MASON STREET FUNDS INC, 485BPOS, 1999-06-25

MASON STREET FUNDS INC
485BPOS, 1999-06-25

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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. 4 X
----- -----

AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
-----
AMENDMENT NO. 6 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 July 12, 1999 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.

<PAGE>

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 Expense Information

4 The Funds In Detail

5 *

6 About the Advisors, Management of the
Funds

7 Buying And Selling Fund Shares,
Shareholders Guide, Distributions and
Taxes

8 Buying And Selling Fund Shares,
Shareholders Guide

9 Financial Highlights

* Indicates inapplicable or negative
<PAGE>

BOND FUNDS MULTI - ASSET FUND STOCK FUNDS

[LOGO]

Mason Street
FUNDS

PROSPECTUS
JULY 12 , 1999

<PAGE>

MASON STREET FUNDS PROSPECTUS JULY 12, 1999

This Prospectus offers you eleven mutual funds presenting you with a wide choice
of investment objectives. Each Fund identified below is a series of Mason Street
Funds-Registered Trademark-, Inc.

/ / Small Cap Growth Stock Fund

/ / Aggressive Growth Stock Fund

/ / International Equity Fund

/ / Index 400 Stock 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

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.

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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.

C O N T E N T S

SUMMARY.......................................................................3

Funds at a Glance.............................................................3

Primary Risks.................................................................4

Performance...................................................................5

Expense Information...........................................................8

PERFORMANCE..................................................................12

THE FUNDS IN DETAIL..........................................................14

Stock Funds Category.........................................................14

Multi-Asset Fund Category....................................................17

Bond Funds Category..........................................................18

Other Risks..................................................................20

MANAGEMENT OF THE FUNDS......................................................21

BUYING AND SELLING FUND SHARES...............................................24

Investment Minimums..........................................................24

Flexible Sales Charge Options................................................24

Class A Shares...............................................................24

Class B Shares...............................................................26

How Shares are Priced........................................................27

SHAREHOLDERS' GUIDE..........................................................27

How to Buy Shares............................................................27

How to Exchange Shares.......................................................28

How to Sell Shares...........................................................29

Quick Address and Telephone Reference........................................29

DISTRIBUTIONS AND TAXES......................................................30

FiNANCIAL HIGHLIGHTS.........................................................32

APPENDIX A - GLOSSARY........................................................37

APPENDIX B...................................................................39

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S U M M A R Y

This section will give you a brief summary of the Funds and their investment
objectives, strategies, risks and performance. Please refer to the detailed
description of investment objectives and policies (beginning at p. __) for those
Funds you wish to purchase. A glossary of terms is included in Appendix A.

FUNDS AT A GLANCE

STOCK FUNDS

SMALL CAP GROWTH STOCK FUND

OBJECTIVE: To achieve long-term appreciation of capital. The Fund will seek to
achieve this objective primarily by investing in the common stocks of companies
which can reasonably be expected to increase their sales and earnings at a pace
which will exceed the growth rate of the U.S. economy over an extended period.

PORTFOLIO: Primarily common stocks of small capitalization companies.

STRATEGY: To identify and invest in companies with above-average potential for
growth. The investment process involves detailed studies of individual
companies. In evaluating individual companies, factors such as the company
management team, the growth rate of revenues and earnings, opportunities for
margin expansion and strong financial characteristics are important variables
used in the analysis.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general, growth stocks and small cap stocks, as described in the next section.

AGGRESSIVE GROWTH STOCK FUND

OBJECTIVE: To seek long term growth of capital. This Fund also attempts to
achieve this goal primarily by investing in the common stocks of companies which
can be expected to increase sales and earnings at a pace which will exceed the
growth rate of the U.S. economy over an extended period.

PORTFOLIO: Primarily common stocks of medium- and small-sized companies.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general, growth stocks and small cap stocks, as described in the next section.

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 identify and invest in the under-valued stocks of foreign companies
offering the greatest discounts to their long-term values. The strategy for the
Fund will reflect a bottom-up, value-oriented and long-term investment
philosophy. In choosing equity investments, the Fund's manager will focus on the
market price of a company's securities in relation to the company's long-term
earnings, asset value and cash flow potential. A company's historical value
measures, including price/earnings ratio, profit margins and liquidation value,
will also be considered.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for international
securities, stocks in general and value stocks, as described in the next
section.

INDEX 400 STOCK FUND

OBJECTIVE: To seek investment results that approximate the performance of the
S&P MidCap 400 Index, by investing in stocks included in the S&P MidCap 400
Index.

PORTFOLIO: The S&P MidCap 400 Index is composed of 400 common stocks. The S&P
MidCap 400 does not include the very large issues that account for most of the
weighting in the S&P 500 Index. Most of the companies in the S&P MidCap 400
Index have a market value in the range of $750 million to $5 billion.

STRATEGY: To capture mid-cap market performance by investing in a portfolio
modeled after a mid-cap stock index. The Fund invests in stocks included in the
S&P MidCap 400 Index in proportion to their weightings in the index. The 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. The Fund will not buy stocks that are
not in the S&P MidCap 400 Index and will seek to sell such stocks in an orderly
manner in the event of changes in the Index or spin-offs.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general as described in the next section.

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. 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

3
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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.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general and growth stocks as described in the next section.

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 500-Registered Trademark- Index"). The Fund
attempts to reduce risk by investing in many different economic sectors,
industries and companies. The manager of the Fund may moderately under-weight
or over-weight selected economic sectors against the sector weightings of the
S&P 500-Registered Trademark- Index to seek to enhance the Fund's total
return or reduce fluctuations in market value relative to the S&P
500-Registered Trademark- Index. In selecting securities, the manager may
emphasize securities that it believes to be undervalued.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general and value stocks as described in the next section.

INDEX 500 STOCK FUND

OBJECTIVE: To seek investment results that approximate the performance of
the S&P 500-Registered Trademark- Index, by investing in stocks included in
the S&P 500-Registered Trademark- Index.

PORTFOLIO: The S&P 500-Registered Trademark- Index is composed of 500
common stocks representing approximately three-fourths of the total market
value of all publicly-traded common stocks in the United States.

STRATEGY: To capture broad market performance by investing in a portfolio
modeled after a broadly based stock index. The Fund invests in stocks
included in the S&P 500-Registered Trademark- Index in proportion to their
weightings in the index. 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. The Fund will not buy stocks that are not in the S&P
500-Registered Trademark- Index and will seek to sell such stocks in an
orderly manner in the event of changes in the Index or spin-offs.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general as described in the next section.

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. __. The Fund may invest up to 10% of its total
assets in noninvestment-grade debt obligations.

STRATEGY: To adjust the mix between asset sectors to capitalize on the changing
financial markets and economic conditions. NMIS intends to actively manage the
Fund's assets, maintaining a balance over time between investment opportunities
and their associated potential risks.

PRINCIPAL RISKS: The primary risks for this Fund are the risks for stocks in
general, interest rate risk, credit risk and the risks for international
securities, as described in the next section.

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. 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. 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.

PRINCIPAL RISKS: The primary risks for this Fund are credit risk, interest rate
risk and the risks for international securities, as described in the next
section.

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.

4
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STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality, sector and maturity of fixed income securities. While
the Fund has no security maturity restrictions, its average maturity will
normally be ten years or longer.

PRINCIPAL RISKS: The primary risk for this Fund is interest rate risk, as
described in the next section.

SELECT BOND FUND

OBJECTIVE: To seek high income and capital appreciation, consistent with
preservation of capital.

PORTFOLIO: Diversified investment-grade corporate, mortgage-backed, Treasury and
government agency bonds with maturities generally exceeding one year. 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.

STRATEGY: To actively manage the portfolio to take advantage of changes in
interest rates, quality and maturity of fixed income securities.

PRINCIPAL RISKS: The primary risks for this Fund are interest rate risk, credit
risk and the risks for international securities, as described below.

PRIMARY RISKS

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. Loss of money is a risk
of investing in any Fund.

RISKS FOR STOCKS Stock prices have historically outperformed other asset classes
over the long term, but stock prices tend to go up and down more dramatically
over the shorter term. These price movements may result from factors affecting
individual companies, industries, or the stock market as a whole. Risks include
adverse general economic conditions as well as adverse financial experience of
industries and companies. These risks apply primarily for the Stock Funds and
the Asset Allocation Fund.

GROWTH STOCKS are typically priced higher than other stocks, in relation to
earnings and other measures, because investors believe they have more growth
potential. This potential may or may not be realized and growth stock prices
tend to fluctuate more dramatically than the overall stock market. These risks
are presented primarily for the Small Cap Growth, Aggressive Growth and Growth
Stock Funds. These risks may also affect the performance of the other Stock
Funds and the Asset Allocation Fund.

VALUE STOCKS are selected because they seem attractively priced. The main risks
are that the relatively low price for a stock may turn out to reflect low value
or low growth potential, or the market may not recognize the real value of the
stock for a long time. These risks are presented primarily for the Growth and
Income Stock and International Equity Funds. These risks may also affect the
performance of the other Stock Funds and the Asset Allocation Fund.

SMALL CAP STOCKS may involve greater risks because smaller companies often have
a limited track record, narrower markets and more limited managerial and
financial resources than larger, more established companies. The prices of these
stocks tend to be more volatile and the issuers face greater risk of business
failure. These risks are presented primarily for the Small Cap Growth and
Aggressive Growth Stock Funds.

RISKS FOR FIXED INCOME SECURITIES

INTEREST RATE RISK Bond prices rise and fall in response to changes in market
interest rates. When interest rates rise, bond prices fall. This effect is
greater for longer term bonds, and relatively minor for short-term cash
instruments that are about to mature. Interest rate risk is presented primarily
for the High Yield, Municipal and Select Bond Funds and the Asset Allocation
Fund.

CREDIT RISK Bond prices reflect the risk of default. The credit rating assigned
to a fixed income issue generally reflects the credit risk. High yield fixed
income securities present more credit risk than investment grade issues. Credit
risk is presented primarily for the High Yield Bond Fund, the Select Bond Fund
and the Asset Allocation Fund.

RISKS FOR INTERNATIONAL SECURITIES Foreign securities present the investment
risks that are inherent in all investments in securities as well as an array of
special risk considerations, including currency risks. Some of these risks are
described in this prospectus. A longer description is included in the Statement
of Additional Information. The risks associated with foreign securities are
presented primarily for the International Equity, Asset Allocation, Select Bond
and High Yield Bond Funds. Other Funds may also invest a portion of their assets
in foreign securities and, to that extent, the performance of those Funds may be
affected by the associated risks.

ASSET ALLOCATION RISK In addition to the risks involved with each kind of
securities there is the risk that an investor will hold the wrong mix of
securities at any point in time. This risk is especially important for the Asset
Allocation Fund, but it is a consideration for all of the Funds. It is also
likely to be the most important consideration for you as an individual investor.

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PERFORMANCE
The following bar chart shows the performance of each Fund for calendar year
1998. Performance of Class A shares is shown. No shares of the Small Cap Growth
Stock and Index 400 Stock Funds were outstanding during the period shown.

[GRAPH]
<TABLE>
<CAPTION>

1998
ANNUAL TOTAL RETURNS
<S> <C>
AGGRESSIVE GROWTH STOCK 13.98%
INTERNATIONAL EQUITY -1.08%
GROWTH STOCK 27.47%
GROWTH AND INCOME STOCK 22.08%
INDEX 500 STOCK 27.71%
ASSET ALLOCATION 14.10%
HIGH YIELD BOND -1.90%
MUNICIPAL BOND 6.65%
SELECT BOND 5.68%
</TABLE>

Sales loads are not reflected in the bar chart. Returns would be less than those
shown if sales loads were reflected. How a Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.

The chart below shows the Funds' total returns for the period 1/1/99 - 6/30/99.
The chart also shows the highest and lowest quarterly return for each Fund for
the period shown in the bar chart.

