.75% 0.75% 0.30% 0.30% 0.30% 0.30%
- ---------------------------------------------------------------------------------------------------------------------------------
12B-1 DISTRIBUTION AND SERVICE FEES<F3> 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES (AFTER REIMBURSEMENT) <F4> 0.30% 0.30% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES
(AFTER REIMBURSEMENT) <F4> 1.35% 2.00% 1.30% 1.95% 0.85% 1.50% 0.85% 1.50%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> An annual custodial fee of $15 per taxpayer identification number is
charged to investors who maintain IRA accounts, which if not paid by the
investor, may be charged against the assets of the account.
<F2> NASDAQ symbols. The NASDAQ symbol is only available for Class A shares of
the Funds.
<F3> The 12b-1 Distribution and Service Fees include a 0.25% shareholder
servicing fee with a 0.10% distribution fee on Class A shares and a 0.75%
distribution fee on Class B shares. As the result of the accrual of 12b-1
fees, long-term shareholders may pay more than the economic equivalent of
the maximum initial sales charge permitted by the National Association of
Securities Dealers.
<F4> NMIS and its affiliates have agreed to waive their fees and absorb certain
other operating expenses until at least March 31, 1999, to the extent
necessary so that Total Operating Expenses will not exceed the amount shown
for each Fund. After March 31, 1999, NMIS expects the Funds' Total
Operating Expenses, after reimbursement, not to exceed the amounts shown.
In the absence of fee waivers, the Other Expenses for the Class A and the
Class B shares of each Fund for the first year of operations would have
been: Aggressive Growth Stock Fund, 0.54% and 0.54%; International Equity
Fund, 0.93% and 0.93%; Growth Stock Fund, 0.53% and 0.53%; Growth and
Income Stock Fund, 0.57% and 0.57%; Index 500 Stock Fund, 0.65% and 0.65%;
Asset Allocation Fund, 0.62% and 0.62%; High Yield Bond Fund, 0.56% and
0.56%; Municipal Bond Fund, 0.59% and 0.59%; and Select Bond Fund, 0.64%
and 0.64%, respectively, and the Total Operating Expenses of the Class A
and Class B shares of the Funds would have been: Aggressive Growth Stock
Fund, 1.64% and 2.29%; International Equity Fund, 2.13% and 2.78%; Growth
Stock Fund, 1.63% and 2.28%; Growth and Income Stock Fund, 1.57% and 2.22%;
Index 500 Stock Fund, 1.30% and 1.95%; Asset Allocation Fund, 1.67% and
2.32%; High Yield Bond Fund, 1.66% and 2.31%; Municipal Bond Fund, 1.24%
and 1.89%; and Select Bond Fund, 1.29% and 1.94%, respectively.
JUNE 30, 1998
EXPENSE EXAMPLES
An investor would have paid the following expenses at the end of the period
shown on a $1,000 investment, assuming a 5% annual return and redemption at the
end of each period:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH STOCK FUND $60 $70 $87 $ 91 $115 $125 $197 $211
INTERNATIONAL EQUITY FUND $63 $73 $97 $102 $133 $143 $234 $247
GROWTH STOCK FUND $60 $70 $87 $ 91 $115 $125 $197 $211
GROWTH AND INCOME STOCK FUND $59 $69 $84 $ 88 $110 $120 $186 $200
INDEX 500 STOCK FUND $56 $65 $73 $ 77 $ 92 $102 $147 $161
ASSET ALLOCATION FUND $61 $70 $88 $ 93 $118 $128 $202 $216
HIGH YIELD BOND FUND $60 $70 $87 $ 91 $115 $125 $197 $211
MUNICIPAL BOND FUND $56 $65 $73 $ 77 $ 92 $102 $147 $161
SELECT BOND FUND $56 $65 $73 $ 77 $ 92 $102 $147 $161
Using the same assumptions as for the first table but assuming that you did not redeem your
shares at the end of each period, you would bear the following expenses:
Fund 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH STOCK FUND $60 $20 $87 $ 61 $115 $105 $197 $211
INTERNATIONAL EQUITY FUND $63 $23 $97 $ 72 $133 $123 $234 $247
GROWTH STOCK FUND $60 $20 $87 $ 61 $115 $105 $197 $211
GROWTH AND INCOME STOCK FUND $59 $19 $84 $ 58 $110 $100 $186 $200
INDEX 500 STOCK FUND $56 $15 $73 $ 47 $ 92 $ 82 $147 $161
ASSET ALLOCATION FUND $61 $20 $88 $ 63 $118 $108 $202 $216
HIGH YIELD BOND FUND $60 $20 $87 $ 61 $115 $105 $197 $211
MUNICIPAL BOND FUND $56 $15 $73 $ 47 $ 92 $ 82 $147 $161
SELECT BOND FUND $56 $15 $73 $ 47 $ 92 $ 82 $147 $161
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The example assumes a
5% annual rate of return pursuant to requirements of the Securities and Exchange
Commission.
MASON STREET FUNDS
------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following information on financial highlights for the twelve months ended
March 31, 1998 has been audited by Price Waterhouse LLP, independent
accountants. This information should be read in conjunction with the financial
statements and notes thereto which appear in the Statement of Additional
Information. Further information about each Fund's performance is
contained in the annual report to shareholders which may be
obtained without charge.
<TABLE>
<CAPTION>
1998<F1> 1998<F1> 1998<F1> 1998<F1>
- -------------------------------------------------------------------------------------------------------------------
Aggressive International Growth and
Growth Equity Growth Income
- -------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
- -------------------------------------------------------------------------------------------------------------------
Net Investment
Income (loss) (0.12) <F2> (0.21) <F2> 0.24<F2> 0.10<F2> 0.04<F2> (0.05) <F2> 0.04<F2> (0.03) <F2>
- -------------------------------------------------------------------------------------------------------------------
Net Realized and
Unrealized
Gains/(Loss) 5.18 5.18 0.56 0.63 4.41 4.41 3.90 3.88
- -------------------------------------------------------------------------------------------------------------------
Total from
Investment
Operations 5.06 4.97 0.80 0.73 4.45 4.36 3.94 3.85
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Distributions
from Net
Investment
Income 0.00 0.00 (0.22) (0.20) (0.05) (0.03) (0.06) (0.04)
- -------------------------------------------------------------------------------------------------------------------
Distributions
from
Realized
Gains (0.56) (0.54) 0.00 0.00 (0.30) (0.30) (1.44) (1.44)
- -------------------------------------------------------------------------------------------------------------------
Total Distri-
butions (0.56) (0.54) (0.22) (0.20) (0.35) (0.33) (1.50) (1.48)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of
Period $14.50 $14.43 $10.58 $10.53 $14.10 $14.03 $12.44 $12.37
===================================================================================================================
Total Return<F3> 51.57% 50.59% 8.19% 7.49% 45.08% 44.12% 41.90% 40.96%
===================================================================================================================
RATIOS AND
SUPPLE-
MENTAL DATA:
Net Assets,
End of Period $41,640,193 $1,870,132 $29,451,833 $1,444,924 $38,224,386 $811,173 $37,800,412 $1,529,206
===================================================================================================================
Ratio of Net
Expenses to
Average
Net Assets 1.30% 1.95% 1.65% 2.30% 1.30% 1.95% 1.20% 1.85%
===================================================================================================================
Ratio of Gross
Expenses to
Average Net
Assets 1.64% 2.29% 2.13% 2.78% 1.63% 2.28% 1.57% 2.22%
===================================================================================================================
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets (0.96)% (1.61)% 2.34% 1.69% 0.29% (0.36)% 0.37% (0.28)%
===================================================================================================================
Portfolio
Turnover Rate 64.91% 64.91% 10.07% 10.07% 37.52% 37.52% 140.29% 140.29%
===================================================================================================================
Average
Commission
Rate $0.0548 $0.0548 $0.0016 $0.0016 $0.0510 $0.0510 $0.0440 $0.0440
===================================================================================================================
<F1> For the period of March 31, 1997 (commencement of operations) through March 31, 1998.
<F2> Calculated based on average shares outstanding.
<F3> Total return includes deductions for management and other Fund expenses; excludes deductions for sales loads and contingent
deferred sales charges. Returns include fee waivers in effect. In the absence of fee waivers, total return would be reduced.
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
1998<F1> 1998<F1> 1998<F1> 1998<F1> 1998<F1>
- ---------------------------------------------------------------------------------------------------------------------------------
Index 500 Asset Allocation High Yield Bond Municipal Bond Select Bond
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment
Income (loss) 0.13<F2> 0.05<F2> 0.31<F2> 0.23<F2> 1.01<F2> 0.93<F2> 0.46<F2> 0.38<F2> 0.71<F2>0.66<F2>
- ---------------------------------------------------------------------------------------------------------------------------------
Net Realized and
Unrealized
Gains/(Loss) 4.48 4.47 2.50 2.50 1.19 1.20 0.69 0.70 0.46 0.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Operations 4.61 4.52 2.81 2.73 2.20 2.13 1.15 1.08 1.17 1.10
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Distributions
from Net
Investment
Income (0.11) (0.10) (0.24) (0.22) (1.00) (0.93) (0.47) (0.40) (0.71) (0.64)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions
from
Realized
Gains (0.07) (0.07) (0.25) (0.25) (0.41) (0.41) (0.13) (0.13) (0.48) (0.48)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distri-
butions (0.18) (0.17) (0.49) (0.47) (1.41) (1.34) (0.60) (0.53) (1.19) (1.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of
Period $14.43 $14.35 $12.32 $12.26 $10.79 $10.79 $10.55 $10.55 $9.98 $9.98
=================================================================================================================================
Total Return<F3> 46.35% 45.44% 28.51% 27.69% 22.95% 22.09% 11.73% 10.93% 12.11% 11.34%
=================================================================================================================================
RATIOS AND
SUPPLE-
MENTAL DATA:
Net Assets,
End of Period $43,567,584 $4,246,552 $34,564,169 $1,569,081 $32,811,316 $1,360,925 $28,172,205$472,387 $28,617,421 $643,332
=================================================================================================================================
Ratio of Net
Expenses to
Average
Net Assets 0.85% 1.50% 1.35% 2.00% 1.30% 1.95% 0.85% 1.50% 0.85% 1.50%
=================================================================================================================================
Ratio of Gross
Expenses to
Average Net
Assets 1.30% 1.95% 1.67% 2.32% 1.66% 2.31% 1.24% 1.89% 1.29% 1.94%
=================================================================================================================================
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 1.04% 0.39% 2.67% 2.02% 9.30% 8.65% 4.38% 3.73% 6.93% 6.28%
=================================================================================================================================
Portfolio
Turnover Rate 2.47% 2.47% 65.67% 65.67% 178.61% 178.61% 169.37% 169.37% 362.32% 362.32%
=================================================================================================================================
Average
Commission
Rate $0.0255 $0.0255 $0.0621 $0.0621 _ _ _ _ _ _
=================================================================================================================================
</TABLE>
MASON STREET FUNDS
-------------------
PERFORMANCE
THE PERFORMANCE OF THE FUNDS IS GENERALLY MEASURED IN TERMS OF TOTAL RETURN. IN
ADDITION, THE BOND FUNDS MAY MEASURE YIELD AS WELL. OUR NEWSLETTERS AND
ADVERTISEMENTS MAY INCLUDE COMPARISONS OF A FUND'S PERFORMANCE TO THE
PERFORMANCE OF OTHER MUTUAL FUNDS, MUTUAL FUND AVERAGES OR RECOGNIZED INDICES.
- ------------------
PERFORMANCE TERMS
- ------------------
CUMULATIVE TOTAL RETURN represents the actual return on an investment for a
specified period without any deduction of a sales charge. Cumulative total
return is generally quoted for more than one year (e.g., the life of the Fund).
A cumulative total return does not show interim fluctuations in the value of an
investment.
AVERAGE ANNUAL TOTAL RETURN represents the average annual percentage change of
an investment over a specified period, after the deduction of the maximum
applicable sales charge. It is calculated by taking the cumulative total return
for the stated period (less the sales charge) and determining what constant
annual return would have produced the same cumulative return. Average annual
returns for more than one year tend to smooth out variations in a Fund's return
and are not the same as actual annual results.
YIELD shows the rate of income a Fund earns on its investments as a percentage
of the Fund's share price. It is calculated by dividing a Fund's net investment
income for a 30-day period by the average number of shares entitled to receive
dividends, annualizing this number, and dividing the result by the Fund's NAV
per share at the end of the 30-day period. Yield does not include changes in
NAV.
Yields are calculated according to standardized SEC formulas and may not equal
the income on an investor's account. Yield is usually quoted on an annualized
basis. An annualized yield represents the amount you would earn if you remained
in a Fund for a year and that Fund continued to have the same net investment
income for the entire year.
DISTRIBUTION RATE is a measure of the level of income dividends and may include
short-term capital gains distributed for a specific period. A distribution rate
is not a complete mirror of performance, and may be higher than yield for
certain periods.
TAX-EQUIVALENT YIELD For the Municipal Bond Fund, tax-equivalent yield shows the
before-tax yield that an investor would have to earn to equal the Fund's tax-
free yield. It is calculated by dividing the Fund's tax-free yield by the result
of one minus a stated federal tax rate.
- -----------------------------
MASON STREET FUND PERFORMANCE
- -----------------------------
The figures set forth below reflect each Fund's total return for the twelve
months ending March 31, 1998. These figures are based on the actual performance
of the Funds. The Funds' investment advisor and its affiliates have voluntarily
agreed to limit certain Fund expenses. Without this agreement total return
figures would have been lower. Past performance is not necessarily indicative
and is no guarantee of future performance of the Funds.
Class A Shares Class B Shares
With Without Assuming
Sales Sales Assuming No
Charge Charge<F1> Redemption Redemption
- ----------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK FUND 44.36% 51.57% 46.59% 50.59%
- ----------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND 3.04% 8.19% 3.49% 7.49%
- ----------------------------------------------------------------------------
GROWTH STOCK FUND 38.17% 45.08% 40.12% 44.12%
- ----------------------------------------------------------------------------
GROWTH AND INCOME STOCK FUND 35.14% 41.90% 36.96% 40.96%
- ----------------------------------------------------------------------------
INDEX 500 STOCK FUND 39.38% 46.35% 41.44% 45.44%
- ----------------------------------------------------------------------------
ASSET ALLOCATION FUND 22.39% 28.51% 23.69% 27.69%
- ----------------------------------------------------------------------------
HIGH YIELD BOND FUND 17.09% 22.95% 18.09% 22.09%
- ----------------------------------------------------------------------------
MUNICIPAL BOND FUND 6.41% 11.73% 6.93% 10.93%
- ----------------------------------------------------------------------------
SELECT BOND FUND 6.77% 12.11% 7.34% 11.34%
- ----------------------------------------------------------------------------
<F1> Certain persons may purchase Class A shares that are not subject to the
Class A initial sales charge and certain other persons may purchase Class A
shares subject to less than the maximum initial sales charge (see "When will the
Sales Charge on Class A Shares be Reduced or Waived?" on p. 26 of the
Prospectus).
Further information about the performance of the Funds is contained in Mason
Street Funds'(SM) annual report to shareholders, which may be obtained without
charge from your Registered Representative or by writing or calling the address
or phone number listed on p. 31.
JUNE 30, 1998
- ----------------------------------
SERIES FUND PORTFOLIO PERFORMANCE
- ----------------------------------
The investment performance for certain Portfolios of Northwestern Mutual Series
Fund, Inc. is shown below based upon the average annual total return for the
one-, three-, five- and ten-year periods (or since inception) ending March 31,
1998, adjusted to reflect the expenses of the Funds, including sales charges
where indicated. The investment policies of each of the Series Fund Portfolios
are substantially similar to those of the respective Mason Street Funds(SM). THE
PERFORMANCE DISCLOSED BELOW IS NOT THE PERFORMANCE OF THE FUNDS BUT RATHER OF
THE CORRESPONDING SERIES FUND PORTFOLIOS. Although the five comparable Funds
have substantially similar investment objectives and policies and the same
portfolio managers as the corresponding Series Fund Portfolios, you should not
assume that the Funds offered by this Prospectus will have the same future
performance as the corresponding Portfolios. For example, any Fund's future
performance may be greater or less than the performance of the corresponding
Portfolio due to, among other things, differences in expenses, asset sizes and
cash flows between a Fund and the corresponding Portfolio. THE PERFORMANCE
FIGURES ARE BASED UPON HISTORICAL RESULTS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE WILL FLUCTUATE SO
THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
The table below sets forth each Fund, and its corresponding Series Fund
Portfolio, its inception date and asset size as of March 31, 1998:
Corresponding Portfolio
Fund (Inception Date and Asset Size)
- ---------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK Aggressive Growth Stock
(November 30, 1990<F1>)
$1,195.8 million
- ---------------------------------------------------------------------------
GROWTH STOCK Growth Stock
(May 3, 1994)
$304.1 million
- ---------------------------------------------------------------------------
GROWTH AND INCOME STOCK Growth and Income Stock
(May 3, 1994)
$455.8 million
- ---------------------------------------------------------------------------
HIGH YIELD BOND High Yield Bond
(May 3, 1994)
$169.6 million
- ---------------------------------------------------------------------------
SELECT BOND Select Bond
(June 26, 1984)
$253.5 million
- ---------------------------------------------------------------------------
<F1> Includes performance of predecessor fund that was merged into the Series
Fund on May 3, 1994.
- ---------------------------------
SERIES FUND PORTFOLIO PERFORMANCE
- ---------------------------------
The following four tables show the average annualized total returns for the
Series Fund Portfolios and predecessor fund for the one-, three-, five- and ten-
year (or life of the Portfolio, if shorter) periods ended March 31, 1998. These
figures are based on the actual gross investment performance of the Portfolios.
From the gross investment performance figures, the maximum Total Fund Operating
Expenses shown in the fee table on p. 6 are deducted to arrive at the net
return. The first table for each Class reflects a deduction for the maximum
applicable sales charge, while the second table for each Class reflects no
deduction for sales charges. Performance figures will be lower when sales
charges are taken into effect.
ASSUMING CLASS A SHARES TOTAL FUND OPERATING EXPENSES AND
THE MAXIMUM INITIAL SALES CHARGE APPLICABLE TO CLASS A SHARES
10 Years or
Since
Portfolio (Inception Date) 1 Year 3 Years 5 Years Inception
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
(November 30, 1990<F2>) 41.05% 22.80% 19.17% 21.06%
- ------------------------------------------------------------------------------
GROWTH STOCK (May 3, 1994) 38.66% 25.91% NA 21.99%
- ------------------------------------------------------------------------------
GROWTH AND INCOME STOCK
(May 3, 1994) 34.16% 25.16% NA 21.50%
- ------------------------------------------------------------------------------
HIGH YIELD BOND (May 3, 1994) 12.68% 14.57% NA 13.02%
- ------------------------------------------------------------------------------
SELECT BOND (June 26, 1984) 5.56% 6.71% 5.55% 8.03%
- ------------ ------------ ------------ ------------ ------------ ------------
ASSUMING CLASS A SHARES TOTAL FUND OPERATING EXPENSES
WITH NO INITIAL SALES CHARGE<F1>)
10 Years or
Since
Portfolio (Inception Date) 1 Year 3 Years 5 Years Inception
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
(November 30, 1990<F2> 48.09% 24.81% 20.34% 21.86%
- ------------------------------------------------------------------------------
GROWTH STOCK (May 3, 1994) 45.57% 27.96% NA 23.52%
- ------------------------------------------------------------------------------
GROWTH AND INCOME STOCK
(May 3, 1994) 40.85% 27.21% NA 23.02%
- ------------------------------------------------------------------------------
HIGH YIELD BOND (May 3, 1994) 18.30% 16.44% NA 14.43%
- ------------------------------------------------------------------------------
SELECT BOND (June 26, 1984) 10.83% 8.45% 6.58% 8.55%
- ------------------------------------------------------------------------------
<F1> Certain persons may purchase Class A shares that are not subject to the
Class A initial sales charge and certain other persons may purchase Class A
shares subject to less than the maximum initial sales charge (see "When
will the Sales Charge on Class A Shares be Reduced or Waived?" on p. 26).
<F2> Includes performance of predecessor fund that was merged into the Series
Fund on May 3, 1994.
JUNE 30, 1998
- ---------------------------------
SERIES FUND PORTFOLIO PERFORMANCE
- ---------------------------------
ASSUMING CLASS B SHARES TOTAL FUND OPERATING EXPENSES
AND REDEMPTION AT THE END OF THE APPLICABLE TIME PERIOD
10 Years or
Since
Portfolio (Inception Date) 1 Year 3 Years 5 Years Inception
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
(November 30, 1990<F1>) 42.14% 23.36% 19.36% 21.08%
- ------------------------------------------------------------------------------
GROWTH STOCK (May 3, 1994) 39.61% 26.54% NA 22.30%
- ------------------------------------------------------------------------------
GROWTH AND INCOME STOCK
(May 3, 1994) 35.04% 25.81% NA 21.82%
- ------------------------------------------------------------------------------
HIGH YIELD BOND (May 3, 1994) 12.58% 14.93% NA 13.17%
- ------------------------------------------------------------------------------
SELECT BOND (June 26, 1984) 5.08% 6.88% 5.56% 7.85%
- ------------------------------------------------------------------------------
ASSUMING CLASS B SHARES TOTAL FUND OPERATING EXPENSES
AND NO REDEMPTION AT THE END OF THE APPLICABLE TIME PERIOD
10 Years or
Since
Portfolio (Inception Date) 1 Year 3 Years 5 Years Inception
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
(November 30, 1990<F1>) 43.14% 24.01% 19.45% 21.08%
- ------------------------------------------------------------------------------
GROWTH STOCK (May 3, 1994) 40.61% 27.16% NA 22.73%
- ------------------------------------------------------------------------------
GROWTH AND INCOME STOCK
(May 3, 1994) 36.04% 26.44% NA 22.25%
- ------------------------------------------------------------------------------
HIGH YIELD BOND (May 3, 1994) 13.58% 15.69% NA 13.70%
- ------------------------------------------------------------------------------
SELECT BOND (June 26, 1984) 6.08% 7.75% 5.72% 7.85%
- ------------------------------------------------------------------------------
<F1> Includes performance of predecessor fund that was merged into the Series
Fund on May 3, 1994.
MASON STREET FUNDS
-------------------
THE FUNDS IN DETAIL
THIS SECTION TAKES A CLOSER LOOK AT THE FUNDS' INVESTMENT OBJECTIVES AND
POLICIES AND THE SECURITIES THAT MAY BE PURCHASED. PLEASE REVIEW THE "OTHER FUND
POLICIES AND ASSOCIATED RISKS" SECTION ON P. 19 FOR MORE DETAILED INFORMATION
ABOUT RISKS ASSOCIATED WITH EACH INVESTMENT. AS WITH ANY MUTUAL FUND, THERE IS
NO ASSURANCE THAT A FUND WILL ACHIEVE ITS OBJECTIVE.
The investment objective of each Fund is "fundamental" and may not be changed
without a shareholder vote. All other policies, unless noted as "fundamental,"
may be changed by Mason Street Funds'(SM) Board of Directors without a vote of
the shareholders. This allows for flexibility in the management of the Funds,
for example, to permit investments in new types of instruments. You will be
notified of any changes that are material.
The investment horizon is the amount of time you should plan to hold your
investment in a Fund to increase the likelihood of achieving the Fund's
objective. Descriptions of ratings are provided in Appendix B.
- ---------------------
STOCK FUNDS CATEGORY
- ---------------------
STOCK FUNDS PROFILE
INVESTMENT OBJECTIVE:
- -------------------------------------------------------
Aggressive Growth Stock Fund
International Equity Fund - Growth of Capital
Growth Stock Fund
- -------------------------------------------------------
Growth and Income Stock Fund - Growth of Capital
and Income
- -------------------------------------------------------
Approximate the
Index 500 Stock Fund - S&P 500R Index
Performance
- -------------------------------------------------------
PRIMARY HOLDINGS: Common Stocks
SHAREHOLDER'S INVESTMENT HORIZON: Long Term
- -----------------------------------------------------------------------------
WHO MAY WANT TO INVEST: These Funds may be appropriate for investors who
are willing to tolerate stock market fluctuations in return for
potentially high long-term returns. These Funds are designed for those
looking for long-term growth potential.
The fundamental risk associated with any common stock fund is the risk
that the value of the stocks it holds might decrease. Stock values may
fluctuate in response to the activities of an individual company or in
response to general market and/or economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed
greater short-term risks than other investment choices. Smaller or newer
issuers are more likely to realize more substantial growth as well as
suffer more significant losses than larger or more established issuers.
Investments in such companies can be both more volatile and more
speculative. Investments in foreign securities may involve additional
risks not present when investing in comparable domestic securities.
- -----------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK FUND
The investment objective of the Aggressive Growth Stock Fund is long-term growth
of capital. The Fund will seek to achieve this objective primarily by investing
in the common stocks of companies that the advisor believes can reasonably be
expected to increase their sales and earnings at a pace that will exceed the
growth rate of the U.S. economy over an extended period. These companies, for
the most part, are smaller and newer companies whose stock may experience
substantial price volatility. Under normal circumstances, the Fund will invest
at least 80% of its assets in stocks.
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is long-term growth of
capital. The Fund will seek to achieve this objective by investing primarily in
stocks of companies outside the U.S. The Fund will invest at least 65% of its
assets in stocks of issuers in a minimum of three countries outside the U.S.
Although the Fund generally invests in common stocks, it may also invest in
preferred stocks and certain debt securities such as convertible bonds.
The International Equity Fund has an unlimited right to purchase securities in
any foreign country, developed or developing. You should consider carefully the
risks involved in investing in securities issued by companies and governments of
foreign nations, particularly those in developing countries, which are in
addition to the usual risks inherent in domestic securities. See "Foreign
Securities," p. 19.
JUNE 30, 1998
GROWTH STOCK FUND
The investment objective of the Growth Stock Fund is long-term growth of
capital; current income is secondary. The Fund will seek to achieve this
objective by selecting investments in companies which have above average
earnings growth potential. Under normal circumstances, the Fund will invest at
least 65% of its assets in stocks.
The Growth Stock Fund invests primarily in common stocks of well-established
companies, with emphasis placed on high- quality companies with strong financial
characteristics. The investment process is initiated with an analysis of the
economic outlook. Further study of economic sectors leads to the identification
of growth-oriented industries, and to detailed studies of individual companies.
In evaluating individual companies, factors such as the company management team,
product outlook, global exposure, industry leadership position and financial
characteristics are important variables used in the analysis.
The market capitalization of companies the Fund may invest in is not limited by
size, but the Fund will generally invest in medium- and large-sized companies.
GROWTH AND INCOME STOCK FUND
The investment objective of the Growth and Income Stock Fund is long-term growth
of capital and income. The Fund seeks to achieve these objectives consistent
with reasonable investment risk. Ordinarily, the Fund pursues its investment
objectives by investing primarily in dividend-paying common stocks. The Fund may
also invest in other equity securities, consisting of, among other things,
nondividend-paying common stock. Under normal circumstances, the Fund will
invest at least 65% of its assets in stocks.
The Fund is not subject to any limit on the size of companies in which it may
invest, but intends, under normal circumstances, to be fully invested to the
extent practicable in the medium- and large-sized companies. In managing the
Fund, the potential for appreciation and dividend growth is given more weight
than current dividends. Nonetheless, the manager of the Fund will normally
strive for gross income for the Fund at a level not less than 75% of the
dividend income generated on the stocks included in the S&P 500R Index, although
this income level is merely a guideline and there can be no certainty that this
income level will be achieved.
The Fund attempts to reduce risk by investing in many different economic
sectors, industries and companies. The manager of the Fund may under-weight or
over-weight selected economic sectors against the sector weightings of the S&P
500R Index to seek to enhance the Fund's total return or reduce fluctuations in
market value relative to the S&P 500R Index. In selecting securities, the
manager may emphasize securities that it believes to be undervalued. Securities
of a company may be undervalued for a variety of reasons such as an overreaction
by investors to unfavorable news about a company, an industry or the stock
markets in general; or as a result of a market decline, poor economic
conditions, tax-loss selling, or actual or anticipated unfavorable developments
affecting a company.
During normal market conditions, the Fund will be as fully invested as
practicable in equity securities.
INDEX 500 STOCK FUND
The investment objective of the Index 500 Stock Fund is to achieve investment
results that approximate the performance of the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500R Index"). The Fund will attempt to meet this
objective by investing in stocks included in the S&P 500R Index in proportion to
their weighting in the index.
The S&P 500R Index<F1> is composed of 500 common stocks representing
approximately two-thirds of the total market value of all publicly-traded common
stocks in the United States.
The Index 500 Stock Fund will not be managed in the traditional sense using
economic, financial and market analysis. A computer program will be used to
determine which stocks are to be purchased or sold to achieve the Fund's
objective. The Fund will, to the extent feasible, remain fully invested and will
normally hold at least 450 of the 500 issues that comprise the S&P 500R Index.
The Fund will not buy stocks that are not in the S&P 500R Index and will seek to
sell such stocks in an orderly manner in the event of changes in the Index or
spin-offs.
The Index 500 Stock Fund's ability to match the performance of the S&P 500R
Index will be affected to some extent by the size and timing of cash flows into
and out of the Fund. The Fund will be managed with a view to reducing such
effects.
<F1> Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500"
are trademarks of The McGraw-Hill Company, Inc. and have been licensed for
use by Northwestern Mutual Life and Mason Street Funds(SM). The Fund 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 Fund.
OTHER INVESTMENTS
In addition to investments in equity securities, the Stock Funds may from time
to time invest in investment-grade debt securities, certificates of deposit,
bank time deposits in the currency of any nation, banker's acceptances,
corporate debt obligations, commercial paper, short-term U.S. Treasury
obligations, or temporarily hold assets in cash. Stock Funds other than the
Index 500 Stock Fund may invest all or a larger portion of their assets in these
investments for temporary defensive purposes. The Stock Funds may also invest in
options contracts, stock index futures contracts, including indexes on specific
industries, foreign currency futures and forward contracts and repurchase
agreements. See "Financial Futures Contracts," p. 20. Although the Funds
generally invest in common stocks, they may also invest in preferred stocks and
securities convertible into common stock, including debt securities with
conversion privileges or warrants.
MASON STREET FUNDS
-------------------
The Funds may also invest in American Depositary Receipts (ADRs). The Aggressive
Growth Stock and Growth Stock Funds have the authority to invest up to 25% of
their assets in ordinary shares of foreign securities. These Funds will normally
not invest in ordinary shares of foreign securities, but may do so from time to
time. See "Foreign Securities," p. 19. The Funds may enter into firm commitment
agreements and purchase securities on a "when-issued" basis.
The International Equity Fund may purchase and sell financial futures contracts,
stock index futures contracts and foreign currency futures contracts for hedging
purposes only and not for speculation. It may engage in such transactions only
if the total contract value of the futures contracts does not exceed 20% of the
portfolio's total assets. See "Financial Futures Contracts," p. 20.
DIVERSIFICATION
The aim of each Fund is to seek to reduce overall risk by diversifying its
assets in an appropriate manner. This diversification will span economic
sectors, industry groups and companies, while emphasizing high-quality
investments.
- --------------------------
MULTI-ASSET FUND CATEGORY
- --------------------------
ASSET ALLOCATION FUND PROFILE
INVESTMENT OBJECTIVE: Total Return
PRIMARY HOLDINGS: Common Stocks and
Fixed Income Securities
SHAREHOLDER'S INVESTMENT HORIZON: Long Term
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST: This Fund may be appropriate for investors who
seek a combination of growth of capital and income, and are willing to
ride out stock market fluctuations in pursuit of potentially high long-
term returns. The Asset Allocation Fund is designed for investors who
want their investments actively managed among the major asset classes in
pursuit of potentially high total return. It is not designed for an
investor who wishes to have a consistent level of income.
The value of the Fund's investments and income will vary from day to day,
and generally reflect market conditions, interest rates, and other
company, political or economic news. In the short-term, stock prices can
fluctuate dramatically in response to these factors. Over time, however,
stocks have shown greater appreciation potential than other types of
securities. The prices of fixed income securities generally move in the
opposite direction from interest rates. Investments in foreign securities
may involve additional risks not present when investing in comparable
domestic securities.
- ------------------------------------------------------------------------------
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is as high a level of
total return, including current income and capital appreciation, as is
consistent with reasonable investment risk. The Fund seeks to achieve its
objective through a flexible policy of allocating assets among common stocks,
bonds and cash.
Under normal market conditions, the Fund's net assets will be allocated
according to a benchmark of 50-70% stocks, 25-35% bonds and 0-15% cash. NMIS
intends to actively manage the Fund's assets, maintaining a balance over time
between investment opportunities and their associated potential risks. In
response to changing market and economic conditions, NMIS may reallocate the
Fund's net assets among these asset categories. Those allocations normally will
be within the ranges indicated above. However, in pursuit of total return, NMIS
may under-allocate or over-allocate the Fund's net assets in a particular
category.
Not more than 75% of the Fund's net assets may be invested in either the stock
sector or the bond sector. Up to 100% of the Fund's net assets may be invested
in money market instruments. No minimum percentage has been established for any
of the sectors.
The stock portion of the portfolio may be invested in any of the types of
securities eligible for the Stock Funds, including foreign securities. To take
advantage of investment opportunities around the world, the Fund will normally
invest 20-25% of its stock investments in foreign stocks (including both direct
investments and depositary receipts) but will not invest more than 50% of its
equity investments in foreign equities. Foreign investments involve risks not
normally found when investing in securities of U.S. issuers. See "Foreign
Securities," p. 19.
The bond portion of the portfolio may be invested in any of the types of
securities eligible for the Select Bond Fund or the High Yield Bond Fund. The
Fund may purchase securities on a "when-issued" or forward commitment basis.
Bonds purchased by the Fund will be primarily investment-grade debt obligations,
although the Fund may invest up to 10% of its total assets in noninvestment-
grade debt obligations.
The cash portion of the Fund may include, but is not limited to, debt securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, commercial paper, banker's acceptances, certificates of
deposit and time deposits. The Fund may invest in obligations of domestic and
foreign banks and their subsidiaries and branches.
JUNE 30, 1998
Within the asset-allocation categories described above, NMIS will allocate the
Fund's investments among countries (including developing countries), geographic
regions and currencies in response to changing market and economic trends. In
making geographical allocations of investments, NMIS will consider such factors
as the historical and prospective relationships among currencies and
governmental policies that influence currency-exchange rates, current and
anticipated interest rates, inflation levels and business conditions within
various countries, as well as other macroeconomic, social and political factors.
The Fund may invest in or write option contracts, stock index futures contracts,
including indexes on specific industries, interest rate futures contracts,
foreign currency futures and forward contracts, repurchase agreements and
warrants. See "Financial Futures Contracts," p. 20.
- --------------------
BOND FUNDS CATEGORY
- --------------------
BOND FUNDS PROFILE
INVESTMENT OBJECTIVE:
- ------------------------------------------------------
High Yield Bond Fund - High Current Income
and Capital Appreciation
- ------------------------------------------------------
Municipal Bond Fund - High Level of Current
Income Exempt from
Federal Income Taxes
and Preservation of Capital
- ------------------------------------------------------
High Income and
Select Bond Fund - Capital Appreciation
Consistent with
Preservation of Capital
- ------------------------------------------------------
PRIMARY HOLDINGS:
- ------------------------------------------------------
Corporate Bonds -
High Yield Bond Fund - Noninvestment-Grade
- ------------------------------------------------------
Municipal Bond Fund - Municipal Securities
- ------------------------------------------------------
Select Bond Fund - Corporate Bonds -
Investment-Grade
- ------------------------------------------------------
SHAREHOLDER'S INVESTMENT HORIZON:
Intermediate to Long Term
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST: The Funds are designed for investors who
primarily seek current income.
THE HIGH YIELD BOND FUND is designed for investors who are willing to
accept higher levels of credit and market risks in return for potentially
higher return. Because of these risks, this Fund is not appropriate for
short-term investment purposes.
THE MUNICIPAL BOND FUND is designed for investors who want income that is
exempt from regular federal income tax and are willing to accept higher
interest rate risk and moderate credit risks.
THE SELECT BOND FUND is designed for investors who want moderate levels
of interest rate and credit risks while seeking high current income.
A fundamental risk associated with any fund investing in fixed income
securities is that fixed income securities tend to decline in value when
interest rates rise. This effect is generally greater for longer-term
bonds, but they generally offer higher yields to compensate for these
risks. In addition, securities that permit prepayment have the risk that
they will be paid during periods when interest rates are falling, which
generally results in the proceeds being invested at a lower rate of
return.
- ------------------------------------------------------------------------------
HIGH YIELD BOND FUND
The investment objective of the High Yield Bond Fund is high current income and
capital appreciation. The High Yield Bond Fund seeks to achieve its objective by
investing primarily in a diversified selection of fixed income securities rated
below investment-grade by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor'sR. The Fund may also invest in nonrated securities. These
securities are considered speculative and are sometimes known as "junk bonds."
Under normal circumstances, the Fund will invest at least 65% of its assets in
high yield bonds.
The primary investment strategy of the High Yield Bond Fund is to invest in
industries or individual companies that have stable or improving fundamental
financial characteristics. The success of this strategy depends on the manager's
analytical and portfolio management skills. These skills are more important in
the selection of high yield/high risk securities than would be the case with a
portfolio of high-quality bonds. In selecting securities, the manager will
consider the ratings assigned by the major rating agencies, but primary reliance
will be placed on the manager's evaluation of credit and market risk in
relationship to the expected rate of return. The manager of the Fund seeks to
reduce the volatility of these securities through careful evaluation of credit
and market risk and diversification of the Fund's investments.
MASON STREET FUNDS
-------------------
The value of the securities held by the Fund will be directly affected by the
market perception of the creditworthiness of the securities' issuers and will
fluctuate inversely with changes in interest rates. Lower-rated securities are
more likely to react to developments affecting credit and market risk than are
more highly rated securities. In addition, the secondary market for high
yield/high risk securities, which is concentrated in relatively few market
makers, may not be as liquid as the secondary market for more highly rated
securities.
In addition to notes and bonds, the Fund may invest in preferred stocks and
convertible securities, including warrants or other equity securities issued as
part of a fixed income offering. The Fund may purchase put and call options, on
individual securities as well as indexes, and may write covered call and secured
put options. The Fund may also invest up to 10% of its assets in other equity
securities, rights, warrants, options and other derivatives. The Fund may also
invest in restricted securities (securities that must be registered under the
Securities Act of 1933 before they may be offered or sold to the public). The
Fund may invest available temporary cash in short-term obligations. The Fund may
invest more substantially in such short-term obligations or in investment-grade
securities rated by Moody's or Standard & Poor'sR, without limit, when market
conditions warrant a more defensive investment posture.
The High Yield Bond Fund may invest in foreign securities consistent with its
investment objective. Such investments may be in U.S. currency denominated debt
issues or in debt securities in the currency of other nations. The Fund may, but
will not necessarily, attempt to hedge its exposures by engaging in transactions
in foreign currency futures contracts. For a discussion of the risks involved in
these contracts see "Financial Futures Contracts," p. 20.
MUNICIPAL BOND FUND
The investment objective of the Municipal Bond Fund is a high level of current
income exempt from federal income taxes, consistent with preservation of
capital. The Fund invests primarily in a diversified portfolio of investment-
grade municipal obligations.
Municipal obligations are debt obligations issued by states, territories and
possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or multistate agencies or
authorities, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from federal income tax. Municipal obligations generally include
debt obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities.
Normally the Fund will invest at least 80% of the value of its net assets in
municipal obligations, exempt from federal taxes. However, taxable debt
securities are also permitted for investment. Taxable debt may exceed 20% at
times for temporary defensive purposes, with no maximum percentage. At least 80%
of the value of the Fund's net assets will be invested in (1) securities rated
in the top four categories by a nationally recognized statistical rating
organization (NRSRO), such as Moody's or Standard & Poor'sR Ratings Group
("S&PR"), or (2) commercial paper rated in the top two categories by a NRSRO, or
(3) cash or cash equivalents. Up to 20% of the value of the Fund's net assets
may be invested in lower-rated securities (below investment-grade). See "High
Yield/High Risk Securities," p. 20. The Fund also may invest in securities
which, while not rated, are determined by the advisor to be of comparable
quality to those rated securities in which the Fund may invest; for purposes of
the 80% requirement described in this paragraph, such unrated securities shall
be deemed to have the ratings so determined.
While the Fund has no security maturity restrictions, its average maturity will
normally be ten years or longer.
The Fund may invest up to 30% of the value of its net assets in alternative
minimum tax (AMT) bonds. AMT bonds are tax-exempt "private activity" bonds
issued after August 7, 1986, whose proceeds are directed at least in part to a
private, for-profit organization. While the income from AMT bonds is exempt from
regular federal income tax, it is a tax preference item for purposes of the
"alternative minimum tax." The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments to income
or tax preference items.
The Fund may engage in various investment techniques, such as lending portfolio
securities and options and futures transactions. Use of certain of these
techniques may give rise to taxable income. See "Investment Policies" in the
Statement of Additional Information.
Even though interest-bearing securities are investments which promise a stable
stream of income, the prices of such securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations.
Certain provisions in the Internal Revenue Code relating to the issuance of
municipal obligations may reduce the volume of municipal obligations qualifying
for federal tax-exemption. One effect of these provisions could be to increase
the cost of the municipal obligations available for purchase by the Fund and
thus reduce available yield. Proposals that may restrict or eliminate the income
tax exemption for interest on municipal obligations may be introduced in the
future. If any such proposal were enacted that would reduce the availability of
municipal obligations for investment by the Fund so as to adversely affect Fund
shareholders, the Fund would re-evaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a type of municipal
obligation as taxable, the Fund would treat such securities as a permissible
taxable investment within the applicable limits set forth herein.
Federal income tax law requires the holders of a zero coupon security or of
certain pay-in kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments.
JUNE 30, 1998
To maintain its qualification as a regulated investment company and avoid
liability for federal income taxes, the Fund may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
The Fund may invest, to a limited extent, in options and futures. See "Financial
Futures Contracts," p. 20 and "Options," p. 21.
The Fund may also invest in repurchase agreements, reverse repurchase agreements
or may purchase securities on a "when-issued" or forward commitment basis.
The Fund may invest in municipal lease obligations. Such obligations do not
constitute general obligations of the municipality, but are ordinarily backed by
the municipality's covenant to budget for, appropriate and make the payments due
under the lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no obligation to
make payments in future years unless money is appropriated for such purpose on a
yearly basis. Such obligations are secured by the leased property.
The Fund may also invest in any of the securities in which the Select Bond Fund
may invest, including, but not limited to, preferred stock, mortgage-backed and
asset-backed fixed income securities and obligations of or guaranteed by the
U.S. government or its agencies.
SELECT BOND FUND
The investment objective of the Select Bond Fund is as high a level of income
and capital appreciation as is consistent with preservation of shareholders'
capital.
The Select Bond Fund's assets will be invested primarily in the following types
of securities: investment-grade corporate debt securities rated by Moody's or
Standard & Poor's(R); obligations of or guaranteed by the U.S. government or
its agencies; up to 10% in high-grade obligations (payable in U.S. dollars) of
or guaranteed by the government of Canada or of a province of Canada or any
instrumentality or political subdivision thereof rated by Moody's or Standard &
Poor's(R); and high-quality debt securities issued or guaranteed by a national
or state bank or bank holding company.
At least 70% of the Select Bond Fund's total assets will normally be invested in
bonds and debentures which have maturities of at least one year. However, during
periods of particular volatility or when an unusual decline in the value of
long-term obligations is anticipated, for temporary defensive purposes the Fund
may place all or a larger portion of its assets in cash and short-term
obligations, which may include: certificates of deposit of banks or bank holding
companies; high-quality commercial paper rated by Moody's or Standard & Poor'sR;
and cash or cash equivalents. In addition, the Fund may invest in unrated
privately placed corporate debt securities that in the judgment of Mason Street
Funds'SM Board of Directors, are of comparable quality to debt securities rated
investment-grade or better by Moody's or Standard & Poor'sR; preferred stocks,
convertible securities; and securities carrying warrants to purchase equity
securities. The Fund may also invest in restricted securities (securities that
must be registered under the Securities Act of 1933 before they may be offered
or sold to the public).
The Select Bond Fund will not invest in common stocks directly, but may retain
up to 10% of its total assets in common stocks acquired upon conversion of debt
securities or upon exercise of warrants acquired with debt securities.
The Select Bond Fund invests in obligations of a number of U.S. government
agencies. Obligations of some agencies are supported by the full faith and
credit of the U.S. Treasury, others are supported only by the credit of an
agency. No assurance can be given that the U.S. government would provide
financial support to any agency if it is not obligated to do so by law. The
Select Bond Fund will invest in the securities of a particular agency only when
the investment advisor is satisfied that the credit risk with respect to such
agency is minimal.
The Select Bond Fund may invest up to 15% of its total net assets in high
yield/high risk bonds and up to 15% of its total net assets in foreign
securities, consistent with its investment objective. See "Foreign Securities,"
below and "High Yield/ High Risk Securities," p. 20. The Fund may also invest in
mortgage-backed and asset-backed fixed income securities.
The Select Bond Fund may also invest in interest rate futures contracts and
repurchase agreements. See "Financial Futures Contracts," p. 20.
The Select Bond Fund may purchase or sell securities on a "when-issued" or
forward commitment basis.
- -----------------------------------------
OTHER FUND POLICIES AND ASSOCIATED RISKS
- -----------------------------------------
FOREIGN SECURITIES
Investments in foreign securities, including those of foreign governments,
involve additional risks not normally present when investing in comparable
domestic securities.
Some securities of foreign companies and governments may be traded in the U.S.,
such as ADRs, but most are traded primarily in foreign markets. The risks of
investing in foreign securities include:
CURRENCY RISK For securities that are based in value on foreign currencies
(including ADRs), the Fund in essence must buy the local currency in order to
buy a foreign security and sell the same local currency after it sells the
security. Therefore, the value of that security to the Fund is affected by the
value of the local currency relative to the U.S. currency. As a result, if the
value of the local currency falls relative to U.S. currency, the value of that
security falls, even though the security has not decreased in value in its home
country.
MASON STREET FUNDS
-------------------
POLITICAL AND ECONOMIC RISK Foreign investments can be subject to greater
political and economic risks. In some countries, there is the risk that the
government may take over assets or operation of the company or impose taxes or
place limits on the removal of assets that would adversely affect the value of
the security. The possibility of default in foreign government securities,
political or social instability or diplomatic developments generally are more of
a concern in developing countries, where the possibility of political
instability (including revolution) and dependence on foreign economic assistance
may be greater than in developed countries.
REGULATORY RISK In many countries there is less publicly available information
about issuers than is available for 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. In many foreign countries there is less
government supervision and regulation of business and industry practices, and it
may be more difficult to obtain or enforce judgments against foreign entities.
MARKET RISKS Foreign securities often trade with less frequency and volume than
domestic securities and are therefore less liquid and more volatile than
securities of comparable domestic issuers. Further, the settlement period of
securities transactions in foreign markets may be longer than in domestic
markets.
TRANSACTION COSTS Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the U.S., are likely to be
higher. In addition, other costs, such as tax and custody costs, are generally
higher than for domestic transactions.
PARTICULAR RISKS FOR DEVELOPING COUNTRIES In general, the risks noted above are
heightened for developing countries. In addition, certain developing countries
have experienced substantial, and in some cases, rapidly fluctuating rates of
inflation for a number of years. Inflation has, and may continue to have a
debilitating effect on the underlying economies of these countries. Many
developing countries are heavily dependent on international trade and can be
adversely affected by trade barriers and protectionist measures, as well as the
depreciation or devaluation of their currencies.
HIGH YIELD/HIGH RISK SECURITIES
These securities tend to offer higher yields than higher-rated securities of
comparable maturities because the historical financial condition of the issuers
of these securities is usually not as strong as that of other issuers.
High yield fixed income securities usually present greater risk of loss of
income and principal than higher-rated securities.
For example, because investors generally perceive that there are greater risks
associated with investing in medium- or lower-rated securities, the yields and
price of such securities may tend to fluctuate more than those of higher-rated
securities. Moreover, in the lower-quality segments of the fixed income
securities market, changes in perception of the creditworthiness of individual
issuers tend to occur more frequently and in a more pronounced manner than do
changes in higher-quality segments of the fixed income securities market. The
yield and price of medium- to lower-rated securities therefore may experience
greater volatility than is the case with higher-rated securities.
Under adverse market or economic conditions, the secondary market for high
yield/high risk securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, Mason
Street FundsSM could find it more difficult to sell such securities or may be
able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower-rated securities
therefore may be less than the prices used in calculating the Fund's net asset
value. In the absence of readily available market quotations, high yield/high
risk securities will be valued by Mason Street Funds'SM Directors using a method
that, in the good faith belief of the Directors, accurately reflects fair value.
Valuing such securities in an illiquid market is a difficult task. The
Directors' judgment plays a more significant role in valuing such securities
than those securities for which more objective market data are available.
FINANCIAL FUTURES CONTRACTS
Each of the Funds (except the Bond Funds) may enter into stock index futures
contracts, including indexes on specific securities, as a hedge against changes
in the market values of common stocks. The Bond Funds, the Asset Allocation Fund
and the International Equity Fund may enter into interest rates futures
contracts as a hedge against changes in prevailing levels of interest rates. In
both cases, the purpose is to establish more definitely the effective return on
securities held or intended to be acquired by the Funds. The Funds' hedging may
include sales of futures as an offset against the effect of expected decreases
in stock values or increases in interest rates, and purchases of futures as an
offset against the effect of expected increases in stock values or decreases in
interest rates.
A Fund will not enter into a futures contract if, as a result thereof, the sum
of the initial margin deposits of all open futures positions (other than an
offsetting transaction) would be more than 5% of the Fund's total assets. More
than 5% of the Fund's total assets may be committed to the aggregate of initial
and variation margin payments however. Furthermore, in order to be certain that
the Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund deposits cash or cash equivalents equal in value to the
market value of the futures contract in a segregated account for the Fund with
the Fund's custodian.
JUNE 30, 1998
Financial futures prices are volatile and difficult to forecast and the
correlation between changes in prices of futures contracts and the securities
being hedged can only be approximate. A decision of whether, when and how to
hedge involves the exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected stock market or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. A relatively small price movement in a
futures contract may result in immediate and substantial loss, as well as gain,
to the investor. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
A description of financial futures contracts is included in the Statement of
Additional Information.
