<PAGE>
December 31, 1997
[LOGO]
[GRAPHIC]
ANNUAL REPORT
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NML VARIABLE ANNUITY ACCOUNT B
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Nontax - Qualified Annuities
Individual Retirement Annuities
Simplified Employee Pension Plan IRAs
SIMPLE IRAs
Tax Deferred Annuities
457 Deferred Compensation Plan Annuities
Northwestern Mutual
Series Fund, Inc.
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE>
CONTENTS
CONTRACT OWNER PRIVILEGES
FREE TRANSFERS AMONG PORTFOLIOS
You can change your investment allocation or transfer values among the
divisions. Use the NML Express 800 number, or submit the request form found at
the end of this report. If a pre-authorization form was returned to the Home
Office you may also transfer among the portfolios by phone. Same day changes can
also be accomplished if a request form is faxed to the Home Office.
CONTRACT OWNERS COMMUNICATIONS
NML Express give you convenient 24-hour access to the latest information about
your contract. You receive confirmation statements with each transaction,
quarterly summary statements, a VA HISTORICAL PERFORMANCE brochure at year-end
and the ANNUITY ASPECTS news-letter featuring annuity funds, portfolio managers
and other annuity information.
AUTOMATIC INVESTMENT PLAN
You can set-up a convenient method of direct investing under our Electronic
Funds Transfer (EFT) Plan. Your bank can transmit money safely and quickly from
your bank checking or NOW account.
AUTOMATIC DOLLAR COST AVERAGING PLAN
This plan automatically transfers money from the Money Market Portfolio to any
of the portfolios on a monthly or quarterly basis. It theoretically works by
letting the "law of averages" even out marketplace volatility.
SPECIAL WITHDRAWAL PRIVILEGE
For contracts with a $10,000 balance and money in a surrender category, if any,
you can withdraw an amount without incurring a surrender charge. Beginning on
the first anniversary, the amount available is the lesser of 10% of the contract
accumulation value, or 100% of the contract earnings.
OPTIONAL DISABILITY WAIVER OF PURCHASE PAYMENTS
This optional benefit continues to pay regular purchase payments into the
contract should you become totally disabled. (May be subject to underwriting).
<TABLE>
<S> <C>
HOW TO GET MORE INFORMATION
- NML EXPRESS:
1-800-519-4NML (1-800-519-4665)
Get up-to-date information about your contract at
your convenience with your contract number and
your Personal Identification Number (PIN). Call
toll-free to review contract values and unit
values, transfer among portfolios, change the
allocation and obtain fund performance
information.
- INFORMATION ON THE INTERNET:
WWW.NORTHWESTERNMUTUAL.COM
For information about Northwestern Mutual Life,
visit us on our Website. Included is information
on the new IRA rules and Roth IRA.
- CONTACT YOUR NORTHWESTERN MUTUAL AGENT. . .if
you have questions about your contract or any of
the contract owner privileges.
</TABLE>
CONTENTS
Letter to Contract Owners 1
Performance Summary for Separate Accounts 2
Economic Overview and Outlook 3
Series Fund Schedule of Investments 4
Aggressive Growth Stock Portfolio 4
International Equity Portfolio 7
Growth Stock Portfolio 11
Growth and Income Stock Portfolio 14
Index 500 Stock Portfolio 17
Balanced Portfolio 24
High Yield Bond Portfolio 36
Select Bond Portfolio 39
Money Market Portfolio 43
Accountants' Letter 45
Series Fund Financial Statements 46
Aggressive Growth Stock Portfolio 46
International Equity Portfolio 49
Growth Stock Portfolio 52
Growth and Income Stock Portfolio 55
Index 500 Stock Portfolio 58
Balanced Portfolio 61
High Yield Bond Portfolio 64
Select Bond Portfolio 67
Money Market Portfolio 70
Notes to Series Financial Statements 73
Accountants' Letter 76
Account B Financial Statements 78
Notes to Financial Statements 82
Directors and Officers 89
<PAGE>
Letter to Contract Owners
LETTER TO CONTRACT OWNERS
January 31, 1998
In 1997, the stock market continued its powerful upward trend, delivering
returns over 20% for an unprecedented third consecutive year. In contrast to the
prior year, the bond market's performance was also quite strong, with total
returns from corporate bonds just under 10%. In a year when few active fund
managers were able to generate returns that matched the broad market indexes,
the portfolios underlying Northwestern Mutual's annuity products performed in
line with their stated objectives, providing contract owners attractive returns.
The forces behind this market strength are the same as in recent years -- a
steadily expanding economy virtually devoid of inflation. For nearly 20 years,
the Federal Reserve Bank and most of its counterpartsaround the
world have been practicing sound monetary policies: in order to
conquer inflation, they have been willing to risk slow growth and
even recession. It now appears that the goal of price stability has
been achieved. The positive surprise has been that there has been no
major recession, in large part because technological advances have
resulted in major gains in productivity.
The only major negative force affecting world markets today is the
economic crisis in Asia, which is already beginning to affect
markets in other parts of the word. One positive effect is a flight to quality:
investorsare moving from risky Asian markets to more secure U.S. markets; this
is one reason for the excellent performance of the U.S. bond market in the
fourth quarter. The downside is that in weaker Asian economies, there will be
less demand for U.S. products of all sorts -- Disney movies, Coca-Cola soft
drinks, General Motors automobiles, and Intel computer chips -- and this will
dampen overall demand. At the same time, countries with devalued currencies will
use their productive capacity to flood world markets with goods that are cheap
in dollars and other strong currencies, creating difficult competitive
situations for other global manufacturers.
Experts differ in evaluating how significant the problems in Asia will be for
other markets around the world, but they will certainly be an influence in the
months ahead. We at Northwestern Mutual have taken steps to minimize exposure to
problems in Asia, by adjusting asset mixes and focusing on high quality issues
that rely largely on domestic markets for earnings growth, and we will continue
to monitor the situation closely.
In recent years, the stock market has moved rather steadily upward; there has
not been a major correction since 1990. The bond market has also been generally
strong, though not as consistently as the stock market. The current rally in
bonds is a continuation of a broad trend toward lower interest rates, which
correlate with higher bond prices. This trend began in 1981, when government
bond yields peaked at almost 16%, following the inflation explosion of the
1970s.
Markets do fluctuate; this is a reality of investing. By purchasing annuities,
you have demonstrated already that you are thinking of the distant
future. In evaluating the performance of the funds underlying your
annuity holdings, we urge you to maintain a long-term point of view and
avoid being influenced by market fluctuations. It is a good idea to
adjust your investments among portfolios as your circumstances, needs
and goals evolve, but it would be a mistake to let short-term market
moves influence your investment strategy.
The variable annuities on which we are reporting have an important
place in the financial portfolios of many people. Northwestern Mutual
also offers many other insurance and investment products that address a wide
variety of financial needs, including our Mason Street family of mutual funds,
introduced in 1997. As you consider your financial goals and requirements, we
hope that you will consider Northwestern Mutual products that may be appropriate
for you. Your Northwestern Mutual agent stands ready to provide help as you plan
for a secure financial future. We join our agents in thanking you for selecting
Northwestern Mutual to help you accomplish your financial goals.
The Northwestern Mutual Life Insurance Company
[SIGNATURE]
James D. Ericson, President and
Chief Executive Officer
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1
<PAGE>
PERFORMANCE SUMMARY
P ERFORMANCE SUMMARY as of December 31, 1997
FRONT LOAD CONTRACT
<TABLE>
<CAPTION>
Growth &
Total return Aggressive International Growth Income Index 500 High Yield Select Money
at unit value Growth Stk. Equity Stock Stock Stock Balanced Bond Bond Market
(as of 12/31/97) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........... 8.87% 7.36% 24.16% 24.33% 27.36% 16.19% 10.77% 4.66% 0.85%
5 years.......... 118.91% - - - 132.74% 78.19% - 34.78% 17.39%
Annualized..... 16.96% - - - 18.41% 12.25% - 6.15% 3.26%
10 years......... - - - - - 187.89% - 119.11% 56.99%
Annualized..... - - - - - 11.15% - 8.16% 4.61%
Since
inception........ 262.77%* 81.20%^ 96.14%# 92.98%# 226.08%* - 56.97%# - -
Annualized..... 19.97% 13.57% 20.19% 19.66% 18.18% - 13.10% - -
</TABLE>
BACK LOAD CONTRACT WITHOUT SURRENDER
<TABLE>
<CAPTION>
Growth &
Total return Aggressive International Growth Income Index 500 High Yield Select Money
at unit value Growth Stk. Equity Stock Stock Stock Balanced Bond Bond Market
(as of 12/31/97) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........... 12.45% 10.89% 28.24% 28.42% 31.55% 20.01% 14.42% 8.11% 4.16%
5 years.......... 118.43% - - - 132.32% 77.92% - 34.57% 17.21%
Annualized..... 16.91% - - - 18.36% 12.21% - 6.12% 3.23%
10 years......... - - - - - 175.01% - 109.37% 50.24%
Annualized..... - - - - - 10.65% - 7.67% 4.15%
Since
inception........ 254.84%* 81.41%^ 98.06%# 94.88%# 219.50%* - 58.51%# - -
Annualized..... 19.60% 13.60% 20.51% 19.98% 17.84% - 13.40% - -
</TABLE>
BACK LOAD CONTRACT WITH SURRENDER
<TABLE>
<CAPTION>
Growth &
Total return Aggressive International Growth Income Index 500 High Yield Select Money
at unit value Growth Stk. Equity Stock Stock Stock Balanced Bond Bond Market
(as of 12/31/97) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........... 4.45% 2.89% 20.24% 20.42% 23.55% 12.01% 6.42% 0.11% (3.84%)
5 years.......... 114.43% - - - 128.32% 73.92% - 30.57% 13.21%
Annualized..... 16.48% - - - 17.95% 11.70% - 5.48% 2.51%
10 years......... - - - - - 175.01% - 109.37% 50.24%
Annualized..... - - - - - 10.65% - 7.67% 4.15%
Since
inception........ 253.84%* 77.41%^ 93.06%# 89.88%# 218.50%* - 53.51%# - -
Annualized..... 19.55% 13.06% 19.67% 19.13% 17.79% - 12.41% - -
</TABLE>
All total return figures are for divisions of NML Variable Annuity Account B and
are based on the change in unit value, which reflects expenses, such as account
charges and fees applied at the contract level; figures for the Front Load
contract reflect a maximum sales load of 4%; figures for the Back Load contract
with surrender reflect deductions for a maximum 8% withdrawal charge, declining
at a rate of 1% per year. The data reflects an initial contract size of $10,000
for the Front Load (minimum size) and $1,000 for the Back Load.Performance data
represents past results and is not a guarantee of future results.Future unit
values and investment returns may vary so an investor's units, when redeemed,
may be worth more or less than their original value. Performance for other
separate accounts will differ.
*Inception date of 12/3/90.
#Inception date of 5/3/94.
^Inception date of 4/30/93.
Note: "Standard and Poor's 500" and "S&P 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by The Northwestern Mutual
Life Insurance Company. The Series Fund and its Portfolios are not
sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard
& Poor's makes no representation regarding the advisability of investing
in them.
--
2
<PAGE>
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Economic Overview and Outlook
THE ECONOMY
During 1997, the domestic economy continued its seven-year trend of moderate
growth with minimal inflation and very low unemployment -- really the best of
all possible economic scenarios. For some 20 years, since the painful
double-digit inflation of the 1970s, monetary policies in the United States,
Europe and Japan have focused on fighting inflation. It now appears that price
stability has been achieved, with benefits felt throughout the economy. Low
interest rates encourage capital investment, which stimulates the industrial
sector while improving productivity. For consumers, modest income gains can
translate to real improvements in living standards, and confident consumers
spend and invest, providing further strength for the economy. The strong economy
has bolstered tax revenues, enabling the Federal government to develop a
balanced budget for 1999, following 30 years of deficits.
The only real cloud on the horizon is the economic crisis in Asia. Crashing
stock markets, currency devaluations, corporate bankruptcies and shrinking
consumer demand will surely affect economies and markets elsewhere; the chief
question is whether the effects will be minor or substantial. For now, virtually
all economists are projecting another year of moderate growth for the U.S.
economy.
Economic Growth
and Inflation
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Real Economic
Growth Inflation
1988 3.8% 4.4%
1989 3.4% 4.6%
1990 1.3% 6.1%
1991 -1.0% 3.1%
1992 2.7% 2.9%
1993 2.3% 2.7%
1994 3.5% 2.7%
1995 2.0% 2.5%
1996 2.2% 3.3%
1997 3.7% 1.7%
</TABLE>
Source: U.S. Department of Commerce. Year-to-year percentage change in
Real Gross Domestic Product is used for real economic growth.
December-to-December percentage change in the Consumer Price Index --
Urban is used for the inflation rate. 1997 numbers are preliminary.
- - --------------------------------------------------------------------------------
THE EQUITY MARKET
The bull market for stocks continued throughout 1997, with a vast array of
performance records set. For the year, the Dow Jones Industrial Average rose 23%
and the Standard & Poor's 500 stock index rose 31%, the first time either index
has risen more than 20% for three consecutive years. The strong gains masked the
reality of a two-tier market, led by big names such as General Electric and
Coca-Cola, while the stocks of smaller companies languished during much of the
year.
The latter part of the year was notable for significantly increased volatility;
in fact, almost all of the market's gains came in the first seven months. A few
high-profile earnings disappointments in August made investors nervous, leading
to sell-offs. Then, in late October, economies and stock markets in Asia began
to crumble, sparking corrections in markets throughout the world. During the
fourth quarter, the U.S. stock market experienced a brief but sharp correction
before recovering at year end.
Annual Total Returns
from S&P 500 Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
12/31/88 16.6%
12/31/89 31.7%
12/31/90 -3.1%
12/31/91 30.5%
12/31/92 7.6%
12/31/93 10.1%
12/31/94 1.2%
12/31/95 37.4%
12/31/96 22.8%
12/31/97 33.4%
</TABLE>
Source: Standard & Poor's
- - --------------------------------------------------------------------------------
THE BOND MARKET
In 1997, a powerful combination of economic and financial forces resulted in
excellent performance in the U.S. bond market. This bull market for bonds
culminated in the fourth quarter, when bonds outperformed the very strong stock
market.
Bonds traditionally perform well when inflation is not a concern, and this was
the case throughout 1997. Disinflation and a disappearing Federal deficit
combined to push interest rates lower and bond prices higher. The economic
crisis in Asia, though devastating for the countries involved, is a major
positive force for the U.S. bond market, as investors seek high quality. At year
end, the bond market appeared to be anticipating further easing of monetary
policy by the Federal Reserve, not because of slowing domestic growth, but as a
means of supporting the currencies of Southeast Asian nations. The expanding
importance of international events in determining the direction of domestic
stock and bond markets substantially increases the complexity of predicting
market trends. The many possible policy directions and outcomes of the Asian
crisis make future trends in the bond market very hard to forecast, but at
year-end 1997, most indicators seem to be positive.
Annual Total Returns from
Merrill Lynch Domestic Master Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
12/31/88 8.0%
12/31/89 14.2%
12/31/90 9.1%
12/31/91 15.9%
12/31/92 7.6%
12/31/93 10.0%
12/31/94 -2.8%
12/31/95 18.5%
12/31/96 3.6%
12/31/97 9.7%
</TABLE>
Source: Merrill Lynch. The Merrill Lynch Domestic Master Index is an
unmanaged market value weighted index comprised of U.S. Government,
mortgage and investment-grade corporate bonds.
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3
<PAGE>
Aggressive Growth Stock Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
Maximum long-term appreciation Strive for the highest possible rate of capital $1,066,942,882
of capital appreciation by investing in companies with
potential for rapid growth.
</TABLE>
AGGRESSIVE GROWTH STOCK PORTFOLIO
The Aggressive Growth Stock Portfolio owns the stocks of emerging growth
companies, generally with market capitalizations of less than $3 billion. Since
growth stock portfolios tend to react strongly to changes in financial and
economic markets, as well as to changes in the prospects for individual
companies, returns of this Portfolio can vary considerably from time to time. A
higher level of risk (with risk defined as variability of returns over time) is
accepted for the potential of greater long-term returns. The focus in stock
selection is on the individual companies' ability to generate revenue, expanding
profit margins and solid balance sheets; industry sector selection is of
secondary importance.
Consistent with the universe of small company stocks, the Portfolio's
performance lagged the broad market averages during 1997. The Portfolio remains
concentrated in four sectors in which there are many companies with good growth
opportunities: technology, business services, consumer products and services,
and health care. Some adjustments have been made to minimize exposure to
economic problems in Asia by increased emphasis on companies whose main growth
opportunities are in the United States. In the technology sector, the emphasis
is now on software, rather than equipment. Most of the health care companies in
the Portfolio provide devices and services to the domestic health care industry,
and this remains an attractive market segment. Holdings in the broadcasting
industry are expected to benefit from continued consolidation in this industry.
A solid base of holdings in the consumer group should enable the Portfolio to
participate in continued strength in domestic consumer spending. Modest holdings
of
S&P Index Futures enable the Portfolio to use a portion of the cash that is held
for future investments to participate in broad market performance.
Sector Allocation
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Consumer 21%
Technology 26%
Business Services 11%
Health Care 12%
Energy 8%
Industrial & Transportation 9%
Finance 4%
S&P 500 Index Futures 2%
Short-Term Investments 7%
</TABLE>
Performance Relative
to Relevant Indices
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Aggressive Growth Stock Wilshire Small Wilshire Next
<S> <C> <C> <C>
Portfolio Cap Index 1750 Index
11/30/90 $10,000 $10,000 $10,000
12/31/90 10,189 10,459 10,459
12/31/91 15,894 15,873 15,325
12/31/92 16,839 18,188 18,186
12/31/93 20,057 21,464 21,357
12/31/94 21,141 20,801 21,065
12/31/95 29,448 26,330 27,439
12/31/96 34,661 31,588 31,801
12/31/97 39,467 40,511 39,348
Average Annual Total Return
For Periods Ended December 31, 1997
One Year Five Years Since Inception
Aggressive Growth
Stock Portfolio 13.86% 18.57% 21.38%
Wilshire Small Cap Index 28.25% 17.37% 21.83%
Wilshire Next 1750 Index 23.73% 16.69% 21.33%
</TABLE>
Since the Portfolio invests primarily in small capitalization issues, the
indices that best reflect the Portfolio's performance are the Wilshire Next 1750
Index and Wilshire Small Cap Index.
The Wilshire Next 1750 is an unmanaged, equally weighted index. Included in
this index are those stocks which are ranked 750 to 2500 by market
capitalization in the Wilshire 5000. The largest sectors represented in this
index are financial services, consumer services and basic industry. Its average
market capitalization is approximately $769 million as of December 31, 1997.
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
average market capitalization is approximately $867 million as of December 31,
1997. The largest sector weightings include financial services, consumer
services and technology.
On May 3, 1994, the Northwestern Mutual Aggressive Growth Stock Fund, Inc.
(the "Fund") merged into the Northwestern Mutual Series Fund, Inc. Aggressive
Growth Stock Portfolio (the "Portfolio"). The Portfolio had no assets prior to
the merger. After the merger, the assets of the Portfolio were those of the
Fund. The investment objectives, policies, management and expenses of the
Portfolio are identical to those of the Fund. Accordingly, the performance of
the Fund prior to the merge is included with the performance of the Portfolio in
the graph and total return figures above.
This chart assumes an initial investment of $10,000 made on 11/30/90
(commencement of the Fund's operations). Returns shown include deductions for
management and other fund expenses, and reinvestment of all dividends. Returns
exclude deductions for separate account sales loads and account fees. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than their original cost. The total returns shown on page 2 reflect
the deduction of charges for the separate account.
---
4
<PAGE>
Aggressive Growth Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (91.20%) SHARES (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
BASIC MATERIALS (0.88%)
*Cambrex Corporation 203,000 $ 9,338
------------
CAPITAL GOODS (4.42%)
*Brooks Automation, Inc. 105,200 1,933
*CTB International Corp. 168,600 2,402
*Jabil Circuit, Inc. 246,000 9,778
Kaydon Corporation 360,000 11,745
*Kaynar Technologies, Inc. 232,200 6,618
*Tetra Tech, Inc. 503,375 10,068
*Triumph Group, Inc.-new 138,400 4,602
------------
TOTAL 47,146
------------
COMMUNICATION SERVICES ( 2.85%)
*LCI International, Inc. 387,500 11,916
*Pacific Gateway Exchange, Inc. 228,000 12,269
*Premiere Technologies, Inc. 225,400 6,227
------------
TOTAL 30,412
------------
CONSUMER CYCLICAL (15.15%)
*Blyth Industries, Inc. 437,100 13,086
*Catalina Marketing Corporation 238,600 11,035
*Cendant Corp. 610,557 20,988
*Dollar Tree Stores, Inc. 251,300 10,397
*Dura Automotive Systems, Inc. 206,900 5,120
Fastenal Co. 214,100 8,189
Galileo International, Inc. 331,200 9,149
*Getty Communications
PLC-ADR 454,900 6,767
*Jones Apparel Group, Inc. 234,800 10,096
*K & G Mens' Center, Inc. 518,150 10,752
*Kohls Department Stores 239,500 16,316
*O'Reilly Automotive, Inc. 517,400 13,582
*Signature Resorts, Inc. 400,000 8,750
*Tower Automotive, Inc. 239,800 10,086
*VWR Scientific Products Corp. 258,400 7,300
------------
TOTAL 161,613
------------
CONSUMER STAPLES (5.86%)
*American Italian Pasta Co.-Cl A 270,600 6,765
Cardinal Health, Inc. 198,418 14,906
*Chancellor Media Corp. 208,000 15,522
*Clear Channel Communications 179,000 14,219
*Ivex Packaging Corp. Del 52,500 1,260
*Robert Mondavi Corporation 202,000 9,848
------------
TOTAL 62,520
------------
ENERGY (7.57%)
*Barrett Resources Corporation 122,500 3,706
*BJ Services Company 149,200 10,733
*EVI, Inc. 216,000 11,178
*Global Industries, Ltd. 816,600 13,882
*Marine Drilling Co's, Inc. 352,000 7,304
*Nabors Industries, Inc. 276,700 8,699
*Pride International, Inc. 370,300 9,350
<CAPTION>
MARKET VALUE
COMMON STOCK (91.20%) SHARES (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
ENERGY (CONTINUED)
Tosco Corporation 170,200 $ 6,436
Transocean Offshore, Inc. 196,800 9,483
------------
TOTAL 80,771
------------
FINANCE (4.00%)
*Affiliated Managers Group 241,500 7,003
CMAC Investment Corp. 152,800 9,225
*ESG RE Ltd. 251,900 5,920
Investors Financial Services 200,000 9,200
Money Store, Inc. 171,850 3,609
*Trammel Crow Co. 300,400 7,735
------------
TOTAL 42,692
------------
HEALTHCARE (11.72%)
*Advanced Health Corp. 283,000 4,493
*Concentra Managed Care, Inc. 350,061 11,814
*Lincare Holdings, Inc. 177,400 10,112
*Medcath, Inc. 288,800 4,368
*NCS Healthcare, Inc.-Cl A 287,800 7,591
*Patterson Dental Co. 243,350 11,011
*Pediatrix Med Group, Inc. 215,900 9,230
*Pharmerica, Inc. 626,300 6,498
*PhyCor, Inc. 289,000 7,803
*Physician Sales & Services, Inc. 250,000 5,375
*Quorum Health Group, Inc. 452,700 11,827
*Spine-Tech, Inc. 147,300 7,577
*Sybron Intl Corp.-Wisconsin 300,200 14,091
*Wesley Jessen Visioncare 340,000 13,260
------------
TOTAL 125,050
------------
MISCELLANEOUS (8.73%)
*ABR Information Services, Inc. 266,700 6,367
*Administaff, Inc. 439,100 11,362
*Billing Information Concepts 222,300 10,670
Cintas Corp. 355,200 13,853
*Corrections Corp. of America 136,900 5,074
*Interim Services, Inc. 463,200 11,985
*Metzler Group, Inc. 269,500 10,814
*Robert Half International, Inc. 576,450 23,058
------------
TOTAL 93,183
------------
TECHNOLOGY (25.64%)
*ADC Telecommunications 329,900 13,773
AVX Corp. 125,600 2,316
Cambridge Technology Partners 422,100 17,570
*CBT Group PLC-ADR 223,400 18,347
*Ciena Corp. 164,400 10,049
*Computer Horizons Corp. 299,350 13,471
*Concord EFS, Inc. 303,100 7,540
*DST Systems, Inc. 248,300 10,599
*Gasonics Intl Corp. 439,800 4,343
HBO & Co. 331,600 15,917
*Hyperion Software 309,400 11,061
</TABLE>
---
5
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (91.20%) SHARES (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
*Integrated Process Equipment
Corp. 303,200 $ 4,775
*Kent Electronics Corp. 186,100 4,676
*Komag, Inc. 465,000 6,917
*Microchip Technology, Inc. 228,100 6,843
*Molex, Inc. 342,846 9,857
National Data Corporation 163,500 5,906
*Pairgain Technologies, Inc. 237,200 4,596
Paychex, Inc. 346,555 17,544
*Peoplesoft, Inc. 499,800 19,492
*PMC-Sierra, Inc. 158,000 4,898
*QLogic Corp. 175,500 5,177
*Saville Systems PLC-ADR 463,400 19,231
*Sterling Software, Inc. 259,500 10,640
*Sykes Enterprises, Inc. 358,300 6,987
*Tellabs, Inc. 266,400 14,086
*Transaction Systems Architects 181,600 6,901
------------
TOTAL 273,512
------------
TRANSPORTATION (4.38%)
*Coach USA, Inc. 398,300 13,343
*Heartland Express Incorporated 389,500 10,468
*Hub Group, Inc. 151,100 4,495
*Knight Transportation, Inc. 291,600 8,092
*Swift Transportation Co., Inc. 320,800 10,386
------------
TOTAL 46,784
------------
TOTAL COMMON STOCK 973,021
------------
<CAPTION>
MARKET VALUE
MONEY MARKET INVESTMENTS (8.80%) PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
GOVERNMENT (0.18%)
+Federal Home Loan Mortgage,
5.61%, 02/13/98 $ 2,000,000 $ 1,987
------------
FINANCE (1.87%)
Chrysler Financial Corp., 5.74%,
01/23/98 20,000,000 19,930
------------
PERSONAL CREDIT INSTITUTIONS (6.75%)
Associates Corp. of N A, 6.74%,
01/02/98 12,200,000 12,198
Commercial Credit Corp., 5.65%,
01/28/98 20,000,000 19,915
General Electric Capital, 5.88%,
01/21/98 20,000,000 19,934
General Motors Acceptance Corp.,
5.84%, 01/14/98 20,000,000 19,958
------------
TOTAL 72,005
------------
TOTAL MONEY MARKET
INSTRUMENTS 93,922
------------
TOTAL AGGRESSIVE GROWTH
PORTFOLIO (COST $745,200)^ $ 1,066,943
------------
</TABLE>
ADR-American Depository Receipt
* Non-Income Producing.
+Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1997 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION DEPRECIATION
ISSUER CONTRACTS DATE (000'S)
- - -------------------- ---------- ------------ -------------
<S> <C> <C> <C>
S&P 500 Stock Index 100 March 1998 (382)
</TABLE>
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $745,593 and the net unrealized appreciation of investments based
on that cost was $321,350 which is comprised of $354,153 aggregate gross
unrealized appreciation and $32,803 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
6
<PAGE>
International Equity Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
Long-term appreciation of Participate in the growth of foreign $657,718,113
capital through economies by investing in securities with
diversification into markets high long-term earnings potential relative
outside the United States to current market values.
</TABLE>
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio offers contract owners the opportunity to
participate in the growth of companies in countries throughout the world,
particularly those with expanding economies. In selecting investments, the
principal focus is on identifying undervalued stocks of companies with strong
finances and good long-term growth opportunities, rather than on choosing
regions of the world in which to invest. The Portfolio is normally fully
invested in equity securities.
Throughout the year, well over half the Portfolio was invested in European
companies, with particular emphasis on financial service providers and
pharmaceutical firms. Performance benefited from very strong stock markets
throughout Europe, especially in the U.K., which represented 22% of holdings at
year end. Very modest exposure to the collapsing markets of Asia was a
significant factor that enabled the Portfolio to perform far better than the
Europe-Australasia-Far East Index, with which it is compared. With market values
of quality companies in the region much lower than a few months ago, there are
now attractive buying opportunities among stocks of companies with strong
balance sheets in growing industries such as telecommunications.
The International Equity Portfolio is managed for Northwestern Mutual by
Templeton Investment Counsel, Inc.
Asset Allocation
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Europe 72%
Latin America 10%
Asia 7%
Australia/New Zealand 6%
Canada 3%
Non-equity holdings 2%
</TABLE>
Perfomance Relative
to the EAFE Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
International Equity
Portfolio EAFE Index
<S> <C> <C> <C>
4/30/93 $10,000 $10,000
12/31/93 $12,464 $10,970
12/31/94 $12,451 $11,859
12/31/95 $14,266 $13,228
12/31/96 $17,264 $14,068
12/31/97 $19,384 $14,364
AVERAGE ANNUAL TOTAL RETURN
For Periods Ended December 31, 1997
ONE YEAR SINCE INCEPTION
International Equity
Portfolio 12.28% 15.22%
EAFE Index 2.10% 8.06%
</TABLE>
As depicted in the graph, the International Equity Portfolio is compared against
the Morgan Stanley Capital International EAFE ("Europe-Australasia-Far East")
Index. The index is composed of approximately 1100 companies in 20 countries in
Europe and the Pacific Basin. The objective of the index is to reflect the
movements of stock markets in these countries by representing an unmanaged
(indexed) portfolio within each country. The indices are constructed so that
companies chosen represent about 60% of market capitalization in each market;
industry composition of the market is reflected; and a cross section of large,
medium, and small capitalization stocks is included, taking into account
liquidity concerns. The index is calculated in U. S. dollars.
On May 3, 1994, the Northwestern Mutual International Equity Fund, Inc. (the
"Fund") merged into the Northwestern Mutual Series Fund, Inc., International
Equity Portfolio (the "Portfolio"). The Portfolio had no assets prior to the
merger. After the merger, the assets of the Portfolio were those of the Fund.
The investment objectives, policies, management and expenses of the Portfolio
are identical to those of the Fund. Accordingly, the performance of the Fund
prior to the merger is included with the performance of the Portfolio in the
graph and total return figures above.
This chart assumes an initial investment of $10,000 made on 4/30/93
(commencement of the Fund's operations). Returns shown include deductions for
management and other fund expenses, and reinvestment of all dividends. Returns
exclude deductions for separate account sales loads and account fees. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than their original cost. The total returns shown on page 2 reflect
the deduction of charges for the separate account.
