-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ULiN3BeDziMAxZ3KcYszkoxJhvzxXKWDLetba9qx85ivmiSQr+7V5I7rFdvYTC6J iBe/Fq/TZvv7+2TTxRxWMA== 0001193125-04-030221.txt : 20040226 0001193125-04-030221.hdr.sgml : 20040226 20040226163831 ACCESSION NUMBER: 0001193125-04-030221 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040226 EFFECTIVENESS DATE: 20040226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT CENTRAL INDEX KEY: 0000742277 IRS NUMBER: 390509570 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03989 FILM NUMBER: 04631167 BUSINESS ADDRESS: STREET 1: 720 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4146652508 MAIL ADDRESS: STREET 1: 720 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 N-30D 1 dn30d.txt NML VARIABLE LIFE ACCOUNT ANNUAL REPORT Annual Report December 31, 2003 Northwestern Mutual VariableLifeAccount DECEMBER 31, 2003 Northwestern Mutual Series Fund, Inc., Fidelity VIP Mid Cap Portfolio and Russell Investment Funds The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 www.northwesternmutual.com (414) 271-1444 [LOGO] Northwestern Mutual(R) 90-1899 (0786) (REV 0104) Letter to Policyowners December 31, 2003 The year just ended was a time of encouraging strength in the U.S. economy and capital markets. The economy expanded throughout the year, with a major surge in the third quarter, when real Gross Domestic Product grew at an annual rate of 8.2%. Based on reports for the first three quarters, it appears that real growth for the full year was just over 4%; the Commerce Department will publish the official number in late January. The S&P 500 Index (a widely used benchmark of U.S. equity performance) had a total return of 28.67%, following three years of negative returns. Other measures of equity performance were even stronger, reflecting market leadership by smaller-capitalization and speculative stocks: the NASDAQ composite was up 50% for the year, and the Russell 2000 Index (a small-stock index) had a return of 47.27%. After three dismal years, the information technology sector led the market, and the strongest stocks of all were those with little or no earnings. Other strong sectors were financials, consumer discretionary, materials and industrials, all of which are sensitive to overall economic conditions. Following three years of significantly outperforming the stock market, the bond market delivered positive returns, but more modest than the stock market. The total return of the Merrill Lynch Domestic Master Index (a broadly-based bond index) was 4.12% for the year. As in the stock market, riskier bonds performed much better than securities of the highest quality. Return of the Lehman High Yield Intermediate Market Index (an index of non-investment-grade bonds) was 27.44%. Throughout the past year both the Federal Reserve and the Bush administration have followed highly stimulative policies. We have seen a series of interest rate reductions beginning in 2001, accompanied by a significant tax cut in 2003. The many signs of strength in the economy provide ample evidence that these actions to stimulate economic growth are working as they are intended to. Consumer spending and investments in housing have remained quite strong, and reports in recent months indicate an upturn in manufacturing and business investment. The major disappointment has been a persistent lack of job growth, which has been attributed to a combination of improving productivity and the movement of jobs offshore. With the presidential election coming up this fall, continued economic growth is very important to the Bush administration. The hope is that the momentum created by growth-oriented polices will continue, and that the recovery will prove to be self-sustaining. If economic growth does continue, it is reasonable to expect positive returns from capital markets. However, the stock market is traditionally a leading indicator, moving up ahead of the economy as a whole. The high returns from all the major equity indices in 2003 reflect, in part, the anticipation of the growth we are now experiencing. It would not be reasonable to expect the 20%-plus returns of 2003 to continue indefinitely, or the boom years of the late 1990s to return. As always, we urge investors to take a long-term view, and to select a well diversified personal portfolio of funds consistent with your needs and objectives. Reports of malfeasance in the corporate world and among investment managers may have made some investors wary of participating in capital markets. In recent months regulatory authorities and financial publications have focused on "market timing" in some mutual funds, which enabled some investors to profit at the expense of other investors in the funds. Traders who market time typically take advantage of the fact that some securities are not actively trading near the time U.S. markets close, when net asset value (NAV) for the funds is established each day. In the case of foreign securities, the last trade may have taken place many hours earlier, on an exchange in Asia or Europe, and may therefore be "stale," not reflecting news that broke after a foreign exchange closed. We at Northwestern Mutual believe strongly that all participants in our investment products must be treated fairly, and that none should have an advantage over any other. Management recognized the problems with market timing in international funds early on and determined independently that a fair value pricing system (that is, a system that can establish for each security a theoretical price incorporating all information available at the time NAV is calculated) was essential to help eliminate the economic incentive for such market timers. Because no such pricing system was commercially available, Mason Street Advisors, the subsidiary of Northwestern Mutual that serves as investment advisor to Northwestern Mutual Series Fund, Inc., developed its own state-of-the-art system, which was implemented on March 4, 2002. We are proud that we acted aggressively, creatively, and well ahead of most others in our industry to help protect our policyowners from these unfair trading practices. We are steadfastly committed to responsible and highly ethical practices of investment management, and we take very seriously the trust in our organization that you have demonstrated by being a policyowner with Northwestern Mutual. [PHOTO] Mark G. Doll [PHOTO] Edward J. Zore /s/ Edward J. Zore /s/ Mark G. Doll Edward J. Zore Mark G. Doll President and Chief Senior Vice President Executive Officer Investments The Northwestern Mutual Life Insurance Company [GRAPHIC] Northwestern Mutual(R) i Contents Performance Summary for the Northwestern Mutual Variable Life Account Northwestern Mutual Series Fund Inc. - Annual Report Fidelity VIP Mid Cap Portfolio - Annual Report (This report follows the end of the Northwestern Mutual Series Fund Inc.) Russell Investment Funds - Annual Report (This report follows the end of the Fidelity VIP Mid Cap Portfolio.) Northwestern Mutual Variable Life Account Financial Statements 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 To obtain current performance information and information about Northwestern Mutual, visit us on our website. You can also visit us at our customer service section from our Web site for information on Policy values and current 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. iii Performance Summary as of December 31, 2003 VARIABLE LIFE--Policies Issued Before October 11, 1995
Franklin T. Rowe Templeton AllianceBernstein Small Cap Price Small Aggressive International International Mid Cap Index 400 Total return(l) Growth Stock Cap Value Growth Stock Growth Equity Value Stock (as of 12/31/03) Division Division Division Division Division Division Division - ---------------------------------------------------------------------------------------------------------------------------- 1 year................... 32.13% 34.21% 23.83% 38.02% 39.49% -- 34.08% 5 years.................. -- -- 16.13% -- 17.47% -- -- Annualized.............. -- -- 3.04% -- 3.27% -- -- 10 years................. -- -- 137.31% -- 84.89% -- -- Annualized.............. -- -- 9.03% -- 6.34% -- -- Since division inception in Variable Life Account 66.27%(c) 27.68%(d) 135.76%(h) 8.54%(d) 85.71%(j) 32.54%(e) 39.23%(c) Annualized.............. 11.95% 10.63% 9.28% 3.45% 6.62% -- 7.62% Since portfolio inception(a)............ 100.78%(c) -- -- -- -- -- 46.72%(c) Annualized.............. 16.09% -- -- -- -- -- 8.55% Current Yield(k)......... VARIABLE COMPLIFE--Polices Issued On or After October 11, 1995** - ---------------------------------------------------------------------------------------------------------------------------- 1 year................... 32.27% 34.35% 23.95% 38.16% 39.63% -- 34.21% 5 years.................. -- -- 16.72% -- 18.07% -- -- Annualized.............. -- -- 3.14% -- 3.38% -- -- 10 years................. -- -- 139.74% -- 86.78% -- -- Annualized.............. -- -- 9.14% -- 6.45% -- -- Since division inception in Variable Life Account 67.03%(c) 27.99%(d) 138.08%(h) 8.80%(d) 87.54%(j) 32.63%(e) 39.87%(c) Annualized.............. 12.06% 10.74% 9.39% 3.55% 6.72% -- 7.73% Since portfolio inception(a)............ 101.73%(c) -- -- -- -- -- 47.41%(c) Annualized.............. 16.21% -- -- -- -- -- 8.66% Current Yield(k).........
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 quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. (a)Returns stated are as of the inception date of the portfolio which precedes availability in the Variable Life Account. See the following footnotes for portfolio inception dates. (b)Inception date of 5/3/94. (c)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. (d)Inception date of 7/31/01. (e)Inception date of 5/1/03. (f)Inception date of this division in the Variable Life Account was 5/1/03. Actual fund inception was 12/28/98. Performance quoted prior to 5/1/03 is based on actual investment experience, adjusted for expenses of the product and premium charges. (g)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. (h)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. (j)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. (k)For the seven-day period ended December 31, 2003, the Money Market Portfolio's yield was 1.11% and was equivalent to a compound effective yield of 1.12%. 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. (l)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. ** 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. iv
Capital T. Rowe Janus Guardian Price Capital Growth Large Cap Domestic Equity Index 500 Asset High Yield Select Appreciation Stock Core Stock Equity Income Stock Allocation Balanced Bond Bond Division Division Division Division Division Division Division Division Division Division - --------------------------------------------------------------------------------------------------------------- -- 18.12% 23.19% 33.48% -- 27.54% 19.79% 17.17% 28.16% 4.76% -- (6.83%) (20.68%) -- -- (6.04%) -- 13.26% 20.71% 37.46% -- (1.40%) (4.53%) -- -- (1.24%) -- 2.52% 3.84% 6.57% -- -- -- -- -- 165.24% -- 126.90% -- 87.04% -- -- -- -- -- 10.25% -- 8.54% -- 6.46% 19.34%(e) 138.29%(b) 94.00%(b) 1.81%(d) 23.06%(e) -- 4.20%(d) -- 91.47%(b) -- -- 9.40% 7.10% 0.74% -- -- 1.72% -- 6.95% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------- -- 18.24% 23.31% 33.61% -- 27.67% 19.91% 17.29% 28.29% 4.86% -- (6.36%) (20.28%) -- -- (5.57%) -- 13.84% 21.32% 38.16% -- (1.31%) (4.43%) -- -- (1.14%) -- 2.63% 3.94% 6.68% -- -- -- -- -- 167.96% -- 129.23% -- 88.95% -- -- -- -- -- 10.36% -- 8.65% -- 6.57% 19.42%(e) 140.64%(b) 95.92%(b) 2.05%(d) 23.14%(e) -- 4.46%(d) -- 93.36%(b) -- -- 9.51% 7.21% 0.84% -- -- 1.82% -- 7.06% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
v Performance Summary, continued as of December 31, 2003 VARIABLE LIFE--Policies Issued Before October 11, 1995
Russell Russell Russell Russell Money Fidelity VIP Multi-Style Aggressive Non- Russell Real Estate Total return(l) Market Mid Cap Equity Equity U.S. Core Bond Securities (as of 12/31/03) Division Division Division Division Division Division Division - --------------------------------------------------------------------------------------------------------------- 1 year................... 0.53% -- 27.96% 44.59% 37.82% 5.41% 36.26% 5 years.................. 15.32% -- (15.71%) 17.08% 1.17% 31.00% -- Annualized.............. 2.89% -- (3.36%) 3.20% 0.23% 5.55% -- 10 years................. 43.56% -- -- -- -- -- -- Annualized.............. 3.68% -- -- -- -- -- -- Since division inception in Variable Life Account -- 40.02%(f) (24.57%)(g) 16.31%(g) (5.15%)(g) 32.94%(g) 78.29%(c) Annualized.............. -- -- (6.07%) 3.41% (1.17%) 6.53% 13.70% Since portfolio inception(a)............ -- 137.28%(f) 37.51%(g) 57.54%(g) 13.04%(g) 52.22%(g) 75.41%(c) Annualized.............. -- 18.83% 4.66% 6.71% 1.77% 6.19% 12.78% Current Yield(k)......... 1.11% VARIABLE COMPLIFE--Polices Issued On or After October 11, 1995** - --------------------------------------------------------------------------------------------------------------- 1 year................... 0.63% -- 28.09% 44.73% 37.96% 5.51% 36.39% 5 years.................. 15.91% -- (15.28%) 17.68% 1.68% 31.66% -- Annualized.............. 3.00% -- (3.26%) 3.31% 0.33% 5.66% -- 10 years................. 45.02% -- -- -- -- -- -- Annualized.............. 3.79% -- -- -- -- -- -- Since division inception in Variable Life Account -- 40.11%(f) (24.22%)(g) 16.85%(g) (4.71%)(g) 33.54%(g) 79.10%(c) Annualized.............. -- -- (5.97%) 3.52% (1.07%) 6.63% 13.81% Since portfolio inception(a)............ -- 138.49%(f) 38.49%(g) 58.66%(g) 13.84%(g) 53.31%(g) 76.24%(c) Annualized.............. -- 18.95% 4.77% 6.82% 1.87% 6.30% 12.90% Current Yield(k)......... 1.11%
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 quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. (a)Returns stated are as of the inception date of the portfolio which precedes availability in the Variable Life Account. See the following footnotes for portfolio inception dates. (b)Inception date of 5/3/94. (c)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. (d)Inception date of 7/31/01. (e)Inception date of 5/1/03. (f)Inception date of this division in the Variable Life Account was 5/1/03. Actual fund inception was 12/28/98. Performance quoted prior to 5/1/03 is based on actual investment experience, adjusted for expenses of the product and premium charges. (g)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. (h)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. (j)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. (k)For the seven-day period ended December 31, 2003, the Money Market Portfolio's yield was 1.11% and was equivalent to a compound effective yield of 1.12%. 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. (l)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. ** 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. vi Performance Summary, continued as of December 31, 2003 VARIABLE EXECUTIVE LIFE--Policies First Offered on March 2, 1998***
Franklin T. Rowe Templeton AllianceBernstein Small Cap Price Small Aggressive International International Mid Cap Index 400 Total return(l) Growth Stock Cap Value Growth Stock Growth Equity Value Stock (as of 12/31/03) Division Division Division Division Division Division Division - --------------------------------------------------------------------------------------------------------------------------------- 1 year........................ 33.06% 35.15% 24.69% 38.99% 40.46% -- 35.01% 5 years....................... -- -- 20.27% -- 21.65% -- -- Annualized................... -- -- 3.76% -- 4.00% -- -- 10 years...................... -- -- 154.53% -- 98.30% -- -- Annualized................... -- -- 9.79% -- 7.09% -- -- Since division inception in Variable Life Account........ 71.59%(c) 29.85%(d) 152.27%(h) 10.39%(d) 98.71%(j) 33.16%(e) 43.69%(c) Annualized................... 12.74% 11.40% 10.05% 4.17% 7.37% -- 8.38% Since portfolio inception(a).. 107.46%(c) -- -- -- -- -- 51.59%(c) Annualized................... 16.91% -- -- -- -- -- 9.31% Current Yield(k).............. VARIABLE JOINT LIFE--Policies First Offered on December 28, 1998**** - --------------------------------------------------------------------------------------------------------------------------------- 1 year........................ 33.06% 35.15% 24.69% 38.99% 40.46% -- 35.01% 5 years....................... -- -- 20.27% -- 21.65% -- -- Annualized................... -- -- 3.76% -- 4.00% -- -- 10 years...................... -- -- 154.53% -- 98.30% -- -- Annualized................... -- -- 9.79% -- 7.09% -- -- Since division inception in Variable Life Account........ 71.59%(c) 29.85%(d) 152.27%(h) 10.39%(d) 98.71%(j) 33.16%(e) 43.69%(c) Annualized................... 12.74% 11.40% 10.05% 4.17% 7.37% -- 8.38% Since portfolio inception(a).. 107.46%(c) -- -- -- -- -- 51.59%(c) Annualized................... 16.91% -- -- -- -- -- 9.31% Current Yield(h)..............
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 quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. (a)Returns stated are as of the inception date of the portfolio which precedes availability in the Variable Life Account. See the following footnotes for portfolio inception dates. (b)Inception date of 5/3/94. (c)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. (d)Inception date of 7/31/01. (e)Inception date of 5/1/03. (f)Inception date of this division in the Variable Life Account was 5/1/03. Actual fund inception was 12/28/98. Performance quoted prior to 5/1/03 is based on actual investment experience, adjusted for expenses of the product and premium charges. (g)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. (h)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. (j)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. (k)For the seven-day period ended December 31, 2003, the Money Market Portfolio's yield was 1.11% and was equivalent to a compound effective yield of 1.12%. 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. (l)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. ** 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. vii Performance Summary, continued as of December 31, 2003 VARIABLE EXECUTIVE LIFE--Policies First Offered on March 2, 1998***
Capital T. Rowe Janus Large Guardian Price Capital Growth Cap Core Domestic Equity Index 500 Asset Total return(l) Appreciation Stock Stock Equity Income Stock Allocation (as of 12/31/03) Division Division Division Division Division Division Division - ------------------------------------------------------------------------------------------------------------------------- 1 year.................................. -- 18.94% 24.05% 34.41% -- 28.43% 20.63% 5 years................................. -- (3.51%) (17.86%) -- -- (2.70%) -- Annualized............................. -- (0.71%) (3.86%) -- -- (0.54%) -- 10 years................................ -- -- -- -- -- 184.48% -- Annualized............................. -- -- -- -- -- 11.02% -- Since division inception in Variable Life Account........................... 19.90%(e) 154.97%(b) 107.59%(b) 3.54%(d) 23.64%(e) -- 5.98%(d) Annualized............................. -- 10.17% 7.85% 1.45% -- -- 2.43% Since portfolio inception(a)............ -- -- -- -- -- -- -- Annualized............................. -- -- -- -- -- -- -- Current Yield(k)........................ VARIABLE JOINT LIFE--Policies First Offered on December 28, 1998**** - ------------------------------------------------------------------------------------------------------------------------- 1 year.................................. -- 18.94% 24.05% 34.41% -- 28.43% 20.63% 5 years................................. -- (3.51%) (17.86%) -- -- (2.70%) -- Annualized............................. -- (0.71%) (3.86%) -- -- (0.54%) -- 10 years................................ -- -- -- -- -- 184.48% -- Annualized............................. -- -- -- -- -- 11.02% -- Since division inception in Variable Life Account........................... 19.90%(e) 154.97%(b) 107.59%(b) 3.54%(d) 23.64%(e) -- 5.98%(d) Annualized............................. -- 10.17% 7.85% 1.45% -- -- 2.43% Since portfolio inception(a)............ -- -- -- -- -- -- -- Annualized............................. -- -- -- -- -- -- -- Current Yield(k)........................
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 quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. (a)Returns stated are as of the inception date of the portfolio which precedes availability in the Variable Life Account. See the following footnotes for portfolio inception dates. (b)Inception date of 5/3/94. (c)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. (d)Inception date of 7/31/01. (e)Inception date of 5/1/03. (f)Inception date of this division in the Variable Life Account was 5/1/03. Actual fund inception was 12/28/98. Performance quoted prior to 5/1/03 is based on actual investment experience, adjusted for expenses of the product and premium charges. (g)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. (h)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. (j)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. (k)For the seven-day period ended December 31, 2003, the Money Market Portfolio's yield was 1.11% and was equivalent to a compound effective yield of 1.12%. 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. (l)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. ** 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. viii
Russell Russell Russell High Yield Select Fidelity VIP Multi-Style Aggressive Russell Russell Real Estate Balanced Bond Bond Money Market Mid Cap Equity Equity Non-U.S. Core Bond Securities Division Division Division Division Division Division Division Division Division Division - ------------------------------------------------------------------------------------------------------------------------ 17.99% 29.06% 5.49% 1.23% -- 28.86% 45.60% 38.79% 6.15% 37.21% 17.30% 25.01% 42.36% 19.42% -- (12.70%) 21.26% 4.78% 35.66% -- 3.24% 4.57% 7.32% 3.61% -- (2.68%) 3.93% 0.94% 6.29% -- 143.36% -- 100.61% 53.96% -- -- -- -- -- -- 9.30% -- 7.21% 4.41% -- -- -- -- -- -- -- 104.87%(b) -- -- 40.67%(f) (22.15%)(g) 20.04%(g) (2.11%)(g) 37.19%(g) 84.00%(c) -- 7.70% -- -- -- (5.41%) 4.14% (0.47%) 7.27% 14.50% -- -- -- -- 145.75%(f) 44.41%(g) 65.44%(g) 18.71%(g) 59.86%(g) 81.24%(c) -- -- -- -- 19.67% 5.39% 7.46% 2.48% 6.94% 13.58% 1.11% - ------------------------------------------------------------------------------------------------------------------------ 17.99% 29.06% 5.49% 1.23% -- 28.86% 45.60% 38.79% 6.15% 37.21% 17.30% 25.01% 42.36% 19.42% -- (12.70%) 21.26% 4.78% 35.66% -- 3.24% 4.57% 7.32% 3.61% -- (2.68%) 3.93% 0.94% 6.29% -- 143.36% -- 100.61% 53.96% -- -- -- -- -- -- 9.30% -- 7.21% 4.41% -- -- -- -- -- -- -- 104.87%(b) -- -- 40.67%(f) (22.15%)(g) 20.04%(g) (2.11%)(g) 37.19%(g) 84.00%(c) -- 7.70% -- -- -- (5.41%) 4.14% (0.47%) 7.27% 14.50% -- -- -- -- 145.75%(f) 44.41%(g) 65.44%(g) 18.71%(g) 59.86%(g) 81.24%(c) -- -- -- -- 19.67% 5.39% 7.46% 2.48% 6.94% 13.58% 1.11%
ix [GRAPHIC] Annual Report December 31, 2003 [LOGO] Northwestern Mutual(R) --------------------------------------------------------- Northwestern Mutual Series Fund, Inc. A Series Fund Offering Eighteen Portfolios . Small Cap Growth Stock Portfolio . T. Rowe Price Small Cap Value Portfolio . Aggressive Growth Stock Portfolio . International Growth Portfolio . Franklin Templeton International Equity Portfolio . AllianceBernstein Mid Cap Value Portfolio . Index 400 Stock Portfolio . Janus Capital Appreciation Portfolio . Growth Stock Portfolio . Large Cap Core Stock Portfolio . Capital Guardian Domestic Equity Portfolio . T. Rowe Price Equity Income Portfolio . Index 500 Stock Portfolio . Asset Allocation Portfolio . Balanced Portfolio . High Yield Bond Portfolio . Select Bond Portfolio . Money Market Portfolio Northwestern Mutual Series Fund, Inc. Table of Contents Series Fund Objectives and Schedules of Investments Small Cap Growth Stock Portfolio................... 1 T. Rowe Price Small Cap Value Portfolio............ 4 Aggressive Growth Stock Portfolio.................. 8 International Growth Portfolio..................... 11 Franklin Templeton International Equity Portfolio.. 15 AllianceBernstein Mid Cap Value Portfolio.......... 19 Index 400 Stock Portfolio.......................... 22 Janus Capital Appreciation Portfolio............... 28 Growth Stock Portfolio............................. 30 Large Cap Core Stock Portfolio..................... 33 Capital Guardian Domestic Equity Portfolio......... 36 T. Rowe Price Equity Income Portfolio.............. 39 Index 500 Stock Portfolio.......................... 42 Asset Allocation Portfolio......................... 49 Balanced Portfolio................................. 60 High Yield Bond Portfolio.......................... 72 Select Bond Portfolio.............................. 78 Money Market Portfolio............................. 84 Report of Independent Auditors......................... 87 Statements of Assets and Liabilities................... 88 Statements of Operations............................... 90 Statement of Changes in Net Assets..................... 92 Financial Highlights................................... 101 Notes to Series Fund Financial Statements.............. 110 Director and Officer Information....................... 116
Small Cap Growth Stock Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Maximum long-term appreciation of Strive for the highest possible rate of capital appreciation by $367 million capital investing in companies with potential for rapid growth.
The Small Cap Growth Stock Portfolio owns the stocks of emerging growth companies. 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. In 2003, a very good year for small cap stocks, the Small Cap Portfolio had a return of 33.06%, compared with 38.77% for the S&P 600 Index and 47.27% for the Russell 2000 Index. Because the S&P 600 and Russell 2000 indexes are unmanaged indexes, their returns do not reflect the deduction of fees that exist with managed portfolios. The underperformance relative to the indexes resulted from a combination of industry weights and stock selection. Most significantly, it reflects the Portfolio's emphasis on financially sound, profitable small cap stocks with predictable future earnings streams, at a time when lower quality issues were performing best. While the Portfolio's performance suffered from underweights in sectors that performed especially well, such as industrials, materials and health care, stock selection within those sectors was a more significant factor in performance. In the industrials sector, many of the Portfolio's largest holdings are service companies such as Strayer Education and The Corporate Executive Board, which were up, but not as much as stocks in the heavy industry category. Similarly, in the health care sector, the Portfolio's emphasis is on service providers such as Patterson Dental and Renal Care, but the real strength was in biotechnology. The Portfolio was underweighted in the very strong Information Technology sector through most of the year, but was overweighted at year end, reflecting strong performance of some holdings such as Digital Insight, Cognizant Technology, UTStarcom and Brooks Automation, and the addition of new names including SupportSoft, Plexus, Electronics for Imaging, and Intrado. [CHART] Sector Allocation 12/31/03 Industrials 17% Energy 4% Financials 3% Materials 4% Short-Term Investments 6% Consumer 21% Other Holdings 2% Health Care 15% Information Technology 28% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. 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. Investing in small company stocks involves a greater degree of risk than investing in medium or large company stocks. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Minerals Technologies, Inc. 2.1% Amphenol Corp. - Class A 2.1% Investors Financial Services Corp. 2.1% The Corporate Executive Board Co. 2.0% iShares Russell 2000 Index 1.9% Brooks Automation, Inc. 1.9% Education Management Corp. 1.8% Getty Images, Inc. 1.8% Orient-Express Hotel, Ltd. - Class A 1.7% DaVita, Inc. 1.7% [CHART] Relative Performance Small Cap Growth Stock S&P 600 Russell 2000 Portfolio Index Index ------------ -------- ------------ 4/99 $10,000 $10,000 $10,000 12/99 18,611 11,586 11,778 12/00 19,860 12,954 11,435 12/01 19,113 13,802 11,736 12/02 15,591 11,782 9,335 12/03 20,746 16,350 13,747 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year Inception* Small Cap Growth Stock Portfolio 33.06% 16.91% S&P 600 Index 38.77% 11.09% Russell 2000 Index 47.27% 7.05% *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, 2003, the 600 companies in the composite had median market capitalization of $624.8 million and total market value of $439.8 billion. The SmallCap 600 represents approximately 2.7% of the market value of Compustat's database of over 11,477 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 U.S. companies based on total market capitalization. These 3,000 companies represent approximately 98% of the investable U.S. equity market. As of the latest reconstitution, the average market capitalization of companies in the Russell 3000 was approximately $3.7 billion; the median market capitalization was approximately $622 million. Market capitalization of companies in the Index ranged from $286 billion to $117 million. The Russell 2000 Index represents approximately 8% of the total market capitalization of the Russell 3000. As of the latest reconstitution, the average market capitalization of companies in the Russell 2000 was approximately $444 million; the median market capitalization was approximately $352 million. The index had a total market capitalization range of approximately $1.2 billion to $117 million. This chart assumes an initial investment of $10,000 made on 4/30/99 (commencement of the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account, are shown beginning on page iv of the Performance Summary of the Separate Account report. Small Cap Growth Stock Portfolio 1 Small Cap Growth Stock Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (93.7%) $ Par $ (000's) -------------------------------------------------------- Consumer Discretionary (19.5%) Aaron Rents, Inc. 271,895 5,473 *Alliance Gaming Corp. 122,100 3,010 *AnnTaylor Stores Corp. 160,100 6,244 *Coach, Inc. 90,100 3,401 *Cumulus Media, Inc. -- Class A 150,100 3,302 *Digital Theater Systems, Inc. 72,500 1,790 Fred's, Inc. 112,725 3,492 *Getty Images, Inc. 129,050 6,470 *The Gymboree Corp. 157,800 2,719 *O'Reilly Automotive, Inc. 129,800 4,979 *Orient-Express Hotel, Ltd. -- Class A 388,350 6,381 Polaris Industries, Inc. 37,900 3,357 *Scholastic Corp. 63,500 2,162 *Sharper Image Corp. 88,700 2,896 *The Sports Authority, Inc. 129,700 4,980 Station Casinos, Inc. 129,050 3,953 Thor Industries, Inc. 74,300 4,177 *WMS Industries, Inc. 98,600 2,583 ------ Total 71,369 ------ Consumer Staples (1.7%) *Peet's Coffee & Tea, Inc. 163,600 2,848 *United Natural Foods, Inc. 91,300 3,279 ------ Total 6,127 ------ Energy (3.5%) *Grant Prideco, Inc. 349,800 4,554 *National-Oilwell, Inc. 154,850 3,462 *Patterson-UTI Energy, Inc. 144,300 4,751 ------ Total 12,767 ------ Financials (3.0%) Investors Financial Services Corp. 197,650 7,591 National Financial Partners Corp. 121,400 3,345 ------ Total 10,936 ------ Health Care (14.5%) *AmSurg Corp. 118,500 4,490 *Bio-Rad Laboratories, Inc. Class A 31,600 1,822 *Bradley Pharmaceuticals, Inc. 74,600 1,897 *Cerner Corp. 87,700 3,319 *DaVita, Inc. 163,500 6,377 *Patterson Dental Co. 53,500 3,433 *Pediatrix Medical Group, Inc. 88,000 4,848 *Province Healthcare Co. 241,925 3,871 *Psychiatric Solutions, Inc. 94,200 1,969 *Renal Care Group, Inc. 45,900 1,891 *ResMed Inc. 118,000 4,902 *Respironics, Inc. 96,150 4,335 Select Medical Corp. 243,600 3,966 *Ventana Medical Systems, Inc. 110,200 4,342 *Wright Medical Group, Inc. 60,100 1,829 ------ Total 53,291 ------
Shares/ Value Common Stock (93.7%) $ Par $ (000's) -------------------------------------------------------- Industrials (17.4%) C.H. Robinson Worldwide, Inc. 110,850 4,202 *The Corporate Executive Board Co. 159,500 7,445 *Corrections Corp. of America 90,650 2,613 *Education Management Corp. 213,700 6,633 *EGL, Inc. 144,100 2,530 *Knight Transportation, Inc. 240,252 6,162 *Kroll, Inc. 119,800 3,115 *Marlin Business Services Inc. 158,400 2,756 MSC Industrial Direct Co., Inc. -- Class A 179,500 4,936 *Pacer International, Inc. 247,850 5,012 *Portfolio Recovery Associates, Inc. 74,905 1,989 *Resources Connection, Inc. 177,600 4,850 *School Specialty, Inc. 52,800 1,796 Strayer Education, Inc. 42,500 4,625 *Tetra Tech, Inc. 121,475 3,020 *Universal Technical Institute, Inc. 67,700 2,031 ------- Total 63,715 ------- Information Technology (28.1%) *Amphenol Corp. -- Class A 119,850 7,663 Autodesk, Inc. 181,950 4,472 *Brooks Automation, Inc. 285,908 6,911 *CACI International, Inc. -- Class A 71,550 3,479 *Cognizant Technology Solutions Corp. 138,800 6,335 *Cree, Inc. 203,300 3,596 *Digital Insight Corp. 192,700 4,798 *Electronics for Imaging, Inc. 149,500 3,890 *EMC Corp. 115,743 1,495 *Entegris, Inc. 310,300 3,987 *EPIQ Systems, Inc. 107,250 1,837 *eSPEED, Inc. 120,200 2,814 *Euronet Worldwide, Inc. 135,700 2,443 *Fargo Electronics, Inc. 145,400 1,849 *Hyperion Solutions Corp. 45,650 1,376 *Inforte Corp. 244,900 2,030 *Intrado, Inc. 181,500 3,984 *MKS Instruments, Inc. 202,150 5,862 *Neoware Systems, Inc. 144,500 1,980 *Netgear, Inc. 121,000 1,935 *NetScreen Technologies, Inc. 58,200 1,440 *O2Micro International, Ltd. 281,550 6,338 *Plexus Corp. 94,300 1,619 *SigmaTel, Inc. 61,978 1,530 *SupportSoft, Inc. 139,800 1,838 *Tollgrade Communications, Inc. 288,250 5,053 *UTStarcom, Inc. 88,000 3,262 *Varian, Inc. 130,550 5,448 *Verint Systems, Inc. 107,500 2,425 *Westell Technologies, Inc. -- Class A 274,500 1,732 ------- Total 103,421 -------
2 Small Cap Growth Stock Portfolio Small Cap Growth Stock Portfolio
Shares/ Value Common Stock (93.7%) $ Par $ (000's) ------------------------------------------------------------- Materials (4.1%) Airgas, Inc. 211,050 4,533 Minerals Technologies, Inc. 131,200 7,774 *Silgan Holdings, Inc. 62,400 2,658 ------- Total 14,965 ------- Other Holdings (1.9%) *iShares Russell 2000 Index Fund 62,500 6,925 ------- Total 6,925 ------- Total Common Stock (Cost: $289,842) 343,516 ------- Money Market Investment (6.3%) ------------------------------------------------------------- Banks (1.0%) UBS Finance Delaware LLC, 0.95%, 1/2/04 3,600,000 3,600 ------- Total 3,600 ------- Federal Government and Agencies (1.2%) (b)Federal National Mortgage Association, 1.075%, 2/4/04 4,500,000 4,495 ------- Total 4,495 ------- Personal Credit Institutions (2.7%) (b)Preferred Receivable Funding, 1.08%, 1/28/04 5,000,000 4,996 (b)Toyota Motor Credit Corp, 1.02%, 2/6/04 5,000,000 4,995 ------- Total 9,991 -------
Shares/ Value Money Market Investment (6.3%) $ Par $ (000's) -------------------------------------------------------- Short Term Business Credit (1.4%) Transamerica Financial, 1.05%, 1/16/04 5,000,000 4,998 ------- Total 4,998 ------- Total Money Market Investment (Cost: $23,084) 23,084 ------- Total Investments (100.0%) (Cost $312,926)(a) 366,600 ------- Other Assets, Less Liabilities (0.0%) 12 ------- Total Net Assets (100.0%) 366,612 -------
* Non-Income Producing (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $314,932 and the net unrealized appreciation of investments based on that cost was $51,668 which is comprised of $59,511 aggregate gross unrealized appreciations and $7,843 aggregate gross unrealized depreciation. (b)All or a portion of the securities have been committed as collateral for open futures positions or when issued securities. Information regarding open futures contracts as of period end is summarized below.
Unrealized Appreciation/ Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) ----------------------------------------------------- Russell 2000 Index Futures 31 03/04 $(79) (Total Notional Value at 12/31/03 $8,715)
The Accompanying Notes are an Integral Part of the Financial Statements Small Cap Growth Stock Portfolio 3 T. Rowe Price Small Cap Value Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term growth of capital Invest in small companies whose common stocks are $122 million believed to be undervalued.
The T. Rowe Price Small Cap Value Portfolio generally invests in companies with market capitalization of $1 billion or less 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 has typically held stocks with average market capitalization somewhat smaller than the Russell 2000 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. In 2003, a year in which small cap stocks were the best performing category of equities, the T. Rowe Price Small Cap Value Portfolio had a return of 35.15%, compared with 38.77% for the S&P 600 Index and 47.27% for the Russell 2000 Index. Returns of the two indexes do not reflect the deduction of fees that exist with a managed portfolio. The Portfolio's return was below that of the benchmarks largely because of an underweighted position in the riskier sectors of the small cap universe. The Portfolio owns less than the benchmark in technology and health care, as well as higher beta, unprofitable companies that recovered the most significantly this year. The Portfolio's purchases and sales were greatly influenced by the market's volatile swings. We opportunistically added to companies in areas where we saw relative value and those that are leveraged to an economic recovery. The two largest purchases over the past 12 months were Kirby Corporation and FTI Consulting. Kirby conducts operations in marine transportation and diesel engine services and is one of the largest barge operators in the U.S. The company is an attractive investment since it is a direct beneficiary of an industrial recovery, and is relatively cheap on a fundamental basis. FTI is a consulting services firm specializing in advice for distressed companies, creditors, and the stakeholders of companies involved in bankruptcy or restructuring initiatives. Thanks to a recent acquisition, revenue and net income increased substantially in 2003. [CHART] Sector Allocation 12/31/03 Materials 9% Energy 7% Information Technology 10% Other Holdings 1% Health Care 5% Utilities 4% Short-Term Investments 4% Financials 22% Consumer 21% Industrials 17% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. Investing in small company stocks involves a greater degree of risk than investing in medium or large company stocks. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Ruby Tuesday, Inc. 2.0% Landstar System, Inc. 1.8% Texas Regional Bancshares, Inc. - Class A 1.6% Silicon Valley Bancshares 1.3% Matthews International Corp. - Class A 1.3% ProAssurance Corp. 1.3% East West Bancorp, Inc. 1.3% Fred's, Inc. 1.2% Brown & Brown, Inc. 1.2% Triad Guaranty, Inc. 1.2% [CHART] Relative Performance T. Rowe Price Small Cap S&P 600 Russell 2000 Value Portfolio Index Index --------------- ------- ------------ 7/01 $10,000 $10,000 $10,000 12/01 10,176 10,144 10,200 12/02 9,608 8,069 8,708 12/03 12,985 11,883 12,084 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year Inception* T. Rowe Price Small Cap Value Portfolio 35.15% 11.40% S&P 600 Index 38.77% 8.14% Russell 2000 Index 47.27% 7.34% *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 U.S. companies based on total market capitalization. These 3,000 companies represent approximately 98% of the investable U.S. equity market. As of the latest reconstitution, the average market capitalization of companies in the Russell 3000 was $3.7 billion; the median market capitalization was $622 million. Market capitalization of companies in the Index ranged from $286 billion to $117 million. The index cannot be invested in directly and does not include sales charges. The Russell 2000 Index represents approximately 8% of the total market capitalization of the Russell 3000. As of the latest reconstitution, the average market capitalization of companies in the Russell 2000 was approximately $444 million; the median market capitalization was approximately $352 million. The index had a total market capitalization range of approximately $1.2 billion to $117 million. The Standard & Poor's SmallCap 600 Index is an unmanaged index of 600 select common stocks of smaller U.S.-based companies compiled by Standard & Poor's Corporation. As of December 31, 2003, the 600 companies in the composite had median market capitalization of $624.8 million and total market value of $439.8 billion. The SmallCap 600 represents approximately 2.7% of the market value of Compustat's database of over 11,477 equities. The benchmark for this Portfolio was changed from the Russell 2000 to the S&P 600 Index in May 2003 to better align the Portfolio's benchmark with the small-cap value stocks in which it invests. This chart assumes an initial investment of $10,000 made on 7/31/01 (commencement of the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account, are shown beginning on page iv of the Performance Summary of the Separate Account report. 4 T. Rowe Price Small Cap Value Portfolio T. Rowe Price Small Cap Value Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (95.7%) $ Par $ (000's) ------------------------------------------------------------ Consumer Discretionary (18.0%) Aaron Rents, Inc. 64,100 1,290 Aaron Rents, Inc. -- Class A 3,150 58 Brunswick Corp. 5,700 181 *Cablevision Systems Corp. 15,100 353 *Cox Radio Inc. -- Class A 5,000 126 CSS Industries, Inc. 28,300 878 *Culp, Inc. 28,100 306 Dillard's, Inc. -- Class A 13,100 216 Dow Jones & Co., Inc. 5,900 294 Eastman Kodak Co. 4,100 105 Fred's, Inc. 46,950 1,455 The Gap, Inc. 5,200 121 Hancock Fabrics, Inc. 36,600 530 Hasbro, Inc. 4,800 102 Haverty Furniture Companies, Inc. 65,100 1,293 *Journal Register Co. 32,600 675 *Kmart Holding Corp. 2,900 69 *Lamar Advertising Co. -- Class A 6,800 254 Matthews International Corp. -- Class A 53,200 1,574 Meredith Corp. 3,800 185 The New York Times Co. -- Class A 4,100 196 Newell Rubbermaid, Inc. 14,500 330 Pearson PLC-Sponsored ADR 18,700 210 *RARE Hospitality International, Inc. 53,550 1,309 Reuters Group PLC-Spons ADR 11,600 294 Ruby Tuesday, Inc. 83,500 2,379 *Saga Communications, Inc. -- Class A 56,800 1,053 *Scholastic Corp. 10,700 364 *SCP Pool Corp. 34,050 1,113 *Sinclair Broadcast Group, Inc. -- Class A 16,500 246 Skyline Corp. 22,700 792 Stanley Furniture Co., Inc. 19,500 614 *Stein Mart, Inc. 92,320 761 *Tbc Corp. 51,600 1,332 *Unifi, Inc. 101,700 656 The Washington Post Co. -- Class B 279 221 ------ Total 21,935 ------ Consumer Staples (2.8%) *American Italian Pasta Co. -- Class A 14,100 591 Archer-Daniels-Midland Co. 18,100 275 Campbell Soup Co. 8,300 222 Casey's General Stores, Inc. 56,500 998 ConAgra Foods, Inc. 8,700 230 *Costco Wholesale Corp. 6,400 238 H.J. Heinz Co. 7,100 259 *Wild Oats Markets, Inc. 32,100 415 Winn-Dixie Stores, Inc. 15,900 158 ------ Total 3,386 ------
Shares/ Value Common Stock (95.7%) $ Par $ (000's) -------------------------------------------------------- Energy (7.0%) Amerada Hess Corp. 6,600 351 *Atwood Oceanics, Inc. 15,200 485 Baker Hughes, Inc. 10,100 325 BG Group PLC-Sponsored ADR 4,800 125 Carbo Ceramics, Inc. 16,500 846 Diamond Offshore Drilling, Inc. 26,300 539 *Forest Oil Corp. 38,350 1,096 *Grant Prideco, Inc. 25,200 328 *Hanover Compressor Co. 11,500 128 Kerr-McGee Corp. 5,300 246 *Lone Star Technologies, Inc. 20,500 328 *Magnum Hunter Resources, Inc. 79,300 754 Marathon Oil Corp. 7,800 258 *NRG Energy, Inc.-W/I 7,100 155 Penn Virginia Corp. 19,750 1,100 *Tetra Technologies, Inc. 43,750 1,061 *W-H Energy Services, Inc. 27,900 452 ----- Total 8,577 ----- Financials (21.9%) Allied Capital Corp. 48,800 1,361 American Capital Strategies, Ltd. 18,200 541 Apartment Investment and Management Co -- Class A 5,600 193 Bedford Property Investors, Inc. 30,000 859 Brown & Brown, Inc. 43,900 1,432 Charter One Financial, Inc. 4,800 166 Cincinnati Financial Corp. 3,600 151 Citizens Banking Corp. 4,900 160 Commerce Bancshares, Inc. 4,830 237 Community First Bankshares, Inc. 47,000 1,360 *Conseco Inc. 10,300 225 East West Bancorp, Inc. 28,700 1,540 First Financial Fund, Inc. 48,500 857 First Republic Bank 38,900 1,393 Glenborough Realty Trust, Inc. 22,900 457 The Hartford Financial Services Group, Inc. 2,500 148 Huntington Bancshares, Inc. 11,500 259 Innkeepers USA Trust 58,300 488 Janus Capital Group, Inc. 12,000 197 Kilroy Realty Corp. 36,900 1,208 LaBranche & Co., Inc. 18,000 210 Lasalle Hotel Properties 36,100 670 Loews Corp. 7,100 351 *Markel Corp. 4,000 1,014 National Commerce Financial Corp. 4,800 131 Northern Trust Corp. 5,800 269 *Ohio Casualty Corp. 12,100 210 *ProAssurance Corp. 48,600 1,561 Protective Life Corp. 5,900 200 Reckson Associates Realty Corp. 2,200 53
T. Rowe Price Small Cap Value Portfolio 5 T. Rowe Price Small Cap Value Portfolio
Shares/ Value Common Stock (95.7%) $ Par $ (000's) ----------------------------------------------------------- Financials continued SAFECO Corp. 8,700 339 (b)Scottish Annuity & Life Holdings, Ltd. 30,600 636 *Silicon Valley Bancshares 44,600 1,608 The St. Paul Companies, Inc. 7,000 278 Sun Communities, Inc. 28,000 1,084 Synovus Financial Corp. 8,300 240 TCF Financial Corp. 1,300 67 Texas Regional Bancshares, Inc. -- Class A 51,900 1,919 Travelers Property Casualty Corp. -- Class A 12,300 206 *Triad Guaranty, Inc. 28,000 1,410 UnumProvident Corp. 10,000 158 Washington Real Estate Trust 24,300 710 ------ Total 26,556 ------ Health Care (5.0%) Aetna, Inc. 1,700 115 AmerisourceBergen Corp. 4,000 225 Analogic Corp. 9,300 381 *Andrx Corp. 4,200 101 Arrow International, Inc. 16,130 403 *Biogen IDEC, Inc. 2,400 88 *Bone Care International, Inc. 43,200 550 *Diversa Corp. 64,900 600 *Exelixis, Inc. 56,800 402 *First Health Group Corp. 2,700 53 Guidant Corp. 3,000 181 *King Pharmaceuticals, Inc. 14,400 220 *Laboratory Corp. of America Holdings 3,000 111 *Lexicon Genetics, Inc. 82,800 488 *Lincare Holdings, Inc. 6,800 204 *MedImmune, Inc. 10,700 272 *Neighborcare, Inc. 4,500 89 Owens & Minor, Inc. 56,600 1,239 *Protein Design Labs, Inc. 4,500 81 *Tenet Healthcare Corp. 11,400 183 *Vertex Pharmaceuticals, Inc. 8,900 91 ------ Total 6,077 ------ Industrials (17.2%) Ameron International Corp. 16,200 562 C&D Technologies, Inc. 36,400 698 *Casella Waste Systems, Inc. -- Class A 69,000 945 CNF, Inc. 8,200 278 *Dollar Thrifty Automotive Group, Inc. 22,300 578 EDO Corp. 24,300 599 Electro Rent Corp. 61,000 814 Equifax, Inc. 5,000 123 Franklin Electric Co., Inc. 21,300 1,288 *FTI Consulting, Inc. 37,700 881 G & K Services, Inc. -- Class A 25,300 930 Herman Miller, Inc. 9,700 235 *Hewitt Associates, Inc. 3,800 114 IDEX Corp. 23,000 957 *Insituform Technologies, Inc. -- Class A 52,700 870 JLG Industries, Inc. 26,700 407 Joy Global, Inc. 2,000 52
Shares/ Value Common Stock (95.7%) $ Par $ (000's) ------------------------------------------------------ Industrials continued *Kirby Corp. 27,900 973 *Landstar System, Inc. 58,300 2,217 *Littelfuse, Inc. 33,400 963 Manpower, Inc. 3,400 160 McGrath Rentcorp 24,600 670 Nordson Corp. 33,000 1,139 Raytheon Co. 9,200 276 *Right Management Consultants, Inc. 24,100 450 Rockwell Collins, Inc. 7,300 219 Ryder System, Inc. 1,400 48 The ServiceMaster Co. 21,700 253 Thomas Industries, Inc. 33,100 1,147 UTI Worldwide, Inc. 23,440 889 Viad Corp. 7,500 188 *Waste Connections, Inc. 13,700 517 Woodward Governor Co. 9,400 534 ------ Total 20,974 ------ Information Technology (9.8%) *Agilent Technologies, Inc. 6,200 181 *ATMI, Inc. 26,100 604 AVX Corp. 16,900 281 *Bearingpoint, Inc. 19,100 193 *The BISYS Group, Inc. 17,900 266 *BMC Software, Inc. 19,300 360 *Cable Design Technologies Corp. 94,500 850 *Cadence Design Systems, Inc. 11,900 214 CDW Corp. 2,100 121 *Ceridian Corp. 9,700 203 *Exar Corp. 46,100 787 Harris Corp. 2,000 76 Landauer, Inc. 14,500 591 Methode Electronics, Inc. -- Class A 24,900 305 Molex, Inc. -- Class A 14,400 423 *MPS Group, Inc. 104,900 981 *Mykrolis Corp. 61,300 986 *Netegrity, Inc. 47,000 485 *Network Associates, Inc. 15,100 227 *Packeteer, Inc. 62,600 1,063 *Progress Software Corp. 44,400 908 *SPSS, Inc. 40,225 719 *Systems & Computer Tech. Corp. 10,600 173 *Tellabs, Inc. 19,800 167 *Websense, Inc. 28,900 845 ------ Total 12,009 ------ Materials (8.7%) Airgas, Inc. 44,800 963 Aptargroup, Inc. 28,250 1,103 Arch Chemicals, Inc. 32,900 844 Bowater, Inc. 2,400 111 Carpenter Technology Corp. 25,400 751 Deltic Timber Corp. 24,800 754 Florida Rock Industries, Inc. 16,150 887 Gibraltar Steel Corp. 34,051 856 Great Lakes Chemical Corp. 11,700 318
6 T. Rowe Price Small Cap Value Portfolio T. Rowe Price Small Cap Value Portfolio
Shares/ Value Common Stock (95.7%) $ Par $ (000's) ----------------------------------------------------------- Materials continued Harmony Gold Mining Co.-Sponsored ADR 7,500 122 IMC Global, Inc. 14,300 142 Macdermid, Inc. 17,700 606 MeadWestvaco Corp. 6,600 196 *Meridian Gold, Inc. 17,600 257 Myers Industries, Inc. 32,925 399 Noranda, Inc. 9,800 155 Nucor Corp. 4,700 263 Potash Corp. of Saskatchewan, Inc. 2,850 246 Potlatch Corp. 8,700 302 *Symyx Technologies, Inc. 24,300 499 Wausau-Mosinee Paper Corp. 64,800 876 ------- Total 10,650 ------- Telecommunication Services (0.9%) AT&T Corp. 10,100 205 *Commonwelth Telephone Enterprises, Inc. 2,500 94 *Crown Castle International Corp. 13,000 143 *Qwest Communications International, Inc. 54,600 236 *Sprint Corp. (PCS Group) 24,900 140 Telephone And Data Systems, Inc. 4,800 301 ------- Total 1,119 ------- Utilities (4.4%) Black Hills Corp. 24,200 721 Cleco Corp. 32,900 592 *CMS Energy Corp. 13,900 118 Duke Energy Corp. 15,700 321 Edison International 3,500 77 *El Paso Electric Co. 52,600 702 FirstEnergy Corp. 11,100 391 NiSource, Inc. 11,600 255 Otter Tail Corp. 18,300 489 Pinnacle West Capital Corp. 6,700 268 TECO Energy, Inc. 10,300 148 TXU Corp. 11,700 278 Unisource Energy Corp. 8,600 212 Vectren Corp. 24,600 606 Xcel Energy, Inc. 8,100 138 ------- Total 5,316 ------- Total Common Stock (Cost: $96,254) 116,599 -------
Shares/ Value Investment Grade Bonds (0.0%) $ Par $ (000's) --------------------------------------------------------- Radiotelephone Communications (0.0%) US Cellular Corp., 0.00%, 6/15/15 45,000 22 ------- Total 22 ------- Utilities (0.0%) Xcel Energy Inc., 7.50%, 11/21/07 144A 2,000 3 ------- Total 3 ------- Total Investment Grade Bonds (Cost: $26) 25 ------- Money Market Investment (4.2%) --------------------------------------------------------- Other Holdings (4.2%) Reserve Investment Fund 5,147,099 5,147 ------- Total Money Market Investment (Cost: $5,147) 5,147 ------- Total Investments (99.9%) (Cost $101,427)(a) 121,771 ------- Other Assets, Less Liabilities (0.1%) 173 ------- Total Net Assets (100.0%) 121,944 -------
* Non-Income Producing ADR -- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $101,377 and the net unrealized appreciation of investments based on that cost was $20,394 which is comprised of $21,589 aggregate gross unrealized appreciations and $1,195 aggregate gross unrealized depreciation. (b)All or a portion of the securities have been committed as collateral for open futures or when issued securities. The Accompanying Notes are an Integral Part of the Financial Statements T. Rowe Price Small Cap Value Portfolio 7 Aggressive Growth Stock Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Maximum long-term appreciation of Strive for the highest possible rate of capital appreciation by $1.2 billion capital investing in companies with potential for rapid growth.
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. In 2003, the Aggressive Growth Stock Portfolio had a return of 24.69%, compared with 35.59% for its benchmark, the S&P MidCap 400 Index. The underperformance relative to the Index resulted mainly from selection of individual names, rather than industry mix. The Portfolio's performance was hurt by its emphasis on stocks of solid, financially sound companies at a time when lower quality issues were leading the market. The Technology sector was the strongest by far in the S&P MidCap 400 Index, up 54% for the year. The Portfolio was overweighted in technology, and many holdings such as Fiserv, Intuit, Paychex, CDW and Diebold performed well, but not as well as some more aggressive stocks. The situation was similar in Health Care: the Index was up 46%, while our holdings including Patterson Dental, Health Management Associates and Biomet were strong, but less than the industry group. [CHART] Sector Allocation 12/31/03 Materials 2% Energy 6% Financials 9% Health Care 8% Short-Term Investments 2% Consumer 15% Industrials 23% Information Technology 35% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. Investing in small company stocks involves a greater degree of risk than investing in medium or large company stocks. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Net Assets Zebra Technologies Corp. - Class A 2.8% Fastenal Co. 2.6% Microchip Technology, Inc. 2.3% The Corporate Executive Board Co. 2.1% Investors Financial Services Corp. 2.1% Novellus Systems, Inc. 2.0% Praxair, Inc. 2.0% Waters Corp. 2.0% Jabil Circuit, Inc. 2.0% Graco, Inc. 2.0% [CHART] Relative Performance Aggressive Growth S&P MidCap Stock Portfolio 400 Index ----------------- ----------- 12/93 $10,000 $10,000 12/94 10,540 9,641 12/95 14,682 12,622 12/96 17,281 15,047 12/97 19,677 19,898 12/98 21,164 23,696 12/99 30,430 27,177 12/00 32,310 31,936 12/01 25,889 31,744 12/02 20,413 27,138 12/03 25,453 36,797 Average Annual Total Return For Periods Ended December 31, 2003 1 Year 5 Years 10 Years Aggressive Growth Stock Portfolio 24.69% 3.76% 9.79% S&P MidCap 400 Index 35.59% 9.20% 13.91% 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 does not include sales charges. As of December 31, 2003, the 400 companies in the composite had median market capitalization of $2.1 billion and a total market value of $968 billion. The MidCap 400 represents approximately 5.8% of the market value of Compustat's database of about 11,477 equities. This chart assumes an initial investment of $10,000 made on 12/31/93. Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account, are shown beginning on page iv of the Performance Summary of the Separate Account report. 8 Aggressive Growth Stock Portfolio Aggressive Growth Stock Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (97.6%) $ Par $ (000's) ------------------------------------------------------------ Consumer Discretionary (14.1%) *Entercom Communications Corp. -- Class A 272,900 14,453 Fairmont Hotels & Resorts, Inc. 635,720 17,253 Family Dollar Stores, Inc. 165,040 5,922 Gentex Corp. 189,030 8,348 *Getty Images, Inc. 294,870 14,782 Jones Apparel Group, Inc. 193,300 6,810 *Kohl's Corp. 98,000 4,404 *Lamar Advertising Co. -- Class A 368,125 13,738 *MGM Mirage 253,360 9,529 Michaels Stores, Inc. 275,800 12,190 *O'Reilly Automotive, Inc. 565,130 21,678 *Orbitz, Inc. 219,400 5,090 *PETCO Animal Supplies, Inc. 691,340 21,051 *Tempur-Pedic International, Inc. 236,558 3,667 *Univision Communications, Inc. -- Class A 204,427 8,114 ------- Total 167,029 ------- Consumer Staples (0.6%) Whole Foods Market, Inc. 105,400 7,076 ------- Total 7,076 ------- Energy (5.9%) *BJ Services Co. 276,400 9,923 *Cooper Cameron Corp. 197,900 9,222 ENSCO International, Inc. 469,300 12,751 *Nabors Industries, Ltd. 434,300 18,023 *Tom Brown, Inc. 349,400 11,268 *Weatherford International, Ltd. 232,025 8,353 ------- Total 69,540 ------- Financials (8.9%) CIT Group Inc. 374,500 13,463 Doral Financial Corp. 206,250 6,658 Investors Financial Services Corp. 643,580 24,720 Legg Mason, Inc. 214,580 16,561 Old Republic International Corp. 593,400 15,049 Radian Group, Inc. 122,620 5,978 SouthTrust Corp. 692,700 22,672 ------- Total 105,101 ------- Health Care (8.2%) *AdvancePCS 197,930 10,423 *Biogen Idec, Inc. 272,300 10,015 Biomet, Inc. 408,610 14,878 *Charles River Laboratories International, Inc. 276,700 9,499 Health Management Associates, Inc. -- Class A 557,810 13,387 Medicis Pharmaceutical Corp. 208,500 14,866 *MedImmune, Inc. 148,670 3,776
Shares/ Value Common Stock (97.6%) $ Par $ (000's) ----------------------------------------------------------- Health Care continued *Patterson Dental Co. 181,598 11,651 *St. Jude Medical, Inc. 149,300 9,160 ------- Total 97,655 ------- Industrials (22.8%) *Apollo Group, Inc. -- Class A 283,580 19,283 ARAMARK Corp. -- Class B 453,800 12,443 *Career Education Corp. 229,700 9,204 Cintas Corp. 259,950 13,031 *The Corporate Executive Board Co. 538,120 25,114 Deere & Co. 197,140 12,824 Expeditors International of Washington, Inc. 344,230 12,964 Fastenal Co. 599,490 29,939 Graco, Inc. 577,400 23,154 *Hewitt Associates, Inc. 348,210 10,411 *L-3 Communications Holdings, Inc. 355,250 18,246 Manpower, Inc. 261,840 12,327 *Ryanair Holdings Plc 345,140 17,478 *Stericycle, Inc. 459,780 21,472 *Swift Transportation Co., Inc. 1,075,270 22,602 *Tetra Tech, Inc. 434,197 10,794 ------- Total 271,286 ------- Information Technology (35.1%) Adobe Systems, Inc. 279,930 11,001 *Amdocs, Ltd. 672,250 15,112 CDW Corp. 372,440 21,512 *Cognos, Inc. 583,000 17,851 Diebold, Inc. 239,130 12,882 *Electronic Arts, Inc. 62,220 2,973 *Fiserv, Inc. 158,195 6,250 Infosys Technologies Ltd., ADR 61,185 5,855 *Ingram Micro, Inc. 363,600 5,781 *Integrated Circuit Systems, Inc. 742,080 21,142 Intersil Corp. -- Class A 862,070 21,422 *Intuit, Inc. 276,941 14,653 *Jabil Circuit, Inc. 824,400 23,331 *KLA-Tencor Corp. 273,580 16,051 *Mettler-Toledo International, Inc. 107,700 4,546 Microchip Technology, Inc. 799,995 26,688 *NetScreen Technologies, Inc. 331,100 8,195 *Novellus Systems, Inc. 567,820 23,877 *NVIDIA Corp. 262,300 6,098 Paychex, Inc. 508,540 18,918 *QLogic Corp. 295,670 15,257 *Semtech Corp. 601,990 13,683 *Synopsys, Inc. 254,600 8,595 *UTStarcom, Inc. 304,000 11,269 *VeriSign, Inc. 511,920 8,344 *VERITAS Software Corp. 554,670 20,612
Aggressive Growth Stock Portfolio 9 Aggressive Growth Stock Portfolio
Shares/ Value Common Stock (97.6%) $ Par $ (000's) --------------------------------------------------------- Information Technology continued *Waters Corp. 708,370 23,490 *Zebra Technologies Corp. -- Class A 497,435 33,016 --------- Total 418,404 --------- Materials (2.0%) Praxair, Inc. 617,140 23,575 --------- Total 23,575 --------- Total Common Stock (Cost: $961,562) 1,159,666 --------- Money Market Investment (2.3%) --------------------------------------------------------- Autos (1.7%) Toyota Motor Credit Corp., 1.02%, 2/12/04 20,000,000 19,976 --------- Total 19,976 --------- Banks (0.1%) UBS Finance Delaware LLC, 0.95%, 1/2/04 1,200,000 1,200 --------- Total 1,200 ---------
Shares/ Value Money Market Investment (2.3%) $ Par $ (000's) -------------------------------------------------------- Federal Government and Agencies (0.5%) Federal National Mortgage Association, 1.07%, 2/4/04 6,000,000 5,994 --------- Total 5,994 --------- Total Money Market Investment (Cost: $27,170) 27,170 --------- Total Investments (99.9%) (Cost $988,732)(a) 1,186,836 --------- Other Assets, Less Liabilities (0.1%) 706 --------- Total Net Assets (100.0%) 1,187,542 ---------
* Non-Income Producing ADR -- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $1,001,067 and the net unrealized appreciation of investments based on that cost was $185,769 which is comprised of $195,522 aggregate gross unrealized appreciations and $9,753 aggregate gross unrealized depreciation. The Accompanying Notes are an Integral Part of the Financial Statements 10 Aggressive Growth Stock Portfolio International Growth Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term capital appreciation Invest in stocks of companies outside the U.S. that are $67 million expected to experience above-average growth.
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 2003 the International Growth Portfolio produced a return of 38.99% compared with a return of 39.17% for the EAFE Index. Because the EAFE Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. In a year of strengthening economies and rising stock markets throughout most of the world, the Portfolio benefited from participation in some of the strongest markets, such as Spain, Germany and Sweden, and from exposure to cyclical industry groups. High returns in local currencies were even higher when translated into U.S. dollars, which weakened significantly during the year versus most currencies, particularly the euro. Most of the Portfolio's largest holdings performed quite well. Anglo Irish Bank, which is growing earnings rapidly and has a very high return on equity, is benefiting from a strong economy, but still sells at a relatively low multiple. Puma AG and Esprit are benefiting from their stylish positioning despite weak European consumer markets. Man Group, the world's largest provider of hedge funds, continued its remarkable success. A recovery in telecommunications drove stocks higher in that sector, where the largest holding is Mobistar, the leading Belgian mobile phone company. KDDI, a Japanese cell phone company, was also quite strong in response to continued market share gains and upward revisions in estimated earnings. The Portfolio benefited from an overweighted position relative to the Index in the Hong Kong market, which provides exposure to an expanding economy in China, and also from excellent stock selection. Major Hong Kong holdings include ASM Pacific Technology, a semiconductor equipment company; Li & Fung, a provider of business services; and Denway Motors, which benefits from increasing ownership of automobiles in China. Partially offsetting these favorable decisions, holdings in Japan, Germany and the U.K. underperformed those markets, where the greatest strength, as in the U.S., was in lower quality and cyclical names. Additionally, the Portfolio was late in moving into Japan as that market strengthened. [CHART] Sector Allocation 12/31/03 Industrials 19% Technology/Telecommunications 16% Energy 4% Utilities 1% Health Care 7% Basic Materials 4% Short-Term Investments & Other Net Assets 6% Consumer Cyclical 2% Consumer Non-Cyclical 3% Financials 16% Consumer Staples 5% Consumer Discretionary 17% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Anglo Irish Bank Corp. 1.6% Puma AG Rudolf Dassler Sport 1.2% Swedish Match AB 1.2% Mobistar SA 1.1% SGS Societe Generale de Surveilance Holding SA 1.1% Grupo Ferrovial 1.0% BNP Paribas SA 1.0% KDDI Corp. 0.9% Vinci SA 0.9% Taro Pharmaceuticals Industries, Ltd., ADR 0.9% [CHART] Relative Performance International Growth Portfolio EAFE Index ---------------- ----------- 7/01 $10,000 $10,000 12/01 9,060 9,375 12/02 7,942 7,907 12/03 11,039 11,004 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year Inception* International Growth Portfolio 38.99% 4.17% EAFE Index 39.17% 4.03% *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 reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 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. International Growth Portfolio 11 International Growth Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Foreign Common Shares/ Value Stock (94.6%) Country $ Par $ (000's) ------------------------------------------------------ Basic Materials (4.3%) Alcan, Inc. Canada 7,865 369 Arcelor SA Luxembourg 27,730 483 BASF AG Germany 6,835 386 CRH PLC Ireland 17,895 367 *Ivanhoe Mines, Ltd. Canada 31,925 254 Rio Tinto, Ltd. Australia 12,720 357 *SGL Carbon AG Germany 18,030 302 Umicore Belgium 4,882 343 ----- Total 2,861 ----- Consumer Cyclical (2.0%) Mediaset SPA Italy 37,470 445 *Modern Times Group AB -- B Shares Sweden 22,100 465 Techtronics Industries Co. Hong Kong 142,500 395 ----- Total 1,305 ----- Consumer Discretionary (16.8%) *Alliance Atlantis Comm -- B Shares Canada 9,940 152 *Autogrill SPA Italy 20,970 300 Autoliv Sweden 10,705 406 Bayer Motoren Werk AG Ord Germany 9,325 435 Belluna Co., Ltd. Japan 15,070 551 Belluna Warrants Japan 1,452 8 Berkeley Group United Kingdom 29,283 461 Beru AG Ludwigsburg Germany 6,300 408 *British Sky Broadcasting Group PLC United Kingdom 37,775 475 Carnival Corp. Panama 9,875 392 Denway Motors, Ltd. Hong Kong 514,000 543 Esprit Holdings, Ltd. Hong Kong 141,500 470 Greek Organization of Football Prognostics Greece 28,935 419 Honda Motor Co., Ltd. Japan 11,400 506 Hyundai Motor Co., Ltd. South Korea 12,860 545 Intercontinental Hotels United Kingdom 43,215 409 Li & Fung, Ltd. Hong Kong 194,000 332 MFI Furniture Group United Kingdom 117,920 319 Millenium & Copthorne Hotels PLC United Kingdom 38,120 207
Foreign Common Shares/ Value Stock (94.6%) Country $ Par $ (000's) ----------------------------------------------------- Consumer Discretionary continued News Corp, Ltd. ADR Australia 10,670 385 Porsche AG Germany 295 175 Puma AG Rudolf Dassler Sport Germany 4,440 785 Punch Taverns PLC United Kingdom 55,360 431 Rank Group PLC United Kingdom 32,870 164 Signet Group PLC United Kingdom 251,070 463 Swatch Group AG Switzerland 3,345 402 USS Co., Ltd. Japan 3,520 249 Walmart de Mexico -- Series V Mexico 131,065 374 Wolseley PLC United Kingdom 31,235 442 ------ Total 11,208 ------ Consumer Non-Cyclical (3.1%) Iaws Group PLC Ireland 11,200 137 SGS Societe Generale de Surveilance Holding Switzerland 1,145 718 Swedish Match AB Sweden 74,795 765 Tesco ORD United Kingdom 93,515 431 ------ Total 2,051 ------ Consumer Staples (5.3%) Adecco SA -- Reg Switzerland 6,990 449 *Cott Corp. ADR Canada 16,675 467 Interbrew Belgium 6,075 162 *Koninklijke Numico NV Netherlands 8,405 232 L'Oreal France 4,430 363 Luxottica Group SPA ADR Italy 21,520 374 Nestle SA Switzerland 2,010 503 Reckitt Benckiser PLC United Kingdom 24,085 546 Roche Holding Switzerland 4,415 445 ------ Total 3,541 ------ Energy (4.1%) BG Group PLC United Kingdom 60,255 309 Encana Corp. Canada 9,440 373 ENI SPA Italy 23,945 452 Saipem SPA Italy 49,175 398 Suncor Energy, Inc. Canada 17,605 443 Technip France 1,580 171 Total Fina Elf SA France 3,280 609 ------ Total 2,755 ------
12 International Growth Portfolio International Growth Portfolio
Foreign Common Shares/ $ Value Stock (94.6%) Country Par $ (000's) ----------------------------------------------------- Financials (16.1%) *Anglo Irish Bank Corp. Ireland 69,516 1,098 Banco Popolare Di Verona Italy 27,835 471 *Bank Rakyat Indonesia Indonesia 2,523,000 374 BNP Paribas SA France 10,075 635 Cattles PLC United Kingdom 64,310 385 Corporacion Mapfre Spain 39,250 556 *Danske Bank Denmark 11,345 266 Depfa Bank PLC Ireland 3,150 396 *Erste Bank Der Oester Austria 820 101 *Grupo Financiero BNVA Bancomer Mexico 403,965 345 HSBC Holdings PLC United Kingdom 28,092 443 ICICI Bank, Ltd. India 49,808 323 ING Groep NV Netherlands 18,234 425 *iShares MSCI EAFE Index Fund United States 4,000 547 *Kookmin Bank South Korea 9,930 372 Man E D & F Group PLC United Kingdom 23,360 612 Manulife Financial Corp ADR Canada 10,935 353 *Mitsubishi Tokyo Financial Japan 38 296 *Nomura TOPIX Exchange Traded Fund Japan 51,500 507 *OM Hex AB Sweden 33,710 419 *OTP Bank RT Hungary 35,900 463 Royal Bank of Canada Canada 8,305 397 Royal Bank OF Scotland Group PLC United Kingdom 16,466 485 *Swiss Life Holdings Switzerland 2,685 493 ------ Total 10,762 ------ Health Care (6.8%) *Actelion, Ltd. Switzerland 4,255 459 *Elekta AB -- B Shares Sweden 20,410 383 Getinge AB -- B Shares Sweden 40,340 387 Nobel Bicare AB Sweden 35 4 Nobel Biocare Holding AG Switzerland 3,450 349 Novartis AG Switzerland 9,750 443 *ResMed, Inc. Australia 9,040 376
Foreign Common Shares/ Value Stock (94.6%) Country $ Par $ (000's) ------------------------------------------------------ Health Care continued Stada Arzneimittel AG Germany 6,120 380 Straumann Holding -- N Shares Switzerland 1,715 263 Synthes Stratec, Inc. Switzerland 453 448 *Taro Pharmaceuticals Industries, Ltd. ADR Israel 9,495 613 Teva Pharmaceutical Industries, Ltd. ADR Israel 7,620 432 ----- Total 4,537 ----- Industrials (18.6%) Alfa Laval AB Sweden 23,985 365 AP Moller -- Maerska A/S Denmark 66 454 Atlas Copco AB -- A Shares Sweden 13,575 486 Brisa Auto Estrada de Portufal SA Portugal 58,060 388 *Chiyoda Corp. Japan 71,000 436 Cobham Group PLC United Kingdom 16,325 341 Compass Group PLC United Kingdom 60,850 414 *Daewoo Shipbuilding & Marine Engineering Co. South Korea 42,410 545 Deutsche Post AG Germany 9,640 198 *Deutz AG Germany 6,272 26 *Deutz AG Germany 1,601 6 *Easyjet Airline Co. United Kingdom 25,740 135 Exel PLC United Kingdom 31,335 414 *Fraport AG Germany 13,610 391 *Funai Electric Co., Ltd. Japan 2,800 384 *Golar LNG, Ltd. Bermuda 31,460 452 Grupo Ferrovial Spain 18,395 644 Iberia Lineas Aer Espana Spain 157,580 453 Kamigumi Co., Ltd. Japan 37,000 262 Keyence Corp. Japan 2,300 485 Kubota Corp. Japan 112,000 462 Meggitt ORD United Kingdom 88,745 375 *Neopost SA France 7,585 383 *Neptune Orient Lines Singapore 303,000 385 Omron Corp. Japan 24,400 495 Philips Electronics NV Netherlands 18,705 546 Premeir Farnell PLC United Kingdom 92,655 389 Siemens AG Germany 6,210 500 SMC Corp. Japan 3,600 448 Thai Airways Inter F Reg Aln Mkt Thailand 94,000 108
13 International Growth Portfolio International Growth Portfolio
Foreign Common Shares/ Value Stock (94.6%) Country $ Par $ (000's) ------------------------------------------------------ Industrials continued Vinci SA France 7,410 613 Volvo AB Sweden 13,355 408 ------ Total 12,391 ------ Technology (10.0%) ASM Pacific Technology Hong Kong 85,500 373 *ASML Holding NV Netherlands 16,150 320 *Business Objects SA France 14,100 492 Canon, Inc. Japan 8,000 372 *Chi Mei Optoelectronic Taiwan 444,000 456 Citizens Electronics Co. Japan 6,000 546 Dassault Systems SA France 10,635 485 *Epcos AG Germany 16,660 378 *Ericsson LM -- B Shares Sweden 260,960 468 Hoya Corp. Japan 5,500 505 Indra Sistemas SA Spain 24,915 320 INFOSYS Technologies, Ltd. India 3,282 400 Nokia AB OY Finland 11,100 192 Sage Group ORD United Kingdom 123,760 389 Samsung Electronics South Korea 1,530 580 *Taiwan Semiconductor Manufacturing Co., Ltd. Taiwan 213,348 399 ------ Total 6,675 ------ Telecommunications (6.3%) *France Telecom SA France 12,195 349 KDDI Corp. Japan 110 630 *Mobistar SA Belgium 12,895 723 PT Telekomunikasi Indonesia Indonesia 452,500 363 *Tele2 AB -- B Shares Sweden 9,510 508 Telefonica SA Spain 34,820 511 Teliasonera AB Sweden 30,400 159 *Vivendi Universal SA France 19,800 481 Vodafone Group PLC United Kingdom 199,085 494 ------ Total 4,218 ------ Utilities (1.2%) Centrica PLC United Kingdom 113,405 429 Iberdrola SA Spain 17,980 355 ------ Total 784 ------ Total Foreign Common Stock (Cost: $47,508) 63,088 ------
Money Market Shares/ Value Investment (4.8%) Country $ Par $ (000's) --------------------------------------------------------- Banks (1.0%) UBS Finance Delaware LLC, 0.95%, 1/2/04 United States 700,000 700 ------ Total 700 ------ Finance Services (1.8%) Merrill Lynch, 1.04%, 1/27/04 United States 1,200,000 1,199 ------ Total 1,199 ------ Short Term Business Credit (2.0%) Transamerica Financial, 1.05%, 1/16/04 United States 1,300,000 1,300 ------ Total 1,300 ------ Total Money Market Investment (Cost: $3,199) 3,199 ------ Total Investments (99.4%) (Cost $50,707)(a) 66,287 ------ Other Assets, Less Liabilities (0.6%) 403 ------ Total Net Assets (100.0%) 66,690 ------
ADR--American Depository Receipt * Non-Income Producing (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $50,910 and the net unrealized appreciation of investments based on that cost was $15,377 which is comprised of $15,742 aggregate gross unrealized appreciation and $365 aggregate gross unrealized depreciation. Investment Percentage by Country: United Kingdom 15.0% Japan 10.8% Sweden 7.9% Switzerland 7.5% France 6.9% Germany 6.6% Other 45.3% ------ Total 100.0% ------
The Accompanying Notes are an Integral Part of the Financial Statements 14 International Growth Portfolio Franklin Templeton International Equity Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term appreciation of capital Participate in the growth of foreign economies by investing $796 million through diversification into markets in securities with high long-term earnings potential relative outside the United States to current market values.
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. In a year of strong performance for most stock markets throughout the world, the Portfolio's performance, with a total return of 40.46%, was slightly above that of the EAFE Index, which had a return of 39.17%. Because the EAFE Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. High local currency returns in most markets are even higher when translated into U.S. dollars, which weakened significantly during the year versus most currencies, particularly the euro. The Portfolio's performance benefited from investment decisions regarding countries and industries, as well as from individual stock selection. In anticipation of improving world economies, the Portfolio was overweighted in cyclical industry groups such as capital goods, industrials and materials. Stocks in these industries that performed especially well include Volvo, Atlas Copco, Brambles and Toto. Energy was underweighted relative to the Index, but energy holdings such as CNOOC and Repsol performed well. Through most of the year the Portfolio was significantly overweighted in Germany, where the market was up 65%. The largest German holding, Deutsche Post, performed especially well. The Portfolio's weight in Norway, where the market was up 50%, was approximately seven times that of the Index; the two Norwegian holdings, Norske Skogindustrier and Norsk Hydro performed in line with that market. The Swedish market was up 66% for the year; the Portfolio benefited from a weight triple the EAFE index in that market. Major Swedish holdings include Volvo and Atlas Copco. [CHART] Asset Allocation 12/31/03 United Kingdom 16% Asia 20% Latin America/Caribbean 9% North America 6% Australia/New Zealand 5% Mid-East/Africa 1% Continential Europe 43% Allocation is based on percentage of equities. Allocation and Top 10 Holdings is subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Philips Electronics NV 2.1% Broken Hill Property Billiton, Ltd. 1.9% Deutsche Post AG 1.8% Norske Skogindustrier 1.6% Aventis SA 1.6% Samsung Electronics 1.6% Suez Lyonnaise 1.6% Volkswagen AG 1.6% Atlas Copco AB 1.6% Michelin CL B 1.6% [CHART] Relative Performance Franklin Templeton International Equity Portfolio EAFE Index ------------------ ------------ 12/93 $10,000 $10,000 12/94 9,989 10,810 12/95 11,445 12,059 12/96 13,850 12,824 12/97 15,551 13,094 12/98 16,301 15,756 12/99 20,034 20,057 12/00 19,875 17,257 12/01 17,093 13,598 12/02 14,118 11,469 12/03 19,831 15,961 Average Annual Total Return For Periods Ended December 31, 2003 1 Year 5 Years 10 Years Franklin Templeton International Equity Portfolio 40.46% 4.00% 7.09% EAFE Index 39.17% 0.26% 4.79% 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 12/31/93. Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 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. Franklin Templeton International Equity Portfolio 15 Franklin Templeton International Equity Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Foreign Common Shares/ Value Stock (96.4%) Country $ Par $ (000's) ------------------------------------------------------ Automobiles & Components (5.2%) GKN PLC United Kingdom 2,091,540 9,997 Michelin CL B France 273,400 12,546 Valeo SA France 148,650 5,953 Volkswagen AG Sweden 230,450 12,891 ------ Total 41,387 ------ Banks (7.1%) *Australia & New Zealand Banking Group, Ltd. Australia 582,319 7,757 *Banca Nazionale Del Lavora SPA Italy 3,529,070 8,435 Dbs Group Holdings, Ltd. Singapore 1,192,000 10,318 HSBC Holdings PLC United Kingdom 530,937 8,378 Lloyds TSB Group PLC United Kingdom 1,165,150 9,344 Nordea AB Sweden 1,651,590 12,333 ------ Total 56,565 ------ Capital Goods (9.5%) Atlas Copco AB -- A Shares Sweden 352,550 12,616 BAE Systems PLC United Kingdom 3,411,020 10,274 Hutchison Whampoa, Ltd. Hong Kong 1,081,000 7,937 KCI Konecranes International PLC Finland 302,500 10,531 Kurita Water Industries, Ltd. Japan 430,000 5,188 Rolls Royce Group PLC United Kingdom 1,516,890 4,813 Toto, Ltd. Japan 873,000 7,397 Vestas Wind Systems Denmark 455,385 7,406 Volvo AB Sweden 278,740 8,523 ------ Total 74,685 ------ Commercial Services & Supplies (4.1%) Adecco SA -- Reg Switzerland 189,300 12,168 Brambles Industries PLC United Kingdom 1,453,754 5,296 Securitas AB -- Series B Sweden 541,000 7,293 Societe Bic SA United Kingdom 173,740 8,030 ------ Total 32,787 ------ Consumer Durables & Apparel (3.0%) Philips Electronics NV Netherlands 576,875 16,845 Sony Corp. Japan 200,900 6,955 ------ Total 23,800 ------
Foreign Common Shares/ Value Stock (96.4%) Country $ Par $ (000's) ------------------------------------------------------ Diversified Financials (3.3%) ING Groep NV Netherlands 436,000 10,169 Nomura Holdings, Inc. Japan 332,400 5,660 Swire Pacific, Ltd. -- Class A Hong Kong 1,746,500 10,753 ------ Total 26,582 ------ Energy (7.6%) CNOOC Ltd. Hong Kong 197,530 7,885 ENI SPA Italy 414,535 7,822 Husky Energy, Inc. Canada 195,650 3,553 IHC Caland NV Netherlands 112,800 6,118 Norsk Hydro ASA Norway 167,000 10,304 Repsol Ypf SA Spain 493,680 9,627 Shell Transport & Trading Co., PLC United Kingdom 1,428,430 10,626 Total Fina Elf SA France 21,182 3,938 ------ Total 59,873 ------ Financials (0.9%) XL Capital, Ltd. Class A Cayman Islands 94,850 7,356 ------ Total 7,356 ------ Food Staples & Retailing (1.2%) Sainsbury (J) ORD United Kingdom 1,769,000 9,904 ------ Total 9,904 ------ Food, Beverage, & Tobacco (3.5%) Cadbury Schweppes PLC United Kingdom 1,318,020 9,680 Nestle SA Switzerland 44,120 11,023 Unilever PLC United Kingdom 773,990 7,215 ------ Total 27,918 ------ Health Care Equipment & Services (0.0%) Mayne Nickless, Ltd. Australia 10 0 ------ Total 0 ------ Insurance (6.0%) ACE, Ltd. Cayman Islands 234,580 9,717 Axa SA France 433,842 9,286 Axa SA France 27,115 580 Riunione Adriatica Di Sicurta SPA Italy 447,283 7,616 Sompo Japan Insurance, Inc. Japan 1,103,000 9,067 Swiss Reinsurance Switzerland 170,200 11,492 ------ Total 47,758 ------
16 Franklin Templeton International Equity Portfolio Franklin Templeton International Equity Portfolio
Foreign Common Shares/ Value Stock (96.4%) Country $ Par $ (000's) ------------------------------------------------------- Leisure, Entertainment, and Hotels (1.0%) Accor France 173,000 7,834 ------ Total 7,834 ------ Materials (11.6%) Akzo Nobel NV Netherlands 234,050 9,034 Alumina Ltd. Australia 1,908,930 9,450 BASF AG Germany 206,800 11,673 Bayer AG Germany 263,150 7,767 Broken Hill Property Billiton, Ltd. Australia 1,681,770 15,446 Companhia Vale do Rio Doce, ADR Brazil 163,550 8,424 Norske Skogindustrier Norway 684,860 13,074 Stora Enso Oyj -- Class R Finland 658,140 8,866 Upm-kymmene OYJ Finland 394,760 7,529 ------ Total 91,263 ------ Media (1.3%) Reed Elsevier PLC Netherlands 645,340 8,018 Wolters Kluwer NV Netherlands 166,630 2,606 ------ Total 10,624 ------ Pharmaceuticals & Biotechnology (5.0%) Aventis SA France 197,550 13,057 *CK Life Sciences International, Inc. Cayman Islands 29,640 7 Glaxosmithkline PLC United Kingdom 365,910 8,384 Ono Pharmaceutical Co., Ltd. Japan 191,000 7,182 *Shire Pharmaceuticals Group United Kingdom 1,124,010 10,916 ------ Total 39,546 ------ Real Estate (1.0%) Cheung Kong Holdings, Ltd. Hong Kong 1,035,000 8,199 ------ Total 8,199 ------ Retailing (0.9%) Marks & Spencer Group PLC United Kingdom 1,413,641 7,314 ------ Total 7,314 ------ Semiconductors and Related Devices (1.6%) Samsung Electronics South Korea 34,390 13,017 ------ Total 13,017 ------
Foreign Common Shares/ Value Stock (96.4%) Country $ Par $ (000's) ----------------------------------------------------- Software & Computer Services (2.7%) *Check Point Software Tech Israel 387,430 6,517 Nintendo Co., Ltd. Japan 64,600 6,028 Sap AG Germany 52,800 8,910 ------- Total 21,455 ------- Technology Hardware & Equipment (3.1%) *Celestica, Inc. Canada 415,600 6,291 Hitachi, Ltd. Japan 1,548,000 9,330 Toshiba Corp. Japan 2,350,000 8,903 ------- Total 24,524 ------- Telecommunication Services (7.4%) BCE, Inc. Canada 430,910 9,637 KT Corp., ADR South Korea 385,100 7,344 Nippon Telegraph & Telephone Corp. Japan 1,930 9,311 Portugal Telecom SA Portugal 468,980 4,721 Telecom Corporation Of New Zealand. Ltd. New Zealand 2,441,800 8,609 *Telefonica SA, ADR Spain 251,528 11,114 Telefonos de Mexico SA, ADR Mexico 257,344 8,500 ------- Total 59,236 ------- Transportation (3.3%) *British Airways PLC United Kingdom 1,228,800 5,114 Deutsche Post AG Germany 700,810 14,427 Nippon Express Co., Ltd. Japan 1,478,000 6,978 ------- Total 26,519 ------- Utilities (6.1%) E.On AG Germany 146,700 9,609 Endesa SA Spain 431,810 8,306 Hong Kong Electric Holdings, Ltd. Hong Kong 1,549,500 6,127 Iberdrola SA Spain 387,080 7,651 Korea Electric Power Corp. South Korea 224,850 4,038 Suez Lyonnaise France 646,510 12,991 ------- Total 48,722 ------- Total Foreign Common Stock (Cost: $625,460) 766,868 -------
Franklin Templeton International Equity Portfolio 17 Franklin Templeton International Equity Portfolio
Money Market Shares/ Value Investment (3.6%) Country $ Par $ (000's) ------------------------------------------------------- Autos (1.3%) Toyota Motor Credit Corp., United 0.99%, 2/12/04 States 10,000,000 9,988 ------- Total 9,988 ------- Banks (1.1%) UBS Finance Delaware LLC, United 0.95%, 1/2/04 States 8,800,000 8,800 ------- Total 8,800 ------- Short Term Business Credit (1.2%) Transamerica Financial, United 1.05%, 1/16/04 States 10,000,000 9,995 ------- Total 9,995 ------- Total Money Market Investment (Cost: $28,783) 28,783 ------- Total Investments (100.0%) (Cost $654,243)(a) 795,651 ------- Other Assets, Less Liabilities (0.0%) 56 ------- Total Net Assets (100.0%) 795,707 -------
ADR -- American Depository Receipt * Non-Income Producing (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $656,375 and the net unrealized appreciation of investments based on that cost was $139,276 which is comprised of $172,032 aggregate gross unrealized appreciations and $32,756 aggregate gross unrealized depreciation. Investment Percentage by Country: United Kingdom 14.9% Japan 10.4% France 9.4% Germany 8.3% Netherlands 6.7% Hong Kong 5.2% Other 45.1% ------ Total 100.0% ------
The Accompanying Notes are an Integral Part of the Financial Statements 18 Franklin Templeton International Equity Portfolio AllianceBernstein Mid Cap Value Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term growth of capital and current Invest primarily in the equity securities of mid-sized $44 million income. companies that are believed to be undervalued.
