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REGISTRATION NOs. 2-89971
811-3990
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---
PRE-EFFECTIVE AMENDMENT NO.
-------- ---
POST-EFFECTIVE AMENDMENT NO. 18 X
---- ---
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 19 X
---- ---
NORTHWESTERN MUTUAL SERIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(414) 271-1444
(REGISTRANT'S TELEPHONE NUMBER)
MERRILL C. LUNDBERG, SECRETARY
720 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(NAME AND ADDRESS OF AGENT FOR SERVICE)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
[ X] ON April 28, 2000 PURSUANT TO PARAGRAPH (b)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1)
[ ] ON (DATE)PURSUANT TO PARAGRAPH (a)(1)
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(2) OF RULE 485
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE
DATE FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
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NORTHWESTERN MUTUAL
SERIES FUND, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in Prospectus of information
required by the Items in Part A of Form N-1A.
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ITEM NUMBER HEADING IN PROSPECTUS
----------- ---------------------
<S> <C>
1 Front Cover Page and Back Cover Page
2 Summary
3 *
4 Investment Objectives, Strategies
and Risks
5 *
6 Management of the Fund, Taxes
and Dividends
7 Offering and Redemption of
Shares, Taxes and Dividends
8 Offering and Redemption of
Shares
9 Financial Highlights
</TABLE>
* Indicates inapplicable or negative
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[NORTHWESTERN MUTUAL (TM) LOGO]
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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 28, 2000
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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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PAGE PAGE
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Summary............................................. 2 Index 500 Stock Portfolio.........................12
Investment Objectives and Strategies................ 2 Balanced Portfolio................................12
Main Risks.......................................... 3 High Yield Bond Portfolio.........................13
Performance......................................... 4 Select Bond Portfolio.............................14
Investment Objectives, Strategies and Risks......... 9 Money Market Portfolio............................15
Small Cap Growth Stock Portfolio.................. 9 Management of the Fund............................16
Aggressive Growth Stock Portfolio................. 9 Portfolio Managers................................16
International Equity Portfolio.................... 9 Investment Advisory Fees and Other Expenses.......17
Index 400 Stock Portfolio.........................10 Taxes and Dividends...............................17
Growth Stock Portfolio............................11 Offering and Redemption of Shares.................18
Growth and Income Stock Portfolio.................11 Financial Highlights..............................18
</TABLE>
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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 MidCap 400 Index"). The Portfolio
will attempt to meet this objective by investing in stocks included in the S&P
MidCap 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.
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,
2
<PAGE> 5
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.
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.
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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. Illiquidity 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.
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.
SMALL CAP GROWTH STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 4th-1999 45.40% Worst Quarter: 3rd-1999 5.87%
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
Small Cap Growth Stock Portfolio
- ---- ---- 86.09%
- -------------------------------------------
S&P 600 Index
- ---- ---- 15.86%
- -------------------------------------------
Russell 2000 Index
- ---- ---- 17.67%
- -------------------------------------------
* Commenced operations on April 30, 1999.
(Returns not annualized).
4
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AGGRESSIVE GROWTH STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 4th-1999 33.86% Worst Quarter: 3rd-1998-21.47%
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
Aggressive Growth Stock Portfolio
43.78% 23.62% 22.02%
- -------------------------------------------
Wilshire Small Cap Index (1)
36.86% 21.57% 20.69%
- -------------------------------------------
Wilshire Next 1750 Index (2)
10.47% 15.78% 17.66%
- -------------------------------------------
S&P MidCap 400 Index (3)
14.69% 23.04% 20.65%
- -------------------------------------------
*Commenced operations on November 30, 1990.
(1) The Wilshire Next 1750 is an unmanaged, equally weighed index. Included
in this index are those stocks which are ranked 750 to 2500 by market
capitalization in the Wilshire 5000. The largest sectors represented in this
index are materials and services, technology, and consumer non-durables. Market
capitalization ranges from $1.5 billion to $6.24 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 weighed in this unmanaged index. The
average market capitalization is approximately $981 million. The largest sector
weightings include technology, materials and services, and consumer
non-durables.
(3) The S&P MidCap 400 Index is a capitalization-weighted index that
measures the performance of the mid-range sector of the U.S. stock market. As of
December 31, 1999, the 400 companies in the composite had medium market
capitalization of $1.6 billion and a total market value of $907 billion. The
MidCap 400 represents approximately 6% of the market value of S&P's database of
over 8,200 equities.
INTERNATIONAL EQUITY PORTFOLIO
ANNUAL TOTAL RETURN
[BAR GRAPH]
Best Quarter: 1st-1998 14.15% Worst Quarter: 3rd-1998-18.16%
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
International Equity Portfolio
22.88% 14.93% 14.70%
- -------------------------------------------
Morgan Stanley Capital International
EAFE (Europe-Australasia-Far East) Index
27.30% 13.16% 12.55%
- -------------------------------------------
*Commenced operations on April 30, 1993.
5
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INDEX 400 STOCK PORTFOLIO
ANNUAL TOTAL RETURNs
[BAR GRAPH]
Best Quarter: 4th-1999 16.93% Worst Quarter: 3rd-1999-8.53%
GROWTH STOCK PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
Index 400 Stock Portfolio
- ---- ----- 12.83%
- -------------------------------------------
S&P MidCap 400 Index
- ---- ----- 13.58%
- -------------------------------------------
*Commenced operations on April 30, 1999.
(Returns not annualized).
GROWTH STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH}
Best Quarter: 4th-1998 22.20% Worst Quarter: 3rd-1998-12.56%
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
Growth Stock Portfolio
22.50% 26.09% 23.05%
- -------------------------------------------
S&P 500 Index
21.06% 28.46% 25.45%
- -------------------------------------------
*Commenced operations on May 3, 1994.
GROWTH & INCOME STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 4th-1998 21.76% Worst Quarter: 3rd-1999-12.65%
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
Growth and Income Stock Portfolio
7.47% 22.04% 19.29%
- -------------------------------------------
S&P 500 Index
21.06% 28.46% 25.45%
- -------------------------------------------
*Commenced operations on May 3, 1994.
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INDEX 500 STOCK PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 4th-1998 21.45% Worst Quarter: 3rd-1990-11.72%
AVERAGE ANNUAL TOTAL RETURN
1 Yr 5 Yrs 10 Yrs
- -------------------------------------------
Index 500 Stock Portfolio
20.91% 28.42% 17.56%
- -------------------------------------------
S&P 500 Index
21.06% 28.46% 18.16%
- -------------------------------------------
BALANCED PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 4th-1998 12.21% Worst Quarter: 3rd-1990-5.93%
AVERAGE ANNUAL TOTAL RETURN
1 Yr 5 Yrs 10 Yrs
- -------------------------------------------
Balanced Portfolio
11.18% 18.16% 12.86%
- -------------------------------------------
Merrill Lynch Domestic Master Index (1)
- -0.96% 7.74% 7.76%
- -------------------------------------------
S&P 500 Index (2)
21.06% 28.46% 18.16%
- -------------------------------------------
Merrill Lynch 91-Day T-Bill (3)
4.85% 5.35% 5.28%
- -------------------------------------------
(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 unmanage
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:
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HIGH YIELD BOND PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 2nd-1997 7.48% Worst Quarter: 3rd-1998-10.69%
AVERAGE ANNUAL TOTAL RETURN
Since
1 Yr 5 Yrs Inception*
- -------------------------------------------
High Yield Bond Portfolio
- -0.44% 9.63% 9.03%
- -------------------------------------------
Lehman Brothers High Yield
Intermediate Market Index
2.64% 8.96% 8.23%
- -------------------------------------------
*Commenced operations on May 3, 1994.
SELECT BOND PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 2nd-1989 8.10% Worst Quarter: 1st-1994-2.23%
AVERAGE ANNUAL TOTAL RETURN
1 Yr 5 Yrs 10 Yrs
- -------------------------------------------
Select Bond Portfolio
- -1.00% 7.38% 7.77%
- -------------------------------------------
Merrill Lynch Domestic Master Index
- -0.96% 7.74% 7.76%
- -------------------------------------------
MONEY MARKET PORTFOLIO
ANNUAL TOTAL RETURNS
[BAR GRAPH]
Best Quarter: 2nd-1989 2.33% Worst Quarter: 2nd-1993 0.69%
AVERAGE ANNUAL TOTAL RETURN
1 Yr 5 Yrs 10 Yrs
- -------------------------------------------
Money Market Portfolio
5.08% 5.36% 5.25%
- -------------------------------------------
For the seven-day period ended March 31, 2000, the Money Market Portfolio's
yield was 5.77% and was equivalent to a compound effective yield of 5.94%.
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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 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
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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 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 MidCap 400 Stock
Price Index ("S&P MidCap 400 Index"). The Portfolio will attempt to meet this
objective by investing in stocks included in the S&P MidCap 400 Index in
proportion to their weighting in the index.
The S&P MidCap 400 Index is composed of 400 common stocks. The companies
included in the S&P MidCap 400 Index are generally smaller than those that
comprise the S&P 500 Index. See the description of the Index 500 Stock Portfolio
below. The S&P MidCap 400 does not include the very large issues that account
for most of the weighting in the S&P 500 Index. Most of the companies in the S&P
MidCap 400 Index have a market value in the range of $750 million to $5 billion.
A few are smaller and a few are larger. "Standard & Poor's(R)", "S&P(R)", "S&P
MidCap 400 Index" and "Standard & Poor's MidCap 400" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Northwestern
Mutual. 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.
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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 normally hold at least 375 of the 400 issues that comprise the S&P MidCap
400 Index.
The Index 400 Stock Portfolio's ability to match the performance of the S&P
MidCap 400 Index will be affected to some extent by the size and timing of cash
flows into and out of the 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 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.
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<PAGE> 14
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(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
Northwestern Mutual. 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 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.
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<PAGE> 15
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 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
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<PAGE> 16
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);
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,
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<PAGE> 17
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.
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
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<PAGE> 18
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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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. 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, 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 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 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 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, joined Northwestern Mutual 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 and for investment management of the Balanced Portfolio.
Patricia L. Van Kampen, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual 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, and for investment management of the
Balanced Portfolio.
William R. Walker, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual in 1984. Prior to this, he worked for the
Chicago Board Options Exchange, the Milwaukee Company, and Armco Insurance. Mr.
Walker is a Chartered Financial Analyst, and holds a B.S. degree from Marquette
University and an M.B.A. from Miami of Ohio. He has primary responsibility for
the management of the Small Cap Growth Stock Portfolio and the Aggressive Growth
Stock Portfolio, as well as the small company portfolio of Northwestern Mutual.
Julie M. Van Cleave, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual 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.
Timothy S. Collins, Managing Director of Northwestern Investment Management
Company, joined Northwestern Mutual 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
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<PAGE> 19
manages high yield fixed income securities of Northwestern Mutual. Mr. Collins
is a Chartered Financial Analyst.
Varun Mehta, Director of Northwestern Investment Management Company, joined
Northwestern Mutual 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.
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 0.20%. For the Index 400 Stock
Portfolio the rate is 0.25%. For the Select Bond, Money Market and Balanced
Portfolios the rate is 0.30%. 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................. 0.70% 0.60% 0.55%
Growth Stock............ 0.60% 0.50% 0.40%
Small Cap Growth
Stock Portfolio....... 0.80% 0.65% 0.50%
Aggressive Growth
Stock................. 0.80% 0.65% 0.50%
High Yield Bond......... 0.60% 0.50% 0.40%
International Equity.... 0.85% 0.65% 0.65%
</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 0.45% on
the first $100 million of the Portfolio's assets, 0.40% on the next $100
million, 0.35% on the next $200 million and 0.30% 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 0.50% of the Portfolio's assets, reduced to 0.40% on
assets in excess of $100 million.
The following table shows the annual expenses for each of the Portfolios which
were in operation during 1999, as a percentage of the average net assets of the
Portfolio, based on 1999 operations:
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
--------- --- -------- --------
<S> <C> <C> <C>
Small Cap Growth
Stock............... 0.79% 0.24% 1.03%
Aggressive Growth
Stock............... 0.51% 0.00% 0.51%
International Equity.. 0.67% 0.07% 0.74%
Index 400 Stock....... 0.25% 0.11% 0.36%
Growth Stock ......... 0.43% 0.00% 0.43%
Growth and Income
Stock............... 0.57% 0.00% 0.57%
Index 500 Stock....... 0.20% 0.00% 0.20%
Balanced.............. 0.30% 0.00% 0.30%
High Yield Bond....... 0.49% 0.01% 0.50%
Select Bond........... 0.30% 0.00% 0.30%
Money Market.......... 0.30% 0.00% 0.30%
</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
17
<PAGE> 20
income and net capital gains will be declared for the Small Cap Growth Stock,
Aggressive Growth Stock, International Equity, Index 400 Stock, 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 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.
18
<PAGE> 21
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
NET REALIZED
NET NET AND DISTRIBUTIONS NET NET RATIO OF
ASSET INVEST- UNREALIZED TOTAL DIVIDENDS FROM NET ASSET ASSETS GROSS
VALUE MENT GAIN FROM FROM NET REALIZED TOTAL VALUE, END OF EXPENSES
BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAIN ON DISTRIBU- END TOTAL YEAR TO AVERAGE
OF YEAR (LOSS) INVESTMENTS OPERATIONS INCOME INVESTMENTS TIONS OF YEAR RETURN + (THOUSANDS) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Growth Stock Portfolio
*1999 .. $ 1.00 $(.00) $.85 $.85 $(.06) $.00 $(.06) $1.79 6.09% ++ $71,483 1.03%/\
- ------------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Stock Portfolio
1995 .. $2.00 $-- $.78 $ .78 $-- $(.01) $(.01) $2.77 39.29% $577,014 --
1996 .. 2.77 -- .49 .49 -- (.11) (.11) 3.15 17.70 871,926 --
1997 .. 3.15 -- .39 .39 -- (.20) (.20) 3.34 13.86 1,067,068 --
1998 .. 3.34 -- .24 .24 -- (.12) (.12) 3.46 7.56 1,137,466 --
1999 .. 3.46 -- 1.48 1.48 -- (.13) (.13) 4.81 48.78 1,485,311 --
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Portfolio
1995 .. $1.19 $.04 $.13 $.17 $ -- $(.01) $(.01) $1.35 14.57% $342,127 --
1996 .. 1.35 .04 .24 .28 (.03) (.04) (.07) 1.56 21.01 505,189 --
1997 .. 1.56 .04 .15 .19 (.04) (.02) (.06) 1.69 12.28 659,850 --
1998 .. 1.69 .05 .04 .09 (.04) (.06) (.10) 1.68 4.82 671,106 --
1999 .. 1.68 .03 .33 .32 (.05) (.21) (.26) 1.78 22.88 772,170 --
- ------------------------------------------------------------------------------------------------------------------------------------
Index 400 Stock Portfolio
*1999 .. $1.00 $.01 $.12 $.13 $(.01) $(.01) $(.02) $1.11 12.83% $59,644 0.46%/\
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Stock Portfolio
1995 .. $ 1.00 $.02 $.28 $.30 (.02) $(.02) $(.04) $1.26 30.82% $85,557 --
1996 .. 1.26 .02 .25 .27 (.02) (.05) (.07) 1.46 20.91 170,482 --
1997 .. 1.46 .02 .42 .44 (.02) (.07) (.09) 1.81 29.85 243,071 --
1998 .. 1.81 .02 .46 .48 (.02) (.02) (.04) 2.25 26.69 421,282 --
1999 .. 2.25 .03 .47 .50 (.03) (.06) (.09) 2.66 22.50 676,134 --
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Stock Portfolio
1995 .. $ .98 $.02 $ .29 $ .31 $ (.02) $(.06) $(.08) $1.21 31.12% $136,923 --
1996 .. 1.21 .02 .23 .25 (.02) (.12) (.14) 1.32 19.97 234,184 --
1997 .. 1.32 .01 .37 .38 (.01) (.36) (.37) 1.33 30.03 371,935 --
1998 .. 1.33 .01 .29 .30 (.01) .00 (.01) 1.62 23.14 570,970 --
1999 .. 1.62 .01 .12 .13 .00 (.19) (.19) 1.56 7.47 661,552 --
- ------------------------------------------------------------------------------------------------------------------------------------
Index 500 Stock Portfolio
1995 .. $1.27 $.04 $.42 $.46 $(.01) $-- $(.01) $1.72 37.25% $495,133 --
1996 .. 1.72 .04 .35 .39 (.02) (.03) (.05) 2.06 22.75 740,066 --
1997 .. 2.06 .04 .62 .66 (.04) (.04) (.08) 2.64 33.20 1,152,857 --
1998 .. 2.64 .04 .71 .75 (.04) (.06) (.10) 3.29 28.72 1,690,680 --
1999 .. 3.29 .04 .64 .68 (.03) (.05) (.08) 3.89 20.91 2,271,956 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
1995 .. $1.31 $.07 $.27 $.34 $(.04) $(.01) $(.05) $1.60 26.39% $2,083,289 --
1996 .. 1.60 .06 .15 .21 (.06) (.03) (.09) 1.72 13.45 2,326,234 --
1997 .. 1.72 .07 .28 .35 (.06) (.02) (.08) 1.99 21.52 2,788,494 --
1998 .. 1.99 .07 .29 .36 (.07) (.06) (.13) 2.22 18.88 3,282,071 --
1999 .. 2.22 .07 .17 .24 (.07) (.17) (.24) 2.22 11.18 3,557,900 --
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Portfolio
1995 .. $ .97 $.10 $.07 $.17 $ (.10) (.01) $ (.11) $1.03 16.78% $55,974 --
1996 .. 1.03 .09 .10 .19 (.09) (.03) (.12) 1.10 19.77 93,878 --
1997 .. 1.10 .11 .06 .17 (.14) (.07) (.21) 1.06 15.85 153,038 --
1998 .. 1.06 .10 (.12) (.02) (.10) -- (.10) .94 (1.84) 184,782 --
1999 .. .94 .09 (.10) (.01) (.11) -- (.11) .82 (.44) 161,424 --
- ------------------------------------------------------------------------------------------------------------------------------------
Select Bond Portfolio
1995 .. $1.06 $.07 $ .13 $ .20 $(.03) $-- $(.03) $1.23 19.10% $198,142 --
1996 .. 1.23 .07 (.04) .03 (.04) -- (.04) 1.22 3.31 214,333 --
1997 .. 1.22 .08 .04 .12 (.08) -- (.08) 1.26 9.46 244,835 --
1998 .. 1.26 .08 -- .08 (.08) (.01) (.09) 1.25 7.07 298,034 --
1999 .. 1.25 .07 (.08) (.01) (.08) (.03) (.11) (1.13) (1.00) 286,493 --
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Portfolio
1995 .. $1.00 $ .06 $-- $ .06 $(.06) $-- $(.06) $1.00 5.82% $132,572 --
1996 .. 1.00 .05 -- .05 (.05) -- (.05) 1.00 5.29 176,298 --
1997 .. 1.00 .05 -- .05 (.05) -- (.05) 1.00 5.47 194,470 --
1998 .. 1.00 .04 -- .05 (.05) -- (.05) 1.00 5.43 291,464 --
1999 .. 1.00 .05 -- .05 (.05) -- (.05) 1.00 5.10 404,284 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO
OF NET
RATIO OF RATIO OF INVESTMENT
NET EXPENSES INCOME
EXPENSES TO (LOSS)TO PORTFOLIO
TO AVERAGE AVERAGE AVERAGE TURNOVER
NET ASSETS NET ASSETS NET ASSETS RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap Growth Stock Portfolio
1999 .. 1.00%/\ -- (0.07)%/\ 70.72%
- --------------------------------------------------------------------------------
Aggressive Growth Stock Portfolio
1995 .. -- 0.56% 0.13% 37.84%
1996 .. -- 0.54 (0.03) 47.25
1997 .. -- 0.53 0.06 57.27
1998 .. -- 0.52 0.04 50.43
1999 .. -- 0.51 (0.02) 68.64
- --------------------------------------------------------------------------------
International Equity Portfolio
1995 .. -- 0.85% 2.68% 26.71%
1996 .. -- 0.81 3.02 17.07
1997 .. -- 0.77 2.75 16.74
1998 .. -- 0.76 3.38 30.41
1999 .. -- 0.74 2.62 38.37
- --------------------------------------------------------------------------------
Index 400 Stock Portfolio
1999 .. 0.35/\ -- 1.69%/\ 26.51%
- --------------------------------------------------------------------------------
Growth Stock Portfolio
1995 ... -- 0.61% 1.77% 46.83%
1996 .. -- 0.57 1.41 37.61
1997 .. -- 0.49 1.24 33.20
1998 .. -- 0.46 1.10 21.64
1999 .. -- 0.43 1.22 27.26
- --------------------------------------------------------------------------------
Growth and Income Stock Portfolio
1995 .. -- 0.69% 1.68% 80.00%
1996 .. -- 0.62 1.44 93.92
1997 .. -- 0.60 1.04 144.52
1998 .. -- 0.58 1.00 160.40
1999 .. -- 0.57 0.80 106.93
- --------------------------------------------------------------------------------
Index 500 Stock Portfolio
1995 .. -- 0.21% 2.51% 3.19%
1996 .. -- 0.21 2.27 3.45
1997 .. -- 0.21 1.86 3.15
1998 .. -- 0.21 1.40 3.03
1999 .. -- 0.20 1.16 5.65
- --------------------------------------------------------------------------------
Balanced Portfolio
1995 .. -- 0.30% 4.40% 37.28%
1996 .. -- 0.30 3.95 67.66
1997 .. -- 0.30 3.70 29.94
1998 .. -- 0.30 3.48 44.18
1999 .. -- 0.30 3.36 27.16
- --------------------------------------------------------------------------------
High Yield Bond Portfolio
1995 .. -- 0.65% 9.90% 116.57%
1996 .. -- 0.60 9.54 143.91
1997 .. -- 0.55 9.95 129.49
1998 .. -- 0.50 10.85 153.71
1999 .. -- 0.50 11.15 139.87
- --------------------------------------------------------------------------------
Select Bond Portfolio
1995 .. -- 0.30% 6.61% 69.06%
1996 .. -- 0.30 6.48 195.98
1997 .. -- 0.30 7.03 184.93
1998 .. -- 0.30 6.87 161.79
1999 .. -- 0.30 6.56 76.65
- --------------------------------------------------------------------------------
Money Market Portfolio
1995 .. -- 0.30% 5.61% --
1996 .. -- 0.30 5.13 --
1997 .. -- 0.30 5.33 --
1998 .. -- 0.30 5.26 --
1999 .. -- 0.30 4.99 --
- --------------------------------------------------------------------------------
</TABLE>
* For the period of April 30, 1999 (commencement of operations) through December
31, 1999.
+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.
19
<PAGE> 22
More information about Northwestern Mutual Series Fund, Inc. is included in the
Fund's Statement of Additional Information (SAI), incorporated by reference in
this prospectus, which is available free of charge.
More information about the Fund's investments is included in the Fund's annual
and semi-annual reports, which discuss the market conditions and investment
strategies that significantly affected each Portfolio's performance during the
previous fiscal period.
To request a free copy of the Fund's SAI, or current annual or semi-annual
report, call us at 1-888-455-2232. Information about the Fund (including the
SAI) can be reviewed and copied at the Public Reference Room of the Securities
and Exchange Commission (SEC) in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Reports and other information about the Fund are available on the SEC's Internet
site at http://www.sec.gov. Copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, DC 20549-6009.
N O R T H W E S T E R N M U T U A L
VARIABLE ANNUITY CONTRACTS
Nontax-Qualified Annuities Individual Retirement Annuities
Roth IRAs Simplified Employee Pension Plan
IRAs Tax-Deferred Annuities
SIMPLE IRAs 457 Deferred Compensation Plan
Annuities
NORTHWESTERN MUTUAL SERIES FUND, INC.
RUSSELL INSURANCE FUNDS
P R O S P E C T U S
Investment Company Act File Nos. 811-3990 and 811-5371
[NORTHWESTERN MUTUAL(TM)LOGO]
PO Box 3095
Milwaukee WI 53201-3095
Change Service Requested
<PAGE> 23
NORTHWESTERN MUTUAL
SERIES FUND, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in Statement of Additional
Information required by the Items in Part B of Form N-1A.
<TABLE>
<CAPTION>
Heading in Statement
Item Number of Additional Information
----------- -------------------------
<S> <C>
10 Cover Page and Table of Contents
11 Fund History
12 Description of the Fund and Its
Investments and Risks
13 Management of the Fund
14 Control Persons and Principal Holders of
Securities
15 Investment Advisory and
Other Services
16 Brokerage Allocation and Other
Practices
17 Capital Stock and Other Securities
18 Purchase, Redemption and
Pricing of Shares
19 Taxation of the Fund
20 *
21 Calculation of Performance Data
22 Report of Independent Accountants,
Financial Statements and
Schedules of Investments
</TABLE>
* Indicates inapplicable or negative
<PAGE> 24
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 28, 2000.
The date of this Statement of Additional Information is April 28, 2000.
B-1
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
<S> <C> <C>
Investment Policies B-3 9
Investment Restrictions B-3 -
Repurchase Agreements B-4 9
Financial Futures and Forward Contracts B-5 4
Covered Call Option Contracts B-11 -
Reverse Repurchase Agreements B-12 -
Warrants B-12 9
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 14
and Illiquid Assets
Risk Factors for Foreign Securities, B-14 3
Foreign Currencies and Foreign Interest Rates
Portfolio Turnover B-18 -
Management of the Fund B-18 16
Ownership of Shares of the Fund B-21 -
Investment Advisory and Other Services B-23 17
Portfolio Transactions and B-25 -
Brokerage Allocation and Other Practices
Organization and Capital Stock B-27 --
Purchase, Redemption and Pricing of B-28 18
Shares
Taxes and Dividends B-31 17
Calculation of Yield Quotations of B-31 8
the Money Market Portfolio
Appendix A B-32 -
Appendix B B-37 -
Report of Independent Accountants B-38 18
Financial Statements and Schedules B-39 18
of Investments
</TABLE>
B-2
<PAGE> 26
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> 27
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").
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> 28
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 AND FORWARD 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
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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.
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.
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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
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
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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 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
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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
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.
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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 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
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contracts available for trading. A decision of whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected stock
market or interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as initial margin, a 10% decrease
in the value of the futures contract would result in a total loss of the initial
margin deposit before any deduction for the transaction costs, if the account
were then closed out, and a 15% decrease would result in a loss equal to 150% of
the initial margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the 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
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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
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.
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
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quarterly to certificate holders. Payments may be guaranteed up to certain
amounts by letters of credit issued by a financial institution affiliated or
unaffiliated with the trustee or originator of the trust. Underlying receivables
are generally subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, for asset-backed securities, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the underlying loans or other receivables tends to dampen the impact
of any change in the prepayment level. Certificate holders may also experience
delays in payment on the certificates if the full amounts due on underlying
sales contracts or other receivables are not realized by the trust because of
unanticipated legal or administrative costs of enforcing the contracts, or
because of depreciation or damage to the collateral securing certain contracts,
or other factors.
Variable rate securities bear rates of interest that are adjusted
periodically or which "float" continuously according to formulae intended to
minimize fluctuations in values of the instruments. For the 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
B-13
<PAGE> 37
and interest. If the Fund were to invoke legal processes, it might encounter
greater difficulties abroad than in the United States.
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
B-14
<PAGE> 38
negotiation as in the U.S., are likely to be higher. In many foreign countries
there is less government supervision and regulation of stock exchanges, brokers
and listed companies than in the U.S.
Emerging markets. Investments in companies domiciled in developing
countries may be subject to potentially higher risks than investments in
developed countries. These risks include (i) less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain national policies which
may restrict each 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
B-15
<PAGE> 39
privatized enterprises; (h) the risks of investing in securities with
substantially less liquidity and in issuers having significantly smaller market
capitalizations, when compared to securities and issuers in more developed
markets; (i) the difficulties associated in obtaining accurate market valuations
of many Russian securities, based partly on the limited amount of publicly
available information; (j) the financial condition of Russian companies,
including large amounts of inter-company debt which may create a payments crisis
on a national scale; (k) dependency on exports and the corresponding importance
of international trade; (l) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation or, in
the alternative, the risk that a reformed tax system may result in the
inconsistent and unpredictable enforcement of the new tax laws; (m) possible
difficulty in identifying a purchaser of securities held by the 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.
B-16
<PAGE> 40
Currency Each Portfolio's management endeavors to buy and sell foreign
currencies on as favorable a basis as practicable. Some price spread in 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.
B-17
<PAGE> 41
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 that the annual portfolio turnover rate for the Index 500 Stock
Portfolio will not exceed 6%, 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 1999 the portfolio turnover rate for
the Growth and Income Stock Portfolio exceeded 100% 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 1998 and 1999, the portfolio turnover rates were:
<TABLE>
<CAPTION>
Portfolio Turnover Rate 1999 1998
----------------------- ---- ----
<S> <C> <C>
Small Cap Growth Stock 70.72%* --
Aggressive Growth Stock 68.64% 50.43%
International Equity 38.37% 30.41%
Index 400 Stock 26.51%* --
Growth Stock 27.26% 21.64
Growth and Income Stock 106.93% 160.40%
Index 500 Stock 5.65% 3.03%
Balanced 27.16% 44.18%
High Yield Bond 139.87% 153.71%
Select Bond 76.65% 161.79%
* From commencement of operations on April 30, 1999.
</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 (64), President and Director*
720 East Wisconsin Avenue
Milwaukee, WI 53202
Chairman and Chief Executive Officer of Northwestern Mutual
since 2000; prior thereto, President and Chief Executive
Officer. Trustee of Northwestern Mutual.
Stephen N. Graff (65), Director*
805 Lone Tree Road
Elm Grove, WI 53122
Retired Partner, Arthur Andersen LLP (Public Accountants).
Trustee of Northwestern Mutual since 1996
Martin F. Stein (63), Director
1800 East Capitol Drive
Milwaukee, WI 53211
Founder of Stein Optical (retail sales of eyewear)
B-18
<PAGE> 42
John K. MacIver (69), Director
100 East Wisconsin Avenue
Milwaukee, WI 53202
Partner, Michael Best & Friedrich, Attorneys at Law
William J. Blake (67), Director
731 North Jackson Street
Milwaukee, WI 53202
Chairman, Blake Investment Corp. (real estate investments and
venture capital)
William A. McIntosh (61), Director
525 Sheridan Road
Kenilworth, IL 60043
Retired Division Head, U.S. Fixed Income of Salomon Brothers
(investment securities)
Mark G. Doll (50), 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 since 1996. Executive
Vice President, Investment Advisory Services of Northwestern
Mutual Investment Services, LLC since 1996; prior thereto,
President
Patricia L. Van Kampen (48), 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. Vice President-Common Stocks of
Northwestern Mutual Investment Services, LLC
William R. Walker (43), 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. Vice President of Northwestern Mutual
Investment Services, LLC
Julie M. Van Cleave (41), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Managing Director of Northwestern Investment Management
Company since 1998; prior thereto, Director of Common Stocks
of Northwestern Mutual. Vice President-Common Stocks of
Northwestern Mutual Investment Services, LLC
Steven P. Swanson (46), 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 from 1994 to 1997; prior thereto, Director-Securities;
Vice President of Northwestern Mutual Investment Services, LLC
B-19
<PAGE> 43
Varun Mehta (32), 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 from March of 1997 to December of 1997. Portfolio
Research Manager-Fixed Income and Portfolio Manager-Fixed
Income of the Ameritech Investment Management Department from
1993 to March of 1997.
Jefferson V. DeAngelis (42), 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. Vice President-Fixed Income
Securities of Northwestern Mutual Investment Services, LLC
Timothy S. Collins (38), Vice President-Investments
720 East Wisconsin Avenue
Milwaukee, WI 53202
Director of Northwestern Investment Management Company since
1998; Director of Investments for Northwestern Mutual from
October of 1996 to December of 1997; Associate Director -
Investments from 1993 to 1996; prior thereto, Investment
Officer.
Merrill C. Lundberg (60), Secretary
720 East Wisconsin Avenue
Milwaukee, WI 53202
Assistant General Counsel of Northwestern Mutual. Secretary of
Northwestern Mutual Investment Services, LLC
Barbara E. Courtney (42), Controller
720 East Wisconsin Avenue
Milwaukee, WI 53202
Associate Director of Mutual Fund Accounting of Northwestern
Mutual 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 is named above, together with the capacity in which such
person is affiliated with NMIS or Northwestern Mutual.
B-20
<PAGE> 44
COMPENSATION OF OFFICERS AND DIRECTORS. The Fund pays no salaries or
compensation to any of its officers or Directors employed by Northwestern
Mutual. NMIS, the investment advisor to the Fund, pays each of the other
Directors of the Fund a total of up to $21,000 per year, consisting of a $10,000
retainer paid in January and $3,000 per meeting of the board of the Fund
attended. MSF pays other Directors fees totaling $12,000 per year, consisting of
a $5,000 retainer paid in April and an average of $1,750 per meeting of the
Board of Directors of MSF attended. The Fund neither pays nor accrues any
pension or retirement benefits to any of the Directors.
<TABLE>
<CAPTION>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation
Position Compensation Benefits Accrued as Benefits Upon From Series Fund
From Registrant Part of Fund Expenses Retirement Registrant and Fund
Complex Paid to
Directors in 1999
<S> <C> <C> <C> <C>
James D. Ericson, None None None None
Director
William Blake, None None None $33,500
Director
Stephen N. Graff, None None None $33,500
Director
John K. MacIver, None None None $33,500
Director
Martin F. Stein, None None None $33,500
Director
William A. McIntosh, None None None $33,500
Director
</TABLE>
OWNERSHIP OF SHARES OF THE FUND
All of the outstanding shares of the Fund are held by Northwestern
Mutual for its General Account and for its separate investment accounts used for
variable annuity contracts and variable income policies. Additional shares are
being offered only to Northwestern Mutual and the separate investment accounts.
Northwestern Mutual 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, 2000.
<TABLE>
<CAPTION>
SMALL CAP GROWTH STOCK PORTFOLIO
<S> <C> <C>
NML Variable Annuity Account A 5,725,011 shares ( 7.7%)
NML Variable Annuity Account B 54,232,584 shares ( 73.1%)
NML Variable Annuity Account C 1,011,109 shares ( 1.4%)
Northwestern Mutual Variable Life Account 10,803,133 shares ( 14.6%)
General Account 2,424,169 shares ( 3.2%)
---------------- --------
Total 74,196,006 shares (100.0%)
</TABLE>
B-21
<PAGE> 45
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH STOCK PORTFOLIO
<S> <C> <C>
NML Variable Annuity Account A 21,646,240 shares ( 6.7%)
NML Variable Annuity Account B 223,582,490 shares ( 69.3%)
NML Variable Annuity Account C 31,283,200 shares ( 9.7%)
Northwestern Mutual Variable Life Account 45,731,431 shares ( 14.3%)
General Account 0 shares ( 0.0%)
-------- --------
Total 322,243,361 shares (100.0%)
INTERNATIONAL EQUITY PORTFOLIO
NML Variable Annuity Account A 25,539,128 shares ( 5.5%)
NML Variable Annuity Account B 324,385,799 shares ( 70.0%)
NML Variable Annuity Account C 38,816,253 shares ( 8.4%)
Northwestern Mutual Variable Life Account 74,431,807 shares ( 16.1%)
General Account 0 shares ( 0.0%)
--------- --------
Total 463,172,987 shares (100.0%)
INDEX 400 STOCK PORTFOLIO
NML Variable Annuity Account A 2,803,691 shares ( 3.9%)
NML Variable Annuity Account B 35,940,260 shares ( 50.3%)
NML Variable Annuity Account C 692,670 shares ( 1.0%)
Northwestern Mutual Variable Life Account 6,694,926 shares ( 9.4%)
General Account 25,354,430 shares ( 35.4%)
------------------ --------
Total 71,485,977 shares (100.0%)
GROWTH STOCK PORTFOLIO
NML Variable Annuity Account A 14,552,295 shares ( 5.4%)
NML Variable Annuity Account B 185,439,161 shares ( 69.3%)
NML Variable Annuity Account C 16,431,731 shares ( 6.1%)
Northwestern Mutual Variable Life Account 51,239,381 shares ( 19.2%)
General Account 0 shares ( 0.0%)
--------- --------
Total 267,662,568 shares (100.0%)
GROWTH AND INCOME STOCK PORTFOLIO
NML Variable Annuity Account A 20,829,601 shares ( 5.1%)
NML Variable Annuity Account B 293,697,928 shares ( 72.2%)
NML Variable Annuity Account C 24,313,258 shares ( 6.0%)
Northwestern Mutual Variable Life Account 67,945,441 shares ( 16.7%)
General Account 0 shares ( 0.0%)
--------- --------
Total 406,786,228 shares (100.0%)
INDEX 500 STOCK PORTFOLIO
NML Variable Annuity Account A 41,789,958 shares ( 7.2%)
NML Variable Annuity Account B 395,027,400 shares ( 67.7%)
NML Variable Annuity Account C 56,469,537 shares ( 9.7%)
Northwestern Mutual Variable Life Account 89,896,766 shares ( 15.4%)
General Account 0 shares ( 0.0%)
---------- --------
Total 583,183,661 shares (100.0%)
BALANCED PORTFOLIO
NML Variable Annuity Account A 134,647,859 shares ( 8.7%)
NML Variable Annuity Account B 1,261,217,588 shares ( 81.3%)
NML Variable Annuity Account C 72,148,161 shares ( 4.6%)
Northwestern Mutual Variable Life Account 83,731,005 shares ( 5.4%)
General Account 0 shares ( 0.0%)
--------- --------
Total 1,551,744,613 shares (100.0%)
</TABLE>
B-22
<PAGE> 46
<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO
<S> <C> <C>
NML Variable Annuity Account A 7,750,678 shares ( 4.1%)
NML Variable Annuity Account B 132,464,943 shares ( 70.3%)
NML Variable Annuity Account C 7,018,294 shares ( 3.7%)
Northwestern Mutual Variable Life Account 22,768,063 shares ( 12.1%)
General Account 18,487,548 shares ( 9.8%)
------------------ --------
Total 188,489,526 shares (100.0%)
SELECT BOND PORTFOLIO
NML Variable Annuity Account A 18,373,781 shares ( 7.6%)
NML Variable Annuity Account B 193,767,250 shares ( 80.4%)
NML Variable Annuity Account C 14,328,513 shares ( 5.9%)
Northwestern Mutual Variable Life Account 14,635,340 shares ( 6.1%)
General Account 0 shares ( 0.0%)
--------- --------
Total 241,104,884 shares (100.0%)
MONEY MARKET PORTFOLIO
NML Variable Annuity Account A 25,334,626 shares ( 7.2%)
NML Variable Annuity Account B 235,167,702 shares ( 67.1%)
NML Variable Annuity Account C 17,654,706 shares ( 5.0%)
Northwestern Mutual Variable Life Account 72,301,907 shares ( 20.7%)
General Account 0 shares ( 0.0%)
--------- --------
Total 350,458,941 shares (100.0%)
</TABLE>
The shares held in connection with certain of the separate investment
accounts are voted by Northwestern Mutual 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 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 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. 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, 1997, December 31, 1998,
December 31 1999, NMIS received $23,423,272, $28,213,362, and $32,898,876,
respectively, for its services as investment adviser to the Fund.
Northwestern Mutual and its wholly-owned subsidiary, Northwestern
Investment Management Company, employ a full staff of investment personnel to
manage the investment assets of Northwestern Mutual. These personnel and
B-23
<PAGE> 47
related facilities are utilized by NMIS in performing its obligations under the
Agreements and Northwestern Mutual 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. Under the
Agreement providing such consent, the Fund recognizes the prior rights of
Northwestern Mutual in the name and mark, agrees that use of the name and mark
by the Fund will inure to the benefit of Northwestern Mutual and agrees that its
right to use the name and mark can be terminated by Northwestern Mutual 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.
Templeton Investment Counsel, Inc. ("Templeton Counsel"), a Florida
corporation with principal offices at 500 East Broward Boulevard, Ft.
Lauderdale, Florida 33394 has been retained under an investment sub-advisory
agreement to provide investment advice and, in general, to conduct the
management investment program of the International Equity 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 12/31/99. 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 and
Germany are carried out by affiliates, Morgan Trust Bank in Tokyo, and J.P.
Morgan Investment GmbH in Frankfurt.
Northwestern Mutual is the licensee under two License Agreements with
Standard & Poor's, dated as of November 30, 1990 and February 19, 1999 for the
B-24
<PAGE> 48
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. 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
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.
B-25
<PAGE> 49
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
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
B-26
<PAGE> 50
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 1999 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, 1997, 1998, and 1999, the Fund paid brokerage commissions of
$3,985,791, $5,133,812, and $6,299,124, 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. 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. During 1999, the Fund paid $34,410 in
commissions to Baird. This represents 1.2% of the aggregate brokerage
commissions paid during 1999 and less than .1% of aggregate Fund transactions.
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
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. Shares of each Portfolio are presently being offered only
to Northwestern Mutual 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 in accordance with instructions received from the owners of
the variable annuity contracts and variable life insurance policies. The shares
held by Northwestern Mutual as general assets are voted by Northwestern Mutual
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 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
B-27
<PAGE> 51
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 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.
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
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<PAGE> 52
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 securities, 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 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.
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<PAGE> 53
The total offering price per share for each Portfolio is computed as
follows:
<TABLE>
<CAPTION>
SPECIMEN PRICE-MAKE-UP SHEET
(as of December 31, 1999)
SMALL CAP
GROWTH AGGRESSIVE INTERNATIONAL INDEX 400
STOCK GROWTH STOCK EQUITY STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSETS $71,482,646 $1,485,311,163 $772,170,457 $59,644,323
NUMBER OF SHARES
OUTSTANDING 39,849,289 309,009,033 433,636,322 53,566,708
NET ASSET VALUE PER SHARE
(NET ASSETS - NUMBER OF SHARES
OUTSTANDING) $1.794 $4.807 $1.781 $1.113
OFFERING AND REDEMPTION
PRICE PER SHARE $1.79 $4.81 $1.78 $1.11
<CAPTION>
GROWTH AND
GROWTH STOCK INCOME STOCK INDEX 500
PORTFOLIO PORTFOLIO STOCK PORTFOLIO
--------- --------- ---------------
<S> <C> <C> <C>
NET ASSETS $676,133,829 661,551,933 $2,271,955,777
NUMBER OF SHARES OUTSTANDING 254,559,718 423,861,458 584,474,260
NET ASSET VALUE PER SHARE
(NET ASSETS - NUMBER OF SHARES
OUTSTANDING) $2.656 $1.561 $3.887
OFFERING AND REDEMPTION PRICE PER SHARE
$2.66 $1.56 $3.89
<CAPTION>
HIGH YIELD
BALANCED BOND SELECT BOND MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSETS $3,557,900,234 $161,423,443 $286,492,754 $404,181,745
NUMBER OF SHARES
OUTSTANDING 1,601,484,155 196,343,290 253,257,931 404,259,096
NET ASSET VALUE PER SHARE
(NET ASSETS - NUMBER OF SHARES
OUTSTANDING) $2.222 $0.822 $1.131 $1.000
OFFERING AND REDEMPTION PRICE PER
SHARE $2.22 $0.82 $1.13 $1.00
</TABLE>
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<PAGE> 54
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.
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<PAGE> 55
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:
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<PAGE> 56
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. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA--Debt rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A--Debt rated 'A' is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB--Debt rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB--Debt rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B--Debt rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC--Debt rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
B-33
<PAGE> 57
CC--Debt rated 'CC' is currently highly vulnerable to nonpayment.
C--A subordinated debt or preferred stock obligation rated 'C' is
CURRENTLY HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action taken,
but payments on this obligation are being continued. A 'C' also will be assigned
to a preferred stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.
D--Debt rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation 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.
r--This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R.--This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
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.
