Annual Reports - Northwestern Mutual

December 31, 2008 

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 

Annual Reports 

Optimized to contain one or more of the following:* 

Northwestern Mutual Series Fund, Inc. 

Fidelity® VIP Mid Cap Portfolio 

Service Class 2 

Fidelity® VIP Contrafund® Portfolio 

Service Class 2 

Neuberger Berman AMT Socially Responsive 

Fund 

Russell Investment Funds 

Russell Investment Funds – LifePoints® 

Variable Target Portfolio Series 

Flexible Payment Variable Annuity Account A 

Flexible Payment Variable Annuity Account A 

(Fee Based) 

Flexible Payment Variable Annuity Account B 

Flexible Payment Variable Annuity Account B 

(Fee Based) 

Group Combination Annuity Account C 

Flexible Payment Variable Annuity Account C 

(Network Edition) 

*See Table of Contents for more information and 

a list of Prospectus supplements included herein. 

14-1558 (0107) (REV 0109)

How To Get More Information 

Northwestern Mutual Express: 

1-800-519-4665 

For eligible owners, get up-to-date information about your contract 

at your convenience with your Contract number and your Personal 

Identification Number (PIN). Call toll-free to review contract 

values and unit values, transfer among investment options, change 

the allocation and obtain fund performance information. 

Information on the internet: 

Northwestern Mutual Financial Network 

WWW.NMFN.COM 

For information about Northwestern Mutual visit us on our 

Website. Included is fund performance information (which can be 

found at nmfn.com > Investment Products > Annuities > Fund 

Information > Performance History), forms for routine service, and 

daily unit values for contracts you own with your User ID and 

password. Eligible owners may also transfer invested assets among 

funds and change the allocation of future contributions online. 

For further information, contact either your Northwestern Mutual 

Financial Representative or The Northwestern Mutual Life 

Insurance Company, 720 East Wisconsin Avenue, Milwaukee, 

Wisconsin 53202; 1-888-455-2232. 

Mason Street Advisors, LLC is the principal investment adviser for 

all the Portfolios of the Northwestern Mutual Series Fund, Inc. 

Mason Street Advisors has engaged and oversees sub-advisers who 

provide day-to-day management for certain of the Series Fund 

Portfolios. Each sub-adviser may be replaced without the approval 

of shareholders. Please see the Series Fund prospectus for more 

information.

Contents 

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.) 

Fidelity ® VIP Contrafund ® Portfolio - Annual Report 

(This report follows the end of the Fidelity ® VIP Mid Cap Portfolio) 

Neuberger Berman Socially Responsive Portfolio - 

Annual Report 

(This report follows the end of the Fidelity ® VIP Contrafund ® Portfolio) 

Russell Investment Funds - Annual Report 

(This report follows the end of the Neuberger Berman Portfolio) 

Russell Investment Funds - LifePoints ® Variable Target 

Portfolio Series - Annual Report 

(This report follows the end of the Russell Investment Funds Portfolio) 

Prospectus Supplements 

The performance data quoted represents past performance. 

Past performance is historical and does not guarantee future 

performance. Investment return and principal value will 

fluctuate, so that shares, when redeemed, may be worth more 

or less than their original cost. Current performance may be 

lower or higher than the performance data quoted. For the 

most recent month-end performance information visit 

www.nmfn.com.

[THIS PAGE INTENTIONALLY LEFT BLANK]

Annual Report December 31, 2008 


A Series Fund Offering 27 Portfolios 

Š Growth Stock Portfolio 

Š Focused Appreciation Portfolio 

Š Large Cap Core Stock Portfolio 

Š Large Cap Blend Portfolio 

Š Index 500 Stock Portfolio 

Š Large Company Value Portfolio 

Š Domestic Equity Portfolio 

Š Equity Income Portfolio 

Š Mid Cap Growth Stock Portfolio 


Š Mid Cap Value Portfolio 

Š Small Cap Growth Stock Portfolio 


Š Small Cap Value Portfolio 

Š International Growth Portfolio 

Š Research International Core Portfolio 

Š International Equity Portfolio 

Š Emerging Markets Equity Portfolio 

Š Money Market Portfolio 

Š Short-Term Bond Portfolio 

Š Select Bond Portfolio 

Š Long-Term U.S. Government Bond Portfolio 

Š Inflation Protection Portfolio 

Š High Yield Bond Portfolio 

Š Multi-Sector Bond Portfolio 

Š Balanced Portfolio 

Š Asset Allocation Portfolio

Letter to Clients 


Financial markets and economies around the world benefited 

in recent years from the confluence of two powerful 

currents—the ready acceptance of risk and an abundance of 

cheap, borrowed capital. The story of 2008 is the wrenching 

change brought about as these tides reversed. Consider the 

economic and financial distance we’ve covered as 

represented in these pairings—from record home ownership 

to record foreclosures; from record high commodity prices to 

the worst year in commodity market history; from easy credit 

to no credit; and from record low risk premiums to extreme 

risk aversion. 

The tally in terms of financial loss is staggering. Looked at 

from the consumer’s viewpoint, the unprecedented decline in 

home prices is estimated to have erased $4 trillion in wealth. 

From the late-2007 peak to the November 2008 trough, stock 

market losses totaled roughly $10 trillion. For some context, 

the Federal Reserve’s latest estimate of total U.S. household 

net worth stands at a little more than $56 trillion. 

You can assess the harm to Wall Street from the abuse of 

leverage in terms of institutions—Fannie Mae and Freddie 

Mac, insurer AIG, every one of the major independent U.S. 

investment banks, Wachovia, Washington Mutual, etc.—that 

were either taken over, bailed out, sold at steep discounts, or 

forced to alter their corporate structure to stay afloat. A 

measure of the magnitude of the crisis can be found in the 

government’s response—Congress passed a $700 billion 

bailout, while the Fed slashed interest rates to 0% and took 

dramatic steps to support banks and debt markets. As one 

industry analyst noted, it took the Fed 40 years to grow its 

balance sheet to $1 billion, but it ballooned from $1 to $2 

trillion in one 30-day stretch in 2008. 

Finally, look at the markets themselves: the S&P 500 ® Stock 

Index ended 2008 down about 37%, while the S&P MidCap 

400 and SmallCap 600 Indices finished with losses of 36% 

and 31%, respectively. Nor did international markets provide 

solace. The MSCI EAFE Index fell 43%, as deleveraging and 

the resulting economic and financial stresses disabused 

investors of the notion of “decoupling”, often cited in the 

hope that international economies and markets could 

withstand a U.S. slowdown. In fixed income markets, the 

Citigroup U.S. Broad Investment Grade Bond Index rose 7% 

for the year, driven entirely by gains in Treasury and 

government-backed agency and mortgage bonds; corporate 

securities actually had negative returns. 

have in supporting the economy and returning financial 

markets to some semblance of normalcy. What’s more, there 

is considerable fuel for market gains—the Fed estimates U.S. 

consumers hold almost $9 trillion in cash in bank deposits 

and brokerage accounts, representing a record 75% of the 

total capitalization of the U.S. stock market. 

We should close by saying a word about diversification. In a 

year when virtually every asset outside of Treasuries 

produced negative returns, there are those who argue that 

diversification did not work. But we must not mistake 

direction of market movement for magnitude. While all loss 

hurts, we continue to believe that it pays to attempt to 

minimize those losses through diversification. 

Diversification—that is, using a measured approach to spread 

your assets within and across asset classes—remains the best 

way we know to maximize risk-adjusted performance over 

time. And systematic rebalancing to established targets 

consistent with your investment goals and objectives 

enforces a disciplined buy low, sell high strategy that is 

central to a sound investment plan. 

Patricia L. Van Kampen 

President of Northwestern Mutual Series Fund, Inc. 

Vice President of Mason Street Advisors, LLC 

This breathtaking tally of loss begs the question: what sort of 

financial landscape can we expect in a world where access to 

credit is highly constrained? While the economic 

environment is challenging, we are hopeful about the role 

that massive fiscal stimulus and innovative Fed policies can


Table of Contents 

Expense Examples ................................................................ i 

Series Fund Overview and Schedules of Investments: 

Growth Stock Portfolio ........................................................ 1 

Focused Appreciation Portfolio .................................................. 5 

Large Cap Core Stock Portfolio ................................................. 8 

Large Cap Blend Portfolio ...................................................... 12 

Index 500 Stock Portfolio ...................................................... 16 

Large Company Value Portfolio ................................................. 23 

Domestic Equity Portfolio ...................................................... 27 

Equity Income Portfolio ....................................................... 31 

Mid Cap Growth Stock Portfolio ................................................ 36 


Mid Cap Value Portfolio ....................................................... 46 

Small Cap Growth Stock Portfolio ............................................... 50 


Small Cap Value Portfolio ...................................................... 63 

International Growth Portfolio .................................................. 68 

Research International Core Portfolio ............................................. 74 

International Equity Portfolio ................................................... 78 

Emerging Markets Equity Portfolio .............................................. 83 

Money Market Portfolio ....................................................... 88 

Short-Term Bond Portfolio ..................................................... 92 

Select Bond Portfolio ......................................................... 98 

Long-Term U.S. Government Bond Portfolio ....................................... 112 

Inflation Protection Portfolio .................................................... 119 

High Yield Bond Portfolio ..................................................... 125 

Multi-Sector Bond Portfolio .................................................... 133 

Balanced Portfolio ............................................................ 143 

Asset Allocation Portfolio ...................................................... 166 

Benchmark Definitions ............................................................ 187 

Statements of Assets and Liabilities .................................................. 190 

Statements of Operations ........................................................... 194 

Statements of Changes in Net Assets ................................................. 198 

Financial Highlights .............................................................. 206 

Notes to Financial Statements ....................................................... 214 

Report of Independent Registered Public Accounting Firm ................................ 230 

Proxy Voting and Portfolio Holdings ................................................. 231 

Director and Officer Information .................................................... 232 

Approval and Continuance of Investment Sub-Advisory Agreements ........................ 234 

Mason Street Advisors, LLC, adviser to the Northwestern Mutual Series Fund, Inc., is a wholly owned subsidiary of 

The Northwestern Mutual Life Insurance Company. 

The views expressed in the portfolio manager commentaries set forth in the following pages reflect those of the 

portfolio managers only through the end of the period covered by this report and do not necessarily represent the views 

of any affiliated organization. These views are subject to change at any time based upon market conditions or other 

events and should not be relied upon as investment advice. Mason Street Advisors, LLC, disclaims any responsibility to 

update these views.

Expense Examples 

Example 

As a shareholder of each Portfolio, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including 

management fees and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in 

dollars) of investing in the Portfolios and to compare these costs with the ongoing costs of investing in other mutual funds. 

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 

2008 to December 31, 2008). 

Actual Expenses 

The first line of the table below provides information about actual account values and actual expenses. You may use the 

information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply 

divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result 

by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on 

your account during this period. 

Hypothetical Example for Comparison Purposes 

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on 

each Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolios’ 

actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or 

expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Portfolio and 

other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the 

shareholder reports of the other funds. 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any 

transactional costs or separate account charges. Therefore, the second line of the table is useful in comparing ongoing costs 

only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs 

or separate account charges were included, your costs would have been higher. 

Beginning Account Value 

July 1, 2008 

Ending Account Value 


Expenses Paid During 

Period July 1, 2008 to 

December 31, 2008* 

Annualized 

Expense Ratio 

Growth Stock Portfolio 

Actual $1,000.00 $ 678.50 $1.86 0.44% 

Hypothetical (5% return before 

expenses) 1,000.00 1,022.92 2.24 0.44 

Focused Appreciation Portfolio 

Actual 1,000.00 597.86 3.17 0.79 


expenses) 1,000.00 1,021.17 4.01 0.79 

Large Cap Core Stock Portfolio 

Actual 1,000.00 689.94 1.91 0.45 


expenses) 1,000.00 1,022.87 2.29 0.45 

Large Cap Blend Portfolio 

Actual 1,000.00 694.36 3.62 0.85 


expenses) 1,000.00 1,020.86 4.32 0.85 

Index 500 Stock Portfolio 

Actual 1,000.00 716.15 0.86 0.20 


expenses) 1,000.00 1,024.13 1.02 0.20 

i Expense Examples



July 1, 2008 







Expense Ratio 

Large Company Value Portfolio 

Actual $1,000.00 $ 737.19 $3.49 0.80% 


expenses) 1,000.00 1,021.11 4.06 0.80 

Domestic Equity Portfolio 

Actual 1,000.00 751.09 2.55 0.58 


expenses) 1,000.00 1,022.22 2.95 0.58 

Equity Income Portfolio 

Actual 1,000.00 742.20 2.93 0.67 


expenses) 1,000.00 1,021.77 3.40 0.67 

Mid Cap Growth Stock Portfolio 

Actual 1,000.00 667.86 2.22 0.53 


expenses) 1,000.00 1,022.47 2.69 0.53 


Actual 1,000.00 664.28 1.09 0.26 


expenses) 1,000.00 1,023.83 1.32 0.26 

Mid Cap Value Portfolio 

Actual 1,000.00 692.57 3.79 0.89 


expenses) 1,000.00 1,020.66 4.52 0.89 

Small Cap Growth Stock Portfolio 

Actual 1,000.00 658.85 2.42 0.58 


expenses) 1,000.00 1,022.22 2.95 0.58 


Actual 1,000.00 740.11 1.53 0.35 


expenses) 1,000.00 1,023.38 1.78 0.35 

Small Cap Value Portfolio 

Actual 1,000.00 730.14 3.78 0.87 


expenses) 1,000.00 1,020.76 4.42 0.87 

International Growth Portfolio 

Actual 1,000.00 601.78 3.34 0.83 


expenses) 1,000.00 1,020.96 4.22 0.83 

Research International Core Portfolio 

Actual 1,000.00 635.96 4.73 1.15 


expenses) 1,000.00 1,019.36 5.84 1.15 

International Equity Portfolio 

Actual 1,000.00 656.60 2.75 0.66 


expenses) 1,000.00 1,021.82 3.35 0.66 

Expense Examples ii



July 1, 2008 







Expense Ratio 

Emerging Markets Equity Portfolio 

Actual $1,000.00 $ 491.66 $5.62 1.50% 


expenses) 1,000.00 1,017.60 7.61 1.50 

Money Market Portfolio 

Actual 1,000.00 1,011.68 1.67 0.33 


expenses) 1,000.00 1,023.48 1.68 0.33 

Short-Term Bond Portfolio 

Actual 1,000.00 1,003.08 2.01 0.40 


expenses) 1,000.00 1,023.13 2.03 0.40 

Select Bond Portfolio 

Actual 1,000.00 1,015.98 1.52 0.30 


expenses) 1,000.00 1,023.63 1.53 0.30 

Long-Term U.S. Government Bond 

Portfolio 

Actual 1,000.00 1,190.49 3.36 0.61 


expenses) 1,000.00 1,022.07 3.10 0.61 

Inflation Protection Portfolio 

Actual 1,000.00 955.84 3.05 0.62 


expenses) 1,000.00 1,022.02 3.15 0.62 

High Yield Bond Portfolio 

Actual 1,000.00 794.41 2.17 0.48 


expenses) 1,000.00 1,022.72 2.44 0.48 

Multi-Sector Bond Portfolio 

Actual 1,000.00 945.79 4.30 0.88 


expenses) 1,000.00 1,020.71 4.47 0.88 

Balanced Portfolio 

Actual 1,000.00 815.32 1.37 0.30 


expenses) 1,000.00 1,023.63 1.53 0.30 

Asset Allocation Portfolio 

Actual 1,000.00 750.13 2.42 0.55 


expenses) 1,000.00 1,022.37 2.80 0.55 

* Expenses are equal to the Portfolio's annualized expense ratio, multiplied by the average account value 

over the period, multiplied by 184/366 (to reflect the one-half year period). 

iii Expense Examples


Objective: Portfolio Strategy: Net Assets: 

Long-term growth of capital. Income is Invest in well-established companies with above-average $414 million 

a secondary objective. 

potential for earnings growth. 

Portfolio Overview 

Mason Street Advisors acts as the investment adviser for the Growth Stock Portfolio. The Portfolio seeks long-term growth of 

capital with income as a secondary objective. The Portfolio seeks to achieve this objective by investing primarily in the equity 

securities of well-established, medium and large capitalization companies that are selected for their above-average earnings 

growth potential, with an emphasis on high quality companies that have strong financial characteristics. Companies are 

identified using a “top down” approach that involves considering the economic outlook, identifying growth-oriented industries 

based on that outlook, and evaluating individual companies considering factors such as management product outlook, global 

exposure, industry leadership position and financial characteristics. 

Market Overview 

Financial markets endured a brutal 2008, which saw the failure of a number of leading financial institutions, credit markets 

freeze up, and the U.S. government take a series of extraordinary steps to support the economy and financial system. The crisis 

was a result of the ongoing sub-prime mortgage meltdown, which spread rapidly through the domestic financial sector and into 

virtually every segment of global financial markets. Economic conditions deteriorated sharply over the course of the year, as 

unemployment jumped above 7% and the economy entered its first recession since 2002. For all of 2008, returns for large-, 

medium- and small-sized companies were –37.60%, –41.46% and –33.79%, as measured by the Russell 1000, Russell MidCap 

and Russell 2000 Stock Indices, respectively. No sector of the market had positive returns for the year, and value-oriented 

stocks held up modestly better than growth stocks, as measured by the Russell style indices. 

Portfolio Results 

The Growth Stock Portfolio returned –38.86% for the twelve months ended December 31, 2008. By comparison, the Russell 

1000 Growth Index returned –38.44%. (The Index is unmanaged, cannot be invested in directly, and does not include 

administrative expenses or sales charges.) The Large-Cap Growth Funds peer group had an average return of –41.68%, 

according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 

The Portfolio’s absolute return reflected the unprecedented turmoil affecting the economy and financial markets in what was 

the worst year for stocks since the Great Depression. In that environment, no sector contributed positively to results. Despite 

the difficult investing climate, the Portfolio performed in line with its Index and held up better than many of its peers. We 

believe the Portfolio outperformed the peer group average return because it tended to be underrepresented in economically 

sensitive shares, and because our process favored reasonably priced growers, rather than pure growth and momentum names, 

which generally lagged. 

Relative to the Index, stock selection in the Information Technology sector detracted most from relative results, led by 

positioning in the internet software and services, semiconductor and software industry segments. The largest detractor was 

MEMC Electronic Materials, which provides silicon wafers to computer chip makers and solar panel manufacturers. The 

dramatic downturn in economic growth in the second half of the year weighed heavily on demand and prices for its products. 

Another source of weakness was positioning in the Industrials sector. The leading detractors were manufacturers and parts 

suppliers tied to the market for commercial airliners and business jets. These were Textron and Spirit AeroSystems Holdings. 

We liked the backlog and book of business these companies touted; nevertheless, investors worried that slower economic 

growth would throttle demand for commercial jets. 

At the other end of the spectrum, our stock selection was most effective in the Health Care sector, behind positioning in the 

biotechnology segment. The leading contributors were Gilead Sciences and Celgene. Gilead is the dominant player in the 

market for AIDS drugs, while Celgene offers best-in-class cancer drugs gaining approval for new applications. Selection and 

allocation decisions in the health care providers and health care equipment industry segments were also key contributors to 

relative results. 

In Energy, the Portfolio benefited from stock selection among oil, gas and consumable fuels names. The leading contributor 

was oil and gas exploration and production firm EOG Resources, which performed very well early in the year as energy prices 

surged to record highs. We traded out of that stock into Southwestern Energy—whose valuation, growth profile and balance 

sheet we liked better—which held up well. 

Growth Stock Portfolio 1


Outlook 

After the unprecedented events of 2008, we have a somewhat hopeful outlook for 2009—we are hoping for the reemergence of 

a more rational, less volatile market environment where fundamentals matter again. Unfortunately, the economic fundamentals 

remain challenging, and it is difficult to see a quick rebound in growth and earnings. Nevertheless, there are reasons we 

believe large-cap growth shares are positioned to do reasonably well in 2009. First, growth-oriented shares have historically 

done better than value when investors desire earnings certainty, and large companies typically have more arms to their 

business and levers to pull to support earnings. Second, we find stocks attractive relative to bonds. Third, stocks typically rally 

before the economy turns. So given those factors, we are likely to add exposure to what we believe are the most attractive, 

highest quality early cycle companies with the most potential to benefit from an eventual recovery. 

Relative Performance 

$15,000 

10,000 

5,000 

0 

12/98 12/00 12/02 12/04 12/06 12/08 

Top 10 Equity Holdings 12/31/08 

Security Description 

% of Net Assets 

Microsoft Corp. 3.0% 

Google, Inc. - Class A 2.8% 

Hewlett-Packard Co. 2.4% 

Wal-Mart Stores, Inc. 2.3% 

Abbott Laboratories 2.2% 

Cisco Systems, Inc. 2.1% 

International Business Machines Corp. 2.1% 

QUALCOMM, Inc. 2.1% 

Intel Corp. 1.9% 

Philip Morris International, Inc. 1.9% 


Russell 1000 Growth Index 

Average Annual Total Returns 

For Periods Ended December 31, 2008 

1 Year 5 Years 10 Years 



-38.86% -3.42% 

-38.44% -3.42% 

-2.07% 

-4.27% 

Lipper Variable Insurance Products 

(VIP) Large Cap Growth Funds 

Average -41.68% -3.80% -2.66% 

The performance data quoted represents past 

performance. Past performance is historical and does 

not guarantee future performance. Investment return 

and principal value will fluctuate, so that shares, when 

redeemed, may be worth more or less than their original 

cost. Current performance may be lower or higher than 

the performance data quoted. For the most recent 

month-end performance information visit 

www.nmfn.com. 

This chart assumes an initial investment of $10,000 

made on 12/31/98. Returns shown include deductions 

for management and other portfolio expenses, and 

reinvestment of all dividends. Returns exclude 

deductions for separte account sale loads and account 

fees. Please refer to the Benchmark Definitions section 

of this report for information about the indices cited in 

the above chart and graph. 

Materials 

3% 

Financials 

3% 

Energy 

8% 

Consumer 

Discretionary 

8% 

Industrials 

9% 

Short-Term Investments 

& Other Net Assets 

12% 

Sector Allocation 12/31/08 

Telecommunication Services 

1% 

Sector Allocation is based on Net Assets. 

Sector Allocation and Top 10 Holdings are subject to 

change. 

Utilities 

1% 

Information 

Technology 

25% 

Health Care 

16% 

Consumer 

Staples 

14% 

2 Growth Stock Portfolio



Schedule of Investments 


Common Stocks (88.2%) 

Shares/ 

$ Par 

Consumer Discretionary (8.3%) 

Value 

$ (000's) 

Abercrombie & Fitch 

Co. - Class A 63,000 1,453 

* Amazon.com, Inc. 28,000 1,436 

Comcast Corp. - Class A 290,150 4,898 

Johnson Controls, Inc. 158,800 2,884 

* Kohl's Corp. 128,500 4,652 

Lowe's Cos., Inc. 137,700 2,963 

McDonald's Corp. 57,800 3,594 

The McGraw-Hill Cos., 

Inc. 129,200 2,996 

NIKE, Inc. - Class B 78,700 4,014 

Omnicom Group, Inc. 97,100 2,614 

Target Corp. 78,900 2,724 

Total 34,228 

Consumer Staples (13.8%) 

Avon Products, Inc. 134,100 3,222 

The Coca-Cola Co. 136,900 6,198 

CVS Caremark Corp. 250,129 7,189 

* Energizer Holdings, Inc. 47,200 2,555 

* Hansen Natural Corp. 125,500 4,208 

The Kroger Co. 212,000 5,599 

PepsiCo, Inc. 122,900 6,731 

Philip Morris 

International, Inc. 183,800 7,997 

The Procter & Gamble 

Co. 62,400 3,858 

Wal-Mart Stores, Inc. 172,300 9,659 

Total 57,216 

Energy (8.1%) 

* Cameron International 

Corp. 59,800 1,226 

Diamond Offshore 

Drilling, Inc. 32,500 1,916 

Exxon Mobil Corp. 82,734 6,605 

Halliburton Co. 117,000 2,127 

Hess Corp. 37,300 2,001 

* National-Oilwell Varco, 

Inc. 138,400 3,382 

Occidental Petroleum 

Corp. 72,100 4,325 

* SandRidge Energy, Inc. 25,400 156 

Schlumberger, Ltd. 102,400 4,335 

* Southwestern Energy 

Co. 89,300 2,587 

* Transocean, Ltd. 27,600 1,304 

XTO Energy, Inc. 103,550 3,652 

Total 33,616 

Financials (2.7%) 

American Express Co. 59,100 1,096 

CME Group, Inc. 7,000 1,457 

The Goldman Sachs 

Group, Inc. 19,800 1,671 


Shares/ 

$ Par 

Value 

$ (000's) 

Financials continued 

Prudential Financial, Inc. 51,300 1,552 

State Street Corp. 85,500 3,363 

T. Rowe Price Group, 

Inc. 54,013 1,914 

Total 11,053 

Health Care (15.7%) 

Abbott Laboratories 173,700 9,270 

Allergan, Inc. 83,200 3,355 

Baxter International, Inc. 143,800 7,706 

Bristol-Myers Squibb 

Co. 39,600 921 

* Celgene Corp. 114,100 6,307 

* Genentech, Inc. 53,500 4,436 

* Genzyme Corp. 67,000 4,447 

* Gilead Sciences, Inc. 135,800 6,945 

Johnson & Johnson 44,300 2,651 

* Medco Health Solutions, 

Inc. 176,100 7,380 

* St. Jude Medical, Inc. 69,200 2,281 

Teva Pharmaceutical 

Industries, Ltd., ADR 113,300 4,823 

* Thermo Fisher 

Scientific, Inc. 53,000 1,806 

UnitedHealth Group, 

Inc. 98,100 2,609 

Total 64,937 

Industrials (9.6%) 

Danaher Corp. 69,100 3,912 

Deere & Co. 57,800 2,215 

FedEx Corp. 50,200 3,220 

* First Solar, Inc. 17,600 2,428 

* Foster Wheeler, Ltd. 78,600 1,838 

Honeywell International, 

Inc. 138,300 4,540 

Lockheed Martin Corp. 28,000 2,354 

Norfolk Southern Corp. 78,000 3,670 

Raytheon Co. 62,600 3,195 

* Spirit AeroSystems 

Holdings, Inc. - Class A 180,700 1,838 

Textron, Inc. 114,100 1,583 

Union Pacific Corp. 86,300 4,125 

United Technologies 

Corp. 86,700 4,647 

Total 39,565 

Information Technology (25.1%) 

Accenture, Ltd. - Class 

A 123,311 4,043 

* Apple, Inc. 82,000 6,999 

Applied Materials, Inc. 80,300 814 

* Broadcom Corp. - Class 

A 174,650 2,964 

* Cisco Systems, Inc. 540,100 8,804 


Shares/ 

$ Par 

Value 

$ (000's) 

Information Technology continued 

Corning, Inc. 200,500 1,911 

* eBay, Inc. 165,700 2,313 

* Electronic Arts, Inc. 93,200 1,495 

* Google, Inc. - Class A 37,842 11,642 

Hewlett-Packard Co. 270,800 9,827 

Intel Corp. 546,000 8,004 

International Business 

Machines Corp. 104,400 8,786 

Intersil Corp. - Class A 60,700 558 

KLA-Tencor Corp. 30,100 656 

MasterCard, Inc. 5,500 786 

* MEMC Electronic 

Materials, Inc. 85,800 1,225 

Microsoft Corp. 630,000 12,247 

* Oracle Corp. 376,600 6,677 

QUALCOMM, Inc. 242,600 8,692 

* Research In Motion, Ltd. 43,900 1,782 

* Varian Semiconductor 

Equipment Associates, 

Inc. 43,400 786 

Visa, Inc. - Class A 33,900 1,778 

* Yahoo!, Inc. 85,200 1,040 

Total 103,829 

Materials (3.0%) 

Ecolab, Inc. 50,300 1,768 

Freeport-McMoRan 

Copper & Gold, Inc. 55,500 1,356 

Monsanto Co. 92,300 6,493 

Praxair, Inc. 47,300 2,808 

Total 12,425 

Telecommunication Services (1.3%) 

* American Tower Corp. - 

Class A 114,400 3,354 

* NII Holdings, Inc. 120,000 2,182 

Total 5,536 

Utilities (0.6%) 

Exelon Corp. 43,600 2,425 

Total 2,425 

Total Common Stocks 

(Cost: $474,244) 364,830 

Short-Term Investments (10.0%) 

Federal Government & Agencies (1.7%) 

(b)Federal Home Loan 

Bank, 0.15%, 3/13/09 1,000,000 1,000 

Federal Home Loan 

Bank, 0.47%, 3/13/09 2,000,000 2,000 


Bank, 0.65%, 3/13/09 4,000,000 4,000 

Total 7,000 

The Accompanying Notes are an Integral Part of the Financial Statements. 

Growth Stock Portfolio 3


Short-Term 

Shares/ Value 

Investments (10.0%) $ Par $ (000's) 

Finance Services (7.2%) 

Alpine Securitization 

Corp., 1.25%, 1/8/09 10,000,000 9,998 

Ciesco LLC, 

0.20%, 1/12/09 10,000,000 9,999 

Gemini Securitization 

Corp. LLC, 

0.70%, 1/15/09 10,000,000 9,997 

Total 29,994 

Oil and Gas (1.1%) 

Devon Energy Corp., 

1.15%, 1/2/09 4,500,000 4,500 

Total 4,500 

Total Short-Term Investments 

(Cost: $41,487) 41,494 

Total Investments (98.2%) 

(Cost: $515,731)(a) 406,324 

Other Assets, Less 

Liabilities (1.8%) 7,477 

Net Assets (100.0%) 413,801 

* Non-Income Producing 

ADR after the name of a security represents—American Depositary Receipt. 

(a) 

(b) 

At December 31, 2008 the aggregate cost of securities for federal tax purposes (in thousands) was $515,822 and the net unrealized depreciation of 

investments based on that cost was $109,498 which is comprised of $21,055 aggregate gross unrealized appreciation and $130,553 aggregate gross 

unrealized depreciation. 

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 

(Depreciation) 

Issuer (000's) 

Contracts Expiration Date (000's) 

S&P 500 Index Futures (Long) (Total Notional Value at December 31, 2008, $37,875) 166 3/09 $ (522) 


4 Growth Stock Portfolio



Long-term growth of capital. 

Invest in equity securities selected for their growth potential. $172 million 


Mason Street Advisors, the investment adviser for the Focused Appreciation Portfolio, has engaged Janus Capital 

Management LLC to act as sub-adviser for the Portfolio. The Portfolio seeks long-term growth of capital through investments 

in the equities of companies selected for their growth potential. The Portfolio is managed using a “bottom-up” approach, 

which means that the holdings are selected by examining individual securities, rather than focusing on broad economic trends 

or industry sectors. The Portfolio may invest in companies of any size, from large, well-established companies to smaller, 

emerging growth companies. Although the Portfolio is diversified, the Portfolio may hold larger positions in a smaller number 

of companies than more diversified funds. 





virtually every segment of global financial markets. For all of 2008, returns for large-, medium- and small-sized companies 

were –37.60%, –41.46% and –33.79%, as measured by the Russell 1000, Russell MidCap and Russell 2000 Stock Indices, 

respectively. Looking at returns by style, value-oriented shares held up better than growth stocks, as measured by the Russell 

style indices. 

Portfolio Performance 

For the twelve months ended December 31, 2008, the Portfolio underperformed its benchmark, the Russell 1000 Growth 

Index. The Portfolio posted a return of –40.01%, compared with the –38.44% return of the benchmark. (The Index is 

unmanaged, cannot be invested in directly and does not include administrative expenses or sales charges.) The average return 

for the Portfolio’s peer group, Large-Cap Growth Funds, was –41.68%, according to Lipper Analytical Services, Inc., an 

independent mutual fund rating agency. 

Holdings within the Information Technology, consumer-related sectors and Financials were among the detractors during the 

year. In terms of contributors, stock selection within Health Care and Energy aided comparable results. 

The Portfolio’s top individual detractor was Apple. The company declined in the period due to concerns that the economic 

slowdown would negatively impact sales of its key computer, iPhone and iPod products. While we recognized that sales could 

be impacted in the short term, we continued to hold the position, believing the continued success of the iPhone and further 

market share gains in its core computer division will be the key drivers of Apple’s future growth. 

Lehman Brothers was a top detractor amid turmoil in the credit markets and a bankruptcy protection filing in September. Our 

thesis on Lehman centered on the premise that it had sufficient liquidity to weather the market storms. In fact, we evaluated the 

downside risk through multiple scenario analyses. Unfortunately, we did not appropriately anticipate the dramatic decline in 

the values of residential mortgages, commercial mortgages and whole loans would have on Lehman’s balance sheet. What we 

believe should have been a liquidity issue became a solvency issue and the company filed for bankruptcy protection. After an 

extremely frustrating turn of events, we exited the position. 

One other notable detractor was Google. Concerns that advertising revenues could decline amid the economic slowdown 

provided a negative backdrop for the Internet company. However, we favored the company because we thought it had the 

potential to take market share in online search and in other areas given some of its new products. In addition, while we 

recognized its sensitivity to the economy, long term we found its potential in mobile search and international markets 

appealing. 

At the other end of the spectrum, a number of the Portfolio’s leading contributors came from the Health Care sector. Gilead 

Sciences benefited from studies that showed better results for patients who began using its HIV drug, Truvada, earlier in 

treatment, suggesting a larger addressable market. Celgene received a mid-year boost from a strong European rollout of its 

cancer-fighting drug Revlimid. We think the company is on track to continue to dominate the multiple myeloma (bone marrow 

cancer) market with Revlimid. 

Genentech was another top contributor during the period after receiving a takeout bid from Swiss-based Roche, which already 

owned a majority share of Genentech. We trimmed our position and used the shares as a source of cash. 

Outlook 

In terms of positioning, the Portfolio was overweight Health Care and Materials and underweight Energy and consumerrelated 

sectors relative to the benchmark at the end of the period. Looking ahead, it is difficult to determine how deep or 

Focused Appreciation Portfolio 5


protracted this recession will be or the pace of the recovery. Credit availability, employment growth and the housing market 

represent major headwinds to a quick recovery in our view. Given the high degree of uncertainty in the markets at period end, 

we were favoring companies with recurring revenue streams that we think have great valuations and growth prospects. We 

want to own companies that can deliver solid results, even in a tough economy, and have the potential to gain market share 

from weaker competitors. 


$25,000 

20,000 

15,000 

10,000 

5,000 

0 

5/03 12/03 12/04 12/05 12/06 12/07 12/08 




Celgene Corp. 9.4% 

Apple, Inc. 8.3% 

Gilead Sciences, Inc. 7.5% 

CVS Caremark Corp. 5.3% 

Oracle Corp. 5.0% 

Cisco Systems, Inc. 4.4% 

Research In Motion, Ltd. 4.1% 

Precision Castparts Corp. 3.7% 

Monsanto Co. 3.3% 






1 Year 5 Years 

Since 

Inception* 



-40.01% 2.25% 

-38.44% -3.42% 

5.30% 

0.45% 


(VIP) Large Cap Growth Funds 

Average -41.68% -3.80% – 

*Inception date of 5/1/03 









www.nmfn.com. 


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 separte account sale 

loads and account fees. Please refer to the Benchmark 

Definitions section of this report for information about 

the indices cited in the above chart and graph. 

The Portfolio may hold fewer securities than other 

diversified portfolios because of its focused investment 

strategy. Holding fewer securities increases the risk that 

the value of the Portfolio could go down because of the 

poor performance of a single investment. 

Telecommunication 

Services 

5% 

Industrials 

5% 

Financials 

7% 

Consumer 

Staples 

8% 



18% 


Materials 

3% 

Consumer Discretionary 

2% 



change. 

Information 

Technology 

29% 

Health Care 

23% 

6 Focused Appreciation Portfolio







Shares/ 

$ Par 

Value 

$ (000's) 

Boyd Gaming Corp. 210,825 997 

News Corp. - Class A 295,060 2,682 

Total 3,679 


Bunge, Ltd. 95,235 4,930 


Total 14,088 


ACE, Ltd. 27,365 1,448 

CME Group, Inc. 21,550 4,485 

The Goldman Sachs Group, 

Inc. 15,015 1,267 

JPMorgan Chase & Co. 120,845 3,810 

Wells Fargo & Co. 60,510 1,784 

Total 12,794 


Alcon, Inc. 37,845 3,375 

* Celgene Corp. 292,870 16,190 

* Genentech, Inc. 18,095 1,500 


* Intuitive Surgical, Inc. 16,660 2,116 

UnitedHealth Group, Inc. 107,695 2,865 

Total 38,930 


Precision Castparts Corp. 107,735 6,408 

United Parcel Service, Inc. 

- Class B 40,215 2,218 

Total 8,626 


* Akamai Technologies, Inc. 111,163 1,677 

* Apple, Inc. 166,493 14,210 


Corning, Inc. 321,715 3,066 



* Oracle Corp. 487,100 8,636 

* Research In Motion, Ltd. 172,750 7,010 

Total 48,899 


Companhia Vale do Rio 

Doce, ADR 23,980 291 

Monsanto Co. 79,265 5,576 

Total 5,867 


* America Movil - ADR, 

Series L 132,270 4,099 

* Crown Castle International 

Corp. 109,700 1,928 


Shares/ Value 

$ Par $ (000's) 

Telecommunication Services continued 

* tw telecom, Inc. 256,385 2,172 

Total 8,199 


(Cost: $184,325) 141,082 


Aircraft (0.7%) 

Kitty Hawk Funding Corp., 

0.40%, 1/15/09 1,200,000 1,200 

Total 1,200 

Energy (0.7%) 

Sempra Global, 

1.50%, 1/13/09 1,200,000 1,199 

Total 1,199 


Federal Home Loan Bank, 

0.07%, 1/22/09 4,500,000 4,500 


0.10%, 2/12/09 3,600,000 3,600 


0.10%, 2/13/09 4,300,000 4,299 


0.15%, 3/13/09 1,900,000 1,899 


0.28%, 1/16/09 2,900,000 2,900 


0.38%, 1/15/09 100,000 100 

Total 17,298 

Finance Lessors (0.7%) 

Thunder Bay Funding 

LLC, 0.95%, 1/14/09 1,200,000 1,200 

Total 1,200 



Corp., 1.35%, 1/7/09 1,200,000 1,200 

Atlantic Asset 

Securitization LLC, 

0.80%, 1/12/09 1,400,000 1,399 

Barton Capital LLC, 

0.30%, 1/9/09 1,200,000 1,200 


Corp. LLC, 

1.50%, 1/20/09 1,200,000 1,199 

Total 4,998 

Miscellaneous Business Credit Institutions 

(1.7%) 

Duke Energy Corp., 

4.00%, 1/5/09 3,000,000 2,999 

Total 2,999 


(17.6%) 

Shares/ 

$ Par 

Personal Credit Institutions (0.7%) 

Value 

$ (000's) 

HSBC Finance Corp., 

1.50%, 1/8/09 1,200,000 1,200 

Total 1,200 


(Cost: $30,093) 30,094 


(Cost: $214,418)(a) 171,176 


Liabilities (0.2%) 375 

Net Assets (100.0%) 171,551 


(a) 

(l) 

ADR after the name of a security represents 

—American Depositary Receipt. 

At December 31, 2008 the aggregate cost of 

securities for federal tax purposes (in 

thousands) was $216,074 and the net 

unrealized depreciation of investments based 

on that cost was $44,898 which is comprised 

of $3,906 aggregate gross unrealized 

appreciation and $48,804 aggregate gross 


As of December 31, 2008, portfolio 

securities with an aggregate value of 

$1,448 (in thousands) were fair valued 

under procedures adopted by the Board of 

Directors. 


Focused Appreciation Portfolio 7



Long-term growth of capital and income. Invest primarily in equity securities of large U.S. companies. $311 million 


Mason Street Advisors acts as the investment adviser for the Large Cap Core Stock Portfolio. The Portfolio seeks long-term 

growth of capital and income. The Portfolio seeks to achieve these objectives primarily by investing in the equity securities of 

companies selected for their high quality and growth potential. The Portfolio’s holdings will consist primarily of equity 

securities of large companies that may include both “growth” and “value” stocks. The Portfolio’s strategy is to actively 

manage a portfolio of selected equity securities with a goal of outperforming the total return of the S&P 500 ® Index. The 

Portfolio attempts to reduce risk by investing in many different economic sectors, industries and companies. The Portfolio’s 

manager may underweight or overweight selected economic sectors against the sector weightings of the S&P 500 ® Index to 

seek to enhance the Portfolio’s total return or reduce fluctuations in market value relative to the S&P 500 ® Index. 







respectively. No sector of the market had positive returns for the year, and value-oriented stocks held up modestly better than 

growth stocks, as measured by the Russell style indices. 


The Large Cap Core Stock Portfolio returned –38.74% for all of 2008. By comparison, the S&P 500 ® Index returned –37.00%. 

(This Index is unmanaged, cannot be invested in directly, and does not include administrative expenses or sales charges.) The 

Portfolio’s Large-Cap Core Funds peer group average return was –38.76%, according to Lipper Analytical Services, Inc., an 

independent mutual fund ranking agency. 


the worst year for stocks since the Great Depression. In that environment, no sector contributed positively to results. Relative 

to the benchmark, the Portfolio’s underperformance was driven by positioning in the Energy and Industrials sectors. The 

leading contribution to relative return by far came from positioning in the Health Care sector. 

Relative to the benchmark, Energy shares detracted most, behind an underweight position in the big, integrated oil companies 

and an overweight to the equipment and services names. We favor the long-term industry dynamics and structural position of 

the service companies relative to the integrateds. Unfortunately, that positioning detracted during 2008, as the diversified oil 

companies held up better than the oil services firms. The leading detractors in this space were an underweight position in 

Exxon Mobil, and an overweight to equipment and services firm National Oilwell Varco. 

Another source of weakness was positioning in the Industrials sector. The leading detractors were manufacturers and parts 

suppliers tied to the market for commercial airliners and business jets. These were Textron and Spirit AeroSystems Holdings. 

We liked the backlog and book of business these companies touted; nevertheless, investors worried that slower economic 

growth would throttle demand for commercial jets. 

At the other end of the spectrum, our stock selection was most effective in the Health Care sector, behind positioning in the 

biotechnology segment. We favor biotechnology shares over big pharmaceutical names because biotech stocks tend not to 

have the same worries as pharma about patent expiries, generic competition, and modest new drug pipelines. The leading 

contributors in biotech were Gilead Sciences and Celgene. Gilead is the dominant player in the market for AIDS drugs, while 

Celgene offers best-in-class cancer drugs gaining approval for new applications. 

However, performance in the Health Care sector would have been better but for our underweight to pharmaceutical shares. 

These stocks generally held up well in 2008 because many investors viewed them as large, liquid safe haven plays. 

Nevertheless, our stake in Teva Pharmaceutical—a leading generic provider that has the potential to benefit from the 

increasing importance of generics in the health care industry—was a key contributor for the year. Selection and allocation 

decisions also contributed to relative results in the Telecommunication Services, Utilities, and Materials sectors. 

8 Large Cap Core Stock Portfolio


Outlook 



remain challenging, and it is difficult to see a quick rebound in growth and earnings. Nevertheless, we believe the dramatic 

sell-off has created some tremendous investment opportunities. In that regard, we’re likely to trim our Health Care stake, 

which did relatively well, and look for opportunities to put that money to work in the most beaten-up segments of the market. 

We will continue to perform careful analysis and selectively add companies in out-of-favor sectors that we feel have the best 

potential to position the Portfolio to benefit from an eventual recovery. 


$15,000 

10,000 

5,000 

0 

12/98 12/00 12/02 12/04 12/06 12/08 




Exxon Mobil Corp. 3.6% 


Chevron Corp. 2.1% 

AT&T, Inc. 2.0% 


Baxter International, Inc. 1.9% 

JPMorgan Chase & Co. 1.8% 

General Electric Co. 1.7% 

Wells Fargo & Co. 1.7% 

CVS Caremark Corp. 1.7% 


S&P 500 Index 





S&P 500 Index 

-38.74% -2.65% 

-37.00% -2.19% 

-3.26% 

-1.38% 


(VIP) Large Cap Core Funds 

Average -38.76% -2.79% -1.46% 









www.nmfn.com. 









Utilities 

2% 


Services 

4% 



7% 

Consumer 

Discretionary 

8% 

Industrials 

9% 

Financials 

11% 


Other Holdings 

1% 

Information 

Technology 

17% 

Health Care 

14% 



change. 

Materials 

2% 

Consumer 

Staples 

13% 

Energy 

12% 

Large Cap Core Stock Portfolio 9






Shares/ 

$ Par 


Value 

$ (000's) 

Abercrombie & Fitch 

Co. - Class A 37,500 865 

* Amazon.com, Inc. 13,900 713 


The Home Depot, Inc. 31,500 725 


* Kohl's Corp. 102,000 3,692 

Lowe's Cos., Inc. 120,900 2,602 



Inc. 99,700 2,312 



Target Corp. 34,400 1,188 

Total 24,761 







The Kroger Co. 161,800 4,273 

PepsiCo, Inc. 57,700 3,160 

Philip Morris 



Co. 75,362 4,659 


Total 39,395 

Energy (11.9%) 


Corp. 64,900 1,331 

Chevron Corp. 89,700 6,635 

ConocoPhillips 54,888 2,843 


Drilling, Inc. 16,900 996 



Hess Corp. 19,900 1,068 


Inc. 86,700 2,119 


Corp. 22,000 1,320 



* Southwestern Energy 

Co. 69,700 2,019 


XTO Energy, Inc. 82,650 2,915 

Total 37,044 




Shares/ 

$ Par 

Value 

$ (000's) 


Bank of America Corp. 139,357 1,962 

The Bank of New York 

Mellon Corp. 52,200 1,479 

Citigroup, Inc. 166,900 1,120 

CME Group, Inc. 7,200 1,498 


Group, Inc. 15,300 1,291 


Merrill Lynch & Co., 

Inc. 154,800 1,802 

National City Corp. 671,700 1,216 




Inc. 49,400 1,751 

The Travelers 

Companies, Inc. 107,800 4,872 

Wells Fargo & Co. 181,000 5,336 

Total 33,990 



Aetna, Inc. 63,800 1,818 

Allergan, Inc. 63,300 2,552 



Co. 75,000 1,744 

Cardinal Health, Inc. 29,400 1,013 

* Celgene Corp. 60,095 3,322 

* Express Scripts, Inc. 27,700 1,523 

* Genentech, Inc. 10,900 904 

* Genzyme Corp. 42,200 2,801 




Inc. 59,600 2,498 


Industries, Ltd., ADR 79,900 3,401 

UnitedHealth Group, 

Inc. 88,100 2,344 

Total 43,415 



Deere & Co. 34,300 1,314 

FedEx Corp. 26,800 1,719 


General Electric Co. 334,500 5,419 


Inc. 64,990 2,134 



Raytheon Co. 49,200 2,511 



Textron, Inc. 52,300 725 


Shares/ 

$ Par 

Value 

$ (000's) 

Industrials continued 


United Parcel Service, 

Inc. - Class B 19,400 1,070 


Corp. 37,800 2,026 

Total 28,529 


Accenture, Ltd. - Class 

A 52,600 1,725 

* Apple, Inc. 38,600 3,295 



A 100,350 1,703 


Corning, Inc. 134,600 1,283 




Intel Corp. 333,400 4,888 





Materials, Inc. 53,600 765 


* Oracle Corp. 269,700 4,782 

QUALCOMM, Inc. 128,500 4,604 


Total 52,484 


Ecolab, Inc. 40,700 1,431 



Monsanto Co. 38,900 2,737 

Praxair, Inc. 25,300 1,502 

Total 6,691 

Other Holdings (0.9%) 

Financial Select Sector 

SPDR Fund 120,500 1,521 

SPDR KBW Bank 65,000 1,423 

Total 2,944 



Class A 75,600 2,217 

AT&T, Inc. 219,900 6,267 

Verizon 

Communications, Inc. 118,600 4,020 

Total 12,504 


Exelon Corp. 43,100 2,397 


10 Large Cap Core Stock Portfolio



Shares/ 

$ Par 

Value 

$ (000's) 

Utilities continued 

FPL Group, Inc. 89,900 4,524 

Total 6,921 


(Cost: $368,907) 288,678 




Bank, 0.15%, 3/13/09 1,000,000 1,000 

(b) Federal Home Loan 

Bank, 0.47%, 3/13/09 1,000,000 1,000 

Total 2,000 



Corp. LLC, 

0.70%, 1/15/09 10,000,000 9,997 

Total 9,997 



0.95%, 1/2/09 9,700,000 9,700 

Total 9,700 


(Cost: $21,696) 21,697 


(Cost: $390,603)(a) 310,375 



Net Assets (100.0%) 310,665 



(a) 

(b) 


investments based on that cost was $82,256 which is comprised of $18,466 aggregate gross unrealized appreciation and $100,722 aggregate gross unrealized 

depreciation. 



Unrealized 

Appreciation/ 

Number of 






Large Cap Core Stock Portfolio 11



Long-term growth of capital and income. Invest primarily in equity and equity-related securities of $29 million 

large U.S. companies. 


Mason Street Advisors, the investment adviser for the Large Cap Blend Portfolio, has engaged Capital Guardian Trust 

Company to act as sub-adviser for the Portfolio. The Portfolio objectives are long-term growth of capital and income. The 

Portfolio seeks to meet these objectives by investing at least 80% of its net assets (plus any borrowing for investment 

purposes), in equity and equity-related securities of U.S. large-capitalization companies, defined as those with a market 

capitalization range, at the time of investment, equal to that of the Portfolio’s benchmark, the S&P 500 ® Index. In selecting 

investments, greater consideration is given to potential appreciation and future dividends than to current income. The Large 

Cap Blend portfolio uses a multiple portfolio manager system in managing the Fund’s assets. Under this approach, the 

Portfolio is divided into segments managed by individual managers. Each manager’s role is to decide how their respective 

segment will be invested by selecting securities within the limits of the Portfolio’s objectives and policies. 



freeze up and the U.S. government take a series of extraordinary steps to support the economy and financial system. The crisis 


virtually every segment of global financial markets. For the twelve months ended December 31, 2008, returns for large-, 





The Large Cap Blend Portfolio returned –40.25% for the twelve months ended December 31, 2008. By comparison, the S&P 

500 ® Index returned –37.00%. (This Index is unmanaged, cannot be invested in directly and does not include administrative 

expenses or sales charges.) According to Lipper Analytical Services, Inc., an independent mutual fund ranking agency, the 

average return of the Large-Cap Core Funds peer group was 

–38.76%. 


the worst year for stocks since the Great Depression. In that environment, no sector managed positive results. Relative to the 

benchmark, the Portfolio’s underperformance was driven by positioning in the Financials and Consumer Discretionary sectors. 

The leading contribution to relative return came from the Health Care sector. 

Stock choices in the Financials sector detracted most from relative results, as the Portfolio was hurt by exposure to a number 

of companies hit hard by the credit crisis. In past financial crises, high quality, large-cap financials earned their way out of 

challenging economic and credit environments, and our analysis of several financial companies suggested the same could 

happen this time. Unfortunately, we did not anticipate the depth and speed of the deterioration in fundamentals in the current 

crisis. As a result, four of the top five detractors from relative results were Fannie Mae, Freddie Mac, Lehman Brothers and 

Wachovia. On a positive note, a number of our stock picks in the sector worked well, as overweight positions in JPMorgan 

Chase, Wells Fargo and Hudson City Bancorp were all top ten contributors for the year. 

Another source of weakness was stock selection in the Consumer Discretionary sector. Gaming stock Las Vegas Sands, media 

giant Gannett and fast food icon McDonald’s were leading detractors. It hurt to be underrepresented in shares of McDonald’s, 

which we thought were expensive; nevertheless, the company benefited as tough economic times sent more cost-conscious 

diners through its doors. Overweight positions in Las Vegas Sands and Gannett detracted largely because of worries about the 

effect of slower economic growth on revenues. Las Vegas Sands faced additional concerns that recent anti-gambling policies 

enacted by the Chinese government would hurt business at a key property. 

The largest contribution to relative return came from an overweight position and stock selection in the Health Care sector, 

particularly biotechnology shares. We favored biotechnology companies because they tend to be dynamic and innovative with 

solid growth prospects, in contrast to big pharmaceutical firms, which often face worries about patent expirations and generic 

competition. Biotechnology shares benefited from takeover activity as pharmaceutical firms sought to bolster their new drug 

pipelines, which explains the outperformance of Genentech, ImClone Systems and Millennium Pharmaceuticals, which were 

all either acquired or the subject of buyout offers in 2008. 

Outlook 

We will continue our focus on leading large-cap companies demonstrating growth potential whose shares are trading at 

attractive valuations. One positive lesson from a very difficult 2008 is that we are now finding a great many high quality 

12 Large Cap Blend Portfolio


companies trading at compelling levels. And while it is impossible to know when economic and market conditions will turn, 

we are using this opportunity to attempt to position the Portfolio for outperformance by adding what we believe to be well-run, 

attractively valued companies at knock-down prices. Because the Portfolio is built from the bottom up, our sector and industry 

allocations reflect where we’re finding the best investment opportunities at a given time. As of December 31, 2008, the largest 

sector overweight was in Health Care, while the most notable sector underweight was in Energy. 


$11,000 

10,000 

9,000 

8,000 

7,000 

6,000 

5,000 

4/07 12/07 12/08 





United Parcel Service, Inc. - Class B 2.7% 



PepsiCo, Inc. 2.5% 

Baxter International, Inc. 2.4% 

Genentech, Inc. 2.3% 


Philip Morris International, Inc. 2.2% 

Kraft Foods, Inc. - Class A 2.2% 


S&P 500 Index 



1 Year 

Since 

Inception* 


S&P 500 Index 

-40.25% 

-37.00% 

-29.42% 

-23.95% 


(VIP) Large Cap Core Funds 

Average -38.76% – 










www.nmfn.com. 












1% 


Services 

3% 

Materials 

5% 

Energy 

10% 

Financials 

11% 

Consumer 

Discretionary 

12% 


Utilities 

1% 



1% 

Health Care 

17% 



change. 

Information 

Technology 

15% 

Industrials 

12% 

Consumer 

Staples 

12% 

Large Cap Blend Portfolio 13






Shares/ 

$ Par 


Value 

$ (000's) 

* Apollo Group, Inc. - Class 

A 2,800 215 

Best Buy Co., Inc. 5,100 143 

Carnival Corp. 6,100 148 

CBS Corp. - Class B 16,600 136 

* Coach, Inc. 1,400 29 

Comcast Corp. - Class A 5,100 86 

Gannett Co., Inc. 8,100 65 

* Hanesbrands, Inc. 10,000 127 


Honda Motor Co., Ltd., 

ADR 6,100 130 

Johnson Controls, Inc. 3,500 64 

* Las Vegas Sands Corp. 10,900 65 

Lowe's Cos., Inc. 6,700 144 

Nordstrom, Inc. 8,300 110 

Omnicom Group, Inc. 11,200 302 

Target Corp. 18,700 646 

* Time Warner Cable, Inc. - 

Class A 8,300 178 

Time Warner, Inc. 7,700 77 

* Urban Outfitters, Inc. 4,800 72 

* Viacom, Inc. - Class B 5,500 105 

The Walt Disney Co. 15,900 361 

* Wynn Resorts, Ltd. 1,800 76 

Total 3,406 


Altria Group, Inc. 17,500 264 

The Coca-Cola Co. 3,382 153 

Costco Wholesale Corp. 1,800 95 

* Energizer Holdings, Inc. 800 43 

Kimberly-Clark Corp. 1,400 74 

Kraft Foods, Inc. - Class A 24,300 652 

PepsiCo, Inc. 13,200 723 

Philip Morris International, 

Inc. 15,100 657 

Sara Lee Corp. 46,100 451 

Unilever NV 3,900 96 

Wal-Mart Stores, Inc. 4,300 241 

Total 3,449 

Energy (6.7%) 

Anadarko Petroleum Corp. 2,200 85 

Baker Hughes, Inc. 1,700 55 

Chevron Corp. 4,100 303 

ConocoPhillips 3,500 181 

EOG Resources, Inc. 800 53 

Exxon Mobil Corp. 3,400 271 

Kinder Morgan 

Management, LLC. 1,532 61 

Marathon Oil Corp. 12,200 334 

Royal Dutch Shell PLC - 

Class A, ADR 3,300 175 


Shares/ Value 

$ Par $ (000's) 

Energy continued 


Class B, ADR 1,100 57 

Schlumberger, Ltd. 8,300 351 

The Williams Companies, 

Inc. 3,100 45 

Total 1,971 


ACE, Ltd. 1,700 90 

Aflac, Inc. 4,000 183 

Astoria Financial Corp. 4,500 74 

Bank of America Corp. 2,500 35 

* Berkshire Hathaway, Inc. - 

Class A 2 193 


Inc. 7,300 616 

Hudson City Bancorp, Inc. 27,000 431 

JPMorgan Chase & Co. 24,300 766 

Mercury General Corp. 400 19 

The Progressive Corp. 14,900 221 

RenaissanceRe Holdings, 

Ltd. 700 36 

SunTrust Banks, Inc. 500 15 

T. Rowe Price Group, Inc. 2,200 78 

Wells Fargo & Co. 21,900 646 

Total 3,403 


Abbott Laboratories 9,100 486 

Aetna, Inc. 300 9 

Allergan, Inc. 10,300 415 

AstraZeneca PLC, ADR 4,400 181 

Baxter International, Inc. 13,300 713 

* BioMarin Pharmaceutical, 

Inc. 2,900 52 

Cardinal Health, Inc. 7,900 272 

* Celgene Corp. 12,000 663 

* Cerner Corp. 5,000 192 

* DaVita, Inc. 9,400 466 

* Forest Laboratories, Inc. 5,100 130 

* Genentech, Inc. 8,300 688 

* Gilead Sciences, Inc. 2,500 128 

* Health Net, Inc. 1,300 14 

Medtronic, Inc. 4,900 154 

Pfizer, Inc. 4,800 85 

Sanofi-Aventis, ADR 2,700 87 


Industries, Ltd., ADR 4,400 187 

UnitedHealth Group, Inc. 8,700 231 

Total 5,153 


Cooper Industries, Ltd. - 

Class A 1,300 38 

Danaher Corp. 1,350 76 

Emerson Electric Co. 2,500 92 


Shares/ Value 

$ Par $ (000's) 


FedEx Corp. 1,700 109 

* First Solar, Inc. 1,200 166 

Fluor Corp. 9,100 408 

General Electric Co. 52,700 854 

Illinois Tool Works, Inc. 7,300 256 

* Iron Mountain, Inc. 2,000 49 

* Jacobs Engineering Group, 

Inc. 1,000 48 

* Monster Worldwide, Inc. 6,200 75 

Southwest Airlines Co. 13,100 113 

Union Pacific Corp. 1,800 86 


- Class B 14,400 794 

United Technologies Corp. 6,400 343 

Total 3,507 


* Adobe Systems, Inc. 5,400 115 

* Agilent Technologies, Inc. 7,400 116 

* Apple, Inc. 2,800 239 

* Brocade Communications 

Systems, Inc. 45,900 129 

* Cisco Systems, Inc. 31,800 518 

* Cognizant Technology 

Solutions Corp. - Class A 4,100 74 

* Dell, Inc. 7,300 75 

* eBay, Inc. 4,400 61 

* Flextronics International, 

Ltd. 14,500 37 

* Google, Inc. - Class A 2,550 785 

Hewlett-Packard Co. 3,400 123 

Intel Corp. 4,800 70 


Machines Corp. 1,200 101 

Jabil Circuit, Inc. 20,100 136 


* Lam Research Corp. 1,900 41 

Microchip Technology, Inc. 3,400 66 

Microsoft Corp. 13,600 264 

* NetApp, Inc. 5,300 74 

Nintendo Co., Ltd., ADR 3,500 167 

* Oracle Corp. 2,900 51 

Paychex, Inc. 10,100 265 

* Polycom, Inc. 7,200 97 

QUALCOMM, Inc. 10,700 383 

Visa, Inc. - Class A 1,000 53 

* Yahoo!, Inc. 12,500 153 

Total 4,346 


Allegheny Technologies, 

Inc. 7,700 196 

Barrick Gold Corp. 12,800 471 

Celanese Corp. 1,400 17 

Cliffs Natural Resources, 

Inc. 4,500 115 


14 Large Cap Blend Portfolio



Shares/ Value 

$ Par $ (000's) 

Materials continued 

Ecolab, Inc. 2,300 81 

Monsanto Co. 2,600 183 

Nucor Corp. 4,000 185 

Potash Corp. of 

Saskatchewan, Inc. 1,800 132 

Vulcan Materials Co. 2,700 188 

Total 1,568 


SPDR Trust Series 1 3,300 298 

Total 298 



Class A 10,700 313 

AT&T, Inc. 18,000 513 

* tw telecom, Inc. 8,000 68 

Total 894 


Allegheny Energy, Inc. 1,100 37 

American Water Works 

Co., Inc. 6,600 138 

CMS Energy Corp. 3,400 34 

Edison International 1,800 58 

Total 267 


(Cost: $38,795) 28,262 


(a) 

(l) 





thousands) was $40,072 and the net unrealized 

depreciation of investments based on that cost 

was $10,688 which is comprised of $319 

aggregate gross unrealized appreciation and 

$11,007 aggregate gross unrealized 

depreciation. 

As of December 31, 2008, portfolio securities 

with an aggregate value of $90 (in thousands) 

were fair valued under procedures adopted by 

the Board of Directors. 

Preferred Stocks (0.4%) 

Pharmaceutical Preparations (0.4%) 

Schering-Plough Corp., 

6.00%, 8/13/10 700 122 

Total 122 

Total Preferred Stocks 

(Cost: $151) 122 


Energy (3.4%) 


1.00%, 1/2/09 1,000,000 1,000 

Total 1,000 


(Cost: $1,000) 1,000 


(Cost: $39,946)(a) 29,384 


Liabilities (0.0%) (2) 

Net Assets (100.0%) 29,382 


Large Cap Blend Portfolio 15



Investment results that approximate the 

performance of the S&P 500 ® Index. 

Invest in stocks included in the S&P 500 ® Index in 

approximately the same proportion as each stock’s 

weighting in the Index. 

$1.2 billion 


Mason Street Advisors acts as the investment adviser for the Index 500 Stock Portfolio. The Portfolio seeks investment results 

that approximate the performance of the S&P 500 ® Index. The S&P 500 ® Index is composed of 500 common stocks 

representing approximately three-fourths of the total market value of all publicly traded common stocks in the U.S. The 

Portfolio’s strategy is to capture broad market performance by investing in a portfolio modeled after a broadly based stock 

index. The Index 500 Stock Portfolio is not managed in the traditional sense using economic, financial and market analysis. 

The Portfolio invests in stocks included in the S&P 500 ® Index in proportion to their weightings in the Index, and may buy or 

sell securities after announced changes in the Index but before or after the effective date of the changes to attempt to achieve 

higher correlation with the Index. The Portfolio remains neutral relative to the benchmark in terms of economic sectors, 

market capitalization, and the growth and value styles of investing. The Portfolio will, to the extent feasible, remain fully 

invested, and may purchase Index futures contracts in an attempt to achieve full replication. 



freeze up, and the U.S. government take a series of extraordinary steps to support the economy and financial system. Returns 

were negative across all market capitalization ranges, sectors, and investment styles. For all of 2008, returns for large-, 

medium- and small-sized companies were –37.00%, –36.23% and –31.07%, as measured by the S&P 500 ® , MidCap 400 ® and 

SmallCap 600 ® Indices, respectively. 

Large-cap stocks suffered most, largely as a result of the fallout from the financial crisis. Indeed, Financials were the poorest 

performing sector in the Index, down 57%, as large-cap financial shares were at the epicenter of the credit crisis. Every major 

investment bank, mortgage market players Fannie Mae and Freddie Mac, insurance giant AIG, and such big lenders as 

Washington Mutual and Wachovia either failed, were seized by the government, sold at a steep discount, or fundamentally 

altered their corporate structure. 

In addition, stocks faced worries about the dramatic global slowdown, weighing on economically sensitive shares. In that 

environment, Materials, Information Technology, Industrials, Energy and Consumer Discretionary shares fell 47%, 44%, 42%, 

36% and 35%, respectively. 

The shares that held up best were Consumer Staples names (–18%), whose earnings have historically been more resilient 

during difficult economic periods. Similarly, the traditionally defensive Utilities and Telecommunication Services segments 

did better than the Index, down 32% and 34%, respectively. Health Care shares deserve special mention, as these growthoriented 

stocks managed the second-best return for the year, down 25%. Positive returns from biotechnology shares and a 

resilient performance from big pharmaceutical companies drove the sector’s performance. 


The Portfolio had a sharply negative return in the worst year for equities since the Great Depression. For the twelve months 

ended December 31, 2008, the Portfolio had a total return of –36.94%, compared with –37.00% for the S&P 500 ® Index. (This 

Index is unmanaged, cannot be invested in directly, and does not include administrative expenses or sales charges.) The 

average return for the Portfolio’s peer group, S&P 500 Index Objective Funds, was –37.20%, according to Lipper Analytical 

Services, Inc., an independent mutual fund ranking agency. 

As we seek to track the performance and weightings of stocks in the S&P 500 ® Index, we make changes in the Portfolio’s 

holding as the Index changes. Standard & Poor’s changes the composition of the Index as companies go public or private, 

merge, divest or have major changes in market capitalization. Additionally, Standard & Poor’s adjusts the Index to better 

reflect the companies that are most representative of the composition of the U.S. economy. During 2008, 33 companies were 

added to the Index, with a like number eliminated during the year. We try to make these adjustments in the Portfolio in a way 

that minimizes the cost and market impact of our trading. For example, it is typical for stocks to rise temporarily when they are 

initially added to the Index as funds adjust their portfolios to reflect the new benchmark. We have been able to add these 

names to the Portfolio in a more efficient, cost-effective way by incorporating them after this temporary price increase 

subsides. 

Outlook 


a more rational, less volatile market environment where fundamentals and diversification matter once again. Unfortunately, the 

economic fundamentals remain challenging, though we think it is reasonable to expect some sort of recovery based on the 

16 Index 500 Stock Portfolio


massive government stimulus likely to come early in the new year. Diversification, too, is likely to matter again, as we see 

greater differentiation in returns across and within asset classes. We continue to believe in the potential benefit of investing in 

a fund based on a broad market index, such as the Index 500 Stock Portfolio, which provides exposure to both growth and 

value styles of investing, as well stocks of companies across the economy. 


$15,000 

10,000 

5,000 

0 

12/98 12/00 12/02 12/04 12/06 12/08 





The Procter & Gamble Co. 2.3% 


AT&T, Inc. 2.1% 

Johnson & Johnson 2.1% 




Pfizer, Inc. 1.5% 



S&P 500 Index 





S&P 500 Index 

-36.94% -2.28% 

-37.00% -2.19% 

-1.42% 

-1.38% 


(VIP) S&P 500 Index Objective 

Funds Average -37.20% -2.54% -1.73% 









www.nmfn.com. 









“Standard & Poor’s ® ”, “S&P ® ”, “S&P 500” 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 Portfolio is not sponsored, endorsed, sold 

or promoted by Standard & Poor’s, and Standard & 

Poor’s makes no representation regarding the 

advisability of investing in the Portfolio. 


4% 

Utilities 

4% 

Consumer 

Discretionary 

9% 

Industrials 

11% 

Consumer Staples 

13% 


Sector Allocation is based on equities. 


change. 

Materials 

3% 

Information 

Technology 

15% 

Health Care 

15% 

Energy 

13% 

Financials 

13% 

Index 500 Stock Portfolio 17






Shares/ 

$ Par 


Value 

$ (000's) 

Abercrombie & Fitch Co. 

- Class A 13,300 307 

* Amazon.com, Inc. 49,200 2,523 

* Apollo Group, Inc. - 

Class A 16,300 1,249 

* AutoNation, Inc. 16,529 163 

* AutoZone, Inc. 5,825 812 

* Bed Bath & Beyond, Inc. 39,800 1,012 

Best Buy Co., Inc. 51,675 1,453 

* Big Lots, Inc. 12,600 183 

The Black & Decker 

Corp. 9,200 385 

Carnival Corp. 66,909 1,627 


Centex Corp. 19,000 202 

* Coach, Inc. 50,100 1,041 


D.R. Horton, Inc. 42,200 298 

Darden Restaurants, Inc. 21,250 599 

* The DIRECTV Group, 

Inc. 83,600 1,915 

Eastman Kodak Co. 41,083 270 

* Expedia, Inc. 32,100 264 

Family Dollar Stores, Inc. 21,400 558 

* Ford Motor Co. 365,765 838 

Fortune Brands, Inc. 22,967 948 

* GameStop Corp. - Class 

A 25,100 544 


The Gap, Inc. 71,375 956 

General Motors Corp. 93,427 299 

Genuine Parts Co. 24,400 924 

* The Goodyear Tire & 

Rubber Co. 36,900 220 

H&R Block, Inc. 51,900 1,179 

Harley-Davidson, Inc. 35,600 604 

Harman International 

Industries, Inc. 9,000 151 

Hasbro, Inc. 18,925 552 

The Home Depot, Inc. 259,600 5,976 

International Game 

Technology 45,100 536 

* The Interpublic Group of 

Companies, Inc. 73,000 289 

J.C. Penney Co., Inc. 34,050 671 


Jones Apparel Group, Inc. 12,800 75 

KB Home 11,500 157 

* Kohl's Corp. 46,667 1,689 

Leggett & Platt, Inc. 23,933 364 

Lennar Corp. - Class A 21,600 187 

Limited Brands, Inc. 41,387 416 

Lowe's Cos., Inc. 224,400 4,829 

Macy's, Inc. 64,346 666 


Shares/ 

$ Par 

Value 

$ (000's) 

Consumer Discretionary continued 

Marriott International, 

Inc. - Class A 44,900 873 

Mattel, Inc. 54,888 878 



Inc. 48,120 1,116 

Meredith Corp. 5,500 94 

The New York Times Co. 

- Class A 17,870 131 

Newell Rubbermaid, Inc. 42,492 416 

News Corp. - Class A 352,200 3,201 


Nordstrom, Inc. 24,434 325 

* Office Depot, Inc. 42,057 125 


Polo Ralph Lauren Corp. 8,600 391 

Pulte Homes, Inc. 32,700 357 

RadioShack Corp. 19,200 229 

Scripps Networks 

Interactive - Class A 13,800 304 

* Sears Holdings Corp. 8,480 330 

The Sherwin-Williams 

Co. 15,013 897 

Snap-on, Inc. 8,817 347 

The Stanley Works 12,050 411 

Staples, Inc. 109,250 1,958 

* Starbucks Corp. 112,600 1,065 

Starwood Hotels & 

Resorts Worldwide, Inc. 28,000 501 

Target Corp. 115,257 3,980 

Tiffany & Co. 18,867 446 

Time Warner, Inc. 549,300 5,526 

The TJX Companies, Inc. 63,700 1,310 

VF Corp. 13,457 737 

* Viacom, Inc. - Class B 93,924 1,790 

The Walt Disney Co. 283,457 6,432 

The Washington Post Co. 

- Class B 900 351 

Whirlpool Corp. 11,244 465 

Wyndham Worldwide 

Corp. 27,186 178 

* Wynn Resorts, Ltd. 9,400 397 

Yum! Brands, Inc. 70,860 2,232 

Total 100,912 


Altria Group, Inc. 315,522 4,752 

Archer-Daniels-Midland 

Co. 98,203 2,831 


Brown-Forman Corp. - 

Class B 15,022 773 

Campbell Soup Co. 31,522 946 

The Clorox Co. 21,250 1,181 



Shares/ 

$ Par 

Value 

$ (000's) 

Consumer Staples continued 

Coca-Cola Enterprises, 

Inc. 48,600 585 

Colgate-Palmolive Co. 77,322 5,300 

ConAgra Foods, Inc. 68,467 1,130 

* Constellation Brands, Inc. 

- Class A 29,800 470 

Costco Wholesale Corp. 66,064 3,468 


* Dean Foods Co. 23,600 424 

* Dr. Pepper Snapple 

Group, Inc. 38,800 630 

The Estee Lauder 

Companies, Inc. - Class 

A 17,700 548 

General Mills, Inc. 51,167 3,108 

H.J. Heinz Co. 48,117 1,809 

The Hershey Co. 25,400 882 

The J.M. Smucker Co. 18,100 785 

Kellogg Co. 38,557 1,691 

Kimberly-Clark Corp. 63,356 3,341 

Kraft Foods, Inc. - Class 

A 224,996 6,041 

The Kroger Co. 99,905 2,638 

Lorillard, Inc. 25,746 1,451 

McCormick & Co., Inc. 19,900 634 

Molson Coors Brewing 

Co. - Class B 22,800 1,115 

The Pepsi Bottling 

Group, Inc. 20,700 466 

PepsiCo, Inc. 237,830 13,026 

Philip Morris 



Co. 457,164 28,262 

Reynolds American, Inc. 25,900 1,044 

Safeway, Inc. 65,600 1,559 

Sara Lee Corp. 108,235 1,060 

SUPERVALU, INC. 32,470 474 

Sysco Corp. 91,725 2,104 

Tyson Foods, Inc. - Class 

A 46,300 406 

UST, Inc. 22,767 1,580 

Walgreen Co. 151,546 3,739 


Whole Foods Market, 

Inc. 21,500 203 

Total 154,802 


Anadarko Petroleum 

Corp. 70,324 2,711 

Apache Corp. 51,246 3,819 

Baker Hughes, Inc. 47,130 1,511 

BJ Services Co. 44,700 522 

Cabot Oil & Gas Corp. 15,800 411 





Shares/ 

$ Par 

Value 

$ (000's) 



Corp. 33,600 689 

Chesapeake Energy Corp. 82,800 1,339 

Chevron Corp. 311,114 23,013 


CONSOL Energy, Inc. 27,700 792 

Devon Energy Corp. 67,600 4,442 

El Paso Corp. 107,371 841 

ENSCO International, 

Inc. 21,700 616 

EOG Resources, Inc. 38,220 2,545 



Hess Corp. 43,400 2,328 

Marathon Oil Corp. 108,066 2,957 

Massey Energy Co. 13,000 179 

Murphy Oil Corp. 29,200 1,295 

* Nabors Industries, Ltd. 43,600 522 


Inc. 63,900 1,562 

Noble Corp. 40,400 892 

Noble Energy, Inc. 26,500 1,304 


Corp. 124,040 7,441 

Peabody Energy Corp. 40,800 928 

Pioneer Natural 

Resources Co. 18,000 291 

Range Resources Corp. 23,800 818 

Rowan Companies, Inc. 17,350 276 


Smith International, Inc. 33,500 767 

* Southwestern Energy Co. 52,600 1,524 

Spectra Energy Corp. 93,536 1,472 

Sunoco, Inc. 17,900 778 

Tesoro Corp. 21,200 279 

Valero Energy Corp. 79,000 1,710 

* Weatherford 

International, Ltd. 104,300 1,128 


Inc. 88,600 1,283 


Total 160,339 


Aflac, Inc. 71,350 3,271 

The Allstate Corp. 82,028 2,687 

American Capital, Ltd. 31,700 103 


American International 

Group, Inc. 411,730 646 

Ameriprise Financial, Inc. 33,155 774 

Aon Corp. 41,300 1,887 

Apartment Investment & 

Management Co. - Class 

A 15,546 180 

Assurant, Inc. 18,000 540 

AvalonBay Communities, 

Inc. 11,800 715 



Shares/ 

$ Par 

Value 

$ (000's) 



Mellon Corp. 175,663 4,977 

BB&T Corp. 84,600 2,323 

Boston Properties, Inc. 18,500 1,017 

Capital One Financial 

Corp. 59,929 1,911 

* CB Richard Ellis Group, 

Inc. 34,100 147 

The Charles Schwab 

Corp. 143,311 2,317 

The Chubb Corp. 54,500 2,779 

Cincinnati Financial 

Corp. 24,875 723 

CIT Group, Inc. 43,700 198 

Citigroup, Inc. 834,448 5,599 

CME Group, Inc. 10,300 2,144 

Comerica, Inc. 23,050 458 

Developers Diversified 

Realty Corp. 18,400 90 

Discover Financial 

Services 73,456 700 

* E*TRADE Financial 

Corp. 86,200 99 

Equity Residential 41,700 1,243 

Federated Investors, Inc. - 

Class B 13,600 231 

Fifth Third Bancorp 88,434 730 

First Horizon National 

Corp. 31,136 329 

Franklin Resources, Inc. 23,150 1,477 

Genworth Financial, Inc. 

- Class A 66,300 188 


Group, Inc. 67,700 5,713 

The Hartford Financial 

Services Group, Inc. 46,150 758 

HCP, Inc. 38,700 1,075 

Host Hotels & Resorts, 

Inc. 80,000 606 

Hudson City Bancorp, 

Inc. 79,800 1,274 

Huntington Bancshares, 

Inc. 56,042 429 

* IntercontinentalExchange, 

Inc. 11,100 915 

Invesco, Ltd. 58,900 851 

Janus Capital Group, Inc. 24,129 194 


KeyCorp 75,775 646 

Kimco Realty Corp. 35,100 642 

Legg Mason, Inc. 21,700 475 

Leucadia National Corp. 27,100 537 

Lincoln National Corp. 39,130 737 

Loews Corp. 55,421 1,566 

M&T Bank Corp. 11,800 677 

Marsh & McLennan 


Marshall & Ilsley Corp. 39,900 544 

* MBIA, Inc. 28,850 117 

Merrill Lynch & Co., Inc. 245,200 2,854 


Shares/ 

$ Par 

Value 

$ (000's) 


MetLife, Inc. 121,474 4,235 

Moody's Corp. 29,750 598 

Morgan Stanley 162,613 2,608 

* The Nasdaq OMX Group, 

Inc. 20,800 514 

National City Corp. 311,797 564 

Northern Trust Corp. 34,150 1,781 

NYSE Euronext 40,600 1,112 

People's United Financial, 

Inc. 53,300 950 

Plum Creek Timber Co., 

Inc. 25,500 886 

PNC Financial Services 

Group, Inc. 53,267 2,610 

Principal Financial 

Group, Inc. 39,700 896 

The Progressive Corp. 103,500 1,533 

ProLogis 40,700 565 


Public Storage 19,200 1,526 

Regions Financial Corp. 105,990 844 

Simon Property Group, 

Inc. 34,600 1,838 

* SLM Corp. 71,542 637 

* Sovereign Bancorp, Inc. 83,380 248 


SunTrust Banks, Inc. 54,233 1,602 


Inc. 39,600 1,403 

Torchmark Corp. 13,050 583 

The Travelers 


U.S. Bancorp 268,621 6,718 

Unum Group 50,731 944 

Vornado Realty Trust 21,000 1,267 

Wachovia Corp. 330,847 1,833 

Wells Fargo & Co. 580,260 17,106 

XL Capital, Ltd. - Class 

A 50,600 187 

Zions Bancorporation 17,700 434 

Total 159,766 



Aetna, Inc. 70,608 2,012 

Allergan, Inc. 47,134 1,900 

AmerisourceBergen 

Corp. 23,900 852 

* Amgen, Inc. 162,217 9,368 


Becton, Dickinson and 

Co. 37,250 2,548 

* Biogen Idec, Inc. 44,690 2,129 

* Boston Scientific Corp. 229,922 1,780 

Bristol-Myers Squibb Co. 303,108 7,047 

C.R. Bard, Inc. 15,200 1,281 


* Celgene Corp. 70,200 3,881 

* Cephalon, Inc. 10,500 809 

CIGNA Corp. 42,087 709 





Shares/ 

$ Par 

Value 

$ (000's) 

Health Care continued 

* Coventry Health Care, 

Inc. 22,800 339 

Covidien, Ltd. 77,127 2,795 

* DaVita, Inc. 15,900 788 

DENTSPLY 

International, Inc. 22,800 644 

Eli Lilly and Co. 153,206 6,170 


* Forest Laboratories, Inc. 46,166 1,176 

* Genzyme Corp. 41,400 2,748 


* Hospira, Inc. 24,465 656 

* Humana, Inc. 25,800 962 

IMS Health, Inc. 27,867 422 

* Intuitive Surgical, Inc. 6,000 762 


* King Pharmaceuticals, 

Inc. 37,766 401 

* Laboratory Corp. of 

America Holdings 16,500 1,063 

* Life Technologies Corp. 26,380 615 

McKesson Corp. 42,205 1,635 


Inc. 76,244 3,195 

Medtronic, Inc. 171,200 5,379 

Merck & Co., Inc. 323,720 9,841 

* Millipore Corp. 8,500 438 

* Mylan, Inc. 46,700 462 

* Patterson Companies, Inc. 14,000 262 

PerkinElmer, Inc. 18,100 252 

Pfizer, Inc. 1,032,434 18,284 

Quest Diagnostics, Inc. 24,300 1,261 

Schering-Plough Corp. 248,950 4,240 

* St. Jude Medical, Inc. 52,700 1,737 

Stryker Corp. 37,100 1,482 

* Tenet Healthcare Corp. 63,550 73 


Industries, Ltd., ADR 10,348 440 

* Thermo Fisher Scientific, 

Inc. 64,300 2,191 


* Varian Medical Systems, 

Inc. 19,000 666 

* Waters Corp. 15,100 553 

* Watson Pharmaceuticals, 

Inc. 16,000 425 

* WellPoint, Inc. 77,900 3,282 

Wyeth 203,829 7,646 

* Zimmer Holdings, Inc. 34,337 1,388 

Total 178,282 


3M Co. 106,076 6,104 

Avery Dennison Corp. 16,250 532 

The Boeing Co. 112,176 4,787 

Burlington Northern 

Santa Fe Corp. 42,985 3,254 

C.H. Robinson 

Worldwide, Inc. 25,900 1,425 

Caterpillar, Inc. 92,376 4,126 


Shares/ 

$ Par 

Value 

$ (000's) 


Cintas Corp. 20,133 468 


Class A 26,500 775 

CSX Corp. 60,400 1,961 

Cummins, Inc. 30,800 823 


Deere & Co. 65,420 2,507 

Dover Corp. 28,467 937 

The Dun & Bradstreet 

Corp. 8,300 641 

Eaton Corp. 25,200 1,253 

Emerson Electric Co. 117,400 4,298 

Equifax, Inc. 19,300 512 

Expeditors International 

of Washington, Inc. 32,500 1,081 

Fastenal Co. 19,800 690 

FedEx Corp. 47,620 3,055 

Flowserve Corp. 8,700 448 

Fluor Corp. 27,800 1,247 

General Dynamics Corp. 59,700 3,438 

General Electric Co. 1,608,206 26,053 

Goodrich Corp. 18,800 696 


Inc. 111,250 3,652 

Illinois Tool Works, Inc. 60,300 2,114 

Ingersoll-Rand Co., Ltd. - 

Class A 48,762 846 

ITT Corp. 27,800 1,279 

* Jacobs Engineering 

Group, Inc. 18,800 904 

L-3 Communications 

Holdings, Inc. 18,300 1,350 


The Manitowoc Co., Inc. 20,000 173 

Masco Corp. 55,100 613 

* Monster Worldwide, Inc. 18,867 228 


Northrop Grumman Corp. 50,020 2,253 

PACCAR, Inc. 55,515 1,588 

Pall Corp. 18,050 513 

Parker Hannifin Corp. 24,712 1,051 

Pitney Bowes, Inc. 31,537 804 

Precision Castparts Corp. 21,300 1,267 

R.R. Donnelley & Sons 

Co. 31,434 427 

Raytheon Co. 63,400 3,236 

Republic Services, Inc. 49,207 1,220 

Robert Half International, 

Inc. 23,740 494 

Rockwell Automation, 

Inc. 21,650 698 

Rockwell Collins, Inc. 24,250 948 

Ryder System, Inc. 8,500 330 


* Stericycle, Inc. 13,100 682 


Tyco International, Ltd. 72,427 1,564 


United Parcel Service, 

Inc. - Class B 152,400 8,406 


Shares/ 

$ Par 

Value 

$ (000's) 



Corp. 145,534 7,801 

W.W. Grainger, Inc. 9,900 781 

Waste Management, Inc. 75,085 2,488 

Total 133,182 


* Adobe Systems, Inc. 81,250 1,730 

* Advanced Micro Devices, 

Inc. 93,200 201 

* Affiliated Computer 

Services, Inc. - Class A 14,900 685 

* Agilent Technologies, 

Inc. 53,637 838 

* Akamai Technologies, 

Inc. 25,900 391 

Altera Corp. 45,511 760 

Amphenol Corp. - Class 

A 26,900 645 

Analog Devices, Inc. 44,557 847 

* Apple, Inc. 136,100 11,616 

Applied Materials, Inc. 205,400 2,081 

* Autodesk, Inc. 34,668 681 

Automatic Data 

Processing, Inc. 77,750 3,059 

* BMC Software, Inc. 28,760 774 


A 68,000 1,154 

CA, Inc. 60,292 1,117 

* Ciena Corp. 13,785 92 


* Citrix Systems, Inc. 27,820 656 


Solutions Corp. - Class 

A 44,600 805 

* Computer Sciences Corp. 23,150 813 

* Compuware Corp. 37,757 255 

* Convergys Corp. 18,650 120 

Corning, Inc. 238,000 2,268 

* Dell, Inc. 264,933 2,713 

* eBay, Inc. 164,200 2,292 

* Electronic Arts, Inc. 49,100 788 

* EMC Corp. 312,474 3,272 

Fidelity National 

Information Services, 

Inc. 29,100 473 

* Fiserv, Inc. 24,525 892 


Harris Corp. 20,600 784 


Intel Corp. 851,663 12,485 



* Intuit, Inc. 49,000 1,166 


* JDS Uniphase Corp. 33,650 123 

* Juniper Networks, Inc. 80,800 1,415 


* Lexmark International, 

Inc. - Class A 12,000 323 





Shares/ 

$ Par 

Value 

$ (000's) 


Linear Technology Corp. 33,950 751 

* LSI Corp. 98,800 325 

MasterCard, Inc. 11,100 1,587 

* McAfee, Inc. 23,400 809 



Microchip Technology, 

Inc. 27,900 545 

* Micron Technology, Inc. 116,950 309 

Microsoft Corp. 1,171,392 22,772 

Molex, Inc. 21,550 312 

Motorola, Inc. 346,977 1,537 

National Semiconductor 

Corp. 29,886 301 

* NetApp, Inc. 50,600 707 

* Novell, Inc. 52,900 206 

* Novellus Systems, Inc. 15,000 185 

* NVIDIA Corp. 82,250 664 

* Oracle Corp. 599,825 10,635 

Paychex, Inc. 49,135 1,291 

* QLogic Corp. 19,600 263 

QUALCOMM, Inc. 253,434 9,081 

* Salesforce.com, Inc. 16,100 515 

* SanDisk Corp. 34,600 332 

* Sun Microsystems, Inc. 113,049 432 

* Symantec Corp. 128,054 1,731 

* Tellabs, Inc. 60,992 251 

* Teradata Corp. 26,900 399 

* Teradyne, Inc. 25,950 110 

Texas Instruments, Inc. 198,500 3,081 

Total System Services, 

Inc. 30,178 422 

Tyco Electronics, Ltd. 70,027 1,135 

* VeriSign, Inc. 29,700 567 

Western Union Co. 109,532 1,571 

Xerox Corp. 132,500 1,056 

Xilinx, Inc. 41,900 747 

* Yahoo!, Inc. 212,500 2,592 

Total 183,606 


Air Products and 

Chemicals, Inc. 32,067 1,612 

AK Steel Holding Corp. 17,200 160 

Alcoa, Inc. 122,507 1,379 


Inc. 14,717 376 

Ball Corp. 14,532 604 

Bemis Co., Inc. 15,300 362 

CF Industries Holdings, 

Inc. 8,700 428 

The Dow Chemical Co. 141,409 2,134 

E.I. du Pont de Nemours 

and Co. 138,128 3,495 

Eastman Chemical Co. 11,125 353 

Ecolab, Inc. 25,700 903 



International Flavors & 

Fragrances, Inc. 12,000 357 


Shares/ 

$ Par 

Value 

$ (000's) 


International Paper Co. 65,466 772 

MeadWestvaco Corp. 26,179 293 

Monsanto Co. 83,906 5,903 

Newmont Mining Corp. 69,580 2,832 

Nucor Corp. 48,032 2,219 

* Pactiv Corp. 20,100 500 

PPG Industries, Inc. 25,167 1,068 

Praxair, Inc. 47,200 2,802 

Rohm and Haas Co. 19,080 1,179 

Sealed Air Corp. 24,142 361 

Sigma-Aldrich Corp. 19,200 811 

Titanium Metals Corp. 13,000 115 

United States Steel Corp. 17,850 664 

Vulcan Materials Co. 16,900 1,176 

Weyerhaeuser Co. 32,380 991 

Total 35,261 



Class A 60,700 1,780 

AT&T, Inc. 902,275 25,715 

CenturyTel, Inc. 15,300 418 

Embarq Corp. 21,730 781 

Frontier Communications 

Corp. 47,700 417 

Qwest Communications 


* Sprint Nextel Corp. 437,402 800 

Verizon 


Windstream Corp. 67,292 619 

Total 46,092 


* The AES Corp. 103,000 849 


Ameren Corp. 32,367 1,076 

American Electric Power 

Co., Inc. 61,840 2,058 

CenterPoint Energy, Inc. 52,662 665 

CMS Energy Corp. 34,600 350 

Consolidated Edison, Inc. 41,850 1,629 

Constellation Energy 

Group, Inc. 27,300 685 

Dominion Resources, Inc. 88,976 3,189 

DTE Energy Co. 24,950 890 

Duke Energy Corp. 193,773 2,909 

* Dynegy, Inc. - Class A 77,400 155 

Edison International 49,920 1,603 

Entergy Corp. 29,009 2,411 

Equitable Resources, Inc. 20,000 671 

Exelon Corp. 100,724 5,601 

FirstEnergy Corp. 46,665 2,267 

FPL Group, Inc. 62,614 3,151 

Integrys Energy Group, 

Inc. 11,732 504 

Nicor, Inc. 6,950 241 

NiSource, Inc. 41,973 460 

Pepco Holdings, Inc. 33,100 588 


Shares/ 

$ Par 

Value 

$ (000's) 


PG&E Corp. 55,225 2,138 

Pinnacle West Capital 

Corp. 15,400 495 

PPL Corp. 57,468 1,764 

Progress Energy, Inc. 40,292 1,606 

Public Service Enterprise 

Group, Inc. 77,472 2,260 

Questar Corp. 26,600 870 

Sempra Energy 37,302 1,590 

Southern Co. 118,600 4,388 

TECO Energy, Inc. 32,600 403 

Wisconsin Energy Corp. 17,900 751 

Xcel Energy, Inc. 68,720 1,275 

Total 50,369 


(Cost: $1,333,511) 1,202,611 


Asset-Backed Securities (0.8%) 

Kitty Hawk Funding 

Corp., 0.40%, 1/15/09 10,000,000 9,998 

Total 9,998 

Energy (0.3%) 


1.00%, 1/2/09 3,200,000 3,200 

Total 3,200 



Bank, 0.47%, 3/13/09 5,000,000 5,000 

Total 5,000 


(0.5%) 


4.00%, 1/5/09 6,100,000 6,097 

Total 6,097 



0.95%, 1/2/09 2,100,000 2,100 

Total 2,100 


(Cost: $26,391) 26,395 


(Cost: $1,359,902)(a) 1,229,006 



Net Assets (100.0%) 1,231,610 






(a) 

(b) 

At December 31, 2008 the aggregate cost of securities for federal tax purposes (in thousands) was $1,366,581 and the net unrealized depreciation of 





Unrealized 

Appreciation/ 

Number of 





22 Index 500 Stock Portfolio 

The Accompanying Notes are an Integral Part of the Financial Statements.



Long-term of capital growth. Income Invest primarily in equity securities of companies 

$29 million 

is a secondary objective. 

comprising the Russell 1000 Index. 


Mason Street Advisors, the investment adviser for the Large Company Value Portfolio, has engaged American Century 

Investment Management, Inc. to act as sub-adviser for the Portfolio. The Portfolio’s investment objective is to seek long-term 

capital growth with income as a secondary objective. The Portfolio invests primarily in large companies. Accordingly, the 

Portfolio will normally have at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of 

companies comprising the Russell 1000 Index. The Portfolio seeks to invest in stocks of companies that it believes are 

undervalued at the time of purchase. Companies may be undervalued due to market declines, poor economic conditions, actual 

or anticipated bad news regarding the issuer or its industry, or because they have been overlooked by the market. The Portfolio 

purchases the stocks of these undervalued companies and holds each stock until it has returned to favor in the market and the 

price has increased to, or is higher than, a level that is believed to more accurately reflect the fair value of the company. 


Extraordinary, if not unprecedented, market conditions characterized the period. Few investors anticipated the scope of the 

credit crunch, which grew into a full-blown financial crisis. The U.S. government and the Federal Reserve took extraordinary 

steps to provide support for the flagging financial system, with other governments and central banks following suit. In the 

stock market, volatility was extreme on a day-to-day basis as investors lost confidence in the financial system and worried 

about the government’s ability to remedy the situation. U.S. equity indexes were universally down for the twelve-month 

period, though value-oriented shares held up better than growth stocks, as measured by the Russell style indices. 


The Large Company Value Portfolio returned –37.23% for the twelve months ended December 31, 2008. By comparison, the 

Russell 1000 Value Index returned –36.85%. (This Index is unmanaged, cannot be invested in directly and does not include 

administrative expenses or sales charges.) According to Lipper Analytical Services, Inc., an independent mutual fund ranking 

agency, the average return of the Large-Cap Value Funds peer group was –37.09%. 


the worst year for stocks since the Great Depression. Relative to the benchmark, the Portfolio’s Financials stocks detracted 

most, while the key contribution to relative return came from positions in the Health Care and Information Technology sectors. 

Despite an underweight position, the Financials sector was the Portfolio’s largest source of underperformance versus the 

benchmark. Although the management team sought to approach the sector with caution and selectivity, the best relative values 

were the most adversely affected by the financial crisis. 

In particular, the Portfolio was hampered by its mix of insurance, mortgage finance and diversified financial services stocks. 

Three top detractors were financial giant Citigroup; life, property and casualty insurer Hartford Financial Services Group; and 

American International Group (AIG), the leading U.S.-based international insurer. Shares of Citigroup, which declined 

dramatically on worries that it had inadequate capital, stabilized only after the announcement of a U.S. government capital 

infusion. Hartford’s stock price fell on similar fears, while AIG’s shares lost significant value when the Federal Reserve had to 

rescue the company from bankruptcy. The Portfolio’s positions in Hartford and AIG have been eliminated. 

An underweight in the Utilities sector also negatively impacted results. The Portfolio was underrepresented in these shares 

because the management team believed that Utilities were not reasonably valued. In particular, the Portfolio was hurt by its 

lack of multi-utility names. Security selection among electric utilities also diminished relative performance. 

The Portfolio’s holdings in the Health Care sector contributed to results. During difficult economic times or periods of stock 

market turbulence, investors often regard Health Care stocks as lower risk, defensive investments because they provide 

essential services that are sought after regardless of the economic backdrop. Moreover, our preference for large industry 

leaders proved advantageous. A significant holding was Abbott Laboratories, which develops and manufactures laboratory 

diagnostics, medical devices and pharmaceutical therapies. Abbott reported strong sales across its entire product line, 

including Humira (a drug that treats autoimmune diseases). 

The Portfolio also benefited from strong security selection in Information Technology, primarily from large leading software 

and technology companies. A notable contributor was Hewlett-Packard (HP), a computer and peripheral maker. HP’s 

acquisition of outsourcing giant Electronic Data Systems appeared to offer a competitive advantage that we believed could add 

value through reorganization and cost-cutting efforts. 

The Portfolio’s position in the Materials sector boosted relative performance. For some time, the share prices of metals and 

mining firms have been momentum driven; many have not met the management team’s valuation criteria and thus have not 

merited sizeable exposure. This limited exposure was particularly beneficial when commodities prices fell during the final 

Large Company Value Portfolio 23


months of 2008. For example, the Portfolio did not hold Freeport McMoRan, which is engaged in copper, gold and silver 

mining and production. Its stock fell on news that the company would sharply curtail its mining operations. 

Within the Consumer Discretionary sector, holding H&R Block helped relative returns as the company closed its subprime 

mortgage unit, allowing it to focus on its core tax-preparation services business which is generally perceived as less 

economically sensitive. 

Outlook 

Going forward, we will continue to look for large companies trading at a discount to our estimate of their worth. As a result of 

this process, our sector and industry allocations reflect where we are finding the best growth opportunities at a given time. As 

of December 31, 2008, some of our largest stakes were in Energy, Financials and Health Care. 

$10,000 

9,000 

8,000 

7,000 

6,000 


5,000 

4/07 12/07 12/08 


Russell 1000 Value Index 



1 Year 

Since 

Inception* 



-37.23% 

-36.85% 

-27.06% 

-26.30% 


(VIP) Large Cap Value Funds 

Average -37.09% – 






redeemed, may be worth more or less than their 

original cost. Current performance may be lower or 

higher than the performance data quoted. For the 

most recent month-end performance information visit 

www.nmfn.com. 
















AT&T, Inc. 4.2% 


Pfizer, Inc. 3.2% 

Johnson & Johnson 3.0% 


ConocoPhillips 3.0% 

Verizon Communications, Inc. 2.6% 

Royal Dutch Shell PLC - Class A, ADR 2.4% 

Information Technology 

6% 



6% 


7% 


Services 

8% 

Consumer 

Discretionary 

9% 




change. 

Materials 

3% 

Utilities 

3% 

Energy 

18% 

Financials 

16% 

Health Care 

14% 

Industrials 

10% 

24 Large Company Value Portfolio






Shares/ 

$ Par 


Value 

$ (000's) 

Best Buy Co., Inc. 5,800 163 


Darden Restaurants, Inc. 3,000 85 


The Gap, Inc. 10,600 142 

H&R Block, Inc. 11,300 257 


* Kohl's Corp. 5,700 206 


Staples, Inc. 11,700 210 

* Starbucks Corp. 6,600 62 

Time Warner, Inc. 39,300 395 

VF Corp. 3,600 197 


Total 2,517 


Altria Group, Inc. 10,600 160 


The Kroger Co. 8,900 235 

Lorillard, Inc. 3,400 191 

The Pepsi Bottling Group, 

Inc. 9,700 218 


Walgreen Co. 8,800 217 

Wal-Mart Stores, Inc. 7,000 392 

Total 2,093 


Apache Corp. 2,000 149 


ConocoPhillips 16,300 844 

Devon Energy Corp. 2,100 138 



Inc. 5,800 142 


Corp. 1,700 102 


Class A, ADR 12,800 678 

Total 5,040 


The Allstate Corp. 10,500 344 



Mellon Corp. 10,100 286 

Citigroup, Inc. 49,300 331 


Realty Corp. 3,300 16 


Shares/ Value 

$ Par $ (000's) 


Discover Financial 

Services 7,300 70 


Group, Inc. 3,000 253 

JPMorgan Chase & Co. 27,200 858 


Loews Corp. 4,300 122 

Merrill Lynch & Co., Inc. 11,500 134 

Morgan Stanley 9,500 152 

National City Corp. 23,300 42 

Torchmark Corp. 4,300 192 

The Travelers Companies, 

Inc. 8,200 371 

U.S. Bancorp 9,200 230 

Wells Fargo & Co. 22,700 669 

Total 4,638 


Abbott Laboratories 5,100 272 

* Amgen, Inc. 6,300 364 

Eli Lilly and Co. 7,500 302 

Johnson & Johnson 14,400 861 

Medtronic, Inc. 5,700 179 

Merck & Co., Inc. 14,400 438 

Pfizer, Inc. 51,700 916 

Quest Diagnostics, Inc. 3,100 161 

Wyeth 11,400 428 

Total 3,921 


Avery Dennison Corp. 4,500 147 

Caterpillar, Inc. 5,300 237 

Dover Corp. 6,100 201 


Ingersoll-Rand Co., Ltd. - 

Class A 8,500 147 

Northrop Grumman Corp. 7,100 320 

Parker Hannifin Corp. 3,700 157 


R.R. Donnelley & Sons 

Co. 10,000 136 

Robert Half International, 

Inc. 2,100 44 

Tyco International, Ltd. 5,000 108 

Waste Management, Inc. 5,900 196 

Total 2,974 




* Fiserv, Inc. 3,200 116 


Shares/ Value 

$ Par $ (000's) 


Hewlett-Packard Co. 7,000 254 

Intel Corp. 9,000 132 




Motorola, Inc. 7,300 32 

* Oracle Corp. 9,400 167 

Texas Instruments, Inc. 3,600 56 

Xerox Corp. 18,600 148 

Total 1,659 


E.I. du Pont de Nemours 

and Co. 10,900 276 



PPG Industries, Inc. 5,900 250 


Total 960 


AT&T, Inc. 42,500 1,211 



Verizon Communications, 

Inc. 21,800 739 

Total 2,126 


Exelon Corp. 8,600 478 

* NRG Energy, Inc. 4,600 107 

PPL Corp. 11,300 347 

Total 932 


(Cost: $39,477) 26,860 



Legg Mason, Inc., 

7.00%, 6/30/11 1,500 33 

Total 33 


(Cost: $28) 33 


Large Company Value Portfolio 25


Short-Term 

Shares/ Value 



(b) J.P. Morgan Money 

Market Fund 1,595,244 1,595 

Total 1,595 


(Cost: $1,595) 1,595 


(Cost: $41,100)(a) 28,488 



Net Assets (100.0%) 28,570 



(a) 

(b) 


investments based on that cost was $13,274 which is comprised of $123 aggregate gross unrealized appreciation and $13,397 aggregate gross unrealized 

depreciation. 



Unrealized 

Appreciation/ 

Number of 




S&P 500 Mini Index Futures (Long) (Total Notional Value at December 31, 2008, $1,085) 24 3/09 $ (5) 


26 Large Company Value Portfolio



Long-term growth of capital and income. Invest primarily in U.S. companies that are selling at $282 million 

attractive prices relative to their market and peers. 


Mason Street Advisors, the investment adviser for the Domestic Equity Portfolio, has engaged Capital Guardian Trust 

Company to act as sub-adviser for the Portfolio. The Portfolio seeks long-term growth of capital and income. The Portfolio 

seeks to meet this objective by investing primarily in equity securities of U.S. issuers and securities whose principal markets 

are in the U.S., including American Depositary Receipts and other U.S.-registered securities. The companies in which the 

Portfolio invests will generally have a market capitalization of $1 billion or more at the time of purchase. The Portfolio focuses 

on companies selling at attractive prices relative to their market and peers. In selecting investments, the Portfolio stresses 

companies with below-market price-to-earnings and price-to-book ratios and above-market dividend yields. 





virtually every segment of global financial markets. For the twelve months ended December 31, 2008, returns for large-, 





The Domestic Equity Portfolio returned –38.49% for the twelve months ended December 31, 2008. By comparison, the 

Russell 1000 Value Index returned –36.85%. (This Index is unmanaged, cannot be invested in directly and does not include 

administrative expenses or sales charges.) According to Lipper Analytical Services, Inc., an independent mutual fund ranking 

agency, the average return of the Large-Cap Value Funds peer group was 

–37.09%. 


the worst year for stocks since the Great Depression. In that environment, no sector managed positive results. Relative to the 

benchmark, the Portfolio’s underperformance was driven by positioning in the Energy and Financials sectors. The key 

contribution to relative return came from selection in the Materials sector. 

The leading source of underperformance relative to the Index was an underweight position and stock selection in the Energy 

sector. In particular, it hurt to be underrepresented in big integrated oil companies Exxon Mobil and Chevron. These large, 

liquid stocks were prized for their defensive characteristics and held up much better than the Index as a whole. While we 

agreed these were well-run companies with dominant market positions, they failed to clear our value hurdles—which include 

relative price-to-earnings, price-to-book and dividend yield measures—necessary for larger weightings in the Portfolio. 

Financials was another key area of weakness. In past financial crises, high quality, large-cap financials earned their way out of 

challenging economic and credit environments, and our analysis of several financial companies suggested the same could 

happen this time. Unfortunately, we did not anticipate the depth and speed of the deterioration in fundamentals in the current 

crisis. As a result, four of our top five detractors for the year were thrift and mortgage companies Washington Mutual and 

Wachovia, insurer XL Capital and investment bank Lehman Brothers. On a positive note, a number of our stock picks in the 

sector worked well, as overweight positions in Hudson City Bancorp, JPMorgan Chase and Wells Fargo, and underweight 

positions in Citigroup and Bank of America were all top ten contributors to relative results for the year. 

At the sector level, our stock selection was most effective in the Materials sector, where the leading contributors were steel 

maker Nucor and construction materials firm Vulcan Materials. These stocks were on a wild ride in 2008, surging early in the 

year along with commodity prices, then falling as prospects for global growth dimmed, and see-sawing once again in the final 

months on prospects for an economic stimulus plan. We tend to be long-term, buy-and-hold investors in shares whose 

valuations and business prospects we find compelling. But because of all the volatility in the share prices of these companies 

in 2008, these stocks vacillated from being fully valued to undervalued according to our metrics. As a result, we were selling 

these stocks near their highs and buying at their lows, which helped performance. 

Outlook 

Looking at the markets in 2008, it is surprising how little returns were differentiated by earnings quality—the entire market 

was painted with the same broad brush. That made for a frustrating year, because “good” and “bad” companies suffered alike. 

But the positive outcome is that we are now finding many high quality companies trading at very attractive levels. Indeed, we 

Domestic Equity Portfolio 27


have been able to invest in what we believe to be industry-leading, high-quality companies such as United Parcel Service, 

Lowe’s and United Technologies—companies whose stocks almost never meet our value criteria. So while it is impossible to 

know when economic and market conditions will turn, we are using this opportunity to attempt to position the Portfolio for 

outperformance by adding what we believe to be well-run, attractively valued companies at knock-down prices. As of 

December 31, the largest sector overweight was Consumer Staples, while the most notable sector underweight was in Energy. 


$20,000 

15,000 

10,000 

5,000 

0 

7/01 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 




Kraft Foods, Inc. - Class A 4.3% 

AT&T, Inc. 4.2% 



Hudson City Bancorp, Inc. 3.3% 

The Goldman Sachs Group, Inc. 3.3% 

Nucor Corp. 3.2% 


United Technologies Corp. 2.7% 

Sara Lee Corp. 2.5% 






Since 

Inception* 



-38.49% -3.25% 

-36.85% -0.79% 

-1.74% 

0.16% 


(VIP) Large Cap Value Funds 

Average -37.09% -2.10% – 










www.nmfn.com. 












5% 

Utilities 

5% 

Materials 

7% 

Short-Term 

Investments & 

Other Net Assets 

8% 

Consumer 

Discretionary 

9% 

Health Care 

9% 



4% 



change. 

Financials 

15% 

Consumer 

Staples 

15% 

Industrials 

12% 

Energy 

11% 

28 Domestic Equity Portfolio







Shares/ 

$ Par 

Value 

$ (000's) 

Carnival Corp. 148,600 3,614 


Gannett Co., Inc. 127,000 1,016 

Harley-Davidson, Inc. 84,600 1,436 

* The Interpublic Group of 

Companies, Inc. 82 0 

* Jarden Corp. 30,400 350 

Lowe's Cos., Inc. 205,500 4,422 

Nordstrom, Inc. 196,600 2,617 



Class A 123,900 2,658 


* Viacom, Inc. - Class B 101,600 1,936 


Total 24,895 


Altria Group, Inc. 412,900 6,218 

The Clorox Co. 11,000 611 




Kraft Foods, Inc. - Class A 446,357 11,985 

Lorillard, Inc. 33,100 1,865 



Inc. 65,800 2,863 

Sara Lee Corp. 731,900 7,165 

Unilever NV 158,300 3,886 

Total 43,477 







Class A, ADR 82,500 4,368 


Class B, ADR 21,028 1,082 

Spectra Energy Corp. 110,500 1,739 



Inc. 106,500 1,542 

Total 31,014 


ACE, Ltd. 44,000 2,328 

East West Bancorp, Inc. 39,900 637 


Inc. 109,500 9,241 

Hudson City Bancorp, Inc. 583,900 9,319 



Shares/ Value 

$ Par $ (000's) 


Mercury General Corp. 29,500 1,357 

The Progressive Corp. 126,900 1,879 

SunTrust Banks, Inc. 22,500 665 

Wells Fargo & Co. 285,200 8,408 

Total 43,520 


Aetna, Inc. 95,000 2,707 

AstraZeneca PLC, ADR 64,800 2,659 


* DaVita, Inc. 54,500 2,702 

Merck & Co., Inc. 75,600 2,298 

Pfizer, Inc. 293,400 5,196 

Sanofi-Aventis, ADR 198,700 6,390 

Total 25,299 


3M Co. 27,300 1,571 


FedEx Corp. 34,300 2,200 



* Monster Worldwide, Inc. 128,800 1,557 


Southwest Airlines Co. 204,800 1,765 

Tyco International, Ltd. 47,075 1,017 


- Class B 53,800 2,968 

United Technologies Corp. 141,200 7,568 

Total 34,118 


* Affiliated Computer 

Services, Inc. - Class A 36,800 1,691 


Intel Corp. 78,800 1,155 

Jabil Circuit, Inc. 496,900 3,354 

KLA-Tencor Corp. 127,400 2,776 

Nintendo Co., Ltd., ADR 28,800 1,375 

Total 12,260 



Inc. 142,700 3,643 

The Dow Chemical Co. 44,200 667 

Nucor Corp. 193,600 8,945 


Total 18,383 


AT&T, Inc. 410,300 11,694 

Verizon Communications, 

Inc. 38,000 1,288 

Total 12,982 



Shares/ 

$ Par 

Value 

$ (000's) 

American Water Works 

Co., Inc. 181,400 3,788 

CMS Energy Corp. 178,200 1,802 

Edison International 113,900 3,658 


Corp. 83,600 2,686 

Southern Co. 59,800 2,212 

Total 14,146 


(Cost: $325,417) 260,094 


Metals/Mining (0.9%) 


Copper & Gold, Inc., 

6.75%, 5/1/10 53,900 2,557 

Total 2,557 

Pharmaceutical Preparations (0.8%) 


6.00%, 8/13/10 12,900 2,251 

Total 2,251 


(Cost: $4,472) 4,808 

Convertible Corporate Bonds (0.2%) 

Automobiles and Other Motor Vehicles 

(0.2%) 

Ford Motor Co., 

4.25%, 12/15/36 2,846,000 733 

Total 733 

Total Convertible Corporate 

Bonds 

(Cost: $2,911) 733 


Energy (1.1%) 


4.50%, 1/5/09 3,000,000 2,998 

Total 2,998 



0.28%, 1/16/09 1,000,000 1,000 


0.10%, 2/13/09 2,500,000 2,500 

Total 3,500 


Domestic Equity Portfolio 29


Short-Term 

Investments (5.5%) 


Shares/ 

$ Par 

Value 

$ (000's) 



0.80%, 1/12/09 3,000,000 2,999 

Falcon Asset Securitization 

Co. LLC, 0.20%, 1/27/09 3,000,000 3,000 

Total 5,999 

Retail Food and Drug (1.1%) 

CVS Corp., 5.55%, 1/8/09 3,000,000 2,997 

Total 2,997 


(Cost: $15,494) 15,494 


(Cost: $348,294)(a) 281,129 



Net Assets (100.0%) 281,556 



(a) 

(l) 



depreciation. 

As of December 31, 2008, portfolio securities with an aggregate value of $2,328 (in thousands) were fair valued under procedures adopted by the Board of 

Directors. 

(m) Securities showing zero value represent an amount less than one thousand. 


30 Domestic Equity Portfolio



Long-term growth of capital and income. Invests in commons stocks with a focus on established $152 million 

companies paying above-average dividends. 


Mason Street Advisors, the investment adviser for the Equity Income Portfolio, has engaged T. Rowe Price Associates, Inc. to 

act as sub-adviser for the Portfolio. The objective of the Portfolio is long-term growth of capital and income. Management 

seeks to achieve this objective mainly through investment in common stocks with a focus on well-established companies 

paying above-average dividends. A value approach is used in selecting investments, with an effort made to identify companies 

that appear to be undervalued by various measures 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. 





virtually every segment of global financial markets. 

For the twelve months ended December 31, 2008, returns for large-, medium- and small-sized companies were –37.60%, 

–41.46% and –33.79%, as measured by the Russell 1000, Russell MidCap and Russell 2000 Stock Indices, respectively. 

Looking at returns by style, value-oriented shares held up better than growth stocks, as measured by the Russell style indices. 

No sector in the market provided positive returns. In the large-cap space, the traditionally defensive Consumer Staples and 

Health Care sectors held up best, while financials performed worst because these stocks were at the epicenter of the credit 

crisis. 


The Equity Income Portfolio returned –35.81% for the twelve months ended December 31, 2008. By comparison, the Russell 

1000 Value Index returned –36.85%. (This Index is unmanaged, cannot be invested in directly and does not include 

administrative expenses or sales charges.) The average return of the Equity Income Funds peer group was –35.83%, according 

to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 


the worst year for stocks since the Great Depression. In that environment, no sector contributed positively to results. Relative 

to the benchmark, the Portfolio’s outperformance was a result of positioning in the hard-hit Financials sector. At the other end 

of the spectrum, Consumer Discretionary shares were the leading detractors from relative results. 

Looking at positive contributors to return relative to the benchmark, outperformance was driven by an underweight position in 

Financials. Among individual contributors, insurance broker Marsh & McLennan stands out for having shown improvement in 

its brokerage business and we believe also stands to benefit when property and casualty pricing stabilizes. 

Stock selection made the Consumer Staples sector a leading source of relative strength. These traditionally defensive shares 

held up relatively well during an extremely volatile period, helped in part by mergers and acquisition activity. For example, 

Anheuser-Busch, which agreed to be acquired by European beverage giant InBev, performed well during the period. Names in 

the food products industry were key contributors, as General Mills was able to pass along higher prices to consumers, while 

Hershey benefited from discussions of a potential buyout. 

At the other end of the spectrum, stock selection made Consumer Discretionary shares a leading detractor from relative 

performance. Some of the key detractors were in the media space, as the economic slowdown meant declining profits, writedowns 

and layoffs at newspaper and broadcasting company Gannett. In addition, casino operator MGM Mirage saw fewer 

patrons and poorer revenues in tough economic times, while tight credit markets meant increased borrowing costs, limiting its 

ability to fund planned capital expenditures. 

It also hurt to be underrepresented in Energy shares, which benefited from the big run-up in energy prices through July 2008. 

A notable detractor was domestic oil company Murphy Oil, which was hurt in the second half of the year by tumbling prices 

for oil and gas, to which the stock was highly levered. Murphy was removed from the Russell 1000 Value Index during the 

June rebalancing, meaning the Index did not reflect the effect on Murphy’s share price of the precipitous decline in oil. 

An overweight position made Information Technology stocks detractors from relative return for the year as these shares 

declined along with the outlook for growth and earnings. Telecommunication equipment maker Alcatel-Lucent was hurt by the 

global slowdown even as the company continued to work on its turnaround under new management. 

Equity Income Portfolio 31


Outlook 

As we emerge from one of the most challenging market environments in history, we expect some improvement in economic 

fundamentals in 2009 and an eventual easing of the crisis of confidence and liquidity in the system. While it is not clear when 

markets will recover, we are reasonably optimistic about the prospects for equity returns as we look out over the next couple of 

years. In the meantime, we will continue to pursue companies that have good business models and strong balance sheets 

trading at what we believe are depressed levels. It is our belief that this approach remains valid and that the market will 

ultimately reward those willing to make investments in fundamentally sound companies during times of uncertainty and stress. 


$20,000 

15,000 

10,000 

5,000 

0 

5/03 12/03 12/04 12/05 12/06 12/07 12/08 








AT&T, Inc. 2.5% 

Royal Dutch Shell PLC - Class A, ADR 2.2% 


The Hershey Co. 1.8% 

The Home Depot, Inc. 1.6% 

3M Co. 1.6% 






Since 

Inception* 



-35.81% -1.07% 

-36.85% -0.79% 

2.83% 

3.39% 


(VIP) Equity Income Funds 

Average -35.83% -0.99% – 










www.nmfn.com. 












4% 



4% 

Materials 

6% 

Information 

Technology 

6% 

Utilities 

6% 

Health Care 

9% 

Industrials 

12% 



4% 

Financials 

20% 

Energy 

15% 

Consumer 

Discretionary 

14% 



change. 

32 Equity Income Portfolio







Shares/ 

$ Par 

Value 

$ (000's) 

* Bed Bath & Beyond, Inc. 64,400 1,637 

The Black & Decker Corp. 14,300 598 

Cablevision Systems Corp. - 

Class A 49,200 829 


D.R. Horton, Inc. 32,000 226 

Fortune Brands, Inc. 48,700 2,010 


Genuine Parts Co. 25,600 969 

H&R Block, Inc. 43,800 995 

Harley-Davidson, Inc. 33,700 572 



The Home Depot, Inc. 105,600 2,431 

Macy's, Inc. 37,000 383 

Marriott International, Inc. - 

Class A 34,700 675 

Mattel, Inc. 67,700 1,083 

The McGraw-Hill Cos., Inc. 62,800 1,456 

* MGM MIRAGE 44,700 615 

The New York Times Co. - 

Class A 73,100 536 


Tiffany & Co. 28,800 681 



Whirlpool Corp. 26,700 1,104 

WPP PLC, ADR 5,400 160 

Total 21,683 


Colgate-Palmolive Co. 2,700 185 

The Estee Lauder Companies, 

Inc. - Class A 2,700 83 

The Hershey Co. 76,400 2,654 


Kraft Foods, Inc. - Class A 48,700 1,308 


Whole Foods Market, Inc. 19,700 186 

Total 6,211 


Anadarko Petroleum Corp. 32,000 1,233 


BP PLC, ADR 40,600 1,898 


CONSOL Energy, Inc. 15,900 454 


Murphy Oil Corp. 39,000 1,730 

Royal Dutch Shell PLC - Class 

A, ADR 62,300 3,298 


Spectra Energy Corp. 37,350 588 


Shares/ 

$ Par 

Value 

$ (000's) 


Sunoco, Inc. 37,000 1,608 

Total 22,103 


Allied Irish Banks PLC, ADR 42,300 198 



The Bank of New York Mellon 

Corp. 69,900 1,980 

Capital One Financial Corp. 39,000 1,244 

The Chubb Corp. 16,800 857 


Fifth Third Bancorp 78,300 647 


Inc. 15,100 1,274 

The Hartford Financial 

Services Group, Inc. 5,200 85 



KeyCorp 73,600 627 





Marshall & Ilsley Corp. 32,800 447 


(p)Merrill Lynch & Co., Inc. 30,069 333 

Och-Ziff Capital Management 

Group - Class A 29,600 152 


*SLM Corp. 106,800 951 

SunTrust Banks, Inc. 54,100 1,598 

The Travelers Companies, Inc. 21,927 991 

U.S. Bancorp 92,000 2,301 

*UBS AG 48,015 687 

Wells Fargo & Co. 102,900 3,033 

Total 30,446 


*Amgen, Inc. 28,100 1,623 

Bristol-Myers Squibb Co. 65,500 1,523 

Eli Lilly and Co. 45,400 1,828 


Merck & Co., Inc. 65,000 1,976 

Pfizer, Inc. 120,100 2,127 

*WellPoint, Inc. 19,300 813 

Wyeth 51,900 1,947 

Total 13,470 


3M Co. 40,900 2,353 

Avery Dennison Corp. 38,200 1,250 

The Boeing Co. 32,000 1,365 





Shares/ 

$ Par 

Value 

$ (000's) 



Class A 25,100 734 

Deere & Co. 32,100 1,230 

Eaton Corp. 10,600 527 


Honeywell International, Inc. 35,200 1,156 


Masco Corp. 88,900 990 

United Parcel Service, Inc. - 

Class B 27,300 1,506 

* USG Corp. 29,900 240 

Total 17,680 


* Alcatel-Lucent, ADR 54,800 118 

Analog Devices, Inc. 54,600 1,039 



* Computer Sciences Corp. 32,800 1,153 

* Dell, Inc. 81,200 831 

* eBay, Inc. 46,000 642 

Intel Corp. 54,500 799 


Tyco Electronics, Ltd. 28,400 460 

* Yahoo!, Inc. 76,400 932 

Total 8,809 


Alcoa, Inc. 56,700 638 

E.I. du Pont de Nemours and 

Co. 48,500 1,227 


Fragrances, Inc. 35,500 1,055 

International Paper Co. 105,000 1,239 


Nucor Corp. 39,300 1,816 



Total 8,641 


AT&T, Inc. 132,135 3,766 




Verizon Communications, Inc. 57,000 1,932 

Total 6,918 


Duke Energy Corp. 74,600 1,120 

Entergy Corp. 12,900 1,072 

FirstEnergy Corp. 13,300 646 

NiSource, Inc. 101,700 1,116 


PG&E Corp. 27,300 1,057 

Pinnacle West Capital Corp. 27,100 871 

Progress Energy, Inc. 32,500 1,295 



Shares/ 

$ Par 

Value 

$ (000's) 


Xcel Energy, Inc. 64,000 1,187 

Total 8,890 

Total Common Stocks (Cost: $208,948) 144,851 

Foreign Common Stocks 

(0.1%) Country 


United 

WPP PLC 

Kingdom 28,500 169 

Total 169 


*UBS AG Switzerland 3,700 53 

Total 53 

Total Foreign Common Stocks (Cost: $323) 222 



Federal National Mortgage 

Association 27,600 29 

Total 29 


(Cost: $1,207) 29 

Convertible Coporate Bonds (0.1%) 


Ford Motor Co., 4.25%, 

12/15/36 929,000 239 

Total 239 

Total Convertible Corporate Bonds 

(Cost: $467) 239 



T. Rowe Price Reserve 

Investment Fund 5,910,788 5,911 

Total 5,911 


(Cost: $5,911) 5,911 


(Cost: $216,856)(a) 151,252 



Net Assets (100.0%) 151,641 


34 Equity Income Portfolio




(a) 

(l) 



depreciation. 

As of December 31, 2008, portfolio securities with an aggregate value of $555 (in thousands) were fair valued under procedures adopted by the Board of 

Directors. 

(p) Restricted securities (excluding 144A issues) on December 31, 2008 

Value as a 

Percentage of 

Description Acquistion Date Cost (000's) Value (000's) Net Assets 

Merrill Lynch & Co., Inc. 7/29/08 $ 832 $ 333 0.22% 






Invests in mid-sized companies with potential for 

$696 million 

above-average growth. 


Mason Street Advisors acts as the investment adviser for the Mid Cap Growth Stock Portfolio. The investment objective of the 

Portfolio is long-term growth of capital. The Mid Cap Growth Stock Portfolio seeks growth companies in the middlecapitalization 

range, as measured by the Portfolio’s benchmark. The Portfolio’s focus in stock selection is on companies with 

above-average growth potential giving consideration to factors such as companies’ ability to generate revenue, expand profit 

margins and maintain solid balance sheets. Industry and sector selection is of secondary importance. 






For all of 2008, returns for large-, medium- and small-sized companies were –37.60%, –41.46% and –33.79%, as measured by 

the Russell 1000, Russell MidCap and Russell 2000 Stock Indices, respectively. Small-cap stocks held up best after lagging 

stocks of large- and mid-sized companies in 2007. That relative outperformance also reflected the fact that the Financial sector 

wreckage was concentrated in large-cap names. No sector of the market had positive returns for the year, and value-oriented 



The Mid Cap Growth Stock Portfolio returned –40.08% for the twelve months ended December 31, 2008. By comparison, the 

Russell MidCap Growth Index returned –44.32%. (The Index is unmanaged, cannot be invested in directly, and does not 

include administrative expenses or sales charges.) The Portfolio’s Mid-Cap Growth Funds peer group had an average return of 

–45.24%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 


the worst year for stocks since the Great Depression. In that environment, no sector contributed positively to results. The 

biggest negative contribution came from Information Technology stocks. However, despite the difficult investing climate, the 

Portfolio held up better than the Index, benefiting from effective stock selection across a number of sectors, led by Industrials, 

Consumer Discretionary, and Health Care. At the other end of the spectrum, selection and allocation decisions made 

Consumer Staples shares the leading detractors from relative results. 

Stock selection in the Industrial sector drove the Portfolio’s relative results, led by positioning in the road and rail, air freight 

and logistics, industrial conglomerate and commercial services industry segments. Key contributors Knight Transportation and 

J.B. Hunt Transport Services benefited from falling energy prices, which helped offset a slowdown in business resulting from 

the recession. Freight shipping logistics coordinator C.H. Robinson Worldwide benefited from rising demand for its services 

across a number of business units. 

The Consumer Discretionary sector was home to the top two individual contributors to relative performance, Dollar Tree and 

DeVry. Discount retailer Dollar Tree saw more cost-conscious shoppers come through its doors. Adult and vocational 

education firm DeVry saw enrollment rise as the difficult job market put a premium on worker education and training. Health 

care providers Psychiatric Solutions and DaVita were other leading contributors for the year, enjoying steady demand for their 

treatment services. 

An underweight position and stock selection made Consumer Staples shares the largest detractors from relative results. The 

key detractor was cosmetics firm Bare Escentuals, which reported disappointing profit growth and guided analysts’ 

expectations down for future quarters. It also hurt to be underrepresented in food products, tobacco, and household products 

companies, which held up better than the Index as a whole. 

In terms of individual stocks, several of the leading detractors were shares of companies hit hard by the sharp downturn in the 

economy. Topping the list were online marketing and digital ad firms Focus Media Holdings and ValueClick. Similarly, 

payment processor VeriFone Holdings and chipmakers Intersil and NVIDIA were victims of the economic turmoil. 

36 Mid Cap Growth Stock Portfolio


Outlook 

Going forward, we will continue to look for companies that we believe are well managed, have solid growth in revenue and 

earnings, and have strong financial characteristics. As a result of this process, our sector and industry allocations reflect where 

we are finding what we consider to be the best growth opportunities at a given time. As of December 31, 2008, some of our 

largest stakes were in Information Technology and Health Care shares. The most notable sector underweights were in 

Consumer Staples, Telecommunication Services, and Utilities stocks. 


$20,000 

15,000 

10,000 

5,000 

0 

12/98 12/00 12/02 12/04 12/06 12/08 




Immucor, Inc. 3.1% 

Psychiatric Solutions, Inc. 3.0% 

DeVry, Inc. 2.9% 

C.H. Robinson Worldwide, Inc. 2.7% 

DaVita, Inc. 2.6% 

Dollar Tree, Inc. 2.6% 

McAfee, Inc. 2.4% 

Alliance Data Systems Corp. 2.4% 

Corrections Corp. of America 2.4% 

Stericycle, Inc. 2.3% 


Russell MidCap Growth Index 





Russell MidCap Growth Index 

-40.08% -1.75% 

-44.32% -2.33% 

0.97% 

-0.19% 


(VIP) Mid Cap Growth Funds 

Average -45.24% -2.33% 0.76% 









www.nmfn.com. 









Investing in small and medium-sized companies 

involves a greater degree of risk than investing in large 

company stocks. 

Materials 

4% 



7% 

Energy 

7% 

Financials 

8% 


14% 


Utilities 

2% 


1% 

Information 

Technology 

23% 

Industrials 

18% 

Health Care 

16% 



change. 

Mid Cap Growth Stock Portfolio 37






Shares/ 

$ Par 


Value 

$ (000's) 

* Collective Brands, Inc. 1,115,200 13,070 

DeVry, Inc. 350,500 20,122 

* Dollar Tree, Inc. 426,600 17,832 

* Focus Media Holding, 

Ltd., ADR 406,100 3,691 

* GameStop Corp. - 

Class A 731,800 15,851 

* Jack in the Box, Inc. 542,400 11,982 

* O'Reilly Automotive, Inc. 305,560 9,393 

* Urban Outfitters, Inc. 419,500 6,284 

Total 98,225 

Energy (7.0%) 


Corp. 548,400 11,242 


Drilling, Inc. 41,000 2,417 


Inc. 222,300 5,433 

Range Resources Corp. 329,800 11,342 

* SandRidge Energy, Inc. 282,500 1,737 

Smith International, Inc. 216,500 4,956 


Total 48,295 


Assured Guaranty, Ltd. 362,200 4,129 


Inc. 58,983 4,863 

* Investment Technology 

Group, Inc. 367,040 8,339 

* MBIA, Inc. 581,700 2,368 


Raymond James 

Financial, Inc. 574,400 9,839 

SEI Investments Co. 356,600 5,602 

Synovus Financial Corp. 695,700 5,774 


Inc. 13,000 461 

W.R. Berkley Corp. 169,900 5,267 

Total 60,036 


* Celgene Corp. 262,600 14,517 

* Cerner Corp. 274,300 10,547 

* Charles River 

Laboratories 


* DaVita, Inc. 361,000 17,895 


* Immucor, Inc. 798,949 21,236 

* Intuitive Surgical, Inc. 39,200 4,978 

* Psychiatric Solutions, Inc. 757,881 21,107 

Total 111,972 



Shares/ 

$ Par 

Value 

$ (000's) 

C.H. Robinson 

Worldwide, Inc. 337,700 18,584 

* Corrections Corp. of 

America 1,000,000 16,360 

Cummins, Inc. 82,700 2,211 

Expeditors International 

of Washington, Inc. 314,660 10,469 


* FTI Consulting, Inc. 30,400 1,358 

Harsco Corp. 357,100 9,884 

J.B. Hunt Transport 

Services, Inc. 459,000 12,058 

Knight Transportation, 

Inc. 613,400 9,888 


Holdings, Inc. 98,600 7,275 

MSC Industrial Direct 

Co., Inc. - Class A 136,900 5,042 

Ritchie Bros. 

Auctioneers, Inc. 420,100 8,998 



* Stericycle, Inc. 308,000 16,041 

Total 128,155 


* Activision Blizzard, Inc. 485,820 4,197 

* Alliance Data Systems 

Corp. 353,200 16,434 

Amphenol Corp. - 

Class A 449,800 10,786 

* Citrix Systems, Inc. 295,400 6,963 


Solutions Corp. - 

Class A 431,200 7,787 

FactSet Research 

Systems, Inc. 264,600 11,706 

Global Payments, Inc. 485,900 15,933 

Intersil Corp. - Class A 916,500 8,423 


* McAfee, Inc. 478,200 16,531 

* Mettler-Toledo 


Microchip Technology, 

Inc. 581,895 11,364 

* NeuStar, Inc. - Class A 514,300 9,839 



Inc. 527,200 9,553 

* VeriFone Holdings, Inc. 590,800 2,895 


Total 158,910 


* Owens-Illinois, Inc. 420,600 11,495 


Shares/ 

$ Par 

Value 

$ (000's) 


Praxair, Inc. 201,940 11,987 

Titanium Metals Corp. 568,500 5,009 

Total 28,491 


SPDR Metals & Mining 159,600 4,435 

Total 4,435 


Equitable Resources, Inc. 371,900 12,477 

Total 12,477 


(Cost: $903,677) 650,996 



(b)Textron, Inc., 

6.25%, 1/6/09 10,000,000 9,991 

Total 9,991 


Federal National 

Mortgage Association, 

0.20%, 3/30/09 2,000,000 2,000 

Total 2,000 



Corp., 1.35%, 1/9/09 5,000,000 4,999 



0.30%, 1/15/09 10,000,000 9,999 


Corp. LLC, 

0.50%, 1/21/09 10,000,000 9,997 

Total 24,995 

Food Processors (1.5%) 

Kellogg Co., 

1.70%, 1/13/09 10,100,000 10,094 

Total 10,094 



0.95%, 1/2/09 7,800,000 7,800 

Total 7,800 


(Cost: $54,879) 54,880 


(Cost: $958,556)(a) 705,876 


Liabilities (-1.5%) (10,250) 

Net Assets (100.0%) 695,626 


38 Mid Cap Growth Stock Portfolio




(a) 

(b) 






Unrealized 

Appreciation/ 

Number of 




Midcap 400 Index Futures (Long) (Total Notional Value at December 31, 2008, $13,098) 50 3/09 $ 332 


Mid Cap Growth Stock Portfolio 39



Investment results that approximate the 

performance of the S&P MidCap 400 ® 

Index. 

Invest in stocks included in the S&P MidCap 400 ® Index 

in approximately the same proportion as each stock’s 

weighting in the Index. 

$320 million 



that approximate the performance of the S&P MidCap 400 ® Index by investing in stocks included in the S&P MidCap 400 ® 

Index, which is composed of 400 common stocks. The S&P MidCap 400 ® Index does not include the very large issues that 

account for most of the weighting in the S&P 500 ® Index. The Index 400 Stock Portfolio is not managed in the traditional 

sense using economic, financial and market analysis. The Portfolio’s strategy is to capture mid-cap market performance by 

investing in a portfolio modeled after a mid-cap stock index. The Portfolio invests in stocks included in the S&P MidCap 400 ® 

Index in proportion to their weightings in the Index, and may buy or sell securities after announced changes in the Index but 

before or after the effective date of the changes to attempt to achieve higher correlation with the Index. The Portfolio remains 

neutral relative to the benchmark in terms of economic sectors, market capitalization and growth and value styles of investing. 

The Portfolio will, to the extent feasible, remain fully invested, and cash flows are invested promptly to attempt to minimize 

their impact on returns. The Portfolio may purchase Index futures contracts in an attempt to achieve full replication. 






SmallCap 600 ® Stock Indices, respectively. 

Mirroring the difficulty in the market, even the best-performing sectors in the S&P MidCap 400 ® Index—the traditionally 

defensive Utilities and Consumer Staples segments—fell more than 23% and 25%, respectively. Companies in these sectors 

were favored because they tend to have relatively healthy balance sheets, generate free cash flow, and/or have earnings 

resistant to economic downturns. 

Two of the poorest performers were Energy (–57%) and Materials (–46%) shares. These former high-flying sectors suffered as 

commodity prices collapsed along with the outlook for global growth in the second half of the year. The traditionally growthoriented 

Information Technology (–41%) and Health Care (–33%) sectors also performed poorly. It was a similar story for the 

economically sensitive Consumer Discretionary and Industrial sectors, which declined 40% and 37%, respectively. 

Interestingly, Financials in the mid-cap space finished the year with returns better than the Index as a whole (down 30%). In 

part that was because many of these stocks entered the year at depressed prices after underperforming badly in 2007. They 

were also helped by aggressive Federal Reserve policies, the TARP program and industry consolidation. 



ended December 31, 2008, the Index 400 Stock Portfolio had a return of –36.28%, while the S&P MidCap 400 ® Index 

returned –36.23%. (This Index is unmanaged, cannot be invested in directly and does not include administrative expenses or 

sales charges.) Portfolio performance slightly lagged the S&P MidCap 400 ® Index due to transaction costs, administrative 

expenses, cash flow effects and costs associated with the use of stock index futures contracts. The average return for the 

Portfolio’s peer group, Mid-Cap Core Funds, was –38.25% for the same period, according to Lipper Analytical Services, Inc., 

an independent mutual fund ranking agency. However, the Mid-Cap Core Funds peer group is not strictly comparable to the 

Index 400 Stock Portfolio because many of the portfolios in the group are actively managed. 

Outlook 










$25,000 

20,000 


Investing in small and medium-sized companies 

involves a greater degree of risk than investing in large 

company stocks. 

15,000 

10,000 

5,000 

0 

4/9912/99 12/01 12/03 12/05 12/0712/08 


S&P MidCap 400 Index 




Since 

Inception* 



-36.28% -0.23% 

-36.23% -0.08% 

4.27% 

4.51% 


(VIP) Mid Cap Core Funds Average -38.25% -1.21% – 










www.nmfn.com. 














Everest Re Group, Ltd. 0.6% 

Vertex Pharmaceuticals, Inc. 0.6% 

Health Care REIT, Inc. 0.6% 

W.R. Berkley Corp. 0.6% 

O'Reilly Automotive, Inc. 0.6% 

New York Community Bancorp, Inc. 0.6% 

Martin Marietta Materials, Inc. 0.5% 

MDU Resources Group, Inc. 0.5% 

SAIC, Inc. 0.5% 

Church & Dwight Co., Inc. 0.5% 

Energy 

6% 

Materials 

7% 

Utilities 

8% 

Health Care 

11% 


13% 



5% 


1% 

Financials 

21% 

Industrials 

14% 

Consumer 

Discretionary 

14% 



change. 

“Standard & Poor’s ® ”, “S&P ® ”, “S&P MidCap 400 Index” 

and “Standard & Poor’s MidCap 400 Index” are 

trademarks of The McGraw-Hill Companies, Inc. and 

have been licensed for use by The Northwestern Mutual 

Life Insurance Company. The Portfolio is not sponsored, 

endorsed, sold or promoted by Standard & Poor’s, and 

Standard & Poor’s makes no representation regarding 

the advisability of investing in the Portfolio. 







Shares/ 

$ Par 


Value 

$ (000's) 

* 99 Cents Only Stores 20,233 221 

Advance Auto Parts, Inc. 40,800 1,373 

* Aeropostale, Inc. 28,750 463 

American Eagle 

Outfitters, Inc. 88,750 831 

American Greetings 

Corp. - Class A 19,600 148 

* AnnTaylor Stores Corp. 24,650 142 

ArvinMeritor, Inc. 31,750 90 

Barnes & Noble, Inc. 15,900 238 

Belo Corp. - Class A 37,900 59 

Blyth, Inc. 10,400 81 

Bob Evans Farms, Inc. 13,200 270 

BorgWarner, Inc. 49,900 1,086 


Brinker International, 

Inc. 43,875 462 

* Brinks's Home Security 

Holdings, Inc. 17,500 384 

Callaway Golf Co. 27,800 258 

* Career Education Corp. 31,700 569 

* CarMax, Inc. 94,900 748 

* The Cheesecake Factory, 

Inc. 25,750 260 

* Chico's FAS, Inc. 76,400 319 

* Chipotle Mexican Grill, 

Inc. - Class A 14,200 880 

* Coldwater Creek, Inc. 20,400 58 

* Collective Brands, Inc. 27,442 322 

* Corinthian Colleges, Inc. 36,900 604 

DeVry, Inc. 26,500 1,521 

* Dick's Sporting Goods, 

Inc. 36,600 516 


* DreamWorks Animation 

SKG, Inc. 33,200 839 

Foot Locker, Inc. 66,700 490 

Furniture Brands 


Gentex Corp. 60,200 532 

Guess?, Inc. 25,900 398 

* Hanesbrands, Inc. 40,300 514 

Harte-Hanks, Inc. 16,350 102 

* Hovnanian Enterprises, 

Inc. - Class A 21,800 37 

International Speedway 

Corp. - Class A 12,000 345 

* ITT Educational 

Services, Inc. 13,500 1,282 

* J. Crew Group, Inc. 22,300 272 

John Wiley & Sons, Inc. 

- Class A 18,400 655 

* Lamar Advertising Co. - 

Class A 32,700 411 


Shares/ 

$ Par 

Value 

$ (000's) 


* Life Time Fitness, Inc. 15,100 196 

* LKQ Corp. 60,200 702 

M.D.C. Holdings, Inc. 15,800 479 

* Marvel Entertainment, 

Inc. 21,100 649 

Matthews International 

Corp. - Class A 13,200 484 

Modine Manufacturing 

Co. 14,100 69 

* Mohawk Industries, Inc. 24,200 1,040 

* NetFlix, Inc. 17,900 535 

* NVR, Inc. 2,300 1,049 

* O'Reilly Automotive, 

Inc. 57,900 1,780 

* Pacific Sunwear of 

California, Inc. 28,300 45 

PetSmart, Inc. 54,800 1,011 

Phillips-Van Heusen 

Corp. 22,200 447 

* Priceline.com, Inc. 17,500 1,289 

Regis Corp. 18,600 270 

* Rent-A-Center, Inc. 28,800 508 

Ross Stores, Inc. 55,700 1,656 

The Ryland Group, Inc. 18,400 325 

* Saks, Inc. 61,200 268 

Scholastic Corp. 11,400 155 

* Scientific Games Corp.- 

Class A 28,000 491 

Service Corp. 

International 110,100 547 

Sotheby's 29,000 258 

Strayer Education, Inc. 6,100 1,308 

Thor Industries, Inc. 15,300 202 

* The Timberland Co. - 

Class A 19,800 229 

* Toll Brothers, Inc. 56,100 1,202 

Tupperware Brands 

Corp. 26,700 606 

* Under Armour, Inc. 15,700 374 


* The Warnaco Group, 

Inc. 20,100 395 

Wendy's/Arby's Group, 

Inc. 180,100 890 

Williams-Sonoma, Inc. 37,300 293 

Total 40,053 


Alberto-Culver Co. 36,700 899 

* BJ's Wholesale Club, 

Inc. 25,300 867 

Church & Dwight Co., 

Inc. 30,150 1,692 

Corn Products 



Shares/ 

$ Par 

Value 

$ (000's) 



Flowers Foods, Inc. 34,000 828 


Hormel Foods Corp. 30,200 939 

Lancaster Colony Corp. 8,500 292 

* NBTY, Inc. 23,600 369 

PepsiAmericas, Inc. 24,700 503 

* Ralcorp Holdings, Inc. 24,300 1,419 

Ruddick Corp. 16,900 467 

* Smithfield Foods, Inc. 51,200 720 

Tootsie Roll Industries, 

Inc. 11,157 286 

Universal Corp. 10,800 323 

Total 12,959 

Energy (5.7%) 

Arch Coal, Inc. 61,500 1,002 

* Bill Barrett Corp. 15,900 336 

Cimarex Energy Co. 35,900 961 

* Comstock Resources, 

Inc. 19,800 936 

* Denbury Resources, Inc. 106,400 1,162 

* Encore Acquisition Co. 22,700 579 

* Exterran Holdings, Inc. 27,902 594 

* FMC Technologies, Inc. 53,838 1,283 

* Forest Oil Corp. 41,800 689 

Frontier Oil Corp. 44,800 566 

* Helix Energy Solutions 

Group, Inc. 39,600 287 

Helmerich & Payne, Inc. 45,300 1,031 

* Mariner Energy, Inc. 38,300 391 

* Newfield Exploration 

Co. 57,000 1,126 

* Oceaneering 


Overseas Shipholding 

Group, Inc. 10,900 459 

* Patriot Coal Corp. 27,300 171 

Patterson-UTI Energy, 

Inc. 66,600 767 

* Plains Exploration & 

Production Co. 46,366 1,077 

* Pride International, Inc. 74,500 1,190 

* Quicksilver Resources, 

Inc. 48,200 268 

Southern Union Co. 53,400 696 

* Superior Energy 

Services, Inc. 33,400 532 

Tidewater, Inc. 22,200 894 

* Unit Corp. 20,400 545 

Total 18,227 


* Affiliated Managers 

Group, Inc. 17,700 742 





Shares/ 

$ Par 

Value 

$ (000's) 


Alexandria Real Estate 

Equities, Inc. 13,900 839 

AMB Property Corp. 42,400 993 

American Financial 

Group, Inc. 32,350 740 

* AmeriCredit Corp. 50,100 383 

Apollo Investment Corp. 61,251 570 

Arthur J. Gallagher & 

Co. 40,900 1,060 

Associated Banc-Corp. 54,963 1,150 


BancorpSouth, Inc. 31,100 726 

Bank of Hawaii Corp. 20,600 931 

BRE Properties, Inc. 22,000 616 

Brown & Brown, Inc. 50,000 1,045 

Camden Property Trust 22,900 718 

Cathay General Bancorp 21,300 506 

City National Corp. 17,400 847 

The Colonial 

BancGroup, Inc. 87,200 181 

Commerce Bancshares, 

Inc. 28,440 1,250 

Cousins Properties, Inc. 18,800 260 

Cullen/Frost Bankers, 

Inc. 25,600 1,297 

Duke Realty Corp. 63,500 696 

Eaton Vance Corp. 50,000 1,051 

Equity One, Inc. 14,200 251 

Essex Property Trust, 

Inc. 11,500 883 

Everest Re Group, Ltd. 26,500 2,018 

Federal Realty 

Investment Trust 25,400 1,577 

Fidelity National 

Financial, Inc. - Class A 91,191 1,619 

First American Corp. 40,000 1,156 

First Niagara Financial 

Group, Inc. 51,100 826 

FirstMerit Corp. 34,900 719 

Fulton Financial Corp. 75,400 725 

The Hanover Insurance 

Group, Inc. 22,000 945 

HCC Insurance 

Holdings, Inc. 49,450 1,323 

Health Care REIT, Inc. 44,600 1,882 

Highwoods Properties, 

Inc. 27,400 750 

Horace Mann Educators 

Corp. 16,800 154 

Hospitality Properties 

Trust 40,500 602 

Jefferies Group, Inc. 52,100 733 

Jones Lang LaSalle, Inc. 14,900 413 

Liberty Property Trust 42,300 966 

The Macerich Co. 32,800 596 

Mack-Cali Realty Corp. 28,400 696 

Mercury General Corp. 15,300 704 

Nationwide Health 

Properties, Inc. 42,800 1,229 


Shares/ 

$ Par 

Value 

$ (000's) 


New York Community 

Bancorp, Inc. 148,221 1,773 

Old Republic 

International Corp. 99,375 1,185 

OMEGA Healthcare 

Investors, Inc. 34,800 556 

PacWest Bancorp 10,500 282 

The PMI Group, Inc. 29,900 58 

Potlatch Corp. 17,047 443 

Protective Life Corp. 30,100 432 

Raymond James 

Financial, Inc. 41,525 711 

Rayonier, Inc. 33,966 1,065 

Realty Income Corp. 44,900 1,039 

Regency Centers Corp. 30,200 1,410 

Reinsurance Group of 

America, Inc. 31,300 1,340 

SEI Investments Co. 57,500 903 

SL Green Realty Corp. 24,600 637 

StanCorp Financial 

Group, Inc. 21,100 881 

* SVB Financial Group 14,100 370 


TCF Financial Corp. 49,600 678 

UDR, Inc. 58,700 809 

Unitrin, Inc. 21,200 338 

Valley National Bancorp 51,800 1,049 


Waddell & Reed 

Financial, Inc. - Class A 36,500 564 

Washington Federal, Inc. 37,865 566 

Webster Financial Corp. 22,700 313 

Weingarten Realty 

Investors 33,400 691 

Westamerica 

Bancorporation 12,400 634 

Wilmington Trust Corp. 29,300 652 

Total 60,174 


* Advanced Medical 

Optics, Inc. 22,412 148 

* Affymetrix, Inc. 30,200 90 

Beckman Coulter, Inc. 27,000 1,186 

* Bio-Rad Laboratories, 

Inc. - Class A 8,200 618 

* Cerner Corp. 29,300 1,127 

* Charles River 

Laboratories 


* Community Health 


* Covance, Inc. 27,300 1,257 

* Edwards Lifesciences 

Corp. 24,000 1,319 

* Endo Pharmaceuticals 

Holdings, Inc. 50,400 1,304 

* Gen-Probe, Inc. 23,400 1,002 


Shares/ 

$ Par 

Value 

$ (000's) 


* Health Management 

Associates, Inc. - 

Class A 105,100 188 

* Health Net, Inc. 44,700 487 

* Henry Schein, Inc. 38,500 1,413 

Hill-Rom Holdings, Inc. 26,900 443 

* Hologic, Inc. 110,400 1,443 

* IDEXX Laboratories, 

Inc. 25,700 927 

* Kindred Healthcare, Inc. 12,900 168 

* Kinetic Concepts, Inc. 24,100 462 

* LifePoint Hospitals, Inc. 23,000 525 

* Lincare Holdings, Inc. 32,000 862 

* Masimo Corp. 20,600 614 

Medicis Pharmaceutical 

Corp. - Class A 24,400 339 

Omnicare, Inc. 44,900 1,246 

Perrigo Co. 33,400 1,079 

Pharmaceutical Product 

Development, Inc. 50,800 1,474 

* Psychiatric Solutions, 

Inc. 24,100 671 

* ResMed, Inc. 32,600 1,222 

* Sepracor, Inc. 46,900 515 

STERIS Corp. 25,400 607 

Techne Corp. 16,400 1,058 

Teleflex, Inc. 17,100 857 

* Thoratec Corp. 24,200 786 

* United Therapeutics 

Corp. 10,000 626 

Universal Health 

Services, Inc. - Class B 21,800 819 

* Valeant Pharmaceuticals 


* Varian, Inc. 12,500 419 

* VCA Antech, Inc. 36,500 726 

* Vertex Pharmaceuticals, 

Inc. 64,800 1,969 

* WellCare Health Plans, 

Inc. 18,000 231 

Total 32,382 


* AGCO Corp. 39,500 932 

* AirTran Holdings, Inc. 50,500 224 

* Alaska Air Group, Inc. 15,600 456 

Alexander & Baldwin, 

Inc. 17,800 446 

* Alliant Techsystems, 

Inc. 14,100 1,209 

AMETEK, Inc. 45,950 1,388 

* BE Aerospace, Inc. 42,800 329 

The Brink's Co. 17,500 470 

Bucyrus International, 

Inc. 32,200 596 

Carlisle Companies, Inc. 26,300 544 

* Clean Harbors, Inc. 8,700 552 

Con-way, Inc. 19,700 524 

* Copart, Inc. 27,300 742 





Shares/ 

$ Par 

Value 

$ (000's) 


The Corporate Executive 

Board Co. 14,700 324 


America 54,100 885 

Crane Co. 20,900 360 

Deluxe Corp. 22,000 329 

Donaldson Co., Inc. 33,100 1,114 

* Dycom Industries, Inc. 17,000 140 

Federal Signal Corp. 20,400 168 

* FTI Consulting, Inc. 21,900 979 

GATX Corp. 21,000 650 

Graco, Inc. 25,600 608 

Granite Construction, 

Inc. 14,200 624 

Harsco Corp. 36,000 996 

Herman Miller, Inc. 23,100 301 

HNI Corp. 19,100 303 

Hubbell, Inc. - Class B 24,200 791 

IDEX Corp. 35,580 859 



* JetBlue Airways Corp. 78,925 560 

Joy Global, Inc. 46,450 1,063 

* Kansas City Southern 39,300 749 

KBR, Inc. 69,600 1,058 

Kelly Services, Inc. - 

Class A 11,800 154 

Kennametal, Inc. 31,500 699 

* Korn/Ferry International 19,300 220 

Lincoln Electric 


Manpower, Inc. 33,600 1,142 

Mine Safety Appliances 

Co. 12,800 306 

* MPS Group, Inc. 39,800 300 

MSC Industrial Direct 

Co., Inc. - Class A 19,300 711 

* Navigant Consulting, 

Inc. 20,200 321 

Nordson Corp. 14,700 475 

Oshkosh Corp. 32,100 285 

Pentair, Inc. 42,500 1,006 

* Quanta Services, Inc. 85,000 1,683 

Rollins, Inc. 17,787 322 

Roper Industries, Inc. 38,600 1,676 

* The Shaw Group, Inc. 36,000 737 

SPX Corp. 23,400 949 

* Terex Corp. 40,900 708 

* Thomas & Betts Corp. 24,100 579 

The Timken Co. 36,600 718 

Trinity Industries, Inc. 34,250 540 

* United Rentals, Inc. 25,823 236 

* URS Corp. 36,000 1,468 

Wabtec Corp. 20,900 831 

* Waste Connections, Inc. 34,300 1,083 

Werner Enterprises, Inc. 18,350 318 

Woodward Governor Co. 23,500 541 

* YRC Worldwide, Inc. 25,500 73 

Total 41,218 


Shares/ 

$ Par 


Value 

$ (000's) 

* 3Com Corp. 175,000 399 

* ACI Worldwide, Inc. 15,000 238 

Acxiom Corp. 29,302 238 

* ADC 

Telecommunications, 

Inc. 50,700 277 

ADTRAN, Inc. 23,600 351 

* Advent Software, Inc. 7,200 144 

* Alliance Data Systems 

Corp. 27,800 1,294 

* ANSYS, Inc. 38,600 1,077 

* Arrow Electronics, Inc. 51,400 968 

* Atmel Corp. 193,000 604 

* Avnet, Inc. 64,900 1,182 

* Avocent Corp. 19,300 346 

Broadridge Financial 

Solutions, Inc. 60,900 764 

* Cadence Design 

Systems, Inc. 112,100 410 

* CommScope, Inc. 30,277 470 

* Cree, Inc. 38,000 603 

Diebold, Inc. 28,500 801 

* Digital River, Inc. 16,000 397 

* DST Systems, Inc. 17,500 665 

* F5 Networks, Inc. 34,300 784 

FactSet Research 


Fair Isaac Corp. 20,900 352 

* Fairchild Semiconductor 


* Gartner, Inc. 25,500 455 


Imation Corp. 13,000 176 

* Ingram Micro, Inc. - 

Class A 71,000 951 

* Integrated Device 

Technology, Inc. 72,830 409 

* International Rectifier 

Corp. 31,400 424 


Jack Henry & 

Associates, Inc. 36,400 706 

* Lam Research Corp. 53,800 1,145 

Lender Processing 

Services, Inc. 36,100 1,063 

* Macrovision Solutions 

Corp. 35,900 454 

* ManTech International 

Corp. - Class A 9,000 488 

* Mentor Graphics Corp. 39,800 206 

* Metavante Technologies, 

Inc. 38,700 623 

* Mettler-Toledo 


National Instruments 

Corp. 24,550 598 

* NCR Corp. 68,000 961 

* NeuStar, Inc. - Class A 34,000 650 

* Palm, Inc. 47,300 145 


Shares/ 

$ Par 

Value 

$ (000's) 


* Parametric Technology 

Corp. 50,000 632 

Plantronics, Inc. 21,000 277 

* Polycom, Inc. 35,800 484 

* RF Micro Devices, Inc. 113,300 88 

* SAIC, Inc. 87,300 1,701 

* Semtech Corp. 26,000 293 

* Silicon Laboratories, Inc. 19,900 493 

* SRA International, Inc. - 

Class A 18,100 312 

* Sybase, Inc. 34,923 865 

* Synopsys, Inc. 62,100 1,150 

* Tech Data Corp. 21,500 384 

* Trimble Navigation, Ltd. 51,500 1,113 

* ValueClick, Inc. 37,400 256 

* Vishay Intertechnology, 

Inc. 80,387 275 

* Western Digital Corp. 95,400 1,092 

* Wind River Systems, 

Inc. 29,200 264 

* Zebra Technologies 

Corp. - Class A 27,300 553 

Total 35,705 


Airgas, Inc. 34,900 1,361 

Albemarle Corp. 39,300 876 

AptarGroup, Inc. 29,100 1,026 

Ashland, Inc. 28,500 300 

Cabot Corp. 28,200 432 

Carpenter Technology 

Corp. 19,000 390 

Chemtura Corp. 104,463 146 

Cliffs Natural Resources, 

Inc. 48,900 1,252 

Commercial Metals Co. 49,000 582 

Cytec Industries, Inc. 20,300 431 

Ferro Corp. 18,800 133 

FMC Corp. 31,900 1,427 

Grief, Inc. - Class A 14,700 491 

Louisiana-Pacific Corp. 39,200 61 

The Lubrizol Corp. 29,000 1,055 

Martin Marietta 

Materials, Inc. 17,800 1,728 

Minerals Technologies, 

Inc. 8,100 331 

Olin Corp. 33,100 598 

Packaging Corp. of 

America 44,100 594 

Reliance Steel & 

Aluminum Co. 27,500 548 

RPM International, Inc. 55,400 736 

The Scotts Miracle-Gro 

Co. - Class A 18,900 562 

Sensient Technologies 

Corp. 20,800 497 

Sonoco Products Co. 43,000 996 

Steel Dynamics, Inc. 69,700 779 

Temple-Inland, Inc. 45,900 220 

Terra Industries, Inc. 44,000 734 





Shares/ 

$ Par 

Value 

$ (000's) 


The Valspar Corp. 43,000 778 

Worthington Industries, 

Inc. 25,800 284 

Total 19,348 


* Cincinnati Bell, Inc. 99,200 192 

Telephone and Data 

Systems, Inc. 45,900 1,457 

Total 1,649 


AGL Resources, Inc. 33,100 1,038 

Alliant Energy Corp. 47,600 1,389 

Aqua America, Inc. 58,233 1,199 

Black Hills Corp. 16,600 448 

DPL, Inc. 49,900 1,140 

Energen Corp. 30,900 906 

Great Plains Energy, Inc. 51,177 989 

Hawaiian Electric 


IDACORP, Inc. 19,600 577 

MDU Resources Group, 

Inc. 79,100 1,707 

National Fuel Gas Co. 34,100 1,068 

Northeast Utilities 67,100 1,614 

NSTAR 46,000 1,679 

NV Energy, Inc. 100,881 998 

OGE Energy Corp. 40,000 1,031 

ONEOK, Inc. 45,000 1,310 

PNM Resources, Inc. 37,250 375 

Puget Energy, Inc. 55,900 1,524 

UGI Corp. 46,500 1,136 

Vectren Corp. 34,900 873 

Westar Energy, Inc. 46,600 956 

WGL Holdings, Inc. 21,500 703 

Total 23,519 


(Cost: $397,066) 285,234 

Short-Term 


Electric Utilities (1.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 

(b) Duke Energy Corp., 

4.00%, 1/5/09 5,800,000 5,797 

Total 5,797 



Bank, 0.47%, 3/13/09 4,500,000 4,499 

Total 4,499 


Falcon Asset 

Securitization Co. LLC, 

0.45%, 1/13/09 10,000,000 9,999 

Total 9,999 



1.15%, 1/2/09 8,000,000 8,000 


1.00%, 1/2/09 2,900,000 2,900 

Total 10,900 


(Cost: $31,191) 31,195 


(Cost: $428,257)(a) 316,429 



Net Assets (100.0%) 319,515 


(a) 

(b) 






Unrealized 

Appreciation/ 

Number of 









Long-term capital growth. Current 

income is a secondary objective. 