<TABLE>
<CAPTION>
TOTAL RETURN BEST QUARTER WORST QUARTER
1/1-6/30/99
---------------- ---------------------- --------------------
<S> <C> <C> <C>
Aggressive Growth Stock Fund............. _____% 29.21% (4Q/98) -20.86% (3Q/98)
International Equity..................... _____% 14.11% (4Q/98) -17.34% (3Q/98)
Growth Stock Fund........................ _____% 22.09% (4Q/98) -11.89% (3Q/98)
Growth and Income Stock Fund............. _____% 21.43% (4Q/98) -11.11% (3Q/98)
Index 500 Stock Fund..................... _____% 21.13% (4Q/98) -10.01% (3Q/98)
Asset Allocation Fund.................... _____% 13.50% (4Q/98) -9.00% (3Q/98)
High Yield Bond Fund..................... _____% 4.38% (1Q/98) -10.57% (3Q/98)
Municipal Bond Fund...................... _____% 2.98% (3Q/98) 0.92% (4Q/98)
Select Bond Fund......................... _____% 3.75% (4Q/98) -0.80% (3Q/98)
</TABLE>

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7
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AVERAGE ANNUAL RETURNS

The following table further illustrates the risks of investing in the Funds by
showing how each Fund's average annual returns for
the periods shown ending December 31, 1998, compare with the returns of certain
indexes that measure broad market performance.
This table assumes that the maximum initial sales charge was paid for Class A
shares and that the shares were redeemed at the end
of the applicable period and the maximum contingent deferred sales charge was
paid for Class B shares. No shares of the Small Cap Growth Stock and Index 400
Stock Funds were outstanding during the periods shown.
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>

Since Inception
1 Year (annualized)*
------ ---------------
<S> <C> <C>
Aggressive Growth Stock Fund - Class A 8.60% 24.28%

Aggressive Growth Stock Fund - Class B 9.25% 25.05%

Wilshire Small Cap Index(1)............. -0.36% 14.95%

Wilshire Next 1750 Index(2)............. 0.83% 16.79%

International Equity Fund - Class A -5.78% -4.24%

International Equity Fund - Class B -5.41% -4.25%

Morgan Stanley Capital International 20.33% 13.41%
EAFE (Europe-Australasia-Far East) Index

Growth Stock Fund - Class A 21.44% 28.88%

Growth Stock Fund - Class B 22.79% 29.82%

S&P 500 Index(3)........................ 28.50% 33.86%

Growth and Income Stock Fund - Class A 16.24% 24.93%

Growth and Income Stock Fund - Class B 17.38% 25.73%

S&P 500 Index(3)........................ 28.50% 33.86%

Index 500 Stock Fund - Class A 21.68% 29.18%

Index 500 Stock Fund - Class B 22.93% 30.16%

S&P 500 Index(3)........................ 28.50% 33.86%

Asset Allocation Fund - Class A 8.65% 15.57%

Asset Allocation Fund - Class B 9.33% 16.07%

S&P 500 Index(3)........................ 28.50% 33.86%

Merrill Lynch Domestic Master Index(4).. 8.87% 10.98%

Merrill Lynch 91-Day T-Bill(5).......... 5.23% 5.29%

High Yield Bond Fund - Class A -6.59% 5.62%

High Yield Bond Fund - Class B -6.04% 5.79%

Lehman Brothers High Yield Intermediate
Market Index........................... 1.49% 6.83%

Municipal Bond Fund - Class A 1.55% 6.79%

Municipal Bond Fund - Class B 1.95% 6.89%

Lehman Brothers Municipal Bond Index.. 6.48% 9.12%

Select Bond Fund - Class A 0.67% 6.38%

Select Bond Fund - Class B 1.08% 6.53%

Merrill Lynch Domestic Master Index4.. 8.87% 10.98%
</TABLE>

- --------------------------------------------- ------------- -----------------
*The Funds commenced operations on March 31, 1997.

(1) 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 weighed in this unmanaged index. The
average market capitalization is approximately $1.8 billion. The largest sector
weightings include technology, finance and utilities.
(2) The Wilshire Next 1750 is an unmanaged, equally weighed index. Included
in this index are those stocks which are ranked 750 to 2500 by market
capitalization in the Wilshire 5000. The largest sectors represented in this
index are consumer non-durables, materials and services, and technology. Its
average market capitalization is approximately $1.4 billion.

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(3) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
index of 500 selected common stocks, most of which are listed on the New York
Stock Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately three-fourths of the total market
value of all domestic common stocks.
(4) 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.
(5)The Merrill Lynch 91-Day T-Bill Index is comprised of a single issue
purchased at the beginning of each month and held for a full month. The issue
selected at each month-end rebalancing is the outstanding Treasury Bill that
matures closest to, but not beyond, three months from the rebalancing date.

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)
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
Maximum Sales Charge
on Purchases (as % of
Offering Price) 4.75% 0.00%

Maximum Contingent
Deferred Sales Charge 0.00% 5.00%

Redemption fee None None

Exchange fee None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES(1)

Small Cap Growth Aggressive Growth International Index 400 Growth
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- MAGAX(2) MAGHX(2) MEQAX(2) MEQBX(2) -- -- MGSAX(2) MGSBX(2
- ------------------------------------------------------------------------------------------------------------------
Management Fees 0.85% 0.85% 0.75% 0.75% 0.85% 0.85% 0.40% 0.40% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------
12b-1 Distribution
and Service Fees(3) 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 1.14% 1.14% 0.52% 0.52% 0.71% 0.71% 0.57% 0.57% 0.47% 0.47%
- ------------------------------------------------------------------------------------------------------------------
Total Operating
Expenses 2.34% 2.99% 1.62% 2.27% 1.91% 2.56% 1.32% 1.97% 1.57% 2.22%
- ------------------------------------------------------------------------------------------------------------------
Fee Waiver(4) 0.94% 0.94% 0.32% 0.32% 0.26% 0.26% 0.37% 0.37% 0.27% 0.27%
- ------------------------------------------------------------------------------------------------------------------
Net Total
Operating Expenses(4) 1.40% 2.05% 1.30% 1.95% 1.65% 2.30% 0.95% 1.60% 1.30% 1.95%
- ------------------------------------------------------------------------------------------------------------------

Growth and Income
Class A Class B
<S> <C> <C>
MSKAX(2) MSKBX(2)
- -----------------------------------------
Management Fees 0.65% 0.65%
- -----------------------------------------
12b-1 Distribution
and Service Fees(3) 0.35% 1.00%
- -----------------------------------------
Other Expenses 0.52% 0.52%
- -----------------------------------------
Total Operating
Expenses 1.52% 2.17%
- -----------------------------------------
Fee Waiver(4) 0.32% 0.32%
- -----------------------------------------
Net Total
Operating Expenses(4) 1.20% 1.85%
- -----------------------------------------
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
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

MISAX(2) MISBX(2) MASSX(2) MASVX(2) MHYAX(2) MHYBX(2) MMBAX(2) MMDBX(2) MBDAX(2) MBDBX(2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.30% 0.30% 0.70% 0.70% 0.75% 0.75% 0.30% 0.30% 0.30% 0.30%
- -------------------------------------------------------------------------------------------------------------------------------
12b-1 Distribution
and Service Fees(3) 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
- -------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.50% 0.50% 0.57% 0.57% 0.55% 0.55% 0.52% 0.52% 0.61% 0.61%
- -------------------------------------------------------------------------------------------------------------------------------
Total Operating
Expenses 1.15% 1.80% 1.62% 2.27% 1.65% 2.30% 1.17% 1.82% 1.26% 1.91%
- -------------------------------------------------------------------------------------------------------------------------------
Fee Waiver(4) 0.30% 0.30% 0.27% 0.27% 0.35% 0.35% 0.32% 0.32% 0.41% 0.41%
- -------------------------------------------------------------------------------------------------------------------------------
Net Total
Operating Expenses(4) 0.85% 1.50% 1.35% 2.00% 1.30% 1.95% 0.85% 1.50% 0.85% 1.50%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

1 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.

2 NASDAQ SYMBOLS.

3 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.

4 NMIS AND ITS AFFILIATES HAVE CONTRACTUALLY AGREED TO WAIVE THEIR FEES AND
ABSORB CERTAIN OTHER OPERATING EXPENSES, UNTIL AT LEAST MARCH 31, 2004, TO
THE EXTENT NECESSARY SO THAT NET TOTAL OPERATING EXPENSES WILL NOT EXCEED
THE AMOUNT SHOWN FOR EACH FUND. THE CONTRACTUAL FEE WAIVER MAY NOT BE
UNILATERALLY ALTERED BY NMIS OR ITS AFFILIATES. THE SMALL CAP GROWTH STOCK
AND INDEX 400 STOCK FUNDS' "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS
FOR THE CURRENT FISCAL YEAR.

10
<PAGE>

EXPENSE EXAMPLES

These Examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year and that the Funds' operating expenses
remain the same. The examples assume you pay the maximum sales charges. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Growth Stock Fund $611 $708 $897 $ 943
- -------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Stock Fund $601 $698 $868 $ 912 $1,154 $1,252 $2,161 $2,299
- -------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $635 $733 $971 $1,018 $1,329 $1,430 $2,488 $2,624
- -------------------------------------------------------------------------------------------------------------------------------
Index 400 Stock Fund $567 $663 $763 $ 805
- -------------------------------------------------------------------------------------------------------------------------------
Growth Stock Fund $601 $698 $868 $ 912 $1,154 $1,252 $2,131 $2,269
- -------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock Fund $591 $688 $838 $ 882 $1,103 $1,201 $2,055 $2,193
- -------------------------------------------------------------------------------------------------------------------------------
Index 500 Stock Fund $558 $653 $733 $ 774 $ 924 $1,018 $1,663 $1,803
- -------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund $606 $703 $882 $ 927 $1,179 $1,278 $2,183 $2,321
- -------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $601 $698 $868 $ 912 $1,154 $1,252 $2,179 $2,316
- -------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $558 $653 $733 $ 774 $ 924 $1,018 $1,675 $1,815
- -------------------------------------------------------------------------------------------------------------------------------
Select Bond Fund $558 $653 $733 $ 774 $ 924 $1,018 $1,731 $1,871
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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 for Class B shares:

Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Small Cap Growth Stock Fund $208 $643
- -------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Stock Fund $198 $612 $1,052 $2,299
- -------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $233 $718 $1,230 $2,624
- -------------------------------------------------------------------------------------------------------------------------------
Index 400 Stock Fund $163 $505
- -------------------------------------------------------------------------------------------------------------------------------
Growth Stock Fund $198 $612 $1,052 $2,269
- -------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock Fund $188 $582 $1,001 $2,193
- -------------------------------------------------------------------------------------------------------------------------------
Index 500 Stock Fund $153 $474 $ 818 $1,803
- -------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund $203 $627 $1,078 $2,321
- -------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $198 $612 $1,052 $2,316
- -------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $153 $474 $ 818 $1,815
- -------------------------------------------------------------------------------------------------------------------------------
Select Bond Fund $153 $474 $ 818 $1,871
</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.

11
<PAGE>

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 $80 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 142 years. In
addition to the Funds, NMIS has been responsible for directing the investments
of 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.

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" at pp.__ for a
description of the specific sales charges or contingent deferred sales charges
which might apply to your purchase.

12
<PAGE>

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.

MASON STREET FUND PERFORMANCE

The figures set forth below reflect each Fund's total return for the fiscal year
ended March 31, 1999, and the average annual total return for the two fiscal
years ended March 31, 1999 (since inception). These figures are based on the
actual performance of the Funds. The Funds' investment advisor and its
affiliates waived certain Fund expenses for these years. Without this waiver
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
WITH THE MAXIMUM INITIAL SALES CHARGE WITH NO INITIAL SALES CHARGE(1)
Fund 1 Year Since Inception (annualized) 1 Year Since Inception
(annualized)
<S> <C> <C> <C> <C>
AGGRESSIVE GROWTH STOCK FUND -8.33% 17.86% -3.78% 20.77%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

INTERNATIONAL EQUITY FUND -13.20% -3.09% -8.85% -0.69%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

GROWTH STOCK FUND 12.77% 27.89% 18.36% 31.04%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

GROWTH AND INCOME STOCK FUND 5.82% 22.53% 11.09% 25.55%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

INDEX 500 STOCK FUND 12.27% 28.18% 17.88% 31.34%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

ASSET ALLOCATION FUND 1.39% 14.12% 6.41% 16.94%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

HIGH YIELD BOND FUND -12.26% 3.87% -7.87% 6.43%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

MUNICIPAL BOND FUND 1.33% 6.42% 6.42% 9.04%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------

SELECT BOND FUND -0.39% 5.68% 4.60% 8.29%
- --------------------------------------- -------------------- ----------------------------- ----------------- ----------------------
</TABLE>

(1) 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?" AT P. __).

CLASS B SHARES

WITH REDEMPTION* WITH NO REDEMPTION

Fund 1 Year Since Inception (annualized) 1 Year Since Inception
(annualized)
<S> <C> <C> <C> <C>
AGGRESSIVE GROWTH STOCK FUND -4.35% 20.02%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

INTERNATIONAL EQUITY FUND -9.36% -1.30%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

GROWTH STOCK FUND 17.66% 30.22%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

GROWTH AND INCOME STOCK FUND 10.41% 24.75%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

INDEX 500 STOCK FUND 17.17% 30.55%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

ASSET ALLOCATION FUND 5.77% 16.21%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

HIGH YIELD BOND FUND -8.58% 5.65%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

MUNICIPAL BOND FUND 5.72% 8.29%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------

SELECT BOND FUND 3.91% 7.56%
- --------------------------------------- -------------------- ----------------------------- ----------------- --------------------
</TABLE>

* Assumes redemption on the last day of the year beginning with the purchase
date. Redemption on the next day would result in a lower surrender charge and
higher return.

Further information about the performance of the Funds is contained in Mason
Street Funds' 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. __.

