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NORTHWESTERN MUTUAL SERIES FUND, INC.
A SERIES FUND OFFERING ELEVEN PORTFOLIOS
SMALL CAP GROWTH STOCK PORTFOLIO
AGGRESSIVE GROWTH STOCK PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INDEX 400 STOCK PORTFOLIO
GROWTH STOCK PORTFOLIO
GROWTH AND INCOME STOCK PORTFOLIO
INDEX 500 STOCK PORTFOLIO
BALANCED PORTFOLIO
HIGH YIELD BOND PORTFOLIO
SELECT BOND PORTFOLIO
MONEY MARKET PORTFOLIO
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Shares of the Portfolios are offered only for funding variable annuity contracts
and variable life insurance policies offered by the Northwestern Mutual Life
Insurance Company. Variable annuity contracts or variable life insurance
policies are described in the separate prospectus to which this prospectus for
the Fund is attached.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
April 30, 1999
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
CONTENTS
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Summary............................................... 2
Investment Objectives and Strategies................ 2
Main Risks.......................................... 3
Performance......................................... 5
Investment Objectives, Strategies and Risks........... 8
Small Cap Growth Stock Portfolio.................... 8
Aggressive Growth Stock Portfolio................... 9
International Equity Portfolio...................... 9
Index 400 Stock Portfolio........................... 10
Growth Stock Portfolio.............................. 11
Growth and Income Stock Portfolio................... 11
Index 500 Stock Portfolio........................... 12
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Balanced Portfolio.................................. 13
High Yield Bond Portfolio........................... 13
Select Bond Portfolio............................... 14
Money Market Portfolio.............................. 15
Year 2000 Risks..................................... 17
Management of the Fund................................ 17
Portfolio Managers.................................. 17
Investment Advisory Fees and Other Expenses......... 18
Taxes and Dividends................................... 19
Offering and Redemption of Shares..................... 19
Financial Highlights.................................. 20
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SUMMARY
Northwestern Mutual Series Fund, Inc. ("Fund") is composed of eleven Portfolios
which operate as separate mutual funds. This section gives you an overview of
the investment objectives and strategies for each of the Portfolios. The summary
concludes with a brief identification of the main risks and performance
information for all of the Portfolios. More detailed information follows this
summary.
INVESTMENT OBJECTIVES AND STRATEGIES
SMALL CAP GROWTH STOCK PORTFOLIO The investment objective of the Small Cap
Growth Stock Portfolio is long-term growth of capital. The Portfolio will seek
to achieve this objective primarily by investing in the common stocks of
companies which can reasonably be expected to increase sales and earnings at a
pace which will exceed the growth rate of the U.S. economy over an extended
period.
AGGRESSIVE GROWTH STOCK PORTFOLIO The investment objective of the Aggressive
Growth Stock Portfolio is to achieve long-term appreciation of capital. This
Portfolio also attempts to meet this goal primarily by investing in the common
stocks of companies which can reasonably be expected to increase their sales and
earnings at a pace which will exceed the growth rate of the nation's economy
over an extended period.
INTERNATIONAL EQUITY PORTFOLIO The investment objective of the International
Equity Portfolio is long-term capital growth. It pursues its objective through a
flexible policy of investing in stocks and debt securities of companies and
governments outside the United States.
INDEX 400 STOCK PORTFOLIO The investment objective of the Index 400 Stock
Portfolio is to achieve investment results that approximate the performance of
the Standard & Poor's MidCap 400 Index ("S&P 400 Index"). The Portfolio will
attempt to meet this objective by investing in stocks included in the S&P 400
Index.
GROWTH STOCK PORTFOLIO The investment objective of the Growth Stock Portfolio
is long-term growth of capital; current income is secondary. The Portfolio seeks
to achieve this objective by selecting investments in companies which have above
average earnings growth potential.
GROWTH AND INCOME STOCK PORTFOLIO The investment objectives of the Growth and
Income Stock Portfolio are long-term growth of capital and income. Ordinarily
the Portfolio pursues its investment objectives by investing primarily in
dividend-paying common stock.
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INDEX 500 STOCK PORTFOLIO The investment objective of the Index 500 Stock
Portfolio is to achieve investment results that approximate the performance of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The
Portfolio attempts to meet this objective by investing in stocks included in the
S&P 500 Index.
BALANCED PORTFOLIO The investment objective of the Balanced Portfolio is to
realize as high a level of long-term total rate of return as is consistent with
prudent investment risk. Total rate of return consists of current income,
including dividends, interest and discount accruals, and capital appreciation.
The assets of the Balanced Portfolio will be invested in the stock, bond and
money market sectors as described for the Index 500 Stock, Select Bond and Money
Market Portfolios. The mix of investments among the three market sectors will be
adjusted continuously.
HIGH YIELD BOND PORTFOLIO The investment objective of the High Yield Bond
Portfolio is to achieve high current income and capital appreciation. The
Portfolio invests primarily in fixed income securities that are rated below
investment grade by the major rating agencies. High yield fixed income
securities are commonly known as "junk bonds".
SELECT BOND PORTFOLIO The primary investment objective of the Select Bond
Portfolio is to provide as high a level of long-term total rate of return as is
consistent with prudent investment risk. Total rate of return consists of
current income, including interest and discount accruals, and capital
appreciation. A secondary objective is to seek preservation of shareholders'
capital. The Select Bond Portfolio's assets are invested primarily in bonds and
other debt securities with maturities generally exceeding one year.
MONEY MARKET PORTFOLIO The investment objective of the Money Market Portfolio
is to realize maximum current income consistent with liquidity and stability of
capital. The assets of the Money Market Portfolio are invested in money market
instruments and other debt securities with maturities generally not exceeding
one year.
MAIN RISKS
The eleven Portfolios present varying amounts of risk. The amount of investment
risk for a Portfolio depends on the types of securities in which the Portfolio
invests and the investment strategies it uses. All investments present some
risk. In this prospectus we have listed the Portfolios in the sequence that we
think reflects the relative risk they present. The Small Cap Growth Stock
Portfolio presents the most investment risk. The Money Market Portfolio presents
less investment risk than any of the others.
RISKS FOR STOCKS Stock prices have historically outperformed other asset
classes over the long term, but stock prices tend to go up and down more
dramatically over the shorter term. These price movements may result from
factors affecting individual companies, industries, or the stock market as a
whole. Each of the Portfolios (except the Money Market Portfolio) has express
authority to invest at least part of its assets in stocks. Investors in the
Portfolios will incur some or all of the risks associated with stocks to the
extent that the assets are so invested.
GROWTH STOCKS are typically priced higher than other stocks, in relation to
earnings and other measures, because investors believe they have more
appreciation potential. This potential may or may not be realized and growth
stock prices tend to fluctuate more dramatically than the overall stock market.
These risks for growth stocks are presented most clearly by the operations of
the Small Cap Growth Stock, Aggressive Growth Stock and Growth Stock Portfolios.
These risks may also affect the performance of the other Portfolios that invest
in stocks.
VALUE STOCKS are selected because they seem attractively priced. The main risks
are that the price for a stock may turn out to have been too high, or the market
may not recognize the real value of the stock for a long time. The risks for
value stocks are presented most clearly by the operations of the Growth and
Income Stock Portfolio and the International Equity Portfolio. These risks may
also affect the performance of the other Portfolios that invest in stocks.
SMALL CAP Stocks may involve greater risks because smaller companies often have
a limited track record, narrower markets and more limited managerial and
financial resources than larger, more established companies. The prices of these
stocks tend to be more volatile and the issuers face greater risk of business
failure. The risks for small cap stocks are presented most clearly by the
operations of the Small Cap Growth Stock and Aggressive Growth Stock Portfolios.
These risks may also affect the performance of the other Portfolios that invest
in stocks.
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RISKS FOR FIXED INCOME SECURITIES Each of the Portfolios has express authority
to invest all or part of its assets in fixed income securities. Investors in the
Portfolios will incur some or all of the risks associated with fixed income
securities to the extent that the assets are so invested.
INTEREST RATE RISK Bond prices rise and fall in response to changes in market
interest rates. When interest rates rise, bond prices fall. This effect is
greater for longer term bonds, and relatively minor for short-term cash
instruments that are about to mature. Interest rate risk is presented most
clearly by the operations of the High Yield Bond, Select Bond and Balanced
Portfolios. This risk may also affect the performance of the other Portfolios
that invest in fixed income securities.
CREDIT RISK Bond prices reflect the risk of default. The credit rating assigned
to a fixed income issue generally reflects the credit risk. High yield fixed
income securities present more credit risk than investment grade issues. Credit
risk is presented most clearly by the operations of the High Yield Bond
Portfolio. Credit risk may also affect the performance of the other Portfolios
that invest in fixed income securities.
RISKS FOR INTERNATIONAL SECURITIES Foreign securities present the investment
risks that are inherent in all investments in securities as well as an array of
special risk considerations, including currency risks. Some of these risks are
described in this prospectus. A longer description is included in the Statement
of Additional Information. The risks associated with foreign securities are
presented most clearly by the operations of the International Equity Portfolio.
The Growth and Income Stock, Balanced, Select Bond and High Yield Bond
Portfolios may also invest a portion of their assets in foreign securities and,
to that extent, the performance of those Portfolios may be affected by the
associated risks.
RISKS FOR FINANCIAL FUTURES CONTRACTS All of the Portfolios, except the Money
Market Portfolio, may use financial futures contracts in pursuit of their
investment objectives. These instruments are used as a hedge against changes in
the market value of common stocks or changes in prevailing levels of interest
rates. Successful use of these instruments requires special skills, knowledge
and techniques. Gains or losses from positions in financial futures contracts
may be much greater than the amounts invested.
ASSET ALLOCATION RISK In addition to the risks involved with each kind of
securities there is the risk that an investor will hold the wrong mix of
securities at any point in time. This risk is especially important for the
Balanced Portfolio, but it is a consideration for all of the Portfolios. It is
also likely to be the most important consideration for you as an individual
investor.
RISKS FOR ALL SECURITIES The value of a security on a given date depends
entirely on its market price. Investors necessarily rely on the integrity of the
marketplace. There is no guarantee that the securities markets will function in
an orderly manner. IIliquidity may make it difficult for a Portfolio to buy or
sell a security or to price the security fairly. The Year 2000 issue is a
consideration for all investors at this juncture, as discussed in this
prospectus.
MONEY MARKET PORTFOLIO An investment in the Money Market Portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Money Market Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Money Market Portfolio.
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PERFORMANCE
The following bar charts illustrate the risks of investing in the Portfolios by
showing how the performance of each Portfolio (including predecessors) has
varied from year to year. These charts do not reflect the charges and expenses
for the variable annuity or variable life insurance separate account that
invests in the Portfolios. Total returns would be lower if those charges and
expenses were reflected. The tables to the right of the charts further
illustrate the risks of investing in the Portfolios by showing how each
Portfolio's average annual returns for the periods shown compare with the
returns of certain indexes that measure broad market performance. No shares of
the Small Cap Growth Stock and Index 400 Stock Portfolios were outstanding
during the periods shown.
AGGRESSIVE GROWTH STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
CAPLINE=0
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1991 55.99%
1992 5.95%
1993 19.11%
1994 5.40%
1995 39.29%
1996 17.70%
1997 13.87%
1998 7.56%
Best Quarter: 1st-1991 24.77%
Worst Quarter: 3rd-1998 -21.47%
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AVERAGE ANNUAL TOTAL RETURN
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1 YR 5 YRS SINCE INCEPTION*
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Aggressive Growth Stock Portfolio
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7.56% 16.18% 19.58%
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Wilshire Small Cap Index (1)
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-0.36% 13.46% 18.84%
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Whilshire Next 1750 Index (2)
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0.83% 13.19% 18.58%
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*Commenced operations on November 30, 1990.
(1)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 technology, financial services and
consumer services. Market capitalization ranges from $1.8 billion to
$244 million.
(2)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 $930
million. The largest sector weightings include technology, financial
services, and consumer services.
INTERNATIONAL EQUITY PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1994 -0.10%
1995 14.58%
1996 21.02%
1997 12.28%
1998 4.82%
Best Quarter: 1st-1998 14.15%
Worst Quarter: 3rd-1998 -18.16%
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AVERAGE ANNUAL TOTAL RETURN
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1 YR 5 YRS SINCE INCEPTION*
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International Equity Portfolio
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4.82% 10.27% 13.32%
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Morgan Stanley Capital International EAFE
(Europe-Australasia-Far East) Index
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20.33% 9.52% 10.13%
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*Commenced operations on April 30, 1993.
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GROWTH STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1995 30.82%
1996 20.91%
1997 29.85%
1998 26.69%
Best Quarter: 4th-1998 22.20%
Worst Quarter: 3rd-1998 -12.56%
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AVERAGE ANNUAL TOTAL RETURN
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1 YR 5 YRS SINCE INCEPTION*
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Growth Stock Portfolio
<S> <C> <C>
26.69% -- 23.17%
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S&P 500 Index
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28.50% -- 26.41%
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*Commenced operations on May 3, 1994.
GROWTH & INCOME STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1995 31.11%
1996 19.97%
1997 30.03%
1998 23.14%
Best Quarter: 4th-1998 21.76%
Worst Quarter: 3rd-1998 -10.88%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
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1 YR 5 YRS SINCE INCEPTION*
<S> <C> <C>
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Growth and Income Stock Portfolio
<S> <C> <C>
23.14% -- 22.00%
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S&P 500 Index
<S> <C> <C>
28.50% -- 26.41%
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*Commenced operations on May 3, 1994.
INDEX 500 STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1989 18.39%
1990 -4.32%
1991 29.78%
1992 4.54%
1993 9.90%
1994 1.21%
1995 37.25%
1996 22.75%
1997 33.20%
1998 28.72%
Best Quarter: 4th-1998 21.45%
Worst Quarter: 3rd-1990 -11.72%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS
<S> <C> <C>
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<CAPTION>
Index 500 Stock Portfolio
<S> <C> <C>
28.72% 23.93% 17.32%
<CAPTION>
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S&P 500 Index
<S> <C> <C>
28.50% 23.94% 19.16%
<CAPTION>
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</TABLE>
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BALANCED PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1989 15.66%
1990 1.52%
1991 23.34%
1992 5.61%
1993 9.91%
1994 0.16%
1995 26.39%
1996 13.45%
1997 21.52%
1998 18.88%
Best Quarter: 4th-1998 12.21%
Worst Quarter: 3rd-1990 -5.93%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS
<S> <C> <C>
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Balanced Portfolio
<S> <C> <C>
18.88% 15.72% 13.31%
<CAPTION>
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Merrill Lynch Domestic Master Index (1)
<S> <C> <C>
8.87% 7.33% 9.30%
<CAPTION>
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S&P 500 Index (2)
<S> <C> <C>
28.50% 23.94% 19.16%
<CAPTION>
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Merrill Lynch 91-Day T-Bill (3)
<S> <C> <C>
5.23% 5.22% 5.68%
<CAPTION>
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(1)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.
(2)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.
(3)The Merrill Lynch 91-Day T-Bill Index is comprised of a single
issue purchased at the beginning of each month and held for a full
month. The issue selected at each month-end rebalancing is the
outstanding Treasury Bill that matures closest to, but not beyond, three
months from the rebalancing date.
HIGH YIELD BOND PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1995 16.77%
1996 19.78%
1997 15.85%
1998 -1.84%
Best Quarter: 2nd-1997 7.48%
Worst Quarter: 3rd-1998 -10.69%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YR 5 YRS SINCE INCEPTION*
<S> <C> <C>
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<CAPTION>
High Yield Bond Portfolio
<S> <C> <C>
-1.84% -- 11.17%
<CAPTION>
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Lehman Brothers Index
<S> <C> <C>
1.49% -- 9.46%
<CAPTION>
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*Commenced operations on May 3, 1994.
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SELECT BOND PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1989 14.16%
1990 8.09%
1991 17.33%
1992 7.74%
1993 10.81%
1994 -2.28%
1995 19.09%
1996 3.31%
1997 9.46%
1998 7.07%
Best Quarter: 2nd-1989 8.10%
Worst Quarter: 1st-1994 -2.23%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS
<S> <C> <C>
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<CAPTION>
Select Bond Portfolio
<S> <C> <C>
7.07% 7.10% 9.31%
<CAPTION>
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Merrill Lynch Domestic Master Index
<S> <C> <C>
8.87% 7.33% 9.30%
<CAPTION>
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</TABLE>
MONEY MARKET PORTFOLIO
ANNUAL TOTAL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
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1989 8.98%
1990 8.04%
1991 5.69%
1992 3.34%
1993 2.85%
1994 4.06%
1995 5.82%
1996 5.29%
1997 5.47%
1998 5.43%
Best Quarter: 2nd-1989 2.33%
Worst Quarter: 2nd-1993 0.69%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS
<S> <C> <C>
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<CAPTION>
Money Market Portfolio
<S> <C> <C>
5.43% 5.48% 5.21%
<CAPTION>
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</TABLE>
For the seven-day period ended March 31, 1999, the Money Market
Portfolio's yield was 4.68% and was equivalent to a compound effective
yield of 4.79%.
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INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The investment objectives, strategies and risks of each Portfolio are described
below.
The main risks for each kind of security are briefly identified above. See "Main
Risks", p. 3. Some of the risks are also discussed in the descriptions of the
Portfolios below.
The investment objective of a Portfolio may be changed only with the approval of
the majority of the Portfolio's shares outstanding. The details of the
investment policies of a Portfolio may be changed by the Fund's Board of
Directors without a vote of the shareholders. For example, such details include
investments in new types of debt instruments which may be devised in the future
or which are presently in disuse but may become more prominent in the future and
minor changes in investment policies which may be made in response to changes in
regulatory requirements which are reflected in the Portfolio's present policies.
SMALL CAP GROWTH STOCK PORTFOLIO
The investment objective of the Small Cap Growth Stock Portfolio is to achieve
long-term appreciation of capital. The Portfolio will seek to achieve this
objective primarily by investing in the common stocks of companies which can
reasonably be expected to increase their sales and earnings at a pace which will
exceed the growth rate of the nation's economy over an extended period. These
companies, for the most part, are small capitalization companies whose stock may
experience substantial price volatility. Under normal
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circumstances the Portfolio will invest at least 80% of its assets in stocks.
In addition to common stocks, the Small Cap Growth Stock Portfolio may invest in
other equity securities such as preferred stocks and debt securities with
conversion privileges or warrants. A portion of the assets may be invested in
money market instruments, including U.S. Government and agency securities and
short-term commercial paper. When adverse conditions exist the Small Cap Growth
Stock Portfolio may be hindered in its pursuit of its investment objective
because it may not invest, or may invest less, in the common stocks in which it
ordinarily invests.
The Small Cap Growth Stock Portfolio may also invest in covered call option
contracts, stock index futures contracts, including indexes on specific
industries, repurchase agreements and warrants. A description of these
instruments is included in the Statement of Additional Information. Because the
Small Cap Growth Stock Portfolio will be investing in stocks which possess
substantial price volatility, an investment in the Small Cap Growth Stock
Portfolio will present more risk than an investment in any of the other
Portfolios.
AGGRESSIVE GROWTH STOCK PORTFOLIO
The investment objective of the Aggressive Growth Stock Portfolio is to achieve
long-term appreciation of capital. The Portfolio will seek to achieve this
objective primarily by investing in the common stocks of companies which can
reasonably be expected to increase their sales and earnings at a pace which will
exceed the growth rate of the nation's economy over an extended period. These
companies, for the most part, are mid-sized and smaller companies whose stock
may experience substantial price volatility. Under normal circumstances the
Portfolio will invest at least 80% of its assets in stocks.
In addition to common stocks, the assets of the Aggressive Growth Stock
Portfolio may be invested in other equity securities such as preferred stocks
and debt securities with conversion privileges or warrants. From time to time
assets may be invested in investment grade debt securities, short-term
commercial paper and United States Treasury obligations, or temporarily held in
cash uninvested for periods when the manager determines that economic conditions
call for such action. When adverse conditions exist the Aggressive Growth Stock
Portfolio may be hindered in its pursuit of its investment objective because it
may not invest, or may invest less, in the common stocks in which it ordinarily
invests. The Aggressive Growth Stock Portfolio may also invest in covered call
option contracts, stock index futures contracts, including indexes on specific
industries, repurchase agreements and warrants. A description of these
instruments is included in the Statement of Additional Information. Because the
Aggressive Growth Stock Portfolio will, for the most part, be investing in
stocks which possess substantial price volatility, an investment in the
Aggressive Growth Stock Portfolio will present more risk than an investment in
the Growth Stock Portfolio.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio seeks long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments outside the United States. In pursuit of its investment objective,
the Portfolio will invest at least 65% of its assets in securities of issuers in
at least three countries outside the United States. Any income realized will be
incidental.
The strategy for the Portfolio will reflect a bottom-up, value-oriented and
long-term investment philosophy. In choosing equity investments, the Portfolio's
manager will focus on the market price of a company's securities in relation to
the company's long-term earnings, asset value and cash flow potential. A
company's historical value measures, including price/ earnings ratio, profit
margins and liquidation value, will also be considered.
Although the Portfolio generally invests in common stocks, it may also invest in
preferred stocks and certain debt securities such as convertible bonds which are
rated in any category by Moody's Investors Service, Inc. or Standard & Poor's or
which are unrated by any rating agency. See Appendix in the Statement of
Additional Information for a description of the ratings presented by Moody's
Investors Service, Inc. and Standard & Poor's. The Statement of Additional
Information also includes a longer discussion of the risks presented by
investments in foreign securities.
For temporary defensive purposes, the Portfolio may invest without limit in
commercial paper, certificates of deposit, bank time deposits in the currency of
any nation, bankers acceptances, U.S. Government securities, corporate debt
obligations, and repurchase agreements with respect to these securities. When
adverse
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conditions exist the International Equity Portfolio may be hindered in its
pursuit of its investment objective because it may not invest, or may invest
less, in the international stocks in which it ordinarily invests.
The International Equity Portfolio may purchase and sell financial futures
contracts, stock index futures contracts, and foreign currency futures contracts
for hedging purposes only and not for speculation. It may engage in such
transactions only if the total contract value of the futures contracts does not
exceed 20% of the Portfolio's total assets. Financial futures contracts are
described in the Statement of Additional Information.
The International Equity Portfolio has an unlimited right to purchase securities
in any foreign country, developed or underdeveloped. Before investing in the
Portfolio, you should consider carefully the risks involved in investing in
securities issued by companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments. There is the
possibility of expropriation, nationalization or confiscatory taxation, taxation
of income earned in foreign nations (including withholding taxes) or other taxes
imposed with respect to investments in foreign nations, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities or issuers in those nations.
These considerations generally are more of a concern in developing countries,
where the possibility of political instability (including revolution) and
dependence on foreign economic assistance may be greater than in developed
countries. Investments in companies domiciled in developing countries therefore
may be subject to potentially higher risks than investments in developed
countries.
In many countries there is less publicly available information about issuers
than is available in reports about companies in the United States. Foreign
companies are not generally subject to uniform accounting and auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to United States companies. It may be more
difficult to obtain or enforce judgments obtained against foreign entities.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the United States, are likely to be higher.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets.
In many foreign countries there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States. Foreign securities transactions may be subject to
higher brokerage costs than domestic securities transactions. Foreign securities
often trade with less frequency and volume than domestic securities and are
therefore less liquid and more volatile than securities of comparable domestic
issuers. The International Equity Portfolio may invest in Russia. This involves
special risks that are described in the Statement of Additional Information.
INDEX 400 STOCK PORTFOLIO
The investment objective of the Index 400 Stock Portfolio is to achieve
investment results that approximate the performance of the S&P Mid Cap 400 Stock
Price Index ("S&P 400 Index"). The Portfolio will attempt to meet this objective
by investing in stocks included in the S&P 400 Index in proportion to their
weighting in the index.
The S&P 400 Index is composed of 400 common stocks. The companies included in
the S&P 400 Index are generally smaller than those that comprise the S&P 500
Index. See the description of the Index 500 Stock Portfolio below. The S&P 400
does not include the very large issues that account for most of the weighting in
the S&P 500 Index. Most of the companies in the S&P 400 Index have a market
value in the range of $750 million to $5 billion. A few are smaller and a few
are larger. "Standard & Poor's-Registered Trademark-",
"S&P-Registered Trademark-", "S&P 400-Registered Trademark-" and "Standard &
Poor's Mid Cap 400-Registered Trademark-" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Northwestern Mutual Life. The
Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.
The Index 400 Stock Portfolio will not be managed in the traditional sense using
economic, financial and market analysis. A computer program will be used to
determine which stocks are to be purchased or sold to achieve the Portfolio's
objective. The Portfolio will, to the extent feasible, remain fully invested and
will
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normally hold at least 375 of the 400 issues that comprise the S&P 400 Index.
The Index 400 Stock Portfolio's ability to match the performance of the S&P 400
Index will be affected to some extent by the size and timing of cash flows into
and out of the Index 400 Stock Portfolio. The Portfolio will be managed with a
view to reducing such effects. A portion of the assets may at times be invested
in investment grade debt securities, short term commercial paper and Government
and agency obligations, as well as option contracts, stock index futures
contracts, and repurchase agreements.
GROWTH STOCK PORTFOLIO
The investment objective of the Growth Stock Portfolio is long-term growth of
capital; current income is secondary. The Portfolio will seek to achieve this
objective by selecting investments in companies which have above average
earnings growth potential.
The Growth Stock Portfolio invests primarily in common stocks of
well-established companies, with emphasis placed on high quality companies with
strong financial characteristics. The investment process is initiated with a
fundamental economic outlook. Further study of economic sectors leads to the
identification of growth-oriented industries, and to detailed studies of
individual companies. In evaluating individual companies, factors such as the
company management team, product outlook, global exposure, industry leadership
position, and financial characteristics are important variables used in the
analysis.
The market capitalization of companies the Portfolio may invest in is not
limited by size, but the Portfolio will generally invest in large- and
medium-sized companies. The aim of the Portfolio is to seek to reduce overall
risk by diversifying its assets in an appropriate manner. This diversification
will span economic sectors, industry groups, and companies, while emphasizing
high quality investments.
The Portfolio may invest in any of the securities in which the Growth and Income
Stock Portfolio or the Aggressive Growth Stock Portfolio may invest, including,
but not limited to, preferred stock, convertible bonds, short-term commercial
paper, and covered call options. When adverse conditions exist the Growth Stock
Portfolio may be hindered in its pursuit of its investment objective because it
may not invest, or may invest less, in the common stocks in which it ordinarily
invests.
Portfolios emphasizing growth-oriented investments may experience above average
price volatility. An investment in the Growth Stock Portfolio can present more
risk than an investment in the Index 500 Stock Portfolio. The Growth Stock
Portfolio is designed for long-term investors seeking capital appreciation.
GROWTH AND INCOME STOCK PORTFOLIO
The investment objectives of the Growth and Income Stock Portfolio are long-term
growth of capital and income. The Portfolio seeks to achieve these objectives
consistent with reasonable investment risk. Ordinarily, the Portfolio pursues
its investment objectives by investing primarily in dividend-paying common
stock. The Portfolio may also invest in other equity securities, consisting of,
among other things, nondividend-paying common stock, preferred stock, and
securities convertible into common stock, such as convertible preferred stock
and convertible bonds, and warrants. The Portfolio may also invest in American
Depository Receipts (ADRs).
The Portfolio is not subject to any limit on the size of companies in which it
may invest, but intends, under normal circumstances, to be fully invested to the
extent practicable primarily in the large- and medium-sized companies included
in the S&P 500 Index. The Portfolio is designed for investors who want an
actively managed equity portfolio that seeks to outperform the total return of
the S&P 500 Index. In managing the Portfolio, the potential for appreciation and
dividend growth is given more weight than current dividends. Nonetheless, the
manager of the Portfolio will normally strive for gross income for the Portfolio
at a level not less than 75% of the dividend income generated on the stocks
included in the S&P 500 Index, although this income level is merely a guideline
and there can be no certainty that this income level will be achieved.
The Portfolio does not seek to achieve its objective with any individual
investment security, but rather it aims to manage all of its assets in such a
way as to achieve its objective. The Portfolio attempts to reduce risk by
investing in many different economic sectors, industries and companies. The
manager of the Portfolio may moderately under- or over-weight selected economic
sectors against the sector weightings of the S&P 500 Index to seek to enhance
the Portfolio's total return or
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reduce fluctuations in market value relative to the S&P 500 Index. In selecting
securities, the manager may emphasize securities that it believes to be
undervalued. Securities of a company may be undervalued for a variety of reasons
such as an overreaction by investors to unfavorable news about a company, an
industry or the stock markets in general; or as a result of a market decline,
poor economic conditions, tax-loss selling, or actual or anticipated unfavorable
developments affecting a company.
During ordinary market conditions, the Portfolio will be as fully invested as
practicable in the equity securities described above. The Portfolio may enter
into firm commitment agreements, purchase securities on a "when-issued" basis,
and invest in various foreign securities if U.S. exchange-listed. The Portfolio
may also invest in money market instruments, including U.S. Government
securities, short term bank obligations that are rated in the highest two rating
categories by Moody's Investors Service, Inc. or Standard & Poor's, or, if
unrated, are determined to be of equal quality by the manager of the Portfolio,
certificates of deposit, time deposits and banker's acceptances issued by U.S.
and foreign banks and savings and loan institutions with assets of at least $500
million as of the end of their most recent fiscal year; and commercial paper and
corporate obligations, including variable rate demand notes, that are issued by
U.S. and foreign issuers and that are rated in the highest two rating categories
by Moody's Investors Service, Inc. or Standard & Poor's, or if unrated, are
determined to be of equal quality by the manager of the Portfolio. A description
of these ratings is included in the Statement of Additional Information. Under
normal circumstances, the Portfolio will invest in such money market instruments
to invest temporary cash balances or to maintain liquidity to meet redemptions
or expenses. The Portfolio may also, however, invest in these instruments,
without limitation, as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions. When adverse conditions exist the
Growth and Income Stock Portfolio may be hindered in its pursuit of its
investment objective because it may not invest, or may invest less, in the
common stocks in which it ordinarily invests.
Convertible bonds and other fixed income securities (other than money market
instruments) in which the Portfolio may invest will, at the time of investment,
be rated Baa or better by Moody's Investors Service, Inc. or BBB or better by
Standard & Poor's or, if not so rated, will be of comparable quality as
determined by the manager of the Portfolio. A description of these ratings is
included in the Statement of Additional Information. In the event that an
existing holding is downgraded below these ratings, the Portfolio may
nonetheless retain the security.
In pursuing its investment objective, the Portfolio may engage in the purchase
and writing of put and call options on securities and stock indexes and may
purchase or sell stock index futures contracts and options thereon. These
investment techniques may involve a greater degree of risk than those inherent
in more conservative investment approaches. See the Statement of Additional
Information for a description of these techniques and their attendant risks.
INDEX 500 STOCK PORTFOLIO
The investment objective of the Index 500 Stock Portfolio is to achieve
investment results that approximate the performance of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"). The Portfolio will attempt to
meet this objective by investing in stocks included in the S&P 500 Index in
proportion to their weighting in the index.
The S&P 500 Index is composed of 500 common stocks representing more than 70% of
the total market value of all publicly-traded common stocks. "Standard &
Poor's-Registered Trademark-", "S&P-Registered Trademark-", "S&P
500-Registered Trademark-", "Standard & Poor's 500", and "500" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by Northwestern
Mutual Life. The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's and Standard & Poor's makes no representation regarding the advisability
of investing in the Fund.
The Index 500 Stock Portfolio will not be managed in the traditional sense using
economic, financial and market analysis. A computer program will be used to
determine which stocks are to be purchased or sold to achieve the Portfolio's
objective. The Portfolio will, to the extent feasible, remain fully invested and
will normally hold at least 450 of the 500 issues that comprise the S&P 500
Index.
The Index 500 Stock Portfolio's ability to match the performance of the S&P 500
Index will be affected to some extent by the size and timing of cash flows into
and out of the Index 500 Stock Portfolio. The Portfolio will be managed with a
view to reducing such effects. A portion of the assets may at times be invested
in
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investment grade debt securities, short term commercial paper and United States
Treasury obligations, as well as option contracts, stock index futures
contracts, and repurchase agreements.
BALANCED PORTFOLIO
The investment objective of the Balanced Portfolio is to realize as high a level
of long-term total rate of return as is consistent with prudent investment risk.
Total rate of return consists of current income, including dividends, interest
and discount accruals, and capital appreciation.
The assets of the Balanced Portfolio will be invested in the following three
market sectors:
1. Common stock and other equity securities including the securities in which
the Index 500 Stock Portfolio invests.
2. Bonds and other debt securities with maturities generally exceeding one year
including the securities in which the Select Bond Portfolio invests.
3. Money market instruments and other debt securities with maturities generally
not exceeding one year including the securities in which the Money Market
Portfolio invests.
The Balanced Portfolio seeks to achieve its investment objectives by
continuously adjusting the mix of investments among the three market sectors.
The manager attempts to capitalize on variation in return potential produced by
the interaction of changing financial markets and economic conditions. Asset
allocation decisions are based on fundamental analysis rather than short-term
market timing considerations. Shifts in asset allocation are expected to be
gradual.
The Portfolio will normally have some portion of its assets invested in each of
the three asset categories. However, up to 100% of the Balanced Portfolio's net
assets may be invested in money market instruments. Not more than 75% of the
Balanced Portfolio's net assets may be invested in either the stock sector or
the bond sector. No minimum percentage has been established for any of the
sectors. The Balanced Portfolio's investment objective is supplemented by
investment objectives and policies for the stock, bond and money market sectors.
These are presently substantially identical to those which have been established
for the Index 500 Stock, Select Bond and Money Market Portfolios.
HIGH YIELD BOND PORTFOLIO
The investment objective of the High Yield Bond Portfolio is to achieve high
current income and capital appreciation.
The High Yield Bond Portfolio seeks to achieve its objective by investing
primarily in a diversified selection of fixed income securities rated Ba1 or
lower by Moody's Investors Service, Inc. or BB+ or lower by Standard & Poor's. A
description of the ratings provided by the major rating agencies is included in
the Statement of Additional Information. The Portfolio may also invest in
nonrated securities.
The securities in which the High Yield Bond Portfolio will invest are considered
speculative and are sometimes known as "junk bonds". These securities tend to
offer higher yields than higher rated securities of comparable maturities
because the historical financial condition of the issuers of these securities is
usually not so strong as that of other issuers. High yield fixed income
securities usually present greater risk of loss of income and principal than
higher rated securities. Investors in these securities should carefully consider
these risks and should understand that high yield fixed income securities are
not appropriate for short-term investment purposes.
The primary investment strategy of the High Yield Bond Portfolio is to invest in
industries or individual companies which have stable or improving fundamental
financial characteristics. The success of this strategy depends on the manager's
analytical and portfolio management skills. These skills are more important in
the selection of high yield/high risk securities than would be the case with a
portfolio of high quality bonds. In selecting securities for the High Yield Bond
Portfolio the manager will consider the ratings assigned by the major rating
agencies, but primary reliance will be placed on the manager's evaluation of
credit and market risk in relationship to the expected rate of return.
The risk that the issuer of a fixed income security may fail to pay principal
and interest when due is referred to as "credit risk". Price volatility caused
by such factors as interest rate fluctuation, market perceptions of an issuer's
creditworthiness and general liquidity in the financial market is "market risk".
The value of the
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securities held by the High Yield Bond Portfolio will be directly affected by
the market perception of the creditworthiness of the securities' issuers and
will fluctuate inversely with changes in interest rates. Lower rated securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which react primarily to movements in the
general level of interest rates. For example, because investors generally
perceive that there are greater risks associated with investing in medium or
lower rated securities, the yields and prices of such securities may tend to
fluctuate more than those of higher rated securities. Moreover, in the lower
quality segments of the fixed income securities market, changes in perception of
the creditworthiness of individual issuers tend to occur more frequently and in
a more pronounced manner than do changes in higher quality segments of the fixed
income securities market. The yield and price of medium to lower rated
securities therefore may experience greater volatility than is the case with
higher rated securities. The manager of the Portfolio seeks to reduce volatility
through careful evaluation of credit risk and market risk and diversification of
the Portfolio's investments.
The secondary market for high yield/high risk securities, which is concentrated
in relatively few market makers, may not be as liquid as the secondary market
for more highly rated securities. Under adverse market or economic conditions,
the secondary market for high yield/high risk securities could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, the High Yield Bond Portfolio could find it more difficult
to sell such securities or may be able to sell the securities only at prices
lower than if such securities were widely traded. Prices realized upon the sale
of such lower rated securities therefore may be less than the prices used in
calculating the Portfolio's net asset value. In the absence of readily available
market quotations, high yield/high risk securities will be valued by the Fund's
Directors using a method that, in the good faith belief of the Directors,
accurately reflects fair value. Valuing such securities in an illiquid market is
a difficult task. The Directors' judgment plays a more significant role in
valuing such securities than those securities for which more objective market
data are available.
In addition to notes and bonds, the High Yield Bond Portfolio may invest in
preferred stocks and convertible securities, including warrants or other equity
securities issued as part of a fixed income offering. The Portfolio may also
invest up to 5% of its assets in other equity securities, rights, warrants,
options and other derivatives. The Portfolio may purchase put and call options,
on individual securities as well as indexes, and may write covered call and
secured put options. A description of put and call options is included in the
Statement of Additional Information. The Portfolio may invest available
temporary cash in short-term obligations, including those in which the Money
Market Portfolio may invest. The Portfolio may invest more substantially in such
short-term obligations or in investment grade securities (rated Baa3 or higher
by Moody's Investors Service, Inc. or BBB- or higher by Standard & Poor's) when
market conditions warrant a more defensive investment posture. When adverse
conditions exist the High Yield Bond Portfolio may be hindered in its pursuit of
its investment objective because it may not invest, or may invest less, in the
high yield/high risk securities in which it ordinarily invests.
The High Yield Bond Portfolio may invest in foreign securities consistent with
its investment objective. Some of the risks associated with investments in
foreign securities are briefly set forth in the description of the International
Equity Portfolio above. Such investments may be in United States currency
denominated debt issues or in debt securities in the currency of other nations.
The Portfolio may, but will not necessarily, attempt to hedge its exposures by
engaging in transactions in foreign currency futures contracts. For a discussion
of the risks involved in these contracts see the Statement of Additional
Information.
SELECT BOND PORTFOLIO
The primary investment objective of the Select Bond Portfolio is to provide as
high a level of long-term total rate of return as is consistent with prudent
investment risk. Total rate of return consists of current income, including
interest and discount accruals, and capital appreciation. A secondary objective
is to seek preservation of shareholders' capital.
The Select Bond Portfolio's assets will be invested in the following types of
securities:
1. publicly offered straight debt securities having a rating within the four
highest grades as determined by Moody's Investors Service, Inc. (Aaa, Aa, A
or Baa) or Standard & Poor's (AAA, AA, A or BBB);
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2. obligations of or guaranteed by the United States Government or its
agencies;
3. obligations (payable in U.S. dollars) of or guaranteed by the Government of
Canada or of a Province of Canada or any instrumentality or political
subdivision thereof, provided such obligations have a rating within the
three highest grades as determined by Moody's Investors Service, Inc. or
Standard & Poor's and do not exceed 10% of the Portfolio's total assets;
4. publicly offered straight debt securities issued or guaranteed by a national
or state bank or bank holding company (as defined in the Federal Bank
Holding Company Act, as amended) having a rating within the two highest
grades as determined by Fitch's Investor's Service, Inc. (AAA or AA), and
certificates of deposit of such banks or bank holding companies;
5. commercial paper having a rating within the two highest investment grades,
as determined by Moody's Investors Service, Inc. (P-1 or P-2) or Standard &
Poor's (A-1 or A-2);
6. straight debt securities acquired directly from the issuers in private
placement transactions, which securities, in the judgment of the Fund's
Board of Directors, are of investment quality comparable to publicly offered
straight debt securities rated Baa by Moody's Investors Service, Inc. or BBB
by Standard & Poor's, or better;
7. cash or cash equivalents; and
8. preferred stocks and obligations not described above, including convertible
securities, securities carrying warrants to purchase equity securities and
securities acquired directly from the issuers in private placement
transactions other than those securities described above.
A description of the ratings provided by Moody's Investors Service, Inc.,
Standard & Poor's and Fitch's Investor's Service, Inc. is included in the
Statement of Additional Information.
The Select Bond Portfolio will not invest in common stocks directly, but may
retain up to 10% of its total assets in common stocks acquired upon conversion
of debt securities or upon exercise of warrants acquired with debt securities.
At least 70% of the Select Bond Portfolio's total assets will normally be
invested in bonds and debentures which have maturities of at least one year.
However, during periods of particular volatility or when an unusual decline in
the value of long-term obligations is anticipated, for temporary defensive
purposes the Select Bond Portfolio may place a larger portion of its assets in
cash and short-term obligations. During such periods the Select Bond Portfolio's
holdings of short-term obligations and equity securities may temporarily exceed
an aggregate total of 30% of the Select Bond Portfolio's total assets. When
adverse conditions exist the Select Bond Portfolio may be hindered in its
pursuit of its investment objective because it may not invest, or may invest
less, in the longer-term bonds and debentures in which it ordinarily invests.
The Select Bond Portfolio invests in obligations of a number of U.S. Government
agencies. Obligations of some agencies are supported by the full faith and
credit of the U.S. Treasury, others are supported only by the credit of the
agency. No assurance can be given that the U.S. Government would provide
financial support to any agency if it is not obligated to do so by law. The
Select Bond Portfolio will invest in the securities of a particular agency only
when the investment adviser is satisfied that the credit risk with respect to
such agency is minimal.
The Select Bond Portfolio may invest up to 10% of its total assets in high
yield/high risk securities and up to 10% of its total assets in foreign
securities, consistent with its investment objectives. See the description of
the High Yield Bond Portfolio, p. 13 for a discussion of high yield/high risk
securities. Some of the risks associated with investments in foreign securities
are briefly set forth in the description of the International Equity Portfolio,
p. 9.
The Select Bond Portfolio may also invest in interest rate futures contracts and
repurchase agreements. The Statement of Additional Information includes a
description of these instruments.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to realize maximum
current income to the extent consistent with liquidity and stability of capital.
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The assets of the Money Market Portfolio will be invested in money market
instruments and other debt securities with maturities generally not exceeding
one year. Such instruments may include the following:
1. U.S. Treasury Bills and other obligations of or guaranteed by the U.S.
Government or its agencies;
2. obligations of or guaranteed by the Government of Canada or of a Province of
Canada or any instrumentality or political subdivision thereof, provided
such obligations do not exceed 10% of the Money Market Portfolio's total
assets;
3. obligations (including certificates of deposit, time deposits, or bankers'
acceptances) of U.S. or Canadian chartered banks having total assets in
excess of $1,000,000,000, U.S. branches of foreign banks where said foreign
banks have total assets in excess of $10,000,000,000, and U.S. savings and
loan associations having total assets in excess of $1,000,000,000, and
Eurodollar certificates of deposit issued by foreign branches of U.S. banks
where said banks have total assets in excess of $1,000,000,000 (see
"Eurodollar Certificates of Deposit");
4. commercial paper, including variable amount master notes, having a rating at
the time of purchase within the two highest grades as determined by Moody's
Investors Service, Inc. (P-1 or P-2) or Standard & Poor's (A-1 or A-2), or
commercial paper or notes issued by companies with an unsecured debt issue
outstanding having a rating at the time of purchase within the three highest
grades as determined by Moody's Investors Service, Inc. (Aaa, Aa, or A) or
Standard & Poor's (AAA, AA or A); and
5. publicly traded bonds, debentures and notes having a rating within the four
highest grades as determined by Moody's Investors Service, Inc. (Aaa, Aa, A
or Baa) or Standard & Poor's (AAA, AA, A or BBB).