Invest primarily in equity securities of mid-sized companies 

that are believed to be undervalued in relation to their 

prospects for growth. 

$75 million 


Mason Street Advisors, the investment adviser for the Mid Cap Value Portfolio, has engaged AllianceBernstein L.P. to act as 

sub-adviser for the Portfolio. The primary investment objective of the Portfolio is long-term capital growth; current income is 

a secondary objective. The Portfolio invests primarily in a diversified portfolio of equities of mid-sized companies with market 

capitalization between $1.0 billion and $10.0 billion with an emphasis on securities with market capitalizations between $1.0 

and $5.0 billion. The Portfolio’s investment policies emphasize investment in companies that we determine to be undervalued 

using our fundamental value approach. In selecting investments, we use our fundamental research to identify companies whose 

long-term earnings power is not reflected in the current market price of their securities. 


Equity markets around the world collapsed in 2008 as investor anxiety over global economic growth intensified. U.S. smallercap 

markets were no exception with the Russell 2000 and Russell 2500 Stock Indices down 33.8% and 36.8%, respectively, 

roughly in line with the decline of the S&P 500 ® Index, which returned –37.0%. Much of the carnage occurred in the fourth 

quarter where smaller-cap indices lagged the S&P 500 by about four percentage points. Within the Russell 2500, all sectors 

fell, with Utilities’ 20.7% decline for the year being the best return, while Consumer Cyclicals and Energy sector returns were 

the worst, not surprisingly given their high economic exposure. Value, as measured by the Russell 2500 Value Index, 

outperformed the broad small/mid-cap market, declining 32.0% for the year. 


The Mid Cap Value Portfolio returned –35.07% for the twelve months ended December 31, 2008. By comparison, the Russell 

2500 Value and Russell MidCap Value Indices returned –31.99% and –38.44%, respectively. (These Indices are unmanaged, 

cannot be invested in directly and do not include administrative expenses or sales charges.) The average return of the Mid-Cap 

Value Funds peer group was –38.71%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking 

agency. 


the worst year for stocks since the Great Depression. The Portfolio underperformed the Russell 2500 Value Index for the year, 

but outperformed the Russell Midcap Value Index. Versus the Russell 2500 Value Index, the bulk of the underperformance 

was attributable to stock selection where the Portfolio’s holdings in more economically sensitive sectors, such as Capital 

Equipment and Information Technology, were pressured by investors concerned over declining global growth. This was offset 

somewhat by strong relative stock selection in Financials, driven by some of the Portfolio’s bank and insurance holdings. The 

Portfolio also benefited from holdings among transport names where its trucking and airline holdings benefited from capacity 

management and lower fuel costs. 

Sector selection was a modest detractor, driven by the Portfolio’s underweight in Utilities, which were prized by investors 

seeking stocks with defensive characteristics. It also hurt to be overweight in Energy, where stocks were pressured by falling 

oil prices. An overweight position in transports offset this somewhat. 

Key contributors included Cliffs Natural Resources, Platinum Underwriters, Arch Capital Group, Arkansas Best and 

Amerigroup. Specific stocks that underperformed included Reliant Energy, Brunswick, Rockwood Holdings, Avis Budget and 

TRW Automotive. 

Outlook 

In our opinion, investor anxiety over depressed global economic growth and continued financial contagion has deepened the 

value opportunity in smaller-cap markets. We are seeking to capture a diverse array of compelling opportunities—including 

many in cyclical industries—while attempting to guard against the risk of a prolonged economic downturn. We have increased 

both the quality and relative market cap within the Portfolio as a result of opportunities created by market conditions late in the 

year, while keeping valuations at a level we find very attractive. 

The opportunity also is remarkably diverse, spanning many industries and sectors. But since companies and sectors sensitive 

to the economic cycle performed worse over the last year, many have become very attractively valued. In the quarter, we 

increased exposure to Energy, while reducing exposure to Financials. In our analysis, investors have overreacted to the very 

real threats posed by the financial crisis and recession; many cyclicals today are valued as if their earnings will never recover. 

But historically, recessions end, credit markets ease and companies address their problems. We are adding what we consider to 

be quality companies with strong business models trading at attractive valuations, providing what we feel is attractive longterm 

potential. 

46 Mid Cap Value Portfolio


Sub-Adviser Change 

Effective February 23, 2009, American Century Investment Management, Inc. will replace AllianceBernstein L.P. as the subadviser 

for the Mid Cap Value Portfolio. 


The Portfolio's investment strategy emphasizes 

investments in smaller mid-sized companies, which may 

cause its average market capitalization to be lower 

than, may cause it to perform differently from, and will 

subject it to greater small cap company risk than, other 

mid cap funds without this emphasis. Investing in small 

and medium-sized companies involves a greater degree 

of risk than investing in large company stocks. 




Since 

Inception* 

Mid Cap Value Portfolio -35.07% -1.47% 3.82% 

Russell 2500 Value Index -31.99% -0.15% 5.94% 

Russell MidCap Value Index -38.44% 0.33% 5.60% 


(VIP) Mid Cap Value Funds 

Average -38.71% -1.49% – 










www.nmfn.com. 














Platinum Underwriters Holdings, Ltd. 2.0% 

Aspen Insurance Holdings, Ltd. 2.0% 

Ruddick Corp. 1.8% 

AMERIGROUP Corp. 1.7% 

Northeast Utilities 1.6% 

Arch Capital Group, Ltd. 1.6% 

Terex Corp. 1.5% 

Del Monte Foods Co. 1.5% 

Mueller Industries, Inc. 1.5% 

Fidelity National Financial, Inc. - Class A 1.5% 

Health Care 

5% 

Utilities 

6% 

Consumer 

Discretionary 

8% 

Materials 

9% 


9% 


Energy 

5% 



5% 



change. 

Financials 

24% 

Industrials 

17% 

Information 

Technology 

12% 

Mid Cap Value Portfolio 47







Shares/ 

$ Par 

Value 

$ (000's) 

ArvinMeritor, Inc. 98,100 280 

Autoliv, Inc. 10,300 221 

* AutoNation, Inc. 30,900 305 





J.C. Penney Co., Inc. 37,900 747 

Jones Apparel Group, Inc. 35,000 205 


The Men's Wearhouse, Inc. 54,900 743 

* Mohawk Industries, Inc. 10,200 438 

Thor Industries, Inc. 54,400 717 

* TRW Automotive Holdings 

Corp. 29,700 107 

Total 6,089 


Bunge, Ltd. 13,700 709 

Del Monte Foods Co. 159,400 1,138 

The Pepsi Bottling Group, 

Inc. 33,900 763 

Ruddick Corp. 48,000 1,327 

* Smithfield Foods, Inc. 67,700 953 

SUPERVALU, INC. 45,050 658 

Tyson Foods, Inc. - Class A 68,800 603 

Universal Corp. 29,200 872 

Total 7,023 

Energy (5.1%) 


* Denbury Resources, Inc. 36,900 403 

Frontier Oil Corp. 65,400 826 

Helmerich & Payne, Inc. 23,700 539 

* Oil States International, 

Inc. 25,700 480 

* Whiting Petroleum Corp. 21,400 716 

Total 3,835 


Alexandria Real Estate 

Equities, Inc. 7,600 459 

* Arch Capital Group, Ltd. 16,800 1,178 

Aspen Insurance Holdings, 

Ltd. 61,300 1,487 


Central Pacific Financial 

Corp. 5,800 58 

Digital Realty Trust, Inc. 27,200 894 

Fidelity National Financial, 

Inc. - Class A 62,000 1,100 


Group, Inc. 27,100 438 

Home Properties, Inc. 19,000 771 


Shares/ Value 

$ Par $ (000's) 


Mid-America Apartment 

Communities, Inc. 12,100 450 

Old Republic International 

Corp. 72,300 862 

PartnerRe, Ltd. 7,700 549 

Platinum Underwriters 

Holdings, Ltd. 41,500 1,497 

Popular, Inc. 50,200 259 

Provident Financial 


Reinsurance Group of 

America, Inc. 9,400 402 

RenaissanceRe Holdings, 

Ltd. 10,100 521 

The South Financial Group, 

Inc. 85,600 370 

StanCorp Financial Group, 

Inc. 23,300 973 

Sunstone Hotel Investors, 

Inc. 40,800 253 

Susquehanna Bancshares, 

Inc. 26,550 422 

Synovus Financial Corp. 36,300 301 

Tanger Factory Outlet 

Centers, Inc. 18,900 711 

Taubman Centers, Inc. 11,500 293 

Trustmark Corp. 35,300 762 

Washington Federal, Inc. 58,800 880 

Webster Financial Corp. 38,200 526 

Whitney Holding Corp. 31,400 502 

Total 17,541 


* AMERIGROUP Corp. 42,700 1,260 

* LifePoint Hospitals, Inc. 31,200 712 

* Molina Healthcare, Inc. 37,071 653 

Omnicare, Inc. 23,800 661 

Universal Health Services, 

Inc. - Class B 18,200 684 

Total 3,970 


Acuity Brands, Inc. 18,500 646 

* Alaska Air Group, Inc. 29,700 869 

Arkansas Best Corp. 22,800 687 

Briggs & Stratton Corp. 49,600 872 

* Continental Airlines, Inc. - 

Class B 29,900 540 

Con-way, Inc. 18,700 497 


Class A 13,400 392 

* EnerSys 52,200 574 

* Gardner Denver, Inc. 17,700 413 

GATX Corp. 29,600 917 

Goodrich Corp. 9,300 344 


Shares/ Value 

$ Par $ (000's) 


* Hertz Global Holdings, Inc. 69,400 352 

Kelly Services, Inc. - 

Class A 64,600 840 

Mueller Industries, Inc. 44,400 1,114 

Quanex Building Products 

Corp. 25,900 243 

Regal-Beloit Corp. 4,775 181 

SkyWest, Inc. 30,000 558 

* Terex Corp. 66,100 1,145 

* United Stationers, Inc. 25,900 867 

Werner Enterprises, Inc. 15,800 274 

Total 12,325 


* Amkor Technology, Inc. 71,700 156 

* Anixter International, Inc. 16,600 500 

* Arrow Electronics, Inc. 40,200 757 

AU Optronics Corp., ADR 120,000 922 

* Avnet, Inc. 19,400 353 

* Benchmark Electronics, 

Inc. 40,400 516 

* CommScope, Inc. 19,800 308 

* Convergys Corp. 65,700 421 

* Ingram Micro, Inc. - 

Class A 63,900 856 

* Insight Enterprises, Inc. 63,900 441 

* Lexmark International, Inc. 

- Class A 19,500 524 

* SanDisk Corp. 44,100 423 

Siliconware Precision 

Industries Co., ADR 198,000 883 

* Tech Data Corp. 24,600 439 

* Teradyne, Inc. 131,700 556 

* Vishay Intertechnology, 

Inc. 66,400 227 

* Western Digital Corp. 46,700 535 

* Zoran Corp. 52,400 358 

Total 9,175 


AptarGroup, Inc. 21,200 747 

Arch Chemicals, Inc. 28,100 733 


Celanese Corp. 31,000 385 


Commercial Metals Co. 68,900 818 


Methanex Corp. 28,800 324 

* Owens-Illinois, Inc. 24,400 667 

Reliance Steel & 

Aluminum Co. 28,000 558 

* Rockwood Holdings, Inc. 54,200 585 




48 Mid Cap Value Portfolio



Shares/ Value 

$ Par $ (000's) 


Westlake Chemical Corp. 19,300 314 

Total 6,856 



Atmos Energy Corp. 43,000 1,019 

Northeast Utilities 50,400 1,213 

Portland General Electric 

Co. 16,800 327 

Puget Energy, Inc. 17,600 480 

* Reliant Energy, Inc. 70,900 410 

Wisconsin Energy Corp. 19,200 806 

Total 4,597 


(Cost: $104,936) 71,411 




1.25%, 1/2/09 1,220,000 1,220 

Total 1,220 


CVS Corp., 5.55%, 1/8/09 1,500,000 1,498 

Total 1,498 


(Cost: $2,718) 2,718 


(Cost: $107,654)(a) 74,129 



Net Assets (100.0%) 74,681 



(a) 



depreciation. 


Mid Cap Value Portfolio 49




Seek capital appreciation by investing in small companies $285 million 

with potential for above-average growth. 


Mason Street Advisors acts as the investment adviser for the Small Cap Growth Stock Portfolio. The Portfolio seeks long-term 

growth of capital. The Portfolio invests in growth companies in the small-capitalization range, as measured by the Portfolio’s 

benchmark. The Portfolio’s focus in stock selection is on companies with above-average growth potential supported by 

financial strength and capable management. In evaluating individual companies, factors such as the growth rates of revenues 

and earnings, opportunities for margin expansion, financial strength, and quality of management are important variables. 






For all of 2008, returns for large-, medium- and small-sized companies were –37.60%, –41.46% and –33.79%, as measured by 

the Russell 1000, Russell MidCap and Russell 2000 Stock Indices, respectively. Small-cap stocks held up best after lagging 

stocks of large- and mid-sized companies in 2007. That relative outperformance also reflected the fact that the Financial sector 

wreckage was concentrated in large-cap names. No sector of the market had positive returns for the year, and value-oriented 



For the twelve months ended December 31, 2008, the Small Cap Growth Stock Portfolio returned –43.87%. By comparison, 

the Russell 2000 Growth Index returned –38.54%. (The Index is unmanaged, cannot be invested in directly, and does not 

include administrative expenses or sales charges.) The Portfolio’s Small-Cap Growth Funds peer group had an average return 

of –41.12%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 


the worst year for stocks since the Great Depression. In that environment, no sector contributed positively to results. The 

biggest negative contribution to both absolute performance and relative to the Russell Index came from Information 

Technology stocks. Stock selection made the Industrials and Materials sectors the leading contributors to relative results. 

Positioning in Information Technology shares was the main source of weakness, largely as a result of stock selection in the 

semiconductor, internet software & services and communications equipment industry segments. A general theme uniting these 

detractors was their exposure to the communications market, which slowed along with the economy. For example, mobile 

phone and digital media equipment maker Cogo Group also faced concern about top-line growth and a changing product mix 

geared toward lower-margin business. Other notable detractors from performance were semiconductor firms Tessera 

Technologies and Diodes. Tessera Technologies suffered in 2008 from adverse litigation results, while global economic 

weakness weighed heavily on Diodes’ earnings. 

Holdings in the Health Care, Financials, and Energy sectors also detracted from relative performance. In Health Care, it hurt to 

be underweight the biotechnology segment. In Financials and Energy, poor performance was driven by selection and 

allocation decisions among capital market and energy equipment and services stocks, respectively. 

At the other end of the spectrum, Industrial shares contributed most to relative results, led by positioning among aerospace and 

defense and road and rail firms. The top two contributors to performance were military contractors Axsys Technologies and 

AeroVironment, whose business boomed as a result of increased defense spending. Other key contributors from these two 

industry segments were Knight Transportation, Stanley and TransDigm Group. 

The Portfolio also benefited from stock selection in the Materials sector, led by positioning in the containers and packaging 

and chemicals industries. Packaging firm Silgan Holdings was by far the largest single contributor in the sector, reporting 

record business despite the challenging economic environment. 

Outlook 

Looking ahead to 2009, we will continue our focus on well-managed, attractively valued, fast-growing, small-cap companies. 

Because we build the Small Cap Growth Stock Portfolio from the bottom up, one stock at a time, our sector and industry 

allocations reflect where we’re finding the best growth opportunities at a given time. As of December 31, 2008, the largest 

sector overweight was in Industrials. The most notable sector underweight was in Health Care. 

50 Small Cap Growth Stock Portfolio



$35,000 

30,000 

25,000 

20,000 

15,000 

10,000 

5,000 

0 

4/9912/99 12/01 12/03 12/05 12/0712/08 






Team, Inc. 2.3% 

Masimo Corp. 2.2% 

Dollar Tree, Inc. 2.1% 

ITC Holdings Corp. 2.0% 

New Oriental Education & Technology Group, 

Inc., ADR 2.0% 

Knight Transportation, Inc. 1.9% 

Psychiatric Solutions, Inc. 1.7% 

Illumina, Inc. 1.7% 

Genoptix, Inc. 1.6% 

Cornell Cos., Inc. 1.6% 





Since 

Inception* 



-43.87% -2.83% 

-38.54% -2.35% 

6.25% 

-1.48% 


(VIP) Small Cap Growth Funds 

Average -41.12% -2.95% – 


Materials 

3% 


3% 

Financials 

6% 

Energy 

6% 


3% 

Utilities 

2% 


1% 

Information 

Technology 

20% 









www.nmfn.com. 











Short-Term 

Investments & 


8% 


13% 



change. 

Industrials 

19% 

Health Care 

16% 

Stocks of smaller or newer companies, such as those 

held in this Portfolio, 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. Investing in small 

company stocks involves a greater degree of risk than 

investing in medium or large company stocks. 

Small Cap Growth Stock Portfolio 51






Shares/ 

$ Par 


Value 

$ (000's) 

* Aeropostale, Inc. 2,250 36 

* American Public 

Education, Inc. 106,600 3,964 

Arbitron, Inc. 3,075 41 

* Buffalo Wild Wings, Inc. 88,800 2,278 


Inc. 3,850 39 

Cracker Barrel Old 

Country Store, Inc. 1,750 36 


* Exide Technologies 7,700 41 

* Fossil, Inc. 2,475 41 

* J. Crew Group, Inc. 3,050 37 


* Jos. A. Bank Clothiers, 

Inc. 1,450 38 

* Life Time Fitness, Inc. 3,125 40 

* LKQ Corp. 342,150 3,989 

* Lumber Liquidators, Inc. 210,500 2,223 

The Men's Wearhouse, 

Inc. 2,550 35 

* New Oriental Education 

& Technology Group, 

Inc., ADR 104,590 5,743 

* O'Reilly Automotive, 

Inc. 77,800 2,392 

PetSmart, Inc. 127,300 2,349 

Polaris Industries, Inc. 1,425 41 

* Retail Ventures, Inc. 11,925 41 

Sinclair Broadcast 

Group, Inc. - Class A 12,250 38 

* Skechers U.S.A., Inc. - 

Class A 3,125 40 

Snap-on, Inc. 34,000 1,339 

Sotheby's 4,350 39 

Tempur-Pedic 


* True Religion Apparel, 

Inc. 120,350 1,497 

Tupperware Brands 

Corp. 1,775 40 

* The Warnaco Group, 

Inc. 1,825 36 

* Zumiez, Inc. 189,600 1,412 

Total 37,968 


* AgFeed Industries, Inc. 16,825 27 

Alberto-Culver Co. 130,000 3,186 

* Central European 

Distribution Corp. 64,905 1,279 

* Darling International, 

Inc. 7,175 40 

Flowers Foods, Inc. 141,300 3,442 


Shares/ 

$ Par 

Value 

$ (000's) 


* TreeHouse Foods, Inc. 60,100 1,637 

Total 9,611 

Energy (5.9%) 

* Arena Resources, Inc. 119,400 3,354 

* ATP Oil & Gas Corp. 5,500 32 

Berry Petroleum Co. 4,875 37 

* Bill Barrett Corp. 1,875 40 

* Carrizo Oil & Gas, Inc. 95,025 1,530 

* Contango Oil & Gas Co. 40,300 2,269 

Crosstex Energy, Inc. 14,525 57 

* Dril-Quip, Inc. 2,100 43 

Energy XXI, Ltd. 53,300 42 

* EXCO Resources, Inc. 177,700 1,610 

* Gasco Energy, Inc. 53,400 21 

General Maritime Corp. 3,400 37 

* IHS, Inc. - Class A 48,633 1,820 

* ION Geophysical Corp. 311,575 1,069 

* McMoRan Exploration 

Co. 3,675 36 

* Oceaneering 


* Parker Drilling Co. 13,000 38 

Penn Virginia Corp. 1,425 37 

* PetroQuest Energy, Inc. 6,250 42 

Ship Finance 

International, Ltd. 3,300 36 

* Stone Energy Corp. 3,850 42 

* T-3 Energy Services, 

Inc. 75,462 712 

* Whiting Petroleum Corp. 73,200 2,449 

* Willbros Group, Inc. 4,525 38 

Total 16,755 


Boston Private Financial 

Holdings, Inc. 408,850 2,797 

Digital Realty Trust, Inc. 98,150 3,224 

* Encore Bancshares, Inc. 58,509 644 

* FCStone Group, Inc. 7,825 35 

GFI Group, Inc. 11,625 41 


Group, Inc. 114,450 2,600 

* KBW, Inc. 81,342 1,871 

MFA Mortgage 

Investments, Inc. 698,150 4,112 

optionsXpress Holdings, 

Inc. 3,075 41 

* Portfolio Recovery 


Total 16,219 


* Affymetrix, Inc. 14,150 42 


Shares/ 

$ Par 

Value 

$ (000's) 


* Alkermes, Inc. 3,900 42 

* athenahealth, Inc. 95,200 3,582 

* BioMarin 

Pharmaceutical, Inc. 222,200 3,955 

* CardioNet, Inc. 96,200 2,371 

* Genoptix, Inc. 136,589 4,655 

* Illumina, Inc. 180,000 4,689 

* IPC The Hospitalist Co. 70,700 1,190 

* K-V Pharmaceutical Co. 

- Class A 7,200 21 

* Masimo Corp. 207,282 6,183 

Meridian Bioscience, 

Inc. 164,739 4,196 

* NuVasive, Inc. 74,816 2,592 

* PAREXEL International 

Corp. 4,325 42 

* Phase Forward, Inc. 199,218 2,494 

* Psychiatric Solutions, 

Inc. 168,644 4,697 

* Thoratec Corp. 107,245 3,484 

* United Therapeutics 

Corp. 13,450 841 

Total 45,076 


* AAR Corp. 2,250 41 

Actuant Corp. 2,375 45 


* Aerovironment, Inc. 57,300 2,109 

* Allegiant Travel Co. 28,000 1,360 

* Astec Industries, Inc. 38,550 1,208 

* Astronics Corp. 205,652 1,830 

* Axsys Technologies, Inc. 27,733 1,521 

Belden, Inc. 1,975 41 

Bucyrus International, 

Inc. 70,963 1,314 

* Chart Industries, Inc. 3,350 36 

* Cornell Cos., Inc. 240,800 4,477 


America 229,548 3,755 


Eagle Bulk Shipping, 

Inc. 5,100 35 

* EMCOR Group, Inc. 1,850 42 

* Energy Recovery, Inc. 79,201 600 

* EnerSys 3,775 42 

* Flow International Corp. 18,900 46 

* Force Protection, Inc. 7,725 46 

Genco Shipping & 

Trading, Ltd. 2,550 38 

* GrafTech International, 

Ltd. 5,025 42 

* Hawaiian Holdings, Inc. 7,475 48 


* Hexcel Corp. 4,675 35 





Shares/ 

$ Par 

Value 

$ (000's) 


* Hill International, Inc. 105,200 741 

* Hub Group, Inc. - Class 

A 122,400 3,247 

* Huron Consulting 

Group, Inc. 71,350 4,086 

* ICF International, Inc. 133,300 3,275 

Kaydon Corp. 49,459 1,699 

Knight Transportation, 

Inc. 334,628 5,394 

Knoll, Inc. 4,250 38 

* Korn/Ferry International 3,275 37 

* Perini Corp. 1,750 41 

* Stanley, Inc. 119,700 4,336 

* TBS International, Ltd. - 

Class A 4,125 41 

* Team, Inc. 240,077 6,650 

* Titan Machinery, Inc. 203,200 2,857 

* TransDigm Group, Inc. 90,800 3,048 

Total 54,314 


* Advanced Energy 

Industries, Inc. 244,417 2,432 


* Atheros 


* Bankrate, Inc. 117,083 4,449 

* Blackboard, Inc. 50,631 1,328 

* comScore, Inc. 134,989 1,721 

* Comtech 

Telecommunications 

Corp. 30,250 1,386 

* Concur Technologies, 

Inc. 86,400 2,836 

* CyberSource Corp. 140,900 1,689 

* DG Fastchannel, Inc. 209,550 2,615 

* Diodes, Inc. 300,675 1,822 

* EarthLink, Inc. 5,800 39 

* F5 Networks, Inc. 130,250 2,977 

* Harmonic, Inc. 6,550 37 

* Infinera Corp. 4,375 39 

* j2 Global 


* Mellanox Technologies, 

Ltd. 216,901 1,705 

* Netlogic Microsystems, 

Inc. 174,703 3,845 

* NeuStar, Inc. - Class A 193,350 3,699 

* Novatel Wireless, Inc. 9,475 44 

* Omniture, Inc. 296,169 3,151 

* OmniVision 

Technologies, Inc. 7,700 40 

* PMC-Sierra, Inc. 8,225 40 

* Rubicon Technology, 

Inc. 128,300 547 

* Sigma Designs, Inc. 3,850 37 

* Skyworks Solutions, Inc. 7,100 39 


Shares/ 

$ Par 

Value 

$ (000's) 


* Switch and Data 

Facilities Co., Inc. 367,463 2,716 

* Synchronoss 

Technologies, Inc. 337,656 3,599 

* Take-Two Interactive 

Software, Inc. 4,550 34 

* TeleTech Holdings, Inc. 4,350 36 

* TiVo, Inc. 5,725 41 

* TriQuint Semiconductor, 

Inc. 895,850 3,082 

* VanceInfo Technologies, 

Inc., ADR 646,095 3,069 

* VistaPrint, Ltd. 188,436 3,507 

* Vocus, Inc. 120,350 2,192 

Total 57,921 


* Apex Silver Mines, Ltd. 28,425 28 

* Calgon Carbon Corp. 229,450 3,524 

* Flotek Industries, Inc. 16,675 42 

Silgan Holdings, Inc. 80,779 3,862 

* W.R. Grace & Co. 6,675 40 

Worthington Industries, 

Inc. 3,125 35 

Total 7,531 



SPDR Fund 209,400 2,643 

iShares Nasdaq 

Biotechnology Index 

Fund 45,550 3,236 

SPDR Metals & Mining 

ETF 40,709 1,131 

Total 7,010 


* Centennial 

Communications Corp. 314,611 2,536 

Total 2,536 


ITC Holdings Corp. 132,250 5,777 

Total 5,777 


(Cost: $333,444) 260,718 



(k) Textron, Inc., 

6.25%, 1/12/09 10,000,000 9,981 

Total 9,981 

Energy (1.8%) 

(b) Sempra Global, 

1.50%, 1/7/09 5,000,000 4,999 

Total 4,999 

Short-Term 


Shares/ 

$ Par 

Value 

$ (000's) 


(b)Federal National 


0.20%, 3/30/09 1,500,000 1,499 

Total 1,499 



0.30%, 1/6/09 4,700,000 4,700 

Total 4,700 


(Cost: $21,179) 21,179 


(Cost: $354,623)(a) 281,897 



Net Assets (100.0%) 284,621 


Small Cap Growth Stock Portfolio 53




(a) 

(b) 



depreciation. 



Unrealized 

Appreciation/ 

Number of 




Russell 2000 Mini Index Future (Long) (Total Notional Value at December 31, 2008, $5,994) 125 3/09 $ 229 

(j) Swap agreements outstanding on December 31, 2008 

Total Return Swaps 

CounterParty 

JPMorgan Chase 

Reference 

Russell 2000 Growth 

Biotechnology Industry Index 

Payment Made by 

the Fund 

3 Month USD- 

LIBOR -120 Bps 

Payment Received by 

the Fund 


Biotechnology 

Industry Index Total 

Return 

Notional 

Amount 

(000's) 

Unrealized 

Appreciation/ 


(000's) 

Expiration 

Date 

12/09 6,600 $ 782 

(k) Securities with an aggregate value of $9,981 (in thousands) have been pledged as collateral for swap contracts outstanding on December 31, 2008 





The Portfolio’s investment objective is to 

achieve investment results that approximate 

the performance of the S&P SmallCap 600 ® 

Index’s performance. 

Invest in the stocks included in the S&P SmallCap 600 ® 

Index in approximately the same proportion as each 

stock’s weighting in the Index. 

$21 million 



that approximate the performance of the S&P SmallCap 600 ® Index. The Portfolio invests in a representative sample of stocks 

included in the S&P SmallCap 600 ® Index, and in total return swaps whose performance is related to the index. The Portfolio 

may also invest in exchange traded funds in an attempt to gain exposure to the market while awaiting the purchase of 

underlying securities. The Portfolio invests in stocks included in the S&P SmallCap 600 ® Index in proportion to their 

weightings in the Index, and may buy or sell securities after announced changes in the Index but before or after the effective 

date of the changes to attempt to achieve higher correlation with the Index. The Portfolio remains neutral relative to the 

benchmark in terms of economic sectors, market capitalization, and the growth and value styles of investing. The Portfolio 

will, to the extent feasible, remain fully invested. 






SmallCap 600 ® Stock Indices, respectively. 

Small-cap stocks did better after lagging stocks of large- and mid-sized companies in 2007. In part that was because the fallout 

from the credit crisis was concentrated in large-cap Financial shares, removing a big drag on small-cap performance. Indeed, 

in the small-cap space Financials were among the five sectors to manage returns better than those of the Index as a whole (– 

28% versus –31%). 

The other areas to hold up better than the Index were the traditionally defensive Utilities and Consumer Staples shares, which 

had returns of –7% and –14%, respectively. In addition, the more growth-oriented Industrial and Health Care sectors both 

managed returns of –28%. 

At the other end of the spectrum, the poorest performers were generally those stocks facing worries about the drag on earnings 

from the U.S. recession. In that environment, Materials, Energy, Consumer Discretionary and Information Technology shares 

fell 49%, 46%, 43% and 41%, respectively. Finally, Telecommunication Services also had a sizable negative return, down 

58%, though this represents the performance of only two stocks, which comprise a tiny fraction of the Index. 



ended December 31, 2008, the Index 600 Stock Portfolio returned –31.30%, while the S&P SmallCap 600 ® Index returned – 

31.07%. (This Index is unmanaged, cannot be invested in directly and does not include administrative expenses or sales 

charges.) Portfolio performance slightly lagged the S&P SmallCap 600 ® Index due to transaction costs, administrative 

expenses, cash flow effects and the costs associated with the use of exchange traded funds and other derivative instruments 

used to achieve full replication. The average return for the Portfolio’s peer group, Small-Cap Core Funds, was –35.54% for the 

same period, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. However, the Small- 

Cap Core Funds peer group is not strictly comparable to the Index 600 Stock Portfolio because many of the portfolios in the 

group are actively managed. 

Outlook 










$10,000 

9,000 

8,000 

7,000 


6,000 

4/07 12/07 12/08 


S&P SmallCap 600 Index 



1 Year 

Since 

Inception* 


S&P SmallCap 600 Index 

-31.30% 

-31.07% 

-22.97% 

-22.59% 


(VIP) Small Cap Core Funds 

Average -35.54% –% 










www.nmfn.com. 











“Standard & Poor’s ® ”, “S&P ® ”, S&P SmallCap 600 and 

Standard & Poor’s SmallCap 600 are trademarks of The 

McGraw-Hill Companies, Inc. and have been licensed for 

use by The Northwestern Mutual Life Insurance 

Company. The Portfolio is not sponsored, endorsed, sold 

or promoted by Standard & Poor’s, and Standard & 

Poor’s makes no representation regarding the 

advisability of investing in the Portfolio. 









The Portfolio may use derivative instruments for hedging 

purposes as part of its investment strategy. Use of these 

instruments may involve certain costs and risks such as 

liquidity risk, interest rate risk, market risk, credit risk, 

management risk and the risk that the Portfolio could 

not close out a position when it would be most 

advantageous to do so. Portfolios investing in 

derivatives could lose more than the principal amount 

invested in those instruments. 




iShares S&P SmallCap 600 Index Fund 3.6% 

Piedmont Natural Gas Co., Inc. 0.6% 

Itron, Inc. 0.5% 

Atmos Energy Corp. 0.5% 

Watson Wyatt Worldwide, Inc. - Class A 0.5% 

Senior Housing Properties Trust 0.5% 

Landstar System, Inc. 0.5% 

Immucor, Inc. 0.5% 

ProAssurance Corp. 0.4% 

CLARCOR, Inc. 0.4% 

Energy 

4% 


4% 

Utilities 

5% 

Consumer 

Discretionary 

13% 

Health Care 

13% 


Materials 

4% 


4% 



change. 

Financials 

20% 

Industrials 

18% 

Information 

Technology 

15% 







Shares/ 

$ Par 


Value 

$ (000's) 

* 4Kids Entertainment, Inc. 589 1 

A.H. Belo Corp. - Class A 876 2 

Aaron Rents, Inc. 2,781 74 

Arbitron, Inc. 1,384 18 

Arctic Cat, Inc. 622 3 

* Audiovox Corp. - Class A 966 5 

Bassett Furniture 

Industries, Inc. 607 2 

Big 5 Sporting Goods 

Corp. 1,124 6 

* Blue Nile, Inc. 760 19 

Brown Shoe Co., Inc. 2,208 19 

Brunswick Corp. 4,569 19 

The Buckle, Inc. 1,222 27 

* Buffalo Wild Wings, Inc. 930 24 

* Cabela's, Inc. 2,047 12 

* California Pizza Kitchen, 

Inc. 1,280 14 

* Capella Education Co. 739 43 

* Carter's, Inc. 2,929 56 

The Cato Corp. - Class A 1,542 23 

* CEC Entertainment, Inc. 1,181 29 

* Champion Enterprises, Inc. 4,058 2 

* Charlotte Russe Holding, 

Inc. 1,089 7 

* The Children's Place Retail 

Stores, Inc. 1,258 27 

Christopher & Banks 

Corp. 1,847 10 

CKE Restaurants, Inc. 2,735 24 

* Coinstar, Inc. 1,473 29 

Cracker Barrel Old 

Country Store, Inc. 1,155 24 

* Crocs, Inc. 4,321 5 

* Deckers Outdoor Corp. 681 54 

DineEquity, Inc. 803 9 

* The Dress Barn, Inc. 2,360 25 

* Drew Industries, Inc. 1,021 12 

The E.W. Scripps Co. - 

Class A 1,534 3 

Ethan Allen Interiors, Inc. 1,497 22 

The Finish Line, Inc. - 

Class A 2,861 16 

* Fossil, Inc. 2,365 40 

Fred's, Inc. - Class A 2,083 22 

* Genesco, Inc. 1,000 17 

Group 1 Automotive, Inc. 1,214 13 

* The Gymboree Corp. 1,513 39 

Haverty Furniture Cos., 

Inc. 967 9 

* Hibbett Sports, Inc. 1,485 23 

Hillenbrand, Inc. 3,256 54 

* Hot Topic, Inc. 2,283 21 

* HSN, Inc. 2,035 15 


Shares/ Value 

$ Par $ (000's) 


* Iconix Brand Group, Inc. 3,015 29 

* Interval Leisure Group, 

Inc. 2,035 11 

* Jack in the Box, Inc. 2,958 65 

* JAKKS Pacific, Inc. 1,431 30 

* Jo-Ann Stores, Inc. 1,324 21 

* Jos. A. Bank Clothiers, 

Inc. 948 25 

K-Swiss, Inc. - Class A 1,398 16 

Landry's Restaurants, Inc. 648 8 

La-Z-Boy, Inc. 2,706 6 

Lithia Motors, Inc. - 

Class A 857 3 

* Live Nation, Inc. 3,952 23 

Liz Claiborne, Inc. 4,940 13 

M/I Homes, Inc. 731 8 

* Maidenform Brands, Inc. 974 10 

The Marcus Corp. 1,100 18 

* MarineMax, Inc. 961 3 

The Men's Wearhouse, 

Inc. 2,693 36 

* Meritage Homes Corp. 1,601 19 

* Midas, Inc. 732 8 

* Monarch Casino & Resort, 

Inc. 597 7 

Movado Group, Inc. 937 9 

* Multimedia Games, Inc. 1,207 3 

National Presto Industries, 

Inc. 250 19 

* Nautilus, Inc. 1,202 3 

NutriSystem, Inc. 1,542 23 

O'Charley's, Inc. 1,110 2 

OfficeMax, Inc. 3,961 30 

Oxford Industries, Inc. 711 6 

* P.F. Chang's China Bistro, 

Inc. 1,240 26 

* Panera Bread Co. - 

Class A 1,589 83 

* Papa John's International, 

Inc. 1,129 21 

* Peet's Coffee & Tea, Inc. 623 14 

The Pep Boys - Manny, 

Moe & Jack 2,311 10 

* Perry Ellis International, 

Inc. 617 4 

* PetMed Express, Inc. 1,236 22 

* Pinnacle Entertainment, 

Inc. 3,128 24 

Polaris Industries, Inc. 1,694 49 

Pool Corp. 2,498 45 

* Pre-Paid Legal Services, 

Inc. 401 15 

* Quiksilver, Inc. 6,624 12 

* RC2 Corp. 897 10 


Shares/ Value 

$ Par $ (000's) 


* Red Robin Gourmet 

Burgers, Inc. 806 14 

Ruby Tuesday, Inc. 2,753 4 

* Russ Berrie and Co., Inc. 837 2 

* Ruth's Hospitality Group, 

Inc. 1,008 1 

* Shuffle Master, Inc. 2,897 14 

* Skechers U.S.A., Inc. - 

Class A 1,734 22 

Skyline Corp. 355 7 

Sonic Automotive, Inc. - 

Class A 1,463 6 

* Sonic Corp. 3,147 38 

Spartan Motors, Inc. 1,706 8 

Stage Stores, Inc. 2,018 17 

* Stamps.com, Inc. 742 7 

Standard Motor Products, 

Inc. 595 2 

* Standard Pacific Corp. 6,005 11 

* The Steak n Shake Co. 1,492 9 

Stein Mart, Inc. 1,263 1 

* Sturm, Ruger & Co., Inc. 1,015 6 

Superior Industries 


* Texas Roadhouse, Inc. - 

Class A 2,743 21 

*Ticketmaster 

Entertainment, Inc. 2,035 13 

* Tractor Supply Co. 1,672 60 

* True Religion Apparel, 

Inc. 954 12 

* Tuesday Morning Corp. 1,570 3 

* Tween Brands, Inc. 1,292 6 

UniFirst Corp. 746 22 

* Universal Electronics, Inc. 726 12 

* Universal Technical 

Institute, Inc. 1,125 19 

* Volcom, Inc. 826 9 

Winnebago Industries, Inc. 1,516 9 

* WMS Industries, Inc. 2,616 70 

Wolverine World Wide, 

Inc. 2,555 54 

* Zale Corp. 1,663 6 

* Zumiez, Inc. 1,043 8 

Total 2,213 


* Alliance One International, 

Inc. 4,636 14 

The Andersons, Inc. 944 15 

* The Boston Beer Co., Inc. 

- Class A 520 15 

Cal-Maine Foods, Inc. 656 19 

Casey's General Stores, 

Inc. 2,648 60 





Shares/ Value 

$ Par $ (000's) 


* Central Garden & Pet Co. - 

Class A 3,710 22 

* Chattem, Inc. 979 70 

* Darling International, Inc. 4,269 23 

Diamond Foods, Inc. 849 17 

* The Great Atlantic & 

Pacific Tea Co., Inc. 1,575 10 

* Green Mountain Coffee 

Roasters, Inc. 910 35 

* The Hain Celestial Group, 

Inc. 2,095 40 

J & J Snack Foods Corp. 741 27 

Lance, Inc. 1,642 38 

Mannatech, Inc. 814 2 

Nash Finch Co. 667 30 

Sanderson Farms, Inc. 910 31 

Spartan Stores, Inc. 1,152 27 

* TreeHouse Foods, Inc. 1,640 45 

* United Natural Foods, Inc. 2,236 40 

WD-40 Co. 858 24 

Total 604 

Energy (3.5%) 

* Atwood Oceanics, Inc. 2,906 44 

* Basic Energy Services, 

Inc. 1,207 16 

* Bristow Group, Inc. 1,517 41 

CARBO Ceramics, Inc. 1,065 38 

* Dril-Quip, Inc. 1,593 33 

Gulf Island Fabrication, 

Inc. 745 11 

Holly Corp. 2,125 39 

* Hornbeck Offshore 


* ION Geophysical Corp. 4,480 15 

Lufkin Industries, Inc. 776 27 

* Matrix Service Co. 1,359 10 

* NATCO Group, Inc. - 

Class A 1,053 16 

* Oil States International, 

Inc. 2,597 48 


* Petroleum Development 

Corp. 775 19 

* PetroQuest Energy, Inc. 2,263 15 

* Pioneer Drilling Co. 2,597 14 

* SEACOR Holdings, Inc. 1,087 72 

St. Mary Land & 

Exploration Co. 3,243 66 

* Stone Energy Corp. 1,802 20 

* Superior Well Services, 

Inc. 861 9 

* Swift Energy Co. 1,609 27 

* TETRA Technologies, Inc. 3,901 19 

World Fuel Services Corp. 1,526 56 

Total 732 


Acadia Realty Trust 1,687 24 


Shares/ Value 

$ Par $ (000's) 


American Physicians 

Capital, Inc. 351 17 

* Amerisafe, Inc. 956 20 

Anchor BanCorp 

Wisconsin, Inc. 941 3 

Bank Mutual Corp. 2,515 29 

BankAtlantic Bancorp, 

Inc. - Class A 409 2 

BioMed Realty Trust, Inc. 4,132 48 



Brookline Bancorp, Inc. 3,045 32 

Cascade Bancorp 1,464 10 

Cash America 


Cedar Shopping Centers, 

Inc. 2,320 16 

Central Pacific Financial 

Corp. 1,498 15 

Colonial Properties Trust 2,498 21 

Columbia Banking 

System, Inc. 947 11 

Community Bank System, 

Inc. 1,676 41 

Corus Bankshares, Inc. 1,625 2 

Delphi Financial Group, 

Inc. - Class A 2,152 40 

DiamondRock Hospitality 

Co. 4,808 24 

Dime Community 

Bancshares 1,373 18 

East West Bancorp, Inc. 3,310 53 

EastGroup Properties, Inc. 1,307 47 

Entertainment Properties 

Trust 1,714 51 

Extra Space Storage, Inc. 4,274 44 

Financial Federal Corp. 1,331 31 

First BanCorp 3,957 44 

* First Cash Financial 


First Commonwealth 

Financial Corp. 3,823 47 

First Financial Bancorp. 1,662 21 

First Financial Bankshares, 

Inc. 1,085 60 

First Midwest Bancorp, 

Inc. 2,534 51 

* Flagstar Bancorp, Inc. 3,053 2 

* Forestar Group, Inc. 1,861 18 

Franklin Street Properties 

Corp. 3,130 46 

Frontier Financial Corp. 2,452 11 

Glacier Bancorp, Inc. 3,103 59 

Greenhill & Co., Inc. 913 64 

* Guaranty Financial Group, 

Inc. 5,681 15 

Hancock Holding Co. 1,229 56 

Hanmi Financial Corp. 1,939 4 

Home BancShares, Inc. 692 19 

Home Properties, Inc. 1,665 68 


Shares/ Value 

$ Par $ (000's) 


Independent Bank Corp. 996 2 

Independent Bank 

Corp./Rockland Trust Co. 819 21 

Infinity Property & 

Casualty Corp. 747 35 

Inland Real Estate Corp. 3,001 39 


Group, Inc. 2,273 52 

* Irwin Financial Corp. 944 1 

Kilroy Realty Corp. 1,703 57 

Kite Realty Group Trust 1,769 10 

* LaBranche & Co., Inc. 2,813 14 

LaSalle Hotel Properties 2,110 23 

Lexington Realty Trust 3,453 17 

LTC Properties, Inc. 1,205 24 

Medical Properties Trust, 

Inc. 3,460 22 

Mid-America Apartment 

Communities, Inc. 1,434 53 

Nara Bancorp, Inc. 1,162 11 

National Financial Partners 

Corp. 2,071 6 

National Penn Bancshares, 

Inc. 4,155 60 

National Retail Properties, 

Inc. 4,088 70 

* The Navigators Group, 

Inc. 692 38 

Old National Bancorp 3,452 63 

optionsXpress Holdings, 

Inc. 2,224 30 

Parkway Properties, Inc. 798 14 

Pennsylvania Real Estate 

Investment Trust 2,075 15 

* Piper Jaffray Cos., Inc. 823 33 

* Portfolio Recovery 

Associates, Inc. 801 27 

Post Properties, Inc. 2,302 38 

Presidential Life Corp. 1,126 11 

PrivateBancorp, Inc. 1,426 46 

* ProAssurance Corp. 1,747 92 

Prosperity Bancshares, Inc. 2,138 63 

Provident Bankshares 

Corp. 1,730 17 

PS Business Parks, Inc. 778 35 

* Rewards Network, Inc. 1,408 4 

RLI Corp. 924 57 

S&T Bancorp, Inc. 1,223 43 

Safety Insurance Group, 

Inc. 850 32 

Selective Insurance Group, 

Inc. 2,748 63 

Senior Housing Properties 

Trust 5,972 107 

* Signature Bank 1,798 52 

The South Financial 

Group, Inc. 3,799 16 

Sovran Self Storage, Inc. 1,145 41 

Sterling Bancorp 938 13 

Sterling Bancshares, Inc. 3,817 23 





Shares/ Value 

$ Par $ (000's) 


Sterling Financial Corp. 2,716 24 

Stewart Information 

Services Corp. 946 22 

* Stifel Financial Corp. 1,309 60 

Susquehanna Bancshares, 

Inc. 4,488 71 

SWS Group, Inc. 1,431 27 

Tanger Factory Outlet 

Centers, Inc. 1,649 62 

Tompkins Financial Corp. 348 20 

Tower Group, Inc. 1,058 30 

* TradeStation Group, Inc. 1,678 11 

TrustCo Bank Corp. NY 3,956 38 

UCBH Holdings, Inc. 5,762 40 

UMB Financial Corp. 1,537 76 

Umpqua Holdings Corp. 3,134 45 

United Bankshares, Inc. 1,964 65 

United Community Banks, 

Inc. 2,120 29 

United Fire & Casualty 

Co. 1,174 37 

Urstadt Biddle Properties, 

Inc. 1,111 18 

Whitney Holding Corp. 3,511 56 

Wilshire Bancorp, Inc. 1,012 9 

Wintrust Financial Corp. 1,233 25 

* World Acceptance Corp. 854 17 

Zenith National Insurance 

Corp. 1,943 61 

Total 3,608 


* Abaxis, Inc. 1,136 18 

* Air Methods Corp. 561 9 

* Amedisys, Inc. 1,398 58 

* American Medical 

Systems Holdings, Inc. 3,811 34 

* AMERIGROUP Corp. 2,767 82 

* AMN Healthcare Services, 

Inc. 1,760 15 

* AmSurg Corp. 1,650 39 

Analogic Corp. 699 19 

* ArQule, Inc. 1,470 6 

* ArthroCare Corp. 1,389 7 

* Cambrex Corp. 1,521 7 

* Catalyst Health Solutions, 

Inc. 1,984 48 

* Centene Corp. 2,255 44 

Chemed Corp. 1,195 48 

* CONMED Corp. 1,500 36 

The Cooper Cos., Inc. 2,347 38 

* CorVel Corp. 424 9 

* Cross Country Healthcare, 

Inc. 1,600 14 

* CryoLife, Inc. 1,461 14 

* Cubist Pharmaceuticals, 

Inc. 2,951 71 

* Cyberonics, Inc. 1,212 20 

Datascope Corp. 682 36 

* Dionex Corp. 944 42 


Shares/ Value 

$ Par $ (000's) 


* Eclipsys Corp. 2,836 40 

* Enzo Biochem, Inc. 1,688 8 

* Gentiva Health Services, 

Inc. 1,493 44 

* Greatbatch, Inc. 1,193 32 

* Haemonetics Corp. 1,325 75 

* Healthspring, Inc. 2,594 52 

* Healthways, Inc. 1,752 20 

* HMS Holdings Corp. 1,307 41 

* ICU Medical, Inc. 656 22 

* Immucor, Inc. 3,661 97 

* Integra LifeSciences 

Holdings 1,016 36 

Invacare Corp. 1,672 26 

* inVentiv Health, Inc. 1,732 20 

* Kendle International, Inc. 691 18 

* Kensey Nash Corp. 607 12 

Landauer, Inc. 485 36 

LCA-Vision, Inc. 967 4 

* LHC Group, Inc. 773 28 

* Magellan Health Services, 

Inc. 2,119 83 

* Martek Biosciences Corp. 1,727 52 

* MedCath Corp. 1,021 11 

Mentor Corp. 1,762 55 

Meridian Bioscience, Inc. 2,098 53 

* Merit Medical Systems, 

Inc. 1,454 26 

* Molina Healthcare, Inc. 745 13 

* MWI Veterinary Supply, 

Inc. 629 17 

* Natus Medical, Inc. 1,449 19 

* Noven Pharmaceuticals, 

Inc. 1,299 14 

* Odyssey HealthCare, Inc. 1,711 16 

* Omnicell, Inc. 1,620 20 

* Osteotech, Inc. 885 2 

Owens & Minor, Inc. 2,156 81 

* Palomar Medical 

Technologies, Inc. 941 11 

* Par Pharmaceutical Cos., 

Inc. 1,801 24 


Corp. 2,878 28 

* Pediatrix Medical Group, 

Inc. 2,378 75 

* PharMerica Corp. 1,587 25 

* Phase Forward, Inc. 2,232 28 

* PSS World Medical, Inc. 3,245 61 

* Regeneron 

Pharmaceuticals, Inc. 3,266 60 

* RehabCare Group, Inc. 941 14 

* Res-Care, Inc. 1,334 20 

* Salix Pharmaceuticals, 

Ltd. 2,506 22 

* Savient Pharmaceuticals, 

Inc. 2,465 14 

* SurModics, Inc. 792 20 

* Symmetry Medical, Inc. 1,867 15 

* Theragenics Corp. 1,653 2 


Shares/ Value 

$ Par $ (000's) 


* ViroPharma, Inc. 4,029 52 

West Pharmaceutical 


* Zoll Medical Corp. 1,097 21 

Total 2,343 


A.O. Smith Corp. 1,177 35 

* AAR Corp. 2,021 37 

ABM Industries, Inc. 2,305 44 

Actuant Corp. 2,581 49 


Administaff, Inc. 1,182 26 

Albany International Corp. 

- Class A 1,385 18 

Apogee Enterprises, Inc. 1,502 16 

Applied Industrial 


Applied Signal 

Technology, Inc. 665 12 

Arkansas Best Corp. 1,319 40 

* Astec Industries, Inc. 1,027 32 

* ATC Technology Corp. 1,096 16 

* Axsys Technologies, Inc. 479 26 

Baldor Electric Co. 2,410 43 

Barnes Group, Inc. 2,271 33 

Belden, Inc. 2,425 51 

Bowne & Co., Inc. 1,406 8 

Brady Corp. - Class A 2,809 67 

Briggs & Stratton Corp. 2,598 46 

* C&D Technologies, Inc. 1,342 4 

Cascade Corp. 442 13 

CDI Corp. 670 9 

* Ceradyne, Inc. 1,370 28 

CIRCOR International, 

Inc. 829 23 

CLARCOR, Inc. 2,647 88 

* Consolidated Graphics, 

Inc. 581 13 

Cubic Corp. 809 22 

Curtiss-Wright Corp. 2,342 78 

* EMCOR Group, Inc. 3,409 76 

* EnPro Industries, Inc. 1,044 22 

* Esterline Technologies 

Corp. 1,546 59 

Forward Air Corp. 1,508 37 

G & K Services, Inc. - 

Class A 986 20 

* Gardner Denver, Inc. 2,776 65 

* GenCorp, Inc. 2,536 9 

* The GEO Group, Inc. 2,665 48 

Gibraltar Industries, Inc. 1,406 17 

* Griffon Corp. 2,147 20 

Healthcare Services 

Group, Inc. 2,240 36 

Heartland Express, Inc. 2,909 46 

Heidrick & Struggles 

International, Inc. 859 18 

* Hub Group, Inc. - Class A 1,964 52 

* II-VI, Inc. 1,279 24 





Shares/ Value 

$ Par $ (000's) 


* Insituform Technologies, 

Inc. - Class A 1,457 29 

Interface, Inc. - Class A 2,942 14 

John Bean Technologies 

Corp. 1,437 12 

Kaman Corp. 1,324 24 

Kaydon Corp. 1,787 61 

* Kirby Corp. 2,819 77 

Knight Transportation, Inc. 3,039 49 

Landstar System, Inc. 2,762 106 

Lawson Products, Inc. 218 5 

Lennox International, Inc. 2,445 79 

Lindsay Corp. 633 20 

* Lydall, Inc. 868 5 

* Magnetek, Inc. 1,597 4 

* Mobile Mini, Inc. 1,818 26 

* Moog, Inc. - Class A 2,226 81 

Mueller Industries, Inc. 1,937 49 

* NCI Building Systems, 

Inc. 1,029 17 

* Old Dominion Freight 

Line, Inc. 1,439 41 

* On Assignment, Inc. 1,850 10 

* Orbital Sciences Corp. 3,058 60 

Quanex Building Products 

Corp. 1,964 18 

Regal-Beloit Corp. 1,680 64 

Robbins & Myers, Inc. 1,806 29 

* School Specialty, Inc. 833 16 

Simpson Manufacturing 

Co., Inc. 1,952 54 

SkyWest, Inc. 2,974 55 

* Spherion Corp. 2,754 6 

The Standard Register Co. 660 6 

Standex International 

Corp. 652 13 

* Sykes Enterprises, Inc. 1,742 33 

* Teledyne Technologies, 

Inc. 1,861 83 

* Tetra Tech, Inc. 3,101 75 

The Toro Co. 1,852 61 

Tredegar Corp. 1,001 18 

Triumph Group, Inc. 855 36 

* TrueBlue, Inc. 2,263 22 

* United Stationers, Inc. 1,220 41 

Universal Forest Products, 

Inc. 872 23 

Valmont Industries, Inc. 913 56 

Viad Corp. 1,094 27 

Vicor Corp. 1,022 7 

* Volt Information Sciences, 

Inc. 666 5 

Wabash National Corp. 1,603 7 

Watsco, Inc. 1,478 57 

Watson Wyatt Worldwide, 

Inc. - Class A 2,256 108 

Watts Water Technologies, 

Inc. - Class A 1,522 38 

Total 3,263 


Shares/ 

$ Par 


Value 

$ (000's) 

* Actel Corp. 1,344 16 

* Adaptec, Inc. 6,282 21 



Agilysys, Inc. 1,187 5 

* Anixter International, Inc. 1,558 47 

* Arris Group, Inc. 6,403 51 

* ATMI, Inc. 1,630 25 

* Avid Technology, Inc. 1,585 17 

* Axcelis Technologies, Inc. 5,374 3 

* Bankrate, Inc. 724 27 

Bel Fuse, Inc. - Class B 615 13 

* Benchmark Electronics, 

Inc. 3,469 44 

Black Box Corp. 914 24 

Blackbaud, Inc. 2,273 31 

* Blue Coat Systems, Inc. 2,032 17 

* Brightpoint, Inc. 2,682 12 

* Brooks Automation, Inc. 3,317 19 

* Cabot Microelectronics 

Corp. 1,213 32 

* CACI International, Inc. - 

Class A 1,579 71 

* Catapult Communications 

Corp. 450 3 

* Checkpoint Systems, Inc. 2,015 20 

* CIBER, Inc. 2,781 13 

Cognex Corp. 2,063 30 

Cohu, Inc. 1,211 15 

* Comtech 


Corp. 1,265 58 

* Concur Technologies, Inc. 2,241 73 

* CSG Systems 


CTS Corp. 1,758 10 

* CyberSource Corp. 3,624 43 

* Cymer, Inc. 1,546 34 

* Cypress Semiconductor 

Corp. 7,907 35 

Daktronics, Inc. 1,772 17 

* DealerTrack Holdings, Inc. 2,125 25 

* Digi International, Inc. 1,338 11 

* Diodes, Inc. 1,683 10 

* DSP Group, Inc. 1,447 12 

* Electro Scientific 


* EMS Technologies, Inc. 817 21 

* Epicor Software Corp. 3,107 15 

* EPIQ Systems, Inc. 1,852 31 

* Exar Corp. 2,228 15 

* FARO Technologies, Inc. 871 15 

* FEI Co. 1,917 36 

* Forrester Research, Inc. 806 23 

* Gerber Scientific, Inc. 1,244 6 

Gevity HR, Inc. 1,178 2 

* Harmonic, Inc. 4,943 28 

Heartland Payment 



Shares/ Value 

$ Par $ (000's) 


* Hittite Microwave Corp. 1,001 29 

* Hutchinson Technology, 

Inc. 1,196 4 

* Informatica Corp. 4,643 64 

InfoSpace, Inc. 1,802 14 

* Insight Enterprises, Inc. 2,376 16 

* Integral Systems, Inc. 893 11 

* Intermec, Inc. 2,549 34 

* Interwoven, Inc. 2,404 30 

* Intevac, Inc. 1,137 6 

* Itron, Inc. 1,789 114 

* j2 Global 

Communications, Inc. 2,285 46 

* JDA Software Group, Inc. 1,419 19 

Keithley Insturments, Inc. 714 3 

* The Knot, Inc. 1,490 12 

* Kopin Corp. 3,533 7 

* Kulicke and Soffa 


* Littelfuse, Inc. 1,131 19 

* LoJack Corp. 905 4 

* Manhattan Associates, Inc. 1,279 20 

MAXIMUS, Inc. 973 34 

* Mercury Computer 


Methode Electronics, Inc. 1,986 13 

Micrel, Inc. 2,573 19 

* MICROS Systems, Inc. 4,209 69 

* Microsemi Corp. 4,136 52 

* MKS Instruments, Inc. 2,566 38 

MTS Systems Corp. 885 24 

* NETGEAR, Inc. 1,848 21 

* Network Equipment 


* Newport Corp. 1,883 13 

* Novatel Wireless, Inc. 1,653 8 

Park Electrochemical 

Corp. 1,067 20 

PC-Tel, Inc. 1,001 7 

* Perficient, Inc. 1,678 8 

* Pericom Semiconductor 

Corp. 1,321 7 

* Phoenix Technologies, 

Ltd. 1,462 5 

* Plexus Corp. 2,047 35 

* Progress Software Corp. 2,147 41 

Quality Systems, Inc. 927 40 

* Radiant Systems, Inc. 1,436 5 

* RadiSys Corp. 1,179 6 

* Rogers Corp. 937 26 

* Rudolph Technologies, 

Inc. 1,598 6 

* ScanSource, Inc. 1,374 26 

* Skyworks Solutions, Inc. 8,603 48 

* Smith Micro Software, 

Inc. 1,452 8 

* Sonic Solutions 1,320 2 

* SPSS, Inc. 945 25 

* Standard Microsystems 

Corp. 1,161 19 





Shares/ Value 

$ Par $ (000's) 


* StarTek, Inc. 573 3 

* Stratasys, Inc. 1,096 12 

* Supertex, Inc. 670 16 

* Symmetricom, Inc. 2,344 9 

* Synaptics, Inc. 1,757 29 

* SYNNEX Corp. 969 11 


Software, Inc. 4,048 31 

* Taleo Corp. - Class A 1,597 12 

Technitrol, Inc. 2,138 7 

* Tekelec 3,434 46 

* THQ, Inc. 3,481 15 

* Tollgrade 

Communications, Inc. 693 3 

* TriQuint Semiconductor, 

Inc. 7,548 26 

* TTM Technologies, Inc. 2,233 12 

* Tyler Technologies, Inc. 1,535 18 

* Ultratech, Inc. 1,225 15 

United Online, Inc. 4,237 26 



Inc. 3,788 69 

* Veeco Instruments, Inc. 1,678 11 

* ViaSat, Inc. 1,410 34 

* Websense, Inc. 2,350 35 

* Wright Express Corp. 2,024 25 

Total 2,715 


A. Schulman, Inc. 1,380 23 

A.M. Castle & Co. 870 9 

AMCOL International 

Corp. 1,173 25 

Arch Chemicals, Inc. 1,297 34 

Balchem Corp. 948 24 

* Brush Engineered 


* Buckeye Technologies, 

Inc. 2,043 7 

* Calgon Carbon Corp. 2,820 43 

* Century Aluminum Co. 1,919 19 

* Clearwater Paper Corp. 572 5 

Deltic Timber Corp. 553 25 

Eagle Materials, Inc. 2,271 42 

Georgia Gulf Corp. 1,564 2 

H.B. Fuller Co. 2,526 41 

* Headwaters, Inc. 2,190 15 

Myers Industries, Inc. 1,470 12 

Neenah Paper, Inc. 761 7 

NewMarket Corp. 655 23 

Olympic Steel, Inc. 470 10 


Shares/ Value 

$ Par $ (000's) 


* OM Group, Inc. 1,589 34 

Penford Corp. 587 6 

* PolyOne Corp. 4,867 15 

Quaker Chemical Corp. 554 9 

Rock-Tenn Co. - Class A 1,991 68 

* RTI International Metals, 

Inc. 1,200 17 

Schweitzer-Mauduit 

International, Inc. 817 16 

Stepan Co. 371 17 

Texas Industries, Inc. 1,436 50 

Wausau Paper Corp. 2,545 29 

Zep, Inc. 1,092 21 

Total 661 


iShares S&P SmallCap 

600 Index Fund 17,434 767 

Total 767 


FairPoint 


* General Communication, 

Inc. - Class A 2,303 19 

Total 34 


ALLETE, Inc. 1,357 44 

American States Water Co. 900 30 

Atmos Energy Corp. 4,727 112 

Avista Corp. 2,790 54 

Central Vermont Public 

Service Corp. 602 14 

CH Energy Group, Inc. 823 42 

Cleco Corp. 3,129 72 

* El Paso Electric Co. 2,338 42 

The Laclede Group, Inc. 1,146 54 

New Jersey Resources 

Corp. 2,192 86 

Northwest Natural Gas Co. 1,379 61 

Piedmont Natural Gas Co., 

Inc. 3,822 121 

South Jersey Industries, 

Inc. 1,551 62 

Southwest Gas Corp. 2,271 57 

UIL Holdings Corp. 1,317 40 

Unisource Energy Corp. 1,851 54 

Total 945 


(Cost: $26,588) 17,885 


(3.3%) 

Shares/ 

$ Par 

Value 

$ (000's) 


(k)Federal Home Loan Bank, 

0.38%, 1/15/09 700,000 700 

Total 700 


(Cost: $700) 700 


(Cost: $27,288)(a) 18,585 



Net Assets (100.0%) 21,174 





(a) 



depreciation. 



CounterParty 

Reference 


the Fund 

JPMorgan Chase Bank S&P SmallCap 600 Index 1-Month USD 

LIBOR - 30 Basis 

Points 

Payment Received 

by the Fund 

S&P SmallCap 

600 Index Total 

Return 

Unrealized 

Appreciation/ 

Expiration Date 

Notional Amount 

(000's) 


(000's) 

5/09 3,336 $ 101 

(k) Securities with an aggregate value of $700 (in thousands) have been pledged as collateral for swap contracts outstanding on December 31, 2008 

62 Index 600 Stock Portfolio 





Invest primarily in small companies whose common $241 million 

stocks are believed to be undervalued. 


Mason Street Advisors, the investment adviser for the Small Cap Value Portfolio, has engaged T. Rowe Price Associates, Inc. 

to act as sub-adviser for the Portfolio. The Portfolio invests in the common stocks of companies that have market 

capitalizations in the range of the S&P SmallCap 600 ® Index and whose current stock prices do not appear to reflect their 

underlying value. 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 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. 







respectively. No sector in the market provided positive returns, while value-oriented shares held up better than growth stocks, 

as measured by the Russell style indices. 


For the twelve months ended December 31, 2008, the Small Cap Value Portfolio returned –28.13%. By comparison, the 

Russell 2000 Value Index returned –28.92%. (The Index is unmanaged, cannot be invested in directly and does not include 

administrative expenses or sales charges.) The Portfolio’s Small-Cap Value Funds peer group had an average return of 

–32.92%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 


the worst year for stocks since the Great Depression. However, the Portfolio outperformed the Russell 2000 Value Index for 

the twelve-month period. The Consumer Discretionary, Health Care and Industrials and Business Services sectors contributed 

the most to the Portfolio’s outperformance of the Index. Financials and Energy were the notable detractors. 

The Consumer Discretionary sector was by far the largest contributor to results versus the Index. Two companies stood out as 

top performers—Aaron Rents and Corinthian Colleges. Aaron Rents thrived despite economic weakness as consumers unable 

to buy goods on credit turned to renting big-ticket items like home furnishings. Corinthian Colleges, a post-secondary 

education provider, benefited from increased enrollment as rising unemployment prompted workers to return to school seeking 

to bolster their résumés. 

Results relative to the Index in Health Care and Industrials were more subdued but still significant sources of outperformance. 

In Health Care, the Portfolio benefited from our selection of holdings. Two biotechnology investments were top contributors— 

Myriad Genetics and Landauer. Myriad Genetics’ announcement that it would spin off its drug development business was 

viewed favorably by investors. Landauer, a provider of analytical services, was helped by an increase in international business. 

In Industrials, the Portfolio was aided by a significantly overweight position and stock selection. Beacon Roofing Supply, a 

distributor of roofing materials, and Genesee & Wyoming, an operator of regional freight railroads, were standout performers. 

An underweight position and stock selection in the Financials sector hampered results versus the Index. SVB Financial Group, 

a regional bank with little exposure to housing debt, had been holding up well but began to struggle as the credit crisis spread 

throughout the economy. Two other notable detractors were hotel real estate investment trusts (REITs) that faced challenges 

including a difficult real estate market, muted consumer spending, and investors’ diminished confidence in real estate values. 

By year-end, oil prices had dropped precipitously from the historic high reached during the summer and the Energy sector of 

the Index ended the year down nearly 50%. In such an environment, the Portfolio’s overweight position was unfavorable and 

detracted from relative performance. 

Outlook 

While remaining aware of the substantial challenges that exist for the financial system and the U.S. economy and the 

headwinds they have created for corporate profits, we are optimistic on two fronts. First, we believe the steep drop in stock 

prices has provided rare opportunities to invest in strong companies at value prices. Second, we feel confident that policy 

Small Cap Value Portfolio 63


actions taken by world governments will help avert worst-case scenarios for the global economy. We expect the U.S. economy 

to bottom out in the latter half of 2009 and proceed to expand in 2010. 


$25,000 

20,000 

15,000 

10,000 

5,000 

0 

7/01 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 




Landstar System, Inc. 2.2% 

Aaron Rents, Inc. 2.1% 

ProAssurance Corp. 2.0% 

Owens & Minor, Inc. 1.8% 

AptarGroup, Inc. 1.5% 

Matthews International Corp. - Class A 1.4% 

FTI Consulting, Inc. 1.4% 

Beacon Roofing Supply, Inc. 1.4% 

Genesee & Wyoming, Inc. - Class A 1.3% 

Penn Virginia Corp. 1.3% 






Since 

Inception* 



-28.13% 

-28.92% 

2.10% 

0.27% 

5.04% 

4.19% 


(VIP) Small Cap Value Funds 

Average -32.92% -0.21% – 










www.nmfn.com. 












3% 


4% 

Energy 

4% 

Utilities 

5% 

Health Care 

8% 

Materials 

9% 


10% 




1% 


1% 

Industrials 

24% 

Financials 

19% 

Consumer 

Discretionary 

12% 



change. 









64 Small Cap Value Portfolio






Shares/ 

$ Par 


Value 

$ (000's) 

Aaron Rents, Inc. 186,100 4,954 

Aaron Rents, Inc. - Class A 4,725 104 

* Ascent Media Corp. - 

Class A 34,650 757 

* Bed Bath & Beyond, Inc. 7,300 186 

Cablevision Systems Corp. 

- Class A 600 10 

* Career Education Corp. 22,100 396 

* CarMax, Inc. 3,700 29 

* Corinthian Colleges, Inc. 127,000 2,079 

* Cox Radio, Inc. - Class A 3,600 22 

CSS Industries, Inc. 55,400 983 

* Culp, Inc. 54,800 108 

* Discovery 


* DISH Network Corp. - 

Class A 15,300 170 

* Drew Industries, Inc. 102,900 1,235 

* Expedia, Inc. 9,200 76 

Family Dollar Stores, Inc. 3,700 96 


Fred's, Inc. - Class A 100,400 1,080 

The Gap, Inc. 34,800 466 



Haverty Furniture 


* Live Nation, Inc. 34,300 197 

M/I Homes, Inc. 60,000 632 

* MarineMax, Inc. 83,900 284 

Mattel, Inc. 33,600 538 

Matthews International 

Corp. - Class A 92,200 3,382 

The Men's Wearhouse, Inc. 81,500 1,103 

Meredith Corp. 20,900 358 

* Meritage Homes Corp. 99,000 1,205 

Orient-Express Hotels, Ltd. 

- Class A 129,400 991 

Pool Corp. 87,625 1,575 

* Saga Communications, Inc. 

- Class A 103,700 171 

Scholastic Corp. 18,600 253 

Scripps Networks 

Interactive - Class A 6,100 134 

Stanley Furniture Co., Inc. 75,200 596 

* The Steak n Shake Co. 83,400 496 

Stein Mart, Inc. 184,300 208 

Tiffany & Co. 1,600 38 


Class A 6,000 129 

The TJX Companies, Inc. 5,100 105 

* TRW Automotive Holdings 

Corp. 20,300 73 



Shares/ Value 

$ Par $ (000's) 


The Washington Post Co. - 

Class B 350 137 

Weight Watchers 


Winnebago Industries, Inc. 137,400 828 

Total 28,327 



* Alliance One International, 

Inc. 249,400 733 

Brown-Forman Corp. - 

Class B 2,000 103 

Casey's General Stores, Inc. 61,500 1,400 

Coca-Cola Enterprises, Inc. 38,000 457 

ConAgra Foods, Inc. 15,400 254 

The Hershey Co. 15,000 521 

Hormel Foods Corp. 1,200 37 

The J.M. Smucker Co. 2,800 122 


Nash Finch Co. 46,900 2,105 


Sysco Corp. 18,300 420 

Tootsie Roll Industries, Inc. 5,173 133 

* Winn-Dixie Stores, Inc. 16,100 259 

Total 7,081 

Energy (4.7%) 

* Atwood Oceanics, Inc. 32,800 501 

Baker Hughes, Inc. 6,900 221 


CARBO Ceramics, Inc. 34,300 1,219 


* Compton Petroleum Corp. 7,900 6 

* Forest Oil Corp. 56,650 934 

* GeoMet, Inc. 65,000 112 

* Hercules Offshore, Inc. 60,489 287 

* Mariner Energy, Inc. 65,793 671 

Murphy Oil Corp. 11,400 506 

Nexen, Inc. 27,400 482 

Penn Virginia Corp. 117,500 3,053 

Petro-Canada 12,800 280 

* TETRA Technologies, Inc. 170,200 827 

* Union Drilling, Inc. 32,600 169 

* Whiting Petroleum Corp. 44,700 1,496 

Total 11,364 


The Allstate Corp. 4,300 141 

Ares Capital Corp. 193,600 1,225 

Axis Capital Holdings, Ltd. 11,700 341 

Cedar Shopping Centers, 

Inc. 130,000 920 

Cincinnati Financial Corp. 13,800 401 


Shares/ Value 

$ Par $ (000's) 


Commerce Bancshares, Inc. 11,265 495 

Compass Diversified 

Holdings 91,300 1,027 

Discover Financial Services 39,700 378 

East West Bancorp, Inc. 133,942 2,139 

Employers Holdings, Inc. 45,100 744 

First American Corp. 7,700 222 

First Horizon National 

Corp. 3,835 41 


Group, Inc. 27,300 441 

First Potomac Realty Trust 101,800 947 

Glacier Bancorp, Inc. 112,000 2,130 

Hatteras Financial Corp. 67,000 1,782 

Hercules Technology 

Growth Capital, Inc. 132,200 1,047 

Home BancShares, Inc. 77,064 2,077 


JMP Group, Inc. 79,100 439 

Kilroy Realty Corp. 70,400 2,356 

Kohlberg Capital Corp. 142,950 520 

LaSalle Hotel Properties 81,000 895 


*Markel Corp. 5,100 1,525 


Companies, Inc. 14,800 359 

Max Capital Group, Ltd. 104,700 1,853 

Montpelier Re Holdings, 

Ltd. 9,600 161 

National Interstate Corp. 76,600 1,369 

Northern Trust Corp. 7,800 407 

OneBeacon Insurance 

Group, Ltd. 10,600 111 

Parkway Properties, Inc. 45,400 817 

*Piper Jaffray Companies, 

Inc. 30,600 1,217 

Potlatch Corp. 69,800 1,815 

*ProAssurance Corp. 92,200 4,866 


Prudential Financial, Inc. 2,700 82 

Redwood Trust, Inc. 57,600 859 

*Signature Bank 43,000 1,234 

*The St. Joe Co. 12,200 297 

*Stifel Financial Corp. 51,900 2,380 

Strategic Hotels & Resorts, 

Inc. 114,000 192 

*SVB Financial Group 84,200 2,209 

The Travelers Companies, 

Inc. 4,330 196 

Valley National Bancorp 10,277 208 

Washington Real Estate 

Investment Trust 61,500 1,740 

Westamerica 

Bancorporation 4,600 235 

The Accompanying Notes are an Integral Part of the Financial Statements 




Shares/ Value 

$ Par $ (000's) 


Willis Group Holdings, 

Ltd. 9,100 226 

Wilmington Trust Corp. 11,100 247 

Wintrust Financial Corp. 64,500 1,327 

Total 47,292 


Analogic Corp. 23,700 647 

* AngioDynamics, Inc. 59,700 817 

* Biogen Idec, Inc. 1,700 81 

* Boston Scientific Corp. 44,700 346 

CIGNA Corp. 10,300 174 

* Exelixis, Inc. 117,300 589 

HEALTHSOUTH Corp. 30,060 329 

Landauer, Inc. 28,100 2,060 

* Lincare Holdings, Inc. 13,400 361 

* Myriad Genetics, Inc. 41,100 2,723 

National Healthcare Corp. 48,600 2,461 

* OSI Pharmaceuticals, Inc. 1,500 59 

Owens & Minor, Inc. 112,100 4,221 

* Sepracor, Inc. 10,700 118 

* St. Jude Medical, Inc. 4,500 148 

* Triple-S Management 

Corp. - Class B 32,300 371 

* Universal American 

Financial Corp. 65,700 579 

* Valeant Pharmaceuticals 


* Waters Corp. 2,900 106 

West Pharmaceutical 

Services, Inc. 68,000 2,568 

* Zimmer Holdings, Inc. 3,500 141 

Total 18,977 


* Accuride Corp. 106,400 25 

* Alaska Air Group, Inc. 79,800 2,334 

Ameron International Corp. 34,100 2,146 

* Astec Industries, Inc. 33,800 1,059 

* Beacon Roofing Supply, 

Inc. 233,700 3,244 

Belden, Inc. 80,700 1,685 

* C&D Technologies, Inc. 93,000 291 

Cascade Corp. 38,400 1,147 

* Casella Waste Systems, 

Inc. - Class A 35,000 143 


CIRCOR International, Inc. 46,600 1,282 

Comfort Systems USA, Inc. 83,100 886 

* Dollar Thrifty Automotive 

Group, Inc. 87,400 95 

Dover Corp. 3,200 105 

Equifax, Inc. 4,700 125 

Franklin Electric Co., Inc. 21,100 593 

* FTI Consulting, Inc. 75,300 3,364 

G & K Services, Inc. - 

Class A 67,600 1,367 

* Genesee & Wyoming, Inc. - 

Class A 102,900 3,138 

Gibraltar Industries, Inc. 103,800 1,239 


Shares/ Value 

$ Par $ (000's) 


IDEX Corp. 98,800 2,386 

* Insituform Technologies, 

Inc. - Class A 122,900 2,420 

* Kirby Corp. 103,000 2,818 

* Kratos Defense & Security 

Solutions, Inc. 265,000 371 

Landstar System, Inc. 138,300 5,315 

Manpower, Inc. 10,100 343 

McGrath Rentcorp 122,000 2,606 

* MPS Group, Inc. 250,500 1,886 

* Navigant Consulting, Inc. 139,200 2,209 

Nordson Corp. 70,700 2,283 

Raytheon Co. 700 36 

Rockwell Collins, Inc. 900 35 


* Sterling Construction Co., 

Inc. 47,500 881 

Universal Forest Products, 

Inc. 56,300 1,515 

UTI Worldwide, Inc. 131,120 1,880 

* Waste Connections, Inc. 83,000 2,620 

Woodward Governor Co. 127,500 2,935 

Total 57,469 



Industries, Inc. 121,400 1,208 

ASML Holding NV 6,100 110 

* ATMI, Inc. 57,300 884 

Automatic Data Processing, 

Inc. 2,600 102 

AVX Corp. 28,100 223 

* Brooks Automation, Inc. 144,487 840 

* Cabot Microelectronics 

Corp. 27,600 720 

Electro Rent Corp. 139,200 1,554 

* Electronic Arts, Inc. 11,800 189 

* Exar Corp. 134,700 898 

* Fairchild Semiconductor 


* Formfactor, Inc. 75,000 1,095 

* GSI Group, Inc. 191,800 110 

* Ixia 153,000 884 

* Littelfuse, Inc. 58,400 969 


Molex, Inc. - Class A 25,500 330 


* Newport Corp. 76,200 517 

* Novellus Systems, Inc. 28,500 352 

* Palm, Inc. 204,000 626 

* Progress Software Corp. 102,500 1,974 

Seagate Technology 20,800 92 

* Sonus Networks, Inc. 407,100 643 

* SPSS, Inc. 75,925 2,047 

* StarTek, Inc. 107,800 480 

* Symyx Technologies, Inc. 99,500 591 

* SYNNEX Corp. 63,800 723 

* Synopsys, Inc. 4,200 78 

* Teradyne, Inc. 27,900 118 

Total System Services, Inc. 22,752 319 


Shares/ Value 

$ Par $ (000's) 


Tyco Electronics, Ltd. 16,400 266 

*Websense, Inc. 94,100 1,409 

*Wind River Systems, Inc. 241,800 2,184 

Xilinx, Inc. 3,500 62 

*Xyratex, Ltd. 84,100 248 

Total 23,439 


Airgas, Inc. 72,900 2,842 

Alcoa, Inc. 26,100 294 

AMCOL International 

Corp. 41,900 878 

American Vanguard Corp. 105,300 1,232 

AngloGold Ashanti, Ltd., 

ADR 9,100 252 

AptarGroup, Inc. 104,000 3,665 

Arch Chemicals, Inc. 76,000 1,981 

Carpenter Technology 

Corp. 67,000 1,376 

*Clearwater Paper Corp. 34,999 294 

Deltic Timber Corp. 46,700 2,136 

*Domtar Corp. 43,600 73 

Freeport-McMoRan Copper 

& Gold, Inc. 5,600 137 

Innospec, Inc. 108,300 638 


Fragrances, Inc. 6,100 181 


Myers Industries, Inc. 157,100 1,257 

Nalco Holding Co. 16,600 192 

Sims Group, Ltd., ADR 128,440 1,595 

Wausau Paper Corp. 150,000 1,716 


Total 21,250 


Central Fund of Canada, 

Ltd. - Class A 73,900 829 

First Opportunity Fund, 

Inc. 138,600 706 

iShares Russell 2000 Value 

Index 23,700 1,165 

Total 2,700 


*Premiere Global Services, 

Inc. 182,400 1,570 




Systems, Inc. - Special 

Shares 8,500 239 

Total 1,911 


Ameren Corp. 5,700 190 

Black Hills Corp. 70,667 1,905 

Cleco Corp. 96,800 2,210 

Constellation Energy 

Group, Inc. 200 5 


66 Small Cap Value Portfolio



Shares/ Value 

$ Par $ (000's) 


Duke Energy Corp. 9,500 143 

* Dynegy, Inc. - Class A 13,900 28 

* El Paso Electric Co. 93,400 1,690 

The Empire District 

Electric Co. 55,400 975 

* Mirant Corp. 30,800 581 




Corp. 14,700 472 

PNM Resources, Inc. 13,600 137 

Southwest Gas Corp. 64,600 1,629 


Vectren Corp. 44,100 1,103 

Total 11,794 


(Cost: $288,633) 231,604 


Federal Savings Institutions (0.6%) 

East West Bancorp, Inc., 

8.00%, 12/31/49 1,359 1,464 

Total 1,464 


(Cost: $1,348) 1,464 


(2.7%) 


Shares/ 

$ Par 

Value 

$ (000's) 

T. Rowe Price Reserve 

Investment Fund 6,437,646 6,438 

Total 6,438 


(Cost: $6,438) 6,438 


(Cost: $297,683)(a) 240,508 



Net Assets (100.0%) 240,817 


(a) 





thousands) was $297,931 and the net 

unrealized depreciation of investments based 

on that cost was $57,423 which is comprised 

of $25,216 aggregate gross unrealized 

appreciation and $82,639 aggregate gross 


Convertible Corporate Bonds (0.4%) 

Advertising Agencies (0.0%) 

Omnicom Group, Inc., 

0.00%, 2/7/31 82,000 81 

Total 81 


Prudential Financial, Inc., 

.366%, 12/15/37 213,000 201 

Total 201 


Allied Waste Industries, 

Inc., 4.25%, 4/15/34 161,000 144 

Total 144 


Newmont Mining Corp., 

1.625%, 7/15/17 298,000 317 

Total 317 

Telephone and Telegraph Apparatus (0.1%) 

Lucent Technologies, 

2.75%, 6/15/25 555,000 259 

Total 259 

Total Convertible Corporate 

Bonds 

(Cost: $1,264) 1,002 






Invest primarily in securities of issuers from countries $197 million 

outside the U.S. that have above-average growth potential. 


Mason Street Advisors acts as the investment adviser for the International Growth Portfolio. The Portfolio seeks long-term 

capital appreciation. The Portfolio seeks to achieve this objective by investing primarily in common stocks of companies that 

are headquartered or trade primarily in markets outside the United States and that are expected to grow more rapidly than 

market averages. The investments comprising the Portfolio are chosen individually, reflecting the managers’ assessment of 

their attractiveness. Equities purchased will possess, in the managers’ judgment, a combination of solid fundamentals, 

attractive valuation, and positive technical evaluation. The Portfolio can invest in any foreign country, developed or 

undeveloped, and its investments may include small, medium and large capitalization issues. 


Global financial markets endured a brutal 2008, which saw the failure of a number of leading financial institutions, credit 

markets freeze up, and governments around the world take a series of coordinated actions to support economic growth and the 

financial system itself. The crisis was a result of the sub-prime mortgage meltdown, which spread rapidly through the financial 

sector into virtually every segment of global financial markets. 

For the full year, the S&P Global ex-U.S. LargeMidCap Index tumbled -44.91%. There was little differentiation of return by 

growth or value styles. Looking at performance by sector, no segment had positive results. Financials performed worst, while 

the more traditionally defensive Health Care sector held up best. After a bumpy ride for much of the year, the dollar finished 

higher because of the turmoil, as investors sought a safe haven for their money. The exception was Japan, whose currency and 

stock market held up the best among the developed economies. 


For the twelve months ended December 31, 2008, the International Growth Portfolio returned –46.19%, while the S&P Global 

ex-U.S. LargeMidCap Index returned –44.91%. (The Index is unmanaged, cannot be invested in directly, and does not include 

administrative expenses or sales charges.) The average return for the Portfolio’s peer group, International Growth Funds, was 

–46.61%, according to Lipper Analytical Services, Inc., an independent mutual fund rating agency. 


the most trying year for investors in memory. In that environment, no sector contributed positively to results. Relative to the 

Index, our positioning and stock selection in Asia detracted, as did stock selection in Japan and Europe. The largest 

contribution came from positioning in the Financials and Materials sectors. 

At a regional level, our stock selection in Japan and developing Asian markets detracted most, led by exposure to Chinese 

media business Focus Media Holdings, the number two overall detractor for the year. Poor execution and acquisitions weighed 

on the stock, as did slumping advertising and licensing revenues. In Japan, a key detractor was Industrial firm Mitsubishi, 

which saw business slow along with the economy. 

In Europe, the main source of weakness was our positioning in the Health Care sector. We were overweight in the medical 

technology industry at the expense of being underweight pharmaceuticals. In particular, we were underrepresented in some of 

the big pharmaceutical companies such as GlaxoSmithKline, AstraZeneca and Sanofi-Aventis because we were concerned 

about generic competition, patent expiries and the quality of their new drug pipelines. But that positioning detracted in 2008, 

because many investors viewed these large, liquid, defensive-oriented names as safe-haven plays. 

However, Europe was also home to a number of the leading contributors to relative results, as stock selection worked best in 

Materials and Financials shares. In Materials, the key contribution came from agricultural chemical firms K+S and Syngenta. 

These companies benefited from the overarching trend toward rising global population and living standards, creating demand 

for fertilizers, seeds and other agricultural products needed to boost crop yield and quality. 

In Financials, the Portfolio benefited from stock selection and an underweight position in the poorest-performing sector in the 

benchmark. Among positive contributors, it helped to avoid Royal Bank of Scotland, which struggled with credit losses, and to 

hold a stake in Reinet Investments, a spin-off that we sold at a good valuation. 

Outlook 

We have a cautious outlook that revolves around three themes: vigilance, volatility and valuation. While we believe it will take 

time to work through the issues confronting the global economy, the markets often anticipate the turn. As a result, we will be 

vigilant for signs of any fundamental improvement. But until the economy bottoms and investor sentiment improves, we 

68 International Growth Portfolio


expect market volatility to continue. This argues for defensive positioning in the near term. Finally, one positive result of all 

the turmoil in the market is that we see high quality companies trading at valuations we believe are very compelling. We are 

using this opportunity to buy companies with strong brands, balance sheets and earnings power at discounted prices. 

$25,000 

20,000 

15,000 

10,000 

5,000 


0 

7/01 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 


S&P Global ex-US LargeMidCap Index** 




Since 

Inception* 

International Growth Portfolio -46.19% 1.10% 2.09% 

S&P Global ex-US LargeMidCap 

Index** -44.91% 3.03% 3.87% 


(VIP) International Growth Funds 

Average -46.61% 1.88% – 


** Prior to October 1, 2008, the S&P Global ex-US LargeMidCap 

Index was known as the S&P/Citigroup PMI Global ex-US Index. 









www.nmfn.com. 











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. 













Nestle SA 1.9% 

Roche Holding AG 1.7% 

Novartis AG 1.7% 

BP PLC 1.7% 

Royal Dutch Shell PLC - Class A 1.6% 

Telefonica SA 1.5% 

Teva Pharmaceutical Industries, Ltd., ADR 1.5% 

GDF Suez 1.4% 

Eni SPA 1.4% 

Zurich Financial Services AG 1.3% 


5% 

Utilities 

6% 

Materials 

7% 


Services 

8% 

Industrials 

8% 

Health Care 

9% 



4% 


3% 

Financials 

18% 

Short-Term 

Investments & 

Other Net 

Assets 

13% 

Consumer 

Staples 

10% 

Energy 

9% 



change. 

International Growth Portfolio 69







Shares/ 

$ Par 

Value 

$ (000's) 



Shares/ 

$ Par 

Value 

$ (000's) 


Bridgestone Corp. Japan 14,700 221 

* Compass Group PLC United Kingdom 263,970 1,330 

Denso Corp. Japan 15,300 254 

Fast Retailing Co., Ltd. Japan 800 117 

Grupo Televisa SA, ADR Mexico 93,730 1,400 

Hennes & Mauritz AB - B 

Shares Sweden 28,330 1,119 

Honda Motor Co., Ltd. Japan 23,300 505 

Kingfisher PLC United Kingdom 296,865 589 

Next PLC United Kingdom 26,010 413 

Oriental Land Co., Ltd. Japan 2,400 197 

Panasonic Corp. Japan 31,000 388 

Reed Elsevier PLC United Kingdom 39,380 291 

Sekisui House, Ltd. Japan 15,000 131 

Toyota Industries Corp. Japan 9,600 206 

Vivendi France 59,330 1,941 

Yamada Denki Co., Ltd. Japan 2,570 178 

Yamaha Motor Co., Ltd. Japan 18,400 193 

Total 9,473 


Aeon Co., Ltd. Japan 20,800 208 

Ajinomoto Co., Inc. Japan 16,000 174 

Asahi Breweries, Ltd. Japan 10,300 177 

British American Tobacco 

PLC United Kingdom 34,005 897 

Cadbury PLC United Kingdom 35,895 319 

Imperial Tobacco Group PLC United Kingdom 31,905 865 

ITC, Ltd. India 111,891 398 

Japan Tobacco, Inc. Japan 75 248 

Kao Corp. Japan 8,000 242 

Kerry Group PLC - Class A Ireland 41,801 766 

Kirin Holdings Co., Ltd. Japan 18,000 237 

Koninklijke Ahold NV Netherlands 53,555 662 

* KT&G Corp. South Korea 12,249 764 

Lawson, Inc. Japan 3,000 173 

Nestle SA Switzerland 93,785 3,686 

Pernod-Ricard SA France 12,824 956 

Reckitt Benckiser Group 

PLC United Kingdom 22,460 849 

Seven & I Holdings Co., Ltd. Japan 11,300 387 

Shiseido Co., Ltd. Japan 12,000 245 

Shoppers Drug Mart Corp. Canada 44,838 1,771 

Tesco PLC United Kingdom 153,395 811 

Unilever NV Netherlands 75,005 1,826 

UNY Co., Ltd. Japan 17,000 187 

Wal-Mart de Mexico SAB de 

CV Mexico 351,500 948 

Woolworths, Ltd. Australia 78,325 1,491 

Total 19,287 

Energy (9.6%) 

*Artumas Group, Inc. Canada 134,855 55 

BG Group PLC United Kingdom 23,405 330 

BP PLC United Kingdom 420,195 3,268 

CNOOC, Ltd. Hong Kong 1,328,000 1,262 

Eni SPA Italy 115,010 2,739 

INPEX Corp. Japan 28 221 

Nexen, Inc. Canada 102,335 1,804 

Oil Search, Ltd. Australia 227,640 759 

Petroleo Brasileiro SA, ADR Brazil 71,160 1,743 

Reliance Industries, Ltd. India 43,612 1,113 


Class A United Kingdom 114,910 3,049 

Saipem SPA Italy 73,425 1,239 

Seadrill, Ltd. Norway 33,400 274 

Suncor Energy, Inc. Canada 53,571 1,044 

Total 18,900 


Allianz SE Germany 6,607 712 

AXA SA France 35,626 798 

Banco Espirito Santo SA Portugal 75,945 717 

Banco Santander SA Spain 204,915 1,987 

The Bank of Yokohama, Ltd. Japan 30,000 177 

BNP Paribas France 32,768 1,390 

Cathay Financial Holding 

Co., Ltd. Taiwan 533,400 599 

Cheung Kong Holdings, Ltd. Hong Kong 48,000 458 

China Life Insurance Co., 

Ltd. China 247,000 761 

China Overseas Land & 

Investment, Ltd. Hong Kong 354,000 498 

(n),*China Overseas Land & 

Investment, Ltd. - Rights Hong Kong 14,160 5 

The Chugoku Bank, Ltd. Japan 10,000 154 

Credit Suisse Group AG Switzerland 32,005 875 

Daito Trust Construction Co., 

Ltd. Japan 1,800 94 

Erste Group Bank AG Austria 22,060 520 

Hang Seng Bank, Ltd. Hong Kong 59,800 790 

Housing Development 

Finance Corp., Ltd. India 42,385 1,325 

HSBC Holdings PLC, ADR United Kingdom 42,900 2,088 

Industrial & Commercial 

Bank of China, Ltd. - Class 

H China 2,593,000 1,378 

Intesa Sanpaolo SPA Italy 263,525 954 

Julius Baer Holding AG Switzerland 35,210 1,351 

Man Group PLC United Kingdom 89,530 314 

Manulife Financial Corp. Canada 70,040 1,193 

Mitsubishi Estate Co., Ltd. Japan 16,000 264 

Mitsubishi UFJ Financial 

Group, Inc. Japan 130,500 809 

Mitsui Fudosan Co., Ltd. Japan 14,000 232 

Mizuho Financial Group, Inc. Japan 166,000 494 






Shares/ 

$ Par 

Value 

$ (000's) 


Muenchener 

Rueckversicherungs- 

Gesellschaft AG Germany 3,999 631 

National Bank of Greece SA Greece 24,095 448 

Nomura Real Estate 

Holdings, Inc. Japan 7,600 152 

Piraeus Bank SA Greece 44,305 401 

QBE Insurance Group, Ltd. Australia 38,970 723 

Resona Holdings, Inc. Japan 9,400 149 

Samsung Fire & Marine 

Insurance Co., Ltd. South Korea 10,977 1,666 

Societe Generale France 11,260 573 

Sompo Japan Insurance, Inc. Japan 22,000 161 

Sony Financial Holdings, Inc. Japan 75 288 

Standard Chartered PLC United Kingdom 29,055 377 

Sumitomo Mitsui Financial 

Group, Inc. Japan 119 515 

The Sumitomo Trust & 

Banking Co., Ltd. Japan 34,000 201 

T&D Holdings, Inc. Japan 5,450 228 

TAG Tegernsee Immobilien 

und Beteiligungs AG Germany 65,873 186 

Tokio Marine Holdings, Inc. Japan 11,300 331 

The Toronto-Dominion Bank Canada 49,084 1,753 

* Turkiye Garanti Bankasi AS Turkey 209,371 358 

UniCredit SPA Italy 309,385 774 

Westpac Banking Corp. Australia 107,242 1,303 

Zurich Financial Services AG Switzerland 12,183 2,637 

Total 34,792 


* Actelion, Ltd. Switzerland 8,650 486 

Astellas Pharma, Inc. Japan 7,200 293 

CSL, Ltd. Australia 78,604 1,894 

Daiichi Sankyo Co., Ltd. Japan 11,900 283 

Eisai Co., Ltd. Japan 5,900 244 

Fresenius Medical Care AG 

& Co. KGaA Germany 29,502 1,390 

Hisamitsu Pharmaceutical 

Co., Inc. Japan 3,600 147 

Novartis AG Switzerland 67,675 3,381 

Novo Nordisk A/S Denmark 15,561 796 

Roche Holding AG Switzerland 22,275 3,419 

Synthes, Inc. United States 7,390 931 

Taisho Pharmaceutical Co., 

Ltd. Japan 7,000 149 

Takeda Pharmaceutical Co., 

Ltd. Japan 10,000 518 

Terumo Corp. Japan 3,100 145 


Industries, Ltd., ADR Israel 68,439 2,913 

Total 16,989 


ABB, Ltd., ADR Switzerland 69,570 1,044 

All Nippon Airways Co., Ltd. Japan 28,000 111 

Alstom SA France 20,090 1,192 

Asahi Glass Co., Ltd. Japan 38,000 216 

* BAE Systems PLC United Kingdom 387,045 2,141 



Shares/ 

$ Par 

Value 

$ (000's) 


Balfour Beatty PLC United Kingdom 73,490 355 

Central Japan Railway Co. Japan 29 250 

Chemring Group PLC United Kingdom 34,415 984 

China Railway Construction 

Corp. - Class H China 485,500 729 

ComfortDelGro Corp., Ltd. Singapore 347,000 353 

Companhia de Concessoes 

Rodoviarias Brazil 55,700 569 

Dai Nippon Printing Co., Ltd. Japan 17,000 187 

East Japan Railway Co. Japan 57 445 

Fanuc, Ltd. Japan 3,800 270 

IHI Corp. Japan 124,000 157 

Itochu Corp. Japan 42,000 211 

The Japan Steel Works, Ltd. Japan 10,000 139 

JTEKT Corp. Japan 28,300 218 

Kamigumi Co., Ltd. Japan 16,000 143 

Keio Corp. Japan 37,000 222 

Kintetsu Corp. Japan 52,000 239 

Komatsu, Ltd. Japan 22,700 287 

*LG Corp. South Korea 24,601 858 

Marubeni Corp. Japan 61,000 232 

Mitsubishi Corp. Japan 21,600 303 

Mitsubishi Electric Corp. Japan 38,000 238 

Mitsubishi Heavy Industries, 

Ltd. Japan 59,000 263 

Mitsui & Co., Ltd. Japan 31,000 317 

Mitsui OSK Lines, Ltd. Japan 31,000 190 

*Morphic Technologies AB Sweden 470,405 79 

Nippon Yusen Kabushiki 

Kaisha Japan 33,000 203 

Secom Co., Ltd. Japan 6,400 329 

Serco Group PLC United Kingdom 149,960 991 

SMC Corp. Japan 1,600 164 

Sumitomo Corp. Japan 21,700 191 

Tokyu Corp. Japan 39,000 196 

Toppan Printing Co., Ltd. Japan 20,000 154 

Vinci SA France 17,155 726 

West Japan Railway Co. Japan 47 214 

Yamato Holdings Co., Ltd. Japan 13,000 169 

Total 16,279 


*Autonomy Corp. PLC United Kingdom 145,300 2,030 

Canon, Inc. Japan 15,800 496 

EVS Broadcast Equipment 

SA Belgium 11,960 428 

Fujitsu, Ltd. Japan 51,000 246 

*Gresham Computing PLC United Kingdom 228,550 122 

Hitachi, Ltd. Japan 63,000 244 

Hoya Corp. Japan 16,500 286 

Kontron AG Germany 61,634 641 

NEC Corp. Japan 76,000 255 

Nintendo Co., Ltd. Japan 1,200 461 

Ricoh Co., Ltd. Japan 16,000 204 

Samsung Electronics Co., 

Ltd. South Korea 3,219 1,166 

*Temenos Group AG Switzerland 118,425 1,576 

Total 8,155 







Shares/ 

$ Par 

Value 

$ (000's) 

Angang Steel Co., Ltd. China 652,000 738 

Anglo American PLC United Kingdom 34,335 796 

* Anhui Conch Cement Co., 

Ltd. China 132,000 613 

Asahi Kasei Corp. Japan 62,000 272 

BHP Billiton, Ltd. Australia 73,660 1,583 


Doce, ADR Brazil 70,585 855 

Givaudan SA Switzerland 450 353 

Goldcorp, Inc. Canada 66,825 2,107 

Huabao International 

Holdings, Ltd. Hong Kong 1,085,000 713 

* Intex Resources ASA Norway 515,110 98 

JFE Holdings, Inc. Japan 9,100 240 

K+S AG Germany 25,316 1,461 

Mitsubishi Chemical 

Holdings Corp. Japan 40,500 179 

Mitsubishi Materials Corp. Japan 69,000 174 

Nippon Steel Corp. Japan 88,000 289 

POSCO South Korea 1,633 481 


Saskatchewan, Inc. Canada 20,215 1,480 

Rio Tinto PLC, ADR United Kingdom 4,370 389 

Shin-Etsu Chemical Co., Ltd. Japan 6,500 298 

Sumitomo Metal Industries, 

Ltd. Japan 69,000 170 

Syngenta AG Switzerland 7,482 1,445 

Total 14,734 


Hang Seng Investment Index 

Funds Series - H-Share 

Index Hong Kong 90,000 935 

iShares MSCI Hong Kong 

Index Fund Hong Kong 178,309 1,849 

iShares MSCI Japan Index 

Fund Japan 32,731 314 

iShares MSCI Singapore 

Index Fund Singapore 200,459 1,417 

iShares MSCI South Korea 

Index Fund South Korea 31,872 889 

iShares MSCI Taiwan Index 

Fund Taiwan 191,290 1,452 

Total 6,856 


* Bharti Airtel, Ltd. India 27,849 411 

China Mobile, Ltd. Hong Kong 40,500 411 

Chunghwa Telecom Co., Ltd. Taiwan 1,165,780 1,862 

Deutsche Telekom AG Germany 128,701 1,965 

France Telecom SA France 50,734 1,426 

KDDI Corp. Japan 41 292 

Koninklijke (Royal) KPN 

NV Netherlands 163,711 2,386 

Nippon Telegraph and 

Telephone Corp. Japan 7,600 408 

NTT DoCoMo, Inc. Japan 194 382 

SOFTBANK Corp. Japan 10,100 183 

Telefonica SA Spain 132,552 2,986 



Shares/ 

$ Par 

Value 

$ (000's) 


Turkcell Iletisim Hizmetleri 

AS Turkey 97,373 561 

Vodafone Group PLC United Kingdom 995,343 2,034 

Total 15,307 


Centrica PLC United Kingdom 156,490 610 

CEZ Czech Republic 12,275 504 

Chubu Electric Power Co., 

Inc. Japan 10,800 328 

The Chugoku Electric Power 

Co., Inc. Japan 8,300 218 

E.ON AG Germany 24,580 999 

Electricite de France France 12,180 711 

Enagas Spain 42,320 933 

GDF Suez France 55,189 2,747 

Hokuriku Electric Power Co. Japan 5,200 147 

The Kansai Electric Power 

Co., Inc. Japan 12,000 347 

Kyushu Electric Power Co., 

Inc. Japan 9,200 245 

National Grid PLC United Kingdom 94,825 951 

Osaka Gas Co., Ltd. Japan 49,000 226 

PT Perusahaan Gas Negara Indonesia 2,606,500 471 

RWE AG Germany 12,630 1,141 

Shikoku Electric Power Co., 

Inc. Japan 6,100 206 

Toho Gas Co., Ltd. Japan 25,000 165 

Tohoku Electric Power Co., 

Inc. Japan 9,300 252 

The Tokyo Electric Power 

Co., Inc. Japan 15,700 524 

Tokyo Gas Co., Ltd. Japan 43,000 218 

Total 11,943 

Total Foreign Common Stocks (Cost: $243,469) 172,715 



(k)Kitty Hawk Funding Corp., 

0.28%, 1/5/09 United States 2,000,000 2,000 

Total 2,000 



0.10%, 1/20/09 United States 2,000,000 2,000 


0.10%, 2/13/09 United States 1,500,000 1,500 


0.28%, 1/16/09 United States 2,000,000 2,000 


0.36%, 1/15/09 United States 2,100,000 2,099 

Total 7,599 


Alpine Securitization Corp., 

1.09%, 1/8/09 United States 2,000,000 2,000 






Shares/ 

$ Par 

Value 

$ (000's) 

Finance Services continued 

Bryant Park Funding LLC, 

1.02%, 1/9/09 United States 2,000,000 1,999 

Gemini Securitization Corp. 

LLC, 1.27%, 1/8/09 United States 1,500,000 1,500 

Total 5,499 



1.29%, 1/7/09 United States 2,000,000 1,999 

Total 1,999 

Short Term Business Credit (1.0%) 

Liberty Street Funding LLC, 

0.55%, 1/12/09 United States 2,000,000 2,000 

Total 2,000 


(Cost: $19,097) 19,097 


(Cost: $262,566)(a) 191,812 



Net Assets (100.0%) 197,383 



(a) 



depreciation. 

Investments Percentage by Country is based on Net Assets: 

United Kingdom 13.8% 

Japan 12.9% 

Switzerland 10.3% 

United States 10.1% 

France 6.3% 

Canada 5.7% 

Other 40.9% 

Total 100.0% 



CounterParty 


Reference 

Morgan Stanley Capital International 

(MSCI) Daily Net Japan 


the Fund 

3 Month USD- 

LIBOR + 15 Basis 

Points 


by the Fund 

MSCI Daily Net 

Japan Total 

Return 

Unrealized 

Expiration Date 

Notional 

Amount 

(000's) 

Appreciation/ 


(000's) 

3/09 10,159 $ 316 


(l) 

(n) 

As of December 31, 2008, portfolio securities with an aggregate value of $143,688 (in thousands) were fair valued under procedures adopted by the Board 

of Directors. 

At December 31, 2008 portfolio securities with a aggregate value of $5 (in thousands) were valued with reference to securities whose values are more 

readily available. 





Capital appreciation. 

Invest primarily in foreign equity securities of growth $33 million 

and value companies, including emerging market securities. 


Mason Street Advisors, the investment adviser for the Research International Core Portfolio, has engaged Massachusetts 

Financial Services Company to act as sub-adviser for the Portfolio. The objective of the Portfolio is to achieve capital 

appreciation. The Portfolio seeks to accomplish this by primarily investing in foreign equity securities, including emerging 

market equity securities. The Portfolio may invest in stocks of companies it believes to have above average earnings growth 

potential compared to other companies (growth companies), in the stocks of companies it believes are undervalued compared 

to their perceived worth (value companies), or in a combination of growth and value companies. The Portfolio also may invest 

in companies of any size. A “bottom-up” investment approach is used in buying and selling investments for the Portfolio. 

Investments are selected primarily based on fundamental analysis of issuers and their potential in light of their current 

financial condition and industry position, as well as market, economic, potential and regulatory conditions. Factors considered 

may include analysis of earnings, cash flows, competitive position and management ability. Quantitative analysis of these and 

other factors also may be considered. The Portfolio is generally managed to be sector neutral versus the MSCI EAFE Index. 



markets freeze up and world governments take a series of coordinated actions to support economic growth and the financial 

system itself. The crisis was a result of the sub-prime mortgage meltdown, which spread rapidly through the U.S. financial 

sector into virtually every segment of global financial markets. 

This contagion put to rest the notion of “de-coupling” of international economies and markets from the U.S. Rather, global 

growth slowed sharply and virtually all markets suffered greatly. For the full year, the MSCI EAFE Index—a measure of 

large-cap stock performance in the developed economies of Europe, Australasia and the Far East—returned –43.06%. There 

was little differentiation of return by growth or value styles. Looking at performance by sector, no segment had positive 

results. Financials performed worst, while the more traditionally defensive Health Care sector held up best. After a bumpy ride 

for much of the year, the dollar finished higher because of the turmoil, as investors sought a safe haven for their money. The 

exception was Japan, whose currency and stock market held up the best among the developed economies. 


For the twelve months ended December 31, 2008, the Research International Portfolio provided a total return of -42.54%. By 

comparison, the MSCI EAFE Index returned –43.06%. (This Index is unmanaged, cannot be invested in directly and does not 

include administrative expenses or sales charges.) The average return for the Portfolio’s peer group, International Core Funds 

was –42.59%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 

On an absolute basis, no sector contributed positively to Portfolio results. Shares in the Financial sector detracted most, while 

shares in the Health Care sector held up best. Relative to the MSCI EAFE Index, stock selection in the Capital Goods sector 

was a primary factor contributing to performance. The Portfolio’s holdings of parcel delivery service company Yamato 

Holding and railway operator East Japan Railway were among the top relative contributors. An additional positive factor was 

our underweight position to Rio Tinto during the period. 

Stocks in other sectors that helped relative performance included pharmaceutical companies Roche Holding, Astellas Pharma 

and Actelion. Our underweight position in Royal Bank of Scotland, in addition to positions in fashion distributor Inditex and 

telecommunications company KDDI, also boosted results. 

The Portfolio’s cash position also was a contributor to relative performance. The Portfolio holds cash in anticipation of buying 

new holdings and to provide liquidity. In a period when equity markets declined, holding cash helped performance versus the 

benchmark, which has no cash position. 

Stock selection in the Financials sector hurt relative performance over the reporting period. Banking firms Anglo Irish Bank, 

Barclays, Bank of Cyprus and BNP Paribas were among the top relative detractors. The Portfolio’s positioning in banking and 

financial services firms Erste Group Bank, Intesa Sanpaolo and BOC Hong Kong Holdings also held back relative returns. 

Stock selection in the Energy sector had a negative impact on relative returns. In particular, not owning integrated oil company 

BP hurt performance relative to the benchmark. Information technology services provider Satyam Computer Services 

hampered relative returns. In addition, not owning automobile manufacturer Volkswagen also had a negative effect on relative 

performance. 

74 Research International Core Portfolio


Outlook 

The Research International Core Portfolio is a sector-neutral portfolio that emphasizes bottom-up fundamental research. 

Therefore, our sector allocation is strictly a by-product of where our analysts are finding their best ideas at a given time. 

Regardless of changing economic and market conditions, the strategy followed by the managers of the Research International 

Portfolio is to continue to seek the most attractive opportunities among growth and value companies without regard to market 

capitalization. As of December 31, 2008, the Portfolio had a modest overweight in Information Technology and Capital Goods 

shares, while being modestly underweight the Financials and Energy sectors relative to the benchmark. 









standards. 

Investments in the securities of companies in 

developing nations impose risks different from, and 

greater than, risks of investing in developed countries. 



1 Year 

Since 

Inception* 


MSCI EAFE Index (Gross) 

-42.54% 

-43.06% 

-25.88% 

-27.46% 

MSCI All Country World (ex-US) Index 

(Gross) -45.24% -27.01% 


(VIP) International Core Funds 

Average -42.59% – 










www.nmfn.com. 














Roche Holding AG 3.2% 


E.ON AG 2.6% 

Total SA 2.4% 

Royal Dutch Shell PLC - Class A 2.3% 

Vodafone Group PLC 2.2% 

Intesa Sanpaolo SPA 2.1% 

Akzo Nobel NV 2.0% 

AXA SA 1.9% 

Siemens AG 1.8% 


Short-Term Investments & Other Net Assets 

2% 

Utilities 

5% 


Services 

7% 

Materials 

7% 

Information 

Technology 

7% 

Consumer 

Discretionary 

8% 


8% 



change. 

Financials 

22% 

Industrials 

13% 

Energy 

11% 

Health Care 

10% 

Research International Core Portfolio 75








Shares/ 

$ Par 

Value 

$ (000's) 


Compagnie Generale des 

Etablissements Michelin - 

Class B France 2,530 133 

Esprit Holdings, Ltd. Hong Kong 27,500 157 

Grupo Televisa SA, ADR Mexico 19,050 285 

Industria de Diseno Textil SA Spain 10,330 459 

Kingfisher PLC United Kingdom 84,560 168 

Li & Fung, Ltd. Bermuda 108,000 186 

LVMH Moet Hennessy Louis 

Vuitton SA France 7,450 503 

Next PLC United Kingdom 2,990 47 

* Urbi Desarrollos Urbanos SAB 

de CV Mexico 42,190 58 

WPP PLC United Kingdom 87,310 517 

Total 2,681 


Beiersdorf AG Germany 3,010 180 

Groupe DANONE France 7,902 479 

Heineken NV Netherlands 8,370 258 

Hengan International Group Co., 

Ltd. Hong Kong 46,000 148 


Kimberly-Clark de Mexico SAB 




Unilever NV Netherlands 6,790 165 

Total 2,834 


Chevron Corp. United States 2,030 150 

CNOOC, Ltd. Hong Kong 121,000 115 

Eni SPA Italy 23,840 568 

Gazprom OAO, ADR Russia 6,580 94 


Marathon Oil Corp. United States 4,540 124 

* Paladin Energy, Ltd. Australia 53,821 96 

Petroleo Brasileiro SA, ADR Brazil 6,560 161 


Class A United Kingdom 29,450 781 

Saipem SPA Italy 6,770 114 

StatoilHydro ASA Norway 20,520 340 

Total SA France 14,820 812 

Tullow Oil PLC United Kingdom 12,517 122 

Total 3,738 


Aeon Credit Service Co., Ltd. Japan 26,100 276 




Shares/ 

$ Par 

Value 

$ (000's) 


Bank of Cyprus Public Co., Ltd. Cyprus 49,283 185 

Barclays PLC United Kingdom 118,224 271 

BNP Paribas France 11,120 472 

The Chiba Bank, Ltd. Japan 38,000 237 

China Construction Bank Corp. China 966,000 535 

Daiwa Securities Group, Inc. Japan 76,000 453 

Deutsche Boerse AG Germany 2,110 154 


HDFC Bank, Ltd., ADR India 2,630 188 


Oversea-Chinese Banking Corp., 

Ltd. Singapore 47,000 165 


The Shizuoka Bank, Ltd. Japan 20,000 231 

Standard Bank Group, Ltd. South Africa 24,173 215 

Standard Chartered PLC United Kingdom 28,387 368 



UBI Banca - Unione di Banche 

Italiane SCpA Italy 35,539 517 

*UBS AG Switzerland 20,073 290 

Unibanco - Uniao de Bancos 

Brasileiros SA, ADR Brazil 5,320 344 

United Overseas Bank, Ltd. Singapore 19,000 172 

Total 7,208 


*Actelion, Ltd. Switzerland 4,737 266 

Bayer AG Germany 7,200 425 


Merck KGaA Germany 5,450 498 

Novartis AG Switzerland 10,180 508 


Total 3,226 


Assa Abloy AB Sweden 25,530 293 

Brambles, Ltd. Australia 93,670 497 

Bucyrus International, Inc. United States 11,100 206 

Duratex SA Brazil 7,600 47 


Geberit AG Switzerland 2,959 318 

Glory, Ltd. Japan 17,600 344 

Grupo Aeroportuario del 

Pacifico SAB de CV, ADR Mexico 2,100 48 

JGC Corp. Japan 9,000 135 

Keppel Corp., Ltd. Singapore 57,000 174 

*LS Industrial Systems Co., Ltd. South Korea 5,020 200 


Schneider Electric SA France 3,894 292 

Siemens AG Germany 8,090 609 


76 Research International Core Portfolio




Shares/ 

$ Par 

Value 

$ (000's) 


TNT NV Netherlands 6,220 120 


Total 4,516 


Acer, Inc. Taiwan 168,000 221 

ASML Holding NV Netherlands 11,456 205 

Cap Gemini SA France 3,860 150 

* CSU Cardsystem SA Brazil 16,140 16 

Konica Minolta Holdings, Inc. Japan 31,500 244 

Nokia OYJ Finland 12,670 197 


Samsung Electronics Co., Ltd. South Korea 501 181 

SAP AG Germany 8,570 309 

Taiwan Semiconductor 

Manufacturing Co., Ltd. Taiwan 192,000 263 

Tokyo Electron, Ltd. Japan 4,900 172 

Total 2,378 



Country 

Shares/ 

$ Par 

Value 

$ (000's) 

Universo Online SA - UOL Brazil 4,200 13 

Total 13 


(Cost: $19) 13 


(Cost: $45,315)(a) 32,929 



Net Assets (100.0%) 33,435 





Akzo Nobel NV Netherlands 16,300 676 

BHP Billiton PLC United Kingdom 30,670 586 

Corporacion Moctezuma SAB 


CRH PLC Ireland 10,600 269 

Linde AG Germany 5,530 470 

Rio Tinto PLC United Kingdom 9,530 210 

Symrise AG Germany 7,335 104 

Total 2,339 


America Movil SAB de CV, 

ADR - Series L Mexico 9,720 301 

BCE, Inc. Canada 5,710 118 

China Unicom Hong Kong, Ltd. Hong Kong 134,000 163 


Rogers Communications, Inc. Canada 5,100 153 

Telefonica SA Spain 24,140 544 

Vodafone Group PLC United Kingdom 354,810 725 

Total 2,339 



GDF Suez France 10,045 500 

NTPC, Ltd. India 48,670 182 


Total 1,657 


(a) 

(l) 

At December 31, 2008 the aggregate cost of securities for federal tax 

purposes (in thousands) was $46,240 and the net unrealized depreciation 

of investments based on that cost was $13,311 which is comprised of 

$470 aggregate gross unrealized appreciation and $13,781 aggregate 

gross unrealized depreciation. 


Japan 17.9% 

France 11.9% 


Germany 10.8% 


Italy 5.6% 

Other 32.1% 

Total 100.0% 

As of December 31, 2008, portfolio securities with an aggregate value of 

$30,459 (in thousands) were fair valued under procedures adopted by the 

Board of Directors. 


Research International Core Portfolio 77




Participate in the growth of foreign economies by 

investing primarily in securities with high long-term 

earnings potential relative to current market values. 

$1.0 billion 


Mason Street Advisors, the investment adviser for the International Equity Portfolio, has engaged Templeton Investment 

Counsel, LLC to act as sub-adviser for the Portfolio. Templeton Investment Counsel, LLC has appointed Franklin Templeton 

Investments (Asia) Limited as an additional sub-adviser for the Portfolio. The Portfolio seeks long-term growth of capital. The 

Portfolio seeks to achieve this objective by investing primarily in equity securities of issuers from countries outside the U.S. 

The Portfolio’s holdings will consist primarily of equity securities of issuers in foreign countries. The Portfolio has an 

unlimited right to purchase securities in any foreign country, developed or undeveloped. The Portfolio’s strategy is to identify 

and invest in the undervalued stocks of foreign companies offering the greatest discounts to their long-term values. The 

strategy will reflect a bottom-up, value-oriented and long-term investment philosophy. In choosing equities, the Portfolio’s 

manager will focus on the market price of a company’s security in relation to its long-term earnings, asset value and cash flow 

potential. A company’s historical value measure, including price/earnings ratio, profit margins and liquidation value, also will 

be considered. 



markets freeze up and governments around the world take a series of coordinated actions to support economic growth and the 

financial system itself. The crisis was a result of the sub-prime mortgage meltdown, which spread rapidly through the U.S. 

financial sector into virtually every segment of global financial markets. 



large-cap stock performance in the developed economies of Europe, Australasia and the Far East—returned –43.06%. There 

was little differentiation of return by growth or value styles. Looking at performance by sector, no segment had positive 

results. Financials performed worst, while the more traditionally defensive Health Care sector held up relatively better. After a 

bumpy ride for much of the year, the dollar finished higher because of the turmoil, as investors sought a safe haven for their 

money. The exception was Japan, whose currency and stock market held up the best among the developed economies. 


For the twelve months ended December 31, 2008, the International Equity Portfolio returned –43.78%, while the MSCI EAFE 

Index returned –43.06%. (The Index is unmanaged, cannot be invested in directly and does not include administrative 

expenses or sales charges.) The average return for the Portfolio’s peer group, International Value Funds, was –43.63%, 

according to Lipper Analytical Services, Inc., an independent mutual fund rating agency. 


the most trying year for investors in recent memory. No sector contributed positively to results. Relative to the MSCI EAFE 

Index, the largest contribution came from an underweight position and stock selection in the hard-hit Financials sector. Stock 

selection made the Consumer Discretionary sector the leading detractor from relative results. 

The key theme explaining the Portfolio’s return relative to the benchmark was exposure to companies that ratcheted down 

earnings expectations as demand for their products declined along with the pace of global growth. This trend was visible in the 

Consumer Discretionary sector, where some of the leading detractors were automotive manufacturers or parts providers, such 

as Hyundai Motors and GKN. 

In Health Care, stock selection and allocation decisions hurt most in the pharmaceutical industry. The leading detractors from 

performance compared with the benchmark tended to be large, less volatile stocks—such as Roche Holdings and 

AstraZeneca—that held up well and to which we had no exposure. 

The leading contribution to Portfolio performance at the sector level came from an underweight position in Financials, the 

poorest-performing segment of the Index. Our investment process focuses on undervalued companies, which requires a 

judgment about corporate balance sheets, earnings and security valuations. But many companies in the Finance sector have 

opaque financial statements, making valuation assessments difficult. Because of this lack of transparency, we were 

significantly underweight Financial stocks. Stock selection also had a positive effect in the sector, with global property and 

casualty insurer ACE Limited providing the largest contribution to relative returns. 

Telecommunication shares also contributed to relative results for the year, led by France Telecom, Telefonos de Mexico and 

Telefonica. These traditionally defensive-oriented stocks generally held up well because of their strong financial position, 

steady cash flow and lack of liquidity or credit problems. 

78 International Equity Portfolio


Outlook 

We believe the unprecedented events sweeping global financial markets can provide patient, long-term investors with 

opportunity when we return to some semblance of normal, functioning markets. We feel the forced selling and deleveraging 

sweeping markets made little distinction between “good” and “bad” companies. As a result, we are finding no shortage of what 

we consider to be high-quality companies trading at very attractive levels. Because we build the Portfolio stock by stock from 

the bottom up, our sector and industry selection as well as capitalization range allocations reflect where we are finding 

individual securities about which we have the highest conviction at a given time. As of December 31, 2008, the Portfolio’s 

largest overweight positions were in the Telecommunication Services and Information Technology sectors. The largest sector 

underweights were in Financials and Consumer Staples. 









standards. 





MSCI EAFE Index (Gross) 

-43.78% 

-43.06% 

2.94% 

2.10% 

3.47% 

1.18% 

MSCI All Country World (ex-US) Index 

(Gross) -45.24% 3.00% 2.27% 


(VIP) International Value Funds 

Average -43.63% 0.98% 2.02% 









www.nmfn.com. 








the above chart and graph 




Telefonica SA, ADR 2.6% 

France Telecom SA 2.1% 

Novartis AG 2.1% 

BAE Systems PLC 1.9% 

Royal Dutch Shell PLC - Class B 1.8% 

E.ON AG 1.8% 

Samsung Electronics Co., Ltd. 1.7% 

Vodafone Group PLC 1.6% 

Deutsche Post AG 1.6% 


Materials 

4% 

Utilities 

6% 

Energy 

8% 

Health Care 

10% 



4% 



2% 

Financials 

17% 

Industrials 

14% 


Services 

13% 

Information 

Technology 

10% 



change. 


12% 

International Equity Portfolio 79








Shares/ 

$ Par 

Value 

$ (000's) 

Accor SA France 173,000 8,555 

Bayerische Motoren Werke 

AG Germany 380,920 11,767 

British Sky Broadcasting 

Group PLC United Kingdom 1,864,690 13,168 

Burberry Group PLC United Kingdom 738,190 2,403 

Compagnie Generale des 

Etablissements Michelin 

- Class B France 260,200 13,711 

Compass Group PLC United Kingdom 2,915,350 14,684 

GKN PLC United Kingdom 2,091,540 3,006 

* Hyundai Motor Co. South Korea 264,580 8,494 

Kingfisher PLC United Kingdom 3,825,490 7,594 

Mediaset SPA Italy 1,497,610 8,595 

NGK Spark Plug Co., Ltd. Japan 550,000 4,404 

Pearson PLC United Kingdom 697,770 6,573 

Reed Elsevier NV Netherlands 558,652 6,614 

Sony Corp. Japan 323,400 7,025 

* Thomson France 1,088,780 1,480 

Valeo SA France 135,280 2,021 

Wolters Kluwer NV Netherlands 166,630 3,162 

Yell Group PLC United Kingdom 1,590,550 993 

Zon Multimedia Servicos 

de Telecomunicacoes e 

Multimedia SGPS SA Portugal 89,113 465 

Total 124,714 


Cadbury PLC United Kingdom 1,534,097 13,631 


Unilever PLC United Kingdom 348,295 8,034 

Total 36,984 

Energy (7.8%) 

BP PLC United Kingdom 1,866,830 14,519 

China Shenhua Energy 

Co., Ltd. China 1,578,500 3,385 

Eni SPA Italy 414,535 9,871 

Gazprom OAO, ADR Russia 368,660 5,253 

Repsol YPF SA Spain 493,680 10,566 


Class B United Kingdom 704,315 17,992 

SBM Offshore NV Netherlands 451,200 5,942 

Total SA France 205,958 11,284 

Total 78,812 


ACE, Ltd. Switzerland 234,580 12,414 

Australia & New Zealand 

Banking Group, Ltd. Australia 89,588 981 

Aviva PLC United Kingdom 1,715,770 9,858 

AXA SA France 512,174 11,475 




Shares/ 

$ Par 

Value 

$ (000's) 


Cheung Kong Holdings, 

Ltd. Hong Kong 1,035,000 9,867 

DBS Group Holdings, Ltd. Singapore 1,192,000 7,112 

(n),*DBS Group Holdings, Ltd. 

- Rights Singapore 596,000 1,248 

HSBC Holdings PLC United Kingdom 1,474,937 14,158 

ING Groep NV Netherlands 683,040 7,175 

*KB Financial Group, Inc. South Korea 226,500 6,191 

Lloyds TSB Group PLC United Kingdom 1,671,640 2,165 


Group, Inc. Japan 565,000 3,503 


Group, Inc., ADR Japan 222,000 1,379 

National Australia Bank, 

Ltd. Australia 514,532 7,696 

Nomura Holdings, Inc. Japan 332,400 2,739 

Nordea Bank AB Sweden 1,536,530 11,209 

Old Mutual PLC United Kingdom 4,953,850 4,017 

Royal Bank of Scotland 

Group PLC United Kingdom 3,000,044 2,201 

Sompo Japan Insurance, 

Inc. Japan 1,103,000 8,071 

Standard Chartered PLC United Kingdom 370,360 4,805 

Swire Pacific, Ltd. Hong Kong 1,276,500 8,851 

Swiss Re Switzerland 180,212 8,730 

*UBS AG Switzerland 1,015,136 14,681 

UniCredit SPA Italy 860,800 2,154 

Total 171,467 


*Agfa Gevaert NV Belgium 291,272 764 

Celesio AG Germany 261,230 7,170 

GlaxoSmithKline PLC United Kingdom 621,430 11,709 

Lonza Group AG Switzerland 162,050 14,938 

Merck KGaA Germany 154,300 14,098 


Olympus Corp. Japan 236,500 4,745 

Sanofi-Aventis France 164,625 10,508 

Takeda Pharmaceutical 

Co., Ltd. Japan 208,500 10,806 

Total 95,968 


Atlas Copco AB Sweden 1,330,560 11,572 

BAE Systems PLC United Kingdom 3,411,020 18,870 

Deutsche Post AG Germany 935,380 15,903 

Empresa Brasileira de 

Aeronautica SA, ADR Brazil 416,340 6,749 

Hutchison Whampoa, Ltd. Hong Kong 1,826,000 9,211 

Koninklijke (Royal) 

Philips Electronics NV Netherlands 449,135 8,778 

*Loomis AB Sweden 130,460 817 

Niscayah Group AB Sweden 652,300 563 

Qantas Airways, Ltd. Australia 2,552,550 4,802 

Rentokil Initial PLC United Kingdom 2,672,940 1,736 

80 International Equity Portfolio 





Shares/ 

$ Par 

Value 

$ (000's) 


* Rolls-Royce Group PLC United Kingdom 1,916,990 9,532 

Securitas AB - Class B Sweden 652,300 5,409 

* Shanghai Electric Group 

Co., Ltd. China 23,038,000 9,437 

Siemens AG, ADR Germany 199,230 15,092 

Smiths Group PLC United Kingdom 320,326 4,186 

* Vestas Wind Systems A/S Denmark 167,380 9,997 

Total 132,654 


BYD Co., Ltd. China 3,163,000 5,215 

* Check Point Software 

Technologies, Ltd. Israel 387,430 7,357 

Compal Electronics, Inc. Taiwan 6,035,398 3,214 

FUJIFILM Holdings Corp. Japan 159,300 3,503 

Hitachi, Ltd. Japan 1,198,000 4,642 

* Infineon Technologies AG Germany 1,122,690 1,553 

Lite-On Technology Corp. Taiwan 3,467,876 2,293 

Mabuchi Motor Co., Ltd. Japan 168,400 6,988 

Nintendo Co., Ltd. Japan 39,300 15,086 

Samsung Electronics 

Co., Ltd. South Korea 46,140 16,709 

SAP AG Germany 261,040 9,402 


Manufacturing Co., Ltd. Taiwan 10,165,997 13,933 

Toshiba Corp. Japan 2,350,000 9,668 

Total 99,563 


Akzo Nobel NV Netherlands 111,700 4,629 

Alumina, Ltd. Australia 1,908,930 1,907 

BASF SE Germany 218,600 8,680 


Doce, ADR Brazil 881,000 9,383 

* Domtar Corp. Canada 1,006,610 1,712 

* Norske Skogindustrier 

ASA Norway 978,371 1,948 

Stora Enso OYJ - Class R Finland 658,140 5,163 

UPM-Kymmene OYJ Finland 394,760 5,030 

Total 38,452 


China Telecom Corp., Ltd. China 17,338,000 6,573 

Chunghwa Telecom Co., 

Ltd., ADR Taiwan 364,613 5,688 


* KT Corp., ADR South Korea 385,100 5,649 


Telephone Corp. Japan 1,930 10,364 

Portugal Telecom SGPS 

SA Portugal 632,670 5,395 

SK Telecom Co., Ltd., 

ADR South Korea 322,890 5,870 

Telefonica SA, ADR Spain 395,838 26,676 

Telefonos de Mexico SAB 

de CV, ADR Mexico 514,688 10,778 

Telenor ASA Norway 1,208,610 8,141 

Telmex Internacional SAB 

de CV, ADR Mexico 514,688 5,847 


Shares/ Value 

(97.0%) Country $ Par $ (000's) 


Turkcell Iletisim 

Hizmetleri AS Turkey 1,315,060 7,584 

Vodafone Group PLC United Kingdom 8,017,483 16,382 

Total 136,219 


E.ON AG Germany 440,100 17,884 

Electricite de France France 258,050 15,072 


Iberdrola SA Spain 682,240 6,366 

*Korea Electric Power 

Corp. South Korea 365,650 8,523 

*Suez Environnement SA France 78,727 1,334 

Total 64,140 

Total Foreign Common Stocks (Cost: $1,193,785) 978,973 




1.02%, 1/9/09 United States 10,000,000 9,997 

Total 9,997 

Independent Finance (0.4%) 


0.30%, 1/6/09 United States 4,000,000 4,000 

Total 4,000 


Textron, Inc., 

6.25%, 1/6/09 United States 10,000,000 9,991 

Total 9,991 



1.00%, 1/2/09 United States 4,100,000 4,100 

Total 4,100 


(Cost: $28,088) 28,088 


(Cost: $1,221,873)(a) 1,007,061 



Net Assets (100.0%) 1,009,367 


International Equity Portfolio 81




(a) 






France 11.1% 

Germany 10.1% 

Japan 9.2% 


Spain 5.2% 

South Korea 5.1% 

Other 30.6% 

Total 100.0% 

(l) 

(n) 


of Directors. 

At December 31, 2008 portfolio securities with a aggregate value of $1,248 (in thousands) were valued with reference to securities whose values are more 


82 International Equity Portfolio 




Capital appreciation. 

Invest primarily in equity securities of issuers that are $52 million 

tied economically to emerging market counties. 


Mason Street Advisors, the investment adviser for the Emerging Markets Equity Portfolio, has engaged Massachusetts 

Financial Services Company to act as sub-adviser for the Portfolio. The objective of the Portfolio is to achieve capital 

appreciation. The Portfolio seeks to accomplish this by investing at least 80% of its net assets (plus any borrowings for 

investment purposes) in equity instruments of issuers that are tied economically to emerging market countries. Such equity 

instruments could include common stocks, preferred stock, securities convertible into stock and ADRs. Emerging market 

countries may include countries that have emerging market economies, taking into account a number of factors, including 

whether a particular country has a low to middle economy according to the International Bank for Reconstruction and 

Development (the World Bank), the country’s foreign currency debt rating, its political and economic stability, and the 

development of its financial and capital markets. 



markets freeze up and governments around the world take a series of coordinated actions to support economic growth and the 

financial system itself. The crisis was a result of the sub-prime mortgage meltdown, which spread rapidly through the U.S. 

financial sector into virtually every segment of global financial markets. 



large-cap stock performance in the developed markets of Europe, Australasia and the Far East—returned –43.06%. Emerging 

market equities performed even worse, highly levered as they tend to be to economic growth and commodity prices (many are 

basic materials exporters), both of which turned down sharply in the second half of the year. Looking at performance by 

sector, no segment had positive results. 


For the twelve months ended December 31, 2008, the Emerging Markets Equity Portfolio provided a total return after fees and 

expenses of –55.22%. This compares with a return of –53.18% for the Portfolio’s benchmark, the MSCI Emerging Markets 

Index. (This Index is unmanaged, cannot be invested in directly and does not include administrative expenses or sales 

charges.) The average return for the Portfolio’s peer group, Emerging Markets Funds, was –54.07%, according to Lipper 

Analytical Services, Inc., an independent mutual fund ranking agency. 

As evidenced by the returns of the Portfolio's benchmark, the MSCI Emerging Markets Index, losses among emerging markets 

equities were significant and broad based during the reporting period. For the Portfolio, security selection in the Materials 

sector was the primary detractor from relative performance. In this sector, holdings of mining and metal companies Mechel 

Oao and Evraz Group were among the Portfolio’s top relative detractors over the reporting period. 

Stock selection, and to a lesser extent, an underweighted position in the Special Products and Services sector, also hindered 

relative returns. Holdings of poor-performing real estate brokerage firm LPS Brasil negatively impacted returns for the period. 

The Portfolio’s overweighted position in the Energy sector hurt relative performance. Shares of natural gas producer Gazprom 

and integrated oil company LUKOIL were among the Portfolio’s top detractors within this sector. 

Stock selection in the Technology sector helped the Portfolio’s relative performance. Semiconductor firm Taiwan 

Semiconductor was among the Portfolio’s top relative contributors. Stock selection in the Retailing sector also aided relative 

returns. Positioning in investment holding company Lewis Group and women’s clothing retailer Foschini helped as both 

positions significantly outperformed the benchmark. Elsewhere, the Portfolio’s positioning in state-owned telecom operator 

China Telecom, commercial bank Sberbank and cosmetics firm Natura Cosmeticos bolstered relative performance. 

During the reporting period, the Portfolio's currency exposure was a contributor to relative performance. All of our investment 

decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our portfolios to have 

different currency exposure than the benchmark. 

The Portfolio’s cash position also was a contributor to relative performance. The Portfolio holds cash in anticipation of buying 

new holdings and to provide liquidity. In a period when equity markets declined, holding cash helped performance versus the 

benchmark, which has no cash position. 

Outlook 

Global financial markets remain in the thrall of financial, economic and political developments in the United States. 

Regardless of changing economic and market conditions, the manager of the Emerging Markets Equity Portfolio expects to 

Emerging Markets Equity Portfolio 83


continue to seek companies that are undergoing fundamental operational improvements and whose shares trade at discounted 

valuations. As of December 31, 2008, our largest sector overweights were in Utilities and Health Care shares, while Financials 

and Materials were our leading underweight positions relative to the benchmark. 


$14,000 

13,000 

12,000 

11,000 

10,000 

9,000 

8,000 

7,000 

6,000 

5,000 

4/07 12/07 12/08 


MSCI Emerging Markets Index (Gross) 



1 Year 

Since 

Inception* 

Emerging Markets Equity Portfolio -55.22% -29.43% 

MSCI Emerging Markets Index 

(Gross) -53.18% -25.49% 


(VIP) Emerging Markets Funds 

Average -54.07% – 










www.nmfn.com. 


















standards. 

Investments in the securities of companies in 

developing nations impose risks different from, and 

greater than, risks of investing in developed countries. 













Samsung Electronics Co., Ltd. 4.4% 

China Mobile, Ltd. 4.3% 

Teva Pharmaceutical Industries, Ltd., ADR 3.8% 

Petroleo Brasileiro SA, ADR 3.7% 

Companhia Vale do Rio Doce, ADR 2.9% 

Gazprom OAO, ADR 2.6% 

Industrial & Commercial Bank of China, Ltd. - 

Class H 2.4% 

MTN Group, Ltd. 2.1% 

America Movil SAB de CV, ADR - Series L 2.0% 

Taiwan Semiconductor Manufacturing Co., Ltd., 

ADR 1.9% 

Utilities 

5% 

Health Care 

5% 

Consumer 

Discretionary 

6% 


7% 

Materials 

9% 

Energy 

13% 


Industrials 

2% 



2% 


Services 

19% 

Financials 

18% 


14% 



change. 

84 Emerging Markets Equity Portfolio







Shares/ 

$ Par 

Value 

$ (000's) 



Shares/ 

$ Par 

Value 

$ (000's) 


* Desarrolladora Homex SAB de 

CV, ADR Mexico 4,830 110 

Dufry South America, Ltd. Bermuda 22,970 164 

Foschini, Ltd. South Africa 78,020 400 

Genting Bhd Malaysia 293,300 316 


* Kroton Educacional SA Brazil 16,500 89 

Lewis Group, Ltd. South Africa 75,231 386 

PT Astra International Tbk Indonesia 222,000 224 

* SARE Holding SAB de CV - 

Class B Mexico 497,100 106 

Truworths International, Ltd. South Africa 79,700 291 

* Urbi Desarrollos Urbanos SAB 


Woolworths Holdings, Ltd. South Africa 252,136 343 

Total 3,020 


Asiatic Development Bhd Malaysia 214,300 221 

Chaoda Modern Agriculture 

Holdings, Ltd. Hong Kong 569,920 367 

Companhia de Bebidas das 

Americas, ADR Brazil 10,960 486 

Grupo Continental SAB de CV Mexico 145,010 242 

Hengan International Group 

Co., Ltd. Hong Kong 126,000 406 

Kimberly-Clark de Mexico 

SAB de CV Mexico 50,620 170 


Massmart Holdings, Ltd. South Africa 31,660 286 

Natura Cosmeticos SA Brazil 20,730 170 

PT Hanjaya Mandala 

Sampoerna Tbk Indonesia 292,000 219 

PT Unilever Indonesia Tbk Indonesia 386,000 280 

Tradewinds Malaysia Bhd Malaysia 420,200 366 

Total 3,571 


China Oilfield Services, Ltd. China 386,000 315 


Gazprom OAO, ADR Russia 94,250 1,343 

LUKOIL, ADR Russia 29,540 978 

NovaTek OAO Russia 15,100 289 

Oil & Natural Gas Corp., Ltd. India 15,488 214 


PT Bumi Resources Tbk Indonesia 1,056,500 91 

PTT Exploration & Production 

PCL Thailand 102,800 316 

Rosneft Oil Co. Russia 81,650 306 

Tenaris SA, ADR Luxembourg 7,510 158 

Tupras-Turkiye Petrol 

Rafinerileri AS Turkey 22,693 240 

Total 7,083 


Ayala Land, Inc. Philippines 2,110,600 292 

Banco Santander Chile, ADR Chile 10,270 360 

BanColombia SA, ADR Colombia 5,710 133 

Bank of China, Ltd. China 1,612,000 444 

Bank of Communications Co., 

Ltd. China 397,000 289 

Bank Pekao SA Poland 6,820 291 

BM&F BOVESPA SA Brazil 53,400 139 

*Bolsa Mexicana de Valores 

SAB de CV Mexico 28,700 21 

*Brasil Brokers Participacoes 

SA Brazil 80,900 58 

Cathay Financial Holding Co., 

Ltd. Taiwan 331,750 373 

China Construction Bank Corp. China 1,699,000 940 

China Merchants Bank Co., 

Ltd. China 166,500 312 

Credicorp, Ltd. Bermuda 3,400 170 

First Financial Holding Co., 

Ltd. Taiwan 621,888 330 

Grupo Financiero Banorte SAB 


Industrial & Commercial Bank 

of China, Ltd. - Class H China 2,325,000 1,236 

Komercni Banka AS Czech Republic 1,739 272 

LPS Brasil - Consultoria de 

Imoveis SA Brazil 20,818 59 

Nedbank Group, Ltd. South Africa 28,000 287 

Powszechna Kasa 

Oszczednosci Bank Polski 

SA Poland 31,670 379 

PT Bank Central Asia Tbk Indonesia 1,201,000 363 

PT Bank Rakyat Indonesia Indonesia 589,000 260 

Public Bank Bhd Malaysia 114,000 290 

Siam Commercial Bank PCL Thailand 210,400 296 

Standard Bank Group, Ltd. South Africa 68,520 611 

*Turkiye Garanti Bankasi AS Turkey 227,960 390 

Unibanco - Uniao de Bancos 

Brasileiros SA, ADR Brazil 6,760 437 

Total 9,247 


Diagnosticos da America SA Brazil 10,700 104 

*Genomma Lab Internacional 

SAB de CV - Class B Mexico 373,400 262 

OdontoPrev SA Brazil 21,600 215 

Ranbaxy Laboratories, Ltd. India 50,090 261 



Total 2,813 







Shares/ 

$ Par 

Value 

$ (000's) 


Bharat Heavy Electricals, Ltd. India 20 0 

Copa Holdings SA - Class A Panama 5,430 165 

Duratex SA Brazil 24,900 155 

Empresa Brasileira de 

Aeronautica SA, ADR Brazil 5,360 87 

Keppel Corp., Ltd. Singapore 78,000 238 

Larsen & Toubro, Ltd. India 15,401 246 

Orascom Construction 

Industries Egypt 4,870 124 

Total 1,015 


Acer, Inc. Taiwan 251,000 330 

* CSU Cardsystem SA Brazil 146,000 145 

Delta Electronics, Inc. Taiwan 185,420 361 

HTC Corp. Taiwan 35,370 357 

Infosys Technologies, Ltd., 

ADR India 25,930 637 

MediaTek, Inc. Taiwan 59,550 403 

Redecard SA Brazil 22,900 254 

Samsung Electronics Co., Ltd. South Korea 6,368 2,306 

Siliconware Precision 

Industries Co., ADR Taiwan 64,830 289 


Manufacturing Co., Ltd. Taiwan 660,120 905 


Manufacturing Co., Ltd., 

ADR Taiwan 127,844 1,010 

Totvs SA Brazil 6,100 98 

Total 7,095 


Companhia Vale do Rio Doce, 

ADR Brazil 124,320 1,506 

Corporacion Moctezuma SAB 


Evraz Group SA Luxembourg 5,460 47 

Grupo Mexico SAB de CV Mexico 386,030 250 

Impala Platinum Holdings, Ltd. South Africa 29,540 429 

Israel Chemicals, Ltd. Israel 48,250 337 

* LG Chem, Ltd. South Korea 8,010 459 

Makhteshim-Agan Industries, 

Ltd. Israel 70,240 229 

Mechel, ADR Russia 16,520 66 

Novolipetsk Steel OAO Russia 11,450 117 

Pretoria Portland Cement Co., 

Ltd. South Africa 103,337 347 

PT International Nickel 

Indonesia Tbk Indonesia 719,000 130 

The Siam Cement PCL Thailand 121,900 387 

* Suzano Papel e Celulose SA Brazil 17,400 91 

Total 4,698 


America Movil SAB de CV, 

ADR - Series L Mexico 32,890 1,019 

(n) AS Eesti Telekom Estonia 14,880 264 



Shares/ 

$ Par 

Value 

$ (000's) 


Bezeq Israeli 

Telecommunication Corp., 

Ltd. Israel 168,970 278 

China Mobile, Ltd. Hong Kong 219,500 2,226 

China Mobile, Ltd., ADR Hong Kong 19,470 990 

China Unicom (Hong Kong), 

Ltd., ADR Hong Kong 24,780 302 

Chunghwa Telecom Co., Ltd. Taiwan 415,189 663 

Egyptian Co. for Mobile 

Services Egypt 15,510 411 

Globe Telecom, Inc. Philippines 15,440 251 

Magyar Telekom 

Telecommunications PLC, 

ADR Hungary 17,190 241 

Mobile Telesystems OAO, 

ADR Russia 16,120 430 

MTN Group, Ltd. South Africa 93,700 1,090 

Philippine Long Distance 

Telephone Co. Philippines 5,950 274 

PT Telekomunikasi Indonesia 

Tbk Indonesia 823,500 536 

Telkom South Africa, Ltd. South Africa 24,250 298 

Turkcell Iletisim Hizmet AS, 

ADR Turkey 20,330 297 

Vimpel-Communications, 

ADR Russia 26,360 189 

Total 9,759 


AES Tiete SA Brazil 17,000 109 


Equatorial Energia SA Brazil 19,600 85 

Gail India, Ltd. India 83,225 359 

Manila Water Co., Inc. Philippines 3,169,000 911 

Total 2,251 




Country 

Shares/ 

$ Par 

Value 

$ (000's) 

Universo Online SA - UOL Brazil 62,100 196 

Total 196 


Usinas Siderurgicas de Minas 

Gerais SA - Class A Brazil 17,000 194 

Total 194 


Eletropaulo Metropolitana SA - 

Class B Brazil 43,560 480 

Total 480 


(Cost: $1,602) 870 

86 Emerging Markets Equity Portfolio 





Shares/ 

$ Par 

Value 

$ (000's) 

Total Investments 

(98.2%) (Cost: 

$79,828)(a) 51,422 



Net Assets (100.0%) 52,386 



(a) 



depreciation. 


Brazil 13.5% 

Hong Kong 9.9% 

Taiwan 9.6% 

South Africa 9.1% 

Russia 7.1% 

China 6.7% 

Mexico 6.3% 

South Korea 6.0% 

Israel 5.4% 

Other 26.4% 

Total 100.0% 

(h) Forward foreign currency contracts outstanding on December 31, 2008 

Principal 

Amount 

Covered by 

Contract (000's) 

Unrealized 

Appreciation 

(000's) 

Unrealized 


(000's) 

Net Unrealized 

Appreciation/ 


(000's) 

Settlement 

Type 

Month 

Buy TRY 853 5/09 $ 30 $ — $ 30 

Sell TRY 853 5/09 — (35) (35 ) 

$ 30 $ (35) $ (5) 

TRY - Turkish Lira 

(l) 


Directors. 

(m) Amount is less than one thousand. 

(n) 







Maximum current income consistent Invest in high quality, short-term money market 

$623 million 

with liquidity and stability of capital. instruments that present minimal credit risk. 


Mason Street Advisors acts as the investment adviser for the Money Market Portfolio. The Portfolio’s investment objective is 

to generate maximum current income consistent with liquidity and stability of capital. 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, seeks to provide a moderate return in line with prevailing short-term interest rates. The Portfolio will attempt to 

maximize its return by trading to take advantage of changing money market conditions and trends. 

The Money Market Portfolio will also trade to take advantage of what are believed to be disparities in yield relationships 

between different money market instruments. This procedure may increase or decrease the Portfolio’s yield depending upon 

management’s ability to correctly time and execute such transactions. The Money Market Portfolio may only invest in 

securities that mature in 397 days or fewer from the date of purchase. 


The spiraling sub-prime credit crisis took an incredible toll on U.S. financial institutions, the economy and financial markets in 

2008. Nowhere was this as evident as in the fixed income markets, where risk aversion, deleveraging and fear of deflation sent 

segments of the Treasury market to their best year ever, while credit-sensitive bonds endured historic underperformance. In 

that environment, the Federal Reserve took dramatic steps, effectively cutting its short-term rate target to 0%, intervening in 

the mortgage, commercial, and consumer debt markets, while Congress passed the $700 billion Troubled Asset Relief Program 

(TARP). 

The year also held a number of important developments for money market investors. First, the Fed’s rate cuts (from 4.25% to 

effectively 0%) signaled dramatically lower yields on cash-equivalent investments. Second, the freezing of credit markets, 

extreme risk aversion, and the bankruptcy of Lehman Brothers were precipitating factors in a large, institutional money market 

fund seeing its net asset value per share fall below $1. In response, the government took significant steps to support money 

market funds and the short-term commercial paper market in which many money funds invest. 