OPTIONS
Each of the Funds may purchase put or call options or write covered put or call
options with respect to certain securities, indices or foreign currencies. A
description of put and call options and covered put and call options is included
in the Statement of Additional Information.
EURODOLLAR CERTIFICATES OF DEPOSIT
The Growth Stock, Growth and Income Stock, Asset Allocation, High Yield Bond and
Municipal Bond Funds may purchase Eurodollar Certificates of Deposit issued by
foreign branches of U.S. banks, but consideration will be given to their
marketability and possible restrictions on the flow of international currency
transactions. Investment in such securities involves considerations which are
not ordinarily associated with investing in domestic instruments, including
currency exchange control regulations, the possibility of expropriation,
seizure, or nationalization of foreign deposits, less liquidity and increased
volatility in foreign securities markets as well as the impact of political,
social or diplomatic developments or the adoption of other foreign government
restrictions that might adversely affect the payment of principal and interest.
If the Fund were to invoke legal processes, it might encounter greater
difficulties abroad than in the U.S.
REPURCHASE AGREEMENTS
AND WARRANTS
Certain securities of each Fund may be subject to repurchase agreements. Each of
the Funds (except the Select Bond Fund) may also invest in warrants. A
description of repurchase agreements and warrants is included in the Statement
of Additional Information.
- ------------------------
INVESTMENT RESTRICTIONS
- ------------------------
The significant investment restrictions common to all the Funds are described
below. The investment restrictions of a Fund may be changed only with the
approval of the majority of the Fund's shares outstanding. These investment
restrictions provide that each Fund will not:
1. Acquire more than 25% of any class of equity securities of any one issuer.
2. With respect to at least 75% of the value of the total assets of the Fund,
invest more than 5% of the value of such assets in the securities of any one
issuer (except securities issued or guaranteed by the U.S. government or its
agencies), or invest in more than 10% of the outstanding voting securities
of any one issuer.
3. Purchase the securities of any other investment company in amounts exceeding
10% of the total assets of the Fund, except in connection with mergers,
consolidations or acquisitions of assets.
4. Invest more than 15% of the value of the net assets of the Fund in
securities which are restricted as to disposition under federal securities
laws and in other illiquid assets.
5. Invest 25% or more of the value of the total assets of the Fund in
securities of issuers in any one industry except for obligations of or
guaranteed by the U.S. government, its agencies or instrumentalities.
6. Make loans aggregating more than 10% of the total assets of the Fund at any
one time, provided that none of the following is to be considered a loan:
(1) the purchase of a portion of an issue of publicly distributed bonds,
debentures, or other debt securities; (2) the purchase of short-term debt
securities; (3) lending portfolio securities; or (4) repurchase agreements.
Additional investment restrictions are included in the Statement of Additional
Information.
MASON STREET FUNDS
-------------------
MANAGEMENT OF THE FUNDS
DIRECTORS
The Board of Directors of Mason Street Funds(SM) is responsible for setting and
overseeing the investment objectives and policies of each Fund, but delegates
daily management of the Funds to the investment advisor, the subadvisors where
applicable and the officers of Mason Street Funds(SM).
INVESTMENT ADVISORS
ALL FUNDS
The Funds' investment advisor is NMIS, a wholly-owned subsidiary of Northwestern
Mutual Life. The address of NMIS is 720 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202. NMIS or its predecessor has served as investment advisor to
each of the mutual funds sponsored by Northwestern Mutual Life, including
Northwestern Mutual Series Fund, Inc., subject to the supervision and control of
the Boards of Directors of the funds, since their incorporation. NMIS provides
investment advice and recommendations regarding the purchase and sale of
securities for the Funds. Northwestern Mutual Life and its wholly-owned
subsidiary, Northwestern Investment Management Company, employ a full staff of
investment personnel. Northwestern Investment Management Company was formed in
1997. The personnel and related facilities of Northwestern Mutual Life and its
subsidiary are utilized by NMIS in performing its investment advisory functions.
For the Funds identified below, NMIS has retained a subadvisor to provide
investment advice and, in general, to conduct the management investment program
of the Fund, subject to the general control of the advisor and the Board of
Directors of Mason Street Funds(SM).
GROWTH AND INCOME STOCK FUND
J.P. Morgan Investment Management Inc. ("J.P. Morgan"), a Delaware corporation
with principal offices at 522 Fifth Avenue, New York, New York 10036, a wholly-
owned subsidiary of J.P. Morgan & Co., is the subadvisor for the Growth and
Income Fund.
INTERNATIONAL EQUITY FUND
Templeton Investment Counsel, Inc. ("Templeton"), a Florida corporation with
principal offices at 500 East Broward Boulevard, Fort Lauderdale, Florida 33394,
a wholly-owned indirect subsidiary of Franklin Resources, Inc., is the
subadvisor for the International Equity Fund.
- --------------
FUND MANAGERS
- --------------
MARK G. DOLL, Vice President and Assistant Treasurer-Public Markets of
Northwestern Investment Management Company, and Senior Vice President of
Northwestern Mutual Life, joined Northwestern Mutual Life in 1972 and holds B.A.
and M.B.A. degrees from the University of Wisconsin-Milwaukee. He is a Chartered
Financial Analyst. Mr. Doll is responsible for supervision of investment
management for all of the Funds. He is also responsible for the publicly traded
investments of Northwestern Mutual Life, and for investment management of the
Balanced Portfolio of the Series Fund.
PATRICIA L. VAN KAMPEN, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1974. She holds a B.A. degree from
St. Norbert College and an M.B.A. from Marquette University, and is a Chartered
Financial Analyst. Ms. Van Kampen is responsible for all common stock
investments of Northwestern Mutual Life, and for investment management of the
equity portion of the Balanced Portfolio of the Series Fund.
WILLIAM R. WALKER, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1984. Prior to this, he worked for
the Chicago Board Options Exchange, the Milwaukee Company and Armco Insurance.
Mr. Walker is a Chartered Financial Analyst and holds a B.S. degree from
Marquette University and an M.B.A. from Miami of Ohio. He has primary
responsibility for the management of the Aggressive Growth Stock Fund. He also
has primary responsibility for the Aggressive Growth Stock Portfolio of the
Series Fund, as well as the small company portfolio of Northwestern Mutual Life.
JULIE M. VAN CLEAVE, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1984 and holds B.A. and M.B.A.
degrees from the University of Wisconsin-Madison. Ms. Van Cleave is a Chartered
Financial Analyst and has primary responsibility for the Growth Stock Fund. She
also has primary responsibility for the Growth Stock Portfolio of the Series
Fund and the large company portfolio of Northwestern Mutual Life.
TIMOTHY S. COLLINS, Director of Northwestern Investment Management Company,
joined Northwestern Mutual Life in 1986, and manages the High Yield Bond Fund.
He is also responsible for the High Yield Bond Portfolio of the Series Fund. He
received a B.A. degree from St. Norbert College and an M.B.A. from the
University of Wisconsin-Madison. Mr. Collins is a Chartered Financial Analyst.
He also manages high yield fixed income securities of Northwestern Mutual Life.
JUNE 30, 1998
VARUN MEHTA, Director of Northwestern Investment Management Company, manages the
Select Bond Fund and the fixed income securities in the Asset Allocation Fund.
He joined Northwestern Mutual Life in March, 1997. From 1993 through March,
1997, Mr. Mehta was with Ameritech Investment Management Department serving as
Portfolio Manager - Fixed Income and, previously, as Portfolio Research Manager
- - Fixed Income. Mr. Mehta has his undergraduate degree from the University of
Bombay. He received a Masters degree in Business Management from the Indian
Institute of Management and an M.B.A. from the University of Chicago Graduate
School of Business. Mr. Mehta is a Chartered Financial Analyst. He also has
primary investment responsibility for the Select Bond Portfolio of the Series
Fund, the fixed income securities of the Balanced Portfolio of the Series Fund
and various fixed income portfolios of Northwestern Mutual Life.
RONALD C. ALBERTS, Director of Northwestern Investment Management Company,
joined Northwestern Mutual Life in 1984. He received a B.A. degree from Carroll
College and an M.B.A. degree from Marquette University, and is a Chartered
Financial Analyst. Mr. Alberts is responsible for the Municipal Bond Fund as
well as management of other client accounts.
IGNATIUS L. SMETEK, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1986. He holds a B.A. degree from
the University of Wisconsin - Milwaukee and an M.S.B.A. from the University of
Wisconsin - Madison, and is a Certified Public Accountant and a Chartered
Financial Analyst. Mr. Smetek coordinates the team that is responsible for
management of the Asset Allocation Fund. He also manages the pension fund
portfolio of Northwestern Mutual Life.
HENRY D. CAVANNA, Managing Director of J.P. Morgan Investment Management Inc.,
joined J.P. Morgan in 1971. Mr. Cavanna is a senior U.S. equity portfolio
manager in the U.S. Equity and Balanced Accounts Group. He received his B.A.
degree from Boston College and L.L.B. degree from the University of
Pennsylvania. Mr. Cavanna has primary responsibility for the Growth and Income
Stock Fund. He also has primary responsibility for the Growth and Income Stock
Portfolio of the Series Fund.
MICHAEL J. KELLY, Vice President of J.P. Morgan Investment Management Inc.,
joined J.P. Morgan in 1985. Mr. Kelly is an institutional portfolio manager with
responsibility for several employee benefit, foundation and endowment clients of
J.P.Morgan. Mr. Kelly has an undergraduate degree from Gettysburg College and an
M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Kelly is a
Chartered Financial Analyst. Mr. Kelly shares responsibility for the Growth and
Income Stock Fund, as well as the Growth and Income Stock Portfolio of the
Series Fund, with Mr. Cavanna.
GARY R. CLEMONS, Senior Vice President, Portfolio Management/Research of
Templeton Investment Counsel, Inc., manages the International Equity Fund. Mr.
Clemons joined Templeton Investment Counsel in 1993. Prior to joining Templeton
Investment Counsel, Mr. Clemons worked as a portfolio manager/research analyst
for Templeton Quantitative Advisors in New York, a subsidiary of Templeton
International. Mr. Clemons holds an M.B.A. with emphasis in finance from the
University of Wisconsin-Madison and a B.S. degree from the University of Nevada-
Reno. He also has primary responsibility for the International Equity Portfolio
of the Series Fund.
INVESTMENT ADVISORY FEES
Each Fund pays NMIS an annual fee, payable in monthly installments, for
investment advisory services. The investment advisory agreement describes the
services to be provided and the fee to be paid, which is at an annual rate based
on the average daily net assets of the Fund according to the following schedule:
Fund Fee
- -------------------------------------
AGGRESSIVE GROWTH STOCK 0.75%
- -------------------------------------
INTERNATIONAL EQUITY 0.85%
- -------------------------------------
GROWTH STOCK 0.75%
- -------------------------------------
GROWTH AND INCOME STOCK 0.65%
- -------------------------------------
INDEX 500 STOCK 0.30%
- -------------------------------------
ASSET ALLOCATION 0.70%
- -------------------------------------
HIGH YIELD BOND 0.75%
- -------------------------------------
MUNICIPAL BOND 0.30%
- -------------------------------------
SELECT BOND 0.30%
- -------------------------------------
Of the amounts received from the Fund, NMIS pays the subadvisor for the Growth
and Income Stock Fund at the annual rate of 0.45% on the first $100 million of
assets, 0.40% on the next $100 million, 0.35% on the next $200 million and 0.30%
on assets over $400 million. For the International Equity Fund, NMIS pays the
subadvisor at the annual rate of 0.50% of assets, reduced to 0.40% on assets
over $100 million. The breakpoints for the fees paid to the subadvisors are
based on the aggregate assets of the respective Fund and the corresponding
Portfolio of the Series Fund.
NMIS and its affiliates have agreed to waive their fees or reimburse each Fund
for expenses if the Total Operating Expenses of the Fund exceed the Total
Operating Expenses set forth in the table on p. 6 in the fiscal year ended March
31, 1999.
MASON STREET FUNDS
-------------------
OTHER SERVICE PROVIDERS
The following parties provide the Funds with administrative and other services:
TRANSFER AGENT
National Financial Data Services ("NFDS")
P.O. Box 419419
Kansas City, Missouri 64141-6419
CUSTODIAN
For the domestic assets of the Growth and Income Stock Fund, High Yield Bond
Fund and Municipal Bond Fund:
Bankers Trust Company
16 Wall Street
New York, New York 10015
For the domestic assets of the Aggressive Growth Stock Fund, Growth Stock Fund,
Index 500 Stock Fund, Asset Allocation Fund and Select Bond Fund:
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081
For the International Equity Fund and any foreign assets of the other Funds:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
ADMINISTRATOR
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
International Equity Fund fund accounting:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
DISTRIBUTOR
Robert W. Baird & Co. Incorporated ("Baird")
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
The Distributor is controlled by Northwestern Mutual Life and, therefore, an
affiliate of NMIS.
- --------------
FUND EXPENSES
- --------------
In addition to the investment advisory fee, each Fund pays fees to certain other
service providers, such as the transfer agent, custodian and administrator. Each
Fund also bears certain expenses, such as brokerage and other transaction costs,
outside professional and auditing fees, registration fees, association fees,
trademark fees, organizational costs, insurance premiums, printing and mailing
costs of sending reports and other information to existing shareholders, the
fees and expenses of the Directors who are not officers or employees of an
affiliated company of the advisor and any interest, taxes and extraordinary
expenses incurred by the Funds. In addition, each Fund pays the Distributor
certain fees for shareholder servicing and distribution expenses, which vary
based on the Class of shares. See "Distribution and Service Fees," p. 27.
- --------------------
ADMINISTRATIVE FEES
- --------------------
Each Fund pays Northwestern Mutual Life a monthly fee at an annual rate of 0.10%
plus costs of pricing securities; for administrative services, which include
recordkeeping, preparation of reports and filing tax returns; and for fund
accounting (except for the International Equity Fund). For the International
Equity Fund, Northwestern Mutual Life waives a portion of its fee equal to the
fund accounting fee paid to Brown Brothers Harriman & Co.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the investment advisor or subadvisor will
attempt to obtain the best net results for a Fund, taking into account such
factors as price (including the applicable brokerage commission or dollar
spread), size of order, the nature of the market for the security, the timing of
the transaction, the reputation, experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of execution
and operational facilities of the firms involved and the firm's risk in
positioning a block of securities. In effecting purchases and sales of portfolio
securities in transactions on U.S. stock exchanges for the account of a Fund,
the investment advisor or subadvisor may pay higher commission rates than the
lowest available when the investment advisor or subadvisor believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction. The advisor and subadvisors
are authorized to place orders with the Distributor, subject to all applicable
legal requirements, when they believe that the combination of price and
execution are comparable to that of other broker-dealers.
The frequency of portfolio transactions, a Fund's turnover rate, will vary from
year to year depending on market conditions. Higher portfolio turnover may
result in additional brokerage costs and may result in increased taxable capital
gains for shareholders. See "Taxes," p. 32.
JUNE 30, 1998
BUYING AND SELLING FUND SHARES
INVESTMENT MINIMUMS
Shares of the Funds are available through Registered Representatives of Baird
including Northwestern Mutual Life agents and Baird Investment Officers or, in
certain cases, from the Fund itself. The following table illustrates the minimum
investment requirements for the initial and subsequent investments in each of
the Funds, which may be changed at any time at the sole discretion of the Fund.
Investment Minimums
- -------------------------------------------
Initial Subsequent
Type of Account Investment Investment
- -------------------------------------------
REGULAR ACCOUNT $1,000 $100
- -------------------------------------------
INDIVIDUAL IRAS
(REGULAR OR SPOUSAL) $500 $100
- -------------------------------------------
OTHER TAX QUALIFIED
RETIREMENT PLANS $50 $50
- -------------------------------------------
AUTOMATIC
INVESTMENT PLANS $50 $50
- -------------------------------------------
FLEXIBLE SALES CHARGE OPTIONS
WHICH OPTION IS RIGHT FOR YOU?
Each Fund offers its shares in two Classes to allow you to choose the method of
purchasing shares that is most beneficial to you in light of such factors as the
amount of your investment, your holdings of Fund shares, how long you expect to
hold your investment and other such circumstances.
Class A shares are available for investors choosing an initial sales charge and
Class B shares are for investors who prefer a deferred sales charge. The two
Classes of shares each represent interests in the same Fund, have the same
rights and, except with respect to differences in sales charge and distribution
charges, are identical in all respects. Class A and Class B shares each bear
expenses of shareholder servicing fees and distribution fees as well as any
expenses (which may include incremental transfer agency costs) resulting from
such arrangements, and have exclusive voting rights with respect to their
particular distribution plan. The two Classes have different exchange
privileges, as described below.
The net income attributable to Class A or Class B shares and the dividends
payable thereon will be reduced by the amount of the shareholder servicing and
distribution fees attributable to such shares and incremental expenses
associated with such Class. Sales personnel will receive equal compensation for
selling Class A and Class B shares.
- ---------------
CLASS A SHARES
- ---------------
INITIAL SALES CHARGE
The following table sets forth the initial sales charge that applies to
purchases of Class A shares of the Funds:
Sales Charge as a
Percentage of
- --------------------------------------------------------------------------
Offering Net Amount Dealer
Amount of Purchase Price Invested Allowance<F1>
- --------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00%
- --------------------------------------------------------------------------
$50,000 but less than $100,000 3.75% 3.90% 3.00%
- --------------------------------------------------------------------------
$100,000 but less than $250,000 2.75% 2.83% 2.00%
- --------------------------------------------------------------------------
$250,000 but less than $500,000 2.00% 2.04% 1.50%
- --------------------------------------------------------------------------
$500,000 but less than $1,000,000 1.50% 1.52% 1.00%
- --------------------------------------------------------------------------
$1,000,000 or more None<F2> None 1.00%<F3>
- --------------------------------------------------------------------------
<F1> Dealer allowance may be changed periodically.
<F2> No sales charge is imposed at the time of purchase on amounts of $1 million
or more. However a contingent deferred sales charge will be charged if
shares are redeemed within 18 months following their purchase at the rate
of 1% on the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gains distributions) or the cost of such
shares. The contingent deferred sales charge may be waived in certain
circumstances. See "When Will the Contingent Deferred Sales Charge Be
Waived," p. 28.
<F3> A dealer allowance is paid on sales of $1 million or more at the rates of
1.00% on the amount up to $2.5 million; 0.50% on the next $2.5 million; and
0.25% on amounts over $5 million.
WHICH INVESTMENTS IN RELATED ACCOUNTS QUALIFY FOR REDUCED SALES CHARGES?
Investments in related accounts in both Class A and Class B shares (in certain
circumstances) which may be aggregated to qualify for a reduced sales charge
include purchases made for you, your spouse and children under the age of 21 as
well as those made in a tax-qualified plan such as an IRA for those individuals
or by a company solely controlled by those individuals or in a trust established
exclusively for the benefit of those individuals. Purchases by a trustee or
other fiduciary if the investment is for a single trust, estate or fiduciary
account including pension, profit-sharing or other employee benefit trusts
created pursuant to a qualified plan may be combined to qualify for a reduction
of the sales charge. Reduced sales charges may also be applied to purchases by
qualified employee benefit plans of a single corporation or of corporations
affiliated with each other. Purchases made for a customer in nominee or street
name accounts (accounts which hold the customer's shares in the name of a broker
or another nominee such as a
MASON STREET FUNDS
-------------------
bank trust department) may not be aggregated with those made for other accounts
and may not be aggregated with other nominee or street name accounts unless
otherwise qualified as noted above.
WHEN WILL THE SALES CHARGE ON CLASS A SHARES BE REDUCED OR WAIVED?
There are several ways to reduce or eliminate the initial sales charge:
- - Combined Purchases
- - Cumulative Discount
- - Letter of Intent
- - Special Waivers for Certain Categories of Investors
COMBINED PURCHASES Purchases made at the same time for any of the Funds in
related accounts may be aggregated for the purpose of receiving a discounted
sales charge. Notice must be given at the time the orders are placed that there
are multiple orders which qualify for a reduced sales charge.
CUMULATIVE DISCOUNT Purchases may also qualify for a reduced sales charge based
on the current total net asset value of your account and any related accounts in
any of the Funds or the SSgA Money Market Fund. Notice must be given at the time
the order is placed that it qualifies for a reduced sales charge based on
related holdings in existing Fund accounts.
LETTER OF INTENT Reduced sales charges may be applied to purchases over a
period of 13 months by entering into a non-binding Letter of Intent. Existing
holdings may be combined with new purchases in related accounts as shown above
to reach the investment commitment of the Letter of Intent. Up to 5% of the
stated amount of the Letter of Intent will be held in escrow to cover additional
sales charges which may be due if investments over the 13 month period are not
sufficient to qualify for the sales charge reduction. See the Statement of
Additional Information and the Fund account application for further details.
SPECIAL WAIVERS Class A shares are purchased without an initial sales charge in
the following situations. No dealer allowance is paid on such purchases.
- - Shares purchased by current or retired officers, directors, employees,
agents, employees of agents, and employees of agencies, and affiliates, of
Mason Street Funds(SM), Northwestern Mutual Life, NMIS, Northwestern
Investment Management Company, the Transfer Agent, the Distributor or a
subadvisor, or their spouses or children under the age of 21 or trust or
retirement plans for their benefit. Such purchases may be made directly from
Mason Street Funds(SM) through the transfer agent.
- - Shares purchased by reinvesting the proceeds of the redemption of shares of
one or more open-end mutual funds. The purchaser must provide appropriate
documentation that the redemption occurred not more than 90 days prior to the
reinvestment of the proceeds in Class A shares, and that the shares were at
one time subject to an initial sales charge or contingent deferred sales
charge.
- - Shares purchased by the reinvestment of dividends or other distributions from
a Fund.
- - Shares purchased by the reinvestment of loan repayments by participants in
retirement plans.
- - Shares issued in connection with the acquisition by a Fund of another
investment company.
- - Shares purchased by or in conjunction with a purchase by a trust or group
annuity separate account to fund employee benefit or retirement plans
pursuant to an agreement with the Distributor or NMIS.
- - Shares purchased for accounts as to which a broker, dealer or financial
intermediary charges an account management fee ("wrap accounts") under a fee-
based program offered by the Distributor.
Class A shares may also be purchased without an initial sales charge in the
following situations. However, redemptions of such shares within 18 months of
purchase are subject to a contingent deferred sales charge of 1% of the lesser
of the value of the shares redeemed or the total cost of the shares. A dealer
allowance is paid on such purchases at the rates of 1.00% on the amount up to
$2.5 million; 0.50% on the next $2.5 million; and 0.25% on amounts over $5
million.
- - any purchase of $1 million or more of the Funds' shares;
- - purchases by qualified retirement plans and nonqualified deferred
compensation plans with an initial investment of $250,000 or more, or which
have at least 50 eligible participants; and
- - purchases by bank trust departments investing funds over which they exercise
exclusive discretionary investment authority and that are held in a
fiduciary, agency, advisory, custodial or similar capacity.
REINSTATEMENT PRIVILEGE If you redeem some or all of your Fund shares, you have
up to 90 days to reinvest all or part of the redemption proceeds in Class A
shares of the Fund without paying a sales charge. This privilege applies only to
redemptions of Class A shares on which an initial or deferred sales charge was
paid or to redemptions of Class A shares of the Fund that you
JUNE 30, 1998
purchased by reinvesting dividends or distributions. You must ask the transfer
agent or your Registered Representative to apply this privilege when you send
your payment.
The reduced sales charge programs may be changed or discontinued at any time
upon prior written notice to shareholders of the Funds.
DISTRIBUTION AND SERVICE FEES
Each Fund has adopted plans pursuant to Rule 12b-1 under the Investment Company
Act of 1940, which provide that all shareholders shall be subject to a
distribution fee. Class A shares are subject to a distribution fee of up to
0.10% per year of the average daily net assets of Class A shares. The
distribution fee is payable to the Distributor to reimburse it for services and
expenses incurred in connection with the distribution of Fund shares, including
unreimbursed expenses incurred in prior years. These expenses include payments
to Registered Representatives, expenses of printing and distributing
Prospectuses to persons other than Fund shareholders, and expenses of preparing,
printing and distributing advertising and sales literature. As of March 31,
1998, unreimbursed distribution expenses were $1,399,970 for Class A shares and
$827,076 for Class B shares, which was .44% of Class A assets and 5.93% of Class
B assets on that date.
In addition, each Fund is subject to a shareholder servicing fee. Each Class
pays a shareholder servicing fee of up to 0.25% per year of the average daily
net assets of that Class, which may be paid to brokers who provide ongoing
account services to shareholders. These services may include establishing and
maintaining shareholder accounts, answering shareholder inquiries and providing
other personal services to shareholders.
- --------------
Class B Shares
- --------------
CONTINGENT DEFERRED SALES CHARGE
Unlike an initial sales charge, which is paid when you purchase shares, a
contingent deferred sales charge is only paid if you sell your shares during a
certain period of time. Class B shares are offered at net asset value without an
initial sales charge but subject to a contingent deferred sales charge as set
forth in the table below. The schedule shows the contingent deferred sales
charges applicable for the first through seventh years of redemption after
purchase for different purchase amounts. The schedule applicable to a specific
purchase varies by the amount of that purchase and is determined at the time the
purchase is made; it may be reduced as described under "Combined Purchases" and
"Cumulative Discount," p. 28. The contingent deferred sales charge is imposed on
the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gains distributions) or the cost of such shares.
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge Applicable in
the Year of Redemption After Purchase<F1>
- ---------------------------------------------------------------------------------------------------------------------------------
Seventh Dealer
Amount of Purchases First Second Third Fourth Fifth Sixth on Allowance<F2>
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 5.00% 4.00% 3.00% 3.00% 2.00% 1.00% 0.00% 4.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 3.00% 3.00% 2.00% 1.00% 0.00% 0.00% 3.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.00% 3.00% 2.00% 1.00% 0.00% 0.00% 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 3.00% 2.00% 1.00% 0.00% 0.00% 1.50%
- ---------------------------------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 1.00% 0.00% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$1,000,000 or more NA<F3>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> No contingent deferred sales charge is paid on an exchange of shares nor is
one paid on the sale of shares received as a reinvestment of dividends or
capital gains distributions. Class B shares will convert to Class A shares
two years after the expiration of the contingent deferred sales charge for
that purchase. Shares received as a reinvestment of dividends or capital
gains distributions will be converted to Class A shares in the same
proportion as purchased shares are converted.
<F2> Dealer allowance may be changed periodically.
<F3> Purchases of $1 million or more are not accepted in Class B shares. Class A
shares will be issued in these cases.
MASON STREET FUNDS
-------------------
In determining whether a contingent deferred sales charge is applicable to a
redemption of Class B shares, the calculation will be made in a manner that
results in the lowest possible charge. It will be assumed that the redemption is
made first from shares acquired through the reinvestment of dividends and
distributions; then from amounts representing the increase in net asset value of
your holdings of Class B shares above the total amount of payments for the
purchase of Class B shares during the preceding six years; then from shares held
beyond the applicable contingent deferred sales charge period; and finally, from
shares subject to the lowest contingent deferred sales charge.
If you are exchanging shares for shares of the SSgA Money Market Fund, no
contingent deferred sales charge is charged at the time of the exchange. If you
later redeem your Money Market Fund shares, you will be charged the applicable
contingent deferred sales charge as if your shares were redeemed as of the time
of your exchange into the Money Market Fund. The contingent deferred sales
charge will not decrease for the time amounts are held in the Money Market Fund.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares are automatically converted to Class A shares two years after the
expiration of any contingent deferred sales charge. This conversion feature
relieves Class B shareholders of the higher asset-based sales charge that
otherwise applies to Class B shares under the Class B distribution plan
described below. The conversion is based on the relative net asset value of the
two Classes, and no charge is imposed in connection with the conversion.
WHEN WILL THE CONTINGENT DEFERRED SALES CHARGE SCHEDULE BE REDUCED?
There are two ways to reduce the contingent deferred sales charge schedule:
COMBINED PURCHASES Purchases made at the same time for any of the Funds in
related accounts may be aggregated for the purpose of receiving a reduced
contingent deferred sales charge schedule. Notice must be given at the time the
orders are placed that there are multiple orders which qualify for a reduced
contingent deferred sales charge schedule.
CUMULATIVE DISCOUNT Purchases may also qualify for a reduced contingent
deferred sales charge schedule based on the current total net asset value of
your account and related accounts in any of the Funds or the SSgA Money Market
Fund. Notice must be given at the time the purchase order is placed that it
qualifies for a reduced contingent deferred sales charge schedule based on
related holdings in existing Fund accounts.
The Letter of Intent option is not available for Class B shares.
WHEN WILL THE CONTINGENT DEFERRED SALES CHARGE BE WAIVED?
A contingent deferred sales charge will not be assessed on Class A or Class B
shares for:
- - exchanges of Class A or Class B shares of one Fund for the same Class of
shares of another Fund;
- - redemptions from tax-deferred retirement plans and Individual Retirement
Accounts for required minimum distributions due to attainment of age 701/2;
- - redemptions from tax-deferred retirement plans for returns of excess
contributions to the plan, termination of employment, participant loans and
hardship withdrawals;
- - redemptions as a result of death of the registered shareholder or in the case
of joint accounts, of all registered shareholders;
- - redemptions as a result of the disability of the registered shareholder (as
determined in writing by the Social Security Administration) which occurs
after the account was established;
- - redemptions for failure to meet minimum account balances; and
- - systematic withdrawal amounts provided amounts withdrawn do not exceed on an
annual basis 10% of the account value at the time the transfer agent receives
the request.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES
Class B shares are charged fees at an annual rate of 1.00% of the average daily
net assets of Class B shares to compensate the Distributor for certain
distribution and shareholder servicing expenses. These fees consist of a fee at
an annual rate of 0.75% for distribution expenses pursuant to a plan adopted
under Rule 12b-1 under the Investment Company Act of 1940 and a fee at an annual
rate of 0.25% for shareholder servicing expenses. See "Distribution and Service
Fees," p. 27. Upon the conversion of Class B shares to Class A shares, those
fees are lowered from 1.00% to 0.35%.
HOW SHARES ARE PRICED
Shares are purchased at their public offering price, which is based upon a
Fund's net asset value per share, plus an initial sales charge on the Class A
shares. Each Fund calculates its net asset value ("NAV") as follows:
NAV = (Value of Fund Assets) _ (Fund Liabilities)
---------------------------------------------
Number of Outstanding Shares
JUNE 30, 1998
SHAREHOLDERS' GUIDE
Net asset value is determined as of the end of regular trading hours on the New
York Stock Exchange (the "Exchange"), normally 4:00 p.m. Eastern time, on days
the Exchange is open.
Each Fund values its assets at their current market value when market quotations
are readily available. If a market value cannot be established, assets are
valued at fair value as determined in good faith by or under the direction of
Mason Street Funds'(SM) Board of Directors. Short-term securities which mature
in 60 days or less are valued by using the amortized cost method, unless the
Board determines that this does not represent fair value. All investments by
the International Equity Fund are valued daily in U.S. dollars based on the then
prevailing exchange rate. Specific information about how the Funds value certain
assets is set forth in the Statement of Additional Information.
SHAREHOLDERS' GUIDE
HOW TO BUY SHARES
GENERAL
You must indicate at the time of investment whether you are purchasing Class A
shares or Class B shares. You also are required by federal regulations to
certify your taxpayer identification or Social Security number when opening your
account. Failure to provide an identification number could subject you to back-
up withholding on any distributions, redemptions or disbursements from your
account.
Purchase orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the transfer agent.
If your check used for investment does not clear, a fee may be imposed by the
transfer agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. The Funds reserve the right to
reject any purchase order.
All checks should be made payable to Mason Street Funds(SM). Personal third-
party checks will not be accepted.
OPENING AN ACCOUNT
Contact your Registered Representative for instructions.
ADDING TO AN ACCOUNT
Contact your Registered Representative for instructions, or
BY MAIL Identify the Fund and account number or use the remittance slip
attached to your account statement. Send a check payable to Mason Street
Funds(SM). Mail all subsequent investments to the following address:
Mason Street Funds(SM)
P.O. Box 419419
Kansas City, MO 64141-6419
BY WIRE Initial or subsequent purchase payments can also be made by Federal
Funds wire, transferred along with proper instructions directly to your account.
Before an initial wire transfer can be accepted, an account must be established
for you. See your Registered Representative or call 1-888-MASONST (1-888-627-
6678) for further instructions. Your financial institution may charge a fee for
wiring funds to your account. Consult your bank for information on remitting
funds by wire and any associated bank charges.
BY TELEPHONE This service allows you to purchase additional shares quickly and
conveniently through an electronic transfer of money. When you make a purchase
by telephone, your predesignated bank account will be debited for the desired
amount. You can establish this privilege when you open your account or, if your
account is already established, call 1-888-MASONST (1-888-627-6678) to request
the appropriate form. This option will become effective 10 days after the form
is received.
AUTOMATIC INVESTMENT PROGRAMS
AUTOMATIC INVESTING Money is automatically transferred from your bank account
to your Fund account monthly or quarterly. The minimum amount per transfer is
$50 per Fund account. This privilege may be set up when your account is opened
or at any later date by completing the appropriate section of the Fund
application. You may discontinue your participation in this program at any time.
PAYROLL DEDUCTION If your employer can initiate an automatic payroll deduction,
you may make regular investments of $50 or more per Fund account up to once per
month from your paycheck. To obtain information on establishing this option call
1-888-MASONST (1-888-627-6678).
SYSTEMATIC EXCHANGE In order to assist you in a dollar-cost averaging purchase
program, you may designate the amount of money ($50 minimum per Fund account) to
be automatically exchanged from one Fund to another once per month. In order to
set up this option, you must have at least $5,000 in the Fund from which you are
exchanging. You may discontinue your participation in this program at any time.
For more information on how to establish this option, call 1-888-MASONST (1-888-
627-6678).
MASON STREET FUNDS
-------------------
SHAREHOLDERS' GUIDE
HOW TO EXCHANGE SHARES
On any business day you may exchange your shares for shares of another Fund of
the same Class.
BY MAIL To exchange your shares, your written request should include the
following information:
- - the name of the Fund(s) exchanging out of and into;
- - the account number(s);
- - the amount of money or number of shares being redeemed;
- - the name(s) on the account;
- - the signature(s) of all registered account owners, see
"How to Sell Shares" for more information about the
signature requirements based on the type of
account; and
- - your daytime telephone number.
BY TELEPHONE Accounts are automatically eligible for the telephone exchange
option unless this privilege was declined on the application or otherwise in
writing. Call 1-888-MASONST (1-888-627-6678) with the same information as noted
above.
GENERAL EXCHANGE POLICIES
- - Except for Systematic Exchanges and qualified plans, the exchange minimum is
$1,000, or the total account value if less.
- - You may make 12 exchanges out of each Fund during a calendar year (exclusive
of Systematic Exchanges). There is no charge for exchanges. Special rules
apply for qualified plans.
- - Exchanges between accounts will only be accepted if the registrations are
identical.
- - Because excessive trading can hurt Fund performance and shareholders, the
investment advisor may refuse any exchange purchase if (1) the advisor
believes the Fund would be harmed or unable to invest effectively, or (2) the
Fund receives or anticipates simultaneous orders that may significantly
affect the Fund.
- - An exchange represents the sale of shares from one Fund and the purchase of
shares of another Fund, which may produce a taxable gain or loss in a nontax-
deferred account.
- - You may also exchange your shares for shares of the SSgA Money Market Fund.
- - A copy of the SSgA Money Market Fund Prospectus should be read before making
such exchange.
- - General exchange policies apply to exchanges to the SSgA Money Market Fund.
- - If you are exchanging Class A shares, the shares are exchanged at net asset
value.
- - If you are exchanging Class B shares, no contingent deferred sales charge is
charged at the time of the exchange. See "Contingent Deferred Sales Charge,"
p. 27.
HOW TO SELL SHARES
THROUGH YOUR REGISTERED REPRESENTATIVE
Contact your Representative directly for instructions.
THROUGH THE TRANSFER AGENT
BY MAIL Send a written request, signed by each owner (if joint account) to the
transfer agent at the following address:
Mason Street Funds(SM)
P.O. Box 419419
Kansas City, MO 64141-6419
BY WIRE As soon as appropriate information regarding your bank account has been
established for your Fund account, you may write or telephone redemption
requests to the transfer agent, and redemption proceeds will be wired in federal
funds to the commercial bank you have specified. Information regarding your bank
account may be provided on the account application or in a signature guaranteed
letter of instruction to the transfer agent. Signature guarantee requirements
are discussed on p. 31.
Redemption proceeds will normally be wired the next business day following the
day on which your request and any other necessary documents have been received
by the transfer agent. Requests must be for at least $1,000 and may be subject
to limits on frequency and amount. A charge of $15 may be imposed for wire
redemptions.
Wire privileges may be modified or suspended at any time.
Contact your bank for information on any charges imposed by the bank in
connection with receipt of redemptions by wire.
BY TELEPHONE Accounts (other than IRAs) have this option unless this option was
specifically declined on the application or in writing. You may redeem up to
$50,000 daily from your account by calling 1-888-MASONST
(1-888-627-6678) before 4:00 p.m. Eastern time. Checks
will be sent to the address of record.
AUTOMATIC REDEMPTION
SYSTEMATIC WITHDRAWALS You may provide for the automatic redemption of a
specific dollar amount from your account on a regular basis. The minimum amount
of a withdrawal is $100 and the minimum account size is $10,000.
JUNE 30, 1998
SHAREHOLDERS' GUIDE
MINIMUM ACCOUNTS The Fund reserves the right to redeem any Regular Account if,
after 60 days written notice, the account's value remains below a $1000 minimum
balance.
GENERAL REDEMPTION POLICIES
- - Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the transfer agent.
When you redeem your Class B shares within six years of purchase, you may be
subject to a contingent deferred sales charge as set forth in this
Prospectus.
- - Redemption requests must be signed by each shareholder, including each joint
owner. When redeeming shares, you should indicate whether you are redeeming
Class A or Class B shares. If you own both Class A and Class B shares,
Class A shares will be redeemed first unless you request otherwise. Certain
types of redemption requests will need to include a signature guarantee.
Signature guarantees must accompany redemption requests for: (1) an amount in
excess of $50,000; or (2) any amount if the redemption proceeds are to be
sent somewhere other than the address of record on the Funds' books or if the
current address of record has not been on the Funds' books for 60 days.
- - You may obtain a signature guarantee from: (1) a bank which is a member of
the FDIC; (2) a trust company; (3) a member firm of a national securities
exchange; or (4) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor institution and be
accompanied by the words "Signature Guaranteed." A notary public cannot
provide a signature guarantee.
- - The Fund ordinarily will make payment for all shares redeemed within three
business days after the transfer agent receives a request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
However, if the shares to be redeemed have been purchased by check, the Fund
will, upon the clearance of the purchase check, mail the redemption proceeds.
It may take up to 15 days for the purchase check to clear. This does not
apply to situations where a Fund receives payment via immediately available
funds for the purchase of shares.
- -----------------------------------------
QUICK ADDRESS AND TELEPHONE REFERENCE
- -----------------------------------------
REGULAR MAIL
Mason Street FundsSM
P.O. Box 419419
Kansas City, MO 64141-6419
EXPRESS OR CERTIFIED MAIL
Mason Street FundsSM
1004 Baltimore
Kansas City, MO 64105
TOLL-FREE NUMBER
1-888-MASONST (1-888-627-6678)
---------------------------------------
MASON STREET FUNDS
-------------------
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes substantially all of its net realized capital gains and
net investment income to its shareholders. A capital gain or loss is the
difference between the purchase and sale price of a security. The Funds will
have net capital gains if their capital gains exceed their capital losses, which
cannot be assured. Net investment income is determined by subtracting expenses
from any interest and dividend income earned by a Fund.
All the Funds distribute any net realized short- and long-term capital gains at
least annually.
The Stock Funds and the Asset Allocation Fund distribute any net investment
income to shareholders annually. The Bond Funds declare net investment income
dividends daily and distribute such dividends to the shareholders monthly.
Each Fund pays its dividends and other distributions in additional Fund shares
at net asset value unless the shareholder requests cash payments. Shareholders
who elect to receive dividends and/or other distributions in cash or in shares
of another Fund should contact their Registered Representative or the transfer
agent or complete the applicable item on the Fund application.
TAXES
Each Fund is separate for investment and accounting purposes and will be treated
as a separate entity for federal income tax purposes. Each Fund intends to
qualify as a regulated investment company under the Internal Revenue Code so
that it will not be subject to federal income taxes on net investment income and
net capital gains distributed to its shareholders.
TAXES ON REDEMPTIONS
When shares of any of the Funds are redeemed, including by exchange into another
Fund, a shareholder may realize a taxable gain or a loss. The gain or loss is
measured by the difference between the redemption proceeds and the shareholder's
adjusted basis for the redeemed shares.
TAXES ON FUND DISTRIBUTIONS
THE FOLLOWING SUMMARY DOES NOT APPLY TO ACCOUNTS THAT ARE OPENED FOR QUALIFIED
RETIREMENT PLANS OR BY TAX-EXEMPT INVESTORS. TAXES ON FUND DISTRIBUTIONS TO
QUALIFIED RETIREMENT PLAN ACCOUNTS ARE DEFERRED UNTIL MONEY IS WITHDRAWN FROM
THOSE ACCOUNTS. THIS SUMMARY ALSO DOES NOT APPLY TO DISTRIBUTIONS FROM THE
MUNICIPAL BOND FUND. INFORMATION ABOUT DISTRIBUTIONS FROM THE MUNICIPAL BOND
FUND APPEARS SEPARATELY TO THE RIGHT.
Dividends and capital gains distributions from the Funds are taxable whether
received in cash or additional Fund shares. If such dividends and distributions
are declared in October, November or December, they are taxable for the year in
which they were declared, if paid by February 1 of the following calendar year.
Net investment income dividends and short-term capital gains distributions are
taxable as ordinary income. A capital gain distribution is short-term or long-
term depending on how long the Fund held the securities that produced it, not
how long the shareholder held his or her shares in the Fund. Dividends paid by
Funds that are attributable to the Funds' investments in U.S. government
securities may be exempt from state and local income taxes.
Among other things, a Fund's net asset value reflects undistributed income and
capital gains. When such income and gains are distributed, the net asset value
is reduced by the amount of the distribution. An investor who acquires shares
prior to or on the record date for distributions is entitled to receive these
distributions.
DISTRIBUTIONS FROM THE
MUNICIPAL BOND FUND
Net investment income dividends declared and paid by the Municipal Bond Fund
are, for the most part, "exempt-interest" dividends, whether received in cash or
additional shares of the Fund. Exempt-interest dividends are not subject to
federal income tax, but they may affect the tax liabilities of taxpayers who are
subject to the AMT. Exempt-interest dividends are also includable in the
modified income of shareholders who receive Social Security benefits for
purposes of determining the extent to which such benefits may be taxed.
Generally, exempt-interest dividends are not exempt from state or local taxes.
However, a state or locality may provide tax exemptions for its residents who
receive exempt-interest dividends that relate to municipal obligations issued
within that state or locality.
Net investment income dividends derived from taxable obligations held in the
Municipal Bond Fund and any capital gains distributions by the Fund are normally
taxable as ordinary income and capital gain, respectively, whether received in
cash or additional shares of the Fund. Market discount on municipal obligations
acquired after April 30, 1993 is also treated as ordinary income. NMIS intends
to manage the Fund to minimize taxable distributions to the Fund's shareholders.
However, there can be no assurance that the Fund will never make such
distributions.
Certain individuals and corporations may be subject to the AMT. For them,
exempt-interest dividends derived from pri-
JUNE 30, 1998
vate activity bonds are treated as a tax preference item. In addition, for
corporate shareholders only, all other exempt-interest dividends are a component
of the adjusted current earnings preference item for purposes of the AMT, and
may be a component for computing any corporate environmental tax.
Corporations and Social Security beneficiaries should consult their tax advisors
about the possible consequences to them of investing in the Municipal Bond Fund.
WITHHOLDING
The Funds are currently required to withhold 31% of all taxable distributions
and redemption proceeds payable to any shareholder who has not certified his
taxpayer identification number, or who is otherwise subject to backup
withholding. Corporate and governmental entities are generally exempt from
withholding requirements.
TAX INFORMATION FOR SHAREHOLDERS
Following the end of each calendar year, each Fund notifies its shareholders of
the amount of dividends and capital gains distributions paid (or deemed paid)
during that year, and shows the portion of those dividends that qualifies for
the corporate dividends-received deduction. The Funds identify amounts taxable
as ordinary income and amounts taxable as capital gains, and indicate whether
any portion of such income is possibly exempt from state or local taxes. The
Municipal Bond Fund provides its shareholders with information about the exempt-
interest dividends paid to them (since they must disclose it on their federal
income tax returns), and reports the amount that relates to private activity
bonds which could be subject to the AMT. Under certain circumstances, notices
provided to the International Equity Fund shareholders also specify their
respective shares of foreign taxes paid by that Fund. International Equity Fund
shareholders are required to include their pro rata share of those taxes in
gross income, but may be entitled to claim a credit or deduction for them.
The foregoing is only a summary of some important federal tax law provisions
that can affect the Funds and their shareholders. There may be other federal,
state or local tax law provisions which affect some or all investors.
Prospective investors and current shareholders are urged to consult their tax
advisors about their individual circumstances.
OTHER INFORMATION
ORGANIZATION
Mason Street Funds(SM) was incorporated in Maryland on August 30, 1996.
Mason Street Funds(SM) issues a separate series of capital stock for each Fund.
Each share of capital stock issued with respect to a Fund has a pro rata
interest in the assets of that Fund and has no interest in the assets of any
other Fund. Each share of capital stock is entitled to one vote on all matters
submitted to a vote of shareholders. Shares of a Fund will be voted separately,
however, on matters affecting only that Fund, including approval of the
Investment Advisory Agreement and changes in fundamental investment polices of a
Fund. The assets of each Fund are charged with the liabilities of the Fund and
their proportionate share of the general liabilities of Mason Street Funds(SM)
generally based on the relative asset size of the Funds at the time the
liabilities are incurred. All shares may be redeemed for cash at any time.
VOTING RIGHTS
Neither Mason Street Funds(SM) nor its Funds are required to hold annual
meetings of shareholders, but special meetings may be called to elect or remove
Directors, change fundamental policies or the 12b-1 plans, or to approve an
investment advisory agreement. All shares of the Funds have equal voting rights.
Shares are voted in the aggregate, unless voting by series is required by law,
or when an issue affects the series or Class separately. As of June 1, 1998,
Northwestern Mutual Life owned a majority of theClass A shares of each of
theFunds, and thus controlled the Funds. Shares of each Fund are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights.
MASON STREET FUNDS
-------------------
APPENDIX A - GLOSSARY
THE FOLLOWING GLOSSARY GIVES YOU A MORE DETAILED DESCRIPTION OF SOME OF THE
TYPES OF SECURITIES IN WHICH THE FUNDS MAY INVEST, SUBJECT TO THEIR SPECIFIC
RESTRICTIONS AND POLICIES. IT ALSO DISCUSSES OTHER INVESTMENT TECHNIQUES AND
OTHER TERMINOLOGY THAT IS INCLUDED IN THIS PROSPECTUS. ADDITIONAL INFORMATION ON
ELIGIBLE INVESTMENTS CAN BE FOUND ELSEWHERE IN THIS PROSPECTUS AND IN THE
STATEMENT OF ADDITIONAL INFORMATION.
EQUITY AND DEBT SECURITIES
AMERICAN DEPOSITARY RECEIPTS (ADRS) see Depositary receipts.
BONDS are debt securities issued by a company, municipality or government
agency. The issuer of a bond is required to pay the holder the amount of the
loan (or par value) at a specified maturity and to make scheduled interest
payments.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. The Funds may purchase commercial paper issued
under Section 4(2) of the Securities Act of 1933. NMIS may determine that such
securities are liquid under guidelines established by the Directors.
COMMON STOCK represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
FIXED INCOME SECURITIES are securities that pay a fixed rate of return. The term
generally includes short- and long-term government, corporate and municipal
obligations that pay a fixed rate of interest or coupons for a specified period
of time and preferred stock, which pays fixed dividends. Coupon and dividend
rates may be fixed for the life of the issue or, in the case of adjustable and
floating rate securities, for a shorter period.
HIGH-QUALITY INSTRUMENTS are securities rated AA or better by Standard & Poor'sR
and Aa or better by Moody's.
HIGH-GRADE INSTRUMENTS are securities rated A or better by Standard & Poor'sR or
Moody's.
HIGH YIELD/HIGH RISK BONDS are securities that are rated below investment-grade
by the primary rating agencies (BB or lower by Standard & Poor'sR and Ba or
lower by Moody's). Other terms commonly used to describe such securities include
"lower-rated bonds," "noninvestment-grade bonds" and "junk bonds."
INDUSTRIAL DEVELOPMENT BONDS are revenue bonds that are issued by a public
authority but which may be backed only by the credit and security of a private
issuer and may involve greater credit risk. See "Municipal securities" below.
INVESTMENT-GRADE BONDS are securities rated BBB or higher by Standard & Poor'sR
and Baa or higher by Moody's.
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in an organized pool of
mortgages or other debt. These securities are generally pass-through securities,
which means that principal and interest payments on the underlying securities
(less servicing fees) are passed through to shareholders on a pro rata basis.
These securities involve prepayment risk, which is the risk that the underlying
mortgages or other debt may be refinanced or paid off prior to their maturities
during periods of declining interest rates. In that case, a portfolio manager
may have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
MUNICIPAL SECURITIES are bonds or notes issued by a U.S. state or political
subdivision. A municipal security may be a general obligation backed by the full
faith and credit (i.e., the borrowing and taxing power) of a municipality or a
revenue obligation paid out of the revenues of a designated project, facility or
revenue source.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICs) are foreign investment funds or
trusts. In addition to bearing their proportionate share of a Fund's expenses,
shareholders may indirectly bear similar expenses of PFICs and similar trusts.
