<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>dn30d.txt
<DESCRIPTION>NML VARIABLE LIFE ACCOUNT ANNUAL REPORT
<TEXT>
<PAGE>
Annual Report
[PHOTO APPEARS HERE]
LifeAccount
[PHOTOS APPEAR HERE]
Northwestern Mutual
Series Fund. Inc. and
Russell Insurance Funds
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
(414) 271-1444
90-1899 (0786) (REV 0103)
[LOGO APPEARS HERE]
<PAGE>
Letter to Policyowners
January 31, 2003
During 2002 the stock market was highly volatile within a generally downward
trend. The broad S&P 500 Index was down more than 22% for the year, and all
major equity indices, domestic and international, posted negative returns. For
the third consecutive year, bonds substantially outperformed stocks: total
return of the Merrill Lynch Domestic Master Index was 10.4%.
Many recent reports in the popular press give the impression that the U.S.
economy is in a recession, but all indications are that economic growth was
positive for all four quarters of 2002. It appears that the economy grew
between two and three percent for the year, about average for the last 20 years.
While it is unusual for stock prices to fall when the economy is growing, there
are credible explanations for the weakness in equity markets over the past
year. Most individuals and business people would agree that the year just ended
did not feel like a period of economic expansion. Growth in the economy has
been powered almost entirely by consumer spending, as consumers have taken
advantage of the low interest rates to refinance mortgages and take on
additional debt. But the price discounting necessary to create demand, in
categories ranging from clothing to durable goods such as cars and home
furnishings, means that corporations have not been able to generate the
earnings growth that is usual when the economy is growing. This lack of
earnings growth, especially in the wake of a period of extraordinarily high
stock valuations, has restrained stock prices.
The outlook for the immediate future is clouded by concerns about whether
consumers can continue to spend. High debt levels and increasing unemployment
are factors in recent drops in consumer confidence. On the positive side, near
the end of 2002, there were early signs of a pick-up in business spending.
Recent reports showed increasing investments in equipment and software, and new
orders for durable goods are building, after several dismal years. Productivity
gains continue, as stiff competition, including foreign competition, has forced
companies to reduce costs. One positive result of these cost reductions is the
potential for significant earnings gains when demand increases.
The Federal Reserve's monetary policy continues to be friendly, and it appears
possible that interest rates could be cut even further from current levels,
which are the lowest in several decades. The program of economic stimulus
announced by President Bush in January should begin to take form in the coming
months, and tax cuts, if approved, should bolster both consumer confidence and
spending. If the tax on dividends is reduced or eliminated, as President Bush
has proposed, that should help the stock market. With a new pro-growth economic
team in Washington and a presidential election on the horizon, we can expect
that the administration will do everything possible to keep the economy
growing. While there is considerable divergence among economic forecasts, all
the economists surveyed recently by The Wall Street Journal and Business Week
expect the U.S. economy to grow in 2003, and that should be positive for the
stock market.
While we are fairly optimistic about the outlook for the economy and the
markets in the year ahead, we think it is likely that we have entered a period
of slower economic growth and lower returns compared with the decade of the
1990s. It is reasonable to expect that long-term returns from stocks will be
above bond returns, as they have been historically, because stocks are a
riskier asset class. But in a period of low inflation and moderate growth, it
is almost inevitable that nominal returns from both stocks and bonds will be
below those of the last 25 years. Nonetheless, real returns, meaning returns
adjusted for inflation, can still be quite attractive, perhaps better than in
the past. A closer examination of returns for the years from 1970 through 1990
helps illustrate this point. Total return from the S&P 500 index for that
20-year period averaged just over 12%. But when those returns are adjusted for
inflation, which was quite high during many of those years, the average was
below 6%.
This scenario is not necessarily negative, but it is different from what we
experienced in the 1990s. Also, considering the prevailing elements of
geopolitical and economic uncertainty, it seems probable that the volatility
experienced in the last few years will continue. This environment may require
many investors to adjust their expectations and their personal portfolios. With
a solid plan and considerable patience, it is still quite possible to invest
for a secure future. In a market that takes quality and value very seriously,
selection of individual stocks and bonds will continue to be important. The
expertise of the investment professionals who
manage the portfolios underlying
the Variable Life Insurance policies can be of particular value in this
challenging market environment.
If you decide that you would like to reassess your goals and objectives, we
urge you to take advantage of the considerable expertise available through the
Northwestern Mutual Financial Network. As always, we are committed to helping
our clients plan and invest to meet their goals.
[PHOTO]
Mark G. Doll
/s/ Mark G. Doll
Mark G. Doll
President, Mason Street Advisors, LLC
[GRAPHIC]
Northwestern Mutual(R)
1
<PAGE>
How To Get More Information
Northwestern Mutual Express:
1-800-519-4665
There is a wealth of information about Variable CompLife available at the touch
of a button. For the latest information about policy values and performance
data, call the toll-free Northwestern Mutual Express line any time.
Policyowners must provide a policy number plus a Personal Identification Number
(PIN) to utilize this service.
Information on the Internet:
Northwestern Mutual Financial Network
WWW.NMFN.COM
You can also visit us at our customer service section from our Web site for
information on Policy values and fund performance. This site also allows you to
view past confirmation and policy statements, as well as transfer funds online.
To sign up for this service please call 1-866-424-2609 between 7 a.m. - 6 p.m.
Central Standard Time Monday - Friday. As always, your Investment Services
representative of the Northwestern Mutual Financial Network is available to
answer any questions you have about your variable life insurance policy or any
of our products.
For Variable Executive Life and Variable Joint Life inforce policy service
questions please call 1-866-464-3800 between 7:30 a.m. - 6 p.m. Central
Standard Time Monday - Friday.
<TABLE>
<CAPTION>
Contents
<C> <S> <C>
Letter to Policyowners
1
Performance Summary for Separate Accounts
4
Economic Overview and Outlook
8
Series Fund Objectives and
Schedules of Investments
Small Cap Growth Stock Portfolio
9
T. Rowe Price Small Cap Value Portfolio
12
Aggressive Growth Stock Portfolio
15
International Growth Portfolio
18
Franklin Templeton International Equity
Portfolio
22
Index 400 Stock Portfolio
26
Growth Stock Portfolio
32
J.P. Morgan Select Growth & Income Stock
Portfolio
35
Capital Guardian Domestic Equity Portfolio
38
Index 500 Stock Portfolio
41
Asset Allocation Portfolio
48
Balanced Portfolio
59
High Yield Bond Portfolio
72
Select Bond Portfolio
78
Money Market Portfolio
85
Accountants' Report
88
Statements of Assets and Liabilities
90
Statements of Operations
92
Statements of Changes in Net Assets
94
Financial Highlights
102
Notes to Series Fund Financial Statements
110
Accountants' Report
115
Variable Life Account Financial Statements
116
Notes to Variable Life Account Financial
Statements
126
Directors Information
130
Directors and Officers
131
The Russell Annual Report Starts After
Page 131
</TABLE>
3
<PAGE>
Performance Summary
as of December 31, 2002
Variable Life--Policies Issued Before October 11, 1995
<TABLE>
<CAPTION>
J.P. Morgan
Franklin Select
T. Rowe Templeton Growth &
Total return (check Small Cap Price Small Aggressive International International Index 400 Growth Income
mark) Growth Stock Cap Value Growth Stock Growth Stock Equity Stock Stock Stock
(as of 12/31/02) Division Division Division Division Division Division Division Division
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year.............. (18.99%) 6.24% (21.70%) (12.95%) (17.98%) (15.14%) (21.38%) (28.70%)
5 years............. -- -- 0.17% -- (12.34%) -- (0.77%) (21.27%)
Annualized......... -- -- 0.03% -- (2.60%) -- (0.15%) (4.67%)
10 years............ -- -- 126.68% -- -- -- -- --
Annualized......... -- -- 8.53% -- -- -- -- --
Since division
inception in
Variable Life
Account............ 25.83%~ (4.87%)+ 90.39%* (21.36%)+ 33.14%# 3.84%~ 101.74% 57.48%##
Annualized......... 6.78% (3.46%) 7.72% (15.58%) 3.36% 1.08% 8.44% 5.38%
Since portfolio 51.95%~ (4.87%) 276.18%* (21.36%) 64.43% 9.43%~ 101.74% 57.48%
inception++........
Annualized......... 12.07% (3.46%) 11.59% (15.58%) 5.28% 2.48% 8.44% 5.38%
Current Yield###....
Variable Complife--Policies Issued On or After October 11, 1995**
-------------------------------------------------------------------------------------------------------------------------------
1 year.............. (18.91%) (6.14%) (21.62%) (12.86%) (17.90%) (15.05%) (21.30%) (28.63%)
5 years............. -- -- 0.68% -- (11.89%) -- (0.26%) (20.87%)
Annualized......... -- -- 0.14% -- (2.50%) -- (0.05%) (4.57%)
10 years............ -- -- 129.00% -- -- -- -- --
Annualized......... -- -- 8.64% -- -- -- -- --
Since division
inception in
Variable Life
Account............ 26.28%~ (4.73%)+ 92.08%* (21.25%)+ 34.32%# 4.21%~ 103.52%## 58.88%##
Annualized......... 6.89% (3.36%) 7.83% (15.49%) 3.46% 1.19% 8.55% 5.49%
Since portfolio 52.52%~ (4.73%) 280.84%* (21.25%) 66.06% 9.84%~ 103.52% 58.88%
inception++........
Annualized......... 12.19% (3.36%) 11.70% (15.49%) 5.38% 2.59% 8.55% 5.49%
Current Yield###....
</TABLE>
<TABLE>
<CAPTION>
Capital
Guardian
Total return (check Domestic
mark) Equity
(as of 12/31/02) Division
--------------------------------------
<S> <C>
1 year.............. (21.79%)
5 years............. --
Annualized......... --
10 years............ --
Annualized......... --
Since division
inception in
Variable Life
Account............ (23.73%)+
Annualized......... (17.37%)
Since portfolio (23.73%)
inception++........
Annualized......... (17.37%)
Current Yield###....
Variable Complife--Policies Issued On or After October 11, 1995**
------------------------------------------------------------------------------------------------------------------------------------
1 year.............. (21.71%)
5 years............. --
Annualized......... --
10 years............ --
Annualized......... --
Since division
inception in
Variable Life
Account............ (23.62%)+
Annualized......... (17.29%)
Since portfolio (23.62%)
inception++........
Annualized......... (17.29%)
Current Yield###....
</TABLE>
All total return figures shown above reflect the deduction of portfolio
expenses, as well as mortality and expense risk charges for each product.
Returns do not reflect deductions such as sales charges or premium taxes,
administrative charges, surrender charges or cost of insurance charges. These
deductions would significantly impact the returns if they were included.
Performance data reflects past results and is not a guarantee of future
results. Future value will fluctuate so that an investors shares, when
redeemed, may be worth more or less than their original cost.
` On April 30, 1993, the Index 500 Stock Portfolio was indexed to approximate
the performance of the Standard and Poor's 500 Composite Stock Price Index.
Before then, the Portfolio was actively managed.
++Returns stated are as of the inception date of the portfolio which preceeds
availability in the Variable Life Account. See the following footnotes for
portfolio inception dates.
* Inception date of this division in the Variable Life Account was 5/3/94.
Actual fund inception was 11/30/1990. Performance quoted prior to 5/3/94 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
# Inception date of this division in the Variable Life Account was 5/3/94.
Actual portfolio inception was 4/30/93. Performance quoted prior to 5/3/94 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
**Product inception date of 10/11/95. Returns prior to 10/11/95 were reflected
using the actual investment experience of each division, adjusted for the
expenses of the product and premium charges.
***Product inception date of 3/2/98. (For use with non-tax qualified executive
benefit plans.) Returns prior to 3/2/98 were reflected using the actual
investment experience of each division adjusted for expenses of the product
and premium charges.
****Product inception date of December 28, 1998 (For use primarily in estate
planning, provides coverage on two insureds with a death benefit payable on
the second death). Returns prior to 12/28/98 were reflected using the
actual investment experience of each division adjusted for expenses of the
product and premium charges.
~ Inception date of this division in the Variable Life Account was 6/30/99.
Actual fund inception was 4/30/99. Performance quoted prior to 6/30/99 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
+ Inception date of this division in the Variable Life Account was 6/30/99.
Actual fund inception was 1/2/97. Performance quoted prior to 6/30/99 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
##Inception date of 5/3/94.
+ Inception date of 7/31/01.
###For the seven-day period ended December 31, 2002, the Money Market
Portfolio's yield was 1.51% and was equivalent to a compound effective yield
of 1.52%. The seven-day yield does not include deductions that are included
in the separate accounts. The yield quotation more closely reflects the
current earnings of the Money Market Portfolio than the total return
quotation.
(check mark)Returns shown include any fee waivers in effect and deductions for
all Fund expenses. In the absence of fee waivers, total return
would be reduced.
Note:"Standard and Poor's 500", "S&P 500" and "S&P 400" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by The
Northwestern Mutual Life Insurance Company. The Series Fund and its
Portfolios are not sponsored, endorsed, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in them.
4
<PAGE>
<TABLE>
<CAPTION>
Russell Russell Russell
Index 500 Asset High Yield Select Money Multi-Style Aggressive Russell Real Estate Russell
Stock Allocation Balanced Bond Bond Market Equity Equity Non-U.S. Securities Core Bond
Division Division Division Division Division Division Division+ Division+ Division+ Division Division+
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(21.61%) (10.88%) (8.18%) (3.57%) 11.31% 0.95% (23.72%) (19.62%) (15.74%) 3.08% 8.08%
(5.83%) -- 14.11% (8.18%) 39.51% 20.09% (15.81%) (18.77%) (17.66%) -- 32.53%
(1.20%) -- 2.68% (1.69%) 6.89% 3.73% (3.38%) (4.07%) (3.81%) -- 5.79%
126.96%` -- 111.35% -- 96.47% 45.90% -- -- -- -- --
8.54% -- 7.77% -- 6.99% 3.85% -- -- -- -- --
470.71% (13.01%)+ 454.47% 49.39%## 406.91% 165.61% (41.05%) (19.56%) (31.18%) 30.85%~ 26.12%
9.87% (9.35%) 9.70% 4.74% 9.17% 5.42% (14.00%) (6.02%) (10.11%) 7.98% 6.85%
487.80% (13.01%) 443.34% 49.39% 396.75% 165.82% 7.46% 8.96% (17.98%) 28.74%~ 44.41%
10.04% (9.35%) 9.57% 4.74% 9.04% 5.42% 1.21% 1.44% (3.25%) 7.12% 6.32%
1.51%
-------------------------------------------------------------------------------------------------------------------------------
(22.54%) (10.79%) (8.09%) (3.47%) 11.42% 1.05% (23.65%) (19.54%) (15.65%) 3.18% 8.19%
(5.36%) -- 14.69% (7.71%) 40.23% 20.71% (15.38%) (18.35%) (17.24%) -- 33.20%
(1.09%) -- 2.78% (1.59%) 7.00% 3.84% (3.29%) (3.97%) (3.71%) -- 5.90%
129.29%` -- 113.52% -- 98.48% 47.39% -- -- -- -- --
8.65% -- 7.88% -- 7.10% 3.96% -- -- -- -- --
481.61% (12.89%)+ 465.03% 50.72%## 416.61% 170.67% (40.84%) (19.27%) (30.93%) 31.32%~ 26.57%
9.98% (9.26%) 9.81% 4.85% 9.28% 5.53% (13.91%) (5.92%) (10.02%) 8.08% 6.95%
499.03% (12.89%) 453.70% 50.72% 406.25% 170.89% 8.12% 9.63% (17.48%) 29.22%~ 45.30%
10.15% (9.26%) 9.68% 4.85% 9.15% 5.53% 1.31% 1.55% (3.15%) 7.23% 6.43%
1.51%
</TABLE>
5
<PAGE>
Performance Summary
as of December 31, 2002
Variable Executive Life--Policies First Offered on March 2, 1998***
<TABLE>
<CAPTION>
J.P. Morgan
Franklin Select
T. Rowe Templeton Growth &
Total return (check Small Cap Price Small Aggressive International International Index 400 Growth Income
mark) Growth Stock Cap Value Growth Stock Growth Stock Equity Stock Stock Stock
(as of 12/31/02) Division Division Division Division Division Division Division Division
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year.............. (18.42%) (5.58%) (21.15%) (12.34%) (17.40%) (14.54%) (20.83%) (28.20%)
5 years............. -- -- 3.74% -- (9.22%) -- 2.77% (18.46%)
Annualized......... -- -- 0.74% -- (1.91%) -- 0.55% (4.00%)
10 years............ -- -- 143.14% -- -- -- -- --
Annualized......... -- -- 9.29% -- -- -- -- --
Since division
inception in
Variable Life
Account............ 28.96%~ (3.92%)+ 102.32%* (20.58%)+ 41.47%# 6.43%~ 114.36%## 67.34%##
Annualized......... 7.53% (2.78%) 8.47% (14.98%) 4.09% 1.79% 9.20% 6.12%
Since portfolio 55.91%~ (3.92%) 309.44%* (20.58%) 75.97% 12.28%~ 114.36% 67.34%
inception++........
Annualized......... 12.86% (2.78%) 12.37% (14.98%) 6.02% 3.21% 9.20% 6.12%
Current Yield###...
Variable Joint Life--Policies First Offered on December 28, 1998****
-------------------------------------------------------------------------------------------------------------------------------
1 year.............. (18.42%) (5.58%) (21.15%) (12.34%) (17.40%) (14.54%) (20.83%) (28.20%)
5 years............. -- -- 3.74% -- (9.22%) -- 2.77% (18.46%)
Annualized......... -- -- 0.74% -- (1.91%) -- 0.55% (4.00%)
10 years............ -- -- 143.14% -- -- -- -- --
Annualized......... -- -- 9.29% -- -- -- -- --
Since division
inception in
Variable Life
Account............ 28.96%~ (3.92%)+ 102.32%* (20.58%)+ 41.47%# 6.43%~ 114.36%## 67.34%##
Annualized......... 7.53% (2.78%) 8.47% (14.98%) 4.09% 1.79% 9.20% 6.12%
Since portfolio 55.91%~ (3.92%) 309.44%* (20.58%) 75.97% 12.28%~ 114.36% 67.34%
inception++........
Annualized......... 12.86% (2.78%) 12.37% (14.98%) 6.02% 3.21% 9.20% 6.12%
Current Yield###...
</TABLE>
<TABLE>
<CAPTION>
Capital
Guardian
Total return (check Domestic
mark) Equity
(as of 12/31/02) Division
--------------------------------------
<S> <C>
1 year.............. (21.24%)
5 years............. --
Annualized......... --
10 years............ --
Annualized......... --
Since division
inception in
Variable Life
Account............ (22.97%)
Annualized......... (16.79%)
Since portfolio (22.97%)
inception++........
Annualized......... (16.79%)
Current Yield###...
Variable Joint Life--Policies First Offered on December 28, 1998****
------------------------------------------------------------------------------------------------------------------------------------
1 year.............. (21.24%)
5 years............. --
Annualized......... --
10 years............ --
Annualized......... --
Since division
inception in
Variable Life
Account............ (22.97%)+
Annualized......... (16.79%)
Since portfolio (22.97%)
inception++........
Annualized......... (16.79%)
Current Yield###...
</TABLE>
All total return figures shown above reflect the deduction of portfolio
expenses, as well as mortality and expense risk charges for each product.
Returns do not reflect deductions such as sales charges or premium taxes,
administrative charges, surrender charges or cost of insurance charges. These
deductions would significantly impact the returns if they were included.
Performance data reflects past results and is not a guarantee of future
results. Future value will fluctuate so that an investors shares, when
redeemed, may be worth more or less than their original cost.
` On April 30, 1993, the Index 500 Stock Portfolio was indexed to approximate
the performance of the Standard and Poor's 500 Composite Stock Price Index.
Before then, the Portfolio was actively managed.
++Returns stated are as of the inception date of the portfolio which preceeds
availability in the Variable Life Account. See the following footnotes for
portfolio inception dates.
* Inception date of this division in the Variable Life Account was 5/3/94.
Actual fund inception was 11/30/1990. Performance quoted prior to 5/3/94 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
# Inception date of this division in the Variable Life Account was 5/3/94.
Actual portfolio inception was 4/30/93. Performance quoted prior to 5/3/94 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
**Product inception date of 10/11/95. Returns prior to 10/11/95 were reflected
using the actual investment experience of each division, adjusted for the
expenses of the product and premium charges.
***Product inception date of 3/2/98. (For use with non-tax qualified executive
benefit plans.) Returns prior to 3/2/98 were reflected using the actual
investment experience of each division adjusted for expenses of the product
and premium charges.
****Product inception date of December 28, 1998 (For use primarily in estate
planning, provides coverage on two insureds with a death benefit payable on
the second death). Returns prior to 12/28/98 were reflected using the
actual investment experience of each division adjusted for expenses of the
product and premium charges.
~ Inception date of this division in the Variable Life Account was 6/30/99.
Actual fund inception was 4/30/99. Performance quoted prior to 6/30/99 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
+ Inception date of this division in the Variable Life Account was 6/30/99.
Actual fund inception was 1/2/97. Performance quoted prior to 6/30/99 is
based on actual investment experience, adjusted for expenses of the product
and premium charges.
##Inception date of 5/3/94.
+ Inception date of 7/31/01.
###For the seven-day period ended December 31, 2002, the Money Market
Portfolio's yield was 1.51% and was equivalent to a compound effective yield
of 1.52%. The seven-day yield does not include deductions that are included
in the separate accounts. The yield quotation more closely reflects the
current earnings of the Money Market Portfolio than the total return
quotation.
(check mark)Returns shown include any fee waivers in effect and deductions for
all Fund expenses. In the absence of fee waivers, total return
would be reduced.
Note:"Standard and Poor's 500", "S&P 500" and "S&P 400" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by The
Northwestern Mutual Life Insurance Company. The Series Fund and its
Portfolios are not sponsored, endorsed, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in them.
6
<PAGE>
<TABLE>
<CAPTION>
Russell Russell Russell
Index 500 Asset High Yield Select Money Multi-Style Aggressive Russell Real Estate Russell
Stock Allocation Balanced Bond Bond Market Equity Equity Non-U.S. Securities Core Bond
Division Division Division Division Division Division Division+ Division+ Division+ Division Division+
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(22.07%) (10.26%) (7.54%) (2.89%) 12.09% 1.65% (23.19%) (19.06%) (15.15%) 3.80% 8.84%
(2.48%) -- 18.18% (4.91%) 44.49% 24.37% (12.81%) (15.87%) (14.72%) 37.24%
(0.50%) -- 3.40% (1.00%) 7.64% 4.46% (2.70%) (3.40%) (3.13%) 6.54%
143.43%` -- 126.68% -- 110.73% 56.48% -- -- -- -- --
9.30% -- 8.53% -- 7.74% 4.58% -- -- -- -- --
549.76% (12.14%)+ 531.24% 58.74%## 477.11% 202.38% (39.58%) (17.55%) (29.46%) 34.10%~ 29.25%
10.64% (8.72%) 10.47% 5.48% 9.94% 6.16% (13.39%) (5.36%) (9.48%) 8.73% 7.60%
569.25% (12.14%) 518.61% 58.74% 465.57% 202.63% 12.07% 13.63% (14.47%) 32.09%~ 50.60%
10.81% (8.72%) 10.34% 5.48% 9.81% 6.16% 1.92% 2.15% (2.57%) 7.88% 7.07%
1.51%
--------------------------------------------------------------------------------------------------------------------------------
(22.07%) (10.26%) (7.54%) (2.89%) 12.09% 1.65% (23.19%) (19.06%) (15.15%) 3.80% 8.84%
(2.48%) -- 18.18% (4.91%) 44.49% 24.37% (12.81%) (15.87%) (14.72%) 37.24%
(0.50%) -- 3.40% (1.00%) 7.64% 4.46% (2.70%) (3.40%) (3.13%) 6.54%
143.43%` -- 126.68% -- 110.73% 56.48% -- -- -- -- --
9.30% -- 8.53% -- 7.74% 4.58% -- -- -- -- --
549.76% (12.14%)+ 531.24% 58.74%## 477.11% 202.38% (39.58%) (17.55%) (29.46%) 34.10%~ 29.25%
10.64% (8.72%) 10.47% 5.48% 9.94% 6.16% (13.39%) (5.36%) (9.48%) 8.73% 7.60%
569.25% (12.14%) 518.61% 58.74% 465.57% 202.63% 12.07% 13.63% (14.47%) 32.09%~ 50.60%
10.81% (8.72%) 10.34% 5.48% 9.81% 6.16% 1.92% 2.15% (2.57%) 7.88% 7.07%
1.51%
</TABLE>
7
<PAGE>
Overview and Outlook
The Economy
Economic growth was positive in all four quarters of 2002, but the recovery
from the brief recession of the prior year was less robust than economists had
forecast at the beginning of the year. Growth in real gross domestic product
for the full year was approximately 2.4%. Inflation remained quite moderate, at
a rate of approximately 1.6% for the year.
Consumer spending has been the main driver of the economy for several years
now, and there are concerns about whether debt-ridden consumers will keep
spending, especially as consumer confidence appears to be weakening. There are
early signs of improving business investment, and productivity has continued to
improve.
Monetary policy continues exceptionally stimulative, with one additional
interest rate cut in November 2002, following 11 reductions during 2002. The
tax cuts proposed by President Bush in January are intended to stimulate both
the consumer and business sectors; even if some aspects of the program are
trimmed, it appears certain that some form of fiscal stimulus will be passed.
With both monetary and fiscal policy encouraging growth, it appears likely that
the economy will strengthen in 2003. Surveys of business economists published
in late December and early January by The Wall Street Journal and Business Week
indicate a consensus estimate of real economic growth of approximately 3% for
2003, with the growth rate increasing as the year progresses.
--------------------------------------------------------------------------------
The Equity Market
The year just ended was the third year of negative returns for all major equity
indices. The S&P 500 Index posted a -22.1% return, and returns for each of the
10 industry sectors in the Index were negative. Both the S&P Midcap 400 and the
S&P Smallcap 600 were off about 15% for the year. A rally that began in October
moved broad indices up from five-year lows, but there is considerable
uncertainly as to whether that rally is sustainable. International markets were
also very weak: the EAFE Index (an unmanaged market-value weighted index
designed to measure the overall condition of overseas markets) was down more
than 15% for the year.
Investors should remember that the negative returns of the last three years
have followed a lengthy period of extraordinarily high equity returns. In the
1990s, the total return of the S&P 500 Index was above 20% for five consecutive
years, and the compound annual return for the decade was over 17%. That is very
unusual: the total return from the S&P 500 was above 20% in just 10 of the 30
years from 1960 to 1990, and the compound annual return for that period was 10%.
By historical standards, it is unusual for the stock market to be down during
the early stages of an economic recovery. But this has been an unusual
recovery, in which corporations have found it very difficult to grow earnings
in a situation of minimal pricing power combined with excess capacity in many
industries. Historic returns are not necessarily a good predictor of the
future, but if corporate earnings begin to show improvement in 2003, it seems
likely that stock returns will also turn positive.
--------------------------------------------------------------------------------
The Bond Market
For the third consecutive year bonds substantially outperformed stocks in 2002.
Total return from the Merrill Lynch Domestic Master Index was 10.4%, versus a
loss of 22.1% in the S&P 500 Index.
Within the bond market, the most pronounced trend was a substantial decline in
interest rates on U.S. Treasury bonds. There was also a dramatic steepening in
the yield curve, which depicts the relationship between yields on short-term
bonds and long-term bonds. Short-term yields remained very low, as the Federal
Reserve maintained a stimulative monetary policy, and prices of short-term
bonds reflected the expectation of further easing. In the first half of the
year, yields on bonds with maturities of two to ten years moved up, creating a
dramatic steepening in the short end of the curve. The short portion of the
curve became somewhat flatter during the summer and early fall, then steepened
again after the Federal Reserve cut interest rates in November. Yields on
30-year bonds, especially Treasury securities, fell much less than yields on
bonds with shorter maturities because the falling value of the dollar made
these bonds less attractive to foreign investors.
Among bond categories, mortgage-backed bonds delivered their best performance
in many years, as volatility declined from the prior year, because the
continued wave of refinancings was reflected in bond prices throughout the
year. Treasury securities performed very well in the first nine months, as wary
investors sought to avoid risk. Yield spreads between corporate bonds and
riskless Treasury securities widened considerably early in the year, as
investors responded to the additional risk created by corporate scandals, then
became narrower in the fourth quarter, as corporate earnings began to
stabilize, and more confident investors began to move money into both stock and
bond markets. The net change in yield spreads over the year was therefore quite
small.
--------------------------------------------------------------------------------
[CHART]
Economic Growth and Inflation
Economic
Growth Inflation
1983 4.3% 3.2%
1984 7.3% 4.3%
1985 3.8% 3.5%
1986 3.4% 1.9%
1987 3.4% 3.7%
1988 4.2% 4.1%
1989 3.5% 4.8%
1990 1.8% 5.4%
1991 -0.5% 4.2%
1992 3.1% 3.0%
1993 2.7% 3.0%
1994 4.0% 2.6%
1995 2.7% 2.8%
1996 3.6% 2.9%
1997 4.4% 2.3%
1998 4.3% 1.6%
1999 4.1% 2.7%
2000 3.8% 3.4%
2001 0.3% 2.8%
2002 2.4% 1.6%
Source: U.S. Department of Commerce. Year-to-year percentage change in Real
Gross Domestic Product is used for economic growth. December-to-December change
in the Consumer Price Index-Urban is used for the inflation rate. Statistics for
2002 are preliminary.
[CHART]
Annual Total Returns from S&P 500 Index
1983 22.5%
1984 6.3%
1985 32.2%
1986 18.5%
1987 5.2%
1988 16.8%
1989 31.5%
1990 -3.2%
1991 30.5%
1992 7.7%
1993 10.0%
1994 1.3%
1995 37.4%
1996 23.1%
1997 33.4%
1998 28.6%
1999 21.0%
2000 -9.1%
2001 -11.8%
2002 -23.4%
Source: Standard & Poor's
[CHART]
Annual Total Returns from
Merrill Lynch Domestic Master Index
1983 8.0%
1984 15.2%
1985 22.4%
1986 14.2%
1987 2.4%
1988 8.0%
1989 14.2%
1990 9.1%
1991 15.9%
1992 7.6%
1993 10.0%
1994 -2.8%
1995 18.5%
1996 3.6%
1997 9.7%
1998 8.9%
1999 -1.0%
2000 11.7%
2001 8.3%
2002 10.4%
Source: Merrill Lynch. The Merrill Lynch Domestic Master Index is an unmanaged
market value weighted index comprised of U.S. Government, mortgage and
investment-grade corporate bonds.
8
<PAGE>
Small Cap Growth Stock Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Maximum long-term appreciation of Strive for the highest possible rate of capital appreciation by $254.88 million
capital investing in companies with potential for rapid growth.
</TABLE>
The Small Cap Growth Stock Portfolio owns the stocks of emerging growth
companies, with the objective of maintaining a median market capitalization of
$1 billion. The range of market capitalization is generally between $200
million and $3 billion.
The investment process involves detailed studies of individual companies.
Factors evaluated include the growth rates of revenues and earnings,
opportunities for margin expansion, financial strength and quality of
management. Since growth stock portfolios tend to react strongly to changes in
financial and economic markets, as well as to changes in the prospects for
individual companies, returns of this Portfolio can vary considerably from time
to time. A higher level of risk (with risk defined as variability of returns
over time) is accepted for the potential of greater long-term returns.
For 2002, a year in which few equity investors were able to achieve positive
returns, the Small Cap Growth Stock Portfolio had a negative return of -18.4%,
better than the Russell 2000 Index, but worse than the S&P 600 Index. Since the
major focus in managing this portfolio is on stock selection, rather than
industry weightings, differences in return relative to the indices resulted
mainly from stock selection. In particular, the S&P 600 experienced a rally in
the fourth quarter, led by the semiconductor and software categories within the
technology sector. Although the Portfolio's representation in technology, at
17% of net assets, is slightly higher than the 15% for technology in the Index,
our technology holdings are mainly in more stable categories, particularly
technology consulting. A further disadvantage for performance, especially
in the fourth quarter, was the Portfolio's concentration in less risky stocks
whose performance does not correlate strongly with the market.
In the fourth quarter, poor performance of holdings in technology, health care
and retail was partially offset by strength in energy, particularly Energy
Partners, Ltd., and in materials and industrial stocks, which are considerably
overweighted. The industrials category includes business services such as The
Corporate Executive Board, which was especially strong in the fourth quarter.
Among the best performing stocks in the fourth quarter was UT Starcom, though
this holding was off for the full year.
[CHART]
Sector Allocation 12/31/02
Consumer 22%
Health Care 20%
Information Technology 17%
Industrials 16%
Energy 8%
Financials 5%
Materials 5%
Short-Term Investments 7%
The Small Cap Growth Stock Portfolio's investment in Initial Public Offerings
(IPO's) had a significant impact on its since inception performance. There can
be no assurance that IPO's will continue to have a positive affect on the
Portfolio's performance.
[GRAPHIC]
Top 10 Holdings 12/31/02
% of Total
Company Net Assets
O'Reilly Automotive, Inc. 4.2%
The Corporate Executive Board Co. 2.9%
UTStarcom, Inc. 2.9%
Varian, Inc. 2.7%
Lincare Holdings, Inc. 2.7%
DaVita, Inc. 2.6%
Westwood One, Inc. 2.6%
Renal Care Group, Inc. 2.5%
Patterson Dental Co. 2.5%
Coach, Inc. 2.2%
[CHART]
Relative Performance
Small Cap S&P 600 Russell 2000
4/30/99 $10,000 $10,000 $10,000
12/31/99 18,611 11,586 11,767
12/31/00 19,860 12,954 11,412
12/31/01 19,113 13,801 11,696
12/31/02 15,591 11,782 9,301
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year Inception*
Small Cap Growth Stock Portfolio -18.42% 12.86%
S&P 600 Index -14.63% 4.57%
Russell 2000 Index -20.48% -1.96%
*inception date of 4/30/99
Since the Portfolio invests primarily in small capitalization issues, the
indices that best reflect the Portfolio's performance are the Standard & Poor's
(S&P) SmallCap 600 Index and Russell 2000 Index. The indices cannot be invested
in directly and do not include sales charges.
The Standard & Poor's SmallCap 600 Index is an unmanaged index of 600 selected
common stocks of smaller U.S.-based companies compiled by Standard & Poor's
Corporation. As of December 31, 2002, the 600 companies in the composite had
median market capitalization of $428.8 million and total market value of $321.9
billion. The SmallCap 600 represents approximately 2.8% of the market value of
Compustat's database of over 11,418 equities.
The Russell 2000 Index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index. The Russell 3000 Index measures the performance of
the 3,000 largest US companies based on total market capitalization. These
3,000 companies represent approximately 98% of the investable US equity market.
As of December 31, 2002, the average market capitalization of companies in the
Russell 3000 was $4.0 billion; the median market capitalization was $700
million. Market capitalization of companies in the Index ranged from $309
billion to $128 million.
The Russell 2000 Index represents approximately 8% of the total market
capitalization of the Russell 3000. As of December 31, 2002, the average market
capitalization of companies in the Russell 2000 was approximately $490 million;
the median market capitalization was approximately $395 million. The largest
company in the index had a total market capitalization of approximately $1.3
billion to $128 million.
This chart assumes an initial investment of $10,000 made on 4/30/99
(commencement of the Fund's operations). Returns shown include deductions for
management and other fund expenses, and reinvestment of all dividends. Returns
exclude deductions for separate account sales loads and account fees. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be
worth more or less than their original cost. Total returns shown on page 4
reflect mortality and expense risk charges and other charges deducted from the
assets of the separate account. The cost of insurance protection, which is not
reflected in the returns shown on this chart, would make the returns
significantly lower. Investors are urged to obtain a personalized illustration
of historical performance which reflects the cost of insurance protection.
9
<PAGE>
Small Cap Growth Stock Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (93.3%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (20.5%)
Aaron Rents, Inc. 118,000 $ 2,582
*Aftermarket Technology Corp. 67,600 980
*AnnTaylor Stores Corp. 200,100 4,086
*Coach, Inc. 166,300 5,475
Fred's, Inc. 107,650 2,767
*Getty Images, Inc. 111,400 3,403
*The Gymboree Corp. 256,800 4,073
*Lin TV Corp. -- Class A 83,000 2,021
*O'Reilly Automotive, Inc. 425,300 10,755
*Orient-Express Hotel, Ltd. -- Class A 238,300 3,217
Polaris Industries, Inc. 65,900 3,862
*Spanish Broadcasting System, Inc. --
Class A 145,300 1,046
*Tommy Hilfiger Corp. 205,800 1,430
*Westwood One, Inc. 175,500 6,556
--------
Total 52,253
--------
Consumer Staples (1.5%)
*Peet's Coffee & Tea, Inc. 267,100 3,774
--------
Total 3,774
--------
Energy (8.1%)
*Cal Dive International, Inc. 181,200 4,258
*Energy Partners, Ltd. 255,000 2,729
*Forest Oil Corp. 83,900 2,320
*Grant Prideco, Inc. 237,000 2,759
*National Oilwell, Inc. 168,400 3,678
*Patterson-UTI Energy, Inc. 159,600 4,814
--------
Total 20,558
--------
Financials (5.1%)
*Corrections Corporation of America 69,100 1,185
Investors Financial Services Corp. 185,800 5,090
*Platinum Underwriters Holdings, Ltd. 15,300 403
Radian Group, Inc. 91,100 3,384
W.P. Stewart & Co., Ltd. 97,300 1,744
Waddell & Reed Financial, Inc. --
Class A 62,300 1,225
--------
Total 13,031
--------
Health Care (20.1%)
*Accredo Health, Inc. 112,200 3,955
*The Advisory Board Co. 38,600 1,154
*AmSurg Corp. 61,500 1,256
*Apogent Technologies, Inc. 134,000 2,787
*Bio-Rad Laboratories, Inc. -- Class A 62,300 2,411
*CIMA Labs, Inc. 114,400 2,767
*DaVita, Inc. 269,400 6,646
*IMPAC Medical Systems, Inc. 15,400 285
*Lincare Holdings, Inc. 218,900 6,922
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (93.3%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Health Care continued
*Patterson Dental Co. 145,600 $ 6,369
*Province Healthcare Co. 367,125 3,572
*Renal Care Group, Inc. 202,200 6,398
*Triad Hospitals, Inc. 83,000 2,476
*Ventana Medical Systems, Inc. 179,900 4,147
--------
Total 51,145
--------
Industrials (16.3%)
*Atlantic Coast Airlines Holdings, Inc. 160,700 1,933
C.H. Robinson Worldwide, Inc. 151,900 4,739
*Charles River Associates Inc. 83,500 1,182
*The Corporate Executive Board Co. 232,000 7,406
*Education Management Corp. 60,600 2,279
*Hewitt Associates, Inc. -- Class A 47,100 1,493
*Integrated Defense Technologies, Inc. 200 3
*Knight Transportation, Inc. 203,352 4,270
*MSC Industrial Direct Co., Inc. --
Class A 121,700 2,160
*P.A.M. Transportation Services, Inc. 107,100 2,700
*Pacer International, Inc. 277,000 3,684
*Portfolio Recovery Associates, Inc. 127,200 2,322
*Resources Connection, Inc. 178,600 4,145
SkyWest, Inc. 193,900 2,534
*Tetra Tech, Inc. 67,175 820
--------
Total 41,670
--------
Information Technology (16.9%)
*Amphenol Corp. -- Class A 68,700 2,611
*Barra, Inc. 37,250 1,130
*Brooks-PRI Automation, Inc. 92,208 1,057
*CACI International, Inc. -- Class A 101,700 3,625
*EPIQ Systems, Inc. 206,150 3,158
*Fargo Electronics, Inc. 343,500 2,995
*Forrester Research, Inc. 144,100 2,244
*Inforte Corp. 227,400 1,762
*MKS Instruments, Inc. 67,300 1,106
*O2Micro International Ltd 111,300 1,085
*Plexus Corp. 177,600 1,559
*Renaissance Learning, Inc. 163,300 3,086
*TESSCO Technologies, Inc. 220,708 2,042
*THQ, Inc. 84,350 1,118
*UTStarcom, Inc. 367,000 7,277
*Varian, Inc. 242,800 6,966
*Verint Systems, Inc. 17,400 351
--------
Total 43,172
--------
Materials (4.8%)
*Airgas, Inc. 285,300 4,922
Cambrex Corp. 93,900 2,837
Minerals Technologies, Inc. 83,900 3,620
</TABLE>
10
<PAGE>
Small Cap Growth Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (93.3%) Par (000's)
---------------------------------------------------
<S> <C> <C>
Materials continued
*Silgan Holdings, Inc. 33,600 $ 829
--------
Total 12,208
--------
Total Common Stock 237,811
(Cost: $253,937) --------
Money Market Investments (6.8%)
---------------------------------------------------
Federal Government and Agencies (1.8%)
Federal National Mortgage
Association, 1.28%, 3/12/03 $4,500,000 4,490
--------
Total 4,490
--------
Finance Lessors (2.0%)
Receivables Capital Corp.,
1.35%, 1/21/03 5,000,000 4,996
--------
Total 4,996
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (6.8%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Short Term Business Credit (3.0%)
Transamerica Financial Corp.,
1.34%, 1/21/03 $5,000,000 $ 4,996
UBS Finance LLC, 1.20%, 1/2/03 2,900,000 2,900
--------
Total 7,896
--------
Total Money Market
Investments (Cost: $17,381) 17,382
--------
Total Investments (100.1%)
(Cost: $271,318)` 255,193
--------
Other Assets, Less Liabilities
(0.1%) (313)
--------
Total Net Assets (100.0%) $254,880
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$275,499 and the net unrealized depreciation of investments based on that
cost was $20,306 which is comprised of $19,746 aggregate gross unrealized
appreciation and $40,052 aggregate gross unrealized depreciation.
*Non-Income Producing
The Accompanying Notes are an Integral Part of the Financial Statements
11
<PAGE>
T. Rowe Price Small Cap Value Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term growth of capital Invest in small companies whose common stocks are $63.08 million
believed to be undervalued.
</TABLE>
The T. Rowe Price Small Cap Value Portfolio invests primarily in small
companies whose current stock prices do not appear to reflect their underlying
value. For this Portfolio, value is defined broadly, with consideration given
to stock price relative to long-term growth prospects and business franchises,
in addition to typical value measures such as assets, current earnings and cash
flow. The Portfolio typically holds approximately 100 stocks with market
capitalizations within or below the range of companies in the Russell 2000
Value Index, as consideration of smaller companies often makes it possible to
invest in higher quality companies without paying a premium. The average
price-earnings ratio of stocks in the Portfolio is generally close to that of
the Index, but quality measures such as return on equity and financial strength
are higher. The major emphasis is on selection of individual stocks, with
secondary consideration given to industry weightings in order to keep the
Portfolio broadly diversified among economic sectors.
Although total return for 2002 was negative, as it was for virtually all equity
funds, the T. Rowe Price Small Cap Value Portfolio significantly outperformed
its benchmark, the Russell 2000 Index. The Portfolio's return was -5.6% versus
-20.5% for the Index. Selection of individual stocks, especially within the
materials, industrial, business services and financial sectors, was the major
reason for the outperformance; sector weightings were generally a neutral
factor in relative performance for the year.
We are well represented in the financial sector because many of the companies
in this sector hold the fundamental characteristics we value. Nonetheless, our
position, at 24% of assets, is below the benchmark's 30% weighting. Our
consumer discretionary holdings (20% of assets) are significantly larger than
the Russell benchmark's 14%, which hampered performance in the fourth quarter
as investors shifted assets out of conservative investments into more
growth-oriented names when the markets rallied in October and November.
With over 100 stocks in the Portfolio, and positions ranging from quite small
to over 2% of assets, very good performance of the largest holdings can
contribute importantly to overall performance. This was the case in 2002 with
XTO Energy, an independent oil and gas producer; Landstar System and UTI
Worldwide, two freight and logistics companies. Other large holdings that were
up significantly for the year are Brown & Brown, an insurance brokerage firm,
and RARE Hospitality, which operates casual dining restaurants. The biggest
performance detractor was Fred's, a value-oriented retailer that was off nearly
40% for the year. We have added to this position, as we have confidence in the
company's management and strategic direction.
The T. Rowe Price Small Cap Value Portfolio is managed for Northwestern Mutual
by T. Rowe Price.
[CHART]
Sector Allocation 12/31/02
Financials 24%
Consumer 22%
Industrials 19%
Materials 9%
Energy 7%
Information Technology 7%
Other Equities and Other Net Assets 4%
Health Care 4%
Utilities 3%
Short-Term Investments 1%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Brown & Brown, Inc. 2.5%
Texas Regional Bancshares, Inc. - Class A 2.4%
Landstar System, Inc. 2.4%
Ruby Tuesday, Inc. 2.1%
RARE Hospitality International, Inc. 1.9%
Fred's, Inc. 1.8%
XTO Energy, Inc. 1.8%
Community First Bankshares, Inc. 1.7%
Matthews International Corporation - Class A 1.7%
Allied Capital Corp. 1.6%
[CHART]
Relative Performance
T. Rowe Price Russell
Small Cap 2000
Value Portfolio Index
7/31/01 $10,000 $10,000
12/31/01 10,176 10,140
12/31/02 9,608 8,063
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year Inception*
T. Rowe Price Small Cap Value Portfolio -5.58% -2.78%
Russell 2000 Index -20.48% -14.07%
*inception date of 7/31/01
The Russell 2000 Index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index. The Russell 3000 Index measures the performance of
the 3,000 largest US companies based on total market capitalization. These
3,000 companies represent approximately 98% of the investable US equity market.
As of December 31, 2002, the average market capitalization of companies in the
Russell 3000 was $4.0 billion; the median market capitalization was $700
million. Market capitalization of companies in the Index ranged from $309
billion to $128 million. The index cannot be invested in directly and do not
include sales charges.
The Russell 2000 Index represents approximately 8% of the total market
capitalization of the Russell 3000. As of December 31, 2002, the average market
capitalization of companies in the Russell 2000 was approximately $490 million;
the median market capitalization was approximately $395 million. The largest
company in the index had a total market capitalization of approximately $1.3
billion to $128 million.
This chart assumes an initial investment of $10,000 made on 7/31/01
(commencement of the Fund's operations). Returns shown include deductions for
management and other fund expenses, and reinvestment of all dividends. Returns
exclude deductions for separate account sales loads and account fees. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be
worth more or less than their original cost. Total returns shown on page 4
reflect mortality and expense risk charges and other charges deducted from the
assets of the separate account. The cost of insurance protection, which is not
reflected in the returns shown on this chart, would make the returns
significantly lower. Investors are urged to obtain a personalized illustration
of historical performance which reflects the cost of insurance protection.
12
<PAGE>
T. Rowe Price Small Cap Value Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (97.0%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (19.6%)
Aaron Rents, Inc. 37,100 $ 812
Aaron Rents, Inc. -- Class A 2,100 48
*CSS Industries, Inc. 12,000 397
*Culp, Inc. 23,000 196
Fred's, Inc. 44,900 1,154
Hancock Fabrics, Inc. 32,000 488
Haverty Furniture Companies, Inc. 56,800 790
*Journal Register Co. 19,200 341
Matthews International Corp. -- Class A 46,500 1,038
*Paxson Communications Corp. 4,000 8
*RARE Hospitality International, Inc. 42,700 1,179
Ruby Tuesday, Inc. 76,900 1,330
*Saga Communications, Inc. -- Class A 49,000 931
*SCP Pool Corp. 26,400 771
*Sinclair Broadcast Group, Inc. --
Class A 19,200 223
Skyline Corp. 21,400 631
*Stanley Furniture Co., Inc. 25,000 581
*Stein Mart, Inc. 86,200 526
*TBC Corp. 44,200 531
*Unifi, Inc. 74,600 392
-------
Total 12,367
-------
Consumer Staples (2.3%)
*American Italian Pasta Co. -- Class A 15,600 561
Casey's General Stores, Inc. 50,000 610
*Wild Oats Markets, Inc. 27,100 280
-------
Total 1,451
-------
Energy (7.4%)
*Atwood Oceanics, Inc. 13,800 415
CARBO Ceramics, Inc. 17,000 573
*Forest Oil Corp. 21,350 590
*Lone Star Technologies, Inc. 16,500 246
*Magnum Hunter Resources, Inc. 17,800 106
Penn Virginia Corp. 17,850 649
*TETRA Technologies, Inc. 27,100 579
*W-H Energy Services, Inc. 24,500 357
XTO Energy, Inc. 46,000 1,137
-------
Total 4,652
-------
Financials (23.9%)
*Allied Capital Corp. 47,250 1,031
*American Capital Strategies, Ltd. 16,000 345
Bedford Property Investors, Inc. 21,400 550
Brown & Brown, Inc. 47,900 1,547
Community First Bankshares, Inc. 41,300 1,092
East West Bancorp, Inc. 24,900 898
*First Republic Bank 33,600 672
Gladstone Capital Corp. 5,400 89
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (97.0%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Financials continued
Glenborough Realty Trust Inc. 37,900 $ 675
Innkeepers USA Trust 49,700 381
Kilroy Realty Corp. 32,000 738
Lasalle Hotel Properties 25,800 361
*Markel Corp. 3,600 740
*Ohio Casualty Corp. 17,900 232
*ProAssurance Corp. 42,700 897
Scottish Annuity & Life Holdings, Ltd. 16,100 281
*Silicon Valley Bancshares 39,100 714
Sun Communities, Inc. 24,900 911
Texas Regional Bancshares, Inc. --
Class A 42,900 1,524
*Triad Guaranty, Inc. 24,600 907
Washington Real Estate Trust 21,400 546
-------
Total 15,131
-------
Health Care (3.5%)
Arrow International, Inc. 7,100 289
*Bone Care International, Inc. 33,800 329
*Diversa Corp. 57,200 518
*Guilford Pharmaceuticals, Inc. 55,400 220
*Lexicon Genetics Inc. 10,000 47
Owens & Minor, Inc. 50,100 823
-------
Total 2,226
-------
Industrials (19.1%)
Ameron International Corp. 7,200 397
C&D Technologies, Inc. 28,600 505
*Casella Waste Systems, Inc. -- Class A 60,700 540
EDO Corp. 21,400 445
*Electro Rent Corp. 55,850 677
Franklin Electric Co., Inc. 18,500 888
G & K Services, Inc. -- Class A 21,400 758
*Hub Group, Inc. -- Class A 10,000 48
IDEX Corp. 20,200 661
*Insituform Technologies, Inc. -- Class A 46,300 789
*Kirby Corp. 4,800 131
Landauer, Inc. 12,900 448
*Landstar System, Inc. 25,700 1,500
*Layne Christensen Co. 12,400 102
*Littelfuse, Inc. 27,100 457
McGrath Rentcorp 19,000 442
*Midwest Express Holdings, Inc. 18,500 99
Nordson Corp. 21,400 531
*Right Management Consultants, Inc. 28,200 374
Thomas Industries, Inc. 29,100 758
UTI Worldwide, Inc. 28,400 746
*Waste Connections, Inc. 7,100 274
Woodward Governor Co. 10,700 465
-------
Total 12,035
-------
</TABLE>
13
<PAGE>
T. Rowe Price Small Cap Value Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (97.0%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Information Technology (7.1%)
Analogic Corp. 13,000 $ 653
*ATMI, Inc. 22,600 419
*Cable Design Technologies Corp. 53,400 315
*Exar Corp. 38,000 471
Methode Electronics, Inc. -- Class A 24,500 269
*MPS Group, Inc. 78,400 434
*Mykrolis Corp. 42,600 311
*Netegrity, Inc. 41,700 136
*Packeteer, Inc. 56,800 390
*Progress Software Corp. 39,300 509
*SPSS, Inc. 35,750 500
*Stellent, Inc. 13,700 61
-------
Total 4,468
-------
Materials (9.1%)
*Airgas, Inc. 49,700 858
AptarGroup, Inc. 25,650 801
Arch Chemicals, Inc. 28,500 520
Carpenter Technology Corp. 17,800 222
Deltic Timber Corp. 21,400 571
Florida Rock Industries, Inc. 15,750 599
Gibraltar Steel Corp. 28,500 543
MacDermid, Inc. 14,200 324
Myers Industries, Inc. 35,225 377
*Symyx Technologies, Inc. 21,200 267
Wausau-Mosinee Paper Corp. 56,800 637
-------
Total 5,719
-------
Utilities (3.1%)
Black Hills Corp. 21,400 569
Cleco Corp. 32,100 449
Otter Tail Corp. 16,300 438
Vectren Corp. 22,100 508
-------
Total 1,964
-------
Various Other Holdings (1.9%)
First Financial Fund, Inc. 48,000 637
Russell 2000 Value Index 5,200 581
-------
Total 1,218
-------
Total Common Stock
(Cost: $65,565) 61,231
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (0.7%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Other Holdings (0.7%)
Reserve Investment Fund $421,816 $ 422
-------
Total Money Market Investments 422
-------
Total Money Market Investments
(Cost: $422) 422
-------
Total Investments (97.7%)
(Cost $65,987)` 61,653
-------
Other Assets, Less Liabilities
(2.3%) 1,430
-------
Total Net Assets (100.0%) $63,083
-------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$66,017 and the net unrealized depreciation of investments based on that cost
was $4,364 which is comprised of $2,684 aggregate gross unrealized
appreciation and $7,048 aggregate gross unrealized depreciation.
* Non-Income Producing
The Accompanying Notes are an Integral Part of the Financial Statements
14
<PAGE>
Aggressive Growth Stock Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Maximum long-term appreciation of Strive for the highest possible rate of capital appreciation by $994.08 Million
capital investing in companies with potential for rapid growth.
</TABLE>
The Aggressive Growth Stock Portfolio owns the stocks of emerging growth
companies, generally with market capitalizations of less than $10 billion.
Since growth stock portfolios tend to react strongly to changes in financial
and economic markets, as well as to changes in the prospects for individual
companies, returns of this Portfolio can vary considerably from time to time. A
higher level of risk (with risk defined as variability of returns over time) is
accepted for the potential of greater long-term returns. The Portfolio's focus
in stock selection is on the individual companies' ability to generate revenue,
expand profit margins and maintain solid balance sheets; industry sector
selection is of secondary importance.
For 2002, a year in which few equity investors were able to achieve positive
returns, the Aggressive Growth Stock Portfolio had a negative return of -21.2%,
underperforming the S&P MidCap 400 Index by 6.6 percentage points. Differences
in return relative to the Index resulted mainly from stock selection,
particularly within the technology sector, which rallied significantly in the
fourth quarter. The Portfolio has 15% of assets in technology, compared with
13% for the Index, but we have limited holdings in semiconductors and software,
the top-performing technology categories. Technology holdings that contributed
to fourth quarter performance include Qlogic, Novellus and UTStarcom, though
all these stocks were down for the year.
A positive influence on the Portfolio's performance for the year was relative
strength in stocks we regard as defensive, such as Sigma-Aldrich, a supplier of
specialty chemicals to the scientific community, and Ball Corp., which makes
metal and plastic packaging. The Portfolio's holdings in the consumer
discretionary sector had mixed results, with strength in holdings such as PETCO
and Getty Images offset by weakness in some retail stocks including Kohl's and
O'Reilly Automotive.
[CHART]
Sector Allocation
12/31/02
Information Technology 15%
Industrials 21%
Consumer Discretionary 17%
Materials 4%
Energy 9%
Financials 10%
Health Care 14%
Short-Term Investments 10%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Net Assets
Lincare Holdings, Inc. 3.5%
The Corporate Executive Board Co. 3.0%
Expeditors International of Washington, Inc. 2.7%
Patterson Dental Co. 2.7%
Investors Financial Services Corp. 2.6%
Old Republic International Corp. 2.6%
Fiserv, Inc. 2.5%
Lamar Advertising Company - Class A 2.1%
BJ Services Co. 1.8%
Swift Transportation Co., Inc. 1.8%
[CHART]
Relative Performance
Aggressive Growth
Stock Portfolio S&P 400 Index
12/31/1992 10,000 10,000
12/31/1993 11,911 11,396
12/31/1994 12,555 10,988
12/31/1995 17,488 14,388
12/31/1996 20,584 17,150
12/31/1997 23,437 22,680
12/31/1998 25,208 27,020
12/31/1999 36,245 30,989
12/31/2000 38,485 36,412
12/31/2001 30,837 36,194
12/31/2002 24,314 30,942
Average Annual Total Return
For Periods Ended December 31, 2002
1 Year 5 Years 10 Years
Aggressive Growth Stock Portfolio -21.15% 0.74% 9.29%
S&P MidCap 400 Index -14.51% 6.41% 11.96%
Since the Portfolio invests primarily in medium-capitalization (Mid Cap)
issues, the index that best reflects the Portfolio's performance is the S&P
MidCap 400 Index. This is a capitalization-weighted index that measures the
performance of the midrange sector of the U.S. stock market. The index cannot
be invested in directly and do not include sales charges.