13
<PAGE>

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, 1999, 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-Registered Trademark-. 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, 1999:

Corresponding Portfolio
Fund (Inception Date and Asset Size)
AGGRESSIVE GROWTH STOCK
Aggressive Growth Stock
(November 30, 1990*)
$1,014.2 million
- -------------------------------------------------------------------------------
GROWTH STOCK Growth Stock
(May 3, 1994)
$493.5 million
- -------------------------------------------------------------------------------
GROWTH AND INCOME STOCK
Growth and Income Stock
(May 3, 1994)
$603.0 million
- -------------------------------------------------------------------------------
HIGH YIELD BOND High Yield Bond
(May 3, 1994)
$174.8 million
- -------------------------------------------------------------------------------
SELECT BOND Select Bond
(June 26, 1984)
$297.8 million
- -------------------------------------------------------------------------------
* 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, 1999.
These figures are based on the actual gross investment performance of the
Portfolios. From the gross investment performance figures, the maximum Net Total
Fund Operating Expenses shown in the fee table on pp. __ 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 NET TOTAL FUND OPERATING EXPENSES AND
THE MAXIMUM INITIAL SALES CHARGE APPLICABLE TO CLASS A SHARES

10 Years or
Portfolio (Inception Date) 1 Year 3 Years 5 Years Since Inception
<S> <C> <C> <C> <C>
Aggressive Growth Stock (November 30, 1990*) -15.79% 4.91% 13.03% 16.58%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Stock (May 3, 1994) 11.43% 21.99% NA 20.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock (May 3, 1994) 5.80% 20.26% NA 19.31%
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond (May 3, 1994) -13.13% 6.36% NA 8.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Select Bond (June 26, 1984) -0.03% 8.98% 5.93% 8.01%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

ASSUMING CLASS A SHARES NET TOTAL FUND OPERATING EXPENSES
WITH NO INITIAL SALES CHARGE(1)

10 Years or
Portfolio (Inception Date) 1 Year 3 Years 5 Years Since Inception
<S> <C> <C> <C> <C>
Aggressive Growth Stock (November 30, 1990*) -11.59% 6.63% 14.14% 17.26%
- ------------------------------------------------------------------------------------------------------------------------------
Growth Stock (May 3, 1994) 16.99% 23.98% NA 22.16%
- ------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock (May 3, 1994) 11.07% 22.23% NA 20.50%
- ------------------------------------------------------------------------------------------------------------------------------

14
<PAGE>

High Yield Bond (May 3, 1994) -8.80% 8.10% NA 9.27%
- ------------------------------------------------------------------------------------------------------------------------------
Select Bond (June 26, 1984) 4.95% 10.76% 6.96% 8.53%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) 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.__).

ASSUMING CLASS B SHARES NET TOTAL FUND OPERATING EXPENSES
AND REDEMPTION AT THE END OF THE APPLICABLE TIME PERIOD

10 Years or
Portfolio (Inception Date) 1 Year* 3 Years 5 Years* Since Inception
<S> <C> <C> <C> <C>
Aggressive Growth Stock (November 30, 1990*) -17.28% 5.00% 13.13% 16.48%
- ------------------------------------------------------------------------------------------------------------------------------
Growth Stock (May 3, 1994) 11.26% 22.52% NA 21.09%
- ------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock (May 3, 1994) 5.35% 20.77% NA 19.42%
- ------------------------------------------------------------------------------------------------------------------------------
High Yield Bond (May 3, 1994) -14.38% 6.54% NA 8.12%
- ------------------------------------------------------------------------------------------------------------------------------
Select Bond (June 26, 1984) 0.03% 5.55% 6.24% 7.98%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Assumes redemption on the last day of the year beginning with the purchase
date. Redemption on the next day would result in a lower surrender charge
and higher return.

ASSUMING CLASS B SHARES NET TOTAL FUND OPERATING EXPENSES
AND NO REDEMPTION AT THE END OF THE APPLICABLE TIME PERIOD

10 Years or
Portfolio (Inception Date) 1 Year 3 Years 5 Years Since Inception
<S> <C> <C> <C> <C>
Aggressive Growth Stock (November 30, 1990*) -12.28% 5.90% 13.38 16.48%
- ------------------------------------------------------------------------------------------------------------------------------
Growth Stock (May 3, 1994) 16.26% 23.19% NA 21.38%
- ------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock (May 3, 1994) 10.35% 21.45% NA 19.72%
- ------------------------------------------------------------------------------------------------------------------------------
High Yield Bond (May 3, 1994) -9.38% 7.41% NA 8.56%
- ------------------------------------------------------------------------------------------------------------------------------
Select Bond (June 26, 1984) 4.97% 6.44% 6.56% 7.98%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

** INCLUDES PERFORMANCE OF PREDECESSOR FUND THAT WAS MERGED INTO THE SERIES FUND
ON MAY 3, 1994.

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. __ 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'-Registered Trademark-
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 SUMMARY

INVESTMENT OBJECTIVE:
- --------------------------------------------------------------------
Small Cap Growth Stock Fund
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 500-Registered Trademark- Index
Performance
- --------------------------------------------------------------------
Index 400 Stock Fund -Approximate the S&P MidCap 400 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

15
<PAGE>

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.

SMALL CAP GROWTH STOCK FUND

The investment objective of the Small Cap Growth Stock Fund is to achieve
long-term appreciation of capital. The Fund will seek to achieve this objective
primarily by investing in the common stocks of companies which can reasonably be
expected to increase their sales and earnings at a pace which will exceed the
growth rate of the nation's economy over an extended period. These companies,
for the most part, are small capitalization companies whose stock may experience
substantial price volatility.

The investment process involves detailed studies of individual companies. In
evaluating individual companies, factors such as the company management team,
the growth rate of revenues and earnings, opportunities for margin expansion and
strong financial characteristics are important variables used in the analysis.

Under normal circumstances, the Fund will invest at least 65% of its assets in
small cap stocks. For this purpose, small cap is defined as stocks with market
capitalizations of less than $3 billion. This number is subject to periodic
adjustment to reflect changes in stock market valuations.

Because the Small Cap Growth Stock Fund will be investing in stocks which may
experience substantial price volatility, an investment in the Small Cap Growth
Stock Fund will present more risk than an investment in any of the other Funds.

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. The investment process involves detailed studies
of individual companies. In evaluating individual companies, factors such as the
company management team, the growth rate of revenues and earnings, opportunities
for margin expansion and strong financial characteristics are important
variables used in the analysis.

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 strategy for the Fund will reflect a bottom-up, value-oriented and long-term
investment philosophy. In choosing equity investments, the Fund's manager will
focus on the market price of a company's securities in relation to the company's
long-term earnings, asset value and cash flow potential. A company's historical
value measures, including price/earnings ratio, profit margins and liquidation
value, will also be considered.

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.__.

INDEX 400 STOCK FUND

The investment objective of the Index 400 Stock Fund is to achieve investment
results that approximate the performance of the S&P Mid Cap 400 Stock Price
Index ("S&P MidCap 400 Index"). The Fund will attempt to meet this objective by
investing in stocks included in the S&P MidCap 400 Index in proportion to their
weightings in the index.

The S&P MidCap 400 Index* is composed of 400 common stocks. The companies
included in the S&P MidCap 400 Index are generally smaller than those that
comprise the S&P 500 Index. See the description of the Index 500 Stock Fund
below. The S&P MidCap 400 Index does not include the very large issues that
account for most of the weighting in the S&P 500 Index. Most of the companies in
the S&P MidCap 400 Index have a market value in the range of $750 million to $5
billion. A few are smaller and a few are larger.

The Index 400 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 375 of the 400 issues that comprise the S&P MidCap 400
Index. The Fund will not buy stocks that are not in the S&P MidCap 400 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 400 Stock Fund's ability to match the performance of the S&P MidCap
400 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.

* "STANDARD & POOR'S-Registered Trademark-", "S&P-Registered Trademark-",
"S&P MIDCAP 400 INDEX" AND "STANDARD & POOR'S MID CAP 400 INDEX" ARE
TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE
BY NORTHWESTERN MUTUAL LIFE AND MASON STREET FUNDS. THE FUND IS NOT
SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND STANDARD &
POOR'S MAKES NO

16
<PAGE>

REPRESENTATION REGARDING THE ADVISABILITY OF INVESTING IN THE FUND.

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 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 500-Registered
Trademark- 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 moderately
under-weight or over-weight selected economic sectors against the sector
weightings of the S&P 500-Registered Trademark- Index to seek to enhance the
Fund's total return or reduce fluctuations in market value relative to the
S&P 500-Registered Trademark- 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.

The Growth and Income Stock Fund may engage in active trading of portfolio
securities. This increases the portfolio turnover rate and may increase
brokerage commissions and other transaction costs and the realization of tax
gains and losses.

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 500-Registered Trademark- Index"). The Fund
will attempt to meet this objective by investing in stocks included in the
S&P 500-Registered Trademark- Index in proportion to their weightings in the
index.

The S&P 500-Registered Trademark- Index* is composed of 500 common stocks
representing approximately three-fourths 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
500-Registered Trademark- Index. ThE Fund will not buy stocks that are not in
the S&P 500-Registered Trademark- 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
500-Registered Trademark-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.

*"STANDARD & POOR'S", "S&P", "S&P 500", "STANDARD & POOR'S 500", AND "500"
ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR
USE BY NORTHWESTERN MUTUAL LIFE AND MASON STREET FUNDS-Registered Trademark-.
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 400 and Index 500 Stock Funds may invest all or a larger portion of their
assets in these investments for temporary defensive purposes. When adverse
conditions exist a Stock Fund may be hindered in its pursuit of its investment
objective because it may not invest, or may invest less, in the common stocks in
which it ordinarily invests. The Stock Funds may also invest in options
contracts, stock index futures contracts, including indexes on specific
industries, foreign

17
<PAGE>

currency futures and forward contracts and repurchase agreements. For a
description of these instruments and their risks, see the Statement of
Additional Information. 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.

The Funds may also invest in American Depositary Receipts (ADRs). As a
non-principal investment strategy, the Small Cap Growth Stock, 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.__. The Funds may enter into firm commitment
agreements and purchase securities on a "when-issued" basis.

As a non-principal investment strategy, 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" in the Statement of Additional Information.

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 SUMMARY

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. __.

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.

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

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<PAGE>

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. For a description of these instruments and their risks, see the
Statement of Additional Information.

BOND FUNDS CATEGORY

BOND FUNDS SUMMARY

INVESTMENT OBJECTIVE:

- -------------------------------------------------------------
High Current Income
High Yield Bond Fund - and Capital Appreciation
- -------------------------------------------------------------
High Level of Current
Municipal Bond Fund - 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
- -------------------------------------------------------------
Corporate Bonds --
Select Bond Fund - 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.

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<PAGE>

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's-Registered Trademark-. 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.

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. As a non-principal investment strategy, the
Fund may also invest up to 5% 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's-Registered
Trademark-, without limit, when market conditions warrant a more defensive
investment posture. When adverse conditions exist the High Yield Bond Fund
may be hindered in its pursuit of its investment objective because it may not
invest, or may invest less, in the high yield/high risk securities in which
it ordinarily invests.

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" in the Statement of Additional
Information.

The High Yield Bond Fund may engage in active trading of portfolio securities.
This increases the portfolio turnover rate and may increase transaction costs
and the realization of tax gains and losses.

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. When
adverse market conditions exist the Municipal Bond Fund may be hindered in
its pursuit of its investment objective because it may not invest, or may
invest less, in the municipal bonds in which it ordinarily invests. 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's-Registered
Trademark-Ratings Group ("S&P-Registered Trademark-"), 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. __. 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

20
<PAGE>

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 enter into interest rate futures contracts. For a description of
futures contracts and their risks, see the Statement of Additional Information.
Use of futures contracts may give rise to taxable income.

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.

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.

The Municipal Bond Fund may engage in active trading of portfolio securities.
This increases the portfolio turnover rate and may increase transaction costs
and the realization of tax gains and losses.

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-Registered Trademark-; mortgage-backed and
asset-backed fixed income securities; 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-Registered Trademark-; 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's-Registered Trademark-; and cash or cash equivalents. When
adverse market conditions exist the Select Bond Fund may be hindered in its
pursuit of its investment objective because it may not invest, or may invest
less, in the longer-term bonds in which it ordinarily invests. In addition,
the Fund may invest in unrated privately placed corporate debt securities
that in the judgment of Mason Street Funds'-Registered Trademark-Board of
Directors, are of comparable quality to debt securities rated
investment-grade or betteR by Moody's or Standard & Poor's-Registered
Trademark-; 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.__.

The Select Bond Fund may also invest in interest rate futures contracts and
repurchase agreements. For a description of these investments and their risks,
see the Statement of Additional Information.

The Select Bond Fund may purchase or sell securities on a "when-issued" or
forward commitment basis.

The Select Bond Fund may engage in active trading of portfolio securities. This
increases the portfolio turnover rate and may increase transaction costs and the
realization of tax gains and losses.

OTHER 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 if the security has not decreased in value in its home
country.

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

21
<PAGE>

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 may
not be 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 credit worthiness 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 Funds(R) 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'(R) 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.

RISKS FOR FINANCIAL FUTURES CONTRACTS

All of the Funds may use financial futures contracts in pursuit of their
investment objectives. These instruments are used as a hedge against changes in
the market value of common stocks or changes in prevailing levels of interest
rates. Successful use of these instruments requires special skills, knowledge
and techniques. Gains or losses from positions in financial futures contracts
may be much greater than the amounts invested.

RISKS FOR ALL SECURITIES

The value of a security on a given date depends entirely on its market price.
Investors necessarily rely on the integrity of the marketplace. There is no
guarantee that the securities markets will function in an orderly manner.
Illiquidity may make it difficult for a Fund to buy or sell a security or to
price the security fairly.

YEAR 2000 RISKS

In providing services to the Funds, Northwestern Mutual Investment Services,
LLC, the Funds' investment adviser, and its corporate affiliates rely on both
internal software systems and external software systems purchased from vendors.
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs must be adapted in preparation for the
year 2000.

Failure of computer software systems could affect securities trades of the
Funds, payments of interest and dividends and portfolio pricing. If trading
systems fail to function properly there may be settlement problems and liquidity
issues. Corporate and government data processing errors may result in various
problems for the companies in which the Funds invest and overall economic
uncertainties. In addition, it has been reported that foreign institutions have
made less progress than major U.S. entities in addressing the year 2000 computer

22
<PAGE>

systems issues. This could adversely affect the investments of the Funds in
foreign securities.