JUNE 30, 1998
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
REPURCHASE AGREEMENTS involve the purchase of a security by a Fund and a
simultaneous agreement (generally with a bank or dealer) to repurchase the
security from the Fund at a specified date or upon demand. This technique offers
a method of earning income on idle cash. These securities involve the risk that
the seller will fail to repurchase the security, as agreed. In that case, a Fund
will bear the risk of market value fluctuations until the security can be sold
and may encounter delays and incur costs in liquidating the security.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
WARRANTS are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery due at some time in the future,
i.e., beyond normal settlement. The Funds do not earn interest on such
securities until settlement and bear the risk of market value fluctuations in
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
ZERO COUPON BONDS are debt securities that do not pay at regular intervals, but
are issued at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue from the date of issuance
to maturity. The market value of these securities generally fluctuates more in
response to changes in interest rates than interest-paying securities of
comparable maturity.
FUTURES, OPTIONS AND
OTHER DERIVATIVES
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Funds may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed income securities. An option on
a futures contract gives the buyer the right, but not the obligation, to buy or
sell a futures contract at a specified price on or before a specified date.
Futures contracts and options on futures are standardized and traded on
designated exchanges.
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Funds may purchase put and call options on certain securities,
securities indices and foreign currencies and may write covered put or call
options.
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Funds may enter into forward currency contracts to hedge against declines in
the value of nondollar denominated securities or to reduce the impact of
currency appreciation on purchases of nondollar denominated securities. They may
also enter into forward contracts to purchase or sell securities or other
financial indices.
OTHER TERMS
NET ASSET VALUE ("NAV") is the value of a single share of a Fund. It is computed
by adding the value of all of a Fund's investments and other assets, subtracting
any liabilities and dividing the result by the number of shares outstanding.
FUND TURNOVER RATE is a measure of the amount of a Fund's buying and selling
activity. It is computed by dividing total purchases or sales, whichever is
less, by the average monthly market value of a Fund's securities.
TOTAL RETURN is the percentage increase or decrease in the value of an
investment over a stated period of time. A total return percentage includes both
income and changes in NAV. For the purposes of calculating total return, it is
assumed that dividends and distributions are reinvested at the net asset value
on the day of the distribution.
MASON STREET FUNDS
-------------------
APPENDIX B
- ------------------------------
STANDARD & POOR'SR CORPORATION
- ------------------------------
Bond Rating Explanation
- --------------------------------------------------------------------------------
AAA Highest rating; extremely strong capacity to pay principal and
interest.
- --------------------------------------------------------------------------------
AA High quality; very strong capacity to pay principal and interest.
- -------------------------------------------------------------------------------
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
- --------------------------------------------------------------------------------
BBB Adequate capacity to pay principal and interest; normally
exhibits adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to a
weakened capacity to pay principal and interest than for higher-
rated bonds.
- --------------------------------------------------------------------------------
BB, B, CCC, CC Predominantly speculative with respect to the issuer's capacity
to meet required interest and principal payments. BB _ lowest
degree of speculation; CC _ the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
- --------------------------------------------------------------------------------
D In default.
- --------------------------------------------------------------------------------
- --------------------------------
MOODY'S INVESTORS SERVICES, INC.
Bond Rating Explanation
- --------------------------------------------------------------------------------
Aaa Highest quality; smallest degree of investment risk.
- --------------------------------------------------------------------------------
Aa High quality; together with Aaa bonds, they compose the high-
grade bond group.
- --------------------------------------------------------------------------------
A Upper-medium grade obligations; many favorable investment
attributes.
- --------------------------------------------------------------------------------
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
- --------------------------------------------------------------------------------
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
- --------------------------------------------------------------------------------
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
- --------------------------------------------------------------------------------
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
- --------------------------------------------------------------------------------
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
- --------------------------------------------------------------------------------
C Lowest rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
AT MASON STREET FUNDSSM, WE RECOGNIZE THAT PREPARING FINANCIALLY FOR THE FUTURE
IS AN ONGOING PROCESS. WE KNOW THAT OVER THE YEARS, YOUR NEEDS AND LIFESTYLE
WILL CHANGE. THAT IS WHY WE PLACE PARTICULAR SIGNIFICANCE ON PROVIDING YOU WITH
AN EXCEPTIONAL LEVEL OF SERVICE INTENDED TO MAKE INVESTING AS FLEXIBLE AS
POSSIBLE. WHILE EACH OF THE MASON STREET FUNDSSM IS DISTINCT IN OBJECTIVE AND
STRATEGY, ALL OFFER THE SAME CONVENIENT AND EASY-TO-USE FEATURES.
YOUR TELEPHONE
REGISTERED 1-888-MASONST Mail Wire
SERVICE REPRESENTATIVE (1-888-627-6678) (See pp. (See pp.
29-30) 29-30)
- --------------------------------------------------------------------------------
OPEN A NEW ACCOUNT -
- --------------------------------------------------------------------------------
ADD TO EXISTING ACCOUNT - - - -
- --------------------------------------------------------------------------------
NET ASSET VALUES (NAVS)
AND PERFORMANCE INFORMATION - -
- --------------------------------------------------------------------------------
ACCOUNT AND SHARE
BALANCE INFORMATION - - -
(quarterly
statements)
- --------------------------------------------------------------------------------
EXCHANGING SHARES
(UP TO 12 PER YEAR) - - -
- --------------------------------------------------------------------------------
SELLING SHARES - - - -
- --------------------------------------------------------------------------------
When you invest in Mason Street Funds(SM), you have the opportunity to build a
long-term relationship with a Registered Representative. He or she can answer
any questions you may have about Mason Street Funds(SM) and is there to help you
work toward your investment goals now-and in the future.
MASON STREET FUNDS(SM)
P.O. BOX 419419
KANSAS CITY, MO 64141-6419
1-888-MASONST (1-888-627-6678)
www.masonstreetfunds.com
94-1000
Robert W. Baird & Co. Incorporated, Distributor 4/97 (Rev. 6/98)
MASON STREET FUNDS, INC.
Consisting of
Aggressive Growth Stock Fund
International Equity Fund
Growth Stock Fund
Growth and Income Stock Fund
Index 500 Stock Fund
Asset Allocation Fund
High Yield Bond Fund
Municipal Bond Fund
Select Bond Fund
This Statement of Additional Information is not a prospectus but supplements and
should be read in conjunction with the Prospectus for Mason Street Funds, Inc.
("MSF"). A copy of the Prospectus may be obtained from The Northwestern Mutual
Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202,
telephone number (414) 271-1444.
The date of the Prospectus to which this Statement of
Additional Information Relates is June 30, 1998.
The date of this Statement of Additional Information is
June 30, 1998.
TABLE OF CONTENTS
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
Investment Policies B-4 11
Investment Restrictions B-4 20
Portolio Securities for the
Municipal Bond Fund B-5 17
Repurchase Agreements B-6 20
Financial Futures Contracts B-7 19
Options - In General B-12 20
Future Developments B-13 -
Reverse Repurchase Agreements B-13 18
Warrants B-13 -
Asset-Backed and Variable Rate Securities B-14 -
Short-Term Trading B-14 -
Firm Commitment Agreements and "When-Issued" B-14 -
Securities
Private Placement Transactions B-14 -
and Illiquid Assets
Risk Factors for the International
Equity Fund and International Investments
of the Other Funds B-15 19
Portfolio Turnover B-17 23
Management of MSF B-18 21
Other Information About MSF B-21 32
Investment Advisory Services B-22 3
Fund Expenses B-25 5
Distribution Arrangements B-25 26
Distribution Financing Plans and
Shareholder Services Agreement B-26 26
Class A Plan and Agreement B-26 25
Class B Plan and Agreement B-26 27
General B-26 32
Portfolio Transactions and
Brokerage Allocation and Other Practices B-27 24
Determination of Net Asset Value B-28 27
Purchase and Redemption of Shares B-30 29
Cumulative Discount B-30 26
Letter of Intent B-30 26
Systematic Withdrawal Plan B-30 30
Special Redemptions B-31 30
Suspension of Redemptions B-31 30
Investment Performance B-35 10
Standardized Average Annual Total Return
Quotations B-35 10
Standardized Yield Quotations B-36 10
Non-Standardized Performance B-36 -
General Information B-37 32
Taxes B-38 30
Municipal Bond Fund B-41 31
State and Local B-42 -
Custodians B-42 23
Transfer Agent Services B-42 23
Independent Certified Public Accountants B-43 -
Appendix A B-44 -
Appendix B B-51 -
Report of Independent Accountants B-52 -
Financial Statements B-53 -
INVESTMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in MSF's Prospectus entitled "The Funds in Detail."
INVESTMENT RESTRICTIONS
- -----------------------
The investment restrictions not listed in the Prospectus and generally common to
the Index 500 Stock, Select Bond, Municipal Bond, Asset Allocation, Growth and
Income Stock, Growth Stock, Aggressive Growth Stock, High Yield Bond and
International Equity Funds of MSF (the "Funds") are described below. The
investment restrictions of the Funds numbered 1-8 below are "fundamental
policies" and may be changed only with the approval of the majority of the
Fund's shares outstanding. These investment restrictions provide that each Fund
will not:
1. Invest for the purpose of influencing management or exercising
control, but freedom of action is reserved with respect to exercise of
voting rights in respect of each Fund's securities.
2. Purchase any security on margin, but each Fund may obtain such
short-term credits as are necessary for the clearance of purchases and
sales of securities.
3. Make short sales of securities.
4. Act as a securities underwriter for other issuers, but each Fund may
purchase securities under circumstances where, if the securities are
later publicly offered or sold by the Fund, it might be deemed to be
an underwriter for purposes of the Securities Act of 1933.
5. Purchase or sell real estate. However, each Fund may invest in
securities issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
6. Invest in commodities or commodity contracts. However, each Fund
(except the Select Bond, Municipal Bond and High Yield Bond Funds) may
invest in stock index futures contracts, including indexes on specific
industries, and the Municipal Bond, Select Bond, High Yield Bond,
International Equity and Asset Allocation Funds may invest in interest
rate futures contracts in accordance with their investment objectives
and policies. The International Equity, Asset Allocation, Select
Bond, Aggressive Growth Stock, Growth Stock and High Yield Bond Funds
may invest in foreign currency futures and forward contracts.
7. Issue senior securities or borrow money except for short-term credits
as may be necessary for the clearing of transactions and except for
temporary purposes to the extent of 5% of the total assets of the Fund
or to meet redemption requests. Reverse repurchase agreements and
financial futures contracts are not considered to be "senior
securities" or "borrowing money" for the purpose of this restriction.
8. Make loans to persons who intend to use the proceeds for non-business
purposes or to companies which (including predecessors) have been in
business for less than three years. Repurchase agreements are not
considered to be "loans" for the purpose of this restriction.
As a non-fundamental investment policy, which may be changed by the Board of
Directors without shareholder approval, the International Equity Fund will not
invest more than 15% of its total assets in securities of foreign issuers which
are not listed on a recognized United States or foreign securities exchange.
PORTFOLIO SECURITIES FOR THE MUNICIPAL BOND FUND
- ------------------------------------------------
Municipal Obligations. The term "Municipal Obligations" generally includes
debt obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, industrial, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal; the interest paid on such
obligations may be exempt from Federal income tax, although current tax laws
place substantial limitations on the size of such issues. Such obligations are
considered to be Municipal Obligations if the interest paid thereon qualifies as
exempt from Federal income tax in the opinion of bond counsel to the issuer.
There are, of course, variations in the security of Municipal Obligations, both
within a particular classification and between classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time, or at specified
intervals. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders thereof. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals.
For the purpose of diversification under the Investment Company Act of
1940, as amended (the "1940 Act"), the identification of the issuer of Municipal
Obligations depends on the terms and conditions of the security. When the
assets and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guaranty would be
considered a separate security and will be treated as an issue of such
government or other entity.
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation and rating of the issue. The imposition of the
Fund's investment advisory fee, as well as other operating expenses, will have
the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation ordinarily is backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The staff of the Securities and Exchange
Commission currently considers certain lease obligations to be illiquid.
Determination as to the liquidity of such securities is made in accordance with
guidelines established by MSF's Board. Pursuant to such guidelines, the Board
has directed NMIS to monitor carefully the Municipal Bond Fund's investment in
such securities with particular regard to (1) the frequency of trades and quotes
for the lease obligation; (2) the number of dealers willing to purchase or sell
the lease obligation and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the lease obligation;
(4) the nature of the marketplace trades including the time needed to dispose of
the lease obligation, the method of soliciting offers and the mechanics of
transfer; and (5) such other factors concerning the trading market for the lease
obligation as NMIS may deem relevant. In addition, in evaluating the liquidity
and credit quality of a lease obligation that is unrated, the Fund's Board has
directed NMIS to consider (a) whether the lease can be cancelled; (b) what
assurance there is that the assets represented by the lease can be sold; (c) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e) the
legal recourse in the event of failure to appropriate; and (f) such other
factors concerning credit quality as NMIS may deem relevant. The Fund will not
invest more than 15% of the value of its net assets in lease obligations that
are illiquid and in other illiquid securities.
Tender option bonds are generally long-term securities that have been
coupled with an option to tender the securities to a bank, broker-dealer or
other financial institution at periodic intervals and receive the face value of
the bond. The Municipal Bond Fund will purchase tender option bonds only when
it is satisfied that the custodial and tender option arrangements, including the
fee payment arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will not
have the effect of creating taxable income for the Fund. Based on the tender
option bond agreement, the Fund expects to be able to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that it is valued at fair value.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Municipal Bond Fund, an issue of rated Municipal Obligations may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require the sale of such Municipal Obligations by
the Fund, but NMIS will consider such event in determining whether the Fund
should continue to hold the Municipal Obligations. To the extent that the
ratings given by Moody's, S&P or Fitch for Municipal Obligations may change as a
result of changes in such organizations or their rating systems, the Fund will
attempt to use comparable ratings as standards for its investments in accordance
with the investment policies contained in the Prospectus and this Statement of
Additional Information. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they undertake to
rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. Although these ratings
may be an initial criterion for selection of portfolio investments, NMIS also
will evaluate these securities.
REPURCHASE AGREEMENTS
- ---------------------
Each of the Funds may invest in repurchase agreements. A repurchase agreement
customarily obligates the seller at the time it sells securities to the Fund to
repurchase the securities at a mutually agreed upon time and price. The total
amount received on repurchase would be calculated to exceed the price paid by
the Fund, reflecting an agreed upon market rate of interest for the period from
the time of the repurchase agreement to the settlement date, and would not
necessarily be related to the interest rate on the underlying securities. The
differences between the total amount to be received upon repurchase of the
securities and the price which was paid by the Fund upon their acquisition is
accrued as interest and is included in the Fund's net income declared as
dividends. Each Fund intends to limit repurchase agreements to transactions
with financial institutions having total assets in excess of $1,000,000,000 and
with broker-dealers. Securities subject to repurchase agreements shall be
limited to obligations of or guaranteed by the U.S. Government or its agencies
or by the Government of Canada or of a Province of Canada or any instrumentality
or political subdivision thereof, certificates of deposit of banks or commercial
paper which meets the criteria for other commercial paper in which the Fund may
invest. A Fund will not invest more than 10% of its total assets in repurchase
agreements which have maturities of more than seven days and will not invest in
repurchase agreements with maturities of over 30 days. Under no circumstances
will a Fund enter into a repurchase agreement with The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual Life").
Each Fund has the right to sell securities subject to repurchase agreements but
would be required to deliver identical securities upon maturity of the
repurchase agreement unless the seller fails to pay the repurchase price. It is
each Fund's intention not to sell securities subject to repurchase agreements
prior to the agreement's maturity. To the extent that the proceeds from any
sale upon a default in the obligation to repurchase were less than the
repurchase price, the Fund would suffer a loss. the Fund might also incur
disposition costs in connection with liquidating its collateral and, if
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by the Fund may be delayed or limited and a loss may be
incurred if the collateral securing the repurchase agreement declines in value
during the bankruptcy proceedings. To minimize the possibility of losses due to
the default or bankruptcy of the seller, MSF has adopted standards of
creditworthiness for all broker-dealers with which MSF enters into repurchase
agreements and will review compliance by such broker-dealers periodically.
FINANCIAL FUTURES CONTRACTS
- ---------------------------
The Index 500 Stock, Asset Allocation, Growth and Income Stock, Growth Stock,
Aggressive Growth Stock, and International Equity Funds may invest in stock
index futures contracts, including indexes on specific industries, and the
Select Bond, High Yield Bond, Municipal Bond, International Equity and Asset
Allocation Funds may invest in interest rate futures contracts. The following
describes the stock index and interest rate futures markets and the manner in
which the Funds will implement the policy.
Use. The Funds, as identified above, may enter into stock index futures
contracts as a hedge against changes in the market values of common stocks and
may enter into interest rate futures contracts as a hedge against changes in
prevailing levels of interest rates. In both cases, the purpose is to establish
more definitely the effective return on securities held or intended to be
acquired by the Funds. The Funds' hedging may include sales of futures as an
offset against the effect of expected decreases in stock values or increases in
interest rates, and purchases of futures as an offset against the effect of
expected increases in stock values or decreases in interest rates.
The Funds will not enter into financial futures contracts for speculation, and
will only enter into futures contracts that are traded on national futures
exchanges and are standardized as to maturity date and underlying securities.
Currently, stock index futures contracts can be purchased or sold with respect
to various Standard and Poor's stock indicies on the Chicago Mercantile
Exchange, the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade. The
principal interest rate futures exchanges in the United States are the Chicago
Board of Trade, the Chicago Mercantile Exchange and the New York Futures
Exchange. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission.
A Fund will not enter into a futures contract if, as a result thereof the sum of
the initial margin deposits of all open futures positions (other than an
offsetting transaction) would be more than 5% of the Fund's total assets. More
than 5% of the Fund's total assets may be committed to the aggregate of initial
and variation margin payments however.
The Funds will incur brokerage commissions in connection with transactions in
futures contracts.
Description. A stock index futures contract is an agreement whereby one party
agrees to take and another party agrees to make delivery of an amount of cash
equal to a specified dollar amount times the difference between the stock index
value at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. A stock index assigns relative
values to the common stocks included in the index, and the index fluctuates with
changes in the market values of the common stocks included. No physical
delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts covering the stock market as a whole
and covering certain industries are being traded. It is expected that futures
contracts covering stock indexes of additional industries will eventually be
traded.
An interest rate futures contract is an agreement whereby one party agrees to
sell and another party agrees to purchase a specified amount of a specified
financial instrument (debt security) at a specified price at a specified date,
time and place. Although interest rate futures contracts typically require
actual future delivery of and payment for financial instruments, the contracts
are usually closed out before the delivery date.
A public market exists in interest rate futures contracts covering primarily the
following financial instruments: U.S. Treasury bonds; U.S. Treasury notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month U.S. Treasury bills; 90-day commercial
paper; bank certificates of deposit; and Eurodollar certificates of deposit. It
is expected that futures contracts trading in additional financial instruments
will be authorized. The standard contract size is $100,000 for futures
contracts in U.S. Treasury bonds, U.S. Treasury notes and GNMA pass-through
securities and $1,000,000 for the other designated contracts.
It is each Fund's policy to close out open futures contracts before delivery.
Closing out an open futures contract sale or purchase is effected by entering
into an offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the stock index or the financial instrument and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Fund realizes a gain, and if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain, and if it is less, the Fund realizes a loss.
The transaction costs must also be included in these calculations. There can be
no assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract.
As an example of an offsetting transaction, the contractual obligations arising
from the sale of one contract of September Treasury Bills on an exchange may be
fulfilled at any time before delivery of the contract is required (i.e., on a
specified date in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In such instance the
difference between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
Persons who trade in futures contracts may be broadly classified as "hedgers"
and "speculators." Hedgers, such as the Funds, whose business activity involves
investment or other commitment in equity and debt securities or other
obligations, use the financial futures markets primarily to offset unfavorable
changes in value that may occur because of fluctuations in the value of the
securities or obligations held or expected to be acquired by them.
The speculator, like the hedger, generally expects neither to deliver nor to
receive the security underlying the futures contract, but unlike the hedger,
hopes to profit from fluctuations in prevailing stock market values or interest
rates.
Each Fund's futures transactions will be entered into for traditional hedging
purposes--that is, futures contracts will be sold to protect against a decline
in the price of securities that the Fund owns, or futures contracts will be
purchased to protect the Fund against an increase in the price of securities it
intends to purchase. As evidence of this hedging intent, each Fund expects that
approximately 75% of such futures contract purchases will be "completed"; that
is, upon sale (offsetting) of these long contracts, equivalent amounts of
related securities will have been or are then being purchased by the Fund in the
cash market.
Margin. Initial margin is the amount of funds that must be deposited by a Fund
with its broker in order to initiate futures trading. An initial margin deposit
is intended to assure the Fund's performance of the futures contract. The
margin required for a particular futures contract is set by the exchange on
which the contract is traded and may range upward from less than 5% of the value
of the contract being traded.
Variation margin is the amount of subsequent payments that must be made to and
from the broker to maintain the Fund's open position in the futures contracts.
Variation margin payments are made on a daily basis as the price of the
underlying stock index or financial instrument fluctuates. If the value of the
open futures position changes (by increase, in the case of a sale, or by
decrease, in the case of a purchase) so that the loss on the futures contract
reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require the Fund to make a variation margin
payment in the amount of the insufficiency. However, if the value of a position
increases because of favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the Fund will promptly demand
payment by the broker of variation margin in the amount of the excess. All
variation margin payments received by the Fund will be held by the Fund's
custodian in a separate account for the Fund.
In computing net asset value daily each Fund will mark to market the current
value of its open futures contracts. Each Fund expects to earn interest income
on its initial margin deposits.
Example of Purchase of Stock Index Futures Contract. A Fund might purchase a
stock index futures contract when it anticipates a significant market or market
sector advance and wishes to participate in such advance at a time when the Fund
is not fully invested, for example, because the Fund has not selected the
individual stocks which it wishes to purchase. The Fund would be endeavoring to
eliminate the effect of all or part of an expected increase in the market price
of the stocks that the Fund may purchase at a later date.
For example, assume that the prices of certain stocks that the Fund may later
purchase tend to move in concert with the Standard and Poor's 500 Stock Index.
The Fund wishes to attempt to fix the purchase price of its anticipated stock
investment until the time (three months in this example) when it may purchase
the stock. Assume the stock has a market price of 125 and the Fund believes
that, because of an anticipated advance in the stock market, the price will have
risen in three months. The Fund might enter into futures contract purchases of
the Standard and Poor's 500 Stock Index for a price of 125. If the market price
of the stock should increase from 125 to 130, the futures market price for the
Standard and Poor's 500 Stock Index might also increase, e.g., from 125 to 130.
In that case, the five-point increase in the price that the Fund would have to
pay for the stock would be offset by the five-point gain realized by closing out
the futures contract purchase.
If the Fund should be mistaken in its forecast of market values, and the stock
index should decline below 125, the market value of the stocks being hedged
would presumably decline. Unless the Fund would purchase the stocks for the
decreased price, the Fund would realize a loss on the sale of the futures
contract which would not be offset by the price decrease.
Example of Sale of Stock Index Futures Contract. The Fund might sell stock
index futures contracts in anticipation of a general market or market sector
decline that may adversely affect the market values of the stocks held by the
Fund. The Fund would be endeavoring to substantially reduce the risk of a
decline in the value of its stocks without selling the stocks with resultant
transaction costs.
For example, assume that the market price of certain stocks held by the Fund
tend to move in concert with the Standard and Poor's 500 Stock Index. The stock
currently has a market value of 125, which the Fund believes will decline
because of an anticipated decline in the stock market. The Fund wishes to
attempt to fix the current market value of the stock until some time in the
future. The Fund might enter into a futures contract sale of the Standard and
Poor's 500 Stock Index at a price of 125. If the market price of the stock
should decline from 125 to 120, the futures market price of the Standard and
Poor's 500 Stock Index might also decline, e.g. from 125 to 120. In that case
the five-point loss in the market value of the stock would be offset by the
five-point gain realized by closing out the futures contract. The futures
market price of the Standard and Poor's 500 Stock Index might decline to more or
less than 120 because of the imperfect correlation with the prices of the stocks
hedged.
If the Fund should be mistaken in its forecast of the stock market, and the
futures market price of the Standard and Poor's 500 Stock Index should increase
above 125, the market price of the stock would increase. The benefit of this
increase would be offset by the loss realized on closing out the futures
contract sale.
Example of Purchase of Interest Rate Futures Contract. The Fund might purchase
an interest rate futures contract when it wishes to defer for a time a fully
invested position in longer term securities, for example, in order to continue
holding shorter term securities with higher yields. The Fund would be
endeavoring to eliminate the effect of all or part of an expected increase in
market price of the longer term bonds that the Fund may wish to purchase at a
later date.
For example, assume that the market price of a type of longer term bonds that
the Fund may later purchase, currently yielding 10%, tends to move in concert
with futures market prices of long-term U.S. Treasury bonds. The Fund wishes to
attempt to fix the purchase price (and thus the 10% yield) of its anticipated
longer term bond investment until the time (four months away in this example)
when it may purchase the bond. Assume the longer term bond has a market price
of 100, and the Fund believes that, because of an anticipated decline in
interest rates, the price will have risen (and correspondingly the yield will
have declined) in four months. The Fund might enter into futures contract
purchases of Treasury bonds for a price of 98. If the market price of the longer
term bond should increase from 100 to 105, the futures market price for Treasury
bonds might also increase, e.g., from 98 to 103. In that case, the five-point
increase in the price that the Fund would have to pay for the longer term bond
would be offset by the five-point gain realized by closing out the futures
contract purchase.
If the Fund should be mistaken in its forecast of interest rates, and the
futures market price of the U.S. Treasury obligation should decline below 98,
the market price of the security being hedged would presumably decline. The
benefit of this price decrease, and thus the yield increase, would be offset by
the loss realized on closing out the futures contract purchase.
Example of Sale of Interest Rate Futures Contract. The Fund might sell an
interest rate futures contract in order to maintain the income derived from its
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 prices
of longer term securities because of an increase in prevailing interest rates.
For example, assume that the market price of a certain longer term security held
by the Fund tends to move in concert with the futures market prices of long-term
U.S. Treasury bonds. The security has a current market price of 100, which the
Fund believes will decline because of an anticipated rise in interest rates.
The Fund wishes to attempt to fix the current market value of this security
until some point in the future. The Fund might enter into a futures contract
sale of Treasury bonds at a price of 98. If the market value of the security
should decline from 100 to 95, the futures market price of Treasury bonds might
also decline, e.g., from 98 to 93. In that case, the five-point loss in the
market value of the security would be offset by the five-point gain realized by
closing out the futures contract sale. The futures market price of Treasury
bonds might decline to more or less than 93 because of the imperfect correlation
with the prices of the securities hedged.
If the Fund should be mistaken in its forecast of interest rates, and the
futures market price of the U.S. Treasury obligation should increase above 98,
the market price of the securities, including the security being hedged, would
increase. The benefit of this increase would be offset by the loss realized on
closing out the futures contract sale.
Risks. Financial futures prices are volatile and difficult to forecast. Stock
index futures prices reflect the market values of the stocks included in the
index, while interest rate futures contracts are influenced, among other things,
by changes in prevailing interest rates and anticipation of future interest rate
changes. The factors influencing interest rate futures prices are in turn
affected by government fiscal and monetary policies and actions, and national
and international political and economic events, while stock market values are
also influenced by corporate management policies, consumer demand, competition,
sources of raw materials and supplies and government regulation.
At best, the correlation between changes in prices of futures contracts and the
securities being hedged can be only approximate. The degree of imperfection of
correlation depends upon circumstances, such as: variations in speculative
market demand for futures and for equity or debt securities, including technical
influences in futures trading, and differences between the securities being
hedged and the instruments underlying the standard futures contracts available
for trading. A decision of whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected stock market or interest
rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as initial margin, a 10% decrease
in the value of the futures contract would result in a total loss of the initial
margin deposit before any deduction for the transaction costs, if the account
were then closed out, and a 15% decrease would result in a loss equal to 150% of
the initial margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of the futures contract, it had invested in the underlying security.
Furthermore, in order to be certain that the Fund has sufficient assets to
satisfy its obligations when it purchases a futures contract, the Fund deposits
cash or cash equivalents equal in value to the market value of the futures
contract in a segregated account for the Fund with the Fund's custodian.
Most United States interest rate futures exchanges and the Chicago Mercantile
Exchange limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum amount
that the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of contract, no trades may be made
on that day at a price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not limit potential
losses because the limit may prevent the liquidation of unfavorable positions.
Futures contract prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses.
Foreign Currency Futures. The International Equity, Asset Allocation, Select
Bond, Aggressive Growth Stock, Growth Stock and High Yield Bond Funds have the
authority to deal in forward foreign exchange between currencies of the
different countries in which the Fund may 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.
The Funds' dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or Fund positions. Transaction hedging
is the purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Fund arising from the purchase and sale of Fund
securities, the sale and redemption of shares of the Fund, or the payment of
dividends and distributions by the Fund. Position hedging is the sale of
forward foreign currency with respect to Fund security positions denominated or
quoted in such foreign currency. The International Equity, Asset Allocation,
Select Bond, Aggressive Growth Stock, Growth Stock and High Yield Bond Funds
will not speculate in forward foreign exchange.
Federal Income Tax Treatment. For Federal income tax purposes, each Fund is
required to recognize as income for each taxable year its net unrealized gains
and losses on futures contracts as of the end of the year as well as those
actually realized during the year. Any gain or loss recognized with respect to
a futures contract is considered to be 60% long-term and 40% short-term, without
regard to the holding period of the contract. In the case of a futures
transaction classified as a "mixed straddle," the recognition of losses may be
deferred to a later taxable year.
In order for each Fund to continue to qualify for Federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income, i.e., dividends, interest,
income derived from loans of securities, and gains from the sale of securities.
Any net gain realized from the closing out of futures contracts, for purposes of
the 90% requirement, is considered gain from the sale of securities and
therefore is qualifying income.
OPTIONS - IN GENERAL
- ---------------------
The Funds may purchase call or put options and write covered call or put
options with respect to specific securities. Any option written or purchased by
a Fund must be listed on a domestic exchange. A call option gives the purchaser
of the option the right to buy, and obligates the writer to sell, the underlying
security or securities at the exercise price at any time during the option
period, or at a specific date. Conversely, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security or securities at the exercise price at any time during the option
period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by the Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Option transactions may increase a Fund's transaction costs and turnover rate
and will be initiated only where appropriate to achieve a Fund's investment
objectives.
FUTURE DEVELOPMENTS
- -------------------
The Funds may take advantage of opportunities in the area of options and
futures contracts and options on futures contracts and any other derivatives
which are not presently contemplated for use by the Funds or which are not
currently available but which may be developed, to the extent such opportunities
are both consistent with the Fund's investment objective and legally permissible
for the Fund. Before entering into such transactions or making any such
investment, a Fund will provide appropriate disclosure in its Prospectus or
Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
The Municipal Bond and Asset Allocation FundsFund may enter into reverse
repurchase agreements with banks and broker-dealers. Such agreements involve
the sale of money market securities held by athe Fund pursuant to an agreement
to repurchase the securities at an agreed upon price, date and interest payment.
The Fund will use the proceeds of reverse repurchase agreements to purchase
other money market securities which either mature, or can be sold under an
agreement to resell, at or prior to the expiration of the reverse repurchase
agreement. AThe Fund will utilize reverse repurchase agreements when the
interest income to be earned from the investment of proceeds from the
transaction is greater than the interest expense of the reverse repurchase
transaction. When effecting reverse repurchase transactions, athe Fund will
hold securities of a dollar amount equal in value to the securities subject to
the reverse repurchase agreement in a segregated account. Amounts subject to
reverse repurchase agreements are also subject to a 300% asset coverage
requirement. If such amounts in the aggregate exceed this asset coverage
requirement, the Fund would be obligated within three days to reduce such
amounts to meet the requirement. Under no circumstances will athe Fund enter
into a reverse repurchase agreement with Northwestern Mutual Life.
WARRANTS
- --------
The Index 500 Stock, Asset Allocation, Growth and Income Stock, Growth Stock,
Aggressive Growth Stock and High Yield Bond Funds may invest in warrants. No
Fund intends to invest more than 2% of its net assets in warrants that are not
listed on a national securities exchange. In no event will a Fund's investment
in warrants exceed 5% of its net assets. (A warrant is a right to buy a certain
security at a set price during a certain time period.)
ASSET-BACKED AND VARIABLE RATE SECURITIES
- -----------------------------------------
Consistent with their investment objectives and policies, the Select Bond Fund
and Municipal Bond Fund may invest in asset-backed and variable rate securities.
Asset-backed securities represent fractional interests in pools of retail
installment loans or revolving credit receivables. These assets are generally
held by a special purpose trust and payments of principal and interest, or
interest only, are passed through or paid through monthly or quarterly to
certificate holders. Payments may be guaranteed up to certain amounts by
letters of credit issued by a financial institution affiliated or unaffiliated
with the trustee or originator of the trust. Underlying receivables are
generally subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, for asset-backed securities, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the underlying loans or other receivables tends to dampen the impact
of any change in the prepayment level. Certificate holders may also experience
delays in payment on the certificates if the full amounts due on underlying
sales contracts or other receivables are not realized by the trust because of
unanticipated legal or administrative costs of enforcing the contracts, or
because of depreciation or damage to the collateral securing certain contracts,
or other factors.
Variable rate securities bear rates of interest that are adjusted periodically
or which "float" continuously according to formulae intended to minimize
fluctuations in values of the instruments. For the Select Bond Fund and
Municipal Bond Fund, the Fund determines the maturity of variable rate
securities in accordance with Securities and Exchange Commission rules that
allow the Fund to consider certain of such instruments as having maturities less
than the maturity date on the instrument.
SHORT-TERM TRADING
- ------------------
Each Fund will generally not engage in short-term trading (purchases and sales
within seven days).
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES
- -------------------------------------------------------
Each Fund may enter into firm commitment agreements for the purchase of
securities at an agreed upon price on a specified future date. A Fund may
purchase new issues of securities on a "when-issued" basis, whereby the payment
obligation and interest rate on the instruments are fixed at the time of the
transaction. Such transactions might be entered into, for example, when the
advisor of a Fund anticipates a decline in the yield of securities of a given
issuer and is able to obtain a more advantageous yield by committing currently
to purchase securities to be issued or delivered later.
A Fund will not enter into such a transaction for the purpose of investment
leverage. Liability for the purchase price - and all the rights and risks of
ownership of the securities - accrue to the Fund at the time it becomes
obligated to purchase such securities, although delivery and payment occur at a
later date. Accordingly, if the market price of the security should decline,
the effect of the agreement would be to obligate the Fund to purchase the
security at a price above the current market price on the date of delivery and
payment. During the time the Fund is obligated to purchase such securities it
will maintain in a segregated account U.S. Government securities, high-grade
debt obligations, or cash or cash equivalents of an aggregate current value
sufficient to make payment for the securities.
PRIVATE PLACEMENT TRANSACTIONS AND ILLIQUID ASSETS
- --------------------------------------------------
Each Fund may invest up to 15% of its totalnet assets in securities acquired in
private placement transactions and other illiquid assets. For the purpose of
determining each Fund's net asset value, these assets will be valued at their
fair value as determined in good faith by MSF's Directors or under procedures
established by the Directors. If a Fund should have occasion to sell an
investment in restricted securities at a time when the market for such
investments is unfavorable, a considerable period may elapse between the time
when the decision to sell it is made and the time when the Fund will be able to
sell the investment, with a possible adverse effect upon the amount to be
realized from the sale.
Notwithstanding these limitations a Fund may purchase securities which, though
not registered under the Securities Act of 1933 (the "1933 Act"), are eligible
for purchase and sale pursuant to Rule 144A under the 1933 Act. Rule 144A
permits unregistered securities to be traded among qualified institutional
investors, including the Funds. Rule 144A securities that are determined to be
liquid are not subject to the limitations on illiquid assets. The Fund's
investment adviser, Northwestern Mutual Investment Services, LLC, determines and
monitors the liquidity status of each Rule 144A security in which a Fund
invests, subject to supervision and oversight by the Board of Directors of MSF.
The investment adviser takes into account all of the factors which may have a
material bearing on the ability of the Fund to dispose of the security in seven
days or less, at a price reasonably consistent with the value used to determine
the Fund's net asset value per share, including the following factors: (1) the
frequency and volume of trades, (2) the number and sources of price quotes, (3)
the number, and identity, of dealers willing to purchase or sell the issue, and
the number and identity of other potential purchasers, (4) any dealer
undertakings to make a market in the security, (5) the nature of the security,
and (6) the nature of the market in which the issue is traded, including the
time typically required to make trades, the methods of soliciting offers and the
mechanics of transfer.
RISK FACTORS FOR THE INTERNATIONAL EQUITY FUND AND INTERNATIONAL INVESTMENTS OF
- -------------------------------------------------------------------------------
THE OTHER FUNDS
- ---------------
The International Equity Fund has an unlimited right to purchase securities in
any foreign country, developed or developing, if they are listed on an exchange,
as well as a limited right to purchase such securities if they are unlisted.
The Asset Allocation Fund, High Yield Bond Fund, Select Bond Fund, Aggressive
Growth Stock Fund and Growth Stock Fund also have the limited right to purchase
securities in foreign countries. Investors should consider carefully the risks
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
Despite the dissolution of the Soviet Union, the Communist Party may continue to
exercise a significant role in certain Eastern European countries. To the
extent of the Communist Party's influence, investments in such countries may
involve risks of nationalization, expropriation and confiscatory taxation. The
communist governments of a number of Eastern European countries expropriated a
large amount of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, no or developing accounting standards may exist in certain Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into U.S. dollars, the conversion rates may be artificial to
the actual market values and may be adverse to the Fund's shareholders.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. 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 United States
companies. Foreign markets have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
The Fund endeavors to buy and sell foreign currencies on as favorable a basis as
practicable. Some price spread on currency exchange (to cover service charges)
may be incurred, particularly when the Fund changes investment from one country
to another or when proceeds of the sale of shares in U.S. dollars are used for
the purchase of securities in foreign countries. Also, some countries may adopt
policies which would prevent the Fund from transferring cash out of the country
or withhold portions of interest and dividends at the source, or impose other
taxes with respect to the Fund's investments in securities of issuers of that
country. There is the possibility of expropriation, nationalization or
confiscatory taxation, 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.
The Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Through the Fund's flexible policy, the Fund's advisor endeavors
to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where from time to time it places the Fund's
investments. The exercise of this flexible policy may include decisions to
purchase securities with substantial risk characteristics and other decisions
such as changing the emphasis on investments from one nation to another and from
one type of security to another. Some of these decisions may later prove
profitable and others may not. No assurance can be given that profits, if any,
will exceed losses.
The Directors of MSF consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would affect
the liquidity of the Fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. They also consider the degree
of risk involved through the holding of Fund securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Fund's investment adviser, or
reckless disregard of its obligations and duties under the Investment Advisory
Agreement, any losses resulting from the holding of the Fund's securities in
foreign countries and/or with securities depositories will be at risk of the
shareholders. No assurance can be given that the Directors' appraisal of the
risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
The Fund may enter into a contract for the purchase or sale of a security
denominated in a foreign currency and may enter into a forward foreign currency
contract ("forward contract") in order to "lock in" the U.S. dollar price of the
security. In addition, when the Fund's advisor believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell or buy the amount
of the former foreign currency, approximating the value of some or all of the
Fund's securities denominated in such foreign currency. The projection of
short-term currency market movement is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
It is impossible to forecast with absolute precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for the Fund 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 Fund 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 Fund security if its market value exceeds
the amount of foreign currency the Fund is obligated to deliver.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or a loss to the extent that there has been movement in
forward contract prices. If the Fund engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund 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 Fund 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 Fund 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.
PORTFOLIO TURNOVER
- ------------------
Portfolio turnover may vary from year to year or within a year depending upon
economic, market and business conditions. Short-term debt securities are
excluded in the calculation of Fundportfolio turnover rates. U.S. Government
securities are included in the calculation of Fundportfolio turnover rates.
For the year ended March 31, 1998, the portfolio turnover rates were:
Portfolio Turnover Rate
-----------------------
Aggressive Growth Stock Fund 64.91%
International Equity Fund 10.07%
Growth Stock Fund 37.52%
Growth and Income Stock Fund 140.29%
Index 500 Stock Fund 2.47%
Asset Allocation Fund 65.67%
High Yield Bond Fund 178.61%
Municipal Bond Fund 169.37%
Select Bond Fund 362.32%
MSF commenced operations on March 31, 1997, and experienced no portfolio
turnover rates prior to that date.
The annual Fundportfolio turnover rate of each Fund is the lesser of purchases
or sales of the Fund's securities for the year stated as a percentage of the
average value of the Fund's assets.
MANAGEMENT OF MSF
The following is a list of the Directors and Officers of MSF together with a
brief description of their principal occupations during the past five years.
James D. Ericson (62), President and Director<F1>
720 East Wisconsin Avenue
Milwaukee, WI 53202
Trustee of Northwestern Mutual Life; President and Chief Executive
Officer of Northwestern Mutual.
Stephen N. Graff (63), Director<F1>
805 Lone Tree Road
Elm Grove, WI 53122
Retired Partner, Arthur Andersen LLP (Public Accountants) since 1994;
Senior Partner, 1993-1994; prior thereto, Managing Partner -
Milwaukee, WI office; Trustee of Northwestern Mutual Life since 1996.
Martin F. Stein (61), Director
1800 East Capitol Drive
Milwaukee, WI 53211
Chairman of the Board of EyeCare One Corporation (retail sales of
eyewear).
John K. MacIver (67), Director
100 East Wisconsin Avenue
Milwaukee, WI 53202
Partner, Michael Best & Friedrich, Attorneys at Law.
William J. Blake (66), Director
1105 North Waverly Place
Milwaukee, WI 53202
Chairman, Blake Financial Corporation (real estate investments and
venture capital).
William A. McIntosh (59), Director
525 Sheridan Road
Kenilworth, IL 60043
Retired Division Head, U.S. Fixed Income of Salomon Brothers
(investment securities) since 1995; prior thereto; Division Head, U.S.
Fixed Income from 1991 to 1995.
Mark G. Doll (48), Vice President and Treasurer
720 East Wisconsin Avenue
Milwaukee, WI 53202
Vice President and Assistant Treasurer-Public Markets of Northwestern
Investment Management Company since 1998; Senior Vice President of
Northwestern Mutual Life since 1996; Senior Vice President and
Treasurer, 1995; prior thereto, Vice President and Treasurer.
Executive Vice President, Investment Advisory Services of Northwestern
Mutual Investment Services, LLC since 1996; prior thereto, President.
Meridee J. Maynard (42), Vice President - Marketing and Operations
720 East Wisconsin Avenue
Milwaukee, WI 53202
Vice President-Annuity and Accumulation Products of Northwestern
Mutual Life since 1996; Vice President-Compliance and Sales Standards
from 1994 to 1996; Managing Director-Sales Standards/Compliance from
1993 to 1994; Director-New Business from 1992 to 1993; prior thereto,
Director-Annuity Marketing; Vice President, Variable Annuity
Administration and Marketing of Northwestern Mutual Investment
Services, LLC since 1996; Superintendent-Sales Standards/Compliance
from 1994 to 1996; Superintendent-Underwriting Standards and New
Business from 1993 to 1994.
Patricia L. Van Kampen (47), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Vice President-Common Stocks of Northwestern
Mutual Life; Vice President-Common Stocks of Northwestern Mutual
Investment Services, LLC.
William R. Walker (41), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Director of Common Stocks of Northwestern Mutual
Life; Vice President of Northwestern Mutual Investment Services, LLC.
Julie M. Van Cleave (39), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Director of Common Stocks of Northwestern Mutual
Life; Vice President-Common Stocks of Northwestern Mutual Investment
Services, LLC.
Steven P. Swanson (44), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management Company since
1998; Vice President-Securities of Northwestern Mutual Life from 1994
to 1997; prior thereto, Director-Securities; Vice President of
Northwestern Mutual Investment Services, LLC since 1994.
Varun Mehta (30), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Director of Northwestern Investment Management Company since 1998;
Investment Officer-Public Fixed Income of Northwestern Mutual Life
from March of 1997 to December of 1997; Portfolio Research Manager-
Fixed Income and Portfolio Manager-Fixed Income of the Ameritech
Investment Management Department from 1993 to March of 1997.
Jefferson V. DeAngelis (40), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Vice President-Fixed Income Securities of
Northwestern Mutual Life; Vice President-Fixed Income Securities of
Northwestern Mutual Investment Services, LLC.
Timothy S. Collins (36), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Director of Northwestern Investment Management Company since 1998;
Director of Investments for Northwestern Mutual Life from October of
1996 to December of 1997; Associate Director - Investments from 1993
to 1996; prior thereto, Investment Officer.
Ronald C. Alberts (34), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Director of Northwestern Investment Management Company since 1998;
prior thereto, Associate Director - Fixed Income of Northwestern
Mutual Life.
Ignatius L. Smetek (37), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Managing Director of Northwestern Investment Management Company since
1998; Director of Common Stocks for Northwestern Mutual Life from 1995
to December of 1997; prior thereto, Associate Director - Common
Stocks; Vice President - Common Stocks of Northwestern Mutual
Investment Services, LLC.
Merrill C. Lundberg (58), Secretary
720 East Wisconsin Avenue
Milwaukee, WI 53202
Assistant General Counsel of Northwestern Mutual Life; Secretary of
Northwestern Mutual Investment Services, LLC.
Barbara E. Courtney (40), Controller
720 East Wisconsin Avenue
Milwaukee, WI 53202
Associate Director of Mutual Fund Accounting of Northwestern Mutual
Life since 1996; prior thereto, Assistant Director of Investment
Accounting; Assistant Treasurer of Northwestern Mutual Investment
Services, LLC.
<F1> Directors identified with an asterisk are "interested persons" as defined
in Section 2(a)(19) of the Investment Company Act of 1940.
Each of the Directors has served as a Director of MSF since October 24, 1996,
except for William A. McIntosh, who has served as a Director since May 8, 1997.
An Audit Committee and Nominating Committee have been established for MSF.
Each Committee is made up of those Directors who are not "interested persons" of
MSF within the meaning of the Investment Company Act.
All Board members and officers of the Fund, except Meridee J. Maynard,
Ronald C. Alberts and Ignatius L. Smetek, are also board members or officers of
Northwestern Mutual Series Fund, Inc. (the "Series Fund"), a registered
investment company. Shares of the Series Fund are offered to and may only be
purchased by Northwestern Mutual Life in connection with variable annuity and
variable life insurance contracts issued by Northwestern Mutual Life. Each of
the Directors and principal officers of MSF who is also an affiliated person of
Northwestern Mutual Investment Services, LLC ("NMIS") or Northwestern Mutual
Life is named above, together with the capacity in which such person is
affiliated with NMIS or Northwestern Mutual Life.
On June 1, 1998, The Directors and officers of MSF as a group did not own
more than 1% of any class of shares of any Fund.
COMPENSATION OF OFFICERS AND DIRECTORS. MSF pays no salaries or compensation to
any of its officers or Directors employed by Northwestern Mutual Life. MSF pays
other Directors fees totaling $9,000 per year, consisting of a $5,000 retainer
paid in April and $1,000 per meeting of the Board of Directors of MSF attended.
MSF neither pays nor accrues any pension or retirement benefits to any of the
Directors. Northwestern Mutual Investment Services, LLC, the investment advisor
to Northwestern Mutual Series Fund, Inc., pays each of the directors of the
Series Fund a total of up to $15,000 per year, consisting of a $5,000 retainer
paid in January and $2,500 per meeting of the board of the Series Fund attended.
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
From Benefits Benefits From
Registrant Accrued as Upon Registrant
Part of Fund Retirement and Fund
Expenses Complex Paid
to Directors
James D. Ericson None None None None
Director
William Blake $8,000 None None $20,500
Director
Stephen N. Graff $9,000 None None $24,000
Director
John K. MacIver $9,000 None None $24,000
Director
Martin F. Stein $9,000 None None $24,000
Director
William A. McIntosh $9,000 None None $24,000
Director
OTHER INFORMATION ABOUT MSF
MSF was incorporated in Maryland on August 30, 1996. The authorized
capital stock of MSF consists of 2,700,000,000 shares of common stock, par value
$.001 per share (Common Stock). The shares of Common Stock are divided into
nine series, each with 300 million authorized shares in the series: Aggressive
Growth Stock Fund; International Equity Fund; Growth Stock Fund; Growth and
Income Stock Fund; Index 500 Stock Fund; Asset Allocation Fund; High Yield Bond
Fund; Municipal Bond Fund; and Select Bond Fund. The Board of Directors may
reclassify authorized shares to increase or decrease the allocation of shares
among the series described above or to add any new series to MSF. Each series
of Common Stock has two classes of shares, designated Class A and Class B. The
Board of Directors is authorized, from time to time and without further
shareholder approval, to authorize additional shares and to classify and
reclassify existing and new series into one or more classes.
As of June 1, 1998, no person owns of record or beneficially 5% or more of
the shares outstanding of MSF or any Fund, except Northwestern Mutual Life, a
Wisconsin insurance company, which owned 86.01% of MSF's outstanding shares as
of June 1, 1998.
The shares of the Funds are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
directors and accountants. Shares of a Fund vote together as a class on matters
that affect the Fund in substantially the same manner. Matters pertaining only
to one or more Funds will be voted upon only by those Funds. As to matters
affecting a single class, shares of such class will vote separately. Shares of
the Funds do not have cumulative voting rights. MSF and the Funds do not intend
to hold annual meetings of shareholders unless required to do so by the 1940 Act
or the Maryland statutes under which MSF is organized. Although Directors are
not elected annually by the shareholders, shareholders have under certain
circumstances the right to remove one or more Directors. If required by
applicable law, a meeting will be held to vote on the removal of a Director or
Directors of MSF if requested in writing by the holders of not less than 10% of
MSF's outstanding shares. Each Fund's shares are fully paid, and nonassessable,
and, when issued, have no preference, preemptive, conversion or similar rights
and are freely transferable.
MSF's By-Laws provide that MSF shall indemnify each of its Directors,
officers and employees against liabilities and expenses reasonably incurred by
them, in connection with the defense of any action, suit or proceeding or threat
thereof, by reason of being or having been a director, officer or employee of
MSF. MSF provides no indemnification in relation to such matters as to which
such person is adjudged in such action, suit or proceeding to be liable for
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
INVESTMENT ADVISORY SERVICES
The Funds' investment adviser, Northwestern Mutual Investment Services, LLC
("NMIS"), is a wholly-owned subsidiary of Northwestern Mutual Life. The adviser
provides investment advice and recommendations regarding the purchase and sale
of securities for the Funds and the selection of brokers pursuant to an
Investment Advisory Agreement (the "Agreement").