---
7
<PAGE>
International Equity Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.96%) COUNTRY SHARES (000'S)
<S> <C> <C> <C>
- - -----------------------------------------------------------------
AEROSPACE & MILITARY TECHNOLOGY (0.10%)
Hong Kong Aircraft &
Engineering H.K. 257,900 $ 649
-----------
APPLIANCES & HOUSEHOLD DURABLES (1.21%)
Electrolux AB B Free Swe. 48,200 3,347
Thorn PLC U.K. 1,557,085 4,048
Thorn PLC , B Shares U.K. 1,816,600 568
-----------
TOTAL 7,963
-----------
AUTOMOBILES (5.95%)
Autoliv, Inc. Swe. 279,100 9,141
#Autoliv, Inc., IDR Swe. 65,000 2,118
Bertrand Faure SA Fr. 5,642 401
Fiat SPA Ord. Italy 1,527,900 4,446
Renault SA Fr. 405,775 11,419
Volvo Aktiebolaget, B Free Swe. 433,000 11,624
-----------
TOTAL 39,149
-----------
BANKING & CREDIT (18.53%)
Australia & New Zealand
Bank Group Austrl. 926,097 6,118
Banco Bradesco SA Braz. 623,750,000 6,148
*Banco Bradesco SA -
Rights Braz. 26,668,540 96
Banco de Andulucia Sp. 30,000 5,019
Banco Itau S.A. Braz. 2,079,000 1,118
Banque Nationale de Paris Fr. 135,400 7,200
+Banque Nationale de
Paris, ADR (144A) Fr. 146,500 7,790
Barclay's Bank, PLC U.K. 245,016 6,534
BCO BilboaVizcaya Sp. 177,000 5,725
BPI SGPS SA Port. 201,963 4,916
Canadian Imperial Bank of
Commerce Can. 309,200 9,637
+Corporacion Bancaria de
Espana S.A., ADR Sp. 195,000 5,960
Credit Commercial de
France Fr. 25,500 1,748
Deutsche Bank AG Ger. 193,600 13,545
HSBC Holdings U.K. 214,979 5,299
Korea Long Term Credit
Bank Kor. 161,953 994
Merita Limited "A" Fin. 1,800,000 9,850
National Bank of Canada
Montreal Can. 360,000 5,937
Panin Bank Indo. 5,346,000 657
*Panin Bank - Warrants Indo. 763,714 7
Suisse Group Credit Swtz. 55,725 8,634
Svenska Handelsbanken S.A. Swe. 230,000 7,957
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.96%) COUNTRY SHARES (000'S)
<S> <C> <C> <C>
- - -----------------------------------------------------------------
BANKING & CREDIT (CONTINUED)
*Unibanco Uniao de Bancos Braz. 14,033,500 $ 956
-----------
TOTAL 121,845
-----------
BROADCAST ADVERTISING PUBLISHING (0.40%)
Marieberg Tidings "A" Free Swe. 35,000 820
South China Morning Post
Ltd. H.K. 2,554,000 1,796
-----------
TOTAL 2,616
-----------
BUILDING MATERIALS AND COMPONENTS (1.70%)
Hepworth PLC U.K. 607,200 2,218
Pioneer International Ltd. Austrl. 3,197,946 8,730
Siam City Cement Public
Co, Ltd. Thai. 240,039 249
-----------
TOTAL 11,197
-----------
BUSINESS & PUBLIC SERVICE (2.35%)
Esselte AB, Series "A"
Free Swe. 269,900 5,102
Hyder PLC U.K. 371,666 5,920
Hyder PLC Cum. Red. Pfd. U.K. 401,400 789
Societe Generale de Surv
Holdings Swtz. 885 1,699
*Waste Management
International, PLC U.K. 310,700 900
*+Waste Management PLC,
ADR U.K. 168,000 1,050
-----------
TOTAL 15,460
-----------
CHEMICALS (4.47%)
Bayer AG Ger. 157,000 5,828
Courtaulds PLC U.K. 1,851,700 9,049
European Vinyls Corp. EVC
International Neth. 68,985 1,531
Imperial Chemical
Industries, PLC U.K. 19,000 297
Rhone Poulenc SA, Series
"A" Fr. 283,108 12,687
-----------
TOTAL 29,392
-----------
CONSTRUCTION & HOUSING (0.62%)
Kyudenko Corp. Jpn. 33,000 167
Sirti SPA Italy 643,000 3,891
-----------
TOTAL 4,058
-----------
ELECTRICAL & ELECTRONICS (3.21%)
ABB AG Baden Bearer Swtz. 4,730 5,951
Alcatel Alsthom DG Fr. 58,519 7,441
Philips Electronic Neth. 128,400 7,702
-----------
TOTAL 21,094
-----------
</TABLE>
---
8
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.96%) COUNTRY SHARES (000'S)
- - -----------------------------------------------------------------
<S> <C> <C> <C>
ELECTRICAL COMPONENTS, INSTRUMENTS (0.62%)
BICC PLC U.K. 1,450,345 $ 4,093
-----------
ENERGY SOURCES (6.66%)
+Gazprom, ADR (144a) Rus. 142,100 3,428
Hafslund Nycomed "A" Norw. 170,000 1,038
Petroleo Brasileiro S.A.-
Petrobras Braz. 32,500,000 7,600
Repsol SA Sp. 122,000 5,203
Saga Petroleum Norw. 260,000 4,479
Societe Nationale Elf
Aquitaine Fr. 66,801 7,773
+YPF S.A., ADR Arg. 418,500 14,307
-----------
TOTAL 43,828
-----------
FINANCIAL SERVICES (2.94%)
AXA-UAP SA Fr. 218,313 16,900
India Fund, Series "B" U.K. 1,256,515 1,861
#Korea International Trust
IDR Kor. 52 410
Peregrine Investments
Holdings, Ltd. H.K. 262,000 186
-----------
TOTAL 19,357
-----------
FOOD & HOUSEHOLD PRODUCTS (3.56%)
Albert Fisher Group PLC U.K. 6,734,996 3,989
Cafe de Coral Holdings,
Ltd. H.K. 7,672,000 1,683
CP Pokphand Co. H.K. 2,609,900 411
Hillsdown Holdings U.K. 1,800,892 4,385
Tate & Lyle, PLC U.K. 762,600 6,286
The Oshawa Group Ltd. Can. 187,300 3,272
Vitro SA NPV Mex. 768,400 3,388
-----------
TOTAL 23,414
-----------
FOREST PRODUCTS & PAPER (1.95%)
Carter Holt Harvey Ltd. N.Z. 3,929,357 6,069
Metsa Serla OY "B" Fin. 277,500 2,166
P.T. Barito Pacific Timber Indo. 937,000 269
Stora Kapparbergs, Series
"B" Swe. 350,000 4,345
-----------
TOTAL 12,849
-----------
HEALTH & PERSONAL CARE (4.27%)
Astra AB Series "A" Free Swe. 373,333 6,470
Medeva PLC U.K. 4,250,000 11,328
Nycomed Amersham PLC U.K. 191,276 7,239
Nycomed Amersham PLC, B
Shares U.K. 83,406 3,032
-----------
TOTAL 28,069
-----------
INDUSTRIAL COMPONENTS (3.17%)
BTR PLC U.K. 5,674,500 17,179
BTR, PLC "A" Austrl. 249,000 737
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.96%) COUNTRY SHARES (000'S)
<S> <C> <C> <C>
- - -----------------------------------------------------------------
INDUSTRIAL COMPONENTS (CONTINUED)
Granges AB Swe. 188,100 $ 2,951
-----------
TOTAL 20,867
-----------
INSURANCE (2.65%)
Aegon NV Neth. 106,192 9,455
ING Groep NV Neth. 190,000 8,004
-----------
TOTAL 17,459
-----------
MACHINERY & ENGINEERING (0.69%)
VA Technologies AG Bearer Aus. 30,000 4,548
-----------
MERCHANDISING (1.06%)
David Jones Ltd. Austrl. 742,100 836
Koninklijke Bijenkorf
Beheer Neth. 44,098 2,763
Kwik Save Group U.K. 465,057 2,242
Somerfield PLC U.K. 318,200 1,099
-----------
TOTAL 6,940
-----------
METALS & MINING (4.69%)
Anglo American Platinum So.
Corporation Africa 35,700 477
British Steel PLC U.K. 5,270,900 11,361
Elkem A S Oslo ord "A" Norw. 192,000 2,552
Grupo Mexico "B" Mex. 1,320,000 4,912
+Minorco SA, ADR Lux. 318,150 5,329
+Pechiney ADR "A" Fr. 48,183 928
Pechiney SA "A" Fr. 19,000 750
*Union Minerie, NPV Bel. 65,171 4,521
-----------
TOTAL 30,830
-----------
MISCELLANEOUS MATERIAL/COMMODITIES (0.04%)
Korea Chemical Company,
Ltd. Kor. 16,700 278
-----------
MULTI-INDUSTRY (5.65%)
Amer Group "A" Fin. 175,000 3,358
Comp Gen de Industrieset
de Partec Fr. 4,500 1,616
Harrisons & Crossfield U.K. 2,490,000 5,777
Hutchinson Whampoa H.K. 798,000 4,995
Jardine Matheson Holdings Sing. 1,212,301 6,183
Jardine Strategic Holdings Sing. 1,019,055 2,690
Marine Wendel SA Fr. 11,490 1,306
Nokia Corp., "A" Fin. 71,000 5,042
Swire Pacific Class "A" H.K. 472,500 2,604
Swire Pacific Limited B H.K. 3,534,200 3,580
-----------
TOTAL 37,151
-----------
TELECOMMUNICATIONS (8.25%)
British Telecom U.K. 608,000 4,799
Cointel CONV Pfd. Arg. 73,150 5,121
</TABLE>
---
9
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.96%) COUNTRY SHARES (000'S)
- - -----------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
+Compania de
Telecomunicaciones, ADR Chile 155,125 $ 4,634
+Phillipine Long Distance
Telephone, ADR Phil. 127,000 2,858
+PT Indosat, ADR Indo. 146,600 2,831
Telecom Italia SPA Italy 2,490,000 10,985
+Telebras ADR Braz. 81,900 9,536
Telebras Braz. 17,646,200 1,795
Telefonica de Espania Sp. 315,000 8,990
+Telefonica del Peru S "A"
B, ADR Peru 115,300 2,688
-----------
TOTAL 54,237
-----------
TEXTILES-APPAREL (0.34%)
Yizheng Chemical Fibre
Company China 12,469,200 2,253
-----------
TRANSPORTATION - AIRLINES (0.90%)
Air New Zealand Ltd. "B" N.Z. 1,150,000 2,304
+Quantas Airways (144A)
ADR Austrl. 165,000 2,920
Singapore Airlines Ltd. Sing. 105,000 685
-----------
TOTAL 5,909
-----------
TRANSPORTATION - RAILROAD (1.07%)
Mayne Nickless Limited Austrl. 1,336,500 7,062
-----------
UTILITIES-ELECTRIC & GAS (8.29%)
BG PLC U.K. 3,330,352 15,014
*Centrica PLC U.K. 1,913,200 2,817
*CEZ Ceske Energeticke
Zavody Chez. 101,990 3,339
Electricidad de Caracas Venz. 8,690 10
Endesa National de
Electric Sp. 252,000 4,472
EVN Energie Versorgung Aus. 38,400 5,039
Hong Kong Electric H.K. 1,790,000 6,826
Iberdrola SA Sp. 587,500 7,728
Korea Electric Power Corp. Kor. 33,000 306
+Korea Electric Power
Corp. , ADR Kor. 35,425 356
National Power U.K. 493,764 4,874
Thames Water U.K. 251,023 $ 3,744
-----------
TOTAL 54,525
-----------
WHOLESALE & INTERNATIONAL TRADE (0.62%)
Brierley Investments Ltd. N.Z. 5,716,091 4,083
-----------
TOTAL COMMON STOCK 631,175
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (0.32%) COUNTRY PAR (000'S)
<S> <C> <C> <C>
- - ----------------------------------------------------------------
FINANCIAL SERVICES (0.32%)
PIV Financial Investments,
Ltd., 4.5%, 12/01/00 H.K 2,750,000 $ 2,104
-----------
TOTAL BONDS 2,104
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
MONEY MARKET VALUE
INVESTMENTS (3.72%) COUNTRY PAR (000'S)
<S> <C> <C> <C>
- - ----------------------------------------------------------------
GOVERNMENT (0.42%)
U.S. Treasury, 5.125%,
4/30/98 U.S. $ 2,757,000 $ 2,753
-----------
PERSONAL CREDIT INSTITUTIONS (1.61%)
Associates Corporation of
N.A., 6.74%, 1/02/98 U.S. 5,600,000 5,599
General Electric Capital,
5.649%, 1/28/98 U.S. 5,000,000 4,979
-----------
TOTAL 10,578
-----------
TELECOMMUNICATIONS (0.93%)
Nacional Financiera CNV,
11.25%, 5/15/98 Mex. 117,802 6,126
-----------
FINANCE (0.76%)
Chrysler Financial
Corporation, 5.8%, 1/23/98 U.S. 5,000,000 4,982
-----------
TOTAL MONEY MARKET
INVESTMENTS 24,439
-----------
TOTAL INTERNATIONAL
EQUITY PORTFOLIO
(COST $543,741)^ $ 657,718
-----------
</TABLE>
* Non-Incoming Producing.
+ ADR-American Depository Receipt.
# IDR-International Depository Receipt.
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $545,315 and the net unrealized appreciation of investments based
on that cost was $112,403 which is comprised of $161,863 aggregate gross
unrealized appreciation and $49,460 aggregate gross unrealized depreciation.
Investment Percentage by Country:
<TABLE>
<C> <S>
22.58% United Kingdom
11.85 France
6.80 Sweden
6.55 Spain
4.48 Netherlands
4.17 United States
4.14 Brazil
39.43 Other
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
10
<PAGE>
Growth Stock Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
Long-term appreciation of Hold a diversified mix of high quality growth $242,685,559
capital with moderate risk stocks of medium and large companies with
above-average potential for earnings growth.
</TABLE>
GROWTH STOCK PORTFOLIO
The Growth Stock Portfolio is invested in high quality companies of large to
medium capitalization with strong financial characteristics and the ability to
generate internal growth. A key factor in stock selection is the choice of
industries with good earnings potential, based on analysis of economic trends to
determine their impact on various sectors of the economy. Stock selection is
made through "top down" analysis: first industry and market sector choices are
made based on the economic environment, and then the most promising companies
within each sector are selected as holdings. A strategy of this portfolio is to
go beyond the most familiar "blue chip" names to seek out medium-sized companies
with stock prices that do not yet reflect their potential for growth.
Diversification across 70 to 90 stocks in a wide range of industry groups
reduces the portfolio's risk profile.
Throughout 1997 the Growth Stock Portfolio benefited from continued strength in
the stock market, achieving total return of almost 30% for the year. The
Portfolio slightly underperformed the S&P 500 Index for two major reasons. A
significant proportion of the total return from the S&P 500 Index came from a
few very large companies, most of which are also included in the Growth Stock
Portfolio. However, these companies' weights are less in the Portfolio than in
the Index, largely because approximately 20% of the Portfolio is invested in
mid-range capitalization stocks, which did not advance as strongly in 1997.
Additionally, as the market became more volatile late in the year, responding
sharply to any hint of negative news, the Portfolio was adjusted to a more
defensive posture, focused on high quality issues with below average market
sensitivity. Changes included decreased exposure to money center banks, which
are likely to be hurt by economic problems in Asia, and reduced positions in
economically sensitive areas such as consumer cyclicals and basic materials. A
drop in prices of previously high-flying technology stocks created a buying
opportunity late in the year. Positions were also increased in Consumer Staples
and Health Care, which have little sensitivity to broad economic trends or to
problems in international economies.
Sector Allocation
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Consumer Staples 17%
Basic Materials/Capital
Goods 14%
Finance 14%
Consumer Cyclicals 13%
Technology 12%
Energy 10%
Health Care 9%
Other Industries 7%
Cash Equivalents 4%
</TABLE>
Top 10 Holdings
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Electric Company 3.17%
Kohls Department Stores 2.04%
Fiserv 1.93%
Ecolab, Inc. 1.89%
Pfizer, Inc. 1.80%
Eli Lilly & Company 1.65%
Associates First Capital
Corporation 1.61%
Philip Morris Companies 1.60%
Procter & Gamble Company 1.59%
BankAmerica Corporation 1.59%
</TABLE>
Performance Relative
to S&P 500 Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Index 500
Portfolio S&P 500 Index
<S> <C> <C> <C>
12/31/87 $10,000 $10,000
12/31/88 $10,883 $11,660
12/31/89 $12,885 $15,356
12/31/90 $12,328 $14,880
12/31/91 $16,000 $19,419
12/31/92 $16,726 $20,894
12/31/93 $18,382 $23,005
12/31/94 $18,605 $23,281
12/31/95 $25,536 $31,988
12/31/96 $31,345 $39,281
12/31/97 $41,752 $52,362
AVERAGE ANNUAL TOTAL RETURN
For Periods Ended December 31, 1997
ONE YEAR FIVE YEARS TEN YEARS
Index 500 Portfolio 33.20% 20.08% 15.36%
S&P 500 Index 33.36% 20.18% 18.01%
</TABLE>
Note to chart: 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 two-thirds of the total
market value of all domestic common stocks.
This chart assumes an initial investment of $10,000 made on 5/3/94
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. The total returns shown on page 2 reflect the
deduction of charges for the separate account.
---
11
<PAGE>
Growth Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.98%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
BASIC MATERIALS (3.60%)
E.I. du Pont de Nemours & Co. 32,000 $ 1,922
Ecolab, Inc. 82,700 4,585
Monsanto Co. 53,000 2,226
-----------
TOTAL 8,733
-----------
CAPITAL GOODS (10.28%)
Allied Signal, Inc. 89,200 3,473
Avery Dennison Corporation 56,200 2,515
Boeing Company 56,400 2,760
Deere & Company 47,000 2,741
Emerson Electric Co. 37,400 2,111
General Electric Company 105,000 7,704
*Gulfstream Aerospace 60,000 1,755
Tyco International, Ltd. 42,000 1,893
-----------
TOTAL 24,952
-----------
COMMUNICATION SERVICES (2.25%)
MCI Communications Corporation 62,000 2,654
*Teleport Communications 10,700 587
*WorldCom, Inc. 73,200 2,214
-----------
TOTAL 5,455
-----------
CONSUMER CYCLICAL (12.97%)
*Barnes & Noble, Inc. 70,000 2,336
Borg Warner Automotive 48,200 2,506
*Federated Department Stores, Inc. 39,500 1,701
Ford Motor Company 41,100 2,001
Harley Davidson, Inc. 96,400 2,639
Home Depot, Inc. 47,550 2,800
*Kohls Department Stores 72,800 4,960
Mattel, Inc. 63,281 2,357
McGraw-Hill Companies, Inc. 26,200 1,939
New York Times Company 51,100 3,379
*Promus Hotels 6,612 278
Tribune Company 27,600 1,718
Wal-Mart Stores, Inc. 72,400 2,855
-----------
TOTAL 31,469
-----------
CONSUMER STAPLES (17.29%)
*Benckiser N V 77,300 3,179
Campbell Soup Company 52,000 3,023
Dial Corp. 131,000 2,727
Walt Disney Company 28,900 2,863
Gillette Company 19,500 1,959
Hershey Foods Corp. 57,000 3,530
McDonald's Corporation 24,400 1,165
Nabisco Holdings Corp. 39,700 1,923
Newell Co. 84,500 3,591
Pepsico, Inc. 90,000 3,279
Philip Morris Companies 85,500 3,874
Procter & Gamble Company 48,400 3,863
Unilever N.V. 50,400 3,147
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.98%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
CONSUMER STAPLES (CONTINUED)
Walgreen Company 122,200 $ 3,834
-----------
TOTAL 41,957
-----------
ENERGY (10.28%)
Amoco Company 30,200 2,571
British Petroleum Co. Ltd. 36,900 2,940
Diamond Offshore Drilling, Inc. 50,000 2,406
Exxon Corporation 26,400 1,615
*Falcon Drilling, Inc. 34,600 1,213
Mobil Corporation 38,000 2,743
Schlumberger Limited 44,000 3,542
Tosco Corporation 79,200 2,995
Transocean Offshore, Inc. 39,600 1,908
Unocal Corp. 48,600 1,886
*Western Atlas International, Inc. 15,300 1,132
-----------
TOTAL 24,951
-----------
FINANCE (13.52%)
Associates First Capital Corporation 55,000 3,912
Banc One Corporation 52,000 2,824
Bank New York, Inc. 23,200 1,341
BankAmerica Corporation 52,800 3,855
Chase Manhattan Corporation 23,040 2,523
Citicorp 25,000 3,161
First Union Corporation 55,000 2,819
Franklin Resources 39,400 3,425
Merrill Lynch & Co. 28,000 2,042
Morgan Stanley, Dean Witter, Discover
& Co. 64,900 3,837
Travelers Group, Inc. 57,000 3,071
-----------
TOTAL 32,810
-----------
HEALTHCARE (8.72%)
Bristol Myers Squibb Co. 37,700 3,567
Guidant Corp. 18,300 1,139
*Healthsouth Corp. 109,924 3,050
Johnson & Johnson 36,500 2,404
Eli Lilly & Company 57,400 3,996
Merck & Co., Inc. 24,800 2,635
Pfizer, Inc. 58,500 4,362
-----------
TOTAL 21,153
-----------
TECHNOLOGY (12.39%)
*Cisco Systems Incorporated 45,000 2,509
Compaq Computer Corp. 44,200 2,495
*DST Systems, Inc. 54,400 2,322
First Data Corporation 51,100 1,495
*Fiserv 95,100 4,672
W.W. Grainger, Inc. 14,700 1,429
Hewlett-Packard Company 36,800 2,300
Intel Corp. 30,000 2,108
International Business Machines 35,200 3,681
Lucent Technologies, Inc. 15,171 1,212
*Microsoft Corporation 29,400 3,800
</TABLE>
---
12
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.98%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Motorola , Inc. 26,800 $ 1,529
*Quantum Corp. 26,400 530
-----------
TOTAL 30,082
-----------
TRANSPORTATION (3.70%)
*AMR Corporation 19,400 2,493
Canadian National Railway Co. 70,500 3,331
*Midwest Express Holdings, Inc. 21,200 823
Southwest Airlines Co. 94,500 2,327
-----------
TOTAL 8,974
-----------
UTILITIES (0.98%)
Sonat, Inc. 52,000 2,379
-----------
TOTAL COMMON STOCK 232,915
-----------
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (4.02%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
GOVERNMENT (0.28%)
Federal Home Loan Mortgage Corp.,
5.61%, 02/13/98 $ 700,000 $ 695
-----------
PERSONAL CREDIT INSTITUTIONS (3.74%)
Associates Corp. of N A, 6.74%,
01/02/98 1,100,000 1,099
Commercial Credit Corp., 5.65%,
01/28/98 2,000,000 1,992
General Electric Capital, 5.88%,
01/21/98 3,000,000 2,990
General Motors Acceptance Corp.,
5.84%, 01/14/98 3,000,000 2,995
-----------
TOTAL 9,076
-----------
TOTAL MONEY MARKET INVESTMENTS 9,771
-----------
TOTAL GROWTH STOCK PORTFOLIO
(COST $170,190)^ $ 242,686
-----------
</TABLE>
*Non-Income Producing.
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $170,202 and the net unrealized appreciation of investments based
on that cost was $72,484 which is comprised of $74,074 aggregate gross
unrealized appreciation and $1,590 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
13
<PAGE>
Growth and Income Stock Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
Long-term growth of capital and Actively manage a portfolio of equity $370,013,960
income, consistent with securities with a goal of exceeding the total
moderate investment risk return of the S&P 500 Index.
</TABLE>
GROWTH AND INCOME STOCK PORTFOLIO
The Growth and Income Portfolio invests mainly in large-capitalization stocks,
with a focus on seeking the best values in the market based on long-term
earnings forecasts. A sector balance similar to that of the S&P 500 Index is
normally maintained, with the emphasis on undervalued stocks within each
industry group; a valuation discipline mandates the sale of stocks regarded as
overvalued. More focus is placed on capital appreciation and dividend growth
than on current dividends. The Portfolio is normally fully invested in equity
securities.
The Portfolio performed well throughout 1997, benefiting from strength in the
equity market as a whole and from favorable stock selection. The practice of
seeking undervalued names within each market segment proved particularly
successful in several instances. For example, during most of the year, the
decision was made not to hold Merck, a very high quality drug company whose
stock price had been bid up excessively in the market's apparent preference for
a few big names. Late in the year, the stock pulled back in response to new
competitive pressures for several of Merck's drugs. Further analysis, taking
into account a slower growth rate, revealed a buying opportunity; by year end,
Merck was a major holding with a significant gain. An especially fortunate
circumstance was the acquisition of MCI, a significant holding, by Worldcom at a
price that represented a substantial gain; the acquisition was scheduled to be
consummated early in 1998. During the fourth quarter, in the wake of the
economic crisis in Asia, several defensive moves were made including a move from
money center to regional banks and increased focus on domestic oil refiners,
particularly Tosco, in the energy sector.
The Growth and Income Stock Portfolio is managed for Northwestern Mutual by J.
P. Morgan Investment Management, Inc.
Sector Allocation
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Finance 15%
Basic Materials/Capital Goods 15%
Consumer Staples 13%
Health Care 11%
Technology 11%
Energy 10%
Consumer Cyclicals 9%
Other Industries 16%
</TABLE>
Top 10 Holdings
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Tosco Corporation 3.18%
Merck & Company, Inc. 2.80%
MCI Communications Corporation 2.69%
Warner-Lambert Company 2.58%
Anheuser Busch Companies, Inc. 2.34%
Tele Communications, Inc. 2.30%
Cooper Industries, Inc. 2.21%
United Healthcare Corp. 2.21%
Starwood Lodging Trust 2.19%
First Union Corporation 2.18%
</TABLE>
Performance Relative
to S&P 500 Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth & Income
Stock Portfolio S&P 500 Index
<S> <C> <C> <C>
5/3/94 $10,000 $10,000
12/31/94 $10,034 $10,320
12/31/95 $13,156 $14,180
12/31/96 $15,783 $17,413
12/31/97 $20,523 $23,211
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED
DECEMBER 31, 1997
ONE YEAR SINCE INCEPTION
Growth & Income Stock Portfolio 30.33% 21.69%
S&P 500 Index 33.36% 25.86%
</TABLE>
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 two-thirds of the total market
value of all domestic common stocks.
This chart assumes an initial investment of $10,000 made on 5/3/94
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. The total returns shown on page 2 reflect the
deduction of charges for the separate account.
---
14
<PAGE>
Growth and Income Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (98.52%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
BASIC MATERIALS (3.10%)
Albemarle Corporation 50,400 $ 1,203
Allegheny Teledyne, Inc. 62,000 1,604
Dow Chemical Company 34,700 3,522
Temple-Inland, Inc. 98,400 5,148
-----------
TOTAL 11,477
-----------
CAPITAL GOODS (11.47%)
AlliedSignal, Inc. 176,800 6,884
Boeing Company 31,100 1,522
*Coltec Industries, Inc. 159,100 3,689
Cooper Industries, Inc. 167,000 8,183
Emerson Electric Co. 67,800 3,826
Johnson Controls, Inc. 75,000 3,581
Tenneco, Inc. 114,100 4,507
Tyco International Ltd. 100,748 4,540
Waste Management, Inc. 207,800 5,715
-----------
TOTAL 42,447
-----------
COMMUNICATION SERVICES (6.48%)
GTE Corporation 148,800 7,775
MCI Communications Corporation 232,800 9,967
Sprint Corp. 106,300 6,232
-----------
TOTAL 23,974
-----------
CONSUMER CYCLICAL (9.22%)
Circuit City Stores-Circuit City
Group 82,200 2,923
*Federated Department Stores, Inc. 74,100 3,191
*Fruit Of The Loom, Incorporated 214,400 5,494
Goodyear Tire & Rubber Company 104,900 6,674
International Game Technology 139,000 3,510
*ITT Corp. 28,400 2,354
*Toys "R" Us, Inc. 190,400 5,986
*Westpoint Stevens, Inc. 84,200 3,978
-----------
TOTAL 34,110
-----------
CONSUMER STAPLES (13.01%)
Anheuser Busch Companies, Inc. 196,400 8,642
Pepsico, Inc. 114,500 4,172
Philip Morris Companies, Inc. 155,500 7,046
Procter & Gamble Company 99,500 7,941
Ralston Purina Group 56,800 5,279
*Tele Communications, Inc. 300,289 8,502
Time Warner, Inc. 34,100 2,114
*U S West Inc. 154,100 4,450
-----------
TOTAL 48,146
-----------
ENERGY (10.07%)
Atlantic Richfield Co. 42,400 3,397
British Petroleum Co. Ltd 395 31
Exxon Corporation 82,300 5,036
*Input/Output, Inc. 216,800 6,436
Mobil Corporation 96,400 6,959
Occidental Petroleum, Inc. 123,300 3,614
<CAPTION>
MARKET
VALUE
COMMON STOCK (98.52%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
ENERGY (CONTINUED)
Tosco Corporation 311,300 $ 11,771
-----------
TOTAL 37,244
-----------
FINANCE (14.75%)
Ambac, Inc. 41,600 1,914
American Express Corporation 40,600 3,624
Chase Manhattan Corporation 31,900 3,493
First Union Corporation 157,130 8,053
Fleet Financial Group Inc. 52,500 3,934
Marsh & McLennan Companies, Inc. 99,700 7,434
MBIA, Inc. 14,500 969
Morgan Stanley, Dean Witter, Discover
& Co. 74,400 4,399
Nationsbank Corp. 88,700 5,394
Providian Financial Corp. 99,300 4,487
Simon Debartolo Group, Inc. 123,200 4,027
Southtrust, Inc. 28,300 1,795
Washington Mutual, Inc. 79,300 5,060
-----------
TOTAL 54,583
-----------
HEALTHCARE (11.11%)
*Alza Corporation 84,100 2,675
*Crescendo Pharmaceuticals 4,605 53
*Humana, Inc. 128,600 2,669
Merck & Company, Inc. 97,400 10,349
Pfizer, Inc. 102,500 7,643
United Healthcare Corp. 164,500 8,174
Warner-Lambert Company 77,000 9,548
-----------
TOTAL 41,111
-----------
REAL ESTATE INVESTMENT TRUSTS (2.19%)
Starwood Lodging Trust 140,100 8,108
-----------
TECHNOLOGY (11.34%)
Autodesk, Inc. 75,700 2,801
*Bay Networks, Inc. 91,400 2,336
*Cisco Systems, Inc. 49,150 2,740
*EMC Corporation 274,400 7,529
First Data Corporation 212,600 6,219
International Business Machines
Corporation 71,800 7,508
*Learning, Inc. 2,000 32
Motorola, Inc. 44,600 2,545
Perkin Elmer Corporation 31,200 2,217
*Quantum Corporation 175,100 3,513
*Sun Microsystems, Inc. 113,200 4,514
-----------
TOTAL 41,954
-----------
TRANSPORTATION (2.60%)
*Consolidated Freightways Corp. 800 11
Union Pacific Corporation 108,400 6,768
*Wisconsin Central Transportation 121,000 2,828
-----------
TOTAL 9,607
-----------
</TABLE>
---
15
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (98.52%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
UTILITIES (3.18%)
Dominion Resources, Inc. 69,300 $ 2,950
Enron Corp. 116,000 4,821
New England Electric Systems 47,900 2,048
Northern States Power Company 33,400 1,945
-----------
TOTAL 11,764
-----------
TOTAL COMMON STOCK 364,525
-----------
<CAPTION>
MARKET
VALUE
MONEY MARKET INSTRUMENT (1.48%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
PERSONAL CREDIT INSTITUTIONS (1.48%)
Associates Corporation of N.A.,
6.74%, 1/2/98 1,500,000 $ 1,500
General Electric Capital Corp.,
5.649%, 1/28/98 1,000,000 996
General Motors Acceptance Corp.,
5.839%, 1/14/98 3,000,000 2,993
-----------
TOTAL 5,489
-----------
TOTAL MONEY MARKET
INSTRUMENTS 5,489
-----------
TOTAL GROWTH & INCOME
PORTFOLIO (COST $342,839)^ $ 370,014
-----------
</TABLE>
* Non-Income Producing.
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $343,055 and the net unrealized appreciation of investments based
on that cost was $26,959 which is comprised of $37,245 aggregate gross
unrealized appreciation and $10,286 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
16
<PAGE>
Index 500 Stock Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
Long-term capital appreciation Invest in a portfolio designed to approximate $1,152,781,092
through cost-effective the composition and returns of the S&P 500
participation in broad market Index.
performance
</TABLE>
INDEX 500 STOCK PORTFOLIO
The Index 500 Stock Portfolio is designed to achieve results that approximate
the performance of the Standard & Poor's 500 Composite Stock Price Index. This
composite of 500 stocks of large U.S.-based companies, compiled by Standard &
Poor's Corporation, is generally regarded as a good proxy for the overall U.S.
equity market; the Portfolio therefore enables contract owners to participate in
overall performance of the U.S. equity market. The Portfolio continues to
achieve the objective of matching the results of the S&P 500 before expenses.