NMIS and its affiliates are taking appropriate steps to prepare for the year
2000. However, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Funds. Nor can there be assurance that the
computer issues associated with the turn of the century will not have adverse
effects on the investments of the Funds.

MANAGEMENT OF THE FUNDS

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-Registered Trademark-.

GROWTH AND INCOME STOCK FUND

J.P. Morgan Investment Management Inc. ("J.P. Morgan"), 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 Stock Fund.

INTERNATIONAL EQUITY FUND

Templeton Investment Counsel, Inc. ("Templeton"), 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 Small Cap Growth Stock Fund and the
Aggressive Growth Stock Fund. He also has primary responsibility for the Small
Cap Growth and Aggressive Growth Stock Portfolios 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.

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 the 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

23
<PAGE>

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 Universtiy 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. Kelley 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:

<TABLE>
<CAPTION>
Fund Fee
<S> <C>
Small Cap Growth Stock 0.85%
- -----------------------------------------------------------
Aggressive Growth Stock 0.75%
- -----------------------------------------------------------
International Equity 0.85%
- -----------------------------------------------------------
Index 400 Stock 0.40%
- -----------------------------------------------------------
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%
- -----------------------------------------------------------
</TABLE>

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 Net Total
Operating Expenses set forth in the table at pp. __ in the fiscal years through
March 31, 2004.

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 Small Cap Growth Stock Fund, Index 400 Stock
Fund, Aggressive Growth Stock Fund, Growth

24
<PAGE>

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 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.__.

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.

25
<PAGE>

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
<S> <C> <C>
Regular Account $1,000 $100
- -----------------------------------------------------------------
Individual IRAs
(regular or spousal) $500 $100
- -----------------------------------------------------------------
Other Tax Qualified
Retirement Plans $50 $50
- -----------------------------------------------------------------
Automatic
Investment Plans $50 $50
- -----------------------------------------------------------------
</TABLE>

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 charges 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
Amount of Purchase Price Invested
<S> <C> <C>
Less than $50,000 4.75% 4.99%
$50,000 but less than $100,000 3.75% 3.90%
$100,000 but less than $250,000 2.75% 2.83%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $1,000,000 1.50% 1.52%
$1,000,000 or more None* None
</TABLE>

* 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.__.

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 a personal 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 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?

26
<PAGE>

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.

/ / Shares purchased by current or retired officers, directors, employees,
agents, employees of agents, and employees of agencies, and affiliates, of
Mason Street Funds-Registered Trademark-, 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-Registered Trademark- 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.

/ / Shares purchased by an endowment fund, foundation or other nonprofit or
charitable organization with total assets over $5 million, with an initial
investment exceeding $1 million.

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.

/ / any purchase of $1 million or more of the Funds' shares;

/ / Purchases by qualified retirement plans, nonqualified deferred compensation
plans and Simple IRAs which meet at least one of the following four
criteria: (1) the plan has at least 50 eligible participants; (2) the plan
makes an initial investment of $250,000 or more; (3) the plan sponsor
demonstrates to the satisfaction of Mason Street Funds that the aggregate
purchases by the plan will be equal to at least $250,000 within a
reasonable period of time, as determined by Mason Street Funds in its sole
discretion; or (4) the sum of the current market value of the plan assets
invested in any of the Funds or the SSgA Money Market Fund and the current
purchase amount is at least $250,000; 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 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.

27
<PAGE>

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. Because these fees are paid out of the Funds' assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. 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.

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. __. 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.

Contingent Deferred Sales Charge Applicable in the Year of Redemption After Purchase(1)

Amount of Purchases First Second Third Fourth Fifth Sixth Seventh on
<S> <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%
- --------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 3.00% 3.00% 2.00% 1.00% 0.00% 0.00%
- --------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.00% 3.00% 2.00% 1.00% 0.00% 0.00%
- --------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 3.00% 2.00% 1.00% 0.00% 0.00%
- --------------------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 1.00% 0.00% 0.00%
- --------------------------------------------------------------------------------------------------------------------
$1,000,000 or more NA(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

1 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.

2 PURCHASES OF $1 MILLION OR MORE ARE NOT ACCEPTED IN CLASS B SHARES. CLASS
A SHARES WILL BE ISSUED IN THESE CASES.

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

28
<PAGE>

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 70
1/2;

/ / 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. __. 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. 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'-Registered Trademark- 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.
Because the International Equity Fund has portfolio securities that are
listed on foreign exchanges that trade on days when the Fund does not price
its shares, the net asset value of the Fund's shares may change on days when
you will not be able to purchase or redeem the shares. Specific information
about how the Funds value certain assets is set forth in the Statement of
Additional Information.

SHAREHOLDER S' 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-Registered
Trademark-. Personal third party checks will not be accepted.

29
<PAGE>

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-Registered Trademark-. Mail all subsequent investments to the following
address:

Mason Street Funds-Registered Trademark-
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 OR INTERNET (www.masonstreetfunds.com) This service allows you to
purchase additional shares quickly and conveniently through an electronic
transfer of money. 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).

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.

BY INTERNET For accounts other than qualified plans, you are eligible to quickly
and conveniently exchange existing shares for shares of another Fund of the same
Class through the internet at www.masonstreetfunds.com. Just click on "Your
Account" on the home page and then follow the instructions to establish access.

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.

30
<PAGE>

/ / 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. __.

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-Registered Trademark-
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 below.

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.

BY INTERNET For accounts other than qualified plans, you are eligible to redeem
shares through the internet at www.masonstreetfunds.com. Just click on "Your
Account" on the home page and then follow the instructions to establish access.
You may redeem up to $50,000 daily from your account by making the request
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.

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 as a result of redemptions.

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.

/ / 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.

QUICK ADDRESS AND TELEPHONE REFERENCE

31
<PAGE>

REGULAR MAIL
Mason Street Funds-Registered Trademark-
P.O. Box 419419
Kansas City, MO 64141-6419

EXPRESS OR CERTIFIED MAIL
Mason Street Funds-Registered Trademark-
330 West 9th Street
Kansas City, MO 64105

INTERNET

www.masonstreetfunds.com

TOLL-FREE NUMBER
1-888-MASONST (1-888-627-6678)

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.

Each Fund intends to make distributions to shareholders that may be taxed as
ordinary income or capital gain. 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
regular federal income tax. 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,

32
<PAGE>

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 private 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.

33
<PAGE>

FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The financial highlights table is intended to help you understand each Fund's
financial performance for the past two years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Funds' financial statements, is included in the Funds' Annual Report,
which is available upon request.

AGGRESSIVE GROWTH STOCK FUND INTERNATIONAL EQUITY FUND
Class A Class B Class A Class B
--------------------- ------------------ -------------------- -------------------
1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
Net Asset Value,
Beginning of Period $ 14.50 $ 10.00 $ 14.43 $ 10.00 $ 10.58 $ 10.00 $10.53 $10.00

Income from
Investment Operations:

Net Investment
Income (Loss) (0.11)(2) (0.12)(2) (0.19)(2) (0.21)(2) 0.19(4) 0.24(2) 0.14(4) 0.10(2)

Net Realized and
Unrealized Gain (Loss)
on Investments (0.43) 5.18 (0.43) 5.18 (1.13) 0.56 (1.13) 0.63
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

TOTAL FROM
INVESTMENT OPERATIONS (0.54) 5.06 (0.62) 4.97 (0.94) 0.80 (0.99) 0.73
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

Less Distributions:

Distributions from Net
Investment Income 0.00 0.00 0.00 0.00 (0.17) (0.22) (0.13) (0.20)

Distributions from
Realized Gains on
Investments (0.23) (0.56) (0.23) (0.54) (0.38) 0.00 (0.38) 0.00
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
TOTAL DISTRIBUTIONS (0.23) (0.56) (0.23) (0.54) (0.55) (0.22) (0.51) (0.20)
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Net Asset Value,
End of Period $ 13.73 $ 14.50 $ 13.58 $ 14.43 $ 9.09 $ 10.58 $9.03 $10.53
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Total Return(3) -3.78% 51.57% -4.35% 50.59% -8.85% 8.19% -9.36% 7.49%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
RATIOS AND
SUPPLEMENTAL
DATA
Net Assets, End of
Period $43,840,289 $41,640,193 $4,695,396 $1,870,132 $28,543,601 $29,451,833 $2,718,073 $1,444,924
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Net Expenses
to Average Net
Assets 1.30% 1.30% 1.95% 1.95% 1.65% 1.65% 2.30% 2.30%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Gross
Expenses to
Average Net Assets 1.62% 1.64% 2.27% 2.29% 1.91% 2.13% 2.56% 2.78%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.80%) (0.96)% (1.45%) (1.61)% 2.34% 2.34% 1.69% 1.69%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Portfolio Turnover
Rate 84.46% 64.91% 84.46% 64.91% 198.46% 10.07% 198.46% 10.07%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
</TABLE>

(1) For the twelve months ended March 31.
(2) Calculated based on average shares outstanding.
(3) 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.
(4) Calculated prior to adjustment for certain book and tax income differences.

34
<PAGE>

FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
GROWTH STOCK FUND GROWTH AND INCOME STOCK FUND

Class A Class B Class A Class B
--------------------- ------------------ -------------------- -------------------
1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
Net Asset Value,
Beginning of Period $14.10 $10.00 $14.03 $10.00 $12.44 $10.00 $12.37 $10.00

Income from
Investment Operations:

Net Investment
Income (Loss) 0.04 0.04(2) (0.01) (0.05)(2) 0.01 0.04(2) (0.03) (0.03)(2)

Net Realized and
Unrealized Gain (Loss)
on Investments 2.52 4.41 2.46 4.41 1.33 3.90 1.28 3.88
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
TOTAL FROM
INVESTMENT OPERATIONS 2.56 4.45 2.45 4.36 1.34 3.94 1.25 3.85
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Less Distributions:

Distributions from Net
Investment Income (0.06) (0.05) (0.01) (0.03) (0.04) (0.06) (0.00) (0.04)

Distributions from
Realized Gains on
Investments (0.74) (0.30) (0.74) (0.30) (1.78) (1.44) (1.77) (1.44)
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
TOTAL DISTRIBUTIONS (0.80) (0.35) (0.75) (0.33) (1.82) (1.50) (1.77) (1.48)
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Net Asset Value,
End of Period $15.86 $14.10 $15.73 $14.03 $11.96 $12.44 $11.85 $12.37
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Total Return(3) 18.36% 45.08% 17.66% 44.12% 11.09% 41.90% 10.41% 40.96%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

RATIOS AND
SUPPLEMENTAL
DATA
Net Assets, End of
Period 49,045,112 $38,224,386 $3,516,193 $811,173 $45,619,789 $37,800,412 $4,314,429 $1,529,206
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Net Expenses
to Average Net
Assets 1.30% 1.30% 1.95% 1.95% 1.20% 1.20% 1.85% 1.85%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

Ratio of Gross
Expenses to Average
Net Assets 1.57% 1.63% 2.22% 2.28% 1.52% 1.57% 2.17% 2.22%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.42% 0.29% (0.23)% (0.36)% 0.20% 0.37% (0.45)% (0.28)%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Portfolio Turnover
Rate 32.00% 37.52% 32.00% 37.52% 156.92% 140.29% 156.92% 140.29%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
</TABLE>

35
<PAGE>

FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
INDEX 500 STOCK FUND ASSET ALLOCATION FUND

Class A Class B Class A Class B
--------------------- ------------------ -------------------- -------------------
1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
Net Asset Value,
Beginning of Period $14.43 $10.00 $14.35 $10.00 $12.32 $10.00 $12.26 $10.00

Income from
Investment Operations:

Net Investment
Income (Loss) 0.10 0.13(2) 0.03 0.05(2) 0.32 0.31(2) 0.24 0.23(2)

Net Realized and
Unrealized Gain (Loss)
on Investments 2.47 4.48 2.43 4.47 0.46 2.50 0.46 2.50
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
TOTAL FROM
INVESTMENT OPERATIONS 2.57 4.61 2.46 4.52 0.78 2.81 0.70 2.73
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

Less Distributions:

Distributions from Net
Investment Income (0.06) (0.11) (0.02) (0.10) (0.31) (0.24) (0.27) (0.22)

Distributions from
Realized Gains on
Investments (0.14) (0.07) (0.14) (0.07) (0.30) (0.25) (0.30) (0.25)
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
TOTAL DISTRIBUTIONS (0.20) (0.18) (0.16) (0.17) (0.61) (0.49) (0.57) (0.47)
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

Net Asset Value,
End of Period $16.80 $14.43 $16.65 $14.35 $12.49 $12.32 $12.39 $12.26
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Total Return(3) 17.88% 46.35% 17.17% 45.44% 6.41% 28.51% 5.77% 27.69%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

RATIOS AND
SUPPLEMENTAL
DATA
Net Assets, End of
Period $70,034,287 $43,567,584 $17,802,313 $4,246,552 $40,249,915 $34,564,169 $5,825,603 $1,569,081
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Net Expenses
to Average Net
Assets 0.85% 0.85% 1.50% 1.50% 1.35% 1.35% 2.00% 2.00%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------

Ratio of Gross
Expenses to Average
Net Assets 1.15% 1.30% 1.80% 1.95% 1.62% 1.67% 2.27% 2.32%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Ratio of Net
Investment
Income (Loss) to
Average Net Assets 0.88% 1.04% 0.23% 0.39% 2.89% 2.67% 2.24% 2.02%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
Portfolio Turnover
Rate 3.83% 2.47% 3.83% 2.47% 79.71% 65.67% 79.71% 65.67%
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
----------- ----------- --------- ---------- ----------- ----------- ---------- ----------
</TABLE>