For acting as investment adviser and for providing such services and paying such
expenses the adviser is paid a monthly fee at the annual rates set forth in the
prospectus for MSF. The Fund also pays all interest charges, brokerage
commissions, taxes and extraordinary expenses incurred in connection with the
operation of the Fund. Expenses paid by MSF are charged to the Funds to which
the expenses relate.
For the fiscal year ended March 31, 1998, NMIS received $697,488 for its
services as investment advisor to MSF. This amount is net of $940,770 of
investment advisory fees waived under the expense limitation agreement described
in MSF's prospectus. Because MSF commenced operations on March 31, 1997, no
Fund paid any advisory fees prior to that date.
Northwestern Mutual Life employs a full staff of investment personnel to manage
its investment assets. Northwestern Mutual Life's personnel and related
facilities are utilized by NMIS in performing its obligations under the
Investment Advisory Agreement.
"Northwestern Mutual Life" is the name and service mark of The Northwestern
Mutual Life Insurance Company and the right of MSF to use the name and mark is
subject to the consent of Northwestern Mutual Life. Under the Agreement
providing such consent, MSF recognizes the prior rights of Northwestern Mutual
Life in the name and mark, agrees that use of the name and mark by MSF will
inure to the benefit of Northwestern Mutual Life and agrees that its right to
use the name and mark can be terminated by Northwestern Mutual Life and will
automatically be terminated if at any time NMIS ceases to be the investment
adviser to the Funds or if NMIS ceases to be a subsidiary of Northwestern Mutual
Life.
Templeton Investment Counsel, Inc. ("Templeton Counsel"), a Florida corporation
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 the International Equity Fund, subject to the general control of the Board of
Directors of MSF. Templeton Counsel is a wholly-owned indirect subsidiary of
Franklin Resources, Inc. Certain clients of Templeton Counsel may have
investment objectives and policies similar to those of the International Equity
Fund. Templeton Counsel may, from time to time, make recommendations which
result in the purchase or sale of a particular security by its other clients
simultaneously with the International Equity Fund. If transactions on behalf of
more than one client during the same period increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price. It is the policy of Templeton Counsel to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by Templeton Counsel to the accounts involved, including the International
Equity Fund. When two or more of the clients of Templeton Counsel (including
the International Equity Fund) are purchasing the same security on a given day
from the same broker-dealer, such transactions may be averaged as to price. For
its services pursuant to the sub-advisory agreement, Templeton Counsel is paid,
by NMIS, compensation at the annual rate of .50% of the average net assets of
the International Equity Fund, reduced to .40% on assets in excess of $100
million. The $100 million break point for fees paid to Templeton Counsel is
based on the aggregate assets of the International Equity Fund and the
International Equity Portfolio of the Series Fund. NMIS accrued $112,335 of
investment advisory fees payable to Templeton Counsel with respect to the
International Equity Fund for the fiscal year ended March 31, 1998.
J.P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), 522 Fifth
Avenue, New York, New York 10036, provides investment advisory services to the
Growth and Income Stock Fund, pursuant to an investment sub-advisory agreement.
For the services provided, NMIS pays J.P. Morgan Investment a fee at the annual
rate of .45% on the first $100 million of the Fund's assets, .40% on the next
$100 million, .35% on the next $200 million and .30% on assets in excess of $400
million. The break points for fees paid to J.P. Morgan Investment are based on
the aggregate assets of the Growth and Income Stock Fund and the Growth and
Income Stock Portfolio of the Series Fund. NMIS accrued $124,370 of investment
advisory fees payable to J.P. Morgan Investment with respect to the Growth and
Income Stock Fund for the fiscal year ended March 31, 1998.
J.P. Morgan Investment is an investment manager for corporate, public, and union
employee benefit funds, foundations, endowments, insurance companies, government
agencies and the accounts of other institutional investors. A wholly owned
subsidiary of J.P. Morgan & Co. Inc., J.P. Morgan Investment was incorporated in
the state of Delaware on February 7, 1984 and commenced operations on July 2,
1984. It was formed from the Institutional Investment Group of Morgan Guaranty
Trust Company of New York, also a subsidiary of J.P. Morgan & Co. Inc.
Morgan acquired its first tax-exempt client in 1913 and its first pension
account in 1940. Assets under management have grown to over $180 billion. With
offices in London and Singapore, J.P. Morgan Investment draws from a worldwide
resources base to provide comprehensive service to an international group of
clients. Investment management activities in Japan, Australia, and Germany are
carried out by affiliates, Morgan Trust Bank in Tokyo, J.P. Morgan Investment
Management Australia Limited in Melbourne, and J.P. Morgan Investment GmbH in
Frankfurt.
J.P. Morgan Investment currently provides investment advisory services to the
following investment companies: the J.P. Morgan Treasury Money Market
Portfolio, the J.P. Morgan Bond Portfolio, the J.P. Morgan Equity Portfolio, the
J.P. Morgan Small Company Portfolio, and the J.P. Morgan International
Opportunity Portfolio, which are portfolios of the J.P. Morgan Series Trust II,
an open-end diversified investment company registered under the Investment
Company Act of 1940. J.P. Morgan Investment also acts as the subadviser to the
following U.S. registered investment companies which are otherwise unaffiliated
with J.P. Morgan Investments: Advantus Series Fund, Inc. - Macro-Cap Value
Portfolio, American Century - Benham International Bond Fund, American Skandia
Master Trust - ASMT JPM Money Market Portfolio, American Skandia Trust - AST
Money Market Portfolio, COVA Series Trust - International Equity Portfolio, COVA
Series Trust - Large Capital Stock Portfolio, COVA Series Trust - Quality Bond
Portfolio, COVA Series Trust - Select Equity Portfolio, COVA Series Trust -
Small Capital Stock Portfolio, Endeavor Series Trust - Enhanced Index Portfolio,
EQ Advisors Trust - JPM Core Bond Portfolio, Frank Russell Emerging Markets
Fund, Frank Russell Equity Q Fund, Frank Russell Equity T Fund, Frank Russell
International Fund, Frank Russell International Securities Fund, Frank Russell
Quantitative Equity Fund, Jefferson Pilot Variable Fund, Inc. - Balanced
Portfolio, JNL Series Trust - JNL/JPM International & Emerging Markets Series,
John Hancock Variable Series Trust I - Strategic Bond Portfolio, Liberty ALL-
STAR Equity Fund, Liberty ALL-STAR Equity Fund Variable Series, Manufacturers
Investment Trust - International Growth and Income Trust, Mason Street Funds,
Inc. - Growth and Income Stock Fund, Mutual Investment Fund of Connecticut,
Nationwide Separate Account Trust - Nationwide Global Equity Fund, North
American Funds - International Growth and Income Fund, Northwestern Mutual
Series Fund, Inc. - Growth and Income Stock Portfolio, Pacific Select Fund - The
Equity Income Portfolio, Pacific Select Fund - The Multi-Strategy Portfolio,
Phoenix Edge Series Fund - JPM Research Enhanced Index Series, Preferred Fixed
Income Fund, Preferred Money Market Fund, Preferred Short-Term Government
Securities Fund, Sierra Trust Funds - Global Money Fund, Sierra Trust Funds -
Growth and Income Fund, The Sierra Variable Trust - Global Money Fund, The
Sierra Variable Trust - Growth and Income Fund, Tridan Corporation, WRL Series
Fund, Inc. - Money Market Portfolio.
Northwestern Mutual Life is the licensee under a License Agreement with Standard
& Poor's, dated as of November 30, 1990, as amended, relating to MSF as well as
certain other mutual funds sponsored by Northwestern Mutual Life. The following
disclaimers and limitations are included in accordance with the requirements of
the License Agreement:
MSF is not sponsored, endorsed, sold or promoted by Standard & Poor's
("S&P"), a division of McGraw-Hill, Inc. Corporation, and none of the
Funds of MSF is so sponsored, endorsed, sold or promoted. S&P makes
no representation or warranty, express or implied, to the owners of
MSF or any of its Funds or any member of the public regarding the
advisability of investing in securities generally or in MSF or any of
its Funds particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship to the
Licensee is the licensing of certain trademarks and trade names of S&P
and of the S&P 500 Index which is determined, composed and calculated
by S&P without regard to the Licensee or MSF. S&P has no obligation
to take the needs of the Licensee or the owners of MSF or any of its
Funds into consideration in determining, composing or calculating the
S&P 500 Index. S&P is not responsible for and has not participated in
the determination of the timing of, prices of, or quantities of
securities of MSF or any of its Funds to be issued or in the
determination or calculation of the equation by which MSF or any of
its Funds is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading
of MSF.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, OWNERS OF MSF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES
OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 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.
FUND EXPENSES
EXPENSES OF THE FUNDS. Each Fund pays its own expenses including, without
limitation: (i) expenses of maintaining the Fund and continuing its existence,
(ii) registration of the Fund under the Investment Company Act, (iii) auditing
and outside professional expenses, (iv) taxes and interest, (v) governmental
fees, (vi) expenses of issue, sale, repurchase and redemption of Fund shares,
(vii) expenses of registering and qualifying the Fund and its shares under
federal and state securities laws and of preparing and printing prospectuses for
such purposes and for distributing the same to shareholders and investors,
(viii) expenses of reports and notices to shareholders and of meetings of
shareholders and proxy solicitations therefor (ix) expenses of reports to
governmental officers and commissions, (x) insurance expenses, (xi)
association membership dues, (xii) fees, expenses and disbursements of
custodians for all services to the Fund, (xiii) expenses for servicing
shareholder accounts, including transfer agent fees (xiv) fees paid to pricing
services for the pricing of Fund securities, (xv) fees paid to the Funds'
administrator under an administrative services agreement, (xvi) fees paid for
accounting services, (xvii) fees paid to S&P under the License Agreement,
(xviii) fees paid to the directors of MSF for their services to MSF and the
Funds, (xix) broker's commissions and issue and transfer taxes chargeable to the
Fund in connection with securities transactions to which the Fund is a party,
(xx) organizational expenses of MSF and the Funds, (xxi) any direct charges to
shareholders approved by the Directors of MSF who are not "interested persons"
of MSF, and (xxii) such nonrecurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of MSF to indemnify its Directors and officers with respect thereto.
DISTRIBUTION ARRANGEMENTS
Robert W. Baird & Co., Inc. ("RWB") serves as the principal underwriter
for each Fund pursuant to an Underwriting Agreement initially approved by the
Board of Directors of MSF. RWB is a registered broker-dealer, a member of the
National Association of Securities Dealers, Inc. (NASD) and a member of the New
York Stock Exchange and other principal stock exchanges. Shares of each Fund
will be continuously offered and will be sold by registered representatives of
RWB. RWB receives sales charges and distribution plan fees of each Fund under
the Underwriting Agreement. RWB bears all the expenses of providing services
pursuant to the Underwriting Agreement including the payment of the expenses
relating to the distribution of Prospectuses for sales purposes as well as any
advertising or sales literature. The Fund bears the expenses of registering its
shares with the SEC and paying the fees required to be paid by state regulatory
authorities. The Underwriting Agreement continues in effect for two years from
initial approval and for successive one-year periods thereafter, provided that
each such continuance is specifically approved (i) by vote of a majority of the
Directors of MSF, including a majority of the Directors who are not parties to
the Underwriting Agreement or interested persons of any such party, (as the term
interested person is defined in the 1940 Act); or (ii) by the vote of a majority
of the outstanding voting securities of a Fund. RWB Is not obligated to sell
any specific amount of shares of any Fund.
For fiscal year ended March 31, 1998, RWB received $464,560 for its
services as principal underwriter for the Fund. Of this amount, RWB retained
$167,079. Compensation on redemptions paid to RWB was $6,428. Brokerage
commissions paid to RWB by the Fund were $1,053. Because MSF commenced
operations on March 31, 1997, no compensation was paid to RWB prior to that date
in connection with the Funds.
RWB's principal business address and mailing address is at 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. RWB was organized as a Wisconsin
corporation on December 27, 1919, and is an indirect majority-owned subsidiary
of The Northwestern Mutual Life Insurance Company.
DISTRIBUTION FINANCING PLANS AND SHAREHOLDER SERVICES AGREEMENT
MSF has adopted separate distribution plans (the "Plans") for Class A and
Class B shares of each Fund pursuant to appropriate resolutions of MSF's Board
of Directors in accordance with the requirements of Rule 12b-1 under the 1940
Act and the requirements of the applicable rule of the NASD regarding asset
based sales charges. MSF has also entered into a shareholder services agreement
with RWB for both Class A and Class B shares of each Fund.
CLASS A PLAN AND AGREEMENT
Pursuant to the Class A Plan, a Fund may compensate RWB for its
expenditures in financing any activity primarily intended to result in the sale
of Fund shares. The expenses of a Fund pursuant to the Class A Plan are accrued
on a fiscal year basis and may not exceed, with respect to the Class A shares of
each Fund, the annual rate of 0.10% of the Fund's average daily net assets
attributable to Class A shares. All or any portion of this fee may be remitted
to brokers who provide distribution services.
The Funds will also compensate RWB under the Shareholder Services Agreement
for maintenance and personal service provided to existing Class A shareholders.
The expenses of a Fund under the Shareholder Services Agreement are accrued on a
fiscal year basis and will equal 0.25% of the Fund's average daily net assets
attributable to Class A shares. All or any portion of this fee may be remitted
to brokers who provide shareholder account services.
CLASS B PLAN AND AGREEMENT
Pursuant to the Class B Plan, a Fund may pay RWB a fee of up to 0.75% of
the average daily net assets attributable to Class B shares for distribution
financing activities. All or any portion of such fees may be remitted to
brokers who assist in the distribution of Class B shares.
The purpose of the 0.75% fee representing distribution payments to RWB under the
Class B Plan is to compensate RWB for its distribution services to the Funds.
RWB pays commissions to registered representatives as well as reimbursement of
expenses of printing prospectuses and reports used for sales purposes, expenses
with respect to the preparation and printing of sales literature and other
distribution related expenses, including without limitation, the cost necessary
to provide distribution-related services, or personnel, travel, office expenses
and equipment.
The Funds will compensate RWB under the Shareholder Services Agreement for
shareholder account services at the rate of .25% of the average daily net assets
of the Fund attributable to Class B shares. All or any portion of such fees may
be remitted to brokers who provide maintenance and personal services to existing
Class B shareholders.
GENERAL
In accordance with the terms of the Plans, RWB provides to each Fund, for review
by MSF's Board of Directors, a quarterly written report of the amounts expended
under the respective Plans and the purpose for which such expenditures were
made. In the Board of Directors' quarterly review of the Plans, they will
review the level of compensation the Plans provide in considering the continued
appropriateness of the Plans.
The Plans were adopted by a majority vote of the Board of Directors,
including at least a majority of Directors who are not, and were not at the time
they voted, interested persons of the Fund as defined in the 1940 Act and do not
and did not have any direct or indirect financial interest in the operation of
the Plans, cast in person at a meeting called for the purpose of voting on the
Plans. In approving the Plans, the Directors identified and considered a number
of potential benefits which the Plans may provide. The Board of Directors
believes that there is a reasonable likelihood that the Plans will benefit each
Fund and its current and future shareholders. Under their terms, the Plans
remain in effect from year to year provided such continuance is approved
annually by vote of the Directors in the manner described above. The Plans may
not be amended to increase materially the amount to be spent for distribution
without approval of the sharholders of the Fund affected thereby, and material
amendments to the Plans must also be approved by the Board of Directors in the
manner described above. A Plan may be terminated at any time, without payment
of any penalty, by vote of the majority of the Directors who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operations of the Plan, or by a vote of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Fund affected thereby. A Plan
will automatically terminate in the event of its assignment (as defined in the
1940 Act).
MSF paid distribution plan fees of $256,726 in its fiscal year ended March 31,
1998. This amount was net of $50,602 of such fees waived under the expense
limitation agreement described in MSF's prospectus. The reimbursable
distribution expenses incurred in the fiscal year ended March 31, 1998 were as
follows: advertising in the amount of $676,871; prospectuses to new shareholders
in the amount of $43,185; commissions in the amount of $229,596; and marketing
salaries in the amount of $1,324,587.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION AND OTHER PRACTICES
There is generally no stated commission in the case of fixed-income securities,
which are traded in the over-the-counter markets, but the price paid by the
Funds usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Funds includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Funds of negotiated brokerage commissions. Such commissions vary among
different brokers. Also, a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction. In the
case of securities traded on some foreign stock exchanges, brokerage commissions
may be fixed and the investment adviser or sub-adviser may be unable to
negotiate commission rates for these transactions.
The investment adviser, or sub-adviser in the case of the Growth and Income
Stock and International Equity Funds, places all orders for the purchase and
sale of Fund securities, options, and futures contracts for each Fund through a
substantial number of brokers and dealers or futures commission merchants. In
executing transactions, the investment adviser or sub-adviser will attempt to
obtain the best net results for the Funds, taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of the transaction,
the reputation, experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution and
operational facilities of the firms involved, and the firm's risk in positioning
a block of securities. In transactions on stock exchanges in the United States,
payments of brokerage commissions are negotiated. In effecting purchases and
sales of portfolio securities in transactions on United States stock exchanges
for the account of the Funds, the investment adviser or sub-adviser may pay
higher commission rates than the lowest available when the investment adviser or
sub-adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded on some
foreign stock exchanges, brokerage commissions may be fixed and the investment
adviser or sub-adviser may be unable to negotiate commission rates for these
transactions. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price includes an undisclosed
commission or markup.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the investment adviser or sub-adviser. If a
purchase or sale of securities consistent with the investment policies of a Fund
and one or more of these clients served by the investment adviser or sub-adviser
is considered at or about the same time, transactions in such securities will be
allocated among the Funds and clients in a manner deemed fair and reasonable by
the investment adviser or sub-adviser. Although there is no specified formula
for allocating such transactions, the various allocation methods used by the
investment adviser or sub-adviser, and the results of such allocations, are
subject to periodic review by the Funds' investment adviser and directors.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research services from broker-dealers which execute transactions for the
clients of such advisers. Consistent with this practice, the investment adviser
or sub-adviser may receive research services from many broker-dealers with which
the investment adviser or sub-adviser places Fund transactions. These services,
which in some cases may also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the investment adviser or
sub-adviser in advising its various clients (including the Funds), although not
all of these services are necessarily useful and of value in managing a Fund.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
investment adviser or sub-adviser may cause a Fund to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the Act) to the
investment adviser or sub-adviser, an amount of disclosed commission for
effecting a securities transaction for the Fund in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
There are no arrangements whatsoever, written or oral, relating to the
allocation to specific brokers of orders for Fund transactions. Consideration
is given to those firms providing statistical and research services to the
investment adviser or sub-adviser. Statistical and research services furnished
by brokers typically include: analysts' reports on companies and industries,
market forecasts, economic analyses and the like. Such services may tend to
reduce the expenses of the adviser or sub-adviser and this has been considered
in setting the advisory fee paid by each Fund.
Because MSF commenced operations on March 31, 1997, brokerage commissions were
paid only for the fiscal year ended March 31, 1998, in the amount of $386,043.
During the fiscal year ended March 31, 1998, the Fund paid $1,053 in commissions
to RWB. This represents .3% of aggregate brokerage commissions paid during the
fiscal year and .2% of aggregate Fund transactions.
DETERMINATION OF NET ASSET VALUE
Shares of each Fund are offered and redeemed at their net asset value as next
determined following receipt of a purchase order or tender for redemption. The
redemption price may be more or less than the shareholder's cost. The net asset
value of the shares of each Fund, except the International Equity Fund, is
determined by The Northwestern Mutual Life Insurance Company ("NML"), the Funds'
Administrator, in the manner described in the Funds' Prospectus. The net asset
value of the shares of the International Equity Fund is determined by Brown
Brothers Harriman & Co., the Fund's custodian. The Funds will be closed for
business and will not price their shares on the following business holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The net asset value of each share of each Fund is the net asset value of the
entire Fund divided by the number of shares of the Fund outstanding. The net
asset value of an entire Fund is determined by computing the value of all assets
of the Fund and deducting all liabilities, including reserves and accrued
liabilities of the Fund. Fund securities for which market quotations are
readily available are valued at current market value.
Equity securities listed on a stock exchange and all call options are valued at
the closing sale price on the stock or options exchange or, if there has been no
such sale, at the closing bid price; stock index futures contracts and interest
rate futures contracts are valued at the closing settlement price on the
commodities exchange; unlisted equity securities are valued at the closing bid
price on the over-the-counter market.
Debt securities with maturities generally exceeding one year, other than
municipal obligations, are valued on the basis of valuations furnished by
Interactive Data Corporation, a facility which utilizes electronic data
processing techniques to report valuations for normal institutional size trading
units of debt securities, without regard to exchange or over-the-counter prices,
unless the Directors of MSF determine that in the case of a particular security
some other value is fair. JJ Kenny furnishes the valuations for the municipal
obligations held by the Municipal Bond Fund.
Money market instruments and debt securities with maturities exceeding sixty
days but generally not exceeding one year are valued by marking to market.
Marking to market is based on valuations furnished by a pricing service. The
marking to market method takes into account unrealized appreciation or
depreciation due to changes in interest rates or other factors which would
influence the current fair values of such securities.
Securities with remaining maturities of sixty days or less are valued on an
amortized cost basis or, if the current market value differs substantially from
the amortized cost, by marking to market. Under the amortized cost method of
valuation, the security will initially be valued at the cost on the date of
purchase (or, in the case of securities purchased with more than 60 days
remaining to maturity the market value on the 61st day prior to maturity); and
thereafter the Fund will assume a constant proportionate amortization in value
until maturity of any discount or premium.
The value of a foreign security held by a Fund is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded, or as of 4:00 p.m., New York time, if that is earlier, and that value is
then converted into its U.S. dollar equivalent at foreign exchange rates in
effect at 11:00 a.m., New York time, on the day the value of the foreign
security is determined. If no sale is reported at that time, the mean between
the current bid and asked price is used. Occasionally, events which affect the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the New York Stock Exchange, and will
therefore not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at fair value as determined by the
management and approved in good faith by the Directors of MSF. Trading in
securities on European and Far Eastern securities exchanges and over-the-counter
markets is normally completed well before the close of business in New York on
each day on which the New York Stock Exchange is open. Trading in European or
Far Eastern securities generally, or in a particular country or countries, may
not take place on every New York business day. Furthermore, trading takes place
in various foreign markets on days which are not business days in New York and
on which the Fund's net asset value is not calculated. Each Fund calculates net
asset value per share, and therefore effects sales and redemptions of its
shares, as of the close of the New York Stock Exchange once on each day on which
that Exchange is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the Fund securities used in such
calculation and if events occur which materially affect the value of these
foreign securities, they will be valued at fair market value as determined by
the management and approved in good faith by the Directors of MSF.
All other assets, including any securities for which market quotations are not
readily available, will be valued at their fair value as determined in good
faith by the Directors of MSF or under procedures or guidelines established by
the Directors of MSF. The net asset value is determined as of the close of
trading on the New York Stock Exchange on each day during which the Exchange is
open for trading. In accordance with the requirements of the Investment Company
Act of 1940 the Funds will also determine the net asset value of their shares on
any other day on which there is sufficient trading to materially affect the
value of their securities.
A Fund's maximum offering price per Class A share is determined by adding the
maximum sales charge to the net asset value per share. Class B shares are
offered at net asset value without the imposition of an initial sales charge.
Payment for the shares redeemed must be made within seven days after the
evidence of ownership of such shares is tendered to MSF; however, the right to
redeem Fund shares may be suspended, or payment of the redemption value
postponed, during any period in which the New York Stock Exchange is closed or
trading thereon is restricted, or any period during which an emergency exists,
or as otherwise permitted by the Investment Company Act of 1940.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of Fund shares, see "Shareholders Guide--
How to Buy Shares" in the Funds' Prospectus.
For a description of how a shareholder may have a Fund redeem his/her shares, or
how he/she may sell shares, see "Shareholders Guide--How to Sell Shares" in the
Funds' Prospectus.
CUMULATIVE DISCOUNT. Each Fund offers to all qualifying investors a cumulative
discount under which investors are permitted to purchase Class A shares of any
Fund of MSF at the price applicable to the total of (a) the dollar amount then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's holdings of shares of any Funds of MSF and the SSGA Money Market
Fund. Acceptance of the purchase order is subject to confirmation of
qualification. The cumulative discount may be amended or terminated at any time
as to subsequent purchases.
LETTER OF INTENT. Any person may qualify for a reduced sales charge on
purchases of Class A shares made within a thirteen-month period pursuant to a
Letter of Intent (LOI). A Class A shareholder may include, as an accumulation
credit towards the completion of such LOI, the value of all shares of
all Funds of MSF owned by the shareholder. Such value is determined based on
the public offering price on the date of the LOI. During the term of an LOI,
National Financial Data Services, Inc. ("NFDS"), MSF's transfer agent, will hold
shares in escrow to secure payment of the higher sales charge applicable for
shares actually purchased if the indicated amount on the LOI is not purchased.
Dividends and capital gains will be paid on all escrowed shares and these shares
will be released when the amount indicated on the LOI has been purchased. An
LOI does not obligate the investor to buy or the Fund to sell the indicated
amount in the LOI. If a Class A shareholder exceeds the specified amount of the
LOI and reaches an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made at the time of the expiration of the
LOI. The resulting difference in offering price will purchase additional Class
A shares for the shareholder's account at the applicable offering price. If the
specified amount of the LOI is not purchased, the shareholder shall remit to
NFDS an amount equal to the difference between the sales charge paid and the
sales charge that would have been paid had the aggregate purchases been made at
a single time. If the Class A shareholder does not within twenty days after a
written request by NFDS pay such difference in sales charge, NFDS will redeem an
appropriate number of escrowed shares in order to realize such difference.
Additional information about the terms of the Letter of Intent are available
from your registered representative or from NFDS at 1-888-626-6678.
SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan ("SWP") is designed
to provide a convenient method of receiving fixed payments at regular intervals
from shares deposited by the applicant under the SWP. The applicant must
deposit or purchase for deposit shares of the Fund having a total value of not
less than $10,000. Periodic checks of $100 or more will be sent to the
applicant, or any person designated by him, monthly or quarterly. SWP's without
a surrender charge for Class B shares of a Fund are permitted only for
redemptions limited to no more than 10% of the original value of the account per
year.
Any income dividends or capital gains distributions on shares under the SWP will
be credited to the SWP account on the payment date in full and fractional shares
at the net asset value per share in effect on the record date.
SWP payments are made from the proceeds of the redemption of shares
deposited in a SWP account. Redemptions are potentially taxable transactions to
shareholders. To the extent that such redemptions for periodic withdrawals
exceed dividend income reinvested in the SWP account, such redemptions will
reduce and may ultimately exhaust the number of shares deposited in the SWP
account. In addition, the amounts received by a shareholder cannot be
considered as an actual yield or income on his or her investment because part of
such payments may be a return of his or her capital.
The SWP may be terminated at any time (1) by written notice to the Fund or from
the Fund to the shareholder; (2) upon receipt by the Fund of appropriate
evidence of the shareholder's death; or (3) when all shares under the SWP have
been redeemed. The fees of the Fund for maintaining SWPs are paid by the Fund.
SPECIAL REDEMPTIONS. Although it would not normally do so, each Fund has the
right to pay the redemption price of shares of the Fund in whole or in part in
portfolio securities as prescribed by the Directors. When the shareholder sells
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the applicable Fund during any 90 day
period for any one account.
SUSPENSION OF REDEMPTIONS. A Fund may not suspend a shareholder's right of
redemption, or postpone payment for a redemption for more than seven days,
unless the New York Stock Exchange (NYSE) is closed for other than customary
weekends or holidays, or trading on the NYSE is restricted, or for any period
during which an emergency exists as a result of which (1) disposal by a Fund of
securities owned by it is not reasonably practicable, or (2) it is not
reasonably practicable for a Fund to fairly determine the value of its assets,
or for such other periods as the Securities and Exchange Commission may permit
for the protection of investors.
The total offering price per share for each Fund is computed as follows:
SPECIMEN PRICE-MAKE-UP SHEET
(as of March 31, 1998)
AGGRESSIVE INTERNATIONAL GROWTH GROWTH AND
GROWTH STOCK EQUITY STOCK INCOME STOCK
FUND FUND FUND FUND
(CLASS A) (CLASS A) (CLASS A) (CLASS A)
------------ ------------- ---------- -------------
NET ASSETS $41,640,193 $29,451,833 $38,224,386 $37,800,412
NUMBER OF SHARES
OUTSTANDING $ 2,871,235 $ 2,783,288 $ 2,711,768 $ 3,038,315
NET ASSET VALUE
PER SHARE
(NET ASSETS /
NUMBER OF SHARES
(OUTSTANDING) $14.50 $10.58 $14.10 $12.44
OFFERING PRICE
PER SHARE $15.22 $11.11 $14.80 $13.06
REDEMPTION PRICE
PER SHARE $14.50 $10.58 $14.10 $12.44
ASSET SELECT
INDEX 500 ALLOCATION HIGH YIELD MUNICIPAL BOND
STOCK FUND FUND BOND FUND BOND FUND FUND
(CLASS A) (CLASS A) (CLASS A) (CLASS A) (CLASS A)
----------- ------------ ---------- ------------ -----------
NET ASSETS $43,567,584 $34,564,169 $32,811,316 $28,172,205 $28,617,421
NUMBER OF SHARES
OUTSTANDING $ 3,019,915 $ 2,806,418 $ 3,041,500 $ 2,671,175 $ 2,868,849
NET ASSET VALUE
PER SHARE
(NET ASSETS /
NUMBER OF SHARES
OUTSTANDING) $14.43 $12.32 $10.79 $10.55 $9.98
OFFERING PRICE
PER SHARE $15.15 $12.93 $11.33 $11.08 $10.48
REDEMPTION PRICE
PER SHARE $14.43 $12.32 $10.79 $10.55 $9.98
AGGRESSIVE INTERNATIONAL GROWTH GROWTH AND
GROWTH STOCK EQUITY STOCK INCOME STOCK
FUND FUND FUND FUND
(CLASS B) (CLASS B) (CLASS B) (CLASS B)
------------ ------------- ---------- -------------
NET ASSETS $1,870,132 $1,444,924 $811,173 $1,529,206
NUMBER OF SHARES
OUTSTANDING $129,572 $137,166 $57,827 $123,596
NET ASSET VALUE
PER SHARE
(NET ASSETS /
NUMBER OF SHARES
(OUTSTANDING) $14.43 $10.53 $14.03 $12.37
OFFERING AND
REDEMPTION
PRICE PER SHARE $14.43 $10.53 $14.03 $12.37
ASSET SELECT
INDEX 500 ALLOCATION HIGH YIELD MUNICIPAL BOND
STOCK FUND FUND BOND FUND BOND FUND FUND
(CLASS B) (CLASS B) (CLASS B) (CLASS B) (CLASS B)
----------- ------------ ---------- ------------ -----------
NET ASSETS $4,246,552 $1,569,081 $1,360,925 $472,387 $ 643,332
NUMBER OF SHARES
OUTSTANDING 295,930 128,027 126,169 44,790 64,493
NET ASSET VALUE
PER SHARE
(NET ASSETS /
NUMBER OF SHARES
OUTSTANDING) $14.35 $12.26 $10.79 $10.55 $9.98
OFFERING AND
REDEMPTION PRICE
PER SHARE $14.35 $12.26 $10.79 $10.55 $9.98
Payment for the shares redeemed must be made within seven days after the
evidence of ownership of such shares is tendered to the Fund; however, the right
to redeem Fund shares may be suspended, or payment of the redemption value
postponed, during any period in which the New York Stock Exchange is closed or
trading thereon is restricted, or any period during which an emergency exists,
or as otherwise permitted by the Investment Company Act of 1940.
INVESTMENT PERFORMANCE
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Average annual total
return quotations for Class A and Class B shares are computed by finding the
average annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000, less the
maximum sales load applicable to a Fund
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000
initial payment made at the beginning of the
designated period (or fractional portion thereof)
The computation above assumes that all dividends and distributions made by a
Fund are reinvested at net asset value during the designated period. The
average annual total return quotation is determined to the nearest 1/100 of 1%.
One of the primary methods used to measure performance is "total return."
"Total return" will normally represent the percentage change in value of a class
of a Fund, or of a hypothetical investment in a class of a Fund, over any period
up to the lifetime of the class. Unless otherwise indicated, total return
calculations will assume the deduction of the maximum sales charge and usually
assume the reinvestment of all dividends and capital gains distributions and
will be expressed as a percentage increase or decrease from an initial value,
for the entire period or for one or more specified periods within the entire
period. Total return calculations that do not reflect the deduction of sales
charges will be higher than those that do reflect such charges.
Total return percentages for periods longer than one year will usually be
accompanied by total return percentages for each year within the period and/or
by the average annual compounded total return for the period. The income and
capital components of a given return may be separated and portrayed in a variety
of ways in order to illustrate their relative significance. Performance may
also be portrayed in terms of cash or investment values, without percentages.
Past performance cannot guarantee any particular future result. In determining
the average annual total return (calculated as provided above), recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account, the
account fee used for purposes of the above computation is assumed to be the fee
that would be charged to the mean account size of a class of the Fund.
Each Fund's average annual total return quotations and yield quotations as
they may appear in the Prospectus, this SAI or in advertising are calculated by
standard methods prescribed by the SEC.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. A Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. A Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
A Fund's yield is calculated using a standardized formula, the income component
of which is computed from the yields to maturity of all debt obligations held by
the Fund based on prescribed methods (with all purchases and sales of securities
during such period included in the income calculation on a settlement date
basis), whereas the distribution rate is based on a Fund's last monthly
distribution.
Other data that may be advertised or published about each Fund include the
average portfolio quality, the average portfolio maturity and the average
portfolio duration.
STANDARDIZED YIELD QUOTATIONS. The yield of a class is computed by dividing the
class's net investment income per share during a base period of 30 days, or one
month, by the maximum offering price per share of the class on the last day of
such base period in accordance with the following formula:
6
2[(a-b +1) -1]
---
(cd)
Where: a = net investment income earned during the period
attributable to the subject class
b = net expenses accrued for the period attributable to the
subject class
c = the average daily number of shares of the subject class
outstanding during the period that were entitled to receive
dividends
d = the maximum offering price per share of the subject class
Net investment income will be determined in accordance with rules established by
the SEC. The price per share of Class A shares will include the maximum sales
charge imposed on purchases of Class A shares which decreases with the amount of
shares purchased.
The bond Fund yields for the 30-day period ended March 31, 1998, were as
follows:
Municipal Bond Fund
Class A 3.79%
Class B 3.33%
Select Bond Fund
Class A 6.87%
Class B 6.56%
High Yield Bond Fund
Class A 9.00%
Class B 8.76%
The tax equivalent yield for the Municipal Bond Fund for the 30-day period ended
March 31, 1998, was 5.49% for Class A shares and 4.83% for Class B shares,
assuming a 31% income tax rate.
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely
represent a Fund's performance or more accurately compare such performance to
other measures of investment return, a Fund also may include in advertisements,
sales literature and shareholder reports other total return performance data
("Non-Standardized Return"). Non-Standardized Return may be quoted for the same
or different periods as those for which Standardized Return is quoted; it may
consist of an aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof. Non-Standardized Return may or
may not take sales charges into account; performance data calculated without
taking the effect of sales charges into account will be higher than data
including the effect of such charges. All non-standardized performance will be
advertised only if the standard performance data for the same period, as well as
for the required periods, is also presented.
GENERAL INFORMATION. From time to time, the Funds may advertise their
performance compared to similar funds using certain unmanaged indices, reporting
services and publications. Descriptions of some of the indices which may be
used are listed below.
The Standard & Poor's 500 Composite Stock Price Index is a well diversified list
of 500 companies representing the U.S. Stock Market.
The Standard and Poor's Small Cap 600 index is designed to represent price
movements in the small cap U.S. equity market. It contains companies chosen by
the Standard & Poor's Index Committee for their size, industry characteristics,
and liquidity. None of the companies in the S&P 600 overlap with the S&P 500 or
the S&P 400 (MidCap Index). The S&P 600 is weighted by market capitalization.
REITs are not eligible for inclusion.
The NASDAQ Composite OTC Price Index is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of approximately 3,500
stocks.
The Wilshire Next 1750 is an unmanaged, equally weighted index. Included in
this index are those stocks which are ranked 750 to 2500 by market
capitalization in the Wilshire 5000.
The Wilshire Small Cap Index is a subset of the Wilshire Next 1750 and includes
250 stocks chosen based upon their size, sector and liquidity characteristics.
Each stock is equally weighted in this unmanaged index.
The Merrill Lynch Domestic Master Index is an unmanaged market value weighted
index comprised of U.S. Government, mortgage and investment-grade corporate
bonds. The index measures the income provided by, and the price changes of, the
underlying securities.
The Lehman Government Bond Index is a measure of the market value of all public
obligations of the U.S. Treasury; all publicly issued debt of all agencies of
the U.S. Government and all quasi-federal corporations; and all corporate debt
guaranteed by the U.S. Government. Mortgage backed securities, bonds and
foreign targeted issues are not included in the Lehman Government Index.
The Lehman Government/Corporate Bond Index is a measure of the market value of
approximately 5,300 bonds with a face value currently in excess of $1.3
trillion. To be included in the Lehman Government/Corporate Index, an issue
must have amounts outstanding in excess of $1 million, have at least one year to
maturity and be rated "Baa" or higher ("investment grade") by a nationally
recognized rating agency.
The Russell 2000 Index represents the bottom two thirds of the largest 3000
publicly traded companies domiciled in the U.S. Russell uses total market
capitalization to sort its universe to determine the companies that are included
in the Index. Only common stocks are included in the Index. REITs are eligible
for inclusion.
The Russell 2500 Index is a market value-weighted, unmanaged index showing total
return (i.e., principal changes with income) in the aggregate market value of
2,500 stocks of publicly traded companies domiciled in the United States. The
Index includes stocks traded on the New York Stock Exchange and the American
Stock Exchange as well as in the over-the-counter market.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand and the Far East. The EAFE Index is
typically shown weighted by market capitalization. However, EAFE is also
available weighted by Gross Domestic Product (GDP). These weights are modified
on July lst of each year to reflect the prior year's GDP. Indices with
dividends reinvested constitute an estimate of total return arrived at by
reinvesting one twelfth of the month-end yield at every month end. The series
with net dividends reinvested take into account those dividends net of
withholding taxes retained at the source of payment.
The Salomon Brothers High Yield Market Index includes cash-pay and deferred-
interest corporate bonds with remaining maturities of at least one year. All
bonds in the index are publicly placed, have a fixed coupon and are non-
convertible. The index is an unmanaged market value weighted index and measures
the income provided by, and the price changes of, the underlying securities.
The Lehman Brothers High Yield Intermediate Market Index is made up of dollar
denominated, nonconvertible, SEC publicly registered fixed rate noninvestment
grade issues. The bonds have remaining maturities of between one and ten years
and have an outstanding par value of at least $100 million. The index is an
unmanaged market value weighted index and measures the income provided by, and
the price changes of, the underlying securities.
The Lehman Brothers Municipal Bond Index includes municipal bonds that have: a
minimum credit rating of Baa; been issued as part of an issuance of at least $50
million; a maturity value of at least $3 million; a maturity of at least 1 year;
and been issued after December 31, 1990. Recently the index included 31,098
issues totaling $440 billion par amount. The index represents approximately 30%
of the municipal bond market capitalization.
Each Fund's investment performance may be advertised in various financial
publications, newspapers and magazines.
From time to time MSF may publish the sales of shares of one or more of the
Funds on a gross or net basis and for various periods of time, and compare such
sales with sales similarly reported by other investment companies.
TAXES
Each Fund is treated as a separate entity for accounting and tax purposes. Each
Fund has qualified and elected or intends to qualify and elect to be treated as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), and intends to continue to so qualify in the
future. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions, and the
diversification of its assets, each Fund will not be subject to federal income
tax on taxable income (including net short-term and long-term capital gains)
which is distributed to shareholders at least annually in accordance with the
timing requirements of the Code.
Each Fund will be subject to a 4% non-deductible federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Funds
intend under normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
If a Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), that Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the applicable Fund to
recognize taxable income or gain without the concurrent receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to a Fund's investment in stock or
securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, and could under future Treasury
regulations produce income not among the types of "qualifying income" from
which the Fund must derive at least 90% of its annual gross income.
Some Funds may be subject to withholding and other taxes imposed by foreign
countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. The Funds, other than the International Equity Fund, anticipate that
they generally will not qualify to pass such foreign taxes and any associated
tax deductions or credits through to their shareholders, who therefore generally
will not report such amounts on their tax returns.
For Federal income tax purposes, each Fund is permitted to carry forward a net
capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in federal income tax
liability to the applicable Fund and would not be distributed as such to
shareholders.
Each Fund that invests in certain PIKs, zero coupon securities or certain
deferred interest securities (and, in general, any other securities with
original issue discount or with market discount if the Fund elects to include
market discount in income currently) must accrue income on such investments
prior to the receipt of the corresponding cash payments. However each Fund must
distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid federal income and excise taxes.
Therefore, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund that may hold such obligations. Tax rules are
not entirely clear about issues such as when the Fund may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by any Fund that may hold
such obligations in order to reduce the risk of distributing insufficient income
to preserve its status as a regulated investment company and seek to avoid
becoming subject to federal income or excise tax.
Limitations imposed by the Code on regulated investment companies like the Funds
may restrict a Fund's ability to enter into futures, options, and forward
transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a Fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of a
Fund's losses on its transactions involving options, futures or forward
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income.
Certain of the applicable tax rules may be modified if a Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
These transactions may therefore affect the amount, timing and character of a
Fund's distributions to shareholders. The Funds will take into account the
special tax rules (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The federal income tax rules applicable to interest rate swaps, caps and floors
are unclear in certain respects, and a Fund may be required to account for these
transactions in a manner that, in certain circumstances, may limit the degree to
which it may utilize these transactions.
Distributions from a Fund's current or accumulated earnings and profits ("E&P"),
as computed for federal income tax purposes, will be taxable as described in the
Funds' prospectus whether taken in shares or in cash. Distributions, if any, in
excess of E&P will constitute a return of capital, which will first reduce an
investor's tax basis in a Fund's shares and thereafter (after such basis is
reduced to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for federal income tax purposes in each share so received equal to
the amount of cash they would have received had they elected to receive the
distributions in cash, divided by the number of shares received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to realized or unrealized appreciation in
the Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions from such appreciation or income may be taxable to such
investor even if the net asset value of the investor's shares is, as a result of
the distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund, (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon shareholder's tax holding period for the
shares. A sales charge paid in purchasing shares of a Fund cannot be taken into
account for purposes of determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent shares of the
Fund are subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded load will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange will be disallowed to the
extent the shares disposed of are replaced with shares of the same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to an election to reinvest dividends or
capital gain distributions automatically. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon redemption of shares with a tax holding period of six months or
less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such shares.
For purposes of the dividends received deduction available to corporations,
dividends received by a Fund, if any, from U.S. domestic corporations in respect
of the stock of such corporations held by the- Fund, for federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
applicable Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability. Additionally,
any corporate shareholder should consult its tax adviser regarding the
possibility that its basis in its shares may be reduced, for federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
For the International Equity Fund, if more than 50% of the Fund's assets at
year-end consists of the debt and equity securities of foreign corporations, the
Fund may elect to permit shareholders to claim a credit or deduction on their
income tax returns for their pro rata portion of qualified taxes paid by the
Fund to foreign countries. In such a case, shareholders will include in gross
income from foreign sources their pro rata shares of such taxes. A
shareholder's ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by the Fund may be subject to certain limitations imposed by
the Code, as a result of which a shareholder may not get a full credit or
deduction for the amount of such taxes. Shareholders who do not itemize on
their federal income tax returns may claim a credit (but no deduction) for such
foreign taxes.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to shareholder accounts maintained as
qualified retirement plans. Shareholders should consult their tax advisers for
more information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of the shares of a Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in a Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from a Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in any Fund.
MUNICIPAL BOND FUND. The Municipal Bond Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of each
quarter of the Fund's taxable year, at least 50% of the total value of the
Fund's assets consists of obligations the interest on which is exempt from
federal income tax. Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest excludable from their
gross income for federal income tax purposes but may be taxable for federal
alternative minimum tax purposes and for state and local purposes. Because the
Fund intends to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions involving forward
commitments, repurchase agreements, financial futures, and options contracts on
financial futures, tax-exempt bond indices, and other assets.
The Fund uses the "average annual" method to determine the designated
percentage of dividends that qualifes as tax-exempt income. This designation is
made annually in January. The percentage of a particular dividend that is
designated as tax-exempt income may be substantially different from the
percentage of the Fund's income that was tax-exempt during the period from which
the distribution was made.
Part or all of the interest on indebtedness, if any, incurred or continued
by a shareholder to purchase or carry shares of the Municipal Bond Fund is not
deductible. The portion of interest that is not deductible is equal to the
total interest paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions from net long-
term capital gains) paid to the shareholder that are exempt-interest dividends.
Under rules used by the Internal Revenue Service for determining when borrowed
funds are considered used for the purpose of purchasing or carrying particular
assets, the purchase of shares may be considered to have been made with borrowed
funds even though such funds are not directly traceable to the purchase of the
shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or bonds or
who are "related persons" of such substantial users.
If a shareholder sells shares at a loss within six months of purchase, any
loss will be disallowed for Federal income tax purposes to the extent of any
exempt-interest dividends received on such shares.
STATE AND LOCAL. Each Fund may be subject to state or local taxes in
jurisdictions in which such Fund may be deemed to be doing business. In
addition, in those states or localities which have income tax laws, the
treatment of such Fund and its shareholders under such laws may differ from
their treatment under federal income tax laws, and investment in such Fund may
have different tax consequences for shareholders than would direct investment in
such Fund's portfolio securities. Shareholders should consult their own tax
advisers concerning these matters.
CUSTODIANS
Portfolio securities of each Fund are held pursuant to a Custodian Agreement
between MSF and the Fund's custodian. The custodian for the domestic securities
of the Growth and Income Stock Fund, High Yield Bond Fund and Municipal Bond
Fund is Bankers Trust Company, 16 Wall Street, New York, New York 10015. The
custodian for the domestic securities of the Aggressive Growth Stock Fund, the
Growth Stock Fund, the Index 500 Stock Fund, the Asset Allocation Fund and the
Select Bond Fund is the Chase Manhattan Bank, N.A., One Chase Manhattan Plaza,
New York, New York 10081. The custodian for the International Equity Fund and
any foreign assets of the Asset Allocation Fund, High Yield Bond Fund, Select
Bond Fund, Aggressive Growth Stock Fund and Growth Stock Fund is Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109. The custodians
maintain custody of securities and other assets of the respective Funds and
perform certain services in connection with the purchase, sale, exchange and
pledge of securities of the Funds.
TRANSFER AGENT SERVICES
National Financial Data Services, 1004 Baltimore, Kansas City, Missouri 64105,
is the transfer agent for each Fund.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500, Milwaukee,
Wisconsin 53202, is the independent public accountant of MSF and performs
auditing services for MSF.
FINANCIAL STATEMENTS
MSF's and each Fund's audited financial statements as of March 31, 1998,
together with the notes thereto and the report of Price Waterhouse LLP, are
attached to this SAI.
APPENDIX A
Description of Ratings as Provided by the Rating Services
CORPORATE BONDS
Moody's Investors Service, Inc.
- -------------------------------
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
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 compromise 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.
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. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 other good and bad times over the future. Uncertainty of position
characterizes bonds in this series.
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 security over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such securities 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 series of bonds and are regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Absence of Rating: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
ratings classification from Aa through B in its corporate bond rating system.
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
- -----------------
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, B, CCC, CC, C--Debt is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of this obligation. "BB" indicates the least 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 risk 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. The "D" rating is used when interest
payments or principal are not made on the date due even if the applicable grace
period has not expired, unless S&P believe that such payments will be made
during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-)--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--Not rated.
PREFERRED STOCKS
Moody's Investors Service, Inc.
-------------------------------
aaa--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--considered a high-grade preferred stock. This rating indicates that
there is a reasonable assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable future.
a--considered to be an upper-medium-grade preferred stock. While risks are
judged to be somewhat greater than in the aaa and aa classifications, earnings
and asset protection are, nevertheless, expected to be maintained at adequate
levels.
baa--considered to be medium-grade, 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--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 series.
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--likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
ca--speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
c--lowest rated series of preferred or preference stock. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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.
Standard & Poor's
-----------------
"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 issued 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 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"--The 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 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 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.
COMMERCIAL PAPER
Moody's Investors Service
-------------------------
The term "commercial paper" as used by Moody's means promissory obligations not
having an original maturity in excess of one year.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated PRIME-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. PRIME-1 repayment ability will
often be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. 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 the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
Standard & Poor's
-----------------
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 Commercial paper rated "A-1" is regarded as having a very strong
degree of safety regarding timely payment. A "+" designation is
applied to those issues which possess extremely strong safety
characteristics.
A-2 Commercial paper rated "A-2" is regarded as having a satisfactory
capacity for timely payment. However, the relative degree of safety
is not as high as for issues designated "A-1"
A-3 Commercial paper rated "A-3" is regarded as having an adequate
capacity for timely payment. They are, however, more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Commercial paper rated "B" is regarded as having only speculative
capacity for timely payment.
C Commercial paper rated "C" is regarded as having a doubtful capacity
for repayment.
D Commercial paper rated "D" is in payment default. The "D" rating is
used 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.
MUNICIPAL OBLIGATIONS
Moody's Investors Service Municipal Bond Ratings
------------------------------------------------
Aaa--judged to be of the "best quality" and are referred to as "gilt edge";
interest payments are protected by a large or by an exceptionally stable margin
and principal is secure
Aa--judged to be of "high quality by all standards" but as to which margins
of protection or other elements make long-term risks appear somewhat larger than
Aaa-rated municipal bonds; together with Aaa group they comprise what are
generally known as "high grade bonds"
A--possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest of
A-rated municipal bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future
Baa--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
Ba--protection of principal and interest payments may be very moderate;
judged to have speculative elements; their future cannot be considered as well-
assured
B--lack characteristics of a desirable investment; assurance of interest
and principal payments over any long period of time may be small
Caa--poor standing; may be in default or there may be present elements of
danger with respect to principal and interest
Ca--speculative in a high degree; often in default
C--lowest rated class of bonds; issues so rated can be regarded as having
extremely poor prospects for ever attaining any real investment standing.