Sector Allocation
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Finance 16%
Consumer Staples 15%
Basic Materials/Capital Goods 13%
Technology 12%
Health Care 11%
Consumer Cyclical 9%
Energy 8%
Other Industries 11%
S&P 500 Index Futures 5%
</TABLE>
Top 10 Holdings
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Company % of net assets
<S> <C>
General Electric Company 3.03%
The Coca-Cola Company 2.09%
Microsoft Corporation 1.96%
Exxon Corporation 1.91%
Merck & Co., Inc. 1.62%
Royal Dutch Petroleum Co., ADR 1.47%
Intel Corp. 1.45%
Philip Morris Companies, Inc. 1.39%
Procter & Gamble Company 1.36%
International Business Machines Corp. 1.30%
</TABLE>
Performance Relative
to S&P 500 Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Index 500 Portfolio S&P 500 Index
<S> <C> <C> <C>
12/31/87 $10,000 $10,000
12/31/88 $10,883 $11,660
12/31/89 $12,885 $15,356
12/31/90 $12,328 $14,880
12/31/91 $16,000 $19,419
12/31/92 $16,726 $20,894
12/31/93 $18,382 $23,005
12/31/94 $18,605 $23,281
12/31/95 $25,536 $31,988
12/31/96 $31,345 $39,281
12/31/97 $41,752 $52,362
Actively managed prior to 4/30/93
Indexed on 4/30/93
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1997
ONE YEAR FIVE YEARS TEN YEARS
Index 500 Portfolio 33.20% 20.08% 15.36%
S&P 500 Index 33.36% 20.18% 18.01%
</TABLE>
On April 30, 1993, the Portfolio was indexed to approximate the performance of
the Standard & Poor's 500 Composite Stock Price Index. Before that date, the
Portfolio was actively managed.
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 two-thirds of the total market
value of all domestic common stocks.
This chart assumes an initial investment of $10,000 made on 12/31/87.
Returns shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. The
total returns shown on page 2 reflect the deduction of charges for the separate
account.
---
17
<PAGE>
Index 500 Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
BASIC MATERIALS (4.37%)
Air Products & Chemicals, Inc. 16,000 $ 1,316
Alcan Aluminum Limited 33,100 914
Allegheny Teledyne Inc. 25,635 663
Aluminum Co. of America 25,300 1,780
Archer-Daniels-Midland Company 81,548 1,769
*Armco Inc. 15,600 77
ASARCO, Inc. 6,100 137
Barrick Gold Corporation 54,300 1,011
Battle Mountain Gold Company 33,500 197
Bemis Company, Inc. 7,700 339
*Bethlehem Steel Corporation 16,400 141
B. F. Goodrich Company 7,900 327
Boise Cascade Corporation 8,100 245
Champion International 14,000 634
Cyprus Amax Minerals Co. 13,650 210
Dow Chemical Company 33,200 3,370
E.I. du Pont de Nemours & Co. 164,700 9,892
Eastman Chemical Company 11,425 681
*Echo Bay Mines Limited Co. 20,300 49
Ecolab, Inc. 9,400 521
Engelhard Corp. 21,000 365
*FMC Corporation 5,400 363
Freeport-McMoRan Copper & Gold, Inc. 29,000 457
Georgia Pacific Corp. 13,300 808
*Georgia Pacific Corp. (Timber
Group) 12,900 293
Great Lakes Chemical 8,700 390
Hercules Incorporated 14,400 721
Homestake Mining Company 21,400 190
Inco Limited 24,300 413
Inland Steel Industries, Inc. 7,100 122
International Flavors & Fragrances,
Inc. 15,900 819
International Paper Company 44,000 1,898
Louisiana Pacific Corporation 15,900 302
Mead Corp. 15,200 426
Monsanto Company 85,800 3,604
Morton International, Inc. 19,400 667
Nalco Chemical Company 9,700 384
Newmont Mining Corporation 22,780 669
Nucor Corp. 12,800 618
Phelps Dodge Corporation 8,800 548
Pioneer Hi-Bred International 9,600 1,030
Placer Dome Incorporated 34,900 443
Potlatch Corporation 4,200 181
PPG Industries Inc. 26,100 1,491
Praxair 23,000 1,035
Reynolds Metals Company 10,700 642
Rohm & Haas Company 9,000 862
Sigma-Aldrich Corp. 14,600 580
*Stone Container Corporation 14,500 151
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
BASIC MATERIALS (CONTINUED)
Temple-Inland Inc. 8,300 $ 434
Union Camp Corporation 10,100 542
Union Carbide Corporation 18,100 777
USX-U.S. Steel Group, Inc. 12,500 391
W.R. Grace & Co. 10,600 853
Westvaco Corporation 14,850 467
Weyerhaeuser Company 29,000 1,423
Willamette Industries Inc. 16,200 521
Worthington Industries 14,050 232
-------------
TOTAL 50,385
-------------
CAPITAL GOODS (8.84%)
Aeroquip-Vickers Inc. 4,100 201
Allied Signal Inc. 82,400 3,208
AMP Incorporated 31,972 1,343
Avery Dennison Corporation 15,000 671
Ball Corporation 4,400 155
Boeing Company 145,776 7,134
Briggs & Stratton Corporation 3,700 180
Browning-Ferris Industries Inc. 28,800 1,066
Case Corporation 10,900 659
Caterpillar Inc. 54,800 2,661
Cincinnati Milacron Inc. 5,800 150
Cooper Industries, Inc. 17,800 872
Corning Inc. 33,600 1,247
Crane Co. 6,650 288
Crown Cork & Seal Company, Inc. 18,700 937
Cummins Engine Company, Inc. 5,600 331
Deere & Company 36,700 2,140
Dover Corporation 32,400 1,170
Eaton Corporation 11,300 1,009
Emerson Electric Co. 64,600 3,646
Fluor Corporation 12,200 456
Foster Wheeler Corporation 5,900 160
General Dynamics Corporation 9,100 787
General Electric Company 476,800 34,985
General Signal Corporation 7,300 308
Harnischfeger Industries, Inc. 7,200 254
Honeywell Inc. 18,600 1,274
Illinois Tool Works Inc. 36,300 2,183
Ingersoll-Rand Company 24,200 980
Johnson Controls Inc. 12,200 583
Lockheed Martin Corporation 28,254 2,783
McDermott International, Inc. 8,100 297
Millipore Corp. 6,300 214
Minnesota Mining & Manufacturing Co. 60,500 4,965
Moore Corporation Ltd. 12,910 195
NACCO Industries, Inc. 1,200 129
National Service Industries, Inc. 6,600 327
*Navistar International Corporation 10,600 263
Northrop Grumman Corporation 9,700 1,116
</TABLE>
---
18
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS (CONTINUED)
*Owens-Illinois, Inc. 20,400 $ 774
Paccar Incorporated 11,370 597
*Pall Corporation 18,500 383
Parker-Hannifin Corporation 16,275 747
Pitney Bowes Inc. 21,000 1,889
Raychem Corp. 12,700 547
Raytheon Company--Class A 6,549 323
Raytheon Company--Class B 34,400 1,737
Rockwell International Corporation 30,400 1,588
Tenneco Inc. 24,800 980
Textron Inc. 24,000 1,500
*Thermo Electron Corporation 21,900 975
Thomas & Betts Corporation 8,000 378
Timken Company 9,200 316
Tyco International Ltd. 77,600 3,497
United Technologies Corp. 34,300 2,497
Waste Management Inc. 66,000 1,815
-------------
TOTAL 101,870
-------------
COMMUNICATION SERVICES (6.61%)
*Airtouch Communications Inc. 73,400 3,051
ALLTEL Corporation 27,200 1,117
Ameritech Corporation 80,100 6,448
AT&T Corporation 236,600 14,492
Bell Atlantic Corporation 113,042 10,287
Bellsouth Corporation 144,400 8,132
Frontier Corporation 23,900 575
GTE Corporation 139,200 7,273
MCI Communications Corporation 100,800 4,316
SBC Communications Incorporated 133,049 9,746
Sprint Corporation 62,700 3,676
U S WEST Communications Group 69,800 3,150
*WorldCom Inc. 131,400 3,975
-------------
TOTAL 76,238
-------------
CONSUMER CYCLICAL (8.98%)
American Greetings Corp. 11,000 430
Armstrong World Industries Inc. 5,900 441
*Autozone, Inc. 22,000 638
Black & Decker Corporation 13,700 535
Brunswick Corporation 14,500 440
*Cendant Corporation 113,454 3,900
Centex Corporation 4,200 264
*Charming Shoppes Incorporated 15,400 72
Chrysler Corporation 98,200 3,455
Circuit City Stores, Inc. 14,300 509
Cognizant Corporation 23,900 1,065
Cooper Tire & Rubber Company 11,500 280
*Costco Companies, Inc. 30,907 1,379
Dana Corporation 15,200 722
Dayton Hudson Corporation 31,700 2,140
Dillard Department Stores, Inc. 16,300 575
Dow Jones & Company, Inc. 14,000 752
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
Dun & Bradstreet Corporation 24,800 $ 767
Echlin Inc. 9,200 333
*Federated Department Stores, Inc. 30,500 1,313
Fleetwood Enterprises, Inc. 5,200 221
Ford Motor Company 173,900 8,467
*Fruit of the Loom, Incorporated 10,700 274
Gannet Company Inc. 41,300 2,553
Gap, Inc. 58,500 2,073
General Motors Corp. 106,200 6,438
Genuine Parts Company 26,200 889
Giant Food Inc. 8,700 293
Goodyear Tire & Rubber Company 22,700 1,444
H & R Block, Inc. 15,200 681
Harcourt General 10,300 564
*Harrahs Entertainment 14,700 277
Hasbro Inc. 18,450 581
Hilton Hotels Corporation 36,400 1,083
Home Depot, Inc. 106,298 6,258
Interpublic Group of Cos. Inc. 18,100 902
*ITT Corp. 17,000 1,409
ITT Industries Inc. 17,200 540
J.C. Penney Company, Inc. 36,200 2,183
Jostens, Inc. 5,700 131
*K Mart Corporation 70,900 820
Kaufman & Broad Home Corp. 5,700 128
Knight-Ridder Inc. 12,700 660
Laidlaw Transportation Limited 47,900 653
The Limited Inc. 39,500 1,007
Liz Claiborne, Inc. 10,200 426
Lowe's Companies, Inc. 25,300 1,206
Marriott International 18,500 1,281
Masco Corporation 24,000 1,221
Mattel, Inc. 42,288 1,575
May Department Stores Company 33,900 1,786
Maytag Corporation 14,400 537
McGraw-Hill Companies Inc. 14,400 1,066
Mercantile Stores Company 5,400 329
Meredith Corporation 7,800 278
*Mirage Resorts, Incorporated 26,000 592
New York Times Company 14,000 926
Nike, Inc. 42,000 1,649
Nordstrom, Inc. 11,200 676
Owens Corning Fiberglass Corp. 7,800 266
Pep Boys - Manny, Moe & Jack 9,200 220
Pulte Corporation 3,100 130
*Reebok International Ltd. 8,200 236
Russell Corp. 5,300 141
Sears Roebuck & Co. 57,000 2,579
Service Corporation International 36,600 1,352
Sherwin-Williams Company 25,100 697
Snap-On Incorporated 8,950 390
Springs Industries, Inc. 2,900 151
</TABLE>
---
19
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICAL (CONTINUED)
Stanley Works 13,000 $ 613
Tandy Corporation 15,400 594
Times Mirror Company 13,900 855
TJX Companies, Inc. 23,800 818
*Toys R Us 41,500 1,305
Tribune Company 17,900 1,114
TRW, Inc. 17,900 955
VF Corporation 18,300 841
*Viacom Incorporated 51,356 2,128
Wal-Mart Stores Inc. 329,800 13,006
Whirlpool Corporation 10,900 600
*Woolworth Corp. 19,600 399
-------------
TOTAL 103,477
-------------
CONSUMER STAPLES (14.64%)
Adolph Coors Co. 5,400 180
Alberto-Culver Company 8,200 263
Albertson's, Inc. 35,800 1,696
American Stores Co. 39,700 816
Anheuser-Busch Companies, Inc. 71,600 3,150
Avon Products, Inc. 19,300 1,185
Campbell Soup Company 67,000 3,894
Cardinal Health Inc. 15,800 1,187
CBS Corporation 102,800 3,026
*Clear Channel Communications, Inc. 14,300 1,136
Clorox Company 15,100 1,194
The Coca-Cola Company 361,200 24,065
Colgate-Palmolive Co. 43,100 3,168
Comcast Corp. 50,850 1,605
Conagra Inc. 68,900 2,261
CPC International, Inc. 20,900 2,252
CVS Corporation 25,000 1,602
Darden Restaurant, Inc. 22,300 279
Deluxe Corp. 12,000 414
Fleming Companies, Inc. 5,500 74
Fort James Corporation 27,500 1,052
Fortune Brands, Inc. 25,000 927
General Mills, Inc. 23,300 1,669
Gillette Company 81,500 8,186
Great Atlantic & Pacific Tea Co.,
Inc. 5,600 166
H.J. Heinz Company 53,750 2,731
Hershey Foods Corp. 20,800 1,288
John H. Harland Company 4,500 95
Kellogg Company 60,100 2,982
Kimberly-Clark Corporation 81,044 3,996
*King World Productions, Inc. 5,400 312
*Kroger Company 37,000 1,367
Longs Drug Stores Corp. 5,700 183
McDonald's Corporation 100,200 4,785
Newell Company 23,200 986
Pepsico Inc. 222,900 8,122
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
CONSUMER STAPLES (CONTINUED)
Philip Morris Companies, Inc. 352,900 $ 15,991
Procter & Gamble Company 196,700 15,699
Quaker Oats Company 20,000 1,055
R.R. Donnelley & Sons Company 21,300 793
Ralston Purina Group 15,500 1,441
Rite Aid Corporation 17,900 1,051
Rubbermaid, Inc. 21,800 545
Safety-Kleen Corp. 8,500 233
Sara Lee Corporation 69,900 3,936
Seagram Company Ltd. 54,000 1,745
Supervalue Inc. 8,800 369
Sysco Corporation 25,400 1,157
*Tele Communications, Inc. 73,776 2,061
Time Warner Inc. 81,500 5,053
*Tricon Global Restaurants, Inc. 22,290 648
Tupperware 8,900 248
*U S West Media Group 88,300 2,550
Unilever, N.V. 93,200 5,819
UST Incorporated 26,800 990
Walgreen Company 71,700 2,250
Walt Disney Company 98,269 9,735
Wendy's International, Inc. 19,200 462
Whitman Corp. 14,800 386
Winn-Dixie Stores, Inc. 21,700 948
Wm. Wrigley Jr. Company 16,900 1,345
-------------
TOTAL 168,804
-------------
ENERGY (7.97%)
Amerada Hess Corporation 13,400 735
Amoco Company 71,500 6,086
Anadarko Petroleum Corporation 8,700 528
Apache Corporation 13,200 463
Ashland, Inc. 10,900 585
Atlantic Richfield Company 46,700 3,742
Baker Hughes Inc. 24,600 1,073
Burlington Resource Inc. 25,720 1,153
Chevron Corp. 95,300 7,338
Dresser Industries, Inc. 25,500 1,069
Exxon Corporation 360,300 22,046
Halliburton Company 36,900 1,916
Helmerich & Payne, Inc. 3,600 244
Kerr-McGee Corporation 6,900 437
Mobil Corporation 114,400 8,258
Occidental Petroleum Corporation 48,200 1,413
*ORYX Energy Company 15,400 393
Pennzoil Company 6,900 461
Phillips Petroleum Company 38,400 1,867
*Rowan Companies, Inc. 12,600 384
Royal Dutch Petroleum Co., ADR 312,300 16,923
Schlumberger Limited 72,100 5,804
Sun Company, Inc. 10,600 446
Texaco Inc. 76,900 4,181
</TABLE>
---
20
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
Union Pacific Resource Group 36,992 $ 897
Unocal Corp. 36,000 1,397
USX-Marathon Group 41,900 1,414
*Western Atlas International Inc. 7,900 585
-------------
TOTAL 91,838
-------------
FINANCE (16.37%)
Aetna, Inc. 21,863 1,543
Allstate Corporation 63,314 5,754
American Express Company 68,300 6,096
American General Corporation 36,125 1,953
American International Group, Inc. 102,125 11,106
Aon Corporation 24,400 1,430
Banc One Corporation 84,845 4,608
Bank of New York Company, Inc. 55,300 3,197
BankAmerica Corporation 101,700 7,424
BankBoston Corporation 21,200 1,991
Bankers Trust New York Corporation 14,500 1,630
Barnett Banks Inc. 29,000 2,084
BB&T Corporation 11,900 762
Beneficial Corporation 7,700 640
Charles Schwab Corporation 38,500 1,615
Chase Manhattan Corporation 61,656 6,751
The Chubb Corporation 25,100 1,898
CIGNA Corporation 10,800 1,869
Cincinnati Financial Corporation 4,000 563
Citicorp 66,700 8,433
Comerica, Inc. 15,400 1,390
Conseco Inc. 27,400 1,245
Corestates Financial Corp. 29,500 2,362
Countrywide Credit Industries, Inc. 15,600 669
Federal Home Loan Mortgage Corp. 101,200 4,244
Federal National Mortgage
Association 154,500 8,816
Fifth Third Bankcorp 22,450 1,835
First Chicago NBD Corporation 43,028 3,593
First Union Corporation 91,470 4,688
Fleet Financial Group Inc. 36,430 2,730
General Re Corporation 11,600 2,459
Golden West Financial Corporation 8,300 812
Green Tree Financial Corporation 19,800 519
H.F. Ahmanson & Company 14,200 951
Hartford Financial Services Group
Inc. 17,200 1,609
Household International Inc. 15,600 1,990
Huntington Bancshares, Inc. 27,800 1,001
J.P. Morgan & Company, Inc. 26,100 2,946
Jefferson-Pilot Corp. 10,300 802
KeyCorp 31,600 2,238
Lincoln National Corporation 14,800 1,156
Loews Corp. 16,700 1,772
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
FINANCE (CONTINUED)
Marsh & McLennan Companies Inc. 24,500 $ 1,827
MBIA Incorporated 13,000 869
MBNA Corp. 72,950 1,992
Mellon Bank Corporation 36,600 2,219
Merrill Lynch & Co. 48,300 3,523
MGIC Investment Corp. 16,600 1,104
Morgan Stanley, Dean Witter,
Discover & Co. 85,505 5,055
National City Corp. 31,300 2,058
NationsBank Corp. 103,656 6,304
Norwest Corporation 109,200 4,218
PNC Bank Corp. 44,700 2,551
Progressive Corporation 10,500 1,259
Providian Financial Corporation 13,700 619
Republic New York Corporation 8,000 914
SAFECO Inc. 20,300 990
St. Paul Companies, Inc. 12,200 1,001
State Street Corporation 23,400 1,362
SunAmerica, Inc. 28,400 1,214
Suntrust Banks Inc. 31,100 2,220
Synovus Financial Corp. 25,500 835
Torchmark Corporation 20,200 850
Transamerica Corporation 9,200 980
Travelers Group Inc. 166,641 8,978
UNUM Corporation 20,300 1,104
US Bancorp of Oregon 35,677 3,994
USF&G Corp. 16,200 357
Wachovia Corporation 29,700 2,409
Washington Mutual, Inc. 36,440 2,325
Wells Fargo & Company 12,833 4,356
-------------
TOTAL 188,661
-------------
HEALTHCARE (10.60%)
Abbott Laboratories Inc. 112,100 7,350
Allergan Incorporated 9,400 315
*Alza Corp. 12,400 394
American Home Products Corporation 94,500 7,229
*Amgen Inc. 38,600 2,089
Bausch & Lomb Inc. 8,100 321
Baxter International Inc. 40,700 2,053
Becton, Dickinson & Company 17,800 890
*Beverly Enterprises, Inc. 15,500 202
Biomet, Inc. 16,200 415
*Boston Scientific Corp. 28,300 1,298
Bristol-Myers Squibb Company 145,200 13,740
Brown-Forman Corporation 10,000 553
C.R. Bard, Inc. 8,400 263
Columbia/HCA Healthcare Corporation 95,200 2,820
Eli Lilly & Company 162,000 11,279
Guidant Corp. 21,600 1,345
</TABLE>
---
21
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
*Healthsouth Corporation 56,400 $ 1,565
*Humana, Inc. 23,800 494
Johnson & Johnson 193,800 12,767
Mallinckrodt, Inc. 10,700 407
Manor Care, Inc. 9,300 326
Medtronic, Inc. 68,100 3,562
Merck & Co., Inc. 175,900 18,689
Pfizer Inc. 188,200 14,033
Pharmacia & Upjohn Inc. 73,905 2,707
*Pharmerica, Inc. 7,054 73
Schering-Plough Corporation 106,700 6,629
*St. Jude Medical, Inc. 13,400 409
*Tenet Healthcare Corp. 44,100 1,461
United Healthcare Corp. 27,300 1,356
U.S. Surgical Corporation 10,700 314
Warner-Lambert Company 39,500 4,898
-------------
TOTAL 122,246
-------------
TECHNOLOGY (12.49%)
*3COM Corporation 50,200 1,754
Adobe Systems, Inc. 10,600 437
*Advanced Micro Devices, Inc. 20,500 368
*Andrew Corporation 13,137 315
*Apple Computer, Inc. 18,500 243
*Applied Materials Inc. 53,100 1,600
Autodesk, Inc. 7,000 259
Automatic Data Processing, Inc. 42,600 2,615
*Bay Networks 30,700 785
*Cabletron Systems Inc. 23,000 345
*Ceridian Corp. 11,100 509
*Cisco Systems Incorporated 146,150 8,148
Compaq Computer Corporation 110,140 6,216
Computer Associates International
Inc. 79,512 4,204
*Computer Sciences Corp. 11,200 935
*Data General Corporation 7,000 122
*Dell Computer Corp. 48,200 4,049
*Digital Equipment Corporation 22,300 825
*DSC Communications Corp. 17,100 410
Eastman Kodak Company 47,400 2,883
EG&G, Inc. 6,700 139
*EMC Corporation 71,900 1,973
Equifax, Inc. 22,000 780
First Data Corporation 64,600 1,890
Harris Corporation 11,600 532
HBO & Company 28,800 1,382
Hewlett-Packard Company 151,500 9,469
Ikon Office Solutions 19,300 543
Intel Corp. 237,800 16,705
International Business Machines
Corp. 143,000 14,952
*KLA-Tencor Corporation 12,200 471
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
TECHNOLOGY (CONTINUED)
*LSI Logic Corp. 20,700 $ 409
Lucent Technologies Inc. 93,440 7,464
*Micron Technology 30,700 798
*Microsoft Corporation 174,500 22,554
Motorola, Inc. 86,700 4,947
*National Semiconductor Corporation 23,500 610
*NextLevel Systems, Inc. 21,500 384
Northern Telecom Limited 38,200 3,400
*Novell, Inc. 50,800 381
*Oracle Corporation 142,700 3,184
*Parametric Technology Company 18,500 876
Perkin-Elmer Corporation 6,400 455
Polaroid Corporation 6,600 321
Scientific-Atlanta, Inc. 11,300 189
*Seagate Technology Inc. 35,600 685
Shared Medical Systems Corp. 3,600 238
*Silicon Graphics 25,800 321
*Sun Microsystems Inc. 53,700 2,141
Tektronix, Inc. 7,250 288
*Tellabs Inc. 26,400 1,396
Texas Instruments Incorporated 55,800 2,511
*Unisys Corporation 25,500 354
W.W. Grainger, Inc. 7,200 700
Xerox Corporation 47,300 3,491
-------------
TOTAL 143,955
-------------
TRANSPORTATION (1.22%)
*AMR Corporation 13,400 1,722
Burlington Northern Santa Fe 22,607 2,101
Caliber System, Inc. 5,700 278
CSX Corporation 31,700 1,712
Delta Air Lines Inc. 10,700 1,273
*Federal Express Corp. 16,700 1,020
Norfolk Southern Corporation 54,900 1,692
Ryder System, Inc. 11,300 370
Southwest Airlines Co. 31,900 786
Union Pacific Corporation 36,000 2,248
*USAir Group, Inc. 13,200 825
-------------
TOTAL 14,027
-------------
UTILITIES (3.25%)
American Electric Power Co. Inc. 27,600 1,425
Baltimore Gas & Electric Co. 21,500 732
Carolina Power & Light Company 22,000 934
Central & South West Corporation 30,900 836
Cinergy Corporation 22,917 878
Coastal Corp. 15,400 954
Columbia Gas System Inc. 8,100 636
Consolidated Edison Co. of New York 34,200 1,402
Consolidated Natural Gas Company 13,900 841
</TABLE>
---
22
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (95.34%) SHARES (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
Dominion Resources Inc. 27,100 $ 1,153
DTE Energy Company 21,100 732
Duke Energy Corp. 52,365 2,900
Eastern Enterprises 3,000 135
Edison International 57,800 1,571
Enron Corp 44,600 1,854
Entergy Corporation 35,100 1,051
Firstenergy Corporation 33,500 972
FPL Group, Inc. 26,500 1,568
GPU, Inc. 17,600 741
Houston Industries Incorporated 41,562 1,109
*Niagara Mohawk Power Corporation 21,000 221
Nicor Inc. 7,100 300
Northern States Power Company 10,700 623
ONEOK, Inc. 4,600 186
P P & L Resources, Inc. 24,000 575
Pacific Enterprises 12,100 455
PacifiCorp 43,100 1,177
PECO Energy Company 32,400 786
Peoples Energy Corporation 5,100 201
PG&E Corp. 63,900 1,945
Public Service Enterprise Group,
Inc. 33,800 1,071
Sonat Inc. 12,500 572
Southern Company 99,700 2,580
Texas Utilities Company 35,015 1,455
UNICOM Corp. 31,500 969
Union Electric Company 14,900 644
Williams Companies Inc. 46,200 1,301
-------------
TOTAL 37,485
-------------
TOTAL COMMON STOCK $ 1,098,986
-------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INSTRUMENT (4.66%) PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
GOVERNMENT (0.46%)
+FHLMC Discount Note, 5.61%,
2/13/98 $ 5,500,000 $ 5,463
------------
FINANCE (1.30%)
+Chrysler Financial Corporation,
5.74%, 1/23/98 15,000,000 14,948
------------
PERSONAL CREDIT INSTITUTIONS (2.90%)
+General Electric Capital Corp.,
5.88%, 1/21/98 20,000,000 19,935
+General Electric Capital Corp.,
5.65%, 1/28/98 10,300,000 10,256
+General Motors Acceptance Corp.,
5.84%, 1/14/98 3,200,000 3,193
------------
TOTAL 33,384
------------
TOTAL MONEY MARKET
INVESTMENTS 53,795
------------
TOTAL INDEX 500 STOCK
PORTFOLIO (COST $713,039)^ $ 1,152,781
------------
</TABLE>
ADR-American Depository Receipt
*Non-Income Producing.
+Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1997 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUER CONTRACTS DATE (000'S)
- - -------------------- ---------- ------------ -------------
<S> <C> <C> <C>
S&P 500 Stock Index 214 March 1998 669
</TABLE>
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $713,085 and the net unrealized appreciation of investments based
on that cost was $439,696 which is comprised of $449,824 aggregate gross
unrealized appreciation and $10,128 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
23
<PAGE>
Balanced Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
A high level of current income Achieve consistent returns and low volatility $2,774,618,510
and capital growth with a low by diversifying among assets
risk profile
</TABLE>
BALANCED PORTFOLIO
In order to capitalize on changing financial market and economic conditions, the
Balanced Portfolio's asset allocation is adjusted as appropriate among three
investment classes: stocks, bonds and money market instruments. The equity
portion of the Portfolio is indexed, meaning that the Portfolio is designed to
achieve results that approximate the performance of the Standard & Poor's 500
Composite Stock Price Index, which is generally regarded as a good proxy for the
overall U.S. equity market. The bond portion of the Portfolio is actively
managed, with investments in high quality bonds adjusted frequently as to
maturity, market sectors and duration. Liquidity is maintained by holding a
portion of the Portfolio in money market investments, which are high quality
short-term debt securities.
The Portfolio benefited from continued emphasis on equities during 1997, as the
stock market continued its climb. A portion of the equity position is held in
S&P 500 Index futures to provide flexibility to move in and out of markets
quickly. During the year the exposure to bonds was increased, in the belief that
inflation and interest rates would continue to moderate. As anticipated, bond
prices moved up, with particular strength in the latter part of the year. A
moderate cash position at year end will make it possible to increase investments
in equities or bonds, as market conditions indicate.
Percentage Holdings
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equities (including
futures) 57%
Bonds 34%
Short-Term Investments 9%
</TABLE>
Performance Relative
to Relevant Indices
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Balanced Portfolio Merrill Lynch Domestic Master Index S&P 500 Index ML 91-Day T-Bill
<S> <C> <C> <C> <C>
12/87 10,000 $10,000 $10,000 $10,000
12/88 10,808 $10,804 $11,660 $10,693
12/89 12,500 $12,336 $15,356 $11,654
12/90 12,691 $13,459 $14,880 $12,635
12/91 15,652 $15,593 $19,419 $13,442
12/92 16,531 $16,774 $20,894 $13,970
12/93 18,168 $18,456 $23,005 $14,415
12/94 18,198 $17,935 $23,281 $15,019
12/95 23,000 $21,256 $31,988 $15,925
12/96 26,094 $22,019 $39,281 $16,770
12/97 31,709 $24,146 $52,362 $17,663
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1997
ONE YEAR FIVE YEARS TEN YEARS
Balanced Portfolio 21.52% 13.91% 12.23%
S&P 500 Index 33.36% 20.18% 18.01%
MLDM Index 9.66% 7.56% 9.22%
ML 91-Day T-Bill 5.33% 4.80% 5.85%
</TABLE>
In the graph, the Portfolio is compared against three indices representing the
three major components of the Portfolio: equities, fixed income, and cash
equivalent investments.
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 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 two-thirds of the total market
value of all domestic common stocks.
This chart assumes an initial investment of $10,000 made on 12/31/87.
Returns shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. The
total returns shown on page 2 reflect the deduction of charges for the separate
account.