B-34
<PAGE> 58
ca--speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
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.
COMMERCIAL PAPER
Moody's Investors Service
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of one year.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated PRIME-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. PRIME-1 repayment
ability will often be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
Standard & Poor's
S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
B-35
<PAGE> 59
A-1 Commercial paper rated 'A-1' is rated in the highest category. The
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
A-2 Commercial paper rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 Commercial paper rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B Commercial paper rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C Commercial paper rated 'C' is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D Commercial paper rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
B-36
<PAGE> 60
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-37
<PAGE> 61
[PRICEWATERHOUSECOOPERS LLC - LETTERHEAD]
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 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 and Money Market Portfolio (constituting
Northwestern Mutual Series Fund, Inc., hereafter referred to as the "Fund") at
December 31, 1999, the results of each of their operations for the year or
period then ended, the changes in each of their net assets and financial
highlights for the years or periods indicated, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodians and brokers, provide a reasonable
basis for the opinion expressed above.
[PRICEWATERHOUSECOOPERS LLC]
Milwaukee, Wisconsin
January 27, 2000
Accountants' Report B- 38
<PAGE> 62
NORTHWESTERN MUTUAL SERIES FUND, INC.
Statements of Assets and Liabilities
December 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SMALL CAP AGGRESSIVE INTERNATIONAL INDEX 400 GROWTH GROWTH AND
GROWTH STOCK GROWTH STOCK EQUITY STOCK STOCK INCOME STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (1)............... $ 70,364 $1,489,394 $ 769,602 $ 59,282 $ 678,360 $ 662,396
Cash.................................... -- 489 185 168 1,028 1,505
Due from Futures Variation Margin....... 144 494 -- 18 161 --
Due from Sale of Fund Shares............ 1,093 358 273 60 393 68
Due from Sale of Securities............. 7 347 11,577 204 1,879 390
Dividends and Interest Receivable....... 4 92 3,260 32 425 681
---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS.......................... 71,612 1,491,174 784,897 59,764 682,246 665,040
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES
Due on Purchase of Securities........... -- 3,572 90 -- 5,357 2,095
Due on Redemption of Fund Shares........ -- 1,662 12,139 40 482 1,047
Due to Investment Advisor............... 99 605 423 39 234 311
Accrued Expenses........................ 30 24 75 41 39 35
Due on Futures Variation Margin......... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES..................... 129 5,863 12,727 120 6,112 3,488
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS............................ $ 71,483 $1,485,311 $ 772,170 $ 59,644 $ 676,134 $ 661,552
========== ========== ========== ========== ========== ==========
REPRESENTED BY:
Aggregate Paid in Capital (2), (3)...... $ 53,502 $ 672,923 $ 582,268 $ 54,415 $ 433,185 $ 566,133
Undistributed Net Investment Income..... -- -- 16,150 -- 1,365 4,979
Undistributed Accumulated Net Realized
Gain (Loss) on Investments............ 4,081 199,657 41,774 1,247 27,809 26,599
Net Unrealized Appreciation
(Depreciation) of:
Investment Securities................. 13,509 610,322 132,049 3,850 210,900 63,841
Index Futures Contracts............... 391 2,409 -- 132 2,875 --
Foreign Currency Transactions......... -- -- (71) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net Assets for Shares Outstanding (2)... $ 71,483 $1,485,311 $ 772,170 $ 59,644 $ 676,134 $ 661,552
========== ========== ========== ========== ========== ==========
Net Asset Value, Offering and Redemption
Price per Share....................... $ 1.79 $ 4.81 $ 1.78 $ 1.11 $ 2.66 $ 1.56
========== ========== ========== ========== ========== ==========
(1) Investments, at cost.................. $ 56,855 $ 879,072 $ 637,553 $ 55,432 $ 467,460 $ 598,555
(2) Shares outstanding.................... 39,849 309,009 433,636 53,567 254,560 423,861
(3) Shares authorized, $.01 par value..... 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B- 39 Statements of Assets and Liabilities
<PAGE> 63
NORTHWESTERN MUTUAL SERIES FUND, INC.
Statements of Assets and Liabilities
December 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
INDEX 500 HIGH YIELD SELECT MONEY
STOCK BALANCED BOND BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (1)................. $2,271,284 $3,538,478 $ 158,745 $ 282,942 $ 404,209
Cash...................................... 32 2,350 250 353 5
Due from Futures Variation Margin......... 75 247 -- -- --
Due from Sale of Fund Shares.............. 638 158 -- 57 12,979
Due from Sale of Securities............... 24 2,018 9 -- --
Dividends and Interest Receivable......... 2,143 20,687 3,212 3,742 1,100
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS............................ 2,274,196 3,563,938 162,216 287,094 418,293
---------- ---------- ---------- ---------- ----------
LIABILITIES
Due on Purchase of Securities............. -- -- 450 -- 13,091
Due on Redemption of Fund Shares.......... 1,806 5,139 252 344 820
Due to Investment Advisor................. 375 899 90 74 98
Accrued Expenses.......................... 59 -- -- -- --
Due on Futures Variation Margin........... -- -- -- 183 --
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES....................... 2,240 6,038 792 601 14,009
---------- ---------- ---------- ---------- ----------
NET ASSETS.............................. $2,271,956 $3,557,900 $ 161,424 $ 286,493 $ 404,284
========== ========== ========== ========== ==========
REPRESENTED BY:
Aggregate Paid in Capital (2), (3)........ $1,141,933 $2,213,979 $ 204,186 $ 292,977 $ 404,284
Undistributed Net Investment Income....... 22,921 114,394 273 19,088 --
Undistributed Accumulated Net Realized
Gain (Loss) on Investments.............. 64,012 161,020 (29,850) (7,183) --
Net Unrealized Appreciation (Depreciation)
of:
Investment Securities................... 1,041,976 1,064,096 (13,185) (18,364) --
Index Futures Contracts................. 1,114 4,411 -- (25) --
Foreign Currency Transactions........... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net Assets for Shares Outstanding (2)..... $2,271,956 $3,557,900 $ 161,424 $ 286,493 $ 404,284
========== ========== ========== ========== ==========
Net Asset Value, Offering and Redemption
Price per Share......................... $ 3.89 $ 2.22 $ 0.82 $ 1.13 $ 1.00
========== ========== ========== ========== ==========
(1) Investments, at cost.................... $1,229,308 $2,474,382 $ 171,930 $ 301,306 $ 404,209
(2) Shares outstanding...................... 584,474 1,601,484 196,343 253,258 404,298
(3) Shares authorized, $.01 par value....... 2,000,000 3,000,000 2,000,000 1,000,000 1,000,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
Statements of Assets and Liabilities B- 40
<PAGE> 64
NORTHWESTERN MUTUAL SERIES FUND, INC.
Statements of Operations
For the Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
SMALL CAP AGGRESSIVE INDEX GROWTH AND
GROWTH GROWTH INTERNATIONAL 400 GROWTH INCOME
STOCK STOCK EQUITY STOCK STOCK STOCK
PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income
Interest................................. $ 150 $ 4,580 $ 1,034 $ 297 $ 4,450 $ 488
Dividends(1)............................. 12 1,123 22,138 244 4,493 8,056
------- -------- -------- ------ -------- -------
TOTAL INCOME........................ 162 5,703 23,172 541 8,943 8,544
------- -------- -------- ------ -------- -------
Expenses
Management Fees.......................... 139 5,867 4,600 66 2,323 3,544
Custodian Expenses....................... 20 35 237 26 18 32
Other Expenses........................... 22 16 252 28 25 21
------- -------- -------- ------ -------- -------
TOTAL EXPENSES...................... 181 5,918 5,089 120 2,366 3,597
------- -------- -------- ------ -------- -------
Less Waived Fees:
Paid by Affiliate................... (6) (26) -- (28) (12) (32)
Paid Indirectly..................... (2) (9) -- (2) (6) --
------- -------- -------- ------ -------- -------
TOTAL NET EXPENSES.................. 173 5,883 5,089 90 2,348 3,565
------- -------- -------- ------ -------- -------
Net Investment Income (Loss)............... (11) (180) 18,083 451 6,595 4,979
------- -------- -------- ------ -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net Realized Gain (Loss) on:
Investment Securities.................... 6,283 200,188 44,438 1,274 23,312 28,648
Index Futures Contracts.................. 166 1,434 -- 305 6,061 --
Foreign Currency Transactions............ -- -- (1,849) -- -- --
------- -------- -------- ------ -------- -------
NET REALIZED GAIN (LOSS) ON
INVESTMENTS....................... 6,449 201,622 42,589 1,579 29,373 28,648
------- -------- -------- ------ -------- -------
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities.................... 13,510 246,491 85,058 3,850 77,761 10,475
Index Futures Contracts.................. 391 1,420 -- 132 1,321 --
Foreign Currency Transactions............ -- -- (105) -- -- --
------- -------- -------- ------ -------- -------
NET CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) OF
INVESTMENTS....................... 13,901 247,911 84,953 3,982 79,082 10,475
------- -------- -------- ------ -------- -------
Net Gain (Loss) on Investments............. 20,350 449,533 127,542 5,561 108,455 39,123
------- -------- -------- ------ -------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $20,339 $449,353 $145,625 $6,012 $115,050 $44,102
======= ======== ======== ====== ======== =======
(1) Less Foreign dividend tax.............. $ -- $ -- $ 1,914 $ -- $ 97 $ 70
</TABLE>
* Portfolio commenced operations April 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 41 Statements of Operations
<PAGE> 65
NORTHWESTERN MUTUAL SERIES FUND, INC.
Statements of Operations
For the Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
INDEX HIGH
500 YIELD SELECT MONEY
STOCK BALANCED BOND BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income
Interest..................................... $ 1,894 $102,993 $ 17,280 $ 20,188 $17,693
Dividends(1)................................. 25,047 22,191 2,699 -- --
-------- -------- -------- -------- -------
TOTAL INCOME............................ 26,941 125,184 19,979 20,188 17,693
-------- -------- -------- -------- -------
Expenses
Management Fees.............................. 3,960 10,282 835 882 1,001
Custodian Expenses........................... 46 -- 18 -- --
Other Expenses............................... 20 -- 17 -- --
-------- -------- -------- -------- -------
TOTAL EXPENSES.......................... 4,026 10,282 870 882 1,001
-------- -------- -------- -------- -------
Less Waived Fees:
Paid by Affiliate....................... -- -- (17) -- --
Paid Indirectly......................... (6) -- (1) -- --
-------- -------- -------- -------- -------
TOTAL NET EXPENSES...................... 4,020 10,282 852 882 1,001
-------- -------- -------- -------- -------
Net Investment Income (Loss)................... 22,921 114,902 19,127 19,306 16,692
-------- -------- -------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net Realized Gain (Loss) on:
Investment Securities........................ 59,857 147,639 (26,106) (3,481) --
Index Futures Contracts...................... 4,560 34,373 -- 1,137 --
Foreign Currency Transactions................ -- (447) -- (14) --
-------- -------- -------- -------- -------
NET REALIZED GAIN (LOSS) ON
INVESTMENTS........................... 64,417 181,565 (26,106) (2,358) --
-------- -------- -------- -------- -------
Net Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities........................ 293,198 76,719 6,190 (19,854) --
Index Futures Contracts...................... 790 (8,909) -- (22) --
Foreign Currency Transactions................ -- (14) -- (7) --
-------- -------- -------- -------- -------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS......... 293,988 67,796 6,190 (19,883) --
-------- -------- -------- -------- -------
Net Gain (Loss) on Investments................. 358,405 249,361 (19,916) (22,241) --
-------- -------- -------- -------- -------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................ $381,326 $364,263 $ (789) $ (2,935) $16,692
======== ======== ======== ======== =======
(1) Less Foreign dividend tax.................. $ 249 $ 230 $ -- $ -- $ --
</TABLE>
* Portfolio commenced operations April 30, 1999.
The Accompanying Notes are an Integral Part of the Financial Statements
Statements of Operations B- 42
<PAGE> 66
NORTHWESTERN MUTUAL SERIES FUND, INC.
Statements of Changes in Net Assets
SMALL CAP GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1999*
THROUGH
DECEMBER 31,
1999
- ------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Loss..................................... $ (11)
Net Realized Gain on Investments........................ 6,449
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 13,901
-------
Net Increase in Net Assets Resulting from
Operations........................................... 20,339
-------
Distributions to Shareholders from:
Net Investment Income................................... --
Net Realized Gain on Investments........................ (2,362)
-------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (2,362)
-------
Fund Share Transactions
Proceeds from Sale of 41,794 Shares..................... 55,379
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (1,007 shares)...................... 2,362
Payments for 2,952 Shares Redeemed...................... (4,235)
-------
Net Increase in Net Assets Resulting from Fund Share
Transactions (39,849 shares)......................... 53,506
-------
Total Increase in Net Assets.............................. 71,483
NET ASSETS
Beginning of Period..................................... --
-------
End of Period (includes undistributed net investment
income of $0).......................................... $71,483
=======
</TABLE>
* Portfolio commenced operations on April 30, 1999
AGGRESSIVE GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- -----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income (Loss)............................ $ (180) $ 389
Net Realized Gain on Investments........................ 201,622 36,225
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 247,911 43,459
---------- ----------
Net Increase in Net Assets Resulting from
Operations........................................... 449,353 80,073
---------- ----------
Distributions to Shareholders from:
Net Investment Income................................... (389) (389)
Net Realized Gain on Investments........................ (38,180) (39,790)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (38,569) (40,179)
---------- ----------
Fund Share Transactions
Proceeds from Sale of 14,536 and 23,019 Shares.......... 53,705 74,489
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (11,023 and 11,431 shares,
respectively).......................................... 38,569 40,180
Payments for 44,946 and 25,793 Shares Redeemed.......... (155,213) (84,165)
---------- ----------
Net Increase (Decrease) in Net Assets Resulting from
Fund Share Transactions ((19,387) and 8,657 shares,
respectively)........................................ (62,939) 30,504
---------- ----------
Total Increase in Net Assets.............................. 347,845 70,398
NET ASSETS
Beginning of Period..................................... 1,137,466 1,067,068
---------- ----------
End of Period (includes undistributed net investment
income of $0 and $390, respectively)................... $1,485,311 $1,137,466
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B- 43 Statement of Changes in Net Assets
<PAGE> 67
NORTHWESTERN MUTUAL SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 18,083 $ 18,098
Net Realized Gain on Investments........................ 42,589 78,236
Net Unrealized Appreciation(Depreciation) of Investments
for the Period......................................... 84,953 (66,907)
-------- --------
Net Increase in Net Assets Resulting from
Operations........................................... 145,625 29,427
-------- --------
Distributions to Shareholders from:
Net Investment Income................................... (18,221) (16,649)
Net Realized Gain on Investments........................ (78,977) (22,793)
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (97,198) (39,442)
-------- --------
Fund Share Transactions
Proceeds from Sale of 210,725 and 35,076 Shares......... 347,201 60,890
Proceeds from Shares Issued on Reinvestment of Dividends
Paid
(58,943 and 21,530 shares, respectively).............. 97,198 39,442
Payments for 236,223 and 47,205 Shares Redeemed......... (391,762) (79,061)
-------- --------
Net Increase in Net Assets Resulting from Fund Share
Transactions
(33,445 and 9,401 shares, respectively)............ 52,637 21,271
-------- --------
Total Increase in Net Assets.............................. 101,064 11,256
NET ASSETS
Beginning of Period..................................... 671,106 659,850
-------- --------
End of Period (includes undistributed net investment
income of $16,150 and $19,912, respectively)........... $772,170 $671,106
======== ========
</TABLE>
INDEX 400 STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1999*
THROUGH
DECEMBER 31,
1999
- -----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 451
Net Realized Gain on Investments........................ 1,579
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 3,982
-------
Net Increase in Net Assets Resulting from
Operations........................................... 6,012
-------
Distributions to Shareholders from:
Net Investment Income................................... (473)
Net Realized Gain on Investments........................ (319)
-------
Net Increase in Net Assets Resulting from
Distributions to Shareholders........................ (792)
-------
Fund Share Transactions
Proceeds from Sale of 55,140 Shares..................... 55,323
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (35 shares)......................... 792
Payments for 1,608 Shares Redeemed...................... (1,691)
-------
Net Increase in Net Assets Resulting from Fund Share
Transactions (53,567 shares)......................... 54,424
-------
Total Increase in Net Assets.............................. 59,644
NET ASSETS
Beginning of Period..................................... --
-------
End of Period (includes undistributed net investment
income of $0).......................................... $59,644
=======
</TABLE>
* Portfolio commenced operations on April 30, 1999
The Accompanying Notes are an Integral Part of the Financial Statements
Statement of Changes in Net Assets B- 44
<PAGE> 68
NORTHWESTERN MUTUAL SERIES FUND, INC.
GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 6,595 $ 3,561
Net Realized Gain on Investments........................ 29,373 11,976
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 79,082 62,197
-------- --------
Net Increase in Net Assets Resulting from
Operations........................................... 115,050 77,734
-------- --------
Distributions to Shareholders from:
Net Investment Income................................... (6,147) (2,645)
Net Realized Gain on Investments........................ (13,531) (4,068)
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (19,678) (6,713)
-------- --------
Fund Share Transactions
Proceeds from Sale of 65,947 and 56,014 Shares.......... 156,519 112,510
Proceeds from Shares Issued on Reinvestment of
Distributions Paid
(8,157 and 3,330 shares, respectively)................ 19,678 6,713
Payments for 7,013 and 6,148 Shares Redeemed............ (16,717) (12,033)
-------- --------
Net Increase in Net Assets Resulting from Fund Share
Transactions
(67,091 and 53,196 shares, respectively)........... 159,480 107,190
-------- --------
Total Increase in Net Assets.............................. 254,852 178,211
NET ASSETS
Beginning of Period..................................... 421,282 243,071
-------- --------
End of Period (includes undistributed net investment
income of $1,365 and $916, respectively)............... $676,134 $421,282
======== ========
</TABLE>
GROWTH AND INCOME STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 4,979 $ 4,096
Net Realized Gain on Investments........................ 28,648 67,556
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 10,475 26,191
-------- --------
Net Increase in Net Assets Resulting from
Operations........................................... 44,102 97,843
-------- --------
Distributions to Shareholders from:
Net Investment Income................................... (164) (3,933)
Net Realized Gain on Investments........................ (69,388) (731)
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (69,552) (4,664)
-------- --------
Fund Share Transactions
Proceeds from Sale of 53,719 and 82,937 Shares.......... 85,448 120,879
Proceeds from Shares Issued on Reinvestment of
Distributions Paid
(43,992 and 3,111 shares, respectively)............... 69,552 4,664
Payments for 25,373 and 14,061 Shares Redeemed.......... (38,968) (19,687)
-------- --------
Net Increase in Net Assets Resulting from Fund Share
Transactions
(72,338 and 71,987 shares, respectively)........... 116,032 105,856
-------- --------
Total Increase in Net Assets.............................. 90,582 199,035
NET ASSETS
Beginning of Period..................................... 570,970 371,935
-------- --------
End of Period (includes undistributed net investment
income of $4,979 and $163, respectively)............... $661,552 $570,970
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B- 45 Statement of Changes in Net Assets
<PAGE> 69
NORTHWESTERN MUTUAL SERIES FUND, INC.
INDEX 500 STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 22,921 $ 19,630
Net Realized Gain on Investments........................ 64,417 27,094
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 293,988 308,691
---------- ----------
Net Increase in Net Assets Resulting from
Operations........................................... 381,326 355,415
---------- ----------
Distributions to Shareholders from:
Net Investment Income................................... (19,629) (17,811)
Net Realized Gain on Investments........................ (25,890) (28,519)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (45,519) (46,330)
---------- ----------
Fund Share Transactions
Proceeds from Sale of 79,345 and 79,805 Shares.......... 277,173 233,133
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (12,786 and 16,132 shares,
respectively).......................................... 45,519 46,330
Payments for 21,770 and 17,928 Shares Redeemed.......... (77,223) (50,725)
---------- ----------
Net Increase in Net Assets Resulting from Fund Share
Transactions (70,361 and 78,009 shares,
respectively)........................................ 245,469 228,738
---------- ----------
Total Increase in Net Assets.............................. 581,276 537,823
NET ASSETS
Beginning of Period..................................... 1,690,680 1,152,857
---------- ----------
End of Period (includes undistributed net investment
income of $22,921 and $19,630, respectively)........... $2,271,956 $1,690,680
========== ==========
</TABLE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 114,902 $ 104,548
Net Realized Gain on Investments........................ 181,565 231,770
Net Change in Unrealized Appreciation of Investments for
the Period............................................. 67,796 187,000
---------- ----------
Net Increase in Net Assets Resulting from
Operations........................................... 364,263 523,318
---------- ----------
Distributions to Shareholders from:
Net Investment Income................................... (104,192) (95,131)
Net Realized Gain on Investments........................ (250,227) (85,841)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (354,419) (180,972)
---------- ----------
Fund Share Transactions
Proceeds from Sale of 47,979 and 54,658 Shares.......... 105,834 113,335
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (167,416 and 89,901 shares,
respectively).......................................... 354,419 180,971
Payments for 89,877 and 69,339 Shares Redeemed.......... (194,268) (143,075)
---------- ----------
Net Increase in Net Assets Resulting from Fund Share
Transactions (125,518 and 75,220 shares,
respectively)........................................ 265,985 151,231
---------- ----------
Total Increase in Net Assets.............................. 275,829 493,577
NET ASSETS
Beginning of Period..................................... 3,282,071 2,788,494
---------- ----------
End of Period (includes undistributed net investment
income of $114,394 and $103,557, respectively)......... $3,557,900 $3,282,071
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
Statement of Changes in Net Assets B- 46
<PAGE> 70
NORTHWESTERN MUTUAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 19,127 $ 19,029
Net Realized Loss on Investments........................ (26,106) (3,333)
Net Change in Unrealized Appreciation (Depreciation) of
Investments for the Period............................. 6,190 (20,988)
-------- --------
Net Decrease in Net Assets Resulting from
Operations........................................... (789) (5,292)
-------- --------
Distributions to Shareholders from:
Net Investment Income................................... (19,051) (18,974)
Net Realized Gain on Investments........................ -- --
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (19,051) (18,974)
-------- --------
Fund Share Transactions
Proceeds from Sale of 14,760 and 60,216 Shares.......... 11,697 65,439
Proceeds from Shares Issued on Reinvestment of
Distributions Paid
(21,045 and 20,380 shares, respectively).............. 19,052 18,974
Payments for 36,981 and 26,994 Shares Redeemed.......... (34,267) (28,403)
-------- --------
Net Increase (Decrease) in Net Assets Resulting from
Fund Share Transactions
((1,176) and 53,602 shares, respectively).......... (3,518) 56,010
-------- --------
Total Increase (Decrease) in Net Assets................... (23,358) 31,744
NET ASSETS
Beginning of Period..................................... 184,782 153,038
-------- --------
End of Period (includes undistributed net investment
income of
$273 and $55, respectively)........................... $161,424 $184,782
======== ========
</TABLE>
SELECT BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 19,306 $ 18,143
Net Realized Gain/(Loss) on Investments................. (2,358) 2,546
Net Change in Unrealized Depreciation of Investments for
the Period............................................. (19,883) (2,027)
-------- --------
Net Increase (Decrease) in Net Assets Resulting from
Operations........................................... (2,935) 18,662
-------- --------
Distributions to Shareholders from:
Net Investment Income................................... (17,828) (15,746)
Net Realized Gain on Investments........................ (7,228) (2,700)
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (25,056) (18,446)
-------- --------
Fund Share Transactions
Proceeds from Sale of 23,659 and 45,867 Shares.......... 27,875 56,278
Proceeds from Shares Issued on Reinvestment of
Distributions Paid
(22,018 and 15,606 shares, respectively).............. 25,056 18,446
Payments for 31,015 and 17,649 Shares Redeemed.......... (36,481) (21,741)
-------- --------
Net Increase in Net Assets Resulting from Fund Share
Transactions
(14,662 and 43,824 shares, respectively)........... 16,450 52,983
-------- --------
Total Increase (Decrease) in Net Assets................... (11,541) 53,199
NET ASSETS
Beginning of Period..................................... 298,034 244,835
-------- --------
End of Period (includes undistributed net investment
income of $19,088
and $17,466, respectively)............................ $286,493 $298,034
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
B- 47 Statement of Changes in Net Assets
<PAGE> 71
NORTHWESTERN MUTUAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net Investment Income................................... $ 16,692 $ 12,077
--------- ---------
Net Increase in Net Assets Resulting from
Operations........................................... 16,692 12,077
--------- ---------
Distributions to Shareholders from:
Net Investment Income................................... (16,692) (12,077)
--------- ---------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders........................ (16,692) (12,077)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 543,084 and 222,296 Shares........ 543,082 222,308
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (16,692 and 12,077 shares,
respectively)......................................... 16,692 12,077
Payments for 446,954 and 137,391 Shares Redeemed........ (446,954) (137,391)
--------- ---------
Net Increase in Net Assets Resulting from Fund Share
Transactions (112,822 and 96,982 shares,
respectively)........................................ 112,820 96,994
--------- ---------
Total Increase in Net Assets................................ 112,820 96,994
NET ASSETS
Beginning of Period..................................... 291,464 194,470
--------- ---------
End of Period (includes no undistributed net investment
income)................................................ $ 404,284 $ 291,464
========= =========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
Statement of Changes in Net Assets B- 48
<PAGE> 72
NORTHWESTERN MUTUAL SERIES FUND, INC.
Financial Highlights
SMALL CAP GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1999*
THROUGH
DECEMBER 31,
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999
- -----------------------------------------------------------------------------
<S> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 1.00
Income from Investment Operations:
Net Investment Loss..................................... (0.00)
Net Realized and Unrealized Gains on Investments........ 0.85
-------
Total from Investment Operations...................... 0.85
-------
Less Distributions:
Distributions from Net Investment Income................ --
Distributions from Realized Gains on Investments........ (0.06)
-------
Total Distributions................................... (0.06)
-------
Net Asset Value, End of Period.............................. $ 1.79
=======
Total Return+............................................... 86.09%++
=======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $71,483
=======
Ratio of Gross Expenses to Average Net Assets............... 1.03%**
=======
Ratio of Net Expenses to Average Net Assets................. 1.00%**
=======
Ratio of Net Investment Loss to Average Net Assets.......... (0.07)%**
=======
Portfolio Turnover Rate..................................... 70.72%
=======
</TABLE>
AGGRESSIVE GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 3.46 $ 3.34 $ 3.15 $ 2.77 $ 2.00
Income from Investment Operations:
Net Investment Income................................... -- -- -- -- --
Net Realized and Unrealized Gains on Investments........ 1.48 0.24 0.39 0.49 0.78
---------- ---------- ---------- -------- --------
Total from Investment Operations...................... 1.48 0.24 0.39 0.49 0.78
---------- ---------- ---------- -------- --------
Less Distributions:
Distributions from Net Investment Income................ -- -- -- -- --
Distributions from Realized Gains on Investments........ (0.13) (0.12) (0.20) (0.11) (0.01)
---------- ---------- ---------- -------- --------
Total Distributions................................... (0.13) (0.12) (0.20) (0.11) (0.01)
---------- ---------- ---------- -------- --------
Net Asset Value, End of Period.............................. $ 4.81 $ 3.46 $ 3.34 $ 3.15 $ 2.77
========== ========== ========== ======== ========
Total Return+............................................... 43.78% 7.56% 13.86% 17.70% 39.29%
========== ========== ========== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $1,485,311 $1,137,466 $1,067,068 $871,926 $577,014
========== ========== ========== ======== ========
Ratio of Expenses to Average Net Assets..................... 0.51% 0.52% 0.53% 0.54% 0.56%
========== ========== ========== ======== ========
Ratio of Net Investment Income/(Loss) to Average Net
Assets.................................................... (0.02%) 0.04% 0.06% (0.03%) 0.13%
========== ========== ========== ======== ========
Portfolio Turnover Rate..................................... 68.64% 50.43% 57.27% 47.25% 37.84%
========== ========== ========== ======== ========
</TABLE>
* Portfolio commenced operations April 30, 1999.
** 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- 49 Financial Highlights
<PAGE> 73
NORTHWESTERN MUTUAL SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 1.68 $ 1.69 $ 1.56 $ 1.35 $ 1.19
Income from Investment Operations:
Net Investment Income................................... 0.03 0.05 0.04 0.04 0.04
Net Realized and Unrealized Gains on Investments........ 0.33 0.04 0.15 0.24 0.13
-------- -------- -------- -------- --------
Total from Investment Operations...................... 0.36 0.09 0.19 0.28 0.17
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income................ (0.05) (0.04) (0.04) (0.03) --
Distributions from Realized Gains on Investments........ (0.21) (0.06) (0.02) (0.04) (0.01)
-------- -------- -------- -------- --------
Total Distributions................................... (0.26) (0.10) (0.06) (0.07) (0.01)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $ 1.78 $ 1.68 $ 1.69 $ 1.56 $ 1.35
======== ======== ======== ======== ========
Total Return+............................................... 22.88% 4.82% 12.28% 21.01% 14.57%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $772,170 $671,106 $659,850 $505,189 $342,127
======== ======== ======== ======== ========
Ratio of Expenses to Average Net Assets..................... 0.74% 0.76% 0.77% 0.81% 0.85%
======== ======== ======== ======== ========
Ratio of Net Investment Income to Average Net Assets........ 2.62% 3.38% 2.75% 3.02% 2.68%
======== ======== ======== ======== ========
Portfolio Turnover Rate..................................... 38.37% 30.41% 16.74% 17.07% 26.71%
======== ======== ======== ======== ========
</TABLE>
INDEX 400 STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1999*
THROUGH
DECEMBER 31,
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999
- ----------------------------------------------------------------------------
<S> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 1.00
Income for Investment Operations:
Net Investment Income................................... 0.01
Net Realized and Unrealized Gains on Investments........ 0.12
-------
Total from Investment Operations...................... 0.13
-------
Less Distributions:
Distributions from Net Investment Income................ (0.01)
Distributions from Realized Gains on Investments........ (0.01)
-------
Total Distributions................................... (0.02)
-------
Net Asset Value, End of Period.............................. $ 1.11
=======
Total Return+............................................... 12.83%++
=======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $59,644
=======
Ratio of Gross Expenses to Average Net Assets............... 0.46%**
=======
Ratio of Net Expenses to Average Net Assets................. 0.35%**
=======
Ratio of Net Investment Income to Average Net Assets........ 1.69%**
=======
Portfolio Turnover Rate..................................... 26.51%
=======
</TABLE>
* Portfolio commenced operations on April 30, 1999
** 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
Financial Highlights B- 50
<PAGE> 74
NORTHWESTERN MUTUAL SERIES FUND, INC.
GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 2.25 $ 1.81 $ 1.46 $ 1.26 $ 1.00
Income from Investment Operations:
Net Investment Income................................... 0.03 0.02 0.02 0.02 0.02
Net Realized and Unrealized Gains on Investments........ 0.47 0.46 0.42 0.25 0.28
-------- -------- -------- -------- -------
Total from Investment Operations...................... 0.50 0.48 0.44 0.27 0.30
-------- -------- -------- -------- -------
Less Distributions:
Distributions from Net Investment Income................ (0.03) (0.02) (0.02) (0.02) (0.02)
Distributions from Realized Gains on Investments........ (0.06) (0.02) (0.07) (0.05) (0.02)
-------- -------- -------- -------- -------
Total Distributions................................... (0.09) (0.04) (0.09) (0.07) (0.04)
-------- -------- -------- -------- -------
Net Asset Value, End of Period.............................. $ 2.66 $ 2.25 $ 1.81 $ 1.46 $ 1.26
======== ======== ======== ======== =======
Total Return+............................................... 22.50% 26.69% 29.85% 20.91% 30.82%
======== ======== ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $676,134 $421,282 $243,071 $170,482 $85,557
======== ======== ======== ======== =======
Ratio of Expenses to Average Net Assets..................... 0.43% 0.46% 0.49% 0.57% 0.61%
======== ======== ======== ======== =======
Ratio of Net Investment Income to Average Net Assets........ 1.22% 1.10% 1.24% 1.41% 1.77%
======== ======== ======== ======== =======
Portfolio Turnover Rate..................................... 27.26% 21.64% 33.20% 37.61% 46.83%
======== ======== ======== ======== =======
</TABLE>
GROWTH AND INCOME STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 1.62 $ 1.33 $ 1.32 $ 1.21 $ 0.98
Income from Investment Operations:
Net Investment Income................................... 0.01 0.01 0.01 0.02 0.02
Net Realized and Unrealized Gains on Investments........ 0.12 0.29 0.37 0.23 0.29
-------- -------- -------- -------- --------
Total from Investment Operations...................... 0.13 0.30 0.38 0.25 0.31
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income................ (0.00) (0.01) (0.01) (0.02) (0.02)
Distributions from Realized Gains on Investments........ (0.19) (0.00) (0.36) (0.12) (0.06)
-------- -------- -------- -------- --------
Total Distributions................................... (0.19) (0.01) (0.37) (0.14) (0.08)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $ 1.56 $ 1.62 $ 1.33 $ 1.32 $ 1.21
======== ======== ======== ======== ========
Total Return+............................................... 7.47% 23.14% 30.03% 19.97% 31.12%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $661,552 $570,970 $371,935 $234,184 $136,923
======== ======== ======== ======== ========
Ratio of Expenses to Average Net Assets..................... 0.57% 0.58% 0.60% 0.62% 0.69%
======== ======== ======== ======== ========
Ratio of Net Investment Income to Average Net Assets........ 0.80% 1.00% 1.04% 1.44% 1.68%
======== ======== ======== ======== ========
Portfolio Turnover Rate..................................... 106.93% 160.40% 144.52% 93.92% 80.00%
======== ======== ======== ======== ========
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fee.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 51 Financial Highlights
<PAGE> 75
NORTHWESTERN MUTUAL SERIES FUND, INC.
INDEX 500 STOCK PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 3.29 $ 2.64 $ 2.06 $ 1.72 $ 1.27
Income from Investment Operations:
Net Investment Income................................... 0.04 0.04 0.04 0.04 0.04
Net Realized and Unrealized Gain on Investments......... 0.64 0.71 0.62 0.35 0.42
---------- ---------- ---------- -------- --------
Total from Investment Operations...................... 0.68 0.75 0.66 0.39 0.46
---------- ---------- ---------- -------- --------
Less Distributions:
Distributions from Net Investment Income................ (0.03) (0.04) (0.04) (0.02) (0.01)
Distributions from Realized Gains on Investments........ (0.05) (0.06) (0.04) (0.03) --
---------- ---------- ---------- -------- --------
Total Distributions................................... (0.08) (0.10) (0.08) (0.05) (0.01)
---------- ---------- ---------- -------- --------
Net Asset Value, End of Period.............................. $ 3.89 $ 3.29 $ 2.64 $ 2.06 $ 1.72
========== ========== ========== ======== ========
Total Return+............................................... 20.91% 28.72% 33.20% 22.75% 37.25%
========== ========== ========== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $2,271,956 $1,690,680 $1,152,857 $740,066 $495,133
========== ========== ========== ======== ========
Ratio of Expenses to Average Net Assets..................... 0.20% 0.21% 0.21% 0.21% 0.21%
========== ========== ========== ======== ========
Ratio of Net Investment Income to Average Net Assets........ 1.16% 1.40% 1.86% 2.27% 2.51%
========== ========== ========== ======== ========
Portfolio Turnover Rate..................................... 5.65% 3.03% 3.15% 3.45% 3.19%
========== ========== ========== ======== ========
</TABLE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 2.22 $ 1.99 $ 1.72 $ 1.60 $ 1.31
Income from Investment Operations:
Net Investment Income................................... 0.07 0.07 0.07 0.06 0.07
Net Realized and Unrealized Gain on Investments......... 0.17 0.29 0.28 0.15 0.27
---------- ---------- ---------- ---------- ----------
Total from Investment Operations...................... 0.24 0.36 0.35 0.21 0.34
---------- ---------- ---------- ---------- ----------
Less Distributions:
Distributions from Net Investment Income................ (0.07) (0.07) (0.06) (0.06) (0.04)
Distributions from Realized Gains on Investments........ (0.17) (0.06) (0.02) (0.03) (0.01)
---------- ---------- ---------- ---------- ----------
Total Distributions................................... (0.24) (0.13) (0.08) (0.09) (0.05)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.............................. $ 2.22 $ 2.22 $ 1.99 $ 1.72 $ 1.60
========== ========== ========== ========== ==========
Total Return+............................................... 11.18% 18.88% 21.52% 13.45% 26.39%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $3,557,900 $3,282,071 $2,788,494 $2,326,234 $2,083,289
========== ========== ========== ========== ==========
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........ 3.36% 3.48% 3.70% 3.95% 4.40%
========== ========== ========== ========== ==========
Portfolio Turnover Rate..................................... 27.16% 44.18% 29.94% 67.66% 37.28%
========== ========== ========== ========== ==========
</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
Financial Highlights B- 52
<PAGE> 76
NORTHWESTERN MUTUAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 0.94 $ 1.06 $ 1.10 $ 1.03 $ 0.97
Income from Investment Operations:
Net Investment Income................................... 0.11 0.10 0.11 0.09 0.10
Net Realized and Unrealized Gains (Losses) on
Investments............................................ (0.12) (0.12) 0.06 0.10 0.07
-------- -------- -------- ------- -------
Total from Investment Operations...................... (0.01) (0.02) 0.17 0.19 0.17
-------- -------- -------- ------- -------
Less Distributions:
Distributions from Net Investment Income................ (0.11) (0.10) (0.14) (0.09) (0.10)
Distributions from Realized Gains on Investments........ -- -- (0.07) (0.03) (0.01)
-------- -------- -------- ------- -------
Total Distributions................................... (0.11) (0.10) (0.21) (0.12) (0.11)
-------- -------- -------- ------- -------
Net Asset Value, End of Period.............................. $ 0.82 $ 0.94 $ 1.06 $ 1.10 $ 1.03
======== ======== ======== ======= =======
Total Return+............................................... (0.44%) (1.84%) 15.85% 19.77% 16.78%
======== ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $161,424 $184,782 $153,038 $93,878 $55,974
======== ======== ======== ======= =======
Ratio of Expenses to Average Net Assets..................... 0.50% 0.50% 0.55% 0.60% 0.65%
======== ======== ======== ======= =======
Ratio of Net Investment Income to Average Net Assets........ 11.15% 10.85% 9.95% 9.54% 9.90%
======== ======== ======== ======= =======
Portfolio Turnover Rate..................................... 139.87% 153.71% 129.49% 143.91% 116.57%
======== ======== ======== ======= =======
</TABLE>
SELECT BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period........................ $ 1.25 $ 1.26 $ 1.22 $ 1.23 $ 1.06
Income for Investment Operations:
Net Investment Income................................... 0.08 0.08 0.08 0.07 0.07
Net Realized and Unrealized Gain (Loss) on
Investments........................................... (0.09) 0.00 0.04 (0.04) 0.13
-------- -------- -------- -------- --------
Total from Investment Operations...................... (0.01) 0.08 0.12 0.03 0.20
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income................ (0.08) (0.08) (0.08) (0.04) (0.03)
Distributions from Realized Gains on Investments........ (0.03) (0.01) -- -- --
-------- -------- -------- -------- --------
Total Distributions................................... (0.11) (0.09) (0.08) (0.04) (0.03)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $ 1.13 $ 1.25 $ 1.26 $ 1.22 $ 1.23
======== ======== ======== ======== ========
Total Return+............................................... (1.00%) 7.07% 9.46% 3.31% 19.10%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $286,493 $298,034 $244,835 $214,333 $198,142
======== ======== ======== ======== ========
Ratio of Net Expenses to Average Net Assets................. 0.30% 0.30% 0.30% 0.30% 0.30%
======== ======== ======== ======== ========
Ratio of Net Investment Income to Average Net Assets........ 6.56% 6.87% 7.03% 6.48% 6.61%
======== ======== ======== ======== ========
Portfolio Turnover Rate..................................... 76.65% 161.79% 184.93% 195.98% 69.06%
======== ======== ======== ======== ========
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fee.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 53 Financial Highlights
<PAGE> 77
NORTHWESTERN MUTUAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<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 0.05 0.06
Less Distributions from Net Investment Income............... (0.05) (0.05) (0.05) (0.05) (0.06)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return+............................................... 5.10% 5.43% 5.47% 5.29% 5.82%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands).................... $404,284 $291,464 $194,470 $176,298 $132,572
======== ======== ======== ======== ========
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........ 4.99% 5.26% 5.33% 5.13% 5.61%
======== ======== ======== ======== ========
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account loss.
The Accompanying Notes are an Integral Part of the Financial Statements.
Financial Highlights B- 54
<PAGE> 78
NORTHWESTERN MUTUAL SERIES FUND, INC.
Notes to Financial Statements
December 31, 1999
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 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 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.
On April 30, 1999, two new portfolios commenced operations in the Series Fund:
Small Cap Growth Stock Portfolio and Index 400 Stock Portfolio. These two new
portfolios were each organized with 2,000,000,000 authorized shares of Common
Stock. Par value is $.01 per share. Northwestern Mutual purchased 25,010,000
shares of the Index 400 Stock Portfolio at $1.00 per share and 5,010,000 shares
of the Small Cap Growth Stock Portfolio at $1.00 per share.
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 currency 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 equity 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, changes in foreign exchange rates on
bond investments sold, 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.
B- 55 Notes to Financial Statements
<PAGE> 79
NOTE 5 -- The Small Cap Growth Stock, Aggressive Growth Stock, Index 400 Stock,
Growth Stock, Index 500 Stock, Balanced and Select Bond Portfolios invest in
futures contracts as an alternative to investing in individual securities. The
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.
................................................................................
NOTE 6 -- Interest income and discounts earned are recorded daily on the accrual
basis and dividend income is recorded on the ex-dividend date or as soon as
information from foreign issuers is available. Where applicable, dividends are
recorded net of foreign dividend tax. Discounts and premiums on securities
purchased are amortized over the life of the respective securities when required
for federal income tax purposes using the effective interest method. Securities
transactions are accounted for on trade date. The basis for determining cost on
sale of securities is identified cost. For the year ended December 31, 1999,
transactions in securities other than money market investments were:
<TABLE>
<CAPTION>
U.S. GOVT. TOTAL SECURITY U.S. GOVT.
TOTAL SECURITY SECURITY SALES/ SECURITY SALES/
PORTFOLIOS PURCHASES PURCHASES MATURITIES MATURITIES
- ---------- -------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Small Cap Growth Stock............................ $ 59,239,842 -- $ 18,837,180 --
Aggressive Growth Stock........................... 724,417,673 -- 879,649,835 --
International Equity.............................. 284,421,452 -- 257,192,284 --
Index 400 Stock................................... 60,494,178 -- 9,130,783 --
Growth Stock...................................... 244,899,560 -- 125,466,523 --
Growth and Income Stock........................... 709,907,715 -- 656,669,741 --
Index 500 Stock................................... 319,125,521 -- 109,437,406 --
Balanced.......................................... 1,011,591,271 $683,006,914 786,645,495 $341,321,930
High Yield Bond................................... 225,990,412 -- 234,801,506 --
Select Bond....................................... 251,574,994 140,640,335 213,300,662 102,671,243
</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%, for the Index 400 Stock
Portfolio the rate is .25%, 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 NEXT
$50 $50
PORTFOLIOS MILLION MILLION EXCESS
- ---------- ------- ------- ------
<S> <C> <C> <C>
Small Cap Growth Stock....... .80% .65% .50%
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.
Notes to Financial Statements B- 56
<PAGE> 80
The Small Cap Growth Stock Portfolio, International Equity Portfolio, Index 400
Stock Portfolio and the Index 500 Stock Portfolio pay their own custodian fees.