Looking at returns in that environment, money market investments managed modest returns, and were one of very few asset 

classes to enjoy positive performance in 2008. For the full year, cash-like investments returned 2.06%, as measured by the 

Merrill Lynch 3-Month T-Bill Index, while stocks and bonds returned –37.00% and 7.02%, as measured by the S&P 500 ® 

Stock Index and Citigroup U.S. Broad Investment Grade Bond Index, respectively. 


For the twelve months ended December 31, 2008, the Portfolio returned 2.76%, outperforming the Merrill Lynch 

3-Month Treasury Bill (T-Bill) Index, which returned 2.06%. The average return of the Portfolio’s Money Market Funds peer 

group was 2.23%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 

The Portfolio’s outperformance relative to the peer group likely resulted from effective management of the Portfolio’s 

weighted average maturity (WAM) and efforts to avoid problem areas or securities at risk of substantial write-downs. 

In terms of Portfolio positioning, we helped performance relative to our Index and peers by maintaining a longer-than-average 

WAM all year. It is beneficial to have a longer WAM when rates are falling, because it allows the Portfolio to lock in higher 

yields for a longer time. In addition, we lengthened the Portfolio’s WAM aggressively in September—buying nine-month 

Treasuries at very attractive yields—and again in November, ahead of the typical, seasonal decline in commercial paper yields 

at year-end. These trades helped support the Portfolio’s yield at a time when the Fed rapidly accelerated the pace of rate cuts. 

We should also point out that despite the problems that affected some other money market funds, we maintained a stable $1 

share price, benefiting from the careful monitoring process and risk controls we have in place. What’s more, we enjoyed 

positive cash flows in this period, allowing us to take advantage of attractive securities and valuations as other funds were 

selling. 

88 Money Market Portfolio


Outlook 

As the challenging economic and financial conditions continue into 2009, we believe the Fed will hold short-term rates near 

zero for the foreseeable future. In that environment, we are taking a number of steps designed to maintain a competitive, 

positive yield. First, we envision avoiding investments in securities with negative yields, as we saw on some T-Bills in late 

2008. As a result, we anticipate that the Portfolio will maintain a positive but modest yield. Second, we will continue to 

carefully monitor the quality and health of the issuers whose securities we hold, relying on our compliance and credit 

processes and controls. Finally, beginning on December 31, 2008, we waived the Portfolio’s management fee on a temporary 

basis. We will continue to monitor the need for this waiver in light of market and economic developments, and may 

discontinue the waiver at any time. 

AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NOT INSURED OR GUARANTEED 

BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT 

AGENCY. ALTHOUGH THE MONEY MARKET PORTFOLIO SEEKS TO PRESERVE THE VALUE 

OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING 

IN THE MONEY MARKET PORTFOLIO. 

Money Market Portfolio 89





Money Market 



Shares/ 

$ Par 

Value 

$ (000's) 


Corp., 0.60%, 2/2/09 8,000,000 7,996 


Corp., 1.40%, 1/6/09 6,000,000 5,999 


Corp., 1.40%, 2/24/09 10,000,000 9,979 

Textron Financial Corp., 

6.75%, 1/13/09 6,000,000 5,986 

Total 29,960 

Asset-Backed Securities (3.5%) 

Nissan Auto Receivables 

Owner Trust, Series 

2008-C, Class A1, 

3.037%, 12/15/09 10,000 10,000 

Volkswagen Auto Loan 

Enhanced Trust, Series 

2008-2, Class A1, 

2.358%, 1/20/10 12,000 12,000 

Total 22,000 

Autos (6.9%) 

American Honda Finance 

Corp., 

2.319%, 5/5/09 144A 4,670,000 4,670 


Corp., 

2.989%, 8/26/09 144A 5,300,000 5,300 


Corp., 

4.389%, 1/8/09 144A 9,300,000 9,300 

Toyota Motor Credit 

Corp., 2.05%, 1/21/09 7,500,000 7,491 


Corp., 2.05%, 1/27/09 8,000,000 7,988 


Corp., 3.20%, 3/27/09 8,500,000 8,436 

Total 43,185 

Commercial Banks Non-US (7.7%) 

Bank of Scotland PLC, 

1.868%, 10/9/09 144A 3,400,000 3,400 

Barclays Bank PLC/New 

York, 2.446%, 2/27/09 10,100,000 10,100 

Barclays US Funding 

Corp., 2.43%, 3/13/09 13,000,000 12,938 

Royal Bank of 

Canada/New York NY, 

5.29%, 2/2/09 5,000,000 5,012 

Royal Bank Of Scotland 

PLC, 3.46%, 2/4/09 12,000,000 11,961 

UBS AG/Stamford 

Branch, 1.03%, 4/19/09 4,465,000 4,465 

Total 47,876 

Money Market 


Shares/ 

$ Par 

Value 

$ (000's) 


Bank Corp., 

1.80%, 5/13/09 25,000,000 24,835 



1.95%, 1/26/09 25,000,000 24,966 

Total 49,801 


(q) International Lease 

Finance Corp., 

3.50%, 4/1/09 6,560,000 6,228 

Ranger Funding Co. 

LLC, 0.45%, 4/3/09 7,000,000 6,992 


LLC, 1.25%, 3/18/09 5,000,000 4,987 


LLC, 1.40%, 2/23/09 12,000,000 11,975 


LLC, 0.75%, 3/10/09 12,000,000 11,983 


LLC, 1.50%, 1/9/09 8,000,000 7,997 


LLC, 1.55%, 1/22/09 3,500,000 3,497 

Total 53,659 



Corp., 1.25%, 1/22/09 6,000,000 5,996 


Corp., 1.35%, 1/7/09 6,000,000 5,999 


Corp., 1.35%, 1/9/09 5,000,000 4,998 



1.40%, 1/12/09 10,000,000 9,996 



1.50%, 2/4/09 14,000,000 13,980 


0.70%, 4/9/09 5,200,000 5,190 


0.75%, 1/15/09 1,700,000 1,699 


1.45%, 1/7/09 6,000,000 5,998 


1.50%, 1/13/09 8,000,000 7,996 

Bryant Park Funding 

LLC, 0.45%, 3/16/09 4,500,000 4,496 


LLC, 0.75%, 1/8/09 6,300,000 6,299 


LLC, 1.55%, 1/14/09 7,500,000 7,496 


LLC, 2.00%, 1/2/09 4,000,000 4,000 

Money Market Shares/ Value 


Finance Services continued 

Ciesco LLC, 

1.55%, 1/20/09 7,000,000 6,994 

Ciesco LLC, 

0.25%, 1/15/09 1,600,000 1,600 

Ciesco LLC, 

1.60%, 1/30/09 7,000,000 6,991 

Falcon Asset 

Securitization Co. 

LLC, 0.70%, 2/10/09 5,200,000 5,196 

Falcon Asset 


LLC, 1.10%, 2/11/09 8,500,000 8,489 

Falcon Asset 


LLC, 1.40%, 1/16/09 2,160,000 2,159 

Falcon Asset 


LLC, 1.50%, 2/6/09 8,000,000 7,988 


Corp. LLC, 

1.30%, 1/12/09 5,200,000 5,198 


Corp. LLC, 

1.75%, 1/23/09 6,800,000 6,793 


Corp. LLC, 

1.90%, 2/18/09 6,000,000 5,985 


Corp. LLC, 

2.05%, 2/5/09 6,000,000 5,988 

Total 147,524 

Government (9.5%) 

US Treasury N/B, 

4.875%, 8/15/09 17,000,000 17,352 

US Treasury N/B, 

6.00%, 8/15/09 40,700,000 41,860 

Total 59,212 


(5.6%) 

General Electric Capital 

Corp., 1.40%, 3/23/09 10,000,000 9,969 


Corp., 1.971%, 2/2/09 10,700,000 10,700 

Park Avenue 

Receivables Corp., 

1.40%, 2/12/09 6,000,000 5,990 

Park Avenue 

Receivables Corp., 

2.00%, 1/5/09 8,000,000 7,998 

Total 34,657 


90 Money Market Portfolio


Money Market 


Shares/ 

$ Par 

National Commercial Banks (1.9%) 

Value 

$ (000's) 

Bank of America NA, 

0.30%, 1/16/09 11,800,000 11,799 

Total 11,799 

Other Holdings (–%) 

Northwestern Mutual Life 

Insurance Co. Capital 

Support Agreement, 

0.00%, 7/19/09 23,570,000 – 

Total – 


American Express Bank 

FSB, .568%, 6/22/09 8,000,000 7,970 

(q) Associates Corp. of 

North America, 

8.55%, 7/15/09 7,010,000 7,001 


1.50%, 2/3/09 10,000,000 9,986 


1.75%, 1/29/09 6,000,000 5,992 


2.05%, 1/28/09 8,000,000 7,988 

Total 38,937 

Security Brokers and Dealers (2.2%) 


Group, Inc., 

1.625%, 6/19/09 3,827,000 3,815 

(q) The Goldman Sachs 

Group, Inc., 

3.875%, 1/15/09 10,000,000 9,996 

Total 13,811 


Caterpillar Financial 

Services Corp., 

2.259%, 3/10/09 10,970,000 10,970 

Liberty Street Funding 

LLC, 0.55%, 2/17/09 7,000,000 6,995 


LLC, 1.65%, 1/6/09 7,500,000 7,498 


LLC, 2.10%, 2/13/09 6,000,000 5,985 

Money Market Shares/ Value 


Short Term Business Credit continued 

Old Line Funding LLC, 

0.60%, 2/17/09 5,000,000 4,996 


0.65%, 3/20/09 2,700,000 2,696 


1.65%, 3/2/09 12,000,000 11,967 

Sheffield Receivables 

Corp., 0.65%, 2/2/09 6,000,000 5,997 


Corp., 1.20%, 1/5/09 2,800,000 2,800 


Corp., 1.65%, 3/4/09 9,000,000 8,974 

Total 68,878 

(q) 

Total Money Market 

Investments 

(Cost: $621,786) 621,299 


(Cost: $621,786)(a) 621,299 



Net Assets (100.0%) 622,620 

144A after the name of a security represents 

A security exempt from registration under 

Rule 144A of the Securities Act of 1933. 

These securities may be resold as transactions 

exempt from registration, normally to 

qualified institutional buyers. At 

December 31, 2008 the value of these 

securities (in thousands) was $22,670, 

representing 3.64% of the net assets. 

Security covered by Capital Support 

Agreement. 


Money Market Portfolio 91



Provide as high a level of current income 

as is consistent with prudent investment 

risk. 

Invest primarily in a diversified portfolio of high 

quality debt securities. 

$70 million 


Mason Street Advisors acts as the investment adviser for the Short-Term Bond Portfolio. The primary investment objective of 

the Portfolio is to provide as high a level of current income as is consistent with prudent investment risk. Normally, the 

Portfolio invests at least 80% of net assets (plus any borrowings for investment purposes) in a diversified portfolio of 

investment grade debt securities. Investment grade securities are securities rated “investment grade” by at least one qualified 

rating agency or, if unrated, determined by the Portfolio’s Adviser to be of comparable quality. The Portfolio may invest up to 

20% of net assets in non-investment grade, high yield/high risk bonds (so called “junk bonds”). Also, the Portfolio may invest 

up to 30% of net assets in foreign securities, consistent with its investment objective. Under normal market conditions, the 

Portfolio attempts to maintain a duration (the Portfolio’s sensitivity to changes in interest rates) of between one and three 

years. The Portfolio may invest in mortgage-and asset-backed securities. Securities are selected primarily based upon rigorous 

analysis of interest rates, the economy, and credit and call risks. Both a top-down and bottom-up investment approach is used 

to construct the portfolio of investments. The top-down investment approach involves an evaluation of the overall economic 

environment and its potential for performance based on economic and business cycles. The bottom-up investment approach 

focuses on fundamental research of issuers to identify issuers that appear to have strong relative credit quality, solid balance 

sheets, improving company specific fundamentals, and free cash flow. The proportion of the Portfolio’s assets committed to 

investments in securities with particular characteristics (such as quality, sector, interest rate or maturity) varies based on 

economic outlook, the financial markets and other factors. 




segments of the Treasury market to their best year ever, while credit-sensitive bonds endured historic underperformance. 

Economic conditions deteriorated sharply over the course of the year, as the economy entered its first recession since 2002. In 



(TARP). Against that backdrop, the Citigroup U.S. Broad Investment Grade (BIG) Bond Index (a broad-based bond index) 

rose 7.02%, led by gains in Treasury and government-backed mortgage debt, while corporate bonds endured their worst year 

ever, according to Merrill Lynch. 


For the twelve months ended December 31, 2008, the Short-Term Bond Portfolio had a total return of 2.71%. By comparison, 

the Barclays Capital U.S. Aggregate 1-3 Year Government/Corporate Index returned 4.62%. (This Index is unmanaged, cannot 

be invested in directly and does not include administrative expenses or sales charges.) The average return for the Portfolio’s 

peer group, Short-Intermediate Investment-Grade Debt Funds, was –2.43%, according to Lipper Analytical Services, Inc. 

(Lipper), an independent mutual fund ranking agency. 

The Portfolio’s performance relative to its peers and Index can largely be explained by its sector allocation. Almost two-thirds 

of the Index was weighted toward Treasury and government agency bonds, which were the best-performing segment of the 

market in 2008. Meanwhile, the Portfolio and Lipper peer group invested across the investment grade fixed income spectrum. 

In 2008, corporate, mortgage-, and asset-backed securities significantly underperformed government bonds, and the Portfolio 

had more of these credit-sensitive securities than the Index, but presumably less than many of its peers. 

We manage the Portfolio using a patient, long-term relative value approach to investing, looking for the best values across the 

fixed income market, looking to buy assets with the best risk/reward trade-offs we can find. As a result of that approach, we 

were significantly underweight Treasury bonds in 2008, particularly late in the year as Treasury yields approached record 

lows. In addition, many of the Treasuries we did hold tended to be inflation-protected securities. Those decisions detracted 

from performance relative to the Index because plain-vanilla Treasury bonds outperformed every other asset class in 2008, 

including inflation-adjusted Treasuries. Nevertheless, we thought this positioning made sense because we reduced our 

exposure to what we believe is the last remaining asset bubble (Treasuries) and were able to buy future inflation protection at 

what we considered cheap prices. 

92 Short-Term Bond Portfolio


A key positive contribution to performance relative to the Index and our peers was a large position (about a quarter of assets) 

in short-term bank paper backed by the Federal Deposit Insurance Corporation (FDIC). These bonds were issued with yields 

that were 150 basis points over like-maturity Treasuries, despite the fact that they too carry a government guarantee. These 

bonds performed very well late in 2008 when investors started looking beyond Treasury bonds to government agency-backed 

debt. This sort of trade exemplified our risk/reward, relative value approach at work—we were able to add significant 

additional yield on a large chunk of the Portfolio at little additional risk. 

Outlook 

We remain in a remarkable period where historical valuation and yield relationships in the fixed income markets are at 

unprecedented levels. At the sector level, this argues for a significant underweight to traditional Treasuries in favor of high 

quality, higher yielding paper where the government is your ally—our FDIC bonds are good examples. This is a point we 

cannot stress enough—there are no shortage of high quality assets trading at distressed levels. And with real questions about 

the likely length and depth of the recession, we see no reason to dip down into lower quality bonds. Add it all up, and we are 

likely to manage the Portfolio’s sensitivity to interest rate and yield curve changes conservatively, while working to capitalize 

on relative value disparities through our sector allocation and security selection. 

$11,000 

10,800 

10,600 

10,400 

10,200 


10,000 

4/07 12/07 12/08 


Barclays Capital U.S. Aggregate 1-3 Years Index** 



1 Year 

Since 

Inception* 

Short-Term Bond Portfolio 2.71% 3.49% 

Barclays Capital U.S. Aggregate 1-3 

Years Index** 4.62% 5.66% 


(VIP) Short-Intermediate 

Investment Grade Debt Funds 

Average -2.43% – 


** Prior to November 1, 2008, the Barclays Capital U.S. Aggregate 

1-3 Years Index was known as the Lehman Brothers U.S. Aggregate 

1-3 Years Index. 









www.nmfn.com. 











Return of principal is not guaranteed. Bond funds have 

the same interest rate, inflation and credit risks that are 

associated with the underlying bonds owned by the 

Portfolio. When interest rates rise, bond prices fall. With 

a fixed income fund, when interest rates rise, the value 

of the fund’s existing bonds drops, which could 

negatively affect overall fund performance. 

Short-Term Bond Portfolio 93


Top 10 Fixed Income Holdings 12/31/08 



Federal National Mortgage Association, Various 8.0% 

Federal National Mortgage Association, 

3.875%, 7/12/13 7.6% 

US Treasury, Various 6.9% 

Wells Fargo Mortgage Backed Securities Trust, 

Series 2004-N, Class A6, 4.00%, 8/25/34 4.7% 

John Deere Owner Trust, Various 3.3% 

Banc of America Mortgage Securities, 

Inc., Series 2004-G, Class 2A6, 

4.648%, 8/25/34 2.8% 

Washington Mutual Commercial Mortgage 

Securities Trust, Various 2.6% 

Thornburg Mortgage Securities Trust, Series 

2006-1, Class A3, .641%, 1/25/46 2.3% 

LB-UBS Commercial Mortgage Trust, Series 

2001-WM, Class A2, 6.53%, 7/14/16 2.1% 

Bank of America Corp., Various 1.9% 


Investment Grade 

Segment 

4% 



3% 

Governments 

14% 

Structured 

Products 

45% 

Corporate 

Bonds 

33% 



change. 

The Corporate Bonds sector includes bonds of companies 

and governments headquartered outside the United States. 

The Government and Structured Product categories include 

domestic taxable bonds. 

Consistent with the Portfolio’s stated parameters, no more 

than 30% of the Portfolio is invested in foreign securities, 

and no more than 20% is invested in high yield securities. 






Corporate Bonds (37.2%) 

Aerospace/Defense (1.1%) 

Shares/ 

$ Par 

Value 

$ (000's) 

BAE Systems Holdings, 

Inc., 

4.75%, 8/15/10 144A 250,000 249 


Corp., 7.625%, 6/15/12 250,000 244 

Northrop Grumman 

Systems Corp., 

7.125%, 2/15/11 250,000 260 

Total 753 

Auto Manufacturing (0.7%) 

Daimler Finance North 

America LLC, 

5.75%, 9/8/11 250,000 211 


America LLC, 

7.20%, 9/1/09 250,000 243 

Total 454 

Banking (16.9%) 

American Express Bank, 

FSB, 3.15%, 12/9/11 1,000,000 1,008 

Bank of America Corp., 

3.125%, 6/15/12 1,000,000 1,039 


4.50%, 8/1/10 250,000 250 

Bank of Scotland PLC, 

5.625%, 7/20/09 144A 250,000 248 

Barclays Bank PLC, 

7.40%, 12/15/09 390,000 392 

Citigroup, Inc., 

6.50%, 8/19/13 200,000 202 

Countrywide Home 

Loans, Inc., 

4.125%, 9/15/09 270,000 267 

Credit Suisse USA, Inc., 

5.50%, 8/16/11 225,000 224 


Group, Inc., 

3.25%, 6/15/12 1,000,000 1,043 

HSBC USA, Inc., 

3.125%, 12/16/11 1,000,000 1,038 

JPMorgan Chase & Co., 

4.75%, 5/1/13 250,000 247 

KeyBank NA, 

3.20%, 6/15/12 1,000,000 1,039 

Mellon Funding Corp., 

3.25%, 4/1/09 185,000 184 


4.25%, 2/8/10 35,000 34 


4.79%, 8/4/10 215,000 209 

Morgan Stanley, 

6.60%, 4/1/12 250,000 242 

National City Corp., 

3.125%, 4/30/09 300,000 294 


Shares/ 

$ Par 

Value 

$ (000's) 

Banking continued 

PNC Funding Corp., 

2.30%, 6/22/12 1,000,000 1,010 

PNC Funding Corp., 

7.50%, 11/1/09 250,000 250 

Regions Bank, 

3.25%, 12/9/11 1,000,000 1,040 

SunTrust Bank, 

3.00%, 11/16/11 1,000,000 1,034 

U.S. Bancorp, 

4.50%, 7/29/10 250,000 249 

Wells Fargo Bank NA, 

7.55%, 6/21/10 268,000 279 

Total 11,822 

Cable/Media/Broadcasting/Satellite (1.0%) 

CBS Corp., 

7.70%, 7/30/10 250,000 244 

Comcast Corp., 

5.45%, 11/15/10 250,000 247 

Viacom, Inc., 

5.75%, 4/30/11 250,000 227 

Total 718 

Consumer Products (0.2%) 

Colgate-Palmolive Co., 

4.20%, 5/15/13 125,000 128 

Total 128 


Appalachian Power Co., 

6.60%, 5/1/09 138,000 137 

Consolidated Edison Co. 

of New York, 

3.85%, 6/15/13 250,000 236 

Consumers Energy Co., 

4.80%, 2/17/09 250,000 249 

The Detroit Edison Co., 

6.125%, 10/1/10 250,000 251 

Duke Energy Carolinas 

LLC, 4.50%, 4/1/10 250,000 250 

Florida Power Corp., 

4.50%, 6/1/10 250,000 248 

Nevada Power Co., 

6.50%, 4/15/12 250,000 239 

Pacific Gas & Electric 

Co., 3.60%, 3/1/09 250,000 249 

PacifiCorp, 

5.45%, 9/15/13 250,000 256 

PPL Electric Utilities 

Corp., 6.25%, 8/15/09 250,000 251 

Virginia Electric and 

Power Co., 

4.50%, 12/15/10 250,000 247 

Total 2,613 


Shares/ 

$ Par 

Value 

$ (000's) 

Electronics (0.5%) 

IBM International Group 

Capital LLC, 

5.05%, 10/22/12 325,000 339 

Total 339 


Kraft Foods, Inc., 

5.625%, 11/1/11 155,000 159 


6.25%, 6/1/12 95,000 98 

Total 257 

Gas Pipelines (0.7%) 

Enterprise Products 

Operating LP, 

4.625%, 10/15/09 250,000 242 

Kinder Morgan Energy 

Partners, L.P., 

6.30%, 2/1/09 250,000 250 

Total 492 


American General Finance 

Corp., 4.625%, 5/15/09 250,000 214 


Corp., 3.00%, 12/9/11 1,000,000 1,034 


Corp., 5.25%, 10/19/12 25,000 25 

(n) General Motors 

Acceptance Corp. LLC, 

7.50%, 12/31/13 144A 10,000 7 

General Motors 


7.75%, 1/19/10 100,000 89 



8.00%, 12/31/18 144A 12,000 6 

International Lease 


5.45%, 3/24/11 250,000 184 

Total 1,559 

Industrials - Other (0.3%) 

D.R. Horton, Inc., 

7.875%, 8/15/11 250,000 215 

Total 215 


Anadarko Finance Co., 

6.75%, 5/1/11 250,000 250 

Burlington Resources 

Finance Co., 

6.40%, 8/15/11 250,000 257 

Devon Financing Corp. 

ULC, 6.875%, 9/30/11 250,000 252 





Shares/ 

$ Par 

Value 

$ (000's) 

Oil and Gas continued 

Tesoro Corp., 

6.25%, 11/1/12 250,000 172 

Total 931 

Other Finance (1.5%) 

Capmark Financial Group, 

Inc., 5.875%, 5/10/12 100,000 34 

John Deere Capital Corp., 

2.875%, 6/19/12 1,000,000 1,029 

Total 1,063 

Paper and Forest Products (0.4%) 

International Paper Co., 

4.00%, 4/1/10 250,000 241 

Total 241 

Railroads (1.3%) 

Burlington Northern Santa 

Fe Corp., 

6.125%, 3/15/09 250,000 250 

Canadian National 

Railway Co., 

4.25%, 8/1/09 198,000 198 

Norfolk Southern Corp., 

6.75%, 2/15/11 237,000 240 

Union Pacific Corp., 

3.875%, 2/15/09 250,000 250 

Total 938 

Real Estate Investment Trusts (1.1%) 

AvalonBay Communities, 

Inc., 7.50%, 8/1/09 390,000 377 

Duke Realty LP, 

5.625%, 8/15/11 250,000 194 

Simon Property Group LP, 

5.375%, 6/1/11 250,000 211 

Total 782 


CVS/Caremark Corp., 

4.00%, 9/15/09 250,000 247 

Safeway, Inc., 

7.50%, 9/15/09 250,000 254 

Total 501 

Retail Stores (1.1%) 

The Home Depot, Inc., 

4.625%, 8/15/10 250,000 247 

J.C. Penney Corp., 

8.00%, 3/1/10 250,000 243 

Macy's Retail Holdings, 

Inc., 6.30%, 4/1/09 250,000 244 

Total 734 

Telecommunications (1.8%) 

AT&T, Inc., 

4.125%, 9/15/09 293,000 294 

Deutsche Telekom 

International Finance 

BV, 8.00%, 6/15/10 250,000 258 


Shares/ 

$ Par 

Value 

$ (000's) 

Telecommunications continued 

Rogers Wireless, Inc., 

9.625%, 5/1/11 200,000 209 

Sprint Capital Corp., 

7.625%, 1/30/11 250,000 209 

Vodafone Group PLC, 

7.75%, 2/15/10 250,000 255 

Total 1,225 

Vehicle Parts (0.3%) 

Johnson Controls, Inc., 

5.25%, 1/15/11 250,000 230 

Total 230 

Total Corporate Bonds 

(Cost: $26,305) 25,995 

Governments (14.5%) 




3.875%, 7/12/13 5,000,000 5,306 

US Treasury, 

2.125%, 4/30/10 422,000 432 

US Treasury, 

2.375%, 8/31/10 1,950,000 2,009 

US Treasury, 

3.125%, 8/31/13 175,000 189 

US Treasury Inflation 

Index Bond, 

0.875%, 4/15/10 2,287,140 2,149 

Total Governments 

(Cost: $9,809) 10,085 

Structured Products (45.3%) 


Banc of America 

Mortgage Securities, Inc., 

Series 2004-G, Class 

2A6, 4.648%, 8/25/34 2,000,000 1,921 

Capital One Multi-Asset 

Execution Trust, Series 

2007-A6, Class A6, 

1.265%, 5/15/13 875,000 788 

Capital One Prime Auto 

Receivables Trust, Series 

2006-2, Class A4, 

4.94%, 7/15/12 1,000,000 956 

Countrywide Home Loan 

Mortgage Pass Through 

Trust, Series 2005-31, 

Class 2A1, 

5.471%, 1/25/36 745,358 535 


Mortgage Corp., 

5.00%, 4/1/18 509,296 526 

Structured Products 

(45.3%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Structured Products continued 


Mortgage Corp., Series 

2439, Class LH, 

6.00%, 4/15/32 500,000 515 



7.00%, 12/1/35 707,674 738 



5.00%, 5/1/20 1,577,807 1,624 



6.00%, 8/1/22 1,701,507 1,768 



6.50%, 12/1/37 1,801,853 1,874 



6.50%, 9/1/38 335,515 349 

First Union National Bank 

Commercial Mortgage 

Trust, Series 1999-C4, 

Class E, 

7.939%, 12/15/31 144A 1,000,000 945 

John Deere Owner Trust, 

Series 2008-A, Class A4, 

4.89%, 3/16/15 1,000,000 906 



5.04%, 7/15/11 847,264 842 



5.07%, 4/15/14 1,500,000 1,428 

LB-UBS Commercial 

Mortgage Trust, Series 

2003-C7, Class A2, 

4.064%, 9/15/27 150,024 145 



2001-WM, Class A2, 

6.53%, 7/14/16 144A 1,500,000 1,457 

MBNA Master Credit 

Card Trust, Series 2000- 

E, Class A, 

7.80%, 10/15/12 700,000 706 

Morgan Stanley Capital I, 

Inc., Series 1999-FNV1, 

Class C, 6.80%, 3/15/31 1,000,000 997 

Morgan Stanley Dean 

Witter Capital I, Inc., 

Series 2000-LIF2, Class 

A2, 7.20%, 10/15/33 192,362 191 



2005-C, Class A4, 

4.31%, 3/15/11 507,791 502 



2006-A, Class A4, 

4.77%, 7/15/11 1,000,000 990 





(45.3%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Nordstrom Private Label 

Credit Card Master Note 

Trust, Series 2007-1A, 

Class A, 

4.92%, 5/15/13 144A 963,000 919 

Thornburg Mortgage 

Securities Trust, Series 

2006-5, Class A1, 

.591%, 9/25/46 1,009,187 836 



2006-1, Class A3, 

.641%, 1/25/46 1,583,733 1,578 



2007-2, Class A3A, 

1.525%, 6/25/37 794,307 662 

USAA Auto Owner Trust, 

Series 2008-2, Class A4, 

5.16%, 11/15/13 1,000,000 885 

WaMu Commercial 

Mortgage Securities 

Trust, Series 2005-C1A, 

Class A2, 

5.15%, 5/25/36 144A 979,732 947 

Washington Mutual 



2003-C1A, Class A, 

3.83%, 1/25/35 144A 899,171 853 

Wells Fargo Mortgage 

Backed Securities Trust, 

Series 2004-N, Class A6, 

4.00%, 8/25/34 3,450,000 3,296 

World Financial 

Properties, 

6.91%, 9/1/13 144A 887,900 905 

Total Structured Products 

(Cost: $32,529) 31,584 


(0.7%) 

Shares/ 

$ Par 

Value 

$ (000's) 


(b) Federal National 


0.20%, 3/30/09 200,000 200 

Total 200 


(0.4%) 


4.00%, 1/5/09 300,000 300 

Total 300 


(Cost: $500) 500 


(Cost: $69,143)(a) 68,164 



Net Assets (100.0%) 69,797 

144A after the name of a security represents a security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be 

resold as transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2008 the value of these securities (in thousands) 

was $6,536, representing 9.36% of the net assets. 

(a) 

(b) 


investments based on that cost was $982 which is comprised of $1,120 aggregate gross unrealized appreciation and $2,102 aggregate gross unrealized 

depreciation. 



Unrealized 

Appreciation/ 

Number of 




US Two Year Treasury Note (Long) (Total Notional Value at December 31, 2008, $1,291) 6 3/09 $ 18 

(n) 

At December 31, 2008 portfolio securities with a aggregate market value of $13 (in thousands) were valued with reference to securities whose values are 

more readily available. 





Realize as high a level of total return 


risk. A secondary objective is to seek 

preservation of shareholders’ capital. 

Invest primarily in high quality corporate bonds, U.S. 

government bonds and government agency securities. 

$1.1 billion 


Mason Street Advisors acts as the investment adviser for the Select Bond Portfolio. The Portfolio seeks to realize as high a 

level of total return as is consistent with prudent investment risk; a secondary objective is to seek preservation of shareholders’ 

capital. The Portfolio seeks to achieve these objectives by investing at least 80% of net assets (plus any borrowings for 

investment purposes) in a diversified portfolio of investment grade debt securities with maturities exceeding one year. The 

Portfolio invests in both domestic and foreign debt securities that are rated investment grade by at least one major rating 

agency, or if unrated, determined by management to be of comparable quality. Up to 20% of net assets may be invested in 

below investment grade securities. The Portfolio is actively managed to seek to take advantage of changes in interest rates, 

credit quality and maturity based on management’s outlook for the economy, the financial markets and other factors. 




segments of the Treasury market to their best year ever, while credit-sensitive bonds endured historic underperformance. 

Economic conditions deteriorated sharply over the course of the year, as the economy entered its first recession since 2002. In 



(TARP). Against that backdrop, the Citigroup U.S. Broad Investment Grade (BIG) Bond Index (a broad-based bond index) 

rose 7.02%, led by gains in Treasury and government-backed mortgage debt, while corporate bonds endured their worst year 

ever, according to Merrill Lynch. 


For the twelve months ended December 31, 2008, the Select Bond Portfolio had a total return of 3.26%. By comparison, the 

Citigroup BIG Index returned 7.02% for the year. (This Index is unmanaged, cannot be invested in directly and does not 

include administrative expenses or sales charges.) The average return for the Portfolio’s peer group, A-Rated Corporate Debt 

Funds was –5.23%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 

Select Bond’s performance relative to its peers and Index can largely be explained by its sector allocation. Corporate, 

mortgage-, and asset-backed securities significantly underperformed Treasuries in 2008, and the portfolio had more of these 

credit-sensitive securities than the Index, but apparently less than many of its peers. 

We take a patient, long-term approach to investing, looking for high quality assets at attractive prices. But managing the 

Portfolio with an eye toward the long term carries the risk of short-term set-backs as we build positions in out-of-favor 

segments of the market. 

For example, as Treasury yields fell to record lows across the maturity spectrum, we were selling these bonds and reducing our 

sensitivity to interest rate changes. Similarly, the difference in yield between plain vanilla and inflation adjusted Treasuries 

narrowed so dramatically in the fourth quarter that it implied inflation running below 1% a year for the next ten years. And this 

was at a time when the Fed was taking unprecedented steps to support the economy and employing policies that we felt almost 

certainly would prove inflationary down the road. So, while many people were dumping inflation-adjusted bonds, we were 

buying them. These trades detracted from performance compared with our Index in 2008, but we reduced our exposure to what 

is arguably the last remaining asset bubble (Treasuries) and bought future inflation protection at what we consider cheap 

prices. 

In the mortgage slice, we took advantage of the dislocations in the market to add high quality mortgage- and asset-backed 

securities trading at levels once reserved for low-quality, high-yield bonds. Again, we viewed these as excellent long-term 

plays, though they underperformed in 2008. And while it hurt performance relative to the Index to hold more corporate bonds, 

we mitigated some of the poor performance by holding shorter-term, higher quality securities in more defensive sectors of the 

economy. Finally, the Portfolio had limited exposure to Lehman Brothers, representing less than 1% of total assets, but which 

still hurt performance after the investment bank’s September bankruptcy filing. 

98 Select Bond Portfolio


Outlook 

We remain in a remarkable period where historical valuation and yield relationships in the fixed income markets are at 

unprecedented levels. At the sector level, this argues for a significant underweight to traditional Treasuries in favor of high 

quality, higher yielding paper where the government is your ally—Fannie Mae, Freddie Mac, and FDIC bonds are all good 

examples. This is a point we cannot stress enough—there are no shortage of high quality assets trading at distressed levels. 

And with real questions about the likely length and depth of the recession, we see no reason to dip down into lower quality 

bonds. Add it all up, and we are likely to continue to manage the Portfolio’s price sensitivity to interest rate changes 

conservatively, while working to capitalize on relative value disparities through our sector allocation and security selection. 





Select Bond Portfolio 3.26% 4.06% 5.68% 

Citigroup U.S. Broad Investment 

Grade Index 7.02% 5.10% 5.85% 

Barclays Capital U.S. Aggregate 

Index** 5.24% 4.65% 5.63% 


(VIP) Corporate Debt Funds A- 

Rated Average -5.23% 1.97% 3.94% 

** Prior to November 1, 2008, the Barclays Capital U.S. Aggregate 

Index was known as the Lehman Brothers U.S. Aggregate Index. 
























www.nmfn.com. 

Select Bond Portfolio 99






Federal Home Loan Mortgage Corp., Various 11.6% 


Federal Home Loan Mortgage Corp., 

4.875%, 6/13/18 3.6% 

AEP Texas Central Transition Funding 

LLC, Series 2006-A, Class A5, 5.306%, 7/1/21 1.3% 

Banc of America Commercial Mortgage, 

Inc., Series 2007-2, Class A4, 5.688%, 4/10/49 0.8% 

US Department of Housing & Urban 

Development, Various 0.7% 

Federal National Mortgage Association 

Aces, Series 2006-M1, Class C, 

5.355%, 2/25/16 0.7% 

Nordstrom Private Label Credit Card Master 

Note Trust, Series 2007-1A, Class A, 

4.92%, 5/15/13 0.6% 

Chase Issuance Trust, Series 2007-A17, Class 

A, 5.12%, 10/15/14 0.6% 



4% 


Governments 

14% 

Corporate Bonds 

29% 

Structured 

Products 

53% 



change. 















Shares/ 

$ Par 

Value 

$ (000's) 

(n)* Preferred Blocker, Inc., 

9.00%, 12/31/49 144A 207 52 

Total 52 


(Cost: $52) 52 


(28.9%) 


BAE Systems Holdings, 

Inc., 

5.20%, 8/15/15 144A 705,000 656 

General Dynamics 

Corp., 4.25%, 5/15/13 890,000 890 


Corp., 

6.375%, 10/15/15 3,050,000 2,851 

Litton Industries, Inc., 

6.75%, 4/15/18 1,000,000 1,112 

Lockheed Martin Corp., 

6.15%, 9/1/36 735,000 797 

Raytheon Co., 

5.50%, 11/15/12 3,680,000 3,720 

Total 10,026 



America LLC, 

5.75%, 5/18/09 1,940,000 1,883 


America LLC, 

8.50%, 1/18/31 240,000 175 

Total 2,058 


American Express 

Bank, FSB, 

3.15%, 12/9/11 2,650,000 2,671 

BA Covered Bond 

Issuer, 

5.50%, 6/14/12 144A 2,505,000 2,580 


5.42%, 3/15/17 415,000 369 


5.65%, 5/1/18 3,550,000 3,571 


8.125%, 12/29/49 2,210,000 1,653 


Mellon Corp., 

4.95%, 11/1/12 210,000 213 

Bank One Corp., 

5.25%, 1/30/13 2,835,000 2,765 


6.05%, 12/4/17 144A 255,000 225 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 



7.7%, 4/26/49 144A 300,000 198 

The Bear Stearns 

Companies LLC, 

7.25%, 2/1/18 440,000 482 

BNP Paribas, 

7.195%, 6/29/49 144A 200,000 127 

Citigroup Capital XXI, 

8.3%, 12/21/57 555,000 428 


5.125%, 5/5/14 1,645,000 1,546 


6.125%, 11/21/17 1,315,000 1,329 


6.125%, 5/15/18 1,095,000 1,107 


8.4%, 4/29/49 395,000 261 

Countrywide Financial 

Corp., 5.80%, 6/7/12 575,000 560 


Loans, Inc., 

4.00%, 3/22/11 1,045,000 995 


Loans, Inc., 

4.125%, 9/15/09 210,000 208 

Credit Agricole 

SA/London, 

6.637%, 5/31/49 144A 220,000 99 

Credit Suisse Guernsey, 

Ltd., 5.86%, 5/29/49 85,000 40 

Credit Suisse/New York 

NY, 5.00%, 5/15/13 2,305,000 2,218 


NY, 6.00%, 2/15/18 1,335,000 1,226 

Deutsche Bank Capital 

Funding Trust VII, 

5.628%, 1/19/49 144A 815,000 348 

Fifth Third Bancorp, 

8.25%, 3/1/38 500,000 413 


Group, Inc., 

5.15%, 1/15/14 3,420,000 3,080 


Group, Inc., 

5.75%, 10/1/16 390,000 365 

HSBC Holdings PLC, 

6.80%, 6/1/38 910,000 962 

HSBC USA, Inc., 

3.125%, 12/16/11 2,650,000 2,752 


4.75%, 3/1/15 95,000 89 


7.90%, 4/29/49 1,350,000 1,123 

(d) Lehman Brothers 

Holdings, Inc., 

5.50%, 4/4/16 385,000 37 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 




6.875%, 5/2/18 480,000 46 

M&I Marshall & Ilsley 

Bank, 5.15%, 2/22/12 1,770,000 1,600 

Mellon Bank NA, 

5.45%, 4/1/16 940,000 919 


6.22%, 9/15/26 240,000 222 


6.40%, 8/28/17 3,110,000 3,116 


2.00%, 9/22/11 2,650,000 2,667 


5.375%, 10/15/15 800,000 689 


6.25%, 8/28/17 800,000 681 


6.25%, 8/9/26 640,000 520 

The Northern Trust Co., 

5.85%, 11/9/17 250,000 256 

Northern Trust Corp., 

5.30%, 8/29/11 580,000 591 

State Street Bank and 

Trust Co., 

5.30%, 1/15/16 1,385,000 1,354 

SunTrust Bank, 

3.00%, 11/16/11 2,650,000 2,740 


Branch, 

5.75%, 4/25/18 1,775,000 1,611 


Branch, 

5.875%, 12/20/17 750,000 689 

UBS Preferred Funding 

Trust V, 

6.243%, 5/29/49 170,000 93 

UnionBanCal Corp., 

5.25%, 12/16/13 565,000 481 

Wachovia Bank NA, 

6.60%, 1/15/38 435,000 472 

Wachovia Corp., 

5.35%, 3/15/11 950,000 906 


7.98%, 2/28/49 250,000 213 

(d)Washington Mutual 

Bank, 6.75%, 5/20/36 520,000 0 

(d)Washington Mutual 

Bank, 

6.875%, 6/15/11 505,000 0 

Wells Fargo Capital 

XIII, 7.70%, 12/29/49 2,525,000 2,084 

Zions Bancorporation, 

5.50%, 11/16/15 1,520,000 1,075 

Total 57,065 





(28.9%) 

Beverage/Bottling (1.3%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Anheuser-Busch 

Companies, Inc., 

4.50%, 4/1/18 40,000 34 



5.75%, 4/1/36 200,000 162 



9.00%, 12/1/09 3,025,000 3,113 

Bottling Group LLC, 

4.625%, 11/15/12 380,000 384 

Bottling Group LLC, 

5.50%, 4/1/16 2,815,000 2,817 

The Coca-Cola Co., 

5.35%, 11/15/17 840,000 906 

Constellation Brands, 

Inc., 7.25%, 9/1/16 1,180,000 1,115 

Diageo Capital PLC, 

4.375%, 5/3/10 420,000 416 

Dr. Pepper Snapple 

Group, Inc., 

6.82%, 5/1/18 144A 645,000 636 

Dr. Pepper Snapple 

Group, Inc., 

7.45%, 5/1/38 144A 510,000 508 

PepsiCo, Inc., 

4.65%, 2/15/13 385,000 396 


5.00%, 6/1/18 275,000 285 


7.9%, 11/1/18 375,000 460 

SABMiller PLC, 

6.20%, 7/1/11 144A 2,965,000 2,937 

Total 14,169 

Building Products (0.1%) 

CRH America, Inc., 

6.00%, 9/30/16 575,000 358 

CRH America, Inc., 

8.125%, 7/15/18 385,000 278 

Total 636 


CBS Corp., 

6.625%, 5/15/11 330,000 292 


5.90%, 3/15/16 1,945,000 1,857 


6.40%, 5/15/38 555,000 554 


6.50%, 11/15/35 175,000 174 

Cox Communications, 

Inc., 4.625%, 1/15/10 565,000 547 

Historic TW, Inc., 

6.625%, 5/15/29 430,000 381 

Historic TW, Inc., 

6.875%, 6/15/18 180,000 161 

News America, Inc., 

6.15%, 3/1/37 730,000 681 

Rogers Cable, Inc., 

5.50%, 3/15/14 3,450,000 3,183 

Corporate Bonds Shares/ Value 

(28.9%) 

$ Par $ (000's) 

Cable/Media/Broadcasting/Satellite 

continued 

Rogers Cable, Inc., 

6.25%, 6/15/13 155,000 148 

TCI Communications, 

Inc., 8.75%, 8/1/15 735,000 782 

Time Warner Cable, 

Inc., 5.40%, 7/2/12 530,000 495 


Inc., 6.55%, 5/1/37 900,000 862 


Inc., 6.75%, 7/1/18 200,000 193 


Inc., 8.75%, 2/14/19 510,000 555 

Time Warner 

Entertainment Co. LP, 

8.375%, 3/15/23 690,000 695 

Time Warner 

Entertainment Co. LP, 

8.875%, 10/1/12 1,500,000 1,513 

Time Warner, Inc., 

5.50%, 11/15/11 1,000,000 940 

Viacom, Inc., 

5.75%, 4/30/11 765,000 695 

Viacom, Inc., 

6.125%, 10/5/17 190,000 157 

Total 14,865 

Conglomerate/Diversified Manufacturing 

(0.4%) 

The Dow Chemical Co., 

5.70%, 5/15/18 45,000 40 

General Electric Co., 

5.00%, 2/1/13 1,900,000 1,922 

Honeywell 

International, Inc., 

5.30%, 3/1/18 1,000,000 1,020 

Monsanto Co., 

5.125%, 4/15/18 130,000 136 


Corp., 4.875%, 5/1/15 250,000 244 


Corp., 6.35%, 3/1/11 770,000 814 

Total 4,176 


The Clorox Co., 

4.20%, 1/15/10 1,750,000 1,729 

The Clorox Co., 

5.00%, 3/1/13 1,000,000 985 

Colgate-Palmolive Co., 

4.20%, 5/15/13 700,000 717 

Fortune Brands, Inc., 

5.375%, 1/15/16 490,000 409 


Co., 5.55%, 3/5/37 460,000 511 

Total 4,351 


AEP Texas Central Co., 

6.65%, 2/15/33 575,000 528 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Electric Utilities continued 

American Electric 

Power Co., 

5.25%, 6/1/15 1,000,000 923 

Bruce Mansfield Unit, 

6.85%, 6/1/34 415,000 354 

Carolina Power & 

Light, Inc., 

5.15%, 4/1/15 320,000 321 

Carolina Power & 

Light, Inc., 

6.50%, 7/15/12 255,000 251 

CenterPoint Energy 

Houston Electric LLC, 

5.70%, 3/15/13 200,000 190 


Houston Electric LLC, 

6.95%, 3/15/33 210,000 193 

CenterPoint Energy, 

Inc., 6.50%, 5/1/18 375,000 306 

CMS Energy Corp., 

6.875%, 12/15/15 970,000 827 

Commonwealth Edison 

Co., 5.875%, 2/1/33 100,000 84 

Connecticut Light and 

Power Co., 

5.65%, 5/1/18 160,000 159 

Consolidated Edison 

Co. of New York, Inc., 

5.375%, 12/15/15 485,000 476 

Consolidated Edison 

Co. of New York, Inc., 

5.50%, 9/15/16 430,000 426 

Consolidated Natural 

Gas Co., 

5.00%, 12/1/14 1,340,000 1,230 

Consumers Energy Co., 

5.15%, 2/15/17 1,000,000 937 

The Detroit Edison Co., 

5.45%, 2/15/35 105,000 91 

Dominion Resources, 

Inc., 6.00%, 11/30/17 40,000 38 


Inc., 6.40%, 6/15/18 175,000 171 

DTE Energy Co., 

6.375%, 4/15/33 195,000 154 

DTE Energy Co., 

7.05%, 6/1/11 4,470,000 4,422 

Duke Energy Carolinas 

LLC, 6.45%, 10/15/32 1,225,000 1,296 

Duquesne Light 


5.50%, 8/15/15 640,000 537 

Entergy Louisiana LLC, 

6.50%, 9/1/18 385,000 365 

Entergy Mississippi, 

Inc., 6.25%, 4/1/34 660,000 559 

Exelon Generation Co. 

LLC, 6.20%, 10/1/17 955,000 821 

Florida Power & Light 

Co., 5.625%, 4/1/34 180,000 191 


4.50%, 6/1/10 2,115,000 2,095 





(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 



4.80%, 3/1/13 100,000 99 


6.40%, 6/15/38 365,000 408 

Indiana Michigan Power 

Co., 5.05%, 11/15/14 1,560,000 1,405 

Kiowa Power Partners 

LLC, 

4.811%, 12/30/13 

144A 560,795 524 

Kiowa Power Partners 

LLC, 

5.737%, 3/30/21 144A 975,000 746 

MidAmerican Energy 

Holdings Co., 

5.95%, 5/15/37 195,000 177 

Monongahela Power 

Co., 

5.70%, 3/15/17 144A 615,000 516 


5.875%, 1/15/15 1,495,000 1,431 


5.95%, 3/15/16 165,000 158 


6.50%, 4/15/12 750,000 717 


6.50%, 5/15/18 1,155,000 1,112 

Northern States Power 

Co., 5.25%, 10/1/18 190,000 189 

Ohio Edison Co., 

6.40%, 7/15/16 1,000,000 898 

Ohio Edison Co., 

6.875%, 7/15/36 130,000 118 

Oncor Electric Delivery 

Co., 6.375%, 1/15/15 985,000 944 


Co., 

6.80%, 9/1/08 144A 375,000 360 


Co., 7.00%, 9/1/22 180,000 168 


Co., 5.80%, 3/1/37 190,000 197 


Co., 6.05%, 3/1/34 315,000 335 

PacifiCorp, 

5.45%, 9/15/13 3,000,000 3,069 

PacifiCorp, 

5.75%, 4/1/37 630,000 622 

Potomac Electric Power 

Co., 6.50%, 11/15/37 170,000 166 


Corp., 4.30%, 6/1/13 1,800,000 1,690 


Corp., 6.25%, 8/15/09 145,000 146 

PPL Energy Supply 

LLC, 6.00%, 12/15/36 310,000 200 

PPL Energy Supply 

LLC, 6.50%, 5/1/18 330,000 268 

Progress Energy, Inc., 

6.85%, 4/15/12 710,000 712 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Public Service Co. of 

Colorado, 

5.50%, 4/1/14 955,000 907 

Public Service Co. of 

Colorado, 

6.50%, 8/1/38 1,800,000 2,008 

Public Service Electric 

& Gas Co., 

5.00%, 1/1/13 1,000,000 975 

Public Service Electric 

& Gas Co., 

5.70%, 12/1/36 1,160,000 1,071 

Puget Sound Energy, 

Inc., 6.274%, 3/15/37 765,000 681 

San Diego Gas & 

Electric Co., 

5.30%, 11/15/15 215,000 221 

San Diego Gas & 

Electric Co., 

6.125%, 9/15/37 170,000 187 

SCANA Corp., 

6.25%, 4/1/20 500,000 462 

Sierra Pacific Power 

Co., 6.75%, 7/1/37 400,000 357 

South Carolina Electric 

& Gas Co., 

6.05%, 1/15/38 265,000 277 

Southern California 

Edison Co., 

5.00%, 1/15/16 1,005,000 1,017 


Edison Co., 

5.55%, 1/15/37 230,000 242 


Edison Co., 

5.625%, 2/1/36 70,000 74 

Tampa Electric Co., 

6.10%, 5/15/18 2,370,000 2,157 


6.15%, 5/15/37 320,000 260 


6.55%, 5/15/36 385,000 329 

The Toledo Edison Co., 

6.15%, 5/15/37 910,000 732 

Union Electric Co., 

6.40%, 6/15/17 140,000 128 

Union Electric Co., 

6.70%, 2/1/19 195,000 178 


Power Co., 

5.25%, 12/15/15 3,040,000 2,954 


Power Co., 

5.40%, 1/15/16 300,000 294 

Westar Energy, Inc., 

8.625%, 12/1/18 125,000 135 

Xcel Energy, Inc., 

6.50%, 7/1/36 590,000 542 

Total 51,508 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 



Machines Corp., 

8.00%, 10/15/38 700,000 932 

Total 932 


General Mills, Inc., 

5.25%, 8/15/13 190,000 191 

General Mills, Inc., 

5.70%, 2/15/17 890,000 895 

H.J. Heinz Co., 

5.35%, 7/15/13 1,425,000 1,414 

Kellogg Co., 

6.60%, 4/1/11 3,610,000 3,778 


6.25%, 6/1/12 2,585,000 2,673 


6.50%, 8/11/17 1,305,000 1,312 


6.875%, 1/26/39 440,000 441 

Smithfield Foods, Inc., 

7.75%, 5/15/13 835,000 536 

Total 11,240 

Gaming/Lodging/Leisure (0.2%) 

Harrah's Operating Co., 

5.75%, 10/1/17 420,000 65 

Royal Caribbean 

Cruises, Ltd., 

7.00%, 6/15/13 1,180,000 673 

Wynn Las Vegas 

LLC/Wynn Las Vegas 

Capital Corp., 

6.625%, 12/1/14 2,405,000 1,816 

Total 2,554 



Resources Corp., 

6.125%, 11/1/17 120,000 101 

El Paso Corp., 

7.00%, 6/15/17 420,000 329 

El Paso Natural Gas 

Co., 5.95%, 4/15/17 160,000 127 


Partners LP, 

6.50%, 2/1/37 200,000 153 


Partners LP, 

7.30%, 8/15/33 1,085,000 900 

Kinder Morgan Finance 

Co. ULC, 

5.35%, 1/5/11 1,765,000 1,575 

Rockies Express 

Pipeline LLC, 

6.85%, 7/15/18 144A 325,000 300 

Southern Natural Gas 

Co., 

5.90%, 4/1/17 144A 175,000 139 

Tennessee Gas Pipeline 

Co., 7.50%, 4/1/17 170,000 150 





(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Gas Pipelines continued 

TransCanada Pipelines, 

Ltd., 5.85%, 3/15/36 160,000 136 

TransCanada Pipelines, 

Ltd., 6.20%, 10/15/37 305,000 265 

TransCanada PipeLines, 

Ltd., 7.25%, 8/15/38 785,000 781 

Total 4,956 

Health Care/Pharmaceuticals (1.0%) 

AstraZeneca PLC, 

5.90%, 9/15/17 1,000,000 1,063 


Co., 5.875%, 11/15/36 90,000 96 


Co., 6.125%, 5/1/38 465,000 511 

Eli Lilly and Co., 

5.55%, 3/15/37 735,000 759 

GlaxoSmithKline 

Capital, Inc., 

5.65%, 5/15/18 555,000 583 

GlaxoSmithKline 

Capital, Inc., 

6.375%, 5/15/38 815,000 921 

Johnson & Johnson, 

5.55%, 8/15/17 1,000,000 1,142 

Johnson & Johnson, 

5.95%, 8/15/37 735,000 897 

Merck & Co., 

4.75%, 3/1/15 500,000 494 

Merck & Co., 

5.75%, 11/15/36 375,000 395 

Merck & Co., 

6.40%, 3/1/28 125,000 138 


6.00%, 9/15/17 1,000,000 990 

Wyeth, 5.50%, 2/1/14 2,040,000 2,072 

Wyeth, 5.95%, 4/1/37 910,000 1,010 

Total 11,071 


American General 


5.4%, 12/1/15 295,000 110 

American General 


6.90%, 12/15/17 1,455,000 630 


Corp., 5.625%, 5/1/18 4,960,000 4,996 


Corp., 

5.875%, 1/14/38 180,000 176 


Acceptance Corp. 

LLC, 

6.00%, 12/15/11 144A 978,000 791 



LLC, 

7.50%, 12/31/13 144A 179,000 131 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Independent Finance continued 



LLC, 

8.00%, 12/31/18 144A 214,000 107 


4.125%, 11/16/09 2,330,000 2,309 



4.75%, 1/13/12 1,485,000 1,038 

iStar Financial, Inc., 

5.15%, 3/1/12 1,165,000 367 

iStar Financial, Inc., 

8.625%, 6/1/13 500,000 155 

Total 10,810 


Centex Corp., 

7.875%, 2/1/11 245,000 217 


5.375%, 6/15/12 385,000 284 


7.875%, 8/15/11 110,000 94 

Total 595 

Information/Data Technology (0.2%) 

Fiserv, Inc., 

6.125%, 11/20/12 765,000 719 

Fiserv, Inc., 

6.80%, 11/20/17 765,000 678 

Seagate Technology 

HDD Holdings, 

6.80%, 10/1/16 510,000 265 

Total 1,662 

Life Insurance (0.0%) 

Prudential Financial, 

Inc., 5.70%, 12/14/36 145,000 90 

Total 90 

Machinery (0.1%) 

Case Corp., 

7.25%, 1/15/16 1,775,000 1,234 

Total 1,234 


Alcoa, Inc., 

5.55%, 2/1/17 1,000,000 787 

Alcoa, Inc., 

5.72%, 2/23/19 860,000 646 

Alcoa, Inc., 

5.90%, 2/1/27 520,000 342 

Alcoa, Inc., 

6.75%, 7/15/18 290,000 237 

Barrick North America 

Fiance LLC, 

6.80%, 9/15/18 375,000 335 



8.25%, 4/1/15 200,000 170 



8.375%, 4/1/17 515,000 422 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Metals/Mining continued 

Rio Tinto Finance USA, 

Ltd., 6.50%, 7/15/18 410,000 301 

Total 3,240 

Natural Gas Distributors (0.1%) 

NiSource Finance 

Corp., 5.25%, 9/15/17 495,000 300 


Corp., 5.40%, 7/15/14 590,000 404 


Corp., 5.45%, 9/15/20 185,000 99 


Corp., 6.40%, 3/15/18 205,000 128 

Total 931 

Oil & Gas Field Machines and Services 

(0.1%) 

Pride International, Inc., 

7.375%, 7/15/14 655,000 609 

Total 609 


Anadarko Finance Co., 

7.50%, 5/1/31 775,000 685 

Apache Corp., 

6.00%, 1/15/37 365,000 354 

Apache Corp., 

6.90%, 9/15/18 95,000 103 

Canadian Natural 

Resources, Ltd., 

5.15%, 2/1/13 1,000,000 927 



5.70%, 5/15/17 700,000 611 



5.85%, 2/1/35 140,000 104 



6.25%, 3/15/38 1,465,000 1,152 



6.45%, 6/30/33 255,000 206 

ConocoPhillips Canada 

Funding Co. I, 

5.30%, 4/15/12 565,000 565 


7.95%, 4/15/32 200,000 221 

Devon Financing Corp. 

ULC, 6.875%, 9/30/11 1,830,000 1,847 

EnCana Corp., 

5.90%, 12/1/17 325,000 271 

EnCana Corp., 

6.50%, 2/1/38 300,000 241 

EnCana Corp., 

6.625%, 8/15/37 250,000 201 

EnCana Holdings 


5.80%, 5/1/14 1,760,000 1,649 

Hess Corp., 

7.125%, 3/15/33 260,000 231 





(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Marathon Oil Corp., 

6.125%, 3/15/12 1,000,000 1,012 

Marathon Oil Corp., 

6.60%, 10/1/37 130,000 98 

Nexen, Inc., 

5.875%, 3/10/35 2,300,000 1,732 

Nexen, Inc., 

6.40%, 5/15/37 115,000 90 

Pemex Project Funding 

Master Trust, 

6.625%, 6/15/35 144A 200,000 169 

Petro-Canada, 

5.95%, 5/15/35 580,000 399 

Petro-Canada, 

6.05%, 5/15/18 880,000 725 

Pioneer Natural 

Resources Co., 

6.875%, 5/1/18 1,340,000 937 

Suncor Energy, Inc., 

6.50%, 6/15/38 1,330,000 1,006 

Suncor Energy, Inc., 

6.85%, 6/1/39 210,000 167 

Sunoco, Inc., 

5.75%, 1/15/17 625,000 519 

Talisman Energy, Inc., 

5.85%, 2/1/37 1,590,000 1,106 

Tesoro Corp., 

6.25%, 11/1/12 1,590,000 1,097 

Tesoro Corp., 

6.50%, 6/1/17 2,045,000 1,122 

Valero Energy Corp., 

6.625%, 6/15/37 1,450,000 1,067 

XTO Energy, Inc., 

5.30%, 6/30/15 195,000 178 


6.25%, 4/15/13 100,000 98 


6.50%, 12/15/18 380,000 368 


6.75%, 8/1/37 450,000 421 

Total 21,679 


Capmark Financial 

Group, Inc., 

6.30%, 5/10/17 255,000 70 

Eaton Vance Corp., 

6.50%, 10/2/17 85,000 75 

PNC Financial Services 

Group, Inc., 

8.25%, 5/21/13 2,370,000 1,910 

SLM Corp., 

5.375%, 1/15/13 80,000 59 

SLM Corp., 

5.375%, 5/15/14 445,000 300 

SLM Corp., 

5.45%, 4/25/11 3,020,000 2,384 

Total 4,798 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Other Services (0.1%) 

Waste Management, 

Inc., 5.00%, 3/15/14 540,000 463 

Waste Management, 

Inc., 6.10%, 3/15/18 1,090,000 943 

Total 1,406 



7.95%, 6/15/18 430,000 340 


8.70%, 6/15/38 415,000 290 

Weyerhaeuser Co., 

6.875%, 12/15/33 200,000 133 

Total 763 

Property and Casualty Insurance (0.0%) 

The Progressive Corp., 

6.70%, 6/15/37 245,000 120 

Total 120 



Santa Fe Corp., 

6.125%, 3/15/09 3,000,000 3,007 



6.15%, 5/1/37 710,000 654 



6.20%, 8/15/36 625,000 576 


Railway Co., 

5.85%, 11/15/17 120,000 124 


Railway Co., 

6.375%, 11/15/37 365,000 400 

Canadian Pacific 

Railway Co., 

5.95%, 5/15/37 145,000 102 

CSX Corp., 

5.60%, 5/1/17 1,760,000 1,564 


3.875%, 2/15/09 3,000,000 3,006 


5.65%, 5/1/17 1,105,000 1,060 


5.75%, 11/15/17 550,000 521 


6.65%, 1/15/11 565,000 563 

Total 11,577 


AvalonBay 

Communities, Inc., 

5.50%, 1/15/12 360,000 288 

BRE Properties, Inc., 

5.50%, 3/15/17 315,000 160 

Colonial Realty LP, 

6.05%, 9/1/16 255,000 149 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Real Estate Investment Trusts continued 


Realty Corp., 

5.375%, 10/15/12 1,000,000 419 


5.95%, 2/15/17 865,000 432 


6.50%, 1/15/18 1,000,000 446 

ERP Operating LP, 

5.25%, 9/15/14 1,325,000 885 

ERP Operating LP, 

5.75%, 6/15/17 420,000 290 

First Industrial LP, 

5.25%, 6/15/09 1,275,000 1,177 

HCP, Inc., 

6.00%, 1/30/17 290,000 140 

HCP, Inc., 

6.70%, 1/30/18 170,000 82 

HRPT Properties Trust, 

5.75%, 11/1/15 800,000 426 

ProLogis, 

5.50%, 3/1/13 1,380,000 800 

ProLogis, 

5.75%, 4/1/16 865,000 431 

Rouse Co. LP/TRC Co- 

Issuer, Inc., 

6.75%, 5/1/13 144A 2,700,000 972 

Simon Property Group 

LP, 5.375%, 6/1/11 2,370,000 2,003 


LP, 5.60%, 9/1/11 590,000 493 


LP, 6.10%, 5/1/16 1,155,000 738 

Total 10,331 

Restaurants (0.1%) 

Darden Restaurants, 

Inc., 6.20%, 10/15/17 120,000 89 

Darden Restaurants, 

Inc., 6.80%, 10/15/37 470,000 303 

Yum! Brands, Inc., 

6.875%, 11/15/37 575,000 456 

Total 848 



4.875%, 9/15/14 730,000 673 


6.125%, 8/15/16 330,000 320 


6.25%, 6/1/27 1,475,000 1,371 

Delhaize Group, 

6.50%, 6/15/17 570,000 517 

The Kroger Co., 

6.15%, 1/15/20 2,095,000 2,067 


7.00%, 5/1/18 170,000 178 


7.50%, 4/1/31 735,000 816 

Tesco PLC, 

6.15%, 11/15/37 144A 440,000 389 

Total 6,331 





(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Costco Wholesale 

Corp., 5.50%, 3/15/17 555,000 590 

The Home Depot, Inc., 

5.875%, 12/16/36 1,300,000 1,019 


5.75%, 2/15/18 105,000 70 


6.375%, 10/15/36 210,000 127 


6.875%, 10/15/15 490,000 390 


7.95%, 4/1/17 420,000 320 

Kohl's Corp., 

6.25%, 12/15/17 510,000 408 

Kohl's Corp., 

6.875%, 12/15/37 380,000 270 


Inc., 6.30%, 4/1/09 3,790,000 3,696 


Inc., 6.65%, 7/15/24 65,000 36 


Inc., 7.00%, 2/15/28 95,000 52 


Inc., 7.875%, 7/15/15 605,000 436 

Nordstrom, Inc., 

7.00%, 1/15/38 225,000 134 

Target Corp., 

5.375%, 5/1/17 1,495,000 1,360 

Target Corp., 

6.50%, 10/15/37 635,000 545 

Wal-Mart Stores, Inc., 

5.80%, 2/15/18 1,000,000 1,107 


5.875%, 4/5/27 810,000 854 

Total 11,414 


AT&T Corp., 

7.30%, 11/15/11 1,500,000 1,558 

AT&T Corp., 

8.00%, 11/15/31 1,470,000 1,847 

AT&T Mobility LLC, 

7.125%, 12/15/31 1,535,000 1,613 

AT&T, Inc., 

5.10%, 9/15/14 1,625,000 1,597 

British 


PLC, 

8.625%, 12/15/10 1,000,000 1,029 

British 


PLC, 

9.125%, 12/15/30 500,000 532 



BV, 5.75%, 3/23/16 480,000 460 

Embarq Corp., 

6.738%, 6/1/13 610,000 515 

Embarq Corp., 

7.082%, 6/1/16 660,000 508 


(28.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Embarq Corp., 

7.995%, 6/1/36 635,000 429 

France Telecom SA, 

7.75%, 3/1/11 1,000,000 1,052 


8.50%, 3/1/31 800,000 1,004 

Rogers 

Communications, Inc., 

6.80%, 8/15/18 500,000 505 


6.375%, 3/1/14 625,000 594 


8.375%, 3/15/12 1,880,000 1,504 


8.75%, 3/15/32 330,000 223 

Sprint Nextel Corp., 

6.00%, 12/1/16 385,000 271 

Telecom Italia Capital 

SA, 4.00%, 1/15/10 1,565,000 1,440 

Telecom Italia Capital 

SA, 6.20%, 7/18/11 1,225,000 1,087 

Verizon 


5.85%, 9/15/35 3,135,000 3,119 

Verizon 


6.10%, 4/15/18 2,085,000 2,078 

Verizon 


8.95%, 3/1/39 425,000 549 


5.00%, 9/15/15 265,000 243 


5.375%, 1/30/15 700,000 659 


5.50%, 6/15/11 2,035,000 2,028 


5.625%, 2/27/17 1,445,000 1,362 


5.75%, 3/15/16 90,000 86 

Total 27,892 

Tobacco (0.4%) 

Altria Group, Inc., 

9.70%, 11/10/18 660,000 713 


9.95%, 11/10/38 815,000 887 

Philip Morris 


5.65%, 5/16/18 760,000 754 

Philip Morris 


6.375%, 5/16/38 760,000 791 

Reynolds American, 

Inc., 6.75%, 6/15/17 150,000 119 


Inc., 7.25%, 6/15/37 150,000 101 


Inc., 7.625%, 6/1/16 1,735,000 1,445 

Total 4,810 


(28.9%) 


Shares/ 

$ Par 

Value 

$ (000's) 


5.25%, 1/15/11 565,000 519 


5.50%, 1/15/16 580,000 450 


6.00%, 1/15/36 360,000 228 

Total 1,197 

Yankee Sovereign (0.2%) 

Mexico Government 

International Bond, 

5.625%, 1/15/17 1,480,000 1,480 



6.05%, 1/11/40 945,000 917 

Total 2,397 


(Cost: $343,520) 314,341 





4.875%, 6/13/18 33,778,000 38,821 

Israel Government AID 

Bond, 5.50%, 4/26/24 1,910,000 2,373 

(n) Overseas Private 

Investment, 

4.10%, 11/15/14 1,727,760 1,705 

(e)Tennesse Valley 

Authority Stripped, 

0.00%, 4/15/42 3,600,000 3,168 

US Department of 

Housing & Urban 

Development, 

6.08%, 8/1/13 4,000,000 4,399 

US Department of 

Housing and Urban 

Development, 

6.17%, 8/1/14 3,000,000 3,305 

(g)US Treasury, 

2.75%, 10/31/13 34,685,000 36,875 

US Treasury, 

3.75%, 11/15/18 160,000 181 


4.00%, 8/15/18 15,019,000 17,343 


4.375%, 2/15/38 9,675,000 12,958 

(b)US Treasury, 

5.50%, 8/15/28 15,307,000 20,688 

US Treasury, 

8.125%, 8/15/21 915,000 1,392 


Index Bond, 

2.00%, 4/15/12 4,187,245 4,083 





Shares/ 

$ Par 

Value 

$ (000's) 

Governments continued 


Index Bond, 

2.625%, 7/15/17 4,179,109 4,283 


(Cost: $135,900) 151,574 

Municipal Bonds (0.1%) 


Indiana Finance 

Authority 

Environmental 

Facillities, Series 

2006A, 4.47%, 

9/1/41 RB , AMBAC 755,000 755 

Total 755 

Total Municipal Bonds 

(Cost: $755) 755 



AEP Texas Central 

Transition Funding 

LLC, Series 2006-A, 

Class A5, 

5.306%, 7/1/21 15,910,000 14,208 

Asset Securitization 

Corp., Series 1997-D5, 

Class PS1, 

1.418%, 2/14/43 IO 36,650,745 1,027 


Alternative Loan Trust, 

Series 2006-3, Class 

1CB1, 

6.00%, 4/25/36 1,602,718 768 




4CB1, 

6.50%, 5/25/46 1,909,521 933 


Commercial Mortgage, 

Inc., Series 2007-3, 

Class A4, 

5.658%, 6/10/49 2,477,000 1,812 




Class A4, 

5.688%, 4/10/49 12,033,000 9,142 


Funding Corp., Series 

2007-1, Class TA1A, 

.531%, 1/25/37 1,771,135 840 




.561%, 5/25/37 2,769,408 2,406 


(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 



Mortgage Securities, 

Inc., Series 2004-G, 

Class 2A6, 

4.648%, 8/25/34 3,817,000 3,667 

Bank of America Credit 

Card Trust, Series 

2007-A8, Class A8, 

5.59%, 11/17/14 4,500,000 4,211 


Transition Bond Co. 

LLC, 5.17%, 8/1/19 1,730,000 1,745 

Chase Issuance Trust, 

Series 2007-A17, Class 

A, 5.12%, 10/15/14 7,000,000 6,494 

Citigroup Commercial 


2007-C6, Class A4, 

5.7%, 12/10/49 5,502,000 4,147 

Citigroup Mortgage 

Loan Trust, Inc., Series 

2004-NCM2, Class 

2CB1, 

5.50%, 8/25/34 836,931 732 



2005-1, Class 3A1, 

6.50%, 4/25/35 1,183,854 1,135 

Countrywide 


Series 2003-J1, Class 

1A8, 5.25%, 10/25/33 74,668 60 


Loan Mortgage Pass 

Through Trust, Series 

2005-31, Class 2A1, 

5.471%, 1/25/36 1,032,922 741 

Credit Suisse First 

Boston Mortgage 

Securities Corp., Series 

2005-7, Class 6A1, 

5.50%, 8/25/20 2,574,482 2,384 

(n) Credit Suisse Mortgage 

Capital Certificates, 


3A9, 6.00%, 8/25/37 2,136,930 1,454 

(n) Credit Suisse Mortgage 



3A19, 6.00%, 8/25/37 2,271,618 1,659 

(n) Criimi Mae Commercial 


1998-C1, Class B, 

7.00%, 6/2/33 144A 2,090,371 2,090 

Discover Card Master 

Trust, Series 2007-A1, 

Class A1, 

5.65%, 3/16/20 5,000,000 3,786 

DLJ Commercial 


1998-CF1, Class S, 

.728%, 2/18/31 IO 14,812,888 337 


(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 


DLJ Mortgage 

Acceptance Corp., 

Series 1997-CF2, Class 

S, 62%, 10/15/30 

IO 144A 8,225,593 162 



4.00%, 10/1/20 1,404,829 1,420 



4.50%, 5/1/19 1,600,053 1,642 



4.50%, 7/1/20 4,473,207 4,586 



3065, Class TN, 

4.50%, 10/15/33 1,770,301 1,806 



3248, Class LN, 

4.50%, 7/15/35 3,933,426 4,015 



5.00%, 10/1/19 2,445,892 2,521 



5.00%, 2/1/20 354,390 365 



5.00%, 5/1/20 1,385,396 1,425 



5.00%, 10/1/20 1,977,737 2,035 



5.00%, 4/1/22 999,906 1,028 



5.00%, 9/1/35 7,520,257 7,696 



5.00%, 11/1/35 2,734,573 2,798 



5.00%, 12/1/35 25,271,020 25,860 



5.00%, 6/1/38 5,462,256 5,588 



5.50%, 9/1/19 706,427 730 



5.50%, 11/1/19 1,991,977 2,058 



5.50%, 12/1/19 373,285 386 



5.50%, 3/1/20 2,702,904 2,790 





(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 




5.50%, 3/1/22 1,934,588 1,995 



5.50%, 4/1/22 2,896,047 2,987 



5.50%, 6/1/35 2,042,551 2,093 



5.50%, 3/1/37 10,541,775 10,802 



5.50%, 5/1/37 7,671,105 7,860 



5.50%, 6/1/37 5,653,288 5,793 



K001, Class A2, 

5.651%, 4/25/16 5,382,489 5,613 



2840, Class LK, 

6.00%, 11/15/17 1,122,929 1,163 




6.00%, 4/15/32 2,550,000 2,627 



6.00%, 8/1/37 31,106,678 32,078 



4.00%, 6/1/19 938,028 953 



4.50%, 6/1/19 4,798,473 4,924 



4.50%, 8/1/19 963,784 989 



4.50%, 12/1/19 548,642 563 



4.50%, 7/1/20 2,493,583 2,555 



4.50%, 9/1/20 3,375,693 3,459 



5.00%, 3/1/20 1,711,533 1,762 



5.00%, 4/1/20 676,556 696 



5.00%, 5/1/20 7,831,896 8,061 


(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 




5.00%, 3/1/34 529,867 542 



5.00%, 4/1/35 1,968,610 2,013 



5.00%, 7/1/35 3,250,590 3,323 



5.00%, 10/1/35 2,080,820 2,127 



5.32%, 4/1/14 1,700,402 1,767 



5.38%, 1/1/17 1,954,000 2,017 



5.50%, 4/1/21 1,564,491 1,614 



5.50%, 9/1/34 1,278,588 1,313 



5.50%, 3/1/35 4,099,307 4,206 



5.50%, 7/1/35 1,010,168 1,037 



5.50%, 8/1/35 2,571,576 2,639 



5.50%, 9/1/35 14,867,433 15,259 



5.50%, 10/1/35 4,460,820 4,578 



5.50%, 11/1/35 11,781,551 12,092 



5.50%, 1/1/36 9,595,368 9,848 



5.50%, 2/1/37 5,312,503 5,452 



5.50%, 3/1/37 1,836,991 1,885 



5.50%, 5/1/37 2,371,565 2,434 



5.50%, 6/1/37 418,256 429 



5.50%, 2/1/38 42,463,998 43,575 


(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 




5.50%, 3/1/38 797,770 818 



5.50%, 4/1/38 10,982,238 11,269 



5.50%, 5/1/38 15,010,153 15,402 



5.50%, 6/1/38 9,629,367 9,881 



5.50%, 7/1/38 782,164 803 



6.00%, 5/1/35 216,460 223 



6.00%, 6/1/35 46,020 47 



6.00%, 7/1/35 4,328,299 4,462 



6.00%, 10/1/35 1,747,911 1,802 



6.00%, 11/1/35 3,948,599 4,070 



6.00%, 6/1/36 4,543,187 4,683 



6.00%, 9/1/36 2,554,178 2,633 



6.00%, 1/1/37 22,326 23 



6.00%, 6/1/37 43,883 46 



6.00%, 10/1/37 21,065 22 



6.00%, 11/1/37 14,856,934 15,312 



6.00%, 1/1/38 18,136,454 18,690 



6.00%, 6/1/38 7,462,234 7,690 



Series 2002-W4, Class 

A4, 6.25%, 5/25/42 4,673,268 4,783 



6.50%, 9/1/37 1,155,572 1,202 





(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 




6.50%, 1/1/38 23,713,161 24,657 



6.50%, 9/1/38 17,532,116 18,228 




A, 6.75%, 4/25/18 830,186 869 


Mortgage Association 

Aces, Series 2006-M1, 

Class C, 

5.355%, 2/25/16 6,949,000 7,219 

(n) Final Maturity 

Amortizing Notes, 

Series 2004-1, Class 1, 

4.45%, 8/25/12 5,686,796 5,721 

First Horizon 

Alternative Mortgage 

Securities, Series 

2004-FA1, Class 1A1, 

6.25%, 10/25/34 2,524,565 2,142 

First Union National 

Bank Commercial 


1999-C4, Class E, 

7.939%, 12/15/31 

144A 3,100,000 2,928 

Government National 


5.50%, 10/15/31 50,332 52 



5.50%, 11/15/31 13,775 14 



5.50%, 12/15/31 177,722 183 



5.50%, 1/15/32 492,272 509 



5.50%, 2/15/32 147,645 153 



5.50%, 3/15/32 145,017 150 



5.50%, 4/15/32 17,178 18 



5.50%, 7/15/32 25,458 26 



5.50%, 9/15/32 3,613,353 3,737 

Greenwich Capital 

Commerical Funding 

Corp., Series 2006- 

FL4A, Class A1, 

1.98%, 11/5/21 144A 508,781 376 


(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Louisiana Public 

Facilities Authority, 

Series 2008, 

6.65%, 8/1/20 RB 2,400,000 2,355 

Massachusetts RRB 

Special Purpose Trust, 

Series 2001-1, Class A, 

6.53%, 6/1/15 947,516 977 

MASTR Asset 

Securitization Trust, 


1A1, 5.25%, 12/25/24 1,286,091 1,241 

Merrill Lynch 

Alternative Note Asset, 


A2A, .541%, 1/25/37 2,428,155 1,267 

Merrill Lynch/ 

Countrywide 



Class A4, 

5.749%, 6/12/50 2,399,000 1,703 

Mid-State Trust, Series 

6, Class A3, 

7.54%, 7/1/35 360,565 337 

Nissan Auto 

Receivables Owner 

Trust, Series 2006-A, 

Class A3, 

4.74%, 9/15/09 207,663 208 

Nissan Auto 

Receivables Owner 

Trust, Series 2007-B, 

Class A3, 

5.03%, 5/16/11 6,000,000 5,903 

Nordstrom Private 

Label Credit Card 

Master Note Trust, 

Series 2007-1A, Class 

A, 

4.92%, 5/15/13 144A 6,869,000 6,555 

(n) RMF Commercial 

Mortgage Pass- 

Through Certificates, 

Series 1997-1, Class F, 

7.471%, 1/15/19 144A 538,446 431 

TBW Mortgage Backed 

Pass Through 

Certificates, Series 

2007-1, Class A1, 

.561%, 3/25/37 1,967,565 1,733 



2006-5, Class A1, 

.591%, 9/25/46 2,989,213 2,477 



2006-1, Class A3, 

.641%, 1/25/46 6,303,256 6,279 



2007-1, Class A1, 

1.505%, 3/25/37 2,177,411 1,798 


(52.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 




2007-2, Class A3A, 

1.525%, 6/25/37 3,527,518 2,941 


Alternative Mortgage 

Pass-Through 

Certficates, Series 

2006-6, Class 4A, 

6.708%, 11/25/34 1,260,482 1,082 




2003-C1A, Class A, 

3.83%, 1/25/35 144A 1,435,077 1,361 


Backed Securities, 


1A1, 5.00%, 3/25/36 2,580,257 1,989 


Backed Securities 

Trust, Series 2004-S, 

Class A7, 

3.741%, 9/25/34 1,545,000 1,515 



Trust, Series 2004-N, 

Class A6, 

4.00%, 8/25/34 5,728,000 5,472 




Class 2A1, 

5.00%, 1/25/20 1,356,566 1,318 




Class A1, 

5.25%, 9/25/35 3,109,308 2,658 




Class 1A1, 

5.50%, 11/25/35 3,515,206 2,988 


(Cost: $579,779) 575,243 



(b)Textron, Inc., 

6.00%, 1/2/09 20,000,000 19,997 

Total 19,997 

Autos (1.8%) 

(b)Toyota Motor Credit 

Corp., 1.15%, 1/13/09 10,000,000 9,996 

(b)Toyota Motor Credit 

Corp., 1.40%, 1/9/09 10,000,000 9,997 

Total 19,993 





(9.5%) 

Shares/ 

$ Par 

Value 

$ (000's) 


(b) Barclays US Funding 

Corp., .18%, 1/9/09 4,000,000 3,999 

Total 3,999 



Bank, 0.47%, 3/13/09 2,000,000 2,000 

Total 2,000 


(b) Ciesco LP, 

0.20%, 1/12/09 10,000,000 9,999 

(b) Gemini Securitization 

Corp. LLC, 

.75%, 1/26/09 10,000,000 9,997 

Total 19,996 


(b) Kellogg Co., 

1.70%, 1/13/09 6,900,000 6,896 

Total 6,896 


(b) Devon Energy Corp., 

1.25%, 1/2/09 15,890,000 15,889 

Total 15,889 


(b) HSBC Finance Corp., 

0.30%, 1/6/09 5,000,000 5,000 

Total 5,000 


(b) Home Depot, Inc., 

2.50%, 1/2/09 10,000,000 9,999 

Total 9,999 

Total Short Term Investments 

(Cost: $103,768) 103,769 


(Cost: $1,163,774)(a) 1,145,734 


Liabilities (-5.2%) (57,087) 

Net Assets (100.0%) 1,088,647 





IO — Interest Only Security 

RB — Revenue Bond 

AMBAC — American Municipal Bond Assurance Corp. 




(a) 

(b) 



depreciation. 



Unrealized 

Appreciation/ 

Number of 




US Five Year Note Commodity (Long) (Total Notional Value at December 31, 2008, $33,540) 288 3/09 $ 747 

US Long Bond (CBT) Commodity (Short) (Total Notional Value at December 31, 2008, $39,346) 298 3/09 (1,793) 

US Ten Year Treasury Note (Short) (Total Notional Value at December 31, 2008, $103,224) 868 3/09 (5,929) 

US Two Year Treasury Note (Long) (Total Notional Value at December 31, 2008, $101,324) 471 3/09 1,382 

(d) 

(e) 

(g) 

Defaulted Security 

Step bond security that presently receives no coupon payments. At the predetermined date the stated coupon rate becomes effective. 

All or portion of the securities have been loaned. See Note 2M in the Notes to Financial Statements. 

(m) Securities showing zero value represent an amount less than one thousand. 

(n) 

At December 31, 2008 portfolio securities with a aggregate market value of $13,350 (in thousands) were valued with reference to securities whose values 

are more readily available. 



Long-Term U.S. Government Bond Portfolio 


Seek maximum total return, consistent with 

preservation of capital and prudent 

investment management. 

Invest primarily in debt securities that are 

issued or guaranteed by the U.S. Government, 

its agencies or government-sponsored 

enterprises, and in derivatives designed to 

replicate such securities. 

$90 million 


Mason Street Advisors, the investment adviser for the Long-Term U.S. Government Bond Portfolio, has engaged Pacific 

Investment Management Company LLC to act as sub-adviser for the Portfolio. The Portfolio investment objective is to seek 

maximum total return, consistent with preservation of capital and prudent investment management. The Portfolio seeks to 

achieve its investment objective by investing under normal circumstances at least 80% of its net assets (plus any borrowings 

for investment purposes) in a diversified portfolio of fixed income securities that are issued or guaranteed by the U.S. 

Government, its agencies or government-sponsored enterprises (“U.S. Government Securities”). Assets not invested in U.S. 

Government Securities may be invested in other types of investment-grade fixed-income instruments, or in preferred stocks. 

The Portfolio may also obtain exposure to U.S. Government Securities through the use of futures contracts (including related 

options) with respect to such securities. The Portfolio may invest all of its assets in derivative instruments, such as options, 

futures, contracts or swap agreements, or in mortgage-backed securities such as those issued by Ginnie Mae, Fannie Mae and 

Freddie Mac. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily 

invests by entering into a series of purchase and sale contracts of by using other investment techniques (such as buy backs on 

dollar rolls). 


In 2008, interest rates fell worldwide and yield curves in the U.S., Europe and U.K. steepened as investors fled to the safety of 

government bonds, especially shorter maturities. To forestall a recession and unfreeze credit markets during the early part of 

the year, the Federal Reserve reduced its short-term rate target by 200 basis points (a basis point equals 0.01%, so 200 basis 

points equal 2%) and took several unconventional steps: it made several hundred billion dollars of liquidity facilities available 

to the financial system against an expanded range of collateral, opened its discount window to investment banks and arranged 

the rescue of Bear Stearns. 

The crisis, which was originally thought to be contained within the housing market, gradually spread to the corporate sector. 

The month of September featured a succession of shocking events, including the Treasury’s bailout of mortgage agencies 

Fannie Mae and Freddie Mac and insurer AIG, as well as the realignment of the biggest U.S. investment banks via bankruptcy, 

merger, recapitalization, or transformation into bank holding companies. 

In early October, the U.S. Congress approved the $700 billion Troubled Asset Relief Program (TARP) proposed by the 

Treasury and the Fed to help unclog the flow of credit. As data continued to show a weakening economy in the midst of a deep 

recession, the Fed took forceful action, to get the economy growing again, cutting its fed funds rate target to between 0% and 

0.25%. 


For the twelve months ended December 31, 2008, the Long-Term U.S. Government Bond Portfolio underperformed its 

benchmark, the Barclays Capital Long-Term Treasury Index, with a 20.76% return versus 24.03% for its benchmark. (This 

Index is unmanaged, cannot be invested in directly and does not include administrative expenses or sales charges.) The 

average return for the Portfolio’s peer group, General U.S. Government Bond Funds, was 3.86%, according to Lipper 

Analytical Services, Inc., an independent mutual fund ranking agency. 

In terms of contribution to the Portfolio’s performance, a curve-steepening bias for the majority of the year helped 

performance as the U.S. yield curve (indicated by the difference in yield between two- and 30-year bonds) steepened as much 

as 141 basis points through October. However, a 90 basis point flattening of the curve in November and December mitigated 

some of the impact. Modest holdings of inflation-adjusted bonds during the early part of the year was positive for returns as 

these bonds outperformed like-duration nominal bonds. 

At the other end of the spectrum, it detracted from performance relative to the benchmark to have a shorter duration as yields 

fell. (Duration measures a bond or fund’s sensitivity to interest rate changes. It is beneficial to have a longer duration when 

yields fall, and a shorter duration when yields rise.) 

An allocation to long-term corporate bonds detracted from performance. Investors began to price in higher default rates and 

lower recovery levels, causing long-term investment grade corporates to underperform Treasuries by 28% (2800 basis points) 

for the year. 

112 Long-Term U.S. Government Bond Portfolio


A focus on high-grade financials within the investment grade corporate space was also negative for returns as the financial 

services sector was hurt by write-downs, decreased profitability, and funding issues. 

An out-of-benchmark allocation to agency mortgage-backed securities hurt performance, as agency mortgage-backed 

securities returned 8.34% in 2008, underperforming Treasuries by 232 basis points. 

During the year, the Portfolio also sought to add value by using derivative instruments to gain exposure to U.S. Government 

securities, which can be a less expensive and more efficient way to access this area of the market. 

Outlook 

We expect pressures of global de-leveraging to drive developed economies into one of the most severe recessions since World 

War II in 2009. We see conditions improving by 2010 as policy responses in the U.S. and elsewhere gain traction, with the 

recovery of risk appetites in financial markets as a leading indicator for recovery. As the global economy weakens into 2009, 

we will likely place less emphasis on interest rate strategies and more on high grade sectors/securities that we feel offer 

unusually attractive valuations after the massive selling of the last several months. Our approach over the next year will likely 

be to avoid assets such as Treasuries that have benefitted from the flight-to-liquidity associated with global deleveraging. By 

our estimate, Treasuries are now overvalued. We might seek to own assets that have been victims of the economic crisis but 

that we would expect to benefit from policy support. These assets include high quality mortgage-backed securities, bonds of 

financial companies, Treasury inflation-protected securities and municipal bonds. 

$14,000 

13,000 

12,000 

11,000 


10,000 

4/07 12/07 12/08 


Barclays Capital Long-Term U.S. Treasury Index** 



1 Year 

Since 

Inception* 


Portfolio 20.76% 16.93% 

Barclays Capital Long-Term U.S. 

Treasury Index** 24.03% 18.96% 


(VIP) General U.S. Government 

Bond Funds Average 3.86% – 


** Prior to November 1, 2008, the Barclays Capital Long-Term U.S. 

Treasury Index was known as the Lehman Brothers Long-Term U.S. 

Treasury Index. 









www.nmfn.com. 


















The Portfolio may invest in securities that are issued or 

guaranteed by the U.S. Government or its agencies, and 

in derivatives designed to replicate such securities. This 

guarantee is to timely repayment of the principal and 

interest if held to maturity, and does not apply to 

derivative securities held by the Portfolio. Guarantee 

does not eliminate market risk. The Portfolio may use 

derivative instruments for hedging purposes as part of 

its investment strategy. Use of these instruments may 

involve certain costs and risks such as liquidity risk, 

interest rate risk, market risk, credit risk, management 

risk and the risk that the Portfolio could not close out a 

position when it would be most advantageous to do so. 

Portfolios investing in derivatives could lose more than 

the principal amount invested in those instruments. 

Long-Term U.S. Government Bond Portfolio 113







Mortgage Pool, Various 10.4% 


Residual Funding Stripped, Various 2.1% 

Chase Issuance Trust, Various 2.0% 

Tennessee Valley Authority, Various 1.9% 

Financing Corp. Stripped, Various 1.4% 

Credit Suisse USA, Inc., Various 0.9% 

Israel Government AID Bond, Various 0.7% 

Federal Home Loan Mortgage Corp., Series 

2752, Class EZ, 5.50%, 2/15/34 0.7% 


5% 



10% 


Structured 

Products 

20% 

Governments 

65% 



change. 






than 10% of the Portfolio is invested in securities rated A by 

Moody’s or S&P and no more than 25% of the Portfolio is 

invested in securities rated Aa by Moody’s or AA by S&P. 








Shares/ 

$ Par 

Value 

$ (000's) 


2.099%, 6/12/09 100,000 100 

Citigroup Funding, Inc., 

3.556%, 5/7/10 200,000 190 


1.496%, 12/28/09 300,000 283 


6.125%, 8/25/36 200,000 179 


0.588%, 11/20/09 100,000 96 


2.273%, 6/5/09 300,000 295 


2.298%, 11/20/09 100,000 96 


2.349%, 8/16/11 300,000 270 


Group, Inc., 

1.566%, 6/28/10 200,000 186 


Group, Inc., 

2.886%, 2/6/12 200,000 169 


2.638%, 5/10/10 300,000 271 


2.253%, 12/1/09 200,000 194 

Wells Fargo Capital X, 

5.95%, 12/15/36 200,000 172 

Total 2,501 


Hewlett-Packard Co., 

2.313%, 3/1/12 300,000 267 

Total 267 




2.216%, 6/24/11 400,000 357 


Corp., 6.75%, 3/15/32 200,000 213 

John Deere Capital 

Corp., 4.715%, 7/16/10 300,000 281 

Total 851 


Pricoa Global Funding I, 

4.963%, 1/15/10 144A 300,000 272 

Total 272 



Group, Inc., 

3.548%, 1/29/10 144A 300,000 270 

Shares/ Value 

Corporate Bonds (5.2%) $ Par $ (000's) 

Property and Casualty Insurance 

continued 

Metropolitan Life Global 

Funding I, 

2.189%, 5/17/10 144A 300,000 269 

Total 539 



6.20%, 4/15/38 200,000 229 

Total 229 


(Cost: $4,983) 4,659 




Banks, 5.625%, 6/11/21 100,000 115 



0.00%, 6/1/17 300,000 225 



5.25%, 10/1/12 300,000 300 



5.375%, 4/11/22 400,000 422 



6.25%, 5/15/29 1,900,000 2,594 



6.625%, 11/15/30 300,000 433 

Financing Corp. 

Stripped, 

0.00%, 12/27/18 500,000 343 

Financing Corp. 

Stripped, 

0.00%, 9/26/19 1,300,000 887 


Bond, 0.00%, 5/15/21 200,000 129 


Bond, 0.00%, 2/15/23 100,000 60 


Bond, 0.00%, 5/15/23 800,000 470 

Residual Funding 

Stripped, 

0.00%, 10/15/20 1,800,000 1,148 

Residual Funding 

Stripped, 

0.00%, 4/15/30 1,600,000 742 

Tennessee Valley 

Authority, 

4.50%, 4/1/18 200,000 221 


Shares/ 

$ Par 

Value 

$ (000's) 



Authority, 

5.375%, 4/1/56 1,210,000 1,533 

US Treasury, 

4.50%, 5/15/38 1,800,000 2,457 

US Treasury, 

5.25%, 11/15/28 1,400,000 1,848 

US Treasury, 

5.375%, 2/15/31 400,000 550 

US Treasury, 

6.25%, 8/15/23 700,000 955 


7.125%, 2/15/23 9,300,000 13,492 


8.125%, 8/15/21 5,200,000 7,909 

US Treasury, 

8.75%, 8/15/20 200,000 312 


Index Bond, 

1.75%, 1/15/28 620,472 573 


Index Bond, 

2.375%, 1/15/25 1,034,397 1,017 


Index Bond, 

3.625%, 4/15/28 401,838 479 

(b)US Treasury Stripped, 

0.00%, 5/15/20 4,600,000 3,163 

(b)US Treasury Stripped, 

0.00%, 11/15/21 15,500,000 10,049 

US Treasury Stripped, 

0.00%, 8/15/22 7,200,000 4,583 


0.00%, 5/15/26 700,000 408 


0.00%, 11/15/28 3,000,000 1,610 


(Cost: $55,509) 59,027 



Poway Unified Public 

School District, , 

4.50%, 9/15/37 RB, 

AMBAC 200,000 158 

Puerto Rico Sales Tax 

Financing Corp., Series 

A, 0.00%, 8/1/54 RB, 

AMBAC 1,600,000 56 

Total 214 


(Cost: $329) 214 





(19.9%) 


Shares/ 

$ Par 

Value 

$ (000's) 

American Home 

Mortgage Investment 


Class 2A2, 

5.00%, 9/25/35 100,000 73 



2006-A9, Class A9, 

1.205%, 2/15/13 200,000 182 



2007-A9, Class A9, 

1.235%, 11/17/14 200,000 164 



2008-A7, Class A7, 

1.895%, 12/15/14 300,000 250 

Bear Stearns Adjustable 

Rate Mortgage Trust, 


21A, 6.164%, 5/25/34 7,187 5 

Chase Credit Card 

Master Trust, Series 

2002-3, Class A, 

1.365%, 9/15/11 100,000 98 



A6, 1.195%, 4/16/12 400,000 372 



A1, 1.215%, 3/15/13 200,000 178 



A8, 1.235%, 10/15/12 500,000 456 



A14, 1.445%, 9/15/11 100,000 97 



A1, 1.645%, 1/15/12 200,000 190 



A7, 1.845%, 11/15/11 100,000 96 



A10, 1.945%, 8/17/15 200,000 158 



A13, 3.496%, 9/15/15 300,000 247 

Chevy Chase Mortgage 


2007-2A, Class A1, 

0.601%, 5/25/48 144A 18,138 8 



2007-AHL3, Class 

A3A, 0.531%, 7/25/45 68,320 53 

Countrywide Alternative 

Loan Trust, Series 

2005-81, Class A1, 

0.751%, 2/25/37 139,399 69 


(19.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 





2004-HYB5, Class 

2A1, 4.812%, 4/20/35 33,246 24 




2005-12, Class 1A2, 

5.25%, 5/25/35 182,560 109 




2003-AR20, Class 2A1, 

4.626%, 8/25/33 11,144 9 




2003-AR18, Class 2A3, 

5.047%, 7/25/33 9,259 8 



3346, Class FA, 

1.425%, 2/15/19 153,492 147 



3203, Class ZW, 

5.00%, 11/15/35 337,042 330 



2752, Class EZ, 

5.50%, 2/15/34 651,863 647 


Mortgage Corp. 

Structured Pass- 

Through Securities, 

Series T-61, Class 1A1, 

3.878%, 7/25/44 43,474 39 




A6, 0.671%, 10/27/37 100,000 85 




NZ, 4.25%, 5/25/37 214,654 199 



5.00%, 6/1/35 1,031,023 1,055 



5.00%, 2/1/36 1,902,331 1,945 




PA, 5.50%, 9/25/24 26,942 27 




PA, 5.50%, 5/25/27 15,207 15 


(19.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 




TBA, 5.00%, 1/1/39 2,000,000 2,042 



TBA, 5.50%, 1/1/39 4,200,000 4,305 



Whole Loan, Series 

2004-W9, Class 1A3, 

6.05%, 2/25/44 300,000 324 

First Franklin Mortgage 

Loan Asset Backed 


2006-FF12, Class A2, 

0.511%, 9/25/36 25,606 24 



Mortgage Corp. Loan 

Trust, Series 2004- 

AR1, Class 22A, 

4.287%, 6/25/34 25,845 14 

Honda Auto Receivables 


2008-1, Class A2, 

3.77%, 9/20/10 400,000 394 

Indymac Residential 

Asset Backed Trust, 

Series 2007-B, Class 

2A1, 0.551%, 7/25/37 44,264 39 




2007-CB19, Class A4, 

5.747%, 2/12/49 100,000 74 

Massachusetts 

Educational Financing 

Authority, Series 2008- 

1, Class A1, 

4.485%, 4/25/38 387,764 294 

MBNA Credit Card 

Master Note Trust, 


A5, 1.375%, 10/17/11 200,000 196 

Merrill Lynch First 

Franklin Mortgage 


2007-4, Class 2A1, 

0.531%, 7/25/37 55,744 50 

Merrill Lynch Floating 


LAQA, Class A1, 

2.406%, 7/9/21 144A 400,000 336 

Merrill Lynch Mortgage 

Investors, Inc., Series 

2003-A4, Class 3A, 

4.986%, 5/25/33 18,630 17 

Merrill Lynch Mortgage 


2003-A3, Class 1A, 

5.297%, 5/25/33 23,096 17 





(19.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 


MLCC Mortgage 


2005-3, Class 4A, 

0.721%, 11/25/35 57,253 41 

MLCC Mortgage 


2005-2, Class 1A, 

3.819%, 10/25/35 66,846 51 

Morgan Stanley ABS 

Capital I, Inc., Series 

2007-NC3, Class A2A, 

0.531%, 5/25/37 55,192 45 

SLC Student Loan Trust, 


A1, 2.129%, 2/15/15 77,660 76 

SLM Student Loan 

Trust, Series 2003-7A, 

Class A5A,3.196%, 

12/15/33 144A 250,000 196 



Class A2, 

3.525%, 10/25/16 25,195 25 



Class A2, 

3.525%, 7/25/17 32,024 31 



Class A1, 

3.525%, 10/25/18 38,561 37 



Class A2, 

3.535%, 4/25/17 41,961 41 



Class A2, 

3.535%, 7/25/17 500,000 438 



Class A2, 

4.035%, 10/25/17 200,000 181 



Class A, 

5.035%, 4/25/23 600,000 562 


(19.9%) 

Shares/ 

$ Par 

Value 

$ (000's) 


South Carolina Student 

Loan Corp., Series 

2008-1, Class A1, 

2.703%, 9/2/14 251,308 245 

South Carolina Student 

Loan Corp., Series 

2008-1, Class A2, 

2.753%, 3/1/18 400,000 362 

Structured Adjustable 

Rate Mortgage Loan 


Class 4A1, 

5.19%, 12/25/34 51,556 37 

Structured Asset 

Mortgage Investments, 

Inc., Series 2004-AR5, 

Class 1A1, 

0.911%, 10/19/34 14,378 8 


Mortgage Pass-Through 


2006-AR9, Class 1A, 

3.256%, 8/25/46 61,942 24 


Mortgage Pass-Through 


2004-AR1, Class A, 

4.229%, 3/25/34 89,111 73 


(Cost: $18,493) 17,934 




Bank Corp., 

0.03%, 1/5/09 10,700,000 10,700 

Total 10,700 


(b) Bank of America Corp., 

2.55%, 1/29/09 400,000 399 

Total 399 


(b) JPMorgan Money 

Market Fund 6,197,207 6,197 

Total 6,197 


(30.7%) 

Shares/ 

$ Par 

Repurchase Agreements (11.5%) 

Value 

$ (000's) 

(b)JPMorgan Chase Bank, 

0.09%, dated 12/29/08, 

due 1/5/09, repurchase 

price $3,400,051, 

collateralized by U.S. 

Government Agency 

Bond with a value of 

$3,454,206 3,400,000 3,400 

(b)JPMorgan Chase Bank, 

0.40%, dated 12/29/08, 

due 1/5/09, repurchase 

price $7,000,467, 




$7,292,712 7,000,000 7,000 

Total 10,400 


(Cost: $27,696) 27,696 


(Cost: $107,010)(a) 109,530 


Liabilities (-21.4%) (19,324) 

Net Assets (100.0%) 90,206 









(a) 

(b) 

At December 31, 2008 the aggregate cost of securities for federal tax purposes (in thousands) was $107,021 and the net unrealized appreciation of 


depreciation. 



Unrealized 

Appreciation/ 

Number of 




90 Day Euro $ Commodity Future (Long) (Total Notional Value at December 31, 2008, $3,129) 13 9/09 $ 80 

90 Day Euro $ Commodity Future (Long) (Total Notional Value at December 31, 2008, $3,119) 13 12/09 85 



US Five Year Note Commodity (Long) (Total Notional Value at December 31, 2008, $4,571) 39 3/09 73 

US Long Bond (CBT) Commodity (Long) (Total Notional Value at December 31, 2008, $9,143) 73 3/09 935 

US Ten Year Treasury Note (Long) (Total Notional Value at December 31, 2008, $17,566) 146 3/09 793 

118 Long-Term U.S. Government Bond Portfolio 




Pursue total return using a strategy that Invest primarily in investment grade debt securities, with $69 million 

seeks to protect against U.S. inflation. a majority in inflation-linked debt securities. 


Mason Street Advisors, the investment adviser for the Inflation Protection Portfolio, has engaged American Century 

Investment Management, Inc. to act as sub-adviser for the Portfolio. The Portfolio’s investment objective is to pursue total 

return using a strategy that seeks to protect against U.S. inflation. The Portfolio invests substantially all of its assets in 

investment-grade debt securities. To help protect against U.S. inflation, under normal conditions, the Portfolio will invest over 

50% of its net assets (plus any borrowings for investment purposes) in inflation-linked debt securities. These securities include 

inflation-linked U.S. Treasury Securities, inflation-linked securities issued by U.S. government agencies and instrumentalities 

other than the U.S. Treasury, and inflation-linked securities issued by other entities such as domestic and foreign corporations 

and governments. Inflation-linked securities are designed to protect the future purchasing power of the money invested in 

them. The Portfolio also may invest in fixed-income securities that are not linked to inflation, including mortgage- and assetbacked 

securities. The Portfolio invests primarily in investment grade securities, but may invest up to 10% of its total assets in 

high-yield securities (so called “junk bonds”). Due to Internal Revenue Code provisions governing insurance product funds, no 

more than 55% of the Portfolio’s assets may be invested in securities issued by the same entity, such as the U.S. Treasury. 



2008. Nowhere was this as evident as in the fixed income markets, where risk aversion, de-leveraging and fear of deflation 

sent segments of the Treasury market to their best year ever, while credit-sensitive bonds endured historic underperformance. 

Economic conditions deteriorated sharply over the course of the year as the economy entered its first recession since 2002. In 


the mortgage, commercial and consumer debt markets, while Congress passed the $700 billion Troubled Asset Relief Program 

(TARP). 

These events had a significant impact on the shape of the Treasury yield curve. The yield on the benchmark 10-year Treasury 

note, for example, declined from 4.03% to 2.21% during the year, while the yield on the two-year Treasury fell from 3.06% to 

0.77%. The difference in yield between two- and 10-year Treasury securities started the period at 97 basis points (a basis point 

equals 0.01%, so 97 basis points equal 0.97%) and steepened to greater than 250 basis points in November, before worries 

about deflation ushered in a dramatic decline in longer-term yields. As a result, the yield gap between two- and ten-year 

Treasuries ended the year at 144 basis points. 

Inflation jumped from one extreme to another during the twelve-month period. In the first half of the year, soaring prices for 

oil and other commodities caused inflation to skyrocket. But sagging worldwide demand and bleak global economic growth 

prospects caused commodity prices to do an about-face. The Rogers International Commodities Index, a measure of various 

energy, agricultural and metals products, declined 41% for the year. 

Headline inflation, as measured by the year-to-year change in the Consumer Price Index, ended November 2008 at 1.1%, a 

notable decline from 5.5% at the end of July. The yield difference (or breakeven rate) between ten-year TIPS (Treasury 

inflation-protected securities) and nominal ten-year Treasuries started the year at 2.33 percentage points, peaked at 2.45 

percentage points in July and fell to 0.09 percentage points by December 31. The current breakeven rate, which represents 

investors’ expectations for long-term inflation, suggests concerns regarding inflation have been almost eliminated. It also 

illustrates how the potential for deflation has moved into the spotlight. 


For the twelve months ended December 31, 2008, the Portfolio returned -1.38%, compared with the –1.17% return of the 

Citigroup U.S. Inflation-Linked Securities Index. (This Index is unmanaged, cannot be invested in directly and does not 

include administrative expenses or sales charges.) At the same time, the average return of the General U.S. Government Bond 

Funds was 3.86%, according to Lipper Analytical Services, Inc., an independent mutual fund rating agency. 

In the flight-to-quality environment that characterized the twelve-month period, virtually everything in the U.S. bond market 

that was not a nominal Treasury bond underperformed. Deflationary expectations as the year progressed hurt TIPS, which 

stumbled on the dramatic drop in the rate of inflation and its resulting impact on breakeven yields. 

Inflation Protection Portfolio 119


The Portfolio was as fully invested in TIPS as allowed by IRS portfolio diversification regulations for insurance products 

(55% of the Portfolio). We invested the remainder of the Portfolio in high quality agency, mortgage, corporate, and municipal 

securities—sectors we believe offer attractive long-term value. In addition, we complemented our spread-sector investments 

with inflation swaps, or strategies that synthetically create inflation-linked exposure, seeking to enhance the Portfolio’s yield 

and performance compared with Treasury securities. 

In addition, the Portfolio’s investment management team maintained a yield curve steepening bias during the first nine months 

of the period, which contributed positively to performance, as the slope of the yield curve steepened during this timeframe. 

Outlook 

The Portfolio’s management team believes the current breakeven rate is an overreaction. The unprecedented steps the 

government has taken to avoid a severe economic downturn eventually may lead to significantly higher inflation and a weaker 

dollar than are currently priced into the market. These factors, combined with an unusually low breakeven rate, suggest to us 

that TIPS currently represent good long-term value. 

$11,000 

10,800 

10,600 

10,400 

10,200 


10,000 

4/07 12/07 12/08 


Citigroup U.S. Inflation-Linked Index 



1 Year 

Since 

Inception* 


Citigroup U.S. Inflation-Linked Index 

-1.38% 

-1.17% 

3.17% 

4.05% 


(VIP) General U.S. Government 

Bond Funds Average 3.86% – 










www.nmfn.com. 


















This Portfolio invests over 50% of its assets in inflationlinked 

bonds. Inflation-linked bonds issued by the U.S. 

Government, known as TIPs, are fixed income securities 

whose principal value is periodically adjusted according 

to the rate of inflation. Neither the current market value 

of the inflation-linked bonds nor the share value of the 

fund that invests in them is guaranteed, and either or 

both may fluctuate. Those portions of the Portfolio 

which are not invested in inflation linked securities will 

not be automatically protected from inflation. The 

Portfolio may use derivative instruments for hedging 









120 Inflation Protection Portfolio






Federal Home Loan Mortgage Corp. Mortgage 

Pool, Various 8.2% 


Mortgage Pool, Various 7.6% 


Tennessee Valley Authority, Various 4.0% 

Federal National Mortgage Association , Various 3.7% 


Inc., Series 2004-2, Class A3, 4.05%, 11/10/38 2.1% 

California Educational Facilities 

Authority, 5.00%, 3/15/39 1.4% 

Massachusetts Bay Transportation 

Authority, 5.25%, 7/1/33 1.4% 

Federal Home Loan Bank, 4.875%, 5/17/17 1.2% 

Municipal Bonds 

4% 


5% 


Structured 

Products 

23% 

Governments 

68% 

Sector Allocation is based on fixed income investments. 


change. 















Shares/ 

$ Par 

Value 

$ (000's) 


3.125%, 6/15/12 700,000 727 



5.61%, 1/10/14 70,000 58 


Group, Inc., 

3.25%, 6/15/12 400,000 417 

The International Bank for 

Reconstruction & 

Development, 

7.625%, 1/19/23 500,000 711 

Kreditanstalt fuer 

Wiederaufbau, 

4.75%, 5/15/12 500,000 535 

Total 2,448 




5.05%, 12/1/10 308,000 303 

Total 303 


Prudential Financial, Inc., 

5.11%, 2/10/12 200,000 145 

(k) Prudential Financial, Inc., 

5.24%, 3/10/15 240,000 130 

Total 275 


AT&T, Inc., 

5.10%, 9/15/14 100,000 98 

Total 98 



8.50%, 11/10/13 160,000 166 

Total 166 


(Cost: $3,238) 3,290 



Farmer Mac Guaranteed 

Notes Trust 2006-2, 

5.125%, 4/19/17 144A 500,000 570 


4.875%, 5/17/17 755,000 854 



4.125%, 9/27/13 500,000 539 


Shares/ 

$ Par 

Value 

$ (000's) 




4.50%, 4/2/14 500,000 549 



4.875%, 6/13/18 620,000 713 



5.00%, 1/30/14 2,400,000 2,683 



4.375%, 7/17/13 570,000 615 



6.077%, 2/17/09 1,951,000 1,949 

Financing Corp., 

0.00%, 5/30/10 359,000 354 


Bond, 0.00%, 11/1/14 500,000 436 

Private Export Funding 

Corp., 4.55%, 5/15/15 600,000 657 


Authority, 4.50%, 4/1/18 450,000 496 


Authority, 

4.875%, 12/15/16 450,000 502 


Authority, 

6.79%, 5/23/12 1,200,000 1,378 



0.00%, 7/15/09 160,000 159 



0.00%, 11/1/12 251,000 233 


Index Bond, 

0.625%, 4/15/13 1,024,970 980 


Index Bond, 

0.875%, 4/15/10 263,021 247 


Index Bond, 

1.375%, 7/15/18 2,310,718 2,161 


Index Bond, 

1.625%, 1/15/15 340,377 316 


Index Bond, 

1.625%, 1/15/18 2,068,240 1,963 


Index Bond, 

1.75%, 1/15/28 1,184,067 1,094 


Shares/ 

$ Par 

Value 

$ (000's) 



Index Bond, 

1.875%, 7/15/13 855,188 805 


Index Bond, 

1.875%, 7/15/15 389,830 368 


Index Bond, 

2.00%, 4/15/12 373,671 364 


Index Bond, 

2.00%, 1/15/14 492,442 467 


Index Bond, 

2.00%, 7/15/14 574,665 543 


Index Bond, 

2.00%, 1/15/16 7,231,386 6,925 

(k)US Treasury Inflation 

Index Bond, 

2.00%, 1/15/26 2,183,060 2,056 


Index Bond, 

2.375%, 4/15/11 81,861 80 


Index Bond, 

2.375%, 1/15/17 2,846,842 2,824 


Index Bond, 

2.375%, 1/15/25 2,643,459 2,598 


Index Bond, 

2.375%, 1/15/27 1,691,991 1,700 


Index Bond, 

2.50%, 7/15/16 1,716,400 1,703 


Index Bond, 

2.625%, 7/15/17 1,646,348 1,687 


Index Bond, 

3.00%, 7/15/12 421,722 413 


Index Bond, 

3.375%, 1/15/12 274,520 272 


Index Bond, 

3.375%, 4/15/32 1,556,176 1,919 


Index Bond, 

3.50%, 1/15/11 373,428 367 


Index Bond, 

3.625%, 4/15/28 1,473,406 1,755 


122 Inflation Protection Portfolio



Shares/ 

$ Par 

Value 

$ (000's) 



Index Bond, 

3.875%, 4/15/29 1,581,408 1,953 


(Cost: $48,886) 48,247 



California Educational 


5.00%, 3/15/39 RB 1,000,000 998 

Massachusetts Bay 

Transportation Authority, 

Series 2006A, 

5.25%, 7/1/33 RB 1,000,000 996 

Massachusetts Health & 

Educational Facilites 

Authority, 

5.50%, 7/1/32 RB 700,000 745 

Total 2,739 


(Cost: $2,628) 2,739 






2A4, 5.75%, 6/25/37 146,283 91 



Inc., Series 2004-2, Class 

A3, 4.05%, 11/10/38 1,530,000 1,452 

Chase Manhattan Bank- 

First Union National 

Bank, Series 1999-1, 

Class B, 

7.619%, 8/15/31 700,000 699 

Citibank Credit Card 

Issuance Trust, Series 

2007-A2, Class A2, 

2.163%, 5/21/12 500,000 463 

CNH Equipment Trust, 

Series 2007-C, Class 

A3A, 5.21%, 12/15/11 400,000 394 

Credit Suisse Mortgage 


Series 2007-TF2A, 

Class A1, 

1.375%, 4/15/22 144A 500,000 402 



5.00%, 5/1/23 1,674,411 1,721 



3234, Class PA, 

5.00%, 10/15/26 522,641 532 


(23.7%) 

Shares/ 

$ Par 

Value 

$ (000's) 




5.50%, 12/1/36 450,708 462 



5.50%, 4/1/38 2,788,094 2,857 



5.752%, 1/1/38 579,678 594 



Series 2004-9, Class YJ, 

4.00%, 10/25/13 107,028 107 



5.50%, 9/1/35 865,597 888 



5.50%, 7/1/36 435,374 447 



5.50%, 2/1/37 2,587,454 2,656 



6.00%, 10/1/37 968,625 998 



6.00%, 7/1/38 243,822 251 




Securities, Inc., Series 

2005-C1, Class A2, 

4.471%, 5/10/43 480,892 464 



4.625%, 7/20/31 101,388 99 



4.875%, 12/20/31 236,982 233 



2003-C3, Class A3, 

3.85%, 5/15/27 300,000 276 

Lehman Brothers Floating 

Rate Commercial 


2007-LLFA, Class A1, 

1.495%, 6/15/22 144A 391,786 295 


(Cost: $16,395) 16,381 


(0.0%) 


Shares/ 

$ Par 

Value 

$ (000's) 

(k)JPMorgan Money Market 

Fund 33,467 33 

Total 33 


(Cost: $33) 33 


(Cost: $71,180)(a) 70,690 


Liabilities (-2.2%) (1,550) 

Net Assets (100.0%) 69,140 








(a) 

At December 31, 2008 the aggregate cost of securities for federal tax purposes (in thousands) was $71,311 and the net unrealized depreciation of investments 

based on that cost was $621 which is comprised of $1,617 aggregate gross unrealized appreciation and $2,238 aggregate gross unrealized depreciation. 



CounterParty 

Bank of America 



Barclays Capital 





UBS 

Reference Entity 

U.S. Consumer Price Index - All 

Urban Consumers - Not Seasonally 

Adjusted (CPURNSA) 

























Payment Made by Payment Received by 

the Fund the Fund 

CPURNSA Index Synthetic Total 

Total Return at Return Calculation 

Maturity 

CPURNSA Index 

Total Return at 

Maturity 

CPURNSA Index 


Maturity 

CPURNSA Index 


Maturity 

CPURNSA Index 


Maturity 

CPURNSA Index 


Maturity 

Expiration 

Date 

Notional 

Amount (000's) 

Unrealized 

Appreciation/ 


(000's) 

at Maturity 5/13 2,500 $ (353) 

Synthetic Total 

Return Calculation 

at Maturity 7/13 1,725 (269) 



at Maturity 5/10 2,500 (221) 



at Maturity 8/12 2,500 (284) 



at Maturity 6/14 1,000 (132) 



at Maturity 12/27 1,700 (295) 


CPI Index Total Return Calculation 

Return at Maturity at Maturity 8/17 2,000 (228) 

CPURNSA Index 


Maturity 

CPURNSA Index 


Maturity 



at Maturity 7/10 3,000 (235) 



at Maturity 11/13 2,200 (186) 

(2,203) 


124 Inflation Protection Portfolio 




Achieve high current income and Invest in diversified mix of debt securities rated below $212 million 

capital appreciation. 

investment grade. 


Mason Street Advisors acts as the investment adviser for the High Yield Bond Portfolio. The Portfolio seeks to achieve high 

current income and capital appreciation. The Portfolio seeks to achieve this objective by investing at least 80% of net assets 

(plus any borrowings for investment purposes) in non-investment grade debt securities. The Portfolio invests in both domestic 

and foreign debt securities that are rated below investment grade by at least one major rating agency or, if unrated, determined 

by management to be of comparable quality. Securities are selected primarily based upon rigorous industry and credit analysis 

performed by management to identify companies that are believed to be attractively priced, or which have stable or improving 

fundamental financial characteristics, relative to the overall high yield market. High yield debt securities are often called “junk 

bonds.” 



2008. Economic conditions deteriorated sharply over the course of the year, as the economy entered its first recession since 

2002. In that environment, the Federal Reserve took dramatic steps, effectively cutting its short-term rate target to 0%, 

intervening in the mortgage, commercial, and consumer debt markets, while Congress passed the $700 billion Troubled Asset 

Relief Program (TARP). 

These unprecedented events sent high yield bonds reeling, as a result of massive deleveraging and forced selling for hedge 

funds and other large high yield market players. In that environment, measures of distress and credit rating downgrades to 

upgrades reached the highest levels on record, while the spread (yield over Treasuries) on the high yield market surged to an 

all-time high above 2000 basis points (or 20%). However, the market staged a sharp rebound in December as a result of Fed 

rate cuts, government loans to automakers, and the conversion of GMAC (the largest single name in the Index) to bank 

holding company status, giving the company access to TARP funds. Nevertheless, 2008 was the high yield market’s worst on 

record, with the Citigroup High-Yield Cash-Pay Index losing a quarter of its value. 


For the twelve months ended December 31, 2008, the High Yield Bond Portfolio had a total return of –21.35%. By 

comparison, the Citigroup High-Yield Cash-Pay Index returned –24.74% for the year. (This Index is unmanaged, cannot be 

invested in directly and does not include administrative expenses or sales charges.) The average return for the Portfolio’s peer 

group, High Current Yield Funds, was –26.93%, according to Lipper Analytical Services, Inc., an independent mutual fund 

ranking agency. 


the worst year in high yield market history. However, the Portfolio outperformed the Index and Lipper average because of its 

bias toward higher quality issuers rated BB and above, and corresponding underweight to CCC rated securities. Some of our 

security selection decisions also helped performance, as did our slightly higher than average cash weighting. 

Presumably unlike many of our peers, we did not consider it prudent to own the riskiest, lowest quality bonds without regard 

to fundamentals, preferring to own higher quality names in cash-rich, less economically sensitive sectors given the challenging 

market environment. That positioning helped the Portfolio hold up better than the market and its competition in 2008, when 

the lower a bond’s quality, the worse its performance. What’s more, some of our BB bonds also did well in the up month of 

December, as investors looking to enter the market gravitated toward large, liquid names, such as DirecTV and L-3 

Communications. 

It also helped that we allowed a modest cash position from bond maturities and coupon payments to build over the course of 

the year. Having that modest (less than 10% of assets) cash cushion benefited performance during a brutal year in high yield. 

In addition, we were underweight some of the worst-performing segments of the market, such as broadcasting, paper and 

forest products and publishing. 

Outlook 

We remain in a challenging environment for high yield bonds, because of economic weakness and a lack of liquidity in the 

market. Indeed, one of the key considerations is that very few high yield companies were able to come to market for additional 

financing in the second half of the year. Under those conditions, we expect defaults to rise significantly going forward. 

High Yield Bond Portfolio 125


But there are some positives—the indiscriminate selling we’ve seen in the market is presenting long-term, patient investors 

with opportunities to buy well-structured credits at very attractive levels. In essence, large swaths of the market have been 

priced to go out of business. But with spreads trading at unprecedented levels, we think that it makes sense to add select names 

that we believe can survive the current economic and financial stresses. We expect to put our modest cash position to work in 

these sorts of deals in coming months. 


The Portfolio invests in lower quality securities, which 

may represent a significant risk for loss of principal and 

interest. Bonds and other debt obligations are affected 

by changes in interest rates, inflation risk and the 

creditworthiness of their issuers. High yield bonds 

generally have greater price swings and higher default 

risks than investment grade bonds. Return of principal is 

not guaranteed. When interest rates rise, bond prices 

fall. With a fixed income fund, when interest rates rise, 

the value of the fund’s existing bonds drops, which could 

negatively affect overall fund performance. In contrast 

to owning individual bonds, there are ongoing fees and 

expenses associated with owning shares of bond funds. 





Citigroup High Yield Cash Pay Index 

-21.35% 0.21% 

-24.74% -0.68% 

2.36% 

2.51% 

Barclays Capital U.S. Corporate High 

Yield 2% Issuer Capped Index** -25.88% -0.84% 2.28% 


(VIP) High Current Yield Funds 

Average -26.93% -1.17% 1.27% 

** Prior to November 1, 2008, the Barclays Capital U.S. Corporate 

High Yield 2% Issuer Capped Index was known as the Lehman 

Brothers U.S. Corporate High Yield 2% Issuer Capped Index. 









www.nmfn.com. 









126 High Yield Bond Portfolio





HCA, Inc., Various 2.5% 

Energy Future Holdings Corp., Various 1.9% 

Ford Motor Credit Co. LLC, Various 1.8% 

Chesapeake Energy Corp., Various 1.8% 

EchoStar DBS Corp., Various 1.8% 

L-3 Communications Corp., Various 1.6% 

General Motors Acceptance Corp. LLC, Various 1.6% 

MGM MIRAGE, Inc., Various 1.6% 

Frontier Communications Corp., Various 1.6% 

CSC Holdings, Inc., Various 1.6% 



7% 

Basic Materials 

7% 

Gaming/Leisure/ 

Lodging 

8% 

Media 

8% 

Health Care/ 

Pharmaceuticals 

8% 

Utilities 

10% 

Financials 

5% 

Short-Term 

Investments & 


34% 

Energy 

13% 



change. 








Shares/ 

$ Par 

Value 

$ (000's) 


9.00%, 12/31/49 144A 379 95 

Total 95 


(Cost: $95) 95 

Bonds (88.8%) 


BE Aerospace, Inc., 

8.50%, 7/1/18 706,000 636 

Bombardier, Inc., 

8.00%, 11/15/14 144A 714,000 628 

DRS Technologies, Inc., 

7.625%, 2/1/18 680,000 680 

Hawker Beechcraft 

Acquisition Co. 

LLC/Hawker Beechcraft 

Notes Co., 

8.50%, 4/1/15 412,000 169 

(c) Hawker Beechcraft 



Notes Co., 

8.875%, 4/1/15 927,000 315 

Hawker Beechcraft 



Notes Co., 

9.75%, 4/1/17 860,000 232 


Corp., 

6.375%, 10/15/15 2,275,000 2,127 


Corp., 7.625%, 6/15/12 1,335,000 1,305 

Total 6,092 

Autos/Vehicle Parts (2.8%) 

American Axle & 

Manufacturing, Inc., 

7.875%, 3/1/17 1,095,000 339 

Cooper Tire & Rubber 

Co., 8.00%, 12/15/19 680,000 306 

Ford Motor Co., 

7.45%, 7/16/31 2,775,000 777 

Ford Motor Credit Co. 

LLC, 8.00%, 12/15/16 575,000 375 


LLC, 8.625%, 11/1/10 710,000 538 


LLC, 9.875%, 8/10/11 2,980,000 2,198 

General Motors Corp., 

7.20%, 1/15/11 755,000 159 

Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Autos/Vehicle Parts continued 

General Motors Corp., 

8.375%, 7/15/33 1,840,000 322 

Lear Corp., 

5.75%, 8/1/14 340,000 126 

Lear Corp., 

8.75%, 12/1/16 532,000 154 

Visteon Corp., 

8.25%, 8/1/10 993,000 308 

Visteon Corp., 

12.25%, 12/31/16 144A 1,102,000 264 

Total 5,866 

Basic Materials (7.5%) 

Ball Corp., 

6.625%, 3/15/18 740,000 662 

Berry Plastics Holding 

Corp., 8.875%, 9/15/14 590,000 257 

Cascades, Inc., 

7.25%, 2/15/13 504,000 257 

Crown Americas 

LLC/Crown Americas 


7.625%, 11/15/13 507,000 502 

Crown Americas 

LLC/Crown Americas 


7.75%, 11/15/15 825,000 821 

FMG Finance Property, 

Ltd., 

10.625%, 9/1/16 144A 2,370,000 1,375 



8.25%, 4/1/15 1,360,000 1,156 



8.375%, 4/1/17 2,130,000 1,747 

Georgia-Pacific LLC, 

7.00%, 1/15/15 144A 1,853,000 1,575 


7.125%, 1/15/17 144A 594,000 499 

Graphic Packaging 


9.50%, 8/15/13 1,031,000 711 

Hexion US Finance 

Corp./Hexion Nova 

Scotia Finance ULC, 

9.75%, 11/15/14 1,955,000 557 

Huntsman International 

LLC, 7.375%, 1/1/15 755,000 396 

Huntsman LLC, 

11.50%, 7/15/12 745,000 596 

Invista, 

9.25%, 5/1/12 144A 875,000 613 

Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Basic Materials continued 

Momentive Performance 

Materials, Inc., 

9.75%, 12/1/14 1,010,000 429 

The Mosaic Co., 

7.625%, 12/1/16 144A 530,000 424 

NewPage Corp., 

10.00%, 5/1/12 750,000 330 

Norampac Industries, Inc., 

6.75%, 6/1/13 625,000 281 

Novelis, Inc., 

7.25%, 2/15/15 2,098,000 1,217 

Peabody Energy Corp., 

7.375%, 11/1/16 185,000 174 

Peabody Energy Corp., 

7.875%, 11/1/26 1,095,000 903 

Smurfit-Stone Container 

Enterprises, Inc., 

8.375%, 7/1/12 665,000 110 

Texas Industries, Inc., 

7.25%, 7/15/13 144A 470,000 363 

Total 15,955 

Capital Goods (1.8%) 

Case New Holland, Inc., 

7.125%, 3/1/14 1,090,000 774 

Da-Lite Screen Co., Inc., 

9.50%, 5/15/11 675,000 594 

RSC Equipment Rental, 

Inc., 9.50%, 12/1/14 1,042,000 573 

SPX Corp., 

7.625%, 12/15/14 144A 820,000 714 

Terex Corp., 

8.00%, 11/15/17 1,100,000 935 

United Rentals North 

America, Inc., 

6.50%, 2/15/12 390,000 308 

Total 3,898 

Consumer Products/Retailing (4.1%) 

Education Management 

LLC/Education 

Management Finance 

Corp., 10.25%, 6/1/16 1,870,000 1,356 

GameStop 

Corp./GameStop, Inc., 

8.00%, 10/1/12 1,105,000 1,028 

Levi Strauss & Co., 

8.875%, 4/1/16 1,275,000 867 

The Neiman Marcus 

Group, Inc., 

10.375%, 10/15/15 740,000 318 

New Albertson's, Inc., 

7.25%, 5/1/13 860,000 727 




Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Consumer Products/Retailing continued 

Oxford Industries, Inc., 

8.875%, 6/1/11 1,693,000 1,278 

Phillips-Van Heusen 

Corp., 8.125%, 5/1/13 200,000 165 

Rite Aid Corp., 

7.50%, 3/1/17 1,017,000 661 


8.625%, 3/1/15 336,000 116 


9.375%, 12/15/15 540,000 189 


10.375%, 7/15/16 470,000 345 

SUPERVALU, Inc., 

7.50%, 11/15/14 1,120,000 918 

Warnaco, Inc., 

8.875%, 6/15/13 710,000 646 

Total 8,614 


Basic Energy Services, 

Inc., 7.125%, 4/15/16 1,220,000 695 

Chaparral Energy, Inc., 

8.875%, 2/1/17 1,220,000 244 

Chesapeake Energy Corp., 

6.375%, 6/15/15 823,000 650 


6.625%, 1/15/16 1,405,000 1,110 


7.25%, 12/15/18 750,000 585 


7.50%, 9/15/13 1,120,000 963 


7.625%, 7/15/13 605,000 520 

Cie Generale de 

Geophysique-Veritas, 

7.50%, 5/15/15 405,000 251 

Cie Generale de 

Geophysique-Veritas, 

7.75%, 5/15/17 675,000 392 

Cimarex Energy Co., 

7.125%, 5/1/17 1,015,000 792 

Complete Production 

Services, Inc., 

8.00%, 12/15/16 803,000 506 

Connacher Oil and Gas, 

Ltd., 

10.25%, 12/15/15 144A 730,000 292 

Denbury Resources, Inc., 

7.50%, 12/15/15 750,000 532 


7.00%, 6/15/17 1,125,000 880 


7.25%, 6/1/18 1,175,000 933 


7.75%, 1/15/32 1,095,000 711 

Forest Oil Corp., 

7.25%, 6/15/19 144A 450,000 329 

Forest Oil Corp., 

7.25%, 6/15/19 650,000 475 

Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Helix Energy Solutions 

Group, Inc., 

9.50%, 1/15/16 144A 1,090,000 578 

Key Energy Services, Inc., 

8.375%, 12/1/14 1,100,000 726 


Co. ULC, 5.35%, 1/5/11 1,110,000 991 


Co. ULC, 5.70%, 1/5/16 675,000 503 

Linn Energy LLC, 

9.875%, 7/1/18 144A 705,000 412 

Mariner Energy, Inc., 

8.00%, 5/15/17 915,000 476 

Newfield Exploration Co., 

6.625%, 9/1/14 190,000 156 


6.625%, 4/15/16 1,045,000 831 


7.125%, 5/15/18 560,000 442 

OPTI Canada, Inc., 

8.25%, 12/15/14 1,645,000 888 

Petrohawk Energy Corp., 

7.875%, 6/1/15 144A 935,000 692 


9.125%, 7/15/13 1,636,000 1,325 

Petroplus Finance, Ltd., 

6.75%, 5/1/14 144A 633,000 402 

Petroplus Finance, Ltd., 

7.00%, 5/1/17 144A 528,000 322 

Plains Exploration & 

Production Co., 

7.00%, 3/15/17 680,000 466 



7.625%, 6/1/18 470,000 322 



7.75%, 6/15/15 900,000 680 

Range Resources Corp., 

6.375%, 3/15/15 1,119,000 906 


7.25%, 5/1/18 150,000 125 


7.50%, 5/15/16 235,000 204 

SandRidge Energy, Inc., 

8.00%, 6/1/18 144A 470,000 261 

SESI LLC, 

6.875%, 6/1/14 1,145,000 882 

Sonat, Inc., 

7.625%, 7/15/11 315,000 287 

Southwestern Energy Co., 

7.50%, 2/1/18 144A 830,000 726 

Targa Resources Partners 

LP, 8.25%, 7/1/16 144A 565,000 350 

Tesoro Corp., 

6.25%, 11/1/12 460,000 317 

Tesoro Corp., 

6.625%, 11/1/15 2,330,000 1,351 

Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 


W&T Offshore, Inc., 

8.25%, 6/15/14 144A 1,040,000 562 

Whiting Petroleum Corp., 

7.25%, 5/1/13 1,379,000 979 

Total 28,022 



8.125%, 12/29/49 1,120,000 838 


8.40%, 4/29/49 1,120,000 739 

E*TRADE Financial 

Corp., 7.375%, 9/15/13 55,000 20 


Corp., 7.875%, 12/1/15 1,320,000 475 


Corp., 8.00%, 6/15/11 1,685,000 767 



7.25%, 3/2/11 2,375,000 2,018 



7.75%, 1/19/10 550,000 491 



8.00%, 11/1/31 144A 1,519,000 903 



5.875%, 5/1/13 405,000 270 


7.90%, 4/29/49 1,120,000 932 

LaBranche & Co., Inc., 

11.00%, 5/15/12 561,000 488 

Nuveen Investments, Inc., 

10.50%, 11/15/15 144A 825,000 183 


7.98%, 2/28/49 560,000 477 

Wells Fargo Capital XV, 

9.75%, 12/29/49 1,500,000 1,515 

Total 10,116 

Foods (2.3%) 

Constellation Brands, Inc., 

7.25%, 9/1/16 1,070,000 1,011 


7.25%, 5/15/17 870,000 822 


8.375%, 12/15/14 455,000 432 

(d)Pilgrim's Pride Corp., 

7.625%, 5/1/15 843,000 228 

Pinnacle Foods Finance 

LLC/Pinnacle Foods 


9.25%, 4/1/15 735,000 474 

Pinnacle Foods Finance 

LLC/Pinnacle Foods 


10.625%, 4/1/17 1,415,000 764 




Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Foods continued 


7.75%, 5/15/13 1,310,000 842 


7.75%, 7/1/17 760,000 433 

Total 5,006 

Gaming/Leisure/Lodging (7.6%) 

AMC Entertainment, Inc., 

11.00%, 2/1/16 678,000 474 

Caesars Entertainment, 

Inc., 7.875%, 3/15/10 740,000 488 

Caesars Entertainment, 

Inc., 8.125%, 5/15/11 1,775,000 870 

Felcor Lodging LP, 

8.50%, 6/1/11 1,117,000 827 


Inc., 5.50%, 7/1/10 750,000 476 


Inc., 

10.75%, 2/1/16 144A 2,655,000 757 

The Hertz Corp., 

8.875%, 1/1/14 840,000 517 

Host Hotels & Resorts LP, 

7.125%, 11/1/13 2,865,000 2,306 

Las Vegas Sands Corp., 

6.375%, 2/15/15 1,845,000 1,070 

Mandalay Resort Group, 

9.375%, 2/15/10 660,000 482 

Mashantucket Western 

Pequot Tribe, 

8.50%, 11/15/15 144A 1,375,000 540 

MGM MIRAGE, 

7.50%, 6/1/16 1,800,000 1,141 

MGM MIRAGE, Inc., 

6.75%, 9/1/12 1,485,000 1,039 

MGM MIRAGE, Inc., 

8.375%, 2/1/11 1,125,000 669 

Mohegan Tribal Gaming 

Authority, 

6.875%, 2/15/15 1,095,000 553 

Mohegan Tribal Gaming 

Authority, 

8.00%, 4/1/12 375,000 229 

Royal Caribbean Cruises, 

Ltd., 7.00%, 6/15/13 875,000 499 

Seminole Hard Rock 

Entertainment, Inc., 

4.496%, 3/15/14 144A 540,000 274 

Station Casinos, Inc., 

6.00%, 4/1/12 1,475,000 295 


6.625%, 3/15/18 615,000 35 


6.875%, 3/1/16 685,000 39 

Universal City 

Development Partners, 

11.75%, 4/1/10 907,000 585 

Bonds (88.8%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Gaming/Leisure/Lodging continued 

Universal City Florida 

Holding Co. I & II, 

8.375%, 5/1/10 400,000 182 




6.625%, 12/1/14 2,395,000 1,808 

Total 16,155 


(c) Biomet, Inc., 

10.375%, 10/15/17 2,229,500 1,761 

Catalent Pharma 

Solutions, Inc., 

9.50%, 4/15/15 997,000 379 

CHS/Community Health 

Systems, Inc., 

8.875%, 7/15/15 2,585,000 2,378 

DaVita, Inc., 

7.25%, 3/15/15 1,110,000 1,054 

FMC Finance III SA, 

6.875%, 7/15/17 1,265,000 1,183 

Fresenius Medical Care 

Capital Trust IV, 

7.875%, 6/15/11 410,000 389 

HCA, Inc., 

6.75%, 7/15/13 905,000 570 

HCA, Inc., 

9.125%, 11/15/14 782,000 725 

HCA, Inc., 

9.25%, 11/15/16 3,164,000 2,903 

(c) HCA, Inc., 

9.625%, 11/15/16 1,273,000 993 

Health Management 

Associates, Inc., 

6.125%, 4/15/16 1,110,000 688 

Senior Housing Properties 

Trust, 8.625%, 1/15/12 610,000 525 

Service Corp. 

International, 

6.75%, 4/1/15 855,000 675 

Service Corp. 


6.75%, 4/1/16 825,000 627 

Service Corp. 


7.375%, 10/1/14 175,000 149 

Tenet Healthcare Corp., 

7.375%, 2/1/13 985,000 702 

Tenet Healthcare Corp., 

9.875%, 7/1/14 1,110,000 894 

Ventas Realty LP/Ventas 


6.50%, 6/1/16 1,095,000 802 



9.00%, 5/1/12 750,000 668 

Total 18,065 

Bonds (88.8%) 

Media (7.7%) 

Shares/ 

$ Par 

Value 

$ (000's) 

CCH I Holdings 

LLC/CCH I Holdings 


11.00%, 10/1/15 2,565,000 398 

CCH I Holdings 

LLC/CCH I Holdings 


11.75%, 5/15/14 905,000 46 

CCH II LLC/CCH II 


10.25%, 9/15/10 1,000,000 440 

CSC Holdings, Inc., 

7.625%, 4/1/11 2,055,000 1,937 


7.875%, 2/15/18 1,740,000 1,366 

Dex Media, Inc., 

8.00%, 11/15/13 1,300,000 240 

DirecTV Holdings 

LLC/DirecTV Financing 

Co., 7.625%, 5/15/16 2,035,000 1,974 

EchoStar DBS Corp., 

7.00%, 10/1/13 1,675,000 1,453 


7.125%, 2/1/16 1,310,000 1,094 


7.75%, 5/31/15 1,405,000 1,194 

Kabel Deutschland 

GmbH, 10.625%, 7/1/14 1,215,000 1,081 

Lamar Media Corp., 

6.625%, 8/15/15 1,875,000 1,355 

LIN Television Corp., 

6.50%, 5/15/13 780,000 371 

Mediacom Broadband 

LLC/Mediacom 

Broadband Corp., 

8.50%, 10/15/15 1,185,000 772 

Mediacom 

LLC/Mediacom Capital 

Corp., 7.875%, 2/15/11 390,000 305 

Quebecor Media, Inc., 

7.75%, 3/15/16 1,100,000 742 

R.H. Donnelley Corp., 

6.875%, 1/15/13 930,000 125 

R.H. Donnelley Corp., 

8.875%, 10/15/17 365,000 55 

(c)Univision 


9.75%, 3/15/15 144A 1,180,000 148 

Videotron Ltee, 

6.375%, 12/15/15 340,000 267 


6.875%, 1/15/14 838,000 742 


9.125%, 4/15/18 144A 185,000 172 

Total 16,277 




Bonds (88.8%) 

Real Estate (0.7%) 

Shares/ 

$ Par 

Value 

$ (000's) 

Icahn Enterprises 

LP/Icahn Enterprises 


7.125%, 2/15/13 1,510,000 1,042 

The Rouse Co. LP, 

7.20%, 9/15/12 1,175,000 399 

Total 1,441 

Services (1.7%) 

Allied Waste North 


6.125%, 2/15/14 565,000 512 



7.25%, 3/15/15 1,411,000 1,312 

Crum & Forster Holdings 

Corp., 7.75%, 5/1/17 772,000 544 

UnumProvident Finance 

Co. PLC, 

6.85%, 11/15/15 144A 825,000 675 

WCA Waste Corp., 

9.25%, 6/15/14 880,000 651 

Total 3,694 

Technology (3.6%) 

Expedia, Inc., 

8.50%, 7/1/16 144A 95,000 71 

First Data Corp., 

9.875%, 9/24/15 1,285,000 777 

Flextronics International, 

Ltd., 6.50%, 5/15/13 1,130,000 893 

Freescale Semiconductor, 

Inc., 8.875%, 12/15/14 981,000 432 

(c) Freescale Semiconductor, 

Inc., 9.125%, 12/15/14 1,442,000 332 

Iron Mountain, Inc., 

7.75%, 1/15/15 890,000 799 

Iron Mountain, Inc., 

8.00%, 6/15/20 1,440,000 1,156 

Nortel Networks, Ltd., 

10.75%, 7/15/16 144A 1,110,000 294 

Sabre Holdings Corp., 

8.35%, 3/15/16 915,000 203 

STATS ChipPAC, Ltd., 

6.75%, 11/15/11 662,000 491 

STATS ChipPAC, Ltd., 

7.50%, 7/19/10 675,000 555 

Sungard Data Systems, 

Inc., 

10.625%, 5/15/15 144A 800,000 684 

SunGard Data Systems, 

Inc., 9.125%, 8/15/13 670,000 579 

Travelport LLC, 

11.875%, 9/1/16 300,000 84 

Unisys Corp., 

8.00%, 10/15/12 810,000 227 

Total 7,577 

Shares/ 

Bonds (88.8%) 

$ Par 


Value 

$ (000's) 

(c) ALLTEL 

Communications LLC, 

10.375%, 12/1/17 144A 1,095,000 1,226 

American Tower Corp., 

7.00%, 10/15/17 144A 825,000 734 

Cricket Communications, 

Inc., 

10.00%, 7/15/15 144A 470,000 430 


Corp., 9.00%, 8/15/31 2,205,000 1,389 


Corp., 9.25%, 5/15/11 2,025,000 1,924 

Intelsat Corp., 

9.25%, 8/15/14 144A 755,000 702 

Intelsat Jackson Holdings, 

Ltd., 11.25%, 6/15/16 740,000 673 

Intelsat, Ltd., 

7.625%, 4/15/12 755,000 506 

Qwest Corp., 

6.50%, 6/1/17 1,035,000 766 

Qwest Corp., 

7.50%, 10/1/14 221,000 184 

Qwest Corp., 

7.625%, 6/15/15 750,000 615 

Qwest Corp., 

7.875%, 9/1/11 986,000 907 


8.00%, 12/15/12 1,220,000 1,168 


8.375%, 3/15/12 1,495,000 1,196 


6.00%, 12/1/16 1,120,000 790 

Windstream Corp., 

7.00%, 3/15/19 680,000 524 


8.125%, 8/1/13 1,150,000 1,058 


8.625%, 8/1/16 1,220,000 1,080 

Total 15,872 

Transportation (2.0%) 

American Railcar 

Industries, Inc., 

7.50%, 3/1/14 320,000 211 

Kansas City Southern de 

Mexico SAB de CV, 

7.375%, 6/1/14 1,150,000 941 



7.625%, 12/1/13 470,000 385 



9.375%, 5/1/12 933,000 854 

Stena AB, 

7.50%, 11/1/13 2,675,000 1,769 

Total 4,160 

Bonds (88.8%) 


Shares/ 

$ Par 

Value 

$ (000's) 

The AES Corp., 

7.75%, 10/15/15 1,495,000 1,256 


8.00%, 10/15/17 825,000 677 


8.00%, 6/1/20 144A 755,000 585 

Aquila, Inc., 

7.95%, 2/1/11 78,000 76 

Aquila, Inc., 

11.875%, 7/1/12 755,000 763 

Dynegy Holdings, Inc., 

7.50%, 6/1/15 1,300,000 910 


7.75%, 6/1/19 815,000 562 


8.375%, 5/1/16 1,465,000 1,040 

Edison Mission Energy, 

7.00%, 5/15/17 1,585,000 1,379 

Edison Mission Energy, 

7.20%, 5/15/19 1,846,000 1,514 

Elwood Energy LLC, 

8.159%, 7/5/26 1,069,095 725 

Energy Future Holdings 

Corp., 

10.875%, 11/1/17 144A 1,100,000 781 

Indiantown Cogeneration 

LP, 9.77%, 12/15/20 1,740,000 1,378 

Mirant Americas 

Generation LLC, 

8.50%, 10/1/21 2,265,000 1,721 

NRG Energy, Inc., 

7.25%, 2/1/14 925,000 865 


7.375%, 2/1/16 665,000 619 


7.375%, 1/15/17 816,000 751 

NSG Holdings LLC/NSG 


7.75%, 12/15/25 144A 948,000 739 

NV Energy, Inc., 

8.625%, 3/15/14 392,000 353 

Reliant Energy, Inc., 

7.625%, 6/15/14 1,855,000 1,540 

Texas Competitive 

Electric Holdings Co. 

LLC, 

10.50%, 11/1/15 144A 4,500,000 3,195 

Total 21,429 

Total Bonds 

(Cost: $261,807) 188,239 





(8.8%) 


Shares/ 

$ Par 

Value 

$ (000's) 


Corp., 0.35%, 1/5/09 5,000,000 5,000 

Total 5,000 



0.28%, 1/16/09 2,100,000 2,099 

Total 2,099 



Corp. LLC, 

1.30%, 1/12/09 5,000,000 4,998 

Total 4,998 



0.95%, 1/2/09 5,000,000 5,000 


1.00%, 1/2/09 1,500,000 1,500 

Total 6,500 


(Cost: $18,597) 18,597 


(Cost: $280,499)(a) 206,931 



Net Assets (100.0%) 212,003 




was $24,569. representing 11.59% of the net assets. 

(a) 

(c) 

(d) 

(n) 



depreciation. 

PIK - Payment In Kind 








Seek maximum total return as is 

consistent with prudent investment 

management. 

Invest primarily in a diversified portfolio of debt securities 

of varying maturities. 

$94 million 


Mason Street Advisors, the investment adviser for the Multi-Sector Bond Portfolio, has engaged Pacific Investment 

Management Company LLC to act as sub-adviser for the Portfolio. The Portfolio investment objective is to seek maximum 

total return, consist with prudent investment management. Normally, the Portfolio seeks to achieve its investment objective by 

investing at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of fixed income 

instruments of varying maturities. The Portfolio may invest all of its assets in high yield securities subject to maximum of 10% 

of its total assets in securities rated below B by Moody’s or by S&P or, if unrated, determined to be of comparable quality (so 

called “junk bonds”). The Portfolio may also invest in securities denominated in foreign currencies and U.S.-dollarsdenominated 

in foreign issuers. The Portfolio may have foreign currency exposure (from non-U.S. dollar denominated 

securities or currencies) up to 100% of its total assets. In addition, the Portfolio may invest without limit in fixed income 

securities of issuers that are economically tied to emerging securities markets, or in preferred stocks. The Portfolio may invest 

all of its assets in derivative instruments, such as options, futures, contracts or swap agreements, or in mortgage-backed 

securities such as those issued by Ginnie Mae, Fannie Mae and Freddie Mac. The Portfolio may, without limitation, seek to 

obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or 

by using other investment techniques (such as buy backs or dollar rolls). 


The year 2008 will be remembered for the massive wave of de-leveraging that followed the bursting of the U.S. housing 

bubble and produced a financial system crisis that continues to roil markets and economies worldwide. The fourth quarter saw 

this crisis spread from the finance realm to the real economy and from the U.S. to around the globe. By year end, the world’s 

leading developed economies were experiencing a full-blown economic recession and major emerging economies, though 

avoiding outright contraction, faced strong headwinds as exports to the developed world slowed and credit markets slammed 

shut. Widespread destruction of demand and wealth had left a large and growing stock of excess capacity and decimated 

production and employment. Awakening during the quarter to the reality of a global recession, central banks around the world 

shifted into crisis mode and sought additional tools to stimulate the economy. Policy makers’ unconventional moves reflected 

the seriousness of the economic downturn, but also made clear that governments were intent on doing whatever was necessary 

to promote the resumption of growth. Fiscal plans in various forms were announced in an effort to substitute public balance 

sheets for those of the private sector, with the objective of restoring normal intermediation between savers and private 

borrowers. Still, the effectiveness of these policies remained to be seen, as risk appetites in the private sector continued to 

weaken over the quarter, and saw only modest recovery in December. 


The Multi-Sector Bond Portfolio returned –6.86% for the twelve months ended December 31, 2008. By comparison, the 

Barclays Capital Global Credit Hedged USD Index returned –5.89% for the same period. (This Index is unmanaged, cannot be 

invested in directly and does not include administrative expenses or sales charges.) The average return for the Portfolio’s peer 

group, General Bond Funds, was –9.18%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking 

agency. 

Favorable asset allocation helped returns, including an emphasis on emerging markets (EM) and de-emphasis on high yield 

and investment grade credit. An underweight to spread duration during the majority of the year helped returns as credit spreads 

widened. An off-benchmark allocation to EM currencies helped returns, as the U.S. dollar weakened against these currencies 

over the first half of the year. However, these currencies gave back some of their returns in the second half. An underweight to 

the high yield credit sector helped performance, as high yield spreads widened to historic levels. 

An allocation to high quality financial issues detracted from performance amid de-leveraging in the financial system. Prices 

for these securities bounced back in the fourth quarter as this sector benefited from government capital injections and debt 

guarantees. An underweight to the consumer non-cyclical sector detracted from performance as that sector outperformed amid 

an economic slowdown. 

Outlook 

We expect the fallout from the financial crisis to push developed economies into one of the most severe global recessions since 

World War II. As 2008 ended, the world’s largest developed economies were either already in or quickly headed towards 

Multi-Sector Bond Portfolio 133


recession from which we believe they are not likely to emerge until 2010. Fortunately, the reality of a recession appears to be 

bringing clarity to policymakers who by their actions have made it clear they will do whatever it takes to promote the 

resumption of growth. 

We do not expect major emerging economies such as Brazil, Mexico and Russia to contract, but they will likely face strong 

headwinds as their exports to developed countries slow and credit markets remain restrictive. Weaker external demand could 

also help cool China’s rapid expansion, though the Chinese government’s plan for massive fiscal stimulus indicates to us that 

it will do what is necessary to prop up domestic demand. 

We have a cautious outlook for corporates going into 2009. Government policy responses have been aimed at restoring health 

to systemically vital financial institutions. While a full recovery will likely take some time, we believe current valuations can 

present compelling investment opportunity within the appropriate investment horizon. In high yield, buffeted by a sustained 

bout of volatility, the fundamentals continued to deteriorate. Defaults have jumped more than four-fold already this year, and 

the prolonged freezing of credit markets, alongside the ailing economy, has the potential to exacerbate the pace of this 

deterioration. 




1 Year 

Since 

Inception* 

Multi-Sector Bond Portfolio -6.86% -3.54% 

Barclays Capital Global Credit 

Hedged USD Index** -5.89% -2.69% 

Equal Weighted Composite of 

Barclays Capital Global Aggregate 

— Credit Component, Hedged 

USD; Merrill Lynch Global High 

Yield BB-B Rated Constrained 

Index; JP Morgan EMBI Global -12.84% -7.16% 


(VIP) General Bond Funds Average -9.18% –% 


** Prior to November 1, 2008, the Barclays Capital Global Credit 

Hedged USD Index was known as the Lehman Brothers Global Credit 

Hedged USD Index. 









www.nmfn.com. 











The Portfolio invests in lower-quality securities, which 

may present a significant risk for loss of principal and 

interest. Bonds and other debt obligations are affected 

by changes in interest rates, inflation risk and the 

creditworthiness of their issuers. High yield bonds 

generally have greater price swings and higher default 

risks than investment grade bonds. Return of principal is 

not guaranteed. When interest rates rise, bond prices 

fall. With a fixed income fund, when interest rates rise, 

the value of the fund's existing bonds drops, which could 


134 Multi-Sector Bond Portfolio














Federal National Mortgage Association , Various 38.0% 

Brazilian Government International Bond, 

Various 3.7% 

Bank of America Corp., Various 2.7% 

South Africa Government 

Bond, 13.00%, 8/31/10 2.6% 

Uruguay Government International Bond, 

Various 2.6% 

GAZ Capital SA, 8.625%, 4/28/34 2.0% 

SLM Corp., Various 1.8% 

Russian Government International 

Bond, 7.50%, 3/31/30 1.8% 

General Electric Capital Corp., Various 1.7% 

Citigroup, Inc., Various 1.7% 


Foreign Bonds 

6% 

Municipal Bonds 

1% 

Structured 

Products 

42% 

Corporate 

Bonds 

51% 

Sector Allocation is based on fixed income investments. 


change. 