As of December 31, 2002, the 400 companies in the composite had median market
capitalization of $1.5 billion and a total market value of $690.7 billion. The
MidCap 400 represents approximately 6.0% of the market value of Compustat's
database of about 11,418 equities.
This chart assumes an initial investment of $10,000 made on 12/31/92. Returns
shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Total returns shown on page 4 reflect mortality and expense risk charges and
other charges deducted from the assets of the separate account. The cost of
insurance protection, which is not reflected in the returns shown on this
chart, would make the returns significantly lower. Investors are urged to
obtain a personalized illustration of historical performance which reflects the
cost of insurance protection.
15
<PAGE>
Aggressive Growth Stock Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (89.8%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (16.6%)
*CDW Computer Centers, Inc. 290,400 $ 12,734
*Dollar Tree Stroes, Inc. 546,750 13,434
*Entercom Communications Corp. --
Class A 271,200 12,725
Fairmont Hotels & Resorts, Inc. 488,700 11,509
*Getty Images, Inc. 547,200 16,717
*Hispanic Broadcasting Corp. --
Class A 335,400 6,892
*Jones Apparel Group, Inc. 485,900 17,220
*Kohl's Corp. 287,300 16,074
*Lamar Advertising Co. -- Class A 616,125 20,733
*Michaels Stores, Inc. 219,200 6,861
*O'Reilly Automotive, Inc. 469,900 11,884
*PETCO Animal Supplies, Inc. 729,000 17,087
--------
Total 163,870
--------
Energy (8.8%)
*BJ Services Co. 559,600 18,081
*Cooper Cameron Corp. 261,200 13,013
GlobalSantaFe Corp. 422,101 10,265
*Grant Prideco, Inc. 679,425 7,909
*Nabors Industries, Ltd. 471,000 16,612
Ocean Energy, Inc. 455,500 9,096
*Weatherford International, Ltd. 312,925 12,495
--------
Total 87,471
--------
Financials (9.9%)
Eaton Vance Corp. 252,700 7,139
Investors Financial Services Corp. 956,700 26,204
Northern Trust Corp. 177,100 6,207
Old Republic International Corp. 905,000 25,340
Radian Group, Inc. 375,600 13,954
RenaissanceRe Holdings Ltd. 135,500 5,366
SouthTrust Corp. 591,000 14,686
--------
Total 98,896
--------
Health Care (14.1%)
*Apogent Technologies, Inc. 521,400 10,845
Biomet, Inc. 490,900 14,069
*Biovail Corp. 400,100 10,567
Health Management Associates, Inc. 374,700 6,707
*Lincare Holdings, Inc. 1,086,000 34,340
*Medlmmune, Inc. 346,600 9,417
*Patterson Dental Co. 601,750 26,321
*Province Healthcare Co. 857,650 8,345
*Shire Pharmaceuticals Group PLC,
ADR 262,700 4,962
*St. Jude Medical, Inc. 113,300 4,500
*Universal Health Services, Inc. --
Class B 229,600 10,355
--------
Total 140,428
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (89.8%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Industrials (21.6%)
*Apollo Group, Inc. -- Class A 369,550 $ 16,260
*ARAMARK Corp. -- Class B 584,200 13,729
*The BISYS Group, Inc. 556,100 8,842
*ChoicePoint, Inc. 124,700 4,924
Cintas Corp. 213,950 9,788
*Concord EPS, Inc. 235,750 3,711
*The Corporate Executive Board Co. 943,600 30,120
Deere & Co. 146,700 6,726
Expeditors International of
Washington, Inc. 810,200 26,453
Fastenal Co. 266,700 9,972
*Fiserv, Inc. 725,565 24,633
Graco, Inc. 326,000 9,340
*Hewitt Associates, Inc. -- Class A 139,500 4,421
Manpower, Inc. 88,600 2,826
Paychex, Inc. 492,100 13,730
SkyWest, Inc. 518,300 6,774
*Swift Transportation Co., Inc. 869,500 17,406
*Tetra Tech, Inc. 359,197 4,382
--------
Total 214,037
--------
Information Technology (15.0%)
*Brooks-PRI Automation, Inc. 380,008 4,355
*Cadence Design Systems, Inc. 627,300 7,396
*Electronic Arts, Inc. 73,100 3,638
Fair, Issac and Co., Inc. 193,300 8,254
*Integtated Circuit Systems, Inc. 312,800 5,709
*Intersil Corp. -- Class A 574,400 8,007
*Intuit, Inc. 311,971 14,638
*Jabil Circuit, Inc. 611,500 10,958
*Keane, Inc. 506,700 4,555
*Mettler -- Toledo International, Inc. 209,000 6,701
Microchip Technology, Inc. 683,275 16,705
*Novellus Systems, Inc. 388,800 10,918
*QLogic Corp. 257,800 8,897
*Semtech Corp. 411,200 4,490
*UTStarcom, Inc. 570,700 11,317
*VeriSign, Inc. 110,300 885
*Waters Corp. 286,000 6,229
*Zebra Tehnologies Corp. -- Class A 278,100 15,934
--------
Total 149,586
--------
Materials (3.8%)
Ball Corp. 135,400 6,931
Praxair, Inc. 297,700 17,198
Sigma-Aldrich Corp. 285,300 13,894
--------
Total 38,023
--------
Total Common Stock
(Cost: $932,403) 892,311
--------
</TABLE>
16
<PAGE>
Aggressive Growth Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (10.5%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Federal Government and Agencies (0.6%)
Federal Home Loan Bank,
1.24%, 3/7/03 $ 6,000,000 $ 5,987
--------
Total 5,987
--------
Finance Lessors (2.0%)
Receivables Capital Corp.,
1.35%, 1/21/03 20,000,000 19,985
--------
Total 19,985
--------
Finance Services (1.9%)
Preferred Receivable Funding,
1.35%, 1/9/03 18,600,000 18,594
--------
Total 18,594
--------
Miscellaneous Business Credit Institutions (2.0%)
Quincy Capital Corp.,
1.37%, 1/21/03 20,000,000 19,985
--------
Total 19,985
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (10.5%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Personal Credit Institutions (4.0%)
Salomon Smith Barney Hld,
1.325%, 1/24/03 $20,000,000 $ 19,984
Toyota Motor Credit Co.,
1.31%, 1/27/03 20,000,000 19,981
--------
Total 39,965
--------
Total Money Market
Investments (Cost: $104,515) 104,516
--------
Total Investments (100.3%)
(Cost $1,036,918)` 996,827
--------
Other Assets, Less Liabilities (-0.3%) (2,752)
--------
Total Net Assets (100.0%) $994,075
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$1,051,359 and the net unrealized depreciation of investments based on that
cost was $54,532 which is comprised of $85,872 aggregate gross unrealized
appreciation and $140,404 aggregate gross unrealized depreciation.
ADR -- American Depository Receipt
* Non-Income Producing
The Accompanying Notes are an Integral Part of the Financial Statements
17
<PAGE>
International Growth Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term capital appreciation Invest in stocks of companies outside the U.S. that are $35.37 million
expected to experience above-average growth.
</TABLE>
The International Growth Stock Portfolio invests in common stocks of companies
that are headquartered or trade primarily on exchanges outside the United
States and that are expected to grow more rapidly than market averages.
Holdings are selected for their individual characteristics and growth
prospects, with only minor consideration given to size, geography, and industry
group. Stocks are selected through fundamental analysis of their financial
soundness and potential for growth, with emphasis on distinctiveness of
products or services and strong market positions. Stocks under consideration
are carefully analyzed to make sure the promise of growth is not already
reflected in the stock price, with technical analysis used as a further check
on the relationship between price, value and market trends.
In a year of negative returns for nearly all major international markets, the
International Growth Portfolio produced a negative return, but outperformed its
benchmark, the EAFE Index. Good relative performance resulted mainly from
favorable stock selection, with some concentration in defensive industry groups
that are not highly sensitive to economic conditions. Holdings in this category
include large consumer products companies such as Reckitt Benckiser and
Unilever. Since tobacco companies tend to be relatively immune to economic
weakness, we have been successful with holdings Gallaher and Swedish Match.
A notable industry weighting is in autos: BMW AG, Porsche AG and Honda all
performed well during the year, though with some weakness at year end. Several
Canadian companies contributed to performance, including Royal Bank of Canada
and Cott, although both positions have been reduced somewhat. In anticipation
of renewed economic growth in many international markets, we have begun adding
or increasing positions in names with more cyclical exposure, such as Samsung
Electronics, Atlas Copco, Daily Mail & General Trust, and BASF.
Because of the Portfolio's strong orientation to growth, we own stocks of many
smaller companies, which often have greater growth potential than more mature,
larger companies. In many cases these stocks are not widely followed, and their
prices do not reflect their fundamental value and growth potential. Examples
are Jarvis PLC, a British support services company, Neopost, a French mailing
equipment manufacturer, and Medion, a German consumer electronics distributor.
[CHART]
Sector Allocation 12/31/02
Consumer Cyclical 24%
Consumer Non-Cyclical 12%
Financials 16%
Industrial Goods & Services 10%
Technology/Telecommunications 10%
Energy 8%
Transportation/Utilities 7%
Health Care 6%
Basic Materials 5%
Short-Term Investments 2%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Anglo Irish Bank Corp PLC - Ireland 1.8%
Reckitt Benckiser PLC - U.K. 1.5%
Rank Group PLC - U.K. 1.5%
Swedish Match AB - Sweden 1.4%
Belluna Co., LTD. - Japan 1.4%
Saipem SPA - Italy 1.4%
Esprit Holdings Limited - Hong Kong 1.4%
ResMed, Inc. - Australia 1.3%
Corporation Mapfre - Spain 1.3%
IHC Caland NV - Netherlands 1.2%
[CHART]
Relative Performance
International
Growth Portfolio EAFE Index
7/31/2001 10,000 10,000
12/31/2001 9,060 9,375
12/31/2002 7,942 7,907
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1-Year Inception
International Growth Portfolio -12.34% -14.98%
EAFE Index -15.66% -15.25%
*inception date of 7/31/01
As depicted in the graph, the International Growth Portfolio is compared
against the Morgan Stanley Capital International EAFE ("Europe-Australasia-Far
East") Index. The index is composed of approximately 1,100 companies in 20
countries in Europe and the Pacific Basin. The objective of the index is to
reflect the movements of stock markets in these countries by representing an
unmanaged (indexed) portfolio within each country. The index is constructed so
that companies chosen represent about 60% of market capitalization in each
market; industry composition of the market is reflected; and a cross section of
large, medium, and small capitalization stocks is included, taking into account
liquidity concerns. The index is calculated in U.S. dollars. The Index cannot
be invested in directly and does not include sales charges.
This chart assumes an initial investment of $10,000 made on 7/31/01
(commencement of the Portfolio's operations). Returns shown include deductions
for management and other fund expenses, and reinvestment of all dividends.
Returns exclude deductions for separate account sales loads and account fees.
Past performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be
worth more or less than their original cost. Total returns shown on page 4
reflect mortality and expense risk charges and other charges deducted from the
assets of the separate account. The cost of insurance protection, which is not
reflected in the returns shown on this chart, would make the returns
significantly lower. Investors are urged to obtain a personalized illustration
of historical performance which reflects the cost of insurance protection.
Investors should be aware of the risks of investments in foreign securities,
particularly investments in securities of companies in developing nations.
These include the risks of currency fluctuation, of political and economic
instability and of less well-developed government supervision and regulation of
business and industry practices, as well as differences in accounting standards.
18
<PAGE>
International Growth Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (97.7%) Country Par (000's)
----------------------------------------------------
<S> <C> <C> <C>
Basic Materials (5.4%)
*Arcelor Luxembourg 18,700 $ 230
BASF AG Germany 6,415 242
*Billerud Sweden 16,498 180
Norske
Skogindustrier
ASA Norway 8,575 121
*Novozymes A/S --
B Shares Denmark 11,200 234
Rio Tinto Ltd. Australia 12,200 233
*Solvay SA Belgium 5,400 373
UPM-Kymmene
OYJ Finland 9,600 308
-------
Total 1,921
-------
Consumer Cyclical (24.1%)
Bayerische
Motoren Werke
AG Germany 9,000 273
*Belluna Co., Ltd. Japan 14,520 504
Berkeley Group
PLC United Kingdom 27,975 267
Beru AG Germany 9,300 415
Bridgestone Corp. Japan 30,000 372
*British Sky
Broadcasting
Group PLC United Kingdom 30,695 316
Carnival Corp. Panama 4,350 109
*Compass Group
PLC United Kingdom 51,275 272
*Daily Mail and
General Trust United Kingdom 16,550 155
*Denway Motors
Limited Hong Kong 1,000,000 340
Electrolux AB --
Series B Sweden 20,000 316
*Esprit Holdings
Ltd. Hong Kong 284,500 478
Folli-Folli SA Greece 15,600 265
*Fuji Heavy
Industries, Ltd. Japan 56,000 222
Game Group PLC United Kingdom 155,000 90
Greek Organization
Of Football Prog-
nostics Greece 21,240 224
*HMV Group PLC United Kingdom 101,335 194
*Honda Motor Co.,
Ltd. Japan 9,000 333
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (97.7%) Country Par (000's)
------------------------------------------------------
<S> <C> <C> <C>
Consumer Cyclical continued
*Hyundai Motor
Co., Ltd. Republic Of Korea 11,000 $ 257
*Inditex Spain 6,700 158
Medion AG Germany 6,050 211
MFI Furniture
Group PLC United Kingdom 110,760 197
*NCSoft Corp. Republic Of Korea 1,390 121
Nintendo Co.,
Ltd. Japan 1,900 178
*Porsche AG Germany 850 353
*PSA Peugeot
Citroen France 4,250 173
Rank Group PLC United Kingdom 121,400 520
*Swatch Group
AG Switzerland 2,850 237
Vivendi
Universal SA France 14,250 230
*Volkswagen AG Germany 6,300 228
*Walmart de
Mexico --
Series V Mexico 104,000 237
Wolseley PLC United Kingdom 31,770 267
-------
Total 8,512
-------
Consumer Non-Cyclical (11.8%)
*Burberry Group
PLC United Kingdom 44,305 160
Cadbury
Schweppes PLC United Kingdom 19,000 118
*Cott Corp. Canada 16,700 298
*Gallaher Group
PLC United Kingdom 36,550 363
*Interbrew Belgium 5,500 130
*Kao Corp. Japan 6,000 132
Kook Soon Dang
Brewer Co., Ltd. South Korea 8,400 189
Luxottica Group
SPA, ADR Italy 20,900 285
*Nestle SA Switzerland 1,690 358
*Pernod-Ricard
SA France 1,200 116
*Puma AG Rudolf
Dassler Sport Germany 1,790 122
Reckitt Benckiser
PLC United Kingdom 27,500 534
Shiseido Co., Ltd Japan 29,000 377
Swedish Match
AB Sweden 65,000 511
Unilever PLC United Kingdom 35,500 338
</TABLE>
19
<PAGE>
International Growth Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (97.7%) Country Par (000's)
------------------------------------------------------
<S> <C> <C> <C>
Consumer Non-Cyclical continued
*Wella AG Germany 2,200 $ 133
-------
Total 4,164
-------
Energy (7.7%)
*ENI SPA Italy 16,000 254
*IHC Caland NV Netherlands 8,000 422
*Precision Drilling
Corp. Canada 6,760 218
Royal Dutch
Petroleum Netherlands 6,500 286
Saipem SPA Italy 71,800 481
Suncor Energy,
Inc. Canada 19,000 297
*Technip France 2,205 158
*TGS Nopec
Geophysical
Co. ASA Norway 24,000 189
Total Fina Elf SA France 2,850 407
-------
Total 2,712
-------
Financials (16.3%)
Aegon NV Netherlands 21,250 273
*Anglo Irish Bank
Co. Ireland 90,000 640
*BNP Paribas SA France 7,000 285
Cattles PLC United Kingdom 26,200 122
*Converium
Holding AG Switzerland 3,500 170
*Corporacion
Mapfre Spain 57,000 462
*Danske Bank Denmark 23,200 383
*Deutsche Boerse
AG Germany 8,600 343
*Grupo Financiero
BBVA
Bancomer Mexico 266,320 201
*HSBC Holdings
PLC United Kingdom 22,400 245
ING Groep NV Netherlands 13,500 229
*Intrum Justitia
AB Sweden 15,800 73
*Irish Life &
Permanent Ireland 25,500 276
Lloyds TSB
Group PLC United Kingdom 34,000 244
Man Group PLC United Kingdom 25,000 357
Manulife
Financial Canada 8,000 174
Muenchener
Rueckversicherungs-
Gesellschaft AG Germany 875 105
*OTP Bank RT Hungary 27,600 271
Royal Bank of
Canada Canada 9,520 349
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (97.7%) Country Par (000's)
---------------------------------------------------
<S> <C> <C> <C>
Financials continued
Royal Bank Of
Scotland Group
PLC United Kingdom 13,190 $ 316
Swiss
Reinsurance Co. Switzerland 4,000 262
-------
Total 5,780
-------
Healthcare (6.2%)
*Elekta AB --
Class B Sweden 32,300 326
*Nobel Biocare
Holding AG Switzerland 2,695 173
*Novartis AG Switzerland 5,700 208
*Perbio Science
AB Sweden 5,300 60
*Resmed Australia 15,200 464
Synthes Stratec,
Inc. Switzerland 513 315
Takeda Chemical
Industries Japan 7,000 293
*Taro
Pharmaceutical
Industries, Ltd. Israel 5,200 196
Teva
Pharmaceutical
Industries Ltd.,
ADR Israel 3,755 145
-------
Total 2,180
-------
Industry Goods and Services (9.8%)
*Alfa Laval AB Sweden 12,040 97
*Amcor Ltd. Australia 39,145 187
Atlas Copco AB
-- A shares Sweden 13,650 266
BAE Systems
PLC United Kingdom 64,275 128
Group 4 Falck
A/S Denmark 7,800 165
*Grupo Ferrovial Spain 16,500 419
Huhtamaki OYJ Finland 30,000 301
*Jarvis PLC United Kingdom 22,490 101
*Meggitt PLC United Kingdom 109,600 311
*Neopost SA France 10,000 322
*Schindler
Holdings Switzerland 1,295 252
*Serco Group PLC United Kingdom 59,750 147
*SGS Societe
Generale de
Surveillance
Holding SA Switzerland 1,140 343
Vestas Wind
Systems A/S Denmark 8,100 81
</TABLE>
20
<PAGE>
International Growth Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (97.7%) Country Par (000's)
-----------------------------------------------------
<S> <C> <C> <C>
Industry Goods and Services continued
Vinci SA France 6,250 $ 352
-------
Total 3,472
-------
Technology (6.5%)
ASM Pacific
Technology Ltd. Hong Kong 62,500 123
*ASML Holding
NV Netherlands 9,900 83
Canon, Inc. Japan 6,000 226
*INFOSYS
Technologies
Ltd. India 2,250 224
*Logitech
International-
Reg Switzerland 13,600 405
Nokia OYJ Finland 14,000 223
*Riverdeep Group
PLC Ireland 96,450 142
Royal Philips
Electronics NV Netherlands 11,000 193
Samsung
Electronics Co.,
Ltd. South Korea 970 257
*Sap AG Germany 2,520 198
Taiwan
Semiconductor
Manufacturing
Co., Ltd. Taiwan 67,100 82
*Tandberg ASA Norway 27,100 156
-------
Total 2,312
-------
Telecommunications (2.5%)
*KDDI Corp. Japan 50 162
*Orange SA France 40,000 277
Pt Telekomunikasi
Indonesia Indonesia 415,500 179
*Vodafone Group
PLC United Kingdom 153,350 279
-------
Total 897
-------
Transportation (4.0%)
Brisa Auto
Estradas de
Portugal SA Portugal 72,000 399
*EasyJet PLC United Kingdom 48,545 214
Exel PLC United Kingdom 26,015 288
Fraport AG Germany 9,000 161
Macquarie
Infrastructure
Group Australia 200,500 361
-------
Total 1,423
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (97.7%) Country Par (000's)
-----------------------------------------------------
<S> <C> <C> <C>
Utilities (3.4%)
Centrica PLC United
Kingdom 104,900 $ 289
Italgas S.P.A. Italy 19,500 265
National Grid United
Group PLC Kingdom 46,180 339
*Snam Rete Gas Italy 38,500 131
*Suez Lyonnaise
des Eaux SA France 10,700 186
-------
Total 1,210
-------
Total Foreign Common Stock
(Cost: $36,919) 34,583
-------
Money Market Investments (2.3%)
-----------------------------------------------------
Short Term Business Credit (2.3%)
Old Line Funding Corp.,
1.38%, 1/15/03 $800,000 800
-------
Total Money Market Investments
(Cost: $800) 800
-------
Total Investments (100.0%)
(Cost $37,719)` 35,383
-------
Other Assets, Less Liabilities (0.0%) (10)
-------
Total Net Assets (100.0%) $35,373
-------
</TABLE>
`At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$37,917 and the net unrealized depreciation of investments based on that cost
was $2,534 which is comprised of $4,171 aggregate gross unrealized
appreciation and $6,705 aggregate gross unrealized depreciation.
*Non-Income Producing
Investment Percentage by Country:
<TABLE>
<S> <C>
United Kingdom 20.3%
Germany 7.9%
Japan 7.9%
Switzerland 7.7%
France 7.1%
Other 49.1%
------
Total 100.0%
------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
21
<PAGE>
Franklin Templeton International Equity Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term appreciation of capital Participate in the growth of foreign economies by investing $563.10 million
through diversification into markets in securities with high long-term earnings potential relative
outside the United States to current market values.
</TABLE>
The Franklin Templeton International Equity Portfolio offers the opportunity to
participate in the growth of companies in countries throughout the world,
particularly those with expanding economies. In selecting investments, the
principal focus is on identifying undervalued stocks of companies with strong
finances and good long-term growth opportunities, rather than on choosing
specific industry groups or regions of the world in which to invest. The
Portfolio is normally fully invested in equity securities.
The Portfolio underperformed the EAFE Index by approximately two percentage
points during 2002; most of this underperformance came in the fourth quarter of
the year and resulted from extreme volatility of a few stocks. Total return for
both the Portfolio and the Index was negative for the year, as world economies
and equity markets trended generally down. Largely because of weakness in the
U.S. dollar relative to other currencies, the EAFE index was down significantly
less than the S&P 500 in 2002.
News about Asian markets tends to focus on Japan, a nation that has been in
recession for a decade; the Portfolio's representation in Japan is half that of
the EAFE Index. Other Asian economies are experiencing growth, and we are
finding better opportunities in Hong Kong, which provides access to the rapidly
growing Chinese market, and South Korea, with one of Asia's strongest
economies. Two of the Portfolio's ten largest holdings, Samsung Electronics and
KT Corp, South Korea's leading telephone company, are Korean companies.
European markets struggled during 2002; most were down more than 20% in local
currency, and the German market was off more than 40%. As always, individual
stock selection is the main focus of the Portfolio, and sharp drops in stocks
of some quality companies have created significant buying opportunities. During
the year we added to positions in several holdings including Aventis, a French
pharmaceutical company; Shire Pharmaceuticals in the U.K., and E.ON and
Deutsche Post in Germany. We reduced positions in Samsung Electronics and
Australia & New Zealand Banking Group, which contributed to performance early
in the year, and liquidated Elan Corp., which had hurt performance. A new
investment in the second half of the year was Suez SA, a French power company
that experienced a sharp price drop because of concerns about power holdings in
the U.S. Another new holding is Atlas Copco, a leading global machinery company
that has performed well; this is a premier company with excellent long-term
prospects.
The Franklin Templeton International Equity Portfolio is managed for
Northwestern Mutual by Templeton Investment Counsel, Inc.
[CHART]
Asset Allocation 12/31/02
Continental Europe 45%
Asia 22%
United Kingdom 17%
North America 6%
Australia/New Zealand 5%
Latin America/Caribbean 2%
Mid-East/Africa 2%
Short-Term Investments 1%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Societe' Bic SA - France 2.1%
Suez SA - France 2.0%
Swiss Reinsurance Co. - Switzerland 2.0%
Riunione Adriatica di Sicurta SPA - Italy 1.9%
Samsung Electronics Co. LTD - South Korea 1.9%
Nestle SA - Switzerland 1.9%
KT Corp. South Korea 1.9%
Aventis SA - France 1.9%
Repsol YPF SA - Spain 1.8%
Atlas Copco AB - Sweden 1.8%
[CHART]
Relative Performance
International Equity EAFE Index
4/30/93 $10,000 $10,000
12/31/93 12,464 10,970
12/31/94 12,451 11,859
12/31/95 14,265 13,228
12/31/96 17,263 14,068
12/31/97 19,383 14,364
12/31/98 20,317 17,284
12/31/99 24,970 22,002
12/31/00 24,772 18,931
12/31/01 21,304 14,917
12/31/02 17,597 12,581
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year 5 Years Inception*
Franklin Templeton International
Equity Portfolio -17.40% -1.92% 6.02%
EAFE Index -15.66% -2.61% 2.40%
*inception date of 4/30/93
As depicted in the graph, the Franklin Templeton International Equity Portfolio
is compared against the Morgan Stanley Capital International EAFE
("Europe-Australasia-Far East") Index. The index is composed of approximately
1,100 companies in 20 countries in Europe and the Pacific Basin. The objective
of the index is to reflect the movements of stock markets in these countries by
representing an unmanaged (indexed) portfolio within each country. The index is
constructed so that companies chosen represent about 60% of market
capitalization in each market; industry composition of the market is reflected;
and a cross section of large, medium, and small capitalization stocks is
included, taking into account liquidity concerns. The index is calculated in
U.S. dollars. The Index cannot be invested in directly and does not include
sales charges.
This chart assumes an initial investment of $10,000 made on 4/30/93
(commencement of the Portfolio's operations). Returns shown include deductions
for management and other fund expenses, and reinvestment of all dividends.
Returns exclude deductions for separate account sales loads and account fees.
Past performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be
worth more or less than their original cost. Total returns shown on page 4
reflect mortality and expense risk charges and other charges deducted from the
assets of the separate account. The cost of insurance protection, which is not
reflected in the returns shown on this chart, would make the returns
significantly lower. Investors are urged to obtain a personalized illustration
of historical performance which reflects the cost of insurance protection.
Investors should be aware of the risks of investments in foreign securities,
particularly investments in securities of companies in developing nations.
These include the risks of currency fluctuation, of political and economic
instability and of less well-developed government supervision and regulation of
business and industry practices, as well as differences in accounting standards.
22
<PAGE>
Franklin Templeton International Equity Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (98.7%) Country Par (000's)
-----------------------------------------------------
<S> <C> <C> <C>
Automobiles & Components (3.0%)
Autoliv, Inc. Sweden 169,780 $ 3,553
GKN PLC United Kingdom 2,091,540 6,760
Valeo SA France 210,000 6,589
--------
Total 16,902
--------
Banks (7.9%)
Australia & New
Zealand Banking
Group, Ltd. Australia 888,221 8,678
Banca Nazionale
Del Lavoro SPA Italy 3,529,070 3,907
*Dbs Group
Holdings, Ltd. Singapore 1,192,000 7,560
HSBC Holdings
PLC United Kingdom 530,937 5,804
Lloyds TSB Group
PLC United Kingdom 1,165,150 8,366
Nordea AB Sweden 1,793,590 8,037
Nordea AB (NDA) Sweden 491,780 2,167
--------
Total 44,519
--------
Basic Materials (3.5%)
BASF AG Germany 258,500 9,739
Norske
Skogindustrier Norway 684,860 9,688
--------
Total 19,427
--------
Capital Goods (10.3%)
Alstom SA France 903,114 4,502
Atlas Copco AB--
Class A Sweden 523,450 10,212
BAE Systems PLC United Kingdom 2,125,020 4,242
Hutchison
Whampoa, Ltd. Hong Kong 1,199,000 7,503
Invensys PLC United Kingdom 4,527,820 3,845
KCI Konecranes
International PLC Finland 342,900 8,381
Kurita Water
Industries, Ltd. Japan 580,000 5,841
Rolls-Royce PLC United Kingdom 2,061,590 3,551
Volvo AB --
Class B Sweden 608,220 9,911
--------
Total 57,988
--------
Commercial Services & Supplies (2.1%)
Societe Bic SA France 349,140 12,036
--------
Total 12,036
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (98.7%) Country Par (000's)
------------------------------------------------------
<S> <C> <C> <C>
Consumer Cyclical (1.5%)
Volkswagen AG Germany 230,450 $ 8,343
--------
Total 8,343
--------
Consumer Durables & Apparel (2.4%)
Royal Philips
Electronics NV Netherlands 576,875 10,110
Sony Corporation Japan 77,300 3,231
--------
Total 13,341
--------
Diversified Financials (3.2%)
ING Groep NV Netherlands 436,000 7,384
Nomura Holdings,
Inc. Japan 332,400 3,737
Swire Pacific
Limited -- Class A Hong Kong 1,260,500 4,825
Swire Pacific
Limited -- Class B Hong Kong 3,534,200 2,255
--------
Total 18,201
--------
Energy (7.5%)
CNOOC Limited China 293,360 7,642
ENI SPA Italy 416,325 6,619
Husky Energy, Inc. Canada 485,610 5,063
Repsol Ypf SA Spain 783,780 10,364
Shell Transport &
Trading Company
PLC United Kingdom 1,428,430 9,405
Total Fina Elf SA France 21,182 3,025
--------
Total 42,118
--------
Food & Drug Retailing (1.6%)
J. Sainsbury PLC United Kingdom 2,034,900 9,132
--------
Total 9,132
--------
Food Beverage & Tobacco (3.2%)
Nestle SA Switzerland 50,220 10,642
Unilever PLC United Kingdom 773,990 7,364
--------
Total 18,006
--------
Health Care Equipment & Services (1.4%)
Amersham PLC United Kingdom 883,370 7,842
Mayne Nickless,
Ltd. Australia 10 0
--------
Total 7,842
--------
</TABLE>
23
<PAGE>
Franklin Templeton International Equity Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (98.7%) Country Par (000's)
-------------------------------------------------------
<S> <C> <C> <C>
Insurance (10.0%)
ACE Ltd. Bermuda 330,080 $ 9,685
Axa SA France 433,842 5,823
Riunione Adriatica
Di Sicurta SPA Italy 902,240 10,983
Sompo Japan
Insurance, Inc. Japan 1,586,000 9,262
Swiss Reinsurance Switzerland 170,200 11,163
XL Capital, Ltd. --
Class A Bermuda 122,550 9,467
--------
Total 56,383
--------
Materials (6.9%)
Akzo Nobel NV Netherlands 316,250 10,033
AngloGold Limited,
ADR South Africa 113,870 3,901
Bayer AG Germany 263,150 5,523
Broken Hill Property
Billiton, Ltd. Australia 1,743,580 9,965
Stora Enso OYJ --
Class R Finland 842,680 8,887
Stora Enso OYJ --
R Shares Finland 29,567 307
--------
Total 38,616
--------
Media (2.0%)
United Business
Media PLC United Kingdom 1,463,910 6,835
Wolters Kluwer NV Netherlands 252,530 4,399
--------
Total 11,234
--------
Pharmaceuticals & Biotechnology (4.7%)
Aventis SA France 194,710 10,585
*CK Life Sciences
International, Inc. Hong Kong 29,640 5
Ono Pharmaceutical
Co., Ltd. Japan 266,000 8,047
Shire
Pharmaceuticals
Group United Kingdom 1,209,710 7,741
--------
Total 26,378
--------
Real Estate (0.5%)
Cheung Kong
Holdings, Ltd. Hong Kong 441,000 2,870
--------
Total 2,870
--------
Retailing (1.7%)
Marks & Spencer
Group PLC United Kingdom 1,891,701 9,593
--------
Total 9,593
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (98.7%) Country Par (000's)
------------------------------------------------------
<S> <C> <C> <C>
Software and Computer Services (1.0%)
Check Point
Software Tech Israel 442,150 $ 5,735
--------
Total 5,735
--------
Technology Hardware & Equipment (3.2%)
*Hitachi, Ltd. Japan 1,973,000 7,565
Samsung Electronics South Korea 40,200 10,643
--------
Total 18,208
--------
Telecommunication Services (9.5%)
BCE, Inc. Canada 380,910 6,872
Cable & Wireless
PLC United Kingdom 2,428,130 1,749
Compania de Tele
comunicaciones de
Chile SA, ADR Chile 154,985 1,486
KT Corp. Spons,
ADR South Korea 491,440 10,590
Nippon Telegraph &
Telephone
Corporation Japan 2,084 7,569
Philippine Long
Distance
Telephone, ADR Philippines 309,100 1,555
PT Indosat, ADR Indonesia 219,970 2,365
Telecom
Corporation of
New Zealand
Limited New Zealand 2,907,170 6,888
*Telefonica SA, ADR Spain 172,867 4,593
Telefonos de
Mexico SA, ADR Mexico 301,444 9,640
--------
Total 53,307
--------
Transportation (3.6%)
British Airways PLC United Kingdom 1,228,800 2,671
Deutsche Post AG Germany 935,920 9,831
Nippon Express Co.,
Ltd. Japan 2,026,000 7,939
--------
Total 20,441
--------
</TABLE>
24
<PAGE>
Franklin Templeton International Equity Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (98.7%) Country Par (000's)
------------------------------------------------------
<S> <C> <C> <C>
Utilities (8.0%)
E.On AG Germany 187,200 $ 7,544
Endesa SA Spain 574,510 6,722
Hong Kong Electric
Holdings Limited Hong Kong 1,794,500 6,800
Iberdrola SA Spain 467,480 6,549
International Power
PLC United Kingdom 2,038,344 3,142
Korea Electric Power
Corp. South Korea 192,390 2,960
Suez Lyonnaise France 657,010 11,404
--------
Total 45,121
--------
Total Foreign Common Stock
(Cost: $672,686) 555,741
--------
Preferred Stock
(0.6%)
------------------------------------------------------
Energy (0.6%)
Petroleo Brasileiro
SA Brazil 274,860 3,603
--------
Total Preferred Stock
(Cost: $5,746) 3,603
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Money Market Shares/ Value
Investments (0.6%) Country Par (000's)
------------------------------------------------------
<S> <C> <C> <C>
Short Term Business Credit (0.6%)
UBS Finance LLC,
1.2%, 1/2/03 United States $3,200,000 $ 3,200
--------
Total Money Market
Investments (Cost: $3,200) 3,200
--------
Total Investments (99.9%)
(Cost $681,632)` 562,544
--------
Other Assets, Less Liabilities (0.1%) 558
--------
Total Net Assets (100.0%) $563,102
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$682,917 and the net unrealized depreciation of investments based on that
cost was $120,373 which is comprised of $45,026 aggregate gross unrealized
appreciation and $165,399 aggregate gross unrealized depreciation.
ADR -- American Depository Receipt
* Non-Income Producing
Investment Percentage by Country:
<TABLE>
<S> <C>
United Kingdom 17.4%
France 9.6%
Japan 9.4%
Germany 7.3%
Sweden 6.0%
Other 50.3%
------
Total 100.0%
------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
25
<PAGE>
Index 400 Stock Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term capital appreciation through Invest in a portfolio designed to approximate the $225.41 million
cost-effective participation in broad composition and returns of the S&P MidCap 400 Index.
market performance
</TABLE>
The Index 400 Stock Portfolio is designed to achieve results that approximate
the performance of the Standard & Poor's MidCap 400 Composite Stock Price
Index. This index is a capitalization-weighted index that measures the
performance of the mid-range sector of the U.S. stock market. Of the 400
stocks, 281 are listed on the New York Stock Exchange, 116 on NASDAQ, and 3 on
the American Stock Exchange.
As of December 31, 2002, the 400 companies in the index had a median market
capitalization of $1.5 billion and total market value of $703 billion. For
comparison, the 500 large stocks in the S&P 500 Index had a median market
capitalization of $6.8 billion and total market value of $8,107 billion.
The Index 400 Portfolio provides participation in the performance of mid-sized
companies in the U.S. equity market. The Portfolio continues to achieve its
objective of matching the results of the S&P 400 MidCap Index before expenses.
[CHART]
Sector Allocation 12/31/02
Financials 18%
Consumer Discretionary 16%
Industrials 13%
Health Care 12%
Information Technology 12%
Energy 7%
Utiliities 7%
Consumer Staples 5%
Materials 5%
S&P MidCap 400 Index Futures 4%
Telecommunications 1%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
M&T Bank Corp. 1.0%
The Washington Post Company - Class B 1.0%
Affiliated Computer Services, Inc. - Class A 0.9%
Gilead Sciences, Inc. 0.9%
Symantec Corp. 0.8%
Weatherford International, Ltd. 0.7%
IDEC Pharmaceuticals Corp. 0.7%
Microchip Technology Inc. 0.7%
National Commerce Financial Corp. 0.7%
American Water Works Company, Inc. 0.6%
[CHART]
Relative Performance
Index 400 S&P MidCap 400 index
4/30/99 $10,000 $10,000
12/31/99 11,283 11,358
12/31/00 13,225 13,346
12/31/01 13,138 13,266
12/31/02 11,228 11,341
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year Inception*
Index 400 Stock Portfolio -14.54% 3.21%
S&P MidCap 400 Index -14.51% 3.49%
*inception date of 4/30/99
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, 2002, the 400 companies in the composite had median market capitalization
of $1.5 billion and a total market value of $690.7 billion. The MidCap 400
represents approximately 6.0% of the market value of Compustat's database of
about 11,418 equities. The index cannot be invested in directly and do not
include sales charges.
"Standard & Poor's(R)", "S&P(R)", "S&P MidCap 400 Index", "Standard & Poor's
MidCap 400 Index", "S&P 500(R)" and "Standard & Poor's 500" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by The
Northwestern Mutual Life Insurance Company. The funds are not sponsored,
endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the funds.
This chart assumes an initial investment of $10,000 made on 4/30/99
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. Total returns shown on page 4 reflect mortality and
expense risk charges and other charges deducted from the assets of the separate
account. The cost of insurance protection, which is not reflected in the
returns shown on this chart, would make the returns significantly lower.
Investors are urged to obtain a personalized illustration of historical
performance which reflects the cost of insurance protection.
26
<PAGE>
Index 400 Stock Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (16.0%)
#*99 Cents Only Stores 21,533 $ 578
*Abercrombie & Fitch Co. -- Class A 30,400 622
*American Eagle Outfitters, Inc. 22,150 305
ArvinMeritor, Inc. 20,850 348
Bandag Inc. 5,900 228
*Barnes & Noble, Inc. 20,700 374
Belo Corp.--Class A 34,400 733
*BJ's Wholesale Club, Inc. 21,800 399
Blyth, Inc. 14,200 380
Bob Evans Farms, Inc. 10,900 255
*Borders Group, Inc. 25,100 404
BorgWarner, Inc. 8,200 413
*Brinker International, Inc. 30,050 969
*Callaway Golf Co. 23,300 309
*CarMax, Inc. 31,600 565
*Catalina Marketing Corp. 16,800 311
CBRL Group, Inc. 16,100 485
*CDW Computer Centers, Inc. 25,800 1,131
*The Cheesecake Factory, Inc. 15,500 560
Claire's Stores, Inc. 15,000 331
Clayton Homes, Inc. 42,200 514
*Coach, Inc. 27,200 895
*Copart, Inc. 27,900 330
D.R. Horton, Inc. 44,900 779
*Dollar Tree Stores, Inc. 35,000 860
*Emmis Communications Corp. --
Class A 16,300 340
*Entercom Communications Corp. --
Class A 15,300 718
*Extended Stay America, Inc. 28,800 425
Federal Signal Corp. 14,600 284
*Furniture Brands International, Inc. 17,300 413
*Gentex Corp. 23,200 734
*GTECH Holdings Corp. 17,600 490
Harte-Hanks, Inc. 28,250 527
*Hispanic Broadcasting Corp. --
Class A 33,300 684
International Speedway Corp. --
Class A 16,300 608
*Krispy Kreme Doughnuts, Inc. 16,700 564
*Lear Corp. 20,100 669
Lee Enterprises, Inc. 13,600 456
Lennar Corp. 19,800 1,022
*Macrovision Corp. 15,600 250
*Mandalay Resort Group 21,000 643
Media General, Inc. -- Class A 7,100 426
*Michaels Stores, Inc. 20,400 639
Modine Manufacturing Co. 10,300 182
*Mohawk Industries, Inc. 20,500 1,167
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Consumer Discretionary continued
*The Neiman Marcus Group, Inc. --
Class A 14,700 $ 447
Outback Steakhouse, Inc. 23,500 809
*Papa John's International, Inc. 6,000 167
*Park Place Entertainment Corp. 92,500 777
*Payless ShoeSource, Inc. 6,914 356
*PETsMART, Inc. 41,400 709
Pier 1 Imports, Inc. 28,700 543
The Reader's Digest Association,
Inc. -- Class A 30,600 462
Ross Stores, Inc. 24,100 1,022
*Saks, Inc. 43,700 513
*Scholastic Corp. 12,000 431
*Six Flags, Inc. 28,400 162
Superior Industries International, Inc. 8,100 335
*The Timberland Co. -- Class A 11,500 410
*Unifi, Inc. 16,500 87
*United Rentals, Inc. 23,500 253
The Washington Post Co. -- Class B 2,900 2,141
*Westwood One, Inc. 32,800 1,225
*Williams-Sonoma, Inc. 35,300 958
--------
Total 36,126
--------
Consumer Staples (5.4%)
Church & Dwight Co., Inc. 12,200 371
*Constellation Brands, Inc. -- Class A 27,400 650
*Dean Foods Co. 27,776 1,030
The Dial Corp. 29,100 593
Dole Food Company, Inc. 17,200 560
Dreyer's Grand Ice Cream, Inc. 10,700 759
Hormel Foods Corp. 42,600 994
Interstate Bakeries Corp. 13,500 206
The J.M. Smucker Co. 15,196 605
Lancaster Colony Corp. 11,200 438
Longs Drug Stores Corp. 11,700 243
McCormick & Company, Inc. 42,900 995
PepsiAmericas, Inc. 47,200 634
Ruddick Corp. 14,200 194
Sensient Technologies Corp. 14,500 326
*Smithfield Foods, Inc. 33,500 665
Tootsie Roll Industries, Inc. 15,860 487
Tyson Foods, Inc. -- Class A 108,340 1,215
Universal Corp. 8,000 296
*Whole Foods Market, Inc. 17,600 928
--------
Total 12,189
--------
Energy (7.1%)
*Cooper Cameron Corp. 16,600 827
ENSCO International, Inc. 45,600 1,343
*FMC Technologies, Inc. 20,069 410
</TABLE>
27
<PAGE>
Index 400 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Energy continued
*Forest Oil Corp. 14,400 $ 398
*Grant Prideco, Inc. 34,100 397
*Hanover Compressor Co. 20,100 185
Helmerich & Payne, Inc. 15,300 427
Murphy Oil Corp. 28,000 1,200
*National Oilwell, Inc. 24,800 542
Noble Energy, Inc. 17,600 661
Ocean Energy, Inc. 53,900 1,076
Overseas Shipholding Group, Inc. 10,600 190
*Patterson-UTI Energy, Inc. 24,200 730
*Pioneer Natural Resources Co. 35,600 899
*Pride International, Inc. 40,900 609
*Smith International, Inc. 31,100 1,014
Tidewater, Inc. 18,600 578
Valero Energy Corp. 32,400 1,197
*Varco International, Inc. 29,662 516
*Weatherford International, Ltd. 39,900 1,594
Western Gas Resources, Inc. 10,100 372
XTO Energy, Inc. 38,100 941
--------
Total 16,106
--------
Financials (18.2%)
A.G. Edwards, Inc. 24,400 804
*Allmerica Financial Corp. 16,300 165
American Financial Group, Inc. 21,100 487
*AmeriCredit Corp. 46,800 362
AmerUs Group Co. 12,200 345
Arthur J. Gallagher & Co. 27,100 796
Associated Banc-Corp. 23,209 788
Astoria Financial Corp. 27,200 738
Bank of Hawaii Corp. 20,900 635
Banknorth Group, Inc. 45,500 1,028
Brown & Brown, Inc. 21,100 682
City National Corp. 15,300 673
The Colonial BancGroup, Inc. 37,900 452
Commerce Bancorp, Inc. 20,600 890
Compass Bancshares, Inc. 39,500 1,235
*E*TRADE Group, Inc. 112,100 545
Eaton Vance Corp. 21,300 602
Everest Re Group, Ltd. 15,700 868
Fidelity National Financial, Inc. 29,240 960
First Virginia Banks, Inc. 22,050 821
FirstMerit Corp. 26,000 563
Greater Bay Bancorp 15,700 271
GreenPoint Financial Corp. 30,400 1,373
HCC Insurance Holdings, Inc. 19,100 470
Hibernia Corp. -- Class A 48,500 934
Horace Mann Educators Corp. 12,500 192
Hospitality Properties Trust 19,200 676
Independence Community Bank Corp. 17,500 444
*IndyMac Bancorp, Inc. 17,600 325
*Investment Technology Group, Inc. 14,800 331
Investors Financial Services Corp. 19,800 542
*LaBranche & Co., Inc. 18,100 482
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Financials continued
Legg Mason, Inc. 19,900 $ 966
Leucadia National Corp. 17,000 634
Liberty Property Trust 23,200 741
M&T Bank Corp. 28,200 2,237
Mercantile Bankshares Corp. 21,400 826
Metris Companies, Inc. 17,800 44
The MONY Group, Inc. 14,600 350
National Commerce Financial Corp. 63,225 1,508
Neuberger Berman, Inc. 21,400 717
New Plan Excel Realty Trust, Inc. 29,700 567
New York Community Bancorp, Inc. 33,000 953
*Ohio Casualty Corp. 18,600 241
Old Republic International Corp. 36,900 1,033
The PMI Group, Inc. 27,700 832
Protective Life Corp. 21,100 581
Provident Financial Group, Inc. 14,900 388
Radian Group, Inc. 29,100 1,081
Roslyn Bancorp, Inc. 25,700 463
SEI Investments Co. 33,200 902
*Silicon Valley Bancshares 13,600 248
Sovereign Bancorp, Inc. 80,000 1,124
StanCorp Financial Group, Inc. 9,100 445
TCF Financial Corp. 22,900 1,001
Unitrin, Inc. 20,800 608
Waddell & Reed Financial, Inc. --
Class A 24,600 484
Webster Financial Corp. 14,700 512
Westamerica Bancorporation 10,300 414
Wilmington Trust Corp. 20,100 637
--------
Total 41,016
--------
Health Care (11.6%)
*AdvancePCS 28,300 629
*Apogent Technologies, Inc. 32,800 682
*Apria Healthcare Group, Inc. 16,800 374
*Barr Laboratories, Inc. 13,400 872
Beckman Coulter, Inc. 19,000 561
*Charles River Laboratories 13,700 527
*Covance, Inc. 18,500 455
*Cytyc Corp. 37,700 385
DENTSPLY International, Inc. 23,950 892
*Edwards Lifesciences Corp. 18,300 466
*Express Scripts, Inc. -- Class A 24,100 1,158
*First Health Group Corp. 31,100 757
*Gilead Sciences, Inc. 60,100 2,044
*Health Net, Inc. 38,400 1,014
*Henry Schein, Inc. 13,400 603
Hillenbrand Industries, Inc. 18,900 913
ICN Pharmaceuticals, Inc. 25,400 277
*IDEC Pharmaceuticals Corp. 46,800 1,553
*Incyte Genomics, Inc. 20,700 94
*IVAX Corp. 59,625 723
*LifePoint Hospitals, Inc. 12,100 362
*Lincare Holdings, Inc. 32,600 1,031
</TABLE>
28
<PAGE>
Index 400 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Health Care continued
*Millennium Pharmaceuticals, Inc. 87,200 $ 692
Mylan Laboratories, Inc. 38,400 1,340
Omnicare, Inc. 28,900 689
*Oxford Health Plans, Inc. 27,000 984
*PacifiCare Health Systems, Inc. 10,900 306
*Patterson Dental Co. 20,900 914
*Perrigo Co. 22,200 270
*Protein Design Labs, Inc. 27,300 232
*Sepracor, Inc. 25,800 249
*Sicor, Inc. 35,600 564
*STERIS Corp. 21,100 512
*Triad Hospitals, Inc. 22,739 678
*Universal Health Services, Inc. --
Class B 18,400 830
*Varian Medical Systems, Inc. 20,900 1,037
*Vertex Pharmaceuticals, Inc. 23,300 369
*VISX, Inc. 16,400 157
--------
Total 26,195
--------
Industrials (12.6%)
*AGCO Corp. 22,900 506
Airborne, Inc. 14,800 219
*Alaska Air Group, Inc. 8,100 175
*Albany International Corp. -- Class A 9,926 205
Alexander & Baldwin, Inc. 12,600 325
AMETEK, Inc. 10,100 389
Banta Corp. 7,700 241
*The BISYS Group, Inc. 36,600 582
C.H. Robinson Worldwide, Inc. 25,900 808
*Career Education Corp. 13,900 556
Carlisle Companies, Inc. 9,300 385
*Ceridian Corp. 45,500 656
*Certegy, Inc. 21,200 520
*CheckFree Corp. 23,900 382
*ChoicePoint, Inc. 26,300 1,039
CNF, Inc. 15,100 502
*CSG Systems International, Inc. 15,800 216
*DeVry, Inc. 21,400 355
Donaldson Company, Inc. 13,500 486
*DST Systems, Inc. 36,800 1,309
*The Dun & Bradstreet Corp. 22,800 786
*Dycom Industries, Inc. 14,700 195
*Education Management Corp. 10,700 402
*EGL, Inc. 15,000 214
*Energizer Holdings, Inc. 27,000 753
Expeditors International of
Washington, Inc. 31,900 1,042
Fastenal Co. 23,300 871
*Flowserve Corp. 16,900 250
GATX Corp. 15,000 342
Granite Construction, Inc. 12,700 197
Harsco Corp. 12,400 395
Herman Miller, Inc. 23,300 429
HON INDUSTRIES, Inc. 18,100 512
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Industrials continued
Hubbell, Inc. -- Class B 18,100 $ 636
*J.B. Hunt Transport Services, Inc. 12,000 352
*Jacobs Engineering Group, Inc. 16,700 595
Kaydon Corp. 9,300 197
Kelly Services, Inc. -- Class A 10,900 269
Kennametal, Inc. 10,600 365
*Korn/Ferry International 11,600 87
*L-3 Communications Holdings, Inc. 28,800 1,293
Manpower, Inc. 23,500 750
Nordson Corp. 10,300 256
Pentair, Inc. 15,100 522
Pittston Brink's Group 16,600 307
Precision Castparts Corp. 16,000 388
*Quanta Services, Inc. 21,300 75
*Republic Services, Inc. 50,200 1,053
Rollins, Inc. 9,300 237
*Sequa Corp. -- Class A 3,200 125
*Sotheby's Holdings, Inc. -- Class A 18,900 170
*SPX Corp. 25,100 940
*Swift Transportation Co., Inc. 26,300 526
*Sylvan Learning Systems, Inc. 12,319 202
Tecumseh Products Co. -- Class A 5,700 252
Teleflex, Inc. 12,000 515
Trinity Industries, Inc. 14,100 267
*Valassis Communications, Inc. 16,300 480
Viad Corp. 27,400 612
Wallace Computer Services, Inc. 12,800 275
York International Corp. 12,100 309
--------
Total 28,299
--------
Information Technology (12.0%)
*3Com Corp. 109,900 509
*Activision, Inc. 20,500 299
*Acxiom Corp. 27,000 415
*ADTRAN, Inc. 11,600 382
*Advanced Fibre Communications, Inc. 25,300 422
*Advent Software, Inc. 10,000 136
*Affiliated Computer Services, Inc. --
Class A 40,400 2,126
*Arrow Electronics, Inc. 30,800 394
*Ascential Software Corp. 76,100 183
*Atmel Corp. 143,200 319
*Avnet, Inc. 36,700 397
*Avocent Corp. 13,800 307
*Cabot Microelectronics Corp. 7,392 349
*Cadence Design Systems, Inc. 81,400 960
*Cirrus Logic, Inc. 25,600 74
*CommScope, Inc. 18,900 149
*Credence Systems Corp. 18,600 174
*Cree, Inc. 22,300 365
*Cypress Semiconductor Corp. 37,800 216
Diebold, Inc. 22,100 911
*Fairchild Semiconductor International,
Inc. -- Class A 35,900 384
</TABLE>
29
<PAGE>
Index 400 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Information Technology continued
*FEI Co. 9,900 $ 151
*Gartner Group, Inc. -- Class B 25,400 240
Harris Corp. 20,300 534
*Imation Corp. 10,700 375
*InFocus Corp. 12,100 75
*Integrated Device Technology, Inc. 31,700 265
*International Rectifier Corp. 19,500 360
*Internet Security Systems, Inc. 14,800 271
*Intersil Corp. -- Class A 41,800 583
Jack Henry & Associates, Inc. 27,700 334
*Keane, Inc. 23,200 209
*KEMET Corp. 26,400 231
*Lam Research Corp. 39,100 422
*Lattice Semiconductor Corp. 33,600 295
*Legato Systems, Inc. 35,200 177
*LTX Corp. 15,100 91
*Macromedia, Inc. 18,300 195
*McDATA Corp. -- Class A 34,800 247
*Mentor Graphics Corp. 20,300 160
*Micrel, Inc. 28,400 255
Microchip Technology, Inc. 61,912 1,514
*MPS Group, Inc. 31,500 175
*National Instruments Corp. 15,800 513
*Network Associates, Inc. 47,800 769
*Newport Corp. 11,700 147
*Overture Services, Inc. 17,900 489
*Plantronics, Inc. 14,100 213
*Plexus Corp. 12,900 113
*Polycom, Inc. 30,600 291
*Powerwave Technologies, Inc. 20,100 109
*Quantum Corporation -- DLT &
Storage Systems 48,300 129
*Retek, Inc. 16,200 44
The Reynolds and Reynolds Co. --
Class A 21,300 543
*RF Micro Devices, Inc. 51,700 379
*RSA Security, Inc. 17,400 104
*SanDisk Corp. 21,100 428
*Semtech Corp. 22,400 245
*Storage Technology Corp. 32,500 696
*Sybase, Inc. 29,800 399
*Sykes Enterprises, Inc. 12,400 41
*Symantec Corp. 44,500 1,799
*Synopsys, Inc. 23,400 1,080
*Tech Data Corp. 17,300 466
*The Titan Corp. 23,900 249
*Transaction Systems Architects,
Inc. -- Class A 10,900 71
*TriQuint Semiconductor, Inc. 40,511 172
*Varian, Inc. 10,400 298
*Vishay Intertechnology, Inc. 48,987 548
*Wind River Systems, Inc. 24,200 99
--------
Total 27,064
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Materials (4.8%)
A. Schulman, Inc. 9,000 $ 167
*Airgas, Inc. 21,900 378
*AK Steel Holding Corp. 33,100 265
Albemarle Corp. 12,800 364
Arch Coal, Inc. 16,100 348
Bowater, Inc. 16,900 708
Cabot Corp. 18,800 499
Carpenter Technology Corp. 6,800 85
Crompton Corp. 34,863 207
*Cytec Industries, Inc. 12,100 330
Ferro Corp. 12,400 303
*FMC Corp. 10,800 295
*GrafTech International, Ltd. 17,100 102
H.B. Fuller Co. 8,700 225
IMC Global, Inc. 35,300 377
*Longview Fibre Co. 15,700 114
The Lubrizol Corp. 15,800 482
Lyondell Chemical Co. 49,000 619
Martin Marietta Materials, Inc. 15,000 460
Minerals Technologies, Inc. 6,200 268
Olin Corp. 17,400 271
P.H. Glatfelter Co. 13,400 176
*Packaging Corporation of America 32,000 584
Peabody Energy Corp. 16,000 468
Potlatch Corp. 8,700 208
Rayonier, Inc. 8,500 385
RPM, Inc. 35,200 538
Solutia, Inc. 32,100 117
Sonoco Products Co. 29,600 678
The Valspar Corp. 15,400 679
Wausau-Mosinee Paper Corp. 15,800 177
--------
Total 10,877
--------
Telecommunication Services (0.6%)
*Broadwing, Inc. 67,100 236
*Price Communications Corp. 16,700 231
Telephone and Data Systems, Inc. 18,000 847
--------
Total 1,314
--------
Utilities (7.4%)
AGL Resources, Inc. 17,200 418
ALLETE, Inc. 26,100 592
Alliant Energy Corp. 27,900 462
American Water Works Company,
Inc. 30,700 1,396
*Aquila, Inc. 55,300 98
Black Hills Corp. 8,200 217
Cleco Corp. 14,400 202
DPL, Inc. 38,800 595
DQE, Inc. 22,700 346
Energy East Corp. 44,300 979
Equitable Resources, Inc. 19,000 666
Great Plains Energy, Inc. 20,800 476
Hawaiian Electric Industries, Inc. 11,200 493
</TABLE>
30
<PAGE>
Index 400 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (95.7%) Par (000's)
---------------------------------------------
<S> <C> <C>
Utilities continued
IDACORP, Inc. 11,600 $ 288
MDU Resources Group, Inc. 21,900 565
National Fuel Gas Co. 24,600 510
Northeast Utilities 41,900 636
NSTAR 16,300 724
OGE Energy Corp. 24,000 422
ONEOK, Inc. 18,500 355
Pepco Holdings, Inc. 50,100 971
PNM Resources, Inc. 12,000 286
Puget Energy, Inc. 28,400 626
Questar Corp. 25,100 698
SCANA Corp. 33,700 1,043
*Sierra Pacific Resources 31,281 203
Vectren Corp. 20,800 478
Westar Energy, Inc. 22,000 218
WGL Holdings, Inc. 14,900 356
Wisconsin Energy Corp. 35,300 890
WPS Resources Corp. 9,700 377
--------
Total 16,586
--------
Total Common Stock
(Cost: $248,668) 215,772
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (4.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies (0.5%)
#Federal Home Loan Bank,
1.24%, 3/7/03 $1,200,000 $ 1,197
--------
Total 1,197
--------
Personal Credit Institutions (2.7%)
#Salomon Smith Barney Hld,
1.325%, 1/24/03 6,000,000 5,995
--------
Total 5,995
--------
Short Term Business Credit (0.9%)
#UBS Finance LLC, 1.20%, 1/2/03 2,100,000 2,100
--------
Total 2,100
--------
Total Money Market
Investments (Cost: $9,292) 9,292
--------
Total Investments (99.8%)
(Cost $257,960)` 225,064
--------
Other Assets, Less Liabilities (0.2%) 346
--------
Total Net Assets (100.0%) $225,410
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$260,227 and the net unrealized depreciation of investments based on that
cost was $35,163 which is comprised of $19,478 aggregate gross unrealized
appreciation and $54,641 aggregate gross unrealized depreciation.