36
<PAGE>

FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

HIGH YIELD BOND FUND MUNICIPAL BOND FUND

Class A Class B Class A Class B
--------------------- -------------------- -------------------- -------------------
1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1) 1999(1) 1998(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
Net Asset Value,
Beginning of
Period $ 10.79 $ 10.00 $ 10.79 $ 10.00 $ 10.55 $ 10.00 $ 10.55 $ 10.00

Income from Invest-
ment Operations:

Net Investment
Income (Loss) 1.00 1.01(2) 0.93 0.93(2) 0.42 0.46(2) 0.36 0.38(2)

Net Realized and
Unrealized Gain(Loss)
on Investments (1.82) 1.19 (1.83) 1.20 0.25 0.69 0.23 0.70
--------- ------- -------- ------- --------- --------- --------- ---------

TOTAL FROM INVEST-
MENT OPERATIONS (0.82) 2.20 (0.90) 2.13 0.67 1.15 0.59 1.08
--------- ------- --------- ------- --------- --------- -------- ---------

Less Distributions:

Distributions from Net
Investment Income (1.02) (1.00) (0.95) (0.93) (0.45) (0.47) (0.37) (0.40)

Distributions from
Realized Gains on
Investments (0.18) (0.41) (0.18) (0.41) (0.14) (0.13) (0.14) (0.13)
--------- ------- --------- ------- --------- ---------- --------- ---------
--------- -------

TOTAL DISTRIBUTIONS (1.20) (1.41) (1.13) (1.34) (0.59) (0.60) (0.51) (0.53)
--------- ------- --------- ------- --------- ---------- --------- ---------

Net Asset Value,
End of Period $ 8.77 $ 10.79 $ 8.76 $ 10.79 $ 10.63 $ 10.55 $ 10.63 $ 10.55
--------- ------- --------- ------- --------- ---------- --------- ---------
--------- ------- --------- ------- --------- ---------- --------- ---------

Total Return(3) -7.87% 22.95% -8.48% 22.09% 6.42% 11.73% 5.72% 10.93%
--------- ------- --------- ------- --------- ---------- --------- ---------
--------- ------- --------- ------- --------- ---------- --------- ---------

RATIOS AND
SUPPLEMENTAL DATA
Net Assets, End of
Period $37,414,394 $32,811,316 $4,683,841 $1,360,925 $32,692,209 $28,172,205 $ 849,347 $472,387
----------- ----------- ---------- ---------- ----------- ----------- --------- ---------
----------- ----------- ---------- ---------- ----------- ----------- --------- ---------

Ratio of Net Expenses
to Average Net Assets 1.30% 1.30% 1.95% 1.95% 0.85% 0.85% 1.50% 1.50%
--------- ------- --------- ------- --------- ---------- --------- ---------
--------- ------- --------- ------- --------- ---------- --------- ---------

Ratio of Gross
Expenses to Average
Net Assets 1.65% 1.66% 2.30% 2.31% 1.17% 1.24% 1.82% 1.89%
--------- ------- --------- ------- --------- ---------- -------- ---------
--------- ------- --------- ------- --------- ---------- -------- ---------

Ratio of Net
Investment Income
(Loss) to Average
Net Assets 10.51% 9.30% 9.86% 8.65% 4.18% 4.38% 3.53% 3.73%
--------- ------- --------- ------- --------- ---------- -------- ---------
--------- ------- --------- ------- --------- ---------- -------- ---------

Portfolio Turnover
Rate 178.63% 178.61% 178.63% 178.61% 344.11% 169.37% 344.11% 169.37%
--------- ------- --------- ------- --------- ---------- -------- ---------
--------- ------- --------- ------- --------- ---------- -------- ---------
</TABLE>

37
<PAGE>

FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

SELECT BOND FUND

Class A Class B
--------------------- ------------------
1999(1) 1998(1) 1999(1) 1998(1)
<S> <C> <C> <C> <C>
SELECTED PER
SHARE DATA
Net Asset Value,
Beginning of Period $ 9.98 $ 10.00 $ 9.98 $ 10.00

Income from Invest-
ment Operations:

Net Investment
Income (Loss) 0.61 0.71(2) 0.56 0.66(2)

Net Realized and
Unrealized Gain (Loss)
on Investments (0.16) 0.46 (0.18) 0.44
---------- ------- --------- ---------

TOTAL FROM INVEST-
MENT OPERATIONS 0.45 1.17 0.38 1.10
---------- ------- --------- ---------

Less Distributions:

Distributions from Net (0.68) (0.71) (0.61) (0.64)
Investment Income

Distributions from Realized
Gains on Investments (0.09) (0.48) (0.09) (0.48)
---------- ------- --------- ---------
---------- -------

TOTAL DISTRIBUTIONS (0.77) (1.19) (0.70) (1.12)
---------- ------- --------- ---------

Net Asset Value,
End of Period $ 9.66 $ 9.98 $ 9.66 $ 9.98
---------- ------- --------- ---------
---------- ------- --------- ---------

Total Return(3) 4.60% 12.11% 3.91% 11.34%
---------- ------- --------- ---------
---------- ------- --------- ---------

RATIOS AND
SUPPLEMENTAL DATA
Net Assets, End
of Period $ 31,478,811 $ 28,617,421 $ 2,425,059 $ 643,332
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------

Ratio of Net Expenses
to Average Net Assets 0.85% 0.85% 1.50% 1.50%
---------- ------- --------- ---------
---------- ------- --------- ---------

Ratio of Gross Expenses to
Average Net Assets 1.26% 1.29% 1.91% 1.94%
---------- ------- --------- ---------
---------- ------- --------- ---------

Ratio of Net Investment
Income (Loss) to
Average Net Assets 7.03% 6.93% 6.38% 6.28%
---------- ------- --------- ---------
---------- ------- --------- ---------

Portfolio Turnover
Rate 252.44% 362.32% 252.44% 362.32%
---------- ------- --------- ---------
---------- ------- --------- ---------
</TABLE>

<PAGE>

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's-Registered Trademark- and Aa or better by Moody's.

HIGH-GRADE INSTRUMENTS are securities rated A or better by Standard & Poor's(R)
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's-Registered Trademark- 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's-Registered Trademark- 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.

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,

39
<PAGE>

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 andfinancial 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.

40
<PAGE>

APPENDIX B

STANDARD & POOR'S-Registered Tradmark-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.
- -------------------------------------------------------------------------------

41
<PAGE>

AT MASON STREET FUNDS-Registered Trademark-, 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
FUNDS-Registered Trademark- IS DISTINCT IN OBJECTIVE AND STRATEGY, ALL OFFER
THE SAME CONVENIENT AND EASY-TO-USE FEATURES.

<TABLE>
<CAPTION>
TELEPHONE
YOUR REGISTERED 1-888-MASONST MAIL WIRE INTERNET
SERVICE REPRESENTATIVE (1-888-627-6678) (SEE PP. __-__) (SEE PP. __-__) WWW.MASONSTREETFUNDS.COM
<S> <C> <C> <C> <C> <C>
OPEN A NEW ACCOUNT X
- -----------------------------------------------------------------------------------------------------------------------------------
ADD TO EXISTING ACCOUNT X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUES (NAVS)
AND PERFORMANCE INFORMATION X X X
- -----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT AND SHARE X X X X
BALANCE INFORMATION (quarterly statements)
- -----------------------------------------------------------------------------------------------------------------------------------
EXCHANGING SHARES
(UP TO 12 PER YEAR) X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
SELLING SHARES X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

WHEN YOU INVEST IN MASON STREET FUNDS-Registered Trademark-, 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-Registered Trademark- AND IS THERE TO HELP YOU WORK TOWARD YOUR
INVESTMENT GOALS NOW...AND IN THE FUTURE.

<PAGE>

More information about Mason Street Funds is included in the Funds' Statement of
Additional Information (SAI), which is incorporated by reference in this
prospectus and which is available without charge.

Additional information about the Funds' investments is included in the Funds'
annual and semi-annual reports to shareholders. These reports discuss the market
conditions and investment strategies that significantly affected each Fund's
performance during the previous fiscal period.

To request a free copy of the Funds' SAI, or current annual or semi-annual
report, call us at 1-888-MASONST (1-888-627-6678). You may also call this number
to request other information about the Funds and to make shareholder inquiries.
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission (SEC) in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information
about the Funds are available on the SEC's Internet site at http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing to the Public Reference Section of the SEC, Washington, D.C.
20549-6009.

MASON STREET FUNDS-Registered Trademark-

P. O. BOX 419419

KANSAS CITY, MO 64141-6419

1-888-MASONST (1-888-627-6678)

WWW.MASONSTREETFUNDS.COM

Investment Company Act file no. 811-07961

Robert W. Baird & Co. Incorporated, Distributor

105331
<PAGE>

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.

<TABLE>
<CAPTION>
Heading in Statement
Item Number of Additional Information
- ----------- -------------------------
<S> <C>
10 Cover Page, Table of Contents

11 Not Applicable

12 Investment Policies

13 Management of MSF

14 Other Information About MSF, Management of MSF

15 Investment Advisory Services, Distribution Arrangements

16 Portfolio Transactions and
Brokerage Allocation and Other
Practices

17 Other Information About MSF

18 Determination of Net Asset Value, Purchase and
Redemption of Shares

19 Taxes

20 Distribution Arrangements

21 Investment Performance

22 Financial Statements
</TABLE>

<PAGE>

MASON STREET FUNDS, INC.

Consisting of
Small Cap Growth Stock Fund
Aggressive Growth Stock Fund
International Equity Fund
Index 400 Stock 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"). Portions of MSF's Annual Report are incorporated
herein. The Annual Report is supplied with this SAI. To obtain a free additional
copy of the Prospectus, or a copy of the Annual Report, please call MSF at
1-888-627-6678.

The date of the Prospectus to which this Statement of Additional
Information relates is July 12, 1999.

The date of this Statement of Additional Information is July 12, 1999.

B-1
<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS

CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
<S> <C> <C>
Investment Policies B-4 13
Investment Restrictions B-4 __
Portolio Securities for the Municipal Bond Fund B-5 19
Repurchase Agreements B-7 __
Financial Futures and Forward Contracts B-8 __
Options - In General B-13 __
Future Developments B-14 __
Reverse Repurchase Agreements B-14 __
Warrants B-14 __
Eurodollar Certificates of Deposit B-15 __
Asset-Backed and Variable Rate Securities B-15 __
Short-Term Trading B-15 __
Firm Commitment Agreements and "When-Issued"
Securities B-15 __
Private Placement Transactions
and Illiquid Assets B-16 __
Risk Factors for the International
Equity Fund and International Investments
of the Other Funds B-16 20
Portfolio Turnover B-20 __
Management of MSF B-21 21
Other Information About MSF B-24 __
Investment Advisory Services B-26 21,22
Fund Expenses B-28 23

Distribution Arrangements B-28 24
Distribution Financing Plans and
Shareholder Services Agreement B-29 25
Class A Plan and Agreement B-29 24
Class B Plan and Agreement B-29 26
General B-30 __
Portfolio Transactions and
Brokerage Allocation and Other Practices B-31 __
Determination of Net Asset Value B-32 __
Purchase and Redemption of Shares B-34 27
Special Waivers B-34 25
Cumulative Discount B-34 27
Letter of Intent B-34 25
Systematic Withdrawal Plan B-34 25
Special Redemptions B-35 29
Suspension of Redemptions B-35 __
Investment Performance B-38 12
Performance Terms B-38 __
Standardized Average Annual Total Return
Quotations B-38 __
Standardized Yield Quotations B-39 __
</TABLE>

B-2
<PAGE>

<TABLE>
<S> <C> <C>
Non-Standardized Performance B-40 __
General Information B-40 __
Taxes B-42 30
Municipal Bond Fund B-45 30
State and Local B-46 __
Custodians B-46 23
Transfer Agent Services B-46 23
Independent Certified Public Accountants B-46 __
Financial Statements B-46 __
Appendix A B-47 __
Appendix B B-54 __
Statement of Assets and Liabilities
for the Small Cap Growth Stock Fund and
the Index 400 Stock Fund B-55 __
Report of Independent Accountants B-55 __
</TABLE>

B-3
<PAGE>

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 of the Funds numbered 1-14 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. 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.

7. 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.

8. 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.

9. Make short sales of securities.

10. 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.

11. 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.

12. 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,
Small Cap Growth Stock, Aggressive Growth Stock, Growth Stock and High

B-4
<PAGE>

Yield Bond Funds may invest in foreign currency futures and forward
contracts.

13. 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.

14. 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

B-5
<PAGE>

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.

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. 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. The Fund expects to be
able to value tender option bonds at par; however, the value of the instruments
will be monitored to assure that they are 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

B-6
<PAGE>

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.

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.

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 reevaluate 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. 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 also invest in repurchase agreements, reverse repurchase
agreements or may purchase securities on a "when-issued" or forward commitment
basis.

REPURCHASE AGREEMENTS

Certain securities of each Fund may be subject to 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

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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, as noted earlier, 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 AND FORWARD 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 rate
futures contracts as a hedge against changes in prevailing levels of interest
rates. The Select Bond Fund may also enter into forward sale contracts in an
amount not to exceed 5% of the assets of the Fund. In all 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.

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.

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

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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

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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.

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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

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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

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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

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. 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.