---
24
<PAGE>
Balanced Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
CORPORATE BONDS (9.52%)
AEROSPACE AND DEFENSE (0.27%)
Lockheed Corporation, 6.75%,
3/15/03 3,000,000 $ 3,055
Northrop Grumman Corporation,
7.75%, 3/1/16 4,000,000 4,385
------------
TOTAL 7,440
------------
AUTO-RELATED (0.16%)
Hertz Corp., 9.04%, 6/14/00 4,100,000 4,373
------------
BANK HOLDING COMPANIES (0.74%)
BT Institutional Capital Trust,
7.75%, 12/01/26 1,000,000 1,020
BT Preferred Capital Trust II,
7.875%, 2/25/27 6,000,000 6,228
First Union Institutional Capital
II, 7.85%, 1/1/27 3,750,000 3,950
J.P. Morgan Capital Trust, 7.54%,
01/15/27 1,315,000 1,363
Security Capital Industrial Trust,
7.3%, 5/15/01 8,000,000 8,007
------------
TOTAL 20,568
------------
CHEMICALS AND ALLIED PRODUCTS (0.46%)
Dow Cap B.V., 8.5%, 6/8/10 8,200,000 9,489
Nova Chemicals Ltd., 7.25%,
8/15/28 3,000,000 3,246
------------
TOTAL 12,735
------------
COMMUNICATIONS (0.75%)
Panamasat, 0%, 08/01/03 2,100,000 2,119
Tele Communications, Inc., 7.375%,
2/15/00 8,000,000 8,155
U.S. West Capital Funding Inc.,
7.9%, 2/1/27 4,000,000 4,335
WorldCom, Inc., 7.75%, 4/1/07 5,500,000 6,074
------------
TOTAL 20,683
------------
CONSTRUCTION MACHINERY (0.09%)
Bufete Industrial SA ADS, 11.375%,
7/15/99 (144a) 2,500,000 2,575
------------
DIVERSIFIED/CONGLOMERATE (0.15%)
Hutchison Whampoa Finance (C)
Limited, 6.988%, 08/01/37 (144A) 4,500,000 4,185
------------
DURABLE GOODS (0.23%)
Tata Engineering & Locomotive,
7.875%, 07/15/07 6,500,000 6,463
------------
ELECTRIC SERVICES (2.48%)
Columbia Gas System Inc., 7.32%,
11/28/10 7,571,000 7,864
Commonwealth Edison Co., 6.5%,
4/15/00 4,000,000 4,021
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
ELECTRIC SERVICES (CONTINUED)
Dayton Power & Light Company,
8.15%, 1/15/26 5,750,000 $ 6,368
Long Island Lighting Co., 8.625%,
4/15/04 2,700,000 2,726
Long Island Lighting Co., 9.625%,
7/1/24 1,500,000 1,544
Ohio Edison Company, 7.375%,
9/15/02 3,665,000 3,795
Pacific Gas & Electric Co., 7.25%,
3/1/26 9,050,000 9,413
PECO Energy Company, 7.75%, 3/1/23 8,850,000 9,225
Public Service Electric And Gas
Co., 6.875%, 1/1/03 9,000,000 9,235
Southern California Edison Co.,
7.25%, 3/1/26 10,000,000 10,334
Texas Utilities Electric Co.,
7.875%, 3/1/23 4,000,000 4,272
------------
TOTAL 68,797
------------
ENERGY (0.47%)
Barrett Resources Corporation,
7.55%, 2/01/07 5,000,000 5,186
Camuzzi Gas, 9.25%, 12/15/01 3,750,000 3,797
YPF Sociedad , 7.75%, 08/27/07 4,000,000 4,081
------------
TOTAL 13,064
------------
FINANCE (0.68%)
Associates Corp. of North America,
7.95%, 2/15/10 5,550,000 6,267
Crown Cork & Seal Finance Plc,
6.75%, 12/15/03 8,000,000 8,180
Industrial Credit & Investment
Corporation (144A), 7.55%,
08/15/07 5,000,000 4,450
------------
TOTAL 18,897
------------
FOOD AND BEVERAGE (0.40%)
Coca Cola Enterprises, Inc., 8%,
1/4/05 10,000,000 11,003
------------
GENERAL MERCHANDISE STORES (0.35%)
May Department Stores Company,
7.45%, 10/15/16 4,000,000 4,286
Polysindo International, 11.375%,
06/15/06 6,500,000 5,330
------------
TOTAL 9,616
------------
INSTRUMENTS AND RELATED PRODUCTS (0.06%)
Raytheon Company, 7.2%, 08/15/27 1,500,000 1,550
------------
MOTION PICTURE (1.01%)
News America Holdings Inc., 7.5%,
3/1/00 6,500,000 6,651
</TABLE>
---
25
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
MOTION PICTURE (CONTINUED)
News America Holdings Inc., 8.45%,
8/1/34 10,000,000 $ 12,120
Time Warner Entertainment Inc.,
7.25%, 9/1/08 4,000,000 4,157
Time Warner Entertainment Inc.,
8.375%, 3/15/23 3,000,000 3,422
Time Warner Entertainment Inc.,
8.375%, 7/15/33 1,500,000 1,717
------------
TOTAL 28,067
------------
MOTOR VEHICLES (0.47%)
General Motors Acceptance Corp.,
6.625%, 10/1/02 5,000,000 5,075
General Motors Corporation, 8.8%,
3/1/21 6,500,000 8,058
------------
TOTAL 13,133
------------
PAPER AND ALLIED PRODUCTS (0.12%)
Grupo Industrial Durango, 12.625%,
8/1/03 3,000,000 3,368
------------
TECHNOLOGY (0.11%)
International Business Machines,
6.22%, 08/01/27 3,000,000 3,051
------------
TOBACCO(0.38%)
Philip Morris Companies, 9.25%,
2/15/00 1,000,000 1,059
Philip Morris Companies, 7.25%,
1/15/03 5,000,000 5,161
RJR Nabisco Inc., 8.625%, 12/1/02 4,000,000 4,255
------------
TOTAL 10,475
------------
UTILITY (0.14%)
Atlantic City Electric Company,
6.625%, 8/1/13 4,000,000 3,974
------------
TOTAL CORPORATE BONDS 264,017
------------
GOVERNMENT AND AGENCY RELATED BONDS (15.96%)
FOREIGN GOVERNMENT BONDS (1.55%)
Bonos Del Tesoro, 8.75%, 05/09/02 1,000,000 948
Federal Home Loan Mortgage
Corporation, 7%, 06/15/03 7,250,000 7,403
Fidiecomisco Petacalco, 10.16%,
12/23/09 5,000,000 5,113
Ministry Finance Russia, 10%,
06/26/07 5,000,000 4,633
Peru Flirb Reduction Bond, 3.25%,
03/07/17 2,100,000 1,244
Poland, 12%, 10/12/01 23,000,000 4,857
Poland, 12%, 02/12/03 11,000,000 2,264
Poland, 14%, 02/12/00 9,500,000 2,286
Poland - Bear- PDI, 4%, 10/27/14 3,000,000 2,591
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
FOREIGN GOVERNMENT BONDS (CONTINUED)
Province of Quebec, 6.5%, 1/17/06 7,500,000 $ 7,534
Russian Interest Notes, 6.718%,
12/02/15 5,800,000 4,075
------------
TOTAL 42,948
------------
FEDERAL GOVERNMENT AND AGENCIES (14.41%)
Federal Home Loan Mortgage Corp.,
6.5%, 04/01/11 20,988,207 21,040
Federal Home Loan Mortgage Corp.,
7.5%, 10/01/26 32,418,032 33,212
Federal National Mortgage Assoc.,
6.24%, 02/01/06 4,960,703 4,936
Federal National Mortgage Assoc.,
6.315%, 03/01/06 5,235,418 5,232
Federal National Mortgage Assoc.,
6.5%, 09/25/05 6,342,982 6,402
Federal National Mortgage Assoc.,
6.75%, 12/25/23 6,500,000 6,508
Federal National Mortgage Assoc.,
6.75%, 11/01/07 3,122,685 3,206
Federal National Mortgage Assoc.,
6.834%, 07/01/03 3,250,147 3,330
Federal National Mortgage Assoc.,
6.895%, 05/01/06 6,113,540 6,334
Federal National Mortgage Assoc.,
6.9%, 04/01/06 2,464,064 2,553
Federal National Mortgage Assoc.,
6.96%, 10/01/07 4,493,767 4,678
Federal National Mortgage Assoc.,
7%, 4/1/26 25,426,394 25,662
Federal National Mortgage Assoc.,
7%, 6/1/03 6,054,193 6,141
Federal National Mortgage Assoc.,
7%, 6/25/10 8,070,000 8,224
Federal National Mortgage Assoc.,
7.025%, 09/01/05 1,961,198 2,035
Federal National Mortgage Assoc.,
7.045%, 08/01/05 7,746,629 8,037
Federal National Mortgage Assoc.,
7.12%, 11/01/03 991,264 1,031
Federal National Mortgage Assoc.,
7.23%, 01/25/22 8,000,000 8,324
Federal National Mortgage Assoc.,
7.25%, 05/01/04 1,581,604 1,659
Federal National Mortgage Assoc.,
8.4%, 05/01/04 10,910,000 12,028
Federal National Mortgage Assoc.,
11%, 09/01/17 2,631,261 2,987
Federal National Mortgage Assoc.,
11%, 12/01/12 320,460 359
</TABLE>
---
26
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Federal National Mortgage Assoc.,
11%, 12/01/17 427,702 $ 486
Federal National Mortgage Assoc.,
12%, 09/01/17 886,015 1,031
Federal National Mortgage Assoc.,
12%, 09/01/12 2,822,655 3,250
Federal National Mortgage Assoc.,
12%, 10/01/17 1,304,464 1,518
Federal National Mortgage Assoc.,
12%, 12/01/12 465,908 537
Federal National Mortgage Assoc.,
12%, 12/01/17 665,138 774
Federal National Mortgage Assoc.,
13%, 11/01/12 480,018 562
Federal National Mortgage Assoc.,
13%, 11/01/17 901,559 1,067
Federal National Mortgage Assoc.,
13%, 12/01/17 503,209 593
Federal National Mortgage Assoc.,
14%, 12/01/17 353,763 420
Government National Mortgage
Assoc., 7%, 10/15/23 502,565 509
Government National Mortgage
Assoc., 7%, 11/15/23 1,799,663 1,820
Government National Mortgage
Assoc., 7%, 5/15/23 13,915,346 14,069
Government National Mortgage
Assoc., 7%, 6/15/23 912,800 923
Government National Mortgage
Assoc., 7%, 7/15/23 1,373,633 1,389
Government National Mortgage
Assoc., 7%, 8/15/23 25,972 26
Government National Mortgage
Assoc., 7%, 9/15/23 693,574 701
Government National Mortgage
Assoc., 7.5%, 1/15/24 1,080,658 1,109
Government National Mortgage
Assoc., 7.5%, 11/15/24 890,253 914
Government National Mortgage
Assoc., 7.5%, 2/15/24 1,366,102 1,402
Government National Mortgage
Assoc., 7.5%, 3/15/24 1,348,240 1,384
Government National Mortgage
Assoc., 7.5%, 4/15/24 799,316 821
Government National Mortgage
Assoc., 7.5%, 5/15/24 3,099,297 3,182
Government National Mortgage
Assoc., 7.5%, 6/15/24 1,321,928 1,357
Government National Mortgage
Assoc., 7.5%, 8/15/24 3,545,164 3,640
Government National Mortgage
Assoc., 8.5%, 1/15/25 163,742 173
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Government National Mortgage
Assoc., 8.5%, 12/15/22 42,227 $ 48
Government National Mortgage
Assoc., 8.5%, 12/15/24 20,974 22
Government National Mortgage
Assoc., 8.5%, 11/15/25 20,178 22
Government National Mortgage
Assoc., 8.5%, 1/15/26 630,722 662
Government National Mortgage
Assoc., 8.5%, 10/15/22 234,286 249
Government National Mortgage
Assoc., 8.5%, 11/15/24 181,746 192
Government National Mortgage
Assoc., 8.5%, 2/15/25 162,822 173
Government National Mortgage
Assoc., 8.5%, 2/15/26 37,406 39
Government National Mortgage
Assoc., 8.5%, 3/15/26 33,693 34
Government National Mortgage
Assoc., 8.5%, 4/15/26 2,222,633 2,337
Government National Mortgage
Assoc., 8.5%, 5/15/22 7,200 8
Government National Mortgage
Assoc., 8.5%, 5/15/26 2,984,211 3,135
Government National Mortgage
Assoc., 8.5%, 6/15/24 19,823 21
Government National Mortgage
Assoc., 8.5%, 7/15/21 127,832 136
Government National Mortgage
Assoc., 8.5%, 7/15/24 304,738 322
Government National Mortgage
Assoc., 8.5%, 8/15/24 117,792 125
Government National Mortgage
Assoc., 8.5%, 9/15/21 143,829 153
Government National Mortgage
Assoc., 8.5%, 9/15/22 187,022 199
Government National Mortgage
Assoc., 8.5%, 9/15/24 239,149 253
U.S. Treasury, 7.25%, 08/15/04 6,000,000 6,486
U.S. Treasury, 6.375%, 5/15/99 45,600,000 46,013
U.S. Treasury, 6.375%, 8/15/27 8,500,000 8,962
U.S. Treasury, 6.625%, 2/15/27 23,000,000 24,962
U.S. Treasury, 6.625%, 5/15/07 45,000,000 47,644
U.S. Treasury, 6.75%, 8/15/26 24,850,000 27,358
U.S. Treasury, 6.125%, 8/15/07 3,500,000 3,597
U.S. Treasury, 6%, 7/31/02 9,000,000 9,096
------------
TOTAL 399,823
------------
TOTAL GOVERNMENT BONDS 442,771
------------
</TABLE>
---
27
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
MORTGAGE/ASSET BACKED SECURITIES (7.66%)
AUTO-RELATED (0.93%)
Eaglemark Trust, 6.75%, 11/15/02
(144a) 5,093,956 $ 5,136
Team Fleet Financing Corporation,
6.65%, 12/15/02 (144a) 11,800,000 11,945
Team Fleet Financing Corporation,
7.35%, 5/15/03 (144a) 3,000,000 3,118
CIT RV Trust, 6.25%, 1/15/11 3,009,955 3,016
Daimler-Benz Vehicle Trust, 5.85%,
7/20/03 2,554,960 2,552
------------
25,767
------------
CREDIT CARD (0.90%)
Charming Shoppes Master Trust, 7%,
4/15/03 5,000,000 5,056
Iroquis Trust, 6.68%, 11/10/03 15,000,000 15,028
Iroquis Trust, 6.752%, 06/25/07 4,750,000 4,766
------------
24,850
------------
MANUFACTURED HOUSING (0.09%)
Vanderbilt Mortgage and Finance,
Inc., 7.19%, 02/07/14 2,500,000 2,596
------------
COMMERCIAL MORTGAGES (5.03%)
Asset Securitization Corporation -
Class CS1, 1.257%, 11/13/26 IO 28,051,849 1,162
Asset Securitization Corporation -
Class PS1, 1.367%, 02/14/41 IO 22,708,826 2,466
BankBoston Marine Asset Backed
Trust - Class A6, 6.64%, 08/15/10 7,000,000 7,127
Chase Commercial Mortgage
Securities Corp. - Class B, 6.6%,
12/12/29 8,500,000 8,563
Chase Commercial Mortgage
Securities Corp. - Class A2,
6.6%, 12/12/29 2,500,000 2,500
Chase Commercial Mortgage
Securities Corp. - Class D,
7.37%, 6/19/29 2,000,000 2,053
Citibank Credit Card Master Trust
I - Class A, 0%, 08/15/06 17,000,000 11,219
Commercial Mortgage Acceptance
Corporation - Class B, 6.647%,
12/15/30 2,500,000 2,495
Credit Suisse First Boston
Mortgage Securities Corp. - Class
D, 9.5914%, 4/25/25 (144a) 2,047,000 2,368
Credit Suisse First Boston
Mortgage Securities Corp. - Class
B, 9.5914%, 4/25/25 (144a) 3,000,000 3,550
Credit Suisse First Boston
Mortgage Securities Corp. - Class
A2, 7.26%, 6/20/29 (144a) 3,224,865 3,340
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
COMMERCIAL MORTGAGES (CONTINUED)
Credit Suisse First Boston
Mortgage Securities Corp. - Class
B, 7.28%, 6/20/29 (144a) 3,250,000 $ 3,304
Credit Suisse First Boston
Mortgage Securities Corp. - Class
D, 7.46%, 6/20/29 (144a) 6,000,000 6,015
DLJ Mortgage Acceptance
Corporation - Class A1B, 7.29%,
11/12/21 5,500,000 5,760
First Union-Lehman Brothers
Commercial Mortgage Trust - Class
C2, 7.02%, 11/18/29 10,500,000 10,591
First Union-Lehman Brothers
Commercial Mortgage Trust - Class
C1, 7.44%, 4/18/29 2,500,000 2,657
First Union-Lehman Brothers
Commercial Mortgage Trust - Class
IO, 1.307%, 4/18/29 IO 37,374,508 2,920
Fleetwood Credit Corporation
Grantor Trust - Class A, 6.4%,
05/15/13 3,305,852 3,330
GMAC Commercial Mortgage
Securities, Inc. - Class C,
7.81%, 10/15/11 (144a) 7,000,000 7,346
Kmart CMBS Financing, Inc. - Class
D, 6.725%, 03/01/07 (144a) 4,500,000 4,500
Kmart CMBS Financing, Inc. - Class
C, 6.325%, 03/01/07 (144a) 3,500,000 3,491
LB Commercial Conduit Mortgage
Trust, 1.248%, 10/25/26 IO 127,014,625 8,108
LB Commercial Conduit Mortgage
Trust - Class A3, 8.396%,
01/20/17 8,575,201 9,809
Merrill Lynch Mortgage Investors,
Inc. - Class C, 7.12%, 06/18/29 6,000,000 6,198
Merrill Lynch Mortgage Investors,
Inc. - Class E, 8.097%, 06/25/22 2,000,000 2,110
Merrill Lynch Mortgage Investors,
Inc. - Class C, 8.879%, 11/25/20 5,845,000 6,023
Midland Realty Acceptance Corp. -
Class AEC, 1.389%, 1/25/29 (144a)
IO 29,304,058 2,289
NationsBank Lease Pass Thru Trust
- Class 1, 7.442%, 1/10/11 (144a) 2,000,000 2,089
Nations Credit Grantor Trust -
Class A1, 6.35%, 12/15/04 2,859,385 2,865
Red Mountain Funding LLC - Class
E, 7.365%, 01/15/19 1,500,000 1,533
</TABLE>
---
28
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
BONDS (33.39%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGES (CONTINUED)
Red Mountain Funding LLC - Class
F, 7.471%, 01/15/19 1,800,000 $ 1,771
------------
139,552
------------
OTHER ASSET BACKED (0.28%)
Greentree Recreation & Consumer
Trust, 6.49%, 05/15/00 3,733,988 3,750
Newcourt Equipment, 6.764%,
09/20/04 2,238,561 2,248
Newcourt Equipment, 7.734%,
09/20/04 1,790,849 1,798
------------
7,796
------------
RESIDENTIAL MORTGAGES(0.43%)
BCF L L C Mortgage Pass Thru
Certificate, 7.75%, 3/25/37
(144a) 4,946,885 4,993
Rural Housing Trust, 6.33%, 4/1/26 7,054,500 6,993
------------
11,986
------------
TOTAL MORTGAGE/ASSET BACKED
SECURITIES 212,547
------------
MUNICIPAL BONDS(0.25%)
New Jersey Economic Development
Authority, 0.00%, 2/15/25 17,000,000 2,853
New Jersey Economic Development
Authority, 0.00%, 2/15/26 11,000,000 1,724
New Jersey Economic Development
Authority, 7.425%, 2/15/29 2,250,000 2,465
------------
TOTAL MUNICIPAL BONDS 7,042
------------
TOTAL BONDS 926,377
------------
<CAPTION>
COMMON STOCK (55.04%)
<S> <C> <C>
- - -------------------------------------------------------------
BASIC MATERIALS (2.52%)
Air Products & Chemicals, Inc. 22,200 $ 1,826
Alcan Aluminum Limited 45,900 1,268
Allegheny Teledyne, Inc 35,562 920
Aluminum Co. of America 35,200 2,477
Archer Daniels Midland Company 113,273 2,456
*Armco, Inc. 21,700 107
ASARCO, Inc. 8,500 191
B.F. Goodrich Company 10,900 452
Barrick Gold Corporation 75,400 1,404
Battle Mountain Gold Company 46,500 273
Bemis Company, Inc. 10,700 471
*Bethlehem Steel Corporation 22,800 196
Boise Cascade Corporation 11,300 342
Champion International 19,400 879
Cyprus Minerals Co. 18,900 291
Dow Chemical Company 46,100 4,679
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
BASIC MATERIALS (CONTINUED)
E.I. du Pont de Nemours & Co. 228,800 $ 13,742
Eastman Chemical Company 15,875 945
*Echo Bay Mines Limited Co. 28,200 69
Ecolab, Inc. 13,100 726
Engelhard Corp. 29,200 507
*FMC Corporation 7,500 505
Freeport-McMoRan Copper & Gold,
Inc. 40,200 633
*Georgia Pac Corp.(Timber Group) 18,600 422
Georgia Pacific Corp. 18,500 1,124
Great Lakes Chemical 12,100 543
Hercules, Inc. 20,000 1,001
Homestake Mining Company 29,700 264
Inco Limited 33,800 575
Inland Steel Industries, Inc. 9,900 170
International Flavors &
Fragrances, Inc. 22,100 1,138
International Paper Company 61,200 2,639
Louisiana Pacific Corporation 22,100 420
Mead Corp. 21,200 594
Monsanto Company 119,300 5,011
Morton International, Inc. 26,900 925
Nalco Chemical Company 13,500 534
Newmont Mining Corporation 31,630 929
Nucor Corp. 17,800 860
Phelps Dodge Corporation 12,200 759
Pioneer Hi-Bred International 13,300 1,426
Placer Dome, Inc. 48,500 615
Potlatch Corporation 5,800 249
PPG Industries, Inc. 36,300 2,074
Praxair 32,000 1,440
Reynolds Metals Company 14,900 894
Rohm & Haas Company 12,500 1,197
Sigma-Aldrich Corp. 20,300 807
*Stone Container Corporation 20,100 210
Temple-Inland Inc. 11,500 602
Union Camp Corporation 14,000 752
Union Carbide Corporation 25,100 1,078
USX-US Steel, Inc. 17,300 541
W.R. Grace & Co. 14,700 1,182
Westvaco Corporation 20,650 649
Weyerhaeuser Company 40,300 1,977
Willamette Industries, Inc. 22,500 724
Worthington Industries 19,600 323
------------
TOTAL 70,007
------------
CAPITAL GOODS (5.10%)
Aeroquip-Vickers, Inc. 5,700 280
AlliedSignal, Inc. 114,500 4,458
AMP, Inc. 44,436 1,866
Avery Dennison Corp. 20,900 935
Ball Corporation 6,100 215
</TABLE>
---
29
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS (CONTINUED)
Boeing Company 202,618 $ 9,916
Briggs & Stratton Corporation 5,100 248
Browning-Ferris Industries, Inc. 40,000 1,480
Case Corporation 15,100 913
Caterpillar, Inc. 76,200 3,700
Cincinnati Milacron, Inc. 8,100 210
Cooper Industries, Inc. 24,700 1,210
Corning, Inc. 46,700 1,734
Crane Co. 9,250 401
Crown Cork & Seal, Inc. 26,000 1,303
Cummins Engine Company, Inc. 7,700 455
Deere & Company 51,000 2,974
Dover Corporation 45,000 1,626
Eaton Corporation 15,600 1,392
Emerson Electric Company 89,700 5,062
Fluor Corporation 17,000 635
Foster Wheeler Corporation 8,200 222
General Dynamics Corporation 12,600 1,089
General Electric Company 662,400 48,604
General Signal Corporation 10,200 430
Harnischfeger Industries, Inc. 10,000 353
Honeywell, Inc. 25,800 1,767
Illinois Tool Works, Inc. 50,500 3,036
Ingersoll-Rand Company 33,550 1,359
Johnson Controls, Inc. 16,900 807
Lockheed Martin Corporation 39,261 3,867
McDermott International, Inc. 11,200 410
Millipore Corp. 8,800 299
Minnesota Mining & Manufacturing
Co. 84,100 6,901
Moore Corporation Ltd. 17,873 270
NACCO Industries, Inc. 1,600 172
National Service Industries, Inc. 9,100 451
*Navistar International Corp. 14,770 366
Northrop Grumman Corporation 13,500 1,553
*Owens-Illinois, Inc. 28,400 1,077
PACCAR, Inc. 15,790 829
Pall Corporation 25,766 533
Parker-Hannifin Corporation 22,600 1,037
Pitney Bowes, Inc. 29,200 2,626
Raychem Corp. 17,700 762
Raytheon Company-Class A 9,437 465
Raytheon Company-Class B 47,800 2,414
Rockwell International Corporation 42,200 2,205
Tenneco, Inc. 34,400 1,359
Textron, Inc. 33,400 2,088
*Thermo Electron Corporation 30,400 1,353
Thomas & Betts Corporation 11,100 524
Timken Company 12,700 437
Tyco International Ltd. 107,800 4,858
United Technologies Corp. 47,600 3,466
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
CAPITAL GOODS (CONTINUED)
Waste Management, Inc. 91,700 $ 2,522
------------
TOTAL 141,524
------------
COMMUNICATION SERVICES (3.82%)
*Airtouch Communications, Inc. 101,900 4,235
ALLTEL Corporation 37,800 1,552
Ameritech Corporation 111,300 8,960
AT&T Corporation 328,700 20,133
Bell Atlantic Corporation 157,090 14,295
Bellsouth Corporation 200,600 11,296
Frontier Corporation 33,200 799
GTE Corporation 193,500 10,110
MCI Communications Corporation 140,000 5,994
SBC Communications, Inc. 184,887 13,543
Sprint Corporation 87,100 5,106
U S WEST Communications Group 97,000 4,377
*WorldCom, Inc. 182,500 5,521
------------
TOTAL 105,921
------------
CONSUMER CYCLICAL (5.19%)
American Greetings Corp. 15,200 595
Armstrong World Industries, Inc. 8,200 613
*AutoZone, Inc. 30,600 887
Black & Decker Corporation 19,100 746
Brunswick Corporation 20,100 609
*Cendant Corporation 160,254 5,509
Centex Corporation 5,900 371
*Charming Shoppes, Inc. 21,400 100
Chrysler Corporation 136,500 4,803
Circuit City Stores, Inc. 19,900 708
Cognizant Corp. 33,200 1,479
Cooper Tire & Rubber Company 15,900 388
*Costco Companies, Inc. 42,951 1,917
Dana Corporation 21,100 1,002
Dayton Hudson Corporation 44,000 2,970
Dillard's, Inc. 22,600 797
Dow Jones & Company, Inc. 19,400 1,042
Dun & Bradstreet Corporation 34,500 1,067
Echlin, Inc. 12,800 463
*Federated Department Stores, Inc. 42,300 1,822
Fleetwood Enterprises, Inc. 7,300 310
Ford Motor Company 241,700 11,768
*Fruit of the Loom, Inc. 14,800 379
Gannett Company, Inc. 57,300 3,542
General Motors Corp. 147,500 8,942
Genuine Parts Company 36,475 1,238
Giant Food, Inc. 12,100 408
Goodyear Tire & Rubber Company 31,600 2,011
H & R Block, Inc. 21,100 946
Harcourt General 14,300 783
</TABLE>
---
30
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICAL (CONTINUED)
*Harrahs Entertainment 20,400 $ 385
Hasbro, Inc. 25,650 808
Hilton Hotels Corporation 50,600 1,505
Home Depot, Inc. 147,699 8,696
Interpublic Group of Cos., Inc. 25,200 1,255
*ITT Corp. 23,600 1,956
ITT Industries, Inc. 24,000 753
J.C. Penney Company, Inc. 50,400 3,040
Jostens, Inc. 7,900 182
*K Mart Corporation 98,500 1,139
Kaufman & Broad Home Corp. 7,900 177
Knight-Ridder, Inc. 17,700 920
Laidlaw Transportation Limited 66,500 906
Liz Claiborne, Inc. 14,200 594
Lowe's Companies, Inc. 35,200 1,679
Marriott International 25,700 1,780
Masco Corporation 33,400 1,699
Mattel, Inc. 58,760 2,189
May Department Stores Company 47,100 2,482
Maytag Corporation 19,900 743
McGraw-Hill Companies, Inc. 20,000 1,480
Mercantile Stores Company 7,400 450
Meredith Corporation 10,800 385
*Mirage Resorts, Inc. 36,200 824
New York Times Company 19,400 1,283
Nike, Inc. 58,400 2,292
Nordstrom, Inc. 15,600 942
Owens Corning Fiberglass Corp. 10,800 369
Pep Boys - Manny, Moe & Jack 12,800 306
Pulte Corporation 4,300 180
*Reebok International Ltd. 11,400 328
Russell Corp. 7,400 197
Sears Roebuck & Co. 79,200 3,584
Service Corporation International 50,900 1,880
Sherwin-Williams Company 34,900 968
Snap-On, Inc. 12,350 539
Springs Industries, Inc. 4,100 213
Tandy Corporation 21,400 825
The Gap, Inc. 81,300 2,881
The Limited, Inc. 54,900 1,400
The Stanley Works 18,000 849
Times Mirror Company 19,400 1,193
TJX Companies, Inc. 33,000 1,134
*Toys R Us, Inc. 57,700 1,814
Tribune Company 24,800 1,544
TRW, Inc. 24,900 1,329
VF Corporation 25,400 1,166
Viacom Incorporated 71,356 2,956
Wal-Mart Stores, Inc. 458,200 18,070
Whirlpool Corporation 15,100 830
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
*Woolworth Corp. 27,300 $ 556
------------
TOTAL 143,870
------------
CONSUMER STAPLES (8.45%)
Adolph Coors Co. 7,500 249
Alberto-Culver Company 11,400 366
Albertson's, Inc. 49,700 2,355
American Stores Co. 55,100 1,133
Anheuser-Busch Companies, Inc. 99,500 4,378
Avon Products, Inc. 26,800 1,645
Campbell Soup Company 93,100 5,411
Cardinal Health, Inc. 22,000 1,653
CBS Corp. 142,800 4,204
*Clear Channel Communications,
Inc. 19,800 1,573
Clorox Company 20,900 1,652
Colgate-Palmolive Co. 59,900 4,403
Comcast Corp. 70,550 2,227
Conagra, Inc. 95,700 3,140
CPC International Corp. 29,100 3,136
CVS Corporation 34,800 2,229
Darden Restaurant, Inc. 31,000 388
Deluxe Corp. 16,700 576
Fleming Companies, Inc. 7,600 102
Fort James Corporation 38,200 1,461
Fortune Brands, Inc. 34,700 1,286
General Mills, Inc. 32,400 2,321
Gillette Company 113,300 11,380
Great Atlantic & Pacific Tea Co.,
Inc. 7,700 229
H.J. Heinz Company 74,750 3,798
Hershey Foods Corp. 28,900 1,790
John H. Harland Company 6,300 132
Kellogg Company 83,500 4,144
Kimberly-Clark Corporation 112,632 5,554
*King World Productions, Inc. 7,400 427
Longs Drug Stores Corp. 7,900 254
McDonald's Corporation 139,200 6,647
Newell Co. 32,200 1,369
PepsiCo, Inc. 309,700 11,285
Philip Morris Companies, Inc. 490,200 22,212
Procter & Gamble Company 273,300 21,813
Quaker Oats Company 27,800 1,466
R.R. Donnelley & Sons Company 29,600 1,103
Ralston Purina Group 21,600 2,007
Rite Aid Corporation 24,900 1,461
Rubbermaid, Inc. 30,300 758
Safety-Kleen Corp. 11,800 324
Sara Lee Corporation 97,200 5,474
Seagram Company Ltd. 75,000 2,423
Supervalue, Inc. 12,300 515
Sysco Corporation 35,300 1,608
</TABLE>
---
31
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (CONTINUED)
*Tele Communications, Inc. 102,414 $ 2,861
The Coca Cola Company 501,800 33,432
*The Kroger Company 51,500 1,902
Time Warner, Inc. 113,300 7,025
*Tricon Global Restaurants 30,990 901
Tupperware 12,400 345
*U S West Media Group 122,700 3,543
Unilever N.V. 129,500 8,085
UST, Inc. 37,200 1,374
Walgreen Company 99,600 3,125
Walt Disney Company 136,636 13,536
Wendy's International, Inc. 26,600 640
Whitman Corp. 20,500 534
Winn-Dixie Stores, Inc. 30,100 1,315
Wm. Wrigley Jr. Company 23,500 1,869
------------
TOTAL 234,548
------------
ENERGY (4.60%)
Amerada Hess Corporation 18,600 1,021
Amoco Company 99,300 8,453
Anadarko Petroleum Corporation 12,100 734
Apache Corporation 18,300 642
Ashland, Inc. 15,100 811
Atlantic Richfield Company 64,900 5,200
Baker Hughes, Inc. 34,100 1,488
Burlington Resource, Inc. 35,675 1,599
Chevron Corp. 132,500 10,203
Dresser Industries, Inc. 35,400 1,485
Exxon Corporation 500,600 30,630
Halliburton Company 51,300 2,664
Helmerich & Payne, Inc. 5,100 346
Kerr-McGee Corporation 9,600 608
Mobil Corporation 159,000 11,478
Occidental Petroleum Corporation 67,000 1,964
*ORYX Energy Company 21,300 543
Pennzoil Company 9,500 635
Phillips Petroleum Company 53,300 2,592
*Rowan Companies, Inc. 17,500 534
Royal Dutch Petroleum Co., ADR 433,800 23,507
Schlumberger Limited 100,200 8,066
Sun Company, Inc. 14,700 618
Texaco, Inc. 106,900 5,812
Union Pacific Resource Group 51,358 1,245
Unocal Corp. 50,000 1,940
USX-Marathon Group 58,300 1,967
*Western Atlas International, Inc. 10,900 806
------------
TOTAL 127,591
------------
FINANCE (9.45%)
Aetna, Inc. 30,293 2,138
Allstate Corporation 88,047 8,001
American Express Company 94,900 8,470
American General Corporation 50,203 2,714
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
FINANCE (CONTINUED)
American International Group, Inc. 141,875 $ 15,429
Aon Corporation 33,850 1,984
Banc One Corporation 117,910 6,404
Bank of New York Company, Inc. 76,800 4,440
BankAmerica Corporation 141,300 10,315
BankBoston Corporation 29,500 2,771
Bankers Trust New York Corporation 20,100 2,260
Barnett Banks, Inc. 40,200 2,889
BB&T Corporation 15,700 1,006
Beneficial Corporation 10,800 898
Charles Schwab Corporation 53,550 2,246