* Non-Income Producing
# All or a portion of the securities have been committed as collateral for open
futures positions. Information regarding open futures contracts as of period
end is summarized below:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Number of Expiration (Depreciation)
Issuer (000's) Contracts Date (000's)
---------------------------------------------------------
<S> <C> <C> <C>
MidCap 400 Index
Futures 43 3/03 $(113)
(Total Notional Value
at 12/31/02 $9,356)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
31
<PAGE>
Growth Stock Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term appreciation of capital with Hold a diversified mix of high quality growth stocks of $551.42 million
moderate risk medium and large companies with above-average potential
for earnings growth.
</TABLE>
The Growth Stock Portfolio is invested in high quality companies of large to
medium capitalization with strong financial characteristics and the ability to
generate internal growth. A key factor in stock selection is the choice of
industries with good earnings potential, based on analysis of economic trends
to determine their impact on various sectors of the economy. Stock selection is
made through "top down" analysis: first industry and market sector choices are
made based on the economic environment, and then the most promising companies
within each sector are selected as holdings. A strategy of this portfolio is to
go beyond the most familiar "blue chip" names to seek out medium-sized
companies with strong positions in their markets whose stock prices do not
reflect their potential for growth. Diversification across 70 to 90 stocks in a
wide range of industry groups reduces the Portfolio's risk profile.
Like essentially all equity funds, the Growth Stock Portfolio had negative
total return for 2002, but the Portfolio outperformed the S&P 500 Index for the
year and for the last five years. Relative to the Index, the Portfolio is most
overweighted in the Consumer Discretionary and Consumer Staples sectors and
underweighted in Financials, Industrials, Information Technology,
Telecommunications and Utilities.
The relative performance of this high-quality portfolio was stronger for the
first nine months of the year than in the fourth quarter, when a market rally
that began in October was concentrated in riskier issues, particularly in the
technology and telecommunications sectors, which had been extremely weak
earlier in the year. Despite an underweight in technology, some holdings in
this sector, such as Intel and Texas Instruments, had a negative impact on
performance for the year. Also negative for performance was GE, a solid company
that has been subject to problems in some of its industries; this position has
been reduced, though we still have confidence in the company's long-term
prospects. Some of the Portfolio's retail holdings, particularly Kohl's, were
down in the fourth quarter, as concerns about consumer spending mounted.
For the year, the holdings that contributed most to performance were generally
not the largest positions. These include Ecolab, a leader in premium commercial
cleaning and sanitizing products and services; Tribune Company, a newspaper
publisher and media company; consumer giant Kraft Foods; and Principal
Financial Group, a provider of insurance and other financial services.
[CHART]
Sector Allocation 12/31/02
Consumer Discretionary 24%
Financials 16%
Health Care 13%
Information Technology 12%
Consumer Staples 12%
Industrials 7%
Energy 7%
Materials 4%
Short-Term Investments 5%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Microsoft Corp. 3.8%
PepsiCo, Inc. 3.0%
Pfizer, Inc. 3.0%
Harley-Davidson, Inc. 2.7%
Kohl's Corp. 2.6%
Wal-Mart Stores, Inc. 2.4%
Johnson & Johnson 2.4%
The McGraw-Hill Companies, Inc. 2.4%
Medtronic, Inc. 2.3%
Exxon Mobil Corp. 2.3%
[CHART]
Relative Performance
Growth Stock Portfolio S&P 500 Index
5/3/94 $10,000 $10,000
12/31/94 10,155 10,320
12/31/95 13,285 14,180
12/31/96 16,063 17,413
12/31/97 20,858 23,211
12/31/98 26,425 29,826
12/31/99 32,369 36,108
12/31/00 31,563 32,851
12/31/01 27,077 28,945
12/31/02 21,436 22,548
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year 5 Years Inception*
Growth Stock Portfolio -20.83% -0.55% 9.20%
S&P 500 Index -22.10% -0.58% 9.85%
*inception date of 5/03/94
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks. The index cannot be invested in directly
and do not include sales charges.
This chart assumes an initial investment of $10,000 made on 5/3/94
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. Total returns shown on page 4 reflect mortality and
expense risk charges and other charges deducted from the assets of the separate
account. The cost of insurance protection, which is not reflected in the
returns shown on this chart, would make the returns significantly lower.
Investors are urged to obtain a personalized illustration of historical
performance which reflects the cost of insurance protection.
32
<PAGE>
Growth Stock Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (94.7%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (24.5%)
*Bed Bath & Beyond, Inc. 147,400 $ 5,090
*Comcast Corp. -- Class A 39,984 942
Darden Restaurants, Inc. 267,500 5,470
Fortune Brands, Inc. 172,300 8,014
Gannett Co., Inc. 35,000 2,513
Harley-Davidson, Inc. 320,800 14,822
*Kohl's Corp. 255,800 14,313
Lowe's Companies, Inc. 127,600 4,785
The McGraw-Hill Companies, Inc. 216,000 13,055
The New York Times Co. --
Class A 195,900 8,959
Newell Rubbermaid, Inc. 310,100 9,405
Target Corp. 268,500 8,055
Tiffany & Co. 71,200 1,702
Tribune Co. 246,900 11,224
*Viacom, Inc. -- Class B 172,700 7,039
Wal-Mart Stores, Inc. 263,700 13,320
Wendy's International, Inc. 229,200 6,204
--------
Total 134,912
--------
Consumer Staples (11.7%)
Anheuser-Busch Companies, Inc. 209,200 10,125
Colgate-Palmolive Co. 114,400 5,998
*Dean Foods Co. 49,500 1,836
General Mills, Inc. 146,500 6,878
Kellogg Co. 180,000 6,169
Kraft Foods, Inc. -- Class A 131,300 5,112
PepsiCo, Inc. 396,200 16,727
Walgreen Co. 395,200 11,536
--------
Total 64,381
--------
Energy (6.6%)
ChevronTexaco Corp. 83,800 5,571
ConocoPhillips 172,908 8,367
EOG Resources, Inc. 240,500 9,601
Exxon Mobil Corp. 362,034 12,649
--------
Total 36,188
--------
Financials (16.1%)
American Express Co. 160,000 5,656
American International Group, Inc. 99,700 5,768
The Bank of New York Company,
Inc. 206,300 4,943
The Charles Schwab Corp. 231,700 2,514
Citigroup, Inc 107,600 3,786
Fifth Third Bancorp 187,250 10,963
Freddie Mac 101,800 6,011
Lehman Brothers Holdings, Inc. 146,700 7,818
Marsh & McLennan Companies, Inc. 130,800 6,044
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (94.7%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Financials continued
Morgan Stanley 168,000 $ 6,707
Northern Trust Corp. 130,800 4,585
Principal Financial Group, Inc. 372,200 11,214
Prudential Financial, Inc. 111,800 3,549
Wells Fargo & Co. 194,800 9,130
--------
Total 88,688
--------
Health Care (12.7%)
Abbott Laboratories 66,000 2,640
*Amgen, Inc. 143,100 6,917
Baxter International, Inc. 216,200 6,054
Eli Lilly and Co. 72,400 4,597
Johnson & Johnson 246,300 13,229
Medtronic, Inc. 280,800 12,804
Merck & Co., Inc. 54,800 3,102
Pfizer, Inc. 538,650 16,467
UnitedHealth Group, Inc. 48,500 4,050
--------
Total 69,860
--------
Industrials (7.4%)
*American Standard Companies, Inc. 106,900 7,605
Avery Dennison Corp. 117,700 7,189
FedEx Corp. 132,000 7,157
*Fiserv, Inc. 365,362 12,404
General Electric Co. 260,600 6,346
--------
Total 40,701
--------
Information Technology (11.6%)
*Applied Materials, Inc. 337,500 4,398
*Cisco Systems, Inc. 262,800 3,443
*Electronic Arts, Inc. 72,900 3,628
Intel Corp. 432,700 6,737
International Business Machines
Corp. 132,400 10,261
*Microsoft Corp. 404,300 20,902
*NASDAQ-100 Trust, Series 1 72,500 1,769
Nokia Corp., ADR 52,400 812
*QUALCOMM, Inc. 89,000 3,239
*Semiconductor HOLDRS (SM) Trust 212,900 4,716
Texas Instruments, Inc. 283,700 4,258
--------
Total 64,163
--------
Materials (4.0%)
Air Products and Chemicals, Inc. 207,800 8,883
Ecolab, Inc. 214,200 10,604
PPG Industries, Inc. 56,200 2,818
--------
Total 22,305
--------
</TABLE>
33
<PAGE>
Growth Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (94.7%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Telecommunication Services
(0.1%)
AT&T Corp. 24,720 $ 645
--------
Total 645
--------
Total Common Stock
(Cost: $519,924) 521,843
--------
Money Market Investments (5.4%)
--------------------------------------------------------
Federal Government and Agencies (0.7%)
#Federal National Mortgage
Association, 1.28%, 3/12/03 $ 4,000,000 3,991
--------
Total 3,991
--------
Miscellaneous Business Credit Institutions (3.6%)
Quincy Capital Corp., 1.37%,
1/21/03 20,000,000 19,984
--------
Total 19,984
--------
Short Term Business Credit (1.1%)
UBS Finance LLC, 1.20%, 1/2/03 6,000,000 6,000
--------
Total 6,000
--------
Total Money Market
Investments (Cost:
$29,975) 29,975
--------
Total Investments (100.1%)
(Cost $549,899)` 551,818
--------
Other Assets, Less Liabilities (-0.1%) (397)
--------
Total Net Assets (100.0%) $551,421
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$550,482 and the net unrealized appreciation of investments based on that
cost was $1,336 which is comprised of $72,519 aggregate gross unrealized
appreciation and $71,183 aggregate gross unrealized depreciation.
ADR -- American Depository Receipt
* Non-Income Producing
# All or a portion of the securities have been committed as collateral for open
futures positions. Information regarding open futures contracts as of period
end is summarized below:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Number of Expiration (Depreciation)
Issuer (000's) Contracts Date (000's)
------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index
Futures 17 3/03 $(74)
(Total Notional
Value at 12/31/02
$3,809)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
34
<PAGE>
J.P. Morgan Select Growth and Income Stock Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term growth of capital and income, Actively manage a portfolio of equity securities with a goal $365.94 million
consistent with moderate investment risk of exceeding the total return of the S&P 500 Index.
</TABLE>
The J.P. Morgan Select Growth and Income Stock Portfolio invests mainly in
large-capitalization stocks, with a focus on seeking the best values in the
market based on long-term earnings forecasts. A sector balance very close to
that of the S&P 500 Index is normally maintained, with the emphasis on
undervalued stocks within each industry group; a valuation discipline mandates
the sale of stocks regarded as overvalued. More focus is placed on capital
appreciation and dividend growth than on current dividends. The Portfolio is
normally fully invested in equity securities.
In a very challenging market environment, the J.P. Morgan Select Growth and
Income Stock Portfolio underperformed its major benchmark, the S&P 500 Index,
during 2002. The Portfolio's underperformance has resulted largely from several
large holdings that have experienced major problems. The most costly has been
Tyco International, a longtime holding that lost more than two-thirds of its
value during 2002. Several other holdings that hurt performance earlier in the
year have been sold, including Dynegy and Gemstar.
Price weakness has created opportunities to add to several large holdings,
including General Electric, Citigroup and Microsoft. Some of the better
performing stocks in the Portfolio, including Mattel and Kraft Foods, were
smaller positions and therefore did not have a strongly positive effect on
overall results.
The J.P. Morgan Select Growth and Income Stock Portfolio is managed for
Northwestern Mutual by J.P. Morgan Fleming Asset Management. Effective January
31, 2003, the name of the Portfolio changed to Large Cap Core Stock, and the
Portfolio is managed by Mason Street Advisors, LLC. These changes are subject
to shareholder approval.
[CHART]
Sector Allocation 12/31/02
Health Care 13%
Materials 2%
Industrials 9%
Telecommunications 4%
Utilities 4%
Consumer Staples 9%
Information Technology 14%
Financials 20%
Energy 8%
Consumer Discretionary 15%
Short-Term Investments 2%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Citigroup, Inc. 4.2%
Microsoft Corp. 3.9%
General Electric Co. 3.8%
Exxon Mobil Corp. 2.6%
U.S. Bancorp 2.3%
Pfizer, Inc. 2.3%
ChevronTexaco Corp. 2.2%
Tyco International, Ltd. 2.1%
Cisco Systems, Inc. 2.0%
The Procter & Gamble Co. 2.0%
[CHART]
Relative Performance
Growth & Income S&P 500
Stock Portfolio Index
5/3/94 $10,000 $10,000
12/31/94 10,034 10,320
12/31/95 13,156 14,180
12/31/96 15,783 17,413
12/31/97 20,523 23,211
12/31/98 25,271 29,826
12/31/99 27,162 36,108
12/31/00 25,269 32,851
12/31/01 23,305 28,945
12/31/02 16,734 22,548
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year 5 Years Inception*
J. P. Morgan Select Growth & Income
Stock Portfolio -28.20% -4.00% 6.12%
S&P 500 Index -22.10% -0.58% 9.85%
*inception date of 5/03/94
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange.
The index is heavily weighted toward stocks with large market capitalizations
and represents approximately two-thirds of the total market value of all
domestic common stocks. The index cannot be invested in directly and do not
include sales charges.
This chart assumes an initial investment of $10,000 made on 5/3/94
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. Total returns shown on page 4 reflect mortality and
expense risk charges and other charges deducted from the assets of the separate
account. The cost of insurance protection, which is not reflected in the
returns shown on this chart, would make the returns significantly lower.
Investors are urged to obtain a personalized illustration of historical
performance which reflects the cost of insurance protection.
35
<PAGE>
J.P. Morgan Select Growth and Income Stock Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (97.8%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (15.2%)
*Abercrombie & Fitch Co. -- Class A 93,200 $ 1,907
*AOL Time Warner, Inc. 280,800 3,678
*Comcast Corp. -- Class A 78,014 1,839
*Comcast Corp. -- Class A 76,400 1,726
*Costco Wholesale Corp. 41,900 1,176
*Federated Department Stores, Inc. 49,100 1,412
The Home Depot, Inc. 187,000 4,481
*Jones Apparel Group, Inc. 53,100 1,882
*Lear Corp. 59,600 1,983
*Liberty Media Corp. -- Class A 593,000 5,301
Marriott International, Inc. -- Class A 53,300 1,752
Mattel, Inc. 202,400 3,876
NIKE, Inc. -- Class B 40,600 1,805
Target Corp. 175,600 5,268
The TJX Companies, Inc. 216,900 4,234
Tribune Co. 57,300 2,605
*Viacom, Inc. -- Class B 85,200 3,473
Wal-Mart Stores, Inc. 144,100 7,279
--------
Total 55,677
--------
Consumer Staples (8.8%)
The Coca-Cola Co. 128,000 5,609
CVS Corp. 68,400 1,708
The Gillette Co. 191,800 5,823
Kraft Foods, Inc. -- Class A 84,500 3,290
Philip Morris Companies, Inc. 111,400 4,515
The Procter & Gamble Co. 84,900 7,296
Unilever NV, ADR 66,800 4,122
--------
Total 32,363
--------
Energy (7.5%)
Anadarko Petroleum Corp. 24,700 1,183
ChevronTexaco Corp. 119,000 7,911
ConocoPhillips 58,544 2,833
*Cooper Cameron Corp. 44,900 2,237
Devon Energy Corp. 34,100 1,565
Exxon Mobil Corp. 267,954 9,362
GlobalSantaFe Corp. 94,151 2,290
--------
Total 27,381
--------
Financials (19.9%)
Ambac Financial Group, Inc. 125,325 7,048
American International Group, Inc. 45,900 2,655
Aon Corp. 99,300 1,876
Bank One Corp. 140,300 5,128
Capital One Financial Corp. 115,100 3,421
The Charles Schwab Corp. 129,800 1,408
*CIT Group, Inc. 82,400 1,615
Citigroup, Inc. 431,856 15,196
Countrywide Credit Industries, Inc. 94,300 4,871
*E*TRADE Group, Inc. 95,800 466
Fannie Mae 51,100 3,287
Freddie Mac 118,500 6,997
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (97.8%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Financials continued
The Goldman Sachs Group, Inc. 49,200 $ 3,351
*Travelers Property Casualty Corp. --
Class A 242,051 3,546
U.S. Bancorp 398,132 8,448
Washington Mutual, Inc. 99,900 3,450
--------
Total 72,763
--------
Health Care (12.7%)
Abbott Laboratories 88,900 3,556
*Amgen, Inc. 84,100 4,065
Baxter International, Inc. 77,400 2,167
CIGNA Corp. 89,700 3,688
Eli Lilly and Co. 88,800 5,639
*Human Genome Sciences, Inc. 34,366 303
Johnson & Johnson 115,150 6,185
Pfizer, Inc. 274,900 8,404
Pharmacia Corp. 117,152 4,897
Schering-Plough Corp. 67,800 1,505
*Tenet Healthcare Corp. 48,700 799
Wyeth 144,600 5,408
--------
Total 46,616
--------
Industrials (9.4%)
*Cendant Corp. 233,804 2,450
General Electric Co. 564,300 13,741
Lockheed Martin Corp. 42,600 2,460
Tyco International, Ltd. 447,192 7,638
United Technologies Corp. 46,300 2,868
Waste Management, Inc. 226,917 5,201
--------
Total 34,358
--------
Information Technology (14.4%)
*Accenture LTD -- Class A 86,000 1,547
*Altera Corp. 167,200 2,063
*Analog Devices, Inc. 65,500 1,563
*Applied Materials, Inc. 67,200 876
*CIENA Corp. 77,200 397
*Cisco Systems, Inc. 561,200 7,352
*Dell Computer Corp. 108,500 2,901
Hewlett-Packard Co. 178,002 3,090
Intel Corp. 345,000 5,372
International Business Machines
Corp. 77,000 5,968
*Microsoft Corp. 277,800 14,362
Motorola, Inc. 177,100 1,532
*NCR Corp. 115,200 2,735
*Oracle Corp. 166,400 1,797
*Sun Microsystems, Inc. 344,700 1,072
--------
Total 52,627
--------
</TABLE>
36
<PAGE>
J.P. Morgan Select Growth and Income Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (97.8%) Par (000's)
--------------------------------------------------
<S> <C> <C>
Materials (2.0%)
Alcoa, Inc. 145,864 $ 3,322
Monsanto Co. 58,809 1,132
PPG Industries, Inc. 18,400 923
Temple-Inland, Inc. 46,900 2,102
--------
Total 7,479
--------
Telecommunication Services (4.3%)
*American Tower Corp. -- Class A 249,900 882
AT&T Corp. 23,440 612
*AT&T Wireless Services, Inc. 265,100 1,498
SBC Communications, Inc. 162,810 4,414
*Sprint Corp. (PCS Group) 426,500 1,868
Verizon Communications, Inc. 163,548 6,337
--------
Total 15,611
--------
Utilities (3.6%)
Dominion Resources, Inc. 44,500 2,443
DTE Energy Co. 50,100 2,325
*Edison International 70,501 835
El Paso Corp. 156,800 1,091
*PG&E Corp. 178,600 2,483
Pinnacle West Capital Corp. 116,862 3,984
--------
Total 13,161
--------
Total Common Stock
(Cost: $487,362) 358,036
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (2.1%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Short Term Business Credit (2.1%)
UBS Finance LLC, 1.20%, 1/2/03 $7,700,000 $ 7,700
--------
Total Money Market
Investments (Cost: $7,700) 7,700
--------
Total Investments (99.9%)
(Cost $495,062)` 365,736
--------
Other Assets, Less Liabilities
(0.1%) 208
--------
Total Net Assets (100.0%) $365,944
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$498,712 and the net unrealized depreciation of investments based on that
cost was $132,976 which is comprised of $13,770 aggregate gross unrealized
appreciation and $146,746 aggregate gross unrealized depreciation.
ADR--American Depository Receipt
* Non-Income Producing
The Accompanying Notes are an Integral Part of the Financial Statements
37
<PAGE>
Capital Guardian Domestic Equity Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term growth of capital and income Invest in larger American companies that exhibit value $74.27 million
characteristics relative to S&P 500 Index.
</TABLE>
The Capital Guardian Domestic Equity Portfolio invests mainly in large
companies with well-known names, proven track records, and a history of
dividends. This value-oriented Portfolio emphasizes stocks that have lower
price-earnings ratios, lower price to book value ratios, and higher dividend
yields than the S&P 500 Index. In a year of negative equity returns, the
Portfolio modestly outperformed the S&P 500 Index.
The selection process focuses on individual stocks that are underpriced
relative to their inherent value and long-term prospects, based largely on
Capital Guardian's solid research capabilities. Industry selection receives
minor consideration, and industry weightings may diverge significantly from the
major market indices. At the end of 2002, the Portfolio was overweighted
relative to the Index in energy, industrials, materials, telecommunications and
utilities, and underweighted in consumer stocks, health care and information
technology. The overweighted positions in cyclical industries are held in the
belief that these stocks stand to benefit as the economic recovery progresses.
The largest holding in this broad category is Air Products and Chemicals, a
supplier of specialty chemicals and gases that is well positioned to benefit
from increased manufacturing activity.
The Portfolio's largest holding is Sprint Corporation, a leading provider of
long-distance and local telephone service. This is a company in an out-of-favor
industry with significant free cash flow, a good yield and sound management.
The 2002 bankruptcy of its largest competitor places Sprint in a more favorable
competitive situation, and earnings should increase significantly as industry
pricing stabilizes. Another large holding, NiSource, is a well-positioned
utility whose stock price recovered significantly in the last quarter of 2002.
A large bank holding, J.P. Morgan Chase, is a well-managed company with a high
yield that is beginning to realize benefits from a 2000 merger and is well
positioned to benefit from improving capital markets. A core holding that has
underperformed this year is General Electric, a very solid company whose stock
has been penalized by questions about accounting practices in its industry. We
continue to have confidence in GE's long-term prospects, based not only on the
company's business positions and strategies but also on a strong culture of
integrity and competitiveness.
The Capital Guardian Domestic Equity Portfolio is managed for Northwestern
Mutual by Capital Guardian Trust Company.
[CHART]
Sector Allocation 12/31/02
Financials 21%
Industrials 15%
Energy 10%
Consumer 13%
Materials 9%
Health Care 8%
Utilities 7%
Information Technology 5%
Telecommunications 8%
Short-Term Investments 4%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Sprint Corp. 5.6%
J.P. Morgan Chase & Co. 4.8%
Air Products and Chemicals, Inc. 4.3%
Bank One Corp. 4.1%
General Electric Co. 2.9%
Becton, Dickinson and Co. 2.8%
United Technologies Corp. 2.8%
Philip Morris Companies, Inc. 2.6%
Washington Mutual, Inc. 2.3%
NiSource, Inc. 2.3%
[CHART]
Relative Performance
Capital Guardian Domestic Equity S&P 500 Index
7/31/2001 $10,000 $10,000
12/31/2001 9,781 9,480
12/31/2002 7,703 7,385
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 year Inception
Capital Guardian Domestic Equity Portfolio -21.24% -16.79%
S&P 500 Index -22.10% -19.23%
*inception date of 7/31/01
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks. The index cannot be invested in directly
and do not include sales charges.
This chart assumes an initial investment of $10,000 made on 7/31/01
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. Total returns shown on page 4 reflect mortality and
expense risk charges and other charges deducted from the assets of the separate
account. The cost of insurance protection, which is not reflected in the
returns shown on this chart, would make the returns significantly lower.
Investors are urged to obtain a personalized illustration of historical
performance which reflects the cost of insurance protection.
38
<PAGE>
Capital Guardian Domestic Equity Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (94.0%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (7.0%)
*AOL Time Warner, Inc. 45,700 $ 599
*AutoNation, Inc. 38,400 482
Carnival Corp. 60,700 1,514
Ford Motor Co. 21,300 198
The Interpublic Group of Companies,
Inc. 19,900 280
Knight-Ridder, Inc. 25,700 1,626
The Thomson Corp. 16,000 428
*TMP Worldwide, Inc. 8,300 94
-------
Total 5,221
-------
Consumer Staples (5.0%)
Campbell Soup Co. 68,100 1,598
Kraft Foods, Inc. -- Class A 4,800 187
Philip Morris Companies, Inc. 48,100 1,950
-------
Total 3,735
-------
Energy (9.5%)
Baker Hughes, Inc. 37,300 1,201
*BJ Services Co. 13,900 449
ChevronTexaco Corp. 2,200 146
Exxon Mobil Corp. 16,900 590
Royal Dutch Petroleum Co., ADR 22,600 995
Schlumberger Ltd. 4,400 185
Shell Transport & Trading Co., ADR 31,700 1,234
Unocal Corp. 54,900 1,679
*Weatherford International, Ltd. 14,200 567
-------
Total 7,046
-------
Financials (20.8%)
*AmeriCredit Corp. 82,100 635
Bank One Corp. 82,700 3,023
Citigroup, Inc. 13,900 489
Everest Re Group, Ltd. 25,400 1,405
General Growth Properties, Inc. 5,600 291
The Goldman Sachs Group, Inc. 8,600 586
The Hartford Financial Services Group,
Inc. 23,500 1,068
Household International, Inc. 10,600 295
J.P. Morgan Chase & Co. 147,500 3,539
The PMI Group, Inc. 23,900 718
*Travelers Property Casualty Corp. --
Class A 18,010 264
Washington Mutual, Inc. 49,700 1,716
Wells Fargo & Co. 18,600 872
XL Capital, Ltd. -- Class A 6,200 479
-------
Total 15,380
-------
Health Care (8.3%)
Applera Corp. -- Applied Biosystems
Group 36,500 640
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (94.0%) Par (000's)
----------------------------------------------------
<S> <C> <C>
Health Care continued
AstraZeneca PLC ADR 33,100 $ 1,161
Becton, Dickinson and Co. 68,800 2,112
Eli Lilly and Co. 19,800 1,258
*Lincare Holdings, Inc. 30,500 964
Pfizer, Inc. 1,400 43
-------
Total 6,178
-------
Industrials (15.0%)
Canadian National Railway Co. 4,500 187
Dover Corp. 23,800 694
Emerson Electric Co. 10,900 554
Fluor Corp. 24,100 675
General Electric Co. 89,400 2,178
Illinois Tool Works, Inc. 5,000 324
Ingersoll-Rand Co. -- Class A 30,700 1,322
*Navistar International Corp. 23,100 562
*Sabre Holdings Corp. -- Class A 78,700 1,425
Siemens AG ADR 5,700 240
Southwest Airlines Co. 18,800 261
Tyco International, Ltd. 20,100 343
Union Pacific Corp. 4,600 275
United Technologies Corp. 33,900 2,100
-------
Total 11,140
-------
Information Technology (4.9%)
*Amdocs Ltd. 79,000 776
*Applied Materials, Inc. 62,800 819
Hewlett-Packard Co. 36,184 628
*KLA-Tencor Corp. 20,000 707
*Nortel Networks Corp. 84,000 135
*Polycom, Inc. 36,700 349
*VeriSign, Inc. 29,200 234
-------
Total 3,648
-------
Materials (7.9%)
Air Products and Chemicals, Inc. 74,400 3,180
Alcoa, Inc. 8,600 196
The Dow Chemical Co. 13,800 410
E. I. du Pont de Nemours and Co. 20,700 878
Lyondell Chemical Co. 48,400 612
Nucor Corp. 3,900 161
*Phelps Dodge Corp. 13,800 437
-------
Total 5,874
-------
Telecommunication Services (8.4%)
AT&T Corp. 18,400 480
CenturyTel, Inc. 13,700 403
SBC Communications, Inc. 45,900 1,244
Sprint Corp. 286,400 4,147
-------
Total 6,274
-------
</TABLE>
39
<PAGE>
Capital Guardian Domestic Equity Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (94.0%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Utilities (7.2%)
*The AES Corp. 162,900 $ 492
Duke Energy Corp. 31,700 619
El Paso Corp. 64,100 446
*Kinder Morgan Management, LLC. 19,628 620
NiSource, Inc. 84,200 1,684
Pinnacle West Capital Corp. 39,300 1,340
The Williams Companies, Inc. 40,700 110
-------
Total 5,311
-------
Total Common Stock
(Cost: $80,545) 69,807
-------
Preferred Stock (1.8%)
------------------------------------------------------
Consumer Discretionary (1.2%)
Ford Motor Company Capital Trust II 22,500 919
-------
Total 919
-------
Materials (0.6%)
Phelps Dodge Co. 5,000 427
-------
Total 427
-------
Total Preferred Stock
Investments (Cost: $1,616) 1,346
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (4.0%) Par (000's)
----------------------------------------------------
<S> <C> <C>
Federal Government and Agencies (3.3%)
Federal National Mortgage
Association, 1.26%, 1/27/03 $2,500,000 $ 2,498
-------
Total 2,498
-------
Short Term Business Credit (0.7%)
UBS Finance LLC, 1.20%, 1/2/03 500,000 500
-------
Total 500
-------
Total Money Market
Investments (Cost: $2,998) 2,998
-------
Total Investments (99.8%)
(Cost $85,159)` 74,151
-------
Other Assets, Less Liabilities (0.2%) 123
-------
Total Net Assets (100.0%) $74,274
-------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$85,457 and the net unrealized depreciation of investments based on that cost
was $11,306 which is comprised of $1,629 aggregate gross unrealized
appreciation and $12,935 aggregate gross unrealized depreciation.
ADR -- American Depository Receipt
* Non-Income Producing
The Accompanying Notes are an Integral Part of the Financial Statements
40
<PAGE>
Index 500 Stock Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Long-term capital appreciation through Invest in a portfolio designed to approximate the $1.36 billion
cost-effective participation in broad composition and returns of the S&P 500 Index.
market performance
</TABLE>
The Index 500 Stock Portfolio is designed to achieve results that approximate
the performance of the Standard & Poor's 500 Composite Stock Price Index. As of
December 31, 2002, the 500 stocks in the Index had a median market
capitalization of $6.8 billion and total market value of $8,107 billion. Of the
500 stocks, 424 are listed on the New York Stock Exchange,
74 on NASDAQ, and 2 on the American Stock Exchange.
This composite of 500 stocks of large U.S.-based companies, compiled by
Standard & Poor's Corporation, is generally regarded as a good proxy for the
large-capitalization portion of the U.S. equity market; the Portfolio therefore
provides participation in overall performance of the equity market. The
Portfolio continues to achieve the objective of matching the results of the S&P
500 before expenses.
[CHART]
Sector Allocation
12/31/02
Financials 20%
Health Care 15%
Information Technology 14%
Industrials 12%
Consumer Discretionary 13%
Consumer Staples 9%
Energy 6%
Telecommunications 4%
Materials 3%
Utilities 3%
Short-Term Investments 1%
[GRAPHIC]
Top 10 Holdings 12/31/02
Company % of Total Net Assets
Microsoft Corp. 3.4%
General Electric Co. 2.9%
Exxon Mobil Corp. 2.9%
Wal-Mart Stores, Inc. 2.7%
Pfizer, Inc. 2.3%
Citigroup, Inc. 2.2%
Johnson & Johnson 1.9%
American International Group, Inc. 1.8%
International Business Machines Corp. 1.6%
Merck & Co., Inc. 1.6%
[CHART]
Relative Performance
Index 500 Stock Portfolio S&P 500 Index
12/31/92 $10,000 $10,000
12/31/93 10,990 11,010
12/31/94 11,123 11,142
12/31/95 15,267 15,309
12/31/96 18,740 18,800
12/31/97 24,961 25,060
12/31/98 32,131 32,202
12/31/99 38,849 38,984
12/31/00 35,448 35,468
12/31/01 31,237 31,251
12/31/02 24,343 24,344
Average Annual Total Return
For Periods Ended December 31, 2002
1 Year 5 Years 10 Years
Index 500 Stock Portfolio -22.07% -0.50% 9.30%
S&P 500 Index -22.10% -0.58% 9.30%
On April 30, 1993, the Portfolio was indexed to approximate the performance of
the
Standard & Poor's 500 Composite Stock Price Index. Before that date, the
Portfolio was actively managed. The index cannot be invested in directly and do
not include sales charges.
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks.
"Standard & Poor's(R)", "S&P(R)", "S&P MidCap 400 Index", "Standard & Poor's
MidCap 400 Index", "S&P 500(R)" and "Standard & Poor's 500" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by The
Northwestern Mutual Life Insurance Company. The funds are not sponsored,
endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the funds.
This chart assumes an initial investment of $10,000 made on 12/31/92. Returns
shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Total returns shown on page 4 reflect mortality and expense risk charges and
other charges deducted from the assets of the separate account. The cost of
insurance protection, which is not reflected in the returns shown on this
chart, would make the returns significantly lower. Investors are urged to
obtain a personalized illustration of historical performance which reflects the
cost of insurance protection.
41
<PAGE>
Index 500 Stock Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (13.3%)
*American Greetings Corp. --
Class A 10,900 $ 172
*AOL Time Warner, Inc. 738,900 9,680
*AutoZone, Inc. 16,325 1,153
*Bed Bath & Beyond, Inc. 48,400 1,671
*Best Buy Co., Inc. 53,250 1,286
*Big Lots, Inc. 19,200 254
The Black & Decker Corp. 13,300 570
Brunswick Corp. 14,900 296
Carnival Corp. 97,109 2,423
Centex Corp. 10,200 512
Circuit City Stores, Inc. 34,800 258
*Clear Channel Communications,
Inc. 101,350 3,779
*Comcast Corp. -- Class A 379,470 8,944
Cooper Tire & Rubber Co. 12,200 187
*Costco Wholesale Corp. 75,264 2,112
Dana Corp. 24,550 289
Darden Restaurants, Inc. 28,350 580
Delphi Automotive Systems Corp. 92,587 745
Dillard's, Inc. -- Class A 13,964 221
Dollar General Corp. 55,148 659
Dow Jones & Company, Inc. 13,920 602
Eastman Kodak Co. 48,283 1,692
*eBay, Inc. 50,600 3,432
Family Dollar Stores, Inc. 28,700 896
*Federated Department Stores, Inc. 33,351 959
Ford Motor Co. 301,794 2,807
Fortune Brands, Inc. 24,867 1,157
Gannett Co., Inc. 44,150 3,170
The Gap, Inc. 143,975 2,234
General Motors Corp. 92,727 3,418
Genuine Parts Co. 28,900 890
The Goodyear Tire & Rubber Co. 29,000 197
Harley-Davidson, Inc. 50,100 2,315
*Harrah's Entertainment, Inc. 18,450 731
Hasbro, Inc. 28,625 331
Hilton Hotels Corp. 62,250 791
The Home Depot, Inc. 390,094 9,347
*International Game Technology 14,300 1,086
The Interpublic Group of
Companies, Inc. 63,500 894
J. C. Penney Company, Inc. 44,250 1,018
Johnson Controls, Inc. 14,700 1,178
*Jones Apparel Group, Inc. 21,300 755
KB Home 8,200 351
Knight-Ridder, Inc. 13,750 870
*Kohl's Corp. 55,767 3,120
Leggett & Platt Inc. 32,433 728
The Limited, Inc. 86,305 1,202
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Consumer Discretionary continued
Liz Claiborne, Inc. 17,700 $ 525
Lowe's Companies, Inc. 128,850 4,832
Marriott International, Inc. --
Class A 40,000 1,315
Mattel, Inc. 72,288 1,384
The May Department Stores Co. 47,750 1,097
Maytag Corp. 12,933 369
McDonald's Corp. 211,078 3,394
The McGraw-Hill Companies, Inc. 32,160 1,944
Meredith Corp. 8,200 337
The New York Times Co. --
Class A 25,070 1,146
Newell Rubbermaid, Inc. 44,192 1,340
NIKE, Inc. -- Class B 44,200 1,966
Nordstrom, Inc. 22,367 424
*Office Depot, Inc. 51,157 755
Omnicom Group, Inc. 31,100 2,009
Pulte Corp. 10,100 483
RadioShack Corp. 28,400 532
*Reebok International, Ltd. 9,900 291
Sears, Roebuck & Co. 52,350 1,254
The Sherwin-Williams Co. 24,913 704
Snap-On, Inc. 9,617 270
The Stanley Works 14,150 489
*Staples, Inc. 77,400 1,416
*Starbucks Corp. 64,250 1,309
Starwood Hotels & Resorts
Worldwide, Inc. 33,000 783
Target Corp. 150,157 4,505
Tiffany & Co. 24,167 578
The TJX Companies, Inc. 89,400 1,745
*TMP Worldwide, Inc. 18,467 209
*Toys "R" Us, Inc. 35,150 352
Tribune Co. 50,036 2,275
Tupperware Corp. 9,700 146
*Univision Communications,
Inc. -- Class A 37,900 929
V. F. Corp. 18,157 655
*Viacom, Inc. -- Class B 292,148 11,909
Visteon Corp. 21,683 151
Wal-Mart Stores, Inc. 736,400 37,197
The Walt Disney Co. 337,857 5,510
Wendy's International, Inc. 19,150 518
Whirlpool Corp. 11,250 587
*Yum! Brands, Inc. 49,180 1,191
----------
Total 180,787
----------
Consumer Staples (9.4%)
Adolph Coors Co. -- Class B 6,000 368
Alberto-Culver Co. -- Class B 9,600 484
</TABLE>
42
<PAGE>
Index 500 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Consumer Staples continued
Albertson's, Inc. 67,354 $ 1,499
Anheuser-Busch Companies, Inc. 143,849 6,962
Archer-Daniels-Midland Co. 107,903 1,338
Avon Products, Inc. 39,100 2,106
Brown-Forman Corp. -- Class B 11,300 739
Campbell Soup Co. 67,922 1,594
The Clorox Co. 38,150 1,574
The Coca-Cola Co. 410,975 18,009
Coca-Cola Enterprises, Inc. 74,200 1,612
Colgate-Palmolive Co. 89,822 4,709
ConAgra Foods, Inc. 88,967 2,225
CVS Corp. 64,967 1,622
*Del Monte Foods Co. 25,955 200
General Mills, Inc. 60,867 2,858
The Gillette Co. 175,135 5,317
H.J. Heinz Co. 58,117 1,910
Hershey Foods Corp. 22,650 1,528
Kellogg Co. 67,857 2,325
Kimberly-Clark Corp. 85,556 4,061
*The Kroger Co. 130,605 2,018
The Pepsi Bottling Group, Inc. 47,200 1,213
PepsiCo, Inc. 293,430 12,389
Philip Morris Companies, Inc. 349,922 14,182
The Procter & Gamble Co. 215,205 18,494
R.J. Reynolds Tobacco Holdings,
Inc. 14,800 623
*Safeway, Inc. 73,000 1,705
Sara Lee Corp. 129,835 2,923
SUPERVALU, Inc. 22,150 366
SYSCO Corp. 109,825 3,272
UST, Inc. 28,067 938
Walgreen Co. 169,646 4,952
Winn-Dixie Stores, Inc. 23,250 355
Wm. Wrigley Jr. Co. 37,367 2,051
----------
Total 128,521
----------
Energy (5.9%)
Amerada Hess Corp. 14,800 815
Anadarko Petroleum Corp. 41,162 1,972
Apache Corp. 23,760 1,354
Ashland, Inc. 11,400 325
Baker Hughes, Inc. 55,830 1,797
*BJ Services Co. 26,000 840
Burlington Resources, Inc. 33,283 1,420
ChevronTexaco Corp. 176,857 11,757
ConocoPhillips 112,010 5,420
Devon Energy Corp. 25,900 1,189
EOG Resources, Inc. 19,260 769
Exxon Mobil Corp. 1,118,756 39,089
Halliburton Co. 72,269 1,352
Kerr-McGee Corp. 16,605 736
Marathon Oil Corp. 51,309 1,092
*Nabors Industries, Ltd. 23,950 845
*Noble Corp. 22,250 782
Occidental Petroleum Corp. 62,320 1,773
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Energy continued
*Rowan Companies, Inc. 15,550 $ 353
Schlumberger Ltd. 95,567 4,022
Sunoco, Inc. 12,650 420
*Transocean Sedco Forex, Inc. 52,851 1,226
Unocal Corp. 42,667 1,305
----------
Total 80,653
----------
Financials (20.2%)
ACE Ltd. 43,400 1,273
AFLAC Inc. 85,650 2,580
The Allstate Corp. 116,828 4,321
Ambac Financial Group, Inc. 17,500 984
American Express Co. 219,975 7,776
American International Group,
Inc. 432,230 25,006
AmSouth Bancorporation 59,355 1,140
Aon Corp. 50,500 954
Bank of America Corp. 248,801 17,309
The Bank of New York Company,
Inc. 120,253 2,881
Bank One Corp. 194,286 7,101
BB&T Corp. 80,000 2,959
The Bear Stearns Companies, Inc. 16,295 968
Capital One Financial Corp. 36,700 1,091
The Charles Schwab Corp. 225,939 2,451
Charter One Financial, Inc. 38,020 1,092
The Chubb Corp. 28,450 1,485
Cincinnati Financial Corp. 26,780 1,006
Citigroup, Inc. 837,848 29,485
Comerica, Inc. 28,950 1,252
Countrywide Credit Industries,
Inc. 20,800 1,074
Equity Office Properties Trust 69,300 1,731
Equity Residential Properties Trust 45,600 1,121
Fannie Mae 164,748 10,598
Fifth Third Bancorp 96,134 5,629
First Tennessee National Corp. 20,900 751
FleetBoston Financial Corp. 173,505 4,216
Franklin Resources, Inc. 43,050 1,467
Freddie Mac 115,186 6,802
Golden West Financial Corp. 25,550 1,835
The Goldman Sachs Group, Inc. 79,700 5,428
The Hartford Financial Services
Group, Inc. 41,050 1,865
Household International, Inc. 75,285 2,094
Huntington Bancshares, Inc. 39,842 745
J.P. Morgan Chase & Co. 330,048 7,921
Jefferson-Pilot Corp. 24,434 931
John Hancock Financial Services,
Inc. 48,100 1,342
KeyCorp 70,575 1,774
Lehman Brothers Holdings, Inc. 40,322 2,149
Lincoln National Corp. 30,540 964
Loews Corp. 30,767 1,368
</TABLE>
43
<PAGE>
Index 500 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Financials continued
Marsh & McLennan Companies,
Inc. 88,680 $ 4,098
Marshall & Ilsley Corp. 34,800 953
MBIA, Inc. 24,350 1,068
MBNA Corp. 211,515 4,023
Mellon Financial Corp. 72,068 1,882
Merrill Lynch & Co., Inc. 143,300 5,438
MetLife, Inc. 116,236 3,143
MGIC Investment Corp. 17,000 702
Moody's Corp. 25,775 1,064
Morgan Stanley 181,413 7,242
National City Corp. 101,197 2,765
North Fork Bancorporation, Inc. 27,100 914
Northern Trust Corp. 36,650 1,285
Plum Creek Timber Company,
Inc. 30,600 722
The PNC Financial Services
Group, Inc. 47,067 1,972
Principal Financial Group, Inc. 57,400 1,729
The Progressive Corp. 36,000 1,787
*Providian Financial Corp. 47,857 311
Prudential Financial, Inc. 96,100 3,050
Regions Financial Corp. 36,586 1,221
SAFECO Corp. 22,650 785
Simon Property Group, Inc. 30,700 1,046
SLM Corp. 25,614 2,660
SouthTrust Corp. 57,367 1,426
The St. Paul Companies, Inc. 37,472 1,276
State Street Corp. 53,600 2,090
*Stilwell Financial, Inc. 36,829 481
SunTrust Banks, Inc. 47,233 2,689
Synovus Financial Corp. 49,050 952
T. Rowe Price Group, Inc. 20,300 554
Torchmark Corp. 19,750 721
*Travelers Property Casualty CL B 165,547 2,425
U.S. Bancorp 316,921 6,725
Union Planters Corp. 33,137 932
UnumProvident Corp. 39,931 700
Wachovia Corp. 227,081 8,275
Washington Mutual, Inc. 160,187 5,531
Wells Fargo & Co. 281,280 13,184
XL Capital, Ltd. -- Class A 22,500 1,738
Zions Bancorporation 15,200 598
----------
Total 275,076
----------
Health Care (14.7%)
Abbott Laboratories 258,650 10,346
Aetna, Inc. 24,877 1,023
Allergan, Inc. 21,367 1,231
AmerisourceBergen Corp. 17,500 950
*Amgen, Inc. 211,617 10,230
*ANTHEM, INC. 23,300 1,466
Applera Corp. -- Applied
Biosystems Group 35,133 616
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Health Care continued
Bausch & Lomb, Inc. 8,900 $ 320
Baxter International, Inc. 99,800 2,794
Becton, Dickinson and Co. 42,550 1,306
*Biogen, Inc. 24,600 985
Biomet, Inc. 43,545 1,248
*Boston Scientific Corp. 67,386 2,865
Bristol-Myers Squibb Co. 320,708 7,424
C. R. Bard, Inc. 8,550 496
Cardinal Health, Inc. 74,825 4,429
*Chiron Corp. 31,322 1,178
CIGNA Corp. 23,229 955
Eli Lilly and Co. 186,006 11,811
*Forest Laboratories, Inc. 29,733 2,920
*Genzyme Corp. 35,500 1,050
*Guidant Corp. 50,588 1,561
HCA, Inc. 85,811 3,561
Health Management Associates,
Inc. 39,500 707
*HEALTHSOUTH Corp. 65,600 276
*Humana, Inc. 28,100 281
IMS Health, Inc. 46,967 751
Johnson & Johnson 492,637 26,460
*King Pharmaceuticals, Inc. 40,366 694
*Manor Care, Inc. 16,300 303
McKesson HBOC, Inc. 48,005 1,298
*Medimmune, Inc. 41,500 1,128
Medtronic, Inc. 200,900 9,161
Merck & Co., Inc. 372,420 21,083
*Millipore Corp. 8,000 272
Pfizer, Inc. 1,024,736 31,326
Pharmacia Corp. 213,570 8,927
*Quest Diagnostics, Inc. 16,100 916
*Quintiles Transnational Corp. 19,500 236
Schering-Plough Corp. 242,750 5,389
*St. Jude Medical, Inc. 29,300 1,164
Stryker Corp. 32,750 2,198
*Tenet Healthcare Corp. 80,950 1,328
UnitedHealth Group, Inc. 50,186 4,191
*Watson Pharmaceuticals, Inc. 17,700 500
*Wellpoint Health Networks, Inc. --
Class A 24,100 1,715
Wyeth 219,429 8,207
*Zimmer Holdings, Inc. 32,237 1,338
----------
Total 200,614
----------
Industrials (11.4%)
3M Co. 64,588 7,964
*Allied Waste Industries, Inc. 32,650 327
*American Power Conversion
Corp. 32,450 492
*American Standard Companies,
Inc. 11,900 847
*AMR Corp. 25,700 170
*Apollo Group, Inc. -- Class A 28,700 1,263
</TABLE>
44
<PAGE>
Index 500 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Industrials continued
Automatic Data Processing, Inc. 102,650 $ 4,029
Avery Dennison Corp. 18,150 1,109
The Boeing Co. 138,976 4,585
Burlington Northern Santa Fe
Corp. 62,985 1,638
Caterpillar, Inc. 56,988 2,605
*Cendant Corp. 172,233 1,805
Cintas Corp. 28,133 1,287
*Concord EPS, Inc. 84,900 1,336
*Convergys Corp. 28,650 434
Cooper Industries, Ltd. 15,400 561
Crane Co. 9,875 197
CSX Corp. 35,250 998
Cummins, Inc. 6,800 191
Danaher Corp. 25,000 1,643
Deere & Co. 39,460 1,809
Delta Air Lines, Inc. 20,367 246
Deluxe Corp. 10,351 436
Dover Corp. 33,567 979
Eaton Corp. 11,700 914
Emerson Electric Co. 69,750 3,547
Equifax, Inc. 23,800 551
FedEx Corp. 49,320 2,674
First Data Corp. 125,326 4,438
*Fiserv, Inc. 31,825 1,080
Fluor Corp. 13,400 375
General Dynamics Corp. 33,400 2,651
General Electric Co. 1,647,206 40,110
Goodrich Corp. 19,100 350
H&R Block, Inc. 29,950 1,204
Honeywell International, Inc. 135,650 3,256
Illinois Tool Works, Inc. 50,700 3,288
Ingersoll-Rand Co. -- Class A 27,980 1,205
ITT Industries, Inc. 15,200 922
Lockheed Martin Corp. 75,308 4,349
Masco Corp. 82,100 1,728
*McDermott International, Inc. 10,500 46
*Navistar International Corp. 10,050 244
*Norfolk Southern Corp. 64,357 1,286
Northrop Grumman Corp. 30,110 2,921
PACCAR, Inc. 19,205 886
Pall Corp. 20,350 339
Parker-Hannifin Corp. 19,575 903
Paychex, Inc. 62,235 1,736
Pitney Bowes, Inc. 39,437 1,288
*Power-One, Inc. 13,200 75
R. R. Donnelley & Sons Co. 18,734 408
Raytheon Co. 66,700 2,051
*Robert Half International, Inc. 29,040 468
Rockwell Automation, Inc. 30,750 637
Rockwell Collins, Inc. 30,250 704
Ryder System, Inc. 10,300 231
*Sabre Holdings Corp. -- Class A 23,967 434
Southwest Airlines Co. 127,967 1,779
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Industrials continued
Textron, Inc. 22,850 $ 982
*Thomas & Betts Corp. 9,700 164
Tyco International, Ltd. 330,308 5,642
Union Pacific Corp. 41,860 2,506
United Parcel Service, Inc. 184,800 11,657
United Technologies Corp. 78,067 4,835
W.W. Grainger, Inc. 15,400 794
Waste Management, Inc. 101,285 2,321
----------
Total 154,930
----------
Information Technology (14.2%)
*ADC Telecommunications, Inc. 131,850 276
Adobe Systems, Inc. 39,725 990
*Advanced Micro Devices, Inc. 56,700 366
*Agilent Technologies, Inc. 76,837 1,380
*Altera Corp. 63,211 780
*Analog Devices, Inc. 60,557 1,445
*Andrew Corp. 16,237 167
*Apple Computer, Inc. 59,400 851
*Applied Materials, Inc. 272,300 3,548
*Applied Micro Circuits Corp. 49,800 184
Autodesk, Inc. 19,034 272
*Avaya, Inc. 59,916 147
*BMC Software, Inc. 39,960 684
*Broadcom Corp. -- Class A 45,400 684
*CIENA Corp. 71,500 368
*Cisco Systems, Inc. 1,211,300 15,868
*Citrix Systems, Inc. 28,920 356
Computer Associates
International, Inc. 95,592 1,290
*Computer Sciences Corp. 28,450 980
*Compuware Corp. 62,257 299
*Comverse Technology, Inc. 31,000 311
*Corning, Inc. 190,000 629
*Dell Computer Corp. 429,533 11,486
*Electronic Arts, Inc. 23,100 1,150
Electronic Data Systems Corp. 79,567 1,466
*EMC Corp. 364,774 2,240
*Gateway, Inc. 53,650 168
Hewlett-Packard Co. 505,226 8,771
Intel Corp. 1,103,463 17,181
International Business Machines
Corp. 280,539 21,742
*Intuit, Inc. 35,000 1,642
*Jabil Circuit, Inc. 32,767 587
*JDS Uniphase Corp. 225,400 557
*KLA-Tencor Corp. 31,300 1,107
*Lexmark International Group,
Inc. -- Class A 20,900 1,264
Linear Technology Corp. 52,550 1,352
*LSI Logic Corp. 61,600 355
*Lucent Technologies, Inc. 568,236 716
Maxim Integrated Products, Inc. 53,500 1,768
*Mercury Interactive Corp. 13,900 412
</TABLE>
45
<PAGE>
Index 500 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Information Technology continued
*Micron Technology, Inc. 99,950 $ 974
*Microsoft Corp. 896,600 46,354
Molex, Inc. 32,050 738
Motorola, Inc. 380,577 3,292
*National Semiconductor Corp. 29,943 449
*NCR Corp. 16,200 385
*Network Appliance, Inc. 55,700 557
*Novell, Inc. 60,300 201
*Novellus Systems, Inc. 24,000 674
*Nvidia Corp. 25,300 291
*Oracle Corp. 899,525 9,715
*Parametric Technology Corp. 43,280 109
*PeopleSoft, Inc. 51,700 946
PerkinElmer, Inc. 20,700 171
*PMC-Sierra, Inc. 27,700 154
*QLogic Corp. 15,450 533
*QUALCOMM, Inc. 128,667 4,682
*Rational Software Corp. 32,000 332
*Sanmina-SCI Corp. 86,800 390
Scientific-Atlanta, Inc. 25,900 307
*Siebel Systems, Inc. 79,100 592
*Solectron Corp. 136,400 484
*Sun Microsystems, Inc. 537,397 1,671
*SunGard Data Systems, Inc. 46,800 1,103
Symbol Technologies, Inc. 37,950 312
*Tektronix, Inc. 14,760 268
*Tellabs, Inc. 68,092 495
*Teradyne, Inc. 30,350 395
Texas Instruments, Inc. 287,000 4,308
*Thermo Electron Corp. 27,600 555
*Unisys Corp. 53,450 529
*VERITAS Software Corp. 67,932 1,061
*Waters Corp. 21,700 473
*Xerox Corp. 120,900 973
*Xilinx, Inc. 55,900 1,152
*Yahoo!, Inc. 99,400 1,625
---------
Total 193,089
---------
Materials (2.8%)
Air Products and Chemicals, Inc. 37,667 1,610
Alcoa, Inc. 139,807 3,186
Allegheny Technologies, Inc. 13,317 83
Ball Corp. 9,366 479
Bemis Company, Inc. 8,750 434
Boise Cascade Corp. 9,600 242
The Dow Chemical Co. 150,809 4,480
E. I. du Pont de Nemours and Co. 164,428 6,973
Eastman Chemical Co. 12,825 472
Ecolab, Inc. 21,400 1,059
Engelhard Corp. 21,300 476
*Freeport-McMoRan Copper &
Gold, Inc. -- Class B 23,981 402
Georgia-Pacific Corp. 38,104 616
Great Lakes Chemical Corp. 8,300 198
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (98.8%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Materials contioued
*Hercules, Inc. 18,100 $ 159
International Flavors &
Fragrances, Inc. 15,700 551
International Paper Co. 79,766 2,789
*Louisiana-Pacific Corp. 17,300 139
MeadWestvaco Corp. 33,079 817
Monsanto Co. 43,253 833
Newmont Mining Corp. 66,480 1,930
Nucor Corp. 12,933 534
*Pactiv Corp. 26,200 573
*Phelps Dodge Corp. 14,724 466
PPG Industries, Inc. 28,067 1,408
Praxair, Inc. 26,700 1,542
Rohm and Haas Co. 36,580 1,188
*Sealed Air Corp. 13,921 519
Sigma-Aldrich Corp. 12,100 589
Temple-Inland, Inc. 8,900 399
United States Steel Corp. 16,850 221
Vulcan Materials Co. 16,800 630
Weyerhaeuser Co. 36,280 1,785
Worthington Industries, Inc. 14,200 216
----------
Total 37,998
----------
Telecommunication Services (4.1%)
ALLTEL Corp. 51,457 2,624
AT&T Corp. 127,307 3,324
*AT&T Wireless Services, Inc. 448,197 2,532
BellSouth Corp. 309,865 8,016
CenturyTel, Inc. 23,500 690
*Citizens Communications Co. 46,700 493
*Nextel Communications, Inc. --
Class A 150,750 1,741
*Qwest Communications
International, Inc. 277,635 1,388
SBC Communications, Inc. 550,447 14,923
Sprint Corp. 147,809 2,140
*Sprint Corp. (PCS Group) 165,060 723
Verizon Communications, Inc. 451,742 17,506
----------
Total 56,100
----------
Utilities (2.8%)
*The AES Corp. 89,800 271
*Allegheny Energy, Inc. 20,800 157
Ameren Corp. 23,967 996
American Electric Power
Company, Inc. 56,140 1,534
*Calpine Corp. 62,360 203
CenterPoint Energy, Inc. 50,362 428
Cinergy Corp. 27,784 937
CMS Energy Corp. 23,800 225
Consolidated Edison, Inc. 35,250 1,509
Constellation Energy Group, Inc. 27,200 757
Dominion Resources, Inc. 50,395 2,767
DTE Energy Co. 27,750 1,288
Duke Energy Corp. 146,930 2,871
</TABLE>
46
<PAGE>
Index 500 Stock Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stocks (98.8%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Utilities continued
*Dynegy, Inc. -- Class A 61,100 $ 72
*Edison International 53,920 639
El Paso Corp. 96,771 674
Entergy Corp. 37,109 1,692
Exelon Corp. 53,312 2,813
FirstEnergy Corp. 49,265 1,624
FPL Group, Inc. 30,157 1,813
KeySpan Corp. 23,400 825
Kinder Morgan, Inc. 20,167 852
*Mirant Corp. 66,526 126
Nicor, Inc. 7,250 247
NiSource, Inc. 40,373 807
Peoples Energy Corp. 5,900 228
*PG&E Corp. 65,125 905
Pinnacle West Capital Corp. 15,000 511
PPL Corp. 26,834 931
Progress Energy, Inc. 39,092 1,695
Public Service Enterprise Group,
Inc. 36,736 1,179
Sempra Energy 33,902 802
The Southern Co. 117,300 3,330
TECO Energy, Inc. 28,700 444
TXU Corp. 51,165 956
The Williams Companies, Inc. 85,500 231
#Xcel Energy, Inc. 65,920 725
----------
Total 38,064
----------
Total Common Stock
(Cost: $1,320,019) 1,345,832
----------
Money Market Investments (1.2%)
-------------------------------------------------------
Federal Government and Agencies (0.5%)
#Federal Home Loan Bank,
1.24%, 3/7/03 $ 6,400,000 6,386
----------
Total 6,386
----------
Finance Services (0.7%)
#Preferred Receivable Funding,
1.28%, 1/17/03 10,000,000 9,995
----------
Total 9,995
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (1.2%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Short Term Business Credit
(0.0%)
#UBS Finance LLC, 1.2%, 1/2/03 $400,000 $ 400
----------
Total 400
----------
Total Money Market Investments
(Cost: $16,780) 16,781
----------
Total Investments (100.0%)
(Cost $1,336,799)` 1,362,613
----------
Other Assets, Less Liabilities (0.0%) 268
----------
Total Net Assets (100.0%) $1,362,881
----------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$1,340,508 and the net unrealized appreciation of investments based on that
cost was $22,105 which is comprised of $297,918 aggregate gross unrealized
appreciation and $275,813 aggregate gross unrealized depreciation.