(54.4%) 


Shares/ 

$ Par 

Value 

$ (000's) 

Northwest Airlines, Inc., 

7.626%, 4/1/10 45,236 37 

Total 37 


American Honda 


3.259%, 2/5/10 144A 200,000 198 

Total 198 


American Express Bank 

FSB, 1.275%, 7/13/10 250,000 229 


1.878%, 6/22/12 900,000 904 


5.75%, 12/1/17 700,000 699 


8.00%, 12/29/49 500,000 357 


8.125%, 12/29/49 800,000 598 


5.45%, 9/12/12 250,000 253 


7.70%, 4/26/49 144A 700,000 463 

Barclays Bank PLC New 

York, 2.498%, 8/10/09 200,000 199 



2.356%, 5/18/10 100,000 97 



3.765%, 1/30/09 100,000 100 



6.40%, 10/2/17 325,000 338 



7.25%, 2/1/18 200,000 219 

Citigroup Capital XXI, 

8.30%, 12/21/57 300,000 231 

Citigroup Funding, Inc., 

3.556%, 5/7/10 200,000 190 

(b) Citigroup, Inc., 

1.496%, 12/28/09 1,100,000 1,038 


8.40%, 4/29/49 800,000 528 

(b) Countrywide Financial 

Corp., 4.348%, 1/5/09 1,000,000 1,000 


NY, 5.00%, 5/15/13 300,000 289 


Group, Inc., 

1.766%, 6/28/10 1,000,000 915 


(54.4%) 

Shares/ 

$ Par 

Value 

$ (000's) 



Group, Inc., 

6.15%, 4/1/18 200,000 192 


Group, Inc., 

6.75%, 10/1/37 450,000 365 

HBOS PLC, 

5.92%, 9/1/49 144A 660,000 250 

HSBC Holdings PLC, 

6.50%, 5/2/36 760,000 772 


6.00%, 1/15/18 100,000 106 

(b) JPMorgan Chase Bank 

NA, 2.326%, 6/13/16 1,500,000 1,127 



2.951%, 5/25/10 200,000 18 



3.053%, 11/10/09 200,000 18 



6.00%, 7/19/12 300,000 28 



6.20%, 9/26/14 100,000 10 


6.875%, 4/25/18 800,000 837 


4.233%, 5/14/10 100,000 93 


5.75%, 8/31/12 100,000 93 


5.95%, 12/28/17 200,000 166 


6.00%, 4/28/15 500,000 431 

Rabobank Nederland 

NV, 

2.639%, 5/19/10 144A 400,000 398 

(b) Regions Financial Corp., 

1.636%, 6/26/12 1,300,000 1,047 

Santander Perpetual SA 

Unipersonal, 

6.671%, 10/24/49 144A 300,000 191 


Branch, 

3.779%, 5/5/10 100,000 100 


Branch, 

3.824%, 7/23/09 700,000 696 


Branch, 

5.75%, 4/25/18 300,000 272 


Branch, 

5.875%, 12/20/17 100,000 92 


(54.4%) 

Shares/ 

$ Par 

Value 

$ (000's) 


Unicredito Italiano/New 

York NY, 

1.795%, 5/15/09 800,000 800 


3.033%, 5/14/10 900,000 864 


3.573%, 11/3/14 500,000 395 


5.50%, 5/1/13 100,000 99 

Wells Fargo & Co., 

4.375%, 1/31/13 400,000 392 

Wells Fargo & Co., 

5.25%, 10/23/12 410,000 418 

Wells Fargo Capital 

XIII, 7.70%, 12/29/49 200,000 165 

Total 19,082 


Berry Plastics Holding 

Corp., 8.875%, 9/15/14 100,000 44 

C8 Capital SPV, Ltd., 

6.64%, 12/31/49 1,000,000 511 


7.125%, 1/15/17 144A 400,000 336 

Total 891 



Inc., 2.921%, 6/17/10 600,000 557 

Enel Finance 

International SA, 

5.70%, 1/15/13 144A 100,000 92 


6.75%, 7/1/37 50,000 45 

Reliant Energy, Inc., 

6.75%, 12/15/14 75,000 67 

Sierra Pacific Power Co., 

6.75%, 7/1/37 75,000 67 

Total 828 


Celestica, Inc., 

7.875%, 7/1/11 150,000 136 

Total 136 

Energy (0.1%) 


8.00%, 6/1/18 144A 150,000 83 

Total 83 


New Albertson's, Inc., 

7.45%, 8/1/29 125,000 74 

Total 74 

The Accompanying Notes are an Integral Part of the Financial Statements 




(54.4%) 

Shares/ 

$ Par 

Value 

$ (000's) 


The Hertz Corp., 

8.875%, 1/1/14 150,000 92 

MGM MIRAGE, 

7.50%, 6/1/16 200,000 127 




6.625%, 12/1/14 95,000 72 

Total 291 



7.00%, 6/15/17 325,000 254 

(d) SemGroup LP, 

8.75%, 11/15/15 144A 500,000 17 

Williams Companies, 

Inc., 7.625%, 7/15/19 125,000 98 

Total 369 

Health Care / Pharmaceuticals (1.2%) 

Biomet, Inc., 

10.00%, 10/15/17 38,000 37 

(c) Biomet, Inc., 

10.375%, 10/15/17 189,000 149 

Biomet, Inc., 

11.625%, 10/15/17 198,000 169 

CHS/Community Health 

Systems, Inc., 

8.875%, 7/15/15 325,000 299 

HCA, Inc., 

9.25%, 11/15/16 550,000 505 

Total 1,159 




2.216%, 6/24/11 900,000 805 

CIT Group, Inc., 

2.269%, 8/17/09 300,000 288 


2.303%, 6/8/09 400,000 391 


6.875%, 11/1/09 600,000 576 



BV, 1.678%, 3/23/09 200,000 198 

(b) General Electric Capital 

Corp., 4.398%, 10/6/15 1,300,000 940 


Corp., 4.625%, 9/15/66 980,000 750 


Corp., 5.45%, 1/15/13 650,000 655 



3.399%, 5/15/09 300,000 287 



5.625%, 5/15/09 200,000 192 



4.95%, 2/1/11 200,000 144 


(54.4%) 

Shares/ 

$ Par 

Value 

$ (000's) 


John Deere Capital 

Corp., 2.939%, 6/10/11 900,000 821 

Total 6,047 


(b) Oracle Corp., 

5.00%, 1/15/11 1,300,000 1,335 

Total 1,335 


Allstate Life Global 

Funding II, 

2.823%, 5/21/10 200,000 178 

Genworth Global 

Funding Trusts, 

4.943%, 4/15/14 300,000 138 

Hartford Life Global 

Funding Trusts, 

2.176%, 6/16/14 300,000 205 

Total 521 

Media (1.5%) 

Charter Communications 

Operating LLC/Charter 

Communications 

Operating Capital, 

8.00%, 4/30/12 144A 125,000 103 

Charter Communications 

Operating LLC/Charter 

Communications 

Operating Capital, 

8.375%, 4/30/14 144A 125,000 96 


7.625%, 4/1/11 150,000 141 

Dex Media West 

LLC/Dex Media West 

Finance Co., 

8.50%, 8/15/10 75,000 45 


7.125%, 2/1/16 325,000 271 

Quebecor Media, Inc., 

7.75%, 3/15/16 125,000 84 

Viacom, Inc., 

5.75%, 4/30/11 690,000 627 

Total 1,367 


AmeriGas Partners 

LP/AmeriGas Eagle 


7.125%, 5/20/16 150,000 120 

Total 120 


Chesapeake Energy 

Corp., 6.875%, 1/15/16 300,000 240 

Citic Resources Finance, 

Ltd., 

6.75%, 5/15/14 144A 200,000 130 

(b) GAZ Capital SA, 

8.625%, 4/28/34 2,400,000 1,920 


(54.4%) 

Shares/ 

$ Par 

Value 

$ (000's) 


(b) Marathon Oil Corp., 

6.00%, 10/1/17 1,000,000 853 

(b)Pemex Project Funding 

Master Trust, 

6.625%, 6/15/35 1,000,000 846 

Pemex Project Funding 

Master Trust, 

6.625%, 6/15/38 144A 100,000 83 

TransCapitalInvest, Ltd. 

for OJSC AK 

Transneft, 

6.103%, 6/27/12 144A 200,000 150 


6.125%, 6/15/17 205,000 175 


6.875%, 4/15/12 50,000 50 


7.50%, 4/15/12 100,000 99 

Total 4,546 


National Rural Utilities 

Cooperative Finance 

Corp., 4.658%, 7/1/10 900,000 821 

SLM Corp., 

2.196%, 3/15/11 200,000 155 

SLM Corp., 

3.675%, 7/27/09 200,000 189 

SLM Corp., 

3.695%, 7/26/10 100,000 85 

(b) SLM Corp., 

3.765%, 10/25/11 1,700,000 1,303 

Teco Finance, Inc., 

6.75%, 5/1/15 100,000 82 

Vale Overseas, Ltd., 

8.25%, 1/17/34 325,000 345 

Total 2,980 


Verso Paper Holdings 

LLC/Verso Paper, Inc., 

9.125%, 8/1/14 75,000 30 

Total 30 



Group, Inc., 

5.85%, 1/16/18 500,000 335 


Group, Inc., 

8.25%, 8/15/18 144A 100,000 73 


Group, Inc., 

8.625%, 5/22/38 100,000 44 


Funding I, 

2.246%, 3/15/12 144A 300,000 237 

Total 689 





(54.4%) 

Shares/ 

$ Par 

Value 

$ (000's) 




6.75%, 4/1/17 150,000 114 

Total 114 

Retail: Food/Drug (0.2%) 

Tesco PLC, 

5.50%, 11/15/17 144A 150,000 139 

Total 139 




7.25%, 3/15/15 100,000 93 

ARAMARK Corp., 

6.693%, 2/1/15 250,000 189 

Total 282 


First Data Corp., 

9.875%, 9/24/15 175,000 106 

SunGard Data Systems, 

Inc., 9.125%, 8/15/13 150,000 130 

Total 236 


(b) America Movil SAB de 

CV, 5.75%, 1/15/15 1,000,000 919 


7.75%, 3/1/11 300,000 316 

Frontier 

Communications Corp., 

7.125%, 3/15/19 125,000 84 

(d) Hawaiian Telcom 


9.75%, 5/1/13 100,000 7 


10.125%, 7/15/13 275,000 73 



7.50%, 2/15/14 150,000 107 

Qwest Corp., 

7.25%, 9/15/25 500,000 335 

Qwest Corp., 

8.875%, 3/15/12 75,000 69 


6.00%, 12/1/16 450,000 317 

Total 2,227 



Inc., 6.75%, 6/15/17 50,000 40 

Total 40 


BW Gas, Ltd., 

6.625%, 6/28/17 144A 130,000 100 

Total 100 


(54.4%) 


Shares/ 

$ Par 

Value 

$ (000's) 


8.00%, 10/15/17 100,000 82 


7.50%, 6/1/15 325,000 227 

Energy Future Holdings 

Corp., 

10.875%, 11/1/17 144A 425,000 302 

Nalco Co., 

7.75%, 11/15/11 20,000 19 

Nalco Co., 

8.875%, 11/15/13 20,000 17 


7.375%, 1/15/17 430,000 396 

Total 1,043 


ArvinMeritor, Inc., 

8.125%, 9/15/15 65,000 29 

ArvinMeritor, Inc., 

8.75%, 3/1/12 65,000 35 

Cooper-Standard 

Automotive, Inc., 

7.00%, 12/15/12 150,000 45 

Tenneco, 

8.625%, 11/15/14 100,000 38 

Total 147 


Brazilian Government 


6.00%, 1/17/17 1,000,000 1,032 



8.25%, 1/20/34 200,000 245 



8.875%, 4/15/24 500,000 620 

(b) Brazilian Government 


11.00%, 8/17/40 1,200,000 1,566 

Colombia Government 


7.375%, 1/27/17 200,000 208 



8.30%, 8/15/31 300,000 368 

(b) Russian Government 


7.50%, 3/31/30 1,960,000 1,709 

United Mexican States, 

5.95%, 3/19/19 300,000 300 

Total 6,048 


(Cost: $60,598) 51,159 

Shares/ Value 

Foreign Bonds (6.4%) $ Par $ (000's) 


UnityMedia Hessen 

GmBH & Co. KG, 

7.702%, 4/15/13 75,000 84 

Total 84 


Punch Taverns Finance 

PLC, 6.468%, 4/15/33 200,000 186 

Total 186 


BCM Ireland Finance, 

Ltd., 9.245%, 8/15/16 150,000 103 

Total 103 


(k) Brazilian Government 


12.50%, 1/5/22 1,650,000 738 

(b) South Africa 

Government Bond, 

13.00%, 8/31/10 21,300,000 2,463 

(n)Uruguay Government 


3.70%, 6/26/37 3,459,943 61 

(b)Uruguay Government 


6.875%, 1/19/16 2,000,000 2,347 

Total 5,609 

Total Foreign Bonds 

(Cost: $8,122) 5,982 



Buckeye Tobacco 

Settlement Financing 


A2, 5.875%, 6/1/30 RB 100,000 61 

Buckeye Tobacco 

Settlement Financing 


A2,5.875%, 6/1/47 RB 100,000 54 

California Educational 


Series 2007-A, 

4.75%, 10/1/37 RB 100,000 89 

Clovis Unified School 

District of California, 

Series 2001-B, 

0.00%, 8/1/20 GO, 

FGIC 100,000 53 

East Bay Municipal 

Utility District, Series 

2007-A, 

5.00%, 6/1/32 RB , 

FGIC 400,000 382 





Shares/ 

$ Par 

Value 

$ (000's) 

Municipal Bonds continued 

Golden State Tobacco 

Securitization Corp., 

Series 2007-A2, 

0.00%, 6/1/37 RB 100,000 35 

Golden State Tobacco 


Series 2007-A1, 

5.75%, 6/1/47 RB 100,000 56 

Los Angeles Community 

College District, Series 

2007-A, 

5.00%, 8/1/32 GO, 

FGIC 100,000 94 

Los Angeles Unified 

School District, Series 

2007-A1, 

4.50%, 7/1/23 GO, 

FSA 100,000 92 

North Texas Municipal 

Water District Water 

System, Series 2006, 

5.00%, 9/1/35 RB , 

MBIA 100,000 94 

Northern Tobacco 


Series 2006-A, 

5.00%, 6/1/46 RB 200,000 96 

State of Florida 

Department of 

Transportation, Series 

2008-A, 

5.25%, 7/1/37 GO 100,000 97 

State of Washington 

Motor Vehicle Fuel 

Tax, Series 2008-D, 

5.00%, 1/1/33 GO 100,000 96 

Tobacco Securitization 

Authority of Southern 

California, Series A1- 

SNR, 5.00%, 6/1/37 RB 100,000 50 

Total 1,349 


(Cost: $1,634) 1,349 



American Home 

Mortgage Assets, Series 

2006-4, Class 1A12, 

0.681%, 10/25/46 77,015 27 

American Home 

Mortgage Investment 


Class 4A1, 

5.66%, 9/25/45 24,629 12 




Class A4, 

5.658%, 6/10/49 100,000 73 


(44.5%) 

Shares/ 

$ Par 

Value 

$ (000's) 





Class A4, 

5.745%, 2/10/51 100,000 72 

(b) Banc of America 


2005-H, Class 5A1, 

5.357%, 11/20/35 641,925 626 

Bear Sterns Adjustable 

Rate Mortgage Trust, 


1A1, 5.472%, 5/25/47 86,749 50 



2007-10, Class 22AA, 

6.014%, 9/25/37 89,361 47 

(b) Commercial Mortgage 

Pass-Through 


2001-JF1A, Class A2F, 

1.54%, 2/16/34 144A 781,101 690 


Pass-Through 


2006-C8, Class A4, 

5.306%, 12/10/46 100,000 73 



2006-0A17, Class 

1A1A, 

0.703%, 12/20/46 114,083 50 



2006-0A9, Class 2A1A, 

0.718%, 7/20/46 51,457 21 



2005-59, Class 1A1, 

0.838%, 11/20/35 26,855 13 



2005-62, Class 2A1, 

3.256%, 12/25/35 31,704 16 

(b) Encore Credit 

Receivables Trust, 


2A2, 

0.741%, 10/25/35 122,995 117 



3346, Class FA, 

1.425%, 2/15/19 767,460 737 

(b) Federal National 



A6, 0.671%, 10/27/37 300,000 255 



Series 2003-W6, Class 

F, 0.821%, 9/25/42 99,236 86 


(44.5%) 

Shares/ 

$ Par 

Value 

$ (000's) 




5.50%, 12/1/38 2,000,000 2,052 



TBA, 5.00%, 1/1/39 8,700,000 8,882 

(k)Federal National 


TBA, 5.50%, 1/1/39 17,800,000 18,245 

(k)Federal National 


TBA, 6.00%, 1/1/39 6,400,000 6,588 

GSR Mortgage Loan 


AR1, Class 2A1, 

5.181%, 1/25/36 18,207 13 

HSI Asset Securitization 

Corp. Trust, Series 

2006-OPT4, Class 2A2, 

0.581%, 3/25/36 59,469 58 

Indymac Indx Mortgage 


2005-AR12, Class 

2A1A, 

0.711%, 7/25/35 9,132 4 




2006-LDP9, Class A3, 

5.336%, 5/15/47 100,000 75 




2007-CB19, Class A4, 

5.747%, 2/12/49 100,000 73 




2007-CB20, Class A4, 

5.794%, 2/12/51 100,000 73 



2007-C2, Class A3, 

5.43%, 2/15/40 84,000 60 

(b)Lehman XS Trust, Series 

2006-8, Class 3A1A, 

0.591%, 6/25/36 594,154 518 

Long Beach Mortgage 


2006-11, Class 2A1, 

0.531%, 12/25/36 33,870 29 

(b)Massachusetts 

Educational Financing 


1, Class A1, 

4.485%, 4/25/38 872,469 662 

Morgan Stanley Capital I 


IQ16, Class A4, 

5.809%, 12/12/49 100,000 75 






(b) Nelnet Student Loan 


Class A2, 

2.163%, 2/23/16 414,398 407 

(b) SLM Student Loan 


Class A, 

5.035%, 4/25/23 1,000,000 937 

Structured Asset 


2006-GEL4, Class A1, 

0.591%, 10/25/36 144 

A 106,878 92 

United Air Lines Pass- 


7.73%, 7/1/10 26,074 24 

WaMu Mortgage Pass- 


Series 2007-0A1, Class 

A1A, 2.956%, 2/25/47 55,248 21 

WaMu Mortgage Pass- 


Series 2007-HY1, Class 

4A1, 5.449%, 2/25/37 62,109 37 




AR10, Class 5A6, 

5.594%, 7/25/36 19,132 11 


(Cost: $42,059) 41,901 





0.12%, 1/22/09 4,600,000 4,600 

(k) US Treasury Bill, 

0.003%, 3/19/09 910,000 910 


0.03%, 3/26/09 3,050,000 3,049 


Federal Government & Agencies continued 


0.08%, 2/26/09 650,000 650 


0.09%, 2/26/09 140,000 140 


0.18%, 2/12/09 500,000 500 


0.22%, 6/11/09 70,000 70 

Total 9,919 


(b) Nordea North America, 

Inc., 2.05%, 1/16/09 900,000 899 

Total 899 


(b) US Treasury 

Repurchase, 0.03%, 

dated 12/30/08, due 

1/5/09, repurchase price 

$8,000,040, 




$8,073,503, 

0.03%, 1/5/09 8,000,000 8,000 

Total 8,000 


(Cost: $18,818) 18,818 


(Cost: $131,231)(a) 119,209 


Liabilities (-26.7%) (25,088) 

Net Assets (100.0%) 94,121 




GO — General Obligation 


FGIC — Financial Guaranty Insurance Co. 

FSA — Financial Security Assurance 

MBIA — Municipal Bond Insurance Association 




(a) 

(b) 



depreciation. 



Unrealized 

Appreciation/ 

Number of 




90 Day Euro $ Commodity Future (Long) (Total Notional Value at December 31, 2008, $176,460) 732 12/09 $ 3,950 

90 Day Sterling (Long) (Total Notional Value at December 31, 2008, $2,609) 11 3/09 89 

Euro Bund Future (Long) (Total Notional Value at December 31, 2008, $2,961) 19 3/09 59 

(c) 

(d) 



(h) Forward foreign currency contracts outstanding on December 31, 2008 

Principal 

Amount 

Covered by 

Contract (000's) 

Unrealized 

Appreciation 

(000's) 

Unrealized 


(000's) 

Net Unrealized 

Appreciation/ 


(000's) 

Settlement 

Type 

Month 

Buy BRL 1,516 2/09 $ — $ (3) $ (3 ) 

Sell BRL 3,076 2/09 88 — 88 

Buy CLP 19,826 5/09 — (11) (11 ) 

Sell CLP 15,137 5/09 — —(m) — 

Buy CNY 6,565 9/09 8 — 8 

Sell EUR 3,104 1/09 — (413) (413 ) 

Sell GBP 383 1/09 10 — 10 

Sell HUF 174,749 5/09 — (123) (123 ) 

Buy IDR 885,725 3/09 — (5) (5 ) 

Buy JPY 3,788 1/09 2 — 2 

Buy MXN 108 5/09 — (2) (2 ) 

Buy MYR 111 2/09 1 — 1 

Buy MYR 106 4/09 1 — 1 

Buy PHP 23,841 2/09 — (21) (21 ) 

Buy PHP 10,162 5/09 2 — 2 

Buy PHP 700 12/10 — (2) (2 ) 

Sell PHP 700 12/10 1 — 1 

Buy PLN 68 5/09 — (7) (7 ) 

Buy RON 1,478 1/09 — (90) (90 ) 

Sell RON 1,478 1/09 38 — 38 

Buy RUB 14,853 5/09 — (179) (179 ) 

Sell RUB 14,853 5/09 14 — 14 

Buy SGD 1,184 7/09 26 — 26 

Sell SGD 717 1/09 — (22) (22 ) 

Sell ZAR 22,453 5/09 — (271) (271 ) 

$ 191 $ (1,149) $ (958 ) 

BRL - Brazilian Real 

CLP - Chilean Peso 

CNY - China Yuan Renminbi 

EUR - Euro 

GBP - British Pound 

HUF - Hungarian Forint 

IDR - Indonesian Rupiah 

JPY - Japanese Yen 

MXN - Mexican New Peso 

MYR - Malaysian Ringgit 

PHP - Philippines Peso 

PLN - Poland Zloty 

RON - Romanian Leu 

RUB - Russian Ruble 

SGD - Singapore Dollar 

ZAR - South African Rand 





Interest Rate Swaps 

Unrealized 

Appreciation/ 

Floating Rate Pay/Receive Fixed Expiration Notional (Depreciation) 

Counterparty 

Index 

Floating Rate Rate Date Amount (000's) (000's) 

JPMorgan Chase 6 Month GBP-LIBOR Pay 4.75% 9/10 GBP 2,700 $ 131 

Morgan Stanley Capital Services, Inc. 3 Month USD-LIBOR Receive 4.00% 6/11 USD 15,100 (137) 

Morgan Stanley Capital Services, Inc. 3 Month USD-LIBOR Receive 5.00% 12/38 USD 1,200 (569) 

28 Day Mexico Interbank 

TIIE Banxico Pay 8.17% 11/16 MXN 2,800 2 

Morgan Stanley Capital Services, Inc. 

Morgan Stanley Capital Services, Inc. 3 Month USD-LIBOR Pay 5.00% 12/18 USD 2,200 449 

$ (124) 

Credit Default Swaps 

CounterParty 



Morgan Stanley Capital 

Services, Inc. 






Dow Jones CDX NA Emerging 

Markets Index, Series 10 



Philippine Government 

International Bond, 10.625%, 

3/16/25 

Dow Jones CDX NA High Yield 

Index, Series 9 



Buy/Sell 

Protection 

Unrealized 

Appreciation/ 


(000's) 

(Pay)/Receive Expiration Notional 

Fixed Rate Date Amount (000's) 

Sell 3.35% 12/13 USD 2,000 $ 5 

Sell 2.65% 6/13 USD 11,000 (1,824) 

Sell 2.44% 9/17 USD 100 (8) 

Sell 3.75% 12/12 USD 4,900 (643) 

Sell 2.65% 6/13 USD 10,000 (1,622) 

$ (4,092) 

(k) Securities with an aggregate value of $30,890 (in thousands) have been pledged as collateral for swap contracts and short sales outstanding on December 31, 

2008 


(n) 



(o) Short sales outstanding on December 31, 2008 

Maturity Principal Proceeds Value 

Description 

Coupon Date Amount (000's) (000's) (000's) 

Federal National Mortgage Association TBA 6.50% 1/39 $ 700 $ 720 $ 727 







risk, through income and capital 

appreciation. 

Capitalize on changing financial market and economic 

conditions by actively managing a diversified portfolio 

allocated across equity, debt and cash market sectors. 

$2.0 billion 


Mason Street Advisors acts as the investment adviser for the Balanced Portfolio. The investment objective of the Portfolio is to 

realize as high a level of long-term total return as is consistent with prudent investment risk, through income and capital 

appreciation. The Balanced Portfolio invests in seven categories of assets: large-capitalization stocks, mid-capitalization 

stocks, small-capitalization stocks, foreign stocks, investment-grade bonds, below investment-grade bonds, 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 an investment professional with experience in that 

category. Under normal conditions, the Portfolio will typically allocate between 35% and 55% of assets to equity securities 

and between 40%-60% to fixed income securities. The Portfolio is managed to maintain broad diversification, while blending 

asset classes to attempt to achieve both capital appreciation and current income. 




was a result of the ongoing sub-prime mortgage meltdown, which spread rapidly through the financial sector and into virtually 

every segment of global financial markets. Economic conditions deteriorated sharply over the course of the year, as 

unemployment jumped above 7% and the economy entered its first recession since 2002. 

Against that backdrop, the S&P 500 ® Index fell 37.00%. Equity returns were negative across all market capitalization ranges, 

sectors, and investment styles. Fixed income returns varied widely, with the Citigroup U.S. Broad Investment Grade Bond 

Index (a broad-based bond index) up 7.02%, as Treasury and government-backed mortgage debt had positive returns, while 

corporate bonds endured their worst year ever. What’s more, the Citigroup High-Yield Cash-Pay Index suffered its most 

difficult year on record, falling 24.74%. Meanwhile, cash-equivalent investments had modest returns as the Fed slashed shortterm 

rates. For the full year, the Merrill Lynch Three-Month T-Bill Index was up 2.06%. International equities offered no 

relief, as the MSCI EAFE Index—a measure of large-cap stock performance in Europe, Australasia, and the Far East— 

tumbled 43.06%. 


The Balanced Portfolio returned –22.72% for the twelve months ended December 31, 2008. That compares with the –37.00% 

return of the broad stock market, as measured by the S&P 500 ® Index. At the same time, the Balanced Portfolio Blended 

Composite Benchmark returned –20.19%. (The Portfolio’s blended benchmark weights are detailed in the “Benchmark 

Definitions” section of this annual report.) The Portfolio outperformed its Mixed-Asset Target Allocation Moderate Funds 

peer group, which had an average return of –25.34%, according to Lipper Analytical Services, Inc., an independent mutual 

fund ranking agency. 

The Portfolio’s absolute return reflected the unprecedented turmoil affecting the economy and financial markets in a year in 

which only cash and government-backed securities had positive returns. The Portfolio outperformed the equity-only S&P 500 ® 

Index thanks to positive performance from its cash and bond allocations. Relative to the blended benchmark, it helped to be 

underrepresented in equities overall, and international stocks in particular. It was also beneficial to be underweight high yield 

bonds; in addition, our allocation to this market segment outperformed its underlying benchmark. However, our stock and 

investment grade bond allocations lagged their underlying benchmarks, which accounted for the bulk of the Portfolio’s 

underperformance of the blended index. 

Many of the changes we made to the Portfolio’s asset mix over the course of the year were to address imbalances created by 

sharp volatility in the markets. For example, stocks’ poor performance shrank the equity slice of the Portfolio, so we 

consistently used our cash allocation to bring equities back closer to neutral. Nevertheless, equities finished the year a little 

below our target allocation at 46% of assets. The fixed income allocation ended the year a little above our neutral weight at 

49% of assets, though we maintained a bias toward high quality bonds and an underweight position in high yield debt. The 

Portfolio’s cash allocation at year-end was essentially neutral. 

Outlook 



remain challenging, and it is difficult to see a quick rebound. 

Balanced Portfolio 143


In terms of the Portfolio’s asset allocation, the extreme market conditions of the last year have created some significant 

disparities in valuations across and within asset classes. So, for example, at a time when cash yields are approaching zero and 

Treasury bond yields are at record lows, we find that stocks and credit-sensitive bonds are very attractive by comparison. As a 

result, we expect to reduce our cash position, adding to both our equity and bond allocations. Within equities, we expect to 

favor growth-oriented shares, which historically have done better than value when investors desire earnings certainty. And 

within fixed income, we favor high quality assets trading at distressed levels, particularly those with government backing. 

$20,000 

15,000 

10,000 

5,000 


0 

12/98 12/00 12/02 12/04 12/06 12/08 


S&P 500 Index 

Citigroup U.S. Broad Investment Grade Index 

Balanced Portfolio Blended Composite Benchmark 





S&P 500 Index 

-22.72% 0.25% 

-37.00% -2.19% 

1.73% 

-1.38% 


Grade Index 7.02% 5.10% 5.85% 

Balanced Portfolio Blended 

Composite Benchmark -20.19% 1.92% 2.84% 


(VIP) Mixed Asset Target 

Allocation Moderate Funds 

Average -25.34% 0.07% 1.46% 








standards. Small cap stocks also may carry additional 

risk. Smaller 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 

volatile and more speculative. Bonds and other debt 

obligations are affected by changes in interest rates, 

inflation risk and the creditworthiness of their issuers. 

High yield bonds generally have greater price swings 

and higher default risks than investment grade bonds. 


















www.nmfn.com. 









144 Balanced Portfolio
















4.875%, 6/13/18 1.6% 

AEP Texas Central Transition Funding LLC, 

5.306%, 7/01/21 1.0% 



Governments 

5% 

Below Investment 

Grade Segment 

6% 

Foreign Stocks 

7% 

Mid Cap Stocks 

8% 


Segment 

13% 

Small Cap Stocks 

2% 

Structured 

Products 

24% 

Large Cap 

Stocks 

18% 

Short-Term 

Investments 

& Other 

Net Assets 

17% 



change. 






Domestic Common Stocks and 

Warrants (27.5%) 

Large Cap Common Stocks (17.7%) 


Shares/ 

$ Par 

Value 

$ (000's) 

Abercrombie & Fitch Co. - 

Class A 66,200 1,527 

* Amazon.com, Inc. 28,000 1,436 



* Kohl's Corp. 129,800 4,699 

Lowe's Cos., Inc. 138,600 2,983 


The McGraw-Hill Cos., Inc. 118,400 2,746 



Target Corp. 78,700 2,717 

Total 34,068 







The Kroger Co. 211,600 5,588 

PepsiCo, Inc. 122,800 6,726 


Inc. 183,600 7,989 

The Procter & Gamble Co. 62,400 3,858 


Total 57,276 

Energy (1.5%) 



Hess Corp. 37,400 2,006 

* National-Oilwell Varco, Inc. 194,400 4,751 

Occidental Petroleum Corp. 72,200 4,331 



XTO Energy, Inc. 104,575 3,689 

Total 29,117 



CME Group, Inc. 6,900 1,436 


Inc. 19,600 1,654 



Total 9,151 





Shares/ 

$ Par 

Value 

$ (000's) 


Allergan, Inc. 84,100 3,391 


Bristol-Myers Squibb Co. 39,600 921 

*Celgene Corp. 183,900 10,166 

*Genentech, Inc. 53,800 4,461 

*Genzyme Corp. 43,700 2,900 

*Gilead Sciences, Inc. 135,800 6,945 


*Medco Health Solutions, Inc. 176,000 7,376 

*St. Jude Medical, Inc. 69,800 2,301 

*Thermo Fisher Scientific, 

Inc. 53,500 1,823 


Total 62,657 



Deere & Co. 57,000 2,184 

FedEx Corp. 50,200 3,220 

*First Solar, Inc. 17,700 2,442 




Raytheon Co. 62,500 3,190 

Textron, Inc. 118,800 1,648 



Total 35,951 


Accenture, Ltd. - Class A 122,300 4,010 

*Apple, Inc. 82,600 7,050 


*Broadcom Corp. - Class A 174,900 2,968 

*Cisco Systems, Inc. 542,900 8,849 

Corning, Inc. 200,400 1,910 

*eBay, Inc. 161,600 2,256 

*Electronic Arts, Inc. 92,700 1,487 

*Google, Inc. - Class A 31,700 9,752 


Intel Corp. 545,700 8,000 



MasterCard, Inc. 5,600 800 

*MEMC Electronic Materials, 

Inc. 111,900 1,598 


*Oracle Corp. 377,800 6,698 

QUALCOMM, Inc. 242,800 8,700 

*Research In Motion, Ltd. 44,000 1,786 


*Yahoo!, Inc. 86,000 1,049 

Total 101,902 







Shares/ 

$ Par 

Value 

$ (000's) 

Ecolab, Inc. 50,400 1,772 

Freeport-McMoRan Copper 

& Gold, Inc. 55,900 1,366 

Monsanto Co. 92,300 6,493 

Praxair, Inc. 93,300 5,538 

Total 15,169 



Class A 114,700 3,363 

* NII Holdings, Inc. 111,400 2,025 

Total 5,388 


Exelon Corp. 53,400 2,970 

Total 2,970 

Total Large Cap Common Stocks 353,649 

Mid Cap Common Stocks (7.7%) 


* Collective Brands, Inc. 274,000 3,211 

DeVry, Inc. 87,300 5,012 


* Focus Media Holding, Ltd., 

ADR 103,000 936 

* GameStop Corp. - Class A 182,000 3,942 

* O'Reilly Automotive, Inc. 86,050 2,645 

* Urban Outfitters, Inc. 129,900 1,946 

Total 22,746 

Energy (0.8%) 

* Cameron International Corp. 198,700 4,073 

Diamond Offshore Drilling, 

Inc. 42,600 2,511 

Range Resources Corp. 81,700 2,810 


Smith International, Inc. 54,200 1,240 


Total 16,420 


Assured Guaranty, Ltd. 90,000 1,026 


Inc. 15,500 1,278 

* MBIA, Inc. 147,000 598 


Raymond James Financial, 

Inc. 142,900 2,448 

SEI Investments Co. 88,100 1,384 


T. Rowe Price Group, Inc. 57,025 2,021 


Total 14,866 




Shares/ 

$ Par 

Value 

$ (000's) 

*Cerner Corp. 68,100 2,619 

*Charles River Laboratories 


*DaVita, Inc. 90,500 4,486 

*Express Scripts, Inc. 67,700 3,722 

*Immucor, Inc. 196,024 5,210 

*Intuitive Surgical, Inc. 9,700 1,232 

Total 18,791 


C.H. Robinson Worldwide, 

Inc. 83,900 4,617 

*Corrections Corp. of 

America 279,050 4,565 


Expeditors International of 

Washington, Inc. 77,000 2,562 

*Foster Wheeler, Ltd. 116,300 2,719 

*FTI Consulting, Inc. 7,700 344 

Harsco Corp. 87,800 2,430 


Services, Inc. 113,000 2,969 


Holdings, Inc. 24,600 1,815 

MSC Industrial Direct Co., 

Inc. - Class A 34,100 1,256 

Ritchie Bros. Auctioneers, 

Inc. 104,448 2,237 

*Spirit AeroSystems 


*Stericycle, Inc. 75,600 3,937 

Total 33,364 


*Activision Blizzard, Inc. 122,700 1,060 

*Alliance Data Systems Corp. 87,700 4,081 

Amphenol Corp. - Class A 114,100 2,736 

*Citrix Systems, Inc. 73,000 1,721 

*Cognizant Technology 

Solutions Corp. - Class A 106,200 1,918 

FactSet Research Systems, 

Inc. 65,300 2,889 


Intersil Corp. - Class A 288,800 2,654 


*McAfee, Inc. 118,900 4,110 

*Mettler-Toledo International, 

Inc. 49,400 3,330 

Microchip Technology, Inc. 144,500 2,822 

*Varian Semiconductor 


Inc. 189,000 3,425 

*VeriFone Holdings, Inc. 145,200 712 


Total 39,508 


*Owens-Illinois, Inc. 104,000 2,842 






Shares/ 

$ Par 

Value 

$ (000's) 


Titanium Metals Corp. 141,500 1,247 

Total 4,089 


Equitable Resources, Inc. 92,400 3,100 

Total 3,100 

Total Mid Cap Common Stocks 152,884 

Small Cap Common Stocks (2.1%) 


* Aeropostale, Inc. 225 4 

* American Public Education, 

Inc. 11,600 431 

Arbitron, Inc. 325 4 

* Buffalo Wild Wings, Inc. 8,150 209 


Inc. 400 4 

Cracker Barrel Old Country 

Store, Inc. 175 4 

* Exide Technologies 800 4 

* Fossil, Inc. 250 4 

* J. Crew Group, Inc. 325 4 


* Jos. A. Bank Clothiers, Inc. 150 4 

* Life Time Fitness, Inc. 325 4 

* LKQ Corp. 32,100 374 

* Lumber Liquidators, Inc. 18,350 194 

The Men's Wearhouse, Inc. 275 4 

* New Oriental Education & 

Technology Group, Inc., 

ADR 10,000 549 

PetSmart, Inc. 12,350 228 

Polaris Industries, Inc. 150 4 

* Retail Ventures, Inc. 1,225 4 

Sinclair Broadcast Group, 

Inc. - Class A 1,275 4 

* Skechers U.S.A., Inc. - Class 

A 325 4 

Snap-on, Inc. 3,550 140 

Sotheby's 450 4 

Tempur-Pedic International, 

Inc. 675 5 

* True Religion Apparel, Inc. 11,325 141 

Tupperware Brands Corp. 175 4 

* The Warnaco Group, Inc. 200 4 

* Zumiez, Inc. 17,900 133 

Total 5,764 


* AgFeed Industries, Inc. 1,750 3 


* Central European 

Distribution Corp. 6,800 134 

* Darling International, Inc. 750 4 


* TreeHouse Foods, Inc. 5,850 159 

Total 950 



Energy (0.1%) 

Shares/ 

$ Par 

Value 

$ (000's) 

*Arena Resources, Inc. 10,800 303 

*ATP Oil & Gas Corp. 575 3 

Berry Petroleum Co. 500 4 

*Bill Barrett Corp. 200 4 

*Carrizo Oil & Gas, Inc. 9,250 149 

*Contango Oil & Gas Co. 4,300 242 

Crosstex Energy, Inc. 1,500 6 

*Dril-Quip, Inc. 225 5 

Energy XXI, Ltd. 5,500 4 

*EXCO Resources, Inc. 18,000 163 

*Gasco Energy, Inc. 5,500 2 

General Maritime Corp. 350 4 

*IHS, Inc. - Class A 4,450 167 

*ION Geophysical Corp. 34,475 118 

*McMoRan Exploration Co. 375 4 

*Oceaneering International, 

Inc. 5,100 149 

*Parker Drilling Co. 1,350 4 

Penn Virginia Corp. 150 4 

*PetroQuest Energy, Inc. 650 4 

Ship Finance International, 

Ltd. 350 4 

*Stone Energy Corp. 400 4 

*T-3 Energy Services, Inc. 9,186 87 

*Whiting Petroleum Corp. 7,500 251 

*Willbros Group, Inc. 475 4 

Total 1,689 





*Encore Bancshares, Inc. 4,819 53 

*FCStone Group, Inc. 800 4 

GFI Group, Inc. 1,200 4 

*Investment Technology 

Group, Inc. 104,200 2,367 

*KBW, Inc. 8,400 193 

MFA Mortgage Investments, 

Inc. 69,900 412 

optionsXpress Holdings, Inc. 325 4 

*Portfolio Recovery 


Total 3,750 


*Affymetrix, Inc. 1,475 4 

*Alkermes, Inc. 400 4 

*athenahealth, Inc. 9,150 344 

*BioMarin Pharmaceutical, 

Inc. 21,200 377 

*CardioNet, Inc. 9,400 232 

*Genoptix, Inc. 14,755 503 

*Illumina, Inc. 16,800 438 

*IPC The Hospitalist Co. 7,600 128 

*K-V Pharmaceutical Co. - 

Class A 750 2 

*Masimo Corp. 24,667 736 






Shares/ 

$ Par 

Value 

$ (000's) 



* NuVasive, Inc. 8,150 282 


Corp. 450 4 


* Psychiatric Solutions, Inc. 205,100 5,712 


* United Therapeutics Corp. 1,450 91 

Total 9,795 


* AAR Corp. 225 4 

Actuant Corp. 250 5 

Acuity Brands, Inc. 125 4 

* Aerovironment, Inc. 5,950 219 

* Allegiant Travel Co. 2,500 121 

* Astec Industries, Inc. 3,950 124 

* Astronics Corp. 26,143 233 

* Axsys Technologies, Inc. 2,798 153 

Belden, Inc. 200 4 

Bucyrus International, Inc. 7,330 136 

* Chart Industries, Inc. 350 4 

* Cornell Cos., Inc. 22,800 424 

Deluxe Corp. 250 4 

Eagle Bulk Shipping, Inc. 525 4 

* EMCOR Group, Inc. 200 4 


* EnerSys 400 4 

* Flow International Corp. 1,950 5 

* Force Protection, Inc. 800 5 

Genco Shipping & Trading, 

Ltd. 275 4 

* GrafTech International, Ltd. 525 4 

* Hawaiian Holdings, Inc. 775 5 

Herman Miller, Inc. 300 4 

* Hexcel Corp. 475 4 



* Huron Consulting Group, 

Inc. 6,937 397 

* ICF International, Inc. 13,800 339 

Kaydon Corp. 6,100 210 

Knight Transportation, Inc. 191,409 3,086 

Knoll, Inc. 450 4 

* Korn/Ferry International 350 4 

* Perini Corp. 175 4 

* Stanley, Inc. 12,950 469 

* TBS International, Ltd. - 

Class A 425 4 

* Team, Inc. 24,956 691 

* Titan Machinery, Inc. 16,400 231 

* TransDigm Group, Inc. 10,500 352 

Total 7,728 


* Advanced Energy Industries, 

Inc. 25,278 251 




Shares/ 

$ Par 

Value 

$ (000's) 


*Atheros Communications, 

Inc. 13,200 189 

*Bankrate, Inc. 11,819 449 

*Blackboard, Inc. 5,250 138 

*comScore, Inc. 13,973 178 

*Comtech 

Telecommunications Corp. 3,000 137 

*Concur Technologies, Inc. 8,300 272 

*CyberSource Corp. 14,600 175 

*DG Fastchannel, Inc. 20,200 252 

*Diodes, Inc. 30,850 187 

*EarthLink, Inc. 600 4 

*F5 Networks, Inc. 13,300 304 

*Harmonic, Inc. 675 4 

*Infinera Corp. 450 4 

*j2 Global Communications, 

Inc. 6,500 130 

*Mellanox Technologies, Ltd. 22,500 177 

*Netlogic Microsystems, Inc. 16,800 370 

*NeuStar, Inc. - Class A 137,300 2,627 

*Novatel Wireless, Inc. 975 5 

*Omniture, Inc. 28,450 303 

*OmniVision Technologies, 

Inc. 800 4 

*PMC-Sierra, Inc. 850 4 

*Rubicon Technology, Inc. 16,165 69 

*Sigma Designs, Inc. 400 4 

*Skyworks Solutions, Inc. 725 4 

*Switch and Data Facilities 

Co., Inc. 42,900 317 

*Synchronoss Technologies, 

Inc. 34,800 371 

*Take-Two Interactive 

Software, Inc. 475 4 

*TeleTech Holdings, Inc. 450 4 

*TiVo, Inc. 600 4 

*TriQuint Semiconductor, Inc. 93,000 320 

*VanceInfo Technologies, 

Inc., ADR 69,470 330 

*VistaPrint, Ltd. 23,700 441 

*Vocus, Inc. 14,600 266 

Total 8,302 


*Apex Silver Mines, Ltd. 2,950 3 

*Calgon Carbon Corp. 22,100 339 

*Flotek Industries, Inc. 1,725 4 

Silgan Holdings, Inc. 8,300 397 

*W.R. Grace & Co. 700 4 

Worthington Industries, Inc. 325 4 

Total 751 



SPDR Fund 20,450 258 

iShares Nasdaq 

Biotechnology Index Fund 4,550 324 

SPDR Metals & Mining 40,600 1,128 

Total 1,710 







Shares/ 

$ Par 

Value 

$ (000's) 

* Centennial Communications 

Corp. 32,200 260 

Total 260 


ITC Holdings Corp. 14,800 646 

Total 646 

Total Small Cap Common Stocks 41,345 

Total Domestic Common Stocks and Warrants 

(Cost: $729,669) 547,878 





Compass Group PLC United 

Kingdom 210,110 1,058 



Grupo Televisa SA, ADR Mexico 77,000 1,150 


Shares Sweden 23,359 922 


Kingfisher PLC 

United 

Kingdom 244,160 485 

Next PLC 

United 

Kingdom 21,445 341 

Oriental Land Co., Ltd. Japan 1,900 156 


Reed Elsevier PLC United 

Kingdom 32,460 240 



Vivendi France 48,340 1,582 

Yamada Denki Co., Ltd. Japan 2,020 140 


Total 7,659 






PLC 

United 

Kingdom 27,934 737 

Cadbury PLC 

United 

Kingdom 29,100 259 

Imperial Tobacco Group 

PLC 

United 

Kingdom 26,062 707 

ITC, Ltd. India 91,656 326 







Shares/ 

$ Par 

Value 

$ (000's) 



*KT&G Corp. South Korea 9,961 621 




Reckitt Benckiser Group 

PLC 

United 

Kingdom 18,490 699 



Shoppers Drug Mart Corp. Canada 36,565 1,444 

Tesco PLC 

United 

Kingdom 125,405 663 

Unilever NV Netherlands 61,460 1,496 


Wal-Mart de Mexico SAB 


Woolworths, Ltd. Australia 64,505 1,228 

Total 15,784 

Energy (0.8%) 

*Artumas Group, Inc. Norway 92,300 38 

BG Group PLC 

United 

Kingdom 20,225 285 

BP PLC 

United 

Kingdom 341,935 2,659 

CNOOC, Ltd. Hong Kong 1,078,000 1,024 

Eni SPA Italy 93,000 2,215 


Nexen, Inc. Canada 81,700 1,440 



Reliance Industries, Ltd. India 35,446 905 


Class A 

United 

Kingdom 94,230 2,500 

Saipem SPA Italy 60,295 1,018 


Suncor Energy, Inc. Canada 42,435 827 

Total 15,306 


Allianz SE Germany 5,382 580 





BNP Paribas France 27,980 1,187 

Cathay Financial Holding 

Co., Ltd. Taiwan 435,150 489 


China Life Insurance Co., 

Ltd. China 202,000 622 



(n)*China Overseas Land & 




Daito Trust Construction 

Co., Ltd. Japan 1,500 78 






Shares/ 

$ Par 

Value 

$ (000's) 




Housing Development 

Finance Corp., Ltd. India 34,146 1,067 

HSBC Holdings PLC, ADR United 

Kingdom 36,400 1,772 

Industrial and Commercial 

Bank of China, Ltd. - 

Class H China 2,111,000 1,122 


Julius Baer Holding AG Switzerland 28,600 1,097 

Man Group PLC 

United 

Kingdom 72,880 255 

Manulife Financial Corp. Canada 60,555 1,031 





Mizuho Financial Group, 

Inc. Japan 131 390 

Muenchener 


Gesellschaft AG Germany 3,261 515 


Nomura Real Estate 

Holdings, Inc. Japan 6,000 120 


* QBE Insurance Group, Ltd. Australia 32,030 594 

Resona Holdings, Inc. Japan 74 117 


Insurance Co., Ltd. South Korea 8,839 1,341 



Sony Financial Holdings, 


Standard Chartered PLC United 

Kingdom 24,165 314 



The Sumitomo Trust and 


T&D Holdings, Inc. Japan 4,300 180 




The Toronto-Dominion Bank Canada 40,205 1,436 


Unicredit SPA Italy 254,675 637 

Westpac Banking Corp. Australia 87,315 1,061 

Zurich Financial Services 

AG Switzerland 9,919 2,147 

Total 28,522 




CSL, Ltd. Australia 64,752 1,560 


Eisai Co., Ltd. Japan 4,600 190 



Shares/ 

$ Par 

Value 

$ (000's) 


Fresenius Medical Care AG 

& Co. KGaA Germany 23,846 1,124 

Hisamitsu Pharmaceutical 

Co., Inc. Japan 2,800 114 




Synthes, Inc. Switzerland 6,070 765 

Taisho Pharmaceutical Co., 

Ltd. Japan 6,000 127 


Ltd. Japan 7,900 409 

Terumo Corp. Japan 2,500 117 



Total 18,665 


ABB, Ltd., ADR Switzerland 55,790 837 

All Nippon Airways Co., 

Ltd. Japan 22,000 87 

Alstom SA France 16,125 957 


*BAE Systems PLC United 

Kingdom 334,445 1,850 

Balfour Beatty PLC United 

Kingdom 60,525 293 


Chemring Group PLC United 

Kingdom 27,930 798 

*China Railway Construction 





Dai Nippon Printing Co., 

Ltd. Japan 14,000 154 


Fanuc, Ltd. Japan 2,900 206 














Ltd. Japan 46,000 205 






Secom Co., Ltd. Japan 5,100 263 







Serco Group PLC 

Shares/ 

$ Par 

Value 

$ (000's) 

United 

Kingdom 122,660 810 

SMC Corp. Japan 1,400 143 







Total 13,217 


* Autonomy Corp. PLC United 

Kingdom 115,910 1,619 


EVS Broadcast Equipment 

SA Belgium 10,070 361 


* Gresham Computing PLC United 

Kingdom 203,462 109 





Nintendo Co., Ltd. Japan 1,000 384 


Samsung Electronics Co., 

Ltd. South Korea 2,619 948 

* Temenos Group AG Switzerland 95,145 1,266 

Total 6,573 



Anglo American PLC United 

Kingdom 27,574 639 


Ltd. China 108,000 502 


BHP Billiton, Ltd. Australia 59,145 1,271 


Doce, ADR Brazil 56,650 686 


Goldcorp, Inc. Canada 55,170 1,740 





K+S AG Germany 20,535 1,185 

Mitsubishi Chemical 

Holdings Corp. Japan 31,500 139 



POSCO South Korea 1,338 394 


Saskatchewan, Inc. Canada 15,545 1,138 

Rio Tinto PLC, ADR United 

Kingdom 3,565 317 

Shin-Etsu Chemical Co., 

Ltd. Japan 5,100 234 



Shares/ 

$ Par 

Value 

$ (000's) 



Ltd. Japan 55,000 136 

Syngenta AG Switzerland 5,997 1,159 

Total 11,925 



Funds Series - H-Share Hong Kong 73,600 764 

iShares MSCI EAFE Index 

Fund United States 30,900 1,387 

iShares MSCI Emerging 

Markets Index United States 8,625 215 


Index Fund Hong Kong 145,929 1,513 




Index Fund Singapore 162,857 1,151 




Fund Taiwan 156,458 1,188 

Total 7,214 


*Bharti Airtel, Ltd. India 22,813 338 


Chunghwa Telecom Co., 

Ltd. Taiwan 932,910 1,491 

Deutsche Telekom AG Germany 104,622 1,597 



Koninklijke (Royal) KPN 

NV Netherlands 133,403 1,944 


Telephone Corp. Japan 60 322 



Telefonica SA Spain 107,715 2,426 


AS Turkey 79,056 456 

Vodafone Group PLC United 

Kingdom 810,864 1,657 

Total 12,408 


Centrica PLC 

United 

Kingdom 129,025 503 

CEZ 

Czech 

Republic 10,325 422 


Inc. Japan 8,500 258 


Co., Inc. Japan 6,500 171 





Hokuriku Electric Power Co. Japan 4,100 116 






Shares/ 

$ Par 

Value 

$ (000's) 



Co., Inc. Japan 9,400 272 


Inc. Japan 7,200 191 

National Grid PLC United 

Kingdom 78,190 784 


PT Perusahaan Gas Negara Indonesia 2,110,000 382 

RWE AG Germany 10,415 941 


Inc. Japan 4,800 162 



Inc. Japan 7,400 200 


Co., Inc. Japan 12,300 410 


Total 9,660 

Total Foreign Common Stocks 

(Cost: $208,489) 146,933 

Investment Grade Segment (13.3%) 


BAE Systems Holdings, Inc., 

5.20%, 8/15/15 144A 180,000 167 

General Dynamics Corp., 4.25%, 5/15/13 765,000 765 

Lockheed Martin Corp., 6.15%, 9/1/36 1,720,000 1,865 

Raytheon Co., 5.50%, 11/15/12 3,584,000 3,623 

Total 6,420 


Daimler Finance North America LLC, 

5.75%, 5/18/09 2,590,000 2,514 


8.50%, 1/18/31 315,000 230 

Total 2,744 


American Express Bank, FSB, 

3.15%, 12/9/11 2,210,000 2,228 

BA Covered Bond Issuer, 

5.50%, 6/14/12 144A 2,105,000 2,168 

Bank of America Corp., 5.42%, 3/15/17 515,000 458 

Bank of America Corp., 5.65%, 5/1/18 2,655,000 2,671 

Bank of America Corp., 8.125%, 12/29/49 1,175,000 879 

The Bank of New York Mellon Corp., 

4.95%, 11/1/12 310,000 315 

Bank One Corp., 5.25%, 1/30/13 4,480,000 4,369 

Barclays Bank PLC, 6.05%, 12/4/17 144A 210,000 185 


The Bear Stearns Companies LLC, 

7.25%, 2/1/18 480,000 526 

BNP Paribas, 7.195%, 6/29/49 144A 300,000 191 

Citigroup Capital XXI, 8.30%, 12/21/57 245,000 189 

Citigroup, Inc., 5.125%, 5/5/14 1,985,000 1,865 

Citigroup, Inc., 8.40%, 4/29/49 890,000 588 

Countrywide Financial Corp., 

5.80%, 6/7/12 730,000 711 

Countrywide Home Loans, Inc., 

4.00%, 3/22/11 1,155,000 1,100 

Shares/ 

$ Par 

Value 

$ (000's) 




4.125%, 9/15/09 235,000 232 

Credit Agricole SA/London, 

6.637%, 5/31/49 144A 310,000 139 

Credit Suisse Guernsey, Ltd., 

5.86%, 5/29/49 105,000 49 

Credit Suisse/New York NY, 

6.00%, 2/15/18 90,000 83 

Deutsche Bank Capital Funding Trust VII, 

5.628%, 1/19/49 144A 1,080,000 462 

Fifth Third Bancorp, 8.25%, 3/1/38 425,000 351 

The Goldman Sachs Group, Inc., 

5.15%, 1/15/14 3,465,000 3,121 

HSBC Holdings PLC, 6.80%, 6/1/38 390,000 412 

HSBC USA, Inc., 3.125%, 12/16/11 2,200,000 2,285 

JPMorgan Chase & Co., 4.75%, 3/1/15 110,000 103 

JPMorgan Chase & Co., 7.90%, 4/29/49 1,675,000 1,393 

(d)Lehman Brothers Holdings, Inc., 

5.50%, 4/4/16 490,000 47 

M&I Marshall & Ilsley Bank, 

5.15%, 2/22/12 2,480,000 2,242 

Mellon Bank NA, 5.45%, 4/1/16 1,390,000 1,358 

Merrill Lynch & Co., 6.22%, 9/15/26 375,000 346 

Merrill Lynch & Co., 6.40%, 8/28/17 2,185,000 2,189 

Morgan Stanley, 2.00%, 9/22/11 2,210,000 2,224 

Morgan Stanley, 5.375%, 10/15/15 700,000 603 



Northern Trust Corp., 5.30%, 8/29/11 795,000 810 

State Street Bank and Trust Co., 

5.30%, 1/15/16 1,780,000 1,740 

SunTrust Bank, 3.00%, 11/16/11 2,210,000 2,285 

UBS AG/Stamford Branch, 5.75%, 4/25/18 920,000 835 

UBS Preferred Funding Trust V, 

6.243%, 5/29/49 200,000 109 

UnionBanCal Corp., 5.25%, 12/16/13 810,000 690 

Wachovia Bank NA, 6.60%, 1/15/38 515,000 559 

Wachovia Corp., 5.35%, 3/15/11 2,080,000 1,985 

Wachovia Corp., 7.98%, 2/28/49 570,000 486 

(d)(m) Washington Mutual Bank, 6.75%, 5/20/36 580,000 0 

(d)(m) Washington Mutual Bank, 6.875%, 6/15/11 1,115,000 0 

Wells Fargo Capital XIII, 7.70%, 12/29/49 2,150,000 1,774 

Zions Bancorporation, 5.50%, 11/16/15 2,290,000 1,619 

Total 50,562 


Anheuser-Busch Companies, Inc., 

4.50%, 4/1/18 40,000 34 


5.75%, 4/1/36 255,000 207 

Bottling Group LLC, 4.625%, 11/15/12 535,000 541 

Bottling Group LLC, 5.50%, 4/1/16 1,120,000 1,121 

The Coca-Cola Co., 5.35%, 11/15/17 985,000 1,063 

Diageo Capital PLC, 4.375%, 5/3/10 1,578,000 1,563 

Dr. Pepper Snapple Group, Inc., 

6.82%, 5/1/18 144A 665,000 656 


7.45%, 5/1/38 144A 145,000 144 

PepsiCo, Inc., 4.65%, 2/15/13 540,000 555 

PepsiCo, Inc., 5.00%, 6/1/18 330,000 342 

PepsiCo, Inc., 7.90%, 11/1/18 85,000 104 

SABMiller PLC, 6.20%, 7/1/11 144A 2,595,000 2,570 

Total 8,900 




Shares/ 

$ Par 

Value 

$ (000's) 



CRH America, Inc., 6.00%, 9/30/16 810,000 504 


Total 746 

Cable/Media/Broadcasting/Satellite 

(0.7%) 

CBS Corp., 6.625%, 5/15/11 460,000 408 

Comcast Corp., 5.90%, 3/15/16 2,270,000 2,167 

Comcast Corp., 6.40%, 5/15/38 740,000 738 

Comcast Corp., 6.50%, 11/15/35 190,000 189 

Cox Communications, Inc., 

4.625%, 1/15/10 1,390,000 1,345 

Historic TW, Inc., 6.625%, 5/15/29 565,000 501 


Rogers Cable, Inc., 5.50%, 3/15/14 1,625,000 1,499 

Rogers Cable, Inc., 6.25%, 6/15/13 200,000 192 

TCI Communications, Inc., 8.75%, 8/1/15 1,030,000 1,096 

Time Warner Cable, Inc., 5.40%, 7/2/12 1,310,000 1,223 

Time Warner Cable, Inc., 6.75%, 7/1/18 170,000 164 


Time Warner Entertainment Co. LP, 

8.375%, 3/15/23 1,650,000 1,662 

Viacom, Inc., 5.75%, 4/30/11 1,080,000 981 

Viacom, Inc., 6.125%, 10/5/17 185,000 153 

Total 12,954 


(0.0%) 

The Dow Chemical Co., 5.70%, 5/15/18 45,000 40 

Monsanto Co., 5.125%, 4/15/18 135,000 142 

Total 182 


Colgate-Palmolive Co., 4.20%, 5/15/13 280,000 287 

Fortune Brands, Inc., 5.375%, 1/15/16 720,000 601 

The Procter & Gamble Co., 5.55%, 3/5/37 645,000 716 

Total 1,604 


Bruce Mansfield Unit, 6.85%, 6/1/34 510,000 435 

Carolina Power & Light, Inc., 

5.15%, 4/1/15 420,000 421 

Carolina Power & Light, Inc., 

6.50%, 7/15/12 415,000 409 

CenterPoint Energy Houston Electric LLC, 

5.70%, 3/15/13 260,000 247 


6.95%, 3/15/33 270,000 248 

CenterPoint Energy, Inc., 6.50%, 5/1/18 380,000 310 

CMS Energy Corp., 6.875%, 12/15/15 1,270,000 1,083 

Commonwealth Edison Co., 5.875%, 2/1/33 115,000 96 

Connecticut Light and Power Co., 

5.65%, 5/1/18 150,000 149 

Consolidated Edison Co. of New York, Inc., 

5.375%, 12/15/15 560,000 550 


5.50%, 9/15/16 605,000 599 

Consolidated Natural Gas Co., 

5.00%, 12/1/14 2,050,000 1,882 

Dominion Resources, Inc., 6.00%, 11/30/17 40,000 38 


DTE Energy Co., 7.05%, 6/1/11 7,520,000 7,439 

Duke Energy Carolinas LLC, 

6.45%, 10/15/32 1,675,000 1,773 

Shares/ 

$ Par 

Value 

$ (000's) 



Duquesne Light Holdings, Inc., 

5.50%, 8/15/15 1,000,000 839 

Entergy Louisiana LLC, 6.50%, 9/1/18 360,000 342 

Entergy Mississippi, Inc., 6.25%, 4/1/34 1,030,000 872 

Exelon Generation Co. LLC, 

6.20%, 10/1/17 1,070,000 920 

Florida Power & Light Co., 5.625%, 4/1/34 245,000 260 

Florida Power Corp., 4.50%, 6/1/10 3,636,000 3,601 

Indiana Michigan Power Co., 

5.05%, 11/15/14 2,660,000 2,396 

Kiowa Power Partners LLC, 

4.811%, 12/30/13 144A 1,061,731 993 


5.737%, 3/30/21 144A 1,185,000 907 

MidAmerican Energy Holdings Co., 

5.95%, 5/15/37 260,000 236 

Monongahela Power Co., 

5.70%, 3/15/17 144A 860,000 722 

Nevada Power Co., 5.875%, 1/15/15 1,941,000 1,858 

Nevada Power Co., 5.95%, 3/15/16 60,000 57 

Northern States Power Co., 5.25%, 10/1/18 270,000 269 

Ohio Edison Co., 6.875%, 7/15/36 145,000 132 

Oncor Electric Delivery Co., 

6.375%, 1/15/15 1,340,000 1,284 

Oncor Electric Delivery Co., 7.00%, 9/1/22 240,000 224 

Pacific Gas & Electric Co., 5.80%, 3/1/37 255,000 265 


PacifiCorp, 5.45%, 9/15/13 4,040,000 4,132 

Potomac Electric Power Co., 

6.50%, 11/15/37 180,000 176 

PPL Electric Utilities Corp., 4.30%, 6/1/13 2,475,000 2,324 

PPL Electric Utilities Corp., 6.25%, 8/15/09 215,000 216 

PPL Energy Supply LLC, 6.00%, 12/15/36 425,000 275 


Public Service Co. of Colorado, 

5.50%, 4/1/14 1,320,000 1,254 

Public Service Electric & Gas Co., 

5.00%, 1/1/13 1,500,000 1,463 


5.70%, 12/1/36 1,600,000 1,477 

Puget Sound Energy, Inc., 6.274%, 3/15/37 1,125,000 1,001 

San Diego Gas & Electric Co., 

5.30%, 11/15/15 250,000 257 


6.125%, 9/15/37 200,000 220 

SCANA Corp., 6.25%, 4/1/20 115,000 106 

Sierra Pacific Power Co., 6.75%, 7/1/37 525,000 468 

South Carolina Electric & Gas Co., 

6.05%, 1/15/38 295,000 308 

Southern California Edison Co., 

5.55%, 1/15/37 320,000 337 


5.625%, 2/1/36 85,000 90 

Tampa Electric Co., 6.10%, 5/15/18 2,305,000 2,098 

Tampa Electric Co., 6.15%, 5/15/37 385,000 313 


The Toledo Edison Co., 6.15%, 5/15/37 1,265,000 1,017 

Union Electric Co., 6.40%, 6/15/17 180,000 164 


Virginia Electric and Power Co., 

5.25%, 12/15/15 3,790,000 3,683 

Xcel Energy, Inc., 6.50%, 7/1/36 780,000 716 

Total 55,434 




Shares/ 

$ Par 

Value 

$ (000's) 



General Mills, Inc., 5.70%, 2/15/17 970,000 975 

H.J. Heinz Co., 5.35%, 7/15/13 1,370,000 1,359 

Kellogg Co., 6.60%, 4/1/11 875,000 916 

Kraft Foods, Inc., 6.25%, 6/1/12 4,020,000 4,158 

Kraft Foods, Inc., 6.50%, 8/11/17 430,000 432 


Total 8,341 


Harrah's Operating Co., 5.75%, 10/1/17 590,000 91 

Total 91 


CenterPoint Energy Resources Corp., 

6.125%, 11/1/17 140,000 118 

Kinder Morgan Energy Partners LP, 

6.50%, 2/1/37 280,000 214 


7.30%, 8/15/33 1,520,000 1,262 

Rockies Express Pipeline LLC, 

6.85%, 7/15/18 144A 300,000 277 

Southern Natural Gas Co., 

5.90%, 4/1/17 144A 200,000 158 

Tennessee Gas Pipeline Co., 7.50%, 4/1/17 200,000 176 

Total 2,205 


Bristol-Myers Squibb Co., 

5.875%, 11/15/36 65,000 69 

Bristol-Myers Squibb Co., 6.125%, 5/1/38 470,000 516 

GlaxoSmithKline Capital, Inc., 

5.65%, 5/15/18 570,000 599 

Wyeth, 5.50%, 2/1/14 1,060,000 1,077 

Wyeth, 5.95%, 4/1/37 685,000 760 

Total 3,021 


American General Finance Corp., 

5.40%, 12/1/15 95,000 35 

American General Finance Corp., 

6.90%, 12/15/17 470,000 203 

General Electric Capital Corp., 

5.375%, 10/20/16 1,000,000 989 


5.625%, 5/1/18 4,365,000 4,397 


5.875%, 1/14/38 195,000 191 

General Motors Acceptance Corp. LLC, 

6.00%, 12/15/11 144A 1,351,000 1,093 

(n) General Motors Acceptance Corp. LLC, 

7.50%, 12/31/13 144A 238,000 174 

(n) General Motors Acceptance Corp. LLC, 

8.00%, 12/31/18 144A 286,000 143 

HSBC Finance Corp., 4.125%, 11/16/09 4,400,000 4,359 

International Lease Finance Corp., 

4.75%, 1/13/12 2,190,000 1,531 

iStar Financial, Inc., 5.15%, 3/1/12 1,580,000 498 

iStar Financial, Inc., 8.625%, 6/1/13 565,000 175 

Total 13,788 


Centex Corp., 7.875%, 2/1/11 335,000 296 

D.R. Horton, Inc., 5.375%, 6/15/12 540,000 398 

Shares/ 

$ Par 

Value 

$ (000's) 


Industrials - Other continued 

D.R. Horton, Inc., 7.875%, 8/15/11 160,000 138 

Total 832 


Fiserv, Inc., 6.125%, 11/20/12 1,075,000 1,010 

Fiserv, Inc., 6.80%, 11/20/17 1,075,000 952 

Seagate Technology HDD Holdings, 

6.80%, 10/1/16 715,000 372 

Total 2,334 


Prudential Financial, Inc., 5.70%, 12/14/36 170,000 106 

Total 106 


Case Corp., 7.25%, 1/15/16 2,085,000 1,449 

Total 1,449 


Alcoa, Inc., 5.55%, 2/1/17 1,000,000 787 

Alcoa, Inc., 5.90%, 2/1/27 465,000 306 

Alcoa, Inc., 6.75%, 7/15/18 355,000 290 

Barrick North America Fiance LLC, 

6.80%, 9/15/18 370,000 331 

Freeport-McMoRan Copper & Gold, Inc., 

8.25%, 4/1/15 195,000 166 

Rio Tinto Finance USA, Ltd., 

6.50%, 7/15/18 365,000 268 

Total 2,148 


NiSource Finance Corp., 5.25%, 9/15/17 415,000 252 




Total 1,016 


(0.0%) 

Pride International, Inc., 7.375%, 7/15/14 805,000 749 

Total 749 


Anadarko Finance Co., 7.50%, 5/1/31 930,000 822 

Apache Corp., 6.90%, 9/15/18 125,000 135 

Canadian Natural Resources, Ltd., 

5.70%, 5/15/17 430,000 375 


5.85%, 2/1/35 90,000 67 


6.25%, 3/15/38 585,000 460 


6.45%, 6/30/33 335,000 271 

Devon Energy Corp., 7.95%, 4/15/32 250,000 276 

Devon Financing Corp. ULC, 

6.875%, 9/30/11 3,040,000 3,068 

EnCana Corp., 6.50%, 2/1/38 340,000 273 

EnCana Corp., 6.625%, 8/15/37 70,000 56 

EnCana Holdings Finance Corp., 

5.80%, 5/1/14 1,075,000 1,007 

Hess Corp., 7.125%, 3/15/33 355,000 316 

Marathon Oil Corp., 6.60%, 10/1/37 140,000 106 

Nexen, Inc., 5.875%, 3/10/35 1,855,000 1,397 

Nexen, Inc., 6.40%, 5/15/37 160,000 125 




Shares/ 

$ Par 

Value 

$ (000's) 



Pemex Project Funding Master Trust, 

6.625%, 6/15/35 144A 245,000 207 

Petro-Canada, 5.95%, 5/15/35 820,000 564 

Pioneer Natural Resources Co., 

6.875%, 5/1/18 1,840,000 1,287 

Suncor Energy, Inc., 6.50%, 6/15/38 415,000 314 


Sunoco, Inc., 5.75%, 1/15/17 825,000 686 

Talisman Energy, Inc., 5.85%, 2/1/37 910,000 633 

Tesoro Corp., 6.50%, 6/1/17 2,615,000 1,435 

Valero Energy Corp., 6.625%, 6/15/37 1,200,000 883 

XTO Energy, Inc., 5.30%, 6/30/15 260,000 237 

XTO Energy, Inc., 6.50%, 12/15/18 335,000 324 

XTO Energy, Inc., 6.75%, 8/1/37 290,000 271 

Total 15,806 


Capmark Financial Group, Inc., 

6.30%, 5/10/17 320,000 88 

Eaton Vance Corp., 6.50%, 10/2/17 100,000 89 

PNC Financial Services Group, Inc., 

8.25%, 5/21/13 2,310,000 1,861 

SLM Corp., 5.375%, 1/15/13 80,000 59 

SLM Corp., 5.375%, 5/15/14 520,000 351 

SLM Corp., 5.45%, 4/25/11 4,560,000 3,599 

Total 6,047 


Waste Management, Inc., 5.00%, 3/15/14 855,000 734 


Total 1,534 


International Paper Co., 7.95%, 6/15/18 390,000 308 


Weyerhaeuser Co., 6.875%, 12/15/33 130,000 87 

Total 657 


The Progressive Corp., 6.70%, 6/15/37 315,000 155 

Total 155 


Burlington Northern Santa Fe Corp., 

6.15%, 5/1/37 175,000 161 

Canadian National Railway Co., 

5.85%, 11/15/17 140,000 145 

Canadian Pacific Railway Co., 

5.95%, 5/15/37 185,000 130 

CSX Corp., 5.60%, 5/1/17 985,000 875 

Union Pacific Corp., 5.65%, 5/1/17 625,000 600 



Total 2,599 


AvalonBay Communities, Inc., 

5.50%, 1/15/12 500,000 400 

BRE Properties, Inc., 5.50%, 3/15/17 420,000 214 

Colonial Realty LP, 6.05%, 9/1/16 360,000 210 

Developers Diversified Realty Corp., 

5.375%, 10/15/12 1,535,000 644 

Duke Realty LP, 5.95%, 2/15/17 835,000 417 

ERP Operating LP, 5.25%, 9/15/14 1,950,000 1,303 

ERP Operating LP, 5.75%, 6/15/17 515,000 355 

Shares/ 

$ Par 

Value 

$ (000's) 



First Industrial LP, 5.25%, 6/15/09 1,925,000 1,777 

HCP, Inc., 6.00%, 1/30/17 400,000 193 

HCP, Inc., 6.70%, 1/30/18 200,000 96 

HRPT Properties Trust, 5.75%, 11/1/15 1,225,000 652 

ProLogis, 5.50%, 3/1/13 2,000,000 1,160 

ProLogis, 5.75%, 4/1/16 1,190,000 593 

Rouse Co. LP/TRC Co-Issuer, Inc., 

6.75%, 5/1/13 144A 3,640,000 1,310 

Simon Property Group LP, 5.375%, 6/1/11 3,555,000 3,004 

Simon Property Group LP, 5.60%, 9/1/11 890,000 744 

Simon Property Group LP, 6.10%, 5/1/16 1,560,000 997 

Total 14,069 


Darden Restaurants, Inc., 6.20%, 10/15/17 140,000 104 


Yum! Brands, Inc., 6.875%, 11/15/37 800,000 634 

Total 1,148 


CVS/Caremark Corp., 4.875%, 9/15/14 985,000 909 



Delhaize Group, 6.50%, 6/15/17 770,000 699 

The Kroger Co., 6.15%, 1/15/20 395,000 390 

The Kroger Co., 7.00%, 5/1/18 245,000 256 

Total 3,350 


The Home Depot, Inc., 5.875%, 12/16/36 1,160,000 910 

J.C. Penney Corp., 5.75%, 2/15/18 130,000 86 

J.C. Penney Corp., 6.375%, 10/15/36 260,000 157 

J.C. Penney Corp., 6.875%, 10/15/15 515,000 410 

J.C. Penney Corp., 7.95%, 4/1/17 610,000 465 

Kohl's Corp., 6.25%, 12/15/17 720,000 577 

Kohl's Corp., 6.875%, 12/15/37 540,000 384 

Macy's Retail Holdings, Inc., 6.30%, 4/1/09 3,785,000 3,691 

Macy's Retail Holdings, Inc., 

6.65%, 7/15/24 90,000 50 


7.00%, 2/15/28 120,000 66 


7.875%, 7/15/15 780,000 562 

Nordstrom, Inc., 7.00%, 1/15/38 265,000 157 

Target Corp., 5.375%, 5/1/17 595,000 541 

Target Corp., 6.50%, 10/15/37 735,000 631 

Wal-Mart Stores, Inc., 5.875%, 4/5/27 685,000 722 

Total 9,409 


AT&T Corp., 8.00%, 11/15/31 2,380,000 2,990 

AT&T Mobility LLC, 7.125%, 12/15/31 2,740,000 2,880 

British Telecommunications PLC, 

9.125%, 12/15/30 620,000 659 

Deutsche Telekom International Finance 

BV, 5.75%, 3/23/16 665,000 636 

Embarq Corp., 6.738%, 6/1/13 835,000 706 

Embarq Corp., 7.082%, 6/1/16 1,940,000 1,494 

Embarq Corp., 7.995%, 6/1/36 230,000 155 

France Telecom SA, 8.50%, 3/1/31 975,000 1,224 

Rogers Wireless, Inc., 6.375%, 3/1/14 875,000 832 

Sprint Capital Corp., 8.375%, 3/15/12 3,625,000 2,900 

Sprint Capital Corp., 8.75%, 3/15/32 470,000 317 

Telecom Italia Capital SA, 4.00%, 1/15/10 2,360,000 2,171 




Shares/ 

$ Par 

Value 

$ (000's) 



Telecom Italia Capital SA, 6.20%, 7/18/11 1,620,000 1,438 

Verizon Communications, Inc., 

5.85%, 9/15/35 1,425,000 1,418 


6.10%, 4/15/18 2,125,000 2,117 


8.95%, 3/1/39 400,000 517 

Vodafone Group PLC, 5.50%, 6/15/11 1,980,000 1,973 

Total 24,427 


Altria Group, Inc., 9.70%, 11/10/18 555,000 600 


Philip Morris International, Inc., 

5.65%, 5/16/18 735,000 729 


6.375%, 5/16/38 735,000 764 

Reynolds American, Inc., 6.75%, 6/15/17 215,000 171 


Reynolds American, Inc., 7.625%, 6/1/16 2,175,000 1,811 

Total 4,960 


Johnson Controls, Inc., 5.25%, 1/15/11 1,390,000 1,277 

Johnson Controls, Inc., 5.50%, 1/15/16 845,000 655 


Total 2,261 


Mexico Government International Bond, 

5.625%, 1/15/17 2,050,000 2,050 


6.05%, 1/11/40 490,000 475 

Total 2,525 

Total Investment Grade Segment (Cost: 

$298,720) 264,573 




4.875%, 6/13/18 27,553,000 31,667 

Israel Government AID Bond, 

0.00%, 11/15/22 11,600,000 7,045 


0.00%, 11/15/23 11,500,000 6,656 


5.50%, 4/26/24 9,840,000 12,223 

(n) Overseas Private Investment, 

4.10%, 11/15/14 2,604,160 2,570 

(e) Tennesse Valley Authority Stripped, 

0.00%, 4/15/42 6,100,000 5,368 

US Department of Housing and Urban 

Development, 6.17%, 8/1/14 14,981,000 16,502 

(g) US Treasury, 2.00%, 11/30/13 1,000,000 1,026 

US Treasury, 3.75%, 11/15/18 85,000 96 

(g) US Treasury, 4.375%, 2/15/38 4,370,000 5,853 

US Treasury Inflation Index Bond, 

2.00%, 4/15/12 5,928,549 5,781 


Shares/ 

$ Par 

Value 

$ (000's) 



2.625%, 7/15/17 5,522,320 5,659 

Total Governments (Cost: $87,174) 100,446 



Indiana Finance Authority Environmental 

Facillities, Series 2006A, 

4.47%, 9/1/41 RB, AMBAC 2,835,000 2,835 


(Cost: $2,835) 2,835 




LLC, Series 2006-A, Class A5, 

5.306%, 7/1/21 22,665,000 20,240 

Asset Securitization Corp., Series 1997-D5, 

Class PS1, 

1.418%, 2/14/43 IO 51,118,153 1,432 

Banc of America Alternative Loan 

Trust, Series 2006-3, Class 1CB1, 

6.00%, 4/25/36 1,891,437 907 

Banc of America Alternative Loan 

Trust, Series 2006-4, Class 4CB1, 

6.50%, 5/25/46 2,250,904 1,099 


Inc., Series 2007-3, Class A4, 

5.658%, 6/10/49 2,907,000 2,126 



5.688%, 4/10/49 11,274,000 8,565 

Banc of America Funding Corp., Series 


0.531%, 1/25/37 2,564,839 1,216 

Banc of America Funding Corp., Series 


0.561%, 5/25/37 3,495,777 3,037 



4.648%, 8/25/34 5,332,000 5,122 

CenterPoint Energy Transition Bond Co. 

LLC, 

5.17%, 8/1/19 2,580,000 2,603 

Citigroup Commercial Mortgage 

Trust, Series 2007-C6, Class A4, 

5.70%, 12/10/49 6,462,000 4,871 

Citigroup Mortgage Loan Trust, Inc., Series 

2004-NCM2, Class 2CB1, 

5.50%, 8/25/34 852,820 746 


2005-1, Class 3A1, 

6.50%, 4/25/35 1,325,933 1,271 

Countrywide Alternative Loan Trust, Series 

2003-J1, Class 1A8, 

5.25%, 10/25/33 1,070,235 855 





Shares/ 

$ Par 

Value 

$ (000's) 


Countrywide Home Loan Mortgage Pass 

Through Trust, Series 2005-31, Class 

2A1, 

5.471%, 1/25/36 1,365,688 980 

Credit Suisse First Boston Mortgage 

Securities Corp., Series 2005-7, Class 

6A1, 

5.50%, 8/25/20 2,413,577 2,235 

(n) Credit Suisse Mortgage Capital 

Certificates, Series 2007-5, Class 3A9, 

6.00%, 8/25/37 2,074,558 1,411 



6.00%, 8/25/37 2,783,252 2,033 

(n) Criimi Mae Commercial Mortgage 

Trust, Series 1998-C1, Class B, 

7.00%, 6/2/33 144A 2,978,778 2,979 

DLJ Commercial Mortgage Corp., Series 


0.728%, 2/18/31 IO 31,358,421 714 

DLJ Mortgage Acceptance Corp., Series 


0.62%, 10/15/30 IO 144A 1,474,252 29 


4.00%, 10/1/20 1,924,267 1,945 


4.50%, 5/1/19 2,329,677 2,391 


3065, Class TN, 

4.50%, 10/15/33 1,907,273 1,945 


3248, Class LN, 

4.50%, 7/15/35 13,744,894 14,028 


5.00%, 10/1/19 1,405,620 1,448 


5.00%, 2/1/20 652,621 671 


5.00%, 5/1/20 2,554,815 2,630 


5.00%, 11/1/35 17,789,184 18,204 


5.00%, 12/1/35 17,723,182 18,137 


5.00%, 6/1/38 16,453,282 16,832 


5.50%, 9/1/19 934,307 965 


5.50%, 11/1/19 1,842,662 1,903 


5.50%, 12/1/19 345,026 356 


5.50%, 3/1/20 2,499,319 2,580 


5.50%, 6/1/35 3,834,667 3,930 


Shares/ 

$ Par 

Value 

$ (000's) 




5.651%, 4/25/16 7,523,644 7,846 



6.00%, 11/15/17 3,159,644 3,271 



6.00%, 4/15/32 2,125,000 2,189 


6.00%, 10/1/37 19,549,969 20,161 


6.50%, 4/1/11 278,865 290 


4.00%, 6/1/19 1,250,703 1,271 


4.50%, 6/1/19 8,923,333 9,156 


4.50%, 12/1/19 1,058,174 1,086 


5.00%, 3/1/20 3,155,731 3,250 


5.00%, 4/1/20 1,246,073 1,282 


5.00%, 5/1/20 4,829,454 4,971 


5.00%, 4/1/35 3,627,053 3,708 


5.00%, 7/1/35 4,804,664 4,912 


5.00%, 10/1/35 1,924,575 1,968 


5.32%, 4/1/14 2,634,229 2,738 


5.38%, 1/1/17 2,848,000 2,939 


5.50%, 4/1/21 2,198,051 2,268 


5.50%, 9/1/34 994,457 1,021 


5.50%, 3/1/35 8,349,754 8,569 


5.50%, 7/1/35 1,808,710 1,856 


5.50%, 8/1/35 3,191,816 3,276 


5.50%, 9/1/35 18,154,161 18,631 


5.50%, 10/1/35 8,367,936 8,588 


5.50%, 11/1/35 19,635,363 20,152 


5.50%, 2/1/38 36,345,063 37,296 


6.00%, 5/1/35 403,122 416 





Shares/ 

$ Par 

Value 

$ (000's) 



6.00%, 6/1/35 1,087,653 1,121 


6.00%, 7/1/35 6,826,762 7,038 


6.00%, 10/1/35 1,625,650 1,676 


6.00%, 11/1/35 7,408,981 7,637 


6.00%, 9/1/36 3,636,408 3,748 


6.00%, 1/1/38 6,664,892 6,868 


6.00%, 3/1/38 1,721,635 1,774 


6.00%, 6/1/38 10,384,699 10,702 


Association, Series 2002-W4, Class A4, 

6.25%, 5/25/42 6,527,883 6,681 


6.50%, 9/1/37 7,702,846 8,009 


6.50%, 9/1/38 15,937,080 16,570 


Association, Series 1989-20, Class A, 

6.75%, 4/25/18 1,937,101 2,029 



5.355%, 2/25/16 10,762,000 11,180 

(n) Final Maturity Amortizing Notes, Series 

2004-1, Class 1, 

4.45%, 8/25/12 7,446,995 7,492 

First Horizon Alternative Mortgage 

Securities, Series 2004-FA1, Class 1A1, 

6.25%, 10/25/34 3,516,053 2,983 

First Union National Bank Commercial 

Mortgage Trust, Series 1999-C4, Class E, 

7.939%, 12/15/31 144A 3,100,000 2,928 

Government National Mortgage 

Association, 

5.00%, 7/15/33 1,954,109 2,012 


Association, 

5.50%, 1/15/32 172,050 178 


Association, 

5.50%, 2/15/32 1,907,430 1,972 


Association, 

5.50%, 9/15/32 56,373 58 

Greenwich Capital Commerical Funding 

Corp., Series 2006-FL4A, Class A1, 

1.98%, 11/5/21 144A 733,206 542 

Louisiana Public Facilities Authority, Series 

2008, 

6.65%, 8/1/20 RB 2,250,000 2,208 


Shares/ 

$ Par 

Value 

$ (000's) 


Massachusetts RRB Special Purpose 

Trust, Series 2001-1, Class A, 

6.53%, 6/1/15 1,470,609 1,516 

MASTR Asset Securitization Trust, Series 

2003-12, Class 1A1, 

5.25%, 12/25/24 1,126,860 1,087 

Merrill Lynch Alternative Note Asset, Series 

2007-A1, Class A2A, 

0.541%, 1/25/37 3,504,766 1,828 

Merrill Lynch/Countrywide Commercial 

Mortgage Trust, Series 2007-7, Class A4, 

5.749%, 6/12/50 2,817,000 2,000 

Nissan Auto Receivables Owner 

Trust, Series 2006-A, Class A3, 

4.74%, 9/15/09 888,267 888 



4.92%, 5/15/13 144A 7,031,000 6,710 

(n)RMF Commercial Mortgage Pass-Through 

Certificates, Series 1997-1, Class F, 

7.471%, 1/15/19 144A 538,446 431 

TBW Mortgage Backed Pass Through 

Certificates, Series 2007-1, Class A1, 

0.561%, 3/25/37 2,839,957 2,501 


2006-5, Class A1, 

0.591%, 9/25/46 3,309,461 2,742 


2006-1, Class A3, 

0.641%, 1/25/46 8,382,697 8,351 


2007-1, Class A1, 

1.505%, 3/25/37 2,441,040 2,016 


2007-2, Class A3A, 

1.525%, 6/25/37 3,908,786 3,259 

Washington Mutual Alternative Mortgage 

Pass-Through Certficates, Series 2006-6, 

Class 4A, 

6.708%, 11/25/34 1,510,578 1,297 


Securities Trust, Series 2003-C1A, 

Class A, 

3.83%, 1/25/35 144A 2,124,742 2,015 

Wells Fargo Mortgage Backed 

Securities, Series 2006-2, Class 1A1, 

5.00%, 3/25/36 2,413,789 1,861 

Wells Fargo Mortgage Backed Securities 

Trust, Series 2004-N, Class A6, 

4.00%, 8/25/34 8,006,000 7,648 


Trust, Series 2005-1, Class 2A1, 

5.00%, 1/25/20 1,271,076 1,235 


Trust, Series 2005-7, Class A1, 

5.25%, 9/25/35 4,569,553 3,907 





Shares/ 

$ Par 

Value 

$ (000's) 




5.50%, 11/25/35 4,212,115 3,580 


(Cost: $493,560) 485,825 

Below Investment Grade Segment (5.7%) 


BE Aerospace, Inc., 8.50%, 7/1/18 381,000 343 

Bombardier, Inc., 8.00%, 11/15/14 144A 150,000 132 

DRS Technologies, Inc., 7.625%, 2/1/18 500,000 500 

(c) Hawker Beechcraft Acquisition Co. 

LLC/Hawker Beechcraft Notes Co., 

8.875%, 4/1/15 390,000 133 

Hawker Beechcraft Acquisition Co. 


9.75%, 4/1/17 465,000 125 

L-3 Communications Corp., 

6.375%, 10/15/15 5,735,000 5,362 

L-3 Communications Corp., 

7.625%, 6/15/12 850,000 831 

Total 7,426 


American Axle & Manufacturing, Inc., 

7.875%, 3/1/17 588,000 182 

Ford Motor Co., 7.45%, 7/16/31 1,155,000 323 

Ford Motor Credit Co. LLC, 

8.00%, 12/15/16 320,000 209 

Ford Motor Credit Co. LLC, 

9.875%, 8/10/11 2,000,000 1,476 

General Motors Corp., 7.20%, 1/15/11 405,000 85 

General Motors Corp., 8.375%, 7/15/33 1,080,000 189 

Lear Corp., 5.75%, 8/1/14 385,000 143 

Lear Corp., 8.75%, 12/1/16 615,000 178 

Visteon Corp., 8.25%, 8/1/10 516,000 160 

Visteon Corp., 12.25%, 12/31/16 144A 543,000 130 

Total 3,075 


Ball Corp., 6.625%, 3/15/18 395,000 353 

Berry Plastics Holding Corp., 

8.875%, 9/15/14 450,000 196 

Cascades, Inc., 7.25%, 2/15/13 350,000 178 

Crown Americas LLC/Crown Americas 

Capital Corp., 7.625%, 11/15/13 310,000 307 

FMG Finance Property, Ltd., 

10.625%, 9/1/16 144A 1,200,000 696 


8.375%, 4/1/17 1,955,000 1,603 

Georgia-Pacific LLC, 7.00%, 1/15/15 144A 1,250,000 1,062 


7.125%, 1/15/17 144A 370,000 311 

Graphic Packaging International, Inc., 

9.50%, 8/15/13 600,000 414 

Hexion US Finance Corp./Hexion Nova 

Scotia Finance ULC, 9.75%, 11/15/14 1,250,000 356 

Huntsman International LLC, 

7.375%, 1/1/15 405,000 213 

Momentive Performance Materials, Inc., 

9.75%, 12/1/14 305,000 130 

The Mosaic Co., 7.625%, 12/1/16 144A 285,000 228 


Shares/ 

$ Par 

Value 

$ (000's) 


NewPage Corp., 10.00%, 5/1/12 405,000 178 

Novelis, Inc., 7.25%, 2/15/15 784,000 455 

Peabody Energy Corp., 7.375%, 11/1/16 330,000 310 


Texas Industries, Inc., 7.25%, 7/15/13 144A 255,000 197 

Total 7,740 


Case New Holland, Inc., 7.125%, 3/1/14 680,000 483 

RSC Equipment Rental, Inc., 

9.50%, 12/1/14 345,000 190 

SPX Corp., 7.625%, 12/15/14 144A 510,000 443 

Terex Corp., 8.00%, 11/15/17 675,000 574 

United Rentals North America, Inc., 

6.50%, 2/15/12 270,000 213 

Total 1,903 


Education Management LLC/Education 

Management Finance Corp., 

10.25%, 6/1/16 1,185,000 859 

Levi Strauss & Co., 8.875%, 4/1/16 850,000 578 

The Neiman Marcus Group, Inc., 

10.375%, 10/15/15 395,000 170 

New Albertson's, Inc., 7.25%, 5/1/13 485,000 410 

Rite Aid Corp., 9.375%, 12/15/15 325,000 114 

Rite Aid Corp., 10.375%, 7/15/16 255,000 187 

Total 2,318 

Energy (0.9%) 

Basic Energy Services, Inc., 

7.125%, 4/15/16 825,000 470 

Chaparral Energy, Inc., 8.875%, 2/1/17 800,000 160 

Chesapeake Energy Corp., 6.625%, 1/15/16 1,000,000 790 

Chesapeake Energy Corp., 7.25%, 12/15/18 420,000 328 


Cimarex Energy Co., 7.125%, 5/1/17 585,000 456 

Complete Production Services, Inc., 

8.00%, 12/15/16 500,000 315 

Connacher Oil and Gas, Ltd., 

10.25%, 12/15/15 144A 450,000 180 

El Paso Corp., 7.00%, 6/15/17 1,110,000 869 

El Paso Corp., 7.25%, 6/1/18 640,000 508 

El Paso Corp., 7.75%, 1/15/32 670,000 435 

Forest Oil Corp., 7.25%, 6/15/19 144A 250,000 183 

Forest Oil Corp., 7.25%, 6/15/19 390,000 285 

Helix Energy Solutions Group, Inc., 

9.50%, 1/15/16 144A 680,000 360 

Key Energy Services, Inc., 8.375%, 12/1/14 675,000 446 

Kinder Morgan Finance Co. ULC, 

5.35%, 1/5/11 3,030,000 2,704 

Linn Energy LLC, 9.875%, 7/1/18 144A 380,000 222 

Mariner Energy, Inc., 8.00%, 5/15/17 548,000 285 

Newfield Exploration Co., 6.625%, 4/15/16 850,000 676 


OPTI Canada, Inc., 8.25%, 12/15/14 395,000 213 


7.875%, 6/1/15 144A 520,000 385 

Petrohawk Energy Corp., 9.125%, 7/15/13 1,150,000 931 

Petroplus Finance, Ltd., 6.75%, 5/1/14 144A 420,000 267 


Plains Exploration & Production Co., 

7.625%, 6/1/18 260,000 178 




Shares/ 

$ Par 

Value 

$ (000's) 




7.75%, 6/15/15 550,000 415 

Range Resources Corp., 6.375%, 3/15/15 750,000 607 



8.00%, 6/1/18 144A 260,000 144 

Sonat, Inc., 7.625%, 7/15/11 190,000 173 

Southwestern Energy Co., 

7.50%, 2/1/18 144A 490,000 429 

Targa Resources Partners LP, 

8.25%, 7/1/16 144A 305,000 189 

Tesoro Corp., 6.25%, 11/1/12 2,340,000 1,615 

Tesoro Corp., 6.625%, 11/1/15 660,000 383 

W&T Offshore, Inc., 8.25%, 6/15/14 144A 620,000 335 

Whiting Petroleum Corp., 7.25%, 5/1/13 850,000 604 

Total 17,219 


E*TRADE Financial Corp., 

7.375%, 9/15/13 35,000 13 

E*TRADE Financial Corp., 

7.875%, 12/1/15 755,000 272 

E*TRADE Financial Corp., 8.00%, 6/15/11 775,000 353 


7.25%, 3/2/11 1,415,000 1,202 


7.75%, 1/19/10 330,000 294 


8.00%, 11/1/31 144A 859,000 511 


5.875%, 5/1/13 215,000 143 


10.50%, 11/15/15 144A 500,000 111 

Wells Fargo Capital XV, 9.75%, 12/29/49 820,000 828 

Total 3,727 

Foods (0.3%) 

Constellation Brands, Inc., 7.25%, 9/1/16 2,265,000 2,141 

Constellation Brands, Inc., 7.25%, 5/15/17 575,000 543 


8.375%, 12/15/14 285,000 271 

Pinnacle Foods Finance LLC/Pinnacle 

Foods Finance Corp., 9.25%, 4/1/15 450,000 290 

Pinnacle Foods Finance LLC/Pinnacle 

Foods Finance Corp., 10.625%, 4/1/17 950,000 513 

Smithfield Foods, Inc., 7.75%, 5/15/13 1,875,000 1,205 

Smithfield Foods, Inc., 7.75%, 7/1/17 455,000 259 

Total 5,222 


AMC Entertainment, Inc., 11.00%, 2/1/16 175,000 122 

Caesars Entertainment, Inc., 

7.875%, 3/15/10 435,000 287 

Caesars Entertainment, Inc., 

8.125%, 5/15/11 1,250,000 612 

Felcor Lodging LP, 8.50%, 6/1/11 750,000 555 

Harrah's Operating Co., Inc., 5.50%, 7/1/10 415,000 264 

Harrah's Operating Co., Inc., 

10.75%, 2/1/16 144A 1,495,000 426 

Host Hotels & Resorts LP, 7.125%, 11/1/13 1,000,000 805 

Las Vegas Sands Corp., 6.375%, 2/15/15 1,090,000 632 

Mashantucket Western Pequot Tribe, 

8.50%, 11/15/15 144A 840,000 330 

MGM MIRAGE, 7.50%, 6/1/16 1,100,000 697 

Shares/ 

$ Par 

Value 

$ (000's) 


Gaming/Lodging/Leisure continued 

MGM MIRAGE, Inc., 6.75%, 9/1/12 1,230,000 861 

MGM MIRAGE, Inc., 8.375%, 2/1/11 620,000 369 

Mohegan Tribal Gaming Authority, 

6.875%, 2/15/15 675,000 341 


8.00%, 4/1/12 210,000 128 

Royal Caribbean Cruises, Ltd., 

7.00%, 6/15/13 1,555,000 886 

Station Casinos, Inc., 6.00%, 4/1/12 875,000 175 

Wynn Las Vegas LLC/Wynn Las Vegas 

Capital Corp., 6.625%, 12/1/14 4,295,000 3,243 

Total 10,733 


(c)Biomet, Inc., 10.375%, 10/15/17 1,195,000 944 

CHS/Community Health Systems, Inc., 

8.875%, 7/15/15 1,530,000 1,408 

DaVita, Inc., 7.25%, 3/15/15 590,000 560 

FMC Finance III SA, 6.875%, 7/15/17 760,000 711 

HCA, Inc., 6.75%, 7/15/13 650,000 409 

HCA, Inc., 9.25%, 11/15/16 2,250,000 2,064 

(c)HCA, Inc., 9.625%, 11/15/16 900,000 702 

Health Management Associates, Inc., 

6.125%, 4/15/16 590,000 366 

Service Corp. International, 6.75%, 4/1/15 600,000 474 

Tenet Healthcare Corp., 7.375%, 2/1/13 550,000 392 


Ventas Realty LP/Ventas Capital Corp., 

6.50%, 6/1/16 405,000 297 

Total 8,802 

Media (0.5%) 

CCH I Holdings LLC/CCH I Holdings 

Capital Corp., 11.00%, 10/1/15 2,235,000 346 

CCH I Holdings LLC/CCH I Holdings 

Capital Corp., 11.75%, 5/15/14 555,000 29 

CCH II LLC/CCH II Capital Corp., 

10.25%, 9/15/10 720,000 317 

CSC Holdings, Inc., 7.625%, 4/1/11 2,250,000 2,121 

CSC Holdings, Inc., 7.875%, 2/15/18 1,005,000 789 

Dex Media, Inc., 8.00%, 11/15/13 805,000 149 

DirecTV Holdings LLC/DirecTV Financing 

Co., 7.625%, 5/15/16 1,120,000 1,086 

EchoStar DBS Corp., 7.00%, 10/1/13 435,000 377 



Kabel Deutschland GmbH, 10.625%, 7/1/14 215,000 191 

Lamar Media Corp., 6.625%, 8/15/15 1,140,000 823 

LIN Television Corp., 6.50%, 5/15/13 425,000 202 

Mediacom Broadband LLC/Mediacom 

Broadband Corp., 8.50%, 10/15/15 600,000 391 

Quebecor Media, Inc., 7.75%, 3/15/16 660,000 446 

R.H. Donnelley Corp., 6.875%, 1/15/13 880,000 119 


(c)Univision Communications, Inc., 

9.75%, 3/15/15 144A 710,000 89 

Videotron Ltee, 6.875%, 1/15/14 491,000 435 

Videotron Ltee, 9.125%, 4/15/18 144A 110,000 102 

Total 9,359 


Icahn Enterprises LP/Icahn Enterprises 

Finance Corp., 7.125%, 2/15/13 500,000 345 

Total 345 




Shares/ 

$ Par 

Value 

$ (000's) 



Allied Waste North America, Inc., 

6.125%, 2/15/14 305,000 276 


7.25%, 3/15/15 1,000,000 930 

Crum & Forster Holdings Corp., 

7.75%, 5/1/17 562,000 396 

Total 1,602 


CDX North America High Yield, 

8.875%, 6/29/13 144A 10,000,000 9,000 

Total 9,000 


Expedia, Inc., 8.50%, 7/1/16 144A 50,000 37 

First Data Corp., 9.875%, 9/24/15 775,000 469 

Flextronics International, Ltd., 

6.50%, 5/15/13 750,000 593 

Freescale Semiconductor, Inc., 

8.875%, 12/15/14 650,000 286 

(c) Freescale Semiconductor, Inc., 

9.125%, 12/15/14 900,000 207 

Iron Mountain, Inc., 7.75%, 1/15/15 470,000 422 



10.75%, 7/15/16 144A 590,000 156 

Sabre Holdings Corp., 8.35%, 3/15/16 500,000 111 

STATS ChipPAC, Ltd., 7.50%, 7/19/10 360,000 296 

Sungard Data Systems, Inc., 

10.625%, 5/15/15 144A 425,000 363 

Unisys Corp., 8.00%, 10/15/12 450,000 126 

Total 3,688 


(c) ALLTEL Communications LLC, 

10.375%, 12/1/17 144A 680,000 762 

American Tower Corp., 

7.00%, 10/15/17 144A 500,000 445 

Cricket Communications, Inc., 

10.00%, 7/15/15 144A 255,000 233 

Frontier Communications Corp., 

9.00%, 8/15/31 1,480,000 932 


9.25%, 5/15/11 1,370,000 1,302 

Intelsat Corp., 9.25%, 8/15/14 144A 400,000 372 

Intelsat Jackson Holdings, Ltd., 

11.25%, 6/15/16 395,000 359 

Intelsat, Ltd., 7.625%, 4/15/12 400,000 268 

Qwest Corp., 6.50%, 6/1/17 750,000 555 

Qwest Corp., 7.625%, 6/15/15 415,000 340 

Sprint Nextel Corp., 6.00%, 12/1/16 950,000 670 

Windstream Corp., 7.00%, 3/15/19 500,000 385 


Total 7,389 


American Railcar Industries, Inc., 

7.50%, 3/1/14 235,000 155 

Kansas City Southern de Mexico SAB de 

CV, 7.375%, 6/1/14 1,500,000 1,228 

Stena AB, 7.50%, 11/1/13 200,000 132 

Total 1,515 

Shares/ 

$ Par 

Value 

$ (000's) 



The AES Corp., 7.75%, 10/15/15 795,000 668 

The AES Corp., 8.00%, 10/15/17 500,000 410 

The AES Corp., 8.00%, 6/1/20 144A 405,000 314 

Aquila, Inc., 11.875%, 7/1/12 405,000 409 

Dynegy Holdings, Inc., 7.50%, 6/1/15 730,000 511 


Dynegy Holdings, Inc., 8.375%, 5/1/16 1,075,000 763 

Edison Mission Energy, 7.00%, 5/15/17 1,050,000 913 

Edison Mission Energy, 7.20%, 5/15/19 1,225,000 1,005 

Elwood Energy LLC, 8.159%, 7/5/26 543,608 369 

Energy Future Holdings Corp., 

10.875%, 11/1/17 144A 670,000 476 

Indiantown Cogeneration LP, 

9.77%, 12/15/20 1,280,000 1,014 

Mirant Americas Generation LLC, 

8.50%, 10/1/21 1,215,000 923 

NRG Energy, Inc., 7.25%, 2/1/14 500,000 467 

NRG Energy, Inc., 7.375%, 2/1/16 130,000 121 

NRG Energy, Inc., 7.375%, 1/15/17 490,000 451 

Reliant Energy, Inc., 7.625%, 6/15/14 1,015,000 842 

Texas Competitive Electric Holdings Co. 

LLC, 10.50%, 11/1/15 144A 2,660,000 1,889 

Total 11,880 

Total Below Investment Grade Segment 

(Cost: $153,575) 112,943 



Preferred Blocker, Inc., 

(n)* 9.00%, 12/31/49 144A 500 125 

Total 125 


(Cost: $125) 125 



(b)Kitty Hawk Funding Corp., 

0.28%, 1/20/09 10,000,000 9,999 

(b)Kitty Hawk Funding Corp., 

0.40%, 1/26/09 10,000,000 9,997 

(b)Textron, Inc., 6.25%, 1/5/09 

10,000,000 9,993 

(b)Textron, Inc., 6.25%, 1/6/09 

10,000,000 9,991 

Total 39,980 

Autos (1.5%) 

(b)American Honda Finance 

Corp., 2.319%, 8/26/09 

144A 3,200,000 3,178 


Corp., 2.989%, 5/5/09 

144A 2,370,000 2,363 


Corp., 4.389%, 1/8/09 

144A 3,600,000 3,601 





(15.7%) 

Shares/ 

S Par 

Value 

$ (000's) 

Autos continued 

(b) Toyota Motor Credit Corp., 

1.15%, 1/14/09 20,000,000 19,992 

Total 29,134 


(b) Bank of Scotland PLC, 

1.868%, 10/9/09 144A 3,000,000 2,994 

(b) Barclays US Funding Corp., 

1.79%, 1/12/09 10,000,000 9,995 

Total 12,989 



4.00%, 1/6/09 10,000,000 9,994 

Total 9,994 


(b) Federal Home Loan Bank, 

0.65%, 3/13/09 7,300,000 7,299 

(b) Federal National Mortgage 

Association, 

0.20%, 3/30/09 21,500,000 21,498 

Total 28,797 


(b) International Lease Finance 

Corp., 3.50%, 4/1/09 3,530,000 3,352 

(b) Thunder Bay Funding LLC, 

0.60%, 1/15/09 10,000,000 9,998 

Total 13,350 


(b) Alpine Securitization Corp., 

1.35%, 1/7/09 10,000,000 9,998 

(b) Alpine Securitization Corp., 

1.35%, 1/9/09 10,000,000 9,997 

(b) Atlantic Asset Securitization 

LLC, 0.65%, 1/12/09 10,000,000 9,998 

(b) Barton Capital LLC, 

1.45%, 1/2/09 10,000,000 9,999 

(b) Bryant Park Funding LLC, 

0.45%, 1/15/09 10,000,000 9,998 

(b) Bryant Park Funding LLC, 

1.20%, 1/5/09 10,000,000 9,999 

(b) Gemini Securitization Corp. 

LLC, 0.50%, 1/23/09 10,000,000 9,997 

(b) Gemini Securitization Corp. 

LLC, 1.45%, 1/8/09 10,000,000 9,997 

Total 79,983 


(15.7%) 

Industrial - Other (0.3%) 

Shares/ 

S Par 

Value 

$ (000's) 

(b)John Deere Capital Corp., 

0.55%, 1/16/09 5,000,000 4,999 

Total 4,999 

Miscellaneous Business Credit Institutions (0.3%) 

(b)General Electric Capital 

Corp., 1.971%, 2/2/09 6,200,000 6,192 

Total 6,192 


(b)Devon Energy Corp., 

1.15%, 1/2/09 7,500,000 7,500 


1.25%, 1/2/09 10,390,000 10,389 


4.50%, 1/5/09 10,000,000 9,995 


4.50%, 1/6/09 10,000,000 9,994 

Total 37,878 


(b)Associates Corp. of North 

America, 8.55%, 7/15/09 4,440,000 4,433 


0.30%, 1/6/09 9,000,000 9,000 


0.35%, 1/13/09 10,000,000 9,999 

Total 23,432 


(b)Caterpillar Financial 


2.259%, 3/10/09 6,320,000 6,296 


0.55%, 2/17/09 10,000,000 9,993 


0.35%, 1/15/09 10,000,000 9,999 

Total 26,288 


(Cost: $313,340) 313,016 


(Cost: $2,287,487)(a) 1,974,574 



Net Assets (100.0%) 1,994,701 





was $62,599 representing 3.14% of the net assets. 







(a) 

(b) 






Unrealized 

Appreciation/ 

Number of 





Russell 2000 Mini Index Future (Long) (Total Notional Value at December 31, 2008, $21,098) 440 3/09 807 

S&P 500 Index Futures (Long) (Total Notional Value at December 31, 2008, $190,288) 834 3/09 (2,621) 

US Five Year Note Commodity (Long) (Total Notional Value at December 31, 2008, $38,338) 330 3/09 949 

US Long Bond (CBT) Commodity (Short) (Total Notional Value at December 31, 2008, $28,367) 207 3/09 (210) 

US Ten Year Treasury Note (Short) (Total Notional Value at December 31, 2008, $102,867) 865 3/09 (5,909) 

US Two Year Treasury Note (Long) (Total Notional Value at December 31, 2008, $66,043) 307 3/09 901 

(c) 

(d) 

(e) 

(g) 




All or portion of the securities have been loaned. See Note 2M in the Notes to Financial Statements. 



CounterParty 

Credit Suisse Securities 

(Europe) Ltd. 


(Europe) Ltd. 


(Europe) Ltd. 


(Europe) Ltd. 


(Europe) Ltd. 


(Europe) Ltd. 

Reference 


the Fund 

Russell Midcap Value Index 3 Month USD- 

LIBOR - 8 Basis 

Points (Bps) 

Russell 2000 Growth Index Russell 2000 

Growth Index 

Total Return 

Russell 1000 Growth Index Russell 1000 

Growth Index 

Total Return 

Russell 2000 Value Index 3 Month USD- 

LIBOR - 90 Bps 

Russell Midcap Growth Index Russell Midcap 

Growth Index 

Total Return 

Russell 1000 Value Index 3 Month USD- 

LIBOR + 4 Bps 

Goldman Sachs International Russell 1000 Value Index 3 Month USD- 

LIBOR + 10 Bps 

Goldman Sachs International Russell 1000 Growth Index Russell 1000 

Growth Index 

Total Return 


by the Fund 

Russell Midcap 

Value Index 

Total Return 

3 Month USD- 

LIBOR + 125 

Bps 

3 Month USD- 


Russell 2000 

Value Index 

Total Return 

3 Month USD- 


Russell 1000 

Value Index 

Total Return 

Russell 1000 

Value Index 

Total Return 

3 Month USD- 


Expiration 

Date 

Notional 


Unrealized 

Appreciation/ 


(000's) 

5/09 65,212 $ (2,455) 

5/09 15,195 607 

5/09 89,315 4,057 

5/09 16,231 (205 ) 

5/09 65,109 3,080 

5/09 87,279 (3,822) 

5/09 67,942 (2,975 ) 

5/09 67,093 3,048 




CounterParty 



Reference 


Biotechnology Industry 

Index 


International (MSCI) Daily 

Net Japan 


the Fund 

3 Month USD- 


3 Month USD- 

LIBOR +15 Bps 


by the Fund 

Russell 2000 

Growth 

Biotechnology 

Industry Index 

Total Return 


Japan Total 

Return 

Expiration 

Date 

Notional 


Unrealized 

Appreciation/ 


(000's) 

12/09 700 83 

3/09 9,481 295 

$ 1,713 

(l) 


of Directors. 


(n) 

At December 31, 2008 portfolio securities with a aggregate value of $17,362 (in thousands) were valued with reference to securities whose values are more 







as is consistent with reasonable 

investment risk. 

Actively manage the Portfolio through a flexible policy of 

allocating assets among stocks, bonds and cash, adjusting the 

mix to capitalize on changing financial markets and economic 

conditions. 

$200 million 


Mason Street Advisors acts as the investment adviser for the Asset Allocation Portfolio. The investment objective of the 

Portfolio is to realize as high a level of total return as is consistent with reasonable investment risk. The Portfolio will follow a 

flexible policy for allocating assets among equity securities, debt investments, and cash or cash equivalents. The Asset 

Allocation Portfolio invests in seven categories of assets: large-capitalization stocks, medium-capitalization stocks, smallcapitalization 

stocks, foreign stocks, investment-grade bonds, below investment-grade bonds, 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 an investment professional with experience in that category. Under 

normal conditions, the Portfolio will typically invest between 55% and 75% of its assets in equity securities and between 25%- 

45% of its assets in fixed income securities. The Portfolio is managed to maintain broad diversification, while blending asset 

classes to attempt to achieve both capital appreciation and current income. 




was a result of the ongoing sub-prime mortgage meltdown, which spread rapidly through the financial sector and into virtually 

every segment of global financial markets. Economic conditions deteriorated sharply over the course of the year, as 

unemployment jumped above 7% and the economy entered its first recession since 2002. 

Against that backdrop, the S&P 500 ® Stock Index fell 37.00%. Equity returns were negative across all market capitalization 

ranges, sectors, and investment styles. Fixed income returns varied widely, with the Citigroup U.S. Broad Investment Grade 

Bond Index (a broad-based bond index) up 7.02%, as Treasury and government-backed mortgage debt had positive returns, 

while corporate bonds endured their worst year ever. What’s more, the Citigroup High-Yield Cash-Pay Index suffered its most 

difficult year on record, falling 24.74%. Meanwhile, cash-equivalent investments had modest returns as the Fed slashed shortterm 

rates. For the full year, the Merrill Lynch Three-Month T-Bill Index was up 2.06%. International equities offered no 

relief, as the MSCI EAFE Index—a measure of large-cap stock performance in Europe, Australasia, and the Far East— 

tumbled 43.06%. 


The Asset Allocation Portfolio returned –30.13% for the twelve months ended December 31, 2008. That compares with the – 

37.00% return of the broad stock market, as measured by the S&P 500 ® Index. At the same time, the Asset Allocation 

Portfolio Blended Composite Benchmark returned –28.17%. (The Portfolio’s blended benchmark weights are detailed in the 

“Benchmark Definitions” section of this annual report.) The Mixed-Asset Target Allocation Growth Funds peer group had an 

average return of –29.60%, according to Lipper Analytical Services, Inc., an independent mutual fund ranking agency. 

The Portfolio’s absolute return reflected the unprecedented turmoil affecting the economy and financial markets in a year in 

which only cash and government-backed securities had positive returns. The Portfolio outperformed the equity-only S&P 500 ® 

Index thanks to positive performance from its cash and bond allocations. Relative to the blended benchmark, it helped to be 

underrepresented in equities overall, and international stocks in particular. It was also beneficial to be overweight investment 

grade bonds and underweight high yield. However, our stock allocation has a growth bias, which hurt in a year when value 

outperformed growth. Our stock selection also detracted from performance. In the fixed income slice, our sector allocation 

decisions among investment grade bonds hurt, as we were underrepresented in Treasuries during one of the best years for 

Treasuries on record. 

Many of the changes we made to the Portfolio’s asset mix over the course of the year were to address imbalances created by 

sharp volatility in the markets. For example, stocks’ poor performance shrank the equity slice of the Portfolio, so we 

consistently used our cash allocation to bring equities back closer to neutral. Nevertheless, equities finished the year a little 

below our target allocation at 64% of assets. The fixed income allocation ended the year a little above our neutral weight at 

34% of assets. Within this slice, we maintained a bias toward high quality bonds and an underweight position in high yield 

debt. We ended the year with cash below our target allocation at just 2% of assets, preferring to put this money to work in 

more attractively valued segments of the market. 

166 Asset Allocation Portfolio


Outlook 



remain challenging, and it’s difficult to see a quick rebound. 

In terms of the Portfolio’s asset allocation, the extreme market conditions of the last year have created some significant 

disparities in valuations across and within asset classes. So, for example, at a time when cash yields are approaching zero and 

Treasury bond yields are at record lows, we find that stocks and credit-sensitive bonds are very attractive by comparison. As a 

result, we expect to underweight cash in favor of our equity and bond allocations. Within equities, we anticipate favoring 

growth-oriented shares, which historically have done better than value when investors desire earnings certainty. And within 

fixed income, we favor high quality assets trading at distressed levels, particularly those with government backing. 

$20,000 

15,000 

10,000 

5,000 


0 

7/01 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 


S&P 500 Index 

Citigroup U.S. Broad Investment Grade Index 

Asset Allocation Portfolio Blended Composite Benchmark 




Since 

Inception* 


S&P 500 Index 

-30.13% -0.22% 

-37.00% -2.19% 

0.64% 

-2.08% 


Grade Index 7.02% 5.10% 5.67% 

Asset Allocation Portfolio Blended 

Composite Benchmark -28.17% 0.81% 1.66% 


(VIP) Mixed Asset Target 

Allocation Growth Funds Average -29.60% -0.50% – 










www.nmfn.com. 


















standards. Small cap stocks also may carry additional 

risk. Smaller 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 

volatile and more speculative. Bonds and other debt 

obligations are affected by changes in interest rates, 

inflation risk and the creditworthiness of their issuers. 

High yield bonds generally have greater price swings 

and higher default risks than investment grade bonds. 










Asset Allocation Portfolio 167









Abbott Laboratories 0.5% 







Federal Home Loan Mortgage Corp. , 

4.875%, 6/13/18 1.1% 

AEP Texas Central Transition Funding LLC, 

5.306%, 7/01/21 0.5% 


Governments 

4% 

Below Investment 

Grade Segment 

7% 


Segment 

9% 

Mid Cap Stocks 

9% 

Small Cap Stocks 

3% 

Short-Term 

Investments & 


22% 

Large Cap 

Stocks 

20% 

Foreign Stocks 

12% 


14% 



change. 








Large Cap Common Stocks (20.4%) 


Shares/ 

$ Par 

Value 

$ (000's) 

Abercrombie & Fitch Co. - 

Class A 7,200 166 

* Amazon.com, Inc. 3,200 164 

Comcast Corp. - Class A 32,750 553 

Johnson Controls, Inc. 18,100 329 

* Kohl's Corp. 14,300 518 

Lowe's Companies, Inc. 15,500 334 

McDonald's Corp. 6,600 410 

The McGraw-Hill Companies, 

Inc. 13,500 313 

NIKE, Inc. - Class B 9,100 464 

Omnicom Group, Inc. 11,200 301 


Total 3,856 


Avon Products, Inc. 15,200 365 


CVS Caremark Corp. 28,005 805 

* Energizer Holdings, Inc. 5,300 287 

* Hansen Natural Corp. 14,400 483 

The Kroger Co. 23,900 631 



Inc. 21,000 914 

The Procter & Gamble Co. 7,200 445 


Total 6,487 

Energy (1.7%) 

Exxon Mobil Corp. 9,200 734 

Halliburton Co. 13,100 238 

Hess Corp. 4,200 225 

* National-Oilwell Varco, Inc. 22,700 555 

Occidental Petroleum Corp. 8,200 492 


* Transocean, Ltd. 3,100 146 

XTO Energy, Inc. 11,700 413 

Total 3,303 


American Express Co. 6,900 128 

CME Group, Inc. 800 166 


Inc. 2,300 194 


State Street Corp. 9,700 382 

Total 1,046 




Shares/ 

$ Par 

Value 

$ (000's) 



Baxter International, Inc. 16,200 868 


*Celgene Corp. 20,400 1,128 

*Genentech, Inc. 6,100 506 

*Genzyme Corp. 5,100 339 

*Gilead Sciences, Inc. 15,700 803 

Johnson & Johnson 5,100 305 

*Medco Health Solutions, Inc. 19,800 830 

*St. Jude Medical, Inc. 7,900 260 

*Thermo Fisher Scientific, Inc. 6,200 211 


Total 7,100 


Danaher Corp. 7,800 441 

Deere & Co. 6,700 257 

FedEx Corp. 5,700 366 

*First Solar, Inc. 2,000 276 

Honeywell International, Inc. 15,900 522 

Lockheed Martin Corp. 3,200 269 

Norfolk Southern Corp. 8,900 419 

Raytheon Co. 7,100 362 


Union Pacific Corp. 9,800 468 

United Technologies Corp. 9,900 531 

Total 4,090 


Accenture, Ltd. - Class A 14,100 462 

*Apple, Inc. 9,300 794 


*Broadcom Corp. - Class A 19,800 336 

*Cisco Systems, Inc. 60,700 989 

Corning, Inc. 22,700 216 

*eBay, Inc. 17,600 246 

*Electronic Arts, Inc. 10,400 167 

*Google, Inc. - Class A 3,400 1,046 


Intel Corp. 62,100 910 



MasterCard, Inc. 600 86 

*MEMC Electronic Materials, 

Inc. 12,700 181 


*Oracle Corp. 42,600 755 

QUALCOMM, Inc. 27,700 993 

*Research In Motion, Ltd. 4,800 195 

Visa, Inc. - Class A 3,800 199 

*Yahoo!, Inc. 9,600 117 

Total 11,474 







Shares/ 

$ Par 

Value 

$ (000's) 

Ecolab, Inc. 5,800 204 

Freeport-McMoRan Copper & 

Gold, Inc. 6,300 154 


Praxair, Inc. 11,100 659 

Total 1,756 


iShares Russell 1000 Growth 

Index Fund 20,000 741 

Total 741 


* American Tower Corp. - Class 

A 13,000 381 

* NII Holdings, Inc. 12,500 227 

Total 608 


Exelon Corp. 6,100 339 

Total 339 

Total Large Cap Common Stocks 40,800 

Mid Cap Common Stocks (9.5%) 


* Collective Brands, Inc. 33,700 395 

DeVry, Inc. 11,100 637 

* Dollar Tree, Inc. 15,500 648 

* Focus Media Holding, Ltd., 

ADR 13,200 120 

* GameStop Corp. - Class A 22,800 494 

* O'Reilly Automotive, Inc. 10,550 324 


Total 2,792 

Energy (1.0%) 

* Cameron International Corp. 24,100 494 

Diamond Offshore Drilling, 

Inc. 4,900 289 

Range Resources Corp. 10,100 347 


Smith International, Inc. 6,700 153 

* Southwestern Energy Co. 22,300 646 

Total 1,984 


Assured Guaranty, Ltd. 11,500 131 

* IntercontinentalExchange, Inc. 1,815 150 

* MBIA, Inc. 18,500 75 

Northern Trust Corp. 8,200 428 

Raymond James Financial, 

Inc. 18,200 312 

SEI Investments Co. 11,100 174 

Synovus Financial Corp. 21,400 178 

T. Rowe Price Group, Inc. 6,500 230 



Shares/ 

$ Par 

Value 

$ (000's) 


W.R. Berkley Corp. 5,200 161 

Total 1,839 


*Cerner Corp. 8,400 323 

*Charles River Laboratories 


*DaVita, Inc. 11,250 558 

*Express Scripts, Inc. 8,500 467 

*Immucor, Inc. 24,576 653 

*Intuitive Surgical, Inc. 1,200 152 

Total 2,342 


C.H. Robinson Worldwide, 

Inc. 10,650 586 

*Corrections Corp. of America 33,150 542 


Expeditors International of 

Washington, Inc. 9,600 319 

*Foster Wheeler, Ltd. 13,500 316 

*FTI Consulting, Inc. 1,000 45 

Harsco Corp. 10,800 299 

J.B. Hunt Transport Services, 

Inc. 13,900 365 



MSC Industrial Direct Co., 

Inc. - Class A 4,200 155 

Ritchie Bros. Auctioneers, Inc. 13,100 281 

*Spirit AeroSystems Holdings, 

Inc. - Class A 38,600 392 

*Stericycle, Inc. 9,500 495 

Total 4,093 


*Activision Blizzard, Inc. 15,142 131 

*Alliance Data Systems Corp. 11,100 516 

Amphenol Corp. - Class A 14,100 338 

*Citrix Systems, Inc. 9,100 215 

*Cognizant Technology 

Solutions Corp. - Class A 13,200 238 

FactSet Research Systems, 

Inc. 8,300 367 

Global Payments, Inc. 15,400 505 



*McAfee, Inc. 15,200 525 

*Mettler-Toledo International, 

Inc. 6,200 418 

Microchip Technology, Inc. 18,400 359 

*Varian Semiconductor 

Equipment Associates, Inc. 23,100 419 

*VeriFone Holdings, Inc. 18,200 89 

Western Union Co. 9,100 131 

Total 4,957 






Shares/ 

$ Par 

Value 

$ (000's) 


* Owens-Illinois, Inc. 12,900 353 

Titanium Metals Corp. 18,100 159 

Total 512 


Equitable Resources, Inc. 11,800 396 

Total 396 

Total Mid Cap Common Stocks 18,915 

Small Cap Common Stocks (2.9%) 


(m)* Aeropostale, Inc. 25 0 

* American Public Education, 

Inc. 1,700 63 

Arbitron, Inc. 50 1 

* Buffalo Wild Wings, Inc. 1,150 29 

(m)* The Cheesecake Factory, Inc. 50 0 

(m) Cracker Barrel Old Country 

Store, Inc. 25 0 

* Exide Technologies 125 1 

* Fossil, Inc. 50 1 

* J. Crew Group, Inc. 50 1 

* Jack in the Box, Inc. 18,500 409 

* Jos. A. Bank Clothiers, Inc. 25 1 

* Life Time Fitness, Inc. 50 1 

* LKQ Corp. 4,800 56 

* Lumber Liquidators, Inc. 2,750 29 

The Men's Wearhouse, Inc. 50 1 

* New Oriental Education & 

Technology Group, Inc., 

ADR 1,500 82 

PetSmart, Inc. 1,850 34 

Polaris Industries, Inc. 25 1 

(m)* Retail Ventures, Inc. 175 0 

Sinclair Broadcast Group, Inc. 

- Class A 200 1 

* Skechers U.S.A., Inc. - Class 

A 50 1 

Snap-on, Inc. 550 22 

Sotheby's 75 1 

Tempur-Pedic International, 

Inc. 100 1 

* True Religion Apparel, Inc. 1,700 21 

(m) Tupperware Brands Corp. 25 0 

(m)* The Warnaco Group, Inc. 25 0 

* Zumiez, Inc. 2,700 20 

Total 777 


(m)* AgFeed Industries, Inc. 250 0 


* Central European Distribution 

Corp. 1,000 20 

(m)* Darling International, Inc. 100 0 


* TreeHouse Foods, Inc. 900 24 

Total 140 



Energy (0.1%) 

Shares/ 

$ Par 

Value 

$ (000's) 

* Arena Resources, Inc. 1,800 51 

(m)* ATP Oil & Gas Corp. 75 0 

Berry Petroleum Co. 75 1 

(m)* Bill Barrett Corp. 25 0 

* Carrizo Oil & Gas, Inc. 1,325 21 

* Contango Oil & Gas Co. 600 34 

Crosstex Energy, Inc. 225 1 

(m)* Dril-Quip, Inc. 25 0 

Energy XXI, Ltd. 825 1 

* EXCO Resources, Inc. 2,600 24 

(m)* Gasco Energy, Inc. 900 0 

(m) General Maritime Corp. 50 0 

* IHS, Inc. - Class A 900 34 

* ION Geophysical Corp. 4,900 17 

(m)* McMoRan Exploration Co. 50 0 

* Oceaneering International, Inc. 700 20 

* Parker Drilling Co. 200 1 

Penn Virginia Corp. 25 1 

* PetroQuest Energy, Inc. 100 1 

Ship Finance International, 

Ltd. 50 1 

(m)* Stone Energy Corp. 50 0 

* T-3 Energy Services, Inc. 1,400 13 

* Whiting Petroleum Corp. 1,100 37 

* Willbros Group, Inc. 75 1 

Total 259 





* Encore Bancshares, Inc. 961 10 

(m)* FCStone Group, Inc. 125 0 

GFI Group, Inc. 175 1 


Group, Inc. 13,300 302 

* KBW, Inc. 1,291 30 

MFA Mortgage Investments, 

Inc. 10,300 61 

optionsXpress Holdings, Inc. 50 1 

* Portfolio Recovery Associates, 

Inc. 350 12 

Total 508 


* Affymetrix, Inc. 225 1 

*Alkermes, Inc. 50 1 

* athenahealth, Inc. 1,350 51 

* BioMarin Pharmaceutical, Inc. 3,100 55 

* CardioNet, Inc. 1,400 35 

* Genoptix, Inc. 2,208 75 

* Illumina, Inc. 2,400 63 

* IPC The Hospitalist Co. 1,150 19 

(m)* K-V Pharmaceutical Co. - 

Class A 100 0 

* Masimo Corp. 3,564 106 






Shares/ 

$ Par 

Value 

$ (000's) 



* NuVasive, Inc. 1,200 42 

* PAREXEL International Corp. 75 1 


* Psychiatric Solutions, Inc. 23,500 654 


* United Therapeutics Corp. 200 12 

Total 1,280 


(m)* AAR Corp. 25 0 

(m) Actuant Corp. 25 0 

Acuity Brands, Inc. 25 1 

* Aerovironment, Inc. 900 33 

* Allegiant Travel Co. 350 17 

* Astec Industries, Inc. 550 17 

* Astronics Corp. 3,777 34 

* Axsys Technologies, Inc. 382 21 

(m) Belden, Inc. 25 0 

Bucyrus International, Inc. 1,100 20 

(m)* Chart Industries, Inc. 50 0 

* Cornell Cos., Inc. 3,400 63 

Deluxe Corp. 50 1 

(m) Eagle Bulk Shipping, Inc. 75 0 

* EMCOR Group, Inc. 25 1 


(m)* EnerSys 50 0 

* Flow International Corp. 300 1 

* Force Protection, Inc. 125 1 

Genco Shipping & Trading, 

Ltd. 50 1 

* GrafTech International, Ltd. 75 1 

* Hawaiian Holdings, Inc. 125 1 

Herman Miller, Inc. 50 1 

* Hexcel Corp. 75 1 



* Huron Consulting Group, Inc. 1,000 57 

* ICF International, Inc. 2,050 50 

Kaydon Corp. 900 31 

Knight Transportation, Inc. 24,899 401 

Knoll, Inc. 75 1 

* Korn/Ferry International 50 1 

* Perini Corp. 25 1 

* Stanley, Inc. 1,950 71 

* TBS International, Ltd. - Class 

A 75 1 

* Team, Inc. 3,600 100 

* Titan Machinery, Inc. 2,450 34 

* TransDigm Group, Inc. 1,600 54 

Total 1,084 


* Advanced Energy Industries, 

Inc. 3,741 37 

* Amkor Technology, Inc. 300 1 

* Atheros Communications, Inc. 2,000 29 

* Bankrate, Inc. 1,779 68 



Shares/ 

$ Par 

Value 

$ (000's) 


* Blackboard, Inc. 800 21 

* comScore, Inc. 2,099 27 

* Comtech Telecommunications 

Corp. 400 18 

* Concur Technologies, Inc. 1,250 41 

* CyberSource Corp. 2,200 26 

* DG Fastchannel, Inc. 3,000 37 

* Diodes, Inc. 4,600 28 

* EarthLink, Inc. 100 1 

* F5 Networks, Inc. 2,000 46 

* Harmonic, Inc. 100 1 

* Infinera Corp. 75 1 

* j2 Global Communications, 

Inc. 950 19 

* Mellanox Technologies, Ltd. 4,100 32 

* Netlogic Microsystems, Inc. 2,500 55 

* NeuStar, Inc. - Class A 16,900 323 

* Novatel Wireless, Inc. 150 1 

* Omniture, Inc. 4,200 45 

* OmniVision Technologies, 

Inc. 125 1 

* PMC-Sierra, Inc. 125 1 

* Rubicon Technology, Inc. 2,401 10 

(m)* Sigma Designs, Inc. 50 0 

(m)* Skyworks Solutions, Inc. 100 0 

* Switch and Data Facilities Co., 

Inc. 6,132 45 

* Synchronoss Technologies, 

Inc. 5,000 53 


Software, Inc. 75 1 

* TeleTech Holdings, Inc. 75 1 

* TiVo, Inc. 100 1 

* TriQuint Semiconductor, Inc. 13,800 47 

* VanceInfo Technologies, Inc., 

ADR 9,950 47 

* VistaPrint, Ltd. 3,500 65 

* Vocus, Inc. 2,100 38 

Total 1,167 


(m)* Apex Silver Mines, Ltd. 450 0 

* Calgon Carbon Corp. 3,300 51 

* Flotek Industries, Inc. 250 1 


* W.R. Grace & Co. 100 1 

(m) Worthington Industries, Inc. 50 0 

Total 113 


Financial Select Sector SPDR 

Fund 3,050 38 

iShares Nasdaq Biotechnology 

Index Fund 650 46 

SPDR Metals & Mining 4,600 128 

Total 212 






Shares/ 

$ Par 

Value 

$ (000's) 


* Centennial Communications 

Corp. 4,800 39 

Total 39 


ITC Holdings Corp. 2,200 96 

Total 96 

Total Small Cap Common Stocks 5,675 

Total Domestic Common Stocks and Warrants 

(Cost: $88,715) 65,390 





Compass Group PLC United 

Kingdom 34,745 175 





Shares Sweden 3,717 147 


Kingfisher PLC 

United 

Kingdom 38,970 77 

Next PLC 

United 

Kingdom 3,410 54 

Oriental Land Co., Ltd. Japan 400 33 


Reed Elsevier PLC United 




Vivendi France 7,790 255 

Yamada Denki Co., Ltd. Japan 320 22 


Total 1,254 






PLC 

United 

Kingdom 4,511 119 

Cadbury PLC 

United 


Imperial Tobacco Group PLC United 

Kingdom 4,225 115 

ITC, Ltd. India 14,693 52 







Lawson, Inc. Japan 500 29 



Shares/ 

$ Par 

Value 

$ (000's) 


Nestle SA Switzerland 12,240 481 


Reckitt Benckiser Group PLC United 

Kingdom 2,945 111 



Shoppers Drug Mart Corp. Canada 5,975 236 

Tesco PLC 

United 

Kingdom 20,145 107 

Unilever NV Netherlands 10,030 244 


Wal-Mart de Mexico SAB de 

CV Mexico 46,100 124 

Woolworths, Ltd. Australia 10,270 196 

Total 2,571 

Energy (1.2%) 

*Artumas Group, Inc. Norway 15,020 6 

BG Group PLC 

United 


BP PLC 

United 

Kingdom 55,620 433 


Eni SPA Italy 15,200 362 


Nexen, Inc. Canada 13,440 237 


Petroleo Brasileiro SA, ADR Brazil 9,300 228 

Reliance Industries, Ltd. India 5,848 149 


Class A 

United 

Kingdom 15,085 400 

Saipem SPA Italy 9,890 167 


Suncor Energy, Inc. Canada 7,005 137 

Total 2,490 


Allianz SE Germany 868 93 



Banco Santander SA Spain 27,550 267 


BNP Paribas France 4,520 192 

Cathay Financial Holding Co., 

Ltd. Taiwan 70,200 79 


China Life Insurance Co., Ltd. China 32,000 99 



(n)*China Overseas Land & 




Daito Trust Construction Co., 

Ltd. Japan 300 16 



Housing Development Finance 

Corp., Ltd. India 5,624 176 







HSBC Holdings PLC, ADR 

Shares/ 

$ Par 

Value 

$ (000's) 

United 

Kingdom 5,800 282 

Industrial and Commercial 

Bank of China, Ltd. - Class 

H China 341,000 181 

Intesa Sanpaolo Italy 36,505 132 

Julius Baer Holding AG Switzerland 4,630 178 

Man Group PLC 

United 

Kingdom 11,765 41 

Manulife Financial Corp. Canada 10,020 171 





Mizuho Financial Group, Inc. Japan 21 62 

Muenchener 


Gesellschaft AG Germany 525 83 


Nomura Real Estate Holdings, 




Resona Holdings, Inc. Japan 12 19 


Insurance Co., Ltd. South Korea 1,443 219 



Sony Financial Holdings, Inc. Japan 9 34 

Standard Chartered PLC United 




The Sumitomo Trust and 


T&D Holdings, Inc. Japan 700 29 




The Toronto-Dominion Bank Canada 6,570 235 


Unicredit SPA Italy 41,985 105 

Westpac Banking Corp. Australia 14,086 171 

Zurich Financial Services AG Switzerland 1,600 346 

Total 4,580 




CSL, Ltd. Australia 10,307 248 


Eisai Co., Ltd. Japan 800 33 

Fresenius Medical Care AG & 

Co. KGaA Germany 3,872 182 

Hisamitsu Pharmaceutical Co., 


Novartis AG Switzerland 8,930 446 


Roche Holding AG Switzerland 2,930 450 

Synthes, Inc. Switzerland 965 122 



Shares/ 

$ Par 

Value 

$ (000's) 




Terumo Corp. Japan 400 19 


Industries, Ltd., ADR Israel 22,000 937 

Total 2,769 


ABB, Ltd., ADR Switzerland 9,150 137 

All Nippon Airways Co., Ltd. Japan 3,000 12 

Alstom SA France 2,650 157 


*BAE Systems PLC United 

Kingdom 54,975 304 

Balfour Beatty PLC United 



Chemring Group PLC United 

Kingdom 4,520 129 

China Railway Construction 





Dai Nippon Printing Co., Ltd. Japan 2,000 22 


Fanuc, Ltd. Japan 400 28 




















Secom Co., Ltd. Japan 800 41 

Serco Group PLC 

United 

Kingdom 19,690 130 

SMC Corp. Japan 200 20 







Total 2,134 






Shares/ 

$ Par 

Value 

$ (000's) 


* Autonomy Corp. PLC United 

Kingdom 18,997 265 


EVS Broadcast Equipment SA Belgium 1,650 59 


* Gresham Computing PLC United 

Kingdom 36,400 20 





Nintendo Co., Ltd. Japan 200 77 


Samsung Electronics Co., Ltd. South Korea 422 153 

* Temenos Group AG Switzerland 15,563 207 

Total 1,080 



Anglo American PLC United 

Kingdom 4,519 105 


Ltd. China 16,000 74 


BHP Billiton, Ltd. Australia 9,755 209 

Companhia Vale do Rio Doce, 

ADR Brazil 9,435 114 


Goldcorp, Inc. Canada 8,875 280 





K+S AG Germany 3,332 192 

Mitsubishi Chemical Holdings 

Corp. Japan 5,000 22 



POSCO South Korea 214 63 

Potash Corp. of Saskatchewan, 

Inc. Canada 2,580 189 

Rio Tinto PLC, ADR United 

Kingdom 575 51 

Shin-Etsu Chemical Co., Ltd. Japan 800 37 



Syngenta AG Switzerland 988 191 

Total 1,926 



Funds Series - H-Share Hong Kong 11,800 123 


Index Fund Hong Kong 23,416 243 




Index Fund Singapore 26,506 187 



Shares/ 

$ Par 

Value 

$ (000's) 

Other Holdings continued 




Fund Taiwan 25,098 190 

Total 925 


*Bharti Airtel, Ltd. India 3,657 54 


Chunghwa Telecom Co., Ltd. Taiwan 150,040 240 

Deutsche Telekom AG Germany 16,914 258 

France Telecom SA France 6,663 187 


Koninklijke (Royal) KPN NV Netherlands 21,511 313 


Telephone Corp. Japan 10 54 



Telefonica SA Spain 17,426 392 


AS Turkey 12,793 74 

Vodafone Group PLC United 

Kingdom 130,733 267 

Total 2,004 


Centrica PLC 

United 

Kingdom 20,545 80 



Inc. Japan 1,400 43 


Co., Inc. Japan 1,000 26 




GDF Suez France 7,245 361 

Hokuriku Electric Power Co. Japan 600 17 





National Grid PLC 

United 

Kingdom 12,450 125 


PT Perusahaan Gas Negara Indonesia 345,000 62 

RWE AG Germany 1,660 150 









Total 1,568 






Shares/ 

$ Par 

Value 

$ (000's) 


BAE Systems Holdings, Inc., 

5.20%, 8/15/15 144A 15,000 14 

General Dynamics Corp., 4.25%, 5/15/13 55,000 55 

Raytheon Co., 5.50%, 11/15/12 305,000 308 

Total 377 



5.75%, 5/18/09 155,000 150 


8.50%, 1/18/31 20,000 15 

Total 165 


American Express Bank, FSB, 3.15%, 12/9/11 140,000 141 

BA Covered Bond Issuer, 5.50%, 6/14/12 144A 195,000 201 



The Bank of New York Mellon Corp., 

4.95%, 11/1/12 15,000 15 

Bank One Corp., 5.25%, 1/30/13 235,000 229 


The Bear Stearns Companies LLC, 

7.25%, 2/1/18 25,000 27 

Citigroup Capital XXI, 8.3%, 12/21/57 10,000 8 

Citigroup, Inc., 5.125%, 5/5/14 120,000 113 

Citigroup, Inc., 8.40%, 4/29/49 85,000 56 

Countrywide Financial Corp., 5.80%, 6/7/12 40,000 39 


4.00%, 3/22/11 55,000 52 


4.125%, 9/15/09 15,000 15 

Credit Suisse Guernsey, Ltd., 5.86%, 5/29/49 5,000 2 

Credit Suisse/New York NY, 6.00%, 2/15/18 10,000 9 

Deutsche Bank Capital Funding Trust VII, 

5.628%, 1/19/49 144A 60,000 26 

Fifth Third Bancorp, 8.25%, 3/1/38 25,000 21 

The Goldman Sachs Group, Inc., 

5.15%, 1/15/14 180,000 162 

HSBC USA, Inc., 3.125%, 12/16/11 140,000 145 



(d) Lehman Brothers Holdings, Inc., 

5.50%, 4/4/16 35,000 3 

(d) Lehman Brothers Holdings, Inc., 

6.875%, 5/2/18 25,000 2 

M&I Marshall & Ilsley Bank, 5.25%, 9/4/12 250,000 225 

Mellon Funding Corp., 6.375%, 2/15/10 260,000 265 






Northern Trust Corp., 5.30%, 8/29/11 45,000 46 

Pemex Project Funding Master Trust, 

6.625%, 6/15/35 144A 15,000 13 

State Street Bank and Trust Co., 

5.30%, 1/15/16 250,000 244 

SunTrust Bank, 3.00%, 11/16/11 140,000 145 

UBS AG/Stamford Branch, 5.75%, 4/25/18 100,000 91 

UnionBanCal Corp., 5.25%, 12/16/13 50,000 43 

Wachovia Corp., 5.35%, 3/15/11 175,000 167 

Wachovia Corp., 7.98%, 2/28/49 40,000 34 

Wells Fargo Capital XIII, 7.70%, 12/29/49 125,000 103 

Shares/ 

$ Par 

Value 

$ (000's) 



Zions Bancorporation, 5.50%, 11/16/15 125,000 88 

Total 3,454 



4.50%, 4/1/18 5,000 4 


5.75%, 4/1/36 15,000 12 



The Coca-Cola Co., 5.35%, 11/15/17 50,000 54 

Diageo Capital PLC, 4.375%, 5/3/10 45,000 45 


6.82%, 5/1/18 144A 35,000 34 


7.45%, 5/1/38 144A 30,000 30 

PepsiCo, Inc., 4.65%, 2/15/13 30,000 31 

PepsiCo, Inc., 5.00%, 6/1/18 20,000 21 

PepsiCo, Inc., 7.90%, 11/1/18 40,000 49 

SABMiller PLC, 6.20%, 7/1/11 144A 155,000 154 

Total 534 




Total 61 


CBS Corp., 6.625%, 5/15/11 25,000 22 

Comcast Corp., 5.90%, 3/15/16 115,000 110 

Comcast Corp., 6.40%, 5/15/38 40,000 40 

Comcast Corp., 6.50%, 11/15/35 15,000 15 

Cox Communications, Inc., 4.625%, 1/15/10 45,000 44 



News America, Inc., 6.15%, 3/1/37 40,000 37 

Rogers Cable, Inc., 6.25%, 6/15/13 10,000 10 

TCI Communications, Inc., 8.75%, 8/1/15 60,000 64 




Time Warner Entertainment Co. LP, 

8.375%, 3/15/23 55,000 55 

Viacom, Inc., 5.75%, 4/30/11 65,000 59 

Viacom, Inc., 6.125%, 10/5/17 10,000 8 

Total 627 


(0.0%) 

The Dow Chemical Co., 5.70%, 5/15/18 5,000 5 

Monsanto Co., 5.125%, 4/15/18 5,000 5 

United Technologies Corp., 6.35%, 3/1/11 60,000 63 

Total 73 


Colgate-Palmolive Co., 4.20%, 5/15/13 15,000 15 

Fortune Brands, Inc., 5.375%, 1/15/16 35,000 29 

The Procter & Gamble Co., 5.55%, 3/5/37 40,000 45 

Total 89 


Bruce Mansfield Unit, 6.85%, 6/1/34 30,000 26 

Carolina Power & Light, Inc., 5.15%, 4/1/15 25,000 25 

Carolina Power & Light, Inc., 6.50%, 7/15/12 20,000 20 




Shares/ 

$ Par 

Value 

$ (000's) 




5.70%, 3/15/13 15,000 14 


6.95%, 3/15/33 15,000 14 

CenterPoint Energy, Inc., 6.50%, 5/1/18 20,000 16 

CMS Energy Corp., 6.875%, 12/15/15 100,000 85 

Connecticut Light and Power Co., 

5.65%, 5/1/18 10,000 10 


5.375%, 12/15/15 30,000 29 


5.50%, 9/15/16 35,000 35 

Consolidated Natural Gas Co., 5.00%, 12/1/14 130,000 119 

Consumers Energy Co., 4.80%, 2/17/09 310,000 309 



DTE Energy Co., 7.05%, 6/1/11 380,000 376 

Duke Energy Carolinas LLC, 6.45%, 10/15/32 100,000 106 

Duquesne Light Holdings, Inc., 5.50%, 8/15/15 55,000 46 

Entergy Louisiana LLC, 6.50%, 9/1/18 25,000 24 

Entergy Mississippi, Inc., 6.25%, 4/1/34 55,000 47 

Exelon Generation Co. LLC, 6.20%, 10/1/17 60,000 52 

Florida Power & Light Co., 5.625%, 4/1/34 15,000 16 

Florida Power Corp., 4.50%, 6/1/10 178,000 176 

Florida Power Corp., 6.40%, 6/15/38 20,000 22 

Indiana Michigan Power Co., 5.05%, 11/15/14 160,000 144 


4.811%, 12/30/13 144A 47,258 44 


5.737%, 3/30/21 144A 100,000 77 

MidAmerican Energy Holdings Co., 

5.95%, 5/15/37 15,000 14 

Monongahela Power Co., 5.70%, 3/15/17 144A 45,000 38 



Northern States Power Co., 5.25%, 10/1/18 15,000 15 

Ohio Edison Co., 6.875%, 7/15/36 5,000 5 





PacifiCorp, 5.45%, 9/15/13 240,000 245 

PacifiCorp, 5.75%, 4/1/37 55,000 54 

Potomac Electric Power Co., 6.50%, 11/15/37 5,000 5 





Progress Energy, Inc., 6.85%, 4/15/12 60,000 60 

Public Service Co. of Colorado, 5.50%, 4/1/14 110,000 104 


5.00%, 1/1/13 100,000 98 


5.70%, 12/1/36 95,000 88 

Puget Sound Energy, Inc., 6.274%, 3/15/37 60,000 53 


5.30%, 11/15/15 15,000 15 


6.125%, 9/15/37 10,000 11 

SCANA Corp., 6.25%, 4/1/20 20,000 18 

Sierra Pacific Power Co., 6.75%, 7/1/37 30,000 27 

South Carolina Electric & Gas Co., 

6.05%, 1/15/38 15,000 16 

Shares/ 

$ Par 

Value 

$ (000's) 




5.55%, 1/15/37 10,000 10 


5.625%, 2/1/36 5,000 5 




The Toledo Edison Co., 6.15%, 5/15/37 75,000 60 



Virginia Electric and Power Co., 

5.25%, 12/15/15 210,000 204 

Xcel Energy, Inc., 6.50%, 7/1/36 50,000 46 

Total 3,624 




H.J. Heinz Co., 5.35%, 7/15/13 90,000 89 

Kellogg Co., 6.60%, 4/1/11 95,000 100 




Total 475 


Harrah's Operating Co., 5.75%, 10/1/17 40,000 6 

Total 6 


CenterPoint Energy Resources Corp., 

6.125%, 11/1/17 10,000 8 


6.50%, 2/1/37 15,000 11 


7.30%, 8/15/33 85,000 71 

Rockies Express Pipeline LLC, 

6.85%, 7/15/18 144A 20,000 19 

Southern Natural Gas Co., 5.90%, 4/1/17 144A 20,000 16 

TransCanada Pipelines, Ltd., 5.85%, 3/15/36 10,000 9 

TransCanada Pipelines, Ltd., 6.20%, 10/15/37 5,000 4 

Total 138 




Eli Lilly and Co., 5.55%, 3/15/37 40,000 41 

GlaxoSmithKline Capital, Inc., 5.65%, 5/15/18 30,000 32 

GlaxoSmithKline Capital, Inc., 

6.375%, 5/15/38 45,000 51 

Johnson & Johnson, 5.95%, 8/15/37 40,000 49 

Wyeth, 5.50%, 2/1/14 60,000 61 

Wyeth, 5.95%, 4/1/37 40,000 44 

Total 311 


General Electric Capital Corp., 5.625%, 5/1/18 270,000 272 


5.875%, 1/14/38 10,000 10 


6.00%, 12/15/11 144A 79,000 64 

(n)General Motors Acceptance Corp. LLC, 

7.50%, 12/31/13 144A 13,000 9 

(n)General Motors Acceptance Corp. LLC, 

8.00%, 12/31/18 144A 16,000 8 




Shares/ 

$ Par 

Value 

$ (000's) 



HSBC Finance Corp., 4.125%, 11/16/09 195,000 193 


4.75%, 1/13/12 100,000 70 



Total 659 


Centex Corp., 7.875%, 2/1/11 15,000 13 

D.R. Horton, Inc., 5.375%, 6/15/12 30,000 22 

D.R. Horton, Inc., 7.875%, 8/15/11 10,000 9 

Total 44 


Fiserv, Inc., 6.125%, 11/20/12 65,000 61 

Fiserv, Inc., 6.80%, 11/20/17 65,000 57 

Seagate Technology HDD Holdings, 

6.80%, 10/1/16 40,000 21 

Total 139 


Prudential Financial, Inc., 5.70%, 12/14/36 5,000 3 

Total 3 


Case Corp., 7.25%, 1/15/16 110,000 76 

Total 76 


Alcoa, Inc., 5.90%, 2/1/27 20,000 13 

Alcoa, Inc., 6.75%, 7/15/18 30,000 25 

Barrick North America Fiance LLC, 

6.80%, 9/15/18 25,000 22 

Rio Tinto Finance USA, Ltd., 6.50%, 7/15/18 40,000 29 

Total 89 






Total 64 


(0.0%) 

Pride International, Inc., 7.375%, 7/15/14 45,000 42 

Total 42 


Anadarko Finance Co., 7.50%, 5/1/31 55,000 49 

Apache Corp., 6.00%, 1/15/37 20,000 19 

Apache Corp., 6.90%, 9/15/18 5,000 5 


5.70%, 5/15/17 30,000 26 


5.85%, 2/1/35 5,000 4 


6.25%, 3/15/38 90,000 71 


6.45%, 6/30/33 45,000 36 

Devon Energy Corp., 7.95%, 4/15/32 25,000 28 

Devon Financing Corp. ULC, 6.875%, 9/30/11 130,000 131 

EnCana Corp., 6.50%, 2/1/38 15,000 12 

EnCana Corp., 6.625%, 8/15/37 5,000 4 

Shares/ 

$ Par 

Value 

$ (000's) 



EnCana Holdings Finance Corp., 

5.80%, 5/1/14 60,000 56 

Hess Corp., 7.125%, 3/15/33 20,000 18 

Marathon Oil Corp., 6.60%, 10/1/37 10,000 8 

Nexen, Inc., 5.875%, 3/10/35 150,000 113 

Nexen, Inc., 6.40%, 5/15/37 10,000 8 

Petro-Canada, 5.95%, 5/15/35 45,000 31 

Pioneer Natural Resources Co., 6.875%, 5/1/18 110,000 77 



Sunoco, Inc., 5.75%, 1/15/17 65,000 54 

Talisman Energy, Inc., 5.85%, 2/1/37 53,000 37 

Tesoro Corp., 6.50%, 6/1/17 140,000 77 

Valero Energy Corp., 6.625%, 6/15/37 90,000 66 

XTO Energy, Inc., 5.30%, 6/30/15 15,000 14 

XTO Energy, Inc., 6.50%, 12/15/18 50,000 48 

XTO Energy, Inc., 6.75%, 8/1/37 10,000 9 

Total 1,028 


Capmark Financial Group, Inc., 

6.30%, 5/10/17 5,000 1 

Eaton Vance Corp., 6.50%, 10/2/17 5,000 5 

PNC Financial Services Group, Inc., 

8.25%, 5/21/13 125,000 101 

SLM Corp., 5.375%, 1/15/13 10,000 7 

SLM Corp., 5.375%, 5/15/14 35,000 24 

SLM Corp., 5.45%, 4/25/11 255,000 201 

Total 339 




Total 99 




Total 56 


The Progressive Corp., 6.70%, 6/15/37 15,000 7 

Total 7 



6.15%, 5/1/37 35,000 32 


6.20%, 8/15/36 35,000 32 


5.85%, 11/15/17 5,000 5 


6.375%, 11/15/37 20,000 22 

Canadian Pacific Railway Co., 5.95%, 5/15/37 5,000 4 

CSX Corp., 5.60%, 5/1/17 55,000 49 

Norfolk Southern Corp., 6.20%, 4/15/09 45,000 45 





Total 494 


AvalonBay Communities, Inc., 5.50%, 1/15/12 25,000 20 

BRE Properties, Inc., 5.50%, 3/15/17 25,000 13 




Shares/ 

$ Par 

Value 

$ (000's) 



Colonial Realty LP, 6.05%, 9/1/16 20,000 12 

Developers Diversified Realty Corp., 

5.375%, 10/15/12 80,000 33 

Duke Realty LP, 5.95%, 2/15/17 45,000 22 



First Industrial LP, 5.25%, 6/15/09 50,000 46 

HCP, Inc., 6.00%, 1/30/17 25,000 12 

HCP, Inc., 6.70%, 1/30/18 10,000 5 

HRPT Properties Trust, 5.75%, 11/1/15 65,000 35 

ProLogis, 5.50%, 3/1/13 115,000 67 

ProLogis, 5.75%, 4/1/16 65,000 32 

Rouse Co. LP/TRC Co-Issuer, Inc., 

6.75%, 5/1/13 144A 220,000 79 




Total 741 




Yum! Brands, Inc., 6.875%, 11/15/37 45,000 36 

Total 66 





Delhaize Group, 6.50%, 6/15/17 40,000 36 

The Kroger Co., 6.15%, 1/15/20 25,000 25 

The Kroger Co., 7.00%, 5/1/18 20,000 21 

The Kroger Co., 7.50%, 4/1/31 40,000 45 

Total 243 


The Home Depot, Inc., 5.875%, 12/16/36 105,000 82 

J.C. Penney Corp., 5.75%, 2/15/18 5,000 3 

J.C. Penney Corp., 6.375%, 10/15/36 10,000 6 

J.C. Penney Corp., 6.875%, 10/15/15 30,000 24 

J.C. Penney Corp., 7.95%, 4/1/17 40,000 31 

Kohl's Corp., 6.25%, 12/15/17 20,000 16 

Kohl's Corp., 6.875%, 12/15/37 15,000 11 

Macy's Retail Holdings, Inc., 6.30%, 4/1/09 320,000 312 




Nordstrom, Inc., 7.00%, 1/15/38 15,000 9 

Target Corp., 5.375%, 5/1/17 35,000 32 

Target Corp., 6.50%, 10/15/37 20,000 17 

Total 587 


AT&T Corp., 8.00%, 11/15/31 200,000 251 

British Telecommunications PLC, 

9.125%, 12/15/30 35,000 37 

Deutsche Telekom International Finance BV, 

5.75%, 3/23/16 35,000 33 

Embarq Corp., 6.738%, 6/1/13 50,000 42 

Embarq Corp., 7.082%, 6/1/16 35,000 27 

Embarq Corp., 7.995%, 6/1/36 10,000 7 

France Telecom SA, 8.50%, 3/1/31 55,000 69 

Rogers Communications, Inc., 6.80%, 8/15/18 50,000 50 


Shares/ 

$ Par 

Value 

$ (000's) 





Telecom Italia Capital SA, 4.00%, 1/15/10 130,000 120 

Telecom Italia Capital SA, 6.20%, 7/18/11 100,000 89 

Verizon Communications, Inc., 5.85%, 9/15/35 80,000 80 



Total 1,263 





5.65%, 5/16/18 40,000 40 


6.375%, 5/16/38 30,000 31 




Total 270 





Total 95 



5.625%, 1/15/17 110,000 110 


6.05%, 1/11/40 25,000 24 

Total 134 

Total Investment Grade Segment 

(Cost: $18,300) 16,472 




4.875%, 6/13/18 1,956,000 2,248 

(n)Overseas Private Investment, 4.10%, 11/15/14 75,120 74 

(e)Tennesse Valley Authority Stripped, 

0.00%, 4/15/42 1,000,000 880 

US Department of Housing & Urban 

Development, 6.08%, 8/1/13 100,000 110 

US Treasury, 1.50%, 10/31/10 350,000 355 

US Treasury, 2.75%, 10/31/13 1,480,000 1,573 

US Treasury, 3.75%, 11/15/18 5,000 6 

US Treasury, 4.00%, 8/15/18 335,000 387 

US Treasury, 4.375%, 2/15/38 200,000 268 

US Treasury, 5.25%, 2/15/29 986,000 1,308 


2.00%, 4/15/12 167,618 163 


2.625%, 7/15/17 288,503 296 

Total Governments (Cost: $7,091) 7,668 





Shares/ 

$ Par 

Value 

$ (000's) 


Indiana Finance Authority Environmental 

Facillities, Series 2006A, 

4.47%, 9/1/41 RB, AMBAC 555,000 555 


(Cost: $555) 555 




LLC, Series 2006-A, Class A5, 

5.306%, 7/1/21 1,183,000 1,056 

Asset Securitization Corp., Series 1997-D5, 

Class PS1, 1.418%, 2/14/43 IO 2,893,344 81 

Banc of America Alternative Loan Trust, Series 

2006-3, Class 1CB1, 6.00%, 4/25/36 98,427 47 

Banc of America Alternative Loan Trust, Series 

2006-4, Class 4CB1, 

6.50%, 5/25/46 117,258 57 



5.658%, 4/10/49 724,000 550 



5.688%, 6/10/49 151,000 110 

Banc of America Funding Corp., Series 2007-1, 

Class TA1A, 

0.531%, 1/25/37 137,218 65 

Banc of America Funding Corp., Series 2007-4, 

Class TA1A, 

0.561%, 5/25/37 197,670 172 



4.648%, 8/25/34 288,000 277 

CenterPoint Energy Transition Bond Co. LLC, 

5.17%, 8/1/19 140,000 141 

Citigroup Commercial Mortgage Trust, Series 

2007-C6, Class A4, 

5.70%, 12/10/49 336,000 253 


2004-NCM2, Class 2CB1, 

5.50%, 8/25/34 47,023 41 


2005-1, Class 3A1, 

6.50%, 4/25/35 69,238 66 

Countrywide Alternative Loan Trust, Series 

2003-J1, Class 1A8, 

5.25%, 10/25/33 1,144,902 914 


Through Trust, Series 2005-31, Class 2A1, 

5.471%, 1/25/36 71,170 51 

Credit Suisse First Boston Mortgage Securities 

Corp., Series 2005-7, Class 6A1, 

5.50%, 8/25/20 147,496 137 



6.00%, 8/25/37 131,072 89 


Shares/ 

$ Par 

Value 

$ (000's) 


(n)Credit Suisse Mortgage Capital 


6.00%, 8/25/37 143,728 105 


4.00%, 10/1/20 118,668 120 


4.50%, 5/1/19 166,406 171 


4.50%, 7/1/20 376,526 386 


3065, Class TN, 4.50%, 10/15/33 101,732 104 


5.00%, 11/1/19 242,926 250 


5.00%, 2/1/20 31,719 33 


5.00%, 5/1/20 125,157 129 


5.00%, 10/1/20 135,860 140 


5.50%, 9/1/19 45,576 47 


5.50%, 11/1/19 134,942 140 


5.50%, 12/1/19 25,317 26 


5.50%, 3/1/20 185,305 191 


5.50%, 4/1/22 483,840 499 


5.50%, 6/1/35 123,769 127 


5.50%, 5/1/37 741,107 759 



5.651%, 4/25/16 410,893 428 



6.00%, 11/15/17 156,156 162 



6.00%, 4/15/32 125,000 129 


6.00%, 8/1/37 170,636 176 


4.50%, 6/1/19 323,538 332 


4.50%, 12/1/19 38,553 40 


4.50%, 7/1/20 199,120 204 


5.00%, 3/1/20 154,013 159 


5.00%, 4/1/20 61,016 63 





Shares/ 

$ Par 

Value 

$ (000's) 



5.00%, 5/1/20 250,893 259 


5.00%, 11/1/34 886,823 907 


5.00%, 4/1/35 132,929 136 


5.00%, 7/1/35 372,973 381 


5.00%, 10/1/35 65,971 67 


5.32%, 4/1/14 135,660 141 


5.38%, 1/1/17 151,000 156 


5.50%, 4/1/21 145,179 150 


5.50%, 10/1/34 488,846 502 


5.50%, 3/1/35 160,002 165 


5.50%, 7/1/35 64,777 66 


5.50%, 8/1/35 110,652 114 


5.50%, 9/1/35 1,089,464 1,118 


5.50%, 10/1/35 1,193,355 1,225 


5.50%, 11/1/35 829,921 852 


5.50%, 2/1/37 738,830 758 


5.50%, 2/1/38 2,000,736 2,054 


5.50%, 4/1/38 2,894,453 2,970 


6.00%, 10/1/34 425,456 439 


6.00%, 11/1/34 318,891 329 


6.00%, 5/1/35 14,575 15 


6.00%, 6/1/35 3,147 3 


6.00%, 7/1/35 170,266 176 


6.00%, 10/1/35 143,006 147 


6.00%, 11/1/35 276,684 285 


6.00%, 9/1/36 125,829 130 

Federal National Mortgage Association, Series 

2002-W4, Class A4, 

6.25%, 5/25/42 353,331 362 


Shares/ 

$ Par 

Value 

$ (000's) 



6.50%, 12/1/37 1,060,116 1,102 



5.355%, 2/25/16 555,000 577 

(n)Final Maturity Amortizing Notes, Series 2004- 

1, Class 1, 

4.45%, 8/25/12 361,067 363 


Securities, Series 2004-FA1, Class 1A1, 

6.25%, 10/25/34 192,294 163 

Greenwich Capital Commerical Funding 

Corp., Series 2006-FL4A, Class A1, 

1.98%, 11/5/21 144A 40,134 30 

Louisiana Public Facilities Authority, Series 

2008, 6.65%, 8/1/20 RB 150,000 147 

Massachusetts RRB Special Purpose 

Trust, Series 2001-1, Class A, 

6.53%, 6/1/15 75,537 78 

MASTR Asset Securitization Trust, Series 

2003-12, Class 1A1, 

5.25%, 12/25/24 68,592 66 

Merrill Lynch Alternative Note Asset, Series 

2007-A1, Class A2A, 

0.541%, 1/25/37 190,784 100 


Mortgage Trust, Series 2007-7, Class A4, 

5.749%, 6/12/50 147,000 104 



4.92%, 5/15/13 144A 387,000 369 

TBW Mortgage Backed Pass Through 

Certificates, Series 2007-1, Class A1, 

0.561%, 3/25/37 154,594 136 


2006-5, Class A1, 

0.591%, 9/25/46 174,926 145 


2006-1, Class A3, 

0.641%, 1/25/09 438,694 437 


2007-1, Class A1, 

1.505%, 3/25/37 126,881 105 


2007-2, Class A3A, 

1.525%, 6/25/37 206,520 172 

Washington Mutual Alternative Mortgage Pass- 

Through Certficates, Series 2006-6, Class 

4A, 6.708%, 11/25/34 78,265 67 


Securities Trust, Series 2003-C1A, Class A, 

3.83%, 1/25/35 144A 130,379 124 

Wells Fargo Mortgage Backed 

Securities, Series 2006-2, Class 1A1, 

5.00%, 3/25/36 166,468 128 





Shares/ 

$ Par 

Value 

$ (000's) 



Trust, Series 2004-N, Class A6, 

4.00%, 8/25/34 437,000 417 



5.00%, 1/25/20 80,793 78 


Trust, Series 2005-7, Class A1, 

5.25%, 9/25/35 251,482 215 



5.50%, 11/25/35 217,940 185 

Total Structured Products (Cost: $28,744) 28,242 



BE Aerospace, Inc., 8.50%, 7/1/18 53,000 48 

Bombardier, Inc., 8.00%, 11/15/14 144A 55,000 48 

DRS Technologies, Inc., 7.625%, 2/1/18 55,000 55 



8.50%, 4/1/15 32,000 13 

(c) Hawker Beechcraft Acquisition Co. 