In addition, 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. For the year
ended December 31, 1999, the amounts paid through expense offset arrangements
are $2,137 in the Small Cap Growth Stock Portfolio, $9,164 in the Aggressive
Growth Stock Portfolio, $1,888 in the Index 400 Stock Portfolio, $5,740 in the
Growth Stock Portfolio, $377 in the Growth and Income Stock Portfolio, $6,063 in
the Index 500 Stock Portfolio and $1,227 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.
NMIS has agreed to waive their management fee for the Small Cap Growth Stock
Portfolio and the Index 400 Stock Portfolio to the extent necessary so that
total operating expenses will not exceed 1.00% and .35%, respectively. For the
period April 30, 1999 to December 31, 1999, NMIS waived $5,919 and $27,990 of
fees for the Small Cap Growth Stock Portfolio and the Index 400 Stock Portfolio,
respectively.
The Small Cap Growth Stock, Aggressive Growth Stock, and Growth Stock Portfolios
paid commissions on Fund transactions to an affiliated broker in the amounts of
$3,180, $29,430, and $1,800, respectively, for the year ended December 31, 1999.
NOTE 8 -- Each Portfolio in the Series Fund has elected to be taxed as a
regulated investment company meeting certain requirements under the Internal
Revenue Code. Since each Portfolio expects to distribute all net investment
income and net realized capital gains, the Portfolios anticipate 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.
After October 31, 1999, the High Yield Bond Portfolio and the Select Bond
Portfolio had capital losses in the amounts of $2,850,813 and $5,182,726,
respectively. These amounts are deferred and deemed to have occurred in the next
fiscal year. For federal income tax purposes, the High Yield Bond and Select
Bond Portfolios also have a net realized capital loss of $23,977,979 and
$1,399,790, respectively, expiring in 2007. The High Yield Bond Portfolio also
has a net realized capital loss of $2,661,875, which expires in 2006. These
amounts will be carried forward to offset future net realized capital gains.
For federal income tax purposes, net unrealized appreciation (depreciation) on
open regulated 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 Small Cap Growth Stock, Aggressive Growth Stock,
International Equity, Index 400 Stock, 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 -- 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 year ended December 31, 1999 was $1,243,988.
B- 57 Notes to Financial Statements
<PAGE> 81
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (84.2%) PAR (000'S)
-----------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (1.1%)
Cambrex Corporation 22,000 $ 758
--------
TOTAL 758
--------
BUSINESS SERVICES (2.7%)
*The Corporate Executive Board
Company 22,600 1263
*Forrester Research, Inc. 9,900 682
--------
TOTAL 1,945
--------
CAPITAL GOODS (3.3%)
*Dycom Industries Inc. 16,100 709
Kaydon Corporation 24,400 654
*Power-One Inc. 21,600 990
--------
TOTAL 2,353
--------
COMMUNICATION SERVICES (1.4%)
*Crown Castle International Co. 18,700 601
*Tessco Technologies Inc. 21,600 402
--------
TOTAL 1,003
--------
CONSUMER CYCLICAL (14.9%)
*1-800-Flowers.com, Inc. 46,600 498
*Catalina Marketing Corporation 8,600 996
*David's Bridal Inc. 56,300 630
*Dollar Tree Stores, Inc. 15,700 761
*Getty Images, Inc. 30,400 1,486
*JAKKS Pacific, Inc. 15,000 280
*Jupiter Communications, Inc. 17,400 526
*Linens 'N Things, Inc. 11,800 350
*Luminant Worldwide Corporation 20,900 951
*MSC Industrial Direct Co., Inc. 71,500 947
*The Management Network Group,
Inc. 16,300 532
*Sonic Automotive, Inc. 34,300 334
The Talbots, Inc. 20,800 928
*Tower Automotive, Inc. 38,500 594
*Whitehall Jewellers, Inc. 3,700 136
*Wild Oats Markets Inc. 30,900 686
--------
TOTAL 10,635
--------
CONSUMER STAPLES (6.2%)
*Acme Communications, Inc. 18,800 625
*American Italian Pasta Co. -CL A 28,900 888
*Citadel Communications Corp. 21,500 1,395
*Westwood One Inc. 19,300 1,467
--------
TOTAL 4,375
--------
ENERGY (5.6%)
*Barrett Resources Corporation 25,200 742
*Basin Exploration Inc. 44,100 777
*Global Industries, Ltd. 81,100 699
*Nabors Industries, Inc. 33,800 1,046
*Stone Energy Corp. 20,100 716
--------
TOTAL 3,980
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (84.2%) PAR (000'S)
-----------------------------------------------------------
<S> <C> <C>
FINANCE (4.7%)
*Charles River Associates
Incorporated 25,700 $ 861
Investors Financial Services Corp. 15,800 727
Radian Group Inc. 18,600 888
Waddell & Reed Financial, Inc. 33,900 919
--------
TOTAL 3,395
--------
HEALTHCARE (8.3%)
*Biovail Corporation International 11,800 1,106
*Patterson Dental Company 19,400 827
*Priority Healthcare Corp. 22,800 660
*Province Healthcare 44,800 851
*Shire Pharmaceuticals Group PLC,
ADR 16,200 472
*Sybron International Corporation 31,800 785
*Total Renal Care Holdings 58,400 391
*Wesley Jessen VisionCare, Inc. 23,100 875
--------
TOTAL 5,967
--------
TECHNOLOGY (33.0%)
*Advent Software Inc. 17,900 1,153
*Airnet Communications Corporation 17,000 618
*Aspen Technology, Inc. 22,200 587
*CAIS Internet, Inc. 26,000 923
*CBT Group Public Limited Company,
ADR 34,300 1,149
*CDW Computer Centers, Inc. 17,800 1,400
*Clarify Inc. 8,100 1,021
*Copper Mountain Networks 10,500 512
*Cymer Inc. 25,500 1,173
*Engage Technologies Inc. 16,700 1,002
*Etec Systems, Inc. 21,800 978
*FreeShop.com, Inc. 30,900 1,483
*Great Plains Software, Inc. 15,000 1,121
*Inet Technologies Inc. 19,300 1,349
*JNI Corp. 4,200 277
*Kent Electronics Corp. 49,700 1,131
*Mediaplex, Inc. 1,300 82
*Metalink Ltd. 9,900 202
*Metasolv Software, Inc. 9,500 777
*Northpoint Communications 22,800 547
*PMC-Sierra, Inc. 5,700 914
*Predictive Systems, Inc. 7,800 511
*Qlogic Corporation 5,800 927
*Scient Corp. 8,000 692
*Semtech Corporation 17,600 917
*TIBCO Software, Inc. 5,700 872
*Viant Corp. 6,800 673
*Whittman-Hart Inc. 11,700 627
--------
TOTAL 23,618
--------
TRANSPORTATION (3.0%)
C.H. Robinson Worldwide Inc. 26,700 1,061
*Knight Transportation, Inc. 32,300 553
</TABLE>
Small Cap Growth Stock Portfolio B- 58
<PAGE> 82
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (84.2%) PAR (000'S)
-----------------------------------------------------------
<S> <C> <C>
TRANSPORTATION continued
*Swift Transportation Co., Inc. 31,300 $ 552
--------
TOTAL 2,166
--------
TOTAL COMMON STOCK (COST
$46,686) 60,195
--------
<CAPTION>
MONEY MARKET INVESTMENTS (14.2%)
-----------------------------------------------------------
<S> <C> <C>
CAPTIVE FINANCE COMPANY (5.5%)
Daimler-Chrysler N.A. Holding,
5.50%, 01/28/00 4,000,000 3,984
--------
FEDERAL AND GOVERNMENT AGENCIES (5.6%)
Federal Home Loan Mortgage Corp.,
4.75%, 01/14/00 3,300,000 3,294
#Federal Home Loan Mortgage Corp.,
5.51%, 01/10/00 300,000 300
#Federal Home Loan Mortgage Corp.,
5.54%, 01/20/00 400,000 398
--------
TOTAL 3,992
--------
MISCELLANEOUS BUSINESS CREDIT INSTITUTIONS (2.1%)
Quincy Capital Corporation, 6.07%,
01/27/00 1,500,000 1,493
--------
SHORT-TERM BUSINESS CREDIT (1.0%)
IBM Credit Corp., 4.00%, 01/04/00 700,000 700
--------
TOTAL MONEY MARKET INVESTMENTS
(COST $10,169) 10,169
--------
TOTAL INVESTMENTS (98.4%)
(COST $56,855)[CARET] 70,364
--------
OTHER ASSETS, LESS LIABILITIES
(1.6%) 1,119
--------
TOTAL NET ASSETS (100.0%) $ 71,483
--------
<CAPTION>
-----------------------------------------------------------
<S> <C> <C>
</TABLE>
* Non-Income Producing
ADR - American Depository Receipt
# Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUERS CONTRACTS DATE (000'S)
- ------------------------------------------------------------
<S> <C> <C> <C>
Russell 2000 Index 30 03/00 $391
(Total Notional Value
at
12/31/99, $7,258,000)
</TABLE>
[CARET] At December 31,1999, the aggregate cost of securities for federal income
tax purposes was $56,943 and the net unrealized appreciation of
investments based on that cost was $13,421 which is comprised of $14,937
aggregate gross unrealized appreciation and $1,516 aggregate gross
unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 59 Small Cap Growth Stock Portfolio
<PAGE> 83
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.9%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (1.5%)
*The Corporate Executive Board
Company 287,600 $ 16,070
*Waters Corp. 126,700 6,715
-----------
TOTAL 22,785
-----------
CAPITAL GOODS (7.4%)
*Jabil Circuit, Inc. 527,400 38,500
Kaydon Corporation 342,200 9,175
*RSA Security, Inc. 185,200 14,353
*Sanmina Corporation 346,200 34,577
*Tetra Tech, Inc. 848,678 13,048
-----------
TOTAL 109,653
-----------
COMMUNICATION SERVICES (0.4%)
*Crown Castle International
Co. 165,300 5,310
*TeleCorp PCS, Inc. 28,500 1,083
-----------
TOTAL 6,393
-----------
CONSUMER CYCLICAL (10.3%)
*Abercrombie & Fitch Co. 113,300 3,024
*Catalina Marketing
Corporation 178,500 20,661
Cintas Corp. 278,900 14,816
*Dollar Tree Stores, Inc. 191,800 9,290
*eToys, Inc. 218,600 5,738
*FreeMarkets, Inc. 17,500 5,973
*Getty Images, Inc. 714,100 34,902
*Kohl's Corporation 181,800 13,124
*Linens 'N Things, Inc. 261,633 7,751
*O'Reilly Automotive, Inc. 614,400 13,210
Royal Caribbean Ltd. 167,300 8,250
*Sonic Automotive, Inc. 626,800 6,111
*Tower Automotive, Inc. 619,900 9,570
-----------
TOTAL 152,420
-----------
CONSUMER STAPLES (6.4%)
*American Tower Systems 217,722 6,654
*AMFM, Inc. 115,800 9,061
*Clear Channel Communications,
Inc. 308,500 27,534
*Entercom Communications
Corporation 191,000 12,606
*Insight Communications 211,700 6,272
*Lamar Advertising, Co. 526,925 31,912
-----------
TOTAL 94,039
-----------
ENERGY (7.5%)
Anadarko Petroleum Corporation 485,800 16,578
*BJ Services Company 503,000 21,032
*Global Industries, Ltd. 912,900 7,874
*Nabors Industries, Inc. 580,700 17,965
Santa Fe International Corp. 865,401 22,392
*Weatherford International,
Inc. 651,925 26,036
-----------
TOTAL 111,877
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.9%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FINANCE (2.7%)
Investors Financial Services
Corp. 386,300 $ 17,770
*Knight/Trimark Group, Inc. 296,800 13,653
Radian Group, Inc. 182,100 8,695
-----------
TOTAL 40,118
-----------
HEALTHCARE (5.0%)
Bausch & Lomb, Inc. 77,100 5,277
*Elan Corporation Plc - ADR 263,755 7,781
*Lincare Holdings, Inc. 232,600 8,068
*Patterson Dental Company 399,925 17,047
*Province Healthcare 301,200 5,723
*Shire Pharmaceuticals Group
PLC, ADR 286,300 8,338
*Sybron International
Corporation 666,600 16,457
*Visx Inc. 107,000 5,537
-----------
TOTAL 74,228
-----------
TECHNOLOGY (47.6%)
*Aether Systems, Inc. 47,500 3,402
*Altera Corp. 349,500 17,322
*Bluestone Software, Inc. 28,500 3,277
*CDW Computer Centers, Inc. 326,300 25,655
*CIENA Corporation 167,900 9,654
*Comverse Technology, Inc. 245,550 35,543
*Concord EFS, Inc. 651,225 16,769
*Conexant Systems, Inc. 403,000 26,749
*Copper Mountain Networks 177,000 8,629
*DST Systems, Inc. 303,200 23,138
*Electronic Arts Inc. 129,400 10,870
*Etec Systems, Inc. 219,500 9,850
*Fiserv, Inc. 448,750 17,193
*Foundry Networks, Inc. 27,000 8,146
*Gemstar International Group
Limited 549,800 39,173
*Great Plains Software, Inc. 280,100 20,937
*JDS Uniphase Corp. 242,800 39,167
*Keane, Inc. 202,800 6,439
*Microchip Technology, Inc. 400,400 27,402
*Network Appliance Inc. 287,200 23,856
*Netzero, Inc. 33,300 897
*Northpoint Communications 115,800 2,779
*Novellus Systems, Inc. 183,000 22,423
*Paradyne Networks Corp. 68,100 1,856
Paychex, Inc. 540,000 21,600
PE Corp.-PE Biosystems Group 112,000 13,475
*Peregrine Systems, Inc. 368,831 30,475
*PMC-Sierra, Inc. 190,278 30,504
*Proxicom, Inc. 56,300 6,999
*Qlogic Corporation 227,800 36,420
*Sapient Corp. 181,400 25,566
*Scient Corp. 151,020 13,054
*Semtech Corporation 398,600 20,777
*Sycamore Networks, Inc. 4,600 1,417
</TABLE>
Aggressive Growth Stock Portfolio B- 60
<PAGE> 84
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (89.9%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY continued
*Synopsys, Inc. 285,093 $ 19,030
*Tellabs, Inc. 268,100 17,209
*VeriSign, Inc. 147,000 28,068
*Viant Corp. 61,469 6,085
*Vignette Corporation 215,328 35,098
*ZapMe! Corporation 71,200 614
-----------
TOTAL 707,517
-----------
TRANSPORTATION (1.1%)
Expeditors International of
Washington, Inc. 159,900 7,006
*Swift Transportation Co.,
Inc. 515,490 9,085
-----------
TOTAL 16,091
-----------
TOTAL COMMON STOCK (COST
$724,799) 1,335,121
-----------
<CAPTION>
MONEY MARKET INVESTMENTS (10.4%)
---------------------------------------------------------
CAPTIVE FINANCE COMPANY (3.1%)
Daimler-Chrysler N.A. Holding,
5.50%, 01/28/00 20,000,000 19,917
Ford Motor Credit Company,
6.21%, 01/12/00 25,000,000 24,953
-----------
TOTAL 44,870
-----------
FEDERAL GOVERNMENT AND AGENCIES (1.7%)
#Federal Home Loan Mortgage
Corp., 4.74%, 01/14/00 23,000,000 22,961
Federal Home Loan Mortgage
Corp., 5.51%, 01/10/00 100,000 100
#Federal Home Loan Mortgage
Corp., 5.54%, 01/20/00 2,000,000 1,994
-----------
TOTAL 25,055
-----------
FINANCE LESSOR (1.3%)
Variable Funding Capital
Corp., 6.05%, 01/25/00 20,000,000 19,919
-----------
FINANCE SERVICES (1.4%)
Preferred Receivable Funding,
5.25%, 01/27/00 1,500,000 1,494
Preferred Receivable Funding,
6.10%, 01/27/00 19,500,000 19,414
-----------
TOTAL 20,908
-----------
</TABLE>
<TABLE>
<S> <C> <C>
<CAPTION>
MARKET
MONEY MARKET INVESTMENTS SHARES/ VALUE
(10.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS BUSINESS CREDIT INSTITUTIONS (2.9%)
National Rural, 5.80%,
01/25/00 23,000,000 $ 22,911
Quincy Capital Corporation,
6.02%, 01/28/00 20,000,000 19,910
-----------
TOTAL 42,821
-----------
SHORT-TERM BUSINESS CREDIT (0.0%)
IBM Credit Corp., 4.00%,
01/04/00 700,000 700
-----------
TOTAL MONEY MARKET
INVESTMENTS (COST
$154,273) 154,273
-----------
TOTAL INVESTMENTS (100.3%)
COST ($879,072)' 1,489,394
-----------
OTHER ASSETS, LESS
LIABILITIES (-0.3%) (4,083)
-----------
TOTAL NET ASSETS (100.0%) $ 1,485,311
-----------
</TABLE>
* Non-Income Producing
ADR - American Depository Receipt
# Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUERS CONTRACTS DATE (000'S)
- ------------------------------------------------------------
<S> <C> <C> <C>
Midcap 400 Stock
Index 353 3/00 $2,409
(Total Notional Value
at 12/31/99,
$76,866,400)
</TABLE>
[CARET] At December 31, 1999, the aggregate cost of securities for federal
income tax purposes was $880,991 and the net unrealized appreciation of
investments based on that cost was $608,403 which is comprised of
$631,235 aggregate gross unrealized appreciation and $22,832 aggregate
gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 61 Aggressive Growth Stock Portfolio
<PAGE> 85
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) COUNTRY PAR (000'S)
---------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL EQUIPMENT (6.2%)
Alcatel, ADR France 206,000 $ 9,270
Alcatel, DG France 30,300 6,952
Hong Kong Aircraft &
Engineering Hong Kong 2,680,700 4,449
Invensys PLC United Kingdom 107,832 587
Rolls-Royce PLC United Kingdom 2,685,200 9,285
Koninklijke Philips
Electronics N.V. Netherlands 57,960 7,874
The Weir Group PLC United Kingdom 2,702,500 9,606
---------
TOTAL 48,023
---------
CONSUMER GOODS (14.8%)
Autoliv, Inc. Sweden 279,100 8,164
Aventis SA France 221,000 12,833
*Aventis SA Germany 88,297 5,118
Fiat SPA Ord. Italy 152,790 4,359
Medeva PLC United Kingdom 4,250,000 12,085
Nycomed Amersham PLC United Kingdom 1,628,610 10,149
Ono Pharmaceutical
Co., Ltd. Japan 233,000 6,249
Tate & Lyle, PLC United Kingdom 762,600 4,904
Teva Pharmaceutical
Industries Ltd., ADR Israel 178,200 12,775
Sony Corporation Japan 87,500 25,952
Volvo Aktiebolaget, B
Free Sweden 433,000 11,203
---------
TOTAL 113,791
---------
ENERGY (6.6%)
Petroleo Brasileiro
SA - Petrobras Brazil 32,500,000 8,276
Ranger Oil Limited Canada 1,055,400 3,298
*Renaissance Energy
LTD Canada 540,000 5,425
Repsol S.A. Spain 366,000 8,479
Shell Transport &
Trading Company PLC United Kingdom 1,518,500 12,623
Total Fina SA France 97,622 13,017
---------
TOTAL 51,118
---------
FINANCE (21.0%)
Australia & New
Zealand Bank Group Australia 1,506,097 10,965
AXA-UAP SA France 108,413 15,100
Banco Bradesco SA Brazil 623,750,000 4,893
*Banco Bradesco SA,
Rights Brazil 40,502,640 161
Banco de Andulucia Spain 120,000 4,227
Banco Itau S.A. Brazil 2,079,000 1,784
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) COUNTRY PAR (000'S)
---------------------------------------------------------------
<S> <C> <C> <C>
FINANCE continued
Bangkok Bank Public
Company Ltd Thailand 1,551,800 $ 3,929
Banque Nationale de
Paris France 103,385 9,530
*Banque Nationale de
Paris, Warrants France 46,345 213
Deutsche Bank AG Germany 108,188 9,129
Hang Lung Development
Co. Hong Kong 2,758,000 3,122
HSBC Holdings Hong Kong 568,137 7,967
ING Groep NV Netherlands 209,000 12,607
Merita Limited "A" Finland 2,436,000 14,341
The Nomura Securities
Co., Ltd. Japan 987,400 17,832
PartnerRe Ltd. Bermuda 226,600 7,350
Scor France 129,900 5,726
Unibanco Uniao de
Bancos Brazil 14,033,500 932
Unidanmark A/S, A
Registered Denmark 180,800 12,711
XL Capital Ltd. Bermuda 178,800 9,275
Zurich
Versicherungs -
Gesellschaft Switzerland 17,900 10,207
---------
TOTAL 162,001
---------
GOLD MINES (2.1%)
AngloGold Limited ADR S. Africa 238,800 6,134
Barrick Gold
Corporation Canada 390,300 6,963
*Kinross Gold
Corporation Canada 1,796,100 3,335
---------
TOTAL 16,432
---------
MATERIALS (11.9%)
Agrium, Inc. Canada 473,300 3,727
Akzo Nobel NV Netherland 163,600 8,199
Asia Pulp & Paper
Company Ltd. ADR Singapore 477,300 3,759
Bayer AG Germany 157,000 7,426
Boehler - Uddeholm AG Austria 119,556 5,510
*Celanese AG Germany 11,770 214
Companhia Vale do Rio
Doce, ADR Brazil 372,000 9,393
Corus Group PLC United Kingdom 4,392,400 11,426
Grupo Mexico, B
Shares Mexico 1,320,000 6,541
Hepworth PLC United Kingdom 607,200 1,869
Metsa Serla Oyj, B
shares Finland 157,500 1,831
Pioneer International
Ltd. Australia 3,197,946 9,644
</TABLE>
International Equity Portfolio B- 62
<PAGE> 86
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) COUNTRY PAR (000'S)
---------------------------------------------------------------
<S> <C> <C> <C>
MATERIALS continued
zStora Enso OYJ - R
shares Finland 754,400 $ 13,142
Stora Kapparbergs,
Series B Sweden 507,997 8,723
---------
TOTAL 91,404
---------
MULTI-INDUSTRY (5.1%)
Elementis PLC United Kingdom 1,494,000 1,943
Hutchinson Whampoa
Limited Hong Kong 798,000 11,600
Pilkington PLC United Kingdom 4,777,300 6,522
Swire Pacific
Limited, A Shares Hong Kong 1,459,500 8,618
Swire Pacific
Limited, B Shares Hong Kong 3,534,200 3,092
Williams PLC United Kingdom 1,652,900 7,524
---------
TOTAL 39,299
---------
SERVICES (23.4%)
Best Denki Co., Ltd. Japan 581,000 5,460
British Airways PLC United Kingdom 1,242,900 8,113
*Cable & Wire Optus
Ltd. Australia 2,674,560 8,944
Compania Anonima
Nacional Telefonos
de Venezuela Venezuela 293,000 7,215
Cia. de
Telecomunicaciones
de Chile S.A. Chile 273,725 4,996
Embratel
Participacoes S.A,
ADR Brazil 241,200 6,573
Hyder PLC Cum. Red.
Pfd. United Kingdom 401,400 572
Korea Telecom
Corporation, ADR Republic Of
Korea 97,000 7,251
Kurita Water
Industries, Ltd. Japan 299,000 4,753
Laidlaw
Transportation
Limited Canada 691,580 3,631
Marks & Spencer PLC United Kingdom 1,148,000 5,467
Mayne Nickless Ltd. Australia 1,671,600 4,316
Moebel Walther AG PFD Germany 103,297 800
News Corporation Ltd. Australia 1,014,400 8,697
Nippon Telephone &
Telegraph
Corporation (NTT) Japan 800 13,704
The Peninsular and
Oriental Steam
Navigation Company United Kingdom 548,000 9,146
Phillipine Long
Distance Telephone,
ADR Philippines 127,000 3,286
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.3%) COUNTRY PAR (000'S)
---------------------------------------------------------------
<S> <C> <C> <C>
SERVICES continued
Portugal Telecom SA Portugal 395,000 $ 4,329
Pt Indosat, ADR Indonesia 386,900 8,367
J Sainsbury PLC United Kingdom 1,162,100 6,558
SK Telecom Co., LTD.,
ADR Republic Of
Korea 7,351 282
Somerfield PLC United Kingdom 860,766 1,224
Storehouse PLC United Kingdom 2,879,480 2,163
Telecom Corporation
of New Zealand
Limited New Zealand 1,959,500 9,215
Telecom Italia SPA Italy 1,200,000 7,306
Telefonica de
Argentina SA, ADR Argentina 358,300 11,063
Telefonica del Peru
SA B shares, ADR Peru 370,800 4,959
Telefonos de Mexico
SA, ADR Mexico 154,002 17,325
Telesp Participacoes
S.A., ADR Brazil 210,300 5,139
---------
TOTAL 180,854
---------
UTILITIES (7.2 %)
Endesa S.A. Spain 252,000 4,999
EVN Energie
Versorgung Australia 21,500 3,245
Gener S.A., ADR Chile 299,450 4,641
Hong Kong Electric
Holdings Ltd Hong Kong 1,790,000 5,596
Iberdrola S.A. Spain 587,500 8,135
Korea Electric Power
Corp., ADR Korea 271,000 8,401
National Power PLC United Kingdom 1,246,864 7,222
Thames Water United Kingdom 430,504 5,370
Veba AG Germany 168,100 8,162
---------
TOTAL 55,771
---------
TOTAL COMMON STOCK (COST
$626,644) 758,693
---------
<CAPTION>
MONEY MARKET
INVESTMENTS (1.4%)
---------------------------------------------------------------
<S> <C> <C> <C>
ZCAPTIVE FINANCE
COMPANY (1.3%)
Ford Motor Credit
Company, 5.95%,
01/12/2000 United States 9,700,000 9,681
---------
FEDERAL GOVERNMENT AND AGENCIES (.1%)
Federal Home Loan
Mortgage Corp.,
4.74%, 01/14/2000 United States 1,230,000 1,228
---------
TOTAL MONEY MARKET INVESTMENTS (COST $10,909)
10,909
---------
</TABLE>
B- 63 International Equity Portfolio
<PAGE> 87
MARKET
VALUE
(000'S)
<TABLE>
---------------------------------------------------------------
<S> <C> <C> <C>
Z
TOTAL INVESTMENTS (99.7%)
(COST $637,553)[CARET] $ 769,602
---------
OTHER ASSETS, LESS LIABILITIES (0.3%) 2,568
---------
TOTAL NET ASSETS (100.0%) $ 772,170
---------
</TABLE>
* Non-Income Producing
ADR - American Depository Receipt
Investment Percentages by Country:
<TABLE>
<S> <C>
United Kingdom 15.97%
Japan 9.61%
France 9.44%
Australia 5.95%
Hong Kong 5.77%
Other 53.26%
-------
Total 100.00%
</TABLE>
[CARET] At December 31, 1999, the aggregate cost of securities for federal
income tax purposes was $637,581 and the net unrealized appreciation of
investments based on that cost was $132,021 which is comprised of
$196,727 aggregate gross unrealized appreciation and $64,706 gross
unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
International Equity Portfolio B- 64
<PAGE> 88
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (4.6%)
A. Schulman, Inc. 1,900 $ 31
*Airgas, Inc. 4,400 42
AK Steel Holding Corp. 6,200 117
Albemarle Corporation 2,900 56
Bowater Inc. 3,200 174
Cabot Corp. 4,100 84
Carpenter Technology 1,400 38
Chesapeake Corp. 1,300 40
CK Witco Corporation 7,363 98
Cleveland-Cliffs Inc. 700 22
Consolidated Papers, Inc. 5,600 178
*Cytec Industries Inc. 2,600 60
Dexter Corp. 1,400 56
Ethyl Corp. 5,200 20
Ferro Corp. 2,200 48
Georgia Gulf Corp. 1,900 58
Georgia-Pacific Corporation
(Timber Group) 5,100 126
H.B. Fuller Co. 900 50
IMC Global Inc. 7,100 116
Kennametal Inc. 1,800 60
Longview Fibre Co. 3,200 46
Lubrizol Corp. 3,400 105
Lyondell Chemical Company 7,200 92
M.A. Hanna Company 3,000 33
Martin Marietta Materials 2,900 119
*Maxxam Inc. 400 17
Minerals Technologies Inc. 1,300 52
Olin Corp. 2,800 55
Oregon Steel Mills Inc. 1,600 13
P.H. Glatfelter Company 2,600 38
Rayonier Inc. 1,700 82
RPM. Inc. 6,800 69
Ryerson Tull Inc. 1,500 29
Solutia Inc. 6,800 105
Sonoco Products Co. 6,300 143
Southdown Inc. 2,200 114
*Ucar International Inc. 2,800 50
Universal Corp-Va 2,000 46
Wausau-Mosinee Paper Corp. 3,200 37
-------
TOTAL 2,719
-------
CAPITAL GOODS (7.3%)
Agco Corp. 3,700 50
Albany International Corp. 1,900 29
*American Power Conversion 11,900 314
*American Standard Companies 4,400 202
Ametek Inc. 2,000 38
Carlisle Companies. Inc. 1,900 68
Cordant Technologies Inc. 2,300 76
Diebold Inc. 4,300 101
Donaldson Co. Inc. 2,800 67
Federal Signal Corp. 2,800 45
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS continued
Flowserve Corp. 2,300 $ 39
Granite Construction Inc. 1,700 31
Harsco Corp. 2,500 79
Herman Miller Inc. 4,900 113
Hillenbrand Industries 4,100 130
HON Industries 3,800 83
Hubbell Inc. 4,000 109
*Jabil Circuit, Inc. 5,400 394
*Jacobs Engineering Group Inc. 1,600 52
Kaydon Corporation 2,000 54
*Magnetek Inc. 1,900 15
Newport News Shipbuilding 2,100 58
Nordson Corp. 1,000 48
Pentair Inc. 3,000 116
Precision Castparts Corp. 1,500 39
Reynolds & Reynolds 4,800 108
*Sanmina Corporation 3,600 360
*SCI Systems Inc. 4,500 370
*Sensormatic Electronics Corp. 4,700 82
*Sequa Corp. 600 32
*SPX Corp. 1,900 154
Standard Register Co. 1,700 33
Stewart & Stevenson Services 1,700 20
*Symbol Technologies Inc. 5,400 343
Tecumseh Products Co. 1,200 57
Teleflex, Inc. 2,300 72
Trinity Industries 2,500 71
*Vishay Intertechnology Inc. 5,225 165
Wallace Computer Services, Inc. 2,600 43
York International Corp. 2,500 69
-------
TOTAL 4,329
-------
COMMUNICATION SERVICES (1.7%)
Broadwing, Inc. 13,300 490
Comsat Corp. 3,222 64
Telephone & Data Systems Inc. 3,800 479
-------
TOTAL 1,033
-------
CONSUMER CYCLICAL (15.0%)
*A.H. Belo Corporation 7,300 139
*Abercrombie & Fitch Co. 6,400 171
*AC Nielsen Corporation 3,600 89
*Acxiom Corporation 5,200 125
*American Eagle Outfitters, Inc. 2,900 131
*Apollo Group Inc. 4,800 96
Arvin Industries Inc. 1,600 45
Bandag Inc. 1,400 35
*Barnes & Noble, Inc. 4,300 89
*BJ's Wholesale Club Inc. 4,500 164
*Blyth Industries Inc. 3,000 74
*Borders Group Inc. 4,800 77
Borg-Warner Automotive, Inc. 1,600 65
*Burlington Industries, Inc. 3,300 13
</TABLE>
B- 65 Index 400 Stock Portfolio
<PAGE> 89
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICAL continued
Callaway Golf Company 4,700 $ 83
*CDW Computer Centers, Inc. 2,700 212
Cintas Corp. 6,800 361
Claire's Stores Inc. 3,100 69
Clayton Homes Inc. 8,900 82
*Compusa Inc. 5,700 29
*Convergys Corp. 9,400 289
*DeVry, Inc. 4,300 80
*Dollar Tree Stores, Inc. 3,800 184
Family Dollar Stores 10,700 175
Fastenal Co. 2,300 103
*Federal-Mogul Corp. 4,400 89
*Furniture Brands International
Inc. 3,200 70
*Gtech Holdings Corp. 2,200 48
Harley-Davidson, Inc. 9,400 602
Harte-Hanks Communications 4,300 94
Heilig-Meyers Co. 3,700 10
Houghton Mifflin Co. 1,900 80
International Game Technology 5,600 114
International Speedway Corporation 3,300 166
*Jones Apparel Group, Inc. 7,551 205
Kelly Services Inc. 2,200 55
Lancaster Colony Corp. 2,500 83
*Land's End Inc. 1,900 66
*Lear Corporation 4,100 131
Lee Enterprises 2,700 86
*Mandalay Resort Group 5,600 113
Manpower Inc. 4,700 177
Mark IV Industries Inc. 2,900 51
Media General Inc. 1,600 83
Meritor Automotive Inc. 4,300 83
*Micro Warehouse Inc. 2,200 41
Modine Manufacturing Co. 1,800 45
*Modis Professional Services Inc. 5,900 84
*Mohawk Industries Inc. 3,700 98
*Navigant Consulting Co. 2,600 28
NCH Corp. 300 13
*NCO Group, Inc. 1,500 45
Neiman Marcus Group, Inc 3,000 84
*Officemax Inc. 7,000 39
*Ogden Corp. 3,000 36
Olsten Corp. 5,000 57
*Park Place Entertainment 18,700 234
*Payless Shoesource Inc. 2,000 94
Pittston Brink's Group 2,500 55
*Premier Parks Inc. 4,800 139
The Readers Digest Association,
Inc. 6,600 193
*Robert Half International, Inc. 5,600 160
Rollins Inc. 1,900 28
Ross Stores Inc. 5,600 100
*Saks Incorporated 8,900 139
*Scholastic Corp. 1,000 62
Shaw Industries Inc. 8,500 131
Sotheby's Holdings 3,600 108
Stewart Enterprises, Inc. 6,900 33
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICAL continued
Superior Industries International 1,700 $ 46
*Sylvan Learning Systems Inc. 3,200 42
*Tech Data Corp. 3,200 87
Tiffany & Co. 4,300 384
*Unifi Inc. 3,700 46
USG Corp. 3,100 146
Viad Corp. 6,000 167
Warnaco Group 3,400 42
Washington Post 600 334
Wellman Inc. 1,900 35
Westpoint Stevens Inc. 3,400 59
*Williams-Sonoma, Inc. 3,400 156
-------
TOTAL 8,976
-------
CONSUMER STAPLES (7.2%)
Banta Corp. 1,700 38
Bergen Brunswig Corp. 8,300 69
Bob Evans Farms, Inc. 2,400 37
*Brinker International Inc. 4,100 98
*Buffets Inc. 2,600 26
Carter-Wallace Inc. 2,800 50
CBRL Group Inc. 3,700 36
*Chris-Craft Industries Inc. 2,100 151
Church & Dwight Inc. 2,400 64
Dean Foods Co. 2,400 95
Dole Food Company 3,500 57
Dreyer's Grand Ice Cream Inc. 1,700 29
Flowers Industries Inc. 6,200 99
Hannaford Brothers Co. 2,600 180
*Hispanic Broadcasting Corp. 3,400 314
Hormel Foods Corp. 4,500 183
IBP Inc. 5,700 103
International Multifoods Corp. 1,200 16
Interstate Bakeries 4,300 78
The J.M. Smucker Co. 1,800 35
Lance Inc. 1,800 18
*Lone Star Steakhouse & Saloon 2,000 18
McCormick & Co. 4,400 131
*Outback Steakhouse Inc. 4,600 119
*Papa John's International Inc. 1,900 49
*Perrigo Company 4,500 36
*PSS World Medical, Inc. 4,400 42
RJ Reynolds Tobacco Holdings Inc. 6,700 118
Ruddick Corp. 2,900 45
*Starbucks Corp. 11,200 272
*Suiza Foods Corp. 2,100 83
The Dial Corporation 6,300 153
Tyson Foods Inc. 14,200 231
*U.S. Foodservice 6,100 102
Universal Foods Corp. 3,100 63
*Univision Communications Inc. 6,300 644
*Vlasic Foods International 2,800 16
*Westwood One Inc. 3,300 251
Whitman Corp. 8,700 117
-------
TOTAL 4,266
-------
</TABLE>
Index 400 Stock Portfolio B- 66
<PAGE> 90
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
ENERGY (4.3%)
*BJ Services Company 4,400 $ 184
Devon Energy Corporation 4,900 161
Ensco International Inc. 8,500 194
*Global Marine Inc. 10,700 178
*Hanover Compressor Company 1,800 68
Murphy Oil Corp. 2,800 161
*Nabors Industries, Inc. 8,400 260
Noble Affiliates Inc. 3,500 75
*Noble Drilling Corp. 8,100 265
*Ocean Energy Inc. 10,300 80
Pennzoil-Quaker State Company 4,800 49
*Pioneer Natural Resources Co. 6,200 55
*Santa Fe Snyder Corp. 11,200 90
*Smith International Inc. 3,100 154
Tidewater Inc. 3,400 122
Ultramar Diamond Shamrock Corp. 5,300 120
Valero Energy Corp. 3,500 70
*Varco International Inc. 4,000 41
*Weatherford International, Inc. 6,500 260
-------
TOTAL 2,587
-------
FINANCE (10.4%)
A.G. Edwards, Inc. 5,800 186
Allmerica Financial Corp. 3,300 184
Ambac Financial Group, Inc. 4,300 224
American Financial Group Inc. 3,700 98
Associated Banc-Corp 3,900 134
Astoria Financial Corporation 3,400 103
CCB Financial Corp. 2,400 105
Charter One Financial Inc. 13,160 252
City National Corp. 2,800 92
Compass Bancshares Inc. 7,000 156
Dime Bancorp, Inc. 7,000 106
*E*TRADE Group Inc. 14,500 379
Everest Reinsurance Hldgs 3,000 67
Finova Group Inc. 3,800 135
First Security Corporation 12,000 306
First Tennessee National Corp. 8,100 231
First Virginia Banks Inc. 3,100 133
FirstMerit Corporation 5,600 129
GreenPoint Financial Corp. 6,700 160
Hibernia Corp. 9,900 105
Horace Mann Educators 2,500 49
HSB Group Inc. 1,800 61
Keystone Financial Inc. 3,000 63
Legg Mason, Inc. 3,500 127
Marshall & Ilsley Corp. 6,400 402
Mercantile Bankshares Corp. 4,300 137
National Commerce Bancorporation 6,500 147
North Fork Bancorporation 8,400 147
Ohio Casualty Corporation 3,800 61
Old Republic International
Corporation 8,000 109
Pacific Century Financial Corp. 5,000 93
The PMI Group Inc. 2,750 134
Protective Life Corp. 4,000 127
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
FINANCE continued
Provident Financial Group, Inc. 2,700 $ 97
Reliastar Financial Corp. 5,300 208
Sovereign Bancorp Inc. 13,500 101
TCF Financial Corp. 5,100 127
Unitrin Inc. 4,500 169
Webster Financial Corp. 2,800 66
Westamerica Bancorporation 2,400 67
Wilmington Trust Corporation 2,000 96
*Zions Bancorporation 5,200 308
-------
TOTAL 6,181
-------
HEALTH CARE (9.8%)
*Acuson Corp. 1,700 21
*Apria Healthcare Group Inc. 3,200 57
Beckman Coulter Inc. 1,800 92
*Beverly Enterprises Inc. 6,300 28
*Biogen Inc. 9,300 786
*Chiron Corp. 11,200 475
*Covance Inc. 3,600 39
Dentsply International Inc. 3,300 78
*Express Scripts, Inc. 2,400 154
*First Health Group Corp. 3,100 83
*Forest Laboratories, Inc. 5,100 313
*Foundation Health Systems 7,500 75
*Genzyme Corporation (General
Division) 5,100 230
*Gilead Sciences Inc. 2,600 141
*Health Management Associates Inc. 15,600 209
ICN Pharmaceuticals Inc. 4,800 121
*Ivax Corp. 6,600 170
*Lincare Holdings, Inc. 3,600 125
*Medimmune Inc. 3,700 614
*Millennium Pharmaceuticals 2,200 268
*Minimed Inc. 1,900 139
Mylan Laboratories 8,000 201
Omnicare Inc. 5,600 67
*Oxford Health Plans 5,000 63
*Pacificare Health Systems 2,800 148
*Quorum Health Group, Inc. 4,500 42
*Sepracor Inc. 2,000 198
*Steris Corp. 4,200 43
*Stryker Corp. 6,000 418
*Sybron International Corporation 6,400 158
*Total Renal Care Holdings 5,000 33
*Trigon Healthcare Inc. 2,600 77
*VISX Inc. 3,900 202
-------
TOTAL 5,868
-------
TECHNOLOGY (25.1%)
*Adtran Inc. 2,400 123
*Affiliated Computer Svcs Inc. 3,000 138
*Altera Corp. 12,300 610
*Arrow Electronics Inc. 5,900 150
*Atmel Corporation 12,400 367
Avnet Inc. 2,600 157
</TABLE>
B- 67 Index 400 Stock Portfolio
<PAGE> 91
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
TECHNOLOGY continued
*Cadence Design Systems Inc. 15,000 $ 360
*Cambridge Technology Partners
Inc. 3,700 97
*CheckFree Holdings Corporation 3,400 355
*Cirrus Logic Inc. 4,000 53
Comdisco Inc. 9,400 350
*Concord EFS, Inc. 12,650 326
*Cypress Semiconductor Corp. 6,500 210
*DST Systems, Inc. 3,900 298
*Electronic Arts Inc. 3,800 319
*Fiserv, Inc. 7,650 293
*Gartner Group Inc. 5,400 75
Harris Corporation 4,900 131
*Imation Corporation 2,300 77
*Informix Corp. 11,800 134
*Integrated Device Technology Inc. 5,500 160
*Intuit Inc. 11,500 689
*Investment Technology Group Inc. 2,000 58
*Keane Inc. 4,400 140
*Legato Systems Inc. 5,000 344
Linear Technology Corp. 9,400 673
*Litton Industries Inc. 2,800 140
*Maxim Integrated Products 16,600 783
*Mentor Graphics Corp. 4,100 54
*Microchip Technology, Inc. 3,100 212
*NCR Corporation 6,100 231
*Network Associates Inc. 8,600 230
*NOVA Corporation 4,500 142
*Novellus Systems, Inc. 2,400 294
*Policy Management Systems
Corporation 2,200 56
Polycom, Inc. 2,000 127
*Qlogic Corporation 2,200 352
*Quantum Corp.-DLT & Storage 10,200 154
*Rational Software Corp. 5,400 265
*Siebel Systems Inc. 11,400 958
*Sterling Commerce Inc. 5,400 184
*Sterling Software, Inc. 5,200 164
*Storage Technology Corp. 6,200 114
*Structural Dynamics Research 2,200 28
*Sungard Data Systems Inc. 7,400 176
Sykes Enterprises, Inc. 2,600 114
*Symantec Corp. 3,500 205
*Synopsys, Inc. 4,400 294
*Transaction Systems Architects,
Inc. 2,000 56
*VERITAS Software Corp. 15,800 2,261
*Vitesse Semiconductor Corp. 9,500 498
*Waters Corp. 3,800 201
-------
TOTAL 14,980
-------
TRANSPORTATION (1.0%)
Airborne Freight Corp. 3,000 66
*Alaska Airgroup Inc. 1,600 56
Alexander & Baldwin Inc. 2,700 62
Arnold Industries Inc. 1,500 21
CNF Transportation Inc. 3,000 104
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (94.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
TRANSPORTATION continued
Gatx Corp. 3,100 $ 105
J.B. Hunt Transport Services, Inc. 2,200 30
Overseas Shipholding Group 2,200 33
*Swift Transportation Co., Inc. 4,000 70
*Wisconsin Central Transport 3,200 43
-------
TOTAL 590
-------
UTILITIES (8.3%)
AGL Resources Inc. 3,500 60
Allegheny Energy Inc. 7,100 191
Alliant Energy Corp. 4,800 132
American Water Works Inc. 6,000 127
Black Hills Corp. 1,300 29
*Calpine Corp. 3,800 243
Cleco Corporation 1,400 45