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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 Fund may enter into reverse repurchase agreements
with banks and broker-dealers. Such agreements involve the sale of money market
securities held by the 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. The 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, the 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 the
Fund enter into a reverse repurchase agreement with Northwestern Mutual Life.

WARRANTS

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Each of the Funds (except the Select Bond Fund) 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.)

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.

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.

B-15
<PAGE>

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 net 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,
Small Cap Growth Stock 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.

FOREIGN SECURITIES. There may be less publicly available information
about foreign companies comparable to the reports and ratings published about
companies in the U.S. Foreign companies may not be subject to uniform accounting
or financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. The Funds, therefore,
may encounter difficulty in obtaining market quotations for purposes of valuing
their assets and calculating their net asset value. Foreign markets have
substantially less volume than the New York Stock

B-16
<PAGE>

Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable U.S. companies. Although the
International Equity Fund may invest up to 15% of its total assets in unlisted
foreign securities, including up to 10% of its total assets in securities with a
limited trading market, in the opinion of management such securities with a
limited trading market generally do not present a significant liquidity problem.
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 many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the U.S.

EMERGING MARKETS. 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 each 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 legal structures governing
private or foreign investment or allowing for judicial redress for injury to
private property; (vi) the absence, until recently in many developing countries,
of a capital market structure or market-oriented economy; and (vii) the
possibility that recent favorable economic developments in some developing
countries may be slowed or reversed by unanticipated political or social events
in such countries.

In addition, many countries in which the Funds may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.

Investments in developing countries may involve risks of
nationalization, expropriation and confiscatory taxation. For example, the
Communist governments of a number of Eastern European countries expropriated
large amounts 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 expropriation, each Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, no accounting standards exist in certain developing countries. Finally,
even though the currencies of some developing countries, such as certain Eastern
European countries, may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to the
shareholders of a Fund.

RUSSIAN SECURITIES. Investing in Russian companies involves a high
degree of risk and special considerations not typically associated with
investing in the U.S. securities markets, and should be considered highly
speculative. Such risks include, together with Russia's continuing political and
economic instability and the slow-paced development of its market economy, the
following: (a) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (b) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (c) pervasiveness of corruption, insider-trading, and
crime in the Russian economic system; (d) currency exchange rate volatility and
the lack of available currency hedging instruments; (e) higher rates of
inflation (including the risk of social unrest associated with periods of
hyper-inflation); (f) controls on foreign investment and local practices
disfavoring foreign investors and limitations on repatriation of invested
capital, profits and dividends, and on a Fund's ability to exchange local
currencies for U.S. dollars; (g) the risk that the government of Russia or other
executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies

B-17
<PAGE>

to the detriment of investors, including non-market-oriented policies
such as the support of certain industries at the expense of other sectors or
investors, a return to the centrally planned economy that existed prior to the
dissolution of the Soviet Union, or the nationalization of privatized
enterprises; (h) the risks of investing in securities with substantially less
liquidity and in issuers having significantly smaller market capitalizations,
when compared to securities and issuers in more developed markets; (i) the
difficulties associated in obtaining accurate market valuations of many Russian
securities, based partly on the limited amount of publicly available
information; (j) the financial condition of Russian companies, including large
amounts of inter-company debt which may create a payments crisis on a national
scale; (k) dependency on exports and the corresponding importance of
international trade; (l) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation or, in
the alternative, the risk that a reformed tax system may result in the
inconsistent and unpredictable enforcement of the new tax laws; (m) possible
difficulty in identifying a purchaser of securities held by the Funds due to the
underdeveloped nature of the securities markets; (n) the possibility that
pending legislation could restrict the levels of foreign investment in certain
industries, thereby limiting the number of investment opportunities in Russia;
(o) the risk that pending legislation would confer to Russian courts the
exclusive jurisdiction to resolve disputes between foreign investors and the
Russian government, instead of bringing such disputes before an
internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.

There is little long-term historical data on Russian securities markets
because they are relatively new and a substantial proportion of securities
transactions in Russia are privately negotiated outside of stock exchanges.
Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems, settlement,
clearing and registration of securities transactions are subject to significant
risks. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by extracts from the
register or by formal share certificates. However, there is no central
registration system for shareholders and these services are carried out by the
companies themselves or by registrars located throughout Russia. These
registrars are not necessarily subject to effective state supervision nor are
they licensed with any governmental entity and it is possible for the Funds to
lose their registration through fraud, negligence or even mere oversight. While
each will endeavor to ensure that its interest continues to be appropriately
recorded either itself or through a custodian or other agent inspecting the
share register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Funds
of their ownership rights or improperly dilute their interests. In addition,
while applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Funds to enforce any
rights they may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 500 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. In addition, so-called "financial-industrial
groups" have emerged in recent years that seek to deter outside investors from
interfering in the management of companies they control. These practices may
prevent the Funds from investing in the securities of certain Russian companies
deemed suitable by the manager. Further, this also could cause a delay in the
sale of Russian company securities by a Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.

B-18
<PAGE>

CURRENCY. The Funds endeavor to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) will be incurred, particularly when the Funds change
investments 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 Funds from
transferring cash out of the. There is the possibility of cessation of trading
on national exchanges, expropriation, nationalization or confiscatory taxation,
withholding or other foreign taxes on income or other amounts, 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 foreign nations.

The Funds 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. Further, certain currencies may not be
internationally traded. Some countries in which the Funds may invest may also
have fixed or managed currencies that are not free-floating against the U.S.
dollar.

Certain of these currencies have experienced a steady devaluation
relative to the U.S. dollar. Any devaluations in the currencies in which a
Fund's securities are denominated may have a detrimental impact on that Fund.
Through the International Equity 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.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced
a new single currency, the euro, which is replacing the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.

Franklin Resources, Inc. has created an interdepartmental team to
handle all euro-related changes to enable the mutual funds managed by Templeton
Investment Counsel, Inc. to process transactions accurately and completely with
minimal disruption to business activities. While the implementation of the euro
could have a negative effect on the International Equity Fund, the Fund's
manager and its affiliated services providers are taking steps they believe are
reasonably designed to address the euro issue.

INTEREST RATES. To the extent each Fund invests in debt securities,
changes in interest rates in any country where the Fund is invested will affect
the value of its assets and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the Fund's shares. Of course, interest rates have
increased and decreased, sometimes very dramatically, in the past. These changes
are likely to occur again in the future at unpredictable times.

CURRENCY CONTRACTS. The Funds 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

B-19
<PAGE>

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 portfolio turnover rates. U.S.
Government securities are included in the calculation of portfolio turnover
rates.

For the years ended March 31, 1998 and March 31, 1999, the portfolio
turnover rates were:

<TABLE>
<CAPTION>
Portfolio Turnover Rate 1998 1999
----------------------- ---- ----
<C> <C> <C>
Aggressive Growth Stock Fund 64.91% 84.46%
International Equity Fund 10.07% 198.46%
Growth Stock Fund 37.52% 32.00%
Growth and Income Stock Fund 140.29% 156.92%
Index 500 Stock Fund 2.47% 3.83%
Asset Allocation fund 65.67% 79.71%
High Yield Bond Fund 178.61% 178.63%
Municipal Bond Fund 169.37% 344.11%
Select Bond Fund 362.32% 252.44%
</TABLE>

The annual portfolio 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.

For the fiscal year ended March 31, 1999, portfolio turnover for the
International Equity Fund increased significantly from the prior year. This
increase was due to the sales and purchases of portfolio securities necessary to
bring the Fund's portfolio holdings into line with those of the International
Equity Portfolio of Northwestern Mutual Series Fund. This was a one-time action.

Portfolio turnover also increased significantly for the Municipal Bond
Fund. The reason for this was that one of the key 1998 strategies used by the
advisor was to buy small underfollowed regional offerings and then sell them at
higher prices in the retail market. This resulted in heavy turnover in a small
portion of the portfolio.

Portfolio turnover decreased significantly for the Select Bond Fund.
This was because of high turnover in 1997 related to the start-up of the Fund.

B-20
<PAGE>

MANAGEMENT OF MSF

The Board of Directors of Mason Street FundsR 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 FundsR.

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 (63), President and Director*
720 East Wisconsin Avenue
Milwaukee, WI 53202

Trustee of Northwestern Mutual Life. President and Chief
Executive Officer of Northwestern Mutual Life.

Stephen N. Graff (64), Director*
805 Lone Tree Road
Elm Grove, WI 53122

Retired Partner, Arthur Andersen LLP (Public Accountants).
Trustee of Northwestern Mutual Life since 1996.

Martin F. Stein (62), Director
1800 East Capitol Drive
Milwaukee, WI 53211

Founder of Stein Optical (retail sales
of eyewear).

John K. MacIver (68), Director
100 East Wisconsin Avenue
Milwaukee, WI 53202

Senior Partner, Michael Best & Friedrich, Attorneys at Law.

William J. Blake (67), Director
731 North Jackson Street
Milwaukee, WI 53202

Chairman, Blake Investment Corp. (real estate investments and
venture capital).

William A. McIntosh (60), 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.

Mark G. Doll (49), 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.

B-21
<PAGE>

Meridee J. Maynard (43), 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, Variable Annuity
Administration and Marketing of Northwestern Mutual Investment
Services, LLC since 1996. 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 (42), 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 (40), 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 (45), 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.

Varun Mehta (31), 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.

B-22
<PAGE>

Jefferson V. DeAngelis (41), 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 (37), 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 (35), 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 (38), 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 (59), 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 (41), 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.

* 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

B-23
<PAGE>

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 March 31, 1999, 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. Effective
April 1, 1999, MSF pays other Directors fees totaling $13,000 per year,
consisting of a $5,000 retainer paid in April and $2,000 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 $22,000 per year,
consisting of a $10,000 retainer paid in January and $3,000 per meeting of the
board of the Series Fund attended.

COMPENSATION TABLE
FISCAL YEAR ENDING MARCH 31, 1999

<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation Retirement Benefits Upon From Registrant
From Registrant Benefits Accrued Retirement and Fund Complex
as Part of Fund Paid to Directors
Expenses
<S> <C> <C> <C> <C>
James D. Ericson Director None None None None

William Blake $9,000 None None $25,250
Director

Stephen N. Graff $9,000 None None $25,250
Director

John K. MacIver $9,000 None None $25,250
Director

Martin F. Stein $9,000 None None $25,250
Director

William A. McIntosh $9,000 None None $25,250
Director
</TABLE>

As stated in the Prospectus, directors and officers of MSF, as well as
employees and agents of Northwestern Mutual Life and its affiliates, may
purchase shares of MSF without payment of a sales load. The reason for this
policy is reduced sales and marketing costs associated with such direct sales
and to encourage an alignment of interests with and knowledge about MSF through
share ownership.

OTHER INFORMATION ABOUT MSF

ORGANIZATION

Mason Street Funds was incorporated in Maryland on August 30, 1996. MSF is an
open-end, management investment company. Each Fund is a diversified series of
MSF.

MSF 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

B-24
<PAGE>

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 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 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 March 31, 1999, Northwestern
Mutual Life owned a majority of the Class A shares of each of the Funds, 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.

The authorized capital stock of MSF consists of 3,300,000,000 shares of common
stock, par value $.001 per share (Common Stock). The shares of Common Stock are
divided into eleven series, each with 300 million authorized shares in the
series: Small Cap Growth Stock Fund; Aggressive Growth Stock Fund; International
Equity Fund; Index 400 Stock 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.

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.

As of June 1, 1999, no person owns of record or beneficially 5% or
more of the shares outstanding of MSF or either Class of any Fund, except
Northwestern Mutual Life, a Wisconsin life insurance company, 720 East
Wisconsin Avenue, Milwaukee, WI 53202, which owned the following percentages
of each Fund's outstanding shares as of June 1, 1999: Aggressive Growth Stock
Fund 84%; International Equity Fund 87%; Growth Stock Fund 88%; Growth and
Income Stock Fund 89%; Index 500 Stock Fund 60%; Asset Allocation Fund 84%;
High Yield Bond Fund 76%; Municipal Bond Fund 91%; and Select Bond Fund 94%.
Northwestern Mutual Life will initially own all of the shares of the Small
Cap Growth Stock Fund and Index 400 Stock Fund. Because of this stock
ownership, Northwestern Mutual Life is able to exercise voting control over
each Fund.

INDEMNIFICATION

MSF's By-Laws provide that MSF shall indemnify each of its Directors,
officers and employees against liabilities and expenses reasonably incurred by

B-25
<PAGE>

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 years ended March 31, 1998, and March 31, 1999, NMIS
received $697,488 and $1,409,515, respectively, for its services as investment
advisor to MSF. The amount of $697,488 is net of $940,770 of investment advisory
fees waived under the expense limitation agreement described in MSF's
prospectus. The amount of $1,409,515 is net of $498,706 of investment advisory
fees waived under the expense limitation agreement also described in the
prospectus. Because MSF commenced operations on March 31, 1997, no Fund paid any
advisory fees prior to that date.

Northwestern Mutual Life and its wholly-owned subsidiary, Northwestern
Investment Management Company, employ a full staff of investment personnel to
manage the investment assets of Northwestern Mutual Life. These 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

B-26
<PAGE>

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 $10,732.30 of
investment advisory fees payable to Templeton Counsel with respect to the
International Equity Fund for the fiscal year ended March 31, 1999.

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 $14,914.78 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, 1999.

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.