* Non-Income Producing
# All or a portion of the securities have been committed as collateral for open
futures positions. Information regarding open futures contracts as of period
end is summarized below:
<TABLE>
<CAPTION>
Unrealized
Number Appreciation /
of Expiration (Depreciation)
Issuer (000's) Contracts Date (000's)
------------------------------------------------------
<S> <C> <C> <C>
S & P 500 Index
Futures 76 3/03 $(349)
(Total Notional
Value at 12/31/02
$17,048)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
47
<PAGE>
Asset Allocation Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Realize highest total return, Flexible policy of allocating $87.26 million
including current income and assets among stocks, bonds and
capital appreciation, cash, with mix adjusted to
consistent with reasonable capitalize on changing
investment risk financial markets and economic
conditions.
</TABLE>
The Asset Allocation Portfolio invests in seven categories of assets: large
capitalization stocks, small capitalization stocks, foreign stocks,
investment-grade bonds, below investment-grade bonds, convertible securities
and cash equivalents. The proportion of investments in each category is
adjusted as appropriate to take advantage of market trends and opportunities,
and securities within each category are actively managed by a team of
investment professionals. The Portfolio is managed to maintain broad
diversification, while blending asset classes to achieve both capital
appreciation and current income.
Comparison of returns of the Asset Allocation Portfolio with stock or bond
indices is of limited usefulness because there is no index that includes both
equity and debt securities. During 2002 the bond market performed significantly
better than the stock market. As expected, the Portfolio's performance for the
year was a blend of the two, with a total return of -10.3%, better than the
return of -22.1% from the S&P 500 Index, but less than the return of the bond
benchmark, the Merrill Lynch Domestic Master Index, which had a return of
10.41%.
The Portfolio has maintained a fairly defensive posture, with equity exposure
near the low end of its normal range, which is 45% to 75% of assets, while
taking advantage of market dips to selectively increase equity holdings. Equity
exposure was increased as the market continued to move down during the second
quarter of 2002; at mid-year, the equity exposure was a fairly neutral 60%. By
the end of the third quarter, equity exposure was at 56%, and the cash position
was 10% of assets. Throughout the first nine months of the year, the bond
portion of the Portfolio outperformed stocks. The emphasis on high quality
companies in both the equity and the fixed-income sectors of the Portfolio
helped performance, as nervous markets reacted very negatively to any
suggestion of financial problems. Bond performance benefited from emphasis on
low-risk government securities and mortgage-backed securities and an
underweighted position in corporate bonds.
The fourth quarter of 2002 was quite different from the first three quarters:
the stock market rallied, bond prices fell, and riskier issues outperformed
higher quality securities in both stock and bond markets. As the market rallied
beginning in October, we let cash build up as new money flowed into the
Portfolio, in anticipation of better buying opportunities. The equity position
was increased in December, as the stock market began to move back down. Within
the equity segment of the Portfolio, none of the three equity categories --
large cap stocks, small cap stocks, and foreign equities -- is currently being
particularly emphasized. In part as a more conservative substitute for greater
equity exposure, we maintained holdings of below investment-grade bonds during
the fourth quarter.
The year-end cash position, 10% of the Portfolio (net of Index futures), is
somewhat higher than usual. With yields on three-year Treasury notes barely
higher than money market instruments, this cash position does not significantly
sacrifice income, and it provides the flexibility to add to equity or bond
holdings at opportune times.
[CHART]
Sector Allocation 12/31/02
Large Cap Stocks 33%
(includes S&P 500 Index Futures)
Investment-Grade Bonds 24%
Small Cap Stocks 12%
Foreign Stocks 12%
Short-Term Investments 10%
Below Investment-Grade Bonds 9%
[CHART]
Relative Performance
<TABLE>
<CAPTION>
Merrill Lynch Merrill Lynch
Asset Allocation Domestic Master 91-Day
Portfolio S&P 500 Inde Index T-Bill Index
<S> <C> <C> <C> <C>
7/31/2001 10,000 10,000 10,000 10,000
12/31/2001 9,790 9,480 10,240 10,139
12/31/2002 8,786 7,385 11,306 10,320
</TABLE>
Average Annual Total Return
For Periods Ended December 31, 2002
Since
1 Year Inception*
Asset Allocation Portfolio -10.26% -8.72%
S&P 500 Index -22.10% -19.23%
Merrill Lynch Domestic Master Index 10.41% 9.03%
Merrill Lynch 91 Day T-Bill Index 1.78% 2.24%
*inception date of 7/31/01
In the graph, the Fund is compared against three indices representing the three
major components of the Fund: equities, fixed income and cash equivalent
investments. The indices cannot be invested in directly and do not include
sales charges.
The Standard & Poor's 500(R) Composite Stock Price Index is an unmanaged index
of 500 selected common stocks, most of which are listed on the New York Stock
Exchange. The Index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks.
The Merrill Lynch Domestic Master Index is an unmanaged market value weighted
index comprised of U.S. government, mortgage and investment-grade corporate
bonds. The Index measures the income provided by, and the price changes of, the
underlying securities.
The 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.
This chart assumes an initial investment of $10,000 made on 7/31/01
(commencement of operations). Returns shown include fee waivers and deductions
for all Fund expenses. In the absence of fee waivers, total return would be
reduced. Past performance is not predictive of future performance. Investment
return and principal value will fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost. Total returns shown on page
4 reflect mortality and expense risk charges and other charges deducted from
the assets of the separate account. The cost of insurance protection, which is
not reflected in the returns shown on this chart, would make the returns
significantly lower. Investors are urged to obtain a personalized illustration
of historical performance which reflects the cost of insurance protection.
Investors should be aware of the risks of investments in foreign securities,
particularly investments in securities of companies in developing nations.
These include the risks of currency fluctuation, of political and economic
instability and of less well-developed government supervision and regulation of
business and industry practices, as well as differences in accounting
standards. Small-cap stocks also may carry additional risk. Small or newer
issuers are more likely to realize more substantial growth as well as suffer
more significant losses than larger or more established issuers. Investments in
such companies can be both more volatile and more speculative.
48
<PAGE>
Asset Allocation Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Domestic Common Stocks & Shares/ Value
Warrants (34.6%) Par (000's)
-----------------------------------------------------
Large Cap Common Stock (22.7%)
-----------------------------------------------------
<S> <C> <C>
Consumer Discretionary (5.9%)
*Bed Bath & Beyond, Inc. 4,000 $ 138
Carnival Corp. 1,335 33
Darden Restaurants, Inc. 4,900 100
Fortune Brands, Inc. 8,200 381
Gannett Co., Inc. 4,900 352
Harley-Davidson, Inc. 10,800 499
*Kohl's Corp. 7,400 414
The McGraw-Hill Companies, Inc. 7,100 429
Newell Rubbermaid, Inc. 12,000 364
Omnicom Group, Inc. 4,000 258
Target Corp. 7,700 231
Tribune Co. 9,300 423
*Viacom, Inc. -- Class B 7,900 322
Wal-Mart Stores, Inc. 12,300 621
Wendy's International, Inc. 9,700 263
Weyerhaeuser Co. 5,200 256
-------
Total 5,084
-------
Consumer Staples (2.6%)
Anheuser-Busch Companies, Inc. 9,400 455
Colgate-Palmolive Co. 5,700 299
General Mills, Inc. 4,400 207
Kellogg Co. 5,300 182
Kraft Foods, Inc. -- Class A 5,000 195
PepsiCo, Inc. 11,800 497
Walgreen Co. 15,900 464
-------
Total 2,299
-------
Energy (1.4%)
ChevronTexaco Corp. 4,700 312
EOG Resources, Inc. 8,000 319
Exxon Mobil Corp. 17,100 597
-------
Total 1,228
-------
Financials (3.4%)
American International Group, Inc. 6,900 399
The Bank of New York Company, Inc. 8,300 199
The Chubb Corp. 3,100 162
Citigroup, Inc. 4,000 141
Fifth Third Bancorp 7,100 416
Freddie Mac 5,300 313
The Goldman Sachs Group, Inc. 3,600 245
Lehman Brothers Holdings, Inc. 3,000 160
Marsh & McLennan Companies, Inc. 5,000 231
Morgan Stanley Dean Witter & Co. 6,100 244
Wells Fargo & Co. 9,300 435
-------
Total 2,945
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Large Cap Common Stock (22.7%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Health Care (3.2%)
Abbott Laboratories 4,000 $ 160
*Amgen, Inc. 8,800 425
Baxter International, Inc. 8,300 232
Eli Lilly and Co. 1,600 102
Johnson & Johnson 9,300 500
Medtronic, Inc. 10,900 497
Pfizer, Inc. 20,800 635
UnitedHealth Group, Inc. 3,300 276
-------
Total 2,827
-------
Industrials (2.1%)
Canadian National Railway Co. 6,000 249
*Fiserv, Inc. 12,800 436
General Electric Co. 15,900 387
Lockheed Martin Corp. 2,700 156
Paychex, Inc. 3,800 106
Raytheon Co. 6,300 194
Union Pacific Corp. 5,000 299
-------
Total 1,827
-------
Information Technology (2.8%)
*Cisco Systems, Inc. 8,900 117
*Electronic Arts, Inc. 1,700 85
Intel Corp. 16,000 249
International Business Machines Corp. 5,200 403
*Microsoft Corp. 15,100 780
*PeopleSoft, Inc. 5,800 106
*QUALCOMM, Inc. 6,700 244
*Semiconductor Holders Trust 10,000 222
Texas Instruments, Inc. 13,200 198
-------
Total 2,404
-------
Materials (1.3%)
Air Products and Chemicals, Inc. 8,900 380
Alcoa, Inc. 13,300 303
Ecolab, Inc. 8,700 431
-------
Total 1,114
-------
Total Large Cap Common Stock 19,728
-------
Small Cap Common Stock (11.9%)
--------------------------------------------------------
Consumer Discretionary (2.7%)
*AnnTaylor Stores Corp. 7,250 148
*CDW Computer Centers, Inc. 2,300 101
*Coach, Inc. 6,000 198
*Entercom Communications Corp. --
Class A 2,200 103
Fairmont Hotels & Resorts, Inc. 3,900 92
*The Gymboree Corp. 9,600 152
*Hispanic Broadcasting Corp. --
Class A 2,900 60
</TABLE>
49
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Small Cap Common Stock (11.9%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Consumer Discretionary (continued)
*Jones Apparel Group, Inc. 2,900 $ 103
*Lamar Advertising Co. -- Class A 3,200 108
Leggett & Platt, Inc. 10,600 238
*Lin TV Corp. -- Class A 1,200 29
Manpower, Inc. 1,100 35
*Michaels Stores, Inc. 6,400 200
*O'Reilly Automotive, Inc. 13,800 349
*Orient-Express Hotel, Ltd. -- Class A 5,500 74
*Platinum Underwriters Holdings, Ltd. 600 16
Polaris Industries, Inc. 2,300 135
*Stoneridge, Inc. 2,000 24
*Tommy Hilfiger Corp. 10,400 72
*Westwood One, Inc. 3,800 142
-------
Total 2,379
-------
Energy (0.9%)
*BJ Services Co. 4,800 155
*Cal Dive International, Inc. 7,000 165
*Energy Partners, Ltd. 9,700 104
Ocean Energy, Inc. 2,800 56
*Patterson-UTI Energy, Inc. 6,600 199
*Weatherford International, Ltd. 3,200 128
-------
Total 807
-------
Financials (0.9%)
GreenPoint Financial Corp. 1,500 68
Investors Financial Services Corp. 11,600 318
Old Republic International Corp. 3,800 106
Radian Group, Inc. 3,100 115
SouthTrust Corp. 5,400 134
*Trammell Crow Co. 9,000 81
-------
Total 822
-------
Health Care (3.2%)
*AdvancePCS 6,700 149
*The Advisory Board Co. 1,700 51
*Apogent Technologies, Inc. 4,500 94
*Biovail Corp. 4,200 111
*Bio-Rad Laboratories, Inc. -- Class A 2,600 101
*CIMA Labs, Inc. 3,000 73
D & K Healthcare Resources, Inc. 5,300 54
*DaVita, Inc. 24,200 597
Health Management Associates, Inc. --
Class A 4,500 81
*IMPAC Medical Systems, Inc. 700 13
*Lincare Holdings, Inc. 16,700 528
*Patterson Dental Co. 6,700 293
*Province Healthcare Co. 17,950 175
*Renal Care Group, Inc. 6,400 202
*Triad Hospitals, Inc. 3,800 113
*Universal Health Services, Inc. --
Class B 3,000 135
-------
Total 2,770
-------
Industrials (2.4%)
*The BISYS Group, Inc. 5,400 86
C.H. Robinson Worldwide, Inc. 5,900 184
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Small Cap Common Stock (11.9%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Industrials (continued)
*Charles River Associates, Inc. 1,400 $ 20
Cintas Corp. 2,200 101
*Concord EPS, Inc. 2,500 39
*The Corporate Executive Board Co. 6,400 204
Expeditors International of
Washington, Inc. 5,200 170
*Hewitt Associates, Inc. -- Class A 3,500 111
*Knight Transportation, Inc. 13,150 276
*MSC Industrial Direct Co., Inc. --
Class A 6,400 114
*P.A.M. Transportation Services, Inc. 4,800 121
*Resources Connection, Inc. 4,800 111
SkyWest, Inc. 5,700 74
*Swift Transportation Co., Inc. 8,000 160
Teleflex, Inc. 7,600 326
*Tetra Tech, Inc. 1,664 20
-------
Total 2,117
-------
Information Technology (1.8%)
*Brooks-PRI Automation, Inc. 6,180 71
*CACI International, Inc. -- Class A 1,600 57
*EPIQ Systems, Inc. 8,050 123
*Intersil Corp. -- Class A 6,400 89
*Keane, Inc. 8,900 80
*Mettler -- Toledo International, Inc. 2,300 74
Microchip Technology, Inc. 6,800 166
*Novellus Systems, Inc. 4,600 129
*QLogic Corp. 2,500 86
*Renaissance Learning, Inc. 3,100 59
*Semtech Corp. 6,400 70
*UTStarcom, Inc. 6,400 127
*Varian, Inc. 8,400 241
*Verint Systems, Inc. 800 16
*Zebra Tehnologies Corp. -- Class A 2,500 143
-------
Total 1,531
-------
Total Small Cap Common Stock 10,426
-------
Total Domestic Common Stocks & Warrants
(Cost: $33,597) 30,154
-------
</TABLE>
<TABLE>
<CAPTION>
Foreign Common Stock (12.3%)
--------------------------------------------------
<S> <C> <C> <C>
Basic Materials (0.7%)
*Arcelor Luxembourg 6,850 84
BASF AG Germany 2,000 76
*Billerud Sweden 4,862 53
Norske Skogindustrier
ASA Norway 2,285 32
*Novozymes A/S -- B
Shares Denmark 3,450 72
Rio Tinto Ltd. Australia 3,750 72
*Solvay SA Belgium 2,210 152
UPM-Kymmene OYJ Finland 3,420 111
------
Total 652
------
</TABLE>
50
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (12.3%) Country Par (000's)
-------------------------------------------------------
<S> <C> <C> <C>
Consumer Cyclical (2.9%)
Bayerische
Motoren Werke
AG Germany 2,980 $ 91
*Belluna Co., Ltd. Japan 3,070 107
Berkeley Group
PLC United Kingdom 8,350 80
Beru AG Germany 2,625 116
Bridgestone
Corp. Japan 9,000 111
*British Sky
Broadcasting
Group PLC United Kingdom 9,610 99
*Compass Group
PLC United Kingdom 15,785 84
*Daily Mail and
General Trust United Kingdom 4,900 46
*Denway Motors
Limited Hong Kong 323,100 109
Electrolux AB --
Series B Sweden 6,550 103
*Esprit Holdings
Ltd. Hong Kong 58,000 98
Folli-Follie SA Greece 4,100 70
*Fuji Heavy
Industries, Ltd. Japan 11,000 44
Game Group PLC United Kingdom 61,450 36
Greek
Organization of
Football
Prognostics Greece 8,680 91
*HMV Group PLC United Kingdom 29,800 57
*Honda Motor
Co., Ltd. Japan 3,000 111
*Hyundai Motor
Co., Ltd. Republic Of Korea 3,820 89
*Inditex Spain 2,200 52
Medion AG Germany 2,000 70
MFI Furniture
Group PLC United Kingdom 35,800 64
*NCsoft Corp. Republic Of Korea 435 38
Nintendo Co.,
Ltd. Japan 700 65
*Porsche AG Germany 250 104
*PSA Peugeot
Citroen France 1,050 43
Rank Group PLC United Kingdom 34,600 147
*Swatch Group
AG Switzerland 890 74
Vivendi
Universal SA France 4,340 70
*Volkswagen AG Germany 2,145 78
*Walmart de
Mexico --
Series V Mexico 31,500 72
Wolseley PLC United Kingdom 10,250 86
-------
Total 2,505
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (12.3%) Country Par (000's)
-----------------------------------------------------
<S> <C> <C> <C>
Consumer Non-Cyclical (1.6%)
*Altadis, S.A. Spain 3,500 $ 80
*Burberry Group
PLC United Kingdom 16,250 59
Cadbury
Schweppes PLC United Kingdom 5,700 36
*Cott Corp. Canada 5,300 94
*Gallaher Group
PLC United Kingdom 11,175 111
*Interbrew Belgium 2,730 64
*Kao Corp. Japan 2,000 44
Kook Soon Dang
Brewer Co., Ltd. South Korea 3,000 68
Luxottica Group
SPA, ADR Italy 6,385 87
*Nestle SA Switzerland 525 111
*Pernod-Ricard SA France 375 36
*Puma AG Rudolf
Dassler Sport Germany 550 37
Reckitt Benckiser
PLC United Kingdom 5,960 116
Shiseido Co., Ltd. Japan 10,000 130
Swedish Match AB Sweden 15,500 122
Unilever PLC United Kingdom 14,900 142
*Wella AG Germany 675 41
-------
Total 1,378
-------
Energy (1.0%)
*ENI SPA Italy 8,230 131
*IHC Caland NV Netherlands 2,270 120
*Precision Drilling
Corp. Canada 2,080 67
Royal Dutch
Petroleum Netherlands 2,000 88
Saipem SPA Italy 23,500 157
Suncor Energy, Inc. Canada 5,670 89
*Technip France 500 36
*TGS Nopec
Geophysical Co.
ASA Norway 6,800 53
Total Fina Elf SA France 800 114
-------
Total 855
-------
Financials (2.1%)
Aegon NV Netherlands 6,825 88
*Anglo Irish Bank
Co. Ireland 23,650 167
*BNP Paribas SA France 2,260 92
Cattles PLC United Kingdom 10,500 49
*Converium Holding
AG Switzerland 1,085 53
*Corporacion
Mapfre Spain 15,150 123
*Danske Bank Denmark 7,875 130
*Deutsche Boerse
AG Germany 2,750 110
*Grupo Financiero
BBVA Bancomer Mexico 75,500 57
</TABLE>
51
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (12.3%) Country Par (000's)
-------------------------------------------------------
<S> <C> <C> <C>
Financials continued
*HSBC Holdings PLC United Kingdom 6,400 $ 70
ING Groep NV Netherlands 4,200 71
*Intrum Justitia AB Sweden 5,450 25
*Irish Life &
Permanent Ireland 7,810 84
Lloyds TSB Group
PLC United Kingdom 11,925 86
Man Group PLC United Kingdom 8,245 118
Manulife Financial Canada 2,520 55
Muenchener
Rueckversicherungs-
Gesellschaft AG Germany 270 32
*OTP Bank RT Hungary 12,775 126
Royal Bank of
Canada Canada 3,020 111
Royal Bank of
Scotland
Group PLC United Kingdom 4,400 105
Swiss Reinsurance
Co. Switzerland 1,310 86
-------
Total 1,838
-------
Healthcare (0.7%)
*Elekta AB --
Class B Sweden 10,725 108
*Nobel Biocare
Holding AG Switzerland 850 55
*Novartis AG Switzerland 1,790 65
*Perbio Science AB Sweden 1,600 18
*Resmed Australia 2,700 83
Synthes Stratec, Inc. Switzerland 100 61
Takeda Chemical
Industries Japan 2,200 92
*Taro Pharmaceutical
Industries, Ltd. Israel 2,875 108
Teva Pharmaceutical
Industries Ltd.,
ADR Israel 1,165 45
-------
Total 635
-------
Industry Goods and Services (1.2%)
*Alfa Laval AB Sweden 5,900 47
*Amcor Ltd. Australia 12,025 57
Atlas Copco AB --
A Shares Sweden 4,330 84
BAE Systems PLC United Kingdom 19,885 40
Group 4 Falck A/S Denmark 2,600 55
*Grupo Ferrovial Spain 5,695 145
Huhtamaki OYJ Finland 9,540 96
*Jarvis PLC United Kingdom 6,950 31
*Meggitt PLC United Kingdom 22,700 64
*Neopost SA France 3,410 111
*Schindler Holdings Switzerland 400 78
*Serco Group PLC United Kingdom 17,500 43
</TABLE>
<TABLE>
<CAPTION>
Market
Foreign Common Shares/ Value
Stock (12.3%) Country Par (000's)
-----------------------------------------------------
<S> <C> <C> <C>
Industry Goods and Services continued
*SGS Societe
Generale de
Surveillance
Holding SA Switzerland 300 $ 90
Vestas Wind
Systems A/S Denmark 2,570 26
Vinci SA France 1,670 94
------
Total 1,061
------
Technology (0.8%)
ASM Pacific
Technology Ltd. Hong Kong 22,000 42
*ASML Holding NV Netherlands 5,975 50
Canon, Inc. Japan 2,000 75
*INFOSYS
Technologies Ltd. India 690 69
*Logitech
International-Reg Switzerland 3,580 108
Nokia OYJ Finland 4,350 68
*Riverdeep Group
PLC Ireland 26,250 33
Royal Philips
Electronics NV Netherlands 4,050 71
Samsung
Electronics Co.,
Ltd. South Korea 300 80
*Sap AG Germany 610 48
Taiwan
Semiconductor
Manufacturing
Co., Ltd. Taiwan 24,600 30
*Tandberg ASA Norway 5,800 33
------
Total 707
------
Telecommunication Services (0.3%)
*KDDI Corp. Japan 20 65
*Orange SA France 14,280 98
PT Telekomunikasi
Indonesia Indonesia 120,000 52
*Vodafone Group
PLC United Kingdom 47,200 86
------
Total 301
------
Transportation (0.6%)
Brisa-Auto Estradas
de Portugal SA Portugal 23,860 132
*EasyJetPLC United Kingdom 18,875 83
Exel PLC United Kingdom 7,150 79
Fraport AG Germany 2,875 51
Macquarie
Infrastructure
Group Australia 79,900 145
------
Total 490
------
</TABLE>
52
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Foreign Common Stock Shares/ Value
(12.3%) Country Par (000's)
---------------------------------------------------
<S> <C> <C> <C>
Utilities (0.4%)
Centrica PLC United Kingdom 32,300 $ 89
Italgas S.P.A. Italy 6,000 82
National Grid Group
PLC United Kingdom 12,580 92
*Snam Rete Gas Italy 11,850 40
*Suez Lyonnaise des
Eaux SA France 2,600 45
-------
Total 348
-------
Total Foreign Common Stock
(Cost: $11,638) 10,770
-------
</TABLE>
<TABLE>
<CAPTION>
Preferred Stock (0.2%)
--------------------------------------------------------
<S> <C> <C>
Technology (0.2%)
Cable (0.2%)
CSC Holdings, Inc. -- Series M 500 47
CSC Holdings, Inc. -- Series H 1,000 94
------
Total 141
------
Telecommunications Wireless: Towers (0.0%)
**Crown Castle International Corp. 2 0
------
Total 0
------
Telecommunications Wireline: CLEC (0.0%)
**Intermedia Communications, Inc. 2 0
------
Total 0
------
Total Technology 141
------
Trucking (0.0%)
**American Commercial Lines LLC 261 2
------
Total Trucking 2
------
Total Preferred Stock
(Cost: $136) 143
------
Warrants (0.0%)
--------------------------------------------------------
Telecommunication Services (0.0%)
IWO Holdings, Inc. 144A 50 0
------
Total Warrants
(Cost: $4) 0
------
Investment-Grade Bonds (23.4%)
--------------------------------------------------------
Corporate Bonds Domestic (6.6%)
--------------------------------------------------------
Beverages, Malt Beverages (0.3%)
Anheuser-Busch Companies, Inc.,
7.50%, 3/15/12 $ 23,000 28
Coca-Cola Enterprises, Inc.,
5.25%, 5/15/07 125,000 135
Coca-Cola Enterprises, Inc.,
5.375%, 8/15/06 75,000 81
------
Total 244
------
Capital Goods (0.1%)
Raytheon Co., 7.20%, 8/15/27 75,000 82
------
Total 82
------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Investment-Grade Bonds (23.4%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Consumer Cyclical (0.1%)
Royal Caribbean Cruises Ltd.,
7.00%, 10/15/07 $ 100,000 $ 89
-------
Total 89
-------
Crude Petroleum and Natural Gas (0.5%)
Occidental Petroleum, 6.75%, 1/15/12 350,000 399
-------
Total 399
-------
Diversified Industrials (0.3%)
United Technologies Corp.,
6.10%, 5/15/12 250,000 280
-------
Total 280
-------
Drilling Oil and Gas Wells (0.4%)
Transocean, Inc., 7.50%, 4/15/31 300,000 344
-------
Total 344
-------
Electric and Other Services Combined (0.3%)
Wisconsin Public Service,
4.875%, 12/1/12 250,000 253
-------
Total 253
-------
Electrical Equipment and Supplies (0.6%)
Cooper Industries, Inc., 5.50%, 11/1/09 200,000 208
Hubbell Inc., 6.375%, 5/15/12 300,000 331
-------
Total 539
-------
Environmental Controls (0.1%)
Pall Corp., 6.00%, 8/1/12 144A 95,000 102
-------
Total 102
-------
Finance Services (0.6%)
Credit Suisse First Boston USA Inc.,
4.625%, 1/15/08 350,000 354
General Motors Acceptance Corp.,
6.875%, 8/28/12 300,000 296
-------
Total 650
-------
Fire, Marine and Casualty Insurance (0.3%)
Allstate Corp., 6.125%, 12/15/32 135,000 138
Progressive Corp., 6.25%, 12/1/32 125,000 128
-------
Total 266
-------
Food Retail (0.3%)
Delhaize America Inc.,
8.125%, 4/15/11 250,000 242
-------
Total 242
-------
Motor Vehicle Parts/Accessories (0.2%)
TRW, Inc., 7.125%, 6/1/09 48,000 54
TRW, Inc., 7.75%, 6/1/29 72,000 85
-------
Total 139
-------
Motors and Generators (0.1%)
Emerson Electric Co., 5.75%, 11/1/11 48,000 52
-------
Total 52
-------
</TABLE>
53
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Investment-Grade Bonds (23.4%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
National Commercial Banks (0.3%)
Bank One Corp., 5.25%, 1/30/13 $ 250,000 $ 257
-------
Total 257
-------
News Dealers and Newsstands (0.1%)
News America Holdings,
7.75%, 12/1/45 100,000 98
-------
Total 98
-------
Office Machines (0.1%)
Pitney Bowes Credit Corp.,
5.75%, 8/15/08 100,000 111
-------
Total 111
-------
Oil and Gas Field Machinery (0.3%)
National-Oilwell, Inc.,
5.65%, 11/15/12 144A 250,000 253
-------
Total 253
-------
Pharmaceuticals (0.3%)
Eli Lilly & Company, 7.125%, 6/1/25 210,000 248
-------
Total 248
-------
Plastics Materials and Resins (0.3%)
Eastman Chemical, 7.00%, 4/15/12 260,000 293
-------
Total 293
-------
Plumbing Fixture Fittings/Trim (0.3%)
Masco Corp., 4.625%, 8/15/07 125,000 130
Masco Corp., 6.50%, 8/15/32 125,000 128
-------
Total 258
-------
Retail-Retail Stores (0.4%)
Limited Brands, 6.125%, 12/1/12 300,000 316
-------
Total 316
-------
Search and Navigation Equipment (0.1%)
Raytheon Co., 7.00%, 11/1/28 120,000 128
-------
Total 128
-------
Telephone Communications (0.2%)
Alltel Corp., 7.00%, 7/1/12 120,000 138
-------
Total 138
-------
Total Corporate Bonds Domestic 5,781
-------
Government (Domestic and Foreign) and Agency Bonds (16.8%)
----------------------------------------------------------
Federal Government and Agencies (16.8%)
Government National Mortgage
Association TBA, 5.50%, 12/1/25 150,000 151
Housing & Urban Development,
6.08%, 8/1/13 100,000 113
US Treasury, 2.125%, 10/31/04 550,000 556
US Treasury, 2.875%, 6/30/04 150,000 153
US Treasury, 3.00%, 1/31/04 165,000 168
US Treasury, 3.00%, 11/15/07 800,000 810
US Treasury, 3.25%, 8/15/07 189,000 194
US Treasury, 3.50%, 11/15/06 4,129,000 4,296
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Investment-Grade Bonds (23.4%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
US Treasury, 3.875%, 7/31/03 $1,325,000 $ 1,344
US Treasury, 4.375%, 5/15/07 427,000 459
US Treasury, 4.625%, 5/15/06 153,000 165
US Treasury, 5.375%, 2/15/31 215,000 234
US Treasury, 5.50%, 5/15/09 1,000,000 1,135
US Treasury, 6.125%, 8/15/07 550,000 632
US Treasury, 6.50%, 8/15/05 1,000,000 1,119
US Treasury, 6.50%, 5/15/05 2,370,000 2,630
US Treasury Inflation Index Bond,
3.375%, 1/15/07 223,129 242
US Treasury Stripped, 0.00%, 5/15/30 870,000 211
-------
Total Government (Domestic and Foreign)
and Agency Bonds 14,612
-------
Total Investment-Grade Bonds
(Cost: $19,607) 20,393
-------
Below Investment-Grade Bonds (9.4%)
---------------------------------------------------------
Basic Materials (0.2%)
Chemicals (0.1%)
Lyondell Chemical Co.,
11,125%, 7/15/12 50,000 49
-------
Total 49
-------
Metals and Mining (0.0%)
UCAR Finance, Inc.,
10.25%, 2/15/12 100,000 79
-------
Total 79
-------
Paper (0.1%)
Appleton Papers, Inc.,
12.50%, 12/15/08 50,000 55
-------
Total 55
-------
Total Basic Materials 183
-------
Cable and Other Pay Television Services (0.0%)
Charter Communications Holdings,
10.75%, 10/1/09 25,000 11
-------
Total Cable and Other Pay Television
Services 11
-------
Capital Goods (0.8%)
Aerospace (0.1%)
K & F Industries Inc.,
9.625%, 12/15/10 144A 50,000 51
-------
Total 51
-------
Building and Construction (0.4%)
Brickman Group Ltd.,
11.75%, 12/15/09 144A 100,000 104
H & E Equipment/Finance,
11.125%, 6/15/12 144A 100,000 75
Integrated Electrical Services, Inc.,
9.375%, 2/1/09 50,000 46
Integrated Electrical Services, Inc.,
Series B, 9.375%, 2/1/09 50,000 46
United Rentals, Inc., 10.375%, 4/15/08 100,000 100
-------
Total 371
-------
</TABLE>
54
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Below Investment-Grade Bonds (9.4%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Industrial Equipment (0.3%)
Perkinelmer, Inc.,
8.875%, 1/15/13 144A $ 50,000 $ 49
Rexnord Corp.,
10.125%, 12/15/12 144A 100,000 103
Tyco International Group,
6.375%, 2/15/06 50,000 49
Tyco International Group S.A.,
6.375%, 6/15/05 25,000 24
Tyco International Group SA,
6.375%, 10/15/11 25,000 23
-------
Total 248
-------
Total Capital Goods 670
-------
Chemicals and Allied Products (0.1%)
Lyondell Chemical Co.,
9.50%, 12/15/08 144A 75,000 70
-------
Total Chemicals and Allied Products 70
-------
Construction and Building Materials (0.0%)
United Rentals, Inc.,
10.75%, 4/15/08 144A 25,000 25
-------
Total Construction and Building Materials 25
-------
Consumer Cyclical (2.6%)
Apparel, Textile (0.1%)
Levi Strauss & Co., 11.625%, 1/15/08 75,000 73
Tommy Hilfiger USA, Inc.,
6.85%, 6/1/08 50,000 47
-------
Total 120
-------
Auto Related (0.2%)
Avis Group Holdings, Inc.,
11.00%, 5/1/09 50,000 55
Collins & Aikman Products, Inc.,
11.50%, 4/15/06 50,000 42
Trimas Corp., 9.875%, 6/15/12 144A 100,000 99
-------
Total 196
-------
Home Construction (0.2%)
Beazer Homes USA, 8.875%, 4/1/08 50,000 52
K. Hovanian Enterprises,
10.50%, 10/1/07 50,000 54
Schuler Homes, 9.375%, 7/15/09 50,000 51
Tech Olympic USA, Inc.,
9.00%, 7/1/10 144A 50,000 49
-------
Total 206
-------
Household Appliances (0.1%)
Rent-A-Center Inc., 11.00%, 8/15/08 50,000 54
-------
Total 54
-------
Leisure Related (0.2%)
Bally Total Fitness Holdings, Series D,
9.875%, 10/15/07 75,000 65
Premier Parks, Inc., 9.50%, 2/1/09 100,000 97
-------
Total 162
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Below Investment-Grade Bonds (9.4%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Lodging / Resorts (0.6%)
Corrections Corporation of America,
9.875%, 5/1/09 144A $ 75,000 $ 80
Felcor Lodging LP, 9.50%, 9/15/08 100,000 101
Hilton Hotels Corp., 7.625%, 12/1/12 100,000 101
John Q. Hammons, 8.875%, 5/15/12 100,000 100
Meristar Hospitality Finance Corp.,
9.00%, 1/15/08 50,000 44
Lodging / Resorts continued
Meristar Hospitality Finance Corp.,
9.125%, 1/15/11 50,000 44
RFS Partnership LP, 9.75%, 3/1/12 25,000 26
-------
Total 496
-------
Printing and Publishing (0.6%)
American Achievement Corp.,
11.625%, 1/1/07 100,000 105
DEX Media East LLC,
9.875%, 11/15/09 144A 50,000 54
Mail-Well Corp., 9.625%, 3/15/12 75,000 67
RH Donnelley Fin Corp.,
10.875%, 12/15/12 144A 100,000 108
Vertis Inc., 10.875%, 6/15/09 100,000 103
Von Hoffman Corp., 10.25%, 3/15/09 100,000 94
-------
Total 531
-------
Retail -- General (0.6%)
Asbury Automotive Group, Inc.,
9.00%, 6/15/12 50,000 44
Autonation, Inc., 9.00%, 8/1/08 25,000 25
Buhrmann U.S., Inc., 12.25%, 11/1/09 75,000 70
CSK Auto, Inc, 12.00%, 6/15/06 50,000 54
The Gap, Inc., 8.15%, 12/15/05 100,000 105
Hollywood Entertainment Inc.,
9.625%, 3/15/11 50,000 51
Saks, Inc., 8.25%, 11/15/08 50,000 50
Sonic Automotive, Inc., 11.00%, 8/1/08 50,000 51
United Auto Group, Inc.
9.625%, 3/15/12 144A 50,000 49
-------
Total 499
-------
Total Consumer Cyclical 2,264
-------
Consumer Staples (2.5%)
Containers (0.3%)
Applied Extrusion Tech., Inc.,
10.75%, 7/1/11 25,000 16
BWAY Corp., 10.00%, 10/15/10 144A 100,000 104
Owens-Brockway Glass Container,
Inc., 8.75%, 11/15/12 144A 125,000 127
-------
Total 247
-------
Food Service (0.1%)
Buffets, Inc., 11.25%, 7/15/10 144A 50,000 47
Sbarro, Inc., 11.00%, 9/15/09 75,000 70
-------
Total 117
-------
</TABLE>
55
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Below Investment-Grade Bonds (9.4%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Foods (0.1%)
Corn Products International, Inc.,
8.25%, 7/15/07 $ 50,000 $ 51
Swift & Co., 10.125%, 10/1/09 144A 50,000 47
-------
Total 98
-------
Gaming (1.4%)
Aztar Corp., 8.875%, 5/15/07 25,000 26
Choctaw Resort Development,
9.25%, 4/1/09 100,000 105
Chumash Casino & Resort, 9.00%,
7/15/10 144A 100,000 105
Herbst Gaming, Inc., 10.75% 9/1/08 100,000 105
Hollywood Casino Shreveport,
13.00%, 8/1/06 50,000 50
Jacobs Entertainment, Inc.
11.875%, 02/01/09 100,000 104
Majestic Investment Holdings, Inc.,
11.653%, 11/30/07 50,000 46
The Majestic Star Casino LLC,
10.875%, 7/1/06 100,000 102
Park Place Entertainment Corporation,
9.375%, 2/15/07 25,000 27
Resort International Hotel/Casino,
11.50%, 3/15/09 75,000 68
Riviera Holdings Corp.,
11.00%, 6/15/10 100,000 90
Venetian Casino Resort LLC,
11.00%, 6/15/10 144A 100,000 105
Wheeling Island Gaming,
10.125%, 12/15/09 75,000 77
Wynn Las Vegas Corp.,
12.00%, 11/1/10 125,000 125
-------
Total 1,135
-------
Healthcare (0.5%)
AmerisourceBergen Corp.,
7.25%, 11/15/12 144A 75,000 77
HEALTHSOUTH Corp., 8.50%, 2/1/08 100,000 86
InSight Health Services Corp.,
9.875%, 11/1/11 100,000 96
Pacificare Health Systems, Inc.,
10.75%, 6/1/09 50,000 54
Rotech Healthcare Inc.,
9.50%, 4/1/12 144A 100,000 100
Ventas Realty, 9.00%, 5/1/12 50,000 52
-------
Total 465
-------
Retail - Food (0.1%)
Fleming Companies, Inc.,
10.125%, 4/1/08 50,000 43
Great Atlantic & Pacific Tea Co., Inc.,
7.75%, 4/15/07 100,000 72
-------
Total 115
-------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Below Investment-Grade Bonds (9.4%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Soaps and Toiletries (0.0%)
Elizabeth Arden, Inc., 11.75%, 2/1/11 $ 25,000 $ 26
-------
Total 26
-------
Total Consumer Staples 2,203
-------
Energy (0.4%)
Oil and Gas Independent (0.1%)
PDVSA Finance, Ltd., 1999-I,
9.75%, 2/15/10 50,000 45
-------
Total 45
-------
Oil and Gas Integrated (0.1%)
Compton Petroleum Corp.,
9.90%, 5/15/09 50,000 52
-------
Total 52
-------
Oil Field Services (0.2%)
BRL Universal Equipment,
8.875%, 2/15/08 50,000 52
Grant Prideco Escrow,
9.00%, 12/15/09 144A 100,000 103
Hanover Equipment Trust,
8.75%, 9/1/11 144A 100,000 97
-------
Total 252
-------
Refining (0.0%)
Tesoro Petroleum Corp.,
9.625%, 11/1/08 25,000 17
-------
Total 17
-------
Total Energy 366
-------
Finance (0.3%)
Banks (0.1%)
Western Financial Bank-FSB,
9.625%, 5/15/12 50,000 49
-------
Total 49
-------
Finance Companies (0.1%)
AmeriCredit Corp., 9.875%, 4/15/06 25,000 21
Americredit Corp., 9.25%, 5/1/09 144A 50,000 39
IOS Capital, Inc., 9.75%, 6/15/04 50,000 51
Metris Companies, Inc.,
10.125%, 7/15/06 50,000 28
-------
Total 139
-------
Financial Services (0.1%)
Labranche & Company, Inc.,
12.00%, 3/2/07 50,000 55
-------
Total 55
-------
Total Finance 243
-------
</TABLE>
56
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Below Investment-Grade Bonds (9.4%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Miscellaneous (0.3%)
CB Richards Ellis Services, Inc.,
11.25%, 6/15/11 $ 75,000 $ 69
Crescent Real Estate Equities,
7.50%, 9/15/07 100,000 97
Istar Financial, Inc., 8.75%, 8/15/08 50,000 53
-------
Total Miscellaneous 219
-------
Professional Services (0.1%)
Kindercare Learning Centers,
9.50%, 2/15/09 90,000 87
-------
Total Professional Services 87
-------
Real Estate (0.1%)
LNR Property Corp., 10.50%, 1/15/09 100,000 101
-------
Total Real Estate 101
-------
Technology (1.2%)
Cable (0.3%)
Charter Communications Holdings
LLC, 9.625%, 11/15/09 75,000 33
Echostar DBS Corp., 10.375%, 10/1/07 100,000 107
Insight Midwest, 9.75%, 10/01/09
144A 50,000 48
Rogers Communications, Inc.,
8.875%, 7/15/07 50,000 48
++Telewest Communications PLC,
9.875%, 2/1/10 50,000 9
-------
Total 245
-------
Electronics (0.1%)
Amkor Technology, Inc.,
5.00%, 3/15/07 25,000 12
Sanmina-Sci Corporation,
10.375%, 1/15/10 144A 50,000 51
Solectron Corp., 9.625%, 2/15/09 50,000 49
-------
Total 112
-------
Office Equipment (0.1%)
Xerox Corp., 7.15%, 8/01/04 50,000 48
-------
Total 48
-------
Telecommunications Wireless: Cellular/PCS (0.6%)
Alamosa Delaware, Inc.,
12.50%, 2/1/11 25,000 8
Alamosa Delaware, Inc.,
13.625%, 08/15/11 37,500 12
+Alamosa PCS Holdings, Inc.,
12.875%, 2/15/10 226,000 41
Dobson Communications Corp.,
10.875%, 7/1/10 50,000 42
!Nextel Communications, Inc.,
10.65%, 9/15/07 85,000 81
Nextel Partners, Inc., 12.50%, 11/15/09 75,000 68
Qwest Services Corp.,
12/15/10, 13.50% 144A 48,000 50
Rogers Cantel, Inc., 8.30%, 10/1/07 75,000 66
Rogers Cantel, Inc., 9.75%, 6/1/16 50,000 45
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Below Investment-Grade Bonds (9.4%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Telecommunications Wireless: Cellular/PCS continued
+Triton PCS, Inc., 11.00%, 5/1/08 $ 100,000 $ 83
TSI Telecommunications Service,
12.75%, 2/1/09 100,000 89
+US Unwired, Inc., 13.375%, 11/1/09 125,000 8
-------
Total 593
-------
Telecommunications Wireless: Towers (0.1%)
+Crown Castle International Corp.,
10.625%, 11/15/07 50,000 45
-------
Total 45
-------
Total Technology 1,043
-------
Transport Services (0.4%)
Railroads (0.1%)
Railamerica Transportation Corp.,
12.875%, 8/15/10 50,000 50
TFM SA DE CV,
12.50%, 6/15/12 144A 50,000 51
-------
Total 101
-------
Trucking and Shipping (0.3%)
American Commercial LLC,
11.25%, 1/1/08 29,794 10
CP Ships Ltd., 10.375%, 7/15/12 50,000 53
International Shipbuilding Corp.,
7.75%, 10/15/07 35,000 28
North American Van Lines,
13.375%, 12/1/09 100,000 97
Stena AB, 9.625%, 12/1/12 144A 100,000 102
-------
Total 290
-------
Total Transport Services 391
-------
Utilities (0.4%)
Utility -- Electric (0.3%)
Calpine Canada Energy, 8.50%, 5/1/08 25,000 11
Calpine Corp., 8.625%, 8/15/10 50,000 21
Calpine Corp., 8.75%, 7/15/07 50,000 22
Edison Mission Energy,
10.00%, 8/15/08 100,000 48
Orion Power Holdings, Inc.,
12.00%, 5/1/10 100,000 72
++PG&E National Energy Group, Inc.,
10.375%, 5/16/11 50,000 19
Western Resources, 9.75%, 5/1/07 50,000 46
-------
Total 239
-------
Utility -- Garbage Disposal (0.1%)
Allied Waste North America, Inc.,
8.50%, 12/1/08 100,000 100
-------
Total 100
-------
Total Utilities 339
-------
Total Below Investment-Grade Bonds
(Cost: $8,424) 8,215
-------
</TABLE>
57
<PAGE>
Asset Allocation Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Money Market Investments (19.9%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Federal and Federally-Sponsored Credit (3.6%)
#Federal Home Loan Mortgage
Corporation, 1.10%, 1/8/03 $3,100,000 $ 3,099
-------
Total Federal and Federally-Sponsored Credit 3,099
-------
Federal Government and Agencies (16.3%)
Federal Home Loan Bank, 1.24%, 3/7/03 1,000,000 998
#Federal National Mortgage Association,
1.26%, 1/27/03 8,600,000 8,593
Federal National Mortgage Association,
1.28%, 1/22/03 4,700,000 4,696
-------
Total Federal Government and Agencies 14,287
-------
Total Money Market Investments
(Cost: $17,386) 17,386
-------
Total Investments (99.8%)
(Cost $90,792)` 87,061
-------
Other Assets, Less Liabilities (0.2%) 199
-------
Total Net Assets (100.0%) $87,260
-------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$91,184 and the net unrealized depreciation of investments based on that cost
was $4,123 which is comprised of $2,275 aggregate gross unrealized
appreciation and $6,398 aggregate gross unrealized depreciation.
ADR -- American Depository Receipt
144A after the name of a security represents a security exempt from
registration under rule 144a of the Securities Act of 1933. These securities
may be resold as transactions exempt from registration, normally to qualified
institutional buyers.
* Non-Income Producing
+ Step bond security that presently receives no coupon payments. At the
predetermined date the stated coupon rate becomes effective.
++Defaulted Security
**PIK -- Payment In Kind
# All or a portion of the securities have been committed as collateral for open
futures positions. Information regarding open futures contracts as of period
end is summarized below:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Number of Expiration (Depreciation)
Issuer (000's) Contracts Date (000's)
---------------------------------------------------------
<S> <C> <C> <C>
S & P 500 INDEX
FUTURES 40 3/03 $(247)
(Total Notional Value
at 12/31/02 $9,037)
US TEN YEAR
TREASURY NOTE 3 3/03 $(7)
(Total Notional Value
at 12/31/02 $339)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
58
<PAGE>
Balanced Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
A high level of current income and Achieve consistent returns and low volatility by diversifying $2.56 billion
capital growth with a low risk profile among assets.
</TABLE>
In order to capitalize on changing financial market and economic conditions,
the Balanced Portfolio's asset allocation is adjusted as appropriate among
three investment classes: stocks, bonds and money market instruments. The
equity portion of the Portfolio is indexed, meaning that the Portfolio is
designed to achieve results that approximate the performance of the Standard &
Poor's 500 Composite Stock Price Index, which is generally regarded as a good
proxy for the overall U.S. equity market. The bond portion of the Portfolio is
actively managed, with investments in high quality bonds adjusted frequently as
to maturity, market sectors and duration. Liquidity is maintained by holding a
portion of the Portfolio in money market investments, which are high quality
short-term debt securities.
Definition of an appropriate benchmark for comparison of returns of the
Balanced Portfolio is difficult because there is no index that includes both
equity and debt securities. Accordingly, comparisons are provided with three
different indices: the S&P 500 Index for stocks, Merrill Lynch Domestic Master
Index for bonds, and 91-day Treasury bills for short-term investments. As
expected, the Portfolio's performance over the last year was between these
measures, with a total return of -7.5%, better than the return of -22.1% from
the S&P 500 Index, but less than the return of the Merrill Lynch Domestic
Master Index, which had a return of 10.4%, or Treasury bills, which had a
return of 1.8%.
The target asset mix for the Balanced Portfolio is established and adjusted
with input from an asset valuation model designed to gauge the relative
attractiveness of stocks versus bonds. Changes are at the margin, so that there
are always core positions in both stocks and bonds. The extreme volatility of
the equity market over the last year has created many opportunities to sell on
strength and buy on weakness. At the beginning of January 2002, the Portfolio
was invested 54% in stocks, 42% in bonds, and 4% in cash equivalents. The
equity position was increased in February, following a January market drop,
then reduced in March after a rally. Modest additions were made to the equity
position after a market drop in April, and stock exposure was further increased
on the pronounced weakness near the end of June. A brief rally in August
created an opportunity to reduce the equity position, which was then increased
again on weakness in September and into early October. This decision proved
sound, as the equity market continued to strengthen through much of the fourth
quarter. Equity exposure was reduced in November on a market rebound and then
increased in late December when the market weakened, to 54% of assets at year
end.
Performance was boosted by excellent results from the bond portion of the
Portfolio, which is managed actively, using a strategy very similar to that of
the Select Bond Portfolio. Bonds as a whole have provided higher returns than
stocks over the last year, and the Portfolio benefited from an emphasis on high
quality securities and an overweighted position in low-risk government bonds
and mortgage-backed securities.
[CHART]
Sector Allocation 12/31/02
Equities (including index futures) 54%
Government and Agency Bonds 28%
Corporate Bonds 12%
Mortgage-Backed and Asset-Backed Securities 5%
Short-Term Investments 1%
[CHART]
Relative Performance
<TABLE>
<CAPTION>
Balanced Merrill Lynch Domestic Merrill Lynch 91 Day
Portfolio Master Index T-Bill Index S&P 500 Index
<S> <C> <C> <C> <C>
12/31/1992 10,000 10,000 10,000 10,000
12/31/1993 10,991 11,002 10,319 11,010
12/31/1994 11,008 10,692 10,751 11,142
12/31/1995 13,913 12,672 11,400 15,309
12/31/1996 15,785 13,127 12,004 18,800
12/31/1997 19,182 14,395 12,644 25,060
12/31/1998 22,803 15,671 13,305 32,202
12/31/1999 25,357 15,521 13,951 38,984
12/31/2000 25,314 17,342 14,813 35,468
12/31/2001 24,516 18,786 15,468 31,251
12/31/2002 22,668 20,742 15,743 24,344
</TABLE>
Average Annual Total Return
For Period Ended December 31, 2002
1 Year 5 Years 10 Years
Balanced Portfolio -7.54% 3.40% 8.53%
Merrill Lynch Domestic Master Index 10.41% 7.58% 7.57%
Merrill Lynch 91 Day T-Bill Index 1.78% 4.48% 4.64%
S&P 500 Index -22.10% -0.58% 9.30%
In the graph, the Portfolio is compared against three indices representing the
three major components of the Portfolio: equities, fixed income, and cash
equivalent investments. The indices cannot be invested in directly and do not
include sales charges.
The Merrill Lynch Domestic Master Index is an unmanaged market value weighted
index comprised of U.S. Government, mortgage and investment-grade corporate
bonds. The index measures the income provided by, and the price changes of, the
underlying securities.
The 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.
The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
500 selected common stocks, most of which are listed on the New York Stock
Exchange. The index is heavily weighted toward stocks with large market
capitalizations and represents approximately two-thirds of the total market
value of all domestic common stocks.
This chart assumes an initial investment of $10,000 made on 12/31/92. Returns
shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Total returns shown on page 4 reflect mortality and expense risk charges and
other charges deducted from the assets of the separate account. The cost of
insurance protection, which is not reflected in the returns shown on this
chart, would make the returns significantly lower. Investors are urged to
obtain a personalized illustration of historical performance which reflects the
cost of insurance protection.