The primary investment objective of the AllianceBernstein Mid Cap Value Portfolio is long-term capital growth. Current income is a secondary objective. Management pursues these objectives by investing primarily in equities of mid-sized companies that are believed to be undervalued. In selecting investments, management looks for characteristics such as a strong financial position, a price/earnings ratio below major market indexes, and above average prospective earnings growth rates in earnings and dividends. Since its inception date of May 1, 2003, the AllianceBernstein Mid Cap Value Portfolio had a return of 33.16%, compared with 39.41% for the Russell 2500 Index. Because the Russell 2500 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. The Portfolio's underperformance relative to the Index resulted mainly from its emphasis on larger companies within the mid cap universe and on companies with strong earnings trends that are priced attractively relative to their current and potential earnings. During 2003, returns were concentrated in the smallest companies and in stocks with high price/earnings ratios, especially companies that are not profitable. Absolute returns in the Portfolio were aided by holdings in cyclical industries, especially industrial resources and capital goods. Growing optimism about a rebound in non-residential construction aided returns for Texas Industries, a steel and concrete producer, and Terex Corporation, a diversified manufacturer of construction equipment. Optimism about a broad recovery in industrial activity drove strong returns in Reliance Steel and Aluminum, a metal service center, and FMC Corporation, a specialty chemical firm. Investments in American Axle, a producer of light truck axles principally for General Motors, and Federated Department Stores, the owner of Macy's and Bloomingdale's, also added to returns. Detractors from returns were concentrated in technology and telecommunications equipment, where demand has been depressed. Tellabs, ADC Telecommunications, and Andrew Corporation all underperformed. [CHART] Sector Allocation 12/31/03 Utilities 7% Short-Term Investments & Other Net Assets 7% Consumer Discretionary 18% Consumer Staples 5% Energy 3% Financials 16% Health Care 5% Industrials 18% Information Technology 11% Materials 10% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. [CHART] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Terex Corp. 2.0% Fidelity National Financial, Inc. 2.0% Reliance Steel & Aluminum Co. 1.9% FMC Corp. 1.9% Texas Industries, Inc. 1.9% Vishay Intertechnology, Inc. 1.7% Hughes Supply, Inc. 1.7% Universal Corp. 1.7% Tech Data Corp. 1.6% American Axle & Manufacturing Holdings, Inc. 1.6% [CHART] Relative Performance AllianceBernstein Mid Cap Value Portfolio Russell 2500 Index ---------------------- ------------------ 5/03 $10,000 $10,000 12/03 13,316 13,941 Average Annual Total Return For Periods Ended December 31, 2003 Since Inception# AllianceBernstein Mid Cap Value Portfolio 33.16% Russell 2500 Index 39.41% #inception date of 5/1/03, returns not annualized The Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. These 3,000 companies represent approximately 98% of the investable U.S. equity market. As of the latest reconstitution, the average market capitalization of companies in the Russell 3000 was approximately $3.7 billion; the median market capitalization was approximately $622 million. Market capitalization of companies in the Index ranged from $286 billion to $117 million. The index cannot be invested in directly and does not include sales charges. The Russell 2500 Index represents approximately 17% of the total market capitalization of the Russell 3000. As of the latest reconstitution, the average market capitalization of companies in the Russell 2500 was approximately $743 million; the median market capitalization was approximately $463 million. Market capitalization of companies in the Index ranged from $3.1 billion to $117 million. This chart assumes an initial investment of $10,000 made on 5/1/03 (commencement of the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. AllianceBernstein Mid Cap Value Portfolio 19 AllianceBernstein Mid Cap Value Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (93.1%) $ Par $ (000's) ------------------------------------------------------------ Consumer Discretionary (18.5%) *American Axle & Manufacturing Holdings, Inc. 17,500 707 ArvinMeritor, Inc. 27,100 654 *AutoNation, Inc. 31,000 569 BorgWarner, Inc. 7,200 613 Brunswick Corp. 20,000 637 Federated Department Stores, Inc. 14,000 660 Foot Locker, Inc. 15,200 356 Genuine Parts Co. 10,300 342 *Group 1 Automotive, Inc. 15,600 565 Jones Apparel Group, Inc. 17,000 599 *Office Depot, Inc. 39,000 652 *Park Place Entertainment Corp. 18,100 196 The Reader's Digest Association, Inc. -- Class A 35,200 516 V. F. Corp. 13,900 601 *Zale Corp. 9,800 521 ----- Total 8,188 ----- Consumer Staples (4.9%) Corn Products International, Inc. 17,300 596 Nu Skin Enterprises, Inc. 13,200 226 *Smithfield Foods, Inc. 29,500 611 Universal Corp. 16,600 732 ----- Total 2,165 ----- Energy (2.5%) Kerr-McGee Corp. 11,600 539 *Seacor Smit, Inc. 13,900 585 ----- Total 1,124 ----- Financials (15.9%) Astoria Financial Corp. 17,000 632 Banknorth Group, Inc. 19,300 628 Commercial Federal Corp. 23,000 614 Fidelity National Financial, Inc. 22,200 862 Hibernia Corp. -- Class A 24,000 564 Popular, Inc. 13,800 620 Post Properties, Inc. (Reit) 20,000 558 Sovereign Bancorp, Inc. 27,600 656 UnionBanCal Corp. 12,000 690 Washington Federal, Inc. 20,000 568 Whitney Holding Corp. 15,100 619 ----- Total 7,011 ----- Health Care (4.9%) *Apogent Technologies, Inc. 25,000 576 *Health Net, Inc. 12,000 392 *PacifiCare Health Systems, Inc. 9,100 615 Universal Health Services, Inc. -- Class B 11,000 591 ----- Total 2,174 -----
Shares/ Value Common Stock (93.1%) $ Par $ (000's) ---------------------------------------------------- Industrials (18.5%) Cooper Industries, Ltd. -- Class A 12,000 695 Deluxe Corp. 13,800 570 *Flowserve Corp. 25,000 522 Harsco Corp. 14,200 622 Hughes Supply, Inc. 15,200 754 Kennametal, Inc. 7,900 314 Lincoln Electric Holdings, Inc. 22,600 559 *Mueller Industries, Inc. 19,600 673 PACCAR, Inc. 6,500 553 Parker-Hannifin Corp. 10,600 631 Reliance Steel & Aluminum Co. 25,000 831 *Terex Corp. 30,300 864 Textron, Inc. 9,600 548 ------ Total 8,136 ------ Information Technology (10.8%) *Adaptec, Inc. 73,500 649 *ADC Telecommunications, Inc. 235,000 698 *Andrew Corp. 55,000 633 *KEMET Corp. 13,000 178 *Tech Data Corp. 18,000 714 *Tellabs, Inc. 70,000 590 *Vishay Intertechnology, Inc. 33,200 761 *Western Digital Corp. 46,000 542 ------ Total 4,765 ------ Materials (10.4%) Ball Corp. 10,900 649 Crompton Corp. 83,000 595 *Cytec Industries, Inc. 13,500 518 *FMC Corp. 24,000 819 MeadWestvaco Corp. 18,000 536 Peabody Energy Corp. 15,200 634 Texas Industries, Inc. 22,000 814 ------ Total 4,565 ------ Utilities (6.7%) Northeast Utilities 32,800 662 OGE Energy Corp. 23,900 578 PNM Resources, Inc. 19,500 548 Puget Energy, Inc. 23,200 551 WPS Resources Corp. 12,900 596 ------ Total 2,935 ------ Total Common Stock (Cost: $32,056) 41,063 ------
20 AllianceBernstein Mid Cap Value Portfolio AllianceBernstein Mid Cap Value Portfolio
Shares/ Value Money Market Investment (6.6%) $ Par $ (000's) --------------------------------------------------------- Federal Government and Agencies (6.6%) Federal Home Loan Bank, 0.75%, 1/7/04 2,900,000 2,900 ------ Total Money Market Investment (Cost: $2,900) 2,900 ------ Total Investments (99.7%) (Cost $34,956)(a) 43,963 ------ Other Assets, Less Liabilities (0.3%) 128 ------ Total Net Assets (100.0%) 44,091 ------
* Non-Income Producing (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $34,941 and the net unrealized appreciation of investments based on that cost was $9,022 which is comprised of $9,155 aggregate gross unrealized appreciations and $133 aggregate gross unrealized depreciation. The Accompanying Notes are an Integral Part of the Financial Statements AllianceBernstein Mid Cap Value Portfolio 21 Index 400 Stock Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term capital appreciation through Invest in a portfolio designed to approximate the $343 million cost-effective participation in broad composition and returns of the S&P MidCap 400 Index. market performance
The Index 400 Stock Portfolio is designed to achieve results that approximate the performance of the Standard & Poor's MidCap 400 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, 286 are listed on the New York Stock Exchange, 112 on NASDAQ, and 2 on the American Stock Exchange. As of December 31, 2003, the 400 companies in the composite had a median market capitalization of $2.1 billion and total market value of $968 billion. For comparison, the 500 large stocks in the S&P 500 Index had a median market capitalization of $9.1 billion and total market value of $10,286 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 MidCap 400 Index before expenses. Because the S&P MidCap 400 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. [CHART] Sector Allocation 12/31/03 Health Care 12% Industrials 12% Information Technology 16% Materials 4% Telecommunications & Other Holdings 5% Utiliities 6% Consumer Discretionary 16% Consumer Staples 4% Energy 6% Financials 19% Sector Allocation is based on equities. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets M&T Bank Corp. 1.2% Gilead Sciences, Inc. 1.2% Lennar Corp. - Class A 0.8% The Washington Post Co. - Class B 0.7% New York Community Bancorp, Inc. 0.7% Affiliated Computer Services, Inc. - Class A 0.7% Sovereign Bancorp, Inc. 0.7% Coach, Inc. 0.7% Microchip Technology, Inc. 0.7% Mylan Laboratories, Inc. 0.7% [CHART] Relative Performance Index 400 S&P MidCap Stock Portfolio 400 index --------------- ---------- 4/99 $10,000 $10,000 12/99 11,283 11,356 12/00 13,225 13,344 12/01 13,138 13,264 12/02 11,228 11,340 12/03 15,159 15,376 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year Inception* Index 400 Stock Portfolio 35.01% 9.31% S&P MidCap 400 Index 35.59% 9.64% *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, 2003, the 400 companies in the composite had median market capitalization of $2.1 billion and a total market value of $968 billion. The MidCap 400 represents approximately 5.8% of the market value of Compustat's database of about 11,477 equities. The index cannot be invested in directly and does 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 the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 22 Index 400 Stock Portfolio Index 400 Stock Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (95.1%) $ Par $ (000's) -------------------------------------------------------- Consumer Discretionary (15.7%) *99 Cents Only Stores 24,033 654 *Abercrombie & Fitch Co. -- Class A 33,000 815 *American Eagle Outfitters, Inc. 23,950 393 Applebee's International, Inc. 18,700 734 ArvinMeritor, Inc. 23,150 558 Bandag, Inc. 6,500 268 *Barnes & Noble, Inc. 21,800 716 Belo Corp. -- Class A 38,400 1,088 Blyth, Inc. 15,500 499 Bob Evans Farms, Inc. 11,700 380 Borders Group, Inc. 26,100 572 BorgWarner, Inc. 9,100 774 Boyd Gaming Corp. 21,600 349 *Brinker International, Inc. 32,750 1,086 Callaway Golf Co. 25,500 430 *CarMax, Inc. 34,900 1,079 *Catalina Marketing Corp. 18,000 363 CBRL Group, Inc. 16,400 627 *The Cheesecake Factory, Inc. 17,400 766 *Chico's FAS, Inc. 29,200 1,079 Claire's Stores, Inc. 33,000 622 *Coach, Inc. 61,300 2,315 D.R. Horton, Inc. 52,500 2,272 *Dollar Tree Stores, Inc. 38,600 1,160 *Emmis Communications Corp. -- Class A 18,400 498 *Entercom Communications Corp. -- Class A 17,300 916 Extended Stay America, Inc. 32,000 463 Furniture Brands International, Inc. 18,800 551 Gentex Corp. 25,800 1,139 GTECH Holdings Corp. 19,600 970 Harte-Hanks, Inc. 29,950 651 *Hovnanian Enterprises, Inc. 10,100 879 International Speedway Corp. --Class A 18,000 804 *Krispy Kreme Doughnuts, Inc. 19,700 721 Lear Corp. 22,700 1,392 Lee Enterprises, Inc. 15,100 659 Lennar Corp. -- Class A 26,600 2,555 Mandalay Resort Group 20,000 894 Media General, Inc. -- Class A 7,900 514 Michaels Stores, Inc. 22,500 995 Modine Manufacturing Co. 11,500 310 *Mohawk Industries, Inc. 22,400 1,581 *The Neiman Marcus Group, Inc. -- Class A 16,100 864 *O'Reilly Automotive, Inc. 18,200 698 Outback Steakhouse, Inc. 25,300 1,119 *Park Place Entertainment Corp. 102,000 1,105 *Payless ShoeSource, Inc. 22,942 307 PETsMART, Inc. 47,800 1,138 Pier 1 Imports, Inc. 30,300 662
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ---------------------------------------------------------- Consumer Discretionary continued The Reader's Digest Association, Inc. -- Class A 33,400 490 *Rent-A-Center, Inc. 27,700 828 Ross Stores, Inc. 51,800 1,369 Ruby Tuesday, Inc. 21,600 615 *Saks, Inc. 48,200 725 *Scholastic Corp. 13,300 453 *Six Flags, Inc. 31,300 235 Superior Industries International, Inc. 9,000 392 *The Timberland Co. -- Class A 12,000 625 *Toll Brothers, Inc. 24,700 982 *Unifi, Inc. 18,200 117 The Washington Post Co. -- Class B 3,200 2,533 *Westwood One, Inc. 34,200 1,170 *Williams-Sonoma, Inc. 39,300 1,366 ------ Total 53,884 ------ Consumer Staples (4.4%) *BJ's Wholesale Club, Inc. 23,400 537 Church & Dwight Co., Inc. 13,600 539 *Constellation Brands, Inc. -- Class A 35,300 1,162 *Dean Foods Co. 52,314 1,721 The Dial Corp. 32,400 922 *Energizer Holdings, Inc. 28,500 1,070 Hormel Foods Corp. 46,700 1,205 Interstate Bakeries Corp. 15,100 215 The J.M. Smucker Co. 16,896 765 Lancaster Colony Corp. 12,100 546 Longs Drug Stores Corp. 12,600 312 Pepsiamericas, Inc. 48,600 832 Ruddick Corp. 15,600 279 Sensient Technologies Corp. 15,800 312 *Smithfield Foods, Inc. 36,800 762 Tootsie Roll Industries, Inc. 17,532 631 Tyson Foods, Inc. -- Class A 118,340 1,568 Universal Corp. 8,400 371 Whole Foods Market, Inc. 20,100 1,349 ------ Total 15,098 ------ Energy (6.1%) *Cooper Cameron Corp. 18,500 862 ENSCO International, Inc. 50,600 1,375 *FMC Technologies, Inc. 22,269 519 *Forest Oil Corp. 18,000 514 *Grant Prideco, Inc. 41,000 534 *Hanover Compressor Co. 24,600 274 Helmerich & Payne, Inc. 16,900 472 Murphy Oil Corp. 31,000 2,024 *National-Oilwell, Inc. 28,700 642 Noble Energy, Inc. 19,100 849 Overseas Shipholding Group, Inc. 11,700 398 *Patterson-UTI Energy, Inc. 27,300 899
Index 400 Stock Portfolio 23 Index 400 Stock Portfolio
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ---------------------------------------------------- Energy continued *Pioneer Natural Resources Co. 39,800 1,271 Pogo Producing Co. 21,500 1,038 *Pride International, Inc. 45,600 850 *Smith International, Inc. 33,800 1,403 Tidewater, Inc. 20,500 613 Valero Energy Corp. 38,600 1,789 *Varco International, Inc. 32,862 678 *Weatherford International, Ltd. 44,300 1,595 Western Gas Resources, Inc. 11,200 529 XTO Energy, Inc. 62,033 1,756 ------ Total 20,884 ------ Financials (19.3%) A.G. Edwards, Inc. 26,900 975 *Allmerica Financial Corp. 17,900 551 AMB Property Co. 27,600 907 American Financial Group, Inc. 23,500 622 *Americredit Corp. 52,800 841 Amerus Group, Co. 13,200 462 Arthur J. Gallagher & Co. 30,600 994 Associated Banc-Corp. 24,809 1,058 Astoria Financial Corp. 27,200 1,012 Bank of Hawaii Corp. 19,800 836 Banknorth Group, Inc. 54,400 1,770 Brown & Brown, Inc. 23,100 753 City National Corp. 16,400 1,019 The Colonial Bancgroup, Inc. 42,000 727 Commerce Bancorp, Inc. 25,300 1,333 Compass Bancshares, Inc. 42,400 1,667 Cullen/Frost Bankers, Inc. 17,400 706 *E*TRADE Group, Inc. 122,300 1,547 Eaton Vance Corp. 23,300 854 Everest Re Group, Ltd. 18,700 1,582 Fidelity National Financial, Inc. 49,650 1,925 The First American Corp. 26,200 780 Firstmerit Corp. 28,500 769 GATX Corp. 16,600 464 Greater Bay Bancorp 17,600 501 GreenPoint Financial Corp. 46,350 1,637 HCC Insurance Holdings, Inc. 21,500 684 Hibernia Corp. -- Class A 52,700 1,239 Highwoods Properties, Inc. 17,900 455 Horace Mann Educators Corp. 14,400 201 Hospitality Properties Trust 21,100 871 Independence Community Bank Corp. 18,500 665 IndyMac Bancorp, Inc. 18,700 557 *Investment Technology Group, Inc. 16,000 258 Investors Financial Services Corp. 22,000 845 LaBranche & Co., Inc. 20,100 235 Legg Mason, Inc. 22,200 1,713 Leucadia National Corp. 23,900 1,102 Liberty Property Trust 26,800 1,043 M&T Bank Corp. 40,400 3,970 Mack-Cali Realty Corp. 19,600 816 Mercantile Bankshares Corp. 26,800 1,222 *The Mony Group, Inc. 15,900 498
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ---------------------------------------------------- Financials continued National Commerce Financial Corp. 69,025 1,883 New Plan Excel Realty Trust, Inc. 32,900 812 New York Community Bancorp, Inc. 65,941 2,508 *Ohio Casualty Corp. 20,600 358 Old Republic International Corp. 61,200 1,552 The PMI Group, Inc. 31,700 1,180 Protective Life Corp. 23,300 788 Provident Financial Group, Inc. 16,500 527 Radian Group, Inc. 31,600 1,541 Raymond James Financial, Inc. 16,400 618 SEI Investments Co. 35,400 1,079 *Silicon Valley Bancshares 11,700 422 Sovereign Bancorp, Inc. 98,600 2,341 Stancorp Financial Group, Inc. 9,800 616 TCF Financial Corp. 24,100 1,238 United Dominion Realty Trust, Inc. 42,600 818 Unitrin, Inc. 22,800 944 W.R. Berkley Corp. 28,100 982 Waddell & Reed Financial, Inc. -- Class A 27,900 655 Washington Federal, Inc. 23,500 667 Webster Financial Corp. 15,400 706 Westamerica Bancorporation 11,000 547 Wilmington Trust Corp. 22,300 803 ------ Total 66,251 ------ Health Care (11.8%) *Advancepcs 31,100 1,638 *Apogent Technologies, Inc. 31,100 717 *Apria Healthcare Group, Inc. 17,200 490 *Barr Laboratories, Inc. 22,600 1,739 Beckman Coulter, Inc. 20,600 1,047 *Charles River Laboratories 15,400 529 *Community Health Systems, Inc. 33,300 885 *Covance, Inc. 20,800 557 *Coventry Health Care, Inc. 20,200 1,303 *Cytyc Corp. 37,000 509 DENTSPLY International, Inc. 26,650 1,204 *Edwards Lifesciences Corp. 20,900 629 *First Health Group Corp. 32,000 623 *Gilead Sciences, Inc. 68,000 3,953 *Health Net, Inc. 39,200 1,282 *Henry Schein, Inc. 14,700 993 Hillenbrand Industries, Inc. 20,900 1,297 *IVAX Corp. 66,025 1,577 *Lifepoint Hospitals, Inc. 13,100 386 *Lincare Holdings, Inc. 33,200 997 *Millennium Pharmaceuticals, Inc. 100,900 1,884 Mylan Laboratories, Inc. 90,600 2,288 Omnicare, Inc. 34,200 1,381 Oxford Health Plans, Inc. 28,000 1,218 *PacifiCare Health Systems, Inc. 14,000 946 *Patterson Dental Co. 23,000 1,476 Perrigo Co. 23,600 371 *Pharmaceutical Resources, Inc. 11,400 743 *Protein Design Labs, Inc. 31,600 566
24 Index 400 Stock Portfolio Index 400 Stock Portfolio
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ------------------------------------------------------------ Health Care continued *Sepracor, Inc. 28,600 684 *Sicor, Inc. 40,200 1,093 *STERIS Corp. 23,400 529 *Triad Hospitals, Inc. 25,439 846 Universal Health Services, Inc. -- Class B 19,600 1,053 Valeant Pharmaceuticals International Co. 28,100 707 *Varian Medical Systems Inc. 23,100 1,596 *Vertex Pharmaceuticals, Inc. 26,000 266 *VISX, Inc. 16,200 375 ------ Total 40,377 ------ Industrials (11.5%) *AGCO Corp. 25,400 512 *Alaska Air Group, Inc. 9,000 246 Alexander & Baldwin, Inc. 14,000 472 ALLETE, Inc. 29,200 894 AMETEK, Inc. 11,200 541 Banta Corp. 8,600 348 The Brink's Co. 18,300 414 C.H. Robinson Worldwide, Inc. 28,600 1,084 *Career Education Corp. 33,500 1,342 Carlisle Companies, Inc. 10,400 633 *ChoicePoint, Inc. 29,000 1,105 CNF, Inc. 16,800 570 *Copart, Inc. 30,300 500 *Corinthian Colleges, Inc. 14,800 822 *DeVry, Inc. 23,600 593 Donaldson Co., Inc. 14,600 864 *The Dun & Bradstreet Corp. 24,900 1,263 *Dycom Industries, Inc. 16,200 434 *Education Management Corp. 24,000 745 *EGL, Inc. 15,900 279 Expeditors International of Washington, Inc. 35,300 1,329 Fastenal Co. 25,600 1,278 Federal Signal Corp. 16,200 284 *Flowserve Corp. 18,700 390 Graco, Inc. 15,500 622 Granite Construction, Inc. 14,000 329 Harsco Corp. 13,700 600 Herman Miller, Inc. 24,600 597 Hon Industries, Inc. 19,500 845 Hubbell, Inc. -- Class B 20,100 886 *J.B. Hunt Transport Services, Inc. 26,700 721 *Jacobs Engineering Group, Inc. 18,700 898 *Jetblue Airways Corp. 34,250 908 Kelly Services, Inc. -- Class A 12,000 342 Kennametal, Inc. 11,900 473 *Korn/Ferry International 12,700 169 *L-3 Communications Holdings, Inc. 32,500 1,668 Manpower, Inc. 26,200 1,233 Nordson Corp. 11,400 394 Pentair, Inc. 16,700 763 Precision Castparts Corp. 20,800 945 *Quanta Services, Inc. 39,400 288 Republic Services, Inc. 54,200 1,389 Rollins, Inc. 15,250 344
Shares/ Value Common Stock (95.1%) $ Par $ (000's) --------------------------------------------------------- Industrials continued *Sequa Corp. -- Class A 3,500 172 *Sotheby's Holdings, Inc. -- Class A 20,800 284 *SPX Corp. 25,900 1,523 *Stericycle, Inc. 14,200 663 *Swift Transportation Co., Inc. 28,200 593 *Sylvan Learning Systems, Inc. 14,519 418 Tecumseh Products Co. -- Class A 6,200 300 Teleflex, Inc. 13,400 648 Trinity Industries, Inc. 15,600 481 *United Rentals, Inc. 26,000 501 *Valassis Communications, Inc. 17,600 517 Viad Corp. 29,800 745 Werner Enterprises, Inc. 26,950 525 York International Corp. 13,400 493 ------ Total 39,219 ------ Information Technology (15.5%) *3Com Corp. 124,400 1,016 *Activision, Inc. 29,700 541 *Acxiom Corp. 28,800 535 ADTRAN, Inc. 26,000 806 *Advanced Fibre Communications, Inc. 28,900 582 *Advent Software, Inc. 11,000 192 *Affiliated Computer Services, Inc. -- Class A 44,900 2,445 *Arrow Electronics, Inc. 34,000 787 *Ascential Software Corp. 19,675 510 *Atmel Corp. 158,300 951 *Avnet, Inc. 40,400 875 *Avocent Corp. 15,700 573 *The BISYS Group, Inc. 40,500 603 *Cabot Microelectronics Corp. 8,292 406 *Cadence Design Systems, Inc. 91,700 1,649 CDW Corp. 27,900 1,612 *Ceridian Corp. 50,000 1,047 Certegy, Inc. 22,400 735 *Checkfree Corp. 26,800 741 *Commscope, Inc. 20,000 327 *Credence Systems Corp. 21,300 280 *Cree, Inc. 24,700 437 *CSG Systems International, Inc. 17,700 221 *Cypress Semiconductor Corp. 40,000 854 Diebold, Inc. 24,500 1,320 *DST Systems, Inc. 28,200 1,178 Fair, Isaac And Co., Inc. 16,300 801 *Fairchild Semiconductor International, Inc. -- Class A 39,600 989 *Gartner, Inc. 42,900 485 Harris Corp. 22,400 850 Imation Corp. 12,000 422 *Integrated Device Technology, Inc. 35,200 604 *Integtated Circuit Systems, Inc. 23,500 670 *International Rectifier Corp. 21,700 1,072 *Internet Security Systems, Inc. 16,800 316 Intersil Corp. -- Class A 46,700 1,160 Jack Henry & Associates, Inc. 29,700 611
Index 400 Stock Portfolio 25 Index 400 Stock Portfolio
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ---------------------------------------------------------- Information Technology continued *Keane, Inc. 21,500 315 *KEMET Corp. 29,200 400 *Lam Research Corp. 42,800 1,382 *Lattice Semiconductor Corp. 38,000 368 *LTX Corp. 16,700 251 *Macromedia, Inc. 21,100 376 *Macrovision Corp. 16,500 373 *McDATA Corp. -- Class A 38,700 369 *Mentor Graphics Corp. 23,200 337 *Micrel, Inc. 31,200 486 Microchip Technology, Inc. 69,212 2,309 *MPS Group, Inc. 34,400 322 National Instruments Corp. 17,400 791 *Network Associates, Inc. 54,200 815 *Newport Corp. 13,100 217 *Plantronics, Inc. 14,800 483 *Plexus Corp. 14,400 247 *Polycom, Inc. 33,400 652 *Powerwave Technologies, Inc. 21,300 163 *Quantum Corp. -- DLT & Storage Systems 59,800 187 *Retek, Inc. 18,200 169 The Reynolds And Reynolds Co. -- Class A 23,000 668 *RF Micro Devices, Inc. 62,200 625 *RSA Security, Inc. 19,800 281 *SanDisk Corp. 26,300 1,608 *Semtech Corp. 24,800 564 *Silicon Laboratories, Inc. 16,600 717 *Storage Technology Corp. 37,000 953 *Sybase, Inc. 32,000 659 *Synopsys, Inc. 52,400 1,769 *Tech Data Corp. 19,100 758 *The Titan Corp. 27,100 591 *Transaction Systems Architects, Inc. -- Class A 12,000 272 *TriQuint Semiconductor, Inc. 45,311 320 *Varian, Inc. 11,500 480 *Vishay Intertechnology, Inc. 53,887 1,234 *Wind River Systems, Inc. 28,400 249 *Zebra Technologies Corp. -- Class A 15,900 1,055 ------ Total 53,018 ------ Materials (4.2%) Airgas, Inc. 24,800 533 Albemarle Corp. 13,900 417 Arch Coal, Inc. 17,700 552 Bowater, Inc. 18,700 867 Cabot Corp. 20,800 662 Carpenter Technology Corp. 7,500 222 Crompton Corp. 37,563 269 *Cytec Industries, Inc. 13,200 507 Ferro Corp. 13,800 375 *FMC Corp. 11,900 406 IMC Global, Inc. 38,900 386 *Longview Fibre Co. 17,200 212 The Lubrizol Corp. 17,400 566
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ---------------------------------------------------- Materials continued Lyondell Chemical Co. 58,700 996 Martin Marietta Materials, Inc. 16,500 775 Minerals Technologies, Inc. 6,800 403 Olin Corp. 19,700 395 P.H. Glatfelter Co. 14,800 184 Packaging Corp. of America 35,200 769 Peabody Energy Corp. 18,300 763 Potlatch Corp. 9,700 337 Rayonier, Inc. 14,200 589 RPM, Inc. 39,000 642 *The Scotts Co. -- Class A 10,700 633 Sonoco Products Co. 32,700 805 The Valspar Corp. 17,000 841 Wausau-Mosinee Paper Corp. 17,400 235 ------- Total 14,341 ------- Telecommunication Services (0.5%) *Cincinnati Bell, Inc. 82,500 417 *Price Communications Corp. 18,300 251 Telephone And Data Systems, Inc. 19,400 1,213 ------- Total 1,881 ------- Utilities (6.1%) AGL Resources, Inc. 21,500 626 Alliant Energy Corp. 37,300 929 *Aquila, Inc. 65,900 223 Black Hills Corp. 10,800 322 DPL, Inc. 42,700 892 Duquesne Light Holdings, Inc. 25,300 464 Energy East Corp. 49,200 1,102 Equitable Resources, Inc. 21,000 901 Great Plains Energy, Inc. 23,400 745 Hawaiian Electric Industries, Inc. 12,700 602 IDACORP, Inc. 12,900 386 MDU Resources Group, Inc. 38,200 910 National Fuel Gas Co. 27,500 672 Northeast Utilities 45,100 910 NSTAR 17,900 868 OGE Energy Corp. 28,800 697 ONEOK, Inc. 32,000 707 Pepco Holdings, Inc. 57,700 1,127 Philadelphia Suburban Corp. 29,450 651 PNM Resources, Inc. 13,600 382 Puget Energy, Inc. 31,800 756 Questar Corp. 28,000 984 SCANA Corp. 37,500 1,283 *Sierra Pacific Resouces 39,581 291 Vectren Corp. 25,200 621 Westar Energy, Inc. 24,400 494 WGL Holdings, Inc. 16,400 456 Wisconsin Energy Corp. 39,600 1,324 WPS Resources Corp. 12,200 564 ------- Total 20,889 ------- Total Common Stock (Cost: $281,175) 325,842 -------
26 Index 400 Stock Portfolio Index 400 Stock Portfolio
Shares/ Value Money Market Investment (4.9%) $ Par $ (000's) ------------------------------------------------------------- Autos (1.5%) (b)Toyota Motor Credit Corp., 1.02%, 2/12/04 5,000,000 4,994 ------- Total 4,994 ------- Banks (1.2%) (b)UBS Finance Delaware LLC, 0.95%, 1/2/04 4,200,000 4,200 ------- Total 4,200 ------- Federal Government and Agencies (0.4%) (b)Federal Home Loan Mortgage Co., 1.065%, 2/5/04 1,500,000 1,498 ------- Total 1,498 ------- Short Term Business Credit (1.8%) (b)Transamerica Financial, 1.05%, 1/16/04 6,000,000 5,998 ------- Total 5,998 ------- Total Money Market Investment (Cost: $16,690) 16,690 ------- Total Investments (100.0%) (Cost $297,865)(a) 342,532 ------- Other Assets, Less Liabilities (0.0%) (32) ------- Total Net Assets (100.0%) 342,500 -------
*Non-Income Producing (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $300,358 and the net unrealized appreciation of investments based on that cost was $42,174 which is comprised of $65,112 aggregate gross unrealized appreciations and $22,938 aggregate gross unrealized depreciation. (b)All or a portion of the securities have been committed as collateral for open futures positions or when issued securities. Information regarding open futures contracts as of period end is summarized below.
Unrealized Appreciation/ Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) -------------------------------------------------- MidCap 400 Index Futures 57 3/04 $437 (Total Notional Value at 12/31/03 $15,981)
The Accompanying Notes are an Integral Part of the Financial Statements Index 400 Stock Portfolio 27 Janus Capital Appreciation Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term growth of capital Invest in equity securities selected for their growth $37 million potential.
The Janus Capital Appreciation Portfolio seeks long-term growth of capital through investments in the equities of companies selected for their growth potential; the main emphasis is on large-capitalization stocks. The Portfolio is managed using a "bottom up" approach, which means that holdings are selected by examining individual securities, rather than focusing on broad economic trends or industry sectors. From its inception date of May 1, 2003, through December 31, 2003, the Portfolio had a return of 19.90%. This compares to a return of 22.82% for its benchmark, the S&P 500 Index. The Portfolio's underperformance relative to the Index resulted mainly from individual stock selection. Detractors included apparel and housewares retailer Kohl's, which slumped amid concerns over the continued purchasing power of consumers. Independent oil and gas exploration concern Anadarko Petroleum underperformed, as did deep-discount retailer Dollar Tree Stores. Also lagging were Finnish wireless handset manufacturer Nokia and multi-faceted entertainment company Viacom, which counts CBS Television and Nickelodeon among its holdings. On the positive side, one of the leaders of the broad Nasdaq rally was the Portfolio's pacesetter - innovative biotechnology interest Genentech, which tapped its strong research and development pipeline. Other standouts included health insurance interest UnitedHealth Group, which launched an acquisition of health maintenance organization operator Mid-Atlantic Medical Services, and videogame creator Electronic Arts. Additional gains were supplied by wireless telecommunications service provider Nextel Communications, and manufacturing conglomerate 3M, which produces products ranging from sticky Post-It notepads to sophisticated drug delivery systems. While sector decisions for this Portfolio are determined mainly by extensive company-level research, sector analysis offers some insight into the Portfolio's performance. Powered by companies such as Genentech, the healthcare sector led all others on an absolute basis. The information technology area followed with standouts such as Nextel Communications leading the way. Aiding performance was the Portfolio's overweight position in both sectors, relative to the S&P 500 Index. [CHART] Sector Allocation 12/31/03 Consumer Staples 4% Consumer Discretionary 17% Energy 2% Financials 17% Health Care 20% Industrials 5% Short-Term Investments & Other Net Assets 2% Information Technology 27% Telecommunication Services 2% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. Investing in small company stocks involves a greater degree of risk than investing in medium or large company stocks. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets UnitedHealth Group, Inc. 7.0% Microsoft Corp. 4.7% Genentech, Inc. 4.6% Bank of America Corp. 4.3% Electronic Arts, Inc. 4.3% Nextel Communications, Inc. - Class A 3.8% Aetna, Inc. 3.7% Applied Materials, Inc. 3.7% The Goldman Sachs Group, Inc. 3.4% Wells Fargo & Co. 3.3% [CHART] Relative Performance Janus Capital Appreciation Portfolio S&P 500 Index -------------------------- ------------- 5/03 $10,000 $10,000 12/03 11,990 12,282 Average Annual Total Return For Periods Ended December 31, 2003 Since Inception# Janus Capital Appreciation Portfolio 19.90% S&P 500 Index 22.82% #inception date of 5/1/03, returns not annualized 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 does not include sales charges. This chart assumes an initial investment of $10,000 made on 5/1/03 (commencement of the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 28 Janus Capital Appreciation Portfolio Janus Capital Appreciation Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (97.7%) $ Par $ (000's) -------------------------------------------------------- Consumer Discretionary (17.4%) *Advance Auto Parts, Inc. 7,140 581 *Amazon.com, Inc. 15,725 828 *Dollar Tree Stores, Inc. 13,710 412 *eBay, Inc. 18,000 1,162 *EchoStar Communications Corp. 27,905 949 *Kohl's Corp. 10,325 464 NIKE, Inc. -- Class B 16,515 1,131 Outback Steakhouse, Inc. 3,385 150 *Time Warner, Inc. 39,045 702 ----- Total 6,379 ----- Consumer Staples (4.1%) *Energizer Holdings, Inc. 14,535 546 The Procter & Gamble Co. 9,580 957 ----- Total 1,503 ----- Energy (1.5%) Murphy Oil Corp. 8,615 563 ----- Total 563 ----- Financials (17.1%) The Allstate Corp. 17,160 738 Bank of America Corp. 19,725 1,586 *Berkshire Hathaway, Inc. 135 380 The Goldman Sachs Group, Inc. 12,555 1,240 SLM Corp. 29,580 1,115 Wells Fargo & Co. 20,680 1,218 ----- Total 6,277 ----- Health Care (19.9%) Aetna, Inc. 19,850 1,341 *Anthem, Inc. 4,625 347 *Forest Laboratories, Inc. 11,710 724 *Genentech, Inc. 18,020 1,686 *Invitrogen Corp. 5,755 403 UnitedHealth Group, Inc. 44,280 2,576 *WellPoint Health Networks, Inc. -- Class A 2,445 237 ----- Total 7,314 ----- Industrials (4.8%) 3M Co. 12,760 1,085 United Parcel Service, Inc. -- Class B 8,910 664 ----- Total 1,749 -----
Shares/ Value Common Stock (97.7%) $ Par $ (000's) --------------------------------------------------------- Information Technology (27.2%) *Apple Computer, Inc. 39,890 852 *Applied Materials, Inc. 59,705 1,340 *Cisco Systems, Inc. 33,850 822 *Electronic Arts, Inc. 33,130 1,584 *KLA-Tencor Corp. 19,555 1,147 Microsoft Corp. 63,045 1,737 Nokia Corp., ADR 22,885 389 *NVIDIA Corp. 21,520 500 *Synopsys, Inc. 11,600 392 Texas Instruments, Inc. 25,530 750 *Yahoo!, Inc. 11,270 509 ------ Total 10,022 ------ Telecommunication Services (5.7%) *Nextel Communications, Inc. -- Class A 50,185 1,408 Vodafone Group PLC, ADR 27,395 686 ------ Total 2,094 ------ Total Common Stock (Cost: $30,263) 35,901 ------ Money Market Investment (12.0%) --------------------------------------------------------- Federal Government and Agencies (12.0%) Federal Home Loan Mortgage, 1.01%, 1/8/04 4,400,000 4,399 ------ Total Money Market Investment (Cost: $4,399) 4,399 ------ Total Investments (109.7%) (Cost $34,662)(a) 40,300 ------ Other Assets, Less Liabilities (-9.7%) (3,570) ------ Total Net Assets (100.0%) 36,730 ------
* Non-Income Producing ADR-- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $34,670 and the net unrealized appreciation of investments based on that cost was $5,630 which is comprised of $5,811 aggregate gross unrealized appreciations and $181 aggregate gross unrealized depreciation. The Accompanying Notes are an Integral Part of the Financial Statements Janus Capital Appreciation Portfolio 29 Growth Stock Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term appreciation of capital with Hold a diversified mix of high quality growth stocks of $666 million moderate risk medium and large companies with above-average potential for earnings growth.
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. For 2003, the Growth Stock Portfolio had a return of 18.94%, well below the S&P 500 Index, which had a return of 28.67%. Because the S&P 500 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. The underperformance resulted from a combination of sector weights and individual stock selection. The Portfolio's traditional emphasis on high quality names with steady, modest growth, a strategy that contributed to above-average performance in the 2000-2002 period, when the market was down, resulted in poor relative performance during the cyclical recovery experienced during 2003. Most importantly, several of the largest holdings in the Portfolio at the end of the previous year, such as Harley-Davidson, Kohl's and Newell Rubbermaid, have significantly underperformed the market during 2003. These holdings have been reduced or eliminated, replaced with new positions such as Teva Pharmaceuticals, a leading producer of generic drugs, and Gilead Sciences, a biotechnology company. In addition, diversification has been increased during the year, with the number of holdings increased by approximately 12%; the ten largest holdings now represent 24.6% of net asset value, compared with 26.9% at the end of 2002. Relative to the S&P 500 Index, the Portfolio began the year with an underweight in Information Technology, which proved to be the strongest sector for the year. Some holdings within this sector, including Intel, Cisco and Texas Instruments, were among the best performers in the Portfolio. Also positive for performance was Fortune Brands, a position in the Consumer Discretionary sector that has been increased significantly. [CHART] Sector Allocation 12/31/03 Energy 5% Financials 15% Health Care 15% Industrials 5% Short-Term Investments & Other Net Assets 6% Telecommunication Services/Other Holdings 3% Information Technology 23% Materials 2% Consumer Discretionary 17% Consumer Staples 9% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Microsoft Corp. 3.8% Intel Corp. 2.8% Pfizer, Inc. 2.7% Citigroup, Inc. 2.5% Medtronic, Inc. 2.5% General Electric Co. 2.2% Fortune Brands, Inc. 2.1% Wal-Mart Stores, Inc. 2.1% International Business Machines Corp. 2.0% Target Corp. 1.9% [CHART] Relative Performance Growth Stock Portfolio S&P 500 Index ---------------------- -------------- 5/94 $10,000 $10,000 12/94 10,155 10,344 12/95 13,285 14,226 12/96 16,063 17,490 12/97 20,858 23,322 12/98 26,425 29,986 12/99 32,369 36,294 12/00 31,563 32,992 12/01 27,077 29,072 12/02 21,436 22,650 12/03 25,497 29,144 - -------------------------------------------------------- Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year 5 Years Inception* - -------------------------------------------------------- Growth Stock Portfolio 18.94% -0.71% 10.17% S&P 500 Index 28.67% -0.57% 11.70% - -------------------------------------------------------- *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 does not include sales charges. This chart assumes an initial investment of $10,000 made on 5/3/94 (commencement of the Portfolio's operations). Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 30 Growth Stock Portfolio Growth Stock Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (95.6%) $ Par $ (000's) ---------------------------------------------------- Consumer Discretionary (17.2%) *Bed Bath & Beyond, Inc. 157,700 6,836 Best Buy Co., Inc. 65,700 3,432 *Comcast Corp. -- Class A 117,084 3,849 Fortune Brands, Inc. 196,100 14,020 Gannett Co., Inc. 36,500 3,254 Harley-Davidson, Inc. 194,200 9,230 *InterActiveCorp 92,200 3,128 *Kohl's Corp. 197,600 8,880 Lowe's Companies, Inc. 114,800 6,359 McDonald's Corp. 194,100 4,820 The McGraw-Hill Companies, Inc. 120,500 8,425 Target Corp. 334,400 12,842 *Time Warner, Inc. 383,500 6,899 Tribune Co. 161,300 8,323 Viacom, Inc. -- Class B 185,000 8,210 Wendy's International, Inc. 158,300 6,212 ------- Total 114,719 ------- Consumer Staples (9.2%) Altria Group, Inc. 146,200 7,956 Anheuser-Busch Companies, Inc. 89,700 4,725 The Coca-Cola Co. 125,000 6,344 Colgate-Palmolive Co. 86,500 4,329 *Dean Foods Co. 182,200 5,989 PepsiCo, Inc. 209,100 9,748 Wal-Mart Stores, Inc. 261,000 13,847 Walgreen Co. 233,300 8,487 ------- Total 61,425 ------- Energy (4.9%) ConocoPhillips 145,808 9,561 EOG Resources, Inc. 150,900 6,967 Exxon Mobil Corp. 277,634 11,382 *Nabors Industries, Ltd. 53,200 2,208 *Noble Corp. 68,300 2,444 ------- Total 32,562 ------- Financials (15.0%) American Express Co. 185,300 8,937 American International Group, Inc. 115,000 7,622 Citigroup, Inc. 346,900 16,838 Fifth Third Bancorp 125,950 7,444 The Goldman Sachs Group, Inc. 88,400 8,728 Lehman Brothers Holdings, Inc. 123,300 9,521 Morgan Stanley 190,500 11,024 Principal Financial Group, Inc. 280,300 9,270 Prudential Financial, Inc. 119,700 5,000 Wachovia Corp. 69,900 3,257 Wells Fargo & Co. 208,600 12,284 ------- Total 99,925 -------
Shares/ Value Common Stock (95.6%) $ Par $ (000's) -------------------------------------------------------- Health Care (15.2%) Abbott Laboratories 147,400 6,869 AmerisourceBergen Corp. 100,700 5,654 *Amgen, Inc. 161,300 9,968 *Boston Scientific Corp. 76,800 2,823 Eli Lilly and Co. 120,600 8,482 *Forest Laboratories, Inc. 122,800 7,589 *Gilead Sciences, Inc. 51,500 2,994 Johnson & Johnson 147,500 7,620 Medtronic, Inc. 336,400 16,352 Pfizer, Inc. 510,150 18,024 Teva Pharmaceutical Ind Spon ADR 178,800 10,140 UnitedHealth Group, Inc. 81,800 4,759 ------- Total 101,274 ------- Industrials (5.4%) *American Standard Companies, Inc. 121,900 12,275 FedEx Corp. 141,300 9,538 General Electric Co. 465,200 14,412 ------- Total 36,225 ------- Information Technology (23.3%) *Affiliated Computer Services, Inc. -- Class A 61,300 3,338 Analog Devices, Inc. 114,300 5,218 *Applied Materials, Inc. 211,700 4,753 *ASML Holding N.V. 197,600 3,962 *Broadcom Corp. -- Class A 91,900 3,133 *Cisco Systems, Inc. 477,500 11,598 *Dell, Inc. 188,200 6,391 *Electronic Arts, Inc. 21,500 1,027 *EMC Corp. 269,600 3,483 First Data Corp. 216,200 8,884 *Fiserv, Inc. 163,062 6,443 Hewlett-Packard Co. 448,100 10,293 Intel Corp. 580,300 18,686 International Business Machines Corp. 144,200 13,364 *Intuit, Inc. 86,500 4,577 Microsoft Corp. 923,700 25,438 Nokia Corp., ADR 417,500 7,098 *NVIDIA Corp. 146,400 3,404 *Taiwan Semiconductor, ADR 482,500 4,941 Texas Instruments, Inc. 282,400 8,297 ------- Total 154,328 ------- Materials (2.3%) Air Products and Chemicals, Inc. 154,800 8,179 Ecolab, Inc. 132,900 3,637 PPG Industries, Inc. 59,300 3,796 ------- Total 15,612 -------
Growth Stock Portfolio 31 Growth Stock Portfolio
Shares/ Value Common Stock (95.6%) $ Par $ (000's) ------------------------------------------------------- Other Holdings (1.9%) *Nasdaq-100 Trust, Series 1 79,500 2,895 *Semiconductor Holders Trust 233,400 9,663 ------- Total 12,558 ------- Telecommunication Services (1.2%) Vodafone Group PLC, ADR 314,700 7,880 ------- Total 7,880 ------- Total Common Stock (Cost: $556,781) 636,508 ------- Money Market Investment (4.0%) ------------------------------------------------------- Banks (0.4%) UBS Finance Delaware LLC, 0.95%, 1/2/04 2,400,000 2,400 ------- Total 2,400 ------- Federal Government and Agencies (0.6%) Federal Home Loan Mortgage Co., 1.065%, 2/5/04 4,000,000 3,996 ------- Total 3,996 ------- Finance Services (3.0%) (b)Preferred Rec Funding, 1.08%, 1/9/04 20,000,000 19,995 ------- Total 19,995 ------- Total Money Market Investment (Cost: $26,391) 26,391 ------- Total Investments (99.6%) (Cost $583,172)(a) 662,899 ------- Other Assets, Less Liabilities (0.4%) 2,972 ------- Total Net Assets (100.0%) 665,871 -------
* Non-Income Producing ADR -- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $583,801 and the net unrealized appreciation of investments based on that cost was $79,098 which is comprised of $94,100 aggregate gross unrealized appreciations and $15,002 aggregate gross unrealized depreciation. (b)All or a portion of the securities have been committed as collateral for open futures positions or when issued securities. Information regarding open futures contracts as of period end is summarized below.
Unrealized Appreciation/ Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) -------------------------------------------------------- S & P 500 Index Futures 32 03/04 $326 (Total Notional Value at 12/31/03 $8,558)
The Accompanying Notes are an Integral Part of the Financial Statements 32 Growth Stock Portfolio Large Cap Core Stock Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term growth of capital and income, Actively manage a portfolio of equity securities with a goal $448 million consistent with moderate investment risk of exceeding the total return of the S&P 500 Index.
The Large Cap Core Stock Portfolio seeks long-term growth of capital and income by investing primarily in large capitalization companies. In selecting investments, management looks for characteristics such as strong management teams, solid balance sheets, consistent earnings growth and leading market shares. The portfolio is broadly diversified, with some representation in all ten S&P industry sectors, but with allocations among industries adjusted as appropriate for the economic outlook. The emphasis is on higher quality companies, with preference given to stocks that pay dividends. In 2003, the Large Cap Core Stock Portfolio had a return of 24.05%, compared with 28.67% for the S&P 500 Index. Because the S&P 500 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. The Portfolio's underperformance relative to the Index resulted mainly from its emphasis on relatively large, high quality issues at a time when market performance was dominated by stocks of smaller, less well established companies. Decisions regarding specific stocks were a greater factor in relative performance than industry sector positions. Several stocks held early in the year, including Newell-Rubbermaid, Avery Dennison, Freddie Mac and Marsh McLennan, reported disappointing results or other bad news; these positions have been eliminated. Also negative for performance was an overweighted position in media, with holdings such as Viacom and Liberty Media. On the positive side, performance benefited from overweighted positions through much of the year in materials, telecom and utilities, as these cyclical industry groups performed well in a recovering economy. An overweight in wireless telecommunication, where the largest holding is Nextel, also proved positive. Also positive was an overweight in Information Technology, where Cisco and semiconductor stocks such as Intel did well. [CHART] Sector Allocation 12/31/03 Health Care 14% Industrials 9% Information Technology 20% Materials 6% Telecommunication Services 4% Utilities 4% Short-Term Investments & Other Net Assets 1% Consumer Discretionary 12% Consumer Staples 9% Energy 5% Financials 16% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Citigroup, Inc. 3.4% Microsoft Corp. 3.2% Cisco Systems, Inc. 2.7% Pfizer, Inc. 2.6% Intel Corp. 2.5% Exxon Mobil Corp. 2.3% General Electric Co. 2.2% Wal-Mart Stores, Inc. 1.7% Wells Fargo & Co. 1.7% International Business Machines Corp. 1.6% [CHART] Relative Performance Large Cap Core Stock Portfolio S&P 500 Index --------------- ------------- 5/94 $10,000 $10,000 12/94 10,034 10,344 12/95 13,156 14,226 12/96 15,783 17,490 12/97 20,523 23,322 12/98 25,271 29,986 12/99 27,162 36,294 12/00 25,269 32,992 12/01 23,305 29,072 12/02 16,734 22,650 12/03 20,759 29,144 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year 5 Years Inception* Large Cap Core Stock Portfolio 24.05% -3.86% 7.85% S&P 500 Index 28.67% -0.57% 11.70% *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 does not include sales charges. This chart assumes an initial investment of $10,000 made on 5/3/94 (commencement of the Portfolio's operations). Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. Large Cap Core Stock Portfolio 33 Large Cap Core Stock Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (98.7%) $ Par $ (000's) -------------------------------------------------------- Consumer Discretionary (11.5%) *Bed Bath & Beyond, Inc. 52,000 2,254 Best Buy Co., Inc. 43,100 2,252 *Comcast Corp. -- Class A 78,014 2,564 Fortune Brands, Inc. 60,000 4,289 Gannett Co., Inc. 24,000 2,140 *Kohl's Corp. 75,300 3,384 Lear Corp. 59,600 3,655 *Liberty Media Corp. -- Class A 422,400 5,023 McDonald's Corp. 125,800 3,124 NIKE, Inc. -- Class B 40,600 2,779 Omnicom Group, Inc. 30,000 2,620 Target Corp. 100,500 3,859 *Time Warner, Inc. 244,100 4,392 The TJX Companies, Inc. 91,800 2,024 Viacom, Inc. -- Class B 67,800 3,009 Wendy's International, Inc. 100,800 3,955 ------ Total 51,323 ------ Consumer Staples (9.2%) Altria Group, Inc. 111,400 6,062 Anheuser-Busch Companies, Inc. 61,500 3,240 The Coca-Cola Co. 85,100 4,319 *Dean Foods Co. 88,550 2,911 The Gillette Co. 57,500 2,112 PepsiCo, Inc. 128,000 5,967 The Procter & Gamble Co. 59,000 5,893 Wal-Mart Stores, Inc. 144,100 7,644 Walgreen Co. 87,000 3,165 ------ Total 41,313 ------ Energy (5.3%) ConocoPhillips 86,144 5,648 Devon Energy Corp. 34,100 1,953 EOG Resources, Inc. 94,000 4,340 Exxon Mobil Corp. 246,400 10,103 *Noble Corp. 44,500 1,592 ------ Total 23,636 ------ Financials (15.7%) American Express Co. 60,200 2,903 American International Group, Inc. 89,500 5,932 Bank One Corp. 94,000 4,285 The Chubb Corp. 29,200 1,989 Citigroup, Inc. 313,000 15,193 Countrywide Credit Industries, Inc. 44,000 3,337 Fifth Third Bancorp 63,000 3,723 The Goldman Sachs Group, Inc. 49,200 4,858 The Hartford Financial Services Group, Inc. 35,900 2,119 Lehman Brothers Holdings, Inc. 57,400 4,432 Morgan Stanley 39,900 2,309 Prudential Financial, Inc. 110,000 4,595 U.S. Bancorp 165,800 4,938
Shares/ Value Common Stock (98.7%) $ Par $ (000's) ------------------------------------------------------- Financials continued Wachovia Corp. 45,200 2,106 Wells Fargo & Co. 129,600 7,632 ------ Total 70,351 ------ Health Care (14.1%) Abbott Laboratories 93,900 4,376 AmerisourceBergen Corp. 44,400 2,493 *Amgen, Inc. 108,000 6,674 *Boston Scientific Corp. 51,700 1,900 Eli Lilly and Co. 81,300 5,718 *Forest Laboratories, Inc. 79,300 4,901 Guidant Corp. 58,500 3,522 Johnson & Johnson 88,300 4,562 Medtronic, Inc. 100,000 4,861 Pfizer, Inc. 328,712 11,613 Teva Pharmaceutical Ind Spon ADR 114,100 6,471 UnitedHealth Group, Inc. 46,100 2,682 Wyeth 75,600 3,209 ------ Total 62,982 ------ Industrials (8.7%) 3M Co. 73,000 6,207 Canadian National Railway Co. 60,000 3,797 FedEx Corp. 50,600 3,416 General Electric Co. 314,600 9,745 Honeywell International, Inc. 89,790 3,002 Lockheed Martin Corp. 69,000 3,547 Union Pacific Corp. 4,700 327 United Technologies Corp. 55,000 5,212 Waste Management, Inc. 121,000 3,582 ------ Total 38,835 ------ Information Technology (20.2%) Analog Devices, Inc. 71,600 3,269 *Applied Materials, Inc. 144,100 3,235 *ASML Holding N.V. 135,400 2,715 *Broadcom Corp. -- Class A 62,900 2,144 *Cisco Systems, Inc. 498,000 12,096 *Dell, Inc. 108,500 3,685 *EMC Corp. 170,700 2,205 First Data Corp. 133,700 5,494 *Fiserv, Inc. 105,300 4,160 Hewlett-Packard Co. 229,602 5,274 Intel Corp. 345,000 11,109 International Business Machines Corp. 74,700 6,923 Microsoft Corp. 514,200 14,162 Nokia Corp., ADR 263,430 4,478 *NVIDIA Corp. 100,100 2,327 *Oracle Corp. 166,400 2,196 *Taiwan Semiconductor, ADR 318,400 3,260 Texas Instruments, Inc. 77,400 2,275 ------ Total 91,007 ------
34 Large Cap Core Stock Portfolio Large Cap Core Stock Portfolio
Shares/ Value Common Stock (98.7%) $ Par $ (000's) --------------------------------------------------- Materials (6.0%) Air Products and Chemicals, Inc. 65,700 3,471 Alcoa, Inc. 68,800 2,614 The Dow Chemical Co. 80,200 3,334 E. I. du Pont de Nemours And Co. 88,000 4,038 Ecolab, Inc. 32,600 892 Monsanto Co. 100,800 2,901 Newmont Mining Corp. 47,700 2,319 PPG Industries, Inc. 36,000 2,305 Temple-Inland, Inc. 46,900 2,939 Weyerhaeuser Co. 31,800 2,035 ------- Total 26,848 ------- Telecommunication Services (4.1%) *AT&T Wireless Services, Inc. 117,900 942 *Nextel Communications, Inc. -- Class A 175,700 4,930 SBC Communications, Inc. 114,000 2,972 Verizon Communications, Inc. 163,548 5,737 Vodafone Group PLC, ADR 144,000 3,606 ------- Total 18,187 ------- Utilities (3.9%) Dominion Resources, Inc. 65,000 4,149 DTE Energy Co. 50,100 1,974 Edison International 70,501 1,546 *PG&E Corp. 178,600 4,960 Pinnacle West Capital Corp. 116,862 4,677 ------- Total 17,306 ------- Total Common Stock (Cost: $403,762) 441,788 -------
Shares/ Value Money Market Investment (1.7%) $ Par $ (000's) --------------------------------------------------------- Banks (1.7%) UBS Finance Delaware LLC, 0.95%, 1/2/04 7,600,000 7,600 ------- Total Money Market Investment (Cost: $7,600) 7,600 ------- Total Investments (100.4%) (Cost $411,362)(a) 449,388 ------- Other Assets, Less Liabilities (-0.4%) (1,834) ------- Total Net Assets (100.0%) 447,554 -------
* Non-Income Producing ADR -- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $412,521 and the net unrealized appreciation of investments based on that cost was $36,867 which is comprised of $59,274 aggregate gross unrealized appreciations and $22,407 aggregate gross unrealized depreciation. The Accompanying Notes are an Integral Part of the Financial Statements Large Cap Core Stock Portfolio 35 Capital Guardian Domestic Equity Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term growth of capital and income Invest in larger American companies that exhibit value $136 million characteristics relative to S&P 500 Index.
The Capital Guardian Domestic Equity Portfolio is constructed from the bottom-up by a group of experienced portfolio managers and analysts. This value-oriented Portfolio emphasizes stocks that have one or more of the following characteristics relative to the S&P 500 Index: lower price/earnings ratios, lower price to book value ratios, or higher dividend yields. 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. During 2003, the Portfolio had a return of 34.41%, outperforming the S&P 500 Index by more than five percentage points. Because the S&P 500 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. The Portfolio began the year with a significantly overweighted position in cyclical industries such as industrials, machinery and materials, in the belief that this group of stocks would benefit from the anticipated economic recovery. This strategy contributed to results with several large holdings, including Ingersoll-Rand and UTX, up during the year. Information technology has not been an area of major emphasis for the portfolio, but performance benefited from a major recovery during 2003 in some holdings in this group such as Polycom that had been extremely weak in the previous year. Also beneficial to performance was a large position in Fleet Boston, which reached an agreement in November to be acquired by Bank of America. This position has since been reduced and replaced in part by Wells Fargo. The main detractor during the year was an overweight to the telecommunications services sector which broadly underperformed the market in 2003. By the end of 2003, the Portfolio's structure had been shifted to place more emphasis on stable industries such as consumer products that are not highly sensitive to broad economic trends. Large holdings include Altria, Campbell Soup and Kraft Foods. The Portfolio's largest position remains Sprint Corporation, a leading provider of long-distance and local telephone service, which could benefit from consolidation in this industry. Another large position is Air Products and Chemicals, an industrial company that has more exposure to technology than most chemical companies. [CHART] Sector Allocation 12/31/03 Industrials 14% Consumer 17% Energy 9% Materials 8% Health Care 7% Short-Term Investments 5% Telecommunication Services 7% Utilities 8% Information Technology 4% Financials 21% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Sprint Corp. 3.3% Air Products and Chemicals, Inc. 3.3% Altria Group, Inc. 3.0% General Electric Co. 2.9% Bank One Corp. 2.8% United Technologies Corp. 2.7% Unocal Corp. 2.3% The Hartford Financial Services Group, Inc. 2.3% Ingersoll-Rand Co. - Class A 2.1% FleetBoston Financial Corp. 2.1% [CHART] Relative Performance Capital Guardian Domestic Equity Portfolio S&P 500 Index ------------------------- ------------- 7/01 $10,000 $10,000 12/01 9,781 9,538 12/02 7,703 7,431 12/03 10,354 9,562 - -------------------------------------------------------------------------- Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year Inception* - -------------------------------------------------------------------------- Capital Guardian Domestic Equity Portfolio 34.41% 1.45% S&P 500 Index 28.67% -1.84% - -------------------------------------------------------------------------- *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 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 reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 36 Capital Guardian Domestic Equity Portfolio Capital Guardian Domestic Equity Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (92.5%) $ Par $ (000's) ----------------------------------------------------------- Consumer Discretionary (5.5%) *AutoNation, Inc. 38,400 705 Carnival Corp Comm Paired Stk 27,400 1,089 Ford Motor Co. 21,300 341 *The Interpublic Group of Companies, Inc. 81,800 1,276 Knight-Ridder, Inc. 18,000 1,392 Starwood Hotels & Resorts Worldwide, Inc. 24,900 896 The Thomson Corp. 26,200 950 *Time Warner, Inc. 45,700 822 ------ Total 7,471 ------ Consumer Staples (9.5%) Altria Group, Inc. 74,500 4,055 Campbell Soup Co. 88,600 2,375 Colgate-Palmolive Co. 28,800 1,441 General Mills, Inc. 14,000 634 Kimberly-Clark Corp. 16,200 957 Kraft Foods, Inc. -- Class A 70,700 2,278 Unilever NV 18,000 1,168 ------ Total 12,908 ------ Energy (9.0%) Baker Hughes, Inc. 45,000 1,447 ChevronTexaco Corp. 7,100 613 Exxon Mobil Corp. 24,300 996 Royal Dutch Petroleum Co. 33,200 1,739 Shell Transport & Trading Co., ADR 52,800 2,379 *Transocean Sedco Forex, Inc. 38,200 917 Unocal Corp. 86,300 3,179 Weatherford International, Ltd. 26,700 961 ------ Total 12,231 ------ Financials (21.3%) *Americredit Corp. 82,100 1,308 Bank One Corp. 82,700 3,770 The Chubb Corp. 5,300 361 Citigroup, Inc. 13,900 675 Everest Re Group, Ltd. 23,400 1,980 Fannie Mae 12,100 908 FleetBoston Financial Corp. 63,900 2,789 General Growth Properties, Inc. 61,800 1,715 The Goldman Sachs Group, Inc. 6,800 671 The Hartford Financial Services Group, Inc. 53,200 3,140 J.P. Morgan Chase & Co. 29,300 1,076 The PMI Group, Inc. 37,800 1,407 SLM Corp. 68,100 2,566 Travelers Property Casualty Corp. -- Class A 36,510 613 Washington Mutual, Inc. 49,700 1,994 Wells Fargo & Co. 45,400 2,674 XL Capital, Ltd. Class A 16,100 1,249 ------ Total 28,896 ------
Shares/ Value Common Stock (92.5%) $ Par $ (000's) --------------------------------------------------- Health Care (7.3%) AstraZeneca PLC ADR 44,400 2,148 Becton, Dickinson And Co. 49,500 2,036 CIGNA Corp. 6,400 368 Eli Lilly and Co. 22,800 1,604 *Lincare Holdings, Inc. 30,500 916 *PacifiCare Health Systems, Inc. 6,800 460 Pfizer, Inc. 45,100 1,593 *Triad Hospitals, Inc. 26,000 865 ------ Total 9,990 ------ Industrials (14.1%) Canadian National Railway Co. 4,500 285 Emerson Electric Co. 13,400 868 Fluor Corp. 18,100 717 General Electric Co. 127,800 3,958 Hubbell, Inc. -- Class B 16,300 719 Ingersoll-Rand Co. -- Class A 41,600 2,824 *Navistar International Corp. 23,100 1,106 Northrop Grumman Corp. 22,500 2,151 Raytheon Co. 41,800 1,256 Siemens AG ADR 8,200 656 Tyco International, Ltd. 20,100 533 Union Pacific Corp. 6,500 452 United Technologies Corp. 38,900 3,686 ------ Total 19,211 ------ Information Technology (4.4%) *Avnet, Inc. 49,600 1,074 *Cadence Design Systems, Inc. 74,700 1,343 Hewlett-Packard Co. 30,484 700 *Polycom, Inc. 12,300 240 Sabre Holdings Corp. -- Class A 81,400 1,758 *Sun Microsystems, Inc. 206,000 925 ------ Total 6,040 ------ Materials (7.0%) Air Products and Chemicals, Inc. 85,400 4,512 Alcoa, Inc. 8,600 327 The Dow Chemical Co. 18,800 782 E. I. du Pont de Nemours And Co. 43,700 2,005 International Paper Co. 39,000 1,681 Nucor Corp. 3,900 218 ------ Total 9,525 ------ Telecommunication Services (6.6%) CenturyTel, Inc. 18,200 594 SBC Communications, Inc. 51,700 1,348 Sprint Corp. 275,400 4,522 Verizon Communications, Inc. 71,100 2,494 ------ Total 8,958 ------
Capital Guardian Domestic Equity Portfolio 37 Capital Guardian Domestic Equity Portfolio
Shares/ Value Common Stock (92.5%) $ Par $ (000's) --------------------------------------------------- Utilities (7.8%) *The AES Corp. 110,900 1,047 American Electric Power Co., Inc. 33,400 1,019 Duke Energy Corp. 87,200 1,783 Equitable Resources, Inc. 14,900 640 FirstEnergy Corp. 16,200 570 *Kinder Morgan Management, LLC. 27,269 1,171 NiSource, Inc. 109,700 2,407 Pinnacle West Capital Corp. 50,400 2,017 ------- Total 10,654 ------- Total Common Stock (Cost: $108,534) 125,884 ------- Preferred Stock (2.6%) --------------------------------------------------- Consumer Discretionary (1.5%) Ford Motor Co. Capital Trust II 22,500 1,260 Interpublic Group, Inc. 14,200 811 ------- Total 2,071 ------- Materials (1.1%) Phelps Dodge Corp. 8,600 1,455 ------- Total 1,455 ------- Total Preferred Stock (Cost: $2,702) 3,526 -------
Shares/ Value Money Market Investments (4.8%) $ Par $ (000's) -------------------------------------------------------- Banks (0.4%) UBS Finance Delaware LLC, 0.95%, 1/2/04 600,000 600 ------- Total 600 ------- Federal Government and Agencies (4.4%) Federal Home Loan Mortgage, 1.01%, 1/8/04 6,000,000 5,999 ------- Total 5,999 ------- Total Money Market Investment (Cost: $6,599) 6,599 ------- Total Investments (99.9%) (Cost $117,835)(a) 136,009 ------- Other Assets, Less Liabilities (0.1%) 90 ------- Total Net Assets (100.0%) 136,099 -------
* Non-Income Producing ADR -- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $117,895 and the net unrealized appreciation of investments based on that cost was $18,114 which is comprised of $19,740 aggregate gross unrealized appreciations and $1,626 aggregate gross unrealized depreciation. The Accompanying Notes are an Integral Part of the Financial Statements 38 Capital Guardian Domestic Equity Portfolio T. Rowe Price Equity Income Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term growth of capital and income. Invest in the equity securities of established companies. $48 million
The objective of the T. Rowe Price Equity Income Portfolio is long-term growth of capital and income. Management seeks to achieve this objective mainly through investment in the stocks of well-established companies paying above-average dividends. A value approach is used in selecting investments, with an effort made to identify companies that are undervalued but have good prospects for capital appreciation and dividend growth. Management looks for characteristics such as an established operating history, above-average dividend yield, a low price/earnings ratio, sound financial condition, and a low stock price relative to a company's underlying value. Since its inception date of May 1, 2003, the T. Rowe Price Equity Income Portfolio had a return of 23.64%, compared with 22.82% for the S&P 500 Index. Because the S&P 500 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. Overweighting the strong industrials sector added significantly to relative results. Top contributors in the sector (and for the Portfolio) included Cooper Industries, which posted better-than-expected sales, and Rockwell Automation and Honeywell International, which were helped by a better outlook for defense spending and improved sentiment toward the aerospace industry. In Financials, the Portfolio's performance was hurt by underweighting market-sensitive companies such as brokers and diversified financials. However, we added value with stock selection among banks. Top contributors in the group (and for the Portfolio overall) included FleetBoston Financial, which surged after agreeing to be acquired by BankAmerica at a significant premium, and BankAmerica itself. Continued concern about generic competition and limited product pipelines weighed on Merck and Schering-Plough, which detracted from results. Stock selection in the Consumer Discretionary sector was negative. Eastman Kodak detracted for the year even after a strong rebound in the fourth quarter. [CHART] Sector Allocation 12/31/03 Health Care 9% Industrials 14% Information Technology 4% Materials 6% Telecommunication Services 6% Utilities 4% Short-Term Investments & Other Net Assets 4% Consumer Discretionary 18% Consumer Staples 6% Energy 10% Financials 19% Sector Allocation is based on Net Assets. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets Exxon Mobil Corp. 2.0% ChevronTexaco Corp. 1.9% Merck & Co., Inc. 1.8% Honeywell International, Inc. 1.8% Bristol-Myers Squibb Co. 1.7% General Electric Co. 1.6% Verizon Communications, Inc. 1.5% FleetBoston Financial Corp. 1.5% Cooper Industries, Ltd. - Class A 1.4% Time Warner, Inc. 1.4% [CHART] Relative Performance T. Rowe Price Equity Income Portfolio S&P 500 Index ------------------- ------------- 5/03 $10,000 $10,000 12/03 12,364 12,282 Average Annual Total Return For Periods Ended December 31, 2003 Since Inception# T. Rowe Price Equity Income Portfolio 23.64% S&P 500 Index 22.82% #inception date of 5/1/03, returns not annualized 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 does not include sales charges. This chart assumes an initial investment of $10,000 made on 5/1/03 (commencement of the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. T. Rowe Price Equity Income Portfolio 39 T. Rowe Price Equity Income Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ---------------------------------------------------------- Consumer Discretionary (17.5%) The Black & Decker Corp. 3,300 163 *Comcast Corp. -- Class A 13,300 437 Dow Jones & Co., Inc. 10,900 543 Eastman Kodak Co. 20,400 524 Ford Motor Co. 12,000 192 Fortune Brands, Inc. 6,600 472 Genuine Parts Co. 8,700 289 Hasbro, Inc. 13,800 294 Hilton Hotels Corp. 18,600 319 The Home Depot, Inc. 13,500 479 J. C. Penney Co., Inc. 2,400 63 Knight-Ridder, Inc. 6,200 480 The May Department Stores Co. 10,400 302 McDonald's Corp. 20,700 514 The New York Times Co. -- Class A 11,400 545 Newell Rubbermaid, Inc. 21,300 485 The Reader's Digest Association, Inc. -- Class A 3,500 51 Starwood Hotels & Resorts Worldwide, Inc. 12,000 432 *Time Warner, Inc. 36,900 663 *Toys R Us, Inc. 17,000 215 Viacom, Inc. -- Class B 6,700 297 The Walt Disney Co. 24,200 565 ----- Total 8,324 ----- Consumer Staples (5.7%) Altria Group, Inc. 6,200 337 Brown-Forman Corp. -- Class B 1,200 112 Campbell Soup Co. 15,300 410 The Clorox Co. 5,700 277 ConAgra Foods, Inc. 7,200 190 General Mills, Inc. 5,800 263 The Gillette Co. 8,700 320 Kimberly-Clark Corp. 7,500 443 Mccormick & Co., Inc. 900 27 UST, Inc. 9,100 325 Winn-Dixie Stores, Inc. 3,400 34 ----- Total 2,738 ----- Energy (9.8%) Amerada Hess Corp. 12,400 659 Anadarko Petroleum Corp. 7,200 367 Baker Hughes, Inc. 3,900 125 BP Amoco PLC, ADR 10,400 513 ChevronTexaco Corp. 10,400 898 Exxon Mobil Corp. 23,700 973 Marathon Oil Corp. 7,000 232 Royal Dutch Petroleum Co. 11,200 587 Schlumberger, Ltd. 5,400 295 ----- Total 4,649 -----
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ------------------------------------------------------- Financials (18.7%) American Express Co. 10,800 521 American International Group, Inc. 3,800 252 Bank of America Corp. 5,400 434 Bank One Corp. 14,500 662 The Chubb Corp. 5,600 381 Citigroup, Inc. 7,600 369 Fannie Mae 5,000 375 FleetBoston Financial Corp. 16,500 721 J.P. Morgan Chase & Co. 11,200 411 Janus Capital Group, Inc. 5,200 85 John Hancock Financial Services, Inc. 3,394 127 Lincoln National Corp. 9,676 391 Marsh & Mclennan Companies, Inc. 12,400 595 Mellon Financial Corp. 13,900 446 Mercantile Bankshares Corp. 6,300 287 Morgan Stanley 6,100 353 National City Corp. 7,300 248 Northern Trust Corp. 5,000 232 SAFECO Corp. 11,900 463 Simon Property Group, Inc. 5,800 269 The St. Paul Companies, Inc. 7,500 297 Travelers Property Casualty Corp. -- Class B 14,100 239 UnumProvident Corp. 21,500 339 Wells Fargo & Co. 4,600 271 Wilmington Trust Corp. 3,500 126 ----- Total 8,894 ----- Health Care (9.4%) Abbott Laboratories 7,600 354 Baxter International, Inc. 15,300 467 Becton, Dickinson And Co. 4,200 173 Bristol-Myers Squibb Co. 27,600 789 CIGNA Corp. 6,700 385 Johnson & Johnson 10,200 527 Merck & Co., Inc. 19,000 878 Schering-Plough Corp. 21,800 379 Wyeth 13,000 552 ----- Total 4,504 ----- Industrials (13.6%) The Boeing Co. 6,500 274 Cooper Industries, Ltd. -- Class A 11,700 678 *The Dun & Bradstreet Corp. 4,300 218 Emerson Electric Co. 3,700 240 General Electric Co. 24,100 747 Honeywell International, Inc. 25,500 852 Hubbell, Inc. -- Class B 4,400 194 Lockheed Martin Corp. 4,300 221 Norfolk Southern Corp. 15,100 357 Pall Corp. 15,300 410 Raytheon Co. 14,800 445
40 T. Rowe Price Equity Income Portfolio T. Rowe Price Equity Income Portfolio
Shares/ Value Common Stock (95.1%) $ Par $ (000's) ----------------------------------------------------------- Industrials continued Rockwell Automation, Inc. 9,300 331 Rockwell Collins, Inc. 14,600 438 Union Pacific Corp. 8,700 604 Waste Management, Inc. 15,600 462 ------ Total 6,471 ------ Information Technology (4.3%) *Agere Systems, Inc. 17,300 53 Hewlett-Packard Co. 24,600 565 *Lucent Technologies, Inc. 37,600 107 Microsoft Corp. 14,200 391 Motorola, Inc. 28,000 394 Nokia Corp., ADR 15,700 267 Texas Instruments, Inc. 9,600 282 ------ Total 2,059 ------ Materials (6.2%) Alcoa, Inc. 6,700 255 The Dow Chemical Co. 11,900 495 E. I. du Pont de Nemours And Co. 10,400 477 Great Lakes Chemical Corp. 9,100 247 *Hercules, Inc. 16,400 200 International Flavors & Fragrances, Inc. 7,600 265 International Paper Co. 13,700 591 MeadWestvaco Corp. 4,900 146 Nucor Corp. 5,200 291 ------ Total 2,967 ------ Telecommunication Services (5.5%) ALLTEL Corp. 7,700 359 AT&T Corp. 13,600 276 *Qwest Communications International, Inc. 86,700 375 SBC Communications, Inc. 19,500 508 Sprint Corp. 21,700 356 Verizon Communications, Inc. 20,700 726 ------ Total 2,600 ------ Utilities (4.4%) Constellation Energy Group, Inc. 10,500 411 Duke Energy Corp. 24,800 507 El Paso Corp. 16,300 133 FirstEnergy Corp. 8,300 292 NiSource, Inc. 16,800 369 TECO Energy, Inc. 3,400 49 TXU Corp. 14,400 342 ------ Total 2,103 ------ Total Common Stock (Cost: $38,694) 45,309 ------
Shares/ Value Preferred Stock (0.5%) $ Par $ (000's) -------------------------------------------------------- Consumer Discretionary (0.2%) Ford Motor Co. Capital Trust II 1,400 78 ------ Total 78 ------ Information Technology (0.3%) Lucent Technologies, 8.00%, 8/1/31 165,000 177 ------ Total 177 ------ Total Preferred Stock (Cost: $219) 255 ------ Money Market Investment (3.6%) -------------------------------------------------------- Other Holdings (3.6%) Reserve Investment Fund 1,737,164 1,737 ------ Total Money Market Investment (Cost: $1,737) 1,737 ------ Total Investments (99.2%) (Cost $40,650)(a) 47,301 ------ Other Assets, Less Liabilities (0.8%) 363 ------ Total Net Assets (100.0%) 47,664 ------
* Non-Income Producing ADR -- American Depository Receipt (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $40,650 and the net unrealized appreciation of investments based on that cost was $6,651 which is comprised of $6,825 aggregate gross unrealized appreciations and $174 aggregate gross unrealized depreciation. The Accompanying Notes are an Integral Part of the Financial Statements T. Rowe Price Equity Income Portfolio 41 Index 500 Stock Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Long-term capital appreciation through Invest in a portfolio designed to approximate the $1.8 billion cost-effective participation in broad composition and returns of the S&P 500 Index. market performance
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, 2003, the 500 stocks in the Index had a median market capitalization of $9.1 billion and total market value of $10,286 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 representative of 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. Because the S&P 500 Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. [CHART] Sector Allocation 12/31/03 Health Care 13% Industrials 11% Information Technology 17% Materials 3% Telecommunication Services 3% Utilities 3% Consumer Discretionary 11% Consumer Staples 11% Energy 6% Financials 20% Short-term Investments 2% Sector Allocation is based on equities. Sector Allocation and Top 10 Holdings are subject to change. [GRAPHIC] Top 10 Equity Holdings 12/31/03 Company % of Total Net Assets General Electric Co. 3.0% Microsoft Corp. 2.9% Pfizer, Inc. 2.6% Exxon Mobil Corp. 2.6% Citigroup, Inc. 2.4% Wal-Mart Stores, Inc. 2.2% Intel Corp. 2.0% American International Group, Inc. 1.7% Cisco Systems, Inc. 1.6% International Business Machines Corp. 1.5% [CHART] Relative Performance Index 500 Stock Portfolio S&P 500 Index ------------------------- ------------- 12/93 $10,000 $10,000 12/94 10,121 10,131 12/95 13,892 13,933 12/96 17,052 17,129 12/97 22,713 22,842 12/98 29,236 29,368 12/99 35,349 35,547 12/00 32,255 32,312 12/01 28,423 28,474 12/02 22,150 22,184 12/03 28,448 28,544 Average Annual Total Return For Periods Ended December 31, 2003 1 Year 5 Years 10 Years Index 500 Stock Portfolio 28.43% -0.54% 11.02% S&P 500 Index 28.67% -0.57% 11.06% 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 does 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 12/31/93. Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 42 Index 500 Stock Portfolio Index 500 Stock Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Consumer Discretionary (11.1%) *American Greetings Corp. -- Class A 11,100 243 *AutoNation, Inc. 46,200 849 *Autozone, Inc. 15,025 1,280 *Bed Bath & Beyond, Inc. 49,600 2,150 Best Buy Co., Inc. 54,150 2,829 *Big Lots, Inc. 19,600 279 The Black & Decker Corp. 13,000 641 Boise Cascade Corp. 14,300 470 Brunswick Corp. 15,200 484 Carnival Corp Comm Paired Stk 105,609 4,196 Centex Corp. 10,400 1,120 Circuit City Stores, Inc. 35,000 355 Clear Channel Communications, Inc. 103,150 4,831 *Comcast Corp. -- Class A 377,670 12,413 Cooper Tire & Rubber Co. 12,400 265 Dana Corp. 24,950 458 Darden Restaurants, Inc. 27,550 580 Delphi Automotive Systems Corp. 93,987 960 Dillard's, Inc. -- Class A 13,864 228 Dollar General Corp. 55,948 1,174 Dow Jones & Co., Inc. 13,620 679 Eastman Kodak Co. 48,083 1,234 *eBay, Inc. 107,700 6,956 Family Dollar Stores, Inc. 28,900 1,037 Federated Department Stores, Inc. 31,151 1,468 Ford Motor Co. 307,394 4,918 Fortune Brands, Inc. 24,367 1,742 Gannett Co., Inc. 45,250 4,034 The Gap, Inc. 149,975 3,481 General Motors Corp. 94,127 5,026 Genuine Parts Co. 29,200 969 *The Goodyear Tire & Rubber Co. 29,000 228 Harley-Davidson, Inc. 50,800 2,415 Harrah's Entertainment, Inc. 18,450 918 Hasbro, Inc. 29,125 620 Hilton Hotels Corp. 63,350 1,085 The Home Depot, Inc. 385,694 13,687 International Game Technology 57,900 2,067 *The Interpublic Group of Companies, Inc. 65,700 1,025 J. C. Penney Co., Inc. 45,550 1,197 Johnson Controls, Inc. 15,000 1,742 Jones Apparel Group, Inc. 21,200 747 KB Home 7,900 573 Knight-Ridder, Inc. 13,450 1,041 *Kohl's Corp. 56,967 2,560 Leggett & Platt Inc. 32,333 699 The Limited, Inc. 87,505 1,578 Liz Claiborne, Inc. 18,300 649 Lowe's Companies, Inc. 131,450 7,281
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Consumer Discretionary continued Marriott International, Inc. -- Class A 39,100 1,806 Mattel, Inc. 73,688 1,420 The May Department Stores Co. 48,450 1,408 Maytag Corp. 13,133 366 McDonald's Corp. 213,478 5,301 The McGraw-Hill Companies, Inc. 32,060 2,242 Meredith Corp. 8,300 405 The New York Times Co. -- Class A 25,070 1,198 Newell Rubbermaid, Inc. 46,092 1,050 NIKE, Inc. -- Class B 44,300 3,033 Nordstrom, Inc. 22,767 781 *Office Depot, Inc. 51,957 868 Omnicom Group, Inc. 31,900 2,786 Pulte Corp. 10,300 964 Radioshack Corp. 27,800 853 Reebok International, Ltd. 9,900 389 Sears, Roebuck & Co. 42,550 1,936 The Sherwin-Williams Co. 24,513 852 Snap-on, Inc. 9,817 317 The Stanley Works 14,250 540 *Staples, Inc. 82,300 2,247 *Starbucks Corp. 65,650 2,170 Starwood Hotels & Resorts Worldwide, Inc. 33,800 1,216 Target Corp. 152,857 5,870 Tiffany & Co. 24,367 1,101 *Time Warner, Inc. 757,300 13,623 The TJX Companies, Inc. 85,700 1,890 *Toys R Us, Inc. 35,850 453 Tribune Co. 52,636 2,716 Tupperware Corp. 9,700 168 *Univision Communications, Inc. -- Class A 54,000 2,143 V. F. Corp. 18,057 781 Viacom, Inc. -- Class B 294,548 13,071 Visteon Corp. 21,683 226 The Walt Disney Co. 343,057 8,004 Wendy's International, Inc. 19,050 748 Whirlpool Corp. 11,550 839 *Yum! Brands, Inc. 49,280 1,695 ------- Total 194,937 ------- Consumer Staples (10.8%) Adolph Coors Co. -- Class B 6,100 342 Alberto-Culver Co. -- Class B 9,900 624 Albertson's, Inc. 61,554 1,394 Altria Group, Inc. 340,522 18,531 Anheuser-Busch Companies, Inc. 138,749 7,309 Archer-Daniels-Midland Co. 108,203 1,647
Index 500 Stock Portfolio 43 Index 500 Stock Portfolio
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - -------------------------------------------------------------------------------- Consumer Staples continued Avon Products, Inc. 39,600 2,673 Brown-Forman Corp. -- Class B 10,209 954 Campbell Soup Co. 68,922 1,847 The Clorox Co. 36,350 1,765 The Coca-Cola Co. 412,475 20,933 Coca-Cola Enterprises, Inc. 75,900 1,660 Colgate-Palmolive Co. 90,322 4,521 ConAgra Foods, Inc. 90,067 2,377 *Costco Wholesale Corp. 76,664 2,850 CVS Corp. 66,267 2,394 General Mills, Inc. 62,567 2,834 The Gillette Co. 171,235 6,289 H.J. Heinz Co. 59,017 2,150 Hershey Foods Corp. 21,950 1,690 Kellogg Co. 68,457 2,607 Kimberly-Clark Corp. 85,056 5,026 *The Kroger Co. 126,105 2,334 Mccormick & Co., Inc. 23,400 704 The Pepsi Bottling Group, Inc. 45,000 1,088 PepsiCo, Inc. 289,530 13,498 The Procter & Gamble Co. 217,605 21,735 R.J. Reynolds Tobacco Holdings, Inc. 14,100 820 *Safeway, Inc. 74,100 1,624 Sara Lee Corp. 130,435 2,832 SUPERVALU, Inc. 22,450 642 SYSCO Corp. 109,025 4,059 UST, Inc. 27,967 998 Wal-Mart Stores, Inc. 733,200 38,897 Walgreen Co. 171,946 6,255 Winn-Dixie Stores, Inc. 23,350 232 Wm. Wrigley Jr. Co. 37,767 2,123 ------- Total 190,258 ------- Energy (5.7%) Amerada Hess Corp. 15,100 803 Anadarko Petroleum Corp. 41,862 2,135 Apache Corp. 27,123 2,200 Ashland, Inc. 11,500 507 Baker Hughes, Inc. 56,130 1,805 *BJ Services Co. 26,600 955 Burlington Resources, Inc. 33,683 1,865 ChevronTexaco Corp. 179,357 15,495 ConocoPhillips 114,110 7,482 Devon Energy Corp. 38,900 2,227 EOG Resources, Inc. 19,260 889 Exxon Mobil Corp. 1,113,756 45,665 Halliburton Co. 73,469 1,910 Kerr-McGee Corp. 16,905 786 Marathon Oil Corp. 52,009 1,721 *Nabors Industries, Ltd. 24,550 1,019 *Noble Corp. 22,450 803 Occidental Petroleum Corp. 64,220 2,713 *Rowan Companies, Inc. 15,750 365 Schlumberger, Ltd. 97,767 5,350
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Energy continued Sunoco, Inc. 12,950 662 *Transocean Sedco Forex, Inc. 53,651 1,288 Unocal Corp. 43,367 1,597 ------- Total 100,242 ------- Financials (20.3%) ACE, Ltd. 46,700 1,934 AFLAC, Inc. 86,250 3,121 The Allstate Corp. 118,128 5,082 Ambac Financial Group, Inc. 17,900 1,242 American Express Co. 215,975 10,416 American International Group, Inc. 437,830 29,018 AmSouth Bancorporation 58,855 1,442 Aon Corp. 52,500 1,257 Apartment Investment and Management Co. -- Class A 15,800 545 Bank of America Corp. 250,801 20,171 The Bank of New York Co., Inc. 129,253 4,281 Bank One Corp. 189,686 8,648 BB&T Corp. 90,600 3,501 The Bear Stearns Companies, Inc. 16,695 1,335 Capital One Financial Corp. 38,100 2,335 The Charles Schwab Corp. 227,239 2,691 Charter One Financial, Inc. 37,820 1,307 The Chubb Corp. 31,450 2,142 Cincinnati Financial Corp. 26,880 1,126 Citigroup, Inc. 864,348 41,954 Comerica, Inc. 29,450 1,651 Countrywide Credit Industries, Inc. 30,300 2,298 Equity Office Properties Trust 66,900 1,917 Equity Residential Properties Trust 45,900 1,355 Fannie Mae 163,448 12,268 Federated Investors, Inc. -- Class B 18,200 534 Fifth Third Bancorp 95,634 5,652 First Tennessee National Corp. 21,100 931 FleetBoston Financial Corp. 176,605 7,709 Franklin Resources, Inc. 42,150 2,194 Freddie Mac 116,786 6,811 Golden West Financial Corp. 25,550 2,637 The Goldman Sachs Group, Inc. 79,600 7,859 The Hartford Financial Services Group, Inc. 47,350 2,795 Huntington Bancshares, Inc. 38,342 863 J.P. Morgan Chase & Co. 341,748 12,552 Janus Capital Group, Inc. 40,129 659 Jefferson-Pilot Corp. 23,834 1,207 John Hancock Financial Services, Inc. 48,500 1,819 Keycorp 70,575 2,069 Lehman Brothers Holdings, Inc. 46,122 3,562 Lincoln National Corp. 29,840 1,205 Loews Corp. 31,167 1,541 Marsh & Mclennan Companies, Inc. 89,380 4,280 Marshall & Ilsley Corp. 38,100 1,457 MBIA, Inc. 24,350 1,442
44 Index 500 Stock Portfolio Index 500 Stock Portfolio
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Financials continued MBNA Corp. 214,415 5,328 Mellon Financial Corp. 72,268 2,321 Merrill Lynch & Co., Inc. 156,900 9,202 MetLife, Inc. 127,536 4,294 MGIC Investment Corp. 16,500 940 Moody's Corp. 25,075 1,518 Morgan Stanley 182,513 10,562 National City Corp. 103,097 3,499 North Fork Bancorporation, Inc. 25,500 1,032 Northern Trust Corp. 37,050 1,720 Plum Creek Timber Co., Inc. (Reit) 30,700 935 The PNC Financial Services Group, Inc. 46,967 2,571 Principal Financial Group, Inc. 54,300 1,796 The Progressive Corp. 36,500 3,051 Prologis 30,100 966 *Providian Financial Corp. 48,657 566 Prudential Financial, Inc. 91,600 3,826 Regions Financial Corp. 37,386 1,391 SAFECO Corp. 23,250 905 Simon Property Group, Inc. 32,300 1,497 SLM Corp. 75,642 2,850 SouthTrust Corp. 56,667 1,855 The St. Paul Companies, Inc. 38,272 1,517 State Street Corp. 55,900 2,911 SunTrust Banks, Inc. 47,233 3,377 Synovus Financial Corp. 50,550 1,462 T. Rowe Price Group, Inc. 20,700 981 Torchmark Corp. 19,150 872 Travelers Property Casualty Corp. -- Class B 168,947 2,867 U.S. Bancorp 323,221 9,626 Union Planters Corp. 32,937 1,037 UnumProvident Corp. 49,631 783 Wachovia Corp. 223,581 10,417 Washington Mutual, Inc. 154,887 6,214 Wells Fargo & Co. 281,880 16,600 XL Capital, Ltd. Class A 22,900 1,776 Zions Bancorporation 15,100 926 ------- Total 356,806 ------- Health Care (13.1%) Abbott Laboratories 262,250 12,221 Aetna, Inc. 25,777 1,742 Allergan, Inc. 21,867 1,680 AmerisourceBergen Corp. 18,800 1,056 *Amgen, Inc. 216,617 13,386 *Anthem, Inc. 23,300 1,748 Applera Corp. -- Applied Biosystems Group 35,033 726 Bausch & Lomb, Inc. 8,900 462 Baxter International, Inc. 102,200 3,119 Becton, Dickinson And Co. 42,650 1,755 *Biogen IDEC, Inc. 54,890 2,019 Biomet, Inc. 43,045 1,567 *Boston Scientific Corp. 138,172 5,079
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - -------------------------------------------------------------------------------- Health Care continued Bristol-Myers Squibb Co. 325,308 9,304 C. R. Bard, Inc. 8,650 703 Cardinal Health, Inc. 74,925 4,582 *Chiron Corp. 31,322 1,785 CIGNA Corp. 23,529 1,353 Eli Lilly and Co. 188,406 13,251 *Express Scripts, Inc. 13,200 877 *Forest Laboratories, Inc. 61,266 3,786 *Genzyme Corp. 37,300 1,840 Guidant Corp. 51,688 3,112 HCA, Inc. 83,811 3,601 Health Management Associates, Inc. -- Class A 40,200 965 *Humana, Inc. 27,100 619 IMS Health, Inc. 40,167 999 Johnson & Johnson 498,037 25,728 *King Pharmaceuticals, Inc. 40,466 618 Manor Care, Inc. 14,900 515 McKesson HBOC, Inc. 48,705 1,566 *Medco Health Solutions, Inc. 45,372 1,542 *MedImmune, Inc. 41,900 1,064 Medtronic, Inc. 204,200 9,926 Merck & Co., Inc. 375,720 17,357 *Millipore Corp. 8,100 349 Pfizer, Inc. 1,306,634 46,162 *Quest Diagnostics Inc. 17,700 1,294 Schering-Plough Corp. 246,550 4,288 *St. Jude Medical, Inc. 28,800 1,767 Stryker Corp. 33,450 2,844 *Tenet Healthcare Corp. 77,850 1,249 UnitedHealth Group, Inc. 100,072 5,822 *Watson Pharmaceuticals, Inc. 18,100 833 *Wellpoint Health Networks, Inc. -- Class A 24,600 2,386 Wyeth 223,429 9,485 *Zimmer Holdings, Inc. 38,037 2,678 ------- Total 230,810 ------- Industrials (10.7%) 3M Co. 131,376 11,171 *Allied Waste Industries, Inc. 35,150 488 American Power Conversion Corp. 33,150 811 *American Standard Companies, Inc. 12,100 1,218 *Apollo Group, Inc. -- Class A 29,500 2,006 Avery Dennison Corp. 18,550 1,039 The Boeing Co. 141,176 5,949 Burlington Northern Santa Fe Corp. 62,485 2,021 Caterpillar, Inc. 57,888 4,806 *Cendant Corp. 170,133 3,789 Cintas Corp. 28,633 1,435 Cooper Industries, Ltd. -- Class A 15,400 892 Crane Co. 9,975 307 CSX Corp. 35,950 1,292 Cummins, Inc. 7,000 343 Danaher Corp. 25,700 2,358
Index 500 Stock Portfolio 45 Index 500 Stock Portfolio
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - -------------------------------------------------------------------------------- Industrials continued Deere & Co. 40,160 2,612 Delta Air Lines, Inc. 20,467 242 Deluxe Corp. 8,851 366 Dover Corp. 33,967 1,350 Eaton Corp. 12,600 1,361 Emerson Electric Co. 70,650 4,575 Equifax, Inc. 23,500 576 FedEx Corp. 50,120 3,383 Fluor Corp. 13,700 543 General Dynamics Corp. 33,100 2,992 General Electric Co. 1,681,306 52,088 Goodrich Corp. 19,700 585 H&R Block, Inc. 30,150 1,669 Honeywell International, Inc. 144,350 4,826 Illinois Tool Works, Inc. 51,700 4,338 Ingersoll-Rand Co. -- Class A 28,780 1,954 ITT Industries, Inc. 15,500 1,150 Lockheed Martin Corp. 75,708 3,891 Masco Corp. 78,900 2,163 *Monster Worldwide, Inc. 18,867 414 *Navistar International Corp. 11,450 548 Norfolk Southern Corp. 65,457 1,548 Northrop Grumman Corp. 30,710 2,936 PACCAR, Inc. 19,605 1,669 Pall Corp. 20,850 559 Parker-Hannifin Corp. 19,875 1,183 Pitney Bowes, Inc. 39,237 1,594 *Power-One, Inc. 13,800 149 R. R. Donnelley & Sons Co. 19,034 574 Raytheon Co. 69,500 2,088 *Robert Half International, Inc. 28,640 668 Rockwell Automation, Inc. 31,050 1,105 Rockwell Collins, Inc. 30,050 902 Ryder System, Inc. 10,600 362 Southwest Airlines Co. 131,367 2,120 Textron, Inc. 22,750 1,298 *Thomas & Betts Corp. 9,700 222 Tyco International, Ltd. 335,208 8,883 Union Pacific Corp. 42,760 2,971 United Parcel Service, Inc. -- Class B 188,800 14,075 United Technologies Corp. 78,667 7,455 W.W. Grainger, Inc. 15,300 725 Waste Management, Inc. 99,385 2,942 ------- Total 187,579 ------- Information Technology (17.4%) (b)*ADC Telecommunications, Inc. 134,950 401 Adobe Systems, Inc. 39,125 1,538 *Advanced Micro Devices, Inc. 58,200 867 *Agilent Technologies, Inc. 79,137 2,314 *Altera Corp. 64,211 1,458 Analog Devices, Inc. 61,257 2,796 *Andrew Corp. 25,737 296 *Apple Computer, Inc. 60,800 1,299
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - -------------------------------------------------------------------------------- Information Technology continued *Applied Materials, Inc. 278,100 6,243 *Applied Micro Circuits Corp. 51,100 306 Autodesk, Inc. 18,734 460 Automatic Data Processing, Inc. 100,350 3,975 *Avaya, Inc. 69,916 905 *BMC Software, Inc. 38,160 712 *Broadcom Corp. -- Class A 49,800 1,698 *CIENA Corp. 79,000 525 *Cisco Systems, Inc. 1,177,800 28,609 *Citrix Systems, Inc. 27,620 586 Computer Associates International, Inc. 97,092 2,654 *Computer Sciences Corp. 31,450 1,391 *Compuware Corp. 64,257 388 *Comverse Technology, Inc. 31,600 556 *Concord EFS, Inc. 81,700 1,212 *Convergys Corp. 23,950 418 *Corning, Inc. 223,400 2,330 *Dell, Inc. 431,033 14,638 *Electronic Arts, Inc. 49,400 2,360 Electronic Data Systems Corp. 80,467 1,975 *EMC Corp. 368,174 4,757 First Data Corp. 124,226 5,104 *Fiserv, Inc. 32,525 1,285 *Gateway, Inc. 54,350 250 Hewlett-Packard Co. 512,326 11,768 Intel Corp. 1,092,463 35,177 International Business Machines Corp. 290,339 26,909 *Intuit, Inc. 34,400 1,820 *Jabil Circuit, Inc. 33,367 944 *JDS Uniphase Corp. 240,000 876 *KLA-Tencor Corp. 31,900 1,872 *Lexmark International Group, Inc. -- Class A 21,500 1,691 Linear Technology Corp. 52,550 2,211 *LSI Logic Corp. 63,600 564 *Lucent Technologies, Inc. 698,136 1,983 Maxim Integrated Products, Inc. 54,500 2,714 *Mercury Interactive Corp. 14,500 705 *Micron Technology, Inc. 102,350 1,379 Microsoft Corp. 1,814,700 49,976 Molex, Inc. 32,050 1,118 Motorola, Inc. 390,577 5,495 *National Semiconductor Corp. 30,843 1,216 *NCR Corp. 15,900 617 *Network Appliance, Inc. 57,400 1,178 *Novell, Inc. 62,300 655 *Novellus Systems, Inc. 25,400 1,068 *NVIDIA Corp. 26,700 621 *Oracle Corp. 878,325 11,594 *Parametric Technology Corp. 44,080 174 Paychex, Inc. 63,235 2,352 *Peoplesoft, Inc. 61,100 1,393 PerkinElmer, Inc. 21,300 364 *PMC-Sierra, Inc. 28,600 576
46 Index 500 Stock Portfolio Index 500 Stock Portfolio
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Information Technology continued *QLogic Corp. 15,850 818 QUALCOMM, Inc. 133,167 7,182 Sabre Holdings Corp. -- Class A 24,067 520 *Sanmina-SCI Corp. 85,600 1,079 Scientific-Atlanta, Inc. 25,000 683 *Siebel Systems, Inc. 82,900 1,150 *Solectron Corp. 139,300 823 *Sun Microsystems, Inc. 541,997 2,434 *SunGard Data Systems, Inc. 47,900 1,327 *Symantec Corp. 50,900 1,764 Symbol Technologies, Inc. 38,650 653 Tektronix, Inc. 14,260 451 *Tellabs, Inc. 69,292 584 *Teradyne, Inc. 31,650 805 Texas Instruments, Inc. 290,500 8,535 *Thermo Electron Corp. 27,200 685 *Unisys Corp. 55,250 820 *VERITAS Software Corp. 71,432 2,654 *Waters Corp. 20,600 683 *Xerox Corp. 132,700 1,831 *Xilinx, Inc. 57,200 2,216 *Yahoo!, Inc. 109,000 4,924 ------- Total 305,937 ------- Materials (3.0%) Air Products and Chemicals, Inc. 38,167 2,016 Alcoa, Inc. 142,007 5,396 Allegheny Technologies, Inc. 13,417 177 Ball Corp. 9,466 564 Bemis Co., Inc. 8,950 448 The Dow Chemical Co. 154,109 6,407 E. I. du Pont de Nemours And Co. 167,228 7,675 Eastman Chemical Co. 13,025 515 Ecolab, Inc. 43,600 1,193 Engelhard Corp. 21,000 629 Freeport-McMoRan Copper & Gold, Inc. -- Class B 28,281 1,191 Georgia-Pacific Corp. 42,604 1,307 Great Lakes Chemical Corp. 8,400 228 *Hercules, Inc. 18,400 224 International Flavors & Fragrances, Inc. 15,800 552 International Paper Co. 80,466 3,469 *Louisiana-Pacific Corp. 17,600 315 MeadWestvaco Corp. 33,579 999 Monsanto Co. 43,953 1,265 Newmont Mining Corp. 72,480 3,523 Nucor Corp. 13,133 735 *Pactiv Corp. 26,400 631 *Phelps Dodge Corp. 14,924 1,136 PPG Industries, Inc. 28,467 1,822 Praxair, Inc. 54,700 2,090 Rohm And Haas Co. 37,280 1,592 *Sealed Air Corp. 14,221 770 Sigma-Aldrich Corp. 11,900 680 Temple-Inland, Inc. 9,100 570 United States Steel Corp. 17,350 608 Vulcan Materials Co. 17,100 813 Weyerhaeuser Co. 36,780 2,354 Worthington Industries, Inc. 14,400 260 ------- Total 52,154 -------
Shares/ Value Common Stock (98.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Telecommunication Services (3.4%) ALLTEL Corp. 52,357 2,439 AT&T Corp. 132,207 2,684 *AT&T Wireless Services, Inc. 455,297 3,638 BellSouth Corp. 309,965 8,772 CenturyTel, Inc. 24,100 786 *Citizens Communications Co. 47,700 592 *Nextel Communications, Inc. -- Class A 184,550 5,178 *Qwest Communications International, Inc. 284,535 1,229 SBC Communications, Inc. 557,747 14,541 Sprint Corp. 151,609 2,489 *Sprint Corp. (PCS Group) 173,560 975 Verizon Communications, Inc. 462,542 16,227 --------- Total 59,550 --------- Utilities (2.8%) *The AES Corp. 104,000 982 *Allegheny Energy, Inc. 21,100 269 Ameren Corp. 27,167 1,250 American Electric Power Co., Inc. 66,240 2,021 *Calpine Corp. 69,360 334 CenterPoint Energy, Inc. 51,262 497 Cinergy Corp. 29,784 1,156 *CMS Energy Corp. 27,000 230 Consolidated Edison, Inc. 37,750 1,624 Constellation Energy Group, Inc. 28,000 1,096 Dominion Resources, Inc. 54,295 3,466 DTE Energy Co. 28,250 1,113 Duke Energy Corp. 151,730 3,103 *Dynegy, Inc. -- Class A 62,900 269 Edison International 54,720 1,200 El Paso Corp. 100,771 825 Entergy Corp. 38,209 2,183 Exelon Corp. 54,712 3,631 FirstEnergy Corp. 54,665 1,924 FPL Group, Inc. 30,857 2,019 KeySpan Corp. 26,600 979 Kinder Morgan, Inc. 20,667 1,221 Nicor, Inc. 7,350 250 NiSource, Inc. 44,073 967 Peoples Energy Corp. 6,100 256 *PG&E Corp. 69,125 1,920 Pinnacle West Capital Corp. 15,300 612 PPL Corp. 29,634 1,296 Progress Energy, Inc. 40,892 1,851 Public Service Enterprise Group, Inc. 38,036 1,666 Sempra Energy 37,502 1,127 The Southern Co. 122,300 3,701 TECO Energy, Inc. 31,500 454 TXU Corp. 54,065 1,282 The Williams Companies, Inc. 86,900 853 Xcel Energy, Inc. 66,920 1,136 --------- Total 48,763 --------- Total Common Stock (Cost: $1,358,297) 1,727,036 ---------
Index 500 Stock Portfolio 47 Index 500 Stock Portfolio
Shares/ Value Money Market Investments (1.7%) $ Par $ (000's) - -------------------------------------------------------------------------------- Autos (0.6%) (b)Toyota Motor Credit Corp., 1.02%, 2/12/04 10,000,000 9,988 --------- Total 9,988 --------- Banks (0.3%) (b)UBS Finance Delaware LLC, 0.95%, 1/2/04 5,400,000 5,400 --------- Total 5,400 --------- Federal Government and Agencies (0.2%) (b)Federal Home Loan Mortgage Co., 1.065%, 2/5/04 3,000,000 2,997 (b)Federal National Mortgage Association, 1.04%, 2/2/04 1,000,000 999 --------- Total 3,996 --------- Short Term Business Credit (0.6%) (b)Transamerica Financial, 1.05%, 1/16/04 10,000,000 9,996 --------- Total 9,996 --------- Total Money Market Investment (Cost: $29,380) 29,380 --------- Total Investments (100.0%) (Cost $1,387,677)(a) 1,756,416 --------- Other Assets, Less Liabilities (0.0%) (296) --------- Total Net Assets (100.0%) 1,756,120 ---------
* Non-Income Producing (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $1,391,390 and the net unrealized appreciation of investments based on that cost was $365,026 which is comprised of $536,711 aggregate gross unrealized appreciations and $171,685 aggregate gross unrealized depreciation. (b)All or a portion of the securities have been committed as collateral for open futures positions or when issued securities. Information regarding open futures contracts as of period end is summarized below.
Unrealized Appreciation / Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) ------------------------------------------------------ S & P 500 Index Futures 106 03/04 $1,091 (Total Notional Value at 12/31/03 $28,340)
The Accompanying Notes are an Integral Part of the Financial Statements 48 Index 500 Stock Portfolio Asset Allocation Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Realize highest total return, including Flexible policy of allocating assets among stocks, bonds $130 million current income and capital appreciation, and cash, with mix adjusted to capitalize on changing consistent with reasonable investment risk financial markets and economic conditions.