Moody's ratings of state and municipal notes:
---------------------------------------------
Moody's ratings for state and municipal notes and other short-term
obligations are designated Moody's Investment Grade ("MIG"). Symbols used will
be as follows:
MIG-1--Best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based access to the
market for refinancing, or both;
MIG-2--High quality with margins of protection ample although not so large
as in the preceding group.
Description of Moody's highest commercial paper rating:
-------------------------------------------------------
Prime-1 ("P-1")--Judged to be of the best quality. Their short-term debt
obligations carry the smallest degree of investment risk.
Standard & Poor's Municipal Bond Ratings
------------------------------------------
AAA--has the highest rating assigned by S&P; extremely strong capacity to
pay principal and interest
AA--has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in a small degree
A--has a strong capacity to pay principal and interest, although somewhat
more susceptible to the adverse changes in circumstances and economic conditions
BBB--regarded as having an adequate capacity to pay principal and interest;
normally exhibit adequate protection parameters but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest than for bonds in A category
BB--B--CCC--CC--predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with terms of obligations; BB is
being paid
D--in default, and payment of principal and/or interest is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Standard & Poor's ratings of municipal notes:
-----------------------------------------------
SP-1 + --very strong capacity to pay principal and interest
SP-1--strong capacity to pay principal and interest.
Descriptions of S&P's highest commercial paper ratings:
-------------------------------------------------------
A-1+ -- This designation indicates the degree of safety regarding timely
payment is overwhelming
A-1 -- This designation indicates the degree of safety regarding timely
payment is very strong
APPENDIX B
Glossary of Terms
Certificate of Deposit
- ----------------------
A certificate of deposit is a short term obligation of a commercial bank.
Eurodollar Certificate of Deposit
- ---------------------------------
A Eurodollar certificate of deposit is a short term obligation of a foreign
subsidiary of a U.S. bank payable in U.S. dollars.
Time Deposit
- ------------
A time deposit is a deposit in a commercial bank for a specified period of time
at a fixed interest rate for which a negotiable certificate is not received.
Bankers' Acceptance
- -------------------
A bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with international commercial transactions.
Variable Amount Master Note
- ---------------------------
A variable amount master note is a note which fixes a minimum and maximum amount
of credit and provides for lending and repayment within those limits at the
discretion of the lender.
Commercial Paper
- ----------------
Commercial paper is a short term promissory note issued by a corporation
primarily to finance short term credit needs.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Mason Street Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Aggressive Growth Stock Fund,
International Equity Fund, Growth Stock Fund, Growth and Income Stock Fund,
Index 500 Stock Fund, Asset Allocation Fund, High Yield Bond Fund, Municipal
Bond Fund and Select Bond Fund (constituting Mason Street Funds, Inc., hereafter
referred to as "the Funds") at March 31, 1998, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the period March 31, 1997 (commencement of operations) to March 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of the securities at March 31, 1998 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse LLP
Milwaukee, Wisconsin
May 7, 1998
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $29,614,223) $41,734,833
Money Market Investments (cost $798,923) 798,923
- -----------------------------------------------------------------------
42,533,756
=======================================================================
Cash 90,479
Due from Sale of Securities 959,596
Due from Sale of Fund Shares 48,615
Unamortized Organizational Costs 16,530
Dividends and Interest Receivable 3,355
- -----------------------------------------------------------------------
TOTAL ASSETS 43,652,331
=======================================================================
LIABILITIES
Due on Purchase of Securities 70,412
Other Accrued Liabilities 33,151
Due to Investment Advisor 25,836
Accrued Shareholder Servicing Fees 5,581
Accrued Administrative Fees 3,444
Due on Redemption of Fund Shares 3,582
- -----------------------------------------------------------------------
TOTAL LIABILITIES 142,006
=======================================================================
NET ASSETS $43,510,325
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,000,807 shares outstanding) $31,348,532
Undistributed Accumulated Net
Realized Gain on Investments 41,183
Net Unrealized Appreciation of
Investment Securities 12,120,610
- -----------------------------------------------------------------------
NET ASSETS FOR 3,000,807
SHARES OUTSTANDING $43,510,325
=======================================================================
Per Share of Class A (Based on
2,871,235 Shares Issued and Outstanding):
OFFERING PRICE $15.22
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $14.50
=======================================================================
Per Share of Class B (Based on 129,572
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $14.43
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $548) $34,737
Interest 84,013
- -----------------------------------------------------------------------
TOTAL INCOME 118,750
=======================================================================
Expenses
Management Fees 257,514
Shareholder Servicing Fees 85,838
Transfer Agent Fees 57,800
Registration Fees 40,262
Other Expenses 44,549
Distribution Fees:
Class A 33,634
Class B 5,260
Administrative Fees 34,335
Custody Fees 16,727
- -----------------------------------------------------------------------
TOTAL EXPENSES 575,919
=======================================================================
Less:
Custodian Fees Paid Indirectly (4,887)
Expenses Reimbursed by Affiliates (120,116)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 450,916
=======================================================================
NET INVESTMENT LOSS (332,166)
=======================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on Investments 1,864,006
Net Change in Unrealized Appreciation
of Investments for the Period 12,120,610
- -----------------------------------------------------------------------
NET GAIN ON INVESTMENTS 13,984,616
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $13,652,450
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
AGGRESSIVE GROWTH STOCK FUND
For the Twelve
Months Ended
March 31, 1998
- -----------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Loss $(332,166)
Net Realized Gain on Investments 1,864,006
Net Change in Unrealized Appreciation
of Investments for the Period 12,120,610
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 13,652,450
=============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Realized Gain on Investments (1,513,217)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (45,705)
- -----------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (1,558,922)
=============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,757,475 Shares 28,325,850
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (121,508 shares) 1,511,566
Payments for 8,348 Shares Redeemed (110,997)
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Class A
Fund Share Transactions (2,870,635 shares) 29,726,419
=============================================================================
Class B
Proceeds from Sale of 126,434 Shares 1,647,644
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (3,678 shares) 45,607
Payments for 1,140 Shares Redeemed (14,873)
- -----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Class B
Fund Share Transactions (128,972 shares) 1,678,378
=============================================================================
TOTAL INCREASE IN NET ASSETS 43,498,325
NET ASSETS
Beginning of Period 12,000
=============================================================================
END OF PERIOD $43,510,325
=============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
-------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding throughout the period) March 31, 1998 March 31, 1998
- -------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Loss<F1> (0.12) (0.21)
Net Realized and Unrealized
Gains on Investments 5.18 5.18
- -------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.06 4.97
===============================================================================
Less Distributions:
Distributions from Net Investment Income 0.00 0.00
Distributions from Realized
Gains on Investments (0.56) (0.54)
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.56) (0.54)
===============================================================================
NET ASSET VALUE, END OF PERIOD $14.50 $14.43
===============================================================================
TOTAL RETURN<F2> 51.57% 50.59%
===============================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $41,640,193 $1,870,132
===============================================================================
RATIO OF NET EXPENSES TO
AVERAGE NET ASSETS 1.30% 1.95%
===============================================================================
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS 1.64% 2.29%
===============================================================================
RATIO OF NET INVESTMENT LOSS TO
AVERAGE NET ASSETS (0.96)% (1.61)%
===============================================================================
PORTFOLIO TURNOVER RATE 64.91% 64.91%
===============================================================================
AVERAGE COMMISSION RATE $0.0548 $0.0548
===============================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
INTERNATIONAL EQUITY FUND
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $25,689,376) $27,111,225
Money Market Investments (cost $3,492,475) 3,492,475
- -----------------------------------------------------------------------
30,603,700
=======================================================================
Cash 65,840
Due from Sale of Fund Shares 179,924
Dividends Receivable 120,489
Unamortized Organizational Costs 16,519
Other Receivables 1,529
- -----------------------------------------------------------------------
TOTAL ASSETS 30,988,001
=======================================================================
LIABILITIES
Due on Purchase of Securities 11,553
Other Accrued Liabilities 28,456
Due to Investment Advisor 20,834
Accrued Administrative Fees 13,742
Due on Redemption of Fund Shares 10,677
Accrued Shareholder Servicing Fees 3,937
Accrued Distribution Expense 2,045
- -----------------------------------------------------------------------
TOTAL LIABILITIES 91,244
=======================================================================
NET ASSETS $30,896,757
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,920,454 shares outstanding) $29,184,788
Undistributed Net Investment Income 115,120
Undistributed Accumulated Net
Realized Gain on Investments 175,688
Net Unrealized Appreciation (Depreciation) of:
Investment Securities 1,421,849
Foreign Currency Transactions (688)
- -----------------------------------------------------------------------
NET ASSETS FOR 2,920,454
SHARES OUTSTANDING $30,896,757
=======================================================================
Per Share of Class A (Based on
2,783,288 Shares Issued and Outstanding):
OFFERING PRICE $11.11
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $10.58
=======================================================================
Per Share of Class B (Based on 137,166
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $10.53
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $78,856) $667,687
Interest 421,775
- -----------------------------------------------------------------------
TOTAL INCOME 1,089,462
=======================================================================
Expenses
Management Fees 231,461
Custody Fees 88,942
Shareholder Servicing Fees 68,077
Transfer Agent Fees 53,278
Other Expenses 46,210
Registration Fees 39,573
Distribution Fees:
Class A 26,652
Class B 4,343
Administrative Fees 27,231
- -----------------------------------------------------------------------
TOTAL EXPENSES 585,767
=======================================================================
Less:
Expenses Reimbursed by Affiliates (132,677)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 453,090
=======================================================================
NET INVESTMENT INCOME 636,372
=======================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES
Net Realized Gain on:
Investment Securities 175,688
Foreign Currency Transactions 5,723
- -----------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 181,411
=======================================================================
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities 1,421,849
Foreign Currency Transactions (688)
- -----------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
FOR THE PERIOD 1,421,161
=======================================================================
NET GAIN ON INVESTMENTS 1,602,572
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,238,944
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $636,372
Net Realized Gain on Investments 181,411
Net Unrealized Appreciation of Investments
and Foreign Currency Transactions for the Period 1,421,161
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 2,238,944
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (575,912)
Distributions to Class B Shareholders
from Net Investment Income (18,152)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (594,064)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,746,325 Shares 27,522,507
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (59,873 shares) 575,381
Payments for 23,510 Shares Redeemed (244,631)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (2,782,688 shares) 27,853,257
==============================================================================
Class B
Proceeds from Sale of 141,383 Shares 1,436,283
Proceeds from Shares Issued on
Reinvestment of Distributions Paid (1,897 shares) 18,150
Payments for 6,714 Shares Redeemed (67,813)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (136,566 shares) 1,386,620
==============================================================================
TOTAL INCREASE IN NET ASSETS 30,884,757
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED
NET INVESTMENT INCOME OF $115,120) $30,896,757
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
CLASS A CLASS B
--------------- ---------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.24 0.10
Net Realized and Unrealized
Gains on Investments 0.56 0.63
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.80 0.73
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.22) (0.20)
Distributions from Realized
Gains on Investments 0.00 0.00
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.22) (0.20)
================================================================================
NET ASSET VALUE, END OF PERIOD $10.58 $10.53
================================================================================
TOTAL RETURN<F2> 8.19% 7.49%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $29,451,833 $1,444,924
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.65% 2.30%
================================================================================
RATIO OF GROSS EXPENSES TO
AVERAGE NET ASSETS 2.13% 2.78%
================================================================================
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS 2.34% 1.69%
================================================================================
PORTFOLIO TURNOVER RATE 10.07% 10.07%
================================================================================
AVERAGE COMMISSION RATE $0.0016 $0.0016
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $24,649,137) $34,240,761
Money Market Investments (cost $4,692,797) 4,692,797
- -----------------------------------------------------------------------
38,933,558
=======================================================================
Cash 63,642
Due from Sale of Fund Shares 32,860
Due from Sale of Securities 25,677
Dividends and Interest Receivable 21,306
Futures Variation Margin 16,800
Unamortized Organizational Costs 16,530
- -----------------------------------------------------------------------
TOTAL ASSETS 39,110,373
=======================================================================
LIABILITIES
Due to Investment Advisor 23,437
Other Accrued Liabilities 17,985
Due on Purchase of Securities 16,959
Accrued Registration Fees 8,249
Accrued Shareholder Servicing Fees 5,062
Accrued Administrative Fees 3,122
- -----------------------------------------------------------------------
TOTAL LIABILITIES 74,814
=======================================================================
NET ASSETS $39,035,559
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,769,595 shares outstanding) $28,203,930
Undistributed Net Investment Income 23,034
Undistributed Accumulated Net
Realized Gain on Investments 1,168,002
Net Unrealized Appreciation of:
Investment Securities 9,591,624
Index Futures Contracts 48,969
- -----------------------------------------------------------------------
NET ASSETS FOR 2,769,595
SHARES OUTSTANDING $39,035,559
=======================================================================
Per Share of Class A (Based on
2,711,768 Shares Issued and Outstanding):
OFFERING PRICE $14.80
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $14.10
=======================================================================
Per Share of Class B (Based on 57,827
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $14.03
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $3,002) $318,476
Interest 187,641
- -----------------------------------------------------------------------
TOTAL INCOME 506,117
=======================================================================
Expenses
Management Fees 238,548
Shareholder Servicing Fees 79,516
Transfer Agent Fees 46,785
Registration Fees 39,400
Distribution Fees:
Class A 31,529
Class B 2,083
Administrative Fees 31,806
Other Expenses 21,736
Shareholder Reporting Expenses 13,708
Custody Fees 13,083
Directors Fees 4,933
Professional Fees 3,188
- -----------------------------------------------------------------------
TOTAL EXPENSES 526,315
=======================================================================
Less:
Custodian Fees Paid Indirectly (4,740)
Expenses Reimbursed by Affiliates (106,287)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 415,288
=======================================================================
NET INVESTMENT INCOME 90,829
=======================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 1,535,122
Futures Contracts 430,937
- -----------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 1,966,059
=======================================================================
Net Change in Unrealized Appreciation of:
Investment Securities 9,591,624
Index Futures Contracts 48,969
- -----------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENTS FOR THE PERIOD 9,640,593
=======================================================================
NET GAIN ON INVESTMENTS 11,606,652
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $11,697,481
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
GROWTH STOCK FUND
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $90,829
Net Realized Gain on Investments 1,966,059
Net Change in Unrealized Appreciation of
Investments for the Period 9,640,593
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 11,697,481
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (134,147)
Distributions to Class A Shareholders
from Net Realized Gain on Investments (787,500)
Distributions to Class B Shareholders
from Net Investment Income (1,034)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (10,555)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (933,236)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,643,059 Shares 26,708,776
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (75,479 shares) 921,596
Payments for 7,370 Shares Redeemed (90,416)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (2,711,168 shares) 27,539,956
==============================================================================
Class B
Proceeds from Sale of 56,279 Shares 707,826
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (951 shares) 11,573
Payments for 3 Shares Redeemed (41)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (57,227 shares) 719,358
==============================================================================
TOTAL INCREASE IN NET ASSETS 39,023,559
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT INCOME OF $23,034) $39,035,559
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
-------------- --------------
For the Twelve For the Twelve
(For a share outstanding Months Ended Months Ended
throughout the period) March 31, 1998 March 31, 1998
- ------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income (Loss)<F1> 0.04 (0.05)
Net Realized and Unrealized Gains
on Investments 4.41 4.41
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.45 4.36
==============================================================================
Less Distributions:
Distributions from Net Investment Income (0.05) (0.03)
Distributions from Realized Gains
on Investments (0.30) (0.30)
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.35) (0.33)
==============================================================================
NET ASSET VALUE, END OF PERIOD $14.10 $14.03
==============================================================================
TOTAL RETURN<F2> 45.08% 44.12%
==============================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $38,224,386 $811,173
==============================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.30% 1.95%
==============================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.63% 2.28%
==============================================================================
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 0.29% (0.36)%
==============================================================================
PORTFOLIO TURNOVER RATE 37.52% 37.52%
==============================================================================
AVERAGE COMMISSION RATE $0.0510 $0.0510
==============================================================================
<F1>Calculated based on average shares outstanding.
<F2>Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
GROWTH AND INCOME STOCK FUND
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $33,869,062) $38,435,411
- -----------------------------------------------------------------------
Due from Sale of Securities 2,173,083
Due from Sale of Fund Shares 71,479
Dividends and Interest Receivable 41,193
Unamortized Organizational Costs 16,530
- -----------------------------------------------------------------------
TOTAL ASSETS 40,737,696
=======================================================================
LIABILITIES
Due on Purchase of Securities 1,340,507
Due to Investment Advisor 27,876
Other Accrued Liabilities 22,782
Accrued Registration Fees 8,662
Accrued Shareholder Servicing Fees 5,096
Accrued Administrative Fees 3,155
- -----------------------------------------------------------------------
TOTAL LIABILITIES 1,408,078
=======================================================================
NET ASSETS $39,329,618
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,161,911 shares outstanding) $32,330,139
Undistributed Net Investment Income 28,998
Undistributed Accumulated Net
Realized Gain on Investments 2,404,132
Net Unrealized Appreciation of
Investment Securities 4,566,349
- -----------------------------------------------------------------------
NET ASSETS FOR 3,161,911
SHARES OUTSTANDING $39,329,618
=======================================================================
Per Share of Class A (Based on
3,038,315 Shares Issued and Outstanding):
OFFERING PRICE $13.06
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $12.44
=======================================================================
Per Share of Class B (Based on 123,596
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $12.37
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $2,060) $462,835
Interest 41,179
- -----------------------------------------------------------------------
TOTAL INCOME 504,014
=======================================================================
Expenses
Management Fees 208,331
Shareholder Servicing Fees 80,127
Transfer Agent Fees 48,311
Other Expenses 44,834
Registration Fees 39,813
Distribution Fees:
Class A 31,548
Class B 3,769
Administrative Fees 32,051
Custody Fees 21,589
- -----------------------------------------------------------------------
TOTAL EXPENSES 510,373
=======================================================================
Less:
Custodian Fees Paid Indirectly (3,758)
Expenses Reimbursed by Affiliates (118,738)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 387,877
=======================================================================
NET INVESTMENT INCOME 116,137
=======================================================================
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net Realized Gain on Investments 6,264,818
Net Change in Unrealized Appreciation
of Investments for the Period 4,566,349
- -----------------------------------------------------------------------
NET GAIN ON INVESTMENTS 10,831,167
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $10,947,304
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $116,137
Net Realized Gain on Investments 6,264,818
Net Change in Unrealized Appreciation
of Investments for the Period 4,566,349
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 10,947,304
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (152,006)
Distributions to Class A Shareholders
from Net Realized Gain on Investments (3,768,242)
Distributions to Class B Shareholders
from Net Investment Income (2,604)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (92,540)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (4,015,392)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,700,758 Shares 27,377,915
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (366,764 shares) 3,917,041
Payments for 29,807 Shares Redeemed (358,157)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (3,037,715 shares) 30,936,799
==============================================================================
Class B
Proceeds from Sale of 116,172 Shares 1,379,764
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (8,931 shares) 95,020
Payments for 2,107 Shares Redeemed (25,877)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (122,996 shares) 1,448,907
==============================================================================
TOTAL INCREASE IN NET ASSETS 39,317,618
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT INCOME OF $28,998) $39,329,618
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME STOCK FUND
CLASS A CLASS B
-------------- --------------
For the Twelve For the Twelve
(For a share outstanding Months Ended Months Ended
throughout the period) March 31, 1998 March 31, 1998
- ------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income (Loss)<F1> 0.04 (0.03)
Net Realized and Unrealized Gains
on Investments 3.90 3.88
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.94 3.85
==============================================================================
Less Distributions:
Distributions from Net Investment Income (0.06) (0.04)
Distributions from Realized Gains
on Investments (1.44) (1.44)
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.50) (1.48)
==============================================================================
NET ASSET VALUE, END OF PERIOD $12.44 $12.37
==============================================================================
TOTAL RETURN<F2> 41.90% 40.96%
==============================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $37,800,412 $1,529,206
==============================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.20% 1.85%
==============================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.57% 2.22%
==============================================================================
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 0.37% (0.28)%
==============================================================================
PORTFOLIO TURNOVER RATE 140.29% 140.29%
==============================================================================
AVERAGE COMMISSION RATE $0.0440 $0.0440
==============================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -----------------------------------------------------------------------
ASSETS
Common Stocks (cost $31,353,818) $43,312,795
Money Market Investments (cost $4,292,797) 4,292,797
- -----------------------------------------------------------------------
47,605,592
=======================================================================
Cash 12,644
Due from Sale of Fund Shares 171,101
Dividends and Interest Receivable 45,205
Futures Variation Margin 16,800
Unamortized Organizational Costs 16,530
Due from Sale of Securities 58
- -----------------------------------------------------------------------
TOTAL ASSETS 47,867,930
=======================================================================
LIABILITIES
Other Accrued Liabilities 11,442
Due to Investment Advisor 11,310
Accrued Registration Fees 9,359
Accrued Transfer Agent Fees 7,246
Accrued Shareholder Servicing Fees 6,088
Accrued Distribution Expense 3,861
Accrued Administrative Fees 3,758
Due on Redemption of Fund Shares 730
- -----------------------------------------------------------------------
TOTAL LIABILITIES 53,794
=======================================================================
NET ASSETS $47,814,136
=======================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,315,845 shares outstanding) $35,159,466
Undistributed Net Investment Income 106,574
Undistributed Accumulated Net
Realized Gain on Investments 340,344
Net Unrealized Appreciation of:
Investment Securities 11,958,977
Index Futures Contracts 248,775
- -----------------------------------------------------------------------
NET ASSETS FOR 3,315,845
SHARES OUTSTANDING $47,814,136
=======================================================================
Per Share of Class A (Based on
3,019,915 Shares Issued and Outstanding):
OFFERING PRICE $15.15
=======================================================================
NET ASSET VALUE AND REDEMPTION PRICE $14.43
=======================================================================
Per Share of Class B (Based on 295,930
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $14.35
=======================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $4,195) $559,922
Interest 100,992
- -----------------------------------------------------------------------
TOTAL INCOME 660,914
=======================================================================
Expenses
Management Fees 104,488
Shareholder Servicing Fees 87,074
Transfer Agent Fees 55,777
Distribution Fees:
Class A 33,303
Class B 11,450
Registration Fees 41,629
Custody Fees 38,529
Administrative Fees 34,829
Shareholder Reporting Expenses 19,791
Other Expenses 17,258
Audit Fees 15,001
Directors' Fees 4,933
Professional Fees 3,192
- -----------------------------------------------------------------------
TOTAL EXPENSES 467,254
=======================================================================
Less:
Custodian Fees Paid Indirectly (3,987)
Expenses Reimbursed by Affiliates (157,294)
- -----------------------------------------------------------------------
TOTAL NET EXPENSES 305,973
=======================================================================
NET INVESTMENT INCOME 354,941
=======================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 136,583
Index Futures Contracts 398,819
- -----------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 535,402
=======================================================================
Net Change in Unrealized Appreciation of:
Investment Securities 11,958,977
Index Futures Contracts 248,775
=======================================================================
NET CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENTS FOR THE PERIOD 12,207,752
=======================================================================
NET GAIN ON INVESTMENTS 12,743,154
=======================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $13,098,095
=======================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
INDEX 500 STOCK FUND
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $354,941
Net Realized Gain on Investments 535,402
Net Change in Unrealized Appreciation
of Investments and Foreign Currency Transactions
for the Period 12,207,752
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 13,098,095
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders
from Net Investment Income (300,021)
Distributions to Class A Shareholders
from Net Realized Gain on Investments (183,740)
Distributions to Class B Shareholders
from Net Investment Income (17,018)
Distributions to Class B Shareholders
from Net Realized Gain on Investments (11,318)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (512,097)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 3,001,056 Shares 31,280,916
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (39,415 shares) 482,830
Payments for 21,156 Shares Redeemed (254,109)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class A Fund Share Transactions (3,019,315 shares) 31,509,637
==============================================================================
Class B
Proceeds from Sale of 311,242 Shares 3,901,288
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (2,318 shares) 28,306
Payments for 18,230 Shares Redeemed (223,093)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Class B Fund Share Transactions (295,330 shares) 3,706,501
==============================================================================
TOTAL INCREASE IN NET ASSETS 47,802,136
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT INCOME OF $106,574) $47,814,136
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.13 0.05
Net Realized and Unrealized Gains on Investments 4.48 4.47
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.61 4.52
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.11) (0.10)
Distributions from Realized Gains on Investments (0.07) (0.07)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.18) (0.17)
================================================================================
NET ASSET VALUE, END OF PERIOD $14.43 $14.35
================================================================================
TOTAL RETURN<F2> 46.35% 45.44%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $43,567,584 $4,246,552
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 0.85% 1.50%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.30% 1.95%
================================================================================
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.04% 0.39%
================================================================================
PORTFOLIO TURNOVER RATE 2.47% 2.47%
================================================================================
AVERAGE COMMISSION RATE $0.0255 $0.0255
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
ASSET ALLOCATION FUND
March 31, 1998
- -------------------------------------------------------------------------------
ASSETS
Common Stocks (cost $12,105,511) $16,437,695
Bonds (cost $10,890,130) 11,190,492
Foreign Common Stock (cost $3,235,701) 3,977,631
Money Market Investments (cost $2,991,454) 2,991,454
Preferred Stock (cost $977,500) 1,080,000
- ----------------------------------------------------------------------------
35,677,272
============================================================================
Cash 32,711
Due from Sale of Securities 202,748
Due from Sale of Fund Shares 140,680
Dividends and Interest Receivable 135,631
Unamortized Organizational Costs 16,530
Futures Variation Margin 3,600
- ----------------------------------------------------------------------------
TOTAL ASSETS 36,209,172
============================================================================
LIABILITIES
Other Accrued Liabilities 30,779
Due to Investment Advisor 22,514
Due on Purchase of Securities 12,692
Accrued Shareholder Servicing Fees 4,644
Accrued Administrative Fees 2,895
Accrued Distribution Expense 2,398
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 75,922
============================================================================
NET ASSETS $36,133,250
============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,934,445 shares outstanding) $29,951,343
Undistributed Net Investment Income 231,052
Undistributed Accumulated Net
Realized Gain on Investments 464,542
Net Unrealized Appreciation (Depreciation) of:
Investment Securities 5,476,976
Futures Contracts 9,367
Foreign Currency Transactions (30)
- ----------------------------------------------------------------------------
NET ASSETS FOR 2,934,445
SHARES OUTSTANDING $36,133,250
============================================================================
Per Share of Class A (Based on
2,806,418 Shares Issued and Outstanding):
OFFERING PRICE $12.93
============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $12.32
============================================================================
Per Share of Class B (Based on 128,027
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $12.26
============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- ----------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $957,934
Dividends (less foreign dividend tax of $7,589) 268,572
- ----------------------------------------------------------------------------
TOTAL INCOME 1,226,506
============================================================================
Expenses
Management Fees 212,831
Shareholder Servicing Fees 76,011
Transfer Agent Fees 46,134
Registration Fees 39,785
Distribution Fees:
Class A 29,773
Class B 4,738
Administrative Fees 30,404
Custody Fees 29,363
Shareholder Reporting Expenses 16,418
Audit Fees 16,290
Other Expenses 13,275
Directors' Fees 4,933
Professional Fees 3,836
- ----------------------------------------------------------------------------
TOTAL EXPENSES 523,791
============================================================================
Less:
Custodian Fees Paid Indirectly (10,926)
Expenses Reimbursed by Affiliates (98,299)
- ----------------------------------------------------------------------------
TOTAL NET EXPENSES 414,566
============================================================================
NET INVESTMENT INCOME 811,940
============================================================================
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 1,056,714
Futures Contracts 80,645
Foreign Currency Transactions (116)
- ----------------------------------------------------------------------------
NET REALIZED GAIN FOR THE PERIOD 1,137,243
============================================================================
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities 5,476,976
Future Contracts 9,367
Foreign Currency Transactions (30)
- ----------------------------------------------------------------------------
NET CHANGE IN UNREALIZED
APPRECIATION FOR THE PERIOD 5,486,313
============================================================================
NET GAIN ON INVESTMENTS 6,623,556
============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $7,435,496
============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $811,940
Net Realized Gain on Investments 1,137,243
Net Change in Unrealized Appreciation of
Investments and Foreign Currency
Transactions for the Period 5,486,313
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 7,435,496
================================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (627,696)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (650,292)
Distributions to Class B Shareholders from
Net Investment Income (20,006)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (22,525)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Distributions to Shareholders (1,320,519)
================================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,700,842 Shares 27,348,582
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (112,592 shares) 1,276,794
Payments for 7,616 Shares Redeemed (91,176)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (2,805,818 shares) 28,534,200
================================================================================
Class B
Proceeds from Sale of 127,870 Shares 1,480,265
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (3,763 shares) 42,525
Payments for 4,206 Shares Redeemed (50,717)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (127,427 shares) 1,472,073
================================================================================
TOTAL INCREASE IN NET ASSETS 36,121,250
NET ASSETS
Beginning of Period 12,000
================================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $231,052) $36,133,250
================================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
ASSET ALLOCATION FUND
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.31 0.23
Net Realized and Unrealized Gains on Investments 2.50 2.50
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.81 2.73
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.24) (0.22)
Distributions from Realized Gains on Investments (0.25) (0.25)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.49) (0.47)
================================================================================
NET ASSET VALUE, END OF PERIOD $12.32 $12.26
================================================================================
TOTAL RETURN<F2> 28.51% 27.69%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $34,564,169 $1,569,081
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.35% 2.00%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE NET ASSETS 1.67% 2.32%
================================================================================
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.67% 2.02%
================================================================================
PORTFOLIO TURNOVER RATE 65.67% 65.67%
================================================================================
AVERAGE COMMISSION RATE $0.0621 $0.0621
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- -------------------------------------------------------------------------------
ASSETS
Bonds (cost $25,606,692) $26,381,263
Preferred Stock (cost $6,399,615) 6,812,053
Money Market Investments (cost $699,677) 699,677
Common Stock (cost $113,535) 107,570
- -------------------------------------------------------------------------------
34,000,563
===============================================================================
Cash 96,959
Due from Sale of Securities 1,144,617
Dividends and Interest Receivable 551,866
Due from Sale of Fund Shares 132,240
Unamortized Organizational Costs 16,530
- -------------------------------------------------------------------------------
TOTAL ASSETS 35,942,775
===============================================================================
LIABILITIES
Due on Purchase of Securities 1,455,174
Income Dividend Payable 258,545
Other Accrued Liabilities 27,763
Due to Investment Advisor 19,737
Accrued Shareholder Servicing Fees 4,380
Accrued Administrative Fees 2,767
Accrued Distribution Expense 2,168
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 1,770,534
===============================================================================
NET ASSETS $34,172,241
===============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 3,167,669 shares outstanding) $32,109,366
Undistributed Net Investment Income 61,039
Undistributed Accumulated Net
Realized Gain on Investments 820,792
Net Unrealized Appreciation of
Investment Securities 1,181,044
- -------------------------------------------------------------------------------
NET ASSETS FOR 3,167,669
SHARES OUTSTANDING $34,172,241
===============================================================================
Per Share of Class A (Based on
3,041,500 Shares Issued and Outstanding):
OFFERING PRICE $11.33
===============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $10.79
===============================================================================
Per Share of Class B (Based on 126,169
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $10.79
===============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $2,441,525
Dividends 701,221
- -------------------------------------------------------------------------------
TOTAL INCOME 3,142,746
===============================================================================
Expenses
Management Fees 221,575
Shareholder Servicing Fees 73,858
Transfer Agent Fees 43,297
Registration Fees 39,661
Distribution Fees:
Class A 29,184
Class B 2,698
Administrative Fees 29,543
Custody Fees 28,783
Audit Fees 17,001
Shareholder Reporting Expenses 15,591
Other Expenses 12,264
Directors' Fees 4,933
Professional Fees 4,517
- -------------------------------------------------------------------------------
TOTAL EXPENSES 522,905
===============================================================================
Less:
Custodian Fees Paid Indirectly (27,758)
Expenses Reimbursed by Affiliates (108,746)
- -------------------------------------------------------------------------------
TOTAL NET EXPENSES 386,401
===============================================================================
NET INVESTMENT INCOME 2,756,345
===============================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on Investments 1,974,379
Net Change in Unrealized Appreciation
of Investments for the Period 1,181,044
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 3,155,423
===============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $5,911,768
===============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
HIGH YIELD BOND FUND
For the Twelve
Months Ended
March 31, 1998
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $2,756,345
Net Realized Gain on Investments 1,974,379
Net Change in Unrealized Appreciation of
Investments for the Period 1,181,044
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 5,911,768
===============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (2,730,612)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (1,131,057)
Distributions to Class B Shareholders from
Net Investment Income (31,293)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (22,530)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders (3,915,492)
===============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,716,144 Shares 27,328,578
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (336,168 shares) 3,598,592
Payments for 11,412 Shares Redeemed (122,333)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (3,040,900 shares) 30,804,837
===============================================================================
Class B
Proceeds from Sale of 121,471 Shares 1,315,485
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (4,331 shares) 46,162
Payments for 233 Shares Redeemed (2,519)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (125,569 shares) 1,359,128
===============================================================================
TOTAL INCREASE IN NET ASSETS 34,160,241
NET ASSETS
Beginning of Period 12,000
===============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $61,039) $34,172,241
===============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 1.01 0.93
Net Realized and Unrealized Gains
on Investments 1.19 1.20
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.20 2.13
================================================================================
Less Distributions:
Distributions from Net Investment Income (1.00) (0.93)
Distributions from Realized Gains
on Investments (0.41) (0.41)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.41) (1.34)
================================================================================
NET ASSET VALUE, END OF PERIOD $10.79 $10.79
================================================================================
TOTAL RETURN<F2> 22.95% 22.09%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $32,811,316 $1,360,925
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 1.30% 1.95%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS 1.66% 2.31%
================================================================================
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 9.30% 8.65%
================================================================================
PORTFOLIO TURNOVER RATE 178.61% 178.61%
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
MUNICIPAL BOND FUND
March 31, 1998
- -----------------------------------------------------------------------------
ASSETS
Bonds (cost $26,203,665) $27,642,166
Money Market Investments (cost $600,000) 600,000
- -----------------------------------------------------------------------------
28,242,166
=============================================================================
Cash 14,520
Interest Receivable 511,735
Unamortized Organizational Costs 16,530
Due from Sale of Fund Shares 83
- -----------------------------------------------------------------------------
TOTAL ASSETS 28,785,034
=============================================================================
LIABILITIES
Income Dividend Payable 101,330
Other Accrued Liabilities 24,328
Due to Investment Advisor 7,044
Accrued Shareholder Servicing Fees 3,720
Accrued Administrative Fees 2,348
Accrued Distribution Expense 1,672
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 140,442
=============================================================================
NET ASSETS $28,644,592
=============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,715,965 shares outstanding) $27,188,250
Undistributed Net Investment Income 29,346
Overdistributed Net
Realized Gain on Investments (11,505)
Net Unrealized Appreciation of
Investment Securities 1,438,501
- -----------------------------------------------------------------------------
NET ASSETS FOR 2,715,965
SHARES OUTSTANDING $28,644,592
=============================================================================
Per Share of Class A (Based on
2,671,175 Shares Issued and Outstanding):
OFFERING PRICE $11.08
=============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $10.55
=============================================================================
Per Share of Class B (Based on 44,790
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $10.55
=============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- -----------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $1,425,930
- -----------------------------------------------------------------------------
Expenses
Management Fees 81,499
Shareholder Servicing Fees 67,916
Transfer Agent Fees 40,750
Registration Fees 38,790
Distribution Fees:
Class A 26,898
Class B 2,014
Administrative Fees 27,167
Audit Fees 17,305
Shareholder Reporting Expenses 13,198
Other Expenses 11,452
Custody Fees 7,207
Professional Fees 5,615
Directors' Fees 4,933
- -----------------------------------------------------------------------------
TOTAL EXPENSES 344,744
=============================================================================
Less:
Custodian Fees Paid Indirectly (5,484)
Expenses Reimbursed by Affiliates (106,599)
- -----------------------------------------------------------------------------
TOTAL NET EXPENSES 232,661
=============================================================================
NET INVESTMENT INCOME 1,193,269
=============================================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on:
Investment Securities 227,543
Futures Contracts 107,131
- -----------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 334,674
=============================================================================
Net Change in Unrealized Appreciation of
Investment Securities 1,438,501
- -----------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
FOR THE PERIOD 1,438,501
=============================================================================
NET GAIN ON INVESTMENTS 1,773,175
=============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,966,444
=============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the Twelve
Months Ended
March 31, 1998
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $1,193,269
Net Realized Gain on Investments 332,018
Net Change in Unrealized Appreciation of
Investments for the Period 1,441,157
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 2,966,444
===============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (1,219,558)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (341,287)
Distributions to Class B Shareholders from
Net Investment Income (10,261)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (4,893)
- -------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders (1,575,999)
===============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,536,893 Shares 25,381,407
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (139,366 shares) 1,460,157
Payments for 5,684 Shares Redeemed (59,865)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (2,670,575 shares) 26,781,699
===============================================================================
Class B
Proceeds from Sale of 44,580 Shares 464,616
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (601 shares) 6,340
Payments for 991 Shares Redeemed (10,508)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (44,190 shares) 460,448
===============================================================================
TOTAL INCREASE IN NET ASSETS 28,632,592
===============================================================================
NET ASSETS
Beginning of Period 12,000
===============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $29,346) $28,644,592
===============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
MUNICIPAL BOND FUND
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.46 0.38
Net Realized and Unrealized Gains
on Investments 0.69 0.70
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.15 1.08
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.47) (0.40)
Distributions from Realized Gains
on Investments (0.13) (0.13)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.60) (0.53)
================================================================================
NET ASSET VALUE, END OF PERIOD $10.55 $10.55
================================================================================
TOTAL RETURN<F2> 11.73% 10.93%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $28,172,205 $472,387
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 0.85% 1.50%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS 1.24% 1.89%
================================================================================
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.38% 3.73%
================================================================================
PORTFOLIO TURNOVER RATE 169.37% 169.37%
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- ------------------------------------------------------------------------------
ASSETS
Bonds (cost $26,642,329) $26,360,520
Money Market Investments (cost $2,196,202) 2,196,202
- ------------------------------------------------------------------------------
28,556,722
==============================================================================
Cash 111,698
Due from Sale of Securities 1,008,025
Interest Receivable 353,129
Due from Sale of Fund Shares 53,254
Unamortized Organizational Costs 16,530
- ------------------------------------------------------------------------------
TOTAL ASSETS 30,099,358
==============================================================================
LIABILITIES
Due on Purchase of Securities 497,511
Income Dividend Payable 182,998
Due on Foreign Currency Contracts 96,132
Other Accrued Liabilities 28,855
Futures Variation Margin 19,781
Due to Investment Advisor 7,167
Accrued Shareholder Servicing Fees 3,771
Accrued Administrative Fees 2,390
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 838,605
==============================================================================
NET ASSETS $29,260,753
==============================================================================
REPRESENTED BY:
Aggregate Paid-in Capital
(300,000,000 shares authorized, $.001 par
value; 2,933,342 shares outstanding) $29,365,703
Undistributed Net Investment Income 68,879
Undistributed Accumulated Net
Realized Gain on Investments 172,097
Net Unrealized Appreciation (Depreciation) of:
Investment Securities (281,809)
Futures Contracts 30,813
Foreign Currency Transactions (94,930)
- ------------------------------------------------------------------------------
NET ASSETS FOR 2,933,342
SHARES OUTSTANDING $29,260,753
==============================================================================
Per Share of Class A (Based on
2,868,849 Shares Issued and Outstanding):
OFFERING PRICE $10.48
==============================================================================
NET ASSET VALUE AND REDEMPTION PRICE $9.98
==============================================================================
Per Share of Class B (Based on 64,493
Shares Issued and Outstanding):
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE $9.98
==============================================================================
STATEMENT OF OPERATIONS
For the Twelve Months Ended March 31, 1998
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $2,133,628
- ------------------------------------------------------------------------------
Expenses
Management Fees 82,010
Shareholder Servicing Fees 68,342
Other Expenses 53,206
Transfer Agent Fees 40,505
Registration Fees 38,960
Distribution Fees:
Class A 27,165
Class B 1,289
Administrative Fees 27,337
Custody Fees 26,671
- ------------------------------------------------------------------------------
TOTAL EXPENSES 365,485
==============================================================================
Less:
Custodian Fees Paid Indirectly (9,365)
Expenses Reimbursed by Affiliates (122,483)
- ------------------------------------------------------------------------------
TOTAL NET EXPENSES 233,637
==============================================================================
NET INVESTMENT INCOME 1,899,991
==============================================================================
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 1,686,104
Futures Contracts (197,368)
Foreign Currency Transactions 8,565
- ------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS
FOR THE PERIOD 1,497,301
==============================================================================
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities (281,809)
Futures Contracts 30,813
Foreign Currency Transactions (94,930)
- ------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED DEPRECIATION
FOR THE PERIOD (345,926)
==============================================================================
NET GAIN ON INVESTMENTS 1,151,375
==============================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,051,366
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
SELECT BOND FUND
For the Twelve
Months Ended
March 31, 1998
- ------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net Investment Income $1,899,991
Net Realized Gain on Investments 1,497,301
Net Change in Unrealized Depreciation of
Investments and Foreign Currency Transactions
for the Period (345,926)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 3,051,366
==============================================================================
Distributions to Shareholders
Distributions to Class A Shareholders from
Net Investment Income (1,894,078)
Distributions to Class A Shareholders from
Net Realized Gain on Investments (1,304,159)
Distributions to Class B Shareholders from
Net Investment Income (11,475)
Distributions to Class B Shareholders from
Net Realized Gain on Investments (12,480)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders (3,222,192)
==============================================================================
Fund Share Transactions
Class A
Proceeds from Sale of 2,608,995 Shares 26,123,497
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (295,732 shares) 3,008,696
Payments for 36,478 Shares Redeemed (363,818)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class A Fund Share Transactions (2,868,249 shares) 28,768,375
==============================================================================
Class B
Proceeds from Sale of 64,092 Shares 653,842
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (2,037 shares) 20,537
Payments for 2,236 Shares Redeemed (23,175)
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Class B Fund Share Transactions (63,893 shares) 651,204
==============================================================================
TOTAL INCREASE IN NET ASSETS 29,248,753
NET ASSETS
Beginning of Period 12,000
==============================================================================
END OF PERIOD (INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME OF $68,879) $29,260,753
==============================================================================
The accompanying Notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
------------- --------------
For the Twelve For the Twelve
Months Ended Months Ended
(For a share outstanding March 31, 1998 March 31, 1998
throughout the period)
- --------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.00 $10.00
Income from Investment Operations:
Net Investment Income<F1> 0.71 0.66
Net Realized and Unrealized Gains
on Investments 0.46 0.44
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.17 1.10
================================================================================
Less Distributions:
Distributions from Net Investment Income (0.71) (0.64)
Distributions from Realized Gains
on Investments (0.48) (0.48)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.19) (1.12)
================================================================================
NET ASSET VALUE, END OF PERIOD $9.98 $9.98
================================================================================
TOTAL RETURN<F2> 12.11% 11.34%
================================================================================
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $28,617,421 $643,332
================================================================================
RATIO OF NET EXPENSES TO AVERAGE NET ASSETS 0.85% 1.50%
================================================================================
RATIO OF GROSS EXPENSES TO AVERAGE
NET ASSETS 1.29% 1.94%
================================================================================
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 6.93% 6.28%
================================================================================
PORTFOLIO TURNOVER RATE 362.32% 362.32%
================================================================================
<F1> Calculated based on average shares outstanding.
<F2> Total return includes deductions for management and other Fund expenses;
excludes deductions for sales loads and contingent deferred sales charges.
Returns include fee waivers in effect. In the absence of fee waivers, total
return would be reduced.
The accompanying Notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1
Mason Street Funds, Inc. was incorporated under the laws of the state of
Maryland on August 30, 1996 as an open-end investment company under the
Investment Company Act of 1940. Mason Street FundsSM consist of the Aggressive
Growth Stock Fund, International Equity Fund, Growth Stock Fund, Growth and
Income Stock Fund, Index 500 Stock Fund, Asset Allocation Fund, High Yield Bond
Fund, Municipal Bond Fund and the Select Bond Fund, collectively known as "the
Funds." The Funds commenced operations on March 31, 1997 at $10.00 per share
with 1,200 shares in each of the Funds owned by Northwestern Mutual Life
Insurance Company ("Northwestern Mutual"). On April 1, 1997, Northwestern Mutual
invested an additional $225 million in Mason Street FundsSM; $25 million in the
Class A shares in each of the Funds.
Each Fund offers two classes of shares: Class A shares with an initial sales
charge up to 4.75% and Class B shares with contingent deferred sales charge of
5.0% to 0% over a period of up to six years. Each class of shares has equal
rights with respect to voting privileges.
Organizational costs and initial registration expenses are being deferred and
amortized over the period of benefit, but not to exceed 60 months from the
Funds' commencement of operations. These costs, totaling $417,215, were advanced
by Northwestern Mutual and were reimbursed by the Funds equally.
NOTE 2
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principal accounting policies are summarized in the following Notes.
NOTE 3
Bonds are valued on the basis of prices furnished by a service which determines
prices for normal institutional size trading units of bonds, without regard to
exchange or over-the-counter prices. When quotations are not readily available,
bonds are valued using procedures approved by the Board of Directors. Stocks
listed on a national or foreign stock exchange are valued at the final sale
price, or final bid price in absence of a sale. Stocks not listed on a national
or foreign stock exchange are valued at the closing bid price on the over-the-
counter market. Money market investments with maturities exceeding 60 days but
generally not exceeding one year are valued by marking to market on the basis of
an average of the most recent bid prices or yields. Money market investments
with maturities of 60 days or less are valued on an amortized cost basis or, if
the current market value differs substantially from the amortized cost, by
marking to market.
NOTE 4
Securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollar amounts on the date of valuation. Purchases and
sales of securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. When the International Equity Fund, Asset Allocation Fund and
Select Bond Fund purchase or sell a foreign security they may enter into a
foreign exchange currency contract to minimize market risk from the trade date
to the settlement date of such transaction. Such foreign exchange currency
contracts are marked to market daily.
The Funds may enter into forward foreign currency contracts to hedge against
exchange rate risk arising from investments in securities denominated in foreign
currencies. Contracts are valued at the contractual forward rate and are marked
to market daily, with the change in market value recorded as an unrealized gain
or loss. When the contracts are closed, a realized gain or loss is incurred.
Risks may arise from changes in market value of the underlying instruments and
from the possible inability of counter parties to meet the terms of their
contracts.
The International Equity Fund, Asset Allocation Fund and Select Bond Fund do not
separately report the results of operations due to changes in foreign exchange
rates on investments from the fluctuations arising from changes in market prices
of securities held. Such fluctuations are included with the net realized or
unrealized gain or loss from investments.
Net realized and unrealized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade date and
the settlement date on security transactions, and the differences between the
amounts of dividends and foreign withholding taxes recorded on the Funds' books
and the U.S. dollar equivalent of the amounts actually received or paid.
NOTE 5
The Aggressive Growth Stock Fund, Growth Stock Fund, Index 500 Stock Fund, Asset
Allocation Fund, Municipal Bond Fund and the Select Bond Fund invest in futures
contracts as an alternative to investing in individual securities. The
Aggressive Growth Stock Fund, Growth Stock Fund, Index 500 Stock Fund, Asset
Allocation Fund, Municipal Bond Fund and the Select Bond Fund could be exposed
to market risk due to changes in the value of the underlying securities or due
to an illiquid secondary market. Futures contracts are marked to market daily
based upon quoted settlement prices. The Funds receive from or pay to brokers an
amount of cash equal to the daily fluctuation in the value of the contracts.
Such receipts or payments, known as the "variation margin," are recorded by the
Funds as unrealized gains or losses. When the contract is closed, the Funds
record a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
For federal income tax purposes, net unrealized appreciation (depreciation) on
open futures contracts is generally required to be treated as realized gains
(losses).
NOTE 6
Income, Fund expenses, realized and unrealized gains and losses are allocated
daily to each class of shares based on the value of shares outstanding for the
Aggressive Growth Stock Fund, International Equity Fund, Growth Stock Fund,
Growth and Income Stock Fund, Index 500 Stock Fund and Asset Allocation Fund.
Dividends and other distributions are calculated in a similar manner and are
declared and distributed to shareholders annually for these Funds. For the High
Yield Bond Fund, Municipal Bond Fund and Select Bond Fund, income and Fund
expenses are allocated daily to each class of shares based on the value of
settled shares. Realized and unrealized gains and losses are allocated daily to
each class of shares based on the value of shares outstanding. Dividends and
other distributions are calculated in a similar manner. Income dividends are
declared daily, paid monthly. Capital gain dividends are declared and
distributed annually for these Funds.
- -------------------------------------------------------------------------------
NOTE 7
Interest income and discounts earned are recorded daily on the accrual basis and
dividend income is recorded on the ex-dividend date or as soon as information
from foreign issuers is available. Where applicable, dividends are recorded net
of foreign dividend tax. Discounts on securities purchased in the Funds are
amortized over the life of the respective securities using the effective
interest method. Premiums for the Municipal Bond Fund are amortized to the
remaining life or earlier call date, whichever is earlier. Securities
transactions are accounted for on trade date. The basis for determining cost on
sale of securities is identified cost. For the twelve months ended March 31,
1998, transactions in securities other than money market investments were:
Total U.S. Gov't.