CMP Group Inc. 2,000 55
Conectiv Inc. 5,800 98
DPL Inc. 9,800 170
DQE, Inc. 4,600 159
Energy East Corp. 7,100 148
Hawaiian Electric Industries, Inc. 2,000 58
Idacorp Inc. 2,300 62
Illinova Corp. 4,300 149
Indiana Energy Inc. 1,800 32
Ipalco Enterprises Inc. 5,300 90
Kansas City Power & Light 3,800 84
KeySpan Corporation 8,600 199
Kinder Morgan, Inc. 6,900 139
LG&E Energy Corp. 8,000 139
MCN Energy Group Inc. 5,300 126
*Midamerican Energy Holdings Co. 3,800 128
Minnesota Power Inc. 4,500 76
Montana Power Co. 6,800 245
National Fuel Gas Co. 2,400 112
New England Electric System 3,600 186
NiSource Inc. 7,700 138
*Northeast Utilities 8,100 167
NSTAR 3,900 158
OGE Energy Corp. 4,800 91
Potomac Electric Power 7,300 167
Public Service Co. Of New Mexico 2,500 41
Puget Sound Energy Inc. 5,200 101
Questar Corp. 5,100 76
Scana Corp. 6,400 172
Sierra Pacific Resources 4,781 83
Teco Energy Inc. 8,200 152
Utilicorp United Inc. 5,700 111
Washington Gas Light Co. 2,900 80
Wisconsin Energy Corporation 7,200 139
-------
TOTAL 4,958
-------
TOTAL COMMON STOCK
(COST $52,637) 56,487
-------
</TABLE>
Index 400 Stock Portfolio B- 68
<PAGE> 92
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
MONEY MARKET INVESTMENTS (4.7%) PAR (000'S)
-------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (4.7%)
Federal Home Loan Mortgage Corp.,
4.75%, 01/14/00 1,800,000 $ 1,797
#Federal Home Loan Mortgage Corp.,
5.51%, 01/10/00 700,000 699
#Federal Home Loan Mortgage Corp.,
5.54%, 01/20/00 300,000 299
-------
TOTAL MONEY MARKET INVESTMENTS
(COST $2,795) 2,795
-------
TOTAL INVESTMENTS (99.4%)
(COST $55,432)/\ 59,282
OTHER ASSETS, LESS LIABILITIES (0.6%) 362
-------
TOTAL NET ASSETS (100.0%) $59,644
-------
</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, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUER CONTRACTS DATE (000'S)
- ------------------------------------------------------------
<S> <C> <C> <C>
Midcap 400 Stock
Index 13 3/00 $132
(Total Notional Value
at 12/31/99,
$2,787,400)
</TABLE>
/\At December 31, 1999, the aggregate cost of securities for federal income tax
purposes was $55,432 and the net unrealized appreciation of investments based
on that cost was $3,850 which is comprised of $7,710 aggregate gross
unrealized appreciation and $3,860 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 69 Index 400 Stock Portfolio
<PAGE> 93
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (87.3%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (2.0%)
Ecolab, Inc. 203,900 $ 7,978
PPG Industries, Inc. 48,800 3,053
The Mead Corporation 55,000 2,389
---------
TOTAL 13,420
---------
CAPITAL GOODS (7.1%)
Avery Dennison Corporation 91,400 6,661
Emerson Electric Co. 59,400 3,408
General Electric Company 114,500 17,719
Honeywell International, Inc. 69,400 4,003
Illinois Tool Works, Inc. 68,000 4,594
*Republic Services, Inc. 215,600 3,099
Tyco International Ltd. 223,400 8,685
---------
TOTAL 48,169
---------
COMMUNICATION SERVICES (4.8%)
AT&T Corp. 188,900 9,587
GTE Corporation 82,900 5,850
*MCI WorldCom, Inc. 129,750 6,885
*Nextel Communications,
Inc. - Class A 72,500 7,476
SBC Communications, Inc. 50,139 2,444
---------
TOTAL 32,242
---------
CONSUMER CYCLICALS (16.4%)
*Amazon.com, Inc. 41,900 3,190
*Barnes & Noble, Inc. 141,000 2,908
*barnesandnoble.com, inc. - Class
A 81,400 1,155
*Costco Wholesale Corporation 62,300 5,685
Dayton Hudson Corporation 67,000 4,920
*eToys, Inc. 68,100 1,788
Ford Motor Company 93,000 4,970
Harley-Davidson, Inc. 171,500 10,987
*Kohl's Corporation 140,600 10,150
Lennar Corporation 32,700 531
Omnicom Group, Inc. 33,600 3,360
The Gap, Inc. 30,350 1,396
The Home Depot, Inc. 179,250 12,290
The Interpublic Group of
Companies, Inc. 108,300 6,247
The McGraw-Hill Companies, Inc. 142,200 8,763
The New York Times Company -
Class A 129,200 6,347
The ServiceMaster Company 245,250 3,020
Tiffany & Co. 15,800 1,410
Tribune Company 152,000 8,369
Wal-Mart Stores, Inc. 193,000 13,341
---------
TOTAL 110,827
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (87.3%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (9.6%)
Anheuser-Busch Companies, Inc. 48,900 $ 3,466
The Coca-Cola Company 112,800 6,571
The Dial Corporation 252,800 6,146
*Keebler Foods Company 108,100 3,040
Kimberly-Clark Corporation 103,000 6,721
McDonald's Corporation 115,400 4,652
PepsiCo, Inc. 102,100 3,599
The Procter & Gamble Company 96,000 10,518
The Quaker Oats Company 65,600 4,305
Time Warner Inc. 52,500 3,803
*Viacom, Inc. - Class B 76,000 4,593
Walgreen Co. 262,400 7,675
---------
TOTAL 65,089
---------
ENERGY (4.8%)
BP Amoco Plc, ADR 90,000 5,338
Chevron Corporation 23,000 1,992
Conoco, Inc. - Class B 210,500 5,236
EOG Resources, Inc. 270,000 4,742
Exxon Mobil Corporation 96,767 7,796
Schlumberger Limited 40,500 2,278
Texaco, Inc. 38,000 2,064
Tosco Corporation 94,000 2,556
Transocean Sedco Forex, Inc. 7,857 265
---------
TOTAL 32,267
---------
FINANCE (7.0%)
American International Group,
Inc. 8,000 865
The Bank of New York Company,
Inc. 133,300 5,332
The Chase Manhattan Corporation 94,880 7,371
Citigroup, Inc. 223,400 12,413
Fifth Third Bancorp 73,300 5,378
The Goldman Sachs Group, Inc. 25,500 2,402
*LaBranche & Co., Inc. 47,200 602
Lehman Brothers Holdings, Inc. 43,600 3,692
Morgan Stanley Dean Witter & Co. 68,700 9,807
---------
TOTAL 47,862
---------
HEALTHCARE (5.2%)
Bristol-Myers Squibb Company 116,500 7,478
Eli Lilly and Company 64,900 4,316
*Guidant Corporation 30,600 1,438
Johnson & Johnson 49,100 4,572
Medtronic, Inc. 165,800 6,041
Merck & Co., Inc. 97,400 6,532
Pfizer, Inc. 43,700 1,418
Warner-Lambert Company 38,600 3,163
---------
TOTAL 34,958
---------
</TABLE>
Growth Stock Portfolio B- 70
<PAGE> 94
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (87.3%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (25.9%)
*Agilent Technologies, Inc. 24,900 $ 1,925
*Amdocs Limited 210,000 7,245
*America Online, Inc. 77,600 5,854
*Atmel Corporation 43,700 1,292
*Cisco Systems, Inc. 155,200 16,626
*Concord EFS, Inc. 207,900 5,353
*Dell Computer Corporation 86,800 4,427
Electronic Data Systems
Corporation 124,300 8,320
*EMC Corporation 54,800 5,987
*Fiserv, Inc. 266,475 10,209
Hewlett-Packard Company 67,800 7,725
*Intel Corporation 149,600 12,314
International Business Machines
Corporation 80,000 8,640
Lucent Technologies, Inc. 162,884 12,186
*Microsoft Corporation 171,400 20,011
Nortel Networks Corporation 112,000 11,312
*Oracle Corporation 57,000 6,388
*Sun Microsystems, Inc. 89,000 6,892
Texas Instruments, Incorporated 64,200 6,219
*TIBCO Software, Inc. 57,500 8,797
W.W. Grainger, Inc. 85,000 4,064
*Williams Communications Group,
Inc. 106,500 3,082
---------
TOTAL 174,868
---------
TRANSPORTATION (2.8%)
*AMR Corporation 73,900 4,951
Canadian National Railway Company 165,000 4,342
*FDX Corporation 57,000 2,333
*Midwest Express Holdings, Inc. 125,400 3,997
Southwest Airlines Co. 215,775 3,493
---------
TOTAL 19,116
---------
UTILITIES (1.7%)
Enron Corp. 252,000 11,183
---------
TOTAL COMMON STOCK
(COST $379,101) 590,001
---------
<CAPTION>
MONEY MARKET INVESTMENTS (13.0%)
---------------------------------------------------------
<S> <C> <C>
CAPTIVE FINANCE COMPANY (3.0%)
Ford Motor Credit Company, 6.21%,
01/12/2000 20,000,000 19,962
---------
FEDERAL AND GOVERNMENT AGENCIES (0.9%)
Federal Home Loan Mortgage Corp.,
4.75%, 01/14/2000 2,400,000 2,396
#Federal Home Loan Mortgage
Corp., 5.54%, 01/20/2000 3,700,000 3,689
#Federal Home Loan Mortgage
Corp., 5.57%, 01/20/2000 200,000 199
---------
TOTAL 6,284
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
MONEY MARKET INVESTMENTS (13.0%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FINANCE LESSORS (2.9%)
Variable Funding Capital Corp.,
6.14%, 01/21/2000 20,000,000 $ 19,932
---------
MISCELLANEOUS BUSINESS CREDIT INSTITUTIONS (2.9%)
Quincy Capital Corporation,
6.07%, 01/27/2000 20,000,000 19,912
---------
SHORT-TERM BUSINESS CREDIT (3.3%)
CXC Incorporated, 6.02%,
02/09/2000 20,000,000 19,870
IBM Credit Corp., 4.00%,
01/04/2000 2,400,000 2,399
---------
TOTAL 22,269
---------
TOTAL MONEY MARKET
INVESTMENTS (COST $88,359) 88,359
---------
TOTAL INVESTMENTS (100.3%)
(COST $467,460)/\ 678,360
---------
OTHER ASSETS, LESS LIABILITIES (-0.3%) (2,226)
---------
TOTAL NET ASSETS (100.0%) $ 676,134
---------
</TABLE>
* Non-Income Producing
ADR - American Depository Receipt
# Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUERS CONTRACTS DATE (000'S)
- ----------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 189 3/00 $2,875
(Total Notional Value
at 12/31/99,
$67,253,645)
</TABLE>
/\At December 31, 1999, the aggregate cost of securities for federal income tax
purposes was $467,460 and the net unrealized appreciation of investments based
on that cost was $210,900 which is comprised of $220,019 aggregate gross
unrealized appreciation and $9,120 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 71 Growth Stock Portfolio
<PAGE> 95
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (7.2%)
Allegheny Technologies
Incorporated 160,350 $ 3,598
Bowater Inc. 55,500 3,014
Monsanto Company 325,400 11,592
Reynolds Metals Company 3,400 261
Rohm and Haas Company 291,900 11,877
*Smurfit-Stone Container
Corporation 345,834 8,473
Temple-Inland Inc. 74,200 4,893
USX-U.S. Steel Group, Inc. 125,100 4,128
---------
TOTAL 47,836
---------
CAPITAL GOODS (7.4%)
Cooper Industries, Inc. 137,000 5,540
Deere & Company 82,900 3,596
General Electric Company 47,300 7,320
Honeywell International, Inc. 116,200 6,703
*Republic Services, Inc. 197,100 2,833
Tyco International Ltd. 514,798 20,013
Waste Management, Inc. 157,717 2,711
---------
TOTAL 48,716
---------
COMMUNICATION SERVICES (7.3%)
AT&T Corporation 175,100 8,886
Bell Atlantic Corporation 46,300 2,850
*Global Crossing 73,800 3,690
GTE Corporation 101,400 7,155
*Level 3 Communications, Inc. 29,600 2,424
*MCI WorldCom, Inc. 249,159 13,221
SBC Communications, Inc. 210,610 10,267
---------
TOTAL 48,493
---------
CONSUMER CYCLICALS (9.4%)
*Abercrombie & Fitch Co. 136,700 3,648
*Cendant Corporation 248,904 6,611
Circuit City Stores, Inc. 53,900 2,429
*Federated Department Stores,
Inc. 111,300 5,628
The Gap, Inc. 66,600 3,064
International Game Technology 208,300 4,231
*Jones Apparel Group, Inc. 185,900 5,043
*Lear Corporation 108,300 3,466
Mattel, Inc. 285,900 3,752
The News Corporation Limited,
ADR 226,100 8,648
TJX Companies, Inc. 227,000 4,639
United Parcel Service,
Inc. - Class B 21,000 1,449
Wal-Mart Stores, Inc. 138,200 9,553
---------
TOTAL 62,161
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (9.3%)
*AT&T - Liberty Media Group 185,700 $ 10,538
Clorox Company 56,700 2,856
The Coca-Cola Company 30,200 1,759
Gillette Company 155,000 6,384
Kimberly-Clark Corporation 65,800 4,293
PepsiCo, Inc. 149,700 5,277
Philip Morris Companies, Inc. 451,600 10,472
The Procter & Gamble Company 98,500 10,792
The Seagram Company Ltd. 200,200 8,997
---------
TOTAL 61,368
---------
ENERGY (6.8%)
Conoco, Inc. - Class B 370,400 9,213
*Cooper Cameron Corp. 99,600 4,874
Exxon Mobil Corporation 237,627 19,144
Shell Transport & Trading
Company, ADR 92,200 4,541
Tosco Corporation 267,100 7,262
---------
TOTAL 45,034
---------
FINANCE (14.3%)
Ambac Financial Group, Inc. 98,400 5,135
Aon Corporation 218,500 8,740
Bank of America Corporation 187,843 9,427
The CIT Group, Inc. 168,170 3,553
Citigroup, Inc. 154,200 8,568
Dime Bancorp, Inc. 134,900 2,040
Federal National Mortgage
Association 59,100 3,690
First Union Corporation 301,500 9,893
The Goldman Sachs Group, Inc. 76,500 7,205
KeyCorp 242,600 5,368
Marsh & McLennan Companies, Inc. 53,550 5,124
U.S. Bancorp 294,600 7,015
UnumProvident Corp. 238,923 7,661
Washington Mutual, Inc. 247,900 6,445
XL Capital Ltd. 96,000 4,980
---------
TOTAL 94,844
---------
HEALTH CARE (6.4%)
American Home Products
Corporation 134,100 5,289
Bristol-Myers Squibb Company 120,500 7,735
Eli Lilly & Company 84,000 5,586
*Forest Laboratories, Inc. 184,700 11,347
*Tenet Healthcare Corp. 128,500 3,020
Warner-Lambert Company 114,100 9,349
---------
TOTAL 42,326
---------
</TABLE>
Growth & Income Stock Portfolio B- 72
<PAGE> 96
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (26.8%)
*America Online, Inc. 82,200 $ 6,202
*Applied Materials, Inc. 29,000 3,674
*BMC Software, Inc. 48,500 3,877
*Cisco Systems, Inc. 244,050 26,144
Compaq Computer Corporation 167,500 4,533
*Dell Computer Corporation 73,200 3,733
*EMC Corporation 67,300 7,352
*Intel Corporation 211,000 17,368
International Business Machines
Corporation 63,900 6,901
Lucent Technologies, Inc. 140,215 10,490
*Microsoft Corporation 284,000 33,157
Motorola, Inc. 67,900 9,998
*Oracle Corporation 62,950 7,054
PE Corp.-PE Biosystems Group 18,400 2,214
*Quantum Corp.-DLT & Storage 93,600 1,416
*Seagate Technology Inc. 52,700 2,454
*Sun Microsystems, Inc. 273,600 21,187
Texas Instruments, Incorporated 96,900 9,387
---------
TOTAL 177,141
---------
TRANSPORTATION (1.5%)
Union Pacific Corporation 221,100 9,646
---------
UTILITIES (2.4%)
Columbia Energy Group 145,800 9,222
DTE Energy Company 90,200 2,830
Northern States Power Company 73,300 1,429
PG&E Corp. 131,000 2,686
---------
TOTAL 16,167
---------
TOTAL COMMON STOCK
(COST $589,891) 653,732
---------
MARKET
SHARES/ VALUE
MONEY MARKET INVESTMENTS (1.3%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
AUTO RELATED (1.2%)
Daimler-Chrysler N.A. Holding,
5.5%, 01/28/2000 8,000,000 $ 7,967
---------
FEDERAL GOVERNMENT AND AGENCIES (0.0%)
Federal Home Loan Mortgage
Corp., 4.74%, 01/14/2000 200,000 199
---------
FINANCE LESSORS (0.1%)
Preferred Receivable Funding,
6.1%, 01/27/2000 500,000 498
---------
TOTAL MONEY MARKET
INVESTMENTS (COST $8,664) 8,664
---------
TOTAL INVESTMENTS (100.1%)
(COST $598,555)' 662,396
---------
OTHER ASSETS, LESS LIABILITIES (-0.1%) (844)
---------
TOTAL NET ASSETS (100.0%) $ 661,552
---------
</TABLE>
* Non-Income Producing
ADR - American Depository Receipt
[CARET] At December 31, 1999, the aggregate cost of securities for federal
income tax purposes was $602,714 and the net unrealized appreciation of
investments based on that cost was $59,682 which is comprised of
$117,854 aggregate gross unrealized appreciation and $58,172 aggregate
gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 73 Growth & Income Stock Portfolio
<PAGE> 97
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (3.0%)
Air Products & Chemicals, Inc. 41,700 $ 1,400
Alcan Aluminum Limited 41,100 1,693
Alcoa Inc. 66,800 5,544
Allegheny Technologies
Incorporated 17,367 390
Archer Daniels Midland Company 112,449 1,371
Barrick Gold Corporation 71,000 1,256
Bemis Company, Inc. 9,500 331
*Bethlehem Steel Corporation 23,800 199
Boise Cascade Corporation 10,400 421
Champion International 17,500 1,084
Dow Chemical Company 40,100 5,358
E.I. du Pont de Nemours &
Company 189,900 12,510
Eastman Chemical Company 14,225 678
Ecolab, Inc. 23,600 923
Engelhard Corp. 22,900 432
*FMC Corporation 5,800 332
*Freeport-McMoRan Copper &
Gold, Inc. 29,800 630
Georgia Pacific Corp. 31,200 1,583
Great Lakes Chemical 10,600 405
Hercules Inc. 19,300 538
Homestake Mining Company 47,400 370
*Inco Limited 34,900 820
International Flavors &
Fragrances, Inc. 19,300 729
International Paper Company 75,270 4,248
Louisiana Pacific Corporation 19,600 279
The Mead Corporation 18,600 808
Monsanto Company 115,400 4,111
Newmont Mining Corporation 30,480 747
Nucor Corp. 15,900 872
*Pactiv Corporation 31,000 329
Phelps Dodge Corporation 14,225 955
Placer Dome Inc. 59,300 638
Potlatch Corporation 5,300 237
PPG Industries, Inc. 31,600 1,977
Praxair 29,000 1,459
Reynolds Metals Company 11,400 874
Rohm and Haas Company 39,613 1,612
Sigma-Aldrich Corp. 18,400 553
Temple-Inland Inc. 10,200 673
Union Carbide Corporation 24,200 1,615
USX-U.S. Steel Group, Inc. 16,100 531
Vulcan Materials Co. 18,200 727
*W.R. Grace & Co. 13,000 180
Westvaco Corporation 18,250 595
Weyerhaeuser Company 42,900 3,081
Willamette Industries, Inc. 20,300 943
Worthington Industries 16,750 277
-----------
TOTAL 67,318
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS (8.3%)
*Allied Waste Industries Inc. 34,300 $ 302
Avery Dennison Corporation 20,700 1,509
B. F. Goodrich Company 20,000 550
Ball Corporation 5,500 217
Boeing Company 174,876 7,268
Briggs & Stratton Corporation 4,200 225
Caterpillar, Inc. 64,700 3,045
Cooper Industries, Inc. 17,200 696
Corning, Inc. 44,600 5,751
Crane Co. 12,275 244
Crown Cork & Seal Company,
Inc. 22,300 499
Cummins Engine Company, Inc. 7,600 367
Danaher Corporation 25,900 1,250
Deere & Company 42,500 1,843
Dover Corporation 37,900 1,720
Eaton Corporation 13,100 951
Emerson Electric Co. 79,100 4,538
Fluor Corporation 13,800 633
Foster Wheeler Corporation 7,400 66
General Dynamics Corporation 36,300 1,915
General Electric Company 597,200 92,417
Honeywell International, Inc. 143,650 8,287
Illinois Tool Works, Inc. 54,600 3,689
*Ingersoll-Rand Company 30,100 1,657
ITT Industries Inc. 16,000 535
Johnson Controls, Inc. 15,500 882
Lockheed Martin Corporation 71,908 1,573
McDermott International, Inc. 10,800 98
Milacron Inc. 6,700 103
Millipore Corp. 8,200 317
Minnesota Mining &
Manufacturing Co. 73,300 7,174
Molex Inc. 28,200 1,599
NACCO Industries, Inc. 1,500 83
National Service Industries,
Inc. 7,400 218
*Navistar International
Corporation 12,000 569
Northrop Grumman Corporation 12,600 681
*Owens-Illinois, Inc. 28,400 712
Paccar Inc. 14,270 632
Pall Corporation 22,600 487
Parker-Hannifin Corporation 19,775 1,015
Pitney Bowes Inc. 48,700 2,353
Rockwell International Corp. 34,800 1,666
*Sealed Air Corporation 15,271 791
*Solectron Corporation 53,300 5,070
Textron Inc. 27,300 2,094
*Thermo Electron Corporation 28,700 430
Thomas & Betts Corporation 10,400 331
Timken Company 11,300 231
Tyco International Ltd. 304,640 11,843
United Technologies Corp. 87,700 5,700
Waste Management, Inc. 112,785 1,938
-----------
TOTAL 188,764
-----------
</TABLE>
Index 500 Stock Portfolio B- 74
<PAGE> 98
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
COMMUNICATION SERVICES (7.8%)
ALLTEL Corporation 55,600 $ 4,597
AT&T Corporation 581,838 29,528
Bell Atlantic Corporation 282,684 17,403
Bellsouth Corporation 343,300 16,071
CenturyTel Inc. 25,400 1,203
*Global Crossing 139,910 6,996
GTE Corporation 178,600 12,603
*MCI WorldCom, Inc. 511,473 27,140
*Nextel Communications, Inc. 65,800 6,786
SBC Communications, Inc. 621,625 30,304
Sprint Corporation 157,900 10,629
*Sprint PCS 80,050 8,205
U S WEST, Inc. 91,908 6,617
-----------
TOTAL 178,082
-----------
CONSUMER CYCLICALS (9.1%)
American Greetings Corp. 12,300 291
Armstrong World Industries
Inc. 7,300 244
*Autozone, Inc. 27,100 876
*Bed Bath & Beyond Inc. 25,400 883
*Best Buy Co. Inc. 37,100 1,862
Black & Decker Corporation 15,800 826
Brunswick Corporation 16,800 374
Carnival Corporation 111,700 5,341
*Cendant Corporation 131,133 3,483
Centex Corporation 10,900 269
Circuit City Stores, Inc. 36,600 1,649
*Consolidated Stores
Corporation 20,100 327
Cooper Tire & Rubber Company 13,800 215
*Costco Wholesale Corporation 40,207 3,669
Dana Corporation 30,200 904
Dayton Hudson Corporation 80,500 5,912
Delphi Automotive Systems
Corp. 102,837 1,620
Dillard's, Inc. 19,500 394
Dollar General Corp. 40,943 931
Dow Jones & Company, Inc. 16,500 1,122
Dun & Bradstreet Corporation 29,300 864
*Federated Department Stores,
Inc. 38,000 1,921
Fleetwood Enterprises, Inc. 6,100 126
Ford Motor Company 220,300 11,772
Gannet Company Inc. 50,900 4,152
The Gap, Inc. 156,075 7,179
General Motors Corp. 117,300 8,526
Genuine Parts Company 32,600 809
Goodyear Tire & Rubber Company 28,500 803
H & R Block, Inc. 17,800 779
Harcourt General 13,000 523
*Harrahs Entertainment 23,400 619
Hasbro Inc. 35,475 676
Hilton Hotels Corporation 67,100 646
The Home Depot, Inc. 404,994 27,767
*Huttig Building Products,
Inc. 2,727 13
IMS Health Incorporated 57,000 1,550
The Interpublic Group of
Companies, Inc. 51,300 2,959
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS continued
J.C. Penney Company, Inc. 48,000 $ 957
Jostens, Inc. 6,200 151
Kaufman & Broad Home Corp. 8,700 210
*Kmart Corporation 89,900 905
Knight-Ridder, Inc. 14,800 881
*Kohl's Corporation 29,600 2,137
Leggett & Platt Inc. 35,800 767
The Limited, Inc. 38,974 1,688
Liz Claiborne, Inc. 11,200 421
Lowe's Companies, Inc. 69,400 4,147
Marriott International 45,300 1,430
Masco Corporation 80,600 2,045
Mattel, Inc. 76,488 1,004
May Department Stores Company 60,800 1,961
Maytag Corporation 15,900 763
The McGraw-Hill Companies,
Inc. 35,800 2,206
Meredith Corporation 9,400 392
*Mirage Resorts, Incorporated 36,200 554
*The Neiman Marcus Group, Inc. 17 0
The New York Times Company 31,700 1,557
Nike, Inc. 51,200 2,538
Nordstrom, Inc. 25,500 668
*Office Depot Inc. 68,200 746
Omnicom Group, Inc. 32,300 3,230
Owens Corning 10,000 193
Pep Boys - Manny, Moe & Jack 9,600 88
Pulte Corporation 7,900 178
*Reebok International Ltd. 10,200 84
Russell Corp. 6,100 102
Sears Roebuck & Co. 69,300 2,109
Service Corporation
International 49,500 343
Sherwin-Williams Company 30,800 647
Snap-On Inc. 11,950 317
Springs Industries, Inc. 3,300 132
The Stanley Works 16,200 488
*Staples, Inc. 84,600 1,755
Tandy Corporation 35,200 1,731
Times Mirror Company 10,900 730
TJX Companies, Inc. 57,800 1,181
*Toys "R" Us, Inc. 45,100 646
Tribune Company 43,200 2,379
TRW, Inc. 22,100 1,148
VF Corporation 21,600 648
Wal-Mart Stores, Inc. 810,200 56,005
Whirlpool Corporation 13,700 891
-----------
TOTAL 206,029
-----------
CONSUMER STAPLES (10.9%)
Adolph Coors Co. 6,700 352
Alberto-Culver Company 10,200 263
Albertson's, Inc. 76,526 2,468
Anheuser-Busch Companies, Inc. 85,100 6,031
Avon Products, Inc. 47,500 1,567
BESTFOODS 50,800 2,670
Brown-Forman Corporation 12,500 716
</TABLE>
B- 75 Index 500 Stock Portfolio
<PAGE> 99
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES continued
Campbell Soup Company 79,000 $ 3,056
Cardinal Health, Inc. 49,650 2,377
*CBS Corporation 138,792 8,874
*Clear Channel Communications,
Inc. 61,500 5,489
Clorox Company 43,000 2,166
The Coca-Cola Company 449,600 26,189
Coca Cola Enterprises Inc. 77,400 1,558
Colgate-Palmolive Co. 106,100 6,896
Comcast Corporation 136,400 6,854
Conagra, Inc. 88,900 2,006
CVS Corporation 71,300 2,848
Darden Restaurant, Inc. 24,100 437
Deluxe Corp. 13,800 379
Fort James Corporation 40,200 1,100
Fortune Brands, Inc. 30,300 1,002
General Mills, Inc. 55,700 1,991
Gillette Company 197,500 8,135
Great Atlantic & Pacific
Tea Co., Inc. 7,000 195
H.J. Heinz Company 65,250 2,598
Hershey Foods Corporation 25,400 1,206
Kellogg Company 73,800 2,274
Kimberly-Clark Corporation 97,044 6,332
*The Kroger Co. 151,000 2,850
Longs Drug Stores Corp. 7,100 183
McDonald's Corporation 246,600 9,941
McKesson HBOC, Inc. 51,245 1,156
*MediaOne Group, Inc. 110,400 8,480
Nabisco Group Holdings Corp. 59,400 631
Newell Rubbermaid Inc. 51,332 1,489
PepsiCo, Inc. 266,200 9,384
Philip Morris Companies, Inc. 435,200 10,091
The Procter & Gamble Company 241,900 26,503
The Quaker Oats Company 24,400 1,601
R.R. Donnelley & Sons Company 23,200 576
Ralston Purina Group 58,900 1,642
Rite Aid Corporation 47,100 527
*Safeway Inc. 92,900 3,304
Sara Lee Corporation 164,500 3,629
The Seagram Company Ltd. 78,700 3,537
Supervalue Inc. 25,300 506
Sysco Corporation 60,300 2,386
Time Warner Inc. 235,500 17,059
*Tricon Global Restaurants,
Inc. 27,990 1,081
Tupperware 10,500 178
Unilever NV 104,067 5,665
UST Incorporated 31,700 798
*Viacom, Inc 126,812 7,664
Walgreen Company 182,700 5,344
Walt Disney Company 375,507 10,984
Wendy's International, Inc. 22,100 456
Winn-Dixie Stores, Inc. 27,100 649
Wm. Wrigley Jr. Company 21,200 1,758
-----------
TOTAL 248,081
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
ENERGY (5.4%)
Amerada Hess Corporation 16,500 $ 936
Anadarko Petroleum Corporation 23,200 792
Apache Corporation 20,700 765
Ashland, Inc. 13,100 431
Atlantic Richfield Company 58,700 5,078
Baker Hughes, Inc. 59,830 1,260
Burlington Resource, Inc. 39,620 1,310
Chevron Corporation 119,400 10,343
Conoco, Inc. 114,200 2,841
Exxon Mobil Corporation 630,185 50,769
Halliburton Company 80,300 3,232
Helmerich & Payne, Inc. 9,000 196
Kerr-McGee Corporation 15,705 974
Occidental Petroleum
Corporation 63,500 1,373
Phillips Petroleum Company 46,100 2,167
*Rowan Companies, Inc. 15,100 327
Royal Dutch Petroleum Co. 390,400 23,595
Schlumberger Limited 99,700 5,608
Sunoco, Inc. 16,500 388
Texaco, Inc. 100,600 5,464
Tosco Corporation 27,700 753
Transocean Sedco Forex, Inc. 19,341 652
Union Pacific Resource Group 45,892 585
Unocal Corp. 44,100 1,480
USX -Marathon Group 56,200 1,387
-----------
TOTAL 122,706
-----------
FINANCE (13.0%)
Aflac Inc. 48,400 2,284
Allstate Corporation 145,328 3,488
American Express Company 81,800 13,599
American General Corporation 45,325 3,439
American International Group,
Inc. 281,895 30,480
AmSouth Bancorporation 71,600 1,383
Aon Corporation 46,600 1,864
Associates First Capital
Corporation 132,610 3,638
Banc One Corporation 213,486 6,845
Bank of America Corp. 314,476 15,783
Bank of New York Company, Inc. 133,900 5,356
BB&T Corporation 58,200 1,593
The Bear Stearns Companies,
Inc. 22,238 951
Capital One Financial
Corporation 36,000 1,735
The Charles Schwab Corporation 148,900 5,714
Chase Manhattan Corporation 151,512 11,771
The Chubb Corporation 32,100 1,808
CIGNA Corporation 33,900 2,731
Cincinnati Financial
Corporation 30,000 936
Citigroup, Inc. 614,911 34,166
Comerica, Inc. 28,450 1,328
Conseco Inc. 59,537 1,064
Countrywide Credit Industries,
Inc. 20,600 520
Federal Home Loan Mortgage
Corp. 126,600 5,958
</TABLE>
Index 500 Stock Portfolio B- 76
<PAGE> 100
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FINANCE continued
Federal National Mortgage
Association 186,600 $ 11,651
Fifth Third Bancorp 54,975 4,034
First Union Corporation 174,152 5,714
Firstar Corporation 179,265 3,787
FleetBoston Financial
Corporation 167,820 5,842
Franklin Resources Inc. 45,900 1,472
Golden West Financial
Corporation 30,000 1,005
Hartford Financial Services
Group Inc. 41,100 1,947
Household International Inc. 87,179 3,247
Huntington Bancshares, Inc. 41,884 1,000
J.P. Morgan & Company, Inc. 32,000 4,052
Jefferson-Pilot Corp. 19,150 1,307
KeyCorp 81,700 1,808
Lehman Brothers Holdings, Inc. 21,800 1,846
Lincoln National Corporation 36,200 1,448
Loews Corp. 19,600 1,189
Marsh & McLennan
Companies, Inc. 48,050 4,598
MBIA, Inc. 18,200 961
MBNA Corp. 145,975 3,978
Mellon Financial Corporation 93,600 3,188
Merrill Lynch & Co. 67,300 5,620
MGIC Investment Corp. 19,900 1,198
Morgan Stanley, Dean Witter,
Discover & Co. 103,905 14,832
National City Corp. 112,500 2,665
Northern Trust Corp. 40,600 2,152
Old Kent Financial Corp. 21,600 764
Paine Webber Group Inc. 26,500 1,029
PNC Bank Corp. 55,300 2,461
Price (T. Rowe) Associates 22,100 816
Progressive Corporation 13,300 973
Providian Financial
Corporation 25,800 2,349
Regions Financial Corporation 40,800 1,025
Republic New York Corporation 19,100 1,375
SAFECO, Inc. 23,900 595
SLM Holding Corporation 29,300 1,238
SouthTrust Corporation 30,500 1,153
St. Paul Companies, Inc. 41,286 1,391
State Street Corporation 29,400 2,148
Summit Bancorp 32,200 986
Suntrust Banks Inc. 58,600 4,032
Synovus Financial Corp. 49,350 981
Torchmark Corporation 24,200 703
U.S. Bancorp 133,231 3,173
Union Planters Corporation 26,000 1,025
UnumProvident Corporation 43,431 1,392
Wachovia Corporation 36,800 2,502
Washington Mutual, Inc. 105,436 2,741
Wells Fargo & Company 300,230 12,141
-----------
TOTAL 295,968
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
HEALTH CARE (8.8%)
Abbott Laboratories Inc. 277,000 $ 10,058
Aetna, Inc. 27,263 1,522
Allergan Inc. 24,000 1,194
*Alza Corporation 18,500 640
American Home Products
Corporation 237,900 9,382
*Amgen, Inc. 185,700 11,154
Bard C R Inc 9,300 493
Bausch & Lomb, Inc. 10,500 719
Baxter International, Inc. 53,000 3,329
Becton, Dickinson & Company 45,600 1,220
Biomet, Inc. 20,500 820
*Boston Scientific Corp. 75,300 1,647
Bristol-Myers Squibb Company 361,600 23,210
Columbia/HCA Healthcare
Corporation 102,700 3,010
Eli Lilly and Company 199,000 13,233
*Guidant Corporation 55,000 2,585
*HEALTHSOUTH Corporation 75,600 406
*Humana, Inc. 30,500 250
Johnson & Johnson 244,800 22,797
Mallinckrodt, Inc. 12,900 410
*Manor Care, Inc. 19,500 312
Medtronic, Inc. 213,700 7,787
Merck & Co., Inc. 427,000 28,636
Pfizer, Inc. 705,500 22,885
Pharmacia & Upjohn Inc. 92,205 4,149
*Quintiles Transnational Corp. 20,900 391
Schering-Plough Corporation 267,300 11,277
*St. Jude Medical, Inc. 15,400 473
*Tenet Healthcare Corp. 56,500 1,328
United Healthcare Corp. 31,600 1,679
Warner-Lambert Company 155,600 12,749
*Watson Pharmaceutical Inc. 17,400 623
*Wellpoint Health Networks 12,000 791
-----------
TOTAL 201,159
-----------
TECHNOLOGY (29.2%)
*3COM Corporation 65,100 3,060
*Adaptec, Inc. 18,800 938
*ADC Telecommunications Inc. 27,200 1,974
Adobe Systems, Inc. 22,200 1,493
*Advanced Micro Devices, Inc. 26,800 775
*America Online, Inc. 403,500 30,439
*Analog Devices 31,500 2,929
*Andrew Corporation 14,937 283
*Apple Computer, Inc. 29,300 3,012
*Applied Materials, Inc. 68,400 8,665
Autodesk, Inc. 10,700 361
Automatic Data Processing,
Inc. 112,700 6,072
*BMC Software, Inc. 43,600 3,485
*Cabletron Systems, Inc. 31,700 824
*Ceridian Corp. 26,400 569
*Cisco Systems, Inc. 591,950 63,413
*Citrix Systems Inc. 16,000 1,968
</TABLE>
B- 77 Index 500 Stock Portfolio
<PAGE> 101
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY continued
Compaq Computer Corporation 309,509 $ 8,376
Computer Associates
International, Inc. 97,912 6,848
*Computer Sciences Corp. 29,100 2,754
*Compuware Corporation 65,000 2,421
*Comverse Technology, Inc. 12,700 1,838
*Dell Computer Corporation 462,600 23,593
Eastman Kodak Company 57,600 3,816
Electronic Data Systems
Corporation 89,800 6,011
*EMC Corporation 184,537 20,161
Equifax, Inc. 26,200 617
First Data Corporation 78,100 3,851
*Gateway Inc. 57,000 4,108
*General Instrument
Corporation 31,600 2,686
Hewlett-Packard Company 184,400 21,010
Ikon Office Solutions 27,200 185
*Intel Corporation 602,300 49,577
International Business
Machines Corporation 329,400 35,575
*KLA- Tencor Corporation 16,100 1,793
*Lexmark International Group
Inc. 23,500 2,127
*LSI Logic Corp. 26,800 1,809
Lucent Technologies, Inc. 557,800 41,730
*Micron Technology 45,600 3,545
*Microsoft Corporation 929,200 108,484
Motorola, Inc. 110,600 16,286
*National Semiconductor
Corporation 30,600 1,310
*Network Appliance Inc. 26,800 2,226
Nortel Networks Corporation 241,600 24,402
*Novell, Inc. 61,000 2,436
*Oracle Corporation 262,050 29,366
*Parametric Technology Company 49,000 1,326
Paychex, Inc. 44,750 1,790
PE Corp.-PE Biosystems Group 18,600 2,238
*Peoplesoft, Inc. 44,300 944
PerkinElmer, Inc. 8,300 346
Polaroid Corporation 8,100 152
*Qualcomm Inc. 116,800 20,586
Raytheon Company- Class B 61,500 1,634
Scientific-Atlanta, Inc. 13,900 773
*Seagate Technology Inc. 37,900 1,765
Shared Medical Systems Corp. 4,900 250
*Silicon Graphics 34,400 338
*Sun Microsystems, Inc. 281,800 21,822
Tektronix, Inc. 8,550 332
*Tellabs, Inc. 71,300 4,577
*Teradyne Inc. 31,200 2,059
Texas Instruments,
Incorporated 143,000 13,853
*Unisys Corporation 55,700 1,779
W.W. Grainger, Inc. 17,000 813
Xerox Corporation 120,700 2,738
*Xilinx Inc. 57,600 2,619
*Yahoo!, Inc. 47,900 20,726
-----------
TOTAL 662,661
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
TRANSPORTATION (0.7%)
*AMR Corporation 27,400 $ 1,836
Burlington Northern Santa Fe 84,621 2,052
CSX Corporation 39,600 1,242
Delta Air Lines Inc. 25,600 1,275
*FDX Corporation 54,120 2,216
Kansas City Southern Inds 20,100 1,500
Norfolk Southern Corporation 69,300 1,421
Ryder System, Inc. 11,700 286
Southwest Airlines Co. 91,800 1,486
Union Pacific Corporation 45,100 1,967
*USAir Group, Inc. 13,000 417
-----------
TOTAL 15,698
-----------
UTILITIES (2.3%)
* The AES Corporation 37,500 2,803
Ameren Corporation 25,000 819
American Electric Power Co.
Inc. 35,200 1,131
Carolina Power & Light Company 29,100 886
Central & South West
Corporation 38,700 774
Cinergy Corporation 28,917 698
CMS Energy Corp. 21,500 671
Coastal Corp. 38,900 1,378
Columbia Energy Group 14,950 946
Consolidated Edison Co.
of New York 40,200 1,387
Consolidated Natural Gas
Company 17,500 1,136
Constellation Energy Group
Inc. 27,200 789
Dominion Resources Inc. 35,000 1,374
DTE Energy Company 26,400 828
Duke Energy Corp. 66,465 3,332
Eastern Enterprises 4,900 281
Edison International 63,200 1,655
EL Paso Energy Corporation 41,500 1,611
Enron Corp. 130,000 5,769
Entergy Corporation 44,900 1,156
FirstEnergy Corporation 42,600 966
Florida Progress Corp. 17,900 757
FPL Group, Inc. 32,600 1,396
GPU, Inc. 22,800 683
New Century Energies, Inc. 21,000 638
*Niagra Mohawk Power
Corporation 34,100 475
Nicor, Inc. 8,600 279
Northern States Power Company 28,100 548
ONEOK, Inc. 5,800 146
P P & L Resources, Inc. 28,734 657
PECO Energy Company 34,000 1,181
Peoples Energy Corporation 6,500 218
PG&E Corp. 69,900 1,433
Pinnacle West Capital Corp. 15,400 471
Public Service Enterprise
Group, Inc. 39,900 1,389
Reliant Energy, Inc. 53,862 1,232
ScottishPower PLC, ADR 31,958 895
</TABLE>
Index 500 Stock Portfolio B- 78
<PAGE> 102
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (98.5%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
UTILITIES continued
Sempra Energy 43,802 $ 761
Southern Company 124,400 2,923
Texas Utilities Company 50,315 1,789
UNICOM Corp. 39,600 1,327
Williams Companies Inc. 79,100 2,417
-----------
TOTAL 52,005
-----------
TOTAL COMMON STOCK (COST
$1,196,495) 2,238,471
-----------
<CAPTION>
MONEY MARKET INVESTMENTS (1.5%)
---------------------------------------------------------
<S> <C> <C>
AUTO RELATED (0.8%)
Daimler-Chrysler N.A. Holding,
5.50%, 01/10/00 13,000,000 12,946
Ford Motor Credit Company,
6.21%, 01/12/00 5,000,000 4,991
-----------
TOTAL 17,937
-----------
FEDERAL GOVERNMENT AND AGENCIES (0.7%)
Federal Home Loan Mortgage
Corp., 4.75%, 01/14/00 9,900,000 9,883
#Federal Home Loan Mortgage
Corp., 5.51%, 01/10/00 5,000,000 4,993
-----------
TOTAL 14,876
-----------
TOTAL MONEY MARKET INVESTMENTS (COST
$32,813) 32,813
-----------
TOTAL INVESTMENTS (100.0%)
(COST $1,229,308)[CARET] 2,271,284
-----------
OTHER ASSETS, LESS
LIABILITIES (0.0%) 672
-----------
TOTAL NET ASSETS (100.0%) $ 2,271,956
-----------
<CAPTION>
---------------------------------------------------------
<S> <C> <C>
</TABLE>
* Non-Income Producing
ADR - American Depository Receipt
# Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUER CONTRACTS DATE (000'S)
- ------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 89 3/00 $1,114
(Total Notional Value
at 12/31/99,
$31,909,390)
</TABLE>
[CARET] At December 31, 1999, the aggregate cost of securities for federal
income tax purposes was $1,229,539 and the net unrealized appreciation
of investments based on that cost was $1,041,745 which is comprised of
$1,097,772 aggregate gross unrealized appreciation and $56,027 aggregate
gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements.