A glossary of the following terms is included in the Statement of Additional
Information: certificates of deposit, Eurodollar certificates of deposit, time
deposits, bankers' acceptances, variable amount master notes and commercial
paper. A description of the ratings provided by Moody's Investors Service, Inc.
and Standard & Poor's is also included in the Statement of Additional
Information.
The Money Market Portfolio will attempt to maximize its return by trading to
take advantage of changing money market conditions and trends. The Money Market
Portfolio will also trade to take advantage of what are believed to be
disparities in yield relationships between different money market instruments.
This procedure may increase or decrease the Portfolio's yield depending upon
management's ability to correctly time and execute such transactions. The Money
Market Portfolio intends to purchase only securities that mature within a year
except for securities which are subject to repurchase agreements. Accordingly,
the level of purchases will be relatively high. However, as transaction costs on
Money Market Portfolio investments are generally not substantial, the high level
of purchases will not adversely affect the Portfolio's net asset value or net
income.
U.S. Government and agency obligations held by the Money Market Portfolio
consist primarily of discounted or interest-bearing notes with average
maturities of ninety days or less. The Money Market Portfolio invests most
frequently in obligations of the following agencies of the U.S. Government: Farm
Credit System, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
and Federal National Mortgage Association. Obligations of some agencies are
supported by the full faith and credit of the U.S. Treasury, others are
supported by the right of the issuer to borrow from the Treasury, others, such
as those of the Federal National Mortgage Association, a private corporation,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations and others are supported only by the credit of the
agency. No assurance can be given that the U.S. Government would provide
financial support to any agency if it is not obligated to do so by law. The
Money Market Portfolio will invest in the securities of a particular agency only
when the investment adviser is satisfied that the credit risk with respect to
such agency is minimal.
The Money Market Portfolio may also invest in repurchase agreements. These are
described in the Statement of Additional Information.
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YEAR 2000 RISKS
In providing services to the Fund, Northwestern Mutual Investment Services, LLC,
the Fund's investment adviser (NMIS), and its corporate affiliates rely on both
internal software systems and external software systems purchased from vendors.
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs must be adapted in preparation for the
year 2000.
Failure of computer software systems could affect securities trades of the Fund,
payments of interest and dividends and portfolio pricing. If trading systems
fail to function properly there may be settlement problems and liquidity issues.
Corporate and government data processing errors may result in various problems
for the companies in which the Portfolios invest and overall economic
uncertainties. In addition, it has been reported that foreign institutions have
made less progress than major U.S. entities in addressing the year 2000 computer
systems issues. This could adversely affect the investments of the Portfolios in
foreign securities.
NMIS and its affiliates are taking appropriate steps to prepare for the year
2000. However, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Fund and the Portfolios.
Nor can there be assurance that the computer issues associated with the turn of
the century will not have adverse effects on the investments of the Portfolios.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
The Board of Directors of the Fund is responsible for the administration of the
affairs of the Fund. The Fund's investment adviser is NMIS, a wholly-owned
subsidiary of Northwestern Mutual Life. NMIS' address is 720 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202. NMIS has served as investment adviser to
each of the mutual funds sponsored by Northwestern Mutual Life, subject to the
supervision and control of the boards of directors of the funds, since their
incorporation. NMIS provides investment advice and recommendations regarding the
purchase and sale of securities for the Fund's Portfolios.
Northwestern Mutual Life and its wholly-owned subsidiary, Northwestern
Investment Management Company, employ a full staff of investment personnel.
Northwestern Investment Management Company was formed in 1997. The personnel and
related facilities of Northwestern Mutual Life and its subsidiary are utilized
by NMIS in performing its investment advisory functions.
J. P. Morgan Investment Management Inc. ("J. P. Morgan Investment"), 522 Fifth
Avenue, New York, New York 10036, a wholly-owned subsidiary of J. P. Morgan &
Co., is the sub-adviser for the Growth and Income Stock Portfolio. Templeton
Investment Counsel, Inc., 500 East Broward Boulevard, Ft. Lauderdale, Florida
33394, a wholly-owned indirect subsidiary of Franklin Resources, Inc., is the
sub-adviser for the International Equity Portfolio. Each of the sub-advisers has
been retained by Northwestern Mutual Life and the Fund pursuant to an investment
sub-advisory agreement to provide investment advice and, in general, to conduct
the management investment program of the Portfolio, subject to the general
control of the Board of Directors of the Fund.
PORTFOLIO MANAGERS
Mark G. Doll, Vice President and Assistant Treasurer -- Public Markets of
Northwestern Investment Management Company, and Senior Vice President of
Northwestern Mutual Life, joined Northwestern Mutual Life in 1972 and holds B.A.
and M.B.A. degrees from the University of Wisconsin-Milwaukee. He is a Chartered
Financial Analyst. Mr. Doll is responsible for the publicly traded investments
of Northwestern Mutual Life and for investment management of the Balanced
Portfolio.
Patricia L. Van Kampen, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1974. She holds a B.A. degree from
St. Norbert College and an M.B.A. from Marquette University, and is a Chartered
Financial Analyst. Ms. Van Kampen is responsible for all common stock
investments of Northwestern Mutual Life, and for investment management of the
Balanced Portfolio.
William R. Walker, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1984. Prior to this, he worked
--
17
<PAGE>
for the Chicago Board Options Exchange, the Milwaukee Company, and Armco
Insurance. Mr. Walker is a Chartered Financial Analyst, and holds a B.S. degree
from Marquette University and an M.B.A. from Miami of Ohio. He has primary
responsibility for the management of the Small Cap Growth Stock Portfolio and
the Aggressive Growth Stock Portfolio, as well as the small company portfolio of
Northwestern Mutual Life.
Julie M. Van Cleave, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual Life in 1984 and holds B.A. and M.B.A.
degrees from the University of Wisconsin-Madison. Ms. Van Cleave is a Chartered
Financial Analyst and has primary responsibility for the Growth Stock Portfolio
and the large company portfolio of Northwestern Mutual Life.
Timothy S. Collins, Director of Northwestern Investment Management Company,
joined Northwestern Mutual Life in 1986. He received a B.A. degree from St.
Norbert College and an M.B.A. from the University of Wisconsin-Madison. Mr.
Collins manages the High Yield Bond Portfolio and also manages high yield fixed
income securities of Northwestern Mutual Life. Mr. Collins is a Chartered
Financial Analyst.
Varun Mehta, Director of Northwestern Investment Management Company, joined
Northwestern Mutual Life in March, 1997. From 1993 through March 1997, Mr. Mehta
was with the Ameritech Investment Management Department serving as Portfolio
Research Manager -- Fixed Income and Portfolio Manager --Fixed Income. Mr. Mehta
has his undergraduate degree from the University of Bombay. He received a
Masters degree in Business Management from the Indian Institute of Management
and an M.B.A. from the University of Chicago Graduate School of Business. Mr.
Mehta is a Chartered Financial Analyst. He has primary responsibility for the
Select Bond Portfolio and the fixed income securities of the Balanced Portfolio.
Henry D. Cavanna, Managing Director of J.P. Morgan Investment, joined J.P.
Morgan in 1971. Mr. Cavanna is a senior U.S. equity portfolio manager in the
U.S. Equity and Balanced Accounts Group. He received his B.A. degree from Boston
College and L.L.B. degree from the University of Pennsylvania. Mr. Cavanna is
responsible for the Growth and Income Stock Portfolio.
Michael J. Kelly, Vice President of J.P. Morgan Investment, joined J.P. Morgan
in 1985. Mr. Kelly has an undergraduate degree from Gettysburg College and an
M.B.A. from The Wharton School. Mr. Kelly is a Chartered Financial Analyst. Mr.
Kelly shares responsibility for the Growth and Income Stock Portfolio with Mr.
Cavanna.
Gary R. Clemons, Senior Vice President, Portfolio Management/Research of
Templeton Investment Counsel, Inc., manages the International Equity Portfolio.
Prior to joining Templeton Investment Counsel in 1993, Mr. Clemons worked as a
portfolio manager/ research analyst for Templeton Quantitative Advisers in New
York, a subsidiary of Templeton International. Mr. Clemons holds an M.B.A. with
emphasis in finance from the University of Wisconsin-Madison and a B.S. degree
from the University of Nevada-Reno.
INVESTMENT ADVISORY FEES AND OTHER EXPENSES
Each Portfolio pays a monthly fee for investment advisory services at an annual
rate based on the aggregate average daily net asset values of the Portfolio. For
the Index 500 Stock Portfolio the rate is .20%. For the Index 400 Stock
Portfolio the rate is .25%. 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 $50 NEXT $50
PORTFOLIO MILLION MILLION EXCESS
- ----------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Growth and Income Stock...... .70% .60% .55%
Growth Stock................. .60% .50% .40%
Small Cap Growth Stock
Portfolio................... .80% .65% .50%
Aggressive Growth Stock...... .80% .65% .50%
High Yield Bond.............. .60% .50% .40%
International Equity......... .85% .65% .65%
</TABLE>
Of the amounts received by NMIS from the Fund, the sub-adviser for the Growth
and Income Stock Portfolio will be paid by NMIS at the annual rate of .45% on
the first $100 million of the Portfolio's assets, .40% on the next $100 million,
.35% on the next $200 million and .30% on assets in excess of $400 million. For
the International Equity Portfolio the sub-adviser will be paid by NMIS at the
annual rate of .50% of the Portfolio's assets, reduced to .40% on assets in
excess of $100 million.
--
18
<PAGE>
The following table shows the annual expenses for each of the Portfolios which
were in operation during 1998, as a percentage of the average net assets of the
Portfolio, based on 1998 operations:
<TABLE>
<CAPTION>
INVESTMENT OTHER TOTAL
PORTFOLIO ADVISORY FEE EXPENSES EXPENSES
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Aggressive Growth
Stock................. .52% .00% .52%
International Equity... .67% .09% .76%
Growth Stock........... .45% .01% .46%
Growth and Income
Stock................. .57% .01% .58%
Index 500 Stock........ .20% .01% .21%
Balanced............... .30% .00% .30%
High Yield Bond........ .49% .01% .50%
Select Bond............ .30% .00% .30%
Money Market........... .30% .00% .30%
</TABLE>
- --------------------------------------------------------------------------------
TAXES AND DIVIDENDS
Each Portfolio is qualified or intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. It is the Fund's policy
to comply with the provisions of the Code regarding distribution of investment
income and capital gains so as to relieve each Portfolio from all, or
substantially all, Federal taxes. Each Portfolio expects to distribute all or
substantially all net investment income and net capital gains, if any, from the
sale of investments.
Shareholders of each Portfolio are entitled to receive such dividends from net
investment income and distributions of net capital gains as the Directors of the
Fund may declare. Dividends from net investment income and net capital gains
will be declared for the Aggressive Growth Stock, International Equity, Growth
Stock, Growth and Income Stock, Index 500 Stock, Balanced, High Yield Bond and
Select Bond Portfolios annually, and for the Money Market Portfolio on each
business day.
Net investment income of each Portfolio will be determined at the close of
trading on the New York Stock Exchange on each day during which the Exchange is
open for trading. Net investment income of each Portfolio consists of:
1. all dividends, interest income and discount earned by the Portfolio
(including original issue and market discount) and
2. net short-term capital gain less
3. all expenses of the Portfolio.
Shares of the Portfolios are offered only for funding variable annuity contracts
and variable life insurance policies offered by The Northwestern Mutual Life
Insurance Company. For a discussion of the tax considerations that affect the
insurance company and its separate accounts for these products, and the tax
considerations for purchasers of variable annuities and variable life insurance,
see the prospectus to which this prospectus for the Fund is attached.
- --------------------------------------------------------------------------------
OFFERING AND REDEMPTION OF SHARES
Shares of capital stock of each Portfolio of the Fund are offered and redeemed
at their net asset value as next determined following receipt of a purchase
order or tender for redemption without the addition of any selling commission or
"sales load" or any redemption charge. The redemption price may be more or less
than the shareholder's cost.
Equity securities listed on a stock exchange are valued at the closing sale
price or, if no sale took place, the
--
19
<PAGE>
closing bid price. Stock index futures contracts and interest rate futures
contracts are valued at the closing settlement price on the commodities
exchange. Debt securities with maturities generally exceeding one year are
valued on the basis of valuations furnished by Interactive Data Corporation.
Money market instruments with maturities exceeding 60 days but generally not
exceeding one year are valued by marking to market, except for the Money Market
Portfolio. Debt securities with remaining maturities of 60 days or less, and all
debt securities of 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. All other assets are valued at their fair value as
determined in good faith by the Directors. Net asset value is determined as of
the close of trading on the New York Stock Exchange on each day during which the
Exchange is open for trading. In accordance with the requirements of the
Investment Company Act of 1940 the Portfolios will also determine the net asset
value of their shares on any other day on which there is sufficient trading to
materially affect the value of their securities.
A more detailed discussion of asset valuation methods is included in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are included in the Fund's Statement of
Additional Information (SAI), which is available upon request.
--
20
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
Net Realized
and Distributions
Net Asset Unrealized Dividends from Net
Value, Net Gain (Loss) Total from from Net Realized Gain
Beginning Investment on Investment Investment on
of Year Income Investments Operations Income Investments
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth Stock Portfolio
*1994............................... $1.91 $ -- $ .09 $ .09 $ -- $ --
1995............................... 2.00 -- .78 .78 -- (.01)
1996............................... 2.77 -- .49 .49 -- (.11)
1997............................... 3.15 -- .39 .39 -- (.20)
1998............................... 3.34 -- .24 .24 -- (.12)
- ---------------------------------------------------------------------------------------------------------------------
International Equity Portfolio
*1994............................... $1.22 $.02 $(.02) $ -- $(.02) $(.01)
1995............................... 1.19 .04 .13 .17 -- (.01)
1996............................... 1.35 .04 .24 .28 (.03) (.04)
1997............................... 1.56 .04 .15 .19 (.04) (.02)
1998............................... 1.69 .05 .04 .09 (.04) (.06)
- ---------------------------------------------------------------------------------------------------------------------
Growth Stock Portfolio
*1994............................... $1.00 $.01 $ -- $ .01 $(.01) $ --
1995............................... 1.00 .02 .28 .30 (.02) (.02)
1996............................... 1.26 .02 .25 .27 (.02) (.05)
1997............................... 1.46 .02 .42 .44 (.02) (.07)
1998............................... 1.81 .02 .46 .48 (.02) (.02)
- ---------------------------------------------------------------------------------------------------------------------
Growth and Income Stock Portfolio
*1994............................... $1.00 $.01 $(.01) $ -- $(.01) $(.01)
1995............................... 0.98 .02 .29 .31 (.02) (.06)
1996............................... 1.21 .02 .23 .25 (.02) (.12)
1997............................... 1.32 .01 .37 .38 (.01) (.36)
1998............................... 1.33 .01 .29 .30 (.01) --
- ---------------------------------------------------------------------------------------------------------------------
Index 500 Stock Portfolio
1994............................... $1.29 $.03 $(.01) $ .02 $(.03) $(.01)
1995............................... 1.27 .04 .42 .46 (.01) --
1996............................... 1.72 .04 .35 .39 (.02) (.03)
1997............................... 2.06 .04 .62 .66 (.04) (.04)
1998............................... 2.64 .04 .71 .75 (.04) (.06)
- ---------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
1994............................... $1.33 $.04 $(.05) $(.01) $ -- $(.01)
1995............................... 1.31 .07 .27 .34 (.04) (.01)
1996............................... 1.60 .06 .15 .21 (.06) (.03)
1997............................... 1.72 .07 .28 .35 (.06) (.02)
1998............................... 1.99 .07 .29 .36 (.07) (.06)
- ---------------------------------------------------------------------------------------------------------------------
High Yield Bond Portfolio
*1994............................... $1.00 $.06 $(.03) $ .03 $(.06) $ --
1995............................... 0.97 .10 .07 .17 (.10) (.01)
1996............................... 1.03 .09 .10 .19 (.09) (.03)
1997............................... 1.10 .11 .06 .17 (.14) (.07)
1998............................... 1.06 .10 (.12) (.02) (.10) --
- ---------------------------------------------------------------------------------------------------------------------
Select Bond Portfolio
1994............................... $1.15 $.06 $(.09) $(.03) $(.06) $ --
1995............................... 1.06 .07 .13 .20 (.03) --
1996............................... 1.23 .07 (.04) .03 (.04) --
1997............................... 1.22 .08 .04 .12 (.08) --
1998............................... 1.26 .08 -- .08 (.08) (.01)
- ---------------------------------------------------------------------------------------------------------------------
Money Market Portfolio
1994............................... $1.00 $.05 $ -- $ .05 $(.05) $ --
1995............................... 1.00 .06 -- .06 (.06) --
1996............................... 1.00 .05 -- .05 (.05) --
1997............................... 1.00 .05 -- .05 (.05) --
1998............................... 1.00 .05 -- .05 (.05) --
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net Investment
Asset Ratio of Income
Value, Net Assets, Expenses (Loss) to Portfolio
Total End Total End of Year to Average Average Turnover
Distributions of Year Return+ (thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------
Aggressive Growth Stock Portfolio
*1994............................... $ -- $2.00 4.47%++ $ 327,096 0.58%^ 0.29%^ 21.54%
1995............................... (.01) 2.77 39.29 577,014 0.56 0.13 37.84
1996............................... (.11) 3.15 17.70 871,926 0.54 (0.03) 47.25
1997............................... (.20) 3.34 13.86 1,067,068 0.53 0.06 57.27
1998............................... (.12) 3.46 7.56 1,137,466 0.52 0.04 50.43
- ------------------------------------
International Equity Portfolio
*1994............................... $(.03) $1.19 0.11%++ $ 292,533 0.87%^ 2.28%^ 10.97%
1995............................... (.01) 1.35 14.57 342,127 0.85 2.68 26.71
1996............................... (.07) 1.56 21.01 505,189 0.81 3.02 17.07
1997............................... (.06) 1.69 12.28 659,850 0.77 2.75 16.74
1998............................... (.10) 1.68 4.82 671,106 0.76 3.38 30.41
- ------------------------------------
Growth Stock Portfolio
*1994............................... $(.01) $1.00 1.55%+ $ 41,868 0.71%^ 2.30%^ 16.51%
1995............................... (.04) 1.26 30.82 85,557 0.61 1.77 46.83
1996............................... (.07) 1.46 20.91 170,482 0.57 1.41 37.61
1997............................... (.09) 1.81 29.85 243,071 0.49 1.24 33.20
1998............................... (.04) 2.25 26.69 421,282 0.46 1.10 21.64
- ------------------------------------
Growth and Income Stock Portfolio
*1994............................... $(.02) $0.98 0.34%+ $ 64,700 0.78%^ 1.93%^ 54.18%
1995............................... (.08) 1.21 31.12 136,923 0.69 1.68 80.00
1996............................... (.14) 1.32 19.97 234,184 0.62 1.44 93.92
1997............................... (.37) 1.33 30.03 371,935 0.60 1.04 144.52
1998............................... (.01) 1.62 23.14 570,970 0.58 1.00 160.40
- ------------------------------------
Index 500 Stock Portfolio
1994............................... $(.04) $1.27 1.21% $ 316,123 0.24% 3.10% 5.59%
1995............................... (.01) 1.72 37.25 495,133 0.21 2.51 3.19
1996............................... (.05) 2.06 22.75 740,066 0.21 2.27 3.45
1997............................... (.08) 2.64 33.20 1,152,857 0.21 1.86 3.15
1998............................... (.10) 3.29 28.72 1,690,680 0.21 1.40 3.03
- ------------------------------------
Balanced Portfolio
1994............................... $(.01) $1.31 0.16% $ 1,727,127 0.30% 4.78% 42.35%
1995............................... (.05) 1.60 26.39 2,083,289 0.30 4.40 37.28
1996............................... (.09) 1.72 13.45 2,326,234 0.30 3.95 67.66
1997............................... (.08) 1.99 21.52 2,788,494 0.30 3.70 29.94
1998............................... (.13) 2.22 18.88 3,282,071 0.30 3.48 44.18
- ------------------------------------
High Yield Bond Portfolio
*1994............................... $(.06) $0.97 3.02%+ $ 35,537 0.73%^ 9.40%^ 119.48%
1995............................... (.11) 1.03 16.78 55,974 0.65 9.90 116.57
1996............................... (.12) 1.10 19.77 93,878 0.60 9.54 143.91
1997............................... (.21) 1.06 15.85 153,038 0.55 9.95 129.49
1998............................... (.10) .94 (1.84) 184,782 0.50 10.85 153.71
- ------------------------------------
Select Bond Portfolio
1994............................... $(.06) $1.06 (2.28)% $ 158,508 0.30% 7.02% 108.00%
1995............................... (.03) 1.23 19.10 198,142 0.30 6.61 69.06
1996............................... (.04) 1.22 3.31 214,333 0.30 6.48 195.98
1997............................... (.08) 1.26 9.46 244,835 0.30 7.03 184.93
1998............................... (.09) 1.25 7.07 298,034 0.30 6.87 161.79
- ------------------------------------
Money Market Portfolio
1994............................... $(.05) $1.00 4.06% $ 104,217 0.30% 4.64% --
1995............................... (.06) 1.00 5.82 132,572 0.30 5.61 --
1996............................... (.05) 1.00 5.29 176,298 0.30 5.13 --
1997............................... (.05) 1.00 5.47 194,470 0.30 5.33 --
1998............................... (.05) 1.00 5.43 291,464 0.30 5.26 --
- ------------------------------------
</TABLE>
* For the period of May 3, 1994 (commencement of operations) through December
31, 1994.
+ 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.
^ Computed on an annualized basis.
--
21
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
- --------------------------------------------------------------------------------
NORTHWESTERN MUTUAL
SERIES FUND, INC.
Consisting of
Small Cap Growth Stock Portfolio
Aggressive Growth Stock Portfolio
International Equity Portfolio
Index 400 Stock Portfolio
Growth Stock Portfolio
Growth and Income Stock Portfolio
Index 500 Stock Portfolio
Balanced Portfolio
High Yield Bond Portfolio
Select Bond Portfolio
Money Market Portfolio
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction
with the Prospectus for the Fund. This Statement of
Additional Information is incorporated by reference into the
Prospectus, but no information is incorporated by reference
into this Statement of Additional Information. A copy of
the Prospectus may be obtained from The Northwestern Mutual
Life Insurance Company, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, telephone number (414) 271-1444.
- --------------------------------------------------------------------------------
The date of the Prospectus to which this Statement of
Additional Information relates is April 30, 1999.
The date of this Statement of Additional Information is
April 30, 1999.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE TO
PAGE PAGE IN
---- ------------------
PROSPECTUS
<S> <C> <C>
Investment Policies B-3 5
Investment Restrictions B-3 -
Repurchase Agreements B-4 5
Financial Futures Contracts B-5 3
Covered Call Option Contracts B-11 -
Reverse Repurchase Agreements B-12 -
Warrants B-12 5
Asset-Backed and Variable Rate Securities B-12 -
Short-Term Trading B-13 -
Firm Commitment Agreements and "When-Issued" B-13 -
Securities
Eurodollar Certificates of Deposit B-13
Private Placement Transactions B-14 11
and Illiquid Assets
Risk Factors for Foreign Securities, B-14 3
Foreign Currencies and Foreign Interest Rates
Portfolio Turnover B-17 -
Management of the Fund B-18 13
Ownership of Shares of the Fund B-21 -
Investment Advisory and Other Services B-23 14
Portfolio Transactions and B-26 -
Brokerage Allocation and Other Practices
Organization and Capital Stock B-27 15
Purchase, Redemption and Pricing of B-28 15
Shares
Taxes and Dividends B-31 14
Calculation of Yield Quotations of B-31 5
the Money Market Portfolio
Appendix A B-32 -
Appendix B B-38 -
Statement of Assets and Liabilities B-39-a -
for the Small Cap Growth Stock Portfolio
and the Index 400 Stock Portfolio
Report of Independent Accountants B-39 15
Financial Statements and Schedules B-39 15
of Investments
</TABLE>
B-2
<PAGE>
INVESTMENT POLICIES
INVESTMENT RESTRICTIONS
The investment restrictions of the Portfolios numbered 1-14 below are
"fundamental policies" and may be changed only with the approval of the majority
of the Portfolio's shares outstanding. These investment restrictions provide
that each Portfolio will not:
1. Acquire more than 25% of any class of equity securities of any one
issuer.
2. With respect to at least 75% of the value of the total assets of the
Portfolio, invest more than 5% of the value of such assets in the
securities of any one issuer (except securities issued or guaranteed
by the U.S. Government or its agencies), or invest in more than 10% of
the outstanding voting securities of any one issuer.
3. Purchase the securities of any other investment company, except in
open-market transactions involving no commission or profit to a dealer
(other than the customary broker's commission) or in connection with
mergers, consolidations or acquisitions of assets, in amounts not
exceeding 10% of the total assets of the Portfolio.
4. Invest more than 15% of the value of the total assets of the Portfolio
in securities which are restricted as to disposition under federal
securities laws and in other illiquid assets. For the Money Market
Portfolio the limit is 10%.
5. Invest more than 25% of the value of the total assets of the Portfolio
in securities of issuers in any one industry except for investments by
the Money Market Portfolio and the Balanced Portfolio in U.S. Treasury
Bills, other obligations of or guaranteed by the U.S. Government or
its agencies, certificates of deposit or bankers' acceptances.
6. Make loans aggregating more than 10% of the total assets of the
Portfolio at any one time, provided that neither the purchase of a
portion of an issue of publicly distributed bonds, debentures, or
other debt securities, nor the purchase of short-term debt
securities, is to be considered as a loan.
7. Invest for the purpose of influencing management or exercising
control, but freedom of action is reserved with respect to exercise of
voting rights in respect of each Portfolio's securities.
8. Purchase any security on margin, but each Portfolio may obtain such
short-term credits as are necessary for the clearance of purchases and
sales of securities.
9. Make short sales of securities.
10. Act as a securities underwriter for other issuers, but each Portfolio
may purchase securities under circumstances where, if the securities
are later publicly offered or sold by the Portfolio, it might be
deemed to be an underwriter for purposes of the Securities Act of
1933.
11. Purchase or sell real estate. However, each Portfolio may invest in
securities issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
B-3
<PAGE>
12. Invest in commodities or commodity contracts. However, each Portfolio
(except the Select Bond, Money Market and High Yield Bond Portfolios)
may invest in stock index futures contracts, including indexes on
specific industries, and the Select Bond, High Yield Bond,
International Equity and Balanced Portfolios may invest in interest
rate futures contracts in accordance with their investment objectives
and policies. The International Equity and High Yield Bond Portfolios
may invest in foreign currency futures contracts.
13. Issue senior securities or borrow money except for short-term credits
as may be necessary for the clearing of transactions and except for
temporary purposes to the extent of 5% of the total assets of the
Portfolio. Reverse repurchase agreements and financial futures
contracts are not considered to be "senior securities" or "borrowing
money" for the purpose of this restriction.
14. Make loans to persons who intend to use the proceeds for non-business
purposes or to companies which (including predecessors) have been in
business for less than three years. Repurchase agreements are not
considered to be "loans" for the purpose of this restriction.
As a non-fundamental investment policy, which may be changed by the Board
of Directors without shareholder approval, the International Equity Portfolio
will not invest more than 15% of its total assets in securities of foreign
issuers which are not listed on a recognized United States or foreign securities
exchange.
REPURCHASE AGREEMENTS
Each of the Portfolios may invest in repurchase agreements. A repurchase
agreement customarily obligates the seller at the time it sells securities to
the Portfolio to repurchase the securities at a mutually agreed upon time and
price. The total amount received on repurchase would be calculated to exceed
the price paid by the Portfolio, reflecting an agreed upon market rate of
interest for the period from the time of the repurchase agreement to the
settlement date, and would not necessarily be related to the interest rate on
the underlying securities. The differences between the total amount to be
received upon repurchase of the securities and the price which was paid by the
Portfolio upon their acquisition is accrued as interest and is included in the
Portfolio's net income declared as dividends. Each Portfolio intends to limit
repurchase agreements to transactions with financial institutions having total
assets in excess of $1,000,000,000 and with broker-dealers. Securities subject
to repurchase agreements shall be limited to obligations of or guaranteed by the
U.S. Government or its agencies or by the Government of Canada or of a Province
of Canada or any instrumentality or political subdivision thereof, certificates
of deposit of banks or commercial paper which meets the criteria for other
commercial paper in which the Portfolio may invest. A Portfolio will not invest
more than 10% of its total assets in repurchase agreements which have maturities
of more than seven days and will not invest in repurchase agreements with
maturities of over 30 days. Under no circumstances will a Portfolio enter into a
repurchase agreement with The Northwestern Mutual Life Insurance Company
("Northwestern Mutual Life").
Each Portfolio has the right to sell securities subject to repurchase
agreements but would be required to deliver identical securities upon maturity
of the repurchase agreement unless the seller fails to pay the repurchase price.
It is each Portfolio's intention not to sell securities subject to repurchase
agreements prior to the agreement's maturity. To the extent that the proceeds
from any sale upon a default in the obligation to repurchase were less than the
repurchase price, the Portfolio would suffer a loss. The Portfolio might also
incur disposition costs in connection with liquidating its collateral and, if
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by the Portfolio may be delayed or
B-4
<PAGE>
limited and a loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceedings. To minimize the
possibility of losses due to the default or bankruptcy of the seller, the Fund
has adopted standards of creditworthiness for all broker-dealers with which the
Fund enters into repurchase agreements and will review compliance by such
broker-dealers periodically.
FINANCIAL FUTURES CONTRACTS
Each of the Portfolios (except the Select Bond, High Yield Bond and
Money Market Portfolios) may enter into stock index futures contracts,
including indexes on specific securities, as a hedge against changes in the
market values of common stocks. The Select Bond, High Yield Bond, Balanced
and International Equity Portfolios may enter into interest rate futures
contracts as a hedge against changes in prevailing levels of interest rates.
The Select Bond Portfolio may also enter into forward sale contracts in an
amount not to exceed 5% of the assets of the Portfolio. In all cases, the
purpose is to establish more definitely the effective return on securities
held or intended to be acquired by the Portfolios. The Portfolios' hedging
may include sales of futures as an offset against the effect of expected
decreases in stock values or increases in interest rates, and purchases of
futures as an offset against the effect of expected increases in stock values
or decreases in interest rates.
A Portfolio will not enter into a futures contract if, as a result thereof,
(i) the aggregate market value of all open futures positions would exceed
one-third of the Portfolio's total assets or (ii) the sum of the initial margin
deposits of all open futures positions (other than an offsetting transaction)
would be more than 5% of the Portfolio's total assets. More than 5% of the
Portfolio's total assets may be committed to the aggregate of initial and
variation margin payments however. Furthermore, in order to be certain that the
Portfolio has sufficient assets to satisfy its obligations under a futures
contract, the Portfolio deposits cash or cash equivalents equal in value to the
market value of the futures contract in a segregated account for the Portfolio
with the Fund's custodian.
The following describes the stock index and interest rate futures markets
and the manner in which the Portfolios will implement the policy.
USE. The Portfolios, as identified above, may enter into stock index
futures contracts as a hedge against changes in the market values of common
stocks and may enter into interest rate futures contracts as a hedge against
changes in prevailing levels of interest rates. In both cases, the purpose is
to establish more definitely the effective return on securities held or intended
to be acquired by the Portfolios. The Portfolios' hedging may include sales of
futures as an offset against the effect of expected decreases in stock values or
increases in interest rates, and purchases of futures as an offset against the
effect of expected increases in stock values or decreases in interest rates.
The Portfolios will not enter into financial futures contracts for
speculation, and will only enter into futures contracts that are traded on
national futures exchanges and are standardized as to maturity date and
underlying securities. Currently, stock index futures contracts can be
purchased or sold with respect to the Standard and Poor's 500 Stock Index on the
Chicago Mercantile Exchange, the New York Stock Exchange Composite Index on the
New York Futures Exchange and the Value Line Stock Index on the Kansas City
Board of Trade. The principal interest rate futures exchanges in the United
States are the Chicago Board of Trade, the Chicago Mercantile Exchange and the
New York Futures Exchange. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission.
A Portfolio will not enter into a futures contract if, as a result thereof,
(i) the aggregate market value of all open futures positions would exceed
one-third of the Portfolio's total assets or (ii) the sum of the initial margin
deposits of all open futures positions (other than an offsetting transaction)
would be more than 5% of the Portfolio's total assets.
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More than 5% of the Portfolio's total assets may be committed to the aggregate
of initial and variation margin payments however.
The Portfolios will incur brokerage commissions in connection with
transactions in futures contracts.
DESCRIPTION. A stock index futures contract is an agreement whereby one
party agrees to take and another party agrees to make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. A stock index assigns
relative values to the common stocks included in the index, and the index
fluctuates with changes in the market values of the common stocks included. No
physical delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts covering the stock market as a
whole and covering certain industries are being traded. It is expected that
futures contracts covering stock indexes of additional industries will
eventually be traded.
An interest rate futures contract is an agreement whereby one party agrees
to sell and another party agrees to purchase a specified amount of a specified
financial instrument (debt security) at a specified price at a specified date,
time and place. Although interest rate futures contracts typically require
actual future delivery of and payment for financial instruments, the contracts
are usually closed out before the delivery date.
A public market exists in interest rate futures contracts covering
primarily the following financial instruments: U.S. Treasury bonds; U.S.
Treasury notes; Government National Mortgage Association (GNMA) modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that futures contracts trading in additional financial
instruments will be authorized. The standard contract size is $100,000 for
futures contracts in U.S. Treasury bonds, U.S. Treasury notes and GNMA
pass-through securities and $1,000,000 for the other designated contracts.
It is each Portfolio's policy to close out open futures contracts before
delivery. Closing out an open futures contract sale or purchase is effected by
entering into an offsetting futures contract purchase or sale, respectively, for
the same aggregate amount of the stock index or the financial instrument and the
same delivery date. If the offsetting purchase price is less than the original
sale price, the Portfolio realizes a gain, and if it is more, the Portfolio
realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Portfolio realizes a gain, and if it is less, the
Portfolio realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Portfolio will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If the Portfolio is not able to enter into an
offsetting transaction, the Portfolio will continue to be required to maintain
the margin deposits on the contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September Treasury Bills on an exchange
may be fulfilled at any time before delivery of the contract is required (i.e.,
on a specified date in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In such instance the
difference between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Portfolio.
Persons who trade in futures contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, such as the Portfolios, whose business
activity involves investment or other commitment in equity and debt securities
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or other obligations, use the financial futures markets primarily to offset
unfavorable changes in value that may occur because of fluctuations in the value
of the securities or obligations held or expected to be acquired by them.
The speculator, like the hedger, generally expects neither to deliver nor
to receive the security underlying the futures contract, but unlike the hedger,
hopes to profit from fluctuations in prevailing stock market values or interest
rates.
Each Portfolio's futures transactions will be entered into for traditional
hedging purposes--that is, futures contracts will be sold to protect against a
decline in the price of securities that the Portfolio owns, or futures contracts
will be purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, each
Portfolio expects that approximately 75% of such futures contract purchases will
be "completed"; that is, upon sale (offsetting) of these long contracts,
equivalent amounts of related securities will have been or are then being
purchased by the Portfolio in the cash market.
MARGIN. Initial margin is the amount of funds that must be deposited by a
Portfolio with its broker in order to initiate futures trading. An initial
margin deposit is intended to assure the Portfolio's performance of the futures
contract. The margin required for a particular futures contract is set by the
exchange on which the contract is traded and may range upward from less than 5%
of the value of the contract being traded.
Variation margin is the amount of subsequent payments that must be made to
and from the broker to maintain the Portfolio's open position in the futures
contracts. Variation margin payments are made on a daily basis as the price of
the underlying stock index or financial instrument fluctuates. If the value of
the open futures position changes (by increase, in the case of a sale, or by
decrease, in the case of a purchase) so that the loss on the futures contract
reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require the Portfolio to make a variation margin
payment in the amount of the insufficiency. However, if the value of a position
increases because of favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the Portfolio will promptly demand
payment by the broker of variation margin in the amount of the excess. All
variation margin payments received by the Portfolio will be held by the Fund's
custodian in a separate account for the Portfolio.
In computing net asset value daily each Portfolio will mark to market the
current value of its open futures contracts. Each Portfolio expects to earn
interest income on its initial margin deposits.
EXAMPLE OF PURCHASE OF STOCK INDEX FUTURES CONTRACT. A Portfolio might
purchase a stock index futures contract when it anticipates a significant market
or market sector advance and wishes to participate in such advance at a time
when the Portfolio is not fully invested, for example, because the Portfolio has
not selected the individual stocks which it wishes to purchase. The Portfolio
would be endeavoring to eliminate the effect of all or part of an expected
increase in the market price of the stocks that the Portfolio may purchase at a
later date.
For example, assume that the prices of certain stocks that the Portfolio
may later purchase tend to move in concert with the Standard and Poor's 500
Stock Index. The Portfolio wishes to attempt to fix the purchase price of its
anticipated stock investment until the time (three months in this example) when
it may purchase the stock. Assume the stock has a market price of 125 and the
Portfolio believes that, because of an anticipated advance in the stock market,
the price will have risen in three months. The Portfolio might enter into
futures contract purchases of the Standard and Poor's 500 Stock Index for a
price of 125. If the market price of the stock should increase
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from 125 to 130, the futures market price for the Standard and Poor's 500 Stock
Index might also increase, e.g., from 125 to 130. In that case, the five-point
increase in the price that the Portfolio would have to pay for the stock would
be offset by the five-point gain realized by closing out the futures contract
purchase.
If the Portfolio should be mistaken in its forecast of market values, and
the stock index should decline below 125, the market value of the stocks being
hedged would presumably decline. Unless the Portfolio would purchase the stocks
for the decreased price, the Portfolio would realize a loss on the sale of the
futures contract which would not be offset by the price decrease.
EXAMPLE OF SALE OF STOCK INDEX FUTURES CONTRACT. The Portfolio might sell
stock index futures contracts in anticipation of a general market or market
sector decline that may adversely affect the market values of the stocks held by
the Portfolio. The Portfolio would be endeavoring to substantially reduce the
risk of a decline in the value of its stocks without selling the stocks with
resultant transaction costs.
For example, assume that the market price of certain stocks held by the
Portfolio tend to move in concert with the Standard and Poor's 500 Stock Index.
The stock currently has a market value of 125, which the Portfolio believes will
decline because of an anticipated decline in the stock market. The Portfolio
wishes to attempt to fix the current market value of the stock until some time
in the future. The Portfolio might enter into a futures contract sale of the
Standard and Poor's 500 Stock Index at a price of 125. If the market price of
the stock should decline from 125 to 120, the futures market price of the
Standard and Poor's 500 Stock Index might also decline, e.g. from 125 to 120.
In that case the five-point loss in the market value of the stock would be
offset by the five-point gain realized by closing out the futures contract. The
futures market price of the Standard and Poor's 500 Stock Index might decline to
more or less than 120 because of the imperfect correlation with the prices of
the stocks hedged.
If the Portfolio should be mistaken in its forecast of the stock market,
and the futures market price of the Standard and Poor's 500 Stock Index should
increase above 125, the market price of the stock would increase. The benefit
of this increase would be offset by the loss realized on closing out the futures
contract sale.
EXAMPLE OF PURCHASE OF INTEREST RATE FUTURES CONTRACT. The Portfolio might
purchase an interest rate futures contract when it wishes to defer for a time a
fully invested position in longer term securities, for example, in order to
continue holding shorter term securities with higher yields. The Portfolio
would be endeavoring to eliminate the effect of all or part of an expected
increase in market price of the longer term bonds that the Portfolio may wish to
purchase at a later date.
For example, assume that the market price of a type of longer term bonds
that the Portfolio may later purchase, currently yielding 10%, tends to move in
concert with futures market prices of long-term U.S. Treasury bonds. The
Portfolio wishes to attempt to fix the purchase price (and thus the 10% yield)
of its anticipated longer term bond investment until the time (four months away
in this example) when it may purchase the bond. Assume the longer term bond has
a market price of 100, and the Portfolio believes that, because of an
anticipated decline in interest rates, the price will have risen (and
correspondingly the yield will have declined) in four months. The Portfolio
might enter into futures contract purchases of Treasury bonds for a price of 98.
At the same time, the Portfolio would purchase, for example at 100, or continue
to hold, shorter term securities that are either maturing in four months or are
earmarked by the Portfolio for sale in four months. Assume these short-term
securities are yielding 15%. If the market price of the longer term bond should
increase from 100 to 105, the futures market price for Treasury bonds might also
increase, e.g., from 98 to 103. In that case, the five-point increase in the
price that the Portfolio would have to pay for the
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longer term bond would be offset by the five-point gain realized by closing out
the futures contract purchase.
If the Portfolio should be mistaken in its forecast of interest rates, and
the futures market price of the U.S. Treasury obligation should decline below
98, the market price of the security being hedged would presumably decline. If
short-term rates at the same time fall to 10% or below, it is likely that the
Portfolio would follow through with its anticipated purchases of longer term
bonds, as the market price of available longer term bonds would have decreased.
The benefit of this price decrease, and thus the yield increase, would be offset
by the loss realized on closing out the futures contract purchase.
EXAMPLE OF SALE OF INTEREST RATE FUTURES CONTRACT. The Portfolio might
sell an interest rate futures contract in order to maintain the income derived
from its continued holding of a long-term security while endeavoring to avoid
part or all of the loss in market value that would otherwise accompany a decline
in prices of longer term securities because of an increase in prevailing
interest rates.
For example, assume that the market price of a certain longer term security
held by the Portfolio tends to move in concert with the futures market prices of
long-term U.S. Treasury bonds. The security has a current market price of 100,
which the Portfolio believes will decline because of an anticipated rise in
interest rates. The Portfolio wishes to attempt to fix the current market value
of this security until some point in the future. The Portfolio might enter into
a futures contract sale of Treasury bonds at a price of 98. If the market value
of the security should decline from 100 to 95, the futures market price of
Treasury bonds might also decline, e.g., from 98 to 93. In that case, the
five-point loss in the market value of the security would be offset by the
five-point gain realized by closing out the futures contract sale. The futures
market price of Treasury bonds might decline to more or less than 93 because of
the imperfect correlation with the prices of the securities hedged.
If the Portfolio should be mistaken in its forecast of interest rates, and
the futures market price of the U.S. Treasury obligation should increase above
98, the market price of the securities, including the security being hedged,
would increase. The benefit of this increase would be offset by the loss
realized on closing out the futures contract sale.
RISKS. Financial futures prices are volatile and difficult to forecast.
Stock index futures prices reflect the market values of the stocks included in
the index, while interest rate futures contracts are influenced, among other
things, by changes in prevailing interest rates and anticipation of future
interest rate changes. The factors influencing interest rate futures prices are
in turn affected by government fiscal and monetary policies and actions, and
national and international political and economic events, while stock market
values are also influenced by corporate management policies, consumer demand,
competition, sources of raw materials and supplies and government regulation.