Total U.S. Gov't. Security Security
Security Security Sales/ Sales/
Fund Purchases Purchases Maturities Maturities
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH
STOCK FUND $49,309,971 _ $21,559,819 _
- ------------------------------------------------------------------------------
INTERNATIONAL
EQUITY FUND 27,653,903 _ 2,140,426 _
- ------------------------------------------------------------------------------
GROWTH STOCK FUND 33,933,801 _ 10,819,741 _
- ------------------------------------------------------------------------------
GROWTH AND INCOME
STOCK FUND 72,483,999 _ 44,881,446 _
- ------------------------------------------------------------------------------
INDEX 500 STOCK FUND 32,037,885 _ 820,652 _
- ------------------------------------------------------------------------------
ASSET ALLOCATION FUND 45,194,848 $7,160,208 18,751,241 $2,916,424
- ------------------------------------------------------------------------------
HIGH YIELD BOND FUND 80,647,473 _ 51,062,124 _
- ------------------------------------------------------------------------------
MUNICIPAL BOND FUND 70,308,021 _ 44,223,788 _
- ------------------------------------------------------------------------------
SELECT BOND FUND 117,337,835 50,678,197 90,870,266 46,304,976
- ------------------------------------------------------------------------------
NOTE 8
Northwestern Mutual Investment Services, Inc. ("NMIS") serves as investment
advisor to each of the Funds, with certain of the Funds also being served by a
subadvisor. Each Fund pays NMIS an annual fee for investment advisory services
based on average daily net assets of the Fund according to the following
schedule:
Fund Fee
- --------------------------------------------------
AGGRESSIVE GROWTH STOCK FUND 0.75%
- --------------------------------------------------
INTERNATIONAL EQUITY FUND 0.85%
- --------------------------------------------------
GROWTH STOCK FUND 0.75%
- --------------------------------------------------
GROWTH AND INCOME STOCK FUND 0.65%
- --------------------------------------------------
INDEX 500 STOCK FUND 0.30%
- --------------------------------------------------
ASSET ALLOCATION FUND 0.70%
- --------------------------------------------------
HIGH YIELD BOND FUND 0.75%
- --------------------------------------------------
MUNICIPAL BOND FUND 0.30%
- --------------------------------------------------
SELECT BOND FUND 0.30%
- --------------------------------------------------
J.P. Morgan Investment Management Inc. ("J.P. Morgan") and Templeton Investment
Counsel, Inc. ("Templeton") have been retained under investment subadvisory
agreements to provide investment advice and, in general, to conduct the
management investment program of the Growth and Income Stock Fund and the
International Equity Fund, respectively. Of the amounts received from the Growth
and Income Stock Fund, NMIS pays J.P. Morgan 0.45% on the first $100 million of
the combined net assets for all funds managed for Northwestern Mutual by J.P.
Morgan, 0.40% on the next $100 million, 0.35% on the next $200 million and 0.30%
on the combined net assets in excess of $400 million. Of the amounts received
from the International Equity Fund, NMIS pays Templeton 0.50% on the first $100
million of the combined net assets for all funds managed for Northwestern Mutual
by Templeton and 0.40% on the combined net assets in excess of $100 million.
Robert W. Baird & Co. Incorporated ("Baird") serves as the Distributor of the
Funds. Baird is an affiliate of Northwestern Mutual and NMIS. The Funds have a
12b-1 distribution plan and shareholder services agreement with Baird pursuant
to which a 0.35% and a 1.00% annual fee for Class A and Class B, respectively,
is calculated based on daily net assets.
The 0.35% fee for Class A is comprised of a 0.25% shareholder servicing fee and
a 0.10% distribution fee paid to Baird for various distribution expenses. The
1.00% fee for Class B is comprised of a 0.25% shareholder servicing fee and a
0.75% distribution fee. Of the 1.00%, 0.35% is paid to Baird for distribution
expenses; the remaining 0.65% is paid to Northwestern Mutual for reimbursement
of commissions paid to agents.
Baird received $357,002 of dealer allowances, Northwestern Mutual received
$101,130 of underwriting concessions from Class A sales charges and Northwestern
Mutual received $6,428 of contingent deferred sales charges from Class B shares
for the twelve months ended March 31, 1998.
Each Fund also pays the administrator, Northwestern Mutual, a monthly fee at an
annual rate of 0.10% plus costs for pricing securities. This administration fee
is for services including recordkeeping, preparation of reports and fund
accounting (except for the International Equity Fund). For the International
Equity Fund, Northwestern Mutual waives a portion of its fee equal to the fund
accounting fee paid to Brown Brothers Harriman & Co.
In addition, each Fund pays transfer agent and custodian fees, outside
professional and auditing fees, registration fees, trademark fees,
organizational costs, insurance premiums, Directors' fees and expenses, and the
printing and mailing costs of sending reports and other information to existing
shareholders.
The Funds pay a portion of their custodian fees indirectly through expense
offset arrangements. Custodian fees are reduced for maintaining compensating
balances in non-interest bearing accounts. The Funds could have invested the
assets used to pay for the custodian fees, had the assets not been used in the
expense offset arrangements.
NMIS and affiliates have agreed to waive their fees and absorb certain other
operating expenses during the first year of operations to the extent necessary
so that Total Operating Expenses will not exceed the following amounts:
Fund Class A Class B
- ------------------------------------------------------------
AGGRESSIVE GROWTH STOCK FUND 1.30% 1.95%
- ------------------------------------------------------------
INTERNATIONAL EQUITY FUND 1.65% 2.30%
- ------------------------------------------------------------
GROWTH STOCK FUND 1.30% 1.95%
- ------------------------------------------------------------
GROWTH AND INCOME STOCK FUND 1.20% 1.85%
- ------------------------------------------------------------
INDEX 500 STOCK FUND 0.85% 1.50%
- ------------------------------------------------------------
ASSET ALLOCATION FUND 1.35% 2.00%
- ------------------------------------------------------------
HIGH YIELD BOND FUND 1.30% 1.95%
- ------------------------------------------------------------
MUNICIPAL BOND FUND 0.85% 1.50%
- ------------------------------------------------------------
SELECT BOND FUND 0.85% 1.50%
- ------------------------------------------------------------
NMIS and affiliates have waived the following fees for the twelve months ended
March 31, 1998:
Distribution Fees
-----------------
Fund Class A Class B Other Total
- ----------------------------------------------------------------------------
AGGRESSIVE GROWTH
STOCK FUND _ $209 $119,907 $120,116
- ----------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND $1,856 _ 130,821 132,677
- ----------------------------------------------------------------------------
GROWTH STOCK FUND 9,675 _ 96,612 106,287
- ----------------------------------------------------------------------------
GROWTH AND INCOME
STOCK FUND _ 287 118,451 118,738
- ----------------------------------------------------------------------------
INDEX 500 STOCK FUND 30,728 _ 126,566 157,294
- ----------------------------------------------------------------------------
ASSET ALLOCATION FUND _ _ 98,299 98,299
- ----------------------------------------------------------------------------
HIGH YIELD BOND FUND _ 64 108,682 108,746
- ----------------------------------------------------------------------------
MUNICIPAL BOND FUND _ 21 106,578 106,599
- ----------------------------------------------------------------------------
SELECT BOND FUND 12,782 354 109,347 122,483
- ----------------------------------------------------------------------------
TOTAL $55,041 $935 $1,015,263 $1,071,239
- ----------------------------------------------------------------------------
The Aggressive Growth Stock Fund and Asset Allocation Fund paid commissions on
Fund transactions to an affiliated broker in the amount of $990 and $63,
respectively, during the twelve months ended March 31, 1998.
NOTE 9
Each Fund intends to comply with the requirements of the Internal Revenue Code
necessary to qualify as a regulated investment company and to make the requisite
distributions of income and capital gains to its shareholders sufficient to
relieve it from all or substantially all federal income taxes. Accordingly, no
provisions have been made for federal taxes.
Taxable distributions from net investment income and realized capital gains in
the Funds differ from book amounts earned during the period due to differences
in the timing of capital recognition, and due to the reclassification of certain
gains or losses from capital to income. The differences between cost amounts for
book purposes and tax purposes are due to treatment of passive foreign
investment companies and deferred wash losses.
It is the policy of the Fund to reclassify the net effect of permanent
differences between book and taxable income to capital accounts on the
statements of assets and liabilities.
DISTRIBUTIONS (UNAUDITED)
Dividends distributed during the fiscal year which were derived from interest on
U.S. government securities which is generally exempt from state income tax are
as follows:
Aggressive Growth Stock Fund................. 0.0%
International Equity Fund....................10.5%
Growth Stock Fund............................ 4.0%
Growth and Income Stock Fund................. 2.0%
Index 500 Stock Fund......................... 0.9%
Asset Allocation Fund........................11.8%
High Yield Bond Fund......................... 0.3%
Municipal Bond Fund.......................... 0.4%
Select Bond Fund.............................11.1%
Under IRC 854(b)(2) of the Internal Revenue Code, the Funds hereby designate the
following percentages of ordinary income dividends (including short-term capital
gain distributions) paid by each Fund as income qualifying for the dividends
received deduction for the twelve months ended March 31, 1998.
Aggressive Growth Stock Fund................. 2.1%
International Equity Fund.....................0.0%
Growth Stock Fund............................16.4%
Growth and Income Stock Fund................. 6.8%
Index 500 Stock Fund.........................70.0%
Asset Allocation Fund........................10.5%
High Yield Bond Fund.........................14.8%
Municipal Bond Fund...........................0.0%
Select Bond Fund..............................0.0%
The Municipal Bond Fund designates 96% of the income distribution as a tax-
exempt income distribution.
The International Equity Fund elects to pass foreign taxes through to the Fund's
shareholders. During the twelve months ended March 31, 1998, the amount was
$78,856. In addition, for the twelve months ended March 31, 1998, gross income
derived from sources within foreign countries amounted to $746,543 for the
International Equity Fund.
The following distributions through fiscal year ended March 31, 1998 are
designated as long-term capital gains:
Capital Gain Distributions
--------------------------
Fund 28% Rate 20% Rate
- ----------------------------------------------------------
GROWTH STOCK FUND _ $9,471
- ----------------------------------------------------------
INDEX 500 FUND _ 75,811
- ----------------------------------------------------------
MUNICIPAL BOND FUND $33,591 19,082
- ----------------------------------------------------------
SELECT BOND FUND 11,497 43,238
- ----------------------------------------------------------
The data is informational only. Every year in January, shareholders are sent a
Form 1099-DIV representing their portion of the capital gain distributions on a
calendar year basis to be reported on their income tax return.
AGGRESSIVE GROWTH STOCK FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (95.92%)
BUSINESS SERVICES (11.64%)
<F1> ABR Information Services, Inc. 15,800 $444,375
<F1> Billing Information Concepts 20,000 518,750
<F1> Carriage Services, Inc. 2,800 67,200
Cintas Corp. 18,000 931,500
<F1> Interim Services, Inc. 24,600 830,250
<F1> Metzler Group, Inc. 20,000 995,000
<F1> Robert Half International, Inc. 16,650 799,200
<F1> Steven Myers & Associates, Inc. 16,000 284,000
Stewart Enterprises, Inc. 3,500 194,688
---------------------------------------------------------------------
TOTAL 5,064,963
=====================================================================
CAPITAL GOODS (4.90%)
<F1> Brooks Automation, Inc. 1,500 23,625
Kaydon Corporation 22,800 931,950
<F1> Kaynar Technologies, Inc. 15,700 437,638
Omniquip International, Inc. 13,000 321,750
<F1> Triumph Group, Inc. 9,400 417,125
---------------------------------------------------------------------
TOTAL 2,132,088
=====================================================================
COMMUNICATION SERVICES (2.70%)
<F1> Pacific Gateway Exchange, Inc. 12,800 732,800
<F1> Premiere Technologies, Inc. 12,800 443,200
---------------------------------------------------------------------
TOTAL 1,176,000
=====================================================================
CONSUMER CYCLICAL (14.29%)
<F1> Blyth Industries, Inc. 13,800 470,925
<F1> Cendant Corp. 21,300 844,012
<F1> Dollar Tree Stores, Inc. 10,000 531,250
Galileo International, Inc. 11,400 442,462
<F1> Getty Images, Inc. 18,800 472,350
<F1> Jones Apparel Group, Inc. 8,700 479,043
<F1> K&G Men's Center, Inc. 26,850 553,781
<F1> Kohl's Corporation 6,000 490,500
<F1> Michaels Stores, Inc. 2,300 85,963
<F1> O'Reilly Automotive Inc. 26,000 716,625
<F1> Tower Automotive, Inc. 12,300 553,500
<F1> VWR Scientific Products Corporation 16,400 579,125
---------------------------------------------------------------------
TOTAL 6,219,536
=====================================================================
CONSUMER STAPLES (4.69%)
Cardinal Health, Inc. 8,100 714,318
<F1> Chancellor Media Corp. 10,000 458,750
<F1> Clear Channel Communications, Inc. 4,300 421,400
<F1> Heftel Broadcasting Corporation 6,800 304,300
<F1> Ivex Packaging Corporation 5,800 142,100
---------------------------------------------------------------------
TOTAL 2,040,868
=====================================================================
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (5.71%)
<F1> Barrett Resources Corporation 10,900 $380,818
<F1> BJ Services Company 14,800 539,275
<F1> EVI, Inc. 5,700 263,981
<F1> Global Industries, Ltd. 8,100 165,038
<F1> Marine Drilling Companies, Inc. 5,800 125,425
<F1> Nabors Industries, Inc. 6,200 146,863
Tosco Corporation 8,400 296,100
Transocean Offshore Inc. 11,000 565,813
---------------------------------------------------------------------
TOTAL 2,483,313
=====================================================================
FINANCE (6.23%)
<F1> Affiliated Managers Group 18,600 648,675
<F1> ESG Re Limited 10,100 262,600
Investors Financial Services Corp. 13,000 715,000
Life Re Corporation 3,400 250,750
<F1> Trammell Crow Company 29,300 835,050
---------------------------------------------------------------------
TOTAL 2,712,075
=====================================================================
HEALTHCARE (12.42%)
<F1> Concentra Managed Care, Inc. 18,960 583,020
<F1> Lincare Holdings, Inc. 12,500 882,812
<F1> Patterson Dental Company 21,150 655,650
<F1> PhyCor, Inc. 17,600 397,100
<F1> Province Healthcare Company 1,100 28,875
<F1> PSS World Medical, Inc. 24,000 564,000
<F1> Quintiles Transnational Corp. 4,200 202,388
<F1> Quorum Health Group, Inc. 23,250 781,781
<F1> Sybron International Corporation 27,000 705,375
<F1> Wesley Jessen VisionCare, Inc. 18,400 604,900
---------------------------------------------------------------------
TOTAL 5,405,901
=====================================================================
TECHNOLOGY (28.38%)
<F1> Cambridge Technology Partners, Inc. 17,600 872,300
<F1> CBT Group Public Limited Company 15,600 807,300
<F1> Ciena Corp. 9,500 404,938
<F1> Concord EFS, Inc. 21,900 756,919
<F1> Cotelligent Group, Inc. 13,800 408,825
<F1> DSET Corporation 20,000 373,750
<F1> Gemstar International Group Limited 9,400 282,000
General Cable Corporation 12,600 571,725
HBO & Company 15,100 911,663
<F1> IDT Corporation 12,700 476,250
National Data Corporation 10,100 419,781
<F1> Novellus Systems, Inc. 7,200 311,400
<F1> Pairgain Technologies, Inc. 8,300 199,200
Paychex, Inc. 15,400 888,388
PeopleSoft, Inc. 18,400 969,450
<F1> PMC-Sierra, Inc. 11,700 444,600
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (continued)
<F1> Qlogic Corporation 16,300 $578,650
<F1> <F2> Saville Systems PLC-ADR 17,100 876,375
<F1> Semtech Corporation 12,400 316,200
<F1> Tellabs, Inc. 10,700 718,237
<F1> Transaction Systems Architects, Inc. 8,700 338,213
<F1> Uniphase Corporation 10,000 420,625
---------------------------------------------------------------------
TOTAL 12,346,789
=====================================================================
TRANSPORTATION (4.96%)
<F1> Heartland Express, Inc. 18,400 510,600
<F1> Jevic Transportation, Inc. 32,900 493,500
<F1> Knight Transportation, Inc. 18,700 598,400
<F1> Swift Transportation Co., Inc. 22,950 550,800
---------------------------------------------------------------------
TOTAL 2,153,300
=====================================================================
TOTAL COMMON STOCK 41,734,833
=====================================================================
MONEY MARKET INVESTMENTS (1.84%)
FINANCE SERVICES (1.84%)
General Electric Capital Corporation,
6.02%, 4/1/98 $300,000 $300,000
PHH Corp.,
5.54%, 4/15/98 500,000 498,923
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 798,923
=====================================================================
TOTAL INVESTMENTS (97.76%)
(COST $30,413,146)<F3> 42,533,756
=====================================================================
OTHER ASSETS, LESS LIABILITIES (2.24%) 976,569
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $43,510,325
=====================================================================
<F1> Non-Income Producing
<F2> ADR - American Depositary Receipt
<F3> At March 31, 1998, the aggregate cost of securities for federal income
tax purposes was $30,413,146 and the net unrealized appreciation of
investments based on that cost was $12,120,610 which is comprised of
$12,425,733 aggregate gross unrealized appreciation and $305,123
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
Country Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (87.75%)
CAPITAL EQUIPMENT (11.92%)
BICC PLC U.K. 57,000 $141,265
BTR, PLC A U.K. 167,400 551,529
Dragados &
Construcciones, S.A. Sp. 15,600 513,658
<F1> Granges AB Swe. 7,700 133,879
Hong Kong Aircraft
& Engineering H.K. 135,000 261,348
<F3> Madeco S.A., ADR Chile 17,500 302,969
Nanjing Panda
Electronics Co., Ltd. China 868,000 114,265
New Holland N.V. Neth. 15,000 408,750
Philips Electronic, Inc. Neth. 5,600 410,994
Sirti SPA Italy 39,300 269,700
The Weir Group PLC U.K. 126,200 573,756
---------------------------------------------------------------------
TOTAL 3,682,113
=====================================================================
CONSUMER GOODS (14.68%)
Autoliv, Inc. Swe. 14,400 447,300
CP Feedmill Public
Company Limited Thai. 83,000 143,796
Express Diaries PLC U.K. 37,000 116,482
Fiat SPA Ord. Italy 84,920 354,275
<F3> Fila Holding SPA, ADR Italy 3,800 89,063
Fisher & Paykel
Industries Ltd. N.Z. 102,100 307,631
Medeva PLC U.K. 176,000 492,184
Northern Foods PLC U.K. 74,000 283,769
<F1> Nycomed Amersham PLC U.K. 15,809 593,025
The Oshawa Group Ltd.,
Class A Can. 36,500 660,883
Renault S.A. Fr. 15,100 672,644
Tate & Lyle, PLC U.K. 34,500 300,992
<F3> Teva Pharmaceutical
Industries Ltd., ADR Israel 1,700 72,675
---------------------------------------------------------------------
TOTAL 4,534,719
=====================================================================
ENERGY (7.61%)
<F3> Gazprom, ADR (144a) Rus. 18,200 385,840
Hong Kong Electric H.K. 106,000 364,583
<F3> Korea Electric Power
Corp., ADR Kor. 15,775 156,764
National Grid Group PLC U.K. 26,860 158,661
Petroleo Brasileiro
S.A. - Petrobras Braz. 1,339,000 319,132
Thames Water U.K. 23,000 365,697
<F3> YPF S.A., ADR Arg. 17,700 601,800
---------------------------------------------------------------------
TOTAL 2,352,477
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (17.49%)
AXA S.A. Fr. 8,600 $885,561
Banco Bradesco S.A. Braz. 27,950,000 288,829
Banco Itau S.A. Braz. 94,000 60,349
Banque Nationale de Paris Fr. 11,700 909,246
Credit Commercial de France Fr. 5,800 476,480
Hang Lung Development H.K. 133,000 193,107
<F2> Industrial Credit & Inv. Corp.
of India (144a), GDR India 17,000 259,250
National Mutual Asia Ltd. H.K. 295,000 241,763
<F3> Nortel Inversora S.A., ADR Arg. 15,100 436,013
PartnerRe Ltd. Bermuda 11,500 564,938
Peregrine Investments
Holdings, Ltd. H.K. 66,000 -
<F1> Unibanco Uniao de Bancos Braz. 1,579,000 113,594
Unidanmark A/S, A,
Registered Den. 7,000 556,044
Wing Hang Bank Ltd. H.K. 67,200 199,476
Zurich Versicherungs-
Gesellschaft Swtz. 380 220,597
---------------------------------------------------------------------
TOTAL 5,405,247
=====================================================================
MATERIALS (11.27%)
Boehler-Uddeholm AG Aus. 4,000 271,153
British Steel PLC U.K. 217,100 515,325
Courtaulds PLC U.K. 42,200 254,398
Enso Oy, A shares Fin. 61,000 559,718
Fletcher Challenge Forests N.Z. 4,840 3,371
Fletcher Challenge Paper N.Z. 121,000 170,582
Grupo Mexico, B shares Mex. 73,700 240,533
Hepworth PLC U.K. 58,200 251,444
<F1> <F3> Minorco S.A., ADR Lux. 13,350 220,066
Pechiney S.A. A shares Fr. 9,300 427,786
Pioneer International Ltd. Austrl. 109,700 316,452
Siam City Cement
Public Co., Ltd. Thai. 52,036 139,204
Thai Glass Industries
Public Co., Ltd. Thai. 80,100 112,242
---------------------------------------------------------------------
TOTAL 3,482,274
=====================================================================
MULTI-INDUSTRY (8.17%)
Amer Group Ltd., A Fin. 13,000 250,381
Elementis PLC U.K. 68,280 158,357
Hicom Holdings Berhad Mly. 247,300 141,315
Jardine Matheson Holdings Sing. 62,500 283,750
Metro Pacific Corporation Phil. 2,660,000 164,232
Pilkington PLC U.K. 242,800 496,029
Scor Fr. 13,000 744,853
Swire-Pacific Limited B H.K. 296,000 284,604
---------------------------------------------------------------------
TOTAL 2,523,521
=====================================================================
<PAGE>
Country Shares/Par Market Value
---------------------------------------------------------------------
SERVICES (16.61%)
British Telecom U.K. 82,000 $890,476
David Jones Ltd. Austrl. 77,500 89,940
Inchcape Motors Ltd. Sing. 69,000 120,483
<F1> Inchcape Marketing
Services Limited Sing. 69,000 21,576
Marieberg Tidings A Free Swe. 9,200 279,642
Mayne Nickless Ltd. Austrl. 55,700 288,112
News Corporation
Limited, Pfd. Austrl. 147,500 835,337
Osprey Maritime Ltd. Sing. 235,000 127,322
<F3> PT Indosat, ADR Indo. 11,200 172,900
Royal PTT Nederland N.V. Neth. 11,700 606,130
Somerfield PLC U.K. 82,500 494,578
South China Morning
Post Ltd. H.K. 133,000 89,258
Telecomunicacoes Brasileiras
S.A. Telebras ADR Braz. 4,578,500 473,131
<F3> Telefonica del Peru S.A.
B, ADR Peru 17,500 377,344
Thorn PLC U.K. 88,699 225,025
<F1> Waste Management
International PLC U.K. 10,400 39,620
---------------------------------------------------------------------
TOTAL 5,130,874
=====================================================================
TOTAL COMMON STOCK 27,111,225
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
MONEY MARKET INVESTMENTS (11.30%)
FINANCE SERVICES (11.30%)
Associates Corporation of N.A.,
5.56%, 4/30/98 U.S. $1,200,000 $1,194,625
Ford Motor Credit Company,
5.53%, 4/15/98 U.S. 1,000,000 997,850
General Electric Capital
Corporation, 6.02%, 4/1/98 U.S. 1,300,000 1,300,000
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 3,492,475
=====================================================================
TOTAL INVESTMENTS (99.05%)
(COST $29,181,851)<F4> 30,603,700
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.95%) 293,057
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $30,896,757
=====================================================================
<F1> Non-Income Producing
<F2> GDR - Global Depositary Receipt
<F3> ADR - American Depositary Receipt
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F4> At March 31, 1998, the aggregate cost of securities for federal
income tax purposes was $29,417,785 and the net unrealized
appreciation of investments based on that cost was $1,185,915
which is comprised of $4,629,185 aggregate gross unrealized
appreciation and $3,443,270 aggregate gross unrealized depreciation.
INVESTMENT PERCENTAGES BY COUNTRY:
Australia 4.95%
Brazil 4.06%
France 13.32%
Hong Kong 5.29%
Netherlands 4.61%
United Kingdom 20.34%
Other 47.43%
--------------------------------------------------------------------
TOTAL 100.00%
====================================================================
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
GROWTH STOCK FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (87.72%)
BASIC MATERIALS (2.36%)
Ecolab, Inc. 19,000 $551,000
Monsanto Company 7,100 369,200
---------------------------------------------------------------------
TOTAL 920,200
=====================================================================
CAPITAL GOODS (8.89%)
AlliedSignal, Inc. 16,400 688,800
Avery Dennison Corporation 13,800 736,575
Boeing Company 6,500 338,812
General Electric Company 14,000 1,206,625
Tyco International Ltd. 9,100 497,088
---------------------------------------------------------------------
TOTAL 3,467,900
=====================================================================
COMMUNICATION SERVICES (3.23%)
AT&T Corp. 2,500 164,062
MCI Communications Corporation 7,000 346,500
<F1> Teleport Communications Group, Inc. 6,100 358,375
<F1> WorldCom, Inc. 9,100 391,869
---------------------------------------------------------------------
TOTAL 1,260,806
=====================================================================
CONSUMER CYCLICAL (13.76%)
Borg-Warner Automotive, Inc. 12,000 769,500
<F1> Federated Department Stores, Inc. 7,300 378,231
Harley-Davidson, Inc. 23,100 762,300
<F1> Kohl's Corporation 11,600 948,300
Steelcase, Inc. 16,700 609,550
The New York Times Company Cl A 9,700 679,000
Tribune Company 9,400 662,700
Wal-Mart Stores, Inc. 11,000 558,938
---------------------------------------------------------------------
TOTAL 5,368,519
=====================================================================
CONSUMER STAPLES (20.43%)
<F1> Benckiser N.V. 9,600 528,000
Campbell Soup Company 11,600 658,300
Hershey Foods Corporation 11,700 838,013
<F1> Keebler Foods Company 22,700 681,000
McDonald's Corporation 4,800 288,000
Newell Co. 12,400 600,625
PepsiCo, Inc. 18,000 768,375
Philip Morris Companies, Inc. 12,300 512,756
Procter & Gamble Company 8,000 675,000
The Quaker Oats Company 4,200 240,450
The ServiceMaster Company 17,000 485,562
Unilever NV 12,400 850,950
Walgreen Co. 24,100 848,019
---------------------------------------------------------------------
TOTAL 7,975,050
=====================================================================
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (7.25%)
British Petroleum Company PLC 3,700 $318,431
Diamond Offshore Drilling, Inc. 9,000 408,375
Exxon Corporation 5,800 392,225
Mobil Corporation 5,200 398,450
<F1> R&B Falcon Corporation 5,700 168,862
Schlumberger Limited 5,900 446,925
Tosco Corporation 12,500 440,625
Transocean Offshore Inc. 5,000 257,188
---------------------------------------------------------------------
TOTAL 2,831,081
=====================================================================
FINANCE (11.40%)
Banc One Corporation 7,260 459,195
BankAmerica Corporation 3,800 313,975
Chase Manhattan Corporation 2,600 350,675
Citicorp 2,400 340,800
Franklin Resources, Inc. 15,600 826,800
Morgan Stanley Dean Witter & Co. 14,100 1,027,537
The Bank of New York Company, Inc. 2,950 185,297
Travelers Group, Inc. 15,750 945,000
---------------------------------------------------------------------
TOTAL 4,449,279
=====================================================================
HEALTHCARE (5.92%)
Bristol-Myers Squibb Company 4,900 511,131
Eli Lilly and Company 7,000 417,375
Guidant Corporation 2,200 161,425
<F1> HEALTHSOUTH Corporation 11,894 333,776
Johnson & Johnson 4,500 329,906
Merck & Co., Inc. 2,800 359,450
Pfizer, Inc. 2,000 199,375
---------------------------------------------------------------------
TOTAL 2,312,438
=====================================================================
TECHNOLOGY (12.15%)
<F1> Cisco Systems, Inc. 6,900 471,788
Compaq Computer Corporation 8,700 225,113
<F1> Fiserv, Inc. 15,700 994,987
Hewlett-Packard Company 8,200 519,675
Intel Corporation 3,500 273,219
International Business Machines
Corporation 6,800 706,350
Lucent Technologies, Inc. 3,300 421,987
<F1> Microsoft Corporation 10,200 912,900
Motorola, Inc. 3,600 218,250
---------------------------------------------------------------------
TOTAL 4,744,269
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
TRANSPORTATION (2.33%)
<F1> AMR Corporation 1,900 $272,056
<F1> FDX Corporation 3,500 248,938
Southwest Airlines Co. 13,200 390,225
---------------------------------------------------------------------
TOTAL 911,219
=====================================================================
TOTAL COMMON STOCK 34,240,761
=====================================================================
MONEY MARKET INVESTMENTS (12.02%)
FINANCE SERVICES (5.11%)
<F2> Associates Corp. of N.A.,
5.56%, 4/30/98 $1,000,000 $995,521
<F2> General Electric Capital Corporation,
5.54%, 4/8/98 1,000,000 998,923
---------------------------------------------------------------------
TOTAL 1,994,444
=====================================================================
FEDERAL GOVERNMENT AND AGENCIES (6.91%)
<F2> Federal Home Loan Bank Discount
Corp., 5.70%, 4/1/98 2,500,000 2,500,000
<F2> Federal National Mortgage
Association, 5.39%, 5/26/98 200,000 198,353
---------------------------------------------------------------------
TOTAL 2,698,353
=====================================================================
TOTAL MONEY MARKET INVESTMENTS 4,692,797
=====================================================================
TOTAL INVESTMENTS (99.74%)
(COST $29,341,934)<F3> 38,933,558
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.26%) 102,001
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $39,035,559
=====================================================================
<F1> Non-Income Producing
<F2> Partially held by the custodian in a segregated account as collateral
for open futures positions. Information regarding open futures
contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuer Contracts Date Appreciation
---------------------------------------------------------------------
S&P 500R Stock Index
(Total market value at
3/31/98, $3,886,750) 14 6/98 $48,969
<F3> At March 31, 1998, the aggregate cost of securities for federal tax
purposes was $29,341,934 and the net unrealized appreciation of
investments based on that cost was $9,591,624 which is comprised of
$9,766,464 aggregate gross unrealized appreciation and $174,840
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
GROWTH AND INCOME STOCK FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (97.73%)
BASIC MATERIALS (5.61%)
Albemarle Corporation 5,300 $133,825
Allegheny Teledyne, Inc. 6,300 175,219
Dow Chemical Company 3,400 330,650
E.I. du Pont de Nemours & Company 8,900 605,200
Rohm and Haas Company 6,500 671,531
Temple-Inland, Inc. 4,600 285,775
---------------------------------------------------------------------
TOTAL 2,202,200
=====================================================================
CAPITAL GOODS (8.39%)
AlliedSignal, Inc. 17,000 714,000
<F1> Coltec Industries, Inc. 16,300 407,500
Cooper Industries, Inc. 11,300 671,644
Johnson Controls Inc. 7,500 455,156
Tyco International Ltd. 5,848 319,447
Waste Management, Inc. 23,800 733,338
---------------------------------------------------------------------
TOTAL 3,301,085
=====================================================================
COMMUNICATION SERVICES (5.65%)
BellSouth Corporation 2,400 162,150
GTE Corporation 10,900 652,637
MCI Communications Corporation 18,700 925,650
SBC Communications, Inc. 11,000 479,875
---------------------------------------------------------------------
TOTAL 2,220,312
=====================================================================
CONSUMER CYCLICAL (10.35%)
Chrysler Corporation 14,600 606,812
Circuit City Stores, Inc. 7,800 333,450
<F1> Federated Department Stores, Inc. 13,900 720,194
<F1> Fruit of the Loom, Inc. 14,000 428,750
Goodyear Tire & Rubber Company 10,300 780,225
International Game Technology 13,800 345,000
<F1> Kmart Corporation 33,700 562,369
Sears, Roebuck and Co. 5,100 292,931
---------------------------------------------------------------------
TOTAL 4,069,731
=====================================================================
CONSUMER STAPLES (13.04%)
Anheuser-Busch Companies, Inc. 15,800 731,737
PepsiCo, Inc. 11,200 478,100
Philip Morris Companies, Inc. 17,600 733,700
Procter & Gamble Company 8,700 734,063
Ralston Purina Group 3,800 402,800
<F1> Tele Communications, Inc. 37,816 664,144
The Gillette Company 5,100 605,306
<F1> The Kroger Company 4,700 217,081
The Seagram Company Ltd. 14,700 561,356
---------------------------------------------------------------------
TOTAL 5,128,287
=====================================================================
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (8.23%)
Atlantic Richfield Company 4,100 $322,362
British Petroleum Company PLC 7,638 657,345
Exxon Corporation 8,200 554,525
<F1> Input/Output, Inc. 20,400 476,850
Occidental Petroleum Corporation 500 14,656
Schlumberger Limited 2,300 174,225
Tosco Corporation 29,400 1,036,350
---------------------------------------------------------------------
TOTAL 3,236,313
=====================================================================
FINANCE (15.18%)
American Express Company 4,000 367,250
American International Group, Inc. 1,600 201,500
Capital One Financial Corporation 3,800 299,725
First Union Corporation 15,720 892,110
Green Tree Financial Corporation 10,500 298,594
Marsh & McLennan Companies, Inc. 9,600 838,200
MBIA, Inc. 6,400 496,000
Morgan Stanley Dean Witter & Co. 5,900 429,963
NationsBank Corp. 8,400 612,675
Simon Debartolo Group, Inc. 5,800 198,650
Travelers Group, Inc. 13,200 792,000
Washington Mutual, Inc. 7,600 545,063
---------------------------------------------------------------------
TOTAL 5,971,730
=====================================================================
HEALTHCARE (12.62%)
<F1> Alza Corporation 8,700 389,869
American Home Products Corporation 11,400 1,087,275
Bristol-Myers Squibb Company 10,700 1,116,144
Eli Lilly and Company 5,100 304,088
United Healthcare Corp. 12,700 822,325
Warner-Lambert Company 7,300 1,243,281
---------------------------------------------------------------------
TOTAL 4,962,982
=====================================================================
REAL ESTATE INVESTMENT TRUSTS (2.66%)
StarWood Lodging Trust 19,579 1,046,253
---------------------------------------------------------------------
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (10.03%)
AutoDesk, Inc. 3,200 $138,000
<F1> Cisco Systems, Inc. 7,250 495,719
<F1> EMC Corporation 17,100 646,594
First Data Corporation 17,400 565,500
International Business
Machines Corporation 3,800 394,725
<F1> Oracle Corporation 26,900 849,031
Perkin Elmer Corporation 2,800 202,475
Quantum Corporation 9,700 206,731
<F1> Sun Microsystems, Inc. 10,700 446,390
---------------------------------------------------------------------
TOTAL 3,945,165
=====================================================================
TRANSPORTATION (3.09%)
Union Pacific Corporation 16,200 910,237
Wisconsin Central Transportation 10,900 306,903
---------------------------------------------------------------------
TOTAL 1,217,140
=====================================================================
UTILITIES (2.88%)
Enron Corp. 5,700 264,338
New England Electric Systems 10,000 456,875
Northern States Power Company 7,000 413,000
---------------------------------------------------------------------
TOTAL 1,134,213
=====================================================================
TOTAL COMMON STOCK 38,435,411
=====================================================================
TOTAL INVESTMENTS (97.73%)
(COST $33,869,062)<F2> 38,435,411
=====================================================================
OTHER ASSETS, LESS LIABILITIES (2.27%) 894,207
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $39,329,618
=====================================================================
<F1> Non-Income Producing
<F2> At March 31, 1998, the aggregate cost of securities for federal income
tax purposes was $33,911,331 and the net unrealized appreciation of
investments based on that cost was $4,524,080 which is comprised of
$5,225,572 aggregate gross unrealized appreciation and $701,492
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
INDEX 500 STOCK FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (90.58%)
BASIC MATERIALS (3.96%)
Air Products & Chemicals, Inc. 600 $49,725
Alcan Aluminum Limited 1,100 34,375
Allegheny Teledyne, Inc. 900 25,031
Aluminum Co. of America 900 61,931
Archer Daniels Midland Company 2,920 64,057
<F1> Armco, Inc. 500 2,937
ASARCO, Inc. 200 5,338
B.F. Goodrich Company 400 20,425
Barrick Gold Corporation 1,800 38,925
Battle Mountain Gold Company 1,100 7,012
Bemis Company, Inc. 300 13,538
<F1> Bethlehem Steel Corporation 500 6,781
Boise Cascade Corporation 300 10,819
Champion International 500 27,156
Cyprus Amax Minerals Co. 400 6,650
Dow Chemical Company 1,100 106,975
E.I. du Pont de Nemours & Company 5,700 387,600
Eastman Chemical Company 400 26,975
Ecolab, Inc. 600 17,400
Engelhard Corp. 700 13,300
<F1> FMC Corporation 200 15,700
Freeport-McMoRan Copper & Gold, Inc. 900 17,944
Georgia Pacific Corporation 500 32,375
Great Lakes Chemical 300 16,200
Hercules, Inc. 500 24,688
Homestake Mining Company 700 7,612
Inco Limited 800 14,950
Inland Steel Industries, Inc. 200 5,525
International Flavors & Fragrances, Inc. 500 23,562
International Paper Company 1,500 70,219
Louisiana Pacific Corporation 500 11,625
Mead Corp. 500 17,906
Monsanto Company 3,000 156,000
Morton International, Inc. 600 19,688
Nalco Chemical Company 300 12,169
Newmont Mining Corporation 758 23,166
Nucor Corp. 400 21,775
Phelps Dodge Corporation 300 19,369
Pioneer Hi-Bred International 300 29,269
Placer Dome, Inc. 1,100 14,506
Potlatch Corporation 100 4,306
PPG Industries, Inc. 900 61,144
Praxair 800 41,150
Reynolds Metals Company 400 24,575
Rohm and Haas Company 300 30,994
Sigma-Aldrich Corp. 500 18,625
Shares/Par Market Value
---------------------------------------------------------------------
BASIC MATERIALS (CONTINUED)
<F1> Stone Container Corporation 500 $6,250
Temple-Inland, Inc. 300 18,638
Union Camp Corporation 400 23,900
Union Carbide Corporation 600 30,075
USX - U.S. Steel Group, Inc. 400 15,100
W.R. Grace & Co. 400 33,475
Westvaco Corporation 500 15,375
Weyerhaeuser Company 1,000 56,500
Willamette Industries Inc. 600 22,538
Worthington Industries 500 9,063
---------------------------------------------------------------------
TOTAL 1,892,906
=====================================================================
CAPITAL GOODS (8.16%)
Aeroquip-Vickers, Inc. 100 5,781
AlliedSignal, Inc. 2,800 117,600
AMP, Inc. 1,100 48,194
Avery Dennison Corporation 500 26,688
Ball Corporation 100 3,275
Boeing Company 5,070 264,274
Briggs & Stratton Corporation 100 4,581
Browning-Ferris Industries, Inc. 1,000 32,625
Case Corporation 400 27,250
Caterpillar, Inc. 1,900 104,619
Cincinnati Milacron, Inc. 200 6,375
Cooper Industries, Inc. 600 35,663
Corning, Inc. 1,200 53,100
Crane Co. 200 10,600
Crown Cork & Seal Company, Inc. 600 32,100
Cummins Engine Company, Inc. 200 11,025
Deere & Company 1,300 80,519
Dover Corporation 1,100 41,800
Eaton Corporation 400 38,075
Emerson Electric Co. 2,200 143,413
Fluor Corporation 400 19,900
Foster Wheeler Corporation 200 6,112
General Dynamics Corporation 300 25,838
General Electric Company 16,400 1,413,475
General Signal Corporation 200 9,350
Harnischfeger Industries, Inc. 200 6,838
Honeywell, Inc. 600 49,613
Illinois Tool Works, Inc. 1,300 84,175
Ingersoll-Rand Company 850 40,747
Johnson Controls, Inc. 400 24,275
Lockheed Martin Corporation 1,000 112,500
McDermott International, Inc. 300 12,394
Millipore Corp. 200 6,950
Minnesota Mining & Manufacturing Co. 2,100 191,494
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
CAPITAL GOODS (CONTINUED)
Moore Corporation Ltd. 403 $6,700
National Service Industries, Inc. 200 11,762
<F1> Navistar International Corp. 400 14,000
Northrop Grumman Corporation 300 32,231
<F1> Owens-Illinois, Inc. 700 30,275
PACCAR, Inc. 400 23,825
Pall Corporation 600 12,900
Parker-Hannifin Corporation 550 28,187
Pitney Bowes, Inc. 1,500 75,281
Raychem Corp. 400 16,625
Rockwell International Corporation 1,000 57,375
Tenneco, Inc. 900 38,419
Textron, Inc. 800 61,600
<F1> Thermo Electron Corporation 800 32,300
Thomas & Betts Corporation 300 19,200
Timken Company 300 10,144
Tyco International Ltd. 2,900 158,412
United Technologies Corp. 1,200 110,775
Waste Management, Inc. 2,300 70,869
---------------------------------------------------------------------
TOTAL 3,902,098
=====================================================================
COMMUNICATION SERVICES (6.47%)
<F1> Airtouch Communications, Inc. 2,500 122,343
ALLTEL Corporation 900 39,319
Ameritech Corporation 5,500 271,906
AT&T Corp. 8,200 538,125
Bell Atlantic Corporation 3,935 403,337
BellSouth Corporation 5,000 337,812
Frontier Corporation 800 26,050
GTE Corporation 4,800 287,400
MCI Communications Corporation 3,500 173,250
SBC Communications, Inc. 9,032 394,021
Sprint Corporation 2,200 148,913
U S WEST Communications Group 2,400 131,400
<F1> WorldCom, Inc. 5,100 219,619
---------------------------------------------------------------------
TOTAL 3,093,495
=====================================================================
CONSUMER CYCLICAL (8.70%)
American Greetings Corp. 400 18,400
Armstrong World Industries, Inc. 200 17,312
<F1> AutoZone, Inc. 800 27,100
Black & Decker Corporation 500 26,531
Brunswick Corporation 500 17,438
<F1> Cendant Corporation 4,022 159,372
Centex Corporation 300 11,438
<F1> Charming Shoppes, Inc. 500 2,375
Chrysler Corporation 3,300 137,156
Circuit City Stores, Inc. 500 21,375
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
Cognizant Corp. 800 $45,900
<F1> Consolidated Stores Corporation 500 21,469
Cooper Tire & Rubber Company 400 9,500
<F1> Costco Companies, Inc. 1,100 58,712
Dana Corporation 500 29,094
Dayton Hudson Corporation 1,100 96,800
Dillard's, Inc. 600 22,162
Dow Jones & Company, Inc. 500 26,469
Dun & Bradstreet Corporation 800 27,350
Echlin, Inc. 300 15,731
<F1> Federated Department Stores, Inc. 1,100 56,994
Fleetwood Enterprises, Inc. 200 9,312
Ford Motor Company 6,000 388,875
<F1> Fruit of the Loom, Inc. 400 12,250
Gannet Company, Inc. 1,400 100,625
General Motors Corp. 3,600 242,775
Genuine Parts Company 850 32,406
Goodyear Tire & Rubber Company 800 60,600
H & R Block, Inc. 500 23,781
Harcourt General 400 22,150
<F1> Harrahs Entertainment 500 12,281
Hasbro, Inc. 600 21,188
Hilton Hotels Corporation 1,200 38,250
Home Depot, Inc. 3,650 246,147
Interpublic Group of Cos., Inc. 600 37,275
ITT Industries, Inc. 600 22,838
J.C. Penney Company, Inc. 1,300 98,394
Jostens, Inc. 200 4,800
<F1> Kmart Corporation 2,500 41,719
Kaufman & Broad Home Corp. 200 6,512
Knight-Ridder, Inc. 400 22,350
Laidlaw Transportation Limited 1,600 25,400
Liz Claiborne, Inc. 300 14,963
Lowe's Companies, Inc. 900 63,169
Marriott International 600 22,313
Marriott International Class A 600 21,487
Masco Corporation 800 47,600
Mattel, Inc. 1,500 59,437
May Department Stores Company 1,200 76,200
Maytag Corporation 500 23,906
McGraw-Hill Companies Inc. 500 38,031
Mercantile Stores Company 200 13,437
Meredith Corporation 300 12,637
<F1> Mirage Resorts, Inc. 900 21,881
Nike, Inc. 1,500 66,375
Nordstrom, Inc. 400 25,525
Omnicom Group 800 37,650
Owens Corning 300 10,781
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
Pep Boys - Manny, Moe & Jack 300 $6,956
Pulte Corporation 100 4,650
<F1> Reebok International Ltd. 300 9,150
Russell Corp. 200 5,363
Sears, Roebuck and Co. 2,000 114,875
Service Corporation International 1,300 55,169
Sherwin-Williams Company 900 31,950
Snap-On, Inc. 300 13,687
Springs Industries, Inc. 100 5,494
Tandy Corporation 500 23,500
The Gap, Inc. 1,950 87,750
The Limited, Inc. 1,400 40,163
The New York Times Company Cl A 500 35,000
The Stanley Works 400 22,300
Times Mirror Company 400 25,350
TJX Companies, Inc. 800 36,200
<F1> Toys "R" Us 1,400 42,088
Tribune Company 600 42,300
TRW, Inc. 600 33,075
VF Corporation 600 31,538
Wal-Mart Stores, Inc. 11,300 574,181
Whirlpool Corporation 400 27,425
<F1> Woolworth Corp. 700 17,500
---------------------------------------------------------------------
TOTAL 4,159,662
=====================================================================
CONSUMER STAPLES (13.58%)
Adolph Coors Co. 200 7,000
Alberto-Culver Company 300 9,131
Albertson's, Inc. 1,200 63,150
American Stores Co. 1,300 33,800
Anheuser-Busch Companies, Inc. 2,500 115,781
Avon Products, Inc. 700 54,600
BESTFOODS 700 81,813
Brown-Forman Corp. 300 16,500
Campbell Soup Company 2,300 130,525
Cardinal Health, Inc. 600 52,913
CBS Corporation 3,600 122,175
<F1> Clear Channel Communications, Inc. 500 49,000
Clorox Company 500 42,844
Colgate-Palmolive Co. 1,500 129,938
Comcast Corp. 1,700 60,031
Conagra, Inc. 2,400 77,100
CVS Corporation 900 67,950
Darden Restaurant, Inc. 700 10,894
Deluxe Corp. 400 13,175
Fort James Corporation 1,000 45,812
Fortune Brands, Inc. 900 35,888
General Mills, Inc. 800 60,800
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER STAPLES (CONTINUED)
Giant Food, Inc. 300 $11,587
Great Atlantic & Pacific Tea Co., Inc. 200 6,050
H.J. Heinz Company 1,800 105,075
Hershey Foods Corporation 700 50,137
John H. Harland Company 100 1,556
Kellogg Company 2,100 90,563
Kimberly-Clark Corporation 2,800 140,350
<F1> King World Productions, Inc. 400 11,700
Longs Drug Stores Corp. 200 6,087
McDonald's Corporation 3,500 210,000
Newell Co. 800 38,750
PepsiCo, Inc. 7,600 324,425
Philip Morris Companies, Inc. 12,200 508,587
Procter & Gamble Company 6,700 565,313
R.R. Donnelley & Sons Company 700 28,743