B- 79 Index 500 Stock Portfolio
<PAGE> 103
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (6.3%)
AEROSPACE AND DEFENSE (0.1%)
Lockheed Corporation, 6.75%,
03/15/03 3,000,000 $ 2,917
-----------
BANK HOLDING COMPANIES (0.2%)
Banco Montevideo, 8.4%,
04/30/08 (144A) 6,250,000 5,578
BT Institutional Capital
Trust, 7.75%, 12/01/26
(144A) 1,000,000 888
-----------
TOTAL 6,466
-----------
BANKING & FINANCE (1.1%)
Associates Corp. of North
America, 7.95%, 02/15/10 5,550,000 5,669
Ford Motor Credit Co., 5.57%,
07/16/02 11,700,000 11,724
Ford Motor Credit Co., 5.75%,
02/23/04 6,000,000 5,684
Ford Motor Credit Co., 6.70%,
07/16/04 2,000,000 1,956
Ford Motor Credit Co.,
7.375%, 10/28/09 14,500,000 14,314
-----------
TOTAL 39,347
-----------
CHEMICALS AND ALLIED PRODUCTS (0.5%)
Chevron Corporation, 6.625%,
10/01/04 4,750,000 4,682
Dow Capital B.V., 8.5%,
06/8/10 8,200,000 8,676
Johnson & Johnson, 6.625%,
09/01/09 2,800,000 2,694
Proctor & Gamble, 6.875%,
09/15/09 3,000,000 2,934
-----------
TOTAL 18,986
-----------
COMMUNICATIONS (0.2%)
Telecommunications, Inc.,
7.375%, 2/15/00 8,000,000 8,012
-----------
DURABLE GOODS (0.2%)
Tata Engineering &
Locomotive, 7.875%, 07/15/07
(144A) 6,500,000 6,009
-----------
ELECTRIC SERVICES (1.3%)
Columbia Gas System Inc.,
7.32%, 11/28/10 7,571,000 7,236
Comed Financing II, 8.5%,
01/15/27 3,000,000 2,925
Dayton Power & Light Company,
8.15%, 1/15/26 5,750,000 5,631
Niagra Mohawk Power, 7.0%,
10/01/00 2,268,293 2,270
Niagra Mohawk Power, 7.25%,
10/01/02 1,134,147 1,130
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
ELECTRIC SERVICES continued
Ohio Edison Company, 7.375%,
9/15/02 3,665,000 $ 3,677
Public Service Electric & Gas
Co., 6.875%, 1/1/03 9,000,000 8,927
Southern California Edison
Co., 7.25%, 3/1/26 10,000,000 8,953
Texas Utilities Electric Co.,
7.875%, 3/1/23 4,000,000 3,770
-----------
TOTAL 44,519
-----------
FOOD AND BEVERAGE (0.3%)
Coca Cola Enterprises, Inc.,
8%, 1/4/05 10,000,000 10,389
-----------
GENERAL MERCHANDISE STORES (0.8%)
May Department Stores
Company, 6.7%, 9/15/28 6,150,000 5,406
May Department Stores
Company, 7.45%, 10/15/16 4,000,000 3,923
Wal-Mart Stores, 6.55%,
8/10/04 17,800,000 17,505
Wal-Mart Stores, 6.875%,
8/10/09 3,000,000 2,920
-----------
TOTAL 29,754
-----------
INSURANCE (0.1%)
Prudential Insurance Co.,
6.375%, 7/23/06 2,500,000 2,331
-----------
MOTION PICTURE (0.3%)
News America Holdings Inc.,
8.45%, 8/1/34 10,000,000 10,184
-----------
MOTOR VEHICLES (0.5%)
Daimler-Chrysler North
America, 6.90%, 09/01/04 4,650,000 4,605
General Motors Acceptance
Corp., 6.625%, 10/1/02 5,000,000 4,932
General Motors Corporation,
8.8%, 3/1/21 6,500,000 7,166
-----------
TOTAL 16,703
-----------
PUBLISHING (0.1%)
Times Mirror Co., 7.45%,
10/15/09 5,050,000 4,967
-----------
TELEPHONE COMMUNICATIONS (0.5%)
AT&T Corp, 5.625%, 03/15/04 5,000,000 4,740
AT&T Corp, 6.50%, 9/15/02 5,500,000 5,437
Cox Communications, Inc.,
6.80%, 8/01/28 1,000,000 870
GTE Corporation, 6.94%,
04/15/28 3,000,000 2,709
New England Telephone and
Telegraph, 5.875%, 04/15/09 5,000,000 4,465
-----------
TOTAL 18,221
-----------
</TABLE>
Balanced Portfolio B- 80
<PAGE> 104
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
TEXTILES (0.0%)
++Polysindo International
Finance, 11.375%, 06/15/06 6,500,000 $ 1,170
-----------
TOBACCO (0.0%)
Philip Morris Companies,
9.25%, 02/15/00 1,000,000 1,002
-----------
UTILITY (0.1%)
Atlantic City Electric
Company, 6.625%, 08/1/13 4,000,000 3,595
-----------
TOTAL CORPORATE BONDS 224,572
-----------
GOVERNMENT (DOMESTIC AND FOREIGN) AND AGENCY BONDS
(24.4%)
FOREIGN GOVERNMENT BONDS (0.2%)
Province of Quebec, 6.5%,
1/17/06 7,500,000 7,211
-----------
FEDERAL GOVERNMENT AND AGENCIES (24.2%)
Federal Home Loan Bank,
5.54%, 01/08/09 5,000,000 4,426
Federal Home Loan Mortgage
Corporation, 6.5%, 10/01/02 13,299,367 12,991
Federal Home Loan Mortgage
Corporation, 7.0%, 03/15/07 7,250,000 7,220
Federal Home Loan Mortgage
Corporation, 7.5%, 09/29/01 12,394,153 12,287
Federal National Mortgage
Assoc., 5.970%, 10/1/08 1,765,241 1,624
Federal National Mortgage
Assoc., 6.240%, 02/01/06 4,846,150 4,618
Federal National Mortgage
Assoc., 6.265%, 10/1/08 5,676,231 5,308
Federal National Mortgage
Assoc., 6.315%, 03/01/06 5,116,930 4,890
Federal National Mortgage
Assoc., 6.34%, 2/01/08 4,165,884 3,936
Federal National Mortgage
Assoc., 6.43%, 6/01/08 7,326,929 6,945
Federal National Mortgage
Assoc., 6.500%, 09/25/05 4,991,230 4,871
Federal National Mortgage
Assoc., 6.750%, 12/25/23 6,500,000 6,205
Federal National Mortgage
Assoc., 6.750%, 04/25/18 5,387,176 5,212
Federal National Mortgage
Assoc., 6.750% 11/01/07 3,062,574 2,961
Federal National Mortgage
Assoc., 6.835%, 07/01/03 3,174,568 3,146
Federal National Mortgage
Assoc., 6.895%, 05/01/06 5,987,845 5,870
Federal National Mortgage
Assoc., 6.900%, 04/01/06 2,414,160 2,368
Federal National Mortgage
Assoc., 6.960%, 10/01/07 4,412,264 4,312
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
Federal National Mortgage
Assoc., 7.000%, 06/25/10 7,941,659 $ 7,794
Federal National Mortgage
Assoc., 7.000%, 04/01/26 14,253,333 13,843
Federal National Mortgage
Assoc., 7.000%, 06/01/03 2,917,320 2,916
Federal National Mortgage
Assoc., 7.025%, 08/01/05 1,920,265 1,897
Federal National Mortgage
Assoc., 7.045%, 08/01/05 7,487,934 7,405
Federal National Mortgage
Assoc., 7.120%, 11/01/03 972,959 969
Federal National Mortgage
Assoc., 7.250%, 05/01/04 1,553,417 1,552
Federal National Mortgage
Assoc., 8.400%, 02/25/09 10,910,000 11,268
Federal National Mortgage
Assoc., 11.000%, 12/01/12 73,238 79
Federal National Mortgage
Assoc., 11.000%, 09/01/17 1,135,033 1,242
Federal National Mortgage
Assoc., 11.000%, 12/01/17 205,731 223
Federal National Mortgage
Assoc., 11.000%, 02/01/18 402,571 436
Federal National Mortgage
Assoc., 11.500%, 04/01/18 752,859 827
Federal National Mortgage
Assoc., 12.000%, 09/01/12 1,109,033 1,228
Federal National Mortgage
Assoc., 12.000%, 12/01/12 213,122 236
Federal National Mortgage
Assoc., 12.000%, 09/01/17 348,190 388
Federal National Mortgage
Assoc., 12.000%, 10/01/17 362,966 404
Federal National Mortgage
Assoc., 12.000%, 12/01/17 33,760 376
Federal National Mortgage
Assoc., 12.000%, 02/01/18 363,322 405
Federal National Mortgage
Assoc., 12.500%, 04/01/18 335,757 377
Federal National Mortgage
Assoc., 13.000%, 11/01/12 148,524 167
Federal National Mortgage
Assoc., 13.000%, 11/01/17 342,196 389
Federal National Mortgage
Assoc., 13.000%, 12/01/17 230,432 262
Federal National Mortgage
Assoc., 13.000%, 02/01/18 505,308 575
Federal National Mortgage
Assoc., 14.000%, 12/01/17 133,327 156
Government National Mortgage
Assoc., 7.00%, 05/15/23 9,057,267 8,824
Government National Mortgage
Assoc., 7.00%, 06/15/23 646,981 630
Government National Mortgage
Assoc., 7.00%, 07/15/23 914,975 891
</TABLE>
B- 81 Balanced Portfolio
<PAGE> 105
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
Government National Mortgage
Assoc., 7.00%, 08/15/23 17,574 $ 17
Government National Mortgage
Assoc., 7.00%, 09/15/23 481,156 469
Government National Mortgage
Assoc., 7.00%, 10/15/23 228,213 351
Government National Mortgage
Assoc., 7.00%, 11/15/23 1,242,810 1,212
Government National Mortgage
Assoc., 7.00%, 12/15/27 299,795 290
Government National Mortgage
Assoc., 7.00%, 1/15/28 439,904 425
Government National Mortgage
Assoc., 7.00%, 2/15/28 115,085 111
Government National Mortgage
Assoc., 7.00%, 3/15/28 233,791 226
Government National Mortgage
Assoc., 7.00%, 4/15/28 663,527 641
Government National Mortgage
Assoc., 7.00%, 5/15/28 1,364,544 1,320
Government National Mortgage
Assoc., 7.00%, 6/15/28 3,701,738 3,579
Government National Mortgage
Assoc., 7.00%, 7/15/28 4,557,231 4,407
Government National Mortgage
Assoc., 7.50%, 1/15/23 588,313 585
Government National Mortgage
Assoc., 7.50%, 6/15/23 326,873 325
Government National Mortgage
Assoc., 7.50%, 6/15/24 7,719 8
Government National Mortgage
Assoc., 7.50%, 7/15/24 273,595 272
Government National Mortgage
Assoc., 7.50%, 8/15/25 12,969 13
Government National Mortgage
Assoc., 7.50%, 9/15/25 233,445 231
Government National Mortgage
Assoc., 7.50%, 11/15/25 11,800 12
Government National Mortgage
Assoc., 7.50%, 12/15/25 430,095 426
Government National Mortgage
Assoc., 7.50%, 1/15/26 14,294 14
Government National Mortgage
Assoc., 7.50%, 3/15/26 533,250 529
Government National Mortgage
Assoc., 7.50%, 6/15/26 968,551 960
Government National Mortgage
Assoc., 7.50%, 9/15/26 12,503 12
Government National Mortgage
Assoc., 7.50%, 10/15/26 75,702 75
Government National Mortgage
Assoc., 7.50%, 12/15/26 609,749 604
Government National Mortgage
Assoc., 7.50%, 1/15/27 38,221 38
Government National Mortgage
Assoc., 7.50%, 2/15/27 415,246 411
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
Government National Mortgage
Assoc., 7.50%, 3/15/27 39,780 $ 39
Government National Mortgage
Assoc., 7.50%, 4/15/27 1,291,462 1,398
Government National Mortgage
Assoc., 7.50%, 5/15/27 579,786 574
Government National Mortgage
Assoc., 7.50%, 7/15/27 625,130 619
Government National Mortgage
Assoc., 7.50%, 12/15/27 157,737 156
Government National Mortgage
Assoc., 7.50%, 7/15/28 834,627 827
Government National Mortgage
Assoc., 8.00%, 9/15/24 292,358 297
Government National Mortgage
Assoc., 8.00%, 3/15/26 160,082 162
Government National Mortgage
Assoc., 8.00%, 5/15/26 428,798 434
Government National Mortgage
Assoc., 8.00%, 6/15/26 384,750 389
Government National Mortgage
Assoc., 8.00%, 7/15/26 869,427 880
Government National Mortgage
Assoc., 8.00%, 8/15/26 414,606 420
Government National Mortgage
Assoc., 8.00%, 9/15/26 330,222 334
Government National Mortgage
Assoc., 8.00%, 10/15/26 637,720 645
Government National Mortgage
Assoc., 8.00%, 11/15/26 353,111 357
Government National Mortgage
Assoc., 8.00%, 12/15/26 371,000 375
Government National Mortgage
Assoc., 8.00%, 4/15/27 686,784 695
Government National Mortgage
Assoc., 8.00%, 6/15/27 325,854 330
Government National Mortgage
Assoc., 8.00%, 7/15/27 141,492 143
Government National Mortgage
Assoc., 8.00%, 7/20/28 2,586,971 2,603
Government National Mortgage
Assoc., 8.50%, 05/15/22 3,421 4
Government National Mortgage
Assoc., 8.50%, 09/15/22 4,085 4
Government National Mortgage
Assoc., 8.50%, 10/15/22 30,238 31
Government National Mortgage
Assoc., 8.50%, 12/15/22 20,724 21
Government National Mortgage
Assoc., 8.50%, 06/15/24 6,086 6
Government National Mortgage
Assoc., 8.50%, 07/15/24 21,516 22
Government National Mortgage
Assoc., 8.50%, 08/15/24 45,735 47
Government National Mortgage
Assoc., 8.50%, 12/15/24 6,956 7
</TABLE>
Balanced Portfolio B- 82
<PAGE> 106
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
Government National Mortgage
Assoc., 8.50%, 01/15/25 74,478 $ 77
Government National Mortgage
Assoc., 8.50%, 02/15/25 54,728 56
Government National Mortgage
Assoc., 8.50%, 11/15/25 8,386 9
Government National Mortgage
Assoc., 8.50%, 01/15/26 43,264 45
Government National Mortgage
Assoc., 8.50%, 02/15/26 8,635 9
Government National Mortgage
Assoc., 8.50%, 03/15/26 24,070 25
Government National Mortgage
Assoc., 8.50%, 04/15/26 71,569 74
Government National Mortgage
Assoc., 8.50%, 05/15/26 20,099 21
Government National Mortgage
Assoc., 11.00%, 01/15/18 6,407,800 7,056
Rural Housing Trust - Class
D, 6.33%, 4/1/26 4,551,312 4,491
U.S. Treasury, 3.625%,
07/15/02 2,537,375 2,513
U.S. Treasury, 3.625%,
04/15/28 6,500,000 5,809
U.S. Treasury, 3.875%,
04/15/29 165,956,265 156,466
U.S. Treasury, 4.000%,
10/31/00 11,650,000 11,457
U.S. Treasury, 4.750%,
02/15/04 19,250,000 18,161
U.S. Treasury, 4.750%,
11/15/08 38,050,000 33,567
U.S. Treasury, 5.000%,
02/28/01 4,500,000 4,444
U.S. Treasury, 5.250%,
05/31/01 8,000,000 7,900
U.S. Treasury, 5.250%,
05/15/04 29,700,000 28,447
U.S. Treasury, 5.250%,
02/15/29 4,500,000 3,722
U.S. Treasury, 5.500%,
02/29/00 54,000,000 54,017
U.S. Treasury, 5.500%,
01/31/03 3,500,000 3,417
U.S. Treasury, 5.500%,
03/31/03 15,500,000 15,113
U.S. Treasury, 5.500%,
02/15/08 175,000 164
U.S. Treasury, 5.625%,
04/30/00 10,500,000 10,497
U.S. Treasury, 5.625%,
12/31/02 2,300,000 2,256
U.S. Treasury, 5.625%,
02/15/06 108,000,000 103,343
U.S. Treasury, 5.625%,
05/15/08 34,000,000 31,981
U.S. Treasury, 5.875%,
11/15/04 3,500,000 3,432
U.S. Treasury, 6.000%,
07/31/02 4,000,000 3,976
U.S. Treasury, 6.000%,
08/15/04 25,000,000 24,609
U.S. Treasury, 6.000%,
08/15/09 32,625,000 31,605
U.S. Treasury, 6.125%,
08/15/07 22,000,000 21,443
U.S. Treasury, 6.125%,
08/15/29 3,000,000 2,860
U.S. Treasury, 6.250%,
02/15/07 4,500,000 4,428
U.S. Treasury, 6.375%,
08/15/27 4,100,000 3,936
U.S. Treasury, 6.875%,
05/15/06 50,000,000 50,875
U.S. Treasury, 7.250%,
08/15/04 6,000,000 6,191
U.S. Treasury, 7.250%,
05/15/16 4,200,000 4,390
Vendee Mortgage Trust, 6.5%,
6/07/08 4,500,000 4,035
-----------
TOTAL 861,248
-----------
TOTAL GOVERNMENT
(DOMESTIC AND FOREIGN)
AND AGENCY BONDS 868,459
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
MORTGAGE/ASSET BACKED SECURITIES (6.5%)
AUTO-RELATED (0.5%)
Daimler-Chrysler NA 5.75%
07/18/02 5,000,000 $ 5,008
Eaglemark Trust - Class A,
6.75%, 11/15/02 1,393,234 1,395
Fleetwood Credit Corporation
Grantor Trust - Class A,
6.4%, 05/15/13 1,618,912 1,608
Team Fleet Financing
Corporation - Class A,
6.65%, 12/15/02 (144A) 11,800,000 11,617
-----------
TOTAL 19,628
-----------
BANKING AND FINANCE (0.1%)
Nations Bank Lease Pass Thru
Trust 97-A, 7.442%, 01/10/11
(144A) 2,000,000 1,948
-----------
CREDIT CARD (0.3%)
Iroquois Trust - Class A,
6.68%, 11/10/03 (144A) 6,621,337 6,598
Iroquois Trust - Class A,
6.752%, 06/25/07 (144A) 3,280,352 3,256
-----------
TOTAL 9,854
-----------
COMMERCIAL MORTGAGES (4.1%)
Asset Securitization
Corporation - Class CS1,
1.257%, 11/13/26 IO 20,004,872 564
Asset Securitization
Corporation - Class PS1,
1.367%, 02/14/41 IO 22,152,797 1,940
BankBoston Marine Asset
Backed Trust - Class A6,
6.64%, 08/15/10 7,000,000 6,815
Chase Commercial Mortgage
Securities Corp. - Class A2,
6.6%, 12/12/29 8,500,000 8,077
Chase Commercial Mortgage
Securities Corp. Class B,
6.6% 12/12/29 2,500,000 2,364
Citibank Credit Card Master
Trust I - Class A, 0%,
08/15/06 17,000,000 12,175
Credit Suisse First Boston
Mortgage Securities Corp. -
Class A2, 7.26%, 6/20/29
(144A) 3,139,367 2,987
Credit Suisse First Boston
Mortgage Securities Corp. -
Class B, 7.28%, 6/20/29
(144A) 3,250,000 3,138
Criimi Mae Commercial
Mortgage Trust, 7.0%,
12/01/06 6,500,000 5,773
Criimi Mae Commercial
Mortgage Trust, 7.0%,
11/02/11 5,700,000 4,167
DLJ Mortgage Acceptance
Corporation - Class CF1,
0.718%, 02/18/31 IO 252,256,132 8,821
</TABLE>
B- 83 Balanced Portfolio
<PAGE> 107
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGES continued
DLJ Mortgage Acceptance
Corporation - Class S,
0.357%, 10/15/17 (144A) IO 18,565,159 $ 382
DLJ Mortgage Acceptance,
8.10%, 6/18/04 1,927,334 1,981
DLJ Mortgage Acceptance,
8.10%, 6/18/04 1,650,000 1,690
Kmart CMBS Financing, Inc. -
Class B, 5.330%, 03/01/07
(144A) 8,000,000 7,990
Kmart CMBS Financing, Inc. -
Class C, 5.630%, 03/01/07
(144A) 12,500,000 12,434
Kmart CMBS Financing, Inc. -
Class D, 6.980%, 03/01/07
(144A) 4,500,000 4,476
LB Mortgage Trust, 8.396%,
01/20/17 9,475,090 9,515
Midland Realty Acceptance
Corp. - Class AEC, 1.389%
01/25/29 (144A) IO 27,053,140 1,525
Morgan Stanley, 6.54%,
015/15/08 (144a) 15,000,000 14,165
Mortgage Capital Funding,
Inc., 7.288% 03/20/07 19,000,000 18,742
Nomura Asset Securities
Corp. - Class A2, 7.016%,
03/17/28 15,000,000 13,367
Red Mountain Funding LLC -
Class F, 7.471%, 01/15/19
(144A) 1,800,000 1,202
-----------
TOTAL 144,290
-----------
FRANCHISE LOAN RECEIVABLES (0.4%)
EMAC Owner Trust - Class A2,
6.38%, 01/15/25 (144A) 6,000,000 5,639
EMAC Owner Trust, 1.378%,
01/15/25 IO (144A) 38,461,647 2,508
CMAC, 6.644%, 12/15/07 (144A) 2,500,000 2,368
Global Franchise Trust,
6.349%, 8/16/01 3,145,433 3,084
-----------
TOTAL 13,599
-----------
HOME EQUITY LOAN (0.1%)
Amresco Residential
Securities - Class A2,
6.245%, 04/25/22 2,500,000 2,479
-----------
MANUFACTURED HOUSING (0.1%)
Vanderbilt Mortgage and
Finance, Inc. - Class 1A4,
7.19%, 02/07/14 2,500,000 2,485
-----------
OTHER ASSET BACKED (0.5%)
FMAC Loan Receivables Trust -
Class A, 6.20%, 09/15/20
(144A) 4,609,247 4,487
Harley Davidson Eaglemark,
5.87%, 1/20/01 1,900,000 1,870
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (37.4%) PAR (000'S)
---------------------------------------------------------
<S> <C> <C>
OTHER ASSET BACKED continued
Health Care Receivables,
6.250% 02/01/03 (144A) 3,000,000 $ 2,909
Heilig-Meyers Master Trust -
Class A, 6.125%, 01/20/07
(144A) 6,500,000 6,244
Nations Credit Grantor
Trust - Class A1, 6.35,
12/15/04 1,474,742 1,461
Newcourt Equipment - Class B,
6.764%, 09/20/04 (144A) 742,420 731
Newcourt Equipment - Class C,
7.734%, 09/20/04 (144A) 593,936 583
-----------
TOTAL 18,285
-----------
RESIDENTIAL MORTGAGES (0.1%)
BCF L L C Mortgage Pass Thru
Certificate - Class B3,
7.75%, 3/25/37 (144A) 4,795,031 2,255
Blackrock Capital Finance LP,
Class B3, 7.25%, 11/25/28
(144A) 5,787,664 2,720
-----------
TOTAL 4,975
-----------
UTILITY (0.3%)
Comed Transitional, 5.74%,
12/16/08 5,500,000 4,959
Peco Energy Trust, 6.130%,
03/01/09 8,000,000 7,361
-----------
TOTAL 12,320
-----------
TOTAL MORTGAGE/ASSET BACKED SECURITIES 229,863
-----------
MUNICIPAL BONDS (0.2%)
New Jersey Economic
Development Authority,
0.00%, 2/15/25 17,000,000 2,475
New Jersey Economic
Development Authority,
0.00%, 2/15/26 11,000,000 1,483
New Jersey Economic
Development Authority,
7.425%, 2/15/29 2,250,000 2,182
-----------
TOTAL MUNICIPAL BONDS 6,140
-----------
TOTAL BONDS (COST
$1,382,544) 1,329,034
-----------
</TABLE>
Balanced Portfolio B- 84
<PAGE> 108
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (1.5%)
Air Products & Chemicals, Inc. 33,700 $ 1,131
Alcan Aluminum, Ltd. 33,200 1,367
Alcoa Inc. 53,900 4,474
Allegheny Technologies, Inc. 13,981 314
Archer Daniels Midland Company 90,823 1,107
Barrick Gold Corporation 57,400 1,015
Bemis Company, Inc. 7,700 269
*Bethlehem Steel Corporation 19,200 161
B.F. Goodrich Company 16,200 446
Boise Cascade Corporation 8,400 340
Champion International 14,100 873
Dow Chemical Company 32,400 4,329
E.I. du Pont de Nemours & Co. 153,500 10,112
Eastman Chemical Company 11,475 547
Ecolab, Inc. 19,000 743
Engelhard Corp. 18,500 349
*FMC Corporation 4,700 269
*Freeport-McMoRan Copper &
Gold, Inc. 24,000 507
Georgia Pacific Corp. 25,200 1,279
Great Lakes Chemical 8,600 328
Hercules Inc. 15,600 435
Homestake Mining Company 38,300 299
*Inco Limited 28,200 663
International Flavors &
Fragrances, Inc. 15,600 589
International Paper Company 60,831 3,433
Louisiana Pacific Corporation 15,800 225
Mead Corp. 15,100 656
Monsanto Company 93,200 3,320
Newmont Mining Corporation 24,630 603
Nucor Corp. 12,800 702
Pactiv Corporation 25,100 267
Phelps Dodge Corporation 11,510 773
Placer Dome Inc. 47,900 515
Potlatch Corporation 4,300 192
PPG Industries, Inc. 25,500 1,595
Praxair 23,400 1,177
Reynolds Metals Company 9,300 713
Rohm and Haas Company 32,001 1,302
Sigma-Aldrich Corp. 14,800 445
Temple-Inland Inc. 8,200 541
Union Carbide Corporation 19,600 1,308
USX-U.S. Steel Group, Inc. 13,000 429
*W.R. Grace & Co. 10,500 146
Westvaco Corporation 14,750 481
Weyerhaeuser Company 34,700 2,492
Willamette Industries, Inc. 16,400 762
Worthington Industries 13,500 224
-----------
TOTAL 54,247
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS (4.3%)
Avery Dennison Corporation 16,700 $ 1,217
Allied Waste Industries 27,700 244
Ball Corporation 4,500 177
Boeing Company 141,318 5,874
Briggs & Stratton Corporation 3,400 182
Caterpillar, Inc. 52,300 2,461
Cooper Industries, Inc. 13,900 562
Corning, Inc. 36,000 4,642
Crane Co. 9,925 197
Crown Cork & Seal Company,
Inc. 18,000 403
Cummins Engine Company, Inc. 6,200 300
Danaher Corporation 20,900 1,008
Deere & Company 34,400 1,492
Delphi Automotive Systems
Corporation 83,144 1,310
Dover Corporation 30,700 1,393
Eaton Corporation 10,600 770
Emerson Electric Co. 63,900 3,666
Fluor Corporation 11,200 514
Foster Wheeler Corporation 6,000 53
General Dynamics Corporation 29,300 1,546
General Electric Company 482,600 74,682
Honeywell International, Inc. 116,150 6,700
Huttig Building Products, Inc. 2,205 11
Illinois Tool Works, Inc. 44,100 2,980
Ingersoll-Rand Company 24,250 1,335
Johnson Controls, Inc. 12,600 717
Lockheed Martin Corporation 58,122 1,271
McDermott International, Inc. 8,700 79
Milacron Inc. 5,400 83
Millipore Corp. 6,600 255
Minnesota Mining &
Manufacturing Co. 59,200 5,794
NACCO Industries, Inc. 1,200 67
National Service Industries,
Inc. 5,900 174
*Navistar International
Corporation 9,770 463
Northrop Grumman Corporation 10,200 551
*Owens-Illinois, Inc. 22,900 574
Paccar Incorporated 11,490 509
Pall Corporation 18,266 394
Parker-Hannifin Corporation 16,000 821
Pitney Bowes Inc. 39,400 1,904
Rockwell International Corp. 28,100 1,345
*Sealed Air Corporation 12,286 637
*Solectron Corporation 43,100 4,100
Textron Inc. 22,100 1,695
*Thermo Electron Corporation 23,200 348
Thomas & Betts Corporation 8,400 268
Timken Company 9,100 186
Tyco International Ltd. 246,118 9,568
United Technologies Corp. 70,900 4,608
</TABLE>
B- 85 Balanced Portfolio
<PAGE> 109
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS continued
Vulcan Materials Company 14,700 $ 587
Waste Management, Inc. 91,097 1,566
-----------
TOTAL 152,283
-----------
COMMUNICATION SERVICES (3.9%)
ADC Telecommunications 22,000 1,596
ALLTEL Corporation 44,900 3,713
AT&T Corporation 470,155 23,860
Bell Atlantic Corporation 228,380 14,060
Bellsouth Corporation 277,400 12,986
CenturyTel Inc. 20,500 971
GTE Corporation 144,300 10,182
*MCI WorldCom, Inc. 413,383 21,935
*Nextel Communications, Inc. 53,200 5,486
SBC Communications, Inc. 502,250 24,485
Sprint Corporation 127,600 8,589
*Sprint PCS 64,650 6,627
U S WEST, Inc. 74,205 5,343
-----------
TOTAL 139,833
-----------
CONSUMER CYCLICALS (4.8%)
American Greetings Corp. 9,900 234
Armstrong World Industries
Inc. 5,900 197
*Autozone, Inc. 21,900 708
Bed, Bath, & Beyond, Inc. 20,500 712
Best Buy, Inc. 30,000 1,506
Black & Decker Corporation 12,800 669
Brunswick Corporation 13,500 300
Carnival Corporation 90,200 4,313
*Cendant Corporation 105,973 2,815
Centex Corporation 8,800 217
Circuit City Stores, Inc. 29,600 1,334
*Consolidated Stores
Corporation 16,200 263
Cooper Tire & Rubber Company 11,200 174
*Costco Companies, Inc. 32,451 2,961
Dana Corporation 24,365 729
Dayton Hudson Corporation 65,000 4,773
Dillard's, Inc. 15,700 317
Dollar General Corp. 33,068 752
Dow Jones & Company, Inc. 13,400 911
Dun & Bradstreet Corporation 23,700 699
Eastman Kodak Company 46,600 3,087
*Federated Department Stores,
Inc. 30,700 1,552
Fleetwood Enterprises, Inc. 4,900 101
Ford Motor Company 178,000 9,512
Gannet Company Inc. 41,100 3,352
Gap, Inc. 126,125 5,802
General Motors Corp. 94,800 6,891
Genuine Parts Company 26,375 654
Goodyear Tire & Rubber Company 23,000 648
H & R Block, Inc. 14,400 630
Harcourt General 10,500 423
*Harrahs Entertainment 18,900 500
Hasbro Inc. 28,625 546
Hilton Hotels Corporation 54,300 523
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS continued
Home Depot, Inc. 327,297 $ 22,440
Ikon Office Solutions 21,900 149
IMS Health Incorporated 46,000 1,251
Interpublic Group of Cos. Inc. 41,500 2,394
ITT Industries Inc. 12,900 431
J.C. Penney Company, Inc. 38,800 774
Jostens, Inc. 5,000 122
Kaufman & Broad Home Corp. 7,000 169
Kmart Corp. 72,600 731
Knight-Ridder, Inc. 11,900 708
*Kohl's Corporation 24,000 1,733
Leggett & Platt, Inc. 28,900 620
Liz Claiborne, Inc. 9,000 339
Lowe's Companies, Inc. 56,100 3,352
Marriott International 36,600 1,155
Masco Corporation 65,200 1,654
Mattel, Inc. 61,860 812
May Department Stores Company 49,150 1,585
Maytag Corporation 12,800 614
McGraw-Hill Companies Inc. 29,000 1,787
Meredith Corporation 7,600 317
*Mirage Resorts, Incorporated 29,300 449
Neiman Marcus Group 13 0
Nike, Inc. 41,400 2,052
Nordstrom, Inc. 20,600 539
Office Depot, Inc. 55,100 603
Omnicom Group Inc. 26,100 2,610
Owens Corning 8,100 156
Pep Boys - Manny, Moe & Jack 7,700 70
Polaroid Corporation 6,500 122
Pulte Corporation 6,400 144
*Reebok International Ltd. 8,300 68
Russell Corp. 4,900 82
Sears Roebuck & Co. 56,000 1,705
Service Corporation
International 40,000 278
Sherwin-Williams Company 24,900 523
Snap-On Inc. 9,650 256
Springs Industries, Inc. 2,600 104
*Staples, Inc. 68,350 1,418
Tandy Corporation 28,400 1,397
The Limited, Inc. 31,485 1,364
The New York Times Company 25,600 1,258
The Stanley Works 13,100 395
Times Mirror Company 8,800 590
TJX Companies, Inc. 46,700 954
*Toys "R" Us 36,400 521
Tribune Company 34,900 1,922
TRW, Inc. 17,800 924
VF Corporation 17,500 525
Wal-Mart Stores, Inc. 654,700 45,256
Whirlpool Corporation 11,100 722
Xerox Corporation 97,500 2,212
-----------
TOTAL 171,161
-----------
</TABLE>
Balanced Portfolio B- 86
<PAGE> 110
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (5.6%)
Adolph Coors Co. 5,400 $ 283
Alberto-Culver Company 8,200 212
Albertson's, Inc. 61,850 1,995
Anheuser-Busch Companies, Inc. 68,800 4,876
Avon Products, Inc. 38,400 1,267
BESTFOODS 41,000 2,155
Brown-Forman Corporation 10,100 578
Campbell Soup Company 63,900 2,472
Cardinal Health, Inc. 40,100 1,920
CBS Corporation 112,205 7,174
*Clear Channel Communications,
Inc. 49,700 4,436
Clorox Company 34,700 1,748
Coca Cola Enterprises Inc. 62,500 1,258
Colgate-Palmolive Co. 85,800 5,577
Comcast Corporation 110,300 5,542
Conagra, Inc. 71,800 1,620
CVS Corporation 57,600 2,300
Darden Restaurant, Inc. 19,400 352
Deluxe Corp. 11,200 307
Fort James Corporation 32,500 890
Fortune Brands, Inc. 24,500 810
General Mills, Inc. 45,000 1,609
Gillette Company 159,600 6,573
Great Atlantic & Pacific Tea
Co., Inc. 5,600 156
H.J. Heinz Company 52,750 2,100
Hershey Foods Corporation 20,500 974
Kellogg Company 59,600 1,836
Kimberly-Clark Corporation 78,332 5,111
*Kroger Company 122,000 2,303
Longs Drug Stores Corp. 5,800 150
McDonald's Corporation 199,300 8,034
McKesson HBOC, Inc. 41,353 933
*MediaOne Group, Inc. 89,200 6,852
Nabisco Group Holdings Corp. 48,000 510
Newell Rubbermaid Inc. 41,471 1,203
PepsiCo, Inc. 215,100 7,582
Philip Morris Companies, Inc. 351,600 8,153
Procter & Gamble Company 195,400 21,409
R.R. Donnelley & Sons Company 18,800 466
Ralston Purina Group 47,600 1,327
Rite Aid Corporation 38,100 426
*Safeway Inc. 75,100 2,671
Sara Lee Corporation 132,900 2,932
Supervalue Inc. 20,400 408
Sysco Corporation 48,700 1,927
The Coca-Cola Company 363,200 21,156
The Quaker Oats Company 19,700 1,293
The Seagram Company Ltd. 63,600 2,858
Time Warner Inc. 190,300 13,785
*Tricon Global Restaurants,
Inc. 22,590 873
Tupperware 8,500 144
Unilever N.V 84,107 4,579
UST Incorporated 25,600 645
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES continued
*Viacom, Inc. 102,512 $ 6,196
Walgreen Company 147,600 4,317
Walt Disney Company 303,408 8,875
Wendy's International, Inc. 17,900 369
Winn-Dixie Stores, Inc. 21,900 524
Wm. Wrigley Jr. Company 17,100 1,418
-----------
TOTAL 200,449
-----------
ENERGY (2.8%)
Amerada Hess Corporation 13,300 755
Anadarko Petroleum Corporation 18,700 638
Apache Corporation 16,800 620
Ashland, Inc. 10,600 349
Atlantic Richfield Company 47,400 4,100
Baker Hughes, Inc. 48,340 1,018
Burlington Resource, Inc. 31,975 1,057
Chevron Corporation 96,500 8,359
Conoco, Inc. 92,300 2,296
Exxon Mobil Corporation 509,273 41,028
Halliburton Company 64,900 2,612
Helmerich & Payne, Inc. 7,300 159
Kerr-McGee Corporation 12,757 791
Occidental Petroleum
Corporation 51,300 1,109
Phillips Petroleum Company 37,300 1,753
*Rowan Companies, Inc. 12,200 265
Royal Dutch Petroleum Co., ADR 315,400 19,062
Schlumberger Limited 80,600 4,534
Sunoco, Inc. 13,300 313
Texaco Inc. 81,300 4,416
Tosco, Corp. 22,400 609
Transocean Offshore Sedco
Forex, Inc. 15,636 527
Union Pacific Resource Group 37,058 472
Unocal Corp. 35,700 1,198
USX -Marathon Group 45,400 1,121
-----------
TOTAL 99,161
-----------
FINANCIALS (6.7%)
Aetna, Inc. 21,993 1,227
Aflac Inc. 39,100 1,845
Allstate Corporation 117,494 2,820
American Express Company 66,100 10,989
American General Corporation 36,603 2,777
American International Group,
Inc. 227,778 24,628
AMSOUTH BANCORPORATION 57,900 1,118
Aon Corporation 37,675 1,507
Associates First Capital
Corporation 107,138 2,939
Banc One Corporation 172,545 5,532
Bank of America Corp. 254,095 12,752
Bank of New York Company, Inc. 108,200 4,328
BB&T Corporation 47,000 1,287
Capital One Financial
Corporation 29,100 1,402
Chase Manhattan Corporation 122,448 9,513
CIGNA Corporation 27,400 2,207
Cincinnati Financial
Corporation 24,300 758
</TABLE>
B- 87 Balanced Portfolio
<PAGE> 111
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
FINANCIALS continued
Citigroup, Inc. 496,882 $ 27,608
Comerica, Inc. 23,000 1,074
Conseco Inc. 48,070 859
Countrywide Credit Industries,
Inc. 16,600 419
Federal Home Loan Mortgage
Corp. 102,300 4,814
Federal National Mortgage
Association 150,800 9,415
Fifth Third Bankcorp 44,375 3,256
First Union Corporation 140,686 4,616
Firstar Corporation 144,829 3,060
FleetBoston Financial Corp. 135,551 4,719
Franklin Resources Inc. 37,100 1,190
Golden West Financial
Corporation 24,300 814
Hartford Financial Services
Group Inc. 33,200 1,573
Household International Inc. 70,459 2,625
Huntington Bancshares, Inc. 33,928 810
J.P. Morgan & Company, Inc. 25,800 3,267
Jefferson-Pilot Corp. 15,475 1,056
KeyCorp 66,000 1,460
Lehman Brothers Holdings, Inc. 17,600 1,491
Lincoln National Corporation 29,200 1,168
Loews Corp. 15,800 959
Marsh & McLennan Companies,
Inc. 38,800 3,713
MBIA, Inc. 14,700 776
MBNA Corp. 117,932 3,214
Mellon Financial Corporation 75,600 2,575
Merrill Lynch & Co. 54,400 4,542
MGIC Investment Corp. 16,100 969
Morgan Stanley, Dean Witter,
Discover & Co. 83,980 11,988
National City Corp. 90,900 2,153
Northern Trust Corp. 32,800 1,738
Old Kent Financial, Corp. 17,500 619
Paine Webber Group Inc. 21,400 831
PNC Bank Corp. 44,700 1,989
Progressive Corporation 10,700 782
Providian Financial
Corporation 20,850 1,899
Regions Financial Corporation 32,900 827
Republic New York Corporation 15,400 1,109
SAFECO, Inc. 19,300 480
Schwab Charles Corp New 120,350 4,618
SLM Holding Corporation 23,700 1,001
SouthTrust Corporation 24,600 930
St. Paul Companies, Inc. 33,306 1,122
State Street Corporation 23,700 1,732
Summit Bancorp 26,000 796
Suntrust Banks Inc. 47,300 3,255
Synovus Financial Corp. 39,950 794
The Bear Stearns Companies,
Inc. 18,002 770
The Chubb Corporation 25,900 1,458
Torchmark Corporation 19,600 570
T. Rowe Price & Associates 17,900 661
U.S. Bancorp 107,587 2,562
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
FINANCIALS continued
Union Planters Corporation 21,000 $ 828
UNUMProvident Corporation 35,106 1,126
Wachovia Corporation 29,800 2,026
Washington Mutual, Inc. 85,214 2,216
Wells Fargo & Company 242,660 9,813
-----------
TOTAL 240,364
-----------
HEALTH CARE (4.3%)
Abbott Laboratories Inc. 223,800 8,127
Allergan Inc. 19,400 965
*Alza Corporation 14,900 516
American Home Products
Corporation 192,200 7,580
Bard C R Inc 7,500 398
Bausch & Lomb, Inc. 8,400 575
Baxter International, Inc. 42,800 2,688
Becton, Dickinson & Company 36,800 984
Biomet, Inc. 16,500 660
*Boston Scientific Corp. 60,800 1,330
Bristol-Myers Squibb Company 292,200 18,755
Columbia/HCA Healthcare
Corporation 83,050 2,434
Eli Lilly & Company 160,800 10,693
*Guidant Corporation 44,400 2,087
*HEALTHSOUTH Corporation 61,000 328
*Humana, Inc. 24,700 202
Johnson & Johnson 197,800 18,420
Mallinckrodt, Inc. 10,400 331
Manor Care Inc. 15,800 253
Medtronic, Inc. 172,600 6,289
Merck & Co., Inc. 345,100 23,143
Pfizer, Inc. 570,000 18,489
Pharmacia & Upjohn Inc. 74,530 3,354
Quintiles Transnational
Corporation 16,900 316
Schering-Plough Corporation 216,000 9,112
*St. Jude Medical, Inc. 12,450 382
*Tenet Healthcare Corp. 45,700 1,074
*United Healthcare Corp. 25,500 1,355
Warner-Lambert Company 125,700 10,300
*Watson Pharmaceutical Inc. 14,100 505
*Wellpoint Health Networks 9,700 640
-----------
TOTAL 152,285
-----------
TECHNOLOGY (15.3%)
*3COM Corporation 52,600 2,472
Adobe Systems, Inc. 18,000 1,211
Adaptec, Inc. 15,200 758
*Advanced Micro Devices, Inc. 21,700 628
*America Online, Inc. 326,000 24,593
*Amgen, Inc. 150,000 9,009
Analog Devices, Inc. 25,400 2,362
*Andrew Corporation 12,062 228
*Apple Computer, Inc. 23,700 2,437
*Applied Materials, Inc. 55,200 6,993
Autodesk, Inc. 8,700 294
</TABLE>
Balanced Portfolio B- 88
<PAGE> 112
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
TECHNOLOGY continued
Automatic Data Processing,
Inc. 91,000 $ 4,903
*BMC Software, Inc. 35,200 2,814
*Cabletron Systems, Inc. 25,600 666
*Ceridian Corp. 21,300 459
*Cisco Systems, Inc. 478,300 51,238
Citrix Systems, Inc. 12,900 1,587
Compaq Computer Corporation 250,067 6,767
Computer Associates
International, Inc. 79,112 5,533
*Computer Sciences Corp. 23,500 2,224
*Compuware Corporation 52,500 1,956
Comverse Technology 10,300 1,491
*Dell Computer Corp. 373,800 19,064
Electronic Data Systems
Corporation 72,500 4,853
*EMC Corporation 149,043 16,283
Equifax, Inc. 21,100 497
First Data Corporation 63,100 3,112
*Gateway Inc. 46,100 3,322
*General Instrument
Corporation 25,500 2,168
Global Crossing, Ltd. 112,985 5,649
Hewlett-Packard Company 149,000 16,977
Intel Corporation 486,600 40,053
International Business
Machines Corporation 266,100 28,739
*KLA- Tencor Corporation 13,000 1,448
Lexmark International Group,
Inc. 18,900 1,710
*LSI Logic Corp. 21,700 1,465
Lucent Technologies, Inc. 450,747 33,722
*Micron Technology 36,800 2,861
*Microsoft Corporation 750,800 87,656
Molex, Inc. 22,800 1,292
Motorola, Inc. 89,300 13,149
*National Semiconductor
Corporation 24,700 1,057
Network Appliance, Inc. 21,600 1,794
Nortel Networks Corporation 195,220 19,717
*Novell, Inc. 49,300 1,969
*Oracle Corporation 211,725 23,726
*Parametric Technology Company 39,600 1,072
Paychex, Inc. 36,200 1,448
PE Corp.-PE Biosystems Group 15,000 1,805
*Peoplesoft, Inc. 35,800 763
Perkinelmer, Inc. 6,700 279
Raytheon Company- Class B 49,700 1,320
Qualcomm, Inc. 94,400 16,638
Scientific-Atlanta, Inc. 11,300 629
*Seagate Technology Inc. 30,600 1,425
Shared Medical Systems Corp. 3,900 199
*Silicon Graphics 27,800 273
*Sun Microsystems, Inc. 227,700 17,633
Tektronix, Inc. 6,900 268
*Tellabs, Inc. 57,600 3,697
Teradyne, Inc. 25,200 1,663
Texas Instruments,
Incorporated 115,600 11,199
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
TECHNOLOGY continued
*Unisys Corporation 45,000 $ 1,437
W.W. Grainger, Inc. 13,700 655
Xilinnx, Inc. 46,600 2,119
Yahoo, Inc. 38,700 16,745
-----------
TOTAL 544,173
-----------
TRANSPORTATION (0.4%)
*AMR Corporation 22,100 1,481
Burlington Northern Santa Fe 68,399 1,659
CSX Corporation 32,000 1,004
Delta Air Lines Inc. 20,600 1,026
*FDX Corporation 43,740 1,791
Kansas City Southern Inds 16,300 1,216
Norfolk Southern Corporation 56,000 1,148
Ryder System, Inc. 9,400 230
Southwest Airlines Co. 74,175 1,201
Union Pacific Corporation 36,500 1,592
*USAir Group, Inc. 10,500 337
-----------
TOTAL 12,685
-----------
UTILITIES (1.2%)
Ameren Corporation 20,200 662
American Electric Power Co.