Chase Manhattan Corporation 85,724 9,387
CIGNA Corporation 15,000 2,596
Cincinnati Financial Corp. 6,100 859
Citicorp 92,700 11,721
Comerica, Inc. 21,300 1,922
Conseco, Inc. 38,000 1,727
Corestates Financial Corp. 41,000 3,283
Countrywide Credit Industries,
Inc. 21,700 930
Fannie Mae 214,700 12,251
Federal Home Loan Mortgage Corp. 140,600 5,896
Fifth Third Bancorp 31,150 2,547
First Chicago NBD Corporation 59,805 4,994
First Union Corporation 127,010 6,509
Fleet Finl Group, Inc. 50,619 3,793
General Re Corporation 16,100 3,413
Golden West Financial Corporation 11,500 1,125
Green Tree Financial Corporation 27,500 720
H.F. Ahmanson & Company 19,700 1,319
Hartford Financial Services Group,
Inc. 23,900 2,236
Household International, Inc. 21,600 2,755
Huntington Bancshares, Inc. 38,700 1,393
J.P. Morgan & Company, Inc. 36,200 4,086
Jefferson-Pilot Corp. 14,350 1,118
KeyCorp 43,900 3,109
Lincoln National Corporation 20,600 1,609
Loews Corp. 23,300 2,473
Marsh & McLennan Companies, Inc. 34,100 2,543
MBIA, Inc. 18,100 1,209
MBNA Corp. 101,355 2,768
Mellon Bank Corporation 50,900 3,086
Merrill Lynch & Co. 67,000 4,887
MGIC Investment Corp. 23,100 1,536
Morgan Stanley, Dean Witter,
Discover & Co. 118,780 7,023
</TABLE>
---
32
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
National City Corp. 43,500 $ 2,860
NationsBank Corp. 144,022 8,758
Norwest Corporation 151,700 5,859
PNC Bank Corp. 62,100 3,544
Progressive Corporation 14,600 1,750
Providian Financial Corporation 19,000 859
Republic New York Corporation 11,100 1,267
SAFECO Corp. 28,200 1,375
St. Paul Companies, Inc. 17,000 1,395
State Street Corporation 32,500 1,891
SunAmerica, Inc. 39,500 1,689
SunTrust Banks, Inc. 43,300 3,091
Synovus Financial Corporation 35,400 1,159
The Chubb Corporation 34,900 2,639
Torchmark Corporation 28,000 1,178
Transamerica Corporation 12,800 1,363
Travelers Group, Inc. 231,438 12,469
U.S. Bancorp 49,529 5,544
UNUM Corporation 28,200 1,533
USF&G Corp. 22,400 494
Wachovia Corporation 41,300 3,350
Washington Mutual, Inc. 50,680 3,234
Wells Fargo & Company 17,766 6,030
------------
TOTAL 262,119
------------
HEALTHCARE (6.12%)
Abbott Laboratories 155,700 10,208
Allergan, Inc. 13,100 440
*ALZA Corporation 17,200 547
American Home Products Corporation 131,200 10,037
*Amgen, Inc. 53,600 2,901
Bausch & Lomb, Inc. 11,200 444
Baxter International, Inc. 56,500 2,850
Becton, Dickinson & Company 24,700 1,235
*Beverly Enterprises, Inc. 22,400 291
Biomet, Inc. 22,500 577
*Boston Scientific Corp. 39,300 1,803
Bristol-Meyers Squibb Company 201,700 19,086
Brown-Forman Corp. 14,000 774
C.R. Bard, Inc. 11,600 363
Columbia/HCA Healthcare
Corporation 132,350 3,921
Eli Lilly and Company 225,100 15,673
Guidant Corp. 30,000 1,868
*HEALTHSOUTH Corporation 78,400 2,176
*Humana, Inc. 33,100 687
Johnson & Johnson 269,200 17,734
Mallinckrodt, Inc. 14,800 562
Manor Care, Inc. 12,900 452
Medtronic, Inc. 94,600 4,949
Merck & Co., Inc. 244,400 25,967
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
HEALTHCARE (CONTINUED)
Pfizer, Inc. 261,500 $ 19,498
Pharmacia & Upjohn, Inc. 102,730 3,762
*Pharmerica, Inc. 10,194 105
Schering-Plough Corporation 148,200 9,207
*St. Jude Medical, Inc. 18,550 566
*Tenet Healthcare Corp. 61,300 2,031
U.S. Surgical Corporation 14,800 433
United Healthcare Corp. 37,900 1,883
Warner-Lambert Company 54,900 6,808
------------
TOTAL 169,838
------------
TECHNOLOGY (7.21%)
*3COM Corporation 69,700 2,435
Adobe Systems, Inc. 14,700 606
*Advanced Micro Devices, Inc. 28,500 511
*Andrew Corporation 18,262 438
*Apple Computer, Inc. 25,800 339
*Applied Materials, Inc. 73,800 2,223
Autodesk, Inc. 9,700 359
Automatic Data Processing, Inc. 59,200 3,633
*Bay Networks 42,600 1,089
*Cabletron Systems, Inc. 31,900 479
*Ceridian Corp. 15,500 710
*Cisco Systems, Inc. 203,100 11,323
Compaq Computer Corporation 152,990 8,634
Computer Associates International,
Inc. 110,412 5,838
*Computer Sciences Corp. 15,600 1,303
*Data General Corporation 9,700 169
*Dell Computer Corp. 66,900 5,620
*Digital Equipment Corporation 30,900 1,143
*DSC Communications Corp. 23,800 571
Eastman Kodak Company 65,900 4,008
EG&G, Inc. 9,300 194
*EMC Corporation 99,800 2,738
Equifax, Inc. 30,500 1,081
First Data Corporation 89,800 2,627
Harris Corporation 16,100 739
HBO & Company 40,100 1,925
Hewlett-Packard Company 210,500 13,156
Ikon Office Solutions 26,900 757
Intel Corp. 330,400 23,211
International Business Machines
Corporation 198,700 20,777
*KLA-Tencor Corporation 16,900 653
*LSI Logic Corp. 28,700 567
Lucent Technologies, Inc. 129,843 10,371
*Micron Technology 42,600 1,108
*Microsoft Corporation 242,500 31,343
Motorola, Inc. 120,400 6,870
*National Semiconductor
Corporation 32,700 848
</TABLE>
---
33
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
- - -------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
*NextLevel Systems, inc. 29,800 $ 533
Northern Telecom Limited 53,000 4,717
*Novell, Inc. 70,600 530
*Oracle Corporation 198,250 4,423
*Parametric Technology Company 25,800 1,222
Perkin-Elmer Corporation 8,900 632
Polaroid Corporation 9,200 448
Scientific-Atlanta, Inc. 15,700 263
*Seagate Technology, Inc. 49,500 953
Shared Medical Systems Corp. 5,000 330
*Silicon Graphics 35,800 445
*Sun Microsystems, Inc. 74,600 2,975
Tektronix, Inc. 10,100 401
*Tellabs, Inc. 36,600 1,935
Texas Instruments, Inc. 77,600 3,492
*Unisys Corporation 35,400 491
W.W. Grainger, Inc. 10,100 982
Xerox Corporation 65,800 4,857
------------
TOTAL 200,025
------------
TRANSPORTATION (0.70%)
*AMR Corporation 18,600 2,390
Burlington Northern Santa Fe 31,433 2,921
Caliber System, Inc. 7,900 385
CSX Corporation 44,100 2,381
Delta Air Lines, Inc. 14,900 1,773
*Federal Express Corp. 23,300 1,423
Norfolk Southern Corporation 76,300 2,351
Ryder System, Inc. 15,700 514
Southwest Airlines Co. 44,300 1,091
Union Pacific Corporation 50,000 3,122
*US Airways Group, Inc. 18,400 1,150
------------
TOTAL 19,501
------------
UTILITIES (1.88%)
American Electric Power Co., Inc. 38,300 1,977
Baltimore Gas & Electric Co. 29,900 1,018
Carolina Power & Light Company 30,600 1,299
Central & South West Corporation 42,900 1,161
Cinergy Corporation 31,905 1,222
Coastal Corp. 21,400 1,325
Columbia Gas System, Inc. 11,200 880
Consolidated Edison Co. of New
York 47,600 1,952
Consolidated Natural Gas Company 19,300 1,168
Dominion Resources, Inc. 37,600 1,600
DTE Energy Company 29,400 1,020
Duke Energy Corp. 72,771 4,030
Eastern Enterprises 4,100 185
Edison International 80,300 2,183
Enron Corp. 61,900 2,573
Entergy Corporation 48,800 1,461
<CAPTION>
MARKET
VALUE
COMMON STOCK (55.04%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
UTILITIES (CONTINUED)
Firstenergy Corporation 46,600 $ 1,351
FPL Group, Inc. 36,800 2,178
GPU, Inc. 24,400 1,028
Houston Industries, Inc. 57,726 1,541
*Niagara Mohawk Power Corporation 29,200 307
NICOR, Inc. 9,800 413
Northern States Power Company 14,900 868
ONEOK, Inc. 6,200 250
Pacific Enterprises 16,900 636
PacifiCorp 59,900 1,636
PECO Energy Company 45,000 1,091
Peoples Energy Corporation 7,100 280
PG&E Corp. 88,700 2,700
PP&L Resources, Inc. 33,400 800
Public Service Enterprise Group,
Inc. 46,900 1,486
Sonat, Inc. 17,300 791
Southern Company 138,600 3,586
Texas Utilities Company 48,695 2,024
UNICOM Corp. 43,800 1,347
Union Electric Company 20,700 895
Williams Companies, Inc. 64,300 1,825
------------
TOTAL 52,087
------------
TOTAL COMMON STOCK 1,527,031
------------
SHORT TERM INVESTMENTS (11.57%)
- - -------------------------------------------------------------
MONEY MARKET INVESTMENTS (7.81%)
ELECTRIC SERVICES (0.18%)
Pacific Gas & Electric Co.,
5.375%, 8/1/98 5,000,000 $ 4,987
------------
ENERGY (0.04%)
Petroleos Mexicanos, 8%, 7/1/98
(144a) 1,000,000 1,005
------------
FOREIGN GOVERNMENT (0.32%)
Bonos Del Tesoro, 8%, 12/13/98 3,500,000 3,465
Lukoil, Moscow, 8.4125%, 01/21/98 5,000,000 4,974
Government Trust Credit of Greece,
8%, 05/15/98 308,940 311
------------
TOTAL 8,750
------------
FINANCE (1.79%)
Chrysler Financial Corp., 5.8%,
02/13/98 25,000,000 24,827
CIT Group Holdings, 5.85%,
01/29/98 25,000,000 24,886
------------
TOTAL 49,713
------------
GOVERNMENT (0.18%)
+FHLMC Discount Note, 5.61%,
02/13/98 5,000,000 4,966
------------
</TABLE>
---
34
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
SHORT-TERM INVESTMENTS (11.57%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
PERSONAL CREDIT INSTITUTIONS (3.69%)
Associates Corporation N/A, 6.74%,
01/02/98 $ 2,900,000 $ 2,899
Beneficial Corporation, 5.83%,
01/30/98 25,000,000 24,883
+Ford Motor Credit Company, 5.68%,
01/28/98 25,000,000 24,894
+General Electric Capital Corp.,
5.6%, 02/11/98 25,000,000 24,841
+General Motors Acceptance Corp.,
5.72%, 02/25/98 25,000,000 24,782
------------
TOTAL 102,299
------------
SHORT TERM BUSINESS CREDIT (1.61%)
IBM Credit Corporation, 5.72%,
01/14/98 20,200,000 20,158
+Sears Roebuck Acceptance Corp.,
5.88%, 01/28/98 25,000,000 24,890
------------
TOTAL 45,048
------------
TOTAL MONEY MARKET INVESTMENTS 216,768
------------
ASSET-BACKED SECURITIES (3.76%)
COMMERCIAL MORTGAGES (0.18%)
BTC Mortgage Investors Trust -
Class A, 6.255%, 09/01/98 5,000,000 5,000
------------
FINANCE LESSORS (3.58%)
Asset Securitization Corporation,
5.74%, 02/11/98 25,000,000 24,837
+CIESCO LP, 5.75%, 02/11/98 25,000,000 24,836
Preferred Receivable Fund, 5.93%,
01/28/98 25,000,000 24,889
<CAPTION>
MARKET
VALUE
SHORT-TERM INVESTMENTS (11.57%) SHARES/PAR (000'S)
<S> <C> <C>
- - -------------------------------------------------------------
FINANCE LESSORS (CONTINUED)
Receivable Capital Trust, 5.91%,
01/30/98 $25,000,000 $ 24,881
------------
TOTAL 99,443
------------
TOTAL ASSET-BACKED SECURITIES 104,443
------------
TOTAL SHORT TERM INVESTMENTS 321,211
------------
TOTAL BALANCED PORTFOLIO
(COST $1,960,305)^ $ 2,774,619
------------
ADR-American Depository Receipts
IO-Interest Only Security
*Non-Income Producing.
+Partially held by the custodian in segregated account as
collateral for open futures postions. Information regarding
open futures contracts as of December 31, 1997 is summarized
below:
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION (DEPRECIATION)
ISSUERS CONTRACTS DATE (000'S)
- - -------------------- ---------- ------------ --------------
<S> <C> <C> <C>
U.S. Treasury Bond 325 March 1998 (198)
S&P 500 Stock Index 194 March 1998 (281)
--------------
Total (479)
</TABLE>
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $1,960,613 and the net unrealized appreciation of investments
based on that cost was $814,006 which is comprised of $836,528 aggregate gross
unrealized appreciation and $22,522 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
35
<PAGE>
High Yield Bond Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
High current income and capital Generate superior performance by investing in a $150,865,360
appreciation with moderate risk diversified mix of fixed income securities
rated below investment grade.
</TABLE>
HIGH YIELD BOND PORTFOLIO
Investing in a portfolio of high yield bonds provides investors who can accept a
moderate level of risk with a high level of current income, coupled with the
opportunity for capital gains. The investment approach is credit-driven, with
rigorous industry and credit analysis utilized to identify investment
opportunities in issuers with stable or improving credit fundamentals whose
bonds are rated below investment grade. Securities are actively traded in order
to maximize returns within appropriate parameters of risk, quality, seniority
and duration. In many ways, investing in high yield bonds is akin to equity
investing, since an issuer's financial situation and operational performance are
the key determinants of continued ability to meet obligations to pay interest
and principal. Of particular interest are solid investments in entities that
have the possibility of a positive event, such as a significant improvement in
credit rating or earnings or a change in ownership. When financial performance
falls short of expectations, exposure is normally reduced. In a high-yield
portfolio, some defaults over time are inevitable; diversification across many
holdings and a high level of current income mitigate the impact of occasional
defaults on the Portfolio over time.
The high yield bond market continued to post higher returns than the
investment-grade market during 1997, as declining interest rates led a broad
range of investors to seek higher yields. The Portfolio significantly
outperformed the Lehman Brothers High Yield Intermediate Market Index for the
year. This strong performance can be attributed largely to careful selection of
market sectors and individual securities, the opportunistic inclusion of several
attractive preferred stocks, and the absence of any major negative credit
developments.
During the second half of the year, the Portfolio also benefited significantly
from a number of major credit upgrades, most of which were driven by mergers
that caused certain bonds to be repaid at high prices. Also in the second half,
the portfolio experienced increasing volatility in foreign markets as
international currency fluctuations became pronounced, particularly in Asia. In
spite of some second half weakness, foreign investments were a source of
diversification and made a positive contribution to 1997 results. The Portfolio
remains committed to a continued presence in foreign markets.
At the end of 1997, the Portfolio is positioned defensively relative to overall
credit risk. Cyclical exposure has been significantly curtailed, limiting the
potential impact of deflationary commodity and currency trends around the world.
To the extent that the portfolio participates in the lower-rated segments of the
market, emphasis has been placed on the subordinated debt and preferred stock of
some of the largest and strongest companies in relatively stable industries such
as cable television, telecommunications, broadcasting and leisure.
Percentage Holdings
by Industry Sector
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cable TV 16%
Broadcasting/Media 15%
Leisure 14%
Consumer Related 12%
Transportation 8%
Telecommunications 7%
Finance 7%
Basic Materials 6%
Energy Related 5%
Other Industries 3%
Short-Term Investments 7%
</TABLE>
Performance Relative
to Lehman Brothers High Yield Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS HIGH YIELD
HIGH YIELD BOND PORTFOLIO INTERMEDIATE MARKET INDEX
<S> <C> <C>
5/94 $10,000 $10,000
12/94 $10,302 $10,188
12/95 $12,030 $11,952
12/96 $14,409 $13,409
12/97 $16,693 $15,020
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1997
ONE YEAR SINCE INCEPTION
High Yield Bond Portfolio 15.85% 15.01%
Lehman Brothers Index 12.01% 11.75%
</TABLE>
The total return performance for the High Yield Bond Portfolio is shown in
comparison with the Lehman Brothers High Yield Intermediate Market Index. The
Lehman Brothers index is an appropriate measure of portfolio performance since
it has a quality and maturity profile that resembles the High Yield Bond
Portfolio.
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 will have remaining maturities of between
one and ten years and have an outstanding par value of at least $100 million.
Yankee and global bonds (SEC registered) of issuers in G-7 countries are
included. Original issue zero coupon bonds and step-up coupon structures are
also included; however, the index excludes pay-in-kind (PIK) bonds. Each bond
must be rated Ba1 or lower by Moody's Investor Service. If a Moody's rating is
unavailable, the bonds must be rated BB+ or lower by Standard & Poor's, or by
Fitch if an S&P rating is unavailable. A few unrated bonds are included in the
index; to be eligible they must have previously held a high yield rating or have
been associated with a high yield issuer. The index is an unmanaged market value
weighted index and measures the income provided by, and the price changes of,
the underlying securities.
This chart assumes an initial investment of $10,000 made on 5/3/94
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. The total returns shown on page 2 reflect the
deduction of charges for the separate account.
---
36
<PAGE>
High Yield Bond Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (72.80%) SHARES/PAR (000'S)
<S> <C> <C>
- - ---------------------------------------------------------------
AIRLINES (1.50%)
Kitty Hawks Inc., 9.95%, 11/15/04
(144a) $2,250,000 $ 2,261
-----------
BANKS (0.57%)
First Nationwide Parent Holdings,
12.50%, 4/15/03 750,000 853
-----------
BROADCASTING (4.69%)
Azteca Hldgs S.A. De C.V., 11.00%,
6/15/02 (144a) 2,250,000 2,318
+Fox Kids Worldwide, 10.25%, 11/1/07,
(144a) 3,250,000 1,934
+Fox/Liberty Networks LLC, 9.75%,
8/15/07 (144a) 2,000,000 1,280
TV Azteca S.A. De C.V., 10.50%,
2/15/07 1,500,000 1,549
-----------
TOTAL 7,081
-----------
CABLE TELEVISION (10.55%)
Adelphia Communications Corp., 9.50%,
2/15/04 (PIK) 2,668,506 2,709
Adelphia Communications Corp.,
9.875%, 3/01/07 1,000,000 1,058
Falcon Holdings Group, 11%, 9/15/03
(PIK) 1,500,000 1,620
+Frontiervision Holdings Corp., LP
11.875%, 9/15/07 (144a) 4,625,000 3,399
+Marcus Cable, 14.25%, 12/15/05 3,750,000 3,244
+NTL Inc., 11.50%, 2/01/06 3,000,000 2,329
+Telewest PLC, 11.00%, 10/01/07 2,000,000 1,553
-----------
TOTAL 15,912
-----------
CHEMICALS (1.18%)
Tri Polyta Finance B V, 11.375%,
12/01/03 3,250,000 1,788
-----------
CONSUMER PRODUCTS (1.02%)
+Hedstrom Holdings Inc., 12.00%,
6/01/09 2,575,000 1,545
-----------
CONSUMER STAPLES (3.09%)
Iowa Select Farms, 10.75%, 12/1/05
(144a) 2,250,000 2,309
North Atlantic Trading Inc., 11.00%,
6/15/04 2,250,000 2,351
-----------
TOTAL 4,660
-----------
FINANCE COMPANIES (2.68%)
Olympic Financial Ltd., 11.50%,
3/15/07 4,000,000 4,040
-----------
INSURANCE (1.19%)
Superior National Capital Inc.,
10.75%, 12/1/17 (144a) 1,750,000 1,794
-----------
LEISURE RELATED (13.95%)
Alliance Gaming Corp., 10.00%, 8/1/07
(144a) 2,250,000 2,253
Casino America Inc., 12.50%, 8/01/03 2,000,000 2,173
Cobblestone Holdings, Inc., 0.00%,
6/01/04 2,875,000 1,380
Hollywood Theatres, Inc., 10.625%,
8/1/07 (144a) 1,350,000 1,434
<CAPTION>
MARKET
VALUE
BONDS (72.80%) SHARES/PAR (000'S)
<S> <C> <C>
- - ---------------------------------------------------------------
LEISURE RELATED (CONTINUED)
Riviera Holdings, Inc., 10.00%,
8/15/04 (144a) $2,250,000 $ 2,233
Station Casinos Inc., 10.125%,
3/15/06 500,000 528
Station Casinos Inc., 9.75%, 4/15/07 2,500,000 2,588
Town Sport, 9.75%, 10/15/04 (144a) 1,000,000 1,000
Trump Atlantic, 11.25%, 5/01/06 3,000,000 2,925
Trump Hotels & Casino Resorts,
15.50%, 6/15/05 2,000,000 2,280
Venetain Casino, 12.25%, 11/15/04
(144a) 2,250,000 2,253
-----------
TOTAL 21,047
-----------
MISCELLANEOUS-BASIC MATERIALS (1.59%)
Cemex S. A., 12.75%, 7/15/06 2,000,000 2,395
-----------
OIL-GAS PRODUCERS (1.51%)
Belden & Blake Corp., 9.875%, 6/15/07 2,250,000 2,273
-----------
PAPER (4.53%)
APP International Finance Company
B.V. 11.75%, 10/1/05 2,250,000 2,070
Grupo Indl Durango S.A. De C.V.,
12.625%, 8/01/03 2,000,000 2,245
Pindo Deli Fin Mauritius, 10.75%,
10/1/07 (144a) 2,925,000 2,516
-----------
TOTAL 6,831
-----------
PROFESSIONAL SERVICES (1.65%)
+Decisionone Holdings Corp., 11.50%,
8/1/08 775,000 496
Kinder-care Learn Center, 9.50%,
2/15/09 2,000,000 1,990
-----------
TOTAL 2,486
-----------
RAILROAD (1.47%)
+TFM S.A. De C. V., 11.75%, 6/15/09
(144a) 3,500,000 2,223
-----------
RETAIL-FOOD (3.49%)
Fleming Companies, Inc., 10.625%,
7/31/07 (144a) 2,250,000 2,374
Jitney - Jungle Stores America, Inc.,
10.375%, 9/15/07 2,000,000 2,075
+Pathmark Stores, Inc., 11.625%,
6/15/02 1,000,000 810
-----------
TOTAL 5,259
-----------
RETAIL-GENERAL (1.46%)
Hollywood Entertainment Corp.,
10.625%, 8/15/04 2,250,000 2,205
-----------
SOAPS AND TOILETRIES (2.52%)
Revlon Worldwide Corp., 0.00%,
3/15/01 5,500,000 3,795
-----------
TELECOMMUNICATIONS (7.32%)
Comtel Brasileira Ltda., 10.75%,
9/26/04 (144a) 2,000,000 1,960
ITC Deltacom Inc., 11.00%, 6/01/07 2,875,000 3,163
++Mobilemedia Communications Inc.,
10.50%, 12/01/03 2,000,000 175
</TABLE>
---
37
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (72.80%) SHARES/PAR (000'S)
- - ---------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
+Nextel Communications, Inc., 10.65%,
9/15/07 (144a) $2,375,000 $ 1,496
+Nextel Communications, Inc., 9.75%,
10/31/07 (144a) 4,000,000 2,440
Paging Network Inc., 10.00%, 10/15/08 1,750,000 1,813
-----------
TOTAL 11,047
-----------
TRUCKING AND SHIPPING (5.37%)
Greyhound Lines Inc., 11.50%, 4/15/07 3,875,000 4,282
Navigator Gas Transport PLC, 10.50%,
6/30/07 (144a) 1,000,000 1,060
Navigator Gas Transport PLC, 12%,
6/30/07 (144a) 900,000 1,013
Ryder Trucks, Inc., 10.00%, 12/01/06 1,750,000 1,750
-----------
TOTAL 8,105
-----------
UTILITIES (1.47%)
Companhia De Saneamento Basico, 10%,
7/28/05 (144a) 1,250,000 1,113
Espirito Santo Centrais Electricad,
10%, 7/15/07 (144a) 1,250,000 1,112
-----------
TOTAL 2,225
-----------
TOTAL BONDS 109,825
-----------
<CAPTION>
MARKET
VALUE
PREFERRED STOCK (19.65%) SHARES/PAR (000'S)
<S> <C> <C>
- - ---------------------------------------------------------------
BANKS (2.19%)
California Federated Capital Corp. 126,000 $ 3,308
-----------
BROADCASTING (7.39%)
American Radio Systems Corp. (PIK) 18,769 2,231
Citadel Broadcasting Co. (144a) 13,331 1,553
Chancellor Radio (144a) 22,253 2,559
Sinclair Capital 43,500 4,807
-----------
TOTAL 11,150
-----------
CABLE TELEVISION (5.59%)
Cablevision Systems Corp. (PIK) 52,798 $ 6,257
NTL Inc. (PIK) 18,823 2,174
-----------
TOTAL 8,431
-----------
PRINTING AND PUBLISHING (3.10%)
Primedia Inc. 35,000 3,684
Primedia Inc. (PIK) 10,000 1,000
-----------
TOTAL 4,684
-----------
<CAPTION>
MARKET
VALUE
PREFERRED STOCK (19.65%) SHARES/PAR (000'S)
<S> <C> <C>
- - ---------------------------------------------------------------
UTILITY-GAS (1.38%)
Petroleum Heat & Power Inc. (144a) $ 103,750 $ 2,074
-----------
TOTAL PREFERRED STOCK 29,647
-----------
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (7.02%) SHARES/PAR (000'S)
<S> <C> <C>
- - ---------------------------------------------------------------
PERSONAL CREDIT INSTITUTIONS (7.02%)
Associates Corp of N. A., 6.74%,
1/2/98 7,100,000 $ 7,099
Commerical Credit Company, 5.65%,
1/28/98 2,000,000 1,992
General Motors Acceptance Corp.,
5.84, 1/14/98 1,500,000 1,496
-----------
TOTAL 10,587
-----------
TOTAL MONEY MARKET
INVESTMENTS 10,587
-----------
<CAPTION>
MARKET
VALUE
COMMON STOCK AND WARRANTS (0.53%) SHARES/PAR (000'S)
<S> <C> <C>
- - ---------------------------------------------------------------
APPAREL AND TEXTILE (0.30%)
*Ithaca Industries Inc. 136,000 $ 451
-----------
FINANCE COMPANIES (0.04%)
Olympic Financial Ltd., warrants 4,000 60
-----------
LEISURE RELATED (0.20%)
Hedstrom Holdings 156,184 195
*Cobblestone Holdings Inc. 2,875 100
-----------
TOTAL 295
-----------
TOTAL COMMON STOCK 806
-----------
TOTAL HIGH YIELD BOND PORTFOLIO
(COST $149,252)^ $ 150,865
-----------
</TABLE>
*Non-Income Producing.
+Deferred interest security that receives no coupon payments until a
predetermined date at which the stated coupon rate becomes effective.
++Defaulted Security.
PIK-Payment in Kind.
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $149,252 and the net unrealized appreciation of investments based
on that cost was $1,613 which is comprised of $7,108 aggregate gross
unrealized appreciation and $5,495 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
38
<PAGE>
Select Bond Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
A stable and relatively high Invest in high grade corporate bonds, U.S. $238,210,445
level of long-term total return government bonds and bonds of government
and preservation of capital agencies.
</TABLE>
SELECT BOND PORTFOLIO
The Select Bond Portfolio invests in high quality debt securities, primarily
government bonds, corporate bonds and mortgage-backed securities. Exposure to
market sectors is adjusted as yield spreads change among the various classes of
securities. Duration and maturities are altered with moderate adjustments in
recognition or anticipation of interest rate changes.
In 1997, the Select Bond Fund benefited from overall strength in the bond
market, achieving total return of 9.46%. In managing the Portfolio, the decision
was made to increase the quality of holdings, in anticipation that a slowing
economy could result in poor earnings and therefore higher default rates.
Accordingly, the proportion of the Fund held in corporate bonds was decreased
during the year, while positions in U.S. government and agency bonds were
increased. The increased prepayment risk created by investing in mortgage-backed
securities was tempered by careful selection of individual securities, in an
effort to hold those that are least likely to experience substantial
prepayments.
Percentage Holdings
12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds 24%
Mortgage-Backed and Asset-Backed Securities 47%
Government and Government Agencies 26%
Short-Term Investments 3%
</TABLE>
The Corporate Bonds sector includes bonds of companies headquartered outside the
United States. The Government and Government Agencies category includes taxable
bonds of domestic and foreign governments and a small position in municipal
bonds. Consistent with the Portfolio's stated parameters, no more than 20% of
the Portfolio is invested in foreign securities, and no more than 10% is
invested in high-yield securities.
Performance Relative
to Merrill Lynch Domestic Master Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Select Bond Portfolio MLDM Index
<S> <C> <C> <C> <C>
12/87 $10,000 $10,000
12/88 $10,822 $10,804
12/89 $12,354 $12,336
12/90 $13,355 $13,459
12/91 $15,669 $15,593
12/92 $16,882 $16,774
12/93 $18,707 $18,456
12/94 $18,280 $17,935
12/95 $21,770 $21,256
12/96 $22,491 $22,019
12/97 $24,620 $24,146
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1997
ONE YEAR FIVE YEARS TEN YEARS
Select Bond Portfolio 9.46% 7.84% 9.43%
MLDM Index 9.66% 7.56% 9.22%
</TABLE>
Since the Portfolio invests broadly in U.S. Government, mortgage and corporate
bonds, a useful basis for comparing returns is the Merrill Lynch Domestic Master
Index. The 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.
This chart assumes an initial investment of $10,000 made on 12/31/87.
Returns shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Accumulation unit values, which reflect deduction of charges for the separate
account, are shown on page 2.