Ralston Purina Group 500 53,000
Rite Aid Corporation 1,300 44,525
Rubbermaid, Inc. 700 19,950
Safety-Kleen Corp. 300 8,513
Sara Lee Corporation 2,400 147,900
Supervalue, Inc. 300 13,987
Sysco Corporation 1,800 46,125
<F1> Tele Communications, Inc. 2,509 78,014
The Coca-Cola Company 12,400 960,225
The Gillette Company 2,800 332,325
<F1> The Kroger Company 1,300 60,044
The Quaker Oats Company 700 40,075
The Seagram Company Ltd. 1,800 68,738
Time Warner, Inc. 2,900 208,800
<F1> Tricon Global Restaurants, Inc. 730 21,946
Tupperware 300 7,988
Unilever NV 3,200 219,600
U S WEST, Inc. 3,000 104,250
UST, Inc. 900 29,025
Viacom, Inc. 1,800 96,750
Vlasic Foods International 230 5,879
Walgreen Co. 2,500 87,969
Walt Disney Company 3,400 362,950
Wendy's International, Inc. 600 13,387
Winn-Dixie Stores, Inc. 700 32,463
Wm. Wrigley Jr. Company 600 49,050
---------------------------------------------------------------------
TOTAL 6,493,221
=====================================================================
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (6.95%)
Amerada Hess Corporation 500 $29,156
Amoco Company 2,400 207,300
Anadarko Petroleum Corporation 300 20,700
Apache Corporation 500 18,375
Ashland, Inc. 400 22,650
Atlantic Richfield Company 1,600 125,800
Baker Hughes, Inc. 900 36,225
Burlington Resource, Inc. 905 43,383
Chevron Corp. 3,300 265,031
Dresser Industries, Inc. 900 43,256
Exxon Corporation 12,400 838,550
Halliburton Company 1,300 65,243
Helmerich & Payne, Inc. 200 6,250
Kerr-McGee Corporation 200 13,912
Mobil Corporation 3,900 298,837
Occidental Petroleum Corporation 1,700 49,831
<F1> ORYX Energy Company 500 13,000
Pennzoil Company 200 12,925
Phillips Petroleum Company 1,300 64,919
<F1> Rowan Companies, Inc. 400 11,600
Royal Dutch Petroleum Co., ADR 10,800 613,575
Schlumberger Limited 2,500 189,375
Sun Company, Inc. 400 16,350
Texaco, Inc. 2,800 168,700
Union Pacific Resource Group 1,200 28,650
Unocal Corp. 1,200 46,425
USX-Marathon Group 1,400 52,675
<F1> Western Atlas International, Inc. 300 23,213
---------------------------------------------------------------------
TOTAL 3,325,906
=====================================================================
FINANCE (15.74%)
Aetna, Inc. 700 58,406
Allstate Corporation 2,200 202,262
American Express Company 2,300 211,169
American General Corporation 1,310 84,741
American International Group, Inc. 3,550 447,078
Aon Corporation 850 55,037
Banc One Corporation 3,280 207,460
BankAmerica Corporation 3,500 289,187
BankBoston Corporation 700 77,175
Bankers Trust New York Corporation 500 60,156
BB&T Corporation 700 47,381
Beneficial Corporation 300 37,294
Charles Schwab Corporation 1,300 49,400
Chase Manhattan Corporation 2,100 283,238
CIGNA Corporation 400 82,000
Cincinnati Financial Corporation 300 37,575
Citicorp 2,300 326,600
Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (CONTINUED)
Comerica, Inc. 500 $52,906
Conseco, Inc. 900 50,963
Corestates Financial Corp. 1,000 89,750
Countrywide Credit Industries, Inc. 500 26,594
Fannie Mae 5,300 335,225
Federal Home Loan Mortgage Corp. 3,500 166,031
Fifth Third Bancorp 750 64,125
First Chicago NBD Corporation 1,500 132,188
First Union Corporation 3,200 181,600
Fleet Financial Group, Inc. 1,400 119,087
General Re Corporation 400 88,250
Golden West Financial Corporation 300 28,744
Green Tree Financial Corporation 700 19,906
H.F. Ahmanson & Company 500 38,750
Hartford Financial Services Group, Inc. 600 65,100
Household International, Inc. 500 68,875
Huntington Bancshares, Inc. 1,000 36,438
J.P. Morgan & Company, Inc. 900 120,881
Jefferson-Pilot Corp. 400 35,575
KeyCorp 2,200 83,187
Lehman Bros Holdings, Inc. 500 37,437
Lincoln National Corporation 500 42,437
Loews Corp. 600 62,550
Marsh & McLennan Companies, Inc. 900 78,581
MBIA, Inc. 500 38,750
MBNA Corp. 2,500 89,531
Mellon Bank Corporation 1,300 82,550
Mercantile Bancorp 700 38,369
Merrill Lynch & Co. 1,700 141,100
MGIC Investment Corp. 600 39,413
Morgan Stanley Dean Witter & Co. 2,955 215,346
National City Corp. 1,100 80,644
NationsBank Corp. 4,687 341,858
Norwest Corporation 3,800 157,937
Northern Trust Corp. 600 44,850
PNC Bank Corp. 1,500 89,906
Progressive Corporation 400 53,875
Providian Financial Corporation 500 28,719
Republic New York Corporation 300 40,012
SAFECO, Inc. 700 38,259
St. Paul Companies, Inc. 400 35,650
State Street Corporation 800 54,450
Summit Bancorp 900 45,056
SunAmerica, Inc. 1,000 47,875
Suntrust Banks, Inc. 1,100 82,913
Synovus Financial Corp. 900 33,412
The Bank of New York Company, Inc. 1,900 119,344
The Chubb Corporation 900 70,538
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (CONTINUED)
Torchmark Corporation 700 $32,069
Transamerica Corporation 300 34,950
Travelers Group, Inc. 5,797 347,820
UNUM Corporation 700 38,631
U.S. Bancorp 1,253 156,312
USF&G Corp. 500 12,469
Wachovia Corporation 1,000 84,813
Washington Mutual, Inc. 1,340 96,103
Wells Fargo & Company 400 132,500
---------------------------------------------------------------------
TOTAL 7,527,363
=====================================================================
HEALTHCARE (10.23%)
Abbott Laboratories, Inc. 3,800 286,187
Allergan, Inc. 300 11,400
Allergan Specialty 15 182
<F1> Alza Corporation 400 17,925
American Home Products Corporation 3,300 314,737
<F1> Amgen, Inc. 1,300 79,137
Bausch & Lomb, Inc. 300 13,706
Baxter International, Inc. 1,400 77,175
Becton, Dickinson & Company 600 40,838
Biomet, Inc. 600 18,000
<F1> Boston Scientific Corp. 1,000 67,500
Bristol-Myers Squibb Company 5,000 521,562
C.R. Bard, Inc. 300 11,025
Columbia/HCA
Healthcare Corporation 3,300 106,425
Eli Lilly and Company 5,600 333,900
Guidant Corporation 800 58,700
<F1> HEALTHSOUTH Corporation 2,000 56,125
<F1> Humana, Inc. 800 19,850
Johnson & Johnson 6,800 498,525
Mallinckrodt, Inc. 400 15,800
Manor Care, Inc. 300 11,100
Medtronic, Inc. 2,400 124,500
Merck & Co., Inc. 6,000 770,250
Pfizer, Inc. 6,500 647,969
Pharmacia & Upjohn, Inc. 2,500 109,375
Schering-Plough Corporation 3,700 302,244
<F1> St. Jude Medical, Inc. 400 13,375
<F1> Tenet Healthcare Corp. 1,500 54,469
U.S. Surgical Corporation 400 13,200
United Healthcare Corp. 900 58,275
Warner-Lambert Company 1,400 238,437
---------------------------------------------------------------------
TOTAL 4,891,893
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (12.77%)
<F1> 3COM Corporation 1,800 $64,688
Adobe Systems, Inc. 300 13,556
<F1> Advanced Micro Devices, Inc. 700 20,344
<F1> Andrew Corporation 400 7,925
<F1> Apple Computer, Inc. 600 16,500
<F1> Applied Materials, Inc. 1,800 63,562
Autodesk, Inc. 200 8,625
Automatic Data Processing, Inc. 1,500 102,094
<F1> Bay Networks 1,100 29,837
<F1> Cabletron Systems, Inc. 700 10,194
<F1> Ceridian Corp. 400 21,575
<F1> Cisco Systems, Inc. 5,100 348,713
Compaq Computer Corporation 7,624 197,271
Computer Associates International, Inc. 2,700 155,925
<F1> Computer Sciences Corp. 800 44,000
<F1> Data General Corporation 200 3,538
<F1> Dell Computer Corp. 3,300 223,575
<F1> Digital Equipment Corporation 700 36,619
<F1> DSC Communications Corp. 600 10,913
Eastman Kodak Company 1,600 103,800
EG&G, Inc. 200 5,812
<F1> EMC Corporation 2,500 94,531
Equifax, Inc. 800 29,200
First Data Corporation 2,100 68,250
General Instrument Corporation 700 14,656
Harris Corporation 400 20,850
HBO & Company 1,100 66,413
Hewlett-Packard Company 5,200 329,550
Ikon Office Solutions 700 24,194
Intel Corporation 8,200 640,112
International Business
Machines Corporation 4,900 508,988
<F1> KLA-Tencor Corporation 400 15,300
<F1> LSI Logic Corp. 700 17,675
Lucent Technologies, Inc. 3,300 421,988
<F1> Micron Technology 1,100 31,969
<F1> Microsoft Corporation 12,200 1,091,900
Motorola, Inc. 3,000 181,875
<F1> National Semiconductor Corporation 800 16,750
Northern Telecom Limited 2,600 168,025
<F1> Novell, Inc. 1,700 18,222
<F1> Oracle Corporation 4,950 156,234
<F1> Parametric Technology Company 1,300 43,306
Perkin-Elmer Corporation 200 14,463
Polaroid Corporation 200 8,800
Raytheon Company Class B 1,700 99,238
Scientific-Atlanta, Inc. 400 7,825
<F1> Seagate Technology Inc. 1,200 30,300
Shared Medical Systems Corp. 100 7,838
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
<F1> Silicon Graphics 900 $12,544
<F1> Sun Microsystems, Inc. 1,900 79,266
Tektronix, Inc. 300 13,387
<F1> Tellabs, Inc. 900 60,413
Texas Instruments, Inc. 2,000 108,250
<F1> Unisys Corporation 1,300 24,700
W.W. Grainger, Inc. 200 20,562
Xerox Corporation 1,600 170,300
---------------------------------------------------------------------
TOTAL 6,106,940
=====================================================================
TRANSPORTATION (1.14%)
<F1> AMR Corporation 500 71,594
Burlington Northern Santa Fe 800 83,200
CSX Corporation 1,100 65,450
Delta Air Lines, Inc. 400 47,300
<F1> Federal Express Corporation 760 54,055
Norfolk Southern Corporation 1,900 71,012
Ryder System, Inc. 400 15,200
Southwest Airlines Co. 1,050 31,041
Union Pacific Corporation 1,200 67,425
<F1> US Airways Group, Inc. 500 37,063
---------------------------------------------------------------------
TOTAL 543,340
=====================================================================
UTILITIES (2.88%)
Ameren Corporation 700 29,486
American Electric Power Co., Inc. 1,000 50,250
Baltimore Gas & Electric Co. 700 22,881
Carolina Power & Light Company 800 36,200
Central & South West Corporation 1,000 26,750
Cinergy Corporation 800 29,600
Coastal Corp. 500 32,563
Columbia Gas System, Inc. 300 23,325
Consolidated Edison Co. of New York 1,200 56,100
Consolidated Natural Gas Company 500 28,844
Dominion Resources, Inc. 1,000 42,000
DTE Energy Company 700 27,519
Duke Energy Corp. 1,831 109,059
Eastern Enterprises 100 4,300
Edison International 1,900 55,812
Enron Corp. 1,600 74,200
Entergy Corporation 1,200 35,700
<F1> FirstEnergy Corp. 1,100 33,894
FPL Group, Inc. 900 57,825
GPU, Inc. 600 26,550
Houston Industries, Inc. 1,373 39,473
<F1> Niagara Mohawk Power Corporation 700 9,100
Nicor, Inc. 200 8,450
Northern States Power Company 400 23,600
Shares/Par Market Value
---------------------------------------------------------------------
UTILITIES (CONTINUED)
ONEOK, Inc. 200 $8,150
P P & L Resources, Inc. 800 18,900
Pacific Enterprises 400 16,325
PacifiCorp 1,500 36,937
PECO Energy Company 1,100 24,338
Peoples Energy Corporation 200 7,275
PG&E Corp. 2,200 72,600
Public Service Enterprise Group, Inc. 1,200 45,450
Sonat Inc. 600 26,100
Southern Company 3,500 96,906
Texas Utilities Company 1,267 49,809
UNICOM Corp. 1,100 38,500
Williams Companies, Inc. 1,600 51,200
---------------------------------------------------------------------
TOTAL 1,375,971
=====================================================================
TOTAL COMMON STOCK 43,312,795
=====================================================================
MONEY MARKET INVESTMENTS (8.98%)
FINANCE SERVICES (4.17%)
<F2> Associates Corp of N.A.,
5.559%, 4/30/98 $1,000,000 $995,521
<F2> General Electric Capital
Corporation, 5.539%, 4/8/98 1,000,000 998,923
---------------------------------------------------------------------
TOTAL 1,994,444
=====================================================================
FEDERAL GOVERNMENT AND AGENCIES (4.81%)
<F2> Federal National Mortgage
Association, 5.39%, 5/26/98 200,000 198,353
<F2> Federal Home Loan Bank Discount
Corp., 5.70%, 4/1/98 2,100,000 2,100,000
---------------------------------------------------------------------
TOTAL 2,298,353
=====================================================================
TOTAL MONEY MARKET INVESTMENTS 4,292,797
=====================================================================
TOTAL INVESTMENTS (99.56%)
(COST $35,646,615)<F3> 47,605,592
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.44%) 208,544
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $47,814,136
=====================================================================
ADR - American Depositary Receipt
<F1> Non-Income Producing
<F2> Partially held by the custodian in a segregated account as
collateral for open futures positions. Information regarding open
futures contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuer Contracts Date Appreciation
---------------------------------------------------------------------
S&P 500R Stock Index
(Total market value at
3/31/98, $3,886,750) 14 6/98 $248,775
<F3> At March 31, 1998, the aggregate cost of securities for federal income
tax purposes was $35,661,562 and the net unrealized appreciation of
investments based on that cost was $11,944,030 which is comprised of
$12,211,152 aggregate gross unrealized appreciation and $267,122
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
ASSET ALLOCATION FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
COMMON STOCK (56.51%)
DOMESTIC COMMON STOCK (45.50%)
SMALL CAP COMMON STOCK (15.52%)
BASIC MATERIALS (0.15%)
<F1> Ivex Packaging Corp. 2,200 $53,900
---------------------------------------------------------------------
CAPITAL GOODS (1.48%)
<F1> Jabil Circuit, Inc. 600 19,988
Kaydon Corporation 3,200 130,800
Omniquip International, Inc. 3,600 89,100
<F1> Qlogic Corporation 1,100 39,050
<F1> Stoneridge, Inc. 3,600 72,000
Teleflex, Inc. 2,300 96,600
<F1> Trident International, Inc. 3,600 55,350
<F1> Triumph Group, Inc. 700 31,062
---------------------------------------------------------------------
TOTAL 533,950
=====================================================================
CONSUMER CYCLICAL (2.40%)
<F1> Carriage Services, Inc. 500 12,000
Industrial Distribution Group, Inc. 2,800 52,325
<F1> Interim Services, Inc. 1,700 57,375
<F1> Jones Apparel Group, Inc. 2,100 115,631
<F1> K&G Men's Center, Inc. 2,600 53,625
<F1> Michaels Stores, Inc. 1,300 48,588
<F1> O'Reilly Automotive Inc. 4,900 135,056
<F1> Promus Hotel Corporation 1,600 76,400
<F1> ProSoft I-Net Solutions Inc. 5,200 33,475
<F1> Robert Half International, Inc. 3,900 187,200
Service Corporation International 1,700 72,144
Stewart Enterprises, Inc. 400 22,250
---------------------------------------------------------------------
TOTAL 866,069
=====================================================================
CONSUMER STAPLES (1.27%)
<F1> Advanced Health Corporation 2,000 25,625
<F1> Blyth Industries, Inc. 2,700 92,137
Cardinal Health, Inc. 1,600 141,100
<F1> Heftel Broadcasting Corporation 900 40,275
<F1> Metzler Group, Inc. 700 34,825
<F1> Patterson Dental Company 4,050 125,550
---------------------------------------------------------------------
TOTAL 459,512
=====================================================================
ENERGY (1.87%)
<F1> Barrett Resources Corporation 1,300 45,419
<F1> BJ Services Company 3,600 131,175
<F1> EVI, Inc. 1,700 78,731
<F1> Global Industries, Ltd. 6,000 122,250
<F1> Marine Drilling Companies, Inc. 1,700 36,762
<F1> Nabors Industries, Inc. 2,800 66,325
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY (CONTINUED)
<F1> Pride International, Inc. 2,200 $52,525
Transocean Offshore Inc. 2,800 144,025
---------------------------------------------------------------------
TOTAL 677,212
=====================================================================
FINANCE (1.27%)
<F1> Affiliated Managers Group, Inc. 200 6,975
<F1> ESG Re Limited 2,000 52,000
Financial Security Assurance
Holdings Ltd. 2,200 120,175
Headlands Mortgage Co. 2,200 37,331
Investors Financial Services Corp. 2,400 132,000
Olympic Financial Ltd., warrants 500 7,500
<F1> Trammell Crow Company 2,200 62,700
Waddell & Reed Financial, Inc. 1,600 41,600
---------------------------------------------------------------------
TOTAL 460,281
=====================================================================
HEALTHCARE (3.21%)
<F1> ABR Information Services, Inc. 2,300 64,688
American HomePatient, Inc. 3,600 69,975
Home Health Corporation of
America, Inc. 3,800 10,569
<F1> Lincare Holdings, Inc. 1,900 134,187
<F1> MedCath, Inc. 4,900 88,966
Meridian Diagnostics Inc. 6,600 84,150
NCS HealthCare, Inc. 1,000 33,500
<F1> Pharmerica, Inc. 6,800 101,150
<F1> PhyCor, Inc. 3,300 74,456
<F1> PSS World Medical, Inc. 2,400 56,400
<F1> Quorum Health Group, Inc. 4,450 149,631
<F1> Sybron International Corporation 6,400 167,200
<F1> VWR Scientific Products Corporation 1,600 56,500
<F1> Wesley Jessen VisionCare, Inc. 2,100 69,038
---------------------------------------------------------------------
TOTAL 1,160,410
=====================================================================
TECHNOLOGY (2.79%)
<F1> Brooks Automation, Inc. 1,400 22,050
<F1> Cambridge Technology
Partners, Inc. 2,400 118,950
<F1> CBT Group Public Limited Company 2,000 103,500
<F1> Computer Horizons Corporation 1,500 75,375
<F1> Cotelligent Group, Inc. 1,800 53,325
Galileo International, Inc. 2,000 77,625
<F1> GaSonics International Corporation 4,400 45,100
HBO & Company 2,300 138,862
Integrated Process Equipment Corp. 1,700 34,212
Kent Electronics Corp. 1,300 27,381
<F1> Novellus Systems, Inc. 500 21,625
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
<F1> PMC-Sierra, Inc. 900 $34,200
<F1> Sterling Software, Inc. 900 50,850
<F1> Tellabs, Inc. 1,400 93,975
<F1> Transaction Systems
Architects, Inc. Cl A 1,300 50,537
<F1> Uniphase Corporation 1,400 58,888
---------------------------------------------------------------------
TOTAL 1,006,455
=====================================================================
TRANSPORTATION (1.08%)
<F1> Heartland Express, Inc. 3,500 97,125
<F1> Jevic Transportation, Inc. 3,800 57,000
<F1> Knight Transportation, Inc. 2,300 73,600
Mark VII, Inc. 4,600 85,100
<F1> Swift Transportation Co., Inc. 3,300 79,200
---------------------------------------------------------------------
TOTAL 392,025
=====================================================================
TOTAL SMALL CAP COMMON STOCK 5,609,814
=====================================================================
LARGE CAP COMMON STOCK (29.98%)
BASIC MATERIALS (0.81%)
Ecolab, Inc. 6,000 174,000
Monsanto Company 2,300 119,600
---------------------------------------------------------------------
TOTAL 293,600
=====================================================================
CAPITAL GOODS (3.05%)
AlliedSignal, Inc. 5,200 218,400
Avery Dennison Corporation 4,300 229,513
Boeing Company 2,100 109,462
General Electric Company 4,500 387,844
Tyco International Ltd. 2,900 158,413
---------------------------------------------------------------------
TOTAL 1,103,632
=====================================================================
COMMUNICATION SERVICES (1.12%)
AT&T Corporation 800 52,500
MCI Communications Corporation 2,200 108,900
<F1> Teleport Communications Group, Inc. 2,000 117,500
<F1> WorldCom, Inc. 2,900 124,881
---------------------------------------------------------------------
TOTAL 403,781
=====================================================================
CONSUMER CYCLICAL (4.73%)
Borg-Warner Automotive, Inc. 3,800 243,675
<F1> Federated Department Stores, Inc. 2,200 113,987
Harley-Davidson, Inc. 7,300 240,900
<F1> Kohl's Corporation 3,700 302,475
The New York Times Company Cl A 3,100 217,000
Steelcase, Inc. 5,300 193,450
Tribune Company 3,100 218,550
Wal-Mart Stores, Inc. 3,500 177,844
---------------------------------------------------------------------
TOTAL 1,707,881
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
CONSUMER STAPLES (7.05%)
<F1> Benckiser N.V. 3,100 $170,500
Campbell Soup Company 3,700 209,975
Hershey Foods Corporation 3,700 265,013
<F1> Keebler Foods Company 7,300 219,000
McDonald's Corporation 1,500 90,000
Newell Co. 4,000 193,750
PepsiCo, Inc. 5,700 243,319
Philip Morris Companies, Inc. 3,900 162,581
Procter & Gamble Company 2,600 219,375
The Quaker Oats Company 1,300 74,425
The ServiceMaster Company 5,500 157,094
Unilever NV 4,000 274,500
Walgreen Co. 7,600 267,425
---------------------------------------------------------------------
TOTAL 2,546,957
=====================================================================
ENERGY (2.28%)
British Petroleum Company PLC 1,200 103,275
Diamond Offshore Drilling, Inc. 2,800 127,050
Exxon Corporation 1,800 121,725
Mobil Corporation 1,700 130,263
<F1> R&B Falcon Corporation 1,900 56,287
Schlumberger Limited 1,900 143,925
Tosco Corporation 4,000 141,000
---------------------------------------------------------------------
TOTAL 823,525
=====================================================================
FINANCE (3.91%)
Banc One Corporation 2,310 146,108
BankAmerica Corporation 1,200 99,150
Chase Manhattan Corporation 800 107,900
Citicorp 700 99,400
Franklin Resources, Inc. 5,000 265,000
Morgan Stanley Dean Witter & Co. 4,500 327,937
The Bank of New York
Company, Inc. 950 59,672
Travelers Group, Inc. 5,100 306,000
---------------------------------------------------------------------
TOTAL 1,411,167
=====================================================================
HEALTHCARE (2.10%)
Bristol-Myers Squibb Company 1,600 166,900
Eli Lilly and Company 2,300 137,138
Guidant Corporation 1,000 73,375
<F1> HEALTHSOUTH Corporation 3,751 105,262
Johnson & Johnson 1,400 102,637
Merck & Co., Inc. 800 102,700
Pfizer, Inc. 700 69,781
---------------------------------------------------------------------
TOTAL 757,793
=====================================================================
<PAGE>
MASON STREET FUNDS
Shares/Par Market Value
---------------------------------------------------------------------
TECHNOLOGY (4.11%)
<F1> Cisco Systems, Inc. 2,100 $143,587
Compaq Computer Corporation 2,700 69,863
<F1> Fiserv, Inc. 5,000 316,875
Hewlett-Packard Company 2,500 158,438
Intel Corporation 1,100 85,869
International Business
Machines Corporation 2,200 228,525
Lucent Technologies, Inc. 1,000 127,875
<F1> Microsoft Corporation 3,200 286,400
Motorola, Inc. 1,100 66,688
---------------------------------------------------------------------
TOTAL 1,484,120
=====================================================================
TRANSPORTATION (0.82%)
<F1> AMR Corporation 600 85,912
<F1> FDX Corporation 1,200 85,350
Southwest Airlines Co. 4,200 124,163
---------------------------------------------------------------------
TOTAL 295,425
=====================================================================
TOTAL LARGE CAP COMMON STOCK 10,827,881
=====================================================================
TOTAL DOMESTIC COMMON STOCK 16,437,695
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
FOREIGN COMMON STOCK (11.01%)
CAPITAL GOODS (1.13%)
British Aerospace U.K. 8,900 293,310
City Development Sing. 23,000 113,223
---------------------------------------------------------------------
TOTAL 406,533
=====================================================================
COMMUNICATION SERVICES (1.69%)
Philippines Long Distance
Telephone Company Phil. 6,600 183,975
Royal PTT Nederland N.V. Neth. 4,000 207,226
Telecomunicacoes Brasileiras
S.A. Telebras ADR Braz. 1,700 220,681
---------------------------------------------------------------------
TOTAL 611,882
=====================================================================
CONSUMER CYCLICAL (1.44%)
Nintendo C., Inc. Japan 2,800 241,468
La Rinascente SpA Italy 26,000 278,418
---------------------------------------------------------------------
TOTAL 519,886
=====================================================================
ENERGY (1.06%)
Elf Aquitaine Fr. 1,950 255,565
Smedvig ASA-A Norw. 6,100 128,016
---------------------------------------------------------------------
TOTAL 383,581
=====================================================================
Country Shares/Par Market Value
---------------------------------------------------------------------
FINANCE (1.18%)
HSBC Holdings PLC U.K. 5,500 $168,236
Muenchener Rueckversicherungs-
Gesellschaft AG Ger. 600 259,553
---------------------------------------------------------------------
TOTAL 427,789
=====================================================================
HEALTHCARE (1.59%)
Glaxo Wellcome U.K. 10,900 291,868
Novartis Ag-Reg Shs. Switz. 160 283,165
---------------------------------------------------------------------
TOTAL 575,033
=====================================================================
MISCELLANEOUS (0.75%)
Schneider S.A. Fr. 3,500 269,462
---------------------------------------------------------------------
TECHNOLOGY (1.62%)
Ericsson LM B Swe. 5,700 270,944
Philips Electronics, Inc. Neth. 4,300 315,588
---------------------------------------------------------------------
TOTAL 586,532
=====================================================================
TRANSPORTATION (0.55%)
Railtrack Group PLC U.K. 12,000 196,933
---------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCK 3,977,631
=====================================================================
TOTAL COMMON STOCK 20,415,326
=====================================================================
PREFERRED STOCK (2.98%)
Primedia, Inc. 5,000 $532,500
Sinclair Capital 5,000 547,500
---------------------------------------------------------------------
TOTAL 1,080,000
=====================================================================
TOTAL PREFERRED STOCK 1,080,000
---------------------------------------------------------------------
BONDS (30.97%)
INVESTMENT-GRADE BONDS (23.09%)
FEDERAL GOVERNMENT AND AGENCIES (12.52%)
Federal National Mortgage
Association, 6%, 5/1/11 $1,330,655 $1,309,863
U.S. Treasury, 0.00%, 2/15/19 PO 1,200,000 342,300
U.S. Treasury, 6.125%, 8/15/07 1,000,000 1,027,813
U.S. Treasury, 5.625%, 12/31/02 500,00 498,907
U.S. Treasury, 5.375%, 2/15/01 250,00 248,437
U.S. Treasury, 5.50%, 2/29/00 1,100,000 1,097,938
---------------------------------------------------------------------
TOTAL 4,525,258
=====================================================================
AUTO RELATED (0.36%)
Team Fleet Financing Co.,
7.35%, 5/15/03 (144a) 125,000 129,400
---------------------------------------------------------------------
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
COMMERCIAL MORTGAGES (10.21%)
Asset Securitization Corporation,
1.25%, 11/13/26 IO $17,839,819 $728,400
First Union-Lehman Brothers
Commercial Mortgage Trust,
1.307%, 4/18/27 IO 6,949,104 524,449
Merrill Lynch Mortgage
Investors, 7.12%, 6/18/29 1,500,000 1,545,330
Merrill Lynch Mortgage
Investors, 8.10%, 6/25/22 500,00 521,005
Midland Realty Acceptance Corp.,
1.389%, 1/25/29 IO (144a) 4,872,733 368,525
---------------------------------------------------------------------
TOTAL 3,687,709
=====================================================================
TOTAL INVESTMENT-GRADE BONDS 8,342,367
=====================================================================
BELOW INVESTMENT-GRADE BONDS (7.88%)
BASIC MATERIALS (0.57%)
Pindo Deli Fin Mauritius,
10.75%, 10/1/07 (144a) 250,000 205,000
---------------------------------------------------------------------
BROADCASTING (0.66%)
<F2> Fox/Liberty Networks LLC,
9.75%, 8/15/07 (144a) 350,000 238,875
---------------------------------------------------------------------
FINANCE COMPANIES (2.04%)
BF Saul Real Estate,
9.75%, 4/1/08 250,000 251,875
Olympic Financial Ltd.,
11.50%, 3/15/07 500,000 485,000
---------------------------------------------------------------------
TOTAL 736,875
=====================================================================
HOSPITAL SUPPLIES (0.69%)
Medaphis Corp.,
9.50%, 2/15/05 (144a) 250,000 250,000
---------------------------------------------------------------------
LEISURE RELATED (2.11%)
SFX Entertainment, Inc.,
9.125%, 2/1/08 250,000 247,500
Trump Atlantic, 11.25%, 5/1/06 250,000 256,875
Venitian Casino/LVSands,
12.25%, 11/15/04 (144a) 250,000 259,375
---------------------------------------------------------------------
TOTAL 763,750
=====================================================================
PROFESSIONAL SERVICES (0.66%)
<F2> Decisionone Holdings,
11.50%, 8/1/08 400,000 239,000
---------------------------------------------------------------------
TELECOMMUNICATIONS (1.15%)
<F2> Hyperion Telecommunications,
13.00%, 4/15/03 350,000 267,750
Shares/Par Market Value
---------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
<F2> KMC Telecommunications
Hldgs, 12.50%, 2/15/08 $250,000 $146,875
---------------------------------------------------------------------
TOTAL 414,625
=====================================================================
TOTAL BELOW INVESTMENT-GRADE BONDS 2,848,125
=====================================================================
TOTAL BONDS 11,190,492
=====================================================================
MONEY MARKET INVESTMENTS (8.28%)
FINANCE SERVICES (8.01%)
<F3> Associates Corporation of North
America, 5.56%, 4/30/98 $1,000,000 $995,521
<F3> General Electric Capital Corporation,
6.02%, 4/1/98 900,000 900,000
<F3> Sears Roebuck Acceptance Corp.,
5.56%, 4/22/98 1,000,000 996,757
---------------------------------------------------------------------
TOTAL 2,892,278
=====================================================================
FEDERAL GOVERNMENT AND AGENCIES (0.27%)
<F3> Federal National Mortgage
Association, 5.39%, 5/26/98 100,000 99,176
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 2,991,454
=====================================================================
TOTAL INVESTMENTS (98.74%)
(COST $30,200,296)<F4> 35,677,272
=====================================================================
OTHER ASSETS, LESS LIABILITIES (1.26%) 455,978
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $36,133,250
=====================================================================
ADR - American Depositary Receipt
IO - Interest Only Security
PO - Principal Only Security
<F1> Non-Income Producing
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F2> Deferred interest security that presently receives no coupon payments.
At a predetermined date the stated coupon rate becomes effective.
<F3> Partially held by the custodian in a segregated account as collateral
for open futures positions. Information regarding open futures
contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuer Contracts Date Appreciation
----------------------------------------------------------------------
S&P 500R Stock Index
(Total market value at
3/31/98, $832,875) 3 6/98 $9,367
<F4> At March 31, 1998, the aggregate cost of securites for federal income
tax purposes was $30,200,296 and the net unrealized appreciation of
investments based on that cost was $5,476,976 which is comprised of
$5,936,077 aggregate gross unrealized appreciation and $459,101
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
BONDS (77.21%)
BASIC MATERIALS (2.35%)
PAPER (0.84%)
Pindo Deli Fin Mauritius,
10.75%, 10/1/07 (144a) $350,000 $287,000
---------------------------------------------------------------------
STEEL (1.51%)
Renco Steel Holdings, Inc.,
10.875%, 2/1/05 (144a) 500,000 517,500
---------------------------------------------------------------------
TOTAL BASIC MATERIALS 804,500
=====================================================================
BROADCASTING/MEDIA (5.16%)
BROADCASTING (3.95%)
<F2> Big City Radio, Inc.,
11.25%, 3/15/05 (144a) 650,000 476,938
<F2> Fox Kids Worldwide, Inc.,
10.25%, 11/1/07 (144a) 1,050,000 672,000
Fox Kids Worldwide, Inc.,
9.25%, 11/1/07 (144a) 200,000 201,000
---------------------------------------------------------------------
TOTAL 1,349,938
=====================================================================
PRINTING AND PUBLISHING (1.21%)
<F2> Diva System Corp.,
12.625%, 3/1/08 (144a) 750,000 412,502
---------------------------------------------------------------------
TOTAL BROADCASTING/MEDIA 1,762,440
=====================================================================
CABLE TELEVISION (4.57%)
<F2> Telewest PLC, 11.00%, 10/1/07 500,000 405,000
<F2> NTL, Inc., 9.75%, 4/1/08 (144a) 1,000,000 650,000
Rogers Communications,
8.875%, 7/15/07 500,000 505,000
---------------------------------------------------------------------
TOTAL CABLE TELEVISION 1,560,000
=====================================================================
CONSUMER RELATED (5.91%)
CONSUMER STAPLES (2.43%)
North Atlantic Trading, Inc.,
11.00%, 6/15/04 500,000 520,000
<F2> SF Holdings Group, Inc.,
12.75%, 3/15/08 (144a) 550,000 306,625
---------------------------------------------------------------------
TOTAL 826,625
=====================================================================
FOODS/FOOD SERVICES (3.48%)
Iowa Select Farms L.P.,
10.75%, 12/1/05 (144a) 800,000 782,000
Planet Hollywood, 12.00%, 4/1/05 400,000 408,000
---------------------------------------------------------------------
TOTAL 1,190,000
=====================================================================
TOTAL CONSUMER RELATED 2,016,625
=====================================================================
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY RELATED (1.48%)
OIL AND GAS INDEPENDENT (1.48%)
Belden & Blake Corp.,
9.875%, 6/15/07 (144a) $500,000 $505,000
---------------------------------------------------------------------
FINANCE (5.27%)
FINANCE COMPANIES (3.72%)
Arcadia Financial, Ltd.,
11.50%, 3/15/07 1,000,000 970,000
BF Saul Real Estate,
9.75%, 4/1/08 (144a) 300,000 302,250
---------------------------------------------------------------------
TOTAL 1,272,250
=====================================================================
INSURANCE (1.55%)
Superior Nat'l Capital Trust I,
10.75%, 12/1/17 (144a) 500,000 530,000
---------------------------------------------------------------------
TOTAL FINANCE 1,802,250
=====================================================================
HEALTHCARE (2.20%)
HEALTHCARE (0.74%)
Magellan Health Services,
9.00%, 2/15/08 (144a) 250,000 251,250
---------------------------------------------------------------------
HOSPITAL SUPPLIES (1.46%)
Medaphis Corp.,
9.50%, 2/15/05 (144a) 500,000 500,000
---------------------------------------------------------------------
TOTAL HEALTHCARE 751,250
=====================================================================
LEISURE (17.96%)
GAMING (11.17%)
Alliance Gaming Corp.,
10.00%, 8/1/07 (144a) 700,000 723,625
Casino America, Inc.,
12.50%, 8/1/03 250,000 277,500
Station Casinos, Inc.,
9.75%, 4/15/07 (144a) 750,000 846,563
Trump Atlantic, 11.25%, 5/1/06 750,000 770,625
Trump Hotels & Casino Resorts,
15.50%, 6/15/03 500,000 575,000
Venitian Casino/LV Sands,
12.25%, 11/15/04 (144a) 600,000 622,500
---------------------------------------------------------------------
TOTAL 3,815,813
=====================================================================
LEISURE RELATED (5.85%)
<F2> Hedstrom Holdings Inc.,
12.00%, 6/1/09 (144a) 1,110,000 688,200
Premier Park, Inc., 9.25%, 4/1/06 300,000 306,750
SFX Entertainment, Inc.,
9.125%, 2/1/08 (144a) 500,000 495,000
Shares/Par Market Value
---------------------------------------------------------------------
LEISURE RELATED (CONTINUED)
Town Sports Intl., Inc.,
9.75%, 10/15/04 $500,000 $507,500
---------------------------------------------------------------------
TOTAL 1,997,450
=====================================================================
MOVIE THEATERS (0.94%)
Hollywood Theaters, Inc.,
10.625%, 8/1/07 (144a) 300,000 325,500
---------------------------------------------------------------------
TOTAL LEISURE 6,138,763
=====================================================================
OTHER INDUSTRIES (3.53%)
APPAREL, TEXTILE (0.86%)
PT Polysindo, 13.00%, 6/15/01 400,000 296,000
---------------------------------------------------------------------
AUTO RELATED (1.17%)
Exide Corporation,
2.90%, 12/15/05 (144a) 650,000 398,938
---------------------------------------------------------------------
HOUSEHOLD FURNISHINGS, APPLIANCES (1.50%)
Imperial Home,
11.00%, 3/15/08 (144a) 500,000 511,250
---------------------------------------------------------------------
TOTAL OTHER INDUSTRIES 1,206,188
=====================================================================
SERVICES (6.95%)
PROFESSIONAL SERVICES (6.95%)
Apcoa Inc., 9.25%, 3/15/08 (144a) 250,000 250,625
<F2> AP Holdings Inc.,
11.25%, 3/15/08 (144a) 250,000 149,375
<F2> Decisionone Holdings,
11.50%, 8/1/08 750,000 448,125
Decisionone Holdings,
9.75%, 8/1/07 250,000 241,875
Federal Data Corp.,
10.125%, 8/1/05 500,000 517,500
Kinder-Care Learning Center,
9.50%, 2/15/09 500,000 511,250
Sitel Corp., 9.25%, 3/15/06 (144a) 250,000 255,625
---------------------------------------------------------------------
TOTAL SERVICES 2,374,375
=====================================================================
TELECOMMUNICATIONS (14.79%)
<F2> Call-Net Enterprises, 9.27%, 8/15/07 350,000 248,500
<F2> GST USA, Inc., 13.875%, 12/15/05 400,000 334,000
<F2> Hyperion Telecommunications,
13.00%, 4/15/03 650,000 497,250
Hyperion Telecommunications,
12.25%, 9/1/04 120,000 135,300
ITC Deltacom Inc.,
11.00%, 6/1/07 (144a) 263,000 298,505
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
<F2> KMC Telecommunication Hldgs.,
12.50%, 2/15/08 $1,750,000 $1,028,127
<F2> Metronet Communications,
10.75%, 11/1/07 250,000 161,875
<F2> Nextel Communications, Inc.,
9.75%, 10/31/07 750,000 484,688
<F2> Nextel Communications, Inc.,
9.75%, 2/15/08 500,000 318,125
Paging Network, Inc.,
10.00%, 10/15/08 500,000 525,000
<F2> Pinnacle Hldgs., Inc.,
10.00%, 3/15/08 850,000 527,000
<F2> 21st Century Telecom,
12.25%, 2/15/08 500,000 293,750
Winstar Communications,
10.00%, 3/15/08 200,000 202,750
---------------------------------------------------------------------
TOTAL TELECOMMUNICATIONS 5,054,870
=====================================================================
TRANSPORTATION (7.04%)
TRUCKING AND SHIPPING (7.04%)
Greyhound Lines, Inc.,
11.50%, 4/15/07 (144a) 1,000,000 1,112,500
Navigator Gas Trans PLC,
12.00%, 6/30/07 (144a) 200,000 227,500
Navigator Gas Trans PLC,
10.50%, 6/30/07 (144a) 500,000 527,502
Ryder TRS Incorporated,
10.00%, 12/01/06 500,000 537,500
---------------------------------------------------------------------
TOTAL TRANSPORTATION 2,405,002
=====================================================================
TOTAL BONDS 26,381,263
=====================================================================
PREFERRED STOCK (19.93%)
BROADCASTING/MEDIA (10.90%)
BROADCASTING (7.79%)
Chancellor Media Corp.-
Los Angeles (144a) 7,941 $965,824
Citadel Broadcasting Co. (144a) 2,663 326,218
Sinclair Capital (144a) 12,500 1,368,750
---------------------------------------------------------------------
TOTAL 2,660,792
=====================================================================
PRINTING AND PUBLISHING (3.11%)
Primedia, Inc. 10,000 1,065,000
---------------------------------------------------------------------
TOTAL BROADCASTING/MEDIA 3,725,792
=====================================================================
CABLE TELEVISION (4.76%)
<F3> CSC Holdings, Inc. PIK 11,226 1,302,216
<F3> NTL, Inc. PIK (144a) 2,740 326,060
---------------------------------------------------------------------
TOTAL CABLE TELEVISION 1,628,276
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
ENERGY RELATED (0.66%)
GAS UTILITY (0.66%)
Petroleum Heat & Power Inc. (144a) 22,500 $225,000
---------------------------------------------------------------------
FINANCE (1.43%)
BANKS (1.43%)
California Fed Pfd. Capital 18,000 487,125
---------------------------------------------------------------------
TELECOMMUNICATIONS (2.18%)
21st Century Telecom 3,000 336,000
<F3> Hyperion Telecommunications PIK 3,564 409,860
---------------------------------------------------------------------
TOTAL TELECOMMUNICATIONS 745,860
=====================================================================
TOTAL PREFERRED STOCK 6,812,053
=====================================================================
COMMON STOCK AND WARRANTS (0.31%)
FINANCE (0.04%)
FINANCE COMPANIES (0.04%)
Arcadia Financial, Ltd. 1,000 $15,000
---------------------------------------------------------------------
LEISURE (0.27%)
LEISURE RELATED (0.27%)
<F1> Hedstrom Holdings, Inc. (144a) 67,324 92,570
---------------------------------------------------------------------
TOTAL COMMON STOCK AND WARRANTS 107,570
=====================================================================
MONEY MARKET INVESTMENTS (2.05%)
FINANCE SERVICES (2.05%)
General Electric Capital Corporation,
6.02%, 4/1/98 $400,000 $400,000
General Electric Capital Corporation,
5.54%, 4/8/98 300,000 299,677
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 699,677
=====================================================================
TOTAL INVESTMENTS (99.50%)
(COST $32,819,519)<F4> 34,000,563
=====================================================================
OTHER ASSETS, LESS LIABILITIES (0.50%) 171,678
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $34,172,241
=====================================================================
<F1> Non-Income Producing
<F2> Deferred interest security that presently receives no coupon payments.
At a predetermined date the stated coupon rate becomes effective.
<F3> PIK - Payment in Kind
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F4> At March 31, 1998, the aggregate cost of securites for federal income
tax purposes was $32,819,519 and the net unrealized appreciation of
investments based on that cost was $1,181,044 which is comprised of
$1,912,414 aggregate gross unrealized appreciation and $731,370
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
MUNICIPAL BONDS (96.51%)
CALIFORNIA (3.60%)
California Housing
Financing Agency, 5.75%,
2/1/29 RB, MBIA, AMT $1,000,000 $1,035,300
---------------------------------------------------------------------
COLORADO (3.97%)
Douglas County, Colorado
School District RE.1, 6.5%,
12/15/16 GO, PR, MBIA 1,000,000 1,138,490
---------------------------------------------------------------------
DISTRICT OF COLUMBIA (3.62%)
District of Columbia, 5.1%,
6/1/03 GO, AMBAC 1,000,000 1,035,710
---------------------------------------------------------------------
FLORIDA (3.49%)
Dade County, Florida,
Water & Sewer, 5.25%,
10/1/26 RB, FGIC 1,000,000 1,003,430
---------------------------------------------------------------------
ILLINOIS (15.20%)
Chicago, Illinois Board of
Education, 6.75%, 12/1/09
GO, AMBAC 1,000,000 1,183,900
Chicago, Illinois O'Hare
International Airport, 5.7%,
1/1/08 RB, MBIA, AMT 1,000,000 1,059,500
Illinois State Toll Highway
Authority, 6.0%, 1/1/09
RB, FGIC 1,000,000 1,114,460
Metropolitan Fair & Exposition
Authority, 5.0%, 6/1/15 RB, BIGI
Insurance purchased by MBIA 1,000,000 982,970
---------------------------------------------------------------------
TOTAL 4,340,830
=====================================================================
KENTUCKY (3.93%)
Louisville & Jefferson County,
Kentucky Regional Airport
Authority, 6.5%, 7/1/17
RB, MBIA, AMT 1,000,000 1,128,150
---------------------------------------------------------------------
Shares/Par Market Value
---------------------------------------------------------------------
MICHIGAN (7.66%)
Nice Community School District,
Michigan, Marquette & Baraga
Counties, 5.25%, 5/1/16
GO, MBIA $1,000,000 $1,006,500
Pinckney Michigan Community
Schools, 7.25%, 5/1/06
GO, FGIC 1,000,000 1,186,810
---------------------------------------------------------------------
TOTAL 2,193,310
=====================================================================
MASSACHUSETTS (3.84%)
Massachusetts State Port
Authority, 5.75%, 7/1/12 RB 1,000,000 1,099,330
---------------------------------------------------------------------
MINNESOTA (3.01%)
Northern Municipal Power Agency,
Electric Systems, 7.25%,
1/1/16 RB 825,000 861,317
---------------------------------------------------------------------
NEBRASKA (3.67%)
Nebraska Investment Finance
Authority, Single Family Housing,
6.25%, 3/1/21 RB, AMT, GNMA,
FNMA, FHLMC 990,000 1,050,954
---------------------------------------------------------------------
NEVADA (3.88%)
Clark County, Nevada, Sanitation
District, 6.8%, 7/1/12 RB, PR 1,000,000 1,111,050
=====================================================================
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
NEW YORK (25.69%)
Metropolitan Transportation
Authority, 5.625%,
7/1/25 RB, MBIA $1,000,000 $1,045,310
New York City Municipal Water
Finance Authority, 5.75%,
6/15/29 RB 1,000,000 1,049,510
New York State Local Government
Assistance Corporation,
7.0%, 4/1/16 RB, PR 1,000,000 1,101,630
New York St. Dormitory Authority,
5.125%, 2/15/08 RB 1,000,000 1,023,680
New York St. Medical Care
Facility Financing Agency,
5.375%, 2/15/25 RB, FHA 1,000,000 1,007,910
Port Authority of New York and
New Jersey, 5.75%, 12/1/25
RB, AMT, MBIA 1,000,000 1,046,710
The City of New York,
6.0%, 4/15/09 GO 1,000,000 1,085,990
---------------------------------------------------------------------
TOTAL 7,360,740
=====================================================================
TEXAS (7.24%)
Brazos, Texas, Higher Education
Authority, 5.5%, 6/1/02
RB, AMT, GTD STD LNS 965,000 1,002,345
Hays, Texas, Consolidated
Independent School District,
5.875%, 8/15/22 GO PSF 1,000,000 1,071,750
---------------------------------------------------------------------
TOTAL 2,074,095
=====================================================================
WASHINGTON (7.71%)
Washington State Public Power
Supply System, 6.5%, 7/1/15
RB, PR 2,000,000 2,209,460
---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS 27,642,166
=====================================================================
MONEY MARKET INVESTMENTS (2.09%)
Greensboro, NC,
3.7%, 4/1/14 CP $600,000 $600,000
---------------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS 600,000
=====================================================================
TOTAL INVESTMENTS (98.60%)
(COST $26,803,665)<F1> 28,242,166
=====================================================================
OTHER ASSETS, LESS LIABILITIES (1.40%) 402,426
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $28,644,592
=====================================================================
<F1> At March 31,1998, the aggregate cost of securities for federal income
tax purposes was $26,803,665 and the net unrealized appreciation of
investments based on that cost was $1,438,501 which is comprised of
$1,439,789 aggregate gross unrealized appreciation and $1,288
aggregate gross unrealized depreciation.
---------------------------------------------------------------------
CP = Commercial Paper
RB = Revenue Bond
GO = General Obligation
PR = Pre-refunded security will be called on the first call date
(with certainty)
AMT = Subject to the Alternative Minimum Tax
Scheduled principal and interest payments are guaranteed by:
MBIA (Municipal Bond Insurance Organization)
AMBAC (AMBAC Indemnity Corporation)
FGIC (Financial Guaranty Insurance Company)
BIGI (Bond Investors Guarantee Insurance)
GNMA (Government National Mortgage Association)
FNMA (Federal National Mortgage Association)
FHLMC (Federal Home Loan Mortgage Corporation)
FHA (Federal Housing Authority)
GTD STD LNS (Guaranteed Student Loans)
PSF (Permanent School Fund, State of Texas)
The accompanying Notes are an integral part of the Finanacial Statements.