Inc. 28,400 912
Carolina Power & Light Company 23,500 715
Central & South West
Corporation 31,300 626
Cinergy Corporation 23,405 565
CMS Energy Corp. 17,400 543
Coastal Corp. 31,400 1,113
Columbia Energy Group 12,100 765
Consolidated Edison Co. of New
York 32,500 1,121
Consolidated Natural Gas
Company 14,100 916
Constellation Energy Group
Inc. 22,000 638
Dominion Resources Inc. 28,200 1,107
DTE Energy Company 21,300 668
Duke Energy Corp. 53,671 2,690
Eastern Enterprises 3,900 224
Edison International 51,100 1,338
EL Paso Energy Corp. 33,500 1,300
Enron Corporation 105,000 4,659
Entergy Corporation 36,300 935
FirstEnergy Corporation 34,400 780
Florida Progress Corp. 14,400 609
FPL Group, Inc. 26,400 1,130
GPU, Inc. 18,500 554
New Century Energies, Inc. 17,000 516
*Niagra Mohawk Power
Corporation 27,600 385
Nicor, Inc. 6,900 224
Northern States Power Company 22,700 443
ONEOK, Inc. 4,700 118
P P & L Resources, Inc. 23,233 531
PECO Energy Company 27,500 956
Pinnacle West Capital 12,500 382
Peoples Energy Corporation 5,200 174
PG&E Corp. 56,500 1,158
</TABLE>
B- 89 Balanced Portfolio
<PAGE> 113
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK (50.8%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
UTILITIES continued
Public Service Enterprise
Group, Inc. 32,300 $ 1,124
Reliant Energy, Inc. 43,526 996
Scottish Power PLC 25,520 715
Sempra Energy 35,359 614
Southern Company 100,500 2,362
Texas Utilities Company 40,695 1,447
*The AES Corporation 30,300 2,265
UNICOM Corp. 32,000 1,072
Williams Companies Inc. 63,900 1,954
-----------
TOTAL 42,006
-----------
TOTAL COMMON STOCK (COST $691,041) 1,808,647
-----------
<CAPTION>
SHORT TERM INVESTMENTS (11.3%)
--------------------------------------------------------
MONEY MARKET INVESTMENTS (10.2%)
PHARMACEUTICAL (0.7%)
American Home Products, 5.72%,
01/26/00 25,000,000 24,901
-----------
CAPTIVE FINANCE COMPANY (0.7%)
Ford Motor Credit Company,
5.68%, 01/12/00 25,000,000 24,957
-----------
FEDERAL GOVERNMENT AND AGENCIES (1.0%)
#Federal Home Loan Mortgage
Corp., 5.51%, 01/10/00 20,200,000 20,172
Federal Home Loan Mortgage
Corp., 0.47%, 01/14/00 17,000,000 16,971
-----------
TOTAL 37,143
-----------
FINANCE LESSOR (0.8%)
Receivable Capital Trust, 6%,
01/28/00 29,000,000 28,870
-----------
FINANCE SERVICES (1.6%)
Asset Securitization, 5.80%,
01/21/00 25,000,000 24,919
CXC Incorporated, 5.78%,
01/24/00 30,100,000 29,989
-----------
TOTAL 54,908
PERSONAL CREDIT INSTITUTIONS (3.4%)
Associates Corp. of America,
5.67%, 01/12/00 50,000,000 49,913
General Electric Capital
Corporation, 5.32%, 01/26/00 25,000,000 24,908
General Electric Capital
Corporation, 0.62%, 02/02/00 20,000,000 19,890
Variable Funding Capital
Corp., 5.84%, 01/12/00 25,000,000 24,955
-----------
TOTAL 119,666
SHORT TERM BUSINESS CREDIT (1.4%)
IBM Credit Corporation, 5.70%,
01/26/00 50,000,000 49,802
-----------
</TABLE>
<TABLE>
<S> <C> <C>
<CAPTION>
MARKET
SHARES/ VALUE
SHORT TERM INVESTMENTS (11.3%) PAR (000'S)
--------------------------------------------------------
UTILITY-ELECTRIC (0.6%)
National Rural Utility, 5.80%,
01/24/00 22,100,000 $ 22,018
-----------
TOTAL MONEY MARKET INVESTMENTS 362,265
-----------
<CAPTION>
ASSET-BACKED SECURITIES (1.1%)
<S> <C> <C>
<S> <C> <C>
FINANCE LESSORS (1.1%)
Preferred Receivable Funding,
6.12%, 01/20/00 23,675,000 23,598
Preferred Receivable Funding,
5.85%, 01/28/00 15,000,000 14,934
-----------
TOTAL ASSET-BACKED SECURITIES 38,532
-----------
TOTAL SHORT TERM INVESTMENTS
(COST $400,797) 400,797
-----------
TOTAL INVESTMENTS (99.5%)
(COST $2,474,382)[CARET] 3,538,478
-----------
OTHER ASSETS, LESS LIABILITIES (0.5%) 19,422
-----------
TOTAL NET ASSETS (100.0%) $ 3,557,900
-----------
</TABLE>
IO - Interest Only Security
++ - Defaulted Securities
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.
# Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
ISSUER CONTRACTS DATE (000'S)
- ------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 290 03/00 $4,411
(Total Notional Value
at 12/31/99,
$103,193,600)
</TABLE>
[CARET] At December 31, 1999, the aggregate cost of securities for federal
income tax purposes was $2,476,485 and the net unrealized appreciation
based on that cost was $1,061,993 which is comprised of $1,155,249 in
aggregate gross unrealized appreciation and $93,256 in aggregate gross
unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
Balanced Portfolio B- 90
<PAGE> 114
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (78.0%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (2.6%)
Glencore Nickel, LTD, 9%, 12/1/14 500,000 $ 419
Great Central Mines, Ltd.,
8.875%, 04/01/08 2,400,000 2,214
Murrin Murrin Holdings, 9.375%,
8/31/07 1,850,000 1,628
---------
TOTAL BASIC MATERIALS 4,261
---------
BROADCASTING/MEDIA (3.1%)
BROADCASTING (1.2%)
+Big City Radio, Inc., 11.25%,
3/15/05 3,100,000 1,999
---------
PRINTING AND PUBLISHING (1.9%)
Marvel Enterprises, Inc., 12.0%,
06/15/09 2,200,000 2,024
WRC Media Inc., 12.75%, 11/15/09 1,000,000 993
---------
3,017
---------
TOTAL BROADCASTING/MEDIA 5,016
---------
CABLE TELEVISION (7.4%)
Century Communications, 0.0%,
1/15/08 2,050,000 898
+International Cabletel, Inc.,
11.50%, 02/01/06 3,000,000 2,715
+NTL, Inc.,9.75%, 4/01/08 3,500,000 2,415
NTL Incorporated, 11.50%,
10/01/08 1,000,000 1,085
+Telewest PLC, 9.25%, 04/15/09
(144A) 2,400,000 1,512
+United International Holdings,
10.75%, 2/15/08 2,600,000 1,664
United Pan-Europe Co., 10.875%,
8/01/09 (144A) 1,550,000 1,569
---------
TOTAL CABLE TELEVISION 11,858
---------
CONSUMER RELATED (1.9%)
Boyds Collection Ltd., 9.0%,
5/15/08 750,000 713
Global Health Sciences, Inc.,
11.0%, 05/01/08 850,000 527
Iowa Select Farms L.P., 10.75%,
12/01/05 (144A) 3,600,000 1,799
---------
TOTAL CONSUMER RELATED 3,039
---------
ENERGY RELATED (6.7%)
OIL AND GAS INDEPENDENT (2.0%)
Chesapeake Energy, 9.625%,
05/01/05 1,000,000 944
Grey Wolf Inc., 8.875%, 7/01/07 600,000 552
Pioneer Natural Resources,
8.875%, 04/15/05 500,000 500
Pioneer Natural Resources, 8.25%,
08/15/07 500,000 477
Pioneer Natural Resources, 6.5%,
01/15/08 800,000 679
---------
TOTAL 3,152
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (78.0%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
OIL FIELD SERVICES (2.4%)
Eott Energy, 11%, 10/1/09 1,800,000 $ 1,863
Pride International, Inc.,
10.00%, 06/01/09 1,500,000 1,530
R&B Falcon Corp., 12.25%,
03/15/06 400,000 436
---------
TOTAL 3,829
---------
REFINING (2.3%)
PDV America, Inc., 7.875%,
08/01/03 2,250,000 2,118
Port Authority Finance
Corporation, 12.5%, 1/15/09
(144A) 1,650,000 1,667
---------
TOTAL 3,785
---------
TOTAL ENERGY RELATED 10,766
---------
FINANCE (11.3%)
BANKS (2.2%)
BF Saul Real Estate, 9.75%,
4/01/08 1,750,000 1,598
Sovereign Bancorp Inc., 10.5%,
11/15/06 1,900,000 1,938
---------
TOTAL 3,536
---------
FINANCE COMPANIES (8.4%)
Americredit Corp., 9.875%,
04/15/06 1,000,000 1,008
Metris Companies, Inc., 10.125%,
7/15/06 2,600,000 2,483
Arcadia Financial, Ltd., 11.5%,
3/15/07 5,775,000 6,006
PDV SA Finance, Ltd. 99-I, 9.75%,
02/15/10 (144A) 4,400,000 4,131
---------
TOTAL 13,628
---------
INSURANCE (0.7%)
Willis Corron Corp., 9.0%,
2/01/09 1,350,000 1,124
---------
TOTAL FINANCE 18,288
---------
HEALTHCARE (5.4%)
Columbia/HCA Healthcare, 7.69%,
06/15/25 1,450,000 1,172
HEALTHSOUTH Corporation, 6.875%,
6/15/05 750,000 656
HEALTHSOUTH Corporation, 3.25%,
4/01/03 3,200,000 2,468
ICN Pharmaceuticals, 8.75%,
11/15/08 (144A) 450,000 430
Total Renal Care Hldgs, 7.0%,
05/15/09 (144A) 6,300,000 3,938
---------
TOTAL HEALTHCARE 8,664
---------
LEISURE (9.4%)
GAMING (3.9%)
Circus Circus Enterprise, 7.625%,
7/15/13 1,850,000 1,610
Hollywood Casino, 13.0%, 8/01/06
(144A) 1,750,000 1,873
</TABLE>
B- 91 High Yield Bond Portfolio
<PAGE> 115
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (78.0%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
GAMING continued
Hollywood Casino, 11.25%, 5/01/07 1,700,000 $ 1,777
MGM Grand Inc., 6.875%, 2/06/08 1,250,000 1,107
---------
TOTAL 6,367
---------
HOTELS AND OTHER LODGING PLACES (4.2%)
HMH Properties, Inc., 8.45%,
12/01/08 1,000,000 925
HMH Properties, Inc., 7.875%,
08/01/08 900,000 802
Hilton Hotels Corporation, 5.0%,
5/15/06 2,000,000 1,518
ITT Corp., 7.375%, 11/15/15 2,650,000 2,027
Lodgian Financing Corp., 12.25%,
7/15/09 1,500,000 1,485
---------
TOTAL 6,757
---------
LEISURE RELATED (1.0%)
Bally Total Fitness, 9.875%,
10/15/07 1,600,000 1,552
Hedstrom Holdings Inc., 10.0%,
06/01/07 750,000 45
---------
TOTAL 1,597
---------
MOVIE THEATERS (0.3%)
Cinemark USA, 9.625%, 8/1/08 500,000 450
---------
TOTAL LEISURE 15,171
---------
OTHER INDUSTRIES (13.6%)
AUTO RELATED (2.3%)
AVIS Rent a Car, Inc., 11.0%,
05/01/09 1,000,000 1,050
Budget Group, Inc., 9.125%,
04/01/06 2,900,000 2,697
---------
TOTAL 3,747
---------
BUILDING AND CONSTRUCTION (0.7%)
United Rentals Inc., 8.8%,
8/15/08 1,250,000 1,167
---------
ENVIRONMENTAL CONTROL (5.5%)
Allied Waste of North America,
10.000%, 08/01/09 (144A) 2,850,000 2,551
Allied Waste of North America,
7.875%, 01/01/09 2,500,000 2,209
IT Group Inc., 11.25%, 4/01/09 1,450,000 1,407
USA Waste Services, 7.125%,
10/01/07 1,750,000 1,528
Waste Management, Inc., 4.0%,
02/01/02 1,350,000 1,181
---------
TOTAL 8,876
---------
FOOD SERVICES (0.5%)
Sbarro Inc., 11.0%, 9/15/09
(144A) 750,000 780
---------
OFFICE EQUIPMENT (1.4%)
Buhrmann US Inc., 12.25%,
11/01/09 (144A) 2,150,000 2,233
---------
HOUSEHOLD FURNISHINGS, APPLIANCES (0.6%)
Home Interiors and Gifts,
10.125%, 6/01/08 1,150,000 983
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (78.0%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
REAL ESTATE (1.8%)
Crescent Real Estate, 7.5%,
09/15/07 2,950,000 $ 2,440
Crescent Real Estate, 7.0%,
09/15/02 500,000 454
---------
TOTAL 2,894
---------
REIT (0.8%)
Macerich Co., 7.25%, 12/15/02
(144A) 1,550,000 1,285
---------
TOTAL OTHER INDUSTRIES 21,965
---------
SERVICES (1.5%)
Building One Services Co., 10.5%,
5/01/09 1,500,000 1,440
+Decisionone Holdings, 11.50%,
8/1/08 3,875,000 19
Decisionone Holdings, 7.94%,
08/07/05 101,265 37
Decisionone Holdings, 7.98%,
08/07/05 145,822 54
Decisionone Holdings, 8.29%,
08/07/05 26,518 10
++Decisionone Holdings, 9.75%,
8/1/07 1,375,000 5
Service Corp. International,
7.7%, 04/15/09 1,200,000 912
---------
TOTAL SERVICES 2,477
---------
TECHNOLOGY (0.6%)
Amkor Technologies, Inc., 9.25%,
05/01/06 (144A) 1,000,000 975
---------
TELECOMMUNICATIONS (11.9%)
Arch Escrow Corp, 13.75%,
04/15/08 4,100,000 3,326
Arch Communications, 12.75%,
07/01/07 1,800,000 1,424
+Call-Net Enterprises, Inc.,
10.80%, 05/15/09 1,800,000 887
Call-Net Enterprises, Inc.,
9.375%, 05/15/09 900,000 740
Global Crossing Holding, 9.5%,
11/15/09 (144A) 1,000,000 985
Hyperion Telecommunications,
12.25%, 9/01/04 350,000 377
Intermedia Communication, 9.5%,
3/01/09 1,150,000 1,098
+Intermedia Communication, 9.5%,
5/01/06 600,000 525
+KMC Telecommunication Hldgs,
12.50%, 2/15/08 750,000 428
KMC Telecommunication Hldgs,
13.5%, 05/15/09 (144A) 2,400,000 2,400
+Nextel Communications, 9.75%,
9/15/07 1,000,000 745
Nextlink Communications, 10.50%,
12/01/09 (144A) 1,000,000 1,015
PSI Net Inc., 11.0%, 08/01/09 750,000 773
Splitrock Services, Inc., 11.75%,
07/15/08 1,200,000 1,122
Viatel, Inc., 11.25%, 04/15/08 1,500,000 1,489
</TABLE>
High Yield Bond Portfolio B- 92
<PAGE> 116
<TABLE>
<CAPTION>
MARKET
SHARES/ VALUE
BONDS (78.0%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS continued
Williams Communications, 10.875%,
10/01/09 1,850,000 $ 1,933
---------
TOTAL TELECOMMUNICATIONS 19,267
---------
TRANSPORTATION (2.6%)
North American Van Lines,
13.375%, 12/01/09 (144A) 1,250,000 1,250
Stena AB, 10.5%, 12/15/05 1,400,000 1,274
Stena AB, 8.75%, 06/15/07 2,150,000 1,752
---------
TOTAL TRANSPORTATION 4,276
---------
TOTAL BONDS (COST $134,752) 126,023
---------
<CAPTION>
PREFERRED SECURITIES (15.0%)
--------------------------------------------------------
<S> <C> <C>
BANKS (1.0%)
California Fed Pfd Capital 74,000 1,670
---------
BROADCASTING AND MEDIA (5.4%)
BROADCASTING (4.5%)
**Crown Castle Intl. Corp. 10,310 1,067
**Cumulus Media, Inc. 25,740 2,883
Sinclair Capital 34,000 3,298
---------
TOTAL 7,248
---------
PRINTING AND PUBLISHING (0.9%)
Primedia, Inc. 5,000 485
Primedia, Inc. 10,000 915
---------
TOTAL 1,400
---------
TOTAL BROADCASTING AND MEDIA 8,648
---------
CABLE TELEVISION (4.5%)
Adelphia Communications 10,000 1,150
**CSC Holdings, Inc. 47,464 5,221
**21st Century Telecom 10,760 915
---------
TOTAL CABLE TELEVISION 7,286
---------
INSURANCE (1.3%)
Superior Nat'l Capital Trust I,
10.75%, 12/01/17 4,700,000 2,115
---------
HEALTHCARE (1.0%)
Fresenius Medical, 7.875%, 2/1/08 1,750,000 1,628
---------
LEISURE RELATED (0.4%)
**Samsonite Corp. 7,610 609
---------
TELECOMMUNICATIONS (1.4%)
**Adelphia Business Solutions 13,890 1,354
**Nextlink Communications 16,560 885
---------
TOTAL TELECOMMUNICATIONS 2,239
---------
TOTAL PREFERRED SECURITIES
(COST $26,557) 24,195
---------
<CAPTION>
COMMON STOCK AND WARRANTS (1.5%)
--------------------------------------------------------
<S> <C> <C>
CABLE TELEVISION (0.0%)
*21st Century Telecom 8,500 17
---------
</TABLE>
<TABLE>
--------------------------------------------------------
<CAPTION>
MARKET
SHARES/ VALUE
COMMON STOCK AND WARRANTS (1.5%) PAR (000'S)
CONSUMER RELATED (0.0%)
*Ithaca Industries Inc. 136,000 $ 28
---------
FINANCE COMPANIES (0.0%)
*Arcadia Financial Ltd. 4,000 4
---------
LEISURE (0.1%)
*Hedstrom Holdings, Inc. 201,674 2
Meditrust Corp. 11,117 61
*Samsonite Corp. 6,250 19
---------
TOTAL LEISURE 82
---------
TELECOMMUNICATIONS (1.4%)
*Arch Communications Class A 134,177 885
*Arch Communications Class B 35,377 233
*Arch Communications Warrants 32,686 13
*KMC Telecom Holdings, Inc. 6,250 19
*Splitrock Services, Inc. 3,000 282
*Viatel, Inc. 16,325 875
---------
TOTAL TELECOMMUNICATIONS 2,307
---------
TOTAL COMMON STOCK AND
WARRANTS (COST $4,532) 2,438
---------
<CAPTION>
MONEY MARKET INVESTMENTS (3.8%)
--------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES (3.8%)
Federal Home Loan Mortgage, 4.7%,
1/14/00 6,100,000 6,089
---------
TOTAL MONEY MARKET INVESTMENTS
(COST $6,089) 6,089
---------
TOTAL INVESTMENTS (98.3%)
(COST $171,930)/\ 158,745
---------
OTHER ASSETS, LESS LIABILITIES (1.7%) 2,679
---------
TOTAL NET ASSETS (100.0%) $ 161,424
---------
</TABLE>
* Non-Income Producing
+ Step Bond 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 securities may be resold as
transactions exempt from registration, normally to qualified institutional
buyers.
/\ At December 31, 1999, the aggregate cost of securities for federal income tax
purposes was $172,290 and the net unrealized depreciation of investments
based on that cost was $13,545 which is comprised of $5,113 aggregate gross
unrealized appreciation and $18,658 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 93 High Yield Bond Portfolio
<PAGE> 117
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (25.9%)
AUTO-RELATED (1.5%)
Daimler-Chrysler North
America, 6.9%, 09/01/04 4,500,000 $ 4,457
---------
BANK HOLDING COMPANIES (2.0%)
BT Institutional Capital
Trust, 7.75%, 12/1/26 (144A) 3,000,000 2,665
Nations Bank Lease Pass Thru
Trust 97-A, 7.442%,
11/18/2005 3,000,000 2,922
---------
TOTAL 5,587
---------
CHEMICALS AND ALLIED PRODUCTS (4.1%)
Chevron Corporation, 6.625%,
10/01/04 4,500,000 4,436
Dow Capital B.V., 8.5%, 6/8/10 1,800,000 1,905
Johnson & Johnson, 6.625%,
09/01/09 2,750,000 2,645
Proctor & Gamble Co., 6.875%,
09/15/09 2,900,000 2,836
---------
TOTAL 11,822
---------
ELECTRIC SERVICES (4.9%)
Comed Transitional, 5.74%,
12/16/2008 3,500,000 3,156
Comed Financing II, 8.5%,
1/15/27 1,750,000 1,706
Ohio Edison Company, 7.375%,
9/15/02 1,000,000 1,003
PECO Energy Company, 6.13%,
3/1/09 5,500,000 5,061
Public Service Electric & Gas
Co., 6.875%, 1/1/03 2,250,000 2,232
Texas Utilities Electric Co.,
7.875%, 3/1/23 1,000,000 943
---------
TOTAL 14,101
---------
FINANCE (3.2%)
Associates Corp. of North
America, 7.95%, 2/15/10 1,500,000 1,532
Ford Motor Credit Co., 5.75%,
02/23/04 4,000,000 3,789
Ford Motor Credit Co., 6.7%,
07/16/04 2,000,000 1,956
Ford Motor Credit Co., 7.375%,
10/28/09 2,000,000 1,974
---------
TOTAL 9,251
---------
GENERAL MERCHANDISE STORES (3.4%)
May Dept Stores Company,
7.45%, 10/15/16 1,000,000 981
Wal-Mart Stores, 6.55%,
08/10/04 7,000,000 6,884
Wal-Mart Stores, 6.875%,
08/10/09 1,800,000 1,752
---------
TOTAL 9,617
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
MOTION PICTURE (0.3%)
News America Holdings Inc.,
8.25%, 8/10/18 1,000,000 $ 1,002
---------
PUBLISHING (2.0%)
Times Mirror Co, 7.45%,
10/15/09 5,850,000 5,752
---------
TELECOMMUNICATIONS (4.0%)
AT & T Corp., 5.625%, 3/15/04 4,000,000 3,792
AT & T Corp., 6.5%, 09/15/02 4,000,000 3,954
New England Telephone and
Telegraph, 5.875%, 04/15/09 4,000,000 3,572
---------
TOTAL 11,318
---------
TEXTILES (0.3%)
++Polysindo International
Finance, 11.375%, 6/15/06 4,200,000 756
---------
TOBACCO (0.2%)
Philip Morris Companies,
9.25%, 2/15/00 500,000 501
---------
TOTAL CORPORATE BONDS 74,164
---------
GOVERNMENT BONDS AND AGENCY BONDS (39.3%)
FEDERAL GOVERNMENT AND AGENCIES (39.3%)
Federal Home Loan Bank, 5.54%,
1/8/09 3,700,000 3,275
Federal Home Loan Mortgage
Corporation, 7.5%, 9/29/01 7,255,114 7,193
Federal National Mortgage
Assoc., 5.97%, 10/1/08 3,992,760 3,610
Federal National Mortgage
Assoc., 6.22%, 2/01/06 1,893,865 1,802
Federal National Mortgage
Assoc., 6.24%, 1/1/06 5,338,515 5,090
Federal National Mortgage
Assoc., 6.265%, 10/1/08 2,961,512 2,770
Federal National Mortgage
Assoc., 6.32%, 2/1/06 3,839,343 3,672
Federal National Mortgage
Assoc., 6.360%, 4/1/08 3,733,406 3,524
Federal National Mortgage
Assoc., 6.390%, 4/1/08 1,436,724 1,360
Federal National Mortgage
Assoc., 6.500%, 09/25/05 2,139,521 2,088
Federal National Mortgage
Assoc., 6.750%, 04/25/18 2,308,790 2,234
Federal National Mortgage
Assoc., 6.750%, 12/25/23 3,500,000 3,341
Federal National Mortgage
Assoc., 6.960%, 10/01/07 3,235,660 3,162
Federal National Mortgage
Assoc., 7.0%, 6/1/03 245,399 245
</TABLE>
Select Bond Portfolio B- 94
<PAGE> 118
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
Federal National Mortgage
Assoc., 7.360%, 4/1/11 3,290,209 $ 3,282
Federal National Mortgage
Assoc., 8.400%, 02/25/09 2,500,000 2,582
Federal National Mortgage
Assoc., 10%, 10/1/17 50,235 53
Federal National Mortgage
Assoc., 11.000%, 12/01/12 58,278 63
Federal National Mortgage
Assoc., 11.000%, 09/01/17 906,960 992
Federal National Mortgage
Assoc., 11.000%, 12/01/17 295,391 320
Federal National Mortgage
Assoc., 11.000%, 02/01/18 321,481 348
Federal National Mortgage
Assoc., 11.500%, 04/01/18 376,535 414
Federal National Mortgage
Assoc., 12.000%, 09/01/12 888,346 984
Federal National Mortgage
Assoc., 12.000%, 12/01/12 170,623 189
Federal National Mortgage
Assoc., 12.000%, 09/01/17 278,552 310
Federal National Mortgage
Assoc., 12.000%, 10/01/17 289,503 322
Federal National Mortgage
Assoc., 12.000%, 12/01/17 270,152 301
Federal National Mortgage
Assoc., 12.000%, 02/01/18 290,481 323
Federal National Mortgage
Assoc., 12.25%, 1/1/18 212,903 237
Federal National Mortgage
Assoc., 12.500%, 04/01/18 167,464 188
Federal National Mortgage
Assoc., 13.000%, 11/01/12 118,633 133
Federal National Mortgage
Assoc., 13.000%, 11/01/17 273,853 311
Federal National Mortgage
Assoc., 13.000%, 12/01/17 184,544 209
Federal National Mortgage
Assoc., 13.000%, 02/01/18 404,240 460
Federal National Mortgage
Assoc., 14.000%, 12/01/17 106,657 125
Government National Mortgage
Assoc., 7.0%, 05/15/23 292,444 285
Government National Mortgage
Assoc., 7.5%, 04/15/22 228,057 227
Government National Mortgage
Assoc., 7.5%, 10/15/23 618,833 616
Government National Mortgage
Assoc., 7.5%, 10/15/25 38,128 38
Government National Mortgage
Assoc., 7.5%, 11/15/25 12,397 12
Government National Mortgage
Assoc., 7.5%, 05/15/26 12,081 12
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
Government National Mortgage
Assoc., 7.5%, 01/15/27 350,302 $ 347
Government National Mortgage
Assoc., 7.5%, 02/15/27 448,775 444
Government National Mortgage
Assoc., 7.5%, 03/15/27 47,109 47
Government National Mortgage
Assoc., 7.5%, 04/15/27 93,557 93
Government National Mortgage
Assoc., 7.5%, 08/15/27 11,987 12
Government National Mortgage
Assoc., 7.5%, 06/15/28 418,831 415
Government National Mortgage
Assoc., 8.0%, 01/15/26 360,504 365
Government National Mortgage
Assoc., 8.0%, 02/15/26 447,270 453
Government National Mortgage
Assoc., 8.0%, 08/15/26 530,571 537
Government National Mortgage
Assoc., 8.0%, 09/15/26 259,685 263
Government National Mortgage
Assoc., 8.0%, 12/15/26 139,918 142
Government National Mortgage
Assoc., 8.0%, 01/15/27 359,670 364
Government National Mortgage
Assoc., 8.0%, 03/15/27 411,734 416
Government National Mortgage
Assoc., 8.0%, 04/15/27 820,402 830
Government National Mortgage
Assoc., 8.0%, 06/15/27 373,942 378
Government National Mortgage
Assoc., 8.0%, 07/15/27 410,166 415
Government National Mortgage
Assoc., 8.0%, 08/15/27 327,861 332
Government National Mortgage
Assoc., 8.0%, 09/15/27 316,162 320
Government National Mortgage
Assoc., 8.5%, 09/15/21 61,689 64
Government National Mortgage
Assoc., 8.5%, 03/15/23 2,379 2
Government National Mortgage
Assoc., 8.5%, 06/15/23 6,459 7
Government National Mortgage
Assoc., 8.5%, 06/15/24 104,425 108
Government National Mortgage
Assoc., 8.5%, 07/15/24 50,798 52
Government National Mortgage
Assoc., 8.5%, 09/15/24 1,458 2
Government National Mortgage
Assoc., 8.5%, 11/15/24 429,922 443
Government National Mortgage
Assoc., 8.5%, 02/15/25 46,545 47
Government National Mortgage
Assoc., 11.0%, 01/15/18 4,101,497 4,516
U.S. Treasury, 4.0%, 10/31/00 1,350,000 1,328
</TABLE>
B- 95 Select Bond Portfolio
<PAGE> 119
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
FEDERAL GOVERNMENT AND AGENCIES continued
U.S. Treasury, 4.875%,
03/31/01 2,380,000 $ 2,343
U.S. Treasury, 5.0%, 02/28/01 4,000,000 3,950
U.S. Treasury, 5.25%, 02/15/29 1,000,000 827
U.S. Treasury, 5.5%, 8/15/28 888,000 758
U.S. Treasury, 5.875%,
11/15/04 3,000,000 2,942
U.S. Treasury, 6.0%, 08/15/09 23,750,000 23,008
U.S. Treasury, 6.125%,
11/15/27 1,030,000 958
U.S. Treasury, 6.375%,
08/15/27 3,000,000 2,880
U.S. Treasury, 7.25%, 05/15/16 775,000 810
U.S. Treasury Inflation Index
Bond, 3.875%, 04/15/29 5,069,150 4,779
---------
TOTAL GOVERNMENT BONDS 112,699
---------
MORTGAGE BACKED AND ASSET BACKED SECURITIES (31.0%)
AUTO-RELATED (1.4%)
Eaglemark Trust - Class A,
6.75%, 11/15/02 278,647 279
Fleetwood Credit Corporation
Grantor Trust - Class A,
6.4%, 5/15/13 693,819 689
Team Fleet Financing
Corporation - Class A, 6.65%,
12/15/02 (144A) 3,200,000 3,150
---------
TOTAL 4,118
---------
COMMERCIAL MORTGAGES (20.0%)
Asset Securitization
Corporation, Class CS1,
1.257%, 11/13/26 IO 15,839,171 447
Asset Securitization
Corporation, Class CS2,
1.097%, 11/13/26 IO 52,000,000 2,385
Asset Securitization
Corporation, Class PS1,
1.367%, 2/14/41 IO 11,928,429 1,045
Chase Commercial Mortgage
Securities Corp., Class B,
6.6%, 12/12/29 2,000,000 1,891
Chase Commercial Mortgage
Securities Corp., Class A2,
6.6%, 12/12/29 5,000,000 4,751
Chase Commercial Mortgage
Securities Corp., Class B,
7.37%, 6/19/29 1,000,000 983
Commercial Mortgage Acceptance
Corporation, Class B, 6.566%,
12/15/07 2,000,000 1,894
Credit Suisse First Boston
Mortgage Securities Corp.,
Class C1, 7.26%, 6/20/29
(144A) 1,434,668 1,379
Credit Suisse First Boston
Mortgage Securities Corp.,
Class C1, 7.28%, 6/20/29
(144A) 1,500,000 1,449
Criimi Mae Commercial Mortgage
Trust, 7.0%, 12/01/06 3,000,000 2,664
Criimi Mae Commercial Mortgage
Trust, 7.0%, 11/02/11 4,000,000 2,924
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGES continued
DLJ Mortgage Acceptance
Corporation, Class S, .3571%,
10/15/17 (144A) IO 103,587,822 $ 2,132
DLJ Mortgage Acceptance
Corporation, Class S, .718%,
2/18/31 IO 119,159,123 4,167
DLJ Mortgage Acceptance
Corporation, 8.100%,
6/18/2004 1,454,592 1,495
DLJ Mortgage Acceptance
Corporation, 8.100%,
6/18/2004 1,000,000 1,024
Kmart CMBS Financing, Inc.,
Class D, 6.7875%, 03/01/07
(144A) 2,000,000 1,989
Kmart CMBS Financing, Inc.,
Class C, 6.3875%, 03/01/07
(144A) 2,500,000 2,487
Kmart CMBS Financing, Inc.,
Class D, 5.81%, 03/01/07
(144A) 2,000,000 1,997
LB Mortgage Trust, 8.396%,
6/2/10 5,348,842 5,371
Malan Mortgage Securities
Trust, Class A3, 7.8%,
8/15/05 (144A) 3,000,000 3,011
Midland Realty Acceptance
Corp., Class AEC, 1.389%,
1/25/29 (144A) IO 13,526,570 763
Mortgage Capital Funding,
Inc., 7.288%, 03/20/07 5,323,000 5,251
Nomura Asset Securities
Corp. - Class A2, 7.014%,
3/17/28 2,800,000 2,495
Red Mountain Funding LLC,
Class F, 7.471%, 1/15/19
(144A) 1,800,000 1,202
The Equitable Life Insurance
Society of the U S, Class C1,
7.52%, 5/15/06 2,000,000 1,973
---------
TOTAL 57,169
---------
CREDIT CARD ASSET BACKED (0.5%)
Iroquois Trust, Class A,
6.752%, 6/25/07 (144A) 1,381,201 1,371
---------
FRANCHISE LOAN RECEIVABLES (2.3%)
EMAC Owner Trust, 1.378%,
1/15/25 (144A) IO 30,155,554 1,967
EMAC Owner Trust - Class A2,
6.38%, 1/15/25 (144A) 3,100,000 2,913
Global Franchise Trust,
6.349%, 8/16/01 1,635,625 1,603
---------
TOTAL 6,483
---------
HOME EQUITY LOAN (0.8%)
Amresco Residential
Securities - Class A2,
6.245%, 04/25/22 2,200,000 2,182
---------
</TABLE>
Select Bond Portfolio B- 96
<PAGE> 120
<TABLE>
<CAPTION>
MARKET
VALUE
BONDS (96.2%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
MANUFACTURED HOUSING (1.2%)
Mid-State Trust VI, Class A3,
7.54%, 7/1/35 998,067 $ 968
Vanderbilt Mortgage and
Finance, Inc., Class 1A4,
7.19%, 2/7/14 2,500,000 2,485
---------
TOTAL 3,453
---------
OTHER ASSET BACKED (3.5%)
FMAC Loan Receivables Trust -
Class A, 6.2%, 9/15/20 (144A) 1,305,953 1,271
Harley-Davidson Eaglemark,
5.87%, 1/20/2001 1,500,000 1,476
Health Care Receivable Corp.,
6.25%, 2/01/03 1,125,000 1,091
Heilig-Meyers Master Trust -
Class A, 6.125%, 1/20/07
(144A) 3,000,000 2,882
Nations Credit Grantor Trust -
Class A1, 6.35%, 12/15/04 1,474,742 1,461
Newcourt Equipment - Class B,
6.764%, 9/20/04 (144A) 593,936 585
Rural Housing Trust, 6.33%,
4/17/2001 1,228,132 1,212
---------
TOTAL 9,978
---------
RESIDENTIAL MORTGAGES (1.3%)
BCF L L C Mortgage Pass Thru
Certificate, Class B3, 7.75%,
3/25/37 (144A) 3,836,025 1,803
Blackrock Capital Finance,
Class B3, 7.25%, 11/25/28
(144A) 4,334,793 2,037
---------
TOTAL 3,840
---------
TOTAL MORTGAGE BACKED AND
ASSET BACKED SECURITIES 88,594
---------
TOTAL BONDS (COST
$293,821) 275,457
---------
<CAPTION>
MONEY MARKET INVESTMENTS (2.6%)
--------------------------------------------------------
<S> <C> <C>
FEDERAL AND GOVERNMENT AGENCIES (2.6%)
Federal Home Loan Mortgage
Company, 0.047%, 01/14/00 5,800,000 5,790
#Federal Home Loan Mortgage
Company, 5.540%, 01/20/00 1,700,000 1,695
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (000'S)
--------------------------------------------------------
<S> <C> <C>
TOTAL MONEY MARKET INVESTMENTS (COST $7,485) $ 7,485
---------
TOTAL INVESTMENTS (98.8%)
(COST $301,306)/\ 282,942
---------
OTHER ASSETS, LESS LIABILITIES (1.2%) 3,551
---------
TOTAL NET ASSETS (100.0%) $ 286,493
---------
</TABLE>
IO Interest Only Security
++Defaulted 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.
#Partially held by the custodian in a segregated account as collateral for open
futures positions. Information regarding open futures contracts as of December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION (DEPRECIATION)
ISSUERS CONTRACTS DATE (000'S)
- ---------------------------------------------------------------
<S> <C> <C> <C>
Euro Bond Future 31 03/00 $ 13
US Treasury Bond
Futures 100 03/00 (38)
(Total Notional Value
at 12/31/99,
$16,416,250)
</TABLE>
/\At December 31, 1999, the aggregate cost of securities for federal income tax
purposes was $301,944 and the net unrealized depreciation of investments based
on that cost was $19,002 which is comprised of $615 aggregate gross unrealized
appreciation and $19,617 aggregate gross unrealized depreciation.
The Accompanying Notes are an Integral Part of the Financial Statements.
B- 97 Select Bond Portfolio
<PAGE> 121
NORTHWESTERN MUTUAL SERIES FUND, INC.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (82.3%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
AGRICULTURAL SERVICES (2.2%)
Cargill, Inc., 6.00%, 1/28/00 9,040,000 $ 8,999
---------
AIRCRAFT, GUIDED MISSILES & PARTS (3.9%)
Alliedsignal, Inc., 5.27%,
2/23/00 16,000,000 15,876
---------
AUTOMOBILE REPAIR, SERVICES & PARKING (12.4%)
Daimler-Chrysler NA. Holding,
5.50%, 1/28/00 17,780,000 17,707
Ford Holdings, Inc., 9.25%,
3/01/00 8,425,000 8,480
Ford Motor Credit Co., 5.68%,
1/12/00 8,000,000 7,986
GMAC, 6.625%, 6/08/00 6,000,000 6,024
GMAC, 6.75%, 06/02/00 10,000,000 10,044
---------
TOTAL 50,241
---------
FEDERALLY SPONSORED CREDIT (5.0%)
Federal Home Loan Mtg, 5.14%,
1/14/00 9,140,000 9,123
Federal Home Loan Mtg, 4.74%,
1/14/00 10,970,000 10,951
---------
TOTAL 20,074
---------
FINANCE (17.2%)
Asset Securitization, 6.25%,
1/21/00 15,000,000 14,948
Ciesco LP, 6.03%, 1/31/00 3,000,000 2,985
Ciesco LP, 5.95%, 2/07/00 10,000,000 9,939
CIT Group 6.07%, 2/15/00 7,000,000 6,947
CIT Group, 6.00%, 1/21/00 4,630,000 4,615
CXC Incorporated, 6.07%,
1/28/00 2,500,000 2,489
CXC Incorporated, 6.03%,
1/28/00 10,000,000 9,955
Delaware Funding, 5.87%,
1/28/00 7,500,000 7,467
Delaware Funding, 5.87%,
1/27/00 10,000,000 9,958
---------
TOTAL 69,303
---------
PERSONAL CREDIT INSTITUTIONS (17.0%)
American General Finance,
6.12%, 2/22/00 7,300,000 7,235
General Electric Capital Corp.,
5.32%, 1/26/00 11,600,000 11,557
General Electric Capital Corp.,
5.36%, 01/26/00 4,400,000 4,384
Household Finance Corp. 6.05%,
1/21/00 10,000,000 9,966
New Center Asset Trust, 5.94%,
2/15/00 17,000,000 16,874
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
MONEY MARKET INVESTMENTS (82.3%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
PERSONAL CREDIT INSTITUTIONS continued
Variable Funding Capital Corp.,
5.7%, 2/17/00 4,000,000 $ 3,970
Variable Funding Capital Corp.,
6.7%, 1/12/00 5,000,000 4,990
Variable Funding Capital Corp.,
5.84%, 1/12/00 10,000,000 9,982
---------
TOTAL 68,958
---------
PHARMACEUTICAL PREPARATIONS (3.8%)
American Home Products, 7.7%,
2/15/00 5,450,000 5,467
American Home Products, 5.72%,
1/26/00 10,000,000 9,960
---------
TOTAL 15,427
---------
RETAIL (2.3%)
Sears Roebuck Acceptance, 6.0%,
2/15/00 9,500,000 9,429
---------
SHORT TERM BUSINESS CREDIT (10.3%)
IBM Credit Corporation, 5.75%,
01/28/00 9,625,000 9,584
Quincy Capital Corporation,
5.95%, 1/28/00 4,000,000 3,982
Quincy Capital Corporation,
6.07%, 1/27/00 10,000,000 9,956
Receivables Capital Corp,
6.00%, 1/28/00 15,000,000 14,933
Receivables Capital Corp,
6.07%, 1/26/00 3,190,000 3,176
---------
TOTAL 41,631
---------
TOBACCO PRODUCTS (3.9%)
Philip Morris, 6.15%, 03/15/00 15,500,000 15,523
---------
UTILITY-ELECTRIC (4.3%)
National Rural Utility, 5.8%,
1/25/00 14,985,000 14,927
National Rural Utility, 5.8%,
1/24/00 2,500,000 2,490
---------
TOTAL 17,417
---------
TOTAL MONEY MARKET INVESTMENTS
(COST $332,878) 332,878
---------
</TABLE>
Money Market Portfolio B- 98
<PAGE> 122
<TABLE>
<CAPTION>
MARKET
VALUE
ASSET-BACKED SECURITIES (17.7%) PAR (000'S)
--------------------------------------------------------
<S> <C> <C>
FINANCE LESSORS (17.7%)
Fidelity Equipment Lease,
6.132%, 12/15/00 13,798,073 $ 13,798
Orix Credit Alliance, 6.123%,
12/15/00 13,389,780 13,390
Preferred Receivable Funding,
6.12%, 1/20/00 10,400,000 10,366
Preferred Receivable Funding,
6.08%, 1/20/00 7,105,000 7,082
Short Term Repackage Asset
Trust, 6.521%, 4/13/00 15,000,000 15,000
Triple A One Funding, 6.15%,
1/20/00 6,000,000 5,981
Triple A One Funding, 6.20%,
1/14/00 5,727,000 5,714
---------
TOTAL 71,331
---------
TOTAL ASSET-BACKED SECURITIES
[CARET](COST $71,331) 71,331
---------
TOTAL INVESTMENTS (100.0%),
(COST $404,209)[CARET] 404,209
---------
OTHER ASSETS, LESS LIABILITIES (0.0%) 75
---------
TOTAL NET ASSETS (100.0%) $ 404,284
---------
</TABLE>
[CARET] Also represents cost for federal income tax purposes.