---
39
<PAGE>
Select Bond Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.82%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
CORPORATE BONDS (23.39%)
AUTO-RELATED (0.40%)
Hertz Corp., 9.04%, 6/14/00 $ 900,000 $ 960
-----------
BANK HOLDING COMPANIES (4.33%)
BT Institutional Capital Trust,
7.75%, 12/1/26 4,000,000 4,079
BT Preferred Capital Trust II,
7.875%, 2/25/27 6,000,000 6,228
-----------
TOTAL 10,307
-----------
CHEMICALS AND ALLIED PRODUCTS (0.87%)
Dow Capital B.V., 8.5%, 6/8/10 1,800,000 2,083
-----------
COMMUNICATIONS (3.58%)
Panamsat, 0%, 8/1/03 3,000,000 3,027
U.S. West Capital Funding Inc., 7.9%,
2/1/27 1,000,000 1,084
WorldCom, Inc., 7.75%, 4/1/27 4,000,000 4,417
-----------
TOTAL 8,528
-----------
CONSTRUCTION MACHINERY (0.43%)
Bufete Industrial SA ADS, 11.375%,
7/15/99 (144a) 1,000,000 1,030
-----------
ENERGY (1.06%)
Camuzzi Gas, 9.25%, 12/15/01 2,500,000 2,531
-----------
ELECTRIC SERVICES (5.38%)
Commonwealth Edison Co., 6.5%,
4/15/00 1,000,000 1,005
Long Island Lighting Co., 8.625%,
4/15/04 1,000,000 1,009
Long Island Lighting Co., 9.625%,
7/1/24 1,500,000 1,544
Ohio Edison Company, 7.375%, 9/15/02 1,000,000 1,036
++Pacific Gas & Electric Co., 7.25%,
3/1/26 3,500,000 3,641
Peco Energy Company, 7.75%, 3/1/23 1,150,000 1,199
++Public Service Electric And Gas
Co., 6.875%, 1/1/03 2,250,000 2,309
Texas Utilities Electric Co., 7.875%,
3/1/23 1,000,000 1,068
-----------
TOTAL 12,811
-----------
FINANCE (1.83%)
Associates Corp. of North America,
7.95%, 2/15/10 1,500,000 1,694
Industrial Credit and Investment Corp
of India, 7.55%, 8/15/07, (144a) 3,000,000 2,670
-----------
4,364
-----------
GENERAL MERCHANDISE STORES (0.45%)
May Dept Stores Company, 7.45%,
10/15/16 1,000,000 1,072
-----------
MOTION PICTURE (1.33%)
News America Holdings Inc., 8.25%,
8/10/18 1,000,000 1,085
<CAPTION>
MARKET
VALUE
BONDS (96.82%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
MOTION PICTURE (CONTINUED)
Time Warner Entertainment Inc.,
7.25%, 9/1/08 $2,000,000 $ 2,078
-----------
TOTAL 3,163
-----------
MOTOR VEHICLES (0.65%)
General Motors Corporation, 8.8%,
3/1/21 1,250,000 1,550
-----------
PAPER AND ALLIED PRODUCTS (0.94%)
Grupo Industrial Durango, 12.625%,
8/1/03 2,000,000 2,245
-----------
TEXTILES (1.03%)
Polysindo International Finance,
11.375%, 6/15/06 3,000,000 2,460
-----------
TOBACCO (1.11%)
Philip Morris Companies, 7.25%,
1/15/03 1,000,000 1,032
Philip Morris Companies, 9.25%,
2/15/00 500,000 529
++RJR Nabisco Inc., 8.625%, 12/1/02 1,000,000 1,064
-----------
TOTAL 2,625
-----------
TOTAL CORPORATE BONDS 55,729
-----------
GOVERNMENT BONDS (DOMESTIC AND FOREIGN) AND AGENCY BONDS
(26.33%)
FOREIGN GOVERNMENT BONDS (5.11%)
Peru Flirb Reduction, 3.25%, 3/7/17 2,100,000 1,244
Poland - Bear - PDI, 4%, 10/27/14 1,500,000 1,296
+Poland Government, 12%, 10/12/01 15,000,000 3,168
+Poland Government, 12%, 2/12/03 10,000,000 2,058
Poland Government, 14%, 2/12/00 9,000,000 2,166
Vnesheconomban, 6.718%, 12/2/15 3,200,000 2,248
-----------
TOTAL 12,180
-----------
FEDERAL GOVERNMENT AND AGENCIES (21.22%)
Federal National Mortgage Assoc.,
6.22%, 2/1/06 1,938,793 1,927
Federal National Mortgage Assoc.,
6.24%, 1/1/06 5,467,070 5,440
Federal National Mortgage Assoc.,
6.32%, 2/1/06 3,928,808 3,936
Federal National Mortgage Assoc.,
6.5%, 9/25/05 2,718,958 2,744
Federal National Mortgage Assoc.,
6.75%, 12/25/23 3,500,000 3,505
Federal National Mortgage Assoc.,
6.96%, 10/1/07 3,295,429 3,431
Federal National Mortgage Assoc.,
7.0%, 6/1/03 788,654 800
Federal National Mortgage Assoc.,
7.23%, 1/25/22 5,000,000 5,202
Federal National Mortgage Assoc.,
7.36%, 4/1/11 3,444,763 3,690
Federal National Mortgage Assoc.,
8.4%, 2/25/09 2,500,000 2,756
Federal National Mortgage Assoc.,
10%, 10/1/17 141,853 156
Federal National Mortgage Assoc.,
11%, 9/1/17 $2,102,536 $ 2,387
</TABLE>
---
40
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.82%) PAR (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Federal National Mortgage Assoc.,
11%, 12/1/12 $ 255,000 $ 285
Federal National Mortgage Assoc.,
11%, 12/1/17 614,098 698
Federal National Mortgage Assoc.,
12%, 9/1/17 708,812 825
Federal National Mortgage Assoc.,
12%, 9/1/12 2,260,972 2,603
Federal National Mortgage Assoc.,
12%, 10/1/17 1,040,443 1,211
Federal National Mortgage Assoc.,
12%, 12/1/12 373,000 430
Federal National Mortgage Assoc.,
12%, 12/1/17 532,000 619
Federal National Mortgage Assoc.,
12.25%, 12/01/17 442,000 523
Federal National Mortgage Assoc.,
13%, 11/1/12 383,414 449
Federal National Mortgage Assoc.,
13%, 11/1/17 721,502 854
Federal National Mortgage Assoc.,
13%, 12/1/17 403,000 475
Federal National Mortgage Assoc.,
14%, 12/1/17 283,000 336
Government National Mortgage Assoc.,
7%, 5/15/23 422,708 427
Government National Mortgage Assoc.,
7.5%, 1/15/24 1,508,484 1,549
Government National Mortgage Assoc.,
7.5%, 2/15/24 1,602,195 1,645
Government National Mortgage Assoc.,
8.5%, 11/15/24 923,811 977
Government National Mortgage Assoc.,
8.5%, 2/15/25 118,027 124
Government National Mortgage Assoc.,
8.5%, 3/15/23 10,367 11
Government National Mortgage Assoc.,
8.5%, 6/15/23 14,456 15
Government National Mortgage Assoc.,
8.5%, 6/15/24 260,063 275
Government National Mortgage Assoc.,
8.5%, 7/15/24 64,949 69
Government National Mortgage Assoc.,
8.5%, 9/15/21 148,346 158
Government National Mortgage Assoc.,
8.5%, 9/15/24 12,523 13
-----------
TOTAL 50,545
-----------
TOTAL GOVERNMENT BONDS 62,725
-----------
MORTGAGE BACKED AND ASSET BACKED SECURITIES (47.10%)
AUTO-RELATED (3.15%)
Daimler-Benz Vehicle Trust, Class A,
5.85%, 7/20/03 1,064,567 1,063
CIT RV Owner Trust, Class A, 6.25%,
1/15/11 1,003,318 1,005
Eaglemark Trust,Class A,6.75%,
11/15/02 (144a) 1,018,791 1,027
<CAPTION>
MARKET
VALUE
BONDS (96.82%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
AUTO-RELATED (CONTINUED)
Team Fleet Financing
Corporation,Class A, 6.65%, 12/15/02
(144a) $3,200,000 $ 3,239
Team Fleet Financing Corporation,
Class A, 7.35%, 5/15/03 (144a) 1,125,000 1,169
-----------
TOTAL 7,503
-----------
COMMERCIAL MORTGAGES (37.16%)
+Kmart CMBS Financing, Inc.,Class C,
6.391%, 03/01/07 (144a) 1,500,000 1,496
+Kmart CMBS Financing, Inc., Class D,
6.791%, 03/01/07 (144a) 2,000,000 2,000
Asset Securitization Corporation,
Class CS2, 1.097%, 11/13/26 IO 52,000,000 3,429
Asset Securitization Corporation,
Class CS1, 1.257%, 11/13/26 IO 22,210,492 920
Asset Securitization Corporation,
Class PS1, 1.36707%, 2/14/41 IO 12,227,830 1,328
Chase Commercial Mortgage Securities
Corp., Class B, 6.6%, 12/12/29 5,000,000 5,037
Chase Commercial Mortgage Securities
Corp., Class A2, 6.6%, 12/12/29 2,000,000 2,000
Chase Commercial Mortgage Securities
Corp., Class B,7.37%, 6/19/29 1,000,000 1,058
Chase Commercial Mortgage Securities
Corp., Class D, 7.37%, 6/19/29 1,750,000 1,796
Commercial Mortgage Acceptance
Corporation, Class B, 6.647%,
12/15/30 2,000,000 1,996
Credit Suisse First Boston Mortgage
Securities Corp., Class D, 9.5914%,
4/25/25 (144a) 682,000 789
Credit Suisse First Boston Mortgage
Securities Corp., Class B, 9.5914%,
4/25/25 (144a) 2,000,000 2,367
Credit Suisse First Boston Mortgage
Securities Corp., Class C1, 7.26%,
6/20/29 (144a) 1,488,399 1,542
Credit Suisse First Boston Mortgage
Securities Corp., Class C1, 7.28%,
6/20/29 (144a) 1,500,000 1,525
Credit Suisse First Boston Mortgage
Securities Corp., Class D, 7.46%,
6/20/29 (144a) 3,500,000 3,509
DLJ Mortgage Acceptance Corporation,
Class S,.3751%, 10/15/17 IO 89,862,718 2,408
DLJ Mortgage Acceptance Corporation,
Class A1B, 7.29%, 11/12/21 2,250,000 2,356
The Equitable Life Insurance Society
of the U S, Class C1, 7.52%, 5/15/06 2,000,000 2,100
</TABLE>
---
41
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.82%) PAR (000'S)
- - --------------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGES (CONTINUED)
First Union-Lehman Brothers
Commercial Mortgage Trust, Class C2,
7.02%, 11/18/29 4,000,000 4,035
First Union-Lehman Brothers
Commercial Mortgage Trust, Class C1,
7.44%, 4/18/07 2,500,000 2,657
First Union-Lehman Brothers
Commercial Mortgage Trust, IO,
1.307%, 4/18/27 36,440,146 2,847
Fleetwood Credit Corporation Grantor
Trust, Class A, 6.4%, 5/15/13 1,416,794 1,427
GMAC Commercial Mortgage Securities,
Inc., Class C2, 7.81%, 10/15/06
(144a) 5,000,000 5,247
LB Commercial Conduit Mortgage Trust,
Class IO, 1.248%, 10/25/26 68,392,491 4,366
LB Commercial Conduit Mortgage Trust,
Class A3, 8.396%, 1/20/17 4,840,838 5,538
Malan Mortgage Securities Trust,
Class A3, 7.8%, 8/15/05 (144a) 3,000,000 3,076
Merrill Lynch Mortgage Investors,
Inc., Class C1, 7.12%, 6/18/29 2,500,000 2,583
Merrill Lynch Mortgage Investors,
Inc., Class E, 7.12%, 6/18/29 4,500,000 4,519
Merrill Lynch Mortgage Investors,
Inc., Class C, 8.154% , 6/18/29 1,950,000 2,009
Merrill Lynch Mortgage Investors,
Inc., Class E, 8.858%, 6/18/29 2,000,000 2,110
Midland Realty Acceptance Corp.,
Class AEC, 1.389%, 1/25/29 (144a) IO 14,652,029 1,145
NationsBank Lease Pass Thru Trust,
Class 1, 7.442%, 1/10/11 (144a) 3,000,000 3,133
Nations Credit Grantor Trust, Class
A1, 6.35%, 4/15/14 2,859,386 2,865
Red Mountain Funding LLC, Class E,
7.365%, 1/15/19 1,500,000 1,533
Red Mountain Funding LLC, Class F,
7.471%, 1/15/19 1,800,000 1,771
-----------
TOTAL 88,517
-----------
CREDIT CARD ASSET BACKED (0.84%)
Iroquois Trust, Class A, 6.752%,
6/25/07 2,000,000 2,007
-----------
MANUFACTURED HOUSING (1.64%)
Mid-State Trust VI, Class A3, 7.54%,
7/1/35 $1,256,650 $ 1,317
Vanderbilt Mortgage and Finance,
Inc., Class 1A4, 7.19%, 2/7/14 2,500,000 2,596
-----------
TOTAL 3,913
-----------
<CAPTION>
MARKET
VALUE
BONDS (96.82%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
OTHER ASSET BACKED (1.84%)
Greentree Recreation & Consumer
Trust, Class A1, 6.49%, 2/15/18 2,567,117 2,578
Newcourt Equipment, Class B, 6.764%,
9/20/04 1,790,849 1,798
-----------
TOTAL 4,376
-----------
RESIDENTIAL MORTGAGES (2.47%)
BCF L L C Mortgage Pass Thru
Certificate, Class B3, 7.75%,
3/25/37 (144a) 3,957,508 3,995
Rural Housing Trust, Class D, 6.33%,
4/1/26 1,903,595 1,883
-----------
TOTAL 5,878
-----------
TOTAL MORTGAGE BACKED AND
ASSET BACKED SECURITIES 112,194
-----------
TOTAL BONDS 230,648
-----------
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (3.18%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
GOVERNMENT (0.29%)
++Federal Home Loan Mortgage Company,
5.610%, 2/13/98 $ 700,000 $ 695
-----------
PERSONAL CREDIT INSTITUTIONS (1.30%)
Associates Corporation of N A, 6.74%,
1/02/98 3,100,000 3,099
-----------
TOBACCO (0.74%)
Phillip Morris Companies, 9.00%,
5/15/98 1,750,000 1,767
-----------
TOTAL MONEY MARKET INSTRUMENTS 5,561
-----------
COMMERCIAL MORTGAGES (0.85%)
BTC Mortgage Investors Trust, Class
A, 6.255%, 9/1/98 2,000,000 2,001
-----------
TOTAL SHORT TERM
INVESTMENTS 7,562
-----------
TOTAL SELECT BOND PORTFOLIO
(COST $234,165)^ $ 238,210
-----------
IO-Interest Only Security
+Floating rate security.
++Partially held by the custodian in segregated account as
collateral for open futures postions. Information regarding
open futures contracts as of December 31, 1997 is summarized
below:
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION (DEPRECIATION)
ISSUER CONTRACTS DATE (000'S)
- - -------------------------------- ---------- ------------ --------------
<S> <C> <C> <C>
U.S. Treasury Bond Future 325 March 1998 (431)
</TABLE>
^At December 31, 1997, the aggregate cost of securities for federal income tax
purposes was $234,165 and the net unrealized appreciation of investments based
on that cost was $4,046 which is comprised of $5,873 aggregate gross unrealized
appreciation and $1,827 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
---
42
<PAGE>
Money Market Portfolio
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Invested Assets:
Maximum current income Achieve stability of capital by investing in $193,629,712
consistent with liquidity and short-term debt securities.
stability of capital
</TABLE>
MONEY MARKET PORTFOLIO
The Money Market Portfolio, which invests only in high quality commercial paper
and other short-term debt securities with maturities generally not exceeding one
year, is the least risky of the Portfolios.
During 1997, money market rates were quite stable, with the only notable change
a modest increase in March after the Federal Reserve increased the Federal funds
rate from 5.25 percent to 5.5 percent. Following this rate increase, maturities
were lengthened somewhat to lock in the higher rates. In the fall, the Fund's
maturities were lengthened once again when market conditions suggested the
possibility of further tightening by the Fed. By year end, the Fed had taken no
further action, and a reduction in rates seemed at least as likely as an
increase. Accordingly, the Fund's average maturity was relatively short because
securities with longer maturities carried minimal premiums.
The total returns shown on page 2 reflect the deduction of charges for the
separate account.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
---
43
<PAGE>
Money Market Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (77.05%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
AUTOMOBILE REPAIR, SERVICES & PARKING (4.65%)
PHH Corporation, 6.00%, 10/27/1998 $9,000,000 $ 8,997
-----------
CHEMICALS & ALLIED PRODUCTS (4.80%)
American Home Product Co, 5.55%,
01/23/1998 9,300,000 9,268
-----------
COMMUNICATIONS (10.53%)
Ameritech Corporation, 5.85%,
01/28/1998 10,000,000 9,956
Southern California Edison Co.,
6.250%, 01/13/1998 3,800,000 3,792
U.S. West Communications, 6.07%,
01/08/1998 6,655,000 6,647
-----------
TOTAL 20,395
-----------
GOVERNMENT (2.54%)
Federal National Mortgage Assoc.,
5.750%, 01/26/1998 2,700,000 2,689
Federal National Mortgage Assoc.,
5.730%, 01/30/1998 2,248,000 2,238
-----------
TOTAL 4,927
-----------
FINANCE (9.76%)
Chrysler Financial Corp., 5.85%,
01/28/1998 9,600,000 9,558
CIT Group, 5.56%, 02/11/1998 9,400,000 9,341
-----------
TOTAL 18,899
-----------
PERSONAL CREDIT INSTITUTIONS (19.93%)
Beneficial Corp, 5.74%, 02/25/1998 10,000,000 9,912
Ford Motor Credit Company, 5.74%,
01/28/1998 9,600,000 9,559
General Electric Capital Corp.,
5.60%, 2/25/1998 9,600,000 9,518
General Motors Acceptance Corp.,
5.85%, 01/16/1998 5,000,000 4,988
GMAC, 7.125%, 05/11/1998 4,600,000 4,611
-----------
TOTAL 38,588
-----------
PETROLEUM AND COAL PRODUCTS (1.64%)
E. I. Dupont De Nemours, 6.250%,
01/14/1998 3,189,000 3,182
-----------
SHORT TERM BUSINESS CREDIT (14.76%)
IBM Credit Corporation, 5.77%,
01/14/1998 6,100,000 6,087
IBM Credit Corporation, 5.779%,
01/14/1998 3,400,000 3,393
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (77.05%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
SHORT TERM BUSINESS CREDIT (CONTINUED)
Sears Roebuck Acceptance Corp.,
5.79%, 02/06/1998 $9,700,000 $ 9,644
Transamerica Financial Corp., 5.70%,
01/28/1998 9,500,000 9,459
-----------
TOTAL 28,583
-----------
TOBACCO PRODUCTS (4.84%)
Phillip Morris Companies Inc, 6.375%,
01/15/1998 6,850,000 6,850
Phillip Morris Companies Inc, 9.00%,
05/15/1998 2,500,000 2,528
-----------
TOTAL 9,378
-----------
UTILITY-ELECTRIC (3.60%)
National Rural Utility Co., 5.55%,
01/22/1998 7,000,000 6,977
-----------
TOTAL MONEY MARKET
INVESTMENTS $ 149,194
-----------
<CAPTION>
MARKET
VALUE
ASSET-BACKED SECURITIES (22.95%) PAR (000'S)
<S> <C> <C>
- - --------------------------------------------------------------
AUTO RELATED (2.35%)
Carco Auto Loan Master Trust, 5.625%,
11/15/1998 (Variable rate; putable;
coupon indexed to one month
Commercial Paper rate plus 7.5 basis
points; reset monthly) $4,550,000 $ 4,550
-----------
FINANCE LESSORS (20.60%)
Asset Securitization, 5.74%,
02/11/1998 9,600,000 9,537
Receivable Capital Trust, 5.75%,
01/05/1998 9,500,000 9,494
Receivable Capital Trust, 5.76%,
01/23/1998 1,885,000 1,879
Ciesco LP, 5.75%, 02/11/1998 9,500,000 9,438
Preferred Receivable Funding, 5.82%,
02/10/1998 9,600,000 9,538
-----------
TOTAL 39,886
-----------
TOTAL ASSET-BACKED SECURITIES 44,436
-----------
TOTAL MONEY MARKET PORTFOLIO
(COST $193,630)^ $ 193,630
-----------
^Also represents cost for federal income tax purposes.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
44
<PAGE>
Accountants' Letter
[LOGO]
[LOGO]
Report of Independent Accountants
To The Shareholders and Board of Directors of
Northwestern Mutual Series Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Aggressive Growth Stock
Portfolio, International Equity Portfolio, Growth Stock Portfolio, Growth and
Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High
Yield Bond Portfolio, Select Bond Portfolio and Money Market Portfolio
(constituting Northwestern Mutual Series Fund, Inc., hereafter referred to as
the "Fund") at December 31, 1997, the results of each of their operations for
the year then ended, the changes in each of their net assets for the two years
in the period ended December 31, 1997, and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's 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
presentations. We believe that our audits, which included confirmations of the
securities at December 31, 1997 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
[SIGNATURE]
Milwaukee, Wisconsin
January 27, 1998
---
45
<PAGE>
Aggressive Growth Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Aggressive Growth Stock Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $651,278)......... $973,021
Money Market Investments (cost
$93,922)............................. 93,922
---------
1,066,943
Cash.................................. 94
Due from Sale of Securities........... 2,631
Dividends and Interest Receivable..... 89
Due from Sale of Fund Shares.......... 7
---------
Total Assets........................ 1,069,764
---------
LIABILITIES
Due on Redemption of Fund Shares...... 2,147
Due to Investment Advisor............. 484
Accrued Expenses...................... 60
Futures Variation Margin.............. 5
---------
Total Liabilities................... 2,696
---------
NET ASSETS.............................. $1,067,068
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (700,000
shares authorized, $.01 par value;
319,739 shares outstanding).......... $705,539
Undistributed Net Investment Income... 390
Undistributed Accumulated Net Realized
Gain on Investments.................. 39,778
Net Unrealized Appreciation
(Depreciation) of:
Investment Securities................ 321,743
Index Futures Contracts.............. (382)
---------
Net Assets for 319,739 Shares
Outstanding.......................... $1,067,068
---------
---------
Net Asset Value, Offering and
Redemption Price per Share........... $ 3.34
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest $ 4,707
Dividends (less foreign dividend tax
of $9)............................. 897
---------
Total Income...................... 5,604
---------
Expenses
Management Fees..................... 4,963
Custodian Fees...................... 30
Other Expenses...................... 41
---------
Total Expenses.................... 5,034
---------
Less Custodian Fees:
Paid by Affiliate............ (26)
Paid Indirectly.............. (4)
---------
Total Net Expenses................ 5,004
---------
Net Investment Income................. 600
---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investments:
Investment Securities............... 42,777
Index Futures Contracts............. 2,191
---------
Net Realized Gain on Investments
for the Period................... 44,968
---------
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities............... 83,083
Index Futures Contracts............. (382)
---------
Net Change in Unrealized
Appreciation of Investments for
the Period 82,701
---------
Net Gain on Investments............... 127,669
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............. $128,269
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
46
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Aggressive Growth Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
----------------------
1997 1996
---------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income (Loss)........ $ 600 $ (210)
Net Realized Gain on Investments.... 44,968 52,175
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 82,701 56,387
---------- ---------
Net Increase in Net Assets
Resulting from Operations......... 128,269 108,352
---------- ---------
Distributions to Shareholders from:
Net Investment Income............... 0 (572)
Net Realized Gain on Investments.... (57,365) (24,986)
---------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (57,365) (25,558)
---------- ---------
Fund Share Transactions
Proceeds from Sale of 35,663 and
64,691 Shares...................... 110,666 198,427
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(20,913 and 8,276 shares,
respectively)...................... 57,365 25,558
Payments for 14,059 and 3,953 Shares
Redeemed........................... (43,793) (11,867)
---------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions
(42,517 and 69,014 shares,
respectively)..................... 124,238 212,118
---------- ---------
Total Increase in Net Assets.......... 195,142 294,912
NET ASSETS
Beginning of Period................... 871,926 577,014
---------- ---------
End of Period (includes undistributed
net investment
income/(loss) of $390 and $(210),
respectively)........................ $1,067,068 $871,926
---------- ---------
---------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
47
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Aggressive Growth Stock Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE
PERIOD MAY 3,
1994*
FOR THE YEAR THROUGH
ENDED DECEMBER 31, DECEMBER 31,
---------------------------------- ---------------
1997 1996 1995 1994
---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 3.15 $ 2.77 $ 2.00 $ 1.91
Income from Investment Operations:
Net Investment Income............... -- -- -- --
Net Realized and Unrealized Gain on
Investments........................ 0.39 0.49 0.78 0.09
---------- --------- --------- ---------------
Total from Investment
Operations....................... 0.39 0.49 0.78 0.09
---------- --------- --------- ---------------
Less Distributions:
Distributions from Net Investment
Income............................. -- -- -- --
Distributions from Realized Gains on
Investments........................ (0.20) (0.11) (0.01) --
---------- --------- --------- ---------------
Total Distributions............... (0.20) (0.11) (0.01) --
---------- --------- --------- ---------------
Net Asset Value, End of Period.......... $ 3.34 $ 3.15 $ 2.77 $ 2.00
---------- --------- --------- ---------------
---------- --------- --------- ---------------
Total Return+........................... 13.86% 17.70% 39.29% 4.47%++
---------- --------- --------- ---------------
---------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $1,067,068 $871,926 $577,014 $327,096
---------- --------- --------- ---------------
---------- --------- --------- ---------------
Ratio of Expenses to Average Net
Assets................................. 0.53% 0.54% 0.56% 0.58%**
---------- --------- --------- ---------------
---------- --------- --------- ---------------
Ratio of Net Investment Income/(Loss) to
Average Net Assets..................... 0.06% (0.03%) 0.13% 0.29%**
---------- --------- --------- ---------------
---------- --------- --------- ---------------
Portfolio Turnover Rate................. 57.27% 47.25% 37.84% 21.54%
---------- --------- --------- ---------------
---------- --------- --------- ---------------
Average Commission Rate #............... $ 0.0499 $ 0.0513
---------- ---------
---------- ---------
</TABLE>
* Commencement of Operations.
** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
++ Reflects total return for the period; not annualized.
# Disclosure required for fiscal years beginning after September 1, 1995.
The Accompanying Notes are an Integral Part of the Financial Statements
---
48
<PAGE>
International Equity Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
International Equity Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $519,145)......... $631,175
Money Market Investments (cost
$22,294)............................. 24,439
Bonds (cost $2,302)................... 2,104
---------
657,718
Cash.................................. 1,814
Dividends and Interest Receivable..... 2,684
Due from Sale of Securities........... 47
---------
Total Assets........................ 662,263
---------
LIABILITIES
Due on Sale of Fund Shares............ 1,048
Due on Purchase of Securities......... 802
Due to Investment Advisor............. 372
Accrued Expenses...................... 191
---------
Total Liabilities................... 2,413
---------
NET ASSETS.............................. $659,850
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (700,000
shares authorized, $.01 par value;
390,790 shares outstanding).......... $507,045
Undistributed Net Investment Income... 16,682
Undistributed Accumulated Net Realized
Gain on Investments.................. 22,191
Net Unrealized Appreciation
(Depreciation) of:
Investment Securities............... 113,977
Foreign Currency Transactions....... (45)
---------
Net Assets for 390,790 Shares
Outstanding.......................... $659,850
---------
---------
Net Asset Value, Offering and
Redemption Price per Share........... $ 1.69
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax
of $707)........................... $ 18,717
Interest............................ 2,883
---------
Total Income...................... 21,600
---------
Expenses
Management Fees..................... 4,108
Custodian Fees...................... 494
Other Expenses...................... 153
---------
Total Expenses.................... 4,755
---------
Net Investment Income................. 16,845
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net Realized Gain (Loss) on:
Investment Securities............... 23,527
Foreign Currency Transactions....... (891)
---------
Net Realized Gain For the
Period........................... 22,636
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities............... 25,407
Foreign Currency Transactions....... (48)
---------
Net Change in Unrealized
Appreciation for the Period...... 25,359
---------
Net Gain on Investments............... 47,995
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $ 64,840
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
49
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
International Equity Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 16,845 $ 12,614
Net Realized Gain on Investments.... 22,636 7,391
Net Unrealized Appreciation of
Investments for the Period......... 25,359 61,490
--------- ---------
Net Increase in Net Assets
Resulting from Operations......... 64,840 81,495
--------- ---------
Distributions to Shareholders from:
Net Investment Income............... (12,704) (8,311)
Net Realized Gain on Investments.... (7,542) (11,653)
--------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (20,246) (19,964)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 66,307 and
64,977 Shares...................... 110,618 92,514
Proceeds from Shares Issued on
Reinvestment of Dividends Paid
(12,598 and 14,362 shares,
respectively)...................... 20,246 19,964
Payments for 12,361 and 7,589 Shares
Redeemed........................... (20,797) (10,947)
--------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions (66,544 and 71,750
shares, respectively)............. 110,067 101,531
--------- ---------
Total Increase in Net Assets.......... 154,661 163,062
NET ASSETS
Beginning of Period................... 505,189 342,127
--------- ---------
End of Period (includes undistributed
net investment income of $16,682 and
$12,699 respectively)................ $659,850 $505,189
--------- ---------
--------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
50
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
International Equity Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MAY 3, 1994*
ENDED DECEMBER 31, THROUGH
--------------------------------- DECEMBER 31,
1997 1996 1995 1994
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.56 $ 1.35 $ 1.19 $ 1.22
Income from Investment Operations:
Net Investment Income............. 0.04 0.04 0.04 0.02
Net Realized and Unrealized Gains
on Investments................... 0.15 0.24 0.13 (0.02)
--------- --------- --------- ---------------
Total from Investment
Operations..................... 0.19 0.28 0.17 0.00
--------- --------- --------- ---------------
Less Distributions:
Distributions from Net Investment
Income........................... (0.04) (0.03) -- (0.02)
Distributions from Realized Gains
on Investments................... (0.02) (0.04) (0.01) (0.01)
--------- --------- --------- ---------------
Total Distributions............. (0.06) (0.07) (0.01) (0.03)
--------- --------- --------- ---------------
Net Asset Value, End of Period.......... $ 1.69 $ 1.56 $ 1.35 $ 1.19
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Total Return+........................... 12.28% 21.01% 14.57% 0.11%++
--------- --------- --------- ---------------
--------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $659,850 $505,189 $342,127 $292,533
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Ratio of Expenses to Average Net
Assets................................. 0.77% 0.81% 0.85% 0.87%**
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Ratio of Net Investment Income to
Average Net Assets..................... 2.75% 3.02% 2.68% 2.28%**
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Portfolio Turnover Rate................. 16.74% 17.07% 26.71% 10.97%
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Average Commission Rate #............... $ 0.0009 $ 0.0151
--------- ---------
--------- ---------
</TABLE>
* Commencement of Operations
** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
++ Reflects total return for the period; not annualized.