At best, the correlation between changes in prices of futures contracts and
the securities being hedged can be only approximate. The degree of imperfection
of correlation depends upon circumstances, such as: variations in speculative
market demand for futures and for equity or debt securities, including technical
influences in futures trading, and differences between the securities being
hedged and the instruments underlying the standard futures contracts available
for trading. A decision of whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected stock market or interest
rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
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as well as gain, to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as initial margin, a 10%
decrease in the value of the futures contract would result in a total loss of
the initial margin deposit before any deduction for the transaction costs, if
the account were then closed out, and 15% decrease would result in a loss equal
to 150% of the initial margin deposit. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. However, the Portfolio would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
security. Furthermore, in order to be certain that the Portfolio has sufficient
assets to satisfy its obligations when it purchases a futures contract, the
Portfolio deposits cash or cash equivalents equal in value to the market value
of the futures contract in a segregated account for the Portfolio with the
Fund's custodian.
Most United States interest rate futures exchanges and the Chicago
Mercantile Exchange limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
FOREIGN CURRENCY FUTURES. The International Equity and High Yield Bond
Portfolios have the authority to deal in forward foreign exchange between
currencies of the different countries in which the Portfolio will invest as a
hedge against possible variations in the foreign exchange rate between these
currencies. This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date and price set at the time
of the contract. The Portfolios' dealings in forward foreign exchange will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Portfolio
arising from the purchase and sale of portfolio securities, the sale and
redemption of shares of the Portfolio, or the payment of dividends and
distributions by the Portfolio. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The International Equity and High Yield Bond Portfolios
will not speculate in forward foreign exchange.
RISKS. Financial futures prices are volatile and difficult to forecast.
Stock index futures prices reflect the market values of the stocks included in
the index, while interest rate futures contracts are influenced, among other
things, by changes in prevailing interest rates and anticipation of future
interest rate changes. The factors influencing interest rate futures prices are
in turn affected by government fiscal and monetary policies and actions, and
national and international political and economic events, while stock market
values are also influenced by corporate management policies, consumer demand,
competition, sources of raw materials and supplies and government regulation.
At best, the correlation between changes in prices of futures contracts and
the securities being hedged can be only approximate. The degree of imperfection
of correlation depends upon circumstances, such as: variations in speculative
market demand for futures and for equity or debt securities, including technical
influences in futures trading, and differences between the securities being
hedged and the instruments underlying the standard futures contracts available
for trading. A decision of whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge
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may be unsuccessful to some degree because of market behavior or unexpected
stock market or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as initial margin, a 10% decrease
in the value of the futures contract would result in a total loss of the initial
margin deposit before any deduction for the transaction costs, if the account
were then closed out, and a 15% decrease would result in a loss equal to 150% of
the initial margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Portfolio would presumably have sustained comparable losses if,
instead of the futures contract, it had invested in the underlying security.
Furthermore, in order to be certain that the Portfolio has sufficient assets to
satisfy its obligations when it purchases a futures contract, the Portfolio
deposits cash or cash equivalents equal in value to the market value of the
futures contract in a segregated account with the Fund's custodian.
Most United States interest rate futures exchanges and the Chicago
Mercantile Exchange limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
FEDERAL INCOME TAX TREATMENT. For Federal income tax purposes, each
Portfolio is required to recognize as income for each taxable year its net
unrealized gains and losses on futures contracts as of the end of the year as
well as those actually realized during the year. Any gain or loss recognized
with respect to a futures contract is considered to be 60% long-term and 40%
short-term, without regard to the holding period of the contract. In the case
of a futures transaction classified as a "mixed straddle," the recognition of
losses may be deferred to a later taxable year.
In order for each Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income, i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities. Any net gain realized from the closing out of futures contracts,
for purposes of the 90% requirement, is considered gain from the sale of
securities and therefore is qualifying income. In addition, gains realized on
the sale or other disposition of securities held for less than three months must
be limited to less than 30% of the Portfolio's annual gross income.
Consequently, in order for the Portfolio to avoid realizing a gain within a
three-month period, the Portfolio may be required to defer the closing out of a
contract beyond the time when it would otherwise be advantageous to do so.
COVERED CALL OPTION CONTRACTS
The Index 500 Stock, Index 400 Stock, Balanced, Growth and Income Stock,
Growth Stock, Small Cap Growth Stock, Aggressive Growth Stock and High Yield
Bond Portfolios may engage in writing covered call option contracts--options on
securities owned by the Portfolios--and may purchase call options only to close
out a position acquired through the writing of such options. Any option written
or purchased by a Portfolio must be listed on a domestic exchange. A
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covered call option gives the purchaser of the option the right to purchase the
underlying security at a fixed exercise price at any time prior to the
expiration of the option, regardless of the market price of the security during
the option period. As consideration for the option the purchaser pays the
Portfolio a premium which the Portfolio retains whether or not the option is
exercised. A covered call option will benefit a Portfolio if, over the option
period, the underlying security declines in value or does not appreciate above
the aggregate value of the exercise price and the premium. However, a Portfolio
risks a loss of profits if the underlying security appreciates above the
aggregate value of the exercise price and the premium.
The Portfolios may also close out a position acquired through writing a
call option by purchasing a call option on the same security with the same
exercise price and expiration date as the call option which it has previously
written on the security. Thus, when a security subject to a call option is sold
from a Portfolio (i.e., to protect the Portfolio from possible depreciation of
the security), the Portfolio will purchase a call option on the security to
close out the existing call option. Depending on the premium of the contract, a
Portfolio will realize a profit or a loss on the transaction. Option
transactions may increase a Portfolio's transaction costs and turnover rate and
will be initiated only where appropriate to achieve a Portfolio's investment
objectives.
REVERSE REPURCHASE AGREEMENTS
The Money Market and Balanced Portfolios may enter into reverse repurchase
agreements with banks and broker-dealers. Such agreements involve the sale of
money market securities held by a Portfolio pursuant to an agreement to
repurchase the securities at an agreed upon price, date and interest payment.
The Portfolio will use the proceeds of reverse repurchase agreements to purchase
other money market securities which either mature, or can be sold under an
agreement to resell, at or prior to the expiration of the reverse repurchase
agreement. A Portfolio will utilize reverse repurchase agreements when the
interest income to be earned from the investment of proceeds from the
transaction is greater than the interest expense of the reverse repurchase
transaction. When effecting reverse repurchase transactions, a Portfolio will
hold securities of a dollar amount equal in value to the securities subject to
the reverse repurchase agreement in a segregated account. Amounts subject to
reverse repurchase agreements are also subject to a 300% asset coverage
requirement. If such amounts in the aggregate exceed this asset coverage
requirement, the Portfolio would be obligated within three days to reduce such
amounts to meet the requirement. Under no circumstances will a Portfolio enter
into a reverse repurchase agreement with Northwestern Mutual Life.
WARRANTS
The Index 500 Stock, Index 400 Stock, Balanced, Growth and Income Stock,
Growth Stock, Small Cap Growth Stock, Aggressive Growth Stock and High Yield
Bond Portfolios may invest in warrants. No Portfolio intends to invest more than
2% of its net assets in warrants that are not listed on a national securities
exchange. In no event will a Portfolio's investment in warrants exceed 5% of
its net assets. (A warrant is a right to buy a certain security at a set price
during a certain time period.)
ASSET-BACKED AND VARIABLE RATE SECURITIES
Consistent with its investment objectives and policies, the Money Market
Portfolio may invest in asset-backed and variable rate securities.
Asset-backed securities represent fractional interests in pools of retail
installment loans or revolving credit receivables. These assets are generally
held by a special purpose trust and payments of principal and interest, or
interest only, are passed through or paid through monthly or quarterly to
certificate holders. Payments may be guaranteed up to certain amounts by
letters of credit issued by a financial institution affiliated or
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unaffiliated with the trustee or originator of the trust. Underlying
receivables are generally subject to prepayment, which may reduce the overall
return to certificate holders. Nevertheless, for asset-backed securities,
principal repayment rates tend not to vary much with interest rates and the
short-term nature of the underlying loans or other receivables tends to dampen
the impact of any change in the prepayment level. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or other receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts, or because of depreciation or damage to the collateral securing
certain contracts, or other factors.
Variable rate securities bear rates of interest that are adjusted
periodically or which "float" continuously according to formulae intended to
minimize fluctuations in values of the instruments. For the Money Market
Portfolio, the Fund determines the maturity of variable rate securities in
accordance with Securities and Exchange Commission rules that allow the Fund to
consider certain of such instruments as having maturities less than the maturity
date on the instrument.
SHORT-TERM TRADING
Each Portfolio will generally not engage in short-term trading (purchases
and sales within seven days).
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES
Each Portfolio may enter into firm commitment agreements for the purchase
of securities at an agreed upon price on a specified future date. A Portfolio
may purchase new issues of securities on a "when-issued" basis, whereby the
payment obligation and interest rate on the instruments are fixed at the time of
the transaction. Such transactions might be entered into, for example, when the
manager of a Portfolio anticipates a decline in the yield of securities of a
given issuer and is able to obtain a more advantageous yield by committing
currently to purchase securities to be issued or delivered later.
A Portfolio will not enter into such a transaction for the purpose of
investment leverage. Liability for the purchase price - and all the rights and
risks of ownership of the securities - accrue to the Portfolio at the time it
becomes obligated to purchase such securities, although delivery and payment
occur at a later date. Accordingly, if the market price of the security should
decline, the effect of the agreement would be to obligate the Portfolio to
purchase the security at a price above the current market price on the date of
delivery and payment. During the time the Portfolio is obligated to purchase
such securities it will maintain in a segregated account U.S. Government
securities, high-grade debt obligations, or cash or cash equivalents of an
aggregate current value sufficient to make payment for the securities.
Eurodollar Certificates of Deposit
The Money Market, Balanced, Growth and Income Stock, Growth Stock and High
Yield Bond Portfolios may purchase Eurodollar certificates of deposit issued by
foreign branches of U.S. banks, but consideration will be given to their
marketability and possible restrictions on the flow of international currency
transactions. Investment in such securities involves considerations which are
not ordinarily associated with investing in domestic instruments, including
currency exchange control regulations, the possibility of expropriation,
seizure, or nationalization of foreign deposits, less liquidity and increased
volatility in foreign securities markets, and the impact of political, social or
diplomatic developments or the adoption of other foreign government restrictions
that might adversely affect the payment of principal and interest. If the Fund
were to invoke legal processes, it might encounter greater difficulties abroad
than in the United States.
B-13
<PAGE>
PRIVATE PLACEMENT TRANSACTIONS AND ILLIQUID ASSETS
Each Portfolio may invest up to 15% of its total assets in securities
acquired in private placement transactions and other illiquid assets. For the
Money Market Portfolio the limit is 10%. For the purpose of determining each
Portfolio's net asset value, these assets will be valued at their fair value as
determined in good faith by the Fund's Directors. If a Portfolio should have
occasion to sell an investment in restricted securities at a time when the
market for such investments is unfavorable, a considerable period may elapse
between the time when the decision to sell it is made and the time when the
Portfolio will be able to sell the investment, with a possible adverse effect
upon the amount to be realized from the sale.
Notwithstanding these limitations a Portfolio may purchase securities
which, though not registered under the Securities Act of 1933 (the "1933 Act"),
are eligible for purchase and sale pursuant to Rule 144A under the 1933 Act.
Rule 144A permits unregistered securities to be traded among qualified
institutional investors, including the Portfolios. Rule 144A securities that
are determined to be liquid are not subject to the limitations on illiquid
assets. The Fund's investment adviser, Northwestern Mutual Investment Services,
LLC, determines and monitors the liquidity status of each Rule 144A security in
which a Portfolio invests, subject to supervision and oversight by the Board of
Directors of the Fund. The investment adviser takes into account all of the
factors which may have a material bearing on the ability of the Portfolio to
dispose of the security in seven days or less, at a price reasonably consistent
with the value used to determine the Portfolio's net asset value per share,
including the following factors: (1) the frequency and volume of trades, (2)
the number and sources of price quotes, (3) the number, and identity, of dealers
willing to purchase or sell the issue, and the number and identity of other
potential purchasers, (4) any dealer undertakings to make a market in the
security, (5) the nature of the security, and (6) the nature of the market in
which the issue is traded, including the time typically required to make trades,
the methods of soliciting offers and the mechanics of transfer.
RISK FACTORS FOR FOREIGN SECURITIES, FOREIGN CURRENCIES AND FOREIGN INTEREST
RATES
FOREIGN SECURITIES The International Equity Portfolio has an unlimited
right to purchase securities in any foreign country, developed or developing, if
they are listed on a stock exchange, as well as a limited right to purchase such
securities if they are unlisted. The Growth and Income Portfolio, Select Bond
Portfolio, Balanced Portfolio and High Yield Bond Portfolio may each invest a
portion of their assets in foreign securities. Investors should consider
carefully the substantial risks involved in securities of companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Portfolios, therefore,
may encounter difficulty in obtaining market quotations for purposes of valuing
their assets and calculating their net asset value. Foreign markets have
substantially less volume than the New York Stock Exchange and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Although the International Equity Portfolio may
invest up to 15% of its total assets in unlisted foreign securities, including
up to 10% of its total assets in securities with a limited trading market, in
the opinion of management such securities with a limited trading market
generally do not present a significant liquidity problem. Commission rates in
foreign countries, which are generally fixed rather than subject to negotiation
as in the U.S., are likely to be higher. In many foreign
B-14
<PAGE>
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the U.S.
EMERGING MARKETS. Investments in companies domiciled in developing
countries may be subject to potentially higher risks than investments in
developed countries. These risks include (i) less social, political and
economic stability; (ii) the small current size of the markets for such
securities and the currently low or nonexistent volume of trading, which result
in a lack of liquidity and in greater price volatility; (iii) certain national
policies which may restrict each Portfolio's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; (v) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until recently in many developing
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in some developing
countries may be slowed or reversed by unanticipated political or social events
in such countries.
In addition, many countries in which the Portfolios may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had
and may continue to have negative effects on the economies and securities
markets of certain countries. Moreover, the economies of some developing
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Investments in developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, the Communist governments
of a number of Eastern European countries expropriated large amounts of private
property in the past, in many cases without adequate compensation, and there can
be no assurance that such expropriation will not occur in the future. In the
event of expropriation, each Portfolio could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in certain developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries, may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders of
a Portfolio.
RUSSIAN SECURITIES. Investing in Russian companies involves a high degree
of risk and special considerations not typically associated with investing in
the U.S. securities markets, and should be considered highly speculative. Such
risks include, together with Russia's continuing political and economic
instability and the slow-paced development of its market economy, the following:
(a) delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (b) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (c) pervasiveness of corruption, insider-trading, and crime in the
Russian economic system; (d) currency exchange rate volatility and the lack of
available currency hedging instruments; (e) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (f)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on a Portfolio's ability to exchange local currencies for U.S. dollars; (g) the
risk that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with
B-15
<PAGE>
substantially less liquidity and in issuers having significantly smaller market
capitalizations, when compared to securities and issuers in more developed
markets; (i) the difficulties associated in obtaining accurate market valuations
of many Russian securities, based partly on the limited amount of publicly
available information; (j) the financial condition of Russian companies,
including large amounts of inter-company debt which may create a payments crisis
on a national scale; (k) dependency on exports and the corresponding importance
of international trade; (l) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation or, in
the alternative, the risk that a reformed tax system may result in the
inconsistent and unpredictable enforcement of the new tax laws; (m) possible
difficulty in identifying a purchaser of securities held by the Portfolios due
to the underdeveloped nature of the securities markets; (n) the possibility that
pending legislation could restrict the levels of foreign investment in certain
industries, thereby limiting the number of investment opportunities in Russia;
(o) the risk that pending legislation would confer to Russian courts the
exclusive jurisdiction to resolve disputes between foreign investors and the
Russian government, instead of bringing such disputes before an
internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets
because they are relatively new and a substantial proportion of securities
transactions in Russia are privately negotiated outside of stock exchanges.
Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems, settlement,
clearing and registration of securities transactions are subject to significant
risks. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by extracts from the
register or by formal share certificates. However, there is no central
registration system for shareholders and these services are carried out by the
companies themselves or by registrars located throughout Russia. These
registrars are not necessarily subject to effective state supervision nor are
they licensed with any governmental entity and it is possible for the Portfolios
to lose their registration through fraud, negligence or even mere oversight.
While each Portfolio will endeavor to ensure that its interest continues to be
appropriately recorded either itself or through a custodian or other agent
inspecting the share register and by obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability and
it is possible that subsequent illegal amendment or other fraudulent act may
deprive the Portfolios of their ownership rights or improperly dilute their
interests. In addition, while applicable Russian regulations impose liability
on registrars for losses resulting from their errors, it may be difficult for
the Portfolios to enforce any rights they may have against the registrar or
issuer of the securities in the event of loss of share registration.
Furthermore, although a Russian public enterprise with more than 500
shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the
Portfolios from investing in the securities of certain Russian companies deemed
suitable by the manager. Further, this also could cause a delay in the sale of
Russian company securities by a Portfolio if a potential purchaser is deemed
unsuitable, which may expose the Portfolio to potential loss on the investment.
CURRENCY Each Portfolio's management endeavors to buy and sell foreign
currencies on as favorable a basis as practicable. Some price spread in
B-16
<PAGE>
currency exchange (to cover service charges) will be incurred, particularly when
a Portfolio changes investments from one country to another or when proceeds of
the sale of shares in U.S. dollars are used for purchase of securities in
foreign countries. Also, some countries may adopt policies which would prevent
the Portfolios from transferring cash out of the country or withhold portions of
interest and dividends at the source. There is the possibility of cessation of
trading on national exchanges, expropriation, nationalization or confiscatory
taxation, withholding and other foreign taxes on income or other amounts,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability, or diplomatic developments which
could affect investments in securities of issuers in foreign nations.
Each Portfolio may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which the Portfolios may invest
may also have fixed or managed currencies that are not free-floating against the
U.S. dollar. Further, certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative
to the U.S. dollar. Any devaluations in the currencies in which a Portfolio's
securities are denominated may have a detrimental impact on that Portfolio.
Through the flexible policy of the Portfolio, its manager endeavors to avoid
unfavorable consequences and to take advantage of favorable developments in
particular nations where from time to time it places the investments of the
International Equity Portfolio.
The exercise of this flexible policy may include decisions to buy
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which is replacing the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.
Franklin Resources, Inc. has created an interdepartmental team to handle
all euro-related changes to enable the mutual funds managed by Templeton
Investment Counsel, Inc. to process transactions accurately and completely with
minimal disruption to business activities. While the implementation of the euro
could have a negative effect on the International Equity Portfolio, the
Portfolio's manager and its affiliated services providers are taking steps they
believe are reasonably designed to address the euro issue.
INTEREST RATE To the extent each Portfolio invests in debt securities,
changes in interest rates in any country where the Portfolio is invested will
affect the value of its assets and, consequently, its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to cause the face value of a debt security to decrease,
having a negative effect on the value of the Portfolio's shares. Of course,
interest rates have increased and decreased, sometimes very dramatically, in the
past. These changes are likely to occur again in the future at unpredictable
times.
PORTFOLIO TURNOVER
Portfolio turnover may vary from year to year or within a year depending
upon economic, market and business conditions. The annual portfolio turnover
rates of the Portfolios cannot be accurately predicted. It is anticipated
B-17
<PAGE>
that the annual portfolio turnover rate for the Index 500 Stock Portfolio will
not exceed 4%, that the rate for the High Yield Bond Portfolio will generally
not exceed 200% and that the rate for the Select Bond Portfolio will generally
not exceed 185%. For the other Portfolios, it is anticipated that the rate will
generally not exceed 100%. In 1998 the portfolio turnover rate for the Growth
and Income Stock Portfolio was higher than usual because of market conditions
over the course of the year. Short-term debt securities are excluded in the
calculation of portfolio turnover rates. U.S. Government securities are
included in the calculation of portfolio turnover rates.
For years 1997 and 1998, the portfolio turnover rates were:
<TABLE>
<CAPTION>
PORTFOLIO TURNOVER RATE 1998 1997
----------------------- ------ ------
<S> <C> <C>
Aggressive Growth Stock Portfolio 50.43% 57.27%
International Equity Portfolio 30.41% 16.74%
Growth Stock Portfolio 21.64 33.20%
Growth and Income Stock Portfolio 160.40% 144.52%
Index 500 Stock Portfolio 3.03% 3.15%
Balanced Portfolio 44.18% 29.94%
High Yield Bond Portfolio 153.71% 129.49%
Select Bond Portfolio 161.79% 184.93%
</TABLE>
The annual portfolio turnover rate of each Portfolio is the lesser of
purchases or sales of the Portfolio's securities for the year stated as a
percentage of the average value of the Portfolio's assets.
MANAGEMENT OF THE FUND
The Board of Directors of the Fund is responsible for the administration of
the affairs of the Fund. The following is a list of the Directors and Officers
of the Fund together with a brief description of their principal occupations
during the past five years.
James D. Ericson (63), President and Director*
720 East Wisconsin Avenue
Milwaukee, WI 53202
President and Chief Executive Officer of Northwestern Mutual. Trustee
of Northwestern Mutual Life
Stephen N. Graff (64), Director*
805 Lone Tree Road
Elm Grove, WI 53122
Retired Partner, Arthur Andersen LLP (Public Accountants). Trustee of
Northwestern Mutual Life since 1996
Martin F. Stein (62), Director
1800 East Capitol Drive
Milwaukee, WI 53211
Chairman of the Board of EyeCare One Corporation (retail sales of
eyewear)
John K. MacIver (68), Director
100 East Wisconsin Avenue
Milwaukee, WI 53202
Partner, Michael Best & Friedrich, Attorneys at Law
William J. Blake (66), Director
731 North Jackson Street
Milwaukee, WI 53202
Chairman, Blake Investment Corp. (real estate investments and venture
capital)
B-18
<PAGE>
William A. McIntosh (60), Director
525 Sheridan Road
Kenilworth, IL 60043
Retired Division Head, U.S. Fixed Income of Salomon Brothers
(investment securities) since 1995; prior thereto, Division Head, U.S.
Fixed Income
Mark G. Doll (49), Vice President and Treasurer
720 East Wisconsin Avenue
Milwaukee, WI 53202
Vice President and Assistant Treasurer-Public Markets of Northwestern
Investment Management Company since 1998. Senior Vice President of
Northwestern Mutual Life since 1996; Senior Vice President and
Treasurer, 1995; prior thereto, Vice President and Treasurer.
Executive Vice President, Investment Advisory Services of Northwestern
Mutual Investment Services, LLC since 1996; prior thereto, President
Patricia L. Van Kampen (47), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Vice President-Common Stocks of Northwestern
Mutual Life. Vice President-Common Stocks of Northwestern Mutual
Investment Services, LLC
William R. Walker (42), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Director of Common Stocks of Northwestern Mutual
Life. Vice President of Northwestern Mutual Investment Services, LLC
Julie M. Van Cleave (40), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Director of Common Stocks of Northwestern Mutual
Life. Vice President-Common Stocks of Northwestern Mutual Investment
Services, LLC
Steven P. Swanson (45), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management Company since
1998; Vice President-Securities of Northwestern Mutual Life from 1994
to 1997; prior thereto, Director-Securities; Vice President of
Northwestern Mutual Investment Services, LLC
Varun Mehta (31), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Director of Northwestern Investment Management Company since 1998;
Investment Officer-Public Fixed Income of Northwestern Mutual Life
from March of 1997 to December of 1997. Portfolio Research
Manager-Fixed Income and Portfolio Manager-Fixed Income of the
B-19
<PAGE>
Ameritech Investment Management Department from 1993 to March of 1997.
Jefferson V. DeAngelis (41), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Managing Director of Northwestern Investment Management Company since
1998; prior thereto, Vice President-Fixed Income Securities of
Northwestern Mutual Life. Vice President-Fixed Income Securities of
Northwestern Mutual Investment Services, LLC
Timothy S. Collins (39), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Director of Northwestern Investment Management Company since 1998;
Director of Investments for Northwestern Mutual Life from October of
1996 to December of 1997; Associate Director - Investments from 1993
to 1996; prior thereto, Investment Officer.
Merrill C. Lundberg (59), Secretary
720 East Wisconsin Avenue
Milwaukee, WI 53202
Assistant General Counsel of Northwestern Mutual Life. Secretary of
Northwestern Mutual Investment Services, LLC
Barbara E. Courtney (41), Controller
720 East Wisconsin Avenue
Milwaukee, WI 53202
Associate Director of Mutual Fund Accounting of Northwestern Mutual
Life since 1996; prior thereto, Assistant Director of Investment
Accounting. Assistant Treasurer of Northwestern Mutual Investment
Services, LLC
* Directors identified with an asterisk are "interested persons" as defined
in Section 2(a)(19) of the Investment Company Act of 1940.
John K. MacIver has served as a Director since February 2, 1984. William J.
Blake has served as a Director since March 9, 1988. James D. Ericson has served
as a Director since April 27, 1994. Stephen N. Graff and Martin F. Stein have
served as Directors since March 29, 1995. William A. McIntosh has served as a
Director since May 8, 1997.
An Audit Committee and Nominating Committee have been established for the
Fund. Each Committee is made up of those Directors who are not "interested
persons" of the Fund within the meaning of the Investment Company Act.
All Board members and officers of the Fund are also board members or
officers of Mason Street Funds, Inc. ("MSF"), a registered investment company.
Each of the Directors and principal officers of the Fund who is also an
affiliated person of Northwestern Mutual Investment Services, LLC ("NMIS") or
Northwestern Mutual Life is named above, together with the capacity in which
such person is affiliated with NMIS or Northwestern Mutual Life.
COMPENSATION OF OFFICERS AND DIRECTORS. The Fund pays no salaries or
compensation to any of its officers or Directors employed by Northwestern Mutual
Life. NMIS, the investment advisor to the Fund, pays each of the other
Directors of the Fund a total of up to $15,000 per year, consisting of a $5,000
retainer paid in January and $2,500 per meeting of the board of the Fund
attended. MSF pays other Directors fees totaling $9,000 per year, consisting of
a $5,000 retainer paid in April and $1,000 per meeting of the
B-20
<PAGE>
Board of Directors of MSF attended. The Fund neither pays nor accrues any
pension or retirement benefits to any of the Directors.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensation Retirement Benefits Annual From Registrant and
From Accrued as Part of Benefits Upon Fund Complex Paid to
Registrant Fund Expenses Retirement Directors in 1998
<S> <C> <C> <C> <C>
James D. Ericson, None None None None
Director
William Blake, None None None $24,000
Director
Stephen N. Graff, None None None $24,000
Director
John K. MacIver, None None None $24,000
Director
Martin F. Stein, None None None $24,000
Director
William A. McIntosh, None None None $24,000
Director
</TABLE>
OWNERSHIP OF SHARES OF THE FUND
All of the outstanding shares of the Fund are held by Northwestern Mutual
Life for its General Account and for its separate investment accounts used for
variable annuity contracts and variable life income policies. Additional shares
are being offered only to Northwestern Mutual Life and the separate investment
accounts. Northwestern Mutual Life is a Wisconsin corporation.
The following tables show the allocation of shares of the Portfolios of the
Fund among the General Account and the separate investment accounts as of
March 31, 1999.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH STOCK PORTFOLIO
<S> <C> <C>
NML Variable Annuity Account A 23,315,581 shares ( 7.5%)
NML Variable Annuity Account B 221,720,731 shares ( 71.1%)
NML Variable Annuity Account C 30,836,640 shares ( 9.9%)
Northwestern Mutual Variable Life Account 35,771,565 shares ( 11.5%)
General Account 0 shares ( 0.00%)
Total 311,644,517 shares (100.00%)
</TABLE>
B-21
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
<S> <C> <C>
NML Variable Annuity Account A 24,429,272 shares ( 6.4%)
NML Variable Annuity Account B 272,565,737 shares ( 71.8%)
NML Variable Annuity Account C 32,778,003 shares ( 8.7%)
Northwestern Mutual Variable Life Account 49,439,968 shares ( 13.1%)
General Account 0 shares ( 0.00%)
Total 379,212,980 shares (100.00%)
GROWTH STOCK PORTFOLIO
NML Variable Annuity Account A 13,619,755 shares ( 6.5%)
NML Variable Annuity Account B 149,242,409 shares ( 71.3%)
NML Variable Annuity Account C 13,023,411 shares ( 6.3%)
Northwestern Mutual Variable Life Account 33,497,752 shares ( 15.9%)
General Account 0 shares ( 0.00%)
Total 209,383,327 shares (100.00%)
GROWTH AND INCOME STOCK PORTFOLIO
NML Variable Annuity Account A 22,326,514 shares ( 6.1%)
NML Variable Annuity Account B 271,528,952 shares ( 74.3%)
NML Variable Annuity Account C 24,530,720 shares ( 6.8%)
Northwestern Mutual Variable Life Account 47,034,849 shares ( 12.8%)
General Account 0 shares ( 0.00%)
Total 365,421,035 shares (100.00%)
INDEX 500 STOCK PORTFOLIO
NML Variable Annuity Account A 44,100,861 shares ( 8.1%)
NML Variable Annuity Account B 376,232,866 shares ( 69.6%)
NML Variable Annuity Account C 56,409,418 shares ( 10.4%)
Northwestern Mutual Variable Life Account 64,201,294 shares ( 11.9%)
General Account 0 shares ( 0.00%)
Total 540,944,439 shares (100.00%)
BALANCED PORTFOLIO
NML Variable Annuity Account A 143,805,468 shares ( 9.7%)
NML Variable Annuity Account B 1,188,440,291 shares ( 80.2%)
NML Variable Annuity Account C 77,431,508 shares ( 5.2%)
Northwestern Mutual Variable Life Account 73,037,651 shares ( 4.9%)
General Account 0 shares ( 0.00%)
Total 1,482,714,918 shares (100.00%)
HIGH YIELD PORTFOLIO
NML Variable Annuity Account A 9,327,815 shares ( 4.9%)
NML Variable Annuity Account B 139,913,968 shares ( 73.1%)
NML Variable Annuity Account C 8,361,526 shares ( 4.4%)
Northwestern Mutual Variable Life Account 16,159,415 shares ( 8.5%)
General Account 17,390,337 shares ( 9.1%)
Total 191,153,061 shares (100.00%)
SELECT BOND PORTFOLIO
NML Variable Annuity Account A 20,144,263 shares ( 8.4%)
NML Variable Annuity Account B 191,651,543 shares ( 80.3%)
NML Variable Annuity Account C 15,679,004 shares ( 6.6%)
Northwestern Mutual Variable Life Account 11,281,605 shares ( 4.7%)
General Account 0 shares ( 0.00%)
Total 238,756,415 shares (100.00%)
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
SELECT BOND PORTFOLIO
<S> <C> <C>
NML Variable Annuity Account A 20,144,263 shares ( 8.4%)
NML Variable Annuity Account B 191,651,543 shares ( 80.3%)
NML Variable Annuity Account C 15,679,004 shares ( 6.6%)
Northwestern Mutual Variable Life Account 11,281,605 shares ( 4.7%)
General Account 0 shares ( 0.00%)
Total 238,756,415 shares (100.00%)
MONEY MARKET PORTFOLIO
NML Variable Annuity Account A 27,048,935 shares ( 8.8%)
NML Variable Annuity Account B 219,764,782 shares ( 71.1%)
NML Variable Annuity Account C 20,635,796 shares ( 6.7%)
Northwestern Mutual Variable Life Account 41,378,131 shares ( 13.4%)
General Account 0 shares ( 0.00%)
Total 308,827,644 shares (100.00%)
</TABLE>
The shares held in connection with certain of the separate investment
accounts are voted by Northwestern Mutual Life in accordance with instructions
received from owners of variable annuity contracts and variable life insurance
policies. The shares held in its General Account are voted by Northwestern
Mutual Life in the same proportions as the shares held in connection with these
separate investment accounts. If applicable laws or regulations change so as to
permit Northwestern Mutual Life to vote the Fund shares in its own discretion,
it may elect to do so.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund's investment adviser, Northwestern Mutual Investment Services, LLC
("NMIS"), is a wholly-owned subsidiary of Northwestern Mutual Life. The adviser
provides investment advice and recommendations regarding the purchase and sale
of securities for the Portfolios and the selection of brokers pursuant to
Investment Advisory Agreements (the "Agreements"). Each Agreement provides that
the adviser will also provide certain services and pay the expenses of the Fund
for certain other administrative services, office space and facilities and the
services of all directors, officers and employees of the Fund. Each Portfolio
(except the Select Bond, Money Market and Balanced Portfolios) pays its own
expenses for fees for services rendered by the custodian, legal counsel and
auditors; costs of Federal registrations of Fund shares; expenses of meetings
and reports; taxes; and brokerage and other expenses directly related to
portfolio transactions.
For acting as investment adviser and for providing such services and paying
such expenses the adviser is paid a monthly fee at the annual rates set forth in
the prospectus for the respective Portfolios. The Fund also pays all interest
charges, brokerage commissions, taxes and extraordinary expenses incurred in
connection with the operation of the Fund. Expenses paid by the Fund are
charged to the Portfolios to which the expenses relate.
For the fiscal years ended December 31, 1996, December 31, 1997, and
December 31, 1998, NMIS received $17,368,648, $23,423,272 and $28,213,362,
respectively, for its services as investment adviser to the Fund.
Northwestern Mutual Life and its wholly-owned subsidiary, Northwestern
Investment Management Company, employ a full staff of investment personnel to
manage the investment assets of Northwestern Mutual Life. These personnel and
related facilities are utilized by NMIS in performing its obligations under the
Agreements and Northwestern Mutual Life is a party to each Agreement.
"Northwestern Mutual Life" is the name and service mark of The Northwestern
Mutual Life Insurance Company and the right of the Fund to use the name and mark
is subject to the consent of Northwestern Mutual Life. Under the Agreement
providing such consent, the Fund recognizes the prior rights of Northwestern
Mutual Life in the name and mark, agrees that use of the name and mark by the
Fund will inure to the benefit of Northwestern Mutual Life and agrees that its
right to use the name and mark can be terminated by Northwestern Mutual Life and
will automatically be terminated if at any time NMIS ceases to be the investment
adviser to the Fund or if NMIS ceases to be a subsidiary of Northwestern Mutual
Life.
Templeton Investment Counsel, Inc. ("Templeton Counsel"), a Florida
corporation with principal offices at 500 East Broward Boulevard, Ft.
Lauderdale, Florida 33394 has been retained under an investment sub-advisory
agreement to provide investment advice and, in general, to conduct the
B-23
<PAGE>
management investment program of the International Equity Portfolio, subject to
the general control of the Board of Directors of the Fund. Templeton Counsel is
a wholly-owned indirect subsidiary of Franklin Resources, Inc. Certain clients
of Templeton Counsel may have investment objectives and policies similar to
those of the International Equity Portfolio. Templeton Counsel may, from time
to time, make recommendations which result in the purchase or sale of a
particular security by its other clients simultaneously with the International
Equity Portfolio. If transactions on behalf of more than one client during the
same period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price. It is the
policy of Templeton Counsel to allocate advisory recommendations and the placing
of orders in a manner which is deemed equitable by Templeton Counsel to the
accounts involved, including the International Equity Portfolio. When two or
more of the clients of Templeton Counsel (including the International Equity
Portfolio) are purchasing the same security on a given day from the same
broker-dealer, such transactions may be averaged as to price. For its services
pursuant to the sub-advisory agreement, Templeton Counsel is paid, by NMIS,
compensation at the annual rate of .50% of the average net assets of the
International Equity Portfolio, reduced to .40% on assets in excess of $100
million.
J.P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), 522
Fifth Avenue, New York, New York 10036, provides investment advisory services to
the Growth and Income Stock Portfolio, pursuant to an investment sub-advisory
agreement. For the services provided, NMIS pays J.P. Morgan Investment a fee at
the annual rate of .45% on the first $100 million of the Portfolio's assets,
.40% on the next $100 million, .35% on the next $200 million and .30% on assets
in excess of $400 million.
J.P. Morgan Investment is an investment manager for corporate, public, and
union employee benefit funds, foundations, endowments, insurance companies,
government agencies and the accounts of other institutional investors. A wholly
owned subsidiary of J.P. Morgan & Co. Inc., J.P. Morgan Investment was
incorporated in the state of Delaware on February 7, 1984 and commenced
operations on July 2, 1984. It was formed from the Institutional Investment
Group of Morgan Guaranty Trust Company of New York, also a subsidiary of J.P.
Morgan & Co. Inc.
Morgan acquired its first tax-exempt client in 1913 and its first
pension account in 1940. Assets under management have grown to over $300
billion as of 12/31/98. With offices in London and Singapore, J.P. Morgan
Investment draws from a worldwide resources base to provide comprehensive
service to an international group of clients. Investment management
activities in Japan, Australia, and Germany are carried out by affiliates,
Morgan Trust Bank in Tokyo, J.P. Morgan Investment Management Australia
Limited in Melbourne, and J.P. Morgan Investment GmbH in Frankfurt.
J.P. Morgan Investment currently provides investment advisory services
to the following investment companies: A. the J.P. Morgan Treasury Money
Market Portfolio, the J.P. Morgan Bond Portfolio, the J.P. Morgan Equity
Portfolio, the J.P. Morgan Small Company Portfolio, and the J.P. Morgan
International Opportunities Portfolio, which are portfolios of the J.P.
Morgan Series Trust II, an open-end diversified investment company registered
under the Investment Company Act of 1940. B. The Prime Money Market
Portfolio, The Federal Money Market Portfolio, The Tax Exempt Money Market
Portfolio, The Short Term Bond Portfolio, The U.S. Fixed Income Portfolio,
The Tax Exempt Bond Portfolio, The New York Tax Exempt Bond Portfolio, The
U.S. Equity Portfolio, The U.S. Small Company Portfolio, The International
Equity Portfolio, The Emerging Markets Equity Portfolio and The Diversified
Portfolio, which are open-end investment companies registered under the
Investment Company Act of 1940; C. The European Equity Portfolio, The
Disciplined Equity Portfolio, The International Opportunities Portfolio, The
Emerging Markets Debt Portfolio and The U.S. Small Company Opportunities
Portfolio which are sub-trusts of the Series Portfolio, an open-end
investment company registered under The Investment Company Act of 1940; The
Treasury Money Market Portfolio and The Global Strategic Income Portfolio
which are sub-trusts of Series Portfolio II, an open-end investment company
registered under the Investment Company Act of 1940; D. J.P. Morgan Tax Aware
U.S. Equity Fund, J.R. Morgan Tax Aware Disciplined Equity Fund, J.P. Morgan
California Bond Fund, J.P. Morgan Global 50 Fund, J.P. Morgan Market Neutral
Fund, J.P. Morgan Large Cap Growth Fund and J.P. Market Smart Index Fund Fund
which are portfolios of J.P. Morgan Series Trust, an open-end investment
Company registered under the Investment Company Act of 1940. Morgan Guaranty
provides or arranges for the provision of certain financial and
administrative services and oversees fund accounting for the Trust. J.P.
Morgan Investment also acts as the subadviser to the following U.S.
registered investment companies which are otherwise unaffiliated with J.P.
Morgan Investment: Advantus Series Fund, Inc. - Macro-Cap Value Portfolio,
American Century - Benham International Bond Fund, American General Series
Portfolio Company 2 - American General Small Cap Growth Fund, American
General Series Portfolio Company 3 - American General Small Cap Growth Fund,
, American Skandia Master Trust - ASMT JPM Money Market Portfolio, American
Skandia Trust -AST Money Market Portfolio, COVA Series Trust - International
Equity Portfolio, COVA Series Trust - Large Capital Stock Portfolio, COVA
Series Trust - Quality Bond Portfolio, COVA Series Trust - Select Equity
Portfolio, COVA Series Trust - Small Capital Stock Portfolio,
B-24
<PAGE>
Endeavor Series Trust - Enhanced Index Portfolio, EQ Advisors Trust - JPM
Core Bond Portfolio, Frank Russell Emerging Markets Fund, Frank Russell
Equity Q Fund, Frank Russell Equity T Fund, Frank Russell International Fund,
Frank Russell International Securities Fund, Frank Russell Quantitative
Equity Fund, Jefferson Pilot Variable Fund, Inc. - Balanced Portfolio, JNL
Series Trust -JNL/JPM International & Emerging Markets Series, John Hancock
Variable Series Trust I - Strategic Bond Portfolio, Liberty ALL-STAR Equity
Fund, Liberty ALL-STAR Equity Fund Variable Series, Mason Street Funds, Inc.
- - Growth and Income Stock Fund, Mutual Investment Fund of Connecticut,
Nationwide Separate Account Trust - Nationwide Global Equity Fund, Pacific
Select Fund - The Equity Income Portfolio, Pacific Select Fund - The
Multi-Strategy Portfolio, Phoenix Edge Series Fund - JPM Research Enhanced
Index Series, Preferred Fixed Income Fund, Principal Variable Contracts Fund,
Inc. - Small CapValue Fund, Tridan Corporation, WRL Series Fund, Inc. - Money
Market Portfolio, WRL Series Fund, Inc. - Real Estate Securities Portfolio.
Northwestern Mutual Life is the licensee under two License Agreements with
Standard & Poor's, dated as of November 30, 1990 and February 19, 1999 for the
S&P 500 Index and the S&P MidCap 400 Index, respectively, relating to the Fund
as well as certain other mutual funds sponsored by Northwestern Mutual Life.
The following disclaimers and limitations are included in accordance with the
requirements of the License Agreements:
The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's ("S&P"), a division of The McGraw-Hill Companies, Inc., and none of
the Portfolios of the Fund is so sponsored, endorsed, sold or promoted.
S&P makes no representation or warranty, express or implied, to the owners
of the Fund or any of its Portfolios or any member of the public regarding
the advisability of investing in securities generally or in the Fund or any
of its Portfolios particularly or the ability of the S&P 500 Index or the
S&P MidCap 400 Index to track general stock market performance. S&P's only
relationship to the Licensee is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index and the S&P MidCap 400 Index,
both of which are determined, composed and calculated by S&P without regard
to the Licensee or the Fund. S&P has no obligation to take the needs of
the Licensee or the owners of the Fund or any of its Portfolios into
consideration in determining, composing or calculating the S&P 500 Index
and the S&P MidCap 400 Index. S&P is not responsible for and has not
participated in the determination of the timing of, prices at, or
quantities of the Fund or any of its Portfolios to be issued or in the
determination or calculation of the equation by which the Fund or any of
its Portfolios is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of
the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY
EXPRESSLY DISCLAIMS ALL WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX AND THE S&P
MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The custodian for the Index 400 Stock, Small Cap Growth Stock, Index 500
Stock, Aggressive Growth Stock and Balanced Portfolio is The Chase Manhattan
B-25
<PAGE>
Bank, N.A., One Chase Manhattan Plaza, New York, New York 10081. The custodian
for the Select Bond, High Yield Bond, Money Market, Growth Stock and Growth and
Income Stock Portfolios is Bankers Trust Company, 16 Wall Street, New York, New
York 10015. The custodian for the International Equity Portfolio is Brown
Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109. The
custodians maintain custody of securities and other assets of the respective
Portfolios and perform certain services in connection with the purchase, sale,
exchange and pledge of securities of the Portfolios. Canadian Imperial Bank of
Commerce, Commerce Court, Ontario, Canada M5L 1A2 provides custodial services
for the Fund in Canada.
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, is the independent public accountant of the Fund and
performs auditing services for the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION AND OTHER PRACTICES
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price paid
by the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Fund of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according
to such factors as the difficulty and size of the transaction. In the case of
securities traded on some foreign stock exchanges, brokerage commissions may be
fixed and the investment adviser or sub-adviser may be unable to negotiate
commission rates for these transactions.