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 2003 the stock market was quite strong, following three years of negative returns. Bonds also provided positive returns for the year. Among both stocks and bonds, riskier securities performed better than higher quality issues. As expected, the Portfolio's performance for the year was a blend of stock and bond performance, with a total return of 20.63%, below the return of 28.67% from the S&P 500 Index, but above the return of the bond benchmark, the Merrill Lynch Domestic Master Index, which had a return of 4.12%. Neither of these benchmarks reflect the deduction of fees that exist with a managed portfolio. An overweighted position in equities through most of the year was an important factor in the Portfolio's performance. This position was increased and decreased as appropriate to take advantage of market moves. Especially beneficial was a higher than usual proportion of foreign stocks, which benefited from a weak dollar as well as from strength in most international stock markets. Overweighted positions in small-cap stocks and in below investment grade bonds also proved advantageous. Partially offsetting these positives was stock selection within the large-cap sector of the portfolio, which was 34% of the total portfolio at the end of 2003. Within this category, some large holdings such as Newell Rubbermaid, Harley-Davidson and Kohl's have underperformed; these positions are gradually being reduced. [CHART] Percentage Holdings 12/31/03 Large Cap Stocks 34% (includes S&P 500 Index Futures) Investment-Grade Bonds 24% Foreign Stocks 15% Below Investment-Grade Bonds 8% Small Cap Stocks 13% Short-Term Investments 6% Sector Allocation is based on Net Assets. Sector Allocation is subject to change. [CHART] Relative Performance Merrill Lynch Merrill Lynch Asset Allocation Domestic Master 91 Day Portfolio Index T-Bill Index S&P 500 Index ---------------- --------------- ------------- ------------- 7/01 $10,000 $10,000 $10,000 $10,000 12/01 9,770 10,240 10,139 9,538 12/02 8,768 11,306 10,320 7,431 12/03 10,577 11,772 10,438 9,562 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year Inception* Asset Allocation Portfolio 20.63% 2.43% S&P 500 Index 28.67% -1.84% Merrill Lynch Domestic Master Index 4.12% 6.98% Merrill Lynch 91 Day T-Bill Index 1.15% 1.79% *inception date of 7/31/01 In the graph, the Portfolio 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 the Portfolio's operations). Returns shown reflect fee waivers, deductions for management and other Portfolio expenses, and reinvestment of all dividends. In the absence of fee waivers, total return would be reduced. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account Report. 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. Asset Allocation Portfolio 49 Asset Allocation Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Domestic Common Stocks and Shares/ Value Warrants (39.4%) $ Par $ (000's) ----------------------------------------------------- Large Cap Common Stock (26.1%) ----------------------------------------------------- Consumer Discretionary (4.9%) *Bed Bath & Beyond, Inc. 7,900 $ 342 Best Buy Co., Inc. 3,200 167 *Comcast Corp. -- Class A 6,000 197 Fortune Brands, Inc. 11,400 816 Gannett Co., Inc. 3,700 330 Harley-Davidson, Inc. 10,100 480 *InterActiveCorp 5,700 193 *Kohl's Corp. 10,500 472 Lowe's Companies, Inc. 1,300 72 McDonald's Corp. 9,700 241 The McGraw-Hill Companies, Inc. 6,300 440 Omnicom Group, Inc. 5,700 498 Target Corp. 15,000 577 *Time Warner, Inc. 20,000 360 Tribune Co. 8,400 433 Viacom, Inc. -- Class B 9,700 430 Wendy's International, Inc. 8,600 337 ------ Total Consumer Discretionary 6,385 ------ Consumer Staples (2.5%) Altria Group, Inc. 7,600 414 Anheuser-Busch Companies, Inc. 4,900 258 The Coca-Cola Co. 6,800 345 Colgate-Palmolive Co. 3,400 170 *Dean Foods Co. 8,850 291 PepsiCo, Inc. 10,800 503 Wal-Mart Stores, Inc. 15,500 823 Walgreen Co. 12,600 458 ------ Total Consumer Staples 3,262 ------ Energy (1.3%) ConocoPhillips 7,300 479 EOG Resources, Inc. 7,800 360 Exxon Mobil Corp. 15,200 623 *Nabors Industries, Ltd. 2,100 87 *Noble Corp. 2,900 104 ------ Total Energy 1,653 ------ Financials (3.8%) American Express Co. 5,000 241 American International Group, Inc. 9,600 636 The Chubb Corp. 4,500 306 Citigroup, Inc. 18,300 889 Countrywide Credit Industries, Inc. 1,066 81 Fifth Third Bancorp 6,800 402 The Goldman Sachs Group, Inc. 5,000 494 Lehman Brothers Holdings, Inc. 4,200 324 Morgan Stanley 9,100 527 Prudential Financial, Inc. 4,500 188 Wachovia Corp. 3,700 172 Wells Fargo & Co. 12,300 724 ------ Total Financials 4,984 ------
Shares/ Value Large Cap Common Stock (26.1%) $ Par $ (000's) ------------------------------------------------------- Health Care (3.8%) Abbott Laboratories 7,100 331 AmerisourceBergen Corp. 5,200 292 *Amgen, Inc. 11,500 711 *Boston Scientific Corp. 4,200 154 Eli Lilly and Co. 4,700 331 *Forest Laboratories, Inc. 6,500 402 *Gilead Sciences, Inc. 2,800 163 Johnson & Johnson 7,900 408 Medtronic, Inc. 17,800 865 Pfizer, Inc. 27,700 978 UnitedHealth Group, Inc. 4,700 273 ----- Total Health Care 4,908 ----- Industrials (1.4%) Canadian National Railway Co. 5,300 335 FedEx Corp. 1,500 101 General Electric Co. 25,400 787 Lockheed Martin Corp. 4,000 206 Union Pacific Corp. 4,800 334 ----- Total Industrials 1,763 ----- Information Technology (6.0%) *Affiliated Computer Services, Inc. -- Class A 3,300 180 Analog Devices, Inc. 5,500 251 *Applied Materials, Inc. 11,400 256 *ASML Holding N.V. 10,800 217 *Broadcom Corp. -- Class A 5,000 170 *Cisco Systems, Inc. 24,900 605 *Dell, Inc. 9,400 319 *Electronic Arts, Inc. 900 43 *EMC Corp. 18,370 237 First Data Corp. 10,600 436 *Fiserv, Inc. 8,400 332 Hewlett-Packard Co. 22,200 510 Intel Corp. 28,300 911 International Business Machines Corp. 6,800 630 *Intuit, Inc. 4,500 238 Microsoft Corp. 44,900 1,236 Nokia Corp., ADR 20,500 349 *NVIDIA Corp. 7,900 184 *Peoplesoft, Inc. 4,200 96 *Taiwan Semiconductor, ADR 25,400 260 Texas Instruments, Inc. 16,100 473 ----- Total Information Technology 7,933 ----- Materials (1.5%) Air Products and Chemicals, Inc. 8,500 449 Alcoa, Inc. 18,400 699 Ecolab, Inc. 7,200 197 Newmont Mining Corp. 3,900 190 Weyerhaeuser Co. 5,700 365 ----- Total Materials 1,900 -----
50 Asset Allocation Portfolio Asset Allocation Portfolio
Shares/ Value Large Cap Common Stock (26.1%) $ Par $ (000's) -------------------------------------------------------- Other Holdings (0.6%) *Nasdaq-100 Trust, Series 1 4,800 175 *Semiconductor Holders Trust 16,200 670 ------ Total Other Holdings 845 ------ Telecommunication Services (0.3%) Vodafone Group PLC, ADR 16,800 421 ------ Total Telecommunication Services 421 ------ Total Large Cap Common Stock (Cost: $30,360) 34,054 ------ Small Cap Common Stock (13.3%) -------------------------------------------------------- Consumer Discretionary (3.1%) *Alliance Gaming Corp. 7,100 175 *Ann Taylor Stores Corp. 4,350 170 *Coach, Inc. 4,500 170 *Digital Theater Systems, Inc. 3,500 86 *Emmis Communications Corp. -- Class A 4,400 119 *Entercom Communications Corp. -- Class A 4,300 228 Fairmont Hotels & Resorts, Inc. 5,400 147 *The Gymboree Corp. 8,100 140 Jones Apparel Group, Inc. 4,200 148 *Lamar Advertising Co. -- Class A 6,200 231 Leggett & Platt Inc. 15,000 324 Michaels Stores, Inc. 8,700 385 *O'Reilly Automotive, Inc. 19,100 733 *Orbitz, Inc. 3,300 77 *Orient-Express Hotel, Ltd. -- Class A 10,300 169 Polaris Industries, Inc. 2,000 177 *Sharper Image Corp. 4,600 150 *Stoneridge, Inc. 2,000 30 *Tempur-Pedic International, Inc. 3,693 57 *Tommy Hilfiger Corp. 7,900 117 *Westwood One, Inc. 5,300 181 ------ Total Consumer Discretionary 4,014 ------ Energy (0.6%) *BJ Services Co. 4,200 151 ENSCO International, Inc. 6,600 179 *Patterson-UTI Energy, Inc. 6,400 211 *Tom Brown, Inc. 5,000 161 *Weatherford International, Ltd. 3,900 140 ------ Total Energy 842 ------ Financials (1.1%) CIT Group Inc. 4,100 147 Investors Financial Services Corp. 15,300 587 Old Republic International Corp. 7,950 202 Radian Group, Inc. 3,600 176 SouthTrust Corp. 7,700 252 *Trammell Crow Co. 9,500 126 ------ Total Financials 1,490 ------ Health Care (3.0%) *Advancepcs 5,600 295 *Bio-Rad Laboratories, Inc. Class A 1,800 104
Shares/ Value Small Cap Common Stock (13.3%) $ Par $ (000's) ------------------------------------------------------------- Health Care continued *Bradley Pharmaceuticals, Inc. 3,900 99 *DaVita, Inc. 29,300 1,143 Health Management Associates, Inc. -- Class A 10,400 250 *Lincare Holdings, Inc. 10,300 309 *Patterson Dental Co. 8,100 520 *Province Healthcare Co. 20,750 332 *Psychiatric Solutions, Inc. 4,800 100 *Renal Care Group, Inc. 7,600 313 Select Medical Corp. 5,400 88 *Triad Hospitals, Inc. 5,300 176 *Universal Health Services, Inc. -- Class B 2,700 145 ----- Total Health Care 3,874 ----- Industrials (2.0%) C.H. Robinson Worldwide, Inc. 8,300 315 Cintas Corp. 3,200 160 *The Corporate Executive Board Co. 4,600 215 *EGL, Inc. 6,600 116 *Hewitt Associates, Inc. 4,700 141 *Knight Transportation, Inc. 9,150 235 *L-3 Communications Holdings, Inc. 3,300 169 Manpower, Inc. 1,600 75 *Marlin Business Services Inc. 6,000 104 MSC Industrial Direct Co., Inc. -- Class A 8,800 242 *Swift Transportation Co., Inc. 10,000 210 Teleflex, Inc. 10,700 517 *Tetra Tech, Inc. 2,364 59 ----- Total Industrials 2,558 ----- Information Technology (3.5%) *Amdocs, Ltd. 6,100 137 *Brooks Automation, Inc. 11,180 270 *Caci International, Inc. -- Class A 2,300 112 CDW Corp. 3,300 191 *Cognos, Inc. 6,800 208 *Cree, Inc. 5,800 103 Diebold, Inc. 2,700 145 *Electronics for Imaging, Inc. 6,800 177 *EPIQ Systems, Inc. 8,850 152 *Hyperion Solutions Corp. 400 12 *Integtated Circuit Systems, Inc. 6,300 179 Intersil Corp. -- Class A 8,700 216 *Mettler-Toledo International, Inc. 1,400 59 Microchip Technology, Inc. 7,700 257 *Netgear, Inc. 6,300 101 *Netscreen Technologies, Inc. 4,700 116 *Novellus Systems, Inc. 5,500 231 *O2Micro International, Ltd. 10,000 225 Paychex, Inc. 5,300 197 *Plexus Corp. 4,700 81 *QLogic Corp. 2,300 119 *Semtech Corp. 8,800 200 *SigmaTel, Inc. 2,713 67 *Tollgrade Communications, Inc. 4,800 84 *UTStarcom, Inc. 5,900 219 *Varian, Inc. 5,600 234
Asset Allocation Portfolio 51 Asset Allocation Portfolio
Small Cap Common Shares/ Value Stock (13.3%) $ Par $ (000's) -------------------------------------------------------- Information Technology continued *Verint Systems, Inc. 3,600 81 *Westell Technologies, Inc. -- Class A 13,900 88 *Zebra Technologies Corp. -- Class A 5,200 345 ------ Total Information Technology 4,606 ------ Total Small Cap Common Stock (Cost: $14,140) 17,384 ------ Warrants (0.0%) -------------------------------------------------------- Basic Materials (0.0%) Umicore-Strip VVPR 75 0 ------ Total Basic Materials 0 ------ Telecommunications (0.0%) Telecom -- Wireless (0.0%) IWO Holdings, Inc., 144A 50 0 ------ Total Telecommunications 0 ------ Information Technology (0.0%) Belluna Co. Ltd.-Warrants 307 2 ------ Total Warrants (Cost: $0) 2 ------ Total Domestic Common Stocks and Warrants (Cost: $44,500) 51,440 ------ Foreign Common Stock (15.3%) Country -------------------------------------------------------- Basic Materials (0.6%) Alcan, Inc. Canada 2,430 114 Arcelor Luxembourg 8,735 153 BASF AG Germany 2,220 125 *Ivanhoe Mines, Ltd. Canada 8,125 64 Rio Tinto, Ltd. Australia 4,260 119 *SGL Carbon AG Germany 5,635 95 Union Miniere NPV Belgium 1,545 108 ------ Total Basic Materials 778 ------ Consumer Cyclical (0.1%) Techtronics Industries Co. Hong Kong 44,000 122 ------ Total Consumer Cyclical 122 ------ Consumer Discretionary (2.6%) *Alliance Atlantis Communications Inc. -- B Shares Canada 3,150 49 *Autogrill SPA Italy 6,385 91 Autoliv United States 3,345 127 Bayerische Motoren Werke (BMW) AG Germany 3,150 147 *Belluna Co., Ltd. Japan 1,720 63 The Berkeley Group PLC United Kingdom 9,210 145 Beru AG Germany 1,985 128 *British Sky Broadcasting Group PLC United Kingdom 11,900 150
Foreign Common Shares/ Value Stock (15.3%) Country $ Par $ (000's) ------------------------------------------------------ Consumer Discretionary continued Carnival Corp. Panama 3,220 128 Denway Motors, Ltd. Hong Kong 163,100 172 Esprit Holdings, Ltd. Bermuda 46,500 155 Greek Organization of Football Prognostics Greece 9,190 133 Honda Motor Co., Ltd. Japan 3,700 164 Hyundai Motor Co., Ltd. South Korea 4,050 172 Intercontinental Hotels Group PLC United Kingdom 13,590 129 Li & Fung, Ltd. Bermuda 66,000 113 MFI Furniture Group PLC United Kingdom 34,960 95 Millennium & Copthorne Hotel United Kingdom 11,990 65 News Corp, Ltd. ADR United Kingdom 3,345 121 Porsche AG NON- VTG PFD. Germany 87 51 Puma AG Rudolf Dassler Sport Germany 1,320 233 Punch Taverns PLC United Kingdom 17,435 136 Rank Group PLC United Kingdom 10,425 52 Signet Group PLC United Kingdom 79,055 146 Swatch Group Switzerland 1,045 125 Uss Co., Ltd. Japan 1,120 79 Walmart de Mexico -- Series V Mexico 41,245 117 Wolseley PLC United Kingdom 9,825 139 ----- Total Consumer Discretionary 3,425 ----- Consumer Non-Cyclical (0.5%) *Iaws Group Ireland 3,600 44 *Numico Netherlands 2,560 71 SGS Societe Generale de Surveillance Holding SA Switzerland 310 195 Swedish Match AB Sweden 24,335 248 Tesco PLC United Kingdom 29,365 135 ----- Total Consumer Non-Cyclical 693 ----- Consumer Staples (0.8%) Adecco SA -- Reg Switzerland 2,270 146 *Cott Corp Que Canada 5,095 143 Interbrew Belgium 1,895 51 Loreal France 1,395 114 Luxottica Group Spons ADR Italy 7,500 131 Nestle SA Switzerland 640 160 Reckitt Benckiser PLC United Kingdom 7,625 172 Roche Holdings Switzerland 1,390 140 ----- Total Consumer Staples 1,057 -----
52 Asset Allocation Portfolio Asset Allocation Portfolio
Foreign Common Shares/ Value Stock (15.3%) Country $ Par $ (000's) ----------------------------------------------------- Energy (0.7%) BG Group United Kingdom 19,600 101 Encana Corp. Canada 2,835 113 Eni SPA Italy 7,675 145 Saipem SPA Italy 15,475 125 Suncor Energy, Inc. Canada 5,530 140 Technip France 525 57 Total Fina Elf SA France 1,000 185 ----- Total Energy 866 ----- Financials (2.5%) *Anglo Irish Bank Corp. Ireland 21,892 344 Banco Popolare Di Verona Italy 8,745 148 *Bank Rakyat Indonesia Indonesia 794,000 118 BNP Paribas SA France 3,175 199 Cattles PLC United Kingdom 20,105 120 Corporacion Mapfre Spain 12,350 175 *Danske Bank Denmark 3,835 90 Depfa Bank PLC Ireland 985 124 *Erste Bank Der Oester Spar/Ats Austria 265 33 *Grupo Financiero Bbv Ban Mexico 127,305 109 HSBC Holdings PLC United Kingdom 8,559 135 ICICI Bank, Ltd. India 17,382 113 ING Groep NV Netherlands 5,750 134 *Kookmin Bank South Korea 3,120 117 Man Group PLC United Kingdom 7,385 193 Manulife Financial Corp Canada 3,550 115 *Mitsubishi Tokyo Financial Japan 12 94 *OM Hex AB Sweden 10,455 130 *Otp Bank Hungary 10,990 142 Royal Bank of Scotland Group PLC United Kingdom 5,185 153 Royal BK OF Canada Canada 2,670 128 *Swiss Life Holdings Switzerland 835 153 *Topix Exchange Traded Fund Japan 15,900 157 ----- Total Financials 3,224 ----- Health Care (1.5%) *Actelion, Ltd. Switzerland 1,385 150 *Elekta AB B Shs Sweden 5,860 110 Getinge AB Sweden 12,880 124 Nobel Biocare AB Sweden 10 1 Nobel Biocare Holding AG Switzerland 1,190 121 Novartis AG Switzerland 3,065 139 *ResMed Inc. United States 2,880 120 Stada Arzneimittel AG Germany 1,925 120
Foreign Common Shares/ Value Stock (15.3%) Country $ Par $ (000's) -------------------------------------------------------- Health Care continued Straumann AG Switzerland 530 81 Synthes-Stratec, Inc. Switzerland 139 138 *Taro Pharmaceuticals Inds Ltd Israel 3,075 197 Teva Pharmaceutical Industries, Ltd. ADR Israel 11,545 654 ----- Total Health Care 1,955 ----- Industrials (2.9%) A.P.MOLLER- MAERSK A/S Denmark 20 138 Alfa Laval AB Sweden 7,410 113 Atlas Copco AB Free Sweden 4,230 151 Brisa Auto Estrada de Portufal SA Portugal 18,285 122 *Chiyoda Corp. Japan 22,000 135 Cobham PLC United Kingdom 5,130 107 Compass Group PLC United Kingdom 19,025 129 Crh PLC Ireland 5,202 107 *Daewoo Shipbuilding & Marine Eng South Korea 13,290 171 Deutsche Post AG Germany 3,010 62 *Deutz AG New Germany 493 2 *Easyjet PLC United Kingdom 8,035 42 Exel PLC United Kingdom 9,850 130 *Fraport AG Germany 4,280 123 *Funai Electric CO Ltd. Japan 900 124 *Golar Lng, Ltd. Bermuda 9,860 142 Grupo Ferrovial Spain 6,025 210 Iberia Lineas Aereas de Espana SA Spain 49,125 141 Kamigumi Co., Ltd Japan 9,000 64 Keyence Corp Japan 700 148 *KLOCKNER- HUMBOLDT Deutz Germany 1,980 8 Kubota Corp. Japan 27,000 111 Meggitt PLC United Kingdom 27,926 118 *Neptune Orient Lines Singapore 97,000 123 Omron Corp. Japan 7,200 146 Philips Electronics NV Netherlands 5,875 172 Premier Farnell PLC United Kingdom 29,135 122 Siemens AG Germany 1,955 157 SMC Corp. Japan 1,100 137 Thai Airways International PCL Thailand 29,600 34 Vinci France 2,330 192 Volvo AB -- B Shares Sweden 4,160 127 ----- Total Industrials 3,808 ----- Technology (1.5%) Asm Pacific Technology, Ltd. Cayman Islands 27,000 118 *Asml Holding NV Netherlands 5,075 101 *Business Objects S.A. France 4,395 153 *Canon Inc. Japan 3,000 140
Asset Allocation Portfolio 53 Asset Allocation Portfolio
Foreign Common Shares/ Value Stock (15.3%) Country $ Par $ (000's) ------------------------------------------------------- Technology continued *Chi Mei Optoelectronics Taiwan 144,000 148 Citizens Electronics Co. Japan 1,900 173 Dassault Systemes France 3,340 152 *Epcos AG Germany 5,200 117 Hoya Corp. Japan 1,700 156 Indra Sistemas, S.A. Spain 8,120 104 Infosys Technologies, Ltd. India 1,058 129 *Neopost SA France 2,370 120 *The Sage Group, PLC United Kingdom 38,905 122 Samsung Electronics South Korea 430 163 *Taiwan Semiconductor Manufacturing Co., Ltd. Taiwan 66,288 124 ------ Total Technology 2,020 ------ Telecommunications (1.4%) *Ericsson LM B Shares Sweden 82,225 147 *France Telecom SA France 3,855 110 *Kddi Corp. Japan 33 189 *Mediaset SPA Italy 11,785 140 *Mobistar SA Belgium 4,055 229 *Modern Times Group AB -- B Shares Sweden 6,950 146 *Nokia AB OY Finland 3,500 61 PT Telekomunikasi Indonesia Indonesia 129,000 103 *Tele2 AB -- B Shares Sweden 2,955 158 *Telefonica SA Spain 10,625 156 Teliasonera AB Sweden 9,500 50 *Vivendi Universal SA France 6,230 151 Vodafone Group PLC United Kingdom 62,650 155 ------ Total Telecommunications 1,795 ------ Utilities (0.2%) Centrica PLC United Kingdom 31,715 120 Iberdrola SA Spain 5,325 105 ------ Total Utilities 225 ------ Total Foreign Common Stock (Cost: $15,010) 19,968 ------ Preferred Stock (0.1%) ------------------------------------------------------- Media (0.1%) Cable/Satellite (0.1%) Csc Holdings, Inc. -- Series H 250 26 Csc Holdings, Inc., -- Series M 500 53 ------ Total Cable/Satellite 79 ------ Telecommunications (0.0%) Telecom -- Wireless (0.0%) Intermedia Communications, Inc. 2 0 ------ Total Communications 2 ------
Shares/ Value Preferred Stock (0.1%) $ Par $ (000's) --------------------------------------------------------- Transportation (0.0%) Rail & Other (0.0%) American Commercial Lines LLC 261 0 ----- Total Transportation 0 ----- Total Preferred Stock (Cost: $86) 79 ----- Revenue Bonds (0.3%) Municipal Bonds -- Revenue (0.3%) Nashville And Davidson County, Tennessee Health And Educational Facilities Board of The Metropolitan Government, 0.00%, 6/1/21 850,000 355 ----- Total Revenue Bond (Cost: $356) 355 ----- Investment Grade Bonds (9.0%) --------------------------------------------------------- Auto Related (0.7%) American Honda Finance, 3.85%, 11/6/08 144A 350,000 352 Toyota Motor Credit Corp., 4.35%, 12/15/10 600,000 609 ----- Total Auto Related 961 ----- Beverages, Malt Beverages (0.2%) Anheuser-Busch Companies, Inc., 7.50%, 3/15/12 23,000 27 Coca-Cola Enterprises, Inc., 5.375%, 8/15/06 75,000 81 Coca-Cola Enterprises, Inc., 5.25%, 5/15/07 125,000 134 ----- Total Beverages, Malt Beverages 242 ----- Commercial Banks (1.3%) Bank of America Corp., 4.875%, 1/15/13 40,000 40 Bank One Corp., 5.25%, 1/30/13 250,000 256 HBOS Treasury Services, 3.75%, 9/30/08 144A 350,000 350 Rabobank Capital Fund II, 5.26%, 12/31/13 144A 350,000 350 RBS Capital Trust II, 6.425%, 1/3/34 350,000 355 Unionbancal Corp., 5.25%, 12/16/13 350,000 354 ----- Total Commercial Banks 1,705 ----- Commerical Physical Research (0.2%) Monsanto Co., 7.375%, 8/15/12 250,000 285 ----- Total Commercial Physical Research 285 ----- Crude Petroleum and Natural Gas (0.1%) Occidental Petroleum, 10.125%, 9/15/09 120,000 155 ----- Total Crude Petroleum and Natural Gas 155 ----- Data Processing and Preparation (0.7%) Fiserv, Inc., 4.00%, 4/15/08 350,000 348 Gtech Holdings Corp., 4.75%, 10/15/10 144A 565,000 571 ----- Total Data Processing and Preparation 919 ----- Electrical Equipment and Supplies (0.2%) Cooper Industries, Inc., 5.50%, 11/1/09 200,000 215 ----- Total Electrical Equipment and Supplies 215 -----
54 Asset Allocation Portfolio Asset Allocation Portfolio
Shares/ Value Investment Grade Bonds (9.0%) $ Par $ (000's) ----------------------------------------------------------- Fire, Marine and Casualty Insurance (1.2%) Berkley (WR) Corp., 9.875%, 5/15/08 600,000 732 Berkley (WR) Corp., 5.875%, 2/15/13 200,000 204 Progressive Corp., 6.375%, 1/15/12 130,000 143 Progressive Corp., 6.25%, 12/1/32 176,000 184 Travelers Property Casulty Corp., 6.375%, 3/15/33 350,000 365 ----- Total Fire, Marine and Casualty Insurance 1,628 ----- Measuring and Controlling Devices (0.1%) Rockwell Automation, Inc., 6.70%, 1/15/28 110,000 120 ----- Total Measuring and Controlling Devices 120 ----- Miscellaneous Business Credit Institutions (0.3%) Textron Financial Corp., 2.75%, 6/1/06 350,000 349 ----- Total Miscellaneous Business Credit Institutions 349 ----- Motors and Generators (0.1%) Emerson Electric Co., 5.75%, 11/1/11 48,000 52 Emerson Electric Co., 4.50%, 5/1/13 70,000 68 ----- Total Motors and Generators 120 ----- Office Machines (0.1%) Pitney Bowes Credit Corp., 5.75%, 8/15/08 100,000 109 ----- Total Office Machines 109 ----- Pharmaceutical Preparations (0.8%) Johnson & Johnson, Inc., 3.80%, 5/15/13 350,000 330 Johnson & Johnson, Inc., 4.95%, 5/15/33 350,000 318 Merck & Co., Inc., 6.40%, 3/1/28 350,000 385 ----- Total Pharmaceutical Preparations 1,033 ----- Property & Casualty Insurance (0.3%) Berkshire Hathaway, Inc., 4.625%, 10/15/13 144A 400,000 393 ----- Total Property & Casualty Insurance 393 ----- Radio,TV Electronic Stores (0.3%) Radioshack Corp., 6.95%, 9/1/07 350,000 394 ----- Total Radio,TV Electronic Stores 394 ----- Real Estate Investment Trusts (0.3%) Vornado Realty Trust, 4.75%, Due 12/1/10 350,000 350 ----- Total Real Estate Investment Trusts 350 ----- Retail-Retail Stores (1.4%) Estee Lauder, Inc., 5.75%, 10/15/33 350,000 345 Fortune Brands Inc., 4.875%, 12/1/13 350,000 351 The Gillette Co., 2.50%, 6/1/08 350,000 337 Limited Brands, 6.125%, 12/1/12 70,000 75 Limited Brands, Inc. 6.95%, 3/1/33 205,000 223
Shares/ Value Investment Grade Bonds (9.0%) $ Par $ (000's) ---------------------------------------------------------- Retail-Retail Stores continued Office Depot, 6.25%, 8/15/13 350,000 368 VF Corp., 6.00%, 10/15/33 144A 200,000 198 ------ Total Retail-Retail Stores 1,897 ------ Savings Institutions Except Federal (0.3%) U.S. Central Credit Union, 5/30/08, 2.75% 350,000 338 ------ Total Savings Institutions Except Federal 338 ------ Steel Wire and Related Products (0.2%) Hubbell, Inc., 6.375%, 5/15/12 300,000 324 ------ Total Steel Wire and Related Products 324 ------ Wines and Distilled Beverages (0.2%) Brown Forman Corp., 3.00%, 3/15/08 250,000 245 ------ Total Wines and Distilled Beverages 245 ------ Total Investment Grade Bonds (Cost: $11,747) 11,782 ------ Government (Domestic and Foreign) and Agency Bonds (15.9%) ---------------------------------------------------------- Federal Government and Agencies (15.9%) Government National Mortgage Association TBA, 4.50%, 1/1/34 1,617,726 1,546 Government National Mortgage Association TBA, 5.00%, 1/1/34 150,000 148 Housing & Urban Development, 6.08%, 8/1/13 100,000 110 State of Israel, 7.25%, 12/15/28 350,000 378 US Treasury, 3.00%, 1/31/04 165,000 165 US Treasury, 2.125%, 10/31/04 500,000 504 US Treasury, 1.75%, 12/31/04 70,000 70 US Treasury, 1.625%, 1/31/05 40,000 40 US Treasury, 1.625%, 4/30/05 55,000 55 US Treasury, 6.50%, 5/15/05 1,325,000 1,416 US Treasury, 1.125%, 6/30/05 80,000 80 US Treasury, 6.50%, 8/15/05 1,000,000 1,079 US Treasury, 2.00%, 8/31/05 140,000 141 US Treasury, 4.625%, 5/15/06 153,000 162 US Treasury, 3.50%, 11/15/06 2,129,000 2,201 US Treasury, 2.625%, 5/15/08 2,750,000 2,709 US Treasury Inflation Index Bond, 3.375%, 1/15/07 7,502,537 8,128 US Treasury Note, 1.875%, 11/30/05 1,100,000 1,102 US Treasury Stripped, 0.00%, 8/15/27 2,800,000 763 ------ Total Government (Domestic and Foreign) and Agency Bonds (Cost: $20,976) 20,797 ------ Below Investment-Grade Bonds (7.9%) ---------------------------------------------------------- Aerospace (0.0%) L-3 Communications Corp., 6.125%, 1/15/14 144A 50,000 50 ------ Total Aerospace 50 ------
Asset Allocation Portfolio 55 Asset Allocation Portfolio
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) --------------------------------------------------------- Auto Related (0.4%) Advanced Accessory, 10.75%, 6/15/11 50,000 55 Asbury Automotive Group, 8.00%, 3/15/14 144A 25,000 25 Collins & Aikman Products, 10.75%, 12/31/11 75,000 74 HLI Operating Co., 10.50%, 6/15/10 50,000 58 Metaldyne Corp., 10.00%, 11/1/13 144A 100,000 100 Oxford Automotive, Inc., 12.00%, 10/15/10 144A 100,000 84 RJ Tower Corp., 12.00%, 6/1/13 50,000 49 United Components, Inc., 9.375%, 6/15/13 50,000 55 --- Total Auto Related 500 --- Basic Materials (1.2%) Chemicals (0.7%) Huntsman Adv. Materials, 11.00%, 7/15/10 144A 100,000 110 Huntsman International LLC, 9.875%, 3/1/09 144A 25,000 27 Huntsman International, Inc., 9.875%, 3/1/09 25,000 27 Huntsman LLC, 11.625%, 10/15/10 144A 50,000 51 IMC Global, Inc., 11.25%, 6/1/11 75,000 83 Koppers, Inc., 9.875%, 10/15/13 144A 75,000 83 Kraton Polymers LLC, 8.125%, 1/15/14 144A 25,000 26 Lyondell Chemical Co., 9.50%, 12/15/08 75,000 78 Nalco Co., 8.875%, 11/15/13 144A 75,000 80 Resolution Perform Prod., 8.00%, 12/15/09 144A 25,000 26 Rockwood Specialties Corp., 10.625%, 5/15/11 144A 100,000 111 Terra Capital Corp., 11.50%, 6/1/10 100,000 104 United Agricultural Products, 8.25%, 12/15/11 144A 25,000 26 --- Total 832 --- Metals/Mining (0.3%) CSN Islands VIII Corp., 9.75%, 12/16/13 144A 50,000 51 Massey Energy Co., 6.625%, 11/15/10 144A 75,000 77 Texas Industries, Inc., 10.25%, 6/15/11 50,000 57 UCAR Finance, Inc., 10.25%, 2/15/12 50,000 58 --- Total 243 --- Packaging/Containers (0.1%) Crown European Holdings SA, 9.50%, 3/1/11 25,000 28 Owens Brockway Glass Container, 8.75%, 11/15/12 75,000 84 Owens Brockway Glass Container, 8.25%, 5/15/13 25,000 27 Pliant Corp., 11.125%, 9/1/09 40,000 43 --- Total 182 ---
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) --------------------------------------------------------- Paper & Forest Products (0.1%) Appleton Papers, Inc., 12.50%, 12/15/08 50,000 57 Buckeye Technologies, Inc., 8.50%, 10/1/13 75,000 80 Georgia Pacific Corp., 8.00%, 1/15/24 144A 50,000 51 ----- Total 188 ----- Total Basic Materials 1,445 ----- Builders (0.3%) Building Materials (0.2%) Integrated Electrical Services, Inc., 9.375%, 2/1/09 40,000 42 Nationsrent, Inc., 9.50%, 10/15/10 144A 75,000 81 Norcraft Co., 9.00%, 11/1/11 144A 50,000 54 Nortek Holdings Inc., 0.00%, 5/15/11 144A 50,000 36 United Rentals NA, Inc., 7.75%, 11/15/13 144A 75,000 77 ----- Total 290 ----- Home Builders (0.1%) Meritage Corp., 9.75%, 6/1/11 75,000 83 Technical Olympic USA, Inc., 9.00%, 7/1/10 50,000 54 ----- Total 137 ----- Total Builders 427 ----- Capital Goods (0.4%) Amsted Industries, Inc., 10.25%, 10/15/11 144A 50,000 55 Bombardier Recreational, 8.375%, 12/15/13 144A 50,000 52 Case New Holland, Inc., 9.25%, 8/1/11 144A 25,000 28 Columbus McKinnon Corp., 10.00%, 8/1/10 50,000 53 General Cable Corp., 9.50%, 11/15/10 144A 50,000 54 Jacuzzi Brands Inc., 9.625%, 7/1/10 144A 25,000 28 JLG Industries Inc., 8.25%, 5/1/08 25,000 27 Rexnord Corp., 10.125%, 12/15/12 100,000 109 Sensus Metering Systems, 8.625%, 12/15/13 144A 25,000 26 Terex Corp. 7.375%, 1/15/14 144A 75,000 77 Trimas Corp., 9.875%, 6/15/12 50,000 52 ----- Total Capital Goods 561 ----- Consumer Products (0.6%) Consumer Products (0.2%) Hines Nurseries, Inc. 10.25%, 10/1/11 144A 50,000 55 Jafra Cosmetics, 10.75%, 5/15/11 50,000 55 Jostens Holding, 10.25%, 12/1/10 144A 75,000 47 Rayovac Corp., 8.50%, 10/1/13 75,000 80 Simmons Co. 7.875%, 1/15/14 144A 25,000 25 ----- Total 262 -----
56 Asset Allocation Portfolio Asset Allocation Portfolio
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) --------------------------------------------------------- Retail Food & Drug (0.0%) Delhaize America, Inc., 9.00%, 4/15/31 25,000 30 --- Total 30 --- Retail Store (0.2%) Cole National Group, 8.875%, 5/15/12 75,000 80 Couche-Tard US, 7.50%, 12/15/13 144A 50,000 52 Payless Shoesource, Inc., 8.25%, 8/1/13 125,000 120 --- Total 252 --- Textile/Apparel (0.2%) Oxford Industries, Inc., 8.875%, 6/1/11 144A 75,000 82 Perry Ellis International, Inc., 8.875%, 9/15/13 144A 50,000 53 Phillips Van Heusen Corp., 8.125%, 5/1/13 50,000 53 Tommy Hilfiger USA, Inc., 6.85%, 6/1/08 50,000 50 Warnaco, Inc., 8.875%, 6/15/13 144A 50,000 52 --- Total 290 --- Total Consumer Products 834 --- Energy (0.6%) Gas Pipeline/Oil Field Service (0.3%) Dynegy Holdings Inc., 10.125%, 7/15/13 144A 75,000 86 Hanover Equip TR., 8.75% 9/1/11 100,000 106 Hanover Equipment Trust 01 A, 0.00%, 3/31/07 50,000 37 Parker Drilling Co., 9.625%, 10/1/13 144A 75,000 78 Suburban Propane Partners, 6.875%, 12/15/13 144A 50,000 51 --- Total 358 --- Oil & Gas Exploration/Production (0.3%) Compton Pete Corp., 9.90%, 5/15/09 50,000 55 Hilcorp Energy, 10.50%, 9/1/10 144A 100,000 109 Petrobras International, 8.375%, 12/10/18 75,000 77 Range Resources Corp. 7.375%, 7/15/13 50,000 50 Tom Brown, Inc., 7.25%, 9/15/13 100,000 105 --- Total 396 --- Oil Refining & Marketing (0.1%) Citgo Petroleum Corp., 11.375%, 2/1/11 75,000 87 --- Total 87 --- Total Energy 841 --- Financials (0.4%) Financial Services (0.3%) AmeriCredit Corp., 9.875%, 4/15/06 100,000 105 Dollar Financial Group 9.75%, 11/15/11 144A 125,000 128 IOS Capital LLC, 7.25%, 6/30/08 100,000 107
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) ------------------------------------------------------- Financial Services continued WMC Finance Co. 11.75%, 12/15/08 144A 50,000 50 --- Total 390 --- Insurance (0.1%) Crum & Forster Holding Corp., 10.375%, 6/15/13 144A 50,000 56 Fairfax Financial Holdings, 7.375%, 3/15/06 75,000 76 --- Total 132 --- Total Financials 522 --- Financials Banking (0.0%) Western Financial Bank-FSB, 9.625%, 5/15/12 50,000 56 --- Total Financials Banking 56 --- Foods (0.5%) Food/Beverage/Tobacco (0.4%) Bavaria SA, 8.875%, 11/1/10 144A 75,000 77 Land O Lakes, Inc., 9.00%, 12/15/10 144A 50,000 50 Merisant Co., 9.50%, 7/15/13 144A 75,000 79 Pinnacle Foods Holding, 8.25%, 12/1/13 144A 50,000 52 RJ Reynolds Tobacco Holdings, 7.25%, 6/1/12 50,000 49 Seminis Vegetable Seeds, 10.25%, 10/1/13 144A 50,000 54 Tabletop Holdings, 0%, 5/15/14 144A 125,000 69 --- Total 430 --- Restaurant (0.1%) Buffets, Inc., 11.25%, 7/15/10 50,000 54 Domino's, Inc., 8.25%, 7/1/11, 144A 50,000 54 O'Charleys, Inc., 9.00%, 11/1/13 144A 50,000 50 --- Total 158 --- Total Foods 588 --- Gaming/Lodging/Leisure (0.9%) Gaming (0.5%) (d)Hollywood Casino Shreveport, 13.00%, 8/1/06 50,000 34 Inn of The Mountain Gods., 12.00%, 11/15/10 144A 100,000 105 Jacobs Entmt, Inc., 11.875%, 2/01/09 50,000 56 Majestic Star Casino, LLC, 9.50%, 10/15/10 144A 100,000 102 Poster Financial Group, 8.34%, 12/1/11 144A 50,000 53 Resort Intl. Hotel/Casino, 11.50%, 3/15/09 75,000 82 River Rock Entertainment, 9.75%, 11/1/11 144A 75,000 81 Wheeling Island Gaming, 10.125%, 12/15/09 75,000 80 --- Total 593 ---
Asset Allocation Portfolio 57 Asset Allocation Portfolio
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) --------------------------------------------------------- Leisure (0.4%) Bally Total Fitness Holdings, Series D, 9.875%, 10/15/07 25,000 23 Equinox Holdings LTD. 9.00%, 12/15/09 144A 25,000 26 IMAX Corp., 9.625%, 12/1/10 144A 50,000 53 Intrawest Corp. 7.50%, 10/15/13 144A 50,000 52 Royal Caribbean Cruises, 6.875%, 12/1/13 100,000 101 Six Flags, Inc., 8.875%, 2/1/10 225,000 230 Universal City Development Corp., 11.75%, 4/1/10 144A 25,000 29 ----- Total 514 ----- Lodging (0.0%) Host Marriott LP, 7.125%, 11/1/13 144A 50,000 51 ----- Total 51 ----- Total Gaming/Lodging/Leisure 1,158 ----- Healthcare/Pharmaceuticals (0.5%) Ameripath, Inc., 10.50%, 4/1/13 50,000 53 Biovail Corp., 7.875%, 4/01/10 75,000 77 General Nutrition Center, 8.50%, 12/1/10 144A 75,000 77 Genesis HealthCare Corp. 8.00%, 10/15/13 144A 50,000 52 National Nephrology Associates, 9.00%, 11/1/11 144A 75,000 78 Quintiles Transnational, 10.00%, 10/1/13, 144A 50,000 54 Senior Housing Property Trust, 7.875%, 4/15/15 25,000 26 Tenet Healthcare Corp., 6.375%, 12/1/11 50,000 48 Tenet Healthcare Corp., 7.375%, 2/1/13 50,000 50 Universal Hospital Services, 10.125%, 11/1/11 144A 50,000 53 Valeant Pharmaceuticals, 7.00%, 12/15/11 144A 25,000 26 Ventas Realty Ltd. Partnership, 9.00%, 5/1/12 50,000 56 ----- Total Healthcare/Pharmaceuticals 650 ----- Media (0.8%) Broadcasting (0.0%) Granite Broadcasting 9.75%, 12/1/10 144A 25,000 25 ----- Total 25 ----- Cable/Satellite (0.2%) Charter Communications Holdings LLC, 9.625%, 11/15/09 75,000 66 Echostar Corp., 6.375%, 10/1/11 144A 25,000 26 Insight Midwest, 9.75%, 10/1/09 50,000 53 Lodgenet Entertainment, 9.50%, 6/15/13 75,000 82 MediaCom LLC, 9.50%, 1/15/13 50,000 53 ----- Total 280 -----
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) --------------------------------------------------------- Publishing (0.6%) American Achievement Corp., 11.625%, 1/1/07 100,000 109 American Color Graphics, Inc., 10.00%, 6/15/10 144A 50,000 51 Dex Media West, 9.875%, 8/15/13 144A 75,000 87 Houghton Mifflin Co., 9.875% 2/1/13 25,000 28 Mail-Well Corp., 9.625%, 3/15/12 50,000 56 Moore NA Finance, 7.875%, 1/15/11 144A 25,000 28 Primedia, Inc., 7.625%, 4/1/08 75,000 76 Vertis, Inc., 10.875%, 6/15/09 100,000 106 Von Hoffman Corp., 10.25%, 3/15/09 100,000 106 Von Hoffman Corp., 10.25%, 03/15/09 144A 25,000 27 --- Total 674 --- Total Media 979 --- Real Estate (0.1%) CB Richards Ellis Services, Inc., 11.25%, 6/15/11 25,000 28 CBRE Escrow, Inc., 9.75%, 5/15/10 144A 50,000 56 LNR Property Corp., 7.25%, 10/15/13 144A 50,000 51 --- Total Real Estate 135 --- Services (0.1%) Environmental Services (0.0%) MSW Energy Holdings, 8.50%, 9/1/10 144A 50,000 54 --- Total 54 --- Services -- Other (0.1%) Buhrmann US, Inc., 12.25%, 11/1/09 25,000 28 Kindercare Learning Centers, 9.50%, 2/15/09 50,000 51 --- Total 79 --- Total Services 133 --- Telecommunications (0.5%) Telecom -- Wireless (0.3%) ACC Escrow Corp., 10.00%, 8/1/11 144A 50,000 56 American Tower Corporation -- Warrants 100 1 Crown Castle Intl Corp. 7.50%, 12/1/13 144A 25,000 25 Crown Castle Intl Corp., 7.50%, 12/1/13 144A 25,000 25 Nextel Communications, 7.375%, 8/1/15 50,000 54 Nextel Partners, Inc., 12.50%, 11/15/09 75,000 87 Qwest Communications, Inc., 12/15/10, 13.50% 144A 48,000 58 Triton PCS, 8.75%, 11/15/11 50,000 49 --- Total 355 ---
58 Asset Allocation Portfolio Asset Allocation Portfolio
Shares/ Value Below Investment-Grade Bonds (7.9%) $ Par $ (000's) ----------------------------------------------------------- Telecom -- Wireline (0.2%) Cincinnati Bell, Inc., 8.375%, 1/15/14 144A 75,000 81 (d)MCI Communications Corp., 7.75%, 3/23/25 25,000 20 (d)MCI Communications Corp., 7.125%, 6/15/27 75,000 60 Qwest Capital Funding, 7.75%, 8/15/06 50,000 52 Qwest Communications INTL., 7.50%, 11/1/08 B 25,000 26 ------ Total 239 ------ Total Telecommunications 594 ------ Transportation (0.3%) Airlines (0.1%) Continental Airlines Inc., 7.875%, 7/2/18 75,000 75 ------ Total 75 ------ Transportation -- Rail & Other (0.2%) (d)American Commercial LLC, 11.25%, 1/1/08 29,794 3 Laidlaw International, Inc., 10.75%, 6/15/11 144A 50,000 57 OMI Corp., 7.625%, 12/1/13 144A 75,000 76 Quality Distrib/QD Cap, 9.00%, 11/15/10 144A 25,000 26 Railamerica Transportation Corp., 12.875%, 8/15/10 50,000 58 Ship Finance Intl LTD., 8.50%, 12/15/13 144A 25,000 25 Stena AB, 9.625%, 12/1/12 50,000 56 TFM SA DE C V, 12.50%, 6/15/12 50,000 57 ------ Total 358 ------ Total Transportation 433 ------ Utilities (0.3%) Aes Corp., 8.75%, 5/15/13 144A 25,000 28 Aes Corp., 9.00%, 5/15/15 144A 50,000 57 Calpine Corp., 8.50%, 7/15/10 144A 50,000 49 CMS Energy Corp., 7.75%, 8/1/10 144A 50,000 53 Nevada Power Co., 8.25%, 6/1/11 50,000 55 NRG Energy Inc., 8.00%, 12/15/13 144A 75,000 78 Reliant Resources, Inc., 9.50%, 7/15/13 144A 75,000 79 ------ Total Utilities 399 ------ Total Below Investment-Grade Bonds (Cost: $9,693) 10,305 ------
Shares/ Value Money Market Investments (12.4%) $ Par $ (000's) --------------------------------------------------------- Federal Government and Agencies (11.5%) (b)Federal Home Loan Bank, 0.75%, 1/7/04 13,500,000 13,499 (b)Federal National Mortgage Association, 1.075%, 2/4/04 1,500,000 1,498 ------- Total Federal Government and Agencies 14,997 ------- Short Term Business Credit (0.9%) Transamerica Financial, 1.05%, 1/16/04 1,200,000 1,199 ------- Total Short Term Business Credit 1,199 ------- Total Money Market Investment (Cost: $16,196) 16,196 ------- Total Investments (100.3%) (Cost $118,564)(a) 130,922 ------- Other Assets, Less Liabilities (-0.3%) (444) ------- Total Net Assets (100.0%) 130,478 -------
* Non-Income Producing 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. (a) At12/31/03 the aggregate cost of securities for federal tax purposes was $118,903 and the net unrealized appreciation of investments based on that cost was $12,019 which is comprised of $13,129 aggregate gross unrealized appreciations and $1,110 aggregate gross unrealized depreciation. (b) Allor a portion of the securities have been committed as collateral for open futures positions or when issued securities. Information regarding open futures contracts as of period end is summarized below.
Unrealized Appreciation/ Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) ----------------------------------------------------- S & P 500 Index Futures 35 03/04 $368 (Total Notional Value at 12/31/03 $9,350) US Long Bond (CBT) Commodity Future 30 03/04 $ 61 (Total Notional Value at 12/31/03 $3,218)
(c) PIK-- Payment In Kind (d) DefaultedSecurity The Accompanying Notes are an Integral Part of the Financial Statements Asset Allocation Portfolio 59 Balanced Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: A high level of current income and Achieve consistent returns and low volatility by $2.9 billion capital growth with a low risk profile diversifying among assets.
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 (the S&P 500), a widely used benchmark of U.S. equity performance. The bond portion of the Portfolio is actively managed, with investments in high quality bonds adjusted frequently as to maturity, market sectors and duration. Liquidity is maintained by holding a portion of the Portfolio in money market investments, which are high quality short-term debt securities. The Balanced Portfolio differs from the Asset Allocation Portfolio in several ways. It invests in just three asset classes, while the Asset Allocation Portfolio utilizes seven categories of assets, including riskier securities such as small-cap stocks, foreign stocks and high yield bonds. The equity portion of the Balanced Portfolio is indexed, while the equities in the Asset Allocation Portfolio are actively managed. The Balanced Portfolio is therefore designed to be a lower risk portfolio, with less volatility than the Asset Allocation Portfolio. In a strong market such as that experienced in 2003, the Balanced Portfolio will normally underperform the Asset Allocation Portfolio. The fact that the Balanced Portfolio cannot own small cap stocks was a negative influence on performance during 2003, which small cap stocks performed better than the broad market. 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 indexes: the S&P 500 Index for stocks, Merrill Lynch Domestic Master Index for bonds, and Merrill Lynch 91 Day T-Bill Index for short-term investments. As expected, the Portfolio's performance for the year was a blend of stock and bond performance, with a total return of 17.99%, below the return of 28.67% from the S&P 500 Index, but above the return of the bond benchmark, the Merrill Lynch Domestic Master Index, which had a return of 4.12%, or Merrill Lynch 91 Day T-Bill Index, which had a return of 1.15%. None of these benchmarks reflect the deduction of fees that exist with a managed portfolio. 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. During 2003, the asset mix was changed several times to take advantage of market moves. The equity portion was gradually increased during the first quarter, in anticipation of an improving equity market. The equity position was maintained just above 50% as the market strengthened during the summer, then increased to 55% in September. A reduction in the equity position during the fourth quarter detracted from performance, as the market continued upward. [CHART] Percentage Holdings 12/31/03 Equities (including index futures) 57% Government and Agency Bonds 24% Corporate Bonds 10% Mortgage-Backed and Asset-Backed Securities 5% Short-Term Investments & Other Net Assets 4% Sector allocation is based on Net Assets. Sector allocation is subject to change. [CHART] Relative Performance Balanced Merrill Lynch Domestic Merrill Lynch 91 Day S&P 500 Portfolio Master Index T-Bill Index Index --------- ---------------------- -------------------- ------- 12/93 $10,000 $10,000 $10,000 $10,000 12/94 10,016 9,718 10,419 10,131 12/95 12,659 11,517 11,047 13,933 12/96 14,363 11,931 11,634 17,129 12/97 17,453 13,083 12,254 22,842 12/98 20,747 14,243 12,895 29,368 12/99 23,071 14,107 13,521 35,547 12/00 23,032 15,761 14,356 32,312 12/01 22,306 17,073 14,990 28,474 12/02 20,625 18,850 15,257 22,184 12/03 24,336 19,627 15,432 28,544 Average Annual Total Return For Period Ended December 31, 2003 1 Year 5 Years 10 Years Balanced Portfolio 17.99% 3.24% 9.28% Merrill Lynch Domestic Master Index 4.12% 6.62% 6.98% Merrill Lynch 91 Day T-Bill Index 1.15% 3.66% 4.43% S&P 500 Index 28.67% -0.57% 11.06% 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 12/31/93. Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. Balanced Portfolio 60 Balanced Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Revenue Bonds (0.1%) $ Par $ (000's) - --------------------------------------------------------------------------------- Municipal Bonds -- Revenue (0.1%) Nashville and Davidson County, Tennessee Health and Educational Facilities Board of The Metropolitan Government, 0.00%, 6/1/21, RB 9,800,000 4,077 ------ Total Revenue Bonds (Cost: $4,102) 4,077 ------ Corporate Bonds (9.7%) - --------------------------------------------------------------------------------- Aerospace-Defense (0.3%) Lockheed Martin Corp., 8.20%, 12/1/09 7,450,000 9,047 ------ Total 9,047 ------ Auto Related (0.8%) American Honda Finance, 3.85%, 11/6/08 144A 6,180,000 6,223 Toyota Motor Credit Corp., 2.875%, 8/1/08 1,800,000 1,766 Toyota Motor Credit Corp., 4.35%, 12/15/10 4,770,000 4,835 Toyota Motor Credit Corp., 5.65%, 1/15/07 9,750,000 10,746 ------ Total 23,570 ------ Beverages, Malt Beverages (1.1%) Anheuser-Busch Companies, Inc., 7.00%, 12/1/25 4,800,000 5,285 Anheuser-Busch Companies, Inc., 7.50%, 3/15/12 910,000 1,088 Coca-Cola Enterprises, Inc., 5.25%, 5/15/07 8,975,000 9,628 Coca-Cola Enterprises, Inc., 5.375%, 8/15/06 4,175,000 4,482 Coca-Cola Enterprises, Inc., 5.75%, 3/15/11 10,000,000 10,927 ------ Total 31,410 ------ Broad Woven Fabric Mills, Manmade (0.0%) (d)Polysindo International Finance, 11.375%, 6/15/06 6,500,000 585 ------ Total 585 ------ Commercial Banks (1.4%) (d)Banco Montevideo, 8.40%, 4/30/08 144A 6,250,000 1,000 Bank of America Corp., 4.875%, 1/15/13 5,020,000 5,012 Bank of America Corp., 7.40%, 1/15/11 2,668,000 3,129 Bank One Corp., 5.25%, 1/30/13 5,000,000 5,129 HBOS Treasury Services, 3.75%, 9/30/08 144A 6,200,000 6,204
Shares/ Value Corporate Bonds (9.7%) $ Par $ (000's) - --------------------------------------------------------------------------------- Commercial Banks continued Rabobank Capital Fund II, 5.26%, 12/31/13 144A 5,600,000 5,608 RBS Capital Trust II, 6.425%, 1/3/34 7,980,000 8,065 Unionbancal Corp., 5.25%, 12/16/13 800,000 808 Wells Fargo Bank, 6.45%, 2/1/11 4,850,000 5,446 ------ Total 40,401 ------ Commercial Physical Research (0.2%) Monsanto Co., 7.375%, 8/15/12 6,200,000 7,075 ------ Total 7,075 ------ Crude Petroleum and Natural Gas (0.2%) Occidental Petroleum, 8.45%, 2/15/29 1,900,000 2,491 Occidental Petroleum, 10.125%, 9/15/09 3,230,000 4,164 ------ Total 6,655 ------ Data Processing and Preparation (0.2%) Fiserv, Inc., 4.00%, 4/15/08 1,300,000 1,294 GTECH Holdings Corp., 4.75%, 10/15/10 144A 3,925,000 3,967 ------ Total 5,261 ------ Electrical Equipment and Supplies (0.2%) Cooper Industries, Inc., 5.50%, 11/1/09 5,100,000 5,485 ------ Total 5,485 ------ Fire, Marine and Casualty Insurance (1.1%) Berkley (WR) Corp., 5.875%, 2/15/13 4,100,000 4,187 Berkley (WR) Corp., 9.875%, 5/15/08 4,310,000 5,254 Progressive Corp., 6.25%, 12/1/32 11,905,000 12,428 Progressive Corp., 6.375%, 1/15/12 4,540,000 5,005 Travelers Property Casualty Corp., 6.375%, 3/15/33 5,000,000 5,214 ------ Total 32,088 ------ Measuring and Controlling Devices (0.1%) Rockwell Automation, Inc., 6.70%, 1/15/28 3,440,000 3,768 ------ Total 3,768 ------ Motors and Generators (0.1%) Emerson Electric Co., 4.50%, 5/1/13 970,000 947 Emerson Electric Co., 5.75%, 11/1/11 1,918,000 2,066 ------ Total 3,013 ------ Office Machines (0.2%) Pitney Bowes Credit Corp., 5.75%, 8/15/08 5,000,000 5,463 ------ Total 5,463 ------
Balanced Portfolio 61 Balanced Portfolio
Shares/ Value Corporate Bonds (9.7%) $ Par $ (000's) - --------------------------------------------------------------------------------- Oil and Gas Extraction (0.2%) Chevrontexaco Corp., 6.625%, 10/1/04 4,750,000 4,934 ------- Total 4,934 ------- Pharmaceutical Preparations (1.2%) Johnson & Johnson, Inc., 3.80%, 5/15/13 4,400,000 4,154 Johnson & Johnson, Inc., 4.95%, 5/15/33 5,000,000 4,547 Johnson & Johnson, Inc., 6.625%, 9/1/09 2,800,000 3,231 Merck & Co., Inc., 6.40%, 3/1/28 5,135,000 5,643 Merck & Co., Inc., 5.95%, 12/1/28 3,774,000 3,910 Pfizer, Inc., 5.625%, 2/1/06 7,175,000 7,678 Pfizer, Inc., 5.625%, 4/15/09 4,125,000 4,483 ------- Total 33,646 ------- Property & Casualty Insurance (0.4%) Berkshire Hathaway, Inc., 4.625%, 10/15/13 144A 10,320,000 10,147 ------- Total 10,147 ------- Radio, TV Electronic Stores (0.4%) RadioShack Corp., 7. 375%, 5/15/11 9,590,000 11,067 ------- Total 11,067 ------- Real Estate Investment Trusts (0.1%) Vornado Realty Trust, 4.75%, 12/1/10 3,780,000 3,780 ------- Total 3,780 ------- Retail -- Retail Stores (1.2%) Estee Lauder, Inc., 5.75%, 10/15/33 7,750,000 7,640 Fortune Brands, Inc., 4.875%, 12/1/13 2,070,000 2,074 The Gillette Co., 2.50%, 6/1/08 5,000,000 4,813 Limited Brands, Inc., 6.125%, 12/1/12 1,590,000 1,704 Limited Brands, Inc., 6.95%, 3/1/33 6,858,000 7,459 Office Depot, 6.25%, 8/15/13 5,036,000 5,288 VF Corp., 6.00%, 10/15/33 144A 4,450,000 4,401 ------- Total 33,379 ------- Savings Institutions Except Federal (0.1%) U.S. Central Credit Union, 5/30/08, 2.75% 3,950,000 3,815 ------- Total 3,815 ------- Wines and Distilled Beverages (0.2%) Brown Forman Corp., 3.00%, 3/15/08 5,000,000 4,894 ------- Total 4,894 ------- Total Corporate Bonds (Cost: $282,801) 279,483 -------
Shares/ Value Government (Domestic and Foreign) and Agency Bonds (24.3%) $ Par $ (000's) - --------------------------------------------------------------------------------- Federal Government and Agencies (24.3%) Aid-Israel, 0.00%, 11/15/22 11,600,000 3,943 Aid-Israel, 0.00%, 11/15/23 11,500,000 3,685 Aid-Israel, 5.50%, 3/18/33 32,200,000 32,423 Federal Home Loan Bank, 5.54%, 1/8/09 5,000,000 5,454 Federal Home Loan Mortgage Corp., 6.50%, 4/1/11 2,622,047 2,781 Federal Home Loan Mortgage Corp., 7.00%, 3/15/07 360,538 363 Federal Home Loan Mortgage Corp., 7.50%, 10/1/27 1,604,938 1,728 Federal National Mortgage Association, 5.97%, 10/1/08 1,623,910 1,767 Federal National Mortgage Association, 6.24%, 2/1/06 4,560,253 4,813 Federal National Mortgage Association, 6.265%, 10/1/08 5,375,520 5,889 Federal National Mortgage Association, 6.315%, 3/1/06 4,820,537 5,102 Federal National Mortgage Association, 6.34%, 2/1/08 3,833,196 4,191 Federal National Mortgage Association, 6.43%, 6/1/08 6,764,926 7,436 Federal National Mortgage Association, 6.75%, 11/1/07 768,677 850 Federal National Mortgage Association, 6.75%, 4/25/18 4,383,898 4,692 Federal National Mortgage Association, 6.75%, 12/25/23 3,483,947 3,586 Federal National Mortgage Association, 6.895%, 5/1/06 5,668,969 6,085 Federal National Mortgage Association, 6.90%, 4/1/06 2,287,074 2,450 Federal National Mortgage Association, 7.00%, 4/1/26 1,943,680 2,064 Federal National Mortgage Association, 7.025%, 9/1/05 1,815,625 1,914 Federal National Mortgage Association, 7.25%, 5/1/04 1,481,259 1,485 Federal National Mortgage Association, 11.00%, 12/1/12 28,417 32 Federal National Mortgage Association, 11.00%, 9/1/17 132,015 150 Federal National Mortgage Association, 11.00%, 12/1/17 15,592 18 Federal National Mortgage Association, 11.00%, 2/1/18 60,405 69 Federal National Mortgage Association, 11.50%, 4/1/18 62,503 72 Federal National Mortgage Association, 12.00%, 9/1/12 204,743 234 Federal National Mortgage Association, 12.00%, 12/1/12 59,109 68 Federal National Mortgage Association, 12.00%, 9/1/17 48,848 57
Balanced Portfolio 62 Balanced Portfolio
Shares/ Value Government (Domestic and Foreign) and Agency Bonds (24.3%) $ Par $ (000's) - -------------------------------------------------------------------------------- Federal Government and Agencies continued Federal National Mortgage Association, 12.00%, 10/1/17 38,283 44 Federal National Mortgage Association, 12.00%, 12/1/17 30,171 35 Federal National Mortgage Association, 12.00%, 2/1/18 69,228 80 Federal National Mortgage Association, 12.50%, 4/1/18 26,226 31 Federal National Mortgage Association, 13.00%, 11/1/12 35,283 41 Federal National Mortgage Association, 13.00%, 11/1/17 27,498 33 Federal National Mortgage Association, 13.00%, 12/1/17 19,877 23 Federal National Mortgage Association, 13.00%, 2/1/18 86,509 102 Federal National Mortgage Association, 14.00%, 12/1/17 20,800 25 Government National Mortgage Association, 5.00%, 7/15/33 4,887,787 4,848 Government National Mortgage Association, 5.50%, 1/15/32 622,767 634 Government National Mortgage Association, 5.50%, 2/15/32 5,144,165 5,235 Government National Mortgage Association, 5.50%, 9/15/32 172,419 175 Government National Mortgage Association, 7.00%, 5/15/23 1,851,720 1,988 Government National Mortgage Association, 7.00%, 6/15/23 124,926 134 Government National Mortgage Association, 7.00%, 7/15/23 264,530 284 Government National Mortgage Association, 7.00%, 8/15/23 1,683 2 Government National Mortgage Association, 7.00%, 9/15/23 81,966 88 Government National Mortgage Association, 7.00%, 10/15/23 59,632 65 Government National Mortgage Association, 7.00%, 11/15/23 363,674 390 Government National Mortgage Association, 7.00%, 12/15/27 104,017 111 Government National Mortgage Association, 7.00%, 1/15/28 85,387 91 Government National Mortgage Association, 7.00%, 2/15/28 18,070 19 Government National Mortgage Association, 7.00%, 4/15/28 153,890 164 Government National Mortgage Association, 7.00%, 5/15/28 205,636 220 Government National Mortgage Association, 7.00%, 6/15/28 522,407 557 Government National Mortgage Association, 7.00%, 7/15/28 625,520 668 Government National Mortgage Association, 7.50%, 1/15/23 139,502 151
Shares/ Value Government (Domestic and Foreign) and Agency Bonds (24.3%) $ Par $ (000's) - ------------------------------------------------------------------------------ Federal Government and Agencies continued Government National Mortgage Association, 7.50%, 6/15/23 64,195 69 Government National Mortgage Association, 7.50%, 6/15/24 1,385 1 Government National Mortgage Association, 7.50%, 7/15/24 48,811 53 Government National Mortgage Association, 7.50%, 8/15/25 2,422 3 Government National Mortgage Association, 7.50%, 9/15/25 29,520 32 Government National Mortgage Association, 7.50%, 12/15/25 70,591 77 Government National Mortgage Association, 7.50%, 1/15/26 2,115 2 Government National Mortgage Association, 7.50%, 3/15/26 86,965 94 Government National Mortgage Association, 7.50%, 6/15/26 90,784 98 Government National Mortgage Association, 7.50%, 9/15/26 1,762 2 Government National Mortgage Association, 7.50%, 10/15/26 10,860 12 Government National Mortgage Association, 7.50%, 12/15/26 118,233 127 Government National Mortgage Association, 7.50%, 1/15/27 6,397 7 Government National Mortgage Association, 7.50%, 2/15/27 61,405 66 Government National Mortgage Association, 7.50%, 3/15/27 5,200 6 Government National Mortgage Association, 7.50%, 4/15/27 220,815 237 Government National Mortgage Association, 7.50%, 5/15/27 77,953 84 Government National Mortgage Association, 7.50%, 7/15/27 33,589 36 Government National Mortgage Association, 7.50%, 12/15/27 4,008 4 Government National Mortgage Association, 8.00%, 9/15/24 69,777 76 Government National Mortgage Association, 8.00%, 5/15/26 83,178 91 Government National Mortgage Association, 8.00%, 6/15/26 52,289 57 Government National Mortgage Association, 8.00%, 7/15/26 135,695 148 Government National Mortgage Association, 8.00%, 8/15/26 42,013 46 Government National Mortgage Association, 8.00%, 9/15/26 86,068 94 Government National Mortgage Association, 8.00%, 10/15/26 167,042 183 Government National Mortgage Association, 8.00%, 11/15/26 23,405 26 Government National Mortgage Association, 8.00%, 12/15/26 44,536 49
Balanced Portfolio 63 Balanced Portfolio
Shares/ Value Government (Domestic and Foreign) and Agency Bonds (24.3%) $ Par $ (000's) - --------------------------------------------------------------------------------- Federal Government and Agencies continued Government National Mortgage Association, 8.00%, 4/15/27 155,733 170 Government National Mortgage Association, 8.00%, 6/15/27 35,312 38 Government National Mortgage Association, 8.00%, 7/15/27 35,995 39 Government National Mortgage Association, 8.00%, 7/20/28 327,255 354 Government National Mortgage Association, 8.50%, 5/15/22 691 1 Government National Mortgage Association, 8.50%, 9/15/22 1,277 1 Government National Mortgage Association, 8.50%, 10/15/22 8,574 9 Government National Mortgage Association, 8.50%, 12/15/22 4,410 5 Government National Mortgage Association, 8.50%, 6/15/24 677 1 Government National Mortgage Association, 8.50%, 7/15/24 8,171 9 Government National Mortgage Association, 8.50%, 12/15/24 1,201 1 Government National Mortgage Association, 8.50%, 1/15/25 19,573 21 Government National Mortgage Association, 8.50%, 2/15/25 4,308 4 Government National Mortgage Association, 8.50%, 11/15/25 1,856 2 Government National Mortgage Association, 8.50%, 1/15/26 11,337 12 Government National Mortgage Association, 8.50%, 2/15/26 1,891 2 Government National Mortgage Association, 8.50%, 3/15/26 5,072 6 Government National Mortgage Association, 8.50%, 4/15/26 24,724 27 Government National Mortgage Association, 8.50%, 5/15/26 864 1 Government National Mortgage Association, 11.00%, 1/15/18 1,892,386 2,139 Government National Mortgage Association, TBA, 4.50%, 1/1/34 58,360,909 55,789 Government National Mortgage Association, TBA, 5.00%, 1/1/34 25,900,000 25,633 Housing & Urban Development, 6.17%, 8/1/14 14,981,000 16,566 Rural Housing Trust 1987-1, Series 1, Class D, 6.33%, 4/1/26 1,452,226 1,454 State of Israel, 7.25%, 12/15/28 5,200,000 5,622 US Treasury, 1.125%, 6/30/05 2,270,000 2,258 US Treasury, 1.625%, 1/31/05 825,000 828 US Treasury, 1.625%, 3/31/05 3,570,000 3,582 US Treasury, 1.625%, 4/30/05 325,000 326 US Treasury, 1.625%, 9/30/05 3,195,000 3,194 US Treasury, 1.75%, 12/31/04 3,385,000 3,402 US Treasury, 1.875%, 11/30/05 3,100,000 3,106
Shares/ Value Government (Domestic and Foreign) and Agency Bonds (24.3%) $ Par $ (000's) - ---------------------------------------------------------------------------------- Federal Government and Agencies continued US Treasury, 2.00%, 5/15/06 3,190,000 3,191 US Treasury, 2.125%, 10/31/04 1,025,000 1,033 US Treasury, 2.375%, 8/15/06 4,840,000 4,866 US Treasury, 3.00%, 1/31/04 29,795,000 29,842 US Treasury, 3.25%, 5/31/04 50,000,000 50,459 US Treasury, 3.375%, 11/15/08 3,285,000 3,311 US Treasury, 3.50%, 11/15/06 3,420,000 3,535 US Treasury, 3.625%, 3/31/04 58,520,000 58,899 US Treasury, 3.625%, 5/15/13 4,653,000 4,473 US Treasury, 4.00%, 11/15/12 15,245,000 15,099 US Treasury, 4.25%, 8/15/13 9,103,000 9,114 US Treasury, 5.25%, 5/15/04 24,445,000 24,826 US Treasury, 5.875%, 11/15/05 7,900,000 8,501 US Treasury, 6.50%, 2/15/10 3,885,000 4,514 US Treasury Inflation Index Bond, 3.375%, 1/15/07 105,833,060 114,647 US Treasury Inflation Index Bond, 3.625%, 1/15/08 26,705,131 29,534 US Treasury Inflation Index Bond, 4.25%, 1/15/10 52,781,760 61,363 US Treasury Stripped, 0.00%, 8/15/27 89,300,000 24,304 Vendee Mortgage Trust, Series 1998-3, Class E, 6.50%, 3/15/29 4,500,000 4,783 ------- Total Government (Domestic and Foreign) and Agency Bonds (Cost: $688,070) 702,315 ------- Mortgage-Backed and Asset Backed Securities (4.5%) - ---------------------------------------------------------------------------------- Autos (0.0%) Fleetwood Credit Corp. Grantor Trust, Series 1997-B, Class A, 6.40%, 5/15/13 385,597 388 ------- Total 388 ------- Boat Dealers (0.0%) Nationscredit Grantor Trust, Series 1997-2, Class A1, 6.35%, 4/15/14 284,016 294 ------- Total 294 ------- Commercial Mortgages (2.8%) Asset Securitization Corp., Series 1997-D5, Class PS1, 1.62%, 2/14/43 IO 20,224,287 1,110 Chase Commercial Mortgage Securities Corp., Series 1997-2, Class A2, 6.60%, 11/19/07 8,500,000 9,340 Chase Commercial Mortgage Securities Corp., Series 1997-2, Class B, 6.60%, 11/19/07 2,500,000 2,775 Commercial Mortgage Acceptance Corp., Series 1997-ML1, Class B, 6.64%, 12/15/30 2,500,000 2,726 Credit Suisse First Boston Mortgage Securities Corp., Series 1997-C1, Class A2, 7.26%, 6/20/29 144A 2,792,215 3,076
Balanced Portfolio 64 Balanced Portfolio
Shares/ Value Mortgage-Backed and Asset Backed Securities (4.5%) $ Par $ (000's) - ---------------------------------------------------------------------------------- Commercial Mortgages continued Credit Suisse First Boston Mortgage Securities Corp., Series 1997-C1, Class B, 7.28%, 6/20/29 144A 3,250,000 3,642 Criimi Mae Commercial Mortgage Trust, Series 1998-C1, Class A1, 7.00%, 11/2/06 144A 6,500,000 6,670 Criimi Mae Commercial Mortgage Trust, Series 1998-C1, Class B, 7.00%, 11/2/11 144A 5,700,000 5,591 DLJ Commercial Mortgage Corp., Series 1998-CF1, Class S, 0.70%, 1/15/18 IO 232,511,326 7,103 DLJ Mortgage Acceptance Corp., Series 1997-CF2, Class S, 0.35%, 10/15/30 IO 144A 15,318,082 287 Midland Realty Acceptance Corp., Series 1996-C2, Class AEC, 1.35%, 1/25/29 IO 144A 18,853,803 729 Mortgage Capital Funding, Inc., Series 1997-MC1, Class A3, 7.29%, 2/20/27 17,395,305 18,494 Nomura Asset Securities Corp., Series 1998-D6, Class A2, 6.99%, 3/15/30 15,000,000 17,434 RMF Commercial Mortgage Pass-Through, Series 1997-1, Class F, 7.47%, 1/15/19 144A 1,800,000 961 ------ Total 79,938 ------ 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 16,878 (d)Heilig-Meyers Master Trust, Series 1998-1A, Class A, 6.125%, 1/20/07 144A 2,756,669 2 ------ Total 16,880 ------ Finance Services (0.6%) Morgan Stanley Capital, Series 1998-WF2, Class A2, 6.54%, 5/15/08 15,000,000 16,723 ------ Total 16,723 ------ Franchise Loan Receivables (0.0%) Enterprise Mortgage Acceptance Co., Series 1998-1, Class IO, 1.37%, 1/15/23 IO 144A 30,253,423 938 ------ Total 938 ------ Home Equity Loans (0.0%) Vanderbilt Mortgage Finance, Inc., Series 1997-B, Class 1A4, 7.19%, 2/7/14 476,514 480 ------ Total 480 ------
Shares/ Value Mortgage-Backed and Asset Backed Securities (4.5%) $ Par $ (000's) - --------------------------------------------------------------------------------- Residential Mortgages (0.0%) Blackrock Capital Finance L.P., Series 1997-R1, Class B3, 7.75%, 3/25/37 144A 2,842,176 256 Blackrock Capital Finance L.P., Series 1997-R3, Class B3, 7.25%, 11/25/28 144A 3,897,246 234 ------- Total 490 ------- Retail -- Retail Stores (0.5%) LB Mortgage Trust, Series 1991-2, Class A3, 8.39%, 1/20/17 11,280,659 13,079 ------- Total 13,079 ------- Total Mortgage-Backed and Asset Backed Securities (Cost: $130,604) 129,210 ------- Common Stock (44.9%) - --------------------------------------------------------------------------------- Consumer Discretionary (5.1%) *American Greetings Corp. -- Class A 8,300 182 *AutoNation, Inc. 34,700 637 *Auto Zone, Inc. 11,275 961 *Bed Bath & Beyond, Inc. 37,300 1,617 Best Buy Co., Inc. 40,700 2,126 *Big Lots, Inc. 14,700 209 The Black & Decker Corp. 9,800 483 Boise Cascade Corp. 10,800 355 Brunswick Corp. 11,400 363 Carnival Corp Comm Paired Stk 79,473 3,157 Centex Corp. 7,800 840 Circuit City Stores, Inc. 26,400 267 Clear Channel Communications, Inc. 77,650 3,636 *Comcast Corp. -- Class A 284,137 9,339 Cooper Tire & Rubber Co. 9,300 199 Dana Corp. 18,715 343 Darden Restaurants, Inc. 20,749 437 Delphi Automotive Systems Corp. 70,769 723 Dillard's, Inc. -- Class A 10,536 173 Dollar General Corp. 42,065 883 Dow Jones & Co., Inc. 10,280 512 Eastman Kodak Co. 36,217 930 *eBay, Inc. 81,100 5,238 Family Dollar Stores, Inc. 21,700 779 Federated Department Stores, Inc. 23,412 1,103 Ford Motor Co. 231,307 3,701 Fortune Brands, Inc. 18,333 1,311 Gannett Co., Inc. 34,050 3,036 The Gap, Inc. 112,825 2,619 General Motors Corp. 70,825 3,782 Genuine Parts Co. 21,975 730 *The Goodyear Tire & Rubber Co. 22,100 174 Harley-Davidson, Inc. 38,175 1,814 Harrah's Entertainment, Inc. 13,850 689 Hasbro, Inc. 21,975 468 Hilton Hotels Corp. 47,650 816 The Home Depot, Inc. 290,197 10,298 International Game Technology 43,600 1,557
Balanced Portfolio 65 Balanced Portfolio
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - ------------------------------------------------------------------------------ Consumer Discretionary continued *The Interpublic Group of Companies, Inc. 49,400 771 J. C. Penney Co., Inc. 34,325 902 Johnson Controls, Inc. 11,300 1,312 Jones Apparel Group, Inc. 16,000 564 KB Home 5,900 428 Knight-Ridder, Inc. 10,150 785 *Kohl's Corp. 42,833 1,925 Leggett & Platt Inc. 24,267 525 The Limited, Inc. 65,813 1,187 Liz Claiborne, Inc. 13,700 486 Lowe's Companies, Inc. 98,950 5,481 Marriott International, Inc. -- Class A 29,400 1,358 Mattel, Inc. 55,460 1,069 The May Department Stores Co. 36,400 1,058 Maytag Corp. 9,867 275 McDonald's Corp. 160,671 3,989 The McGraw-Hill Companies, Inc. 24,140 1,688 Meredith Corp. 6,300 308 The New York Times Co. -- Class A 18,892 903 Newell Rubbermaid, Inc. 34,611 788 NIKE, Inc. -- Class B 33,300 2,280 Nordstrom, Inc. 17,133 588 *Office Depot, Inc. 39,143 654 Omnicom Group, Inc. 24,000 2,096 Pulte Corp. 7,800 730 Radio Shack Corp. 20,867 640 Reebok International, Ltd. 7,500 295 Sears, Roebuck & Co. 32,050 1,458 The Sherwin-Williams Co. 18,460 641 Snap-on, Inc. 7,317 236 The Stanley Works 10,750 407 *Staples, Inc. 61,850 1,689 *Starbucks Corp. 49,350 1,632 Starwood Hotels & Resorts Worldwide, Inc. 25,400 914 Target Corp. 114,943 4,414 Tiffany & Co. 18,333 829 *Time Warner, Inc. 569,700 10,248 The TJX Companies, Inc. 64,500 1,422 *Toys "R" Us, Inc. 26,950 341 Tribune Co. 39,631 2,045 Tupperware Corp. 7,400 128 *Univision Communications, Inc. -- Class A 40,700 1,615 V. F. Corp. 13,543 586 Viacom, Inc. -- Class B 221,561 9,832 Visteon Corp. 16,512 172 The Walt Disney Co. 258,033 6,019 Wendy's International, Inc. 14,350 563 Whirlpool Corp. 8,650 628 *Yum! Brands, Inc. 37,080 1,276 ------- Total 146,667 -------
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - ------------------------------------------------------------------------------ Consumer Staples (5.0%) Adolph Coors Co. -- Class B 4,600 258 Alberto-Culver Co. -- Class B 7,400 467 Albertson's, Inc. 46,295 1,049 Altria Group, Inc. 256,204 13,943 Anheuser-Busch Companies, Inc. 104,419 5,501 Archer-Daniels-Midland Co. 81,375 1,239 Avon Products, Inc. 29,775 2,010 Brown-Forman Corp. -- Class B 7,684 718 Campbell Soup Co. 51,854 1,390 The Clorox Co. 27,350 1,328 The Coca-Cola Co. 310,300 15,747 Coca-Cola Enterprises, Inc. 57,100 1,249 Colgate-Palmolive Co. 67,954 3,401 ConAgra Foods, Inc. 67,833 1,790 *Costco Wholesale Corp. 57,752 2,147 CVS Corp. 49,833 1,800 General Mills, Inc. 47,033 2,131 The Gillette Co. 128,765 4,730 H.J. Heinz Co. 44,383 1,617 Hershey Foods Corp. 16,450 1,266 Kellogg Co. 51,543 1,963 Kimberly-Clark Corp. 63,997 3,782 *The Kroger Co. 94,873 1,756 McCormick & Co., Inc. 17,600 530 The Pepsi Bottling Group, Inc. 33,800 817 PepsiCo, Inc. 217,900 10,158 The Procter & Gamble Co. 163,673 16,347 R.J. Reynolds Tobacco Holdings, Inc. 10,600 616 *Safeway, Inc. 55,700 1,220 Sara Lee Corp. 98,084 2,129 SUPERVALU, Inc. 16,950 485 SYSCO Corp. 82,050 3,055 UST, Inc. 21,033 751 Wal-Mart Stores, Inc. 551,633 29,263 Walgreen Co. 129,354 4,706 Winn-Dixie Stores, Inc. 17,750 177 Wm. Wrigley Jr. Co. 28,433 1,598 ------- Total 143,134 ------- Energy (2.6%) Amerada Hess Corp. 11,400 606 Anadarko Petroleum Corp. 31,477 1,606 Apache Corp. 20,465 1,660 Ashland, Inc. 8,600 379 Baker Hughes, Inc. 42,240 1,358 *BJ Services Co. 20,000 718 Burlington Resources, Inc. 25,386 1,406 ChevronTexaco Corp. 134,884 11,652 ConocoPhillips 85,803 5,626 Devon Energy Corp. 29,300 1,678 EOG Resources, Inc. 14,540 671 Exxon Mobil Corp. 837,871 34,352 Halliburton Co. 55,285 1,437 Kerr-McGee Corp. 12,757 593 Marathon Oil Corp. 39,191 1,297 *Nabors Industries, Ltd. 18,450 766 *Noble Corp. 16,850 603
Balanced Portfolio 66 Balanced Portfolio
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - ------------------------------------------------------------------------------ Energy continued Occidental Petroleum Corp. 48,280 2,039 *Rowan Companies, Inc. 11,850 275 Schlumberger, Ltd. 73,533 4,024 Sunoco, Inc. 9,750 499 *Transocean Sedco Forex, Inc. 40,354 969 Unocal Corp. 32,633 1,202 ------ Total 75,416 ------ Financials (9.2%) ACE, Ltd. 35,100 1,454 AFLAC, Inc. 64,850 2,346 The Allstate Corp. 88,869 3,823 Ambac Financial Group, Inc. 13,500 937 American Express Co. 162,500 7,837 American International Group, Inc. 329,390 21,833 AmSouth Bancorporation 44,245 1,084 Aon Corp. 39,475 945 Apartment Investment and Management Co. -- Class A 11,900 411 Bank of America Corp. 188,720 15,179 The Bank of New York Co., Inc. 97,220 3,220 Bank One Corp. 142,745 6,508 BB&T Corp. 68,200 2,635 The Bear Stearns Companies, Inc. 12,545 1,003 Capital One Financial Corp. 28,700 1,759 The Charles Schwab Corp. 170,986 2,024 Charter One Financial, Inc. 28,471 984 The Chubb Corp. 23,650 1,611 Cincinnati Financial Corp. 20,280 849 Citigroup, Inc. 650,274 31,565 Comerica, Inc. 22,100 1,239 Countrywide Credit Industries, Inc. 22,933 1,739 Equity Office Properties Trust 50,400 1,444 Equity Residential Properties Trust 34,600 1,021 Fannie Mae 122,929 9,227 Federated Investors, Inc. -- Class B 13,700 402 Fifth Third Bancorp 71,943 4,252 First Tennessee National Corp. 15,900 701 FleetBoston Financial Corp. 132,828 5,798 Franklin Resources, Inc. 31,650 1,648 Freddie Mac 87,814 5,121 Golden West Financial Corp. 19,250 1,986 The Goldman Sachs Group, Inc. 59,800 5,904 The Hartford Financial Services Group, Inc. 35,650 2,104 Huntington Bancshares, Inc. 28,900 650 J.P. Morgan Chase & Co. 257,162 9,446 Janus Capital Group, Inc. 30,171 495 Jefferson-Pilot Corp. 17,853 904 John Hancock Financial Services, Inc. 36,500 1,369 Key Corp 53,125 1,558 Lehman Brothers Holdings, Inc. 34,756 2,684 Lincoln National Corp. 22,460 907 Loews Corp. 23,433 1,159 Marsh & McLennan Companies, Inc. 67,280 3,222 Marshall & Ilsley Corp. 28,700 1,098 MBIA, Inc. 18,250 1,081 MBNA Corp. 161,295 4,008
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - ------------------------------------------------------------------------------ Financials continued Mellon Financial Corp. 54,409 1,747 Merrill Lynch & Co., Inc. 118,000 6,921 MetLife, Inc. 96,015 3,233 MGIC Investment Corp. 12,400 706 Moody's Corp. 18,800 1,138 Morgan Stanley 137,331 7,947 National City Corp. 77,579 2,633 North Fork Bancorporation, Inc. 19,200 777 Northern Trust Corp. 27,850 1,293 Plum Creek Timber Co., Inc. 23,100 703 The PNC Financial Services Group, Inc. 35,400 1,937 Principal Financial Group, Inc. 40,900 1,353 The Progressive Corp. 27,400 2,290 Prologis 22,600 725 *Providian Financial Corp. 36,643 427 Prudential Financial, Inc. 68,900 2,878 Regions Financial Corp. 28,090 1,045 SAFECO Corp. 17,450 679 Simon Property Group, Inc. 24,300 1,126 SLM Corp. 56,958 2,146 SouthTrust Corp. 42,633 1,395 The St. Paul Companies, Inc. 28,720 1,139 State Street Corp. 42,000 2,187 SunTrust Banks, Inc. 35,567 2,543 Synovus Financial Corp. 38,050 1,100 T. Rowe Price Group, Inc. 15,600 740 Torchmark Corp. 14,450 658 Travelers Property Casualty Corp. -- Class B 127,130 2,157 U.S. Bancorp 243,209 7,243 Union Planters Corp. 24,712 778 UnumProvident Corp. 37,406 590 Wachovia Corp. 168,157 7,834 Washington Mutual, Inc. 116,538 4,676 Wells Fargo & Co. 212,085 12,490 XL Capital, Ltd. -- Class A 17,200 1,334 Zions Bancorporation 11,300 693 ------- Total 268,435 ------- Health Care (6.0%) Abbott Laboratories 197,225 9,191 Aetna, Inc. 19,379 1,310 Allergan, Inc. 16,533 1,270 AmerisourceBergen Corp. 14,100 792 *Amgen, Inc. 162,923 10,069 *Anthem, Inc. 17,500 1,313 Applera Corp. -- Applied Biosystems Group 26,367 546 Bausch & Lomb, Inc. 6,700 348 Baxter International, Inc. 76,900 2,347 Becton, Dickinson and Co. 32,050 1,319 *Biogen IDEC, Inc. 41,320 1,520 Biomet, Inc. 32,355 1,178 *Boston Scientific Corp. 103,980 3,822 Bristol-Myers Squibb Co. 244,744 7,000 C. R. Bard, Inc. 6,550 532 Cardinal Health, Inc. 56,350 3,446 *Chiron Corp. 23,578 1,344
Balanced Portfolio Balanced Portfolio 67 Balanced Portfolio
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - ------------------------------------------------------------------------------ Health Care continued CIGNA Corp. 17,671 1,016 Eli Lilly and Co. 141,766 9,970 *Express Scripts, Inc. 9,900 658 *Forest Laboratories, Inc. 46,034 2,845 *Genzyme Corp. 28,000 1,382 Guidant Corp. 38,812 2,336 HCA, Inc. 63,015 2,707 Health Management Associates, Inc. -- Class A 30,300 727 *Humana, Inc. 20,400 466 IMS Health, Inc. 30,233 752 Johnson & Johnson 374,723 19,357 *King Pharmaceuticals, Inc. 30,466 465 Manor Care, Inc. 11,200 387 McKesson HBOC, Inc. 36,693 1,180 *Medco Health Solutions, Inc. 34,162 1,161 *MedImmune, Inc. 31,500 800 Medtronic, Inc. 153,600 7,466 Merck & Co., Inc. 282,700 13,060 *Millipore Corp. 6,100 263 Pfizer, Inc. 982,959 34,727 *Quest Diagnostics Inc. 13,300 972 Schering-Plough Corp. 185,450 3,225 *St. Jude Medical, Inc. 21,700 1,331 Stryker Corp. 25,150 2,138 *Tenet Healthcare Corp. 58,550 940 UnitedHealth Group, Inc. 75,228 4,377 *Watson Pharmaceuticals, Inc. 13,600 626 *Wellpoint Health Networks, Inc. -- Class A 18,500 1,794 Wyeth 168,071 7,135 *Zimmer Holdings, Inc. 28,673 2,019 ------- Total 173,629 ------- Industrials (4.9%) 3M Co. 98,824 8,403 *Allied Waste Industries, Inc. 26,450 367 American Power Conversion Corp. 24,950 610 *American Standard Companies, Inc. 9,100 916 *Apollo Group, Inc. -- Class A 22,200 1,510 Avery Dennison Corp. 13,950 781 The Boeing Co. 106,218 4,476 Burlington Northern Santa Fe Corp. 47,008 1,521 Caterpillar, Inc. 43,612 3,621 *Cendant Corp. 127,973 2,850 Cintas Corp. 21,567 1,081 Cooper Industries, Ltd. -- Class A 11,600 672 Crane Co. 7,525 231 CSX Corp. 27,050 972 Cummins, Inc. 5,200 254 Danaher Corp. 19,300 1,771 Deere & Co. 30,240 1,967 Delta Air Lines, Inc. 15,533 183 Deluxe Corp. 6,712 277 Dover Corp. 25,533 1,015 Eaton Corp. 9,500 1,026 Emerson Electric Co. 53,125 3,440 Equifax, Inc. 17,700 434
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - -------------------------------------------------------------------------------- Industrials continued FedEx Corp. 37,640 2,541 Fluor Corp. 10,300 408 General Dynamics Corp. 24,900 2,251 General Electric Co. 1,264,898 39,187 Goodrich Corp. 14,800 439 H&R Block, Inc. 22,650 1,254 Honeywell International, Inc. 108,550 3,629 Illinois Tool Works, Inc. 38,900 3,264 Ingersoll-Rand Co. -- Class A 21,670 1,471 ITT Industries, Inc. 11,700 868 Lockheed Martin Corp. 56,922 2,926 Masco Corp. 59,300 1,625 *Monster Worldwide, Inc. 14,133 310 *Navistar International Corp. 8,620 413 Norfolk Southern Corp. 49,243 1,165 Northrop Grumman Corp. 23,131 2,211 PACCAR, Inc. 14,685 1,250 Pall Corp. 15,716 422 Parker-Hannifin Corp. 14,900 887 Pitney Bowes, Inc. 29,527 1,199 *Power-One, Inc. 10,500 114 R. R. Donnelley & Sons Co. 14,333 432 Raytheon Co. 52,300 1,571 *Robert Half International, Inc. 21,560 503 Rockwell Automation, Inc. 23,350 831 Rockwell Collins, Inc. 22,650 680 Ryder System, Inc. 8,000 273 Southwest Airlines Co. 98,795 1,595 Textron, Inc. 17,150 979 *Thomas & Betts Corp. 7,400 169 Tyco International, Ltd. 252,183 6,683 Union Pacific Corp. 32,140 2,233 United Parcel Service, Inc. -- Class B 142,100 10,594 United Technologies Corp. 59,233 5,614 W.W. Grainger, Inc. 11,500 545 Waste Management, Inc. 74,797 2,214 ------- Total 141,128 ------- Information Technology (7.9%) *ADC Telecommunications, Inc. 101,550 302 Adobe Systems, Inc. 29,475 1,158 *Advanced Micro Devices, Inc. 43,800 653 *Agilent Technologies, Inc. 59,488 1,739 *Altera Corp. 48,265 1,096 Analog Devices, Inc. 46,143 2,106 *Andrew Corp. 19,362 223 *Apple Computer, Inc. 45,800 979 *Applied Materials, Inc. 209,200 4,697 *Applied Micro Circuits Corp. 38,500 230 Autodesk, Inc. 14,066 346 Automatic Data Processing, Inc. 75,500 2,991 *Avaya, Inc. 52,612 681 *BMC Software, Inc. 28,740 536 *Broadcom Corp. -- Class A 37,400 1,275 *CIENA Corp. 59,500 395 *Cisco Systems, Inc. 886,067 21,523 *Citrix Systems, Inc. 20,780 441
Balanced Portfolio 68 Balanced Portfolio
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - -------------------------------------------------------------------------------- Information Technology continued Computer Associates International, Inc. 73,132 1,999 *Computer Sciences Corp. 23,650 1,046 *Compuware Corp. 48,343 292 *Comverse Technology, Inc. 23,800 419 *Concord EFS, Inc. 61,500 913 *Convergys Corp. 18,050 315 *Corning, Inc. 168,100 1,753 *Dell, Inc. 324,267 11,012 *Electronic Arts, Inc. 37,200 1,777 Electronic Data Systems Corp. 60,600 1,487 *EMC Corp. 276,986 3,579 First Data Corp. 93,422 3,839 *Fiserv, Inc. 24,425 965 *Gateway, Inc. 40,950 188 Hewlett-Packard Co. 385,467 8,854 Intel Corp. 821,843 26,464 International Business Machines Corp. 218,410 20,242 *Intuit, Inc. 25,900 1,370 *Jabil Circuit, Inc. 25,133 711 *JDS Uniphase Corp. 180,600 659 *KLA-Tencor Corp. 24,000 1,408 *Lexmark International Group, Inc. -- Class A 16,200 1,274 Linear Technology Corp. 39,550 1,664 *LSI Logic Corp. 47,800 424 *Lucent Technologies, Inc. 525,262 1,492 Maxim Integrated Products, Inc. 41,000 2,042 *Mercury Interactive Corp. 10,900 530 *Micron Technology, Inc. 76,950 1,037 Microsoft Corp. 1,365,300 37,601 Molex, Inc. 24,175 843 Motorola, Inc. 293,819 4,134 *National Semiconductor Corp. 23,243 916 *NCR Corp. 12,000 466 *Network Appliance, Inc. 43,200 887 *Novell, Inc. 46,900 493 *Novellus Systems, Inc. 19,100 803 *NVIDIA Corp. 20,100 467 *Oracle Corp. 660,750 8,722 *Parametric Technology Corp. 33,620 132 Paychex, Inc. 47,540 1,768 *PeopleSoft, Inc. 46,000 1,049 PerkinElmer, Inc. 16,000 273 *PMC-Sierra, Inc. 21,500 433 *QLogic Corp. 11,850 611 QUALCOMM, Inc. 100,233 5,406 Sabre Holdings Corp. -- Class A 18,109 391 *Sanmina-SCI Corp. 64,400 812 Scientific-Atlanta, Inc. 18,800 513 *Siebel Systems, Inc. 62,400 865 *Solectron Corp. 104,800 619 *Sun Microsystems, Inc. 407,754 1,831 *SunGard Data Systems, Inc. 36,000 998 *Symantec Corp. 38,300 1,327 Symbol Technologies, Inc. 29,150 492 Tektronix, Inc. 10,740 339
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - ------------------------------------------------------------------------------ Information Technology continued *Tellabs, Inc. 52,108 439 *Teradyne, Inc. 23,850 607 Texas Instruments, Inc. 218,575 6,422 *Thermo Electron Corp. 20,500 517 *Unisys Corp. 41,550 617 *VERITAS Software Corp. 53,701 1,996 *Waters Corp. 15,500 514 *Xerox Corp. 99,800 1,377 *Xilinx, Inc. 43,000 1,666 *Yahoo!, Inc. 82,000 3,704 ------- Total 230,176 ------- Materials (1.4%) Air Products and Chemicals, Inc. 28,733 1,518 Alcoa, Inc. 106,843 4,060 Allegheny Technologies, Inc. 10,231 135 Ball Corp. 7,134 425 Bemis Co., Inc. 6,750 338 The Dow Chemical Co. 115,924 4,819 E. I. du Pont de Nemours and Co. 125,745 5,770 Eastman Chemical Co. 9,775 386 Ecolab, Inc. 32,800 898 Engelhard Corp. 15,800 473 Freeport-McMoRan Copper & Gold, Inc. -- Class B 21,219 894 Georgia-Pacific Corp. 32,058 983 Great Lakes Chemical Corp. 6,400 174 *Hercules, Inc. 14,000 171 International Flavors & Fragrances, Inc. 11,875 415 International Paper Co. 60,524 2,609 *Louisiana-Pacific Corp. 13,200 236 MeadWestvaco Corp. 25,314 753 Monsanto Co. 33,078 952 Newmont Mining Corp. 54,530 2,651 Nucor Corp. 9,867 553 *Pactiv Corp. 19,900 476 *Phelps Dodge Corp. 11,210 853 PPG Industries, Inc. 21,433 1,372 Praxair, Inc. 41,100 1,570 Rohm and Haas Co. 28,034 1,197 *Sealed Air Corp. 10,736 581 Sigma-Aldrich Corp. 8,900 509 Temple-Inland, Inc. 6,800 426 United States Steel Corp. 13,050 457 Vulcan Materials Co. 12,800 609 Weyerhaeuser Co. 27,720 1,774 Worthington Industries, Inc. 10,850 196 ------- Total 39,233 ------- Telecommunication Services (1.5%) ALLTEL Corp. 39,343 1,833 AT&T Corp. 99,474 2,019 *AT&T Wireless Services, Inc. 342,516 2,737 BellSouth Corp. 233,235 6,600 CenturyTel, Inc. 18,200 594 *Citizens Communications Co. 35,900 446 *Nextel Communications, Inc. -- Class A 138,833 3,896
Balanced Portfolio 69 Balanced Portfolio
Shares/ Value Common Stock (44.9%) $ Par $ (000's) - --------------------------------------------------------------------------------- Telecommunication Services continued *Qwest Communications International, Inc. 214,020 925 SBC Communications, Inc. 419,633 10,939 Sprint Corp. 113,991 1,872 *Sprint Corp. (PCS Group) 130,640 734 Verizon Communications, Inc. 347,938 12,205 --------- Total 44,800 --------- Utilities (1.3%) *The AES Corp. 78,275 739 *Allegheny Energy, Inc. 15,900 203 Ameren Corp. 20,433 940 American Electric Power Co., Inc. 49,820 1,520 *Calpine Corp. 52,140 251 CenterPoint Energy, Inc. 38,626 374 Cinergy Corp. 22,438 871 *CMS Energy Corp. 20,300 173 Consolidated Edison, Inc. 28,425 1,223 Constellation Energy Group, Inc. 21,100 826 Dominion Resources, Inc. 40,825 2,606 DTE Energy Co. 21,250 837 Duke Energy Corp. 114,142 2,334 *Dynegy, Inc. -- Class A 47,300 202 Edison International 41,180 903 El Paso Corp. 75,817 621 Entergy Corp. 28,791 1,645 Exelon Corp. 41,162 2,732 FirstEnergy Corp. 41,074 1,446 FPL Group, Inc. 23,143 1,514 KeySpan Corp. 20,000 736 Kinder Morgan, Inc. 15,533 918 Nicor, Inc. 5,550 189 NiSource, Inc. 33,184 728 Peoples Energy Corp. 4,600 193 *PG&E Corp. 51,975 1,443 Pinnacle West Capital Corp. 11,500 460 PPL Corp. 22,333 977 Progress Energy, Inc. 30,779 1,393 Public Service Enterprise Group, Inc. 28,540 1,250 Sempra Energy 28,259 849 The Southern Co. 92,000 2,784 TECO Energy, Inc. 23,700 342 TXU Corp. 40,615 963 The Williams Companies, Inc. 65,400 642 Xcel Energy, Inc. 50,370 855 --------- Total 36,682 --------- Total Common Stock (Cost: $734,524) 1,299,300 --------- Money Market Investment (20.4%) - --------------------------------------------------------------------------------- Agricultural Services (0.5%) (b)Cargill, Inc., 1.06%, 3/5/04 15,000,000 14,973 --------- Total 14,973 ---------
Shares/ Value Money Market Investment (20.4%) $ Par $ (000's) - --------------------------------------------------------------------------------- Asset-Backed Securities (CMO'S) (1.6%) (b)Fcar Owner Trust I, 1.08%, 2/17/04 15,000,000 14,979 (b)Sheffield Receivables, 1.09%, 1/7/04 15,000,000 14,997 (b)Sheffield Receivables, 1.10%, 01/02/04 15,000,000 15,000 ------ Total 44,976 ------ Autos (1.0%) (b)Daimler Chrysler Auto, 1.07%, 2/17/04 15,000,000 14,979 (b)Daimler Chrysler Auto, 1.07%, 2/27/04 12,524,000 12,503 ------ Total 27,482 ------ Banks (0.1%) (b)UBS Finance Delaware LLC, 0.95%, 1/2/04 3,860,000 3,860 ------ Total 3,860 ------ Beverages, Malt Beverages (0.5%) (b)Coca-Cola Co., 1.09%, 2/27/04 15,000,000 14,974 ------ Total 14,974 ------ Electronic Computers (0.5%) (b)International Business, 0.97%, 1/16/04 15,391,000 15,385 ------ Total 15,385 ------ Federal Government and Agencies (2.7%) (b)Federal Home Loan Bank, 1.06%, 3/10/04 15,000,000 14,972 (b)Federal Home Loan Mortgage Co., 1.065%, 2/5/04 34,200,000 34,165 (b)Federal Home Loan Mortgage Co., 1.07%, 1/14/04 15,100,000 15,094 (b)Federal National Mortgage Association, 1.06%, 1/20/04 15,000,000 14,992 ------ Total 79,223 ------ Finance Lessors (0.5%) (b)Receivable Capital Trust, 1.08%, 1/20/04 15,000,000 14,991 ------ Total 14,991 ------ Finance Services (2.4%) (b)American General, 1.13%, 3/5/04 15,000,000 14,973 (b)John Deere Capital Corp., 1.20%, 1/12/04 10,000,000 9,996 (b)Wells Fargo Bank, 1.04%, 1/29/04 15,000,000 15,001 (b)Windmill Funding Corp., 1.05%, 2/6/04 15,000,000 14,984 Windmill Funding Corp., 1.08%, 2/13/04 15,000,000 14,981 ------ Total 69,935 ------
Balanced Portfolio 70 Balanced Portfolio
Shares/ Value Money Market Investment (20.4%) $ Par $ (000's) - --------------------------------------------------------------------------------- Miscellaneous Business Credit Institutions (1.9%) (b)Delaware Funding, 1.08%, 1/5/04 10,000,000 9,999 (b)Delaware Funding, 1.08%, 1/29/04 10,000,000 9,992 (b)General Electric Capital, 1.12%, 2/17/04 15,000,000 14,979 (b)National Rural Utility, 1.08%, 1/28/04 15,000,000 14,987 (b)Pitney Bowes Inc., 0.92%, 1/2/04 3,700,000 3,700 ------- Total 53,657 ------- Personal Credit Institutions (4.8%) (b)American Express Credit, 1.08%, 4/1/04 15,000,000 15,000 (b)CXC Inc., 1.07%, 2/9/04 15,000,000 14,983 (b)CXC Inc., 1.08%, 2/6/04 15,000,000 14,984 (b)General Electric Capital, 1.10%, 2/4/04 15,000,000 14,984 (b)Household Finance Corp., 1.09%, 1/15/04 15,000,000 14,994 (b)Preferred Receivable Funding, 1.08%, 1/28/04 15,000,000 14,988 (b)Preferred Receivable Funding, 1.09%, 1/15/04 15,000,000 14,993 (b)Toyota Motor Credit Corp., 1.02%, 3/2/04 15,000,000 14,974 (b)Toyota Motor Credit Corp., 1.05%, 3/8/04 15,000,000 14,972 ------- Total 134,872 ------- Security Brokers and Dealers (1.0%) (b)Morgan Stanley Dean Witter, 1.09%, 1/23/04 15,000,000 14,990 (b)Morgan Stanley Dean Witter, 1.08%, 2/17/04 15,000,000 14,979 ------- Total 29,969 ------- Short Term Business Credit (2.9%) (b)Old Line Funding Corp., 1.08%, 2/13/04 10,000,000 9,987 (b)Old Line Funding Corp., 1.09%, 1/9/04 15,000,000 14,997 (b)Thunder Bay Funding, Inc., 1.09%, 2/5/04 15,000,000 14,984 (b)Thunder Bay Funding, Inc., 1.09%, 2/6/04 15,000,000 14,984
Shares/ Value Money Market Investment (20.4%) $ Par $ (000's) - ---------------------------------------------------------------------------------- Short Term Business Credit continued (b)Transamerica Financial, 1.02%, 1/14/04 15,000,000 14,994 (b)Transamerica Financial, 1.07%, 1/16/04 15,000,000 14,993 --------- Total 84,939 --------- Total Money Market Investment (Cost: $589,185) 589,236 --------- Total Investments (103.9%) (Cost: $2,429,286) 3,003,621 --------- Total Assets, Less Liabilities (-3.9%) (112,133) --------- Total Net Assets (100.0%) 2,891,488 ---------
*Non-Income Producing 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 (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $2,438,682 and the net unrealized appreciation of investments based on that cost was $564,939 which is comprised of $708,368 aggregate gross unrealized appreciation and $143,429 aggregate gross unrealized depreciation. (b)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.
Unrealized Appreciation/ Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) ---------------------------------------------------------- US Long Bond (CBT) Commodity Future 1,090 03/04 $ 2,231 (Total Notional Value at 12/31/03 $116,920) S & P 500 Index Futures 1,295 03/04 $13,598 (Total Notional Value at 12/31/03 $345,959)
(d)Defaulted Security The Accompanying Notes are an Integral Part of the Financial Statements Balanced Portfolio 71 High Yield Bond Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: High current income and capital Generate superior performance by investing in a diversified $199 million appreciation with moderate risk. mix of fixed income securities rated below investment grade.