Northwestern Mutual Life is the licensee under three License Agreements
with Standard & Poor's, dated as of November 30, 1990, as amended, March 1,
1997, and June 30, 1999, 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 or the S&P
MidCap 400 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 and the S&P MidCap 400
Index, both of which are 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
and the S&P MidCap 400 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.

B-27
<PAGE>

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED
THEREIN 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 THE S&P MIDCAP 400 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 AND THE S&P MIDCAP 400 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.

B-28
<PAGE>

The dealer allowance paid to RWB in connection with sales of shares of
MSF is based on the following schedule:

<TABLE>
<CAPTION>
Dealer
Amount of Purchase Allowance(1)
<S> <C>
Less than $50,000 4.00%
$50,000 but less than $100,000 3.00%
$100,000 but less than $250,000 2.00%
$250,000 but less than $500,000 1.50%
$500,000 but less than $1,000,000 1.00%
$1,000,000 or more 1.00%(2)
</TABLE>

(1) Dealer allowance may be changed periodically.
(2) 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.

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. For fiscal year ended March 31,
1999, RWB received $1,036,801 for its services as principal underwriter for
the Fund. Of this amount, RWB retained $302,847. Compensation on redemptions
paid to RWB was $63,278. Brokerage commissions paid to RWB by the Fund were
$4,014. 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

B-29
<PAGE>

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.

As of March 31, 1999, unreimbursed distribution expenses were
$250,047 for Class A shares and $2,057,406 for Class B shares, which was .7%
of Class A assets and 4.4% of Class B assets on that date.

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 shareholders 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).

The anticipated benefits to the Funds and their shareholders that may
result from the plans are as follows. First, the Plans allow more flexibility to
the prospective shareholder in choosing how to pay sales loads, either through
Class A or Class B shares. Second, they provides an attractive compensation
package for the sales force to sell the Funds which is necessary to attract
assets. Third, they provide an incentive for the sales force to provide a higher
level of service and compensate them accordingly. This in turn should lead to
improved retention and a higher amount of assets, which in turn will benefit all
shareholders by lowering costs per share in the future.

MSF paid distribution plan fees of $540,867 in its fiscal year ended
March 31, 1999. This amount was net of $16,312 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, 1999 were as
follows: advertising in the amount of $433,086; prospectuses to new
shareholders in the amount of $53,145; commissions in the amount of
$618,282; and marketing salaries in the amount of $1,460,165.

B-30
<PAGE>

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. 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.

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

B-31
<PAGE>

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.

During the years ended March 31, 1998 and 1999, MFS paid brokerage
commissions of $386,043 and $454,923, respectively. Because MSF commenced
operations on March 31, 1997, no brokerage commissions were paid prior to that
date in connection with the Funds.

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. During the fiscal
year ended March 31, 1999, the Fund paid $4,014 in commissions to RWB. This
represents .9% of aggregate brokerage commissions paid during the fiscal year
and .00% 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

B-32
<PAGE>

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

B-33
<PAGE>

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.

SPECIAL WAIVERS. Class A shares are purchased without a sales charge in
the situations specified in the Prospectus. No dealer allowance is paid on such
purchases. 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.

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.

B-34
<PAGE>

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.

B-35
<PAGE>

The total offering price per share for each Fund is computed as follows:

SPECIMEN PRICE-MAKE-UP SHEET
(as of March 31, 1999)

<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH STOCK INTERNATIONAL GROWTH STOCK GROWTH AND
FUND EQUITY FUND FUND INCOME STOCK FUND
(CLASS A) (CLASS A) (CLASS A) (CLASS A)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSETS $43,840,289 $28,543,601 $49,045,112 $45,619,789
NUMBER OF SHARES
OUTSTANDING $ 3,192,576 $ 3,140,837 $ 3,093,172 $ 3,815,853
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
(OUTSTANDING) $13.73 $9.09 $15.86 $11.96
OFFERING PRICE
PER SHARE $14.41 $9.54 $16.65 $12.56
REDEMPTION PRICE
PER SHARE $13.73 $9.09 $15.86 $11.96
</TABLE>

<TABLE>
<CAPTION>
ASSET
INDEX 500 ALLOCATION HIGH YIELD MUNICIPAL
STOCK FUND FUND BOND FUND BOND FUND
(CLASS A) (CLASS A) (CLASS A) (CLASS A)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSETS $70,034,287 $40,249,915 $37,414,394 $32,692,209
NUMBER OF SHARES
OUTSTANDING $ 4,168,765 $ 3,223,425 $ 4,268,613 $ 3,074,553
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
OUTSTANDING) $16.80 $12.49 $8.77 $10.63
OFFERING PRICE
PER SHARE $17.64 $13.11 $9.20 $11.16
REDEMPTION PRICE
PER SHARE $16.80 $12.49 $8.77 $10.63
</TABLE>

<TABLE>
<CAPTION>
SELECT BOND
FUND
(CLASS A)
------
<S> <C>
NET ASSETS $31,478,811

NUMBER OF SHARES
OUTSTANDING $ 3,260,345
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
OUTSTANDING) $9.66
OFFERING PRICE
PER SHARE $10.14
REDEMPTION PRICE
PER SHARE $9.66
</TABLE>

B-36
<PAGE>

<TABLE>
<CAPTION>
AGGRESSIVE GROWTH AND
GROWTH STOCK INTERNATIONAL GROWTH STOCK INCOME STOCK
FUND EQUITY FUND FUND FUND
(CLASS B) (CLASS B) (CLASS B) (CLASS B)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSETS $4,695,396 $2,718,073 $3,516,193 $4,314,429
NUMBER OF SHARES
OUTSTANDING $ 345,795 $ 301,149 $ 223,597 $ 364,185
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
(OUTSTANDING) $13.58 $9.03 $15.73 $11.85
OFFERING AND
REDEMPTION
PRICE PER SHARE $13.58 $9.03 $15.73 $11.85
</TABLE>

<TABLE>
<CAPTION>
ASSET
INDEX 500 ALLOCATION HIGH YIELD MUNICIPAL
STOCK FUND FUND BOND FUND BOND FUND
(CLASS B) (CLASS B) (CLASS B) (CLASS B)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSETS $17,802,313 $5,825,603 $4,683,841 $849,347
NUMBER OF SHARES
OUTSTANDING 1,069,488 470,364 534,729 79,881
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
OUTSTANDING) $16.65 $12.39 $8.76 $10.63
OFFERING AND
REDEMPTION PRICE
PER SHARE $16.65 $12.39 $8.76 $10.63
</TABLE>

<TABLE>
<CAPTION>
SELECT BOND
FUND
(CLASS B)
-------
<S> <C>
NET ASSETS $2,425,059
NUMBER OF SHARES
OUTSTANDING 251,171
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
OUTSTANDING) $9.66
OFFERING AND
REDEMPTION PRICE
PER SHARE $9.66
</TABLE>

B-37
<PAGE>

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
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.

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)

B-38
<PAGE>

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 t
the subject class

B-39
<PAGE>

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, 1999, were
as follows:

Municipal Bond Fund
Class A 3.76%
Class B 3.33%

Select Bond Fund
Class A 6.31%
Class B 5.99%

High Yield Bond Fund
Class A 11.45%
Class B 11.37%

The tax equivalent yield for the Municipal Bond Fund for the 30-day period ended
March 31, 1999, was 5.45% 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.

B-40
<PAGE>

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.

B-41
<PAGE>

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

B-42
<PAGE>

such to shareholders. At the end of its last fiscal year, the High Yield
Bond Fund had an unused capital loss carryforward of $640,757.

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

B-43
<PAGE>

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

B-44
<PAGE>

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.

Exempt-interest dividends are exempt from regular federal income tax, but
they may affect the tax liabilities of taxpayers who are subject to the AMT.
Exempt-interest dividends are also includible in the modified income of
shareholders who receive Social Security benefits for purposes of determining
the extent to which such benefits may be taxed.

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.

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<PAGE>

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 Small Cap Growth Stock
Fund, Index 400 Stock Fund, Aggressive Growth Stock Fund, Growth Stock Fund,
Index 500 Stock Fund, Asset Allocation Fund and 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 Small
Cap Growth Stock Fund, 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

PricewaterhouseCoopers 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 and for the fiscal
year ended March 31, 1999, together with the notes thereto, financial highlights
and the report of PricewaterhouseCoopers LLP, independent accountants, are
included in MSFs' Annual Report to Shareholders, and are incorporated by
reference in this Statement of Additional Information.

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<PAGE>

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.

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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.

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<PAGE>

CC--The rating "CC" is typically applied to debt that is currently highly
vulnerable to nonpayment.

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.

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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.

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<PAGE>

-- 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"

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<PAGE>

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'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.

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<PAGE>

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'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

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<PAGE>

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.

B-54
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors
of Mason Street Funds, Inc

In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of the Index 400
Stock Fund and Small Cap Growth Stock Fund (constituting two series of Mason
Street Funds, Inc., hereafter referred to as the "Funds") at June 10, 1999,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits 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 audits provide a
reasonable basis for the opinion expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 10, 1999

B-55
<PAGE>

MASON STREET FUNDS, INC. - INDEX 400 STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
June 10, 1999

<TABLE>
<S> <C>
Total Assets $10,000
-------
-------

Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,000 shares outstanding) $10,000
-------
-------

Per Share of Class A (based on 500 shares issued and outstanding):
Offering Price $ 10.50
-------
-------
Net Asset Value and Redemption Price $ 10.00
-------
-------

Per Share of Class B (based on 500 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $ 10.00
-------
-------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

B-56
<PAGE>

MASON STREET FUNDS, INC. - SMALL CAP GROWTH STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
June 10, 1999

<TABLE>
<S> <C>
Assets
Cash $10,000
-------

Total Assets $10,000
-------
-------

Aggregate Paid In Capital
($0.001 par value; 300,000,000 shares authorized;
1,000 shares outstanding) $10,000
-------
-------

Per Share of Class A (based on 500 shares issued and outstanding):
Offering Price $ 10.50
-------
-------
Net Asset Value and Redemption Price $ 10.00
-------
-------

Per Share of Class B (based on 500 shares issued and outstanding):
Net Asset Value, Offering and Redemption Price $10.00
-------
-------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

B-57
<PAGE>

MASON STREET FUNDS, INC.
INDEX 400 STOCK FUND AND SMALL CAP GROWTH STOCK FUND
NOTES TO FINANCIAL STATEMENTS
June 10, 1999

Note 1: The Mason Street Funds, Inc. ("MSF") is registered as a diversified
open-end investment company under the Investment Company Act of
1940. The Index 400 Stock Fund and the Small Cap Growth Stock Fund
will be part of the MSF. The Index 400 Stock Fund and the Small Cap
Growth Stock Fund have had no operations other than the sale of
1,000 shares of Common Stock at $10.00 per share on June 10, 1999 to
The Northwestern Mutual Life Insurance Company. Each Fund offers
two classes of shares: Class A shares with an initial sales charge
up to 4.75% and Class B shares with a surrender charge of 0-5% over
a period of up to six years.

Note 2: Northwestern Mutual Investment Services, Inc, ("NMIS") serves as
investment advisor to the MSF. The Index 400 Stock and the Small
Cap Growth Stock Funds pay NMIS an annual fee for investment
advisory services based on average daily net assets of each
Portfolio. The Index 400 Stock Fund pays .40% of net assets to NMIS
and the Small Cap Growth Stock Fund pays .85% of net assets.

Each Fund pays the Distributor certain fees for shareholder
servicing and distribution expenses, which vary based on the class
of shares. Each Fund also pays the administrator, Northwestern
Mutual Life, a monthly fee at an annual rate of .10% plus costs for
pricing securities. This administration fee is for services
including recordkeeping, preparation of reports, filing tax returns
and for fund accounting.

In addition, each Fund pays transfer agent and custodian fees,
outside professional and auditing fees, registration fees, trademark
fees, organizational costs, insurance premiums, Director's fees and
expenses, and the printing and mailing costs of sending reports and
other information to existing shareholders.

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 .95% and 1.60% for the Index 400 Stock Fund for Class A and
Class B, respectively, and 1.40% and 2.05% for Small Cap Growth Stock
Fund for Class A and Class B, respectively.

Note 3: Organizational costs were advanced by the Advisor and will be
reimbursed by the Funds.

Note 4: MSF 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
their shareholders sufficient to relieve it from all or
substantially all Federal income taxes.

B-58

<PAGE>

PART C
OTHER INFORMATION

Item 23. Exhibits
---------
Exhibit A Amendment to the Articles of Incorporation adopted by the
Directors of Mason Street Funds, Inc. on May 11, 1999.

(1)Articles of Incorporation of Mason Street Funds, Inc.
(Exhibit B(1))

(1)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). (Exhibit
B(4))

Exhibit B Amendments to the By-Laws adopted by the Directors of Mason
Street Funds, Inc. on May 11, 1999.

(1)By-Laws of Mason Street Funds, Inc. (Exhibit B(2))

(4)Amendment to By-Laws of Mason Street Funds, Inc.
(Exhibit B(2)(a))

(5)Amendment to By-Laws of Mason Street Funds, Inc.
(Exhibit B(2)(b))

(6)Amendment to the By-Laws adopted by the Directors of Mason
Street Funds, Inc. on August 6, 1998. (Exhibit B)

Exhibit D (1)Form of Investment Advisory Agreement between Mason Street
Funds, Inc. and Northwestern Mutual Investment Services, LLC.
(Exhibit B(5)(a))

(2)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. (Exhibit B(5)(b))

(2)Form of Investment Sub-Advisory Agreement between Northwestern
Mutual Investment Services, LLC, (Investment Adviser to the
International Equity Fund) and Templeton Investment Counsel, Inc.
(Exhibit B(5)(c))

(6)Form of Investment Advisory Agreement between Mason Street
Funds, Inc. (on behalf of the Small Cap Growth Stock Fund and the
Index 400 Stock Fund), Northwestern Mutual Investment Services,
LLC and The Northwestern Mutual Life Insurance Company.
(Exhibit D)

Exhibit E (2)Form of Principal Underwriting Agreement. (Exhibit B(6))

Exhibit F Not Applicable.