59
<PAGE>
Balanced Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (11.6%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Aerospace -- Defense (0.7%)
Lockheed Martin Corp.,
8.20%, 12/1/09 $ 7,450,000 $ 9,207
Raytheon Co., 7.20%, 8/15/27 8,705,000 9,515
----------
Total 18,722
----------
Auto Related (0.4%)
Toyota Motor Credit Corp.,
5.65%, 1/15/07 9,750,000 10,594
----------
Total 10,594
----------
Beverages, Malt Beverages (1.3%)
Anheuser-Busch Companies, Inc.,
7.00%, 12/1/25 4,800,000 5,154
Anheuser-Busch Companies, Inc.,
7.50%, 3/15/12 910,000 1,121
Coca-Cola Enterprises, Inc.,
5.25%, 5/15/07 8,975,000 9,649
Coca-Cola Enterprises, Inc.,
5.375%, 8/15/06 4,175,000 4,525
Coca-Cola Enterprises, Inc.,
5.75%, 3/15/11 10,000,000 10,971
----------
Total 31,420
----------
Broad Woven Fabric Mills, Manmade (0.0%)
++Polysindo International Finance,
11.375%, 6/15/06 6,500,000 455
----------
Total 455
----------
Commercial Banks (0.4%)
++Banco Montevideo, 8.40%,
4/30/08 144A 6,250,000 1,125
Bank of America Corp.,
7.40%, 1/15/11 2,668,000 3,143
Wells Fargo Bank, 6.45%, 2/1/11 4,850,000 5,444
----------
Total 9,712
----------
Crude Petroleum and Natural Gas (0.7%)
Occidental Petroleum, 6.75%,
1/15/12 11,017,000 12,549
Occidental Petroleum, 8.45%,
2/15/29 4,751,000 6,095
----------
Total 18,644
----------
Diversified Industrials (0.3%)
United Technologies Corp.,
6.10%, 5/15/12 7,840,000 8,766
----------
Total 8,766
----------
Drilling Oil and Gas Wells (0.3%)
Transocean, Inc., 7.50%, 4/15/31 5,844,000 6,704
----------
Total 6,704
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (11.6%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Electric and Other Services Combined (0.1%)
Wisconsin Public Service,
4.875%, 12/1/12 $ 3,250,000 $ 3,292
----------
Total 3,292
----------
Electric Services (1.2%)
Atlantic City Electric,
6.625%, 8/1/13 4,000,000 4,395
Exelon Generation Co. LLC,
6.95%, 6/15/11 11,787,000 12,743
Public Service Electric & Gas Co.,
6.875%, 1/1/03 9,000,000 9,000
South Carolina Electric & Gas,
6.125%, 3/1/09 3,000,000 3,341
----------
Total 29,479
----------
Electrical Equipment and Supplies (0.2%)
Cooper Industries, Inc.,
5.50%, 11/1/09 5,100,000 5,315
----------
Total 5,315
----------
Enviromental Controls (0.1%)
Pall Corp., 6.00%, 8/1/12 144A 2,500,000 2,673
----------
Total 2,673
----------
Finance Services (0.8%)
Credit Suisse First Boston USA,
Inc., 4.625%, 1/15/08 8,050,000 8,160
General Motors Acceptance Corp.,
6.875%, 8/28/12 11,900,000 11,730
----------
Total 19,890
----------
Fire, Marine and Casualty Insurance (0.4%)
Allstate Corp., 6.125%, 12/15/32 2,520,000 2,567
Progressive Corp., 6.25%, 12/1/32 8,475,000 8,695
----------
Total 11,262
----------
Food Retailers (0.3%)
Delhaize America Inc.,
8.125%, 4/15/11 8,000,000 7,740
----------
Total 7,740
----------
Foreign Government Bonds (0.3%)
Province of Quebec, 6.50%,
1/17/06 7,500,000 8,312
----------
Total 8,312
----------
Grocery Stores (0.2%)
The Kroger Co., 7.50%, 4/1/31 5,000,000 5,593
----------
Total 5,593
----------
Metal Mining (0.1%)
Rio Tinto Finance, Ltd., 5.75%,
7/3/06 2,500,000 2,731
----------
Total 2,731
----------
</TABLE>
60
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (11.6%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Motor Vehicle Parts Accessories (0.4%)
TRW, Inc., 7.125%, 6/1/09 $ 3,047,000 $ 3,407
TRW, Inc., 7.75%, 6/1/29 6,591,000 7,774
----------
Total 11,181
----------
Motors and Generators (0.1%)
Emerson Electric Co., 5.75%,
11/1/11 1,918,000 2,060
----------
Total 2,060
----------
National Commercial Banks (0.2%)
Bank One Corp., 5.25%, 1/30/13 5,000,000 5,147
----------
Total 5,147
----------
News Dealers and Newsstands (0.1%)
News America Holdings,
7.75%, 12/1/45 3,050,000 2,997
----------
Total 2,997
----------
Office Machines (0.2%)
Pitney Bowes Credit Corp.,
5.75%, 8/15/08 5,000,000 5,534
----------
Total 5,534
----------
Oil and Gas Extraction (0.2%)
Chevron Corp., 6.625%, 10/1/04 4,750,000 5,113
----------
Total 5,113
----------
Oil and Gas Field Machinery (0.2%)
National-Oilwell, Inc.,
5.65%, 11/15/12 144A 4,750,000 4,803
----------
Total 4,803
----------
Pharmaceuticals (1.3%)
Eli Lilly & Co., 5.50%, 7/15/06 4,800,000 5,184
Eli Lilly & Co., 7.125%, 6/1/25 5,180,000 6,114
Johnson & Johnson, 6.625%,
9/1/09 2,800,000 3,264
Merck & Co., Inc., 5.95%, 12/1/28 3,774,000 3,991
Pfizer, Inc., 5.625%, 2/1/06 11,300,000 12,338
----------
Total 30,891
----------
Plastics Materials and Resins (0.3%)
Eastman Chemical, 7.00%, 4/15/12 6,580,000 7,427
----------
Total 7,427
----------
Plumbing Fixture Fittings/Trim (0.1%)
Masco Corp., 4.625%, 8/15/07 750,000 774
Masco Corp., 6.50%, 8/15/32 1,250,000 1,285
----------
Total 2,059
----------
Retail -- Retail Stores (0.3%)
Limited Brands, 6.125%, 12/1/12 6,900,000 7,263
----------
Total 7,263
----------
Search and Navigation Equipment (0.1%)
Raytheon Co., 6.75%, 3/15/18 1,648,000 1,727
----------
Total 1,727
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (11.6%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Telephone Communications (0.3%)
Alltel Corp., 7.00%, 7/1/12 $ 2,160,000 $ 2,489
Alltel Corp., 7.875%, 7/1/32 4,875,000 5,982
----------
Total 8,471
----------
Total Corporate Bonds
(Cost: $284,627) 295,977
----------
Government (Domestic and Foreign) and Agency Bonds (28.3%)
----------------------------------------------------------
Federal Government and Agencies (28.3%)
Aid-Israel, 0.00%, 11/15/22 11,600,000 3,767
Aid-Israel, 0.00%, 11/15/23 11,500,000 3,508
Federal Home Loan Bank,
5.54%, 1/8/09 5,000,000 5,556
Federal Home Loan Mortgage
Corporation, 6.50%, 4/1/11 5,413,505 5,748
Federal Home Loan Mortgage
Corporation, 7.00%, 3/15/07 2,170,929 2,241
Federal Home Loan Mortgage
Corporation, 7.50%, 10/1/27 3,890,402 4,159
Federal National Mortgage
Association, 5.97%, 10/1/08 1,662,760 1,825
Federal National Mortgage
Association, 6.24%, 2/1/06 4,639,725 5,021
Federal National Mortgage
Association, 6.265%, 10/1/08 5,458,292 6,072
Federal National Mortgage
Association, 6.315%, 3/1/06 4,903,013 5,324
Federal National Mortgage
Association, 6.34%, 2/1/08 3,925,255 4,361
Federal National Mortgage
Association, 6.43%, 6/1/08 6,920,635 7,730
Federal National Mortgage
Association, 6.75%, 11/1/07 2,953,722 3,327
Federal National Mortgage
Association, 6.75%, 4/25/18 4,661,753 4,976
Federal National Mortgage
Association, 6.75%, 12/25/23 6,500,000 6,781
Federal National Mortgage
Association, 6.835%, 7/1/03 1,960,881 1,965
Federal National Mortgage
Association, 6.895%, 5/1/06 5,758,273 6,356
Federal National Mortgage
Association, 6.90%, 4/1/06 2,322,728 2,560
Federal National Mortgage
Association, 7.00%, 6/1/03 551,124 560
Federal National Mortgage
Association, 7.00%, 6/25/10 1,080,100 1,078
Federal National Mortgage
Association, 7.00%, 4/1/26 4,963,174 5,250
Federal National Mortgage
Association, 7.025%, 9/1/05 1,845,033 2,009
Federal National Mortgage
Association, 7.25%, 5/1/04 1,501,550 1,569
Federal National Mortgage
Association, 8.40%, 2/25/09 966,350 966
</TABLE>
61
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Government (Domestic and Market
Foreign) and Agency Bonds Shares/ Value
(28.3%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
Federal National Mortgage
Association, 11.00%, 12/1/12 $ 34,223 $ 40
Federal National Mortgage
Association, 11.00%, 9/1/17 237,506 281
Federal National Mortgage
Association, 11.00%, 12/1/17 25,249 30
Federal National Mortgage
Association, 11.00%, 2/1/18 112,807 134
Federal National Mortgage
Association, 11.50%, 4/1/18 173,177 208
Federal National Mortgage
Association, 12.00%, 9/1/12 342,847 409
Federal National Mortgage
Association, 12.00%, 12/1/12 80,253 96
Federal National Mortgage
Association, 12.00%, 9/1/17 100,643 122
Federal National Mortgage
Association, 12.00%, 10/1/17 73,964 90
Federal National Mortgage
Association, 12.00%, 12/1/17 84,571 103
Federal National Mortgage
Association, 12.00%, 2/1/18 122,197 148
Federal National Mortgage
Association, 12.50%, 4/1/18 71,826 88
Federal National Mortgage
Association, 13.00%, 11/1/12 60,792 74
Federal National Mortgage
Association, 13.00%, 11/1/17 62,609 77
Federal National Mortgage
Association, 13.00%, 12/1/17 65,732 81
Federal National Mortgage
Association, 13.00%, 2/1/18 140,725 174
Federal National Mortgage
Association, 14.00%, 12/1/17 32,641 41
Government National Mortgage
Association, 5.50%, 1/15/32 967,638 995
Government National Mortgage
Association, 5.50%, 2/15/32 7,024,162 7,220
Government National Mortgage
Association, 5.50%, 9/15/32 243,855 251
Government National Mortgage
Association, 7.00%, 5/15/23 3,606,366 3,850
Government National Mortgage
Association, 7.00%, 6/15/23 340,038 363
Government National Mortgage
Association, 7.00%, 7/15/23 422,002 451
Government National Mortgage
Association, 7.00%, 8/15/23 6,562 7
Government National Mortgage
Association, 7.00%, 9/15/23 161,956 173
Government National Mortgage
Association, 7.00%, 10/15/23 148,758 159
Government National Mortgage
Association, 7.00%, 11/15/23 736,475 786
Government National Mortgage
Association, 7.00%, 12/15/27 174,249 185
</TABLE>
<TABLE>
<CAPTION>
Government (Domestic and Market
Foreign) and Agency Bonds Shares/ Value
(28.3%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
Government National Mortgage
Association, 7.00%, 1/15/28 $ 221,293 $ 235
Government National Mortgage
Association, 7.00%, 2/15/28 49,997 53
Government National Mortgage
Association, 7.00%, 3/15/28 53,450 57
Government National Mortgage
Association, 7.00%, 4/15/28 331,515 352
Government National Mortgage
Association, 7.00%, 5/15/28 472,319 502
Government National Mortgage
Association, 7.00%, 6/15/28 1,347,094 1,429
Government National Mortgage
Association, 7.00%, 7/15/28 1,928,235 2,048
Government National Mortgage
Association, 7.50%, 1/15/23 263,626 284
Government National Mortgage
Association, 7.50%, 6/15/23 142,271 153
Government National Mortgage
Association, 7.50%, 6/15/24 2,872 3
Government National Mortgage
Association, 7.50%, 7/15/24 117,817 126
Government National Mortgage
Association, 7.50%, 8/15/25 5,109 5
Government National Mortgage
Association, 7.50%, 9/15/25 67,300 72
Government National Mortgage
Association, 7.50%, 11/15/25 2,203 2
Government National Mortgage
Association, 7.50%, 12/15/25 153,010 164
Government National Mortgage
Association, 7.50%, 1/15/26 5,369 6
Government National Mortgage
Association, 7.50%, 3/15/26 218,553 234
Government National Mortgage
Association, 7.50%, 6/15/26 230,598 247
Government National Mortgage
Association, 7.50%, 9/15/26 4,294 5
Government National Mortgage
Association, 7.50%, 10/15/26 26,720 29
Government National Mortgage
Association, 7.50%, 12/15/26 309,303 331
Government National Mortgage
Association, 7.50%, 1/15/27 10,199 11
Government National Mortgage
Association, 7.50%, 2/15/27 144,645 155
Government National Mortgage
Association, 7.50%, 3/15/27 13,027 14
Government National Mortgage
Association, 7.50%, 4/15/27 508,878 544
Government National Mortgage
Association, 7.50%, 5/15/27 179,000 191
Government National Mortgage
Association, 7.50%, 7/15/27 141,036 151
Government National Mortgage
Association, 7.50%, 12/15/27 29,900 32
</TABLE>
62
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Government (Domestic and Market
Foreign) and Agency Bonds Shares/ Value
(28.3%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
Government National Mortgage
Association, 7.50%, 7/15/28 $ 75,557 $ 81
Government National Mortgage
Association, 8.00%, 7/15/27 66,022 72
Government National Mortgage
Association, 8.00%, 9/15/24 138,964 152
Government National Mortgage
Association, 8.00%, 5/15/26 173,666 189
Government National Mortgage
Association, 8.00%, 6/15/26 154,061 168
Government National Mortgage
Association, 8.00%, 7/15/26 222,983 242
Government National Mortgage
Association, 8.00%, 8/15/26 77,780 85
Government National Mortgage
Association, 8.00%, 9/15/26 137,943 150
Government National Mortgage
Association, 8.00%, 10/15/26 281,786 307
Government National Mortgage
Association, 8.00%, 11/15/26 68,403 75
Government National Mortgage
Association, 8.00%, 12/15/26 104,945 114
Government National Mortgage
Association, 8.00%, 4/15/27 279,025 304
Government National Mortgage
Association, 8.00%, 6/15/27 59,413 65
Government National Mortgage
Association, 8.00%, 7/20/28 627,889 676
Government National Mortgage
Association, 8.50%, 5/15/22 1,389 2
Government National Mortgage
Association, 8.50%, 9/15/22 1,954 2
Government National Mortgage
Association, 8.50%, 10/15/22 8,843 9
Government National Mortgage
Association, 8.50%, 12/15/22 6,106 7
Government National Mortgage
Association, 8.50%, 6/15/24 3,745 4
Government National Mortgage
Association, 8.50%, 7/15/24 8,304 9
Government National Mortgage
Association, 8.50%, 8/15/24 23,075 25
Government National Mortgage
Association, 8.50%, 12/15/24 2,023 2
Government National Mortgage
Association, 8.50%, 1/15/25 39,287 43
Government National Mortgage
Association, 8.50%, 2/15/25 8,448 9
Government National Mortgage
Association, 8.50%, 11/15/25 3,142 3
Government National Mortgage
Association, 8.50%, 1/15/26 17,395 19
Government National Mortgage
Association, 8.50%, 2/15/26 1,919 2
Government National Mortgage
Association, 8.50%, 3/15/26 7,302 8
</TABLE>
<TABLE>
<CAPTION>
Government (Domestic and Market
Foreign) and Agency Bonds Shares/ Value
(28.3%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
Government National Mortgage
Association, 8.50%, 4/15/26 $ 34,281 $ 37
Government National Mortgage
Association, 8.50%, 5/15/26 4,061 4
Government National Mortgage
Association, 11.00%, 1/15/18 2,795,351 3,242
Government National Mortgage
Association TBA, 5.50%, 1/1/25 15,000,000 15,384
Government National Mortgage
Association TBA, 5.50%, 12/1/25 15,900,000 15,997
Government National Mortgage
Association TBA, 5.50%,
2/15/32 61,000,000 62,316
Housing & Urban Development,
6.17%, 8/1/14 14,981,000 16,927
Rural Housing Trust 1987-1,
Series 1, Class D, 6.33%, 4/1/26 2,096,977 2,165
US Treasury, 2.125%, 10/31/04 1,025,000 1,036
US Treasury, 3.00%, 1/31/04 14,795,000 15,070
US Treasury, 3.25%, 12/31/03 51,900,000 52,938
US Treasury, 3.25%, 8/15/07 1,465,000 1,501
US Treasury, 3.50%, 11/15/06 11,250,000 11,707
US Treasury, 3.625%, 3/31/04 58,520,000 60,202
US Treasury, 3.875%, 6/30/03 18,827,000 19,075
US Treasury, 4.375%, 5/15/07 6,688,000 7,182
US Treasury, 4.625%, 2/28/03 13,022,000 13,091
US Treasury, 4.75%, 11/15/08 16,257,000 17,746
US Treasury, 5.25%, 5/15/04 25,875,000 27,255
US Treasury, 6.25%, 5/15/30 9,965,000 11,925
US Treasury Inflation Index
Bond, 3.375%, 1/15/07 17,842,290 19,323
US Treasury Inflation Index
Bond, 3.625%, 1/15/08 26,168,771 28,712
US Treasury Inflation Index
Bond, 3.625%, 4/15/28 7,285,655 8,525
US Treasury Inflation Index
Bond, 3.875%, 4/15/29 85,612,513 104,689
US Treasury Inflation Index
Bond, 4.25%, 1/15/10 73,272,720 83,566
Vendee Mortgage Trust,
Series 1998-3, Class E,
6.50%, 3/15/29 4,500,000 4,732
----------
Total Government (Domestic and Foreign)
and Agency Bonds (Cost: $668,798) 723,951
----------
Mortgage/Asset Backed
Securities (5.4%)
---------------------------------------------------------
Auto Related (0.0%)
Fleetwood Credit Corporation
Grantor Trust, Series 1997-B,
Class A, 6.40%, 5/15/13 603,600 624
----------
Total 624
----------
</TABLE>
63
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Mortgage/Asset Backed Shares/ Value
Securities (5.4%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Boat Dealers (0.0%)
Nationscredit Grantor Trust,
Series 1997-2, Class A1,
6.35%, 4/15/14 $ 456,758 $ 463
----------
Total 463
----------
Commercial Banks (0.1%)
Nationsbank Lease Pass-Through
Trust, Series 1997-A, Class 1,
7.442%, 1/10/11 144A 1,641,406 1,834
----------
Total 1,834
----------
Commercial Mortgages (4.0%)
Asset Securitization Corp.,
Series 1996-MD6, Class CS1,
1.632%, 11/13/26 IO 5,177,199 31
Asset Securitization Corp.,
Series 1996-MD6, Class CS2,
1.098%, 11/13/26 IO 79,473,178 880
Asset Securitization Corp.,
Series 1997-D5, Class PS1,
1.616%, 2/14/41 IO 20,898,243 1,405
Chase Commercial Mortgage
Securities Corp., Series 1997-2,
Class A2, 6.60%, 11/19/07 8,500,000 9,484
Chase Commercial Mortgage
Securities Corp., Series 1997-2,
Class B, 6.60%, 11/19/07 2,500,000 2,797
Commercial Mortgage
Acceptance Corp., Series 1997-
ML1, Class B, 6.644%, 12/15/07 2,500,000 2,764
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 1997-C1, Class A2,
7.26%, 6/20/07 144A 2,883,950 3,212
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 1997-C1, Class B,
7.28%, 6/20/07 144A 3,250,000 3,689
Criimi Mae Commercial
Mortgage Trust, Series 1998-C1,
Class A1, 7.00%, 11/2/06 144A 6,500,000 7,029
Criimi Mae Commercial
Mortgage Trust, Series 1998-C1,
Class B, 7.00%, 11/2/11 144A 5,700,000 5,661
DLJ Commercial Mortgage
Corp., Series 1998-CF1, Class S,
0.70%, 1/15/18 IO 237,037,014 7,311
DLJ Mortgage Acceptance Corp.,
Series 1997-CF2, Class S,
0.35%, 10/15/17 IO 144A 16,704,771 314
Midland Realty Acceptance
Corp., Series 1996-C2, Class
AEC, 1.35%, 1/25/29 IO 144A 20,874,068 920
Morgan Stanley Capital,
Series 1998-WF2, Class A2,
6.54%, 5/15/08 15,000,000 16,939
</TABLE>
<TABLE>
<CAPTION>
Market
Mortgage/Asset Backed Shares/ Value
Securities (5.4%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Commercial Mortgages continued
Mortgage Capital Funding, Inc.,
Series 1997-MC1, Class A3,
7.28%, 3/20/07 $19,000,000 $ 21,595
Nomura Asset Securities
Corporation, Series 1998-D6,
Class A2, 6.99%, 3/17/28 15,000,000 17,309
RMF Commercial Mortgage Pass-
Through, Series 1997-1, Class F,
7.47%, 1/15/19 144A 1,800,000 920
----------
Total 102,260
----------
Credit Card Asset Backed (0.6%)
Citibank Credit Card Master Trust
I, Series 1997-6, Class A,
0.00%, 8/15/06 17,000,000 16,534
Heilig-Meyers Master Trust,
Series 1998-1A, Class A,
6.125%, 1/20/07 144A 2,771,293 14
----------
Total 16,548
----------
Franchise Loan Receivables (0.1%)
Enterprise Mortgage Acceptance
Co., Series 1998-1, Class IO,
1.37%, 1/15/23 IO 144A 32,707,836 1,063
Global Franchise Trust,
Series 1998-1, Class A1,
6.35%, 4/10/04 144A 448,873 440
----------
Total 1,503
----------
Home Equity Loan (0.1%)
Vanderbilt Mortgage Finance, Inc.,
Series 1997-B, Class 1A4,
7.19%, 2/7/14 2,096,751 2,164
----------
Total 2,164
----------
Residential Mortgages (0.0%)
Blackrock Capital Finance LP,
Series 1997-R1, Class B3,
7.75%, 3/25/37 144A 2,807,513 182
Blackrock Capital Finance LP,
Series 1997-R3, Class B3,
7.25%, 11/25/28 144A 5,287,262 529
----------
Total 711
----------
Retail -- Retail Stores (0.5%)
LB Mortgage Trust, Series 1991-2,
Class A3, 8.40%, 1/20/17 10,776,324 12,608
----------
Total 12,608
----------
Total Mortgage/Asset Backed Securities
(Cost: $138,452) 138,715
----------
Common Stock (40.1%)
---------------------------------------------------------
Consumer Discretionary (5.4%)
* American Greetings Corp. --
Class A 8,300 131
* AOL Time Warner, Inc. 564,400 7,394
* AutoZone, Inc. 12,475 881
</TABLE>
64
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Consumer Discretionary continued
* Bed Bath & Beyond, Inc. 36,900 $ 1,274
* Best Buy Co., Inc. 40,600 980
* Big Lots, Inc. 14,600 193
The Black & Decker Corp. 10,200 437
Brunswick Corp. 11,400 226
Carnival Corp. 74,173 1,851
Centex Corp. 7,800 392
Circuit City Stores, Inc. 26,500 197
*Clear Channel Communications,
Inc. 77,450 2,888
*Comcast Corp. -- Class A 289,837 6,831
Cooper Tire & Rubber Co. 9,300 143
*Costco Wholesale Corp. 57,552 1,615
Dana Corp. 18,815 221
Darden Restaurants, Inc. 21,649 443
Delphi Automotive Systems
Corp. 70,769 570
Dillard's, Inc. -- Class A 10,636 169
Dollar General Corp. 42,165 504
Dow Jones & Company, Inc. 10,680 462
Eastman Kodak Co. 36,917 1,294
*eBay, Inc. 38,600 2,618
Family Dollar Stores, Inc. 21,900 683
*Federated Department Stores,
Inc. 25,512 734
Ford Motor Co. 230,507 2,144
Fortune Brands, Inc. 18,933 881
Gannett Co., Inc. 33,750 2,423
The Gap, Inc. 110,025 1,708
General Motors Corp. 70,825 2,611
Genuine Parts Co. 22,075 680
The Goodyear Tire & Rubber Co. 22,200 151
Harley-Davidson, Inc. 38,275 1,768
*Harrah's Entertainment, Inc. 14,150 560
Hasbro, Inc. 21,875 253
Hilton Hotels Corp. 47,550 604
The Home Depot, Inc. 297,897 7,138
*International Game Technology 11,000 835
The Interpublic Group of
Companies, Inc. 48,500 683
J. C. Penney Company, Inc. 33,825 778
Johnson Controls, Inc. 11,200 898
*Jones Apparel Group, Inc. 16,300 578
KB Home 6,300 270
Knight-Ridder, Inc. 10,550 667
*Kohl's Corp. 42,533 2,380
Leggett & Platt, Inc. 24,767 556
The Limited, Inc. 65,913 918
Liz Claiborne, Inc. 13,500 400
Lowe's Companies, Inc. 98,450 3,692
Marriott International, Inc. --
Class A 30,600 1,006
Mattel, Inc. 55,260 1,058
The May Department Stores Co. 36,400 836
Maytag Corp. 9,867 281
McDonald's Corp. 161,271 2,593
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Consumer Discretionary continued
The McGraw-Hill Companies,
Inc. 24,540 $ 1,483
Meredith Corp. 6,300 259
The New York Times Co. --
Class A 19,192 878
Newell Rubbermaid, Inc. 33,811 1,025
NIKE, Inc. -- Class B 33,700 1,499
Nordstrom, Inc. 17,033 323
* Office Depot, Inc. 39,143 578
Omnicom Group, Inc. 23,800 1,537
Pulte Corp. 7,700 369
RadioShack Corp. 21,667 406
*Reebok International, Ltd. 7,600 223
Sears, Roebuck & Co. 39,950 957
The Sherwin-Williams Co. 19,060 538
Snap-On Inc. 7,417 208
The Stanley Works 10,850 375
*Staples, Inc. 59,150 1,082
*Starbucks Corp. 49,150 1,002
Starwood Hotels & Resorts
Worldwide, Inc. 25,200 598
Target Corp. 114,743 3,442
Tiffany & Co. 18,433 441
The TJX Companies, Inc. 68,300 1,333
*TMP Worldwide, Inc. 14,133 160
*Toys "R" Us, Inc. 26,850 269
Tribune Co. 38,231 1,738
Tupperware Corp. 7,400 112
*Univision Communications, Inc.
-- Class A 29,000 711
V. F. Corp. 13,843 499
*Viacom, Inc. -- Class B 223,161 9,096
Visteon Corp. 16,512 115
Wal-Mart Stores, Inc. 562,433 28,407
The Walt Disney Co. 258,033 4,209
Wendy's International, Inc. 14,650 397
Whirlpool Corp. 8,650 452
*Yum! Brands, Inc. 37,580 910
----------
Total 138,112
----------
Consumer Staples (3.8%)
Adolph Coors Co. -- Class B 4,600 282
Alberto-Culver Co. -- Class B 7,300 368
Albertson's, Inc. 51,495 1,146
Anheuser-Busch Companies,
Inc. 109,819 5,315
Archer-Daniels-Midland Co. 82,375 1,021
Avon Products, Inc. 29,875 1,609
Brown-Forman Corp. -- Class B 8,600 562
Campbell Soup Co. 51,854 1,217
The Clorox Co. 29,150 1,202
The Coca-Cola Co. 313,900 13,755
Coca-Cola Enterprises, Inc. 56,700 1,232
Colgate-Palmolive Co. 68,654 3,600
ConAgra Foods, Inc. 67,933 1,699
CVS Corp. 49,633 1,239
*Del Monte Foods Co. 19,821 153
</TABLE>
65
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Consumer Staples continued
General Mills, Inc. 46,533 $ 2,185
The Gillette Co. 133,765 4,061
H.J. Heinz Co. 44,383 1,459
Hershey Foods Corp. 17,250 1,163
Kellogg Co. 51,843 1,777
Kimberly-Clark Corp. 65,397 3,104
*The Kroger Co. 99,773 1,541
The Pepsi Bottling Group, Inc. 36,000 925
PepsiCo, Inc. 224,100 9,462
Philip Morris Companies, Inc. 267,304 10,834
The Procter & Gamble Co. 164,373 14,126
R.J. Reynolds Tobacco Holdings,
Inc. 11,300 476
*Safeway, Inc. 55,800 1,303
Sara Lee Corp. 99,184 2,233
SUPERVALU, Inc. 16,950 280
SYSCO Corp. 83,850 2,498
UST, Inc. 21,433 717
Walgreen Co. 129,554 3,782
Winn-Dixie Stores, Inc. 17,750 271
Wm. Wrigley Jr. Co. 28,533 1,566
----------
Total 98,163
----------
Energy (2.4%)
Amerada Hess Corp. 11,300 622
Anadarko Petroleum Corp. 31,377 1,503
Apache Corp. 18,200 1,037
Ashland, Inc. 8,700 248
Baker Hughes, Inc. 42,640 1,373
*BJ Services Co. 19,800 640
Burlington Resources, Inc. 25,486 1,087
ChevronTexaco Corp. 135,084 8,980
ConocoPhillips 85,603 4,142
Devon Energy Corp. 19,800 909
EOG Resources, Inc. 14,640 584
Exxon Mobil Corp. 854,471 29,855
Halliburton Co. 55,185 1,033
Kerr-McGee Corp. 12,657 561
Marathon Oil Corp. 39,191 834
*Nabors Industries, Ltd. 18,250 644
*Noble Corp. 16,950 596
Occidental Petroleum Corp. 47,580 1,354
*Rowan Companies, Inc. 11,850 269
Schlumberger Ltd. 73,033 3,074
Sunoco, Inc. 9,650 320
*Transocean Sedco Forex, Inc. 40,354 936
Unocal Corp. 32,633 998
----------
Total 61,599
----------
Financials (8.2%)
ACE Ltd. 33,200 974
AFLAC Inc. 65,450 1,971
The Allstate Corp. 89,269 3,302
Ambac Financial Group, Inc. 13,400 754
American Express Co. 168,000 5,939
American International Group,
Inc. 330,090 19,095
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Financials continued
AmSouth Bancorporation 45,345 $ 871
Aon Corp. 38,575 729
Bank of America Corp. 190,020 13,220
The Bank of New York
Company, Inc. 91,820 2,200
Bank One Corp. 148,345 5,422
BB&T Corp. 61,100 2,260
The Bear Stearns Companies,
Inc. 12,445 739
Capital One Financial Corp. 28,000 832
The Charles Schwab Corp. 172,586 1,873
Charter One Financial, Inc. 29,071 835
The Chubb Corp. 21,750 1,135
Cincinnati Financial Corp. 20,480 769
Citigroup, Inc. 639,974 22,520
Comerica, Inc. 22,100 956
Countrywide Credit Industries,
Inc. 15,900 821
Equity Office Properties Trust 53,000 1,324
Equity Residential Properties
Trust 34,800 855
Fannie Mae 125,829 8,095
Fifth Third Bancorp 73,343 4,294
First Tennessee National Corp. 16,000 575
FleetBoston Financial Corp. 132,528 3,220
Franklin Resources, Inc. 32,850 1,120
Freddie Mac 88,014 5,197
Golden West Financial Corp. 19,550 1,404
The Goldman Sachs Group, Inc. 60,900 4,147
The Hartford Financial Services
Group, Inc. 31,350 1,424
Household International, Inc. 57,525 1,600
Huntington Bancshares, Inc. 30,400 569
J.P. Morgan Chase & Co. 252,062 6,049
Jefferson-Pilot Corp. 18,653 711
John Hancock Financial
Services, Inc. 36,700 1,024
KeyCorp 53,925 1,356
Lehman Brothers Holdings, Inc. 30,756 1,639
Lincoln National Corp. 23,260 735
Loews Corp. 23,533 1,046
Marsh & McLennan Companies,
Inc. 67,780 3,132
Marshall & Ilsley Corp. 26,600 728
MBIA, Inc. 18,650 818
MBNA Corp. 161,595 3,074
Mellon Financial Corp. 55,009 1,436
Merrill Lynch & Co., Inc. 109,400 4,152
MetLife, Inc. 88,715 2,399
MGIC Investment Corp. 13,000 537
Moody's Corp. 19,600 809
Morgan Stanley 138,531 5,530
National City Corp. 77,279 2,111
North Fork Bancorporation, Inc. 20,700 698
Northern Trust Corp. 28,050 983
Plum Creek Timber Company,
Inc. 23,400 552
</TABLE>
66
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Financials continued
The PNC Financial Services
Group, Inc. 35,900 $ 1,504
Principal Financial Group, Inc. 43,900 1,323
The Progressive Corp. 27,500 1,365
*Providian Financial Corp. 36,443 237
Prudential Financial, Inc. 73,400 2,330
Regions Financial Corp. 27,990 934
SAFECO Corp. 17,350 602
Simon Property Group, Inc. 23,500 801
SLM Corp. 19,586 2,034
SouthTrust Corp. 43,833 1,089
The St. Paul Companies, Inc. 28,620 975
State Street Corp. 41,000 1,599
*Stilwell Financial, Inc. 28,071 367
SunTrust Banks, Inc. 36,067 2,053
Synovus Financial Corp. 37,450 727
T. Rowe Price Group, Inc. 15,500 423
Torchmark Corp. 15,050 550
*Travelers Property Casualty CL B 126,430 1,852
U.S. Bancorp 242,109 5,138
Union Planters Corp. 25,312 712
UnumProvident Corp. 30,506 535
Wachovia Corp. 173,357 6,317
Washington Mutual, Inc. 122,338 4,224
Wells Fargo & Co. 214,785 10,067
XL Capital, Ltd. -- Class A 17,200 1,329
Zions Bancorporation 11,600 456
----------
Total 210,103
----------
Health Care (6.0%)
Abbott Laboratories 197,525 7,901
Aetna, Inc. 18,979 780
Allergan, Inc. 16,333 941
AmerisourceBergen Corp. 13,400 728
*Amgen, Inc. 161,623 7,813
*ANTHEM, INC. 17,800 1,120
Applera Corp. -- Applied
Biosystems Group 26,867 471
Bausch & Lomb, Inc. 6,800 245
Baxter International, Inc. 76,300 2,136
Becton, Dickinson and Co. 32,450 996
*Biogen, Inc. 18,800 753
Biomet, Inc. 33,255 953
*Boston Scientific Corp. 51,490 2,189
Bristol-Myers Squibb Co. 244,944 5,670
C. R. Bard, Inc. 6,550 380
Cardinal Health, Inc. 57,150 3,383
*Chiron Corp. 23,878 898
CIGNA Corp. 17,671 727
Eli Lilly and Co. 142,066 9,021
*Forest Laboratories, Inc. 22,767 2,236
*Genzyme Corp. 27,100 801
*Guidant Corp. 38,612 1,191
HCA, Inc. 65,515 2,719
Health Management Associates,
Inc. 30,100 539
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Health Care continued
*HEALTHSOUTH Corp. 50,100 $ 210
*Humana, Inc. 21,400 214
IMS Health, Inc. 35,833 573
Johnson & Johnson 376,223 20,207
*King Pharmaceuticals, Inc. 30,766 529
*Manor Care, Inc. 12,400 231
McKesson HBOC, Inc. 36,693 992
*Medlmmune, Inc. 31,700 861
Medtronic, Inc. 153,400 6,995
Merck & Co., Inc. 284,500 16,106
*Millipore Corp. 6,100 207
Pfizer, Inc. 782,690 23,928
Pharmacia Corp. 163,121 6,818
*Quest Diagnostics, Inc. 12,300 700
*Quintiles Transnational Corp. 14,900 180
Schering-Plough Corp. 185,450 4,117
*St. Jude Medical, Inc. 22,400 890
Stryker Corp. 24,950 1,675
*Tenet Healthcare Corp. 61,850 1,014
UnitedHealth Group, Inc. 38,414 3,208
*Watson Pharmaceuticals, Inc. 13,500 382
*Wellpoint Health Networks,
Inc. -- Class A 18,400 1,309
Wyeth 167,571 6,267
*Zimmer Holdings, Inc. 24,673 1,024
----------
Total 153,228
----------
Industrials (4.6%)
3M Co. 49,312 6,080
*Allied Waste Industries, Inc. 24,950 250
*American Power Conversion
Corp. 24,750 375
*American Standard Companies,
Inc. 9,100 647
*AMR Corp. 19,600 129
*Apollo Group, Inc. -- Class A 21,900 964
Automatic Data Processing,
Inc. 78,400 3,077
Avery Dennison Corp. 13,850 846
The Boeing Co. 106,118 3,501
Burlington Northern Santa Fe
Corp. 48,108 1,251
Caterpillar, Inc. 43,512 1,989
*Cendant Corp. 131,573 1,379
Cintas Corp. 21,467 982
*Concord EPS, Inc. 64,900 1,022
*Convergys Corp. 21,850 331
Cooper Industries, Ltd. 11,800 430
Crane Co. 7,525 150
CSX Corp. 26,950 763
Cummins, Inc. 5,200 146
Danaher Corp. 19,100 1,255
Deere & Co. 30,140 1,382
Delta Air Lines, Inc. 15,533 188
Deluxe Corp. 7,912 333
Dover Corp. 25,633 747
Eaton Corp. 8,900 695
</TABLE>
67
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Industrials continued
Emerson Electric Co. 53,225 $ 2,706
Equifax, Inc. 18,200 421
FedEx Corp. 37,640 2,041
First Data Corp. 95,722 3,390
*Fiserv, Inc. 24,325 826
Fluor Corp. 10,200 286
General Dynamics Corp. 25,500 2,024
General Electric Co. 1,258,098 30,636
Goodrich Corp. 14,600 267
H&R Block, Inc. 22,850 919
Honeywell International, Inc. 103,550 2,485
Illinois Tool Works, Inc. 38,700 2,510
Ingersoll-Rand Co.--Class A 21,370 920
ITT Industries, Inc. 11,600 704
Lockheed Martin Corp. 57,522 3,322
Masco Corp. 62,700 1,320
*McDermott International, Inc. 8,000 35
*Navistar International Corp. 7,620 185
*Norfolk Southern Corp. 49,143 982
Northrop Grumman Corp. 23,031 2,234
PACCAR, Inc. 14,685 677
Pall Corp. 15,516 259
Parker-Hannifin Corp. 14,900 687
Paychex, Inc. 47,540 1,326
Pitney Bowes, Inc. 30,127 984
*Power-One, Inc. 10,000 57
R. R. Donnelley & Sons Co. 14,333 312
Raytheon Co. 50,900 1,565
*Robert Half International, Inc. 22,160 357
Rockwell Automation, Inc. 23,450 486
Rockwell Collins, Inc. 23,150 538
Ryder System, Inc. 7,900 177
*Sabre Holdings Corp. --
Class A 18,309 332
Southwest Airlines Co. 97,695 1,358
Textron, Inc. 17,450 750
*Thomas & Betts Corp. 7,400 125
Tyco International, Ltd. 252,283 4,309
Union Pacific Corp. 31,940 1,912
United Parcel Service, Inc. 141,200 8,908
United Technologies Corp. 59,633 3,694
W.W. Grainger, Inc. 11,800 608
Waste Management, Inc. 77,297 1,772
----------
Total 118,318
----------
Information Technology (5.8%)
*ADC Telecommunications, Inc. 100,350 210
Adobe Systems, Inc. 30,375 757
*Advanced Micro Devices, Inc. 43,300 280
*Agilent Technologies, Inc. 58,688 1,054
*Altera Corp. 48,265 596
*Analog Devices, Inc. 46,243 1,104
*Andrew Corp. 12,362 127
*Apple Computer, Inc. 45,400 651
*Applied Materials, Inc. 208,000 2,710
*Applied Micro Circuits Corp. 38,100 141
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Information Technology continued
Autodesk, Inc. 14,466 $ 207
*Avaya, Inc. 45,612 112
*BMC Software, Inc. 30,440 521
*Broadcom Corp. -- Class A 34,600 521
*CIENA Corp. 54,400 280
*Cisco Systems, Inc. 925,167 12,119
*Citrix Systems, Inc. 22,080 272
Computer Associates
International, Inc. 73,032 986
*Computer Sciences Corp. 21,650 746
*Compuware Corp. 47,543 228
*Comverse Technology, Inc. 23,600 236
*Corning, Inc. 145,200 481
*Dell Computer Corp. 328,067 8,772
*Electronic Arts, Inc. 17,600 876
Electronic Data Systems Corp. 60,700 1,119
*EMC Corp. 278,586 1,711
*Gateway, Inc. 40,950 129
Hewlett-Packard Co. 385,867 6,698
Intel Corp. 842,743 13,121
International Business Machines
Corp. 214,210 16,600
*Intuit, Inc. 26,800 1,257
*Jabil Circuit, Inc. 25,033 449
*JDS Uniphase Corp. 172,000 425
*KLA-Tencor Corp. 23,900 845
*Lexmark International Group,
Inc. -- Class A 16,000 968
Linear Technology Corp. 40,150 1,033
*LSI Logic Corp. 47,000 271
*Lucent Technologies, Inc. 434,062 547
Maxim Integrated Products, Inc. 40,800 1,348
*Mercury Interactive Corp. 10,600 314
*Micron Technology, Inc. 76,350 744
*Microsoft Corp. 684,800 35,403
Molex, Inc. 24,475 564
Motorola, Inc. 290,719 2,515
*National Semiconductor Corp. 22,843 343
*NCR Corp. 12,400 294
*Network Appliance, Inc. 42,600 426
*Novell, Inc. 45,800 153
*Novellus Systems, Inc. 18,300 514
*Nvidia Corp. 19,300 222
*Oracle Corp. 687,050 7,419
*Parametric Technology Corp. 32,920 83
*PeopleSoft, Inc. 39,500 723
PerkinElmer, Inc. 15,800 130
*PMC-Sierra, Inc. 21,000 117
*QLogic Corp. 11,850 409
*QUALCOMM, Inc. 98,233 3,575
*Rational Software Corp. 24,400 254
*Sanmina-SCI Corp. 66,200 297
Scientific-Atlanta, Inc. 19,800 235
*Siebel Systems, Inc. 60,400 452
*Solectron Corp. 104,000 369
*Sun Microsystems, Inc. 410,454 1,277
</TABLE>
68
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Information Technology continued
*SunGard Data Systems, Inc. 35,700 $ 841
Symbol Technologies, Inc. 28,950 238
*Tektronix, Inc. 11,240 204
*Tellabs, Inc. 51,908 377
*Teradyne, Inc. 23,150 301
Texas Instruments, Inc. 219,175 3,290
*Thermo Electron Corp. 21,100 425
*Unisys Corp. 40,850 404
*VERITAS Software Corp. 51,901 811
*Waters Corp. 16,600 362
*Xerox Corp. 92,300 743
*Xilinx, Inc. 42,700 880
*Yahoo!, Inc. 75,900 1,241
----------
Total 147,457
----------
Materials (1.1%)
Air Products and Chemicals, Inc. 28,733 1,228
Alcoa, Inc. 106,743 2,432
Allegheny Technologies, Inc. 10,131 63
Ball Corp. 7,134 365
Bemis Company, Inc. 6,650 330
Boise Cascade Corp. 7,400 187
The Dow Chemical Co. 115,124 3,419
E. I. du Pont de Nemours and Co. 125,645 5,327
Eastman Chemical Co. 9,775 359
Ecolab, Inc. 16,400 812
Engelhard Corp. 16,300 364
*Freeport-McMoRan Copper &
Gold, Inc. -- Class B 18,319 307
Georgia-Pacific Corp. 29,058 470
Great Lakes Chemical Corp. 6,300 150
*Hercules, Inc. 13,800 121
International Flavors &
Fragrances, Inc. 11,975 420
International Paper Co. 60,924 2,131
*Louisiana-Pacific Corp. 13,200 106
MeadWestvaco Corp. 25,314 626
Monsanto Co. 33,078 637
Newmont Mining Corp. 50,730 1,473
Nucor Corp. 9,867 408
*Pactiv Corp. 20,000 437
*Phelps Dodge Corp. 11,210 355
PPG Industries, Inc. 21,433 1,075
Praxair, Inc. 20,400 1,179
Rohm and Haas Co. 27,934 907
*Sealed Air Corp. 10,636 397
Sigma-Aldrich Corp. 9,300 453
Temple-Inland, Inc. 6,800 305
United States Steel Corp. 12,850 169
Vulcan Materials Co. 12,800 480
Weyerhaeuser Co. 27,720 1,364
Worthington Industries, Inc. 10,850 165
----------
Total 29,021
----------
Telecommunication Services (1.7%)
ALLTEL Corp. 39,343 2,006
AT&T Corp. 97,274 2,540
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stock (40.1%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Telecommunication Services continued
*AT&T Wireless Services, Inc. 342,416 $ 1,935
BellSouth Corp. 236,635 6,122
CenturyTel, Inc. 17,900 526
*Citizens Communications Co. 35,600 376
*Nextel Communications, Inc. --
Class A 115,133 1,330
*Qwest Communications
International, Inc. 212,020 1,060
SBC Communications, Inc. 420,433 11,398
Sprint Corp. 112,891 1,635
*Sprint Corp. (PCS Group) 126,040 552
Verizon Communications, Inc. 345,038 13,369
----------
Total 42,849
----------
Utilities (1.1%)
*The AES Corp. 68,675 207
*Allegheny Energy, Inc. 15,900 120
Ameren Corp. 18,333 762
American Electric Power
Company, Inc. 42,820 1,170
*Calpine Corp. 47,640 155
CenterPoint Energy, Inc. 38,326 326
Cinergy Corp. 21,238 716
CMS Energy Corp. 18,200 172
Consolidated Edison, Inc. 26,925 1,153
Constellation Energy Group, Inc. 20,800 579
Dominion Resources, Inc. 38,525 2,115
DTE Energy Co. 21,150 981
Duke Energy Corp. 112,242 2,193
*Dynegy, Inc. -- Class A 45,600 54
*Edison International 41,180 488
El Paso Corp. 73,917 514
Entergy Corp. 28,291 1,290
Exelon Corp. 40,762 2,151
FirstEnergy Corp. 37,674 1,242
FPL Group, Inc. 23,043 1,386
KeySpan Corp. 17,900 631
Kinder Morgan, Inc. 15,433 652
*Mirant Corp. 50,784 96
Nicor, Inc. 5,550 189
NiSource, Inc. 30,784 616
Peoples Energy Corp. 4,500 174
*PG&E Corp. 49,675 690
Pinnacle West Capital Corp. 10,900 372
PPL Corp. 20,433 709
Progress Energy, Inc. 29,879 1,295
Public Service Enterprise Group,
Inc. 28,040 900
Sempra Energy 25,859 612
The Southern Co. 89,600 2,544
TECO Energy, Inc. 21,900 339
TXU Corp. 39,015 729
The Williams Companies, Inc. 65,200 176
Xcel Energy, Inc. 50,370 554
----------
Total 29,052
----------
Total Common Stock
(Cost: $728,721) 1,027,902
----------
</TABLE>
69
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Money Market Investments Shares/ Value
(20.2%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Agricultural Services (1.2%)
#Cargill Inc., 1.31%, 1/22/03 $15,000,000 $ 14,988
#Cargill Inc., 1.33%, 1/23/03 15,000,000 14,988
----------
Total 29,976
----------
Asset-Backed Securities (CMO'S) (0.6%)
#Fcar Owner Trust 1, 1.35%, 2/4/03 15,000,000 14,981
----------
Total 14,981
----------
Auto Related (1.0%)
#General Motors Corp.,
1.95%, 1/9/03 10,000,000 9,996
#Toyota Motor Credit Co.,
1.31%, 1/30/03 15,000,000 14,984
----------
Total 24,980
----------
Diversified Business Finance (0.6%)
#General Electric Capital,
1.31%, 2/14/03 15,000,000 14,976
----------
Total 14,976
----------
Federal Government and Agencies (1.1%)
#Federal National Mortgage
Association, 1.275%, 3/5/03 28,500,000 28,441
----------
Total 28,441
----------
Finance Lessors (1.2%)
#Receivables Capital Corp.,
1.35%, 2/7/03 15,000,000 14,979
#Receivables Capital Corp.,
1.35%, 1/21/03 15,000,000 14,989
----------
Total 29,968
----------
Finance Services (2.8%)
#Asset Securitization, 1.32%,
1/21/03 15,000,000 14,989
#Ciesco LP, 1.32%, 1/16/03 15,000,000 14,991
#Ciesco LP, 1.34%, 2/6/03 15,000,000 14,980
#Preferred Receivable Funding,
1.34%, 1/23/03 15,000,000 14,988
#Preferred Receivable Funding,
1.35%, 1/10/03 14,700,000 14,695
----------
Total 74,643
----------
Machinery (0.4%)
John Deere Capital Corp.,
1.64%, 1/7/03 10,000,000 9,997
----------
Total 9,997
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Money Market Investments Shares/ Value
(20.2%) Par (000's)
-----------------------------------------------------
<S> <C> <C>
Miscellaneous Business Credit Institutions (1.7%)
# National Rural Utility C,
1.40%, 1/21/03 $15,000,000 $ 14,988
#Quincy Capital Corp., 1.35%,
1/6/03 15,000,000 14,998
# Toyota Motor Credit Co.,
1.32%, 2/13/03 15,000,000 14,976
----------
Total 44,962
----------
Nonclassifiable Establishments (1.2%)
# Thunder Bay Funding, Inc.,
1.34%, 1/21/03 15,000,000 14,989
# Thunder Bay Funding, Inc.,
1.35%, 2/18/03 15,000,000 14,973
----------
Total 29,962
----------
Passenger Car Rental (0.6%)
# Delaware Funding Corp.,
1.35%, 2/13/03 15,000,000 14,976
----------
Total 14,976
----------
Personal Credit Institutions (0.6%)
# Salomon Smith Barney Hld,
1.34%, 1/30/03 15,100,000 15,084
----------
Total 15,084
----------
Pharmaceutical Preparations (0.4%)
# Wyeth, 1.85%, 1/6/03 10,000,000 9,998
----------
Total 9,998
----------
Security Brokers and Dealers (1.2%)
# Goldman Sachs Group, Inc.,
1.78%, 2/3/03 15,000,000 14,976
# Morgan St. Dean Witter,
1.32%, 2/4/03 15,000,000 14,981
----------
Total 29,957
----------
Short Term Business Credit (5.0%)
CXC Inc., 1.34%, 2/6/03 15,000,000 14,980
CXC Inc., 1.76%, 1/17/03 15,000,000 14,988
Old Line Funding Corp.,
1.38%, 1/15/03 30,000,000 29,984
Quincy Capital Corp.,
1.35%, 1/23/03 15,000,000 14,988
Transamerica Financial
Corporation, 1.76%, 2/7/03 15,000,000 14,973
UBS Finance LLC, 1.2%, 1/2/03 24,960,000 24,958
</TABLE>
70
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
Market
Money Market Investments Shares/ Value
(20.2%) Par (000's)
------------------------------------------------------------
<S> <C> <C>
Short Term Business Credit continued
UBS Finance LLC,
1.3%, 1/28/03 $15,000,000 $ 14,985
----------
Total 129,856
----------
Tobacco Products (0.6%)
Philip Morris Disc,
1.33%, 1/30/03 15,000,000 14,984
----------
Total 14,984
----------
Total Money Market Investments
(Cost: $517,737) 517,741
----------
Total Investments
(105.6%) (Cost
$2,338,335)` 2,704,286
----------
Other Assets, Less Liabilities (-5.6%) (142,757)
----------
Total Net Assets (100.0%) $2,561,529
----------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$2,357,594 and the net unrealized appreciation of investments based on that
cost was $346,692 which is comprised of $552,721 aggregate gross unrealized
appreciation and $206,029 aggregate gross unrealized depreciation.
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.
IO -- Interest Only Security
* Non-Income Producing
++ Defaulted Security
# All or a portion of the securities have been committed as collateral for
open futures positions. Information regarding open futures contracts as of
period end is summarized below:
<TABLE>
<CAPTION>
Unrealized
Appreciation /
Number of Expiration (Depreciation)
Issuer (000's) Contracts Date (000's)
------------------------------------------------------
<S> <C> <C> <C>
S & P 500 Index
Futures 1564 3/03 $(9,466)
(Total Notional
Value at 12/31/02
$353,116)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
71
<PAGE>
High Yield Bond Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
High current income and capital Generate superior performance $137.55 million
appreciation with moderate risk. by investing in a diversified
mix of fixed income securities
rated below investment grade.
</TABLE>
Investing in a portfolio of high yield bonds provides investors who can accept
a moderate level of risk with a high level of current income, coupled with the
opportunity for capital gains. Holdings of particular interest include
investments in entities that have the possibility of a positive event, such as
a significant improvement in credit rating or earnings or a change in
ownership. In a high yield portfolio, some credit losses over time are
inevitable; high coupons and diversification across many holdings mitigate the
impact of individual securities on the performance of the total Portfolio.
For 2002, the High Yield Bond Portfolio had a return of -2.89%, versus -1.36%
for its benchmark, the Lehman Brothers High Yield Intermediate Market Index.
These returns were better than the stock market, but substantially below
investment-grade bonds. In the current market environment, with many defaults
and downgrades of high yield bonds, it is especially difficult for managed
funds to outperform the Index because defaulted bonds are removed from the
Index, but they affect portfolio performance whether held in hope of recovery
or written off.
The high yield bond market was quite turbulent during the year, with many
defaults and widespread downward credit rating migration in response to
deterioration in the financial situation of issuers. Volatility increased
greatly as investment-grade bond investors attempted to sell very large issues
that were downgraded to below investment-grade status. After a period of dismal
performance, high yield bonds recovered markedly in the fourth quarter of 2002,
as investor fears subsided, the stock market recovered, and credit spreads
narrowed on expectations of improving fundamentals.
The Portfolio's performance relative to the Index has been negatively affected
by holdings in three industry sectors: cable television, wireless communication
and electric power producers. Each of these industries has been affected by
well-publicized financial problems experienced by highly visible participants.
In these sectors, prices of some bonds held by the Portfolio have fallen
significantly, as technical trading factors have compounded the problems caused
by fundamental deterioration. We evaluate each issue on its own merits, often
keeping those bonds for which an eventual workout may create more value than a
sale at current distressed levels, even though such a sale might boost the
Portfolio's short-term performance.
The Portfolio's current strategic direction is focused largely on reducing risk
by improving credit quality and emphasizing industries that are relatively
stable, such as gaming, health care, publishing, home building, real estate and
oil field services. As market conditions permit, we are reducing exposure to
more volatile industries such as electric utilities, cable and wireless. We
have increased the number of holdings in the Portfolio, in order to spread risk
among many issues.
[CHART]
Percentage Holdings by Industry Sector
12/31/02
Consumer Cyclical 23%
Consumer Staples 20%
Technology 14%
Basic Material/Capital Goods 11%
Short-Term Investments and Other Assets, Net 7%
Utilities 5%
Transport Services 5%
Energy 5%
Finance 5%
Other Industries 5%
[CHART]
Relative Performance
High Yield Lehman Brothers High
Bond Portfolio Yield Intermediate Market Index
5/3/1994 10,000 10,000
12/31/1994 10,302 10,188
12/31/1995 12,030 11,952
12/31/1996 14,409 13,409
12/31/1997 16,693 15,020
12/31/1998 16,388 15,244
12/31/1999 16,314 15,646
12/31/2000 15,564 14,635
12/31/2001 16,347 15,189
12/31/2002 15,874 14,982
Average Annual Total Return
For Periods Ended December 31, 2002
1 Year 5 Years 10 Years
High Yield Bond Portfolio -2.89% -1.00% 5.48%
Lehman Brothers High Yield
Intermediate Market Index -1.36% -0.05% 4.78%
The total return performance for the High Yield Bond Portfolio is shown in
comparison with the Lehman Brothers High Yield Intermediate Market Index. The
Lehman Brothers index is an appropriate measure of portfolio performance since
it has a quality and maturity profile that resembles the High Yield Bond
Portfolio. The index cannot be invested in directly and do not include sales
charges.
The Lehman Brothers High Yield Intermediate Market Index is made up of
dollar-denominated, nonconvertible, SEC publicly registered fixed rate
noninvestment grade issues. The bonds will have remaining maturities of between
one and ten years and have an outstanding par value of at least $100 million.
Yankee and global bonds (SEC registered) of issuers in G-7 countries are
included. Original issue zero coupon bonds and step-up coupon structures are
also included; however, the index excludes pay-in-kind (PIK) bonds. Each bond
must be rated Ba1 or lower by Moody's Investor Service. If a Moody's rating is
unavailable, the bonds must be rated BB+ or lower by Standard & Poor's, or by
Fitch if an S&P rating is unavailable. A few unrated bonds are included in the
index; to be eligible they must have previously held a high yield rating or
have been associated with a high yield issuer. The index is an unmanaged market
value weighted index and measures the income provided by, and the price changes
of, the underlying securities.
This chart assumes an initial investment of $10,000 made on 5/3/94
(commencement of operations). Returns shown include deductions for management
and other fund expenses, and reinvestment of all dividends. Returns exclude
deductions for separate account sales loads and account fees. Past performance
is not predictive of future performance. Investment return and principal value
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. Total returns shown on page 4 reflect mortality and
expense risk charges and other charges deducted from the assets of the separate
account. The cost of insurance protection, which is not reflected in the
returns shown on this chart, would make the returns significantly lower.
Investors are urged to obtain a personalized illustration of historical
performance which reflects the cost of insurance protection.