# Disclosure required for fiscal years beginning after September 1, 1995.
The Accompanying Notes are an Integral Part of the Financial Statements
---
51
<PAGE>
Growth Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth Stock Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $160,419)......... $232,915
Money Market Investments (cost
$9,771).............................. 9,771
---------
242,686
Cash.................................. 51
Due from Sale of Securities........... 447
Dividends and Interest Receivable..... 244
Due from Sale of Fund Shares.......... 239
---------
Total Assets........................ 243,667
---------
LIABILITIES
Due on Purchase of Securities......... 446
Due to Investment Advisor............. 102
Accrued Expenses...................... 33
Due on Redemption of Fund Shares...... 15
---------
Total Liabilities................... 596
---------
NET ASSETS.............................. $243,071
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (400,000
shares authorized, $.01 par value;
134,273 shares outstanding).......... $166,515
Undistributed Accumulated Net Realized
Gain on Investments.................. 4,060
Net Unrealized Appreciation of:
Investment Securities............... 72,496
---------
Net Assets for 134,273 Shares
Outstanding.......................... $243,071
---------
---------
Net Asset Value, Offering and
Redemption Price per Share........... $ 1.81
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax
of $30)............................ $ 2,558
Interest............................ 1,160
--------
Total Income...................... 3,718
--------
Expenses
Management Fees..................... 1,022
Other Expenses...................... 27
Custodian Fees...................... 17
--------
Total Expenses.................... 1,066
--------
Less Custodian Fees:
Paid by Affiliate............ (12)
Paid Indirectly.............. (5)
--------
Total Net Expenses................ 1,049
--------
Net Investment Income................. 2,669
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain on Investments:
Investment Securities............... 9,290
Index Futures Contracts............. 2,652
--------
Net Realized Gain on Investments
for the Period................... 11,942
--------
Net Change in Unrealized Appreciation
(Depreciation) of:
Investments Securities.............. 42,658
Index Futures Contracts............. (157)
--------
Net Change in Unrealized
Appreciation of Investments for
the Period....................... 42,501
--------
Net Gain on Investments............... 54,443
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............. $57,112
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
52
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 2,669 $ 1,767
Net Realized Gain on Investments.... 11,942 5,039
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 42,501 17,013
--------- ---------
Net Increase in Net Assets
Resulting from Operations......... 57,112 23,819
--------- ---------
Distributions to Shareholders from:
Net Investment Income............... (2,685) (1,749)
Net Realized Gain on Investments.... (8,527) (5,031)
--------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (11,212) (6,780)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 42,594 and
45,246 Shares...................... 70,967 62,709
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(6,422 and 4,630 shares,
respectively)...................... 11,212 6,780
Payments for 31,206 and 1,147 Shares
Redeemed........................... (55,490) (1,603)
--------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions (17,810 and 48,729
shares, respectively)............. 26,689 67,886
--------- ---------
Total Increase in Net Assets.......... 72,589 84,925
NET ASSETS
Beginning of Period................... 170,482 85,557
--------- ---------
End of Period (includes undistributed
net investment income of $0 and $32,
respectively)........................ $243,071 $170,482
--------- ---------
--------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
53
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth Stock Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 3,
FOR THE YEAR 1994*
ENDED DECEMBER 31, THROUGH
--------------------------------- DECEMBER
1997 1996 1995 31, 1994
--------- --------- --------- --------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.46 $ 1.26 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income............. 0.02 0.02 0.02 0.01
Net Realized and Unrealized Gain
on Investments................... 0.42 0.25 0.28 --
--------- --------- --------- --------
Total from Investment
Operations..................... 0.44 0.27 0.30 0.01
--------- --------- --------- --------
Less Distributions:
Distributions from Net Investment
Income........................... (0.02) (0.02) (0.02) (0.01)
Distributions from Realized Gains
on Investments................... (0.07) (0.05) (0.02) --
--------- --------- --------- --------
Total Distributions............. (0.09) (0.07) (0.04) (0.01)
--------- --------- --------- --------
Net Asset Value, End of Period.......... $ 1.81 $ 1.46 $ 1.26 $ 1.00
--------- --------- --------- --------
--------- --------- --------- --------
Total Return+........................... 29.85% 20.91% 30.82% 1.55%++
--------- --------- --------- --------
--------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $243,071 $170,482 $ 85,557 $41,868
--------- --------- --------- --------
--------- --------- --------- --------
Ratio of Expenses to Average Net
Assets................................. 0.49% 0.57% 0.61% 0.71%**
--------- --------- --------- --------
--------- --------- --------- --------
Ratio of Net Investment Income to
Average Net Assets..................... 1.24% 1.41% 1.77% 2.30%**
--------- --------- --------- --------
--------- --------- --------- --------
Portfolio Turnover Rate................. 33.20% 37.61% 46.83% 16.51%
--------- --------- --------- --------
--------- --------- --------- --------
Average Commission Rate #............... $ 0.0559 $ 0.0629
--------- ---------
--------- ---------
</TABLE>
* Commencement of Operations.
** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
++ Reflects total return for the period; not annualized.
# Disclosure required for fiscal years beginning after September 1, 1995.
The Accompanying Notes are an Integral Part of the Financial Statements
---
54
<PAGE>
Growth and Income Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth and Income Stock Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $337,350)......... $364,525
Money Market Investments (cost
$5,489).............................. 5,489
---------
370,014
Cash.................................. 82
Due from Sale of Securities........... 4,763
Dividends and Interest Receivable..... 563
Due from Sale of Fund Shares.......... 174
---------
Total Assets........................ 375,596
---------
LIABILITIES
Due on Purchase of Securities......... 3,215
Due on Redemption of Fund Shares...... 226
Due to Investment Advisor............. 186
Accrued Expenses...................... 34
---------
Total Liabilities................... 3,661
---------
NET ASSETS.............................. $371,935
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (400,000
shares authorized, $.01 par value;
279,536 shares outstanding).......... $344,245
Undistributed Accumulated Net Realized
Gain on Investments.................. 515
Net Unrealized Appreciation of
Investments.......................... 27,175
---------
Net Assets for 279,536 Shares
Outstanding.......................... $371,935
---------
---------
Net Asset Value, Offering and
Redemption Price per Share........... $ 1.33
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax
of $19)............................ $ 4,542
Interest............................ 450
---------
Total Income...................... 4,992
---------
Expenses
Management Fees..................... 1,799
Custodian Fees...................... 31
Other Expenses...................... 19
---------
Total Expenses.................... 1,849
---------
Less Custodian Fees:
Paid by Affiliate............ (24)
Paid Indirectly.............. (7)
---------
Total Net Expenses................ 1,818
---------
Net Investment Income................. 3,174
---------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net Realized Gain on Investments...... 72,633
Net Change in Unrealized Appreciation
of Investments for the Period........ 2,850
---------
Net Gain on Investments............... 75,483
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $ 78,657
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
55
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth and Income Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 3,174 $ 2,654
Net Realized Gain on Investments.... 72,633 21,066
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 2,850 11,131
--------- ---------
Net Increase in Net Assets
Resulting from Operations......... 78,657 34,851
--------- ---------
Distributions to Shareholders from:
Net Investment Income............... (3,200) (2,646)
Net Realized Gain on Investments.... (78,180) (18,392)
--------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (81,380) (21,038)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 75,470 and
51,364 Shares...................... 116,134 65,912
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(61,873 and 15,944 shares,
respectively)...................... 81,380 21,038
Payments for 35,535 and 2,670 Shares
Redeemed........................... (57,040) (3,502)
--------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions (101,808 and 64,638
shares, respectively)............. 140,474 83,448
--------- ---------
Total Increase in Net Assets.......... 137,751 97,261
NET ASSETS
Beginning of Period................... 234,184 136,923
--------- ---------
End of Period (includes undistributed
net investment income of $0 and $25,
respectively)........................ $371,935 $234,184
--------- ---------
--------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
56
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth and Income Stock Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
FOR THE
PERIOD MAY 3,
FOR THE YEAR 1994*
ENDED DECEMBER 31, THROUGH
--------------------------------- DECEMBER 31,
1997 1996 1995 1994
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.32 $ 1.21 $ 0.98 $ 1.00
Income from Investment Operations:
Net Investment Income............... 0.01 0.02 0.02 0.01
Net Realized and Unrealized Gain
(Loss) on Investments.............. 0.37 0.23 0.29 (0.01)
--------- --------- --------- ---------------
Total from Investment
Operations....................... 0.38 0.25 0.31 (0.00)
--------- --------- --------- ---------------
Less Distributions:
Distributions from Net Investment
Income............................. (0.01) (0.02) (0.02) (0.01)
Distributions from Realized Gains on
Investments........................ (0.36) (0.12) (0.06) (0.01)
--------- --------- --------- ---------------
Total Distributions............... (0.37) (0.14) (0.08) (0.02)
--------- --------- --------- ---------------
Net Asset Value, End of Period.......... $ 1.33 $ 1.32 $ 1.21 $ 0.98
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Total Return+........................... 30.03% 19.97% 31.12% 0.34%++
--------- --------- --------- ---------------
--------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $371,935 $234,184 $136,923 $ 64,700
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Ratio of Expenses to Average Net
Assets................................. 0.60% 0.62% 0.69% 0.78%**
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Ratio of Net Investment Income to
Average Net Assets..................... 1.04% 1.44% 1.68% 1.93%**
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Portfolio Turnover Rate................. 144.52% 93.92% 80.00% 54.18%
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Average Commission Rate #............... $ 0.0453 $ 0.0515
--------- ---------
--------- ---------
</TABLE>
* Commencement of Operations.
** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
++ Reflects total return for the period; not annualized.
# Disclosure required for fiscal years beginning after September 1, 1995.
The Accompanying Notes are an Integral Part of the Financial Statements
---
57
<PAGE>
Index 500 Stock Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Index 500 Stock Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $659,244)............................. $1,098,986
Money Market Investments (cost $53,795)................... 53,795
-----------
1,152,781
Cash...................................................... 50
Dividends and Interest Receivable......................... 1,559
Due from Sale of Fund Shares.............................. 167
-----------
Total Assets............................................ 1,154,557
-----------
LIABILITIES
Due on Redemption of Fund Shares.......................... 1,416
Due to Investment Advisor................................. 204
Accrued Expenses.......................................... 69
Futures Variation Margin.................................. 11
-----------
Total Liabilities......................................... 1,700
-----------
NET ASSETS.................................................. $1,152,857
-----------
-----------
REPRESENTED BY:
Aggregate Paid in Capital (600,000 shares authorized, $.01
par value; 436,104 shares outstanding)................... $ 667,337
Undistributed Net Investment Income....................... 17,811
Undistributed Accumulated Net Realized Gain on
Investments.............................................. 27,298
Net Unrealized Appreciation of:
Investment Securities................................... 439,742
Index Futures Contracts................................. 669
-----------
Net Assets for 436,104 Shares Outstanding................. $1,152,857
-----------
-----------
Net Asset Value, Offering and Redemption Price per
Share.................................................... $ 2.64
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $129)........... $ 16,013
Interest................................................ 3,795
---------
Total Income.......................................... 19,808
---------
Expenses
Management Fees......................................... 1,927
Custodian Fees.......................................... 48
Other Expenses.......................................... 70
---------
Total Expenses........................................ 2,045
---------
Less Custodian Fees:
Paid by Affiliate................................ (44)
Paid Indirectly.................................. (4)
---------
Total Net Expenses.................................... 1,997
---------
Net Investment Income..................................... 17,811
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investments:
Investment Securities................................... 11,844
Index Futures Contracts................................. 15,796
---------
Net Realized Gain on Investments for the Period....... 27,640
---------
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities................................... 220,032
Index Futures Contracts................................. (60)
---------
Net Change in Unrealized Appreciation of Investments
for the Period....................................... 219,972
---------
Net Gain on Investments................................. 247,612
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $265,423
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
58
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Index 500 Stock Porttfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 17,811 $ 13,866
Net Realized Gain on Investments.... 27,640 17,014
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 219,972 96,274
--------- ---------
Net Increase in Net Assets
Resulting from Operations......... 265,423 127,154
--------- ---------
Disributions to Shareholders from:
Net Investment Income............... (13,866) (6,192)
Net Realized Gain on Investments.... (16,994) (9,632)
--------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (30,860) (15,824)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 75,307 and
72,277 Shares...................... 178,554 134,034
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(13,655 and 9,021 shares,
respectively)...................... 30,860 15,824
Payments for 12,917 and 8,757 Shares
Redeemed........................... (31,186) (16,255)
--------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions (76,045 and 72,541
shares, respectively)............. 178,228 133,603
--------- ---------
Total Increase in Net Assets.......... 412,791 244,933
NET ASSETS
Beginning of Period................... 740,066 495,133
--------- ---------
End of Period (includes undistributed
net investment income of $17,811 and
$13,866 respectively)................ $1,152,857 $740,066
--------- ---------
--------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
59
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Index 500 Stock Porttfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 2.06 $ 1.72 $ 1.27 $ 1.29 $ 1.33
Income from Investment Operations:
Net Investment Income............. 0.04 0.04 0.04 0.03 0.04
Net Realized and Unrealized Gain
(Loss) on Investments............ 0.62 0.35 0.42 (0.01) 0.09
----------- --------- --------- --------- --------
Total from Investment
Operations..................... 0.66 0.39 0.46 0.02 0.13
----------- --------- --------- --------- --------
Less Distributions:
Distributions from Net Investment
Income........................... (0.04) (0.02) (0.01) (0.03) (0.03)
Distributions from Realized Gains
on Investments................... (0.04) (0.03) -- (0.01) (0.14)
----------- --------- --------- --------- --------
Total Distributions............. (0.08) (0.05) (0.01) (0.04) (0.17)
----------- --------- --------- --------- --------
Net Asset Value, End of Period.......... $ 2.64 $ 2.06 $ 1.72 $ 1.27 $ 1.29
----------- --------- --------- --------- --------
----------- --------- --------- --------- --------
Total Return+........................... 33.20% 22.75% 37.25% 1.21% 9.90%
----------- --------- --------- --------- --------
----------- --------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $1,152,857 $740,066 $495,133 $316,123 $25,479
----------- --------- --------- --------- --------
----------- --------- --------- --------- --------
Ratio of Expenses to Average Net
Assets................................. 0.21% 0.21% 0.21% 0.24% 0.30%
----------- --------- --------- --------- --------
----------- --------- --------- --------- --------
Ratio of Net Investment Income to
Average Net Assets..................... 1.86% 2.27% 2.51% 3.10% 2.55%
----------- --------- --------- --------- --------
----------- --------- --------- --------- --------
Portfolio Turnover Rate................. 3.15% 3.45% 3.19% 5.59% 62.69%
----------- --------- --------- --------- --------
----------- --------- --------- --------- --------
Average Commission Rate #............... $ 0.0304 $ 0.0306
----------- ---------
----------- ---------
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
# Disclosure required for fiscal years beginning after September 1, 1995.
The Accompanying Notes are an Integral Part of the Financial Statements
---
60
<PAGE>
Balanced Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Balanced Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Common Stock (cost $740,139).............................. $1,527,031
Bonds (cost $899,185)..................................... 926,377
Money Market Investments (cost $320,981).................. 321,211
-----------
2,774,619
Cash...................................................... 3,616
Dividends and Interest Receivable......................... 15,005
Due from Sale of Foreign Currency......................... 14,425
Due from Sale of Securities............................... 6,000
-----------
Total Assets............................................ 2,813,665
-----------
LIABILITIES
Due on Purchase of Foreign Currency....................... 14,842
Due on Purchase of Securities............................. 6,648
Due on Redemption of Fund Shares.......................... 2,728
Due to Investment Advisor................................. 750
Due on Futures Variation Margin........................... 203
-----------
Total Liabilities....................................... 25,171
-----------
NET ASSETS.................................................. $2,788,494
-----------
REPRESENTED BY:
Aggregate Paid in Capital
(2,000,000 shares authorized, $.01 par value; 1,400,746
shares outstanding)...................................... $1,794,233
Undistributed Net Investment Income....................... 94,962
Undistributed Accumulated Net Realized Gain on
Investments.............................................. 85,588
Net Unrealized Appreciation (Depreciation) of:
Investment Securities................................... 814,314
Index Futures Contracts................................. (479)
Foreign Currency Transactions........................... (124)
-----------
Net Assets for 1,400,746 Shares Outstanding............. $2,788,494
-----------
-----------
Net Asset Value, Offering and Redemption Price per
Share.................................................... $ 1.99
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest................................................ $ 77,592
Dividends (less foreign dividend tax of $205)........... 25,121
-----------
Total Income.......................................... 102,713
-----------
Expenses
Management Fees......................................... 7,727
-----------
Net Investment Income..................................... 94,986
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments:
Investment Securities................................... 67,229
Index Futures Contracts................................. 16,153
Foreign Currency Transactions........................... (26)
-----------
Net Realized Gain on Investments for the Period....... 83,356
-----------
Net Change In Unrealized Appreciation (Depreciation) of:
Investment Securities................................... 318,955
Index Futures Contracts................................. (480)
Foreign Currency Transactions........................... (124)
-----------
Net Change in Unrealized Appreciation of Investments
for the Period....................................... 318,351
-----------
Net Gain on Investments................................... 401,707
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 496,693
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
61
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Balanced Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 94,986 $ 86,649
Net Realized Gain on Investments.... 83,356 27,969
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 318,351 164,495
----------- -----------
Net Increase in Net Assets
Resulting from Operations......... 496,693 279,113
----------- -----------
Distributions to Shareholders from:
Net Investment Income............... (86,698) (83,501)
Net Realized Gain on Investments.... (29,228) (35,154)
----------- -----------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (115,926) (118,655)
Fund Share Transactions
Proceeds from Sale of 42,694 and
51,923 Shares...................... 79,608 84,008
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(65,384 and 77,149 shares,
respectively)...................... 115,926 118,655
Payments for 61,284 and 73,638
Shares Redeemed.................... (114,041) (120,176)
----------- -----------
Net Increase in Net Assets
Resulting from Fund Share
Transactions
(46,794 and 55,434 shares,
respectively)..................... 81,493 82,487
----------- -----------
Total Increase in Net Assets.......... 462,260 242,945
----------- -----------
NET ASSETS
Beginning of Period................. 2,326,234 2,083,289
----------- -----------
End of Period (includes
undistributed net investment income
of $94,962 and $86,699
respectively)...................... $2,788,494 $2,326,234
----------- -----------
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
62
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Balanced Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.72 $ 1.60 $ 1.31 $ 1.33 $ 1.39
Income from Investment Operations:
Net Investment Income............. 0.07 0.06 0.07 0.04 0.06
Net Realized and Unrealized
Gain(Loss) on Investments........ 0.28 0.15 0.27 (0.05) 0.09
----------- ----------- ----------- ----------- --------
Total from Investment
Operations..................... 0.35 0.21 0.34 (0.01) 0.15
----------- ----------- ----------- ----------- --------
Less Distributions:
Distributions from Net Investment
Income........................... (0.06) (0.06) (0.04) (0.00) (0.07)
Distributions from Realized Gains
on Investments................... (0.02) (0.03) (0.01) (0.01) (0.14)
----------- ----------- ----------- ----------- --------
Total Distributions............. (0.08) (0.09) (0.05) (0.01) (0.21)
----------- ----------- ----------- ----------- --------
Net Asset Value, End of Period.......... $ 1.99 $ 1.72 $ 1.60 $ 1.31 $ 1.33
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
Total Return+........................... 21.52% 13.45% 26.39% 0.16% 9.91%
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $2,788,494 $2,326,234 $2,083,289 $1,727,127 $68,910
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
Ratio of Expenses to Average Net
Assets................................. 0.30% 0.30% 0.30% 0.30% 0.30%
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
Ratio of Net Investment Income to
Average Net Assets..................... 3.70% 3.95% 4.40% 4.78% 4.24%
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
Portfolio Turnover Rate................. 29.94% 67.66% 37.28% 42.35% 70.91%
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
Average Commission Rate #............... $ 0.0310 $ 0.0320
----------- -----------
----------- -----------
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
# Disclosure required for fiscal years beginning after September 1, 1995.
The Accompanying Notes are an Integral Part of the Financial Statements
---
63
<PAGE>
High Yield Bond Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
High Yield Bond Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Bonds (cost $109,759)..................................... $109,825
Preferred Stock (cost $27,457)............................ 29,647
Money Market Investments (cost $10,587)................... 10,587
Common Stock (cost $1,449)................................ 806
---------
150,865
Dividends and Interest Receivable......................... 2,647
Due from Sale of Fund Shares.............................. 74
---------
Total Assets............................................ 153,586
---------
LIABILITIES
Due on Purchase of Securities............................. 440
Due to Investment Advisor................................. 68
Accrued Expenses.......................................... 40
---------
Total Liabilities....................................... 548
---------
NET ASSETS.................................................. $153,038
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (400,000 shares authorized, $.01
par value; 143,917 shares outstanding)................... $151,568
Overdistributed Net Investment Income..................... (143)
Net Unrealized Appreciation of Investments................ 1,613
---------
Net Assets for 143,917 Shares Outstanding................. $153,038
---------
---------
Net Asset Value, Offering and Redemption Price per
Share.................................................... $ 1.06
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest................................................ $ 10,660
Dividends............................................... 2,593
---------
Total Income.......................................... 13,253
---------
Expenses
Management Fees......................................... 658
Other Expenses.......................................... 34
Custodian Fees.......................................... 14
---------
Total Expenses........................................ 706
---------
Less Custodian Fees:
Paid Indirectly.................................. (14)
---------
Total Net Expenses.................................... 692
---------
Net Investment Income..................................... 12,561
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investments.......................... 7,437
Net Change in Unrealized Depreciation of Investments for
the Period............................................... (1,416)
---------
Net Gain on Investments................................... 6,021
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 18,582
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
64
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
High Yield Bond Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $12,561 $ 6,867
Net Realized Gain on Investments.... 7,437 3,638
Net Change in Unrealized
Appreciation (Depreciation) of
Investments for the Period......... (1,416) 2,795
-------- --------
Net Increase in Net Assets
Resulting from Operations......... 18,582 13,300
-------- --------
Distributions to Shareholders from:
Net Investment Income............... (16,554) (7,126)
Net Realized Gain on Investments and
Capital............................ (8,429) (2,541)
-------- --------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (24,983) (9,667)
-------- --------
Fund Share Transactions
Proceeds from Sale of 48,820 and
23,742 Shares...................... 56,788 26,454
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(23,165 and 8,840 shares,
respectively)...................... 24,983 9,667
Payments for 13,489 and1,697 Shares
Redeemed........................... (16,210) (1,850)
-------- --------
Net Increase in Net Assets
Resulting from Fund Share
Transactions (58,496 and 30,885
shares, respectively)............. 65,561 34,271
-------- --------
Total Increase in Net Assets.......... 59,160 37,904
NET ASSETS
Beginning of Period................... 93,878 55,974
-------- --------
End of Period (includes
overdistributed net investment income
of ($143) and ($297),
respectively)........................ $153,038 $93,878
-------- --------
-------- --------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
65
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
High Yield Bond Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR MAY 3, 1994*
ENDED DECEMBER 31, THROUGH
------------------------------- DECEMBER 31,
1997 1996 1995 1994
--------- -------- -------- ---------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.10 $ 1.03 $ 0.97 $ 1.00
Income from Investment Operations:
Net Investment Income............. 0.11 0.09 0.10 0.06
Net Realized and Unrealized Gain
(Loss) on Investments............ 0.06 0.10 0.07 (0.03)
--------- -------- -------- ---------------
Total from Investment
Operations..................... 0.17 0.19 0.17 0.03
--------- -------- -------- ---------------
Less Distributions:
Distributions from Net Investment
Income........................... (0.14) (0.09) (0.10) (0.06)
Distributions from Realized Gains
on Investments and Capital....... (0.07) (0.03) (0.01) --
--------- -------- -------- ---------------
Total Distributions............. (0.21) (0.12) (0.11) (0.06)
--------- -------- -------- ---------------
Net Asset Value, End of Period.......... $ 1.06 $ 1.10 $ 1.03 $ 0.97
--------- -------- -------- ---------------
--------- -------- -------- ---------------
Total Return+........................... 15.85% 19.77% 16.78% 3.02%++
--------- -------- -------- ---------------
--------- -------- -------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $153,038 $93,878 $55,974 $35,537
--------- -------- -------- ---------------
--------- -------- -------- ---------------
Ratio of Expenses to Average Net
Assets................................. 0.55% 0.60% 0.65% 0.73%**
--------- -------- -------- ---------------
--------- -------- -------- ---------------
Ratio of Net Investment Income to
Average Net Assets..................... 9.95% 9.54% 9.90% 9.40%**
--------- -------- -------- ---------------
--------- -------- -------- ---------------
Portfolio Turnover Rate................. 129.49% 143.91% 116.57% 119.48%
--------- -------- -------- ---------------
--------- -------- -------- ---------------
</TABLE>
* Commencement of Operations.
** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
++ Reflects total return for the period; not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements
---
66
<PAGE>
Select Bond Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Select Bond Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Bonds (cost $226,607)................. $230,648
Money Market Investments (cost
$7,558).............................. 7,562
---------
238,210
Cash.................................. 786
Due from Foreign Currency Contracts... 11,015
Due from Sale of Fund Shares.......... 5,276
Interest Receivable................... 2,806
---------
Total Assets........................ 258,093
---------
LIABILITIES
Due on Foreign Currency Contracts..... 11,262
Due on Purchase of Securities......... 1,171
Due on Redemption of Fund Shares...... 566
Futures Variation Margin.............. 193
Due to Investment Advisor............. 66
---------
Total Liabilities................... 13,258
---------
NET ASSETS.............................. $244,835
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital
(400,000 shares authorized, $.01 par
value; 194,772 shares outstanding)... $223,542
Undistributed Net Investment Income... 15,722
Undistributed Accumulated Net Realized
Gain on Investments.................. 2,050
Net Unrealized
Appreciation(Depreciation) of:
Investments Securities.............. 4,046
Futures Contracts................... (431)
Foreign Currency Transactions....... (94)
---------
Net Assets for 194,772 Shares
Outstanding.......................... $244,835
---------
---------
Net Asset Value, Offering and
Redemption Price per Share........... $ 1.26
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest............................ $16,343
--------
Expenses
Management Fees..................... 667
--------
Net Investment Income................. 15,676
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on
Investments:
Investment Securities............... 2,945
Foreign Currency Transactions....... 46
Futures Contracts................... (126)
--------
Net Realized Gain on Investments
for the Period................... 2,865
--------
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities............... 2,261
Futures Contracts................... (431)
Foreign Currency Transactions....... (94)
--------
Net Change in Unrealized
Appreciation for the Period...... 1,736
--------
Net Gain on Investments............... 4,601
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $20,277
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
67
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Select Bond Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 15,676 $ 13,288
Net Realized Gain on Investments.... 2,865 569
Net Change in Unrealized
Appreciation (Depreciation) of
Investments for the Period......... 1,736 (6,987)
--------- ---------
Net Increase in Net Assets
Resulting from Operations......... 20,277 6,870
--------- ---------
Distributions to Shareholders from:
Net Investment Income............... (13,300) (7,025)
Net Realized Gain on Investments.... -- --
--------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (13,300) (7,025)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 26,095 and
23,808 Shares...................... 32,098 28,507
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(11,396 and 6,130 shares,
respectively)...................... 13,300 7,025
Payments for 17,885 and 16,109
Shares Redeemed.................... (21,873) (19,186)
--------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions (19,606 and 13,829
shares, respectively)............. 23,526 16,346
--------- ---------
Total Increase in Net Assets.......... 30,502 16,191
NET ASSETS
Beginning of Period................... 214,333 198,142
--------- ---------
End of Period (includes undistributed
net investment income of $15,722 and
$13,300 respectively)................ $244,835 $214,333
--------- ---------
--------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
68
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Select Bond Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.22 $ 1.23 $ 1.06 $ 1.15 $ 1.14
Income from Investment Operations:
Net Investment Income............. 0.08 0.07 0.07 0.06 0.08
Net Realized and Unrealized Gain
(Loss) on Investments............ 0.04 (0.04) 0.13 (0.09) 0.05
--------- --------- --------- -------- --------
Total from Investment
Operations..................... 0.12 0.03 0.20 (0.03) 0.13
--------- --------- --------- -------- --------
Less Distributions:
Dividends from Net Investment
Income........................... (0.08) (0.04) (0.03) (0.06) (0.08)
Distributions from Realized Gains
on Investments................... -- -- -- -- (0.04)
--------- --------- --------- -------- --------
Total Distributions............. (0.08) (0.04) (0.03) (0.06) (0.12)
--------- --------- --------- -------- --------
Net Asset Value, End of Period.......... $ 1.26 $ 1.22 $ 1.23 $ 1.06 $ 1.15
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Total Return+........................... 9.46% 3.31% 19.10% (2.28%) 10.81%
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $244,835 $214,333 $198,142 $158,508 $17,485
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Ratio of Expenses to Average Net
Assets................................. 0.30% 0.30% 0.30% 0.30% 0.30%
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Ratio of Net Investment Income to
Average Net Assets..................... 7.03% 6.48% 6.61% 7.02% 6.40%
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Portfolio Turnover Rate................. 184.93% 195.98% 69.06% 108.00% 67.69%
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
The Accompanying Notes are an Integral Part of the Financial Statements
---
69
<PAGE>
Money Market Portfolio
NORTHWESTERN MUTUAL SERIES FUND, INC.
Money Market Portfolio
Financial Statements
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Money Market Investments
(cost $193,630)...................... $193,630
Cash.................................. 2
Due from Sale of Fund Shares.......... 582
Interest Receivable................... 424
---------
Total Assets........................ 194,638
---------
LIABILITIES
Due on Redemption of Fund Shares...... 116
Due to Investment Advisor............. 52
---------
Total Liabilities................... 168
---------
NET ASSETS.............................. $194,470
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (400,000
shares authorized, $.01 par value;
194,494 shares outstanding).......... $194,470
---------
Net Assets for 194,494 Shares
Outstanding.......................... $194,470
---------
---------
Net Asset Value, Offering and
Redemption Price per Share........... $ 1.00
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest............................ $ 10,433
---------
Expenses
Management Fees..................... 555
---------
Net Investment Income................. 9,878
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............. $ 9,878
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
70
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Money Market Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 9,878 $ 7,576
--------- ---------
Net Increase in Net Assets
Resulting from Operations......... 9,878 7,576
--------- ---------
Distributions to Shareholders from:
Net Investment Income............... (9,885) (7,576)
--------- ---------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (9,885) (7,576)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 130,864 and
122,068 Shares..................... 130,863 122,068
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(9,878 and 7,576 shares,
respectively)...................... 9,878 7,576
Payments for 122,562 and 85,918
Shares Redeemed.................... (122,562) (85,918)
--------- ---------
Net Increase in Net Assets
Resulting from Fund Share
Transactions
18,180 and 43,726) shares,
respectively)..................... 18,179 43,726
--------- ---------
Total Increase in Net Assets.......... 18,172 43,726
NET ASSETS
Beginning of Period................... 176,298 132,572
--------- ---------
End of Period (includes no
undistributed net investment
income).............................. $194,470 $176,298
--------- ---------
--------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
71
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Money Market Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income............... 0.05 0.05 0.06 0.05 0.03
Less Distributions from Net
Investment Income.................. (0.05) (0.05) (0.06) (0.05) (0.03)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return+........................... 5.47% 5.29% 5.82% 4.06% 2.88%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $194,470 $176,298 $132,572 $104,217 $ 12,657
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Expenses to Average Net
Assets................................. 0.30% 0.30% 0.30% 0.30% 0.30%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Net Investment Income to
Average Net Assets..................... 5.33% 5.13% 5.61% 4.64% 2.87%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees.
The Accompanying Notes are an Integral Part of the Financial Statements
---
72
<PAGE>
Notes to Financial Statements
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
DECEMBER 31, 1997
Note 1 -- Northwestern Mutual Series Fund, Inc. (the "Series Fund"), is
registered as a diversified open-end investment company under the Investment
Company Act of 1940. The Series Fund consists of the Aggressive Growth Stock
Portfolio, International Equity Portfolio, Growth Stock Portfolio, Growth and
Income Stock Portfolio, Index 500 Stock Portfolio, Balanced Portfolio, High
Yield Bond Portfolio, Select Bond Portfolio and the Money Market Portfolio (the
"Portfolios"). Shares are presently offered only to The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual Life") and its segregated asset
accounts.
Note 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principal accounting policies are summarized below.
Note 3 -- Bonds are valued on the basis of prices furnished by a service which
determines prices for normal institutional size trading units of bonds, without
regard to exchange or over-the-counter prices. When quotations are not readily
available, bonds are valued at fair market value determined by procedures
approved by the Board of Directors. Stocks listed on a national or foreign stock
exchange are valued at the final sale price, or final bid price in absence of a
sale. Stocks not listed on a national or foreign stock exchange are valued at
the closing bid price on the over-the-counter market. Money market investments,
other than in the Money Market Portfolio, with maturities exceeding sixty days
but generally not exceeding one year are valued by marking to market on the
basis of an average of the most recent bid prices or yields. Money market
investments with maturities of sixty days or less and all securities in the
Money Market Portfolio are valued on an amortized cost basis or, if the current
market value differs substantially from the amortized cost, by marking to
market.
Note 4 -- Securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts on the date of valuation.
Purchases and sales of securities and income items denominated in foreign
currencies are translated in U.S. dollar amounts on the respective dates of such
transactions. When the International Equity Portfolio, Balanced Portfolio, and
Select Bond Portfolio purchases or sells a foreign security it may enter into a
foreign exchange currency contract to minimize market risk from the trade date
to the settlement date of such transaction. Such foreign exchange currency
contracts are marked to market daily.