The Accompanying Notes are an Integral Part of the Financial Statements
B- 99 Money Market Portfolio
<PAGE> 123
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit I Opinion and Consent of Counsel
Exhibit J Consent of PricewaterhouseCoopers LLP
Exhibit P(1) Code of Ethics for Northwestern Mutual Series Fund,
Inc.
Exhibit P(2) Code of Ethics for The Frank Templeton Group
Exhibit P(3) Code of Ethics for J.P Morgan Investment Management
Inc.
Item 24. Persons Controlled by or under Common Control with Registrant
Shares of the Registrant have been offered and sold only to
The Northwestern Mutual Life Insurance Company ("Northwestern
Mutual"), a mutual insurance company organized by a special
act of the Wisconsin Legislature, and its separate investment
accounts created pursuant to Wisconsin insurance laws. Certain
of the separate investment accounts are registered under the
Investment Company Act of 1940 as unit investment trusts, and
the purchasers of variable annuity contracts and variable life
insurance policies issued in connection with such accounts
have the right to instruct Northwestern Mutual with respect to
the voting of the Registrant's shares held by those accounts.
Subject to such voting instruction rights, Northwestern Mutual
and its separate investment accounts directly control the
Registrant. However, the present practice of Northwestern
Mutual, as disclosed elsewhere in this Amended Registration
Statement, is to vote the shares of the Registrant held as
general assets in the same proportions as the shares for which
voting instructions are reserved. Subsidiaries of Northwestern
Mutual when considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary.
Item 25. Indemnification
Article IX of Registrant's by-laws is included as an exhibit
to the Registration Statement under the Securities Act of 1933
and the Investment Company Act of 1940. The by-laws of
Northwestern Mutual permit indemnification by Northwestern
Mutual of persons who are serving as directors of another
corporation at the request of Northwestern Mutual. Pursuant to
the by-law provision, the Trustees of Northwestern Mutual have
adopted a resolution extending to all of the directors of the
Registrant the benefits of the indemnification arrangements
for employees, officers and Trustees of Northwestern Mutual.
Directors' and officers' liability insurance which covers the
directors and officers of the Registrant as well as Trustees
and officers of Northwestern Mutual is also in force. The
amount of coverage is $50 million. The deductible amount is
$1,000,000 ($1 million) for claims covered by corporate
indemnification. The cost of this insurance is allocated among
Northwestern Mutual and its subsidiaries and no part of the
premium has been paid by the Registrant.
Item 26. Business and Other Connections of Investment Adviser
In addition to its investment advisory function, Northwestern
Mutual Investment Services, LLC ("NMIS"), the Registrant's
investment adviser, is responsible for the selection, training
and supervision of life insurance agents of Northwestern
Mutual who engage in the distribution of variable life
insurance policies and variable annuity contracts issued by
Northwestern Mutual. The directors and officers of NMIS also
serve as officers of Northwestern Mutual.
Item 27. Principal Underwriters
Not applicable.
C-1
<PAGE> 124
Item 28. Location of Accounts and Records
Pursuant to the investment advisory agreement, NMIS, the
Registrant's adviser, provides facilities and personnel for
maintaining the Registrant's books and records. Northwestern
Mutual is also a party to the agreement and provides space,
facilities and personnel used in carrying out this function.
Documents are kept at 720 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, the address of NMIS and of Northwestern
Mutual.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
C-2
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Northwestern Mutual Series Fund,
Inc., certifies that it meets all of the requirements for effectiveness of this
Amended Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amended Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, and State of Wisconsin, on the 25th day of April, 2000.
NORTHWESTERN MUTUAL SERIES FUND, INC.
(Registrant)
By:JAMES D. ERICSON
-------------------------------------------
James D. Ericson, President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
JAMES D. ERICSON President, Director
- ---------------------------------------
James D. Ericson and Principal Executive
Office
MARK G. DOLL Vice President,
- ---------------------------------------
Mark G. Doll Treasurer and Principal
Financial Officer
BARBARA E. COURTNEY Controller and
- ---------------------------------------
Barbara E. Courtney Principal Accounting
Officer Dated
April 25,
2000
WILLIAM J. BLAKE* Director
- ---------------------------------------
William J. Blake
STEPHEN N. GRAFF* Director
- ---------------------------------------
Stephen N. Graff
MARTIN F. STEIN* Director
- ---------------------------------------
Martin F. Stein
JOHN K. MACIVER* Director
- ---------------------------------------
John K. MacIver*
WILLIAM A. MCINTOSH* Director
- ---------------------------------------
William A. McIntosh
* By JAMES D. ERICSON
-------------------------------------
James D. Ericson, Attorney
in fact, pursuant to the Power
of Attorney attached hereto
</TABLE>
C-3
<PAGE> 126
POWER OF ATTORNEY
The undersigned Directors of Northwestern Mutual Series Fund, Inc. (the
"Company"), hereby constitute and appoint James D. Ericson and Edward J. Zore,
or either of them, their true and lawful attorneys and agents, to sign the names
of the undersigned Directors to any instruments or documents filed as part of or
in connection with or in any way related to the registration statement or
statements and any and all amendments thereto, to be filed under the Securities
Act of 1933 and the Investment Company Act of 1940 in connection with shares of
the common stock of the Company offered to the public; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these
presents, as indicated, February 3, 2000.
STEPHEN N. GRAFF Director
--------------------------
Stephen N. Graff
WILLIAM J. BLAKE Director
--------------------------
William J. Blake
JOHN K. MACIVER Director
--------------------------
John K. MacIver
MARTIN F. STEIN Director
--------------------------
Martin F. Stein
JAMES D. ERICSON Director
--------------------------
James D. Ericson
WILLIAM A. MCINTOSH Director
--------------------------
William A. McIntosh
C-4
<PAGE> 127
EXHIBIT INDEX
EXHIBITS FILED WITH FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 18 TO
REGISTRATION STATEMENT UNDER SECTION 6 OF
THE SECURITIES ACT OF 1933
AND SECTION 8(b) OF THE INVESTMENT COMPANY ACT OF 1940
FOR
NORTHWESTERN MUTUAL SERIES FUND, INC.
Exhibit Number Exhibit Name
-------------- ------------
Exhibit I Opinion and Consent of Counsel
Exhibit J Consent of PricewaterhouseCoopers
LLP
Exhibit P(1) Code of Ethics for Northwestern
Mutual Series Fund, Inc.
Exhibit P(2) Code of Ethics for The Frank
Templeton Group
Exhibit P(3) Code of Ethics for J.P Morgan
Investment Management Inc.
<PAGE> 1
Exhibit I
April 25, 2000
Northwestern Mutual Series Fund, Inc.
720 East Wisconsin Avenue
Milwaukee, WI 53202
Gentlemen:
In my capacity as Secretary of Northwestern Mutual Series Fund, Inc.
(the "Company") I have acted as counsel for the Company in connection with
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A (the
"Registration Statement") filed or to be filed with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to the Common Stock of
the Company. The Company is authorized to issue twenty-four billion
(24,000,000,000) Shares of Common Stock, par value $0.01 per share. I have
examined the Articles of Incorporation and By-Laws of the Company and the
proceedings taken and instruments executed in connection with the authorization
and proposed issuance of said Common Stock and have also examined such other
corporate records, certificates and other documents and such questions of law as
I have considered necessary or appropriate for the purposes of this opinion. On
the basis of such examination, it is my opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Maryland.
2. The authorized and unissued shares of Common Stock of the Company
covered by the Registration Statement to be sold by the Company, upon
due sale and delivery thereof and payment therefor by the specified
purchasers thereof in accordance with the Registration Statement, will
be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
MERRILL C. LUNDBERG
Merrill C. Lundberg
Secretary
Northwestern Mutual Series Fund, Inc.
<PAGE> 1
EXHIBIT J
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
January 27, 2000, relating to the financial statements and financial highlights
of Northwestern Mutual Series Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in such
Prospectus and to the reference to us under the heading "Investment Advisory and
Other Services" in such Statement of Additional Information.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
April 25, 2000
<PAGE> 1
EXHIBIT P(1)
CODE OF ETHICS
Northwestern Mutual Series Fund, Inc.
BE IT RESOLVED, that the code of ethics previously adopted by the Directors of
the corporation is hereby amended and restated to read as follows:
1. Pre-Clearance
(a) No access person shall purchase or sell for his/her
personal account any security without prior clearance
from the compliance officer.
(b) Exceptions - Pre-clearance is not required for:
(1) "Large Cap" Exception.
Any equity security for which the issuer has a market
capitalization (defined as outstanding shares multiplied by
current price per share) of over $1 billion, and the Fund's
access person proposes to buy or sell up to 250 shares of the
security per day for his/her personal account.
Lists of corporations with over $1 billion in market
capitalization are to be distributed to all access persons at
least annually.
(2) Investment Grade Fixed-Income Securities.
(3) Purchases or sales effected in any account over which
the access person exercises no influence or control.
(4) Purchases or sales which are non-volitional on the part
of the access person.
(5) Purchases which are part of an automatic dividend
reinvestment plan.
(6) Purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its
securities, to the extent such rights were acquired from
such issuers, and sales of such rights so acquired.
(7) Purchases or sales effected by an access person who is a
director of the corporation and who is not an
"interested person" of the corporation as defined in
Section 2(a)(19) of the Investment Company Act of 1940,
except if such person knows that the corporation or
Northwestern Mutual Investment Services, LLC ("NMIS")
has purchased or sold, or will purchase or sell, or has
or will give immediate consideration to the purchase or
sale of, the same security during the 15-day period
immediately preceding or following the date of the
individual's transaction.
(c) Exceptions (b) (1) and (2) shall not apply to the direct
or indirect acquisition of beneficial ownership in any
securities by Investment
<PAGE> 2
Personnel of the corporation or its investment adviser
in an Initial Public Offering or in a Limited Offering.
Capitalized terms in the preceding sentence shall have
the meanings assigned to such terms in rule 17j-1 under
the Investment Company Act of 1940. Investment Personnel
will be notified of their status as such.
(d) The compliance officer shall prohibit non-exempt trades
of securities in which a Portfolio has had or will have
transactions within the previous or subsequent five
days, except for (1) any transactions of any Portfolio
that are effected in response to directives from a
computer program used to simulate the performance of a
market index or (2) any transactions in a Portfolio
managed by an investment advisor other than NMIS of
which the corporation and NMIS have not been notified.
2. No purchase or sale of securities shall be made based on
confidential information acquired in connection with one's
duties with the corporation where such purchase or sale might
prejudice the corporation or the source of information.
3. No personal favors or preferential treatment from securities
dealers based on one's relationship to NMIS or the corporation
shall be sought or accepted.
4. Portfolio changes for any Portfolio, either proposed or in
process, shall not be disclosed to brokers, dealers or others
(except those concerned with the transactions) until the
changes are completed or the information becomes public
through distribution of a prospectus or report.
5. One shall not attempt to influence or cause any Portfolio to
purchase, sell or hold a security of an issuer in which one
owns a substantial equity interest (over 1/10 of 1% beneficial
ownership).
6. One shall not act as a director, officer or partner of or own
a substantial equity interest (over 1/10 of 1% beneficial
ownership) in any enterprise unaffiliated with NMIS which
directly or through a subsidiary or affiliate carries on the
activities of a securities dealer or investment banker which
to one's knowledge is doing business with the corporation.
7. The Board of Directors of NMIS, or a special committee
appointed by said Board of Directors, is authorized and
directed to conduct such investigations and to take such
action as it deems proper under the circumstances with regard
to any actual or apparent violations of the code of ethics.
The Board of Directors of NMIS or the special committee shall
report within 10 days thereof any investigations conducted and
action taken with respect to officers and directors of the
corporation or NMIS to the Board of Directors of the
corporation and the Board of Directors of the corporation may
review and affirm, reverse or modify any action taken by the
Board of Directors of NMIS or the special committee.
8. For purposes of this code of ethics, securities do not include
securities issued by the Government of the United States,
bankers' acceptances, certificates of deposit, commercial
paper and shares of registered open-end investment companies.
9. This code of ethics shall apply to all access persons of the
corporation and NMIS. "Access person" shall include:
<PAGE> 3
(a) Any officer or director of the corporation or NMIS;
(b) Any employee of The Northwestern Mutual Life Insurance
Company who, in connection with his regular functions or
duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by the any
Portfolio, or whose functions relate to the making of
any recommendations with respect to such purchases or
sales; and
(c) Any Trustee of The Northwestern Mutual Life Insurance
Company who obtains information concerning
recommendations made to any Portfolio with regard to the
purchase or sale of a security.
BE IT FURTHER RESOLVED, that the directors and officers of
NMIS are authorized and directed to implement the reporting
and recordkeeping requirements of Rule 17j-1 under the
Investment Company Act of 1940.
<PAGE> 1
EXHIBIT P(2)
THE FRANKLIN TEMPLETON GROUP
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS.......................................................................1
PART 1 - STATEMENT OF PRINCIPLES..................................................................................1
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE.............................................................2
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS...........................................................3
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS......................................10
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS...........................................................13
PART 6 - PRE-CLEARANCE REQUIREMENTS..............................................................................17
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE....................................................................22
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY....................................23
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS............................................24
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER..................................................25
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS...........................................................31
III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING, AND PRE-CLEARANCE PROVISIONS..........................32
IV. LEGAL REQUIREMENT.......................................................................................33
APPENDIX B: FORMS AND SCHEDULES............................................................................34
ACKNOWLEDGMENT FORM..............................................................................................35
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX NUMBERS..........................36
SCHEDULE B: SECURITIES TRANSACTION REPORT........................................................................37
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES HOLDINGS..........................39
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING..........................................................40
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST..............................................41
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS.........................................42
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY.........................................43
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS...............45
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF FRANKLIN RESOURCES,
INC. - FEBRUARY 2000............................................................................................47
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING..................................................1
A. LEGAL REQUIREMENT........................................................................................1
B. WHO IS AN INSIDER?.......................................................................................2
C. WHAT IS MATERIAL INFORMATION?............................................................................2
D. WHAT IS NON-PUBLIC INFORMATION?..........................................................................2
E. BASIS FOR LIABILITY......................................................................................3
F. PENALTIES FOR INSIDER TRADING............................................................................3
G. INSIDER TRADING PROCEDURES...............................................................................4
</TABLE>
i
<PAGE> 2
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in
the Franklin Templeton Group of Funds (the "Funds") (collectively, the "Franklin
Templeton Group") will follow this Code of Ethics (the "Code") and Policy
Statement on Insider Trading (the "Insider Trading Policy"). Additionally, the
subsidiaries listed in Appendix C of this Code, together with Franklin
Resources, Inc., the Funds, the Fund's investment advisers and principal
underwriter, have adopted the Code and Insider Trading Policy.
PART 1 - STATEMENT OF PRINCIPLES
The Franklin Templeton Group's policy is that the interests of
shareholders and clients are paramount and come before the interests of any
director, officer or employee of the Franklin Templeton Group.(1)
Personal investing activities of ALL directors, officers and employees
of the Franklin Templeton Group should be conducted in a manner to avoid actual
or potential conflicts of interest with the Franklin Templeton Group, Fund
shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of the Franklin Templeton Group shall
use their positions with the Franklin Templeton Group, and any investment
opportunities they learn of because of their positions with the Franklin
Templeton Group, in a manner consistent with their fiduciary duties for the
benefit of Fund shareholders, and clients.
- ----------
(1) "director" includes trustee.
1
<PAGE> 3
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its
overall purpose is to help all of us comply with the law and to preserve and
protect the outstanding reputation of the Franklin Templeton Group. This
document was adopted to comply with Securities and Exchange Commission rules
under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers
Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations
contained in the ICI's Report of the Advisory Group on Personal Investing. Any
violation of the Code or Insider Trading Policy, including engaging in a
prohibited transaction or failing to file required reports, may result in
disciplinary action, and, when appropriate, termination of employment and/or
referral to appropriate governmental agencies.
2
<PAGE> 4
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors,
officers and employees(2) of the Franklin Templeton Group. However, there are
different categories of restrictions on personal investing activities. The
category in which you have been placed generally depends on your job function,
although unique circumstances may result in you being placed in a different
category. The Code covers the following categories of employees who are
described below:
(1) ACCESS PERSONS: Access Persons are those employees who have
"access to information" concerning recommendations made to a
Fund or client with regard to the purchase or sale of a
security. Examples of "access to information" would include
having access to trading systems, portfolio accounting
systems, research data bases or settlement information. Access
Persons would typically include employees, including
Management Trainees, in the following departments:
- fund accounting;
- investment operations;
- information services & technology;
- product management;
- legal and legal compliance
- and anyone else designated by the Director of Compliance
In addition, you are an Access Person if you are any of the
following:
- an officer or and directors of funds;
- an officer or director of an investment advisor or
broker-dealer subsidiary in the Franklin Templeton
Group;
- a person that controls those entities; and
- any Franklin Resources' Proprietary Account
("Proprietary Account")(3)
(2) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access
Persons and are those employees of the Franklin Templeton
Group, who, in connection with his or her regular functions or
duties, makes or participates in the decision to purchase or
sell a security by a Fund in the Franklin Templeton Group, or
any other client or if his or her functions relate to the
making of any recommendations about those purchases or sales.
Portfolio Persons include:
- ----------
(2) The term "employee or employees" includes management trainees, as well as
regular employees of the Franklin Templeton Group.
(3) See Appendix A. II., for definition of "Proprietary Accounts."
3
<PAGE> 5
- portfolio managers;
- research analysts;
- traders;
- employees serving in equivalent capacities (such as
Management Trainees);
- employees supervising the activities of Portfolio
Persons; and
- anyone else designated by the Director of Compliance
(3) NON-ACCESS PERSONS: If you are an employee in the Franklin
Templeton Group AND you do not fit into any of the above
categories, you are a Non-Access Person. Because you do not
normally receive confidential information about Fund
portfolios, you are subject only to the prohibited transaction
provisions described in 3.4 of this Code and the Franklin
Resources, Inc.'s Standards of Business Conduct contained in
the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to
what category you fall in or whether you should be considered to be an Access
Person or Portfolio Person.
The Code works by prohibiting some transactions and requiring
pre-clearance and reporting of most others. NON-ACCESS PERSONS do not have to
pre-clear their security transactions, and, in most cases, do not have to report
their transactions. "INDEPENDENT DIRECTORS" need not report any securities
transaction unless you knew, or should have known that, during the 15-day period
before or after the transaction, the security was purchased or sold or
considered for purchase or sale by a Fund or Franklin Resources for a Fund. (See
Section 5.2.B below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES
AND INDEPENDENT DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED
TRANSACTIONS PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions
regarding your personal securities activity, contact the Legal Compliance
Department.
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and
transactions, as well as transactions by any of Franklin Resource's Proprietary
Accounts. It also covers all securities and accounts in which you have
"beneficial ownership."(4) A transaction by or for the account of your spouse,
or any other
- ----------
(4) Generally, a person has "beneficial ownership" in a security if he or she,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary
4
<PAGE> 6
family member living in your home is considered to be the same as a
transaction by you. Also, a transaction for any account in which you have any
economic interest (other than the account of an unrelated client for which
advisory fees are received) and have or share investment control is generally
considered the same as a transaction by you. For example, if you invest in a
corporation that invests in securities and you have or share control over its
investments, that corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any
securities held by a partnership, corporation, trust or similar entity unless
you control, or share control of such entity, or have, or share control over its
investments. For example, securities transactions of a trust or foundation in
which you do not have an economic interest (i.e., you are not the trustor or
beneficiary) but of which you are a trustee are not considered yours unless you
have voting or investment control of its assets. Accordingly, each time the
words "you" or "your" are used in this document, they apply not only to your
personal transactions and accounts, but also to all transactions and accounts in
which you have any direct or indirect beneficial interest. If it is not clear
whether a particular account or transaction is covered, ask a Preclearance
Officer for guidance.
- ----------
interest in the security. there is a presumption of a pecuniary interest in
a security held or acquired by a member of a person's immediate family
sharing the same household.
5
<PAGE> 7
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear or report transactions of the following
securities:
(1) securities that are direct obligations of the U. S. Government
(i.e., issued or guaranteed by the U.S. Government, such as
Treasury bills, notes and bonds, including U.S. Savings Bonds
and derivatives thereof);
(2) high quality short-term instruments, including but not limited
to bankers' acceptances, bank certificates of deposit,
commercial paper and repurchase agreements;
(3) shares of registered open-end investment companies ("mutual
funds"); and
(4) commodity futures, currencies, currency forwards and
derivatives thereof.
Such transactions are also exempt from: (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 PROHIBITED TRANSACTIONS FOR ALL ACCESS PERSONS
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts
and the SEC to be prohibited by law. The Code reiterates that these types of
transactions are a violation of the Statement of Principals and are prohibited.
Preclearance, which is a cornerstone of our compliance efforts, cannot detect
transactions which are dependent upon intent, or which by their nature, occur
before any order has been placed for a fund or client. A Preclearance Officer,
who is there to assist you with compliance with the Code, cannot guarantee any
transaction or transactions comply with the Code or the law. The fact that your
transaction receives preclearance, shows evidence of good faith, but depending
upon all the facts, may not provide a full and complete defense to any
accusation of violation of the Code or of the law. For example, if you executed
a transaction for which you received approval, or if the transaction was exempt
from preclearance (e.g., a transaction for 100 shares or less), would not
preclude a subsequent finding that front-running or scalping occurred because
such activity are dependent upon your intent. Intent cannot be detected during
preclearance, but only after a review of all the facts.
6
<PAGE> 8
In the final analysis, compliance remains the responsibility of each
individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term
"front-run" means knowingly trading before a contemplated transaction by a Fund
or client of any Franklin Templeton adviser, whether or not your trade and the
Fund's or client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin
Templeton Group's intention, to purchase that security or a
related security on behalf of a Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton
Group's intention, to sell that security or a related security
on behalf of a Fund or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the
intention of recommending that the security be purchased for a Fund, or client,
or sell short a security (or its economic equivalent) with the intention of
recommending that the security be sold for a Fund or client. Scalping is
prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related
security is being bought contemporaneously by a Fund or client, or sell a
security if you know that the same or a related security is being sold
contemporaneously by a Fund or client.
7
<PAGE> 9
E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling
the same or a related security, or has sold the security,
until seven (7) calendar days after the Fund's or client's
order has either been executed or withdrawn, or
(2) sell a security if you know that a Fund or client is buying
the same or a related security, or has bought the security
until seven (7) calendar days after the Fund's or client's
order has either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the
Code for more details regarding the preclearance of personal securities
transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information(5)
without disclosing the information and receiving written authorization. If you
wish to purchase or sell a security about which you obtained such information,
you must report all of the information you obtained regarding the security to
the Appropriate Analyst(s)(6), or to the Director of Compliance for
dissemination to the Appropriate Analyst(s).
- ----------
(5) Proprietary Information: Information that is obtained or developed during
the ordinary course of employment with the Franklin Templeton Group,
whether by you or someone else, and is not available to persons outside the
Franklin Templeton Group. Examples of such Proprietary Information include,
among other things, internal research reports, research materials supplied
to the Franklin Templeton Group by vendors and broker-dealers not generally
available to the public, minutes of departmental/research meetings and
conference calls, and communications with company officers (including
confidentiality agreements). Examples of non-Proprietary Information
include mss media publications (e.g., the Wall Street Journal, Forbes, and
Fortune), certain specialized publications available to the public (e.g.,
Morningstar, Value Line, Standard and Poors), and research reports
available to the general public.
(6) The Director of Compliance is designated on Schedule A. The "Appropriate
Analyst" means any securities analyst or portfolio manager, other than you,
making recommendations or investing funds on behalf of any associated
client, who may be reasonably expected to recommend or consider the
purchase or sale of the security in question.
8
<PAGE> 10
You will be permitted to purchase or sell such security if the
Appropriate Analyst(s) confirms to the Preclearance Desk that there is no
intention to engage in a transaction regarding the security within seven (7)
calendar days on behalf of an Associated Client(7) and you subsequently preclear
such security in accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES,
INC., AND AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE
INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its
affiliates, including the Franklin Templeton Group, you cannot effect a short
sale of the securities, including "short sales against the box" of Franklin
Resources, Inc., or any of the Franklin or Templeton closed-end funds, Franklin
real estate investment trusts or any other security issued by Franklin
Resources, Inc. or its affiliates. This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to
sales of any option to buy (i.e., a call option) or purchases of any option to
sell (i.e., a put option) and "swap" transactions or other derivatives. Officers
and directors of the Franklin Templeton Group who may be covered by Section 16
of the Securities Exchange Act of 1934, are reminded that their obligations
under that section are in addition to their obligations under this Code.
- ----------
7 Associated Client: A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
9
<PAGE> 11
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS(8)
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or
indirect beneficial interest in a security whenever you learn that the security
is under consideration for purchase or sale by an Associated Client in the
Franklin Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of
which recommendation shall be made on behalf of the Associated Client;
or
(3) Have functions or duties that relate to the determination of which
recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest
orally to the primary portfolio manager (or other Appropriate Analyst) of the
Associated Client(s) considering the security, the Director of Research and
Trading or the Director of Compliance. Following that oral disclosure, you must
send a written acknowledgment of that interest on Schedule E (or on a form
containing substantially similar information) to the primary portfolio manager
(or other Appropriate Analyst), with a copy to the Legal Compliance Department.
4.2 SHORT SALES OF SECURITIES
You cannot sell short any security held by your Associated Clients,
including "short sales against the box". Additionally, Portfolio Persons
associated with the Templeton Group of Funds and clients cannot sell short any
security on the Templeton "Bargain List". This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to,
sales of uncovered
- ----------
8 You are a "Portfolio Person" if you are an employee of the Franklin
Templeton Group, and, in connection with your regular functions or duties,
make or participate in the decision to purchase or sell a security by a
Fund in the Franklin Templeton Group, or any other client or if your
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else so designated by the Compliance Officer.
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call options, purchases of put options while not owning the underlying security
and short sales of bonds that are convertible into equity positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and
purchase within sixty calendar days of any security, including derivatives.
Portfolio Persons are responsible for transactions that may occur in margin and
option accounts and all such transactions must comply with this restriction.(9)
This restriction does NOT apply to:
(1) trading within a shorter period if you do not realize a profit
and if you do not violate any other provisions of this Code;
and
(2) profiting on the purchase and sale or sale and purchase within
sixty calendar days of the following securities:
- securities that are direct obligations of the U.S.
Government, such as Treasury bills, notes and bonds, and
U.S. Savings Bonds and derivatives thereof;
- high quality short-term instruments ("money market
instruments") including but not limited to (i) bankers'
acceptances, (ii) U.S. bank certificates of deposit;
(iii) commercial paper; and (iv) repurchase agreements;
- shares of registered open-end investment companies; and
- commodity futures, currencies, currency forwards and
derivatives thereof.
Calculation of profits during the 60 calendar day holding period
generally will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may
elect to calculate their 60 calendar day profits on either a LIFO or FIFO
("first-in, first-out") basis when there has not been any activity in such
security by their Associated Clients during the previous 60 calendar days.
- ----------
9 This restriction applies equally to transactions occurring in margin and
option accounts which may not be due to direct actions by the Portfolio
Person. For example, a stock held less than 60 days that is sold to meet a
margin call or the underlying stock of a covered call option held less than
60 days that is called away, would be a violation of this restriction if
these transactions resulted in a profit for the Portfolio Person.
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4.4 SERVICE AS A DIRECTOR
As a Portfolio Person, you cannot serve as a director, trustee, or in a
similar capacity for any company (excluding not-for-profit companies, charitable
groups, and eleemosynary organizations) unless you receive approval from the
Chief Executive Officer of the principal investment adviser to the Fund(s) of
which you are a Portfolio Person and he/she determines that your service is
consistent with the interests of the Fund(s) and its shareholders.
4.5 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering,
or a secondary offering by an issuer, including initial public offerings of
securities made by closed-end funds and real estate investment trusts
advised by the Franklin Templeton Group. Purchases of open-end mutual funds
are excluded from this prohibition.
4.6 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other
securities in private placements unless they:
(1) complete the Private Placement Checklist (Schedule H);
(2) provide supporting documentation (e.g., a copy of the offering
memorandum); and
(3) obtain approval of the appropriate Chief Investment Officer;
and
(4) submit all documents to the Legal Compliance Department
Approval will only be granted after the Director of Compliance consults with an
executive officer of Franklin Resources, Inc.
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PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting
procedures is essential to enable us to meet our responsibilities to Funds and
other clients and to comply with regulatory requirements. You are expected to
comply with both the letter and spirit of these requirements, including
completing and filing all reports required under the Code in a timely manner.
5.2 INITIAL HOLDINGS AND BROKERAGE ACCOUNT REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
Every employee (new or transfer) of the Franklin Templeton Group who
becomes an Access Person, must file:
(1) An Acknowledgement Form;
(2) Schedule C: Initial, Annual & Updated Disclosure of
Securities Holdings; and
(3) Schedule F: Initial, Annual & Updated Disclosure of
Securities Accounts
The Acknowledgement Form, Schedule C and Schedule F must be completed
and returned to the Legal Compliance Department within 10 calendar days
of the date the employee becomes an access person.
5.3 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You must report all securities transactions by; (i) providing the Legal
Compliance Department with copies of all broker's confirmations and statements
within 10 calendar days after the end of the calendar quarter (which may be sent
under separate cover by the broker) showing all transactions and holdings in
securities and (ii) certifying by January 30th of each year that you have
disclosed all such brokerage accounts on Schedule F to the Legal Compliance
Department. The brokerage statements and confirmations must include all
transactions in securities in which you have, or by reason of the transaction
acquire any direct or indirect beneficial ownership, including transactions in a
discretionary
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account and transactions for any account in which you have any economic interest
and have or share investment control. Also, if you acquire securities by any
other method which is not being reported to the Legal Compliance Department by a
duplicate confirmation statement at or near the time of the acquisition, you
must report that acquisition to the Legal Compliance Department on Schedule B
within 10 calendar days after you are notified of the acquisition. Such
acquisitions include, among other things, securities acquired by gift,
inheritance, vesting,(10) stock splits, merger or reorganization of the issuer
of the security.
You must file these documents with the Legal Compliance Department not
later than 10 calendar days after the end of each quarter, but you need not show
or report transactions for any account over which you had no direct or indirect
influence or control.(11) Failure to timely report transactions is a violation
of Rule 17j-1 as well as the Code, and may be reported to the Fund's Board of
Directors and may also result, among other things, in denial of future personal
security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of the Franklin Templeton Group but you are not
an "interested person" of the Fund, you are not required to file transaction
reports unless you knew or should have known that, during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund.
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10 You are not required to separately report the vesting of shares or options
of Franklin Resources, Inc., received pursuant to a deferred compensation
plan as such information is already maintained.
11 See Sections 3.2 and 4.6 of the Code. Also, confirmations and statements of
transactions in open-end mutual funds, including mutual funds sponsored by
the Franklin Templeton Group are not required. See Section 3.3 above for a
list of other securities that need not be reported. If you have any
beneficial ownership in a discretionary account, transactions in that
account are treated as yours and must be reported by the manager of that
account (see Section 6.1.C below).
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5.4 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
As an access person, you must file a report of all personal securities
accounts on Schedule F, with the Legal Compliance Department, annually by
January 30th. You must report the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse and minor children. You must also report any
account in which you have any economic interest and have or share investment
control (e.g., trusts, foundations, etc.) other than an account for a Fund in,
or a client of, the Franklin Templeton Group.
B. SECURITIES HOLDINGS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
You must file a report of personal securities holdings on Schedule C,
with the Legal Compliance Department, by January 30th of each year. This report
should include all of your securities holdings, including any security acquired
by a transaction, gift, inheritance, vesting, merger or reorganization of the
issuer of the security, in which you have any direct or indirect beneficial
ownership, including securities holdings in a discretionary account and for any
account in which you have any economic interest and have or share investment
control. Your securities holding information must be current as of a date no
more than 30 days before the report is submitted. You may attach copies of
year-end brokerage statements to the Schedule C in lieu of listing each security
position on the schedule.
C. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS (INCLUDING
INDEPENDENT DIRECTORS)
All access persons, including independent directors, will be asked to
certify that they will comply with the Franklin Templeton Group's Code of Ethics
and Policy Statement on Insider Trading by filing the Acknowledgment Form with
the Legal Compliance Department within 10 business days of receipt of the Code.
Thereafter, you will be asked to certify that you have complied with the Code
during the preceding year by filing a similar Acknowledgment Form by January 30
of each year.
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5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS (EXCEPT
INDEPENDENT DIRECTORS)
If you are an access person, in the Franklin Templeton Group, before
or at a time contemporaneous with opening a brokerage account with a registered
broker-dealer, or a bank, or placing an initial order for the purchase or sale
of securities with that broker-dealer or bank, you must:
(1) notify the Legal Compliance Department, in writing, by
completing Schedule D or by providing substantially similar
information; and
(2) notify the institution with which the account is opened, in
writing, of your association with the Franklin Templeton
Group.
The Compliance Department will request the institution in writing to
send to it duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their mailing to you.
If you have an existing account on the effective date of this Code or
upon becoming an access person, you must comply within 10 days with conditions
(1) and (2) above.
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PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph D below, you cannot buy or sell any
security, without first contacting a Preclearance Officer by fax, phone, or
e-mail and obtaining his or her approval. A clearance is good until the close of
the business day following the day clearance is granted but may be extended in
special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the
Code. However, all other provisions of the Code apply, including, but not
limited to: (i) the prohibited transaction provisions contained in Part 3.4 such
as front-running; (ii) the additional compliance requirements applicable to
portfolio persons contained in Part 4, (iii) the applicable reporting
requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) MUTUAL FUNDS. Transactions in shares of any registered
open-end mutual fund;
(2) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and
sales of securities of Franklin Resources, Inc., closed-end
funds of the Franklin Templeton Group, or real estate
investment trusts advised by Franklin Properties Inc., as
these securities cannot be purchased on behalf of our advisory
clients.(12)
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12 Officers, directors and certain other key management personnel who perform
significant policy-making functions of Franklin Resources, Inc., the
closed-end funds, and/or real estate investment trusts may have ownership
reporting requirements in addition to these reporting requirements. Contact
the Legal Compliance Department for additional information. See also the
"Insider Trading Policy" attached.
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(3) SMALL QUANTITIES. Transactions that do not result in purchases
or sales of more than 100 shares of any one security,
regardless of where it is traded, in any 30 day period.
HOWEVER, YOU MAY NOT EXECUTE ANY TRANSACTION, REGARDLESS OF
QUANTITY, IF YOU LEARN THAT THE FUNDS ARE ACTIVE IN THE
SECURITY. IT WILL BE PRESUMED THAT YOU HAVE KNOWLEDGE OF FUND
ACTIVITY IN THE SECURITY IF, AMONG OTHER THINGS, YOU ARE
DENIED APPROVAL TO GO FORWARD WITH A TRANSACTION REQUEST.
Transactions made pursuant to dividend reinvestment plans
("DRIPs") do not require preclearance regardless of quantity
or Fund activity.
(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or
guaranteed by the governments of the United States, Canada,
the United Kingdom, France, Germany, Switzerland, Italy and
Japan, or their agencies or instrumentalities, or derivatives
thereof;
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's
spouse pursuant to a payroll deduction program, provided the
Compliance Department has been previously notified in writing
by the access person that the spouse will be participating in
the payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the
exercise and/or purchase by an access person or an access
person's spouse of securities pursuant to a program sponsored
by a corporation employing the access person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of
rights issued pro rata to all holders of a class of securities
or the sale of rights so received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona
fide tender offer made for any and all such securities to all
similarly situated shareholders in conjunction with mergers,
acquisitions, reorganizations and/or similar corporate
actions. However, tenders pursuant to offers for less than all
outstanding securities of a class of securities of an issuer
must be precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any
securities that are prohibited investments for all Funds and
clients advised by the entity employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or
entity over which you do not have or share investment control
(i.e., an account where someone else exercises complete
investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not
acquire or dispose of direct or indirect beneficial ownership
(i.e., an account where in you have no financial interest).
Although an access person's securities transaction may be exempt from
pre-clearing, such transactions must comply with the prohibited transaction
provisions of Section 3.4 above. Additionally, you may not trade any securities
as to which you have "inside information" (see attached The Franklin Templeton
Group Policy Statement on Insider Trading). If you have any questions, contact a
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<PAGE> 20
Preclearance Officer before engaging in the transaction. If you have any doubt
whether you have or might acquire direct or indirect beneficial ownership or
have or share investment control over an account or entity in a particular
transaction, or whether a transaction involves a security covered by the Code,
you should consult with a Preclearance Officer before engaging in the
transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for
which a registered broker-dealer, a registered investment adviser, or other
investment manager acting in a similar fiduciary capacity, which is not
affiliated with the Franklin Templeton Group, exercises sole investment
discretion, if the following conditions are met:(13)
(1) The terms of each account relationship ("Agreement") must be
in writing and filed with a Preclearance Officer prior to any
transactions.
(2) Any amendment to each Agreement must be filed with
aPreclearance Officer prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at
the time such account relationship commences, and annually
thereafter, as contained in Schedule G of the Code that such
Portfolio Person does not have direct or indirect influence or
control over the account, other than the right to terminate
the account.
(4) Additionally, any discretionary account that you open or
maintain with a registered broker-dealer, a registered
investment adviser, or other investment manager acting in a
similar fiduciary capacity must provide duplicate copies of
confirmations and statements for all transactions effected in
the account simultaneously with their delivery to you., If
your discretionary account acquires securities which are not
reported to a Preclearance Officer by a duplicate
confirmation, such transaction must be reported to a
Preclearance Officer on Schedule B within 10 days after you
are notified of the acquisition.(14)
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13 Please note that these conditions apply to any discretionary account in
existence prior to the effective date of this Code or prior to your
becoming an access person. Also, the conditions apply to transactions in
any discretionary account, including pre-existing accounts, in which you
have any direct or indirect beneficial ownership, even if it is not in your
name.
14 Any pre-existing agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account
statement if they are filed by the applicable deadline.
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However, if you make any request that the discretionary account manager
enter into or refrain from a specific transaction or class of transactions, you
must first consult with a Preclearance Officer and obtain approval prior to
making such request.
D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in the Franklin Templeton Group
and a director of the fund's advisor;
(2) You are not an "advisory person"(15) of a Fund in the Franklin
Templeton Group; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative" (16) of Franklin
Resources or any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the
transaction, the security was purchased or sold, or considered for purchase or
sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
- ----------
15 An "advisory person" of a registered investment company or an investment
adviser is any employee, who in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by an advisory client, or
whose functions relate to the making of any recommendations with respect to
such purchases or sales. Advisory person also includes any natural person
in a control relationship to such company or investment adviser who obtains
information concerning recommendations made to such company with regard to
the purchase or sale of a security.
16 Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection
with his duties, obtains any information concerning which securities are
being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations. See
Section II of Appendix A for the legal definition of "Advisory
Representative."
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Directors qualifying under this paragraph are required to comply with
all applicable provisions of the Code including reporting their initial holdings
and brokerage accounts in accordance with 5.2, personal securities transactions
and accounts in accordance with 5.3 and 5.5, and annual reports in accordance
with 5.4 of the Code.
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PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to
maintain shareholder confidence in the Franklin Templeton Group.
In adopting this Code, it is the intention of the Boards of
Directors/Trustees, to attempt to achieve 100% compliance with all requirements
of the Code - but it is recognized that this may not be possible. Incidental
failures to comply with the Code are not necessarily a violation of the law or
the Franklin Templeton Group's Statement of Principles. Such isolated or
inadvertent violations of the Code not resulting in a violation of law or the
Statement of Principles will be referred to the Director of Compliance and/or
management personnel, and disciplinary action commensurate with the violation,
if warranted, will be imposed.
However, if you violate any of the enumerated prohibited transactions
contained in Parts 3 and 4 of the Code, you will be expected to give up any
profits realized from these transactions to Franklin Resources for the benefit
of the affected Funds or other clients. If Franklin Resources cannot determine
which Fund(s) or client(s) were affected, the proceeds will be donated to a
charity chosen by Franklin Resources. Failure to disgorge profits when requested
may result in additional disciplinary action, including termination of
employment.
Further, a pattern of violations that individually do not violate the
law or Statement of Principles, but which taken together demonstrate a lack of
respect for the Code of Ethics, may result in disciplinary action including
termination of employment. A violation of the Code resulting in a violation of
the law will be severely sanctioned, with disciplinary action including, but not
limited to, referral of the matter to the board of directors of the affected
Fund, termination of employment or referral of the matter to the appropriate
regulatory agency for civil and/or criminal investigation.
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PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY
The Code of Ethics is primarily concerned with transactions in
securities held or to be acquired by any of the Funds or Franklin Resources'
clients, regardless of whether those transactions are based on inside
information or actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the
problem of insider trading in securities that could result in harm to a Fund, a
client, or members of the public, and applies to all directors, officers and
employees of any entity in the Franklin Templeton Group. Although the
requirements of the Code and the Insider Trading Policy are similar, you must
comply with both.
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APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS
This appendix sets forth the additional responsibilities and
obligations of Compliance Officers, and the Legal/Administration and
Legal/Compliance Departments, under the Franklin Templeton Group Code of Ethics
and Policy Statement on Insider Trading.
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I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Director of Compliance, or a Preclearance Officer, shall only
permit an access person to go forward with a proposed security(17) transaction
if he or she determines that, considering all of the facts and circumstances,
the transaction does not violate the provisions of Rule 17j-1, or of this Code
and there is no likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, a Preclearance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, LLC ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
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(17) Security includes any option to purchase or sell, and any security that is
exchangeable for or convertible into, any security that is held or to be
acquired by a fund.
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Certain officers of Franklin Resources, as well as legal, compliance,
fund accounting, investment operations and other personnel who generally have
access to trading information of the funds and clients of the Franklin Templeton
Group during the course of their regular functions and duties, will have their
personal securities transactions precleared against executed transactions, open
orders and recommendations of the entire Franklin Templeton Group.