The investment adviser, or sub-adviser in the case of the Growth and Income
Stock and International Equity Portfolios, places all orders for the purchase
and sale of portfolio securities, options, and futures contracts for each
Portfolio through a substantial number of brokers and dealers or futures
commission merchants. In executing transactions, the investment adviser or
sub-adviser will attempt to obtain the best net results for the Portfolio,
taking into account such factors as price (including the applicable brokerage
commission or dollar spread), size of order, the nature of the market for the
security, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer involved, the quality of the service,
the difficulty of execution and operational facilities of the firms involved,
and the firm's risk in positioning a block of securities. In transactions on
stock exchanges in the United States, payments of brokerage commissions are
negotiated. In effecting purchases and sales of portfolio securities in
transactions on United States stock exchanges for the account of the Fund, the
investment adviser or sub-adviser may pay higher commission rates than the
lowest available when the investment adviser or sub-adviser believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction, as described below. In the
case of securities traded on some foreign stock exchanges, brokerage commissions
may be fixed and the investment adviser or sub-adviser may be unable to
negotiate commission rates for these transactions. In the case of securities
traded on the over-the-counter markets, there is generally no stated commission,
but the price includes an undisclosed commission or markup.
Some securities considered for investment by the Fund's Portfolios may also
be appropriate for other clients served by the investment adviser or
sub-adviser. If a purchase or sale of securities consistent with the investment
policies of a Portfolio and one or more of these clients served by the
investment adviser or sub-adviser is considered at or about the same time,
transactions in such securities will be allocated among the Portfolios and
clients in a manner deemed fair and reasonable by the investment adviser or
sub-adviser. Although there is no specified formula for allocating such
B-26
<PAGE>
transactions, the various allocation methods used by the investment adviser or
sub-adviser, and the results of such allocations, are subject to periodic review
by the Fund's investment adviser and directors.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the investment adviser or sub-adviser may receive research services from many
broker-dealers with which the investment adviser or sub-adviser places portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the investment adviser or sub-adviser in advising its various clients
(including the Portfolios), although not all of these services are necessarily
useful and of value in managing a Portfolio.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
investment adviser or sub-adviser may cause a Portfolio to pay a broker-dealer,
which provides "brokerage and research services" (as defined in the Act) to the
investment adviser or sub-adviser, an amount of disclosed commission for
effecting a securities transaction for the Portfolio in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
There are no arrangements whatsoever, written or oral, relating to the
allocation to specific brokers of orders for Portfolio transactions.
Consideration is given to those firms providing statistical and research
services to the investment adviser or sub-adviser, but it is not the policy of
any Portfolio to pay higher brokerage commissions to a firm solely because it
has provided such services. In 1998 all brokerage business was allocated to
firms which provided these services. Statistical and research services
furnished by brokers typically include: analysts' reports on companies and
industries, market forecasts, economic analyses and the like. Such services may
tend to reduce the expenses of the adviser or sub-adviser and this has been
considered in setting the advisory fee paid by each Portfolio. During the years
ended December 31, 1996, 1997, and 1998, the Fund paid brokerage commissions of
$1,859,133, $3,985,791 and $5,133,812, respectively.
The Directors of the Fund have recently authorized the investment adviser
and sub-advisers to place portfolio orders for the Fund with Robert W. Baird &
Co. Incorporated ("Baird"), a broker-dealer which is a corporate affiliate of
Northwestern Mutual Life. This authorization is subject to all applicable legal
requirements, including procedures adopted by the Directors. During 1997, the
Fund paid $21,869 in commissions to Baird. This represents .5% of the aggregate
brokerage commissions paid during 1997 and .6% of aggregate Fund transactions.
During 1998, the Fund paid $48,828 in commissions to Baird. This represents
2.4% of the aggregate brokerage commissions paid during 1998 and .3% of
aggregate Fund transactions. No orders were placed with an affiliate broker
during 1996.
ORGANIZATION AND CAPITAL STOCK
The Fund was incorporated in Maryland on December 22, 1983.
The Fund issues a separate class of capital stock for each Portfolio. Each
share of capital stock issued with respect to a Portfolio has a pro rata
interest in the assets of that Portfolio and has no interest in the assets of
any other Portfolio. Each share of capital stock is entitled to one vote on all
matters submitted to a vote of shareholders. Shares of a Portfolio will be voted
separately, however, on matters affecting only that Portfolio, including
approval of the Investment Advisory Agreement and changes in fundamental
investment policies of a Portfolio. The assets of each Portfolio are charged
with the liabilities of the Portfolio and their proportionate share of the
B-27
<PAGE>
general liabilities of the Fund based on the relative asset size of the
Portfolios at the time the liabilities are incurred. All shares may be redeemed
for cash at any time.
All of the outstanding shares of each Portfolio are owned of record by
Northwestern Mutual Life. Shares of each Portfolio are presently being offered
only to Northwestern Mutual Life and its separate investment accounts used for
variable annuity contracts and variable life insurance policies. The shares
held in connection with certain of the separate investment accounts are voted by
Northwestern Mutual Life in accordance with instructions received from the
owners of the variable annuity contracts and variable life insurance policies.
The shares held by Northwestern Mutual Life as general assets are voted by
Northwestern Mutual Life in the same proportions as the shares held in
connection with these separate investment accounts. If applicable laws,
regulations or interpretations change so as to permit Northwestern Mutual Life
to vote the Fund shares in its own discretion, it may elect to do so.
As stated above, the shares of the Fund are offered to separate investment
accounts to fund both variable life insurance policies and variable annuity
contracts. Because of differences in tax treatment or other considerations it
is possible that the interests of variable life insurance policyowners, owners
of variable annuity contracts or owners of other contracts that may participate
in the Fund in the future might at some time be in conflict. The Board of
Directors of the Fund will monitor for any material conflicts and determine what
action, if any, should be taken. Northwestern Mutual Life has agreed to be
responsible, at its cost, to remedy or eliminate any irreconcilable material
conflict up to and including establishing a new registered management investment
company and segregating the assets underlying the variable annuity contracts and
variable life insurance policies.
The capital stock of the Fund is divided into eleven classes corresponding
to the eleven Portfolios of the Fund. Each class is preferred over the other
classes with respect to the assets of the Portfolio to which the class relates.
Dividends and distributions, including distributions in the event of
liquidation, are payable only out of assets of the Portfolio to which the class
relates. All shares of the Fund are entitled to vote on all matters submitted to
a vote of the shareholders except that shares shall be voted by class on matters
concerning only that class, to approve an investment advisory agreement, to
approve changes in fundamental policies with respect to that class and when
otherwise required by the Investment Company Act of 1940. Shares may be
redeemed only for cash, except that capital stock of any class may be redeemed
in kind with assets of the Portfolio to which the class relates if the Directors
deem such action desirable. Each share is nonassessable and shareholders have
no preemptive or conversion rights.
Each Portfolio is a diversified series of the Fund. The Fund is an
open-end management investment company.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Shares of each Portfolio are offered and redeemed at their net asset value
as next determined following receipt of a purchase order or tender for
redemption without the addition of any selling commission or "sales load" or any
redemption charge. The redemption price may be more or less than the
shareholder's cost.
The net asset value of each share of each Portfolio is the net asset value
of the entire Portfolio divided by the number of shares of the Portfolio
outstanding. The net asset value of an entire Portfolio is determined by
computing the value of all assets of the Portfolio and deducting all
liabilities, including reserves and accrued liabilities of the Portfolio.
Portfolio securities for which market quotations are readily available are
valued at current market value.
B-28
<PAGE>
Equity securities listed on a stock exchange and all call options are
valued at the closing sale price on the stock or options exchange or, if there
has been no such sale, at the closing bid price; stock index futures contracts
and interest rate futures contracts are valued at the closing settlement price
on the commodities exchange; unlisted equity securities are valued at the
closing bid price on the over-the-counter market.
Debt securities with maturities generally exceeding one year are valued on
the basis of valuations furnished by Interactive Data Corporation, a facility
which utilizes electronic data processing techniques to report valuations for
normal institutional size trading units of debt securities, without regard to
exchange or over-the-counter prices, unless the Directors of the Fund determine
that in the case of a particular security some other value is fair.
Money market instruments and debt securities with maturities exceeding
sixty days but generally not exceeding one year are valued by marking to market,
except for the Money Market Portfolio. Marking to market is based on an average
(provided by a communication network) of the most recent bid prices or yields.
The marking to market method takes into account unrealized appreciation or
depreciation due to changes in interest rates or other factors which would
influence the current fair values of such securities.
Securities with remaining maturities of sixty days or less, and all debt
securities of 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. Under the amortized cost method of valuation, the
security will initially be valued at the cost on the date of purchase (or, in
the case of securities purchased with more than 60 days remaining to maturity
the market value on the 61st day prior to maturity); and thereafter the
Portfolio will assume a constant proportionate amortization in value until
maturity of any discount or premium.
The value of a foreign security held by the International Equity Portfolio
is determined in its national currency as of the close of trading on the foreign
exchange on which it is traded, or as of 4:00 p.m., New York time, if that is
earlier, and that value is then converted into its U.S. dollar equivalent at
foreign exchange rates in effect at 11:00 a.m., New York time, on the day the
value of the foreign security is determined. If no sale is reported at that
time, the mean between the current bid and asked price is used. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of the New
York Stock Exchange, and will therefore not be reflected in the computation of
the Portfolio's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be valued
at fair value as determined by the management and approved in good faith by the
Directors of the Fund. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally completed well
before the close of business in New York on each day on which the New York Stock
Exchange is open. Trading in European or Far Eastern securities generally, or in
a particular country or countries, may not take place on every New York business
day. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Fund's net asset value is not
calculated. The International Equity Portfolio calculates net asset value per
share, and therefore effects sales and redemptions of its shares, as of the
close of the New York Stock Exchange once on each day on which that Exchange is
open. Such calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in such
calculation and if events occur which materially affect the value of these
foreign securitie, they will be valued at fair market value as determined by the
management and approved in good faith by the Directors of the Fund.
All other assets, including any securities for which market quotations are
not readily available, will be valued at their fair value as determined in good
faith by the Directors of the Fund. The net asset value is determined as
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<PAGE>
of the close of trading on the New York Stock Exchange on each day during which
the Exchange is open for trading. In accordance with the requirements of the
Investment Company Act of 1940 the Portfolios will also determine the net asset
value of their shares on any other day on which there is sufficient trading to
materially affect the value of their securities.
The Money Market Portfolio will use its best efforts to maintain a constant
net asset value per share of $1.00 (computed to an accuracy of $.005); however,
the net asset value is subject to fluctuation based upon changes in the value of
the Portfolio's securities. Accordingly, if net losses on the Portfolio's
securities for a given period exceed income after expenses, the net asset value
per share of Money Market Portfolio capital stock will decline. The Board of
Directors of the Fund will take such action as it considers appropriate to
maintain the stability of the net asset value per share. For example, the
Directors may reduce or suspend the payment of dividends if the net asset value
per share should decline below $.995 and the Directors may supplement such
dividends with other distributions if the net asset value per share should rise
above $1.005.
The total offering price per share for each Portfolio is computed as
follows:
SPECIMEN PRICE-MAKE-UP SHEET
(as of December 31, 1998)
<TABLE>
<CAPTION>
AGGRESSIVE INTERNATIONAL GROWTH AND
GROWTH STOCK EQUITY GROWTH STOCK INCOME STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET ASSETS $1,137,467,243 $671,105,795 $421,281,701 $570,970,130
NUMBER OF SHARES
OUTSTANDING 328,396,433 400,190,764 187,468,667 351,523,199
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
(OUTSTANDING) $3.464 $1.677 $2.247 $1.624
OFFERING AND
REDEMPTION
PRICE PER SHARE $3.46 $1.68 $2.25 $1.62
</TABLE>
<TABLE>
<CAPTION>
INDEX 500 BALANCED HIGH YIELD
STOCK PORTFOLIO PORTFOLIO BOND PORTFOLIO
--------------- -------------- --------------
<S> <C> <C> <C>
NET ASSETS $1,690,680,293 $3,282,069,954 $ 184,783,386
NUMBER OF SHARES
OUTSTANDING 514,113,472 1,475,966,374 197,519,383
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
OUTSTANDING) $3.289 $2.224 $0.936
OFFERING AND
REDEMPTION PRICE
PER SHARE $3.29 $2.22 $0.94
</TABLE>
B-30
<PAGE>
<TABLE>
<CAPTION>
SELECT BOND MONEY MARKET
PORTFOLIO PORTFOLIO
----------- ------------
<S> <C> <C>
NET ASSETS $298,033,454 $291,464,693
NUMBER OF SHARES
OUTSTANDING 238,596,316 291,476,496
NET ASSET VALUE
PER SHARE
(NET ASSETS
DIVIDED BY
NUMBER OF SHARES
OUTSTANDING) $1.249 $1.000
OFFERING AND
REDEMPTION PRICE
PER SHARE $1.25 $1.00
</TABLE>
Payment for the shares redeemed must be made within seven days after the
evidence of ownership of such shares is tendered to the Fund; however, the right
to redeem Fund shares may be suspended, or payment of the redemption value
postponed, during any period in which the New York Stock Exchange is closed or
trading thereon is restricted, or any period during which an emergency exists,
or as otherwise permitted by the Investment Company Act of 1940.
TAXES AND DIVIDENDS
Each Portfolio is qualified or intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. In order to avoid
taxation of capital gains under Subchapter M of the Code, each Portfolio, except
the Money Market Portfolio, will distribute net capital gains annually. Net
capital gains from the sale of investments will be calculated by subtracting any
unused capital loss carryforward from net realized gain for the year, as
prescribed by the Internal Revenue Code. No distribution of realized capital
gains will be made until any capital loss carryforward has been exhausted or
expired. At the end of its last fiscal year, the High Yield Bond Portfolio had
an unused capital loss carryforward of $2,519,798.
CALCULATION OF YIELD QUOTATIONS OF THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's yield is its current investment income
expressed in annualized terms. The Portfolio's yield is calculated by
determining the net change in the value of a pre-existing account having a
balance of one share at the beginning of a seven-day base period. The net
change in the value of the account is divided by the value of the account at the
beginning of the period to obtain the base period return. The result is then
multiplied by 365 and divided by seven, with the resulting annualized yield
carried to the nearest hundredth of one percent. For purposes of this
calculation the net change in the value of the account reflects the value of
additional Portfolio shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares.
The calculation reflects net investment income of the Portfolio for the period,
including accrued interest income plus or minus amortized purchase discount or
premium, less all accrued expenses, but does not include realized or unrealized
gains or losses.
B-31
<PAGE>
APPENDIX A
Description of Ratings as Provided by the Rating Services
CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they compromise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and, thereby, not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such securities may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and are
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
B-32
<PAGE>
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
ratings classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C--Debt is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of this obligation. "BB" indicates the least degree
of speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC--Debt rated "CCC" has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic
B-33
<PAGE>
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
CC--The rating "CC" is currently highly vulnerable to nonpayment.
C--The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI--The rating "CI" is reserved for income bonds on which no interest is
being paid.
D--Debt rated "D" is in payment default. The "D" rating is used when
interest payments or principal are not made on the date due even if the
applicable grace period has not expired, unless S&P believe that such payments
will be made during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-)--The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
PREFERRED STOCKS
MOODY'S INVESTORS SERVICE, INC.
aaa--considered to be a top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend impairment within the
universe of preferred stocks.
aa--considered a high-grade preferred stock. This rating indicates that
there is a reasonable assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable future.
a--considered to be an upper-medium-grade preferred stock. While risks are
judged to be somewhat greater than in the aaa and aa classifications, earnings
and asset protection are, nevertheless, expected to be maintained at adequate
levels.
baa--considered to be medium-grade, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
ba--considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very moderate and
not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
b--generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms of the issue over
any long period of time may be small.
caa--likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
ca--speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
B-34
<PAGE>
c--lowest rated class of preferred or preference stock. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S
"AAA"--This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
"AA"--A preferred stock issue rated "AA" also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA".
"A"--An issued rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
"BBB"--An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for preferred stock
in this category than for issues in the "A" category.
"BB", "B", "CCC"--Preferred stock rated "BB", "B", and "CCC" are regarded,
on balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
"CC"--The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
"C"--The preferred stock rated "C" is a non-paying issue.
"D"--A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus(+) or Minus(-)--To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of one year.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
B-35
<PAGE>
Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. PRIME-1 repayment ability
will often be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
STANDARD & POOR'S
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 Commercial paper rated "A-1" is regarded as having a very strong
degree of safety regarding timely payment. A "+" designation is
applied to those issues which possess extremely strong safety
characteristics.
A-2 Commercial paper rated "A-2" is regarded as having a satisfactory
capacity for timely payment. However, the relative degree of safety
is not as high as for issues designated "A-1"
A-3 Commercial paper rated "A-3" is regarded as having an adequate
capacity for timely payment. They are, however, more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Commercial paper rated "B" is regarded as having only speculative
capacity for timely payment.
C Commercial paper rated "C" is regarded as having a doubtful capacity
for repayment.
D Commercial paper rated "D" is in payment default. The "D" rating is
used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not
B-36
<PAGE>
expired, unless S&P believes that such payments will be made during such grace
period.
B-37
<PAGE>
APPENDIX B
Glossary of Terms
CERTIFICATE OF DEPOSIT
A certificate of deposit is a short term obligation of a commercial bank.
EURODOLLAR CERTIFICATE OF DEPOSIT
A Eurodollar certificate of deposit is a short term obligation of a foreign
subsidiary of a U.S. bank payable in U.S. dollars.
TIME DEPOSIT
A time deposit is a deposit in a commercial bank for a specified period of
time at a fixed interest rate for which a negotiable certificate is not
received.
BANKERS' ACCEPTANCE
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
VARIABLE AMOUNT MASTER NOTE
A variable amount master note is a note which fixes a minimum and maximum
amount of credit and provides for lending and repayment within those limits at
the discretion of the lender.
COMMERCIAL PAPER
Commercial paper is a short term promissory note issued by a corporation
primarily to finance short term credit needs.
B-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of the Northwestern Mutual Series Funds, Inc
In our opinion, the accompanying statements of assets and liabilities
present fairly, in all material respects, the financial position of the Index
400 Stock Portfolio and Small Cap Growth Stock Portfolio (constituting two
series of the Northwestern Mutual Series Funds, Inc., hereafter referred to as
the "Funds") at April 16, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS, LLP
Milwaukee, Wisconsin
April 26, 1999
B-39-a
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC. - INDEX 400 STOCK PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
April 16, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets
Cash $ 10,000
Liabilities
Payable to Advisor -
--------
Net Assets $ 10,000
--------
--------
Aggregate Paid In Capital
($0.01 par value; 2,000,000,000 shares authorized;
10,000 shares outstanding) $ 10,000
--------
--------
Net Asset Value, Offering and Redemption Price $ 1.00
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
39-b
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC. - SMALL CAP GROWTH STOCK PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
April 16, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets
Cash $ 10,000
Liabilities
Payable to Advisor -
--------
Net Assets $ 10,000
--------
--------
Aggregate Paid In Capital
($0.01 par value; 2,000,000,000 shares authorized;
10,000 shares outstanding) $ 10,000
--------
--------
Net Asset Value, Offering and Redemption Price $ 1.00
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
39-c
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
INDEX 400 STOCK PORTFOLIO AND SMALL CAP GROWTH STOCK PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
April 16, 1999
Note 1: The Northwestern Mutual Series Fund, Inc. ("NMSF") is registered as
a diversified open-end investment company under the Investment
Company Act of 1940. The Index 400 Stock Portfolio and the Small
Cap Growth Stock Portfolio will be part of the NMSF. The Index 400
Stock Portfolio and the Small Cap Growth Stock Portfolio have had no
operations other than the sale of 10,000 shares of Common Stock at
$1.00 per share on April 16, 1999 to The Northwestern Mutual Life
Insurance Company.
Note 2: Northwestern Mutual Investment Services, Inc, ("NMIS") serves as
investment advisor to the NMSF. The Index 400 Stock and the Small
Cap Growth Stock Portfolios pay NMIS an annual fee for investment
advisory services based on average daily net assets of each
Portfolio. The Index 400 Stock Portfolio pays .25% of net assets to
NMIS and the Small Cap Growth Stock Portfolio pays .80% on the first
$50 million, .65% on the next $50 million and .50% on net assets in
excess of $100 million.
In addition, each Portfolio pays custodian fees, auditing fees,
registration fees, and the printing and mailing costs of sending
reports and other information to existing shareholders.
NMIS and affiliates have agreed to waive their fees and absorb
certain other operating expenses during the first year of operations
to the extent necessary so that Total Operating Expenses will not
exceed .35% for the Index 400 Stock Portfolio and 1.00% for the
Small Cap Growth Stock Portfolio.
Note 3: The management agreement indicates that all organizational costs
will be paid by NMIS and affiliates.
Note 4: NMSF intends to comply with the requirements of the Internal Revenue
Code necessary to qualify as a regulated investment company and to
make the requisite distributions of income and capital gains to
their shareholders sufficient to relieve it from all or
substantially all Federal income taxes.
39-d
<PAGE>
ACCOUNTANTS' REPORT
[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, 1998, 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, 1998, 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, 1998 by correspondence with the custodian and brokers
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 25, 1999
B-39
<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, 1998
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $679,951)................................................. $1,043,782
Money Market Investments (cost $95,978)....................................... 95,978
-----------
1,139,760
Cash.......................................................................... 17
Due from Sale of Securities................................................... 5,022
Due from Futures Variation Margin............................................. 92
Dividends and Interest Receivable............................................. 58
Due from Sale of Fund Shares.................................................. 5
-----------
Total Assets................................................................ 1,144,954
-----------
LIABILITIES
Due on Purchase of Securities................................................. 6,087
Due on Redemption of Fund Shares.............................................. 911
Due to Investment Advisor..................................................... 466
Accrued Expenses.............................................................. 24
-----------
Total Liabilities........................................................... 7,488
-----------
NET ASSETS...................................................................... $1,137,466
-----------
-----------
REPRESENTED BY:
Aggregate Paid in Capital (2,000,000 shares authorized, $.01 par value;
328,396 shares outstanding).................................................. $ 736,043
Undistributed Net Investment Income........................................... 390
Undistributed Accumulated Net Realized Gain on Investments.................... 36,213
Net Unrealized Appreciation of:
Investment Securities....................................................... 363,831
Index Futures Contracts..................................................... 989
-----------
Net Assets for 328,396 Shares Outstanding..................................... $1,137,466
-----------
-----------
Net Asset Value, Offering and Redemption Price per Share...................... $ 3.46
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest.................................................................... $ 5,107
Dividends................................................................... 850
---------
Total Income.............................................................. 5,957
---------
Expenses
Management Fees............................................................. 5,550
Custodian Fees.............................................................. 26
Other Expenses.............................................................. 18
---------
Total Expenses............................................................ 5,594
---------
Less Custodian Fees:
Paid by Affiliate.................................................... (16)
Paid Indirectly...................................................... (10)
---------
Total Net Expenses........................................................ 5,568
---------
Net Investment Income......................................................... 389
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments:
Investment Securities....................................................... 33,076
Index Futures Contracts..................................................... 3,149
---------
Net Realized Gain on Investments for the Year............................. 36,225
---------
Net Change in Unrealized Appreciation of:
Investment Securities....................................................... 42,088
Index Futures Contracts..................................................... 1,371
---------
Net Change in Unrealized Appreciation of Investments for the Year......... 43,459
---------
Net Gain on Investments....................................................... 79,684
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................... $ 80,073
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-40
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Aggressive Growth Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 389 $ 600
Net Realized Gain on Investments.... 36,225 44,968
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 43,459 82,701
----------------- -----------------
Net Increase in Net Assets
Resulting from Operations......... 80,073 128,269
----------------- -----------------
Distributions to Shareholders from:
Net Investment Income............... (389) --
Net Realized Gain on Investments.... (39,790) (57,365)
----------------- -----------------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (40,179) (57,365)
----------------- -----------------
Fund Share Transactions
Proceeds from Sale of 23,019 and
35,663 Shares...................... 74,489 110,666
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(11,431 and 20,913 shares,
respectively)...................... 40,180 57,365
Payments for 25,793 and 14,059
Shares Redeemed.................... (84,165) (43,793)
----------------- -----------------
Net Increase in Net Assets
Resulting from Fund Share
Transactions
(8,657 and 42,517 shares,
respectively)..................... 30,504 124,238
----------------- -----------------
Total Increase in Net Assets.......... 70,398 195,142
NET ASSETS
Beginning of Period................... 1,067,068 871,926
----------------- -----------------
End of Period (includes undistributed
net investment income of $390 and
$390, respectively).................. $1,137,466 $1,067,068
----------------- -----------------
----------------- -----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-41
<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,
FOR THE YEAR ENDED DECEMBER 31, 1994* THROUGH
---------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
-------------- ----------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 3.34 $ 3.15 $ 2.77 $ 2.00 $ 1.91
Income from Investment Operations:
Net Investment Income............. -- -- -- -- --
Net Realized and Unrealized Gains
on Investments................... 0.24 0.39 0.49 0.78 0.09
-------------- ----------- --------- --------- ---------------
Total from Investment
Operations..................... 0.24 0.39 0.49 0.78 0.09
-------------- ----------- --------- --------- ---------------
Less Distributions:
Distributions from Net Investment
Income........................... (0.00) -- -- -- --
Distributions from Realized Gains
on Investments................... (0.12) (0.20) (0.11) (0.01) --
-------------- ----------- --------- --------- ---------------
Total Distributions............. (0.12) (0.20) (0.11) (0.01) --
-------------- ----------- --------- --------- ---------------
Net Asset Value, End of Period.......... $ 3.46 $ 3.34 $ 3.15 $ 2.77 $ 2.00
-------------- ----------- --------- --------- ---------------
-------------- ----------- --------- --------- ---------------
Total Return+........................... 7.56% 13.86% 17.70% 39.29% 4.47%++
-------------- ----------- --------- --------- ---------------
-------------- ----------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $1,137,466 $1,067,068 $871,926 $577,014 $327,096
-------------- ----------- --------- --------- ---------------
-------------- ----------- --------- --------- ---------------
Ratio of Expenses to Average Net
Assets................................. 0.52% 0.53% 0.54% 0.56% 0.58%**
-------------- ----------- --------- --------- ---------------
-------------- ----------- --------- --------- ---------------
Ratio of Net Investment Income/(Loss) to
Average Net Assets..................... 0.04% 0.06% (0.03)% 0.13% 0.29%**
-------------- ----------- --------- --------- ---------------
-------------- ----------- --------- --------- ---------------
Portfolio Turnover Rate................. 50.43% 57.27% 47.25% 37.84% 21.54%
-------------- ----------- --------- --------- ---------------
-------------- ----------- --------- --------- ---------------
</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
B-42
<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, 1998
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $551,444)................................................. $599,086
Money Market Investments (cost $70,428)....................................... 70,428
Bonds (cost $5,072)........................................................... 4,421
---------
673,935
Cash.......................................................................... 886
Dividends and Interest Receivable............................................. 3,769
Due from Sale of Securities................................................... 1,948
Due from Foreign Currency Contracts........................................... 1,639
Due from Purchase of Fund Shares.............................................. 708
---------
Total Assets................................................................ 682,885
---------
LIABILITIES
Due on Purchase of Securities................................................. 7,818
Due on Redemption of Fund Shares.............................................. 1,820
Due on Foreign Currency Contracts............................................. 1,628
Due to Investment Advisor..................................................... 374
Accrued Expenses.............................................................. 139
---------
Total Liabilities........................................................... 11,779
---------
NET ASSETS...................................................................... $671,106
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (2,000,000 shares authorized, $.01 par value;
400,191 shares outstanding).................................................. $528,316
Undistributed Net Investment Income........................................... 19,912
Undistributed Accumulated Net Realized Gain on Investments.................... 75,853
Net Unrealized Appreciation of:
Investment Securities....................................................... 46,991
Foreign Currency Transactions............................................... 34
---------
Net Assets for 400,191 Shares Outstanding..................................... $671,106
---------
---------
Net Asset Value, Offering and Redemption Price per Share...................... $ 1.68
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $672)............................... $ 20,714
Interest.................................................................... 2,645
---------
Total Income.............................................................. 23,359
---------
Expenses
Management Fees............................................................. 4,602
Custodian Fees.............................................................. 362
Other Expenses.............................................................. 297
---------
Total Expenses............................................................ 5,261
---------
Net Investment Income......................................................... 18,098
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES
Net Realized Gain (Loss) on:
Investment Securities....................................................... 78,474
Foreign Currency Transactions............................................... (238)
---------
Net Realized Gain For the Period.......................................... 78,236
Net Change in Unrealized Appreciation (Depreciation) of:
Investment Securities....................................................... (66,986)
Foreign Currency Transactions............................................... 79
---------
Net Change in Unrealized Depreciation for the Period...................... (66,907)
---------
Net Gain on Investments....................................................... 11,329
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ 29,427
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-43
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
International Equity Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
DECEMBER YEAR ENDED
31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............................ $ 18,098 $ 16,845
Net Realized Gain on Investments................. 78,236 22,636
Net Unrealized Appreciation (Depreciation) of
Investments for the Period...................... (66,907) 25,359
----------- ------------
Net Increase in Net Assets Resulting from
Operations..................................... 29,427 64,840
----------- ------------
Distributions to Shareholders from:
Net Investment Income............................ (16,649) (12,704)
Net Realized Gain on Investments................. (22,793) (7,542)
----------- ------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders.................. (39,442) (20,246)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 35,076 and 66,307 Shares... 60,890 110,618
Proceeds from Shares Issued on Reinvestment of
Dividends Paid
(21,530 and 12,598 shares, respectively)........ 39,442 20,246
Payments for 47,205 and 12,361 Shares Redeemed... (79,061) (20,797)
----------- ------------
Net Increase in Net Assets Resulting from Fund
Share Transactions
(9,401 and 66,544 shares, respectively)......... 21,271 110,067
----------- ------------
Total Increase in Net Assets....................... 11,256 154,661
NET ASSETS
Beginning of Period................................ 659,850 505,189
----------- ------------
End of Period (includes undistributed net
investment income of $19,912 and $16,682
respectively)..................................... $671,106 $659,850
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-44
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
International Equity Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994*
FOR THE YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.69 $ 1.56 $ 1.35 $ 1.19 $ 1.22
Income from Investment Operations:
Net Investment Income............. 0.05 0.04 0.04 0.04 0.02
Net Realized and Unrealized Gains
on Investments................... 0.04 0.15 0.24 0.13 (0.02)
--------- --------- --------- --------- ---------------
Total from Investment
Operations..................... 0.09 0.19 0.28 0.17 0.00
--------- --------- --------- --------- ---------------
Less Distributions:
Distributions from Net Investment
Income........................... (0.04) (0.04) (0.03) -- (0.02)
Distributions from Realized Gains
on Investments................... (0.06) (0.02) (0.04) (0.01) (0.01)
--------- --------- --------- --------- ---------------
Total Distributions............. (0.10) (0.06) (0.07) (0.01) (0.03)
--------- --------- --------- --------- ---------------
Net Asset Value, End of Period.......... $ 1.68 $ 1.69 $ 1.56 $ 1.35 $ 1.19
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
Total Return+........................... 4.82% 12.28% 21.01% 14.57% 0.11%++
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $671,106 $659,850 $505,189 $342,127 $292,533
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
Ratio of Expenses to Average Net
Assets................................. 0.76% 0.77% 0.81% 0.85% 0.87%**
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
Ratio of Net Investment Income to
Average Net Assets..................... 3.38% 2.75% 3.02% 2.68% 2.28%**
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
Portfolio Turnover Rate................. 30.41% 16.74% 17.07% 26.71% 10.97%
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
</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
B-45
<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, 1998
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $236,355)................................................. $369,494
Money Market Investments (cost $51,670)....................................... 51,670
---------
421,164
Cash.......................................................................... 58
Due from Sale of Securities................................................... 394
Dividends and Interest Receivable............................................. 321
Due from Sale of Fund Shares.................................................. 302
Due from Futures Variation Margin............................................. 73
---------
Total Assets................................................................ 422,312
---------
LIABILITIES
Due on Purchase of Securities................................................. 807
Due to Investment Advisor..................................................... 149
Accrued Expenses.............................................................. 44
Due on Redemption of Fund Shares.............................................. 30
---------
Total Liabilities........................................................... 1,030
---------
NET ASSETS...................................................................... $421,282
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (2,000,000 shares authorized, $.01 par value;
187,469 shares outstanding).................................................. $273,705
Undistributed Net Investment Income........................................... 916
Undistributed Accumulated Net Realized Gain on Investments.................... 11,968
Net Unrealized Appreciation of:
Investment Securities....................................................... 133,139
Index Futures Contracts..................................................... 1,554
---------
Net Assets for 187,469 Shares Outstanding..................................... $421,282
---------
---------
Net Asset Value, Offering and Redemption Price per Share...................... $ 2.25
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $39)................................ $ 2,918
Interest.................................................................... 2,135
--------
Total Income.............................................................. 5,053
--------
Expenses
Management Fees............................................................. 1,456
Custodian Fees.............................................................. 15
Other Expenses.............................................................. 36
--------
Total Expenses............................................................ 1,507
--------
Less Custodian Fees:
Paid by Affiliate....................................................... (11)
Paid Indirectly......................................................... (4)
--------
Total Net Expenses........................................................ 1,492
--------
Net Investment Income......................................................... 3,561
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments:
Investment Securities....................................................... 10,339
Index Futures Contracts..................................................... 1,637
--------
Net Realized Gain on Investments for the Period........................... 11,976
--------
Net Change in Unrealized Appreciation of:
Investments Securities...................................................... 60,643
Index Futures Contracts..................................................... 1,554
--------
Net Change in Unrealized Appreciation of Investments for the Period....... 62,197
--------
Net Gain on Investments..................................................... 74,173
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................... $77,734
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-46
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER 31,
31, 1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................ $ 3,561 $ 2,669
Net Realized Gain on Investments..................... 11,976 11,942
Net Change in Unrealized Appreciation of Investments
for the Period...................................... 62,197 42,501
----------- ------------
Net Increase in Net Assets Resulting from
Operations......................................... 77,734 57,112
----------- ------------
Distributions to Shareholders from:
Net Investment Income................................ (2,645) (2,685)
Net Realized Gain on Investments..................... (4,068) (8,527)
----------- ------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders...................... (6,713) (11,212)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 56,014 and 42,594 Shares....... 112,510 70,967
Proceeds from Shares Issued on Reinvestment of
Distributions Paid
(3,330 and 6,422 shares, respectively).............. 6,713 11,212
Payments for 6,148 and 31,206 Shares Redeemed........ (12,033) (55,490)
----------- ------------
Net Increase in Net Assets Resulting from Fund Share
Transactions
(53,196 and 17,810 shares, respectively)............ 107,190 26,689
----------- ------------
Total Increase in Net Assets........................... 178,211 72,589
NET ASSETS
Beginning of Period.................................... 243,071 170,482
----------- ------------
End of Period (includes undistributed net
investment income of $916 and $0, respectively)....... $421,282 $243,071
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-47
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth Stock Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994*
FOR THE YEAR ENDED DECEMBER 31, THROUGH
---------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period............ $ 1.81 $ 1.46 $ 1.26 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income....................... 0.02 0.02 0.02 0.02 0.01
Net Realized and Unrealized Gains on
Investments................................ 0.46 0.42 0.25 0.28 --
----------- --------- --------- -------- --------------
Total from Investment Operations.......... 0.48 0.44 0.27 0.30 0.01
----------- --------- --------- -------- --------------
Less Distributions:
Distributions from Net Investment Income.... (0.02) (0.02) (0.02) (0.02) (0.01)
Distributions from Realized Gains on
Investments................................ (0.02) (0.07) (0.05) (0.02) --
----------- --------- --------- -------- --------------
Total Distributions....................... (0.04) (0.09) (0.07) (0.04) (0.01)
----------- --------- --------- -------- --------------
Net Asset Value, End of Period.................... $ 2.25 $ 1.81 $ 1.46 $ 1.26 $ 1.00
----------- --------- --------- -------- --------------
----------- --------- --------- -------- --------------
Total Return+..................................... 26.69% 29.85% 20.91% 30.82% 1.55%++
----------- --------- --------- -------- --------------
----------- --------- --------- -------- --------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).......... $421,282 $243,071 $170,482 $85,557 $41,868
----------- --------- --------- -------- --------------
----------- --------- --------- -------- --------------
Ratio of Expenses to Average Net Assets........... 0.46% 0.49% 0.57% 0.61% 0.71%**
----------- --------- --------- -------- --------------
----------- --------- --------- -------- --------------
Ratio of Net Investment Income to Average Net
Assets........................................... 1.10% 1.24% 1.41% 1.77% 2.30%**
----------- --------- --------- -------- --------------
----------- --------- --------- -------- --------------
Portfolio Turnover Rate........................... 21.64% 33.20% 37.61% 46.83% 16.51%
----------- --------- --------- -------- --------------
----------- --------- --------- -------- --------------
</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
B-48
<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, 1998
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $508,003)................................................. $561,369
Money Market Investments (cost $9,078)........................................ 9,078
---------
570,447
Cash.......................................................................... 89
Dividends and Interest Receivable............................................. 687
Due from Sale of Fund Shares.................................................. 175
---------
Total Assets................................................................ 571,398
---------
LIABILITIES
Due to Investment Advisor..................................................... 265
Due on Redemption of Fund Shares.............................................. 119
Accrued Expenses.............................................................. 44
---------
Total Liabilities........................................................... 428
---------
NET ASSETS...................................................................... $570,970
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (2,000,000 shares authorized, $.01 par value;
351,523 shares outstanding).................................................. $450,101
Undistributed Net Investment Income........................................... 163
Undistributed Accumulated Net Realized Gain on Investments.................... 67,340
Net Unrealized Appreciation of Investments.................................... 53,366
---------
Net Assets for 351,523 Shares Outstanding..................................... $570,970
---------
---------
Net Asset Value, Offering and Redemption Price per Share...................... $ 1.62
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $11)................................ $ 6,368
Interest.................................................................... 457
---------
Total Income.............................................................. 6,825
---------
Expenses
Management Fees............................................................. 2,685
Custodian Fees.............................................................. 30
Other Expenses.............................................................. 44
---------
Total Expenses............................................................ 2,759
---------
Less Custodian Fees:
Paid by Affiliate.................................................... (27)
Paid Indirectly...................................................... (3)
---------
Total Net Expenses........................................................ 2,729
---------
Net Investment Income......................................................... 4,096
---------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain on Investments.............................................. 67,556
Net Change in Unrealized Appreciation of Investments for the Period........... 26,191
---------
Net Gain on Investments....................................................... 93,747
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................... $ 97,843
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-49
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth and Income Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER 31,
31, 1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................ $ 4,096 $ 3,174
Net Realized Gain on Investments..................... 67,556 72,633
Net Change in Unrealized Appreciation of Investments
for the Period...................................... 26,191 2,850
----------- ------------
Net Increase in Net Assets Resulting from
Operations......................................... 97,843 78,657
----------- ------------