The International Equity Portfolio, Balanced Portfolio, and the Select Bond
Portfolio do not separately report the results of operations due to changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade date and the
settlement date on security transactions, the differences between the amounts of
dividends and foreign withholding taxes recorded on the portfolio's books, and
the U.S. dollar equivalent of the amounts actually received or paid.
Note 5 -- The Aggressive Growth Stock, Growth Stock, Index 500 Stock, Balanced
and Select Bond Portfolios invest in futures contracts as an alternative to
investing in individual securities. The Aggressive Growth Stock, Growth Stock,
Index 500 Stock, Balanced, and Select Bond, could be exposed to market risk due
to charges in the value of the underlying securities or due to an illiquid
secondary market. Futures contracts are marked to market daily based upon quoted
settlement prices. The Portfolios receive from or pay to brokers an amount of
cash equal to the daily fluctuation in the value of the contracts. Such receipts
or payments, known as the "variation margin," are recorded by the Portfolios as
unrealized gains or losses. When the contract is closed, the Portfolios record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
---
73
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
DECEMBER 31, 1997
Note 6 -- Interest income and discounts earned are recorded daily on the accrual
basis and dividend income is recorded on the ex-dividend date or as soon as
information from foreign issuers is available. Where applicable, dividends are
recorded net of foreign dividend tax. Discounts and premiums on securities
purchased are amortized over the life of the respective securities when
required for federal income tax purposes using the effective interest method.
Securities transactions are accounted for on trade date. The basis for
determining cost on sale of securities is identified cost. For the year ended
December 31, 1997, transactions in securities other than money market
investments were:
<TABLE>
<CAPTION>
TOTAL U.S. GOVT U.S. GOVT
SECURITY SECURITY TOTAL SECURITY SECURITY SALES/
PORTFOLIOS PURCHASES PURCHASES SALES/MATURITIES MATURITIES
- - --------------------------------------------------------- ------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Aggressive Growth Stock.................................. $ 546,707,728 $ -- $ 493,422,739 $ --
International Equity..................................... 222,548,513 21,296,687 94,881,656 31,300,000
Growth Stock............................................. 94,826,433 -- 64,993,295 --
Growth and Income Stock.................................. 490,930,645 -- 431,230,508 --
Index 500 Stock.......................................... 199,135,836 -- 28,135,152 --
Balanced................................................. 782,098,926 490,678,618 661,481,224 435,901,340
High Yield Bond.......................................... 197,495,897 -- 153,093,698 --
Select Bond.............................................. 417,760,490 155,767,760 391,615,427 212,654,062
</TABLE>
Note 7 --The Series Fund and its Portfolios are parties to annually renewable
contracts pursuant to which each Portfolio pays a charge for investment
management and administrative services. Each Portfolio pays a monthly fee for
these investment advisory services at an annual rate based on the average daily
net asset values of each Portfolio. For the Index 500 Stock Portfolio the rate
is .20%, and for the Select Bond, Money Market and Balanced Portfolios the rate
is .30%. For the other Portfolios the rate for the investment advisory fee is
graded by the asset size of the Portfolio according to the following schedule:
<TABLE>
<CAPTION>
FIRST NEXT
$50 $50
PORTFOLIOS MILLION MILLION EXCESS
- - ----------------------------------- ------- ------- -------
<S> <C> <C> <C>
Aggressive Growth Stock............ .80% .65% .50%
International Equity............... .85% .65% .65%
Growth Stock....................... .60% .50% .40%
Growth and Income Stock............ .70% .60% .55%
High Yield Bond.................... .60% .50% .40%
</TABLE>
These amounts are paid to Northwestern Mutual Investment Services, Inc. ("NMIS")
a wholly-owned subsidiary of Northwestern Mutual Life, which is the manager and
investment adviser of the Fund. Northwestern Mutual Life is also a party
to the agreement. Other costs for each Portfolio are paid either by the
Portfolios, Northwestern Mutual Life, or NMIS depending upon the applicable
agreement in place.
Certain portfolios pay a portion of their custodian fees
indirectly through expense offset arrangements. Custodian fees are reduced for
Portfolios that maintain compensating balances in non-interest bearing accounts.
The portfolios could have invested the assets used to pay for the custodian
fees, had the assets not been used in the expense offset arrangements. As of
December 31, 1997, the amounts paid through expense offset arrangements are
$4,119 in the Aggressive Growth Stock Portfolio, $4,529 in the Growth Stock
Portfolio, $6,985 in the Growth and Income Stock Portfolio, $3,641 in the Index
500 Stock Portfolio, and $14,005 in the High Yield Bond Portfolio.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") and Templeton Investment
Counsel, Inc. ("Templeton Counsel") have been retained under an investment
sub-advisory agreement to provide investment advice and, in general, to conduct
the management investment program of the Growth and Income Stock Portfolio and
the International Equity Portfolio, respectively. NMIS pays J.P. Morgan .45% on
the first $100 million of the combined net assets for all funds managed for
Northwestern Mutual Life by J.P. Morgan, .40% on the next $100 million, .35% on
the next $200 million and .30% in excess of $400 million. NMIS pays Templeton
Counsel .50% on the first $100 million of the combined net assets for all funds
managed for Northwestern Mutual Life by Templeton Counsel and .40% in excess of
$100 million.
The Aggressive Growth Stock Portfolio paid commissions on Portfolio transactions
to an affiliated broker in the amount of $21,869.
Note 8 -- The Series Fund has elected to be taxed as a regulated investment
company meeting certain requirements under the Internal Revenue Code. Since it
expects to distribute all net investment income and net realized capital gains,
the Series Fund anticipates incurring no federal income taxes.
---
74
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
DECEMBER 31, 1997
Taxable distributions from net investment income and realized capital gains in
the Portfolios differ from book amounts earned during the period due to
differences in the timing of capital recognition, and due to the
reclassification of certain gains or losses from capital to income.
For Federal income tax purposes, net unrealized appreciation (depreciation) on
open futures contracts is required to be treated as realized gains (losses).
Note 9 -- Dividends from net investment income and net realized capital gains
are declared each year for the Aggressive Growth Stock Portfolios, International
Equity, Growth Stock, Growth and Income Stock, Index 500 Stock, Balanced, High
Yield Bond, Select Bond, and each business day for the Money Market Portfolio.
Dividend distributions are described below.
A dividend was declared on May 12, 1997, payable to shareholders of record on
May 12, 1997. Dividends paid from 1996 net investment income and 1996 net
capital gains were as follows:
<TABLE>
<CAPTION>
NET
INVESTMENT NET CAPITAL
PORTFOLIOS INCOME GAINS
- - -------------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Aggressive Growth Stock........................................................................... $ -- $57,364,645
International Equity.............................................................................. 12,704,098 7,541,567
Growth Stock...................................................................................... 14,615 799,017
Growth and Income Stock........................................................................... 26,286 6,062,555
Index 500 Stock................................................................................... 13,865,506 16,994,473
Balanced.......................................................................................... 86,698,498 29,228,140
High Yield Bond................................................................................... 160,082 992,215
Select Bond....................................................................................... 13,298,619 --
</TABLE>
A dividend was declared on June 26, 1997, payable to shareholders of record on
June 26, 1997. Dividends paid from 1997 net investment income:
<TABLE>
<CAPTION>
NET
INVESTMENT
PORTFOLIOS INCOME
- - --------------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Growth Stock................................................................................................... $1,203,768
Growth and Income Stock........................................................................................ 1,262,918
High Yield Bond................................................................................................ 3,943,225
</TABLE>
A dividend was declared on December 29, 1997, payable to shareholders of record
on December 29, 1997. Dividends paid from 1997 net investment income and 1997
net capital gains were as follows:
<TABLE>
<CAPTION>
NET
INVESTMENT NET CAPITAL
PORTFOLIOS INCOME GAINS
- - -------------------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Growth Stock...................................................................................... $1,466,320 $ 7,728,372
Growth and Income Stock........................................................................... 1,910,414 72,117,342
High Yield Bond................................................................................... 8,732,262 7,439,124
</TABLE>
A tax return of capital in the amount of $3,716,193 was paid in the High Yield
Bond Portfolio for the year ended December 31, 1997.
Note 10 -- Effective April 1, 1996, NML voluntarily reimburses the International
Equity Portfolio for the income tax benefit NML receives from foreign dividend
taxes paid by the Portfolio and passed through to NML as tax credits. The amount
reimbursed represents approximately 65% of the foreign dividend tax withheld
from the Portfolio. Reimbursements are recorded when foreign dividend taxes are
accrued. This voluntary reimbursement as of December 31, 1997 was $1,313,579 and
for the period April 1, 1996 through December 31, 1996 was $921,386.
---
75
<PAGE>
ACCOUNTANTS' LETTER
[LOGO]
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and
Contract Owners NML Variable Annuity Account B
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
equity present fairly, in all material respects, the financial position of NML
Variable Annuity Account B and the Aggressive Growth Stock Division,
International Equity Division, Growth Stock Division, Growth and Income Stock
Division, Index 500 Stock Division, Balanced Division, High Yield Bond Division,
Select Bond Division and the Money Market Division thereof at December 31, 1997,
the results of their operations and the changes in their equity for the year
then ended and for each of the other periods presented, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of The Northwestern Mutual Life Insurance Company's 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, which included direct confirmation of the number of
shares owned at December 31, 1997 with Northwestern Mutual Series Fund, Inc.,
provide a reasonable basis for the opinion expressed above.
[SIGNATURE]
Milwaukee, Wisconsin
January 27, 1998
--
76
<PAGE>
Notes
--
77
<PAGE>
ACCOUNT B FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL VARIABLE ANNUITY ACCOUNT B
Financial Statements
DECEMBER 31, 1997
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
235,933 shares (cost $535,467)................................. $ 787,309
International Equity
291,830 shares (cost $388,272)................................. 492,901
Growth Stock
98,171 shares (cost $137,044).................................. 177,690
Growth and Income Stock
213,834 shares (cost $276,150)................................. 284,613
Index 500 Stock
302,682 shares (cost $471,746)................................. 800,290
Balanced
1,108,027 shares (cost $1,515,890)............................. 2,206,081
High Yield Bond
94,484 shares (cost $105,200).................................. 100,437
Select Bond
153,082 shares (cost $180,066)................................. 192,424
Money Market
134,108 shares (cost $134,108)................................. 134,108 $5,175,853
----------
Due from Sale of Fund Shares.......................................... 3,555
Due from Northwestern Mutual Life Insurance Company................... 505
----------
Total Assets.................................................... $5,179,913
----------
----------
LIABILITIES
Due to Participants................................................. $ 5,542
Due to Northwestern Mutual Life Insurance Company................... 3,555
Due on Purchase of Fund Shares...................................... 505
----------
Total Liabilities............................................... 9,602
----------
EQUITY (NOTE 8)
Contracts Issued Prior to December 17, 1981......................... 103,822
Contracts Issued After December 16, 1981 and Prior to March 31,
1995............................................................... 3,818,798
Contracts Issued On or After March 31, 1995:
Front Load Version................................................ 344,080
Back Load Version................................................. 903,611
----------
Total Equity.................................................... 5,170,311
----------
Total Liabilities and Equity.................................... $5,179,913
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
--
78
<PAGE>
ACCOUNT B FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT B
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
COMBINED STOCK DIVISION INTERNATIONAL EQUITY DIVISION
------------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
-------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 273,279 $ 170,431 $42,923 $19,634 $15,386 $15,413
Annuity Rate and Expense
Guarantees................ 53,021 39,297 8,086 6,327 5,358 3,631
-------------- -------------- ------------- ------------- ------------- -------------
Net Investment Income....... 220,258 131,134 34,837 13,307 10,028 11,782
-------------- -------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 39,664 17,426 12,892 3,323 4,228 1,533
Unrealized Appreciation of
Investments During the
Period.................... 527,607 314,176 39,283 60,869 30,048 45,599
-------------- -------------- ------------- ------------- ------------- -------------
Net Gain on Investments..... 567,271 331,602 52,175 64,192 34,276 47,132
-------------- -------------- ------------- ------------- ------------- -------------
Increase in Equity
Derived from Investment
Activity.................. 787,529 462,736 87,012 77,499 44,304 58,914
-------------- -------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 677,589 633,824 99,971 125,930 74,713 63,376
Annuity Payments............ (8,151) (6,268) (540) (435) (462) (324)
Surrenders and Other
(net)..................... (227,384) (166,092) (31,527) (19,236) (17,649) (11,636)
Transfers from Other
Divisions or Sponsor...... 508,492 334,350 68,100 81,962 53,618 38,185
Transfers to Other Divisions
or Sponsor................ (519,749) (341,164) (92,620) (53,520) (46,867) (29,316)
-------------- -------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 430,797 454,650 43,384 134,701 63,353 60,285
-------------- -------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 1,218,325 917,386 130,396 212,200 107,657 119,199
EQUITY
Beginning of Period......... 3,951,986 3,034,600 656,486 444,286 384,775 265,576
-------------- -------------- ------------- ------------- ------------- -------------
End of Period............... $5,170,311 $3,951,986 $786,882 $656,486 $492,432 $384,775
-------------- -------------- ------------- ------------- ------------- -------------
-------------- -------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
79
<PAGE>
ACCOUNT B FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT B
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH & INCOME INDEX 500
GROWTH STOCK DIVISION STOCK DIVISION STOCK DIVISION
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 7,990 $ 3,822 $ 61,425 $ 13,580 $ 21,296 $ 10,681
Annuity Rate and Expense
Guarantees................ 1,459 644 2,356 1,159 7,413 4,435
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income....... 6,531 3,178 59,069 12,421 13,883 6,246
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 694 141 731 214 3,597 1,384
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... 26,626 8,812 (8,963) 8,486 158,395 74,302
------------- ------------- ------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 27,320 8,953 (8,232) 8,700 161,992 75,686
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity
Derived from Investment
Activity.................. 33,851 12,131 50,837 21,121 175,875 81,932
------------- ------------- ------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 35,700 31,093 55,118 40,002 115,401 88,137
Annuity Payments............ (151) (76) (386) (257) (1,292) (933)
Surrenders and Other
(net)..................... (4,686) (1,841) (7,534) (2,673) (28,174) (16,428)
Transfers from Other
Divisions or Sponsor...... 30,593 21,267 55,360 20,255 88,834 50,087
Transfers to Other Divisions
or Sponsor................ (14,624) (5,833) (21,037) (9,131) (57,501) (27,976)
------------- ------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 46,832 44,610 81,521 48,196 117,268 92,887
------------- ------------- ------------- ------------- ------------- -------------
Net Increase in Equity........ 80,683 56,741 132,358 69,317 293,143 174,819
EQUITY
Beginning of Period......... 96,727 39,986 152,389 83,072 506,308 331,489
------------- ------------- ------------- ------------- ------------- -------------
End of Period............... $177,410 $96,727 $284,747 $152,389 $799,451 $506,308
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
80
<PAGE>
NML VARIABLE ANNUITY ACCOUNT B
Statement of Operations and Changes in Equity
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCED DIVISION HIGH YIELD BOND DIVISION
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 91,116 $ 91,785 $ 15,911 $ 4,708
Annuity Rate and Expense
Guarantees................ 24,287 20,070 752 289
------------- ------------- ------------- -------------
Net Investment Income....... 66,829 71,715 15,159 4,419
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 16,178 9,799 147 39
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... 283,731 115,967 (5,691) 1,194
------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 299,909 125,766 (5,544) 1,233
------------- ------------- ------------- -------------
Increase in Equity
Derived from Investment
Activity.................. 366,738 197,481 9,615 5,652
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 162,927 171,824 27,421 15,445
Annuity Payments............ (4,545) (3,643) (159) (69)
Surrenders and Other
(net)..................... (105,615) (92,872) (2,481) (492)
Transfers from Other
Divisions or Sponsor...... 60,446 38,144 29,165 9,064
Transfers to Other Divisions
or Sponsor................ (98,388) (93,322) (9,307) (4,139)
------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 14,825 20,131 44,639 19,809
------------- ------------- ------------- -------------
Net Increase in Equity........ 381,563 217,612 54,254 25,461
EQUITY
Beginning of Period......... 1,821,194 1,603,582 46,407 20,946
------------- ------------- ------------- -------------
End of Period............... $2,202,757 $1,821,194 $100,661 $46,407
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
SELECT BOND DIVISION MONEY MARKET DIVISION
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend Income............. $ 10,248 $ 5,375 $ 6,984 $ 5,433
Annuity Rate and Expense
Guarantees................ 1,923 1,709 1,387 1,033
------------- ------------- ------------- -------------
Net Investment Income....... 8,325 3,666 5,597 4,400
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized Gain on
Investments............... 1,197 993 -- --
Unrealized Appreciation
(Depreciation) of
Investments
During the Period......... 4,178 (1,053) -- --
------------- ------------- ------------- -------------
Net Gain (Loss) on
Investments............... 5,375 (60) 0 0
------------- ------------- ------------- -------------
Increase in Equity
Derived from Investment
Activity.................. 13,699 3,606 5,597 4,400
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS
Contract Owners' Net
Payments.................. 26,099 28,026 80,239 69,991
Annuity Payments............ (457) (449) (159) (82)
Surrenders and Other
(net)..................... (10,101) (10,027) (19,617) (10,887)
Transfers from Other
Divisions or Sponsor...... 22,652 12,644 99,724 62,742
Transfers to Other Divisions
or Sponsor................ (23,258) (21,333) (156,147) (96,594)
------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions.... 14,935 8,861 4,040 25,170
------------- ------------- ------------- -------------
Net Increase in Equity........ 28,634 12,467 9,637 29,570
EQUITY
Beginning of Period......... 163,331 150,864 124,369 94,799
------------- ------------- ------------- -------------
End of Period............... $191,965 $163,331 $134,006 $124,369
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
---
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NML VARIABLE ANNUITY ACCOUNT B
Notes to Financial Statements
DECEMBER 31, 1997
NOTE 1 -- NML Variable Annuity Account B (the "Account") is registered as a unit
investment trust under the Investment Company Act of 1940 and is a segregated
asset account of The Northwestern Mutual Life Insurance Company ("Northwestern
Mutual Life" or "Sponsor") used to fund variable annuity contracts ("contracts")
for tax-deferred annuities, individual retirement annuities and non-qualified
plans. Beginning March 31, 1995, two versions of the contract are offered: Front
Load contracts with a sales charge up to 4% of purchase payments and Back Load
contracts with a withdrawal charge of 0-8%.
NOTE 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
NOTE 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the
"Fund"). The shares are valued at the Fund's offering and redemption price per
share.
The Fund is an open-end investment company registered under the Investment
Company Act of 1940.
NOTE 4 -- Annuity reserves are based on published annuity tables with age
adjustment and benefit payments which reflect actual investment experience. For
variable payment plans issued prior to January 1, 1974, annuity reserves are
based on the 1955 American Annuity Table with assumed interest rates of 3% or
5%. For variable payment plans issued on or after January 1, 1974 and before
January 1, 1985, annuity reserves are based on the 1971 Individual Annuity Table
with assumed interest rates of 3 1/2% or 5%. For variable payment plans issued
on or after January 1, 1985, annuity reserves are based on the 1983 Table a with
assumed interest rates of 3 1/2% or 5%.
NOTE 5 -- Dividend income from the Fund is recorded on the record date of the
dividends. Transactions in Fund shares are accounted for on the trade date. The
basis for determining cost on sale of Fund shares is identified cost. Purchases
and sales of Fund shares for the year ended December 31, 1997 by each Division
are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Aggressive Growth Division...... $ 100,543,755 $ 22,185,790
International Equity Division... 84,953,245 11,209,638
Growth Stock Division........... 55,343,819 1,752,987
Growth & Income Stock
Division........................ 142,975,300 2,192,318
Index 500 Stock Division........ 139,477,203 8,205,192
Balanced Division............... 142,331,743 59,354,818
High Yield Bond Division........ 60,802,531 999,240
Select Bond Division............ 33,324,855 9,984,625
Money Market Division........... 76,472,824 66,762,944
</TABLE>
NOTE 6 -- A deduction for annuity rate and expense guarantees is determined
daily and paid to Northwestern Mutual Life as compensation for assuming the risk
that annuity payments will continue for longer periods than anticipated because
the annuitants as a group live longer than expected, and the risk that the
charges made by Northwestern Mutual Life may be insufficient to cover the actual
costs incurred in connection with the contracts.
For contracts issued on or after March 31, 1995, for the Front Load version and
the Back Load version, the deduction for annuity rate and expense guarantees is
determined daily at annual rates of 4/10 of 1% and 1 1/4%, respectively, of the
net assets of each Division attributable to these contracts and is paid to
Northwestern Mutual Life. For these contracts, the rates may be increased or
decreased by the Board of Trustees of Northwestern Mutual Life not to exceed
3/4 of 1% and 1 1/2%, respectively.
For contracts issued after December 16, 1981 and prior to March 31, 1995, the
deduction is at an annual rate of 1 1/4% of the net assets of each Division
attributable to these contracts. For these contracts, the rate may be increased
or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed
a 1/2% annual rate.
For contracts issued prior to December 17, 1981, the deduction is at an annual
rate of 3/4 of 1% of the net assets of each Division attributable to these
contracts. For these contracts, the rate may be increased or decreased by the
Board of Trustees of Northwestern Mutual Life not to exceed a 1% annual rate.
Since 1995, Northwestern Mutual Life has paid a dividend to certain contracts.
The dividend is re-invested in the Account and has been reflected as a Contract
Owners' Net Payment in the accompanying financial statements.
NOTE 7 -- Northwestern Mutual Life is taxed as a "life insurance company" under
the Internal Revenue Code and the operations of the Account form a part of and
are taxed with those of Northwestern Mutual Life. Under current law, no federal
income taxes are payable with respect to the Account. Accordingly, no provision
for any such liability has been made.
--
82
<PAGE>
NML VARIABLE ANNUITY ACCOUNT B
Notes to Financial Statements
DECEMBER 31, 1997
NOTE 8 -- Equity Values by Division are shown below:
<TABLE>
<CAPTION>
CONTRACTS ISSUED:
CONTRACTS ISSUED: AFTER DECEMBER 16, 1981 AND
PRIOR TO DECEMBER 17, 1981 PRIOR TO MARCH 31, 1995
----------------------------------------- -----------------------------------------
ACCUMULATION UNITS ACCUMULATION UNITS
DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY
- - -------------------------------------- -------------- ------------- ---------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Stock............... $ 3.728134 1,476 $ 5,504 $ 3.598431 157,775 $ 567,744
International Equity.................. 1.871861 2,126 3,979 1.828649 194,160 355,051
Growth Stock.......................... 2.027359 263 533 1.990509 45,562 90,692
Growth and Income..................... 1.994748 551 1,100 1.958555 80,720 158,094
Index 500 Stock....................... 3.356694 11,229 37,692 3.240055 156,622 507,464
Balanced.............................. 6.278402 6,272 39,380 5.796067 315,854 1,830,711
High Yield Bond....................... 1.624115 251 408 1.594619 28,966 46,189
Select Bond........................... 7.333897 1,079 7,913 6.768175 18,886 127,828
Money Market.......................... 2.534831 998 2,529 2.339812 33,000 77,214
---------- -----------
Equity.............................. 99,038 3,760,987
Annuity Reserves.................... 4,784 57,811
---------- -----------
Total Equity.......................... $ 103,822 $3,818,798
---------- -----------
---------- -----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS ISSUED: CONTRACTS ISSUED:
ON OR AFTER MARCH 31, 1995 ON OR AFTER MARCH 31, 1995
FRONT LOAD VERSION BACK LOAD VERSION
----------------------------------------- -----------------------------------------
ACCUMULATION UNITS ACCUMULATION UNITS
DIVISION UNIT VALUE OUTSTANDING EQUITY UNIT VALUE OUTSTANDING EQUITY
- - --------------------------------------- -------------- ------------- ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Stock................ $ 1.735135 30,869 53,563 $ 3.598431 42,824 $ 154,100
International Equity................... 1.537080 24,896 38,267 1.828649 49,419 90,369
Growth Stock........................... 1.882500 12,916 24,314 1.990509 30,083 59,881
Growth and Income Stock................ 1.851666 19,189 35,532 1.958555 43,672 85,533
Index 500 Stock........................ 2.025922 32,585 66,014 3.240055 53,901 174,641
Balanced............................... 1.615054 43,289 69,914 5.796067 37,393 216,731
High Yield Bond........................ 1.530051 11,305 17,298 1.594619 22,019 35,112
Select Bond............................ 1.266282 12,652 16,021 6.768175 5,418 36,675
Money Market........................... 1.145720 16,239 18,605 2.339812 14,615 34,196
---------- ----------
Equity............................... 339,528 887,238
Annuity Reserves..................... 4,552 16,373
---------- ----------
Total Equity......................... $ 344,080 $ 903,611
---------- ----------
---------- ----------
</TABLE>
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83
<PAGE>
Notes
--
84
<PAGE>
NORTHWESTERN
MUTUAL LIFE -REGISTERED TRADEMARK-
Annuity and Accumulation Products Dept.
P.O. Box 2099
Milwaukee, WI 53201-2099
FAX #: 414-299-2632
DEFERRED VARIABLE ANNUITY - TRANSFER OR ALLOCATION CHANGE
1. CONTRACT
- - ------------------------ --------------------------------------
CONTRACT NO. ANNUITANT (PLEASE PRINT)
2. TRANSFER EXISTING BALANCES
The minimum amount that may be transferred from any investment division is
$100 or the entire balance in that division, whichever is less. If you want
to transfer the entire division, indicate "ALL."
<TABLE>
<CAPTION>
TRANSFER FROM: TRANSFER TO:
(DOLLAR AMOUNT OR ALL) (WHOLE PERCENTS ONLY)
NUMBER OF PERCENT (WHOLE
INVESTMENT DIVISION DOLLAR AMOUNT OR ACCUMULATION UNITS DOLLAR AMOUNT OR PERCENTS ONLY)
<S> <C> <C> <C> <C> <C> <C> <C>
1. Select Bond $ 1 $ %
2. International Equity $ 2 $ %
3. Money Market $ 3 $ %
4. Balanced $ 4 $ %
5. Index 500 Stock $ 5 $ %
6. Aggressive Growth Stock $ 6 $ %
7. High Yield Bond $ 7 $ %
8. Growth Stock $ 8 $ %
9. Growth and Income Stock $ 9 $ %
10. Guaranteed Interest Fund+ $ N/A 10 $ %
TOTAL $ $ 100 %
</TABLE>
Special Instructions:
- - --------------------------------------------------------------------------------
3. CHANGE ALLOCATION OF FUTURE INVESTMENTS:
Future investments will continue to be allocated as they were prior to the
transfer shown above, unless new instructions are given below. Please indicate
in whole percents only, for a total of 100%.
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1. Select Bond % 5. Index 500 Stock % 8. Growth Stock %
---- ---- ----
2. International Equity % 6. Aggresive Growth Stock % 9. Growth & Income Stock %
---- ---- ----
3. Money Market % 7. High Yield Bond % 10. Guaranteed Interest Fund+ %
---- ---- ----
4. Balanced % TOTAL 100%
---- ----
</TABLE>
4. EFFECTIVE DATE: EFFECTIVE DATE
If received prior to the close of trading on the New York
Stock Exchange, this request will be effective on the day
this completed form is received at the Northwestern Mutual
Life home office or the date requested, whichever is later.
5. SIGNATURE OF OWNER(S)/TRUSTEE REQUIRED (TITLE MUST BE INCLUDED):
<TABLE>
<S> <C> <C>
- - ---------------------------------------- Date signed -------------------------
Date signed
- - ---------------------------------------- -------------------------
Daytime Phone No. ( )
-------------------
</TABLE>
+ NOT AVAILABLE IN ALL STATES. SEE TRANSFER RESTRICTIONS SECTION. THE
GUARANTEED INTEREST FUND IS NOT AVAILABLE FOR ALL CONTRACTS ISSUED IN NML
SEPARATE ACCOUNT C.
SEE PAGE 2 FOR FAX INSTRUCTIONS
WORD 6-FE
90-1854 (0197) (Page 1 of 2)
--
85
<PAGE>
HOW TO SUBMIT
FIRST CLASS MAIL
Please mail form to Northwestern Mutual Life, Annuity & Accumulation Products,
P.O. Box 2099, Milwaukee, Wisconsin 53202-2099.
FAX
The completed/signed transfer/change of allocation form may be FAXed to the Home
Office at (414) 299-2632. The original transfer form is NOT needed. Please keep
for your records.
SIGNATURE INSTRUCTION
SIGNATURE BY OWNER
All Owners must sign name as it appears in the policy contract. If the Owner's
name has changed since the policy was issued, he/she should add his/her present
surname to his/her name as it appears in the policy contract.
SIGNATURE BY ASSIGNEE
If the signer of the form is an assignee and the assignee is a bank, savings and
loan association, other financial institution or corporation, an officer must
sign with his/her title. Name of corporate entity must appear above the
signature.
SIGNATURE ON BEHALF OF CORPORATION
If the signer of the form is a corporation, an officer of the corporation must
sign on behalf of the corporation with his/her title. The name of the
corporation must appear above the signature.
SIGNATURE ON BEHALF OF PARTNERSHIP
If the signer of the form is a partnership, the name of the partnership must
appear above the signature. A partner other than the Annuitant must sign.
SIGNATURE ON BEHALF OF TRUST
If the signer of the form is a Trust, the authorized Trustee must sign his/her
name, followed by the word "Trustee." The name of the Trust must appear above
the signature.
+ GUARANTEED INTEREST FUND (GIF) TRANSFER RESTRICTIONS
TIMING RESTRICTION:
No transfers into or out of the Guaranteed Interest Fund are allowed for a
period of 365 days following a transfer out of the fund.
AMOUNT RESTRICTION:
The maximum amount that may be transferred out of the GIF in any one transfer is
limited to THE GREATER OF:
- - - 20% of the GIF value on the previous anniversary, and
- - - amount of the most recent transfer from the Guaranteed Interest Fund.
However, in no event will this maximum transfer amount be less than $1,000 or
greater than $50,000.
WORD 6-FE
90-1854 (0196) (Page 2 of 2)
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86
<PAGE>
Notes
--
87
<PAGE>
Notes
--
88
<PAGE>
Directors and Officers
NORTHWESTERN MUTUAL SERIES FUND, INC.
DIRECTORS
James D. Ericson .... President and Chief Executive Officer, Northwestern Mutual
Life,
..................................................................... Milwaukee
Martin F. Stein ................ Chairman of the Board, EyeCare One Corporation,
..................................................................... Milwaukee
John K. MacIver ........... Partner, Michael Best & Friedrich, Attorneys at Law,
..................................................................... Milwaukee
Stephen N. Graff ......................... Retired Partner, Arthur Andersen, LLP
..................................................................... Milwaukee
William J. Blake ........................ Chairman, Blake Financial Corporation,
..................................................................... Milwaukee
William A. McIntosh .......... Retired Division Head--U.S. Fixed Income, Salomon
Brothers,
....................................................................... Chicago
OFFICERS
James D. Ericson ..................................................... President
Mark G. Doll ........................................ Vice President & Treasurer
Merrill C. Lundberg .................................................. Secretary
Barbara E. Courtney ................................................. Controller
---
89
<PAGE>
This report is submitted for the general information of owners of NML Variable
Annuity Account B contracts. This report is not authorized for distribution to
prospective purchasers of variable annuity contracts unless it is accompanied by
an effective prospectus. Northwestern Mutual Life variable annuity contracts
are sold through individuals who, in addition to being licensed life insurance
agents of Northwestern Mutual Life, are registered representatives of
Northwestern Mutual Investment Services, Inc., a wholly-owned subsidiary of
Northwestern Mutual Life and a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.
90-1776 (12-97)
NORTHWESTERN BULK RATE
MUTUAL LIFE-Registered Trademark- U.S. POSTAGE
PAID
MILWAUKEE, WI
PO Box 3095 PERMIT NO. 426
Milwaukee, WI 53201-3095
Change Service Requested