3. SPECIFIC STANDARDS
(a) Securities Transactions by Funds or clients
No clearance shall be given for any transaction in any security on any
day during which an Associated Client of the access person has executed a buy or
sell order in that security, until seven (7) calendar days after the order has
been executed. Notwithstanding a transaction in the previous seven days,
clearance may be granted to sell if the security has been disposed of by all
Associated Clients.
(b) Securities under Consideration
Open Orders
No clearance shall be given for any transaction in any security on any
day which an Associated Client of the access person has a pending buy or sell
order for such security, until seven (7) calendar days after the order has been
executed.
Recommendations
No clearance shall be given for any transaction in any security on any
day on which a recommendation for such security was made by a Portfolio Person,
until seven (7) calendar days after the recommendation was made and no orders
have subsequently been executed or are pending.
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(c) Private Placements
In considering requests by Portfolio Personnel for approval of limited
partnerships and other private placement securities transactions, the Director
of Compliance shall consult with an executive officer of Franklin Resources,
Inc. In deciding whether to approve the transaction, the Director of Compliance
and the executive officer shall take into account, among other factors, whether
the investment opportunity should be reserved for a Fund or other client, and
whether the investment opportunity is being offered to the Portfolio Person by
virtue of his or her position with the Franklin Templeton Group. If the
Portfolio Person receives clearance for the transaction, an investment in the
same issuer may only be made for a Fund or client if an executive officer of
Franklin Resources, Inc., who has been informed of the Portfolio Person's
pre-existing investment and who has no interest in the issuer, approves the
transaction.
(d) Duration of Clearance
If a Preclearance Officer approves a proposed securities transaction,
the order for the transaction must be placed and effected by the close of the
next business day following the day approval was granted. The Director of
Compliance may, in his or her discretion, extend the clearance period up to
seven calendar days, beginning on the date of the approval, for a securities
transaction of any access person who demonstrates that special circumstances
make the extended clearance period necessary and appropriate.(18) The Director
of Compliance may, in his or her discretion, after consultation with a member of
senior management for Franklin Resources, Inc., renew the approval for a
particular transaction for up to an additional seven calendar days upon a
similar showing of special circumstances by the access person. The Director of
Compliance may shorten or rescind any approval or renewal of approval under this
paragraph if he or she determines it is appropriate to do so.
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(18) Special circumstances include but are not limited to, for example,
differences in time zones, delays due to travel, and the unusual size of
proposed trades or limit orders. Limit orders must expire within the
applicable clearance period.
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B. WAIVERS BY THE DIRECTOR OF COMPLIANCE
The Director of Compliance may, in his or her discretion, after
consultation with an executive officer of Franklin Resources, Inc., waive
compliance by any access person with the provisions of the Code, if he or she
finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of unforeseen
circumstances or is otherwise appropriate under all the relevant
facts and circumstances;
(2) will not be inconsistent with the purposes and objectives of the
Code;
(3) will not adversely affect the interests of advisory clients of the
Franklin Templeton Group, the interests of the Franklin Templeton
Group or its affiliates; and
(4) will not result in a transaction or conduct that would violate
provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis
for it, and a copy shall be promptly sent by the Director of Compliance to the
General Counsel of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
A Preclearance Officer shall make a record of all requests for
pre-clearance regarding the purchase or sale of a security, including the date
of the request, the name of the access person, the details of the proposed
transaction, and whether the request was approved or denied. APreclearance
Officer shall keep a record of any waivers given, including the reasons for each
exception and a description of any potentially conflicting Fund or client
transactions.
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A Preclearance Officer shall also collect the signed initial
acknowledgments of receipt and the annual acknowledgments from each access
person of receipt of a copy of the Code and Insider Trading Policy, as well as
reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition,
a Preclearance Officer shall request copies of all confirmations, and other
information with respect to an account opened and maintained with the
broker-dealer by any access person of the Franklin Templeton Group. A
Preclearance Officer shall preserve those acknowledgments and reports, the
records of consultations and waivers, and the confirmations, and other
information for the period required by applicable regulation.
A Preclearance Officer shall review brokerage transaction
confirmations, account statements, Schedules B, C, D, E, F and Private Placement
Checklists of Access Persons for compliance with the Code. The reviews shall
include, but are not limited to;
(1) Comparison of brokerage confirmations, Schedule Bs, and/or
brokerage statements to preclearance request worksheets or, if a
private placement, the Private Placement Checklist;
(2) Comparison of brokerage statements and/or Schedule Fs to current
securities holding information;
(3) Comparison of Schedule C to current securities account
information;
(4) Conducting periodic "back-testing" of access person transactions,
Schedule Es and/or Schedule Gs in comparison to fund and client
transactions;
A Preclearance Officer shall evidence review by initialing and dating
the appropriate document. Any apparent violations of the Code detected by a
Preclearance Officer during his or her review shall be promptly brought to the
attention of the Director of Compliance.
D. PERIODIC RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
The Legal Compliance Department shall consult with the General Counsel
and the Human Resources Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor compliance
with the reporting, pre-clearance, prohibited transaction and
other requirements of the Code.
(2) Adequate reviews and audits are conducted to monitor compliance
with the reporting, pre-clearance, prohibited transaction and
other requirements of the Code.
29
<PAGE> 31
(3) All access persons and new employees of the Franklin Templeton
Group are adequately informed and receive appropriate education
and training as to their duties and obligations under the Code.
(4) There are adequate educational, informational and monitoring
efforts to ensure that reasonable steps are taken to prevent and
detect unlawful insider trading by access persons and to control
access to inside information.
(5) Written compliance reports are submitted to the Board of Directors
of Franklin Resources, Inc., and the Board of each relevant Fund
at least annually. Such reports will describe any issues arising
under the Code or procedures since the last report, including, but
not limited to, information about material violations of the Code
or procedures and sanctions imposed in response to the material
violations.
(6) The Legal Compliance Department will certify at least annually to
the Fund's board of directors that the Franklin Templeton Group
has adopted procedures reasonably necessary to prevent Access
Persons from violating the Code, and
(7) Appropriate records are kept for the periods required by law.
E. APPROVAL BY FUND'S BOARD OF DIRECTORS
(1) Basis for Approval
The Board of Directors/Trustees must base its approval of the
Code on a determination that the Code contains provisions reasonably
necessary to prevent access persons from engaging in any conduct
prohibited by rule 17j-1.
(2) New Funds
At the time a new fund is organized, the Legal Compliance Department
will provide the Fund's board of directors, a certification that the investment
adviser and principal underwriter have adopted procedures reasonably necessary
to prevent Access Persons from violating the Code. Such certification will state
that the Code contains provisions reasonably necessary to prevent Access Persons
from violating the Code.
(3) Material Changes to the Code of Ethics
The Legal Compliance Department will provide the Fund's board of
directors a written description of all material changes to the Code no later
than six months after adoption of the material change by the Franklin Templeton
Group.
30
<PAGE> 32
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the
terms below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning
of Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a
person, including an Advisory Representative, who has access to
information concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any
employee who makes any recommendation, who participates in the
determination of which recommendation shall be made, or whose functions
or duties relate to the determination of which recommendation shall be
made; any employee who, in connection with his or her duties, obtains
any information concerning which securities are being recommended prior
to the effective dissemination of such recommendations or of the
information concerning such recommendations; and any of the following
persons who obtain information concerning securities recommendations
being made by Franklin Resources prior to the effective dissemination
of such recommendations or of the information concerning such
recommendations: (i) any person in a control relationship to Franklin
Resources, (ii) any affiliated person of such controlling person, and
(iii) any affiliated person of such affiliated person.
AFFILIATED PERSON - same meaning as Section 2(a)(3) of the Investment Company
Act of 1940. An "affiliated person" of an investment company includes
directors, officers, employees, and the investment adviser. In
addition, it includes any person owning 5% of the company's voting
securities, any person in which the investment company owns 5% or more
of the voting securities, and any person directly or indirectly
controlling, controlled by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst
or portfolio manager making investment recommendations or investing
funds on behalf of an Associated Client and who may be reasonably
expected to recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the
1934 Act. Generally, a person has a beneficial ownership in a security
if he or she, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a
direct or indirect pecuniary interest in the security. There is a
presumption of a pecuniary interest in a security held or acquired by a
member of a person's immediate family sharing the same household.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
31
<PAGE> 33
HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the
most recent 15 days it (i) is or has been held by a Fund, or (ii) is
being or has been considered by a Fund or its investment adviser for
purchase by the Fund.
PORTFOLIO PERSON - Any employee of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund
in the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those
purchases or sales. Portfolio Persons include portfolio managers,
research analysts, traders, persons serving in equivalent capacities
(such as Management Trainees), persons supervising the activities of
Portfolio Persons, and anyone else designated by the Director of
Compliance.
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not
limited to, a limited partnership, a corporate hedge fund, a limited
liability company or any other pooled investment vehicle in which
Franklin Resources or its affiliates, owns 5 percent or more of the
outstanding capital or is entitled to 25% or more of the profits or
losses in the account (excluding any asset based investment management
fees based on average periodic net assets in accounts).
SECURITY - Any stock, note, bond, evidence of indebtedness, participation or
interest in any profit-sharing plan or limited or general partnership,
investment contract, certificate of deposit for a security, fractional
undivided interest in oil or gas or other mineral rights, any put,
call, straddle, option, or privilege on any security (including a
certificate of deposit), guarantee of, or warrant or right to subscribe
for or purchase any of the foregoing, and in general any interest or
instrument commonly known as a security, except commodity futures,
currency and currency forwards. For the purpose of this Code,
"security" does not include:
(1) Direct obligations of the Government of the United States;
(2) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
(3) Shares issued by open-end funds.
See Section III of Appendix A for a summary of different requirements for
different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING, AND PRE-CLEARANCE
PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions
of Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
(3) shares of registered open-end investment companies;
(4) commodity futures, currencies, currency forwards and derivatives
thereof;
32
<PAGE> 34
(5) securities that are prohibited investments for all Funds and
clients advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the governments
or their agencies or instrumentalities of Canada, the United
Kingdom, France, Germany, Switzerland, Italy and Japan and
derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of
Section 5 and preclearance requirements of Section 6 of the Code
include:
(1) securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and derivatives
thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes
it unlawful for any affiliated person of the Franklin Templeton Group in
connection with the purchase or sale of a security, including any option to
purchase or sell, and any security convertible into or exchangeable for, any
security that is "held or to be acquired" by a Fund in the Franklin Templeton
Group:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to
state to a Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
C. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15
days it (i) is or has been held by a Fund, or (ii) is being or has been
considered by a Fund or its investment adviser for purchase by the Fund.
33
<PAGE> 35
APPENDIX B: FORMS AND SCHEDULES
34
<PAGE> 36
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
To: DIRECTOR OF COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I hereby acknowledge receipt of a copy of the Franklin Templeton Group's CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, AMENDED AND RESTATED, FEBRUARY
2000, which I have read and understand. I will comply fully with all provisions
of the Code and the Insider Trading Policy to the extent they apply to me during
the period of my employment. Additionally, I authorize any broker-dealer, bank
or investment adviser with whom I have securities accounts and accounts in which
I have beneficial ownership, to provide brokerage confirmations and statements
as required for compliance with the Code. I further understand and acknowledge
that any violation of the Code or Insider Trading Policy, including engaging in
a prohibited transaction or failure to file reports as required (see Schedules
B, C, D, E, F and G), may subject me to disciplinary action, including
termination of employment.
----------------------------------------------------------------------------
SIGNATURE:
----------------------------------------------------------------------------
PRINT NAME:
----------------------------------------------------------------------------
TITLE:
----------------------------------------------------------------------------
DEPARTMENT:
----------------------------------------------------------------------------
LOCATION:
----------------------------------------------------------------------------
DATE ACKNOWLEDGMENT WAS SIGNED:
----------------------------------------------------------------------------
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS - FLOOR 2
35
<PAGE> 37
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE
& FAX NUMBERS(19)
LEGAL OFFICER
MURRAY SIMPSON
EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL
FRANKLIN RESOURCES, INC.
901 MARINERS ISLAND BLVD.
7TH FLOOR
SAN MATEO, CA 94404
(650) 525-7331
COMPLIANCE OFFICERS
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C>
DIRECTOR OF COMPLIANCE PRECLEARANCE OFFICERS
James M. Davis Stephanie Harwood
Franklin Resources, Inc. Wally Enrico
2000 Alameda de las Pulgas, Suite 200F Legal Compliance Department
San Mateo, CA 94403 2000 Alameda de las Pulgas, Suite 200E
(650) 312-2832 San Mateo, CA 94403
(650) 312-3693 (telephone)
(650) 312-5646 (facsimile)
Preclear, Legal (internal e-mail address)
[email protected] (external e-mail address)
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(19) As of February 2000
36
<PAGE> 38
SCHEDULE B: SECURITIES TRANSACTION REPORT
This report of personal securities transactions NOT reported by duplicate
confirmations and brokerage statements pursuant to Section 5.3 of the Code
is required pursuant to Rule 204-2(a) of the Investment Advisers Act of
1940 or Rule 17j-1(c) of the Investment Company Act of 1940. The report
must be completed and submitted to the Compliance Department no later than
10 calendar days after the end of the calendar quarter. Refer to Section
5.3 of the Code of Ethics for further instructions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Trade Buy, Sell Security Description, including interest Type of Quantity or Price Broker-Dealer Date
Date or Other rate and maturity (if appropriate) Security Principal or Bank Preclearance
(Stock, Amount obtained from
Bond, Compliance Dept.
Option, etc)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The report or recording of any transaction above shall not be construed as
an admission that I have any direct or indirect ownership in the
securities.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------- --------------------------------- --------------------- ----------------------------
(Print Name) (Signature) (Date) (Quarter Ending)
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS,
SUITE 200E, SAN MATEO, CA 94403
37
<PAGE> 39
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS
SECURITIES HOLDINGS
This report shall set forth the security name or description and security
class of each security holding in which you have a direct or indirect
beneficial interest, including holdings by a spouse, minor children,
trusts, foundations, and any account for which trading authority has been
delegated to you, other than authority to trade for a Fund in or a client
of the Franklin Templeton Group.. In lieu of listing each security position
below, you may instead attach copies of brokerage statements, sign below
and return Schedule C and brokerage statements to the Legal Compliance
Department within 10 days if an initial report or by January 30th of each
year if an annual report. Refer to Sections 5.2.A and 5.4.A of the Code for
additional filing instructions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Security Description, Type of
including interest rate Security Quantity or
and maturity (if (Stock, Bond, Principal Name of Broker-
appropriate) Option, etc.) Amount Dealer or Bank Account Number
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
[ ] I DID NOT HAVE ANY PERSONAL SECURITIES HOLDINGS FOR YEAR ENDED
---------
[ ] I HAVE ATTACHED STATEMENTS CONTAINING ALL MY PERSONAL SECURITIES
HOLDINGS FOR THE YEAR ENDED
-------------
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL
INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS,
FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED
AN UNAFFILIATED PARTY.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ------------------------------ ---------------- ---------------------
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
* Securities that are EXEMPT from being reported on Schedule C include: (i)
securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives
thereof; (ii) high quality short-term instruments ("money market
instruments") including but not limited to bankers' acceptances, U.S. bank
certificates of deposit; commercial paper; and repurchase agreements; (iii)
shares of registered open-end investment companies; and (iv) commodity
futures, currencies, currency forwards and derivatives thereof.
39
<PAGE> 40
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING
DATE:
-----------------------------------
TO: Preclearance Desk
Legal Compliance Department
2000 Alameda de las Pulgas, Suite 200E
San Mateo, CA 94403
(650) 312-3693
FAX: (650) 312-5646
FROM: NAME:
----------------------------------------
DEPARTMENT:
----------------------------------------
LOCATION:
----------------------------------------
EXTENSION:
----------------------------------------
ARE YOU A REG. REPRESENTATIVE? YES [ ] NO [ ]
ARE YOU AN ACCESS PERSON? YES [ ] NO [ ]
This is to advise you that I will be opening or have opened a securities account
with the following firm:
PLEASE FILL OUT COMPLETELY TO EXPEDITE PROCESSING
NAME ON ACCOUNT:
----------------------------------------------------------------
(If other than employee, please state relationship
i.e., spouse, son, daughter, trust, etc.)
ACCT # OR SSN #:
----------------------------------------------------------------
NAME OF FIRM:
----------------------------------------------------------------
ATTN:
----------------------------------------------------------------
ADDRESS OF FIRM:
----------------------------------------------------------------
CITY/STATE/ZIP:
----------------------------------------------------------------
* All Franklin registered representatives and Access Persons, PRIOR TO OPENING
A BROKERAGE ACCOUNT OR PLACING AN INITIAL ORDER, are required to notify the
Legal Compliance Department and the executing broker-dealer in writing. This
includes accounts in which the registered representative or access person has or
will have a financial interest (e.g., a spouse's account) or discretionary
authority (e.g., a trust account for a minor child).
Upon receipt of the NOTIFICATION OF SECURITIES ACCOUNT OPENING form, the Legal
Compliance Department will contact the broker-dealer identified above and
request that it receive duplicate confirmations and statements of your brokerage
account.
40
<PAGE> 41
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST
If you have any beneficial ownership in a security and you recommend to the
Appropriate Analyst that the security be considered for purchase or sale by
an Associated Client, or if you carry out a purchase or sale of that
security for an Associated Client, you must disclose your beneficial
ownership to the Legal Compliance Department and the Appropriate Analyst in
writing on Schedule E (or an equivalent form containing similar
information) before the purchase or sale, or before or simultaneously with
the recommendation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Method of Primary
Ownership Type Acquisition Date and Method Learned Portfolio Manager
Security (Direct or Year (Purch/Gift/ that Security Under or Appropriate Name of Person Date of Verbal
Description Indirect) Acquired Other) Consideration by Funds Analyst Notified Notification
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------- ------------------------------ -------------
(PRINT NAME) (SIGNATURE) (DATE)
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS,
SUITE 200E, SAN MATEO, CA 94403
41
<PAGE> 42
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS
This report shall set forth the name and description of each securities
account in which you have a direct or indirect beneficial interest,
including securities accounts of a spouse, minor children, trusts,
foundations, and any account for which trading authority has been delegated
to you, other than authority to trade for a Fund in, or a client of, the
Franklin Templeton Group. In lieu of listing each securities account below,
you may instead attach copies of the brokerage statements, sign below and
return Schedule F and brokerage statements to the Compliance Department.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME(S) ON ACCOUNT NAME OF BROKERAGE
(REGISTRATION SHOWN FIRM, BANK OR ADDRESS OF BROKERAGE FIRM, BANK OR INVEST. ADVISER ACCOUNT NAME OF ACCOUNT
ON STATEMENT) INVESTMENT ADVISER (STREET, CITY, STATE AND ZIP CODE) NUMBER EXECUTIVE/REPRESENTATIVE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING
SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY
ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED TO ME.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------- ----------------------------------- -------------------------- --------------------
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS,
SUITE 200E, SAN MATEO, CA 94403
42
<PAGE> 43
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY
This report shall set forth the account name or description in which you
have a direct or indirect beneficial interest, including holdings by a
spouse, minor children, trusts, foundations, and as to which trading
authority has been delegated by you to an unaffiliated registered
broker-dealer, registered investment adviser, or other investment manager
acting in a similar fiduciary capacity, who exercises sole investment
discretion.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF OWNERSHIP
NAME/DESCRIPTION OF BROKERAGE FIRM, DIRECT OWNERSHIP (DO) ACCOUNT NUMBER
NAME(S) AS SHOWN ON ACCOUNT OR INVESTMENT BANK, INVESTMENT ADVISER OR INVESTMENT INDIRECT OWNERSHIP (IO) (IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL
INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS,
FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED
AN UNAFFILIATED PARTY. FURTHER, I CERTIFY THAT I DO NOT HAVE ANY DIRECT OR
INDIRECT INFLUENCE OR CONTROL OVER THE ACCOUNTS LISTED ABOVE.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------- ---------------------------------- ---------------------- ------------------
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS,
SUITE 200E, SAN MATEO, CA 94403
43
<PAGE> 44
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES
ISSUED IN PRIVATE PLACEMENTS
GENERAL INSTRUCTIONS: In considering requests by Access Persons for
approval of limited partnerships and other private placement securities
transactions, the Director of Compliance shall consult with an executive
officer of Franklin Resources, Inc. In deciding whether to approve the
transaction, the Director of Compliance and the executive officer shall
take into account, among other factors, whether the investment opportunity
should be reserved for a Fund or other client, and whether the investment
opportunity is being offered to the access person by virtue of his or her
position with the Franklin Templeton Group. IF THE ACCESS PERSON RECEIVES
CLEARANCE FOR THE TRANSACTION, AN INVESTMENT IN THE SAME ISSUER MAY ONLY BE
MADE FOR A FUND OR CLIENT IF AN EXECUTIVE OFFICER OF FRANKLIN RESOURCES,
INC., WHO HAS BEEN INFORMED OF THE ACCESS PERSON'S PRE-EXISTING INVESTMENT
AND WHO HAS NO INTEREST IN THE ISSUER, APPROVES THE TRANSACTION.
IN ORDER TO PROCESS YOUR REQUEST, PLEASE PROVIDE THE FOLLOWING INFORMATION:
1) Name/Description of proposed investment:
-----------------------------
2) Proposed Investment Amount:
-----------------------------
3) Please attach pages of the offering memorandum (or other documents)
summarizing the investment opportunity, including:
a) Name of the partnership/hedge fund/issuer;
b) Name of the general partner, location & telephone number;
c) Summary of the offering; including the total amount the
offering/issuer;
d) Percentage your investment will represent of the total offering;
e) Plan of distribution; and
f) Investment objective and strategy,
PLEASE RESPOND TO THE FOLLOWING QUESTIONS:
4) Was this investment opportunity presented to you in your capacity as a
portfolio manager, trader or research analyst? If no, please explain
the relationship, if any, you have to the issuer or principals of the
issuer.
5) Is this investment opportunity suitable for any fund/client that you
advise? If yes, why isn't the investment being made on behalf of the
fund/client? If no, why isn't the investment opportunity suitable for
the fund/clients?
6) Do any of the fund/clients that you advise presently hold securities
of the issuer of this proposed investment (e.g., common stock,
preferred stock, corporate debt, loan participations, partnership
interests, etc)? If yes, please provide the names of the funds/clients
and security description.
45
<PAGE> 45
7) Do you presently have or will you have any managerial role with the
company/issuer as a result of your investment? If yes, please explain
in detail your responsibilities, including any compensation you will
receive.
8) Will you have any investment control or input to the investment
decision making process?
9) If applicable, will you receive reports of portfolio holdings? If yes,
when and how frequently will these be provided?
Reminder: Personal securities transactions that do not generate brokerage
confirmations must be reported to the Legal Compliance Department on Schedule B
within 10 calendar days after you are notified.
-------------------------------------------
Name of Access Person
------------------------------------------- ---------------------
Access Person Signature Date
Approved by:
------------------------------------------- ---------------------
Chief Investment Officer Signature Date
- --------------------------------------------------------------------------------
DATE RECEIVED:
---------------------------------------------
DATE ENTERED IN LOTUS NOTES:
-------------------------------
DATE FORWARDED FRI EXECUTIVE OFFICER:
------------------------------------
(ATTACH E-MAIL) DATE:
------------------
PRECLEARED:
[ ] [ ]
DATE ENTERED IN APII:
----------------------------
- --------------------------------------------------------------------------------
46
<PAGE> 46
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER
SUBSIDIARIES OF FRANKLIN RESOURCES, INC. - FEBRUARY 2000
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Advisers, Inc. IA Templeton Management Limited (Canada) IA
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Advisory Services, LLC. IA Templeton Franklin Investment Services, Inc. IA/BD
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Investment Advisory Services, Inc. IA Templeton Investment Counsel, Inc. IA
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Management, Inc. IA Templeton Asset Management, Ltd. IA/FIA
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Mutual Advisers, LLC IA Templeton Investment Management Co. Ltd. (Japan) FIA
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Properties, Inc. REA Closed Joint-Stock Company Templeton (Russia) FIA
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. IA/BD Templeton Unit Trust Management Ltd. (UK) FBD
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Asset Management (Proprietary) Ltd. IA Orion Fund Management Ltd. FIA
- --------------------------------------------------------------------------------------------------------------------------------
Templeton (Switzerland), Inc. FBD Templeton Global Advisors Ltd. (Bahamas) IA
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Franklin Investment Services (Asia) Ltd. FBD Templeton Asset Management (India) Pvt. Ltd. FIA/FBD
- --------------------------------------------------------------------------------------------------------------------------------
`Templeton Investment Management Limited (UK) IA/FIA Templeton Italia SIM S.p.A. (Italy) FBD
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Global Strategic Services S.A. FBD Templeton Global Strategic Services (Deutschland) FBD
(Luxembourg) GmbH (Germany)
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Investment Management (Australia) Ltd. FIA Templeton Funds Annuity Company INS
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Investment Services, Inc. TA
- --------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Services, Inc. BM
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Codes:
IA: US registered investment adviser
BD: US registered broker-dealer
FIA: Foreign equivalent investment adviser
FBD: Foreign equivalent broker-dealer
TA: US registered transfer agent
BM: Business manager to the funds
REA: Real estate adviser
INS: Insurance company
47
<PAGE> 47
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING
A. LEGAL REQUIREMENT
Pursuant to the Insider Trading and Securities Fraud Enforcement Act of
1988, it is the policy of the Franklin Templeton Group to forbid any officer,
director, employee, consultant acting in a similar capacity, or other person
associated with the Franklin Templeton Group from trading, either personally or
on behalf of clients, including all client assets managed by the entities in the
Franklin Templeton Group, on material non-public information or communicating
material non-public information to others in violation of the law. This conduct
is frequently referred to as "insider trading." The Franklin Templeton Group's
Policy Statement on Insider Trading applies to every officer, director, employee
or other person associated with the Franklin Templeton Group and extends to
activities within and outside their duties with the Franklin Templeton Group.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding the Franklin Templeton Group's Policy Statement on
Insider Trading or the Compliance Procedures should be referred to the Legal
Department.
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material non-public
information to trade in securities (whether or not one is an "insider") or to
communications of material non-public information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public
information; or
(2) trading by a non-insider, while in possession of material
non-public information, where the information either was disclosed
to the non-insider in violation of an insider's duty to keep it
confidential or was misappropriated; or
(3) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this policy statement, you have
any questions, you should consult the Legal Department.
1
<PAGE> 48
POLICY STATEMENT ON INSIDER TRADING
B. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
outside attorneys, accountants, consultants, bank lending officers, and the
employees of such organizations. In addition, an investment adviser may become a
temporary insider of a company it advises or for which it performs other
services. According to the U.S. Supreme Court, the company must expect the
outsider to keep the disclosed non-public information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
C. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of the company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.
Material information does not have to relate to a company's business.
For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a Wall Street Journal reporter was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the Wall Street Journal and whether those reports would be favorable or not.
D. WHAT IS NON-PUBLIC INFORMATION?
Information is non-public until it has been effectively communicated to
the marketplace. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the Securities and Exchange Commission ("SEC"), or appearing in Dow
Jones, Reuters Economic Services, The Wall Street Journal or other publications
of general circulation would be considered public.
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<PAGE> 49
POLICY STATEMENT ON INSIDER TRADING
E. BASIS FOR LIABILITY
1. FIDUCIARY DUTY THEORY
In 1980, the Supreme Court found that there is no general duty to
disclose before trading on material non-public information, but that such a duty
arises only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will not disclose any material non-public
information or refrain from trading. Chiarella v. U.S., 445 U.S. 22 (1980).
In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated
alternate theories under which non-insiders can acquire the fiduciary duties of
insiders. They can enter into a confidential relationship with the company
through which they gain information (e.g., attorneys, accountants), or they can
acquire a fiduciary duty to the company's shareholders as "tippees" if they are
aware or should have been aware that they have been given confidential
information by an insider who has violated his fiduciary duty to the company's
shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the
insider personally benefits, directly or indirectly, from the disclosure. The
benefit does not have to be pecuniary but can be a gift, a reputational benefit
that will translate into future earnings, or even evidence of a relationship
that suggests a quid pro quo.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory, under which liability is established when trading occurs on material
non-public information that was stolen or misappropriated from any other person.
In U.S. v. Carpenter, supra, the Court found, in 1987, a columnist defrauded The
Wall Street Journal when he stole information from the Wall Street Journal and
used it for trading in the securities markets. It should be noted that the
misappropriation theory can be used to reach a variety of individuals not
previously thought to be encompassed under the fiduciary duty theory.
F. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
- civil injunctions;
- treble damages;
- disgorgement of profits;
- jail sentences;
3
<PAGE> 50
POLICY STATEMENT ON INSIDER TRADING
- fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person
actually benefited; and
- fines for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of this policy statement can result in
serious sanctions by the Franklin Templeton Group, including dismissal of any
person involved.
G. INSIDER TRADING PROCEDURES
Each access person, Compliance Officer, the Risk Management Department,
and the Legal Department, as the case may be, shall comply with the following
procedures.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including investment companies
or private accounts managed by the Franklin Templeton Group, in the securities
of a company about which you may have potential inside information, ask yourself
the following questions:
- Is the information material?
- Is this information that an investor would consider important in
making his or her investment decisions?
- Is this information that would substantially affect the market
price of the securities if generally disclosed?
- Is the information non-public?
- To whom has this information been provided?
- Has the information been effectively communicated to the
marketplace (e.g., published in Reuters, The Wall Street Journal
or other publications of general circulation)?
If, after consideration of these questions, you believe that the information may
be material and non-public, or if you have questions as to whether the
information is material and non-public, you should take the following steps:
(i) Report the matter immediately to the designated Compliance
Officer, or if he or she is not available, to the Legal
Department.
(ii) Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts managed
by the Franklin Templeton Group.
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<PAGE> 51
POLICY STATEMENT ON INSIDER TRADING
(iii) Do not communicate the information inside or outside the Franklin
Templeton Group, other than to the Compliance Officer or the
Legal Department.
(iv) The Compliance Officer shall immediately contact the Legal
Department for advice concerning any possible material,
non-public information.
(v) After the Legal Department has reviewed the issue and consulted
with the Compliance Officer, you will be instructed either to
continue the prohibitions against trading and communication noted
in (ii) and (iii), or you will be allowed to trade and
communicate the information.
(vi) In the event the information in your possession is determined by
the Legal Department or the Compliance Officer to be material and
non-public, it may not be communicated to anyone, including
persons within the Franklin Templeton Group, except as provided
in (i) above. In addition, care should be taken so that the
information is secure. For example, files containing the
information should be sealed and access to computer files
containing material non-public information should be restricted
to the extent practicable.
2. RESTRICTING ACCESS TO OTHER SENSITIVE INFORMATION
All Franklin Templeton Group personnel also are reminded of the need to
be careful to protect from disclosure other types of sensitive information that
they may obtain or have access to as a result of their employment or association
with the Franklin Templeton Group.
(i) GENERAL ACCESS CONTROL PROCEDURES
The Franklin Templeton Group has established a process by which
access to company files that may contain sensitive or non-public information
such as the Bargain List and the Source of Funds List is carefully limited.
Since most of the Franklin Templeton Group files which contain sensitive
information are stored in computers, personal identification numbers, passwords
and/or code access numbers are distributed to Franklin Templeton Group computer
access persons only. This activity is monitored on an ongoing basis. In
addition, access to certain areas likely to contain sensitive information is
normally restricted by access codes.
5
<PAGE> 1
Exhibit P(3)
CODE OF ETHICS
1. Purposes
This Code of Ethics (the "Code") has been adopted by the Directors of
J.P. Morgan Investment Management Inc. (the "Adviser"), in accordance with Rule
17j-1(c) promulgated under the Investment Company Act of 1940, as amended (the
"Act"). Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities Held or to be
Acquired (defined in Section 2(k) of this Code) by investment companies, if
effected by associated persons of such companies. The purpose of this Code is to
adopt provisions reasonably necessary to prevent Access Persons from engaging in
any unlawful conduct as set forth in Rule 17j-1(b) as follows:
It is unlawful for any affiliated person of or principal
underwriter for a Fund, or any affiliated person of an investment adviser of or
principal underwriter for a Fund, in connection with the purchase or sale,
directly or indirectly, by the person of a Security Held or to be Acquired by
the Fund:
(a) To employ any device, scheme or artifice to defraud the Fund;
(b) To make any untrue statement of a material fact to the Fund or
omit to state a material fact necessary in order to make the
statements made to the Fund, in light of the circumstances
under which they are made, not misleading;
(c) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit on the Fund; or
(d) To engage in any manipulative practice with respect to the
Fund.
2. Definitions
(a) "Access Person" means any director, officer, general partner or
Advisory Person of the Adviser.
(b) "Administrator" means Morgan Guaranty Trust Company.
(c) "Advisory Person" means (i) any employee of the Adviser or the
Administrator (or any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of securities for a Fund,
or whose functions relate to the making of any recommendations with respect to
such purchases or sales; and (ii) any natural person in a control relationship
to the Adviser who obtains information concerning recommendations regarding the
purchase or sale of securities by a Fund.
<PAGE> 2
(d) "Beneficial ownership" shall be interpreted in the same manner as
it would be under Exchange Act Rule 16a-1(a)(2)in determining whether a person
is subject to the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder.
(e) "Control" has the same meaning as in Section 2(a)(9) of the Act.
(f) "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Act, except that it shall not include shares of open-end funds,
direct obligations of the United States Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements.
(g) "Fund" means an Investment Company registered under the Investment
Company Act of 1940.
(h) "Initial Public Offering" means an offering of Securities
registered under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements of
Sections 13 or 15(d) of the Securities Exchange Act.
(i) "Limited Offering" means an offering that is exempt from
registration under the Securities Act pursuant to Section 4(2) or Section 4(6)
or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j) "Purchase or sale of a Covered Security" includes, among other
things, the writing of an option to purchase or sell a Covered Security.
(k) "Security Held or to be Acquired" by a Adviser means: (i) any
Covered Security which, within the most recent 15 days, is or has been held by a
Fund or other client of the Adviser or is being or has been considered by the
Adviser for purchase by a Fund or other client of the Adviser; and (ii) any
option to purchase or sell, and any security convertible into or exchangeable
for, a Covered Security described in Section 2(k)(i) of this Code.
3. Statement of Principles
It is understood that the following general fiduciary
principles govern the personal investment activities of Access Persons:
(a) the duty to at all times place the interests of shareholders and
other clients of the Adviser first;
(b) the requirement that all personal securities transactions be
conducted consistent with this Code of Ethics and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility;
(c) the fundamental standard that Investment Personnel may not take
inappropriate advantage of their position; and
(d) all personal transactions must be oriented toward investment, not
short-term or speculative trading.
It is further understood that the procedures, reporting and
recordkeeping requirements set forth below are hereby adopted and certified by
the Adviser as reasonably necessary to prevent Access Persons from violating the
provisions of this Code of Ethics.
<PAGE> 3
4. Procedures to be followed regarding Personal Investments by Access
Persons
(a) Pre-clearance requirement. Each Access Person must obtain prior
written approval from his or her group head (or designee) and from the Adviser's
trading desk before transacting in any Covered Security based on certain
quidelines set forth from time to time by the Adviser's compliance Department.
For details regarding transactions in mutual funds, see Section 4(e).
(b) Brokerage transaction reporting requirement. Each Access Person
working in the United States must maintain all of his or her accounts and the
accounts of any person of which he or she is deemed to be a beneficial owner
with a broker designated by the Adviser and must direct such broker to provide
broker trade confirmations to the Adviser's legal/compliance department, unless
an exception has been granted by the Adviser's legal/compliance department. Each
Access Person to whom an exception to the designated broker requirement has been
granted must instruct his or her broker to forward all trade confirms and
monthly statements to the Adviser's legal/compliance department. Access Persons
located outside the United States are required to provide details of each
brokerage transaction of which he or she is deemed to be the beneficial owner,
to the Adviser's legal/compliance group, within the customary period for the
confirmation of such trades in that market.
(c) Initial public offerings (new issues). Access Persons are
prohibited from participating in Initial Public Offerings, whether or not J.P.
Morgan or any of its affiliates is an underwriter of the new issue, while the
issue is in syndication.
(d) Minimum investment holding period. Each Access Person is subject to
a 60-day minimum holding period for personal transactions in Covered Securities.
An exception to this minimum holding period requirement may be granted in the
case of hardship as determined by the legal/compliance department.
(e) Mutual funds. Each Access Person must pre-clear transactions in
shares of closed-end Funds with the Adviser's trading desk, as they would with
any other Covered Security. See Section 4(a). Each Access Person must obtain
pre-clearance from his or her group head (or designee) before buying or selling
shares in an open-end Fund or a sub-advised Fund managed by the Adviser if such
Access Person or the Access Person's department has had recent dealings or
responsibilities regarding such mutual fund.
(f) Limited offerings. An Access Person may participate in a limited
offering only with written approval of such Access Person's group head (or
designee) and with advance notification to the Adviser's compliance group.
(g) Blackout periods. Advisory Persons are subject to blackout periods
7 calendar days before and after the trade date of a Covered Security where such
Advisory Person makes, participates in, or obtains information regarding the
purchase or sale of such Covered Security for any of their client accounts. In
addition, Access Persons are prohibited from executing a transaction in a
Covered Security during a period in which there is a pending buy or sell order
on the Adviser's trading desk.
(h) Prohibitions. Short sales are generally prohibited. Transactions in
options, rights, warrants, or other short-term securities and in futures
contracts (unless for bona fide hedging) are prohibited, except for purchases of
options on widely traded indices specified by the Adviser's compliance group if
made for investment purposes.
<PAGE> 4
(i) Securities of J.P. Morgan. No Access Person may buy or sell any
security issued by J.P. Morgan from the 27th of each March, June, September, and
December until the first full business day after earnings are released in the
following month. All transactions in securities issued by J.P. Morgan must be
pre-cleared with the Adviser's compliance group and executed through an approved
trading area. Transactions in options and short sales of J.P. Morgan stock are
prohibited.
(j) Certification requirements. In addition to the reporting
requirements detailed in Sections 6 below, each Access Person, no later than 30
days after becoming an Access Person, must certify to the Adviser's compliance
group that he or she has complied with the broker requirements in Section 4(b).
5. Other Potential Conflicts of Interest
(a) Gifts. No employee of the Adviser or the Administrator may
(i) accept gifts, entertainment, or favors from a client, potential client,
supplier, or potential supplier of goods or services to the Adviser or the
Administrator unless what is given is of nominal value and refusal to accept it
would be discourteous or otherwise harmful to the Adviser or Administrator;
(ii) provide excessive gifts or entertainment to clients or potential clients;
and (iii) offer bribes, kickbacks, or similar inducements.
(b) Outside Business Activities. The prior consent of the Chairman of
the Board of J.P. Morgan, or his or her designee, is required for an officer of
the Adviser or Administrator to engage in any business-related activity outside
of the Adviser or Administrator, whether the activity is intermittent or
continuing, and whether or not compensation is received. For example, such
approval is required such an officer to become:
-An officer, director, or trustee of any corporation (other than a
nonprofit corporation or cooperative corporation owning the building
in which the officer resides);
-A member of a partnership (other than a limited partner in a partnership
established solely for investment purposes);
-An executor, trustee, guardian, or similar fiduciary advisor (other than
for a family member).
6. Reporting Requirements
(a) Every Access Person must report to the Adviser:
(i) Initial Holdings Reports. No later than 10 days after the
person becomes an Access Person, the following information:
(A) the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access
Person; (B) the name of any broker, dealer or bank with whom
the Access Person maintained an account in which any Covered
Securities were held for the direct or indirect benefit of the
Access Person as of the date the person became an Access
Person; and (C) the date that the report is submitted by the
Access Person.
<PAGE> 5
(ii) Quarterly Transaction Reports. No later than 10 days
after the end of a calendar quarter, with respect to any
transaction during the quarter in a Covered Security in which
the Access Person had any direct or indirect Beneficial
Ownership: (A) the date of the transaction, the title, the
interest rate and maturity date (if applicable), the number of
shares and principal amount of each Covered Security involved;
(B) the nature of the transaction; (C) the price of the
Covered Security at which the transaction was effected; (D)
the name of the broker, dealer or bank with or through which
the transaction was effected; and (E) the date that the report
is submitted by the Access Person.
(iii) New Account Report. No later than 10 days after the
calendar quarter, with respect to any account established by
the Access Person in which any Covered Securities were held
during the quarter for the direct or indirect benefit of the
Access Person: (A) the name of the broker, dealer or bank with
whom the Access Person established the account; (B) the date
the account was established; and (C) the date that the report
is submitted by the Access Person.
(iv) Annual Holdings Report. Annually, the following
information (which information must be current as of a date no
more than 30 days before the report is submitted): (A) the
title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership; (B) the name of any broker, dealer or
bank with whom the Access Person maintains an account in which
any Covered Securities are held for the direct or indirect
benefit of the Access Person: and (C) the date that the report
is submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 6(a), no Access
Person shall be required to make:
A. a report with respect to transactions effected for
any account over which such person does not have
any direct or indirect influence or control;
B. a Quarterly Transaction or New Account Report
under Sections 6(a)(ii) or (iii) if the report
would duplicate information contained in broker
trade confirmations or account statements received
by the Adviser with respect to the Access Person
no later than 10 days after the calendar quarter
end, if all of the information required by
Sections 6(a)(ii) or (iii), as the case may be, is
contained in the broker trade confirmations or
account statements, or in the records of the
Adviser.
(c) Each Access Person shall promptly report any transaction
which is, or might appear to be, in violation of this
Code. Such report shall contain the information required
in Quarterly Transaction Reports filed pursuant to
Section 6(a)(ii).
(d) All reports prepared pursuant to this Section 6 shall be
filed with the appropriate compliance personnel
designated by the Adviser and reviewed in accordance
with procedures adopted by such personnel.
(e) The Adviser will identify all Access Persons who are
required to file reports pursuant to this Section 6 and
will inform them of their reporting obligation.
<PAGE> 6
(f) The Adviser no less frequently than annually shall
furnish to a Fund's board of directors for their
consideration a written report that:
(a) describes any issues under this Code of Ethics or
related procedures since the last report to the
board of directors, including, but limited to,
information about material violations of the Code
or procedures and sanctions imposed in response to
the material violations; and
(b) certifies that the Adviser has adopted procedures
reasonably necessary to prevent Access Persons
from violating this Code of Ethics.
7. Recordkeeping Requirements
The Adviser must at its principal place of business maintain records in
the manner and extent set out in this Section of this Code and must
make available to the Securities and Exchange Commission (SEC) at any
time and from time to time for reasonable, periodic, special or other
examination:
(a) A copy of its code of ethics that is in effect, or at
any time within the past five years was in effect, must
be maintained in an easily accessible place;
(b) A record of any violation of the code of ethics, and of
any action taken as a result of the violation, must be
maintained in an easily accessible place for at least
five years after the end of the fiscal year in which the
violation occurs;
(c) A copy of each report made by an Access Person as
required by Section 6(a) including any information
provided in lieu of a quarterly transaction report, must
be maintained for at least five years after the end of
the fiscal year in which the report is made or the
information is provided, the first two years in an
easily accessible place.
(d) A record of all persons, currently or within the past
five years, who are or were required to make reports as
Access Persons or who are or were responsible for
reviewing these reports, must be maintained in an easily
accessible place.
(e) A copy of each report required by 6(f) above must be
maintained for at least five years after the end of the
fiscal year in which it is made, the first two years in
an easily accessible place.
(f) A record of any decision and the reasons supporting the
decision to approve the acquisition by Access Persons of
securities under Section 4(f) above, for at least five
years after the end of the fiscal year in which the
approval is granted.
8. Sanctions
Upon discovering a violation of this Code, the Directors of the Adviser
may impose such sanctions as they deem appropriate, including, inter alia,
financial penalty, a letter of censure or suspension or termination of the
employment of the violator.