Investing in a portfolio of high yield bonds provides a high level of current income, along with the opportunity for capital gains, to investors who can accept a moderate level of risk. 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. Approximately once in a decade, usually as the economy is emerging from a recession, there is an exceptional year for returns on high yield bonds, and 2003 was such a year. The Lehman Brothers High Yield Intermediate Market Index had a return of 27.44% for the year. For comparison, returns of the Index have ranged from -6.5% to 17.3% over the last eight years, and the annualized return of the Index since the Portfolio's inception date (May 1994) has been 6.92%. The High Yield Bond Portfolio has performed better than the Index for the year just ended and since inception. There are several reasons for the excellent performance of the high yield market in 2003: a strengthening economy, which is positive for earnings and cash flow of the leveraged companies that issue high yield bonds; a high-yield market recovering from a very depressed level in 2002, accompanied by a buoyant stock market; and strong investor interest in the asset class because of low yields on other bonds in an environment of very low interest rates. Credit spreads between investment grade and high yield bonds tightened dramatically during 2003, driving prices of high yield bonds steadily upward. In this very positive environment for the asset class, the Portfolio's performance benefited from a somewhat aggressive quality mix, with the middle quality sector of the market overweighted. A small exposure to the lower-tier quality sector was also beneficial. In particular, we retained some holdings that had fallen to very low prices in 2002, in the belief that they would recover, and they were among the top performing issues in 2003. Industry sectors that performed particularly well include electric power, telecommunications, financial services, refining and technology -- all sectors that had been beaten down in the volatile and illiquid market of the prior year. [CHART] Sector Allocation 12/31/03 Foods 5% Gaming/Lodging/Leisure 9% Basic Material/Capital Goods 20% Energy 7% Media 9% Builders 4% Telecommunications 4% Other Holdings 2% Healthcare/Pharmaceuticals 7% Auto Related 5% Short-Term Investments and Other Assets, Net 7% Financials 5% Transportation 5% Utilities 4% Consumer Products 7% Sector Allocation is based on Net Assets. Sector Allocation is subject to change. There are greater risks inherent in a fund that primarily invests in high yield bonds. [CHART] Relative Performance High Yield Lehman Brothers High Bond Portfolio Yield Intermediate Market Index -------------- ------------------------------- 5/94 $10,000 $10,000 12/94 10,302 10,188 12/95 12,030 11,952 12/96 14,409 13,409 12/97 16,693 15,020 12/98 16,388 15,244 12/99 16,314 15,646 12/00 15,564 14,635 12/01 16,347 15,189 12/02 15,874 14,982 12/03 20,487 19,093 Average Annual Total Return For Periods Ended December 31, 2003 Since 1 Year 5 Years Inception* High Yield Bond Portfolio 29.06% 4.57% 7.70% Lehman Brothers High Yield Intermediate Market Index 27.44% 4.61% 6.92% *inception date of 5/03/94 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 does 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 the Portfolio's operations). Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 72 High Yield Bond Portfolio High Yield Bond Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Bonds (91.6%) $ Par $ (000's) -------------------------------------------------------- Aerospace (0.5%) L-3 Communications Corp., 6.125%, 1/15/14 144A 950,000 952 ------ Total Aerospace 952 ------ Auto Related (4.5%) Advanced Accessory, 10.75%, 6/15/11 725,000 798 Asbury Automotive Group, 8.00%, 3/15/14 144A 1,150,000 1,156 Collins & Aikman Products, 10.75%, 12/31/11 1,125,000 1,105 HLI Operating Co., 10.50%, 6/15/10 925,000 1,065 Metaldyne Corp., 10.00%, 11/1/13 144A 1,500,000 1,515 Oxford Automotive, Inc., 12.00%, 10/15/10 144A 1,500,000 1,260 RJ Tower Corp., 12.00%, 6/1/13 750,000 739 United Components, Inc., 9.375%, 6/15/13 1,275,000 1,393 ------ Total Auto Related 9,031 ------ Basic Materials (12.9%) Chemicals (7.3%) Huntsman Adv. Materials, 11.00%, 7/15/10 144A 1,900,000 2,100 Huntsman International LLC, 9.875%, 3/1/09 144A 550,000 602 Huntsman International, Inc., 9.875%, 3/1/09 400,000 438 Huntsman LLC, 11.625%, 10/15/10 144A 750,000 765 IMC Global, Inc., 11.25%, 6/1/11 1,100,000 1,210 Koppers, Inc., 9.875%, 10/15/13 144A 1,125,000 1,240 Kraton Polymers LLC, 8.125%, 1/15/14 144A 1,300,000 1,352 Lyondell Chemical Co., 9.50%, 12/15/08 500,000 523 Nalco Co. 8.875%, 11/15/13 144A 1,125,000 1,193 Resolution Perform Prod., 8.00%, 12/15/09 144A 1,150,000 1,190 Rockwood Specialties Corp., 10.625%, 5/15/11 144A 1,725,000 1,923 Terra Capital Corp., 11.50%, 6/1/10 1,050,000 1,097 United Agricultural Products, 8.25%, 12/15/11 144A 1,100,000 1,130 ------ Total 14,763 ------ Metals/Mining (2.0%) CSN Islands VIII Corp., 9.75%, 12/16/13 144A 1,150,000 1,179 Massey Energy Co. 6.625%, 11/15/10 144A 1,125,000 1,153
Shares/ Value Bonds (91.6%) $ Par $ (000's) ---------------------------------------------------------- Metals/Mining continued Texas Industries Inc., 10.25%, 6/15/11 725,000 819 UCAR Finance, Inc., 10.25%, 2/15/12 725,000 834 ------ Total 3,985 ------ Packaging/Containers (2.0%) Anchor Glass Container, 11.00%, 2/15/13 750,000 870 Crown European Holdings SA, 9.50%, 3/1/11 550,000 623 Owens Brockway Glass Container, 8.75%, 11/15/12 775,000 863 Owens Brockway Glass Container., 8.25%, 5/15/13 725,000 778 Pliant Corp., 11.125%, 9/1/09 740,000 799 ------ Total 3,933 ------ Paper & Forest Products (1.6%) Appleton Papers, Inc., 12.50%, 12/15/08 1,250,000 1,413 Buckeye Technologies, Inc., 8.50%, 10/1/13 925,000 990 Georgia Pacific Corp. 8.00%, 1/15/24 144A 750,000 765 ------ Total 3,168 ------ Total Basic Materials 25,849 ------ Builders (3.6%) Building Materials (2.6%) Integrated Electrical Services, Inc., 9.375%, 2/1/09 1,450,000 1,524 Nationsrent, Inc., 9.50%, 10/15/10 144A 950,000 1,021 Norcraft Co., 9.00%, 11/1/11 144A 750,000 810 Nortek Holdings Inc. 0.00%, 5/15/11 144A 950,000 686 United Rentals NA, Inc., 7.75%, 11/15/13 144A 1,125,000 1,149 ------ Total 5,190 ------ Home Builders (1.0%) Meritage Corp., 9.75%, 6/1/11 1,100,000 1,229 Technical Olympic USA, Inc., 9.00%, 7/1/10 750,000 806 ------ Total 2,035 ------ Total Builders 7,225 ------ Capital Goods (6.7%) Amsted Industries, Inc., 10.25%, 10/15/11 144A 1,825,000 2,017 Bombardier Recreational, 8.375%, 12/15/13 144A 1,750,000 1,829
High Yield Bond Portfolio 73 High Yield Bond Portfolio
Shares/ Value Bonds (91.6%) $ Par $ (000's) ----------------------------------------------------------- Capital Goods continued Case New Holland, Inc., 9.25%, 8/1/11 144A 800,000 896 Columbus McKinnon Corp., 10.00%, 8/1/10 925,000 985 General Cable Corp., 9.50%, 11/15/10 144A 1,325,000 1,418 Jacuzzi Brands Inc., 9.625%, 7/1/10 144A 750,000 825 JLG Industries Inc., 8.25%, 5/1/08 500,000 543 Rexnord Corp., 10.125%, 12/15/12 750,000 821 Sensus Metering Systems, 8.625%, 12/15/13 144A 1,300,000 1,334 Terex Corp. 7.375%, 1/15/14 144A 1,625,000 1,662 Trimas Corp., 9.875%, 6/15/12 975,000 1,016 ------ Total Capital Goods 13,346 ------ Consumer Products (6.9%) Consumer Products (2.5%) Hines Nurseries, Inc. 10.25%, 10/1/11 144A 775,000 845 Jafra Cosmetics, 10.75%, 5/15/11 1,100,000 1,207 Jostens Holding, 10.25%, 12/1/10 144A 925,000 580 Rayovac Corp., 8.50%, 10/1/13 1,125,000 1,193 Simmons Co. 7.875%, 1/15/14 144A 1,100,000 1,106 ------ Total 4,931 ------ Retail Food & Drug (0.6%) Delhaize America, Inc., 9.00%, 4/15/31 950,000 1,154 ------ Total 1,154 ------ Retail Store (2.0%) Cole National Group, 8.875%, 5/15/12 1,000,000 1,070 Couche-Tard US, 7.50%, 12/15/13 144A 1,525,000 1,597 Payless Shoesource, Inc., 8.25%, 8/1/13 1,350,000 1,299 ------ Total 3,966 ------ Textile/Apparel (1.8%) Oxford Industries, Inc., 8.875%, 6/1/11 144A 1,050,000 1,148 Perry Ellis International, Inc., 8.875%, 9/15/13 144A 750,000 789 Phillips Van Heusen Corp., 8.125%, 5/1/13 700,000 744 Tommy Hilfiger USA, Inc., 6.85%, 6/1/08 200,000 201 Warnaco, Inc., 8.875%, 6/15/13 144A 725,000 747 ------ Total 3,629 ------ Total Consumer Products 13,680 ------ Energy (6.6%) Gas Pipeline/Oil Field Service (2.8%) Dynegy Holdings Inc., 10.125%, 7/15/13 144A 1,125,000 1,294 Hanover Equip TR., 8.75% 9/1/11 975,000 1,034 Hanover Equipment Trust 01 A, 0.00%, 3/31/07 750,000 551
Shares/ Value Bonds (91.6%) $ Par $ (000's) ------------------------------------------------------- Gas Pipeline/Oil Field Service continued Parker Drilling Co., 9.625%, 10/1/13 144A 1,125,000 1,170 Suburban Propane Partners, 6.875%, 12/15/13 144A 1,525,000 1,539 ------ Total 5,588 ------ Oil & Gas Exploration/Production (3.2%) Compton Pete Corp., 9.90%, 5/15/09 750,000 818 Hilcorp Energy, 10.50%, 9/1/10 144A 2,100,000 2,299 Petrobras International, 8.375%, 12/10/18 1,125,000 1,156 Range Resources Corp. 7.375%, 7/15/13 775,000 775 Tom Brown, Inc., 7.25%, 9/15/13 1,125,000 1,190 ------ Total 6,238 ------ Oil Refining & Marketing (0.6%) Citgo Petroleum Corp., 11.375%, 2/1/11 1,100,000 1,276 Total 1,276 ------ Total Energy 13,102 ------ Financials (4.6%) Financial Services (3.5%) AmeriCredit Corp., 9.875%, 4/15/06 1,375,000 1,444 Dollar Financial Group 9.75%, 11/15/11 144A 1,875,000 1,940 IOS Capital LLC, 7.25%, 6/30/08 1,670,000 1,779 WMC Finance Co. 11.75%, 12/15/08 144A 1,750,000 1,746 ------ Total 6,909 ------ Insurance (1.1%) Crum & Forster Holding Corp., 10.375%, 6/15/13 144A 925,000 1,028 Fairfax Financial Holdings, 7.375%, 3/15/06 1,125,000 1,136 ------ Total 2,164 ------ Total Financials 9,073 ------ Financials Banking (0.3%) Western Financial Bank-FSB, 9.625%, 5/15/12 625,000 697 ------ Total Financials Banking 697 ------ Foods (5.3%) Food/Beverage/Tobacco (3.8%) Bavaria SA, 8.875%, 11/1/10 144A 1,125,000 1,153 Land O Lakes, Inc., 9.00%, 12/15/10 144A 1,525,000 1,536 Merisant Co., 9.50%, 7/15/13 144A 1,125,000 1,198 Pinnacle Foods Holding, 8.25%, 12/1/13 144A 1,325,000 1,371 RJ Reynolds Tobacco Holdings, 7.25%, 6/1/12 750,000 739
74 High Yield Bond Portfolio High Yield Bond Portfolio
Shares/ Value Bonds (91.6%) $ Par $ (000's) ----------------------------------------------------------- Food/Beverage/Tobacco continued Seminis Vegetable Seeds, 10.25%, 10/1/13 144A 450,000 484 Tabletop Holdings, 0%, 5/15/14 144A 1,875,000 1,031 ------ Total 7,512 ------ Restaurant (1.5%) Buffets, Inc., 11.25%, 7/15/10 1,000,000 1,073 Domino's, Inc., 8.25%, 7/1/11, 144A 735,000 787 O'Charleys, Inc., 9.00%, 11/1/13 144A 1,150,000 1,156 ------ Total 3,016 ------ Total Foods 10,528 ------ Gaming/Lodging/Leisure (8.8%) Gaming (4.3%) (d)Hollywood Casino Shreveport, 13.00%, 8/1/06 700,000 469 Inn of The Mountain Gods., 12.00%, 11/15/10 144A 1,500,000 1,593 Jacobs Entmt, Inc., 11.875%, 2/01/09 675,000 756 Majestic Star Casino, LLC, 9.50%, 10/15/10 144A 1,500,000 1,538 Poster Financial Group, 8.34%, 12/1/11 144A 750,000 793 Resort Intl. Hotel/Casino, 11.50%, 3/15/09 1,000,000 1,088 River Rock Entertainment, 9.75%, 11/1/11 144A 1,125,000 1,209 Wheeling Island Gaming, 10.125%, 12/15/09 1,125,000 1,193 ------ Total 8,639 ------ Leisure (4.1%) Bally Total Fitness Holdings, Series D, 9.875%, 10/15/07 850,000 774 Equinox Holdings LTD. 9.00%, 12/15/09 144A 925,000 955 IMAX Corp., 9.625%, 12/1/10 144A 1,325,000 1,393 Intrawest Corp. 7.50%, 10/15/13 144A 750,000 780 Royal Caribbean Cruises, 6.875%, 12/1/13 1,500,000 1,511 Six Flags, Inc., 8.875%, 2/1/10 1,775,000 1,821 Universal City Development Corp., 11.75%, 4/1/10 144A 875,000 1,024 ------ Total 8,258 ------ Lodging (0.4%) Host Marriott LP, 7.125%, 11/1/13 144A 750,000 765 ------ Total 765 ------ Total Gaming/Lodging/Leisure 17,662 ------ Healthcare/Pharmaceuticals (6.8%) Ameripath, Inc., 10.50%, 4/1/13 1,400,000 1,490 Biovail Corp., 7.875%, 04/01/10 1,125,000 1,148 General Nutrition Center, 8.50%, 12/1/10 144A 1,750,000 1,793 Genesis HealthCare Corp. 8.00%, 10/15/13 144A 750,000 782 National Nephrology Associates, 9.00%, 11/1/11 144A 1,125,000 1,178
Shares/ Value Bonds (91.6%) $ Par $ (000's) ---------------------------------------------------------- Healthcare/Pharmaceuticals continued Quintiles Transnational, 10.00%, 10/1/13, 144A 1,125,000 1,215 Senior Housing Property Trust, 7.875%, 4/15/15 800,000 840 Service Group International, 7.70%, 4/15/09 650,000 694 Tenet Healthcare Corp., 6.375%, 12/1/11 725,000 696 Tenet Healthcare Corp., 7.375%, 2/1/13 750,000 754 Universal Hospital Services, 10.125%, 11/1/11 144A 750,000 788 Valeant Pharmaceuticals, 7.00%, 12/15/11 144A 1,350,000 1,391 Ventas Realty Ltd. Partnership, 9.00%, 5/1/12 750,000 833 ------ Total Healthcare/ Pharmaceuticals 13,602 ------ Media (8.5%) Broadcasting (0.7%) Granite Broadcasting 9.75%, 12/1/10 144A 1,375,000 1,372 ------ Total 1,372 ------ Cable/Satellite (3.0%) Charter Communications Holdings LLC, 9.625%, 11/15/09 750,000 660 Echostar Corp., 6.375%, 10/1/11 144A 1,500,000 1,537 Insight Midwest, 9.75%, 10/1/09 950,000 1,005 Lodgenet Entertainment, 9.50%, 6/15/13 1,100,000 1,205 MediaCom LLC, 9.50%, 1/15/13 1,500,000 1,589 ------ Total 5,996 ------ Publishing (4.8%) American Achievement Corp., 11.625%, 1/1/07 700,000 770 American Color Graphics, Inc., 10.00%, 6/15/10 144A 750,000 769 Dex Media West, 9.875%, 8/15/13 144A 1,100,000 1,279 Houghton Mifflin Co., 9.875% 2/1/13 1,150,000 1,265 Mail-Well Corp., 9.625%, 3/15/12 800,000 888 Moore NA Finance, 7.875%, 1/15/11 144A 875,000 991 Primedia, Inc., 7.625%, 4/1/08 1,125,000 1,136 Vertis, Inc., 10.875%, 6/15/09 1,150,000 1,222 Von Hoffman Corp., 10.25%, 3/15/09 750,000 799 Von Hoffman Corp. 10.25%, 03/15/09 144A 375,000 399 ------ Total 9,518 ------ Total Media 16,886 ------ Real Estate (1.1%) CB Richards Ellis Services, Inc., 11.25%, 6/15/11 350,000 396 CBRE Escrow, Inc., 9.75%, 5/15/10 144A 1,000,000 1,110
High Yield Bond Portfolio 75 High Yield Bond Portfolio
Shares/ Value Bonds (91.6%) $ Par $ (000's) ----------------------------------------------------------- Real Estate continued LNR Property Corp., 7.25%, 10/15/13 144A 750,000 763 ----- Total Real Estate 2,269 ----- Services (1.4%) Environmental Services (0.5%) MSW Energy Holdings, 8.50%, 9/1/10 144A 925,000 1,008 ----- Total 1,008 ----- Services--Other (0.9%) Buhrmann US, Inc., 12.25%, 11/1/09 350,000 392 Kindercare Learning Centers, 9.50%, 2/15/09 1,325,000 1,345 ----- Total 1,737 ----- Total Services 2,745 ----- Telecommunications (4.5%) Telecom -- Wireless (2.8%) ACC Escrow Corp., 10.00%, 8/1/11 144A 1,150,000 1,283 Crown Castle Intl Corp. 7.50%, 12/1/13 144A 375,000 377 Crown Castle Intl Corp., 7.50%, 12/1/13 144A 775,000 779 Nextel Communications, 7.375%, 8/1/15 925,000 994 Nextel Partners, Inc., 12.50%, 11/15/09 775,000 899 Nextel Partners, Inc., 11.00%, 3/15/10 350,000 387 Triton PCS, 8.75%, 11/15/11 925,000 911 ----- Total 5,630 ----- Telecom -- Wireline (1.7%) Cincinnati Bell, Inc. 8.375%, 1/15/14 144A 925,000 994 (d)MCI Communications Corp., 7.75%, 3/23/25 375,000 302 (d)MCI Communications Corp., 7.125%, 6/15/27 1,125,000 906 Qwest Capital Funding, 7.75%, 8/15/06 750,000 776 Qwest Communications INTL. 7.50%, 11/1/08 B 375,000 385 ----- Total 3,363 ----- Total Telecommunications 8,993 ----- Telephone Communications (0.5%) Qwest Communications, Inc., 13.50%, 12/15/10, 144A 795,000 966 ----- Total Telephone Communications 966 ----- Transportation (4.6%) Airlines (0.6%) Continental Airlines Inc., 7.875%, 7/2/18 1,125,000 1,132 ----- Total 1,132 -----
Shares/ Value Bonds (91.6%) $ Par $ (000's) --------------------------------------------------------- Transportation -- Rail & Other (4.0%) (d)American Commercial LLC, 11.25%, 1/1/08 551,186 61 Laidlaw International, Inc., 10.75%, 6/15/11 144A 1,275,000 1,440 OMI Corp., 7.625%, 12/1/13 144A 1,125,000 1,135 Quality Distrib/QD Cap 9.00%, 11/15/10 144A 575,000 602 Railamerica Transportation Corp., 12.875%, 8/15/10 1,400,000 1,625 Ship Finance Intl LTD. 8.50%, 12/15/13 144A 1,100,000 1,089 Stena AB, 9.625%, 12/1/12 1,075,000 1,212 TFM SA DE C V, 12.50%, 6/15/12 750,000 855 Total 8,019 ------- Total Transportation 9,151 ------- Utilities (3.5%) Aes Corp., 8.75%, 5/15/13 144A 375,000 419 Aes Corp., 9.00%, 5/15/15 144A 900,000 1,017 Calpine Corp., 8.50%, 7/15/10 144A 750,000 731 CMS Energy Corp., 7.75%, 8/1/10 144A 875,000 920 Nevada Power Co., 8.25%, 6/1/11 750,000 818 NRG Energy Inc., 8.00%, 12/15/13 144A 1,700,000 1,787 Reliant Resources, Inc., 9.50%, 7/15/13 144A 1,150,000 1,231 ------- Total Utilities 6,923 ------- Total Bonds (Cost: $171,895) 182,680 ------- Preferred Stock (1.3%) --------------------------------------------------------- Media (1.3%) Cable/Satellite (1.3%) CSC Holdings, Inc.--Series H 15,250 1,586 CSC Holdings, Inc.,--Series M 8,708 914 NTL Europe, Inc., 10.00%, 1/10/23 25 0 ------- Total Media 2,500 ------- Telecommunications (0.0%) Telecom -- Wireless (0.0%) Intermedia Communications, Inc. 1 0 ------- Total Telecommunications 0 ------- Transportation (0.0%) Rail & Other (0.0%) American Commercial Lines LLC 4,948 1 ------- Total Transportation 1 ------- Total Preferred Stock (Cost: $2,836) 2,501 -------
76 High Yield Bond Portfolio High Yield Bond Portfolio
Shares/ Value Common Stocks and Warrants (0.1%) $ Par $ (000's) -------------------------------------------------------- Gaming/Lodging/Leisure (0.0%) *La Quinta Corp. 11,117 71 ---- Total Gaming/Lodging/Leisure 71 ---- Media (0.0%) Cable/Satellite (0.0%) NTL Europe, Inc. 10 0 NTL, Inc. 12 0 ---- Total Media 0 ---- Telecommunications (0.0%) Telecom -- Wireless (0.0%) American Tower Corporation -- Warrants 2,900 36 Horizon PCS, Inc. -- Warrant 144A 2,000 0 IWO Holdings, Inc. 144A 1,150 0 ---- Total Telecommunications 36 ---- Transportation (0.1%) Rail & Other (0.1%) Railamerica Transportation Corp. 1,400 82 ---- Total Transportation $ 82 ---- Total Common Stocks and Warrants (Cost: $456) 189 ----
Shares/ Value Money Market Investment (5.5%) $ Par $ (000's) --------------------------------------------------------- Autos (4.0%) Toyota Motor Credit Corp., 0.99%, 2/12/04 8,000,000 7,990 ------- Total Autos 7,990 ------- Banks (1.5%) UBS Finance Delaware LLC, 0.95%, 1/2/04 3,000,000 3,000 ------- Total Banks 3,000 ------- Total Money Market Investment (Cost: $10,990) 10,990 ------- Total Investments (98.5%) (Cost $186,177)(a) 196,360 ------- Other Assets, Less Liabilities (1.5%) 3,011 ------- Total Net Assets (100.0%) 199,371 -------
* Non-Income Producing 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. (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $186,177 and the net unrealized appreciation of investments based on that cost was $10,183 which is comprised of $11,645 aggregate gross unrealized appreciations and $1,462 aggregate gross unrealized depreciation. (c)PIK -- Payment In Kind (d)Defaulted Security The Accompanying Notes are an Integral Part of the Financial Statements High Yield Bond Portfolio 77 Select Bond Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: A stable and relatively high level of long- Invest in high grade corporate bonds, U.S. government $621 million term total return and preservation of bonds and bonds of government agencies. capital
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 adjustments in recognition or anticipation of interest rate changes. After outperforming the stock market for three consecutive years, the bond market provided positive returns in 2003, but significantly less than the stock market. Total return of the Merrill Lynch Domestic Master Index (a broadly-based bond index) was 4.12% for the year. The Select Bond Portfolio outperformed the Index, with a return of 5.49%. Because the Merrill Lynch Domestic Master Index is an unmanaged index, its return does not reflect the deduction of fees that exist with a managed portfolio. The Portfolio's superior performance resulted mainly from favorable moves with regard to duration. There was a modest net increase in interest rates over the course of 2003; rates fell during the summer months, then rose in the fourth quarter more than they had fallen in prior months. We were able to take advantage of these rate movements, lengthening duration in advance of the drop in rates, and then reducing it somewhat before rates rose again. This favorable performance was partially offset by an unfavorable mix of securities, specifically a high quality portfolio at a time when riskier bonds were performing better. During 2003 the market was driven mainly by liquidity, rather than fundamentals. As investors sought yields in a low interest rate environment, high yield bonds were bid up, outperforming investment grade corporate bonds. An improving economy gave further impetus to the high yield market, as high yield issuers encountered an easier operating environment. Throughout the year, the Select Bond Portfolio was underweighted in corporate bonds, particularly high yield bonds and lower quality investment grade corporate bonds. [CHART] Percentage Holdings 12/31/03 Corporate Bonds 27% Mortgage-Backed and Asset-Backed Securities 8% Short-Term Investments & Other Net Assets 5% Government and Agency Bonds 60% Percentage Holdings are based on Net Assets. Percentage Holdings are subject to change. 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 ----------- ---------------------- 12/93 $10,000 $10,000 12/94 9,772 9,718 12/95 11,638 11,517 12/96 12,024 11,931 12/97 13,162 13,083 12/98 14,092 14,243 12/99 13,948 14,107 12/00 15,372 15,761 12/01 16,966 17,073 12/02 19,017 18,850 12/03 20,061 19,627 Average Annual Total Return For Periods Ended December 31, 2003 1 Year 5 Years 10 Years Select Bond Portfolio 5.49% 7.32% 7.15% Merrill Lynch Domestic Master Index 4.12% 6.62% 6.98% 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 does not include sales charges. This chart assumes an initial investment of $10,000 made on 12/31/93. Returns shown include deductions for management and other portfolio expenses, and reinvestment of all dividends. Returns exclude deductions for separate account sales loads and account fees. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that, when redeemed, it may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. Total returns, which reflect deduction of charges for the separate account are shown beginning on page iv of the Performance Summary of the Separate Account report. 78 Select Bond Portfolio Select Bond Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Revenue Bonds (0.4%) $ Par $ (000's) ---------------------------------------------------------- Municipal Bond -- Revenue (0.4%) Nashville And Davidson County, Tennessee Health And Educational Facilities Board of The Metropolitan Government, 0.00%, 6/1/21 6,500,000 2,704 ------ Total Revenue Bonds (Cost: $2,721) 2,704 ------ Corporate Bonds (26.9%) ---------------------------------------------------------- Aerospace-Defense (0.8%) Lockheed Martin Corp., 8.20%, 12/1/09 3,850,000 4,675 ------ Total 4,675 ------ Auto Related (2.1%) American Honda Finance, 3.85%, 11/6/08 144A 4,120,000 4,149 Toyota Motor Credit Corp., 2.875%, 8/1/08 1,190,000 1,168 Toyota Motor Credit Corp., 4.35%, 12/15/10 3,180,000 3,223 Toyota Motor Credit Corp., 5.65%, 1/15/07 4,000,000 4,408 ------ Total 12,948 ------ Beverages, Malt Beverages (2.6%) Anheuser-Busch Companies, Inc., 7.00%, 12/1/25 4,200,000 4,624 Anheuser-Busch Companies, Inc., 7.50%, 3/15/12 378,000 452 Coca-Cola Enterprises, Inc., 5.25%, 5/15/07 5,000,000 5,364 Coca-Cola Enterprises, Inc., 5.375%, 8/15/06 1,500,000 1,610 Coca-Cola Enterprises, Inc., 5.75%, 3/15/11 4,000,000 4,371 ------ Total 16,421 ------ Broad Woven Fabric Mills, Manmade (0.1%) (d)Polysindo International Finance, 11.375%, 6/15/06 4,200,000 378 ------ Total 378 ------ Commercial Banks (3.2%) Bank of America Corp., 4.875%, 1/15/13 820,000 819 Bank of America Corp., 7.40%, 1/15/11 1,133,000 1,329 Bank One Corp., 5.25%, 1/30/13 4,000,000 4,104 HBOS Treasury Services, 3.75%, 9/30/08 4,100,000 4,102 Rabobank Capital Fund II, 5.26%, 12/31/13 144A 3,700,000 3,705 RBS Capital Trust II, 6.425%, 1/3/34 5,320,000 5,376 Unionbancal Corp., 5.25%, 12/16/13 500,000 505 ------ Total 19,940 ------
Shares/ Value Corporate Bonds (26.9%) $ Par $ (000's) ----------------------------------------------------------- Commercial Physical Research (0.8%) Monsanto Co., 7.375%, 8/15/12 4,100,000 4,679 ------ Total 4,679 ------ Crude Petroleum and Natural Gas (0.5%) Occidental Petroleum, 8.45%, 2/15/29 1,430,000 1,875 Occidental Petroleum, 10.125%, 9/15/09 1,000,000 1,289 ------ Total 3,164 ------ Data Processing and Preparation (0.6%) Fiserv, Inc., 4.00%, 4/15/08 1,000,000 995 GTECH Holdings Corp., 4.75%, 10/15/10 144A 2,550,000 2,578 ------ Total 3,573 ------ Electrical Equipment and Supplies (0.7%) Cooper Industries, Inc., 5.50%, 11/1/09 4,000,000 4,302 ------ Total 4,302 ------ Fire, Marine and Casualty Insurance (2.5%) Berkley (WR) Corp., 5.875%, 2/15/13 2,750,000 2,809 Berkley (WR) Corp., 9.875%, 5/15/08 2,860,000 3,486 Progressive Corp., 6.25%, 12/1/32 4,215,000 4,400 Progressive Corp., 6.375%, 1/15/12 1,415,000 1,560 Travelers Property Casualty Corp., 6.375%, 3/15/33 3,300,000 3,441 ------ Total 15,696 ------ Measuring and Controlling Devices (0.4%) Rockwell Automation, Inc., 6.70%, 1/15/28 2,280,000 2,497 ------ Total 2,497 ------ Miscellaneous Manufacturing Industries (0.2%) Textron Financial Corp., 2.75%, 6/1/06 1,300,000 1,297 ------ Total 1,297 ------ Motors and Generators (0.2%) Emerson Electric Co., 4.50%, 5/1/13 655,000 639 Emerson Electric Co., 5.75%, 11/1/11 796,000 858 ------ Total 1,497 ------ Office Machines (0.4%) Pitney Bowes Credit Corp., 5.75%, 8/15/08 2,250,000 2,459 ------ Total 2,459 ------ Oil and Gas Extraction (0.8%) Chevrontexaco Corp., 6.625%, 10/1/04 4,500,000 4,674 ------ Total 4,674 ------ Pharmaceutical Preparations (3.3%) Johnson & Johnson, Inc., 3.80%, 5/15/13 2,900,000 2,738
Select Bond Portfolio 79 Select Bond Portfolio
Shares/ Value Corporate Bonds (26.9%) $ Par $ (000's) --------------------------------------------------------- Pharmaceutical Preparations continued Johnson & Johnson, Inc., 4.95%, 5/15/33 3,300,000 3,001 Johnson & Johnson, Inc., 6.625%, 9/1/09 2,750,000 3,173 Johnson & Johnson, Inc., 6.95%, 9/1/29 2,200,000 2,608 Merck & Co., Inc. 5.95%, 12/1/28 4,841,000 5,015 Merck & Co., Inc., 6.40%, 3/1/28 1,100,000 1,209 Pfizer, Inc., 5.625%, 2/1/06 1,875,000 2,007 Pfizer Inc., 5.625%, 4/15/09 1,100,000 1,195 ------- Total 20,946 ------- Property & Casualty Insurance (1.1%) Berkshire Hathaway, Inc., 4.625%, 10/15/13 144A 6,880,000 6,764 ------- Total 6,764 ------- Radio, TV Electronic Stores (1.1%) RadioShack Corp., 6.95%, 9/1/07 1,500,000 1,687 RadioShack Corp., 7.375%, 5/15/11 4,885,000 5,637 ------- Total 7,324 ------- Real Estate Investment Trusts (0.4%) Vornado Realty Trust, 4.75%, 12/1/10 2,520,000 2,520 ------- Total 2,520 ------- Retail -- Retail Stores (3.5%) Estee Lauder, Inc., 5.75%, 10/15/33 5,400,000 5,324 Fortune Brands, Inc., 4.875%, 12/1/13 1,370,000 1,373 The Gillette Co., 2.50%, 6/1/08 3,300,000 3,177 Limited Brands, Inc., 6.125%, 12/1/12 1,040,000 1,115 Limited Brands, Inc., 6.95%, 3/1/33 4,526,000 4,922 Office Depot, 6.25%, 8/15/13 3,357,000 3,525 VF Corp., 6.00%, 10/15/33 144A 2,850,000 2,818 ------- Total 22,254 ------- Savings Institutions Except Federal (0.4%) U.S. Central Credit Union, 5/30/08, 2.75% 2,600,000 2,511 ------- Total 2,511 ------- Steel Wire and Related Products (0.6%) Hubbell, Inc., 6.375%, 5/15/12 3,200,000 3,461 ------- Total 3,461 ------- Wines and Distilled Beverages (0.6%) Brown Forman Corp., 3.00%, 3/15/08 3,500,000 3,426 ------- Total 3,426 ------- Total Corporate Bonds (Cost: $165,255) 167,406 ------- Government (Domestic and Foreign) and Agency Bonds (60.1%) --------------------------------------------------------- Federal Government and Agencies (60.1%) Aid-Israel, 0.00%, 11/1/24 8,900,000 2,682 Aid-Israel, 5.50%, 3/18/33 3,700,000 3,726 Federal Home Loan Bank, 5.54%, 1/8/09 3,700,000 4,036
Government (Domestic and Foreign) Shares/ Value and Agency Bonds (60.1%) $ Par $ (000's) ---------------------------------------------------------- Federal Government and Agencies continued Federal Home Loan Mortgage Corp., 7.50%, 10/1/27 939,476 1,012 Federal National Mortgage Association, 5.97%, 10/1/08 3,608,688 3,926 Federal National Mortgage Association, 6.22%, 2/1/06 1,781,805 1,883 Federal National Mortgage Association, 6.24%, 1/1/06 5,018,303 5,286 Federal National Mortgage Association, 6.265%, 10/1/08 2,804,619 3,073 Federal National Mortgage Association, 6.36%, 4/1/08 3,489,816 3,824 Federal National Mortgage Association, 6.39%, 4/1/08 1,324,343 1,452 Federal National Mortgage Association, 6.75%, 4/25/18 1,878,813 2,011 Federal National Mortgage Association, 6.75%, 12/25/23 1,875,971 1,931 Federal National Mortgage Association, 7.36%, 4/1/11 2,891,955 3,346 Federal National Mortgage Association, 11.00%, 12/1/12 22,613 26 Federal National Mortgage Association, 11.00%, 9/1/17 105,488 120 Federal National Mortgage Association, 11.00%, 12/1/17 22,387 26 Federal National Mortgage Association, 11.00%, 2/1/18 48,238 55 Federal National Mortgage Association, 11.50%, 4/1/18 31,260 36 Federal National Mortgage Association, 12.00%, 9/1/12 164,001 187 Federal National Mortgage Association, 12.00%, 12/1/12 47,322 55 Federal National Mortgage Association, 12.00%, 9/1/17 39,078 45 Federal National Mortgage Association, 12.00%, 10/1/17 30,535 35 Federal National Mortgage Association, 12.00%, 12/1/17 24,132 28 Federal National Mortgage Association, 12.00%, 2/1/18 55,349 64 Federal National Mortgage Association, 12.25%, 1/1/18 38,747 45 Federal National Mortgage Association, 12.50%, 4/1/18 13,081 15 Federal National Mortgage Association, 13.00%, 11/1/12 28,182 33 Federal National Mortgage Association, 13.00%, 11/1/17 22,006 26 Federal National Mortgage Association, 13.00%, 12/1/17 15,918 19 Federal National Mortgage Association, 13.00%, 2/1/18 69,206 82 Federal National Mortgage Association, 14.00%, 12/1/17 16,639 20 Government National Mortgage Association, 5.50%, 10/15/31 123,829 126 Government National Mortgage Association, 5.50%, 11/15/31 26,002 26
80 Select Bond Portfolio Select Bond Portfolio
Government (Domestic and Foreign) Shares/ Value and Agency Bonds (60.1%) $ Par $ (000's) ------------------------------------------------------ Federal Government and Agencies continued Government National Mortgage Association, 5.50%, 12/15/31 667,871 679 Government National Mortgage Association, 5.50%, 1/15/32 879,923 896 Government National Mortgage Association, 5.50%, 2/15/32 378,312 385 Government National Mortgage Association, 5.50%, 3/15/32 604,437 614 Government National Mortgage Association, 5.50%, 4/15/32 34,859 35 Government National Mortgage Association, 5.50%, 7/15/32 64,627 66 Government National Mortgage Association, 5.50%, 9/15/32 11,311,234 11,512 Government National Mortgage Association, 7.00%, 5/15/23 58,090 62 Government National Mortgage Association, 7.50%, 4/15/22 36,185 39 Government National Mortgage Association, 7.50%, 10/15/23 114,631 124 Government National Mortgage Association, 7.50%, 11/15/25 2,009 2 Government National Mortgage Association, 7.50%, 5/15/26 2,873 3 Government National Mortgage Association, 7.50%, 1/15/27 42,473 46 Government National Mortgage Association, 7.50%, 2/15/27 48,706 52 Government National Mortgage Association, 7.50%, 3/15/27 11,403 12 Government National Mortgage Association, 7.50%, 4/15/27 10,863 12 Government National Mortgage Association, 7.50%, 8/15/27 1,185 1 Government National Mortgage Association, 7.50%, 6/15/28 57,905 62 Government National Mortgage Association, 8.00%, 1/15/26 61,292 67 Government National Mortgage Association, 8.00%, 2/15/26 102,774 112 Government National Mortgage Association, 8.00%, 8/15/26 121,064 132 Government National Mortgage Association, 8.00%, 9/15/26 45,158 49 Government National Mortgage Association, 8.00%, 12/15/26 16,545 18 Government National Mortgage Association, 8.00%, 1/15/27 34,245 37 Government National Mortgage Association, 8.00%, 3/15/27 92,783 101 Government National Mortgage Association, 8.00%, 4/15/27 248,536 271 Government National Mortgage Association, 8.00%, 6/15/27 67,549 74 Government National Mortgage Association, 8.00%, 7/15/27 41,162 45 Government National Mortgage Association, 8.00%, 8/15/27 80,930 88 Government National Mortgage Association, 8.00%, 9/15/27 57,088 62
Government (Domestic and Foreign) Shares/ Value and Agency Bonds (60.1%) $ Par $ (000's) ---------------------------------------------------------- Federal Government and Agencies continued Government National Mortgage Association, 8.50%, 9/15/21 5,789 6 Government National Mortgage Association, 8.50%, 3/15/23 389 0 Government National Mortgage Association, 8.50%, 6/15/24 18,494 20 Government National Mortgage Association, 8.50%, 7/15/24 25,190 28 Government National Mortgage Association, 8.50%, 11/15/24 72,275 80 Government National Mortgage Association, 8.50%, 2/15/25 15,693 17 Government National Mortgage Association, 11.00%, 1/15/18 1,211,276 1,369 Government National Mortgage Association, TBA, 4.50%, 1/1/34 41,705,455 39,869 Government National Mortgage Association, TBA, 5.00%, 1/1/34 11,000,000 10,887 Housing & Urban Development, 6.08%, 8/1/13 4,000,000 4,403 Housing & Urban Development, 6.17%, 8/1/14 3,000,000 3,317 Rural Housing Trust 1987-1, Series 1, Class D, 6.33%, 4/1/26 391,871 392 State of Israel, 7.25%, 12/15/28 3,465,000 3,747 US Treasury, 1.125%, 6/30/05 1,225,000 1,218 US Treasury, 1.625%, 3/31/05 2,830,000 2,840 US Treasury, 1.625%, 4/30/05 1,770,000 1,775 US Treasury, 1.625%, 9/30/05 2,135,000 2,134 US Treasury, 1.75%, 12/31/04 2,000,000 2,010 US Treasury, 2.00%, 5/15/06 1,850,000 1,850 US Treasury, 2.375%, 8/15/06 2,625,000 2,639 US Treasury, 2.625%, 5/15/08 9,495,000 9,352 US Treasury, 3.00%, 11/15/07 14,510,000 14,635 US Treasury, 3.00%, 2/15/08 39,145,000 39,328 US Treasury, 3.125%, 9/15/08 1,085,000 1,084 US Treasury, 3.25%, 5/31/04 25,000,000 25,230 US Treasury, 3.25%, 8/15/07 960,000 979 US Treasury, 3.50%, 11/15/06 34,000 35 US Treasury, 3.375%, 11/15/08 1,915,000 1,930 US Treasury, 3.625%, 5/15/13 10,792,000 10,373 US Treasury, 3.875%, 2/15/13 1,090,000 1,067 US Treasury, 4.00%, 11/15/12 5,065,000 5,016 US Treasury, 4.25%, 8/15/13 5,422,000 5,429 US Treasury, 4.375%, 5/15/07 2,096,000 2,220 US Treasury, 5.375%, 2/15/31 6,970,000 7,269 US Treasury, 6.50%, 5/15/05 50,470,000 53,941 US Treasury, 6.50%, 2/15/10 2,800,000 3,254 US Treasury Inflation Index Bond, 3.375%, 1/15/07 14,692,127 15,916 US Treasury Inflation Index Bond, 3.625%, 1/15/08 27,254,808 30,143 US Treasury Inflation Index Bond, 3.875%, 4/15/29 4,895,447 6,343 US Treasury Stripped, 0.00%, 5/15/30 25,820,000 6,189 ------- Total Government (Domestic and Foreign) and Agency Bonds (Cost: $365,379) 373,249 -------
Select Bond Portfolio 81 Select Bond Portfolio
Mortgage-Backed and Asset Backed Shares/ Value Securities (7.9%) $ Par $ (000's) --------------------------------------------------------- Asset-Backed Securities (CMO'S) (0.4%) The Equitable Life Assurance Society, Series 174, Class C1, 7.52%, 5/15/06 144A 2,000,000 2,205 ----- Total 2,205 ----- Autos (0.0%) Fleetwood Credit Corp. Grantor Trust, Series 1997-B, Class A, 6.40%, 5/15/13 165,256 166 ----- Total 166 ----- Boat Dealers (0.0%) Nationscredit Grantor Trust, Series 1997-2, Class A1, 6.35%, 4/15/14 284,017 294 ----- Total 294 ----- Commercial Mortgages (5.9%) Asset Securitization Corp., Series 1997-D5, Class PS1, 1.37%, 2/14/43 IO 10,890,001 598 Chase Commercial Mortgage Securities Corp., Series 1997-1, Class B, 7.37%, 4/19/07 1,000,000 1,128 Chase Commercial Mortgage Securities Corp., Series 1997-2, Class A2, 6.60%, 11/19/07 5,000,000 5,495 Chase Commercial Mortgage Securities Corp., Series 1997-2, Class B, 6.60%, 11/19/07 2,000,000 2,220 Commercial Mortgage Acceptance Corp., Series 1997-ML1, Class B, 6.64%, 12/15/30 2,000,000 2,181 Credit Suisse First Boston Mortgage Securities Corp., Series 1997-C1, Class A2, 7.26%, 6/20/29 144A 1,288,714 1,420 Credit Suisse First Boston Mortgage Securities Corp., Series 1997-C1, Class B, 7.28%, 6/20/29 144A 1,500,000 1,681 Criimi Mae Commercial Mortgage Trust, Series 1998-C1, Class A1, 7.00%, 11/2/06 144A 3,000,000 3,078 Criimi Mae Commercial Mortgage Trust, Series 1998-C1, Class B, 7.00%, 11/2/11 144A 4,000,000 3,923 DLJ Commercial Mortgage Corp., Series 1998-CF1, Class S, 0.70%, 1/15/18 IO 109,832,199 3,355 DLJ Mortgage Acceptance Corp., Series 1997-CF2, Class S, 0.35%, 10/15/30 IO 144A 85,459,591 1,602 Midland Realty Acceptance Corp., Series 1996-C2, Class AEC, 1.35%, 1/25/29 IO 144A 9,426,901 365 Mortgage Capital Funding, Inc., Series 1997-MC1, Class A3, 7.29%, 2/20/27 4,873,432 5,181
Mortgage-Backed and Asset Backed Shares/ Value Securities (7.9%) $ Par $ (000's) ------------------------------------------------------------ Commercial Mortgages continued Nomura Asset Securities Corp., Series 1998-D6, Class A2, 6.99%, 3/15/30 2,800,000 3,254 RMF Commercial Mortgage Pass-Through, Series 1997-1, Class F, 7.47%, 1/15/19 144A 1,800,000 961 ------ Total 36,442 ------ Credit Card Asset Backed (0.0%) (d)Heilig-Meyers Master Trust, Series 1998-1A, Class A, 6.125%, 1/20/07 144A 1,102,667 1 ------ Total 1 ------ Franchise Loan Receivables (0.1%) Enterprise Mortgage Acceptance Co., Series 1998-1, Class IO, 1.37%, 1/15/23 IO 144A 23,719,960 735 ------ Total 735 ------ Home Equity Loans (0.1%) Vanderbilt Mortgage Finance, Inc., Series 1997-B, Class 1A4, 7.19%, 2/7/14 476,514 480 ------ Total 480 ------ Mobil Home Dealers (0.1%) Mid-State Trust, Series 6, Class A3, 7.54%, 7/1/35 676,775 704 ------ Total 704 ------ Residential Mortgages (0.1%) Blackrock Capital Finance L.P., Series 1997-R1, Class B3, 7.75%, 3/25/37 144A 2,273,741 205 Blackrock Capital Finance L.P., Series 1997-R3, Class B3, 7.25%, 11/25/28 144A 2,922,934 175 ------ Total 380 ------ Retail -- Retail Stores (1.2%) LB Mortgage Trust, Series 1991-2, Class A3, 8.39%, 1/20/17 6,355,929 7,369 ------ Total 7,369 ------ Total Mortgage-Backed and Asset Backed Securities (Cost: $53,248) 48,776 ------ Money Market Investments (22.3%) Agricultural Services (0.8%) (b)Cargill, Inc., 1.01%, 1/7/04 5,000,000 4,999 ------ Total 4,999 ------ Asset-Backed Securities (CMO'S) (1.6%) (b)Fcar Owner Trust I, 1.08%, 1/9/04 5,000,000 4,999 (b)Sheffield Receivables, 1.09%, 1/7/04 5,000,000 4,999 ------ Total 9,998 ------
82 Select Bond Portfolio Select Bond Portfolio
Shares/ Value Money Market Investments (22.3%) $ Par $ (000's) ------------------------------------------------------------- Auto Related (0.8%) (b)Toyota Motor Credit Corp, 1.05%, 2/10/04 5,000,000 4,994 ------ Total 4,994 ------ Automobiles And Other Motor Vehicles (0.8%) (b)Daimler Chrysler Auto, 1.07%, 2/17/04 5,000,000 4,993 ------ Total 4,993 ------ Banks (0.8%) UBS Finance Delaware LLC, 1.07%, 4/1/04 5,000,000 5,000 ------ Total 5,000 ------ Electrical Equipment and Supplies (0.8%) (b)General Electric Capital, 1.09%, 1/21/04 5,000,000 4,997 ------ Total 4,997 ------ Federal Government and Agencies (2.5%) (b)Federal Home Loan Bank, 1.04%, 2/4/04 5,000,000 4,995 (b)Federal National Mortgage Association, 0.80%, 1/2/04 9,220,000 9,220 (b)Federal National Mortgage Association, 1.065%, 2/4/04 1,600,000 1,598 ------ Total 15,813 ------ Finance Services (4.9%) (b)American General, 1.15%, 1/15/04 5,000,000 4,998 (b)Citicorp, 1.07%, 1/29/04 5,000,000 4,996 (b)Preferred Receivable Funding, 1.08%, 1/12/04 5,000,000 4,998 (b)Receivable Capital Trust, 1.08%, 1/20/04 5,000,000 4,997 (b)Thunder Bay Funding, Inc., 1.09%, 2/2/04 5,000,000 4,995 Windmill Funding Corp., 1.08%, 1/13/04 5,000,000 4,999 ------ Total 29,983 ------ Miscellaneous Business Credit Institutions (2.1%) (b)John Deere Capital Corp., 1.20%, 1/12/04 3,000,000 2,999 (b)National Rural Utility, 1.09%, 1/20/04 5,000,000 4,997 Unilever Capital, 1.03%, 1/12/04 5,000,000 4,998 ------ Total 12,994 ------ Personal Credit Institutions (2.4%) (b)CXC, Inc., 1.05%, 2/19/04 5,000,000 4,993 (b)Delaware Funding, 1.09%, 1/12/04 5,000,000 4,998 (b)Nestle Capital Corp, 1.04%, 1/12/04 5,000,000 4,999 ------ Total 14,990 ------
Shares/ Value Money Market Investments (22.3%) $ Par $ (000's) ------------------------------------------------------------ Petroleum Refining (1.6%) (b)Chevrontexaco Funding Corp, 1.03%, 1/15/04 5,000,000 4,998 (b)Du Pont EI De Nemours Co., 1.05%, 2/4/04 5,000,000 4,995 -------- Total 9,993 -------- Security Brokers and Dealers (0.8%) (b)Morgan Stanley Dean Witter, 1.09%, 1/23/04 5,000,000 4,997 -------- Total 4,997 -------- Short Term Business Credit (2.4%) (b)American Express Credit, 1.05%, 1/6/04 5,000,000 4,999 (b)Old Line Funding Corp., 1.09%, 1/9/04 5,000,000 4,999 Transamerica Financial, 1.08%, 1/15/04 5,000,000 4,998 -------- Total 14,996 -------- Total Money Market Investments (Cost: $138,733) 138,747 -------- Total Investments (117.6%) (Cost $725,336)(a) 730,882 -------- Other Assets, Less Liabilities (-17.6%) (109,557) -------- Total Net Assets (100.0%) 621,325 --------
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 (a)At 12/31/03 the aggregate cost of securities for federal tax purposes was $733,229 and the net unrealized depreciation of investments based on that cost was $2,347 which is comprised of $11,902 aggregate gross unrealized appreciations and $14,249 aggregate gross unrealized depreciation. (b)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.
Unrealized Appreciation/ Number of Expiration Depreciation Issuer (000's) Contracts Date (000's) -------------------------------------------------------- US Long Bond (CBT) Commodity Future 600 03/04 $1,228 (Total Notional Value at 12/31/03 $64,359)
(d)Defaulted Security The Accompanying Notes are an Integral Part of the Financial Statements. Select Bond Portfolio 83 Money Market Portfolio - -------------------------------------------------------------------------------- Objective: Portfolio Strategy: Net Assets: Maximum current income consistent Achieve stability of capital by investing in short-term debt $400 million with liquidity and stability of capital securities.
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 2003, short-term interest rates were at their lowest levels in many years. Accordingly, return from the Money Market Portfolio was 1.23% for the 12 months ending December 2003. During this period the Portfolio's manager voluntarily waived the management fee at the annual rate of 0.30%. The returns from the Portfolio would have been lower without the fee waiver. The fee waiver may be terminated without notice at the discretion of the manager. The main determinant of returns from the Money Market Portfolio is short-term interest rates in general. In an effort to stimulate economic growth, the Federal Reserve has been reducing short term rates since January 2001. The most recent rate cut occurred on June 25, 2003, when the Federal Funds rate was reduced by 25 basis points to 1.00%. Although the market had anticipated a cut of 50 basis points, the Money Market Portfolio correctly predicted this smaller cut and was positioned to take advantage of it. After June, there were no further significant changes in short-term rates through the end of 2003. Management of a short-term portfolio was made more challenging by a lack of issuance of short-term paper because rating agencies were pressuring corporate issuers to strengthen their financial position by lengthening the duration of their debt. At the end of 2003, the Portfolio was positioned neutrally, anticipating no further rate changes in the immediate future. 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. 84 Money Market Portfolio Money Market Portfolio Northwestern Mutual Series Fund, Inc. Schedule of Investments December 31, 2003
Shares/ Value Money Market Investment (94.7%) $ Par $ (000's) - --------------------------------------------------------------------------------- Agricultural Chemicals (1.3%) Cargill, Inc., 1.07%, 2/11/04 5,180,000 5,174 ------ Total 5,174 ------ Autos (13.7%) Daimler Chrysler Auto, 1.07%, 2/17/04 5,000,000 4,993 Daimler Chrysler Auto, 1.08%, 2/25/04 12,000,000 11,980 Fcar Owner Trust I, 1.09%, 2/3/04 4,300,000 4,296 Fcar Owner Trust I, 1.11%, 2/9/04 7,000,000 6,992 New Center Asset Trust, 1.09%, 2/5/04 12,000,000 11,986 Toyota Motor Credit Corp, 1.05%, 1/22/04 8,570,000 8,565 Toyota Motor Credit Corp., 0.99%, 2/12/04 6,000,000 5,993 ------ Total 54,805 ------ Banks (7.1%) UBS Finance Delaware LLC, 0.95%, 1/2/04 2,170,000 2,170 UBS Finance Delaware LLC, 1.07%, 4/1/04 14,280,000 14,241 Wells Fargo Bank, 1.05%, 2/27/04 12,000,000 12,000 ------ Total 28,411 ------ Federal Government and Agencies (8.8%) Federal Home Loan Bank, 1.06%, 3/10/04 13,110,000 13,083 Federal Home Loan Mortgage Co., 1.045%, 3/25/04 7,000,000 6,983 Federal National Mortgage Association, 1.06%, 1/20/04 7,500,000 7,496 Federal National Mortgage Association, 1.08%, 3/8/04 7,500,000 7,485 ------ Total 35,047 ------ Finance Lessors (13.3%) Delaware Funding, 1.08%, 1/20/04 5,100,000 5,097 Delaware Funding, 1.08%, 1/26/04 8,310,000 8,304 Receivable Capital Trust, 1.08%, 1/15/04 12,000,000 11,996 Thunder Bay Funding, Inc., 1.08%, 1/20/04 8,900,000 8,895 Thunder Bay Funding, Inc., 1.08%, 2/11/04 7,000,000 6,991 Windmill Funding Corp., 1.09%, 2/2/04 12,000,000 11,988 ------ Total 53,271 ------
Shares/ Value Money Market Investment (94.7%) $ Par $ (000's) - --------------------------------------------------------------------------------- Finance Services (5.3%) Ciesco LP, 1.075%, 2/11/04 9,525,000 9,513 Preferred Receivable Funding, 1.09%, 1/26/04 11,500,000 11,492 ------ Total 21,005 ------ Flavoring Extracts and Syrups (3.0%) Coca-Cola Co, 1.09%, 3/16/04 12,000,000 11,973 ------ Total 11,973 ------ Miscellaneous Business Credit Institutions (7.5%) Catepillar Financial Svc, 1.3231%, 6/1/04 4,000,000 4,000 General Electric, 1.25%, 7/9/07 5,000,000 5,000 General Electric Capital, 1.12%, 2/17/04 7,000,000 6,990 John Deere Capital Corp., 1.21%, 1/13/04 4,000,000 3,998 Paccar Financial Corp, 1.06%, 3/25/04 10,000,000 9,975 ------ Total 29,963 ------ Personal Credit Institutions (10.0%) American Express Credit, 1.08%, 4/1/04 10,375,000 10,346 American General, 1.15%, 1/12/04 7,025,000 7,023 American General, 1.15%, 1/29/04 5,000,000 4,996 Associates Corp, 1.27%, 6/26/04 5,000,000 5,000 Household Finance Corp, 1.52%, 5/28/04 5,500,000 5,507 Household Finance Corp., 1.09%, 1/15/04 7,000,000 6,997 ------ Total 39,869 ------ Pharmaceutical Preparations (1.6%) Pfizer, Inc., 1.05%, 2/9/04 6,480,000 6,473 ------ Total 6,473 ------ Security Brokers and Dealers (6.2%) Citigroup Global Markets, 1.07%, 1/15/04 12,500,000 12,494 Morgan Stanley Dean Witter, 1.09%, 1/23/04 12,500,000 12,492 ------ Total 24,986 ------ Short Term Business Credit (13.9%) Cxc Inc., 1.08%, 1/9/04 5,680,000 5,679 Cxc Inc., 1.09%, 2/24/04 8,470,000 8,456 Old Line Funding corp., 1.08%, 2/5/04 9,990,000 9,980 Old Line Funding corp., 1.09%, 2/9/04 5,196,000 5,190
Money Market Portfolio 85 Money Market Portfolio
Shares/ Value Money Market Investment (94.7%) $ Par $ (000's) - --------------------------------------------------------------------------------- Short Term Business Credit continued Sheffield Receivables, 1.1%, 1/13/04 8,470,000 8,467 Sheffield Receivables, 1.08%, 2/17/04 6,000,000 5,992 Transamerica Financial, 1.07%, 1/16/04 11,735,000 11,729 ------- Total 55,493 ------- Utilities (3.0%) National Rural Utility, 1.08%, 1/13/04 6,000,000 5,997 National Rural Utility, 1.07%, 1/26/04 6,000,000 5,996 ------- Total 11,993 ------- Total Money Market Investment (Cost: $378,463) 378,463 -------
Shares/ Value Government (Domestic and Foreign) and Agency Bonds (5.5%) $ Par $ (000's) - --------------------------------------------------------------------------------- Federal Government and Agencies (5.5%) Freddie Mac, 1.52%, 11/19/04 7,000,000 7,000 US Treasury, 3.00%, 1/31/04 15,000,000 15,022 ------- Total Government (Domestic and Foreign) and Agency Bonds (Cost: $22,022) 22,022 ------- Total Investments (100.2%) (Cost $400,485)(a) 400,485 ------- Other Assets, Less Liabilities (-0.2%) (612) ------- Total Net Assets (100.0%) 399,873 -------
(a)Also represents cost for federal income tax purposes. The Accompanying Notes are an Integral Part of the Financial Statements 86 Money Market Portfolio 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 Auditors 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, AllianceBernstein Mid Cap Value Portfolio, Index 400 Stock Portfolio, Janus Capital Appreciation Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio, Capital Guardian Domestic Equity Portfolio, T. Rowe Price Equity Income 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, 2003, 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ Pricewaterhouse Coopers LLP Milwaukee, Wisconsin January 29, 2004 Accountants' Report 87 Statements of Assets and Liabilities Northwestern Mutual Series Fund, Inc. December 31, 2003 (in thousands)
Franklin Templeton Small Cap T. Rowe Price Aggressive International International AllianceBernstein Growth Stock Small Cap Value Growth Stock Growth Equity Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------------------------------------------------------------------------------------------------------------------------ Assets Investments, at value (1).......... $ 366,600 $ 121,771 $1,186,836 $ 66,287 $ 795,651 $ 43,963 Cash............................... 20 402 -- 129 106 77 Due From Sale of Securities........ 4,966 749 6,468 329 -- 33 Due From Sale of Foreign Currency.......................... -- -- -- 181 713 -- Futures Variation Margin........... -- -- -- -- -- -- Dividends and Interest Receivables....................... 50 115 269 11 1,144 58 ---------- ---------- ---------- ---------- ---------- ---------- Total Assets...................... 371,636 123,037 1,193,573 66,937 797,614 44,131 ---------- ---------- ---------- ---------- ---------- ---------- Liabilities Due on Purchase of Securities and Securities Lending Collateral..... 4,745 988 5,467 -- 709 -- Due on Purchase of Foreign Currency.......................... -- -- -- 188 713 -- Due to Investment Advisor.......... 183 91 553 31 433 32 Accrued Expenses................... 15 14 11 28 52 8 Futures Variation Margin........... 81 -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities................. 5,024 1,093 6,031 247 1,907 40 ---------- ---------- ---------- ---------- ---------- ---------- Net Assets........................ $ 366,612 $ 121,944 $1,187,542 $ 66,690 $ 795,707 $ 44,091 ========== ========== ========== ========== ========== ========== Represented By: Aggregate Paid in Capital (2), (3). $ 340,672 $ 99,314 $1,205,285 $ 56,676 $ 762,163 $ 34,984 Undistributed Net Investment Income (Loss)..................... -- 525 -- (53) 14,368 15 Undistributed Accumulated Net Realized Gain (Loss) on Investments....................... (27,655) 1,761 (215,847) (5,518) (122,339) 85 Net Unrealized Appreciation (Depreciation) of: Investment Securities............. 53,674 20,344 198,104 15,580 141,408 9,007 Futures Contracts................. (79) -- -- -- -- -- Foreign Currency Transactions..................... -- -- -- 5 107 -- ---------- ---------- ---------- ---------- ---------- ---------- Net Assets for Shares Outstanding (2)................... $ 366,612 $ 121,944 $1,187,542 $ 66,690 $ 795,707 $ 44,091 ========== ========== ========== ========== ========== ========== Net Asset Value, Offering and Redemption Price per Share........ $ 1.94 $ 1.29 $ 2.72 $ 1.09 $ 1.41 $ 1.32 ========== ========== ========== ========== ========== ========== (1) Investments, at cost............. $ 312,926 $ 101,427 $ 988,732 $ 50,707 $ 654,243 $ 34,956 (2) Shares Outstanding............... 189,328 94,705 436,252 61,120 563,712 33,520 (3) Shares authorized, $.01 par value............................... 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Index 400 Stock Portfolio - ------------------------------------------------- Assets Investments, at value (1).......... $ 342,532 Cash............................... -- Due From Sale of Securities........ -- Due From Sale of Foreign Currency.......................... -- Futures Variation Margin........... -- Dividends and Interest Receivables....................... 206 ---------- Total Assets...................... 342,738 ---------- Liabilities Due on Purchase of Securities and Securities Lending Collateral..... 55 Due on Purchase of Foreign Currency.......................... -- Due to Investment Advisor.......... 76 Accrued Expenses................... 16 Futures Variation Margin........... 91 ---------- Total Liabilities................. 238 ---------- Net Assets........................ $ 342,500 ========== Represented By: Aggregate Paid in Capital (2), (3). $ 295,957 Undistributed Net Investment Income (Loss)..................... 2,436 Undistributed Accumulated Net Realized Gain (Loss) on Investments....................... (997) Net Unrealized Appreciation (Depreciation) of: Investment Securities............. 44,667 Futures Contracts................. 437 Foreign Currency Transactions..................... -- ---------- Net Assets for Shares Outstanding (2)................... $ 342,500 ========== Net Asset Value, Offering and Redemption Price per Share........ $ 1.28 ========== (1) Investments, at cost............. $ 297,865 (2) Shares Outstanding............... 268,604 (3) Shares authorized, $.01 par value............................... 2,000,000
The Accompanying Notes are an Integral Part of the Financial Statements 88 Statements of Assets and Liabilities
Capital Large Guardian T. Rowe Price High Janus Capital Growth Cap Core Domestic Equity Index 500 Asset Yield Select Money Appreciation Stock Stock Equity Income Stock Allocation Balanced Bond Bond Market Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------------------------------------------------------------------------------------------------------------------ $40,300 $662,899 $449,388 $136,009 $47,301 $1,756,416 $130,922 $3,003,621 $196,360 $730,882 $400,485 200 -- -- 272 219 -- 414 -- -- -- -- -- 3,018 1,972 212 58 -- 324 -- 300 -- -- -- -- -- -- -- -- 56 -- -- -- -- -- 23 -- -- -- 77 29 1,075 -- 75 -- 12 494 423 283 122 2,305 568 13,193 3,140 5,524 225 --------- --------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- 40,512 666,434 451,783 136,776 47,700 1,758,798 132,313 3,017,889 199,800 736,481 400,710 --------- --------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- 3,747 304 4,050 589 -- 2,351 1,718 125,630 331 114,987 837 -- -- -- -- -- -- -- -- -- -- -- 28 250 172 78 25 308 69 771 85 169 -- 7 9 7 10 11 19 48 -- 13 -- -- -- -- -- -- -- -- -- -- -- -- -- --------- --------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- 3,782 563 4,229 677 36 2,678 1,835 126,401 429 115,156 837 --------- --------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- $36,730 $665,871 $447,554 $136,099 $47,664 $1,756,120 $130,478 $2,891,488 $199,371 $621,325 $399,873 ========= ========= ========= ========= ========= ========== ========= ========== ========= ========= ========= $31,203 $677,386 $571,511 $121,585 $40,817 $1,348,313 $119,038 $2,149,989 $251,142 $580,676 $399,873 -- 4,542 4,200 19 4 23,815 (26) 72,758 14,473 25,295 -- (111) (96,110) (166,183) (3,679) 192 14,162 (1,323) 78,577 (76,427) 8,580 -- 5,638 79,727 38,026 18,174 6,651 368,739 12,358 574,335 10,183 5,546 -- -- 326 -- -- -- 1,091 429 15,829 -- 1,228 -- -- -- -- -- -- -- 2 -- -- -- -- --------- --------- --------- --------- --------- ---------- --------- ---------- --------- --------- --------- $36,730 $665,871 $447,554 $136,099 $47,664 $1,756,120 $130,478 $2,891,488 $199,371 $621,325 $399,873 ========= ========= ========= ========= ========= ========== ========= ========== ========= ========= ========= $1.20 $1.87 $1.07 $1.00 $1.22 $2.72 $1.02 $1.85 $0.73 $1.26 $1.00 ========= ========= ========= ========= ========= ========== ========= ========== ========= ========= ========= $34,662 $583,172 $411,362 $117,835 $40,650 $1,387,677 $118,564 $2,429,286 $186,177 $725,336 $400,485 30,705 355,603 419,669 135,480 39,108 644,531 128,181 1,562,349 274,977 492,394 399,893 2,000,000 2,000,000 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
Statements of Assets and Liabilities 89 Statement of Operations Northwestern Mutual Series Fund, Inc. For the Year Ended December 31, 2003 (in thousands)
Franklin T. Rowe Price Templeton Small Cap Small Cap Aggressive International International AllianceBernstein Index 400 Growth Stock Value Growth Stock Growth Equity Mid Cap Value Stock Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (a) Portfolio - -------------------------------------------------------------------------------------------------------------------------------- Investment Income Income Interest..................... $ 320 $ 37 $ 1,097 $ 29 $ 349 $ 20 $ 191 Dividends (1)................ 385 1,306 3,440 882 19,247 348 2,988 ------- ------- -------- ------- -------- ------ ------- Total Income............... 705 1,343 4,537 911 19,596 368 3,179 ------- ------- -------- ------- -------- ------ ------- Expenses Management Fees.............. 1,704 736 5,546 361 4,249 192 669 Custodian Fees............... 21 31 17 221 451 6 30 Audit Fees................... 17 14 19 18 23 12 17 Other Expenses............... 1 -- 1 2 2 2 3 ------- ------- -------- ------- -------- ------ ------- Total Expenses............. 1,743 781 5,583 602 4,725 212 719 ------- ------- -------- ------- -------- ------ ------- Less Waived Fees: Paid by Affiliate.......... -- -- -- (72) -- -- -- Paid Indirectly............ (2) -- (3) -- -- -- (1) ------- ------- -------- ------- -------- ------ ------- Total Net Expenses......... 1,741 781 5,580 530 4,725 212 718 ------- ------- -------- ------- -------- ------ ------- Net Investment Income (Loss)...................... (1,036) 562 (1,043) 381 14,871 156 2,461 Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies Net Realized Gain (Loss) on: Investment Securities........ 14,541 2,029 (425) (894) (47,386) 485 (1,391) Futures Contracts............ 3,708 -- 1,468 -- -- -- 4,843 Foreign Currency Transactions................ -- -- -- (8) (424) -- -- ------- ------- -------- ------- -------- ------ ------- Net Realized Gain (Loss) on Investments and Foreign Currencies....... 18,249 2,029 1,043 (902) (47,810) 485 3,452 ------- ------- -------- ------- -------- ------ ------- Net Unrealized Appreciation (Depreciation) of: Investment Securities........ 69,799 24,642 238,195 17,916 260,496 9,007 77,537 Futures Contracts............ (79) -- -- -- -- -- 550 Foreign Currency Transactions................ -- -- -- 3 23 -- -- ------- ------- -------- ------- -------- ------ ------- Net Change in Unrealized Appreciation (Depreciation) of Investments.............. 69,720 24,642 238,195 17,919 260,519 9,007 78,087 ------- ------- -------- ------- -------- ------ ------- Net Gain (Loss) on Investments.................. 87,969 26,671 239,238 17,017 212,709 9,492 81,539 ------- ------- -------- ------- -------- ------ ------- Net Increase (Decrease) in Net Assets Resulting from Operations..................... $86,933 $27,233 $238,195 $17,398 $227,580 $9,648 $84,000 ======= ======= ======== ======= ======== ====== ======= (1) Less Foreign Dividend Tax.. $ -- $ 1 $ 13 $ 17 $ 969 $ 1 $ --
(a) Commenced operations on May 1, 2003 The Accompanying Notes are an Integral Part of the Financial Statements 90 Statement of Operations
Capital T. Rowe Janus Guardian Price Capital Growth Large Cap Domestic Equity Index 500 Asset High Yield Money Appreciation Stock Core Stock Equity Income Stock Allocation Balanced Bond Select Bond Market Portfolio (a) Portfolio Portfolio Portfolio Portfolio (a) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - -------------------------------------------------------------------------------------------------------------------------- $ 31 $ 342 $ 133 $ 64 $ 15 $ 335 $ 2,248 $ 61,066 $15,144 $ 27,379 $ 5,837 167 6,755 5,869 2,403 599 26,609 671 20,376 333 -- -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 198 7,097 6,002 2,467 614 26,944 2,919 81,442 15,477 27,379 5,837 ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 166 2,519 1,764 638 152 3,004 671 8,037 825 1,898 1,420 8 18 18 6 14 40 141 -- 28 -- -- 12 18 18 13 12 18 17 -- 21 -- -- 1 1 2 4 2 2 4 -- 2 -- -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 187 2,556 1,802 661 180 3,064 833 8,037 876 1,898 1,420 ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- -- -- -- -- (4) -- -- -- -- -- (1,420) (3) (1) (1) (1) (1) (1) (1) -- -- -- -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 184 2,555 1,801 660 175 3,063 832 8,037 876 1,898 -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 14 4,542 4,201 1,807 439 23,881 2,087 73,405 14,601 25,481 5,837 (34) 21,423 (84,731) 215 408 10,878 1,108 57,545 7,972 10,145 -- -- 588 -- -- -- 6,536 2,401 80,913 -- 7,414 -- -- -- -- -- -- -- 2 -- -- -- -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- (34) 22,011 (84,731) 215 408 17,414 3,511 138,458 7,972 17,559 -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 5,638 77,808 167,352 29,182 6,651 342,968 16,089 208,415 20,079 (11,453) -- -- 400 -- -- -- 1,440 683 25,295 -- 1,418 -- -- -- -- -- -- -- 2 -- -- -- -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 5,638 78,208 167,352 29,182 6,651 344,408 16,774 233,710 20,079 (10,035) -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- 5,604 100,219 82,621 29,397 7,059 361,822 20,285 372,168 28,051 7,524 -- ------ -------- -------- ------- ------ -------- ------- -------- ------- -------- ------- $5,618 $104,761 $ 86,822 $31,204 $7,498 $385,703 $22,372 $445,573 $42,652 $ 33,005 $ 5,837 ====== ======== ======== ======= ====== ======== ======= ======== ======= ======== ======= $ -- $ 5 $ 14 $ 18 $ 2 $ -- $ 56 $ -- $ -- $ -- $ --
Statement of Operations 91 Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Small Cap Growth Stock Portfolio 2003 2002 - ------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ (1,036) $ (740) Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. 18,249 (18,550) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 69,720 (38,652) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 86,933 (57,942) -------- -------- Distributions to Shareholders from: Net Investment Income............................. -- (432) Net Realized Gain on Investments.................. -- -- -------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. -- (432) -------- -------- Fund Share Transactions: Proceeds from Sale of 35,064 and 38,312 Shares.... 58,399 63,816 Proceeds from Shares Issued on Reinvestment of Distributions Paid (-- and 233 shares, respectively)................................... -- 432 Payments for 20,868 and 26,639 Shares Redeemed.... (33,600) (42,442) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (14,196 and 11,906 shares, respectively)....... 24,799 21,806 -------- -------- Total Increase (Decrease) in Net Assets............. 111,732 (36,568) Net Assets Beginning of Period............................... 254,880 291,448 -------- -------- End of Period (Includes undistributed net investment income of $0 and $0, respectively)... $366,612 $254,880 ======== ========
For the For the Year Ended Year Ended December 31, December 31, T. Rowe Price Small Cap Value Portfolio 2003 2002 - ------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 562 $ 261 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. 2,029 (235) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 24,642 (5,490) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 27,233 (5,464) -------- -------- Distributions to Shareholders from: Net Investment Income............................. -- (330) Net Realized Gain on Investments.................. -- (20) -------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. -- (350) -------- -------- Fund Share Transactions: Proceeds from Sale of 38,564 and 55,011 Shares.... 42,482 57,721 Proceeds from Shares Issued on Reinvestment of Distributions Paid (-- and 358 shares, respectively)................................... -- 350 Payments for 10,062 and 9,858 Shares Redeemed..... (10,854) (10,177) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (28,502 and 45,511 shares, respectively)....... 31,628 47,894 -------- -------- Total Increase (Decrease) in Net Assets............. 58,861 42,080 Net Assets Beginning of Period............................... 63,083 21,003 -------- -------- End of Period (Includes undistributed net investment income of $525 and $36, respectively)................................... $121,944 $ 63,083 ======== ========
The Accompanying Notes are an Integral Part of the Financial Statements 92 Statement of Changes in Net Assets Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Aggressive Growth Stock Portfolio 2003 2002 - -------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)....................... $ (1,043) $ (1,314) Net Realized Gain (Loss) on Investments and Foreign Currencies............................... 1,043 (196,859) Net Change in Unrealized Appreciation (Depreciation) of Investments.................... 238,195 (79,860) ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations....................... 238,195 (278,033) ---------- ---------- Distributions to Shareholders from: Net Investment Income.............................. -- (1,101) Net Realized Gain on Investments................... -- (24,420) ---------- ---------- Net Decrease in Net Assets Resulting from Distributions to Shareholders................... -- (25,521) ---------- ---------- Fund Share Transactions: Proceeds from Sale of 33,086 and 39,350 Shares..... 78,472 99,265 Proceeds from Shares Issued on Reinvestment of Distributions Paid (-- and 9,223 shares, respectively).................................... -- 25,521 Payments for 52,230 and 68,530 Shares Redeemed..... (123,200) (169,033) ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions ((19,144) and (19,957) shares, respectively).... (44,728) (44,247) ---------- ---------- Total Increase (Decrease) in Net Assets.............. 193,467 (347,801) Net Assets Beginning of Period................................ 994,075 1,341,876 ---------- ---------- End of Period (Includes undistributed net investment income of $0 and $0, respectively).... $1,187,542 $ 994,075 ========== ==========
For the For the Year Ended Year Ended December 31, December 31, International Growth Portfolio 2003 2002 - ------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 381 $ 201 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. (902) (3,549) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 17,919 (1,096) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 17,398 (4,444) -------- -------- Distributions to Shareholders from: Net Investment Income............................. (420) (186) Net Realized Gain on Investments.................. -- -- -------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. (420) (186) -------- -------- Fund Share Transactions: Proceeds from Sale of 30,332 and 33,327 Shares.... 27,066 28,213 Proceeds from Shares Issued on Reinvestment of Distributions Paid (388 and 239 shares, respectively)................................... 420 186 Payments for 14,368 and 18,478 Shares Redeemed.... (13,147) (15,296) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (16,352 and 15,088 shares, respectively)....... 14,339 13,103 -------- -------- Total Increase (Decrease) in Net Assets............. 31,317 8,473 Net Assets Beginning of Period............................... 35,373 26,900 -------- -------- End of Period (Includes undistributed net investment income of ($53) and ($5), respectively)................................... $ 66,690 $ 35,373 ======== ========
The Accompanying Notes are an Integral Part of the Financial Statements Statement of Changes in Net Assets 93 Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Franklin Templeton International Equity Portfolio 2003 2002 - ------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 14,871 $ 11,362 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. (47,810) (59,464) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 260,519 (65,933) --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 227,580 (114,035) --------- --------- Distributions to Shareholders from: Net Investment Income............................. (11,039) (13,714) Net Realized Gain on Investments.................. -- -- --------- --------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. (11,039) (13,714) --------- --------- Fund Share Transactions: Proceeds from Sale of 306,456 and 793,092 Shares.......................................... 326,386 933,407 Proceeds from Shares Issued on Reinvestment of Distributions Paid (10,594 and 10,614 shares, respectively)........................... 11,039 13,714 Payments for 303,227 and 821,108 Shares Redeemed........................................ (321,361) (972,683) --------- --------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (13,823 and (17,402) shares, respectively)..... 16,064 (25,562) --------- --------- Total Increase (Decrease) in Net Assets............. 232,605 (153,311) Net Assets Beginning of Period............................... 563,102 716,413 --------- --------- End of Period (Includes undistributed net investment income of $14,368 and $10,960, respectively)................................... $ 795,707 $ 563,102 ========= =========
For the Period May 1, 2003(a) through AllianceBernstein Mid Cap Value Portfolio December 31, 2003 ----------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 156 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. 485 Net Change in Unrealized Appreciation (Depreciation) of Investments................... 9,007 ------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 9,648 ------- Distributions to Shareholders from: Net Investment Income............................. (160) Net Realized Gain on Investments.................. (381) ------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. (541) ------- Fund Share Transactions: Proceeds from Sale of 33,540 Shares............... 34,956 Proceeds from Shares Issued on Reinvestment of Distributions Paid (415 shares)................. 541 Payments for 435 Shares Redeemed.................. (513) ------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (33,520 shares)................................ 34,984 ------- Total Increase (Decrease) in Net Assets............. 44,091 Net Assets Beginning of Period............................... -- ------- End of Period (Includes undistributed net investment income of $15)....................... $44,091 =======
(a)Portfolio commenced operations on May 1, 2003. The Accompanying Notes are an Integral Part of the Financial Statements 94 Statement of Changes in Net Assets Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Index 400 Stock Portfolio 2003 2002 - ------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 2,461 $ 1,963 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. 3,452 (1,450) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 78,087 (38,914) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 84,000 (38,401) -------- -------- Distributions to Shareholders from: Net Investment Income............................. (1,934) (1,830) Net Realized Gain on Investments.................. -- -- -------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. (1,934) (1,830) -------- -------- Fund Share Transactions: Proceeds from Sale of 57,250 and 74,689 Shares.... 61,744 80,833 Proceeds from Shares Issued on Reinvestment of Distributions Paid (1,962 and 1,547 shares, respectively)................................... 1,934 1,830 Payments for 27,449 and 27,258 Shares Redeemed.... (28,654) (27,756) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (31,763 and 48,978 shares, respectively)....... 35,024 54,907 -------- -------- Total Increase (Decrease) in Net Assets............. 117,090 14,676 Net Assets Beginning of Period............................... 225,410 210,734 -------- -------- End of Period (Includes undistributed net investment income of $ 2,436 and $1,961, respectively)................................... $342,500 $225,410 ======== ========
For the Period May 1, 2003(a) through Janus Capital Appreciation Portfolio December 31, 2003 ----------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 14 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. (34) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 5,638 ------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 5,618 ------- Distributions to Shareholders from: Net Investment Income............................. (14) Net Realized Gain on Investments.................. (77) ------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. (91) ------- Fund Share Transactions: Proceeds from Sale of 31,143 Shares............... 31,680 Proceeds from Shares Issued on Reinvestment of Distributions Paid (77 shares).................. 91 Payments for 515 Shares Redeemed.................. (568) ------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (30,705 shares)................................ 31,203 ------- Total Increase (Decrease) in Net Assets............. 36,730 Net Assets Beginning of Period............................... -- ------- End of Period (Includes undistributed net investment income of $0)........................ $36,730 =======
(a)Portfolio commenced operations on May 1, 2003. The Accompanying Notes are an Integral Part of the Financial Statements Statement of Changes in Net Assets 95 Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Growth Stock Portfolio 2003 2002 - -------------------------------------------------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................................................................... $ 4,542 $ 4,774 Net Realized Gain (Loss) on Investments and Foreign Currencies.................................... 22,011 (64,986) Net Change in Unrealized Appreciation (Depreciation) of Investments............................... 78,208 (86,687) -------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations.................................. 104,761 (146,899) -------- --------- Distributions to Shareholders from: Net Investment Income............................................................................. (4,774) (7,118) Net Realized Gain on Investments.................................................................. -- -- -------- --------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.......................... (4,774) (7,118) -------- --------- Fund Share Transactions: Proceeds from Sale of 46,115 and 46,554 Shares.................................................... 76,995 84,505 Proceeds from Shares Issued on Reinvestment of Distributions Paid (2,934 and 3,673 shares, respectively).................................................................................... 4,774 7,118 Payments for 40,664 and 46,693 Shares Redeemed.................................................... (67,306) (82,763) -------- --------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (8,385 and 3,534 shares, respectively)........................................................................... 14,463 8,860 -------- --------- Total Increase (Decrease) in Net Assets............................................................. 114,450 (145,157) Net Assets Beginning of Period............................................................................... 551,421 696,578 -------- --------- End of Period (Includes undistributed net investment income of $4,542 and $4,774, respectively)... $665,871 $ 551,421 ======== =========
For the For the Year Ended Year Ended December 31, December 31, Large Cap Core Stock Portfolio 2003 2002 - -------------------------------------------------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................................................................... $ 4,201 $ 3,770 Net Realized Gain (Loss) on Investments and Foreign Currencies.................................... (84,731) (51,494) Net Change in Unrealized Appreciation (Depreciation) of Investments............................... 167,352 (105,636) -------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations.................................. 86,822 (153,360) -------- --------- Distributions to Shareholders from: Net Investment Income............................................................................. (3,770) (4,121) Net Realized Gain on Investments.................................................................. -- -- -------- --------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.......................... (3,770) (4,121) -------- --------- Fund Share Transactions: Proceeds from Sale of 44,876 and 39,423 Shares.................................................... 42,265 41,359 Proceeds from Shares Issued on Reinvestment of Distributions Paid (4,194 and 3,763 shares, respectively).................................................................................... 3,770 4,121 Payments for 51,025 and 71,491 Shares Redeemed.................................................... (47,477) (70,727) -------- --------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions ((1,955) and (28,305) shares, respectively).................................................................. (1,442) (25,247) -------- --------- Total Increase (Decrease) in Net Assets............................................................. 81,610 (182,728) Net Assets Beginning of Period............................................................................... 365,944 548,672 -------- --------- End of Period (Includes undistributed net investment income of $4,200 and $3,769, respectively)... $447,554 $ 365,944 ======== =========
The Accompanying Notes are an Integral Part of the Financial Statements 96 Statement of Changes in Net Assets Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Capital Guardian Domestic Equity Portfolio 2003 2002 - ----------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)................................ $ 1,807 $ 899 Net Realized Gain (Loss) on Investments and Foreign Currencies................................................ 215 (3,717) Net Change in Unrealized Appreciation (Depreciation) of Investments............................................... 29,182 (11,278) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations............................................... 31,204 (14,096) -------- -------- Distributions to Shareholders from: Net Investment Income....................................... (1,804) (882) Net Realized Gain on Investments............................ -- -- -------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders............................ (1,804) (882) -------- -------- Fund Share Transactions: Proceeds from Sale of 46,482 and 58,893 Shares.............. 39,838 50,973 Proceeds from Shares Issued on Reinvestment of Distributions Paid (1,826 and 1,153 shares, respectively)............................................. 1,804 882 Payments for 10,806 and 3,873 Shares Redeemed............... (9,217) (3,325) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (37,502 and 56,173 shares, respectively)............................................ 32,425 48,530 -------- -------- Total Increase (Decrease) in Net Assets....................... 61,825 33,552 Net Assets Beginning of Period......................................... 74,274 40,722 -------- -------- End of Period (Includes undistributed net investment income of $19 and $17, respectively)...................... $136,099 $ 74,274 ======== ========
For the Period May 1, 2003(a) through T. Rowe Price Equity Income Portfolio December 31, 2003 - --------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)................................ $ 439 Net Realized Gain (Loss) on Investments and Foreign Currencies................................................ 408 Net Change in Unrealized Appreciation (Depreciation) of Investments............................................... 6,651 ------- Net Increase (Decrease) in Net Assets Resulting from Operations............................................... 7,498 ------- Distributions to Shareholders from: Net Investment Income....................................... (435) Net Realized Gain on Investments............................ (216) ------- Net Decrease in Net Assets Resulting from Distributions to Shareholders............................ (651) ------- Fund Share Transactions: Proceeds from Sale of 39,054 Shares......................... 40,714 Proceeds from Shares Issued on Reinvestment of Distributions Paid (543 shares)........................... 651 Payments for 489 Shares Redeemed............................ (548) ------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (39,108 shares).................. 40,817 ------- Total Increase (Decrease) in Net Assets....................... 47,664 Net Assets Beginning of Period......................................... -- ------- End of Period (Includes undistributed net investment income of $4)............................................. $47,664 =======
(a)Portfolio commenced operations on May 1, 2003. The Accompanying Notes are an Integral Part of the Financial Statements Statement of Changes in Net Assets 97 Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Index 500 Stock Portfolio 2003 2002 - ----------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)................................ $ 23,881 $ 22,006 Net Realized Gain (Loss) on Investments and Foreign Currencies................................................ 17,414 7,557 Net Change in Unrealized Appreciation (Depreciation) of Investments............................................... 344,408 (432,104) ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations............................................... 385,703 (402,541) ---------- ---------- Distributions to Shareholders from: Net Investment Income....................................... (21,914) (21,302) Net Realized Gain on Investments............................ (8,037) (35,471) ---------- ---------- Net Decrease in Net Assets Resulting from Distributions to Shareholders............................ (29,951) (56,773) ---------- ---------- Fund Share Transactions: Proceeds from Sale of 64,442 and 69,220 Shares.............. 153,657 173,178 Proceeds from Shares Issued on Reinvestment of Distributions Paid (13,329 and 21,521 shares, respectively)............................................. 29,951 56,773 Payments for 62,305 and 95,445 Shares Redeemed.............. (146,121) (229,631) ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (15,466 and (4,704) shares, respectively)............................................ 37,487 320 ---------- ---------- Total Increase (Decrease) in Net Assets....................... 393,239 (458,994) Net Assets Beginning of Period......................................... 1,362,881 1,821,875 ---------- ---------- End of Period (Includes undistributed net investment income of $23,815 and $21,934, respectively).............. $1,756,120 $1,362,881 ========== ==========
For the For the Year Ended Year Ended December 31, December 31, Asset Allocation Portfolio 2003 2002 - ----------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)................................ $ 2,087 $ 1,408 Net Realized Gain (Loss) on Investments and Foreign Currencies................................................ 3,511 (4,624) Net Change in Unrealized Appreciation (Depreciation) of Investments............................................... 16,774 (3,891) -------- ------- Net Increase (Decrease) in Net Assets Resulting from Operations............................................... 22,372 (7,107) -------- ------- Distributions to Shareholders from: Net Investment Income....................................... (2,122) (1,415) Net Realized Gain on Investments............................ -- -- -------- ------- Net Decrease in Net Assets Resulting from Distributions to Shareholders............................ (2,122) (1,415) -------- ------- Fund Share Transactions: Proceeds from Sale of 60,300 and 66,250 Shares.............. 55,946 61,003 Proceeds from Shares Issued on Reinvestment of Distributions Paid (2,087 and 1,657 shares, respectively)............................................. 2,122 1,415 Payments for 35,897 and 7,491 Shares Redeemed............... (35,100) (6,752) -------- ------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (26,490 and 60,416 shares, respectively)............................................ 22,968 55,666 -------- ------- Total Increase (Decrease) in Net Assets....................... 43,218 47,144 Net Assets Beginning of Period......................................... 87,260 40,116 -------- ------- End of Period (Includes undistributed net investment income of $(26) and ($2), respectively)................... $130,478 $87,260 ======== =======
The Accompanying Notes are an Integral Part of the Financial Statements 98 Statement of Changes in Net Assets Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Balanced Portfolio 2003 2002 - -------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)....................... $ 73,405 $ 85,457 Net Realized Gain (Loss) on Investments and Foreign Currencies............................... 138,458 (37,341) Net Change in Unrealized Appreciation (Depreciation) of Investments.................... 233,710 (273,763) ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations....................... 445,573 (225,647) ---------- ---------- Distributions to Shareholders from: Net Investment Income.............................. (85,974) (106,128) Net Realized Gain on Investments................... -- -- ---------- ---------- Net Decrease in Net Assets Resulting from Distributions to Shareholders................... (85,974) (106,128) ---------- ---------- Fund Share Transactions: Proceeds from Sale of 98,048 and 100,999 Shares.... 167,389 173,165 Proceeds from Shares Issued on Reinvestment of Distributions Paid (52,328 and 61,452 shares, respectively)............................ 85,974 106,128 Payments for 167,140 and 237,957 Shares Redeemed......................................... (283,003) (397,126) ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions ((16,764) and (75,506) shares, respectively).... (29,640) (117,833) ---------- ---------- Total Increase (Decrease) in Net Assets.............. 329,959 (449,608) Net Assets Beginning of Period................................ 2,561,529 3,011,137 ---------- ---------- End of Period (Includes undistributed net investment income of $72,758 and $85,237, respectively).................................... $2,891,488 $2,561,529 ========== ==========
For the For the Year Ended Year Ended December 31, December 31, High Yield Bond Portfolio 2003 2002 - ------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)...................... $ 14,601 $ 14,659 Net Realized Gain (Loss) on Investments and Foreign Currencies.............................. 7,972 (18,912) Net Change in Unrealized Appreciation (Depreciation) of Investments................... 20,079 (272) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations...................... 42,652 (4,525) -------- -------- Distributions to Shareholders from: Net Investment Income............................. (362) (14,697) Net Realized Gain on Investments.................. -- -- -------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders.................. (362) (14,697) -------- -------- Fund Share Transactions: Proceeds from Sale of 80,917 and 34,172 Shares.... 52,808 21,670 Proceeds from Shares Issued on Reinvestment of Distributions Paid (572 and 26,069 shares, respectively)................................... 362 14,697 Payments for 50,808 and 43,587 Shares Redeemed.... (33,642) (27,262) -------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (30,681 and 16,654 shares, respectively)....... 19,528 9,105 -------- -------- Total Increase (Decrease) in Net Assets............. 61,818 (10,117) Net Assets Beginning of Period............................... 137,553 147,670 -------- -------- End of Period (Includes undistributed net investment income of $14,473 and $159, respectively)................................... $199,371 $137,553 ======== ========
The Accompanying Notes are an Integral Part of the Financial Statements Statement of Changes in Net Assets 99 Statement of Changes in Net Assets Northwestern Mutual Series Fund, Inc.
For the For the Year Ended Year Ended December 31, December 31, Select Bond Portfolio 2003 2002 - ----------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)................................ $ 25,481 $ 24,237 Net Realized Gain (Loss) on Investments and Foreign Currencies................................................ 17,559 10,612 Net Change in Unrealized Appreciation (Depreciation) of Investments............................................... (10,035) 20,473 --------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations............................................... 33,005 55,322 --------- -------- Distributions to Shareholders from: Net Investment Income....................................... (24,369) (21,737) Net Realized Gain on Investments............................ (13,905) (3,098) --------- -------- Net Decrease in Net Assets Resulting from Distributions to Shareholders............................ (38,274) (24,835) --------- -------- Fund Share Transactions: Proceeds from Sale of 106,806 and 155,728 Shares............ 135,872 189,851 Proceeds from Shares Issued on Reinvestment of Distributions Paid (31,067 and 21,354 shares, respectively)............................................. 38,274 24,835 Payments for 105,045 and 54,469 Shares Redeemed............. (131,570) (66,561) --------- -------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions (32,828 and 122,613 shares, respectively)............................................ 42,576 148,125 --------- -------- Total Increase (Decrease) in Net Assets....................... 37,307 178,612 Net Assets Beginning of Period......................................... 584,018 405,406 --------- -------- End of Period (Includes undistributed net investment income of $25,295 and $24,109, respectively).............. $ 621,325 $584,018 ========= ========
For the For the Year Ended Year Ended December 31, December 31, Money Market Portfolio 2003 2002 - ----------------------------------------------------------------------------------------- (In thousands) Change in Net Assets Operations Net Investment Income (Loss)................................ $ 5,837 $ 7,636 Net Realized Gain (Loss) on Investments and Foreign Currencies................................................ -- -- Net Change in Unrealized Appreciation (Depreciation) of Investments............................................... -- -- --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations............................................... 5,837 7,636 --------- ----------- Distributions to Shareholders from: Net Investment Income....................................... (5,836) (7,657) Net Realized Gain on Investments............................ -- -- --------- ----------- Net Decrease in Net Assets Resulting from Distributions to Shareholders............................ (5,836) (7,657) --------- ----------- Fund Share Transactions: Proceeds from Sale of 420,450 and 1,171,850 Shares.......... 420,450 1,171,850 Proceeds from Shares Issued on Reinvestment of Distributions Paid (5,836 and 7,657 shares, respectively)............................................. 5,836 7,657 Payments for 527,727 and 1,136,862 Shares Redeemed.......... (527,727) (1,136,862) --------- ----------- Net Increase (Decrease) in Net Assets Resulting from Fund Share Transactions ((101,441) and 42,645 shares, respectively)............................................ (101,441) 42,645 --------- ----------- Total Increase (Decrease) in Net Assets....................... (101,440) 42,624 Net Assets Beginning of Period......................................... 501,313 458,689 --------- ----------- End of Period (Includes undistributed net investment income of $0 and $0, respectively)........................ $ 399,873 $ 501,313 ========= ===========
The Accompanying Notes are an Integral Part of the Financial Statements 100 Statement of Changes in Net Assets Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Period April 30, 1999(a) For the Year Ended December 31, through Small Cap Growth Stock Portfolio -------------------------------------- December 31, (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.46 $ 1.79 $ 1.86 $ 1.79 $ 1.00 Income from Investment Operations: Net Investment Income....................................... -- -- -- -- -- Net Realized and Unrealized Gains (Losses) on Investments... 0.48 (0.33) (0.07) 0.13 0.85 -------- -------- -------- -------- ------- Total from Investment Operations........................... 0.48 (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.................................. $ 1.94 $ 1.46 $ 1.79 $ 1.86 $ 1.79 ======== ======== ======== ======== ======= Total Return(e)................................................. 33.06% (18.42%) (3.76%) 6.71% 86.09% ======== ======== ======== ======== ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $366,612 $254,880 $291,448 $250,314 $71,483 ======== ======== ======== ======== ======= Ratio of Gross Expenses to Average Net Assets................... 0.59% 0.60% 0.60% 0.67% 1.03%(d) ======== ======== ======== ======== ======= Ratio of Net Expenses to Average Net Assets..................... 0.59% 0.60% 0.60% 0.67% 1.00%(d) ======== ======== ======== ======== ======= Ratio of Net Investment Income (Loss) to Average Net Assets..... (0.35%) (0.26%) 0.17% 0.19% (0.07%)(d) ======== ======== ======== ======== ======= Portfolio Turnover Rate......................................... 84.20% 41.87% 70.58% 86.13% 70.72% ======== ======== ======== ======== =======
For the Period For the Year Ended July 31, 2001(b) December 31, through T. Rowe Price Small Cap Value Portfolio ---------------- December 31, (For a share outstanding throughout the period) 2003 2002 2001 - --------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period......................... $ 0.95 $ 1.02 $ 1.00 Income from Investment Operations: Net Investment Income.................................... 0.01 0.01 -- Net Realized and Unrealized Gains on Investments......... 0.33 (0.07) 0.02 -------- ------- ------- Total from Investment Operations........................ 0.34 (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............................... $ 1.29 $ 0.95 $ 1.02 ======== ======= ======= Total Return(e).............................................. 35.15% (5.58%) 1.76% ======== ======= ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)..................... $121,944 $63,083 $21,003 ======== ======= ======= Ratio of Gross Expenses to Average Net Assets................ 0.90% 1.02% 1.36% (d) ======== ======= ======= Ratio of Net Expenses to Average Net Assets.................. 0.90% 1.00% 1.00% (d) ======== ======= ======= Ratio of Net Investment Income (Losses) to Average Net Assets 0.65% 0.54% 1.03% (d) ======== ======= ======= Portfolio Turnover Rate...................................... 33.78% 28.26% 49.70% ======== ======= =======
(a)Portfolio commenced operations on April 30, 1999. (b)Portfolio commenced operations July 31, 2001. (d)Computed on an annualized basis. (e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. The Accompanying Notes are an Integral Part of the Financial Statements Financial Highlights 101 Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, Aggressive Growth Stock Portfolio -------------------------------------------------------- (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 2.18 $ 2.82 $ 4.47 $ 4.81 $ 3.46 Income from Investment Operations: Net Investment Income....................................... -- -- -- -- -- Net Realized and Unrealized Gains (Losses) on Investments... 0.54 (0.59) (0.83) 0.29 1.48 ---------- -------- ---------- ---------- ---------- Total from Investment Operations........................... 0.54 (0.59) (0.83) 0.29 1.48 ---------- -------- ---------- ---------- ---------- Less Distributions: Distributions from Net Investment Income.................... -- -- -- -- -- Distributions from Realized Gains on Investments............ -- (0.05) (0.82) (0.63) (0.13) ---------- -------- ---------- ---------- ---------- Total Distributions........................................ -- (0.05) (0.82) (0.63) (0.13) ---------- -------- ---------- ---------- ---------- Net Asset Value, End of Period.................................. $ 2.72 $ 2.18 $ 2.82 $ 4.47 $ 4.81 ========== ======== ========== ========== ========== Total Return(e)................................................. 24.69% (21.15%) (19.87%) 6.18% 43.78% ========== ======== ========== ========== ========== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $1,187,542 $994,075 $1,341,876 $1,696,013 $1,485,311 ========== ======== ========== ========== ========== Ratio of Expenses to Average Net Assets......................... 0.52% 0.52% 0.52% 0.52% 0.51% ========== ======== ========== ========== ========== Ratio of Net Investment Income (Loss) to Average Net Assets..... (0.10%) (0.11%) 0.08% 0.09% (0.02%) ========== ======== ========== ========== ========== Portfolio Turnover Rate......................................... 63.21% 43.37% 70.40% 63.18% 68.64% ========== ======== ========== ========== ==========
For the Period For the Year Ended July 31, 2001(b) December 31, through International Growth Portfolio ----------------- December 31, (For a share outstanding throughout the period) 2003 2002 2001 - ------------------------------------------------------------------------------------ Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 0.79 $ 0.91 $ 1.00 Income from Investment Operations: Net Investment Income....................................... 0.01 -- -- Net Realized and Unrealized Gains (Losses) on Investments... 0.30 (0.12) (0.09) ------- -------- ------- Total from Investment Operations........................... 0.31 (0.12) (0.09) ------- -------- ------- 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.................................. $ 1.09 $ 0.79 $ 0.91 ======= ======== ======= Total Return(e)................................................. 38.99% (12.34%) (9.40%) ======= ======== ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $66,690 $ 35,373 $26,900 ======= ======== ======= Ratio of Gross Expenses to Average Net Assets................... 1.25% 1.15% 1.25% (d) ======= ======== ======= Ratio of Net Expenses to Average Net Assets..................... 1.10% 1.10% 1.10% (d) ======= ======== ======= Ratio of Net Investment Income (Loss) to Average Net Assets..... 0.79% 0.62% 0.05% (d) ======= ======== ======= Portfolio Turnover Rate......................................... 58.09% 27.28% 18.45% ======= ======== =======
(b)Portfolio commenced operations July 31, 2001. (d)Computed on an annualized basis. (e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. The Accompanying Notes are an Integral Part of the Financial Statements 102 Financial Highlights Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, Franklin Templeton International Equity ------------------------------------------------ (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.02 $ 1.26 $ 1.63 $ 1.78 $ 1.68 Income from Investment Operations: Net Investment Income....................................... 0.03 0.02 0.02 0.02 0.03 Net Realized and Unrealized Gains (Losses) on Investments... 0.38 (0.24) (0.23) (0.04) 0.33 -------- -------- -------- -------- -------- Total from Investment Operations........................... 0.41 (0.22) (0.21) (0.02) 0.36 -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Investment Income.................... (0.02) (0.02) (0.03) (0.04) (0.05) Distributions from Realized Gains on Investments............ -- -- (0.13) (0.09) (0.21) -------- -------- -------- -------- -------- Total Distributions........................................ (0.02) (0.02) (0.16) (0.13) (0.26) -------- -------- -------- -------- -------- Net Asset Value, End of Period.................................. $ 1.41 $ 1.02 $ 1.26 $ 1.63 $ 1.78 ======== ======== ======== ======== ======== Total Return(e)................................................. 40.46% (17.40%) (14.00%) (0.79%) 22.88% ======== ======== ======== ======== ======== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $795,707 $563,102 $716,413 $809,617 $772,170 ======== ======== ======== ======== ======== Ratio of Expenses to Average Net Assets......................... 0.74% 0.74% 0.74% 0.73% 0.74% ======== ======== ======== ======== ======== Ratio of Net Investment Income (Loss) to Average Net Assets..... 2.33% 1.72% 1.99% 1.77% 2.62% ======== ======== ======== ======== ======== Portfolio Turnover Rate......................................... 24.87% 30.94% 34.52% 26.95% 38.37% ======== ======== ======== ======== ========
For the Period May 1, 2003(c) through AllianceBernstein Mid Cap Value Portfolio December 31, (For a share outstanding throughout the period) 2003 - ----------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.00 Income from Investment Operations: Net Investment Income....................................... 0.01 Net Realized and Unrealized Gains (Losses) on Investments... 0.32 ------- Total from Investment Operations........................... 0.33 ------- Less Distributions: Distributions from Net Investment Income.................... (0.00)(f) Distributions from Realized Gains on Investments............ (0.01) ------- Total Distributions........................................ (0.01) ------- Net Asset Value, End of Period.................................. $ 1.32 ======= Total Return(e)................................................. 33.16% ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $44,091 ======= Ratio of Expenses to Average Net Assets......................... 0.94% (d) ======= Ratio of Net Investment Income (Loss) to Average Net Assets..... 0.70% (d) ======= Portfolio Turnover Rate......................................... 9.68% =======
(c)Portfolio commenced operations on May 1, 2003. (d)Computed on an annualized basis. (e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. (f)Amount is less than $0.005. The Accompanying Notes are an Integral Part of the Financial Statements Financial Highlights 103 Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Period April 30, 1999(a) For the Year Ended December 31, through Index 400 Stock Portfolio -------------------------------------- December 31, (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 0.95 $ 1.12 $ 1.14 $ 1.11 $ 1.00 Income from Investment Operations: Net Investment Income (Loss)................................ 0.01 0.01 -- 0.02 0.01 Net Realized and Unrealized Gains (Losses) on Investments... 0.33 (0.17) (0.01) 0.16 0.12 -------- -------- -------- -------- ------- Total from Investment Operations........................... 0.34 (0.16) (0.01) 0.18 0.13 -------- -------- -------- -------- ------- Less Distributions: Distributions from Net Investment Income.................... (0.01) (0.01) -- (0.02) (0.01) Distributions from Realized Gains on Investments............ -- -- (0.01) (0.13) (0.01) -------- -------- -------- -------- ------- Total Distributions........................................ (0.01) (0.01) (0.01) (0.15) (0.02) -------- -------- -------- -------- ------- Net Asset Value, End of Period.................................. $ 1.28 $ 0.95 $ 1.12 $ 1.14 $ 1.11 ======== ======== ======== ======== ======= Total Return(e)................................................. 35.01% (14.54%) (0.65%) 17.21% 12.83% ======== ======== ======== ======== ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $342,500 $225,410 $210,734 $137,616 $59,644 ======== ======== ======== ======== ======= Ratio of Gross Expenses to Average Net Assets................... 0.27% 0.28% 0.31% 0.32% 0.46% (d) ======== ======== ======== ======== ======= Ratio of Net Expenses to Average Net Assets..................... 0.27% 0.28% 0.31% 0.32% 0.35% (d) ======== ======== ======== ======== ======= Ratio of Net Investment Income to Average Net Assets............ 0.92% 0.86% 1.06% 1.71% 1.69% (d) ======== ======== ======== ======== ======= Portfolio Turnover Rate......................................... 9.74% 15.60% 19.06% 54.60% 26.51% ======== ======== ======== ======== =======
For the Period May 1, 2003(c) through Janus Capital Appreciation Portfolio December 31, (For a share outstanding throughout the period) 2003 - ----------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.00 Income from Investment Operations: Net Investment Income (Loss)................................ -- Net Realized and Unrealized Gains (Losses) on Investments... 0.20 ------- Total from Investment Operations........................... 0.20 ------- Less Distributions: Distributions from Net Investment Income.................... (0.00)(f) Distributions from Realized Gains on Investments............ (0.00)(f) ------- Total Distributions........................................ (0.00) ------- Net Asset Value, End of Period.................................. $ 1.20 ======= Total Return(e)................................................. 19.90% ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $36,730 ======= Ratio of Expenses to Average Net Assets......................... 0.90% (d) ======= Ratio of Net Investment Income to Average Net Assets............ 0.07% (d) ======= Portfolio Turnover Rate......................................... 33.68% =======
(a)Portfolio commenced operations on April 30, 1999. (c)Portfolio commenced operations on May 1, 2003. (d)Computed on an annualized basis. (e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. (f)Amount is less than $0.005. The Accompanying Notes are an Integral Part of the Financial Statements 104 Financial Highlights Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, Growth Stock Portfolio ------------------------------------------------ (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.59 $ 2.03 $ 2.47 $ 2.66 $ 2.25 Income from Investment Operations: Net Investment Income (Loss)................................ 0.01 0.01 0.02 0.03 0.03 Net Realized and Unrealized Gains (Losses) on Investments... 0.28 (0.43) (0.36) (0.09) 0.47 -------- -------- -------- -------- -------- Total from Investment Operations........................... 0.29 (0.42) (0.34) (0.06) 0.50 -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Investment Income.................... (0.01) (0.02) (0.02) (0.02) (0.03) Distributions from Realized Gains on Investments............ -- -- (0.08) (0.11) (0.06) -------- -------- -------- -------- -------- Total Distributions........................................ (0.01) (0.02) (0.10) (0.13) (0.09) -------- -------- -------- -------- -------- Net Asset Value, End of Period.................................. $ 1.87 $ 1.59 $ 2.03 $ 2.47 $ 2.66 ======== ======== ======== ======== ======== Total Return(e)................................................. 18.94% (20.83%) (14.22%) (2.49%) 22.50% ======== ======== ======== ======== ======== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $665,871 $551,421 $696,578 $770,816 $676,134 ======== ======== ======== ======== ======== Ratio of Expenses to Average Net Assets......................... 0.43% 0.43% 0.43% 0.43% 0.43% ======== ======== ======== ======== ======== Ratio of Net Investment Income to Average Net Assets............ 0.77% 0.76% 1.01% 1.12% 1.22% ======== ======== ======== ======== ======== Portfolio Turnover Rate......................................... 40.89% 28.06% 27.98% 28.01% 27.26% ======== ======== ======== ======== ========
For the Year Ended December 31, Large Cap Core Stock Portfolio ------------------------------------------------ (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 0.87 $ 1.22 $ 1.37 $ 1.56 $ 1.62 Income from Investment Operations: Net Investment Income (Loss)................................ 0.01 0.01 0.01 0.01 0.01 Net Realized and Unrealized Gains (Losses) on Investments... 0.20 (0.35) (0.11) (0.11) 0.12 -------- -------- -------- -------- -------- Total from Investment Operations........................... 0.21 (0.34) (0.10) (0.10) 0.13 -------- -------- -------- -------- -------- 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) (0.01) (0.05) (0.09) (0.19) -------- -------- -------- -------- -------- Net Asset Value, End of Period.................................. $ 1.07 $ 0.87 $ 1.22 $ 1.37 $ 1.56 ======== ======== ======== ======== ======== Total Return(e)................................................. 24.05% (28.20%) (7.77%) (6.97%) 7.47% ======== ======== ======== ======== ======== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $447,554 $365,944 $548,672 $579,981 $661,552 ======== ======== ======== ======== ======== Ratio of Expenses to Average Net Assets......................... 0.46% 0.58% 0.58% 0.57% 0.57% ======== ======== ======== ======== ======== Ratio of Net Investment Income to Average Net Assets............ 1.07% 0.85% 0.75% 0.68% 0.80% ======== ======== ======== ======== ======== Portfolio Turnover Rate......................................... 58.90% 29.20% 44.37% 47.67% 106.93% ======== ======== ======== ======== ========
(e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. The Accompanying Notes are an Integral Part of the Financial Statements Financial Highlights 105 Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Period July 31, For the Year Ended 2001(b) December 31, through Capital Guardian Domestic Equity Portfolio ------------------ December 31, (For a share outstanding throughout the period) 2003 2002 2001 - ------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 0.76 $ 0.97 $ 1.00 Income from Investment Operations: Net Investment Income....................................... 0.01 0.01 -- Net Realized and Unrealized Gains (Losses) on Investments... 0.24 (0.21) (0.03) -------- -------- ------- Total from Investment Operations........................... 0.25 (0.20) (0.03) -------- -------- ------- 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.................................. $ 1.00 $ 0.76 $ 0.97 ======== ======== ======= Total Return(e)................................................. 34.41% (21.24%) (2.19%) ======== ======== ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $136,099 $ 74,274 $40,722 ======== ======== ======= Ratio of Gross Expenses to Average Net Assets................... 0.67% 0.70% 0.90%(d) ======== ======== ======= Ratio of Net Expenses to Average Net Assets..................... 0.67% 0.70% 0.75%(d) ======== ======== ======= Ratio of Net Investment Income to Average Net Assets............ 1.84% 1.54% 1.32%(d) ======== ======== ======= Portfolio Turnover Rate......................................... 29.20% 22.42% 18.98 ======== ======== =======
For the Period May 1, 2003(c) through T. Rowe Price Equity Income Portfolio December 31, (For a share outstanding throughout the period) 2003 - ----------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.00 Income from Investment Operations: Net Investment Income....................................... 0.01 Net Realized and Unrealized Gains (Losses) on Investments... 0.23 ------- Total from Investment Operations........................... 0.24 ------- Less Distributions: Distributions from Net Investment Income.................... (0.01) Distributions from Realized Gains on Investments............ (0.01) ------- Total Distributions........................................ (0.02) ------- Net Asset Value, End of Period.................................. $ 1.22 ======= Total Return(e)................................................. 23.64% ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $47,664 ======= Ratio of Gross Expenses to Average Net Assets................... 0.77%(d) ======= Ratio of Net Expenses to Average Net Assets..................... 0.75%(d) ======= Ratio of Net Investment Income to Average Net Assets............ 1.88%(d) ======= Portfolio Turnover Rate......................................... 27.27% =======
(b)Portfolio commenced operations July 31, 2001. (c)Portfolio commenced operations on May 1, 2003. (d)Computed on an annualized basis. (e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. The Accompanying Notes are an Integral Part of the Financial Statements 106 Financial Highlights Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, Index 500 Stock Portfolio ---------------------------------------------------------- (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 2.17 $ 2.87 $ 3.41 $ 3.89 $ 3.29 Income from Investment Operations: Net Investment Income (Loss)................................ 0.04 0.03 0.03 0.04 0.04 Net Realized and Unrealized Gains (Losses) on Investments... 0.56 (0.64) (0.43) (0.37) 0.64 ---------- ---------- ---------- ---------- ---------- Total from Investment Operations........................... 0.60 (0.61) (0.40) (0.33) 0.68 ---------- ---------- ---------- ---------- ---------- Less Distributions: Distributions from Net Investment Income.................... (0.04) (0.03) (0.04) (0.04) (0.03) Distributions from Realized Gains on Investments............ (0.01) (0.06) (0.10) (0.11) (0.05) ---------- ---------- ---------- ---------- ---------- Total Distributions........................................ (0.05) (0.09) (0.14) (0.15) (0.08) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period.................................. $ 2.72 $ 2.17 $ 2.87 $ 3.41 $ 3.89 ========== ========== ========== ========== ========== Total Return(e)................................................. 28.43% (22.07%) (11.88%) (8.75%) 20.91% ========== ========== ========== ========== ========== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $1,756,120 $1,362,881 $1,821,875 $2,072,937 $2,271,956 ========== ========== ========== ========== ========== Ratio of Expenses to Average Net Assets......................... 0.20% 0.21% 0.21% 0.20% 0.20% ========== ========== ========== ========== ========== Ratio of Net Investment Income to Average Net Assets............ 1.59% 1.40% 1.13% 1.08% 1.16% ========== ========== ========== ========== ========== Portfolio Turnover Rate......................................... 2.44% 6.55% 2.92% 6.47% 5.65% ========== ========== ========== ========== ==========
For the Period For the Year Ended July 31, 2001(b) December 31, through Asset Allocation Portfolio ------------------ December 31, (For a share outstanding throughout the period) 2003 2002 2001 - ------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 0.86 $ 0.97 $ 1.00 Income from Investment Operations: Net Investment Income....................................... 0.02 0.01 0.01 Net Realized and Unrealized Gains (Losses) on Investments... 0.16 (0.11) (0.03) -------- -------- ------- Total from Investment Operations........................... 0.18 (0.10) (0.02) -------- -------- ------- Less Distributions: Distributions from Net Investment Income.................... (0.02) (0.01) (0.01) Distributions from Realized Gains on Investments............ -- -- -- -------- -------- ------- Total Distributions........................................ (0.02) (0.01) (0.01) -------- -------- ------- Net Asset Value, End of Period.................................. $ 1.02 $ 0.86 $ 0.97 ======== ======== ======= Total Return(e)................................................. 20.63% (10.26%) (2.10%) ======== ======== ======= Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $130,478 $ 87,260 $40,116 ======== ======== ======= Ratio of Gross Expenses to Average Net Assets................... 0.73% 0.87% 0.92% (d) ======== ======== ======= Ratio of Net Expenses to Average Net Assets..................... 0.73% 0.75% 0.75% (d) ======== ======== ======= Ratio of Net Investment Income to Average Net Assets............ 1.83% 2.18% 2.19% (d) ======== ======== ======= Portfolio Turnover Rate......................................... 103.77% 112.73% 55.88% ======== ======== =======
(b)Portfolio commenced operations July 31, 2001. (d)Computed on an annualized basis. (e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. The Accompanying Notes are an Integral Part of the Financial Statements Financial Highlights 107 Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, Balanced Portfolio ---------------------------------------------------------- (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.62 $ 1.82 $ 2.03 $ 2.22 $ 2.22 Income from Investment Operations: Net Investment Income (Loss)................................ 0.05 0.06 0.08 0.08 0.07 Net Realized and Unrealized Gains (Losses) on Investments... 0.24 (0.20) (0.13) (0.09) 0.17 ---------- ---------- ---------- ---------- ---------- Total from Investment Operations........................... 0.29 (0.14) (0.05) (0.01) 0.24 ---------- ---------- ---------- ---------- ---------- Less Distributions: Distributions from Net Investment Income.................... (0.06) (0.06) (0.08) (0.07) (0.07) Distributions from Realized Gains on Investments............ -- -- (0.08) (0.11) (0.17) ---------- ---------- ---------- ---------- ---------- Total Distributions........................................ (0.06) (0.06) (0.16) (0.18) (0.24) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period.................................. $ 1.85 $ 1.62 $ 1.82 $ 2.03 $ 2.22 ========== ========== ========== ========== ========== Total Return(e)................................................. 17.99% (7.54%) (3.15%) (0.17%) 11.18% ========== ========== ========== ========== ========== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $2,891,488 $2,561,529 $3,011,137 $3,253,199 $3,557,900 ========== ========== ========== ========== ========== Ratio of Expenses to Average Net Assets......................... 0.30% 0.30% 0.30% 0.30% 0.30% ========== ========== ========== ========== ========== Ratio of Net Investment Income to Average Net Assets............ 2.74% 3.08% 3.75% 3.47% 3.36% ========== ========== ========== ========== ========== Portfolio Turnover Rate......................................... 69.56% 53.12% 50.37% 24.36% 27.16% ========== ========== ========== ========== ==========
For the Year Ended December 31, High Yield Bond Portfolio --------------------------------------------------- (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 0.56 $ 0.65 $ 0.69 $ 0.82 $ 0.94 Income from Investment Operations: Net Investment Income....................................... 0.05 0.07 0.08 0.09 0.11 Net Realized and Unrealized Gains (Losses) on Investments... 0.12 (0.09) (0.04) (0.13) (0.12) -------- -------- -------- -------- -------- Total from Investment Operations........................... 0.17 (0.02) 0.04 (0.04) (0.01) -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Investment Income.................... (0.00)(f) (0.07) (0.08) (0.09) (0.11) Distributions from Realized Gains on Investments............ -- -- -- -- -- -------- -------- -------- -------- -------- Total Distributions........................................ (0.00) (0.07) (0.08) (0.09) (0.11) -------- -------- -------- -------- -------- Net Asset Value, End of Period.................................. $ 0.73 $ 0.56 $ 0.65 $ 0.69 $ 0.82 ======== ======== ======== ======== ======== Total Return(e)................................................. 29.06% (2.89%) 5.03% (4.60%) (0.44%) ======== ======== ======== ======== ======== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $199,371 $137,553 $147,670 $138,207 $161,424 ======== ======== ======== ======== ======== Ratio of Gross Expenses to Average Net Assets................... 0.52% 0.54% 0.53% 0.53% 0.50% ======== ======== ======== ======== ======== Ratio of Net Expenses to Average Net Assets..................... 0.52% 0.54% 0.53% 0.52% 0.50% ======== ======== ======== ======== ======== Ratio of Net Investment Income to Average Net Assets............ 8.66% 10.37% 10.48% 10.90% 11.15% ======== ======== ======== ======== ======== Portfolio Turnover Rate......................................... 182.10% 89.20% 96.41% 124.91% 139.87% ======== ======== ======== ======== ========
(e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. (f)Amount is less than $0.005. The Accompanying Notes are an Integral Part of the Financial Statements 108 Financial Highlights Financial Highlights Northwestern Mutual Series Fund, Inc.