<PAGE>
SELECT BOND FUND
SCHEDULE OF INVESTMENTS
Shares/Par Market Value
---------------------------------------------------------------------
BONDS (90.09%)
CORPORATE BONDS (19.14%)
BANK HOLDING COMPANIES (4.36%)
First Union Institutional Capital II,
7.85%, 1/1/27 $250,000 $259,008
NationsBank Lease Pass Thru Trust -
Class 1, 7.442%, 1/10/11 (144a) 500,000 520,770
Societe Generale Real Estate Co.,
7.64%, 12/29/49 500,000 495,686
---------------------------------------------------------------------
TOTAL 1,275,464
=====================================================================
COMMUNICATIONS (3.64%)
<F1> Panamsat, 11.375%, 8/1/03 500,000 511,250
<F2> WorldCom, Inc, 7.75%, 4/1/27 500,000 554,791
---------------------------------------------------------------------
TOTAL 1,066,041
=====================================================================
FOREIGN BANKS - BRANCHES & AGENCIES (1.70%)
Fuji JGB Investments LLC,
9.87%, 12/31/49 500,000 496,875
---------------------------------------------------------------------
LIFE INSURANCE (2.49%)
Travelers Group Inc.,
6.875%, 2/15/28 750,000 728,731
---------------------------------------------------------------------
MEDIA/CABLE (1.79%)
<F2> Time Warner Entertainment,
7.25%, 9/1/08 500,000 522,986
---------------------------------------------------------------------
PERSONAL CREDIT INSTITUTION (0.92%)
Industrial Credit & Investment Corp.,
7.55%, 8/15/07 300,000 270,000
---------------------------------------------------------------------
RETAILERS (1.65%)
LB Mortgage Trust - Class A3,
8.396%, 1/20/17 418,394 482,877
---------------------------------------------------------------------
TEXTILES (1.75%)
Polysindo International Finance,
11.375%, 6/15/06 800,000 512,000
---------------------------------------------------------------------
TRANSPORTATION - RAIL-ROAD (0.84%)
Union Pacific Corporation,
6.625%, 2/1/08 250,000 246,877
---------------------------------------------------------------------
TOTAL CORPORATE BONDS 5,601,851
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
GOVERNMENT BONDS
(DOMESTIC AND FOREIGN)
AND AGENCY BONDS (27.73%)
<F2> Federal National Mortgage
Association, 12%, 12/1/12 $91,357 $104,633
Federal National Mortgage
Association, 12%, 12/1/17 132,236 153,022
Federal National Mortgage
Association, 12%, 2/1/18 170,449 197,268
Federal National Mortgage
Association, 12%, 10/1/17 242,086 279,988
<F2> Federal National Mortgage
Association, 12%, 9/1/12 520,960 595,685
Federal National Mortgage
Association, 12%, 9/1/17 167,605 193,741
Federal National Mortgage
Association, 12.25%, 1/1/18 77,821 91,489
Federal National Mortgage
Association, 12.50%, 4/1/18 127,000 149,265
Federal National Mortgage
Association, 11%, 12/1/17 153,145 173,484
Federal National Mortgage
Association, 11%, 12/1/12 58,965 65,598
<F2> Federal National Mortgage
Association, 11%, 9/1/17 480,867 543,530
Federal National Mortgage
Association, 11%, 2/1/18 177,248 199,016
Federal National Mortgage
Association, 13%, 12/1/17 100,711 118,587
Federal National Mortgage
Association, 13%, 2/1/18 220,828 260,094
Federal National Mortgage
Association, 11.50%, 4/1/18 266,000 303,323
Federal National Mortgage
Association, 13%, 11/1/12 91,033 106,694
<F2> Federal National Mortgage
Association, 13%, 11/1/07 329,947 390,884
Federal National Mortgage
Association, 14%, 12/1/17 67,588 81,528
<F2> Federal National Mortgage
Association, 6.22%, 2/1/06 489,976 489,976
Federal National Mortgage
Association, 6.96%, 10/1/07 298,951 310,274
<F2> Federal National Mortgage
Association, 7.36%, 4/1/11 491,625 526,732
Federal National Mortgage
Association, 10%, 10/1/17 62,426 68,522
<F3> Hellenic Republic, 8.6%, 3/26/08 60,000,000 195,703
<PAGE>
Shares/Par Market Value
---------------------------------------------------------------------
<F3> Hellenic Republic, 8.8%, 6/19/07 $300,000,000 $978,514
<F4> Poland, 14%, 2/12/00 1,500,000 384,889
<F4> Poland, 12%, 2/12/03 3,000,000 682,896
<F4> Poland, 12%, 10/12/01 2,000,000 467,427
---------------------------------------------------------------------
TOTAL GOVERNMENT AND AGENCY BONDS 8,112,762
=====================================================================-
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES (43.22%)
COMMERCIAL MORTGAGES (34.08%)
Asset Securitization Corporation -
Class CS1, 1.257%, 11/13/26 IO 17,839,819 728,400
<F2> Chase Commercial Mortgage
Securities Corporation -
Class A2, 6.60%, 12/12/29 500,000 501,940
<F2> Chase Commercial Mortgage
Securities Corp. - Class B,
6.60%, 12/12/29 500,000 501,570
Credit Suisse First Boston Mortgage
Securities Corp. - Class B, 9.591%,
4/25/25 (144a) 457,000 536,111
Credit Suisse First Boston Mortgage
Securities Corp. - Class A2,
7.26%, 6/20/29 (144a) 246,959 257,379
<F2> Credit Suisse First Boston Mortgage
Securities Corp. - Class B,
7.28%, 6/20/29 (144a) 250,000 259,870
<F2> Credit Suisse First Boston Mortgage
Securities Corp. - Class D,
7.46%, 6/20/29 (144a) 500,000 514,315
Commercial Mortgage Acceptance
Corporation - Class B,
6.647%, 12/15/30 500,000 504,505
DLJ Mortgage Acceptance Corp. -
Class A1B, 7.29%, 11/12/21 (144a) 250,000 262,783
DLJ Mortgage Acceptance Corp. -
Class S, .3571%, 10/15/17 IO (144a) 29,887,252 800,885
DLJ Mortgage Acceptance Corp. -
Class S, .718%, 2/15/31 IO (144a) 10,000,000 454,688
First Union-Lehman Brothers
Commercial Mortgage Trust -
Class C, 7.02%, 11/18/29 500,000 497,570
First Union-Lehman Brothers
Commercial Mortgage Trust -
Class, 1.307%, 4/18/27 IO 13,898,208 1,048,898
Merrill Lynch Mortgage
Investors, Inc. - Class E,
7.12%, 6/18/29 500,000 492,005
Merrill Lynch Mortgage
Investors, Inc. - Class E,
8.097%, 6/25/22 (144a) 500,000 521,005
Midland Realty Acceptance Corp. -
Class AEC, 1.389%, 1/25/29
(144a) IO 9,745,466 737,050
Shares/Par Market Value
---------------------------------------------------------------------
Nomura Asset Securities Corp.,
6.769%, 3/15/30 $200,000 $203,500
Nomura Asset Securities Corp.,
7.349%, 3/15/30 600,000 603,750
Red Mountain Funding LLC -
Class E, 7.365%, 1/15/19 (144a) 176,000 173,437
Red Mountain Funding LLC -
Class F, 7.471%, 1/15/19 (144a) 400,000 370,088
---------------------------------------------------------------------
TOTAL 9,969,749
=====================================================================
CREDIT CARD ASSET-BACKED (0.85%)
Iroquois Trust - Class A,
6.752%, 6/25/07 (144a) 250,000 249,610
---------------------------------------------------------------------
MANUFACTURED HOUSING (2.30%)
Mid-State Trust VI - Class A3,
7.54%, 7/1/35 661,860 672,417
---------------------------------------------------------------------
OTHER ASSET-BACKED (4.85%)
Greentree Recreation & Consumer
Trust - Class A1, 6.49%, 2/15/18 215,899 216,577
FMAC Loan Receivables Trust 98-A,
6.2%, 9/15/20 300,000 299,484
Heilig Meyers Master Trust,
6.125%, 1/20/07 500,000 496,797
Newcourt Equipment - Class B,
6.764%, 9/20/04 (144a) 405,062 407,180
---------------------------------------------------------------------
TOTAL 1,420,038
=====================================================================
RESIDENTIAL MORTGAGES (1.14%)
BCF L.L.C. Mortgage Pass Thru
Certificate - Class B3, 7.75%,
3/25/37 (144a) 331,241 334,093
---------------------------------------------------------------------
TOTAL MORTGAGE-BACKED AND ASSET-BACKED SECURITIES 12,645,907
=====================================================================
TOTAL BONDS 26,360,520
=====================================================================
Shares/Par Market Value
---------------------------------------------------------------------
MONEY MARKET INVESTMENTS (7.51%)
FEDERAL GOVERNMENT AND AGENCIES (0.68%)
<F2> Federal National Mortgage
Association, 5.39%, 5/26/98 $200,000 $198,353
---------------------------------------------------------------------
FINANCE SERVICES (6.83%)
<F2> Ford Motor Credit Corp.,
5.53%, 4/15/98 1,000,000 997,849
<F2> General Electric Capital Corporation,
6.019%, 4/1/98 1,000,000 1,000,000
---------------------------------------------------------------------
TOTAL 1,997,849
=====================================================================
TOTAL MONEY MARKET INVESTMENTS 2,196,202
=====================================================================
TOTAL INVESTMENTS (97.60%)
(COST $28,838,531)<F5> 28,556,722
=====================================================================
OTHER ASSETS, LESS LIABILITIES (2.40%) 704,031
---------------------------------------------------------------------
TOTAL NET ASSETS (100.00%) $29,260,753
=====================================================================
IO - Interest Only Security
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
<F1> Deferred interest security that presently receives no coupon payments.
At a predetermined date the stated coupon rate becomes effective.
<F2> Partially held by the custodian in a segregated account as collateral
for open futures and forward positions. Information regarding open
futures contracts as of March 31, 1998 is summarized below:
Number of Expiration Unrealized
Issuers Contracts Date Appreciation
----------------------------------------------------------------------
U.S. Treasury Bond Futures
(Total market value at
3/31/98, $4,810,000) 40 6/98 $30,625
U.S. Treasury Note Futures
(Total market value at
3/31/98, $337,125) 3 6/98 $188
Foreign forward currency contracts outstanding at March 31, 1998:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Currency Contract Month (Depreciation)
----------------------------------------------------------------------
Sell DEM 924,000 6/98 $6,955
Sell DEM 194,000 6/98 2,156
Sell PLZ 1,286,670 6/98 (105,243)
---------
($96,132)
DEM - German Deutschemark
PLZ - Polish Zlotty
<F3> Foreign security denominated in Greek Drachma.
<F4> Foreign security denominated in Polish Zlotty.
<F5> At March 31, 1998, the aggregate cost of securites for federal income
tax purposes was $28,838,531 and the net unrealized depreciation of
investments based on that cost was $281,809 which is comprised of
$174,823 aggregate gross unrealized appreciation and $456,632
aggregate gross unrealized depreciation.
The accompanying Notes are an integral part of the Financial Statements.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Financial Statements Included in the Prospectus:
------------------------------------------------
Financial Highlights
March 31, 1998 Financial Statements for Mason Street Funds, Inc.
----------------------------------------------------------------
Included in the Statement of Additional Information:
----------------------------------------------------
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedules of Investments
Notes to Financial Statements
(b) Exhibits
<F1> Exhibit B(1) Articles of Incorporation of
Mason Street Funds, Inc.
<F1> Exhibit B(2) By-Laws of Mason Street Funds, Inc.
<F4> Exhibit B(2)(a) Amendment to By-Laws of Mason Street Funds, Inc.
Exhibit B(2)(b) Amendment to By-Laws of Mason Street Funds, Inc.
<F1> Exhibit B(4) Rights of Stockholders are described in Article
FOURTH and Article SIXTH of the Articles of
Incorporation for Mason Street Funds, Inc.,
previously referenced as Exhibit B(1).
<F1> Exhibit B(5)(a) Form of Investment Advisory Agreement between
Mason Street Funds, Inc. (on behalf of the Index
500 Stock Fund) and Northwestern Mutual Investment
Services, LLC.
<F2> Exhibit B(5)(b) Form of Investment Sub-Advisory Agreement between
Mason Street Funds, Inc. (on behalf of the Growth
and Income Stock Fund), Northwestern Mutual
Investment Services, LLC and J.P. Morgan
Investment Management, Inc.
<F2> Exhibit B(5)(c) Form of Investment Sub-Advisory Agreement between
Northwestern Mutual Investment Services, LLC,
(Investment Adviser to the International Equity
Fund) and Templeton Investment Counsel, Inc.
<F2> Exhibit B(6) Form of Principal Underwriting Agreement.
Exhibit (7) Not Applicable.
<F3> Exhibit B(8)(a) Form of Custodian Agreement with
Chase Manhattan Bank.
<F3> Exhibit B(8)(b) Form of Custodian Agreement with Bankers Trust Co.
<F3> Exhibit B(8)(c) Form of Custodian Agreement with
Brown Brothers Harriman & Co.
<F2> Exhibit B(9)(a) Form of Transfer Agency and Service Agreement.
<F2> Exhibit B(9)(b)(1) Form of Shareholder Servicing Agreement with
Robert W. Baird & Co.
Exhibit B(9)(b)(2) Amended Shareholder Servicing Agreement with
Robert W. Baird & Co.
<F2> Exhibit B(9)(c) Form of Administration Agreement with The
Northwestern Mutual Life Insurance Company.
Exhibit B(9)(d) Fee Waiver Agreement with Robert W. Baird & Co.
Exhibit B(9)(e) Shareholder Account Services Agreement with
Robert W. Baird & Co.
<F3> Exhibit B(10) Opinion and Consent of Counsel.
Exhibit B(11) Consent of Price Waterhouse LLP.
Exhibit (12) Not Applicable.
<F2> Exhibit B(13) Form of Subscription Agreement.
<F3> Exhibit B(14) Model Retirement Plans:
Exhibit B(14)(a) Prototype Non-Standard 401(k) Profit Sharing
Plan Adoption Agreement;
Exhibit B(14)(b) Prototype Non-Standard 401(k) Profit Sharing
Plan Adoption Agreement;
Exhibit B(14)(c) Prototype Money Purchase Pension Plan Adoption
Agreement;
Exhibit B(14)(d) Prototype Non-Standard Profit Sharing Plan
Adoption Agreement;
Exhibit B(14)(e) Prototype Standard 401(k) Profit Sharing Plan
Adoption Agreement;
Exhibit B(14)(f) Prototype 401(k) Profit Sharing Plan Adoption
Agreement;
Exhibit B(14)(g) Prototype Money Purchase Pension Plan Adoption
Agreement;
Exhibit B(14)(h) Prototype Standard Profit Sharing Plan Adoption
Agreement;
Exhibit B(14)(i) Prototype Standard Simple 401(k) Profit Sharing
Plan Adoption Agreement.
<F2> Exhibit B(15)(a) Form of Rule 12b-1 Distribution Plan for Class A
Shares.
<F2> Exhibit B(15)(b) Form of Rule 12b-1 Distribution plan for Class B
Shares.
Exhibit B(16) Schedules of computation for the High Yield,
Municipal and Select Bond Funds' yield quotations
for the one month period ended May 31, 1998.
Exhibit (17) Not Applicable.
<F1> Exhibit B(18) Form of Rule 18f-3 Plan.
Exhibit (27) Financial Data Schedule for period ended March 31,
1998 for each Fund of Mason Street Funds, Inc.
<F1> Exhibits previously filed with Form N-1A Registration Statement for Mason
Street Funds, Inc. on December 6, 1996, and incorporated herein by reference.
<F2> Exhibits previously filed with Form N-1A Pre-Effective Amendment No. 1 for
Mason Street Funds, Inc. on February 7, 1997, and incorporated herein by
reference.
<F3> Exhibits previously filed with Form N-1A Pre-Effective Amendment No. 2 for
Mason Street Funds, Inc. on March 5, 1997, and incorporated herein by reference.
<F4> Exhibits previously filed with Form N-1A Post-Effective Amendment No. 1
for Mason Street Funds, Inc. on September 16, 1997, and incorporated herein by
reference.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
As of June 1, 1998, 86.01% the shares of the Registrant were owned by
The Northwestern Mutual Life Insurance Company ("Northwestern Mutual
Life"), a mutual insurance company organized by a special act of the
Wisconsin Legislature. Northwestern Mutual Life directly controls the
Registrant. Subsidiaries of Northwestern Mutual Life when considered
in the aggregate as a single subsidiary would not constitute a
significant subsidiary.
Item 26. Number of Record Holders by Class of Securities as of March 31, 1998
--------------------------------------------------------------------
Fund Name Class A Class B
Aggressive Growth Stock Fund 794 407
International Equity Fund 570 301
Growth Stock Fund 370 244
Growth and Income Stock Fund 500 285
Index 500 Stock Fund 793 544
Asset Allocation Fund 329 186
High Yield Bond Fund 243 166
Municipal Bond Fund 36 32
Select Bond Fund 106 71
Item 27. Indemnification
---------------
Article IX of Registrant's By-Laws is included as Exhibit B2 to the
Registration Statement under the Securities Act of 1933 and the
Investment Company Act of 1940. The By-laws of Northwestern Mutual
Life permit indemnification by Northwestern Mutual Life of persons who
are serving as directors of another corporation at the request of
Northwestern Mutual Life. Pursuant to the By-Law provision, the
Trustees of Northwestern Mutual Life have adopted a resolution
extending to all of the directors of the Registrant the benefits of
the indemnification arrangements for employees, officers and Trustees
of Northwestern Mutual Life. Directors' and officers' liability
insurance which covers the directors and officers of the Registrant as
well as Trustees and officers of Northwestern Mutual Life is also in
force. The amount of coverage is $30 million. There is no
deductible, except that the deductible amount is $1,000,000 ($1
million) for claims covered by corporate indemnification. The cost of
this insurance is allocated among Northwestern Mutual Life and its
subsidiaries and no part of the premium has been paid by the
Registrant.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
In addition to its investment advisory function, Northwestern Mutual
Investment Services, LLC ("NMIS"), the Registrant's investment
adviser, is responsible for the selection, training and supervision of
life insurance agents of Northwestern Mutual Life who engage in the
distribution of variable annuities and variable life insurance issued
by Northwestern Mutual Life. The directors and officers of NMIS also
serve as officers of Northwestern Mutual Life.
Item 29. Principal Underwriter
---------------------
Robert W. Baird & Co., Inc. ("RWB") serves as the principal underwriter for
each Fund. RWB is an indirect majority-owned subsidiary of Northwestern Mutual
Life. RWB also serves as the principal underwriter for the Baird Adjustable
Rate Income Fund, a portfolio of The Baird Funds, Inc.
The directors and principal officers of RWB are as follows:
G. Frederick Kasten, Jr. Chairman and CEO
Paul E. Purcell President and COO
James D. Bell Managing Director
Bryce P. Edwards Managing Director
Glen F. Hackmann Managing Director and Sec'y.
Steven P. Kent Managing Director
Keith A. Kolb Managing Director
Patrick S. Lawton Managing Director
William W. Mahler Managing Director
Terry Maxwell Managing Director
John Mayer Managing Director
Paul S. Shain Managing Director
J. Camp Van Dyke Managing Director
Officer but not Director:
James M. Zemlyak Chief Financial Officer
All of the above are located at 777 East Wisconsin Avenue, Milwaukee, WI 53202.
None of the above has a position with Registrant.
Item 30. Location of Accounts and Records
--------------------------------
Books and other documents required to be maintained by the Registrant
by section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are maintained by the Registrant's transfer
agent, National Financial Data Services, 1004 Baltimore, Kansas City,
Missouri 64105 and the Funds' custodians as follows: the custodian for
the domestic securities of the Growth and Income Stock Fund, High
Yield Bond Fund and Municipal Bond Fund is Bankers Trust Company, 16
Wall Street, New York, New York 10015. The custodian for the domestic
securities of the Aggressive Growth Stock Fund, the Growth Stock Fund,
the Index 500 Stock Fund, the Asset Allocation Fund and the Select
Bond Fund is the Chase Manhattan Bank, N.A., One Chase Manhattan
Plaza, New York, New York 10081. The custodian for the International
Equity Fund and any foreign assets of the Asset Allocation Fund, High
Yield Bond Fund, Select Bond Fund, Aggressive Growth Stock Fund and
Growth Stock Fund is Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109. Registrant's financial ledgers and other
corporate records are maintained at its offices at The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
-------------------
(a) Not applicable
(b) Not applicable.
(c) MSF will furnish each person to whom a prospectus is delivered
with a copy of MSF's latest annual report to shareholders, upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amended Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milwaukee, and State of Wisconsin, on the 29th
day of June, 1998.
MASON STREET FUNDS, INC.
(Registrant)
By: JAMES D. ERICSON
------------------------
James D. Ericson, President
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ JAMES D. ERICSON President, Director
- ------------------- and Principal Execu-
James D. Ericson tive Officer
/s/ MARK G. DOLL Vice President,
- ------------------- Treasurer and Principal
Mark G. Doll Financial Officer
/s/ BARBARA E. COURTNEY Controller and
- ------------------- Principal Accounting Dated
Barbara E. Courtney Officer June 29,
1998
/s/ WILLIAM J. BLAKE<F1> Director
- -------------------
William J. Blake
/s/ STEPHEN N. GRAFF<F1> Director
- -------------------
Stephen N. Graff
/s/ MARTIN F. STEIN<F1> Director
- -------------------
Martin F. Stein
/s/ JOHN K. MACIVER<F1> Director
- -------------------
John K. MacIver
/s/ WILLIAM A. MCINTOSH<F1> Director
- -------------------
William A. McIntosh
<F1> By /s/ JAMES D. ERICSON
- -----------------------------
James D. Ericson, Attorney
in fact, pursuant to the Power
of Attorney attached hereto
POWER OF ATTORNEY
The undersigned Directors of Mason Street Funds, Inc. (the "Company"),
hereby constitute and appoint James D. Ericson and Edward J. Zore, or either of
them, their true and lawful attorneys and agents, to sign the names of the
undersigned Directors to any instruments or documents filed as part of or in
connection with or in any way related to the registration statement or
statements and any and all amendments thereto, to be filed under the Securities
Act of 1933 and the Investment Company Act of 1940 in connection with shares of
the common stock of the Company offered to the public; 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.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents,
as indicated, February 5, 1998.
/s/ STEPHEN N. GRAFF Director
-------------------
Stephen N. Graff
/s/ WILLIAM J. BLAKE Director
-------------------
William J. Blake
/s/ JOHN K. MACIVER Director
-------------------
John K. MacIver
/s/ MARTIN F. STEIN Director
-------------------
Martin F. Stein
/s/ JAMES D. ERICSON Director
-------------------
James D. Ericson
/s/ WILLIAM A. MCINTOSH Director
-------------------
William A. McIntosh
EXHIBIT INDEX
EXHIBITS FILED WITH FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT UNDER SECTION 6 OF
THE SECURITIES ACT OF 1933
AND SECTION 8(b) OF THE INVESTMENT COMPANY ACT OF 1940
FOR
MASON STREET FUNDS, INC.
Exhibit Number Exhibit Name
- -------------- ------------
Exhibit B(2)(b) Amendment to By-Laws of Mason Street Funds, Inc.
Exhibit B(9)(b)(2) Amended Shareholder Servicing Agreement with
Robert W. Baird & Co.
Exhibit B(9)(d) Fee Waiver Agreement with Robert W. Baird & Co.
Exhibit B(9)(e) Shareholder Account Services Agreement with
Robert W. Baird & Co.
Exhibit B(11) Consent of Price Waterhouse LLP.
Exhibit B(16) Schedules of computation for the High Yield,
Municipal and Select Bond Funds' yield quotations
for the one month period ended May 31, 1998, as
provided in the Registration Statement.
Exhibit 27 Financial Data Schedule for period ended March 31,
1998 for each Fund of Mason Street Funds, Inc.
HOLO3 103192
AMENDMENT TO THE BY-LAWS ADOPTED AT A MEETING OF THE DIRECTORS OF MASON STREET
FUNDS, INC. ON NOVEMBER 6, 1997
AMENDMENT: RESOLVED, that the second sentence of subsection 2.01 of the By-laws
of the corporation is hereby amended to read as follows, effective May 8, 1997:
"The number of directors of the corporation shall be six."
HOL03 69068
EXHIBIT B (9)(b)(2)
MASON STREET FUNDS, INC.
April 1, 1997
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI 53202
RE: AMENDMENT TO SHAREHOLDER SERVICES AGREEMENT BETWEEN MASON
STREETFUNDS, INC. AND ROBERT W. BAIRD & CO. INCORPORATED
DATED MARCH 31, 1997
Gentlemen:
This letter constitutes an agreement between Robert W. Baird & Co.
Incorporated ("Baird"), a Wisconsin corporation, and Mason Street Funds, Inc.
("MSF"), a Maryland corporation, deleting the first two sentences of Section 2
of the Shareholder Services Agreement between Baird and MSF dated March 31,
1997, and replacing them with the following two sentences:
For the services described in Section 1, each Fund shall pay to RWB
quarterly a shareholder service fee at the annual rate of 0.25% of the
average net asset value of the Fund for the period during which such
compensation is paid. For the quarter and year in which this Agreement
becomes effective or terminates, there shall be an appropriate proration on
the basis of the number of days that the Agreement is in effect during such
quarter and year, respectively.
The parties hereto do not agree to modify the Shareholder Services
Agreement other than as set forth above.
Very truly yours,
MASON STREET FUNDS, INC.
By: /s/
Name: Mark G. Doll
Title: Vice President & Treasurer
Agreed and accepted:
ROBERT W. BAIRD & CO. INCORPORATED
By: /s/
Name: James D. Bell
Title: Managing Director
64804
EXHIBIT B(9)(d)
MASON STREET FUNDS, INC.
April 1, 1998
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Northwestern Mutual Investment Services, Inc.
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
RE: AGREEMENT TO WAIVE FEES CHARGED TO MASON STREET FUNDS, INC.
Gentlemen:
This letter constitutes an agreement between Robert W. Baird & Co.
Incorporated ("Baird"), The Northwestern Mutual Life Insurance Company ("NML"),
Northwestern Mutual Investment Services, Inc. ("NMIS") and Mason Street Funds,
Inc. ("MSF") by and between each of the parties hereto as follows:
For the fiscal year of MSF beginning April 1, 1998, and ending March 31,
1999, Baird, NML and NMIS agree to waive their fees to the extent necessary so
that Total Operating Expenses of each Class of each Fund of MSF, after the
waiver, do not exceed the amount indicated as the maximum Total Operating
Expenses (the "Expense Cap") in the then-effective prospectus for MSF (the
"Prospectus"). These fee waivers shall occur in the following order for each
Fund of MSF: first, NMIS shall waive its investment advisory fee, provided that
such waiver is allocated among the Classes of the Fund in proportion to the
relative net asset values of such Classes (a "Pro-Rata Waiver"). Second, NML
shall waive its Administration Agreement fee, provided that such waiver is
allocated among the Classes of the Fund in proportion to the relative net asset
values of such Classes. Third, Baird shall waive its Distribution Plan
(Rule 12b-1 Plan) fees. Fourth, Baird shall waive its Shareholder Services
Agreement fees. Finally, to the extent necessary to prevent the Total Operating
Expenses of any Class of any Fund from exceeding the Expense Cap for such Class
after each of the foregoing waivers, NMIS shall pay or reimburse MSF's expenses.
To the extent that the Total Operating Expense ratios of the Classes of a
particular Fund cannot both be reduced simultaneously to the maximum Total
Operating Expense ratio set forth in the Prospectus through the use of a Pro-
Rata Waiver by NMIS and NML, then Baird agrees to waive its Distribution Plan
and Shareholder Servicing Agreement fees for the appropriate Class of such Fund
so as to reach the Expense Cap for that Class of such Fund. In such
circumstances, Baird shall first waive its Distribution Plan fees and then its
Shareholder Servicing Agreement fees, to the extent necessary for such Class to
reach the Expense Cap for the fiscal year ending March 31, 1999.
Notwithstanding any other provision herein, the fees waived by Baird
hereunder shall not exceed the amounts payable by Baird to NML under Section 3
of the Distribution and Marketing Agreement between NML, Baird and NMIS dated
March 31, 1997. NML agrees that it shall not be entitled to receive such
amounts from Baird as are waived by Baird under this Letter Agreement.
Very truly yours,
MASON STREET FUNDS, INC.
By: /s/
Name: Mark G. Doll
Title: Vice President and Treasurer
Agreed to and accepted:
ROBERT W. BAIRD & CO. INCORPORATED
By: /s/
Name: John E. Sundeen
Title: Senior Vice President - Compliance Director
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/
Name: Mark G. Doll
Title: Senior Vice President
NORTHWESTERN MUTUAL INVESTMENT
SERVICES, INC.
By: /s/
Name: Mark G. Doll
Title: Executive Vice President
82908
Exhibit B(9)(e)
SHAREHOLDER ACCOUNT SERVICES AGREEMENT
BETWEEN
MASON STREET FUNDS, INC.
AND
ROBERT W. BAIRD & CO. INCORPORATED
THIS AGREEMENT is made on the 10th day of November, 1997 by and between
Mason Street Funds, Inc., a Maryland corporation having its principal office and
place of business at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
("MSF") and Robert W. Baird & Co. Incorporated, a Wisconsin corporation having
its principal office and place of business at 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202 ("Baird").
WHEREAS, MSF is registered with the Securities and Exchange Commission as
an open-end management investment company under the Investment Company Act of
1940; and
WHEREAS, MSF desires to retain Baird to perform the following services for
MSF's shareholders and Baird desires to perform such services for MSF.
NOW, THEREFORE, MSF and Baird do mutually promise and agree as follows:
1. MSF hereby employs Baird to perform the services specified herein.
Baird hereby accepts such employment for the compensation herein provided and
agrees during the period of this agreement to render the services and to assume
the obligations herein set forth.
2. Baird shall perform the following services for the Baird Level 3
networked account shareholders of MSF: mail proxies to shareholders, mail
shareholder reports (annual and semi-annual) and prospectuses to current
shareholders, prepare and mail reports, activity statements, tax reporting forms
and confirmations for shareholders and provide shareholder account processing
and information.
3. For the services to be rendered by Baird hereunder, MSF shall pay to
Baird a fee, paid quarterly, at an annual rate of $3.00 for each Baird Level 3
networked account invested in shares of MSF.
4. The services of Baird to MSF hereunder are not to be deemed exclusive
and Baird shall be free to furnish similar services to others as long as the
services hereunder are not impaired thereby.
5. In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Baird,
Baird shall not be subject to liability to MSF or to any shareholder of MSF for
any act or omission in the course of or connected with, rendering services
hereunder, or for any losses that may be sustained in the purchase, holding or
sale of any security.
6. This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of MSF.
7. This Agreement may be terminated by either party without penalty upon
sixty (60) days' written notice to the other.
8. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Wisconsin.
9. This Agreement is effective as of April 1, 1997.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
MASON STREET FUNDS, INC.
By: /s/
Name: Mark G. Doll
Title: Vice President
ATTEST:
/s/
Name: James R. Eben
Title: Assistant Secretary
ROBERT W. BAIRD & CO.
INCORPORATED
By: /s/
Name: Russell P. Schwei
Title: Managing Director
ATTEST:
/s/
Name: Glen F. Hackmann
Title: Secretary
74213
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated May 7,
1998, relating to the financial statements and financial highlights of the
Mason Street Funds, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement.
We also consent to the references to us under the heading "Financial
Highlights" in such Prospectus and to the reference to us under the headings
"Independent Certified Public Accountants" and "Financial Statements" in such
Statement of Additional Information.
Price Waterhouse LLP
Milwaukee, Wisconsin
June 29, 1998
HOL03\61714
Schedules of computation for the High Yield, Municipal and Select Bond Funds'
yield quotations for the period ended March 31, 1998, are as follows:
High Yield - Class A 9.00%
Net Investment Income $ 252,953.42
Maximum Offering Price x Shares $34,342,209.67
Class B 8.76%
Net Investment Income $ 8,102.33
Maximum Offering Price x Shares $1,130,139.62
Select Bond - Class A 6.87%
Net Investment Income $ 169,290.46
Maximum Offering Price x Shares $30,008,566.57
Class B 6.56%
Net Investment Income $ 3,177.40
Maximum Offering Price x Shares $588,726.63
Municipal Bond - Class A 3.79%
Net Investment Income $ 92,724.88
Maximum Offering Price x Shares $29,597,332.55
Class B 3.33%
Net Investment Income $1,263.78
Maximum Offering Price x Shares $459,181.01
31% tax rate Class A 5.49%
Class B 4.83%
Hol03 71421
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. INDEX 500 STOCK
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 35,646,615
<INVESTMENTS-AT-VALUE> 47,605,592
<RECEIVABLES> 233,164
<ASSETS-OTHER> 29,174
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,867,930
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,794
<TOTAL-LIABILITIES> 53,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,159,466
<SHARES-COMMON-STOCK> 3,019,915
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 106,574
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 340,344
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,207,752
<NET-ASSETS> 47,814,136
<DIVIDEND-INCOME> 559,922
<INTEREST-INCOME> 100,992
<OTHER-INCOME> 0
<EXPENSES-NET> 305,973
<NET-INVESTMENT-INCOME> 354,941
<REALIZED-GAINS-CURRENT> 535,402
<APPREC-INCREASE-CURRENT> 12,207,752
<NET-CHANGE-FROM-OPS> 13,098,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 300,021
<DISTRIBUTIONS-OF-GAINS> 183,740
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,001,056
<NUMBER-OF-SHARES-REDEEMED> 21,156
<SHARES-REINVESTED> 39,415
<NET-CHANGE-IN-ASSETS> 47,802,136
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 104,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 467,254
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 4.48
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.43
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. INDEX 500 STOCK
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 35,646,615
<INVESTMENTS-AT-VALUE> 47,605,592
<RECEIVABLES> 233,164
<ASSETS-OTHER> 29,174
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,867,930
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,794
<TOTAL-LIABILITIES> 53,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,159,466
<SHARES-COMMON-STOCK> 295,930
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 106,574
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 340,344
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,207,752
<NET-ASSETS> 47,814,136
<DIVIDEND-INCOME> 559,922
<INTEREST-INCOME> 100,922
<OTHER-INCOME> 0
<EXPENSES-NET> 305,973
<NET-INVESTMENT-INCOME> 354,941
<REALIZED-GAINS-CURRENT> 535,402
<APPREC-INCREASE-CURRENT> 12,207,752
<NET-CHANGE-FROM-OPS> 13,098,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,018
<DISTRIBUTIONS-OF-GAINS> 11,318
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 311,242
<NUMBER-OF-SHARES-REDEEMED> 18,230
<SHARES-REINVESTED> 2,318
<NET-CHANGE-IN-ASSETS> 47,802,136
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 104,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 467,254
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 4.47
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.35
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. GROWTH AND INCOME
STOCK FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 33,869,062
<INVESTMENTS-AT-VALUE> 38,435,411
<RECEIVABLES> 2,285,755
<ASSETS-OTHER> 16,530
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,737,696
<PAYABLE-FOR-SECURITIES> 1,340,507
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,571
<TOTAL-LIABILITIES> 1,408,078
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,330,139
<SHARES-COMMON-STOCK> 3,038,315
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 28,998
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,404,132
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,566,349
<NET-ASSETS> 39,329,618
<DIVIDEND-INCOME> 462,835
<INTEREST-INCOME> 41,179
<OTHER-INCOME> 0
<EXPENSES-NET> 387,877
<NET-INVESTMENT-INCOME> 116,137
<REALIZED-GAINS-CURRENT> 6,264,818
<APPREC-INCREASE-CURRENT> 4,566,349
<NET-CHANGE-FROM-OPS> 10,947,304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 152,006
<DISTRIBUTIONS-OF-GAINS> 3,768,242
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,700,758
<NUMBER-OF-SHARES-REDEEMED> 29,807
<SHARES-REINVESTED> 366,764
<NET-CHANGE-IN-ASSETS> 39,317,618
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208,331
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 510,373
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 3.90
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 1.44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.44
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. GROWTH AND INCOME
STOCK FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 33,869,062
<INVESTMENTS-AT-VALUE> 38,435,411
<RECEIVABLES> 2,285,755
<ASSETS-OTHER> 16,530
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,737,696
<PAYABLE-FOR-SECURITIES> 1,340,507
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,571
<TOTAL-LIABILITIES> 1,408,078
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,330,139
<SHARES-COMMON-STOCK> 123,596
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 28,998
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,404,132
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,566,349
<NET-ASSETS> 39,329,618
<DIVIDEND-INCOME> 462,835
<INTEREST-INCOME> 41,179
<OTHER-INCOME> 0
<EXPENSES-NET> 387,877
<NET-INVESTMENT-INCOME> 116,137
<REALIZED-GAINS-CURRENT> 6,264,818
<APPREC-INCREASE-CURRENT> 4,566,349
<NET-CHANGE-FROM-OPS> 10,947,304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,604
<DISTRIBUTIONS-OF-GAINS> 92,540
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 116,172
<NUMBER-OF-SHARES-REDEEMED> 2,107
<SHARES-REINVESTED> 8,931
<NET-CHANGE-IN-ASSETS> 39,317,618
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208,331
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 510,373
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 3.88
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 1.44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.37
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. AGGRESSIVE GROWTH
STOCK FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 30,413,146
<INVESTMENTS-AT-VALUE> 42,533,756
<RECEIVABLES> 1,011,566
<ASSETS-OTHER> 107,009
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,652,331
<PAYABLE-FOR-SECURITIES> 70,412
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,594
<TOTAL-LIABILITIES> 142,006
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,348,532
<SHARES-COMMON-STOCK> 2,871,235
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,183
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,120,610
<NET-ASSETS> 43,510,325
<DIVIDEND-INCOME> 34,737
<INTEREST-INCOME> 84,013
<OTHER-INCOME> 0
<EXPENSES-NET> 450,916
<NET-INVESTMENT-INCOME> (332,166)
<REALIZED-GAINS-CURRENT> 1,864,006
<APPREC-INCREASE-CURRENT> 12,120,610
<NET-CHANGE-FROM-OPS> 13,652,450
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,513,217
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,757,475
<NUMBER-OF-SHARES-REDEEMED> 8,348
<SHARES-REINVESTED> 121,508
<NET-CHANGE-IN-ASSETS> 43,498,235
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 257,514
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 575,919
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.12)
<PER-SHARE-GAIN-APPREC> 5.18
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.50
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. AGGRESSIVE GROWTH
STOCK FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 30,413,146
<INVESTMENTS-AT-VALUE> 42,533,756
<RECEIVABLES> 1,011,566
<ASSETS-OTHER> 107,009
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,652,331
<PAYABLE-FOR-SECURITIES> 70,412
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,594
<TOTAL-LIABILITIES> 142,006
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,348,532
<SHARES-COMMON-STOCK> 129,572
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,183
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,120,610
<NET-ASSETS> 43,510,325
<DIVIDEND-INCOME> 34,737
<INTEREST-INCOME> 84,013
<OTHER-INCOME> 0
<EXPENSES-NET> 450,916
<NET-INVESTMENT-INCOME> (332,166)
<REALIZED-GAINS-CURRENT> 1,864,006
<APPREC-INCREASE-CURRENT> 12,120,610
<NET-CHANGE-FROM-OPS> 13,652,450
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 45,705
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 126,434
<NUMBER-OF-SHARES-REDEEMED> 1,140
<SHARES-REINVESTED> 3,678
<NET-CHANGE-IN-ASSETS> 43,498,235
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 257,514
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 575,912
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.21)
<PER-SHARE-GAIN-APPREC> 5.18
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.43
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. INTERNATIONAL
EQUITY FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 29,181,851
<INVESTMENTS-AT-VALUE> 30,603,700
<RECEIVABLES> 301,942
<ASSETS-OTHER> 82,359
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,988,001
<PAYABLE-FOR-SECURITIES> 11,553
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,691
<TOTAL-LIABILITIES> 91,244
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,184,788
<SHARES-COMMON-STOCK> 2,783,288
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 115,120
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 175,688
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,421,161
<NET-ASSETS> 30,896,757
<DIVIDEND-INCOME> 667,687
<INTEREST-INCOME> 421,775
<OTHER-INCOME> 0
<EXPENSES-NET> 453,090
<NET-INVESTMENT-INCOME> 636,372
<REALIZED-GAINS-CURRENT> 181,411
<APPREC-INCREASE-CURRENT> 1,421,161
<NET-CHANGE-FROM-OPS> 2,238,944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 575,912
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,746,325
<NUMBER-OF-SHARES-REDEEMED> 23,510
<SHARES-REINVESTED> 59,873
<NET-CHANGE-IN-ASSETS> 30,884,757
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 231,461
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 585,767
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.56
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. INTERNATIONAL
EQUITY FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 29,181,851
<INVESTMENTS-AT-VALUE> 30,603,700
<RECEIVABLES> 301,942
<ASSETS-OTHER> 82,359
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,988,001
<PAYABLE-FOR-SECURITIES> 11,553
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,691
<TOTAL-LIABILITIES> 91,244
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,184,788
<SHARES-COMMON-STOCK> 137,166
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 115,120
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 175,688
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,421,161
<NET-ASSETS> 30,896,757
<DIVIDEND-INCOME> 667,687
<INTEREST-INCOME> 421,775
<OTHER-INCOME> 0
<EXPENSES-NET> 453,090
<NET-INVESTMENT-INCOME> 636,372
<REALIZED-GAINS-CURRENT> 181,411
<APPREC-INCREASE-CURRENT> 1,421,161
<NET-CHANGE-FROM-OPS> 2,238,944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,152
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 141,383
<NUMBER-OF-SHARES-REDEEMED> 6,714
<SHARES-REINVESTED> 1,897
<NET-CHANGE-IN-ASSETS> 30,884,757
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 231,461
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 585,767
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.63
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. GROWTH STOCK FUND,
3/31/98 FINANCIAL STATEMENTS
CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 29,341,934
<INVESTMENTS-AT-VALUE> 38,933,558
<RECEIVABLES> 96,643
<ASSETS-OTHER> 80,172
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,110,373
<PAYABLE-FOR-SECURITIES> 16,959
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,855
<TOTAL-LIABILITIES> 74,814
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,203,930
<SHARES-COMMON-STOCK> 2,711,768
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 23,034
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,168,002
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,640,593
<NET-ASSETS> 39,035,559
<DIVIDEND-INCOME> 318,476
<INTEREST-INCOME> 187,641
<OTHER-INCOME> 0
<EXPENSES-NET> 415,288
<NET-INVESTMENT-INCOME> 90,829
<REALIZED-GAINS-CURRENT> 1,966,059
<APPREC-INCREASE-CURRENT> 9,640,593
<NET-CHANGE-FROM-OPS> 11,697,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 134,147
<DISTRIBUTIONS-OF-GAINS> 787500
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,643,059
<NUMBER-OF-SHARES-REDEEMED> 7,370
<SHARES-REINVESTED> 75,479
<NET-CHANGE-IN-ASSETS> 39,023,559
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 238,548
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 526,315
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 4.41
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.10
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. GROWTH STOCK FUND,
3/31/98 FINANCIAL STATEMENTS
CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 29,341,934
<INVESTMENTS-AT-VALUE> 38,933,558
<RECEIVABLES> 96,643
<ASSETS-OTHER> 80,172
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 391,100,373
<PAYABLE-FOR-SECURITIES> 16,959
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,885
<TOTAL-LIABILITIES> 74,814
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,203,930
<SHARES-COMMON-STOCK> 57,827
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 23,304
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,168,002
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,640,593
<NET-ASSETS> 39,035,559
<DIVIDEND-INCOME> 318,476
<INTEREST-INCOME> 187,641
<OTHER-INCOME> 0
<EXPENSES-NET> 415,288
<NET-INVESTMENT-INCOME> 90,829
<REALIZED-GAINS-CURRENT> 1,966,059
<APPREC-INCREASE-CURRENT> 9,640,593
<NET-CHANGE-FROM-OPS> 11,697,481
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,034
<DISTRIBUTIONS-OF-GAINS> 10555
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 56,279
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 951
<NET-CHANGE-IN-ASSETS> 39,023,559
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 238,548
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 526,315
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 4.41
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.03
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. ASSET ALLOCATION
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 30,200,296
<INVESTMENTS-AT-VALUE> 35,677,272
<RECEIVABLES> 482,659
<ASSETS-OTHER> 49,241
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,209,172
<PAYABLE-FOR-SECURITIES> 12,692
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,230
<TOTAL-LIABILITIES> 75,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,951,343
<SHARES-COMMON-STOCK> 2,806,418
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 231,052
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 464,542
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,486,313
<NET-ASSETS> 36,133,250
<DIVIDEND-INCOME> 268,572
<INTEREST-INCOME> 957,934
<OTHER-INCOME> 0
<EXPENSES-NET> 414,566
<NET-INVESTMENT-INCOME> 811,940
<REALIZED-GAINS-CURRENT> 1,137,243
<APPREC-INCREASE-CURRENT> 5,486,313
<NET-CHANGE-FROM-OPS> 7,435,496
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 627,696
<DISTRIBUTIONS-OF-GAINS> 650292
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,700,842
<NUMBER-OF-SHARES-REDEEMED> 7,616
<SHARES-REINVESTED> 112,592
<NET-CHANGE-IN-ASSETS> 36,121,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 212,831
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 523,791
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 2.50
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0.25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.32
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. ASSET ALLOCATION
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 30,200,296
<INVESTMENTS-AT-VALUE> 35,677,272
<RECEIVABLES> 482,659
<ASSETS-OTHER> 49,241
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,209,172
<PAYABLE-FOR-SECURITIES> 12,692
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,320
<TOTAL-LIABILITIES> 75,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,951,343
<SHARES-COMMON-STOCK> 128,027
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 231,052
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 464,542
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,486,313
<NET-ASSETS> 36,133,250
<DIVIDEND-INCOME> 268,572
<INTEREST-INCOME> 957,934
<OTHER-INCOME> 0
<EXPENSES-NET> 414,566
<NET-INVESTMENT-INCOME> 811,940
<REALIZED-GAINS-CURRENT> 1,137,243
<APPREC-INCREASE-CURRENT> 5,486,313
<NET-CHANGE-FROM-OPS> 7,435,496
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20,006
<DISTRIBUTIONS-OF-GAINS> 22525
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 127,870
<NUMBER-OF-SHARES-REDEEMED> 4,206
<SHARES-REINVESTED> 3,763
<NET-CHANGE-IN-ASSETS> 36,121,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 212,831
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 523,791
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 2.50
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. SELECT BOND FUND,
3/31/98 FINANCIAL STATEMENTS
CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 28,838,531
<INVESTMENTS-AT-VALUE> 28,556,722
<RECEIVABLES> 1,414,408
<ASSETS-OTHER> 128,228
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,099,358
<PAYABLE-FOR-SECURITIES> 497,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 341,094
<TOTAL-LIABILITIES> 838,605
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,365,703
<SHARES-COMMON-STOCK> 2,868,849
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 68,879
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 172,097
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (345,926)
<NET-ASSETS> 29,260,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,133,628
<OTHER-INCOME> 0
<EXPENSES-NET> 233,637
<NET-INVESTMENT-INCOME> 1,899,991
<REALIZED-GAINS-CURRENT> 1,497,301
<APPREC-INCREASE-CURRENT> (345,926)
<NET-CHANGE-FROM-OPS> 3,051,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,894,078
<DISTRIBUTIONS-OF-GAINS> 1304159
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,608,995
<NUMBER-OF-SHARES-REDEEMED> 36,478
<SHARES-REINVESTED> 295,732
<NET-CHANGE-IN-ASSETS> 29,248,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 82,010
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365,485
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.71
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> 0.71
<PER-SHARE-DISTRIBUTIONS> 0.48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. SELECT BOND FUND,
3/31/98 FINANCIAL STATEMENTS
CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 28,838,531
<INVESTMENTS-AT-VALUE> 28,556,722
<RECEIVABLES> 1,414,408
<ASSETS-OTHER> 128,228
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,099,358
<PAYABLE-FOR-SECURITIES> 497,511
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 341,094
<TOTAL-LIABILITIES> 838,605
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,365,703
<SHARES-COMMON-STOCK> 64,493
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 68,879
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 172,097
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (345,926)
<NET-ASSETS> 29,260,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,133,628
<OTHER-INCOME> 0
<EXPENSES-NET> 233,637
<NET-INVESTMENT-INCOME> 1,899,991
<REALIZED-GAINS-CURRENT> 1,497,301
<APPREC-INCREASE-CURRENT> (345,926)
<NET-CHANGE-FROM-OPS> 3,051,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,475
<DISTRIBUTIONS-OF-GAINS> 12480
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,092
<NUMBER-OF-SHARES-REDEEMED> 2,236
<SHARES-REINVESTED> 2,037
<NET-CHANGE-IN-ASSETS> 29,248,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 82,010
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365,485
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> 0.44
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0.48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. MUNICIPAL BOND
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 26,803,665
<INVESTMENTS-AT-VALUE> 28,242,166
<RECEIVABLES> 511,818
<ASSETS-OTHER> 31,050
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,785,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 140,442
<TOTAL-LIABILITIES> 140,442
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,188,250
<SHARES-COMMON-STOCK> 2,671,175
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 29,346
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 11,505
<ACCUM-APPREC-OR-DEPREC> 1,438,501
<NET-ASSETS> 28,644,592
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,425,930
<OTHER-INCOME> 0
<EXPENSES-NET> 232,661
<NET-INVESTMENT-INCOME> 1,193,269
<REALIZED-GAINS-CURRENT> 334,674
<APPREC-INCREASE-CURRENT> 1,438,501
<NET-CHANGE-FROM-OPS> 2,966,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,219,558
<DISTRIBUTIONS-OF-GAINS> 341287
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,536,893
<NUMBER-OF-SHARES-REDEEMED> 5,684
<SHARES-REINVESTED> 139,366
<NET-CHANGE-IN-ASSETS> 28,632,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 81,499
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 344,744
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.69
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. MUNICIPAL BOND
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 26,803,665
<INVESTMENTS-AT-VALUE> 28,242,166
<RECEIVABLES> 511,818
<ASSETS-OTHER> 31,050
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,785,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 140,442
<TOTAL-LIABILITIES> 140,442
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,188,250
<SHARES-COMMON-STOCK> 44,790
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 29,346
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 11,505
<ACCUM-APPREC-OR-DEPREC> 1,438,501
<NET-ASSETS> 28,644,592
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,425,930
<OTHER-INCOME> 0
<EXPENSES-NET> 232,661
<NET-INVESTMENT-INCOME> 1,193,269
<REALIZED-GAINS-CURRENT> 334,674
<APPREC-INCREASE-CURRENT> 1,438,501
<NET-CHANGE-FROM-OPS> 2,966,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,261
<DISTRIBUTIONS-OF-GAINS> 4,893
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44,580
<NUMBER-OF-SHARES-REDEEMED> 991
<SHARES-REINVESTED> 601
<NET-CHANGE-IN-ASSETS> 28,632,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 81,499
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 344,744
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 0.70
<PER-SHARE-DIVIDEND> 0.40
<PER-SHARE-DISTRIBUTIONS> 0.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. HIGH YIELD BOND
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS A
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 32,819,519
<INVESTMENTS-AT-VALUE> 34,000,563
<RECEIVABLES> 1,828,723
<ASSETS-OTHER> 113,489
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,942,775
<PAYABLE-FOR-SECURITIES> 1455174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 315,360
<TOTAL-LIABILITIES> 1,770,534
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,109,366
<SHARES-COMMON-STOCK> 3,041,500
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 61,039
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 820792
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,181,044
<NET-ASSETS> 34,172,241
<DIVIDEND-INCOME> 701221
<INTEREST-INCOME> 2,441,525
<OTHER-INCOME> 0
<EXPENSES-NET> 386,401
<NET-INVESTMENT-INCOME> 2,756,345
<REALIZED-GAINS-CURRENT> 1,974,379
<APPREC-INCREASE-CURRENT> 1,181,044
<NET-CHANGE-FROM-OPS> 5,911,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,730,612
<DISTRIBUTIONS-OF-GAINS> 1,131,057
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,716,144
<NUMBER-OF-SHARES-REDEEMED> 11,412
<SHARES-REINVESTED> 336,168
<NET-CHANGE-IN-ASSETS> 34,160,241
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221,575
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 522,905
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 1.01
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> 1.00
<PER-SHARE-DISTRIBUTIONS> 0.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM MASON STREET
FUNDS, INC. HIGH YIELD BOND
FUND, 3/31/98 FINANCIAL
STATEMENTS CLASS B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 03-31-98
<PERIOD-START> 04-01-97
<PERIOD-END> 03-31-98
<INVESTMENTS-AT-COST> 32,819,519
<INVESTMENTS-AT-VALUE> 34,000,563
<RECEIVABLES> 1,828,723
<ASSETS-OTHER> 113,489
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,942,775
<PAYABLE-FOR-SECURITIES> 1,455,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 315,360
<TOTAL-LIABILITIES> 1,770,534
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,109,366
<SHARES-COMMON-STOCK> 126,169
<SHARES-COMMON-PRIOR> 600
<ACCUMULATED-NII-CURRENT> 61,039
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 820,792
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,181,044
<NET-ASSETS> 34,172,241
<DIVIDEND-INCOME> 701,221
<INTEREST-INCOME> 2,441,525
<OTHER-INCOME> 0
<EXPENSES-NET> 386,401
<NET-INVESTMENT-INCOME> 2,756,345
<REALIZED-GAINS-CURRENT> 1,974,379
<APPREC-INCREASE-CURRENT> 1,181,044
<NET-CHANGE-FROM-OPS> 5,911,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,293
<DISTRIBUTIONS-OF-GAINS> 22,530
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 121,471
<NUMBER-OF-SHARES-REDEEMED> 233
<SHARES-REINVESTED> 4,331
<NET-CHANGE-IN-ASSETS> 34,160,241
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221,575
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 522,905
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.93
<PER-SHARE-GAIN-APPREC> 1.20
<PER-SHARE-DIVIDEND> 0.93
<PER-SHARE-DISTRIBUTIONS> 0.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