Distributions to Shareholders from:
Net Investment Income................................ (3,933) (3,200)
Net Realized Gain on Investments..................... (731) (78,180)
----------- ------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders...................... (4,664) (81,380)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 82,937 and 75,470 Shares....... 120,879 116,134
Proceeds from Shares Issued on Reinvestment of
Distributions Paid
(3,111 and 61,873 shares, respectively)............. 4,664 81,380
Payments for 14,061 and 35,535 Shares Redeemed....... (19,687) (57,040)
----------- ------------
Net Increase in Net Assets Resulting from Fund
Share Transactions
(71,987 and 101,808 shares, respectively)......... 105,856 140,474
----------- ------------
Total Increase in Net Assets........................... 199,035 137,751
NET ASSETS
Beginning of Period.................................... 371,935 234,184
----------- ------------
End of Period (includes undistributed net investment
income of $163 and $0, respectively).................. $570,970 $371,935
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-50
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Growth and Income Stock Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994*
FOR THE YEAR ENDED DECEMBER 31, THROUGH
----------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period............ $ 1.33 $ 1.32 $ 1.21 $ 0.98 $ 1.00
Income from Investment Operations:
Net Investment Income....................... 0.01 0.01 0.02 0.02 0.01
Net Realized and Unrealized Gains on
Investments................................ 0.29 0.37 0.23 0.29 (0.01)
----------- --------- --------- --------- ---------------
Total from Investment Operations.......... 0.30 0.38 0.25 0.31 (0.00)
----------- --------- --------- --------- ---------------
Less Distributions:
Distributions from Net Investment Income.... (0.01) (0.01) (0.02) (0.02) (0.01)
Distributions from Realized Gains on
Investments................................ 0.00 (0.36) (0.12) (0.06) (0.01)
----------- --------- --------- --------- ---------------
Total Distributions....................... (0.01) (0.37) (0.14) (0.08) (0.02)
----------- --------- --------- --------- ---------------
Net Asset Value, End of Period.................... $ 1.62 $ 1.33 $ 1.32 $ 1.21 $ 0.98
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
Total Return+..................................... 23.14% 30.03% 19.97% 31.12% 0.34%++
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).......... $570,970 $371,935 $234,184 $136,923 $ 64,700
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
Ratio of Expenses to Average Net Assets........... 0.58% 0.60% 0.62% 0.69% 0.78%**
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
Ratio of Net Investment Income to Average Net
Assets........................................... 1.00% 1.04% 1.44% 1.68% 1.93%**
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
Portfolio Turnover Rate........................... 160.40% 144.52% 93.92% 80.00% 54.18%
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
</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
B-51
<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, 1998
<TABLE>
<S> <C>
ASSETS
Common Stocks (cost $926,948)................................................. $1,675,726
Money Market Investments (cost $12,507)....................................... 12,507
-----------
1,688,233
Cash.......................................................................... 14
Dividends and Interest Receivable............................................. 1,763
Due From Sale of Fund Shares.................................................. 1,154
Due From Futures Margin Variation............................................. 34
-----------
Total Assets................................................................ 1,691,198
-----------
LIABILITIES
Due to Investment Advisor..................................................... 276
Due on Redemption of Fund Shares.............................................. 162
Accrued Expenses.............................................................. 80
-----------
Total Liabilities........................................................... 518
-----------
NET ASSETS...................................................................... $1,690,680
-----------
-----------
REPRESENTED BY:
Aggregate Paid in Capital (2,000,000 shares authorized, $.01 par value;
514,113 shares outstanding).................................................. $ 896,075
Undistributed Net Investment Income........................................... 19,630
Undistributed Accumulated Net Realized Gain on Investments.................... 25,873
Net Unrealized Appreciation of:
Investment Securities....................................................... 748,778
Index Futures Contracts..................................................... 324
-----------
Net Assets for 514,113 Shares Outstanding..................................... $1,690,680
-----------
-----------
Net Asset Value, Offering and Redemption Price per Share...................... $ 3.29
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividends (less foreign dividend tax of $119)............................... $ 20,213
Interest.................................................................... 2,332
---------
Total Income.............................................................. 22,545
---------
Expenses
Management Fees............................................................. 2,807
Custodian Fees.............................................................. 49
Other Expenses.............................................................. 108
---------
Total Expenses............................................................ 2,964
---------
Less Custodian Fees:
Paid by Affiliate.................................................... (45)
Paid Indirectly...................................................... (4)
---------
Total Net Expenses........................................................ 2,915
---------
Net Investment Income......................................................... 19,630
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments:
Investment Securities....................................................... 19,544
Index Futures Contracts..................................................... 7,550
---------
Net Realized Gain on Investments for the Period........................... 27,094
---------
Net Change in Unrealized Appreciation (Depreciation) of:
Investment Securities....................................................... 309,036
Index Futures Contracts..................................................... (345)
---------
Net Change in Unrealized Appreciation of Investments for the Period....... 308,691
---------
Net Gain on Investments..................................................... 335,785
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $355,415
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-52
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Index 500 Stock Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
DECEMBER YEAR ENDED
31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............................ $ 19,630 $ 17,811
Net Realized Gain on Investments................. 27,094 27,640
Net Change in Unrealized Appreciation of
Investments for the Period...................... 308,691 219,972
----------- ------------
Net Increase in Net Assets Resulting from
Operations..................................... 355,415 265,423
----------- ------------
Disributions to Shareholders from:
Net Investment Income............................ (17,811) (13,866)
Net Realized Gain on Investments................. (28,519) (16,994)
----------- ------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders.................. (46,330) (30,860)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 79,805 and 75,307 Shares... 233,133 178,554
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (16,132 and 13,655 shares,
respectively)................................... 46,330 30,860
Payments for 17,928 and 12,917 Shares Redeemed... (50,725) (31,186)
----------- ------------
Net Increase in Net Assets Resulting from Fund
Share Transactions (78,009 and 76,045 shares,
respectively)................................... 228,738 178,228
----------- ------------
Total Increase in Net Assets....................... 537,823 412,791
NET ASSETS
Beginning of Period................................ 1,152,857 740,066
----------- ------------
End of Period (includes undistributed net
investment income of $19,630 and $17,811
respectively)..................................... $1,690,680 $1,152,857
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-53
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Index 500 Stock Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period....... $ 2.64 $ 2.06 $ 1.72 $ 1.27 $ 1.29
Income from Investment Operations:
Net Investment Income.................. 0.04 0.04 0.04 0.04 0.03
Net Realized and Unrealized Gain (Loss)
on Investments........................ 0.71 0.62 0.35 0.42 (0.01)
----------- ----------- --------- --------- ---------
Total from Investment Operations..... 0.75 0.66 0.39 0.46 0.02
----------- ----------- --------- --------- ---------
Less Distributions:
Distributions from Net Investment
Income................................ (0.04) (0.04) (0.02) (0.01) (0.03)
Distributions from Realized Gains on
Investments........................... (0.06) (0.04) (0.03) -- (0.01)
----------- ----------- --------- --------- ---------
Total Distributions.................. (0.10) (0.08) (0.05) (0.01) (0.04)
----------- ----------- --------- --------- ---------
Net Asset Value, End of Period............... $ 3.29 $ 2.64 $ 2.06 $ 1.72 $ 1.27
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Total Return+................................ 28.72% 33.20% 22.75% 37.25% 1.21%
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands)..... $1,690,680 $1,152,857 $740,066 $495,133 $316,123
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Ratio of Expenses to Average Net Assets...... 0.21% 0.21% 0.21% 0.21% 0.24%
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Ratio of Net Investment Income to Average Net
Assets...................................... 1.40% 1.86% 2.27% 2.51% 3.10%
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Portfolio Turnover Rate...................... 3.03% 3.15% 3.45% 3.19% 5.59%
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</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
B-54
<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, 1998
<TABLE>
<S> <C>
ASSETS
Common Stock (cost $674,270).................................................. $1,640,982
Bonds (cost $1,091,953)....................................................... 1,112,608
Money Market Investments (cost $514,345)...................................... 514,355
-----------
3,267,945
Cash.......................................................................... 905
Dividends and Interest Receivable............................................. 15,825
Due from Futures Variation Margin............................................. 688
-----------
Total Assets................................................................ 3,285,363
-----------
LIABILITIES
Due on Redemption of Fund Shares.............................................. 2,473
Due to Investment Advisor..................................................... 819
-----------
Total Liabilities........................................................... 3,292
-----------
NET ASSETS...................................................................... $3,282,071
-----------
-----------
REPRESENTED BY:
Aggregate Paid in Capital
(3,000,000 shares authorized, $.01 par value; 1,475,966 shares
outstanding)................................................................. $1,945,788
Undistributed Net Investment Income........................................... 103,557
Undistributed Accumulated Net Realized Gain on Investments.................... 232,015
Net Unrealized Appreciation of:
Investment Securities....................................................... 987,377
Index Futures Contracts..................................................... 13,320
Foreign Currency Transactions............................................... 14
-----------
Net Assets for 1,475,966 Shares Outstanding................................... $3,282,071
-----------
-----------
Net Asset Value, Offering and Redemption Price per Share...................... $ 2.22
-----------
-----------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest (less foreign withholding tax of $29).............................. $ 90,182
Dividends (less foreign dividend tax of $128)............................... 23,405
---------
Total Income.............................................................. 113,587
---------
Expenses
Management Fees............................................................. 9,039
---------
Net Investment Income......................................................... 104,548
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments:
Investment Securities....................................................... 199,569
Index Futures Contracts..................................................... 33,083
Foreign Currency Transactions............................................... (882)
---------
Net Realized Gain on Investments for the Period........................... 231,770
---------
Net Change In Unrealized Appreciation of:
Investment Securities....................................................... 173,063
Futures Contracts........................................................... 13,799
Foreign Currency Transactions............................................... 138
---------
Net Change in Unrealized Appreciation of Investments for the Period....... 187,000
---------
Net Gain on Investments....................................................... 418,770
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $523,318
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-55
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Balanced Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
DECEMBER YEAR ENDED
31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 104,548 $ 94,986
Net Realized Gain on Investments.... 231,770 83,356
Net Change in Unrealized
Appreciation of Investments for the
Period............................. 187,000 318,351
----------- ------------
Net Increase in Net Assets
Resulting from Operations......... 523,318 496,693
----------- ------------
Distributions to Shareholders from:
Net Investment Income............... (95,131) (86,698)
Net Realized Gain on Investments.... (85,841) (29,228)
----------- ------------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (180,972) (115,926)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 54,658 and
42,694 Shares...................... 113,335 79,608
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(89,901 and 65,384 shares,
respectively)...................... 180,971 115,926
Payments for 69,339 and 61,284
Shares Redeemed.................... (143,075) (114,041)
----------- ------------
Net Increase in Net Assets Resulting
from Fund Share Transactions
(75,220 and 46,794 shares,
respectively)...................... 151,231 81,493
----------- ------------
Total Increase in Net Assets.......... 493,577 462,260
NET ASSETS
Beginning of Period................... 2,788,494 2,326,234
----------- ------------
End of Period (includes undistributed
net investment income of
$103,557 and $94,962 respectively)... $3,282,071 $2,788,494
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-56
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Balanced Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.99 $ 1.72 $ 1.60 $ 1.31 $ 1.33
Income from Investment Operations:
Net Investment Income............. 0.07 0.07 0.06 0.07 0.04
Net Realized and Unrealized Gain
(Loss) on Investments............ 0.29 0.28 0.15 0.27 (0.05)
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations..................... 0.36 0.35 0.21 0.34 (0.01)
----------- ----------- ----------- ----------- -----------
Less Distributions:
Distributions from Net Investment
Income........................... (0.07) (0.06) (0.06) (0.04) (0.00)
Distributions from Realized Gains
on Investments................... (0.06) (0.02) (0.03) (0.01) (0.01)
----------- ----------- ----------- ----------- -----------
Total Distributions............. (0.13) (0.08) (0.09) (0.05) (0.01)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period.......... $ 2.22 $ 1.99 $ 1.72 $ 1.60 $ 1.31
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total Return+........................... 18.88% 21.52% 13.45% 26.39% 0.16%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $3,282,071 $2,788,494 $2,326,234 $2,083,289 $1,727,127
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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..................... 3.48% 3.70% 3.95% 4.40% 4.78%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Portfolio Turnover Rate................. 44.18% 29.94% 67.66% 37.28% 42.35%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</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
B-57
<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, 1998
<TABLE>
<S> <C>
ASSETS
Bonds (cost $164,578)......................................................... $145,907
Preferred Stock (cost $28,969)................................................ 29,526
Money Market Investments (cost $3,896)........................................ 3,896
Common Stock (cost $2,202).................................................... 941
---------
180,270
Cash.......................................................................... 110
Dividends and Interest Receivable............................................. 3,787
Due from Sale of Securities................................................... 1,718
---------
Total Assets................................................................ 185,885
---------
LIABILITIES
Due on Purchase of Securities................................................. 589
Due on Redemption of Fund Shares.............................................. 409
Due to Investment Advisor..................................................... 76
Accrued Expenses.............................................................. 29
---------
Total Liabilities........................................................... 1,103
---------
NET ASSETS...................................................................... $184,782
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (2,000,000 shares authorized, $.01 par value;
197,519 shares outstanding).................................................. $207,516
Undistributed Net Investment Income........................................... 55
Undistributed Accumulated Net Realized Loss on Investments.................... (3,414)
Net Unrealized Depreciation of Investments.................................... (19,375)
---------
Net Assets for 197,519 Shares Outstanding..................................... $184,782
---------
---------
Net Asset Value, Offering and Redemption Price per Share...................... $ 0.94
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest.................................................................... $16,708
Dividends................................................................... 3,197
--------
Total Income.............................................................. 19,905
--------
Expenses
Management Fees............................................................. 854
Custodian Fees.............................................................. 18
Other Expenses.............................................................. 22
--------
Total Expenses............................................................ 894
--------
Less Custodian Fees:
Paid by Affiliate....................................................... (13)
Paid Indirectly......................................................... (5)
--------
Total Net Expenses.......................................................... 876
--------
Net Investment Income......................................................... 19,029
--------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net Realized Loss on Investments.............................................. (3,333)
Net Change in Unrealized Depreciation of Investments for the Period........... (20,988)
--------
Net Loss on Investments....................................................... (24,321)
--------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $(5,292)
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-58
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
High Yield Bond Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR
ENDED FOR THE YEAR
DECEMBER ENDED
31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................ $ 19,029 $ 12,561
Net Realized Gain (Loss) on Investments.............. (3,333) 7,437
Net Change in Unrealized Depreciation of Investments
for the Period...................................... (20,988) (1,416)
----------- ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations.................................... (5,292) 18,582
----------- ------------
Distributions to Shareholders from:
Net Investment Income................................ (18,974) (16,554)
Net Realized Gain on Investments..................... -- (8,429)
----------- ------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders...................... (18,974) (24,983)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 60,216 and 48,820 Shares....... 65,439 56,788
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (20,380 and 23,165 shares,
respectively)....................................... 18,974 24,983
Payments for 26,994 and 13,489 Shares Redeemed....... (28,403) (16,210)
----------- ------------
Net Increase in Net Assets Resulting from Fund
Share Transactions (53,602 and 58,496 shares,
respectively)...................................... 56,010 65,561
----------- ------------
Total Increase in Net Assets........................... 31,744 59,160
NET ASSETS
Beginning of Period.................................... 153,038 93,878
----------- ------------
End of Period (includes undistributed net investment
income of $55 and ($143), respectively)............... $184,782 $153,038
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-59
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
High Yield Bond Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE
PERIOD MAY
FOR THE YEAR ENDED 3, 1994*
DECEMBER 31, THROUGH
------------------------------------------------ DECEMBER 31,
1998 1997 1996 1995 1994
-------------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.06 $ 1.10 $ 1.03 $ 0.97 $ 1.00
Income from Investment Operations:
Net Investment Income............. 0.10 0.11 0.09 0.10 0.06
Net Realized and Unrealized Gains
(Losses) on Investments.......... (0.12) 0.06 0.10 0.07 (0.03)
-------------- --------- -------- -------- ------------
Total from Investment
Operations..................... (0.02) 0.17 0.19 0.17 0.03
-------------- --------- -------- -------- ------------
Less Distributions:
Distributions from Net Investment
Income........................... (0.10) (0.14) (0.09) (0.10) (0.06)
Distributions from Realized Gains
on Investments................... -- (0.07) (0.03) (0.01) --
-------------- --------- -------- -------- ------------
Total Distributions............. (0.10) (0.21) (0.12) (0.11) (0.06)
-------------- --------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 0.94 $ 1.06 $ 1.10 $ 1.03 $ 0.97
-------------- --------- -------- -------- ------------
-------------- --------- -------- -------- ------------
Total Return+........................... (1.84%) 15.85% 19.77% 16.78% 3.02%++
-------------- --------- -------- -------- ------------
-------------- --------- -------- -------- ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $184,782 $153,038 $93,878 $55,974 $35,537
-------------- --------- -------- -------- ------------
-------------- --------- -------- -------- ------------
Ratio of Expenses to Average Net
Assets................................. 0.50% 0.55% 0.60% 0.65% 0.73%**
-------------- --------- -------- -------- ------------
-------------- --------- -------- -------- ------------
Ratio of Net Investment Income to
Average Net Assets..................... 10.85% 9.95% 9.54% 9.90% 9.40%**
-------------- --------- -------- -------- ------------
-------------- --------- -------- -------- ------------
Portfolio Turnover Rate................. 153.71% 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
B-60
<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, 1998
<TABLE>
<S> <C>
ASSETS
Bonds (cost $281,712)......................................................... $283,202
Money Market Investments (cost $11,269)....................................... 11,269
---------
294,471
Cash.......................................................................... 189
Interest Receivable........................................................... 3,044
Due from Sale of Fund Shares.................................................. 268
Due from Futures Variation Margin............................................. 155
---------
Total Assets................................................................ 298,127
---------
LIABILITIES
Due to Investment Advisor..................................................... 75
Due on Redemption of Fund Shares.............................................. 18
---------
Total Liabilities........................................................... 93
---------
NET ASSETS...................................................................... $298,034
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (1,000,000 shares authorized, $.01 par value;
238,596 shares outstanding).................................................. $276,525
Undistributed Net Investment Income........................................... 17,466
Undistributed Accumulated Net Realized Gain on Investments.................... 2,549
NET UNREALIZED APPRECIATION (DEPRECIATION) OF:
Investments Securities........................................................ 1,490
Foreign Currency Transactions................................................. 7
Futures Contracts............................................................. (3)
---------
Net Assets for 238,596 Shares Outstanding..................................... $298,034
---------
---------
Net Asset Value, Offering and Redemption Price per Share...................... $ 1.25
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest (less foreign withholding tax of $21).............................. $18,946
--------
Expenses
Management Fees............................................................. 803
--------
Net Investment Income......................................................... 18,143
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments:
Investment Securities....................................................... 4,478
Foreign Currency Transactions............................................... (742)
Futures Contracts........................................................... (1,190)
--------
Net Realized Gain on Investments for the Period............................... 2,546
--------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF:
Investment Securities......................................................... (2,556)
Foreign Currency Transactions................................................. 101
Futures Contracts............................................................. 428
--------
Net Change in Unrealized Depreciation for the Period........................ (2,027)
--------
Net Gain on Investments....................................................... 519
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................... $18,662
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-61
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Select Bond Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income............... $ 18,143 $ 15,676
Net Realized Gain on Investments.... 2,546 2,865
Net Change in Unrealized
Appreciation (Depreciation) of
Investments for the Period......... (2,027) 1,736
------------ ------------
Net Increase in Net Assets
Resulting from Operations......... 18,662 20,277
------------ ------------
Distributions to Shareholders from:
Net Investment Income............... (15,746) (13,300)
Net Realized Gain on Investments.... (2,700) --
------------ ------------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders...................... (18,446) (13,300)
------------ ------------
Fund Share Transactions
Proceeds from Sale of 45,867 and
26,095 Shares...................... 56,278 32,098
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(15,606 and 11,396 shares,
respectively)...................... 18,446 13,300
Payments for 17,649 and 17,885
Shares Redeemed.................... (21,741) (21,873)
------------ ------------
Net Increase in Net Assets Resulting
from Fund Share Transactions
(43,824 and 19,606 shares,
respectively)........................ 52,983 23,525
------------ ------------
Total Increase in Net Assets.......... 53,199 30,502
NET ASSETS
Beginning of Period................... 244,835 214,333
------------ ------------
End of Period (includes undistributed
net investment income of
$17,466 and $15,722 respectively).... $298,034 $244,835
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-62
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Select Bond Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of
Period............................... $ 1.26 $ 1.22 $ 1.23 $ 1.06 $ 1.15
Income from Investment Operations:
Net Investment Income............. 0.08 0.08 0.07 0.07 0.06
Net Realized and Unrealized Gain
(Loss) on Investments............ 0.00 0.04 (0.04) 0.13 (0.09)
--------- --------- --------- --------- ---------
Total from Investment
Operations..................... 0.08 0.12 0.03 0.20 (0.03)
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment
Income........................... (0.08) (0.08) (0.04) (0.03) (0.06)
Distributions from Realized Gains
on Investments................... (0.01) -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions............. (0.09) (0.08) (0.04) (0.03) (0.06)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 1.25 $ 1.26 $ 1.22 $ 1.23 $ 1.06
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return+........................... 7.07% 9.46% 3.31% 19.10% (2.28%)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands)............................. $298,034 $244,835 $214,333 $198,142 $158,508
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
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..................... 6.87% 7.03% 6.48% 6.61% 7.02%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Portfolio Turnover Rate................. 161.79% 184.93% 195.98% 69.06% 108.00%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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
B-63
<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, 1998
<TABLE>
<S> <C>
ASSETS
Money Market Investments (cost $290,729)...................................... $290,729
Cash.......................................................................... 3
Due from Sale of Fund Shares.................................................. 774
Interest Receivable........................................................... 31
---------
Total Assets................................................................ 291,537
---------
LIABILITIES
Due to Investment Advisor..................................................... 73
---------
Total Liabilities........................................................... 73
---------
NET ASSETS...................................................................... $291,464
---------
---------
REPRESENTED BY:
Aggregate Paid in Capital (1,000,000 shares authorized, $.01 par value;
291,476 shares outstanding).................................................. $291,464
---------
Net Assets for 291,476 Shares Outstanding..................................... $291,464
---------
---------
Net Asset Value, Offering and Redemption Price per Share...................... $ 1.00
---------
---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest.................................................................... $ 12,764
---------
Expenses
Management Fees............................................................. 687
---------
Net Investment Income......................................................... 12,077
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................... $ 12,077
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-64
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Money Market Portfolio
Statement of Changes in Net Assets
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER 31,
31, 1998 1997
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................ $ 12,077 $ 9,878
----------- ------------
Net Increase in Net Assets Resulting from
Operations......................................... 12,077 9,878
----------- ------------
Distributions to Shareholders from:
Net Investment Income................................ (12,077) (9,885)
----------- ------------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders...................... (12,077) (9,885)
----------- ------------
Fund Share Transactions
Proceeds from Sale of 222,296 and 130,864 Shares..... 222,308 130,863
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (12,077 and 9,878 shares,
respectively)....................................... 12,077 9,878
Payments for 137,391 and 122,562 Shares Redeemed..... (137,391) (122,562)
----------- ------------
Net Increase in Net Assets Resulting from Fund
Share Transactions (96,982 and 18,180) shares,
respectively)...................................... 96,994 18,179
----------- ------------
Total Increase in Net Assets........................... 96,994 18,172
NET ASSETS
Beginning of Period.................................... 194,470 176,298
----------- ------------
End of Period (includes no undistributed net investment
income)............................................... $291,464 $194,470
----------- ------------
----------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-65
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Money Market Portfolio
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------------
<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 0.05 0.06 0.05
Less Distributions from Net Investment
Income....................................... (0.05) (0.05) (0.05) (0.06) (0.05)
----------- --------- --------- --------- ---------------
Net Asset Value, End of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
Total Return+................................... 5.43% 5.47% 5.29% 5.82% 4.06%
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).......... $291,464 $194,470 $176,298 $132,572 $104,217
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
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........................................... 5.26% 5.33% 5.13% 5.61% 4.64%
----------- --------- --------- --------- ---------------
----------- --------- --------- --------- ---------------
</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
B-66
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
DECEMBER 31, 1998
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") 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 they may enter into
a foreign exchange currency contract to minimize market risk from the trade date
to the settlement date of such transaction. Such foreign exchange currency
contracts are marked to market daily.
The Portfolios may enter into forward foreign currency contracts to hedge
against exchange rate risk arising from investments in securities denominated in
foreign currencies. Contracts are valued at the contractual forward rate and are
marked to market daily, with the change in market value recorded as an
unrealized gain or loss. When the contracts are closed, a realized gain or loss
is incurred. Risks may arise from changes in market value of the underlying
instruments and from the possible inability of counter parties to meet the terms
of their contracts.
The International Equity Portfolio, Balanced Portfolio and 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 Portfolios could be exposed to market
risk due to changes in the value of the underlying securities or due to an
illiquid secondary market. Futures contracts are marked to market daily based
upon quoted settlement prices. The 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.
B-67
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
DECEMBER 31, 1998
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 the trade date. The basis for determining cost on
sale of securities is identified cost. For the period ended December 31, 1998,
transactions in securities other than money market investments were:
<TABLE>
<CAPTION>
U.S. GOVT
U.S. GOVT TOTAL SECURITY SECURITY
TOTAL SECURITY SECURITY SALES/ SALES/
PORTFOLIOS PURCHASES PURCHASES MATURITIES MATURITIES
- ---------------------------------------------------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Aggressive Growth Stock................................... $ 494,286,839 $ -- $ 498,668,396 $ --
International Equity...................................... 194,391,889 -- 242,088,311 --
Growth Stock.............................................. 127,830,431 -- 62,233,240 --
Growth and Income Stock................................... 839,516,702 -- 735,710,238 --
Index 500 Stock........................................... 289,575,538 -- 41,383,764 --
Balanced.................................................. 1,160,320,109 528,782,629 1,201,082,980 377,671,643
High Yield Bond........................................... 309,136,258 -- 257,337,234 --
Select Bond............................................... 481,394,554 157,848,606 423,532,859 151,008,239
</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 Balanced, Select Bond and Money Market 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 $50 NEXT $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, LLC ("NMIS")
a wholly-owned subsidiary of Northwestern Mutual, which is the manager and
investment adviser of the Fund. Northwestern Mutual is also a party to the
agreement. Other costs for each Portfolio are paid either by the Portfolios,
Northwestern Mutual, 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,
1998, the amounts paid through expense offset arrangements are $9,752 in the
Aggressive Growth Stock Portfolio, $3,630 in the Growth Stock Portfolio, $3,143
in the Growth and Income Stock Portfolio, $4,031 in the Index 500 Portfolio and
$5,010 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 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 by Templeton Counsel and .40% in
excess of $100 million.
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.
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. The differences between cost
amounts for book purposes and tax purposes are due to treatment of deferred
losses.
It is the policy of the Series Fund to reclassify the net effect of permanent
differences between book and taxable income to capital accounts on the
statements of assets and liabilities.
For Federal income tax purposes, the High Yield Bond Portfolio has a net
realized capital loss of $2,519,798 which will
B-68
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
DECEMBER 31, 1998
be carried forward to offset future net realized capital gains. The amount
expires in 2006.
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, International Equity,
Growth Stock, Growth and Income Stock, Index 500 Stock, Balanced, High Yield
Bond and Select Bond Portfolios and each business day for the Money Market
Portfolio.
NOTE 10 -- Effective April 1, 1996, Northwestern Mutual voluntarily reimburses
the International Equity Portfolio for the benefit Northwestern Mutual receives
from foreign dividend taxes charged against the Portfolio. 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 for the years ended December 31, 1998 and 1997 was
$1,235,277 and $1,313,579, respectively.
B-69
<PAGE>
AGGRESSIVE GROWTH STOCK PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (91.8%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (1.0%)
*Cambrex Corporation 454,200 $ 10,901
-----------
BUSINESS SERVICES (10.7%)
*Administaff, Inc. 309,900 7,748
Boron Lepore & Associates 222,800 7,687
Cintas Corporation 394,900 27,816
*Interim Services, Inc. 497,700 11,634
*The Metzler Group, Inc. 473,650 23,061
*Robert Half International, Inc. 400,150 17,882
*Steiner Leisure, Ltd. 480,150 15,365
Stewart Enterprises, Inc. 513,300 11,421
-----------
TOTAL 122,614
-----------
CAPITAL GOODS (7.0%)
*Ivex Packaging Corporation 336,100 7,814
*Jabil Circuit, Inc. 318,800 23,790
Kaydon Corporation 396,300 15,877
*Kellstrom Industries, Inc. 253,900 7,300
*Tetra Tech, Inc. 677,443 18,333
*Triumph Group, Inc. 189,600 6,067
-----------
TOTAL 79,181
-----------
COMMUNICATION SERVICES (1.5%)
Crown Castle International Co. 341,300 8,021
*Pacific Gateway Exchange, Inc. 192,600 9,257
-----------
TOTAL 17,278
-----------
CONSUMER CYCLICAL (15.0%)
*99 Cents Only Stores 309,375 15,198
*Catalina Marketing Corporation 305,200 20,868
*Dollar Tree Stores, Inc. 452,300 19,760
Galileo International, Inc. 271,500 11,810
General Cable Corporation 311,300 6,382
*Getty Images, Inc. 575,500 9,891
*Jones Apparel Group, Inc. 269,800 5,952
*K&G Men's Center, Inc. 420,150 3,729
*Kohl's Corporation 238,200 14,634
Linens n Things, Inc. 90,000 3,566
*Michaels Stores, Inc. 97,200 1,759
*O'Reilly Automotive, Inc. 574,300 27,136
Sonic Automotive, Inc. 418,400 14,409
*Tower Automotive, Inc. 536,200 13,371
*VWR Scientific Products Corporation 108,000 1,877
-----------
TOTAL 170,342
-----------
CONSUMER STAPLES (6.9%)
*American Italian Pasta Co. - CL A 399,100 10,526
American Tower Systems 272,200 8,047
Cardinal Health, Inc. 322,777 24,491
*Chancellor Media Corp. 187,700 8,986
*Clear Channel Communications, Inc. 145,200 7,913
Golden State Vintners 205,600 2,236
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (91.8%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (CONTINUED)
Infinity Broadcasting 152,800 $ 4,183
*Lamar Advertising, Co. 336,200 12,523
-----------
TOTAL 78,905
-----------
ENERGY (1.7%)
*Barrett Resources Corporation 177,800 4,267
*Global Industries, Ltd. 637,000 3,902
Transocean Offshore Inc. 225,100 6,035
*Weatherford International, Inc. 260,700 5,051
-----------
TOTAL 19,255
-----------
FINANCE (6.0%)
*Affiliated Managers Group 257,000 7,678
CMAC Investment Corp. 137,500 6,316
*ESG Re Limited 268,700 5,441
*Headlands Mortgage Company 545,400 11,419
Investors Financial Services Corp. 205,400 12,247
Knight/Trimark Group 607,500 14,542
*Trammell Crow Company 391,500 10,962
-----------
TOTAL 68,605
-----------
HEALTHCARE (11.9%)
Bausch & Lomb, Inc. 131,800 7,908
*Lincare Holdings, Inc. 416,100 16,878
*NCS Healthcare, Inc. 125,900 2,990
*Patterson Dental Company 355,925 15,483
*Pediatrix Medical Group, Inc. 261,100 15,650
Province Healthcare 359,000 12,879
*PSS World Medical, Inc. 656,400 15,097
*Quintiles Transnational Corp. 364,400 19,450
*Sybron International Corporation 596,000 16,204
*Wesley Jessen VisionCare, Inc. 446,800 12,399
-----------
TOTAL 134,938
-----------
TECHNOLOGY (27.8%)
*CBT Group Public Limited Company 37,500 558
*Computer Horizons Corp. 347,050 9,240
Comverse Technology 242,800 17,239
*Concord EFS, Inc. 536,850 22,749
*CSG Systems International, Inc. 233,400 18,439
*DST Systems, Inc. 306,000 17,461
*Gasonics International Corporation 491,000 4,296
*Gemstar International Group Limited 298,800 17,106
*Integrated Process Equipment Corp. 321,600 3,457
J. D. Edwards & Co. 366,400 10,397
Microchip Technology 348,200 12,883
Molex Incorporated 388,946 12,398
Novellus Systems, Inc. 80,000 3,960
Paychex, Inc. 500,132 25,726
*PMC-Sierra, Inc. 262,700 16,583
</TABLE>
B-70
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (91.8%) PAR (000'S)
- ---------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
*QLogic Corporation 155,500 $ 20,351
Samina Corp. 308,200 19,262
*Saville Systems PLC- ADR 307,600 5,843
*Semtech Corporation 307,900 11,046
*Sterling Software, Inc. 607,100 16,430
Synopsys Inc. 123,600 6,705
*Tellabs, Inc. 111,900 7,672
Ticketmaster Online 10,000 570
*Transaction Systems Architects, Inc. 283,300 14,165
*Uniphase Corporation 268,900 18,655
*World Access, Inc. 117,700 2,516
-----------
TOTAL 315,707
-----------
TRANSPORTATION (2.3%)
*Heartland Express, Inc. 167,000 2,923
*Knight Transportation, Inc. 489,000 13,050
*Swift Transportation Co., Inc. 359,700 10,083
-----------
TOTAL 26,056
-----------
TOTAL COMMON STOCK 1,043,782
-----------
<CAPTION>
MONEY MARKET INVESTMENTS (8.4%)
- ---------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (0.2%)
+Federal Home Loan Mortgage Association, 4.92%,
2/26/99 2,000,000 $ 1,985
-----------
FINANCE (1.7%)
+Triple A One Funding, 5.55%, 1/19/99 20,000,000 $ 19,945
-----------
PERSONAL CREDIT INSTITUTIONS (6.5%)
American Express Credit Corporation, 5.00%, 1/8/99 14,200,000 14,186
American Express Credit Corporation, 5.85%, 1/8/99 20,000,000 19,977
<CAPTION>
MARKET
SHARES/ VALUE
MONEY MARKET INVESTMENTS (8.4%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
PERSONAL CREDIT INSTITUTIONS (CONTINUED)
General Electric Capital Corporation, 5.51%, 1/26/99 20,000,000 $ 19,923
General Electric Capital Corporation, 5.65%, 1/13/99 20,000,000 19,962
-----------
TOTAL 74,048
-----------
TOTAL MONEY MARKET INVESTMENTS 95,978
-----------
TOTAL INVESTMENTS (100.2%) (COST $775,929,704)^ 1,139,760
OTHER ASSETS, LESS LIABILITIES (-0.2%) (2,294)
-----------
TOTAL NET ASSETS (100.0%) $1,137,466
-----------
</TABLE>
* Non-Income Producing
^At December 31, 1998, the aggregate cost of securities for federal income tax
purposes was $776,905,792 and the net unrealized appreciation of investments
based on that cost was $362,854,375 which is comprised of $390,885,948
aggregate gross unrealized appreciation and $28,031,573 aggregate gross
unrealized depreciation.
+Partially held by the custodian in a segregated account as collateral for open
futures postions. Information regarding open futures contracts as of December
31, 1998 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUERS CONTRACTS DATE (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 84 3/99 $989
(Total Notional Value at
12/31/98, $25,167,288)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B-71
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.2%) COUNTRY PAR (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL EQUIPMENT (6.8%)
Alcatel Alsthom DG Fr. 40,000 $ 4,898
+Alcatel Alsthom , ADR Fr. 18,400 446
BTR PLC U.K. 202,312 397
BTR, PLC "A" U.K. 4,610,531 9,473
*Fairview Holdings PLC U.K. 450,223 667
Granges AB Swe. 188,100 2,715
Hong Kong Aircraft &
Engineering H.K. 2,680,700 3,668
Rolls- Royce PLC U.K. 745,000 3,099
Koninklijke Philips
Electronics N.V. Neth. 208,400 13,992
Sirti SPA Italy 643,000 3,888
VA Technologies AG
Bearer Aus. 30,000 2,601
-----------
TOTAL 45,844
-----------
CONSUMER GOODS (11.5%)
Albert Fisher Group PLC U.K. 5,967,096 595
#Autoliv, Inc. IDR Swe. 65,000 2,334
Autoliv, Inc. Swe. 279,100 10,379
Cafe de Coral Holdings,
Ltd. H.K. 7,672,000 2,401
Fiat SPA Ord. Italy 1,527,900 5,319
Hillsdown Holdings U.K. 900,446 1,124
Medeva PLC U.K. 4,250,000 7,566
Nycomed Amersham PLC U.K. 1,323,110 9,204
Ono Pharmaceutical Co.,
Ltd. Jpn. 233,000 7,292
Tate & Lyle, PLC U.K. 762,600 4,111
*Terranova Foods PLC U.K. 450,223 824
+Teva Pharmaceutical
Industries Ltd., ADR Israel 178,200 7,251
Sony Corporation Jpn. 87,500 6,384
Vitro SA NPV Mex. 768,400 1,127
Volvo Aktiebolaget, B
Free Swe. 433,000 9,936
Yizheng Chemical Fibre
Company China 12,469,200 1,143
-----------
TOTAL 76,990
-----------
ENERGY (14.0%)
BG PLC U.K. 701,752 4,518
*Centrica PLC U.K. 1,913,200 3,931
Electricidad de Caracas Venz. 12,792 6
Endesa S.A. Sp. 252,000 6,687
EVN Energie Versorgung Aus. 38,400 5,440
+Gener S.A., ADR Chile 262,800 4,205
Hong Kong Electric H.K. 1,790,000 5,430
Iberdrola S.A. Sp. 587,500 11,008
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.2%) COUNTRY PAR (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
ENERGY (CONTINUED)
Korea Electric Power
Corp. Kor. 33,000 $ 818
National Power U.K. 1,246,864 10,766
Petroleo Brasileiro SA -
Petrobras Braz. 32,500,000 3,685
Ranger Oil Limited Can. 1,055,400 4,683
Repsol S.A. Sp. 122,000 6,518
Saga Petroleum Norw. 260,000 2,372
Societe Nationale Elf
Aquitaine Fr. 66,801 7,725
Thames Water U.K. 230,104 4,441
+YPF S.A., ADR Arg. 418,500 11,692
-----------
TOTAL 93,925
-----------
FINANCE (25.8%)
Aegon NV Neth. 140,384 17,250
Australia & New Zealand
Bank Group Austrl. 1,506,097 9,866
AXA-UAP SA Fr. 104,063 15,089
Banco Bradesco SA Braz. 623,750,000 3,459
*Banco Bradesco SA,
Rights Braz. 25,853,902 15
Banco de Andulucia Sp. 120,000 5,454
Banco Itau S.A. Braz. 2,079,000 1,015
Bangkok Bank Public
Company Ltd Thai. 3,193,000 6,591
+Banque Nationale de
Paris, ADR (144A) Fr. 146,500 12,069
Barclays PLC U.K. 245,016 5,283
BPI SGPS SA Port. 189,363 6,426
Compagnie Financiere de
Paribas Fr. 71,300 6,199
Canadian Imperial Bank
of Commerce Can. 113,200 2,801
Deutsche Bank AG Ger. 98,600 5,804
EXEL Limited Ber. 131,100 9,833
HSBC Holdings H.K. 316,979 7,897
ING Groep NV Neth. 209,000 12,751
Merita Limited "A" Fin. 2,436,000 15,491
PartnerRe Ltd. Ber. 226,600 10,367
**Peregrine Investments
Holdings, Ltd. H.K. 262,000 --
Reinsurance Australia
Corporation Limited Austrl. 2,908,000 4,461
Unibanco Uniao de Bancos Braz. 14,033,500 488
Zurich Versicherungs-
Gesellschaft Swtz. 19,900 14,735
-----------
TOTAL 173,344
-----------
MATERIALS (10.6%)
Agrium, Inc. Can. 473,300 4,112
Akzo Nobel NV Neth. 117,700 5,362
</TABLE>
B-72
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.2%) COUNTRY PAR (000'S)
- ----------------------------------------------------------------
MATERIALS (CONTINUED)
<S> <C> <C> <C>
Bayer AG Ger. 157,000 $ 6,556
British Steel PLC U.K. 5,270,900 8,002
Carte Holt Harvey Ltd. N.Z. 3,929,357 3,529
Elkem A S Oslo ord "A" Norw. 192,000 2,293
European Vinyls Corp.
EVC International Neth. 68,985 548
Grupo Mexico, B Shares Mex. 1,320,000 2,936
Hepworth PLC U.K. 607,200 1,596
Metsa Serla Oyj Fin. 277,500 2,220
+Minorco SA, ADR Lux. 318,150 4,832
+Pechiney "A", ADR Fr. 48,183 776
Pechiney SA "A" Fr. 19,000 621
Pioneer International
Ltd. Austrl. 3,197,946 6,767
Rhone Poulenc SA, Series
A Fr. 149,108 7,677
Stora Enso OYJ- R Fin. 754,400 6,764
Stora Kapparbergs,
Series B Swe. 350,000 3,886
Union Minerie, NPV Bel. 65,171 2,481
-----------
TOTAL 70,958
-----------
MULTI-INDUSTRY (3.4%)
Amer Group Ltd., "A" Fin. 175,000 1,821
Elementis PLC U.K. 1,494,000 2,038
Hutchinson Whampoa H.K. 798,000 5,639
Jardine Matheson
Holdings Sing. 1,212,301 3,128
Jardine Strategic
Holdings Sing. 1,019,055 1,478
Swire Pacific Class "A" H.K. 1,459,500 6,537
Swire Pacific Limited
"B" H.K. 3,534,200 2,349
-----------
TOTAL 22,990
-----------
SERVICES (17.1%)
Air New Zealand Ltd. "B" N.Z. 1,150,000 1,810
British Telecom U.K. 608,000 9,145
*Cable & Wire Optus Ltd. Austrl. 2,674,560 5,627
+Compania Anonima
Nacional, ADR Venz. 293,000 5,219
+Compania de
Telecommunicaciones,
ADR Chile 155,125 3,209
David Jones Ltd. Austrl. 742,100 819
*Embratel Participacoes
S.A. Braz. 13,669,682 1,259
Hitachi Zosen
Corporation Jpn. 192,000 266
Hong Kong
Telecommunications Ltd. H.K. 6,100,000 10,668
Hyder PLC U.K. 371,666 4,669
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.2%) COUNTRY PAR (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
SERVICES (CONTINUED)
Hyder PLC Cum. Red. Pfd. U.K. 401,400 $ 795
Laidlaw Inc. Can. 82,600 831
Mayne Nickless Ltd. Austrl. 1,671,600 6,203
Moebel Walther AG PFD Ger. 103,297 3,535
+Phillipine Long
Distance Telephone, ADR Phil. 127,000 3,294
+PT Indosat, ADR Indo. 146,600 1,787
+Quantas Airways (144A)
ADR Austrl. 165,000 3,370
SGS Societe Generale de
Surveillance Holding SA Swtz. 885 867
Singapore Airlines Ltd. Sing. 105,000 770
+SK Telecom Co., LTD.,
ADR Fr. 245,037 2,496
*Sobeys Canada Inc Can. 85,258 944
Somerfield PLC U.K. 860,766 5,757
South China Morning Post
Ltd. H.K. 2,554,000 1,310
*Swisscom AG Swtz. 21,040 8,807
*Tele Celular Sul
Participacoes S.A. Braz. 9,429 144
Tele Centro Oeste
Celular Participacoes
S.A. Braz. 27,300 80
Tele Centro Sul
Participacoes S.A. Braz. 16,380 685
*Tele Leste Celular
Participacoes SA Braz. 17,647,838 53
Tele Nordeste Celular
Participacoes S.A. Braz. 4,095 76
Tele Norte Celular
Participacoes S.A. Braz. 1,638 37
Tele Norte Leste
Participacoes S.A. Braz. 81,900 1,019
*Tele Sudeste Celular
Participacoes S.A. Braz. 17,662,580 389
Telecom Italia SPA Italy 1,200,000 7,568
*Telecomunicacois
Brasileiras SA Braz. 17,728,100 10
+Telefonica de Argentina
SA, ADR Argentina 146,300 4,087
+Telefonica del Peru SA
B shares, ADR Peru 115,300 1,463
+Telefonos de Mexico SA Mex. 117,802 5,735
Telemig Celular
Participacoes S.A. Braz. 4,095 87
</TABLE>
B-73
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.2%) COUNTRY PAR (000'S)
- ----------------------------------------------------------------
SERVICES (CONTINUED)
<S> <C> <C> <C>
*Telesp Celular
Participacoes S.A. Braz. 17,678,960 $ 649
*Telesp Participacoes
S.A. Braz. 17,728,100 2,038
The Peninsular and
Oriental Steam
Navigation Company U.K. 548,000 6,495
Vendex NV Neth. 39,621 963
-----------
TOTAL 115,035
-----------
TOTAL COMMON STOCK 599,086
-----------
</TABLE>
<TABLE>
<CAPTION>
BONDS (0.7%)
- -------------------------------------------------------------------
<S> <C> <C> <C>
SBC Communications DECS,
3.071%, 3/15/01 U.S. 99,350 $ 4,421
-----------
TOTAL BONDS 4,421
-----------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET INVESTMENTS
(10.5%)
- -------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE (4.1%)
CXC Incorporated, 5.375%,
1/26/99 U.S. 12,600,000 $ 12,553
Triple A One Funding, 5.55%,
1/19/99 U.S. 15,000,000 14,958
-----------
TOTAL 27,511
-----------
PERSONAL CREDIT INSTITUTIONS (1.5%)
General Electric Capital
Corp., 5.65%, 1/13/99 U.S. 10,000,000 9,981
-----------
SHORT TERM BUSINESS CREDIT (4.9%)
American Express Credit,
5.00%, 1/8/99 U.S. 18,000,000 17,981
<CAPTION>
MARKET
MONEY MARKET INVESTMENTS SHARES/ VALUE
(10.5%) COUNTRY PAR (000'S)
- -------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM BUSINESS CREDIT (CONTINUED)
CIT Group Inc., 5.75%, 1/20/99 U.S. 15,000,000 $ 14,955
-----------
TOTAL 32,936
-----------
TOTAL MONEY MARKET
INVESTMENTS 70,428
-----------
TOTAL INVESTMENTS (100.4%)
(COST $626,944,284)^ 673,935
OTHER ASSETS, LESS
LIABILITIES (-0.4%) (2,829 )
-----------
TOTAL NET ASSETS (100.0%) $ 671,106
-----------
</TABLE>
* Non-Income Producing
+ ADR-American Depository Receipt
# IDR-International Depository Receipt
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
DECS-Debt Exchangeable for Common Stock
**Defaulted Security
Investment Percentages by Country:
5.51% Australia
8.58 France
6.82 Hong Kong
7.55 Netherlands
15.51 United Kingdom
11.12 U.S.
44.91 Other
100.00 Total
^At December 31, 1998, the aggregate cost of securities for federal income tax
purposes was $626,983,601 and the net unrealized appreciation of investments
based on that cost was $46,947,724 which is comprised of $141,631,589
aggregate gross unrealized appreciation and $94,683,865 gross unrealized
depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B-74
<PAGE>
GROWTH STOCK PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31,1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (87.8%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (1.6%)
Ecolab, Inc. 181,900 $ 6,583
---------
CAPITAL GOODS (8.2%)
AlliedSignal, Inc. 52,400 2,322
Avery Dennison Corporation 83,900 3,781
Emerson Electric Co. 49,300 3,084
General Electric Company 114,500 11,686
Lockheed Martin Corporation 19,800 1,678
*Republic Services, Inc. 94,000 1,733
Tyco International Ltd. 100,600 7,589
Waste Management, Inc. 62,400 2,909
---------
TOTAL 34,782
---------
COMMUNICATION SERVICES (5.4%)
AT&T Corp. 103,508 7,789
GTE Corporation 56,900 3,837
MCI WorldCom, Inc. 153,500 11,014
---------
TOTAL 22,640
---------
CONSUMER CYCLICAL (16.6%)
*Barnes & Noble, Inc. 71,000 3,018
Borg-Warner Automotive, Inc. 48,900 2,729
Centex Corporation 45,000 2,028
Dayton Hudson Corporation 67,000 3,635
Ford Motor Company 79,000 4,636
Harley-Davidson, Inc. 171,500 8,125
Home Depot, Inc. 119,500 7,312
*Kohl's Corporation 140,600 8,638
Lennar Corporation 45,600 1,151
Mattel, Inc. 30,000 684
McGraw-Hill Companies Inc. 44,600 4,544
The New York Times Company 129,200 4,482
Servicemaster Co. 245,250 5,411
Tribune Company 76,000 5,016
Wal-Mart Stores, Inc. 105,900 8,624
---------
TOTAL 70,033
---------
CONSUMER STAPLES (15.6%)
Anheuser-Busch Companies, Inc. 55,500 3,642
Benckiser N.V. 69,000 4,407
Campbell Soup Company 52,800 2,904
Dial Corp. 158,100 4,565
Hershey Foods Corporation 77,300 4,807
McDonald's Corporation 80,200 6,145
Newell Co. 98,600 4,067
PepsiCo, Inc. 174,100 7,127
Philip Morris Companies, Inc. 89,200 4,772
Procter & Gamble Company 62,400 5,698
The Quaker Oats Company 52,600 3,130
Unilever NV 51,100 4,238
Walgreen Co. 131,200 7,683
Walt Disney Company 79,600 2,388
---------
TOTAL 65,573
---------
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (87.8%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (5.0%)
British Petroleum Company PLC 49,000 $ 4,392
Chevron Corporation 28,300 2,347
*Conoco, Inc. 121,000 2,526
Diamond Offshore Drilling, Inc. 50,000 1,184
Exxon Corporation 26,800 1,960
Mobil Corporation 38,600 3,363
*R&B Falcon Corporation 60,900 464
Schlumberger Limited 44,600 2,057
Tosco Corporation 61,000 1,578
Transocean Offshore Inc. 39,600 1,062
---------
TOTAL 20,933
---------
FINANCE (8.1%)
Associates First Capital Corporation 80,208 3,399
BankAmerica Corporation 52,501 3,157
Chase Manhattan Corporation 76,880 5,233
Citigroup, Inc. 36,000 1,782
Fifth Third Bancorp 73,300 5,227
First Union Corporation 83,100 5,054
Morgan Stanley Dean Witter & Co. 68,700 4,878
The Bank New York Company, Inc. 133,300 5,365
---------
TOTAL 34,095
---------
HEALTHCARE (9.6%)
Bristol-Myers Squibb Company 54,000 7,226
Eli Lilly and Company 46,900 4,168
Guidant Corporation 25,800 2,844
Johnson & Johnson 49,100 4,118
Medtronic, Inc. 80,600 5,985
Merck & Co., Inc. 35,700 5,272
Pfizer, Inc. 65,400 8,204
Warner-Lambert Company 38,600 2,902
---------
TOTAL 40,719
---------
TECHNOLOGY (14.0%)
*Cisco Systems, Inc. 88,500 8,214
Compaq Computer Corporation 101,200 4,244
*DST Systems, Inc. 41,200 2,351
*Fiserv, Inc. 157,650 8,109
Hewlett-Packard Company 47,400 3,238
Intel Corporation 57,300 6,794
International Business Machines Corporation 49,400 9,127
Lucent Technologies, Inc. 41,342 4,548
*Microsoft Corporation 78,700 10,915
W.W. Grainger, Inc. 30,000 1,249
---------
TOTAL 58,789
---------
TRANSPORTATION (3.3%)
AMR Corporation 34,800 2,066
Canadian National Railway Company 61,500 3,190
*FDX Corporation 28,500 2,537
*Midwest Express Holdings, Inc. 103,500 2,724
</TABLE>
B-75
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31,1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (87.8%) PAR (000'S)
- ---------------------------------------------------------------------------------
TRANSPORTATION (CONTINUED)
<S> <C> <C>
Southwest Airlines Co. 143,850 $ 3,228
---------
TOTAL 13,745
---------
UTILITIES (0.4%)
Enron Corporation 28,100 1,602
---------
TOTAL COMMON STOCK 369,494
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (12.2%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (0.3%)
+Federal Home Loan Mortgage Corp., 4.919%, 02/26/99 200,000 $ 198
+Federal National Mortgage Association, 4.94%, 02/25/99 1,000,000 992
+Federal National Mortgage Association, 4.98%, 03/15/99 100,000 99
---------
TOTAL 1,289
---------
FINANCE (4.8%)
CIT Group, Inc., 5.749%, 01/20/99 6,000,000 5,982
+CXC Incorporated, 5.375%, 01/20/99 10,000,000 9,963
+Triple A One Funding Group, 5.549%, 01/19/99 4,400,000 4,388
---------
TOTAL 20,333
---------
PERSONAL CREDIT INSTITUTIONS (2.6%)
General Electric Capital Corp., 5.65%, 01/13/99 5,000,000 4,991
+General Electric Capital Corp., 5.51%, 01/26/99 6,100,000 6,077
---------
TOTAL 11,068
---------
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (12.2%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM BUSINESS CREDIT (4.5%)
American Express Credit, 5.00%, 01/08/99 14,000,000 $ 13,986
+American Express Credit, 5.85%, 01/08/99 5,000,000 4,994
---------
TOTAL 18,980
---------
TOTAL MONEY MARKET INVESTMENTS 51,670
---------
TOTAL INVESTMENTS (100.0%) (COST $288,025,070)^ 421,164
OTHER ASSETS, LESS LIABILITIES (0.0%) 118
---------
TOTAL NET ASSETS (100.0%) $421,282
---------
</TABLE>
* 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, 1998 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUERS CONTRACTS DATE (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 86 3/99 $1,554
(Total Notional Value at
12/31/98, $25,223,900)
</TABLE>
^At December 31, 1998, the aggregate cost of securities for federal tax purposes
was $288,036,724 and the net unrealized appreciation of investments based on
that cost was $133,127,817 which is comprised of $138,565,266 aggregate gross
unrealized appreciation and $5,437,449 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B-76
<PAGE>
GROWTH & INCOME STOCK PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (6.5%)
Albemarle Corporation 21,200 $ 504
Allegheny Teledyne, Inc. 129,100 2,639
Monsanto Company 387,300 18,397
Rohm and Haas Company 250,100 7,534
*Smurfit-Stone Container Corporation 502,334 7,943
-----------
TOTAL 37,017
-----------
CAPITAL GOODS (8.7%)
AlliedSignal, Inc. 153,300 6,793
*Coltec Industries, Inc. 433,000 8,444
Cooper Industries, Inc. 121,000 5,770
General Electric Company 37,600 3,838
*Republic Services, Inc. 102,200 1,884
Tyco International Ltd. 117,669 8,879
Waste Management, Inc. 306,417 14,287
-----------
TOTAL 49,895
-----------
COMMUNICATION SERVICES (7.1%)
GTE Corporation 141,900 9,569
MCI WorldCom, Inc. 262,506 18,835
SBC Communications, Inc. 222,200 11,915
-----------
TOTAL 40,319
-----------
CONSUMER CYCLICAL (10.3%)
*AutoZone, Inc. 75,300 2,480
*Cendant Corporation 252,800 4,819
Circuit City Stores, Inc. 56,500 2,821
Dayton Hudson Corporation 112,900 6,125
The Gap, Inc. 56,500 3,178
International Game Technology 244,800 5,952
Mattel, Inc. 244,700 5,582
*Mirage Resorts, Incorporated 281,800 4,209
The News Corporation Limited 209,800 5,547
Service Corporation International 204,400 7,780
The TJX Companies, Inc. 161,400 4,681
Wal-Mart Stores, Inc. 69,900 5,692
-----------
TOTAL 58,866
-----------
CONSUMER STAPLES (13.6%)
Anheuser-Busch Companies, Inc. 69,900 4,587
Campbell Soup Company 78,000 4,290
Comcast Corporation 59,200 3,474
*Fred Meyer, Inc. 126,400 7,616
Kimberly-Clark Corporation 107,600 5,864
PepsiCo, Inc. 204,200 8,359
Philip Morris Companies, Inc. 309,300 16,548
Procter & Gamble Company 161,400 14,738
Ralston Purina Group 88,700 2,872
The Seagram Company Ltd. 88,700 3,371
*Tele Communications, Inc. 110,300 6,101
-----------
TOTAL 77,820
-----------
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
ENERGY (7.1%)
*Input/Output, Inc. 683,100 $ 4,995
Mobil Corporation 169,400 14,759
Shell Transport & Trading Company 357,700 13,302
Tosco Corporation 277,000 7,167
-----------
TOTAL 40,223
-----------
FINANCE (14.6%)
Astoria Financial Corporation 83,235 3,808
BankAmerica Corporation 298,843 17,968
Bankers Trust Corporation 64,500 5,511
Citigroup Inc. 173,450 8,586
Fannie Mae 26,600 1,968
KeyCorp 164,000 5,248
Marsh & McLennan Companies, Inc. 82,050 4,796
MBIA, Inc. 94,100 6,169
Newcourt Credit Group Inc. 113,600 3,969
Starwood Hotels & Resorts 329,396 7,473
UNUM Corporation 147,900 8,634
Washington Mutual, Inc. 243,200 9,287
-----------
TOTAL 83,417
-----------
HEALTHCARE (9.0%)
*Alza Corporation 43,000 2,247
American Home Products Corporation 295,800 16,657
Bristol-Myers Squibb Company 113,200 15,148
*Forest Laboratories, Inc. 61,900 3,292
*Genzyme Corporation (General
Division) 131,800 6,557
*Genzyme Molecular Oncology 14,219 46
*HEALTHSOUTH Corporation 231,500 3,574
*Humana, Inc. 34,300 611
Warner-Lambert Company 43,000 3,233
-----------
TOTAL 51,365
-----------
TECHNOLOGY (16.6%)
AutoDesk, Inc. 88,700 3,786
*Cisco Systems, Inc. 145,225 13,479
Compaq Computer Corporation 158,000 6,626
*EMC Corporation 91,400 7,769
Intel Corporation 96,800 11,477
International Business Machines
Corporation 86,100 15,907
Lucent Technologies Inc. 67,200 7,392
*Microsoft Corporation 96,800 13,425
*Oracle Corporation 53,800 2,320
*Sun Microsystems, Inc. 94,100 8,057
Texas Instruments, Incorporated 53,800 4,603
-----------
TOTAL 94,841
-----------
TRANSPORTATION (2.3%)
Union Pacific Corporation 295,800 13,329
-----------
</TABLE>
B-77
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) PAR (000'S)
- --------------------------------------------------------------
UTILITIES (2.5%)
<S> <C> <C>
K N Energy, Inc. 21,500 $ 782
Northern States Power Company 53,900 1,496
PP & L Resources, Inc. 285,100 7,947
Wisconsin Energy Corporation 128,900 4,052
-----------
TOTAL 14,277
-----------
TOTAL COMMON STOCK 561,369
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (1.6%) PAR (000'S)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE LESSORS (.1%)
Triple A One Funding, 5.55%, 1/19/99 500,000 $ 499
---------
PERSONAL CREDIT INSTITUTIONS (.9%)
General Electric Capital Corporation, 5.65%, 1/13/99 1,000,000 998
General Electric Capital Corporation, 5.51%, 1/26/99 2,000,000 1,992
Variable Funding Capital Corp., 5.95%, 1/11/99 2,000,000 1,997
---------
TOTAL 4,987
---------
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (1.6%) PAR (000'S)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM BUSINESS CREDIT (.6%)
American Express Credit, 5.00%, 1/8/99 600,000 $ 599
American Express Credit, 5.85%, 1/8/99 1,000,000 999
CIT Group, 5.75%, 1/20/99 2,000,000 1,994
---------
TOTAL 3,592
---------
TOTAL MONEY MARKET INVESTMENTS 9,078
---------
TOTAL INVESTMENTS (99.9%) (COST $517,081,519)^ 570,447
OTHER ASSETS, LESS LIABILITIES (0.1%) 523
---------
TOTAL NET ASSETS (100.0%) $570,970
---------
</TABLE>
* Non-Income Producing
^At December 31,1998, the aggregate cost of securities for federal income tax
purposes was $519,130,218 and the net unrealized appreciation of investments
based on that cost was $51,316,579 which is comprised of $83,932,797 aggregate
gross unrealized appreciation and $32,616,218 aggregate gross unrealized
depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B-78
<PAGE>
INDEX 500 STOCK PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (3.1%)
Air Products & Chemicals, Inc. 39,100 $ 1,564
Alcan Aluminum Limited 38,400 1,039
Allegheny Teledyne, Inc. 33,235 679
Aluminum Co. of America 31,500 2,349
Archer Daniels Midland Company 101,080 1,737
ASARCO, Inc. 6,600 99
Barrick Gold Corporation 63,000 1,229
Battle Mountain Gold Company 38,100 157
Bemis Company, Inc. 9,000 341
*Bethlehem Steel Corporation 21,500 180
B. F. Goodrich Company 12,500 448
Boise Cascade Corporation 9,500 295
Champion International 16,100 652
Cyprus Amax Minerals Co. 15,550 156
Dow Chemical Company 37,800 3,437
E.I. du Pont de Nemours & Co. 191,000 10,135
Eastman Chemical Company 13,425 601
Ecolab, Inc. 21,900 793
Engelhard Corp. 24,400 476
*FMC Corporation 5,800 325
Freeport-McMoRan Copper & Gold,
Inc. 30,400 317
Georgia Pacific Group 15,700 919
Great Lakes Chemical 10,000 400
Hercules Inc. 16,000 438
Homestake Mining Company 40,300 370
Inco Limited 28,000 296
International Flavors & Fragrances,
Inc. 18,100 800
International Paper Company 51,900 2,326
Louisiana Pacific Corporation 18,500 339
Mead Corp. 17,500 513
Monsanto Company 101,400 4,817
Morton International, Inc. 22,000 539
Nalco Chemical Company 11,100 344
Newmont Mining Corporation 28,180 509
Nucor Corp. 14,900 644
Phelps Dodge Corporation 9,900 504
Pioneer Hi-Bred International 40,800 1,102
Placer Dome, Inc. 42,200 485
Potlatch Corporation 4,900 181
PPG Industries, Inc. 29,900 1,742
Praxair 26,700 941
Reynolds Metals Company 12,200 643
Rohm and Haas Company 30,100 907
Sigma-Aldrich Corp. 17,000 499
Temple-Inland Inc. 9,400 558
Union Camp Corporation 11,700 790
Union Carbide Corporation 22,800 969
USX-U.S. Steel Group, Inc. 14,900 343
W.R. Grace & Co. 12,600 198
Westvaco Corporation 17,150 460
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (CONTINUED)
Weyerhaeuser Company 33,600 $ 1,707
Willamette Industries Inc. 1,880 630
Worthington Industries 16,050 201
------------
TOTAL 53,123
------------
CAPITAL GOODS (7.9%)
Aeroquip-Vickers Inc. 4,700 141
AlliedSignal, Inc. 94,700 4,196
AMP, Inc. 36,926 1,922
Avery Dennison Corporation 19,800 892
Ball Corporation 5,100 233
Boeing Company 170,576 5,565
Briggs & Stratton Corporation 4,000 200
Browning-Ferris Industries, Inc. 29,300 833
Case Corporation 12,600 275
Caterpillar, Inc. 61,600 2,834
Cooper Industries, Inc. 17,500 835
Corning, Inc. 39,100 1,760
Crane Co. 11,575 349
Crown Cork & Seal Company, Inc. 21,000 647
Cummins Engine Company, Inc. 6,400 227
Danaher Corporation 22,600 1,227
Deere & Company 41,300 1,368
Dover Corporation 37,700 1,381
Eaton Corporation 12,100 855
Emerson Electric Co. 74,300 4,648
Fluor Corporation 13,300 566
Foster Wheeler Corporation 6,800 90
General Dynamics Corporation 21,400 1,255
General Electric Company 549,200 56,053
Harnischfeger Industries, Inc. 7,900 80
Honeywell, Inc. 21,300 1,604
Illinois Tool Works, Inc. 42,200 2,448
Ingersoll-Rand Company 27,900 1,310
Johnson Controls, Inc. 14,300 844
Lockheed Martin Corporation 33,054 2,801
McDermott International, Inc. 10,000 247
Milacron Inc. 6,500 125
Millipore Corp. 7,300 208
Minnesota Mining & Manufacturing
Co. 68,200 4,851
Moore Corporation Ltd. 14,910 164
NACCO Industries, Inc. 1,400 129
National Service Industries, Inc. 6,900 262
*Navistar International Corporation 11,300 322
Northrop Grumman Corporation 11,600 848
*Owens-Illinois, Inc. 26,200 802
PACCAR Incorporated 13,170 542
Pall Corporation 20,900 529
Parker-Hannifin Corporation 18,675 612
Pitney Bowes, Inc. 46,300 3,059
</TABLE>
B-79
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
CAPITAL GOODS (CONTINUED)
<S> <C> <C>
Raychem Corp. 13,400 $ 433
Rockwell International Corp. 32,300 1,569
*Sealed Air Corporation 14,071 719
Tenneco Inc. 28,600 974
Textron Inc. 27,700 2,103
*Thermo Electron Corporation 28,000 474
Thomas & Betts Corporation 9,600 416
Timken Company 10,500 198
Tyco International Ltd. 108,759 8,205
United Technologies Corp. 38,500 4,187
Waste Management Inc. 96,485 4,499
------------
TOTAL 133,916
------------
COMMUNICATION SERVICES (8.4%)
*Airtouch Communications Inc. 96,900 6,989
ALLTEL Corporation 46,300 2,769
Ameritech Corporation 186,100 11,794
AT&T Corporation 304,900 22,944
Bell Atlantic Corporation 262,184 14,895
BellSouth Corporation 332,000 16,559
Frontier Corporation 28,900 983
GTE Corporation 162,700 10,972
*MCI WorldCom, Inc. 299,782 21,509
*Nextel Communications, Inc. 48,200 1,139
SBC Communications Inc. 330,398 17,718
Sprint Corporation 72,600 6,107
*Sprint PCS 70,850 1,638
U S WEST, Inc. 84,708 5,474
------------
TOTAL 141,490
------------
CONSUMER CYCLICAL (8.7%)
American Greetings Corp. 11,900 489
Armstrong World Industries Inc. 6,800 410
*Autozone, Inc. 25,800 850
Black & Decker Corporation 14,800 830
Brunswick Corporation 16,700 413
*Cendant Corporation 144,854 2,761
Centex Corporation 10,100 455
Circuit City Stores, Inc. 16,900 844
*Consolidated Stores Corporation 18,500 373
Cooper Tire & Rubber Company 13,100 268
*Costco Companies, Inc. 36,507 2,635
Dana Corporation 27,800 1,136
Dayton Hudson Corporation 74,100 4,020
Dillard 's , Inc. 18,700 531
Dollar General Corp. 31,175 737
Dow Jones & Company, Inc. 15,800 760
Dun & Bradstreet Corporation 28,800 909
*Federated Department Stores, Inc. 35,600 1,551
Fleetwood Enterprises, Inc. 5,800 202
Ford Motor Company 204,500 12,002
*Fruit of the Loom, Inc. 12,200 169
Gannet Company Inc. 48,000 3,177
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICAL (CONTINUED)
Gap, Inc. 99,450 $ 5,594
General Motors Corp. 110,400 7,901
Genuine Parts Company 30,200 1,010
Goodyear Tire & Rubber Company 26,500 1,337
H & R Block, Inc. 17,000 765
Harcourt General 12,000 638
*Harrahs Entertainment 17,100 268
Hasbro Inc. 22,250 804
Hilton Hotels Corporation 44,000 842
Home Depot, Inc. 248,096 15,180
Interpublic Group of Cos., Inc. 23,000 1,834
ITT Industries Inc. 20,000 795
J.C. Penney Company, Inc. 42,700 2,002
Jostens, Inc. 6,100 160
*Kmart Corporation 83,100 1,272
Kaufman & Broad Home Corp. 6,700 193
Knight-Ridder, Inc. 13,300 680
*Kohl's Corporation 26,700 1,640
Laidlaw Transportation Limited 55,700 560
The Limited, Inc. 38,500 1,121
Liz Claiborne, Inc. 11,100 350
Lowe's Companies, Inc. 59,400 3,041
Marriott International 42,200 1,224
Masco Corporation 57,400 1,650
Mattel, Inc. 49,388 1,127
May Department Stores Company 39,000 2,355
Maytag Corporation 15,400 959
McGraw-Hill Companies Inc. 16,800 1,712
Meredith Corporation 8,900 337
*Mirage Resorts, Inc. 30,300 453
The New York Times Company 32,000 1,110
Nike, Inc. 48,600 1,971
Nordstrom, Inc. 25,100 871
Omnicom Group Inc. 28,600 1,659
Owens Corning 9,100 322
Pep Boys - Manny, Moe & Jack 10,600 166
Pulte Corporation 7,200 200
*Reebok International Ltd. 9,400 140
Russell Corp. 6,000 122
Sears Roebuck & Co. 66,200 2,814
Service Corporation International 43,400 1,652
Sherwin-Williams Company 29,200 858
Snap-On Inc. 9,950 346
Springs Industries, Inc. 3,100 128
The Stanley Works 15,000 416
*Staples, Inc. 52,600 2,298
The TJX Companies, Inc. 53,500 1,552
Tandy Corporation 16,900 696
Times Mirror Company 14,600 818
*Toys R Us 44,100 744
Tribune Company 20,600 1,359
TRW, Inc. 20,600 1,157
</TABLE>
B-80
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
<S> <C> <C>
VF Corporation 20,500 $ 961
Venator Group, Inc. 22,400 144
Wal-Mart Stores, Inc. 377,400 30,734
Whirlpool Corporation 12,800 709
------------
TOTAL 147,273
------------
CONSUMER STAPLES (14.8%)
Adolph Coors Co. 6,100 344
Alberto-Culver Company 9,300 248
Albertson's, Inc. 41,500 2,643
American Stores Co. 46,300 1,710
Anheuser-Busch Companies, Inc. 81,400 5,342
Avon Products, Inc. 44,500 1,969
BESTFOODS 48,500 2,583
*Brown-Forman Corporation 11,600 878
Campbell Soup Company 75,800 4,169
Cardinal Health Inc. 33,750 2,561
CBS Corporation 120,800 3,956
*Clear Channel Communications, Inc. 41,900 2,284
Clorox Company 17,500 2,044
The Coca-Cola Company 416,200 27,833
Coca Cola Enterprises Inc. 68,300 2,442
Colgate-Palmolive Co. 49,900 4,634
Comcast Corp. 62,350 3,659
Conagra, Inc. 82,400 2,596
CVS Corporation 65,700 3,613
Darden Restaurant, Inc. 23,500 423
Deluxe Corp. 13,600 497
Fort James Corporation 37,200 1,488
Fortune Brands, Inc. 29,200 923
*Fred Meyer, Inc. 26,000 1,567
General Mills, Inc. 26,100 2,029
Gillette Company 189,500 9,155
Great Atlantic & Pacific Tea Co.,
Inc. 6,500 193
H.J. Heinz Company 61,150 3,463
Hershey Foods Corp. 24,200 1,505
Kellogg Company 68,700 2,344
Kimberly-Clark Corporation 92,444 5,038
*King World Productions, Inc. 12,400 365
Kroger Company 43,300 2,620
Longs Drug Stores Corp. 6,500 244
McDonald's Corporation 115,600 8,858
*MediaOne Group, Inc. 102,900 4,836
Newell Co. 27,400 1,130
PepsiCo Inc. 248,600 10,177
Philip Morris Companies, Inc. 410,500 21,962
Procter & Gamble Company 226,300 20,664
The Quaker Oats Company 23,000 1,369
RJR Nabisco Holdings Corp. 54,800 1,627
R.R. Donnelley & Sons Company 23,500 1,030
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (CONTINUED)
Ralston Purina Group 52,700 $ 1,706
Rite Aid Corporation 43,600 2,161
Rubbermaid, Inc. 25,300 795
*Safeway Inc. 82,100 5,003
Sara Lee Corporation 157,600 4,442
The Seagram Company Ltd. 66,500 2,527
Supervalue, Inc. 20,400 571
Sysco Corporation 57,000 1,564
*Tele Communications, Inc. 88,376 4,888
Time Warner Inc. 202,300 12,555
*Tricon Global Restaurants, Inc. 25,790 1,293
Tupperware 9,600 158
Unilever, N.V. 108,100 8,966
UST Incorporated 31,400 1,095
Viacom, Inc. 60,456 4,474
Walgreen Company 84,000 4,919
Walt Disney Company 345,807 10,374
Wendy's International, Inc. 21,500 469
Winn-Dixie Stores, Inc. 25,100 1,126
Wm. Wrigley Jr. Company 19,600 1,755
------------
TOTAL 249,856
------------
ENERGY (6.2%)
Amerada Hess Corporation 15,400 766
Amoco Company 161,100 9,726
Anadarko Petroleum Corporation 20,300 627
Apache Corporation 16,600 420
Ashland, Inc. 12,900 624
Atlantic Richfield Company 54,200 3,537
Baker Hughes, Inc. 53,630 949
Burlington Resource, Inc. 29,920 1,072
Chevron Corp. 110,500 9,165
Exxon Corporation 411,600 30,098
Halliburton Company 74,100 2,195
Helmerich & Payne, Inc. 8,500 165
Kerr-McGee Corporation 8,100 310
Mobil Corporation 131,900 11,492
Occidental Petroleum Corporation 59,600 1,006
*ORYX Energy Company 17,900 241
PennzEnergy Company 8,100 132
*Pennzoil-Quaker State Company 8,100 120
Phillips Petroleum Company 43,600 1,858
*Rowan Companies, Inc. 14,200 142
Royal Dutch Petroleum Co., ADR 361,900 17,326
Schlumberger Limited 91,900 4,239
Sunoco, Inc. 15,800 570
Texaco Inc. 90,400 4,780
Union Pacific Resource Group 42,392 384
Unocal Corp. 40,700 1,188
USX -Marathon Group 51,900 1,563
------------
TOTAL 104,695
------------
</TABLE>
B-81
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
FINANCE (15.5%)
<S> <C> <C>
Allstate Corporation 139,828 $ 5,401
American Express Company 77,000 7,873
American General Corporation 42,725 3,332
American International Group, Inc. 177,237 17,126
Aon Corporation 28,500 1,578
Associates First Capital
Corporation 116,910 4,954
Banc One Corporation 197,686 10,094
Bank of New York Company, Inc. 126,100 5,076
BankAmerica Corporation 293,276 17,633
BankBoston Corporation 49,700 1,935
Bankers Trust New York Corporation 16,200 1,384
BB&T Corporation 48,300 1,947
The Bear Stearns Companies, Inc. 19,200 718
Berkshire Hathaway Inc. 44 3,136
Capital One Financial Corporation 11,200 1,288
Charles Schwab Corporation 67,550 3,795
Chase Manhattan Corporation 144,612 9,843
The Chubb Corporation 28,000 1,817
CIGNA Corporation 35,800 2,768
Cincinnati Financial Corporation 28,200 1,033
Citigroup 385,841 19,099
Comerica, Inc. 26,250 1,790
Conseco Inc. 52,737 1,612
Countrywide Credit Industries, Inc. 18,700 939
Federal Home Loan Mortgage Corp. 114,500 7,378
Federal National Mortgage
Association 175,000 12,950
Fifth Third Bankcorp 45,175 3,222
First Union Corporation 163,552 9,946
Fleet Financial Group Inc. 95,860 4,284
Franklin Resources Inc. 42,700 1,366
Golden West Financial Corporation 9,700 889
Hartford Financial Services Group
Inc. 39,400 2,162
Household International Inc. 83,079 3,292
Huntington Bancshares, Inc. 35,740 1,074
J.P. Morgan & Company, Inc. 29,800 3,131
Jefferson-Pilot Corp. 17,950 1,346
KeyCorp 74,200 2,374
Lehman Brothers Holdings, Inc. 20,000 881
Lincoln National Corporation 17,000 1,391
Loews Corp. 19,400 1,906
Marsh & McLennan Companies, Inc. 43,150 2,522
MBIA, Inc. 16,800 1,101
MBNA Corp. 126,875 3,164
Mellon Bank Corporation 44,000 3,025
Mercantile Bancorp 25,700 1,185
Merrill Lynch & Co. 58,800 3,925
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
MGIC Investment Corp. 19,100 $ 760
Morgan Stanley, Dean Witter,
Discover & Co. 98,905 7,022
National City Corp. 55,700 4,038
Northern Trust Corp. 18,800 1,641
PNC Bank Corp. 50,900 2,755
Progressive Corporation 12,300 2,083
Providian Financial Corporation 24,100 1,808
Provident Companies, Inc. 22,800 946
Regions Financial Corporation 36,100 1,455
Republic New York Corporation 18,200 829
SAFECO, Inc. 23,800 1,022
SLM Holding Corporation 28,300 1,358
St. Paul Companies, Inc. 39,886 1,386
State Street Corporation 27,300 1,899
Summit Bancorp. 29,300 1,280
SunAmerica, Inc. 34,900 2,831
Suntrust Banks Inc. 35,300 2,700
Synovus Financial Corp. 44,450 1,083
Torchmark Corporation 23,700 837
Transamerica Corporation 10,600 1,224
UNUM Corporation 23,300 1,360
U.S. Bancorp 125,431 4,453
Union Planters Corporation 21,500 974
Wachovia Corporation 34,900 3,052
Waddell & Reed Financial, Inc. 5,681 132
Washington Mutual, Inc. 100,036 3,820
Wells Fargo & Company 272,930 10,900
------------
TOTAL 262,333
------------
HEALTHCARE (12.0%)
Abbott Laboratories Inc. 259,900 12,735
Aetna, Inc. 24,363 1,916
Allergan Inc. 11,000 712
*Alza Corporation 14,600 763
American Home Products Corporation 222,100 12,507
*Amgen, Inc. 42,900 4,486
Bausch & Lomb, Inc. 9,400 564
Baxter International, Inc. 48,200 3,100
Becton, Dickinson & Company 41,700 1,780
Biomet, Inc. 18,900 761
*Boston Scientific Corp. 66,100 1,772
Bristol-Myers Squibb Company 167,900 22,467
C.R. Bard, Inc. 9,500 470
Columbia/HCA Healthcare Corporation 108,900 2,695
Eli Lilly & Company 185,900 16,522
Guidant Corporation 25,500 2,811
*HCR Manor Care Inc. 18,300 538
*HEALTHSOUTH Corporation 71,300 1,101
Humana, Inc. 28,200 502
</TABLE>
B-82
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
HEALTHCARE (CONTINUED)
<S> <C> <C>
Johnson & Johnson 227,000 $ 19,040
Mallinckrodt, Inc. 12,300 379
Medtronic, Inc. 79,200 5,881
Merck & Co., Inc. 201,000 29,685
Pfizer, Inc. 220,500 27,659
Pharmacia & Upjohn Inc. 85,705 4,853
Schering-Plough Corporation 247,800 13,691
*St. Jude Medical, Inc. 14,200 393
*Tenet Healthcare Corp. 52,000 1,365
*United Healthcare Corp. 33,000 1,421
Warner-Lambert Company 138,600 10,421
------------
TOTAL 202,990
------------
TECHNOLOGY (18.5%)
*3Com Corporation 60,600 2,716
Adobe Systems, Inc. 11,300 528
*Advanced Micro Devices, Inc. 24,300 703
*Andrew Corporation 14,537 240
*Apple Computer, Inc. 22,700 929
*Applied Materials, Inc. 61,800 2,638
*Ascend Communications, Inc. 36,400 2,393
Autodesk, Inc. 7,900 337
Automatic Data Processing, Inc. 50,800 4,074
*BMC Software, Inc. 34,800 1,551
*Cabletron Systems, Inc. 27,800 233
*Ceridian Corp. 12,200 852
*Cisco Systems Inc. 262,425 24,356
Compaq Computer Corporation 282,009 11,827
Computer Associates International,
Inc. 94,712 4,037
*Computer Sciences Corp. 26,700 1,720
*Data General Corporation 8,200 135
*Dell Computer Corp. 213,700 15,640
EG&G, Inc. 7,800 217
*EMC Corporation 84,300 7,166
Eastman Kodak Company 54,500 3,924
Electronic Data Systems Corporation 83,100 4,176
Equifax, Inc. 25,000 855
First Data Corporation 75,400 2,389
*Gateway 2000, Inc. 26,300 1,346
*General Instrument Corporation 28,300 960
Harris Corporation 13,500 494
HBO & Company 78,500 2,252
Hewlett-Packard Company 175,500 11,989
IMS Health Incorporated 28,000 2,112
Ikon Office Solutions 22,900 196
Intel Corporation 283,600 33,624
International Business Machines
Corporation 157,500 29,098
*KLA- Tencor Corporation 14,700 638
*LSI Logic Corp. 23,800 384
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Lucent Technologies Inc. 221,980 $ 24,418
*Micron Technology 36,000 1,820
*Microsoft Corporation 415,900 57,680
Motorola, Inc. 101,000 6,167
*National Semiconductor Corporation 27,700 374
Northern Telecom Limited 110,100 5,519
*Novell, Inc. 59,700 1,082
*Oracle Corporation 164,300 7,085
*Parametric Technology Company 45,900 752
Paychex, Inc. 27,500 1,415
*Peoplesoft, Inc. 38,900 737
Perkin-Elmer Corporation 8,300 810
Polaroid Corporation 7,300 136
Raytheon Company- Class B 57,200 3,046
Scientific-Atlanta, Inc. 12,700 290
*Seagate Technology Inc. 41,000 1,240
Shared Medical Systems Corp. 4,500 224
*Silicon Graphics 31,900 411
*Sun Microsystems Inc. 63,900 5,471
Tektronix, Inc. 7,950 239
*Tellabs Inc. 32,700 2,242
Texas Instruments, Inc. 65,900 5,639
*Unisys Corporation 42,900 1,477
W.W. Grainger, Inc. 16,500 687
Xerox Corporation 55,500 6,549
------------
TOTAL 312,239
------------
TRANSPORTATION (.9%)
*AMR Corporation 30,800 1,829
Burlington Northern Santa Fe 79,821 2,694
CSX Corporation 36,900 1,531
Delta Air Lines Inc. 24,100 1,253
*Federal Express Corp. 24,860 2,213
Norfolk Southern Corporation 64,000 2,028
Ryder System, Inc. 12,400 322
Southwest Airlines Co. 56,700 1,272
Union Pacific Corporation 41,700 1,879
*USAir Group, Inc. 14,800 770
------------
TOTAL 15,791
------------
UTILITIES (3.1%)
The AES Corporation 29,700 1,407
Ameren Corporation 23,200 990
American Electric Power Co. Inc. 32,200 1,515
Baltimore Gas & Electric Co. 25,100 775
Carolina Power & Light Company 25,500 1,200
Central & South West Corporation 35,900 985
Cinergy Corporation 26,717 918
Coastal Corp. 35,900 1,254
Columbia Energy Group 14,050 811
Consolidated Edison Co. of New York 39,500 2,089
</TABLE>
B-83
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
COMMON STOCK (99.1%) SHARES (000'S)
- -------------------------------------------------------------
UTILITIES (CONTINUED)
<S> <C> <C>
Consolidated Natural Gas Company 16,200 $ 875
Dominion Resources Inc. 33,200 1,552
DTE Energy Company 24,500 1,050
Duke Energy Corp. 60,965 3,906
Eastern Enterprises 3,800 166
Edison International 59,700 1,664
Enron Corp 55,600 3,173
Entergy Corporation 41,600 1,295
FirstEnergy Corporation 40,000 1,303
FPL Group, Inc. 30,600 1,886
GPU, Inc. 21,600 954
Houston Industries Incorporated 49,962 1,605
New Century Energies, Inc. 18,800 917
*Niagara Mohawk Power Corporation 31,600 510
Nicor, Inc. 8,100 342
Northern States Power Company 25,600 710
ONEOK, Inc. 5,300 191
P P & L Resources, Inc. 25,534 712
PacifiCorp 50,200 1,057
PECO Energy Company 37,600 1,565
Peoples Energy Corporation 5,900 235
PG&E Corp. 64,500 2,032
Public Service Enterprise Group,
Inc. 39,200 1,568
*Sempra Energy 40,602 1,030
Sonat Inc. 18,600 503
Southern Company 117,800 3,424
Texas Utilities Company 47,215 2,204
UNICOM Corp. 36,600 1,411
Williams Companies, Inc. 71,700 2,236
------------
TOTAL 52,020
------------
TOTAL COMMON STOCK 1,675,726
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
MONEY MARKET INVESTMENTS (0.7%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (0.1%)
+FHLM, 4.92%, 2/26/99 1,000,000 $ 992
+FHLM, 5.11%, 1/08/99 500,000 500
+FNMA, 4.98%, 3/15/99 100,000 99
------------
TOTAL 1,591
------------
FINANCE (0.5%)
+Asset Securitization, 5.6%,
1/28/99 2,000,000 1,992
+CXC Incorporated, 5.375%, 1/26/99 4,750,000 4,732
+Triple A One Funding, 5.55%,
1/19/99 2,000,000 1,994
------------
TOTAL 8,718
------------
SHORT TERM BUSINESS CREDIT (0.1%)
American Express Credit, 5.0%,
1/8/99 2,200,000 2,198
------------
TOTAL MONEY MARKET INVESTMENTS 12,507
------------
TOTAL INVESTMENTS (99.8%) (COST
$939,455,194)^ 1,688,233
OTHER ASSETS, LESS LIABILITIES
(0.2%) 2,447
------------
TOTAL NET ASSETS (100.0%) $ 1,690,680
------------
</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, 1998 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUER CONTRACTS DATE (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 40 3/99 $324
(Total Notional Value at
12/31/98, $12,130,969)
</TABLE>
^At December 31, 1998, the aggregate cost of securities for federal income tax
purposes was $939,535,329 and the net unrealized appreciation of investments
based on that cost was $748,698,082 which is comprised of $769,501,002
aggregate gross unrealized appreciation and $20,802,920 aggregate gross
unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B-84
<PAGE>
BALANCED PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (7.4%)
AEROSPACE AND DEFENSE (0.1%)
Lockheed Corporation, 6.75%,
3/15/03 3,000,000 $ 3,117
------------
BANK HOLDING COMPANIES (0.4%)
Banco Montevideo, 8.4%,
04/30/08 (144A) 6,250,000 5,367
BT Institutional Capital Trust,
7.75%, 12/01/26 (144A) 1,000,000 1,031
Security Capital Industrial
Trust, 7.3%, 5/15/01 8,000,000 8,260
------------
TOTAL 14,658
------------
BANKING & FINANCE (0.7%)
Associates Corp. of North
America, 7.95%, 2/15/10 5,550,000 6,345
Lehman Brothers Holdings, Inc.,
8.8%, 3/01/15 5,000,000 5,740
Morgan Stanley Capital, 7.387%,
5/15/06 6,925,000 7,486
Nations Bank Lease, 7.442%,
11/18/05 2,000,000 2,122
------------
TOTAL 21,693
------------
CABLE & MEDIA (0.2%)
Seagram Joseph E & S, 7.60%,
12/15/28 5,000,000 5,033
------------
CHEMICALS AND ALLIED PRODUCTS (0.3%)
Dow Capital B.V., 8.5%, 6/8/10 8,200,000 9,790
------------
COMMUNICATIONS (0.2%)
Telecommunications, Inc.,
7.375%, 2/15/00 8,000,000 8,182
------------
DURABLE GOODS (0.2%)
Tata Engineering & Locomotive,
7.875%, 07/15/07 (144A) 6,500,000 5,404
------------
ELECTRIC SERVICES (1.8%)
Columbia Gas System Inc.,
7.32%, 11/28/10 7,571,000 8,061
Comed Financing II, 8.5%,
1/15/27 3,000,000 3,334
Dayton Power & Light Company,
8.15%, 1/15/26 5,750,000 6,296
Niagra Mohawk Power, 7.0%,
10/01/00 3,000,000 3,041
Niagra Mohawk Power, 7.25%,
10/01/02 1,500,000 1,537
Ohio Edison Company, 7.375%,
9/15/02 3,665,000 3,880
PECO Energy Company, 7.75%,
3/1/23 8,850,000 9,298
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
ELECTRIC SERVICES (CONTINUED)
Public Service Electric & Gas
Co., 6.875%, 1/1/03 9,000,000 $ 9,458
Southern California Edison Co.,
7.25%, 3/1/26 10,000,000 10,233
Texas Utilities Electric Co.,
7.875%, 3/1/23 4,000,000 4,281
------------
TOTAL 59,419
------------
ENERGY (0.3%)
Barrett Resources Corporation,
7.55%, 2/01/07 5,000,000 4,812
Pemex Finance Ltd., 9.15%,
11/15/18 5,000,000 4,963
------------
TOTAL 9,775
------------
FOREIGN BANKS - BRANCHES & AGENCIES (0.2%)
Fuji Bank, Ltd., 9.87%,
12/31/49 (144A) 7,700,000 5,621
------------
FOOD AND BEVERAGE (0.3%)
Coca Cola Enterprises, Inc.,
8%, 1/4/05 10,000,000 11,278
------------
GENERAL MERCHANDISE STORES (0.3%)
May Department Stores Company,
6.7%, 9/15/28 6,150,000 6,371
May Department Stores Company,
7.45%, 10/15/16 4,000,000 4,480
------------
TOTAL 10,851
------------
INSURANCE (0.1%)
Prudential Insurance Co.,
6.375%, 7/23/06 2,500,000 2,574
------------
LIFE SCIENCES /AGRICULTURE (0.2%)
Monsanto Co., 6.60%, 12/01/28 6,900,000 6,887
------------
MOTION PICTURE (0.5%)
News America Holdings Inc.,
8.45%, 8/1/34 10,000,000 11,595
Time Warner Entertainment Inc.,
8.375%, 3/15/23 3,000,000 3,669
Time Warner Entertainment Inc.,
8.375%, 7/15/33 1,500,000 1,854
------------
TOTAL 17,118
------------
MOTOR VEHICLES (0.4%)
General Motors Acceptance
Corp., 6.625%, 10/1/02 5,000,000 5,169
General Motors Corporation,
8.8%, 3/1/21 6,500,000 7,925
------------
TOTAL 13,094
------------
RAILROAD (0.3%)
Burlington Northern, 7.25%,
8/01/97 5,650,000 6,004
</TABLE>
B-85
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
RAILROAD (CONTINUED)
<S> <C> <C>
Union Pacific Corp., 7.25%,
11/01/08 2,250,000 $ 2,412
------------
TOTAL 8,416
------------
RETAILERS (0.3)
LB Mortgage Trust, 8.396%,
6/02/10 9,013,920 10,644
------------
TECHNOLOGY (0.1%)
International Business
Machines, 6.22%, 8/01/27 3,000,000 3,136
------------
TELEPHONE COMMUNICATIONS (0.1%)
Cox Communications, Inc.,
6.80%, 8/01/28 1,000,000 1,047
GTE Corporation, 6.94%, 4/15/28 3,000,000 3,247
------------
TOTAL 4,294
------------
TEXTILES (0.1%)
++Polysindo International
Finance, 11.375%, 6/15/06 6,500,000 2,080
------------
TOBACCO (0.2%)
Philip Morris Companies, 9.25%,
2/15/00 1,000,000 1,041
RJR Nabisco Inc., 8.625%,
12/1/02 4,000,000 4,072
------------
TOTAL 5,113
------------
UTILITY (0.1%)
Atlantic City Electric Company,
6.625%, 8/1/13 4,000,000 4,179
------------
TOTAL CORPORATE BONDS 242,356
------------
GOVERNMENT (DOMESTIC AND FOREIGN) AND AGENCY BONDS (19.3%)
FOREIGN GOVERNMENT BONDS (0.9%)
**Hellenic Republic, 7.50%,
5/20/13 3,000,000,000 11,295