8.875%, 4/1/15 72,000 24 



9.75%, 4/1/17 65,000 18 

L-3 Communications Corp., 6.375%, 10/15/15 410,000 383 

L-3 Communications Corp., 7.625%, 6/15/12 105,000 103 

Total 692 


American Axle & Manufacturing, Inc., 

7.875%, 3/1/17 80,000 25 

Cooper Tire & Rubber Co., 8.00%, 12/15/19 60,000 27 

Ford Motor Co., 7.45%, 7/16/31 215,000 60 

Ford Motor Credit Co. LLC, 8.00%, 12/15/16 45,000 29 





Lear Corp., 5.75%, 8/1/14 25,000 9 

Lear Corp., 8.75%, 12/1/16 39,000 11 

Visteon Corp., 8.25%, 8/1/10 75,000 23 

Visteon Corp., 12.25%, 12/31/16 144A 90,000 22 

Total 452 


Ball Corp., 6.625%, 3/15/18 55,000 49 

Berry Plastics Holding Corp., 8.875%, 9/15/14 40,000 17 

Cascades, Inc., 7.25%, 2/15/13 35,000 18 

Crown Americas LLC/Crown Americas Capital 

Corp., 7.625%, 11/15/13 36,000 36 

Crown Americas LLC/Crown Americas Capital 

Corp., 7.75%, 11/15/15 50,000 50 

FMG Finance Property, Ltd., 

10.625%, 9/1/16 144A 185,000 107 

Shares/ 

$ Par 

Value 

$ (000's) 




8.25%, 4/1/15 135,000 115 


8.375%, 4/1/17 210,000 172 

Georgia-Pacific LLC, 7.00%, 1/15/15 144A 137,000 117 

Georgia-Pacific LLC, 7.125%, 1/15/17 144A 52,000 44 

Graphic Packaging International, Inc., 

9.50%, 8/15/13 65,000 45 

Hexion US Finance Corp./Hexion Nova Scotia 

Finance ULC, 9.75%, 11/15/14 145,000 41 

Huntsman International LLC, 7.375%, 1/1/15 55,000 29 

Huntsman LLC, 11.50%, 7/15/12 50,000 40 

Invista, 9.25%, 5/1/12 144A 55,000 39 

Momentive Performance Materials, Inc., 

9.75%, 12/1/14 75,000 32 

The Mosaic Co., 7.625%, 12/1/16 144A 40,000 32 

NewPage Corp., 10.00%, 5/1/12 60,000 26 

Norampac Industries, Inc., 6.75%, 6/1/13 45,000 20 

Novelis, Inc., 7.25%, 2/15/15 162,000 94 



Smurfit-Stone Container Enterprises, Inc., 

8.375%, 7/1/12 50,000 8 

Texas Industries, Inc., 7.25%, 7/15/13 144A 35,000 27 

Total 1,246 


Case New Holland, Inc., 7.125%, 3/1/14 100,000 71 

Da-Lite Screen Co., Inc., 9.50%, 5/15/11 45,000 40 

RSC Equipment Rental, Inc., 9.50%, 12/1/14 88,000 48 

SPX Corp., 7.625%, 12/15/14 144A 75,000 65 

Terex Corp., 8.00%, 11/15/17 85,000 72 

United Rentals North America, Inc., 

6.50%, 2/15/12 25,000 20 

Total 316 


Education Management LLC/Education 

Management Finance Corp., 10.25%, 6/1/16 135,000 98 

GameStop Corp./GameStop, Inc., 

8.00%, 10/1/12 80,000 74 

Levi Strauss & Co., 8.875%, 4/1/16 90,000 61 

The Neiman Marcus Group, Inc., 

10.375%, 10/15/15 55,000 24 

New Albertson's, Inc., 7.25%, 5/1/13 70,000 59 

Oxford Industries, Inc., 8.875%, 6/1/11 118,000 89 

Phillips-Van Heusen Corp., 8.125%, 5/1/13 50,000 41 

Rite Aid Corp., 7.50%, 3/1/17 86,000 56 

Rite Aid Corp., 8.625%, 3/1/15 31,000 11 

Rite Aid Corp., 9.375%, 12/15/15 45,000 16 

Rite Aid Corp., 10.375%, 7/15/16 35,000 26 

SUPERVALU, Inc., 7.50%, 11/15/14 80,000 65 

Warnaco, Inc., 8.875%, 6/15/13 45,000 41 

Total 661 

Energy (1.2%) 

Basic Energy Services, Inc., 7.125%, 4/15/16 95,000 54 

Chaparral Energy, Inc., 8.875%, 2/1/17 90,000 18 









Shares/ 

$ Par 

Value 

$ (000's) 



Cie Generale de Geophysique-Veritas, 

7.50%, 5/15/15 33,000 20 

Cie Generale de Geophysique-Veritas, 

7.75%, 5/15/17 55,000 32 

Cimarex Energy Co., 7.125%, 5/1/17 80,000 62 

Complete Production Services, Inc., 

8.00%, 12/15/16 60,000 38 

Connacher Oil and Gas, Ltd., 

10.25%, 12/15/15 144A 60,000 24 

Denbury Resources, Inc., 7.50%, 12/15/15 60,000 43 

El Paso Corp., 7.00%, 6/15/17 110,000 86 

El Paso Corp., 7.25%, 6/1/18 90,000 71 

El Paso Corp., 7.75%, 1/15/32 90,000 58 

Forest Oil Corp., 7.25%, 6/15/19 144A 35,000 26 

Forest Oil Corp., 7.25%, 6/15/19 55,000 40 

Helix Energy Solutions Group, Inc., 

9.50%, 1/15/16 144A 100,000 53 

Key Energy Services, Inc., 8.375%, 12/1/14 85,000 56 


5.35%, 1/5/11 220,000 196 


5.70%, 1/5/16 50,000 37 

Linn Energy LLC, 9.875%, 7/1/18 144A 55,000 32 

Mariner Energy, Inc., 8.00%, 5/15/17 74,000 39 




OPTI Canada, Inc., 8.25%, 12/15/14 135,000 73 

Petrohawk Energy Corp., 7.875%, 6/1/15 144A 70,000 52 

Petrohawk Energy Corp., 9.125%, 7/15/13 113,000 92 




7.00%, 3/15/17 55,000 38 


7.625%, 6/1/18 35,000 24 


7.75%, 6/15/15 75,000 57 




SandRidge Energy, Inc., 8.00%, 6/1/18 144A 35,000 19 

SESI LLC, 6.875%, 6/1/14 85,000 65 

Sonat, Inc., 7.625%, 7/15/11 25,000 23 

Southwestern Energy Co., 7.50%, 2/1/18 144A 70,000 61 

Targa Resources Partners LP, 

8.25%, 7/1/16 144A 40,000 25 

Tesoro Corp., 6.25%, 11/1/12 160,000 110 

Tesoro Corp., 6.625%, 11/1/15 175,000 102 

W&T Offshore, Inc., 8.25%, 6/15/14 144A 85,000 46 

Whiting Petroleum Corp., 7.25%, 5/1/13 108,000 77 

Total 2,327 






7.25%, 3/2/11 205,000 174 


7.75%, 1/19/10 40,000 36 


8.00%, 11/1/31 144A 113,000 67 

Shares/ 

$ Par 

Value 

$ (000's) 




5.875%, 5/1/13 30,000 20 

LaBranche & Co., Inc., 11.00%, 5/15/12 38,000 33 


10.50%, 11/15/15 144A 65,000 15 

Wells Fargo Capital XV, 9.75%, 12/29/49 115,000 116 

Total 549 

Foods (0.3%) 




(d)Pilgrim's Pride Corp., 7.625%, 5/1/15 69,000 19 

Pinnacle Foods Finance LLC/Pinnacle Foods 

Finance Corp., 9.25%, 4/1/15 55,000 35 

Pinnacle Foods Finance LLC/Pinnacle Foods 

Finance Corp., 10.625%, 4/1/17 110,000 59 



Total 501 

Gaming/Leisure/Lodging (0.7%) 

AMC Entertainment, Inc., 11.00%, 2/1/16 54,000 38 

Caesars Entertainment, Inc., 7.875%, 3/15/10 60,000 40 

Caesars Entertainment, Inc., 8.125%, 5/15/11 135,000 66 

Felcor Lodging LP, 8.50%, 6/1/11 83,000 61 

Harrah's Operating Co., Inc., 5.50%, 7/1/10 55,000 35 

Harrah's Operating Co., Inc., 

10.75%, 2/1/16 144A 205,000 58 

The Hertz Corp., 8.875%, 1/1/14 60,000 37 

Host Hotels & Resorts LP, 7.125%, 11/1/13 210,000 169 

Las Vegas Sands Corp., 6.375%, 2/15/15 150,000 87 

Mandalay Resort Group, 9.375%, 2/15/10 50,000 36 

Mashantucket Western Pequot Tribe, 

8.50%, 11/15/15 144A 110,000 43 

MGM MIRAGE, 7.50%, 6/1/16 145,000 92 

MGM MIRAGE, Inc., 6.75%, 9/1/12 105,000 73 

MGM MIRAGE, Inc., 8.375%, 2/1/11 85,000 51 


6.875%, 2/15/15 95,000 48 


8.00%, 4/1/12 30,000 18 

Royal Caribbean Cruises, Ltd., 7.00%, 6/15/13 160,000 91 

Seminole Hard Rock Entertainment, Inc., 

4.496%, 3/15/14 144A 45,000 23 




Universal City Development Partners, 

11.75%, 4/1/10 44,000 28 

Universal City Florida Holding Co. I & II, 

8.375%, 5/1/10 33,000 15 

Wynn Las Vegas LLC/Wynn Las Vegas 

Capital Corp., 6.625%, 12/1/14 325,000 246 

Total 1,385 


(c)Biomet, Inc., 10.375%, 10/15/17 165,000 130 

Catalent Pharma Solutions, Inc., 

9.50%, 4/15/15 79,000 30 

CHS/Community Health Systems, Inc., 

8.875%, 7/15/15 210,000 193 

DaVita, Inc., 7.25%, 3/15/15 85,000 81 

FMC Finance III SA, 6.875%, 7/15/17 105,000 98 




Shares/ 

$ Par 

Value 

$ (000's) 


Health Care/Pharmaceuticals continued 

Fresenius Medical Care Capital Trust IV, 

7.875%, 6/15/11 30,000 28 

HCA, Inc., 6.75%, 7/15/13 75,000 47 

HCA, Inc., 9.125%, 11/15/14 58,000 54 

HCA, Inc., 9.25%, 11/15/16 233,000 214 

(c) HCA, Inc., 9.625%, 11/15/16 87,000 68 

Health Management Associates, Inc., 

6.125%, 4/15/16 85,000 53 

Senior Housing Properties Trust, 

8.625%, 1/15/12 45,000 39 







6.50%, 6/1/16 80,000 59 


9.00%, 5/1/12 50,000 44 

Total 1,381 

Media (0.6%) 

CCH I Holdings LLC/CCH I Holdings Capital 

Corp., 11.00%, 10/1/15 205,000 32 

CCH I Holdings LLC/CCH I Holdings Capital 

Corp., 11.75%, 5/15/14 75,000 4 

CCH II LLC/CCH II Capital Corp., 

10.25%, 9/15/10 70,000 31 

CSC Holdings, Inc., 7.625%, 4/1/11 150,000 141 

CSC Holdings, Inc., 7.875%, 2/15/18 132,000 104 

Dex Media, Inc., 8.00%, 11/15/13 100,000 18 

DirecTV Holdings LLC/DirecTV Financing 

Co., 7.625%, 5/15/16 150,000 145 




Kabel Deutschland GmbH, 10.625%, 7/1/14 90,000 80 

Lamar Media Corp., 6.625%, 8/15/15 125,000 90 

LIN Television Corp., 6.50%, 5/15/13 60,000 29 

Mediacom Broadband LLC/Mediacom 

Broadband Corp., 8.50%, 10/15/15 85,000 55 

Mediacom LLC/Mediacom Capital Corp., 

7.875%, 2/15/11 30,000 23 

Quebecor Media, Inc., 7.75%, 3/15/16 90,000 61 



(c) Univision Communications, Inc., 

9.75%, 3/15/15 144A 95,000 12 



Videotron Ltee, 9.125%, 4/15/18 144A 15,000 14 

Total 1,221 


Icahn Enterprises LP/Icahn Enterprises Finance 

Corp., 7.125%, 2/15/13 110,000 76 

The Rouse Co. LP, 7.20%, 9/15/12 85,000 29 

Total 105 



6.125%, 2/15/14 40,000 37 


7.25%, 3/15/15 70,000 65 

Shares/ 

$ Par 

Value 

$ (000's) 


Services continued 

Crum & Forster Holdings Corp., 7.75%, 5/1/17 64,000 45 

UnumProvident Finance Co. PLC, 

6.85%, 11/15/15 144A 60,000 49 

WCA Waste Corp., 9.25%, 6/15/14 65,000 48 

Total 244 


Expedia, Inc., 8.50%, 7/1/16 144A 10,000 7 

First Data Corp., 9.875%, 9/24/15 100,000 60 

Flextronics International, Ltd., 6.50%, 5/15/13 75,000 59 

Freescale Semiconductor, Inc., 

8.875%, 12/15/14 80,000 35 

(c)Freescale Semiconductor, Inc., 

9.125%, 12/15/14 99,000 23 



Nortel Networks, Ltd., 10.75%, 7/15/16 144A 85,000 22 

Sabre Holdings Corp., 8.35%, 3/15/16 75,000 17 



Sungard Data Systems, Inc., 

10.625%, 5/15/15 144A 65,000 56 

SunGard Data Systems, Inc., 9.125%, 8/15/13 45,000 39 

Travelport LLC, 11.875%, 9/1/16 20,000 6 

Unisys Corp., 8.00%, 10/15/12 60,000 17 

Total 569 


(c)ALLTEL Communications LLC, 

10.375%, 12/1/17 144A 85,000 95 

American Tower Corp., 7.00%, 10/15/17 144A 65,000 58 

Cricket Communications, Inc., 

10.00%, 7/15/15 144A 35,000 32 


9.00%, 8/15/31 165,000 104 


9.25%, 5/15/11 145,000 138 

Intelsat Corp., 9.25%, 8/15/14 144A 55,000 51 

Intelsat Jackson Holdings, Ltd., 

11.25%, 6/15/16 55,000 50 

Intelsat, Ltd., 7.625%, 4/15/12 55,000 37 

Qwest Corp., 6.50%, 6/1/17 85,000 63 

Qwest Corp., 7.50%, 10/1/14 16,000 13 

Qwest Corp., 7.625%, 6/15/15 55,000 45 

Qwest Corp., 7.875%, 9/1/11 67,000 62 


Sprint Nextel Corp., 6.00%, 12/1/16 100,000 71 




Total 1,094 


American Railcar Industries, Inc., 

7.50%, 3/1/14 25,000 16 

Kansas City Southern de Mexico SAB de CV, 

7.375%, 6/1/14 95,000 78 


7.625%, 12/1/13 35,000 29 


9.375%, 5/1/12 67,000 61 

Stena AB, 7.50%, 11/1/13 215,000 142 

Total 326 




Shares/ 

$ Par 

Value 

$ (000's) 



The AES Corp., 7.75%, 10/15/15 110,000 92 

The AES Corp., 8.00%, 10/15/17 65,000 53 

The AES Corp., 8.00%, 6/1/20 144A 55,000 43 

Aquila, Inc., 7.95%, 2/1/11 6,000 6 

Aquila, Inc., 11.875%, 7/1/12 55,000 56 




Edison Mission Energy, 7.00%, 5/15/17 125,000 109 

Edison Mission Energy, 7.20%, 5/15/19 149,000 122 

Elwood Energy LLC, 8.159%, 7/5/26 90,601 62 

Energy Future Holdings Corp., 

10.875%, 11/1/17 144A 85,000 60 

Indiantown Cogeneration LP, 9.77%, 12/15/20 130,000 103 

Mirant Americas Generation LLC, 

8.50%, 10/1/21 165,000 125 

NRG Energy, Inc., 7.25%, 2/1/14 65,000 61 

NRG Energy, Inc., 7.375%, 2/1/16 45,000 42 

NRG Energy, Inc., 7.375%, 1/15/17 66,000 61 

NSG Holdings LLC/NSG Holdings, Inc., 

7.75%, 12/15/25 144A 81,000 63 

NV Energy, Inc., 8.625%, 3/15/14 27,000 24 

Reliant Energy, Inc., 7.625%, 6/15/14 145,000 120 

Texas Competitive Electric Holdings Co. LLC, 

10.50%, 11/1/15 144A 350,000 248 

Total 1,643 

Total Below Investment Grade Segment 

(Cost: $20,435) 14,712 




9.00%, 12/31/49 144A 44 11 

Total 11 


(Cost: $11) 11 




4.00%, 1/5/09 3,000,000 2,999 

Total 2,999 


(20.7%) 


Shares/ 

$ Par 

Value 

$ (000's) 

Alpine Securitization, 

1.25%, 1/8/09 3,000,000 2,999 


1.00%, 1/9/09 3,000,000 2,999 

(b)Ciesco LP, 0.20%, 1/12/09 3,000,000 3,000 

Falcon Asset Securitization 

Co. LLC, 0.20%, 1/27/09 3,000,000 3,000 

Gemini Securitization Corp. 

LLC, 1.45%, 1/8/09 3,000,000 2,999 

Total 14,997 



0.95%, 1/2/09 400,000 400 

Sempra Global, 4.50%, 1/5/09 

3,000,000 2,998 

Total 3,398 



1.50%, 1/7/09 3,000,000 2,999 

Total 2,999 


Home Depot, Inc., 

2.50%, 1/2/09 2,000,000 2,000 

Total 2,000 



0.55%, 1/12/09 3,000,000 2,999 

Total 2,999 


(Cost: $41,285) 41,291 


(Cost: $237,762)(a) 197,642 



Net Assets (100.0%) 199,640 



0.38%, 1/15/09 5,900,000 5,899 


0.47%, 3/13/09 3,000,000 3,000 


0.65%, 3/13/09 3,000,000 3,000 

Total 11,899 












(a) 

(b) 



depreciation. 



Unrealized 

Appreciation/ 

Number of 





Russell 2000 Mini Index Future (Long) (Total Notional Value at December 31, 2008, $4,555) 95 3/09 174 

S&P 500 Index Futures (Long) (Total Notional Value at December 31, 2008, $30,802) 135 3/09 (424) 

US Five Year Note Commodity (Long) (Total Notional Value at December 31, 2008, $230) 2 3/09 8 

US Long Bond (CBT) Commodity (Short) (Total Notional Value at December 31, 2008, $2,631) 20 3/09 (130) 

US Ten Year Treasury Note (Short) (Total Notional Value at December 31, 2008, $4,519) 38 3/09 (259) 

US Two Year Treasury Note (Long) (Total Notional Value at December 31, 2008, $5,163) 24 3/09 71 

(c) 

(d) 

(e) 






CounterParty 



Reference 


Biotechnology Industry Index 


International (MSCI) Daily Net 

Japan 


the Fund 

3 Month USD- 


3 Month USD- 

LIBOR +15 Bps 


by the Fund 

Russell 2000 

Growth 

Biotechnology 

Industry Index 

Total Return 


Japan Total 

Return 

Expiration 

Date 

Notional 


Unrealized 

Appreciation/ 


(000's) 

12/09 100 $ 12 

3/09 1,525 47 

$ 59 

(l) 


Directors. 


(n) 





Benchmark Definitions 

The following indices are used to illustrate investment market, sector or style performance or to serve as Portfolio performance 

comparisons. Unlike the Portfolios, the indices are not professionally managed and do not incur fees or expenses. It is not 

possible to invest directly in an index. 

33%: Barclays Capital Global Aggregate — Credit 

Component, Hedged USD, Merrill Lynch Global High- 

Yield BB-B Rated Constrained Index and JPMorgan 

EMBI Global — The benchmark is an equally weighted 

blend of the following three indexes: Barclays Capital Global 

Aggregate —Credit Component, Hedged USD, Merrill 

Lynch Global High Yield BB-B Rated Constrained Index and 

JPMorgan EMBI Global. The Barclays Capital Global 

Aggregate — Credit Component, Hedged USD Index 

provides a broad-based measure of the global investment 

grade fixed income markets. The Global High Yield BB-B 

Rated Constrained Index tracks the performance of below 

investment grade bonds of corporate issuers domiciled in 

countries having an investment grade foreign currency long 

term debt rating (based on a composite of Moody’s, S&P, 

and Fitch). The Index includes bonds denominated in U.S. 

dollars, Canadian dollars, sterling, and euro (or euro legacy 

currency), but excludes all multi-currency denominated 

bonds. Bonds must be rated below investment grade but at 

least B3 based on a composite of Moody’s, S&P, and Fitch. 

Qualifying bonds are capitalization-weighted provided the 

total allocation to an individual issuer (defined by Bloomberg 

tickers) does not exceed 2%. Issuers that exceed the limit are 

reduced to 2% and the face value of each of their bonds is 

adjusted on a pro-rata basis. Similarly, the face value of 

bonds of all other issuers that fall below the 2% cap are 

increased on a pro-basis. The index is re-balanced on the last 

calendar day of the month. JPMorgan EMBI Global tracks 

total returns for United States Dollar denominated debt 

instruments issued by emerging market sovereign and quasisovereign 

entities, Brady bonds, loans, Eurobonds and local 

market instruments. This index only tracks the particular 

region or country. 

Asset Allocation Portfolio Blended Composite — The 

Asset Allocation Portfolio Blended Composite Benchmark is 

an unmanaged, hypothetical combination of unmanaged 

indexes that correspond to the Asset Allocation Portfolio’s 

model allocation and consists of the Russell 1000 Index 

(50%), the S&P Global ex-US LargeMidCap Index (15%), 

the Citigroup U.S. Broad Investment Grade Bond Index 

(25%), and the Citigroup High Yield Cash Pay Index (10%). 

Balanced Portfolio Blended Composite — The Balanced 

Portfolio Blended Composite Benchmark is an unmanaged, 

hypothetical combination of unmanaged indexes that 

correspond to the Balanced Portfolio’s model allocation and 

consists of the Russell 1000 Index (40%), the S&P Global 

ex-US LargeMidCap Index (10%), the Citigroup U.S. Broad 

Investment Grade Bond Index (45%) and the Citigroup High 

Yield Cash Pay Index (5%). 

Barclays Capital U.S. Aggregate 1-3 Years Index — The 

Barclays Capital U.S. Aggregate 1-3 Years Index is an 

unmanaged index of publicly issued investment-grade fixed 

rate debt securities including corporate, U.S. Treasury and 

government agency securities, mortgage pass-through and 

asset-backed securities with remaining maturities of one to 

three years. 

Barclays Capital U.S. Aggregate Index — The Barclays 

Capital U.S. Aggregate Index is an unmanaged index of 

publicly issued investment-grade fixed-rate debt securities 

including corporate, U.S. Treasury and government agency 

securities, mortgage pass-through and asset-backed securities 

with remaining maturities of at least one year regardless of 

call features. 

Barclays Capital U.S. Corporate High Yield 2% Issuer 

Capped Index — The Barclays Capital U. S. Corporate 

High Yield 2% Issuer Capped Index is an unmanaged index 

of U.S. dollar denominated, non-convertible, fixed rate, 

noninvestment grade debt. Issuers are capped at 2% of the 

Index. Index holdings must have at least one year to final 

maturity, at least $150 million par amount outstanding, and 

be publicly issued with a rating of Ba1 or lower. 

Barclays Capital Global Credit Hedged USD Index — 

The Barclays Capital Global Credit Hedged USD Index is an 

unmanaged index composed of investment grade and high 

yield credit securities from the Multiverse represented in U.S. 

Dollars on a hedged bases (Multiverse is the merger of two 

groups: the Global Aggregate and the Global High Yield). 

Barclays Capital Long-Term U.S. Treasury Index — The 

Barclays Capital Long-Term U.S. Treasury Index is an 

unmanaged index comprised of fixed-income securities with 

various maturities greater than 10 years. 

Citigroup High Yield Cash Pay Index — The Citigroup 

High Yield Cash Pay Index is an unmanaged index that 

captures the performance of below-investment-grade debt 

issued by corporations domiciled in the United States or 

Canada. The index includes only cash-pay bonds (bond 

registered and Rule 144A) with maturities of at least one 

year, a minimum amount outstanding of US $100 million 

(subject to an entry criteria of $200 million per issue or $400 

million per issuer), and a speculative-grade rating by both 

Moody’s Investor Service and Standard & Poor’s. 

Benchmark Definitions 187


Citigroup U.S. Broad Investment Grade Bond Index — 

The Citigroup U.S. Broad Investment Grade Bond Index is 

an unmanaged index designed to track the performance of 

bonds issued in the U.S. investment-grade bond market. The 

index is market-capitalization-weighted and includes 

institutionally traded U.S. Treasury, government sponsored 

(U.S. agency and supranational), mortgages, asset-backed, 

and investment grade (BBB-/Baa3) issues with a maturity of 

one year or longer. 

Citigroup U.S. Inflation-Linked Securities Index — The 

Citigroup U.S. Inflation-Linked Securities Index is an 

unmanaged index designed to track the performance of U.S. 

Treasury and Inflation-Protected Securities (TIPS) with fixed 

rate coupon payments that are adjusted for inflation as 

measured by the Consumer Price Index (CPI). The index is 

market capitalization weighted and includes U.S. Treasury 

Inflation-Protected issues with a maturity of one year or 

longer. 

Lipper Variable Insurance Products (VIP) Average — 

Each Lipper Variable Insurance Products (VIP) Average is 

calculated by Lipper Analytical Services, Inc. and reflects the 

investment return of certain portfolios underlying variable 

life and annuity products. The returns are net of investment 

fees and fund expenses but not product charges, and returns 

would have been lower if they included the effect of these 

charges. Source: Lipper, Inc. 

MSCI EAFE (Europe-Australia-Far-East) Index — The 

MSCI EAFE (“Europe-Australasia-Far East”) Index is an 

unmanaged, free float-adjusted, market capitalizationweighted 

index that is designed to measure developed market 

equity performance, excluding the U.S. & Canada. 

MSCI All Country World (ex-US) Index — The MSCI All 

Country World (ex-US) Index is an unmanaged, free floatadjusted 

market capitalization-weighted index that is 

designed to measure equity performance in the developed 

and emerging markets, excluding the U.S. 

MSCI Emerging Markets Index — The MSCI Emerging 

Markets Index is an unmanaged, free float-adjusted, market 

capitalization-weighted index that is designed to measure 

equity market performance in the global emerging markets. 

Russell 1000 Growth Index — The Russell 1000 Growth 

Index is an unmanaged index that measures the performance 

of those companies in the Russell 1000 Index with higher 

price-to-book ratios and higher forecasted growth values. The 

Russell 1000 Index is an unmanaged, market capitalizationweighted, 

large cap index that measures the performance of 

the 1000 largest companies in the Russell 3000 Index (the 

3000 largest publicly traded U.S. companies based on total 

market capitalization and representing approximately 98% of 

the investible U.S. equity market). 

Russell 1000 Value Index — The Russell 1000 Value Index 

is an unmanaged index that measures the performance of 

those companies in the Russell 1000 Index with lower priceto-book 

ratios and lower forecasted growth values. The 

Russell 1000 Index is an unmanaged, market capitalizationweighted, 

large cap index that measures the performance of 

the 1000 largest companies in the Russell 3000 Index (the 

3000 largest publicly traded U.S. companies based on total 

market capitalization and representing approximately 98% of 

the investible U.S. equity market). 

Russell 2000 Growth Index — The Russell 2000 Growth 


of those companies in the Russell 2000 Index with higher 


Russell 2000 Index is an unmanaged, market capitalizationweighted 

index that measures the performance of the 2000 

smallest of the 3000 largest publicly traded U.S. companies, 

based on total market capitalization. 


is an unmanaged index measures the performance of those 

Russell 2000 companies with lower price-to-book ratios and 

lower forecasted growth values. The Russell 2000 Index is an 

unmanaged, market-capitalization weighted index that 

measures the performance of the 2000 smallest of the 3000 

largest publicly traded U.S. companies, based on total market 

capitalization. 


is an unmanaged index that measures the performance of 

those companies in the Russell 2500 Index with lower priceto-book 

ratios and lower forecasted growth values. 

Russell 2500 Index — The Russell 2500 Index is an 

unmanaged index that measures the performance of the 2500 

smallest companies in the Russell 3000 Index, which 

represents approximately 16% of the total market 

capitalization of the Russell 3000 Index. 

Russell MidCap Growth Index — The Russell MidCap 

Growth Index is an unmanaged index that measures the 

performance of the Russell MidCap companies with higher 


Russell MidCap Index is an unmanaged index that measures 

the performance of the 800 smallest companies in the Russell 

1000 Index, which represents approximately 25% of the total 

market capitalization of the Russell 1000 Index. 

Russell MidCap Value Index — The Russell MidCap Value 


of the Russell MidCap companies with lower price-to-book 

and lower forecasted growth values. The Russell MidCap 


of the 800 smallest companies in the Russell 1000 Index, 

which represents approximately 25% of the total market 

capitalization of the Russell 1000 Index. 

188 Benchmark Definitions


S&P 500 Index — The S&P 500 ® Composite Stock Price 

Index is an unmanaged, capitalization-weighted index of 500 

selected common stocks designed to measure the 

performance of the broad domestic economy. 

S&P Global ex-US LargeMidCap Index — The S&P 

Global ex-US LargeMidCap Index is an unmanaged, 

capitalization-weighted index which includes companies in 

the top 85% of the S&P Global Broad Market Index (BMI) , 

by capitalization. The S&P Global BMI includes companies 

in developed and emerging markets (excluding the U.S.) with 

more than $100 million (USD) of free float capitalization. 

S&P MidCap 400 Index — The Standard & Poor’s MidCap 

400 Index is an unmanaged, capitalization-weighted index 

that measures the performance of the mid-range sector of the 

U.S. stock market. 

S&P SmallCap 600 Index — The Standard & Poor’s 

SmallCap 600 Index is an unmanaged index of 600 selected 

common stocks of U.S.-based companies with small market 

capitalizations. 

Benchmark Definitions 189

Statements of Assets and Liabilities 



(in thousands)I 

Growth Stock 

Portfolio 

Focused 

Appreciation 

Portfolio 

Large Cap Core 

Stock Portfolio 

Large Cap Index 500 Stock 

Blend Portfolio Portfolio 

Assets 

$ 406,324 $ 171,176 $ 310,375 

Cash & Cash 7,596 344 70 230 42 

Foreign Currency, at Value (2)................................... — — — — — 

Investment, at Value (1) .......................................... 

Equivalents......................................... 

$ 29,384 $ 1,229,006 

Collateral for Derivative Positions — — — — — 

Receivables: 

Portfolio Shares Sold .......................................... 142 132 250 5 564 

Investment Securities Sold .................................... — 477 — — — 

Futures Variation Margin...................................... 494 — 140 — 354 

Outstanding Swap Contracts, at Value ........................ — — — — — 

Foreign Currency Sold ........................................ — — — — — 

Due from Investment Advisor................................. — — — — — 

Prepaid Expenses and Other Assets ........................... — — — — — 

Dividends and Interest......................................... 551 — 465 82 2,727 

Total Assets ................................................ 415,107 172,129 311,300 29,701 1,232,693 

Liabilities 

Payables: 

Portfolio Shares Redeemed.................................... 271 51 184 1 846 

Investment Securities Purchased .............................. 859 394 310 284 — 

Futures Variation Margin...................................... — — — — — 

Securities Sold Short, at Value ................................ — — — — — 

Outstanding Swap Contracts, at Value ........................ — — — — — 

Foreign Currency Purchased .................................. — — — — — 

Collateral for Securities on Loan (3) .......................... — — — — — 

Investment Advisory Fees..................................... 159 117 123 18 216 

Accrued Expenses ............................................. 17 16 18 16 21 

Total Liabilities............................................ 1,306 578 635 319 1,083 

Net Assets .................................................. $ 413,801 $ 171,551 $ 310,665 $ 29,382 $ 1,231,610 

Represented By: 

Aggregate Paid in Capital (8), (9) ................................ $ 544,534 $ 224,671 $ 490,627 $ 50,091 $ 1,303,199 

Undistributed Net Investment Income (Loss) .................... 5,283 — 6,039 3 35,664 

Undistributed Accumulated Net Realized Gain (Loss) on 

Investments .................................................... (26,087) (9,878) (105,625) (10,150) 23,973 

Net Unrealized Appreciation (Depreciation) of: 

Investment Securities.......................................... (109,407) (43,242) (80,228) (10,562 ) (130,896) 

Futures Contracts .............................................. (522) — (148) — (330) 

Options Written................................................ — — — — — 

Short Sales..................................................... — — — — — 

Swap Contracts ................................................ — — — — — 

Foreign Currency Transactions................................ — — — — — 

Net Assets for Shares Outstanding (9) ........................... $ 413,801 $ 171,551 $ 310,665 $ 29,382 $ 1,231,610 

Net Asset Value, Offering and Redemption Price per Share..... $ 1.41 $ 1.20 $ 0.88 $ 0 .55 $ 1.95 

(1) Investments, at Cost ............................................. $ 515,731 $ 214,418 $ 390,603 $ 39,946 $ 1,359,902 

(2) Foreign Currency, at Cost ....................................... — — — — — 

(3) Securities on Loan ............................................... — — — — — 

(4) Premiums Received on Options Written ........................ — — — — — 

(5) Proceeds Received from Short Sales ............................ — — — — — 

(6) Premiums Paid on Swap Contracts .............................. — — — — — 

(7) Premiums Received from Swap Contracts ...................... — — — — — 

(8) Shares Outstanding .............................................. 293,045 143,414 354,351 53,893 632,811 

(9) Shares Authorized, $.01 Par Value .............................. 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 


190 Statements of Assets and Liabilities

Large Company 

Value Portfolio 

Domestic 

Equity Portfolio 

Equity Income 

Portfolio 

Mid Cap 

Growth Stock 

Portfolio 

Index 400 Stock 

Portfolio 

Mid Cap Value 

Portfolio 

Small Cap 

Growth Stock 

Portfolio 

Index 600 Stock 

Portfolio 

Small Cap 

Value Portfolio 

$ 28,488 $ 281,129 $ 151,252 $ 705,876 $ 316,429 $ 74,129 $ 281,897 $ 18,585 $ 240,508 

— 139 128 1 42 281 5,465 1,055 93 

— — — — — — — — — 

— — — — — — — 1,620 — 

17 185 108 272 200 77 137 21 108 

91 — — — 3,636 259 2,661 4 173 

14 — — 295 696 — 179 — — 

— — — — — — 781 198 — 

— — — — — — — — — 

— — — — — — — 1 — 

— — — — — — — — — 

65 886 380 356 435 118 196 24 437 

28,675 282,339 151,868 706,800 321,438 74,864 291,316 21,508 241,319 

— 178 124 551 232 50 190 1 241 

71 446 — 10,282 1,604 63 6,340 307 67 

— — — — — — — — — 

— — — — — — — — — 

— — — — — — 5 4 — 

— — — — — — — — — 

— — — — — — — — — 

17 142 86 323 68 53 141 — 174 

17 17 17 18 19 17 19 22 20 

105 783 227 11,174 1,923 183 6,695 334 502 

$ 28,570 $ 281,556 $ 151,641 $ 695,626 $ 319,515 $ 74,681 $ 284,621 $ 21,174 $ 240,817 

$ 46,747 $ 470,810 $ 220,590 $ 967,189 $ 417,579 $ 113,706 $ 487,343 $ 30,720 $ 289,427 

92 10,653 4,885 2,018 6,402 945 50 (101 ) 2,183 

(5,652 ) (132,742 ) (8,231 ) (21,233) 6,520 (6,445) (131,057) (843 ) 6,382 

(12,612) (67,165) (65,603) (252,680) (111,828) (33,525) (72,726) (8,703 ) (57,175) 

(5 ) — — 332 842 — 229 — — 

— — — — — — — — — 

— — — — — — — — — 

— — — — — — 782 101 — 

— — — — — — — — — 

$ 28,570 $ 281,556 $ 151,641 $ 695,626 $ 319,515 $ 74,681 $ 284,621 $ 21,174 $ 240,817 

$ 0 .57 $ 0 .63 $ 0 .87 $ 1 .92 $ 0.90 $ 0.81 $ 1.09 $ 0 .64 $ 1.14 

$ 41,100 $ 348,294 $ 216,856 $ 958,556 $ 428,257 $ 107,654 $ 354,623 $ 27,288 $ 297,683 

— — — — — — — — — 

— — — — — — — — — 

— — — — — — — — — 

— — — — — — — — — 

— — — — — — — — — 

— — — — — — — — — 

50,357 446,202 174,785 362,680 353,569 91,672 261,780 33,330 212,040 

2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 


Statements of Assets and Liabilities 191

Statements of Assets and Liabilities 



(in thousands)I 

International 

Growth 

Portfolio 

Research 

International 

Core Portfolio 

International 

Equity Portfolio 

Emerging 

Markets Equity 

Portfolio 

Money Market 

Portfolio 

Assets 

$ 191,812 $ 32,929 $ 1,007,061 621,299 

Cash & Cash 935 369 87 880 98 

Foreign Currency, at Value (2)................................... 1,235 11 1,495 1 — 

Investment, at Value (1) .......................................... 

Equivalents......................................... 

$ 51,422 $ 

Collateral for Derivative Positions 3,220 — — — — 

Receivables: 

Portfolio Shares Sold .......................................... 110 25 472 37 724 

Investment Securities Sold .................................... 394 164 160 53 — 


Outstanding Swap Contracts, at Value ........................ 316 — — — — 

Foreign Currency Sold ........................................ — 1 — — — 

Due from Investment Advisor................................. — 10 — — — 

Prepaid Expenses and Other Assets ........................... — — — — 109 

Dividends and Interest......................................... 452 34 1,533 148 2,073 

Total Assets ................................................ 198,474 33,543 1,010,808 52,541 624,303 

Liabilities 

Payables: 

Portfolio Shares Redeemed.................................... 88 1 792 35 1,518 

Investment Securities Purchased .............................. 824 61 — 14 — 


Securities Sold Short, at Value ................................ — — — — — 

Outstanding Swap Contracts, at Value ........................ 5 — — — — 

Foreign Currency Purchased .................................. 9 — — 5 — 

Collateral for Securities on Loan (3) .......................... — — — — — 

Investment Advisory Fees..................................... 119 — 524 34 165 

Accrued Expenses ............................................. 46 46 125 67 — 

Total Liabilities............................................ 1,091 108 1,441 155 1,683 

Net Assets .................................................. $ 197,383 $ 33,435 $ 1,009,367 $ 52,386 $ 622,620 

Represented By: 

Aggregate Paid in Capital (8), (9) ................................ $ 310,852 $ 55,822 $ 1,156,349 $ 99,445 $ 623,107 

Undistributed Net Investment Income (Loss) .................... 690 304 47,108 377 — 

Undistributed Accumulated Net Realized Gain (Loss) on 

Investments .................................................... (43,708) (10,305) 20,801 (19,028) — 


Investment Securities.......................................... (70,753) (12,386) (214,812) (28,405 ) (487) 

Futures Contracts .............................................. — — — — — 

Options Written................................................ — — — — — 

Short Sales..................................................... — — — — — 

Swap Contracts ................................................ 316 — — — — 

Foreign Currency Transactions................................ (14) — (79) (3 ) — 

Net Assets for Shares Outstanding (9) ........................... $ 197,383 $ 33,435 $ 1,009,367 $ 52,386 $ 622,620 

Net Asset Value, Offering and Redemption Price per Share..... $ 0.86 $ 0.58 $ 1.32 $ 0 .53 $ 1.00 

(1) Investments, at Cost ............................................. $ 262,566 $ 45,315 $ 1,221,873 $ 79,828 $ 621,786 

(2) Foreign Currency, at Cost ....................................... 1,234 11 1,548 1 — 

(3) Securities on Loan ............................................... — — — — — 

(4) Premiums Received on Options Written ........................ — — — — — 

(5) Proceeds Received from Short Sales ............................ — — — — — 

(6) Premiums Paid on Swap Contracts .............................. — — — — — 

(7) Premiums Received from Swap Contracts ...................... — — — — — 

(8) Shares Outstanding .............................................. 230,205 57,611 763,228 97,919 623,107 

(9) Shares Authorized, $.01 Par Value .............................. 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 



Short-Term 

Bond Portfolio 

Select Bond 

Portfolio 

Long-Term 

U.S. 

Government 


Inflation 

Protection 

Portfolio 

High Yield 


Multi-Sector 


Balanced 

Portfolio 

Asset 

Allocation 

Portfolio 

$ 68,164 $ 1,145,734 $ 109,530 $ 70,690 $ 206,931 $ 119,209 $ 1,974,574 $ 197,642 

1,210 491 — — 417 11,594 1,134 188 

— — — — — 1,171 708 113 

— — 824 — — 960 9,390 320 

5 273 150 109 66 113 396 109 

— — 10,125 — — 719 571 86 

— 2,181 — — — — 5,133 691 

— — — — — 233 9,881 59 

— — — — — — — — 

— — — — — — — — 

— — — — — — 106 16 

496 9,139 623 596 5,384 1,064 11,668 992 

69,875 1,157,818 121,252 71,395 212,798 135,063 2,013,561 200,216 

37 1,018 23 1 84 17 1,082 124 

— 1 30,460 — 604 33,812 2,251 322 

— — 499 — — 82 — — 

— — — — — 727 — — 

— — — 2,204 — 5,267 8,305 1 

— — — — — 958 1 — 

— 67,859 — — — — 6,694 — 

22 293 43 35 85 65 527 88 

19 — 21 15 22 14 — 41 

78 69,171 31,046 2,255 795 40,942 18,860 576 

$ 69,797 $ 1,088,647 $ 90,206 $ 69,140 $ 212,003 $ 94,121 $ 1,994,701 $ 199,640 

$ 70,854 $ 1,069,699 $ 77,767 $ 72,199 $ 314,949 $ 108,748 $ 2,369,845 $ 261,791 

24 55,080 18 73 22,518 (264) 88,315 6,075 

(120 ) (12,499 ) 7,760 (439) (51,896) (1,245) (146,363) (27,637 ) 

(979 ) (18,040 ) 2,520 (490) (73,568) (12,022) (312,913) (40,120 ) 

18 (5,593 ) 2,141 — — 4,098 (5,890) (527 ) 

— — — — — — — — 

— — — — — (7) — — 

— — — (2,203) — (4,216) 1,713 59 

— — — — — (971) (6) (1 ) 

$ 69,797 $ 1,088,647 $ 90,206 $ 69,140 $ 212,003 $ 94,121 $ 1,994,701 $ 199,640 

$ 0 .99 $ 1 .21 $ 1 .22 $ 0 .99 $ 0.51 $ 0.85 $ 1.10 $ 0 .77 

$ 69,143 $ 1,163,774 $ 107,010 $ 71,180 $ 280,499 $ 131,231 $ 2,287,487 $ 237,762 

— — — — — 1,174 708 113 

— 65,591 — — — — 6,383 — 

— — — — — — — — 

— — — — — 720 — — 

— — — — — 207 — — 

— — — — — 1,071 — — 

70,618 901,270 73,870 69,923 414,894 110,586 1,812,296 

2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 3,000,000 

257,740 

2,000,000 



Statements of Operations 


For the Year Ended December 31, 2008 

(in thousands) 

Growth Stock 

Portfolio 

Focused 

Appreciation 

Portfolio 

Large Cap 

Core Stock 

Portfolio 

Large Cap 

Blend 

Portfolio 

Index 500 


Large 

Company 

Value 

Portfolio 

Investment Income 

Income 

Interest............................................................. $ 1,120 $ 725 $ 386 $ 26 $ 867 $ 31 

Dividends (1)..................................................... 6,752 904 7,628 661 38,768 1,011 

Total Income ............................................. 7,872 1,629 8,014 687 39,635 1,042 

Expenses 

Investment Advisory Fees ..................................... 2,553 1,808 1,940 265 3,399 234 

Custodian Fees................................................... 15 7 14 15 31 9 

Audit Fees......................................................... 18 17 18 18 16 17 

Other Expenses .................................................. 4 3 4 3 5 3 

Total Expenses........................................... 2,590 1,835 1,976 301 3,451 263 

Less Waived Fees: 

Paid by Affiliate .......................................... — — — (8) — (3) 

Paid Indirectly ............................................ (1) (1) (1) (1 ) (1) — 

Total Net Expenses ..................................... 2,589 1,834 1,975 292 3,450 260 

Net Investment Income (Loss) 5,283 (205) 6,039 395 36,185 782 

Realized and Unrealized Gain (Loss) on Investments 

Net Realized Gain (Loss) on: 

Investment Securities........................................... (15,660 ) (9,230 ) (19,745 ) (9,683 ) 43,254 (4,885 ) 

Futures Contracts................................................ (10,391) — (583) — (12,205) (709) 

Options Written.................................................. — — — — — — 

Swap Contracts .................................................. — — — — — — 

Foreign Currency Transactions............................... — — — — — — 

Net Realized Gain (Loss) on Investments ........ (26,051) (9,230) (20,328) (9,683 ) 31,049 (5,594) 


Investment Securities........................................... (253,472) (103,914) (190,481) (8,222) (804,194) (10,220) 

Futures Contracts................................................ (535) — (207) — (360) 11 


Short Sales ........................................................ — — — — — — 

Swap Contracts .................................................. — — — — — — 

Foreign Currency Transactions............................... — — — — — — 

Net Change in Unrealized Appreciation 

(Depreciation) of Investments ....................... (254,007) (103,914) (190,688) (8,222 ) (804,554) (10,209) 

Net Gain (Loss) on Investments ................................. (280,058) (113,144) (211,016) (17,905) (773,505) (15,803) 

Net Increase (Decrease) in Net Assets Resulting from 

Operations................................................................ $ (274,775) $ (113,349) $ (204,977) $ (17,510) $ (737,320) $ (15,021) 

(1) Less Foreign Dividend Tax................................... $ 45 $ 40 $ 6 $ 7 $ 1 $ 7 


194 Statements of Operations


For the Six Month Ended December 31, 2008 

(Unaudited) 


Domestic 

Equity 

Portfolio 

Equity Income 

Portfolio 

Mid Cap 

Growth Stock 

Portfolio 

Index 400 Mid Cap Value 

Stock Portfolio Portfolio 

Small Cap 

Growth Stock 

Portfolio 

Index 600 


Small Cap 

Value 

Portfolio 

$ 686 $ 266 $ 1,690 $ 907 $ 64 $ 1,062 $ 136 $ 399 

12,097 5,866 5,716 7,207 1,820 1,320 273 4,954 

12,783 6,132 7,406 8,114 1,884 2,382 409 5,353 

2,072 1,216 5,355 1,153 846 2,283 59 2,622 

11 13 13 22 14 27 51 28 

17 18 19 17 17 18 17 17 

4 4 4 5 4 4 4 4 

2,104 1,251 5,391 1,197 881 2,332 131 2,671 

— — — — — — (48) — 

(1 ) (1 ) (1 ) (2 ) (1) (2) (1) (2) 

2,103 1,250 5,390 1,195 880 2,330 82 2,669 

10,680 4,882 2,016 6,919 1,004 52 327 2,684 

(131,784 ) (7,481 ) (14,370 ) 26,654 (6,480 ) (121,597 ) (367 ) 6,023 

— — (6,534 ) (18,432) — (7,958) — — 

— — — — — 108 — — 

— — — — — (6) (1,811) — 

— 3 — — — — — — 

(131,784 ) (7,478 ) (20,904 ) 8,222 (6,480) (129,453) (2,178) 6,023 

(53,357) (77,745) (466,658) (203,275) (33,639) (99,034) (7,053) (103,713) 

— — 129 562 — (374) — — 

— — — — — — — — 

— — — — — — — — 

— — — — — 781 144 — 

— — — — — — — — 

(53,357) (77,745) (466,529) (202,713) (33,639) (98,627) (6,909 ) (103,713) 

(185,141) (85,223) (487,433) (194,491) (40,119) (228,080) (9,087 ) (97,690) 

$ (174,461 ) $ (80,341 ) $ (485,417 ) $ (187,572 ) $ (39,115) $ (228,028) $ (8,760 ) $ (95,006 ) 

$ 160 $ 24 $ 24 $ — $ 3 $ 5 $ — $ 2 


Statements of Opeations 195

Statements of Operations 




International 

Growth 

Portfolio 

Research 

International 


International 

Equity 

Portfolio 

Emerging 

Markets 

Equity 

Portfolio 

Money Market 

Portfolio 

Short-Term 



Income 

Interest............................................................. $ 647 $ 26 $ 2,810 $ 24 $ 16,141 $ 3,054 

Dividends (1)..................................................... 6,382 1,432 54,856 2,876 — — 

Total Income ............................................. 7,029 1,458 57,666 2,900 16,141 3,054 

Expenses 

Investment Advisory Fees ..................................... 1,894 375 9,701 919 1,625 227 

Custodian Fees................................................... 322 312 719 465 — 10 

Audit Fees......................................................... 19 19 19 19 — 20 

Other Expenses .................................................. 43 14 5 41 93 3 

Total Expenses........................................... 2,278 720 10,444 1,444 1,718 260 

Less Waived Fees: 

Paid by Affiliate .......................................... (39) (230) (920) (235) (5) — 

Paid Indirectly ............................................ — — — — — (1) 

Total Net Expenses ..................................... 2,239 490 9,524 1,209 1,713 259 

Net Investment Income (Loss) 4,790 968 48,142 1,691 14,428 2,795 

Realized and Unrealized Gain (Loss) on Investments 

Net Realized Gain (Loss) on: 

Investment Securities........................................... (43,416 ) (10,187 ) 21,995 (18,560 ) 115 (196 ) 

Futures Contracts................................................ — — — — — 170 


Swap Contracts .................................................. (4,165) — — — — — 

Foreign Currency Transactions............................... (104) (15) (688) (85) — (1) 

Net Realized Gain (Loss) on Investments ........ (47,685) (10,202) 21,307 (18,645) 115 (27 ) 


Investment Securities........................................... (123,333) (13,515) (874,701) (42,134) (487) (1,136) 

Futures Contracts................................................ — — — — — 18 


Short Sales ........................................................ — — — — — — 

Swap Contracts .................................................. 316 — — — — — 

Foreign Currency Transactions............................... (22 ) (2) (83 ) 2 — — 


(Depreciation) of Investments ....................... (123,039) (13,517) (874,784) (42,132) (487) (1,118 ) 

Net Gain (Loss) on Investments ................................. (170,724) (23,719) (853,477) (60,777) (372) (1,145 ) 

Net Increase (Decrease) in Net Assets Resulting from 

Operations................................................................ $ (165,934) $ (22,751) $ (805,335) $ (59,086) $ 14,056 $ 1,650 

(1) Less Foreign Dividend Tax................................... $ 235 $ 69 $ 2,132 $ 116 $ — $ — 




For the Six Month Ended December 31, 2008 

(Unaudited) 


Select Bond 

Portfolio 

Long-Term 

U.S. 

Government 


Inflation 

Protection 

Portfolio 

High Yield Multi-Sector 

Bond Portfolio Bond Portfolio 

Balanced 

Portfolio 

Asset 

Allocation 

Portfolio 

$ 60,723 $ 1,794 $ 2,791 $ 23,745 $ 4,727 $ 75,289 $ 6,328 

— — — — — 13,779 1,818 

60,723 1,794 2,791 23,745 4,727 89,068 8,146 

3,402 319 326 1,203 708 7,505 1,378 

— 8 4 16 49 — 126 

— 25 18 21 24 — 19 

— 2 2 5 4 — 24 

3,402 354 350 1,245 785 7,505 1,547 

— — — — — — (142) 

— — — (1 ) — — (1) 

3,402 354 350 1,244 785 7,505 1,404 

57,321 1,440 2,441 22,501 3,942 81,563 6,742 

1,337 2,638 (344 ) (18,668 ) (1,364 ) (70,481 ) (11,533 ) 

1,778 5,375 (60 ) — 416 (76,175) (15,891) 

— 10 — — 266 13 2 

— — — — 128 4,679 (576) 

(15 ) — — — 1,986 33 6 

3,100 8,023 (404 ) (18,668 ) 1,432 (141,931) (27,992) 

(20,860) 1,876 (1,658 ) (63,360) (11,183) (561,942) (68,292) 

(5,593 ) 2,165 — — 3,634 (5,927) (564) 

— (4 ) — — 188 — — 

— — — — (14) — — 

— — (2,195 ) — (4,192) 6,584 59 

— — — — (844) (10 ) (2) 

(26,453) 4,037 (3,853 ) (63,360) (12,411) (561,295) (68,799) 

(23,353) 12,060 (4,257 ) (82,028) (10,979) (703,226) (96,791) 

$ 33,968 $ 13,500 $ (1,816 ) $ (59,527 ) $ (7,037 ) $ (621,663) $ (90,049) 

$ — $ — $ — $ — $ — $ 719 $ 115 


Statements of Opeations 197

Statements of Changes in Net Assets 


(Amounts in thousands) 


Focused Appreciation 

Portfolio 

Large Cap Core Stock 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

Change in Net Assets 

Operations 

Net Investment Income (Loss) .................. $ 5,283 $ 6,332 $ (205) $ 764 $ 6,039 $ 7,217 

Net Realized Gain (Loss) on Investments..... (26,051 ) 48,892 (9,230 ) 5,886 (20,328 ) 42,659 


(Depreciation) of Investments................ (254,007 ) 10,608 (103,914 ) 36,115 (190,688 ) (1,994 ) 

Net Increase (Decrease) in Net Assets 

Resulting from Operations.................... (274,775 ) 65,832 (113,349 ) 42,765 (204,977 ) 47,882 

Distributions to Shareholders from: 

Net Investment Income........................... (6,333 ) (6,654 ) (815 ) (79 ) (7,218 ) (6,345 ) 

Net Realized Gain on Investments ............. (39,360 ) — (6,315 ) (272 ) — — 

Tax Return of Capital ............................ — — — — — — 

Net Decrease in Net Assets Resulting from 

Distributions to Shareholders .............. (45,693 ) (6,654 ) (7,130 ) (351 ) (7,218 ) (6,345 ) 

Capital Transactions: 

Shares Sold......................................... 35,635 42,356 88,311 75,333 33,098 39,350 

Reinvestment of Distributions Paid 45,693 6,654 7,130 351 7,218 6,345 

Shares Redeemed ................................. (95,388 ) (94,914 ) (33,848 ) (26,242 ) (74,351 ) (65,790 ) 


Resulting from Capital Transactions ..... (14,060 ) (45,904 ) 61,593 49,442 (34,035 ) (20,095 ) 

Total Increase (Decrease) in Net Assets.......... (334,528 ) 13,274 (58,886 ) 91,856 (246,230 ) 21,442 

Net Assets 

Beginning of Period ................................. 748,329 735,055 230,437 138,581 556,895 535,453 

End of Period......................................... $ 413,801 $ 748,329 $ 171,551 $ 230,437 $ 310,665 $ 556,895 

Undistributed Net Investment Income (Loss) ... $ 5,283 $ 6,332 $ — $ 764 $ 6,039 $ 7,217 

Portfolio Share Transactions: ...................... 

Shares Sold......................................... 18,488 17,436 47,993 41,606 27,824 27,616 

Reinvestment of Distributions Paid ............ 22,366 2,751 3,786 199 5,783 4,487 

Shares Redeemed (48,615 ) (39,135 ) (20,932 ) (14,867 ) (62,192 ) (46,263 ) 

Net Increase (Decrease) in Shares 

Resulting from Portfolio Share 

Transactions .................................. (7,761 ) (18,948 ) 30,847 26,938 (28,585 ) (14,160 ) 


198 Statements of Changes in Net Assets

Large Cap Blend Portfolio Index 500 Stock Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

Large Company Value 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 


For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

$ 395 $ 199 $ 36,185 $ 40,347 $ 782 $ 398 $ 10,680 $ 10,859 

(9,683 ) (290 ) 31,049 50,827 (5,594 ) 33 (131,784 ) 30,468 

(8,222 ) (2,345 ) (804,554 ) 21,806 (10,209 ) (2,409 ) (53,357 ) (72,032 ) 

(17,510 ) (2,436 ) (737,320 ) 112,980 (15,021 ) (1,978 ) (174,461 ) (30,705 ) 

(394 ) (193 ) (38,107 ) (34,512 ) (693 ) (393 ) (10,737 ) (6,574 ) 

— (176 ) (53,885 ) (77,447 ) (86 ) (6 ) (31,436 ) (19,663 ) 

— — — — — — — — 

(394 ) (369 ) (91,992 ) (111,959 ) (779 ) (399 ) (42,173 ) (26,237 ) 

14,572 38,144 109,588 134,701 13,988 35,398 60,559 107,643 

394 370 91,992 111,959 779 399 42,173 26,237 

(2,615 ) (774 ) (229,493 ) (240,245 ) (3,092 ) (725 ) (44,438 ) (46,878 ) 

12,351 37,740 (27,913 ) 6,415 11,675 35,072 58,294 87,002 

(5,553 ) 34,935 (857,225 ) 7,436 (4,125 ) 32,695 (158,340 ) 30,060 

34,935 — 2,088,835 2,081,399 32,695 — 439,896 409,836 

$ 29,382 $ 34,935 $ 1,231,610 $ 2,088,835 $ 28,570 $ 32,695 $ 281,556 $ 439,896 

$ 3 $ 1 $ 35,664 $ 38,166 $ 92 $ 4 $ 10,653 $ 10,731 

19,125 38,147 42,447 40,287 18,076 35,531 66,504 82,272 

749 396 34,147 34,555 1,373 422 49,672 20,839 

(3,744 ) (781 ) (85,290 ) (71,813 ) (4,301 ) (745 ) (51,263 ) (35,684 ) 

16,130 37,762 (8,696 ) 3,029 15,148 35,208 64,913 67,427 


Statements of Changes in Net Assets 199





Mid Cap Growth Stock 

Portfolio 


For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 


Operations 

Net Investment Income (Loss) .................. $ 4,882 $ 4,325 $ 2,016 $ 3,214 $ 6,919 $ 8,206 

Net Realized Gain (Loss) on Investments..... (7,478 ) 23,724 (20,904 ) 138,437 8,222 46,979 


(Depreciation) of Investments................ (77,745 ) (19,879 ) (466,529 ) 90,846 (202,713 ) (12,722 ) 


Resulting from Operations ................. (80,341 ) 8,170 (485,417 ) 232,497 (187,572 ) 42,463 


Net Investment Income........................... (48 ) (4,277 ) (3,036 ) (9,438 ) (7,152 ) (7,054 ) 

Net Realized Gain on Investments ............. (4,448 ) (21,762 ) (137,000 ) (106,812 ) (48,480 ) (31,212 ) 



Distributions to Shareholders .............. (4,496 ) (26,039 ) (140,036 ) (116,250 ) (55,632 ) (38,266 ) 


Shares Sold......................................... 42,432 75,621 48,167 60,263 34,167 59,015 

Reinvestment of Distributions Paid 4,496 26,039 140,036 116,250 55,632 38,266 

Shares Redeemed ................................. (22,878 ) (71,870 ) (161,827 ) (181,541 ) (85,216 ) (77,082 ) 


Resulting from Capital Transactions ..... 24,050 29,790 26,376 (5,028 ) 4,583 20,199 


Net Assets 

Beginning of Period ................................. 212,428 200,507 1,294,703 1,183,484 558,136 533,740 

End of Period......................................... $ 151,641 $ 212,428 $ 695,626 $ 1,294,703 $ 319,515 $ 558,136 

Undistributed Net Investment Income (Loss) ... $ 4,885 $ 70 $ 2,018 $ 3,036 $ 6,402 $ 7,713 


Shares Sold......................................... 37,085 47,810 17,090 16,769 26,944 35,292 

Reinvestment of Distributions Paid ............ 3,820 18,789 49,941 34,404 41,923 23,886 

Shares Redeemed (19,618 ) (44,381 ) (56,525 ) (50,577 ) (64,738 ) (46,264 ) 



Transactions .................................. 21,287 22,218 10,506 596 4,129 12,914 




For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

Small Cap Growth Stock 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

Index 600 Stock Portfolio Small Cap Value Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

$ 1,004 $ 929 $ 52 $ 722 $ 327 $ 317 $ 2,684 $ 2,808 

(6,480 ) 18,111 (129,453 ) 79,942 (2,178 ) (174 ) 6,023 24,507 

(33,639 ) (17,131 ) (98,627 ) (32,057 ) (6,909 ) (1,704 ) (103,713 ) (31,256 ) 

(39,115 ) 1,909 (228,028 ) 48,607 (8,760 ) (1,561 ) (95,006 ) (3,941 ) 

— (936 ) (722 ) (423 ) — — (1,067 ) (1,455 ) 

(2,153 ) (17,985 ) (81,232 ) (48,710 ) (196 ) (105 ) (26,003 ) (18,704 ) 

— — — — — (102 ) — — 

(2,153 ) (18,921 ) (81,954 ) (49,133 ) (196 ) (207 ) (27,070 ) (20,159 ) 

17,996 52,486 39,211 50,122 8,257 26,427 40,790 61,401 

2,153 18,921 81,954 49,133 196 207 27,070 20,159 

(18,655 ) (70,956 ) (70,548 ) (83,355 ) (2,362 ) (827 ) (42,940 ) (44,460 ) 

1,494 451 50,617 15,900 6,091 25,807 24,920 37,100 

(39,774 ) (16,561 ) (259,365 ) 15,374 (2,865 ) 24,039 (97,156 ) 13,000 

114,455 131,016 543,986 528,612 24,039 — 337,973 324,973 

$ 74,681 $ 114,455 $ 284,621 $ 543,986 $ 21,174 $ 24,039 $ 240,817 $ 337,973 

$ 945 $ — $ 50 $ 722 $ (101 ) $ — $ 2,183 $ 2,251 

16,651 32,178 23,939 20,309 10,546 26,383 26,705 32,719 

1,806 14,457 50,527 21,635 308 220 17,122 11,306 

(16,153 ) (43,074 ) (42,075 ) (34,363 ) (3,293 ) (834 ) (28,440 ) (24,158 ) 

2,304 3,561 32,391 7,581 7,561 25,769 15,387 19,867 






International Growth 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

Research International 


For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 

International Equity 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 


Operations 

Net Investment Income (Loss) .................. $ 4,790 $ 4,469 $ 968 $ 320 $ 48,142 $ 39,263 

Net Realized Gain (Loss) on Investments..... (47,685 ) 34,002 (10,202 ) 691 21,307 145,061 


(Depreciation) of Investments................ (123,039 ) (2,767 ) (13,517 ) 1,130 (874,784 ) 100,652 


Resulting from Operations ................. (165,934 ) 35,704 (22,751 ) 2,141 (805,335 ) 284,976 


Net Investment Income........................... (4,245 ) (2,658 ) (616 ) (366 ) (39,219 ) (32,959 ) 

Net Realized Gain on Investments ............. (33,233 ) (24,249 ) (363 ) (432 ) (144,743 ) (21,809 ) 



Distributions to Shareholders .............. (37,478 ) (26,907 ) (979 ) (798 ) (183,962 ) (54,768 ) 


Shares Sold......................................... 45,946 85,606 10,966 45,845 135,959 223,184 

Reinvestment of Distributions Paid 37,478 26,907 979 798 183,962 54,768 

Shares Redeemed ................................. (36,055 ) (40,766 ) (2,127 ) (639 ) (223,869 ) (161,778 ) 


Resulting from Capital Transactions ..... 47,369 71,747 9,818 46,004 96,052 116,174 


Net Assets 

Beginning of Period ................................. 353,426 272,882 47,347 — 1,902,612 1,556,230 

End of Period......................................... $ 197,383 $ 353,426 $ 33,435 $ 47,347 $ 1,009,367 $ 1,902,612 

Undistributed Net Investment Income (Loss) ... $ 690 $ 4,292 $ 304 $ (37) $ 47,108 $ 38,873 


Shares Sold......................................... 35,167 46,314 13,012 45,498 69,463 87,178 


Shares Redeemed (27,512 ) (22,286 ) (2,563 ) (617 ) (113,584 ) (63,346 ) 



Transactions .................................. 36,506 39,170 11,955 45,655 50,607 45,242 



Emerging Markets Equity 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 


For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

Short-Term Bond 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 


For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

$ 1,691 $ 479 $ 14,428 $ 21,766 $ 2,795 $ 1,726 $ 57,321 $ 53,429 

(18,645 ) 327 115 — (27 ) (197 ) 3,100 3,056 

(42,132 ) 13,724 (487 ) — (1,118 ) 156 (26,453 ) 7,509 

(59,086 ) 14,530 14,056 21,766 1,650 1,685 33,968 63,994 

(1,853 ) (234 ) (14,428 ) (21,766 ) (2,714 ) (1,678 ) (52,811 ) (40,788 ) 

(422 ) — (115 ) — — — — — 

— — — — — — — — 

(2,275 ) (234 ) (14,543 ) (21,766 ) (2,714 ) (1,678 ) (52,811 ) (40,788 ) 

29,358 76,101 389,014 308,514 18,093 57,456 146,289 235,919 

2,276 234 14,543 21,766 2,714 1,678 52,811 40,788 

(7,450 ) (1,068 ) (242,542 ) (258,777 ) (7,944 ) (1,143 ) (206,257 ) (109,722 ) 

24,184 75,267 161,015 71,503 12,863 57,991 (7,157 ) 166,984 

(37,177 ) 89,563 160,528 71,503 11,799 57,998 (26,000 ) 190,190 

89,563 — 462,092 390,589 57,998 — 1,114,647 924,457 

$ 52,386 $ 89,563 $ 622,620 $ 462,092 $ 69,797 $ 57,998 $ 1,088,647 $ 1,114,647 

$ 377 $ 176 $ — $ — $ 24 $ 7 $ 55,080 $ 52,668 

30,221 72,758 389,001 308,514 17,763 57,367 119,122 195,357 

3,820 188 14,543 21,766 2,755 1,682 44,529 34,802 

(8,111 ) (958 ) (242,542 ) (258,777 ) (7,818 ) (1,130 ) (171,786 ) (91,076 ) 

25,930 71,988 161,002 71,503 12,700 57,919 (8,135 ) 139,083 






Long-Term U.S. 

Government Bond 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 

Inflation Protection 

Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 


For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 


Operations 

Net Investment Income (Loss) .................. $ 1,440 $ 848 $ 2,441 $ 997 $ 22,501 $ 21,679 

Net Realized Gain (Loss) on Investments..... 8,023 928 (404 ) (7 ) (18,668 ) (145 ) 


(Depreciation) of Investments................ 4,037 623 (3,853 ) 1,160 (63,360 ) (15,150 ) 


Resulting from Operations ................. 13,500 2,399 (1,816 ) 2,150 (59,527 ) 6,384 


Net Investment Income........................... (1,430 ) (837 ) (2,377 ) (983 ) (21,340 ) (17,960 ) 

Net Realized Gain on Investments ............. (1,013 ) (180 ) (96 ) — — — 



Distributions to Shareholders .............. (2,443 ) (1,017 ) (2,473 ) (983 ) (21,340 ) (17,960 ) 


Shares Sold......................................... 55,267 34,266 44,745 35,809 27,796 51,602 

Reinvestment of Distributions Paid 2,443 1,017 2,473 983 21,340 17,960 

Shares Redeemed ................................. (14,376 ) (850 ) (11,251 ) (497 ) (49,194 ) (41,697 ) 


Resulting from Capital Transactions ..... 43,334 34,433 35,967 36,295 (58 ) 27,865 

Total Increase (Decrease) in Net Assets.......... 54,391 35,815 31,678 37,462 (80,925 ) 16,289 

Net Assets 

Beginning of Period ................................. 35,815 — 37,462 — 292,928 276,639 

End of Period......................................... $ 90,206 $ 35,815 $ 69,140 $ 37,462 $ 212,003 $ 292,928 

Undistributed Net Investment Income (Loss) ... $ 18 $ 11 $ 73 $ 10 $ 22,518 $ 21,340 


Shares Sold......................................... 50,916 34,146 42,212 35,573 43,277 70,220 


Shares Redeemed (13,437 ) (836 ) (10,805 ) (485 ) (78,163 ) (57,143 ) 



Transactions .................................. 39,557 34,312 33,885 36,037 (1,332 ) 39,373 



Multi-Sector Bond 

Portfolio Balanced Portfolio Asset Allocation Portfolio 

For the Year 

Ended 

December 

31, 2008 

For the 

Period 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

For the Year 

Ended 

December 

31, 2008 

For the Year 

Ended 

December 

31, 2007 

$ 3,942 $ 2,180 $ 81,563 $ 95,163 $ 6,742 $ 7,718 

1,432 (381 ) (141,931 ) 640,384 (27,992 ) 21,061 

(12,411 ) (706 ) (561,295 ) (559,751 ) (68,799 ) (2,699 ) 

(7,037 ) 1,093 (621,663 ) 175,796 (90,049 ) 26,080 

(6,192 ) (2,039 ) (32,256 ) (89,386 ) (7,584 ) (6,586 ) 

(452 ) — (695,941 ) (52,696 ) (21,178 ) (13,969 ) 

— — — — — — 

(6,644 ) (2,039 ) (728,197 ) (142,082 ) (28,762 ) (20,555 ) 

34,950 74,493 113,319 145,041 33,330 34,341 

6,644 2,039 728,197 142,082 28,762 20,555 

(8,621 ) (757 ) (393,150 ) (374,274 ) (45,933 ) (39,992 ) 

32,973 75,775 448,366 (87,151 ) 16,159 14,904 

19,292 74,829 (901,494 ) (53,437 ) (102,652 ) 20,429 

74,829 — 2,896,195 2,949,632 302,292 281,863 

$ 94,121 $ 74,829 $ 1,994,701 $ 2,896,195 $ 199,640 $ 302,292 

$ (264 ) $ (196 ) $ 88,315 $ 36,624 $ 6,075 $ 7,610 

36,195 74,759 71,372 72,345 31,039 27,471 

7,780 2,087 548,339 73,542 28,533 17,230 

(9,476 ) (759 ) (261,404 ) (186,840 ) (45,438 ) (31,988 ) 

34,499 76,087 358,307 (40,953 ) 14,134 12,713 



Financial Highlights 

(For a share outstanding throughout the period) 

Net Asset Value, 

Beginning 

of Period 

Net Investment 

Income (Loss) 

Net Realized and 

Unrealized Gain 

(Loss) on 

Investments 

Total from 

Investment 

Operations 

Distributions 

from Net 

Investment 

Income 

Distributions 

from Realized 

Gains on 

Investments 

Total 

Distributions 


End of Period 


2008 . . . . $ 2 .49 $ 0 .02 $ (0 .94) $ (0 .92) $ (0 .02) $ (0 .14) $ (0 .16) $ 1.41 

2007 . . . . 2 .30 0 .02 0 .19 0.21 (0 .02) — (0 .02) 2.49 

2006 . . . . 2 .11 0 .02 0 .19 0.21 (0 .02) — (0 .02) 2.30 

2005 . . . . 1 .98 0 .02 0 .13 0.15 (0 .02) — (0 .02) 2.11 

2004 . . . . 1 .87 0 .01 0 .11 0.12 (0 .01) — (0 .01) 1.98 


2008 . . . . $ 2 .05 $ 0 .00 (e) $ (0 .80) $ (0 .80) $ (0 .01) $ (0 .04) $ (0 .05) $ 1.20 

2007 . . . . 1 .62 0 .01 0 .42 0.43 0.00 (e) 0.00 (e) 0 .00 (e) 2.05 

2006 . . . . 1 .63 0 .01 0 .07 0.08 (0 .01) (0 .08) (0 .09) 1.62 

2005 . . . . 1 .43 — 0 .25 0.25 — (0 .05) (0 .05) 1.63 

2004 . . . . 1 .20 0 .00 (e) 0 .23 0.23 — — — 1.43 


2008 . . . . $ 1 .45 $ 0 .02 $ (0 .57) $ (0 .55) $ (0 .02) $ — $ (0 .02) $ 0.88 

2007 . . . . 1 .35 0 .02 0 .10 0.12 (0 .02) — (0 .02) 1.45 

2006 . . . . 1 .22 0 .02 0 .12 0.14 (0 .01) — (0 .01) 1.35 

2005 . . . . 1 .14 0 .01 0 .09 0.10 (0 .02) — (0 .02) 1.22 

2004 . . . . 1 .07 0 .02 0 .06 0.08 (0 .01) — (0 .01) 1.14 


2008 . . . . $ 0 .93 $ 0 .01 $ (0 .38) $ (0 .37) $ (0 .01) $ — $ (0 .01) $ 0.55 

2007 (h) . . . 1 .00 0 .01 (0 .07) (0 .06) (0 .01) 0.00 (e) (0 .01) 0.93 


2008 . . . . $ 3 .26 $ 0 .06 $ (1 .22) $ (1 .16) $ (0 .06) $ (0 .09) $ (0 .15) $ 1.95 

2007 . . . . 3 .26 0 .06 0 .12 0.18 (0 .06) (0 .12) (0 .18) 3.26 

2006 . . . . 2 .97 0 .06 0 .39 0.45 (0 .05) (0 .11) (0 .16) 3.26 

2005 . . . . 2 .94 0 .05 0 .08 0.13 (0 .05) (0 .05) (0 .10) 2.97 

2004 . . . . 2 .72 0 .05 0 .24 0.29 (0 .04) (0 .03) (0 .07) 2.94 


2008 . . . . $ 0 .93 $ 0 .02 $ (0 .36) $ (0 .34) $ (0 .02) $ 0.00 (e) $ (0 .02) $ 0.57 

2007 (h) . . . 1 .00 0 .01 (0 .07) (0 .06) (0 .01) — (0 .01) 0.93 


2008 . . . . $ 1 .15 $ 0 .03 $ (0 .44) $ (0 .41) $ (0 .03) $ (0 .08) $ (0 .11) $ 0.63 

2007 . . . . 1 .31 0 .03 (0 .11) (0 .08) (0 .02) (0 .06) (0 .08) 1.15 

2006 . . . . 1 .13 0 .02 0 .17 0.19 — (0 .01) (0 .01) 1.31 

2005 . . . . 1 .14 0 .02 0 .07 0.09 (0 .02) (0 .08) (0 .10) 1.13 

2004 . . . . 1 .00 0 .02 0 .15 0.17 (0 .01) (0 .02) (0 .03) 1.14 


2008 . . . . $ 1 .38 $ 0 .03 $ (0 .51) $ (0 .48) $ 0.00 (e) $ (0 .03) $ (0 .03) $ 0.87 

2007 . . . . 1 .53 0 .03 0 .01 0.04 (0 .03) (0 .16) (0 .19) 1.38 

2006 . . . . 1 .33 0 .02 0 .24 0.26 (0 .02) (0 .04) (0 .06) 1.53 

2005 . . . . 1 .35 0 .02 0 .04 0.06 (0 .02) (0 .06) (0 .08) 1.33 

2004 . . . . 1 .22 0 .02 0 .17 0.19 (0 .02) (0 .04) (0 .06) 1.35 

(e) Amount is less than $0.005. 

(h) For the period April 30, 2007 (commencement of operations) through December 31, 2007 


206 Financial Highlights

Total Return (d) 

Net Assets, End 

of Period 

(thousands) 

Ratio of Gross 

Expenses to 

Average Net 

Assets 

Ratio of Net 

Expenses to 

Average Net 

Assets 

Ratio of Net 

Investment 

Income (Loss) to 

Average Net 

Assets 

Portfolio 

Turnover Rate 

(38 .86)% $ 413,801 — % 0 .43% 0 .88% 38 .18% 

9 .20 748,329 — 0 .42 0.84 36 .62 

9 .57 735,055 — 0 .43 0.94 36 .05 

7 .71 702,526 — 0 .43 0.78 31 .74 

6 .67 686,849 — 0 .43 1.07 34 .53 

(40 .01)% $ 171,551 — % 0 .78% (0 .09)% 67 .79% 

26 .84 230,437 — 0 .80 0.44 57 .89 

4 .88 138,581 — 0 .81 0.38 61 .84 

17 .00 132,679 — 0 .82 0.18 45 .20 

19 .67 56,690 — 0 .84 (0 .03) 25 .42 

(38 .74)% $ 310,665 — % 0 .44% 1 .35% 50 .12% 

9 .12 556,895 — 0 .43 1.30 43 .86 

11 .49 535,453 — 0 .44 1.25 39 .39 

8 .46 494,020 — 0 .44 1.15 32 .23 

8 .16 469,935 — 0 .44 1.41 33 .64 

(40 .25)% $ 29,382 0 .87% 0 .85% 1 .15% 59 .53% 

(6 .52)% 34,935 0 .89 (c) 0 .85 (c) 0.95 (c) 22 .41% 

(36 .94)% $ 1,231,610 — % 0 .20% 2 .13% 4 .10% 

5 .43 2,088,835 — 0 .20 1.89 4.44 

15 .62 2,081,399 — 0 .20 1.78 4.47 

4 .72 1,903,641 — 0 .20 1.68 5.36 

10 .70 1,904,122 — 0 .20 1.83 3.45 

(37 .23)% $ 28,570 0 .81% 0 .80% 2 .41% 26 .04% 

(5 .97) 32,695 0 .85 (c) 0 .80 (c) 2.03 (c) 16 .92 

(38 .49)% $ 281,556 — % 0 .57% 2 .89% 60 .11% 

(6 .33) 439,896 — 0 .56 2.37 38 .86 

16 .56 409,836 — 0 .58 1.99 31 .59 

8 .04 273,934 — 0 .60 1.77 35 .19 

16 .85 211,977 — 0 .62 1.63 32 .97 

(35 .81)% $ 151,641 — % 0 .67% 2 .61% 28 .82% 

3 .26 212,428 — 0 .67 1.93 41 .94 

19 .15 200,507 — 0 .67 1.88 15 .50 

4 .19 132,923 — 0 .68 1.76 16 .01 

15 .16 89,747 — 0 .69 1.74 15 .21 

(c) Computed on an annualized basis. 

(d) Total Return includes deductions for management and other fund expenses; excludes deductions for sales loads and account fees, not annualized for periods 

less than one year. 


Financial Highlights 207




Beginning 

of Period 


Income (Loss) 



(Loss) on 

Investments 

Total from 

Investment 

Operations 

Distributions 

from Net 

Investment 

Income 

Distributions 

from Realized 

Gains on 

Investments 

Total 

Distributions 


End of Period 


2008 . . . . $ 3 .68 $ 0 .01 $ (1 .35) $ (1 .34) $ (0 .01) $ (0 .41) $ (0 .42) $ 1.92 

2007 . . . . 3 .37 0 .01 0 .66 0.67 (0 .03) (0 .33) (0 .36) 3.68 

2006 . . . . 3 .30 0 .03 0 .12 0.15 — (0 .08) (0 .08) 3.37 

2005 . . . . 3 .11 — 0 .19 0.19 — — — 3.30 

2004 . . . . 2 .72 0 .00 (e) 0 .39 0.39 — — — 3.11 


2008 . . . . $ 1 .60 $ 0 .02 $ (0 .55) $ (0 .53) $ (0 .02) $ (0 .15) $ (0 .17) $ 0.90 

2007 . . . . 1 .59 0 .02 0 .10 0.12 (0 .02) (0 .09) (0 .11) 1.60 

2006 . . . . 1 .55 0 .02 0 .14 0.16 (0 .02) (0 .10) (0 .12) 1.59 

2005 . . . . 1 .46 0 .02 0 .15 0.17 (0 .01) (0 .07) (0 .08) 1.55 

2004 . . . . 1 .28 0 .01 0 .19 0.20 (0 .01) (0 .01) (0 .02) 1.46 


2008 . . . . $ 1 .28 $ 0 .01 $ (0 .46) $ (0 .45) $ — $ (0 .02) $ (0 .02) $ 0.81 

2007 . . . . 1 .53 0 .01 (0 .02) (0 .01) (0 .01) (0 .23) (0 .24) 1.28 

2006 . . . . 1 .45 0 .02 0 .20 0.22 (0 .02) (0 .12) (0 .14) 1.53 

2005 . . . . 1 .45 0 .01 0 .08 0.09 (0 .01) (0 .08) (0 .09) 1.45 

2004 . . . . 1 .32 0 .01 0 .22 0.23 (0 .01) (0 .09) (0 .10) 1.45 


2008 . . . . $ 2 .37 $ 0 .00 (e) $ (0 .92) $ (0 .92) $ 0.00 (e) $ (0 .36) $ (0 .36) $ 1.09 

2007 . . . . 2 .38 0 .00 (e) 0 .22 0.22 0.00 (e) (0 .23) (0 .23) 2.37 

2006 . . . . 2 .53 — 0 .18 0.18 — (0 .33) (0 .33) 2.38 

2005 . . . . 2 .30 — 0 .25 0.25 — (0 .02) (0 .02) 2.53 

2004 . . . . 1 .94 (0 .01) 0 .37 0.36 — — — 2.30 


2008 . . . . $ 0 .93 $ 0 .01 $ (0 .29) $ (0 .28) $ — $ (0 .01) $ (0 .01) $ 0.64 

2007 (h) . . . 1 .00 — (0 .06) (0 .06) — (0 .01) (0 .01) 0.93 


2008 . . . . $ 1 .72 $ 0 .01 $ (0 .45) $ (0 .44) $ (0 .01) $ (0 .13) $ (0 .14) $ 1.14 

2007 . . . . 1 .84 0 .01 (0 .02) (0 .01) (0 .01) (0 .10) (0 .11) 1.72 

2006 . . . . 1 .64 0 .01 0 .26 0.27 — (0 .07) (0 .07) 1.84 

2005 . . . . 1 .58 0 .01 0 .10 0.11 (0 .01) (0 .04) (0 .05) 1.64 

2004 . . . . 1 .29 0 .01 0 .30 0.31 — (0 .02) (0 .02) 1.58 


2008 . . . . $ 1 .82 $ 0 .02 $ (0 .79) $ (0 .77) $ (0 .02) $ (0 .17) $ (0 .19) $ 0.86 

2007 . . . . 1 .77 0 .02 0 .19 0.21 (0 .02) (0 .14) (0 .16) 1.82 

2006 . . . . 1 .48 0 .02 0 .29 0.31 — (0 .02) (0 .02) 1.77 

2005 . . . . 1 .32 0 .01 0 .23 0.24 (0 .01) (0 .07) (0 .08) 1.48 

2004 . . . . 1 .09 0 .01 0 .23 0.24 (0 .01) — (0 .01) 1.32 


2008 . . . . $ 1 .04 $ 0 .02 $ (0 .46) $ (0 .44) $ (0 .01) $ (0 .01) $ (0 .02) $ 0.58 

2007 (h) . . . 1 .00 0 .01 0 .05 0.06 (0 .01) (0 .01) (0 .02) 1.04 




208 Financial Hightlights



of Period 

(thousands) 


Expenses to 

Average Net 

Assets 

Ratio of Net 

Expenses to 

Average Net 

Assets 

Ratio of Net 

Investment 


Average Net 

Assets 

Portfolio 

Turnover Rate 

(40 .08)% $ 695,626 — % 0 .53% 0 .20% 43 .67% 

20 .70 1,294,703 — 0 .52 0.26 66 .20 

4 .40 1,183,484 — 0 .52 0.77 72 .15 

6 .14 1,252,702 — 0 .52 0.13 83 .42 

14 .22 1,278,495 — 0 .52 0.05 71 .24 

(36 .28)% $ 319,515 — % 0 .26% 1 .50% 15 .94% 

7 .93 558,136 — 0 .26 1.44 24 .49 

10 .04 533,740 — 0 .26 1.42 12 .43 

12 .37 490,626 — 0 .26 1.26 18 .63 

16 .26 426,827 — 0 .26 0.96 16 .46 

(35 .07)% $ 74,681 — % 0 .89% 1 .01% 50 .78% 

(0 .16) 114,455 — 0 .87 0.66 41 .37 

14 .49 131,016 — 0 .87 1.26 43 .75 

5 .46 97,557 — 0 .87 0.61 31 .15 

18 .67 72,131 — 0 .89 1.00 33 .05 

(43 .87)% $ 284,621 — % 0 .57% 0 .01% 146 .28% 

9 .54 543,986 — 0 .55 0.13 143 .29 

6 .68 528,612 — 0 .55 0.08 82 .48 

11 .18 503,008 — 0 .56 (0 .09) 69 .50 

18 .80 442,420 — 0 .57 (0 .30) 87 .74 

(31 .30)% $ 21,174 0 .55% 0 .35% 1 .38% 71 .09% 

(5 .89) 24,039 0 .51 (c) 0 .35 (c) 2.02 (c) 51 .76 

(28 .13)% $ 240,817 — % 0 .87% 0 .87% 22 .94% 

(0 .83) 337,973 — 0 .86 0.80 33 .39 

16 .55 324,973 — 0 .86 0.66 21 .70 

7 .21 245,041 — 0 .87 0.63 17 .74 

24 .57 200,143 — 0 .88 0.81 19 .22 

(46 .19)% $ 197,383 0 .80% 0 .79% 1 .69% 134 .71% 

12 .62 353,426 — 0 .78 1.39 105 .82 

21 .48 272,882 — 0 .86 1.14 82 .62 

18 .00 167,550 — 0 .95 1.01 70 .60 

21 .59 110,498 — 0 .98 0.81 70 .84 

(42 .54)% $ 33,435 1 .69% 1 .15% 2 .27% 77 .80% 

5 .49 47,347 1 .71 (c) 1 .15 (c) 1.16 (c) 45 .53 









Beginning 

of Period 


Income (Loss) 



(Loss) on 

Investments 

Total from 

Investment 

Operations 

Distributions 

from Net 

Investment 

Income 

Distributions 

from Realized 

Gains on 

Investments 

Total 

Distributions 


End of Period 


2008 . . . . $ 2 .67 $ 0 .07 $ (1 .16) $ (1 .09) $ (0 .05) $ (0 .21) $ (0 .26) $ 1.32 

2007 . . . . 2 .33 0 .05 0 .37 0.42 (0 .05) (0 .03) (0 .08) 2.67 

2006 . . . . 1 .81 0 .05 0 .51 0.56 (0 .04) — (0 .04) 2.33 

2005 . . . . 1 .65 0 .04 0 .15 0.19 (0 .03) — (0 .03) 1.81 

2004 . . . . 1 .41 0 .03 0 .24 0.27 (0 .03) — (0 .03) 1.65 


2008 . . . . $ 1 .24 $ 0 .02 $ (0 .71) $ (0 .69) $ (0 .02) $ 0.00 (e) 

2007 (h) . . . 1 .00 0 .01 0 .23 0.24 0.00 (e) — 

$ (0 .02) 

0 .00 (e) $ 0.53 

1.24 


2008 . . . . $ 1 .00 $ 0 .03 $ — $ 0.03 $ (0 .03) $ 0.00 (e) $ (0 .03) $ 1.00 

2007 . . . . 1 .00 0 .05 — 0.05 (0 .05) — (0 .05) 1.00 

2006 . . . . 1 .00 0 .05 — 0.05 (0 .05) — (0 .05) 1.00 

2005 . . . . 1 .00 0 .03 — 0.03 (0 .03) — (0 .03) 1.00 

2004 . . . . 1 .00 0 .01 — 0.01 (0 .01) — (0 .01) 1.00 


2008 . . . . $ 1 .00 $ 0 .04 $ (0 .01) $ 0.03 $ (0 .04) $ — 

2007 (h) . . . 1 .00 0 .03 0 .00 (e) 0.03 (0 .03) — 

$ (0 .04) 

(0 .03) 

$ 0.99 

1.00 


2008 . . . . $ 1 .23 $ 0 .06 $ (0 .02) $ 0.04 $ (0 .06) $ — $ (0 .06) $ 1.21 

2007 . . . . 1 .20 0 .05 0 .03 0.08 (0 .05) — (0 .05) 1.23 

2006 . . . . 1 .20 0 .05 — 0.05 (0 .05) — (0 .05) 1.20 

2005 . . . . 1 .23 0 .05 (0 .03) 0.02 (0 .04) (0 .01) (0 .05) 1.20 

2004 . . . . 1 .26 0 .05 0 .01 0.06 (0 .05) (0 .04) (0 .09) 1.23 


2008 . . . . 

2007 (h) . . . 

$ 1 .04 

1 .00 

$ 0 .03 

0 .03 

$ 0 .19 

0 .05 

$ 0.22 

0.08 

$ (0 .02) 

(0 .03) 

$ (0 .02) 

(0 .01) 

$ (0 .04) 

(0 .04) 

$ 1.22 

1.04 


2008 . . . . $ 1 .04 $ 0 .05 $ (0 .06) $ (0 .01) $ (0 .04) $ 0.00 (e) 

2007 (h) . . . 1 .00 0 .03 0 .04 0.07 (0 .03) — 

$ (0 .04) 

(0 .03) 

$ 0.99 

1.04 


2008 . . . . $ 0 .70 $ 0 .05 $ (0 .19) $ (0 .14) $ (0 .05) $ — $ (0 .05) $ 0.51 

2007 . . . . 0 .73 0 .05 (0 .03) 0.02 (0 .05) — (0 .05) 0.70 

2006 . . . . 0 .72 0 .05 0 .01 0.06 (0 .05) — (0 .05) 0.73 

2005 . . . . 0 .76 0 .05 (0 .04) 0.01 (0 .05) — (0 .05) 0.72 

2004 . . . . 0 .73 0 .05 0 .03 0.08 (0 .05) — (0 .05) 0.76 







of Period 

(thousands) 


Expenses to 

Average Net 

Assets 

Ratio of Net 

Expenses to 

Average Net 

Assets 

Ratio of Net 

Investment 


Average Net 

Assets 

Portfolio 

Turnover Rate 

(43 .78)% $ 1,009,367 0 .71% (f) 0 .65% (f) 3 .26% 2 .98% 

18 .06 1,902,612 0 .70 (f) 0 .63 (f) 2.21 15 .70 

30 .90 1,556,230 0 .71 (f) 0 .70 (f) 2.53 12 .15 

11 .52 1,139,260 — 0 .71 2.24 3.71 

19 .33 980,977 — 0 .72 2.23 18 .65 

(55 .22)% $ 52,386 1 .79% 1 .50% 2 .10% 109 .36% 

24 .73 89,563 1 .85 (c) 1 .50 (c) 1.05 (c) 73 .03 

2 .76% $ 622,620 0 .32% (l)(m) 0 .32% (l)(m) 2 .66% — % 

5 .28 462,092 — 0 .30 5.16 — 

4 .86 390,589 — 0 .30 4.77 — 

2 .98 339,858 — 0 .30 2.94 — 

1 .43 344,468 0 .30 (f) 0 .00 (f) 1.41 — 

2 .71% $ 69,797 — % 0 .40% 4 .29% 74 .86% (g) 

3 .10 57,998 0 .00 (c) 0 .44 (c) 4.80 (c) 72 .69 (g) 

3 .26% $ 1,088,647 — % 0 .30% 5 .06% 85 .39% (g) 

6 .39 1,114,647 — 0 .30 5.26 104 .07 (g) 

3 .74 924,457 — 0 .30 4.85 169 .55 (g) 

2 .22 786,544 — 0 .30 4.34 179 .05 (g) 

4 .75 661,027 — 0 .30 3.99 213 .87 

20 .76% $ 90,206 — % 0 .62% 2 .51% 272 .80% (g) 

7 .55 35,815 0 .72 (c) 0 .65 (c) 4.31 (c) 175 .03 (g) 

(1 .38)% $ 69,140 — % 0 .62% 4 .34% 48 .63% (g) 

6 .83 37,462 0 .70 (c) 0 .65 (c) 4.95 (c) 94 .74 (g) 

(21 .35)% $ 212,003 — % 0 .47% 8 .55% 43 .30% 

2 .38 292,928 — 0 .47 7.43 61 .65 

9 .77 276,639 — 0 .47 7.00 80 .94 

1 .39 244,554 — 0 .48 7.16 118 .63 

12 .76 229,312 — 0 .50 7.42 162 .00 




(f) For the International Equity Portfolio, expense ratios reflect total expenses before a management fee waiver in effect from November 15, 2006, (“Gross 

Expense Ratio”) and after such waiver (“Net Expense Ratio”). For the Money Market Portfolio, expense ratios reflect total expenses before a management fee 

in effect for the perios December 2, 2002 through December 31, 2004 (“Gross Expense Ratio”) and after such waiver (“Net Expense Ration”). The fee waiver 

ended on December 31, 2004. 

(g) Portfolio Turnover rate excludes the impact of mortgage dollar roll transactions. 

(l) For the Money Market Portfolio, expense ratios reflect total expenses before a management fee waiver effective December 31, 2008, (“Gross Expense 

Ratio”) and after such waiver (“Net Expense Ratio”). 

(m) 

Reflects fee paid by the Portfolio to participate in the U.S. Department of the Treasury’s Temporary Guarantee Program for Money Market Funds from the 

Program’s inception on September 19, 2008 through April 30, 2009. Due to the temporary nature of the Program, this fee has not been annualized. It is not 

known whether the Program will extend beyond April 30, 2009, and if so, on what terms. If the Portfolio participates in any extension, it would be required to 

pay an additional fee, which would cause expenses to be higher than those reflected. 






Beginning 

of Period 


Income (Loss) 



(Loss) on 

Investments 

Total from 

Investment 

Operations 

Distributions 

from Net 

Investment 

Income 

Distributions 

from Realized 

Gains on 

Investments 

Total 

Distributions 


End of Period 


2008 . . . . $ 0 .98 $ 0 .04 $ (0 .11) $ (0 .07) $ (0 .06) $ 0.00 (e) 

2007 (h) . . . 1 .00 0 .03 (0 .02) 0.01 (0 .03) — 

$ (0 .06) 

(0 .03) 

$ 0.85 

0.98 


$ $ $ $ (0 .53) $ 1.10 

2007 . . . . 1 .97 0 .03 0 .09 0.12 (0 .06) (0 .04) (0 .10) 1.99 

2006 . . . . 1 .86 0 .06 0 .12 0.18 (0 .05) (0 .02) (0 .07) 1.97 

2005 . . . . 1 .87 0 .05 0 .02 0.07 (0 .05) (0 .03) (0 .08) 1.86 

2004 . . . . 1 .85 0 .05 0 .09 0.14 (0 .05) (0 .07) (0 .12) 1.87 

2008 . . . . $ 1 .99 $ 0 .05 $ (0 .41) (0 .36) (0 .02) (0 .51) 


2008 . . . . $ 1 .24 $ 0 .03 $ (0 .38) $ (0 .35) $ (0 .03) $ (0 .09) $ (0 .12) $ 0.77 

2007 . . . . 1 .22 0 .03 0 .08 0.11 (0 .03) (0 .06) (0 .09) 1.24 

2006 . . . . 1 .16 0 .03 0 .08 0.11 (0 .02) (0 .03) (0 .05) 1.22 

2005 . . . . 1 .12 0 .02 0 .06 0.08 (0 .02) (0 .02) (0 .04) 1.16 

2004 . . . . 1 .02 0 .02 0 .08 0.10 — — — 1.12 







of Period 

(thousands) 


Expenses to 

Average Net 

Assets 

Ratio of Net 

Expenses to 

Average Net 

Assets 

Ratio of Net 

Investment 


Average Net 

Assets 

Portfolio 

Turnover Rate 

(6 .86)% $ 94,121 — % 0 .88% 4 .40% 23 .40% (g) 

1 .09 74,829 — 0 .93 (c) 5.39 (c) 72 .85 (g) 

(22 .72)% $ 1,994,701 — % 0 .30% 3 .26% 68 .34% (g) 

6 .15 2,896,195 — 0 .30 3.23 106 .64 (g) 

10 .42 2,949,632 — 0 .30 3.11 70 .12 (g) 

3 .59 2,905,741 — 0 .30 2.85 80 .21 (g) 

7 .89 2,983,179 — 0 .30 2.71 100 .02 

(30 .13)% $ 199,640 0 .60% 0 .54% 2 .59% 74 .22% (g) 

9 .40 302,292 0 .58 0 .54 2.64 85 .44 (g) 

9 .91 281,863 — 0 .59 2.53 86 .85 (g) 

6 .99 244,807 — 0 .61 2.18 90 .04 (g) 

10 .02 196,568 — 0 .64 1.90 116 .65 






Notes to Financial Statements 



Note 1. Organization 

Northwestern Mutual Series Fund, Inc. (the "Series Fund") is registered as a diversified, open-end management investment 

company under the Investment Company Act of 1940. The Series Fund consists of the Growth Stock Portfolio, Focused 

Appreciation Portfolio, Large Cap Core Stock Portfolio, Large Cap Blend Portfolio, Index 500 Stock Portfolio, Large 

Company Value Portfolio, Domestic Equity Portfolio, Equity Income Portfolio, Mid Cap Growth Stock Portfolio, Index 400 

Stock Portfolio, Mid Cap Value Portfolio, Small Cap Growth Stock Portfolio, Index 600 Stock Portfolio, Small Cap Value 

Portfolio, International Growth Portfolio, Research International Core Portfolio, International Equity Portfolio, Emerging 

Markets Equity Portfolio, Money Market Portfolio, Short-Term Bond Portfolio, Select Bond Portfolio, Long-Term U.S. 

Government Bond Portfolio, Inflation Protection Portfolio, High Yield Bond Portfolio, Multi-Sector Bond Portfolio, Balanced 

Portfolio, and the Asset Allocation Portfolio (each, a “Portfolio” or collectively, the “Portfolios”). Shares are presently offered 

only to The Northwestern Mutual Life Insurance Company ("Northwestern Mutual") and its segregated asset accounts. 

On April 30, 2008, the following Portfolio names changed: 

Prior Name 

Current Name 

Janus Capital Appreciation Portfolio 


Capital Guardian Large Cap Blend Portfolio 


American Century Large Company Value Portfolio 


Capital Guardian Domestic Equity Portfolio 


T. Rowe Price Equity Income Portfolio Equity Income Portfolio 

AllianceBernstein Mid Cap Value Portfolio 


T. Rowe Price Small Cap Value Portfolio Small Cap Value Portfolio 

MFS ® Research International Core Portfolio 


Franklin Templeton International Equity Portfolio 


MFS ® Emerging Markets Equity Portfolio 


PIMCO Long-Term U.S. Government Bond Portfolio 


American Century Inflation Protection Portfolio 


PIMCO Multi-Sector Bond Portfolio 


Note 2. Significant Accounting Policies 

The following is a summary of significant accounting policies consistently followed by the Series Fund in the preparation of its 

financial statements. 

A. Use of Estimates — 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. 

B. Security Valuation — Equity securities for which market quotations are readily available are valued at the last sale or 

official closing price as reported by an independent pricing service on the primary market or exchange on which they are 

traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last 

quoted bid price. Equity securities traded only in the over-the-counter market and not on a securities exchange are valued at 

the last sale price or closing bid price, if no sales have occurred. Bonds are generally valued on the basis of vendor prices. 

Futures are valued at settlement prices. Non-exchange traded derivatives are normally valued on the basis of quotes obtained 

from brokers and dealers or pricing services. 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 procedures are 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 a pricing 

service. Generally, money market investments with maturities of sixty days or less and all securities in the Money Market 

214 Notes to Financial Statements


Portfolio are valued on an amortized cost basis or, if the current market value differs substantially from the amortized cost, by 

marking to market. 

C. Delayed Delivery Transactions and When-Issued Securities — Certain Portfolios may engage in securities transactions on a 

when-issued or delayed-delivery basis. In these transactions, the securities’ prices and yields are fixed on the date of the 

commitment, with payment and delivery scheduled for a future date. During this period, the securities are subject to market 

fluctuations. When delayed-delivery purchases are outstanding, a Portfolio will segregate liquid assets on their records in 

amounts sufficient to meet the purchase price. A Portfolio may dispose of or renegotiate a delayed-delivery transaction, which 

may result in a capital gain or loss. 

D. Repurchase Agreements — Certain Portfolios may engage in repurchase transactions. Under the terms of a typical 

repurchase agreement, a Portfolio takes possession of an underlying debt obligation subject to an obligation of the seller to 

repurchase, and a Portfolio to resell, the obligation at an agreed-upon price and time. The underlying securities for all 

repurchase agreements are held in safekeeping at the Portfolio’s custodian or designated sub-custodians under tri-party 

repurchase agreements. The market value of the collateral must be equal to or exceed at all times the total amount of the 

repurchase obligations, including interest. Securities purchased under repurchase agreements are reflected as an asset on the 

Statements of Assets and Liabilities. Generally, in the event of counterparty default, a Portfolio has the right to use the 

collateral to offset losses incurred. If the counterparty should default, a Portfolio will seek to sell the securities which it holds 

as collateral. This could involve procedural costs or delays in addition to a loss on the securities if their value should fall below 

their repurchase price. 

E. Restricted Securities — Certain Portfolios may invest in securities that are subject to legal or contractual restrictions on 

resale. These securities may be sold privately, but are required to be registered or exempted from registration before being sold 

to the public. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an 

acceptable price may be difficult. 

F. Futures Contracts — Certain 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). 

G. Foreign Currency Transactions — Certain 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 exchange rate 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 or as part of an investment strategy. 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 fluctuations in foreign exchange rates on investments 

from the changes 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 Portfolios’ books and the U.S. dollar equivalent of the amounts actually received or 

paid. 

Notes to Financial Statements 215


H. Mortgage-Backed and Asset-Backed Securities – Certain Portfolios may invest in mortgage-backed securities, including 

collateralized mortgage obligations, and asset-backed securities. Mortgage-backed securities are interests in pools of residential 

or commercial mortgage loans and asset-backed securities are interests in pools of other assets, including various types of loans 

and credit card receivables. These securities provide a monthly payment, consisting of both a principal and interest component. 

Interest payments may be based on either fixed rates or adjustable rates. Receipt of principal payment reduces the outstanding 

par amount of the security and may generate realized gains or losses. Yields on mortgage-backed securities are affected by 

interest and prepayment rates, which, in turn, are influenced by a variety of economic, geographical, social and other factors. 

Maturities on mortgage-backed securities represent stated maturity dates. Actual maturity dates may differ based on 

prepayment rates. Unlike mortgage-backed securities issued or guaranteed by the U.S. government or one of its sponsored 

entities, mortgage-backed securities and asset-backed securities issued by private issuers do not have a government or 

government-sponsored entity guarantee. These issuers may provide credit enhancements through external entities such as 

financial institutions or through the structuring of the transaction itself. There is no guarantee that credit enhancements, if any, 

will be sufficient to prevent losses. 

During the year, the broader credit markets including the non-agency mortgage markets experienced significant deterioration 

characterized by wider spreads and reduced levels of liquidity. This negatively impacted the prices of certain of these 

securities, and, to the extent that the Portfolio sought to do so, may have impacted its ability to sell securities. The decline in 

liquidity and prices of these types of securities may have made it more difficult to determine fair market value. 

Since late 2007, the asset-backed commercial paper (“ABCP”) market has been under unprecedented pressure and scrutiny as 

concerns over the subprime mortgage sector are impacting the short term fixed income markets. ABCP is a type of commercial 

paper that is backed by a pool of assets. That pool of assets is generally a mix of debt obligations, including credit card debt, 

automobile loans and leases, prime and sub-prime mortgage-backed securities, student loans and other asset-backed securities. 

The value of asset-backed securities may be affected by changes in interest rates, the quality of the underlying assets or the 

market’s assessment thereof, factors concerning the interests in and structure of the issuer or the originator of the receivables, 

or the creditworthiness of the entities that provide any credit enhancements, among other factors. The ABCP market continues 

to function, although at wider spreads and under liquidity pressure. 

I. Short Sales – Certain Portfolios may enter into short sale transactions. A short sale is a transaction in which a Portfolio sells a 

security it does not own in anticipation of a decline in the market price of the security. Securities sold in short sale transactions 

and the interest payable on such securities, if any, are reflected as a liability on the Statements of Assets and Liabilities. A 

Portfolio is obligated to deliver the security at the market price at the time the short position is closed. The risk of loss on a 

short sale transaction is theoretically unlimited, because there is no limit to the cost of replacing the security sold short, 

whereas losses from purchase transactions cannot exceed the total amount invested. 

J. Inflation-Indexed Bonds — Certain Portfolios may invest in inflation-indexed bonds. Inflation-indexed bonds are fixedincome 

securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is 

generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, interest will be paid 

based on a principal value, which is adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond 

will be included as interest income in the Statements of Operations even though investors do not receive their principal until 

maturity. 

K. Options —Certain Portfolios may write call and put options on futures, swaps, securities or currencies it owns or in which it 

may invest. Writing put options tends to increase a Portfolio’s exposure to the underlying instrument. Writing call options 

tends to decrease a Portfolio’s exposure to the underlying instrument. The Portfolio receives a premium on the sale of a call 

option but gives up the opportunity to profit from any increase in the value of the security above the exercise price of the 

option. When a Portfolio writes a put option, it is exposed to a decline in the price of the underlying security. When a Portfolio 

writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to 

market to reflect the current value of the option written. These liabilities are reflected as written options outstanding in the 

Statements of Assets and Liabilities. Payments received or made, if any, from writing options with premiums to be determined 

on a future date are reflected as such on the Statements of Assets and Liabilities. Premiums received from writing options 

which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to 

the proceeds or offset against amounts paid on the underlying future, swap, security or currency transaction to determine the 

realized gain or loss. A Portfolio as a writer of an option has no control over whether the underlying future, swap, security or 

currency may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the 



future, swap, security or currency underlying the written option. There is a risk a Portfolio may not be able to enter into a 

closing transaction because of an illiquid market. 

Transactions in written call and put options were as follows (amounts in thousands, except number of contracts): 

Balance at 

12/31/2007 Sales 

Closing 

Buys Expirations Exercised 

Balance at 

12/31/2008 


# of Contracts................ — 3,000 (1,175 ) (1,087 ) (738 ) — 

Notional Amount in $........... $ — 300 (117 ) (109 ) (74 ) $ — 

Premium ................... $ — 343 (53 ) (61 ) (229 ) $ — 


Portfolio 

# of Contracts................ 11 8 (19 ) — — — 

Notional Amount in $........... $ 28 8 (36 ) — — $ — 

Premium ................... $ 6 4 (10 ) — — $ — 


# of Contracts................ 196 390 (122 ) (464 ) — — 

Notional Amount in $........... $ 196 390 (122 ) (464 ) — $ — 

Premium ................... $ 94 172 (79 ) (187 ) — $ — 


# of Contracts................ — 322 (114 ) (137 ) (71 ) — 


Premium ................... $ — 35 (5 ) (8 ) (22 ) $ — 


# of Contracts................ — 45 (17 ) (17 ) (11 ) — 


Premium ................... $ — 5 (1 ) (1 ) (3 ) $ — 

Certain Portfolios may also purchase call and put options on futures, swap, securities or currencies it owns or in which it may 

invest. Purchasing call options tends to increase a Portfolio’s exposure to the underlying instrument. Purchasing put options 

tends to decrease a Portfolio’s exposure to the underlying instrument. The Portfolio pays a premium on the purchase of a put 

option but receives the opportunity to profit from any increase in the value of the security above the exercise price of the 

option. When a Portfolio purchases a call option, it is exposed to a decline in the price of the underlying security. Premiums 

paid are reflected in the Statements of Assets and Liabilities as an investment and are subsequently marked to market to reflect 

the current value of the option. Premiums paid from purchasing options which expire are treated as realized losses. Premiums 

paid for purchasing options which are exercised or closed are added to the amount paid or offset against the proceeds on the 

underlying future, swap, security or currency transaction to determine realized gain or loss. The risk associated with a Portfolio 

purchasing call or put options is limited to the premium paid. 

L. Swap Agreements — The Portfolios may enter into swap agreements on interest rate, total return and credit default to 

manage their exposure to interest rates, investment style risk and credit risk. In connection with these agreements, securities 

may be identified as collateral in accordance with the terms of the respective swap agreements. 

Swaps are marked to market daily based upon quotations from market makers and the change in value, if any, is recorded as 

unrealized gain or loss in the Statements of Operations. Payments received or made at the beginning of the measurement period 

of the swap are reflected on the Statements of Assets and Liabilities. Upfront payments are recorded as realized gain or loss in 

the Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the 

termination of the swap is recorded as realized gain or loss in the Statements of Operations. Net periodic payments received by 

the Portfolios are included as part of realized gain (loss) on the Statements of Operations. Entering into these agreements 

involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statements of 

Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the 

counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in interest 

rates. 

Certain Portfolios maintain restricted cash deposits with brokers to cover margin requirements for derivative positions. These 

amounts are denoted as “Collateral for Derivative Positions” on the Statements of Assets and Liabilities. 



Interest Rate Swaps Interest rate swap agreements involve the exchange by a Portfolio with another party to pay or receive 

interest, e.g., an exchange of floating rate payments for fixed rate payments based on a notional amount of principal. 

Total Return Swaps Total return swap agreements involve commitments to pay interest or a return in exchange for a marketlinked 

return, both based on notional amounts. To the extent the total return of the security or index underlying the transaction 

exceeds or falls short of the offsetting interest rate obligation, a Portfolio will receive a payment from or make a payment to the 

counterparty. 

Credit Default Swaps Credit default swap agreements involve one party making a series of payments to another party in 

exchange for the right to receive a certain return in the event of a default by a third party, typically corporate issues or 

sovereign issues of an emerging market country, on its obligation. The Portfolio may use credit default swaps to provide a 

measure of protection against defaults of the issuers where the Portfolio owns or has exposure to the sovereign issue or to take 

an active long or short position on the likelihood of a particular issuer’s default. 

As a seller of protection, the Portfolio generally receives an upfront payment or a fixed rate of income throughout the term of 

the swap provided that there is no credit event. As the seller, the Portfolio adds leverage to its investments because the 

Portfolio has investment exposure on the notional amount of the swap. As a buyer of protection, the Portfolio generally makes 

an upfront payment or pays a fixed rate of interest throughout the term of the swap provided that there is no credit event. The 

Portfolio generally receives an amount up to the notional value of the swap if a credit event occurs. 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap 

agreements on corporate issues or sovereign issues of an emerging market country serve as an indicator of the current status of 

the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread 

of a particular referenced entity reflects the cost of selling protection and may include upfront payments required to be made to 

enter into the agreement. For credit default swap agreements on credit indices, the quoted market prices and resulting values 

serve as the indicator of the current status of the payment/performance risk. Wider credit spreads and increasing market values, 

in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit 

soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the 

agreement. As of December 31, 2008, open credit default swap agreements were as follows: 


Credit Default Swap on Corporate or Sovereign Issues 

CounterParty 

Morgan Stanley 

Capital Services, Inc. 

Buy/Sell (Pay)/Receive 

Protection Fixed Rate 

Expiration 

Date 

Implied 

Credit 

Spread 

Upfront 

Premiums Paid/ 

(Received) 

(000’s) 

Notional 

Amount 

(000's) 

Unrealized 

Appreciation/ 


(000's) 


Philippine Government 

International Bond, 10.625%, 

3/16/25 Sell 2.44% 9/17 3.66% $ - USD 100 $ (8) 

Credit Default Swaps on Credit Indices 

CounterParty 








Buy/Sell (Pay)/Receive 

Protection Fixed Rate 

Expiration 

Date 

Market 

Value 

Upfront 

Premiums Paid/ 

(Received) 

(000’s) 

Notional 

Amount 

(000's) 

Unrealized 

Appreciation/ 


(000's) 


Markets Index, Series 10 Sell 3.35% 12/13 $ (300) $ (305 ) USD 2,000 $ 5 


Markets Index, Series 9 Sell 2.65% 6/13 (1,725 ) 99 USD 11,000 (1,824 ) 

Dow Jones CDX NA High 

Yield Index, Series 9 Sell 3.75% 12/12 (864 ) (221 ) USD 4,900 (643 ) 


Markets Index, Series 9 Sell 2.65% 6/13 (1,567 ) 55 USD 10,000 (1,622 ) 

If the Portfolio is a seller of protection and a credit event occurs, the Portfolio will either pay to the buyer of the protection an 

amount equal to the notional value of the swap and may take delivery of the obligation or pay a net settlement amount in the 

form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation. The 



maximum potential amount of future payments (undiscounted) that a Portfolio as a seller of protection could be required to 

make under a credit default swap agreement would be equal to the notional amount of the agreement. Notional amounts and 

fair market value of all credit swap agreements outstanding as of December 31, 2008 for which each Portfolio was the seller of 

protection are disclosed in the footnotes to the Schedules of Investments. These potential amounts would be partially offset by 

any recovery values of the referenced obligations, upfront payments received upon entering into the agreement, or net amounts 

received by the Portfolio from the settlement of credit default swap agreements purchasing protection for the same referenced 

obligation. 

The treatment of credit default swaps and other swap agreements that provide for contingent, non-periodic, bullet-type 

payments as “notional principal contracts” for U.S. federal income tax purposes is uncertain. Were the U.S. Internal Revenue 

Service (“IRS”) to take the position that a credit default swap is not a “notional principal contract” for U.S. federal income tax 

purposes, payments received by the Portfolios from such investments might be subject to U.S. excise or income taxes. 

M. Securities Lending — Each Portfolio is authorized to participate in securities lending, however, only the Select 

Bond and Balanced Portfolios currently have an established securities lending program that enables each to loan securities to 

approved broker-dealers. The Portfolios receive 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 is 

invested by the Portfolios to earn interest in accordance with the Portfolios’ investment policies. For the year ended December 

31, 2008, the Select Bond and Balanced Portfolios earned $1,682,645 and $853,789, respectively, in interest from securities 

lending activity. The collateral received under the securities lending program is recorded on each 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 Portfolios. 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 Portfolios are entitled to terminate a securities loan at any time. As of December 31, 2008, the 

value of outstanding securities on loan and the value of collateral amounted to the following: 

Portfolio 

Values of 

Securities 

on Loan 

Value of 

Collateral 

Select Bond Portfolio ............................ $ 65,591,466 $ 67,859,500 

Balanced Portfolio .............................. 6,383,438 6,693,750 

As of December 31, 2008, collateral received for securities on loan is invested in money market instruments and included in 

Investments on each Portfolio’s Statement of Assets and Liabilities. 

N. Foreign Income and Capital Gains Taxes — The Portfolios may be subject to dividend income taxes imposed by certain 

countries in which they invest. Foreign withholding taxes on dividends are netted against dividend income and separately 

disclosed in the Statements of Operations. 

The International Growth, Research International Core, International Equity, Emerging Markets Equity, Balanced and Asset 

Allocation Portfolios may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which they 

invest. The Portfolios may record a deferred tax liability in respect of unrealized appreciation on foreign securities for capital 

gains and repatriation taxes. The provision for income taxes is included in net unrealized appreciation (depreciation) on 

investments and net realized gain (loss) on investments in the Statement of Operations for the Portfolios. 

O. Investment Income and Securities Transactions — 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, 2008, transactions in securities 

other than money market investments were: 



Portfolios 

Total 

Security 

Purchases 

U.S. Govt. 

Security 

Purchases 

Total Security 

Sales/Maturities 

U.S. Govt. 

Security 

Sales/Maturities 

(Amounts in Thousands) 

Growth Stock Portfolio ........................................ $ 216,983 $ — $ 297,269 $ — 

Focused Appreciation Portfolio ................................... 184,245 — 137,272 — 

Large Cap Core Stock Portfolio ................................... 219,140 — 248,326 — 

Large Cap Blend Portfolio ...................................... 31,975 — 20,162 — 

Index 500 Stock Portfolio....................................... 69,061 — 169,032 — 

Large Company Value Portfolio................................... 18,973 — 8,078 — 

Domestic Equity Portfolio ...................................... 233,667 — 214,596 — 

Equity Income Portfolio ........................................ 81,017 — 52,189 — 

Mid Cap Growth Stock Portfolio .................................. 430,267 — 542,809 — 

Index 400 Stock Portfolio (a)..................................... 69,394 — 133,417 — 

Mid Cap Value Portfolio ....................................... 49,821 — 51,500 — 

Small Cap Growth Stock Portfolio ................................. 565,983 — 589,774 — 

Index 600 Stock Portfolio (b) .................................... 19,829 — 13,896 — 

Small Cap Value Portfolio ...................................... 77,466 — 68,962 — 

International Growth Portfolio.................................... 354,671 — 357,756 — 

Research International Core Portfolio ............................... 43,014 — 33,125 — 

International Equity Portfolio .................................... 111,495 — 41,633 — 

Emerging Markets Equity Portfolio................................. 117,467 — 87,777 — 

Short-Term Bond Portfolio ...................................... 51,647 22,937 18,542 30,772 

Select Bond Portfolio ......................................... 762,957 434,025 552,676 584,565 

Long-Term U.S. Government Bond Portfolio .......................... 111,082 117,068 95,443 86,824 

Inflation Protection Portfolio..................................... 32,667 30,420 13,509 13,348 

High Yield Bond Portfolio ...................................... 106,049 — 102,681 — 

Multi-Sector Bond Portfolio ..................................... 355,089 — 309,285 — 

Balanced Portfolio ........................................... 1,267,176 389,148 1,426,844 573,172 

Asset Allocation Portfolio....................................... 142,486 28,914 155,023 37,821 

(a) Includes (in thousands) $1,327 of purchases and $122 of sales with affiliates 

(b) Includes (in thousands) $122 of purchases and $1,327 of sales with affiliates 

P. Distributions — 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, when applicable. 

Q. Fair Value Measurements — In September 2006, the Financial Accounting Standards Board issued Standard No. 157, Fair 

Value Measurements (“FAS 157”) effective for fiscal years beginning after November 15, 2007. FAS 157 clarifies the 

definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional 

disclosure about the use of fair value measurements in an effort to make the measurement of fair value more consistent and 

comparable. The Portfolios have adopted FAS 157 effective January 1, 2008. A summary of the fair value hierarchy under FAS 

157 is described below: 

• Level 1 — fair value is determined by unadjusted quoted prices in active markets for identical securities or 

derivatives 

• Level 2 — fair value is determined by other significant observable inputs (including quoted prices for similar 

securities, interest rates, prepayment speeds, credit risk, and other data used in fair valuation) 

• Level 3 — fair value is determined by significant unobservable inputs (including the Portfolios’ own assumptions in 

determining fair value) 

The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency 

of the instrument and does not necessarily correspond to the Fund’s perceived risk of that instrument. For example, money 

market securities are generally valued using amortized cost, unless the current market value differs substantially from 

amortized cost. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained 

from a quoted price in an active market, such securities are reflected as Level 2. 

The following is a summary of the inputs used in valuing the Portfolios’ assets at December 31, 2008: 



Level 1 - Quoted Prices 

Investments in 

Securities 

Other 

Financial 

Instruments^ 

Level 2 - Other Significant 

Observable Inputs 

Other 

Investments in Financial 

Securities Instruments^ 

Level 3 - Significant 

Unobservable Inputs 


Securities 

Other 

Financial 

Instruments^ 


Securities 

Total 

Other 

Financial 

Instruments^ 


Growth Stock Portfolio ... $ 364,830 $ (522) $ 41,494 $ — $ — $ — $ 406,324 $ (522) 

Focused Appreciation 

Portfolio * .............. 141,082 — 30,094 — — — 171,176 — 

Large Cap Core Stock 

21,697 — — — 310,375 (148) 

Large Cap Blend 

Portfolio * .............. 28,384 — 1,000 — — — 29,384 — 

Index 500 Stock Portfolio 1,202,611 (330 ) 26,395 — — — 1,229,006 (330 ) 

Large Company Value 

Portfolio ................ 26,893 (5 ) 1,595 — — — 28,488 (5 ) 

Domestic Equity 

Portfolio * .............. 264,902 — 16,227 — — — 281,129 — 

Equity Income Portfolio *. 144,547 — 6,705 — — — 151,252 — 

Portfolio ................ 288,678 (148 ) 

Mid Cap Growth Stock 

54,880 — — — 705,876 332 

Index 400 Stock Portfolio 285,234 842 31,195 — — — 316,429 842 

Mid Cap Value Portfolio * 71,411 — 2,718 — — — 74,129 — 

Portfolio ................ 650,996 332 

Small Cap Growth Stock 

21,179 782 — — 281,897 1,011 

Index 600 Stock Portfolio 17,885 — 700 101 — — 18,585 101 

Portfolio ................ 260,718 229 

Small Cap Value 

Portfolio * .............. 231,604 — 8,904 — — — 240,508 — 

International Growth 

Portfolio ................ 29,022 — 162,790 316 — — 191,812 316 

Research International 

Core Portfolio * ........ 2,470 — 30,459 — — — 32,929 — 

International Equity 

Portfolio * .............. 120,664 — 886,397 — — — 1,007,061 — 

Emerging Markets Equity 

Portfolio ................ 21,314 — 30,108 (5 ) — — 51,422 (5 ) 

Money Market Portfolio *. — — 621,299 — — — 621,299 — 

Short-Term Bond 

Portfolio ................ — 18 68,151 — 13 — 68,164 18 

Select Bond Portfolio ..... — (5,593 ) 1,141,901 — 3,833 — 1,145,734 (5,593 ) 

Long-Term U.S. 

Government Bond 

Portfolio ................ — 2,141 109,530 — — — 109,530 2,141 

Inflation Protection 

Portfolio ................ — — 70,690 (2,203 ) — — 70,690 (2,203 ) 

High Yield Bond 

Portfolio * .............. — — 206,836 — 95 — 206,931 — 

Multi-Sector Bond 

Portfolio ................ — 4,098 119,209 (5,901 ) — — 119,209 (1,803 ) 

Balanced Portfolio ........ 579,407 (5,877 ) 1,390,851 1,714 4,316 — 1,974,574 (4,163 ) 

Asset Allocation Portfolio 70,219 (527 ) 127,200 59 223 — 197,642 (468 ) 

^ Other financial instruments are derivative instruments such as futures, forwards, written options and swaps contracts, which are valued at the unrealized 

appreciation (depreciation) on the instrument and short sales, which are valued at market value. 

* On December 31, 2008, this Portfolio did not hold any derivative instruments. 

R. Recent Accounting Pronouncements — In September 2008, the Financial Accounting Standards Board issued Staff Position 

FSP FAS 133-1, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 

(“FAS 133-1”) effective for fiscal years and interim periods ending after November 15, 2008. FAS 133-1 requires enhanced 

disclosures about the Portfolios’ credit derivative positions, including the nature and term of credit derivatives, the reasons for 

entering into credit derivatives, the fair value of credit derivatives as of the date of the financial report, the circumstances under 

which the seller of the credit derivative would be required to perform and the maximum potential amount of future payments 

along with recourse provisions enabling recovery of such payment from a third party. Management has adopted FAS 133-1 and 

included necessary disclosures in these Notes to Financial Statements. 



In March 2008, the Financial Accounting Standards Board issued Standard No. 161, Disclosures about Derivative Instruments 

and Hedging Activities (“FAS 161”) effective for fiscal years and interim periods beginning after November 15, 2008. FAS 

161 requires enhanced disclosures about the Portfolios’ derivative and hedging activities. Management does not believe the 

adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will 

include quantitative and qualitative disclosures on derivative positions existing at the period end and the effect of using 

derivatives during the reporting period. 

Note 3. Market Conditions and Portfolio Risk 

Recent events in the financial sector have resulted in an unusually high degree of volatility in the financial markets and the net 

asset value of many mutual funds, including the Portfolios. Such events include, but are not limited to, the seizure of the 

Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation by U.S. banking regulators, the 

bankruptcy filing of Lehman Brothers, the sale of Merrill Lynch to Bank of America and sale of Bear Stearns to JP Morgan, 

and the government bailout of AIG. These companies represent financial institutions with which certain of the Portfolios 

conduct business and/or whose securities are or may be held by the Portfolios. The potential investment of each Portfolio in 

these issuers, and the financial sector in general, as reflected in each Portfolio’s Schedule of Investments, exposes investors to 

the negative (or positive) performance resulting from these and other events. U.S. Government Agency securities and 

collateral received by the Portfolios under various arrangements may include securities issued by the Federal National 

Mortgage Association and the Federal Home Loan Mortgage Corporation. 

In the normal course of business the Portfolios trade financial instruments and enter into financial transactions where risk of 

potential loss exists. Security values fluctuate (market risk) and may decline due to factors affecting securities markets in 

general, particular industries represented in the securities markets or conditions specifically related to a particular company. 

Failure of the other party to a transaction to perform (credit risk), for example by not making principal and interest payments 

when due, reduces the value of the issuer’s debt and could reduce the Portfolio’s income. 

Similar to credit risk, the Portfolios may be exposed to counterparty risk, or the risk that an institution or other entity with 

which the Portfolios have unsettled or open transactions will default. The potential loss could exceed the value of the financial 

assets recorded in the financial statements. Financial assets, which potentially expose the Portfolios to credit risk, consist 

principally of cash due from counterparties and investments. The extent of the Portfolios’ exposure to credit and counterparty 

risks in respect to these financial assets approximates their carrying value as recorded in the Statements of Assets and 

Liabilities. 

Some of the Portfolios’ investments may be illiquid and the Portfolios may not be able to vary the portfolio investments in 

response to changes in economic and other conditions. If the Portfolio is required to liquidate all or a portion of its investments 

quickly, the Portfolio may realize significantly less than the value at which it previously recorded those investments. 

Note 4. Investment Advisory and Sub-Advisory Fees 

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 

Index 500 Stock . . . . . . . . . . . . . . 0.20% 

Index 400 Stock . . . . . . . . . . . . . . 0.25% 

Mid Cap Value . . . . . . . . . . . . . . . 0.85% 

Small Cap Value . . . . . . . . . . . . . . 0.85% 

Money Market . . . . . . . . . . . . . . . 0.30% 

Select Bond . . . . . . . . . . . . . . . . . . 0.30% 

Balanced . . . . . . . . . . . . . . . . . . . . 0.30% 

For the other Portfolios, the rate for the investment advisory fee is graded by the asset size of the Portfolio according to the 

following schedules: 



First 

$50 

Million 

Next 

$50 

Million 

Excess Over 

$100 

Million 

Portfolio 

Growth Stock . . . . . . . . . . . . . . . . . . . . . 0.60% 0.50% 0.40% 

Large Cap Core Stock . . . . . . . . . . . . . . 0.60% 0.50% 0.40% 

Mid Cap Growth Stock . . . . . . . . . . . . . 0.80% 0.65% 0.50% 

Small Cap Growth Stock . . . . . . . . . . . . 0.80% 0.65% 0.50% 

International Equity . . . . . . . . . . . . . . . . 0.85% 0.65% 0.65% 

High Yield Bond . . . . . . . . . . . . . . . . . . 0.60% 0.50% 0.40% 

Portfolio 

First 

$100 

Million 

Next 

$400 

Million 

Excess Over 

$500 

Million 

Focused Appreciation . . . . . . . . . . . . . . 0.80% 0.75% 0.70% 

First 

$100 

Million 

Next 

$150 

Million 

Excess Over 

$250 

Million 

Portfolio 

Domestic Equity . . . . . . . . . . . . . . . . . . 0.65% 0.55% 0.50% 

Large Company Value . . . . . . . . . . . . . 0.72% 0.67% 0.62% 

International Growth . . . . . . . . . . . . . . . 0.75% 0.65% 0.55% 

Short-Term Bond . . . . . . . . . . . . . . . . . 0.35% 0.33% 0.30% 

Long-Term U.S. Government Bond . . . 0.555% 0.515% 0.495% 

Inflation Protection . . . . . . . . . . . . . . . . 0.58% 0.55% 0.49% 

Multi-Sector Bond . . . . . . . . . . . . . . . . . 0.79% 0.78% 0.77% 

Asset Allocation . . . . . . . . . . . . . . . . . . . 0.60% 0.50% 0.40% 

Portfolio 

First 

$150 

Million 

Next 

$150 

Million 

Next 

$200 

Million 

Excess 

Over $500 

Million 

Large Cap Blend . . . . . . . . . . . . . . . . . . 0.77% 0.70% 0.62% 0.56% 

Research International Core . . . . . . . . . 0.88% 0.82% 0.75% 0.68% 

Portfolio 

First 

$500 

Million 

Excess 

Over $500 

Million 

Equity Income . . . . . . . . . . . . . . . . . . . . 0.65% 0.60% 

Portfolio 

First 

$200 

Million 

Excess 

Over $200 

Million 

Index 600 Stock . . . . . . . . . . . . . . . . . . . 0.25% 0.20% 

Portfolio 

First 

$250 

Million 

Next 

$250 

Million 

Next 

$500 

Million 

Excess 

Over $1.0 

Billion 

Emerging Markets Equity . . . . . . . . . . . 1.14% 1.08% 0.96% 0.78% 

Mason Street Advisors, LLC (“MSA”), a wholly owned subsidiary of Northwestern Mutual, which is the manager and 

investment adviser of the Series Fund, 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 

Focused Appreciation . . . . . . . . . . . . . . 0.90% April 30, 2009 

Large Cap Blend . . . . . . . . . . . . . . . . . . 0.85% April 30, 2009 

Large Company Value . . . . . . . . . . . . . . 0.80% April 30, 2009 

Domestic Equity . . . . . . . . . . . . . . . . . . 0.75% April 30, 2009 

Equity Income . . . . . . . . . . . . . . . . . . . . 0.75% April 30, 2009 

Mid Cap Value . . . . . . . . . . . . . . . . . . . 1.00% April 30, 2009 

Index 600 Stock . . . . . . . . . . . . . . . . . . . 0.35% April 30, 2009 

Small Cap Value . . . . . . . . . . . . . . . . . . 1.00% April 30, 2009 

International Growth . . . . . . . . . . . . . . . 1.10% April 30, 2009 

Research International Core . . . . . . . . . 1.15% April 30, 2009 

Emerging Markets Equity . . . . . . . . . . . 1.50% April 30, 2009 

Short-Term Bond . . . . . . . . . . . . . . . . . . 0.45% April 30, 2009 

Long-Term U.S. Government Bond . . . 0.65% April 30, 2009 

Inflation Protection . . . . . . . . . . . . . . . . 0.65% April 30, 2009 

Multi-Sector Bond . . . . . . . . . . . . . . . . . 0.95% April 30, 2009 

Asset Allocation . . . . . . . . . . . . . . . . . . . 0.75% April 30, 2009 



With respect to the International Equity Portfolio, MSA has agreed to waive its management fee effective November 15, 2006, 

such that its management fee is 0.80% on the Portfolio's first $50 million of assets, 0.60% on Portfolio assets from $50 million 

to $1 billion, 0.58% on assets from $1 billion to $1.5 billion, and 0.51% on Portfolio assets in excess of $1.5 billion (the latter 

waiver was added effective December 12, 2006). MSA's fee waiver agreement extends at least until April 30, 2009. 

With respect to the Money Market Portfolio, MSA has voluntarily agreed to waive its 0.30% management fee effective 

December 31, 2008, on a temporary basis. The waiver is limited to MSA’s management fee, and as a result, the Money Market 

Portfolio will continue to bear the expenses associated with its participation in the U.S. Department of the Treasury’s 

Temporary Guarantee Program for Money Market Funds, as well as any other expenses that MSA has not contractually agreed 

to assume. This voluntary waiver will be reviewed periodically by MSA and may be revised or discontinued at any time. 

With respect to the Asset Allocation Portfolio, MSA has agreed to waive its management fee such that its management fee is 

0.55% on the Portfolio’s first $100 million of assets, 0.45% on the Portfolio’s assets from $100 million to $250 million, and 

0.35% on assets in excess of $250 million. MSA’s fee waiver agreement extends at least until April 30, 2009. 

The investment advisory fee is paid to MSA. Other costs for each Portfolio are paid either by the Portfolios or MSA 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, 2008, the amounts paid through expense offset arrangements were as follows: 

Portfolio 

Amount 

Growth Stock Portfolio........................................ $ 878 

Focused Appreciation Portfolio ............................... 969 

Large Cap Core Stock Portfolio............................... 858 

Large Cap Blend Portfolio .................................... 656 

Index 500 Stock Portfolio ..................................... 1,482 

Domestic Equity Portfolio..................................... 1,184 

Equity Income Portfolio....................................... 823 

Mid Cap Growth Stock Portfolio.............................. 1,054 

Index 400 Stock Portfolio ..................................... 1,505 

Mid Cap Value Portfolio ...................................... 1,170 

Small Cap Growth Stock Portfolio............................ 1,731 

Index 600 Stock Portfolio ..................................... 681 

Small Cap Value Portfolio .................................... 1,984 

Short-Term Bond Portfolio.................................... 1,310 

High Yield Bond Portfolio .................................... 1,271 

Asset Allocation Portfolio..................................... 1,012 

Janus Capital Management LLC (“Janus”), Capital Guardian Trust Company (“Capital Guardian”), American Century 

Investment Management, Inc. (“American Century”), T. Rowe Price Associates, Inc. (“T. Rowe Price”), AllianceBernstein 

L.P. (“AllianceBernstein”), Massachusetts Financial Services Company (“MFS ® ”), Templeton Investment Counsel LLC 

(“Templeton”), and Pacific Investment Management Company LLC (“PIMCO”) have been retained under investment subadvisory 

agreements to provide investment advice and, in general, to conduct the management investment programs of the 

Focused Appreciation Portfolio, Large Cap Blend and Domestic Equity Portfolios, Large Company Value and Inflation 

Protection Portfolios, Equity Income and Small Cap Value Portfolios, Mid Cap Value Portfolio, Research International Core 

and Emerging Markets Equity Portfolios, International Equity Portfolio, and the Long-Term U.S. Government Bond and Multi- 

Sector Bond Portfolios, respectively. Pursuant to an Investment Sub-Advisory Agreement dated May 6, 2008, Templeton has 

appointed Franklin Templeton Investments (Asia) Limited as an additional sub-adviser for the International Equity Portfolio. 

MSA pays Janus 0.55% on the first $100 million of the Focused Appreciation Portfolio’s assets, 0.50% on the next $400 

million, and 0.45% on assets in excess of $500 million. For the Large Cap Blend Portfolio, MSA pays Capital Guardian 0.46% 

on the first $150 million of the Portfolio’s assets, 0.40% on the next $150 million, 0.35% on the next $200 million, and 0.30% 

on assets in excess of $500 million. For the Domestic Equity Portfolio, MSA pays Capital Guardian a flat annual fee of 

$375,000 on the Portfolio’s assets of $100 million or less, and 0.275% on net assets in excess of $100 million. A fee discount 



may apply based on the aggregated annual fees paid on assets managed by Capital Guardian for Northwestern Mutual and its 

affiliates. MSA pays American Century 0.47% on the first $100 million, 0.42% on the next $150 million, and 0.38% on assets 

in excess of $250 million for the Large Company Value Portfolio. MSA pays American Century 0.32% on the first $100 

million, 0.30% on the next $150 million, and 0.25% on assets in excess of $250 million for the Inflation Protection Portfolio. 

For the Equity Income Portfolio, MSA pays T. Rowe Price 0.40% on the first $250 million of the Portfolio’s assets, 0.375% on 

the next $250 million, and 0.35% on assets in excess of $500 million. MSA pays T. Rowe Price an annual rate of 0.60% of the 

Small Cap Value Portfolio’s average daily net assets. MSA pays AllianceBernstein 0.72% on the first $25 million of the Mid 

Cap Value Portfolio’s assets, 0.54% on the next $225 million, and 0.50% on assets in excess of $250 million, with a minimum 

amount of $16,000. MSA pays MFS ® 0.55% on the first $250 million, 0.50% on the next $250 million, 0.45% on the next $500 

million and 0.40% on assets in excess of $1 billion for the Research International Core Portfolio. MSA pays MFS ® 0.80% on 

the first $250 million, 0.75% on the next $250 million, 0.65% on the next $500 million, and 0.50% on assets in excess of $1 

billion for the Emerging Markets Equity Portfolio. MSA pays Templeton 0.50% on the first $100 million of the International 

Equity Portfolio’s assets, 0.35% on the next $50 million, 0.30% on the next $350 million, 0.25% on the next $500 million, 

0.20% on the next $500 million, and 0.15% in excess of $1.5 billion, and Templeton pays Franklin Templeton Investments 

(Asia) Limited seven-tenths of the compensation it receives from MSA. For the Long-Term U.S. Government Bond Portfolio, 

MSA pays PIMCO 0.225% of the average daily net assets of the portfolio and for the Multi-Sector Bond Portfolio, MSA pays 

PIMCO 0.455% of the average daily net assets of the Portfolio. 

At its November 4, 2008 meeting, the Series Fund Board approved an Investment Sub-Advisory Agreement between MSA and 

American Century relating to the Mid Cap Value Portfolio for an initial period of two years, to be effective as of February 23, 

2009. Under the Agreement, MSA will pay American Century 0.57% on the first $50 million of the Mid Cap Value Portfolio’s 

average daily net assets, 0.52% on the next $50 million, 0.50% on the next $200 million, 0.45% on the next $200 million, and 

0.40% on net assets in excess of $500 million. 

Note 5. Federal Income Tax Matters 

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. 

In accordance with the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty 

in Income Taxes ("FIN 48"), management of the Portfolios has reviewed all open tax years for major jurisdictions and 

concluded the adoption of FIN 48 resulted in no material impact to the Portfolios' net assets or results of operations. There is no 

material tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be 

taken in future tax returns. The Portfolios are also not aware of any tax positions for which it is reasonably possible that the 

total amounts of unrecognized tax benefits will significantly change in the next 12 months. 

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. 

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, 2008 is provided 

below: 

Post-October Losses 

Capital Loss Carryovers 

Foreign 

Utilized in 

Capital Currency Amount Expiration 2008 

Expired in 

2008 

(Amount in Thousands) 

Growth Stock Portfolio............................ $ 6,634 $ – $ 19,884 $ 2016 $ – $ – 

Focused Appreciation Portfolio ................... 4,719 – 3,503 2016 – – 



Post-October Losses 

Capital Loss Carryovers 

Foreign 

Utilized in 

Capital Currency Amount Expiration 2008 

Expired in 

2008 


Large Cap Core Stock Portfolio................... 9,567 – 94,178 2011-2016 – – 

Large Cap Blend Portfolio ........................ 778 – 9,246 2016 – – 

Index 500 Stock Portfolio ......................... 5,434 – – – – – 

Large Company Value Portfolio .................. 1,150 – 3,845 2016 – – 

Domestic Equity Portfolio......................... 17,705 – 114,488 2016 – – 

Equity Income Portfolio........................... 4,783 – 2,147 2016 – – 

Mid Cap Growth Stock Portfolio.................. 16,132 – – – – – 

Index 400 Stock Portfolio ......................... 2,277 – – – – – 

Mid Cap Value Portfolio .......................... 7,259 – – – – – 

Small Cap Growth Stock Portfolio................ 29,840 – 89,244 2016 – – 

Index 600 Stock Portfolio ......................... 535 – – – – – 

Small Cap Value Portfolio ........................ 2,575 – – – – – 

International Growth Portfolio .................... 19,640 6 22,220 2016 – – 

Research International Core Portfolio............. 3,971 7 5,433 2016 – – 

International Equity Portfolio ..................... 337 123 – – – – 

Emerging Markets Equity Portfolio............... 3,861 – 13,927 2016 – – 

Money Market Portfolio........................... – – – – 13 – 

Short-Term Bond Portfolio........................ – – 99 2015-2016 – – 

Select Bond Portfolio.............................. – – 7,116 2014 9,580 – 

Long-Term U.S. Government Bond Portfolio .... – – – – – – 

Inflation Protection Portfolio...................... 84 – 272 2016 – – 

High Yield Bond Portfolio ........................ 4,102 – 46,872 2009-2016 – 21,129 

Multi-Sector Bond Portfolio ...................... – 358 – – – – 

Balanced Portfolio................................. 53,694 – 83,295 2016 – – 

Asset Allocation Portfolio......................... 7,763 1 19,182 2016 – – 

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 year ended December 31, 2008 was as follows: 

Portfolio 

Ordinary Income 

2008 Distributions 

Paid From: 

Long-term 

Capital Gain 


Growth Stock Portfolio .................................... $ 6,333 $ 39,360 

Focused Appreciation Portfolio ............................... 815 6,315 

Large Cap Core Stock Portfolio ............................... 7,218 — 

Large Cap Blend Portfolio .................................. 394 — 

Index 500 Stock Portfolio................................... 38,985 53,007 

Large Company Value Portfolio............................... 779 — 

Domestic Equity Portfolio .................................. 19,626 22,547 

Equity Income Portfolio .................................... 651 3,845 

Mid Cap Growth Stock Portfolio .............................. 31,442 108,595 

Index 400 Stock Portfolio................................... 9,608 46,024 

Mid Cap Value Portfolio ................................... 114 2,039 

Small Cap Growth Stock Portfolio ............................. 26,366 55,587 

Index 600 Stock Portfolio................................... — 196 

Small Cap Value Portfolio .................................. 4,323 22,747 

International Growth Portfolio................................ 5,348 32,130 

Research International Core Portfolio ........................... 979 — 

International Equity Portfolio ................................ 62,359 121,603 

Emerging Markets Equity Portfolio............................. 2,276 — 

Money Market Portfolio.................................... 14,543 — 

Short-Term Bond Portfolio .................................. 2,714 — 

Select Bond Portfolio ..................................... 52,811 — 

Long-Term U.S. Government Bond Portfolio ...................... 2,100 343 

Inflation Protection Portfolio................................. 2,473 — 

High Yield Bond Portfolio .................................. 21,340 — 

Multi-Sector Bond Portfolio ................................. 6,192 452 

Balanced Portfolio ....................................... 32,256 695,941 

Asset Allocation Portfolio................................... 9,606 19,156 

Each Portfolio intends to distribute the maximum allowable amount permitted by law. 