72
<PAGE>
High Yield Bond Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Basic Materials (3.3%)
Chemicals (0.5%)
Lyondell Chemical Co.,
11.125%, 7/15/12 $ 750,000 $ 739
--------
Total 739
--------
Metals and Mining (1.6%)
Great Central Mines, Ltd.,
8.875%, 4/1/08 1,250,000 1,244
UCAR Finance, Inc., 10.25%, 2/15/12 1,125,000 894
--------
Total 2,138
--------
Paper (1.2%)
Appleton Papers, Inc.,
12.50%, 12/15/08 1,500,000 1,641
--------
Total 1,641
--------
Total Basic Materials 4,518
--------
Capital Goods (6.7%)
Aerospace (0.6%)
K & F Industries Inc.,
9.625%, 12/15/10 144A 750,000 763
--------
Total 763
--------
Building -- Forest Products (0.5%)
Georgia-Pacific Corp., 8.125%,
5/15/11 750,000 713
--------
Total 713
--------
Building and Construction (3.5%)
Brickman Group Ltd.,
11.75%, 12/15/09 144A 1,325,000 1,384
H & E Equipment / Finance,
11.125%, 6/15/12 144A 1,125,000 844
Integrated Electrical Services, Inc.,
9.375%, 2/1/09 1,500,000 1,379
United Rentals, Inc., 10.75%, 4/15/08 1,250,000 1,243
--------
Total 4,850
--------
Industrial (2.1%)
Perkinelmer, Inc.,
8.875%, 1/15/13 144A 750,000 739
Rexnord Corp.,
10.125%, 12/15/12 144A 750,000 769
Tyco International Group,
6.375%, 2/15/06 750,000 728
Tyco International Group S.A.,
6.375%, 6/15/05 375,000 364
Tyco International Group SA,
6.375%,10/15/11 375,000 351
--------
Total 2,951
--------
Total Capital Goods 9,277
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Chemicals and Allied Products (1.1%)
FMC Corp., 10.25%, 11/1/09 144A $ 750,000 $ 810
Lyondell Chemical Co.,
9.50%, 12/15/08 144A 750,000 698
--------
Total Chemicals and Allied
Products 1,508
--------
Construction and Building Materials (0.3%)
United Rentals, Inc.,
10.75%, 4/15/08 144A 375,000 369
--------
Total Construction and
Building Materials 369
--------
Consumer Cyclical (22.9%)
Apparel, Textile (1.6%)
Guess ?, Inc., 9.50%, 8/15/03 1,000,000 980
Levi Strauss & Co., 11.625%, 1/15/08 1,125,000 1,100
Tommy Hilfiger USA, Inc.,
6.85%, 6/1/08 200,000 188
--------
Total 2,268
--------
Auto Related (2.3%)
Avis Group Holdings, Inc.,
11.00%, 5/1/09 1,250,000 1,368
Collins & Aikman Products, Inc.,
11.50%, 4/15/06 750,000 630
Trimas Corp., 9.875%, 6/15/12 144A 1,125,000 1,113
--------
Total 3,111
--------
Home Construction (3.1%)
Beazer Homes USA, 8.875%, 4/1/08 925,000 957
K Hovnanian Enterprises,
10.50%, 10/1/07 750,000 806
Schuler Homes, 9.375%, 7/15/09 725,000 740
Standard Pacific Corp., 9.50%,
9/15/10 1,025,000 1,074
Tech Olympic USA, Inc.,
9.00%, 7/1/10 144A 750,000 728
--------
Total 4,305
--------
Household Appliances (0.6%)
Rent-A-Center, Inc., 11.00%, 8/15/08 750,000 807
--------
Total 807
--------
Leisure Related (2.1%)
Bally Total Fitness Holdings, Series
D, 9.875%, 10/15/07 1,300,000 1,130
Premier Parks, Inc., 9.50%, 2/1/09 750,000 724
Royal Caribbean Cruises Ltd.,
7.00%, 10/15/07 1,125,000 1,001
--------
Total 2,855
--------
</TABLE>
73
<PAGE>
High Yield Bond Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Lodging / Resorts (3.7%)
Corrections Corporation of America,
9.875%, 5/1/09 144A $ 725,000 $ 769
Felcor Lodging Limited Partnership,
9.50%, 9/15/08 1,350,000 1,376
Hilton Hotels Corp., 7.625%, 12/1/12 750,000 757
John Q. Hammons, 8.875%, 5/15/12 550,000 553
Meristar Hospitality Finance Corp.,
9.00%, 1/15/08 450,000 396
Meristar Hospitality Finance Corp.,
9.125%, 1/15/11 550,000 479
RFS Partnership LP, 9.75%, 3/1/12 750,000 766
--------
Total 5,096
--------
Printing and Publishing (4.0%)
American Achievement Corp.,
11.625%, 1/1/07 700,000 743
DEX Media East LLC,
9.875%, 11/15/09 144A 750,000 803
Mail-Well Corp., 9.625%, 3/15/12 1,125,000 1,001
RH Donnelley Fin Corp.,
10.875%, 12/15/12 144A 950,000 1,036
Vertis Inc., 10.875%, 6/15/09 725,000 754
Vertis, Inc., 10.875, 6/15/09 144A 425,000 442
Von Hoffman Corp., 10.25%, 3/15/09 750,000 701
--------
Total 5,480
--------
Retail -- General (5.5%)
Asbury Automotive Group, Inc.,
9.00%, 6/15/12 750,000 653
Autonation, Inc., 9.00%, 8/1/08 725,000 732
Buhrmann US, Inc., 12.25%, 11/1/09 1,500,000 1,394
CSK Auto, Inc, 12.00%, 6/15/06 750,000 803
The Gap, Inc., 8.15%, 12/15/05 350,000 372
The Gap, Inc., 10.55%, 12/15/08 375,000 409
Hollywood Entertainment Inc.,
9.625%, 3/15/11 950,000 969
Saks, Inc., 8.25%, 11/15/08 750,000 746
Sonic Automotive, Inc., 11.00%,
8/1/08 750,000 765
United Auto Group, Inc.
9.625%, 3/15/12 144A 750,000 728
--------
Total 7,571
--------
Total Consumer Cyclical 31,493
--------
Consumer Staples (19.7%)
Containers (1.6%)
Applied Extrusion Tech., Inc.,
10.75%, 7/1/11 375,000 242
BWAY Corp., 10.00%, 10/15/10
144A 750,000 778
Owens-Brockway Glass Container,
Inc., 8.75%, 11/15/12 144A 1,125,000 1,142
--------
Total 2,162
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Food Service (1.3%)
Buffets, Inc., 11.25%, 7/15/10 144A $ 750,000 $ 709
Sbarro, Inc., 11.00%, 9/15/09 1,150,000 1,070
--------
Total 1,779
--------
Foods (0.9%)
Corn Products International, Inc.,
8.25%, 7/15/07 575,000 581
Swift & Co., 10.125%, 10/1/09 144A 750,000 709
--------
Total 1,290
--------
Gaming (10.8%)
Aztar Corp., 8.875%, 5/15/07 150,000 153
Choctaw Resort Development,
9.25%, 4/1/09 1,400,000 1,480
Chumash Casino & Resort,
9.00%, 7/15/10 144A 750,000 795
Herbst Gaming, Inc., 10.75%, 9/1/08 1,125,000 1,176
Hollywood Casino Shreveport,
13.00%, 8/1/06 700,000 700
Jacobs Entertainment, Inc.
11.875%, 2/01/09 1,500,000 1,552
Majestic Investment Holdings, Inc.,
11.653%, 11/30/07 900,000 833
The Majestic Star Casino LLC,
10.875%, 7/1/06 850,000 867
Mandalay Resort Group,
7.625%, 7/15/13 500,000 500
Park Place Entertainment Corporation,
9.375%, 2/15/07 150,000 160
Resort International Hotel/Casino,
11.50%, 3/15/09 1,000,000 905
Riviera Holdings Corp.,
11.00%, 6/15/10 1,500,000 1,350
Venetian Casino Resort LLC,
11.00%, 6/15/10 144A 1,875,000 1,958
Wheeling Island Gaming,
10.125%, 12/15/09 950,000 979
Wynn Las Vegas Corp.,
12.00%, 11/1/10 1,500,000 1,514
--------
Total 14,922
--------
Healthcare (4.1%)
AmerisourceBergen Corp.,
7.25%, 11/15/12 144A 550,000 564
Fresenius Medical Capital Trust II,
7.875%, 2/1/08 650,000 640
HEALTHSOUTH Corp., 8.50%,
2/1/08 1,125,000 968
InSight Health Services Corp.,
9.875%, 11/1/11 144A 1,115,000 1,070
Pacificare Health Systems, Inc.,
10.75%, 6/1/09 750,000 803
Rotech Healthcare Inc.,
9.50%, 4/1/12 144A 750,000 751
Ventas Realty, 9.00%, 5/1/12 750,000 784
--------
Total 5,580
--------
</TABLE>
74
<PAGE>
High Yield Bond Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Retail -- Food (0.7%)
Fleming Companies, Inc.,
10.125%, 4/1/08 $ 350,000 $ 301
Great Atlantic & Pacific Tea Co., Inc.,
7.75%, 4/15/07 925,000 666
--------
Total 967
--------
Soaps and Toiletries (0.3%)
Elizabeth Arden, Inc., 11.75%, 2/1/11 350,000 361
--------
Total 361
--------
Total Consumer Staples 27,061
--------
Energy (4.7%)
Oil and Gas Independent (0.9%)
PDVSA Finance, Ltd., 1999-I,
9.75%, 2/15/10 1,325,000 1,179
--------
Total 1,179
--------
Oil and Gas Integrated (0.6%)
Compton Petroleum Corp.,
9.90%, 5/15/09 144A 750,000 780
--------
Total 780
--------
Oil Field Services (3.0%)
BRL Universal Equipment,
8.875%, 2/15/08 1,400,000 1,456
El Paso Energy Partners, 8.50%,
6/1/11 1,125,000 1,043
Grant Prideco Escrow,
9.00%, 12/15/09 144A 1,050,000 1,092
Hanover Equipment Trust,
8.75%, 9/1/11 144A 725,000 700
--------
Total 4,291
--------
Refining (0.2%)
Tesoro Petroleum Corp.,
9.625%, 11/1/08 375,000 255
--------
Total 255
--------
Total Energy 6,505
--------
Finance (5.6%)
Banks (1.9%)
Sovereign Real Estate Investment
Trust, 12.00%, 5/16/20 144A 1,325,000 1,470
Western Financial Bank-FSB,
9.625%, 5/15/12 1,125,000 1,091
--------
Total 2,561
--------
Finance Companies (2.8%)
AmeriCredit Corp., 9.875%, 4/15/06 1,100,000 924
Americredit Corp.,
9.25%, 5/1/09 144A 450,000 351
IOS Capital, Inc., 9.75%, 6/15/04 1,225,000 1,246
Metris Companies, Inc.,
10.125%, 7/15/06 2,600,000 1,430
--------
Total 3,951
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
----------------------------------------------------------------
<S> <C> <C>
Financial Services (0.9%)
Labranche & Company, Inc.,
12.00%, 3/2/07 $1,100,000 $ 1,227
--------
Total 1,227
--------
Total Finance 7,739
--------
Miscellaneous (2.0%)
CB Richards Ellis Services, Inc.,
11.25%, 6/15/11 1,400,000 1,287
Crescent Real Estate Equities,
7.50%, 9/15/07 650,000 631
Istar Financial, Inc., 8.75%, 8/15/08 725,000 772
--------
Total Miscellaneous 2,690
--------
Professional Services (1.8%)
Kindercare Learning Centers,
9.50%, 2/15/09 1,880,000 1,824
Service Corp. International,
7.70%, 4/15/09 650,000 611
--------
Total Professional Services 2,435
--------
Real Estate (1.0%)
LNR Property Corp., 10.50%, 1/15/09 1,350,000 1,364
--------
Total Real Estate 1,364
--------
Technology (11.2%)
Cable (3.2%)
Charter Communications Holdings
LLC, 9.625%, 11/15/09 750,000 334
Charter Communications Holdings
LLC, 10.75%, 10/1/09 850,000 385
Echostar DBS Corp.,
10.375%, 10/1/07 1,150,000 1,244
Insight Midwest, 9.75%, 10/01/09 950,000 903
++NTL Communications Corp.,
11.50%, 10/1/08 900,000 86
(check mark) NTL, Inc., 9.75%, 4/1/08 1,900,000 152
Rogers Communications, Inc.,
8.875%, 7/15/07 1,000,000 954
(check mark)Telewest Communications PLC,
9.25%, 4/15/09 1,000,000 140
++Telewest Communications PLC,
9.875%, 2/1/10 900,000 162
(check mark)United Pan-Europe Communications
NV, 13.75%, 2/1/10 600,000 36
--------
Total 4,396
--------
Electronics (1.1%)
Amkor Technology, Inc.,
5.00%, 3/15/07 475,000 232
Sanmina-Sci Corporation,
10.375%, 1/15/10 144A 750,000 758
Solectron Corp., 9.625%, 2/15/09 575,000 561
--------
Total 1,551
--------
</TABLE>
75
<PAGE>
High Yield Bond Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Office Equipment (0.5%)
Xerox Corp., 7.15%, 8/01/04 $ 750,000 $ 724
--------
Total 724
--------
Telecommunications Wireless: Cellular /PCS (6.4%)
Alamosa Delaware, Inc.,
12.50%, 2/1/11 450,000 135
Alamosa Delaware, Inc.,
13.625%, 8/15/11 1,262,500 417
+Alamosa PCS Holdings, Inc.,
12.875%, 2/15/10 2,900,000 522
Dobson Communications Corp.,
10.875%, 7/1/10 1,000,000 845
+Nextel Communications, Inc.,
10.65%, 9/15/07 1,750,000 1,670
Nextel Partners Inc., 11.00%, 3/15/10 350,000 298
Nextel Partners, Inc., 12.50%,
11/15/09 775,000 698
Qwest Services Corp.,
12/15/10, 13.50% 144A 720,000 749
Rogers Cantel, Inc., 8.30%, 10/1/07 650,000 575
Rogers Cantel, Inc., 9.75%, 6/1/16 300,000 271
Rogers Wireless Inc., 9.625%, 5/1/11 450,000 425
+Trition PCS, Inc., 11.00%, 5/1/08 1,050,000 874
TSI Telecommunications Service,
12.75%, 2/1/09 1,300,000 1,156
+US Unwired, Inc., 13.375%, 11/1/09 2,625,000 158
--------
Total 8,793
--------
Total Technology 15,464
--------
Transport Services (4.9%)
Railroads (1.6%)
Railamerica Transportation Corp.,
12.875%, 8/15/10 1,400,000 1,400
TFM SA DE CV, 12.50%, 6/15/12
144A 750,000 758
--------
Total 2,158
--------
Trucking -- Shipping (3.3%)
++American Commercial LLC,
11.25%, 1/1/08 551,186 176
CP Ships Ltd., 10.375%, 7/15/12 750,000 788
International Shipbuilding Corp.,
7.75%, 10/15/07 700,000 560
North American Van Lines,
13.375%, 12/1/09 1,650,000 1,604
Stena AB, 9.625%, 12/1/12 144A 1,475,000 1,523
--------
Total 4,651
--------
Total Transport Services 6,809
--------
Utilities (5.3%)
Utility -- Electric (4.4%)
Calpine Canada Energy, 8.50%,
5/1/08 1,425,000 620
Calpine Corp., 8.625%, 8/15/10 1,000,000 425
Calpine Corp., 8.75%, 7/15/07 750,000 326
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Bonds (90.5%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Utilities continued
Edison Mission Energy,
10.00%, 8/15/08 $ 1,500,000 $ 720
Orion Power Holdings, Inc.,
12.00%, 5/1/10 1,800,000 1,296
++PG&E National Energy Group, Inc.,
10.375%, 5/16/11 1,500,000 570
USEC, Inc., 6.625%, 1/20/06 1,325,000 1,139
Western Resources, 9.75%, 5/1/07 1,125,000 1,024
--------
Total 6,120
--------
Utility -- Garbage Disposal (0.9%)
Allied Waste North America, Inc.,
8.50%, 12/1/08 1,170,000 1,176
--------
Total 1,176
--------
Total Utilities 7,296
--------
Total Bonds
(Cost: $133,348) 124,528
--------
Preferred Stock (2.6%)
--------------------------------------------------------
Technology (2.6%)
Broadcasting (0.7%)
Sinclair Capital 9,500 1,007
--------
Total 1,007
--------
Cable (1.9%)
CSC Holdings, Inc. -- Series H 17,750 1,686
CSC Holdings, Inc. -- Series M 8,708 810
++NTL Inc., 13.00%, 2/15/09 3 0
--------
Total 2,496
--------
Telecommunications Wireless: Towers (0.0%)
**Crown Castle International Corp. 3 0
--------
Total 0
--------
Telecommunications Wireline: CLEC (0.0%)
**Intermedia Communications, Inc. 1 0
--------
Total 0
--------
Total Technology 3,503
--------
Trucking (0.0%)
**American Commercial Lines LLC 4,948 28
--------
Total Trucking 28
--------
Total Preferred Stock
(Cost: $4,122) 3,531
--------
Common Stocks and Warrants (0.1%)
--------------------------------------------------------
Consumer Cyclical (0.1%)
Leisure Related (0.0%)
*Hedstrom Holdings, Inc. 201,674 0
--------
Total 0
--------
</TABLE>
76
<PAGE>
High Yield Bond Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Common Stocks and Warrants (0.1%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Printing and Publishing (0.1%)
*Jostens, Inc. 1,550 $ 53
--------
Total Consumer Cyclical 53
--------
Railroads (0.0%)
*Railamerica, Inc. 1,400 28
--------
Total Railroads 28
--------
Real Estate Investment Trusts (0.0%)
*La Quinta Corporation 11,117 49
--------
Total Real Estate Investment Trusts 49
--------
Telecommunication Services (0.0%)
Horizon PCS, Inc. -- Warrant 2,000 0
IWO Holdings, Inc. 144A 1,150 0
--------
Total Telecommunication Services 0
--------
Total Common Stocks and Warrants
(Cost: $615) 130
--------
Money Market Investments (4.3%)
---------------------------------------------------------
Short Term Business Credit (4.3%)
Old Line Funding Corp.,
1.38%, 1/15/03 $5,900,000 5,897
--------
Total Money Market Investments
(Cost: $5,897) 5,897
--------
Total Investments (97.5%)
(Cost $143,982)` 134,086
--------
Other Assets, Less Liabilities
(2.5%) 3,467
--------
Total Net Assets (100.0%)
$137,553
--------
</TABLE>
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$144,255 and the net unrealized depreciation of investments based on that
cost was $10,169 which is comprised of $5,111 aggregate gross unrealized
appreciation and $15,280 aggregate gross unrealized depreciation.
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
+ Step bond security that presently receives no coupon payments. At the
predetermined date the stated coupon rate becomes effective.
++ Defaulted Security
(check mark) Defaulted security and step bond security that presently receives
no coupon payments. At the predetermined date the stated coupon
rate becomes effective.
** PIK -- Payment In Kind
The Accompanying Notes are an Integral Part of the Financial Statements
77
<PAGE>
Select Bond Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
A stable and relatively high level of Invest in high grade corporate bonds, U.S. government $584.02 million
long-term total return and preservation bonds and bonds of government agencies.
of capital
</TABLE>
The Select Bond Portfolio invests primarily in high quality debt securities,
mainly government bonds, corporate bonds and mortgage-backed securities.
Exposure to market sectors is adjusted as yield spreads change among the
various classes of securities. Duration and maturities are altered with
moderate adjustments in recognition or anticipation of interest rate changes.
In the third consecutive year in which bonds provided significantly higher
returns than equities, the Select Bond Portfolio substantially outperformed its
major benchmark, the Merrill Lynch Domestic Master Index. The Portfolio's
performance benefited from advantageous positioning with regard to credit risk,
interest rate changes and bond sectors. Throughout the year, we were positioned
defensively with regard to credit risk, with holdings concentrated in
securities of very high quality, so we avoided losses when concerns about
corporate scandals drove prices of riskier corporate bonds down. Careful credit
analysis was of special benefit in a year when the credit quality of many
issuers or corporate bonds deteriorated very swiftly. This defensive credit
risk positioning hurt performance in the fourth quarter, as lower quality bonds
outperformed high quality issues when investors fearful of missing a rally
rushed into the market.
We began the year positioned for lower interest rates, which came about in
response to a further rate cut by the Federal Reserve in November. We were also
well positioned for a steeper Treasury yield curve. Performance also benefited
from a large position early in the year in mortgage-backed securities; this
position was reduced in the third and fourth quarters.
[CHART]
Percentage Holdings
12/31/02
Mortgage-Backed and Asset-Backed Securities 10%
Corporate Bonds 28%
Short-Term Investments & Other Net Assets 10%
Government and Government Agencies 52%
The Corporate Bonds sector includes bonds of companies headquartered outside the
United States. The Government and Government Agencies category includes taxable
bonds of domestic and foreign governments. Consistent with the Portfolio's
stated parameters, no more than 10% of the Portfolio is invested in foreign
securities, and no more than 10% is invested in high-yield securities.
[CHART]
Relative Performance
Select Bond Merrill Lynch Domestic
Portfolio Master Index
12/31/1992 10,000 10,000
12/31/1993 11,081 11,002
12/31/1994 10,829 10,692
12/31/1995 12,896 12,672
12/31/1996 13,324 13,127
12/31/1997 14,585 14,395
12/31/1998 15,616 15,671
12/31/1999 15,456 15,521
12/31/2000 17,034 17,342
12/31/2001 18,800 18,786
12/31/2002 21,073 20,742
Average Annual Total Return
For Periods Ended December 31, 2002
1 Year 5 Years 10 Years
Select Bond Portfolio 12.09% 7.64% 7.74%
Merrill Lynch Domestic Master Index 10.41% 7.58% 7.57%
Since the Portfolio invests broadly in U.S. Government, mortgage and corporate
bonds, a useful basis for comparing returns is the Merrill Lynch Domestic
Master Index. The index is an unmanaged market value weighted index comprised
of U.S. Government, mortgage and investment-grade corporate bonds. The index
measures the income provided by, and the price changes of, the underlying
securities. The index cannot be invested in directly and do not include sales
charges.
This chart assumes an initial investment of $10,000 made on 12/31/92. Returns
shown include deductions for management and other fund expenses, and
reinvestment of all dividends. Returns exclude deductions for separate account
sales loads and account fees. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Total returns shown on page 4 reflect mortality and expense risk charges and
other charges deducted from the assets of the separate account. The cost of
insurance protection, which is not reflected in the returns shown on this
chart, would make the returns significantly lower. Investors are urged to
obtain a personalized illustration of historical performance which reflects the
cost of insurance protection.
78
<PAGE>
Select Bond Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (28.4%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Aerospace -- Defense (1.9%)
Lockheed Martin Corp., 8.20%,
12/1/09 $ 3,850,000 $ 4,758
Raytheon Co., 7.20%, 8/15/27 5,685,000 6,214
--------
Total 10,972
--------
Auto Related (0.7%)
Toyota Motor Credit Corp.,
5.65%, 1/15/07 4,000,000 4,346
--------
Total 4,346
--------
Beverages, Malt Beverages (2.8%)
Anheuser-Busch Companies, Inc.,
7.00%, 12/1/25 4,200,000 4,510
Anheuser-Busch Companies, Inc.,
7.50%, 3/15/12 378,000 466
Coca-Cola Enterprises, Inc.,
5.25%, 5/15/07 5,000,000 5,375
Coca-Cola Enterprises, Inc.,
5.375%, 8/15/06 1,500,000 1,626
Coca-Cola Enterprises, Inc.,
5.75%, 3/15/11 4,000,000 4,388
--------
Total 16,365
--------
Broad Woven Fabric Mills, Manmade (0.1%)
++Polysindo International Finance,
11.375%, 6/15/06 4,200,000 294
--------
Total 294
--------
Commercial Banks (0.2%)
Bank of America Corp., 7.40%,
1/15/11 1,133,000 1,335
--------
Total 1,335
--------
Crude Petroleum and Natural Gas (1.5%)
Occidental Petroleum, 6.75%,
1/15/12 3,417,000 3,892
Occidental Petroleum, 8.45%,
2/15/29 3,579,000 4,592
--------
Total 8,484
--------
Diversified Industrials (1.1%)
United Technologies Corp.,
6.10%, 5/15/12 6,000,000 6,709
--------
Total 6,709
--------
Drilling Oil and Gas Wells (0.9%)
Transocean, Inc., 7.50%, 4/15/31 4,500,000 5,162
--------
Total 5,162
--------
Electric and Other Services Combined (0.4%)
Wisconsin Public Service,
4.875%, 12/1/12 2,500,000 2,532
--------
Total 2,532
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (28.4%) Par (000's)
-------------------------------------------------------
<S> <C> <C>
Electric Services (2.0%)
Exelon Generation Co. LLC,
6.95%, 6/15/11 $ 6,788,000 $ 7,338
Public Service Electric & Gas Co.,
6.875%, 1/1/03 2,250,000 2,250
South Carolina Electric & Gas,
6.125%, 3/1/09 1,750,000 1,949
--------
Total 11,537
--------
Electrical Equipment and Supplies (1.3%)
Cooper Industries, Inc., 5.50%,
11/1/09 4,000,000 4,169
Hubbell Inc., 6.375%, 5/15/12 3,200,000 3,523
--------
Total 7,692
--------
Environmental Controls (0.4%)
Pall Corp., 6.00%, 8/1/12 144A 2,105,000 2,250
--------
Total 2,250
--------
Finance Services (2.1%)
Credit Suisse First Boston USA,
Inc., 4.625%, 1/15/08 6,000,000 6,082
General Motors Acceptance Corp.,
6.875%, 8/28/12 6,500,000 6,407
--------
Total 12,489
--------
Fire, Marine and Casualty Insurance (0.8%)
Allstate Corp., 6.125%, 12/15/32 1,575,000 1,604
Progressive Corp., 6.25%, 12/1/32 3,000,000 3,078
--------
Total 4,682
--------
Food Retailers (0.9%)
Delhaize America Inc., 8.125%,
4/15/11 3,500,000 3,386
Delhaize America, Inc., 9.00%,
4/15/31 2,000,000 1,840
--------
Total 5,226
--------
Metal Mining (0.4%)
Rio Tinto Finance, Ltd., 5.75%,
7/3/06 2,000,000 2,185
--------
Total 2,185
--------
Motor Vehicle Parts/Accessories (0.8%)
TRW, Inc., 7.125%, 6/1/09 1,000,000 1,118
TRW, Inc., 7.75%, 6/1/29 3,113,000 3,672
--------
Total 4,790
--------
Motors and Generators (0.1%)
Emerson Electric Co., 5.75%,
11/1/11 796,000 855
--------
Total 855
--------
</TABLE>
79
<PAGE>
Select Bond Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Corporate Bonds (28.4%) Par (000's)
------------------------------------------------------
<S> <C> <C>
National Commercial Banks (0.7%)
Bank One Corp., 5.25%, 1/30/13 $ 4,000,000 $ 4,117
--------
Total 4,117
--------
News Dealers and Newsstands (0.7%)
News America Holdings,
7.75%, 12/1/45 4,000,000 3,931
--------
Total 3,931
--------
Office Machines (0.4%)
Pitney Bowes Credit Corp.,
5.75%, 8/15/08 2,250,000 2,490
--------
Total 2,490
--------
Oil and Gas Extraction (0.8%)
Chevron Corp., 6.625%, 10/1/04 4,500,000 4,844
--------
Total 4,844
--------
Oil and Gas Field Machinery (0.7%)
National-Oilwell, Inc.,
5.65%, 11/15/12 144A 4,000,000 4,045
--------
Total 4,045
--------
Pharmaceuticals (3.3%)
Eli Lilly & Co., 5.50%, 7/15/06 2,600,000 2,808
Eli Lilly & Co., 7.125%, 6/1/25 1,400,000 1,653
Johnson & Johnson, 6.625%, 9/1/09 2,750,000 3,206
Johnson & Johnson, 6.95%, 9/1/29 2,200,000 2,640
Merck & Co., Inc., 5.95%, 12/1/28 4,841,000 5,119
Pfizer, Inc., 5.625%, 2/1/06 2,975,000 3,248
--------
Total 18,674
--------
Plastics Materials and Resins (0.9%)
Eastman Chemical, 7.00%, 4/15/12 4,600,000 5,192
--------
Total 5,192
--------
Plumbing Fixture Fittings/Trim (0.4%)
Masco Corp., 4.625%, 8/15/07 750,000 774
Masco Corp., 6.50%, 8/15/32 1,250,000 1,285
--------
Total 2,059
--------
Retail -- Retail Stores (0.8%)
Limited Brands, 6.125%, 12/1/12 4,500,000 4,737
--------
Total 4,737
--------
Search and Navigation Equipment (0.4%)
Raytheon Co., 7.00%, 11/1/28 2,310,000 2,471
--------
Total 2,471
--------
Telephone Communications (0.9%)
Alltel Corp., 7.00%, 7/1/12 600,000 691
Alltel Corp., 7.875%, 7/1/32 3,750,000 4,602
--------
Total 5,293
--------
Total Corporate Bonds
(Cost: $156,274) 165,758
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Government (Domestic and Shares/ Value
Foreign) and Agency Bonds (51.8%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies (51.8%)
Aid-Israel, 0.00%, 11/1/24 $ 8,900,000 $ 2,554
Federal Home Loan Bank,
5.54%, 1/8/09 3,700,000 4,111
Federal Home Loan Mortgage
Corporation, 7.50%, 10/1/27 2,277,308 2,434
Federal National Mortgage
Association, 5.97%, 10/1/08 3,695,022 4,056
Federal National Mortgage
Association, 6.22%, 2/1/06 1,812,946 1,964
Federal National Mortgage
Association, 6.24%, 1/1/06 5,107,234 5,519
Federal National Mortgage
Association, 6.265%, 10/1/08 2,847,804 3,168
Federal National Mortgage
Association, 6.36%, 4/1/08 3,557,334 3,961
Federal National Mortgage
Association, 6.39%, 4/1/08 1,355,462 1,510
Federal National Mortgage
Association, 6.75%, 4/25/18 1,997,894 2,133
Federal National Mortgage
Association, 6.75%, 12/25/23 3,500,000 3,651
Federal National Mortgage
Association, 7.00%, 6/1/03 28,144 29
Federal National Mortgage
Association, 7.36%, 4/1/11 3,004,284 3,545
Federal National Mortgage
Association, 8.40%, 2/25/09 221,437 221
Federal National Mortgage
Association, 11.00%, 12/1/12 27,233 32
Federal National Mortgage
Association, 11.00%, 9/1/17 189,782 225
Federal National Mortgage
Association, 11.00%, 12/1/17 36,253 43
Federal National Mortgage
Association, 11.00%, 2/1/18 90,084 107
Federal National Mortgage
Association, 11.50%, 4/1/18 86,613 104
Federal National Mortgage
Association, 12.00%, 9/1/12 274,624 328
Federal National Mortgage
Association, 12.00%, 12/1/12 64,250 77
Federal National Mortgage
Association, 12.00%, 9/1/17 80,515 97
Federal National Mortgage
Association, 12.00%, 10/1/17 58,994 71
Federal National Mortgage
Association, 12.00%, 12/1/17 67,643 82
Federal National Mortgage
Association, 12.00%, 2/1/18 97,698 119
Federal National Mortgage
Association, 12.25%, 1/1/18 59,546 72
Federal National Mortgage
Association, 12.50%, 4/1/18 35,824 44
</TABLE>
80
<PAGE>
Select Bond Portfolio
<TABLE>
<CAPTION>
Market
Government (Domestic and Foreign) Shares/ Value
and Agency Bonds (51.8%) Par (000's)
------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
Federal National Mortgage
Association, 13.00%, 11/1/12 $ 48,557 $ 59
Federal National Mortgage
Association, 13.00%, 11/1/17 50,105 62
Federal National Mortgage
Association, 13.00%, 12/1/17 52,642 65
Federal National Mortgage
Association, 13.00%, 2/1/18 112,578 139
Federal National Mortgage
Association, 14.00%, 12/1/17 26,112 33
Government National Mortgage
Association, 5.50%, 10/15/31 148,230 152
Government National Mortgage
Association, 5.50%, 11/15/31 35,329 36
Government National Mortgage
Association, 5.50%, 12/15/31 793,793 816
Government National Mortgage
Association, 5.50%, 1/15/32 1,112,980 1,144
Government National Mortgage
Association, 5.50%, 2/15/32 472,007 485
Government National Mortgage
Association, 5.50%, 2/15/32 84,856 87
Government National Mortgage
Association, 5.50%, 3/15/32 912,865 938
Government National Mortgage
Association, 5.50%, 4/15/32 41,952 43
Government National Mortgage
Association, 5.50%, 7/15/32 73,828 76
Government National Mortgage
Association, 5.50%, 9/15/32 15,797,321 16,238
Government National Mortgage
Association, 7.00%, 5/15/23 111,340 119
Government National Mortgage
Association, 7.50%, 4/15/22 84,383 91
Government National Mortgage
Association, 7.50%, 10/15/23 245,317 264
Government National Mortgage
Association, 7.50%, 10/15/25 3,319 4
Government National Mortgage
Association, 7.50%, 11/15/25 4,416 5
Government National Mortgage
Association, 7.50%, 5/15/26 5,092 5
Government National Mortgage
Association, 7.50%, 1/15/27 110,903 119
Government National Mortgage
Association, 7.50%, 2/15/27 132,608 142
Government National Mortgage
Association, 7.50%, 3/15/27 22,065 24
Government National Mortgage
Association, 7.50%, 4/15/27 30,531 33
Government National Mortgage
Association, 7.50%, 8/15/27 4,064 4
Government National Mortgage
Association, 7.50%, 6/15/28 192,170 205
Government National Mortgage
Association, 8.00%, 1/15/26 119,937 131
</TABLE>
<TABLE>
<CAPTION>
Market
Government (Domestic and Foreign) Shares/ Value
and Agency Bonds (51.8%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
Government National Mortgage
Association, 8.00%, 2/15/26 $ 179,309 $ 195
Government National Mortgage
Association, 8.00%, 8/15/26 222,931 243
Government National Mortgage
Association, 8.00%, 9/15/26 92,448 101
Government National Mortgage
Association, 8.00%, 12/15/26 29,374 32
Government National Mortgage
Association, 8.00%, 1/15/27 90,876 99
Government National Mortgage
Association, 8.00%, 3/15/27 170,040 185
Government National Mortgage
Association, 8.00%, 4/15/27 397,207 432
Government National Mortgage
Association, 8.00%, 6/15/27 114,323 124
Government National Mortgage
Association, 8.00%, 7/15/27 131,189 143
Government National Mortgage
Association, 8.00%, 8/15/27 102,990 112
Government National Mortgage
Association, 8.00%, 9/15/27 108,336 118
Government National Mortgage
Association, 8.50%, 9/15/21 5,916 7
Government National Mortgage
Association, 8.50%, 3/15/23 859 1
Government National Mortgage
Association, 8.50%, 6/15/23 687 1
Government National Mortgage
Association, 8.50%, 6/15/24 31,017 34
Government National Mortgage
Association, 8.50%, 7/15/24 48,660 53
Government National Mortgage
Association, 8.50%, 11/15/24 200,600 221
Government National Mortgage
Association, 8.50%, 2/15/25 23,773 26
Government National Mortgage
Association, 11.00%, 1/15/18 1,789,245 2,075
Government National Mortgage
Association TBA, 5.50%, 12/1/25 11,000,000 11,067
Government National Mortgage
Association TBA, 5.50%, 2/15/32 3,400,000 3,473
Housing & Urban Development,
6.08%, 8/1/13 4,000,000 4,512
Housing & Urban Development,
6.17%, 8/1/14 3,000,000 3,390
Rural Housing Trust 1987-1, Series 1,
Class D, 6.33%, 4/1/26 565,851 584
US Treasury, 2.125%, 10/31/04 2,150,000 2,174
US Treasury, 3.00%, 1/31/04 2,700,000 2,750
US Treasury, 3.00%, 2/29/04 15,619,000 15,930
US Treasury, 3.25%, 5/31/04 25,000,000 25,666
US Treasury, 3.25%, 8/15/07 3,010,000 3,085
US Treasury, 3.50%, 11/15/06 944,000 982
US Treasury, 3.625%, 3/31/04 3,500,000 3,601
US Treasury, 4.375%, 5/15/07 8,400,000 9,020
</TABLE>
81
<PAGE>
Select Bond Portfolio
<TABLE>
<CAPTION>
Market
Government (Domestic and Foreign) Shares/ Value
and Agency Bonds (51.8%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Federal Government and Agencies continued
US Treasury, 4.625%, 2/28/03 $ 4,145,000 $ 4,167
US Treasury, 4.75%, 11/15/08 2,600,000 2,838
US Treasury, 5.375%, 2/15/31 21,956,000 23,935
US Treasury, 6.25%, 5/15/30 2,502,000 2,994
US Treasury Bond, 6.50%, 5/15/05 61,150,000 67,878
US Treasury Inflation Index Bond,
3.375%, 1/15/07 6,689,026 7,244
US Treasury Inflation Index Bond,
3.625%, 1/15/08 26,701,696 29,297
US Treasury Inflation Index Bond,
3.875%, 4/15/29 4,796,093 5,865
US Treasury Stripped, 0.00%,
5/15/30 25,820,000 6,250
--------
Total Government (Domestic and
Foreign) and Agency Bonds
(Cost:3 $290,608) 302,680
--------
Mortgage/Asset Backed Securities (9.7%)
---------------------------------------------------------
Auto Related (0.0%)
Fleetwood Credit Corporation
Grantor Trust, Series 1997-B, Class
A, 6.40%, 5/15/13 258,686 267
--------
Total 267
--------
Boat Dealers (0.1%)
Nationscredit Grantor Trust, Series
1997-2, Class A1, 6.35%, 4/15/14 456,759 463
--------
Total 463
--------
Commercial Banks (0.5%)
Nationsbank Lease Pass-Through
Trust, Series 1997-A, Class 1,
7.442%, 1/10/11 144A 2,462,108 2,750
--------
Total 2,750
--------
Commercial Mortgages (7.1%)
Asset Securitization Corp., Series
1996-MD6, Class CS1,
1.632%, 11/13/26 IO 4,099,129 24
Asset Securitization Corp., Series
1996-MD6, Class CS2,
1.098%, 11/13/26 IO 85,000,000 941
Asset Securitization Corp., Series
1997-D5, Class PS1,
1.616%, 2/14/41 IO 11,252,900 756
Chase Commercial Mortgage
Securities Corp., Series 1997-1,
Class B, 7.37%, 4/19/07 1,000,000 1,151
Chase Commercial Mortgage
Securities Corp., Series 1997-2,
Class A2, 6.60%, 11/19/07 5,000,000 5,579
Chase Commercial Mortgage
Securities Corp., Series 1997-2,
Class B, 6.60%, 11/19/07 2,000,000 2,238
Commercial Mortgage Acceptance
Corp., Series 1997-ML1, Class B,
6.644%, 12/15/07 2,000,000 2,211
</TABLE>
<TABLE>
<CAPTION>
Market
Mortgage/Asset Backed Shares/ Value
Securities (9.7%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Commercial Mortgages continued
Credit Suisse First Boston
Mortgage Securities Corp., Series
1997-C1, Class A2, 7.26%,
6/20/07 144A $ 1,331,054 $ 1,483
Credit Suisse First Boston
Mortgage Securities Corp., Series
1997-C1, Class B, 7.28%, 6/20/07
144A 1,500,000 1,702
Criimi Mae Commercial Mortgage
Trust, Series 1998-C1, Class A1,
7.00%, 11/2/06 144A 3,000,000 3,244
Criimi Mae Commercial Mortgage
Trust, Series 1998-C1, Class B,
7.00%, 11/2/11 144A 4,000,000 3,973
DLJ Commercial Mortgage Corp.,
Series 1998-CF1, Class S,
0.70%, 1/15/18 IO 111,970,014 3,454
DLJ Mortgage Acceptance Corp.,
Series 1997-CF2, Class S,
0.35%, 10/15/17 IO 144A 93,196,038 1,751
The Equitable Life Assurance
Society, Series 174, Class C1,
7.52%, 5/15/06 144A 2,000,000 2,249
Midland Realty Acceptance Corp.,
Series 1996-C2, Class AEC,
1.35%, 1/25/29 IO 144A 10,437,034 460
Mortgage Capital Funding, Inc.,
Series 1997-MC1, Class A3,
7.28%, 3/20/07 5,323,000 6,050
Nomura Asset Securities
Corporation, Series 1998-D6,
Class A2, 6.99%, 3/17/28 2,800,000 3,231
RMF Commercial Mortgage Pass-
Through, Series 1997-1, Class F,
7.47%, 1/15/19 144A 1,800,000 920
--------
Total 41,417
--------
Credit Card Asset Backed (0.0%)
Heilig-Meyers Master Trust, Series
1998-1A, Class A,
6.125%, 1/20/07 144A 1,108,517 6
--------
Total 6
--------
Franchise Loan Receivables (0.2%)
Enterprise Mortgage Acceptance
Co., Series 1998-1, Class IO,
1.37%, 1/15/23 IO 144A 25,644,324 833
Global Franchise Trust,
Series 1998-1, Class A1,
6.35%, 4/10/04 144A 233,414 229
--------
Total 1,062
--------
Home Equity Loan (0.4%)
Vanderbilt Mortgage Finance, Inc.,
Series 1997-B, Class 1A4,
7.19%, 2/7/14 2,096,751 2,164
--------
Total 2,164
--------
</TABLE>
82
<PAGE>
Select Bond Portfolio
<TABLE>
<CAPTION>
Market
Mortgage/Asset Backed Shares/ Value
Securities (9.7%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Commercial Mortgages continued
Manufactured Housing (0.1%)
Mid-State Trust, Series 6, Class
A3, 7.54%, 7/1/35 $ 761,105 $ 784
--------
Total 784
--------
Residential Mortgages (0.1%)
Blackrock Capital Finance LP,
Series 1997-R1, Class B3,
7.75%, 3/25/37 144A 2,246,011 146
Blackrock Capital Finance LP,
Series 1997-R3, Class B3,
7.25%, 11/25/28 144A 3,965,446 397
--------
Total 543
--------
Retail-Retail Stores (1.2%)
LB Mortgage Trust, Series 1991-2,
Class A3, 8.40%, 1/20/17 6,083,409 7,118
--------
Total 7,118
--------
Total Mortgage/Asset Backed
Securities (Cost: $61,131) 56,574
--------
Money Market Investments (17.9%)
---------------------------------------------------------
Asset-Backed Securities (CMO'S) (0.9%)
# Fcar Owner Trust 1, 1.35%, 2/4/03 5,000,000 4,994
--------
Total 4,994
--------
Federal Government and Agencies (0.3%)
Federal Home Loan Bank,
1.24%, 3/7/03 1,600,000 1,597
--------
Total 1,597
--------
Finance Lessors (0.9%)
#Receivables Capital Corp.,
1.35%, 1/21/03 5,000,000 4,996
--------
Total 4,996
--------
Finance Services (0.9%)
Ciesco LP, 1.33%, 1/30/03 5,000,000 4,995
--------
Total 4,995
--------
Financials (0.8%)
Salomon Smith Barney Holdings,
2.06%, 4/9/03 4,830,000 4,832
--------
Total 4,832
--------
Machinery (0.5%)
John Deere Capital Corp.,
1.64%, 1/7/03 3,000,000 2,999
--------
Total 2,999
--------
Miscellaneous Business Credit Institutions (1.5%)
National Rural Utility Co.,
1.38%, 1/13/03 5,000,000 4,998
Quincy Capital Corp.,
1.35%, 1/6/03 4,400,000 4,399
--------
Total 9,397
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Money Market Investments Shares/ Value
(17.9%) Par (000's)
------------------------------------------------------------
<S> <C> <C>
Miscellaneous Manufacturing Industries (0.9%)
Koch Industries, 1.20%, 1/2/03 $ 5,880,000 $ 5,880
--------
Total 5,880
--------
Nonclassifiable Establishments (0.8%)
Thunder Bay Funding, Inc,
1.35%, 1/7/03 5,000,000 4,999
--------
Total 4,999
--------
Passenger Car Rental (0.9%)
Delaware Funding Corp.,
1.35%, 1/7/03 5,000,000 4,999
--------
Total 4,999
--------
Personal Credit Institutions (0.9%)
Toyota Motor Credit Co.,
1.32%, 1/23/03 5,000,000 4,996
--------
Total 4,996
--------
Pharmaceutical Preparations (0.9%)
Wyeth, 1.85%, 1/7/03 5,000,000 4,998
--------
Total 4,998
--------
Security Brokers and Dealers (0.9%)
Morgan St. Dean Witter,
1.32%, 2/4/03 5,000,000 4,994
--------
Total 4,994
--------
Short Term Business Credit (5.9%)
American Express Credit,
1.25%, 2/4/03 5,000,000 4,994
Asset Securitization, 1.33%, 1/8/03 5,000,000 4,998
CXC Inc., 1.76%, 1/17/03 5,000,000 4,996
Old Line Funding Corp.,
1.38%, 1/15/03 5,000,000 4,997
Preferred Receivable Funding,
1.35%, 1/27/03 5,000,000 4,995
Transamerica Financial Corp.,
1.33%, 1/17/03 5,000,000 4,997
UBS Finance LLC, 1.32%, 2/10/03 5,000,000 4,993
--------
Total 34,970
--------
Tobacco Products (0.9%)
Philip Morris Disc, 1.31%, 1/27/03 5,000,000 4,995
--------
Total 4,995
--------
Total Money Market
Investments
(Cost: $104,641) 104,641
--------
Total Investments (107.8%)
(Cost $612,654)` 629,653
--------
Other Assets, Less Liabilities
(-7.8%) (45,635)
--------
Total Net Assets (100.0%) $584,018
--------
</TABLE>
83
<PAGE>
Select Bond Portfolio
` At 12/31/2002 the aggregate cost of securities for federal tax purposes was
$621,308 and the net unrealized appreciation of investments based on that
cost was $8,345 which is comprised of $30,096 aggregate gross unrealized
appreciation and $21,751 aggregate gross unrealized depreciation.
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.
IO -- Interest Only Security
++Defaulted Security
# All or a portion of the securities have been committed as collateral for open
futures positions. Information regarding open futures contracts as of period
end is summarized below:
<TABLE>
<CAPTION>
Unrealized
Number Appreciation /
of Expiration (Depreciation)
Issuer (000's) Contracts Date (000's)
------------------------------------------------------
<S> <C> <C> <C>
US TEN YEAR
TREASURY
NOTE 87 3/03 $(190)
(Total Notional
Value at 12/31/02
$9,819)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
84
<PAGE>
Money Market Portfolio
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Objective: Portfolio Strategy: Net Assets:
Maximum current income consistent Achieve stability of capital by investing in short-term debt $501.31 million
with liquidity and stability of capital securities.
</TABLE>
The Money Market Portfolio, which invests only in high quality commercial paper
and other short-term debt securities with maturities generally not exceeding
one year, is the least risky of the Portfolios, providing a moderate return in
line with prevailing short-term interest rates. In a year in which stock values
declined significantly, the Money Market Portfolio has surpassed returns of
most equity funds and indices, with a return of 1.65% for the 12 months ending
December 2002.
The main determinant of returns from the Money Market Portfolio is short-term
interest rates in general. After dropping significantly in 2001, short-term
interest rates were fairly stable during 2002; the Fed reduced the targeted
Federal Funds rate just once, in November, from 1.75% to 1.25%. Aware that
rates could change in either direction in the future, we have positioned the
Portfolio for more nimble action. We now anticipate maintaining a maturity
range of 30 to 80 days, versus 35 to 50 days in the past and an industry
average of approximately 50 to 55 days.
During 2002, quality commercial paper became increasingly scarce, as the debt
of many issuers was downgraded, and rating agencies pressured corporations to
replace short-term debt with bonds with longer maturities. With fewer issuers,
it has become more difficult to diversify risk in a money market portfolio. In
order to maintain credit risk at the desired level, we are buying more Treasury
bills and government-guaranteed agency discount notes. Although yields on these
securities are below those on commercial paper, all short-term rates are so low
now that the income sacrificed is minimal.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00
PER SHARE, THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE SO IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
PORTFOLIO.
85
<PAGE>
Money Market Portfolio
Northwestern Mutual Series Fund, Inc.
Schedule of Investments
December 31, 2002
<TABLE>
<CAPTION>
Market
Shares/ Value
Short Term Paper (92.1%) Par (000's)
---------------------------------------------------------
<S> <C> <C>
Agricultural Services (1.9%)
Cargill Inc., 1.32%, 3/21/03 $ 9,740,000 $ 9,712
--------
Total 9,712
--------
Asset Backed Security (5.5%)
Fcar Owner Trust I, 1.64%, 3/13/03 12,500,000 12,460
New Center Asset Trust,
1.34%, 2/18/03 15,000,000 14,973
--------
Total 27,433
--------
Auto Related (8.1%)
BMW U.S. Capital Corp.,
1.31%, 1/15/03 11,955,000 11,949
Daimler-Chrysler Na Hldg,
1.92%, 1/24/03 4,500,000 4,494
Ford Motor Credit, 1.96%, 1/21/03 4,500,000 4,495
General Motors Corp., 1.95%, 1/9/03 4,500,000 4,498
Toyota Motor Credit Co.,
1.31%, 1/30/03 15,000,000 14,985
--------
Total 40,421
--------
Commercial Banks (7.5%)
Dresdner, 1.32%, 2/11/03 12,500,000 12,481
Marshall &Isley Bank, 1.37%,
1/31/03 10,000,000 9,989
UBS Finance LLC, 1.3%, 3/18/03 15,000,000 14,959
--------
Total 37,429
--------
Diversified Business Finance (3.0%)
General Electric, 1.84%, 7/9/03 5,000,000 5,000
General Electric Capital,
1.31%, 2/14/03 5,000,000 4,992
General Electric Capital,
1.77%, 6/16/03 5,000,000 4,959
--------
Total 14,951
--------
Finance Lessors (3.0%)
Receivables Capital Corp.,
1.32%, 1/17/03 6,000,000 5,996
Receivables Capital Corp.,
1.77%, 1/27/03 9,220,000 9,209
--------
Total 15,205
--------
Finance Services (11.6%)
American General, 1.37%, 2/6/03 13,000,000 12,981
Asset Securitization, 1.32%, 1/21/03 10,000,000 9,993
Asset Securitization, 1.34%, 1/17/03 5,000,000 4,997
Ciesco LP, 1.34%, 1/22/03 10,080,000 10,072
Ciesco LP, 1.77%, 1/10/03 5,190,000 5,188
Preferred Receivable Funding,
1.32%, 1/13/03 11,500,000 11,495
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Short Term Paper (92.1%) Par (000's)
----------------------------------------------------------
<S> <C> <C>
Finance Services continued
Preferred Receivable Funding,
1.35%, 1/24/03 $ 4,000,000 $ 3,997
--------
Total 58,723
--------
Government (8.1%)
Federal Home Loan Bank,
1.53%, 3/26/03 15,925,000 15,868
Federal National Mortgage
Association, 1.26%, 3/19/03 15,000,000 14,960
U.S. Treasury Bill, 1.515%, 4/10/03 10,000,000 9,958
--------
Total 40,786
--------
Machinery ( 3.5%)
Catepillar Financial, 1.31%,
1/14/03 8,715,000 8,711
Caterpillar Financial Services
Corp., 1.92%, 6/1/03 4,000,000 4,000
John Deere Capital Corp.,
1.64%, 1/7/03 5,000,000 4,999
--------
Total 17,710
--------
Miscellaneous Business Credit Institutions (5.3%)
Delaware Funding Corp.,
1.31%, 2/3/03 12,900,000 12,885
Quincy Capital Corp., 1.35%,
1/31/03 13,772,000 13,756
--------
Total 26,641
--------
Miscellaneous Manufacturing Industries (3.5%)
Koch Industries, 1.20%, 1/2/03 17,790,000 17,789
--------
Total 17,789
--------
National Commercial Banks (0.6%)
Marshall & Ilsley Corp.,
1.34%, 1/17/03 3,000,000 2,998
--------
Total 2,998
--------
Nonclassifiable Establishments (3.1%)
Thunder Bay Funding, Inc.,
1.33%, 1/24/03 9,535,000 9,527
Thunder Bay Funding, Inc.,
1.35%, 1/10/03 6,000,000 5,998
--------
Total 15,525
--------
Personal Credit Institutions (8.1%)
American Express Credit,
1.32%, 1/14/03 10,500,000 10,495
American Express Credit,
1.32%, 1/31/03 12,500,000 12,486
Associates First Capital Corp.,
1.86%, 6/26/03 5,000,000 5,000
</TABLE>
86
<PAGE>
Money Market Portfolio
<TABLE>
<CAPTION>
Market
Shares/ Value
Short Term Paper (92.1%) Par (000's)
--------------------------------------------------------
<S> <C> <C>
Personal Credit Institutions continued
Household Finance Corp.,
1.55%, 1/21/03 $ 6,200,000 $ 6,195
Household Finance Corp.,
1.60%, 2/5/03 6,200,000 6,190
--------
Total 40,366
--------
Pharmaceutical Preparations (2.5%)
Wyeth, 1.78%, 2/4/03 6,200,000 6,190
Wyeth, 1.85%, 1/6/03 6,300,000 6,298
--------
Total 12,488
--------
Security Brokers and Dealers
(6.2%)
Goldman Sachs Group, Inc.,
1.89%, 3/5/03 5,000,000 5,000
Goldman Sachs Group, Inc.,
1.78%, 2/3/03 11,720,000 11,701
Morgan St. Dean Witter, 1.32%,
2/4/03 9,000,000 8,989
Salomon Smith Barney Hlds.,
1.33%, 2/24/03 5,300,000 5,289
--------
Total 30,979
--------
Short Term Business Credit (5.7%)
CXC Inc., 1.33%, 2/3/03 10,355,000 10,342
CXC Inc., 1.34%, 2/6/03 3,150,000 3,146
Old Line Funding Corp., 1.31%,
2/6/03 10,000,000 9,987
Old Line Funding Corp., 1.34%,
2/7/03 5,000,000 4,993
--------
Total 28,468
--------
Telephone Communications (1.0%)
BellSouth Corp., 4.105%, 4/26/03 5,000,000 5,023
--------
Total 5,023
--------
Tobacco Products (2.6%)
Philip Morris Companies, Inc.,
1.32%, 2/4/03 10,000,000 9,987
Philip Morris Companies, Inc.,
1.33%, 1/21/03 3,000,000 2,998
--------
Total 12,985
--------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares/ Value
Short Term Paper (92.1%) Par (000's)
-----------------------------------------------------------
<S> <C> <C>
Utility -- Electric (1.3%)
National Rural Utility, 1.40%,
1/27/03 $ 6,300,000 $ 6,294
--------
Total 6,294
--------
Total Short Term Paper
(Cost: $461,926) 461,926
--------
Corporate Bonds Domestic (7.9%)
-----------------------------------------------------------
Security Brokers and Dealers (3.7%)
Merrill Lynch Co., Inc.,
4.97%, 4/30/03 2,500,000 2,518
Merrill Lynch Co., Inc.,
7.18%, 2/11/03 3,100,000 3,116
Merrill Lynch Co., Inc.,
7.85%, 3/01/03 4,000,000 4,083
Morgan Stanley Dean Witter,
6.875%, 3/1/03 3,700,000 3,728
Salomon Smith Barney Holdings,
Inc., 7.50%, 2/1/03 5,000,000 5,024
--------
Total 18,469
--------
Short Term Business Credit (2.8%)
Transamerica Financial Corp.,
1.31%, 2/10/03 14,000,000 13,980
--------
Total 13,980
--------
Utility -- Electric (1.4%)
National Rural Utilities,
7.375%, 2/10/03 7,000,000 7,036
--------
Total 7,036
--------
Total Corporate Bonds
Domestic
(Cost: $39,485) 39,485
--------
Total Investments (100.0%)
(Cost $501,411)` 501,411
--------
Other Assets, Less Liabilities
(0.0%) (98)
--------
Total Net Assets (100.0%) $501,313
--------
</TABLE>
` Also represents cost for federal income tax purposes.
The Accompanying Notes are an Integral Part of the Financial Statements
87
<PAGE>
Accountants' Report
[GRAPHIC]
PricewaterhouseCoopers
PricewaterhouseCoopers LLP
100 E. Wisconsin Ave.
Suite 1500
Milwaukee WI 53202
Telephone (414) 212-1600
Facsimile (414) 212-1880
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, T. Rowe Price Small Cap Value Portfolio, Aggressive
Growth Stock Portfolio, International Growth Portfolio, Franklin Templeton
International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock
Portfolio, J.P. Morgan Select Growth and Income Stock Portfolio, Capital
Guardian Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset Allocation
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, 2002 and the results of
each of their operations, the changes in each of their net assets and their
financial highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
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, 2002 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 31, 2003
88
<PAGE>
(This page intentionally left blank.)
89
<PAGE>
Statements of Assets and Liabilities
Northwestern Mutual Series Fund, Inc.