For the Year Ended December 31, Select Bond Portfolio ------------------------------------------------ (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Selected Per Share Data Net Asset Value, Beginning of Period............................ $ 1.27 $ 1.20 $ 1.16 $ 1.13 $ 1.25 Income from Investment Operations: Net Investment Income....................................... 0.05 0.05 0.06 0.08 0.08 Net Realized and Unrealized Gains (Losses) on Investments... 0.02 0.09 0.05 0.03 (0.09) -------- -------- -------- -------- -------- Total from Investment Operations........................... 0.07 0.14 0.11 0.11 (0.01) -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Investment Income.................... (0.05) (0.06) (0.07) (0.08) (0.08) Distributions from Realized Gains on Investments............ (0.03) (0.01) -- -- (0.03) -------- -------- -------- -------- -------- Total Distributions........................................ (0.08) (0.07) (0.07) (0.08) (0.11) -------- -------- -------- -------- -------- Net Asset Value, End of Period.................................. $ 1.26 $ 1.27 $ 1.20 $ 1.16 $ 1.13 ======== ======== ======== ======== ======== Total Return(e)................................................. 5.49% 12.09% 10.37% 10.21% (1.00%) ======== ======== ======== ======== ======== Ratios and Supplemental Data Net Assets, End of Period (in thousands)........................ $621,325 $584,018 $405,406 $291,678 $286,493 ======== ======== ======== ======== ======== Ratio of Expenses to Average Net Assets......................... 0.30% 0.30% 0.30% 0.30% 0.30% ======== ======== ======== ======== ======== Ratio of Net Investment Income to Average Net Assets............ 4.03% 5.01% 6.15% 6.84% 6.56% ======== ======== ======== ======== ======== Portfolio Turnover Rate......................................... 137.05% 184.37% 151.27% 139.89% 76.65% ======== ======== ======== ======== ========
For the Year Ended December 31, Money Market Portfolio ------------------------------------------------ (For a share outstanding throughout the period) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ 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........................... 0.01 0.02 0.04 0.06 0.05 -------- -------- -------- -------- -------- Total from Investment Operations............... 0.01 0.02 0.04 0.06 0.05 -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Investment Income........ (0.01) (0.02) (0.04) (0.06) (0.05) -------- -------- -------- -------- -------- Total Distributions............................ (0.01) (0.02) (0.04) (0.06) (0.05) -------- -------- -------- -------- -------- Net Asset Value, End of Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Total Return(e)..................................... 1.23% 1.65% 3.91% 6.28% 5.10% ======== ======== ======== ======== ======== Ratios and Supplemental Data Net Assets, End of Period (in thousands)............ $399,873 $501,313 $458,689 $384,455 $404,284 ======== ======== ======== ======== ======== 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......... 0.00% 0.27% 0.30% 0.30% 0.30% ======== ======== ======== ======== ======== Ratio of Net Investment Income to Average Net Assets 1.23% 1.63% 3.76% 6.08% 4.99% ======== ======== ======== ======== ========
(e)Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for period less than one year. The Accompanying Notes are an Integral Part of the Financial Statements Financial Highlights 109 Notes to Financial Statements Northwestern Mutual Series Fund, Inc. December 31, 2003 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 Portfolio, Franklin Templeton International Equity Portfolio, AllianceBernstein Mid Cap Value Portfolio, Index 400 Stock Portfolio, Janus Capital Appreciation Portfolio, Growth Stock Portfolio, Large Cap Core Stock Portfolio, Capital Guardian Domestic Equity Portfolio, T. Rowe Price Equity Income 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. On May 1, 2003, three new portfolios commenced operations in the Series Fund: AllianceBernstein Mid Cap Value Portfolio, Janus Capital Appreciation Portfolio and T. Rowe Price Equity Income Portfolio. These three new portfolios were each organized with 2,000,000,000 authorized shares of Common Stock, with a par value equaling $0.01 per share. On May 1, 2003, Northwestern Mutual purchased 25,010,000 shares of each of the new portfolios at $1.00 per share. 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 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 generally valued at the last sale price on the exchange on which the security is principally traded. Stocks listed on the NASDAQ Stock Market, Inc. ("NASDAQ") for which a NASDAQ Official Closing Price ("NOCP") is available are valued at the NOCP. If there has been no sale on such exchange or on NASDAQ, the security is valued at the prior day's price. Stocks traded only in the over-the-counter market and not on a securities exchange or NASDAQ are valued at the latest bid price. Bonds are valued on the basis of prices furnished by a service which determines prices for normal institutional-size trading units of bonds. Securities 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. Generally, money market investments, other than in the Money Market Portfolio, with maturities exceeding sixty days are valued by marking to market on the basis of an average of the most recent bid prices or yields. Generally, money market investments with maturities of sixty days or less and all securities in the Money Market Portfolio are valued on an amortized cost basis or, if the current market value differs substantially from the amortized cost, by marking to market. Note 4 -- Certain of the Portfolios may have securities and other assets and liabilities denominated in foreign currencies which 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 into U.S. dollar amounts on the respective dates of such transactions. When the Portfolios purchase or sell a foreign security they may enter into a foreign currency exchange contract to minimize market risk from the trade date to the settlement date of such transaction. Such foreign currency exchange contracts are marked to market daily. The Portfolios may enter into forward foreign currency contracts to hedge against exchange rate risk arising from investments in securities denominated in foreign currencies. Contracts are valued at the contractual forward rate and are marked to market daily, with the change in market value recorded as an unrealized gain or loss. When the contracts are closed, a realized gain or loss is recorded. 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 Portfolios 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 the Portfolio's books and the U.S. dollar equivalent of the amounts actually received or paid. 110 Notes to Financial Statements Notes to Financial Statements 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 and 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 a 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 a securities loan at any time. As of December 31, 2003, the value of outstanding securities on loan and the value of collateral amounted to the following:
Value of Value of Securities on Loan Collateral ------------------ ----------- Balanced Portfolio... $42,046,363 $43,060,250 Select Bond Portfolio 60,856,327 62,352,625
As of December 31, 2003, 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 -- The Asset Allocation, Balanced, and Select Bond Portfolios have entered into mortgage dollar rolls. Dollar roll transactions consist of the sale by a portfolio to a bank or broker/dealer (the "counterparty") of mortgage-backed securities together with a commitment to purchase from the counterparty similar, but not identical, securities at a future date, at a similar price. As of December 31, 2003, the following mortgage dollar rolls were outstanding:
Obligation Portfolio Cost Value Liability --------- ----------- ----------- ----------- Asset Allocation $ 1,691,214 $ 1,694,898 $ 1,695,898 Balanced........ 81,234,945 81,422,288 81,463,684 Select Bond..... 50,640,438 50,754,371 50,781,998
The obligation liability is included in Due on Purchase of Securities and Securities Lending Collateral on the Portfolio's Statement of Assets and Liabilities. Securities subject to these agreements had a contractual maturity of 1/1/2034. The weighted average interest rate was 4.55% for the Asset Allocation Portfolio, 4.67% for the Balanced Portfolio, and 4.61% for the Select Bond Portfolio. Notes to Financial Statements 111 Notes to Financial Statements Note 8 -- 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, 2003, transactions in securities other than money market investments were:
U.S. Total U.S. Govt. Total Govt. Security Security Security Security Sales/ Sales/ Portfolio Purchases Purchases Maturities Maturities - --------- ---------- --------- ---------- ---------- (Amounts in thousands) Small Cap Growth Stock................. $ 248,553 $ -- $ 227,179 $ -- T. Rowe Price Small Cap Value.......... 62,633 -- 29,190 -- Aggressive Growth Stock................ 645,596 -- 614,945 -- International Growth................... 37,865 -- 26,391 -- Franklin Templeton International Equity 150,512 -- 156,392 -- AllianceBernstein Mid Cap Value........ 34,381 -- 2,809 -- Index 400 Stock........................ 58,492 -- 24,554 -- Janus Capital Appreciation............. 38,726 -- 8,430 -- Growth Stock........................... 245,169 -- 229,733 -- Large Cap Core Stock................... 225,433 -- 224,110 -- Capital Guardian Domestic Equity....... 55,965 -- 27,105 -- T. Rowe Price Equity Income............ 48,974 -- 8,728 -- Index 500 Stock........................ 63,750 -- 35,859 -- Asset Allocation....................... 128,274 42,393 99,789 37,791 Balanced............................... 1,594,143 708,527 1,604,125 692,911 High Yield Bond........................ 309,690 -- 285,053 -- Select Bond............................ 895,131 353,238 811,805 305,204
Note 9 -- 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. Certain Portfolios, listed below, pay at a fixed annual rate based on the average daily net asset values of the Portfolio.
Portfolio Fee --------- ---- T. Rowe Price Small Cap Value.. .85% AllianceBernstein Mid Cap Value .85% Index 400 Stock................ .25% Index 500 Stock................ .20% Balanced....................... .30% Select Bond.................... .30% Money Market................... .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 schedules:
First Next $50 $50 Portfolio Million Million Excess --------- ------- ------- ------ 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% Large Cap Core Stock................... .60% .50% .40% High Yield Bond........................ .60% .50% .40%
First Next $100 $150 Portfolio Million Million Excess --------- ------- ------- ------ International Growth............ .75% .65% .55% Capital Guardian Domestic Equity .65% .55% .50% Asset Allocation................ .60% .50% .40%
First $500 Portfolio Million Excess --------- ------- ------ T. Rowe Price Equity Income 65% 60%
First Next $100 $400 Portfolio Million Million Excess --------- ------- ------- ------ Janus Capital Appreciation .80% .75% .70%
The Series Fund's advisor, Mason Street Advisors, LLC, has contractually agreed to waive the management fee and absorb certain other operating expenses to the extent necessary so that Total Operating Expenses will not exceed the following amounts:
Portfolio Expiration --------- ----------------- T. Rowe Price Small Cap Value... 1.00% December 31, 2006 International Growth............ 1.10% December 31, 2006 AllianceBernstein Mid Cap Value. 1.00% December 31, 2008 Janus Capital Appreciation...... 0.90% December 31, 2008 Capital Guardian Domestic Equity 0.75% December 31, 2006 T. Rowe Price Equity Income..... 0.75% December 31, 2008 Asset Allocation................ 0.75% December 31, 2006
MSA has voluntarily waived its management fee since December 2, 2002 for the Money Market Portfolio. 112 Notes to Financial Statements Notes to Financial Statements 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. Other costs for each Portfolio are paid either by the Portfolios or Mason Street Advisors depending upon the applicable agreement in place. All of the Portfolios, except for the Balanced, Select Bond and Money Market Portfolios, pay their own custodian fees. Certain Portfolios, listed below, 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. These 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, 2003, the amounts paid through expense offset arrangements were as follows:
Portfolio Amount --------- ------ Small Cap Growth Stock.......... $1,711 T. Rowe Price Small Cap Value... 237 Aggressive Growth Stock......... 3,322 AllianceBernstein Mid Cap Value. 401 Index 400 Stock................. 700 Janus Capital Appreciation...... 2,607 Growth Stock.................... 941 Large Cap Core Stock............ 725 Capital Guardian Domestic Equity 715 T. Rowe Price Equity Income..... 562 Index 500 Stock................. 1,136 Asset Allocation................ 980 High Yield Bond................. 270
T. Rowe Price Associates, Inc. ("T. Rowe Price"), Templeton Investment Counsel, LLC. ("Templeton Counsel"), Alliance Capital Management L.P., ("Alliance Capital Management"), Janus Capital Management, LLC ("Janus Capital") 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 programs of the T. Rowe Price Small Cap Value and T. Rowe Price Equity Income Portfolios, the Franklin Templeton International Equity Portfolio, the AllianceBernstein Mid Cap Value Portfolio, the Janus Capital Appreciation Portfolio and the Capital Guardian Domestic Equity Portfolio, respectively. Mason Street Advisors pays T. Rowe Price an annual rate of .60% of the T. Rowe Price Small Cap Value Portfolio's average daily net assets. 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 Alliance Capital Management .72% on the first $100 million of the Portfolio's assets, .54% on the next $400 million, and .50% in excess of $500 million, with a minimum amount of $16,000. Mason Street Advisors pays Janus Capital .55% on the first $100 million of the Portfolio's assets, ..50% on the next $400 million, and .45% on assets in excess of $500 million. 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. For the T. Rowe Price Equity Income Portfolio, Mason Street Advisors pays T. Rowe Price .40% of the Portfolio's assets, reduced to ..35% on assets in excess of $500 million. The Small Cap Growth Stock, T. Rowe Small Cap Value, Aggressive Growth Stock, AllianceBernstein Mid Cap Value and Large Cap Core Stock Portfolios paid commissions on Fund transactions to an affiliated broker in the amounts of $10,876, $1,215, $83,927, $67,525 and $177,888, respectively, for the year ended December 31, 2003. Note 10 -- 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 gains 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. 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. Notes to Financial Statements 113 Notes to Financial Statements 114 Notes to Financial Statements Certain losses incurred by the Portfolios after October 31/st/ 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, 2003 is provided below:
Post-October Losses Capital Loss Carryovers ---------------- ---------------------------- Foreign Utilized Portfolio Capital Currency Amount Expiration in 2003 - --------- ------- -------- -------- ---------- -------- (Amounts in Thousands) Small Cap Growth Stock................. $ -- $ -- $ 25,729 2009-2010 $15,995 T. Rowe Price Small Cap Value.......... -- -- -- -- 98 Aggressive Growth Stock................ -- -- 203,512 2010-2011 -- International Growth................... -- -- 5,314 2009-2011 -- Franklin Templeton International Equity -- 124 120,208 2009-2011 -- AllianceBernstein Mid Cap Value........ -- -- -- -- -- Index 400 Stock........................ 11 -- -- -- 2,153 Janus Capital Appreciation............. 103 -- -- -- -- Growth Stock........................... -- -- 95,156 2009-2010 20,473 Large Cap Core Stock................... -- -- 165,024 2009-2011 -- Capital Guardian Domestic Equity....... -- -- 3,619 2009-2011 -- T. Rowe Price Equity Income............ -- -- -- -- -- Index 500 Stock........................ -- -- -- -- -- Asset Allocation....................... -- -- 556 2010 3,840 Balanced............................... -- -- -- -- 50,014 High Yield Bond........................ -- -- 76,427 2006-2010 737 Select Bond............................ -- -- -- -- -- Money Market........................... -- -- -- -- --
Note 11 -- Dividends from net investment income and net realized capital gains are declared each business day for the Money Market Portfolio and at least annually for the remaining portfolios of the Series Fund. Note 12 -- Northwestern Mutual voluntarily reimburses the Franklin Templeton International Equity and International Growth 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 $1,469,313 and $1,045,186 for the Franklin Templeton International Equity Portfolio and $68,922 and $41,412 for the International Growth Portfolio for the years ended December 31, 2003 and December 31, 2002, respectively. Notes to Financial Statements Notes to Financial Statements 115 Note 13 -- 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, 2003 and December 31, 2002 was as follows:
2003 Distributions Paid From: 2002 Distributions Paid From: ----------------------------- ----------------------------- Ordinary Long-term Ordinary Long-term Portfolio Income Capital Gain Income Capital Gain - --------- -------- ------------ -------- ------------ (Amounts in Thousands) Small Cap Growth Stock................. $ -- $ -- $ 432 $ -- T. Rowe Price Small Cap Value.......... -- -- 337 13 Aggressive Growth Stock................ -- -- 1,101 24,420 International Growth................... 420 -- 186 -- Franklin Templeton International Equity 11,039 -- 13,714 -- AllianceBernstein Mid Cap Value........ 541 -- -- -- Index 400 Stock........................ 1,934 -- 1,830 -- Janus Capital Appreciation............. 91 -- -- -- Growth Stock........................... 4,774 -- 7,118 -- Large Cap Core Stock................... 3,770 -- 4,121 -- Capital Guardian Domestic Equity....... 1,804 -- 882 -- T. Rowe Price Equity Income............ 651 -- -- -- Index 500 Stock........................ 21,914 8,037 21,302 35,471 Asset Allocation....................... 2,122 -- 1,415 -- Balanced............................... 85,974 -- 106,128 -- High Yield Bond........................ 362 -- 14,697 -- Select Bond............................ 38,274 -- 24,835 -- Money Market........................... 5,836 -- 7,657 --
As of December 31, 2003, the tax basis amounts were as follows:
Undistributed Undistributed Unrealized Ordinary Long-term Accumulated Appreciation Portfolio Income Gains Losses (Depreciation)* - --------- ------------- ------------- ----------- --------------- (Amounts in Thousands) Small Cap Growth Stock................. $ -- $ -- $ (25,729) $ 51,669 T. Rowe Price Small Cap Value.......... 910 1,328 -- 20,392 Aggressive Growth Stock................ -- -- (203,512) 185,769 International Growth................... 3 -- (5,314) 15,325 Franklin Templeton International Equity 14,574 -- (120,332) 139,302 AllianceBernstein Mid Cap Value........ 81 4 -- 9,022 Index 400 Stock........................ 2,523 1,898 (11) 42,133 Janus Capital Appreciation............. -- -- (103) 5,630 Growth Stock........................... 4,542 -- (95,156) 79,099 Large Cap Core Stock................... 4,200 -- (165,024) 36,867 Capital Guardian Domestic Equity....... 19 -- (3,619) 18,114 T. Rowe Price Equity Income............ 196 -- -- 6,651 Index 500 Stock........................ 27,070 15,711 -- 365,026 Asset Allocation....................... -- -- (556) 11,996 Balanced............................... 79,236 98,120 -- 564,143 High Yield Bond........................ 14,552 -- (76,427) 10,104 Select Bond............................ 38,966 4,298 -- (2,615) Money Market........................... -- -- -- --
* Differs from disclosures on Schedules of Investments due primarily to other temporary differences between book and tax. Note 14 -- Effective January 31st, 2003 the J.P. Morgan Select Growth and Income Stock Portfolio experienced name and manager changes. The Large Cap Core Stock Portfolio, formerly known as the J.P. Morgan Select Growth and Income Stock Portfolio, is managed by Mason Street Advisors, LLC. Director and Officer 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. Effective May 1, 2003, each director shall serve for a twelve-year term commencing May 1, 2003 or until their earlier death, resignation, retirement or removal from office and election and qualification of their successors. The statement of additional information contains additional information about Fund directors and is available without charge, upon request, by calling 1-888-627-6678. Independent Directors Number of Portfolios Length of in Fund Complex Name Age and Address Position Time Served Overseen by Director Other Directorships Held - ---------------------------------------------------------------------------------------------------- Louis A. Holland (62) Director Since 2003 29 Packaging Corporation of Suite 700 America; 1 North Wacker Drive Lou Holland Growth Fund Chicago, IL 60606 Principal Occupation During Past 5 Years: Managing Partner and Chief Investment Officer, Holland Capital Management, L.P.; Portfolio Manager, Lou Holland Growth Fund - ---------------------------------------------------------------------------------------------------- Elizabeth L. Majers (45) Director Since 2003 29 None 370 Shadowood Lane Northfield, IL 60093 Principal Occupation During Past 5 Years: Partner, McDermott, Will & Emery (international law firm) - ---------------------------------------------------------------------------------------------------- William A. McIntosh (64) Director Since 1997 29 MGIC Investment Corporation; 525 Sheridan Road Comdisco Holding Company, Kenilworth, IL 60043 Inc. Principal Occupation During Past 5 Years: Financial consulting since 1998; Adjunct Faculty Member, Howard University - ---------------------------------------------------------------------------------------------------- Michael G. Smith (59) Director Since 2003 29 Trustee of Ivy Fund 221 North Adams Hinsdale, IL 60521 Principal Occupation During Past 5 Years: Private investor; retired since 1999. From 1987 to 1999, Managing Director, Corporate and Institutional Client Group, Central Region, Merrill Lynch and Co., Inc. - ---------------------------------------------------------------------------------------------------- Martin F. Stein (66) Director Since 1995 29 Koss Corporation 1800 East Capitol Drive Milwaukee, WI 53211 Principal Occupation During Past 5 Years: Former Chairman of Eyecare One, Inc., which includes Stein Optical and Eye Q optical centers (retail sales of eyewear) - ---------------------------------------------------------------------------------------------------- Other Directors Number of Portfolios Length of in Fund Complex Name Age and Address Position Time Served Overseen by Director Other Directorships Held - ---------------------------------------------------------------------------------------------------- Stephen N. Graff (69) Director Since 1995 29 Trustee of Northwestern 805 Lone Tree Road Mutual Elm Grove, WI 53122 Principal Occupation During Past 5 Years: Retired Partner, Arthur Andersen LLP (public accountants) - ---------------------------------------------------------------------------------------------------- Edward J. Zore (58) Chairman Since 2000 29 Manpower, Inc.; 720 East Wisconsin Avenue and Director Trustee of Northwestern Milwaukee, WI 53202 Mutual Principal Occupation During Past 5 Years: President and Chief Executive Officer of Northwestern Mutual since 2001; President, 2000-2001; prior thereto, Executive Vice President - ---------------------------------------------------------------------------------------------------- Officers Mark G. Doll........................................................... President Walter M. Givler....................................................... Chief Financial Officer Merrill C. Lundberg.................................................... Secretary Barbara E. Courtney.................................................... Controller
116 Director and Officer Information Fidelity(R) Variable Insurance Products: Mid Cap Portfolio [LOGO] Annual Report December 31, 2003 [LOGO OF FIDELITY INVESTMENTS(R)] Contents Performance 3 Management's Discussion 4 Investment Summary 5 Investments 6 Financial Statements 18 Notes 22 Auditors' Opinion 25 Trustees and Officers 26 Distributions 31 How the fund has done over time. The manager's review of fund performance, strategy and outlook. A summary of the fund's investments at period end. A complete list of the fund's investments with their market values. Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. Notes to the financial statements. Fidelity Variable Insurance Products are separate account options which are purchased through a variable insurance contract. Standard & Poor's, S&P and S&P 500 are registered service marks of The McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. This report and the financial statements contained herein are submitted for the general information of the shareholders of the fund. This report is not authorized for distribution to prospective investors in the fund unless preceded or accompanied by an effective prospectus. Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the FDIC, Federal Reserve Board or any other agency, and are subject to investment risks, including possible loss of principal amount invested. Neither the fund nor Fidelity Distributors Corporation is a bank. - -------------------------------------------------------------------------------- Mid Cap Portfolio 2 - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Performance: The Bottom Line Average annual total return reflects the change in the value of an investment, assuming reinvestment of the class' dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of performance each year. During periods of reimbursement by Fidelity, a fund's total return will be greater than it would be had the reimbursement not occurred. Performance numbers are net of all fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would have been lower. How a fund did yesterday is no guarantee of how it will do tomorrow. - ------------------------------------------------------------------------------- Average Annual Total Returns - ------------------------------------------------------------------------------- Periods ended December 31, 2003 Past 1 Past 5 Life of year years fund/A/ Fidelity (R) VIP: Mid Cap Portfolio -- Initial Class 38.64% 19.25% 19.93% Fidelity VIP: Mid Cap Portfolio -- Service Class/B/ 38.52% 19.13% 19.81% Fidelity VIP: Mid Cap Portfolio -- Service Class 2/C/ 38.31% 18.98% 19.66% /A/ From December 28, 1998. /B/ Performance for Service Class shares reflects an asset based distribution fee (12b-l). /C/ The initial offering of Service Class 2 shares took place January 12, 2000. Performance for Service Class 2 shares reflects an asset based distribution fee (12b-l fee). Returns from December 28, 1998 to January 12, 2000 are those of Service Class which reflect a different 12b-l fee. Had Service Class 2's 12b-l fee been reflected, returns prior to January 12, 2000 would have been lower. - -------------------------------------------------------------------------------- $10,000 Over Life of Fund - -------------------------------------------------------------------------------- Let's say hypothetically that $10,000 was invested in Fidelity(R) Variable Insurance Products: Mid Cap Portfolio -- Initial Class on December 28, 1998, when the fund started. The chart shows how the value of your investment would have changed, and also shows how the S&P(R) MidCap 400 Index did over the same period. _____ Fidelity VIP: Mid Cap - Initial Class S&P MidCap 400 ..... Growth of $10,000 Period Ended Growth of $10,000 Period Ended 12/28/98 12/31/03 12/28/98 12/31/03 -------- -------- -------- -------- $10,000 $24,862 $10,000 $16,383 - -------------------------------------------------------------------------------- 3 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Management's Discussion of Fund Performance Comments from Tom Allen, Portfolio Manager of Fidelity(R) Variable Insurance Products: Mid Cap Portfolio U.S. equity markets snapped a three-year losing streak in 2003, rebounding on the strength of the lowest interest rates in decades, improved corporate profits and a resurgent economy. For the year overall, the Standard & Poor's 500/SM/ Index gained 28.69%, the Dow Jones Industrial Average/SM/ rose 28.14% and the NASDAQ Composite(R) Index advanced 50.77%. Small-cap stocks led the charge, particularly lower-quality issues in cyclical industries such as biotechnology and the Internet. As a result, the Russell 2000(R) Index had its best calendar year ever, climbing 47.25%. The start of the year gave little indication of the strong performance to come, as the hangover of corporate governance scandals and an impending war with Iraq clouded the outlook for 2003. However, investors were encouraged by solid gross domestic product (GDP) growth in the first two quarters of 2003, and what seemed to be a quick resolution to the Iraqi conflict. Federal tax cuts and a boom in mortgage refinancing further boosted the markets and put more discretionary income in consumers' pockets. In the third quarter, GDP growth grew 8.2%, its highest level since 1984. For the 12-month period that ended December 31, 2003, the fund posted strong positive returns, outperforming both the Standard & Poor's(R) MidCap 400 Index, which gained 35.62%, and the Lipper/SM/ Variable Annuity Mid-Cap Funds Average, which rose 35.40%. The fund's significant overweighting in strong-performing materials stocks, including base metals such as copper and zinc -- as well as big positions in gold mining issues -- provided a large part of the fund's positive performance. Favorable stock selection in areas such as biotechnology, energy and health care equipment also contributed solid gains. Among the top contributors were gold producer Newmont Mining and Invitrogen, a life sciences technology company. Performance suffered because of the fund's overly cautious stance, particularly early in the period, which resulted in an unusually large position in cash and a significant underweighting in the resurgent semiconductor industry. Several gold mining stocks that did well in 2002 -- Meridian Gold and Agnico-Eagle, for example -- hurt performance in 2003 as investors reduced their exposure to these issues. The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organisation. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. - -------------------------------------------------------------------------------- Mid Cap Portfolio 4 - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investment Summary - ---------------------------------------------------------- Top Five Stocks as of December 31, 2003 - ---------------------------------------------------------- % of Fund's net assets Newmont Mining Corp. 5.6 Invitrogen Corp. 3.4 Symbol Technologies, Inc. 2.3 Meridian Gold, Inc. 2.1 Freeport-McMoRan Copper & Gold, Inc. Class B 2.1 ----------- 15.5 ----------- - ---------------------------------------------------------- Top Five Market Sectors as of December 31, 2003 - ---------------------------------------------------------- % of fund's net assets Materials 22.7 Health Care 21.3 Consumer Discretionary 14.0 Energy 11.7 Information Technology 8.9 - -------------------------------------------------------------------------------- Asset Allocation as of December 31, 2003 - -------------------------------------------------------------------------------- % of fund's net assets* [ ] Stocks 96.8% [ ] Short-Term Investments and Net Other Assets 3.2% * Foreign investments 26.0% [CHART APPEARS HERE] - -------------------------------------------------------------------------------- 5 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investments December 31, 2003 Showing Percentage of Net Assets - ------------------------------------------------------------------------------ Common Stocks - 96.8% - ------------------------------------------------------------------------------ Shares Value (Note 1) CONSUMER DISCRETIONARY - 14.0% Auto Components - 1.1% Autoliv, Inc.............................. 77,900 $ 2,932,935 China Yuchai International Ltd............ 100 3,060 Gentex Corp............................... 391,500 17,288,640 IMPCO Technologies, Inc. (a).............. 203,100 1,771,032 Johnson Controls, Inc..................... 100 11,612 Starcraft Corp............................ 100 3,252 Superior Industries International, Inc.... 121,800 5,300,736 --------------- 27,311,267 --------------- Automobiles - 0.0% Fiat Spa sponsord ADR..................... 100 774 Harley-Davidson, Inc...................... 100 4,753 Monaco Coach Corp. (a).................... 200 4,760 Thor Industries, Inc...................... 100 5,622 --------------- 15,909 --------------- Distributors - 0.0% Advanced Marketing Services, Inc.......... 100 1,140 Educational Development Corp.............. 100 1,103 Li & Fung Ltd............................. 2,000 3,426 --------------- 5,669 --------------- Hotels, Restaurants & Leisure - 2.7% Applebee's International, Inc............. 100 3,927 GTECH Holdings Corp....................... 22 1,067 Krispy Kreme Doughnuts, Inc. (a).......... 93,000 3,403,800 Outback Steakhouse, Inc................... 849,600 37,560,816 P.F. Chang's China Bistro, Inc. (a)....... 100 5,088 Panera Bread Co. Class A (a).............. 100 3,953 Red Robin Gourmet Burgers, Inc. (a)....... 92,000 2,800,480 Sonic Corp. (a)........................... 670,750 20,538,365 Starbucks Corp. (a)....................... 100 3,306 Total Entertainment Restaurant Corp. (a).. 100 1,208 --------------- 64,322,010 --------------- Household Durables - 2.9% Alba PLC.................................. 718,435 8,146,018 CFM, Inc. (a)............................. 100 843 Fedders Corp.............................. 100 720 Fedders Corp. rights 1/16/04 (a).......... 100 6 Garmin Ltd................................ 565,100 30,786,648 Harman International Industries, Inc...... 320,000 23,673,600 Hovnanian Enterprises, Inc. Class A (a)... 100 8,706 Lennar Corp.: Class A................................ 100 9,600 Class B................................ 10 914 Mohawk Industries, Inc. (a)............... 100 7,054 Sekisui House Ltd......................... 800,000 8,305,851 Techtronic Industries Co.................. 2,000 5,552 The Stanley Works......................... 100 3,787 William Lyon Homes, Inc. (a).............. 100 6,277 --------------- 70,955,576 --------------- Internet & Catalog Retail - 0.0% 1-800-FLOWERS.com, Inc. Class A (a)....... 200 $ 2,212 Alloy, Inc. (a)........................... 100 521 Drugstore.com, Inc. (a)................... 100 551 eBay, Inc. (a)............................ 100 6,459 GSI Commerce, Inc. (a).................... 100 976 Inter Active Corp (a)..................... 487 16,524 J. Jill Group, Inc. (a)................... 100 1,271 Netflix, Inc. (a)......................... 200 10,938 Sportsmans Guide, Inc. (a)................ 100 1,715 --------------- 41,167 --------------- Leisure Equipment & Products - 0.0% Arctic Cat, Inc........................... 100 2,470 Leapfrog Enterprises, Inc. Class A (a).... 100 2,653 Mega Bloks, Inc. (a)...................... 100 1,773 Oakley, Inc............................... 100 1,384 Polaris Industries, Inc................... 100 8,858 SCP Pool Corp. (a)........................ 150 4,902 SHIMANO, Inc.............................. 100 2,082 --------------- 24,122 --------------- Media - 1.1% Astral Media, Inc. Class A (non-vtg.)............................. 408,000 8,822,387 Catalina Marketing Corp. (a).............. 443,000 8,930,880 Chum Ltd. Class B (non-vtg.).............. 100 4,857 Cumulus Media, Inc. Class A (a)........... 100 2,200 E.W. Scripps Co. Class A.................. 100 9,414 EchoStar Communications Corp. Class A (a)............................ 100 3,400 Entercom Communications Corp. Class A (a)............................ 100 5,296 Entravision Communications Corp. Class A (a)............................ 100 1,110 Fox Entertainment Group, Inc. Class A (a)............................ 100 2,915 Getty Images, Inc. (a).................... 100 5,013 Grupo Televisa SA de CV sponsored ADR..... 191,900 7,649,134 Harris Interactive, Inc. (a).............. 100 830 Hughes Electronics Corp. (a).............. 82 1,357 Modern Times Group AB (MTG) (B Shares)(a).......................... 66,100 1,391,415 News Corp. Ltd. sponsored ADR............. 9 272 Omnicom Group, Inc........................ 100 8,733 Pixar (a)................................. 100 6,929 Radio One, Inc. Class A (a)............... 100 1,955 Reader's Digest Association, Inc. (non-vtg.)............................. 100 1,466 Saga Communications, Inc. Class A (a)..... 100 1,853 SBS Broadcasting SA (a)................... 100 3,260 Scholastic Corp. (a)...................... 100 3,404 TiVo, Inc. (a)............................ 100 740 Torstar Corp. Class B..................... 100 2,236 Univision Communications, Inc. Class A (a)............................ 100 3,969 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Porfolio 6 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ Common Stocks - Continued - ------------------------------------------------------------------------------ Shares Value (Note 1) CONSUMER DISCRETIONARY - continued Media - continued Washington Post Co. Class B............... 100 $ 79,140 Westwood One, Inc. (a).................... 100 3,421 --------------- 26,947,586 --------------- Multiline Retail - 0.2% 99 Cents Only Stores (a).................. 143,700 3,912,951 Big Lots, Inc. (a)........................ 100 1,421 Dollar General Corp....................... 100 2,099 Dollar Tree Stores, Inc. (a).............. 100 3,006 Family Dollar Stores, Inc................. 100 3,588 Fred's, Inc. Class A...................... 100 3,098 Kohl's Corp. (a).......................... 100 4,494 Tuesday Morning Corp. (a)................. 44,200 1,337,050 --------------- 5,267,707 --------------- Specialty Retail - 4.4% Abercrombie & Fitch Co. Class A (a)....... 100 2,471 AC Moore Arts & Crafts, Inc. (a).......... 580,300 11,176,578 Advance Auto Parts, Inc. (a).............. 100 8,140 AutoZone, Inc. (a)........................ 100 8,521 Bed Bath & Beyond, Inc. (a)............... 100 4,335 Best Buy Co., Inc......................... 200 10,448 Cache, Inc. (a)........................... 100 2,083 CarMax, Inc. (a).......................... 473,700 14,651,541 Chico's FAS, Inc. (a)..................... 42,700 1,577,765 Christopher & Banks Corp.................. 84,751 1,655,187 Claire's Stores, Inc...................... 205,900 3,879,156 Cole National Corp. Class A (a)........... 100 2,000 Cost Plus, Inc. (a)....................... 26,900 1,102,900 Deb Shops, Inc............................ 100 2,150 Forzani Group Ltd. Class A (a)............ 100 1,253 Genesco, Inc. (a)......................... 100 1,513 Group 1 Automotive, Inc. (a).............. 100 3,619 Guitar Center, Inc. (a)................... 100 3,258 Hibbett Sporting Goods, Inc. (a).......... 100 2,980 Hot Topic, Inc. (a)....................... 1,141,450 33,627,117 Jos. A. Bank Clothiers, Inc. (a).......... 100 3,469 KOMERI Co. Ltd............................ 528,900 12,301,889 Michaels Stores, Inc...................... 100 4,420 Nitori Co. Ltd............................ 148,200 9,270,872 O'Reilly Automotive, Inc. (a)............. 100 3,836 Pacific Sunwear of California, Inc. (a)... 199,300 4,209,216 Peacock Group PLC......................... 1,258,300 4,313,895 PETsMART, Inc............................. 100 2,380 Pier 1 Imports, Inc....................... 100 2,186 RONA, Inc. (a)............................ 100,000 2,404,409 Ross Stores, Inc.......................... 296,600 7,839,138 Select Comfort Corp. (a).................. 100 2,476 Sharper Image Corp. (a)................... 100 3,265 Shimamura Co. Ltd......................... 100 6,828 Sports Authority, Inc. (a)................ 100 3,840 Staples, Inc. (a)......................... 100 2,730 Talbots, Inc.............................. 100 $ 3,078 TBC Corp. (a)............................. 100 2,581 The Bombay Company, Inc (a)............... 100 814 Tiffany & Co, Inc......................... 100 4,520 TJX Companies, Inc........................ 100 2,205 Too, Inc. (a)............................. 100 1,688 Tractor Supply Co. (a).................... 100 3,889 Urban Outfitters, Inc. (a)................ 200 7,410 Weight Watchers International, Inc. (a)... 100 3,837 Williams-Sonoma, Inc. (a)................. 200 6,954 --------------- 108,134,840 --------------- Textiles Apparel & Luxury Goods - 1.6% Adidas-Salomon AG......................... 100 11,359 Brown Shoe Co., Inc....................... 100 3,793 Coach, Inc. (a)........................... 200 7,550 Columbia Sportswear Co. (a)............... 626,200 34,127,900 Compagnie Financiere Richemont unit....... 100 2,394 DHB Industries, Inc. (a).................. 100 700 Fossil, Inc. (a).......................... 145,300 4,069,853 Gildan Activewear, Inc. Class A (sub. vtg.) (a)........................ 100 3,088 K-Swiss, Inc. Class A..................... 200 4,812 Kenneth Cole Productions, Inc. Class A.... 100 2,940 Liz Claiborne, Inc........................ 100 3,546 NIKE, Inc. Class B........................ 100 6,846 Quiksilver, Inc. (a)...................... 200 3,546 Ted Baker PLC............................. 25,000 154,678 The Swatch Group AG (Bearer).............. 100 11,972 Timberland Co. Class A (a)................ 100 5,207 Vans, Inc. (a)............................ 100 1,141 --------------- 38,421,325 --------------- TOTAL CONSUMER DISCRETIONARY........... 341,447,178 --------------- CONSUMER STAPLES - 3.0% Beverages - 0.0% Boston Beer Co., Inc. Class A (a)......... 100 1,814 Companhia de Bebidas das Americas (AmBev) sponsored ADR.................. 29,100 742,341 Fomento Economico Mexicano SA de CV sponsored ADR.......................... 100 3,688 Grupo Modelo SA de CV Series C............ 100 241 Harbin Brewery Group Ltd.................. 2,000 805 Tsingtao Brewery Co. Ltd. (H Shares)...... 1,000 1,172 --------------- 750,061 --------------- Food & Staples Retailing - 0.2% Companhia Brasileira de Distribuicao Grupo Pao de Acucar sponsored ADR...... 100 2,515 Costco Wholesale Corp. (a)................ 100 3,718 Plant Co. Ltd. (a)........................ 30,100 468,620 United Natural Foods, Inc. (a)............ 100 3,591 Whole Foods Market, Inc................... 64,100 4,303,033 --------------- 4,781,477 --------------- See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 7 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investments - continued - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) CONSUMER STAPLES - continued Food Products - 2.5% Central Garden & Pet Co. Class A (a)...... 100 $ 2,803 Delta & Pine Land Co...................... 152,200 3,865,880 Fresh Del Monte Produce, Inc.............. 100 2,383 Green Mountain Coffee Roasters, Inc. (a).. 245,895 5,660,503 Hershey Foods Corp........................ 244,300 18,808,657 Horizon Organic Holding Corp. (a)......... 40,600 972,370 IAWS Group PLC (Ireland).................. 50 610 Lindt & Spruengli AG (participation certificate)........................... 100 83,038 McCormick & Co., Inc. (non-vtg.).......... 473,600 14,255,360 Peet's Coffee & Tea, Inc. (a)............. 100 1,741 PT Indofood Sukses Makmur................. 34,620,000 3,289,315 Sensient Technologies Corp................ 100 1,977 Smithfield Foods, Inc. (a)................ 637,600 13,198,320 Tootsie Roll Industries, Inc.............. 100 3,600 Yakult Honsha Co. Ltd..................... 1,000 15,709 --------------- 60,162,266 --------------- Household Products - 0.0% Uni-Charm Corp............................ 100 4,943 --------------- Personal Products - 0.3% Alberto-Culver Co. Class B................ 100 6,308 Hengan International Group Co. Ltd. (a)... 9,002,000 4,840,969 Kose Corp................................. 77,600 2,809,283 NBTY, Inc. (a)............................ 100 2,686 USANA Health Sciences, Inc. (a)........... 200 6,120 --------------- 7,665,366 --------------- TOTAL CONSUMER STAPLES................. 73,364,113 --------------- ENERGY - 11. 7% Energy Equipment & Services - 6.6% BJ Services Co. (a)....................... 622,810 22,358,879 Cal Dive International, Inc. (a).......... 135,000 3,254,850 Carbo Ceramics, Inc....................... 115,700 5,929,625 Cooper Cameron Corp. (a).................. 154,000 7,176,400 Core Laboratories NV (a).................. 100 1,669 Global Industries Ltd. (a)................ 342,000 1,761,300 GlobalSantaFe Corp........................ 490,350 12,175,391 Helmerich & Payne, Inc.................... 96,000 2,681,280 Matrix Service Co. (a).................... 200 3,630 Nabors Industries Ltd. (a)................ 38,800 1,610,200 National-Oilwell, Inc. (a)................ 430,600 9,628,216 Noble Corp. (a)........................... 200,800 7,184,624 NS Group, Inc. (a)........................ 130,300 1,263,910 Oceaneering International, Inc. (a)....... 877,400 24,567,200 Pason Systems, Inc........................ 296,300 5,756,059 Pioneer Drilling Co. (a).................. 13,900 67,415 Pride International, Inc. (a)............. 519,500 9,683,480 Smith International, Inc. (a)............. 233 890 9,711,113 Tidewater, Inc............................ 580,150 17,334,882 Varco International, Inc. (a)............. 656,648 $ 13,546,638 W-H Energy Services, Inc. (a)............. 358,400 5,806,080 --------------- 161,502,841 --------------- Oil & Gas - 5.1% Apache Corp............................... 500,220 40,567,842 Burlington Resources, Inc................. 109,600 6,069,648 China Petroleum & Chemical Corp sponsored ADR.......................... 100 4,441 Comstock Resources, Inc. (a).............. 373,200 7,202,760 Golar LNG Ltd. (a)........................ 145,600 2,084,084 Golar LNG Ltd. (Nasdaq) (a)............... 70 1,000 Niko Resources Ltd........................ 138,000 2,882,979 Nuevo Energy Co. (a)...................... 117,800 2,847,226 OAO Gazprom sponsored ADR................. 100 2,590 Petro-Canada.............................. 100 4,927 PetroChina Co. Ltd. sponsored ADR......... 100 5,705 PetroKazakhstan, Inc. Class A (a)......... 1,292,100 29,154,924 Petroleo Brasileiro SA Petrobras sponsored ADR.......................... 100 2,924 Pioneer Natural Resources Co. (a)......... 309,500 9,882,335 Pogo Producing Co......................... 169,600 8,191,680 Suncor Energy, Inc........................ 117,200 2,936,324 Surgutneftegaz JSC sponsored ADR.......... 100 2,940 Talisman Energy, Inc...................... 152,400 8,637,410 Western Gas Resources, Inc................ 40,000 1,890,000 World Fuel Services Corp.................. 18,294 621,081 XTO Energy, Inc........................... 100 2,830 YUKOS Corp. sponsored ADR................. 100 4,200 --------------- 122,999,850 --------------- TOTAL ENERGY........................... 284,502,691 --------------- FINANCIALS - 5.7% Capital Markets - 0.2% A.G. Edwards, Inc......................... 100 3,623 Charles Schwab Corp....................... 100 1,184 E*TRADE Group, Inc. (a)................... 100 1,265 Eaton Vance Corp. (non-vtg.).............. 100 3,664 Federated Investors, Inc. Class B (non-vtg.)............................. 100 2,936 Franklin Resources, Inc................... 100 5,206 International Assets Holding Corp. (a).... 100 594 Investment Technology Group, Inc..(a)..... 100 1,615 Investors Financial Services Corp......... 100 3,841 Mitsubishi Securities Co. Ltd............. 538,000 5,888,432 T. Rowe Price Group, Inc.................. 200 9,482 --------------- 5,921,842 --------------- Commercial Banks - 0.9% Banco Itau Holding Financeira SA sponsored ADR.......................... 100 4,877 BOK Financial Corp........................ 100 3,872 Boston Private Financial Holdings, Inc.... 142,900 3,549,636 Bryn Mawr Bank Coro....................... 20 490 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portfolio 8 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) FINANCIALS - continued Commercial Banks - continued Cathay General Bancorp.................... 10 $ 557 Charter One Financial, Inc................ 100 3,455 City National Corp........................ 100 6,212 CVB Financial Corp........................ 110 2,122 East West Bancorp, Inc.................... 100 5,368 First Tennessee National Corp............. 100 4,410 Great Southern Bancorp, Inc............... 100 4,637 Hancock Holding Co........................ 150 8,186 Harleysville National Corp., Pennsylvania. 125 3,763 Independent Bank Corp., Massachusetts..... 100 2,882 International Bancshares Corp............. 100 4,715 Kookmin Bank sponsored ADR................ 100 3,784 Lakeland Financial Corp................... 100 3,532 M&T Bank Corp............................. 100 9,830 Marshall & Ilsley Corp.................... 100 3,825 Nara Bancorp, Inc......................... 137,190 3,745,287 National Commerce Financial Corp.......... 100 2,728 North Fork Bancorp, Inc., New York........ 100 4,047 Pacific Capital Bancorp................... 100 3,682 PrivateBancorp, Inc....................... 100 4,552 Resource Bankshares Corp.................. 150 4,730 SouthTrust Corp........................... 100 3,273 State Bancorp, Inc., New York............. 100 2,426 State Bank of India....................... 70,900 836,814 Sterling Bancshares, Inc.................. 10 133 Sumitomo Trust & Banking Ltd.............. 1,643,000 9,707,886 Synovus Financial Corp.................... 100 2,892 TCF Financial Corp........................ 100 5,135 Texas Regional Bancshares, Inc. Class A... 100 3,700 Tompkins Trustee, Inc..................... 100 4,605 UCBH Holdings, Inc........................ 100 3,897 UnionBanCal Corp.......................... 100 5,754 Valley National Bancorp................... 100 2,920 West Coast Bancorp, Oregon................ 100 2,134 Westcorp.................................. 100 3,655 Wintrust Financial Corp................... 60,400 2,724,040 Zions Bancorp............................. 100 6,133 --------------- 20,706,576 --------------- Consumer Finance - 0.0% American Express Co....................... 100 4,823 Capital One Financial Corp................ 100 6,129 First Cash Financial Services, Inc.(a).... 100 2,564 Student Loan Corp......................... 100 14,600 --------------- 28,116 --------------- Diversified Financial Services - 0.0% Deutsche Boerse AG........................ 100 5,453 eSpeed, Inc. Class A (a).................. 100 2,341 Moody's Corp.............................. 100 6,055 Power Financial Corp...................... 100 3,818 Principol Financial Group Inc............. 100 $ 3,307 TSX Group, Inc............................ 100 3,307 --------------- 24,281 --------------- Insurance - 2.1% ACE Ltd................................... 100 4,142 AFLAC, Inc................................ 2,800 101,304 Arthur J. Gallagher & Co.................. 100 3,249 Erie Indemnity Co. Class A................ 100 4,238 Great-West Lifeco, Inc.................... 100 3,508 Hilb, Rogal & Hamilton Co................. 100 3,207 MBIA, Inc................................. 22,700 1,344,521 Mercury General Corp...................... 34500 1,605,975 MetLife, Inc.............................. 100 3,367 Ohio Casualty Corp. (a)................... 100 1,736 Old Republic International Corp........... 150 3,804 PartnerRe Ltd............................. 100 5,805 Progressive Corp.......................... 63,900 5,341,401 Protective Life Corp...................... 69,300 2,345,112 Reinsurance Group of America, Inc......... 456,400 17,639,860 StanCorp Financial Group Inc.............. 100 6,288 UICI (a).................................. 100 1,328 UnumProvident Corp........................ 100 1,577 W.R. Berkley Corp......................... 654,275 22,866,911 Zenith National Insurance Corp............ 300 9,765 --------------- 51,297,098 --------------- Real Estate - 2.1% Equity Residential (SBI).................. 100 2,951 Pan Pacific Retail Properties, Inc........ 200,000 9,530,000 Plum Creek Timber Co., Inc................ 132,400 4,031,580 ProLogis.................................. 298,200 9,569,238 Simon Properly Group, Inc................. 595,700 27,604,738 --------------- 50,738,507 --------------- Thrifts & Mortgage Finance - 0.4% Doral Financial Corp...................... 99,300 3,205,404 Farmer Mac Class C (non-vtg.)(a).......... 134,600 4,301,816 Golden West Financial Corp. Delaware...... 14,970 1,544,754 MGIC Investment Corp...................... 100 5,694 NetBank, Inc.............................. 57,700 770,295 New York Community Bancorp, Inc........... 100 3,805 R&G Financial Corp. Class B............... 100 3,980 Sterling Financial Corp. (a).............. 100 3,423 W Holding Co., Inc........................ 153 2,847 --------------- 9,842,018 --------------- TOTAL FINANCIALS....................... 138,558,438 --------------- HEALTH CARE - 21.3% Biotechnology - 8.9% Actelion Ltd. (Reg.) (a).................. 100 10,763 Affymetrix, Inc. (a)...................... 100 2,461 Bachem Holding AG (B Shares).............. 100 5,115 Biogen Idec, Inc. (a)..................... 315 11,586 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 9 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investments - continued - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) HEALTH CARE - continued Biotechnology - continued BioSource International, Inc. (a)......... 100 $ 677 Caliper Technologies Corp. (a)............ 100 658 Cell Genesys, Inc. (a).................... 100 1,294 Celltech Group PLC sponsored ADR (a)...... 100 1,336 Charles River Laboratories International, Inc. (a)............... 1,097,200 37,666,876 Ciphergen Biosystems, Inc. (a)............ 100 1,124 Connetics Corp. (a)....................... 100 1,816 Dendreon Corp. (a)........................ 146,900 1,184,014 Digene Corp. (a).......................... 31,900 1,279,190 Enzon Pharmaceuticals, Inc. (a)........... 100 1,200 Exact Sciences Corp. (a).................. 100 1,012 Gen-Probe, Inc. (a)....................... 200 7,294 Genencor International, Inc. (a).......... 100 1,575 Genentech, Inc. (a)....................... 100 9,357 Gilead Sciences, Inc. (a)................. 100 5,814 Global Bio-Chem Technology Group Co. Ltd.. 1,528,000 944,716 Harvard Bioscience, Inc. (a)(c)........... 2,802,200 24,939,580 IDEXX Laboratories, Inc. (a).............. 138,400 6,405,152 Ilex Oncology, Inc. (a)................... 100 2,125 ImmunoGen, Inc. (a)....................... 100 505 Invitrogen Corp. (a)...................... 1,187,700 83,139,000 Kosan Biosciences, Inc. (a)............... 100 986 Martek Biosciences (a).................... 27,700 1,799,669 Medlmmune, Inc. (a)....................... 100 2,540 Myriad Genetics, Inc. (a)................. 100 1,286 Nabi Biopharmaceuticals (a)............... 55,300 702,863 Neogen Corp. (a).......................... 15,545 385,050 ONYX Pharmaceuticals, Inc. (a)............ 23,400 660,582 PRAECIS Pharmaceuticals, Inc. (a)......... 214,900 1,383,956 QIAGEN NV (a)............................. 3,571,000 42,709,160 Seattle Genetics, Inc. (a)................ 100 858 Serologicals Corp. (a).................... 12,300 228,780 Strategic Diagnostics, Inc. (a)........... 626,000 2,960,980 Tanox, Inc. (a)........................... 100 1,485 Techne Corp. (a).......................... 242,300 9,154,094 Telik, Inc. (a)........................... 65,800 1,514,058 Trimeris, Inc. (a)........................ 100 2,098 United Therapeutics Corp. (a)............. 100 2,295 --------------- 217,134,980 --------------- Health Care Equipment & Supplies - 2.2% Abaxis, Inc. (a).......................... 184,800 3,348,576 Advanced Medical Optics, Inc. (a)......... 100 1,965 Advanced Neuromodulation Systems, Inc. (a)............................... 150 6,897 Alcon, Inc................................ 100 6,054 Align Technology, Inc. (a)................ 100 1,652 Apogent Technologies, Inc. (a)............ 100 2,304 Arthrocare Corp. (a)...................... 100 2,450 Becton, Dickinson & Co.................... 100 4,114 Biacore International AB sponsored ADR.... 100 $ 2,292 Bio-Rad Laboratories, Inc. Class A (a).... 100 5,767 Biomet, Inc............................... 100 3,641 Biosite, Inc. (a)......................... 100 2,895 Bruker BioSciences Corp. (a).............. 163 742 C.R. Bard, Inc............................ 100 8,125 Candela Corp. (a)......................... 240,900 4,379,562 Cardiodynamics International Corp. (a).... 100 597 Chromavision Medical Systems, Inc. (a).... 100 319 Closure Medical Corp. (a)................. 13,300 451,269 CNS., Inc................................. 100 1,370 Cooper Companies, Inc..................... 100 4,713 CTI Molecular Imaging, Inc. (a)........... 100 1,691 Cyberonics, Inc. (a)...................... 100 3,201 Cytyc Corp. (a)........................... 100 1,376 DENTSPLY International, Inc............... 100 4,517 Diagnostic Products Corp.................. 100 4,591 Edwards Lifesciences Corp. (a)............ 935,000 28,124,800 Epix Medical, Inc. (a).................... 229,800 3,741,144 Guidant Corp.............................. 3,800 228,760 HealthTronics Surgical Services, Inc. (a). 63,800 398,750 ICU Medical, Inc. (a)..................... 18,400 630,752 Illumina, Inc. (a)........................ 100 705 Immucor, Inc. (a)......................... 21,400 436,346 INAMED Corp. (a).......................... 150 7,209 Integra LifeSciences Holdings Corp. (a)... 98,400 2,817,192 Interpore International, Inc. (a)......... 100 1,300 Kensey Nash Corp. (a)..................... 100 2,325 Merit Medical Systems, Inc. (a)........... 133 2,968 Millipore Corp. (a)....................... 76,000 3,271,800 Molecular Devices Corp. (a)............... 100 1,899 Nobel Biocare Holding AG (Switzerland).... 100 10,098 Nutraceutical International Corp. (a)..... 100 1,102 Osteotech, Inc. (a)....................... 100 880 PolyMedica Corp........................... 200 5,262 Schick Technologies, Inc. (a)............. 52,700 389,980 Sola International, Inc. (a).............. 80,200 1,507,760 Sonic Innovations, Inc. (a)............... 161,800 1,043,610 SonoSight, Inc. (a)....................... 100 2,144 St. Jude Medical, Inc. (a)................ 100 6,135 SurModics, Inc. (a)....................... 100 2,390 Synovis Life Technologies, Inc. (a)....... 100 2,034 Synthes-Stratec, Inc...................... 100 98,678 Tecan Group AG............................ 100 4,821 Therasense, Inc. (a)...................... 100 2,030 Thoratec Corp. (a)........................ 100 1,301 TriPath Imaging, Inc. (a)................. 100 780 Varian Medical Systems, Inc. (a).......... 58,100 4,014,710 Ventana Medical Systems, Inc. (a)......... 100 3,940 VSM MedTech Ltd. (a)...................... 100 347 Wilson Greatbatch Technologies, Inc. (a).. 100 4,227 Wright Medical Group, Inc. (a)............ 100 3,044 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portfolio 10 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) HEALTH CARE - continued Health Care Equipment & Supplies - continued Young Innovations, Inc.................... 100 $ 3,600 Zimmer Holdings, Inc. (a)................. 100 7,040 --------------- 55,032,543 --------------- Health Care Providers & Services - 8.3% Accredo Health, Inc. (a).................. 100 3,161 AdvancePCS Class A (a).................... 587,600 30,943,016 Advisory Board Co. (a).................... 100 3,491 American Healthways, Inc. (a)............. 120,200 2,869,174 AMERIGROUP Corp. (a)...................... 49,400 2,106,910 AmSurg Corp. (a).......................... 100 3,789 Anthem, Inc. (a).......................... 100 7,500 Caremark Rx, Inc. (a)..................... 1,231,100 31,183,763 Cerner Corp. (a).......................... 560,200 21,203,570 CIGNA Corp................................ 100 5,750 Computer Programs & Systems, Inc.......... 100 2,012 Covance, Inc. (a)......................... 60,000 1,608,000 Coventry Health Care, Inc. (a)............ 81,800 5,275,282 Dendrite International, Inc. (a).......... 100 1,567 Dynacq Healthcare, Inc. (a)............... 100 768 Eclipsys Corp. (a)........................ 100 1,164 eResearchTechnology, Inc. (a)............. 22,500 571,950 Express Scripts, Inc. (a)................. 46,200 3,069,066 First Health Group Corp. (a).............. 9,800 190,708 Health Management Associates, Inc. Class A................................ 652,200 15,652,800 HealthExtras, Inc. (a).................... 100 1,340 ICON PLC sponsored ADR (a)................ 36,100 1,573,960 IDX Systems Corp. (a)..................... 100 2,682 IMS Health, Inc........................... 1,757,800 43,698,908 Inveresk Research Group, Inc. (a)......... 357,600 8,843,448 iSoft Group PLC........................... 602,200 3,986,631 Laboratory Corp. of America Holdings (a)........................... 100 3,695 Lifeline Systems, Inc. (a)................ 200 3,800 Lincare Holdings, Inc. (a)................ 90,000 2,702,700 McKesson Corp............................. 3,500 112,560 MIM Corp. (a)............................. 100 703 NDCHealth Corp............................ 100 2,562 Odyssey Healthcare, Inc. (a).............. 200 5,852 Omnicare, Inc............................. 100 4,039 Orthodontic Centers of America, Inc. (a).. 100 805 Oxford Health Plans, Inc.................. 100 4,350 PAREXEL International Corp. (a)........... 100 1,626 Patterson Dental Co. (a).................. 100 6,416 Pediatrix Medical Group, Inc. (a)......... 100 5,509 Per-Se Technologies, Inc. (a)............. 100 1,526 Pharmaceutical Product Development, Inc. (a)............................... 421,100 11,357,067 Quest Diagnostics, Inc.................... 200 14,622 Renal Care Group, Inc. (a)................ 100 4,120 ResCare, Inc. (a)......................... 1,188,803 9,629,304 Tripos, Inc. (a).......................... 100 $ 669 TriZetto Group, Inc. (a).................. 100 645 Vital Images, Inc. (a).................... 68,100 1,214,904 WebMD Corp. (a)........................... 451,300 4,057,187 WellPoint Health Networks, Inc. (a)....... 100 9,699 --------------- 201,954,770 --------------- Pharmaceuticals - 1.9% Able Laboratories, Inc. (a)............... 100 1,807 Allergan, Inc............................. 100 7,681 Alpharma, Inc. Class A.................... 100 2,010 Altana AG sponsored ADR................... 100 6,030 American Pharmaceutical Partners, Inc. (a)............................... 150 5,040 Bentley Pharmaceuticals, Inc. (a)......... 100 1,330 Caraco Pharmaceutical Laboratories Ltd. (a)............................... 100 748 Cipla Ltd................................. 100 2,887 Dr. Reddy's Laboratories Ltd. ADR......... 238,300 7,542,195 Endo Pharmaceuticals Holdings, Inc. (a)... 200 3,852 Flamel Technologies SA sponsored ADR (a)................................ 100 2,679 Forest Laboratories, Inc. (a)............. 200 12,360 Guilford Pharmaceuticals, Inc. (a)........ 524,500 3,556,110 King Pharmaceuticals, Inc. (a)............ 100 1,526 KV Pharmaceutical Co. Class A (a)......... 150 3,825 Mylan Laboratories, Inc................... 151,350 3,823,101 Novo Nordisk AS Series B.................. 100 4,065 Perrigo Co................................ 347,200 5,457,984 Pharmaceutical Resources, Inc. (a)........ 7,700 501,655 Pure World, Inc. (a)...................... 100 251 Ranbaxy Laboratories Ltd. sponsored GDR.......................... 270,300 6,892,650 Salix Pharmaceuticals Ltd. (a)............ 100 2,267 SICOR, Inc. (a)........................... 231,800 6,304,960 Stada Arzneimittel AG..................... 190,365 11,776,649 SuperGen, Inc. (a)........................ 100 1,100 Teva Pharmaceutical Industries Ltd. sponsored ADR.......................... 100 5,671 Watson Pharmaceuticals, Inc. (a).......... 100 4,600 --------------- 45,925,033 --------------- TOTAL HEALTH CARE...................... 520,047,326 --------------- INDUSTRIALS - 5.2% Aerospace & Defense - 1.2% Alliant Techsystems, Inc. (a)............. 100 5,776 Applied Signal Technology, Inc............ 100 2,301 Cubic Corp................................ 100 2,300 DRS Technologies, Inc. (a)................ 204,900 5,692,122 Embraer - Empresa Brasileira de Aeronautica SA sponsored ADR........... 100 3,503 Engineered Support Systems, Inc........... 225 12,389 General Dynamics Corp..................... 100 9,039 Herley Industries, Inc. (a)............... 100 2,070 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 11 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investments - continued - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) INDUSTRIALS - continued Aerospace & Defense - continued Invision Technologies, Inc. (a)........... 100 $ 3,357 KVH Industries, Inc. (a).................. 100 2,747 L-3 Communications Holdings, Inc.(a)...... 383,800 19,711,968 Rockwell Collins, Inc..................... 100 3,003 United Defense Industries, Inc. (a)....... 75,000 2,391,000 --------------- 27,841,575 --------------- Air Freight & Logistics - 0.0% C.H. Robinson Worldwide, Inc.............. 3,250 123,208 CNF, Inc.................................. 100 3,390 Expediters International of Washington, Inc.................................... 4,400 165,704 FedEx Corp................................ 100 6,750 Forward Air Corp. (a)..................... 100 2,750 UTI Worldwide, Inc........................ 100 3,793 --------------- 305,595 --------------- Airlines - 0.0% Southwest Airlines Co..................... 100 1,614 --------------- Building Products - 0.0% American Woodmark Corp.................... 100 5,505 Quixote Corp.............................. 100 2,441 Simpson Manufacturing Co. Ltd. (a)........ 100 5,086 Trex Co., Inc. (a)........................ 100 3,798 --------------- 16,830 --------------- Commercial Services & Supplies - 2.4% Administaff, Inc. (a)..................... 100 1,738 Apollo Group, Inc.: - University of Phoenix Online (a)..... 100 6,893 Class A (a)............................ 200 13,600 Avery Dennison Corp....................... 100 5,602 Benesse Corp.............................. 100 2,453 Bennett Environmental, Inc. (a)........... 409,600 8,455,973 Bright Horizons Family Solutions, Inc. (a)(c)................. 685,300 28,782,600 Career Education Corp. (a)................ 200 8,014 ChoicePoint, Inc. (a)..................... 206,600 7,869,394 Cintas Corp............................... 100 5,013 Coinstar, Inc. (a)........................ 100 1,806 Corinthian Colleges, Inc. (a)............. 100 5,556 Corporate Executive Board Co. (a)......... 100 4,667 CoStar Group, Inc. (a).................... 100 4,168 Danka Business Systems PLC sponsored ADR (a)................................ 17,000 74,800 DeVry, Inc. (a)........................... 3,900 98,007 Education Management Corp. (a)............ 200 6,208 FTI Consulting, Inc. (a).................. 150 3,506 Fullcast Co. Ltd.......................... 2,500 7,784,391 Gevity HR, Inc............................ 100 2,224 GFK AG.................................... 100 2,871 H&R Block, Inc............................ 100 5,537 Herman Miller, Inc........................ 100 2,427 HON Industries, Inc....................... 100 $ 4,332 Ionics, Inc. (a).......................... 100 3,185 ITT Educational Services, Inc. (a)........ 100 4,697 Labor Ready, Inc. (a)..................... 100 1,310 National Research Corp. (a)............... 100 1,619 On Assignment, Inc. (a)................... 124,300 647,603 Princeton Review, Inc. (a)................ 24,402 237,920 Resources Connection, Inc. (a)............ 100 2,731 Right Management Consultants, Inc.(a)..... 100 1,866 Ritchie Brothers Auctioneers, Inc......... 100 5,310 Robert Half International, Inc. (a)....... 24,200 564,828 Stericycle, Inc. (a)...................... 100 4,670 Strayer Education, Inc.................... 100 10,883 Tetra Tech, Inc. (a)...................... 182,800 4,544,408 Trojan Technologies Corp. (a)............. 100 567 West Corp. (a)............................ 100 2,323 --------------- 59,185,700 --------------- Construction & Engineering - 0.3% Dycom Industries, Inc. (a)................ 62,600 1,678,932 EMCOR Group, Inc. (a)..................... 100 4,390 Granite Construction, Inc................. 100 2,349 Jacobs Engineering Group, Inc. (a)........ 113,800 5,463,538 --------------- 7,149,209 --------------- Electrical Equipment - 0.3% AstroPower, Inc. (a)...................... 100 65 Fujikura Ltd.............................. 1,000 5,927 Johnson Electric Holdings Ltd............. 500 638 REPower Systems AG........................ 121,500 2,919,146 Rockwell Automation, Inc.................. 142,500 5,073,000 --------------- 7,998,776 --------------- Industrial Conglomerates - 0.0% Alleghany Corp............................ 100 22,250 Teleflex, Inc............................. 100 4,833 --------------- 27,083 --------------- Machinery - 0.9% AGCO Corp. (a)............................ 100 2,014 Cascade Corp.............................. 200 4,460 Ceradyne, Inc. (a)........................ 100 3,406 CNH Global NV............................. 100 1,660 CUNO, Inc. (a)............................ 99,900 4,498,497 Dionex Corp. (a).......................... 100 4,602 ESCO Technologies, Inc. (a)............... 100 4,365 Graco, Inc................................ 445,800 17,876,580 Husky Injection Molding Systems Ltd.(a)... 100 432 Illinois Tool Works, Inc.................. 100 8,391 Joy Global, Inc........................... 100 2,615 Middleby Corp............................. 100 4,047 PACCAR, Inc............................... 100 8,512 Pentair, Inc.............................. 100 4,570 Trinity Industries, Inc................... 100 3,084 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portfolio 12 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) INDUSTRIALS - continued Machinery - continued Wabash National Corp. (a)................. 100 $ 2,930 Zenon Environmental, Inc. (a)............. 100 1,446 --------------- 22,431,611 --------------- Marine - 0.1% Alexander & Baldwin, Inc.................. 48,700 1,640,703 --------------- Road & Rail - 0.0% Canadian National Railway Co.............. 100 6,321 Heartland Express, Inc.................... 100 2,419 Knight Transportation, Inc. (a)........... 100 2,565 Old Dominion Freight Lines, Inc. (a)...... 100 3,408 --------------- 14,713 --------------- Trading Companies & Distributors - 0.0% Fastenal Co............................... 200 9,988 Richelieu Hardware Ltd.................... 100 1,467 --------------- 11,455 --------------- TOTAL INDUSTRIALS...................... 126,624,864 --------------- INFORMATION TECHNOLOGY - 8.9% Communications Equipment - 0.4% 3Com Corp. (a)............................ 100 817 Avocent Corp. (a)......................... 100 3,652 Black Box Corp............................ 100 4,607 Comtech Telecommunications Corp.(a)....... 100 2,887 ECtel Ltd. (a)............................ 100 496 Emulex Corp. (a).......................... 100 2,668 Harris Corp............................... 100 3,795 InterDigital Communication Corp. (a)...... 100 2,064 Loral Space & Communications Ltd.......... 67,810 21,360 NETGEAR, Inc.............................. 800 2,792 NetScreen Technologies, Inc. (a).......... 200 4,950 Packeteer, Inc. (a)....................... 10 170 PC-Tel, Inc. (a).......................... 133,300 1,414,313 Plantronics, Inc. (a)..................... 100 3,265 Polycom, Inc. (a)......................... 200 3,904 QLogic Corp. (a).......................... 81 4,180 QUALCOMM, Inc............................. 100 5,393 Research in Motion Ltd. (a)............... 100 6,685 Scientific-Atlanta, Inc................... 100 2,730 SeaChange International, Inc. (a)......... 275,400 4,241,160 SpectraLink Corp.......................... 100 1,917 UTStarcom, Inc. (a)....................... 80,700 2,991,549 ViaSat, Inc. (a).......................... 100 1,914 --------------- 8,737,268 --------------- Computers & Peripherals - 0.5% ActivCard Corp. (a)....................... 273,800 2,157,544 Ambit Microsystems Corp................... 2,575,000 6,786,293 Applied Films Corp. (a)................... 100 3,302 Avid Technology, Inc. (a)................. 100 4,800 Compal Electronics, Inc................... 1,000 1,369 Drexler Technology Corp. (a).............. 256,926 $ 3,512,178 EMC Corp. (a)............................. 6,300 81,396 iCAD, Inc. (a)............................ 100 528 Lexmark International, Inc. Class A (a)... 100 7,864 M-Systems Flash Disk Pioneers Ltd. (a).... 900 15,552 Moser-Baer India Ltd...................... 200 1,503 Network Appliance, Inc. (a)............... 100 2,053 Overland Storage, Inc. (a)................ 100 1,880 Psion PLC (a)............................. 100 149 SanDisk Corp. (a)......................... 100 6,114 Stratasys, Inc. (a)....................... 150 4,089 Synaptics, Inc. (a)....................... 100 1,498 --------------- 12,588,112 --------------- Electronic Equipment & Instruments - 5.3% Anritsu Corp. (a)......................... 1,087,000 7,289,238 Brightpoint, Inc. (a)..................... 150 2,588 CDW Corp.................................. 71,400 4,124,064 CellStar Corp. (a)........................ 100 1,263 Cognex Corp............................... 100 2,824 Excel Technology, Inc. (a)................ 100 3,286 Fargo Electronics, Inc. (a)............... 100 1,272 Flir Systems, Inc. (a).................... 115,745 4,224,693 Global Imaging Systems, Inc. (a).......... 100 3,175 Hon Hai Precision Industries Co. Ltd...... 4,757,000 18,700,221 I. D. Systems Inc. (a).................... 100 685 Identix, Inc. (a)......................... 100 445 INFICON Holding AG (a).................... 100 8,465 Itron, Inc. (a)........................... 100 1,836 Landauer, Inc............................. 100 4,078 Lexar Media, Inc. (a)..................... 100 1,743 LoJack Corp. (a).......................... 100 806 Metrologic Instruments, Inc. (a).......... 200 5,400 Mettler-Toledo International, Inc. (a).... 173,000 7,302,330 MOCON, Inc................................ 100 810 MTS Systems Corp.......................... 100 1,923 Nam Tai Electronics, Inc.................. 5,630 158,090 National Instruments Corp................. 100 4,547 ScanSource, Inc. (a)...................... 100 4,562 Symbol Technologies, Inc.................. 3,312,400 55,946,436 Trimble Navigation Ltd. (a)............... 100 3,724 Universal Display Corp. (a)............... 100 1,367 Varian, Inc. (a).......................... 100 4,173 Viisage Technology, Inc. (a).............. 100 360 Waters Corp. (a).......................... 978,720 32,454,355 --------------- 130,258,759 --------------- Internet Software & Services - 0.1% Aquantive, Inc. (a)....................... 100 1,025 Ariba, Inc. (a)........................... 100 300 Asialnfo Holdings, Inc. (a)............... 100 668 Ask Jeeves, Inc. (a)...................... 100 1,812 Autobytel, Inc. (a)....................... 100 908 CNET Networks, Inc. (a)................... 100 682 Digital Impact, Inc. (a).................. 100 288 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 13 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investments - continued - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) INFORMATION TECHNOLOGY - continued Internet Software & Services - continued Digital Insight Corp. (a)................. 10 $ 249 Digital River, Inc. (a)................... 100 2,210 Dwango Co. Ltd............................ 1 8,760 EarthLink, Inc. (a)....................... 100 1,000 FreeMarkets, Inc. (a)..................... 100 669 Internet Commerce Corp. Class A (a)....... 100 110 iPass, Inc................................ 100 1,603 ITXC Corp. (a)............................ 10 43 j2 Global Communications, Inc. (a)........ 200 4,954 LookSmart Ltd. (a)........................ 100 155 Netease.com, Inc. sponsored ADR (a)....... 100 3,690 NetRatings, Inc. (a)...................... 10 114 NIC, Inc. (a)............................. 10 80 PEC Solutions, Inc. (a)................... 100 1,695 Quovadx, Inc. (a)......................... 10 49 Raindance Communications, Inc. (a)........ 10 28 Retek, Inc. (a)........................... 100 928 Sina Corp. (a)............................ 100 3,375 Sohu.com, Inc. (a)........................ 39,000 1,170,390 Supportsoft, Inc. (a)..................... 147,910 1,945,017 United Online, Inc. (a)................... 150 2,519 ValueClick, Inc. (a)...................... 100 908 Websense, Inc. (a)........................ 100 2,924 Yahoo!, Inc. (a).......................... 100 4,517 --------------- 3,161,670 --------------- IT Services - 0.9% Affiliated Computer Services, Inc. Class A (a)............................ 214,500 11,681,670 Alliance Data Systems Corp. (a)........... 100 2,768 Anteon International Corp. (a)............ 100 3,605 CACI International, Inc. Class A (a)...... 300 14,586 Certegy, Inc.............................. 86,000 2,820,800 CheckFree Corp. (a)....................... 100 2,765 Cognizant Technology Solutions Corp. Class A (a)............................ 300 13,692 Concord EFS, Inc. (a)..................... 100 1,484 DST Systems, Inc. (a)..................... 85,200 3,557,952 Hewitt Associates, Inc. Class A (a)....... 100 2,990 iGate Corp. (a)........................... 100 785 Infosys Technologies Ltd. sponsored ADR... 100 9,570 infoUSA, Inc. (a)......................... 100 742 InteliData Technologies Corp. (a)......... 100 165 Intrado, Inc. (a)......................... 100 2,195 Mastek Ltd................................ 492,375 3,597,440 Maximus, Inc. (a)......................... 100 3,913 Paychex, Inc.............................. 100 3,720 Satyam Computer Services Ltd.............. 100 805 SRA International, Inc. Class A (a)....... 200 8,620 SunGard Data Systems, Inc. (a)............ 200 5,542 Syntel, Inc............................... 100 2,471 The BISYS Group, Inc. (a)................. 100 1,488 Total System Services, Inc................ 100 $ 3,113 Tyler Technologies, Inc. (a).............. 100 963 --------------- 21,743,844 --------------- Office Electronics - 0.6% Zebra Technologies Corp. Class A (a)...... 230,850 15,321,515 --------------- Semiconductors & Semiconductor Equipment - 0.2% Agere Systems, Inc. Class A (a)........... 100 305 Analog Devices, Inc....................... 100 4,565 ARM Holdings PLC sponsored ADR (a)........ 100 690 ASM Pacific Technology Ltd................ 500 2,190 ATI Technologies, Inc. (a)................ 100 1,502 Broadcom Corp. Class A (a)................ 100 3,409 Cabot Microelectronics Corp. (a).......... 60,100 2,944,900 Hi/fn, Inc. (a)........................... 8 95 International Rectifier Corp. (a)......... 100 4,941 Intersil Corp. Class A.................... 57,000 1,416,450 KLA-Tencor Corp. (a)...................... 100 5,867 Lam Research Corp. (a).................... 100 3,230 Linear Technology Corp.................... 100 4,207 Marvell Technology Group Ltd. (a)......... 200 7,586 Micrel, Inc. (a).......................... 100 1,558 Microchip Technology, Inc................. 100 3,336 Novellus Systems, Inc. (a)................ 100 4,205 NVIDIA Corp. (a).......................... 5,000 116,250 Omnivision Technologies, Inc. (a)......... 200 11,050 PLX Technology, Inc. (a).................. 100 885 RF Micro Devices, Inc. (a)................ 100 1,005 Silicon Image, Inc. (a)................... 100 723 Standard Microsystems Corp. (a)........... 100 2,530 Tundra Semiconductor Corp. Ltd. (a)....... 100 2,078 Zoran Corp. (a)........................... 100 1,739 --------------- 4,545,296 --------------- Software - 0.9% Activision, Inc. (a)...................... 150 2,730 Adobe Systems, Inc........................ 100 3,930 Ansys, Inc. (a)........................... 100 3,970 Barra, Inc................................ 100 3,549 BEA Systems, Inc. (a)..................... 100 1,230 Borland Software Corp. (a)................ 100 973 Business Objects SA sponsored ADR (a)..... 100 3,467 Cadence Design Systems, Inc. (a).......... 100 1,798 Check Point Software Technologies Ltd. (a)............................... 100 1,682 Citrix Systems, Inc. (a).................. 100 2,121 Cognos, Inc. (a).......................... 100 3,054 Concur Technologies, Inc. (a)............. 113,000 1,093,840 Dassault Systemes SA sponsored ADR........ 100 4,590 Digimarc Corp. (a)........................ 100 1,330 Electronic Arts, Inc. (a)................. 153,200 7,319,896 EPIQ Systems, Inc. (a).................... 100 1,713 Evolving Systems, Inc. (a)................ 100 1,330 FactSet Research Systems, Inc............. 100 3,821 Hudson Soft Co. Ltd....................... 100 1,092 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portfolio 14 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) INFORMATION TECHNOLOGY - continued Software - continued Insignia Systems, Inc. (a)................ 100 $ 262 Intuit, Inc. (a).......................... 100 5,291 KFX, Inc. (a)............................. 65,600 495,280 Kronos, Inc. (a).......................... 150 5,942 Macrovision Corp. (a)..................... 66,400 1,499,976 Magma Design Automation, Inc. (a)......... 100 2,334 Manhattan Associates, Inc. (a)............ 100 2,764 Mercury Interactive Corp. (a)............. 100 4,864 Merge Technologies, Inc. (a).............. 100 1,764 Network Associates, Inc. (a).............. 100 1,504 PeopleSoft, Inc. (a)...................... 100 2,280 Plato Learning, Inc. (a).................. 77,400 816,570 Quality Systems, Inc. (a)................. 100 4,459 Quest Software, Inc. (a).................. 100 1,420 Red Hat, Inc. (a)......................... 100 1,877 Renaissance Learning, Inc. (a)............ 203,870 4,909,190 Roxio, Inc. (a)........................... 100 479 RSA Security, Inc. (a).................... 100 1,420 ScanSoft, Inc. (a)........................ 100 532 Secure Computing Corp. (a)................ 125,700 2,251,287 Symantec Corp. (a)........................ 200 6,930 Synopsys, Inc. (a)........................ 100 3,376 TALX Corp................................ 100 2,303 Trend Micro, Inc. sponsored ADR (a)....... 100 2,630 Vastera, Inc. (a)......................... 776,799 3,107,196 WatchGuard Technologies, Inc. (a)......... 10 58 Wind River Systems, Inc. (a).............. 100 876 --------------- 21,588,980 --------------- TOTAL INFORMATION TECHNOLOGY........... 217,945,444 --------------- MATERIALS - 22.7% Chemicals - 0.8% American Vanguard Corp.................... 100 3,727 Balchem Corp.............................. 100 2,280 BOC Group PLC............................. 100 1,524 Ecolab, Inc............................... 383,600 10,499,132 Headwaters, Inc. (a)...................... 100 1,962 International Flavors & Fragrances, Inc... 100 3,492 Minerals Technologies, Inc................ 41,800 2,476,650 Novozymes AS Series B..................... 18,800 684,769 Potash Corp. of Saskatchewan.............. 100 8,652 Praxair, Inc.............................. 200 7,640 Quaker Chemical Corp...................... 100 3,075 Sigma Aldrich Corp........................ 100 5,718 Sinopec Shanghai Petrochemical Co. Ltd: (H Shares)............................. 2,000 889 sponsored ADR.......................... 110,100 5,093,226 Spartech Corp............................. 100 2,464 Terra Nitrogen Co. LP..................... 100 $ 496 Valspar Corp.............................. 100 4,942 --------------- 18,800,638 --------------- Construction Materials - 0.0% Anhui Conch Cement Co. Ltd. Class H....... 1,000,000 1,288,062 Cemex SA de CV sponsored ADR.............. 100 2,620 Cheung Kong Infrastructure Holdings Ltd... 1,000 2,241 Florida Rock Industries, Inc.............. 100 5,485 James Hardie Industries NV................ 100 517 Vulcan Materials Co....................... 100 4,757 --------------- 1,303,682 --------------- Containers & Packaging - 0.0% Aptargroup Inc............................ 100 3,900 IPL, Inc. Class A......................... 100 713 --------------- 4,613 --------------- Metals & Mining - 21.4% Agnico-Eagle Mines Ltd.................... 1,180,230 14,220,625 Agnico-Eagle Mines Ltd. warrants 11/14/07 (a).................. 23,350 61,878 Alumina Ltd............................... 1,236,600 6,109,189 Apex Silver Mines Ltd. (a)................ 100 2,090 Arch Coal, Inc............................ 51,200 1,595,904 AUR Resources, Inc. (a)................... 3,187,800 16,587,766 Barrick Gold Corp......................... 100 2,259 BHP Steel Ltd............................. 1,037,200 4,367,566 China Steel Corp.......................... 3,698,000 3,070,777 Commercial Metals Co...................... 100 3,040 Compania de Minas Buenaventura SA sponsored ADR.......................... 1,405,000 39,733,400 CONSOL Energy, Inc........................ 292,800 7,583,520 Freeport-McMoRan Copper & Gold, Inc. Class B................................ 1,194,200 50,311,646 Glamis Gold Ltd. (a)...................... 94,100 1,616,210 Goldcorp, Inc............................. 50,000 794,789 Golden Star Resources Ltd. (a)............ 250,000 1,746,068 Harmony Gold Mining Co. Ltd............... 1,049,100 17,012,009 High River Gold Mines Ltd. (a)............ 1,989,600 2,990,842 Inmet Mining Corp. (a).................... 658,400 8,856,830 International Steel Group, Inc. (a)....... 2,500 97,375 IPSCO, Inc................................ 1,165,900 21,615,707 JFE Holdings, Inc......................... 162,900 4,468,827 Kinross Gold Corp. (a).................... 3,698,666 29,425,095 Meridian Gold, Inc. (a)................... 3,540,900 51,672,246 Newmont Mining Corp....................... 2,814,180 136,797,283 Nippon Steel Corp......................... 2,951,000 6,365,662 Nucor Corp................................ 333,700 18,687,200 Peabody Energy Corp....................... 39,600 1,651,716 Placer Dome, Inc.......................... 100 1,786 POSCO sponsored ADR....................... 16,500 560,505 Quanex Corp............................... 100 4,610 Schnitzer Steel Industries, Inc. Class A.. 100 6,050 Sons of Gwalia Ltd. ADR (a)............... 100 1,335 See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 15 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Investments - continued - ------------------------------------------------------------------------------ Common Stocks - continued - ------------------------------------------------------------------------------ Shares Value (Note 1) MATERIALS - continued Metals & Mining - continued Steel Dynamics, Inc. (a).................. 577,800 $ 13,572,522 Steel Technologies, Inc................... 100 1,769 Stillwater Mining Co. (a)................. 700,300 6,701,871 Teck Cominco Ltd. Class B (sub. vtg.)..... 1,550,900 26,218,962 United States Steel Corp.................. 452,000 15,829,040 Usinas Siderurgicas de Minas Gerais SA (Usiminas) (PN-A)...................... 351,000 4,121,200 WMC Resources Ltd. (a).................... 1,074,100 4,547,179 Xstrata PLC............................... 155,900 1,753,763 --------------- 520,768,111 --------------- Paper & Forest Products - 0.5% Aracruz Celulose SA sponsored ADR......... 100 3,504 Lee & Man Paper Manufacturing Ltd......... 4,500,000 3,564,712 Sino-Forest Corp. Class A (sub. vtg.)(a).. 2,043,700 8,129,426 --------------- 11,697,642 --------------- TOTAL MATERIALS........................ 552,574,686 --------------- TELECOMMUNICATION SERVICES - 2.1% Diversified Telecommunication Services - 0.8% BCE, Inc.................................. 100 2,228 Covad Communications Group, Inc. (a)...... 1,615,200 5,814,720 General Communications, Inc. Class A (a).. 100 870 Golden Telecom, Inc. (a).................. 114,800 3,185,700 Hungarian Telephone & Cable Corp. (a)..... 100 986 Matav Rt. sponsored ADR................... 100 1,871 Philippine Long Distance Telephone Co.(a). 100 1,746 Philippine Long Distance Telephone Co. sponsored ADR (a)...................... 23,000 400,660 PT Telkomunikasi Indonesia Tbk sponsored ADR...................... 565,900 9,292,078 Rostelecom sponsored ADR.................. 100 1,252 Telefonica del Peru SA sponsored ADR...... 100 393 Warwick Valley Telephone Co............... 300 8,877 --------------- 18,711,381 --------------- Wireless Telecommunication Services - 1.3% Advanced Info Service PCL (For. Reg.)..... 100 215 America Movil SA de CV sponsored ADR...... 187,200 5,118,048 At Road, Inc. (a)......................... 524,827 6,980,199 Boston Communications Group, Inc. (a)..... 100 929 Mobile TeleSystems OJSC sponsored ADR..... 51,800 4,289,040 MTN Group Ltd. (a)........................ 1,625,000 6,909,468 Nextel Communications, Inc. Class A(a).... 100 2,806 Nextel Partners, Inc. Class A (a)......... 100 1,345 Nil Holdinas, Inc. Class B (a)............ 118,900 8,873,507 Telephone & Data Systems, Inc............. 100 $ 6,255 Vimpel Communications sponsored ADR (a)... 100 7,350 --------------- 32,189,162 --------------- TOTAL TELECOMMUNICATION SERVICES....... 50,900,543 --------------- UTILITIES - 2.2% Electric Utilities - 0.2% Ameren Corp............................... 100 4,600 Black Hills Corp.......................... 100 2,983 Cinergy Corp.............................. 100 3,881 Empire District Electric Co............... 100 2,193 FPL Group, Inc............................ 100 6,542 Otter Tail Corp........................... 100 2,673 PPL Corp.................................. 100 4,375 Wisconsin Energy Corp..................... 109,500 3,662,775 --------------- 3,690,022 --------------- Gas Utilities - 1.3% KeySpan Corp.............................. 498,700 18,352,160 Southwestern Energy Co. (a)............... 567,200 13,556,080 --------------- 31,908,240 --------------- Multi-Utilities & Unregulated Power - 0.7% Energy East Corp.......................... 100 2,240 Equitable Resources, Inc.................. 137,600 5,905,792 Public Service Enterprise Group,Inc....... 100 4,380 Questar Corp.............................. 5,600 196,840 Sierra Pacific Resources (a).............. 1,574,202 11,554,643 --------------- 17,663,895 --------------- TOTAL UTILITIES........................ 53,262,157 --------------- TOTAL COMMON STOCKS (Cost $1,746,053,597).................. 2,359,227,440 --------------- - ------------------------------------------------------------------------------ Money Market Funds - 8.0% - ------------------------------------------------------------------------------ Shares Value (Note 1) Fidelity Cash Central Fund, 1.07%(b) 120,496,229 $ 120,496,229 Fidelity Securities Lending Cash Central Fund, 1.09% (b)................ 74,639,803 74,639,803 --------------- TOTAL MONEY MARKET FUNDS (Cost $195,136,032).................... 195,136,032 --------------- TOTAL INVESTMENT PORTFOLIO -104.8% (Cost $1,941,189,629).................. 2,554,363,472 NET OTHER ASSETS - (4.8)%................. (118,130,570) --------------- NET ASSETS - 100%......................... $ 2,436,232,902 =============== See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portfolio 16 - -------------------------------------------------------------------------------- Legend (a) Non-income producing (b) The rate quoted is the annualized seven-day yield of the fund at period end. A complete listing of the fund's holdings as of its most recent fiscal year end is available upon request. (c) Affiliated company Other Information Purchases and sales of securities, other than short-term securities, aggregated $1,346,102,981 and $812,756,440, respectively. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $98,948 for the period. Distribution of investments by country of issue, as a percentage of total net assets, is as follows: United States of America.............................................. 74.0% Canada................................................................ 10.5% Japan................................................................. 2.9% Cayman Islands........................................................ 2.3% Netherlands........................................................... 1.8% Peru.................................................................. 1.6% Taiwan................................................................ 1.1% South Africa.......................................................... 1.0% Others (individually less than 1%).................................... 4.8% ----- 100.0% ===== Transactions during the period with companies which are or were affiliates are as follows: Purchase Sales Dividend Affiliate Cost Cost Income Value Bright Horizons Family Solutions, Inc.............. $ 948,299 $ -- $ -- $ 28,782,600 Drexler Technology Corp.. 4,314,828 $ 7,087,239 -- -- Harvard Bioscience,Inc... 3,124,014 -- -- 24,939,580 ----------- ----------- -------- -------------- TOTALS $ 8,387,141 $ 7,087,239 $ -- $ 53,722,180 =========== =========== ======== ============== Income Tax Information At December 31, 2003, the fund had a capital loss carryforward of approximately $127,019,000 of which $26,601,000 and $100,418,000 will expire on December 31, 2009 and 2010, respectively. See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 17 Annual Report - -------------------------------------------------------------------------------- Fidelity Variable Insurance Products: Mid Cap Portfolio Financial Statements - ------------------------------------------------------------------------------ Statement of Assets and Liabilities - ------------------------------------------------------------------------------ December 31, 2003 Assets Investment in securities, at value (including securities loaned of $71,513,615) (cost $1,941,189,629) - See accompanying schedule.............. $ 2,554,363,472 Foreign currency held at value............ (cost $221,076)........................ 221,562 Receivable for investments sold........... 253,008 Receivable for fund shares sold........... 4,211,212 Dividends receivable...................... 929,002 Interest receivable....................... 96,529 Prepaid expenses.......................... 10,632 Other receivables......................... 223,302 --------------- Total assets........................... 2,560,308,719 Liabilities Payable to custodian bank................. $ 90,935 Payable for investments purchased......... 42,834,335 Payable for fund shares redeemed.......... 4,497,598 Accrued management fee.................... 1,119,712 Distribution fees payable................. 281,147 Other affiliated payables................. 175,463 Other payables and accrued expenses....... 436,824 Collateral on securities loaned, at value. 74,639,803 --------------- Total liabilities...................... 124,075,817 --------------- Net Assets................................ $ 2,436,232,902 =============== Net Assets consist of: Paid in capital........................... $ 1,954,001,002 Undistributed net investment income....... 76,412 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions.......... (130,685,298) Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies...... 612,840,786 --------------- Net Assets............................. $ 2,436,232,902 =============== Initial Class: Net Asset Value, offering price and redemption price per share ($678,479,712/28,085,774 shares)..... $ 24.16 =============== Service Class: Net Asset Value, offering price and redemption price per share ($580,179,200/24,077,057 shares)..... $ 24.10 =============== Service Class 2: Net Asset Value, offering price and redemption price per share ($1,177,573,990/49,114,767 shares)... $ 23.98 =============== - ------------------------------------------------------------------------------ Statement of Operations - ------------------------------------------------------------------------------ Year ended December 31, 2003 Investment Income Dividends................................. $ 8,156,287 Interest.................................. 1,682,720 Security lending.......................... 1,107,677 --------------- Total income........................... 10,946,684 Expenses Management fee............................ $ 9,876,195 Transfer agent fees....................... 1,193,037 Distribution fees......................... 2,322,333 Accounting and security lending fees...... 387,360 Non-interested trustees' compensation..... 6,625 Custodian fees and expenses............... 148,211 Audit..................................... 34,735 Legal..................................... 7,989 Miscellaneous............................. 356,244 --------------- Total expenses before reductions....... 14,332,729 Expense reductions..................... (422,778) 13,909,951 --------------- --------------- Net investment income (loss).............. (2,963,267) --------------- Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investment securities (Net of foreign taxes of $23,455, including realized gain (loss) of ($1,657,190) on sales of affiliated issuers).............. 30,189,715 Foreign currency transactions.......... (39,777) Futures contracts...................... 61,870 --------------- Total net realized gain (loss)............ 30,211,808 Change in net unrealized appreciation (depreciation) on: Investment securities (Net of deferred foreign taxes of $336,495).......... 575,217,151 Assets and liabilities in foreign currencies.......................... 2,087 Futures contracts...................... 4,181 --------------- Total change in net unrealized appreciation (depreciation)............ 575,223,419 --------------- Net gain (loss)........................... 605,435,227 --------------- Net increase (decrease) in net assets resulting from operations $ 602,471,960 =============== See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portfilio 18 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Year ended Year ended December 31, December 31, Increase (Decrease) in Net Assets 2003 2002 Operations Net investment income (loss)........... $ (2,963,267) $ 5,367,275 Net realized gain (loss)............... 30,211,808 (100,092,133) Change in net unrealized appreciation (depreciation)........................ 575,223,419 (54,350,719) --------------- ---------------- Net increase (decrease) in net assets resulting from operations............. 602,471,960 (149,075,577) --------------- ---------------- Distributions to shareholders from net investment income........................ (5,082,393) (10,315,464) --------------- ---------------- Share transactions - net increase (decrease)............................... 440,089,337 406,189,773 --------------- ---------------- Total increase (decrease) in net assets................................ 1,037,478,904 246,798,732 Net Assets Beginning of period.................... 1,398,753,998 1,151,955,266 --------------- ---------------- End of period (including undistributed net investment income of $76,412 and undistributed net investment income of $4,928,520, respectively)......................... $ 2,436,232,902 $ 1,398,753,998 =============== ================ Other Information Share Transactions Year ended December 31, 2003 Initial Class Service Class Service Class 2 Shares Sold....................... 4,434,612 4,691,539 24,537,608 Reinvested................. 131,528 76,717 95,288 Redeemed................... (5,011,471) (2,353,097) (5,472,778) ------------- ------------- --------------- Net increase (decrease).... (445,331) 2,415,159 19,160,118 ============= ============= =============== Dollars Sold....................... $ 95,795,053 $ 94,175,028 $ 482,784,357 Reinvested................. 2,207,036 1,285,007 1,590,350 Redeemed................... (89,867,137) (43,168,976) (104,711,381) ------------- ------------- --------------- Net increase (decrease).... $ 8,134,952 $ 52,291,059 $ 379,663,326 ============= ============= =============== Share Transactions Year ended December 31, 2002 Initial Class Service Class Service Class 2 Shares Sold....................... 7,049,981 6,655,084 22,666,360 Reinvested................. 277,413 161,340 101,720 Redeemed................... (8,136,461) (3,917,197) (3,604,685) ------------- ------------- --------------- Net increase (decrease).... (809,067) 2,899,227 19,163,395 ============= ============= =============== Dollars Sold....................... $ 134,875,925 $ 125,174,947 $ 416,253,061 Reinvested................. 5,301,369 3,078,362 1,935,732 Redeemed................... (145,105,795) (70,148,866) (65,174,962) ------------- ------------- --------------- Net increase (decrease).... $ (4,928,501) $ 58,104,443 $ 353,013,831 ============= ============= =============== Distributions Year ended December 31, 2003 Initial Class Service Class Service Class 2 From net investment income.... $ 2,207,036 $ 1,285,007 $ 1,590,350 From net realized gain........ -- -- -- ------------- ------------- --------------- Total......................... $ 2,207,036 $ 1,285,007 $ 1,590,350 ============= ============= =============== Year ended December 31, 2002 Initial Class Service Class Service Class 2 From net investment income.... $ 5,301,369 $ 3,078,362 $ 1,935,733 From net realized gain........ -- -- -- ------------- ------------- --------------- Total......................... $ 5,301,369 $ 3,078,362 $ 1,935,733 ============= ============= =============== See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 19 Annual Report - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Highlights -- Initial Class - --------------------------------------------------------------------------------