Portfolio 

Ordinary Income 

2007 Distributions 

Paid From: 

Long-term 

Capital Gain 

Return of Capital 


Growth Stock Portfolio .................................... $ 6,654 $ — $ — 

Focused Appreciation Portfolio ............................... 79 272 — 

Large Cap Core Stock Portfolio ............................... 6,345 — — 

Large Cap Blend Portfolio .................................. 370 — — 

Index 500 Stock Portfolio................................... 35,452 76,507 — 

Large Company Value Portfolio............................... 397 2 — 

Domestic Equity Portfolio .................................. 10,843 15,394 — 

Equity Income Portfolio .................................... 5,943 20,097 — 

Mid Cap Growth Stock Portfolio .............................. 9,438 106,812 — 

Index 400 Stock Portfolio................................... 8,654 29,612 — 

Mid Cap Value Portfolio ................................... 5,009 13,911 — 

Small Cap Growth Stock Portfolio ............................. 3,407 45,726 — 

Index 600 Stock Portfolio................................... 105 — 102 

Small Cap Value Portfolio .................................. 4,900 15,260 — 

International Growth Portfolio................................ 2,744 24,163 — 

Research International Core Portfolio ........................... 798 — — 

International Equity Portfolio ................................ 32,959 21,809 — 

Emerging Markets Equity Portfolio............................. 234 — — 

Money Market Portfolio.................................... 21,766 — — 

Short-Term Bond Portfolio .................................. 1,678 — — 

Select Bond Portfolio ..................................... 40,788 — — 

Long-Term U.S. Government Bond Portfolio ...................... 837 — — 

Inflation Protection Portfolio................................. 983 — — 

High Yield Bond Portfolio .................................. 17,960 — — 

Multi-Sector Bond Portfolio ................................. 2,006 33 — 

Balanced Portfolio ....................................... 91,830 50,253 — 

Asset Allocation Portfolio................................... 7,648 12,908 — 

As of December 31, 2008, the tax basis amounts were as follows: 

Portfolio 

Undistributed 

Ordinary 

Income 

Undistributed 

Long-Term 

Gains 

Accumulated 

Losses 

Unrealized 

Appreciation 



Growth Stock Portfolio....................................................................$ 5,283 $ – $ (26,519 ) $ (109,498 ) 

Focused Appreciation Portfolio ........................................................... – – (8,222 ) (44,898 ) 

Large Cap Core Stock Portfolio........................................................... 6,039 – (103,745 ) (82,256 ) 

Large Cap Blend Portfolio ................................................................ 3 – (10,024 ) (10,688 ) 

Index 500 Stock Portfolio ................................................................. 35,665 35,754 (5,434 ) (137,575 ) 

Large Company Value Portfolio .......................................................... 92 – (4,996 ) (13,274 ) 

Domestic Equity Portfolio................................................................. 10,666 – (132,193 ) (67,728 ) 

Equity Income Portfolio................................................................... 4,885 – (6,930 ) (66,905 ) 

Mid Cap Growth Stock Portfolio.......................................................... 2,018 924 (16,132 ) (258,373 ) 

Index 400 Stock Portfolio ................................................................. 6,402 11,120 (2,277 ) (113,308 ) 

Mid Cap Value Portfolio .................................................................. 944 858 (7,259 ) (33,568 ) 

Small Cap Growth Stock Portfolio........................................................ 839 – (119,084 ) (84,477 ) 

Index 600 Stock Portfolio ................................................................. – 3 (535 ) (9,014 ) 

Small Cap Value Portfolio ................................................................ 2,192 9,196 (2,575 ) (57,423 ) 

International Growth Portfolio ............................................................ 1,029 – (41,860 ) (72,620 ) 

Research International Core Portfolio..................................................... 335 – (9,411 ) (13,311 ) 

International Equity Portfolio ............................................................. 47,284 22,331 (460 ) (216,006 ) 

Emerging Markets Equity Portfolio....................................................... 377 – (17,789 ) (29,646 ) 

Money Market Portfolio................................................................... – – – (487 ) 

Short-Term Bond Portfolio................................................................ 24 – (99 ) (982 ) 

Select Bond Portfolio...................................................................... 56,503 – (7,116 ) (22,714 ) 

Long-Term U.S. Government Bond Portfolio ............................................ 5,461 4,469 – 2,509 

Inflation Protection Portfolio.............................................................. 121 – (355 ) (621 ) 

High Yield Bond Portfolio ................................................................ 22,564 – (50,973 ) (74,536 ) 

Multi-Sector Bond Portfolio .............................................................. 1,213 1,172 (358 ) (12,373 ) 

Balanced Portfolio......................................................................... 92,107 – (136,989 ) (324,131 ) 

Asset Allocation Portfolio................................................................. 6,142 – (26,945 ) (40,955 ) 



Note 6. Voluntary Reimbursements 

Northwestern Mutual voluntarily reimburses foreign equity 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 for the year ended December 31, 2008 and the year ended December 31, 2007 are summarized below: 

Portfolio 

2008 

Reimbursements 

2007 

Reimbursements 

International Growth Portfolio....................... $ 420,110 $ 379,759 

Research International Core Portfolio .................. 127,658 50,124 

International Equity Portfolio ....................... 3,855,801 3,435,866 

Emerging Markets Equity Portfolio.................... 203,843 74,978 

Note 7. Guarantees 

In the normal course of business the Portfolios enter into contracts that contain a variety of representations which provide 

general indemnifications. The Portfolios’ maximum exposure under these arrangements is unknown as this would involve 

future claims that may be made against the Portfolios that have not yet occurred. However, the Portfolios expect the risk of loss 

to be remote. 

A. Capital Support Agreement - On September 26, 2008, Northwestern Mutual, the parent of the investment advisor for the 

Money Market Portfolio, entered into a capital support agreement with the Series Fund on behalf of the Money Market 

Portfolio relating to three securities (“Covered Securities”) to assist the Portfolio in seeking to maintain a stable net asset value. 

Under the Agreement, Northwestern Mutual is obligated to make a capital contribution to the Money Market Portfolio if the 

Portfolio realizes losses on the Covered Securities through a sale, bankruptcy or other final payment, or exchange or 

restructuring of the Covered Security. The amount of the capital contribution would be the lower of (i) the amount necessary to 

maintain the Portfolio’s market-based net asset value per share at no less than $0.995, (ii) the loss incurred by the Portfolio as a 

result of the disposition of the Covered Security, or (iii) the aggregate maximum contribution amount set forth in the 

Agreement less any previous contribution made under the Agreement. The Agreement terminates upon the earlier to occur of 

(i) the repayment in full by the issuers of all Covered Securities, (ii) the payment by Northwestern Mutual, in the aggregate, of 

the maximum contribution amount in the Agreement ($23,570,000 representing the aggregate par value of the Covered 

Securities), and (iii) July 17, 2009. 

Securities covered under the capital support agreement as of December 31, 2008: 

Description Maturity Amortized Cost Market Value 

Market Value as 

a Percent 

of Net Assets 


Associates Corp. of North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7/15/09 $ 7,172 $ 7,001 1.12% 

The Goldman Sachs Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/15/09 10,003 9,996 1.61% 

International Lease Finance Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4/01/09 6,539 6,229 1.00% 

B. Participation in Treasury’s Temporary Guarantee Program for Money Market Funds - At a meeting held on October 6, 

2008, the Board of Directors of the Series Fund determined that the Series Fund’s Money Market Portfolio would participate in 

the U.S. Department of the Treasury’s (the “Treasury”) Temporary Guarantee Program for Money Market Funds (the 

“Program”), and subsequently determined that the Money Market Portfolio would participate under the Program’s extension, 

as discussed below. Under the Program, the Treasury guarantees to investors in participating money market funds that they will 

receive $1.00 for each money market fund share held as of the close of business on September 19, 2008, subject to certain 

limitations which are described below. The guarantee will be triggered if the Money Market Portfolio “breaks the buck;” that 

is, if its net asset value per share falls below $0.995 (a “Guarantee Event”). The Money Market Portfolio is responsible for the 

payment of fees required to participate in the Program, including any Program extensions. These fees are included in the 

expenses of the Portfolio in the Statements of Operations. 



The Program applies only to shares held in the Money Market Portfolio as of the close of business on September 19, 2008. The 

Program’s guarantee does not apply to shares purchased after September 19, 2008 or to shares redeemed or exchanged into or 

out of the Money Market Portfolio after September 19, 2008. There is no per-account cap on the amount of coverage; however, 

the number of shares of each shareholder covered by the Program will be the lesser of (a) the number of shares owned by the 

shareholder on September 19, 2008 or (b) the number of shares owned by the shareholder in the same account on the date of 

the Guarantee Event. 

If a Guarantee Event occurs, the Money Market Portfolio would be required to liquidate and comply with certain other 

requirements for any shareholder to be entitled to payments under the Program. The Program covers the difference between the 

amount received by a shareholder in connection with such liquidation and $1.00 per share, for any shares covered by the 

guarantee, subject to the overall amount available to all funds participating in the Program. In liquidation, those shares not 

covered by the Program may receive less than $1.00 per share. Guarantee payments under the Program to all participating 

money market funds will not exceed the amount available within the U.S. Treasury Department’s Exchange Stabilization Fund 

on the date of payment. Currently, assets available to the Program are approximately $50 billion. 

The Program’s initial three month term ran from September 19, 2008 through December 18, 2008. The Secretary of the 

Treasury has extended the Program through April 30, 2009, after which the Secretary will review the need to further extend the 

Program, and the terms of any extension. If the Program is extended, the Money Market Portfolio would have to renew its 

participation and pay any additional fees required to maintain coverage. If the Secretary chooses not to extend the Program 

beyond April 30, 2009, the Program will terminate. There is no guarantee that the Secretary of the Treasury will extend the 

Program, or that the Money Market Portfolio will elect or be eligible to participate in the Program if it is extended beyond 

April 30, 2009. If a Guarantee Event occurs after the Program expires, or, if sooner, after the Money Market Portfolio ceases to 

participate in the Program, neither the Money Market Portfolio nor its shareholders will be entitled to any payment under the 

Program. 

The Money Market Portfolio is not in any manner approved, endorsed, sponsored or authorized by the U.S. Department of the 

Treasury. 


Report of Independent Registered Public Accounting Firm 

To the Shareholders and Board of Directors of 


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 Growth Stock Portfolio, Focused Appreciation Portfolio, Large Cap Core Stock 

Portfolio, Large Cap Blend Portfolio, Index 500 Stock Portfolio, Large Company Value Portfolio, Domestic Equity 

Portfolio, Equity Income Portfolio, Mid Cap Growth Stock Portfolio, Index 400 Stock Portfolio, Mid Cap Value 

Portfolio, Small Cap Growth Stock Portfolio, Index 600 Stock Portfolio, Small Cap Value Portfolio, International 

Growth Portfolio, Research International Core Portfolio, International Equity Portfolio, Emerging Markets Equity 

Portfolio, Money Market Portfolio, Short-Term Bond Portfolio, Select Bond Portfolio, Long-Term U.S. Government 

Bond Portfolio, Inflation Protection Portfolio, High Yield Bond Portfolio, Multi-Sector Bond Portfolio, Balanced 

Portfolio and Asset Allocation Portfolio (constituting Northwestern Mutual Series Fund, Inc., hereafter referred to as the 

"Fund") at December 31, 2008, the results of each of their operations, the changes in each of their net assets and their 

financial highlights for each of 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 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 the 

standards set forth by the Public Company Accounting Oversight Board (United States). Those standards 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, 2008 by correspondence with the custodians and brokers, provide a reasonable basis for our 

opinion. 

Milwaukee, Wisconsin 

February 19, 2009 

230 Report of Independent Registered Public Accounting Firm

Proxy Voting and Portfolio Holdings 

Proxy Voting Guidelines 

A description of the policies and procedures that the Portfolios use to determine how to vote proxies relating to portfolio 

securities is available without charge, upon request, by calling toll free 1-888-455-2232. It is also available on the Securities 

and Exchange Commission’s website at http://www.sec.gov. 

Information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent twelve-month 

period ended June 30 is available without charge, upon request, by calling toll free 1-888-455-2232. It is also available on the 

Securities and Exchange Commission’s website at http://www.sec.gov. 

Quarterly Filing of Portfolio Holdings 

Each Portfolio files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the 

first and third quarters of each fiscal year on Form N-Q. The Portfolio’s Form N-Q filings are available (i) on the SEC website 

at http://www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information 

on the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Portfolios also make their complete schedule 

of portfolio holdings for the most recent quarter of their fiscal year available on the Internet at www.nmfn.com. 

Proxy Voting and Portfolio Holdings 231

Director and Officer Information (Unaudited) 


The name, address and year of birth 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 as of December 31, 2008. Each director (whenever elected) shall hold office until the next annual meeting of 

shareholders and until his or her successor is elected and qualifies or until his or her earlier death, resignation or removal, 

provided no director shall serve a term or successive terms totaling more than twelve (12) years. The twelve-year service 

limitation commences for all directors on the later of May 1, 2003, or the date of his or her election or appointment to the 

Board. Notwithstanding the foregoing, the Fund’s By-Laws provide that a director who has attained the age of seventy (70) on 

or before the first quarterly Board meeting in a calendar year shall retire effective at the end of the meeting. If a director attains 

age seventy (70) after the first quarterly Board meeting in a calendar year, he or she shall retire effective at the end of the first 

quarterly Board meeting in the following calendar year. The statement of additional information contains additional 

information about Fund directors and is available without charge, upon request, by calling 1-888-455-2232. 

Independent Directors 

Name, Address, and 

Year of Birth 

William A. McIntosh 

720 East Wisconsin Avenue 

Milwaukee, WI 53202 

1939 

Position 

Length of 

Time Served 

Number of Portfolios 

in Fund Complex 

Overseen by Director 

Other Directorships Held 

Director Since 1997 27 MGIC Investment 

Corporation 

Principal Occupation During Past 5 Years: Financial consulting. Adjunct Faculty Member, Howard University (1998-2004). 

Michael G. Smith 

Director Since 2003 27 Trustee of The Ivy Family 


of Funds (2 registered 


investment companies — 

1944 

29 portfolios), Director of 

the TDAX Funds, Inc. (5 

portfolios) and CTMG, 

Inc. 

Principal Occupation During Past 5 Years: Private investor; retired since 1999. 

Miriam M. Allison 



1947 

Director Since 2006 27 None 

Principal Occupation During Past 5 Years: Rancher since 2004. Real estate developer since 2002. From 2001 to 2005, 

Chairman of UMB Fund Services, Inc. (formerly Sunstone Financial Group, Inc.), a mutual fund service provider. 

Robert H. Huffman III 



1959 

Director Since 2007 27 None 

Principal Occupation During Past 5 Years: Co-Founder and Managing Partner of Relative Value Partners, LLC, a registered 

investment adviser since 2004; prior thereto, Head of Fixed Income Sales, Midwest Region, Citigroup, Inc. (formerly Salomon 

Brothers). 

Michael M. Knetter 



1960 

Director Since 2007 27 Trustee of The Neuberger 

Berman Family of Funds 

(11 registered investment 

companies — 61 

portfolios), Wausau Paper 

Corp. and Great Wolf 

Resorts, Inc. 

Principal Occupation During Past 5 Years: Dean of University of Wisconsin-Madison School of Business since 2002. 

232 Director and Officer Information

Director and Officer Information (Unaudited) 


Other Directors 

Number of Portfolios 

Name, Address, and Length of in Fund Complex Other Directorships 

Year of Birth Position Time Served Overseen by Directo Held 

Edward J. Zore Chairman Since 2000 27 Manpower, Inc. and 

720 East Wisconsin Avenue of the Board Trustee of Northwestern Mutual 


1945 

Principal Occupation During Past 5 Years: President and Chief Executive Officer of Northwestern Mutual since 2001. 

Executive Officers 

Name, Address, and 

Length of 

Year of Birth Position Time Served 

Patricia L. Van Kampen President Since 2008 



1951 

Principal Occupation: Managing Director – Head of Equities of Mason Street Advisors, LLC since 2002. 

Walter M. Givler Vice President; Since 2003 

720 East Wisconsin Avenue Chief Financial Officer & Treasurer 


1957 

Principal Occupation During Past 5 Years: Vice President – Accounting Policy of Northwestern Mutual since 2007; Vice 

President of Investment Accounting for Northwestern Mutual, since 2002 – 2007. 

Kate M. Fleming Vice President-Operations Since 2004 



1962 

Principal Occupation During Past 5 Years: Vice President-Operations of Mason Street Advisors, LLC since 2004. Prior 

thereto, Assistant General Counsel of Northwestern Mutual. 

Barbara E. Courtney Controller Since 1996 



1957 

Principal Occupation During Past 5 Years: Director of Mutual Fund Accounting of Northwestern Mutual since 2002. 

Michael W. Zielinski Chief Compliance Officer Since 2006 



1974 

Principal Occupation During Past 5 Years: Chief Compliance Officer of Mason Street Advisors, LLC since 2006; Counsel, 

Northwestern Mutual from 2004 - 2006; Associate Counsel, Quasar Distributors, LLC (broker-dealer) from 2003 to 2004. 

Randy M. Pavlick Secretary Since 2006 



1959 

Principal Occupation During Past 5 Years: Assistant General Counsel of Northwestern Mutual and Assistant Secretary of 

Mason Street Advisors, LLC, each since 2004; prior thereto, Vice President and General Counsel of UMB Financial Services, 

Inc. (formerly Sunstone Financial Group, Inc.) (mutual fund service provider) from 1993 to 2004. 

Director and Officer Information 233

Approval and Continuance of Investment 

Sub-Advisory Agreements 


Annual Contract Review Process 

Under Section 15(c) of the Investment Company Act of 1940, contracts for investment advisory services are required to be 

reviewed, evaluated and approved by a majority of an investment company’s independent directors each year. In addition, 

each investment company is required to disclose in its annual or semi-annual report, as appropriate, the material factors and 

conclusions that formed the basis for the board’s approval or renewal of any investment advisory agreements within the 

investment company’s most recently completed fiscal half-year period. 

At least annually, the Board of Directors (the “Board”) of the Northwestern Mutual Series Fund, Inc. (the “Series Fund”), 

including its Independent Directors, considers and votes upon the renewal of the investment sub-advisory agreements between 

Mason Street Advisors, LLC (“Mason Street Advisors”) and each of the sub-advisers of those portfolios of the Series Fund 

(each, a “Portfolio” and collectively, the “Portfolios”) for which Mason Street Advisors has appointed a sub-adviser. In order 

to afford the Board the opportunity to focus on a smaller number of relationships at any one meeting, the Board considers the 

annual continuation of the sub-advisory agreements on a staggered basis. 

At its August 6, 2008 meeting, the Series Fund Board, including the Independent Directors, unanimously approved the 

continuance of the Investment Sub-Advisory Agreement, with certain non-substantive amendments, between Mason Street 

Advisors and Janus Capital Management LLC ("Janus") relating to the Focused Appreciation Portfolio, and the continuance of 

the Investment Sub-Advisory Agreement between Mason Street Advisors and American Century Investment Management, Inc. 

(“ACI”) relating to the Large Company Value Portfolio and the Inflation Protection Portfolio. The Series Fund Board, 

including the Independent Directors, also unanimously approved the continuance, subject to the limitations discussed below, of 

the Investment Sub-Advisory Agreement with AllianceBernstein L.P. (“AllianceBernstein”) relating to the Mid Cap Value 

Portfolio. 

At its November 4, 2008 meeting, the Series Fund Board, including the Independent Directors, unanimously approved an 

Investment Sub-Advisory Agreement between Mason Street Advisors and ACI relating to the Mid Cap Value Portfolio for an 

initial two year period, pursuant to which ACI would replace AllianceBernstein as the sub-adviser for the Mid Cap Value 

Portfolio as of February 23, 2009 (the “New Sub-Advisory Agreement”). At its November 4, 2008 meeting, the Series Fund 

Board, including the Independent Directors, also unanimously approved the continuance of the Investment Sub-Advisory 

Agreement, with certain non-substantive amendments, between Mason Street Advisors and T. Rowe Price Associates, Inc. (“T. 

Rowe Price”) relating to the Small Cap Value Portfolio and the Equity Income Portfolio and the continuance of the Investment 

Sub-Advisory Agreement between Mason Street Advisors and Pacific Investment Management Company, LLC (“PIMCO”) 

relating to the Long-Term U.S. Government Bond Portfolio and the Multi-Sector Bond Portfolio. (AllianceBernstein, Janus, 

ACI, T. Rowe Price and PIMCO are sometimes collectively referred to hereinafter as the "Sub-Advisers," their respective subadvised 

Portfolios are collectively referred to herein as the "Sub-Advised Portfolios" and the respective Investment Sub- 

Advisory Agreements with such Sub-Advisers are collectively referred to herein as the “Existing Sub-Advisory Agreements”). 

Factors Considered 

In determining whether to approve the New Sub-Advisory Agreement and the continuance of the Existing Sub-Advisory 

Agreements on behalf of the Series Fund, the Directors requested and received detailed information from Mason Street 

Advisors and the Sub-Advisers to assist them in their evaluation, including information compiled by certain independent 

providers of evaluative data. With respect to the continuation of the Existing Sub-Advisory Agreements, while particular focus 

is given to an evaluation of the services, performance, fees, costs, and certain other relevant information under such 

Agreements at the meeting at which their continuation is formally considered, the evaluation process with respect to the Sub- 

Advisers and the nature, extent and quality of the services they provide to the Sub-Advised Portfolios, and the related 

performance, costs and expenses, is an ongoing one. As a result, the Directors' consideration of the nature, extent and quality 

of services, and the performance, costs and expenses, was informed by information provided and deliberations that occurred at 

other meetings throughout the year. 

The Independent Directors also received a memorandum from their counsel advising the Directors of their responsibilities in 

connection with the approval of the New Investment Sub-Advisory Agreement and the renewal of the Existing Sub-Advisory 

Agreements, and summarizing the legal standards governing the review of these Agreements. In addition, during the course of 

234 Approval and Continuance of Investment Sub-Advisory Agreements



their deliberations, the Independent Directors had the opportunity to meet privately without representatives of Mason Street 

Advisors and the Sub-Advisers present, and were represented throughout the process by legal counsel to the Independent 

Directors. 

Approval of the Investment Sub-Advisory Agreement between Mason Street Advisors and American Century 

Investment Management, Inc. 

At its November 4, 2008 meeting, the Series Fund Board selected ACI to replace AllianceBernstein as the sub-adviser for the 

Mid Cap Value Portfolio. The material factors and conclusions that formed the basis for the Board's determination to approve 

the New Sub-Advisory Agreement with respect to the Mid Cap Value Portfolio include those discussed below. In addition to 

the information provided to them at the November 4, 2008 meeting, including an in-person presentation from ACI, the 

Directors considered their experience with and knowledge of the nature and quality of services provided by ACI to other of the 

Series Fund’s Portfolios, and their interactions with representatives of ACI and its affiliates and their discussions with 

representatives of Mason Street Advisors. The Directors evaluated a variety of information they deemed relevant. No one 

particular factor was identified as controlling, but rather it was a combination of all the factors and conclusions that formed the 

basis for the determinations made by the Directors. 

Nature, Extent and Quality of Services. The Directors evaluated the nature, scope, extent and quality of services to be provided by 

ACI with respect to the Mid Cap Value Portfolio. The Directors considered the process followed to identify potential sub-advisers 

for the Mid Cap Value Portfolio, and the rationale for the recommendation of ACI as sub-adviser. The Directors also considered the 

breadth and depth of experience of ACI in managing other accounts using a similar investment strategy, including other mutual funds 

using a substantially similar strategy. The Directors’ considerations included information about ACI’s organization and the 

tenure, experience, performance and relative depth of ACI’s investment management team. The Board also considered the 

potential benefit of ACI’s private ownership structure in the current market environment. The Board acknowledged the synergy 

between the organizations’ core values. The investment processes to be employed by ACI were also considered, with the Board 

noting in particular the value style purity of ACI’s investment process. The Board also considered ACI’s explanation of the 

impact of its investment strategy on portfolio turnover and the materials presented regarding the consistency of the turnover 

with ACI’s investment process and the impact of turnover on performance. Finally, the Board took into consideration ACI’s 

general reputation and the resources available to be committed in managing the Mid Cap Value Portfolio. Based on their review of 

these factors and other factors deemed relevant, the Directors concluded that they were satisfied with the nature, extent and 

quality of services to be provided by ACI with respect to the Mid Cap Value Portfolio, and the resources to be committed by 

ACI in providing such services. 

Investment Performance. The Directors considered ACI’s performance record with another mutual fund with an investment 

objective, investment policies and investment strategies substantially similar to the Mid Cap Value Portfolio. In addition to 

absolute performance for this similar fund for both short and long-term periods, the Directors considered a comparison of the 

performance to the returns of a peer group and universe of comparable funds underlying variable insurance products as 

compiled by an independent research firm, and to the performance averages of the respective Morningstar and Lipper 

categories for the same periods. The Directors evaluated the similar fund’s relative performance, and considered independent 

rankings and ratings where applicable, to provide an objective comparative benchmark against which they could assess the 

experience and ability of ACI in managing similar accounts. The Directors also considered ACI’s knowledge and experience 

as a value manager and their experience with the value investment capabilities of ACI. Based on these and other factors 

deemed relevant, the Board concluded that it was satisfied with the experience and capabilities of ACI and the personnel to be 

associated with the Mid Cap Value Portfolio. 

Management Fees and Other Expenses. In evaluating the management fees paid by the Mid Cap Value Portfolio, the Directors 

considered the actual and contractual fees paid by the Portfolio under the Investment Advisory Agreement between Mason 

Street Advisors and the Series Fund. The Directors also considered a comparison of the actual and contractual management 

fees of the Portfolio and those of an independently selected peer group of mutual funds for the Portfolio. The Directors 

considered that the fee schedule for the Mid Cap Value Portfolio contained breakpoints, and that the fee schedule and 

breakpoints evidenced an appropriate sharing of economies of scale between the Portfolio and Mason Street Advisors. The 

Directors further considered the total operating expenses of the Portfolio and a comparison of those expenses with the 

Portfolio's peer group. The fact that the Investment Advisory Agreement requires Mason Street Advisors to be responsible for 

many of the administrative and operational expenses, in addition to the investment management expenses, of the Portfolio was 

also considered. The Directors did not consider the management fees charged to other Mason Street Advisors clients as 

particularly relevant, because substantially all of those accounts were managed for affiliates of Mason Street Advisors and, as 

Approval and Continuance of Investment Sub-Advisory Agreements 235



such, those accounts were priced based on different factors and considerations and, in some instances, had investment 

objectives and policies different than the Portfolio. The Directors considered the comparative data as a guide to help assess the 

reasonableness of the Portfolio's advisory fee, although they acknowledged that it was difficult to make precise comparisons 

with other funds since the exact nature of services provided by peers is often not apparent. The Directors also separately 

considered the allocation between Mason Street Advisors and ACI of the Mid Cap Value Portfolio's investment advisory fee 

(i.e. the amount of the advisory fee retained by Mason Street Advisors relative to that paid to ACI as a sub-advisory fee). They 

determined that the allocation was reasonable and the product of arm's length negotiation between Mason Street Advisors and 

ACI. 

The Directors noted that the Mid Cap Value Portfolio was projected to continue to be in one of the two top Lipper quintiles 

(meaning lowest expenses) of both its peer group and universe, with respect to total net operating expenses. In considering the 

level of management fees, the Directors also considered the structure and size of the Portfolio, the expenses assumed by Mason 

Street Advisors, the existing expense cap arrangement agreed to by Mason Street Advisors for the Portfolio and the amounts 

waived or reimbursed by Mason Street Advisors under the agreement. Based on their review of the management and other 

expenses, the comparative data, the performance of the Portfolio, and other factors deemed relevant by the Directors, the 

Directors concluded that the management fees and total operating expenses of the Portfolio were reasonable in relation to the 

nature, scope and quality of services provided and the performance of the Portfolio. 

Costs and Profitability. The Directors also considered Mason Street Advisors’ pricing methodology for its services as 

investment adviser and for the products of which the Portfolio is an investment option. Also considered was the financial 

condition of Mason Street Advisors and information concerning Mason Street Advisors’ costs and profitability with respect to 

its relationship with the Portfolio in general as well as in light of the sub-advisory fees negotiated with ACI. Mason Street 

Advisors provided a profitability analysis for the Portfolio that included the expense allocation methodology used, net income 

for the Portfolio individually and the Series Fund Portfolios in the aggregate, net income earned from Mason Street Advisors 

for all of its clients in the aggregate, and net profit margins for the Portfolio individually and the Series Fund Portfolios in the 

aggregate. In connection with its review of the profitability of Mason Street Advisors’ services to the Portfolio, the Directors 

also considered services provided by affiliates of Mason Street Advisors. The Directors also received information on soft 

dollar arrangements, including its policies for allocating brokerage and research services, and any other benefits to Mason 

Street Advisors or its affiliates arising from the Portfolio. 

The Directors recognized that there are limitations inherent in allocating costs and calculating profitability for an organization 

such as Mason Street Advisors, and that it is difficult to make comparisons of profitability among investment advisers and 

clients because comparative information is not generally publicly available and, when available, such information has been 

developed using a variety of assumptions and other factors. Based on their review of the profitability analysis for the Portfolio, 

the Directors concluded that they were satisfied that Mason Street Advisors’ level of profitability from its relationship with the 

Portfolio was not excessive. 

Continuation of the Investment Sub-Advisory Agreements Between Mason Street Advisors and Certain Sub-Advisers 

The material factors and conclusions that formed the basis for the Board's approval of the continuance of each of the Existing 

Sub-Advisory Agreements with respect to each Sub-Advised Portfolio include those discussed below. In addition to the 

information provided to them at the meetings by Mason Street Advisers and the Sub-Advisers, the Directors considered their 

experience with and knowledge of the nature and quality of the services provided by the Sub-Advisers and their discussions 

with representatives of Mason Street Advisers, its affiliates and the Sub-Advisers. The Directors received a presentation from 

representatives of each Sub-Adviser involved in the management of the respective Sub-Advised Portfolios, as well as 

information from Mason Street Advisors regarding on-site due diligence visits which had been conducted with each Sub- 

Adviser. The Directors evaluated a variety of information they deemed relevant on a Portfolio by Portfolio basis. No one 

particular factor was identified as controlling, but rather it was a combination of all the factors and conclusions that formed the 

basis for the determinations made by the Directors. 

Nature, Extent and Quality of Services. In considering the nature, extent and quality of each Sub-Adviser’s services, factors 

considered by the Directors included the Sub-Adviser’s investment personnel, the experience of the portfolio managers of each 

of the Sub-Advised Portfolios, and any changes in key personnel. The Directors considered the recent portfolio manager 

change for the Focused Appreciation Portfolio and concluded that overall, they did not believe that the change had impacted 

the level of service provided. The Directors also considered the scope of the services provided by the Sub-Advisers, noting 

that there were no changes in the services provided. In connection with the Portfolios sub-advised by PIMCO, the Directors 




considered information relating to PIMCO’s appointment as the asset manager for the Federal Reserve’s Commercial Paper 

Funding Facility, as well as PIMCO’s explanation of how it intended to allocate resources to provide services to the Portfolios 

in light of such appointment. The Directors also considered the succession plans with respect to the management of certain of 

the Sub-Advised Portfolios. Consideration was also given to the Sub-Advisers' reputations in the industry in providing 

investment management services, the Sub-Advisers' experience and the performance of the Sub-Advised Portfolios. Based on 

their review of these factors, their discussions with the Sub-Advisers and their experience with the services provided by the 

Sub-Advisers for the respective Sub-Advised Portfolios, other than as discussed below, the Directors concluded that they were 

satisfied with the nature, extent and quality of services provided by Sub-Advisers on behalf of the respective Sub-Advised 

Portfolios, and the resources committed by each Sub-Adviser in providing those services. 

With respect to the Board’s decision to replace the sub-adviser for the Mid Cap Value Portfolio, the Directors considered 

ongoing discussions with AllianceBernstein relating to certain issues that had arisen based on AllianceBernstein’s portfolio 

management style, including certain difficulties created in terms of measuring the Portfolio’s performance relative to its mid 

cap value peers. The Board generally felt that AllianceBernstein’s approach to resolving the issues was not likely to be 

successful, particularly given the facts and circumstances relating to the manner in which AllianceBernstein managed accounts 

with a mandate similar to the Portfolio’s. While the Board considered the Portfolio’s long-term performance record and lower 

expense ratio to be satisfactory, the Board concluded that the Investment Sub-Advisory Agreement with AllianceBernstein 

should be continued only until such time as a sub-adviser whose management style more closely fit the Portfolio could be 

identified. 

Investment Performance. The Directors reviewed the investment performance of each of the Sub-Advised Portfolios over a 

variety of time periods. In addition to absolute performance for each Sub-Advised Portfolio for both short and long-term 

periods, the Directors considered (i) a comparison of each Sub-Advised Portfolio's one-, three- and five-year (as applicable) 

performance to the returns of appropriate peer groups created by an independent research firm, certain benchmarks and indices, 

and to the performance averages of each Sub-Advised Portfolio's respective Morningstar and Lipper categories for the same 

periods, (ii) the Morningstar overall star rating for each Portfolio, if available, and (iii) the Morningstar and the Lipper rankings 

for the one-, three- and five-year (as applicable) periods. The Directors evaluated each Sub-Advised Portfolio's performance 

against these peer groups and industry benchmarks and indices, and viewed this information as providing an objective 

comparative benchmark against which they could assess the performance of the Sub-Advised Portfolios. The Directors noted 

in particular the consistently strong investment results of the Focused Appreciation Portfolio. The Directors also considered 

the performance of accounts managed in a similar manner by each of the Sub-Advisers and information from the Sub-Advisers 

regarding any significant differences in the performance of those accounts from that of the Sub-Advised Portfolios. In 

connection with their evaluation of the performance of the Sub-Advised Portfolios, the Directors also took into consideration 

the risk profile for each Sub-Advised Portfolio over the short and long term relative to its performance. In addition to 

performance information presented at the meeting, the Directors considered the detailed performance information, market 

commentary, portfolio analysis and portfolio manager presentations they received periodically throughout the year. Generally 

speaking, while attentive to short term performance and what trends it might indicate, the Directors provided greater weight to 

longer term performance. 

With respect to the relative performance of the Inflation Protection Portfolio, the Directors considered ACI’s explanation for 

the slight underperformance. In particular, the Directors considered the impact on the performance of the Inflation Protection 

Portfolio of Internal Revenue Code provisions governing insurance products that limited the Portfolio’s allocation to noninflation 

linked securities. The Directors also considered the explanations of T. Rowe Price and PIMCO for the recent 

performance of the Small Cap Value Portfolio and the Long-Term U.S. Government Bond Portfolio. For the reasons and based 

on the discussion summarized above, the Board concluded that, on balance, it was satisfied with the relative investment 

performance of the Sub-Advised Portfolios. 

Management Fees and Other Expenses. In evaluating the management fees and total expenses paid by the Sub-Advised 

Portfolios, the Directors considered the actual and contractual fees paid by each Sub-Advised Portfolio. The Directors also 

considered the sub-advisory fees, which fees are paid by Mason Street Advisers out of its management fee, including a 

comparison of those fees with fees charged by certain of the Sub-Advisers for similarly managed accounts. The Directors also 

considered a comparison of the actual and contractual management fees of the Sub-Advised Portfolios and those of an 

independently selected peer group of mutual funds for each of the Sub-Advised Portfolios. The Directors considered the 

comparative data as a tool to help assess the reasonableness of each Sub-Advised Portfolio's advisory fee, though they noted 

that it was difficult to make precise comparisons with other funds because the exact nature of services provided to peer funds is 

often not apparent. The Directors considered that the fee schedules for certain of the Sub-Advised Portfolios contained 

Approval and Continuance of Investment Sub-Advisory Agreements 237



breakpoints, and that the fee schedules and breakpoints evidenced an appropriate sharing of economies of scale between the 

each Sub-Advised Portfolio and Mason Street Advisors. In considering the level of management fees, the Directors also 

considered the size of the Sub-Advised Portfolios, the increase in management, compliance and related costs, expenses 

assumed by Mason Street Advisors, and the existing expense cap arrangements agreed to by Mason Street Advisors with 

respect to the Sub-Advised Portfolios. 

The Directors also considered the total operating expenses of each of the Sub-Advised Portfolios and compared those expenses 

with those of each Sub-Advised Portfolio's respective peer group. The Directors noted that four of the Sub-Advised Portfolios 

were in the top two Lipper quintiles (meaning lowest expenses) of their respective peer groups, two were in the third quintile, 

one was in the fourth quintile and one was in the fifth quintile, with respect to total net operating expenses. With respect to the 

two Portfolios in the fourth and fifth quintiles, the Directors considered the nature of the expenses that had contributed to the 

higher total net operating expenses and noted that expense cap agreements were in place with respect to each such Portfolio. 

Based on their review of the above information and other factors deemed relevant by the Directors, the Directors concluded 

that the management fees and total expenses of each of the Sub-Advised Portfolios were reasonable in relation to the nature, 

scope and quality of services provided and the performance of the Sub-Advised Portfolios over time. 

Costs and Profitability. The Directors also considered the profitability information related to certain of the Sub-Advised 

Portfolios where such information had been provided and the financial statements of certain Sub-Advisers or their affiliates 

who had not provided specific profitability information. The Directors also considered the profitability of Mason Street 

Advisors. In cases where profitability information had not been provided, the Directors noted that the sub-advisory fees were 

the result of arm's-length negotiations between Mason Street Advisors and such Sub-Advisers. The Directors also recognized 

that there are limitations inherent in allocating costs and calculating profitability for organizations such as the Sub-Advisers, 

and that it is difficult to make comparisons of profitability among investment advisers because comparative information is not 

generally publicly available and, when available, such information had been developed using a variety of assumptions and 

other factors. In connection with their review, the Directors were presented with information concerning the Sub-Advisers’ 

soft dollar arrangements, including the Sub-Advisers’ policies for allocating brokerage for brokerage and research services and 

any other benefits to the Sub-Advisers arising from the Sub-Advised Portfolios. Based on their review, the Directors 

concluded that they were satisfied that the fees paid by each of the Sub-Advised Portfolios was not excessive. 

Other Information 

The Directors were presented with other information intended to assist them in their consideration of the approval of the New 

Sub-Advisory Agreement and the continuation of the Existing Sub-Advisory Agreements, including information about the 

services provided by affiliates of Mason Street Advisors, pending or recent litigation or regulatory actions to which a Sub- 

Adviser or its affiliates may have been a party, and the applicable Sub-Adviser's responses to those actions, reports from 

Mason Street Advisors on its review of the respective compliance programs of the Sub-Advisers, the inclusion of certain Sub- 

Advisers in various distribution programs of affiliates of Mason Street Advisors, and information regarding portfolio turnover, 

business continuity, codes of ethics, and business structure and history. 

Conclusions of the Directors 

Based on a consideration of all information they deemed relevant in its totality, the Board, including the Independent Directors, 

and assisted by the advice of legal counsel independent of Mason Street Advisors, in the exercise of its business judgment 

concluded that it was in the best interests of each Portfolio to approve the New Sub-Advisory Agreement between Mason 

Street Advisors and ACI and the continuation of each of the Existing Sub-Advisory Agreements between Mason Street 

Advisors and the Sub-Advisers. 
























































































VIP Mid Cap Initial Class 


$28,122 

$15,471 

$



$28,122 

$15,471 

$



$28,122 

$15,471 

$



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$15,471 

$



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$15,471 

$



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$15,471 

$



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$15,471 

$



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$15,471 

$



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$15,471 

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$



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$15,471 

$



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$15,471 

$



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$15,471 

$



$28,122 

$15,471 

$



$28,122 

$15,471 

$

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VIP Contrafund Initial Class S&P 500 

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Neuberger Berman 

Advisers Management Trust 

Socially Responsive Portfolio 

I Class Shares 

S Class Shares 



B1017 02/09

Socially Responsive Portfolio Managers’ Commentary 

During 2008, there was virtually no place to hide in the stock market. During one of the worst years in market history, all 

10 S&P 500 sectors posted losses, with nine of 10 falling more than 20%; Financials stocks dropped by more than 55%. 

Even traditionally defensive groups such as Consumer Staples, Health Care and Utilities failed to preserve investor capital. 

Our research process is based on business fundamentals, and provided limited defense in an environment of indiscriminate 

selling by highly leveraged hedge funds faced with margin calls, mutual funds forced to meet redemptions, and panicked 

individual investors. While the Neuberger Berman Advisers Management Trust (AMT) Socially Responsive Portfolio 

managed to outperform in four of the eight sectors in which it was invested, it experienced an overall decline that trailed its 

S&P 500 benchmark. 

Like the broader market, the AMT Socially Responsive Portfolio failed to generate positive returns in any sector. However, 

investments in the Industrials, Materials and Financials sectors performed better than corresponding benchmark sector 

components. In Industrials, the comparatively moderate decline of Canadian National Railway enhanced relative returns. 

In Materials, our only sector holding, industrial gases producer Praxair, held up relatively well. In Financials, leading 

transaction processor State Street (sold in July 2008) and property and casualty insurer Progressive Corp. outperformed. 

In general, our strategy since 2006 of avoiding more credit sensitive financial companies benefited relative performance. 

Investments in the Energy and Consumer Discretionary sectors penalized relative returns. The Portfolio was underweighted 

in Energy, but our bias toward exploration, production and services companies, which sustained much more damage than 

the more diversified integrated oils as energy prices collapsed from mid-summer highs, hurt relative performance. Oil 

services company Smith International and exploration and production company Newfield Exploration were among our 

poorer performers in this sector. Consumer Discretionary investments underperformed by a relatively small margin, but the 

Portfolio’s substantial overweighting in this sector penalized returns. Auto parts manufacturer BorgWarner and media 

companies Liberty Global and Scripps Networks Interactive were among our disappointments. The Portfolio was also 

disadvantaged by not owning any Consumer Staples stocks — the S&P 500’s best performing sector. 

The credit crisis and volatile financial markets have negatively impacted virtually every economy in the world. We 

currently believe that the global economic malaise could likely extend into 2009 before we see some improvement in the 

second half as aggressive efforts to stimulate economic growth by U.S. and international authorities begin to take root. 

Lower food and fuel costs should take some pressure off household budgets, and lower commodity costs may help 

cushion profit margins for companies experiencing a decline in demand for their products. 

The damage sustained in 2008 has shaken investor confidence in equities and the near-term economic outlook remains 

clouded by ongoing financial market turmoil. Taking a longer view, we believe business prospects over the three- to 

five-year time horizon encompassed in our investment approach are likely to improve. Following the last three recessions, 

the economy expanded by 40 - 70% over extended periods of time. Companies with the right customer value proposition 

and thoughtful managements have disproportionately benefited in such cycles. 

We can’t be certain when the global economy will begin to stabilize or when the stock market will begin to reflect an 

improving economic climate. The potential for positive growth drives us to continue to search for high quality, good 

corporate citizens capable of building market share and growing earnings faster than their peers across economic and 

market cycles. Following 2008’s dramatic decline in the equity market, many equities of such “growth advantaged” 

companies are trading at prices that conform to our value and investment criteria. This gives us confidence that the AMT 

Socially Responsive Portfolio can reward shareholders in the years ahead. 

Sincerely, 

Arthur Moretti and Ingrid Dyott 

Portfolio Co-Managers 

1


SECTOR ALLOCATION 

(% of Equity Market Value) 

Energy 9.6% 

Materials 3.1 

Industrials 15.2 

Consumer Discretionary 20.3 

Health Care 11.8 

Financials 15.1 

Information Technology 20.2 

Utilities 4.7 

Total 100.0% 

AVERAGE ANNUAL TOTAL RETURN 1 

Inception 

Life of 

Date 1 Year 5 Year Fund* 

Socially Responsive Portfolio Class I 02/18/99 (39.44%) (2.15%) 1.20% 

Socially Responsive Portfolio Class S 2 05/01/06 (39.43%) (2.21%) 1.17% 

S&P 500 3 (37.00%) (2.19%) (1.37%) 

Performance data quoted represent past performance, which is no guarantee 

of future results. The investment return and principal value of an investment 

will fluctuate so that an investor’s shares, when redeemed may be worth 

more or less than their original cost. Results are shown on a “total return” 

basis and include reinvestment of all dividends and capital gain distributions. 

Current performance may be lower or higher than the performance data 

quoted. For performance data current to the most recent month end, please 

visit https://www.nb.com. 

* Index returns are as of inception date 2/18/99. 

As stated in the Portfolio’s most recent prospectus, the total annual fund operating 

expense ratio for fiscal year 2007 was 0.92% and 1.17% for Class I and Class S shares, 

respectively (prior to any fee waivers or expense reimbursements). Neuberger Berman 

Management LLC has contractually agreed to limit certain expenses of the Portfolio 

through 12/31/2011. 

COMPARISON OF A $10,000 INVESTMENT 

20,000 

15,000 

10,000 

5,000 

0 

2/18/99 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Socially Responsive Portfolio Class I 

S&P 500 

Value as of 12/31/08 

$11,250 

$8,723 

The chart shows the value of a hypothetical $10,000 investment in the Portfolio over the 

past 10 fiscal years, or since the Portfolio’s inception, if it has not operated for 10 years. 

The graphs are based on Class I shares only; performance of other classes will vary due 

to differences in fee structures (see Average Annual Total Return chart above). The result 

is compared with benchmarks, which may include a broad-based market index and/or a 

narrower index. Please note that market indexes do not include expenses. All results 

include the reinvestment of dividends and capital gain distributions. Results represent 

past performance and do not indicate future results. The chart and table do not reflect 

the deduction of taxes that a shareholder would pay on Portfolio distributions or the 

redemption of Portfolio shares. 

Please see Endnotes for additional information. 

2

Endnotes 

1 “Total Return” includes reinvestment of all income dividends and capital gain distributions. Results represent past 

performance and do not indicate future results. The value of an investment in the Portfolio and the return on the 

investment both will fluctuate, and redemption process may be higher or lower than an investor’s original cost. The 

performance information does not reflect fees and expenses of the variable annuity and variable life insurance 

policies or the pension plans whose proceeds are invested in the Portfolio. Neuberger Berman Management LLC 

(“NBM LLC”) has agreed to absorb certain expenses of the AMT Portfolios, including the Portfolio. Without this 

arrangement, which is subject to change, the total returns of the Portfolio may have been less. 

2 Performance shown prior to May 1, 2006, for the Class S shares is that of the Class I shares, which has lower 

expenses than Class S shares and correspondingly higher returns. 

3 The S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stock market performance and 

includes a representative sample of leading companies in leading industries. Please note that indices do not take 

into account any fees and expenses of investing in the individual securities that they track, and that individuals 

cannot invest directly in any index. Data about the performance of this index is prepared or obtained by NBM LLC 

and include reinvestment of all dividends and capital gain distributions. The Portfolio may invest directly in many 

securities not included in the above-described index. 

Any ratios or other measurements using a factor of forecasted earnings of a company discussed herein are based on 

consensus estimates, not NBM LLC’s own projections, and they may or may not be realized. In addition, any 

revision to a forecast could affect the market price of a security. By quoting them herein, NBM LLC does not offer 

an opinion as to the accuracy of and does not guarantee these forecasted numbers. 

The investments for the Portfolio are managed by the same portfolio manager(s) who manage one or more other 

mutual funds that have similar names, investment objectives and investment styles as the Portfolio. You should be 

aware that the Portfolio is likely to differ from the other mutual funds in size, cash flow pattern and tax matters. 

Accordingly, the holdings and performance of the Portfolio can be expected to vary from those of the other 

mutual funds. 

The composition, industries and holdings of the Portfolio are subject to change. 

Shares of the separate AMT Portfolios are sold only through the currently effective prospectus and are not available 

to the general public. Shares of this Portfolio may be purchased only by life insurance companies to be used with 

their separate accounts that fund variable annuity and variable life insurance policies and by qualified pension and 

retirement plans. 

© 2009 Neuberger Berman Management LLC distributor. All rights reserved. 

3

Information About Your Fund’s Expenses 

This table is designed to provide information regarding costs related to your investments. All mutual funds incur 

operating expenses, which include management fees, fees for administrative services and costs of shareholder reports, 

among others. The following examples are based on an investment of $1,000 made at the beginning of the six month 

period ended December 31, 2008. The table illustrates the fund’s costs in two ways: 

Actual Expenses and Performance: 

Hypothetical Example for 

Comparison Purposes: 

The first section of the table provides information about actual account values 

and actual expenses in dollars, based on the fund’s actual performance during 

the period. You may use the information in this line, together with the amount 

you invested, to estimate the expenses you paid over the period. Simply divide 

your account value by $1,000 (for example, an $8,600 account value divided by 

$1,000 = 8.6), then multiply the result by the number in the first section of the 

table under the heading entitled “Expenses Paid During the Period” to estimate 

the expenses you paid over the period. 

The second section of the table provides information about hypothetical 

account values and hypothetical expenses based on the fund’s actual expense 

ratio and an assumed rate of return at 5% per year before expenses. This 

return is not the fund’s actual return. The hypothetical account values and 

expenses may not be used to estimate the actual ending account balance or 

expenses you paid for the period. You may use this information to compare the 

ongoing costs of investing in this fund versus other funds. To do so, compare 

the expenses shown in this 5% hypothetical example with the 5% hypothetical 

examples that appear in the shareholder reports of other funds. 

Please note that the expenses in the table are meant to highlight your ongoing costs only. The table and expense example 

do not include any transactional costs, such as fees and expenses that are, or may be, imposed under your variable 

contract or qualified pension plan. Therefore, the information under the heading “Hypothetical (5% annual return before 

expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning 

different funds. In addition, if these transactional costs were included, your costs would have been higher. 

Expense Information as of 12/31/08 (Unaudited) 

NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST SOCIALLY RESPONSIVE PORTFOLIO 


Beginning Account Ending Account the Period* Expense 

Actual Value 7/1/08 Value 12/31/08 7/1/08 – 12/31/08 Ratio 

Class I $1,000.00 $ 667.90 $4.23 1.01% 

Class S $1,000.00 $ 669.00 $4.99 1.19% 

Hypothetical (5% annual return before expenses)** 

Class I $1,000.00 $1,020.06 $5.13 1.01% 

Class S $1,000.00 $1,019.15 $6.04 1.19% 

* For each class of the fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over 

the period, multiplied by 184/366 (to reflect the one-half year period shown). 

** Hypothetical 5% annual return before expenses is calculated by multiplying the number of days in the most recent half year divided by 366. 

4

Schedule of Investments Socially Responsive Portfolio 

NUMBER OF SHARES MARKET VALUE † 

NUMBER OF SHARES MARKET VALUE † 


Auto Components (2.0%) 

94,030 BorgWarner, Inc. $ 2,047,033 

Automobiles (2.0%) 

30,820 Toyota Motor ADR 2,016,861 

Biotechnology (4.6%) 

63,570 Genzyme Corp. 4,219,141* 

82,850 Medarex, Inc. 462,303* 

4,681,444 

Capital Markets (5.2%) 

115,835 Bank of New York Mellon 3,281,605 

123,729 Charles Schwab 2,000,698 

5,282,303 

Commercial Services & Supplies (2.8%) 

84,385 Manpower Inc. 2,868,246 

Diversified Financial Services (3.4%) 

4,065 CME Group 845,967 

32,250 IntercontinentalExchange Inc. 2,658,690* 

3,504,657 

Electronic Equipment, Instruments & 

Components (8.2%) 

115,825 Anixter International 3,488,649* 

199,875 National Instruments 4,868,955 

8,357,604 

Energy Equipment & Services (1.8%) 

79,250 Smith International 1,814,033 

Health Care Providers & Services (2.6%) 

99,020 UnitedHealth Group 2,633,932 

Industrial Conglomerates (3.6%) 

63,515 3M Co. 3,654,653 

Life Science Tools & Services (1.0%) 

20,765 Millipore Corp. $ 1,069,813* 


88,790 Danaher Corp. 5,026,402 

Media (15.9%) 

308,177 Comcast Corp. Class A Special 4,977,059 

139,600 Liberty Global Class A 2,222,432* 

24,051 Liberty Global Class C 365,094* 

195,825 Scripps Networks Interactive 4,308,150 

11,059 Washington Post 4,315,775 

16,188,510 

Multi-Utilities (4.6%) 

472,334 National Grid 4,645,033 

Oil, Gas & Consumable Fuels (7.5%) 

179,563 BG Group PLC 2,470,656 

80,675 Cimarex Energy 2,160,477 

153,010 Newfield Exploration 3,021,947* 

7,653,080 

Pharmaceuticals (3.2%) 

5,186 Novo Nordisk A/S ADR 266,508 

59,539 Novo Nordisk A/S Class B 3,013,282 

3,279,790 

Road & Rail (3.4%) 

94,985 Canadian National Railway 3,491,649 

Semiconductors & Semiconductor 

Equipment (8.5%) 

336,355 Altera Corp. 5,620,492 

192,750 Texas Instruments 2,991,480 

8,611,972 

Software (3.0%) 

126,650 Intuit Inc. 3,013,004* 


(Cost $138,166,993) 99,062,215 

Industrial Gases (3.0%) 

51,390 Praxair, Inc. 3,050,510 

Insurance (6.1%) 

194,375 Progressive Corp. 2,878,694 

132,355 Willis Group Holdings 3,292,992 

6,171,686 

See Notes to Schedule of Investments 5

PRINCIPAL AMOUNT MARKET VALUE † 


$2,247,000 Repurchase Agreement 

with Fixed Income 

Clearing Corp., 0.01%, 

due 1/2/09, dated 12/31/08, 

Maturity Value $2,247,001, 

Collateralized by $2,230,000, 

Fannie Mae, 4.33%, 

due 7/28/11 

(Collateral Value $2,316,413) 

(Cost $2,247,000) $ 2,247,000 # 

Certificates of Deposit (0.2%) 

100,000 Shorebank Chicago, 2.00%, 

due 3/15/09 100,000 

100,000 Shorebank Pacific, 1.28%, 

due 2/7/09 100,000 

Total Certificates of Deposit 

(Cost $200,000) 200,000 # 


(Cost $140,613,993) 101,509,215 ## 

Cash, receivables and other assets, 

less liabilities (0.3%) 271,515 

Total Net Assets (100.0%) $101,780,730 

See Notes to Schedule of Investments 6

Notes to Schedule of Investments Socially Responsive 

Portfolio 

† Investments in equity securities by Neuberger Berman Advisers Management Trust Socially Responsive Portfolio 

(the “Fund”) are valued by obtaining valuations from an independent pricing service. The independent pricing 

service values equity securities at the latest sale price when that price is readily available. Securities traded primarily 

on the NASDAQ Stock Market are normally valued by the Fund at the NASDAQ Official Closing Price (“NOCP”) 

provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:02 p.m., 

Eastern time, unless that price is outside the range of the “inside” bid and asked prices (i.e., the bid and asked prices 

that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price 

to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not 

be based on the price of the last trade to occur before the market closes. If there is no reported sale of a security on 

a particular day, the independent pricing service may value the security based on reported market quotations. If a 

valuation is not available from an independent pricing service, the Fund seeks to obtain quotations from principal 

market makers. If such quotations are not readily available, securities are valued using methods the Board of 

Trustees of Neuberger Berman Advisers Management Trust (the “Board”) has approved on the belief that they 

reflect fair value. Numerous factors may be considered when determining the fair value of a security, including 

available analyst, media or other reports, trading in futures or ADRs and whether the issuer of the security being 

fair valued has other securities outstanding. Foreign security prices are furnished by independent quotation 

services and expressed in local currency values. Foreign security prices are currently translated from the local 

currency into U.S. dollars using the exchange rate as of 4:00 p.m., Eastern time. The Board has approved the use of 

Interactive Data Pricing and Reference Data, Inc. (“Interactive”) to assist in determining the fair value of the Fund’s 

foreign equity securities when changes in the value of a certain index suggest that the closing prices on the foreign 

exchanges may no longer represent the amount that the Fund could expect to receive for those securities. In this 

event, Interactive will provide adjusted prices for certain foreign equity securities using a statistical analysis of 

historical correlations of multiple factors. In the absence of precise information about the market values of these 

foreign securities as of the close of the New York Stock Exchange, the Board has determined on the basis of 

available data that prices adjusted in this way are likely to be closer to the prices the Fund could realize on a current 

sale than are the prices of those securities established at the close of the foreign markets in which the securities 

primarily trade. Fair value prices are necessarily estimates, and there is no assurance that such a price will be at or 

close to the price at which the security next trades. Short-term debt securities with less than 60 days until maturity 

may be valued at cost which, when combined with interest earned, approximates market value. 

The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards 

No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, “fair value” is 

defined as the price that a Fund would receive upon selling an investment in an orderly transaction to an 

independent buyer in the principal or most advantageous market for the investment. Various inputs are used in 

determining the value of the Fund’s investments. 

In addition to defining fair value, FAS 157 established a three-tier hierarchy of inputs to establish a classification of 

fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three 

broad Levels listed below. 

• Level 1 – quoted prices in active markets for identical investments 

• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, 

prepayment speeds, credit risk, amortized cost, etc.) 

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of 

investments) 

See Notes to Financial Statements 7

Notes to Schedule of Investments Socially Responsive 

Portfolio (cont’d) 

The inputs or methodology used for valuing an investment are not necessarily an indication of the risk associated 

with investing in those securities. 

The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2008: 

Valuation Inputs 


Securities 

Level 1 – Quoted Prices $ 99,062,215 

Level 2 – Other Significant Observable Inputs 2,447,000 

Level 3 – Significant Unobservable Inputs — 

Total $101,509,215 

# At cost, which approximates market value. 

## At December 31, 2008, the cost of investments for U.S. federal income tax purposes was $143,676,429. Gross unrealized 

appreciation of investments was $1,200,961 and gross unrealized depreciation of investments was $43,368,175, 

resulting in net unrealized depreciation of $42,167,214, based on cost for U.S. federal income tax purposes. 

* Security did not produce income during the last twelve months. 


Statement of Assets and Liabilities 

Neuberger Berman Advisers Management Trust 

SOCIALLY 

RESPONSIVE 

PORTFOLIO 


Assets 

Investments in securities, at market value* (Note A)—see Schedule of Investments: 

Unaffiliated issuers $101,509,215 

Cash 13,083 

Foreign currency 50 

Dividends and interest receivable 143,486 

Receivable for Fund shares sold 305,131 

Receivable for securities lending income (Note A) 1,007 

Prepaid expenses and other assets 39 

Total Assets 101,972,011 

Liabilities 

Payable for Fund shares redeemed 65,774 

Payable to investment manager (Notes A & B) 45,257 

Payable to administrator—net (Note B) 8,951 

Accrued expenses and other payables 71,299 

Total Liabilities 191,281 

Net Assets at value $101,780,730 

Net Assets consist of: 

Paid-in capital $153,993,632 

Undistributed net investment income (loss) 2,218,992 

Accumulated net realized gains (losses) on investments (15,324,736) 

Net unrealized appreciation (depreciation) in value of investments (39,107,158) 

Net Assets at value $101,780,730 

Net Assets 

Class I $51,636,425 

Class S 50,144,305 

Shares Outstanding ($.001 par value; unlimited shares authorized) 

Class I 5,497,641 

Class S 5,331,411 

Net Asset Value, offering and redemption price per share 

Class I $9.39 

Class S 9.41 

*Cost of Investments: 

Unaffiliated issuers $140,613,993 

Total cost of foreign currency $57 


Statement of Operations 


SOCIALLY 

RESPONSIVE 

PORTFOLIO 

For the 

Year Ended 


Investment Income: 

Income (Note A): 

Dividend income—unaffiliated issuers $6,491,936 

Interest income—unaffiliated issuers 235,421 

Income from securities loaned—net (Note F) 55,582 

Foreign taxes withheld (135,997) 

Total income $6,646,942 

Expenses: 

Investment management fees (Notes A & B) 2,209,487 

Administration fees (Note B): 

Class I 1,018,771 

Class S 223,668 

Distribution fees (Note B): 

Class S 186,390 

Audit fees 40,493 

Custodian fees (Note B) 135,937 

Insurance expense 16,275 

Legal fees 98,358 

Shareholder reports 93,368 

Trustees’ fees and expenses 38,147 

Miscellaneous 23,800 

Total expenses 4,084,694 

Expenses reimbursed by administrator (Note B) (71,032) 

Expenses reduced by custodian fee expense offset and commission recapture arrangements (Note B) (29,295) 

Total net expenses 3,984,367 

Net investment income (loss) $2,662,575 

Realized and Unrealized Gain (Loss) on Investments (Note A) 

Net realized gain (loss) on: 

Sales of investment securities of unaffiliated issuers (12,311,535) 

Sales of investment securities of affiliated issuers (462,545) 

Redemption in-kind 5,365,827 

Foreign currency (136,744) 

Change in net unrealized appreciation (depreciation) in value of: 

Unaffiliated investment securities (95,753,828) 

Foreign currency (7,524) 

Net gain (loss) on investments (103,306,349) 

Net increase (decrease) in net assets resulting from operations $(100,643,774) 




SOCIALLY RESPONSIVE PORTFOLIO 

Year Ended 

Year Ended 

December 31, December 31, 

2008 2007 

Increase (Decrease) in Net Assets: 

From Operations: 

Net investment income (loss) $2,662,575 $3,004,933 

Net realized gain (loss) on investments (7,544,997) 8,746,817 

Change in net unrealized appreciation (depreciation) of investments (95,761,352) 18,142,679 

Net increase (decrease) in net assets resulting from operations (100,643,774) 29,894,429 

Distributions to Shareholders From (Note A): 

Net investment income: 

Class I (1,623,563) (427,951) 

Class S (1,370,229) (17,131) 

Net realized gain on investments: 

Class I (5,548,809) (1,609,650) 

Class S (5,503,467) (302,640) 

Total distributions to shareholders (14,046,068) (2,357,372) 

From Fund Share Transactions (Note D): 

Proceeds from shares sold: 

Class I 68,378,900 296,255,440 

Class S 5,844,369 8,865,625 

Proceeds from reinvestment of dividends and distributions: 

Class I 7,172,372 2,037,601 

Class S 6,873,696 319,771 

Payments for shares redeemed: 

Class I (508,016,238) (24,274,098) 

Class S (11,960,896) (16,760,067) 

Net increase (decrease) from Fund share transactions (431,707,797) 266,444,272 

Net Increase (Decrease) in Net Assets (546,397,639) 293,981,329 

Net Assets: 

Beginning of year 648,178,369 354,197,040 

End of year $101,780,730 $648,178,369 

Undistributed net investment income (loss) at end of year $2,218,992 $2,992,750 


Notes to Financial Statements Socially Responsive Portfolio 

Note A—Summary of Significant Accounting Policies: 

1 General: Socially Responsive Portfolio (the “Fund”) is a separate operating series of Neuberger Berman Advisers 

Management Trust (the “Trust”), a Delaware statutory trust organized pursuant to a Trust Instrument dated 

May 23, 1994. The Trust is currently comprised of ten separate operating series (each a “Series,” collectively, the 

“Funds”) each of which is diversified. The Trust is registered as an open-end management investment company 

under the Investment Company Act of 1940, as amended (the “1940 Act”), and its shares are registered under the 

Securities Act of 1933, as amended (the “1933 Act”). The Fund currently offers Class I and Class S shares. The 

Board of Trustees of the Trust (the “Board”) may establish additional series or classes of shares without the 

approval of shareholders. 

The assets of each Series belong only to that Series, and the liabilities of each Series are borne solely by that Series 

and no other. 

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires 

Neuberger Berman Management LLC (“Management”) to make estimates and assumptions at the date of the 

financial statements. Actual results could differ from those estimates. 

Management, the investment manager of the Fund, and Neuberger Berman, LLC (“Neuberger”), the Fund’s 

sub-adviser, are wholly owned subsidiaries of Lehman Brothers Holdings Inc. (“Lehman Brothers”), a publicly 

owned holding company. On September 15, 2008, Lehman Brothers filed a voluntary petition under Chapter 11 of 

the U.S. Bankruptcy Code. On December 3, 2008, NBSH Acquisition, LLC (“NBSH”), an entity organized by key 

members of Neuberger Berman’s senior management, was selected as the successful bidder in the public auction to 

acquire a majority interest in Neuberger Berman’s business and the fixed income and certain alternative asset 

management businesses of Lehman Brothers’ Investment Management Division (together with Neuberger Berman, 

the “Acquired Businesses”) (the “Proposed Acquisition”). On December 22, 2008, the bankruptcy court having 

jurisdiction over the Lehman Brothers matter approved the sale of the Acquired Businesses to NBSH (or its 

successor or assign), as the successful bidder. At the closing of the Proposed Acquisition, a majority interest in the 

Acquired Businesses will be directly or indirectly owned by portfolio managers, Neuberger Berman’s management 

team and certain key members and senior professionals of the former Investment Management Division, as well as 

by Lehman Brothers and certain affiliates of Lehman Brothers. The transaction is subject to certain conditions and 

approvals. 

These events, while affecting Lehman Brothers, have not had a material impact on the Fund or its operations. 

Management and Neuberger will continue to operate in the ordinary course of business as the investment manager 

and sub-adviser of the Fund. 

Included in the Acquired Businesses are Management and Neuberger. The consummation of the Proposed 

Acquisition has been deemed to result in an “assignment” of the Fund’s Management and Sub-Advisory 

Agreements which would, by law, automatically terminate those agreements. Accordingly, the Board, including the 

Trustees who are not “interested persons” of the Fund’s investment manager and its affiliates or the Fund, has 

approved the new Management Agreements and Sub-Advisory Agreements for the Fund. The new agreements also 

will require the approval of the Fund’s shareholders. 

2 Portfolio valuation: Investment securities are valued as indicated in the notes following the Schedule of 

Investments. 

3 Foreign currency translation: The accounting records of the Fund are maintained in U.S. dollars. Foreign currency 

amounts are currently translated into U.S. dollars using the exchange rates as of 4:00 p.m., Eastern time, to 

determine the value of investments, other assets and liabilities. Purchase and sale prices of securities, and income 

and expenses, are translated into U.S. dollars at the prevailing rate of exchange on the respective dates of such 

12

transactions. Net unrealized foreign currency gain (loss) arises from changes in the value of assets and liabilities, 

other than investments in securities, as a result of changes in exchange rates and is stated separately in the 

Statement of Operations. 

4 Securities transactions and investment income: Securities transactions are recorded on trade date for financial 

reporting purposes. Dividend income is recorded on the ex-dividend date or, for certain foreign dividends, as soon 

as the Fund becomes aware of the dividends. Non-cash dividends included in dividend income, if any, are recorded 

at the fair market value of the securities received. Interest income, including accretion of original issue discount, 

where applicable, and accretion of discount on short-term investments, is recorded on the accrual basis. Realized 

gains and losses from securities transactions and foreign currency transactions, if any, are recorded on the basis of 

identified cost and stated separately in the Statement of Operations. Included in net realized gain (loss) on 

investments are proceeds from the settlements of class action litigation in which the Fund participated as a 

plaintiff. The amount of such proceeds for the year ended December 31, 2008 was $309,838. 

5 Income tax information: The Funds are treated as separate entities for U.S. federal income tax purposes. It is the 

policy of the Fund to continue to qualify as a regulated investment company by complying with the requirements 

of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute 

substantially all of its earnings to shareholders. Therefore, no federal income or excise tax provision is required. 

The Fund has adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”) 

“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”. FIN 48 sets forth a 

minimum threshold for financial statement recognition of the benefit of a tax position taken, or expected to be 

taken, in a tax return. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an 

income tax expense in the Statement of Operations. The Fund is subject to examination by U.S. federal and state 

tax authorities for returns filed for the prior three fiscal years 2005 - 2007. As of December 31, 2008, the Fund did 

not have any unrecognized tax benefits. 

Income distributions and capital gain distributions are determined in accordance with income tax regulations, 

which may differ from U.S. generally accepted accounting principles. These differences are primarily due to 

differing treatments of income and gains on various investment securities held by the Fund, timing differences and 

differing characterization of distributions made by the Fund as a whole. The Fund may also utilize earnings and 

profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income 

tax purposes. 

As determined on December 31, 2008, permanent differences resulting primarily from different book and tax 

accounting for foreign currency gains and losses, capital gain distributions from real estate investment trusts and 

redemptions in kind were reclassified at fiscal year-end. These reclassifications had no effect on net income, net 

asset value or net asset value per share of the Fund. 

The tax character of distributions paid during the years ended December 31, 2008 and December 31, 2007 was as 

follows: 

Distributions Paid From: 

Long-Term 

Ordinary Income Capital Gain Total 

2008 2007 2008 2007 2008 2007 

$4,101,032 $2,357,372 $9,945,036 $— $14,046,068 $2,357,372 

As of December 31, 2008, the components of distributable earnings (accumulated losses) on a U.S. federal income 

tax basis were as follows: 

Undistributed Undistributed Unrealized Loss 

Ordinary Long-Term Appreciation Carryforwards 

Income Gain (Depreciation) and Deferrals Total 

$2,218,992 $— $(42,169,595) $(12,262,299) $(52,212,902) 

13

The difference between book basis and tax basis distributable earnings is attributable primarily to timing 

differences of wash sales, partnership basis adjustment, capital loss carryforwards and post October loss deferral. 

To the extent the Fund’s net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy 

of the Fund not to distribute such gains. As determined at December 31, 2008, the Fund had unused capital loss 

carryforwards available for federal income tax purposes to offset net realized capital gains, if any, as follows: 

Expiring In: 

2016 

$7,357,742 

Under current tax law, the use of these losses to offset future gains may be limited in a given year. Under current tax 

law, certain net capital and net foreign currency losses realized after October 31 within the taxable year may be 

deferred and treated as occurring on the first day of the following tax year. For the year ended December 31, 2008, 

the Fund elected to defer $4,904,557 net capital losses arising between November 1, 2008 and December 31, 2008. 

6 Distributions to shareholders: The Fund may earn income, net of expenses, daily on its investments. Distributions 

from net investment income and net realized capital gains, if any, generally are distributed in October. Income 

distributions and capital gain distributions to shareholders are recorded on the ex-date. 

7 Foreign taxes: Foreign taxes withheld represent amounts withheld by foreign tax authorities, net of refunds 

recoverable. 

8 Expense allocation: Certain expenses are applicable to multiple funds. Expenses directly attributable to a Series are 

charged to that Series. Expenses of the Trust that are not directly attributed to a Series are allocated among the 

Funds, on the basis of relative net assets, except where a more appropriate allocation of expenses to each of the 

Funds can otherwise be made fairly. Expenses borne by the complex of related investment companies, which 

includes open-end and closed-end investment companies for which Management serves as investment manager, 

that are not directly attributed to a Series or the Trust are allocated among the Fund and the other investment 

companies in the complex or series thereof on the basis of relative net assets, except where a more appropriate 

allocation of expenses to each investment company in the complex or series thereof can otherwise be made fairly. 

The Fund’s expenses (other than those specific to each class) are allocated proportionally each day between the 

classes based upon the relative net assets of each class. 

9 Security lending: A third party, eSecLending, has assisted the Fund in conducting a bidding process to identify 

agents/principals that would pay a guaranteed amount to the Fund in consideration of the Fund entering into an 

exclusive securities lending arrangement. 

eSecLending currently serves as exclusive lending agent for the Fund. Under the securities lending arrangement, the 

Fund receives cash collateral at the beginning of each transaction equal to at least 102% of the prior day’s market 

value of the loaned securities (105% in the case of international securities). The Fund may invest all the cash 

collateral in Neuberger Berman Securities Lending Quality Fund, LLC (“Quality Fund”), a fund managed by 

Lehman Brothers Asset Management LLC (“LBAM”), an affiliate of Management. 

At various times during the course of the Fund’s fiscal year ended December 31, 2008, the Quality Fund’s NAV was 

below $1.00 per share, which could have affected the NAV of the Fund with securities loans outstanding during the 

period. The Quality Fund’s price per share on December 31, 2008 was $1.00. The market value of the Fund’s 

investments in the Quality Fund as of that date, if any, is reflected in the Fund’s Schedule of Investments. If it were 

necessary to liquidate assets in the Quality Fund to meet returns on outstanding securities loans at a time when the 

Quality Fund’s price per share was less than $1.00, the Fund may not receive an amount from the Quality Fund that 

is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the 

Fund would be required to make up for this shortfall. In addition, as a result of recent reduced liquidity in the 

credit and fixed income markets, it may be difficult to dispose quickly of some securities in the Quality Fund at the 

price at which the Quality Fund is carrying them. The Quality Fund is not a money market fund that operates in 

accordance with Rule 2a-7 under the 1940 Act and there is no assurance that it will maintain a $1.00 share price. 

14

Net income from the lending program represents the guaranteed amount received from a principal plus income 

earned on the cash collateral invested in Quality Fund or in other investments, less cash collateral fees and other 

expenses associated with the loans. For the fiscal year ended December 31, 2008, the Fund received net income 

under the securities lending arrangement of $55,582, which is reflected in the Statement of Operations under the 

caption “Income from securities loaned—net.” For the fiscal year ended December 31, 2008, “Income from 

securities loaned—net” consisted of $570,817 in income earned on cash collateral and guaranteed amounts 

(including $502,402 of interest income earned from the Quality Fund), less fees and expenses paid of $515,235. 

10 Repurchase agreements: The Fund may enter into repurchase agreements with institutions that Management has 

determined are creditworthy. Each repurchase agreement is recorded at cost. The Fund requires that the securities 

purchased in a repurchase agreement be transferred to the custodian in a manner sufficient to enable the Fund to 

assert a perfected security interest in those securities in the event of a default under the repurchase agreement. The 

Fund monitors, on a daily basis, the value of the securities transferred to ensure that their value, including accrued 

interest, is greater than amounts owed to the Fund under each such repurchase agreement. 

11 Indemnifications: Like many other companies, the Trust’s organizational documents provide that its officers and 

trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In 

addition, both in some of its principal service contracts and in the normal course of its business, the Trust enters 

into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Trust’s 

maximum exposure under these arrangements is unknown as this could involve future claims against the Trust. 

12 Other: All net investment income and realized and unrealized capital gains and losses of the Fund are allocated, on 

the basis of relative net assets, pro rata among its respective classes. 

Note B—Management Fees, Administration Fees, Distribution Arrangements, and Other 

Transactions With Affiliates: 

Fund shares are issued and redeemed in connection with investments in and payments under certain variable 

annuity contracts and variable life insurance policies issued through separate accounts of life insurance companies 

and are also offered directly to qualified pension and retirement plans. 

The Fund retains Management as its investment manager under a Management Agreement. For such investment 

management services, the Fund pays Management a fee at the annual rate of 0.55% of the first $250 million of the 

Fund’s average daily net assets, 0.525% of the next $250 million, 0.50% of the next $250 million, 0.475% of the 

next $250 million, 0.45% of the next $500 million, 0.425% of the next $2.5 billion, and 0.40% of average daily net 

assets in excess of $4 billion. 

The Fund retains Management as its administrator under an Administration Agreement. Each class pays 

Management an administration fee at the annual rate of 0.30% of its average daily net assets under this agreement. 

Additionally, Management retains State Street Bank and Trust Company (“State Street”) as its sub-administrator 

under a Sub-Administration Agreement. Management pays State Street a fee for all services received under this 

agreement. 

The Board adopted a non-fee distribution plan for the Fund’s Class I. 

For the Fund’s Class S, Management acts as agent in arranging for the sale of class shares without commission and 

bears advertising and promotion expenses. The Board has adopted a distribution plan (the “Plan”) with respect to 

this class, pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that, as compensation for administrative 

and other services provided to this class, Management’s activities and expenses related to the sale and distribution 

of this class of shares, and ongoing services provided to investors in this class, Management receives from this class 

a fee at an annual rate of 0.25% of Class S’s average daily net assets. Management receives this amount to provide 

distribution and shareholder servicing for this class and pays a portion of it to institutions that provide such 

services. Those institutions may use payments for, among other purposes, compensating employees engaged in 

15

sales and/or shareholder servicing. The amount of fees paid by the class during any year may be more or less than 

the cost of distribution and other services provided to this class. FINRA rules limit the amount of annual 

distribution fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid. 

The Trust’s Plan complies with those rules. 

Management has contractually undertaken to forgo current payment of fees and/or reimburse the Fund’s Class I 

and Class S shares for their operating expenses (exclusive of interest, taxes, brokerage commissions, extraordinary 

expenses, and transaction costs) (“Operating Expenses”) which exceed the expense limitation as detailed in the 

following table: 

Reimbursement from 

Management for 

the Year Ended 

Expense Limitation (1) Expiration December 31, 2008 

Class I 1.30% 12/31/11 $— 

Class S 1.17% 12/31/11 $71,032 

(1) Expense limitation per annum of the respective class’ average daily net assets. 

Each respective class has agreed to repay Management through December 31, 2014 for fees and expenses foregone 

and/or its excess Operating Expenses previously reimbursed by Management, so long as its annual Operating 

Expenses during that period do not exceed its expense limitation, and the repayment is made within three years 

after the year in which Management issued the reimbursement or waived fees. During the year ended December 31, 

2008, there was no repayment to Management under these agreements. At December 31, 2008, the Fund’s Class I 

shares had no contingent liability to Management under this agreement. At December 31, 2008, the Fund’s Class S 

shares contingent liabilities to Management under this agreement were as follows: 

Expiring in: 

2009 2011 Total 

Class S $5,094 $71,032 $76,126 

Neuberger is retained by Management to furnish it with investment recommendations and research information 

without added cost to the Fund. Several individuals who are officers and/or trustees of the Trust are also employees 

of Neuberger and/or Management. 

The Fund had entered into a commission recapture program, which enabled it to pay some of its operational 

expenses by recouping a portion of the commissions it paid to a broker that was not a related party of the Fund. 

Pursuant to the agreement, brokers paid recaptured commissions to the Fund’s custodian and the custodian 

directed these amounts toward payment of expenses such as custodial, transfer agency or accounting services. 

Effective April 1, 2008, this commission recapture program was terminated. For the period ended March 31, 2008, 

the impact of this arrangement was a reduction of expenses of $26,520. 

The Fund has an expense offset arrangement in connection with its custodian contract. For the year ended 

December 31, 2008, the impact of this arrangement was a reduction of expenses of $2,775. 

Note C—Securities Transactions: 

During the year ended December 31, 2008, there were purchase and sale transactions (excluding short-term 

securities) of $166,504,965 and $580,535,029, respectively. 

During the year ended December 31, 2008, brokerage commissions on securities transactions paid to affiliated 

brokers were as follows: Neuberger received $0 and Lehman Brothers Inc. received $55,044. 

16

Note D—Fund Share Transactions: 

Share activity for the years ended December 31, 2008 and December 31, 2007 was as follows: 


Shares Issued on 

Reinvestment of 

Dividends and Shares 

Shares Sold Distributions Redeemed Total 

Class I 4,171,564 740,183 (30,562,519) (25,650,772) 

Class S 388,203 708,629 (818,006) 278,826 


Shares Issued on 

Reinvestment of 

Dividends and Shares 

Shares Sold Distributions Redeemed Total 

Class I 16,651,437 111,283 (1,331,641) 15,431,079 

Class S 498,048 17,502 (951,011) (435,461) 

Note E—Line of Credit: 

At December 31, 2008, the Fund was a participant in a single committed, unsecured $150,000,000 line of credit 

with State Street, to be used only for temporary or emergency purposes. Other investment companies managed by 

Management also participate in this line of credit on the same terms. Interest is charged on borrowings under this 

line of credit at the overnight Federal Funds Rate plus 0.50% per annum. A facility fee of 0.07% (as of 

September 19, 2008, 0.09%) per annum of the available line of credit is charged, of which the Fund has agreed to 

pay its pro rata share, based on the ratio of its individual net assets to the net assets of all participants at the time 

the fee is due and payable. The fee is paid quarterly in arrears. Because several investment companies participate, 

there is no assurance that an individual Fund will have access to all or any part of the $150,000,000 at any 

particular time. There were no loans outstanding pursuant to this line of credit at December 31, 2008. During the 

year ended December 31, 2008, the Fund did not utilize this line of credit. 

Note F—Investments In Affiliates: 

Income from 

Investments 

Balance of Balance of in Affiliated 

Shares Held Gross Gross Shares Held Value Issuers 

December 31, Purchases Sales and December 31, December 31, Included in 

Name of Issuer 2007 and Additions Reductions 2008 2008 Total Income 

Neuberger Berman 

Securities Lending 

Quality Fund, LLC* 31,645,361 171,469,498 203,114,859 — $— $502,402 

* Quality Fund, a fund managed by LBAM, an affiliate of Management, is used to invest cash the Fund receives as 

collateral for securities loans as approved by the Board. Because all shares of Quality Fund are held by funds in the 

related investment management complex, Quality Fund may be considered an affiliate of the Fund. 

17

Note G—Recent Accounting Pronouncement: 

In March 2008, Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments 

and Hedging Activities—an amendment of FASB Statement No. 133” (“FAS 161”), was issued. FAS 161 is intended 

to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to 

understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative 

instruments affect an entity’s results of operations and financial position. In September 2008, FASB Staff Position 

No. 133-1 and FASB Interpretation No. 45-4 (the “FSP”), “Disclosures about Credit Derivatives and Certain 

Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the 

Effective Date of FASB Statement No. 161” was issued. Certain provisions of the FSP amend FASB Statement 

No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to require disclosures by sellers of credit 

derivatives, including credit derivatives embedded in hybrid instruments. These FSP provisions are effective for 

fiscal years and interim periods ending after November 15, 2008. At this time, Management has assessed the 

implication of these FSP provisions and determined there is no impact to the Fund’s financial statements. The FSP 

also clarifies the effective date of FAS 161, whereby disclosures required by FAS 161 are effective for financial 

statements issued for fiscal years and interim periods beginning after November 15, 2008. The impact of FAS 161 

on the Fund’s financial statement disclosures, if any, is currently being assessed. 

Note H—Recent Market Events: 

The year covered by this report witnessed an unusually high degree of volatility in the financial markets and the net 

asset values of many mutual funds, including to some extent the Fund. Both domestic and international equity 

markets have been experiencing heightened volatility and turmoil, with issuers that have exposure to the real estate, 

mortgage and credit markets particularly affected. In addition to the recent turbulence in financial markets, the 

reduced liquidity in credit and fixed income markets has negatively affected many issuers worldwide. The Fund’s 

investments in certain issuers, as reflected in the Fund’s schedule of investments, and the financial markets in 

general, expose investors to the volatile performance resulting from these market conditions and related events. 

18



The following tables include selected data for a share outstanding throughout each period and other performance 

information derived from the Financial Statements. 

Class I 

Year Ended December 31, 

2008 2007 2006 2005 2004 

Net Asset Value, Beginning of Year $ 17.91 $ 16.71 $ 14.91 $ 13.99 $ 12.35 

Income From Investment Operations: 

Net Investment Income (Loss) ‡ .11 .12 .05 .08 (.00) 

Net Gains or Losses on Securities 

(both realized and unrealized) (7.13) 1.16 1.98 .88 1.64 

Total From Investment Operations (7.02) 1.28 2.03 .96 1.64 

Less Distributions From: 

Net Investment Income (.34) (.02) (.03) — — 

Net Capital Gains (1.16) (.06) (.20) (.04) — 

Total Distributions (1.50) (.08) (.23) (.04) — 

Net Asset Value, End of Year $ 9.39 $ 17.91 $ 16.71 $ 14.91 $ 13.99 

Total Return †† (39.44)% 7.61% 13.70% 6.86% 13.28% 

Ratios/Supplemental Data 

Net Assets, End of Year (in millions) $ 51.6 $ 557.9 $ 262.6 $ 50.5 $ 21.7 

Ratio of Gross Expenses to Average Net Assets # .92% .92% 1.07% 1.30% 1.31% 

Ratio of Net Expenses to Average Net Assets .92% .91% 1.06% § 1.29% § 1.29% § 

Ratio of Net Investment Income (Loss) to 

Average Net Assets .70% .65% .33% .53% (.03)% 

Portfolio Turnover Rate 41% 26% 56% 24% 21% 

See Notes to Financial Highlights 19

Financial Highlights (cont’d) 

Class S 

Period from 

May 1, 2006^ 

Year Ended December 31, to December 31, 

2008 2007 2006 

Net Asset Value, Beginning of Period $ 17.86 $ 16.69 $ 15.59 

Income From Investment Operations: 

Net Investment Income (Loss) ‡ .06 .06 .02 

Net Gains or Losses on Securities (both realized and unrealized) (7.06) 1.17 1.08 

Total From Investment Operations (7.00) 1.23 1.10 

Less Distributions From: 

Net Investment Income (.29) (.00) — 

Net Capital Gains (1.16) (.06) — 

Total Distributions (1.45) (.06) — 

Net Asset Value, End of Period $ 9.41 $ 17.86 $ 16.69 

Total Return †† (39.43)% 7.37% 7.06%** 

Ratios/Supplemental Data 

Net Assets, End of Period (in millions) $ 50.1 $ 90.2 $ 91.6 

Ratio of Gross Expenses to Average Net Assets # 1.17% 1.17% 1.17%* 

Ratio of Net Expenses to Average Net Assets § 1.17% 1.16% 1.16%* 

Ratio of Net Investment Income (Loss) to Average Net Assets .40% .37% .16%* 

Portfolio Turnover Rate 41% 26% 56% Ø 

See Notes to Financial Highlights 20

Notes to Financial Highlights Socially Responsive Portfolio 

†† Total return based on per share net asset value reflects the effects of changes in net asset value on the performance 

of the Fund during each fiscal period and assumes dividends and other distributions, if any, were reinvested. 

Results represent past performance and do not guarantee future results. Current returns may be lower or higher 

than the performance data quoted. Investment returns and principal may fluctuate and shares when redeemed may 

be worth more or less than original cost. Total return would have been lower if Management had not reimbursed 

certain expenses. Total return would have been higher if Management had not recouped previously reimbursed 

expenses. The total return information shown does not reflect charges and other expenses that apply to the separate 

account or the related insurance policies, and the inclusion of these charges and other expenses would reduce the 

total return for all fiscal periods shown. 

# The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related 

to expense offset arrangements. 

§ After reimbursement of expenses by Management. Had Management not undertaken such action, the annualized 

ratios of net expenses to average daily net assets would have been: 


2008 2007 2006 2005 2004 

Socially Responsive Portfolio Class I — — — 1.33% 1.73% 

Socially Responsive Portfolio Class S 1.26% — 1.18% (1) — — 

(1) Period from May 1, 2006 to December 31, 2006. 

After reimbursement of expenses previously paid by Management. Had Management not been reimbursed, the 

annualized ratio of net expenses to average daily net assets would have been: 


2007 2006 

Socially Responsive Portfolio Class I — 0.97% 

Socially Responsive Portfolio Class S 1.16% — 

‡ Calculated based on the average number of shares outstanding during each fiscal period. 

^ 

The date investment operations commenced. 

Ø Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for year ended December 31, 

2006. 

* Annualized. 

** Not annualized. 

21


To the Board of Trustees of 

Neuberger Berman Advisers Management Trust and 

Shareholders of Socially Responsive Portfolio 

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Socially 

Responsive Portfolio, one of the series constituting Neuberger Berman Advisers Management Trust (the “Trust”), as of 

December 31, 2008, and the related statement of operations for the year then ended, the statement of changes in net assets 

for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then 

ended. These financial statements and financial highlights are the responsibility of the Trust’s management. Our 

responsibility is to express an opinion on these financial statements and financial highlights based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United 

States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 

financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit 

of the Trust’s internal control over financial reporting. Our audits included consideration of internal control over 

financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the 

purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, 

we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant 

estimates made by management, and evaluating the overall financial statement presentation. Our procedures included 

confirmation of securities owned as of December 31, 2008 by correspondence with the custodian and brokers. We believe 

that our audits provide a reasonable basis for our opinion. 

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, 

the financial position of Socially Responsive Portfolio, a series of Neuberger Berman Advisers Management Trust, at 

December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the 

two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in 

conformity with U.S. generally accepted accounting principles. 

Boston, Massachusetts 


22

Trustee and Officer Information 

The following tables set forth information concerning the trustees and officers of the Trust. All persons named as trustees 

and officers also serve in similar capacities for other funds administered or managed by Neuberger Berman Management LLC 

(“NB Management”) and Neuberger Berman, LLC (“Neuberger Berman”). The Statement of Additional Information includes 

additional information about fund trustees and is available upon request, without charge, by calling (800) 877-9700. 

Information about the Board of Trustees 

Name, (Year of Birth), Position and Principal Occupation(s) (3) Number of Other Directorships 

and Address (1) Length of Funds in Fund Held Outside Fund 

Time Served (2) Complex Complex by Fund 

Overseen by Trustee 

Fund Trustee 

Independent Fund Trustees 

John Cannon (1930) 

Trustee since 

2000 

Consultant; formerly, 

Chairman, CDC Investment 

Advisers (registered 

investment adviser), 1993 to 

January 1999; formerly, 

President and Chief Executive 

Officer, AMA Investment 

Advisors, an affiliate of the 

American Medical Association. 

56 

Independent Trustee or 

Director of three series of 

Oppenheimer Funds: 

Oppenheimer Limited Term 

New York Municipal Fund, 

Rochester Fund Municipals, 

and Oppenheimer 

Convertible Securities Fund 

since 1992. 

Faith Colish (1935) 

Trustee since 

1982 

Counsel, Carter Ledyard & 

Milburn LLP (law firm) since 

October 2002; formerly, 

Attorney-at-Law and 

President, Faith Colish, 

A Professional Corporation, 

1980 to 2002. 

56 

Formerly, Director (1997 to 

2003) and Advisory 

Director (2003 to 2006), 

ABA Retirement Funds 

(formerly, American Bar 

Retirement Association) 

(not-for-profit membership 

corporation). 

Martha C. Goss (1949) 

Trustee since 

2007 

President, Woodhill 

Enterprises Inc./Chase Hollow 

Associates LLC (personal 

investment vehicle), since 

2006; Chief Operating and 

Financial Officer, Hopewell 

Holdings LLC/ Amwell 

Holdings, LLC (a holding 

company for a healthcare 

reinsurance company startup), 

since 2003; formerly, 

Consultant, Resources 

Connection (temporary 

staffing), 2002 to 2006. 

56 

Director, Ocwen Financial 

Corporation (mortgage 

servicing), since 2005; 

Director, American Water 

(water utility), since 2003; 

Director, Channel 

Reinsurance (financial 

guaranty reinsurance), since 

2006; Advisory Board 

Member, Attensity 

(software developer), since 

2005; Director, Allianz Life 

of New York (insurance), 

since 2005; Director, 

Financial Women’s 

Association of New York 

(not for profit association), 

since 2003; Trustee 

Emerita, Brown University, 

since 1998. 

23





Fund Trustee 

C. Anne Harvey (1937) 

Trustee since 

1998 

President, C.A. Harvey 

Associates, since 

October 2001; formerly, 

Director, AARP, 1978 to 

December 2001. 

56 

Formerly, President, Board 

of Associates to The 

National Rehabilitation 

Hospital’s Board of 

Directors, 2001 to 2002; 

formerly, Member, 

Individual Investors 

Advisory Committee to the 

New York Stock Exchange 

Board of Directors, 1998 to 

June 2002. 

Robert A. Kavesh (1927) 

Trustee since 

2000 

Retired; Marcus Nadler 

Professor Emeritus of Finance 

and Economics, New York 

University Stern School of 

Business; formerly, Executive 

Secretary-Treasurer, American 

Finance Association, 1961 to 

1979. 

56 

Formerly, Director, The 

Caring Community (notfor-profit), 

1997 to 2006; 

formerly, Director, 

DEL Laboratories, Inc. 

(cosmetics and 

pharmaceuticals), 1978 to 

2004; formerly, Director, 

Apple Bank for Savings, 

1979 to 1990; formerly, 

Director, Western Pacific 

Industries, Inc., 1972 to 

1986 (public company). 

Michael M. Knetter (1960) 

Trustee since 

2007 

Dean, School of Business, 

University of Wisconsin - 

Madison; formerly, Professor 

of International Economics 

and Associate Dean, Amos 

Tuck School of Business - 

Dartmouth College, 1998 to 

2002. 

56 

Trustee, Northwestern 

Mutual Series Fund, Inc., 

since February 2007; 

Director, Wausau Paper, 

since 2005; Director, Great 

Wolf Resorts, since 2004. 

Howard A. Mileaf (1937) 

Trustee since 

1999 

Retired; formerly, Vice 

President and General 

Counsel, WHX Corporation 

(holding company), 1993 to 

2001. 

56 

Formerly, Director, 

Webfinancial Corporation 

(holding company), 2002 

to 2008; formerly, Director 

WHX Corporation (holding 

company), January 2002 to 

June 2005; formerly, 

Director, State Theatre of 

New Jersey (not-for-profit 

theater), 2000 to 2005. 

24





Fund Trustee 

George W. Morriss (1947) 

Trustee since 

2007 

Retired; formerly, Executive 

Vice President and Chief 

Financial Officer, People’s 

Bank, Connecticut (a financial 

services company), 1991 to 

2001. 

56 

Manager, Old Mutual 2100 

fund complex (consisting of 

six funds) since 

October 2006 for four 

funds and since 

February 2007 for two 

funds; formerly, Member 

NASDAQ Issuers’ Affairs 

Committee, 1995 to 2003. 

Edward I. O’Brien (1928) 

Trustee since 

2000 

Retired; formerly, Member, 

Investment Policy Committee, 

Edward Jones, 1993 to 2001; 

President, Securities Industry 

Association (“SIA”) (securities 

industry’s representative in 

government relations and 

regulatory matters at the 

federal and state levels), 1974 

to 1992; Adviser to SIA, 

November 1992 to 

November 1993. 

56 

Formerly, Director, Legg 

Mason, Inc. (financial 

services holding company), 

1993 to July 2008; 

formerly, Director, Boston 

Financial Group (real estate 

and tax shelters), 1993 to 

1999. 

William E. Rulon (1932) 

Trustee since 

2000 

Retired; formerly, Senior Vice 

President, Foodmaker, Inc. 

(operator and franchiser of 

restaurants), until 

January 1997. 

56 

Formerly, Director, Pro-Kids 

Golf and Learning 

Academy (teach golf and 

computer usage to “at 

risk” children), 1998 to 

2006; formerly, Director, 

Prandium, Inc. 

(restaurants), March 2001 

to July 2002. 

Cornelius T. Ryan (1931) 

Trustee since 

2000 

Founding General Partner, 

Oxford Partners and Oxford 

Bioscience Partners (venture 

capital investing) and 

President, Oxford Venture 

Corporation, since 1981. 

56 

None. 

25





Fund Trustee 

Tom D. Seip (1950) 

Trustee since 

2000; 

Chairman of 

the Board 

since 2008; 

Lead 

Independent 

Trustee from 

2006 to 2008 

General Partner, Seip 

Investments LP (a private 

investment partnership); 

formerly, President and CEO, 

Westaff, Inc. (temporary 

staffing), May 2001 to 

January 2002; formerly, Senior 

Executive at the Charles 

Schwab Corporation, 1983 to 

1998, including Chief 

Executive Officer, Charles 

Schwab Investment 

Management, Inc., and 

Trustee, Schwab Family of 

Funds and Schwab 

Investments, 1997 to 1998, 

and Executive Vice President- 

Retail Brokerage, Charles 

Schwab & Co., Inc., 1994 to 

1997. 

56 

Director, H&R Block, Inc. 

(financial services 

company), since May 2001; 

Chairman, Compensation 

Committee, H&R Block, 

Inc., since 2006; formerly, 

Director, Forward 

Management, Inc. (asset 

management company), 

1999 to 2006. 

Candace L. Straight (1947) 

Trustee since 

1999 

Private investor and consultant 

specializing in the insurance 

industry; formerly, Advisory 

Director, Securitas Capital LLC 

(a global private equity 

investment firm dedicated to 

making investments in the 

insurance sector), 1998 to 

December 2003. 

56 

Director, Montpelier Re 

(reinsurance company), 

since 2006; formerly, 

Director, National Atlantic 

Holdings Corporation 

(property and casualty 

insurance company), 2004 

to 2008; formerly, Director, 

The Proformance Insurance 

Company (property and 

casualty insurance 

company), 2004 to 2008; 

formerly, Director, 

Providence Washington 

Insurance Company 

(property and casualty 

insurance company), 

December 1998 to 

March 2006; formerly, 

Director, Summit Global 

Partners (insurance 

brokerage firm), 2000 to 

2005. 

Peter P. Trapp (1944) 

Trustee since 

1984 

Retired; formerly, Regional 

Manager for Mid-Southern 

Region, Ford Motor Credit 

Company, September 1997 to 

2007; formerly, President, 

Ford Life Insurance Company, 

April 1995 to August 1997. 

56 

None. 

26





Fund Trustee 

Fund Trustees who are “Interested Persons” 

Jack L. Rivkin* (1940) 

Trustee since 

2002; 

President from 

2002 to 2008 

Formerly, Executive Vice 

President and Chief 

Investment Officer, Neuberger 

Berman Holdings LLC (holding 

company), 2002 to 

August 2008 and 2003 to 

August 2008, respectively; 

formerly, Managing Director 

and Chief Investment Officer, 

Neuberger Berman, 


August 2008 and 2003 to 

August 2008, respectively; 

formerly, Executive Vice 

President, Neuberger Berman, 

December 2002 to 2005; 

formerly, Director and 

Chairman, NB Management, 


August 2008; formerly, 

Executive Vice President, 

Citigroup Investments, Inc., 

September 1995 to 

February 2002; formerly, 

Executive Vice President, 

Citigroup Inc., 

September 1995 to 

February 2002. 

56 

Director, Dale Carnegie and 

Associates, Inc. (private 

company), since 1998; 

Director, Solbright, Inc. 

(private company), since 

1998. 

27





Fund Trustee 

Robert Conti* (1956) 

Chief 

Executive 

Officer, 

President and 

Director since 

2008; prior 

thereto, 

Executive Vice 

President in 

2008 and Vice 

President 

2000 to 2008 

Managing Director, Neuberger 

Berman, since 2007; formerly, 

Senior Vice President, 

Neuberger Berman, 2003 to 

2006; formerly, Vice President, 

Neuberger Berman, 1999 to 

2003; President and Chief 

Executive Officer, NB 

Management, since 2008; 

formerly, Senior Vice 

President, NB Management, 

2000 to 2008. 

56 

Chairman of the Board, 

Staten Island Mental Health 

Society since 2008. 

(1) The business address of each listed person is 605 Third Avenue, New York, New York 10158. 

(2) Pursuant to the Trust’s Trust Instrument, each Fund Trustee shall hold office for life or until his or her successor is 

elected or the Trust terminates; except that (a) any Fund Trustee may resign by delivering a written resignation; 

(b) any Fund Trustee may be removed with or without cause at any time by a written instrument signed by at least 

two-thirds of the other Fund Trustees; (c) any Fund Trustee who requests to be retired, or who has become unable 

to serve, may be retired by a written instrument signed by a majority of the other Fund Trustees; and (d) any Fund 

Trustee may be removed at any shareholder meeting by a vote of at least two-thirds of the outstanding shares. 

(3) Except as otherwise indicated, each individual has held the positions shown for at least the last five years. 

* Indicates a Fund Trustee who is an “interested person” within the meaning of the 1940 Act. Mr. Conti is an 

interested person of the Trust by virtue of the fact that he is an officer of NB Management and Neuberger Berman. 

Mr. Rivkin may be deemed an interested person of the Trust by virtue of the fact that, until August 2008, he was a 

director of NB Management and an officer of Neuberger Berman. 

28

Information about the Officers of the Trust 

Name, (Year of Birth), Position and Principal Occupation(s) (3) 

and Address (1) 

Length of Time 

Served (2) 

Andrew B. Allard (1961) 

Anti-Money 

Laundering 

Compliance 

Officer since 

2002 

Senior Vice President, Neuberger Berman, since 2006; Deputy General 

Counsel, Neuberger Berman, since 2004; formerly, Vice President, 

Neuberger Berman, 2000 to 2005; formerly, Associate General Counsel, 

Neuberger Berman, 1999 to 2004; Anti-Money Laundering Compliance 

Officer, eleven registered investment companies for which NB Management 

acts as investment manager and administrator (six since 2002, two since 2003, 

two since 2004 and one since 2006). 

Michael J. Bradler (1970) 

Claudia A. Brandon (1956) 

Maxine L. Gerson (1950) 

Sheila R. James (1965) 

Assistant 

Treasurer since 

2005 


President since 

2008 and 

Secretary since 

1985 


President since 

2008 and 

Chief Legal 

Officer since 

2005 (only for 

purposes of 

sections 307 

and 406 of 

the Sarbanes- 

Oxley Act of 

2002) 

Assistant 


2002 

Vice President, Neuberger Berman, since 2006; Employee, NB Management, 

since 1997; Assistant Treasurer, eleven registered investment companies for 

which NB Management acts as investment manager and administrator 

(ten since 2005 and one since 2006). 

Senior Vice President, Neuberger Berman, since 2007 and Employee since 1999; 

formerly, Vice President, Neuberger Berman, 2002 to 2006; Senior Vice 

President, NB Management, since 2008 and Assistant Secretary since 2004; 

formerly, Vice President-Mutual Fund Board Relations, NB Management, 2000 to 

2008; Executive Vice President, eleven registered investment companies for 

which NB Management acts as investment manager and administrator (eleven 

since 2008); Secretary, eleven registered investment companies for which 

NB Management acts as investment manager and administrator (three since 

1985, three since 2002, two since 2003, two since 2004 and one since 2006). 

Senior Vice President, Neuberger Berman, since 2002; Deputy General 

Counsel and Assistant Secretary, Neuberger Berman, since 2001; Senior Vice 

President, NB Management, since 2006; Secretary and General Counsel, 

NB Management, since 2004; Executive Vice President, eleven registered 

investment companies for which NB Management acts as investment 

manager and administrator (eleven since 2008); Chief Legal Officer (only for 

purposes of sections 307 and 406 of the Sarbanes-Oxley Act of 2002), 

eleven registered investment companies for which NB Management acts as 

investment manager and administrator (ten since 2005 and one since 2006). 

Vice President, Neuberger Berman, since 2008 and Employee since 1999; 

formerly, Assistant Vice President, Neuberger Berman, 2007; Assistant 

Secretary, eleven registered investment companies for which NB Management 

acts as investment manager and administrator (six since 2002, two since 

2003, two since 2004 and one since 2006). 

Brian Kerrane (1969) 

Vice President 

since 2008 

Senior Vice President, Neuberger Berman, since 2006; formerly, Vice 

President, Neuberger Berman, 2002 to 2006; Vice President, NB Management, 

since 2008 and Employee since 1991; Vice President, eleven registered 

investment companies for which NB Management acts as investment 

manager and administrator (eleven since 2008). 

29




Served (2) 

Kevin Lyons (1955) 

Assistant 


2003 

Assistant Vice President, Neuberger Berman, since 2008 and Employee 

since 1999; Assistant Secretary, eleven registered investment companies for 

which NB Management acts as investment manager and administrator (eight 

since 2003, two since 2004 and one since 2006). 

Owen F. McEntee, Jr. (1961) 


since 2008 


since 1992; Vice President, eleven registered investment companies for 


(eleven since 2008). 

John M. McGovern (1970) 

Treasurer and 

Principal 

Financial and 

Accounting 

Officer since 

2005; prior 

thereto, 

Assistant 


2002 

Senior Vice President, Neuberger Berman, since 2007; formerly, Vice 

President, Neuberger Berman, 2004 to 2006; Employee, NB Management, 

since 1993; Treasurer and Principal Financial and Accounting Officer, eleven 

registered investment companies for which NB Management acts as 

investment manager and administrator (ten since 2005 and one since 2006); 

formerly, Assistant Treasurer, eleven registered investment companies for 

which NB Management acts as investment manager and administrator, 

2002 to 2005. 

Andrew Provencher (1965) 


since 2008 

Managing Director, NB Management, since 2008; Managing Director, 

Neuberger Berman, since 2005; formerly, Senior Vice President, Neuberger 

Berman, 2003 to 2005; formerly, Vice President, Neuberger Berman, 

1999 to 2003; Vice President, eleven registered investment companies for 


(eleven since 2008). 

Frank Rosato (1971) 

Assistant 


2005 


since 1995; Assistant Treasurer, eleven registered investment companies for 


(ten since 2005 and one since 2006). 

Neil S. Siegel (1967) 


since 2008 

Managing Director, NB Management, since 2008; Managing Director, 

Neuberger Berman, since 2006; formerly, Senior Vice President, Neuberger 

Berman, 2004 to 2006; Vice President, eleven registered investment 

companies for which NB Management acts as investment manager and 

administrator (eleven since 2008); formerly, Head of Institutional Marketing, 

Morgan Stanley Investment Management, 1993 to 2004. 

30




Served (2) 

Chamaine Williams (1971) 

Chief 

Compliance 

Officer since 

2005 

Senior Vice President, Neuberger Berman, since 2007; Chief Compliance 

Officer, NB Management, since 2006; Senior Vice President, Lehman 

Brothers Inc., since 2007; formerly, Vice President, Lehman Brothers Inc., 

2003 to 2006; Chief Compliance Officer, eleven registered investment 

companies for which NB Management acts as investment manager and 

administrator (ten since 2005 and one since 2006); formerly, Chief 

Compliance Officer, Lehman Brothers Asset Management Inc., 2003 to 

2007; formerly, Chief Compliance Officer, Lehman Brothers Alternative 

Investment Management LLC, 2003 to 2007; formerly, Vice President, 

UBS Global Asset Management (US) Inc. (formerly, Mitchell Hutchins Asset 

Management, a wholly-owned subsidiary of PaineWebber Inc.), 1997 to 2003. 

(1) The business address of each listed person is 605 Third Avenue, New York, New York 10158. 

(2) Pursuant to the By-Laws of the Trust, each officer elected by the Fund Trustees shall hold office until his or her 

successor shall have been elected and qualified or until his or her earlier death, inability to serve, or resignation. 

Officers serve at the pleasure of the Fund Trustees and may be removed at any time with or without cause. 

(3) Except as otherwise indicated, each individual has held the positions shown for at least the last five years. 

31

Proxy Voting Policies and Procedures 

A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio 

securities is available, without charge, by calling 1-800-877-9700 (toll-free) and on the website of the Securities and 

Exchange Commission, at www.sec.gov. Information regarding how the Trust voted proxies relating to portfolio securities 

during the most recent 12-month period ended June 30 is also available, without charge, by calling 1-800-877-9700 

(toll-free), on the website of the Securities and Exchange Commission at www.sec.gov, and on Management’s website at 

www.nb.com. 

Quarterly Portfolio Schedule 

The Trust files a complete schedule of portfolio holdings for the Fund with the Securities and Exchange Commission for 

the first and third quarters of each fiscal year on Form N-Q. The Trust’s Forms N-Q are available on the Securities and 

Exchange Commission’s website at www.sec.gov and may be reviewed and copied at the Securities and Exchange 

Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference 

Room may be obtained by calling 1-800-SEC-0330. The information on Form N-Q is available upon request, without 

charge, by calling 1-800-877-9700 (toll free). 

Notice to Shareholders (Unaudited) 

The Fund hereby designates $9,945,036 as a capital gain distribution. 

100.00% of the dividends distributed during the fiscal year ended December 31, 2008 qualifies for the dividends received 

deduction for corporate shareholders. 

Board Consideration of the Management and Sub-Advisory Agreements 

At a meeting held on September 25, 2008, the Board of Trustees of Neuberger Berman Advisers Management Trust 

(“Board”), including the Trustees who are not “interested persons” of Neuberger Berman Management LLC 

(“Management”) or Neuberger Berman Advisers Management Trust (“Independent Fund Trustees”), approved the 

continuance of the Management and Sub-Advisory Agreements (“Agreements”) between Management and Socially 

Responsive Portfolio (“Fund”). 

In evaluating the Agreements, the Board, including the Independent Fund Trustees, reviewed materials furnished by 

Management and Neuberger Berman, LLC (“Neuberger”) in response to questions submitted by counsel to the 

Independent Fund Trustees, and met with senior representatives of Management and Neuberger regarding their 

personnel and operations. The Independent Fund Trustees were advised by counsel that is experienced in Investment 

Company Act of 1940 matters and that is independent of Management and Neuberger. The Independent Fund Trustees 

received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed 

continuance of the Agreements. They met with such counsel separately from representatives of Management to discuss 

the annual contract review. The annual contract review extends over two regular meetings of the Board to ensure that 

Management and Neuberger have time to respond to any questions the Independent Fund Trustees may have on their 

initial review of the report and that the Independent Fund Trustees have time to consider those responses. In addition, 

during this process, the Board held a separate meeting devoted primarily to reviewing and discussing Fund performance. 

The Board considered the following factors, among others, in connection with its approval of the continuance of the 

Agreements: (1) the nature, extent, and quality of the services provided by Management and Neuberger; (2) the 

performance of the Fund compared to a relevant market index and a peer group of investment companies; (3) the costs of 

the services provided and profits or losses realized by Management and its affiliates from their relationship with the Fund; 

(4) the extent to which economies of scale might be realized as the Fund grows; and (5) whether fee levels reflect any such 

32

potential economies of scale for the benefit of investors in the Fund. In their deliberations, the Board members did not 

identify any particular information that was all-important or controlling, and each Trustee may have attributed different 

weights to the various factors. 

The Board considered the continued integrity of Management and Neuberger as organizations, despite the bankruptcy 

filing by Lehman Brothers Holdings Inc. The Board discussed the efforts made by Management and Neuberger to retain 

employees, and the reported likelihood that such employees would be retained. The Board discussed the provisions that 

were being made for ancillary services by Management, Neuberger and their affiliates. 

The Board evaluated the terms of the Agreements, the overall fairness of the Agreements to the Fund and whether the 

Agreements were in the best interests of the Fund and its shareholders. 

With respect to the nature, extent and quality of the services provided, the Board considered the performance of the Fund 

and the experience and staffing of the portfolio management and investment research personnel who perform services for 

the Fund. The Board noted that Management also provides certain administrative services, including fund accounting 

and compliance oversight. The Board also considered Management’s and Neuberger’s policies and practices regarding 

brokerage. The Board considered the quality of brokerage execution obtained by Management. The Board’s Portfolio 

Transactions and Pricing Committee from time to time reviewed the quality of the brokerage services that Neuberger and 

Lehman Brothers Inc. had provided, and periodically reviews studies by an independent firm engaged to review and 

evaluate the quality of brokerage execution received by the Fund. The Board also reviewed whether Management and 

Neuberger used brokers to execute Fund transactions that provide research and other services to Management and 

Neuberger, and the types of benefits potentially derived from such services by Management, Neuberger, the Fund and 

other clients of Management and Neuberger. In addition, the Board noted the positive compliance history of 

Management and Neuberger, as each firm has been free of significant compliance problems. 

The Board considered the performance of the Fund relative to its benchmark and a peer group of investment companies 

dedicated to insurance products pursuing broadly similar strategies. The Board also considered performance in relation 

to the degree of risk undertaken by the portfolio managers. The Board discussed the Fund’s performance with Management 

and discussed steps that Management had taken, or intended to take, to improve the Fund’s performance. The Board also 

considered Management’s resources and responsiveness with respect to the Fund. 

With respect to the overall fairness of the Agreements, the Board considered the fee structure for the Fund under the 

Agreements as compared to a peer group of comparable funds dedicated to insurance products and any fall-out benefits 

likely to accrue to Management or Neuberger or their affiliates from their relationship with the Fund. The Board also 

considered the profitability of Management and its affiliates from their association with the Fund. 

The Board reviewed a comparison of the Fund’s management fee and overall expense ratio to a peer group of broadly 

comparable funds dedicated to insurance products. The Board considered the mean and median of the management fees 

and expense ratios of the peer group. The Board noted that the Fund’s management fee was higher than the peer group 

mean and median. The Board considered whether specific portfolio management or administration needs contributed to 

the higher fee. With regard to the sub-advisory fee paid to Neuberger, the Board noted that this fee is “at cost.” In 

addition, the Board considered the contractual limit on Fund expenses undertaken by Management. The Board noted 

that Management incurred a loss on the Fund in 2005. 

The Board considered whether there were other funds that were advised or sub-advised by Management or its affiliates or 

separate accounts managed by Management or its affiliates with similar investment objectives, policies and strategies to 

the Fund. The Board compared the fees charged to the Fund at various asset levels to the fees charged to an advised fund, 

a sub-advised fund and a separate account, each managed in a similar style to the Fund. The Board considered the 

appropriateness and reasonableness of any differences between the fees charged to the Fund and the other funds and 

account and determined that the differences in fees were consistent with the management and other services provided. 

The Board also evaluated any apparent or anticipated economies of scale in relation to the services Management provides 

to the Fund. The Board considered that the Fund’s fee structure which provides for a reduction of payments resulting 

from the use of breakpoints and whether those breakpoints are set at appropriate asset levels. 

33

In concluding that the benefits accruing to Management and its affiliates by virtue of their relationship to the Fund were 

reasonable in comparison with the costs of providing the investment advisory services and the benefits accruing to the 

Fund, the Board reviewed specific data as to Management’s profit on the Fund for a recent period and the trend in profit 

or loss over recent years. The Board also carefully examined Management’s cost allocation methodology and in recent 

years had an independent consultant review the methodology. It also reviewed an analysis from an independent data 

service on profitability margins in the investment management industry. The Board recognized that Management should 

be entitled to earn a reasonable level of profits for services it provides to the Fund and, based on its review, concluded that 

Management’s level of profitability was not excessive. 

Conclusions 

In approving the Agreements, the Board concluded that the terms of each Agreement are fair and reasonable and that 

approval of the Agreements is in the best interests of the Fund and its shareholders. In reaching this determination, the 

Board considered that Management and Neuberger could be expected to provide a high level of service to the Fund; that 

it retained confidence in Management’s and Neuberger’s capabilities to manage the Fund; that the Fund’s fee structure 

appeared to the Board to be reasonable given the nature and quality of services provided; and that the benefits accruing to 

Management and its affiliates by virtue of their relationship to the Fund were reasonable in comparison with the benefits 

accruing to the Fund. 

Board Consideration of New and Interim Management and Sub-Advisory Agreements 

Lehman Brothers Holdings Inc. (“Lehman Brothers”) has entered into an agreement to sell a controlling interest in the 

Fund’s investment adviser. Under the agreement, Lehman Brothers would sell substantially all of the Neuberger Berman 

business and the fixed income business and certain alternative asset management businesses of Lehman Brother’s 

Investment Management Division (collectively, the “Acquired Businesses”) to NBSH Acquisition, LLC (the “Proposed 

Acquisition”). NBSH Acquisition, LLC (“NBSH”) was organized by key members of Neuberger Berman’s management for 

the purpose of facilitating the acquisition of the Acquired Businesses. At the closing of the Proposed Acquisition, a 

majority interest in the Acquired Businesses will be directly or indirectly owned by portfolio managers, Neuberger 

Berman’s management team and certain key members and senior professionals of the former Investment Management 

Division (“Management Members”), as well as by Lehman Brothers and certain affiliates of Lehman Brothers. 

The Acquired Businesses include Neuberger Berman Management LLC (“Management”) and Neuberger Berman, LLC 

(“Neuberger”), the adviser and sub-adviser to the Fund, respectively. The Proposed Acquisition has been deemed to result 

in an “assignment” of the Fund’s existing Management Agreement and Sub-Advisory Agreement (the “Existing 

Agreements”) under the 1940 Act. As required by the 1940 Act, the Fund’s Existing Agreements provide for their 

automatic termination in the event of an assignment, and each will terminate upon the consummation of the Proposed 

Acquisition. Accordingly, on December 17, 2008, the Board approved new Management and Sub-Advisory Agreements 

with Management and Neuberger, respectively, or their successors (together, the “Advisers”), on the same terms and with 

the same compensation structure as are currently in effect (together, “New Agreements”), which would take effect upon 

consummation of the Proposed Acquisition if approved by the Fund’s shareholders. 

If shareholders of the Fund do not approve the New Agreements before the Proposed Acquisition is completed, the Board 

has approved interim Management and Sub-Advisory Agreements with Management and Neuberger, respectively, or their 

successors (together, “Interim Agreements”) pending approval of the New Agreements by shareholders of the Fund. 

Compensation earned by the Advisers under the Interim Agreements would be held in an interest-bearing escrow account 

pending shareholder approval of the New Agreements. If shareholders approve the New Agreements within 150 days from 

the termination of the Existing Agreements, the amount held in the escrow account, including interest, will be paid to the 

Advisers, as appropriate. If shareholders of the Fund do not approve the New Agreements, the Advisers will be paid the 

lesser of the costs incurred in performing their services under the Interim Agreements or the total amount in the escrow 

account, including interest earned. If at the end of 150 days following termination of a Fund’s Existing Agreements the 

Fund’s shareholders still have not approved the New Agreements, the Trustees would take such actions as they deem to be 

in the best interests of the Fund and its shareholders, which may include negotiating a new Management Agreement 

34

and/or new Sub-Advisory Agreement with an advisory organization selected by the Board of Trustees or making other 

arrangements. 

The Trustees of the Trust discussed the Proposed Acquisition on December 17, 2008. Prior to submitting its bid to public 

auction, Management met telephonically with the Independent Trustees to brief them on the Proposed Acquisition. 

Following the public auction wherein NBSH was determined to be the successful bidder, the Independent Trustees again 

met telephonically with Management to obtain additional information about the Proposed Acquisition. The Independent 

Trustees, with the assistance of independent counsel, prepared due diligence requests that were presented to Management 

and appointed a Task Force of Independent Trustees to lead the due diligence effort (“Task Force”). 

Management provided written responses to the due diligence requests. After extensive review and analysis and discussions 

during a telephonic and in person meeting of the Independent Trustees, the Task Force submitted clarifying questions. 

The Independent Trustees met as a body in person to receive the report of the Task Force and consider the New 

Agreements. Throughout the process, the Task Force and the Independent Trustees were advised by experienced 1940 Act 

counsel that is independent of Management and NBSH. In addition, the Independent Trustees received a memorandum 

from independent counsel discussing the legal standards for their consideration of the New Agreements. 

Consideration of the New Agreements followed shortly on the heels of the Independent Trustees’ annual consideration of 

whether to renew the Existing Agreements, carried out pursuant to Section 15(c) of the 1940 Act. In that process, which 

began prior to the June 2008 quarterly meeting of the Board and was concluded at the September 2008 quarterly meeting, 

the Independent Trustees, following an extensive review of materials submitted by Management and a report from an 

independent data service, unanimously determined that the Existing Agreements were fair and reasonable and that their 

renewal would be in the best interests of the Fund and its shareholders. Accordingly, in considering the New Agreements, 

the Independent Trustees took into account the fact that the terms of the New Agreements would be identical to those of 

the Existing Agreements in every respect except for the term and termination date and potentially the name of the 

investment adviser. The Board considerations in connection with the New Agreements and the Existing Agreements also 

entered into the decision by the Board to approve the Interim Agreements, which would take effect if the shareholders of 

the Fund do not approve the New Agreements before the Proposed Acquisition is completed. The Independent Trustees’ 

consideration of the Existing Agreements is described above. 

In evaluating the proposed New Agreements, the Independent Trustees considered that they have generally been satisfied 

with the nature and quality of the services provided to the Fund by Management and Neuberger, including investment 

advisory, administrative and support services, and that the Fund would be best served by an arrangement that appeared 

likely to maintain the continuity and stability of the providers of these services. Accordingly, the Independent Trustees 

considered very carefully the intentions of NBSH (including its successors or assign) regarding capitalization, management 

structure, staffing, compensation and staff retention and whether these seemed designed to provide the desired continuity 

and stability. They inquired specifically about staffing and resources in the areas of portfolio management, investment 

research, trading, fund accounting, legal and compliance, internal audit, and senior executive staff. Although at the time the 

Board considered the New Agreements no final decisions had been reached as to the distribution of equity interests in 

NBSH (or its successor or assign), the Trustees were advised that senior members of management, including the Fund 

Trustee and nominee for Fund Trustee who are employed by the Advisers, would receive equity interests in NBSH. Because 

of these interests, as well as any future employment arrangements with the Advisers, these persons, individually or in the 

aggregate, could have a material interest in the Proposed Acquisition and in shareholder approval of the New Agreements. 

In considering the New Agreements, the Trustees were aware of these interests. 

The Independent Trustees inquired whether NBSH (or its successors or assign) had specific plans for the future structure 

of the Neuberger Berman Funds, whether they plan to propose to eliminate any Funds, and whether they intend to 

continue or alter certain expansion plans that are already underway. They also inquired whether there are plans to change 

the fees or expense structure of any of the Funds. The Independent Trustees inquired about the long-term plans for the 

Advisers, including any expectations for cost savings or expense reductions. They also inquired about the capital structure 

and working capital likely to be available to NBSH (or its successors or assign). 

35

The Independent Trustees considered the following factors, in addition to the factors discussed above, among others, in 

connection with their consideration of the New Agreements: (1) the nature, extent, and quality of the services provided 

by Management and Neuberger; (2) the performance of the Fund compared to a relevant market index and a peer group 

of investment companies; (3) the costs of the services provided and profits or losses realized by Management and its 

affiliates from their relationship with the Fund; (4) the extent to which economies of scale might be realized as the Fund 

grows; and (5) whether fee levels reflect any such potential economies of scale for the benefit of investors in the Fund. In 

their deliberations, the Independent Trustees did not identify any particular information that was all important or 

controlling, and each Trustee may have attributed different weights to the various factors. 

In unanimously approving and recommending the New Agreements, the Independent Trustees concluded that the terms of 

each New Agreement are fair and reasonable and that approval of the New Agreements is in the best interests of the Fund and 

its shareholders. In reaching this determination, the Independent Trustees considered the following factors, among others: 

(1) that the terms of the New Agreements are identical in all material respects to those of the Existing Agreements; 

(2) that the Advisers will maintain operational autonomy and continuity of management following the Proposed 

Acquisition; 

(3) the favorable history, reputation, qualification, and background of Management and Neuberger, as well as the 

qualifications of each entity’s personnel and each entity’s respective financial condition; 

(4) the commitment of NBSH (or its successors or assign) to retain key personnel currently employed by Management 

and Neuberger who currently provide services to the Fund; 

(5) the commitment of NBSH (or its successors or assign) to maintaining the current level and quality of Fund services; 

(6) the proposed division of equity in NBSH (or its successor or assign) among Management Members and other 

personnel upon consummation of the Proposed Acquisition; 

(7) the fees and expense ratio of the Fund relative to comparable mutual funds; 

(8) that the fees are identical to those paid under the Existing Agreements; 

(9) that the fees and expense ratios of the Fund appear to the Board to be reasonable given the quality of services expected 

to be provided; 

(10) the commitment of Management to maintaining the Fund’s current contractual expense limitation agreements to 

ensure that Fund shareholders of funds that have such arrangements in place do not face an increase in expenses upon 

consummation of the Proposed Acquisition; 

(11) the performance of the Fund relative to comparable mutual funds and unmanaged indices; 

(12) the commitment of Management (or its successor) to pay the expenses of the Fund in connection with the Proposed 

Acquisition, including all expenses in connection with the solicitation of proxies, so that shareholders of the Fund would 

not have to bear such expenses; 

(13) the actual and potential effects on the Advisers of the bankruptcy of Lehman Brothers, and the effects of the Lehman 

Brothers bankruptcy on the information considered by the Independent Trustees in their prior analyses of the principal 

service contracts; 

(14) the provisions made to continue providing to the Advisers certain services that were previously provided to them by 

or through Lehman Brothers or its other affiliates; 

(15) the possible benefits that may be realized by the Fund and by the Advisers as a result of the Proposed Acquisition; 

and 

(16) that the Proposed Acquisition is expected to maintain continuity of management of the Fund and may reduce the 

potential for future vulnerability to changes in control of the Advisers that could be adverse to the Fund’s interests and 

that could affect the retention of key employees providing services to the Fund. 

36

[THIS PAGE INTENTIONALLY LEFT BLANK]

2008 ANNUAL REPORT 

Russell 

Investment Funds 

DECEMBER 31, 2008 

FUND 

Multi-Style Equity Fund 

Aggressive Equity Fund 

Non-U.S. Fund 

Core Bond Fund 

Real Estate Securities Fund


Russell Investment Funds is a series 

investment company with nine 

different investment portfolios 

referred to as Funds. These 

financial statements report on five 

of these Funds.





Page 

To Our Shareholders .................................................... 3 

Market Summary ....................................................... 4 

Multi-Style Equity Fund ................................................ 10 

Aggressive Equity Fund ................................................ 20 

Non-U.S. Fund ......................................................... 36 

Core Bond Fund ........................................................ 52 

Real Estate Securities Fund ............................................ 80 

Notes to Schedules of Investments ...................................... 88 

Statements of Assets and Liabilities ..................................... 89 

Statements of Operations ............................................... 91 

Statements of Changes in Net Assets .................................... 92 

Financial Highlights .................................................... 94 

Notes to Financial Highlights ........................................... 96 

Notes to Financial Statements ........................................... 97 

Report of Independent Registered Public Accounting Firm .............. 114 

Tax Information ........................................................ 115 

Basis for Approval of Investment Advisory Contracts .................... 116 

Shareholder Requests for Additional Information ........................ 120 

Disclosure of Information about Fund Trustees and Officers ............. 121 

Adviser, Money Managers and Service Providers ........................ 125


Copyright © Russell Investments 2009. All rights reserved. 

Russell Investments is a Washington, USA corporation, which operates through subsidiaries worldwide and is a 

subsidiary of The Northwestern Mutual Life Insurance Company. 

Fund objectives, risks, charges and expenses should be carefully considered before 

investing. A prospectus containing this and other important information must precede 

or accompany this material. Please read the prospectus carefully before investing. 

Securities products and services offered through Russell Financial Services, Inc. (effective June 2, 

2008, the name changed from Russell Fund Distributors, Inc.), member FINRA, part of Russell 

Investments. 

Indices and benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, 

are not a guarantee of future performance, and are not indicative of any specific investment. Index return 

information is provided by vendors and although deemed reliable, is not guaranteed by Russell Investments or its 

affiliates. 

Russell Investments is the owner of the trademarks, service marks, and copyrights related to its respective indexes. 

Performance quoted represents past performance and does not guarantee future results. 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. Current performance may be lower or higher than the performance data quoted.

To Our Shareholders 

We are pleased to provide you with the Russell Investment Funds 2008 Annual Report. It includes portfolio 

management discussions and fund-specific details that will give you an in-depth understanding of fund performance for 

the fiscal year ended December 31, 2008. 

It would be an understatement to say that 2008 has been a difficult year and the market crisis of the past couple of 

months has defied all predictions. Virtually no sector of the financial industry or the economy has been spared. 

All of us at Russell want you to know that we are sensitive to investor concerns. While market events have impacted the 

performance of the funds, we believe that investors are well-served by remaining focused on long-term disciplined 

investing in well-diversified, asset allocated portfolios. 

The Russell Investments team has years of experience in managing people’s money through various market cycles, 

trends and turnarounds. As always, we are monitoring our investment managers closely to ensure their adherence to their 

long-term strategies despite the recent disruptions. 

As we all collectively weather this storm, we believe now is the perfect time for you to talk with your financial advisor to 

ensure that your portfolio remains aligned with your long term goals. 

Each and every day we strive to improve financial security for people. We will not waiver in that commitment and 

sincerely appreciate your continued support. 

Best regards, 

Greg Stark 

Chief Executive Officer, Chairman and President 

Russell Investment Management Company 

To Our Shareholders 3


Market Summary as of December 31, 2008 (Unaudited) 

U.S. Equity Markets 

For the fiscal year ending December 31, 2008, U.S. equity markets were remarkably weak, with the broad market 

Russell 3000 ® Index posting a 37.3% drop amid the worst financial crisis in almost a century. Major bankruptcies, the 

freezing of credit markets, and the widespread global recession fears which ensued — particularly during the third 

quarter and first half of the fourth quarter — drove investors to sell riskier assets as fear and panic pervaded the market. 

The economic crisis stemmed from issues in the financial sector. The U.S. housing market stood at the center of the 

financial sector’s problems. The housing slowdown that began in the summer of 2006 and continued in 2007 intensified 

throughout this fiscal year and led to rising loan default rates and home foreclosures which, in turn, led to further 

housing weakness. As home prices dropped and default rates increased, the value of derivative instruments, such as 

mortgage-backed securities, whose values were based on these mortgages, plummeted. This forced banks to take massive 

write-downs of book values as required by mark-to-market accounting. With the lack of certainty about the real book 

value of assets on the balance sheets of banks, banks have been unable and/or hesitant to lend funds to other banks. 

Despite aggressive interest rate cuts by the Federal Reserve Board (the “Federal Reserve”), which took the Federal 

Funds rate from 5.25% (in third quarter 2007) to a range between 0% and 0.25% (at fiscal year end), mortgage and other 

lending rates did not come down as quickly as banks used the wider lending spread to offset their substantial writedowns 

on book values. Over the last month and a half of the year, however, these rates did start to drop sharply. In 

addition to higher interest rates, banks having stricter lending standards had a profound impact on the availability of 

affordable credit for potential homebuyers, small businesses, and other borrowers. 

Due to write-downs, dwindling capital bases and a crisis of confidence in their businesses, several large banks, brokers, 

mortgage companies and insurance companies filed for bankruptcy, were seized by the federal government and resold, or 

were bailed out by the government during the fiscal year, with the most notable ones being Countrywide Financial, Bear 

Stearns, IndyMac Bancorp, Lehman Brothers, Federal National Mortgage Association (Fannie Mae), Federal Home Loan 

Mortgage Corporation (Freddie Mac), American International Group (AIG), Washington Mutual and Wachovia. Amid 

concerns of additional bankruptcies and uncertainty surrounding which institutions may be bailed out by the 

government, the fear-driven environment has persisted. In addition, there have been a number of problems at hedge 

funds, leading to massive deleveraging, or forced selling of assets, in order to meet client redemptions. This forced 

selling of assets has put severe downward pressure on many securities, particularly the highly-liquid larger cap U.S. 

stocks, regardless of those securities’ fundamentals. 

After more than four years of strong growth, corporate profits had dipped fairly sharply by the end of 2008, especially in 

the financial services sector. The growth rate of gross domestic product also fell, although it stayed marginally positive 

until the third quarter report which showed a contraction of 0.5%, the worst since the 2001 recession. There was 

significant deterioration since then, as fourth quarter GDP estimates are -4.2% on average. A significant reduction in 

consumer spending had the most substantial negative impact on the GDP number, as consumers became fearful due to 

rising unemployment levels, declining home values and increased difficulty in getting loans. The Consumer Confidence 

Index released by the Conference Board decreased to 38 in October — the lowest value in the history of the Index 

(started in February 1967). It increased slightly in November, before dropping back to the all-time low of 38 in 

December. The first half of the year also featured the negative impact of higher energy prices on consumer spending. Oil 

prices reached $147/barrel in mid-July before dropping sharply to below $40/barrel in December. 

Although the domestic economy slowed during the fiscal year, some segments of the U.S. equity market were helped in 

the first half of the year by strong exports to faster-growing, developing, non-U.S. economies. With approximately 40% of 

U.S. corporations’ revenues derived from international customers, the declining U.S. dollar in the first half of 2008 

provided increased demand for U.S. products abroad. During the second half of the year, however, the U.S. dollar rallied 

and the global economy slowed considerably. After being rewarded in the first half of 2008, exposure to companies tied 

to the global economy underwent a strong reversal that began in July 2008 and has been swift and dramatic. Higher 

valuation cyclical (more linked to the economic cycle) companies and those with more debt on their balance sheets were 

among the most negatively impacted over the course of the year. Companies that have high forecasted growth rates have 

also been hit hard as investors have become less confident that these growth rates can be sustained going forward. 

4 Market Summary


In the wake of these powerful macroeconomic forces, the fiscal year presented a very difficult active management 

environment which was marked by three distinct themes: 1) largely indiscriminate selling of U.S. stocks by panic-driven, 

risk-averse investors concerned first about a U.S. recession and then about a global recession, 2) intense selling of 

financial stocks for a majority of the period, and 3) the strength of global companies for roughly the first half of the fiscal 

year as multinational companies with exposure to developing markets outpaced domestically-driven companies and 

commodity-related companies (especially energy) outperformed the general market by a wide margin. 

The weakening of the global economy over the last half of the year caused oil prices to fall from their record highs and 

led the other energy sector to sell off sharply. Over the course of the year, the worst performing sectors in the Russell 

3000 ® Index were other energy -53.6%, financial services -51.1%, the other sector (which is dominated by GE and 

contains other large conglomerates, (-50.9%), and materials & processing -47.3%. Meanwhile, the best performing 

sectors in the Russell 3000 ® Index were those that are considered to be more defensive. The slower-growing, less 

economically-sensitive consumer staples sector was the best relative performer -17.7%, followed by integrated oils 

-21.7%, health care -22.4%, and utilities -29%. 

Weakness was experienced across investment styles as well as the capitalization spectrum. While both the growth and 

value investment styles were down substantially, value outperformed growth in the small cap segment (Russell 2000 ® 

Value -28.9%, Russell 2000 ® Growth -38.5%) and to a lesser degree in the large cap segment (Russell 1000 ® Value 

-36.9%, Russell 1000 ® Growth -38.4%). In general, small cap stocks outperformed large caps (-33.8% and -37.6% for 

the Russell 2000 ® Index and Russell 1000 ® Index, respectively). Midcap and microcap stocks underperformed by the 

widest margins with the Russell Midcap ® Index down 41.5%, and the Russell Microcap ® Index down 39.8%. 

During 2008, the market environment was largely hostile for active management as investors sold stocks regardless of 

fundamentals, the basic determinants of a stock’s value. Small cap fund managers had the most difficult time relative to 

their benchmark. Growth managers across the capitalization spectrum also struggled as the shift away from higher growth 

stocks came quickly and sharply. Core, or market-oriented, managers struggled less than style-focused managers in 

fiscal year 2008. The Lipper ® Small Cap Core Funds Average trailed the Russell 2000 ® Index by 2.7%, the Lipper ® 

Small Cap Growth Funds Average underperformed the Russell 2000 ® Growth Index by 3.6% and the Lipper ® Small Cap 

Value Funds Average underperformed the Russell 2000 ® Value Index by 4.9%. The Lipper ® Large Cap Core Funds 

Average outperformed the Russell 1000 ® Index by 0.1%, the Lipper ® Large Cap Growth Funds Average 

underperformed the Russell 1000 ® Growth Index by 1.8% and the Lipper ® Large Cap Value Funds Average 

underperformed the Russell 1000 ® Value Index by 0.6%. 

Real Estate Securities Market 

For the fiscal year ending December 31, 2008, U.S. real estate investment trusts (REITs) generated a 37.7% loss, as 

measured by the FTSE NAREIT Equity Index (Index). During this period, REITs performed slightly better than the 

broader equity market, which finished down 37.3% as measured by the Russell 3000 Index. The negative REIT 

performance was accompanied by an unprecedented amount of volatility during the period. Not only were monthly 

returns erratic, demonstrated by the worst and best monthly returns in the history of the Index occurring in October 

-31.7% and December 16.4%, respectively, but the largest percentage gain and loss achieved in a single day also both 

occurred during the year. 

Following the sharp decline in the commercial mortgage-backed securities market and escalating problems in the credit 

market, investors began 2008 more risk averse. As recessionary fears began to emerge, the Federal Reserve became 

active in an attempt to stave off concerns of a recession by cutting rates aggressively, twice in January alone, and 

injecting liquidity into the financial markets through a variety of initiatives. First and second quarter REIT earnings held 

up well, although many companies took the opportunity to revise 2009 estimates downwards. 

By September 2008, consumer spending had slowed, the unemployment rate was climbing and both corporate and 

consumer credit markets remained tight. The collapse of Lehman Brothers Holdings Inc. on September 15 sparked panic 

within the financial markets and REITs were heavily sold off over the ensuing weeks. Mirroring the broader equity 

market, REITs traded down sharply through October and most of November. A marked change in investor sentiment 

occurred in December as investors became less defensive and REITs staged a modest recovery as the year closed. 

An overriding theme during the year was the elevated correlation between REITs and the financial services sector of the 

broader equity market. This is due to the fact that most broad equity indexes include REITs in the financial services 

sector. This weighed heavily on REIT performance during the period, as many general equity investors avoided financial 

services stocks and other investors took short positions in individual stocks and exchange traded funds in the financial 

Market Summary 5


services sector. This was also a contributing factor to the exceptionally high volatility observed in the REIT market 

during the fiscal year. 

Another key trend during the year was a flight towards quality REIT names, with the market especially rewarding 

companies that have made a concerted effort to mitigate risk. Companies with the lowest leverage levels, limited near 

term refinancing needs and limited development pipelines held up the best. Neither dividend yield nor market 

capitalization appeared to be contributing factors to differences in individual company performance. 

During the year, returns were disappointing across all property sectors. The poorest performing sectors were industrial 

and regional malls. Leverage ratios for the industrial and regional malls companies tend to be higher than the overall 

REIT universe, which has negatively impacted those stocks. In addition, meaningful development pipelines in the 

leading industrial companies have put added pressure on earnings forecasts due to weaker leasing market conditions. 

Two of the better performing property sectors were self storage and health care. Due to the stable nature of the cash flows 

embedded in many health care leases, investors sought out this defensive sector given the slowing economy. The self 

storage sector is generally driven by the performance of one company that dominates the sector, Public Storage, which 

was one of the few stocks to post a positive return for the year. Public Storage held up well due to its strong balance 

sheet, including minimal leverage and high levels of cash. 

The U.S. REIT market outperformed relative to the international real estate securities market by a wide margin during 

the fiscal year. The largest price correction occurred in the Asia Pacific region, with smaller corrections taking place in 

Continental Europe and the United Kingdom. While the effects of the global economic slowdown and credit crisis have 

spread to the other regions, the U.S. REIT market has fared relatively better, mirroring trends in the broader global 

equity markets. 

Non-U.S. Developed Equity Markets 

Non-U.S. developed stocks fell 43.38% as measured by the MSCI EAFE ® Index for the fiscal year ended December 31, 

2008. Appreciation of the U.S. dollar relative to foreign currencies, mainly as a result of the flight to safety in the second 

half of the fiscal year ended, exacerbated already weak non-U.S. equity returns. In local currencies, the MSCI EAFE ® 

Index fell 40.27% over the 12-month period. 

The market struggled under increasing concern over the health of the global financial system. While these concerns 

affected markets for nearly the full 12 months, most of the decline in equity values came in September and October 

2008, as several prominent financial companies in the U.S. and Europe encountered financial distress. In nearly all 

cases, government “bailouts” were necessary for these companies to avoid bankruptcy. 

The additional impact of already declining global economic growth increasingly weighed on markets during the period. 

Expectations for global economic growth were revised downwards throughout the year. The latter part of the fiscal year 

experienced contraction in economic output in Europe and Asia. Output growth of 5% in 2007 slowed sharply for 2008 

with abbreviated expectations for growth in developed economies in 2009. 

The change in market conditions was evident in a marked increase in market volatility as investors’ complacency 

towards risk was quickly replaced by acute risk aversion. Stocks with prices most directly tied to high, long-term growth 

prospects suffered some of the steepest declines, as investors doubted the ability of these companies to post strong 

growth in a decelerating economic environment. However, due to the sharp declines of financials, the largest sector of 

the value index, value lagged growth by 1.39% in the period (the MCSI EAFE Growth Index lost 42.70% and the MSCI 

EAFE Value Index lost 44.09%). 

Market sectors most leveraged to global economic growth or in the nexus of the financial sector meltdown were the most 

severely impacted, though no areas of the market were immune. Financials ended the 12-month period down 55.21% (as 

measured by the MSCI EAFE Index financials sector grouping). The strong gains of materials early in the period were 

quickly reversed. The sector ended the period down nearly 53.02% as measured by the MSCI EAFE materials sector 

grouping. Energy stocks also fell sharply as the price of a barrel of oil fell from a high of more than $145 to below $36. 

However, the sector’s one-year stock price decline of 38.18% (as measured by the MSCI EAFE energy sector) was better 

than all but the traditionally defensive sectors. Among the defensive sectors of the market, health care, led by 

pharmaceutical stocks, held up best with a decline of 18.95% as measured by the MSCI EAFE health care sector. 

Utilities and consumer staples, down 28.16% and 31.33% as measured by the MSCI EAFE utilities and MSCI EAFE 

consumer staples sector groupings, respectively, were the next best performers. Sector groupings are based on the Global 

Industry Classification Standard definitions. 

6 Market Summary


Regional results were generally tied to sensitivity to global economic conditions. The MSCI Pacific ex-Japan ® Index 

declined the most, down 50.50%. MSCI Europe ex-United Kingdom ® Index fell 45.54%, while the MSCI United 

Kingdom ® Index fell 48.34%. In all three regions, currency impact had a pronounced impact on returns with the regions 

down 42.17%, 43.24%, and 28.48%, respectively, in local currencies. MSCI Japan ® Index fell 42.56% in yen, but had 

one of the few currencies that managed to appreciate versus the U.S. dollar and fell only 29.21% in U.S. Dollars. 

Emerging Markets 

During 2008, the MSCI Emerging Markets Index (“Index”) declined 53.18%, the biggest calendar year decline in the 

history of the asset class with large return dispersions across sectors and countries. The turmoil in the world’s financial 

system meant increasing risk aversion, growing macro risks and heightened levels of volatility and dispersion across 

countries, sectors and currencies. Emerging Markets in general may be better positioned and more resilient to a 

downturn than developed economies, however, as the crisis changed from financial to economic, emerging markets faced 

massive asset de-leveraging and indiscriminate selling as investors adopted a zero tolerance to risk. Price momentum 

(i.e. stocks exhibiting trending relative price appreciation) benefited from the continued rally of commodity-related 

sectors through the latter part of 2007 and well into 2008 but this reversed as global equity markets began falling 

sharply. The faltering global economy and the steep pull-back in commodity prices affected cyclical areas of the market 

including industrials, materials and energy sectors while defensive sectors such as healthcare, consumer staples and 

utilities were relative safe havens during the period. From a country perspective, smaller markets in general held up 

relatively better than the larger markets. In addition to the weak equity returns, most emerging markets currencies 

depreciated against the U.S. Dollar with some, such as the South African Rand, Korean Won, Turkish Lira and Brazilian 

Real, losing in excess of 30% over the course of the year as investors fled to quality and more liquid currencies. 

In terms of regions, Latin America was the top performer, down 51.28% (as measured by the MSCI EM Latin America 

Index), supported by the relative outperformance from Mexico and the smaller Latin countries. The Asia region (-52.77% 

as measured by the MSCI EM Asia Index) finished behind Latin America but ahead of the broader market. The Europe, 

Middle East and Africa region (-55.60% as measured by the MSCI EM Europe, Middle East and Africa Index) 

underperformed the broader market due in large part to the significant underperformance from Russia. The BRIC (Brazil, 

Russia, India and China) economies, with the exception of China, underperformed the broader Index. China held up 

reasonably well over the period due to favorable monetary and fiscal policies during the latter half of the year in an effort 

to shore up its slowing economy. Other notable relative underperformers included Pakistan (-74.05% as measured by the 

MSCI Pakistan Index) and Turkey (-62.10% as measured by the MSCI Turkey Index). 

U.S. Fixed Income Markets 

The Barclays Capital U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, 

returned 5.24% for the year ended December 31, 2008. Similar to the prior year, the index and its major sectors trailed 

equivalent-duration U.S. Treasuries, as the subprime mortgage crisis that started in the summer of 2007 deepened and 

developed into a severe liquidity crisis, the size and scope of which had not been seen since the U.S. Great Depression of 

the 1930s. During 2008, investors moved their capital away from riskier investments to the safest possible investments 

(i.e., U.S. Treasuries), continuing the “flight to quality” trend started in the prior period. 

Throughout 2008, in an effort to deal with credit market illiquidity and a slowing economy, the Federal Reserve lowered 

the target Federal Funds rate eight times, including two non-scheduled “surprise” cuts of 0.75% in January and 0.50% 

in October. The target rate started the year at 4.25% and ended at a 0.00% to 0.25% range after the eighth rate cut on 

December 16, 2008. 

The downward shift in the yield curve started in 2007 and continued in earnest in 2008, with the curve “steepening” 

significantly below the 10-year mark; i.e., yields on shorter-maturity Treasuries declined by a greater degree than longermaturity 

Treasuries, resulting in a steeper, upward sloping curve. The change was driven by the Federal Reserve’s 

lowering of rates (affecting the short end) and investors’ increasing demand for safe haven U.S. Treasuries (driving down 

longer-maturity yields). In 2008, yields on 2-year Treasuries declined by 2.28% to 0.76% while 10-year Treasuries 

declined by 1.81% to 2.21%. 

The subprime mortgage crisis and deflating housing market were still major issues throughout the year. Home price 

depreciation continued to accelerate. By the end of October, the average U.S. national home price as tracked by the 

S&P/Case-Shiller Composite 20 Index, had declined 18% from the end of 2007, reaching a level that was down 23% 

from its July 2006 peak. Subprime mortgage foreclosures increased from 8.65% at the end of December 2007 to 12.55% 

at the end of September 2008, the most recent available data from the Mortgage Bankers Association. Total foreclosures 

increased from 2.04% to 2.97% during the same period. Writedowns on the values of mortgages had a large negative 

Market Summary 7


impact on bank balance sheets. During the year, writedowns at financial institutions world-wide amounted to 

approximately $930.3 billion, bringing total writedowns since the start of the subprime crisis to approximately $997.4 

billion. 

During the early months of 2008 the market continued its downward trend, which was capped in mid-March by Bear 

Stearns receiving emergency funding from the Federal Reserve and JPMorgan Chase as a three-day run on the bank 

depleted its cash reserves. Two days later JPMorgan Chase acquired Bear Stearns for seven percent of its market value 

in a sale brokered by the Federal Reserve and the U.S. Department of the Treasury (U.S. Treasury). Investors took this as 

a sign that the U.S. government would stand behind financial institutions and credit markets rallied for the next few 

months. 

During the first part of the year, the U.S. government had become increasingly concerned that the credit crisis would 

significantly slow the U.S. economy — particularly the spending of consumers, who account for approximately two-thirds 

of GDP. In April, the U.S. Internal Revenue Service started distributing tax rebates as part of a $168 billion economic 

stimulus plan. 

However, markets continued to weaken as illiquidity reached extreme levels and the financial crisis became global in 

scope. In July, IndyMac Bancorp, the then-second-biggest independent U.S. mortgage lender, was seized by federal 

regulators after a run by depositors depleted its cash. In August, Commerzbank AG agreed to buy Allianz SE’s Dresdner 

Bank for 9.8 billion euros in Germany’s biggest banking takeover in three years. 

September started with the U.S. government seizing control of Fannie Mae and Freddie Mac, the largest U.S. mortgagefinance 

companies. In the middle of the month, the U.S. government did not arrange a deal or otherwise bail out Lehman 

Brothers, and the 158-year old firm filed the largest bankruptcy in U.S. history. This was followed by the bankruptcy of 

119-year old Washington Mutual. AIG accepted an $85 billion loan from the Federal Reserve to avert what would have 

been the worst financial collapse in history, with the U.S. government taking a substantial ownership stake in AIG. 

In the same month, the investment banking business model fundamentally changed, with Goldman Sachs and Morgan 

Stanley receiving approval to become deposit-taking commercial banks regulated by the Federal Reserve, as tight credit 

markets forced Wall Street’s two remaining independent investment banks to widen their sources of funding. Similar 

events occurred in Europe and throughout the world, with large financial institutions either merging or with governments 

providing support in return for equity stakes. 

September finally ended with the U.S. Treasury proposing the Financial Market Rescue Bill, including the Troubled 

Asset Relief Program (TARP), which authorized the U.S. Treasury to spend up to $700 billion to buy mortgages and 

other distressed assets. The House initially rejected the bill, but subsequently passed it. The bill was signed into law in 

early October. 

The events of September contributed to the extreme market illiquidity in October, evidenced by spikes in overnight and 

three-month LIBOR (the rates at which banks lend to one another). The Federal Reserve took significant steps to 

improve liquidity in the short duration markets, which included the creation of the Commercial Paper Funding Facility 

(CPFF) and the Money Market Investor Funding Facility (MMIFF). 

In November, the U.S. Treasury gave additional support to AIG by announcing the purchase of $40 billion in new 

preferred stock. The U.S. Treasury then guaranteed $306 billion in residential and commercial mortgage-backed 

securities of Citi ® in exchange for $7 billion in preferred stock. In addition, the U.S. Treasury purchased another $20 

billion in preferred stocks from Citi. Shortly thereafter, the Government Sponsored Enterprise (GSE) Debt and Mortgage- 

Backed Security Purchase Program was announced stating that the Federal Reserve will buy $100 billion in Fannie Mae, 

Freddie Mac and the Federal Home Loan Bank debentures and $500 billion in agency mortgage-backed securities. 

Simultaneously, the Term Asset-Backed Securities Loan Facility (TALF) was announced by the U.S. Treasury offering to 

provide $200 billion in three-year loans to U.S. companies who can provide high quality AAA-rated auto loans, student 

loans, credit card loans or small business loans as collateral. 

This trend continued in December as Congress agreed to provide $13.4 billion in short term loans to General Motors and 

$4 billion to Chrysler in an effort to aid the suffering auto industry. 

December ended on an up note with a majority of fixed income sectors outperforming equivalent-duration Treasuries. 

Most notably, the commercial mortgage-backed securities sector (CMBS) returned 16.98% (15.14% above equivalentduration 

Treasuries) during the month. The year ended with the Barclays Capital U.S. Aggregate Bond Index returning 

5.24%, underperforming by 7.10% U.S. Treasuries. 

8 Market Summary

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Portfolio Management Discussion and Analysis — December 31, 2008 (Unaudited) 

Growth of a $10,000 Investment 

$15,000 

$14,000 

$13,000 

$12,000 

$11,000 

$10,000 

$9,000 

$8,000 

$7,000 


Russell 1000® Index** 

$6,000 

* 

1999 

2000 

2001 

2002 2003 2004 

Yearly periods ended December 31 

2005 

2006 

2007 

2008 


Total 

Return 

1 Year (41.15)% 

5 Years (2.92)%§ 

10 Years (2.80)%§ 

Russell 1000 ® Index ** 

Total 

Return 

1 Year (37.60)% 

5 Years (2.04)%§ 

10 Years (1.09)%§ 

* Assumes initial investment on January 1, 1999. 

** Russell 1000 ® Index includes the 1,000 largest companies in the Russell 3000 ® Index. The Russell 1000 ® Index represents the universe of stocks from which 

most active money managers typically select. The Russell 1000 ® Index return reflects adjustments from income dividends and capital gain distributions 

reinvested as of the ex-dividend dates. 

§ Annualized. 

The performance shown in this section does not reflect any Insurance Company Separate Account or Policy Charges. 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. 

10 Multi-Style Equity Fund



Portfolio Management Discussion — December 31, 2008 (Unaudited) 

The Multi-Style Equity Fund (the “Fund”) allocates most of its 

assets among multiple money managers. Russell Investment 

Management Company (“RIMCo”), as the Fund’s advisor, may 

change the allocation of the Fund’s assets among money 

managers at any time. An exemptive order from the Securities 

and Exchange Commission (SEC) permits RIMCo to engage or 

terminate a money manager at any time, subject to the approval 

by the Fund’s Board without a shareholder vote. Pursuant to the 

terms of the exemptive order, the Fund is required to notify its 

shareholders within 60 days of when a money manager begins 

providing services. The Fund currently has eight money 

managers. 

What is the Fund’s investment objective? 

The Fund seeks to provide long term capital growth. 

How did the Fund perform relative to its benchmark for 

the fiscal year ended December 31, 2008? 