December 31, 2002
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Franklin
Templeton
Small Cap T. Rowe Price Aggressive International International Index 400
Growth Stock Small Cap Value Growth Stock Growth Equity Stock
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments, at value (1).............. $ 255,193 $ 61,653 $ 996,827 $ 35,383 $ 562,544 $ 225,064
Cash................................... -- 1,725 -- 116 97 207
Due from Futures Variation Margin...... -- -- -- -- -- 55
Due from Sale of Fund Shares........... -- -- -- 41 209 --
Due from Sale of Securities............ -- 26 -- 5 -- --
Due from Sale of Foreign Currency...... -- -- -- 224 -- --
Dividends and Interest Receivable...... 18 90 227 93 1,164 153
---------- ---------- ---------- ---------- ---------- ----------
Total Assets......................... 255,211 63,494 997,054 35,862 564,014 225,479
---------- ---------- ---------- ---------- ---------- ----------
Liabilities
Due on Purchase of Securities and
Securities Lending Collateral......... 185 309 2,496 221 -- --
Due on Purchase of Foreign Currency.... -- -- -- 228 -- --
Due on Redemption of Fund Shares....... -- -- -- 1 506 --
Due to Investment Advisor.............. 133 82 467 14 353 50
Accrued Expenses....................... 13 20 16 25 53 19
Due on Futures Variation Margin........ -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities.................... 331 411 2,979 489 912 69
---------- ---------- ---------- ---------- ---------- ----------
Net Assets........................... $ 254,880 $ 63,083 $ 994,075 $ 35,373 $ 563,102 $ 225,410
========== ========== ========== ========== ========== ==========
Represented By:
Aggregate Paid in Capital (2), (3)..... $ 316,909 $ 67,686 $1,251,056 $ 42,335 $ 746,099 $ 260,933
Undistributed Accumulated Net
Investment Income (Loss).............. -- 36 -- (5) 10,960 1,961
Undistributed Accumulated Net Realized
Gain (Loss) on Investments............ (45,904) (305) (216,890) (4,623) (74,953) (4,475)
Net Unrealized Appreciation
(Depreciation) of:
Investment Securities................ (16,125) (4,334) (40,091) (2,336) (119,088) (32,896)
Futures Contracts.................... -- -- -- -- -- (113)
Foreign Currency Transactions........ -- -- -- 2 84 --
---------- ---------- ---------- ---------- ---------- ----------
Net Assets for Shares Outstanding (2).. $ 254,880 $ 63,083 $ 994,075 $ 35,373 $ 563,102 $ 225,410
========== ========== ========== ========== ========== ==========
Net Asset Value, Offering and
Redemption Price per Share............ $ 1.46 $ 0.95 $ 2.18 $ 0.79 $ 1.02 $ 0.95
========== ========== ========== ========== ========== ==========
(1) Investments, at cost................. $ 271,318 $ 65,987 $1,036,918 $ 37,719 $ 681,632 $ 257,960
(2) Shares outstanding................... 175,132 66,203 455,396 44,768 549,889 236,841
(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.
90
<PAGE>
<TABLE>
<CAPTION>
J.P. Morgan
Select Growth
and Income Capital Guardian High Yield
Growth Stock Stock Domestic Equity Index 500 Stock Asset Allocation Balanced Bond Select Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 551,818 $ 365,736 $ 74,151 $1,362,613 $ 87,061 $2,704,286 $ 134,086 $ 629,653 $ 501,411
-- -- 228 -- 137 -- 240 664 --
6 -- -- 27 11 369 -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- 1 2,300 14 -- --
-- -- -- -- 1 -- -- -- --
450 485 167 2,116 443 14,107 3,289 5,605 740
---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
552,274 366,221 74,546 1,364,756 87,654 2,721,062 137,629 635,922 502,151
---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
631 77 220 1,604 301 158,860 -- 51,648 838
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
211 190 42 243 61 673 61 152 --
11 10 10 28 32 -- 15 1 --
-- -- -- -- -- -- -- 103 --
---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
853 277 272 1,875 394 159,533 76 51,904 838
---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
$ 551,421 $ 365,944 $ 74,274 $1,362,881 $ 87,260 $ 2,561,529 $ 137,553 $ 584,018 $ 501,313
========== ========== ========== ========== ========== =========== ========== ========== ==========
$ 662,923 $ 572,953 $ 89,159 $1,310,825 $ 96,076 $ 2,179,629 $ 231,614 $ 538,100 $ 501,313
4,774 3,769 17 21,934 (2) 85,237 159 24,109 --
(118,121) (81,452) (3,894) 4,657 (4,829) (59,822) (84,324) 5,000 --
1,919 (129,326) (11,008) 25,814 (3,731) 365,951 (9,896) 16,999 --
(74) -- -- (349) (254) (9,466) -- (190) --
-- -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
$ 551,421 $ 365,944 $ 74,274 $1,362,881 $ 87,260 $ 2,561,529 $ 137,553 $ 584,018 $ 501,313
========== ========== ========== ========== ========== =========== ========== ========== ==========
$ 1.59 $ 0.87 $ 0.76 $ 2.17 $ 0.86 $ 1.62 $ 0.56 $ 1.27 $ 1.00
========== ========== ========== ========== ========== =========== ========== ========== ==========
$ 549,899 $ 495,062 $ 85,159 $1,336,799 $ 90,792 $ 2,338,335 $ 143,982 $ 612,654 $ 501,411
347,218 421,624 97,978 629,065 101,691 1,579,113 244,296 459,566 501,334
2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 3,000,000 2,000,000 1,000,000 2,000,000
</TABLE>
91
<PAGE>
Statements of Operations
Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, 2002
(in thousands)
<TABLE>
<CAPTION>
Franklin
Templeton
Small Cap T. Rowe Price Aggressive International International Index 400
Growth Stock Small Cap Value Growth Stock Growth Equity Stock
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Income........................................
Interest..................................... $ 652 $ 37 $ 2,271 $ 23 $ 817 $ 256
Dividends (1)................................ 272 707 2,484 534 15,441 2,342
-------- ------- --------- ------- --------- --------
Total Income.............................. 924 744 4,755 557 16,258 2,598
-------- ------- --------- ------- --------- --------
Expenses
Management Fees.............................. 1,625 412 6,030 243 4,396 571
Custodian Expenses........................... 23 67 24 102 475 45
Other Expenses............................... -- -- -- 3 2 --
Audit Fees................................... 18 13 19 18 23 18
Shareholder Reporting Expenses............... 2 1 1 -- -- 5
-------- ------- --------- ------- --------- --------
Total Expenses............................ 1,668 493 6,074 366 4,896 639
-------- ------- --------- ------- --------- --------
Less Waived Fees:
Paid by Affiliate......................... -- (9) -- (10) -- --
Paid Indirectly........................... (4) (1) (5) -- -- (4)
-------- ------- --------- ------- --------- --------
Total Net Expenses........................ 1,664 483 6,069 356 4,896 635
-------- ------- --------- ------- --------- --------
Net Investment Income (Loss)................. (740) 261 (1,314) 201 11,362 1,963
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net Realized Gain (Loss) on:
Investment Securities........................ (17,952) (107) (186,384) (3,545) (59,141) 508
Futures Contracts............................ (598) (128) (10,475) -- -- (1,958)
Foreign Currency Transactions................ -- -- -- (4) (323) --
-------- ------- --------- ------- --------- --------
Net Realized Gain (Loss) on
Investments.............................. (18,550) (235) (196,859) (3,549) (59,464) (1,450)
-------- ------- --------- ------- --------- --------
Net Unrealized Appreciation (Depreciation) of
Investments for the Period:
Investment Securities........................ (38,361) (5,490) (79,605) (1,089) (65,979) (38,601)
Futures Contracts............................ (291) -- (255) -- -- (313)
Foreign Currency Transactions................ -- -- -- (7) 46 --
-------- ------- --------- ------- --------- --------
Net Unrealized Appreciation
(Depreciation) of Investments for
the Period............................... (38,652) (5,490) (79,860) (1,096) (65,933) (38,914)
-------- ------- --------- ------- --------- --------
Net Gain (Loss) on Investments................ (57,202) (5,725) (276,719) (4,645) (125,397) (40,364)
-------- ------- --------- ------- --------- --------
Net Increase (Decrease) in Net Assets Resulting
from Operations................................ $(57,942) $(5,464) $(278,033) $(4,444) $(114,035) $(38,401)
======== ======= ========= ======= ========= ========
(1) Less Foreign dividend tax................. $ -- $ -- $ 1 $ 66 $ 1,608 $ --
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
92
<PAGE>
<TABLE>
<CAPTION>
J.P. Morgan
Select Growth
and Income Capital Guardian Index 500 Asset High Yield
Growth Stock Stock Domestic Equity Stock Allocation Balanced Bond Select Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 997 $ 164 $ 64 $ 404 $ 1,563 $ 75,118 $ 14,591 $25,689 $8,907
6,463 6,174 1,241 24,835 327 18,657 828 -- --
----------- --------- -------- --------- ------- --------- -------- ------- ------
7,460 6,338 1,305 25,239 1,890 93,775 15,419 25,689 8,907
----------- --------- -------- --------- ------- --------- -------- ------- ------
2,655 2,542 380 3,142 387 8,318 716 1,452 1,401
14 8 17 69 146 -- 18 -- --
-- -- -- -- -- -- -- -- --
19 19 9 19 15 -- 21 -- --
1 2 1 7 13 -- 6 -- --
----------- --------- -------- --------- ------- --------- -------- ------- ------
2,689 2,571 407 3,237 561 8,318 761 1,452 1,401
----------- --------- -------- --------- ------- --------- -------- ------- ------
-- -- -- -- (78) -- -- -- (130)
(3) (3) (1) (4) (1) -- (1) -- --
----------- --------- -------- --------- ------- --------- -------- ------- ------
2,686 2,568 406 3,233 482 8,318 760 1,452 1,271
----------- --------- -------- --------- ------- --------- -------- ------- ------
4,774 3,770 899 22,006 1,408 85,457 14,659 24,237 7,636
(60,577) (51,494) (3,717) 10,195 (3,079) 30,825 (18,912) 10,356 --
(4,409) -- -- (2,638) (1,545) (68,166) -- 182 --
-- -- -- -- -- -- -- 74 --
----------- --------- -------- --------- ------- --------- -------- ------- ------
(64,986) (51,494) (3,717) 7,557 (4,624) (37,341) (18,912) 10,612 --
----------- --------- -------- --------- ------- --------- -------- ------- ------
(86,277) (105,636) (11,278) (431,637) (3,606) (263,210) (272) 20,663 --
(410) -- -- (467) (285) (10,553) -- (190) --
-- -- -- -- -- -- -- -- --
----------- --------- -------- --------- ------- --------- -------- ------- ------
(86,687) (105,636) (11,278) (432,104) (3,891) (273,763) (272) 20,473 --
----------- --------- -------- --------- ------- --------- -------- ------- ------
(151,673) (157,130) (14,995) (424,547) (8,515) (311,104) (19,184) 31,085 --
----------- --------- -------- --------- ------- --------- -------- ------- ------
$(146,899) $(153,360) $(14,096) $(402,541) $(7,107) $(225,647) $ (4,525) $55,322 $7,636
=========== ========= ======== ========= ======= ========= ======== ======= ======
$ -- $ 12 $ 8 $ 57 $ 20 $ 33 $ -- $ -- $ --
</TABLE>
93
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Small Cap Growth Stock Portfolio 2002 2001
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)...................... $ (740) $ 433
Net Realized Gain (Loss) on Investments........... (18,550) (22,674)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period...................... (38,652) 13,879
-------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations...................... (57,942) (8,362)
-------- --------
Distributions to Shareholders from:
Net Investment Income............................. (432) (19)
Net Realized Gain on Investments.................. -- (5)
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders.................. (432) (24)
-------- --------
Fund Share Transactions
Proceeds from Sale of 38,312 and 45,505 Shares.... 63,816 78,169
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (233 and 13 shares,
respectively)................................... 432 24
Payments for 26,639 and 17,164 Shares Redeemed.... (42,442) (28,673)
-------- --------
Net Increase (Decrease) in Net Assets
Resulting from Fund Share Transactions
(11,906 and 28,354 shares, respectively)....... 21,806 49,520
-------- --------
Total Increase (Decrease) in Net Assets............. (36,568) 41,134
Net Assets
Beginning of Period............................... 291,448 250,314
-------- --------
End of Period (Includes undistributed net
investment income of $0 and $433,
respectively)................................... $254,880 $291,448
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the period
For the July 31, 2001**
Year Ended through
December 31, December 31,
T. Rowe Price Small Cap Value Portfolio 2002 2001
----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)...................... $ 261 $ 52
Net Realized Gain (Loss) on Investments........... (235) 12
Net Unrealized Appreciation (Depreciation) of
Investments for the Period...................... (5,490) 1,156
-------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations...................... (5,464) 1,220
-------- -------
Distributions to Shareholders from:
Net Investment Income............................. (330) (51)
Net Realized Gain on Investments.................. (20) --
-------- -------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders.................. (350) (51)
-------- -------
Fund Share Transactions
Proceeds from Sale of 55,011 and 22,033 Shares.... 57,721 21,131
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (358 and 50 shares,
respectively)................................... 350 51
Payments for 9,858 and 1,391 Shares Redeemed...... (10,177) (1,348)
-------- -------
Net Increase (Decrease) in Net Assets
Resulting from Fund Share Transactions
(45,511 and 20,692 shares, respectively)....... 47,894 19,834
-------- -------
Total Increase (Decrease) in Net Assets............. 42,080 21,003
Net Assets
Beginning of Period............................... 21,003 --
-------- -------
End of Period (Includes undistributed net
investment income of $36 and $10,
respectively)................................... $ 63,083 $21,003
======== =======
</TABLE>
**Portfolio commenced operations July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements.
94
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Aggressive Growth Stock Portfolio 2002 2001
-----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)....................... $ (1,314) $ 1,100
Net Realized Gain (Loss) on Investments............ (196,859) 8,908
Net Unrealized Appreciation (Depreciation) of
Investments for the Period....................... (79,860) (348,808)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations....................... (278,033) (338,800)
---------- ----------
Distributions to Shareholders from:
Net Investment Income.............................. (1,101) (1,517)
Net Realized Gain on Investments................... (24,420) (310,659)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders................... (25,521) (312,176)
---------- ----------
Fund Share Transactions
Proceeds from Sale of 39,350 and 86,780
Shares.......................................... 99,265 305,560
Proceeds from Shares Issued on Reinvestment
of Distributions Paid (9,223 and 101,785
shares, respectively)........................... 25,521 312,176
Payments for 68,530 and 92,520 Shares
Redeemed........................................ (169,033) (320,897)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Fund Share Transactions
((19,957) and 96,045 shares, respectively).... (44,247) 296,839
---------- ----------
Total Increase (Decrease) in Net Assets.............. (347,801) (354,137)
Net Assets
Beginning of Period................................ 1,341,876 1,696,013
---------- ----------
End of Period (Includes undistributed net
investment income of $0 and $1,100,
respectively).................................... $ 994,075 $1,341,876
========== ==========
For the period
For the July 31, 2001**
Year Ended through
December 31, December 31,
International Growth Portfolio 2002 2001
-----------------------------------------------------------------------------------
(in thousands)
Changes in Net Assets
Operations
Net Investment Income (Loss)....................... $ 201 $ 6
Net Realized Gain (Loss) on Investments............ (3,549) (1,110)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period....................... (1,096) (1,238)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations....................... (4,444) (2,342)
---------- ----------
Distributions to Shareholders from:
Net Investment Income.............................. (186) --
Net Realized Gain on Investments................... -- --
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders................... (186) --
---------- ----------
Fund Share Transactions
Proceeds from Sale of 33,327 and 29,730 Shares..... 28,213 29,286
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (239 and 0 shares,
respectively).................................... 186 --
Payments for 18,478 and 50 Shares Redeemed......... (15,296) (44)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Fund Share Transactions
(15,088 and 29,680 shares, respectively)........ 13,103 29,242
---------- ----------
Total Increase (Decrease) in Net Assets.............. 8,473 26,900
Net Assets
Beginning of Period................................ 26,900 --
---------- ----------
End of Period (Includes undistributed net
investment income of ($5) and $0,
respectively).................................... $ 35,373 $ 26,900
========== ==========
</TABLE>
**Portfolio commenced operations July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements.
95
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Franklin Templeton International Equity Portfolio 2002 2001
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)................................ $ 11,362 $ 14,894
Net Realized Gain (Loss) on Investments..................... (59,464) (16,599)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period................................ (65,933) (106,892)
--------- -----------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................... (114,035) (108,597)
--------- -----------
Distributions to Shareholders from:
Net Investment Income....................................... (13,714) (13,356)
Net Realized Gain on Investments............................ -- (67,555)
--------- -----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders............................ (13,714) (80,911)
--------- -----------
Fund Share Transactions
Proceeds from Sale of 793,092 and 897,043 Shares............ 933,407 1,261,855
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (10,614 and 57,917 shares,
respectively)............................................. 13,714 80,911
Payments for 821,108 and 883,476 Shares Redeemed............ (972,683) (1,246,462)
--------- -----------
Net Increase (Decrease) in Net Assets Resulting from
Fund Share Transactions ( (17,402) and 71,484 shares,
respectively)............................................ (25,562) 96,304
--------- -----------
Total Increase (Decrease) in Net Assets....................... (153,311) (93,204)
Net Assets
Beginning of Period......................................... 716,413 809,617
--------- -----------
End of Period (Includes undistributed net investment
income of $10,960 and $13,635, respectively).............. $ 563,102 $ 716,413
========= ===========
</TABLE>
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Index 400 Stock Portfolio 2002 2001
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)................................ $ 1,963 $ 1,833
Net Realized Gain (Loss) on Investments..................... (1,450) (2,974)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period................................ (38,914) 2,256
-------- --------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................... (38,401) 1,115
-------- --------
Distributions to Shareholders from:
Net Investment Income....................................... (1,830) (21)
Net Realized Gain on Investments............................ -- (2,155)
-------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders............................ (1,830) (2,176)
-------- --------
Fund Share Transactions
Proceeds from Sale of 74,689 and 77,185 Shares.............. 80,833 84,032
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (1,547 and 1,962 shares,
respectively)............................................. 1,830 2,176
Payments for 27,258 and 11,583 Shares Redeemed.............. (27,756) (12,029)
-------- --------
Net Increase (Decrease) in Net Assets Resulting from
Fund Share Transactions (48,978 and 67,564 shares,
respectively)............................................ 54,907 74,179
-------- --------
Total Increase (Decrease) in Net Assets....................... 14,676 73,118
Net Assets
Beginning of Period......................................... 210,734 137,616
-------- --------
End of Period (Includes undistributed net investment
income of $1,961 and $1,833, respectively)................ $225,410 $210,734
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
96
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Growth Stock Portfolio 2002 2001
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)................................ $ 4,774 $ 7,118
Net Realized Gain (Loss) on Investments..................... (64,986) (49,900)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period................................ (86,687) (69,647)
--------- ---------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................... (146,899) (112,429)
--------- ---------
Distributions to Shareholders from:
Net Investment Income....................................... (7,118) (5,419)
Net Realized Gain on Investments............................ -- (25,531)
--------- ---------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders............................ (7,118) (30,950)
--------- ---------
Fund Share Transactions
Proceeds from Sale of 46,554 and 37,823 Shares.............. 84,505 81,112
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (3,673 and 14,152 shares,
respectively)............................................. 7,118 30,950
Payments for 46,693 and 20,655 Shares Redeemed.............. (82,763) (42,921)
--------- ---------
Net Increase (Decrease) in Net Assets Resulting from
Fund Share Transactions (3,534 and 31,320 shares,
respectively)............................................ 8,860 69,141
--------- ---------
Total Increase (Decrease) in Net Assets....................... (145,157) (74,238)
Net Assets
Beginning of Period......................................... 696,578 770,816
--------- ---------
End of Period (Includes undistributed net investment
income of $4,774 and $7,118, respectively)................ $ 551,421 $ 696,578
========= =========
</TABLE>
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
J.P. Morgan Select Growth and Income Stock Portfolio 2002 2001
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)................................ $ 3,770 $ 4,120
Net Realized Gain (Loss) on Investments..................... (51,494) (19,827)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period................................ (105,636) (30,330)
--------- --------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................... (153,360) (46,037)
--------- --------
Distributions to Shareholders from:
Net Investment Income....................................... (4,121) (4,262)
Net Realized Gain on Investments............................ -- (15,376)
--------- --------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders............................ (4,121) (19,638)
--------- --------
Fund Share Transactions
Proceeds from Sale of 39,423 and 39,693 Shares.............. 41,359 49,815
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (3,763 and 15,282 shares,
respectively)............................................. 4,121 19,638
Payments for 71,491 and 28,597 Shares Redeemed.............. (70,727) (35,087)
--------- --------
Net Increase (Decrease) in Net Assets Resulting from
Fund Share Transactions ((28,305) and 26,378 shares,
respectively)............................................ (25,247) 34,366
--------- --------
Total Increase (Decrease) in Net Assets....................... (182,728) (31,309)
Net Assets
Beginning of Period......................................... 548,672 579,981
--------- --------
End of Period (Includes undistributed net investment
income of $3,769 and $4,120, respectively)................ $ 365,944 $548,672
========= ========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
97
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the period
For the July 31, 2001 **
Year Ended through
December 31, December 31,
Capital Guardian Domestic Equity Portfolio 2002 2001
-----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)...................... $ 899 $ 171
Net Realized Gain (Loss) on Investments........... (3,717) (183)
Net Unrealized Appreciation (Depreciation) of
Investments for the Period...................... (11,278) 270
-------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations...................... (14,096) 258
-------- -------
Distributions to Shareholders from:
Net Investment Income............................. (882) (168)
Net Realized Gain on Investments.................. -- --
-------- -------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders.................. (882) (168)
-------- -------
Fund Share Transactions
Proceeds from Sale of 58,893 and 42,542 Shares.... 50,973 41,341
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (1,153 and 174 shares,
respectively)................................... 882 168
Payments for 3,873 and 911 Shares Redeemed........ (3,325) (877)
-------- -------
Net Increase (Decrease) in Net Assets
Resulting from Fund Share Transactions
(56,173 and 41,805 shares, respectively)........ 48,530 40,632
-------- -------
Total Increase (Decrease) in Net Assets............. 33,552 40,722
Net Assets
Beginning of Period............................... 40,722 --
-------- -------
End of Period (Includes undistributed net
investment income of $17 and $3,
respectively)................................... $ 74,274 $40,722
======== =======
</TABLE>
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Index 500 Stock Portfolio 2002 2001
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)...................... $ 22,006 $ 21,311
Net Realized Gain (Loss) on Investments........... 7,557 32,819
Net Unrealized Appreciation (Depreciation) of
Investments for the Period...................... (432,104) (302,274)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations...................... (402,541) (248,144)
---------- ----------
Distributions to Shareholders from:
Net Investment Income............................. (21,302) (24,105)
Net Realized Gain on Investments.................. (35,471) (59,088)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions to Shareholders.................. (56,773) (83,193)
---------- ----------
Fund Share Transactions
Proceeds from Sale of 69,220 and 47,523 Shares.... 173,178 142,837
Proceeds from Shares Issued on Reinvestment of
Distributions Paid (21,521 and 26,836
shares, respectively)........................... 56,773 83,193
Payments for 95,445 and 49,022 Shares Redeemed.... (229,631) (145,755)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Fund Share Transactions
((4,704) and 25,337 shares, respectively)...... 320 80,275
---------- ----------
Total Increase (Decrease) in Net Assets............. (458,994) (251,062)
Net Assets
Beginning of Period............................... 1,821,875 2,072,937
---------- ----------
End of Period (Includes undistributed net
investment income of $21,934 and $21,311,
respectively)................................... $1,362,881 $1,821,875
========== ==========
</TABLE>
**Portfolio commenced operations July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements.
98
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the period
For the July 31, 2001**
Year Ended through
December 31, December 31,
Asset Allocation Portfolio 2002 2001
------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)............ $ 1,408 $ 286
Net Realized Gain (Loss) on
Investments........................... (4,624) (202)
Net Unrealized Appreciation
(Depreciation) of Investments for
the Period............................ (3,891) (94)
------- -------
Net Increase (Decrease) in Net
Assets Resulting from Operations..... (7,107) (10)
------- -------
Distributions to Shareholders from:
Net Investment Income................... (1,415) (284)
Net Realized Gain on Investments........ -- --
------- -------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders......................... (1,415) (284)
------- -------
Fund Share Transactions
Proceeds from Sale of 66,250 and
41,212 Shares......................... 61,003 40,347
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(1,657 and 292 shares,
respectively)......................... 1,415 284
Payments for 7,491 and 229 Shares
Redeemed.............................. (6,752) (221)
------- -------
Net Increase (Decrease) in Net
Assets Resulting from Fund Share
Transactions (60,416 and 41,275
shares, respectively)................ 55,666 40,410
------- -------
Total Increase (Decrease) in Net Assets... 47,144 40,116
Net Assets
Beginning of Period..................... 40,116 --
------- -------
End of Period (Includes
undistributed net investment
income of ($2) and $2,
respectively)......................... $87,260 $40,116
======= =======
</TABLE>
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Balanced Portfolio 2002 2001
---------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)............ $ 85,457 $ 115,576
Net Realized Gain (Loss) on
Investments........................... (37,341) (11,248)
Net Unrealized Appreciation
(Depreciation) of Investments for
the Period............................ (273,763) (207,767)
---------- ----------
Net Increase (Decrease) in Net
Assets Resulting from Operations..... (225,647) (103,439)
---------- ----------
Distributions to Shareholders from:
Net Investment Income................... (106,128) (127,987)
Net Realized Gain on Investments........ -- (112,544)
---------- ----------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders......................... (106,128) (240,531)
---------- ----------
Fund Share Transactions
Proceeds from Sale of 100,999 and
44,213 Shares......................... 173,165 82,145
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(61,452 and 129,457 shares,
respectively)......................... 106,128 240,531
Payments for 237,957 and 118,592
Shares Redeemed....................... (397,126) (220,768)
---------- ----------
Net Increase (Decrease) in Net
Assets Resulting from Fund Share
Transactions ( (75,506) and
55,078 shares, respectively)......... (117,833) 101,908
---------- ----------
Total Increase (Decrease) in Net Assets... (449,608) (242,062)
Net Assets
Beginning of Period..................... 3,011,137 3,253,199
---------- ----------
End of Period (Includes
undistributed net investment
income of $85,237 and $105,732,
respectively)......................... $2,561,529 $3,011,137
========== ==========
</TABLE>
**Portfolio commenced operations July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements.
99
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
High Yield Bond Portfolio 2002 2001
---------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)............ $ 14,659 $ 15,629
Net Realized Gain (Loss) on
Investments........................... (18,912) (19,780)
Net Unrealized Appreciation
(Depreciation) of Investments for
the Period............................ (272) 10,959
--------- --------
Net Increase (Decrease) in Net
Assets Resulting from Operations..... (4,525) 6,808
--------- --------
Distributions to Shareholders from:
Net Investment Income................... (14,697) (15,601)
Net Realized Gain on Investments........ -- --
--------- --------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders......................... (14,697) (15,601)
--------- --------
Fund Share Transactions...................
Proceeds from Sale of 34,172 and
35,236 Shares......................... 21,670 25,721
Proceeds from Shares Issued on
Reinvestment of Distributions
Paid (26,069 and 24,080 shares,
respectively)......................... 14,697 15,601
Payments for 43,587 and 31,719
Shares Redeemed....................... (27,262) (23,066)
--------- --------
Net Increase (Decrease) in Net
Assets Resulting from Fund Share
Transactions (16,654 and 27,597
shares, respectively)................ 9,105 18,256
--------- --------
Total Increase (Decrease) in Net Assets... (10,117) 9,463
Net Assets
Beginning of Period..................... 147,670 138,207
--------- --------
End of Period (Includes
undistributed net investment
income of $159 and $196,
respectively)......................... $ 137,553 $147,670
========= ========
</TABLE>
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Select Bond Portfolio 2002 2001
---------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)............ $ 24,237 $ 21,595
Net Realized Gain (Loss) on
Investments........................... 10,612 10,082
Net Unrealized Appreciation
(Depreciation) of Investments for
the Period............................ 20,473 1,654
-------- --------
Net Increase (Decrease) in Net
Assets Resulting from Operations..... 55,322 33,331
-------- --------
Distributions to Shareholders from:.......
Net Investment Income................... (21,737) (19,294)
Net Realized Gain on Investments........ (3,098) --
-------- --------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders......................... (24,835) (19,294)
-------- --------
Fund Share Transactions...................
Proceeds from Sale of 155,728 and
87,848 Shares......................... 189,851 104,150
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(21,354 and 16,955 shares,
respectively)......................... 24,835 19,294
Payments for 54,469 and 20,005
Shares Redeemed....................... (66,561) (23,753)
-------- --------
Net Increase (Decrease) in Net
Assets Resulting from Fund Share
Transactions (122,613 and 84,798
shares, respectively)................ 148,125 99,691
-------- --------
Total Increase (Decrease) in Net Assets... 178,612 113,728
Net Assets
Beginning of Period..................... 405,406 291,678
-------- --------
End of Period (Includes
undistributed net investment
income of $24,109 and $21,476,
respectively)......................... $584,018 $405,406
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
100
<PAGE>
Statement of Changes in Net Assets
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
Money Market Portfolio 2002 2001
---------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Changes in Net Assets
Operations
Net Investment Income (Loss)............ $ 7,636 $ 15,878
Net Realized Gain (Loss) on
Investments........................... -- --
Net Unrealized Appreciation
(Depreciation) of Investments for
the Period............................ -- --
----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations..... 7,636 15,878
----------- -----------
Distributions to Shareholders from:
Net Investment Income................... (7,657) (15,878)
Net Realized Gain on Investments........ -- --
----------- -----------
Net Decrease in Net Assets
Resulting from Distributions to
Shareholders......................... (7,657) (15,878)
----------- -----------
Fund Share Transactions
Proceeds from Sale of 1,171,850 and
1,720,066 Shares...................... 1,171,850 1,720,084
Proceeds from Shares Issued on
Reinvestment of Distributions Paid
(7,657 and 15,879 shares,
respectively)......................... 7,657 15,879
Payments for 1,136,862 and 1,661,729
Shares Redeemed....................... (1,136,862) (1,661,729)
----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Fund Share
Transactions (42,645 and 74,216
shares, respectively)................ 42,645 74,234
----------- -----------
Total Increase (Decrease) in Net Assets... 42,624 74,234
Net Assets
Beginning of Period..................... 458,689 384,455
----------- -----------
End of Period (Includes
undistributed net investment
income of $0 and $0, respectively).... $ 501,313 $ 458,689
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
101
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Period
April 30, 1999*
For the Year Ended through
December 31, December 31,
Small Cap Growth Stock Portfolio ---------------------------- 1999
(For a share outstanding throughout the period) 2002 2001 2000 ---------------
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.79 $ 1.86 $ 1.79 $ 1.00
Income from Investment Operations:
Net Investment Income....................................... -- -- -- --
Net Realized and Unrealized Gains (Losses) on Investments... (0.33) (0.07) 0.13 0.85
-------- -------- -------- -------
Total from Investment Operations........................... (0.33) (0.07) 0.13 0.85
-------- -------- -------- -------
Less Distributions:
Distributions from Net Investment Income.................... -- -- -- --
Distributions from Realized Gains on Investments............ -- -- (0.06) (0.06)
-------- -------- -------- -------
Total Distributions........................................ -- -- (0.06) (0.06)
-------- -------- -------- -------
Net Asset Value, End of Period.................................. $ 1.46 $ 1.79 $ 1.86 $ 1.79
======== ======== ======== =======
Total Return+................................................... (18.42%) (3.76%) 6.71% 86.09%
======== ======== ======== =======
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $254,880 $291,448 $250,314 $71,483
======== ======== ======== =======
Ratio of Gross Expenses to Average Net Assets................... 0.60% 0.60% 0.67% 1.03%***
======== ======== ======== =======
Ratio of Net Expenses to Average Net Assets..................... 0.60% 0.60% 0.67% 1.00%***
======== ======== ======== =======
Ratio of Net Investment Income (Loss) to Average Net Assets..... (0.26%) 0.17% 0.19% (0.07%)***
======== ======== ======== =======
Portfolio Turnover Rate......................................... 41.87% 70.58% 86.13% 70.72%
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
For the Period
For the Year July 31, 2001**
T. Rowe Price Small Cap Value Portfolio Ended December 31, through
2002 December 31,
(For a share outstanding throughout the period) ------------------ 2001
------------------------------------------------------------------
<S> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.02 $ 1.00
Income from Investment Operations:
Net Investment Income....................................... 0.01 --
Net Realized and Unrealized Gains (Losses) on Investments... (0.07) 0.02
------- -------
Total from Investment Operations........................... (0.06) 0.02
------- -------
Less Distributions:
Distributions from Net Investment Income.................... (0.01) --
Distributions from Realized Gains on Investments............ -- --
------- -------
Total Distributions........................................ (0.01) --
------- -------
Net Asset Value, End of Period.................................. $ 0.95 $ 1.02
======= =======
Total Return+................................................... (5.58%) 1.76%
======= =======
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $63,083 $21,003
======= =======
Ratio of Gross Expenses to Average Net Assets................... 1.02% 1.36%***
======= =======
Ratio of Net Expenses to Average Net Assets..................... 1.00% 1.00%***
======= =======
Ratio of Net Investment Income (Losses) to Average Net Assets... 0.54% 1.03%***
======= =======
Portfolio Turnover Rate......................................... 28.26% 49.70%
======= =======
</TABLE>
* Portfolio commenced operations April 30, 1999.
** Portfolio commenced operations July 31, 2001.
*** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
102
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Year Ended December 31,
Aggressive Growth Stock Portfolio --------------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 2.82 $ 4.47 $ 4.81 $ 3.46 $ 3.34
Income from Investment Operations:
Net Investment Income....................................... -- -- -- -- --
Net Realized and Unrealized Gains (Losses) on Investments... (0.59) (0.83) 0.29 1.48 0.24
-------- ---------- ---------- ---------- ----------
Total from Investment Operations........................... (0.59) (0.83) 0.29 1.48 0.24
-------- ---------- ---------- ---------- ----------
Less Distributions:
Distributions from Net Investment Income.................... -- -- -- -- --
Distributions from Realized Gains on Investments............ (0.05) (0.82) (0.63) (0.13) (0.12)
-------- ---------- ---------- ---------- ----------
Total Distributions........................................ (0.05) (0.82) (0.63) (0.13) (0.12)
-------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.................................. $ 2.18 $ 2.82 $ 4.47 $ 4.81 $ 3.46
======== ========== ========== ========== ==========
Total Return+................................................... (21.15%) (19.87%) 6.18% 43.78% 7.56%
======== ========== ========== ========== ==========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $994,075 $1,341,876 $1,696,013 $1,485,311 $1,137,466
======== ========== ========== ========== ==========
Ratio of Expenses to Average Net Assets......................... 0.52% 0.52% 0.52% 0.51% 0.52%
======== ========== ========== ========== ==========
Ratio of Net Investment Income (Loss) to Average Net Assets..... (0.11%) 0.08% 0.09% (0.02%) 0.04%
======== ========== ========== ========== ==========
Portfolio Turnover Rate......................................... 43.37% 70.40% 63.18% 68.64% 50.43%
======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Period
For the Year July 31, 2001**
International Growth Portfolio Ended December 31, through
2002 December 31,
(For a share outstanding throughout the period) ------------------ 2001
------------------------------------------------------------------
<S> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 0.91 $ 1.00
Income from Investment Operations:
Net Investment Income....................................... -- --
Net Realized and Unrealized Gains (Losses) on Investments... (0.12) (0.09)
-------- -------
Total from Investment Operations........................... (0.12) (0.09)
-------- -------
Less Distributions:
Distributions from Net Investment Income.................... -- --
Distributions from Realized Gains on Investments............ -- --
-------- -------
Total Distributions........................................ -- --
-------- -------
Net Asset Value, End of Period.................................. $ 0.79 $ 0.91
======== =======
Total Return+................................................... (12.34%) (9.40%)
======== =======
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $ 35,373 $26,900
======== =======
Ratio of Gross Expenses to Average Net Assets................... 1.15% 1.25%***
======== =======
Ratio of Net Expenses to Average Net Assets..................... 1.10% 1.10%***
======== =======
Ratio of Net Investment Income (Loss) to Average Net Assets..... 0.62% 0.05%***
======== =======
Portfolio Turnover Rate......................................... 27.28% 18.45%
======== =======
</TABLE>
** Portfolio commenced operations July 31, 2001.
*** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
103
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Year Ended December 31,
Franklin Templeton International Equity Portfolio ------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.26 $ 1.63 $ 1.78 $ 1.68 $ 1.69
Income from Investment Operations:
Net Investment Income....................................... 0.02 0.02 0.02 0.03 0.05
Net Realized and Unrealized Gains (Losses) on Investments... (0.24) (0.23) (0.04) 0.33 0.04
-------- -------- -------- -------- --------
Total from Investment Operations........................... (0.22) (0.21) (0.02) 0.36 0.09
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income.................... (0.02) (0.03) (0.04) (0.05) (0.04)
Distributions from Realized Gains on Investments............ -- (0.13) (0.09) (0.21) (0.06)
-------- -------- -------- -------- --------
Total Distributions........................................ (0.02) (0.16) (0.13) (0.26) (0.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................................. $ 1.02 $ 1.26 $ 1.63 $ 1.78 $ 1.68
======== ======== ======== ======== ========
Total Return+................................................... (17.40%) (14.00%) (0.79%) 22.88% 4.82%
======== ======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $563,102 $716,413 $809,617 $772,170 $671,106
======== ======== ======== ======== ========
Ratio of Gross Expenses to Average Net Assets................... 0.74% 0.74% 0.73% 0.74% 0.76%
======== ======== ======== ======== ========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 1.72% 1.99% 1.77% 2.62% 3.38%
======== ======== ======== ======== ========
Portfolio Turnover Rate......................................... 30.94% 34.52% 26.95% 38.37% 30.41%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Period
April 30, 1999*
through
For the Year Ended December 31, December 31,
Index 400 Stock Portfolio ---------------------------- 1999
(For a share outstanding throughout the period) 2002 2001 2000 ---------------
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.12 $ 1.14 $ 1.11 $ 1.00
Income from Investment Operations:
Net Investment Income....................................... 0.01 -- 0.01 0.01
Net Realized and Unrealized Gains (Losses) on Investments... (0.17) (0.01) 0.16 0.12
-------- -------- -------- -------
Total from Investment Operations............................ (0.16) (0.01) 0.18 0.13
-------- -------- -------- -------
Less Distributions:
Distributions from Net Investment Income.................... (0.01) -- (0.02) (0.01)
Distributions from Realized Gains on Investments............ -- (0.01) (0.13) (0.01)
-------- -------- -------- -------
Total Distributions........................................ (0.01) (0.01) (0.15) (0.02)
-------- -------- -------- -------
Net Asset Value, End of Period.................................. $ 0.95 $ 1.12 $ 1.14 $ 1.11
======== ======== ======== =======
Total Return+................................................... (14.54%) (0.65%) 17.21% 12.83%
======== ======== ======== =======
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $225,410 $210,734 $137,616 $59,644
======== ======== ======== =======
Ratio of Gross Expenses to Average Net Assets................... 0.28% 0.31% 0.32% 0.46%***
======== ======== ======== =======
Ratio of Net Expenses to Average Net Assets..................... 0.28% 0.31% 0.32% 0.35%***
======== ======== ======== =======
Ratio of Net Investment Income (Loss) to Average Net Assets..... 0.86% 1.06% 1.71% 1.69%***
======== ======== ======== =======
Portfolio Turnover Rate......................................... 15.60% 19.06% 54.60% 26.51%
======== ======== ======== =======
</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, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
104
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Year Ended December 31,
Growth Stock Portfolio ------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 2.03 $ 2.47 $ 2.66 $ 2.25 $ 1.81
Income from Investment Operations:
Net Investment Income....................................... 0.01 0.02 0.03 0.03 0.02
Net Realized and Unrealized Gains (Losses) on Investments... (0.43) (0.36) (0.09) 0.47 0.46
-------- -------- -------- -------- --------
Total from Investment Operations........................... (0.42) (0.34) (0.06) 0.50 0.48
-------- -------- -------- -------- --------
Less Distributions:...........................................
Distributions from Net Investment Income.................... (0.02) (0.02) (0.02) (0.03) (0.02)
Distributions from Realized Gains on Investments............ -- (0.08) (0.11) (0.06) (0.02)
-------- -------- -------- -------- --------
Total Distributions........................................ (0.02) (0.10) (0.13) (0.09) (0.04)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................................. $ 1.59 $ 2.03 $ 2.47 $ 2.66 $ 2.25
======== ======== ======== ======== ========
Total Return+................................................... (20.83%) (14.22%) (2.49%) 22.50% 26.69%
======== ======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $551,421 $696,578 $770,816 $676,134 $421,282
======== ======== ======== ======== ========
Ratio of Expenses to Average Net Assets......................... 0.43% 0.43% 0.43% 0.43% 0.46%
======== ======== ======== ======== ========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 0.76% 1.01% 1.12% 1.22% 1.10%
======== ======== ======== ======== ========
Portfolio Turnover Rate......................................... 28.06% 27.98% 28.01% 27.26% 21.64%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
J.P. Morgan Select Growth and Income Stock
Portfolio For the Year Ended December 31,
------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.22 $ 1.37 $ 1.56 $ 1.62 $ 1.33
Income from Investment Operations:
Net Investment Income....................................... 0.01 0.01 0.01 0.01 0.01
Net Realized and Unrealized Gains (Losses) on Investments... (0.35) (0.11) (0.11) 0.12 0.29
-------- -------- -------- -------- --------
Total from Investment Operations........................... (0.34) (0.10) (0.10) 0.13 0.30
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income.................... (0.01) (0.01) (0.01) -- (0.01)
Distributions from Realized Gains on Investments............ -- (0.04) (0.08) (0.19) --
-------- -------- -------- -------- --------
Total Distributions........................................ (0.01) (0.05) (0.09) (0.19) (0.01)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................................. $ 0.87 $ 1.22 $ 1.37 $ 1.56 $ 1.62
======== ======== ======== ======== ========
Total Return+................................................... (28.20%) (7.77%) (6.97%) 7.47% 23.14%
======== ======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $365,944 $548,672 $579,981 $661,552 $570,970
======== ======== ======== ======== ========
Ratio of Expenses to Average Net Assets......................... 0.58% 0.58% 0.57% 0.57% 0.58%
======== ======== ======== ======== ========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 0.85% 0.75% 0.68% 0.80% 1.00%
======== ======== ======== ======== ========
Portfolio Turnover Rate......................................... 29.20% 44.37% 47.67% 106.93% 160.40%
======== ======== ======== ======== ========
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
105
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Period
July 31, 2001**
Capital Guardian Domestic Equity Portfolio For the Year through
Ended December 31, December 31,
(For a share outstanding throughout the period) 2002 2001
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 0.97 $ 1.00
Income from Investment Operations:
Net Investment Income....................................... 0.01 --
Net Realized and Unrealized Gains (Losses) on Investments... (0.21) (0.03)
-------- -------
Total from Investment Operations........................... (0.20) (0.03)
-------- -------
Less Distributions:
Distributions from Net Investment Income.................... (0.01) --
Distributions from Realized Gains on Investments............ -- --
-------- -------
Total Distributions........................................ (0.01) --
-------- -------
Net Asset Value, End of Period.................................. $ 0.76 $ 0.97
======== =======
Total Return+................................................... (21.24%) (2.19%)
======== =======
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $ 74,274 $40,722
======== =======
Ratio of Gross Expenses to Average Net Assets................... 0.70% 0.90%***
======== =======
Ratio of Net Expenses to Average Net Assets..................... 0.70% 0.75%***
======== =======
Ratio of Net Investment Income (Loss) to Average Net Assets..... 1.54% 1.32%***
======== =======
Portfolio Turnover Rate......................................... 22.42% 18.98%
======== =======
</TABLE>
<TABLE>
<CAPTION>
Index 500 Stock Portfolio For the Year Ended December 31,
----------------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 2.87 $ 3.41 $ 3.89 $ 3.29 $ 2.64
Income from Investment Operations:
Net Investment Income....................................... 0.03 0.03 0.04 0.04 0.04
Net Realized and Unrealized Gains (Losses) on Investments... (0.64) (0.43) (0.37) 0.64 0.71
---------- ---------- ---------- ---------- ----------
Total from Investment Operations........................... (0.61) (0.40) (0.33) 0.68 0.75
---------- ---------- ---------- ---------- ----------
Less Distributions:
Distributions from Net Investment Income.................... (0.03) (0.04) (0.04) (0.03) (0.04)
Distributions from Realized Gains on Investments............ (0.06) (0.10) (0.11) (0.05) (0.06)
---------- ---------- ---------- ---------- ----------
Total Distributions........................................ (0.09) (0.14) (0.15) (0.08) (0.10)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.................................. $ 2.17 $ 2.87 $ 3.41 $ 3.89 $ 3.29
========== ========== ========== ========== ==========
Total Return+................................................... (22.07%) (11.88%) (8.75%) 20.91% 28.72%
========== ========== ========== ========== ==========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $1,362,881 $1,821,875 $2,072,937 $2,271,956 $1,690,680
========== ========== ========== ========== ==========
Ratio of Expenses to Average Net Assets......................... 0.21% 0.21% 0.20% 0.20% 0.21%
========== ========== ========== ========== ==========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 1.40% 1.13% 1.08% 1.16% 1.40%
========== ========== ========== ========== ==========
Portfolio Turnover Rate......................................... 6.55% 2.92% 6.47% 5.65% 3.03%
========== ========== ========== ========== ==========
</TABLE>
** Portfolio commenced operations July 31, 2001.
*** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
106
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Period
For the Year July 31, 2001**
Asset Allocation Portfolio Ended December 31, through
2002 December 31,
(For a share outstanding throughout the period) ------------------ 2001
------------------------------------------------------------------
<S> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 0.97 $ 1.00
Income from Investment Operations:
Net Investment Income....................................... 0.01 0.01
Net Realized and Unrealized Gains (Losses) on Investments... (0.11) (0.03)
-------- -------
Total from Investment Operations........................... (0.10) (0.02)
-------- -------
Less Distributions:
Distributions from Net Investment Income.................... (0.01) (0.01)
Distributions from Realized Gains on Investments............ -- --
-------- -------
Total Distributions........................................ (0.01) (0.01)
-------- -------
Net Asset Value, End of Period.................................. $ 0.86 $ 0.97
======== =======
Total Return+................................................... (10.26%) (2.10%)
======== =======
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $ 87,260 $40,116
======== =======
Ratio of Gross Expenses to Average Net Assets................... 0.87% 0.92%***
======== =======
Ratio of Net Expenses to Average Net Assets..................... 0.75% 0.75%***
======== =======
Ratio of Net Investment Income (Loss) to Average Net Assets..... 2.18% 2.19%***
======== =======
Portfolio Turnover Rate......................................... 112.73% 55.88%
======== =======
</TABLE>
<TABLE>
<CAPTION>
Balanced Portfolio For the Year Ended December 31,
----------------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.82 $ 2.03 $ 2.22 $ 2.22 $ 1.99
Income from Investment Operations:
Net Investment Income....................................... 0.06 0.08 0.08 0.07 0.07
Net Realized and Unrealized Gains (Losses) on Investments... (0.20) (0.13) (0.09) 0.17 0.29
---------- ---------- ---------- ---------- ----------
Total from Investment Operations........................... (0.14) (0.05) (0.01) 0.24 0.36
---------- ---------- ---------- ---------- ----------
Less Distributions:
Distributions from Net Investment Income.................... (0.06) (0.08) (0.07) (0.07) (0.07)
Distributions from Realized Gains on Investments............ -- (0.08) (0.11) (0.17) (0.06)
---------- ---------- ---------- ---------- ----------
Total Distributions........................................ (0.06) (0.16) (0.18) (0.24) (0.13)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.................................. $ 1.62 $ 1.82 $ 2.03 $ 2.22 $ 2.22
========== ========== ========== ========== ==========
Total Return+................................................... (7.54%) (3.15%) (0.17%) 11.18% 18.88%
========== ========== ========== ========== ==========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $2,561,529 $3,011,137 $3,253,199 $3,557,900 $3,282,071
========== ========== ========== ========== ==========
Ratio of Expenses to Average Net Assets......................... 0.30% 0.30% 0.30% 0.30% 0.30%
========== ========== ========== ========== ==========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 3.08% 3.75% 3.47% 3.36% 3.48%
========== ========== ========== ========== ==========
Portfolio Turnover Rate......................................... 53.12% 50.37% 24.36% 27.16% 44.18%
========== ========== ========== ========== ==========
</TABLE>
** Portfolio commenced operations July 31, 2001.
*** Computed on an annualized basis.
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
107
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Year Ended December 31,
High Yield Bond Portfolio ------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 0.65 $ 0.69 $ 0.82 $ 0.94 $ 1.06
Income from Investment Operations:
Net Investment Income....................................... 0.07 0.08 0.09 0.11 0.10
Net Realized and Unrealized Gains (Losses) on Investments... (0.09) (0.04) (0.13) (0.12) (0.12)
-------- -------- -------- -------- --------
Total from Investment Operations........................... (0.02) 0.04 (0.04) (0.01) (0.02)
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income.................... (0.07) (0.08) (0.09) (0.11) (0.10)
Distributions from Realized Gains on Investments............ -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions........................................ (0.07) (0.08) (0.09) (0.11) (0.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................................. $ 0.56 $ 0.65 $ 0.69 $ 0.82 $ 0.94
======== ======== ======== ======== ========
Total Return+................................................... (2.89%) 5.03% (4.60%) (0.44%) (1.84%)
======== ======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $137,553 $147,670 $138,207 $161,424 $184,782
======== ======== ======== ======== ========
Ratio of Gross Expenses to Average Net Assets................... 0.54% 0.53% 0.53% 0.50% 0.50%
======== ======== ======== ======== ========
Ratio of Net Expenses to Average Net Assets..................... 0.54% 0.53% 0.52% 0.50% 0.50%
======== ======== ======== ======== ========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 10.37% 10.48% 10.90% 11.15% 10.85%
======== ======== ======== ======== ========
Portfolio Turnover Rate......................................... 89.20% 96.41% 124.91% 139.87% 153.71%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Select Bond Portfolio For the Year Ended December 31,
------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
Net Asset Value, Beginning of Period............................ $ 1.20 $ 1.16 $ 1.13 $ 1.25 $ 1.26
Income from Investment Operations:
Net Investment Income....................................... 0.05 0.06 0.08 0.08 0.08
Net Realized and Unrealized Gains (Losses) on Investments... 0.09 0.05 0.03 (0.09) --
-------- -------- -------- -------- --------
Total from Investment Operations........................... 0.14 0.11 0.11 (0.01) 0.08
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income.................... (0.06) (0.07) (0.08) (0.08) (0.08)
Distributions from Realized Gains on Investments............ (0.01) -- -- (0.03) (0.01)
-------- -------- -------- -------- --------
Total Distributions........................................ (0.07) (0.07) (0.08) (0.11) (0.09)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................................. $ 1.27 $ 1.20 $ 1.16 $ 1.13 $ 1.25
======== ======== ======== ======== ========
Total Return+................................................... 12.09% 10.37% 10.21% (1.00%) 7.07%
======== ======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)........................ $584,018 $405,406 $291,678 $286,493 $298,034
======== ======== ======== ======== ========
Ratio of Expenses to Average Net Assets......................... 0.30% 0.30% 0.30% 0.30% 0.30%
======== ======== ======== ======== ========
Ratio of Net Investment Income (Loss) to Average Net Assets..... 5.01% 6.15% 6.84% 6.56% 6.87%
======== ======== ======== ======== ========
Portfolio Turnover Rate......................................... 184.37% 151.27% 139.89% 76.65% 161.79%
======== ======== ======== ======== ========
</TABLE>
+ Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
108
<PAGE>
Financial Highlights
Northwestern Mutual Series Fund, Inc.
<TABLE>
<CAPTION>
For the Year Ended December 31,
Money Market Portfolio ------------------------------------------------
(For a share outstanding throughout the period) 2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
<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
Income from Investment Operations:
Net Investment Income.................................. 0.02 0.04 0.06 0.05 0.05
-------- -------- -------- -------- --------
Total from Investment Operations...................... 0.02 0.04 0.06 0.05 0.05
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Investment Income............... (0.02) (0.04) (0.06) (0.05) (0.05)
-------- -------- -------- -------- --------
Total Distributions................................... (0.02) (0.04) (0.06) (0.05) (0.05)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return+.............................................. 1.65% 3.91% 6.28% 5.10% 5.43%
======== ======== ======== ======== ========
Ratios and Supplemental Data
Net Assets, End of Period (in thousands)................... $501,313 $458,689 $384,455 $404,284 $291,464
======== ======== ======== ======== ========
Ratio of Gross Expenses to Average Net Assets.............. 0.30% 0.30% 0.30% 0.30% 0.30%
======== ======== ======== ======== ========
Ratio of Net Expenses to Average Net Assets................ 0.27% 0.30% 0.30% 0.30% 0.30%
======== ======== ======== ======== ========
Ratio of Net Investment Income (Loss) to Average Net Assets 1.63% 3.76% 6.08% 4.99% 5.26%
======== ======== ======== ======== ========
</TABLE>
+Total Return includes deductions for management and other fund expenses;
excludes deductions for sales loads and account fees, not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements.
109
<PAGE>
Notes to Financial Statements
Northwestern Mutual Series Fund, Inc.
December 31, 2002
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, T. Rowe Price Small Cap Value Portfolio, Aggressive Growth Stock
Portfolio, International Growth Stock Portfolio, Franklin Templeton
International Equity Portfolio, Index 400 Stock Portfolio, Growth Stock
Portfolio, J.P. Morgan Select Growth & Income Stock Portfolio, Capital Guardian
Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset Allocation
Portfolio, Balanced Portfolio, High Yield Bond Portfolio, Select Bond Portfolio
and the Money Market Portfolio (the "Portfolios"). Shares are presently offered
only to The Northwestern Mutual Life Insurance Company ("Northwestern Mutual")
and its segregated asset accounts.
Note 2 -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principal accounting policies are summarized below.
Note 3 -- 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. Stocks for which current market
quotations are not readily available are valued at fair value determined by
procedures approved by the Board of Directors. The fair value procedure is used
if a significant event that is likely to have affected the value of the
securities takes place after the time of the most recent market quotations or
the market quotations for other reasons do not reflect information material to
the value of those securities. Bonds are valued on the basis of prices
furnished by a service which determines prices for normal institutional size
trading units of bonds. 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. When
quotations for bonds or money market instruments are not readily available,
these securities are valued at fair value determined by procedures approved by
the Board of Directors.
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 Growth Stock Portfolio, Franklin
Templeton International Equity Portfolio, Asset Allocation Portfolio, Balanced
Portfolio and Select Bond Portfolio purchases or sells a foreign security they
may enter into a foreign exchange currency contract to minimize market risk
from the trade date to the settlement date of such transaction. Such foreign
exchange currency contracts are marked to market daily.
The Portfolios may enter into forward foreign currency contracts to hedge
against exchange rate risk arising from investments in securities denominated
in foreign currencies. Contracts valued at the contractual forward rate 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 counterparties to meet the terms
of their contracts.
The International Growth Stock Portfolio, Franklin Templeton International
Equity Portfolio, Asset Allocation Portfolio, Balanced Portfolio and Select
Bond Portfolio do not separately report the results of operations due to
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are
included with the net realized or 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, and the differences between the
amounts of dividends and foreign withholding taxes recorded on a Portfolio's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Note 5 -- The Small Cap Growth Stock, Aggressive Growth Stock, Index 400 Stock,
Growth Stock, Index 500 Stock, Asset Allocation, Balanced and Select Bond
Portfolios invest in futures contracts as an alternative to investing in
individual securities. The Small Cap Growth Stock,
110
<PAGE>
Notes to Financial Statements
Aggressive Growth Stock, Index 400 Stock, Growth Stock, Index 500 Stock, Asset
Allocation, Balanced and Select Bond Portfolios could be exposed to market risk
due to changes in the value of the underlying securities or due to an illiquid
secondary market. Futures contracts are marked to market daily based upon
quoted settlement prices. The Portfolios receive from or pay to brokers an
amount of cash equal to the daily fluctuation in the value of the contracts.
Such receipts or payments, known as the "variation margin", are recorded by the
Portfolios as unrealized gains or losses. When the contract is closed, the
Portfolios record a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed.
For Federal income tax purposes, net unrealized appreciation (depreciation) on
open futures contracts is generally required to be treated as realized gains
(losses).
Note 6 -- The Series Fund has a securities lending program that enables each
Portfolio, except the Money Market Portfolio, to loan securities to approved
broker-dealers. The Portfolio receives cash (U.S. currency), U.S. Government or
U.S. Government agency obligations as collateral against the loaned securities.
To the extent that a loan is collateralized by cash, such collateral shall be
invested by the Portfolio to earn interest in accordance with the Portfolio's
investment policies. The collateral received under the securities lending
program is recorded on the Portfolio's statement of assets and liabilities
along with the related obligation to return the collateral.
Income generated from the investment of cash collateral, less negotiated rebate
fees paid to participating brokers and transaction costs, is recorded as income
for the Portfolio. All collateral received will be in an amount at least equal
to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the
market value of the loaned securities at the inception of each loan.
Thereafter, each loan must be continuously secured by collateral at least equal
at all times to the value of the securities lent. In addition, the Portfolio is
entitled to terminate any securities loan at any time. As of December 31, 2002,
the value of outstanding securities on loan and the value of collateral
amounted to the following:
<TABLE>
<CAPTION>
Value of Value of
Securities on Loan Collateral
------------------ -----------
<S> <C> <C>
Balanced... $59,351,321 $61,267,250
Select Bond 35,968,870 37,117,875
</TABLE>
As of December 31, 2002, collateral received for securities on loan is invested
in money market instruments and included in Investments on the Portfolio's
Statement of Assets and Liabilities.