**Hellenic Republic, 8.80%,
6/19/07 1,000,000,000 3,978
Province of Quebec, 6.5%,
1/17/06 7,500,000 7,836
Republic of Korea, 8.875%,
4/15/08 5,650,000 5,801
------------
TOTAL 28,910
------------
FEDERAL GOVERNMENT AND AGENCIES (18.4%)
Federal Farm Credit, 6.51%,
01/07/08 8,000,000 8,000
Federal Home Loan Mortgage
Corporation, 6.5%, 10/01/02 16,995,112 17,269
Federal Home Loan Mortgage
Corporation, 7.0%, 4/06/02 7,250,000 7,420
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Federal Home Loan Mortgage
Corporation, 7.5%, 9/29/01 18,184,121 $ 18,669
Federal National Mortgage
Assoc., 5.970%, 10/1/08 1,795,194 1,830
Federal National Mortgage
Assoc., 6.07%, 10/1/08 7,136,835 7,355
Federal National Mortgage
Assoc., 6.240%, 02/01/06 4,905,514 5,060
Federal National Mortgage
Assoc., 6.265%, 10/01/08 5,739,806 5,967
Federal National Mortgage
Assoc., 6.315%, 03/01/06 5,178,356 5,363
Federal National Mortgage
Assoc., 6.34%, 02/01/08 4,235,545 4,414
Federal National Mortgage
Assoc., 6.43%, 06/01/08 7,444,333 7,809
Federal National Mortgage
Assoc., 6.500%, 09/25/05 5,689,005 5,687
Federal National Mortgage
Assoc., 6.750% 11/01/07 3,093,754 3,306
Federal National Mortgage
Assoc., 6.750%, 04/25/18 5,596,921 5,816
Federal National Mortgage
Assoc., 6.750%, 12/25/23 6,500,000 6,705
Federal National Mortgage
Assoc., 6.834%, 07/01/03 3,213,826 3,327
Federal National Mortgage
Assoc., 6.895%, 05/01/06 6,053,149 6,459
Federal National Mortgage
Assoc., 6.900%, 04/01/06 2,440,103 2,603
Federal National Mortgage
Assoc., 6.960%, 10/01/07 4,454,611 4,813
Federal National Mortgage
Assoc., 7.000%, 06/01/03 4,193,589 4,288
Federal National Mortgage
Assoc., 7.000%, 06/25/10 8,070,000 8,038
Federal National Mortgage
Assoc., 7.000%, 04/01/26 18,905,967 19,299
Federal National Mortgage
Assoc., 7.025%, 08/01/05 1,941,557 2,074
Federal National Mortgage
Assoc., 7.045%, 08/01/05 7,622,512 8,139
Federal National Mortgage
Assoc., 7.120%, 11/01/03 982,485 1,038
Federal National Mortgage
Assoc., 7.250%, 05/01/04 1,568,082 1,677
Federal National Mortgage
Assoc., 8.400%, 02/25/09 10,910,000 12,165
Federal National Mortgage
Assoc., 11.000%, 12/01/12 257,640 283
Federal National Mortgage
Assoc., 11.000%, 09/01/17 1,821,316 2,012
</TABLE>
B-86
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
<S> <C> <C>
Federal National Mortgage
Assoc., 11.000%, 12/01/17 331,515 $ 366
Federal National Mortgage
Assoc., 11.000%, 02/01/18 692,895 767
Federal National Mortgage
Assoc., 11.500%, 04/01/18 1,292,786 1,452
Federal National Mortgage
Assoc., 12.000%, 09/01/12 1,925,478 2,170
Federal National Mortgage
Assoc., 12.000%, 12/01/12 368,368 418
Federal National Mortgage
Assoc., 12.000%, 09/01/17 511,219 583
Federal National Mortgage
Assoc., 12.000%, 10/01/17 886,677 1,009
Federal National Mortgage
Assoc., 12.000%, 12/01/17 617,462 703
Federal National Mortgage
Assoc., 12.000%, 02/01/18 656,910 749
Federal National Mortgage
Assoc., 12.500%, 04/01/18 594,592 680
Federal National Mortgage
Assoc., 13.000%, 11/01/12 372,594 432
Federal National Mortgage
Assoc., 13.000%, 11/01/17 656,543 761
Federal National Mortgage
Assoc., 13.000%, 12/01/17 276,407 319
Federal National Mortgage
Assoc., 13.000%, 02/01/18 959,656 1,113
Federal National Mortgage
Assoc., 14.000%, 12/01/17 265,482 316
Government National Mortgage
Assoc., 7.00%, 05/15/23 11,437,145 11,708
Government National Mortgage
Assoc., 7.00%, 06/15/23 740,529 758
Government National Mortgage
Assoc., 7.00%, 07/15/23 1,172,190 1,200
Government National Mortgage
Assoc., 7.00%, 08/15/23 19,805 20
Government National Mortgage
Assoc., 7.00%, 09/15/23 589,936 604
Government National Mortgage
Assoc., 7.00%, 10/15/23 452,921 464
Government National Mortgage
Assoc., 7.00%, 11/15/23 1,629,974 1,668
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Government National Mortgage
Assoc., 7.00%, 12/15/27 323,665 $ 331
Government National Mortgage
Assoc., 7.00%, 1/15/28 458,923 469
Government National Mortgage
Assoc., 7.00%, 2/15/28 134,915 138
Government National Mortgage
Assoc., 7.00%, 3/15/28 314,639 322
Government National Mortgage
Assoc., 7.00%, 4/15/28 1,077,935 1,103
Government National Mortgage
Assoc., 7.00%, 5/15/28 1,269,358 1,299
Government National Mortgage
Assoc., 7.00%, 6/15/28 4,387,264 4,489
Government National Mortgage
Assoc., 7.00%, 7/15/28 5,115,423 5,234
Government National Mortgage
Assoc., 7.50%, 1/15/23 828,163 854
Government National Mortgage
Assoc., 7.50%, 6/15/23 464,375 479
Government National Mortgage
Assoc., 7.50%, 6/15/24 10,787 11
Government National Mortgage
Assoc., 7.50%, 7/15/24 431,075 444
Government National Mortgage
Assoc., 7.50%, 8/15/25 17,342 18
Government National Mortgage
Assoc., 7.50%, 9/15/25 325,992 336
Government National Mortgage
Assoc., 7.50%, 11/15/25 16,148 17
Government National Mortgage
Assoc., 7.50%, 12/15/25 574,872 592
Government National Mortgage
Assoc., 7.50%, 1/15/26 18,326 19
</TABLE>
B-87
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
<S> <C> <C>
Government National Mortgage
Assoc., 7.50%, 3/15/26 698,207 $ 719
Government National Mortgage
Assoc., 7.50%, 6/15/26 1,361,455 1,403
Government National Mortgage
Assoc., 7.50%, 9/15/26 18,315 19
Government National Mortgage
Assoc., 7.50%, 10/15/26 113,371 117
Government National Mortgage
Assoc., 7.50%, 12/15/26 908,194 936
Government National Mortgage
Assoc., 7.50%, 1/15/27 59,524 61
Government National Mortgage
Assoc., 7.50%, 2/15/27 583,673 602
Government National Mortgage
Assoc., 7.50%, 3/15/27 49,163 51
Government National Mortgage
Assoc., 7.50%, 4/15/27 1,850,440 1,908
Government National Mortgage
Assoc., 7.50%, 5/15/27 729,156 752
Government National Mortgage
Assoc., 7.50%, 7/15/27 763,952 788
Government National Mortgage
Assoc., 7.50%, 12/15/27 264,108 272
Government National Mortgage
Assoc., 7.50%, 7/15/28 861,165 888
Government National Mortgage
Assoc., 8.00%, 9/15/24 537,069 558
Government National Mortgage
Assoc., 8.00%, 3/15/26 307,611 319
Government National Mortgage
Assoc., 8.00%, 5/15/26 638,699 663
Government National Mortgage
Assoc., 8.00%, 6/15/26 548,036 569
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Government National Mortgage
Assoc., 8.00%, 7/15/26 1,450,312 $ 1,505
Government National Mortgage
Assoc., 8.00%, 8/15/26 437,431 454
Government National Mortgage
Assoc., 8.00%, 9/15/26 616,170 640
Government National Mortgage
Assoc., 8.00%, 10/15/26 1,016,409 1,054
Government National Mortgage
Assoc., 8.00%, 12/15/26 491,569 510
Government National Mortgage
Assoc., 8.00%, 4/15/27 1,584,497 1,646
Government National Mortgage
Assoc., 8.00%, 6/15/27 573,766 596
Government National Mortgage
Assoc., 8.00%, 7/15/27 210,499 219
Government National Mortgage
Assoc., 8.00%, 7/20/28 4,226,589 4,370
Government National Mortgage
Assoc., 8.50%, 05/15/22 5,163 6
Government National Mortgage
Assoc., 8.50%, 09/15/22 8,869 9
Government National Mortgage
Assoc., 8.50%, 10/15/22 46,432 50
Government National Mortgage
Assoc., 8.50%, 12/15/22 34,015 36
Government National Mortgage
Assoc., 8.50%, 06/15/24 11,957 13
Government National Mortgage
Assoc., 8.50%, 07/15/24 55,154 59
Government National Mortgage
Assoc., 8.50%, 08/15/24 63,636 68
Government National Mortgage
Assoc., 8.50%, 12/15/24 11,871 13
</TABLE>
B-88
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
<S> <C> <C>
Government National Mortgage
Assoc., 8.50%, 01/15/25 92,498 $ 98
Government National Mortgage
Assoc., 8.50%, 02/15/25 85,321 91
Government National Mortgage
Assoc., 8.50%, 11/15/25 12,506 13
Government National Mortgage
Assoc., 8.50%, 01/15/26 51,599 55
Government National Mortgage
Assoc., 8.50%, 02/15/26 15,602 17
Government National Mortgage
Assoc., 8.50%, 03/15/26 32,899 35
Government National Mortgage
Assoc., 8.50%, 04/15/26 102,232 109
Government National Mortgage
Assoc., 8.50%, 05/15/26 23,193 25
Government National Mortgage
Assoc., 11.00%, 01/15/18 8,777,227 9,909
Rural Housing Trust - Class D,
6.33%, 4/1/26 5,730,281 5,789
U.S. Treasury, 3.625%, 07/15/02 2,537,375 2,520
U.S. Treasury, 3.625%, 04/15/28 6,500,000 6,333
U.S. Treasury, 4.000%, 10/31/00 11,650,000 11,526
U.S. Treasury, 4.750%, 11/15/08 3,000,000 3,023
U.S. Treasury, 5.375%, 01/31/00 3,000,000 3,023
U.S. Treasury, 5.375%, 06/30/03 4,800,000 4,937
U.S. Treasury, 5.500%, 08/15/28 4,820,000 5,052
U.S. Treasury, 5.500%, 02/29/00 150,000,000 151,405
U.S. Treasury, 5.500%, 01/31/03 3,500,000 3,602
U.S. Treasury, 5.500%, 03/31/03 15,500,000 15,965
U.S. Treasury, 5.500%, 02/15/08 175,000 186
U.S. Treasury, 5.625%, 04/30/00 10,500,000 10,628
U.S. Treasury, 5.625%, 12/31/99 5,000,000 5,048
U.S. Treasury, 5.625%, 12/31/02 2,300,000 2,375
U.S. Treasury, 6.000%, 07/31/02 4,000,000 4,169
U.S. Treasury, 6.125%, 08/15/07 9,000,000 9,835
U.S. Treasury, 5.625%, 5/15/08 34,000,000 36,274
U.S. Treasury, 6.375%, 05/15/99 45,600,000 45,871
U.S. Treasury, 7.250%, 08/15/04 6,000,000 6,748
Vendee Mortgage Trust, 6.5%,
6/07/08 4,500,000 4,554
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Vendee Mortgage Trust, 0.495%,
6/15/23 82,612,291 $ 1,419
------------
TOTAL 603,807
------------
TOTAL GOVERNMENT BONDS 632,717
------------
MORTGAGE/ASSET BACKED SECURITIES (7.0%)
AUTO-RELATED (0.6%)
Daimler-Benz Vehicle Trust -
Class A, 5.85%, 7/20/03 1,044,452 1,049
Eaglemark Trust - Class A,
6.75%, 11/15/02 2,826,860 2,869
Fleetwood Credit Corporation
Grantor Trust - Class A, 6.4%,
05/15/13 2,379,414 2,421
Team Fleet Financing
Corporation - Class A, 6.65%,
12/15/02 (144A) 11,800,000 11,918
Team Fleet Financing
Corporation - Class A, 7.35%,
5/15/03 (144A) 3,000,000 3,086
------------
TOTAL 21,343
------------
BANKING AND FINANCE (0.0%)
Bankers Trust Co., 6.255%,
1/13/99 227,505 228
------------
CREDIT CARD (0.8%)
Charming Shoppes Master Trust -
Class A, 7%, 4/15/03 5,000,000 5,026
Iroquois Trust - Class A,
6.68%, 11/10/03 (144A) 15,000,000 15,107
Iroquois Trust - Class A,
6.752%, 06/25/07 (144A) 4,750,000 4,795
------------
TOTAL 24,928
------------
COMMERCIAL MORTGAGES (4.0%)
Asset Securitization
Corporation - Class CS1,
1.257%, 11/13/26 IO 24,196,896 868
Asset Securitization
Corporation - Class PS1,
1.367%, 02/14/41 IO 22,468,376 2,315
BankBoston Marine Asset Backed
Trust - Class A6, 6.64%,
08/15/10 7,000,000 7,217
Chase Commercial Mortgage
Securities Corp. - Class A2,
6.6%, 11/19/07 8,500,000 8,849
Chase Commercial Mortgage
Securities Corp. - Class B,
6.6%, 11/19/07 2,500,000 2,557
Citibank Credit Card Master
Trust I - Class A, 0%,
08/15/06 17,000,000 12,355
</TABLE>
B-89
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
COMMERCIAL MORTGAGES (CONTINUED)
<S> <C> <C>
Commercial Mortgage Acceptance
Corporation - Class B, 6.646%,
12/15/07 2,500,000 $ 2,553
Credit Suisse First Boston
Mortgage Securities Corp. -
Class A2, 7.26%, 6/20/07
(144A) 3,169,613 3,333
Credit Suisse First Boston
Mortgage Securities Corp. -
Class B, 7.28%, 6/20/07 (144A) 3,250,000 3,430
Credit Suisse First Boston
Mortgage Securities Corp. -
Class B, 9.5465%, 4/25/25
(144A) 3,000,000 3,418
Credit Suisse First Boston
Mortgage Securities Corp. -
Class D, 7.46%, 05/20/29
(144A) 6,000,000 6,089
Credit Suisse First Boston
Mortgage Securities Corp. -
Class D, 9.5465%, 4/25/25
(144A) 2,047,000 2,254
Criimi Mae Commercial Mortgage
Trust, 7.0%, 11/02/06 6,500,000 6,194
DLJ Mortgage Acceptance
Corporation - Class CF1,
0.718%, 02/18/31 IO 255,065,779 10,205
DLJ Mortgage Acceptance
Corporation - Class S, 0.357%,
10/15/17 (144A) IO 18,782,120 428
DLJ Mortgage Acceptance, 8.10%,
6/18/04 2,417,933 2,626
DLJ Mortgage Acceptance, 8.10%,
6/18/04 1,650,000 1,796
First Union-Lehman Brothers
Commerical Mortgage Trust -
Class C, 7.44%, 04/18/07 2,500,000 2,653
GMAC Commerical Mortgage
Securities, Inc. - Class C,
7.81%, 10/15/11 (144A) 7,000,000 7,057
Kmart CMBS Financing, Inc. -
Class C, 6.2466%, 03/01/07
(144A) 3,500,000 3,494
Kmart CMBS Financing, Inc. -
Class D, 6.6466%, 03/01/07
(144A) 4,500,000 4,486
Merrill Lynch Mortgage
Investors, Inc. - Class C,
7.12%, 06/18/29 6,000,000 6,253
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGES (CONTINUED)
Merrill Lynch Mortgage
Investors, Inc. - Class C,
8.9726%, 11/25/20 5,845,000 $ 5,858
Merrill Lynch Mortgage
Investors, Inc. - Class E,
8.3346% , 06/25/22 (144A) 2,000,000 1,947
Midland Realty Acceptance Corp.
- Class AEC, 1.389%, 1/25/29
(144A) IO 27,860,189 1,838
Nomura Asset Securities Corp. -
Class A2, 6.9918%, 03/17/28 15,000,000 15,307
Nomura Asset Securities Corp. -
Class A4, 7.5718%, 03/17/28 2,200,000 2,121
Red Mountain Funding LLC -
Class E, 7.365%, 01/15/19
(144A) 1,500,000 1,358
Red Mountain Funding LLC -
Class F, 7.471%, 01/15/19
(144A) 1,800,000 1,460
------------
TOTAL 130,319
------------
FRANCHISE LOAN RECEIVABLES (0.4%)
EMAC Owner Trust - Class A2,
6.38%, 04/15/07 (144A) 6,000,000 5,983
EMAC Owner Trust, 1.378%,
01/15/25 IO (144A) 39,494,414 2,863
Global Franchise Trust, 6.349%,
04/10/04 4,798,408 4,876
------------
TOTAL 13,722
------------
HOME EQUITY LOAN (0.1%)
Amresco Residential Securities
- Class A2, 6.245%, 4/25/22 2,500,000 2,508
------------
MANUFACTURED HOUSING (0.1%)
Vanderbilt Mortgage and
Finance, Inc. - Class 1A4,
7.19%, 02/07/14 2,500,000 2,599
------------
OTHER ASSET BACKED (0.5%)
FMAC Loan Receivables Trust -
Class A, 6.20%, 09/15/20
(144A) 5,439,364 5,451
Harley Davidson Eaglemark,
5.87%, 04/15/04 1,900,000 1,924
Heilig-Meyers Master Trust -
Class A, 6.125%, 01/20/07
(144A) 6,500,000 6,496
Nations Credit Grantor Trust -
Class A1, 6.35%, 04/15/14 2,090,918 2,118
</TABLE>
B-90
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
BONDS (33.9%) PAR (000'S)
- -------------------------------------------------------------
OTHER ASSET BACKED (CONTINUED)
<S> <C> <C>
Newcourt Equipment - Class B,
6.764%, 09/20/04 (144A) 1,378,694 $ 1,377
Newcourt Equipment - Class C,
7.734%, 09/20/04 (144A) 1,102,955 1,100
------------
TOTAL 18,466
------------
RESIDENTIAL MORTGAGES (0.3%)
BCF L L C Mortgage Pass Thru
Certificate - Class B3, 7.75%,
3/25/37 (144A) 4,874,004 4,804
Blackrock Capital Finance LP,
Class B3, 7.25%, 11/25/28
(144A) 5,871,575 5,306
------------
TOTAL 10,110
------------
UTILITY (0.2%)
Comed Transitional, 5.74%,
12/16/08 5,500,000 5,532
------------
TOTAL MORTGAGE/ASSET BACKED
SECURITIES 229,755
------------
MUNICIPAL BONDS (0.2%)
New Jersey Economic Development
Authority, 0.00%, 2/15/25 17,000,000 3,199
New Jersey Economic Development
Authority, 0.00%, 2/15/26 11,000,000 1,940
New Jersey Economic Development
Authority, 7.425%, 2/15/29 2,250,000 2,641
------------
TOTAL MUNICIPAL BONDS 7,780
------------
TOTAL BONDS 1,112,608
------------
<CAPTION>
COMMON STOCK (50.0%)
- -------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (1.6%)
Air Products & Chemicals, Inc. 38,300 1,532
Alcan Aluminum Limited 37,600 1,018
Allegheny Teledyne, Inc. 32,562 665
Aluminum Co. of America 30,900 2,304
Archer Daniels Midland Company 99,056 1,703
ASARCO, Inc. 6,600 99
Barrick Gold Corporation 61,700 1,203
Battle Mountain Gold Company 38,000 157
Bemis Company, Inc. 8,800 334
*Bethlehem Steel Corporation 21,400 179
B.F. Goodrich Company 12,200 438
Boise Cascade Corporation 9,300 288
Champion International 15,800 640
Cyprus Amax Minerals Co. 15,500 155
Dow Chemical Company 37,000 3,365
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (CONTINUED)
E.I. du Pont de Nemours &
Company 187,100 $ 9,928
Eastman Chemical Company 13,075 585
Ecolab, Inc. 21,400 774
Engelhard Corp. 23,900 466
*FMC Corporation 5,700 319
Freeport-McMoRan Copper & Gold,
Inc. 29,700 310
Georgia Pacific Group 15,400 902
Great Lakes Chemical 9,800 392
Hercules, Inc. 15,600 427
Homestake Mining Company 39,500 363
Inco Limited 27,400 289
International Flavors &
Fragrances, Inc. 17,700 782
International Paper Company 50,800 2,276
Louisiana Pacific Corporation 18,100 331
Mead Corp. 17,200 504
Monsanto Company 99,300 4,717
Morton International, Inc. 21,500 527
Nalco Chemical Company 10,900 338
Newmont Mining Corporation 27,630 499
Nucor Corp. 14,600 631
Phelps Dodge Corporation 9,700 493
Pioneer Hi-Bred International 39,900 1,077
Placer Dome, Inc. 41,300 475
Potlatch Corporation 4,800 177
PPG Industries, Inc. 29,300 1,707
Praxair 26,100 920
Reynolds Metals Company 11,900 627
Rohm and Haas Company 29,500 889
Sigma-Aldrich Corp. 16,600 488
Temple-Inland Inc. 9,200 546
Union Camp Corporation 11,500 776
Union Carbide Corporation 22,400 952
USX-U.S. Steel Group, Inc. 14,600 336
W.R. Grace & Co. 12,500 196
Westvaco Corporation 16,750 449
Weyerhaeuser Company 32,900 1,672
Willamette Industries, Inc. 18,400 616
Worthington Industries 16,000 200
------------
TOTAL 52,036
------------
CAPITAL GOODS (4.0%)
Aeroquip-Vickers, Inc. 4,700 141
AlliedSignal, Inc. 92,800 4,112
AMP, Inc. 36,169 1,883
Avery Dennison Corporation 19,300 870
Ball Corporation 5,000 229
Boeing Company 167,018 5,449
Briggs & Stratton Corporation 4,000 200
Browning-Ferris Industries,
Inc. 28,700 816
</TABLE>
B-91
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
CAPITAL GOODS (CONTINUED)
<S> <C> <C>
Case Corporation 12,300 $ 268
Caterpillar, Inc. 60,300 2,774
Cooper Industries, Inc. 17,100 815
Corning, Inc. 38,300 1,724
Crane Co. 11,325 342
Crown Cork & Seal Company, Inc. 20,600 635
Cummins Engine Company, Inc. 6,400 227
Danaher Corporation 22,100 1,200
Deere & Company 40,500 1,342
Dover Corporation 36,900 1,351
Eaton Corporation 11,800 834
Emerson Electric Co. 72,800 4,555
Fluor Corporation 13,000 553
Foster Wheeler Corporation 6,700 88
General Dynamics Corporation 20,900 1,225
General Electric Company 537,800 54,889
Harnischfeger Industries, Inc. 7,900 80
Honeywell, Inc. 20,900 1,574
Illinois Tool Works, Inc. 41,300 2,395
Ingersoll-Rand Company 27,350 1,284
Johnson Controls, Inc. 14,000 826
Lockheed Martin Corporation 32,361 2,743
McDermott International, Inc. 9,800 242
Milacron Inc 6,500 125
Millipore Corp. 7,200 205
Minnesota Mining &
Manufacturing Co. 66,800 4,751
Moore Corporation Ltd. 14,573 160
NACCO Industries, Inc. 1,300 120
National Service Industries,
Inc. 6,900 262
*Navistar International Corp. 11,070 315
Northrop Grumman Corporation 11,400 834
*Owens-Illinois, Inc. 25,700 787
PACCAR, Inc. 12,890 530
Pall Corporation 20,466 518
Parker-Hannifin Corporation 18,300 599
Pitney Bowes, Inc. 45,400 2,999
Raychem Corp. 13,100 423
Rockwell International Corp. 31,600 1,535
*Sealed Air Corporation 13,786 704
Tenneco, Inc. 28,000 954
Textron, Inc. 27,100 2,058
*Thermo Electron Corporation 27,400 464
Thomas & Betts Corporation 9,400 407
Timken Company 10,300 194
Tyco International Ltd. 106,459 8,031
United Technologies Corp. 37,700 4,100
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS (CONTINUED)
Waste Management, Inc. 94,497 $ 4,406
------------
TOTAL 131,147
------------
CONSUMER SERVICES (4.2%)
*Airtouch Communications, Inc. 94,900 6,845
ALLTEL Corporation 45,300 2,710
Ameritech Corporation 182,200 11,547
AT&T Corporation 298,600 22,470
Bell Atlantic Corporation 256,780 14,588
BellSouth Corporation 325,200 16,219
Frontier Corporation 28,300 962
GTE Corporation 159,300 10,743
*MCI WorldCom, Inc. 293,589 21,065
*Nextel Communications, Inc. 47,200 1,115
SBC Communications, Inc. 323,574 17,352
Sprint Corporation 71,100 5,981
*Sprint PCS 69,350 1,604
US WEST, Inc. 82,905 5,358
------------
TOTAL 138,559
------------
CONSUMER CYCLICAL (4.4%)
American Greetings Corp. 11,700 480
Armstrong World Industries,
Inc. 6,600 398
*AutoZone, Inc. 25,200 830
Black & Decker Corporation 14,500 813
Brunswick Corporation 16,400 406
*Cendant Corporation 141,854 2,704
Centex Corporation 9,900 446
Circuit City Stores, Inc. 16,500 824
*Consolidated Stores
Corporation 18,100 365
Cooper Tire & Rubber Company 12,800 262
*Costco Companies, Inc. 35,751 2,581
Dana Corporation 27,265 1,114
Dayton Hudson Corporation 72,600 3,939
Dillard's, Inc. 18,300 519
Dollar General Corp. 30,575 722
Dow Jones & Company, Inc. 15,500 746
Dun & Bradstreet Corporation 28,200 890
*Federated Department Stores,
Inc. 34,900 1,520
Fleetwood Enterprises, Inc. 5,700 198
Ford Motor Company 200,300 11,755
*Fruit of the Loom, Inc. 11,900 164
Gannett Company, Inc. 47,000 3,110
Gap, Inc. 97,450 5,482
General Motors Corp. 108,100 7,736
Genuine Parts Company 29,575 989
Goodyear Tire & Rubber Company 26,000 1,311
</TABLE>
B-92
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
<S> <C> <C>
H & R Block, Inc. 16,600 $ 747
Harcourt General 11,700 622
*Harrahs Entertainment 16,700 262
Hasbro, Inc. 21,750 786
Hilton Hotels Corporation 43,100 824
Home Depot, Inc. 242,898 14,862
Interpublic Group of Cos., Inc. 22,500 1,794
ITT Industries, Inc. 19,600 779
J.C. Penney Company, Inc. 41,800 1,959
Jostens, Inc. 6,100 160
*Kmart Corporation 81,400 1,246
Kaufman & Broad Home Corp. 6,600 190
Knight-Ridder, Inc. 13,000 665
*Kohl's Corporation 26,100 1,604
Laidlaw Transportation Limited 54,500 548
The Limited Inc. 37,700 1,098
Liz Claiborne, Inc. 10,900 344
Lowe's Companies, Inc. 58,100 2,974
Marriott International 41,300 1,198
Masco Corporation 56,200 1,616
Mattel, Inc. 48,360 1,103
May Department Stores Company 38,200 2,306
Maytag Corporation 15,100 940
McGraw-Hill Companies, Inc. 16,400 1,671
Meredith Corporation 8,700 330
*Mirage Resorts, Inc. 29,700 444
The New York Times Company 31,300 1,086
Nike, Inc. 47,600 1,931
Nordstrom, Inc. 24,600 853
Omnicom Group Inc. 28,100 1,630
Owens Corning 8,900 315
Pep Boys-Manny, Moe & Jack 10,500 165
Pulte Corporation 7,100 197
*Reebok International Ltd. 9,300 138
Russell Corp. 6,000 122
Sears Roebuck & Co. 64,900 2,758
Service Corporation
International 42,500 1,618
Sherwin-Williams Company 28,600 840
Snap-On, Inc. 9,750 339
Springs Industries, Inc. 3,100 128
The Stanley Works 14,700 408
*Staples, Inc. 51,500 2,250
The TJX Companies, Inc. 52,400 1,520
Tandy Corporation 16,600 684
Times Mirror Company 14,300 801
*Toys R Us 43,200 729
Tribune Company 20,200 1,333
TRW, Inc. 20,200 1,135
VF Corporation 20,100 942
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICAL (CONTINUED)
Venator Group, Inc. 22,400 $ 144
Wal-Mart Stores, Inc. 369,500 30,091
Whirlpool Corporation 12,600 698
------------
TOTAL 144,231
------------
CONSUMER STAPLES (7.4%)
Adolph Coors Co. 6,000 339
Alberto-Culver Company 9,100 243
Albertson's, Inc. 40,600 2,586
American Stores Co. 45,400 1,677
Anheuser-Busch Companies, Inc. 79,700 5,230
Avon Products, Inc. 43,500 1,925
BESTFOODS 47,500 2,529
*Brown-Forman Corporation 11,400 863
Campbell Soup Company 74,200 4,081
Cardinal Health, Inc. 33,100 2,511
CBS Corporation 118,300 3,874
*Clear Channel Communications,
Inc. 41,000 2,235
Clorox Company 17,200 2,009
The Coca Cola Company 407,500 27,252
Coca Cola Enterprises Inc . 66,900 2,392
Colgate-Palmolive Co. 48,900 4,542
Comcast Corp. 61,050 3,583
Conagra, Inc. 80,700 2,542
CVS Corporation 64,400 3,542
Darden Restaurant, Inc. 23,000 414
Deluxe Corp. 13,400 490
Fort James Corporation 36,500 1,460
Fortune Brands, Inc. 28,600 904
General Mills, Inc. 25,600 1,990
Gillette Company 185,600 8,967
Great Atlantic & Pacific Tea
Co., Inc. 6,300 187
H.J. Heinz Company 59,850 3,389
Hershey Foods Corporation 23,700 1,474
Kellogg Company 67,300 2,297
Kimberly-Clark Corporation 90,432 4,929
*King World Productions, Inc. 12,100 356
*Kroger Co. 42,400 2,565
Longs Drug Stores Corp. 6,400 240
Fred Meyer, Inc. 25,500 1,536
McDonald's Corporation 113,200 8,674
*MediaOne Group, Inc. 100,700 4,733
Newell Co. 26,900 1,110
PepsiCo, Inc. 243,400 9,964
Philip Morris Companies, Inc. 402,000 21,507
Procter & Gamble Company 221,700 20,244
The Quaker Oats Company 22,500 1,339
R.R. Donnelley & Sons Company 23,000 1,008
</TABLE>
B-93
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
CONSUMER STAPLES (CONTINUED)
<S> <C> <C>
Ralston Purina Group 51,600 $ 1,670
Rite Aid Corporation 42,700 2,115
RJR Nabisco Holdings Corp. 53,700 1,593
Rubbermaid, Inc. 24,800 780
*Safeway, Inc. 80,400 4,898
Sara Lee Corporation 154,400 4,351
The Seagram Company Ltd. 65,200 2,478
Supervalue, Inc. 20,000 560
Sysco Corporation 55,800 1,530
*Tele Communications, Inc. 86,514 4,784
Time Warner, Inc. 198,100 12,295
*Tricon Global Restaurants,
Inc. 25,190 1,263
Tupperware 9,500 156
Unilever, N.V. 105,800 8,775
UST, Incorporated 30,700 1,071
Viacom, Inc. 59,156 4,378
Walt Disney Company 338,608 10,158
Walgreen Company 82,200 4,814
Wendy's International, Inc. 21,000 458
Winn-Dixie Stores, Inc. 24,600 1,104
Wm. Wrigley Jr. Company 19,200 1,720
------------
TOTAL 244,683
------------
ENERGY (3.1%)
Amerada Hess Corporation 15,000 746
Amoco Company 157,700 9,521
Anadarko Petroleum Corporation 19,800 611
Apache Corporation 16,300 413
Ashland, Inc. 12,600 610
Atlantic Richfield Company 53,100 3,465
Baker Hughes, Inc. 52,540 929
Burlington Resource, Inc. 29,375 1,052
Chevron Corp. 108,200 8,974
Exxon Corporation 403,000 29,469
Halliburton Company 72,500 2,148
Helmerich & Payne, Inc. 8,300 161
Kerr-McGee Corporation 7,900 302
Mobil Corporation 129,200 11,257
Occidental Petroleum
Corporation 58,400 986
*ORYX Energy Company 17,600 237
PennzEnergy Company 7,900 129
*Pennzoil-Quaker State Company 7,900 117
Phillips Petroleum Company 42,700 1,820
*Rowan Companies, Inc. 14,100 141
Royal Dutch Petroleum Co., ADR 354,400 16,967
Schlumberger Limited 90,000 4,151
Sunoco, Inc. 15,500 559
Texaco, Inc. 88,600 4,685
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
Union Pacific Resource Group 41,458 $ 376
Unocal Corp. 39,900 1,165
USX-Marathon Group 50,800 1,530
------------
TOTAL 102,521
------------
FINANCE (7.8%)
Allstate Corporation 136,894 5,288
American Express Company 75,400 7,710
American General Corporation 41,803 3,260
American International Group,
Inc. 173,562 16,770
Aon Corporation 27,950 1,548
Associates First Capital
Corporation 114,438 4,849
Banc One Corporation 193,545 9,883
Bank of New York Company, Inc. 123,500 4,971
BankAmerica Corporation 287,195 17,268
BankBoston Corporation 48,600 1,892
Bankers Trust New York
Corporation 15,900 1,358
BB&T Corporation 47,300 1,907
The Bear Stearns Companies,
Inc. 18,800 703
Berkshire Hathaway Inc 44 3,063
Capital One Financial
Corporation 10,900 1,254
Charles Schwab Corporation 66,225 3,721
Chase Manhattan Corporation 141,548 9,634
The Chubb Corporation 27,400 1,778
CIGNA Corporation 35,100 2,714
Cincinnati Financial
Corporation 27,600 1,011
Citigroup 377,888 18,705
Comerica, Inc. 25,700 1,752
Conseco, Inc. 51,670 1,579
Countrywide Credit Industries,
Inc. 18,400 923
Federal Home Loan Mortgage
Corp. 112,200 7,230
Federal National Mortgage
Corporation 171,400 12,684
Fifth Third Bancorp 44,275 3,157
First Union Corporation 160,186 9,741
Fleet Financial Group, Inc. 93,838 4,193
Franklin Resources, Inc. 41,800 1,338
Golden West Financial
Corporation 9,500 871
Hartford Financial Services
Group Inc. 38,600 2,118
Household International, Inc. 81,359 3,224
Huntington Bancshares, Inc. 34,980 1,052
</TABLE>
B-94
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
FINANCE (CONTINUED)
<S> <C> <C>
J.P. Morgan & Company, Inc. 29,200 $ 3,068
Jefferson-Pilot Corp. 17,575 1,318
KeyCorp 72,700 2,326
Lehman Brothers Holdings, Inc. 19,600 864
Lincoln National Corporation 16,600 1,358
Loews Corp. 19,000 1,867
Marsh & McLennan Companies,
Inc. 42,300 2,472
MBIA, Inc. 16,400 1,075
MBNA Corp. 124,232 3,098
Mellon Bank Corporation 43,100 2,963
Mercantile Bancorp 25,100 1,158
Merrill Lynch & Co. 57,600 3,845
MGIC Investment Corp. 18,700 744
Morgan Stanley, Dean Witter
Discover & Co. 96,780 6,871
National City Corp. 54,500 3,951
Northern Trust Corp. 18,400 1,607
PNC Bank Corp. 49,800 2,695
Progressive Corporation 12,000 2,033
Provident Companies, Inc. 22,300 925
Providian Financial Corporation 23,550 1,766
Regions Financial Corp 35,400 1,427
Republic New York Corporation 17,800 811
SAFECO, Inc. 23,300 1,000
SLM Holding Corporation 27,700 1,330
St. Paul Companies, Inc. 39,006 1,355
State Street Corporation 26,700 1,857
Summit Bancorp 28,700 1,254
SunAmerica, Inc. 34,200 2,774
Suntrust Banks, Inc. 34,500 2,639
Synovus Financial Corp. 43,550 1,062
Torchmark Corporation 23,200 819
Transamerica Corporation 10,300 1,190
UNUM Corporation 22,900 1,337
U.S. Bancorp 122,787 4,359
Union Planters Corporation 21,000 952
Wachovia Corporation 34,200 2,990
Waddell & Reed Financial, Inc. 5,706 133
Washington Mutual, Inc. 98,014 3,743
Wells Fargo & Company 267,260 10,674
------------
TOTAL 256,859
------------
HEALTHCARE (6.1%)
Abbott Laboratories, Inc. 254,500 12,471
Aetna, Inc. 23,893 1,879
Allergan, Inc. 10,800 699
*Alza Corporation 14,300 747
American Home Products
Corporation 217,500 12,248
*Amgen, Inc. 42,000 4,392
Bausch & Lomb, Inc. 9,200 552
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Baxter International, Inc. 47,200 $ 3,036
Becton, Dickinson & Company 40,900 1,746
Biomet, Inc. 18,500 745
*Boston Scientific Corp. 64,700 1,735
Bristol-Myers Squibb Company 164,400 21,999
C.R. Bard, Inc 9,300 460
Columbia/HCA Healthcare
Corporation 106,650 2,640
Eli Lilly & Company 182,000 16,175
Guidant Corporation 24,900 2,745
*HCR Manor Care Inc. 17,900 526
*HEALTHSOUTH Corporation 69,900 1,079
Humana, Inc. 27,600 492
Johnson & Johnson 222,300 18,645
Mallinckrodt, Inc. 12,100 373
Medtronic, Inc. 77,600 5,762
Merck & Co., Inc. 196,800 29,065
Pfizer, Inc 216,000 27,095
Pharmacia & Upjohn, Inc. 83,930 4,753
Schering-Plough Corporation 242,600 13,404
*St. Jude Medical, Inc. 13,950 386
*Tenet Healthcare Corp. 50,900 1,336
*United Healthcare Corp. 32,300 1,391
Warner-Lambert Company 135,700 10,203
------------
TOTAL 198,779
------------
TECHNOLOGY (9.3%)
*3Com Corporation 59,300 2,657
Adobe Systems, Inc. 11,100 519
*Advanced Micro Devices, Inc. 23,800 689
*Andrew Corporation 14,262 235
*Apple Computer, Inc. 22,300 913
*Applied Materials, Inc. 60,500 2,583
*Ascend Communications, Inc. 35,700 2,347
Autodesk, Inc. 7,800 333
Automatic Data Processing, Inc. 49,800 3,993
*BMC Software Inc 34,100 1,520
*Cabletron Systems, Inc. 27,200 228
*Ceridian Corp. 12,000 838
*Cisco Systems, Inc. 257,000 23,853
Compaq Computer Corporation 276,167 11,582
Computer Associates
International, Inc. 92,812 3,956
*Computer Sciences Corp. 26,100 1,682
*Data General Corporation 8,200 135
*Dell Computer Corp. 209,200 15,311
EG&G, Inc. 7,600 211
*EMC Corporation 82,600 7,021
Eastman Kodak Company 53,400 3,845
Electronic Data Systems
Corporation 81,400 4,090
Equifax, Inc. 24,500 838
First Data Corporation 73,800 2,339
</TABLE>
B-95
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
*Gateway 2000, Inc. 25,700 $ 1,316
*General Instrument Corporation 27,700 940
Harris Corporation 13,200 483
HBO & Company 76,900 2,206
Hewlett-Packard Company 171,800 11,736
IMS Health Incorporated 27,500 2,075
Ikon Office Solutions 22,400 192
Intel Corporation 277,700 32,925
International Business Machines
Corporation 154,200 28,488
*KLA-Tencor Corporation 14,400 625
*LSI Logic Corp. 23,300 376
Lucent Technologies, Inc. 217,386 23,912
*Micron Technology 35,200 1,780
*Microsoft Corporation 407,300 56,487
Motorola, Inc. 98,900 6,039
*National Semiconductor
Corporation 27,100 366
Northern Telecom Limited 107,760 5,401
*Novell, Inc. 58,400 1,059
*Oracle Corporation 160,850 6,937
*Parametric Technology Company 45,000 737
Paychex, Inc 27,000 1,389
*Peoplesoft, Inc 38,100 722
Perkin-Elmer Corporation 8,100 790
Polaroid Corporation 7,300 136
Raytheon Company - Class B 56,000 2,982
Scientific-Atlanta, Inc. 12,400 283
*Seagate Technology Inc. 40,200 1,216
Shared Medical Systems Corp. 4,400 219
*Silicon Graphics 31,200 402
*Sun Microsystems, Inc. 62,600 5,360
Tektronix, Inc. 7,800 234
*Tellabs, Inc. 32,000 2,194
Texas Instruments, Inc. 64,500 5,519
*Unisys Corporation 42,000 1,446
W.W Grainger, Inc. 16,100 670
Xerox Corporation 54,300 6,407
------------
TOTAL 305,767
------------
TRANSPORTATION (0.5%)
*AMR Corporation 30,100 1,787
Burlington Northern Santa Fe 78,199 2,639
CSX Corporation 36,100 1,498
Delta Air Lines, Inc. 23,600 1,227
*Federal Express Corp 24,420 2,173
Norfolk Southern Corporation 62,600 1,984
Ryder System, Inc. 12,100 315
Southwest Airlines Co. 55,450 1,244
Union Pacific Corporation 40,900 1,843
*USAir Group, Inc 14,400 749
------------
TOTAL 15,459
------------
<CAPTION>
SHARES/ MARKET VALUE
COMMON STOCK (50.0%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
UTILITIES (1.6%)
The AES Corporation 29,100 $ 1,379
Ameren Corporation 22,700 969
American Electric Power Co.,
Inc. 31,600 1,487
Baltimore Gas & Electric Co. 24,600 760
Carolina Power & Light Company 25,000 1,177
Central & South West
Corporation 35,100 963
Cinergy Corporation 26,205 901
Coastal Corp. 35,100 1,226
Columbia Energy Group 13,800 797
Consolidated Edison Co. of New
York 38,700 2,046
Consolidated Natural Gas
Company 15,800 853
Dominion Resources, Inc. 32,500 1,519
DTE Energy Company 24,000 1,029
Duke Energy Corp. 59,671 3,823
Eastern Enterprises 3,700 162
Edison International 58,500 1,631
Enron Corp. 54,500 3,110
Entergy Corporation 40,800 1,270
FirstEnergy Corporation 39,200 1,276
FPL Group, Inc. 30,000 1,849
GPU, Inc. 21,100 932
Houston Industries,
Incorporated 48,926 1,572
New Century Energies, Inc. 18,400 897
*Niagara Mohawk Power
Corporation 31,000 500
Nicor, Inc. 7,900 334
Northern States Power Company 25,000 694
ONEOK, Inc. 5,200 188
P P & L Resources, Inc. 25,033 698
PacifiCorp 49,100 1,034
PECO Energy Company 36,800 1,532
Peoples Energy Corporation 5,800 231
PG&E Corp. 63,100 1,988
Public Service Enterprise
Group, Inc. 38,300 1,532
*Sempra Energy 39,759 1,009
Sonat, Inc. 18,200 493
Southern Company 115,300 3,351
Texas Utilities Company 46,195 2,157
UNICOM Corp. 35,900 1,384
Williams Companies, Inc. 70,200 2,188
------------
TOTAL 50,941
------------
TOTAL COMMON STOCK 1,640,982
------------
</TABLE>
B-96
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ MARKET VALUE
SHORT TERM INVESTMENTS (15.7%) PAR (000'S)
- -------------------------------------------------------------
MONEY MARKET INVESTMENTS (13.5%)
<S> <C> <C>
AUTOMOBILE REPAIR, SERVICES, & PARKING (0.7%)
+PHH Corp., 5.48%, 1/22/99 25,000,000 $ 24,920
------------
CHEMICALS & ALLIED PRODUCTS (0.7%)
+American Home Products, 5.15%,
2/10/99 25,000,000 24,857
------------
DEPARTMENT STORES (0.8%)
+J.C. Penney, Co., Inc., 5.22%,
2/24/99 25,690,000 25,489
------------
FEDERAL GOVERNMENT AND AGENCIES (0.5%)
+Federal Home Loan Mortgage
Corporation, 4.92%, 2/26/99 15,000,000 14,885
------------
FINANCE (4.6%)
+BAT Capital Corp., 5.55%,
1/08/99 25,000,000 24,973
Household Finance Co., 5.55%,
1/29/99 25,000,000 24,892
+Chrysler Financial Corp.,
5.24%, 2/10/99 25,000,000 24,854
CIESCO LP 5.25%, 1/27/99 25,000,000 24,905
+CXC Incorporated, 5.18%,
1/25/99 25,000,000 24,914
CIT Group Holdings, 5.35%,
1/28/99 25,000,000 24,900
------------
TOTAL 149,438
------------
PERSONAL CREDIT INSTITUTIONS (4.6%)
+General Electric Capital,
5.23%, 2/16/99 25,000,000 24,833
+General Motors Acceptance,
5.07%, 1/29/99 25,000,000 24,901
Commercial Credit Co., 5.35%,
1/20/99 25,000,000 24,929
+Transamerica Finance, 5.18%,
1/20/99 25,000,000 24,932
IBM Credit Corp., 6.90%, 1/4/99 25,000,000 24,986
+Variable Funding Capital
Corp., 5.17%, 1/06/99 25,000,000 24,982
------------
TOTAL 149,563
------------
SHORT TERM BUSINESS CREDIT (1.6%)
American Express Credit, 5.00%,
1/08/99 26,800,000 26,774
+Sears Roebuck Acceptance
Corp., 5.27%, 2/11/99 25,000,000 24,850
------------
TOTAL 51,624
------------
TOTAL MONEY MARKET
INVESTMENTS 440,776
------------
<CAPTION>
SHARES/ MARKET VALUE
SHORT TERM INVESTMENTS (15.7%) PAR (000'S)
- -------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES (2.2%)
AUTO RELATED (0.8%)
+New Center Asset Trust, 5.39%,
1/8/99 25,000,000 $ 24,974
------------
COMMERCIAL MORTGAGES (0.7% )
+Asset Securitization, 5.18%,
3/10/99 25,000,000 24,765
------------
FINANCE LESSORS (0.7%)
+Triple A One Funding, 5.22%,
2/16/99 24,000,000 23,840
------------
TOTAL ASSET-BACKED
SECURITIES 73,579
------------
TOTAL SHORT TERM
INVESTMENTS 514,355
------------
TOTAL BALANCED PORTFOLIO
(99.6%) (COST
$2,280,568,518)^ 3,267,945
OTHER ASSETS, LESS
LIABILITIES (0.4%) 14,126
------------
TOTAL NET ASSETS (100.0%) $ 3,282,071
------------
</TABLE>
IO-Interest Only Security
144A after the name of a security represents a security exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be
resold as transactions exempt from registration, normally to qualified
institutional buyers.