Years ended December 31, 2003 2002 2001 2000 1999 Selected Per-Share Data Net asset value, beginning of period........... $ 17.51 $ 19.60 $ 20.26 $ 15.25 $ 10.31 ----------- ------------ ------------ ----------- ----------- Income from Investment Operations Net investment income (loss)/C/............. (.01) .09 .20 .19 --/E/ Net realized and unrealized gain (loss)..... 6.74 (2.00) (.86) 4.95 5.05 ----------- ------------ ------------ ----------- ----------- Total from investment operations............... 6.73 (1.91) (.66) 5.14 5.05 ----------- ------------ ------------ ----------- ----------- Distributions from net investment income....... (.08) (.18) -- (.08) -- Distributions from net realized gain........... -- -- -- -- (.09) Distributions in excess of net realized gain... -- -- -- (.05) (.02) ----------- ------------ ------------ ----------- ----------- Total distributions......................... (.08) (.18) -- (.13) (.11) ----------- ------------ ------------ ----------- ----------- Net asset value, end of period................. $ 24.16 $ 17.51 $ 19.60 $ 20.26 $ 15.25 =========== ============ ============ =========== =========== Total Return/A,B/.............................. 38.64% (9.82)% (3.26)% 33.78% 49.04% Ratios to Average Net Assets/D/ Expenses before expense reductions.......... .70% .70% .69% .74% 3.34% Expenses net of voluntary waivers, if any... .70% .70% .69% .74% 1.00% Expenses net of all reductions.............. .68% .63% .62% .69% .97% Net investment income (loss)................ (.04)% .51% 1.06% 1.01% .01% Supplemental Data Net assets, end of period (000 omitted)..... $ 678,480 $ 499,557 $ 574,934 $ 589,026 $ 1,744 Portfolio turnover rate..................... 51% 135% 144% 245% 163%
/A/ Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of tbese charges would reduce tbe total returns shown. /B/ Total returns would have been lower had certain expenses not been reduced during the periods shown. /C/ Calculated based on average shares outstanding during the period. /D/ Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. /E/ Amount represents less than $.01 per share. - -------------------------------------------------------------------------------- Financial Highlights -- Service Class - --------------------------------------------------------------------------------
Years ended December 31, 2003 2002 2001 2000 1999 Selected Per-Share Data Net asset value, beginning of period........... $ 17.46 $ 19.54 $ 20.22 $ 15.24 $ 10.31 ----------- ------------ ------------ ----------- ----------- Income from Investment Operations Net investment income (loss)/C/............. (.03) .08 .18 .17 (.01) Net realized and unrealized gain (loss)..... 6.73 (2.00) (.86) 4.93 5.05 ----------- ------------ ------------ ----------- ----------- Total from investment operations............... 6.70 (1.92) (.68) 5.10 5.04 ----------- ------------ ------------ ----------- ----------- Distributions from net investment income....... (.06) (.16) -- (.07) -- Distributions from net realized gain........... -- -- -- -- (.09) Distributions in excess of net realized gain... -- -- -- (.05) (.02) ----------- ------------ ------------ ----------- ----------- Total distributions......................... (.06) (.16) -- (.12) (.11) ----------- ------------ ------------ ----------- ----------- Net asset value, end of period................. $ 24.10 $ 17.46 $ 19.54 $ 20.22 $ 15.24 =========== ============ ============ =========== =========== Total Return/A,B/.............................. 38.52% (9.90)% (3.36)% 33.54% 48.94% Ratios to Average Net Assets/D/ Expenses before expense reductions.......... .80% .80% .79% .84% 3.41% Expenses net of voluntary waivers, if any... .80% .80% 79% .84% 1.10% Expenses net of all reductions.............. .78% .73% .72% .79% 1.07% Net investment income (loss)................ (.14)% .41% .96% .92% (.09)% Supplemental Data Net assets, end of period (000 omitted)..... $ 580,179 $ 378,264 $ 366,665 $ 282,941 $ 25,908 Portfolio turnover rate..................... 51% 135% 144% 245% 163%
/A/ Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. /B/ Total returns would have been lower had certain expenses not been reduced during the periods shown. /C/ Calculated based on average shares outstanding during the period. /D/ Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- Mid Cap Portforlio 20 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Highlights -- Service Class 2 - --------------------------------------------------------------------------------
Years ended December 31, 2003 2002 2001 2000/F/ Selected Per-Share Data Net asset value, beginning of period........... $ 17.39 $ 19.49 $ 20.20 $ 14.82 ----------- ------------ ------------ ----------- Income from Investment Operations Net investment income (loss)/E/............. (.06) .05 .15 .14 Net realized and unrealized gain (loss)..... 6.70 (1.99) (.86) 5.35 ----------- ------------ ------------ ----------- Total from investment operations............... 6.64 (1.94) (.71) 5.49 ----------- ------------ ------------ ----------- Distributions from net investment income....... (.05) (.16) -- (.06) Distributions in excess of net realized gain... -- -- -- (.05) ----------- ------------ ------------ ----------- Total distributions......................... (.05) (.16) -- (.11) ----------- ------------ ------------ ----------- Net asset value, end of period................. $ 23.98 $ 17.39 $ 19.49 $ 20.20 =========== ============ ============ =========== Total Return/B,C,D/............................ 38.31% (10.02)% (3.51)% 37.12% Ratios to Average Net Assets/G/ Expenses before expense reductions.......... .95% .95% .94% .99%/A/ Expenses net of voluntary waivers, if any... .95% .95% .94% .99%/A/ Expenses net of all reductions.............. .93% .88% .88% .94%/A/ Net investment income (loss)................ (.29)% .25% .81% .76%/A/ Supplemental Data Net assets, end of period (000 omitted)..... $ 1,177,574 $ 520,933 $ 210,356 $ 73,039 Portfolio turnover rate..................... 51% 135% 144% 245%
/A/ Annualized /B/ Total returns for periods of less than one year are not annualized. /C/ Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. /D/ Total returns would have been lower had certain expenses not been reduced during the periods shown. /E/ Calculated based on average shares outstanding during the period. /F/ For the period January 12,2000 (commencement of operations) to December 31,2000. /G/ Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. See accompanying notes which are an integral part of the financial statements. - -------------------------------------------------------------------------------- 21 Annual Report - -------------------------------------------------------------------------------- Notes to Financial Statements For the period ended December 31, 2003 1. Significant Accounting Policies. Mid Cap Portfolio (the fund) is a fund of Variable Insurance Products Fund III (the trust) (referred to in this report as Fidelity Variable Insurance Products: Mid Cap Portfolio) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. Shares of the fund may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts. The fund offers the following classes of shares: Initial Class shares, Service Class shares and Service Class 2 shares. All classes have equal rights and voting privileges, except for matters affecting a single class. Investment income, realized and unrealized capital gains and losses, the common expenses of the fund, and certain fund-level expense reductions, if any, are allocated on a pro rata basis to each class based on the relative net assets of each class to the total net assets of the fund. Each class differs with respect to distribution and service plan fees incurred. Certain expense reductions also differ by class. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: Security Valuation. Net asset value per share (NAV calculation) is calculated as of the close of business of the New York Stock Exchange, normally 4:00 p.m. Eastern time. Equity securities for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade. If an event that is expected to materially affect the value of a security occurs after the close of an exchange or market on which that security trades, but prior to the NAV calculation, then that security will be fair valued taking the event into account. Securities (including restricted securities) for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Price movements in futures contracts and ADRs, market and trading trends, the bid/ask quotes of brokers and off-exchange institutional trading may be reviewed in the course of making a good faith determination of a security's fair value. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued on the basis of amortized cost. Investments in open-end investment companies are valued at their net asset value each business day. Foreign Currency. The fund uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. Foreign denominated assets, including investment securities, and liabilities are translated into U.S. dollars at the exchange rate at period end. Purchases and sales of investment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately. Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. The fund estimates the components of distributions received from Real Estate Investment Trusts (REITs). Distributions received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities, which is accrued using the interest method. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among the funds in the trust. Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements. Foreign taxes are provided for based on each fund's understanding of the tax rules and rates that exist in the foreign markets in which it invests. Income dividends and capital gain distributions are declared separately for each class. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Capital accounts within the financial statements are adjusted for permanent and temporary book and tax differences. These adjustments have no impact on net assets or the results of operations. Temporary differences will reverse in a subsequent period. These differences are primarily due to futures transactions, foreign currency transactions, passive foreign investment companies (PFIC), net operating losses, capital loss carryforwards and losses deferred due to wash sales. - -------------------------------------------------------------------------------- Mid Cap Portfolio 22 - -------------------------------------------------------------------------------- 1. Significant Accounting Policies - continued The tax-basis components of distributable earnings and the federal tax cost as of period end were as follows: Unrealized appreciation..................................... $ 636,837,158 Unrealized depreciation..................................... (27,585,955) ---------------- Net unrealized appreciation (depreciation).................. 609,251,203 Capital loss carryforward................................... (127,019,315) Cost for federal income tax purposes........................ $ 1,945,112,269 The tax character of distributions paid was as follows: December 31, December 31, 2003 2002 Ordinary Income........................... $ 5,082,393 $ 10,315,464 2. Operating Policies. Repurchase Agreements. Fidelity Management & Research Company (FMR) has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts. These accounts are then invested in repurchase agreements that are collateralized by U.S. Treasury or Government obligations. The fund may also invest directly with institutions, in repurchase agreements that are collateralized by commercial paper obligations and corporate obligations. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. Collateral is marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Futures Contracts. The fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase the fund's exposure to the underlying instrument, while selling futures tends to decrease the fund's exposure to the underlying instrument or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments or if the counter-parties do not perform under the contracts' terms. Gains (losses) are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. 3. Purchases and Sales of Investments. Information regarding purchases and sales of securities is included under the caption "Other Information" at the end of the fund's Schedule of Investments. 4. Fees and Other Transactions with Affiliates. Management Fee. FMR and its affiliates provide the fund with investment management related services for which the fund pays a monthly management fee. The management fee is the sum of an individual fund fee rate that is based on an annual rate of .30% of the fund's average net assets and a group fee rate that averaged .28% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. For the period, the total annual management fee rate was .58% of the fund's average net assets. Distribution and Service Plan. In accordance with Rule 12b-l of the 1940 Act, the Fund has adopted separate 12b-l Plans for each Service Class of shares. Each Service Class pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a service fee. For the period, the service fee is based on an annual rate of ..10% of Service Class' average net assets and .25% of Service Class 2's average net assets. For the period, each class paid FDC the following amounts, all of which were re-allowed to insurance companies, for the distribution of shares and providing shareholder support services: Service Class............................................... $ 432,418 Service Class 2............................................. 1,889,915 ---------------- $ 2,322,333 ================ Transfer Agent Fees. Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer, dividend disbursing, and shareholder servicing agent. FIIOC receives an asset-based fee with respect to each account. FIIOC pays a portion of the expenses related to the typesetting, printing and mailing of all shareholder reports, except proxy statements. Each class pays a transfer agent fee excluding out of pocket expenses, equal to an annual rate of .07% of their month end net assets. - -------------------------------------------------------------------------------- 23 Annual Report - -------------------------------------------------------------------------------- Notes to Financial Statements - continued 4. Fees and Other Transactions with Affiliates - continued For the period, the total transfer agent fees paid by each class to FIIOC, including out of pocket expenses, were as follows: Initial Class............................................... $ 354,798 Service Class............................................... 302,125 Service Class 2............................................. 536,114 ---------------- $ 1,193,037 ================ Accounting and Security Lending Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, maintains the fund's accounting records and administers the security lending program. The security lending fee is based on the number and duration of lending transactions. The accounting fee is based on the level of average net assets for the month plus out-of-pocket expenses. Central Funds. The fund may invest in affiliated Central Funds managed by Fidelity Investments Money Management, Inc. (FIMM), an affiliate of FMR. The Central Funds are open-end investment companies available only to investment companies and other accounts managed by FMR and its affiliates. The Central Funds seek preservation of capital and current income and do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $1,668,961 for the period. Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms are shown under the caption "Other Information" at the end of the fund's Schedule of Investments. 5. Committed Line of Credit. The fund participates with other funds managed by FMR in a $3.5 billion credit facility (the "line of credit") to be utilized for temporary or emergency purposes to fund shareholder redemptions or for other short-term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit. 6. Security Lending. The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in cash equivalents. The value of loaned securities and cash collateral at period end are disclosed on the fund's Statement of Assets and Liabilities. 7. Expense Reductions. Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $418,696 for the period. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce the fund's expenses. During the period, these credits reduced the fund's custody expenses by $4,082. 8. Other Information. At the end of the period, FMR or its affiliates were the owners of record of 23% of the total outstanding shares of the fund and two unaffiliated shareholders were the owners of record of 45% of the total outstanding shares of the fund. 9. Transactions with Affiliated Companies. An affiliated company is a company which the fund has ownership of at least 5% of the voting securities. Information regarding transactions with affiliated companies is included in "Other Information" at the end of the fund's Schedule of Investments. - -------------------------------------------------------------------------------- Mid Cap Portfolio 24 - -------------------------------------------------------------------------------- Report of Independent Auditors To the Trustees of Variable Insurance Products Fund III and the Shareholders of Mid Cap Portfolio: In our opinion, the accompanying statement of assets and liabilities, including the schedule 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 Mid Cap Portfolio (a fund of Variable Insurance Products Fund III) at December 31, 2003 and the results of its operations, the changes in its net assets and the 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 Mid Cap Portfolio'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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts February 13, 2004 - -------------------------------------------------------------------------------- 25 Annual Report - -------------------------------------------------------------------------------- Trustees and Officers The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund's activities, review contractual arrangements with companies that provide services to the fund, and review the fund's performance. Except for William O. McCoy, each of the Trustees oversees 292 funds advised by FMR or an affiliate. Mr. McCoy oversees 294 funds advised by FMR or an affiliate. The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two-thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instrument signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two-thirds vote of the outstanding voting securities of the trust. In any event, each non-interested Trustee shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years. The fund's Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-800-221-5207. Interested Trustees*: - ------------------- Correspondence intended for each Trustee who is an "interested person" (as defined in the 1940 Act) may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109. Name, Age; Principal Occupation - ------------------------------- Edward C. Johnson 3d (73)** Year of Election or Appointment: 1994 Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Director and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman (1998) and a Director of Fidelity Investments Money Management, Inc.; and Chairman (2001) and a Director (2000) of FMR Co., Inc. Abigail P. Johnson (42)** Year of Election or Appointment: 2001 Senior Vice President of VIP Mid Cap (2001). Ms. Johnson also serves as Senior Vice President of other Fidelity funds (2001). She is President and a Director of FMR (2001), Fidelity Investments Money Management, Inc. (2001), FMR Co., Inc. (2001), and a Director of FMR Corp. Previously, Ms. Johnson managed a number of Fidelity funds. Laura B. Cronin (49) Year of Election or Appointment: 2003 Ms. Cronin is an Executive Vice President (2002) and Chief Financial Officer (2002) of FMR Corp. and is a member of the Fidelity Management Committee (2003). Previously, Ms. Cronin served as Vice President of Finance of FMR (1997-1999), and Chief Financial Officer of FMR (1999-2001), Fidelity Personal Investments (2001), and Fidelity Brokerage Company (2001 -2002). Robert L. Reynolds (51) Year of Election or Appointment: 2003 Mr. Reynolds is a Director (2003) and Chief Operating Officer (2002) of FMR Corp. and is the head of the Fidelity Management Committee (2003). He also serves on the Board at Fidelity Investments Canada, Ltd. (2000). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996-2000). * Trustees have been determined to be "Interested Trustees" by virtue of, among other things, their affiliation with the trusts or various entities under common control with FMR. ** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson's father. - -------------------------------------------------------------------------------- Mid Cap Portfolio 26 - -------------------------------------------------------------------------------- Non-Interested Trustees - ----------------------- Correspondence intended for each non-interested Trustee (that is, the Trustees other than the Interested Trustees) maybe sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205-5235. Name, Age; Principal Occupation - ------------------------------- J. Michael Cook (61) Year of Election or Appointment: 2001 Prior to Mr. Cook's retirement in May 1999, he served as Chairman and Chief Executive Officer of Deloitte & Touche LLP (accounting/consulting), Chairman of the Deloitte & Touche Foundation, and a member of the Board of Deloitte Touche Tohmatsu. He currently serves as a Director of Comcast (telecommunications, 2002), International Flavors & Fragrances, Inc. (2000), Rockwell Automation (2000), and The Dow Chemical Company (2000). He is a Member of the Diversity Advisory Council of Marakon (2003) and the Advisory Board of the Directorship Search Group, Chairman Emeritus of the Board of Catalyst (a leading organization for the advancement of women in business), and is Chairman of the Accountability Advisory Council to the Comptroller General of the United States. He also serves as a Member of the Advisory Board of the Graduate School of Business of the University of Florida, his alma mater. Ralph F. Cox (71) Year of Election or Appointment: 1994 Mr. Cox is President of RABAR Enterprises (management consulting for the petroleum industry). Prior to February 1994, he was President of Greenhill Petroleum Corporation (petroleum exploration and production). Until March 1990, Mr. Cox was President and Chief Operating Officer of Union Pacific Resources Company (exploration and production). He is a Director of CH2M Hill Companies (engineering), and Abraxas Petroleum (petroleum exploration and production, 1999). In addition, he is a member of advisory boards of Texas A&M University and the University of Texas at Austin. Robert M. Gates (60) Year of Election or Appointment: 1997 Dr. Gates is President of Texas A&M University (2002). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), and Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001). He also serves as a member of the Advisory Board of VoteHere.net (secure internet voting, 2001). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999-2001). Dr. Gates also is a Trustee of the Forum for International Policy. George H. Heilmeier (67) Year of Election or Appointment: 2004 Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (communication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineering and information technology support for the government), INET Technologies Inc. (telecommunications network surveillance, 2001) and Teletech Holdings (customer management services, 1998). He is Chairman of the General Motors Technology Advisory Committee and a Life Fellow of the IEEE (2000). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences and The Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992-2002) and Compaq (1994-2002). Donald J. Kirk (71) Year of Election or Appointment: 1994 Mr. Kirk is a Governor of the American Stock Exchange (2001), a Trustee and former Chairman of the Board of Trustees of the Greenwich Hospital Association, a Director of the Yale-New Haven Health Services Corp. (1998), and a Director Emeritus and former Chairman of the Board of Directors of National Arts Strategies Inc. Mr. Kirk was an Executive-in-Residence (1995-2000) and a Professor (1987-1995) at Columbia University Graduate School of Business. Prior to 1987, he was Chairman of the Financial Accounting Standards Board. Previously, Mr. Kirk served as a Governor of the National Association of Securities Dealers, Inc. (1996-2002), a member and Vice Chairman of the Public Oversight Board of the American Institute of Certified Public Accountants' SEC Practice Section (1995-2002), a Director of General Re Corporation (reinsurance, 1987-1998) and as a Director of Valuation Research Corp. (appraisals and valuations). - -------------------------------------------------------------------------------- 27 Annual Report - -------------------------------------------------------------------------------- Name, Age; Principal Occupation - ------------------------------- Marie L. Knowles (57) Year of Election or Appointment: 2001 Prior to Ms. Knowles' retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996-2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing), URS Corporation (multidisciplinary engineering, 1999), and McKesson Corporation (healthcare service, 2002). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California. Ned C. Lautenbach (59) Year of Election or Appointment: 2000 Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. He was most recently Senior Vice President and Group Executive of Worldwide Sales and Services. From 1993 to 1995, he was Chairman of IBM World Trade Corporation, and from 1994 to 1998 was a member of IBM's Corporate Executive Committee. Mr. Lautenbach serves as Chairman and as a Director (1998) of Acterna Corporation (communications test equipment). He is also Co-Chairman of Covansys, Inc. (global provider of business and technology solutions, 2000). In addition, he is a Director of Eaton Corporation (diversified industrial) and the Philharmonic Center for the Arts in Naples, Florida (1999). He also is a member of the Council on Foreign Relations. Marvin L. Mann (70) Year of Election or Appointment: 1994 Mr. Mann is Chairman of the non-interested Trustees (2001). He is Chairman Emeritus of Lexmark International, Inc. (computer peripherals) where he served as CEO until April 1998 and retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corporation (IBM) and President and General Manager of various IBM divisions and subsidiaries. Mr. Mann is a Board member of Imation Corp. (imaging and information storage) and Acterna Corporation (communications test equipment, 1999). He is also a member of the Director Services Committee of the Investment Company Institute. In addition, Mr. Mann is a member of the President's Cabinet at the University of Alabama and the Board of Visitors of the Culverhouse College of Commerce and Business Administration at the University of Alabama. William O. McCoy (70) Year of Election or Appointment: 1997 Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), Progress Energy, Inc. (electric utility), and Acterna Corporation (communications test equipment, 1999). He is also a partner of Franklin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999-2000) and a member of the Board of Visitors (1994-1998) for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan-Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Carolina (16-school system, 1995-1998). William S. Stavropoulos (64) Year of Election or Appointment: 2002 Mr. Stavropoulos is Chairman of the Board, President and CEO (2002), and Chairman of the Executive Committee (2000) and a Director of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993-2000) and Chief Executive Officer (1995-2000). Currently, he is a Director of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corporation, and Maersk Inc. (industrial conglomerate, 2002). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council, World Business Council for Sustainable Development, and the University of Notre Dame Advisory Council for the College of Science. - -------------------------------------------------------------------------------- Mid Cap Portfolio 28 - -------------------------------------------------------------------------------- Advisory Board Members and Executive Officers: - --------------------------------------------- Correspondence intended for Ms. Small may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205-5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to 82 Devonshire Street, Boston, Massachusetts 02109. Name, Age; Principal Occupation - ------------------------------- Peter S. Lynch (60) Year of Election or Appointment: 2003 Member of the Advisory Board of Variable Insurance Products Fund III. Vice Chairman and a Director of FMR, and Vice Chairman (2001) and a Director (2000) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990-2003). Prior to May 31, 1990, he was a Director of FMR and Executive Vice President of FMR (a position he held until March 31, 1991), Vice President of Fidelity(R) Magellan(R) Fund and FMR Growth Group Leader, and Managing Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity Investments Corporate Services. In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston. Cornelia M. Small (59) Year of Election or Appointment: 2004 Member of the Advisory Board of Variable Insurance Products Fund III. Ms. Small is a member (2000) and Chairperson (2002) of the Investment Committee, and a member (2002) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999-2000), Director of Global Equity Investments (1996-1999), and a member of the Board of Directors (1998-1999) of Scudder Kemper Investments. In addition, Ms. Small served as Co-Chair (2000-2003) of the Annual Fund for the Fletcher School of Law and Diplomacy. John B. McDowell (45) Year of Election or Appointment: 2002 Vice President of VIP Mid Cap. Mr. McDowell also serves as Vice President of certain Equity Funds (2002). He is Senior Vice President of FMR (1999), FMR Co., Inc. (2001), and Fidelity Management Trust Company (FMTC). Since joining Fidelity Investments in 1985, Mr. McDowell has worked as a research analyst and manager. Eric D. Roiter (55) Year of Election or Appointment: 1998 Secretary of VIP Mid Cap. He also serves as Secretary of other Fidelity funds (1998); Vice President, General Counsel, and Clerk of FMR Co., Inc. (2001) and FMR (1998); Vice President and Clerk of FDC (1998); Assistant Clerk of Fidelity Management & Research (U.K.) Inc. (2001) and Fidelity Management & Research (Far East) Inc. (2001); and Assistant Secretary of Fidelity Investments Money Management Inc. (2001). Prior to joining Fidelity, Mr. Roiter was with the law firm of Debevoise & Plimpton, as an associate (1981 -1984) and as a partner (1985-1997), and served as an Assistant General Counsel of the U.S. Securities and Exchange Commission (1979-1981). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003). Stuart Fross (44) Year of Election or Appointment: 2003 Assistant Secretary of VIP Mid Cap. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003) and is an employee of FMR. Maria F. Dwyer (45) Year of Election or Appointment: 2002 President and Treasurer of VIP Mid Cap. Ms. Dwyer also serves as President and Treasurer of other Fidelity funds (2002) and is a Vice President (1999) and an employee (1996) of FMR. Timothy F. Hayes (53) Year of Election or Appointment: 2002 Chief Financial Officer of VIP Mid Cap. Mr. Hayes also serves as Chief Financial Officer of other Fidelity funds (2002). Recently he was appointed President of Fidelity Service Company (2003) where he also serves as a Director. Mr. Hayes also serves as President of Fidelity Investments Operations Group (FIOG, 2002), which includes Fidelity Pricing and Cash Management Services Group (FPCMS), where he was appointed President in 1998. Previously, Mr. Hayes served as Chief Financial Officer of Fidelity Investments Corporate Systems and Service Group (1998) and Fidelity Systems Company (1997-1998). John R. Hebble (45) Year of Election or Appointment: 2003 Deputy Treasurer of VIP Mid Cap. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002-2003) and Assistant Treasurer of the Scudder Funds (1998-2003). - -------------------------------------------------------------------------------- 29 Annual Report - -------------------------------------------------------------------------------- Name, Age; Principal Occupation - ------------------------------- John H. Costello (57) Year of Election or Appointment: 1998 Assistant Treasurer of VIP Mid Cap. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR. Francis V. Knox, Jr. (56) Year of Election or Appointment: 2002 Assistant Treasurer of VIP Mid Cap. Mr. Knox also serves as Assistant Treasurer of other Fidelity funds (2002), and is a Vice President and an employee of FMR. Previously, Mr. Knox served as Vice President of Investment & Advisor Compliance (1990-2001), and Compliance Officer of Fidelity Management & Research (U.K.) Inc. (1992-2002), Fidelity Management & Research (Far East) Inc. (1991-2002), and FMR Corp. (1995-2002). Mark Osterheld (48) Year of Election or Appointment: 2002 Assistant Treasurer of VIP Mid Cap. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR. Thomas J. Simpson (45) Year of Election or Appointment: 2000 Assistant Treasurer of VIP Mid Cap. Mr. Simpson is Assistant Treasurer of other Fidelity funds (2000) and an employee of FMR (1996). Prior to joining FMR, Mr. Simpson was Vice President and Fund Controller of Liberty Investment Services (1987-1995). - -------------------------------------------------------------------------------- Mid Cap Portfolio 30 - -------------------------------------------------------------------------------- Distributions A percentage of the dividends distributed during the fiscal year for the following classes qualifies for the dividends-received deduction for corporate shareholders: Initial Class 100% Service Class 100% Service Class 2 100% The fund will notify shareholders in January 2004 of amounts for use in preparing 2003 income tax returns. - -------------------------------------------------------------------------------- 31 Annual Report - -------------------------------------------------------------------------------- Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub-Advisers FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Shareholder Servicing Agent Fidelity Investments Institutional Operations Company, Inc. Boston, MA Custodian Brown Brothers Harriman & Co. Boston, MA RUSSELL INVESTMENT FUNDS * INVESTMENT FUNDS 2003 Annual Report MULTI-STYLE EQUITY FUND AGGRESSIVE EQUITY FUND NON-U.S. FUND CORE BOND FUND REAL ESTATE SECURITIES FUND DECEMBER 31, 2003 *FORMERLY RUSSELL INSURANCE FUNDS [LOGO OF RUSSELL] Russell Investment Funds* Russell Investment Funds is a "series mutual fund" with five different investment portfolios. These financial statements report on the Funds, each of which has distinct investment objectives and strategies. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. Frank Russell Company Consultant to Frank Russell Investment Management Company. * Formerly Russell Insurance Funds Russell Investment Funds Annual Report December 31, 2003 Table of Contents Page Letter to Our Clients.................................................... 3 Multi-Style Equity Fund.................................................. 4 Aggressive Equity Fund................................................... 16 Non-U.S. Fund............................................................ 32 Core Bond Fund........................................................... 46 Real Estate Securities Fund.............................................. 60 Statement of Assets and Liabilities...................................... 66 Statement of Operations.................................................. 68 Statement of Changes in Net Assets....................................... 70 Financial Highlights..................................................... 72 Notes to Financial Highlights............................................ 74 Notes to Schedule of Investments......................................... 75 Notes to Financial Statements............................................ 76 Report of Independent Auditors........................................... 85 Tax Information.......................................................... 86 Disclosure of Information about Fund Directors........................... 87 Matter Submitted to a Vote of Shareholders............................... 91 Manager, Money Managers and Service Providers............................ 92 Russell Investment Funds Copyright (C) Frank Russell Company 2003. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Frank Russell Company. It is delivered on an "as is" basis without warranty. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company is the owner of the trademarks, service marks, and copyrights related to their respective indexes. This material must be accompanied or preceded by a current Russell Investment Funds' Prospectus containing complete information concerning the investment objectives and operations of the Funds, charges and expenses, and the applicable variable insurance policy Prospectus. The Prospectus should be read carefully before an investment is made. The performance quoted represents past performance and the investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further detail. Russell Fund Distributors, Inc., is the distributor of Russell Investment Funds. To Our Clients We're pleased you have chosen Russell Investment Funds for your investment needs. As we present our Russell Investment Funds 2003 Annual Report, we renew our commitment to you--providing strategically diversified investments managed by world class independent investment management firms. After three years of a bear market, 2003 offered new opportunities and the financial markets were generally favorable. This represented a dramatic--and welcome--change for the financial markets. As always, our investment process remained constant. We maintained our long-term focus, strategic diversification, active management, and goal-oriented planning. We believe our diversified approach and long-term commitment to investing helps provide consistency for you--our investors. As we reflect on the challenges and opportunities in 2003, we want you to know that we appreciate your continued confidence in Russell and in our Multi Asset, Multi Style, Multi Manager/TM/ investment strategy. We thank you for choosing Russell, global leaders in multi-manager investing. We look forward to continuing to serve you and building our relationship in 2004. Warm Regards, /s/ Len Brennan Len Brennan President and Chief Executive Officer Russell Investment Funds Multi-Style Equity Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) [GRAPH APPEARS HERE] Multi-Style Equity Fund - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 12,886 28.86% 5 Years $ 8,730 (2.68)%Section Inception $ 14,441 5.39%Section Russell 1000(R) Index - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 12,989 29.89% 5 Years $ 9,934 (0.13)%Section Inception $ 16,763 7.66%Section 4 Multi-Style Equity Fund Russell Investment Funds Multi-Style Equity Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Please state the Fund's Objective. The Fund seeks to provide income and capital growth by investing principally in equity securities. On October 3, 2003, shareholders voted to change the investment objective of the Fund to: The Fund seeks to provide long-term capital growth. This change will be effective on March 1, 2004. Describe the Fund's performance for the 12 months ended December 31st and how it performed relative to its benchmark. For the fiscal year ended December 31, 2003, the Multi-Style Equity Fund gained 28.86%. This compared to the Russell 1000(R) Index, which gained 29.89% during the same period. The Fund's performance is net of operating expenses of 0.87%. Index returns do not reflect deduction of fees, expenses, or taxes. Describe the Fund's main performance drivers over the past 12 months including a discussion of investment styles and money managers. Main drivers of Fund performance included the fact that it was fully invested, ensuring full participation in the market recovery, and favorable stock selection. Meanwhile, the Fund's sector weightings, including an underweight in the strong performing technology sector, as well as in medium capitalization stocks, resulted in lower Fund performance relative to the benchmark. Fund money managers that were positioned more aggressively such as Turner and Brandywine outperformed their benchmarks while the more defensively positioned money managers, such as Montag & Caldwell and Westpeak (while they were a money manager for the Fund), trailed their benchmarks. Please describe how the Fund and its money managers reacted to the market environment during the period and how the Fund is positioned to meet its long-term objectives. During the past twelve months, the Fund's money managers responded to the market environment by investing in companies that they expected would benefit from improving economic and capital market conditions. The money managers increased their sector exposure to technology and multi-sector firms, while reducing exposure to the consumer staples and energy sectors. The Fund's money managers also increased their exposure to larger capitalization stocks in response to improving valuations and the falling dollar. At fiscal year end, the Fund remained diversified across economic sectors, yet the money managers generally favored reasonably valued stocks they believed had the potential for improved earnings. As of December 31, 2003, the Fund was most overweighted in the consumer discretionary and the health care sectors and most underweighted in the financial services and utilities sectors. What changes were made to the Fund's structure or to the money manager line-up? In November, 2003, Strong Capital Management was replaced by Ark Asset Management in the growth segment of the Fund. Westpeak Global Advisors was terminated and their assets were redeployed to other Fund money managers. In July, 2003, the Fund's target style weights were rebalanced to align with the annual reconstitution of its benchmark, the Russell 1000(R) Index. Please explain what contributed most and least to the Fund's performance during the last 12 months. Positive contributors to performance relative to the benchmark included the Fund's fully invested stance and favorable stock selection in most sectors, especially health care (an emphasis on biotech over pharmaceuticals), consumer discretionary (overweights in internet commerce such as Ebay and Yahoo), utilities (strong recovery in Williams), and financials (overweight in brokers such as Goldman Sachs). Turner and Brandywine each had strong relative performance during the period. The Fund's overweights in Electronic Arts, Corning, and Boston Scientific also contributed to returns during the period. Finally, the Fund benefited as a result of six of the Fund's eight money managers outperforming their benchmarks. The Fund's underweighted holdings in medium capitalization companies and the technology sector, and the defensively positioned Montag & Caldwell, and Westpeak portfolios detracted from performance relative to the benchmark. Overweightings in Kohls and Colgate Palmolive, as well as an underweight in General Electric, negatively impacted performance relative to the benchmark. What was the investment environment like for stock selection? How did the Fund fare in this environment? During the past twelve months, the equity market recovered strongly, led by the same low quality, high risk stocks that were hardest hit during the preceding bear market. The strongest performing sectors were those most sensitive to the economy (technology, producer durables, and materials), whereas the weaker sectors were less economically sensitive (consumer staples, health care, and utilities). Smaller and medium capitalization stocks significantly outperformed large capitalization stocks, while value stocks marginally outpaced growth stocks. The market environment was challenging for most fundamentally driven, active money managers during the fiscal year. As a result, most active money managers underperformed their benchmarks. Since the market recovery was led by companies with low financial quality, highly uncertain business prospects, negative profitability and extreme volatility, most active money managers that focused on financially strong companies found it difficult to outperform their benchmarks. In this period, many highly profitable companies with improving Multi-Style Equity Fund 5 Russell Investment Funds Multi-Style Equity Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- earnings significantly underperformed as the market was more focused on companies with higher risk profiles. Money Managers Styles Alliance Capital Management, LP - Bernstein Investment Research & Management Unit Value Ark Asset Management Growth Barclays Global Fund Advisors Value Brandywine Asset Management, LLC Value Jacobs Levy Equity Management, Inc. Market-Oriented Montag & Caldwell, Inc. Growth Turner Investment Partners, Inc. Growth - ---------- * The Fund commenced operations on January 2, 1997. Index comparison began January 1, 1997. ** Russell 1000(R) Index includes the 1,000 largest companies in the Russell 3000(R) Index. The Russell 1000(R) Index represents the universe of stocks from which most active money managers typically select. The Russell 1000(R) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. Section Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 6 Multi-Style Equity Fund Russell Investment Funds Multi-Style Equity Fund Schedule of Investments -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Common Stocks - 92.8% Auto and Transportation - 2.9% American Axle & Manufacturing Holdings, Inc.(AE) 3,893 157 Autoliv, Inc. 1,000 38 BorgWarner, Inc. 1,300 111 Burlington Northern Santa Fe Corp. 10,173 329 CSX Corp. 23,700 852 Dana Corp. 3,000 55 Delphi Corp. 51,783 529 Delta Air Lines, Inc. 9,600 113 FedEx Corp. 1,376 93 Ford Motor Co. 38,364 614 General Motors Corp. 8,800 470 Lear Corp. 363 22 Norfolk Southern Corp. 33,600 795 Northwest Airlines Corp. (AE) 9,900 125 Oshkosh Truck Corp. 1,800 92 Skywest, Inc. 6,989 127 Southwest Airlines Co. 39,467 637 Swift Transportation Co., Inc. (AE) 795 17 Tidewater, Inc. 11,950 357 Toyota Motor Corp. - ADR 5,850 402 Union Pacific Corp. 2,639 183 United Parcel Service, Inc. Class B 33,800 2,520 Werner Enterprises, Inc. 751 15 --------------- 8,653 --------------- Consumer Discretionary - 14.0% Abercrombie & Fitch Co. Class A (AE) 2,313 57 Activision, Inc. (AE) 1,700 31 Amazon.Com, Inc. (AE) 7,960 419 Apollo Group, Inc. Class A (AE) 2,100 143 Autonation, Inc. (AE) 6,700 123 Barnes & Noble, Inc. (AE) 1,298 43 BearingPoint, Inc. (AE) 18,300 185 Bed Bath & Beyond, Inc. (AE) 20,400 884 Belo Corp. Class A 2,053 58 Best Buy Co., Inc. 12,050 629 Big Lots, Inc. 2,874 41 BJ's Wholesale Club, Inc. (AE) 7,300 168 Black & Decker Corp. 304 15 Blyth, Inc. 919 30 Borders Group, Inc. 2,240 49 Brinker International, Inc. (AE) 1,894 63 Callaway Golf Co. 4,000 67 Career Education Corp. (AE) 5,800 232 Carnival Corp. 17,760 706 Cendant Corp. 29,070 647 Circuit City Stores, Inc. 5,800 59 Claire's Stores, Inc. 5,994 113 Coach, Inc. (AE) 13,000 491 Convergys Corp. (AE) 4,636 81 Darden Restaurants, Inc. 3,054 64 DeVry, Inc. (AE) 7,500 188 Dillard's, Inc. Class 3,900 64 Dollar General Corp. 11,265 236 Earthlink, Inc. (AE) 2,500 25 Eastman Kodak Co. 14,000 359 eBay, Inc. (AE) 25,060 1,619 Education Management Corp. (AE) 1,800 56 Electronic Arts, Inc. (AE) 20,974 1,002 Estee Lauder Cos., Inc. (The) Class A 9,000 353 Extended Stay America, Inc. 2,300 33 Federated Department Stores 12,038 567 Fox Entertainment Group, Inc. Class A (AE) 23,575 687 Fred's, Inc. 1,900 59 Gannett Co., Inc. 17,800 1,587 Gap, Inc. (The) 14,600 339 Gemstar-TV Guide International, Inc. (AE) 840 4 Gillette Co. (The) 51,438 1,889 GTECH Holdings Corp. 3,380 167 Harman International Industries, Inc. 173 13 Harrah's Entertainment, Inc. 2,053 102 Hearst-Argyle Television, Inc. 3,121 86 Home Depot, Inc. 62,100 2,204 InterActiveCorp (AE) 35,230 1,195 International Game Technology 21,840 780 Interpublic Group of Cos., Inc. 20,000 312 ITT Educational Services, Inc. 539 25 Jones Apparel Group, Inc. 6,164 217 Kimberly-Clark Corp. 16,208 958 Kohl's Corp. (AE) 27,500 1,236 Leggett & Platt, Inc. 1,700 37 Liberty Media Corp. Class A (AE) 67,297 800 Liz Claiborne, Inc. 207 7 Lowe's Cos., Inc. 23,510 1,302 Marriott International, Inc. Class A 24,900 1,150 Mattel, Inc. 19,902 384 May Department Stores Co. (The) 12,604 366 Maytag Corp. 2,220 62 McDonald's Corp. 55,307 1,373 McGraw-Hill Cos., Inc. (The) 3,406 238 Media General, Inc. Class A 939 61 Meredith Corp. 2,733 133 Multi-Style Equity Fund 7 Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Metro-Goldwyn-Mayer, Inc. (AE) 5,459 93 MGM Mirage 648 24 Michaels Stores, Inc. 107 5 Mohawk Industries, Inc. (AE) 2,000 141 Office Depot, Inc. (AE) 7,400 124 Omnicom Group 10,200 891 Pacific Sunwear Of California (AE) 6,525 138 Park Place Entertainment Corp. (AE) 18,179 197 Petco Animal Supplies, Inc. (AE) 1,600 49 RadioShack Corp. 8,909 273 Republic Services, Inc. 2,761 71 Ross Stores, Inc. 806 21 RR Donnelley & Sons Co. 9,751 294 Sears Roebuck and Co. 4,300 196 ServiceMaster Co. (The) 4,000 47 Snap-On, Inc. 1,549 50 Stanley Works (The) 1,740 66 Staples, Inc. (AE) 166 5 Starwood Hotels & Resorts Worldwide, Inc. 2,200 79 Strayer Education, Inc. 500 54 Talbots, Inc. 644 20 Target Corp. 8,000 307 Tech Data Corp. (AE) 900 36 Time Warner, Inc. 136,602 2,457 TJX Cos., Inc. 9,800 216 Tribune Co. 7,700 397 Tupperware Corp. 7,006 121 Univision Communications, Inc. Class A (AE) 9,500 377 VF Corp. 4,300 186 Viacom, Inc. Class B 25,077 1,113 Viad Corp. 1,300 33 Wal-Mart Stores, Inc. 48,000 2,546 Walt Disney Co. 75,277 1,756 Washington Post Class B 34 27 Waste Management, Inc. 14,742 436 Whirlpool Corp. 2,870 209 WMS Industries, Inc. 1,900 50 Yahoo!, Inc. (AE) 15,820 715 --------------- 41,493 --------------- Consumer Staples - 6.6% Adolph Coors Co. Class B 1,560 88 Albertson's, Inc. 11,100 251 Altria Group, Inc. 43,190 2,350 Anheuser-Busch Cos., Inc. 7,918 417 Campbell Soup Co. 6,700 180 Coca-Cola Co. (The) 52,740 2,677 Coca-Cola Enterprises, Inc. 6,908 151 Colgate-Palmolive Co. 18,200 911 CVS Corp. 13,923 503 Dean Foods Co. (AE) 805 26 Del Monte Foods Co. (AE) 30,100 313 Dial Corp. (The) 319 9 General Mills, Inc. 6,200 281 HJ Heinz Co. 7,421 270 Hormel Foods Corp. 385 10 Interstate Bakeries 3,249 46 Kraft Foods, Inc. Class A 670 22 Kroger Co. 34,314 635 Pepsi Bottling Group, Inc. 4,314 104 PepsiAmericas, Inc. 6,034 103 PepsiCo, Inc. 64,010 2,984 Procter & Gamble Co. 45,142 4,509 Rite Aid Corp. 10,300 62 Safeway, Inc. (AE) 7,900 173 Sara Lee Corp. 46,917 1,019 Supervalu, Inc. 11,449 327 Systemco Corp. 10,090 376 Tyson Foods, Inc. Class A 4,606 61 UST, Inc. 12,893 460 Winn-Dixie Stores, Inc. 10,000 100 --------------- 19,418 --------------- Financial Services - 20.4% ACE, Ltd. 5,794 240 AG Edwards, Inc. 217 8 Alliance Data Systems Corp. (AE) 2,400 66 Allstate Corp. (The) 25,557 1,099 American Express Co. 25,830 1,246 American International Group, Inc. 78,479 5,202 Ameritrade Holding Corp. (AE) 14,400 203 AmSouth Bancorp 11,388 279 AON Corp. 3,100 74 Apartment Investment & Management Co. Class A (o) 1,150 40 Archstone-Smith Trust (o) 6,900 193 Arden Realty, Inc. (o) 4,893 148 Astoria Financial Corp. 7,147 266 Automatic Data Processing, Inc. 900 36 Axis Capital Holdings, Ltd. 6,000 176 Bank of America Corp. 35,516 2,857 Bank of New York Co., Inc. (The) 11,082 367 Bank One Corp. 31,445 1,434 BB&T Corp. 9,012 348 8 Multi-Style Equity Fund Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Bear Stearns Cos., Inc. (The) 1,000 80 Brandywine Realty Trust (o) 900 24 Capital One Financial Corp. 10,600 650 CarrAmerica Realty Corp. (o) 4,715 140 Charles Schwab Corp. (The) 51,450 609 Charter One Financial, Inc. 11,300 390 Chubb Corp. 2,973 202 Cigna Corp. 20,245 1,164 CIT Group, Inc. 2,035 73 Citigroup, Inc. 173,039 8,400 CNA Financial Corp. (AE) 2,100 51 Comerica, Inc. 2,300 129 Conseco, Inc. (AE) 10,600 231 Crescent Real Estate Equities Co. (o) 6,447 110 D&B Corp. (AE) 230 12 Deluxe Corp. 2,700 112 Doral Financial Corp. 3,154 102 DST Systems, Inc. (AE) 991 41 E*Trade Financial Corp. (AE) 28,864 365 Endurance Specialty Holdings, Ltd. 4,700 158 Equity Office Properties Trust (o) 20,839 597 Equity Residential (o) 11,300 333 Fannie Mae 21,435 1,609 Fidelity National Financial, Inc. 6,326 245 First Data Corp. 20,570 845 First Midwest Bancorp, Inc. 273 9 Fiserv, Inc. (AE) 8,000 316 FleetBoston Financial Corp. 37,939 1,656 Franklin Resources, Inc. 7,700 401 Freddie Mac 20,176 1,177 Friedman Billings Ramsey Group, Inc. Class A 2,238 52 General Growth Properties, Inc. (o) 8,337 231 Global Payments, Inc. 1,200 57 Golden West Financial Corp. 1,656 171 Goldman Sachs Group, Inc. 22,031 2,175 Greenpoint Financial Corp. 5,064 179 Hartford Financial Services Group, Inc. 2,140 126 Health Care REIT, Inc. (o) 1,600 58 Hibernia Corp. Class A 7,573 178 Hospitality Properties Trust (o) 307 13 HRPT Properties Trust (o) 2,600 26 Hudson United Bancorp 713 26 Huntington Bancshares, Inc. 4,400 99 IMPAC Mortgage Holdings, Inc. (o) 2,600 47 Jack Henry & Associates, Inc. 635 13 Jefferson-Pilot Corp. 1,600 81 John Hancock Financial Services, Inc. 8,036 301 JP Morgan Chase & Co. 71,864 2,640 Keycorp 26,446 775 Kimco Realty Corp. (o) 1,900 85 La Quinta Corp. 3,900 25 Landamerica Financial Group, Inc. 1,100 57 Lehman Brothers Holdings, Inc. 9,942 768 Liberty Property Trust (o) 988 38 Lincoln National Corp. 6,451 260 Loews Corp. 300 15 Macerich Co. (The) (o) 5,296 236 Marsh & McLennan Cos., Inc. 32,087 1,537 MBIA, Inc. 1,700 101 MBNA Corp. 23,094 574 Merrill Lynch & Co., Inc. 30,187 1,770 Metlife, Inc. 7,375 248 MGIC Investment Corp. 2,150 122 Morgan Stanley 29,819 1,726 National City Corp. 21,700 736 National Commerce Financial Corp. 1,856 51 Nationwide Financial Services 3,627 120 Nuveen Investments, Inc. Class A 700 19 Old Republic International Corp. 4,331 110 Paychex, Inc. 30,800 1,146 Platinum Underwriters Holdings, Ltd. 14,000 420 PNC Financial Services Group, Inc. 9,241 506 Prentiss Properties Trust (o) 1,200 40 Prudential Financial, Inc. 7,177 300 Radian Group, Inc. 7,300 356 Redwood Trust, Inc. (o) 700 36 Regions Financial Corp. 2,500 93 RenaissanceRe Holdings, Ltd. 1,600 78 Ryder System, Inc. 3,599 123 Safeco Corp. 1,400 55 Shurgard Storage Centers, Inc. Class A (o) 683 26 SouthTrust Corp. 4,779 156 St. Paul Cos 3,300 131 Sungard Data Systems, Inc. (AE) 1,344 37 SunTrust Banks, Inc. 2,300 164 Thornburg Mortgage, Inc. (o) 1,758 48 Torchmark Corp. 2,400 109 Travelers Property Casualty Corp. Class A 9,512 160 Travelers Property Casualty Corp. Class B 31,013 526 Union Planters Corp. 1,500 47 UnionBanCal Corp. 2,308 133 United Bankshares, Inc. 196 6 UnumProvident Corp. 308 5 US Bancorp 29,324 873 Vornado Realty Trust (o) 1,926 105 Multi-Style Equity Fund 9 Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Wachovia Corp. 45,935 2,140 Washington Mutual, Inc. 17,251 692 Webster Financial Corp. 429 20 Wells Fargo & Co. 24,524 1,444 WR Berkley Corp. 5,077 177 XL Capital, Ltd. Class A 1,672 130 Zions BanCorp 288 18 --------------- 60,659 --------------- Health Care - 13.0% Abbott Laboratories 45,540 2,122 AdvancePCS (AE) 1,200 63 Aetna, Inc. 2,585 175 Affymetrix, Inc. (AE) 2,225 55 AmerisourceBergen Corp. 9,380 527 Amgen, Inc. 70,110 4,333 Andrx Corp. (AE) 681 16 Applera Corp. - Celera Genomics Group (AE) 1,700 24 Beckman Coulter, Inc. 378 19 Becton Dickinson & Co. 1,200 49 Boston Scientific Corp. (AE) 19,950 733 Bristol-Myers Squibb Co. 29,562 845 Caremark Rx, Inc. (AE) 13,200 334 Celgene Corp. (AE) 1,300 59 Chiron Corp. (AE) 6,010 343 Community Health Systems, Inc. (AE) 2,200 58 Coventry Health Care, Inc. (AE) 1,826 118 Dade Behring Holdings, Inc. (AE) 1,100 39 DaVita, Inc. (AE) 2,416 94 Eli Lilly & Co. 30,900 2,173 Endo Pharmaceuticals Holdings, Inc. (AE) 1,600 31 Forest Laboratories, Inc. (AE) 4,100 253 Genentech, Inc. (AE) 19,689 1,842 Genzyme Corp. (AE) 6,000 296 Gilead Sciences, Inc. (AE) 18,090 1,052 Guidant Corp. 13,676 823 HCA, Inc. 6,500 279 Human Genome Sciences, Inc. (AE) 2,800 37 Humana, Inc. 4,303 98 IMS Health, Inc. 9,787 243 Invitrogen Corp. (AE) 3,300 231 IVAX Corp. 7,800 186 Johnson & Johnson 43,860 2,266 King Pharmaceuticals, Inc. (AE) 1,093 17 Kyphon, Inc. (AE) 1,200 30 McKesson Corp. 3,100 100 Medco Health Solutions, Inc. (AE) 9,000 306 Medtronic, Inc. 59,130 2,874 Merck & Co., Inc. 21,427 990 Millennium Pharmaceuticals, Inc. (AE) 285 5 Mylan Laboratories 8,100 205 Nektar Therapeutics (AE) 3,200 44 Oxford Health Plans 1,500 65 Pfizer, Inc. 206,642 7,302 Respironics, Inc. (AE) 391 18 Schering-Plough Corp. 28,400 494 Select Medical Corp. 1,000 16 St. Jude Medical, Inc. 12,690 779 Tenet Healthcare Corp. 31,400 504 Teva Pharmaceutical Industries - ADR 13,900 788 Triad Hospitals, Inc. (AE) 2,600 87 UnitedHealth Group, Inc. 24,948 1,451 Universal Health Services, Inc. Class B 927 50 Valeant Pharmaceuticals International 583 15 Varian Medical Systems, Inc. 706 49 Watson Pharmaceuticals, Inc. (AE) 10,900 501 WellPoint Health Networks 2,600 252 Wyeth 22,876 971 Zimmer Holdings, Inc. (AE) 10,570 744 --------------- 38,473 --------------- Integrated Oils - 3.6% Amerada Hess Corp. 7,828 416 BP PLC - ADR 15,500 765 ChevronTexaco Corp. 26,241 2,267 ConocoPhillips 19,590 1,285 Exxon Mobil Corp. 117,254 4,807 Marathon Oil Corp. 11,914 394 Occidental Petroleum Corp. 17,332 732 --------------- 10,666 --------------- Materials and Processing - 3.4% Alcoa, Inc. 33,761 1,283 Archer-Daniels-Midland Co. 22,327 340 Ashland, Inc. 2,800 123 Ball Corp. 1,000 60 Bemis Co. 1,300 65 Cabot Corp. 1,960 62 Carpenter Technology 822 24 Crown Holdings, Inc. 21,900 198 Dow Chemical Co. (The) 26,961 1,121 Eastman Chemical Co. 3,000 119 Ecolab, Inc. 10,100 276 EI Du Pont de Nemours & Co. 10,655 489 10 Multi-Style Equity Fund Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Florida Rock Industries, Inc. 273 15 Forest City Enterprises, Inc. Class A 818 39 Georgia-Pacific Corp. 9,770 300 Glatfelter 8,249 103 Harsco Corp. 1,554 68 Hecla Mining Co. 4,700 39 Hercules, Inc. 6,800 83 International Paper Co. 12,400 535 Lafarge North America, Inc. 2,144 87 Louisiana-Pacific Corp. 2,343 42 Lubrizol Corp. 1,400 46 Lyondell Chemical Co. 7,300 124 Martin Marietta Materials, Inc. 3,143 148 Masco Corp. 44,700 1,225 MeadWestvaco Corp. 3,500 104 Monsanto Co. 24,833 715 Newmont Mining Corp. 6,103 297 Pactiv Corp. (AE) 2,964 71 Potlatch Corp. 1,438 50 PPG Industries, Inc. 5,390 345 Rohm & Haas Co. 360 15 RPM International, Inc. 18,763 309 Sherwin-Williams Co. (The) 8,399 292 Sigma-Aldrich Corp. Class H 2,720 156 Smurfit-Stone Container Corp. (AE) 10,600 197 Sonoco Products Co. 1,500 37 Southern Peru Copper Corp. 420 20 Temple-Inland, Inc. 1,100 69 Vulcan Materials Co. 5,238 249 Weyerhaeuser Co. 2,051 131 Worthington Industries 5,500 99 York International Corp. 941 35 --------------- 10,205 --------------- Miscellaneous - 4.4% 3M Co. 29,233 2,486 Eaton Corp. 1,865 201 FMC Corp. 3,000 102 Fortune Brands, Inc. 6,867 491 General Electric Co. 230,240 7,133 Honeywell International, Inc. 27,700 926 ITT Industries, Inc. 4,416 328 Johnson Controls, Inc. 3,441 400 Textron, Inc. 3,400 194 Tyco International, Ltd. 34,840 923 --------------- 13,184 --------------- Other Energy - 1.8% Anadarko Petroleum Corp. 14,700 750 Baker Hughes, Inc. 1,060 34 Calpine Corp. (AE) 42,200 203 Cooper Cameron Corp. (AE) 500 23 Dynegy, Inc. Class 40,200 172 El Paso Corp. 32,700 268 EOG Resources, Inc. 8,600 397 Halliburton Co. 10,570 275 Kerr-McGee Corp. 5,097 237 National-Oilwell, Inc. Class C (AE) 90 2 Reliant Resources, Inc. (AE) 4,500 33 Schlumberger, Ltd. 38,797 2,123 Sunoco, Inc. 1,122 57 Tesoro Petroleum Corp. 3,300 48 Texas Genco Holdings, Inc. 1,551 50 Valero Energy Corp. 1,867 87 Varco International, Inc. (AE) 2,634 54 Williams Cos., Inc. 61,300 602 --------------- 5,415 --------------- Producer Durables - 3.2% Agilent Technologies, Inc. (AE) 15,728 460 Applied Materials, Inc. (AE) 62,820 1,410 Boeing Co. (The) 18,200 767 Briggs & Stratton Corp. 1,300 88 Caterpillar, Inc. 12,138 1,008 Centex Corp. 1,724 186 Cognex Corp. 1,500 42 Cooper Industries, Ltd. Class A 2,100 122 Crane Co. 1,400 43 Credence Systems Corp. (AE) 2,300 30 Crown Castle International Corp. (AE) 5,000 55 Cummins, Inc. 1,000 49 Deere & Co. 3,528 229 Diebold, Inc. 1,849 100 DR Horton, Inc. 5,400 234 Emerson Electric Co. 6,500 421 Engineered Support Systems, Inc. 1,050 58 Flowserve Corp. 3,164 66 Goodrich Corp. 8,289 246 Hubbell, Inc. Class B 1,939 86 KB Home 2,100 152 Kennametal, Inc. 785 31 Kla-Tencor Corp. (AE) 3,600 211 Lennar Corp. Class A 2,100 202 Lexmark International, Inc. (AE) 2,091 164 Lockheed Martin Corp. 4,957 255 Multi-Style Equity Fund 11 Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Northrop Grumman Corp. 8,827 844 NVR, Inc. 98 46 Parker Hannifin Corp. 884 53 Pentair, Inc. 2,570 117 Pitney Bowes, Inc. 1,300 53 Polycom, Inc. (AE) 4,578 89 Pulte Homes, Inc. 600 56 Rockwell Collins, Inc. 7,205 216 Standard-Pacific Corp. 2,500 121 Steelcase, Inc. Class A 800 11 Tektronix, Inc. 837 26 Teradyne, Inc. (AE) 9,880 251 United Defense Industries, Inc. (AE) 2,102 67 United Technologies Corp. 7,023 666 Xerox Corp. 4,500 62 --------------- 9,393 --------------- Technology - 13.3% 3Com Corp. (AE) 9,322 76 Acxiom Corp. (AE) 707 13 ADC Telecommunications, Inc. (AE) 44,000 131 Adobe Systems, Inc. 711 28 Advanced Micro Devices, Inc. 3,000 45 Agere Systems, Inc. Class A (AE) 114,550 349 Altera Corp. (AE) 3,600 82 Amdocs, Ltd. (AE) 11,400 256 Analog Devices, Inc. 10,630 485 Anteon International Corp. (AE) 2,000 72 Applied Micro Circuits Corp. (AE) 386 2 Atmel Corp. (AE) 6,000 36 Avaya, Inc. (AE) 31,300 405 Avnet, Inc. 2,500 54 BMC Software, Inc. (AE) 2,427 45 Ciena Corp. (AE) 6,600 44 Cisco Systems, Inc. (AE) 209,370 5,086 Computer Associates International, Inc. 15,363 420 Computer Sciences Corp. 8,017 355 Compuware Corp. (AE) 7,801 47 Comverse Technology, Inc. (AE) 18,910 333 Corning, Inc. 70,960 740 CSG Systems International (AE) 3,188 40 Cypress Semiconductor Corp. (AE) 2,400 51 Dell, Inc. (AE) 32,800 1,114 Electronic Data Systems Corp. 4,100 101 EMC Corp. 159,187 2,057 Flextronics International, Ltd. (AE) 3,300 49 Gateway, Inc. (AE) 5,876 27 General Dynamics Corp. 2,539 230 Harris Corp. 5,529 210 Hewlett-Packard Co. 60,846 1,398 Imation Corp. 2,500 88 Ingram Micro, Inc. Class A (AE) 4,100 65 Intel Corp. 198,644 6,396 International Business Machines Corp. 13,363 1,238 Intuit, Inc. (AE) 146 8 LSI Logic Corp. (AE) 11,600 103 Lucent Technologies, Inc. 50,000 142 Maxim Integrated Products 573 29 MCI Inc. (DELTA) 4,600 108 Microsoft Corp. 188,470 5,190 Motorola, Inc. 67,495 950 National Semiconductor Corp. (AE) 3,400 134 Nortel Networks Corp. 19,100 81 Oracle Corp. (AE) 200,100 2,641 PanAmSat Corp. (AE) 581 13 Peoplesoft, Inc. (AE) 8,100 185 PerkinElmer, Inc. 855 15 Plexus Corp. (AE) 1,900 33 QLogic Corp. (AE) 7,800 402 Qualcomm, Inc. 38,600 2,082 Raytheon Co. 3,370 101 Red Hat, Inc. (AE) 2,400 45 Retek, Inc. (AE) 2,225 21 Rockwell Automation, Inc. 7,229 257 Sabre Holdings Corp. 5,700 123 Sanmina-SCI Corp. (AE) 20,593 260 SAP AG - ADR 8,550 355 Scientific-Atlanta, Inc. 2,265 62 Solectron Corp. (AE) 33,000 195 Sony Corp. - ADR 5,220 181 Storage Technology Corp. (AE) 1,433 37 Sun MicroSystems, Inc. (AE) 75,477 339 Symantec Corp. (AE) 18,560 643 SynopSystem, Inc. (AE) 5,404 182 Tekelec (AE) 1,400 22 Tellabs, Inc. (AE) 9,835 83 Texas Instruments, Inc. 39,000 1,146 Trimble Navigation, Ltd. (AE) 1,200 45 Triquint Semiconductor, Inc. (AE) 3,900 28 UniSystem Corp. 3,100 46 UNOVA, Inc. (AE) 2,900 67 Varian, Inc. (AE) 1,283 54 Veritas Software Corp. (AE) 7,500 279 Vishay Intertechnology, Inc. (AE) 1,400 32 Xilinx, Inc. (AE) 10,770 417 --------------- 39,304 --------------- 12 Multi-Style Equity Fund Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Utilities - 6.2% Allegheny Energy, Inc. 38,700 494 Alliant Energy Corp. 5,100 127 Alltel Corp. 10,721 499 Ameren Corp. 878 40 American Electric Power Co., Inc. 19,200 586 Aquila, Inc. 1,272 4 AT&T Corp. 18,248 370 AT&T Wireless Services, Inc. (AE) 11,964 96 BellSouth Corp. 32,994 934 Centerpoint Energy, Inc. 23,491 228 Cincinnati Bell, Inc. 6,600 33 Citizens Communications Co. 3,000 37 CMS Energy Corp. 2,200 19 Comcast Corp. Class A 56,260 1,849 Comcast Corp. Special Class A 6,300 197 Constellation Energy Group, Inc. 6,745 264 COX Communications, Inc. Class A (AE) 3,638 125 DPL, Inc. 4,546 95 DTE Energy Co. 7,900 311 Duke Energy Corp. 12,700 260 Edison International 2,733 60 Entergy Corp. 9,998 571 Exelon Corp. 17,076 1,133 FirstEnergy Corp. 13,700 482 FPL Group, Inc. 1,500 98 Great Plains Energy, Inc. 2,423 77 Hughes Electronics Corp. (AE) 21,623 358 Level 3 Communications, Inc. (AE) 38,200 218 MDU Resources Group, Inc. 1,900 45 Nextel Communications, Inc. Class A (AE) 28,800 808 Nicor, Inc. 375 13 NII Holdings, Inc. Class B (AE) 1,500 112 NiSource, Inc. 12,228 268 Northeast Utilities 5,821 117 NSTAR 1,093 53 Oneok, Inc. 2,104 46 Pepco Holdings, Inc. 8,000 156 PG&E Corp. 27,019 750 Pinnacle West Capital Corp. 1,225 49 Progress Energy, Inc. - CVO (AE)(Y) 1,300 0 Puget Energy, Inc. 2,100 50 Qwest Communications International 26,859 116 SBC Communications, Inc. 80,170 2,090 Sempra Energy 5,449 164 Sierra Pacific Resources 22,000 161 Southern Co. (The) 8,056 244 Sprint Corp.-FON Group 29,062 477 TXU Corp. 7,800 185 UnitedGlobalCom, Inc. Class A (AE) 51,000 432 Verizon Communications, Inc. 58,842 2,064 Wisconsin Energy Corp. 5,200 174 Xcel Energy, Inc. 18,258 310 --------------- 18,449 --------------- Total Common Stocks (cost $237,599) 275,312 --------------- Short-Term Investments - 7.1% Frank Russell Investment Company Money Market Fund 19,620,000 19,620 United States Treasury Bill (y)(s) 0.880% due 03/11/04 1,400 1,397 --------------- Total Short-Term Investments (cost $21,017) 21,017 --------------- Total Investments - 99.9% (identified cost $258,616) 296,329 Other Assets and Liabilities Net - 0.1% 438 --------------- Net Assets - 100.0% 296,767 =============== See accompanying notes which are an integral part of the financial statements. Multi-Style Equity Fund 13 Russell Investment Funds Multi-Style Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands Unrealized Notional Appreciation Futures Contracts Amount (Depreciation) (Number of Contracts) $ $ - ------------------------------------------------------------------------------ Long Positions Russell 1000 Index expiration date 03/04 (5) 1,485 57 S&P 500 E-Mini Index expiration date 03/04 (70) 3,887 153 S&P 500 Index expiration date 03/04 (28) 7,774 259 S&P Midcap 400 Index expiration date 03/04 (25) 7,201 249 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 718 =============== See accompanying notes which are an integral part of the financial statements. 14 Multi-Style Equity Fund Russell Investment Funds Aggressive Equity Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) [GRAPH APPEARS HERE] Aggressive Equity Fund - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 14,560 45.60% 5 Years $ 12,126 3.93%Section Inception $ 16,544 7.46%Section Russell 2500/(TM)/ Index - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 14,551 45.51% 5 Years $ 15,673 9.40%Section Inception $ 19,565 10.06%Section 16 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Please state the Fund's Objective. The Fund seeks to provide capital appreciation by assuming a higher level of volatility than is ordinarily expected from the Multi-Style Equity Fund by investing in equity securities. On October 3, 2003, shareholders voted to change the investment objective of the Fund to: The Fund seeks to provide long-term capital growth. This change will be effective on March 1, 2004. Describe the Fund's performance for the 12 months ended December 31st and how it performed relative to its benchmark. For the fiscal year ended December 31, 2003, the Aggressive Equity Fund gained 45.60%. This compared to the Russell 2500/(TM)/ Index, which gained 45.51% during the same period. The Fund's performance is net of operating expenses of 1.06%. Index returns do not include deduction of fees, expenses or taxes. Describe the Fund's main performance drivers over the past 12 months including a discussion of investment styles and money managers. The Fund's return relative to its benchmark was driven by sector allocation and stock selection. The Fund's overweight in the technology sector and underweight in the financial services sector versus the benchmark contributed to the Fund's positive performance relative to the benchmark. Security selection generated positive results within nine of the 12 economic sectors represented in the Fund's benchmark. Stock selection was poor in the technology sector, primarily due to a strong rally in low quality technology companies. Four of the Fund's eight money managers outperformed and four underperformed their respective benchmarks. The greatest outperformer was David J. Greene, a value money manager whose contrarian approach to stock selection led it to hold overweight positions in technology and other cyclically sensitive stocks. Greene outperformed the Russell 2500 Value Index by over 20%. CapitalWorks, a growth money manager, outperformed its benchmark by over 6%. This was a result of its emphasis on early identification of accelerating earnings growth and operating fundamentals. The Fund's two quantitative money managers, Goldman Sachs and Jacobs Levy, both outperformed their respective benchmarks by several hundred basis points. Among the Fund's money managers, the largest underperformance came from Geewax, whose focus on high quality stocks led to an approximate shortfall of 10%. TimesSquare, underperformed its benchmark by approximately 7% for the same reasons. Suffolk underperformed its benchmark by about 4%. This was disappointing given Suffolk's emphasis on companies with accelerating earnings fundamentals. Systematic underperformed its benchmark by a small margin. Please describe how the Fund and its money managers reacted to the market environment during the period and how the Fund is positioned to meet its long-term objectives. The past year was a challenging market environment for active money managers. In particular, 2003 was punctuated by the market's move to favoring stocks with poor recent returns, low stock price, no current earnings, and high price volatility. Returning sentiment to such stocks is considered a "rally off the bottom", in which price reversal is the dominant factor and prospective improvement in company fundamentals, like earnings growth, are less of a consideration. The Fund's money managers' emphasis on a combination of current price and prospective fundamental operating improvements was not rewarded in this environment. Additionally, the factors discussed above resulted in micro capitalization stocks experiencing large gains. Neither the Fund nor its money managers changed investment approaches in response to the market environment. However, the Fund's money managers did consider the market environment in their respective security selection. By design, some of the Fund's money managers tended to be more sensitive to the "price only" perspective, providing strong relative performance strength. Some of the Fund's money managers were not as sensitive to the "price-only" perspective. What changes were made to the Fund's structure or to the money manager line-up? No changes were made to the Fund's structure or its money manager line-up during the year. Please explain what contributed most and least to the Fund's performance during the last 12 months. The fund's more cyclically oriented money managers (whether growth or value) tended to post the best performance relative to the benchmark over the past year. For money managers such as David J. Greene (value) and CapitalWorks (growth), both experienced such results. Greene outperformed the benchmark by over 20% in the past year, while CapitalWorks outperformed by approximately 7%. The Fund's money managers, such as Geewax and TimesSquare, suffered over the past year. These managers tended to emphasize companies with consistent or visible earnings and less economic sensitivity (whether growth or value). What was the investment environment like for stock selection? How did the Fund fare in this environment? Stock selection was challenging over the past year. In some cases, the money managers' emphasis on stocks with low valuations relative to their expected growth and on companies with earnings that were expected to have a greater-than-average tendency to announce either higher than expected earnings or to revise earnings up contributed to the Fund's performance. Stock selection was positive within nine of the Aggressive Equity Fund 17 Russell Investment Funds Aggressive Equity Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- 12 economic sectors represented in the Fund's benchmark. Stock selection in the health care, financial services, and materials & processing sectors significantly contributed to the Fund's positive performance relative to the benchmark. However, stock selection in the technology sector was very poor. Given this challenging environment, the Fund's money managers made positive contributions to returns relative to the benchmark from stock selection. Money Managers Styles CapitalWorks Investment Partners, LLC Growth David J. Greene & Co., LLC Value Geewax, Terker & Co. Growth Goldman Sachs Asset Management Market-Oriented Jacobs Levy Equity Management, Inc. Value Suffolk Capital Management, Inc. Growth Systematic Financial Management, LP Value TimesSquare Capital Management, Inc. Growth - ---------- * The Fund commenced operations on January 2, 1997. Index comparison began January 1, 1997. ** Russell 2500/(TM)/ Index is composed of the bottom 500 stocks in the Russell 1000(R) Index and all the stocks in the Russell 2000(R) Index. The Russell 2500/(TM)/ Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. Section Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 18 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Schedule of Investments -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Common Stocks - 94.4% Auto and Transportation - 2.5% Airtran Holdings, Inc. (AE) 22,600 269 Alaska Air Group, Inc. 3,000 82 America West Holdings Corp. Class B (AE) 21,200 263 Arctic Cat, Inc. 909 22 Autoliv, Inc. 11,100 418 Aviall, Inc. 3,500 54 CH Robinson Worldwide, Inc. 1,900 72 Collins & Aikman Corp. 11,800 51 Covenant Transport, Inc. Class A (AE) 2,000 38 Dura Automotive Systems, Inc. Class A (AE) 2,300 29 ExpressJet Holdings, Inc. (AE) 1,500 23 Frontier Airlines, Inc. (AE) 6,500 93 Gentex Corp. 5,200 230 Goodyear Tire & Rubber Co. (The) 10,000 79 Grupo TMM SA - ADR 3,500 15 Heartland Express, Inc. 439 11 JB Hunt Transport Services, Inc. 4,300 116 JetBlue Airways Corp. (AE) 3,650 97 Kansas City Southern 1,100 16 Lear Corp. 1,500 92 Navistar International Corp. 6,800 326 Northwest Airlines Corp. (AE) 21,000 265 Oshkosh Truck Corp. 5,700 291 Pacer International, Inc. (AE) 24,400 493 SCS Transportation, Inc. (AE) 1,500 26 Superior Industries International 600 26 TBC Corp. (AE) 1,500 39 Thor Industries, Inc. 1,200 67 Visteon Corp. 8,500 88 Wabash National Corp. 5,460 160 Wabtec Corp. 12,700 216 --------------- 4,067 Consumer Discretionary - 19.9% --------------- 4Kids Entertainment, Inc. (AE) 2,700 70 Aaron Rents, Inc. 9,750 196 Abercrombie & Fitch Co. Class A (AE) 3,200 79 Activision, Inc. (AE) 16,200 295 Advance Auto Parts (AE) 4,700 383 Advo, Inc. 5,850 186 Aeropostale, Inc. (AE) 16,200 444 Alliance Gaming Corp. (AE) 13,844 341 Allied Waste Industries, Inc. (AE) 4,300 60 AMC Entertainment, Inc. 5,600 85 Ameristar Casinos, Inc. (AE) 5,400 132 Angelica Corp. 2,200 48 AnnTaylor Stores Corp. (AE) 10,950 427 Applebees International, Inc. 3,300 130 Applica, Inc. 3,400 26 aQuantive, Inc. (AE) 17,000 174 Arbitron, Inc. 11,700 488 Asbury Automotive Group, Inc. (AE) 6,700 120 Atari, Inc. (AE) 4,900 21 Aztar Corp. (AE) 4,200 95 Barnes & Noble, Inc. (AE) 1,100 36 BearingPoint, Inc. (AE) 22,300 225 Big 5 Sporting Goods Corp. (AE) 4,400 92 Big Lots, Inc. 8,900 126 BJ's Wholesale Club, Inc. (AE) 13,200 303 Black & Decker Corp. 4,500 222 Blockbuster, Inc. Class A 6,500 117 Bob Evans Farms, Inc. 3,100 101 Bright Horizons Family Solutions, Inc. (AE) 1,200 50 Brink's Co. (The) 11,900 269 Brookstone, Inc. (AE) 6,000 128 Brown Shoe Co., Inc. 800 30 Callaway Golf Co. 16,600 280 Career Education Corp. (AE) 3,000 120 Carmax, Inc. (AE) 1,800 56 CBRL Group, Inc. 3,800 145 CDI Corp. 1,000 33 CDW Corp. 2,400 139 Central European Distribution Corp. (AE) 1,600 51 Central Garden and Pet Co. (AE) 9,600 269 Charming Shoppes 12,900 70 Chico's FAS, Inc. (AE) 2,600 96 Childrens Place (AE) 5,949 159 Choice Hotels International, Inc. 9,938 350 ChoicePoint, Inc. (AE) 4,333 165 Claire's Stores, Inc. 7,742 146 CNET Networks, Inc. (AE) 22,620 154 Columbia Sportswear Co. (AE) 900 49 Consolidated Graphics, Inc. (AE) 3,600 114 Convergys Corp. (AE) 10,700 187 Corinthian Colleges, Inc. (AE) 3,000 167 Corporate Executive Board Co. (AE) 7,900 369 Cox Radio, Inc. Class A (AE) 8,400 212 Department 56 (AE) 200 3 Dick's Sporting Goods, Inc. (AE) 3,314 161 Dillard's, Inc. Class A 13,100 216 Dollar Thrifty Automotive Group (AE) 7,100 184 Aggressive Equity Fund 19 Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ DoubleClick, Inc. (AE) 14,500 148 Drew Industries, Inc. New (AE) 2,300 64 Earthlink, Inc. (AE) 11,600 116 Education Management Corp. (AE) 18,600 577 Emerson Radio (AE) 4,900 18 Entercom Communications Corp. (AE) 5,500 291 Finish Line Class (AE) 10,700 321 Footstar, Inc. (AE) 3,300 13 Fossil, Inc. (AE) 7,900 221 Fred's, Inc. 2,300 71 GameStop Corp. Class A (AE) 1,500 23 Gemstar-TV Guide International, Inc. (AE) 18,859 95 Getty Images, Inc. (AE) 23,572 1,181 Goody's Family Clothing, Inc. 2,800 26 GTECH Holdings Corp. 13,900 688 Guess ?, Inc. (AE) 2,100 25 Guitar Center, Inc. (AE) 1,200 39 Handleman Co. 11,600 238 Harman International Industries, Inc. 3,000 222 Harris Interactive, Inc. (AE) 20,736 172 Harte-Hanks, Inc. 5,100 111 Hasbro, Inc. 14,800 315 Haverty Furniture Cos., Inc. 2,400 48 Hearst-Argyle Television, Inc. 39,700 1,093 Hewitt Associates, Inc. Class A (AE) 6,200 185 Hibbett Sporting Goods, Inc. (AE) 1,100 33 Hollinger International, Inc. 6,400 100 IKON Office Solutions, Inc. 20,800 247 Infospace, Inc. (AE) 6,570 151 Insight Communications Co., Inc. (AE) 11,500 119 Insight Enterprises, Inc. (AE) 4,200 79 International Speedway Corp. Class A 6,400 286 ITT Educational Services, Inc. 10,500 493 Jarden Corp. (AE) 1,500 41 JOS A Bank Clothiers, Inc. (AE) 800 28 Journal Register Co. (AE) 4,000 83 Korn/Ferry International (AE) 2,900 39 Krispy Kreme Doughnuts, Inc. (AE) 1,000 37 Kroll, Inc. (AE) 6,500 169 K-Swiss, Inc. Class A 1,000 24 Labor Ready, Inc. (AE) 23,000 301 Lamar Advertising Co. (AE) 5,100 190 La-Z-Boy, Inc. 4,200 88 Liberty Corp. 700 32 Lithia Motors, Inc. Class A 3,800 96 Liz Claiborne, Inc. 4,200 149 Magna Entertainment Corp. Class A (AE) 3,100 16 Mandalay Resort Group 1,200 54 Manpower, Inc. 900 42 Marcus Corp. 7,800 128 Marvel Enterprises, Inc. (AE) 7,400 215 Maxwell Shoe Co. Class A (AE) 1,000 17 Media General, Inc. Class A 2,800 182 Memberworks, Inc. (AE) 4,000 109 Men's Wearhouse, Inc. (AE) 10,900 273 Meredith Corp. 200 10 Metro One Telecommunications (AE) 7,800 20 Modem Media, Inc. (AE) 15,710 128 Movado Group, Inc. 5,200 147 Movie Gallery, Inc. 1,100 21 MPS Group, Inc. (AE) 30,300 283 MSC Industrial Direct Co. 1,100 30 Navigant Consulting, Inc. (AE) 4,600 87 Navigant International, Inc. (AE) 2,800 39 NetFlix, Inc. (AE) 1,800 98 Nu Skin Enterprises, Inc. Class A 11,800 202 On Assignment, Inc. (AE) 12,100 63 O'Reilly Automotive, Inc. (AE) 1,500 58 Oxford Industries, Inc. 2,200 75 Pacific Sunwear of California (AE) 4,200 89 Papa John's International, Inc. (AE) 4,100 137 Park Place Entertainment Corp. (AE) 31,700 343 PDI, Inc. (AE) 1,800 48 Penn National Gaming, Inc. (AE) 6,500 150 Petco Animal Supplies, Inc. (AE) 16,636 507 Petsmart, Inc. 4,100 98 PF Chang's China Bistro, Inc. (AE) 1,200 61 Pier 1 Imports, Inc. 2,400 52 Playboy Enterprises, Inc. Class B (AE) 1,400 23 Playtex Products, Inc. (AE) 13,800 107 Polo Ralph Lauren Corp. 13,600 392 Pre-Paid Legal Services, Inc. (AE) 4,900 128 Pulitzer, Inc. 6,700 362 Radio One, Inc. Class D (AE) 8,700 168 Rare Hospitality International, Inc. (AE) 8,500 208 Red Robin Gourmet Burgers, Inc. (AE) 1,200 37 Reebok International, Ltd. 4,000 157 Regal Entertainment Group Class A 12,100 248 Regis Corp. 8,811 348 Rent-A-Center, Inc. (AE) 15,000 448 RH Donnelley Corp. 4,200 167 RR Donnelley & Sons Co. 2,100 63 Ruby Tuesday, Inc. 5,500 157 Russell Corp. 2,300 40 Saks, Inc. (AE) 34,800 523 Scholastic Corp. (AE) 7,600 259 20 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Scientific Games Corp. Class A (AE) 34,900 594 SCP Pool Corp. (AE) 14,400 471 Select Comfort Corp. (AE) 8,200 203 Service Corp. International 21,900 118 ShopKo Stores, Inc. 16,800 256 Sinclair Broadcast Group, Inc. Class A (AE) 12,300 184 Six Flags, Inc. 11,200 84 SkillSoft Corp. ADR 23,400 202 Sohu.com, Inc. (AE) 1,100 33 Sonic Corp. (AE) 1,350 41 Sourcecorp (AE) 3,400 87 Speedway Motorsports, Inc. 13,300 385 Spherion Corp. (AE) 25,000 245 Stage Stores, Inc. (AE) 8,800 246 Stamps.com, Inc. (AE) 3,300 20 Station Casinos, Inc. 1,900 58 Steak N Shake Co. (The) 3,900 70 Stein Mart, Inc. (AE) 1,900 16 Strayer Education, Inc. 800 87 Stride Rite Corp. 2,300 26 Sylvan Learning Systems, Inc. (AE) 1,200 35 Tele2 AB Class A - ADR (AE) 9,000 275 TeleTech Holdings, Inc. (AE) 7,100 80 Tetra Tech, Inc. (AE) 8,925 222 Thomas Nelson, Inc. 4,200 81 Tiffany & Co. 2,500 113 Timberland Co. Class A 800 42 Toro Co. 6,100 283 Tractor Supply Co. (AE) 1,400 54 Tuesday Morning Corp. (AE) 1,800 54 Unifirst Corp. 600 14 United Online, Inc. (AE) 33,649 565 United Stationers, Inc. 12,100 495 Vail Resorts, Inc. (AE) 2,400 41 Valassis Communications, Inc. 3,800 112 Vans, Inc. (AE) 4,500 51 VeriSign, Inc. (AE) 17,500 285 Wackenhut Corrections Corp. (AE) 1,000 23 Watson Wyatt & Co. Holdings (AE) 3,200 77 Weight Watchers International, Inc. (AE) 3,600 138 West Corp. (AE) 8,900 207 Wireless Facilities, Inc. (AE) 12,010 178 WMS Industries, Inc. 4,800 126 Wolverine World Wide, Inc. 600 12 Yankee Candle Co., Inc. (AE) 1,600 44 Zale Corp. (AE) 800 43 --------------- 33,173 --------------- Consumer Staples - 2.7% 7-Eleven, Inc. (AE) 5,800 93 Adolph Coors Co. Class B 1,800 101 American Italian Pasta Co. Class A (AE) 4,200 176 Chiquita Brands International, Inc. (AE) 9,000 203 Church & Dwight, Inc. 4,300 170 Constellation Brands, Inc. Class A (AE) 14,420 475 Dial Corp. (The) 1,800 51 DIMON, Inc. 2,500 17 Duane Reade, Inc. (AE) 6,900 117 Flowers Foods, Inc. 1,650 43 J&J Snack Foods Corp. (AE) 300 11 John B. Sanfilippo & Son (AE) 900 46 Lance, Inc. 2,500 38 Longs Drug Stores Corp. 23,300 576 M & F Worldwide Corp. (AE) 3,100 41 Nash Finch Co. 4,100 92 NBTY, Inc. (AE) 7,700 207 Pathmark Stores, Inc. (AE) 22,827 173 PepsiAmericas, Inc. 10,600 181 Pilgrim's Pride Corp. 4,200 69 Ralcorp Holdings, Inc. (AE) 1,000 31 RJ Reynolds Tobacco Holdings, Inc. 10,200 593 Robert Mondavi Class A (AE) 2,700 105 Sanderson Farms, Inc. 2,200 89 Smithfield Foods, Inc. (AE) 1,300 27 Standard Commercial Corp. 1,200 24 Supervalu, Inc. 7,000 200 Tootsie Roll Industries, Inc. 2,287 82 Tyson Foods, Inc. Class A 13,200 175 Universal Corp. 3,500 155 Winn-Dixie Stores, Inc. 18,700 186 --------------- 4,547 --------------- Financial Services - 18.3% Accredited Home Lenders (AE) 5,304 162 Advent Software, Inc. (AE) 2,700 47 AG Edwards, Inc. 10,100 366 Alabama National Bancorp 500 26 Alliance Data Systems Corp. (AE) 25,718 712 AMB Property Corp. (o) 8,400 276 American Financial Group, Inc. 3,500 93 American Physicians Capital, Inc. (AE) 1,900 35 AmeriCredit Corp. (AE) 27,272 434 AMLI Residential Properties Trust (o) 1,600 43 Anthracite Capital, Inc. (o) 6,700 74 Anworth Mortgage Asset Corp. 11,700 163 Aggressive Equity Fund 21 Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Arden Realty, Inc. (o) 4,000 121 Arthur J Gallagher & Co. 1,500 49 Associated Banc-Corp 5,011 214 Astoria Financial Corp. 15,100 562 AvalonBay Communities, Inc. (o) 5,200 249 Bancorpsouth, Inc. 4,700 111 Bank of Hawaii Corp. 20,000 843 Bank of the Ozarks, Inc. 1,600 36 BankAtlantic Bancorp, Inc. Class A 7,700 146 Banknorth Group, Inc. 4,800 156 Bankunited Financial Corp. Class A 8,000 206 Bedford Property Investors (o) 2,700 77 BISystem Group, Inc. (The) (AE) 14,000 208 Blackrock, Inc. 800 42 BOK Financial Corp. (AE) 1,818 70 Boykin Lodging Co. (o) 2,200 20 Brandywine Realty Trust (o) 4,400 118 Capital Automotive REIT (o) 7,200 230 CapitalSource, Inc. (AE) 8,400 182 CarrAmerica Realty Corp. (o) 1,800 54 Cash America International, Inc. 1,500 32 CBL & Associates Properties, Inc. (o) 6,800 384 CCC Information Services Group (AE) 3,600 61 Central Pacific Financial Corp. 700 21 Certegy, Inc. 3,900 128 Charter Municipal Mortgage Acceptance Co. 4,800 101 Checkfree Corp. (AE) 1,100 30 Chelsea Property Group, Inc. (o) 700 38 Chemical Financial Corp. 700 25 CIT Group, Inc. 5,000 180 City Holding Co. 600 21 City National Corp. 2,800 174 Colonial BancGroup, Inc. (The) 9,700 168 Commerce Bancorp, Inc. 1,000 53 Commerce Bancshares, Inc. 2,506 123 Commercial Federal Corp. 5,000 134 Commercial Net Lease Realty (o) 5,000 89 CompuCredit Corp. (AE) 10,400 221 Cornerstone Realty Income Trust, Inc. (o) 700 6 Correctional Properties Trust (o) 800 23 Corus Bankshares, Inc. 1,000 32 Crescent Real Estate Equities Co. (o) 4,500 77 Cullen/Frost Bankers, Inc. 3,700 150 CVB Financial Corp. 1,100 21 Deluxe Corp. 5,900 244 Dime Community Bancshares 7,225 222 Doral Financial Corp. 20,850 673 Downey Financial Corp. 3,700 182 E*Trade Financial Corp. (AE) 13,867 175 Eastgroup Properties (o) 2,000 65 Eaton Vance Corp. 1,000 37 eFunds Corp. (AE) 7,000 121 Entertainment Properties Trust (o) 2,100 73 Equity Inns, Inc. (o) 3,800 34 Equity One, Inc. (o) 4,700 79 eSpeed, Inc. Class A (AE) 10,503 246 Factset Research Systems, Inc. 2,800 107 Fair Isaac Corp. 3,325 163 FelCor Lodging Trust, Inc. (o) 3,200 35 First American Corp. 16,200 482 First Bancorp Puerto Rico 1,400 55 First Commonwealth Financial Corp. 1,600 23 First Community Bancshares, Inc. 330 11 First Midwest Bancorp, Inc. 1,900 62 First Niagara Financial Group, Inc. 8,700 130 FirstFed Financial Corp. 3,600 157 Flagstar Bancorp, Inc. 6,400 137 Flushing Financial Corp. 1,200 22 FNB Corp. 1,700 60 Fremont General Corp. 1,900 32 Friedman Billings Ramsey Group, Inc. Class A 19,400 448 Fulton Financial Corp. 1,601 35 Gabelli Asset Management, Inc. Class A 6,800 271 Gables Residential Trust (o) 5,000 174 Getty Realty Corp. (o) 1,900 50 Glacier Bancorp, Inc. 1,700 55 Glenborough Realty Trust, Inc. (o) 2,100 42 Global Payments, Inc. 14,500 683 Great Lakes REIT (o) 2,000 31 Greater Bay Bancorp 4,600 131 Hancock Holding Co. 400 22 Harbor Florida Bancshares, Inc. 453 13 Hawthorne Financial Corp. 700 20 HCC Insurance Holdings, Inc. 1,100 35 Health Care REIT, Inc. (o) 7,700 277 Healthcare Realty Trust, Inc. (o) 1,200 43 Heritage Property Investment Trust (o) 4,000 114 Hospitality Properties Trust (o) 1,300 54 HRPT Properties Trust (o) 64,400 650 Hudson United Bancorp 3,100 115 Iberiabank Corp. 500 30 IMPAC Mortgage Holdings, Inc. (o) 9,500 173 Independence Community Bank Corp. 3,100 112 Independent Bank Corp. 1,980 56 IndyMac Bancorp, Inc. 8,011 239 22 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Innkeepers USA Trust (o) 22,100 185 Instinet Group, Inc. 17,000 88 International Bancshares Corp. 500 24 Investment Technology Group, Inc. 13,200 213 Investors Financial Services Corp. 11,000 423 iShares Russell 2000 Growth Index Fund 2,300 136 iShares S&P MidCap 400/BARRA Growth Index Fund 1,500 178 Jack Henry & Associates, Inc. 15,100 311 Jefferies Group, Inc. 13,900 459 Keystone Property Trust (o) 1,600 35 Kilroy Realty Corp. (o) 500 16 Koger Equity, Inc. (o) 5,200 109 Kronos, Inc. (AE) 1,050 42 La Quinta Corp. 35,400 227 Landamerica Financial Group, Inc. 15,200 794 LaSalle Hotel Properties (o) 1,800 33 Legg Mason, Inc. 1,800 139 Liberty Property Trust (o) 2,500 97 Local Financial Corp. (AE) 1,100 23 LTC Properties, Inc. (o) 1,200 18 Mack-Cali Realty Corp. (o) 4,600 191 MAF Bancorp, Inc. 400 17 Maguire Properties, Inc. (o) 11,200 272 Markel Corp. (AE) 1,850 469 MB Financial Corp. 1,650 60 Mercantile Bank Corp. 72 3 Mercury General Corp. 1,800 84 Mid-America Apartment Communities, Inc. (o) 1,400 47 Moody's Corp. 2,600 157 Nara Bancorp, Inc. 2,400 66 National Health Investors, Inc. (o) 4,600 114 National Penn Bancshares, Inc. 630 20 Nationwide Health Properties, Inc. (o) 1,700 33 NDCHealth Corp. 6,200 159 New Century Financial Corp. 5,000 198 Nuveen Investments, Inc. Class A 8,700 232 OceanFirst Financial Corp. 3,703 101 Ohio Casualty Corp. 6,800 118 Pacific Capital Bancorp 1,100 41 Pan Pacific Retail Properties, Inc. (o) 1,200 57 Pennsylvania Real Estate Investment Trust (o) 1,200 44 PFF Bancorp, Inc. 3,720 135 Popular, Inc. 1,200 54 Post Properties, Inc. (o) 6,600 184 Prentiss Properties Trust (o) 2,200 73 PrivateBancorp, Inc. 1,100 50 ProAssurance Corp. (AE) 2,200 71 Protective Life Corp. 7,300 247 Provident Bankshares Corp. 1,500 44 Providian Financial Corp. 39,234 457 PS Business Parks, Inc. (o) 4,600 190 R&G Financial Corp. Class B 4,700 187 Radian Group, Inc. 3,600 176 Raymond James Financial, Inc. 11,015 415 Reckson Associates Realty Corp. (o) 7,600 185 Redwood Trust, Inc. (o) 7,000 356 Regency Centers Corp. (o) 1,400 56 RenaissanceRe Holdings, Ltd. 5,300 260 Republic Bancorp, Inc. 26,359 356 Ryder System, Inc. 9,200 314 Sl Corp. (AE) 15,300 123 Sandy Spring Bancorp, Inc. 5,800 217 Seacoast Financial Services Corp. 1,600 44 SEI Investments Co. 1,200 37 Selective Insurance Group 600 19 Senior Housing Properties Trust (o) 4,800 83 Silicon Valley Bancshares 15,700 566 Sovereign Bancorp, Inc. 17,700 420 Sovran Self Storage, Inc. (o) 1,100 41 Stancorp Financial Group, Inc. 2,800 176 Sterling Bancorp 2,390 68 Stewart Information Services Corp. 13,300 539 Student Loan Corp. 100 15 Summit Properties, Inc. (o) 2,400 58 Susquehanna Bancshares, Inc. 1,200 30 Taubman Centers, Inc. (o) 1,200 25 TCF Financial Corp. 3,600 185 Texas Regional Bancshares, Inc. Class A 825 31 TradeStation Group, Inc. (AE) 10,000 89 Triad Guaranty, Inc. (AE) 5,200 262 Trustmark Corp. 1,700 50 UCBH Holdings, Inc. 2,500 97 UICI (AE) 2,400 32 UMB Financial Corp. 1,200 57 United Bankshares, Inc. 2,000 62 United PanAm Financial Corp. (AE) 1,200 20 Universal Health Realty, Income (o) 900 27 Virginia Commerce Bancorp (AE) 1,800 58 Waddell & Reed Financial, Inc. Class A 2,000 47 Washington Mutual, Inc. 2005 Warrants (AE) 44,300 8 Waypoint Financial Corp. 2,415 52 Aggressive Equity Fund 23 Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Webster Financial Corp. 3,000 138 WeLLChoice, Inc. (AE) 4,900 169 WesBanco, Inc. 600 17 Westamerica BanCorp. 