For the fiscal year ended December 31, 2008, the Multi-Style 

Equity Fund lost 41.15%. This compared to the Russell 1000 ® 

Index, which lost 37.60% during the same period. The Fund’s 

performance includes operating expenses, whereas Index 

returns are unmanaged and do not include expenses of any 

kind. 

For the year ended December 31, 2008, the Lipper ® Large-Cap 

Core Funds (VIP) Average lost 38.29%. This result serves as a 

peer comparison and is expressed net of operating expenses. 

RIMCo may assign a money manager a specific style or 

capitalization benchmark other than the Fund’s index. However, 

the Fund’s primary index remains the benchmark for the Fund 

and is representative of the aggregate of each money manager’s 

benchmark index. 

How did the market conditions described in the Market 

Summary report affect the Fund’s performance? 

During the year, investors sought relative stability and safety 

found in more liquid stocks and avoided any stocks perceived 

as risky. Investors sold riskier assets as fear and panic took over 

the markets, which put severe downward pressure on many 

stocks, particularly the highly liquid larger cap U.S. stocks, 

regardless of those stocks’ fundamentals. 

The consumer staples sector was the strongest performing sector 

in the Russell 1000 Index for the period, losing 17.57%, where 

solid, well-known household names, such as Proctor & Gamble, 

Colgate and Clorox were seen as safe havens. Integrated oils and 

health care stocks also performed well compared to other 

sectors, losing 21.67% and 22.40%, respectively. Other energy, 

which had been a strong performer for the first half of 2008, fell 

off sharply in the second half of the year and ended the year 

down -53.64%, as energy equipment and coal producers were hit 

hard by the drop in oil prices. Financial services stocks bore the 

brunt of investor apprehension as write-downs, dwindling capital 

and a crisis of investor confidence led to the bankruptcy, 

government seizure and rescue packages for many financial 

institutions. This sector ended the year down 51.09%. 

These unprecedented events created market conditions which 

were very difficult for active managers in general and for the 

Fund. The Fund was positioned toward attractively valued 

companies with higher growth rates, higher beta (beta is the 

volatility of a given security compared to the volatility of the 

market as a whole) and lower yielding stocks. This positioning 

was not rewarded by the market. 

The Fund’s strategy of being fully invested and exposing cash 

reserves to the performance of appropriate markets by 

purchasing equity securities and/or derivatives was a drag on 

performance relative to peers that held larger cash positions as 

the Russell 1000 ® Index was down over 37%. 

How did the investment strategies and techniques 

employed by the Fund and its money managers affect 

its performance? 

Over the past year, the Fund maintained its positioning towards 

companies with above-average growth rates and lower yields 

that are selling at attractive valuations. This positioning was not 

rewarded in this period where investors were driven by fear and 

sold stocks regardless of attractive fundamentals. 

The Fund’s underperformance resulted from a combination of 

sector weighting decisions and stock selection. Underweights to 

both the integrated oils and utilities sectors detracted from 

returns as those sectors performed better. Weak stock selection 

in the consumer discretionary, technology, integrated oils and 

health care sectors was also detrimental to returns. 

The Fund’s managers had a difficult time in the risk adverse 

market environment. Six of the eight managers underperformed 

their respective style benchmarks, with one manager essentially 

even with its index. Higher-growth and momentum manager, 

Turner Investment Partners, Inc.’s more aggressive positioning 

was not rewarded in this environment, which was to be expected 

in this market environment. Weak selection in the consumer 

discretionary and technology sectors led Turner to significantly 

trail its benchmark, the Russell 1000 ® Growth Index. Growth 

manager, Columbus Circle Investors, also struggled in this 

market environment. Given the economic environment, 

Columbus’ move to reduce the cyclicality and high level of 

forecast growth within its portfolio moderated the level of its 

underperformance in the period. Columbus’ holdings in 

technology, health care and financial services were the main 

drivers of its underperformance. Montag & Caldwell, Inc. is a 

larger-cap growth manager with a high quality consistent growth 

focus. As expected, Montag performed better in this difficult 

environment and provided some downside protection. Marketoriented 

manager, Suffolk Capital Management, LLC also 

detracted from results as its focus on companies with positive 

earnings estimate revisions became less effective due to the 

dramatic decline in companies experiencing such revisions. 

Suffolk’s performance lagged primarily from an overweight to 

the financial services sector and an underweight to integrated 

oils, as well as from stock selection within those sectors. 

RIMCo currently employs a “select holdings” strategy for a 

portion of the Fund’s assets that RIMCo determines not to 

Multi-Style Equity Fund 11




allocate to the money managers. Pursuant to this strategy, 

RIMCo analyzes the holdings of the Fund’s money managers in 

their Fund segments to identify particular stocks that have been 

selected by multiple money managers. RIMCo uses a 

proprietary model to rank these stocks. Based on this ranking, 

RIMCo purchases additional shares of certain stocks for the 

Fund. The strategy is designed to increase the Fund’s exposure 

to stocks that are viewed as attractive by multiple money 

managers. Over the period, the strategy outperformed as it had 

exposure to many of the stocks that were perceived by investors 

to be less risky. 

Money Managers as of 


Arnhold and S. Bleichroeder Advisers, LLC 

Columbus Circle Investors 

DePrince, Race & Zollo, Inc. 

Institutional Capital LLC 

Jacobs Levy Equity Management, Inc. 

Montag & Caldwell, Inc. 

Suffolk Capital Management, LLC 

Turner Investment Partners, Inc. 

Styles 

Market-Oriented 

Growth 

Value 

Value 

Value 

Growth 


Growth 

At the stock selection level, the Fund benefited from 

overweights to Gilead, McDonald’s and Qualcomm. However, a 

significant underweight to Exxon Mobil was the largest single 

stock detractor from performance over the one year period. 

Additionally, overweights to Morgan Stanley, Halliburton and 

Google were detrimental to returns. 

The Fund’s performance shown throughout this report was 

based on valuations calculated in accordance with Generally 

Accepted Accounting Principles (GAAP) and in accordance 

with a newly effective accounting statement (SFAS 157), 

reflects the December 31, 2008 market value of the pooled 

investment vehicle in which the Fund invested its cash 

collateral received in securities lending transactions. This 

market value is lower than the vehicle’s amortized cost per unit. 

This had a negative impact on the Fund’s benchmark relative 

performance. 

Describe any changes to the Fund’s structure or the 

money manager line-up. 

There were no changes to the Fund’s structure or money 

manager line-up during the year. 

The views expressed in this report reflect those of the portfolio 

managers only through the end of the period covered by the report. 

These views do not necessarily represent the views of RIMCo, or any 

other person in RIMCo or any other affiliated organization. These views 

are subject to change at any time based upon market conditions or 

other events, and RIMCo disclaims any responsibility to update the 

views contained herein. These views should not be relied on as 

investment advice and, because investment decisions for Russell 

Investment Funds (RIF) are based on numerous factors, should not be 

relied on as an indication of investment decisions of any RIF Fund. 




Shareholder Expense Example — December 31, 2008 (Unaudited) 

Fund Expenses 

The following disclosure provides important information 

regarding each Fund’s Expense Example, which appears 

on each Fund’s individual page in this Annual Report. 

Please refer to this information when reviewing the 

Expense Example for a Fund. 

Example 

As a shareholder of the Fund, you incur two types of costs: (1) 

transaction costs, and (2) ongoing costs, including management 

fees and other Fund expenses. The Example is intended to help 

you understand your ongoing costs (in dollars) of investing in 

the Fund and to compare these costs with the ongoing costs of 

investing in other mutual funds. The Example is based on an 

investment of $1,000 invested at the beginning of the period 

and held for the entire period indicated, which for this Fund is 

from July 1, 2008 to December 31, 2008. 


The information in the table under the heading “Actual 

Performance” provides information about actual account values 

and actual expenses. You may use the information in this 

column, together with the amount you invested, to estimate the 

expenses that you paid over the period. Simply divide your 

account value by $1,000 (for example, an $8,600 account value 

divided by $1,000 = 8.6), then multiply the result by the 

number in the first column in the row entitled “Expenses Paid 

During Period” to estimate the expenses you paid on your 

account during this period. 


The information in the table under the heading “Hypothetical 

Performance (5% return before expenses)” provides information 

about hypothetical account values and hypothetical expenses 

based on the Fund’s actual expense ratio and an assumed rate 

of return of 5% per year before expenses, which is not the 

Fund’s actual return. The hypothetical account values and 

expenses may not be used to estimate the actual ending account 

balance or expenses you paid for the period. You may use this 

information to compare the ongoing costs of investing in the 

Fund and other funds. To do so, compare this 5% hypothetical 

example with the 5% hypothetical examples that appear in the 

shareholder reports of other funds. 

Please note that the expenses shown in the table are meant to 

highlight your ongoing costs only and do not reflect any 

transactional costs. Therefore, the information under the 

heading “Hypothetical Performance (5% return before 

expenses)” is useful in comparing ongoing costs only, and will 

not help you determine the relative total costs of owning 

different funds. In addition, if these transactional costs were 

included, your costs would have been higher. The fee and 

expenses shown in this section do not reflect any Insurance 

Company Separate Account or Policy Charges. 

Actual 

Performance 

Hypothetical 

Performance 

(5% return 

before expenses) 


July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 664.53 $ 1,020.76 

Expenses Paid During Period* $ 3.64 $ 4.42 

* Expenses are equal to the Fund’s annualized expense ratio of 0.87% 

(representing the one-half year period annualized), multiplied by the average 

account value over the period, multiplied by 184/366 (to reflect the one-half 

year period). Reflects amounts waived and/or reimbursed. Without the waiver 

and/or reimbursement, expenses would have been higher. 




Schedule of Investments — December 31, 2008 

Amounts in thousands (except share amounts) 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Common Stocks - 90.0% 

Auto and Transportation - 1.6% 

Arkansas Best Corp. (Ñ) 2,600 78 


Con-way, Inc. (Ñ) 3,500 93 

CSX Corp. 31,950 1,038 

Delta Air Lines, Inc. (Æ) 70,714 810 

Old Dominion Freight Line, Inc. (Æ)(Ñ) 1,900 54 

Skywest, Inc. 5,300 99 

Toyota Motor Corp. - ADR (Ñ) 7,500 491 

TRW Automotive Holdings Corp. (Æ)(Ñ) 12,300 44 

Union Pacific Corp. (Ñ) 30,054 1,437 

United Parcel Service, Inc. Class B 7,150 394 

4,682 

Consumer Discretionary - 11.4% 

Activision Blizzard, Inc. (Æ) 59,060 510 

Amazon.com, Inc. (Æ)(Ñ) 10,000 513 

American Eagle Outfitters, Inc. (Ñ) 72,200 676 

AnnTaylor Stores Corp. (Æ)(Ñ) 8,400 48 

Apollo Group, Inc. Class A (Æ) 2,210 169 

AutoNation, Inc. (Æ)(Ñ) 13,100 129 

Avis Budget Group, Inc. (Æ) 13,500 9 

Black & Decker Corp. (Ñ) 8,900 372 

Boyd Gaming Corp. (Ñ) 7,300 35 

Brinker International, Inc. 53,200 561 


CBS Corp. Class B (Ñ) 88,700 726 

Clear Channel Outdoor Holdings, Inc. 

Class A (Æ) 84,978 523 

Comcast Corp. Class A 19,660 332 

Costco Wholesale Corp. (Ñ) 25,580 1,343 

DIRECTV Group, Inc. (The) (Æ) 40,559 929 

Eastman Kodak Co. (Ñ) 16,800 111 

Electronic Arts, Inc. (Æ) 37,700 605 


FTI Consulting, Inc. (Æ)(Ñ) 4,670 209 

Gannett Co., Inc. (Ñ) 31,200 250 

Guess ?, Inc. 14,580 224 

Home Depot, Inc. 13,400 308 

Intercontinental Hotels Group PLC - ADR 30,759 257 

International Speedway Corp. Class A 2,300 66 

Jack in the Box, Inc. (Æ)(Ñ) 1,400 31 

Jarden Corp. (Æ)(Ñ) 4,700 54 

JC Penney Co., Inc. (Ñ) 29,600 583 

Kimberly-Clark Corp. 6,240 329 

Kohl’s Corp. (Æ)(Ñ) 7,270 263 


Lowe’s Cos., Inc. 76,300 1,642 

Macy’s, Inc. (Ñ) 69,300 717 

Manpower, Inc. 3,600 122 

McDonald’s Corp. 55,100 3,427 

McGraw-Hill Cos., Inc. (The) 9,800 227 

Men’s Wearhouse, Inc. (The) (Ñ) 3,600 49 

MPS Group, Inc. (Æ) 7,400 56 

New York Times Co. (The) Class C (Ñ) 12,400 91 


Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

News Corp. Class A 165,662 1,506 

Nike, Inc. Class B 39,401 2,009 

Office Depot, Inc. (Æ) 22,800 68 

OfficeMax, Inc. (Ñ) 67,600 516 

Regis Corp. 1,200 17 

Robert Half International, Inc. (Ñ) 12,500 260 

RR Donnelley & Sons Co. 33,300 452 

Staples, Inc. (Ñ) 20,480 367 

Starwood Hotels & Resorts Worldwide, 

Inc. (Ñ) 26,400 473 

Target Corp. (Ñ) 26,900 929 

United Stationers, Inc. (Æ)(Ñ) 2,200 74 

Urban Outfitters, Inc. (Æ)(Ñ) 10,330 155 

Vail Resorts, Inc. (Æ)(Ñ) 2,900 77 

Viacom, Inc. Class B (Æ) 66,800 1,273 

Wal-Mart Stores, Inc. (Ñ) 122,244 6,853 

Walt Disney Co. (The) (Ñ) 32,400 735 

Williams-Sonoma, Inc. (Ñ) 50,600 398 

Wyndham Worldwide Corp. 13,200 86 

Yum! Brands, Inc. 5,930 187 

34,097 

Consumer Staples - 7.4% 

Chiquita Brands International, Inc. (Æ)(Ñ) 5,600 83 

Clorox Co. 16,280 904 

Coca-Cola Co. (The) (Ñ) 126,650 5,733 

Coca-Cola Enterprises, Inc. 15,200 183 

Colgate-Palmolive Co. 16,760 1,149 

ConAgra Foods, Inc. 38,400 634 

General Mills, Inc. 29,000 1,762 

Hershey Co. (The) (Ñ) 13,700 476 

Hormel Foods Corp. (Ñ) 4,600 143 

JM Smucker Co. (The) 14,524 630 

Kroger Co. (The) 9,300 246 

Lorillard, Inc. 9,500 535 

Molson Coors Brewing Co. Class B 21,150 1,035 

NBTY, Inc. (Æ) 1,500 23 

Pepsi Bottling Group, Inc. (Ñ) 11,000 248 

PepsiCo, Inc. 97,850 5,359 

Procter & Gamble Co. 32,940 2,036 


Spartan Stores, Inc. (Ñ) 2,200 51 

SUPERVALU, Inc. 16,000 234 

Sysco Corp. 7,300 167 

Tyson Foods, Inc. Class A (Ñ) 16,800 147 

Walgreen Co. 6,300 155 

22,217 

Financial Services - 14.3% 

ACE, Ltd. 28,800 1,524 

Allied Capital Corp. (Ñ) 11,200 30 

Allied World Assurance Co. Holdings, Ltd. 2,400 97 

Allstate Corp. (The) 11,700 383 

American Capital, Ltd. (Ñ) 31,200 101 

Annaly Capital Management, Inc. (ö)(Ñ) 47,100 748 

Arch Capital Group, Ltd. (Æ) 2,200 154 

Arthur J Gallagher & Co. 7,100 184 




Schedule of Investments, continued — December 31, 2008 


Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


Bank of Hawaii Corp. (Ñ) 5,200 235 

Bank of New York Mellon Corp. (The) 88,976 2,521 

BlackRock, Inc. Class A (Ñ) 1,630 219 

Brandywine Realty Trust (ö) 11,300 87 

Camden Property Trust (ö)(Ñ) 4,300 135 

Capital One Financial Corp. (Ñ) 30,700 979 

CBL & Associates Properties, Inc. (ö)(Ñ) 9,200 60 

Charles Schwab Corp. (The) 75,600 1,222 

Chubb Corp. 6,200 316 


CME Group, Inc. Class A (Ñ) 1,900 395 

CNA Financial Corp. 3,100 51 

Comerica, Inc. (Ñ) 27,300 542 

Commerce Bancshares, Inc. (Ñ) 3,360 148 

Conseco, Inc. (Æ)(Ñ) 13,800 72 

Cullen/Frost Bankers, Inc. 4,300 218 


Developers Diversified Realty Corp. (ö)(Ñ) 4,500 22 

Discover Financial Services (Ñ) 28,900 275 

East West Bancorp, Inc. (Ñ) 3,100 50 

Endurance Specialty Holdings, Ltd. (Ñ) 5,400 165 

Federal National Mortgage Association 409,746 311 

Fifth Third Bancorp (Ñ) 77,400 639 

First American Corp. (Ñ) 2,700 78 

First Horizon National Corp. (Ñ) 14,461 153 

General Growth Properties, Inc. (ö)(Ñ) 36,300 47 

Goldman Sachs Group, Inc. (The) 4,615 390 

Hartford Financial Services Group, Inc. (Ñ) 38,200 627 

Hospitality Properties Trust (ö)(Ñ) 14,400 214 

HRPT Properties Trust (ö) 23,400 79 

Huntington Bancshares, Inc. (Ñ) 29,000 222 

Jefferies Group, Inc. (Ñ) 27,800 391 

Jones Lang LaSalle, Inc. (Ñ) 2,900 80 


Keycorp 79,900 681 


M&T Bank Corp. (Ñ) 3,900 224 

Mack-Cali Realty Corp. (ö) 7,600 186 

Marsh & McLennan Cos., Inc. 14,400 350 

Marshall & Ilsley Corp. (Ñ) 37,600 513 

Mastercard, Inc. Class A (Ñ) 7,500 1,072 

Mercury General Corp. (Ñ) 16,500 759 


MetLife, Inc. 38,083 1,328 

MF Global, Ltd. (Æ)(Ñ) 13,000 27 

Morgan Stanley 72,500 1,163 

National Penn Bancshares, Inc. (Ñ) 8,000 116 

PartnerRe, Ltd. - ADR (Ñ) 5,000 356 

Piper Jaffray Cos. (Æ)(Ñ) 1,300 52 

PNC Financial Services Group, Inc. 12,900 632 

Prologis (ö)(Ñ) 12,700 176 

Prosperity Bancshares, Inc. (Ñ) 4,000 118 



Regions Financial Corp. (Ñ) 66,400 529 

State Street Corp. 16,332 642 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

SunTrust Banks, Inc. (Ñ) 28,500 842 

T Rowe Price Group, Inc. (Ñ) 11,740 416 

Travelers Cos., Inc. (The) 25,200 1,139 

UDR, Inc. (ö)(Ñ) 10,800 149 

United Rentals, Inc. (Æ)(Ñ) 6,114 56 

Visa, Inc. (Ñ) 19,694 1,033 

Washington Real Estate Investment 

Trust (ö)(Ñ) 5,100 144 

Wells Fargo & Co. (Ñ) 164,735 4,856 

Western Union Co. (The) 33,500 480 

Wilmington Trust Corp. (Ñ) 27,100 603 

WR Berkley Corp. 10,200 316 

Zions Bancorporation (Ñ) 33,600 824 

42,851 

Health Care - 14.7% 


Aetna, Inc. 17,300 493 

Alexion Pharmaceuticals, Inc. (Æ)(Ñ) 11,440 414 


AMERIGROUP Corp. Class A (Æ)(Ñ) 7,200 213 

AmerisourceBergen Corp. Class A 5,700 203 

Amgen, Inc. (Æ) 14,500 837 



Cardinal Health, Inc. 3,800 131 

Centene Corp. (Æ) 1,900 37 

Covidien, Ltd. 26,770 970 


Eli Lilly & Co. 4,000 161 

Express Scripts, Inc. Class A (Æ) 21,170 1,164 

Forest Laboratories, Inc. (Æ) 13,400 341 

Genzyme Corp. (Æ) 6,630 440 

Gilead Sciences, Inc. (Æ)(Ñ) 84,740 4,334 

Health Net, Inc. (Æ)(Ñ) 9,100 99 

Intuitive Surgical, Inc. (Æ)(Ñ) 4,800 610 


King Pharmaceuticals, Inc. (Æ)(Ñ) 17,100 182 

Life Technologies Corp. (Æ)(Ñ) 25,200 587 

Magellan Health Services, Inc. (Æ)(Ñ) 3,900 153 

McKesson Corp. 20,100 778 

Merck & Co., Inc. 20,900 635 

Mylan, Inc. (Æ)(Ñ) 94,600 936 

Novartis AG - ADR 37,200 1,851 

Owens & Minor, Inc. (Ñ) 1,600 60 

Pfizer, Inc. 103,200 1,828 

Schering-Plough Corp. 181,057 3,083 

Sequenom, Inc. (Æ)(Ñ) 24,000 476 

St. Jude Medical, Inc. (Æ) 11,970 395 

Stericycle, Inc. (Æ)(Ñ) 7,880 410 

Stryker Corp. 24,600 983 

Thermo Fisher Scientific, Inc. (Æ) 46,900 1,598 


Vertex Pharmaceuticals, Inc. (Æ)(Ñ) 27,300 829 

WellPoint, Inc. (Æ) 8,100 341 

Wyeth 111,000 4,164 

43,770 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Integrated Oils - 5.0% 

BP PLC - ADR 8,700 407 

Chevron Corp. 12,000 888 




Occidental Petroleum Corp. 72,950 4,376 

Total SA - ADR 18,100 1,001 

14,859 

Materials and Processing - 5.8% 

Air Products & Chemicals, Inc. 25,600 1,287 

Alcoa, Inc. (Ñ) 50,800 572 

Archer-Daniels-Midland Co. 62,550 1,803 

Ashland, Inc. (Ñ) 35,917 378 

Avery Dennison Corp. (Ñ) 15,100 494 

BHP Billiton, Ltd. - ADR (Ñ) 4,380 188 

Bunge, Ltd. (Ñ) 5,300 274 

Cabot Corp. 24,800 379 

Celanese Corp. Class A 39,100 486 

Century Aluminum Co. (Æ)(Ñ) 7,400 74 

Ceradyne, Inc. (Æ)(Ñ) 800 16 



Domtar Corp. (Æ)(Ñ) 39,000 65 

Dow Chemical Co. (The) 23,800 359 

Ecolab, Inc. 4,580 161 

EI Du Pont de Nemours & Co. 53,550 1,355 

Fluor Corp. (Ñ) 32,000 1,436 

HB Fuller Co. (Ñ) 5,000 81 

International Paper Co. (Ñ) 16,400 194 

Lubrizol Corp. 14,700 535 

Masco Corp. (Ñ) 69,800 777 


Mosaic Co. (The) 15,600 540 

Newmont Mining Corp. 16,200 659 


OM Group, Inc. (Æ)(Ñ) 4,000 84 

Potash Corp. of Saskatchewan 2,300 168 

PPG Industries, Inc. 7,200 306 

Praxair, Inc. 6,400 380 

Precision Castparts Corp. 14,000 833 

Quanta Services, Inc. (Æ)(Ñ) 31,800 630 

RPM International, Inc. 35,850 476 

Sherwin-Williams Co. (The) (Ñ) 4,630 277 

Smurfit-Stone Container Corp. (Æ) 11,100 3 


United States Steel Corp. (Ñ) 900 34 

Valspar Corp. (Ñ) 17,700 320 

Weyerhaeuser Co. (Ñ) 11,000 337 

17,215 

Miscellaneous - 2.2% 

Berkshire Hathaway, Inc. Class B (Æ) 523 1,681 




Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Johnson Controls, Inc. (Ñ) 34,300 623 

Tyco International, Ltd. 31,500 680 

6,671 

Other Energy - 5.1% 

Anadarko Petroleum Corp. 19,900 767 

Apache Corp. 10,600 790 

Baker Hughes, Inc. 42,100 1,350 

Berry Petroleum Co. Class A (Ñ) 6,100 46 

BJ Services Co. (Ñ) 10,900 127 

Cabot Oil & Gas Corp. 4,000 104 

Cameron International Corp. (Æ) 46,540 954 

Chesapeake Energy Corp. 20,600 333 

Cimarex Energy Co. (Ñ) 8,600 230 

Devon Energy Corp. 48,800 3,207 

Dynegy, Inc. Class A (Æ)(Ñ) 36,500 73 

Halliburton Co. 39,600 720 

Helix Energy Solutions Group, Inc. (Æ)(Ñ) 13,800 100 

Mariner Energy, Inc. (Æ) 12,000 123 

NRG Energy, Inc. (Æ) 7,336 171 

PetroHawk Energy Corp. (Æ)(Ñ) 11,340 177 


Southwestern Energy Co. (Æ) 15,110 438 

Stone Energy Corp. (Æ)(Ñ) 5,400 60 

Sunoco, Inc. 16,200 704 

Swift Energy Co. (Æ)(Ñ) 4,600 77 

Transocean, Ltd. (Æ) 17,600 832 

Unit Corp. (Æ)(Ñ) 1,200 32 

Valero Energy Corp. 12,640 274 

Williams Cos., Inc. 45,605 660 


15,212 

Producer Durables - 4.9% 

American Tower Corp. Class A (Æ) 12,100 355 


Centex Corp. 10,300 110 

Deere & Co. 3,400 130 

DR Horton, Inc. (Ñ) 9,200 65 


Gardner Denver, Inc. (Æ) 3,400 79 


Illinois Tool Works, Inc. (Ñ) 3,800 133 

Ingersoll-Rand Co., Ltd. Class A 25,600 444 

Lam Research Corp. (Æ) 16,780 357 

Lexmark International, Inc. Class A (Æ) 6,600 178 


Northrop Grumman Corp. 16,300 734 

NVR, Inc. (Æ)(Ñ) 920 420 


Pentair, Inc. 9,060 214 


Plantronics, Inc. 2,300 30 

Pulte Homes, Inc. (Ñ) 27,140 297 

Raytheon Co. 14,600 745 

Sunpower Corp. (Æ)(Ñ) 18,261 556 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Terex Corp. (Æ)(Ñ) 5,700 99 


14,559 

Technology - 15.5% 

ADC Telecommunications, Inc. (Æ)(Ñ) 13,200 72 

Adobe Systems, Inc. (Æ) 8,850 188 

Amphenol Corp. Class A 73,288 1,758 

Analog Devices, Inc. 33,000 628 

Apple, Inc. (Æ)(Ñ) 49,660 4,239 

Avnet, Inc. (Æ) 3,000 55 

Broadcom Corp. Class A (Æ) 32,590 553 

Cisco Systems, Inc. (Æ) 237,024 3,864 

Citrix Systems, Inc. (Æ) 7,000 165 

Computer Sciences Corp. (Æ)(Ñ) 3,000 105 

Corning, Inc. 2008 (Ñ) 59,800 570 

Emulex Corp. (Æ) 3,000 21 

F5 Networks, Inc. (Æ)(Ñ) 12,520 286 

First Solar, Inc. (Æ)(Ñ) 6,370 879 

Garmin, Ltd. (Ñ) 27,200 521 

General Dynamics Corp. 25,604 1,475 

Google, Inc. Class A (Æ)(Ñ) 14,400 4,430 


Ingram Micro, Inc. Class A (Æ) 8,900 119 

Intel Corp. 52,500 770 

International Business Machines Corp. 20,710 1,743 


JDS Uniphase Corp. (Æ) 6,200 23 

Juniper Networks, Inc. (Æ)(Ñ) 81,200 1,422 

Maxim Integrated Products, Inc. 80,300 917 

McAfee, Inc. (Æ)(Ñ) 5,470 189 



Qualcomm, Inc. 208,986 7,488 

Research In Motion, Ltd. (Æ) 16,900 686 

Rockwell Automation, Inc. 22,900 738 

SanDisk Corp. (Æ)(Ñ) 15,450 148 

Seagate Technology 90,200 400 

Seagate Technology (Æ) 2,300 — 

Siemens AG - ADR 6,210 470 

Sun Microsystems, Inc. (Æ) 33,300 127 

Symantec Corp. (Æ) 35,900 485 

Tellabs, Inc. (Æ)(Ñ) 34,800 143 

Texas Instruments, Inc. 81,500 1,265 

Tyco Electronics, Ltd. Class W 19,433 315 

Vishay Intertechnology, Inc. (Æ)(Ñ) 14,300 49 

Xilinx, Inc. (Ñ) 16,850 300 

46,189 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Consolidated Edison, Inc. 10,200 397 

DTE Energy Co. 9,600 342 

Duke Energy Corp. 20,500 308 


Frontier Communications Corp. 41,900 366 

MetroPCS Communications, Inc. (Æ)(Ñ) 20,630 306 

New Jersey Resources Corp. (Ñ) 3,600 142 


Northwest Natural Gas Co. (Ñ) 1,500 66 


Pinnacle West Capital Corp. 9,600 308 

Progress Energy, Inc. - CVO 1,300 — 

Qwest Communications International, 

Inc. (Ñ) 43,800 159 

Southwest Gas Corp. (Ñ) 2,900 73 

US Cellular Corp. (Æ) 900 39 

Verizon Communications, Inc. 1,800 61 

Vodafone Group PLC - ADR 88,350 1,806 

6,207 


(cost $344,298) 268,529 

Short-Term Investments - 9.4% 

Russell Investment Company 

Money Market Fund 27,918,000 27,918 


(cost $27,918) 27,918 

Other Securities - 16.9% 

State Street Securities Lending Quality 

Trust () 53,419,861 50,487 

Total Other Securities 

(cost $53,420) 50,487 

Total Investments - 116.3% 

(identified cost $425,636) 346,934 

Other Assets and Liabilities, 

Net - (16.3%) (48,723) 

Net Assets - 100.0% 298,211 

Utilities - 2.1% 

American Electric Power Co., Inc. 11,600 386 

AT&T, Inc. 20,300 579 


Avista Corp. (Ñ) 2,500 48 

See accompanying notes which are an integral part of the financial statements. 





Amounts in thousands (except contracts) 

Futures Contracts 

Number of 

Contracts 

Notional 

Amount 

Expiration 

Date 

Unrealized 

Appreciation 


$ 

Long Positions 

Russell 1000 Mini Index 43 USD 2,089 03/09 18 

S&P 500 E-Mini Index (CME) 265 USD 11,926 03/09 32 

S&P 500 Index (CME) 53 USD 11,926 03/09 63 

S&P Midcap 400 E-Mini Index (CME) 118 USD 6,339 03/09 341 

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 454 

Presentation of Portfolio Holdings — December 31, 2008 

Portfolio Summary 

%ofNet 

Assets 

Auto and Transportation 1.6 


Consumer Staples 7.4 

Financial Services 14.3 


Integrated Oils 5.0 

Materials and Processing 5.8 

Miscellaneous 2.2 

Other Energy 5.1 

Producer Durables 4.9 

Technology 15.5 

Utilities 2.1 

Short-Term Investments 9.4 

Other Securities 16.9 

Total Investments 116.3 

Other Assets and Liabilities, Net (16.3) 

100.0 

Futures Contracts 0.2 








$24,000 

$22,000 

$20,000 

$18,000 

$16,000 

$14,000 

$12,000 

$10,000 


Russell 2500 Index** 

$8,000 

* 

1999 

2000 

2001 

2002 2003 2004 


2005 

2006 

2007 

2008 


Total 

Return 

1 Year (44.16)% 

5 Years (4.15)%§ 

10 Years (0.19)%§ 

Russell 2500 Index ** 

Total 

Return 

1 Year (36.79)% 

5 Years (0.99)%§ 

10 Years 4.08%§ 


** Russell 2500 Index is composed of the bottom 500 stocks the Russell 1000 ® Index and all the stocks in the Russell 2000 ® Index. The Russell 2500 Index 

return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. 





20 Aggressive Equity Fund




The Aggressive Equity Fund (the “Fund”) allocates most of its 

assets among multiple money managers. Russell Investment 









providing services. The Fund currently has eight money 

managers. 





For the fiscal year ended December 31, 2008, the Aggressive 

Equity Fund lost 44.16%. This compared to the Russell 2500 

Index, which lost 36.79% during the same period. The Fund’s 



kind. 

For the year ended December 31, 2008, the Lipper ® Small-Cap 

Core Funds (VIP) Average lost 36.02%. This result serves as a 




The financial crisis that unfolded in 2008 directly impacted 

Fund performance. Throughout the year, the Fund was 

underweight regional banks, because of concerns about credit 

and the value of their loan portfolios. Despite investor concerns, 

the regional banks industry outperformed the broader index by 

over 20% as the Federal Reserve and U.S. Treasury offered 

wide ranging means of support (cutting interest rates, instituting 

the Troubled Assets Relief Program (TARP) funds and 

acquiring of troubled securities). An overweight to other energy 

hurt the Fund as the prices of energy stocks fell as the price of 

oil fell. Additionally, stock selection within producer durables 

and technology sectors hurt the Fund as consumer demand for 

related products in these sectors slowed. Stocks that started the 

year with higher estimated growth (a typical overweight within 

the Fund) underperformed as many securities with these 

characteristics saw forward earnings estimates decreased 

significantly. 

The Fund’s strategy of being fully invested and exposing cash 

reserves to the performance of appropriate markets by 

purchasing equity securities and/or derivatives was a drag on 

performance relative to peers that held larger cash positions as 

the Russell 2500 Index was down over 35%. 




The Fund employs eight managers: three growth, two marketoriented, 

and three value managers. PanAgora Asset 

Management Company LLC was the only manager to outperform 

its benchmark. The remaining managers underperformed by 

varying degrees. Those managers on the style extremes, with 

larger sector deviation, detracted the most from performance. 

Signia Capital Management, LLC, which was added to the Fund 

in March, has underperformed since being added to the Fund. 

Gould Investment Partners LLC, Ranger Investment 

Management, L.P., and Signia were the worst performing 

managers. Gould, a high-growth manager, underperformed as a 

result of an overweight to other energy in addition to negative 

stock selection within producer durables and consumer 

discretionary. Gould’s high-growth process was not rewarded 

during the year. 

Ranger’s underperformance was driven by stock selection 

within the technology, materials and processing and health care 

sectors. Like Gould, Ranger’s exposure to the highest growth 

stocks detracted from its performance. 

Signia, a deep value manager, benefited from stock selection in 

the materials and processing sector. However, this was offset by 

weak stock selection in the health care and technology sectors, 

and an underweight to the financial service sector. 

PanAgora modestly outperformed. PanAgora’s lower-beta (beta 

is the volatility of a given security compared to the volatility of 

the market as a whole) investment strategy was rewarded during 

the volatile year. The portfolio benefited from being equally 

distributed along the capital spectrum and investing in 

moderately valued stocks. 



Accepted Accounting Principles (GAAP) and, in accordance 





market value is lower than the vehicle’s amortized cost. This 

had a negative impact on the Fund’s benchmark relative 

performance. 



In March of 2008, Signia Capital Management, LLC was hired 

to replace David J. Greene and Company, LLC. 

Aggressive Equity Fund 21






ClariVest Asset Management LLC 

DePrince, Race, & Zollo, Inc. 

Gould Investment Partners LLC 

Jacobs Levy Equity Management, LLC 

PanAgora Asset Management Company LLC 

Ranger Investment Management, L.P. 

Signia Capital Management, LLC 

Tygh Capital Management, Inc. 

Styles 

Market Oriented 

Value 

Growth 

Value 


Growth 

Value 

Growth 















Fund Expenses 






Example 












































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 622.46 $ 1,019.86 












Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


Auto and Transportation - 3.9% 

Allegiant Travel Co. (Æ)(Ñ) 6,400 311 

American Railcar Industries, Inc. (Ñ) 500 5 

AMR Corp. (Æ)(Ñ) 20,500 219 

Arctic Cat, Inc. (Ñ) 1,800 9 

Arkansas Best Corp. (Ñ) 8,341 251 

ArvinMeritor, Inc. (Ñ) 9,700 28 


BorgWarner, Inc. (Ñ) 1,458 32 

Con-way, Inc. (Ñ) 7,800 208 

Cooper Tire & Rubber Co. (Ñ) 51,400 317 

Expeditors International of Washington, 

Inc. (Ñ) 5,307 177 

Force Protection, Inc. (Æ) 3,700 22 

Forward Air Corp. (Ñ) 2,400 58 

FreightCar America, Inc. 2,000 37 

Genesee & Wyoming, Inc. Class A (Æ) 13,040 398 

Global Ship Lease, Inc. (Ñ) 16,200 46 

Goodyear Tire & Rubber Co. (The) (Æ) 8,400 50 

Greenbrier Cos., Inc. (Ñ) 2,200 15 

Hawaiian Holdings, Inc. (Æ)(Ñ) 4,188 27 

Kirby Corp. (Æ)(Ñ) 3,323 91 

Lear Corp. (Æ)(Ñ) 10,200 14 

Navistar International Corp. (Æ) 6,493 139 

Old Dominion Freight Line, Inc. (Æ) 40 1 

Oshkosh Corp. (Ñ) 165 1 

Pacer International, Inc. 10,188 106 

PHI, Inc. (Æ)(Ñ) 8,136 114 

Polaris Industries, Inc. (Ñ) 2,975 85 

Republic Airways Holdings, Inc. (Æ) 1,819 19 

Saia, Inc. (Æ) 2,300 25 

Skywest, Inc. (Ñ) 20,840 388 

Stoneridge, Inc. (Æ)(Ñ) 1,600 7 

Strattec Security Corp. 7,607 125 

Superior Industries International, Inc. (Ñ) 17,140 180 

Tenneco, Inc. (Æ)(Ñ) 6,800 20 

Tidewater, Inc. (Ñ) 3,850 155 

TRW Automotive Holdings Corp. (Æ)(Ñ) 11,200 40 

US Airways Group, Inc. (Æ)(Ñ) 14,900 115 

UTI Worldwide, Inc. 13,676 196 

Visteon Corp. (Æ)(Ñ) 5,500 2 

Wabash National Corp. 2,800 13 

Wabtec Corp. (Ñ) 13,542 538 

Werner Enterprises, Inc. (Ñ) 9,398 163 

YRC Worldwide, Inc. (Æ)(Ñ) 7,800 22 

4,839 

Consumer Discretionary - 15.1% 

4Kids Entertainment, Inc. (Æ) 55,840 109 

99 Cents Only Stores (Æ)(Ñ) 23,120 253 

Aaron Rents, Inc. (Ñ) 6,600 176 

Abercrombie & Fitch Co. Class A (Ñ) 1,925 44 

Administaff, Inc. 872 19 

Advance Auto Parts, Inc. (Ñ) 5,422 182 

AFC Enterprises, Inc. (Æ) 2,800 13 

American Eagle Outfitters, Inc. (Ñ) 24,900 233 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

American Greetings Corp. Class A 5,700 42 

American Public Education, Inc. (Æ) 4,500 167 

American Woodmark Corp. 800 15 

AnnTaylor Stores Corp. (Æ)(Ñ) 9,215 53 

Apollo Group, Inc. Class A (Æ) 4,836 371 

Asbury Automotive Group, Inc. 7,300 33 

AutoNation, Inc. (Æ)(Ñ) 8,600 85 

Avis Budget Group, Inc. (Æ)(Ñ) 13,500 9 

Bally Technologies, Inc. (Æ)(Ñ) 7,682 185 

Barnes & Noble, Inc. 2,300 35 

Bebe Stores, Inc. (Ñ) 47,700 356 

BJ’s Wholesale Club, Inc. (Æ)(Ñ) 4,789 164 

Blockbuster, Inc. Class A (Æ)(Ñ) 34,500 43 

Blyth, Inc. (Ñ) 2,400 19 

Brightpoint, Inc. (Æ)(Ñ) 19,585 85 

Brink’s Co. (The) 1,152 31 

Brink’s Home Security Holdings, Inc. (Æ) 1,318 29 

Brinker International, Inc. 14,300 151 

Brown Shoe Co., Inc. (Ñ) 3,400 29 

Buckle, Inc. (The) (Ñ) 3,900 85 

Build-A-Bear Workshop, Inc. 

Class A (Æ)(Ñ) 3,900 19 

Cabela’s, Inc. (Æ)(Ñ) 4,000 23 

Capella Education Co. (Æ)(Ñ) 5,641 331 

Career Education Corp. (Æ)(Ñ) 5,989 107 

Carter’s, Inc. (Æ)(Ñ) 15,450 298 

CDI Corp. 1,100 14 

Central European Distribution Corp. (Æ)(Ñ) 1,700 34 

Charlotte Russe Holding, Inc. (Æ) 3,300 21 

Charming Shoppes, Inc. (Æ)(Ñ) 3,867 9 

Chemed Corp. (Ñ) 174 7 

Childrens Place Retail Stores, Inc. 

(The) (Æ) 2,100 46 

Chipotle Mexican Grill, Inc. Class A (Æ)(Ñ) 950 59 

Chipotle Mexican Grill, Inc. Class B (Æ)(Ñ) 1,310 75 

Christopher & Banks Corp. 1,739 10 

Churchill Downs, Inc. (Ñ) 4,195 170 


CKE Restaurants, Inc. (Ñ) 20,800 181 

Conn’s, Inc. (Æ)(Ñ) 500 4 

Copart, Inc. (Æ)(Ñ) 15,686 427 

Corrections Corp. of America (Æ) 27,622 452 

CRA International, Inc. (Æ)(Ñ) 411 11 

Cracker Barrel Old Country Store, Inc. (Ñ) 8,000 165 

CSS Industries, Inc. 710 13 

DeVry, Inc. 9,537 548 

Dice Holdings, Inc. (Æ)(Ñ) 2,009 8 

Dick’s Sporting Goods, Inc. (Æ)(Ñ) 11,147 157 

Dillard’s, Inc. Class A 2,900 12 

Dollar Tree, Inc. (Æ)(Ñ) 16,230 678 

Domino’s Pizza, Inc. (Æ)(Ñ) 900 4 

DSW, Inc. Class A (Æ)(Ñ) 2,100 26 

Earthlink, Inc. (Æ)(Ñ) 33,600 227 

Eastman Kodak Co. (Ñ) 6,100 40 

Ethan Allen Interiors, Inc. (Ñ) 4,000 57 

EW Scripps Co. Class A (Ñ) 28,759 64 

Ezcorp, Inc. Class A (Æ) 15,800 240 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Fastenal Co. (Ñ) 2,509 87 

Finish Line (The) Class A 9,400 53 

Foot Locker, Inc. (Ñ) 8,658 64 

Fred’s, Inc. Class A (Ñ) 6,900 74 

FTI Consulting, Inc. (Æ)(Ñ) 3,586 160 

Furniture Brands International, Inc. (Ñ) 7,300 16 

G&K Services, Inc. Class A (Ñ) 1,637 33 

GameStop Corp. Class A (Æ) 10,074 218 

Gannett Co., Inc. (Ñ) 12,700 102 

Gap, Inc. (The) 19,190 257 

Genesco, Inc. (Æ)(Ñ) 3,086 52 

Geo Group, Inc. (The) (Æ)(Ñ) 13,523 244 

Group 1 Automotive, Inc. (Ñ) 4,400 47 

Harman International Industries, Inc. (Ñ) 6,224 104 

Haverty Furniture Cos., Inc. (Ñ) 1,700 16 

Heidrick & Struggles International, Inc. (Ñ) 5,460 118 

Helen of Troy, Ltd. (Æ) 14,600 253 

Hewitt Associates, Inc. Class A (Æ) 10,300 292 

Hooker Furniture Corp. (Ñ) 1,300 10 

HOT Topic, Inc. (Æ)(Ñ) 8,300 77 

IAC/InterActiveCorp (Æ)(Ñ) 1,375 22 

infoGROUP, Inc. (Ñ) 3,315 16 

Infospace, Inc. 685 5 

Insight Enterprises, Inc. (Æ)(Ñ) 6,800 47 

Interval Leisure Group, Inc. (Æ)(Ñ) 561 3 

ITT Educational Services, Inc. (Æ)(Ñ) 2,852 271 

Jackson Hewitt Tax Service, Inc. 4,050 64 

Jarden Corp. (Æ)(Ñ) 10,400 120 

Jo-Ann Stores, Inc. (Æ)(Ñ) 2,200 34 

Journal Communications, Inc. Class A (Ñ) 8,000 20 

K12, Inc. (Æ)(Ñ) 1,125 21 

Kelly Services, Inc. Class A (Ñ) 4,400 57 

Kenneth Cole Productions, Inc. Class A (Ñ) 13,727 97 

La-Z-Boy, Inc. (Ñ) 5,600 12 

Lakeland Industries, Inc. (Æ) 16,885 137 

Leggett & Platt, Inc. (Ñ) 3,482 53 

LIN TV Corp. Class A (Æ)(Ñ) 3,900 4 

LKQ Corp. (Æ)(Ñ) 10,999 128 

LS Starrett Co. 4,234 68 

Maidenform Brands, Inc. (Æ) 1,700 17 

Manpower, Inc. (Ñ) 2,516 86 

MAXIMUS, Inc. 556 20 

McClatchy Co. Class A (Ñ) 6,600 5 

Media General, Inc. Class A (Ñ) 2,681 5 

Men’s Wearhouse, Inc. (The) (Ñ) 11,300 153 

Meredith Corp. (Ñ) 2,790 48 

MPS Group, Inc. (Æ)(Ñ) 2,800 21 

Navigant Consulting, Inc. (Æ)(Ñ) 2,503 40 

Netease.com - ADR (Æ)(Ñ) 9,800 217 

New York & Co., Inc. (Æ)(Ñ) 4,000 9 

Nu Skin Enterprises, Inc. Class A (Ñ) 4,300 45 

O’Charleys, Inc. (Ñ) 13,446 27 

O’Reilly Automotive, Inc. (Æ)(Ñ) 8,903 274 

Office Depot, Inc. (Æ) 43,500 130 

OfficeMax, Inc. 9,900 76 

On Assignment, Inc. (Æ) 15,800 90 

Oxford Industries, Inc. 2,300 20 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Panera Bread Co. Class A (Æ)(Ñ) 1,056 55 

Pantry, Inc. (The) (Æ)(Ñ) 4,400 94 

Parlux Fragrances, Inc. (Æ) 35,017 102 

PC Connection, Inc. (Æ) 2,000 10 

Perry Ellis International, Inc. (Æ)(Ñ) 2,200 14 

PetMed Express, Inc. (Æ)(Ñ) 7,000 123 

PF Chang’s China Bistro, Inc. (Æ)(Ñ) 1,647 35 

Phillips-Van Heusen Corp. 1,435 29 

Pool Corp. (Ñ) 5,150 93 

Pre-Paid Legal Services, Inc. (Æ)(Ñ) 285 11 

Prestige Brands Holdings, Inc. (Æ) 20,939 221 

PRG-Schultz International, Inc. (Æ) 4,989 20 

Quiksilver, Inc. (Æ) 14,500 27 

RadioShack Corp. (Ñ) 5,710 68 

RC2 Corp. (Æ)(Ñ) 3,806 41 

Red Lion Hotels Corp. (Æ) 24,355 58 

Rent-A-Center, Inc. Class A (Æ) 7,200 127 

Republic Services, Inc. Class A 22,048 547 

Revlon, Inc. Class A (Æ) 1,110 7 

Ross Stores, Inc. (Ñ) 8,522 253 

RR Donnelley & Sons Co. 1,899 26 

Ruby Tuesday, Inc. (Æ)(Ñ) 8,300 13 

Rush Enterprises, Inc. Class A (Æ)(Ñ) 3,091 27 

Rush Enterprises, Inc. Class B (Æ) 122 1 

Scholastic Corp. (Ñ) 4,286 58 

School Specialty, Inc. (Æ)(Ñ) 643 12 

Shanda Interactive Entertainment, Ltd. - 

ADR (Æ)(Ñ) 5,000 162 

Shoe Carnival, Inc. (Æ) 1,400 13 

Sinclair Broadcast Group, Inc. Class A (Ñ) 9,200 29 

Skechers U.S.A., Inc. Class A (Æ) 4,400 56 

Sohu.com, Inc. (Æ)(Ñ) 1,697 80 

Sonic Automotive, Inc. Class A (Ñ) 7,400 29 

Spherion Corp. (Æ) 2,900 6 

Stage Stores, Inc. 4,000 33 

Stanley Works (The) 2,726 93 

Starbucks Corp. (Æ)(Ñ) 11,220 106 

Stewart Enterprises, Inc. Class A (Ñ) 65,000 196 

Strayer Education, Inc. (Ñ) 2,124 455 

Take-Two Interactive Software, Inc. (Æ)(Ñ) 11,800 89 

Talbots, Inc. (Ñ) 1,000 2 

Tech Data Corp. (Æ) 7,858 140 

Tempur-Pedic International, Inc. 5,300 38 

thinkorswim Group, Inc. (Æ)(Ñ) 12,800 72 

Ticketmaster Entertainment, Inc. (Æ)(Ñ) 184 1 

Timberland Co. Class A (Æ)(Ñ) 1,601 19 

Toro Co. (Ñ) 613 20 

Tractor Supply Co. (Æ)(Ñ) 2,405 87 

Tuesday Morning Corp. (Æ)(Ñ) 7,200 12 

Tween Brands, Inc. (Æ)(Ñ) 2,500 11 

United Online, Inc. (Ñ) 57,381 348 

United Stationers, Inc. (Æ) 4,384 147 

Universal Electronics, Inc. (Æ) 338 5 

Universal Technical Institute, Inc. (Æ) 8,400 144 

Urban Outfitters, Inc. (Æ)(Ñ) 7,000 105 

Valassis Communications, Inc. (Æ)(Ñ) 6,200 8 

Waste Connections, Inc. (Æ)(Ñ) 18,907 597 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Watson Wyatt Worldwide, Inc. Class A 1,842 88 

WESCO International, Inc. (Æ) 4,431 85 

Wet Seal, Inc. (The) Class A (Æ)(Ñ) 45,100 134 

Williams-Sonoma, Inc. (Ñ) 24,700 194 

WMS Industries, Inc. (Æ)(Ñ) 7,915 213 

Wolverine World Wide, Inc. 8,400 177 

Wyndham Worldwide Corp. (Ñ) 15,600 102 

18,537 

Consumer Staples - 2.7% 

Casey’s General Stores, Inc. 2,387 54 

Chiquita Brands International, Inc. (Æ)(Ñ) 12,946 191 

Church & Dwight Co., Inc. (Ñ) 15,234 855 

Constellation Brands, Inc. Class A (Æ) 4,877 77 

Dean Foods Co. (Æ)(Ñ) 1,462 26 

Del Monte Foods Co. 71,321 509 

Diamond Foods, Inc. (Ñ) 3,268 66 

Fresh Del Monte Produce, Inc. (Æ) 11,100 249 

Green Mountain Coffee Roasters, 

Inc. (Æ)(Ñ) 6,750 261 

Imperial Sugar Co. 900 13 

Lance, Inc. (Ñ) 1,100 25 

Molson Coors Brewing Co. Class B 3,206 157 

Monterey Gourmet Foods, Inc. (Æ)(Å) 125,695 133 

Nash Finch Co. (Ñ) 1,100 49 

NBTY, Inc. (Æ)(Ñ) 4,704 74 

Omega Protein Corp. (Æ) 2,600 11 

Ralcorp Holdings, Inc. (Æ) 2,280 133 

Schweitzer-Mauduit International, Inc. 2,700 54 

Spartan Stores, Inc. (Ñ) 1,700 40 

SUPERVALU, Inc. 2,100 31 

Tootsie Roll Industries, Inc. (Ñ) 4,434 114 

TreeHouse Foods, Inc. (Æ)(Ñ) 5,080 138 

Weis Markets, Inc. 1,986 67 

3,327 


Advance America Cash Advance Centers, 

Inc. (Ñ) 7,833 15 

Affiliated Managers Group, Inc. (Æ)(Ñ) 7,197 302 

Alexandria Real Estate Equities, Inc. (ö)(Ñ) 1,235 75 

Alliance Data Systems Corp. (Æ)(Ñ) 9,360 436 

Allied Capital Corp. (Ñ) 33,097 89 

Allied World Assurance Co. Holdings, Ltd. 5,400 219 

American Capital Agency Corp. (ö)(Ñ) 4,650 99 

American Equity Investment Life Holding 

Co. (Ñ) 20,500 143 

American Financial Group, Inc. 6,223 142 

Amerisafe, Inc. (Æ) 3,776 78 

Amtrust Financial Services, Inc. (Ñ) 7,185 83 

Anchor Bancorp Wisconsin, Inc. (Ñ) 2,500 7 

Annaly Capital Management, Inc. (ö)(Ñ) 11,200 178 

Anthracite Capital, Inc. (ö)(Ñ) 9,700 22 

Anworth Mortgage Asset Corp. (ö)(Ñ) 51,700 332 

Apartment Investment & Management Co. 

Class A (ö)(Ñ) 455 5 

Arbor Realty Trust, Inc. (ö)(Ñ) 4,700 14 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Arch Capital Group, Ltd. (Æ)(Ñ) 6,400 449 

Ares Capital Corp. 23,605 149 

Arthur J Gallagher & Co. (Ñ) 8,500 220 

Ashford Hospitality Trust, Inc. (ö)(Ñ) 9,100 10 

Asset Acceptance Capital Corp. (Æ)(Ñ) 2,400 12 

Astoria Financial Corp. (Ñ) 9,659 159 

Bancfirst Corp. (Ñ) 1,000 53 

Banco Latinoamericano de Exportaciones 

SA Class E 4,800 69 

Bancorp, Inc. (Æ)(Ñ) 400 1 

Bancorpsouth, Inc. (Ñ) 9,079 212 

Bank of Hawaii Corp. (Ñ) 5,866 265 

Bank of the Ozarks, Inc. (Ñ) 2,201 65 

Berkshire Hills Bancorp, Inc. 3,300 102 

BioMed Realty Trust, Inc. (ö)(Ñ) 8 — 

BOK Financial Corp. (Ñ) 1,271 51 

Brandywine Realty Trust (ö)(Ñ) 15,500 120 

Calamos Asset Management, Inc. 

Class A (Ñ) 4,300 32 

Capital City Bank Group, Inc. (Ñ) 600 16 

Capitol Bancorp, Ltd. (Ñ) 2,600 20 

Capitol Federal Financial (Ñ) 1,788 82 

CapLease, Inc. (ö)(Ñ) 4,100 7 

Capstead Mortgage Corp. (ö) 18,817 203 

Cash America International, Inc. 3,229 88 

Cathay General Bancorp (Ñ) 8,300 197 

Cedar Shopping Centers, Inc. (ö) 2,000 14 

Center Financial Corp. (Ñ) 11,175 69 

Central Pacific Financial Corp. (Ñ) 6,500 65 

Cigna Corp. 12,100 204 

Citizens Republic Bancorp, Inc. (Ñ) 14,900 44 

City Holding Co. (Ñ) 3,148 109 

CNA Surety Corp. (Æ) 4,038 78 

Colonial Properties Trust (ö)(Ñ) 8,200 68 

Columbia Banking System, Inc. (Ñ) 2,400 29 

Commerce Bancshares, Inc. (Ñ) 7,203 317 

Community Bank System, Inc. (Ñ) 9,773 238 

Community Trust Bancorp, Inc. (Ñ) 1,000 37 

Conseco, Inc. (Æ)(Ñ) 18,600 96 

Cullen/Frost Bankers, Inc. (Ñ) 2,229 113 

Cybersource Corp. (Æ)(Ñ) 11,250 135 

Delphi Financial Group, Inc. Class A 14,829 273 

Deluxe Corp. (Ñ) 19,497 292 

Digital Realty Trust, Inc. (ö)(Ñ) 1,102 36 

Dime Community Bancshares (Ñ) 5,453 73 

Discover Financial Services 7,788 74 

DuPont Fabros Technology, Inc. (ö) 12,139 25 

East West Bancorp, Inc. (Ñ) 560 9 

Eaton Vance Corp. (Ñ) 1,070 22 

Electro Rent Corp. (Ñ) 25,627 286 

EMC Insurance Group, Inc. (Ñ) 900 23 

Employers Holdings, Inc. 3,300 54 

Encore Capital Group, Inc. (Æ) 1,700 12 

Endurance Specialty Holdings, Ltd. (Ñ) 7,600 232 

Equity Lifestyle Properties, Inc. (ö)(Ñ) 1,047 40 

Evercore Partners, Inc. Class A (Ñ) 12,700 159 

FBL Financial Group, Inc. Class A (Ñ) 1,800 28 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Federal Realty Investment Trust (ö)(Ñ) 724 45 

Federated Investors, Inc. Class B (Ñ) 4,230 72 

FelCor Lodging Trust, Inc. (ö)(Ñ) 11,200 21 

Fidelity National Information Services, Inc. 3,126 51 

First American Corp. 9,300 269 

First Bancorp (Ñ) 10,200 114 

First Cash Financial Services, Inc. (Æ)(Ñ) 4,475 85 

First Community Bancshares, Inc. (Ñ) 400 14 

First Financial Bancorp (Ñ) 3,100 38 

First Financial Bankshares, Inc. (Ñ) 407 22 

First Horizon National Corp. (Ñ) 21,895 231 

First Industrial Realty Trust, Inc. (ö)(Ñ) 5,500 42 

First Marblehead Corp. (The) (Æ)(Ñ) 9,800 13 

First Midwest Bancorp, Inc. (Ñ) 7,800 156 

First Niagara Financial Group, Inc. (Ñ) 6,300 102 

FirstFed Financial Corp. (Æ)(Ñ) 3,200 6 

Flushing Financial Corp. 8,200 98 

Franklin Street Properties Corp. (ö)(Ñ) 17,308 255 

General Growth Properties, Inc. (ö)(Ñ) 21,500 28 

Genworth Financial, Inc. Class A 15,400 44 

Getty Realty Corp. (ö)(Ñ) 1,818 38 

Glimcher Realty Trust (ö)(Ñ) 5,800 16 

Green Bankshares, Inc. (Ñ) 2,019 27 

H&E Equipment Services, Inc. (Æ)(Ñ) 3,200 25 

H&R Block, Inc. 2,779 63 

Hallmark Financial Services (Æ) 835 7 

Hanmi Financial Corp. (Ñ) 3,300 7 

Hanover Insurance Group, Inc. (The) 2,100 90 

Hatteras Financial Corp. (ö) 7,700 205 

HCC Insurance Holdings, Inc. 1,350 36 

Health Care REIT, Inc. (ö)(Ñ) 3,555 150 

Heartland Payment Systems, Inc. (Ñ) 259 5 

Hercules Technology Growth Capital, 

Inc. (Ñ) 21,900 173 

Hersha Hospitality Trust (ö) 4,400 13 

Horace Mann Educators Corp. (Ñ) 16,300 150 


HRPT Properties Trust (ö)(Ñ) 5,667 19 

Huntington Bancshares, Inc. (Ñ) 29,800 228 

Huron Consulting Group, Inc. (Æ)(Ñ) 2,790 160 

Hypercom Corp. (Æ) 91,030 98 

IBERIABANK Corp. (Ñ) 1,000 48 

Independent Bank Corp. (Ñ) 2,300 5 

Independent Bank Corp. 200 5 

Inland Real Estate Corp. (ö)(Ñ) 3,500 45 

Interactive Data Corp. 985 24 

Intersections, Inc. (Æ) 27,069 141 

Investors Bancorp, Inc. (Æ) 4,500 60 

IPC Holdings, Ltd. 8,900 266 

Janus Capital Group, Inc. (Ñ) 4,069 33 

JER Investment Trust, Inc. (Æ)(Þ) 9,200 9 

Knight Capital Group, Inc. Class A (Æ)(Ñ) 22,902 370 

LaBranche & Co., Inc. (Æ)(Ñ) 16,300 78 

Lexington Realty Trust (ö)(Ñ) 7,200 36 

Life Partners Holdings, Inc. (Ñ) 6,525 285 

LTC Properties, Inc. (ö) 3,429 70 

MainSource Financial Group, Inc. (Ñ) 5,600 87 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

MarketAxess Holdings, Inc. (Æ)(Ñ) 25,209 206 

Marshall & Ilsley Corp. (Ñ) 7,900 108 

Meadowbrook Insurance Group, Inc. 5,485 35 

MF Global, Ltd. (Æ)(Ñ) 5,400 11 

Midwest Banc Holdings, Inc. (Ñ) 3,844 5 

MVC Capital, Inc. (Ñ) 1,000 11 

National Financial Partners Corp. (Ñ) 4,600 14 

National Health Investors, Inc. (ö)(Ñ) 106 3 

National Interstate Corp. (Ñ) 326 6 

National Penn Bancshares, Inc. (Ñ) 14,963 217 

National Retail Properties, Inc. (ö)(Ñ) 14,485 249 

Nationwide Health Properties, Inc. (ö)(Ñ) 3,178 91 

Navigators Group, Inc. (Æ)(Ñ) 1,745 96 

NBT Bancorp, Inc. (Ñ) 2,074 58 

New York Community Bancorp, Inc. (Ñ) 5,029 60 

NewAlliance Bancshares, Inc. (Ñ) 110 1 

NGP Capital Resources Co. 2,100 18 

NorthStar Realty Finance Corp. (ö)(Ñ) 3,899 15 

Odyssey Re Holdings Corp. 1,060 55 

Old National Bancorp (Ñ) 11,658 212 

Old Second Bancorp, Inc. (Ñ) 800 9 

Omega Healthcare Investors, Inc. (ö)(Ñ) 5,553 89 

OneBeacon Insurance Group, Ltd. 

Class A (Ñ) 2,300 24 

optionsXpress Holdings, Inc. (Ñ) 5,312 71 

Oriental Financial Group, Inc. (Ñ) 24,796 150 

Pacific Capital Bancorp NA (Ñ) 4,800 81 

PacWest Bancorp (Ñ) 4,300 116 

Parkway Properties, Inc. (ö)(Ñ) 3,400 61 

PartnerRe, Ltd. - ADR (Ñ) 3,500 249 

PennantPark Investment Corp. (Ñ) 40,320 146 

Pennsylvania Real Estate Investment 

Trust (ö)(Ñ) 3,700 28 

Penson Worldwide, Inc. (Æ) 2,633 20 

People’s United Financial, Inc. (Ñ) 2,275 41 

Phoenix Cos., Inc. (The) 3,200 10 

Piper Jaffray Cos. (Æ)(Ñ) 10,066 400 

Platinum Underwriters Holdings, Ltd. 7,900 285 

PMA Capital Corp. Class A (Æ)(Ñ) 1,700 12 

PMI Group, Inc. (The) (Ñ) 15,700 31 

Potlatch Corp. (ö)(Ñ) 10,200 265 

Prosperity Bancshares, Inc. (Ñ) 269 8 


Provident Financial Services, Inc. (Ñ) 15,783 241 

PS Business Parks, Inc. (ö)(Ñ) 609 27 

Pzena Investment Management, Inc. (Ñ) 8,300 35 

Raymond James Financial, Inc. (Ñ) 4,841 83 

Rayonier, Inc. (ö)(Ñ) 1,271 40 

Reinsurance Group of America, Inc. 2,700 116 

RenaissanceRe Holdings, Ltd. 500 26 

S1 Corp. (Æ) 8,700 69 

Sandy Spring Bancorp, Inc. (Ñ) 1,700 37 

Santander BanCorp (Ñ) 1,900 24 

SCBT Financial Corp. 500 17 

SeaBright Insurance Holdings, Inc. (Æ) 1,700 20 

Senior Housing Properties Trust (ö)(Ñ) 5,000 90 

South Financial Group, Inc. (The) (Ñ) 8,900 38 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Southside Bancshares, Inc. (Ñ) 1,200 28 

Southwest Bancorp, Inc. 2,276 29 

StanCorp Financial Group, Inc. (Ñ) 7,388 309 

Sterling Bancorp (Ñ) 6,200 87 

Stewart Information Services Corp. (Ñ) 3,000 70 

Stifel Financial Corp. (Æ)(Ñ) 3,872 178 

Strategic Hotels & Resorts, Inc. (ö)(Ñ) 10,900 18 

Sun Bancorp, Inc. (Æ)(Ñ) 1,575 12 

Sunstone Hotel Investors, Inc. (ö)(Ñ) 10,500 65 

SVB Financial Group (Æ)(Ñ) 6,047 159 

SY Bancorp, Inc. (Ñ) 900 25 

Synovus Financial Corp. (Ñ) 20,100 167 

Tanger Factory Outlet Centers (ö)(Ñ) 752 28 

Texas Capital Bancshares, Inc. (Æ)(Ñ) 11,910 159 

Tompkins Financial Corp. (Ñ) 600 35 

Tower Group, Inc. (Ñ) 5,400 152 

Transatlantic Holdings, Inc. (Ñ) 1,866 75 

Trico Bancshares (Ñ) 3,300 82 

United America Indemnity, Ltd. 

Class A (Æ) 2,000 26 

United Financial Bancorp, Inc. (Ñ) 7,000 106 

United Rentals, Inc. (Æ)(Ñ) 8,977 82 

United Western Bancorp, Inc. 5,400 51 

Universal American Corp. (Æ)(Ñ) 8,007 71 

Unum Group 14,343 267 

Validus Holdings, Ltd. 12,745 333 

Ventas, Inc. (ö)(Ñ) 3,416 115 

ViewPoint Financial Group 8,400 135 

Waddell & Reed Financial, Inc. Class A 18,658 288 

Washington Federal, Inc. (Ñ) 6,384 96 


Trust (ö)(Ñ) 3,600 102 

Webster Financial Corp. (Ñ) 16,300 225 

WesBanco, Inc. (Ñ) 2,200 60 

Westamerica Bancorporation (Ñ) 1,000 51 

Westfield Financial, Inc. (Ñ) 108 1 

Wilmington Trust Corp. (Ñ) 11,117 247 

Wilshire Bancorp, Inc. (Ñ) 13,000 118 

Wintrust Financial Corp. (Ñ) 1,000 21 

World Acceptance Corp. (Æ)(Ñ) 568 11 

WR Berkley Corp. 2,477 77 

Zenith National Insurance Corp. (Ñ) 5,450 172 

22,104 

Health Care - 16.1% 

Affymetrix, Inc. (Æ)(Ñ) 98,931 296 

Albany Molecular Research, Inc. (Æ) 8,200 80 

Alliance Imaging, Inc. (Æ)(Ñ) 10,500 84 

Amedisys, Inc. (Æ)(Ñ) 4,373 181 

American Medical Systems Holdings, 

Inc. (Æ)(Ñ) 6,714 60 

AMERIGROUP Corp. Class A (Æ) 7,500 221 

AmerisourceBergen Corp. Class A (Ñ) 887 32 

Analogic Corp. (Ñ) 5,599 153 

Angiodynamics, Inc. (Æ)(Ñ) 1,580 22 

Assisted Living Concepts, Inc. (Æ)(Ñ) 4,897 20 

athenahealth, Inc. (Æ)(Ñ) 5,450 205 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Bio-Rad Laboratories, Inc. Class A (Æ) 2,540 191 

BioScrip, Inc. (Æ) 98,509 219 

Candela Corp. (Æ) 163,824 87 

Capital Senior Living Corp. (Æ)(Ñ) 4,655 14 

Cardiac Science Corp. (Æ) 5,218 39 

Catalyst Health Solutions, Inc. (Æ) 7,876 192 

Centene Corp. (Æ) 14,845 293 

Cephalon, Inc. (Æ)(Ñ) 7,860 606 

Charles River Laboratories International, 

Inc. (Æ)(Ñ) 4,060 106 

Computer Programs & Systems, Inc. (Ñ) 2,846 76 

Corvel Corp. (Æ)(Ñ) 1,027 23 

Coventry Health Care, Inc. (Æ) 1,900 28 

Cubist Pharmaceuticals, Inc. (Æ)(Ñ) 10,555 255 

CV Therapeutics, Inc. (Æ)(Ñ) 1,722 16 

Datascope Corp. 350 18 

DaVita, Inc. (Æ) 7,858 390 

Depomed, Inc. (Æ)(Ñ) 2,767 5 

Edwards Lifesciences Corp. (Æ)(Ñ) 3,239 178 

Emergency Medical Services Corp. 

Class A (Æ) 2,300 84 

Endo Pharmaceuticals Holdings, 

Inc. (Æ)(Ñ) 11,150 289 

eResearchTechnology, Inc. (Æ)(Ñ) 30,482 202 

Gen-Probe, Inc. (Æ) 5,827 250 

Genomic Health, Inc. (Æ)(Ñ) 2,200 43 

Genoptix, Inc. (Æ) 2,740 93 

Gentiva Health Services, Inc. (Æ)(Ñ) 7,537 221 

Haemonetics Corp. (Æ)(Ñ) 4,360 246 

Hanger Orthopedic Group, Inc. (Æ)(Ñ) 1,400 20 

Harvard Bioscience, Inc. (Æ)(Ñ) 49,156 130 

Health Net, Inc. (Æ)(Ñ) 1,700 19 

Healthsouth Corp. (Æ)(Ñ) 2,623 29 

Healthspring, Inc. (Æ)(Ñ) 18,688 373 

Henry Schein, Inc. (Æ)(Ñ) 365 13 

Hill-Rom Holdings, Inc. (Ñ) 6,214 102 

HMS Holdings Corp. (Æ)(Ñ) 23,184 731 

Hologic, Inc. (Æ)(Ñ) 20,193 264 

Icon PLC - ADR (Æ) 7,577 149 

Idexx Laboratories, Inc. (Æ)(Ñ) 3,517 127 

Illumina, Inc. (Æ)(Ñ) 22,814 594 

Immucor, Inc. (Æ) 22,951 610 

Immunomedics, Inc. (Æ) 647 1 

Intuitive Surgical, Inc. (Æ)(Ñ) 655 83 

Isis Pharmaceuticals, Inc. (Æ)(Ñ) 6,535 93 

Kendle International, Inc. (Æ)(Ñ) 2,964 76 

Kensey Nash Corp. (Æ)(Ñ) 3,731 72 

Kindred Healthcare, Inc. (Æ) 8,033 105 

Kinetic Concepts, Inc. (Æ)(Ñ) 1,017 20 

King Pharmaceuticals, Inc. (Æ)(Ñ) 67,264 714 

Laboratory Corp. of America Holdings (Æ) 3,312 213 

LHC Group, Inc. (Æ)(Ñ) 8,215 296 

Life Technologies Corp. (Æ)(Ñ) 8,227 192 

LifePoint Hospitals, Inc. (Æ)(Ñ) 1,871 43 

Lincare Holdings, Inc. (Æ)(Ñ) 12,915 348 

Luminex Corp. (Æ)(Ñ) 11,600 248 

Magellan Health Services, Inc. (Æ) 7,466 292 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Martek Biosciences Corp. (Æ)(Ñ) 1,400 42 

Masimo Corp. (Æ)(Ñ) 17,090 510 

Medical Action Industries, Inc. (Æ) 566 6 

Medicis Pharmaceutical Corp. Class A (Ñ) 4,994 69 

Mednax, Inc. (Æ) 5,337 169 

Mentor Corp. (Ñ) 9,200 285 

Merit Medical Systems, Inc. (Æ) 19,077 342 

Molina Healthcare, Inc. (Æ)(Ñ) 6,325 111 

Myriad Genetics, Inc. (Æ) 4,200 278 

Nabi Biopharmaceuticals (Æ)(Ñ) 15,600 52 

Natus Medical, Inc. (Æ)(Ñ) 17,020 220 

NPS Pharmaceuticals, Inc. (Æ)(Ñ) 12,211 76 

NuVasive, Inc. (Æ)(Ñ) 6,604 229 

Odyssey HealthCare, Inc. (Æ) 3,000 28 

Omnicare, Inc. (Ñ) 11,928 331 

OSI Pharmaceuticals, Inc. (Æ)(Ñ) 2,623 102 

Par Pharmaceutical Cos., Inc. (Æ)(Ñ) 6,400 86 

Parexel International Corp. (Æ) 4,674 45 

Patterson Cos., Inc. (Æ) 5,209 98 

PDL BioPharma, Inc. (Ñ) 7,861 49 

Perrigo Co. (Ñ) 15,852 512 

Pharmaceutical Product Development, 

Inc. (Ñ) 3,538 103 

PharMerica Corp. (Æ)(Ñ) 5,500 86 

Phase Forward, Inc. (Æ)(Ñ) 9,800 123 

Psychiatric Solutions, Inc. (Æ)(Ñ) 23,285 649 

Quality Systems, Inc. (Ñ) 7,200 314 

RehabCare Group, Inc. (Æ) 4,300 65 

Res-Care, Inc. (Æ)(Ñ) 3,483 52 

Resmed, Inc. (Æ) 6,569 246 

Retractable Technologies, Inc. (Æ)(Å) 72,750 62 

Sirona Dental Systems, Inc. (Æ)(Ñ) 3,801 40 

Somanetics Corp. (Æ) 300 5 

SonoSite, Inc. (Æ)(Ñ) 1,591 30 

Stericycle, Inc. (Æ)(Ñ) 15,607 813 

STERIS Corp. 9,627 230 

SurModics, Inc. (Æ)(Ñ) 92 2 

Techne Corp. 8,046 519 

Thoratec Corp. (Æ)(Ñ) 6,875 223 

Triple-S Management Corp. (Æ)(Ñ) 900 10 

United Therapeutics Corp. (Æ)(Ñ) 1,418 89 

Universal Health Services, Inc. Class B 1,900 71 

VCA Antech, Inc. (Æ)(Ñ) 9,099 181 

Viropharma, Inc. (Æ)(Ñ) 20,436 266 

Watson Pharmaceuticals, Inc. 

Class B (Æ)(Ñ) 21,311 566 

19,860 

Integrated Oils - 0.1% 

Vaalco Energy, Inc. (Æ) 23,900 178 

Materials and Processing - 7.7% 

Aceto Corp. 11,311 113 

Acuity Brands, Inc. (Ñ) 1,759 61 

Aecom Technology Corp. (Æ) 4,100 126 

Airgas, Inc. 7,907 308 

Andersons, Inc. (The) (Ñ) 2,700 45 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Armstrong World Industries, Inc. (Ñ) 2,167 47 


Beacon Roofing Supply, Inc. (Æ)(Ñ) 795 11 

Brady Corp. Class A (Ñ) 1,746 42 

Buckeye Technologies, Inc. (Æ)(Ñ) 8,200 30 

Cabot Corp. (Ñ) 13,600 208 

Carpenter Technology Corp. (Ñ) 2,862 59 

Celanese Corp. Class A (Ñ) 3,237 40 

Century Aluminum Co. (Æ)(Ñ) 9,401 94 

Ceradyne, Inc. (Æ)(Ñ) 5,470 111 

CF Industries Holdings, Inc. 269 13 

Chemtura Corp. (Ñ) 7,027 10 

Clean Harbors, Inc. (Æ)(Ñ) 800 51 

Clearwater Paper Corp. (Æ)(Ñ) 585 5 

Comfort Systems USA, Inc. (Ñ) 9,800 105 

Commercial Metals Co. (Ñ) 14,200 169 

Compass Minerals International, Inc. 2,800 164 


Domtar Corp. (Æ)(Ñ) 52,691 88 

Dycom Industries, Inc. (Æ) 11,394 94 

Eagle Materials, Inc. (Ñ) 11,700 215 

Ecolab, Inc. 6,806 239 

EMCOR Group, Inc. (Æ) 15,152 340 

Encore Wire Corp. (Ñ) 4,600 87 

Energizer Holdings, Inc. (Æ)(Ñ) 3,951 214 

Energy Conversion Devices, Inc. (Æ)(Ñ) 2,700 68 

EnerSys (Æ) 2,480 27 

Exide Technologies (Æ)(Ñ) 24,200 128 

Facet Biotech Corp. (Æ)(Ñ) 1,572 15 

FMC Corp. (Ñ) 8,635 386 

Glatfelter (Ñ) 21,100 196 

Haynes International, Inc. (Æ)(Ñ) 4,040 100 

HB Fuller Co. (Ñ) 8,800 142 

Hecla Mining Co. (Æ)(Ñ) 18,600 52 

IAMGOLD Corp. 51,257 313 

Innophos Holdings, Inc. (Ñ) 6,716 133 

Innospec, Inc. (Ñ) 4,791 28 

Insituform Technologies, Inc. 

Class A (Æ)(Ñ) 19,951 393 

Insteel Industries, Inc. 2,465 28 

Jacobs Engineering Group, Inc. (Æ)(Ñ) 5,690 274 

KapStone Paper and Packaging Corp. (Æ) 1,000 2 

Koppers Holdings, Inc. 2,360 51 

Layne Christensen Co. (Æ) 6,456 155 

Lennox International, Inc. (Ñ) 3,457 112 

Lydall, Inc. (Æ)(Ñ) 4,521 26 

McDermott International, Inc. (Æ) 6,006 59 


Mercer International, Inc. (Æ)(Ñ) 1,500 3 

Myers Industries, Inc. (Ñ) 16,300 130 

Neenah Paper, Inc. (Ñ) 10,800 96 

Olympic Steel, Inc. (Ñ) 3,300 67 

OM Group, Inc. (Æ)(Ñ) 14,705 310 

Owens-Illinois, Inc. (Æ) 3,050 83 

PAN American Silver Corp. (Æ)(Ñ) 12,746 218 

Perini Corp. (Æ)(Ñ) 4,900 115 

PolyOne Corp. (Æ) 3,100 10 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Quaker Chemical Corp. 1,000 16 

Quanta Services, Inc. (Æ)(Ñ) 8,188 162 

Reliance Steel & Aluminum Co. 11,519 230 

Richmont Mines, Inc. (Æ)(Ñ) 3,994 7 

Rockwood Holdings, Inc. (Æ)(Ñ) 3,541 38 

Schulman A, Inc. 4,222 72 

Shaw Group, Inc. (The) (Æ)(Ñ) 2,875 59 


Sims Metal Management, Ltd. - ADR (Ñ) 9,034 112 

Smurfit-Stone Container Corp. (Æ) 36,900 9 


Spartech Corp. 2,400 15 

Standard Register Co. (The) (Ñ) 2,100 19 

Symyx Technologies (Æ)(Ñ) 44,248 263 

Terra Industries, Inc. 4,973 83 

Texas Industries, Inc. (Ñ) 800 28 

Titanium Metals Corp. (Ñ) 13,513 119 

Tredegar Corp. 1,393 25 

Universal Forest Products, Inc. (Ñ) 3,100 83 

URS Corp. (Æ) 15,275 623 

US Concrete, Inc. (Æ)(Ñ) 4,200 14 

Valspar Corp. (Ñ) 917 17 

Xerium Technologies, Inc. (Æ) 2,112 1 

9,416 

Miscellaneous - 1.3% 

Carlisle Cos., Inc. (Ñ) 5,800 120 

Castlepoint Holdings, Ltd. (Þ) 30,900 419 

GenTek, Inc. (Æ)(Ñ) 133 2 

Kaman Corp. Class A (Ñ) 10,600 192 

Lancaster Colony Corp. 5,114 176 

Teleflex, Inc. 9,726 487 

Trinity Industries, Inc. (Ñ) 10,100 159 

Walter Industries, Inc. Class A (Ñ) 167 3 

1,558 

Other Energy - 3.8% 

Allis-Chalmers Energy, Inc. (Æ)(Ñ) 3,070 17 

Alpha Natural Resources, Inc. (Æ) 6,700 108 

Arena Resources, Inc. (Æ)(Ñ) 3,830 108 

Atwood Oceanics, Inc. (Æ)(Ñ) 2,105 32 

Brigham Exploration Co. (Æ)(Ñ) 26,724 86 

Bronco Drilling Co., Inc. (Æ)(Ñ) 3,178 21 

Callon Petroleum Co. (Æ)(Ñ) 224 1 

Cameron International Corp. (Æ) 7,650 157 

CARBO Ceramics, Inc. (Ñ) 9,540 339 

Cimarex Energy Co. (Ñ) 13,519 362 

Clayton Williams Energy, Inc. (Æ) 579 26 

Complete Production Services, Inc. (Æ)(Ñ) 7,427 61 

Comstock Resources, Inc. (Æ) 1,088 51 

Concho Resources, Inc. (Æ)(Ñ) 8,635 197 

Contango Oil & Gas Co. (Æ)(Ñ) 400 23 

Continental Resources, Inc. (Æ)(Ñ) 10,419 216 

Core Laboratories NV 2,072 124 

Dawson Geophysical Co. (Æ)(Ñ) 6,568 117 

Dynegy, Inc. Class A (Æ)(Ñ) 4,300 9 

Encore Acquisition Co. (Æ) 2,092 53 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Energy Partners, Ltd. (Æ)(Ñ) 7,267 10 

Energy XXI Bermuda, Ltd. 14,500 11 

EXCO Resources, Inc. (Æ)(Ñ) 18,777 170 

Exterran Holdings, Inc. (Æ)(Ñ) 4,588 98 

FMC Technologies, Inc. (Æ)(Ñ) 2,174 52 

Foundation Coal Holdings, Inc. 2,141 30 

Frontier Oil Corp. (Ñ) 24,000 303 

Geokinetics, Inc. (Æ) 23,010 57 

Gran Tierra Energy, Inc. (Æ)(Ñ) 9,001 25 

Helmerich & Payne, Inc. (Ñ) 7,450 169 

Hornbeck Offshore Services, Inc. (Æ)(Ñ) 8,641 141 

Key Energy Services, Inc. (Æ) 3,458 15 

Mariner Energy, Inc. (Æ)(Ñ) 8,649 88 

Massey Energy Co. (Ñ) 1,185 16 

Matrix Service Co. (Æ)(Ñ) 2,006 15 

McMoRan Exploration Co. (Æ)(Ñ) 2,151 21 

Meridian Resource Corp. (Æ) 4,900 3 

Newpark Resources (Æ) 32,300 119 

NV Energy, Inc. 6,137 61 

Oceaneering International, Inc. (Æ) 4,026 117 

Oil States International, Inc. (Æ) 1,800 34 

Parker Drilling Co. (Æ) 13,800 40 

Patterson-UTI Energy, Inc. (Ñ) 17,744 204 


Penn Virginia GP Holdings, LP (Ñ) 272 3 

Precision Drilling Trust (Ñ) 2,960 25 

Reliant Energy, Inc. (Æ) 4,000 23 

Rowan Cos., Inc. (Ñ) 5,693 91 

Stone Energy Corp. (Æ)(Ñ) 5,167 57 

Superior Energy Services, Inc. (Æ) 6,924 110 

Swift Energy Co. (Æ)(Ñ) 3,900 66 

Targa Resources Partners, LP (Ñ) 13,242 103 

TXCO Resources, Inc. (Æ)(Ñ) 3,500 5 

Union Drilling, Inc. (Æ)(Ñ) 1,300 7 

Unit Corp. (Æ)(Ñ) 5,675 152 

W&T Offshore, Inc. (Ñ) 3,032 43 

Western Refining, Inc. (Ñ) 6,500 50 

4,728 

Producer Durables - 5.7% 

Actuant Corp. Class A (Ñ) 3,879 74 

Aerovironment, Inc. (Æ)(Ñ) 8,100 298 

AGCO Corp. (Æ)(Ñ) 14,365 339 

Alliant Techsystems, Inc. (Æ)(Ñ) 198 17 

AM Castle & Co. (Ñ) 1,308 14 

Ametek, Inc. 2,800 85 

AO Smith Corp. (Ñ) 4,400 130 

Argon ST, Inc. (Æ)(Ñ) 2,600 49 

ATMI, Inc. (Æ)(Ñ) 164 2 

Baldor Electric Co. (Ñ) 13,000 232 

Bucyrus International, Inc. Class A (Ñ) 2,671 49 

Cascade Corp. (Ñ) 2,100 63 

Centex Corp. (Ñ) 17,700 188 

Chart Industries, Inc. (Æ) 3,295 35 

Cognex Corp. (Ñ) 2,154 32 

Cohu, Inc. (Ñ) 10,650 129 

Columbus McKinnon Corp. (Æ) 800 11 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Covanta Holding Corp. (Æ)(Ñ) 770 17 

Crane Co. 5,332 92 

CTS Corp. (Ñ) 6,282 35 


Donaldson Co., Inc. (Ñ) 4,100 138 

Dover Corp. (Ñ) 2,237 74 

DR Horton, Inc. (Ñ) 39,200 277 

Ducommun, Inc. 1,900 32 

Electro Scientific Industries, Inc. (Æ)(Ñ) 39,870 271 

EnPro Industries, Inc. (Æ) 500 11 

Esterline Technologies Corp. (Æ) 2,503 95 

Federal Signal Corp. (Ñ) 10,400 85 

Flowserve Corp. 3,286 169 

Gardner Denver, Inc. (Æ)(Ñ) 5,661 132 

GrafTech International, Ltd. (Æ) 14,767 123 

Hardinge, Inc. (Ñ) 1,400 6 

Herman Miller, Inc. (Ñ) 9,721 127 

Hovnanian Enterprises, Inc. Class A (Æ)(Ñ) 11,900 20 

Hubbell, Inc. Class B (Ñ) 2,846 93 

Itron, Inc. (Æ)(Ñ) 4,854 309 

Joy Global, Inc. (Ñ) 8,452 193 

Kimball International, Inc. Class B (Ñ) 36,861 317 

Ladish Co., Inc. (Æ) 5,000 69 

Lam Research Corp. (Æ)(Ñ) 4,221 90 

Lexmark International, Inc. Class A (Æ)(Ñ) 11,636 313 

Lincoln Electric Holdings, Inc. (Ñ) 1,743 89 

LTX-Credence Corp. (Æ) 7,232 2 

MasTec, Inc. (Æ)(Ñ) 12,100 140 

MDC Holdings, Inc. 1,971 60 

Meritage Homes Corp. (Æ) 4,200 51 

Mettler Toledo International, Inc. (Æ)(Ñ) 1,684 113 

NVR, Inc. (Æ)(Ñ) 529 241 

Orbital Sciences Corp. (Æ) 1,722 34 

Park-Ohio Holdings Corp. (Æ) 1,100 7 

Perceptron, Inc. (Æ) 40,269 136 

Plantronics, Inc. (Ñ) 9,623 127 

Powerwave Technologies, Inc. (Æ)(Ñ) 17,000 8 

Pulte Homes, Inc. (Ñ) 15,247 167 

Regal-Beloit Corp. (Ñ) 255 10 

Ritchie Bros Auctioneers, Inc. (Ñ) 15,305 328 

Robbins & Myers, Inc. (Ñ) 4,085 66 

SBA Communications Corp. Class A (Æ)(Ñ) 12,126 198 

Standex International Corp. 57 1 

Steelcase, Inc. Class A (Ñ) 317 2 

Symmetricom, Inc. (Æ)(Ñ) 783 3 

Technitrol, Inc. 3,100 11 

Tecumseh Products Co. Class A (Æ)(Ñ) 4,519 43 

Terex Corp. (Æ) 1,700 29 

Thermadyne Holdings Corp. (Æ)(Ñ) 3,575 25 

Thomas & Betts Corp. (Æ) 1,725 41 

Ultratech, Inc. (Æ) 2,739 33 

Waters Corp. (Æ) 4,819 177 

7,010 

Technology - 11.8% 

3Com Corp. (Æ)(Ñ) 52,949 121 

Acxiom Corp. 24,106 195 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Adaptec, Inc. (Æ)(Ñ) 91,165 301 

ADC Telecommunications, Inc. (Æ)(Ñ) 19,000 104 

Adtran, Inc. (Ñ) 5,900 88 

Affiliated Computer Services, Inc. 

Class A (Æ) 6,800 312 

American Reprographics Co. (Æ) 6,488 45 

American Science & Engineering, Inc. (Ñ) 2,650 196 

Amkor Technology, Inc. (Æ)(Ñ) 30,300 66 

Amphenol Corp. Class A 12,295 295 

Ansys, Inc. (Æ)(Ñ) 7,976 222 

Applied Micro Circuits Corp. (Æ)(Ñ) 16,900 66 

Arrow Electronics, Inc. (Æ) 10,750 203 

Autodesk, Inc. (Æ)(Ñ) 1,804 35 

Avnet, Inc. (Æ) 5,750 105 

Avocent Corp. (Æ)(Ñ) 3,052 55 

AVX Corp. (Ñ) 30,600 243 

Benchmark Electronics, Inc. (Æ) 16,600 212 

BMC Software, Inc. (Æ)(Ñ) 3,508 94 

Bookham, Inc. (Æ)(Ñ) 5,800 3 

Broadcom Corp. Class A (Æ)(Ñ) 8,303 141 

Cadence Design Systems, Inc. (Æ)(Ñ) 6,911 25 

Cavium Networks, Inc. (Æ)(Ñ) 3,800 40 

Celestica, Inc. (Æ)(Ñ) 18,350 85 

Ciber, Inc. (Æ)(Ñ) 23,200 112 

Computer Sciences Corp. (Æ) 2,159 76 

Compuware Corp. (Æ)(Ñ) 24,708 167 

COMSYS IT Partners, Inc. (Æ)(Ñ) 1,500 3 

Comtech Telecommunications Corp. (Æ)(Ñ) 4,200 192 

Concur Technologies, Inc. (Æ)(Ñ) 7,800 256 

Constant Contact, Inc. (Æ)(Ñ) 8,950 119 

CSG Systems International, Inc. (Æ)(Ñ) 10,097 176 

Cubic Corp. (Ñ) 4,300 117 

Digital River, Inc. (Æ) 3,440 85 

Emulex Corp. (Æ) 3,000 21 

Equinix, Inc. (Æ)(Ñ) 6,280 334 

Extreme Networks (Æ)(Ñ) 1,508 3 

F5 Networks, Inc. (Æ)(Ñ) 3,776 86 

Flextronics International, Ltd. (Æ)(Ñ) 72,775 186 

Flir Systems, Inc. (Æ)(Ñ) 9,330 286 

Hittite Microwave Corp. (Æ)(Ñ) 5,891 174 

Hutchinson Technology, Inc. (Æ)(Ñ) 3,600 12 

II-VI, Inc. (Æ)(Ñ) 78 1 

Imation Corp. (Ñ) 2,366 32 

Informatica Corp. (Æ)(Ñ) 13,950 192 

Ingram Micro, Inc. Class A (Æ) 25,371 340 

Integrated Device Technology, Inc. (Æ)(Ñ) 34,200 192 

InterDigital, Inc. (Æ)(Ñ) 2,089 57 

International Rectifier Corp. (Æ) 19,233 260 

Intersil Corp. Class A 16,000 147 

Interwoven, Inc. (Æ) 10,900 137 

Intuit, Inc. (Æ)(Ñ) 7,375 175 


JDA Software Group, Inc. (Æ) 3,700 49 

JDS Uniphase Corp. (Æ)(Ñ) 31,979 117 

LSI Corp. (Æ)(Ñ) 5,066 17 

Mantech International Corp. Class A (Æ) 3,400 184 

Mentor Graphics Corp. (Æ)(Ñ) 8,702 45 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


Micrel, Inc. (Ñ) 38,090 278 

Micros Systems, Inc. (Æ)(Ñ) 12,614 206 

Microsemi Corp. (Æ) 1,078 14 

MicroStrategy, Inc. Class A (Æ)(Ñ) 1,621 60 

Monolithic Power Systems, Inc. (Æ)(Ñ) 8,490 107 

NAM TAI Electronics, Inc. 30,100 166 

National Semiconductor Corp. (Ñ) 5,757 58 

NCR Corp. (Æ) 10,787 152 

Ness Technologies, Inc. (Æ) 2,700 12 

NetApp, Inc. (Æ) 5,375 75 

Netezza Corp. (Æ) 4,050 27 

Netlogic Microsystems, Inc. (Æ)(Ñ) 8,117 179 

Nice Systems, Ltd. - ADR (Æ) 21,404 481 

Novatel Wireless, Inc. (Æ) 3,400 16 

Novell, Inc. (Æ) 1,100 4 

OSI Systems, Inc. (Æ) 13,248 183 

PerkinElmer, Inc. 5,997 83 

Perot Systems Corp. Class A (Æ) 1,080 15 

QLogic Corp. (Æ)(Ñ) 9,100 122 

Quantum Corp. (Æ)(Ñ) 17,500 6 

Rackspace Hosting, Inc. (Æ) 10,956 59 

SAIC, Inc. (Æ) 15,778 307 

Sanmina-SCI Corp. (Æ)(Ñ) 119,573 56 

Sapient Corp. (Æ)(Ñ) 1,968 9 

Silicon Image, Inc. (Æ)(Ñ) 9,653 41 

Solera Holdings, Inc. (Æ) 13,402 323 

Standard Microsystems Corp. (Æ) 167 3 

Stanley, Inc. (Æ)(Ñ) 6,600 239 

Sunpower Corp. Class A (Æ)(Ñ) 800 30 

Sybase, Inc. (Æ)(Ñ) 17,078 423 

Synaptics, Inc. (Æ)(Ñ) 1,756 29 

Syniverse Holdings, Inc. (Æ) 36,615 437 

SYNNEX Corp. (Æ)(Ñ) 5,600 63 

Synopsys, Inc. (Æ) 5,870 109 

TeleCommunication Systems, Inc. (Æ) 13,700 118 

Tellabs, Inc. (Æ) 57,700 238 

Teradata Corp. (Æ) 2,282 34 

TIBCO Software, Inc. (Æ)(Ñ) 14,555 76 

Tier Technologies, Inc. Class B (Æ) 54,387 294 

Trimble Navigation, Ltd. (Æ)(Ñ) 6,061 131 

TTM Technologies, Inc. (Æ)(Ñ) 3,400 18 

Tyler Technologies, Inc. (Æ)(Ñ) 7,600 91 

Utstarcom, Inc. (Æ)(Ñ) 10,141 19 

Varian Semiconductor Equipment 

Associates, Inc. (Æ)(Ñ) 7,745 140 

Verint Systems, Inc. (Æ)(Ñ) 6,327 44 

Vignette Corp. (Æ)(Ñ) 3,820 36 

Vishay Intertechnology, Inc. (Æ) 74,595 255 

Vocus, Inc. (Æ)(Ñ) 10,952 199 

Western Digital Corp. (Æ) 15,258 175 

White Electronic Designs Corp. (Æ) 96,057 352 

14,506 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Utilities - 5.1% 

AGL Resources, Inc. (Ñ) 9,529 299 

Allete, Inc. 3,300 106 

Alliant Energy Corp. 9,733 284 

Atlantic Tele-Network, Inc. 1,600 42 


Avista Corp. 11,984 232 

California Water Service Group 3,400 158 

CenturyTel, Inc. (Ñ) 12,256 335 

Cleco Corp. (Ñ) 11,096 253 

CMS Energy Corp. (Ñ) 13,600 137 

Constellation Energy Group, Inc. (Ñ) 1,783 45 

El Paso Electric Co. (Æ) 2,000 36 


Energen Corp. 2,926 86 

Frontier Communications Corp. 2,179 19 

Hawaiian Electric Industries, Inc. (Ñ) 2,400 53 

Idacorp, Inc. (Ñ) 12,685 374 

Integrys Energy Group, Inc. (Ñ) 600 26 

Iowa Telecommunications Services, Inc. (Ñ) 5,815 83 

Laclede Group, Inc. (The) 2,800 131 

Leap Wireless International, Inc. (Æ)(Ñ) 4,316 116 

MDU Resources Group, Inc. 5,037 109 

MGE Energy, Inc. (Ñ) 300 10 

New Jersey Resources Corp. (Ñ) 9,550 376 

Nicor, Inc. (Ñ) 4,400 153 

NII Holdings, Inc. (Æ)(Ñ) 7,400 134 

Northwest Natural Gas Co. (Ñ) 2,300 102 

NTELOS Holdings Corp. 50 1 

OGE Energy Corp. (Ñ) 4,506 116 

Oneok, Inc. 1,300 38 

Otter Tail Corp. (Ñ) 6,600 154 


Portland General Electric Co. 4,900 95 

Premiere Global Services, Inc. (Æ) 20,015 172 

SCANA Corp. (Ñ) 2,519 90 

Southwest Gas Corp. (Ñ) 13,840 349 

Southwest Water Co. (Ñ) 2,500 8 

TECO Energy, Inc. (Ñ) 7,600 94 

Telephone & Data Systems, Inc. 1,100 35 

UGI Corp. 27,478 671 

US Cellular Corp. (Æ) 1,100 48 

USA Mobility, Inc. (Æ) 3,600 42 

Westar Energy, Inc. 2,318 47 

Windstream Corp. (Ñ) 7,562 70 

6,263 


(cost $145,506) 112,326 


Russell Investment Company Russell 



(cost $11,729) 11,729 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 



Trust () 51,074,560 48,271 

Total Other Investments 

(cost $51,075) 48,271 




Net - (40.0%) (49,238) 

Net Assets - 100.0% 123,088 

A portion of the portfolio has been fair valued as of period end. 








Number of 

Contracts 

Notional 

Amount 

Expiration 

Date 

Unrealized 

Appreciation 


$ 


Russell 2000 Mini Index (CME) 274 USD 13,642 03/09 643 



Portfolio Summary 

%ofNet 

Assets 

Auto and Transportation 3.9 


Consumer Staples 2.7 

Financial Services 18.0 


Integrated Oils 0.1 

Materials and Processing 7.7 

Miscellaneous 1.3 

Other Energy 3.8 

Producer Durables 5.7 

Technology 11.8 

Utilities 5.1 





100.0 






Non-U.S. Fund 



$20,000 

$18,000 

$16,000 

$14,000 

$12,000 

$10,000 

$8,000 

Non-U.S. Fund 

MSCI EAFE® Index Net (USD)** 

$6,000 

* 

1999 

2000 

2001 

2002 2003 2004 


2005 

2006 

2007 

2008 

Non-U.S. Fund 

Total 

Return 

1 Year (42.79)% 

5 Years 0.93%§ 

10 Years 0.94%§ 

MSCI EAFE ® Index Net (USD) ** 

Total 

Return 

1 Year (43.38)% 

5 Years 1.66%§ 

10 Years 0.80%§ 


** 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. 





36 Non-U.S. Fund


Non-U.S. Fund 


The Non-US Fund (the “Fund”) allocates most of its assets 

among multiple money managers. Russell Investment 









providing services. The Fund currently has four money 

managers. 





For the fiscal year ended December 31, 2008, the Non-U.S. 

Fund lost 42.79%. This compared to its benchmark the MSCI 

EAFE ® Index Net (USD), which lost 43.38%. The Fund’s 



kind. 

For the year ended December 31, 2008, the Lipper ® 

International Core Funds (VIP) Average lost 43.13%. This 

result serves as a peer comparison and is expressed net of 

operating expenses. 



The market environment proved extremely challenging. 

Precipitous changes in market leadership and economic trends 

left few places for managers to find protection from falling 

prices. Increasingly negative sentiment and rising risk aversion 

resulted in indiscriminate selling of stocks. Nowhere was this 

more evident than in the financials sector where managers 

sought safe havens in companies with less direct exposure to 

the credit crisis and stronger balance sheets they believed 

would offer competitive advantages in the midst of deteriorating 

conditions. 

The Fund’s larger exposure to defensive strategies and its rotation 

earlier in the year into more defensive sectors, which fared better 

in this market environment, contributed to its performance 

relative to the MSCI EAFE Index. The Fund’s sector positioning, 

in the form of an overweight to the consumer staples and health 

care sectors, two relative outperforming sectors contributed 

positively to benchmark relative performance. The Fund’s 

underweight and favorable stock selection in the weak performing 

financials sector contributed positively to benchmark-relative 

results. 




The Fund’s multi-style discipline provided some risk control in 

the period given the extreme variability in investment style and 

market leadership during the year. More defensive strategies 

helped moderate the impact of strategies more focused on 

stronger economic conditions. Wellington Management 

Company, LLP, the Fund’s aggressive, high growth manager, 

underperformed in this market environment. The combination of 

downward earnings revisions (i.e., lowered growth expectations) 

and contraction in valuations contributed to Wellington’s 

underperformance. However, the Fund’s more defensive 

managers were more effective in moderating downside risk. 

MFS Institutional Advisors, Inc., the Fund’s quality growth 

manager, benefited from exposure to the more stable earnings 

trends of consumer staples and health care, but also managed to 

avoid much of the volatility in the financials and materials 

sectors with a combination of underweighted positions and more 

defensive stock picks. Altrinsic Global Advisors, LLC, the 

Fund’s value manager, provided the best performance of the 

Fund’s four managers. Its quality value orientation effectively 

gained exposure to many of the market’s less negative trends. 

Altrinsic was particularly effective in its financial stock 

selection. The firm’s emphasis on Japanese banks, which it 

believed to be more insulated from the housing market 

problems affecting U.S., U.K., and other European banks, 

contributed positively to performance. The firm’s large 

overweight to consumer staples also contributed positively to its 

relative performance. 

The Fund’s performance shown throughout this report was based 

on valuations calculated in accordance with Generally Accepted 

Accounting Principles (GAAP) and in accordance with a newly 

effective accounting statement (SFAS 157), reflects the 

December 31, 2008 market value of the pooled investment 

vehicle in which the Fund invested its cash collateral received 

in securities lending transactions. This market value is lower 

than the vehicle’s amortized cost per unit. This had a negative 

impact on the Fund’s benchmark relative performance. 



There were no changes to the Fund’s structure or money 

manager line-up during the year. 



Altrinsic Global Advisors, LLC 

AQR Capital Management, LLC 

MFS Institutional Advisors, Inc. 

Wellington Management Company, LLP 

Styles 

Value 


Growth 

Growth 


managers only through the end of the period covered by the 

report. These views do not necessarily represent the views of 

RIMCo, or any other person in RIMCo or any other affiliated 

organization. These views are subject to change at any time 

based upon market conditions or other events, and RIMCo 

disclaims any responsibility to update the views contained 

herein. These views should not be relied on as investment 

advice and, because investment decisions for Russell 

Non-U.S. Fund 37


Non-U.S. Fund 


Investment Funds (RIF) are based on numerous factors, should 

not be relied on as an indication of investment decisions of any 

RIF Fund. 

38 Non-U.S. Fund


Non-U.S. Fund 


Fund Expenses 






Example 












































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 645.38 $ 1,019.36 







Non-U.S. Fund 39


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


Australia - 1.8% 

ABC Learning Centres, Ltd. 5,058 2 

AGL Energy, Ltd. 2,214 24 

Allco Finance Group, Ltd. (Æ) 99,445 10 

Amcor, Ltd. 9,245 37 

AMP, Ltd. 3,583 14 

Ansell, Ltd. - GDR 9,646 85 

APN News & Media, Ltd. 3,571 6 

Aristocrat Leisure, Ltd. 3,217 9 

Asciano Group 3,522 4 

Austereo Group, Ltd. 1,180 1 

Australia & New Zealand Banking Group, Ltd. 10,048 108 

AWB, Ltd. 8,288 15 

AXA Asia Pacific Holdings, Ltd. 8,105 28 

BHP Billiton, Ltd. 24,544 517 

BlueScope Steel, Ltd. 20,491 50 

Brambles, Ltd. 12,055 63 

Caltex Australia, Ltd. 1,581 8 

Centennial Coal Co., Ltd. 1,311 3 

CFS Retail Property Trust (ö) 11,495 15 

Coca-Cola Amatil, Ltd. 2,513 16 

Commonwealth Bank of Australia 9,685 196 

CSL, Ltd. 17,686 418 

Dexus Property Group (ö) 19,680 11 

Downer EDI, Ltd. 24,211 65 

Fairfax Media, Ltd. 2,156 2 

Felix Resources, Ltd. 10,357 64 

Flight Centre, Ltd. 1,861 10 

Foster’s Group, Ltd. 35,811 138 

Goodman Group (ö) 11,147 6 

GPT Group (ö) 25,815 17 

Insurance Australia Group, Ltd. 5,003 14 

Macquarie Infrastructure Group 8,462 10 

Macquarie Office Trust (ö) 20,228 3 

Metcash, Ltd. 14,233 44 

Mirvac Group (ö) 7,928 7 

Mount Gibson Iron, Ltd. (Æ) 46,934 15 

National Australia Bank, Ltd. 38,026 557 

Newcrest Mining, Ltd. 29,968 711 

Origin Energy, Ltd. 5,224 59 

PaperlinX, Ltd. 21,919 11 

Qantas Airways, Ltd. 24,638 45 

QBE Insurance Group, Ltd. 19,514 355 

Rio Tinto, Ltd. 1,615 43 

Santos, Ltd. 4,216 44 

Spotless Group, Ltd. 2,419 5 

Stockland (ö) 8,441 24 

Suncorp-Metway, Ltd. 13,187 78 

TABCORP Holdings, Ltd. 11,727 57 

Telstra Corp., Ltd. 43,915 118 

Wesfarmers, Ltd. 3,696 47 

Westfield Group (ö) 11,911 110 

Westpac Banking Corp. 19,473 232 

Woolworths, Ltd. 7,174 134 

4,665 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Austria - 0.3% 

Erste Bank der Oesterreichischer 

Sparkassen AG (Ñ) 29,622 694 

Belgium - 0.2% 

Delhaize Group 176 11 

Euronav NV 2,483 34 

Hansen Transmissions International 

NV (Æ) 193,827 327 

Nationale A Portefeuille 1,525 74 

Tessenderlo Chemie NV 2,988 91 

Umicore 2,248 44 

581 

Bermuda - 0.3% 

Catlin Group, Ltd. 6,829 43 

Cheung Kong Infrastructure Holdings, Ltd. 2,000 8 

Chinese Estates Holdings, Ltd. 18,000 21 

Esprit Holdings, Ltd. 6,652 38 

First Pacific Co. 4,000 1 

Giordano International, Ltd. 11,474 3 

Great Eagle Holdings, Ltd. 1,000 1 

Hongkong Land Holdings, Ltd. 1,000 2 

Jardine Matheson Holdings, Ltd. 400 7 

Li & Fung, Ltd. 286,000 493 

Mongolia Energy Co. Ltd (Æ) 1,000 — 

Noble Group, Ltd. 11,000 8 

Orient Overseas International, Ltd. 8,300 19 

Pacific Basin Shipping, Ltd. 6,000 3 

Seadrill, Ltd. 17,850 145 

Texwinca Holdings, Ltd. 16,000 7 

VTech Holdings, Ltd. 1,133 5 

804 

Brazil - 0.4% 

Cia Vale do Rio Doce - ADR (Ñ) 29,700 360 

Petroleo Brasileiro SA - ADR 19,300 472 

Unibanco - Uniao de Bancos Brasileiros 

SA - ADR 2,600 168 

1,000 

Canada - 1.5% 

Barrick Gold Corp. 21,100 776 

Canadian National Railway Co. 23,330 857 

Canadian Natural Resources, Ltd. 11,300 446 

Potash Corp. of Saskatchewan 5,900 432 

Research In Motion, Ltd. (Æ)(Ñ) 9,900 402 

Rogers Communications, Inc. 13,600 403 

Suncor Energy, Inc. 23,200 446 

3,762 

Cayman Islands - 0.1% 

Ctrip.com International, Ltd. (Ñ) 8,500 202 

Hutchison Telecommunications 

International, Ltd. 71,457 19 

LDK Solar Co., Ltd. - ADR (Æ)(Ñ) 5,300 70 

291 

40 Non-U.S. Fund


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

China - 0.2% 

China Communications Construction Co., 

Ltd. Class H 295,000 369 

China Merchants Bank Co., Ltd. 104,000 195 

564 

Czech Republic - 0.2% 

Komercni Banka AS (Ñ) 2,918 449 

Denmark - 0.3% 

AP Moller - Maersk A/S 49 263 

H Lundbeck A/S (Ñ) 2,289 48 

Novo Nordisk A/S Series B 234 12 

TDC A/S 7 — 

Vestas Wind Systems A/S (Æ) 8,856 526 

849 

Finland - 0.8% 

Fortum OYJ 15,513 333 

Konecranes OYJ 3,872 66 

Nokia OYJ 90,439 1,402 

Oriola-KD OYJ 3,393 6 

Outokumpu OYJ 5,849 69 

Rautaruukki OYJ 2,789 48 

Sanoma OYJ 1,652 22 

Stora Enso OYJ Class R 3,481 27 

1,973 

France - 12.3% 

Air Liquide SA 13,283 1,215 

Alcatel-Lucent - ADR (Æ)(Ñ) 10,008 22 

Alstom SA 853 50 

AXA SA 87,852 1,959 

bioMerieux 733 61 

BNP Paribas 18,902 798 

Bouygues 229 10 

Carrefour SA (Ñ) 39,160 1,504 

Christian Dior SA 579 33 

Ciments Francais SA 461 39 

CNP Assurances 3,062 222 

Credit Agricole SA 5,796 66 

Eramet 155 30 

France Telecom SA 42,984 1,202 

GDF Suez (Ñ) 55,393 2,743 

Ipsos 466 13 

L’Oreal SA (Ñ) 10,667 927 

Lagardere SCA 2,958 120 

Legrand SA (Ñ) 45,299 870 

LVMH Moet Hennessy Louis Vuitton SA 35,062 2,356 

M6-Metropole Television 1,694 33 

Neopost SA 2,450 222 

Nexans SA (Ñ) 1,333 80 

Pernod-Ricard SA (Ñ) 17,684 1,311 

PPR (Ñ) 2,485 162 

Sanofi-Aventis SA 48,675 3,092 

Schneider Electric SA (Ñ) 25,940 1,938 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Sodexo 876 48 

Teleperformance - GDR 13,303 371 

Thales SA 29,699 1,239 

Total SA 92,896 5,064 

UBISOFT Entertainment (Æ) 7,641 149 

Unibail-Rodamco (ö) 140 21 

Valeo SA (Ñ) 5,813 86 

Vallourec (Ñ) 385 44 

Veolia Environnement 3,912 123 

Vivendi 99,323 3,234 

31,457 

Germany - 7.3% 

Allianz SE 17,268 1,852 

BASF SE 14,826 586 

Bayer AG (Ñ) 31,705 1,862 

Commerzbank AG (Ñ) 8,596 82 

Daimler AG 3,075 117 

Deutsche Bank AG (Ñ) 5,466 218 

Deutsche Boerse AG 9,300 677 

Deutsche Lufthansa AG 5,694 90 

Deutsche Postbank AG (Æ)(Ñ) 2,274 50 

Deutsche Telekom AG 37,023 563 

E.ON AG 47,189 1,908 

Fielmann AG 357 23 

Fresenius Medical Care AG & Co. 8,643 405 

Generali Deutschland Holding AG 319 33 

Hannover Rueckversicherung AG (Æ) 14,074 448 

Lanxess AG 6,445 125 

Linde AG 24,080 2,038 

Merck KGAA 14,690 1,336 

Metro AG 21,121 856 

MTU Aero Engines Holding AG 4,491 124 

Muenchener Rueckversicherungs AG 5,451 857 

Norddeutsche Affinerie AG 340 14 

RWE AG 3,282 295 

Salzgitter AG 5,485 433 

SAP AG 38,020 1,363 

Siemens AG 13,069 979 

Symrise AG 70,217 992 

ThyssenKrupp AG 228 6 

Tognum AG 6,881 88 

Volkswagen AG 548 192 

Wacker Chemie AG 709 75 

Wincor Nixdorf AG 1,073 51 

18,738 

Hong Kong - 0.7% 

BOC Hong Kong Holdings, Ltd. 37,500 43 

Cheung Kong Holdings, Ltd. 65,340 623 

China Mobile, Ltd. 35,500 360 

CLP Holdings, Ltd. 15,500 105 

Hang Lung Group, Ltd. 8,763 27 

Hang Lung Properties, Ltd. - ADR 9,000 20 

Hang Seng Bank, Ltd. 3,200 42 

Henderson Land Development Co., Ltd. 5,000 19 

Hong Kong & China Gas Co., Ltd. 2,000 3 

Non-U.S. Fund 41


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Hong Kong Exchanges and Clearing, Ltd. 6,654 64 

HongKong & Shanghai Hotels (The) 1,500 1 

HongKong Electric Holdings 13,500 76 

Hopewell Holdings 9,000 30 

Hutchison Whampoa, Ltd. 19,000 96 

Hysan Development Co., Ltd. 20,000 33 

Industrial and Commercial Bank of China 

Asia, Ltd. 28,000 30 

Link REIT (The) (ö) 13,500 22 

New World Development, Ltd. 16,000 16 

Sun Hung Kai Properties, Ltd. 7,667 64 

Swire Pacific, Ltd. 8,000 55 

Television Broadcasts, Ltd. 9,000 30 

Wharf Holdings, Ltd. 7,000 19 

Wheelock & Co., Ltd. 13,205 29 

1,807 

India - 0.2% 

Infosys Technologies, Ltd. - ADR (Ñ) 25,620 629 

Indonesia - 0.0% 

Telekomunikasi Indonesia Tbk PT - ADR 1,750 44 

Israel - 0.5% 

Teva Pharmaceutical Industries, Ltd. - 

ADR (Ñ) 29,000 1,235 

Italy - 1.7% 

Alleanza Assicurazioni SpA (Ñ) 93,388 761 

Ansaldo STS SpA 38,948 549 

Banco Popolare SC 10,472 73 

Buzzi Unicem SpA 3,159 52 

Credito Emiliano SpA 3,435 18 

Davide Campari-Milano SpA 11,086 75 

Enel SpA 23,244 149 

ENI SpA 62,559 1,482 

Fondiaria-Sai SpA 50 1 

Indesit Co. SpA 7,935 48 

Intesa Sanpaolo SpA (Æ) 195,484 704 

Maire Tecnimont SpA 6,342 13 

Mediaset SpA (Ñ) 16,214 93 

Milano Assicurazioni SPA 6,076 19 

Pirelli & C SpA 146,470 54 

Saras SpA 4,025 14 

Terna Rete Elettrica Nazionale SpA 49,456 162 

UniCredit SpA (Æ) 11,873 29 

Unione di Banche Italiane SCPA 657 9 

Unipol Gruppo Finanziario SpA 9,537 15 

4,320 

Japan - 19.1% 

77 Bank, Ltd. (The) 5,000 27 

Aeon Credit Service Co., Ltd. (Ñ) 41,000 434 

Aiful Corp. (Ñ) 4,400 13 

Aioi Insurance Co., Ltd. 8,000 42 

Aisin Seiki Co., Ltd. 3,100 44 

Alps Electric Co., Ltd. 7,300 36 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Amada Co., Ltd. 5,000 24 

Aruze Corp. 700 7 

Asahi Glass Co., Ltd. 6,000 34 

Astellas Pharma, Inc. 13,400 545 

Bank of Yokohama, Ltd. (The) 165,366 978 

Bridgestone Corp. 3,400 51 

Brother Industries, Ltd. (Ñ) 9,700 58 

Calsonic Kansei Corp. 18,000 26 

Canon Marketing Japan, Inc. (Ñ) 7,600 123 

Canon, Inc. 98,400 3,089 

Casio Computer Co., Ltd. 5,900 37 

Central Glass Co., Ltd. 20,000 81 

Central Japan Railway Co. 4 35 

Chubu Electric Power Co., Inc. 5,300 161 

Circle K Sunkus Co., Ltd. (Ñ) 6,600 119 

Coca-Cola West Co., Ltd. (Ñ) 2,200 48 

COMSYS Holdings Corp. 5,000 46 

Credit Saison Co., Ltd. (Ñ) 1,000 14 

Dai Nippon Printing Co., Ltd. 11,000 121 

Daiei, Inc. (The) (Æ)(Ñ) 6,500 42 

Daiichi Chuo Kisen Kaisha 9,000 25 

Daiichi Sankyo Co., Ltd. 3,200 76 

Daishi Bank, Ltd. (The) 10,000 44 

Daito Trust Construction Co., Ltd. 500 26 

Daiwa Securities Group, Inc. (Ñ) 87,450 521 

Denso Corp. 7,700 128 

DIC Corp. 4,000 8 

Doutor Nichires Holdings Co., Ltd. 700 15 

East Japan Railway Co. (Å) 52 415 

Ebara Corp. (Ñ) 13,000 30 

Eisai Co., Ltd. (Ñ) 6,800 282 

Exedy Corp. 2,600 26 

FamilyMart Co., Ltd. 2,100 91 

Fanuc, Ltd. 19,600 1,394 

Fuji Fire & Marine Insurance Co., Ltd. 

(The) 22,000 33 

Fuji Media Holdings, Inc. 554 793 

FUJIFILM Holdings Corp. 4,800 106 

Fujitsu, Ltd. 3,000 15 

Funai Electric Co., Ltd. 1,900 39 

Furukawa Electric Co., Ltd. 2,000 10 

FUTABA Corp. 1,500 19 

Glory, Ltd. 5,100 100 

Gunze, Ltd. 5,000 16 

H2O Retailing Corp. (Ñ) 6,000 45 

Hachijuni Bank, Ltd. (The) (Ñ) 3,000 17 

Hakuhodo DY Holdings, Inc. 450 25 

Higo Bank, Ltd. (The) 9,000 57 

Hino Motors, Ltd. 8,000 16 

Hirose Electric Co., Ltd. (Ñ) 5,200 525 

Hitachi Cable, Ltd. 13,000 29 

Hitachi Capital Corp. 4,800 60 

Hitachi High-Technologies Corp. (Ñ) 2,100 34 

Hitachi Software Engineering Co., Ltd. 3,300 51 

Hitachi Transport System, Ltd. 5,000 75 

Hitachi, Ltd. 22,000 85 

Hokkoku Bank, Ltd. (The) (Ñ) 12,000 42 

42 Non-U.S. Fund


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Honda Motor Co., Ltd. 8,800 191 

Hoya Corp. 63,900 1,110 

Inpex Holdings, Inc. 186 1,470 

Isuzu Motors, Ltd. 47,000 60 

Itoham Foods, Inc. 22,000 80 

JFE Holdings, Inc. (Ñ) 2,300 61 

JFE Shoji Holdings, Inc. 16,000 49 

JGC Corp. 3,000 45 

Joyo Bank, Ltd. (The) (Ñ) 266,940 1,521 

JSR Corp. (Ñ) 8,200 92 

Kagoshima Bank, Ltd. (The) 12,000 100 

Kaken Pharmaceutical Co., Ltd. 6,000 66 

Kamigumi Co., Ltd. 6,000 54 

Kandenko Co., Ltd. (Ñ) 2,000 16 

Kaneka Corp. 10,000 64 

Kansai Electric Power Co., Inc. (The) 700 20 

Kansai Paint Co., Ltd. 21,000 107 

Kao Corp. 64,000 1,938 

KDDI Corp. 14 100 

Keihin Corp. (Ñ) 9,900 72 

Keiyo Bank, Ltd. (The) 2,000 10 

Keyence Corp. 3,556 728 

Kinden Corp. 4,000 36 

Kintetsu World Express, Inc. (Ñ) 1,000 20 

Kobayashi Pharmaceutical Co., Ltd. (Ñ) 500 21 

Komatsu, Ltd. (Ñ) 17,500 222 

Komori Corp. 6,800 75 

Konica Minolta Holdings, Inc. 24,000 186 

Kose Corp. 60,640 1,524 

Kuraray Co., Ltd. (Ñ) 9,000 70 

Kyocera Corp. 1,100 79 

Kyoei Steel, Ltd. (Ñ) 1,400 28 

Lawson, Inc. 1,700 98 

Leopalace21 Corp. 2,300 23 

Lintec Corp. 3,800 53 

Matsumotokiyoshi Holdings Co., Ltd. 1,000 21 

Mediceo Paltac Holdings Co., Ltd. (Æ) 1,300 16 

MID Reit, Inc. Class A (ö) 180 345 

Miraca Holdings, Inc. 1,500 33 

Mitsubishi Corp. 5,400 76 

Mitsubishi Electric Corp. 4,000 25 

Mitsubishi Estate Co., Ltd. 8,000 132 

Mitsubishi Heavy Industries, Ltd. 5,000 22 

Mitsubishi Materials Corp. 17,000 43 

Mitsubishi UFJ Financial Group, Inc. 155,992 968 

Mitsubishi UFJ Lease & Finance Co., 

Ltd. (Ñ) 2,610 66 

Mitsui & Co., Ltd. 13,000 133 

Mitsui Fudosan Co., Ltd. 27,000 449 

Mitsui OSK Lines, Ltd. 8,000 49 

Mitsui Sumitomo Insurance Group 

Holdings, Inc. 53,200 1,697 

Mizuho Financial Group, Inc. (Ñ)(Å) 168 501 

Musashino Bank, Ltd. (The) 900 35 

Nachi-Fujikoshi Corp. 3,000 6 

Namco Bandai Holdings, Inc. 5,000 55 

NEC Corp. (Ñ) 21,000 70 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

NEC Electronics Corp. (Æ) 3,600 34 

NGK Insulators, Ltd. 4,000 45 

Nichirei Corp. 24,000 114 

Nifco, Inc. 3,000 31 

Nintendo Co., Ltd. 2,500 961 

Nippon Building Fund, Inc. Class A (ö) 2 22 

Nippon Commercial Investment Corp. (ö)(Ñ) 131 139 

Nippon Electric Glass Co., Ltd. 9,000 47 

Nippon Express Co., Ltd. 27,000 114 

Nippon Kayaku Co., Ltd. 11,000 57 

Nippon Konpo Unyu Soko Co., Ltd. 4,000 44 

Nippon Oil Corp. 17,000 86 

Nippon Seiki Co., Ltd. 1,000 6 

Nippon Sheet Glass Co., Ltd. 6,000 20 

Nippon Shinyaku Co., Ltd. 1,000 12 

Nippon Steel Corp. 26,000 85 

Nippon Telegraph & Telephone Corp. 30 167 

Nippon Yusen KK (Ñ) 10,000 62 

Nipponkoa Insurance Co., Ltd. 239,490 1,862 

Nishimatsuya Chain Co., Ltd. 1,600 15 

Nissan Motor Co., Ltd. 11,100 40 

Nissan Shatai Co., Ltd. 11,000 68 

Nissay Dowa General Insurance Co., Ltd. 4,000 25 

Nisshin Seifun Group, Inc. 5,000 66 

Nissin Kogyo Co., Ltd. 500 4 

Nitto Denko Corp. 2,300 44 

Nomura Holdings, Inc. (Ñ) 95,020 784 

Nomura Research Institute, Ltd. (Ñ) 69,165 1,313 

NTN Corp. (Ñ) 6,000 18 

NTT DoCoMo, Inc. 209 412 

Okinawa Electric Power Co., Inc. (The) 800 60 

OKUMA Corp. (Æ) 4,000 15 

Omron Corp. 21,700 291 

Ono Pharmaceutical Co., Ltd. 400 21 

ORIX Corp. 890 51 

Osaka Gas Co., Ltd. 25,000 115 

Panasonic Corp. 14,000 175 

Promise Co., Ltd. (Ñ) 1,150 29 

QP Corp. (Ñ) 6,800 93 

Ricoh Co., Ltd. 1,000 13 

Rohm Co., Ltd. 3,000 151 

San-In Godo Bank, Ltd. (The) 4,000 32 

Sankyo Co., Ltd. 1,900 96 

SBI Holdings, Inc. (Æ)(Ñ) 87 13 

Seiko Epson Corp. (Ñ) 2,800 45 

Seino Holdings Corp. 10,000 56 

Sekisui House, Ltd. 3,000 26 

Seven & I Holdings Co., Ltd. 43,260 1,482 

Sharp Corp. (Ñ) 7,000 50 

Shima Seiki Manufacturing, Ltd. - GDR 2,100 41 

Shin-Etsu Chemical Co., Ltd. 38,400 1,761 

Shinsei Bank, Ltd. (Æ) 18,000 28 

Showa Shell Sekiyu KK 8,000 79 

SMC Corp. 13,748 1,407 

Snow Brand Milk Products Co., Ltd. (Ñ) 11,000 42 

Softbank Corp. (Ñ) 50,600 916 

Sony Corp. (Ñ) 5,800 126 

Non-U.S. Fund 43


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Stanley Electric Co., Ltd. 3,300 35 

Sugi Holdings Co., Ltd. - GDR (Ñ) 43,899 1,171 

Sumco Corp. (Ñ) 3,000 38 

Sumitomo Bakelite Co., Ltd. (Ñ) 8,000 32 

Sumitomo Corp. 6,900 61 

Sumitomo Forestry Co., Ltd. (Ñ) 8,300 67 

Sumitomo Metal Mining Co., Ltd. 2,000 21 

Sumitomo Mitsui Financial Group, Inc. (Ñ) 40 179 

Sumitomo Realty & Development Co., Ltd. 2,000 30 

Sumitomo Trust & Banking Co., Ltd. (The) 202,033 1,196 

Suzuken Co., Ltd. 2,400 72 

Suzuki Motor Corp. 56,919 787 

Taisho Pharmaceutical Co., Ltd. 1,000 21 

Takara Holdings, Inc. 6,000 36 

Takasago Thermal Engineering Co., Ltd. 1,000 8 

Takata Corp. (Ñ) 2,300 16 

Takeda Pharmaceutical Co., Ltd. 7,100 368 

Takefuji Corp. (Ñ) 3,700 30 

TDK Corp. (Ñ) 1,600 59 

THK Co., Ltd. (Ñ) 30,620 322 

Toagosei Co., Ltd. 8,000 24 

Toho Pharmaceutical Co., Ltd. 2,990 41 

Tohoku Electric Power Co., Inc. 800 22 

Tokai Rika Co., Ltd. 7,800 68 

Tokai Rubber Industries, Inc. 8,100 67 

Tokai Tokyo Securities Co., Ltd. 5,000 14 

Tokio Marine Holdings, Inc. 3,800 111 

Tokyo Electric Power Co., Inc. (The) 5,400 180 

Tokyo Electron, Ltd. 8,800 309 

Tokyo Gas Co., Ltd. 27,000 137 

Tokyo Steel Manufacturing Co., Ltd. (Ñ) 8,800 92 

Tokyu Land Corp. 4,000 15 

Toppan Forms Co., Ltd. 800 10 

Toppan Printing Co., Ltd. (Ñ) 7,000 54 

Toshiba TEC Corp. 20,000 60 

Toyo Ink Manufacturing Co., Ltd. (Ñ) 3,000 9 

Toyo Seikan Kaisha, Ltd. 6,400 133 

Toyoda Gosei Co., Ltd. 2,300 27 

Toyota Auto Body Co., Ltd. 6,200 91 

Toyota Motor Corp. 15,800 517 

Toyota Tsusho Corp. 3,300 35 

TS Tech Co., Ltd. 1,135 7 

TV Asahi Corp. 5 7 

Unicharm Corp. 8,000 605 

United Urban Investment Corp. (ö) 80 316 

USS Co., Ltd. 900 48 

West Japan Railway Co. 17 77 

Yahoo! Japan Corp. (Ñ) 1,156 473 

Yamaha Corp. (Ñ) 3,700 34 

Yamato Holdings Co., Ltd. (Ñ) 5,000 65 

Yamato Kogyo Co., Ltd. - GDR 700 19 

48,766 

Luxembourg - 0.0% 

ArcelorMittal (Ñ) 3,501 84 

Oriflame Cosmetics SA (Ñ) 1,104 32 

Reinet Investments SCA (Æ) 593 6 

122 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Malaysia - 0.1% 

Sime Darby Berhad 162,317 246 

Mauritius - 0.0% 

Golden Agri-Resources, Ltd. 134,176 22 

Mexico - 0.3% 

America Movil SAB de CV Series L (Ñ) 14,700 456 

Grupo Modelo SAB de CV (Ñ) 114,500 362 

818 

Netherlands - 3.8% 

Aegon NV (Æ) 6,298 40 

Akzo Nobel NV 9,343 385 

ASML Holding NV 40,841 729 

CSM 7,091 114 

European Aeronautic Defence and Space 

Co. NV 7,257 122 

Heineken NV 114,438 3,516 

Imtech NV 6,926 117 

ING Groep NV (Æ) 31,975 334 

James Hardie Industries NV (Æ) 10,036 33 

Koninklijke Ahold NV 50,273 618 

Koninklijke Philips Electronics NV (Ñ) 3,785 74 

Royal KPN NV 64,142 930 

SNS Reaal 14,666 81 

STMicroelectronics NV 5,952 40 

TNT NV 57,060 1,096 

TomTom NV (Æ) 2,610 19 


Wolters Kluwer NV 67,990 1,284 

9,700 

Netherlands Antilles - 0.0% 

Hunter Douglas NV 1,257 41 

Norway - 0.2% 

StatoilHydro ASA 25,902 427 

Portugal - 0.2% 

Energias de Portugal SA 148,542 560 

Singapore - 0.7% 

Ascendas Real Estate Investment 

Trust (Æ)(ö) 4,000 4 

CapitaLand, Ltd. 2,343 5 

CapitaMall Trust (Æ)(ö) 5,643 6 

China Aviation Oil Singapore Corp., Ltd. 1,000 1 

ComfortDelgro Corp., Ltd. 14,000 14 

Cosco Corp. Singapore, Ltd. 12,000 8 

DBS Group Holdings, Ltd. 65,400 388 

Haw Par Corp., Ltd. 3,000 8 

Indofood Agri Resources, Ltd. (Æ) 2,552 1 

Jardine Cycle & Carriage, Ltd. 3,800 25 

Keppel Corp., Ltd. 13,555 41 

Keppel Land, Ltd. 1,000 1 

44 Non-U.S. Fund


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Neptune Orient Lines, Ltd. 8,000 6 

Oversea-Chinese Banking Corp., Ltd. 15,000 52 

Pacific Century Regional Developments, 

Ltd. 53,000 5 

Singapore Airlines, Ltd. 5,970 47 

Singapore Exchange, Ltd. 6,000 22 

Singapore Petroleum Co., Ltd. 6,312 10 

Singapore Technologies Engineering, Ltd. 6,000 10 

Singapore Telecommunications, Ltd. 540,000 962 

SMRT Corp., Ltd. 3,000 3 

United Overseas Bank, Ltd. 6,572 59 

UOL Group, Ltd. 7,000 11 

Venture Corp., Ltd. 3,000 9 

1,698 

South Africa - 0.4% 

Gold Fields, Ltd. - ADR (Ñ) 61,740 613 

MTN Group, Ltd. 35,760 423 

1,036 

South Korea - 0.5% 

KB Financial Group, Inc. - ADR (Ñ) 9,648 253 

Samsung Electronics Co., Ltd. 3,029 1,100 

STX Pan Ocean Co., Ltd. (Æ) 400 2 

1,355 

Spain - 1.2% 

Banco Bilbao Vizcaya Argentaria SA 25,656 315 

Banco Santander SA 71,989 694 

Criteria Caixacorp SA 1,133 5 

Ebro Puleva SA (Æ) 801 11 

Endesa SA 983 40 

Gas Natural SDG SA 3,271 89 

Iberia Lineas Aereas de Espana 42,192 118 

Inditex SA 6,049 267 

Prosegur Cia de Seguridad SA 3,561 118 

Red Electrica de Espana 1,190 60 

Repsol YPF SA 12,286 262 

Telefonica SA 49,466 1,109 

Union Fenosa SA 284 7 

Vertice Trescientos Sesenta Grados (Æ) 3,257 3 

Viscofan SA 1,801 35 

3,133 

Sweden - 1.3% 

Axfood AB 2,051 44 

Electrolux AB 1,279 11 

Hennes & Mauritz AB Series B Class B (Ñ) 13,765 538 

Intrum Justitia AB 3,441 35 

Investor AB Class B 265 4 

Loomis AB (Æ)(Ñ) 1,388 9 

Nordea Bank AB 18,703 132 

SAS AB (Æ) 7,286 35 

Scania AB Class B (Æ) 14,402 144 

Securitas AB Class B 6,527 54 

Skanska AB Class B 17,600 175 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Svenska Cellulosa AB Class B 24,676 211 

Svenska Handelsbanken AB Class A 1,051 17 

Swedish Match AB 30,949 443 

Tele2 AB Class B 17,944 159 

Telefonaktiebolaget LM Ericsson 

Class B (Ñ) 167,893 1,288 

TeliaSonera AB 6,039 30 

3,329 

Switzerland - 8.9% 

ABB, Ltd. (Æ) 29,262 441 

Actelion, Ltd. (Ñ) 18,298 1,031 

Baloise Holding AG 145 11 

Barry Callebaut AG (Æ) 160 104 

Compagnie Financiere Richemont SA - 

Class A 39,758 772 

Credit Suisse Group AG 17,113 469 

Givaudan SA (Ñ) 2,040 1,607 

Helvetia Holding AG (Æ) 884 192 

Holcim, Ltd. 786 45 

Jelmoli Holding AG (Æ) 30 56 

Julius Baer Holding AG 41,036 1,578 

Nestle SA 176,792 6,968 

Novartis AG 34,970 1,752 

Roche Holding AG 35,536 5,470 

Sonova Holding AG 4,023 243 

Swiss Reinsurance 18,389 893 

UBS AG (Æ) 50,040 726 

Zurich Financial Services AG 1,638 356 

22,714 

Taiwan - 0.6% 

Taiwan Semiconductor Manufacturing Co., 

Ltd. 588,500 805 

Taiwan Semiconductor Manufacturing Co., 

Ltd. - ADR 81,390 643 

1,448 

Thailand - 0.1% 

Bangkok Bank PCL 106,800 219 

United Kingdom - 18.3% 

3i Group PLC 70,392 277 

Aggreko PLC 20,368 131 

AMEC PLC - GDR 8,892 64 

Anglo American PLC 33,295 761 

Antofagasta PLC 106,300 657 

ARM Holdings PLC 408,214 511 

AstraZeneca PLC 41,539 1,683 

Atkins WS PLC 20,893 203 

Autonomy Corp. PLC (Æ) 52,100 717 

BAE Systems PLC 98,373 536 

Barclays PLC 73,696 166 

BBA Aviation PLC 68,277 68 

BG Group PLC 28,062 390 

BHP Billiton PLC 70,338 1,325 

Non-U.S. Fund 45


Non-U.S. Fund 



Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

BP PLC 168,222 1,289 

BP PLC - ADR (Ñ) 32,320 1,511 

British Airways PLC (Æ) 15,490 40 

British American Tobacco PLC 24,994 649 

British Land Co. PLC (ö) 3,139 25 

BT Group PLC 90,874 179 

Burberry Group PLC 109,900 353 

Cadbury PLC 189,311 1,657 

Capita Group PLC (The) 87,323 930 

Centrica PLC 66,162 254 

Close Brothers Group PLC 13,297 102 

Davis Service Group PLC 3,306 13 

Dawnay Day Treveria PLC (Æ) 586,180 60 

De La Rue PLC 3,360 44 

Diageo PLC 218,440 3,039 

Drax Group PLC 26,761 217 

DSG International PLC (Æ) 95,452 24 

easyJet PLC (Æ) 231,779 940 

Experian PLC 232,975 1,459 

GlaxoSmithKline PLC 184,948 3,433 

Hammerson PLC (ö) 2,600 20 

Hays PLC 258,897 261 

HBOS PLC (Æ) 26,806 — 

HBOS PLC 19,371 20 

HMV Group PLC 21,073 33 

Home Retail Group PLC 20,327 62 

HSBC Holdings PLC 125,296 1,199 

Imperial Tobacco Group PLC 5,721 153 

Intermediate Capital Group PLC 5,983 56 

J Sainsbury PLC 183,057 871 

Kingfisher PLC 145,803 285 

Ladbrokes PLC 143,825 385 

Land Securities Group PLC (ö) 1,609 21 

Legal & General Group PLC 133,906 149 

Lloyds TSB Group PLC 63,382 81 

Michael Page International PLC 118,192 368 

Mondi PLC 12,176 36 

Next PLC 9,583 150 

Old Mutual PLC 238,254 190 

Petrofac, Ltd. 15,193 76 

Reckitt Benckiser Group PLC 78,826 2,937 

Reed Elsevier PLC 4,022 29 

Regus PLC 118,259 85 

Rio Tinto PLC 5,678 123 

Royal Bank of Scotland Group PLC 243,487 176 

Royal Dutch Shell PLC 

Class A 109 2,850 

Class B 23,321 587 

Scottish & Southern Energy PLC 47,729 840 

Shire PLC 22,503 329 

Smiths Group PLC 62,469 804 

Standard Chartered PLC 133,097 1,701 

Tate & Lyle PLC 23,338 136 

Tesco PLC 97,301 507 

Tomkins PLC 35,588 64 

Trinity Mirror PLC 14,023 11 

Unilever PLC 11,658 265 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

United Utilities Group PLC 17,269 156 

Vodafone Group PLC 793,269 1,597 

Vodafone Group PLC - ADR 84,300 1,723 

William Hill PLC 177,897 553 

WM Morrison Supermarkets PLC 211,255 857 

WPP Group PLC 395,417 2,305 

46,758 

United States - 1.2% 

Philip Morris International, Inc. 23,950 1,042 

Synthes, Inc. 15,835 2,002 

3,044 


(cost $278,503) 219,298 

Preferred Stocks - 0.5% 

Germany - 0.5% 

Fresenius SE 2,559 150 

Henkel AG & Co. KGaA (Ñ) 36,107 1,158 

Volkswagen AG 1,627 87 


(cost $2,086) 1,395 

Warrants & Rights - 0.0% 

Belgium - 0.0% 

Fortis (Æ) 10 13 

Singapore - 0.0% 

DBS Group Holdings, Ltd. (Æ) 33 68 

Total Warrants & Rights 

(cost $—) 81 


United States - 9.5% 




(cost $24,227) 24,227 



Trust () 26,399,671 24,950 


(cost $26,400) 24,950 




Net - (5.5%) (14,201) 

Net Assets - 100.0% 255,750 


46 Non-U.S. Fund


Non-U.S. Fund 




Number of 

Contracts 

Notional 

Amount 

Expiration 

Date 

Unrealized 

Appreciation 


$ 


AEX Index (Netherlands) 48 EUR 2,365 01/09 (10) 

CAC-40 Index (France) 167 EUR 5,379 01/09 13 

DAX Index (Germany) 16 EUR 1,934 03/09 49 

EUR STOXX 50 Index 177 EUR 4,337 03/09 (4) 

FTSE-100 Index (UK) 167 GBP 7,332 03/09 258 

MIB-30 (Italy) 29 EUR 2,816 03/09 26 

MSCI Singapore Index 2 SGD 88 01/09 2 

TOPIX Index (Japan) 94 JPY 810,280 03/09 423 

Short Positions 

DAX Index (Germany) 21 EUR 2,538 03/09 (85) 

Hang Seng Index (Hong Kong) 10 HKD 7,203 01/09 30 

IBEX Plus Index (Spain) 13 EUR 1,185 01/09 (11) 

OMX Stockholm 30 Index (Sweden) 21 SEK 1,384 01/09 — 

SPI 200 Index (Australia) 44 AUD 4,121 03/09 (144) 

TOPIX Index (Japan) 15 JPY 129,300 03/09 (34) 



Non-U.S. Fund 47


Non-U.S. Fund 


Amounts in thousands 

Foreign Currency Exchange Contracts 

Amount 

Sold 

Amount 

Bought 

Settlement 

Date 

Unrealized 

Appreciation 


$ 

USD 118 AUD 171 01/05/09 1 

USD 22 AUD 31 03/18/09 — 

USD 501 AUD 732 03/18/09 6 

USD 686 AUD 1,034 03/18/09 30 

USD 742 AUD 1,085 03/18/09 9 

USD 1,001 AUD 1,465 03/18/09 13 

USD 6 CHF 6 01/05/09 — 

USD 7 CHF 8 01/06/09 — 

USD 283 CHF 299 01/06/09 (2) 

USD 343 CHF 400 03/18/09 32 

USD 344 CHF 400 03/18/09 32 

USD 344 CHF 400 03/18/09 32 

USD 344 CHF 400 03/18/09 32 

USD 630 CHF 664 03/18/09 (6) 

USD 28 DKK 155 03/18/09 1 

USD 28 DKK 155 03/18/09 1 

USD 28 DKK 155 03/18/09 1 

USD 28 DKK 155 03/18/09 1 

USD 70 DKK 373 03/18/09 (1) 

USD 85 EUR 60 01/02/09 (1) 

USD 243 EUR 172 01/02/09 (4) 

USD 31 EUR 22 01/05/09 — 

USD 57 EUR 41 01/06/09 — 

USD 280 EUR 200 03/18/09 (3) 

USD 431 EUR 300 03/18/09 (15) 

USD 645 EUR 500 03/18/09 49 

USD 683 EUR 485 03/18/09 (10) 

USD 692 EUR 516 03/18/09 23 

USD 692 EUR 516 03/18/09 23 

USD 1,265 EUR 1,000 03/18/09 121 

USD 1,288 EUR 1,000 03/18/09 99 

USD 2,840 EUR 2,218 03/18/09 236 

USD 2,840 EUR 2,218 03/18/09 236 

USD 2,841 EUR 2,218 03/18/09 235 

USD 2,841 EUR 2,218 03/18/09 235 

USD 2,850 EUR 2,218 03/18/09 226 

USD 17 GBP 12 01/02/09 — 

USD 87 GBP 58 03/18/09 (4) 

USD 87 GBP 58 03/18/09 (5) 

USD 87 GBP 58 03/18/09 (4) 

USD 88 GBP 58 03/18/09 (5) 

USD 147 GBP 100 03/18/09 (4) 

USD 155 GBP 100 03/18/09 (12) 

USD 206 GBP 138 03/18/09 (9) 

USD 206 GBP 138 03/18/09 (9) 

USD 591 GBP 400 03/18/09 (17) 

USD 1,187 GBP 809 03/18/09 (26) 

USD 1,189 GBP 809 03/18/09 (28) 

USD 1,189 GBP 809 03/18/09 (27) 

USD 1,190 GBP 809 03/18/09 (29) 

USD 1,192 GBP 809 03/18/09 (31) 


Amount 

Sold 

Amount 

Bought 

Settlement 

Date 

Unrealized 

Appreciation 


$ 

USD 1,752 GBP 1,210 03/18/09 (15) 

USD 19 HKD 147 03/18/09 — 

USD 24 HKD 190 03/18/09 — 

USD 24 HKD 190 03/18/09 — 

USD 24 HKD 190 03/18/09 — 

USD 24 HKD 190 03/18/09 — 

USD 41 HKD 318 03/18/09 — 

USD 436 JPY 40,000 03/18/09 6 

USD 545 JPY 50,000 03/18/09 8 

USD 562 JPY 50,000 03/18/09 (9) 

USD 908 JPY 82,141 03/18/09 (1) 

USD 909 JPY 82,141 03/18/09 (1) 

USD 909 JPY 82,141 03/18/09 (1) 

USD 911 JPY 82,141 03/18/09 (3) 

USD 2,172 JPY 201,000 03/18/09 49 

USD 2,179 JPY 201,000 03/18/09 41 

USD 2,179 JPY 201,000 03/18/09 41 

USD 2,179 JPY 201,000 03/18/09 41 

USD 2,182 JPY 201,000 03/18/09 39 

USD 166 NOK 1,162 01/02/09 — 

USD 72 NOK 506 03/18/09 (1) 

USD 72 NOK 506 03/18/09 (1) 

USD 73 NOK 506 03/18/09 (1) 

USD 73 NOK 506 03/18/09 (1) 

USD 786 NZD 1,434 03/18/09 45 

USD 786 NZD 1,434 03/18/09 45 

USD 787 NZD 1,434 03/18/09 44 

USD 787 NZD 1,434 03/18/09 44 

USD 92 SEK 713 01/07/09 (2) 

USD 2 SGD 3 01/05/09 — 

USD 22 SGD 32 03/18/09 1 

USD 22 SGD 32 03/18/09 — 

USD 22 SGD 32 03/18/09 — 

USD 22 SGD 32 03/18/09 — 

AUD 31 USD 22 01/06/09 — 

AUD 7 USD 5 03/18/09 — 

AUD 7 USD 5 03/18/09 — 

AUD 7 USD 5 03/18/09 — 

AUD 7 USD 5 03/18/09 — 

AUD 171 USD 117 03/18/09 (1) 

CAD — USD — 01/02/09 — 

CHF 299 USD 283 03/18/09 2 

CHF 832 USD 711 03/18/09 (70) 

CHF 832 USD 711 03/18/09 (70) 

DKK 373 USD 71 01/06/09 1 

DKK 78 USD 15 03/18/09 — 

DKK 171 USD 31 03/18/09 (1) 

EUR 441 USD 622 01/05/09 9 

EUR 216 USD 305 01/06/09 5 

EUR 41 USD 57 03/18/09 — 

EUR 100 USD 137 03/18/09 (2) 


48 Non-U.S. Fund


Non-U.S. Fund 




Amount 

Sold 

Amount 

Bought 

Settlement 

Date 

Unrealized 

Appreciation 


$ 

EUR 200 USD 285 03/18/09 8 

EUR 203 USD 285 03/18/09 3 

EUR 342 USD 463 03/18/09 (11) 

EUR 342 USD 464 03/18/09 (11) 

EUR 342 USD 463 03/18/09 (12) 

EUR 342 USD 463 03/18/09 (12) 

EUR 350 USD 445 03/18/09 (40) 

EUR 650 USD 840 03/18/09 (61) 

EUR 700 USD 955 03/18/09 (15) 

EUR 1,400 USD 1,817 03/18/09 (123) 

EUR 1,809 USD 2,542 03/18/09 34 

EUR 2,000 USD 2,889 03/18/09 116 

GBP 94 USD 138 03/18/09 3 

GBP 300 USD 457 03/18/09 27 

GBP 300 USD 460 03/18/09 29 

GBP 400 USD 590 03/18/09 15 

HKD 92 USD 12 01/02/09 — 

HKD 117 USD 15 01/02/09 — 

HKD 147 USD 19 01/05/09 — 

HKD 140 USD 18 03/18/09 — 

JPY 3,846 USD 42 03/18/09 — 

JPY 20,000 USD 224 03/18/09 3 

JPY 26,273 USD 290 03/18/09 — 

JPY 60,000 USD 663 03/18/09 — 

JPY 70,000 USD 759 03/18/09 (15) 

JPY 70,300 USD 775 03/18/09 (2) 

JPY 105,911 USD 1,169 03/18/09 (2) 

JPY 150,000 USD 1,683 03/18/09 26 

NOK 1,012 USD 146 03/18/09 2 

NOK 1,012 USD 146 03/18/09 2 

NZD 56 USD 32 03/18/09 — 

SEK 708 USD 89 03/18/09 (1) 

SEK 708 USD 89 03/18/09 (1) 

SEK 713 USD 92 03/18/09 2 

SEK 2,547 USD 316 03/18/09 (6) 

SEK 2,547 USD 316 03/18/09 (6) 

SEK 2,547 USD 316 03/18/09 (6) 

SEK 2,547 USD 317 03/18/09 (5) 

SGD 3 USD 2 03/18/09 — 

SGD 6 USD 4 03/18/09 — 

SGD 11 USD 7 03/18/09 — 

Total Unrealized Appreciation (Depreciation) on Open 

Foreign Currency Exchange Contracts 1,604 


Non-U.S. Fund 49


Non-U.S. Fund 



Industry Diversification 

(Unaudited) 

%of 

Net 

Assets 

Market 

Value 

$ 

Auto and Transportation 3.2 8,212 

Consumer Discretionary 9.1 23,405 

Consumer Staples 12.3 31,514 

Financial Services 24.4 62,517 

Health Care 9.5 24,280 

Integrated Oils 5.8 14,794 

Materials and Processing 8.8 22,633 

Miscellaneous 1.2 3,018 

Other Energy 1.0 2,504 

Producer Durables 7.1 18,176 

Technology 4.9 12,415 

Utilities 8.7 22,176 

Warrants & Rights — 81 

Other Securities 9.5 24,227 

Geographic Diversification 

(Unaudited) 

%of 

Net 

Assets 

Market 

Value 

$ 

Africa 0.4 1,058 

Asia 5.0 12,743 

Europe 39.5 101,178 

Japan 19.1 48,766 

Latin America 1.1 2,913 

Middle East 0.5 1,235 

Other Regions 12.1 31,074 

United Kingdom 18.3 46,758 

Other Securities 9.5 24,227 

Total Investments 105.5 269,952 

Other Assets and Liabilities, Net (5.5) (14,202) 

Net Assets 100.0 255,750 

Total Investments 105.5 269,952 

Other Assets and Liabilities, Net (5.5) (14,202) 

Net Assets 100.0 255,750 


50 Non-U.S. Fund


Non-U.S. Fund 


Catagories 

%ofNet 

Assets 

Australia 1.8 

Austria 0.3 

Belgium 0.2 

Bermuda 0.3 

Brazil 0.4 

Canada 1.5 

Cayman Islands 0.1 

China 0.2 

Czech Republic 0.2 

Denmark 0.3 

Finland 0.8 

France 12.3 

Germany 7.3 

Hong Kong 0.7 

India 0.2 

Indonesia —* 

Israel 0.5 

Italy 1.7 

Japan 19.1 

Luxembourg —* 

Malaysia 0.1 

Mauritius —* 

Mexico 0.3 

Netherlands 3.8 

Netherlands Antilles —* 

Norway 0.2 

Portugal 0.2 

Singapore 0.7 

South Africa 0.4 

South Korea 0.5 

Spain 1.2 

Sweden 1.3 

Switzerland 8.9 

Taiwan 0.6 

Thailand 0.1 

United Kingdom 18.3 

United States 1.2 

Preferred Stocks 0.5 

Warrants & Rights —* 





100.0 


Foreign Currency Exchange Contracts 0.6 

* Less than .05% of net assets. 


Non-U.S. Fund 51





$18,000 


Barclays Capital U.S. Aggregate Bond Index** 

$16,000 

$14,000 

$12,000 

$10,000 

$8,000 

* 

1999 

2000 

2001 

2002 2003 2004 


2005 

2006 

2007 

2008 


Total 

Return 

1 Year (3.87)% 

5 Years 2.68%§ 

10 Years 4.47%§ 

Barclays Capital U.S. Aggregate Bond Index ** 

Total 

Return 

1 Year 5.24% 

5 Years 4.65%§ 

10 Years 5.63%§ 


** On October 31, 2008, Barclays Capital, which acquired the Lehman family of indexes in September 2008, announced that it would be re-branding Lehman 

indexes under the Barclays Capital name; the underlying index structures are to remain unchanged. As a result, the Lehman Brothers Aggregate Bond Index has 

been renamed the Barclays Capital U.S. Aggregate Bond Index. 

Barclays Capital U.S. Aggregate Bond Index is composed of securities from Barclays Capital U.S. 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. 





52 Core Bond Fund




The Core Bond Fund (the “Fund”) allocates most of its assets 

among multiple money managers. Russell Investment 









providing services. The Fund currently has three money 

managers. 


The Fund seeks to provide current income, and as a secondary 

objective, capital appreciation. 



For the fiscal year ended December 31, 2008, the Core Bond 

Fund lost 3.87%. This compared to its benchmark the Barclays 

Capital U.S. Aggregate Bond Index, which gained 5.24% during 

the same period. The Fund’s performance includes operating 

expenses, whereas Index returns are unmanaged and do not 

include expenses of any kind. 

For the year ended December 31, 2008, the Lipper ® BBB 

Rated Corp Debt Funds (VIP) Average lost 4.86%. This result 

serves as a peer comparison and is expressed net of operating 

expenses. 



Investors’ departure from investments with more risk to the 

relative safety of U.S. Treasuries and the subsequent re-pricing 

of risk (i.e., the market demanding increased compensation for 

assuming a given level of risk) impacted nearly all non-Treasury 

fixed income investments. As a result, non-Treasury 

investments posted lower returns than the benchmark. The 

Fund’s money managers typically invest in non-Treasury 

sectors. As a result, the Fund underperformed its benchmark. 

However, the managers’ sector allocation and security selection 

decisions resulted in the Fund outperforming its peers as 

measured by the Lipper ® BBB Rated Corp Debt Funds (VIP) 

Average. 

The decrease in interest rates across the yield curve had little 

impact on Fund performance as the Fund’s money managers 

implemented offsetting duration strategies. Several managers 

anticipated the decline in interest rates and increased 

sensitivity to interest rates (also called increased duration) 

which had a positive impact on their returns. Other managers 

decreased duration exposure expecting that interest rates would 

rise in response to the fact that inflation had been a concern 

during part of the year stemming from exceptionally high oil 

prices. This positioning detracted from their performance. In 

general, as interest rates decline bond prices increase and vice 

versa. The benefits of the long duration positioning by some 

managers were offset by the negative effects of the short 

duration positioning by other managers. 