* Non-Income Producing.
++ Defaulted security
** Denominated in Greek Drachma
+ Partially held by the custodian in a segregated account as collateral for
open futures postions. Information regarding open futures contracts as of
December 31, 1998 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUER CONTRACTS DATE (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 741 3/99 $13,320
(Total Notional Value at
12/31/98, $217,408,980)
</TABLE>
^At December 31, 1998, the aggregate cost of securities for federal income tax
purposes was $2,287,836,541 and the net unrealized appreciation of investments
based on that cost was $980,108,923 which is comprised of $1,012,402,159
aggregate gross unrealized appreciation and $32,293,236 gross unrealized
depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B-97
<PAGE>
HIGH YIELD BOND PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (79.0%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (1.4%)
PAPER (0.7%)
Pindo Deli Fin Mauritius, 10.75%, 10/01/07 2,500,000 $ 1,359
---------
STEEL (0.7%)
Renco Steel Holdings, Inc., 10.875%, 2/01/05 (144A) 1,500,000 1,290
---------
TOTAL BASIC MATERIALS 2,649
---------
BROADCASTING/MEDIA (3.8%)
BROADCASTING (3.1%)
+Big City Radio, Inc., 11.25%, 3/15/05 (144A) 5,750,000 3,795
+Fox Family Worldwide, Inc., 10.25%, 11/01/07 3,100,000 1,953
---------
TOTAL 5,748
---------
PRINTING AND PUBLISHING (0.7%)
+Diva System Corp., 12.625%, 3/01/08 (144A) 3,375,000 1,257
---------
TOTAL BROADCASTING/MEDIA 7,005
---------
CABLE TELEVISION (4.9%)
+International Cabletel, Inc., 11.50%, 02/01/06 3,000,000 2,460
+NTL, Inc.,9.75%, 4/01/08, 4,250,000 2,635
NTL Incorporated, 11.50%, 10/01/08 (144A) 1,000,000 1,093
Supercanal Holdings S A, 11.50%, 05/15/05 (144A) 2,500,000 1,500
+Telewest PLC, 11.25%, 11/1/08 1,150,000 1,288
---------
TOTAL CABLE TELEVISION 8,976
---------
CONSUMER RELATED (5.3%)
CONSUMER STAPLES (0.6%)
+SF Holdings Group, Inc., 12.75%, 3/15/08 3,250,000 1,137
---------
FOODS/FOOD SERVICES (4.1%)
Favorite Brands Int'l, Inc., 10.75%, 05/15/06 (144A) 2,250,000 1,845
Global Health Sciences, Inc., 11.0%, 05/01/08 (144A) 2,500,000 1,650
Iowa Select Farms L.P., 10.75%, 12/01/05 (144A) 4,200,000 3,402
Planet Hollywood, 12.00%, 4/01/05 (144A) 2,100,000 735
---------
TOTAL 7,632
---------
HOUSEHOLD PRODUCTS (0.2%)
+Diamond Brands, 12.875%, 04/15/09 (144A) 1,250,000 437
---------
SOAPS & TOILETRIES (0.4%)
Styling Technologies, 10.875%, 07/01/08 (144A) 800,000 760
---------
TOTAL CONSUMER RELATED 9,966
---------
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (79.0%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
ENERGY RELATED (9.2%)
ELECTRIC AND OTHER SERVICES (0.5%)
CE Casecnan Water & Energy, 11.95%, 11/15/2010 1,000,000 $ 850
---------
OIL AND GAS INDEPENDENT (6.3%)
Belden & Blake Corp., 9.875%, 6/15/07 3,950,000 3,200
Chesapeake Energy, 9.625%, 05/01/05 (144A) 3,750,000 2,812
Gothic Production Corp., 11.125%, 05/01/05 (144A) 5,250,000 4,095
Grey Wolf, Inc., 8.875%, 07/01/07 2,100,000 1,523
---------
TOTAL 11,630
---------
OIL FIELD SERVICES (2.4%)
Pride International, Inc., 9.375%, 05/01/07 2,525,000 2,348
R&B Falcon Corp., 9.5%, 12/15/08 (144A) 2,000,000 2,000
---------
TOTAL 4,348
---------
TOTAL ENERGY RELATED 16,828
---------
FINANCE (4.7%)
FINANCE COMPANIES (3.4%)
Arcadia Financial, Ltd., 11.50%, 3/15/07 3,675,000 2,793
BF Saul Real Estate, 9.75%, 4/01/08 2,250,000 2,093
Metris Companies, Inc., 10.00%, 11/01/04 1,400,000 1,386
---------
TOTAL 6,272
---------
INSURANCE (1.3%)
Superior Nat'l Capital Trust I, 10.75%, 12/01/17 2,400,000 2,376
---------
TOTAL FINANCE 8,648
---------
HEALTHCARE (4.4%)
Magellan Health Services, 9.00%, 02/15/08 2,800,000 2,464
Vencor, Inc., 9.875%, 05/01/05 (144A) 6,550,000 5,633
---------
TOTAL HEALTHCARE 8,097
---------
LEISURE (10.3%)
GAMING (5.7%)
Circus Circus Enterprise, 9.25%, 12/01/05 1,500,000 1,515
Trump Atlantic, 11.25%, 5/1/06 2,500,000 2,200
Trump Hotels & Casino Resorts, 15.50%, 6/15/03 2,000,000 2,120
Venetian Casino/LV Sands, 12.25%, 11/15/04 5,000,000 4,725
---------
TOTAL 10,560
---------
HOTELS AND OTHER LODGING PLACES (2.2%)
HMH Properties, Inc., 8.45%, 12/01/08 1,200,000 1,200
John Q. Hammons Hotels, 8.875%, 02/15/04 500,000 470
</TABLE>
B-98
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (79.0%) PAR (000'S)
- ---------------------------------------------------------------------------------
HOTELS AND OTHER LODGING PLACES (CONTINUED)
<S> <C> <C>
Starwood Hotels & Resorts, 6.75%, 11/15/05 450,000 $ 415
Starwood Hotels & Resorts, 7.875%, 11/15/15 2,250,000 1,992
---------
TOTAL 4,077
---------
LEISURE RELATED (0.8%)
+Hedstrom Holdings Inc., 12.00%, 6/1/09 3,325,000 1,530
---------
MOVIE THEATERS (1.6%)
Hollywood Theaters, Inc., 10.625%, 08/01/07 2,600,000 1,918
Silver Cinemas, 10.50%, 04/15/05 (144A) 1,400,000 952
---------
TOTAL 2,870
---------
TOTAL LEISURE 19,037
---------
OTHER INDUSTRIES (6.8%)
AUTO RELATED (2.6%)
Exide Corporation, 10.00%, 04/15/05 (144A) 3,250,000 3,209
Exide Corporation, 2.90%, 12/15/05 (144A) 3,000,000 1,758
---------
TOTAL 4,967
---------
HOUSEHOLD FURNISHINGS, APPLIANCES (2.9%)
Corning Consumer Products Co., 9.625%, 05/01/08 (144A) 3,900,000 2,730
Renters Choice, Inc., 11.00%, 08/15/08 (144A) 2,500,000 2,538
---------
TOTAL 5,268
---------
INDUSTRIAL MACHINERY AND EQUIPMENT (0.8%)
United Rentals, Inc., 9.25%, 01/15/09 (144A) 1,500,000 1,504
---------
OFFICE EQUIPMENT (0.5%)
US Office Products Co., 9.75%, 06/15/08 1,300,000 848
---------
TOTAL OTHER INDUSTRIES 12,587
---------
SERVICES (5.0%)
PROFESSIONAL SERVICES (1.5%)
Decisionone Holdings, 9.75%, 8/1/07 1,800,000 828
+Decisionone Holdings, 11.50%, 8/1/08 3,875,000 891
Federal Data Corp., 10.125%, 8/01/05 1,000,000 990
---------
TOTAL 2,709
---------
BUSINESS SERVICES (3.5%)
Loewen Group International, Inc., 7.5%, 04/15/01 2,000,000 1,765
Loewen Group International, Inc., 7.75%, 10/15/01 3,000,000 2,625
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (79.0%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (CONTINUED)
Loewen Group International, Inc., 8.25%, 10/15/03 500,000 $ 430
Loewen Group International, Inc., 7.6%, 06/01/08 2,100,000 1,690
---------
TOTAL 6,510
---------
TOTAL SERVICES 9,219
---------
TELECOMMUNICATIONS (16.1%)
Arch Communications, 12.75%, 07/01/07 (144A) 6,000,000 6,000
+Bestel S A de CV, 12.75%, 05/15/05 1,950,000 1,072
+Firstworld Communications, 13.00%, 04/15/08 2,500,000 750
+GST Network Funding, Inc., 10.50%, 05/01/08 (144A) 3,000,000 1,290
+Hyperion Telecommunications, 13.00%, 4/15/03 400,000 286
Hyperion Telecommunications, 12.25%, 9/01/04 4,000,000 4,060
+KMC Telecommunication Hldgs, 12.50%, 2/15/08 6,250,000 3,000
Metromedia Fiber Network, 10.00%, 11/15/08 (144A) 1,500,000 1,541
++Mobilemedia Communications Inc., 10.50%, 12/01/03 2,000,000 220
Northeast Optic Network, 12.75%, 08/15/08 3,300,000 3,234
Splitrock Services, Inc., 11.75%, 07/15/08 3,000,000 2,595
+21st Century Telecom, 12.25%, 2/15/08 (144A) 1,750,000 735
Verio, Inc.......................11.25%, 12/01/08 (144A) 2,000,000 2,010
Viatel, Inc., 11.25%, 04/15/08 1,500,000 1,534
+Viatel, Inc., 12.50%, 04/15/08 2,500,000 1,475
---------
TOTAL TELECOMMUNICATIONS 29,802
---------
TRANSPORTATION (6.6%)
TRUCKING AND SHIPPING (6.6%)
Greyhound Lines, Inc., 11.50%, 4/15/07 2,500,000 2,838
Navigator Gas Trans PLC, 10.50%, 06/30/07 (144A) 1,550,000 1,364
Navigator Gas Trans PLC, 12.00%, 06/30/07 900,000 810
Stena AB, 8.75%, 06/15/07 2,500,000 2,381
Stena Line AB, 10.625%, 06/01/08 5,400,000 4,860
---------
TOTAL TRANSPORTATION 12,253
---------
UTILITIES (0.5%)
Companhia De Saneamento Basico, 10%, 7/28/05 (144A) 1,235,000 840
---------
TOTAL BONDS 145,907
---------
</TABLE>
B-99
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
PREFERRED STOCK (16.0%) PAR (000'S)
- ---------------------------------------------------------------------------------
BROADCASTING MEDIA (7.6%)
<S> <C> <C>
BROADCASTING (5.1%)
Cumulus Media, Inc. 43,656 $ 4,693
Sinclair Capital 43,500 4,742
---------
TOTAL 9,435
---------
PRINTING AND PUBLISHING (2.5%)
Primedia, Inc. 45,000 4,631
---------
TOTAL BROADCASTING MEDIA 14,066
---------
CABLE TELEVISION (3.7%)
**CSC Holdings, Inc. (PIK) 59,276 6,817
---------
ENERGY RELATED (0.6%)
GAS UTILITY (0.6%)
Petroleum Heat & Power Inc. 48,750 1,023
---------
FINANCE (0.8%)
BANKS (0.8%)
California Fed Pfd Capital 60,000 1,519
---------
LEISURE RELATED (0.3%)
**Samsonite Corp. (PIK) 6,663 513
---------
MEDICAL PRODUCTS (0.4%)
Fresenius Medical Care AG 750,000 743
---------
TELECOMMUNICATIONS (2.6%)
+Crown Castle International Corp. 20,000 2,012
+Global Crossing Holdings, Ltd. 2,500 245
**21st Century Telecom (PIK) 9,110 592
**Hyperion Telecommunications (PIK) 22,260 1,770
**Viatel, Inc. (PIK) 2,052 226
---------
TOTAL TELECOMMUNICATIONS 4,845
---------
TOTAL PREFERRED STOCK 29,526
---------
<CAPTION>
COMMON STOCK AND WARRANTS (0.5%)
- ---------------------------------------------------------------------------------
<S> <C> <C>
APPAREL AND TEXTILE (0.1%)
*Ithaca Industries Inc. 136,000 $ 247
---------
BROADCASING/MEDIA (0.1%)
*Diva System Corp. (144A) 10,125 162
---------
CONSUMER STAPLES (0.0%)
*SF Holdings Group, Inc. (144A) 6,500 13
---------
ENERGY RELATED (0.0%)
GAS UTILITY (0.0%)
Petroleum Heat & Power, Inc. 4,111 3
---------
FINANCE (0.0%)
FINANCE COMPANIES (0.00%)
*Arcadia Financial, Ltd. 4,000 20
---------
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK AND WARRANTS (0.5%) PAR (000'S)
- ---------------------------------------------------------------------------------
<S> <C> <C>
LEISURE (0.2%)
LEISURE RELATED (0.2%)
*Hedstrom Holdings, Inc. (144A) 201,674 $ 202
Meditrust Corp. 11,117 168
*Samsonite Corp. 6,250 19
---------
TOTAL 389
---------
TELECOMMUNICATIONS (0.1%)
*Bestel S A de CV 1,950 4
*Firstworld Communications 2,500 25
*KMC Telecom Holdings, Inc. 6,250 20
*Splitrock Services, Inc. 3,000 33
*21st Century Telecom 8,500 25
---------
TOTAL 107
---------
TOTAL COMMON STOCK
AND WARRANTS 941
---------
<CAPTION>
MONEY MARKET INVESTMENTS (2.1%)
- ---------------------------------------------------------------------------------
<S> <C> <C>
PERSONAL CREDIT INSTITUTIONS (2.1%)
American Express Credit, 4.999%, 01/08/99 3,900,000 $ 3,896
---------
TOTAL MONEY MARKET INVESTMENTS 3,896
---------
TOTAL INVESTMENTS (97.6%)
(COST $199,646,191)^ 180,270
OTHER ASSETS, LESS LIABILITIES (2.4%) 4,512
---------
TOTAL NET ASSETS (100.0%) $184,782
---------
</TABLE>
* Non-Income Producing
+ Deferred interest security that presently receives no coupon payments. At
a predetermined date the stated coupon rate becomes effective.
++ Defaulted Security
**PIK-Payment in Kind
144A after the name of a security represents a security exempt from
registration under Rule 144A of the Securities Act of 1933. These
securites may be resold as transactions exempt from registration,
normally to qualified institutional buyers.
^ At December 31, 1998, the aggregate cost of securites for federal income
tax purposes was $199,971,590 and the net unrealized depreciation of
investments based on that cost was $19,701,115 which is comprised of
$5,103,845 aggregate gross unrealized appreciation and $24,804,960
aggregated gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B-100
<PAGE>
SELECT BOND PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (15.8%)
BANK HOLDING COMPANIES (1.0%)
BT Institutional Capital Trust,
7.75%, 12/1/26 (144A) 3,000,000 $ 3,094
-----------
BANKING AND FINANCE (1.7%)
Lehman Brothers Holdings, Inc.,
8.8%, 3/1/15 4,500,000 5,166
-----------
CABLE AND MEDIA (1.5%)
Seagram Joseph E & S, 7.60%,
12/15/28 4,400,000 4,429
-----------
CHEMICALS AND ALLIED PRODUCTS (0.8%)
Dow Capital B.V., 8.5%, 6/8/10 1,800,000 2,149
-----------
ELECTRIC SERVICES (2.6%)
Comed Financing II, 8.5%, 1/15/27 1,750,000 1,945
Ohio Edison Company, 7.375%,
9/15/02 1,000,000 1,059
PECO Energy Company, 7.75%,
3/1/23 1,150,000 1,208
Public Service Electric & Gas
Co., 6.875%, 1/1/03 2,250,000 2,364
Texas Utilities Electric Co.,
7.875%, 3/1/23 1,000,000 1,070
-----------
TOTAL 7,646
-----------
ENERGY (1.3%)
Pemex Finance Ltd., 9.15%,
11/15/18 4,000,000 3,970
-----------
FINANCE (1.7%)
Associates Corp. of North
America, 7.95%, 2/15/10 1,500,000 1,715
Tokai Preferred Capital Co. LLC,
9.98%, 12/29/49 4,000,000 3,400
-----------
TOTAL 5,115
-----------
FOREIGN BANKS - BRANCHES & AGENCIES (0.3%)
Fuji Bank, Ltd., 9.87%, 12/31/49
(144A) 1,300 949
-----------
GENERAL MERCHANDISE STORES (0.4%)
May Dept Stores Company, 7.45%,
10/15/16 1,000,000 1,119
-----------
LIFE SCIENCES AND AGRICULTURE (0.9%)
Monsanto Co., 6.60%, 12/01/28 2,750,000 2,745
-----------
MOTION PICTURE (0.4%)
News America Holdings Inc.,
8.25%, 8/10/18 1,000,000 1,135
-----------
RAILROAD (2.2%)
Burlington Northern, 7.25%,
8/1/97 4,000,000 4,250
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
RAILROAD (CONTINUED)
Union Pacific Corp., 7.25%,
11/01/08 2,250,000 $ 2,412
-----------
TOTAL 6,662
-----------
TEXTILES (0.5%)
#Polysindo International Finance,
11.375%, 6/15/06 4,200,000 1,344
-----------
TOBACCO (0.5%)
Philip Morris Companies, 9.25%,
2/15/00 500,000 520
RJR Nabisco Inc., 8.625%, 12/1/02 1,000,000 1,018
-----------
TOTAL 1,538
-----------
TOTAL CORPORATE BONDS 47,061
-----------
GOVERNMENT BONDS (DOMESTIC AND FOREIGN)
AND AGENCY BONDS (35.2%)
FOREIGN GOVERNMENT BONDS (2.2%)
*Hellenic Republic, 7.5%, 5/20/13 850,000,000 3,200
*Hellenic Republic, 8.8%, 6/19/07 850,000,000 3,381
-----------
TOTAL 6,581
-----------
FEDERAL GOVERNMENT AND AGENCIES (33.0%)
Federal Farm Credit, 6.51%,
1/7/08 2,000,000 2,000
Federal Home Loan Mortgage
Corporation, 7.5%, 9/29/01 10,644,364 10,928
Federal National Mortgage Assoc.,
5.97%, 10/1/08 3,989,321 4,066
Federal National Mortgage Assoc.,
6.07%, 10/1/08 2,994,476 3,086
Federal National Mortgage Assoc.,
6.22%, 2/01/06 1,917,146 1,976
Federal National Mortgage Assoc.,
6.24%, 1/1/06 5,405,115 5,573
Federal National Mortgage Assoc.,
6.265%, 10/1/08 2,994,681 3,113
Federal National Mortgage Assoc.,
6.32%, 2/1/06 3,885,724 4,024
Federal National Mortgage Assoc.,
6.360%, 4/1/08 3,784,254 3,952
Federal National Mortgage Assoc.,
6.390%, 4/1/08 1,460,225 1,527
Federal National Mortgage Assoc.,
6.500%, 09/25/05 2,438,626 2,438
Federal National Mortgage Assoc.,
6.750%, 04/25/18 2,398,681 2,492
Federal National Mortgage Assoc.,
6.750%, 12/25/23 3,500,000 3,610
Federal National Mortgage Assoc.,
6.960%, 10/01/07 3,266,715 3,529
Federal National Mortgage Assoc.,
7.0%, 6/1/03 583,690 597
</TABLE>
B-101
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
<S> <C> <C>
Federal National Mortgage Assoc.,
7.360%, 4/1/11 3,370,703 $ 3,767
Federal National Mortgage Assoc.,
8.400%, 02/25/09 2,500,000 2,788
Federal National Mortgage Assoc.,
10%, 10/1/17 116,204 126
Federal National Mortgage Assoc.,
11.000%, 12/01/12 205,013 226
Federal National Mortgage Assoc.,
11.000%, 09/01/17 1,455,341 1,609
Federal National Mortgage Assoc.,
11.000%, 12/01/17 475,993 527
Federal National Mortgage Assoc.,
11.000%, 02/01/18 553,326 613
Federal National Mortgage Assoc.,
11.500%, 04/01/18 646,573 726
Federal National Mortgage Assoc.,
12.000%, 12/01/12 1,542,325 1,738
Federal National Mortgage Assoc.,
12.000%, 12/01/12 294,911 335
Federal National Mortgage Assoc.,
12.000%, 09/01/17 493,970 562
Federal National Mortgage Assoc.,
12.000%, 10/01/17 707,215 805
Federal National Mortgage Assoc.,
12.000%, 12/01/17 408,891 466
Federal National Mortgage Assoc.,
12.000%, 02/01/18 525,209 598
Federal National Mortgage Assoc.,
12.25%, 1/1/18 436,396 495
Federal National Mortgage Assoc.,
12.500%, 04/01/18 296,562 339
Federal National Mortgage Assoc.,
13.000%, 11/01/12 220,779 255
Federal National Mortgage Assoc.,
13.000%, 11/01/17 525,420 609
Federal National Mortgage Assoc.,
13.000%, 12/01/17 298,396 346
Federal National Mortgage Assoc.,
13.000%, 02/01/18 767,712 890
Federal National Mortgage Assoc.,
14.000%, 12/01/17 212,378 253
Government National Mortgage
Assoc., 7.0%, 05/15/23 341,794 350
Government National Mortgage
Assoc., 7.5%, 04/15/22 320,005 330
Government National Mortgage
Assoc., 7.5%, 06/15/28 467,035 482
Government National Mortgage
Assoc., 7.5%, 10/15/23 773,158 797
Government National Mortgage
Assoc., 7.5%, 10/15/25 78,692 81
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
Government National Mortgage
Assoc., 7.5%, 11/15/25 17,136 $ 18
Government National Mortgage
Assoc., 7.5%, 05/15/26 16,501 17
Government National Mortgage
Assoc., 7.5%, 02/15/27 640,485 660
Government National Mortgage
Assoc., 7.5%, 03/15/27 55,090 57
Government National Mortgage
Assoc., 7.5%, 04/15/27 134,562 139
Government National Mortgage
Assoc., 7.5%, 08/15/27 17,524 18
Government National Mortgage
Assoc., 7.5%, 06/15/28 481,639 497
Government National Mortgage
Assoc., 8.0%, 01/15/26 531,624 552
Government National Mortgage
Assoc., 8.0%, 02/15/26 584,032 606
Government National Mortgage
Assoc., 8.0%, 08/15/26 321,346 334
Government National Mortgage
Assoc., 8.0%, 08/15/26 442,102 459
Government National Mortgage
Assoc., 8.0%, 09/15/26 551,925 573
Government National Mortgage
Assoc., 8.0%, 12/15/26 206,248 214
Government National Mortgage
Assoc., 8.0%, 01/15/27 590,313 613
Government National Mortgage
Assoc., 8.0%, 03/15/27 574,718 597
Government National Mortgage
Assoc., 8.0%, 04/15/27 449,946 467
Government National Mortgage
Assoc., 8.0%, 04/15/27 605,863 629
Government National Mortgage
Assoc., 8.0%, 06/15/27 550,082 571
Government National Mortgage
Assoc., 8.0%, 07/15/27 543,556 565
Government National Mortgage
Assoc., 8.0%, 08/15/27 404,685 420
Government National Mortgage
Assoc., 8.0%, 09/15/27 413,078 429
Government National Mortgage
Assoc., 8.5%, 09/15/21 11,037 12
Government National Mortgage
Assoc., 8.5%, 09/15/24 4,678 5
Government National Mortgage
Assoc., 8.5%, 03/15/23 149,150 159
Government National Mortgage
Assoc., 8.5%, 06/15/23 104,470 112
Government National Mortgage
Assoc., 8.5%, 07/15/24 64,283 68
</TABLE>
B-102
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
FEDERAL GOVERNMENT AND AGENCIES (CONTINUED)
<S> <C> <C>
Government National Mortgage
Assoc., 8.5%, 09/15/24 5,886 $ 6
Government National Mortgage
Assoc., 8.5%, 11/15/24 147,407 157
Government National Mortgage
Assoc., 8.5%, 11/15/24 131,350 140
Government National Mortgage
Assoc., 8.5%, 11/15/24 272,589 290
Government National Mortgage
Assoc., 8.5%, 02/15/25 55,568 59
Government National Mortgage
Assoc., 8.5%, 02/15/25 7,632 8
Government National Mortgage
Assoc., 11.0%, 01/15/18 5,618,110 6,342
U.S. Treasury, 5.5%, 8/15/28 638,000 669
U.S. Treasury, 6.125%, 11/15/27 3,730,000 4,178
U.S. Treasury, 4.75%, 11/15/08 2,000,000 2,016
U.S. Treasury, 4.0%, 10/31/00 1,350,000 1,336
Vendee Mortgage Trust, .4951%,
6/15/23 (IO) 81,189,546 1,395
-----------
TOTAL 98,411
-----------
TOTAL GOVERNMENT BONDS AND
AGENCY BONDS 104,992
-----------
MORTGAGE BACKED AND ASSET BACKED SECURITIES (44.0%)
AUTO-RELATED (2.2%)
Daimler-Benz Vehicle Trust -
Class A, 5.85%, 7/20/03 435,189 437
Eaglemark Trust - Class A, 6.75%,
11/15/02 565,372 574
Fleetwood Credit Corporation
Grantor Trust - Class A, 6.4%,
5/15/13 1,019,749 1,038
Team Fleet Financing Corporation
- Class A, 6.65%, 12/15/02
(144A) 3,200,000 3,232
Team Fleet Financing Corporation
- Class A, 7.35%, 5/15/03 (144A) 1,125,000 1,157
-----------
TOTAL 6,438
-----------
BANK AND FINANCE (2.2%)
Bankers Trust Co., 6.255%,
1/13/99 91,002 91
Morgan Stanley Capital Trust,
7.387%, 5/15/06 3,000,000 3,243
Nations Bank Lease Pass Thru
Trust 97-A, 7.442%, 11/18/05 3,000,000 3,183
-----------
TOTAL 6,517
-----------
COMMERCIAL MORTGAGES (26.9%)
Asset Securitization Corporation,
Class CS1, 1.257%, 11/13/26 IO 19,158,273 687
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGES (CONTINUED)
Asset Securitization Corporation,
Class CS2, 1.097%, 11/13/26 IO 52,000,000 $ 3,083
Asset Securitization Corporation,
Class PS1, 1.367%, 2/14/41 IO 12,098,357 1,247
Chase Commercial Mortgage
Securities Corp., Class B, 6.6%,
11/19/07 2,000,000 2,046
Chase Commercial Mortgage
Securities Corp., Class A2,
6.6%, 11/19/07 5,000,000 5,205
Chase Commercial Mortgage
Securities Corp., Class B,
7.37%, 6/19/29 1,000,000 1,073
Commercial Mortgage Acceptance
Corporation, Class B, 6.646%,
12/15/07 2,000,000 2,043
Credit Suisse First Boston
Mortgage Securities Corp., Class
D, 7.46%, 05/20/29 (144A) 3,500,000 3,552
Credit Suisse First Boston
Mortgage Securities Corp., Class
B, 9.546%, 4/25/25 (144A) 682,000 751
Credit Suisse First Boston
Mortgage Securities Corp., Class
C1, 7.26%, 6/20/07 (144A) 1,465,292 1,541
Credit Suisse First Boston
Mortgage Securities Corp., Class
C1, 7.28%, 6/20/07 (144A) 1,500,000 1,583
Credit Suisse First Boston
Mortgage Securities Corp., Class
D, 9.546%, 4/25/25 (144A) 2,000,000 2,279
Criimi Mae Commercial Mortgage
Trust, 7.0%, 11/02/06 3,000,000 2,859
DLJ Mortgage Acceptance
Corporation, Class S, .3571%,
10/15/17 (144A) IO 104,798,235 2,391
DLJ Mortgage Acceptance
Corporation, Class S, .718%,
2/18/31 IO 120,486,326 4,821
DLJ Mortgage Acceptance
Corporation, 8.100%, 6/18/04 1,824,855 1,982
DLJ Mortgage Acceptance
Corporation, 8.100%, 6/18/04 1,000,000 1,089
First Union-Lehman Brothers
Commercial Mortgage Trust, Class
C, 7.44%, 4/18/07 2,500,000 2,653
GMAC Commercial Mortgage
Securities, Inc., Class C,
7.81%, 10/15/11 (144A) 5,000,000 5,040
Kmart CMBS Financing, Inc., Class
D, 6.6466%, 03/01/07 (144A) 2,000,000 1,994
</TABLE>
B-103
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
COMMERCIAL MORTGAGES (CONTINUED)
<S> <C> <C>
Kmart CMBS Financing, Inc., Class
C, 6.2466%, 03/01/07 (144A) 1,500,000 $ 1,497
LB Mortgage Trust, 8.396%, 6/2/10 5,088,504 6,009
Malan Mortgage Securities Trust,
Class A3, 7.8%, 8/15/05 (144A) 3,000,000 3,118
Merrill Lynch Mortgage Investors,
Inc., Class C, 7.12%, 6/18/29 2,500,000 2,605
Merrill Lynch Mortgage Investors,
Inc., Class E, 7.12%, 6/18/29 4,500,000 4,240
Merrill Lynch Mortgage Investors,
Inc., Class E, 8.3346%, 6/25/22
(144A) 2,000,000 1,947
Merrill Lynch Mortgage Investors,
Inc., Class C, 8.9726%, 11/25/20 1,950,000 1,954
Midland Realty Acceptance Corp.,
Class AEC, 1.389%, 1/25/29
(144A) IO 13,930,095 919
Nomura Asset Securities Corp. -
Class A2, 6.9918%, 3/17/28 2,800,000 2,857
Nomura Asset Securities Corp. -
Class A4, 7.5718%, 3/17/28 2,200,000 2,121
Red Mountain Funding LLC, Class
E, 7.365%, 1/15/19 (144A) 1,500,000 1,358
Red Mountain Funding LLC, Class
F, 7.471%, 1/15/19 (144A) 1,800,000 1,460
The Equitable Life Insurance
Society of the U S, Class C1,
7.52%, 5/15/06 2,000,000 2,148
-----------
TOTAL 80,152
-----------
CREDIT CARD ASSET BACKED (0.7%)
Iroquois Trust, Class A, 6.752%,
6/25/07 (144A) 2,000,000 2,019
-----------
FRANCHISE LOAN RECEIVABLES (2.6%)
EMAC Owner Trust, 1.378%, 1/15/25
(144A) IO 30,965,287 2,245
EMAC Owner Trust - Class A2,
6.38%, 04/15/07 (144A) 3,100,000 3,091
Global Franchise Trust, 6.349%,
4/10/04 2,495,173 2,536
-----------
TOTAL 7,872
-----------
HOME EQUITY LOAN (0.7%)
Amresco Residential Securities -
Class A2, 6.245%, 04/25/22 2,200,000 2,207
-----------
<CAPTION>
MARKET
VALUE
BONDS (95.0%) PAR (000'S)
- --------------------------------------------------------------
<S> <C> <C>
MANUFACTURED HOUSING (1.3%)
Mid-State Trust VI, Class A3,
7.54%, 7/1/35 1,126,317 $ 1,159
Vanderbilt Mortgage and Finance,
Inc., Class 1A4, 7.19%, 2/7/14 2,500,000 2,599
-----------
TOTAL 3,758
-----------
OTHER ASSET BACKED (3.6%)
FMAC Loan Receivables Trust -
Class A, 6.2%, 9/15/20 (144A) 1,541,153 1,545
Harley-Davidson Eaglemark, 5.87%,
4/15/04 1,500,000 1,519
Heilig-Meyers Master Trust -
Class A, 6.125%, 1/20/07 (144A) 3,000,000 2,998
Nations Credit Grantor Trust -
Class A1, 6.35%, 4/15/14 2,090,919 2,118
Newcourt Equipment - Class B,
6.764%, 9/20/04 (144A) 1,102,955 1,102
Rural Housing Trust, 6.33%,
4/17/01 1,546,266 1,562
-----------
TOTAL 10,844
-----------
RESIDENTIAL MORTGAGES (2.6%)
BCF L L C Mortgage Pass Thru
Certificate, Class B3, 7.75%,
3/25/37 (144A) 3,899,204 3,843
Blackrock Capital Finance, Class
B3, 7.25%, 11/25/28 (144A) 4,403,682 3,979
-----------
TOTAL 7,822
-----------
UTILITY (1.2%)
Comed Transitional, 5.74%,
12/16/2008 3,500,000 3,520
-----------
TOTAL MORTGAGE BACKED AND
ASSET BACKED SECURITIES 131,149
-----------
TOTAL BONDS 283,202
-----------
<CAPTION>
MONEY MARKET INVESTMENTS (3.8%)
- --------------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERMENT AND AGENCIES (0.5%)
++Federal Home Loan Mortgage
Company, 4.92%, 2/26/99 1,500,000 $ 1,489
-----------
FINANCE SERVICES (2.3%)
++American Express Credit, 5.0%,
1/8/99 6,800,000 6,793
-----------
</TABLE>
B-104
<PAGE>
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (3.8%) PAR (000'S)
- --------------------------------------------------------------
COMMERCIAL MORTGAGE (1.0%)
<S> <C> <C>
++Asset Securitization, 5.6%,
1/28/99 3,000,000 $ 2,987
-----------
TOTAL MONEY MARKET
INVESTMENTS 11,269
-----------
TOTAL INVESTMENTS (98.8%)
(COST $292,980,971)^ 294,471
OTHER ASSETS, LESS
LIABILITIES (1.2%) 3,563
-----------
TOTAL NET ASSETS (100.0%) $ 298,034
-----------
</TABLE>
IO-Interest Only Security
144A after the name of a security represents a security exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be
resold as transactions exempt from registration, normally to qualified
institutional buyers.
# Defaulted Security
++ Partially held by the custodian in a segregated account as collateral for
open futures postions. Information regarding open futures contracts as of
December 31, 1998 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF DEPRECIATION DEPRECIATION
ISSUERS CONTRACTS DATE (000'S)
- -----------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond 47 3/99 $3
Future
(Total Notional Value
at 12/31/98,
$6,002,781)
</TABLE>
* Foreign securities denominated in Greek Drachma.
^ At December 31, 1998, the aggregate cost of securities for federal income tax
purposes was $296,076,635 and the net unrealized depreciation of investments
based on that cost was $1,605,662 which is comprised of $6,694,897 aggregated
gross unrealized appreciation and $8,300,559 aggregated gross unrealied
depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements.
B-105
<PAGE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Maximum current income Achieve stability of capital by investing in $291,464,000
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.
Like all portfolios that include debt instruments, the Money Market Portfolio
was affected by the extreme volatility of financial markets during the last half
of 1998. During the third quarter, maturities in this Portfolio were extended to
as much as 50 days; this action helped performance as rates fell in September
and October. At year end, the policy is balanced, with relatively short
maturities.
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.
B-106
<PAGE>
MONEY MARKET PORTFOLIO
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (69.2%) PAR (000'S)
- ---------------------------------------------------------------
<S> <C> <C>
CHEMICALS & ALLIED PRODUCTS (4.8%)
American Home Product Co., 5.15%,
02/10/99 14,000,000 $ 13,920
-----------
DEPARTMENT STORES (4.8%)
J.C. Penny Company, Inc., 5.04%,
02/05/99 1,940,000 1,930
J.C. Penny Company, Inc., 5.22%,
02/24/99 4,310,000 4,276
J.C. Penny Company, Inc., 5.07%,
03/05/99 7,750,000 7,681
-----------
TOTAL 13,887
-----------
ELECTRONIC COMPUTERS (4.9%)
International Business Machines,
5.04%, 01/22/99 14,200,000 14,158
-----------
FINANCE (12.5%)
Chrysler Financial Corporation,
5.24%, 02/10/99 13,638,000 13,559
Ciesco LP, 5.10%, 01/22/99 2,000,000 1,994
Ciesco LP, 5.20%, 02/05/99 5,600,000 5,572
Ciesco LP, 5.25%, 02/05/99 1,240,000 1,234
CXC Incorporated, 5.13%, 01/28/99 14,200,000 14,145
-----------
TOTAL 36,504
-----------
INDUSTRIAL INORGANIC CHEMICALS (4.9%)
Monsanto Company, 5.07%, 02/16/99 14,300,000 14,207
-----------
PERSONAL CREDIT INSTITUTIONS (24.7%)
American General Finance, 5.28%,
01/21/99 12,760,000 12,723
Ford Motor Credit Company, 5.03%,
01/22/99 14,200,000 14,158
General Electric Capital Corp.,
5.059%, 01/27/99 2,510,000 2,501
General Electric Capital Corp.,
5.40%, 01/29/99 1,975,000 1,967
General Electric Capital Corp.,
5.48%, 02/03/99 2,234,000 2,223
General Motors Acceptance Corp.,
5.16%, 01/27/99 6,200,000 6,177
General Motors Acceptance Corp.,
5.07%, 01/29/99 8,000,000 7,969
Household Finance Company, 5.35%,
01/15/99 10,555,000 10,533
Variable Funding Capital Corp.,
5.20%, 01/20/99 5,200,000 5,186
Variable Funding Capital Corp.,
5.27%, 02/18/99 8,800,000 8,738
-----------
TOTAL 72,175
-----------
PETROLEUM AND COAL PRODUCTS (1.5%)
E. I. Dupont De Nemours, 5.21%,
01/13/99 4,355,000 4,347
-----------
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (69.2%) PAR (000'S)
- ---------------------------------------------------------------
<S> <C> <C>
SHORT TERM BUSINESS CREDIT (11.1%)
American Express Credit, 5.00%,
01/08/99 9,855,000 $ 9,845
CIT Group, 5.35%, 01/28/99 8,980,000 8,944
Sears Roebuck Acceptance Corp.,
5.10%, 02/22/99 13,900,000 13,798
-----------
TOTAL 32,587
-----------
TOTAL MONEY MARKET INVESTMENTS 201,785
-----------
<CAPTION>
ASSET-BACKED SECURITIES (30.5%)
- ---------------------------------------------------------------
<S> <C> <C>
AUTO RELATED (4.1%)
New Center Asset Trust, 5.39%,
01/08/99 11,990,000 $ 11,977
-----------
FINANCE LESSORS (26.4%)
Asset Securitization, 5.20%,
01/22/99 11,000,000 10,967
Asset Securitization, 5.10%,
03/19/99 2,900,000 2,868
Preferred Receivable Funding, 5.26%,
01/05/99 6,300,000 6,296
Preferred Receivable Funding, 5.40%,
02/02/99 5,900,000 5,872
Preferred Receivable Funding, 5.22%,
02/18/99 2,160,000 2,145
Quincy Capital Corporation, 5.44%,
01/14/99 14,200,000 14,172
Receivable Capital Trust, 5.29%,
02/04/99 8,355,000 8,313
Receivable Capital Trust, 5.299%,
02/04/99 2,036,000 2,026
Short Term Repackage Asset Trust,
5.686%, 04/13/99 10,100,000 10,099
Triple A One Funding, 5.60%,
01/06/99 3,671,000 3,668
Triple A One Funding, 5.28%,
01/29/99 5,148,000 5,127
Triple A One Funding, 5.22%,
02/16/99 5,450,000 5,414
-----------
TOTAL 76,967
-----------
TOTAL ASSET-BACKED SECURITIES 88,944
-----------
TOTAL INVESTMENTS (99.7%), (COST
$290,729,450)^ 290,729
OTHER ASSETS, LESS LIABILITIES
(.3%) 735
-----------
TOTAL NET ASSETS (100.0%) $ 291,464
-----------
</TABLE>
^ Also represents cost for federal income tax purposes.
The Accompanying Notes are an Integral Part of the Financial Statements
B-107