300 15 WFS Financial, Inc. (AE) 1,600 68 Whitney Holding Corp. 5,800 238 Wintrust Financial Corp. 400 18 World Acceptance Corp. (AE) 9,800 195 WR Berkley Corp. 1,500 52 WSFS Financial Corp. 3,300 148 --------------- 30,356 --------------- Health Care - 12.0% Advanced Medical Optics, Inc. (AE) 1,700 33 Advanced Neuromodulation Systems, Inc. 3,148 145 AdvancePCS (AE) 2,400 126 Affymetrix, Inc. (AE) 5,800 143 AkSystem, Ltd. (AE) 1,400 12 Alaris Medical Systems, Inc. (AE) 12,300 187 Allos Therapeutics (AE) 7,800 28 Alpharma, Inc. Class A 8,200 165 American Medical Security Group, Inc. 1,300 29 American Pharmaceutical Partners, Inc. (AE) 6,800 228 Andrx Corp. (AE) 9,600 231 Applera Corp. - Celera Genomics Group (AE) 26,600 370 Atrix Labs, Inc. (AE) 2,800 67 Bausch & Lomb, Inc. 3,500 182 Beckman Coulter, Inc. 2,400 122 Beverly Enterprises, Inc. (AE) 4,800 41 Celgene Corp. (AE) 1,300 59 Cell GeneSystem, Inc. (AE) 7,800 101 Chronimed, Inc. (AE) 3,800 32 Collagenex Pharmaceuticals, Inc. (AE) 11,300 127 Community Health Systems, Inc. (AE) 9,200 245 Connetics Corp. (AE) 1,500 27 Cooper Cos., Inc. 5,356 252 Covance, Inc. (AE) 4,800 129 Coventry Health Care, Inc. (AE) 1,600 103 CR Bard, Inc. 3,900 317 Cyberonics (AE) 1,700 54 Cytyc Corp. (AE) 4,900 67 D&K Healthcare Resources, Inc. 6,000 81 Dade Behring Holdings, Inc. (AE) 7,300 261 DaVita, Inc. (AE) 21,481 837 Decode Genetics, Inc. (AE) 25,100 206 Dentsply International, Inc. 2,600 117 Edinburgh, Income and Value Trust PLC Class O 9,200 16 Edwards Lifesciences Corp. (AE) 3,000 90 Endo Pharmaceuticals Holdings, Inc. (AE) 9,000 173 Enzon Pharmaceuticals, Inc. (AE) 12,800 154 eResearch Technology, Inc. (AE) 9,600 244 First Health Group Corp. (AE) 2,600 51 First Horizon Pharmaceutical Corp. (AE) 7,200 81 Genencor International, Inc. (AE) 8,600 135 Gen-Probe, Inc. (AE) 6,788 248 Haemonetics Corp. (AE) 2,800 67 Hanger Orthopedic Group, Inc. (AE) 3,700 58 Health Net, Inc. (AE) 9,300 304 Healthsouth Corp. (AE) 27,600 127 Henry Schein, Inc. (AE) 1,300 88 Human Genome Sciences, Inc. (AE) 9,800 130 Humana, Inc. 39,100 892 ICOS Corp. (AE) 800 33 ICU Medical, Inc. (AE) 4,900 168 Idexx Laboratories, Inc. (AE) 4,000 185 Ilex Oncology, Inc. (AE) 12,700 270 Immucor, Inc. (AE) 450 9 Inamed Corp. (AE) 2,250 108 Integra LifeSciences Holdings Corp. (AE) 700 20 Invitrogen Corp. (AE) 3,300 231 Kensey Nash Corp. (AE) 800 19 Kindred Healthcare, Inc. (AE) 3,100 161 King Pharmaceuticals, Inc. (AE) 12,800 195 Kos Pharmaceuticals, Inc. (AE) 9,100 392 LabOne, Inc. 6,100 198 LCA-Vision, Inc. (AE) 9,010 191 Ligand Pharmaceuticals, Inc. Class B (AE) 23,600 347 Lincare Holdings, Inc. (AE) 9,800 294 Manor Care, Inc. 8,900 308 Martek Biosciences Corp. (AE) 1,400 91 Maxygen (AE) 6,600 70 Medicis Pharmaceutical Class A 6,900 492 MGI Pharma, Inc. (AE) 900 37 Mid Atlantic Medical Services (AE) 2,100 136 Millennium Pharmaceuticals, Inc. (AE) 16,900 316 Millipore Corp. 7,700 331 Myriad Genetics, Inc. (AE) 4,100 53 Nabi Biopharmaceuticals (AE) 2,600 33 NeighborCare, Inc. (AE) 6,200 122 24 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Neurocrine Biosciences, Inc. (AE) 9,700 529 NPS Pharmaceuticals, Inc. (AE) 7,400 227 Odyssey HealthCare, Inc. (AE) 4,424 129 Omnicare, Inc. 12,000 485 Omnicell, Inc. (AE) 6,500 105 Orthofix International NV (AE) 1,500 73 Owens & Minor, Inc. 1,500 33 Oxford Health Plans 1,500 65 Pacificare Health Systems (AE) 9,300 629 Parexel International Corp. (AE) 7,100 115 Patterson Dental Co. (AE) 1,000 64 Pediatrix Medical Group, Inc. (AE) 3,800 209 Perrigo Co. 2,100 33 Pharmaceutical Resources, Inc. 4,900 319 Pharmacopeia, Inc. (AE) 18,600 264 Protein Design Labs, Inc. (AE) 8,000 143 Province Healthcare Co. (AE) 8,800 141 Quality Systems, Inc. (AE) 1,100 49 Renal Care Group, Inc. (AE) 2,500 103 Respironics, Inc. (AE) 6,500 293 Select Medical Corp. 16,716 272 Serologicals Corp. (AE) 9,311 173 SICOR, Inc. (AE) 3,200 87 Sierra Health Services (AE) 900 25 Sola International, Inc. (AE) 1,800 34 Stericycle, Inc. (AE) 5,600 262 Steris Corp. (AE) 8,800 199 Sybron Dental Specialties, Inc. (AE) 9,466 266 Thoratec Corp. (AE) 1,500 20 Triad Hospitals, Inc. (AE) 8,400 279 United Surgical Partners International, Inc. (AE) 4,909 164 United Therapeutics Corp. (AE) 1,800 41 US Oncology, Inc. (AE) 18,300 197 Valeant Pharmaceuticals International 1,400 35 VCA Antech, Inc. (AE) 15,759 488 ViaSystem Healthcare, Inc. (AE) 400 8 Vicuron Pharmaceuticals, Inc. (AE) 10,800 201 Visx, Inc. (AE) 7,550 175 Watson Pharmaceuticals, Inc. (AE) 6,000 276 West Pharmaceutical Services, Inc. 500 17 --------------- 20,019 --------------- Integrated Oils - 0.0% KCS Energy, Inc. (AE) 3,600 38 --------------- Materials and Processing - 6.1% Aceto Corp. 4,000 102 Albany International Corp. Class A 11,200 380 Alumina, Ltd. - ADR 7,000 140 Ameron International Corp. 1,700 59 Aptargroup, Inc. 2,700 105 Arch Chemicals, Inc. 1,800 46 Armor Holdings, Inc. (AE) 1,000 26 Ashland, Inc. 1,000 44 Ball Corp. 6,200 369 Boise Cascade Corp. 13,300 437 Building Material Holding Corp. 1,300 20 Cabot Corp. 9,700 309 Calgon Carbon Corp. 29,800 185 Carpenter Technology 6,300 186 Centex Construction Products, Inc. 1,400 84 Century Aluminum Co. 3,360 64 Ceradyne, Inc. (AE) 3,860 131 Chesapeake Corp. 1,800 48 Clarcor, Inc. 2,300 101 Commercial Metals Co. 3,700 112 Constar International, Inc. (AE) 8,100 44 Corn Products International, Inc. 2,400 83 Crown Holdings, Inc. 19,600 178 Cytec Industries, Inc. (AE) 6,600 253 Delta & Pine Land Co. 700 18 Dycom Industries, Inc. (AE) 12,400 333 Energizer Holdings, Inc. (AE) 2,800 105 Fluor Corp. 400 16 Glatfelter 3,700 46 Golden Star Resources, Ltd. (AE) 21,400 149 GrafTech International, Ltd. (AE) 25,160 340 Greif, Inc. Class 100 4 HB Fuller Co. 1,800 54 Hercules, Inc. 3,400 41 Hughes Supply, Inc. 700 35 ID Biomedical Corp. (AE) 5,300 63 IMC Global, Inc. 5,700 57 International Steel Group, Inc. (AE) 5,100 199 Jacobs Engineering Group, Inc. 3,000 144 Jones Lang LaSalle, Inc. (AE) 1,400 29 Lafarge North America, Inc. 3,700 150 Lennox International, Inc. 10,400 174 LNR Property Corp. 7,600 376 Lubrizol Corp. 5,700 185 MacDermid, Inc. 1,200 41 Martin Marietta Materials, Inc. 3,100 146 Maverick Tube Corp. (AE) 7,019 135 Moore Wallace, Inc. 8,500 159 Aggressive Equity Fund 25 Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Mueller Industries, Inc. (AE) 4,000 137 Myers Industries, Inc. 1,875 23 NCI Building Systems, Inc. (AE) 1,600 38 Nokia OYJ 2007 Warrants (AE) 8,200 179 Owens-Illinois, Inc. (AE) 16,600 197 Pactiv Corp. (AE) 7,900 189 Quanta Services, Inc. (AE) 22,000 161 Rayonier, Inc. (o) 631 26 Reliance Steel & Aluminum Co. 5,600 186 Rogers Corp. (AE) 1,400 62 Royal Gold, Inc. 1,600 33 RTI International Metals, Inc. 2,400 40 Ryerson Tull, Inc. 1,800 21 Schnitzer Steel Industries, Inc. Class A 1,900 115 Schulman A, Inc. 13,100 279 Scotts Co. (The) Class A (AE) 300 18 Sealed Air Corp. (AE) 2,900 157 Silgan Holdings, Inc. (AE) 7,200 307 Smurfit-Stone Container Corp. (AE) 9,600 178 Steel Dynamics, Inc. (AE) 3,840 90 Texas Industries, Inc. 2,800 104 Trammell Crow Co. (AE) 200 3 Tredegar Corp. 1,600 25 Trex Co., Inc. (AE) 200 8 Ultralife Batteries, Inc. (AE) 11,644 144 Unifi, Inc. 11,500 74 Universal Forest Products, Inc. 1,900 61 URS Corp. 8,300 208 USEC, Inc. 11,400 96 USG Corp. 8,000 133 Washington Group International, Inc. (AE) 3,400 115 Watsco, Inc. 5,800 132 WD-40 Co. 500 18 York International Corp. 900 33 --------------- 10,095 --------------- Miscellaneous - 0.8% Brunswick Corp. 9,000 286 Carlisle Cos., Inc. 3,600 219 Dow Jones EURO STOXX 50 Return Index 2003 Warrants (AE) 5,600 44 Kaman Corp. Class A 1,333 17 Lancaster Colony Corp. 400 18 OpticNet, Inc. (AE)(Y) 1,400 0 San-In Godo Bank, Ltd. (The) (AE) 39,700 281 SPX Corp. 3,600 212 Textron, Inc. 1,800 103 Walter Industries, Inc. 4,900 65 --------------- 1,245 --------------- Other Energy - 4.1% Atwood Oceanics, Inc. (AE) 2,300 73 Calpine Corp. (AE) 64,900 312 CARBO Ceramics, Inc. 300 15 Chesapeake Energy Corp. 7,400 100 Comstock Resources, Inc. (AE) 4,660 90 Consol Energy, Inc. 2,500 65 Cooper Cameron Corp. (AE) 2,800 130 Encore Acquisition Co. (AE) 800 20 ENSCO International, Inc. 10,800 293 Equitable Resources, Inc. 900 39 Evergreen Resources, Inc. (AE) 7,800 254 Forest Oil Corp. 9,600 274 Holly Corp. 1,400 39 Houston Exploration Co. (AE) 1,300 47 Hydril (AE) 4,100 98 Key Energy Services, Inc. (AE) 11,919 123 Massey Energy Co. 7,100 148 Matrix Service Co. (AE) 10,600 192 National-Oilwell, Inc. (AE) 19,200 429 Newfield Exploration Co. (AE) 1,000 45 Oil States International, Inc. (AE) 2,400 33 Parker Drilling Co. 9,700 25 Patina Oil & Gas Corp. 10,074 494 Patterson-UTI Energy, Inc. (AE) 23,667 779 Pogo Producing Co. 600 29 Pride International, Inc. (AE) 1,700 32 Reliant Resources, Inc. (AE) 25,100 185 Smith International, Inc. 4,200 174 Sunoco, Inc. 11,800 604 Tesoro Petroleum Corp. 22,900 334 Tetra Technologies, Inc. (AE) 7,200 175 Unit Corp. 8,200 193 Universal Compression Holdings, Inc. (AE) 5,600 146 Valero Energy Corp. 3,900 181 Varco International, Inc. (AE) 13,900 287 Veritas DGC, Inc. (AE) 16,200 170 Westport Resources Corp. (AE) 4,200 125 XTO Energy, Inc. 666 19 --------------- 6,771 --------------- Producer Durables - 6.2% Advanced Energy Industries, Inc. (AE) 7,700 201 American Tower Corp. Class A 11,000 119 26 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ AMIS Holdings, Inc. (AE) 5,600 102 Andrew Corp. (AE) 18,337 211 Applied Industrial Technologies, Inc. 3,900 93 Arris Group, Inc. (AE) 19,500 141 Artesyn Technologies, Inc. (AE) 22,000 187 Asyst Technologies, Inc. (AE) 9,639 167 Audiovox Corp. Class A (AE) 9,800 126 August Technology Corp. (AE) 9,172 170 Axcelis Technologies, Inc. (AE) 15,763 161 Briggs & Stratton Corp. 5,400 364 Cascade Corp. 900 20 C-COR.net Corp. (AE) 5,600 62 Centex Corp. 600 65 CNH Global NV 10,740 178 Crown Castle International Corp. (AE) 9,100 100 CTS Corp. 3,400 39 Cummins, Inc. 5,100 250 Curtiss-Wright Corp. 3,800 171 Cymer, Inc. (AE) 3,600 166 Diebold, Inc. 1,500 81 Dionex Corp. (AE) 1,800 83 Dominion Homes, Inc. (AE) 700 21 Donaldson Co., Inc. 2,000 118 Engineered Support Systems, Inc. 1,275 70 EnPro Industries, Inc. (AE) 2,600 36 Esterline Technologies Corp. 1,300 35 General Cable Corp. 5,300 43 Genlyte Group, Inc. (AE) 800 47 Graco, Inc. 2,700 108 HON Industries, Inc. 1,300 56 Hovnanian Enterprises, Inc. Class A (AE) 800 70 Imagistics International, Inc. (AE) 3,600 135 Kadant, Inc. (AE) 800 17 KB Home 600 44 Littelfuse, Inc. (AE) 2,000 58 LTX Corp. (AE) 6,300 95 Magnetek, Inc. (AE) 3,600 24 Manitowoc Co. 2,300 72 Mastec, Inc. (AE) 3,500 52 Mattson Technology, Inc. (AE) 2,600 32 MDC Holdings, Inc. 3,200 206 Mettler Toledo International, Inc. (AE) 7,900 333 MKS Instruments, Inc. (AE) 5,900 171 MTS Systems Corp. 1,900 37 Mykrolis Corp. (AE) 2,573 41 NACCO Industries, Inc. Class A 3,600 322 NVR, Inc. 300 140 Orbital Sciences Corp. (AE) 27,200 327 Pall Corp. 15,700 421 Photronics, Inc. (AE) 18,700 373 Plantronics, Inc. (AE) 6,100 199 Polycom, Inc. (AE) 17,138 335 Pulte Homes, Inc. 700 66 Rofin-Sinar Technologies, Inc. (AE) 5,300 183 Roper Industries, Inc. 2,900 143 Ryland Group, Inc. 2,800 248 Semitool, Inc. (AE) 1,900 20 Standard-Pacific Corp. 6,800 330 Steelcase, Inc. Class A 5,800 83 Stewart & Stevenson Services 5,700 80 Tecumseh Products Co. Class A 4,300 208 Tektronix, Inc. 7,900 250 Teledyne Technologies, Inc. (AE) 11,300 213 Teradyne, Inc. (AE) 13,500 344 Terex Corp. 5,420 154 Thomas Industries, Inc. 900 31 Toll Brothers, Inc. (AE) 8,100 322 Ultratech, Inc. (AE) 1,200 35 United Defense Industries, Inc. (AE) 6,800 217 United Industrial Corp. 5,000 90 WESCO International, Inc. (AE) 5,600 50 --------------- 10,362 --------------- Technology - 17.7% 3Com Corp. (AE) 71,600 585 ADC Telecommunications, Inc. (AE) 67,600 201 Adtran, Inc. 6,778 210 Advanced Digital Information Corp. (AE) 26,100 365 Advanced Fibre Communications, Inc. (AE) 14,600 294 Aeroflex, Inc. (AE) 38,440 449 Agere Systems, Inc. Class A (AE) 126,900 387 Agile Software Corp. (AE) 11,000 109 Alliance Semiconductor Corp. (AE) 1,000 7 Altiris, Inc. (AE) 7,300 266 Amdocs, Ltd. (AE) 10,900 245 Amkor Technology, Inc. (AE) 8,384 153 Amphenol Corp. Class A (AE) 1,000 64 Anadigics, Inc. (AE) 3,000 18 Analogic Corp. 1,900 78 Anixter International, Inc. (AE) 10,600 274 Anteon International Corp. (AE) 10,900 393 Applied Micro Circuits Corp. (AE) 27,120 162 Arrow Electronics, Inc. 4,100 95 Ascential Software Corp. (AE) 15,061 391 Aggressive Equity Fund 27 Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ AsiaInfo Holdings, Inc. (AE) 2,500 17 Aspect Communications Corp. (AE) 23,800 375 Aspen Technology, Inc. (AE) 3,700 38 ATI Technologies, Inc. (AE) 6,500 98 Autodesk, Inc. 1,400 34 Avaya, Inc. (AE) 87,800 1,135 Avnet, Inc. 17,700 383 Avocent Corp. (AE) 900 33 Benchmark Electronics, Inc. (AE) 1,650 57 BMC Software, Inc. (AE) 12,400 231 Brooktrout, Inc. (AE) 2,100 26 California Micro Devices CP (AE) 20,640 188 Captaris, Inc. (AE) 3,600 20 Ceridian Corp. (AE) 11,600 243 CEVA, Inc. (AE) 3,500 36 Checkpoint Systems, Inc. 1,900 36 ChipPAC, Inc. Class A (AE) 30,000 228 Ciena Corp. (AE) 28,300 188 Cognos, Inc. (AE) 7,300 224 Coherent, Inc. (AE) 1,900 45 CommScope, Inc. (AE) 11,800 193 Compucom Systems, Inc. (AE) 5,500 29 Computer Network Technology Corp. (AE) 4,800 46 Compuware Corp. (AE) 27,900 169 Comtech Telecommunications (AE) 5,019 145 Comverse Technology, Inc. (AE) 26,300 463 Conexant Systems, Inc. (AE) 13,000 65 Covad Communications Group, Inc. (AE) 31,951 115 Cree, Inc. (AE) 3,600 64 CSG Systems International (AE) 10,500 131 Cypress Semiconductor Corp. (AE) 28,700 613 Daktronics, Inc. (AE) 1,600 40 Ditech Communications Corp. (AE) 9,220 176 DRS Technologies, Inc. (AE) 5,600 156 eCollege.com, Inc. (AE) 1,700 31 EDO Corp. 17,500 431 EMC Corp. 2,700 35 Emulex Corp. (AE) 6,700 179 EnteraSystem Networks, Inc. (AE) 6,900 26 Epicor Software Corp. (AE) 7,300 93 Epiphany, Inc. (AE) 10,200 74 ESS Technology (AE) 5,100 87 F5 Networks, Inc. (AE) 11,600 291 Fairchild Semiconductor International, Inc. (AE) 16,110 402 Filenet Corp. (AE) 8,700 236 Flir Systems, Inc. (AE) 4,400 161 Foundry Networks, Inc. (AE) 6,317 173 Gateway, Inc. (AE) 10,000 46 Group 1 Software, Inc. (AE) 5,000 88 Harris Corp. 16,500 626 Hifn, Inc. (AE) 14,378 171 Imation Corp. 7,200 253 Inet Technologies, Inc. (AE) 1,800 22 InFocus Corp. (AE) 6,400 62 Informatica Corp. (AE) 26,700 275 Integrated Circuit Systems, Inc. (AE) 6,200 177 Integrated Device Technology, Inc. (AE) 17,200 295 Interland, Inc. (AE) 3,600 24 International Rectifier Corp. (AE) 5,900 292 Internet Security Systems (AE) 9,300 175 Intersil Corp. Class A 7,400 184 InterVoice, Inc. (AE) 9,900 118 Interwoven, Inc. (AE) 15,375 194 Keane, Inc. (AE) 4,400 64 Keynote Systems, Inc. (AE) 9,200 109 KVH Industries, Inc. (AE) 4,850 133 L-3 Communications Holdings, Inc. (AE) 6,200 318 Lawson Software, Inc. (AE) 18,100 149 Lionbridge Technologies (AE) 3,700 36 LSI Logic Corp. (AE) 97,000 859 Macromedia, Inc. (AE) 7,500 134 Macrovision Corp. (AE) 8,300 187 Magma Design Automation, Inc. (AE) 5,400 126 MAPICS, Inc. (AE) 2,400 31 Maxtor Corp. (AE) 41,500 461 Mercury Interactive Corp. (AE) 4,200 204 Merix Corp. (AE) 13,000 319 Micromuse, Inc. (AE) 20,065 138 Micros Systems, Inc. (AE) 900 39 MicroStrategy, Inc. Class A (AE) 2,907 153 National Instruments Corp. 4,900 223 National Semiconductor Corp. (AE) 4,300 169 NCR Corp. (AE) 2,000 78 Net2Phone, Inc. (AE) 3,500 24 Netopia, Inc. (AE) 12,230 178 NetScreen Technologies, Inc. (AE) 7,500 186 Norske Skogindustrier ASA 5,200 17 Novell, Inc. (AE) 31,100 327 O2Micro International, Ltd. (AE) 12,800 287 Overland Storage, Inc. (AE) 400 8 PanAmSat Corp. (AE) 11,500 248 Park Electrochemical Corp. 2,100 56 PerkinElmer, Inc. 5,900 101 Planar Systems, Inc. (AE) 1,600 39 28 Aggressive Equity Fund Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Plexus Corp. (AE) 3,700 64 PMC - Sierra, Inc. (AE) 5,500 111 Pomeroy IT Solutions, Inc. 1,600 24 QAD, Inc. (AE) 6,100 75 Quantum Corp. (AE) 53,100 166 Quest Software, Inc. (AE) 22,700 322 RadiSystem Corp. (AE) 4,200 71 Remec, Inc. (AE) 11,900 100 Reynolds & Reynolds Co. (The) Class A 5,400 157 RSA Security, Inc. (AE) 6,700 95 SAFLINK Corp. (AE) 4,423 12 Sandisk Corp. (AE) 10,054 615 Sanmina-SCI Corp. (AE) 63,800 804 Scientific-Atlanta, Inc. 8,000 218 Seachange International, Inc. (AE) 5,100 79 Semtech Corp. (AE) 15,553 354 Serena Software, Inc. (AE) 10,600 195 Sigma Designs, Inc. (AE) 3,300 25 Silicon Laboratories, Inc. (AE) 5,400 233 Silicon Storage Technology, Inc. (AE) 47,980 528 Skyworks Solutions, Inc. 14,600 127 SonicWALL, Inc. (AE) 17,180 134 Spectrasite, Inc. (AE) 2,100 73 SRA International, Inc. Class A (AE) 200 9 SRS Labs, Inc. (AE) 16,750 156 Storage Technology Corp. (AE) 2,300 59 Sybase, Inc. (AE) 4,500 93 SYKES Enterprises, Inc. (AE) 2,200 19 Symbol Technologies, Inc. 15,200 257 Tellabs, Inc. (AE) 28,000 236 TIBCO Software, Inc. (AE) 26,700 181 Trident MicroSystems, Inc. (AE) 9,172 160 Triquint Semiconductor, Inc. (AE) 10,400 74 TTM Technologies, Inc. (AE) 25,287 427 Ulticom, Inc. (AE) 7,667 74 UniSystem Corp. 16,300 242 UNOVA, Inc. (AE) 19,800 454 Utstarcom, Inc. (AE) 5,700 211 Valueclick, Inc. (AE) 18,630 169 Verso Technologies, Inc. (AE) 36,983 118 Viasat, Inc. (AE) 1,100 21 Vitesse Semiconductor Corp. (AE) 23,624 139 Wavecom Sa - ADR (AE) 8,200 112 Western Digital Corp. (AE) 10,800 127 Zoran Corp. (AE) 5,900 103 --------------- 29,431 --------------- Utilities - 4.1% AES Corp. (The) 36,100 341 AGL Resources, Inc. 8,200 239 Allegheny Energy, Inc. 3,000 38 Allete, Inc. 6,400 196 Avista Corp. 9,900 179 Cascade Natural Gas Corp. 10,600 224 CenturyTel, Inc. 4,600 150 Cincinnati Bell, Inc. 30,900 156 CMS Energy Corp. 10,900 93 Dobson Communications Corp. Class A (AE) 19,500 128 Empire District Electric Co. (The) 1,600 35 Energen Corp. 11,000 451 General Communication Class A (AE) 2,700 23 IDT Corp. (AE) 12,400 275 KeySpan Corp. 8,800 324 Laclede Group, Inc. (The) 1,000 29 New Jersey Resources Corp. 2,100 81 Nextel Partners, Inc. Class A (AE) 22,400 301 Northeast Utilities 35,700 720 Northwest Natural Gas Co. 1,700 52 NSTAR 4,700 228 OGE Energy Corp. 8,700 210 Oneok, Inc. 1,500 33 Pinnacle West Capital Corp. 2,800 112 Primus Telecommunications GP (AE) 18,400 187 PTEK Holdings, Inc. (AE) 41,087 362 Questar Corp. 7,100 250 SEMCO Energy, Inc. 3,400 17 South Jersey Industries, Inc. 1,100 45 Southwest Gas Corp. 3,100 70 Southwestern Energy Co. 1,000 24 Talk America Holdings, Inc. (AE) 4,600 53 Telephone & Data Systems, Inc. 7,100 444 Time Warner Telecom, Inc. Class A (AE) 11,700 119 UGI Corp. 6,500 220 US Cellular Corp. (AE) 9,200 327 Western Wireless Corp. Class A (AE) 3,600 66 WGL Holdings, Inc. 2,800 78 WPS Resources Corp. 100 5 --------------- 6,885 --------------- Total Common Stocks (cost $129,544) 156,989 --------------- Aggressive Equity Fund 29 Russell Investment Funds Aggressive Equity Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Short-Term Investments - 6.2% Frank Russell Investment Company Money Market Fund 9,683,000 9,683 United States Treasury Bill (y)(s) 0.880% due 03/11/04 700 699 --------------- Total Short-Term Investments (cost $10,382) 10,382 --------------- Total Investments - 100.6% (identified cost $139,926) 167,371 Other Assets and Liabilities, Net - (0.6%) (986) --------------- Net Assets - 100.0% 166,385 =============== Unrealized Notional Appreciation Futures Contracts Amount (Depreciation) (Number of Contracts) $ $ - ------------------------------------------------------------------------------ Long Positions Russell 2000 E-Mini Index expiration date 03/04 (56) 3,120 128 Russell 2000 Index expiration date 03/04 (15) 4,179 132 S&P 500 E-Mini Index expiration date 03/04 (16) 888 28 S&P 500 Index expiration date 03/04 (7) 1,944 45 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 333 =============== See accompanying notes which are an integral part of the financial statements. 30 Aggressive Equity Fund Russell Investment Funds Non-U.S. Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) [GRAPH APPEARS HERE] Non-U.S. Fund - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 13,878 38.78% 5 Years $ 10,478 0.94%Section Inception $ 11,871 2.48%Section MSCI EAFE - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 13,917 39.17% 5 Years $ 10,130 0.26%Section Inception $ 12,441 3.17%Section 32 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Please state the Fund's Objective. The Fund seeks to provide favorable total return and additional diversification for US investors by investing primarily in equity and fixed-income securities of non-US companies and securities issued by non-US governments. On October 3, 2003, shareholders voted to change the investment objective of the Fund to: The Fund seeks to provide long-term capital growth. This change will be effective on March 1, 2004. Describe the Fund's performance for the 12 months ending December 31st and how it performed relative to its benchmark. For the fiscal year ended December 31, 2003, the Non-U.S. Fund gained 38.78%. This compared to its benchmark the MSCI EAFE Index, which gained 39.17%. The Fund's performance is net of operating expenses of 1.16%. Index returns do not reflect deduction of fees, expenses, or taxes. Describe the Fund's main performance drivers over the past 12 months including a discussion of investment styles and money managers. The Fund's results were largely driven by the strong market recovery that began in March 2003. The Fund's value managers, The Boston Company and AQR were most effective in capturing the recovery in stock valuations as market trends started to reflect an inflection point in investors' sentiment from extreme pessimism to moderate optimism. In contrast, the Fund's growth-oriented managers' results generally lagged the MSCI EAFE benchmark. Their efforts to find growth were frustrated by a lack of sustained positive earnings trends. There was scarcity of sustained trends in earnings and/or price appreciation during much of the period. AQR performed very well during the period. AQR was helped by the valuation bias in its process that helped it participate in the strong performance of value sectors. Please describe how the Fund and its money managers reacted to the market environment during the period and how the Fund is positioned to meet its long-term objectives. Generally speaking, the Fund's managers' portfolios were positioned in anticipation of economic recovery. While the managers all incrementally added to stocks and sectors likely to benefit from economic recovery, both cyclical and growth cyclical, they varied by their emphases on value, growth, or momentum. For most of the period, value-driven approaches fared much better than their growth counterparts. The Fund's value managers outperformed by exploiting many oversold opportunities as investors were extremely punitive of stocks falling short of earnings expectations. They also benefited from their avoidance of high-priced stocks with strong earnings forecasts, which were aggressively sold off based on disappointing news. Their focus on valuation also had the beneficial byproduct of generally leading them to small and medium capitalization stocks which materially outperformed larger capitalization stocks. In contrast, the Fund's growth managers generally attempted to increase exposure in areas of the market perceived as improving. This proved mostly ineffective given an absence of sustained momentum in the market. Much of the strongest earnings results during the year were attributable to one-time gains from restructuring. What changes were made to the Fund's structure or to the money manager line-up? No changes were made to the Fund's structure or its money manager line-up during the year. Please explain what contributed most and least to the Fund's performance during the last 12 months. The Fund's value managers were the most effective over the 12 months ended December 31. Value disciplines were effective at avoiding the market's downward spiral through March 2003, but also proved effective at tapping into opportunities in oversold areas of the market that later benefited from both economic recovery and improving investor sentiment. Effective security selection was a positive contributor to the Fund's performance. The Fund's benchmark-relative overweight positions in many strong performers, including NOK Corporation, Deutsche Post, and Sun Hung Kai Properties provided solid gains to the Fund. The Fund's benchmark-relative underweight positions in Sony, BP, Royal Dutch, and Nokia were also significant contributors. The Fund's money managers' investments in Japan during the period were particularly effective in capturing a strong recovery in Japanese share prices beginning in late April, but gave back late in the year on profit taking. An underweight to the United Kingdom also contributed. While limited by specified guidelines, the Fund's exposure to emerging markets was another source of positive performance from country allocation decisions. Emerging markets performed very well over this period with the MSCI Emerging Markets Free Index up 56.28%. Sector positioning had a slight negative impact on the Fund's results. The Fund was, on average, underweight financials, which had a strong year end rally. What was the investment environment like for stock selection? How did the Fund fare in this environment? It was a very challenging market environment from a stock selection perspective. Leadership changed significantly during the period. A three-year bear market reached its lowest point in March 2003. The ensuing period was marked by a strong market rally. Non-U.S. Fund 33 Russell Investment Funds Non-U.S. Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Value based selection disciplines generally yielded favorable results. However, growth-oriented approaches struggled with the absence of sustained momentum and the dearth of strong growth in corporate operating income. Rotation in sector leadership during the period proved challenging for the Fund's growth money managers. Strong currencies also complicated assessments of future earnings growth. The strong Euro, in particular, was a clear threat to future earnings growth of European companies. Given the difficult investment environment for active management, the Fund's strategy of combining a diversified mix of investment processes fared reasonably well. Fund results were ahead of peer group results. Few trends in stock prices proved persistent. The Fund benefited from a number of structural factors. Its modest emphasis towards medium capitalization stocks proved critical given performance trends favoring smaller companies. Diversification by investment style also helped moderate the impact of growth-driven strategies on performance early in the period while facilitating participation in a growth-led rally during the year. Money Managers Styles AQR Capital Management, LLC Value Fidelity Management & Research Co. Growth Oechsle International Advisors, LLC Growth The Boston Company Asset Management, LLC Value - ---------- * The Fund commenced operations on January 2, 1997. Index comparison began January 1, 1997. ** Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. Section Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in securities of non-US issuers and foreign currencies involve investment risks different from those of US issuers. The Prospectus contains further information and details regarding these risks. 34 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Schedule of Investments -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Common Stocks - 89.5% Australia - 3.2% Alumina, Ltd. 1,000 5 Amcor, Ltd. 14,885 93 AMP, Ltd. (AE) 118,805 448 Ansell, Ltd. 300 1 Australia & New Zealand Banking Group, Ltd. 36,963 492 Australian Gas Light Co., Ltd. 1,200 10 Australian Stock Exchange, Ltd. 6,800 88 BHP Billiton, Ltd. 155,438 1,428 Billabong International, Ltd. 5,700 31 BlueScope Steel, Ltd. 11,000 46 Boral, Ltd. 8,500 33 Brambles Industries, Ltd. (AE) 6,500 26 CFS Gandel Retail Trust 26,100 26 Coca-Cola Amatil, Ltd. 2,600 12 Cochlear, Ltd. (AE) 3,000 49 Coles Myer, Ltd. 3,200 18 Commonwealth Bank of Australia 6,200 138 Commonwealth Property Office Fund 20,300 18 CSL, Ltd. (AE) 7,800 105 CSR, Ltd. 21,600 30 David Jones, Ltd. 12,000 13 Deutsche Office Trust 13,900 12 Foster's Group, Ltd. 8,400 28 Futuris Corp., Ltd. 2,900 3 General Property Trust 14,100 32 Iluka Resources, Ltd. 2,000 7 Insurance Australia Group, Ltd. 5,900 19 James Hardie Industries NV 300 2 Leighton Holdings, Ltd. 300 3 Lend Lease Corp., Ltd. 13,500 102 Macquarie Bank, Ltd. 5,500 147 Macquarie Infrastructure Group 7,500 19 National Australia Bank, Ltd. 38,627 872 News Corp., Ltd. 42,304 382 OneSteel, Ltd. 19,400 30 Orica, Ltd. 3,100 33 Origin Energy, Ltd. 6,200 22 PaperlinX, Ltd. 5,100 19 Promina Group, Ltd. 15,412 38 Publishing & Broadcasting, Ltd. 8,103 76 Qantas Airways, Ltd. 31,133 77 QBE Insurance Group, Ltd. 29,181 233 Rinker Group, Ltd. 35,437 175 Rio Tinto, Ltd. 2,674 75 Santos, Ltd. 88,800 460 Sons of Gwalia, Ltd. (AE) 300 1 Stockland Trust Group 7,600 30 Suncorp-Metway, Ltd. 1,400 13 Tabcorp Holdings, Ltd. 600 5 Telstra Corp., Ltd. 26,200 95 Wesfarmers, Ltd. 1,300 26 Westfield Holdings, Ltd. 3,800 40 Westfield Trust 10,200 27 Westpac Banking Corp. 23,962 289 WMC Resources, Ltd. (AE) 4,700 20 Woolworths, Ltd. 10,900 97 --------------- 6,619 --------------- Belgium - 1.3% AGFA-Gevaert NV 6,890 196 Colruyt SA 1,700 164 Delhaize Group 900 46 Dexia 41,910 722 Electrabel 91 29 Fortis 69,196 1,393 KBC Bancassurance Holding 1,000 47 Solvay SA 600 52 --------------- 2,649 --------------- Brazil - 0.1% Petroleo Brasileiro SA - ADR 8,320 243 --------------- Denmark - 0.6% AP Moller - Maersk A/S (AE) 15 103 Coloplast A/S Class B 100 9 D/S Svendborg Class B (AE) 1 7 Danisco A/S 200 9 Danske Bank A/S 23,990 563 DSV DE Sammenslut Vogn A/S (AE) 100 4 FLS Industries A/S Class B (AE) 1,000 12 GN Store Nord (AE) 3,000 19 ISS A/S 8,200 404 Novo-Nordisk A/S Class B 3,684 150 TDC A/S 500 18 --------------- 1,298 --------------- Finland - 1.1% Elisa Oyj Class S (AE) 1,700 23 Fortum Oyj 24,500 253 Nokia OYJ 31,620 547 Nokia OYJ - ADR 21,708 369 Sampo Oyj Class A 67,209 695 Stora Enso Oyj 2,900 39 UPM-Kymmene Oyj 19,900 380 --------------- 2,306 --------------- Non-U.S. Fund 35 Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ France - 9.1% Accor 12,248 555 Air France 2,800 43 Air Liquide 82 14 Alcatel SA (AE) 25,800 332 Altran Technologies SA (AE) 2,900 37 Aventis SA 33,806 2,235 AXA 49,629 1,062 BNP Paribas 20,384 1,284 Caisse Nationale du Credit Agricole (AE) 13,963 333 Cap Gemini SA (AE) 4,370 194 Carrefour SA 14,842 815 Casino Guichard Perrachon SA 600 58 Christian Dior SA 3,700 224 Cie de Saint-Gobain 5,200 255 CNP Assurances 4,110 214 France Telecom (AE) 29,713 849 Groupe Danone 806 132 Klepierre (AE) 100 6 Lafarge SA 11,823 1,053 Lagardere S.C.A 500 29 L'Oreal SA 4,873 400 Michelin (C.G.D.E.) Class B 9,773 448 Orange SA 8,161 446 Pernod-Ricard 1,200 133 Peugeot SA 4,000 204 Pinault-Printemps-Redoute 3,668 355 Renault SA 100 7 Rhodia SA (AE) 20,414 91 Sanofi-Synthelabo SA 300 23 Schneider Electric SA 4,690 307 Societe Assurances Generales de France 5,874 319 Societe BIC SA (AE) 300 14 Societe Generale 1,100 97 Suez SA 22,826 459 Thomson 31,000 660 Total SA 16,240 3,020 Total SA - ADR 10,016 927 Unibail (AE) 400 38 Valeo SA 6,977 279 Vivendi Universal SA 32,400 788 --------------- 18,739 --------------- Germany - 6.8% Adidas-Salomon AG 6,710 764 Allianz AG 13,565 1,712 Altana AG 2,200 132 BASF AG 2,900 163 Bayer AG 2,200 64 Bayerische Hypo-und Vereinsbank AG (AE) 22,658 524 Bayerische Motoren Werke AG (AE) 17,554 814 Celesio AG 1,500 73 Continental AG 2,600 99 DaimlerChrysler AG 3,300 154 Deutsche Bank AG 19,336 1,602 Deutsche Genossenschafts-Hypothekenbank (AE) 3,800 213 Deutsche Lufthansa AG 22,023 368 Deutsche Post AG 41,090 847 Deutsche Telekom AG (AE) 42,700 782 E.ON AG 14,069 918 Infineon Technologies AG (AE) 4,600 64 KarstadtQuelle AG 14,600 361 Linde AG 900 48 MAN AG (AE) 4,600 140 Merck KGaA 3,300 137 Metro AG 9,246 408 Muenchener Rueckversicherungs AG 4,084 495 Puma AG Rudolf Dassler Sport (AE) 533 94 SAP AG (AE) 143 24 Schering AG 9,463 479 Siemens AG 13,639 1,092 Volkswagen AG 26,826 1,494 --------------- 14,065 --------------- Greece - 0.5% EFG Eurobank Ergasias SA (AE) 8,600 167 Hellenic Telecommunications Organization SA 43,952 582 OPAP SA (AE) 11,000 159 --------------- 908 --------------- Hong Kong - 1.7% Bank of East Asia 58,211 178 BOC Hong Kong Holdings, Ltd. 11,500 22 Cathay Pacific Airways, Ltd. 6,000 11 Cheung Kong Holdings, Ltd. 43,000 341 Cheung Kong Infrastructure Holdings, Ltd. 5,000 11 China Mobile Hong Kong, Ltd. 101,000 310 CLP Holdings, Ltd. 12,000 57 Esprit Holdings, Ltd. 23,000 76 Hang Lung Properties, Ltd. 6,000 8 Hang Seng Bank, Ltd. 3,700 49 Henderson Land Development 2,000 9 36 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Hong Kong & China Gas 23,000 35 Hong Kong Exchanges and Clearing, Ltd. (AE) 14,000 30 HongKong Electric Holdings 9,000 36 Hopewell Holdings 10,000 15 Hutchison Whampoa, Ltd. 71,000 521 Hysan Development Co., Ltd. 1,000 2 Li & Fung, Ltd. 80,000 137 MTR Corp. 167,695 221 New World Development, Ltd. 6,000 5 PCCW, Ltd. (AE) 2,000 1 Shangri-La Asia, Ltd. 6,000 6 Sun Hung Kai Properties, Ltd. 95,800 790 Swire Pacific, Ltd. Class A 76,300 470 Techtronic Industries Co. (AE) 10,000 28 Wharf Holdings, Ltd. 48,000 133 Yue Yuen Industrial Holdings (AE) 5,000 14 --------------- 3,516 --------------- Ireland - 0.6% Bank of Ireland 61,688 840 CRH PLC 16,100 330 --------------- 1,170 --------------- Italy - 4.2% Arnoldo Mondadori Editore SpA 5,800 52 Autostrade SpA (AE) 24,900 437 Banca Intesa SpA 391,388 1,530 Banca Popolare di Milano SCRL 8,500 56 Banche Popolari Unite Scrl (AE) 10,303 187 Banco Popolare di Verona e Novara Scrl 27,270 462 Benetton Group SpA 3,300 38 Enel SpA 17,000 116 ENI-Ente Nazionale Idrocarburi SpA 95,334 1,799 Fiat SPA (AE) 58,477 448 Finmeccanica SpA 676,340 530 Gruppo Editoriale L'Espresso SpA 10,200 64 Italcementi SpA 9,700 121 Mediaset SpA 93,094 1,106 Parmalat Finanziaria SpA (Y) 12,500 2 Riunione Adriatica di Sicurta SpA 22,562 384 Sanpaolo IMI SpA 7,505 98 Telecom Italia (AE) 56,600 168 Telecom Italia SpA (AE) 246,549 502 Tiscali SpA (AE) 2,100 15 UniCredito Italiano SpA 98,800 533 --------------- 8,648 --------------- Japan - 20.5% 77 Bank, Ltd. (The) 69,000 389 Acom Co., Ltd. 430 20 Aeon Co., Ltd. 2,100 70 Aiful Corp. 8,300 607 Ajinomoto Co., Inc. 9,000 104 Alps Electric Co., Ltd. 5,000 73 Amano Corp. 2,000 15 Aoyama Trading Co., Ltd. 300 6 Asahi Glass Co., Ltd. 8,000 66 Autobacs Seven Co., Ltd. 700 16 Bank of Yokohama, Ltd. (The) 1,000 5 Benesse Corp. 900 22 Bridgestone Corp. 41,000 551 Brother Industries, Ltd. 3,000 28 Canon, Inc. 31,000 1,443 Central Glass Co., Ltd. 4,000 25 Central Japan Railway Co. 7 60 Chubu Electric Power Co., Inc. 3,800 79 Citizen Watch Co., Ltd. 22,000 202 Credit Saison Co., Ltd. 41,900 946 Dai Nippon Printing Co., Ltd. 4,000 56 Daicel Chemical Industries, Ltd. 16,000 66 Daikin Industries, Ltd. 5,000 115 Daimaru, Inc. 7,000 39 Dainippon Ink and Chemicals, Inc. 2,000 4 Dainippon Screen Manufacturing Co., Ltd. (AE) 10,000 68 Daito Trust Construction Co., Ltd. 5,200 154 Daiwa House Industriesustry Co., Ltd. (AE) 1,000 11 Daiwa Securities Group, Inc. 8,000 54 Denki Kagaku Kogyo K K 23,000 74 Denso Corp. 19,000 374 Dentsu, Inc. 61 307 Dowa Mining Co., Ltd. 23,000 124 East Japan Railway Co. 41 193 Eisai Co., Ltd. 21,700 585 FamilyMart Co., Ltd. 1,100 25 Fast Retailing Co., Ltd. 5,600 340 Fuji Electric Holdings Co., Ltd. 18,000 39 Fuji Heavy Industries, Ltd. 64,900 315 Fuji Machine Manufacturing Co., Ltd. 8,300 105 Fuji Photo Film Co., Ltd. 25,000 807 Fuji Soft ABC, Inc. 200 6 Fujikura, Ltd. 7,000 41 Fujitsu Support and Service, Inc. 1,200 20 Fujitsu, Ltd. (AE) 1,000 6 Funai Electric Co., Ltd. 2,400 329 Non-U.S. Fund 37 Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Gunze, Ltd. 2,000 9 Hankyu Department Stores 3,000 20 Hitachi Cable, Ltd. 10,000 38 Hitachi Chemical Co., Ltd. 8,000 134 Hitachi Construction Machinery Co., Ltd. 2,000 30 Hitachi Zosen Corp. (AE) 3,500 7 Hitachi, Ltd. 9,000 54 Hokkaido Electric Power Co., Inc. 1,400 23 Hokuriku Electric Power Co. 1,400 23 Honda Motor Co., Ltd. 35,000 1,555 Hoya Corp. 2,000 184 Ibiden Co., Ltd. 2,100 26 Isetan Co., Ltd. 7,100 78 Isuzu Motors, Ltd. (AE) 14,000 28 Itochu Corp. 14,000 46 Itochu Techno-Science Corp. 800 25 Ito-Yokado Co., Ltd. 13,000 409 Jafco Co., Ltd. 700 55 Japan Radio Co., Ltd. (AE) 10,000 49 Japan Retail Fund Investment Corp. (o) 6 39 Japan Tobacco, Inc. 9 66 JFE Holdings, Inc. 6,300 172 JGC Corp. 1,000 10 JSR Corp. 5,000 112 Kaken Pharmaceutical Co., Ltd. 2,000 10 Kamigumi Co., Ltd. (AE) 9,000 64 Kaneka Corp. 7,000 52 Kansai Electric Power Co., Inc. (The) 7,200 126 Kao Corp. 32,000 651 Kawasaki Heavy Industries, Ltd. 16,000 20 Kawasaki Kisen Kaisha, Ltd. 21,000 104 KDDI Corp. 61 349 Keyence Corp. 500 105 Kobayashi Pharmaceutical Co., Ltd. 200 5 Kokuyo Co., Ltd. 2,400 26 Konami Corp. 300 9 Konica Minolta Holdings, Inc. 27,000 363 Koyo Seiko Co., Ltd. 8,000 82 Kubota Corp. 2,000 8 Kyocera Corp. 2,700 180 Kyushu Electric Power Co., Inc. 4,400 76 Lawson, Inc. 15,100 516 Mabuchi Motor Co., Ltd. 7,200 554 Makita Corp. 5,000 50 Marubeni Corp. 22,000 42 Matsumotokiyoshi Co., Ltd. 10,300 231 Matsumotokiyoshi Co., Ltd. 10,300 231 Matsushita Electric Industrial Co., Ltd. 76,000 1,051 Meiji Dairies Corp. 2,000 9 Meitec Corp. 2,100 81 Millea Holdings, Inc. 17 222 Minebea Co., Ltd. 83,000 421 Mitsubishi Electric Corp. 9,000 37 Mitsubishi Estate Co., Ltd. 32,000 303 Mitsubishi Gas Chemical Co., Inc. 5,000 17 Mitsubishi Heavy Industries, Ltd. 24,000 67 Mitsubishi Securities Co., Ltd. 15,000 163 Mitsubishi Tokyo Financial Group, Inc. 104 811 Mitsui & Co., Ltd. 55,000 443 Mitsui Chemicals, Inc. 9,000 52 Mitsui Engineering & Shipbuilding Co., Ltd. 18,000 30 Mitsui Fudosan Co., Ltd. 9,000 81 Mitsui OSK Lines, Ltd. 35,000 171 Mitsui Sumitomo Insurance Co., Ltd. 10,000 82 Mitsui Trust Holdings, Inc. 6,000 34 Mitsumi Electric Co., Ltd. 1,300 14 Mizuho Financial Group, Inc. (AE) 73 221 Murata Manufacturing Co., Ltd. 13,300 719 Namco, Ltd. 2,200 61 NEC Corp. 5,000 37 Nichicon Corp. 6,700 68 Nichii Gakkan Co. (AE) 550 31 Nichirei Corp. 1,000 3 Nidec Corp. 900 86 Nikko Cordial Corp. 35,000 195 Nintendo Co., Ltd. 500 47 Nippon Electric Glass Co., Ltd. (AE) 3,000 58 Nippon Express Co., Ltd. 135,000 637 Nippon Light Metal Co. (AE) 27,000 64 Nippon Oil Corp. 9,000 46 Nippon Sanso Corp. 8,000 34 Nippon Shokubai Co., Ltd. 4,000 30 Nippon Steel Corp. 65,000 139 Nippon Telegraph & Telephone Corp. 137 661 Nippon Yusen Kabushiki Kaisha 7,000 32 Nishimatsu Construction Co., Ltd. 4,000 13 Nishimatsuya Chain Co., Ltd. 2,100 54 Nissan Motor Co., Ltd. 96,600 1,103 Nisshin Steel Co., Ltd. 29,000 54 Nitto Denko Corp. 5,400 287 NOK Corp. 6,000 218 Nomura Holdings, Inc. 60,000 1,022 Nomura Research Institute, Ltd. (AE) 100 10 NTN Corp. 24,000 114 NTT DoCoMo, Inc. 191 433 OJI Paper Co., Ltd. 16,000 103 38 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Olympus Corp. 4,000 87 Ono Pharmaceutical Co., Ltd. (AE) 500 19 ORIX Corp. 7,600 628 Pacific Metals Co., Ltd. (AE) 12,000 72 Pioneer Corp. 200 6 Promise Co., Ltd. 100 4 Resona Holdings, Inc. (AE) 16,000 20 Ricoh Co., Ltd. 37,000 730 Rinnai Corp. 18,500 439 Rohm Co., Ltd. 3,300 387 Sammy Corp. 1,950 48 Sanken Electric Co., Ltd. 9,000 126 Sankyo Co., Ltd. 5,600 143 Sankyo Seiki MFG Co., Ltd. (AE) 4,000 28 Sanyo Shokai, Ltd. 6,000 39 Seino Transportation Co., Ltd. 8,000 66 Sekisui House, Ltd. 28,800 297 SFCG Co., Ltd. 4,140 531 Sharp Corp. 2,000 32 Shimachu Co., Ltd. 8,400 167 Shin-Etsu Chemical Co., Ltd. 30,700 1,255 Shinko Electric Industries 300 7 Shiseido Co., Ltd. 31,000 377 Showa Shell Sekiyu KK 4,800 39 Skylark Co., Ltd. 26,800 443 SMC Corp. 1,200 149 Snow Brand Milk Products Co., Ltd. (AE) 1,500 4 Softbank Corp. 100 3 Sompo Japan Insurance, Inc. 6,000 49 Sony Corp. 3,700 128 Stanley Electric Co., Ltd. 15,200 294 Sumisho Lease Co., Ltd. 4,400 140 Sumitomo Bakelite Co., Ltd. 43,000 280 Sumitomo Chemical Co., Ltd. 90,100 372 Sumitomo Corp. 34,000 253 Sumitomo Electric Industries, Ltd. 12,000 107 Sumitomo Heavy Industries, Ltd. (AE) 30,000 68 Sumitomo Mitsui Financial Group, Inc. 103 549 Sumitomo Osaka Cement Co., Ltd. 12,000 24 Sumitomo Trust & Banking Co., Ltd. (The) 6,000 35 Suzuken Co., Ltd. 1,400 45 Takeda Chemical Industries, Ltd. 27,100 1,075 Takefuji Corp. 440 21 TDK Corp. 9,900 713 Terumo Corp. 8,500 161 THK Co., Ltd. 6,200 126 TIS, Inc. 1,600 54 Tohoku Electric Power Co., Inc. 2,700 45 Tokyo Electric Power Co., Inc. (The) 15,000 329 Tokyo Electron, Ltd. 8,200 623 Tokyo Gas Co., Ltd. 2,000 7 Tokyo Seimitsu Co., Ltd. (AE) 200 6 Tokyo Steel Manufacturing Co., Ltd. 3,300 28 Toppan Printing Co., Ltd. 7,000 73 Toray Industries, Inc. (AE) 22,000 92 Toshiba Corp. 20,000 76 Tostem Inax Holding Corp. 1,000 19 Toyo Seikan Kaisha, Ltd. 3,000 42 Toyoda Gosei Co., Ltd. 2,400 69 Toyota Motor Corp. 44,600 1,507 Ube Industries, Ltd. (AE) 10,000 20 UFJ Holdings, Inc. 209 1,004 Uni-Charm Corp. 2,000 98 Uniden Corp. 3,000 55 UNY Co., Ltd. 8,000 82 Victor Co. of Japan, Ltd. (AE) 4,000 33 Vodafone Holdings KK 7 19 West Japan Railway Co. 8 31 World Co., Ltd. 700 22 Yamaha Corp. 1,300 26 Yamaha Motor Co., Ltd. 54,000 589 Yamanouchi Pharmaceutical Co., Ltd. 1,800 56 --------------- 42,290 --------------- Luxembourg - 0.1% Arcelor 15,872 277 --------------- Mexico - 0.3% Coca-Cola Femsa SA de CV - ADR (AE) 14,600 310 Telefonos de Mexico SA de CV - ADR 10,150 335 --------------- 645 --------------- Netherlands - 4.9% ABN AMRO Holding NV 28,449 666 Aegon NV 31,277 463 Akzo Nobel NV 17,503 676 Buhrmann NV 17,072 149 DSM NV 3,300 162 Euronext NV 14,330 363 European Aeronautic Defense and Space Co. 10,600 252 Heineken NV 15,594 594 Hunter Douglas NV 7,112 333 ING Groep NV 42,620 994 KLM-Koninklijke Luchtvaart Mij NV 2,400 39 Koninklijke Ahold NV (AE) 6,500 50 Non-U.S. Fund 39 Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Koninklijke Philips Electronics NV 54,226 1,582 Numico NV (AE) 26,500 732 OCE NV 1,800 28 Royal Dutch Petroleum Co. 22,563 1,190 Royal KPN NV (AE) 39,125 302 TPG NV 700 16 Unilever NV 6,082 398 Vedior NV 8,662 135 VNU NV 15,959 504 Wolters Kluwer NV 36,536 571 --------------- 10,199 --------------- New Zealand - 0.3% Carter Holt Harvey, Ltd. (AE) 144,600 178 Telecom Corp. of New Zealand, Ltd. 120,846 426 --------------- 604 --------------- Norway - 0.7% DNB NOR ASA 46,592 311 Norsk Hydro ASA 6,900 426 Statoil ASA 44,440 499 Telenor ASA (AE) 43,000 281 --------------- 1,517 --------------- Portugal - 0.7% Electricidade de Portugal SA 172,180 454 Portugal Telecom SGPS SA 87,413 880 --------------- 1,334 --------------- Singapore - 1.5% CapitaLand, Ltd. 5,000 5 City Developments, Ltd. (AE) 84,000 299 ComfortDelgro Corp., Ltd. (AE) 8,000 4 DBS Group Holdings, Ltd. 130,800 1,132 Fraser and Neave, Ltd. (AE) 5,000 37 Jardine Cycle & Carriage, Ltd. 4,000 14 Keppel Corp., Ltd. 8,000 29 MobileOne, Ltd. 279,000 246 NatSteel, Ltd. 12,000 16 Neptune Orient Lines, Ltd. (AE) 21,000 27 Oversea-Chinese Banking Corp. 38,000 271 Overseas Union Enterprise, Ltd. 1,000 4 SembCorp Marine, Ltd. 4,000 2 Singapore Airlines, Ltd. 2,000 13 Singapore Exchange, Ltd. 72,000 72 Singapore Land, Ltd. 2,000 5 Singapore Press Holdings, Ltd. 31,000 345 Singapore Technologies Engineering, Ltd. (AE) 120,300 145 Singapore Telecommunications, Ltd. 20,000 23 United Overseas Bank, Ltd. 61,000 474 United Overseas Land, Ltd. 7,000 8 --------------- 3,171 --------------- South Africa - 0.1% Nedcor, Ltd. 27,000 251 --------------- South Korea - 0.7% Korea Electric Power Corp. - ADR 28,700 298 Nextel, Inc. (AE) 11,870 478 POSCO - ADR 7,850 267 Samsung Electronics Co., Ltd. - GDR 1,974 371 --------------- 1,414 --------------- Spain - 4.1% Acerinox SA 3,574 169 ACS Actividades Cons y Serv 9,671 472 Altadis SA 37,600 1,067 Antena 3 Television SA (AE) 539 24 Banco Bilbao Vizcaya Argentaria SA 54,555 754 Banco Popular Espanol SA 5,200 310 Banco Santander Central Hispano SA 77,000 912 Corp Mapfre SA 24,130 342 Endesa SA 46,302 891 Fomento de Construcciones Y Contratas SA 8,200 302 Iberia Lineas Aereas de Espana 33,500 96 Industriesra Sistemas SA (AE) 6,500 83 NH Hoteles SA (AE) 900 10 Repsol YPF SA 16,700 326 Repsol YPF SA - ADR 27,739 542 Sogecable SA (AE) 6,700 234 Telefonica SA (AE) 129,416 1,900 --------------- 8,434 --------------- Sweden - 2.3% Atlas Copco AB Class 2,500 86 Autoliv, Inc. 6,101 231 Electrolux AB Series B 2,500 55 Hennes & Mauritz AB Class B 36,219 861 Investor AB Class B 42,820 414 Modern Times Group AB Class B (AE) 1,600 34 Nordea AB 15,500 116 OMHEX AB (AE) 2,600 32 Sandvik AB 2,000 69 Securitas AB Class B 22,100 298 Skandia Forsakrings AB (AE) 106,585 388 Skandinaviska Enskilda Banken AB Class A 2,400 35 Skanska AB Class B 2,000 18 40 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Svenska Cellulosa AB Class B 1,500 61 Svenska Handelsbanken Class A 21,393 437 Swedish Match AB 500 5 Telefonaktiebolaget LM Ericsson Class B (AE) 470,556 844 TeliaSonera AB 46,611 244 Volvo AB Series A 1,700 50 Volvo AB Series B 16,721 511 WM-data AB Class B (AE) 12,000 26 --------------- 4,815 --------------- Switzerland - 5.9% ABB, Ltd. (AE) 1,600 8 Adecco SA 17,296 1,112 Barry Callebaut AG 283 56 Ciba Specialty Chemicals AG (AE) 300 23 Clariant AG (AE) 26,337 389 Compagnie Financiere Richemont AG Class A 26,191 629 Credit Suisse Group 51,051 1,868 Georg Fischer AG (AE) 41 8 Givaudan 217 113 Nestle SA 6,133 1,532 Novartis AG Class G 51,916 2,358 PubliGroupe SA (AE) 25 7 Roche Holding AG 13,001 1,311 Sulzer AG 408 110 Swatch Group AG Class B (AE) 300 36 Swiss Life Holding (AE) 1,750 321 Swiss Reinsurance 2,200 149 Synthes-Stratec, Inc. 274 271 UBS AG 17,960 1,230 Valora Holding AG 118 29 Zurich Financial Services AG (AE) 4,171 600 --------------- 12,160 --------------- Taiwan - 0.2% United Microelectronics Corp. - ADR (AE) 59,576 295 --------------- United Kingdom - 18.0% 3i Group PLC 70,880 784 Abbey National PLC 8,500 81 Alliance & Leicester PLC 4,400 70 Allied Domecq PLC 122,650 946 Amvescap PLC 1,700 12 Anglo American PLC 20,500 443 ARM Holdings PLC (AE) 2,700 6 Associated British Foods PLC 8,900 93 AstraZeneca PLC 10,100 492 AstraZeneca PLC 5,700 273 Avis Europe PLC 91,691 156 Aviva PLC 15,900 140 AWG PLC (AE) 1,917,600 134 BAA PLC 38,700 344 BAE Systems PLC 268,030 807 Barclays PLC 158,508 1,414 Barratt Developments PLC 12,800 124 BG Group PLC 100,800 517 BHP Billiton PLC 29,600 259 BOC Group PLC 39,681 606 Boots Group PLC 37,800 468 BP PLC 241,000 1,955 Bradford & Bingley PLC 20,800 114 Brambles Industries PLC 31,000 113 British Airways PLC (AE) 13,900 58 British American Tobacco PLC 7,800 108 British Land Co. PLC 15,600 163 British Sky Broadcasting PLC (AE) 23,450 295 BT Group PLC 195,000 657 Bunzl PLC 67,035 512 Cadbury Schweppes PLC 105,887 778 Canary Wharf Group PLC (AE) 300 1 Centrica PLC 120,700 456 Colt Telecom Group PLC (AE) 2,900 5 Compass Group PLC 8,100 55 Corus Group PLC (AE) 78,908 42 Davis Service Group PLC 3,900 26 De La Rue PLC 1,300 6 Diageo PLC 30,412 400 Dixons Group PLC 3,300 8 EMI Group PLC 24,000 68 Firstgroup PLC 4,100 20 Galen Holdings PLC 2,800 36 GKN PLC 138,950 664 GlaxoSmithKline PLC (AE) 112,078 2,569 Granada PLC 1,500 3 HBOS PLC 14,200 184 HHG PLC (AE) 75,883 55 HSBC Holdings PLC 171,405 2,696 Imperial Chemical Industries PLC 10,700 38 Inchcape PLC (AE) 2,000 47 InterContinental Hotels Group PLC 52,306 495 International Power PLC (AE) 47,500 105 InvenSystem PLC (AE) 45,200 15 J Sainsbury PLC 100,524 563 Johnston Press PLC 700 6 Kelda Group PLC 18,200 153 Kesa Electricals PLC 61,332 282 Non-U.S. Fund 41 Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Kingfisher PLC 143,618 716 Land Securities Group PLC 1,100 20 Lloyds TSB Group PLC 63,200 507 LogicaCMG PLC (AE) 11,600 53 Man Group PLC 15,160 396 Marks & Spencer Group PLC 161,125 834 Mitchells & Butlers PLC 5,858 24 mmO2 PLC (AE) 92,000 127 MyTravel Group PLC (AE) 85,300 17 Northern Foods PLC 29,500 76 Old Mutual PLC 83,900 138 Pearson PLC 600 7 Pennon Group PLC 6,100 74 Prudential PLC 52,500 444 Reckitt Benckiser PLC (AE) 100 2 Reed Elsevier PLC 22,980 192 Reuters Group PLC 19,700 83 Rexam PLC 44,791 343 Rio Tinto PLC 23,924 661 Rolls-Royce Group PLC 32,100 102 Royal & Sun Alliance Insurance Group 66,400 105 Royal Bank of Scotland Group PLC 39,100 1,152 SABMiller PLC 1,800 19 Safeway PLC 16,900 86 Scottish & Southern Energy PLC 56,305 678 Scottish Power PLC 21,300 142 Severn Trent PLC 3,300 44 Shell Transport & Trading Co. PLC 381,870 2,841 SSL International PLC (AE) 1,000 6 Stagecoach Group PLC 61,800 87 Standard Chartered PLC 30,000 495 Tate & Lyle PLC 22,600 126 Taylor Woodrow PLC 15,300 73 Tesco PLC 1,700 8 Trinity Mirror PLC 12,000 121 Unilever PLC 36,900 344 United Business Media PLC 41,261 362 United Utilities PLC 14,300 127 Vodafone Group PLC 1,427,557 3,540 Whitbread PLC 4,800 62 Wimpey George PLC 14,700 98 Yell Group PLC (AE) 4,000 22 --------------- 37,274 --------------- United States - 0.0% Berkeley Group PLC 700 11 --------------- Total Common Stocks (cost $150,644) 184,852 --------------- Notional Amount $ --------------- Options Purchased - 0.5% (Number of Contracts) Belgium - 0.4% Bel20 Index Futures Jan 2004 2,170.42 (EUR) Call (53) 2,902 767 --------------- Switzerland - 0.1% Swiss Market Index Futures Mar 2003 5,383.02 (EUR) Call (48) 2,089 228 --------------- Total Options Purchased (cost $848) 995 --------------- Principal Amount ($) or Shares --------------- Preferred Stocks - 0.6% Australia - 0.0% News Corp., Ltd. 12,100 91 --------------- Brazil - 0.1% Telecomunicacoes Brasileiras SA - ADR 5,500 186 --------------- Germany - 0.5% Fresenius AG (AE) 3,200 224 Fresenius Medical Care AG (AE) 2,000 101 Hugo Boss AG 3,850 77 ProSieben SAT.1 Media AG 14,400 241 Wella AG 4,380 388 --------------- 1,031 --------------- Total Preferred Stocks (cost $888) 1,308 --------------- 42 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Short-Term Investments - 8.9% United States - 8.9% Frank Russell Investment Company Money Market Fund 15,037,000 15,037 United States Treasury Bill (y)(s) 0.930% due 02/26/04 (c) 1,300 1,298 0.900% due 03/04/04 500 499 0.890% due 03/11/04 1,500 1,497 --------------- Total Short-Term Investments (cost $18,331) 18,331 --------------- Total Investments - 99.5% (identified cost $170,711) 205,486 Other Assets and Liabilities Net - 0.5% 1,133 --------------- Net Assets - 100.0% 206,619 =============== Unrealized Notional Appreciation Futures Contracts Amount (Depreciation) (Number of Contracts) $ $ - ------------------------------------------------------------------------------ Long Positions AEX Index (Germany) expiration date 01/04 (12) 1,022 17 CAC-40 Index (France) expiration date 01/04 (10) 449 3 expiration date 03/04 (32) 1,442 45 DAX Index (Germany) expiration date 03/04 (10) 1,260 27 DJ STOXX 50 Index (EMU) expiration date 03/04 (92) 3,202 161 FTSE-100 Index (UK) expiration date 03/04 (47) 3,758 77 Hang Seng Index (Hong Kong) expiration date 01/04 (35) 2,848 32 IBEX Plus Index (Spain) expiration date 01/04 (3) 291 4 MIB-30 (Italy) expiration date 03/04 (6) 1,014 (23) TOPIX Index (Japan) expiration date 12/03 (77) 7,516 8 Short Positions CAC-40 Index (France) expiration date 01/04 (51) 2,289 (20) FTSE-100 Index (UK) expiration date 03/04 (13) 1,035 (37) SPI 200 Index (Australia) expiration date 03/04 (22) 1,366 (27) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 267 =============== See accompanying notes which are an integral part of the financial statements. Non-U.S. Fund 43 Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands Notional Market Options Written Amount Value (Number of Contracts) $ $ - ------------------------------------------------------------------------------ Luxembourg Bel20 Index Futures Jan 2004 2,170.42 (EUR) Put (53) 2,902 (668) Switzerland Swiss Market Index Futures Mar 2003 5,383.02 (EUR) Put (48) 2,089 (194) --------------- Total Liability for Options Written (premiums received $846) (862) =============== % of Market Industry Diversification Net Value (Unaudited) Assets $ - ------------------------------------------------------------------------------ Auto and Transportation 7.3 15,156 Consumer Discretionary 11.8 24,383 Consumer Staples 5.4 11,134 Financial Services 23.0 47,604 Health Care 5.8 11,939 Integrated Oils 4.5 9,216 Materials and Processing 8.8 18,178 Miscellaneous 1.6 3,260 Options 0.5 995 Other Energy 3.5 7,323 Preferred Stocks 0.1 224 Producer Durables 5.2 10,757 Technology 3.3 6,808 Telecommunication Services 0.0 1 Utilities 9.8 20,177 Short-Term Investments 8.9 18,331 --------------- --------------- Total Investments 99.5 205,486 Other Assets and Liabilities, Net 0.5 1,133 --------------- --------------- Net Assets 100.0 206,619 =============== =============== % of Market Geographic Diversification Net Value (Unaudited) Assets $ - ------------------------------------------------------------------------------ Africa 0.1 251 Asia 7.6 15,706 Europe 43.3 89,583 Japan 20.5 42,299 Latin America 0.6 1,075 United Kingdom 18.0 37,235 Options 0.5 995 Other 0.0 11 Short-Term Investments 8.9 18,331 --------------- --------------- Total Investments 99.5 205,486 Other Assets and Liabilities, Net 0.5 1,133 --------------- --------------- Net Assets 100.0 206,619 =============== =============== See accompanying notes which are an integral part of the financial statements. 44 Non-U.S. Fund Russell Investment Funds Non-U.S. Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands Foreign Currency Exchange Contracts Unrealized Appreciation Amount Amount Settlement (Depreciation) Sold Bought Date $ - ------------ ------------- ---------- -------------- USD 12 AUD 16 01/02/04 -- USD 146 AUD 200 03/17/04 3 USD 661 AUD 900 03/17/04 11 USD 80 CHF 100 03/17/04 1 USD 33 DKK 200 03/17/04 1 USD 156 EUR 124 01/05/04 1 USD 125 EUR 99 01/06/04 -- USD 372 EUR 300 03/17/04 5 USD 1,716 EUR 1,400 03/17/04 44 USD 6,132 EUR 5,000 03/17/04 154 USD 229 GBP 129 01/05/04 1 USD 45 GBP 25 01/06/04 -- USD 263 GBP 150 03/17/04 3 USD 347 GBP 200 03/17/04 8 USD 2,772 GBP 1,600 03/17/04 67 USD 26 HKD 200 03/17/04 -- USD 17 JPY 1,806 01/05/04 -- USD 303 JPY 32,434 01/07/04 -- USD 187 JPY 20,000 03/17/04 -- USD 2,608 JPY 280,000 03/17/04 12 USD 3,916 JPY 420,000 03/17/04 14 CHF 173 USD 140 01/05/04 -- CHF 1,900 USD 1,509 03/17/04 (30) DKK 72 USD 12 01/02/04 -- EUR 302 USD 379 01/05/04 (2) EUR 134 USD 169 01/06/04 -- EUR 500 USD 613 03/17/04 (16) JPY 205 USD 2 01/05/04 -- JPY 3,174 USD 30 01/05/04 -- JPY 205 USD 2 01/06/04 -- JPY 207 USD 2 01/07/04 -- JPY 20,000 USD 187 03/17/04 -- NOK 134 USD 20 01/02/04 -- NOK 320 USD 47 01/05/04 (1) SEK 431 USD 60 01/07/04 -- SEK 2,100 USD 287 03/17/04 (4) SGD 200 USD 117 03/17/04 (1) -------------- 271 ============== See accompanying notes which are an integral part of the financial statements. Non-U.S. Fund 45 Russell Investment Funds Core Bond Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- [GRAPH APPEARS HERE] Core Bond Fund - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 10,615 6.15% 5 Years $ 13,566 6.29%Section Inception $ 15,986 6.93%Section Lehman Brothers Aggregate Bond Index - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 10,410 4.10% 5 Years $ 13,780 6.62%Section Inception $ 16,423 7.34%Section 46 Core Bond Fund Russell Investment Funds Core Bond Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Please state the Fund's Objective. The Fund seeks to maximize total return through capital appreciation and income by assuming a level of volatility consistent with the broad fixed-income market by investing in fixed-income securities. On October 3, 2003, shareholders voted to change the investment objective of the Fund to: The Fund seeks to provide current income and the preservation of capital. This change will be effective on March 1, 2004. Describe the Fund's performance for the 12 months ended December 31st and how it performed relative to its benchmark. For the fiscal year ended December 31, 2003, the Core Bond Fund gained 6.15%. This compared to its benchmark the Lehman Brothers Aggregate Bond Index, which gained 4.10%. The Fund's performance is net of operating expenses of 0.71%. Index returns do not reflect deduction of fees, expenses, or taxes. Describe the Fund's main performance drivers over the past 12 months including a discussion of investment styles and money managers. The biggest contributor to Fund performance was its exposure to riskier fixed income sectors including investment grade corporate, high yield, and emerging market debt. Over the past twelve months, the investment grade corporate bond market, represented by the Lehman US Credit Index, generated a 7.7% return, almost twice the return generated on the overall Lehman Brothers Aggregate Bond Index. The Lehman High Yield Index posted a 29% return for the same period. A slight overweight in the Fund to corporate bonds and a 6% average exposure to high yield securities helped performance relative to the benchmark, as these sectors rebounded from the underperformance in the first three quarters of 2002. The Fund's money managers also did well in managing risk given the volatility of interest rates and opportunities in the mortgage-backed securities market. The Fund's money managers added value by overweighting mortgage-backed securities early in the year and underweighting them as interest rates rose in the summer of 2003. The swift rise in interest rates hurt mortgage-backed securities in July. Please describe how the Fund and its money managers reacted to the market environment during the period and how the Fund is positioned to meet its long-term objectives. With increased fiscal and monetary stimulus created by tax cuts and Federal Reserve lending rates, and a better environment for businesses in general, the Fund's money managers positioned their portfolios to overweight corporate and high yield securities, which benefit from lower financing rates. Yield spreads between corporate bonds and Treasuries were wide as the fiscal year started, due to concerns over corporate governance and the high number of defaults by corporate issuers. This led the money managers to overweight corporate and high yield bonds while underweighting Treasury securities. Over the year, investors' tolerance for risk increased as evidenced by strong cash flows into equity mutual funds. This helped corporate bonds, and as yields fell relative to Treasuries, the Fund's money managers took profits and reduced positions in corporate bonds. At the same time, as interest rates rose in July 2003, the Fund's money managers found more value in mortgage-backed securities and went from an underweight to a slight overweight position. The Fund's money managers seek diversification across issuers, sectors, and interest rate strategies. At the end of the year, the Fund was underweight to mortgage-backed securities and investment-grade corporate bonds. Whereas the Fund did have nearly an 7% allocation to high yield securities in the summer of 2003, these positions were reduced as profits were realized, leaving the allocation at fiscal year-end at slightly below 6%. What changes were made to the Fund's structure or to the money manager line-up? No changes were made to the Fund's structure or its manager line-up during the year. Please explain what contributed most and least to the Fund's performance during the last 12 months. PIMCO did well over the fiscal year. PIMCO's performance benefited from its holding of corporate bonds in the utility and telecom sectors. Additionally, PIMCO held 3-5% of its portfolio in emerging market debt securities which performed well over the year. TimesSquare outperformed the Fund's benchmark, primarily due to its overweight to corporate bonds, its low exposure to high yield and emerging market debt, and security selection that was rewarded within the corporate, high yield, and emerging market debt sectors. TimesSquare also benefited from an underweight to mortgage-backed securities in July when the sector underperformed dramatically due to the sharp rise in interest rates. What was the investment environment like for bond selection? How did the Fund fare in this environment? The past fiscal year was favorable to active managers given the wide yield spreads within the corporate and high yield markets and divergent performance among issuer specific bonds. The Fund benefited from a market that rewarded investors who took credit risk at a very "distressed" time as the fiscal year started. Additionally, the Fund's money managers were rewarded for identifying issuer-specific credits that were trading at low dollar prices and whose revenues were sufficient to pay down debt. Core Bond Fund 47 Russell Investment Funds Core Bond Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Money Managers Styles Pacific Investment Management Co., LLC Sector Rotation TimesSquare Capital Management, Inc. Sector Rotation - ---------- * The Fund commenced operations on January 2, 1997. Index comparison began January 1, 1997. ** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage -Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization. Section Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 48 Core Bond Fund Russell Investment Funds Core Bond Fund Schedule of Investments -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Long-Term Investments - 64.3% Asset-Backed Securities - 1.4% American Airlines, Inc. 7.379% due 05/23/16 249 177 Citibank Credit Card Issuance Trust Series 2001-A6 Class A6 5.650% due 06/16/08 475 510 Continental Airlines, Inc. 6.900% due 01/02/17 338 283 Fleet Credit Card Master Trust II Series 2001-C Class A 3.860% due 03/15/07 375 381 Niagara Mohawk Power Corp. 7.625% due 10/01/05 132 144 Parker Hannifin Employee Stock Ownership Trust 6.340% due 07/15/08 269 293 Small Business Administration 7.449% due 08/01/10 69 75 Systems 2001 AT LLC 7.156% due 12/15/11 149 162 --------------- 2,025 --------------- Corporate Bonds and Notes - 14.7% Amerada Hess Corp. 7.300% due 08/15/31 155 160 American Electric Power Co., Inc. Series C 5.375% due 03/15/10 35 37 American RE Corp. Series B 7.450% due 12/15/26 240 267 Arrow Electronics, Inc. 6.875% due 07/01/13 45 48 AT&T Corp. 8.050% due 11/15/11 20 23 8.750% due 11/15/31 40 47 AT&T Wireless Services, Inc. 8.125% due 05/01/12 125 147 Avnet, Inc. 9.750% due 02/15/08 40 47 BAE Systems Holdings, Inc. 6.400% due 12/15/11 380 408 Bank of America Corp. 7.800% due 02/15/10 15 18 BankBoston Corp. Series B 8.250% due 12/15/26 80 92 BCI US Funding Trust Step Up Bond 8.010% due 12/29/49 250 287 Boeing Capital Corp. 6.100% due 03/01/11 65 70 Bunge, Ltd. Finance Corp. 4.375% due 12/15/08 150 151 Burlington Northern Santa Fe Corp. 6.875% due 12/01/27 25 27 Campbell Soup Co. 5.875% due 10/01/08 70 77 CenterPoint Energy Houston Electric LLC 5.700% due 03/15/13 100 105 CenterPoint Energy Resources Corp. 7.875% due 04/01/13 150 170 CIT Group, Inc. 6.500% due 02/07/06 120 130 6.875% due 11/01/09 45 51 Citigroup, Inc. 3.500% due 02/01/08 515 517 7.250% due 10/01/10 195 227 Columbus Southern Power Co. Series C 5.500% due 03/01/13 35 36 Comcast Cable Communications 8.375% due 05/01/07 195 226 Comcast Corp. 5.850% due 01/15/10 60 64 Countrywide Home Loans, Inc. Series MTNK 5.500% due 02/01/07 50 54 Credit Suisse First Boston USA, Inc. 4.625% due 01/15/08 65 68 5.500% due 08/15/13 55 57 Detroit Edison Co. 6.350% due 10/15/32 90 95 Devon Financing Corp. ULC 6.875% due 09/30/11 95 108 Dominion Resources, Inc. Series B 6.250% due 06/30/12 40 43 Core Bond Fund 49 Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ DPL, Inc. 8.250% due 03/01/07 115 125 Dresdner Funding Trust I 8.151% due 06/30/31 300 342 Duke Capital Corp. 6.250% due 02/15/13 35 37 Duke Energy Field Services LLC 5.750% due 11/15/06 30 32 6.875% due 02/01/11 20 22 El Paso Corp. 8.050% due 10/15/30 900 783 Eli Lilly & Co. 6.770% due 01/01/36 250 285 FedEx Corp. (TRIANGLE) 7.600% due 07/01/97 75 84 Fifth Third Bank Michigan 7.750% due 08/15/10 155 167 First Union Capital I Series A 7.935% due 01/15/27 55 63 FirstEnergy Corp. Series A 5.500% due 11/15/06 40 41 Series B 6.450% due 11/15/11 215 223 Series C 7.375% due 11/15/31 115 118 Ford Motor Co. 6.375% due 02/01/29 70 62 Ford Motor Credit Co. 6.875% due 02/01/06 305 326 7.375% due 02/01/11 380 414 General Electric Co. 5.000% due 02/01/13 325 329 General Motors Acceptance Corp. 7.250% due 03/02/11 55 60 6.875% due 09/15/11 415 447 7.000% due 02/01/12 70 75 Golden West Financial Corp. 4.125% due 08/15/07 110 114 Goldman Sachs Group, Inc. 6.875% due 01/15/11 245 278 HCA, Inc. 5.250% due 11/06/08 70 71 7.500% due 11/06/33 40 42 HJ Heinz Co. 6.375% due 07/15/28 20 21 HJ Heinz Finance Co. 6.750% due 03/15/32 65 73 Household Finance Corp. 4.125% due 12/15/08 260 261 6.375% due 11/27/12 125 137 HVB Funding Trust I 8.741% due 06/30/31 200 236 HVB Funding Trust III 9.000% due 10/22/31 95 115 International Lease Finance Corp. 6.375% due 03/15/09 125 138 International Paper Co. 5.500% due 01/15/14 140 141 ITT Industries, Inc. 7.400% due 11/15/25 110 126 JP Morgan & Co., Inc. Series MTNA 6.000% due 01/15/09 120 131 Kellogg Co. Series B 6.600% due 04/01/11 360 403 KeySpan Corp. 7.250% due 11/15/05 50 54 7.625% due 11/15/10 150 179 Kraft Foods, Inc. 5.250% due 06/01/07 60 64 5.625% due 11/01/11 160 169 5.250% due 10/01/13 205 207 Kroger Co. 8.000% due 09/15/29 15 18 7.500% due 04/01/31 15 17 Lehman Brothers Holdings, Inc. 6.625% due 01/18/12 145 164 Liberty Media Corp. 3.500% due 09/25/06 500 502 5.700% due 05/15/13 30 30 Lockheed Martin Corp. 8.200% due 12/01/09 500 607 8.500% due 12/01/29 125 164 Manufacturers & Traders Trust Co. 8.000% due 10/01/10 75 90 Michaels Stores, Inc. 9.250% due 07/01/09 180 199 Midland Funding II Series B 13.250% due 07/23/06 45 53 Miller Brewing Co. 5.500% due 08/15/13 130 133 Mizuho Preferred Capital Co. LLC 8.790% due 12/29/49 665 725 50 Core Bond Fund Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Monumental Global Funding II 3.850% due 03/03/08 155 156 Morgan Stanley 6.750% due 04/15/11 180 204 Natexis Ambs Co. LLC 8.440% due 12/29/49 120 141 National Rural Utilities Cooperative Finance 5.750% due 08/28/09 70 76 NB Capital Trust IV 8.250% due 04/15/27 90 104 News America Holdings 7.750% due 12/01/45 95 112 7.900% due 12/01/95 90 103 8.250% due 10/17/96 35 41 News America, Inc. 6.750% due 01/09/38 20 22 Nisource Finance Corp. 7.875% due 11/15/10 195 232 Norfolk Southern Corp. 7.700% due 05/15/17 20 24 7.900% due 05/15/97 (TRIANGLE) 200 236 Occidental Petroleum Corp. 9.250% due 08/01/19 95 131 Ohio Power Co. Series F 5.500% due 02/15/13 20 21 Oncor Electric Delivery Co. 7.250% due 01/15/33 95 108 Progress Energy, Inc. 7.100% due 03/01/11 45 51 7.000% due 10/30/31 120 128 Prudential Funding LLC 6.600% due 05/15/08 80 89 Qwest Capital Funding, Inc. 7.000% due 08/03/09 25 25 RBS Capital Trust I (TRIANGLE) 4.709% due 12/29/49 245 234 Safeway, Inc. 7.250% due 02/01/31 25 27 Schuler Homes, Inc. 9.375% due 07/15/09 210 236 Sovereign Bancorp, Inc. 10.500% due 11/15/06 460 544 Sprint Capital Corp. 6.125% due 11/15/08 50 53 7.625% due 01/30/11 600 673 8.375% due 03/15/12 60 70 6.875% due 11/15/28 200 195 8.750% due 03/15/32 105 124 Tele-Communications-TCI Group 9.800% due 02/01/12 140 183 7.875% due 08/01/13 280 331 Tenaska Alabama II Partners, LP 6.130% due 03/30/23 119 123 Tenet Healthcare Corp. 7.375% due 02/01/13 55 55 Time Warner Cos., Inc. 9.125% due 01/15/13 85 108 8.050% due 01/15/16 480 570 Time Warner, Inc. 6.750% due 04/15/11 100 112 Toll Corp. 8.250% due 12/01/11 85 94 Travelers Property Casualty Corp. 5.000% due 03/15/13 80 80 Union Pacific Corp. 5.750% due 10/15/07 270 291 6.125% due 01/15/12 140 152 Union Planters Corp. 7.750% due 03/01/11 50 59 Univision Communications, Inc. 7.850% due 07/15/11 240 285 Verizon Florida, Inc. Series F 6.125% due 01/15/13 85 91 Wachovia Corp. 7.550% due 08/18/05 50 55 Wells Fargo & Co. 4.950% due 10/16/13 100 100 Wells Fargo Bank NA 7.550% due 06/21/10 50 59 Weyerhaeuser Co. 5.250% due 12/15/09 70 73 Williams Cos., Inc. 8.750% due 03/15/32 100 113 Wisconsin Central Transport 6.625% due 04/15/08 325 362 Wyeth 5.500% due 03/15/13 35 36 5.500% due 02/01/14 155 157 Zurich Capital Trust I 8.376% due 06/01/37 340 390 --------------- 21,593 --------------- Core Bond Fund 51 Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Emerging Markets Debt - 1.8% Argentina Government International Bond 11.375% due 01/30/17 275 77 Brazilian Government International Bond 2.000% due 04/15/06 80 79 9.250% due 10/22/10 60 65 11.000% due 01/11/12 540 629 8.000% due 04/15/14 62 60 11.000% due 08/17/40 350 385 Brazilian Government International Bond (E) 2.063% due 04/15/09 19 18 2.063% due 04/15/12 40 36 Bulgaria Government International Bond (E) 1.938% due 07/28/24 160 158 Kyivstar GSM 12.750% due 11/21/05 140 154 Panama Government International Bond 9.375% due 07/23/12 100 114 Peru Government International Bond 9.125% due 02/21/12 200 223 9.875% due 02/06/15 200 232 Russia Government International Bond 5.000% due 03/31/30 370 356 --------------- 2,586 --------------- International Debt - 6.5% Abbey National PLC Step Up Bond (TRIANGLE) 6.700% due 06/29/49 150 166 AXA 8.600% due 12/15/30 85 107 British Sky Broadcasting PLC 8.200% due 07/15/09 230 274 British Telecommunications PLC 8.375% due 12/15/10 90 110 8.875% due 12/15/30 40 52 Conoco Funding Co. 6.350% due 10/15/11 385 432 DBS Capital Funding Corp. 7.660% due 03/15/49 270 311 Deutsche Telekom International Finance BV 8.500% due 06/15/10 150 181 8.750% due 06/15/30 170 217 France Telecom 8.450% due 03/01/06 440 491 9.000% due 03/01/11 820 985 9.750% due 03/01/31 60 80 Inco, Ltd. 5.700% due 10/15/15 90 91 Korea Development Bank 4.250% due 11/13/07 50 51 5.500% due 11/13/12 5 5 Mexico Government International Bond 8.375% due 01/14/11 100 119 6.375% due 01/16/13 130 135 8.000% due 09/24/22 700 766 8.300% due 08/15/31 145 163 Noranda, Inc. 6.000% due 10/15/15 75 76 Petroleos Mexicanos 9.500% due 09/15/27 110 130 Poland Government International Bond 4.500% due 10/27/24 200 185 Province of Quebec 7.500% due 07/15/23 390 478 PTC International Finance II SA 11.250% due 12/01/09 265 292 Royal Bank of Scotland Group PLC (TRIANGLE) Series 1 9.118% due 03/31/49 650 812 Royal KPN NV 8.000% due 10/01/10 300 359 Santander Central Hispano Issuances, Ltd. 7.625% due 09/14/10 20 24 Santander Financial Issuances 6.800% due 07/15/05 45 48 6.375% due 02/15/11 110 122 Sanwa Finance Aruba AEC 8.350% due 07/15/09 135 159 Shaw Communications, Inc. 8.250% due 04/11/10 145 165 7.200% due 12/15/11 50 54 Standard Chartered Bank 8.000% due 05/30/31 90 109 Stora Enso Oyj 7.375% due 05/15/11 85 98 Takefuji Corp. 9.200% due 04/15/11 55 61 52 Core Bond Fund Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Telecom Italia Capital 5.250% due 11/15/13 230 230 6.380% due 11/15/33 125 126 TELUS Corp. 7.500% due 06/01/07 185 205 8.000% due 06/01/11 460 538 TPSA Finance BV 7.750% due 12/10/08 255 271 TXU Australia Holdings Partnership, LP 6.150% due 11/15/13 100 102 UFJ Finance Aruba AEC 6.750% due 07/15/13 250 267 --------------- 9,647 --------------- Mortgage-Backed Securities - 29.9% Bear Stearns Adjustable Rate Mortgage Trust (E) Series 2002-8 Class 3A 6.164% due 08/25/32 22 22 Series 2003-1 Class 6A1 5.199% due 04/25/33 267 270 Series 2003-8 Class 4A1 4.834% due 01/25/34 496 499 Chase Mortgage Finance Corp. (E) Series 2002-A1 Class 1A1 6.231% due 12/25/29 20 20 Citicorp Mortgage Securities, Inc. Series 2001-12 Class M 6.394% due 08/25/31 94 94 CS First Boston Mortgage Securities Corp. Series 2001-AR24 Class 3A 6.176% due 12/25/31 158 161 Series 2002-10 Class 2A1 7.500% due 05/25/32 122 131 Series 2002-18 Class 1AIO 7.500% due 06/25/32 400 24 Series 2002-22 Class 1AIO 8.000% due 07/25/32 550 34 Federal Home Loan Mortgage Corp. 15 Year Gold TBA 4.50% (DELTA) 1,145 1,145 5.00% (DELTA) 1,980 2,017 6.50% (DELTA) 495 522 30 Year Gold TBA 4.50% (DELTA) 370 351 5.00% (DELTA) 1,675 1,653 5.50% (DELTA) 2,520 2,549 6.00% (DELTA) 165 170 6.50% (DELTA) 145 152 6.000% due 2016 112 117 5.000% due 2018 299 305 5.000% due 2018 155 158 7.820% due 2030 8 8 6.500% due 2032 144 151 7.500% due 2032 174 187 6.000% due 2033 1,089 1,126 Series 2000-2266 Class F 1.570% due 11/15/30 120 120 Series 2002-2504 Class L 5.500% due 03/15/15 21 22 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2003-54 Class 2AIO 0.249% due 02/25/43 10,167 87 Series 2003-54 Class 3AIO 0.797% due 02/25/43 4,149 109 Federal National Mortgage Association 15 Year TBA 4.00% (DELTA) 295 287 4.50% (DELTA) 1,230 1,231 5.00% (DELTA) 310 316 5.50% (DELTA) 925 956 30 Year TBA 5.00% (DELTA) 1,455 1,439 5.50% (DELTA) 1,335 1,352 6.00% (DELTA) 710 731 6.50% (DELTA) 275 287 6.000% due 2016 44 46 3.168% due 2017 136 137 5.000% due 2017 1,191 1,217 5.500% due 2017 1,544 1,602 6.000% due 2017 2,885 3,028 5.000% due 2018 2,619 2,673 5.000% due 2018 100 102 5.500% due 2018 938 973 6.000% due 2018 423 445 6.000% due 2029 397 413 6.500% due 2031 527 553 6.000% due 2032 180 186 6.500% due 2032 827 869 Core Bond Fund 53 Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ 7.000% due 2032 1,513 1,612 5.500% due 2033 650 659 6.000% due 2033 2,833 2,929 6.500% due 2033 662 692 4.023% due 2036 1,063 1,081 Series 1992-10 Class ZD 8.000% due 11/25/21 1,293 1,357 Series 2001-62 Class DA 6.000% due 02/25/29 19 19 Federal National Mortgage Association Whole Loan Series 2002-W1 Class 2AIO 0.595% due 04/25/42 3,839 98 Series 2002-W6 Class 2AIO 0.356% due 06/25/42 3,721 43 Series 2003-W1 Class 1A1 6.500% due 12/25/42 158 167 First Nationwide Trust (E) Series 2001-4 Class 3A5 1.720% due 09/25/31 62 62 Government National Mortgage Association (E) Series 2000-29 Class F 1.620% due 09/20/30 136 136 Government National Mortgage Association I 30 Year TBA 5.50% (DELTA) 535 544 6.00% (DELTA) 735 764 6.000% due 2029 44 46 6.500% due 2032 47 49 6.500% due 2032 467 493 5.500% due 2033 154 156 Government National Mortgage Association II (E) 4.375% due 2026 660 675 4.750% due 2027 50 51 3.500% due 2032 541 537 MASTR Alternative Loans Trust Series 2003-2 Class 7A1 7.000% due 12/25/32 137 140 Residential Asset Mortgage Products, Inc. Series 2002-RZ4 Class AIO 5.750% due 04/25/05 749 35 Sequoia Mortgage Trust (E) Series 2001-5 Class A 1.500% due 10/19/26 371 380 Vendee Mortgage Trust Series 2002-1 Class 2IO 0.246% due 08/15/31 8,868 78 Wells Fargo Mortgage Backed Securities Trust (E) Series 2001-34 Class 3A 6.048% due 01/25/32 94 95 Series 2002-9 Class B1 6.250% due 06/25/32 113 114 --------------- 44,059 --------------- Municipal Bonds - 2.5% Brazos Higher Education Authority Revenue Bonds, monthly demand (E) 1.230% due 12/01/39 100 100 County of Clark Nevada General Obligation Limited, weekly demand (u) 5.000% due 06/01/32 600 611 Energy Northwest Revenue Bonds 5.500% due 07/01/13 100 114 Florida State Board Education General Obligation Unlimited, weekly demand 5.000% due 06/01/33 300 308 Golden State Tobacco Securitization Corp. Revenue Bonds, weekly demand 6.750% due 06/01/39 400 394 Los Angeles Unified School District General Obligation Unlimited, weekly demand 5.000% due 01/01/28 200 206 Lower Colorado River Authority Revenue Bonds, weekly demand (u) 5.000% due 05/15/31 300 306 Mississippi Higher Education Assistance Corporation Revenue Bonds, monthly demand (E) 1.180% due 09/01/33 500 500 New York City Transitional Finance Authority Revenue Bonds, weekly demand 5.000% due 02/01/33 300 306 54 Core Bond Fund Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ South Carolina Transportation Infrastructure Bank Revenue Bonds, weekly demand 5.000% due 10/01/33 600 617 Tobacco Settlement Financing Corp. Revenue Bonds, weekly demand 4.375% due 06/01/19 100 96 University of Texas Revenue Bonds, weekly demand 5.000% due 08/15/33 100 102 --------------- 3,660 --------------- United States Government Agencies - 0.9% Federal Home Loan Bank System 4.125% due 01/14/05 185 190 Federal Home Loan Mortgage Corp. 2.750% due 03/15/08 235 231 Federal National Mortgage Association 4.375% due 03/15/13 345 339 Financing Corp. Principal Only STRIP 0.000% due 05/11/18 95 43 0.000% due 04/05/19 420 179 0.000% due 09/26/19 290 120 Series 15P 0.000% due 03/07/19 70 30 Residual Funding Principal Only STRIP 0.000% due 10/15/20 600 236 --------------- 1,368 --------------- United States Government Treasuries - 6.6% United States Treasury Inflation Indexed Bonds 3.375% due 01/15/07 (s) 234 253 3.625% due 01/15/08 229 253 3.875% due 01/15/09 1,015 1,146 3.500% due 01/15/11 266 299 3.375% due 01/15/12 313 350 3.000% due 07/15/12 2,073 2,260 3.625% due 04/15/28 343 425 3.875% due 04/15/29 1,238 1,604 United States Treasury Note 4.625% due 05/15/06 1,085 1,150 7.000% due 07/15/06 85 95 5.000% due 02/15/11 70 75 8.750% due 05/15/17 945 1,324 6.000% due 02/15/26 420 466 --------------- 9,700 --------------- Total Long-Term Investments (cost $91,074) 94,638 --------------- Preferred Stocks - 0.5% Financial Services - 0.5% Centaur Funding Corp. 190,000 234 DG Funding Trust 49 519 --------------- Total Preferred Stocks (cost $719) 753 --------------- Short-Term Investments - 46.2% ABN AMRO North America Discount Note (c)(y) 1.070% due 01/14/04 1,000 1,000 Bank of America Corp. (E) Series MTNI 1.450% due 10/22/04 250 251 CBA Del Finance, Inc. Years 3 & 4 Commercial Paper (y) 1.080% due 03/09/04 500 499 CIT Group, Inc. 5.625% due 05/17/04 700 711 Danske Corp. Commercial Paper (y) 1.085% due 03/08/04 2,000 1,995 European Investment Bank (c)(y) 1.060% due 02/10/04 1,200 1,199 Federal Home Loan Mortgage Corp. Discount Note (c)(y) 1.075% due 02/05/04 400 400 Federal Home Loan Mortgage Discount Notes (c)(y) 1.065% due 01/15/04 2,000 1,999 Federal National Mortgage Association Discount (c)(y) 1.085% due 01/22/04 3,900 3,898 1.070% due 01/29/04 3,800 3,797 Federal National Mortgage Association Discount Note (y) 1.080% due 03/17/04 1,800 1,790 Frank Russell Investment Company Money Market Fund 33,253,000 33,253 Core Bond Fund 55 Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ General Electric Capital Corp. Commercial Paper (c)(y) 1.090% due 02/24/04 1,900 1,897 General Motors Acceptance Corp. (y) 1.880% due 01/20/04 (c) 100 100 1.590% due 07/20/04 700 700 1.569% due 07/30/04 400 400 HBOS Treasury Services PLC Commercial Paper (y) 1.750% due 03/29/04 600 598 Lloyds Bank PLC (c)(y) 1.060% due 01/22/04 200 200 Pinnacle Partners 8.830% due 08/15/04 100 104 Shell Finance (y) 1.100% due 03/16/04 1,500 1,492 State of California Notes 2.000% due 06/16/04 200 200 United States Treasury Bill (y) 0.910% due 03/04/04 (s) 670 668 0.895% due 03/11/04 (s) 80 80 0.880% due 03/18/04 (s) 140 140 0.970% due 04/01/04 (s) 125 124 1.020% due 04/29/04 100 100 1.024% due 05/06/04 900 896 1.040% due 05/13/04 1,800 1,791 1.010% due 05/20/04 1,600 1,592 1.010% due 05/27/04 200 199 1.030% due 06/03/04 3,400 3,382 United States Treasury Note 7.875% due 11/15/04 1,385 1,464 US Bancorp/First Bank Series MTNJ 6.875% due 12/01/04 275 288 Waste Management, Inc. 6.500% due 05/15/04 700 712 --------------- Total Short-Term Investments (cost $67,893) 67,919 --------------- Warrants - 0.0% Mexico Government International Bond Value Recovery Rights Series B 2,500,000 25 Series D 4,400,000 9 Series E 1,900,000 2 --------------- Total Warrants (cost $41) 36 --------------- Total Investments - 111.0% (identified cost $159,727) 163,346 Other Assets and Liabilities Net - (11.0%) (16,144) --------------- Net Assets - 100.0% 147,202 =============== See accompanying notes which are an integral part of the financial statements. 56 Core Bond Fund Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands Unrealized Notional Appreciation Futures Contracts Amount (Depreciation) (Number of Contracts) $ $ - ------------------------------------------------------------------------------ Long Positions Euribor Futures expiration date 12/04 (14) 4,296 16 expiration date 03/05 (7) 2,142 6 expiration date 06/05 (1) 304 -- expiration date 09/05 (1) 305 -- expiration date 12/05 (1) 304 -- Eurodollar Futures expiration date 09/04 (7) 1,719 12 expiration date 12/04 (11) 2,691 5 expiration date 03/05 (5) 1,218 3 expiration date 06/05 (5) 1,213 2 expiration date 09/05 (1) 242 -- expiration date 12/05 (1) 241 -- expiration date 03/08 (1) 236 (1) expiration date 06/08 (1) 236 (1) expiration date 09/08 (1) 236 -- expiration date 12/08 (1) 236 -- Germany, Federal Republic 5 Year Bonds expiration date 03/04 (9) 1,255 1 United States Treasury Bonds expiration date 03/04 (10) 1,093 (4) United States Treasury 2 Year Notes expiration date 03/04 (17) 3,639 9 United States Treasury 5 Year Notes expiration date 03/04 (22) 2,456 26 United States Treasury 10 Year Notes expiration date 03/04 (79) 8,869 155 Short Positions United States Treasury Bonds expiration date 03/04 (4) 437 (5) United States Treasury 5 Year Notes expiration date 03/04 (72) 8,037 (15) United States Treasury 10 Year Notes expiration date 03/04 (26) 2,919 7 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 216 =============== Notional Market Options Written Amount Value (Number of Contracts) $ $ - ------------------------------------------------------------------------------ Euribor Futures Dec 2004 97.00 Put (3) 2 1 Eurodollar Futures Mar 2004 98.50 Call (2) (493) (1) Mar 2004 97.25 Put (1) (243) -- Mar 2004 97.75 Put (3) (733) -- Jun 2004 98.00 Put (20) (4,900) (2) Three Month LIBOR Swap Mar 2004 3.25 Call (1) (5,850) (3) Mar 2004 4.00 Call (3) (4,100) (2) United States Treasury Notes 10 Year Futures Mar 2004 113.00 Call (9) (1,017) (12) Mar 2004 108.00 Put (5) (540) (2) --------------- Total Liability for Options Written (premiums received $89) (21) =============== Securities Sold Short Principal Market Amount($) Value($) Proceeds($) ---------- ------------- ------------ Federal National Mortgage Association 15 Year TBA 6.00% 1,000 1,048 1,048 Foreign Currency Exchange Contracts Unrealized Appreciation Amount Amount Settlement (Depreciation) Sold Bought Date $ - ----------------- ----------------- ----------------- ------------------ USD 1,065 EUR 890 03/12/04 54 USD 1,091 EUR 930 03/12/04 79 USD 1,126 EUR 970 03/12/04 93 EUR 94 USD 113 01/07/04 (5) EUR 930 USD 1,024 03/12/04 (145) EUR 1,860 USD 2,049 03/12/04 (291) ------------------ (215) ================== See accompanying notes which are an integral part of the financial statements. Core Bond Fund 57 Russell Investment Funds Core Bond Fund Schedule of Investments, continued -- December 31, 2003 Amounts in thousands
Index Swaps - ------------------------------------------------------------------------------------------------------- Unrealized Notional Appreciation Fund Receives Counter Amount Fund Pays Termination (Depreciation) Underlying Security Party $ Floating Rate Date $ - --------------------------- --------------- -------- ------------------ ----------- -------------- Bear Stearns 3 Month USD LIBOR- High Yield Index Bear Stearns 1,230 BBA minus 0.000% 03/31/04 28 Bear Stearns 3 Month USD LIBOR- High Yield Index Bear Stearns 230 BBA plus 0.100% 05/31/04 5 Lehman Brothers CMBS 1 Month USD LIBOR- ERISA Eligible Index Lehman Brothers 730 BBA minus 0.500% 03/31/04 7 Lehman Brothers CMBS 1 Month USD LIBOR- ERISA Eligible Index Lehman Brothers 1,200 BBA minus 0.500% 04/30/04 11 Lehman Brothers CMBS 1 Month USD LIBOR- ERISA Eligible Index Lehman Brothers 680 BBA minus 0.520% 05/31/04 6 Lehman Brothers CMBS 1 Month USD LIBOR- ERISA Eligible Index Lehman Brothers 520 BBA minus 0.420% 12/31/04 5 Lehman Brothers CMBS 1 Month USD LIBOR- ERISA Eligible Index Lehman Brothers 520 BBA minus 0.450% 12/31/04 5 -------------- 67 ==============
Interest Rate Swaps - ----------------------------------------------------------------------------------------------- Notional Market Amount Termination Value Counter Party $ Fund Receives Fund Pays Date $ - --------------------- ------------------ ----------------- ------------ ----------- ------ Goldman Sachs USD 1,000 Three Month LIBOR 4.000% 06/06/19 (4) JP Morgan EUR 1,400 Six Month LIBOR 4.000% 12/21/07 (6) Merrill Lynch EUR 900 Six Month LIBOR 4.000% 03/15/07 6 Goldman Sachs USD 6,900 Three Month LIBOR 4.000% 06/16/09 (9) ------ Total Market Value of Interest Rate Swaps premiums paid (received) - ($54) (13) ======
See accompanying notes which are an integral part of the financial statements. 58 Core Bond Fund Russell Investment Funds Real Estate Securities Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) [GRAPH APPEARS HERE] Real Estate Securities Fund - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 13,721 37.21% Inception $ 18,124 13.53%Section NAREIT Equity REIT Index - -------------------------------------- Periods Ended Growth of Total 12/31/03 $10,000 Return - ------------- --------- ------ 1 Year $ 13,714 37.14% Inception $ 18,759 14.43%Section 60 Real Estate Securities Fund Russell Investment Funds Real Estate Securities Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Please state the Fund's Objective. The Fund seeks to generate a high level of total return through above average current income while maintaining the potential for capital appreciation. On October 3, 2003, shareholders voted to change the investment objective of the Fund to: The Fund seeks to provide current income and long-term capital growth. This change will be effective on March 1, 2004. Describe the Fund's performance for the 12 months ended December 31st and how it performed relative to its benchmark. For the fiscal year ended December 31, 2003, the Real Estate Securities Fund gained 37.21%. This compared to the NAREIT Equity REIT Index, which gained 37.14% during the same period. The Fund's performance is net of operating expenses of 0.95%. Index returns do not include deduction of fees, expenses or taxes. Describe the Fund's main performance drivers over the past 12 months including a discussion of investment styles and money managers. The biggest contributor to the Fund's performance was an overweight position in the regional malls sector, which was the best performing major property type during the past year. An overweight position in the shopping centers sector also boosted performance. Regional malls and shopping centers benefited from strong consumer spending and company earnings growth as operating fundamentals remained much stronger than for other property types. Positions that detracted from Fund performance at the property sector level included overweight positions in the industrial and apartments sectors and an underweight position in the health care sector. The industrial and apartments sectors were adversely affected by slower than expected economic activity and employment growth, particularly in the first half of the year. RREEF had the largest allocation of assets of the Fund's three money managers and contributed the best performance during the year. RREEF's style emphasizes a top-down approach to property sector weights, based on an assessment of property market fundamentals. RREEF's performance benefited from effective sector positioning and positive stock selection within sectors. Please describe how the Fund and its money managers reacted to the market environment during the period and how the Fund is positioned to meet its long-term objectives. The Real Estate Investment Trust (REIT) market advanced very strongly during the year. The market was driven by strong capital flows from mutual fund and institutional investors. Investors' search for yield in a low interest rate environment and desire for increased diversification contributed to the significant inflows to the REIT market. The Fund's money managers focused on the mid-capitalization and large-capitalization REITs and avoided the less liquid small-capitalization REITs that tend to pay the highest dividends. In 2001 and much of 2002, the small-cap REITs outperformed the market as a whole as the market was seeking yield above all other considerations. Investors were more discriminating in 2003 and focused on earnings quality and dividend coverage. This market environment was more aligned with the Fund money managers' approach to stock selection. What changes were made to the Fund's structure or to the money manager line-up? In February, 2003, INVESCO Realty Advisors was added to the Fund's manager line-up, replacing Security Capital. INVESCO strives to achieve higher than benchmark returns with approximately average benchmark risk. INVESCO maintained a broadly diversified portfolio (typically 30-40 securities) with exposure to all benchmark sectors. INVESCO provided the Fund with increased exposure to the health care sector, a key component of the NAREIT Equity REIT Index that had historically been under-represented in the Fund. Concurrent with this manager change, the following target weights were established for the Fund's money managers: RREEF: 40%, INVESCO: 30% and AEW: 30%. Please explain what contributed most and least to the Fund's performance during the last 12 months. RREEF was the primary contributor to the Fund's outperformance relative to the benchmark during the last twelve months. Stock and sector selection contributed to RREEF's performance. RREEF's largest overweight positions were in regional malls, industrial and apartments and its largest underweight positions were in the health care and specialty sectors. AEW outperformed the benchmark to a lesser extent than RREEF. AEW's portfolio tended to track relatively closely to the benchmark sector weights. Therefore, stock selection was the primary contributor to its performance during the twelve months. AEW has a more value-oriented style than either RREEF or INVESCO. INVESCO outperformed the benchmark for the ten months they were in the Fund. Property sector selection was a positive contributor to performance, driven primarily by an overweight position in regional malls. Its individual stock selection, however, was a negative contributor to performance, particularly in the apartments sector. At the overall Fund level, property sector selection was positive during the last twelve months. Overweight positions in the regional malls and shopping centers sectors benefited Real Estate Securities Fund 61 Russell Investment Funds Real Estate Securities Fund Portfolio Management Discussion -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- performance, but these were partially offset by overweight positions in the industrial and apartments sectors, which lagged the benchmark. What was the investment environment like for stock selection? How did the Fund fare in this environment? During most of the past year, REITs have traded at a premium to their underlying private real estate net asset value. Because net asset value has been uncoupled from REIT values to some extent, the combination of dividend sustainability and earnings growth have proven to be more important variables in driving individual company performance. The Fund fared relatively well in this environment as the Fund's money managers focused primarily on earnings quality and stability rather than deep value investing. Overall stock selection was a positive contributor to the Fund's performance during the year. Money Managers Styles AEW Management and Advisors, LP Value INVESCO Realty Advisors Market-Oriented RREEF America, LLC Market-Oriented - ---------- * Real Estate Securities Fund assumes initial investment on April 30, 1999, NAREIT Index comparison for the initial investment began May 1, 1999. ** National Association of Real Estate Investment Trusts (NAREIT) Equity REIT Index is an index composed of all the data based on the last closing price of the month for all tax-qualified REITs listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System. The data is market value-weighted. The total-return calculation is based upon whether it is 1-month, 3-months or 12-months. Only those REITs listed for the entire period are used in the total return calculation. Section Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 62 Real Estate Securities Fund Russell Investment Funds Real Estate Securities Fund Schedule of Investments -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Common Stocks - 97.2% Residential - 18.1% Apartment Investment & Management Co. Class A (o) 48,000 1,656 Archstone-Smith Trust (o) 345,517 9,668 AvalonBay Communities, Inc. (o) 139,000 6,644 Boardwalk Equities, Inc. 33,800 467 BRE Properties Class A (o) 69,400 2,318 Camden Property Trust (o) 38,500 1,706 Equity Residential (o) 389,700 11,500 Essex Property Trust, Inc. (o) 42,000 2,697 Home Properties, Inc. (o) 83,300 3,364 Summit Properties, Inc. (o) 63,900 1,535 Sun Communities, Inc. (o) 21,000 813 United Dominion Realty Trust, Inc. (o) 189,200 3,633 --------------- 46,001 --------------- Health Care - 2.0% Health Care Property Investors, Inc. (o) 21,900 1,113 Health Care REIT, Inc. (o) 28,700 1,033 Healthcare Realty Trust, Inc. (o) 33,300 1,190 Senior Housing Properties Trust (o) 27,000 465 Ventas, Inc. (o) 63,600 1,399 --------------- 5,200 --------------- Hotels/Leisure - 6.9% Extended Stay America, Inc. 11,900 172 Fairmont Hotels & Resorts, Inc. 27,900 757 Hilton Hotels Corp. 285,600 4,892 Hospitality Properties Trust (o) 14,000 578 Host Marriott Corp. (o) 492,300 6,065 LaSalle Hotel Properties (o) 20,400 378 Starwood Hotels & Resorts Worldwide, Inc. 130,432 4,692 --------------- 17,534 --------------- Other - 1.3% American Financial Realty Trust (o) 20,700 353 iStar Financial, Inc. (o) 28,500 1,109 Plum Creek Timber Co., Inc. (REIT) (o) 60,700 1,848 --------------- 3,310 --------------- Office/Industrial - 34.7% Alexandria Real Estate Equities, Inc. (o) 21,800 1,262 AMB Property Corp. (o) 64,000 2,104 Arden Realty, Inc. (o) 97,400 2,955 Boston Properties, Inc. (o) 203,000 9,783 Brookfield Properties Co. 178,600 5,126 CarrAmerica Realty Corp. (o) 104,100 3,100 Catellus Development Corp. 328,866 7,932 Centerpoint Properties Trust (o) 53,400 4,000 Corporate Office Properties Trust (o) 16,500 347 Cousins Properties, Inc. (o) 14,400 441 Duke Realty Corp. (o) 31,500 977 Equity Office Properties Trust (o) 181,400 5,197 Glenborough Realty Trust, Inc. (o) 24,600 491 Highwoods Properties, Inc. (o) 92,200 2,342 Kilroy Realty Corp. (o) 73,100 2,394 Liberty Property Trust (o) 144,500 5,621 Mack-Cali Realty Corp. (o) 147,600 6,143 Prentiss Properties Trust (o) 57,600 1,900 Prologis (o) 470,200 15,089 PS Business Parks, Inc. (o) 30,000 1,238 Reckson Associates Realty Corp. (o) 30,500 741 SL Green Realty Corp. (o) 87,500 3,592 Vornado Realty Trust (o) 100,400 5,497 --------------- 88,272 --------------- Outlet Centers - 3.6% Chelsea Property Group, Inc. (o) 167,600 9,186 --------------- Regional Malls - 18.5% CBL & Associates Properties, Inc. (o) 37,100 2,096 General Growth Properties, Inc. (o) 480,300 13,328 Macerich Co. (The) (o) 101,400 4,512 Mills Corp. (The) (o) 18,500 814 Pennsylvania Real Estate Investment Trust (o) 55,947 2,031 Rouse Co. (The) (o) 135,700 6,378 Simon Property Group, Inc. (o) 345,900 16,028 Taubman Centers, Inc. (o) 89,800 1,850 --------------- 47,037 --------------- See accompanying notes which are an integral part of the financial statements. Real Estate Securities Fund 63 Russell Investment Funds Real Estate Securities Fund Schedule of Investments -- December 31, 2003 Amounts in thousands (except share amounts) Principal Market Amount ($) Value or Shares $ - ------------------------------------------------------------------------------ Self Storage - 2.4% Public Storage, Inc. (o) 105,900 4,595 Shurgard Storage Centers, Inc. Class A (o) 43,700 1,645 --------------- 6,240 --------------- Shopping Center - 9.7% Developers Diversified Realty Corp. (o) 195,100 6,550 Federal Realty Invs Trust (o) 85,900 3,298 Kimco Realty Corp. (o) 43,000 1,924 Pan Pacific Retail Properties, Inc. (o) 145,200 6,919 Regency Centers Corp. (o) 141,500 5,639 Urstadt Biddle Properties, Inc. Class A (o) 20,500 290 --------------- 24,620 --------------- Total Common Stocks (cost $186,960) 247,400 --------------- Short-Term Investments - 2.9% Frank Russell Investment Company Money Market Fund 7,433,000 7,433 --------------- Total Short-Term Investments (cost $7,433) 7,433 --------------- Total Investments - 100.1% (identified cost $194,393) 254,833 Other Assets and Liabilities Net - (0.1%) (142) --------------- Net Assets - 100.0% 254,691 =============== See accompanying notes which are an integral part of the financial statements. 64 Real Estate Securities Fund Russell Investment Funds Statement of Assets and Liabilities -- December 31, 2003 Amounts in thousands
Aggressive Multi-Style Equity Equity Fund Fund - ---------------------------------------------------------------------------------------------- Assets Investments, at identified cost $ 258,616 $ 139,926 - ---------------------------------------------------------------------------------------------- Investments, at market*** 296,329 167,371 Cash -- -- Foreign currency holdings* -- -- Unrealized appreciation on foreign currency exchange contracts -- -- Receivables: Dividends and interest 358 126 Investments sold 983 1,550 Fund shares sold 29 11 Foreign taxes recoverable -- -- Daily variation margin on futures contracts -- -- Investment of securities lending collateral in money market funds, at cost and market value 6,949 33,997 Unrealized appreciation on index swap contracts -- -- Interest rate swap contracts, at market value**** -- -- -------------- -------------- Total assets 304,648 203,055 -------------- -------------- Liabilities Payables: Investments purchased 570 1,841 Fund shares redeemed 106 558 Accrued fees to affiliates 201 138 Other accrued expenses 50 54 Daily variation margin on futures contracts 5 82 Unrealized depreciation on foreign currency exchange contracts -- -- Options written, at market value** -- -- Securities sold short, at fair value -- -- Dividends -- -- Payable upon return of securities loaned 6,949 33,997 Interest rate swap contracts, at market value**** -- -- -------------- -------------- Total liabilities 7,881 36,670 -------------- -------------- Net Assets $ 296,767 $ 166,385 ============== ============== Net Assets Consist of: Undistributed (overdistributed) net investment income $ 649 $ -- Accumulated net realized gain (loss) (102,197) (7,580) Unrealized appreciation (depreciation) on: Investments 37,713 27,445 Futures contracts 718 333 Options written -- -- Securities sold short -- -- Index swap contracts -- -- Interest rate swap contracts -- -- Foreign currency-related transactions -- -- Shares of beneficial interest 257 123 Additional paid-in capital 359,627 146,064 -------------- -------------- Net Assets $ 296,767 $ 166,385 ============== ============== Net Asset Value, offering and redemption price per share: Net asset value per share***** $ 11.56 $ 13.47 Net assets $ 296,766,634 $ 166,385,163 Shares outstanding ($.01 par value) 25,671,007 12,349,166 - ---------------------------------------------------------------------------------------------- Amounts in thousands * Foreign currency holdings-cost $ -- $ -- ** Premiums received on options written $ -- $ -- *** Securities on loan included in investments $ 7,117 $ 33,200 **** Interest rate swap contracts-premiums paid (received) $ -- $ -- ***** Net asset value per share equals net assets divided for shares of beneficial interest outstanding.