Exhibit G (3)Form of Custodian Agreement with Chase Manhattan Bank.
(Exhibit B(8)(a))

(3)Form of Custodian Agreement with Bankers Trust Co.
(Exhibit B(8)(b))

C-1
<PAGE>

(3)Form of Custodian Agreement with Brown Brothers Harriman & Co.
(Exhibit B(8)(c))

(6)Form of Custodian Agreement between Mason Street Funds, Inc.
and Chase Manhattan Bank for the Small Cap Growth and Index 400
Stock Funds. (Exhibit G)

Exhibit H(1) (6)Form of License Agreement between Standard & Poor's
Corporation and Mason Street Funds, Inc. (on behalf of the Index
400 Stock Fund). (Exhibit H(1))

Exhibit H(2) (6)Fee Waiver Agreement with Robert W. Baird & Co. Incorporated.
(Exhibit H(2))

Exhibit H(3) (2)Form of Transfer Agency and Service Agreement.
(Exhibit B(9)(a))

(2)Form of Shareholder Servicing Agreement with Robert W. Baird
& Co. Incorporated. (Exhibit B(9)(b)(1))

(2)Form of Administration Agreement with The Northwestern Mutual
Life Insurance Company. (Exhibit B(9)(c))

(3)Opinion and Consent of Counsel. (Exhibit B(10))

(5)Amended Shareholder Servicing Agreement with Robert W. Baird
& Co. Incorporated (Exhibit B(9)(b)(2))

(5)Shareholder Account Services Agreement with Robert W. Baird
& Co. Incorporated (Exhibit B(9)(e))

(6)Form of Master Agreement/DST FAN Services - Mutual Funds.
(Exhibit H(3))

Exhibit H Fee Waiver Agreement with Robert W. Baird & Co. Incorporated.

Exhibit I Opinion and Consent of Counsel.

Exhibit J Consent of PricewaterhouseCoopers LLP.

Exhibit L (6)Form of Subscription Agreement. (Exhibit L)

(2)Form of Subscription Agreement. (Exhibit B(13))

Exhibit M(1) (2)Form of Rule 12b-1 Distribution Plan for Class A Shares.
(Exhibit B(15)(a))

Exhibit M(2) (2)Form of Rule 12b-1 Distribution plan for Class B Shares.
(Exhibit B(15)(b))

Exhibit O (1)Form of Rule 18f-3 Plan. (Exhibit B(18))

(1)Exhibits previously filed with Form N-1A Registration Statement for Mason
Street Funds, Inc. on December 6, 1996, and incorporated herein by reference.

(2)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.

(3)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.

C-2
<PAGE>

(4)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.

(5)Exhibits previously filed with Form N-1A Post-Effective Amendment No. 2 for
Mason Street Funds, Inc. on June 29, 1998, and incorporated herein by reference.

(6)Exhibits previously filed with Form N-1A Post-Effective Amendment No. 3 for
Mason Street Funds, Inc. on April 28, 1999, and incorporated herein by
reference.

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of June 1, 1999, 72% of 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 25. INDEMNIFICATION

Article IX of Registrant's By-Laws is included as an Exhibit
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 $50 million. 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 26. 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 27. PRINCIPAL UNDERWRITER

Robert W. Baird & Co. Incorporated ("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:

C-3
<PAGE>

G. Frederick Kasten, Jr. Chairman and CEO
Paul E. Purcell President and COO
James D. Bell Managing Director
Paul J. Carbone Managing Director
Bryce P. Edwards Managing Director
Glen F. Hackmann Managing Director and Sec'y.
Keith A. Kolb Managing Director
Patrick S. Lawton Managing Director
William W. Mahler Managing Director
Terrence P. Maxwell Managing Director
John R. Merrell Managing Director
Russell P. Schwei Managing Director
Paul S. Shain Managing Director
Dominick P. Zarcone Managing Director

All of the above are located at 777 East Wisconsin Avenue,
Milwaukee, WI 53202.

None of the above has a position with Registrant.

Item 28. 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 Small Cap Growth Stock Fund, Index
400 Stock Fund, 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 Small Cap Growth Stock Fund, 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 29. MANAGEMENT SERVICES

Not applicable

Item 30. UNDERTAKINGS

Not applicable

C-4
<PAGE>

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 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, duly
authorized, in the City of Milwaukee, and State of Wisconsin, on the 25th day
of June, 1999.

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
--------- -----

JAMES D. ERICSON President, Director
- ---------------------- and Principal Executive
James D. Ericson Officer

MARK G. DOLL Vice President,
- ---------------------- Treasurer and Principal
Mark G. Doll Financial Officer

BARBARA E. COURTNEY Controller and
- ---------------------- Principal Accounting Dated
Barbara E. Courtney Officer June 25,
1999

WILLIAM J. BLAKE* Director
- ----------------------
William J. Blake

STEPHEN N. GRAFF* Director
- ----------------------
Stephen N. Graff

MARTIN F. STEIN* Director
- ----------------------
Martin F. Stein

JOHN K. MACIVER* Director
- ----------------------
John K. MacIver

WILLIAM A. MCINTOSH* Director
- ----------------------
William A. McIntosh

* By JAMES D. ERICSON
------------------------------
James D. Ericson, Attorney
in fact, pursuant to the Power
of Attorney previously
filed on April 28, 1999

C-5

<PAGE>

EXHIBIT INDEX
EXHIBITS FILED WITH FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 4 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 A Amendment to the Articles of Incorporation adopted by the
Directors of Mason Street Funds, Inc. on May 11, 1999.

Exhibit B Amendment to the By-Laws adopted by the Directors of Mason Street
Funds, Inc. on May 11, 1999.

Exhibit H Fee Waiver Agreement with Robert W. Baird & Co.

Exhibit I Opinion and Consent of Counsel.

Exhibit J Consent of PricewaterhouseCoopers LLP.

<PAGE>

Exhibit A

AMENDMENT TO THE ARTICLES OF INCORPORATION ADOPTED BY THE
DIRECTORS OF MASON STREET FUNDS, INC.
ON MAY 11, 1999

RESOLVED, that Paragraphs (a) and (c) of Article FOURTH of the Articles
of Incorporation of the corporation read as follows, effective May 12, 1999:

FOURTH:

(a) The total number of shares of stock of all classes and series
which the corporation has the authority to issue is Three Billion Three Hundred
Million (3,300,000,000) shares of capital stock (par value $0.001 per share),
amounting in aggregate par value to $3,300,000. All of such shares are
classified as "Common Stock." The Board of Directors may classify or reclassify
any unissued shares of capital stock (whether or not such shares have been
previously classified or reclassified) from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.

(c) The authorized shares of Common Stock shall be classified into
the following eleven series of Common Stock, each series comprising the number
of shares indicated, subject to the authority of the Board of Directors to
classify or reclassify any unissued shares of capital stock and to the authority
of the Board of Directors to increase or decrease the number of shares of
capital stock or the number of shares of capital stock of any class or series
that the corporation has the authority to issue:

<TABLE>
<CAPTION>
SERIES NUMBER OF SHARES IN SERIES
------ --------------------------
<S> <C>
Small Cap Growth Stock Fund 300,000,000
Aggressive Growth Stock Fund 300,000,000
International Equity Fund 300,000,000
Index 400 Stock Fund 300,000,000
Growth Stock Fund 300,000,000
Growth and Income Stock Fund 300,000,000
Index 500 Stock Fund 300,000,000
Asset Allocation Fund 300,000,000
High Yield Bond Fund 300,000,000
Select Bond Fund 300,000,000
Municipal Bond Fund 300,000,000
</TABLE>

Any series of Common Stock shall be referred to herein individually as a
"Series" and collectively, together with any further series from time to time
established, as the "Series."

BE IT FURTHER RESOLVED, that the officers of the corporation are
authorized and directed to prepare articles supplementary and amended Articles
of Incorporation to reflect the actions taken by these resolutions, to file such
articles supplementary and amended articles in accordance with the applicable
requirements of the laws of Maryland, and to pay such franchise and bonus taxes
as may be due.

<PAGE>

Exhibit B

AMENDMENTS TO THE BY-LAWS ADOPTED BY THE DIRECTORS OF
MASON STREET FUNDS, INC. ON MAY 11, 1999

RESOLVED, that section 8.10 of the By-Laws of the corporation is
redesignated as Section 8.12, effective May 12, 1999.

RESOLVED, that sections 8.10 and 8.11 of the By-Laws of the corporation
read as follows, effective May 12, 1999:

8.10 OBJECTIVES OF THE INDEX 400 STOCK FUND

The investment objective of the Index 400 Stock Fund is to achieve
investment results that approximate the performance of the Standard & Poor's
MidCap 400 Index ("S&P 400 Index"). The Fund will attempt to meet this objective
by investing in stocks included in the S&P 400 Index in proportion to their
weightings in the index. A portion of the assets may be invested in money market
instruments, including U.S. Government and agency securities and short-term
commercial paper, as well as option contracts, stock index futures contracts,
and repurchase agreements.

8.11 OBJECTIVES OF THE SMALL CAP GROWTH STOCK FUND

The investment objective of the Small Cap 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 the advisor believes can reasonably
be expected to increase sales and earnings at a pace which will exceed the
growth rate of the U.S. economy over an extended period. These companies, for
the most part, are small capitalization companies whose stock may experience
substantial price volatility. Under normal circumstances, the Fund will invest
at least 80% of its assets in stocks. The Fund may invest in preferred stocks
and debt securities with conversion privileges or warrants. A portion of the
assets may be invested in money market instruments, including U.S. Government
and agency securities and short-term commercial paper.

RESOLVED, that section 8.04 of the By-Laws of the corporation read as
follows, effective May 12, 1999:

8.04 OBJECTIVES OF THE 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 stock of companies the advisor believes can reasonably
be expected to increase sales and earnings at a pace which will exceed the
growth rate of the U.S. economy over an extended period. These companies, for
the most part, are mid-sized and smaller companies whose stock may experience
substantial price volatility. Under normal circumstances, the Fund will invest
at least 80% of its assets in stocks. The Fund may invest in preferred stocks
and debt securities with conversion privileges or warrants. From time to time
assets may be invested in investment grade debt securities and short-term
commercial paper and United States Treasury obligations or temporarily held
uninvested for such periods as may appear to be prudent.

<PAGE>

EXHIBIT H

MASON STREET FUNDS, INC.

June 25, 1999

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 each fiscal year of MSF beginning on or after April 1, 1999, and
ending on or before March 31, 2004, Baird, NML and NMIS agree to waive their
fees to the extent necessary so that Net Total Operating Expenses of each Class
of each Fund of MSF, after the waiver, do not exceed the amount indicated as the
maximum Net 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 Net 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 Net Total Operating Expense ratios of the
Classes of a particular Fund cannot both be reduced simultaneously to the
maximum Net 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

<PAGE>

Servicing Agreement fees, to the extent necessary for such Class to reach the
Expense Cap for the fiscal year.

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:
----------------------------
Title:
----------------------------

THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY

By: /S/
---------------------------
Name: Mark G. Doll
Title: Senior Vice President

NORTHWESTERN MUTUAL INVESTMENT
SERVICES, INC.

By:
-------------------------------
Name: Mark G. Doll
Title: Executive Vice President

118892

<PAGE>

Exhibit I

June 21, 1999

Mason Street Funds, Inc.
720 East Wisconsin Avenue
Milwaukee, WI 53202

Gentlemen:

In my capacity as Assistant Secretary of Mason Street Funds, Inc. (the
"Company") I have acted as counsel for the Company in connection with
Post-Effective Amendments Nos. 3 and 4 to the Registration Statement on Form
N-1A (the "Registration Statement") filed or to be filed with the Securities and
Exchange Commission under the Securities Act of 1933 with respect to the Common
Stock of the Company. The Company is authorized to issue three billion three
hundred million (3,300,000,000) Shares of Common Stock, par value $0.001 per
share. I have examined the Articles of Incorporation and By-Laws of the Company
and the proceedings taken and instruments executed in connection with the
authorization and proposed issuance of said Common Stock and have also examined
such other corporate records, certificates and other documents and such
questions of law as I have considered necessary or appropriate for the purposes
of this opinion. On the basis of such examination, it is my opinion that:

1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Maryland.

2. The authorized and unissued shares of Common Stock of the Company
covered by the Registration Statement to be sold by the Company, upon
due sale and delivery thereof and payment therefor by the specified
purchasers thereof in accordance with the Registration Statement, will
be legally issued, fully paid and nonassessable.

I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

Very truly yours,

/S/James R. Eben
Assistant Secretary
Mason Street Funds, Inc.

<PAGE>

Exhibit J

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated April
29, 1999, 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.

We also consent to the use in such Statement of Additional Information of
our report dated April 29, 1999, relating to the balance sheets of the Index 400
Stock Fund and Small Cap Growth Stock Fund (constituting two series of the Mason
Street Funds, Inc.) which appear in such Statement of Additional Information.

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 25, 1999