Note 7 -- Interest income is 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 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, 2002, transactions in securities other than money
market investments were:
<TABLE>
<CAPTION>
U.S. Total U.S. Govt.
Total Govt. Security Security
Security Security Sales/ Sales/
Portfolios Purchases Purchases Maturities Maturities
---------- ---------- --------- ---------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Small Cap Growth Stock.................. $ 152,502 $ 103,166
T. Rowe Price Small Cap Value........... 60,082 13,541
Aggressive Growth Stock................. 452,368 499,231
International Growth Stock.............. 21,474 8,468
Franklin Templeton International Equity. 190,692 193,661
Index 400 Stock......................... 86,735 33,731
Growth Stock............................ 221,300 160,997
J.P. Morgan Select Growth & Income Stock 127,298 145,565
Capital Guardian Domestic Equity........ 61,139 12,419
Index 500 Stock......................... 101,729 135,299
Asset Allocation........................ 102,857 $ 30,207 57,769 $ 22,123
Balanced................................ 1,256,969 620,109 1,373,782 762,494
High Yield Bond......................... 126,591 116,400
Select Bond............................. 947,579 654,076 779,918 520,550
</TABLE>
111
<PAGE>
Notes to Financial Statements
Note 8 -- 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 at an annual rate
based on the average daily net asset values of each Portfolio. For the T. Rowe
Price Small Cap Value Portfolio the rate is .85%, 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%
Franklin Templeton International Equity .85% .65% .65%
Growth Stock........................... .60% .50% .40%
J.P. Morgan Select Growth & Income
Stock................................. .70% .60% .55%
High Yield Bond........................ .60% .50% .40%
First Next
$100 $150
Portfolios Million Million Excess
---------- ------- ------- ------
International Growth Stock............. .75% .65% .55%
Capital Guardian Domestic Equity....... .65% .55% .50%
Asset Allocation....................... .60% .50% .40%
</TABLE>
These amounts are paid to Mason Street Advisors, a wholly owned subsidiary of
Northwestern Mutual, which is the manager and investment adviser of the Series
Fund. Northwestern Mutual is also a party to the agreement. Other costs for
each Portfolio are paid either by the Portfolios, Northwestern Mutual, or Mason
Street Advisors depending upon the applicable agreement in place.
The Small Cap Growth Stock Portfolio, T. Rowe Price Small Cap Value Portfolio,
Aggressive Growth Stock Portfolio, International Growth Stock Portfolio,
Franklin Templeton International Equity Portfolio, Index 400 Stock Portfolio,
Growth Stock Portfolio, J.P. Morgan Select Growth & Income Stock Portfolio,
Capital Guardian Domestic Equity Portfolio, Index 500 Stock Portfolio, Asset
Allocation Portfolio, and High Yield Bond 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, 2002, the amounts paid through
expense offset arrangements are $4,015 in the Small Cap Growth Stock Portfolio,
$1,460 in the T. Rowe Price Small Cap Value Portfolio, $4,745 in the Aggressive
Growth Stock Portfolio, $3,650 in the Index 400 Stock Portfolio, $3,285 in the
Growth Stock Portfolio, $2,555 in the J.P. Morgan Select Growth & Income Stock
Portfolio, $730 in the Capital Guardian Domestic Equity Portfolio, $4,356 in
the Index 500 Stock Portfolio, $1,095 in the Asset Allocation Portfolio, and
$1,460 in the High Yield Bond Portfolio.
J.P. Morgan Fleming Asset Management, ("J.P. Morgan"), Templeton Investment
Counsel, Inc. ("Templeton Counsel"), T. Rowe Price Associates, Inc. ("T. Rowe
Price") and Capital Guardian Trust Company ("Capital Guardian") have been
retained under investment subadvisory agreements to provide investment advice
and, in general, to conduct the management investment program of the J.P.
Morgan Select Growth & Income Stock Portfolio, the Franklin Templeton
International Equity Portfolio, the T. Rowe Price Small Cap Value Portfolio and
the Capital Guardian Domestic Equity Portfolio, respectively. Mason Street
Advisors pays J.P. Morgan .45% on the first $100 million of 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.
Mason Street Advisors pays Templeton Counsel .50% on the first $100 million of
combined net assets for all funds managed for Northwestern Mutual by Templeton
Counsel and .40% in excess of $100 million. Mason Street Advisors pays T. Rowe
Price an annual rate of .60% of the Portfolio's average daily net assets. Mason
Street Advisors pays Capital Guardian a flat annual fee of $375,000 on the
Portfolio's assets of $100 million or less and .275% on net assets in excess of
$100 million.
The Small Cap Growth Stock, T. Rowe Small Cap Value, and Aggressive Growth
Stock Portfolios paid commissions on Fund transactions to an affiliated broker
in the amounts of $11,428, $845, and $180,690, respectively, for the year ended
December 31, 2002.
Note 9 -- Each of the Portfolios of the Series Fund has elected to be taxed as
a regulated investment company meeting certain requirements under the Internal
Revenue Code. Since each 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 may 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 between capital and income. The
differences between cost amounts for book purposes and tax purposes are
primarily due to treatment of deferred losses.
112
<PAGE>
Notes to Financial Statements
It is the policy of the Portfolios to reclassify the net effect of permanent
differences between book and taxable income to capital accounts on the
statements of assets and liabilities.
Certain losses incurred by the Portfolios after October 31st are deferred and
deemed to have occurred in the next fiscal year for income tax purposes. Net
realized capital losses for Federal income tax purposes are carried forward to
offset future net realized gains. A summary of the Portfolios' post October
losses and capital loss carryovers as of December 31, 2002 is provided below:
<TABLE>
<CAPTION>
Post October Capital Loss
Losses Carryovers
------------ -------------------
Portfolio Capital Amount Expiration
--------- ------------ -------- ----------
(Amounts in Thousands)
<S> <C> <C> <C>
Small Cap Growth Stock.................. $ -- $ 41,724 2009-2010
T. Rowe Price Small Cap Value........... 140 98 2010
Aggressive Growth Stock................. 10,137 192,312 2010
International Growth Stock.............. 620 3,805 2009-2010
Franklin Templeton International Equity. -- 73,668 2009-2010
Index 400 Stock......................... 142 2,153 2009-2010
Growth Stock............................ 1,983 115,629 2009-2010
J.P. Morgan Select Growth & Income Stock 4,543 73,258 2009-2010
Capital Guardian Domestic Equity........ 1,186 2,410 2009-2010
Index 500 Stock......................... -- -- --
Asset Allocation........................ 289 4,396 2009-2010
Balanced................................ -- 50,014 2009-2010
High Yield Bond......................... 6,888 77,164 2006-2010
Select Bond............................. 251 -- --
Money Market............................ -- -- --
</TABLE>
Note 10 -- Dividends from net investment income and net realized capital gains
are declared at least annually for the Small Cap Growth Stock, T. Rowe Price
Small Cap Value, Aggressive Growth Stock, International Growth Stock, Franklin
Templeton International Equity, Index 400 Stock, Growth Stock, J.P. Morgan
Select Growth & Income Stock, Capital Guardian Domestic Equity, Index 500
Stock, Asset Allocation, Balanced, High Yield Bond and Select Bond Portfolios
and each business day for the Money Market Portfolio.
Note 11 -- Northwestern Mutual voluntarily reimburses the Franklin Templeton
International Equity and International Growth Stock Portfolios for the benefit
Northwestern Mutual receives from foreign dividend taxes charged against the
Portfolios. The amounts reimbursed represent approximately 65% of the foreign
dividend taxes withheld from the Portfolios. Reimbursements are recorded when
foreign dividend taxes are accrued. Voluntary reimbursements amounted to
$1,045,186 and $1,296,498 for the Franklin Templeton International Equity
Portfolio and $41,412 and $0 for the International Growth Stock Portfolio for
the years ended December 31, 2002 and December 31, 2001, respectively.
113
<PAGE>
Notes to Financial Statements
Note 12
Distributions to Shareholders
When applicable, each of the Portfolios made distributions during the year of
ordinary income and long-term capital gains. The tax character of distributions
paid for the years ended December 31, 2002 and 2001was as follows:
<TABLE>
<CAPTION>
2002 Distributions Paid From: 2001 Distributions Paid From:
- ----------------------------- -----------------------------
Ordinary Long-term Ordinary Long-term
Portfolio Income Capital Gain Income Capital Gain
--------- -------- ------------ -------- ------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Small Cap Growth Stock.................. $ 432 $ -- $ 24 $ --
T. Rowe Price Small Cap Value........... 337 13 51 --
Aggressive Growth Stock................. 1,101 24,420 1,517 310,659
International Growth Stock.............. 186 -- -- --
Franklin Templeton International Equity. 13,714 -- 26,699 54,212
Index 400 Stock......................... 1,830 -- 969 1,207
Growth Stock............................ 7,118 -- 5,419 25,531
J.P. Morgan Select Growth & Income Stock 4,121 -- 7,206 12,432
Capital Guardian Domestic Equity........ 882 -- 168 --
Index 500 Stock......................... 21,302 35,471 24,105 59,088
Asset Allocation........................ 1,415 -- 284 --
Balanced................................ 106,128 -- 127,987 112,544
High Yield Bond......................... 14,697 -- 15,601 --
Select Bond............................. 24,835 -- 19,294 --
Money Market............................ 7,657 -- 15,878 --
</TABLE>
As of December 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<TABLE>
<CAPTION>
Undistributed Undistributed Unrealized
Ordinary Long-term Accumulated Appreciation
Portfolio Income Gains Losses (Depreciation)*
--------- ------------- ------------- ----------- ---------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Small Cap Growth Stock.................. $ -- $ -- $ (41,724) $ (20,305)
T. Rowe Price Small Cap Value........... -- -- (238) (4,365)
Aggressive Growth Stock................. -- -- (202,449) (54,532)
International Growth Stock.............. 2 -- (4,425) (2,539)
Franklin Templeton International Equity. 11,039 -- (73,668) (120,368)
Index 400 Stock......................... 1,934 -- (2,295) (35,162)
Growth Stock............................ 4,774 -- (117,612) 1,336
J.P. Morgan Select Growth & Income Stock 3,770 -- (77,801) (132,978)
Capital Guardian Domestic Equity........ 14 -- (3,596) (11,303)
Index 500 Stock......................... 21,914 8,036 -- 22,106
Asset Allocation........................ 4 -- (4,685) (4,135)
Balanced................................ 85,974 -- (50,014) 345,940
High Yield Bond......................... 364 -- (84,052) (10,373)
Select Bond............................. 38,274 -- (251) 7,895
Money Market............................ -- -- -- --
</TABLE>
*Differs from disclosures on Schedules of Investments due primarily to timing
of recognition of certain gains and losses for tax purposes.
Note 13 -- Effective January 31st, 2003 the J.P. Morgan Select Growth and
Income Stock Portfolio will experience name and manager changes. The Large Cap
Core Stock Fund, formerly known as the J.P. Morgan Select Growth and Income
Stock Portfolio, will be managed by Mason Street Advisors, LLC. The management
fee will be decreased effective with the change in investment advisers.
Effective January 31, 2003, the management fee will be calculated at an annual
rate of 0.60% on the first $50 million in net assets, 0.50% on the next $50
million in net assets and 0.40% on net assets greater than $100 million. The
annual fee will be based on the average daily net assets and payable on a
monthly basis.
114
<PAGE>
Accountants' Report
[LOGO] PRICEWATERHOUSECOOPERS
Report of Independent Accountants
To The Northwestern Mutual Life Insurance Company and
Contract Owners of Northwestern Mutual Variable Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in equity and the financial
highlights present fairly, in all material respects, the financial position of
Northwestern Mutual Variable Life Account and its Small Cap Growth Stock
Division, T. Rowe Price Small Cap Value Division, Aggressive Growth Stock
Division, International Growth Stock Division, Franklin Templeton International
Equity Division, Index 400 Stock Division, Growth Stock Division, J.P. Morgan
Select Growth and Income Stock Division, Capital Guardian Domestic Equity
Division, Index 500 Stock Division, Asset Allocation Division, Balanced
Division, High Yield Bond Division, Select Bond Division, Money Market
Division, Russell Multi-Style Equity Division, Russell Aggressive Equity
Division, Russell Non-U.S. Division, Russell Core Bond Division, and Russell
Real Estate Securities Division at December 31, 2002, and the results of each
of their operations, the changes in each of their equity and their financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of The Northwestern Mutual Life Insurance Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included direct confirmation of securities owned at December
31, 2002 with Northwestern Mutual Series Fund, Inc. and the Russell Insurance
Funds, provide a reasonable basis for our opinion.
/s/ Pricewaterhouse Coopers LLP
Milwaukee, Wisconsin
January 30, 2003
115
<PAGE>
Financial Statements
Northwestern Mutual Variable Life Account
Statement of Assets and Liabilities
December 31, 2002
(in thousands)
<TABLE>
<S> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series Fund, Inc.
Small Cap Growth Stock
60,988 shares (cost $109,977)...................................... $ 88,737
T. Rowe Price Small Cap Value
24,810 shares (cost $25,180)....................................... 23,644
Aggressive Growth Stock
112,441 shares (cost $370,716)..................................... 245,459
International Growth Stock
5,596 shares (cost $4,584)......................................... 4,421
Franklin Templeton International Equity
159,554 shares (cost $236,427)..................................... 163,382
Index 400 Stock
75,571 shares (cost $83,113)....................................... 71,944
Growth Stock
117,667 shares (cost $247,216)..................................... 186,856
J.P. Morgan Select Growth and Income Stock
126,706 shares (cost $170,047)..................................... 109,981
Capital Guardian Domestic Equity
24,831 shares (cost $21,334)....................................... 18,822
Index 500 Stock
181,007 shares (cost $514,808)..................................... 392,243
Asset Allocation
9,203 shares (cost $8,491)......................................... 7,897
Balanced
129,031 shares (cost $227,716)..................................... 209,288
High Yield Bond
58,130 shares (cost $43,624)....................................... 32,727
Select Bond
59,452 shares (cost $70,746)....................................... 75,563
Money Market
119,895 shares (cost $119,895)..................................... 119,895
Russell Insurance Funds
Multi-Style Equity
6,865 shares (cost $88,572)........................................ 62,056
Aggressive Equity
3,252 shares (cost $37,473)........................................ 30,116
Non-U.S.
4,937 shares (cost $47,060)........................................ 35,546
Core Bond
3,333 shares (cost $33,989)........................................ 34,729
Real Estate Securities
2,750 shares (cost $29,435)........................................ 28,905 $1,942,211
--------
Due from Northwestern Mutual Life Insurance Company.................... 486
----------
Total Assets..................................................... $1,942,697
==========
Liabilities
Due to Northwestern Mutual Life Insurance Company..................... $ 132
----------
Total Liabilities................................................ 132
----------
Equity (Note 8)
Variable Life Policies Issued Before October 11, 1995............... 382,814
Variable Complife Policies Issued On or After October 11, 1995...... 1,401,357
Variable Executive Life Policies Issued On or After March 2, 1998... 87,373
Variable Joint Life Policies Issued On or After December 10, 1998... 71,021
----------
Total Equity..................................................... 1,942,565
----------
Total Liabilities and Equity..................................... $1,942,697
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
116
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
T. Rowe Price
Small Cap Growth Small Cap Value
Combined Stock Division Division#
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
2002 2001 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Dividend Income.............. $ 31,707 $ 127,172 $ 131 $ 5 $ 124 $ 15
Mortality and
Expense Risks.............. (10,183) (7,362) (487) (276) (86) (6)
Taxes........................ (814) (2,636) (18) (93) (6) (1)
--------- --------- -------- ----- ------- ----
Net Investment
Income (Loss).............. 20,710 117,174 (374) (364) 32 8
--------- --------- -------- ----- ------- ----
Realized and Unrealized
Gain (Loss) on Investments
Realized Gain
(Loss) on
Investments................ (11,929) 199 (736) (296) 172 --
Unrealized
Appreciation (Depreciation)
of Investments
During the Period.......... (369,861) (300,285) (17,491) 21 (2,018) 483
--------- --------- -------- ----- ------- ----
Net Gain (Loss) on
Investments................ (381,790) (300,086) (18,227) (275) (1,846) 483
--------- --------- -------- ----- ------- ----
Increase
(Decrease) in
Equity Derived
from Investment
Activity................... $(361,080) $(182,912) $(18,601) $(639) $(1,814) $491
========= ========= ======== ===== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Aggressive Growth International Growth
Stock Division Stock Division#
------------------------ ------------------------
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Dividend Income.............. $ 238 $ 55,735 $ 23 $ --
Mortality and
Expense Risks.............. (1,457) (1,156) (15) (1)
Taxes........................ (101) (419) (1) --
-------- --------- ----- ----
Net Investment
Income (Loss).............. (1,320) 54,160 7 (1)
-------- --------- ----- ----
Realized and Unrealized
Gain (Loss) on Investments
Realized Gain
(Loss) on
Investments................ (2,733) 470 (297) --
Unrealized
Appreciation (Depreciation)
of Investments
During the Period.......... (59,041) (113,399) (173) 10
-------- --------- ----- ----
Net Gain (Loss) on
Investments................ (61,774) (112,929) (470) 10
-------- --------- ----- ----
Increase
(Decrease) in
Equity Derived
from Investment
Activity................... $(63,094) $ (58,769) $(463) $ 9
======== ========= ===== ====
</TABLE>
#The initial investment in this Division was made on July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements
117
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Franklin Templeton
International Index 400
Equity Division Stock Division Growth Stock Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Dividend Income . . . . .......... $ 3,431 $ 16,480 $ 502 $ 439 $ 2,122 $ 7,586
Mortality and Expense Risks....... (954) (719) (354) (163) (1,057) (773)
Taxes............................. (70) (260) (13) (53) (52) (271)
-------- -------- -------- ----- -------- --------
Net Investment Income (Loss)...... 2,407 15,501 135 223 1,013 6,542
-------- -------- -------- ----- -------- --------
Realized and Unrealized Gain
(Loss) on Investments
Realized Gain (Loss)
on Investments................... (2,938) (282) (236) (7) (1,528) 352
Unrealized Appreciation
(Depreciation) of
Investments During the Period.... (33,186) (40,155) (11,036) 718 (45,647) (34,280)
-------- -------- -------- ----- -------- --------
Net Gain (Loss) on Investments.... (36,124) (40,437) (11,272) 711 (47,175) (33,928)
-------- -------- -------- ----- -------- --------
Increase (Decrease) in Equity
Derived from Investment Activity. $(33,717) $(24,936) $(11,137) $ 934 $(46,162) $(27,386)
======== ======== ======== ===== ======== ========
</TABLE>
<TABLE>
<CAPTION>
J.P. Morgan Select Capital Guardian
Growth and Income Domestic Equity
Stock Division Division#
------------------------ ------------------------
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Dividend Income . . . . .......... $ 1,053 $ 4,135 $ 222 $ 23
Mortality and Expense Risks....... (655) (530) (59) (5)
Taxes............................. (39) (188) (4) (1)
-------- -------- ------- ----
Net Investment Income (Loss)...... 359 3,417 159 17
-------- -------- ------- ----
Realized and Unrealized Gain
(Loss) on Investments
Realized Gain (Loss)
on Investments................... (2,575) (204) (94) (2)
Unrealized Appreciation
(Depreciation) of
Investments During the Period.... (38,293) (13,126) (2,814) 302
-------- -------- ------- ----
Net Gain (Loss) on Investments.... (40,868) (13,330) (2,908) 300
-------- -------- ------- ----
Increase (Decrease) in Equity
Derived from Investment Activity. $(40,509) $ (9,913) $(2,749) $317
======== ======== ======= ====
</TABLE>
#The initial investment in this Division was made on July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements
118
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Index 500
Stock Division Asset Allocation Division# Balanced Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Period Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Dividend Income.............. $ 5,269 $ 16,748 $ 129 $15 $ 7,713 $ 15,012
Mortality and
Expense Risks.............. (2,191) (1,726) (28) (2) (1,069) (915)
Taxes........................ (181) (633) (3) -- (252) (376)
--------- -------- ----- --- -------- --------
Net Investment
Income (Loss).............. 2,897 14,389 98 13 6,392 13,721
--------- -------- ----- --- -------- --------
Realized and
Unrealized
Gain (Loss) on
Investments
Realized Gain
(Loss) on
Investments................ 5,110 2,729 (22) 5 (625) 559
Unrealized
Appreciation (Depreciation)
of Investments
During the Period.......... (112,454) (67,629) (654) 60 (23,644) (21,699)
--------- -------- ----- --- -------- --------
Net Gain (Loss) on
Investments................ (107,344) (64,900) (676) 65 (24,269) (21,140)
--------- -------- ----- --- -------- --------
Increase
(Decrease) in
Equity Derived
from Investment
Activity................... $(104,447) $(50,511) $(578) $78 $(17,877) $ (7,419)
========= ======== ===== === ======== ========
</TABLE>
<TABLE>
<CAPTION>
High Yield Bond Division Select Bond Division Money Market Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Dividend Income.............. $ 3,479 $ 2,905 $2,499 $ 1,762 $1,835 $3,627
Mortality and
Expense Risks.............. (161) (108) (258) (123) (592) (419)
Taxes........................ (8) (38) (24) (44) (17) (112)
------- ------- ------ ------- ------ ------
Net Investment
Income (Loss).............. 3,310 2,759 2,217 1,595 1,226 3,096
------- ------- ------ ------- ------ ------
Realized and
Unrealized
Gain (Loss) on
Investments
Realized Gain
(Loss) on
Investments................ (1,107) (1,060) 704 (45) -- --
Unrealized
Appreciation (Depreciation)
of Investments
During the Period.......... (3,189) (861) 3,467 1,419 -- --
------- ------- ------ ------- ------ ------
Net Gain (Loss) on
Investments................ (4,296) (1,921) 4,171 1,374 -- --
------- ------- ------ ------- ------ ------
Increase
(Decrease) in
Equity Derived
from Investment
Activity................... $ (986) $ 838 $6,388 $ 2,969 $1,226 $3,096
======= ======= ====== ======= ====== ======
</TABLE>
#The initial investment in this Division was made on July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements
119
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Russell Multi- Russell Aggressive Russell Non-
Style Equity Division Equity Division U.S. Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Dividend Income . . . . .......... $ 356 $ 1,011 $ -- $ 26 $ 629 $ 195
Mortality and Expense Risks....... (285) (180) (146) (85) (159) (103)
Taxes............................. (6) (60) (5) (28) (5) (35)
-------- ------- ------- ----- ------- -------
Net Investment Income (Loss)...... 65 771 (151) (87) 465 57
-------- ------- ------- ----- ------- -------
Realized and Unrealized Gain
(Loss) on Investments
Realized Gain (Loss)
on Investments................... (1,625) (545) (937) (173) (3,644) (1,972)
Unrealized Appreciation
(Depreciation) of
Investments During the Period.... (14,783) (7,053) (5,584) 217 (2,812) (5,137)
-------- ------- ------- ----- ------- -------
Net Gain (Loss) on Investments.... (16,408) (7,598) (6,521) 44 (6,456) (7,109)
-------- ------- ------- ----- ------- -------
Increase (Decrease) in Equity
Derived from Investment Activity. $(16,343) $(6,827) $(6,672) $ (43) $(5,991) $(7,052)
======== ======= ======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Russell Core Russell Real Estate
Bond Division Securities Division
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Dividend Income . . . . .......... $ 661 $820 $ 1,291 $ 633
Mortality and Expense Risks....... (52) (25) (118) (47)
Taxes............................. (3) (8) (6) (16)
------ ---- ------- -----
Net Investment Income (Loss)...... 606 787 1,167 570
------ ---- ------- -----
Realized and Unrealized Gain
(Loss) on Investments
Realized Gain (Loss)
on Investments................... 976 184 206 486
Unrealized Appreciation
(Depreciation) of
Investments During the Period.... 573 (46) (1,082) (130)
------ ---- ------- -----
Net Gain (Loss) on Investments.... 1,549 138 (876) 356
------ ---- ------- -----
Increase (Decrease) in Equity
Derived from Investment Activity. $2,155 $925 $ 291 $ 926
====== ==== ======= =====
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
120
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Changes in Equity
(in thousands)
<TABLE>
<CAPTION>
T. Rowe Price
Small Cap Growth Small Cap Value
Combined Stock Division Division#
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
2002 2001 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 20,710 $ 117,174 $ (374) $ (364) $ 32 $ 8
Net Realized Gain (Loss).............. (11,929) 199 (736) (296) 172 --
Net Change in Unrealized Appreciation
(Depreciation)....................... (369,861) (300,285) (17,491) 21 (2,018) 483
---------- ---------- -------- ------- ------- ------
Increase (Decrease) in Equity........... (361,080) (182,912) (18,601) (639) (1,814) 491
---------- ---------- -------- ------- ------- ------
Equity Transactions
Policyowners' Net Payments............ 671,423 697,763 28,498 23,485 4,209 434
Policy Loans, Surrenders, and Death
Benefits............................. (153,434) (112,180) (7,487) (4,593) (708) (67)
Mortality and Other (net)............. (109,889) (107,907) (5,498) (4,385) (738) (58)
Transfers from Other Divisions........ 396,497 402,319 20,009 26,320 20,173 5,543
Transfers to Other Divisions.......... (396,497) (402,319) (10,825) (7,922) (3,781) (41)
---------- ---------- -------- ------- ------- ------
Increase in Equity
Derived from Equity Transactions...... 408,100 477,676 24,697 32,905 19,155 5,811
---------- ---------- -------- ------- ------- ------
Net Increase (Decrease) in Equity....... 47,020 294,764 6,096 32,266 17,341 6,302
Equity
Beginning of Period................... 1,895,545 1,600,781 82,643 50,377 6,302 --
---------- ---------- -------- ------- ------- ------
End of Period......................... $1,942,565 $1,895,545 $ 88,739 $82,643 $23,643 $6,302
========== ========== ======== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Aggressive Growth International Growth
Stock Division Stock Division#
------------------------ ------------------------
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ (1,320) $ 54,160 $ 7 $ (1)
Net Realized Gain (Loss).............. (2,733) 470 (297) --
Net Change in Unrealized Appreciation
(Depreciation)....................... (59,041) (113,399) (173) 10
-------- --------- ------- ------
Increase (Decrease) in Equity........... (63,094) (58,769) (463) 9
-------- --------- ------- ------
Equity Transactions
Policyowners' Net Payments............ 67,922 66,834 808 98
Policy Loans, Surrenders, and Death
Benefits............................. (20,224) (18,126) (158) --
Mortality and Other (net)............. (13,292) (13,223) (147) (11)
Transfers from Other Divisions........ 30,778 43,394 6,020 1,041
Transfers to Other Divisions.......... (31,416) (23,039) (2,767) (1)
-------- --------- ------- ------
Increase in Equity
Derived from Equity Transactions...... 33,768 55,840 3,756 1,127
-------- --------- ------- ------
Net Increase (Decrease) in Equity....... (29,326) (2,929) 3,293 1,136
Equity
Beginning of Period................... 274,896 277,825 1,136 --
-------- --------- ------- ------
End of Period......................... $245,570 $ 274,896 $ 4,429 $1,136
======== ========= ======= ======
</TABLE>
#The initial investment in this Division was made on July 31, 2001.
The Accompanying Notes are in Integral Part of the Financial Statements
121
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Changes in Equity
(in thousands)
<TABLE>
<CAPTION>
Franklin Templeton
International Index 400
Equity Division Stock Division Growth Stock Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 2,407 $ 15,501 $ 135 $ 223 $ 1,013 $ 6,542
Net Realized Gain (Loss).............. (2,938) (282) (236) (7) (1,528) 352
Net Change in Unrealized Appreciation
(Depreciation)....................... (33,186) (40,155) (11,036) 718 (45,647) (34,280)
-------- -------- -------- ------- -------- --------
Increase (Decrease) in Equity........... (33,717) (24,936) (11,137) 934 (46,162) (27,386)
-------- -------- -------- ------- -------- --------
Equity Transactions
Policyowners' Net Payments............ 43,862 41,543 20,450 12,735 56,456 52,360
Policy Loans, Surrenders, and Death
Benefits............................. (13,590) (10,571) (4,145) (2,168) (15,648) (11,723)
Mortality and Other (net)............. (8,065) (7,910) (3,916) (2,455) (10,956) (10,223)
Transfers from Other Divisions........ 22,387 26,521 22,086 25,046 24,065 37,491
Transfers to Other Divisions.......... (18,085) (11,896) (6,096) (3,729) (16,982) (16,082)
-------- -------- -------- ------- -------- --------
Increase in Equity
Derived from Equity Transactions...... 26,509 37,687 28,379 29,429 36,935 51,823
-------- -------- -------- ------- -------- --------
Net Increase (Decrease) in Equity....... (7,208) 12,751 17,242 30,363 (9,227) 24,437
Equity
Beginning of Period................... 170,668 157,917 54,677 24,314 196,115 171,678
-------- -------- -------- ------- -------- --------
End of Period......................... $163,460 $170,668 $ 71,919 $54,677 $186,888 $196,115
======== ======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
J.P. Morgan Select Capital Guardian
Growth and Income Domestic Equity
Stock Division Stock Division#
------------------------ ------------------------
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 359 $ 3,417 $ 159 $ 17
Net Realized Gain (Loss).............. (2,575) (204) (94) (2)
Net Change in Unrealized Appreciation
(Depreciation)....................... (38,293) (13,126) (2,814) 302
-------- -------- ------- ------
Increase (Decrease) in Equity........... (40,509) (9,913) (2,749) 317
-------- -------- ------- ------
Equity Transactions
Policyowners' Net Payments............ 34,103 32,889 3,500 420
Policy Loans, Surrenders, and Death
Benefits............................. (9,579) (9,380) (338) (62)
Mortality and Other (net)............. (6,256) (6,571) (597) (47)
Transfers from Other Divisions........ 13,448 20,061 15,134 4,971
Transfers to Other Divisions.......... (12,836) (7,529) (1,690) (28)
-------- -------- ------- ------
Increase in Equity
Derived from Equity Transactions...... 18,880 29,470 16,009 5,254
-------- -------- ------- ------
Net Increase (Decrease) in Equity....... (21,629) 19,557 13,260 5,571
Equity
Beginning of Period................... 131,656 112,099 5,571 --
-------- -------- ------- ------
End of Period......................... $110,027 $131,656 $18,831 $5,571
======== ======== ======= ======
</TABLE>
#The initial investment in this Division was made on July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements
122
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Changes in Equity
(in thousands)
<TABLE>
<CAPTION>
Index 500
Stock Division Asset Allocation Division# Balanced Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Period Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 2,897 $ 14,389 $ 98 $ 13 $ 6,392 $ 13,721
Net Realized Gain (Loss).............. 5,110 2,729 (22) 5 (625) 559
Net Change in Unrealized Appreciation
(Depreciation)....................... (112,454) (67,629) (654) 60 (23,644) (21,699)
--------- -------- ------ ------ -------- --------
Increase (Decrease) in Equity........... (104,447) (50,511) (578) 78 (17,877) (7,419)
--------- -------- ------ ------ -------- --------
Equity Transactions
Policyowners' Net Payments............ 111,260 104,548 1,179 76 32,640 30,367
Policy Loans, Surrenders, and Death
Benefits............................. (33,947) (25,831) (269) (15) (14,335) (11,836)
Mortality and Other (net)............. (21,509) (20,549) (262) (30) (6,804) (6,614)
Transfers from Other Divisions........ 45,341 67,234 6,375 2,086 20,990 21,637
Transfers to Other Divisions.......... (30,043) (29,177) (739) (1) (13,327) (11,057)
--------- -------- ------ ------ -------- --------
Increase in Equity
Derived from Equity Transactions...... 71,102 96,225 6,284 2,116 19,164 22,497
--------- -------- ------ ------ -------- --------
Net Increase (Decrease) in Equity....... (33,345) 45,714 5,706 2,194 1,287 15,078
Equity
Beginning of Period................... 425,707 379,993 2,194 -- 208,026 192,948
--------- -------- ------ ------ -------- --------
End of Period......................... $ 392,362 $425,707 $7,900 $2,194 $209,313 $208,026
========= ======== ====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
High Yield Bond Division Select Bond Division Money Market Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 3,310 $ 2,759 $ 2,217 $ 1,595 $ 1,226 $ 3,096
Net Realized Gain (Loss).............. (1,107) (1,060) 704 (45) -- --
Net Change in Unrealized Appreciation
(Depreciation)....................... (3,189) (861) 3,467 1,419 -- --
------- ------- -------- -------- --------- ---------
Increase (Decrease) in Equity........... (986) 838 6,388 2,969 1,226 3,096
------- ------- -------- -------- --------- ---------
Equity Transactions
Policyowners' Net Payments............ 7,500 6,831 12,009 8,111 192,709 265,283
Policy Loans, Surrenders, and Death
Benefits............................. (2,307) (2,040) (3,313) (1,894) (15,625) (7,403)
Mortality and Other (net)............. (1,496) (1,318) (2,922) (1,589) (17,291) (24,561)
Transfers from Other Divisions........ 6,166 6,262 30,764 23,459 51,384 35,827
Transfers to Other Divisions.......... (3,757) (3,473) (10,812) (12,147) (199,919) (252,248)
------- ------- -------- -------- --------- ---------
Increase in Equity
Derived from Equity Transactions...... 6,106 6,262 25,726 15,940 11,258 16,898
------- ------- -------- -------- --------- ---------
Net Increase (Decrease) in Equity....... 5,120 7,100 32,114 18,909 12,484 19,994
Equity
Beginning of Period................... 27,597 20,497 43,382 24,473 107,420 87,426
------- ------- -------- -------- --------- ---------
End of Period......................... $32,717 $27,597 $ 75,496 $ 43,382 $ 119,904 $ 107,420
======= ======= ======== ======== ========= =========
</TABLE>
#The initial investment in this Division was made on July 31, 2001.
The Accompanying Notes are an Integral Part of the Financial Statements
123
<PAGE>
Northwestern Mutual Variable Life Account
Statements of Changes in Equity
(in thousands)
<TABLE>
<CAPTION>
Russell Multi- Russell Aggressive Russell Non-
Style Equity Division Equity Division U.S. Division
------------------------ ------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 65 $ 771 $ (151) $ (87) $ 465 $ 57
Net Realized Gain (Loss).............. (1,625) (545) (937) (173) (3,644) (1,972)
Net Change in Unrealized Appreciation
(Depreciation)....................... (14,783) (7,053) (5,584) 217 (2,812) (5,137)
-------- ------- ------- ------- -------- --------
Increase (Decrease) in Equity........... (16,343) (6,827) (6,672) (43) (5,991) (7,052)
-------- ------- ------- ------- -------- --------
Equity Transactions
Policyowners' Net Payments............ 22,082 21,720 9,224 8,802 11,645 12,021
Policy Loans, Surrenders, and Death
Benefits............................. (4,487) (2,510) (2,165) (1,295) (2,408) (1,528)
Mortality and Other (net)............. (3,993) (3,622) (1,852) (1,605) (1,943) (1,813)
Transfers from Other Divisions........ 11,287 16,182 8,160 8,226 13,956 15,996
Transfers to Other Divisions.......... (7,331) (5,154) (5,758) (4,141) (12,413) (10,603)
-------- ------- ------- ------- -------- --------
Increase in Equity
Derived from Equity Transactions...... 17,558 26,616 7,609 9,987 8,837 14,073
-------- ------- ------- ------- -------- --------
Net Increase (Decrease) in Equity....... 1,215 19,789 937 9,944 2,846 7,021
Equity
Beginning of Period................... 60,864 41,075 29,181 19,237 32,708 25,687
-------- ------- ------- ------- -------- --------
End of Period......................... $ 62,079 $60,864 $30,118 $29,181 $ 35,554 $ 32,708
======== ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Russell Core Russell Real Estate
Bond Division Securities Division
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
(continued) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income (Loss).......... $ 606 $ 787 $ 1,167 $ 570
Net Realized Gain (Loss).............. 976 184 206 486
Net Change in Unrealized Appreciation
(Depreciation)....................... 573 (46) (1,082) (130)
------- ------- ------- -------
Increase (Decrease) in Equity........... 2,155 925 291 926
------- ------- ------- -------
Equity Transactions
Policyowners' Net Payments............ 5,412 6,006 5,955 3,200
Policy Loans, Surrenders, and Death
Benefits............................. (804) (305) (1,897) (833)
Mortality and Other (net)............. (1,096) (663) (1,256) (660)
Transfers from Other Divisions........ 13,069 6,903 14,905 8,119
Transfers to Other Divisions.......... (3,048) (1,554) (4,872) (2,497)
------- ------- ------- -------
Increase in Equity
Derived from Equity Transactions...... 13,533 10,387 12,835 7,329
------- ------- ------- -------
Net Increase (Decrease) in Equity....... 15,688 11,312 13,126 8,255
Equity
Beginning of Period................... 19,035 7,723 15,767 7,512
------- ------- ------- -------
End of Period......................... $34,723 $19,035 $28,893 $15,767
======= ======= ======= =======
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
124
<PAGE>
Financial Highlights
Northwestern Mutual Variable Life Account
(For a unit outstanding during the period)
<TABLE>
<CAPTION>
Dividend
Income as a
% of Expense Ratio,
Unit Value, Average Net Lowest to Total Return (2),
Division Lowest to Highest Assets Highest Lowest to Highest
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap Growth Stock
Year Ended 12/31/02..................... $1.258323 to $ 15.591407 0.15% 0.20% to 0.75% (18.99%) to (18.42%)
Year Ended 12/31/01..................... $1.553320 to $ 19.112629 0.01% 0.20% to 0.75% (4.44%) to (3.76%)
T. Rowe Price Small Cap Value (1)
Year Ended 12/31/02..................... $0.951303 to $ 9.607906 0.72% 0.20% to 0.75% (6.24%) to (5.58%)
Period Ended 12/31/01................... $1.014592 to $ 10.175772 0.42% 0.20% to 0.75% 1.46% to 1.76%
Aggressive Growth Stock
Year Ended 12/31/02..................... $1.464237 to $ 38.441232 0.09% 0.20% to 0.75% (21.70%) to (21.15%)
Year Ended 12/31/01..................... $1.868189 to $ 48.753408 21.57% 0.20% to 0.75% (20.44%) to (19.87%)
International Growth Stock (1)
Year Ended 12/31/02..................... $0.786402 to $ 7.942434 0.78% 0.20% to 0.75% (12.95%) to (12.34%)
Period Ended 12/31/01................... $0.903343 to $ 9.060000 0.00% 0.20% to 0.75% (9.67%) to (9.40%)
Franklin Templeton International Equity
Year Ended 12/31/02..................... $1.216308 to $ 1.759773 1.99% 0.20% to 0.75% (17.98%) to (17.40%)
Year Ended 12/31/01..................... $1.481423 to $ 2.130553 10.20% 0.20% to 0.75% (14.60%) to (14.00%)
Index 400 Stock
Year Ended 12/31/02..................... $1.038438 to $ 11.227976 0.75% 0.20% to 0.75% (15.14%) to (14.54%)
Year Ended 12/31/01..................... $1.223656 to $ 13.138452 1.13% 0.20% to 0.75% (1.35%) to (0.65%)
Growth Stock
Year Ended 12/31/02..................... $1.645371 to $ 21.414901 1.10% 0.20% to 0.75% (21.38%) to (20.83%)
Year Ended 12/31/01..................... $2.090785 to $ 27.049526 4.25% 0.20% to 0.75% (14.82%) to (14.22%)
J.P. Morgan Select Growth and Income Stock
Year Ended 12/31/02..................... $1.296529 to $ 16.717038 0.90% 0.20% to 0.75% (28.70%) to (28.20%)
Year Ended 12/31/01..................... $1.816535 to $ 23.281928 3.45% 0.20% to 0.75% (8.42%) to (7.77%)
Capital Guardian Domestic Equity (1)
Year Ended 12/31/02..................... $0.762737 to $ 7.703469 1.77% 0.20% to 0.75% (21.79%) to (21.24%)
Period Ended 12/31/01................... $0.975250 to $ 9.781208 0.73% 0.20% to 0.75% (2.48%) to (2.19%)
Index 500 Stock
Year Ended 12/31/02..................... $1.630187 to $ 35.246385 1.30% 0.20% to 0.75% (22.61%) to (22.07%)
Year Ended 12/31/01..................... $2.104460 to $ 45.228886 4.26% 0.20% to 0.75% (12.50%) to (11.88%)
Asset Allocation (1)
Year Ended 12/31/02..................... $0.869901 to $ 8.785751 2.35% 0.20% to 0.75% (10.88%) to (10.26%)
Period Ended 12/31/01................... $0.976111 to $ 9.789803 1.19% 0.20% to 0.75% (2.39%) to (2.10%)
Balanced
Year Ended 12/31/02..................... $1.640075 to $ 84.486469 3.70% 0.20% to 0.75% (8.18%) to (7.54%)
Year Ended 12/31/01..................... $1.784400 to $ 91.372736 7.58% 0.20% to 0.75% (3.83%) to (3.15%)
High Yield Bond
Year Ended 12/31/02..................... $1.276280 to $ 15.870922 11.64% 0.20% to 0.75% (3.57%) to (2.89%)
Year Ended 12/31/01..................... $1.322201 to $ 16.343831 11.57% 0.20% to 0.75% 4.29% to 5.03%
Select Bond
Year Ended 12/31/02..................... $1.624374 to $121.279756 4.23% 0.20% to 0.75% 11.31% to 12.09%
Year Ended 12/31/01..................... $1.457873 to $108.200259 5.07% 0.20% to 0.75% 9.59% to 10.37%
Money Market
Year Ended 12/31/02..................... $1.339422 to $ 34.132616 1.63% 0.20% to 0.75% 0.95% to 1.65%
Year Ended 12/31/01..................... $1.325528 to $ 33.577318 3.73% 0.20% to 0.75% 3.19% to 3.92%
Russell Multi-Style Equity
Year Ended 12/31/02..................... $0.589495 to $ 6.221208 0.58% 0.20% to 0.75% (23.72%) to (23.19%)
Year Ended 12/31/01..................... $0.772852 to $ 8.099453 2.00% 0.20% to 0.75% (14.81%) to (14.21%)
Russell Aggressive Equity
Year Ended 12/31/02..................... $0.804447 to $ 8.707578 0.00% 0.20% to 0.75% (19.62%) to (19.06%)
Year Ended 12/31/01..................... $1.000805 to $ 10.757522 0.11% 0.20% to 0.75% (3.05%) to (2.36%)
Russell Non-U.S.
Year Ended 12/31/02..................... $0.688244 to $ 7.095865 1.79% 0.20% to 0.75% (15.74%) to (15.15%)
Year Ended 12/31/01..................... $0.816787 to $ 8.362558 0.67% 0.20% to 0.75% (22.58%) to (22.03%)
Russell Core Bond
Year Ended 12/31/02..................... $1.261197 to $ 12.748590 2.67% 0.20% to 0.75% 3.08% to 3.80%
Year Ended 12/31/01..................... $1.166871 to $ 11.713217 5.52% 0.20% to 0.75% 7.08% to 7.84%
Russell Real Estate Securities
Year Ended 12/31/02..................... $1.308500 to $ 13.208871 5.44% 0.20% to 0.75% 8.08% to 8.84%
Year Ended 12/31/01..................... $1.269394 to $ 12.725061 5.23% 0.20% to 0.75% 6.65% to 7.41%
</TABLE>
(1)Portfolio commenced operations on July 31, 2001.
(2)Total Return includes deductions for management and other expenses; excludes
deductions for sales loads and other charges. Returns are not annualized for
periods less than one year.
The Accompanying Notes are an Integral Part of the Financial Statements
125
<PAGE>
Notes to Financial Statements
Northwestern Mutual Variable Life Account
December 31, 2002
Note 1 -- Northwestern Mutual Variable Life Account ("the Account") is
registered as a unit investment trust under the Investment Company Act of 1940
and is a segregated asset account of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual") used to fund variable life insurance policies.
Note 2 -- The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Principal accounting policies are summarized below.
Note 3 -- All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. and the
Russell Insurance Funds (collectively known as "the Funds"). The shares are
valued at the Funds' offering and redemption prices per share. The Funds are
diversified open-end investment companies registered under the Investment
Company Act of 1940.
Note 4 -- Dividend income and distributions of net realized gains from the
Funds are recorded on the record date of the dividends. Transactions in the
Funds' shares are accounted for on the trade date. The basis for determining
cost on sale of Funds' shares is identified cost. Purchase and sales of the
Funds' shares for the period ended December 31, 2002 by each Division are shown
below:
<TABLE>
<CAPTION>
Division Purchases Sales
-------- ------------ -----------
<S> <C> <C>
Small Cap Growth Stock.............. $ 34,043,299 $ 9,722,770
T. Rowe Price Small Cap Value....... 20,382,966 1,188,788
Aggressive Growth Stock............. 61,832,611 24,205,263
International Growth Stock.......... 3,987,596 231,555
Franklin Templeton International
Equity............................. 45,458,635 16,619,794
Index 400 Stock..................... 34,210,532 5,672,107
Growth Stock........................ 57,290,950 19,375,293
J.P. Morgan Select Growth and Income
Stock.............................. 30,997,265 11,804,760
Capital Guardian Domestic Equity.... 16,848,196 688,642
Index 500 Stock..................... 124,130,408 41,476,724
Asset Allocation.................... 6,735,736 356,878
Balanced............................ 42,828,391 17,297,112
High Yield Bond..................... 12,274,052 2,848,592
Select Bond......................... 33,076,658 4,710,128
Money Market........................ 78,016,176 65,432,842
Russell Multi-Style Equity.......... 24,085,977 6,485,367
Russell Aggressive Equity........... 10,381,195 2,925,476
Russell Non-U.S..................... 12,693,867 3,399,985
Russell Core Bond................... 16,654,392 1,600,641
Russell Real Estate Securities...... 16,814,887 2,671,527
</TABLE>
Note 5 -- A deduction for mortality and expense risks is determined daily and
paid to Northwestern Mutual. Generally, for Variable Life policies issued
before October 11, 1995, and Variable Complife policies issued on or after
October 11, 1995 the deduction is at an annual rate of .50% and .60%,
respectively, of the net assets of the Account. A deduction for the mortality
and expense risks for Variable Executive Life policies issued on or after March
2, 1998 is determined monthly at an annual rate of .75% of the amount invested
in the Account for the Policy for the first ten Policy years, and .32%
thereafter for policies with the Cash Value Amendment, or .30% thereafter for
policies without the Cash Value Amendment. A deduction for the mortality and
expense risks for Variable Joint Life policies issued on or after December 10,
1998 is determined monthly at an annual rate of .20% of the amounts invested in
the Account for the Policy. The mortality risk is that insureds may not live as
long as estimated. The expense risk is that expenses of issuing and
administering the policies may exceed the estimated costs.
Certain deductions are also made from the annual, single or other premiums
before amounts are allocated to the Account. These deductions are for (1) sales
load, (2) administrative expenses, (3) taxes and (4) a risk charge for the
guaranteed minimum death benefit.
Additional mortality costs are deducted from the policy annually for Variable
Life and Variable Complife policies, and monthly for Variable Executive Life
and Variable Joint Life policies, and are paid to Northwestern Mutual to cover
the cost of providing insurance protection. For Variable Life and Variable
Complife policies this cost is actuarially calculated based upon the insured's
age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of
insurance provided under the policy. For Variable Executive Life and Variable
Joint Life policies the cost reflects expected mortality costs based upon
actual experience.
Note 6 -- Northwestern Mutual is taxed as a "life insurance company" under the
Internal Revenue Code. The variable life insurance policies, which are funded
in the Account, are taxed as part of the operations of Northwestern Mutual.
Policies provide that a charge for taxes may be made against the assets of the
Account. Generally, for Variable Life policies issued before October 11, 1995,
Northwestern Mutual charges the Account at an annual rate of .20% of the
Account's net assets and reserves the right to increase, decrease or eliminate
the charge for taxes in the future. Generally, for Variable Complife policies
issued on or after October 11,
126
<PAGE>
Notes to Financial Statements
1995, and for Variable Executive Life policies issued on or after March 2,
1998, and Variable Joint Life policies issued on or after December 10, 1998,
there is no charge being made against the assets of the Account for federal
income taxes, but Northwestern Mutual reserves the right to charge for taxes in
the future.
Note 7 -- The Account is credited for the policyowners' net annual premiums at
the respective policy anniversary dates regardless of when policyowners
actually pay their premiums. Northwestern Mutual's equity represents any unpaid
portion of net annual premiums. This applies to Variable Life and Variable
Complife policies only.
127
<PAGE>
Notes to Financial Statements
Note 8 -- Equity Values by Division are shown below: (in thousands, except
accumulation unit values)
<TABLE>
<CAPTION>
Variable Life
Policies Issued
Before
October 11, 1995
Equity of:
--------------------- Total
Division Policyowners NML Equity
-------- ------------ -------- ----------
<S> <C> <C> <C>
Small Cap Growth Stock.................... $ 7,183 $ 417 $ 7,600
T. Rowe Price Small Cap Value............. 2,961 155 3,116
Aggressive Growth Stock................... 42,159 2,841 45,000
International Growth Stock................ 369 21 390
Franklin Templeton International Equity... 29,911 2,076 31,987
Index 400 Stock........................... 5,758 295 6,053
Growth Stock.............................. 22,121 1,341 23,462
J.P. Morgan Select Growth and Income Stock 15,746 1,144 16,890
Capital Guardian Domestic Equity.......... 3,018 205 3,223
Index 500 Stock........................... 77,690 3,927 81,617
Asset Allocation.......................... 1,840 79 1,919
Balanced.................................. 119,027 3,538 122,565
High Yield Bond........................... 4,174 246 4,420
Select Bond............................... 13,685 424 14,109
Money Market.............................. 8,135 276 8,411
Russell Multi-Style Equity................ 2,832 147 2,979
Russell Aggressive Equity................. 2,039 103 2,142
Russell Non-U.S........................... 2,323 119 2,442
Russell Core Bond......................... 1,612 70 1,682
Russell Real Estate Securities............ 2,699 108 2,807
---------- -------- ----------
$ 365,282 $ 17,532 $ 382,814
========== ======== ==========
Variable Life
Policies Issued
On or After
October 11, 1995
Equity of:
--------------------- Total
Division Policyowners NML Equity
-------- ------------ -------- ----------
Small Cap Growth Stock.................... $ 58,132 $ 17,776 $ 75,908
T. Rowe Price Small Cap Value............. 13,996 4,291 18,287
Aggressive Growth Stock................... 157,812 35,683 193,495
International Growth Stock................ 2,494 953 3,447
Franklin Templeton International Equity... 101,886 23,399 125,285
Index 400 Stock........................... 45,611 13,944 59,555
Growth Stock.............................. 121,581 30,399 151,980
J.P. Morgan Select Growth and Income Stock 71,371 16,592 87,963
Capital Guardian Domestic Equity.......... 10,028 3,190 13,218
Index 500 Stock........................... 231,059 55,981 287,040
Asset Allocation.......................... 4,222 1,213 5,435
Balanced.................................. 64,964 14,555 79,519
High Yield Bond........................... 21,376 4,401 25,777
Select Bond............................... 38,936 8,427 47,363
Money Market.............................. 70,720 27,663 98,383
Russell Multi-Style Equity................ 35,241 11,391 46,632
Russell Aggressive Equity................. 17,882 5,455 23,337
Russell Non-U.S........................... 19,535 5,956 25,491
Russell Core Bond......................... 7,945 2,238 10,183
Russell Real Estate Securities............ 17,845 5,214 23,059
---------- -------- ----------
$1,112,636 $288,721 $1,401,357
========== ======== ==========
</TABLE>
128
<PAGE>
Notes to Financial Statements
<TABLE>
<CAPTION>
Variable Variable
Executive Life Joint Life
Policies Issued Policies Issued
On or After On or After
March 2, 1998 December 10, 1998
--------------- -----------------
Division Total Equity Total Equity
-------- --------------- -----------------
<S> <C> <C>
Small Cap Growth Stock............................................ $ 1,187 $ 4,044
T. Rowe Price Small Cap Value..................................... 617 1,624
Aggressive Growth Stock........................................... 3,172 3,903
International Growth Stock........................................ 125 467
Franklin Templeton International Equity........................... 2,647 3,540
Index 400 Stock................................................... 2,329 3,982
Growth Stock...................................................... 5,492 5,954
J.P. Morgan Select Growth and Income Stock........................ 2,206 2,967
Capital Guardian Domestic Equity.................................. 834 1,556
Index 500 Stock................................................... 7,065 16,641
Asset Allocation.................................................. 150 396
Balanced.......................................................... 2,657 4,572
High Yield Bond................................................... 1,662 858
Select Bond....................................................... 10,247 3,778
Money Market...................................................... 6,560 6,550
Russell Multi-Style Equity........................................ 8,375 4,092
Russell Aggressive Equity......................................... 3,157 1,483
Russell Non-U.S................................................... 5,468 2,153
Russell Core Bond................................................. 22,058 800
Russell Real Estate Securities . . . . . . . . . . . . . . . . . . 1,365 1,661
------- -------
$87,373 $71,021
======= =======
</TABLE>
129
<PAGE>
Director Information (Unaudited)
Northwestern Mutual Series Fund, Inc.
The name, age and address of the directors, as well as their affiliations,
positions held with the Fund, principal occupations during the past five years
and the number of portfolios overseen in the Northwestern Mutual fund complex,
are shown below. Each director will serve until that person's successor is
elected and qualified.
Independent Directors
<TABLE>
<CAPTION>
Number of Portfolios
Length of in Fund Complex Other Directorships
Name Age and Address Position Time Served Overseen by Director Held
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William J. Blake (69) Director Since 1988 26 None
731 North Jackson St.
Milwaukee, WI 53202
Principal Occupation During Past 5 Years: Chairman, Blake Investment Corp. (real estate investments and venture capital)
--------------------------------------------------------------------------------------------------------------------------------
William A. McIntosh (63) Director Since 1997 26 MGIC Investment Corporation
525 Sheridan Road
Kenilworth, IL 60043
Principal Occupation During Past 5 Years: Retired Division Head, U.S. Fixed Income of Salomon Brothers (investment securities)
--------------------------------------------------------------------------------------------------------------------------------
Martin F. Stein (65) Director Since 1995 26 Koss Corporation
1800 East Capitol Drive
Milwaukee, WI 53211
Principal Occupation During Past 5 Years: Founder of Stein Optical (retail sales of eyewear)
--------------------------------------------------------------------------------------------------------------------------------
Other Directors
Number of Portfolios
Length of in Fund Complex Other Directorships
Name Age and Address Position Time Served Overseen by Director Held
--------------------------------------------------------------------------------------------------------------------------------
Stephen N. Graff (67) Director Since 1995 26 Regal-Beloit Corporation
805 Lone Tree Road Trustee of
Elm Grove, WI 53122 Northwestern Mutual
Principal Occupation During Past 5 Years: Retired Partner, Arthur Andersen LLP (public accountants)
--------------------------------------------------------------------------------------------------------------------------------
Edward J. Zore (56) President and Director Since 2000 26 Manpower, Inc.
720 East Wisconsin Avenue Trustee of
Milwaukee, WI 53202 Northwestern Mutual
Principal Occupation During Past 5 Years:
President and Chief Executive Officer of Northwestern Mutual since 2001; President, 2000-2001; prior thereto, Executive Vice Pre
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
130
<PAGE>
Directors and Officers
Northwestern Mutual Series Fund, Inc.
Directors
<TABLE>
<CAPTION>
<S> <C>
Edward J. Zore..President and Chief Executive Officer, Northwestern Mutual Life,
.......................................................................Milwaukee
Martin F. Stein...........................................Founder, Stein Optical
.......................................................................Milwaukee
Stephen N. Graff............................Retired Partner, Arthur Andersen LLP
.......................................................................Milwaukee
William J. Blake...............................Chairman, Blake Investment Corp.,
.......................................................................Milwaukee
William A. McIntosh..Retired Division Head -- U.S. Fixed Income, Salomon Brothers,
.........................................................................Chicago
Officers
Edward J. Zore.........................................................President
Mark G. Doll..........................................Vice President & Treasurer
Merrill C. Lundberg....................................................Secretary
Barbara E. Courtney...................................................Controller
</TABLE>
131
<PAGE>
The Northwestern Mutual
Life Insurance Company . Milwaukee, WI
www.northwesternmutual.com
90-1899 (0786) (REV 0103)
This report is submitted for the general information of owners of Northwestern
Mutual Variable life policies. This report is not authorized for distribution to
Prospective purchasers of variable life policies unless it is accompanied by an
effective prospectus. Northwestern Mutual Variable Life policies are sold
through individuals who in addition to being licensed life insurance agents of
Northwestern Mutual Life, are registered representatives of Northwestern Mutual
Investments Services, LLC, a wholly owned subsidiary of Northwestern Mutual
life, a registered broker dealer, under the Securities Exchange Act of 1934 and
a member of the National Association of Securities Dealers, Inc.
[Logo appears here]
PO Box 3095
Milwaukee, WI 53201-3095
</TEXT>
</DOCUMENT>