See accompanying notes which are an integral part of the financial Statements. 66 Statement of Assets and Liabilities
Non-U.S. Core Bond Real Estate Fund Fund Securities Fund - ---------------------------------------------------------------------------------------------------------------- Assets Investments, at identified cost $ 170,711 $ 159,727 $ 194,393 - ---------------------------------------------------------------------------------------------------------------- Investments, at market*** 205,486 163,346 254,833 Cash -- 29 -- Foreign currency holdings* 1,434 523 -- Unrealized appreciation on foreign currency exchange contracts 325 226 -- Receivables: Dividends and interest 225 986 1,206 Investments sold 1,013 2,764 726 Fund shares sold 45 22 268 Foreign taxes recoverable 87 -- -- Daily variation margin on futures contracts 32 18 -- Investment of securities lending collateral in money market funds, at cost and market value -- -- -- Unrealized appreciation on index swap contracts -- 67 -- Interest rate swap contracts, at market value**** -- 6 -- -------------- -------------- --------------- Total assets 208,647 167,987 257,033 -------------- -------------- --------------- Liabilities Payables: Investments purchased 889 19,042 2,076 Fund shares redeemed 21 93 46 Accrued fees to affiliates 110 66 183 Other accrued expenses 92 42 37 Daily variation margin on futures contracts -- 13 -- Unrealized depreciation on foreign currency exchange contracts 54 441 -- Options written, at market value** 862 21 -- Securities sold short, at fair value -- 1,048 -- Dividends -- -- -- Payable upon return of securities loaned -- -- -- Interest rate swap contracts, at market value**** -- 19 -- -------------- -------------- --------------- Total liabilities 2,028 20,785 2,342 -------------- -------------- --------------- Net Assets $ 206,619 $ 147,202 $ 254,691 ============== ============== =============== Net Assets Consist of: Undistributed (overdistributed) net investment income $ (690) $ 434 $ (1,162) Accumulated net realized gain (loss) (61,796) 267 (2,941) Unrealized appreciation (depreciation) on: Investments 34,775 3,619 60,440 Futures contracts 267 216 -- Options written (16) 68 -- Securities sold short -- -- -- Index swap contracts -- 67 -- Interest rate swap contracts -- 41 -- Foreign currency-related transactions 332 (211) -- Shares of beneficial interest 212 141 186 Additional paid-in capital 233,535 142,560 198,168 -------------- -------------- --------------- Net Assets $ 206,619 $ 147,202 $ 254,691 ============== ============== =============== Net Asset Value, offering and redemption price per share: Net asset value per share***** $ 9.76 $ 10.47 $ 13.71 Net assets $ 206,619,057 $ 147,201,536 $ 254,691,350 Shares outstanding ($.01 par value) 21,177,475 14,059,739 18,577,855 - ---------------------------------------------------------------------------------------------------------------- Amounts in thousands * Foreign currency holdings-cost $ 1,398 $ 483 $ -- ** Premiums received on options written $ 846 $ 89 $ -- *** Securities on loan included in investments $ -- $ -- $ -- **** Interest rate swap contracts-premiums paid (received) $ -- $ (54) $ -- ***** Net asset value per share equals net assets divided for shares of beneficial interest outstanding.
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 67 Russell Investment Funds Statement of Operations -- For the Fiscal Year Ended December 31, 2003 Amounts in thousands
Aggressive Multi-Style Equity Equity Fund Fund - ----------------------------------------------------------------------------- -------------- Investment Income Dividends $ 3,835 $ 1,299 Dividends from Money Market Fund 219 87 Interest 12 7 Securities lending income 16 32 Less foreign taxes withheld -- -- -------------- -------------- Total investment income 4,082 1,425 -------------- -------------- Expenses Management fees 1,879 1,168 Custodian fees 271 279 Transfer agent fees 12 10 Professional fees 43 40 Trustees' fees 12 9 Printing fees 21 9 Miscellaneous 43 40 -------------- -------------- Expenses before reductions 2,281 1,555 Expense reductions (176) (247) -------------- -------------- Net expenses 2,105 1,308 -------------- -------------- Net investment income (loss) 1,977 117 -------------- -------------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments 10,108 14,175 Futures contracts 3,594 2,213 Options written -- -- Index swap contracts -- -- Interest rate swap contracts -- -- Foreign currency-related transactions -- -- -------------- -------------- Net realized gain (loss) 13,702 16,388 -------------- -------------- Net change in unrealized appreciation (depreciation) on: Investments 46,423 30,675 Futures contracts 1,001 495 Options written -- -- Index swap contracts -- -- Interest rate swap contracts -- -- Foreign currency-related transactions -- -- -------------- -------------- Net change in unrealized appreciation (depreciation) 47,424 31,170 -------------- -------------- Net realized and unrealized gain (loss) 61,126 47,558 -------------- -------------- Net Increase (Decrease) in Net Assets from Operations $ 63,103 $ 47,675 ============== ==============
See accompanying notes which are an integral part of the financial statements. 68 Statement of Operations
Non-U.S. Core Bond Real Estate Fund Fund Securities Fund - ---------------------------------------------------------------------------------------------------------------- Investment Income Dividends $ 3,908 $ 43 $ 10,887 Dividends from Money Market Fund 122 371 88 Interest 22 4,834 -- Securities lending income -- -- -- Less foreign taxes withheld (417) -- -- -------------- -------------- --------------- Total investment income 3,635 5,248 10,975 -------------- -------------- --------------- Expenses Management fees 1,501 882 1,662 Custodian fees 609 194 100 Transfer agent fees 10 9 8 Professional fees 63 38 42 Trustees' fees 10 9 11 Printing fees 13 12 18 Miscellaneous 27 7 23 -------------- -------------- --------------- Expenses before reductions 2,233 1,151 1,864 Expense reductions (399) (111) -- -------------- -------------- --------------- Net expenses 1,834 1,040 1,864 -------------- -------------- --------------- Net investment income (loss) 1,801 4,208 9,111 -------------- -------------- --------------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments (3,665) 3,994 (511) Futures contracts 2,671 64 -- Options written (766) 165 -- Index swap contracts -- 1,187 -- Interest rate swap contracts -- (165) -- Foreign currency-related transactions 2,339 (1,047) -- -------------- -------------- --------------- Net realized gain (loss) 579 4,198 (511) -------------- -------------- --------------- Net change in unrealized appreciation (depreciation) on: Investments 52,625 (71) 55,264 Futures contracts 681 (31) -- Options written 2 103 -- Index swap contracts -- (11) -- Interest rate swap contracts -- 103 -- Foreign currency-related transactions 54 150 -- -------------- -------------- --------------- Net change in unrealized appreciation (depreciation) 53,362 243 55,264 -------------- -------------- --------------- Net realized and unrealized gain (loss) 53,941 4,441 54,753 -------------- -------------- --------------- Net Increase (Decrease) in Net Assets from Operations $ 55,742 $ 8,649 $ 63,864 ============== ============== ===============
See accompanying notes which are an integral part of the financial statements. Statement of Operations 69 Russell Investment Funds Statement of Changes in Net Assets -- For the Fiscal Years Ended December 31, Amounts in thousands
Multi-Style Aggressive Equity Equity Fund Fund 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 1,977 $ 1,387 $ 117 $ (185) Net realized gain (loss) 13,702 (39,568) 16,388 (7,933) Net change in unrealized appreciation (depreciation) 47,424 (22,826) 31,170 (14,522) ----------- ----------- ----------- ----------- Net increase (decrease) in net assets from operations 63,103 (61,007) 47,675 (22,640) ----------- ----------- ----------- ----------- Distributions From net investment income (1,743) (1,354) (138) -- From net realized gain -- -- -- -- Tax return of capital -- -- -- -- ----------- ----------- ----------- ----------- Net decrease in net assets from distributions (1,743) (1,354) (138) -- ----------- ----------- ----------- ----------- Share Transactions Net increase (decrease) in net assets from share transactions 28,613 17,425 21,054 8,741 ----------- ----------- ----------- ----------- Total Net Increase (Decrease) in Net Assets 89,973 (44,936) 68,591 (13,899) Net Assets Beginning of period 206,794 251,730 97,794 111,693 ----------- ----------- ----------- ----------- End of period $ 296,767 $ 206,794 $ 166,385 $ 97,794 =========== =========== =========== =========== Undistributed (overdistributed) net investment income included in net assets $ 649 $ 415 $ -- $ --
See accompanying notes which are an integral part of the financial statements. 70 Statement of Changes in Net Assets
Non-U.S. Core Bond Real Estate Securities Fund Fund Fund 2003 2002 2003 2002 2003 2002 - --------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 1,801 $ 1,151 $ 4,208 $ 4,270 $ 9,111 $ 7,079 Net realized gain (loss) 579 (18,887) 4,198 4,095 (511) 1,709 Net change in unrealized appreciation (depreciation) 53,362 (5,356) 243 2,247 55,264 (5,630) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets from operations 55,742 (23,092) 8,649 10,612 63,864 3,158 ----------- ----------- ----------- ----------- ----------- ----------- Distributions From net investment income (4,573) (2,455) (5,257) (3,487) (10,273) (7,692) From net realized gain -- -- (2,755) (3,690) -- (871) Tax return of capital -- -- -- -- (341) -- ----------- ----------- ----------- ----------- ----------- ----------- Net decrease in net assets from distributions (4,573) (2,455) (8,012) (7,177) (10,614) (8,563) ----------- ----------- ----------- ----------- ----------- ----------- Share Transactions Net increase (decrease) in net assets from share transactions 17,610 8,893 6,285 26,874 41,265 53,599 ----------- ----------- ----------- ----------- ----------- ----------- Total Net Increase (Decrease) in Net Assets 68,779 (16,654) 6,922 30,309 94,515 48,194 Net Assets Beginning of period 137,840 154,494 140,280 109,971 160,176 111,982 ----------- ----------- ----------- ----------- ----------- ----------- End of period $ 206,619 $ 137,840 $ 147,202 $ 140,280 $ 254,691 $ 160,176 =========== =========== =========== =========== =========== =========== Undistributed (overdistributed) net investment income included in net assets $ (690) $ (300) $ 434 $ (173) $ (1,162) $ (66)
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 71 Russell Investment Funds Financial Highlights -- For the Fiscal Years Ended For a Share Outstanding Throughout Each Period.
$ $ $ $ Net Asset Net Net Realized $ Distributions $ Value, Investment and Total Income from Net Distributions $ Beginning of Income Unrealized from Investment from Net Return of Period (Loss)(a) Gain (Loss) Operations Income Realized Gain Capital - ------------------------------------------------------------------------------------------------------------------------------- Multi-Style Equity Fund December 31, 2003 9.04 .08 2.51 2.59 (.07) -- -- December 31, 2002 11.84 .06 (2.80) (2.74) (.06) -- -- December 31, 2001 14.13 .07 (2.06) (1.99) (.06) (.24) -- December 31, 2000 16.79 .08 (2.10) (2.02) (.08) (.56) -- December 31, 1999 16.02 .12 2.41 2.53 (.12) (1.64) -- - ------------------------------------------------------------------------------------------------------------------------------- Aggressive Equity Fund December 31, 2003 9.26 .01 4.21 4.22 (.01) -- -- December 31, 2002 11.44 (.02) (2.16) (2.18) -- -- -- December 31, 2001 11.73 --(d) (.28) (.28) --(d) -- (.01) December 31, 2000 13.36 .04 (.16) (.12) (.05) (1.46) -- December 31, 1999 12.70 .05 .71 .76 (.04) (.06) -- - ------------------------------------------------------------------------------------------------------------------------------- Non-U.S. Fund December 31, 2003 7.20 .09 2.69 2.78 (.22) -- -- December 31, 2002 8.64 .06 (1.37) (1.31) (.13) -- -- December 31, 2001 11.15 .06 (2.52) (2.46) (.04) -- (.01) December 31, 2000 14.19 .10 (2.11) (2.01) -- (1.00) (.03) December 31, 1999 11.09 .10 3.53 3.63 (.23) (.30) -- - ------------------------------------------------------------------------------------------------------------------------------- Core Bond Fund December 31, 2003 10.43 .31 .31 .62 (.38) (.20) -- December 31, 2002 10.13 .36 .52 .88 (.30) (.28) -- December 31, 2001 10.07 .54 .18 .72 (.60) (.06) -- December 31, 2000 9.64 .61 .33 .94 (.51) -- -- December 31, 1999 10.68 .59 (.65) (.06) (.61) (.16) (.21) - ------------------------------------------------------------------------------------------------------------------------------- Real Estate Securities Fund December 31, 2003 10.51 .55 3.28 3.83 (.61) -- (.02) December 31, 2002 10.75 .54 (.13) .41 (.57) (.08) -- December 31, 2001 10.67 .57 .24 .81 (.55) (.18) -- December 31, 2000 8.81 .54 1.81 2.35 (.49) -- -- December 31, 1999 (1) 10.00 .35 (1.08) (.73) (.34) -- (.12)
See accompanying notes which are an integral part of the financial statements. 72 Financial Highlights
% % % Ratio of Ratio of Ratio of Net $ $ Expenses Expenses Investment % $ Net Asset % Net Assets, to Average to Average Income to Portfolio Total Value, End Total End of Net Assets, Net Assets, Average Net Turnover Distributions of Period Return(b) Period (000) Net(c) Gross(c) Assets(c) Rate - ---------------------------------------------------------------------------------------------------------------------------------- Multi-Style Equity Fund December 31, 2003 (.07) 11.56 28.86 296,767 .87 .95 .82 107.67 December 31, 2002 (.06) 9.04 (23.19) 206,794 .92 .99 .61 145.90 December 31, 2001 (.30) 11.84 (14.21) 251,730 .92 .99 .57 131.67 December 31, 2000 (.64) 14.13 (12.26) 262,664 .92 .93 .51 161.09 December 31, 1999 (1.76) 16.79 17.17 285,877 .92 .96 .74 67.67 - ---------------------------------------------------------------------------------------------------------------------------------- Aggressive Equity Fund December 31, 2003 (.01) 13.47 45.60 166,385 1.06 1.26 .10 138.95 December 31, 2002 -- 9.26 (19.06) 97,794 1.25 1.36 (.17) 139.24 December 31, 2001 (.01) 11.44 (2.36) 111,693 1.25 1.38 .01 180.38 December 31, 2000 (1.51) 11.73 (.66) 106,665 1.25 1.28 .27 203.48 December 31, 1999 (.10) 13.36 6.08 99,150 1.25 1.34 .37 111.46 - ---------------------------------------------------------------------------------------------------------------------------------- Non-U.S. Fund December 31, 2003 (.22) 9.76 38.78 206,619 1.16 1.41 1.14 50.29 December 31, 2002 (.13) 7.20 (15.15) 137,840 1.30 1.48 .77 60.98 December 31, 2001 (.05) 8.64 (22.03) 154,494 1.30 1.43 .64 79.79 December 31, 2000 (1.03) 11.15 (14.43) 185,644 1.30 1.37 .78 86.06 December 31, 1999 (.53) 14.19 33.36 195,519 1.30 1.50 .80 83.45 - ---------------------------------------------------------------------------------------------------------------------------------- Core Bond Fund December 31, 2003 (.58) 10.47 6.15 147,202 .71 .78 2.86 232.64 December 31, 2002 (.58) 10.43 8.84 140,280 .80 .80 3.52 207.60 December 31, 2001 (.66) 10.13 7.41 109,971 .80 .88 5.25 205.62 December 31, 2000 (.51) 10.07 10.00 88,514 .80 .84 6.20 171.48 December 31, 1999 (.98) 9.64 (.61) 83,620 .80 .86 5.77 139.06 - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate Securities Fund December 31, 2003 (.63) 13.71 37.21 254,691 .95 .95 4.66 38.84 December 31, 2002 (.65) 10.51 3.80 160,176 .99 .99 5.01 55.43 December 31, 2001 (.73) 10.75 7.84 111,982 1.06 1.06 5.35 55.13 December 31, 2000 (.49) 10.67 27.24 88,713 1.08 1.08 5.58 45.79 December 31, 1999 (1) (.46) 8.81 (7.26) 55,318 1.15 1.15 5.84 23.98
See accompanying notes which are an integral part of the financial statements. Financial Highlights 73 Russell Investment Funds Notes to Financial Highlights -- December 31, 2003 - -------------------------------------------------------------------------------- (1) For the period April 30, 1999 (commencement of operations) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. (d) Less than $.01 per share. See accompanying notes which are an integral part of the financial statements. 74 Notes to Financial Highlights Russell Investment Funds Notes to Schedule of Investments -- December 31, 2003 - -------------------------------------------------------------------------------- Footnotes: (AE) Nonincome-producing security. (o) Real Estate Investment Trust (REIT). (s) Held as collateral in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. (y) Rate noted is yield-to-maturity from date of acquisition. (c) At amortized cost, which approximates market. (E) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. (DELTA) Forward commitment. (TRIANGLE) Perpetual floating rate security. Rate shown reflects rate in effect at period end. (u) Bond is insured by a guarantor. (Y) This security has been valued by the Security Valuation Committee. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized. (ae) Pre-refunded: These bonds are collateralized by US Treasury securities, which are held in escrow by a trustee and used to pay principal and interest in the tax-exempt issue and to retire the bonds in full at the earliest refunding date. The rate noted is for descriptive purposes; effective yield may vary. (PHI) In default. Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt ADS - American Depositary Share CMO - Collateralized Mortgage Obligation CVO - Contingent Value Obligation 144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933. GDS - Global Depositary Share LIBOR - London Interbank Offered Rate PIK - Payment in Kind FDIC - Federal Deposit Insurance Company REMIC - Real Estate Mortgage Investment Conduit STRIP - Separate Trading of Registered Interest and Principal of Securities TBA - To Be Announced Security Foreign Currency Abbreviations: ARS - Argentine peso AUD - Australian dollar BRL - Brazilian real CAD - Canadian dollar CHF - Swiss franc CLP - Chilean peso CNY - Chinese renminbi yuan COP - Colombian peso CRC - Costa Rica colon CZK - Czech koruna DKK - Danish krone EGP - Egyptian pound EUR - Euro GBP - British pound sterling HKD - Hong Kong dollar HUF - Hungarian forint IDR - Indonesian rupiah ILS - Israeli shekel INR - Indian rupee ITL - Italian lira JPY - Japanese yen KES - Kenyan schilling KRW - South Korean won MXN - Mexican peso MYR - Malaysian ringgit NZD - New Zealand dollar PEN - Peruvian nouveau sol PHP - Philippine peso PLN - Polish zloty RUB - Russian ruble SEK - Swedish krona SGD - Singapore dollar SKK - Slovakian koruna THB - Thai baht TRL - Turkish lira USD - United States dollar VEB - Venezuelan bolivar VND - Vietnamese dong ZAR - South African rand Notes to Schedule of Investments 75 Russell Investment Funds Notes to Financial Statements -- December 31, 2003 - -------------------------------------------------------------------------------- 1. Organization Russell Investment Funds (the "Investment Company") is a series mutual fund with five investment portfolios, referred to as "Funds." These financial statements report on the Funds, each of which has distinct investment objectives and strategies. These Funds are offered at net asset value to qualified insurance company separate accounts offering variable insurance products. The Investment Company is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. It is organized and operates as a Massachusetts business trust under a master trust agreement dated July 11, 1996. The Investment Company's master trust agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.01 par value. As of April 30, 2003, the Russell Insurance Funds changed its name to the Russell Investment Funds. 2. Significant Accounting Policies The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Funds in the preparation of these financial statements. Security valuation United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, if there were no sales on that day, at the last reported price, on the primary exchange on which the security is traded. Equity securities traded on NASDAQ or in a U.S. OTC market will be valued at the official closing price (NOCP) as of the close of the market's regular trading hours. Fixed-income securities listed and traded principally on any national securities exchange are valued at the evaluated bid price or, if there were no sales on that day, at the last reported bid price, on the primary exchange on which the security is traded. Over-the-counter fixed-income securities and options are valued on the basis of the last sale price. Many fixed-income securities do not trade each day, and thus last sale or bid prices are frequently not available. Accordingly, fixed-income securities may be valued using prices provided by a pricing service approved by the Board of Trustees when such prices are believed to reflect the market value of such securities. Exchange listed futures contracts are valued on a basis of the last quoted daily settlement prices established by the exchange on which they trade. If there were no sales, futures are valued at the last reported bid price. Investments in other mutual funds are valued at their net asset value per share, calculated at the close of business. The value of swap agreements are equal to the Funds' obligation (or rights) under swap contracts which will generally be equal to the net amounts to be paid or received under the contracts based upon the relative values of the positions held by each party to the contracts. International equity securities traded on a foreign national securities exchange or an over-the-counter market (foreign or domestic) are valued on the basis of the official closing price, or, lacking the official closing price, at the last sale price on the primary exchange on which the security is traded. Short-term investments purchased by the Funds and maturing within 60 days at the time of purchase are valued at "amortized cost" unless the Board of Trustees determines that amortized cost does not represent fair value. The Funds may value certain securities for which market quotations are not readily available at "fair value," as determined in good faith pursuant to procedures established by the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the U.S. markets. The values of such securities used in computing the net asset value of a portfolio's shares are generally determined as of such times. Occasionally, events that affect the values of such securities may occur between the times at which they are generally determined and the close of the U.S. markets and would therefore not be reflected in the computation of a portfolio's net asset value. In such event, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Investment transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. 76 Notes to Financial Statements Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- Investment income Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. The Core Bond Fund classifies gains and losses realized on prepayments received on mortgage-backed securities as part of interest income. All premiums and discounts, including original issue discounts, are amortized/accreted using the interest method. Federal income taxes Since the Investment Company is a Massachusetts business trust, each Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each Fund's shareholders without regard to the income and capital gains (or losses) of the other Funds. It is each Fund's intention to qualify as a regulated investment company and distribute all of its taxable income and capital gains. Therefore, no federal income tax provision was required for the Funds. Dividends and distributions to shareholders For all Funds, income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly, except for the Non-U.S. Fund, which generally declares and pays dividends annually. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the funds to avoid imposition of federal income and excise tax on any remaining undistributed capital gains and net investment income. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from GAAP. As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in options, futures, forward contracts, swaps, passive foreign investment companies, foreign-denominated investments, mortgage-backed securities, certain securities sold at a loss and by recording gains and losses from securities transactions on the basis of specific identified cost incurred by each money manager for financial reporting purposes and on the basis of specific identified cost incurred by each Fund for tax purposes. Permanent differences between book and tax accounting are reclassified to paid in capital. Accordingly, the Funds may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses The Funds will pay their own expenses other than those expressly assumed by Frank Russell Investment Management Company ("FRIMCo" or "Advisor"). Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed to a specific Fund are allocated among all Funds principally based on their relative net assets. Foreign currency translations The books and records of the Funds are maintained in US dollars. Foreign currency amounts and transactions of the Funds are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the 4 pm London closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the 4 pm London closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from: sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Non-U.S. Fund's books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at year end, as a result of changes in the exchange rates. The Funds do not isolate that portion of the results of operations of the Fund that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal income tax purposes the Funds do isolate the Notes to Financial Statements 77 Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Derivatives To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds' Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting their investment strategies. The Funds typically use derivatives in three ways: cash equitization, hedging, and return enhancement. Cash equitization is a technique that may be used by certain Funds through the use of options and futures to earn "market-like" returns with their excess and liquidity reserve cash balances. Hedging is used by some Funds to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in a Fund. By purchasing certain instruments, Funds may more effectively achieve the desired portfolio characteristics that assist them in meeting their investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. Foreign currency exchange contracts In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Non-U.S. Fund may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that is recognized in the Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open contracts at December 31, 2003 are presented on the Schedule of Investments for the Non-U.S. Fund. Forward commitments The Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time (not to exceed 120 days) (i.e., a "forward commitment," "delayed settlement" or "when issued" transaction, e.g., to be announced ("TBA")) consistent with a Fund's ability to manage its investment portfolio and meet redemption requests. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The Funds may dispose of a forward commitment transaction prior to settlement if it is appropriate to do so and realize short-term gains (or losses) upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Fund in a dollar amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records at the trade date and maintained until the transaction is settled. A forward commitment transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. Short Sales Each Fund may enter into short sale transactions. A short sale is a transaction in which a Fund sells securities it does not own in anticipation of a decline in the market price of the securities. The Fund is obligated to deliver securities at the market price at the time the short position is closed. Possible losses from short sales may be unlimited. Options The Funds will not enter into any such transactions unless it owns (1) an offsetting ("covered") position in securities, currencies or other options, futures contracts or forward contracts or (2) cash or liquid assets with a value, marked to market daily, sufficient to cover their obligations to the extent not covered as provided in (1) above. The Funds will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, designate the prescribed amount of cash or liquid assets as segregated. 78 Notes to Financial Statements Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- The Funds may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. These Funds may also purchase and sell call and put options on foreign currencies. The domestic equity Funds may utilize options to equitize liquidity reserve balances. When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security. If an option which the Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss, if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. When a put option which a Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which a Fund purchases upon exercise of the option. Realized gains (losses) on purchased options are included in net realized gain (loss) from investments. The Funds' use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to market risk. The risks may be caused by an imperfect correlation between movements in the price of the instrument and the price of the underlying securities and interest rates. Futures contracts The Funds utilize futures to equitize liquidity reserve balances. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to off balance sheet risk. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market. Upon entering into a futures contract, the Funds are required to deposit with a broker an amount, termed the initial margin, which typically represents 5% of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in the initial settlement values of futures contracts are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Investment in international markets Investing in international markets may involve special risks and considerations not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices more volatile than those of comparable securities in the United States. Swap agreements The Funds may enters into swap agreements as an additional equitization vehicle for uninvested cash balances held by the Funds or to effect investment transactions consistent with the Funds' investment objectives and strategies. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, the two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular investments or instruments. The returns to be exchanged between the parties are calculated with respect to a "notional amount" (i.e. a specified dollar amount that is hypothetically invested in a "basket" of securities representing a particular index). Amounts paid to and received from the swap counterparties representing capital appreciation and depreciation on the underlying securities and accrued interest expense and interest income are recorded as net realized gain (loss). The Fund is exposed to credit risk in the event of non-performance by the swap counterparties; however, the Fund does not anticipate non-performance by the counterparties. Notes to Financial Statements 79 Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- Guarantees In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote. 3. Investment Transactions Securities For the period ended December 31, 2003, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
Funds Purchases Sales Funds Purchases Sales - ------------------------------------------------------------------------------------------------------------------- Multi-Style Equity $ 265,073,268 $ 239,304,104 Core Bond $ 125,372,865 $ 113,623,607 Aggressive Equity 181,714,034 159,845,696 Real Estate Securities 114,308,081 72,698,244 Non-U.S. 83,777,915 71,336,240
Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows: US Government Securities Fund Purchases Sales - ------------------------------------------------------ Core Bond $ 141,589,717 $ 136,201,317 Written Options Contracts Fund transactions in written options for the period ended December 31, 2003 were as follows: Non-U.S. Core Bond Number of Premiums Number of Premiums Contracts Received Contracts Received - ----------------------------------------------------------------------------- Outstanding December 31, 2002 30 $ 583 48 $ 80 Opened 843 11,092 279 222 Closed (772) (10,829) (52) (42) Expired -- -- (228) (171) --------- --------- --------- --------- Outstanding December 31, 2003 101 $ 846 47 $ 89 ========= ========= ========= ========= Securities Lending The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (US currency), US Government or US 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 State Street Bank and Trust Company ("State Street") in money market mutual funds and such other short-term investments, provided the investments meet certain quality and diversification requirements. The collateral received is recorded on the Fund'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 divided between the Fund and State Street and is recorded as income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street and are recorded as securities lending income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of US securities) or 105% (for non-US securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of 80 Notes to Financial Statements Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of December 31, 2003, the value of outstanding securities on loan and the value of collateral amounted to as follows: Value of Securities Value of Funds on Loan Cash Collateral - ------------------------------------------------------ Multi-Style Equity $ 7,117,397 $ 6,949,292 Aggressive Equity $ 33,200,037 $ 33,997,195 As of December 31, 2003, the cash collateral received for the securities on loan are invested as follows: State Street Securities Lending Funds Quality Trust - ----------------------------------------- Multi-Style Equity $ 6,949,292 Aggressive Equity 33,997,195 As of December 31, 2003, the non-cash collateral received for the securities on loan in the following funds was: Non-Cash Funds Collateral Value Non-Cash Collateral Holding - ------------------------------------------------------------------- Multi-Style Equity $ 333,548 Irrevocable letter of credit Aggressive Equity $ 105,572 Irrevocable letter of credit 4. Related Party Transactions, Fees and Expenses Manager FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company, a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company. Frank Russell Company researches and recommends to FRIMCo, and to the Investment Company, one or more investment management organizations to manage the portfolio of each Fund. The Funds are permitted to invest their cash reserves (i.e., monies awaiting investment in portfolio securities suitable for the Funds' objectives), and a portion of the collateral received from the Investment Company's securities lending program in the Frank Russell Investment Company Money Market Fund. As of December 31, 2003, $85,026,000 of the Money Market Fund's net assets represents investments by the Funds. For the period ended December 31, 2003, the management fee paid to FRIMCo, for the Funds listed below, in accordance with the Investment Company's Management Agreement with that firm, amounted to $7,091,534 before waivers and/or reimbursements. Such fee is payable monthly and is equal to the annual rate, by Fund, shown in the following table, of the average daily net assets of the applicable Fund. Funds Annual Rate - ----------------------------------------- Multi-Style Equity 0.78% Aggressive Equity 0.95 Non-U.S. 0.95 Core Bond 0.60 Real Estate Securities 0.85 FRIMCo has contractually agreed to waive a portion of its management fee for each Fund, up to the full amount of its fee, to the extent the Fund's operating expenses exceed specified limits imposed by FRIMCo on an annual basis. Additionally, FRIMCo has contractually agreed to reimburse each Fund for all remaining expenses, after fee waivers, that still exceed their respective expense caps. There were no reimbursements for the period ended December 31, 2003. Notes to Financial Statements 81 Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- The expense caps and waivers were as follows: Manager Fees Waived for the Period Ended Expense Cap Through Expense Cap December 31, Funds January 30, 2003 January 31, 2003 2003 - -------------------------------------------------------------------------------- Multi-Style Equity 0.92% 0.87% $ 175,964 Aggressive Equity 1.25 1.05 246,667 Non-U.S. 1.30 1.15 399,145 Core Bond 0.80 0.70 109,619 Real Estate Securities 1.15 1.10 -- Custodian The Funds have entered into arrangements with their Custodian whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Funds' expenses. For the period ended December 31, 2003, the Funds' custodian fees were reduced by the following amounts under these arrangements: Custody Credit Funds Amount - ---------------------------------------- Multi-Style Equity $ 270 Aggressive Equity 243 Non-U.S. 255 Core Bond 1,598 Real Estate Securities 202 Analytic services Fees for analytic services provided to the Funds are paid or accrued to Russell/Mellon Analytical Services, an affiliate of the Investment Company. Russell/Mellon Analytical Services provides TruVP System to the Funds, pursuant to a written Service Agreement. The TruVP System provides analytics used by the investment department. Total fees for the Funds reported herein for the period ended December 31, 2003 were $83,115. Transfer agent The Investment Company has a contract with FRIMCo to provide transfer agent services to the Funds. Total fees for the period ended December 31, 2003 were $48,565. Distributor Russell Fund Distributors, Inc. (the "Distributor "), a wholly-owned subsidiary of FRIMCo, is the principal Distributor for Investment Company shares. The Distributor receives no compensation from the Investment Company for its services. Brokerage commissions The Funds may effect portfolio transactions through Frank Russell Securities, Inc., an affiliate of the Manager, when a money manager determines that the Fund will receive competitive execution, price and commissions. Amounts retained by Frank Russell Securities, Inc. for the period ended December 31, 2003 were as follows: Funds Amount - -------------------------------------------- Multi-Style Equity $ 15,609 Aggressive Equity 17,007 Non-U.S. 8,713 Real Estate Securities 2,333 Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Manager. 82 Notes to Financial Statements Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company ("FRIC"), which has 30 funds, and Russell Investment Funds ("RIF"), which has five funds. Each of the trustees is a trustee of both FRIC and RIF. The Russell Fund Complex pays each of its Trustees not affiliated with FRIMCo a retainer of $52,000 per year, $5,000 for each regular quarterly meeting attended in person, $2,000 for each special meeting attended in person, and $2,000 for each Joint Audit Committee meeting or Nominating and Governance Committee meeting attended in person. The Trustee will receive a $500 fee for attending the meetings by phone instead of receiving the full fee had the member attended in person. Out of pocket expenses are also paid by the Russell Fund Complex. The Lead Trustee is paid a fee of $10,000 per year, and each Committee Chair is paid a fee of $6,000 per year. 5. Federal Income Taxes At December 31, 2003, the following Funds had net tax basis capital loss carryforwards which may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. Available capital loss carryforwards and expiration dates are as follows: Capital loss carryforward
12/31/09 12/31/10 12/31/11 Totals - --------------------------------------------------------------------------------------------------------- Multi-Style Equity $ 45,480,975 $ 42,288,325 $ 3,419,554 $ 91,188,854 Aggressive Equity -- 7,535,681 -- $ 7,535,681 Non-U.S. 26,643,305 25,579,757 5,516,762 $ 57,739,824 Real Estate Securities -- -- 3,692,826 $ 3,692,826
As of December 31, 2003, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows: Cost & unrealized for tax purposes
Multi-Style Aggressive Real Estate Equity Equity Non-U.S. Core Bond Securities - -------------------------------------------------------------------------------------------------------------------------- Cost of Investments $ 268,906,421 $ 139,636,545 $ 175,996,050 $ 159,682,661 $ 193,641,364 ============== ============== ============== ============== ============== Unrealized Appreciation 30,201,779 29,304,054 33,749,391 4,198,239 61,536,573 Unrealized Depreciation (2,778,925) (1,570,346) (4,259,388) (534,880) (344,456) -------------- -------------- -------------- -------------- -------------- Net Unrealized Appreciation (Depreciation) $ 27,422,854 $ 27,733,708 $ 29,490,003 $ 3,663,359 $ 61,192,117 ============== ============== ============== ============== ============== Undistributed Ordinary Income $ 648,776 $ -- $ 811,104 $ 746,594 $ -- Undistributed Long-Term Capital Gains (Capital Loss Carryforwards) (91,188,854) (7,535,681) (57,739,824) 40,803 (3,692,826) Tax Composition of Distribution: Ordinary Income $ 1,743,960 $ 137,501 $ 4,571,995 $ 6,804,697 $ 10,273,011 Long-Term Capital Gains $ -- $ -- $ -- 1,206,242 $ -- Tax Return of Capital $ -- $ -- $ -- $ -- 341,396
Notes to Financial Statements 83 Russell Investment Funds Notes to Financial Statements, continued -- December 31, 2003 - -------------------------------------------------------------------------------- 6. Fund Share Transactions (Amounts in thousands) Share transactions for the periods ended December 31, were as follows:
Shares Dollars 2003 2002 2003 2002 Multi-Style Equity Proceeds from shares sold 3,987 3,249 $ 40,534 $ 33,496 Proceeds from reinvestment of distributions 181 133 1,744 1,354 Payments for shares redeemed (1,381) (1,757) (13,665) (17,425) -------------- -------------- -------------- -------------- Total net increase (decrease) 2,787 1,625 $ 28,613 $ 17,425 ============== ============== ============== ============== Aggressive Equity Proceeds from shares sold 3,825 1,859 $ 43,296 $ 19,608 Proceeds from reinvestment of distributions 11 -- 138 -- Payments for shares redeemed (2,043) (1,071) (22,380) (10,867) -------------- -------------- -------------- -------------- Total net increase (decrease) 1,793 788 $ 21,054 $ 8,741 ============== ============== ============== ============== Non-U.S. Proceeds from shares sold 2,604 10,287 $ 21,233 $ 80,040 Proceeds from reinvestment of distributions 489 341 4,572 2,455 Payments for shares redeemed (1,048) (9,377) (8,195) (73,602) -------------- -------------- -------------- -------------- Total net increase (decrease) 2,045 1,251 $ 17,610 $ 8,893 ============== ============== ============== ============== Core Bond Proceeds from shares sold 2,229 3,385 $ 23,733 $ 34,958 Proceeds from reinvestment of distributions 760 699 8,011 7,176 Payments for shares redeemed (2,383) (1,481) (25,459) (15,260) -------------- -------------- -------------- -------------- Total net increase (decrease) 606 2,603 $ 6,285 $ 26,874 ============== ============== ============== ============== Real Estate Securities Proceeds from shares sold 3,284 5,032 $ 39,761 $ 55,527 Proceeds from reinvestment of distributions 856 795 10,614 8,563 Payments for shares redeemed (806) (998) (9,110) (10,491) -------------- -------------- -------------- -------------- Total net increase (decrease) 3,334 4,829 $ 41,265 $ 53,599 ============== ============== ============== ==============
7. Beneficial Interest As of December 31, 2003, the following table includes shareholders with shares of beneficial interest greater than 10% of the total outstanding shares of each respective Fund. Northwestern Mutual Life Insurance Company was the largest client in each Fund. Funds # of Shareholders % - ---------------------------------------------------------- Multi-Style Equity 4 89.8 Aggressive Equity 3 82.0 Non-U.S. 3 85.3 Core Bond 3 90.6 Real Estate Securities 3 90.5 84 Notes to Financial Statements Report of Independent Auditors To the Board of Trustees and Shareholders of Russell Investment Funds: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the series of Russell Investment Funds (comprised of Multi-Style Equity, Aggressive Equity, Non-U.S., Core Bond, and Real Estate Securities (the "Funds")) at December 31, 2003, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for the periods presented, 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 Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Seattle, Washington February 5, 2004 Report of Independent Auditors 85 Russell Investment Funds Tax Information -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following amounts as long-term capital gain dividends for their taxable year ended December 31, 2003: Total Long-Term Capital Gains --------------- Core Bond $ 1,206,242 The Non-U.S. Fund paid foreign taxes of $416,920 and recognized $3,616,486 of foreign source income during the taxable year ended December 31, 2003. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $0.0197 per share of foreign taxes paid and $0.1708 of gross income earned from foreign sources in the taxable year ended December 31, 2003. 86 Tax Information Russell Investment Funds Disclosure of Information about Fund Directors -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- The following tables provide information for each officer and trustee of the Russell Fund Complex. The Russell Fund Complex consists of Frank Russell Investment Company ("FRIC"), which has 30 funds, and Russell Investment Funds ("RIF"), which has 5 funds. Each of the trustees is a trustee of both FRIC and RIF. The first table provides information for trustees who are interested trustees. The second table provides information for the independent trustees. The third table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Fund Position(s) Held Complex Other with Fund and Length Principal Occupation(s) During Overseen Directorships Name, Age, Address of Time Served Term of Office the Past 5 Years by Trustee Held by Trustee - ---------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES and INTERESTED TRUSTEE EMERITUS - ---------------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Jr., Trustee Emeritus and Appointed until . Director Emeritus, FRC 35 None Born July 3, 1932 Chairman successor is duly . Chairman Emeritus, FRIC and Emeritus since 1999 elected and RIF 909 A Street qualified . Chairman Emeritus, Frank Tacoma, Washington Russell Securities, Inc., 98402-1616 Russell 20/20 Association, Frank Russell Trust . Director Emeritus FRIMCo . From 1984 to December 1998, Chairman of the Board of FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since 1987 Appointed until . Vice Chairman, FRC 35 . Trustee, The Born April 22, 1939 successor is duly . Chairman of the Board, SSgA Funds elected and Trustee, FRIC and RIF (investment 909 A Street qualified . CEO and Chairman of the company) Tacoma, Washington Board, Russell Fund 98402-1616 Distributors, Inc. and Chairman of the Until successor is FRIMCo Board since 1999 chosen and qualified . Trustee, President and by trustees Chairman of the Board, SSgA Funds (investment company) . Director and Chairman of the Board, Frank Russell Trust Company . Director, Frank Russell Investments (Ireland) Limited and Frank Russell Investments (Cayman) Ltd. . Until October, 2002, President and CEO, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Phillips, Trustee since 2002 Appointed until . Chairman of the Board and 35 None Born January 20, 1948 successor is duly Director, FRC elected and . Trustee, FRIC and RIF 909 A Street qualified. . Director, FRTC and Frank Tacoma, Washington Russell Capital Inc. 98402-1616 . Director/Chairman, Frank Russell Investments (Delaware), Inc. . Director, Chairman of The Board and President, Russell 20/20 Association . Director, Frank Russell Company Pty. Limited, Frank Russell Japan Co., Ltd., Frank Russell Investments (Suisse), S.A., and Frank Russell Company Limited . 1990-2003, President, FRC . 1993-2003, CEO, FRC - ----------------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Russell, Anderson and Phillips is also an officer of an affiliate of FRIC and RIF and is therefore an interested trustee. Disclosure of Information about Fund Directors 87 Russell Investment Funds Disclosure of Information about Fund Directors, continued -- December 31, 2003 (Unaudited) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Fund Position(s) Held Complex Other with Fund and Length Principal Occupation(s) During Overseen Directorships Name, Age, Address of Time Served Term of Office the Past 5 Years by Trustee Held by Trustee - ---------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES and INDEPENDENT TRUSTEE EMERITUS - ---------------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since 1984 Appointed until . 1996 to present, President, 35 None Born October 15, 1931 successor is duly Anderson Management Group elected and LLC (private investments 909 A Street qualified consulting) Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Appointed until . Retired since 1997 35 None Born December 1, 1919 since 2003 successor is duly . Trustee of FRIC and RIF elected and Until 2002 909 A Street qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee since 1984 Appointed until . Retired since 1986 35 None Born June 8, 1925 successor is duly elected and 909 A Street qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since 2000 Appointed until . President, Kristianne Gates 35 . Trustee WM Born January 22, 1954 successor is duly Blake, P.S. (accounting Group of elected and services) Funds 909 A Street qualified (investment Tacoma, Washington company); 98402-1616 . Director, Avista Corp. - ---------------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since 2003 Appointed until . 2001-2003, Vice President 35 . Director, Born June 6, 1946 successor is duly and Chief Financial Gold Bank elected and Officer, Janus Capital Corporation, 909 A Street qualified Group, Inc. Inc. Tacoma, Washington . 1979-2001, Audit and 98402-1616 Accounting Partner, PricewaterhouseCoopers LLP . Retired since 2003 - ---------------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since 1984 Appointed until . Retired since 1995 35 None Born October 6, 1930 successor is duly elected and 909 A Street qualified Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------------
88 Disclosure of Information about Fund Directors Russell Investment Funds Disclosure of Information about Fund Directors, continued -- December 31, 2003 (Unaudited) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Fund Position(s) Held Complex Other with Fund and Length Principal Occupation(s) During Overseen Directorships Name, Age, Address of Time Served Term of Office the Past 5 Years by Trustee Held by Trustee - ---------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES and INDEPENDENT TRUSTEE EMERITUS (continued) - ---------------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee since 1984 Appointed until . Retired since 1981 35 None Born May 5, 1926 successor is duly elected and 909 A Street qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------------- Raymond P. Tennison, Jr. Trustee since 2000 Appointed until . Currently, President, 35 None Born December 21, 1955 successor is duly Simpson Investment Company elected and and several additional 909 A Street qualified subsidiary companies, Tacoma, Washington including Simpson Timber 98402-1616 Company, Simpson Paper Company and Simpson Tacoma Kraft Company - ---------------------------------------------------------------------------------------------------------------------------------- Julie W. Weston Trustee since 2002 Appointed until . Retired since 2000 35 None Born October 2, 1943 successor is duly . 1987 to 2000, Arbitrator, elected and The American Arbitration 909 A Street qualified Association Commercial Tacoma, Washington Panel 98402-1616 . 1995 to 1999, Hearing Officer, University of Washington . 1987 to 2002, Director, Smith Barney Fundamental Value Fund - ----------------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 89 Russell Investment Funds Disclosure of Information about Fund Directors, continued -- December 31, 2003 (Unaudited) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- Position(s) Held With Fund and Length Principal Occupation(s) During the Name, Age, Address of Time Served Term of Office Past 5 Years - -------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------- Leonard P. Brennan, President and Chief Until successor is . President and CEO, FRIC Born October 11, 1959 Executive Officer chosen and qualified . President and CEO, RIF since 2002 by Trustees . Director, Russell Fund Distributors, 909 A Street Inc., Frank Russell Company, S.A., Tacoma, Washington Frank Russell Investments (Singapore) 98402-1616 Private Limited and Frank Russell Investments (UK) Limited . Director, President and CEO, FRIMCo . Director and COO, Frank Russell Company Limited and Russell Systems Limited . President, Russell Insurance Agency, Inc. . 1999 to present, Managing Director of Individual Investor Services of FRC - -------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Chief Until successor is . Treasurer and Chief Accounting Born November 26, 1963 Accounting Officer chosen and qualified Officer, FRIC and RIF 1998 to since 1998 by Trustees present, 909 A Street . Director, Funds Administration, Tacoma, Washington FRIMCo and Frank Russell Trust 98402-1616 Company . Treasurer, SSgA Funds (investment company); . Manager, Funds Accounting and Taxes, Russell Fund Distributors, Inc. . April 1996 to August 1998, Assistant Treasurer, FRIC and RIF; November 1995 to July 1998, Assistant Secretary, SSgA Funds; February 1997 to July 1998, Manager, Funds Accounting and Taxes, FRIMCo - -------------------------------------------------------------------------------------------------------------- Randall P. Lert, Director of Until removed by . Director of Investments, FRIC and RIF Born October 3, 1953 Investments since Trustees . Chief Portfolio Strategist, FRIMCo 1991 . Chief Investment Officer, Frank 909 A Street Russell Trust Company Tacoma, Washington . Director, FRIMCo and Frank Russell 98402-1616 Fund Distributors, Inc. - -------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed by . Secretary and General , FRIC, RIF, Born October 8, 1941 General Counsel Trustees FRIMCo, Frank Russell Trust Company since 1994 and Russell Fund Distributors, Inc. 909 A Street . Director, Secretary and General Tacoma, Washington Counsel, Frank Russell Capital Inc. 98402-1616 . Director and Secretary, Russell 20-20 Association - -------------------------------------------------------------------------------------------------------------- Mark D. Amberson, Director of Until removed by . Director of Short-Term Investment Born July 20, 1960 Short-Term Trustees Funds, FRIC, RIF, FRIMCo and Frank Investment Funds Russell Trust Company 909 A Street since 2001 . From 1991 to 2001, Portfolio Manager, Tacoma, Washington FRIC, RIF, FRIMCo and Frank Russell 98402-1616 Trust Company - --------------------------------------------------------------------------------------------------------------
90 Disclosure of Information about Fund Directors Russell Investment Funds Matter Submitted to a Vote of Shareholders -- December 31, 2003 (Unaudited) - -------------------------------------------------------------------------------- There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Funds ("the Investment Company") held at 909 A Street, Tacoma, Washington on October 3, 2003. THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING The result of each vote accompany the description of each matter - ---------------------------------------------------------------- 1. Election of Trustees. Vote: - ----- For Withheld -------------- ------------- Michael J.A. Phillips 79,759,415.080 2,967,650.647 Daniel P. Connealy 79,737,804.729 2,989,260.998 Julie W. Weston 79,630,184.756 3,096,880.971 2. To approve a change in the Funds' fundamental investment objective. Vote: - ----- For Against Abstain -------------- ------------- ------------- Multi-Style Equity Fund 21,083,534.108 1,455,309.307 565,683.693 Aggressive Equity Fund 9,391,749.804 695,801.196 244,674.439 Non-U.S. Fund 17,453,865.110 1,332,495.105 564,872.913 Core Bond Fund 12,374,537.599 764,093.015 454,481.612 Real Estate Securities Fund 14,987,976.460 1,117,465.681 312,525.685 3. To reclassify the Funds' investment objective from fundamental to non-fundamental. Vote: - ----- For Against Abstain -------------- ------------- ------------- Multi-Style Equity Fund 20,364,767.024 2,075,682.151 664,077.933 Aggressive Equity Fund 8,836,621.180 1,192,379.505 303,224.754 Non-U.S. Fund 16,907,981.142 1,842,465.142 600,786.844 Core Bond Fund 12,177,508.357 983,412.759 432,191.110 Real Estate Securities Fund 14,595,675.330 1,462,184.080 360,108.416 Matter Submitted to a Vote of Shareholders 91 Russell Investment Funds 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 - -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman Paul E. Anderson William E. Baxter Kristianne Blake Daniel P. Connealy Lee C. Gingrich Eleanor W. Palmer Michael J.A. Phillips Raymond P. Tennison, Jr. Julie W. Weston Trustees Emeritus George F. Russell, Jr. Paul Anton, PhD Officers Lynn L. Anderson, Chairman of the Board Leonard P. Brennan, President and Chief Executive Officer Karl J. Ege, Secretary and General Counsel Mark E. Swanson, Treasurer and Chief Accounting Officer Mark D. Amberson, Director of Short Term Investment Funds Randall P. Lert, Director of Investments Noel Lamb, Director of Investment Management and Research -- North America Sharon L. Hammel, Director of Portfolio Implementation Traci A. Jones, Manager of Portfolio Implementation Gregory J. Lyons, Assistant Secretary and Associate General Counsel Mary Beth Rhoden, Assistant Secretary Margaret A. Foster, Assistant Secretary Greg S. Korte, Assistant Treasurer David J. Craig, Assistant Treasurer Bruce S. C. Dunn, Assistant Treasurer Manager, Transfer and Dividend Paying Agent Frank Russell Investment Management Company 909 A Street Tacoma, WA 98402 Consultant Frank Russell Company 909 A Street Tacoma, WA 98402 Custodian State Street Bank and Trust Company Allan Forbes Building 150 Newport Avenue AFB35 North Quincy, MA 02171 Office of Shareholder Inquiries 909 A Street Tacoma, WA 98402 (800) 787-7354 Legal Counsel Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103-7098 Distributor Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 Independent Auditors PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 Money Managers Multi-Style Equity Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY Ark Asset Management Co., Inc., New York, NY Barclays Global Fund Advisors, San Francisco, CA Brandywine Asset Management, LLC, Wilmington, DE Jacobs Levy Equity Management, Inc., Florham Park, NJ Montag & Caldwell, Inc., Atlanta, GA Turner Investment Partners, Inc., Berwyn, PA Aggressive Equity Fund CapitalWorks Investment Partners, LLC, San Diego, CA David J. Greene and Company, LLC, New York, NY Geewax, Terker & Company, Chadds Ford, PA Goldman Sachs Asset Management, L.P., New York, NY Jacobs Levy Equity Management, Inc., Florham Park, NJ Suffolk Capital Management, LLC, New York, NY Systematic Financial Management, L.P., Teaneck, NJ TimesSquare Capital Management, Inc., New York, NY 92 Manager, Money Managers and Service Providers Russell Investment Funds 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 - -------------------------------------------------------------------------------- Non-U.S. Fund AQR Capital Management, LLC, New York, NY Fidelity Management & Research Company, Boston, MA Oechsle International Advisors, LLC, Boston, MA The Boston Company Asset Management, LLC, Boston, MA Core Bond Fund Pacific Investment Management Company LLC, Newport Beach, CA TimesSquare Capital Management, Inc., New York, NY Real Estate Securities Fund AEW Management and Advisors, L.P., Boston, MA INVESCO Realty Advisors, a division of INVESCO Institutional (N.A.), Inc., Dallas, TX RREEF America L.L.C., Chicago, IL This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Frank Russell Investment Company. Such offering is made only by Prospectus, which includes details as to offering price and other material information. Manager, Money Managers and Service Providers 93 [LOGO OF RUSSELL] Russell Investment Funds 909 A Street Tacoma, Washington 98402 253-627-7001 800-787-7354 Fax: 253-591-3495 36-08-023 (12/03) `www.russell.com [GRAPHIC] Annual Report December 31, 2003 Northwestern Mutual Variable Life Account Financial Statements Northwestern Mutual Variable Life Account Financial Statements Table of Contents Northwestern Mutual Variable Life Account Statement of Assets and Liabilities.. 1 Statements of Operations............. 2 Statements of Changes in Equity...... 4 Financial Highlights................. 6 Notes to Financial Statements........ 8 Report of Independent Auditors....... 12
Financial Statements Northwestern Mutual Variable Life Account Statement of Assets and Liabilities December 31, 2003 (in thousands) Assets Investments at Market Value: Northwestern Mutual Series Fund, Inc. Small Cap Growth Stock 71,874 shares (cost $126,863)....................................... $139,149 T. Rowe Price Small Cap Value 38,113 shares (cost $39,901).................................. 49,090 Aggressive Growth Stock 121,140 shares (cost $385,267)....................................... 329,743 International Growth 12,218 shares (cost $10,652)........................................ 13,330 Franklin Templeton International Equity 183,865 shares (cost $261,756)........... 259,618 AllianceBernstein Mid Cap Value 2,384 shares (cost $2,816)................................... 3,135 Index 400 Stock 94,511 shares (cost $102,846).... 120,502 Janus Capital Appreciation 2,011 shares (cost $2,198)......................................... 2,405 Growth Stock 133,563 shares (cost $268,910)...... 250,163 Large Cap Core Stock 141,455 shares (cost $180,784)....................................... 150,790 Capital Guardian Domestic Equity 41,115 shares (cost $35,114)........................... 41,321 T. Rowe Price Equity Income 4,127 shares (cost $4,638)................................... 5,031 Index 500 Stock 209,962 shares (cost $579,838)... 572,148 Asset Allocation 17,197 shares (cost $15,879).... 17,507 Balanced 141,468 shares (cost $248,075).......... 261,857 High Yield Bond 71,695 shares (cost $51,040)..... 51,979 Select Bond 73,483 shares (cost $89,471)......... 92,736 Money Market 123,622 shares (cost $123,622)...... 123,622 Fidelity VIP Mid Cap Portfolio 183 shares (cost $3,838).................................... 4,386 Russell Investment Funds Multi-Style Equity 8,635 shares (cost $104,624)....................................... 99,823 Aggressive Equity 4,121 shares (cost $45,602).... 55,509 Non-U.S. 6,235 shares (cost $56,561)............. 60,851 Core Bond 3,219 shares (cost $33,389)............ 33,704 Real Estate Securities 3,764 shares (cost $41,849)........................................ 51,604 $2,790,003 -------- Due from Northwestern Mutual Life Insurance Company........................................... 623 ---------- Total Assets.................................... $2,790,626 ========== Liabilities Due to Northwestern Mutual Life Insurance Company... $ 229 ---------- Total Liabilities............................... 229 ---------- Equity Variable Life Policies Issued Before October 11, 1995.............................................. 481,069 Variable Complife Policies Issued On or After October 11, 1995.................................. 2,083,152 Variable Executive Life Policies Issued On or After March 2, 1998............................... 118,104 Variable Joint Life Policies Issued On or After December 10, 1998................................. 108,072 ---------- Total Equity.................................... 2,790,397 ---------- Total Liabilities and Equity.................... $2,790,626 ==========
The Accompanying Notes are an Integral Part of the Financial Statements Northwestern Mutual Variable Life Account 1 Financial Statements Northwestern Mutual Variable Life Account Statements of Operations (in thousands)
Investment Income ------------------------------------------- Dividend Mortality and Net Investment Income Expense Risks Taxes Income (Loss) - ---------------------------------------------------------------------------------------------- Year Ended December 31, 2003 Small Cap Growth Stock Division.................. $ -- $ (606) $ (17) $ (623) T. Rowe Price Small Cap Value Division........... -- (180) (8) (188) Aggressive Growth Stock Division................. -- (1,584) (96) (1,680) International Growth Division.................... 84 (39) (1) 44 Franklin Templetion International Equity Division 3,268 (1,096) (73) 2,099 AllianceBernstein Mid Cap Value Division #....... 11 (5) -- 6 Index 400 Stock Division......................... 658 (492) (14) 152 Janus Capital Appreciation Division #............ 1 (5) -- (4) Growth Stock Division............................ 1,701 (1,176) (50) 475 Large Cap Core Stock Division.................... 1,205 (706) (37) 462 Capital Guardian Domestic Equity Division........ 545 (143) (9) 393 T. Rowe Price Equity Income Division #........... 44 (8) -- 36 Index 500 Stock Division......................... 6,704 (2,525) (182) 3,997 Asset Allocation Division........................ 282 (65) (5) 212 Balanced Division................................ 7,375 (1,208) (260) 5,907 High Yield Bond Division......................... 91 (230) (11) (150) Select Bond Division............................. 3,350 (414) (29) 2,907 Money Market Division............................ 1,516 (644) (17) 855 Fidelity VIP Mid Cap Division #.................. -- (7) (1) (8) Russell Multi-Style Equity Division.............. 554 (373) (7) 174 Russell Aggressive Equity Division............... 46 (202) (5) (161) Russell Non-U.S. Division........................ 1,335 (207) (5) 1,123 Russell Core Bond Division....................... 1,291 (87) (4) 1,200 Russell Real Estate Securities Division.......... 2,110 (201) (6) 1,903 Year Ended December 31, 2002 Small Cap Growth Stock Division.................. $ 131 $ (487) $ (18) $ (374) T. Rowe Price Small Cap Value Division........... 124 (86) (6) 32 Aggressive Growth Stock Division................. 238 (1,457) (101) (1,320) International Growth Division.................... 23 (15) (1) 7 Franklin Templetion International Equity Division 3,431 (954) (70) 2,407 Index 400 Stock Division......................... 502 (354) (13) 135 Growth Stock Division............................ 2,122 (1,057) (52) 1,013 Large Cap Core Stock Division.................... 1,053 (655) (39) 359 Capital Guardian Domestic Equity Division........ 222 (59) (4) 159 Index 500 Stock Division......................... 5,269 (2,191) (181) 2,897 Asset Allocation Division........................ 129 (28) (3) 98 Balanced Division................................ 7,713 (1,069) (252) 6,392 High Yield Bond Division......................... 3,479 (161) (8) 3,310 Select Bond Division............................. 2,499 (258) (24) 2,217 Money Market Division............................ 1,835 (592) (17) 1,226 Russell Multi-Style Equity Division.............. 356 (285) (6) 65 Russell Aggressive Equity Division............... -- (146) (5) (151) Russell Non-U.S. Division........................ 629 (159) (5) 465 Russell Core Bond Division....................... 661 (52) (3) 606 Russell Real Estate Securities Division.......... 1,291 (118) (6) 1,167
# The initial investment in this Division was made on May 1, 2003. The Accompanying Notes are an Integral Part of the Financial Statements 2 Northwestern Mutual Variable Life Account
Realized and Unrealized Gain (Loss) on Investments - ------------------------------------------------------- Realized Gain Unrealized Appreciation Net Gain Increase (Decrease) (Loss) on (Depreciation) of Investments (Loss) on in Equity Derived from Investments During the Period Investments Investment Activity - ------------------------------------------------------------------------------ $ (891) $ 33,526 $ 32,635 $ 32,012 201 10,725 10,926 10,738 (5,832) 69,733 63,901 62,221 (22) 2,841 2,819 2,863 (1,700) 70,906 69,206 71,305 43 319 362 368 (235) 28,826 28,591 28,743 32 207 239 235 (4,730) 41,613 36,883 37,358 (2,807) 30,073 27,266 27,728 (111) 8,718 8,607 9,000 39 393 432 468 61 114,875 114,936 118,933 (25) 2,223 2,198 2,410 (501) 32,210 31,709 37,616 (1,078) 11,836 10,758 10,608 2,745 (1,552) 1,193 4,100 -- -- -- 855 41 548 589 581 (1,818) 21,714 19,896 20,070 (1,673) 17,264 15,591 15,430 (1,188) 15,804 14,616 15,739 1,353 (425) 928 2,128 267 10,286 10,553 12,456 $ (736) $ (17,491) $ (18,227) $ (18,601) 172 (2,018) (1,846) (1,814) (2,733) (59,041) (61,774) (63,094) (297) (173) (470) (463) (2,938) (33,186) (36,124) (33,717) (236) (11,036) (11,272) (11,137) (1,528) (45,647) (47,175) (46,162) (2,575) (38,293) (40,868) (40,509) (94) (2,814) (2,908) (2,749) 5,110 (112,454) (107,344) (104,447) (22) (654) (676) (578) (625) (23,644) (24,269) (17,877) (1,107) (3,189) (4,296) (986) 704 3,467 4,171 6,388 -- -- -- 1,226 (1,625) (14,783) (16,408) (16,343) (937) (5,584) (6,521) (6,672) (3,644) (2,812) (6,456) (5,991) 976 573 1,549 2,155 206 (1,082) (876) 291
Northwestern Mutual Variable Life Account 3 Financial Statements Northwestern Mutual Variable Life Account Statements of Changes in Equity (in thousands)
Operations ------------------------------------------------------- Net Increase Change in (Decrease) in Net Net Unrealized Equity Derived Investment Realized Appreciation from Investment Income (Loss) Gain (Loss) (Depreciation) Activity - --------------------------------------------------------------------------------------------------------- Year Ended December 31, 2003 Small Cap Growth Stock Division................. $ (623) $ (891) $ 33,526 $ 32,012 T. Rowe Price Small Cap Value Division.......... (188) 201 10,725 10,738 Aggressive Growth Stock Division................ (1,680) (5,832) 69,733 62,221 International Growth Division................... 44 (22) 2,841 2,863 Franklin Templeton International Equity Division 2,099 (1,700) 70,906 71,305 AllianceBernstein Mid Cap Value Division #...... 6 43 319 368 Index 400 Stock Division........................ 152 (235) 28,826 28,743 Janus Capital Appreciation Division #........... (4) 32 207 235 Growth Stock Division........................... 475 (4,730) 41,613 37,358 Large Cap Core Stock Division................... 462 (2,807) 30,073 27,728 Capital Guardian Domestic Equity Division....... 393 (111) 8,718 9,000 T. Rowe Price Equity Income Division #.......... 36 39 393 468 Index 500 Stock Division........................ 3,997 61 114,875 118,933 Asset Allocation Division....................... 212 (25) 2,223 2,410 Balanced Division............................... 5,907 (501) 32,210 37,616 High Yield Bond Division........................ (150) (1,078) 11,836 10,608 Select Bond Division............................ 2,907 2,745 (1,552) 4,100 Money Market Division........................... 855 -- -- 855 Fidelity VIP Mid Cap Division #................. (8) 41 548 581 Russell Multi-Style Equity Division............. 174 (1,818) 21,714 20,070 Russell Aggressive Equity Division.............. (161) (1,673) 17,264 15,430 Russell Non-U.S. Division....................... 1,123 (1,188) 15,804 15,739 Russell Core Bond Division...................... 1,200 1,353 (425) 2,128 Russell Real Estate Securities Division......... 1,903 267 10,286 12,456 Year Ended December 31, 2002 Small Cap Growth Stock Division................. $ (374) $ (736) $ (17,491) $ (18,601) T. Rowe Price Small Cap Value Division.......... 32 172 (2,018) (1,814) Aggressive Growth Stock Division................ (1,320) (2,733) (59,041) (63,094) International Growth Division................... 7 (297) (173) (463) Franklin Templeton International Equity Division 2,407 (2,938) (33,186) (33,717) Index 400 Stock Division........................ 135 (236) (11,036) (11,137) Growth Stock Division........................... 1,013 (1,528) (45,647) (46,162) Large Cap Core Stock Division................... 359 (2,575) (38,293) (40,509) Capital Guardian Domestic Equity Division....... 159 (94) (2,814) (2,749) Index 500 Stock Division........................ 2,897 5,110 (112,454) (104,447) Asset Allocation Division....................... 98 (22) (654) (578) Balanced Division............................... 6,392 (625) (23,644) (17,877) High Yield Bond Division........................ 3,310 (1,107) (3,189) (986) Select Bond Division............................ 2,217 704 3,467 6,388 Money Market Division........................... 1,226 -- -- 1,226 Russell Multi-Style Equity Division............. 65 (1,625) (14,783) (16,343) Russell Aggressive Equity Division.............. (151) (937) (5,584) (6,672) Russell Non-U.S. Division....................... 465 (3,644) (2,812) (5,991) Russell Core Bond Division...................... 606 976 573 2,155 Russell Real Estate Securities Division......... 1,167 206 (1,082) 291
# The initial investment in this Division was made on May 1, 2003. The Accompanying Notes are an Integral Part of the Financial Statements 4 Northwestern Mutual Variable Life Account
Equity Transactions Equity - -------------------------------------------------------------------------------- ------------------ Increase Transfers Transfers (Decrease) in Net Policy Loans, from Other to Other Equity Derived Increase Beginning End Policyowners' Surrenders, and Mortality and Divisions Divisions from Equity (Decrease) of of Net Payments Death Benefits Other (net) or Sponsor or Sponsor Transactions in Equity Period Period - -------------------------------------------------------------------------------------------------------------- $ 27,434 $ (9,924) $ (5,738) $19,899 $ (13,246) $18,425 $ 50,437 $ 88,739 $139,176 7,786 (1,952) (1,727) 16,289 (5,684) 14,712 25,450 23,643 49,093 60,234 (23,756) (13,144) 24,161 (25,415) 22,080 84,301 245,570 329,871 1,787 (409) (395) 7,087 (2,032) 6,038 8,901 4,429 13,330 39,949 (15,249) (9,144) 21,577 (12,400) 24,733 96,038 163,460 259,498 157 (17) (39) 2,883 (218) 2,766 3,134 -- 3,134 20,801 (7,075) (4,639) 19,312 (8,557) 19,842 48,585 71,919 120,504 57 (11) (29) 2,616 (463) 2,170 2,405 -- 2,405 50,569 (17,909) (10,550) 22,213 (18,323) 26,000 63,358 186,888 250,246 29,172 (10,449) (5,860) 11,799 (11,558) 13,104 40,832 110,027 150,859 6,504 (1,333) (1,360) 14,259 (4,575) 13,495 22,495 18,831 41,326 103 (21) (56) 4,815 (279) 4,562 5,030 -- 5,030 100,972 (34,018) (21,978) 44,892 (28,934) 60,934 179,867 392,362 572,229 3,039 (804) (603) 7,018 (1,444) 7,206 9,616 7,900 17,516 33,357 (14,745) (8,943) 18,756 (13,440) 14,985 52,601 209,313 261,914 7,849 (2,601) (2,190) 12,672 (7,086) 8,644 19,252 32,717 51,969 16,297 (5,347) (4,256) 31,858 (25,381) 13,171 17,271 75,496 92,767 163,443 (17,489) (12,821) 56,729 (186,977) 2,885 3,740 119,904 123,644 203 (27) (52) 4,423 (744) 3,803 4,384 -- 4,384 19,042 (6,524) (4,144) 15,128 (5,824) 17,678 37,748 62,079 99,827 8,625 (3,111) (1,995) 25,231 (18,789) 9,961 25,391 30,118 55,509 10,589 (3,623) (2,181) 8,442 (3,681) 9,546 25,285 35,554 60,839 4,050 (1,346) (2,035) 8,251 (12,046) (3,126) (998) 34,723 33,725 8,375 (2,861) (2,047) 13,386 (6,600) 10,253 22,709 28,893 51,602 $ 28,498 $ (7,487) $ (5,498) $20,009 $ (10,825) $24,697 $ 6,096 $ 82,643 $ 88,739 4,209 (708) (738) 20,173 (3,781) 19,155 17,341 6,302 23,643 67,922 (20,224) (13,292) 30,778 (31,416) 33,768 (29,326) 274,896 245,570 808 (158) (147) 6,020 (2,767) 3,756 3,293 1,136 4,429 43,862 (13,590) (8,065) 22,387 (18,085) 26,509 (7,208) 170,668 163,460 20,450 (4,145) (3,916) 22,086 (6,096) 28,379 17,242 54,677 71,919 56,456 (15,648) (10,956) 24,065 (16,982) 36,935 (9,227) 196,115 186,888 34,103 (9,579) (6,256) 13,448 (12,836) 18,880 (21,629) 131,656 110,027 3,500 (338) (597) 15,134 (1,690) 16,009 13,260 5,571 18,831 111,260 (33,947) (21,509) 45,341 (30,043) 71,102 (33,345) 425,707 392,362 1,179 (269) (262) 6,375 (739) 6,284 5,706 2,194 7,900 32,640 (14,335) (6,804) 20,990 (13,327) 19,164 1,287 208,026 209,313 7,500 (2,307) (1,496) 6,166 (3,757) 6,106 5,120 27,597 32,717 12,009 (3,313) (2,922) 30,764 (10,812) 25,726 32,114 43,382 75,496 192,709 (15,625) (17,291) 51,384 (199,919) 11,258 12,484 107,420 119,904 22,082 (4,487) (3,993) 11,287 (7,331) 17,558 1,215 60,864 62,079 9,224 (2,165) (1,852) 8,160 (5,758) 7,609 937 29,181 30,118 11,645 (2,408) (1,943) 13,956 (12,413) 8,837 2,846 32,708 35,554 5,412 (804) (1,096) 13,069 (3,048) 13,533 15,688 19,035 34,723 5,955 (1,897) (1,256) 14,905 (4,872) 12,835 13,126 15,767 28,893
Northwestern Mutual Variable Life Account 5 Financial Highlights Northwestern Mutual Variable Life Account (For a unit outstanding during the period)
Dividend Income as a % Expense Ratio, Unit Value(3), of Average Lowest to Total Return(4), Division Lowest to Highest Net Assets Highest Lowest to Highest - ------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Year Ended 12/31/03.................. $1.662679 to $ 20.745671 0.00% .20% to .75% 32.13% to 33.06% Year Ended 12/31/02.................. $1.258323 to $ 15.591407 0.15% .20% to .75% (18.99%) to (18.42%) Year Ended 12/31/01.................. $1.553320 to $ 19.112629 0.01% .20% to .75% (4.44%) to (3.76%) T. Rowe Price Small Cap Value (1) Year Ended 12/31/03.................. $1.276782 to $ 12.985287 0.00% .20% to .75% 34.21% to 35.15% Year Ended 12/31/02.................. $0.951303 to $ 9.607906 0.72% .20% to .75% (6.24%) to (5.58%) Period Ended 12/31/01................ $1.014592 to $ 10.175772 0.42% .20% to .75% 1.46% to 1.76% Aggressive Growth Stock Year Ended 12/31/03.................. $1.814891 to $ 47.932675 0.00% .20% to .75% 23.83% to 24.69% Year Ended 12/31/02.................. $1.464237 to $ 38.441232 0.09% .20% to .75% (21.70%) to (21.15%) Year Ended 12/31/01.................. $1.868189 to $ 48.753408 21.57% .20% to .75% (20.44%) to (19.87%) International Growth Stock (1) Year Ended 12/31/03.................. $1.085420 to $ 11.039080 1.06% .20% to .75% 38.02% to 38.99% Year Ended 12/31/02.................. $0.786402 to $ 7.942434 0.78% .20% to .75% (12.95%) to (12.34%) Period Ended 12/31/01................ $0.903343 to $ 9.060000 0.00% .20% to .75% (9.67%) to (9.40%) Franklin Templeton International Equity Year Ended 12/31/03.................. $1.465045 to $ 2.471833 1.64% .20% to .75% 39.49% to 40.46% Year Ended 12/31/02.................. $1.216308 to $ 1.759773 1.99% .20% to .75% (17.98%) to (17.40%) Year Ended 12/31/01.................. $1.481423 to $ 2.130553 10.20% .20% to .75% (14.60%) to (14.00%) AllianceBernstein Mid Cap Value (2) Period Ended 12/31/03................ $1.325376 to $ 13.315544 1.14% .20% to .75% 32.54% to 33.16% Index 400 Stock Year Ended 12/31/03.................. $1.294360 to $ 15.159273 0.70% .20% to .75% 34.08% to 35.01% Year Ended 12/31/02.................. $1.038438 to $ 11.227976 0.75% .20% to .75% (15.14%) to (14.54%) Year Ended 12/31/01.................. $1.223656 to $ 13.138452 1.13% .20% to .75% (1.35%) to (0.65%) Janus Capital Appreciation (2) Period Ended 12/31/03................ $1.193442 to $ 11.990097 0.09% .20% to .75% 19.34% to 19.90% Growth Stock Year Ended 12/31/03.................. $1.908431 to $ 25.471804 0.79% .20% to .75% 18.12% to 18.94% Year Ended 12/31/02.................. $1.645371 to $ 21.414901 1.10% .20% to .75% (21.38%) to (20.83%) Year Ended 12/31/01.................. $2.090785 to $ 27.049526 4.25% .20% to .75% (14.82%) to (14.22%) Large Cap Core Stock Year Ended 12/31/03.................. $1.085867 to $ 20.737771 0.94% .20% to .75% 23.19% to 24.05% Year Ended 12/31/02.................. $1.296529 to $ 16.717038 0.90% .20% to .75% (28.70%) to (28.20%) Year Ended 12/31/01.................. $1.816535 to $ 23.281928 3.45% .20% to .75% (8.42%) to (7.77%) Capital Guardian Domestic Equity (1) Year Ended 12/31/03.................. $1.018090 to $ 10.354264 1.88% .20% to .75% 33.48% to 34.41% Year Ended 12/31/02.................. $0.762737 to $ 7.703469 1.77% .20% to .75% (21.79%) to (21.24%) Period Ended 12/31/01................ $0.975250 to $ 9.781208 0.73% .20% to .75% (2.48%) to (2.19%) T. Rowe Price Equity Income (2) Period Ended 12/31/03................ $1.230617 to $ 12.363579 2.79% .20% to .75% 23.06% to 23.64% Index 500 Stock Year Ended 12/31/03.................. $2.081264 to $ 45.268617 1.43% .20% to .75% 27.54% to 28.43% Year Ended 12/31/02.................. $1.630187 to $ 35.246385 1.30% .20% to .75% (22.61%) to (22.07%) Year Ended 12/31/01.................. $2.104460 to $ 45.228886 4.26% .20% to .75% (12.50%) to (11.88%) Asset Allocation (1) Year Ended 12/31/03.................. $1.042045 to $ 10.598020 2.23% .20% to .75% 19.79% to 20.63% Year Ended 12/31/02.................. $0.869901 to $ 8.785751 2.35% .20% to .75% (10.88%) to (10.26%) Period Ended 12/31/01................ $0.976111 to $ 9.789803 1.19% .20% to .75% (2.39%) to (2.10%) Balanced Year Ended 12/31/03.................. $1.923623 to $ 99.686821 3.15% .20% to .75% 17.17% to 17.99% Year Ended 12/31/02.................. $1.640075 to $ 84.486469 3.70% .20% to .75% (8.18%) to (7.54%) Year Ended 12/31/01.................. $1.784400 to $ 91.372736 7.58% .20% to .75% (3.83%) to (3.15%) High Yield Bond Year Ended 12/31/03.................. $0.908491 to $ 20.482734 0.21% .20% to .75% 28.16% to 29.06% Year Ended 12/31/02.................. $1.276280 to $ 15.870922 11.64% .20% to .75% (3.57%) to (2.89%) Year Ended 12/31/01.................. $1.322201 to $ 16.343831 11.57% .20% to .75% 4.29% to 5.03%
(1)Division commenced operations on July 31, 2001. (2)Division commenced operations on May 1, 2003. (3)The lowest and highest unit value is as of the respective period-end date. (4)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 6 Northwestern Mutual Variable Life Account Financial Highlights Northwestern Mutual Variable Life Account, continued (For a unit outstanding during the period)
Dividend Income as a % Expense Ratio, Unit Value(3), of Average Lowest to Total Return(4), Division Lowest to Highest Net Assets Highest Lowest to Highest - --------------------------------------------------------------------------------------------------------- Select Bond Year Ended 12/31/03......... $1.423053 to $127.939501 3.78% .20% to .75% 4.76% to 5.49% Year Ended 12/31/02......... $1.624374 to $121.279756 4.23% .20% to .75% 11.31% to 12.09% Year Ended 12/31/01......... $1.457873 to $108.200259 5.07% .20% to .75% 9.59% to 10.37% Money Market Year Ended 12/31/03......... $1.035206 to $ 34.553668 1.22% .20% to .75% 0.53% to 1.23% Year Ended 12/31/02......... $1.339422 to $ 34.132616 1.63% .20% to .75% 0.95% to 1.65% Year Ended 12/31/01......... $1.325528 to $ 33.577318 3.73% .20% to .75% 3.19% to 3.92% Fidelity VIP Mid Cap (2) Period Ended 12/31/03....... $1.400160 to $ 14.066904 0.00% .20% to .75% 40.02% to 40.67% Russell Multi-Style Equity Year Ended 12/31/03......... $0.754341 to $ 11.740732 0.70% .20% to .75% 27.96% to 28.86% Year Ended 12/31/02......... $0.589495 to $ 6.221208 0.58% .20% to .75% (23.72%) to (23.19%) Year Ended 12/31/01......... $0.772852 to $ 8.099453 2.00% .20% to .75% (14.81%) to (14.21%) Russell Aggressive Equity Year Ended 12/31/03......... $1.163121 to $ 13.489469 0.11% .20% to .75% 44.59% to 45.60% Year Ended 12/31/02......... $0.804447 to $ 8.707578 0.00% .20% to .75% (19.62%) to (19.06%) Year Ended 12/31/01......... $1.000805 to $ 10.757522 0.11% .20% to .75% (3.05%) to (2.36%) Russell Non-U.S. Year Ended 12/31/03......... $0.948548 to $ 10.238075 2.98% .20% to .75% 37.82% to 38.79% Year Ended 12/31/02......... $0.688244 to $ 7.095865 1.79% .20% to .75% (15.74%) to (15.15%) Year Ended 12/31/01......... $0.816787 to $ 8.362558 0.67% .20% to .75% (22.58%) to (22.03%) Russell Core Bond Year Ended 12/31/03......... $1.329405 to $ 13.532112 3.47% .20% to .75% 5.41% to 6.15% Year Ended 12/31/02......... $1.261197 to $ 12.748590 2.67% .20% to .75% 3.08% to 3.80% Year Ended 12/31/01......... $1.166871 to $ 11.713217 5.52% .20% to .75% 7.08% to 7.84% Russell Real Estate Securities Year Ended 12/31/03......... $1.782914 to $ 18.123797 5.39% .20% to .75% 36.26% to 37.21% Year Ended 12/31/02......... $1.308500 to $ 13.208871 5.44% .20% to .75% 8.08% to 8.84% Year Ended 12/31/01......... $1.269394 to $ 12.725061 5.23% .20% to .75% 6.65% to 7.41%
(1)Division commenced operations on July 31, 2001. (2)Division commenced operations on May 1, 2003. (3)The lowest and highest unit value is as of the respective period-end date. (4)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 Northwestern Mutual Variable Life Account 7 Notes to Financial Statements Northwestern Mutual Variable Life Account December 31, 2003 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" or "NM") 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., Fidelity VIP Mid Cap Portfolio and the Russell Investment Funds (collectively known as "the Funds"). The shares are valued at the Funds' offering and redemption prices per share. The Funds are 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 ex-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, 2003 by each Division are shown as follows: (in thousands)
Division Purchases Sales -------- --------- ------- Small Cap Growth Stock................. $ 30,041 $12,264 T. Rowe Price Small Cap Value.......... 17,350 2,831 Aggressive Growth Stock................ 48,755 28,372 International Growth................... 6,716 626 Franklin Templeton International Equity 45,771 18,741 AllianceBernstein Mid Cap Value........ 2,851 51 Index 400 Stock........................ 28,703 8,735 Janus Capital Appreciation............. 2,217 46 Growth Stock........................... 47,883 21,459 Large Cap Core Stock................... 26,082 12,538 Capital Guardian Domestic Equity....... 16,140 2,248 T. Rowe Price Equity Income............ 4,686 65 Index 500 Stock........................ 108,689 41,261 Asset Allocation....................... 8,575 1,162 Balanced............................... 38,532 17,672 High Yield Bond........................ 11,970 3,477 Select Bond............................ 25,233 7,341 Money Market........................... 40,778 37,052 Fidelity VIP Mid Cap................... 3,883 86 Russell Multi-Style Equity............. 26,298 8,427 Russell Aggressive Equity.............. 13,761 3,959 Russell Non-U.S........................ 15,290 4,602 Russell Core Bond...................... 3,322 4,645 Russell Real Estate Securities......... 15,906 3,760
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, 1995, and for Variable Executive Life policies issued on or after March 2, 1998, and Variable Joint Life 8 Northwestern Mutual Variable Life Account Notes to Financial Statements 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. Note 8 -- The changes in units outstanding for the years ended December 31, 2003 and 2002 by each Division are shown as follows: (in thousands)
Net Units Units Increase Issued Redeemed (Decrease) --------------------------------------------------------------------------- Year Ended December 31, 2003 Small Cap Growth Stock Division................. 19,518 7,767 11,751 T. Rowe Price Small Cap Value Division.......... 13,219 2,089 11,130 Aggressive Growth Stock Division................ 28,858 15,092 13,766 International Growth Division................... 5,512 545 4,967 Franklin Templeton International Equity Division 28,643 11,477 17,166 AllianceBernstein Mid Cap Value Division #...... 1,859 28 1,831 Index 400 Stock Division........................ 21,656 6,417 15,239 Janus Capital Appreciation Division #........... 1,756 38 1,718 Growth Stock Division........................... 24,361 10,438 13,923 Large Cap Core Stock Division................... 16,288 7,413 8,875 Capital Guardian Domestic Equity Division....... 14,784 1,962 12,822 T. Rowe Price Equity Income Division #.......... 3,184 45 3,139 Index 500 Stock Division........................ 48,109 18,742 29,367 Asset Allocation Division....................... 7,099 881 6,218 Balanced Division............................... 13,284 5,007 8,277 High Yield Bond Division........................ 6,953 2,035 4,918 Select Bond Division............................ 9,860 3,417 6,443 Money Market Division........................... 24,722 24,254 468 Fidelity VIP Mid Cap Division #................. 2,438 48 2,390 Russell Multi-Style Equity Division............. 34,575 10,681 23,894 Russell Aggressive Equity Division.............. 12,760 3,541 9,219 Russell Non-U.S. Division....................... 16,087 4,949 11,138 Russell Core Bond Division...................... 4,233 1,627 2,606 Russell Real Estate Securities Division......... 8,150 2,163 5,987 Year Ended December 31, 2002 Small Cap Growth Stock Division................. 21,879 5,762 16,117 T. Rowe Price Small Cap Value Division.......... 16,289 940 15,349 Aggressive Growth Stock Division................ 31,706 11,971 19,735 International Growth Division................... 3,807 217 3,590 Franklin Templeton International Equity Division 27,941 9,938 18,003 Index 400 Stock Division........................ 25,275 4,282 20,993 Growth Stock Division........................... 26,801 8,696 18,105 Large Cap Core Stock Division................... 18,061 6,580 11,481 Capital Guardian Domestic Equity Division....... 14,522 514 14,008 Index 500 Stock Division........................ 51,427 17,640 33,787 Asset Allocation Division....................... 5,076 233 4,843 Balanced Division............................... 15,354 4,320 11,034 High Yield Bond Division........................ 5,744 1,807 3,937 Select Bond Division............................ 15,933 1,922 14,011 Money Market Division........................... 46,015 38,122 7,893 Russell Multi-Style Equity Division............. 29,772 7,757 22,015 Russell Aggressive Equity Division.............. 10,595 2,767 7,828 Russell Non-U.S. Division....................... 13,195 3,672 9,523 Russell Core Bond Division...................... 4,535 771 3,764 Russell Real Estate Securities Division......... 10,466 1,648 8,818
# The initial investment in this Division was made on May 1, 2003. The changes in units outstanding do not include Variable Life policies issued before October 11, 1995. Northwestern Mutual Variable Life Account 9 Notes to Financial Statements Note 9 -- Equity Values by Division are shown as follows: (in thousands, except accumulation unit values)
Variable Life Policies Issued Before October 11, 1995 Equity of: ---------------------- Total Division Policyowners NM Equity ----------------------------------------------------------------------- Small Cap Growth Stock................. $ 10,037 $ 374 $ 10,411 T. Rowe Price Small Cap Value.......... 5,377 192 5,569 Aggressive Growth Stock................ 52,337 2,487 54,824 International Growth................... 960 29 989 Franklin Templeton International Equity 43,982 1,923 45,905 AllianceBernstein Mid Cap Value........ 433 18 451 Index 400 Stock........................ 8,512 283 8,795 Janus Capital Appreciation............. 149 3 152 Growth Stock........................... 26,543 1,212 27,755 Large Cap Core Stock................... 20,123 1,025 21,148 Capital Guardian Domestic Equity....... 5,216 235 5,451 T. Rowe Price Equity Income............ 875 42 917 Index 500 Stock........................ 103,700 3,702 107,402 Asset Allocation....................... 2,888 98 2,986 Balanced............................... 138,824 3,316 142,140 High Yield Bond........................ 5,944 259 6,203 Select Bond............................ 12,601 428 13,029 Money Market........................... 8,582 229 8,811 Fidelity VIP Mid Cap................... 808 24 832 Russell Multi-Style Equity............. 4,494 164 4,658 Russell Aggressive Equity.............. 3,411 117 3,528 Russell Non-U.S........................ 3,282 117 3,399 Russell Core Bond...................... 1,598 71 1,669 Russell Real Estate Securities......... 3,927 118 4,045 -------- ------- -------- $464,603 $16,466 $481,069 ======== ======= ========
Variable Complife Policies Issued On or After October 11, 1995 Equity of: --------------------------- Total Division Policyowners NM Equity ------------------------------------------------------------------------------ Small Cap Growth Stock................. $ 102,674 $ 17,191 $ 119,865 T. Rowe Price Small Cap Value.......... 33,154 5,476 38,630 Aggressive Growth Stock................ 233,096 31,656 264,752 International Growth................... 8,404 1,615 10,019 Franklin Templeton International Equity 178,279 23,978 202,257 AllianceBernstein Mid Cap Value........ 2,082 318 2,400 Index 400 Stock........................ 86,805 14,238 101,043 Janus Capital Appreciation............. 1,774 255 2,029 Growth Stock........................... 180,341 26,255 206,596 Large Cap Core Stock................... 107,668 14,939 122,607 Capital Guardian Domestic Equity....... 26,073 4,459 30,532 T. Rowe Price Equity Income............ 3,357 480 3,837 Index 500 Stock........................ 374,316 52,932 427,248 Asset Allocation....................... 11,007 1,911 12,918 Balanced............................... 95,495 13,653 109,148 High Yield Bond........................ 36,223 4,778 41,001 Select Bond............................ 52,974 7,610 60,584 Money Market........................... 79,177 20,379 99,556 Fidelity VIP Mid Cap................... 2,812 513 3,325 Russell Multi-Style Equity............. 66,307 11,393 77,700 Russell Aggressive Equity.............. 38,262 6,215 44,477 Russell Non-U.S........................ 39,223 6,438 45,661 Russell Core Bond...................... 12,751 2,178 14,929 Russell Real Estate Securities......... 36,101 5,937 42,038 ---------- -------- ---------- $1,808,355 $274,797 $2,083,152 ========== ======== ==========
10 Northwestern Mutual Variable Life Account Notes to Financial Statements
Variable Executive Variable Joint Life Policies Life Policies Issued On or After Issued On or After March 2, 1998 December 10, 1998 Division Total Equity Total Equity ----------------------------------------------------------------------------- Small Cap Growth Stock................. $ 3,001 $ 5,900 T. Rowe Price Small Cap ValueTotal..... 1,630 3,264 Aggressive Growth Stock................ 4,588 5,707 International Growth................... 1,271 1,051 Franklin Templeton International Equity 4,867 6,469 AllianceBernstein Mid Cap Value........ 72 211 Index 400 Stock........................ 4,000 6,667 Janus Capital Appreciation............. 174 49 Growth Stock........................... 8,218 7,676 Large Cap Core Stock................... 3,344 3,761 Capital Guardian Domestic Equity....... 1,667 3,675 T Rowe Price Equity Income............. 67 209 Index 500 Stock........................ 11,220 26,359 Asset Allocation....................... 546 1,067 Balanced............................... 3,485 7,141 High Yield Bond........................ 3,360 1,405 Select Bond............................ 14,416 4,737 Money Market........................... 8,517 6,759 Fidelity VIP Mid Cap................... 18 209 Russell Multi-Style Equity............. 11,590 5,879 Russell Aggressive Equity.............. 5,101 2,403 Russell Non-U S........................ 8,104 3,675 Russell Core Bond...................... 16,238 889 Russell Real Estate Securities......... 2,610 2,910 -------- -------- $118,104 $108,072 ======== ========
Northwestern Mutual Variable Life Account 11 Accountants' Report [LOGO] PRICEWATERHOUSECOOPERS Report of Independent Auditors 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, AllianceBernstein Mid Cap Value Division, Index 400 Stock Division, Janus Capital Appreciation Division, Growth Stock Division, Large Cap Core Stock Division, Capital Guardian Domestic Equity Division, T. Rowe Price Equity Income Division, Index 500 Stock Division, Asset Allocation Division, Balanced Division, High Yield Bond Division, Select Bond Division, Money Market Division, Fidelity VIP Mid Cap Portfolio, 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, 2003, 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, 2003 with Northwestern Mutual Series Fund, Inc., Fidelity VIP Mid Cap Portfolio and the Russell Insurance Funds, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Milwaukee, Wisconsin January 28, 2004 12 Accountants' Report The Northwestern Mutual Life Insurance Company * Milwaukee, WI www.northwesternmutual.com 90-1899 (0786) (REV 0104) 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 Investment Services, LLC, a wholly-owned company of Northwestern Mutual Life, a registered broker-dealer under the Securities Exchange Act of 1934. Member NASD and SIPC. [LOGO] Northwestern Mutual(R) PO Box 3095 Milwaukee, WI 53201-3095 -----END PRIVACY-ENHANCED MESSAGE-----