Finally, as the Federal Reserve decreased the federal funds 

target rate, short-term yields declined relative to yields at the 

intermediate portion and long end of the yield curve, resulting 

in a relative shift in yields otherwise known as yield curve 

“steepening.” This yield curve movement benefited the Fund as 

several of the Fund’s money managers anticipated the change 

and varied the maturity of their securities accordingly. 




By far, the largest affect on the Fund’s underperformance 

relative to benchmark was from the re-pricing of risk (i.e., the 

market demanding increased compensation for assuming a 

given level of risk), the fundamental concern regarding the 

consumer’s ability to make mortgage payments, and the 

negative impact that market and credit issues had on virtually 

all non-Treasury segments of the fixed income markets. The 

Fund had a material overweight to mortgage-backed securities. 

This contributed significantly to the Fund’s benchmark-relative 

underperformance. An overweight to and security selection in 

consumer-related asset-backed securities, and exposure to 

investment grade and high yield corporate securities that were 

hard hit by the weakening economic environment, also 

detracted from Fund performance. 

Interest rates across maturities on the yield curve decreased 

and the curve “steepened” over the calendar year. Several of 

the Fund’s money managers, most notably Pacific Investment 

Management Company LLC (“PIMCO”), and to a lesser extent 

Goldman Sachs Asset Management, L.P., anticipated the 

change in interest rates and positioned their portfolios to benefit 

from these changes. 

All of the Fund’s money managers underperformed in this 

historically challenging environment. Goldman underperformed 

by the largest amount. Goldman’s underperformance was driven 

by mortgage-related exposure, but this was partially mitigated 

by its long duration positioning. PIMCO had the least amount of 

underperformance. Though PIMCO’s performance suffered due 

to security selection within investment grade corporate bonds 

(notably financials) and mortgage exposure, its yield curve 

positioning provided a degree of downside protection. 

The managers who were in the Fund for only a part of the year 

also underperformed. Bear Stearns Asset Management Inc. was 

replaced by Metropolitan West Asset Management, LLC in 

March 2008. Bear Stearns’ underperformed given their 

underweight to Treasuries and overweight to mortgage-backed 

and high yield securities. Metropolitan West underperformed 

largely due to their overweight to and security selection within 

mortgage-backed securities. 

Core Bond Fund 53













performance. 

54 Core Bond Fund






In March 2008, Bear Stearns Asset Management Inc. was 

replaced by Metropolitan West Asset Management, LLC. 



Goldman Sachs Asset Management, L.P. 

Metropolitan West Asset Management, LLC 

Pacific Investment Management Company LLC 

Styles 

Fully Discretionary 

Sector Rotation 

Fully Discretionary 











Core Bond Fund 55




Fund Expenses 






Example 












































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 970.84 $ 1,021.62 







56 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Long-Term Investments - 111.7% 

Asset-Backed Securities - 4.7% 

Access Group, Inc. (Ê) 

Series 2008-1 Class A 

4.835% due 10/27/25 900 828 

Accredited Mortgage Loan Trust (Ê) 

Series 2004-2 Class A2 

0.771% due 07/25/34 37 14 

ACE Securities Corp. (Ê) 

Series 2003-OP1 Class M2 

1.971% due 12/25/33 35 26 

Series 2005-SD3 Class A 

0.871% due 08/25/45 175 141 

Aegis Asset Backed Securities Trust (Ê) 

Series 2003-3 Class M2 

2.946% due 01/25/34 110 51 

American Express Credit Account 

Master Trust (Ê)(Þ) 

Series 2004-C Class C 

1.695% due 02/15/12 32 28 

Ameriquest Mortgage Securities, Inc. (Ê) 

Series 2002-D Class M1 

4.221% due 02/25/33 90 48 

Series 2004-R8 Class A5 

0.841% due 09/25/34 12 12 

Series 2004-R10 Class A5 

0.861% due 11/25/34 — 1 

ARES CLO Funds (Ê)(Þ) 

Series 2005-10A Class A3 

2.088% due 09/18/17 520 393 

Bank of America Credit Card Trust (Ê) 

Series 2008-A1 Class A1 

1.775% due 04/15/13 200 182 

Bayview Financial Acquisition Trust 

Series 2006-A Class 1A3 

5.865% due 02/28/41 190 101 

Centex Home Equity (Ê) 

Series 2006-A Class AV4 

0.721% due 06/25/36 700 312 

CIT Mortgage Loan Trust (Ê)(Å) 

Series 2007-1 Class 2A1 

1.471% due 10/25/37 328 267 


1.721% due 10/25/37 130 49 


1.921% due 10/25/37 180 61 

Citigroup Mortgage Loan Trust, Inc. (Ê) 

Series 2006-WFH Class A2 

0.571% due 10/25/36 827 758 

Series 2007-AMC Class A2A 

0.531% due 05/25/37 459 368 

Countrywide Asset-Backed Certificates 

Series 2004-AB2 Class M3 (Ê) 

1.071% due 05/25/36 95 28 

Series 2004-BC1 Class M1 (Ê) 

0.971% due 02/25/34 95 58 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Series 2006-11 Class 1AF4 

6.300% due 09/25/46 170 60 

Countrywide Home Equity Loan Trust (Ê) 

Series 2006-HW Class 2A1B 

1.345% due 11/15/36 528 256 

First Franklin Mortgage Loan Asset Backed 

Certificates (Ê) 

Series 2006-FF1 Class A3 

0.521% due 11/25/36 118 107 

Series 2007-FF1 Class A2B 

0.561% due 01/25/38 1,000 732 

GMAC Mortgage Corp. Loan Trust 

Series 2007-HE3 Class 1A1 

7.000% due 09/25/37 76 25 


7.000% due 09/25/37 80 22 

GSAA Trust (Ê) 


0.741% due 12/25/35 320 272 


5.993% due 03/25/36 215 51 


6.103% due 03/25/36 1,476 683 

GSAMP Trust (Ê) 

Series 2003-HE2 Class M1 

1.121% due 08/25/33 72 51 

Series 2004-SEA Class A2A 

0.761% due 03/25/34 28 27 

HFC Home Equity Loan Asset Backed 

Certificates (Ê) 


0.798% due 01/20/34 200 137 

Series 2007-1 Class AS 

0.708% due 03/20/36 814 462 

Series 2007-3 Class APT 

1.708% due 11/20/36 358 209 

HSI Asset Securitization Corp. Trust (Ê) 


0.521% due 12/25/36 39 34 

Indymac Residential Asset Backed 

Trust (Ê) 

Series 2006-H2 Class A 

0.621% due 06/28/36 342 174 

Lehman XS Trust (Ê)(Ø) 


1.971% due 07/25/35 81 62 

Series 2005-5N Class 3A1A 

0.771% due 11/25/35 439 204 

Series 2005-7N Class 1A1A 

0.741% due 12/25/35 483 222 

Series 2006-2N Class 1A2 

0.811% due 02/25/46 211 46 

Series 2006-16N Class A1A 

0.551% due 11/25/46 116 107 

Series 2006-16N Class A4A 

0.661% due 11/25/46 751 322 

Core Bond Fund 57





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Long Beach Mortgage Loan Trust (Ê) 


0.751% due 10/25/34 5 2 


0.531% due 10/25/36 247 234 

Mastr Asset Backed Securities Trust (Ê) 

Series 2003-WMC Class M2 

2.946% due 08/25/33 57 20 

Series 2006-WMC Class A4 

0.631% due 08/25/36 850 244 

Morgan Stanley ABS Capital I (Ê) 

Series 2003-NC8 Class M3 

3.621% due 09/25/33 32 4 

Series 2006-HE7 Class A2A 

0.521% due 09/25/36 215 203 

New Century Home Equity Loan Trust (Ê) 


1.001% due 02/25/35 215 144 

Option One Mortgage Loan Trust (Ê) 


3.021% due 04/25/33 40 16 


3.471% due 06/25/33 29 4 


2.121% due 07/25/33 27 12 

Park Place Securities, Inc. (Ê) 

Series 2005-WCW Class M1 

0.921% due 09/25/35 210 114 

Popular ABS Mortgage Pass-Through Trust 


5.680% due 01/25/36 227 206 

Renaissance Home Equity Loan Trust 


5.357% due 05/25/35 67 40 

Series 2005-2 Class AF4 

4.934% due 08/25/35 85 57 

Series 2006-1 Class AF6 

5.746% due 05/25/36 175 134 

Residential Asset Mortgage Products, Inc. 

Series 2003-RS1 Class AI6A 

5.980% due 12/25/33 161 89 

Series 2006-RZ4 Class A1A (Ê) 

0.551% due 10/25/36 288 267 

Residential Asset Securities Corp. 

Series 2003-KS2 Class MI1 

4.800% due 04/25/33 258 181 

Series 2003-KS2 Class MI3 

6.100% due 04/25/33 64 22 

Series 2003-KS4 Class AIIB (Ê) 

1.051% due 06/25/33 43 25 

Series 2006-KS9 Class AI1 (Ê) 

0.541% due 11/25/36 58 56 

Series 2007-KS2 Class AI1 (Ê) 

0.541% due 02/25/37 233 204 

SBI Heloc Trust (Ê)(Þ) 

Series 2006-1A Class 1A2A 

0.641% due 08/25/36 65 61 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

SLM Student Loan Trust (Ê) 


3.525% due 10/27/14 341 330 


3.835% due 01/26/15 93 92 


4.035% due 10/25/17 2,800 2,629 

Small Business Administration 

Series 2000-P10 Class 1 

7.449% due 08/10/10 5 5 

Series 2005-20G Class 1 

4.750% due 07/01/25 794 799 

Soundview Home Equity Loan Trust 

Series 2006-WF1 Class A2 

5.645% due 10/25/36 290 281 

Structured Asset Investment Loan Trust (Ê) 


0.911% due 04/25/35 120 40 

Structured Asset Securities Corp. (Ê) 

Series 2006-BC3 Class A2 

0.521% due 10/25/36 92 85 

Series 2007-BC3 Class 2A2 

0.611% due 08/25/09 920 479 

15,070 

Corporate Bonds and Notes - 18.9% 

Ace Capital Trust II 

9.700% due 04/01/30 175 134 

Allied Waste North America, Inc. 

Series B 

7.125% due 05/15/16 90 82 

Allstate Life Global Funding Trusts 

5.375% due 04/30/13 200 197 

Altria Group, Inc. 

9.700% due 11/10/18 275 297 

American Electric Power Co., Inc. (Ñ) 

Series C 

5.375% due 03/15/10 35 35 

American Express Bank FSB 

Series BKNT 

5.500% due 04/16/13 300 284 

6.000% due 09/13/17 400 375 

American Express Centurion Bank 

Series BKN1 

6.000% due 09/13/17 400 375 

American Express Co. 

7.000% due 03/19/18 200 202 

American General Finance Corp. 

4.875% due 05/15/10 225 134 

6.900% due 12/15/17 400 173 

American International Group, Inc. 

4.700% due 10/01/10 20 18 

5.850% due 01/16/18 900 603 

Americo Life, Inc. (Å) 

7.875% due 05/01/13 75 71 

Amgen, Inc. 

6.900% due 06/01/38 1,000 1,142 

58 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

ANZ Capital Trust (ƒ)(Þ) 

4.484% due 12/31/49 225 174 

Appalachian Power Co. 

Series O 

5.650% due 08/15/12 65 62 

ArcelorMittal USA (Ñ) 

6.500% due 04/15/14 210 149 

Arizona Public Service Co. 

5.800% due 06/30/14 100 84 

6.250% due 08/01/16 150 121 

AT&T, Inc. 

4.950% due 01/15/13 200 201 

5.500% due 02/01/18 200 202 

6.300% due 01/15/38 975 1,031 

6.400% due 05/15/38 400 428 

Bank of America Corp. 

5.625% due 10/14/16 115 113 

6.000% due 09/01/17 335 340 

5.750% due 12/01/17 490 489 

5.650% due 05/01/18 175 176 

8.000% due 12/29/49 (ƒ) 2,500 1,798 

8.125% due 12/29/49 (ƒ) 375 280 

Bank of America NA (Ê) 

Series BKNT 

2.276% due 06/15/16 200 134 

BankAmerica Capital III (Ê) 

Series* 

5.323% due 01/15/27 350 186 

Bear Stearns Cos. LLC (The) 

4.903% due 07/19/10 (Ê) 600 581 

6.950% due 08/10/12 600 623 

7.250% due 02/01/18 645 707 

Bellsouth Telecommunications, Inc. 

7.000% due 12/01/95 245 192 

BNP Paribas Capital Trust (ƒ)(Ñ)(Å) 

9.003% due 12/29/49 450 276 

Boardwalk Pipelines, LP 

5.875% due 11/15/16 225 188 

Burlington Northern Santa Fe Corp. 

6.875% due 12/01/27 25 25 

6.750% due 03/15/29 10 10 

Calpine Construction Finance Co., LP 

and CCFC Finance Corp. (Ê)(Þ) 

11.603% due 08/26/11 300 274 

Caterpillar Financial Services Corp. 

4.850% due 12/07/12 100 95 

Catlin Insurance Co., Ltd. (ƒ)(Å) 

7.249% due 12/31/49 100 40 

Cellco Partnership (Þ) 

8.500% due 11/15/18 225 264 

CenterPoint Energy Houston Electric 

LLC (Ñ) 

Series J2 

5.700% due 03/15/13 110 105 

CenterPoint Energy Resources Corp. 

6.125% due 11/01/17 50 42 

Series B 

7.875% due 04/01/13 165 153 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Chubb Corp. 

6.375% due 03/29/67 175 109 

Series 1 

6.500% due 05/15/38 50 48 

Citigroup Capital XXI 

8.300% due 12/21/57 250 193 

Citigroup, Inc. 

5.500% due 08/27/12 200 194 

5.500% due 04/11/13 700 682 

5.850% due 07/02/13 425 410 

6.500% due 08/19/13 565 570 

4.700% due 05/29/15 50 43 

5.850% due 08/02/16 (Ñ) 55 53 

6.000% due 08/15/17 400 398 

6.125% due 11/21/17 405 409 

6.125% due 08/25/36 300 269 

6.875% due 03/05/38 325 370 

8.400% due 04/29/49 (ƒ) 750 495 

CNA Financial Corp. 

6.500% due 08/15/16 125 89 

Columbus Southern Power Co. 

Series C 

5.500% due 03/01/13 10 10 

Comcast Cable Communications 

Holdings, Inc. (Ñ) 

9.455% due 11/15/22 125 140 

Comcast Cable Holdings LLC 

9.800% due 02/01/12 180 190 

7.875% due 08/01/13 245 252 

Comcast Corp. (Ñ) 

5.500% due 03/15/11 100 98 

Comcast Holdings Corp. 

10.625% due 07/15/12 125 133 

Commonwealth Edison Co. 

6.950% due 07/15/18 50 47 

5.900% due 03/15/36 75 62 

Series 105 

5.400% due 12/15/11 125 122 

Community Health Systems, Inc. (Ñ) 

Series WI 

8.875% due 07/15/15 235 216 

Continental Airlines, Inc. 

Series 071A 

5.983% due 04/19/22 150 101 

Series 991A 

6.545% due 08/02/20 298 238 

Countrywide Financial Corp. 

Series MTN 

5.800% due 06/07/12 100 97 

Countrywide Home Loans, Inc. 

Series MTNL 

4.000% due 03/22/11 290 276 

COX Communications, Inc. 

4.625% due 01/15/10 350 339 

5.875% due 12/01/16 (Þ) 75 67 

Credit Suisse USA, Inc. 

5.500% due 08/15/13 45 44 

4.875% due 01/15/15 (Ñ) 55 50 

Core Bond Fund 59





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

CSC Holdings, Inc. (Ñ) 

Series WI 

6.750% due 04/15/12 90 82 

CSX Corp. 

6.250% due 03/15/18 75 69 

DCP Midstream LLC 

6.875% due 02/01/11 20 19 

Dell, Inc. (Ñ) 

4.700% due 04/15/13 400 376 

Delta Air Lines, Inc. 

Series 00A2 

7.570% due 11/18/10 205 172 

Series 01A2 

7.111% due 09/18/11 400 320 

Detroit Edison Co. (The) 

6.350% due 10/15/32 50 47 

DPL, Inc. 

6.875% due 09/01/11 193 190 

Echostar DBS Corp. (Ñ) 

7.125% due 02/01/16 125 104 

El Paso Corp. (Ñ) 

8.050% due 10/15/30 200 130 

El Paso Natural Gas Co. 

7.500% due 11/15/26 100 83 

Energy Transfer Partners, LP 

5.950% due 02/01/15 325 279 

6.700% due 07/01/18 200 169 

Enterprise Products Operating LLC 

4.950% due 06/01/10 125 120 

6.500% due 01/31/19 100 84 

8.375% due 08/01/66 100 55 

Federal Express Corp. 

7.600% due 07/01/97 75 68 

Fifth Third Bancorp 

8.250% due 03/01/38 1,100 909 

FirstEnergy Corp. 

Series B 

6.450% due 11/15/11 280 265 

Series C 

7.375% due 11/15/31 125 118 

Ford Motor Credit Co. LLC 

7.875% due 06/15/10 200 160 

Frontier Communications Corp. (Ñ) 

9.250% due 05/15/11 125 119 

General Electric Capital Corp. 

4.573% due 01/20/10 (Ê) 200 191 

5.875% due 01/14/38 300 294 

6.375% due 11/15/67 (Ñ) 1,900 1,194 

Series GMTN (Ñ) 

5.500% due 04/28/11 220 225 

Series MTNA (Ê)(Ñ) 

2.256% due 09/15/14 300 231 

General Electric Co. 

5.250% due 12/06/17 150 150 

Goldman Sachs Group, Inc. (The) 

4.500% due 06/15/10 (Ñ) 125 123 

4.750% due 07/15/13 (Ñ) 350 315 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

6.250% due 09/01/17 600 582 

6.150% due 04/01/18 150 144 

6.750% due 10/01/37 800 649 

Series MTNB (Ê)(Ñ) 

4.459% due 07/22/15 100 70 

GrafTech Finance, Inc. 

10.250% due 02/15/12 12 11 

HCA, Inc. 

9.125% due 11/15/14 (Ñ) 125 116 

9.250% due 11/15/16 235 216 

HCP, Inc. 

5.950% due 09/15/11 300 249 

Historic TW, Inc. 

8.050% due 01/15/16 195 193 

HSBC Finance Corp. (Ê) 

2.179% due 03/12/10 300 273 

2.638% due 05/10/10 100 90 

Idearc, Inc. (Ñ) 

8.000% due 11/15/16 125 9 

ING Capital Funding Trust III (ƒ) 

8.439% due 12/29/49 275 138 

Inmarsat Finance PLC 

10.375% due 11/15/12 125 111 

International Lease Finance Corp. (Ñ) 

4.950% due 02/01/11 100 72 

International Paper Co. 

5.850% due 10/30/12 510 440 

Jackson National Life Fund LLC (Ê) 

2.981% due 08/06/11 2,800 2,668 

Jersey Central Power & Light Co. (Ñ) 

5.625% due 05/01/16 90 84 

JPMorgan Chase Capital XIII (Ê) 

Series M 

2.418% due 09/30/34 480 343 

JPMorgan Chase & Co. 

5.375% due 01/15/14 (Ñ) 170 172 

6.000% due 01/15/18 (Ñ) 200 211 

6.400% due 05/15/38 323 382 

Series 1 (ƒ) 

7.900% due 04/29/49 840 699 

JPMorgan Chase Bank NA 

Series BKNT 

5.875% due 06/13/16 70 70 

6.000% due 10/01/17 400 403 

Kerr-McGee Corp. 

6.950% due 07/01/24 125 110 

KeyBank NA (Ê) 

Series BKNT 

4.467% due 06/02/10 300 289 

Kinder Morgan Energy Partners, LP 

5.950% due 02/15/18 700 597 

Kraft Foods, Inc. 

6.500% due 08/11/17 100 101 

6.125% due 02/01/18 200 196 

L-3 Communications Corp. 

Series B 

6.375% due 10/15/15 125 117 

60 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Lehman Brothers Holdings, Inc. (Ø) 

2.951% due 05/25/10 (Ê) 200 18 

5.625% due 01/24/13 200 19 

6.200% due 09/26/14 200 19 

Manufacturers & Traders Trust Co. 

5.585% due 12/28/20 84 60 

Merrill Lynch & Co., Inc. 

6.050% due 08/15/12 100 99 

5.450% due 02/05/13 200 192 

6.400% due 08/28/17 325 326 

6.875% due 04/25/18 500 523 

MetLife, Inc. 

6.125% due 12/01/11 205 202 

6.400% due 12/15/36 100 60 

Series A 

6.817% due 08/15/18 200 190 


Funding I (Ê)(Þ) 

2.189% due 05/17/10 400 359 

Midamerican Energy Holdings Co. 

5.750% due 04/01/18 125 122 

6.125% due 04/01/36 150 139 

Mirant Mid Atlantic Trust 

Series A 

8.625% due 06/30/12 295 268 

Mohegan Tribal Gaming Authority (Ñ) 

8.000% due 04/01/12 125 76 


4.233% due 05/14/10 (Ê) 400 372 

4.209% due 03/01/13 (Ê) 600 612 

4.953% due 10/18/16 (Ê) 435 299 

6.250% due 08/28/17 100 85 

5.950% due 12/28/17 125 104 

6.625% due 04/01/18 450 395 

Series GMTN 

5.750% due 08/31/12 125 117 

Series MTN (Ê)(Ñ) 

4.843% due 01/15/10 300 276 

Nationwide Life Global Funding I (Ê)(Þ) 

2.439% due 05/19/10 1,900 1,856 

Nelnet, Inc. 

7.400% due 09/29/36 125 37 

Nevada Power Co. 

Series L 

5.875% due 01/15/15 100 96 

New Cingular Wireless Services, Inc. 

7.875% due 03/01/11 150 155 

News America Holdings, Inc. 

7.900% due 12/01/95 90 81 

8.250% due 10/17/96 20 19 

News America, Inc. 

6.650% due 11/15/37 225 223 

NGPL Pipeco LLC (Þ) 

6.514% due 12/15/12 200 190 

Nisource Finance Corp. 

7.875% due 11/15/10 125 114 

6.400% due 03/15/18 145 90 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Norfolk Southern Corp. 

7.900% due 05/15/97 415 455 

Ohio Power Co. (Ñ) 

Series F 

5.500% due 02/15/13 20 19 

Oncor Electric Delivery Co. (Þ) 

6.800% due 09/01/18 550 527 

ONEOK Partners, LP 

6.650% due 10/01/36 100 77 

6.850% due 10/15/37 100 79 

Philip Morris International, Inc. 

5.650% due 05/16/18 350 347 

6.375% due 05/16/38 100 104 

Phoenix Life Insurance Co. (Þ) 

7.150% due 12/15/34 150 92 

PNC Bank NA 

Series BKNT 

6.875% due 04/01/18 250 266 

Progress Energy, Inc. 

7.100% due 03/01/11 77 76 

5.625% due 01/15/16 40 37 

Public Service Co. of New Mexico 

7.950% due 05/15/18 260 212 

Pulte Homes, Inc. 

5.250% due 01/15/14 1,000 715 

Qwest Corp. 

7.625% due 06/15/15 100 82 

RBS Capital Trust III (ƒ)(Ñ) 

5.512% due 09/29/49 200 80 

Reckson Operating Partnership, LP 

5.150% due 01/15/11 92 68 

Reinsurance Group of America, Inc. 

6.750% due 12/15/65 75 28 

Rohm & Haas Co. 

6.000% due 09/15/17 100 91 

Sabine Pass LNG, LP (Ñ) 

7.250% due 11/30/13 275 201 

Simon Property Group, LP 

5.600% due 09/01/11 200 167 

5.300% due 05/30/13 765 572 

6.100% due 05/01/16 130 83 

6.125% due 05/30/18 (Ñ) 175 118 

SLM Corp. 

Series MTN 

5.400% due 10/25/11 100 76 

5.125% due 08/27/12 75 56 

8.450% due 06/15/18 100 79 

State Street Capital Trust III (ƒ) 

8.250% due 12/29/49 200 155 

Sun Life Financial Global 

Funding, LP (Ê)(Þ) 

1.718% due 07/06/10 1,500 1,481 

Swiss Re Capital I, LP (ƒ)(Þ) 

6.854% due 05/29/49 225 72 

Symetra Financial Corp. (Å) 

6.125% due 04/01/16 150 123 

Core Bond Fund 61





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Target Corp. (Ñ) 

5.125% due 01/15/13 400 395 

Tennessee Gas Pipeline Co. (Ñ) 

7.000% due 10/15/28 50 38 

TEPPCO Partners, LP 

6.650% due 04/15/18 250 202 

Time Warner Cable, Inc. 

Series WI 

5.400% due 07/02/12 300 280 

6.550% due 05/01/37 75 72 

Time Warner, Inc. 

5.875% due 11/15/16 400 359 

Travelers Cos., Inc. (The) 

6.250% due 06/15/37 100 96 

Union Electric Co. 

6.400% due 06/15/17 205 187 

Union Pacific Corp. 

5.700% due 08/15/18 400 385 

United States Steel Corp. 

5.650% due 06/01/13 35 26 

6.050% due 06/01/17 95 62 

6.650% due 06/01/37 40 20 

UnitedHealth Group, Inc. 

5.250% due 03/15/11 (Ñ) 95 89 

4.875% due 02/15/13 (Ñ) 200 187 

6.000% due 06/15/17 35 32 

Series WI 

6.500% due 06/15/37 45 38 

Valero Energy Corp. 

6.625% due 06/15/37 225 165 

Verizon Communications, Inc. 

6.400% due 02/15/38 175 186 

Wachovia Capital Trust III (ƒ) 

5.800% due 03/15/42 125 74 

Wachovia Corp. 

5.500% due 05/01/13 450 445 

5.625% due 10/15/16 100 91 

5.750% due 06/15/17 (Ñ) 155 154 

5.750% due 02/01/18 (Ñ) 500 501 

Wells Fargo & Co. 

5.625% due 12/11/17 800 835 

Series K (ƒ)(Ñ) 

7.980% due 02/28/49 3,585 3,056 

Wells Fargo Capital XIII (ƒ) 

Series GMTN 

7.700% due 12/29/49 150 124 

Wells Fargo Capital XV (ƒ)(Ñ) 

9.750% due 12/29/49 150 152 

Windstream Corp. 

Series WI 

8.625% due 08/01/16 125 111 

XTO Energy, Inc. 

6.500% due 12/15/18 325 315 

ZFS Finance USA Trust I (Þ) 

6.150% due 12/15/65 500 280 

60,233 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

International Debt - 5.3% 

America Movil SAB de CV 

5.500% due 03/01/14 100 92 

ANZ National International, Ltd. (Þ) 

6.200% due 07/19/13 600 581 

ArcelorMittal 

6.125% due 06/01/18 300 205 

AstraZeneca PLC 

5.900% due 09/15/17 100 106 

AXA SA (ƒ)(Þ) 

6.463% due 12/14/18 100 44 

Ballyrock CDO, Ltd. (Ê)(Å) 

Series 2005-3A Class A2 

3.765% due 07/25/17 1,000 764 

Barclays Bank PLC 

5.450% due 09/12/12 1,300 1,316 

6.050% due 12/04/17 (Þ) 200 176 

Barrick Gold Financeco LLC (Ñ) 

6.125% due 09/15/13 270 256 

BAT International Finance PLC (Þ) 

9.500% due 11/15/18 200 222 

Black Diamond CLO, Ltd. (Ê)(Å) 

Series 2007-1A Class AD 

3.758% due 04/29/19 1,000 700 

BNP Paribas (ƒ) 

5.186% due 06/29/49 300 170 

Callidus Debt Partners Fund, Ltd. (Ê)(Å) 

Series 2003-2A Class A 

2.649% due 05/15/15 973 779 

Canadian Natural Resources, Ltd. 

5.150% due 02/01/13 100 93 

5.700% due 05/15/17 75 65 

6.500% due 02/15/37 100 82 

Credit Suisse NY 

5.000% due 05/15/13 330 318 

6.000% due 02/15/18 450 413 

Deutsche Bank AG/London 

6.000% due 09/01/17 600 637 

Deutsche Telekom International 

Finance BV 

5.375% due 03/23/11 (Ñ) 75 74 

8.750% due 06/15/30 100 123 

Egypt Government AID Bonds 

4.450% due 09/15/15 295 319 

EnCana Corp. 

6.500% due 02/01/38 225 181 

Endurance Specialty Holdings, Ltd. 

6.150% due 10/15/15 100 87 

Enel Finance International SA (Þ) 

6.250% due 09/15/17 600 507 

HBOS PLC (Þ) 

6.750% due 05/21/18 825 726 

HSBC Holdings PLC 

6.500% due 05/02/36 100 102 

6.500% due 09/15/37 100 102 

Inco, Ltd. 

5.700% due 10/15/15 175 144 

62 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Ispat Inland ULC 

9.750% due 04/01/14 689 590 

Korea Development Bank (Ê) 

1.565% due 04/03/10 900 869 

Korea Electric Power Corp. (Þ) 

5.125% due 04/23/34 60 53 

Loomis Sayles, Ltd. (Ê)(Þ) 

Series 2006-1A Class A 

3.765% due 10/26/20 1,500 999 

MUFG Capital Finance 1, Ltd. (ƒ) 

6.346% due 07/29/49 200 139 

National Australia Bank, Ltd. (Þ) 

5.350% due 06/12/13 800 771 

Ras Laffan Liquefied Natural Gas Co., 

Ltd. III (Þ) 

5.838% due 09/30/27 250 151 

Resona Bank, Ltd. (ƒ)(Þ) 

5.850% due 09/29/49 100 57 

Resona Preferred Global Securities 

Cayman, Ltd. (ƒ)(Þ) 

7.191% due 12/29/49 325 155 

Rogers Communications, Inc. 

6.800% due 08/15/18 200 202 

Royal Bank of Scotland Group PLC 

6.990% due 10/29/49 (ƒ)(Þ) 450 210 

Series 1 (ƒ) 

9.118% due 03/31/49 700 598 

Santander Perpetual SA Unipersonal (ƒ)(Þ) 

6.671% due 10/29/49 300 191 

SMFG Preferred Capital USD 1, Ltd. (ƒ)(Þ) 

6.078% due 01/29/49 100 67 

Sumitomo Mitsui Banking Corp. (ƒ)(Þ) 

5.625% due 07/29/49 300 222 

Systems 2001 AT LLC (Þ) 

7.156% due 12/15/11 73 64 

Telecom Italia Capital SA 

6.200% due 07/18/11 255 226 

7.721% due 06/04/38 200 164 

Thomson Reuters Corp. 

6.500% due 07/15/18 225 205 

TransCapitalInvest, Ltd. for 

OJSC AK Transneft (Þ) 

8.700% due 08/07/18 100 64 

Transocean, Ltd. 

6.800% due 03/15/38 150 134 

UBS AG 

3.779% due 05/05/10 (Ê) 700 699 

Series DPNT 

5.875% due 12/20/17 400 367 

5.750% due 04/25/18 100 91 

UBS Luxembourg SA for OJSC 

Vimpel Communications 

Series REGS 

8.250% due 05/23/16 100 54 

WEA Finance LLC / WCI Finance LLC (Þ) 

5.400% due 10/01/12 125 96 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Westfield Capital Corp., Ltd. / 

WT Finance Aust Pty Ltd / 

WEA Finance LLC (Þ) 

5.125% due 11/15/14 125 87 

Xstrata Canada Corp. 

7.250% due 07/15/12 50 39 

6.000% due 10/15/15 45 30 

16,978 

Loan Agreements - 0.4% 

Adam Aircraft Industries, Term Loan (Å) 

14.890% due 05/23/12 56 5 

NRG Energy, Inc. Term Loan B (Ê) 

2.959% due 02/01/13 1,579 1,326 

1,331 

Mortgage-Backed Securities - 78.1% 

ABN Amro Mortgage Corp. 


5.500% due 01/25/34 1,710 1,293 

Adjustable Rate Mortgage Trust (Ê) 


4.996% due 04/25/35 76 46 


0.711% due 07/25/35 126 60 

American Home Mortgage Assets (Ê) 


0.661% due 08/25/37 1,060 339 

American Home Mortgage Investment 

Trust (Ê) 

Series 2004-4 Class 4A 

4.390% due 02/25/45 105 53 

Banc of America Alternative Loan Trust 

Series 2003-2 Class CB2 (Ê) 

0.971% due 04/25/33 72 62 

Series 2003-10 Class 2A2 (Ê) 

0.921% due 12/25/33 177 138 

Series 2006-5 Class CB17 

6.000% due 06/25/46 198 117 


Inc. 


4.875% due 06/10/39 217 215 


4.783% due 07/10/43 333 301 


4.501% due 07/10/43 150 138 


5.115% due 10/10/45 500 408 


5.372% due 09/10/45 280 224 


5.739% due 05/10/45 200 163 

Banc of America Funding Corp. 

Series 2005-D Class A1 (Ê) 

4.155% due 05/25/35 124 88 

Core Bond Fund 63





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


5.500% due 03/25/36 475 382 

Series 2006-A Class 3A2 

5.850% due 02/20/36 161 86 

Series 2006-A Class 4A1 (Ê) 

5.562% due 02/20/36 419 266 

Banc of America Mortgage Securities, Inc. 


0.921% due 12/25/33 344 312 


6.500% due 09/25/33 13 12 


0.921% due 03/25/34 177 164 


5.750% due 01/25/35 376 316 

Series 2005-H Class 2A5 (Ê) 

4.805% due 09/25/35 220 123 

Series 2005-L Class 3A1 (Ê) 

5.460% due 01/25/36 218 169 


6.000% due 07/25/36 212 173 

Series 2006-B Class 1A1 (Ê) 

6.153% due 11/20/36 121 60 


6.000% due 09/25/37 831 523 

Bear Stearns Adjustable Rate Mortgage 

Trust (Ê) 


5.037% due 04/25/33 54 43 


5.176% due 01/25/34 92 58 


4.707% due 04/25/34 82 57 


4.786% due 11/25/34 84 63 


4.125% due 03/25/35 1,282 1,085 


5.076% due 06/25/35 284 140 

Bear Stearns Alt-A Trust 


5.364% due 05/25/35 209 141 


5.495% due 09/25/35 99 46 


0.631% due 08/25/36 788 312 

Bear Stearns Alt-A Trust II 


6.196% due 09/25/47 865 392 

Bear Stearns Commercial Mortgage 

Securities 

Series 2005-T20 Class A4A 

5.151% due 10/12/42 600 518 

Series 2006-PW1 Class A4 

5.540% due 09/11/41 1,000 784 

Bear Stearns Mortgage Funding Trust (Ê) 

Series 2006-AR2 Class 1A1 

0.671% due 09/25/46 827 337 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


0.701% due 10/25/36 734 286 

Chase Mortgage Finance Corp. 

Series 2003-S8 Class A1 

4.500% due 09/25/18 134 124 


6.000% due 12/25/36 216 198 


6.000% due 12/25/36 139 136 

Series 2007-A1 Class 1A3 (Ê) 

4.884% due 02/25/37 571 486 

Citigroup Commercial Mortgage Trust 

Series 2006-C4 Class A3 

5.724% due 03/15/49 330 259 

Citigroup Mortgage Loan Trust, Inc. 

Series 2005-11 Class A2A (Ê) 

4.700% due 12/25/35 72 52 

Series 2007-AR8 Class 2A1A 

5.912% due 07/25/37 209 123 

Citigroup/Deutsche Bank Commercial 

Mortgage Trust 

Series 2005-CD1 Class A4 (Ê) 

5.225% due 07/15/44 1,340 1,112 

Series 2006-CD3 Class A5 

5.617% due 10/15/48 190 151 

Citimortgage Alternative Loan Trust 

Series 2006-A3 Class 1A5 

6.000% due 07/25/36 132 80 

Commercial Mortgage Pass Through 

Certificates 


5.306% due 12/10/46 200 146 

Series 2007-C9 Class A4 (Ê) 

5.816% due 12/10/49 360 273 

Countrywide Alternative Loan Trust 

Series 2005-1CB Class 2A1 

6.000% due 03/25/35 591 390 

Series 2005-32T Class A7 (Ê) 

0.721% due 08/25/35 129 85 

Series 2005-J8 Class 1A3 

5.500% due 07/25/35 192 164 


5.500% due 11/25/35 128 77 

Series 2006-9T1 Class A7 

6.000% due 05/25/36 96 60 

Series 2006-43C Class 1A7 

6.000% due 02/25/37 254 134 

Series 2006-J2 Class A3 

6.000% due 04/25/36 149 136 

Series 2006-OA1 Class 2A1 (Ê) 

0.718% due 03/20/46 570 234 


0.661% due 08/25/46 621 242 

Series 2006-OA1 Class A1 (Ê) 

0.688% due 02/20/47 754 310 

Series 2007-15C Class A5 

5.750% due 07/25/37 872 418 

64 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


6.000% due 07/25/37 250 112 

Series 2007-OA1 Class A1A (Ê) 

3.636% due 04/25/43 956 362 


Through Trust 

Series 2003-8 Class A2 (Ê) 

0.971% due 05/25/18 145 122 


5.292% due 02/19/34 184 116 


0.871% due 09/25/34 153 60 


4.789% due 11/25/34 204 127 

Series 2004-HYB Class 1A1 (Ê) 

4.730% due 02/20/35 357 222 

Series 2004-HYB Class A2 (Ê) 

4.540% due 11/20/34 89 47 


0.761% due 03/25/35 1,799 838 


0.761% due 04/25/35 27 13 

Series 2005-HYB Class 2A1 (Ê) 

4.897% due 08/20/35 370 184 

Series 2005-HYB Class 3A2A (Ê) 

5.250% due 02/20/36 66 36 


0.671% due 04/25/46 737 289 


6.000% due 09/25/37 928 556 


6.500% due 11/25/37 234 150 

Series 2007-HY1 Class 1A2 (Ê) 

5.680% due 04/25/37 87 25 

Credit Suisse Mortgage Capital Certificates 


6.500% due 10/25/21 756 444 


5.658% due 03/15/39 100 81 

Credit Suisse First Boston Mortgage 

Securities Corp. 


5.500% due 10/25/35 436 294 

Deutsche ALT-A Securities, Inc. Alternate 

Loan Trust (Ê) 


4.964% due 08/25/35 465 286 

Series 2007-OA1 Class A1 

0.621% due 02/25/47 2,804 1,088 

Series 2007-OA2 Class A1 

3.249% due 04/25/47 1,557 664 

DLJ Commercial Mortgage Corp. 

Series 1999-CG1 Class S (Ê) 

Interest Only STRIP 

0.900% due 03/10/32 2,034 12 

Fannie Mae 

5.190% due 2012 206 212 

6.000% due 2016 11 11 

3.848% due 2017 (Ê) 41 41 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

5.000% due 2017 433 449 

6.000% due 2017 65 68 

4.000% due 2018 694 712 

4.500% due 2018 3,763 3,871 

5.000% due 2018 188 194 

4.500% due 2019 757 775 

5.000% due 2019 924 953 

6.000% due 2019 388 404 

4.500% due 2020 323 333 

5.000% due 2020 758 780 

5.500% due 2020 193 199 

6.000% due 2020 487 508 

4.500% due 2021 493 505 

5.000% due 2021 1,168 1,201 

5.500% due 2021 354 365 

4.500% due 2022 55 57 

5.500% due 2022 346 357 

4.500% due 2023 5,377 5,513 

5.000% due 2023 6,598 6,793 

6.500% due 2024 430 447 

6.000% due 2026 932 962 

6.000% due 2027 463 477 

6.000% due 2028 30 31 

5.500% due 2029 91 95 

6.000% due 2032 466 482 

7.000% due 2032 143 151 

3.823% due 2033 (Ê) 170 164 

4.588% due 2033 (Ê) 75 75 

5.000% due 2033 537 550 

5.500% due 2033 2,373 2,438 

6.000% due 2033 177 183 

5.000% due 2034 1,409 1,441 

5.500% due 2034 1,517 1,557 

5.000% due 2035 3,313 3,388 

5.500% due 2035 2,133 2,191 

6.000% due 2035 218 224 

4.343% due 2036 (Ê) 376 375 

5.000% due 2036 2,448 2,503 

6.000% due 2036 2,592 2,666 

6.500% due 2036 125 131 

7.000% due 2036 23 24 

5.000% due 2037 5,044 5,156 

5.500% due 2037 4,658 4,786 

5.560% due 2037 (Ê) 263 269 

6.000% due 2037 3,782 3,893 

6.500% due 2037 2,871 2,967 

7.000% due 2037 660 692 

7.500% due 2037 1,610 1,690 

5.000% due 2038 1,981 2,025 

5.500% due 2038 11,584 11,897 

6.000% due 2038 3,947 4,067 

6.500% due 2038 159 166 

7.000% due 2038 166 174 

7.500% due 2038 844 886 

Series 2003-343 Class 6 


5.000% due 10/01/33 247 25 

Core Bond Fund 65





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 



4.500% due 12/01/18 645 57 



4.500% due 01/01/19 720 63 



5.500% due 12/01/35 967 104 



5.500% due 04/01/36 199 28 

15 Year TBA (Ï) 

5.000% 2,080 2,121 


4.500% 684 693 

5.500% 43,185 42,222 

6.000% 21,000 21,617 

6.500% 4,000 4,154 

Fannie Mae REMICS 

Series 1999-56 Class Z 

7.000% due 12/18/29 90 97 

Series 2003-32 Class FH (Ê) 

0.871% due 11/25/22 270 265 

Series 2003-35 Class FY (Ê) 

0.871% due 05/25/18 343 338 

Series 2003-78 Class FI (Ê) 

0.871% due 01/25/33 280 273 

Series 2004-21 Class FL (Ê) 

0.821% due 11/25/32 133 130 

Series 2005-79 Class FC (Ê) 

0.771% due 02/25/22 125 122 

Series 2006-48 Class LG 

Principal Only STRIP 

Zero coupon due 06/25/36 66 58 

Series 2008-56 Class FD (Ê) 

1.411% due 07/25/48 961 892 

Fannie Mae Whole Loan 

Series 2003-W1 Class 1A1 

6.500% due 12/25/42 35 36 

Federal Home Loan Mortgage Corp. 

Structured Pass Through Securities (Ê) 


3.679% due 02/25/45 28 26 


Securities 

Series 2004-AA3 Class A1 (Ê) 

5.309% due 09/25/34 45 27 

Series 2006-AA5 Class A2 (Ê) 

6.510% due 09/25/36 133 33 

Series 2006-FA3 Class A6 

6.000% due 07/25/36 187 116 

First Horizon Asset Securities, Inc. (Ê) 


4.750% due 12/25/34 38 28 


5.538% due 10/25/35 105 84 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Freddie Mac 

6.000% due 2016 20 21 

5.000% due 2018 534 552 

5.000% due 2019 607 627 

5.000% due 2020 1,135 1,169 

5.500% due 2020 637 659 

5.376% due 2030 (Ê) 1 1 

5.000% due 2033 186 190 

4.884% due 2034 (Ê) 66 66 

5.000% due 2035 1,916 1,961 

5.871% due 2036 (Ê) 94 96 

5.923% due 2036 (Ê) 174 177 

5.968% due 2036 (Ê) 133 136 

5.470% due 2037 (Ê) 133 136 

5.500% due 2037 1,869 1,875 

5.526% due 2037 (Ê) 405 412 

5.687% due 2037 (Ê) 536 548 

5.702% due 2037 (Ê) 83 85 

5.723% due 2037 (Ê) 211 215 

5.752% due 2037 (Ê) 171 175 

5.805% due 2037 (Ê) 172 176 

5.844% due 2037 (Ê) 60 62 

5.873% due 2037 (Ê) 85 87 

6.000% due 2037 1,136 1,172 

5.500% due 2038 7,178 7,355 

6.000% due 2038 8,405 8,667 


5.500% 5,000 5,117 

6.000% 1,900 1,957 

Freddie Mac REMICS 

Series 2000-226 Class F (Ê) 

1.645% due 11/15/30 15 14 

Series 2003-256 Class FJ (Ê) 

1.595% due 02/15/33 120 117 

Series 2003-262 Class AB 

2.900% due 11/15/14 142 141 

Series 2004-281 Class DF (Ê) 

1.645% due 06/15/23 102 100 

Series 2005-294 Class FA (Ê) 

1.365% due 03/15/20 186 181 

Series 2005-299 Class KF (Ê) 

1.595% due 06/15/35 62 61 

Series 2005-301 Class IM 


5.500% due 01/15/31 127 10 

Series 2006-313 Class FP (Ê)(Å) 


Zero coupon due 04/15/36 125 113 

Series 2006-317 Class XI (Ê)(Å) 


Zero coupon due 10/15/35 126 — 

Series 2006-323 Class PA 

6.000% due 03/15/26 210 213 

Series 2007-330 Class GL (Ê)(Å) 

12.343% due 04/15/37 60 69 

Series 2007-333 Class AF (Ê) 

1.345% due 10/15/20 1,621 1,569 

66 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Series 2007-333 Class BF (Ê) 

1.345% due 07/15/19 291 283 

Series 2007-333 Class FT (Ê) 

1.345% due 08/15/19 1,157 1,122 

Series 2007-334 Class FA (Ê) 

1.425% due 02/15/19 1,151 1,106 

Series 2008-345 Class MB 

4.500% due 06/15/23 1,635 1,598 

Ginnie Mae I 

6.000% due 2029 11 12 


5.500% 410 422 

Ginnie Mae II (Ê) 

5.375% due 2026 165 165 

4.625% due 2027 10 10 

4.750% due 2032 66 65 

GMAC Commercial Mortgage 

Securities, Inc. 


6.945% due 09/15/33 115 115 

GMAC Mortgage Corp. Loan Trust (Ê) 

Series 2004-JR1 Class A6 

0.921% due 12/25/33 85 58 


Association (Ê) 

Series 1999-40 Class FE 

1.590% due 11/16/29 94 93 

Series 2000-29 Class F 

1.008% due 09/20/30 18 17 

Greenwich Capital Commercial Funding 

Corp. 


4.022% due 01/05/36 78 76 

Series 2004-GG1 Class A7 

5.317% due 06/10/36 465 387 


5.914% due 07/10/38 290 226 


5.444% due 03/10/39 315 240 

GS Mortgage Securities Corp. II 


5.553% due 04/10/38 320 259 

Series 2006-GG8 Class AAB 

5.535% due 11/10/39 200 151 

GSR Mortgage Loan Trust 

Series 2005-AR7 Class 6A1 (Ê) 

5.244% due 11/25/35 242 180 

Harborview Mortgage Loan Trust (Ê) 

Series 2005-3 Class 2A1A 

0.821% due 06/19/35 1,615 743 


5.142% due 07/19/35 161 88 


5.303% due 12/19/35 88 74 


0.831% due 01/19/36 392 181 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Indymac Index Mortgage Loan Trust 

Series 2005-AR1 Class A1 (Ê) 

5.404% due 09/25/35 633 338 


0.551% due 11/25/36 83 76 

Series 2006-AR3 Class 2A1A (Ê) 

0.641% due 01/25/37 729 227 


5.970% due 06/25/36 769 484 


6.201% due 05/25/37 809 398 

JPMorgan Alternative Loan Trust (Ê) 


0.571% due 06/25/37 457 348 

JPMorgan Chase Commercial Mortgage 

Securities Corp. 

Series 2001-CIB Class A2 

6.244% due 04/15/35 75 74 

Series 2004-LN2 Class A1 

4.475% due 07/15/41 317 294 

Series 2005-LDP Class A3A1 

4.871% due 10/15/42 210 180 

Series 2005-LDP Class A4 

4.918% due 10/15/42 325 256 

5.179% due 12/15/44 390 313 

Series 2006-CB1 Class A4 

5.552% due 05/12/45 220 170 


5.336% due 05/15/47 305 229 

Series 2006-LDP Class A3B 

5.447% due 05/15/45 250 174 


5.875% due 04/15/45 650 519 

5.399% due 05/15/45 290 221 

Series 2007-CB1 Class A4 

5.440% due 06/12/47 1,200 866 

5.747% due 02/12/49 340 250 

Series 2007-LD1 Class A4 

5.882% due 02/15/51 380 270 


5.420% due 01/15/49 975 689 

JPMorgan Mortgage Trust 

Series 2005-A1 Class 6T1 (Ê) 

5.024% due 02/25/35 122 92 

Series 2005-A5 Class TA1 

5.432% due 08/25/35 1,043 768 


4.740% due 07/25/35 720 587 

Series 2007-S3 Class 1A35 

6.000% due 07/25/37 1,188 629 

LB-UBS Commercial Mortgage Trust 


5.156% due 02/15/31 1,000 794 


5.661% due 03/15/39 210 171 

Series 2006-C4 Class A4 (Ê) 

5.883% due 06/15/38 105 86 

Core Bond Fund 67





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


5.858% due 07/15/40 270 192 

Lehman Mortgage Trust 


5.500% due 01/25/36 556 384 


0.891% due 12/25/36 814 337 

Lehman XS Trust (Ê) 

Series 2007-7N Class 1A2 

0.711% due 06/25/47 929 314 

Mastr Adjustable Rate Mortgages Trust (Ê) 


3.788% due 11/21/34 65 63 

Mastr Alternative Loans Trust 

Series 2003-4 Class B1 (Ê) 

5.688% due 06/25/33 181 149 


5.750% due 09/25/34 170 138 

Mastr Asset Securitization Trust (Ê) 


0.871% due 09/25/33 205 184 


0.921% due 04/25/34 79 77 

Mellon Residential Funding Corp. (Ê) 

Series 2000-TBC Class A1 

1.675% due 06/15/30 164 135 

Merrill Lynch Floating Trust (Ê)(Þ) 


1.265% due 06/15/22 720 546 

Merrill Lynch Mortgage Investors, Inc. (Ê) 

Series 2005-A10 Class A 

0.681% due 02/25/36 92 49 


Mortgage Trust 


5.485% due 03/12/51 100 69 

MLCC Mortgage Investors, Inc. (Ê) 

Series 2004-HB1 Class A2 

3.551% due 04/25/29 31 20 

Series 2005-3 Class 5A 

0.721% due 11/25/35 55 38 

Morgan Stanley Capital I 

Series 2005-HQ6 Class A4A 

4.989% due 08/13/42 740 605 

Series 2005-IQ1 Class AAB 

5.178% due 09/15/42 415 339 

Series 2006-HQ1 Class A4 

5.328% due 11/12/41 130 101 

Series 2006-HQ8 Class A4 (Ê) 

5.387% due 03/12/44 310 251 

Series 2006-HQ9 Class A4 

5.731% due 07/12/44 295 228 

Series 2007-IQ1 Class A4 

5.809% due 12/12/49 320 240 

MortgageIT Trust (Ê) 


0.721% due 11/25/35 444 206 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Prime Mortgage Trust (Ê) 

Series 2004-CL1 Class 1A2 

0.871% due 02/25/34 34 30 

Residential Accredit Loans, Inc. 

Series 2004-QS5 Class A6 (Ê) 

1.071% due 04/25/34 53 43 

Series 2004-QS8 Class A4 (Ê) 

0.871% due 06/25/34 258 213 

Series 2005-QA8 Class NB3 (Ê) 

5.486% due 07/25/35 232 141 

Series 2005-QO5 Class A1 (Ê) 

3.256% due 01/25/46 2,177 937 

Series 2005-QS1 Class 2A3 

5.750% due 09/25/35 656 571 

Series 2006-QS6 Class 1A13 

6.000% due 06/25/36 298 181 

Series 2007-QH9 Class A1 (Ê) 

5.487% due 11/25/37 960 300 

Residential Asset Securitization Trust 


0.921% due 02/25/34 294 238 


6.000% due 05/25/37 120 72 

Residential Funding Mortgage Securities I (Ê) 


0.921% due 11/25/18 156 156 


0.871% due 07/25/18 169 106 


0.971% due 12/25/33 55 55 

Series 2005-SA4 Class 2A1 

5.204% due 09/25/35 642 395 

Series 2006-SA4 Class 2A1 (Ê) 

6.128% due 11/25/36 427 221 

Sequoia Mortgage Trust 


0.931% due 10/19/26 55 44 

Structured Adjustable Rate Mortgage Loan 

Trust 


4.380% due 05/25/34 131 84 


5.250% due 09/25/34 61 29 


5.450% due 11/25/34 226 128 


6.007% due 11/25/35 1,168 594 


5.929% due 01/25/37 791 415 

Structured Asset Mortgage Investments, 

Inc. (Ê) 

Series 2005-AR5 Class A3 

0.831% due 07/19/35 159 107 


0.701% due 02/25/36 546 227 

Series 2006-AR8 Class A1A 

0.671% due 10/25/36 768 303 

68 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


3.979% due 08/25/47 954 420 

Structured Asset Securities Corp. 

Series 2004-21X Class 1A3 

4.440% due 12/25/34 262 257 

Thornburg Mortgage Securities Trust (Ê) 


1.151% due 04/25/43 72 62 


0.591% due 09/25/46 673 558 


0.581% due 11/25/46 121 100 

Wachovia Bank Commercial Mortgage Trust (Ê) 


5.209% due 10/15/44 1,000 817 

Washington Mutual Alternative Mortgage 

Pass-Through Certificates 

Series 2005-4 Class CB11 

5.500% due 06/25/35 90 63 

Series 2007-OA1 Class 2A (Ê) 

2.976% due 12/25/46 722 220 

Washington Mutual Mortgage Pass Through 

Certificates 

Series 2003-S9 Class A2 (Ê) 

1.021% due 10/25/33 313 293 


4.243% due 06/25/34 143 101 


4.834% due 10/25/35 246 194 

Series 2005-AR1 Class A1A1 (Ê) 

0.761% due 10/25/45 34 19 

0.731% due 11/25/45 852 418 

0.741% due 12/25/45 420 197 

Series 2005-AR6 Class B3 (Ê)(Å) 

1.131% due 04/25/45 197 24 

Series 2006-AR1 Class 3A1A (Ê) 

3.176% due 09/25/46 722 273 


5.297% due 03/25/37 728 520 

Series 2007-HY3 Class 4B1 (Ê) 

5.347% due 03/25/37 124 41 

Series 2007-HY4 Class 1A1 (Ê) 

5.526% due 04/25/37 146 77 

Wells Fargo Alternative Loan Trust 

Series 2007-PA6 Class A1 (Ê) 

6.600% due 12/26/37 834 379 

Wells Fargo Mortgage Backed Securities Trust 


5.034% due 04/25/35 688 505 


5.500% due 03/25/36 388 344 


4.950% due 03/25/36 287 187 


6.000% due 07/25/37 336 218 


6.250% due 07/25/37 159 145 

249,287 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Municipal Bonds - 0.6% 

Chicago Transit Authority 

Revenue Bonds 

6.899% due 12/01/40 400 410 

Los Angeles Unified School District 

General Obligation Unlimited (μ) 

4.500% due 07/01/22 400 375 

New York City Municipal Water Finance 

Authority Revenue Bonds 

4.750% due 06/15/37 1,300 1,131 

1,916 

Non-US Bonds - 0.4% 

Bombardier, Inc. (Å) 

7.250% due 11/15/16 EUR 125 104 

Brazilian Government International Bond 

12.500% due 01/05/22 BRL 300 133 

Federative Republic of Brazil 

10.250% due 01/10/28 BRL 1,400 540 

Hellas Telecommunications Luxembourg V (Ê) 

Series REGS 

8.818% due 10/15/12 EUR 125 103 

Impress Holdings B.V. 

8.443% due 09/15/13 EUR 125 130 

Ineos Group Holdings PLC 

Series REGS 

7.875% due 02/15/16 EUR 125 21 

UBS AG 

5.849% due 12/31/17 EUR 270 48 

1,079 

United States Government Agencies - 0.3% 

Federal Home Loan Mortgage Corp. 

5.000% due 12/14/18 100 104 

Freddie Mac 

5.125% due 11/17/17 (Ñ) 700 811 

4.875% due 06/13/18 100 115 

1,030 

United States Government Treasuries - 3.0% 

United States Treasury Principal (Ñ) 


Zero coupon due 11/15/21 1,938 1,256 

United States Treasury Inflation Indexed 

Bonds 

2.000% due 07/15/14 (Ñ) 1,149 1,087 

2.000% due 01/15/16 (Ñ) 1,924 1,843 

2.500% due 07/15/16 (Ñ) 322 319 

2.625% due 07/15/17 314 321 

2.000% due 01/15/26 (Ñ) 1,201 1,131 

2.375% due 01/15/27 215 216 

1.750% due 01/15/28 (Ñ) 3,498 3,232 

3.625% due 04/15/28 (Ñ) 134 160 

9,565 

Total Long-Term Investments 

(cost $391,388) 356,489 

Core Bond Fund 69





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Preferred Stocks - 0.4% 



DG Funding Trust (Å)(Æ) 49 491 


(cost $1,409) 1,141 

Notional 

Amount 

Options Purchased - 0.7% 

(Number of Contracts) 

Mortgage-Backed Securities 

Fannie Mae TBA 

Feb 2009 94.14 Call (1) USD 1,000 82 

Swaptions 

(Fund Pays/Fund Receives) 

USD Three Month LIBOR/USD 

3.000% 

Feb 2009 0.00 Call (1) 24,400 720 


3.150% 

Feb 2009 0.00 Call (1) 8,700 282 


3.500% 

Feb 2009 0.00 Call (1) 13,200 519 


3.600% 

July 2009 0.00 Call (1) 2,300 85 


3.450% 

Aug 2009 0.00 Call (5) 17,900 601 

Total Options Purchased 

(cost $710) 2,289 

Principal 

Amount ($) 

or Shares 


AES Corp. (The) (Ñ) 

9.500% due 06/01/09 125 124 

Bank of America Corp. (Ê) 

2.826% due 11/06/09 100 98 

Bank of America NA (Ê) 

Series BKNT 

2.099% due 06/12/09 700 698 

Bank of Scotland PLC (Ê)(Ñ)(Þ) 

Series MTN 

4.590% due 07/17/09 300 299 

Bear Stearns Cos. LLC (The) (Ê) 

4.905% due 07/16/09 1,200 1,184 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Caterpillar Financial Services Corp. (Ê) 

2.296% due 05/18/09 1,100 1,090 

Citigroup Funding, Inc. (Ê) 

0.474% due 04/23/09 100 99 

1.466% due 06/26/09 200 196 

Citigroup Global Markets Deutschland AG 

for OAO Gazprom 

10.500% due 10/21/09 200 201 

Citigroup Global Markets 

Holdings, Inc. (Ê) 

Series MTNA 

1.971% due 03/17/09 200 199 

Citigroup, Inc. (Ê)(Ñ) 

3.505% due 01/30/09 100 100 

1.496% due 12/28/09 400 377 

Continental Airlines, Inc. 

Series 99A2 

7.056% due 09/15/09 300 288 

Countrywide Financial Corp. (Ê) 

4.348% due 01/05/09 150 150 

Countrywide Home Loans, Inc. 

Series MTNK 

5.625% due 07/15/09 175 174 

4.125% due 09/15/09 335 331 

CSC Holdings, Inc. 

Series B 

8.125% due 07/15/09 210 209 

8.125% due 08/15/09 175 174 

Daimler Finance North America LLC (Ê) 

2.346% due 03/13/09 400 400 

2.426% due 03/13/09 300 289 

Deutsche Telekom International 

Finance BV (Ê) 

1.678% due 03/23/09 300 297 

DnB NOR Bank ASA (Ê)(Þ) 

4.889% due 10/13/09 1,000 1,000 


Discount Notes (ç)(ž)(§) 

0.850% due 01/27/09 26 26 

0.150% due 02/23/09 111 111 

Ford Motor Credit Co. LLC 

5.800% due 01/12/09 300 299 

General Electric Capital Corp. (Ê) 

Series MTN 

3.565% due 10/26/09 100 97 

GMAC LLC (Ñ) 

5.850% due 01/14/09 200 199 

Goldman Sachs Group, Inc. (The) (Ê) 

1.518% due 03/30/09 400 395 

HSBC Finance Corp. (Ê) 

4.479% due 10/21/09 100 94 

Lehman Brothers Holdings, Inc. (Ø) 

2.889% due 01/23/09 600 54 

2.878% due 04/03/09 400 36 

Mandalay Resort Group 

6.500% due 07/31/09 90 87 

Merrill Lynch & Co., Inc. (Ê) 

Series MTN 

2.438% due 05/08/09 900 884 

2.290% due 12/04/09 (Ê) 200 192 

70 Core Bond Fund





Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


2.556% due 05/07/09 (Ê) 300 295 

Series GMTN 

2.498% due 02/09/09 500 498 

Nordea Bank Finland PLC (ž) 

3.028% due 04/09/09 400 400 

Reckson Operating Partnership, LP 

7.750% due 03/15/09 25 24 


Russell Money Market Fund 17,437,000 17,437 

Telefonica Emisiones SAU (Ê) 

1.825% due 06/19/09 300 290 

United States Treasury Bills (ž) 

0.010% due 01/22/09 (ç)(§) 1,250 1,250 

0.030% due 02/26/09 (ç)(§) 270 270 

0.101% due 02/26/09 (ç)(§) 350 350 

0.020% due 03/26/09 (§) 250 250 

0.041% due 03/26/09 (§) 2,530 2,530 

0.046% due 03/26/09 (§) 260 260 

0.011% due 04/23/09 310 310 

0.228% due 06/11/09(§) 250 250 

Verizon Communications, Inc. (Ê)(Ñ) 

1.475% due 04/03/09 500 496 

Wachovia Mortgage FSB (Ê) 

Series BKNT 

2.428% due 05/08/09 1,000 987 


(cost $37,413) 36,348 

Repurchase Agreement - 1.3% 

Agreement with JPMorgan Chase Securities 

and JPMorgan Chase Bank (Tri-Party) of 

$4,300 dated December 31, 2008 at 

0.020% to be repurchased at $4,300 on 

January 2, 2009, collateralized by: 

$3,844 par United States Treasury Notes, 

valued at $3,844. 4,300 4,300 

Total Repurchase Agreement 

(cost $4,300) 4,300 



Trust () 17,154,636 16,214 


(cost $17,155) 16,214 




Net - (30.6%) (97,672) 

Net Assets - 100.0% 319,109 


Core Bond Fund 71






Number of 

Contracts 

Notional 

Amount 

Expiration 

Date 

Unrealized 

Appreciation 


$ 


Euribor Futures (Germany) 5 EUR 1,222 03/09 53 

Euribor Futures (Germany) 5 EUR 1,225 06/09 56 

Euro-Bobl Futures (Germany) 61 EUR 7,089 03/09 64 

Eurodollar Futures (CME) 96 USD 23,746 03/09 535 





Eurodollar Futures (CME) 1 USD 246 06/10 6 

Eurodollar Futures (CME) 1 USD 245 09/10 6 

Long Gilt Bond (UK) 5 GBP 617 03/09 56 

Three Month Short Sterling Interest Rate Futures (UK) 21 GBP 2,579 03/09 184 

Three Month Short Sterling Interest Rate Futures (UK) 16 GBP 1,967 06/09 139 

Three Month Short Sterling Interest Rate Futures (UK) 1 GBP 122 12/09 6 

United States Treasury 2 Year Notes 33 USD 7,196 03/09 47 



United States Treasury 30 Year Bonds 38 USD 5,246 03/09 96 

Short Positions 

Eurodollar Futures (CME) 3 USD 739 12/09 (15) 

United States Treasury 5 Year Notes 26 USD 3,095 03/09 (94) 

United States Treasury 10 Year Notes 9 USD 1,132 03/09 (74) 

United States Treasury 30 Year Bonds 18 USD 2,485 03/09 (200) 

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 2,348 


72 Core Bond Fund




Options Written 

(Number of Contracts) 

Notional 

Amount 

Market 

Value 

$ 

Eurodollar Futures 

Mar 2009 98.00 Put (7) USD 18 — 

Mar 2009 98.25 Put (6) USD 15 (1) 

Mar 2009 98.50 Put (14) USD 35 (2) 

Swaptions 

(Fund Receives/Fund Pays) 


3.950% 

Feb 2009 0.00 Call (1) 7,200 (613) 


4.250% 

Feb 2009 0.00 Call (1) 2,900 (352) 


4.600% 

Feb 2009 0.00 Call (1) 1,300 (187) 

USD 2.750%/USD Three Month 

LIBOR 

May 2009 0.00 Put (2) 2,000 (21) 


4.200% 

July 2009 0.00 Call (1) 1,000 (91) 


4.150% 

Aug 2009 0.00 Call (1) 600 (52) 


4.400% 

Aug 2009 0.00 Call (5) 5,500 (681) 

United States Treasury Notes 

5 Year Futures 

Feb 2009 118.00 Put (14) USD 14 (12) 

United States Treasury Notes 

10 Year Futures 

Feb 2009 124.00 Put (6) USD 6 (10) 

Total Liability for Options Written 

(premiums received $580) (2,022) 


Core Bond Fund 73





Amount 

Sold 

Amount 

Bought 

Settlement 

Date 

Unrealized 

Appreciation 


$ 

USD 1,092 CNY 7,516 03/02/09 (1) 

USD 15 EUR 10 01/13/09 — 

USD 18 EUR 13 01/13/09 1 

USD 19 EUR 13 01/13/09 (1) 

USD 19 EUR 13 01/13/09 (1) 

USD 21 EUR 16 01/13/09 1 

USD 21 EUR 16 01/13/09 1 

USD 21 EUR 16 01/13/09 1 

USD 30 EUR 20 01/13/09 (1) 

USD 30 EUR 21 01/13/09 (1) 

USD 32 EUR 24 01/13/09 2 

USD 113 EUR 80 01/13/09 (1) 

USD 587 EUR 430 01/13/09 11 

USD 29 HUF 6,496 01/16/09 5 

USD 32 HUF 6,882 01/16/09 4 

USD 45 HUF 8,942 01/16/09 2 

USD 71 HUF 14,346 01/16/09 4 

USD 76 HUF 16,107 01/16/09 8 

USD 2 INR 86 01/16/09 — 

USD 18 JPY 1,698 01/08/09 1 

USD 22 JPY 2,051 01/08/09 1 

USD 22 JPY 2,113 01/08/09 1 

USD 44 JPY 4,150 01/08/09 2 

USD 40 MYR 141 02/12/09 1 

USD 70 MYR 251 02/12/09 2 

USD 130 MYR 467 02/12/09 5 

USD 427 PHP 20,565 02/06/09 4 

USD 369 SGD 565 01/06/09 23 

USD 200 SGD 296 01/16/09 5 

USD 226 SGD 335 01/16/09 6 

USD 250 SGD 368 01/16/09 5 

USD 360 SGD 528 01/16/09 7 

USD 369 SGD 565 01/16/09 23 

AUD 199 USD 129 01/22/09 (10) 

BRL 8 USD 3 02/03/09 — 

BRL 75 USD 31 02/03/09 (1) 

BRL 82 USD 34 02/03/09 (1) 

BRL 88 USD 36 02/03/09 (1) 

BRL 127 USD 57 02/03/09 3 

BRL 1,370 USD 624 02/03/09 43 

CNY 2,674 USD 385 03/02/09 (3) 

EUR 399 USD 516 01/13/09 (39) 

EUR 630 USD 815 01/13/09 (61) 

EUR 715 USD 903 01/13/09 (89) 

GBP 165 USD 250 01/15/09 12 

HUF 52,773 USD 289 01/16/09 14 

INR 86 USD 2 01/16/09 — 

JPY 10,134 USD 105 01/08/09 (7) 

JPY 20,227 USD 219 01/22/09 (4) 

MYR 14 USD 4 02/12/09 — 

MYR 18 USD 5 02/12/09 — 

MYR 24 USD 7 02/12/09 — 

MYR 36 USD 10 02/12/09 — 


Amount 

Sold 

Amount 

Bought 

Settlement 

Date 

Unrealized 

Appreciation 


$ 

MYR 40 USD 11 02/12/09 — 

MYR 45 USD 13 02/12/09 (1) 

MYR 45 USD 13 02/12/09 (1) 

MYR 47 USD 13 02/12/09 (1) 

MYR 47 USD 13 02/12/09 (1) 

MYR 47 USD 13 02/12/09 (1) 

MYR 109 USD 30 02/12/09 (1) 

MYR 193 USD 53 02/12/09 (3) 

MYR 193 USD 53 02/12/09 (3) 

PHP 20,565 USD 396 02/06/09 (34) 

SEK 25 USD 3 01/20/09 — 

SEK 983 USD 124 01/20/09 — 

SGD 565 USD 369 01/06/09 (23) 

SGD 291 USD 194 01/16/09 (8) 

SGD 562 USD 370 01/16/09 (20) 

SGD 565 USD 370 01/16/09 (22) 

SGD 674 USD 442 01/16/09 (26) 


Foreign Currency Exchange Contracts (169) 


74 Core Bond Fund





Credit Default Swap Contracts 

Corporate Issues 

Reference 

Entity 

Counter 

Party 

Implied 

Credit 

Spread 

Notional 

Amount 

Fund (Pays)/ 

Receives 

Fixed Rate 

Termination 

Date 

Arrow Electronics, Inc. Citigroupglobal Markets, Inc. 2.040% USD 135 (0.820)% 03/20/14 8 

Centex Corp. JP Morgan 4.250% USD 325 (4.400)% 12/20/13 1 

Citigroup, Inc. Barclays Bank PLC 7.300% USD 600 5.650% 03/20/13 (31) 

Citigroup, Inc. JP Morgan 7.300% USD 200 5.170% 03/20/13 (13) 

Darden Restaurants, Inc. Deutsche Bank 2.670% USD 400 (2.250)% 03/20/14 7 

Ford Motor Credit Co. Barclays Bank PLC 10.510% USD 1,000 6.150% 09/20/12 (120) 

Ford Motor Credit Co. Goldman Sachs 10.510% USD 600 5.850% 09/20/12 (77) 

Ford Motor Credit Co. Merrill Lynch 98.500% USD 200 5.000% 12/20/09 (115) 

Gaz Capital for Gazprom Barclays Bank PLC 9.970% USD 300 1.600% 12/20/12 (74) 

Gaz Capital for Gazprom Morgan Stanley 9.870% USD 1,000 2.480% 02/20/13 (215) 

Gaz Capital for Gazprom Morgan Stanley 9.870% USD 100 2.180% 02/20/13 (23) 

GE Capital Corp. Banque National De Paris 4.550% USD 400 1.100% 12/20/09 (13) 

GE Capital Corp. Citibank 3.710% USD 200 4.000% 12/20/13 3 

GE Capital Corp. Deutsche Bank 3.710% USD 100 4.900% 12/20/13 5 

General Motors Acceptance Corp. Merrill Lynch 9.740% USD 1,000 1.850% 09/20/09 (54) 

General Motors Corp. Citibank 81.100% USD 2,000 4.630% 12/20/12 (1,547) 

General Motors Corp. Deutsche Bank 140.510% USD 400 5.000% 12/20/09 (280) 

Hewelett-Packard Co. Citigroupglobal Markets, Inc. 0.900% USD 135 (0.720)% 03/20/14 1 

Home Depot, Inc. Citigroupglobal Markets, Inc. 2.570% USD 340 (3.250)% 03/20/14 (11) 

Lowe's Cos., Inc. Citigroupglobal Markets, Inc. 1.300% USD 340 (1.450)% 03/20/14 (3) 

Nordstrom, Inc. Deutsche Bank 5.560% USD 425 (2.100)% 03/20/14 56 

Pulte Homes, Inc. JP Morgan 3.200% USD 725 (2.550)% 12/20/13 19 

Pulte Homes, Inc. JP Morgan 3.160% USD 1,000 (3.870)% 03/20/14 29 

Republic of Panama Morgan Stanley 2.810% USD 100 0.750% 01/20/12 (6) 

SLM Corp. Bank of America 11.540% USD 200 4.550% 03/20/09 (3) 

SLM Corp. Citibank 8.610% USD 200 4.850% 03/20/13 (22) 

Total Market Value of Open Corporate Issue Credit Default Swap Contracts Premiums Paid (Received) - ($298) (2,478) 

Credit Indices 

Reference 

Entity 

Counter 

Party 

Notional 

Amount 

Fund (Pays)/ 

Receives 

Fixed Rate 

Termination 

Date 

Market 

Value 

$ 

ABX - HE Index for Sub-Prime Home Equity Sector Citibank USD 650 0.170% 05/25/46 (569) 

ABX - HE Index for Sub-Prime Home Equity Sector Credit Suisse First Boston USD 350 0.090% 08/25/37 (211) 




ABX - HE Index for Sub-Prime Home Equity Sector JP Morgan USD 1,300 0.090% 08/25/37 (785) 

ABX - HE Index for Sub-Prime Home Equity Sector JP Morgan USD 1,300 0.760% 01/25/38 (792) 

CMBS AAA Index Citibank USD 250 (0.350)% 02/15/51 79 

CMBS AAA Index Citigroupglobal Markets, Inc. USD 255 (0.350)% 10/03/51 77 

CMBS AAA Index Credit Suisse First Boston USD 540 (0.070)% 03/15/49 109 

CMBS AAA Index Credit Suisse First Boston USD 350 (0.350)% 02/17/51 105 

CMBS AAA Index Deutsche Bank USD 300 (0.080)% 12/13/49 90 

CMBS AAA Index JP Morgan USD 720 (0.080)% 12/13/49 215 





CMBX AJ Index Barclays Bank PLC USD 360 (0.840)% 10/12/52 124 

CMBX AJ Index Barclays Bank PLC USD 360 (0.840)% 10/12/52 124 

Dow Jones CDX Index Citibank USD 500 2.144% 06/20/12 (85) 

Dow Jones CDX Index Deutsche Bank USD 778 0.708% 12/20/12 4 

Dow Jones CDX Index Deutsche Bank USD 4,880 (1.550)% 06/20/13 110 

Dow Jones CDX Index Deutsche Bank USD 600 1.500% 12/20/13 (12) 

Dow Jones CDX Index Goldman Sachs USD 194 0.548% 12/20/17 — 

Dow Jones CDX Index JP Morgan USD 2,928 (1.550)% 06/20/13 64 

Dow Jones CDX Index JP Morgan USD 1,984 (1.550)% 06/20/13 45 

Dow Jones CDX Index JP Morgan USD 389 0.553% 12/20/17 1 

Dow Jones CDX Index Morgan Stanley USD 400 5.000% 12/20/13 (80) 

Dow Jones CDX Index Morgan Stanley USD 293 (0.800)% 12/20/17 15 

Dow Jones CDX Index Morgan Stanley USD 500 (5.000)% 06/20/13 63 

Total Market Value of Open Credit Index Credit Default Swap Contracts Premiums Paid (Received) - ($1,862) (1,403) 

Total Market Value of Open Credit Default Swap Contracts Premiums Paid (Received) - ($2,160) (3,881) 

Market 

Value 

$ 


Core Bond Fund 75





Interest Rate Swaps Contracts 

Counter 

Party 

Notional 

Amount Fund Receives Fund Pays 

Termination 

Date 

Bank of America USD 6,500 5.473% Three Month LIBOR 06/14/11 612 




Bank of America USD 2,200 Three Month LIBOR 4.569% 11/18/20 (300) 



Bank of America USD 600 Three Month LIBOR 5.000% 12/17/28 (202) 


Bank of America USD 700 Three Month LIBOR 5.000% 12/17/38 (319) 

Barclays Bank PLC BRL 100 11.360% Brazil Interbank Deposit Rate 01/04/10 (1) 

Barclays Bank PLC USD 600 4.000% Three Month LIBOR 12/16/10 14 

Barclays Bank PLC EUR 3,170 Six Month EURIBOR 4.500% 12/17/13 (247) 

Barclays Bank PLC USD 7,800 3.855% Three Month LIBOR 10/27/14 525 

Barclays Bank PLC USD 3,960 3.340% Three Month LIBOR 11/25/14 166 

Barclays Bank PLC GBP 140 5.250% Six Month LIBOR 12/17/18 31 

Barclays Bank PLC USD 100 Three Month LIBOR 4.000% 06/17/19 (12) 





Barclays Bank PLC USD 2,050 Three Month LIBOR 4.015% 10/27/39 (486) 


BNP Paribas EUR 500 Consumer Price Index (France) 2.090% 10/15/10 23 

BNP Paribas EUR 300 4.500% Six Month EURIBOR 03/18/14 24 

Citibank MXN 10,000 8.850% Mexico Interbank 28 Day Deposit Rate 11/23/10 13 



Citibank EUR 660 Six Month EURIBOR 4.500% 12/17/10 (29) 

Citibank BRL 2,500 13.226% Brazil Interbank Deposit Rate 01/03/11 — 

Citibank USD 1,300 2.750% Three Month LIBOR 06/18/12 30 

Citibank USD 1,600 Three Month LIBOR 5.000% 12/17/38 (727) 

Citigroupglobal Markets, Inc. USD 7,240 4.288% Three Month LIBOR 10/30/14 633 

Citigroupglobal Markets, Inc. USD 1,960 Three Month LIBOR 4.313% 10/30/39 (581) 

Credit Suisse First Boston GBP 100 5.000% Six Month LIBOR 06/15/09 1 

Credit Suisse First Boston USD 4,200 2.750% Three Month LIBOR 06/18/12 98 

Credit Suisse First Boston JPY 258,000 Six Month LIBOR 1.500% 12/17/13 (71) 

Credit Suisse First Boston USD 1,000 Three Month LIBOR 3.500% 06/17/24 (78) 

Credit Suisse First Boston USD 500 Three Month LIBOR 3.500% 06/18/29 (49) 

Deutsche Bank MXN 8,300 8.910% Mexico Interbank 28 Day Deposit Rate 11/18/10 11 

Deutsche Bank EUR 300 4.500% Six Month EURIBOR 12/17/10 13 

Deutsche Bank EUR 1,740 4.500% Six Month EURIBOR 12/17/10 77 

Deutsche Bank BRL 1,000 13.220% Brazil Interbank Deposit Rate 01/03/11 — 

Deutsche Bank GBP 100 5.000% Six Month LIBOR 03/18/14 12 

Deutsche Bank USD 4,400 3.500% Three Month LIBOR 06/17/16 289 

Deutsche Bank USD 300 Three Month LIBOR 3.500% 06/17/19 (22) 


Deutsche Bank USD 1,000 Three Month LIBOR 3.500% 06/17/24 (78) 

Deutsche Bank USD 3,400 Three Month LIBOR 3.500% 06/17/24 (264) 


Deutsche Bank USD 1,200 3.500% Three Month LIBOR 06/17/39 170 

Goldman Sachs GBP 900 5.000% Six Month LIBOR 06/15/09 12 



Market 

Value 

$ 


76 Core Bond Fund





Interest Rate Swaps Contracts 

Counter 

Party 

Notional 

Amount Fund Receives Fund Pays 

Termination 

Date 

HSBC GBP 300 5.000% Six Month LIBOR 09/17/13 32 

JP Morgan MXN 4,500 8.950% Mexico Interbank 28 Day Deposit Rate 11/19/10 6 



JP Morgan EUR 1,570 Six Month EURIBOR 4.500% 12/17/10 (70) 

JP Morgan EUR 1,730 4.500% Six Month EURIBOR 12/17/10 77 

JP Morgan USD 400 Three Month LIBOR 3.250% 06/17/14 (18) 

JP Morgan USD 4,900 3.500% Three Month LIBOR 06/17/16 322 

JP Morgan AUD 90 Six Month LIBOR 7.250% 12/17/18 (15) 

JP Morgan USD 1,100 Three Month LIBOR 3.500% 06/17/19 (81) 

JP Morgan USD 200 Three Month LIBOR 3.500% 06/17/24 (16) 

Merrill Lynch BRL 200 12.948% Brazil Interbank Deposit Rate 01/04/10 2 

Merrill Lynch USD 1,500 4.000% Three Month LIBOR 06/17/11 68 


Merrill Lynch BRL 700 11.980% Brazil Interbank Deposit Rate 01/02/12 (2) 


Merrill Lynch GBP 100 Six Month LIBOR 4.000% 12/15/35 (9) 

Merrill Lynch USD 400 Three Month LIBOR 5.000% 12/17/38 (182) 

Morgan Stanley BRL 400 12.670% Brazil Interbank Deposit Rate 01/04/10 1 

Morgan Stanley USD 9,500 4.000% Three Month LIBOR 06/17/10 248 

Morgan Stanley USD 200 Three Month LIBOR 5.000% 12/17/28 (67) 

Morgan Stanley USD 300 Three Month LIBOR 5.000% 12/17/38 (137) 

Royal Bank of Scotland USD 2,100 4.000% Three Month LIBOR 06/17/10 55 

Royal Bank of Scotland USD 18,500 4.000% Three Month LIBOR 06/17/11 839 

Royal Bank of Scotland EUR 100 1.955% Consumer Price Index (France) 03/28/12 2 

Royal Bank of Scotland GBP 200 5.250% Six Month LIBOR 03/18/14 28 

Royal Bank of Scotland USD 100 Three Month LIBOR 4.000% 06/17/16 (9) 

Royal Bank of Scotland USD 200 Three Month LIBOR 5.000% 12/17/28 (67) 

Royal Bank of Scotland GBP 100 Six Month LIBOR 4.000% 12/15/36 (16) 

Royal Bank of Scotland USD 1,900 Three Month LIBOR 5.000% 12/17/38 (866) 

SBC Warburg BRL 400 12.410% Brazil Interbank Deposit Rate 01/04/10 1 

UBS AUD 300 7.500% Three Month BBSW 03/15/10 9 

UBS AUD 2,800 7.000% Three Month BBSW 06/15/10 72 

UBS AUD 1,600 7.500% Six Month LIBOR 03/15/11 84 

UBS BRL 800 10.575% Brazil Interbank Deposit Rate 01/02/12 (16) 

UBS JPY 64,000 Six Month LIBOR 1.500% 12/17/13 (20) 

UBS GBP 140 Six Month LIBOR 5.250% 12/17/18 (30) 

UBS AUD 90 7.250% Six Month BBSW 12/17/18 15 

Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - $461 514 

Market 

Value 

$ 


Core Bond Fund 77




Categories 

%ofNet 

Assets 

Asset-Backed Securities 4.7 

Corporate Bonds and Notes 18.9 

International Debt 5.3 

Loan Agreements 0.4 

Mortgage-Backed Securities 78.1 

Municipal Bonds 0.6 

Non-US Bonds 0.4 

United States Government Agencies 0.3 

United States Government Treasuries 3.0 

Preferred Stocks 0.4 

Options Purchased 0.7 


Repurchase Agreement 1.3 




100.0 


Options Written (0.6) 

Foreign Currency Exchange Contracts (0.1) 

Credit Default Swap Contracts (1.2) 

Interest Rate Swap Contracts 0.2 


78 Core Bond Fund



Real Estate Securities Fund 



$40,000 

$35,000 

$30,000 

$25,000 

$20,000 

$15,000 

$10,000 


FTSE NAREIT Equity REITs Index** 

$5,000 

* 

1999 

2000 

2001 

2002 2003 2004 


2005 

2006 

2007 

2008 


Total 

Return 

1 Year (37.76)% 

5 Years 1.62%§ 

Inception* 7.23%§ 

FTSE NAREIT Equity REITs Index ** 

Total 

Return 

1 Year (37.73)% 

5 Years 0.91%§ 


* The Fund commenced operations on April 30, 1999. 

** FTSE National Association of Real Estate Investment Trusts (NAREIT) Equity REITs 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. 





80 Real Estate Securities Fund




The Real Estate Securities Fund (the “Fund”) allocates most of 

its assets among multiple money managers. Russell Investment 









providing services. The Fund currently has five money managers. 


The Fund seeks to provide current income and long term capital 

growth. 



For the fiscal year ended December 31, 2008, the Real Estate 

Securities Fund lost 37.76%. This compared to the FTSE 

NAREIT Equity REITs Index, which lost 37.73% during the 

same period. The Fund’s performance includes operating 

expenses, whereas Index returns are unmanaged and do not 

include expenses of any kind. 

For the year ending December 31, 2008, the Lipper ® Real 

Estate Funds (VIP) Average lost 40.21%. This result serves as a 




The money managers positioned the Fund with a more defensive 

posture during the fiscal year. Over the course of the fiscal year, 

the managers moved to underweight positions in the industrial 

and lodging/resorts sectors. The industrial underweight 

reflected concerns about the large development pipelines 

maintained by the leading companies in the sector. The lodging/ 

resorts underweight reflected concerns about a slowing 

economy, which is expected to curtail business and leisure 

travel, leading to lower occupancies and room rate growth. The 

Fund maintained an overweight position in the regional malls 

sector, as the managers were drawn to the long term lease 

structures and limited new supply of high quality malls. The 

Fund maintained underweight positions in the health care and 

specialty sectors based on relative valuations. While the 

underweight positions in the industrial and lodging/resorts 

sectors benefited Fund performance, the overweight to regional 

malls and underweight to the health care and specialty sectors 

detracted from performance. Overall, property sector 

positioning was a positive contributor to the Fund’s performance 


Due to the negative market returns, the Fund’s cash position of 

approximately 4% had a positive contribution to Fund 

performance during the fiscal year. The Fund’s international 

real estate securities holdings detracted from performance. 

Property stocks in Asia Pacific and Europe lagged behind U.S. 

REITs during this period. 




AEW Management and Advisors, L.P. pursues a value-oriented 

style that focuses on identifying companies that it believes are 

mis-priced relative to underlying real estate net asset value. 

AEW performed slightly ahead of the benchmark during the 

fiscal year. Stock selection was a positive contributor to 

performance, particularly in the regional malls and industrial 

sectors. Property sector allocation negatively contributed to 

performance. The primary detractors to performance were an 

overweight to the underperforming regional malls sector and an 

underweight to the outperforming health care sector. 

INVESCO Institutional (N.A.), Inc. maintains a broadly 

diversified portfolio with exposure to all major property sectors. 

Their investment style incorporates fundamental property 

market research and bottom-up quantitative securities analysis. 

INVESCO outperformed the benchmark during the fiscal year 

due to contributions from both property sector allocation and 

stock selection. An overweight to the outperforming health care 

sector and underweight to the underperforming industrial sector 

both had a positive contribution to performance. Stock selection 

was strongest in the apartments, diversified, shopping centers 

and regional malls sectors. This was partially offset by weak 

stock selection in the office sector. 

RREEF America L.L.C.’s style emphasizes a top-down 

approach to property sector weights based on an assessment of 

property market fundamentals. RREEF performed in line with 

the benchmark during the fiscal year. Sector allocation 

detracted from performance due primarily to an overweight to 

the underperforming regional malls sector. Overall stock 

selection had a positive contribution to performance, driven by 

stock selection in the regional malls, shopping centers and 

lodging/resorts sectors. 

Heitman Real Estate Securities LLC manages a concentrated 

portfolio with a bottom-up approach to stock selection focusing 

on companies that it believes have attractive valuations relative 

to growth prospects. Heitman outperformed the benchmark 

during the fiscal year, primarily as a result of effective stock 

selection. Stock selection was strongest in the regional malls, 

industrial and health care sectors. Sector allocation detracted 

from performance, driven primarily by an overweight to the 

underperforming regional malls sector. 

Cohen & Steers Capital Management Inc. manages a broadly 

diversified portfolio of global property securities. Cohen & 

Steers uses a bottom-up approach to portfolio construction, 

emphasizing the relationship between price and net asset value 

as the principal valuation metric. Cohen & Steers also evaluates 

multiple-to-growth ratios as indicators of value. While Cohen & 

Steers outperformed relative to their peer group of global 

managers, the global portfolio had a negative impact on Fund 

performance, due to the underperformance of international 

Real Estate Securities Fund 81




property securities markets. Investments in Asia, particularly in 

Hong Kong, detracted the most from performance. However, all 

regions outside the U.S., including Australia, Continental 

Europe and the United Kingdom, underperformed relative to the 

U.S. Cohen & Steers’ strong stock selection was insufficient to 

overcome the lower returns in the international markets. 










performance. 



There were no money manager changes during the fiscal year. 

During the course of the fiscal year, Heitman’s target weight 

was increased from 10% to 15% and the target weights for 

AEW and INVESCO decreased to 25% each. 



These views do not necessarily represent the views of RIMCo or any 






Investment Funds are based on numerous factors, should not be relied 

on as an indication of investment decisions of any RIF Fund. 



Styles 

AEW Management and Advisors, L.P. 

Value 

Cohen & Steers Capital Management, Inc. 

Global Market-Oriented 

Heitman Real Estate Securities LLC 

Growth 

INVESCO Institutional (N.A.), Inc. which acts as a 

money manager to the Fund through its INVESCO Real 

Estate division 


RREEF America L.L.C. 






Fund Expenses 






Example 












































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 643.40 $ 1,020.11 





year period). 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 


Apartments—15.6% 

American Campus Communities, 

Inc. (ö)(Ñ) 136,809 2,802 

Apartment Investment & Management Co. 

Class A (ö)(Ñ) 111,249 1,285 

AvalonBay Communities, Inc. (ö)(Ñ) 223,326 13,529 

Boardwalk Real Estate Investment Trust (ö) 9,285 192 

BRE Properties, Inc. Class A (ö)(Ñ) 90,454 2,531 

Camden Property Trust (ö)(Ñ) 197,090 6,177 

China Overseas Land & Investment, 

Ltd. (Ñ) 156,000 213 

China Resources Land, Ltd. (Ñ) 58,000 72 

Equity Residential (ö)(Ñ) 479,334 14,294 

Essex Property Trust, Inc. (ö)(Ñ) 43,207 3,316 

Home Properties, Inc. (ö)(Ñ) 15,300 621 

Mid-America Apartment Communities, 

Inc. (ö) 27,719 1,030 

Post Properties, Inc. (ö)(Ñ) 53,750 887 

UDR, Inc. (ö)(Ñ) 20,071 277 

47,226 

Diversified—9.7% 

Agile Property Holdings, Ltd. (Ñ) 44,000 23 

Atrium European Real Estate, Ltd. (Æ) 9,248 34 

British Land Co. PLC (ö) 51,693 414 

Canadian Real Estate Investment Trust(ö) 18,317 335 

CapitaLand, Ltd. 107,000 235 

Castellum AB (Ñ) 37,595 292 

Dexus Property Group (ö)(Ñ) 618,174 359 

Gecina SA (ö) 421 29 

GPT Group (ö) 188,740 122 

Hang Lung Properties, Ltd.—ADR (Ñ) 154,000 338 

Henderson Land Development Co., Ltd. (Ñ) 102,336 382 

Hysan Development Co., Ltd. 211,470 343 

Kerry Properties, Ltd. 19,500 53 

Land Securities Group PLC (ö) 61,331 817 

Mirvac Group (ö) 329,079 297 

Mitsubishi Estate Co., Ltd. 127,000 2,094 

Mitsui Fudosan Co., Ltd. 65,100 1,082 

New World China Land, Ltd. (Æ) 86,100 26 

Sino Land Co. 153,000 160 

Sino-Ocean Land Holdings, Ltd. (Æ) 70,000 32 

Sponda OYJ 4,701 21 

Stockland (ö)(Ñ) 57,477 166 

Sumitomo Realty & Development Co., Ltd. 5,000 75 

Sun Hung Kai Properties, Ltd. 164,362 1,382 

Suntec Real Estate Investment Trust (Æ)(ö) 15,000 7 

Tokyu Land Corp. 18,000 69 

Unibail-Rodamco (ö) 5,947 886 

Vornado Realty Trust (ö)(Ñ) 287,683 17,362 


Trust (ö)(Ñ) 74,902 2,120 

29,555 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Free Standing Retail—0.6% 

National Retail Properties, Inc. (ö)(Ñ) 65,800 1,131 

Realty Income Corp. (ö)(Ñ) 30,800 713 

1,844 

Health Care—14.0% 

Cogdell Spencer, Inc. (ö)(Ñ) 41,300 387 

HCP, Inc. (ö)(Ñ) 188,671 5,239 

Health Care REIT, Inc. (ö)(Ñ) 147,602 6,229 

LTC Properties, Inc. (ö) 51,650 1,047 

Medical Properties Trust, Inc. (ö)(Ñ) 144,604 912 

Nationwide Health Properties, Inc. (ö) 297,335 8,539 

Omega Healthcare Investors, Inc. (ö)(Ñ) 217,275 3,470 

Senior Housing Properties Trust (ö) 268,779 4,817 

Ventas, Inc. (ö)(Ñ) 352,838 11,845 

42,485 

Industrial—4.9% 

AMB Property Corp. (ö) 212,310 4,972 

DCT Industrial Trust, Inc. (ö)(Ñ) 678,599 3,434 

EastGroup Properties, Inc. (ö)(Ñ) 16,038 571 

First Potomac Realty Trust (ö) 73,500 683 

Goodman Group (ö) 137,561 73 

Prologis (ö)(Ñ) 343,711 4,774 

ProLogis European Properties 14,670 66 

Segro PLC (ö)(Ñ) 38,967 139 

14,712 

Lodging/Resorts—2.6% 


Host Hotels & Resorts, Inc. (ö)(Ñ) 825,112 6,246 

LaSalle Hotel Properties (ö)(Ñ) 24,700 273 

Starwood Hotels & Resorts Worldwide, 

Inc. (Ñ)(ö) 71,691 1,283 

8,032 

Manufactured Homes—0.9% 

Equity Lifestyle Properties, Inc. (ö)(Ñ) 74,200 2,846 

Mixed Industrial/Office—2.4% 

Duke Realty Corp. (ö)(Ñ) 12,466 137 

Liberty Property Trust (ö)(Ñ) 266,524 6,085 

PS Business Parks, Inc. (ö) 21,454 958 

7,180 

Office—11.3% 

Alexandria Real Estate Equities, Inc. (ö)(Ñ) 51,282 3,094 

Alstria Office REIT-AG (Æ)(ö) 2,664 14 

BioMed Realty Trust, Inc. (ö)(Ñ) 193,948 2,273 

Boston Properties, Inc. (ö)(Ñ) 231,460 12,730 

Brandywine Realty Trust (ö) 100,412 774 

Brookfield Properties Corp. 223,228 1,726 

Corporate Office Properties Trust SBI 

MD (ö)(Ñ) 59,375 1,823 

Douglas Emmett, Inc. (ö)(Ñ) 138,221 1,805 

Great Portland Estates PLC (ö)(Ñ) 38,944 146 






Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Highwoods Properties, Inc. (ö) 18,700 512 

Hongkong Land Holdings, Ltd. 253,000 634 

HRPT Properties Trust (ö) 159,400 537 

ICADE (ö) 3,347 279 

Japan Prime Realty Investment Corp. 

Class A (ö) 24 57 

Japan Real Estate Investment Corp. 

Class A (ö) 18 162 

Kilroy Realty Corp. (ö)(Ñ) 78,300 2,620 

Mack-Cali Realty Corp. (ö)(Ñ) 71,781 1,759 

Nippon Building Fund, Inc. Class A (ö) 21 231 

Nomura Real Estate Office Fund, Inc. 

Class A (ö) 12 78 

NTT Urban Development Corp. (Ñ) 211 228 

SL Green Realty Corp. (ö)(Ñ) 100,901 2,613 

Societe Immobiliere de Location pour 

l’Industrie et le Commerce (ö) 797 74 

Tokyo Tatemono Co., Ltd. (Ñ) 36,000 165 

34,334 

Regional Malls—10.5% 

Aeon Mall Co., Ltd. (Ñ) 18,300 353 

CBL & Associates Properties, Inc. (ö)(Ñ) 8,630 56 

Macerich Co. (The) (ö)(Ñ) 167,654 3,045 

Simon Property Group, Inc. (ö)(Ñ) 449,687 23,892 

Taubman Centers, Inc. (ö)(Ñ) 120,926 3,079 

Westfield Group (ö)(Ñ) 164,437 1,515 

31,940 

Self Storage—8.0% 

Extra Space Storage, Inc. (ö)(Ñ) 296,376 3,059 

Public Storage (ö)(Ñ) 260,148 20,682 

Safestore Holdings PLC 11,321 9 

Sovran Self Storage, Inc. (ö) 10,900 392 

U-Store-It Trust (ö) 4,044 18 

24,160 

Shopping Centers—11.2% 

Acadia Realty Trust (ö)(Ñ) 55,841 797 

Citycon Oyj 12,560 30 

Corio NV (ö)(Ñ) 9,018 414 

Developers Diversified Realty Corp. (ö)(Ñ) 135,108 659 

Eurocommercial Properties NV (ö)(Ñ) 3,413 115 

Federal Realty Investment Trust (ö)(Ñ) 198,010 12,293 

Hammerson PLC (ö)(Ñ) 46,259 358 

Japan Retail Fund Investment Corp. 

Class A (ö) 49 212 

Kimco Realty Corp. (ö)(Ñ) 231,280 4,228 

Kite Realty Group Trust (ö) 112,000 623 

Klepierre—GDR (ö) 2,870 70 

Link REIT (The) (ö)(Ñ) 139,028 231 

Mercialys SA (ö) 3,854 121 

Primaris Retail Real Estate Investment 

Trust (ö) 6,720 58 

Principal 

Amount ($) 

or Shares 

Market 

Value 

$ 

Regency Centers Corp. (ö)(Ñ) 255,319 11,923 

RioCan Real Estate Investment Trust (ö) 200 2 

Saul Centers, Inc. (ö) 8,600 340 

Tanger Factory Outlet Centers (ö)(Ñ) 36,400 1,369 

Weingarten Realty Investors (ö)(Ñ) 6,710 139 

33,982 

Specialty—6.2% 

Corrections Corp. of America (Æ)(Ñ) 5,900 97 

Digital Realty Trust, Inc. (ö)(Ñ) 274,516 9,018 

DuPont Fabros Technology, Inc. (ö) 129,050 267 

Entertainment Properties Trust (ö)(Ñ) 23,362 696 

Plum Creek Timber Co., Inc. (ö)(Ñ) 187,540 6,515 

Rayonier, Inc. (ö)(Ñ) 69,800 2,188 

18,781 


(cost $338,763) 297,077 


Russell Investment Company Money 

Market Fund 10,609,000 10,609 


(cost $10,609) 10,609 



Trust () 100,064,879 94,571 


(cost $100,065) 94,571 




Net - (32.6%) (98,841) 

Net Assets - 100.0% 303,416 







Amount 

Sold 

Amount 

Bought 

Settlement 

Date 

Unrealized 

Appreciation 


$ 

USD — AUD — 01/02/09 — 

USD 4 AUD 5 01/02/09 — 

USD — AUD — 01/05/09 — 

USD — AUD — 01/06/09 — 

USD — AUD — 01/06/09 — 

USD 7 AUD 10 01/06/09 — 

USD 2 EUR 2 01/02/09 — 

USD 3 EUR 2 01/02/09 — 

USD 5 EUR 3 01/02/09 — 

USD 2 EUR 2 01/05/09 — 

USD 6 EUR 4 01/05/09 — 

USD 2 EUR 1 01/06/09 — 

USD 1 HKD 4 01/02/09 — 

USD 1 HKD 7 01/02/09 — 

USD 5 HKD 40 01/02/09 — 

USD — HKD 4 01/05/09 — 

USD 1 HKD 11 01/05/09 — 

USD 2 HKD 16 01/05/09 — 

USD 3 HKD 24 01/05/09 — 

USD 7 HKD 57 01/05/09 — 

USD 11 HKD 84 01/05/09 — 

USD 5 JPY 429 01/07/09 — 

USD 13 JPY 1,162 01/07/09 — 

USD 13 JPY 1,169 01/07/09 — 

USD 6 SGD 8 01/05/09 — 

USD 2 SGD 3 01/06/09 — 

AUD 5 USD 3 01/02/09 — 

AUD 5 USD 3 01/05/09 — 

AUD 17 USD 12 01/06/09 — 

AUD 36 USD 25 01/06/09 1 

CAD 2 USD 2 01/02/09 — 

CAD 3 USD 2 01/02/09 — 

CAD 2 USD 2 01/05/09 — 

CAD 5 USD 4 01/05/09 — 

EUR 2 USD 2 01/02/09 — 

EUR 2 USD 2 01/05/09 — 

EUR 3 USD 3 01/05/09 — 

EUR 7 USD 10 01/06/09 — 

EUR 40 USD 56 01/06/09 — 

GBP 3 USD 4 01/02/09 — 

GBP 1 USD 1 01/06/09 — 

GBP 14 USD 21 01/06/09 — 

HKD 26 USD 3 01/02/09 — 

HKD 51 USD 7 01/05/09 — 

HKD 63 USD 8 01/05/09 — 

HKD 553 USD 71 01/05/09 — 

JPY 5,780 USD 64 01/07/09 — 

SEK 85 USD 11 01/05/09 — 

SEK 100 USD 13 01/07/09 — 


Foreign Currency Exchange Contracts 1 






Categories 

%ofNet 

Assets 

Apartments 15.6 

Diversified 9.7 

Free Standing Retail 0.6 


Industrial 4.9 

Lodging/Resorts 2.6 

Manufactured Homes 0.9 

Mixed Industrial/Office 2.4 

Office 11.3 

Regional Malls 10.5 

Self Storage 8.0 

Shopping Centers 11.2 

Specialty 6.2 





100.0 

Foreign Currency Exchange Contracts —* 

—* Less than .05% of net assets. 




Notes to Schedules of Investments — December 31, 2008 

Footnotes: 

(Æ) Nonincome-producing security. 

(ö) Real Estate Investment Trust (REIT). 

(§) All or a portion of the shares of this security are held as collateral in connection with futures contracts purchased (sold), options written, or swaps entered into by 

the Fund. 

(ž) Rate noted is yield-to-maturity from date of acquisition. 

(ç) At amortized cost, which approximates market. 

(Ê) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. 

(Ï) Forward commitment. 

(ƒ) Perpetual floating rate security. Rate shown reflects rate in effect at period end. 

(μ) Bond is insured by a guarantor. 

(æ) 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 taxexempt 

issue and to retire the bonds in full at the earliest refunding date. The rate noted is for descriptive purposes; effective yield may vary. 

(Ø) In default. 

(ß) Illiquid security. 

() The security is purchased with the cash collateral from the securities loaned. 

(Ñ) All or a portion of the shares of this security are on loan. 

(Þ) Restricted security. Security may have contractual restrictions on resale, may have been offered in a private placement transaction, and may not be registered 

under the Securities Act of 1933. 

(Å) Illiquid and restricted security. 

(å) Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. See Note 2. 

Abbreviations: 

144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933. 

ADR - American Depositary Receipt 

ADS - American Depositary Share 

BBSW - Australian Bank Bill Short Term Rate 

CIBOR - Copenhagen Interbank Offered Rate 

CME - Chicago Mercantile Exchange 

CMO - Collateralized Mortgage Obligation 

CVO - Contingent Value Obligation 

EURIBOR - Euro Interbank Offered Rate 

FDIC - Federal Deposit Insurance Company 

GDR - Global Depositary Receipt 

GDS - Global Depositary Share 

LIBOR - London Interbank Offered Rate 

NIBOR - Norwegian Interbank Offered Rate 

PIK - Payment in Kind 

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 HKD - Hong Kong dollar PLN - Polish zloty 

AUD - Australian dollar HUF - Hungarian forint RUB - Russian ruble 

BRL - Brazilian real IDR - Indonesian rupiah SEK - Swedish krona 

CAD - Canadian dollar ILS - Israeli shekel SGD - Singapore dollar 

CHF - Swiss franc INR - Indian rupee SKK - Slovakian koruna 

CLP - Chilean peso JPY - Japanese yen THB - Thai baht 

CNY - Chinese renminbi yuan KES - Kenyan schilling TRY - Turkish lira 

COP - Colombian peso KRW - South Korean won TWD - Taiwanese dollar 

CRC - Costa Rica colon MXN - Mexican peso USD - United States dollar 

CZK - Czech koruna MYR - Malaysian ringgit VEB - Venezuelan bolivar 

DKK - Danish krone NOK - Norweigian Krone VND - Vietnamese dong 

EGP - Egyptian pound NZD - New Zealand dollar ZAR - South African rand 

EUR - Euro 

PEN - Peruvian nouveau sol 

GBP - British pound sterling 

PHP - Philippine peso 

88 Notes to Schedules of Investments


Statements of Assets and Liabilities — December 31, 2008 


Multi-Style Equity 

Fund 

Aggressive Equity 

Fund 

Non-U.S. 

Fund 

Core Bond 

Fund 

Real Estate 

Securities Fund 

Assets 

Investments, at identified cost ............ $ 425,636 $ 208,310 $ 331,216 $ 452,375 $ 449,437 

Investments, at market*** .............. 346,934 172,326 269,951 416,781 402,257 

Cash ............................. — 106 104 — — 

Cash (restricted) ..................... 3,700 1,600 7,642 2,019 — 

Foreign currency holdings* .............. — — 3,124 606 136 

Unrealized appreciation on foreign currency 

exchange contracts .................. — — 2,365 198 1 

Receivables: 

Dividends and interest ............ 549 195 336 2,532 2,521 

Dividends from affiliated money 

market funds ................. 17 6 18 12 11 

Investments sold ................ 2,064 1,048 4,239 22,465 1,972 

Fund shares sold ................ 25 7 10 103 77 

Foreign taxes recoverable .......... — — 36 — — 

Fund Adviser .................. — — — — — 

Daily variation margin on futures 

contracts ................... 478 387 44 498 — 

Prepaid expenses ..................... 5 2 4 6 4 

Interest rate swap contracts, at market 

value**** ........................ — — — 6,301 — 

Credit default swap contracts, at market 

value***** ....................... — — — 1,775 — 

Total assets ..................... 353,772 175,677 287,873 453,296 406,979 

Liabilities 

Payables: 

Due to Custodian or Broker ........ — — — 1,000 — 

Investments purchased ........... 1,822 1,256 4,386 99,942 3,150 

Fund shares redeemed ............ 73 143 184 42 54 

Accrued fees to affiliates .......... 188 65 177 146 204 

Other accrued expenses ........... 58 50 114 68 90 

Daily variation margin on futures 

contracts ................... — — 101 288 — 

Other payable .................. — — — 1,714 — 

Unrealized depreciation on foreign currency 

exchange contracts .................. — — 761 367 — 

Options written, at market value** ......... — — — 2,022 — 

Payable upon return of securities loaned ..... 53,420 51,075 26,400 17,155 100,065 

Interest rate swap contracts, at market 

value**** ........................ — — — 5,787 — 

Credit default swap contracts, at market 

value***** ....................... — — — 5,656 — 

Total liabilities .................. 55,561 52,589 32,123 134,187 103,563 

Net Assets ...................... $ 298,211 $ 123,088 $ 255,750 $ 319,109 $ 303,416 




Statements of Assets and Liabilities, continued — December 31, 2008 


Fund 


Fund 

Non-U.S. 

Fund 

Core Bond 

Fund 

Real Estate 


Net Assets Consist of: 

Undistributed (overdistributed) net investment 

income .......................... $ 1,690 $ — $ 1,726 $ 2,838 $ 4,013 

Accumulated net realized gain (loss) ........ (85,181) (57,214) (84,838) 521 (81,468) 

Unrealized appreciation (depreciation) on: 

Investments ................... (78,702) (35,984) (61,265) (35,594) (47,180) 

Futures contracts ............... 454 643 513 2,348 — 

Options written ................. — — — (1,442) — 

Credit default swap contracts ....... — — — (1,721) — 

Interest rate swap contracts ........ — — — 53 — 

Foreign currency-related 

transactions ................. — — 1,511 (186) (4) 

Shares of beneficial interest ............. 331 171 342 342 326 

Additional paid-in capital ............... 459,619 215,472 397,761 351,950 427,729 

Net Assets ...................... $ 298,211 $ 123,088 $ 255,750 $ 319,109 $ 303,416 

Net Asset Value, offering and 

redemption price per share: 

Net asset value per share****** ........ $ 9.00 $ 7.18 $ 7.48 $ 9.33 $ 9.30 

Net assets ...................... $ 298,210,893 $ 123,087,924 $ 255,749,546 $ 319,108,827 $ 303,416,057 

Shares outstanding ($.01 par value) ..... 33,132,830 17,135,790 34,170,535 34,187,141 32,641,688 


* Foreign currency holdings - cost $ — $ — $ 3,199 $ 618 $ 138 

** Premiums received on options written $ — $ — $ — $ 580 $ — 

*** Securities on loan included in 

investments $ 53,455 $ 51,291 $ 25,168 $ 16,586 $ 101,844 

**** Interest rate swap contracts - 

premiums paid (received) $ — $ — $ — $ 461 $ — 

***** Credit default swap contracts - 

premiums paid (received) $ — $ — $ — $ (2,160) $ — 

****** Net asset value per share equals net 

assets divided by shares of beneficial 

interest outstanding. 




Statements of Operations — For the Fiscal Year Ended December 31, 2008 



Fund 


Fund 

Non-U.S. 

Fund 

Core Bond 

Fund 

Real Estate 



Dividends ..................... $ 8,002 $ 2,495 $ 10,612 $ 111 $ 14,749 

Dividends from affiliated money market 

funds ...................... 632 210 802 529 435 

Interest ....................... 19 13 27 18,249 — 

Securities lending income .......... 940 761 703 222 994 

Less foreign taxes withheld ......... — — (1,003) — — 

Total investment income ................ 9,593 3,479 11,141 19,111 16,178 

Expenses 

Advisory fees ................... 2,954 1,653 3,166 1,946 3,515 

Administrative fees .............. 202 92 176 177 220 

Custodian fees .................. 292 338 784 490 327 

Transfer agent fees ............... 18 8 15 16 19 

Professional fees ................ 72 45 68 72 71 

Trustees’ fees .................. 8 4 7 7 9 

Printing fees ................... 10 6 7 4 9 

Miscellaneous .................. 31 17 38 26 38 

Expenses before reductions ......... 3,587 2,163 4,261 2,738 4,208 

Expense reductions .............. (68) (235) (215) (261) — 

Net expenses ........................ 3,519 1,928 4,046 2,477 4,208 

Net investment income (loss) ............. 6,074 1,551 7,095 16,634 11,970 

Net Realized and Unrealized Gain (Loss) 


Investments .................... (67,847) (50,759) (63,112) 2,785 (72,517) 

Futures contracts ................ (13,376) (4,414) (19,413) 7,184 — 

Options written ................. — — (845) (2,146) — 

Credit default swap contracts ........ — — — 66 — 

Index swap contracts ............. — — (81) (282) — 

Interest rate swap contracts ......... — — — 431 — 


transactions .................. — — (4,186) 435 (54) 

Net realized gain (loss) ................. (81,223) (55,173) (87,637) 8,473 (72,571) 

Net change in unrealized appreciation 

(depreciation) on: 

Investments .................... (125,852) (46,331) (108,497) (37,544) (115,572) 

Futures contracts ................ 752 673 888 (245) — 

Options written ................. — — 2 (710) — 

Credit default swap contracts ........ — — — (998) — 

Index swap contracts ............. — — 5 (51) — 

Interest rate swap contracts ......... — — — (569) — 


transactions .................. — — 1,213 (396) (6) 

Net change in unrealized appreciation 

(depreciation) ...................... (125,100) (45,658) (106,389) (40,513) (115,578) 

Net realized and unrealized gain (loss) ....... (206,323) (100,831) (194,026) (32,040) (188,149) 


from Operations ................ $ (200,249) $ (99,280) $ (186,931) $ (15,406) $ (176,179) 


Statements of Operations 91


Statements of Changes in Net Assets — For the Fiscal Years Ended December 31, 


Fund 


Fund 

Amounts in thousands 2008 2007 2008 2007 

Increase (Decrease) in Net Assets 

Operations 

Net investment income (loss) ........................ $ 6,074 $ 4,740 $ 1,551 $ 925 

Net realized gain (loss) ............................ (81,223) 42,430 (55,173) 19,170 

Net change in unrealized appreciation (depreciation) ....... (125,100) (3,082) (45,658) (12,030) 

Net increase (decrease) in net assets from operations ............. (200,249) 44,088 (99,280) 8,065 

Distributions 

From net investment income ........................ (5,806) (4,459) (1,578) (866) 

From net realized gain ............................ (3,972) (19,120) (44) (29,590) 

Net decrease in net assets from distributions .................. (9,778) (23,579) (1,622) (30,456) 

Share Transactions 

Net increase (decrease) in net assets from share transactions .. 28,316 41,906 (4,937) 27,672 

Total Net Increase (Decrease) in Net Assets ............ (181,711) 62,415 (105,839) 5,281 

Net Assets 

Beginning of period .............................. 479,922 417,507 228,927 223,646 

End of period .................................. $ 298,211 $ 479,922 $ 123,088 $ 228,927 

Undistributed (overdistributed) net investment income included in net 

assets ........................................... $ 1,690 $ 1,423 $ — $ — 



Non-U.S. 

Fund 

Core Bond 

Fund 

Real Estate 


2008 2007 2008 2007 2008 2007 

$ 7,095 $ 6,991 $ 16,634 $ 15,000 $ 11,970 $ 10,443 

(87,637) 47,882 8,473 3,830 (72,571) 51,349 

(106,389) (16,201) (40,513) 3,043 (115,578) (159,351) 

(186,931) 38,672 (15,406) 21,873 (176,179) (97,559) 

— (10,855) (14,176) (16,240) (8,443) (13,544) 

(3,345) (75,619) (6,979) — — (65,161) 

(3,345) (86,474) (21,155) (16,240) (8,443) (78,705) 

14,340 109,604 9,603 74,651 (771) 39,596 

(175,936) 61,802 (26,958) 80,284 (185,393) (136,668) 

431,686 369,884 346,067 265,783 488,809 625,477 

$ 255,750 $ 431,686 $ 319,109 $ 346,067 $ 303,416 $ 488,809 

$ 1,726 $ (1,232) $ 2,838 $ 14 $ 4,013 $ (62) 




Financial Highlights — For the Fiscal Years Ended 

For a Share Outstanding Throughout Each Period. 

$ 


Beginning of 

Period 


$ 

Net 

Investment 

Income (Loss)(a) 

$ 

Net Realized 

and Unrealized 

Gain (Loss) 

$ 

Total Income 

(Loss) from 

Operations 

$ 

Distributions 

from Net 


$ 

Distributions 

from Net 

Realized Gain 

$ 

Total 

Distributions 

December 31, 2008 15.65 .19 (6.52) (6.33) (.19) (.13) (.32) 

December 31, 2007 14.93 .16 1.37 1.53 (.16) (.65) (.81) 

December 31, 2006 13.37 .14 1.55 1.69 (.13) — (.13) 

December 31, 2005 12.60 .12 .79 .91 (.14) — (.14) 

December 31, 2004 11.56 .11 1.02 1.13 (.09) — (.09) 


December 31, 2008 12.99 .09 (5.81) (5.72) (.09) —(c) (.09) 

December 31, 2007 14.45 .06 .40 .46 (.05) (1.87) (1.92) 

December 31, 2006 14.40 .03 2.10 2.13 (.03) (2.05) (2.08) 

December 31, 2005 14.90 .03 .90 .93 (.03) (1.40) (1.43) 

December 31, 2004 13.47 .02 1.95 1.97 (.02) (.52) (.54) 

Non-U.S. Fund 

December 31, 2008 13.20 .21 (5.83) (5.62) — (.10) (.10) 

December 31, 2007 15.01 .25 1.14 1.39 (.38) (2.82) (3.20) 

December 31, 2006 12.68 .23 2.75 2.98 (.35) (.30) (.65) 

December 31, 2005 11.33 .16 1.38 1.54 (.19) — (.19) 

December 31, 2004 9.76 .11 1.66 1.77 (.20) — (.20) 


December 31, 2008 10.32 .47 (.86) (.39) (.39) (.21) (.60) 

December 31, 2007 10.14 .51 .20 .71 (.53) — (.53) 

December 31, 2006 10.23 .45 (.08) .37 (.46) — (.46) 

December 31, 2005 10.50 .38 (.17) .21 (.37) (.11) (.48) 

December 31, 2004 10.47 .24 .24 .48 (.26) (.19) (.45) 


December 31, 2008 15.22 .38 (6.03) (5.65) (.27) — (.27) 

December 31, 2007 21.34 .35 (3.68) (3.33) (.47) (2.32) (2.79) 

December 31, 2006 17.28 .37 5.72 6.09 (.39) (1.64) (2.03) 

December 31, 2005 17.09 .32 1.82 2.14 (.37) (1.58) (1.95) 

December 31, 2004 13.71 .36 4.33 4.69 (.36) (.95) (1.31) 



$ 


End of 

Period 

% 

Total 

Return 

$ 

Net Assets, 

End of Period 

(000) 

% 

Ratio of Expenses 

to Average 

Net Assets, 

Net(b) 

% 


to Average 

Net Assets, 

Gross 

% 

Ratio of Net 


to Average 

Net Assets(b) 

% 

Portfolio 

Turnover Rate 

9.00 (41.15) 298,211 .87 .89 1.50 135 

15.65 10.36 479,922 .87 .87 1.04 136 

14.93 12.75 417,507 .87 .87 1.03 128 

13.37 7.27 349,659 .83 .87 .94 130 

12.60 9.81 332,759 .87 .88 .96 123 

7.18 (44.16) 123,088 1.05 1.18 .84 161 

12.99 3.42 228,927 1.05 1.13 .39 180 

14.45 14.79 223,646 1.05 1.12 .16 184 

14.40 6.36 204,292 .99 1.13 .21 130 

14.90 14.73 195,583 1.05 1.17 .17 150 

7.48 (42.79) 255,750 1.15 1.21 2.01 123 

13.20 10.12 431,686 1.15 1.18 1.70 106 

15.01 23.64 369,884 1.15 1.21 1.64 111 

12.68 13.69 302,261 1.12 1.26 1.41 88 

11.33 18.30 258,766 1.15 1.28 1.11 73 

9.33 (3.87) 319,109 .70 .77 4.70 164 

10.32 7.24 346,067 .70 .78 5.04 965 

10.14 3.72 265,783 .70 .73 4.40 453 

10.23 2.01 216,774 .70 .72 3.70 193 

10.50 4.66 175,851 .70 .73 2.41 216 

9.30 (37.76) 303,416 .96 .96 2.72 71 

15.22 (15.86) 488,809 .92 .92 1.75 77 

21.34 35.84 625,477 .90 .91 1.86 53 

17.28 12.96 443,092 .91 .91 1.86 64 

17.09 34.88 379,733 .92 .92 2.43 47 




Notes to Financial Highlights — December 31, 2008 

(a) 

(b) 

(c) 

Average month-end shares outstanding were used for this calculation. 

May reflect amounts waived and/or reimbursed by RIMCo and/or RFSC custody credit arrangements. 

Less than $.01 per share. 


96 Notes to Financial Highlights


Notes to Financial Statements — December 31, 2008 

1. Organization 

Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with nine different investment 

portfolios referred to as Funds. These financial statements report on five of these Funds (each a “Fund” and collectively the 

“Funds”). The Investment Company provides the investment base for one or more variable insurance products issued by one or 

more insurance companies. 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 

an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended 

and restated master trust agreement dated October 1, 2008. The Investment Company’s master trust agreement permits the Board 

of Trustees (the “Board”) to issue an unlimited number of shares of beneficial interest. 

Russell Investment Company (“RIMCo”) is the Funds’ adviser and Russell Fund Services Company (“RFSC”), a wholly-owned 

subsidiary of RIMCo, is the Funds’ administrator and transfer agent. 

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 and assumptions at the date of the financial statements. 

Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently 

followed by each Fund in the preparation of its financial statements. 

Security Valuation 

The Funds value portfolio securities according to Board-approved securities valuation procedures and pricing services which 

include market value procedures, fair value procedures and a description of the pricing services used by the Funds. Debt 

obligation securities maturing within 60 days of the time of purchase are priced using the amortized cost method of valuation, 

unless the Board determines that amortized cost does not represent market value of short-term debt obligations. The Board has 

delegated the responsibility for administration of the securities valuation procedures to RFSC. 

Ordinarily, the Funds value each portfolio security based on market quotations provided by pricing services or alternative pricing 

services or dealers (when permitted by the market value procedures). Generally, Fund securities are valued at the close of the 

market on which they are traded as follows: 

• U.S. listed equities, equity and fixed income options and Rights/Warrants: Last sale price; last bid price if no last sale price. 

• U.S. over-the-counter equities: Official closing price; last bid price if no closing price. 

• Listed ADRs/GDRs: Last sale price; last bid price if no last sale price. 

• Municipal bonds, U.S. bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price. 

• Futures: Settlement price. 

• Bank loans and forwards: Mean between bid and asking price. 

• Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the 

close of the New York Stock Exchange, whichever is earlier; 

• The value of swap agreements is 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. 

• Equity securities traded on a national foreign securities exchange or a foreign over the counter market are valued on the basis 

of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the 

security is traded. 

If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, 

the Funds will use the security’s fair value, as determined in accordance with the fair value procedures. The effect of fair value 

pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded, but rather 

may be priced by another method that the Board believes reflects fair value. The fair value procedures may involve subjective 

judgments as to the fair value of securities. The use of fair value pricing by a Fund may cause the net asset value of its shares to 

differ significantly from the net asset value that would be calculated using normal pricing methods. Fair value pricing could also 

cause discrepancies between the daily movement of the value of Fund shares and the daily movement of the benchmark index if 

the index is valued using another pricing method. 

This policy is intended to assure that the Funds’ net asset values fairly reflect security values as of the time of pricing. Events or 

circumstances affecting the values of Fund securities that occur between the closing of the principal markets on which they trade 



Notes to Financial Statements, continued — December 31, 2008 

and the time the net asset value of Fund shares is determined may be reflected in the calculation of net asset values for each 

applicable Fund when the Funds deem that the particular event or circumstance would materially affect such Fund’s net asset 

value. Funds that invest primarily in frequently traded exchange-listed securities will use fair value pricing in limited 

circumstances since reliable market quotations will often be readily available. Funds that invest in foreign securities are likely to 

use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing 

which would trigger fair value pricing of the foreign securities. Funds that invest in low-rated debt securities are also likely to use 

fair value pricing more often since the markets in which such securities are traded are generally thinner, more limited and less 

active than those for higher rated securities. Examples of events that could trigger fair value pricing of one or more securities are: 

a material market movement of the U.S. securities market (defined in the fair value procedures as the movement by a single major 

U.S. Index greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure 

exceeds 20% in aggregate (all closed markets combined); a company development; a natural disaster; or an armed conflict. 

Because foreign securities can trade on non-business days, the net asset value of a Fund’s portfolio that includes foreign 

securities may change on days when shareholders will not be able to purchase or redeem fund shares. 

The Funds adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair 

Value Measurements (“SFAS 157”), effective January 1, 2008. In accordance with SFAS 157, fair value is defined as the price 

that the Funds would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most 

advantageous market of the investment. SFAS 157 established a three-tier hierarchy to maximize the use of observable market 

data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure 

purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset, including assumptions 

about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including a pricing model 

and/or risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are 

inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data 

obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own 

assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best 

information available in the circumstances. 

The three-tier hierarchy of inputs is summarized in the three broad levels listed below. 

• Level 1 — quoted prices in active markets for identical investments 

• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment 

speeds, credit risk, etc.) 

• Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) 

Inputs used in valuing the Funds’ investments for the period ended December 31, 2008 were as follows: 

Multi-Style Equity Fund Aggressive Equity Fund Non-U.S. Fund Core Bond Fund Real Estate Securities Fund 


Securities 

Other 

Financial 

Instruments* 


Securities 

Other 

Financial 

Instruments* 


Securities 

Other 

Financial 

Instruments* 


Securities 

Other 

Financial 

Instruments* 


Securities 

Other 

Financial 

Instruments* 

Level 1 $296,447,366 $453,685 $123,627,485 $ — $ 35,318,532 $ 517,979 $ 18,660,205 $ 2,323,435 $307,683,502 $1,186 

Level 2 50,487,111 — 48,270,567 — 234,621,187 1,596,563 394,433,028 (3,834,515) 94,573,469 — 

Level 3 — — 427,560 643,365 11,611 — 3,687,314 — — — 

$346,934,477 $453,685 $172,325,612 $643,365 $269,951,330 $2,114,542 $416,780,547 $(1,511,080) $402,256,971 $1,186 

* Other financial instruments not reflected in the Schedule of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized 

appreciation/depreciation on the instruments. 

A reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining a value for the period 

ending December 31, 2008 were as follows: 

Multi-Style 

Equity Fund 

Aggressive 

Equity Fund 

Non-U.S. 

Fund 

Core Bond 

Fund 

Balance as of 01/01/08 $ 429 $ 469,884 $ — $ 3,137,866 

Accrued discounts/(premiums) — — — 8,834 

Realized gain/(loss) — (14,639) (54,802) 246,309 

Net change in unrealized appreciation/(depreciation) from investments still held as 

of 12/31/08 (429) 601,041 26,303 (1,492,869) 

Net purchases (sales) — 14,639 40,110 2,734,716 

Net transfers in and/or out of Level 3 — — — (947,542) 

Balance as of 12/31/08 $ — $ 1,070,925 $ 11,611 $ 3,687,314 




In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 

No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective for fiscal years 

or interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Funds’ derivative and 

hedging activities. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Funds’ financial 

statements disclosures. 

Investment Transactions 

Investment transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are 

recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. 


Dividend income is recorded net of applicable withholding taxes on the ex-dividend date, except that certain dividends from 

foreign securities are recorded as soon thereafter as the Funds are informed of the ex-dividend date. Interest income is recorded 

daily 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 is required for the Funds. 

In accordance with the provisions set forth in the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income 

Taxes, an Interpretation of FASB Statement 109” (“FIN 48”), management has reviewed the Funds’ tax positions for all open tax 

years, and concluded that adoption had no effect on the Funds’ financial position or results of operations. At December 31, 2008, 

the Funds have recorded no liabilities for net unrecognized tax benefits relating to uncertain income tax positions they have taken 

or expect to take in future tax returns. 

Each Fund files a U. S. tax return. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for 

the fiscal years ending December 31, 2005 through December 31, 2007, no examinations are in progress or anticipated at this 

time. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax 

benefits will significantly change in the next twelve months. 

Dividends and Distributions to Shareholders 

For all Funds, income and capital gain distributions, if any, are recorded on the ex-dividend date. Income distributions are 

generally declared and paid quarterly, except for the Non-U.S. Fund, which generally declares and pays income distributions 

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) from 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 relate primarily to investments in options, futures, forward contracts, swap 

contracts, passive foreign investment companies, foreign-denominated investments, mortgage-backed securities, certain securities 

sold at a loss and capital loss carryforwards. 

Expenses 

The Funds will pay their own expenses other than those expressly assumed by RIMCo or RFSC. 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 U.S. dollars. Foreign currency amounts and transactions of the Funds are 

translated into U.S. dollars on the following basis: 

(a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. 

(b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade 

dates of such transactions. 

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 U.S. 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 Funds 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 

effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) 

on debt obligations. 

Capital Gains Taxes 

The Non-U.S. Fund may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which it invests. 

The Non-U.S. Fund may record a deferred tax liability in respect of unrealized appreciation on foreign securities for potential 

capital gains and repatriation taxes at December 31, 2008. The accrual for capital gains and repatriation taxes is included in net 

unrealized appreciation (depreciation) on investments in the Statements of Assets and Liabilities for the Fund. The amounts 

related to capital gains taxes are included in net realized gain (loss) on investments in the Statements of Operations for the Fund. 

The Non-U.S. Fund had no deferred tax liability but incurred $3,749 in capital gains taxes for the period ended December 31, 

2008. 

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 

its investment strategies. 

The Funds typically use derivatives in three ways: exposing cash reserves to markets, hedging and return enhancement. The 

Funds, other than the Real Estate Securities Fund, may pursue their strategy to be fully invested by exposing cash reserves to the 

performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Funds to perform as 

though their cash reserves were actually invested in those markets. Hedging is also 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. 


In connection with investment transactions consistent with the Funds’ investment objective and strategies, certain Funds may 

enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts (“contracts”). From time to 

time the Funds may enter into contracts to hedge certain foreign currency-denominated assets. 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 are recognized in the 

Statements 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. 




Forward Commitments 

Certain Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time 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. 

Loan Agreements 

The Core Bond Fund may invest in direct debt instruments which are interests in amounts owed by corporate, governmental, or 

other borrowers to lenders or lending syndicates. A Fund’s investments in loans may be in the form of participations in loans or 

assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the 

“lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When 

investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled 

only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. A Fund 

generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be 

subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When a Fund purchases 

assignments from lenders it acquires direct rights against the borrower on the loan. For the period ended December 31, 2008, 

there were no unfunded loan commitments in the Core Bond Fund. 

Options 

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. The 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. 

Whether an option which the Fund has written 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 on the Statements of Operations. 

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. 

A Fund may enter into a swaption (swap option). In a swaption, in exchange for an option, the buyer gains the right but not the 

obligation to enter into a specified swap agreement with the issuer on a specified future date. The writer of the contract receives 

the premium and bears the risk of unfavorable changes in the preset rate on the underlying interest rate swap. Unrealized gains/ 

losses on swaptions are reflected in investment assets and investment liabilities in the Fund’s Statement of Assets and Liabilities. 


The Funds may invest in futures contracts (i.e., interest rate, foreign currency and index futures contracts) to a limited extent. 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 initial settlement value are accounted for as unrealized 

appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. As of 

December 31, 2008, included in the Statement of Assets and Liabilities, the Funds had a cash collateral balances in connection 

with futures contracts purchased (sold) as follows: 

Cash Collateral 

Multi-Style Equity Fund $ 3,700,000 

Aggressive Equity Fund 1,600,000 

Non-U.S. Fund 7,642,092 

Core Bond Fund 1,088,659 

Swap Agreements 

The Funds may enter into swap agreements, on either an asset-based or liability-based basis, depending on whether they are 

hedging their assets or their liabilities, and will usually enter into swaps on a net basis, i.e., the two payment streams are netted 

out, with the Funds receiving or paying, as the case may be, only the net amount of the two payments. When a Fund engages in a 

swap, it exchanges its obligations to pay or rights to receive payments for the obligations or rights to receive payments of another 

party (i.e., an exchange of floating rate payments for fixed rate payments). 

Certain Funds may enter into several different types of agreements including interest rate, credit default and currency swaps. The 

Funds may enter into index swap agreements as an additional hedging strategy for cash reserves held by those Funds or to effect 

investment transactions consistent with those objectives and strategies. Interest rate swaps are a counterparty agreement, can be 

customized to meet each party’s needs, and involve the exchange of a fixed payment per period for a payment that is not fixed. 

Currency swaps are an agreement where two parties exchange specified amounts of different currencies which are followed by a 

series of interest payments that are exchanged based on the principal cash flow. At maturity the principal amounts are exchanged 

back. Credit default swaps are a counterparty agreement which allows the transfer of third party credit risk (the possibility that an 

issuer will default on their obligation by failing to pay principal or interest in a timely manner) from one party to another. The 

lender faces the credit risk from a third party and the counterparty in the swap agrees to insure this risk in exchange for regular 

periodic payments. 

The Funds expect to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of 

their portfolios or to protect against any increase in the price of securities they anticipate purchasing at a later date. The net 

amount of the excess, if any, of the Funds’ obligations over their entitlements with respect to each swap will be accrued on a daily 

basis and an amount of cash or liquid high-grade debt securities having an aggregate net asset value at least equal to the accrued 

excess will be segregated. To the extent that the Funds enter into swaps on other than a net basis, the amount maintained in a 

segregated account will be the full amount of the Funds’ obligations, if any, with respect to such interest rate swaps, accrued on a 

daily basis. The Funds will not enter into any swaps unless the unsecured senior debt or the claims-paying ability of the other 

party thereto is rated in the highest rating category of at least one nationally recognized rating organization at the time of entering 

into such transaction. If there is a default by the other party to such a transaction, the Funds will have contractual remedies 

pursuant to the agreement related to the transaction. The swap market has grown substantially in recent years with a large number 

of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a 

result, the swap market has become more liquid. 

A Fund may not receive the expected amount under a swap agreement if the other party to the agreement defaults or becomes 

bankrupt. The market for swap agreements is largely unregulated. The Funds will only enter into swap agreements with 

counterparties that would be eligible for consideration as repurchase agreement counterparties under the Funds’ repurchase 

agreement guidelines. 

As of December 31, 2008, included in the Statement of Assets and Liabilities, the Core Bond Fund had a cash collateral balance 

of $1,079,064 in connection with swaps contracts purchased (sold). 

Credit Default Swaps 

FASB issued FASB Staff Position (“FSP”) No. 133-1 and 45-4 “Disclosures about Credit Derivatives and Certain Guarantees” 

which requires enhanced disclosure about the Funds’ credit derivatives. Management adopted FSP No. 133-1 and 45-4 on 

12/31/2008. 

The Core Bond Fund may enter into credit default swaps. A credit default swap can refer to corporate issues, asset-backed 

securities or an index of assets, each known as the reference entity or underlying asset. The Fund may act as either the buyer or 

the seller of a credit default swap. In an unhedged credit default swap, the Fund enters into a credit default swap without owning 




the underlying asset or debt issued by the reference entity. Credit default swaps allow the Fund to acquire or reduce credit 

exposure to a particular issuer, asset or basket of assets. 

As the seller in a credit default swap, the Fund would be required to pay the par or other agreed-upon value (or otherwise perform 

according to the swap contract) of a reference debt obligation to the counterparty in the event of a default (or other specified credit 

event); the counterparty would be required to surrender the reference debt obligation In return, the Fund would receive from the 

counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit 

event occurs, the Fund would keep the stream of payments and would have no payment obligations. 

The Fund may also purchase credit default swap contracts in order to offset the risk of default of debt securities held in its 

portfolio, in which case the Fund would function as the counterparty referenced in the preceding paragraph. 

Credit default swap agreements on corporate issues involve one party making a stream of payments to another party in exchange 

for the right to receive a specified return in the event of a default or other credit event. If a credit event occurs and cash 

settlement is not elected, a variety of other deliverable obligations may be delivered in lieu of the specific referenced obligation. 

The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protection’s right to choose the 

deliverable obligation with the lowest value following a credit event). A Fund may use credit default swaps on corporate issues to 

provide a measure of protection against defaults of the issuers (i.e., to reduce risk where a Fund owns or has exposure to the 

referenced obligation) or to take an active long or short position with respect to the likelihood (as measured by the credit default 

swap’s spread) of a particular issuer’s default. 

Credit default swap agreements on asset-backed securities involve one party making a stream of payments to another party in 

exchange for the right to receive a specified return in the event of a default or other credit event. Unlike credit default swaps on 

corporate issues or sovereign issues of an emerging country, deliverable obligations in most instances would be limited to the 

specific referenced obligation as performance for asset-backed securities can vary across deals. Prepayments, principal 

paydowns, and other write-down or loss events on the underlying mortgage loans will reduce the outstanding principal balance of 

the referenced obligation. These reductions may be temporary or permanent as defined under the terms of the swap agreement 

and the notional amount for the swap agreement generally will be adjusted by corresponding amounts. A Fund may use credit 

default swaps on asset-backed securities to provide a measure of protection against defaults (or other defined credit events) of the 

referenced obligation or to take an active long or short position with respect to the likelihood of a particular referenced 

obligation’s default (or other defined credit events). 

Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for 

the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of 

the referenced entities comprising the credit index. A credit index is of a basket of credit instruments or exposures designed to be 

representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a 

poll of dealers to be the most liquid entities in the credit default swap market based on the sector of the index. Components of the 

indices may include, but are not limited to, investment grade securities, high yield securities, asset backed securities, emerging 

markets, and/or various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized 

terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, 

and if there is a default, the credit event is settled based on that name’s weight in the index. The composition of the indices 

changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. Traders may 

use credit-default swaps on indices to speculate on changes in credit quality. 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements 

on corporate issues as of period end are disclosed in the Schedules of Investments and generally serve as an indicator of the 

current status of the payment/performance risk and represent the likelihood or risk of default (or other defined credit event) for 

the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of entering into a credit default 

swap and may include upfront payments required to be made to enter into the agreement. For credit default swap agreements on 

asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current 

status of the payment/performance risk. Wider credit spreads and increasing market values, in absolute terms when compared to 

the notional amount of the swap, generally represent a deterioration of the referenced entity’s credit soundness and a greater 

likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. The maximum potential 

amount of future payments (undiscounted) that a Fund as a seller of protection could be required to make under a credit default 

swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap 

agreements outstanding as of December 31, 2008 for which a Fund is the seller of protection are disclosed in the Schedules of 

Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, 

upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit 

default swap agreements entered into by a Fund for the same referenced entity or entities. 

Credit default swaps could result in losses if the Fund does not correctly evaluate the creditworthiness of the company or 

companies on which the credit default swap is based. The Fund will generally incur a greater degree of risk when it sells a credit 




default swap than when its purchases a credit default swap. As a buyer of credit default swap, the Fund may lose its investment 

and recover nothing should a credit event fail to occur and the swap is held to its termination date. As seller of a credit default 

swap, if a credit event were to occur, the value of any deliverable obligation received by the Fund, coupled with the upfront or 

periodic payments previously received, may be less than what it pays to the buyer, resulting in a loss of value to the Fund. 

If the creditworthiness of the Fund’s swap counterparty declines, the risk that the counterparty may not perform could increase, 

potentially resulting in a loss to the Fund. To limit the counterparty risk involved in swap agreements, the Funds will only enter 

into swap agreements with counterparties that meet certain standards of creditworthiness. Although there can be no assurance 

that the Fund will be able to do so, the Fund may be able to reduce or eliminate its exposure under a swap agreement either by 

assignment or other disposition, or by entering into an offsetting swap agreement with the same party or another creditworthy 

party. The Fund may have limited ability to eliminate its exposure under a credit default swap if the credit of the reference entity 

or underlying asset has declined. 

Swap agreements generally are entered into by “eligible participants” and in compliance with certain other criteria necessary to 

render them excluded from regulation under the Commodity Exchange Act (“CEA”) and, therefore not subject to regulation as 

futures or commodity option transactions under the CEA. 

Interest Rate Swaps 

The use of interest rate swaps is a highly specialized activity which involves investment techniques and risks different from those 

associated with ordinary portfolio securities transactions. If a money manager using this technique is incorrect in its forecast of 

market values, interest rates and other applicable factors, the investment performance of a Fund would diminish compared to 

what it would have been if this investment technique were not used. 

Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss 

with respect to interest rate swaps is limited to the net amount of interest payments that the Funds are contractually obligated to 

make. If the other party to an interest rate swap defaults, the Funds’ risk of loss consists of the net amount of interest payments 

that the Funds are contractually entitled to receive. Since interest rate swaps are individually negotiated, the Funds expect to 

achieve an acceptable degree of correlation between their rights to receive interest on their portfolio securities and their rights 

and obligations to receive and pay interest pursuant to interest rate swaps. 

Index Swaps 

Certain Funds may enter into index swap agreements as an additional hedging strategy for cash reserves held by those Funds or to 

effect investment transactions consistent with these 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 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). 

Investments in Emerging Markets 

Investing in emerging 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 may be more volatile than those of comparable 

securities in the United States. 

Repurchase Agreements 

The Core Bond Fund may enter into repurchase agreements. A repurchase agreement is an agreement under which the Fund 

acquires a fixed income security from a commercial bank, broker or dealer and simultaneously agrees to resell such security to 

the seller at an agreed upon price and date (normally the next business day). The resale price reflects an agreed upon interest rate 

effective for the period the security is held by the Fund and is unrelated to the interest rate on the security. The securities 

acquired by the Fund constitute collateral for the repurchase obligation. In these transactions, the securities acquired by the 




Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and 

must be held by the custodian bank until repurchased. In addition, RIMCo will monitor the Fund’s repurchase agreement 

transactions generally and will evaluate the credit worthiness of any bank, broker or dealer party to a repurchase agreement with 

the Fund. A Fund will not invest more than 15% (10% in the case of the Russell Money Market Fund) of its net assets (taken at 

current market value) in repurchase agreements maturing in more than seven days. 

Mortgage-Related and Other Asset-Backed Securities 

The Core Bond Fund may invest in mortgage or other asset-backed securities. These securities may include mortgage passthrough 

securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, 

CMO residuals, stripped mortgage-backed securities (“SMBSs”) and other securities that directly or indirectly represent a 

participation in, or are secured by a payable from, mortgage loans on real property. The value of a Fund’s mortgage-backed 

securities (“MBS”) may be affected by, among other things, changes or perceived changes in interest rates, factors concerning the 

interests in and structure of the issuer or the originator of the mortgage, or the quality of the underlying assets. The quality and 

value of the underlying assets may decline, or default. This has become an increasing risk for collateral related to sub-prime, Alt- 

A and non-conforming mortgage loans, especially in a declining residential real estate market. In addition, regulatory or tax 

changes may adversely affect the mortgage securities markets as a whole. 

MBS often have stated maturities of up to thirty years when they are issued, depending upon the length of the mortgages 

underlying the securities. In practice however, unscheduled or early payments of principal and interest on the underlying 

mortgages may make the securities’ effective maturity shorter than this, and the prevailing interest rates may be higher or lower 

than the current yield of a Fund’s portfolio at the time the Fund receives the payments for reinvestment. 

Rising or high interest rates may result in slower than expected principal payments which may tend to extend the duration of 

MBS, making them more volatile and more sensitive to changes in interest rates. This is known as extension risk. 

MBS may have less potential for capital appreciation than comparable fixed income securities due to the likelihood of increased 

prepayments of mortgages resulting from foreclosures or declining interest rates. These foreclosed or refinanced mortgages are 

paid off at face value (par) or less, causing a loss, particularly for any investor who may have purchased the security at a premium 

or a price above par. In such an environment, this risk limits the potential price appreciation of these securities. 

Through its investments in MBS, including those that are issued by private issuers, the Fund has exposure to subprime loans, Alt- 

A loans and non-conforming loans as well as to the mortgage and credit markets generally. Private issuers include commercial 

banks, savings associations, mortgage companies, investment banking firms, finance companies and special purpose finance 

entities (called special purpose vehicles or SPVs) and other entities that acquire and package mortgage loans for resale as MBS. 

These privately issued non-governmental MBS may offer higher yields than those issue by government entities, but also may be 

subject to greater price changes than governmental issues. Subprime loans refer to loans made to borrowers with weakened credit 

histories or with a lower capacity to make timely payments on their loans. Alt-A loans refers to loans extended to borrowers who 

have incomplete documentation of income, assets, or other variables that are important to the credit underwriting processes. Nonconforming 

mortgages are loans that do not meet the standards that allow purchase by government-sponsored enterprises. MBS 

with exposure to subprime loans, Alt-A loans or non-conforming loans have had in many cases higher default rates than those 

loans that meet government underwriting requirements. The risk of non-payment is greater for MBS that are backed by mortgage 

pools that contain subprime, Alt-A and non-conforming loans, but a level of risk exists for all loans. 

Unlike MBS issued or guaranteed by the U.S. government or a government sponsored entity (e.g., Fannie Mae (the Federal 

National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation)), MBS issued by private issuers 

do not have a government or government-sponsored entity guarantee, but may have credit enhancements provided by external 

entities such as banks or financial institutions or achieved through the structuring of the transaction itself. Examples of such 

credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g., the 

issuance of securities by an SPV in multiple classes or “tranches,” with one or more classes being senior to other subordinated 

classes as to the payment of principal and interest, with the result that defaults on the underlying mortgage loans are borne first 

by the holders of the subordinated class); creation of “reserve funds” (in which case cash or investments, sometimes funded from 

a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and “overcollateralization” 

(in which case the scheduled payments on, or the principal amount of, the underlying mortgage loans exceeds that required to 

make payment on the securities and pay any servicing or other fees). However, there can be no guarantee that credit 

enhancements, if any, will be sufficient to prevent losses in the event of defaults on the underlying mortgages loans. In addition, 

MBS that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgage that are 

applicable to those MBS that have a government or government-sponsored entity guarantee. As a result, the mortgage loans 

underlying private MBS may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics 

than government or government-sponsored MBS and have wider variances in a number of terms including interest rate, term, size, 

purpose and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value 

mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label 

MBS pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime 

mortgage loans. 




Privately issued MBS are not traded on an exchange and there may be a limited market for the securities, especially when there is 

a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, MBS held in a Fund’s 

portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying 

mortgage loans. 

Asset-backed securities may include MBS, loans, receivables or other assets. The value of the Fund’s asset-backed securities may 

be affected by, among other things, actual or perceived changes in interest rates, factors concerning the interests in and structure 

of the issuer or the originator of the receivables, the market’s assessment of the quality of underlying assets or actual or perceived 

changes in the credit worthiness of the individual borrowers, the originator, the servicing agent or the financial institution 

providing the credit support. 

Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities. 

Rising or high interest rates tend to extend the duration of asset-backed securities, making them more volatile and more sensitive 

to changes in interest rates. The underlying assets are sometimes subject to prepayments which can shorten the security’s 

weighted average life and may lower its return. Defaults on loans underlying asset-backed securities have become an increasing 

risk for asset-backed securities that are secured by home-equity loans related to sub-prime, Alt-A or non-conforming mortgage 

loans, especially in a declining residential real estate market. 

Asset-backed securities (other than MBS) present certain risks that are not presented by MBS. Primarily, these securities may not 

have the benefit of any security interest in the related assets. Credit card receivables are generally unsecured and the debtors are 

entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set 

off certain amounts owed on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on 

repossessed collateral may not, in some cases, be available to support payments on these securities. Asset-backed securities are 

often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by 

obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two 

categories: (i) liquidity protection, and (ii) protection against losses resulting from ultimate default by an obligor on the underlying 

assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure 

that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses results from payment of 

the insurance obligations on at least a portion of the assets in the pool. This protection may be provided through guarantees, 

policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the 

transaction or through a combination of such approaches. The Fund will not pay any additional or separate fees for credit support. 

The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk 

associated with the underlying assets. Delinquency or loss in excess of that anticipated or failure of the credit support could 

adversely affect the return on an investment in such a security. The availability of asset-backed securities may be affected by 

legislative or regulatory developments. It is possible that such developments may require the Fund to dispose of any then existing 

holdings of such securities. 

Inflation-Indexed Bonds 

The Core Bond Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal 

value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower 

than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is 

adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond will be included as interest income in 

the Statement of Operations, even though investors do not receive their principal until maturity. 

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. 

Market and Credit Risk 

In the normal course of business the Funds trade financial instruments and enter into financial transactions where risk of 

potential loss exists due to changes in the market (market risk) or failure of the other party to a transaction to perform (credit 

risk). Similar to credit risk, the Funds may be exposed to counterparty risk or risk that an institution or other entity with which the 

Funds have unsettled or open transactions will default. The potential loss could exceed the value of the assets recorded in the 

financial statements (The “Assets”). Assets which potentially expose the Funds to credit risk consist principally of cash due from 

counterparties and investments. The extent of the Funds’ exposure to credit and counterparty risks in respect to the Assets 

approximates their carrying value as recorded in the Funds’ Statements of Assets and Liabilities. 

On September 15, 2008, Lehman Brothers Holdings Inc. filed for protection under Chapter 11 of the United States Bankruptcy 

Code. On September 19, 2008, a proceeding under the Securities Investor Protection Act (SIPA) was commenced with respect to 




Lehman Brothers Inc., a broker-dealer. A trustee appointed under SIPA is administering the bankruptcy estate of Lehman 

Brothers Inc. Lehman Brothers International (Europe) was placed in administration under the UK Insolvency Act on 

September 15, 2008. Lehman Brothers Special Financing Inc., among other Lehman subsidiaries, filed for protection under 

Chapter 11 of the United States Bankruptcy Code on October 3, 2008. In connection with these filings, the Lehman Brothers 

group of companies (collectively “Lehman Brothers”) will be reorganized and/or liquidated in an orderly fashion, subject to court 

approval. Each Lehman Brothers entity is a separate legal entity that is subject to its own bankruptcy proceeding. 

The Core Bond Fund and Non-U.S. Fund had direct holdings swap agreements, and securities and derivatives transactions 

outstanding with Lehman Brothers entities as issuers or counterparties at the time the relevant Lehman Brothers entities filed for 

protection or were placed in administration. The direct holdings associated with Lehman Brothers have been written down to their 

estimated recoverable values. Unrealized gain on foreign exchange swaps or other derivatives transactions have been written down 

to zero, while anticipated losses for such transactions associated with Lehman Brothers have been incorporated as components of 

other liabilities on the Statement of Assets and Liabilities and net changes in realized gain (loss) or unrealized appreciation 

(depreciation) on the Statements of Operations. 

RIMCo or the Funds’ Money Managers have delivered notices of default and early termination to the relevant Lehman Brothers 

entities where required. For transactions with Lehman Brothers counterparties, RIMCo or the Funds’ Money Managers have 

terminated trades, obtained quotations from brokers for replacement trades and, where deemed appropriate, re-opened positions 

with new counterparties. 

3. Investment Transactions 

Securities 

During the period ended December 31, 2008, purchases and sales of investment securities (excluding U.S. Government and 

Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows: 

Funds Purchases Sales 

Multi-Style Equity $ 519,431,909 $ 518,036,985 

Aggressive Equity 284,590,920 298,045,354 

Non-U.S. 395,527,830 394,931,403 

Core Bond 120,967,058 85,094,531 

Real Estate Securities 320,166,984 305,568,466 

Purchases and sales of U.S. Government and Agency obligations (excluding short-term investments, options, futures and 

repurchase agreements) were as follows: 

Fund Purchases Sales 

Core Bond $ 529,232,775 $ 524,212,269 

Written Options Contracts 

Transactions in written options contracts for the period ended December 31, 2008 were as follows: 

Number of 

Contracts 

Non-U.S. Fund 

Premiums 

Received 

Number of 

Contracts 


Premiums 

Received 

Outstanding December 31, 2007 22 $ 95,180 44 $ 322,282 

Opened 720 3,404,891 574 1,377,260 

Closed (742) (3,500,071) (524) (869,829) 

Expired — — (35) (249,728) 

Outstanding December 31, 2008 — $ — 59 $ 579,985 

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 

each Fund’s total assets. The Fund 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 is invested by the 

securities lending agent, State Street Corporation (“State Street”), in short-term instruments, money market mutual funds and 

other short-term investments that meet certain quality and diversification requirements. Cash collateral invested in money market 

funds is included in the Schedule of Investments. The collateral received is recorded on a lending 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 U.S. securities) or 105% (for Non-U.S. securities) of the market value of the loaned securities at the inception of each loan. The 

market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is 

delivered to the Fund the next day. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the 

securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good 

financial standing. 

The Funds that participate in securities lending have cash collateral invested in the State Street Securities Lending Quality Trust 

Fund (“SLQT”). The short-term portfolio instruments held by SLQT are valued on the basis of amortized cost. Issuances and 

redemptions of interests in SLQT are made on each business day (“valuation date”). Currently, interests in SLQT are purchased 

and redeemed at a constant net asset value of $1.00 per unit for daily operational liquidity purposes, although redemptions for 

certain other purposes may be in-kind. In the event that a significant disparity develops between the net asset value based on 

amortized cost and the market based net asset value of SLQT, the Trustee of SLQT may determine that continued redemption at a 

constant $1.00 net asset value would create inequitable results for the SLQT’s interest holders. In these circumstances, the 

Trustee of SLQT, in its sole discretion and acting on behalf of the SLQT interest holders, may direct that interests be redeemed at 

the market-based net asset value until such time as the disparity between the market-based and the constant net asset value per 

unit is deemed to be insignificant. 

At December 31, 2008, the SLQT Fund was transacting at its amortized cost value of $1.00 per unit for daily operational liquidity 

purposes. In accordance with GAAP and SFAS 157, the Funds’ financial statements reflect the current market value of SLQT as 

of December 31, 2008. The SLQT’s market value per unit is lower than its amortized cost value per unit. Effective February 10, 

2009, the Funds began valuing the units of SLQT for purposes of the Funds’ daily valuation calculation at the unit’s market value 

rather than the unit’s amortized cost value. 

As of December 31, 2008, the non-cash collateral received for the securities on loan in the following funds was: 

Funds 

Non-Cash 

Collateral Value 

Non-Cash Collateral Holding 

Multi-Style Equity $ 182,684 Pool of US Government Securities and Corporate Bonds 

Aggressive Equity 362,923 Pool of US Government Securities and Corporate Bonds 

Non-U.S. 70,792 Pool of US Government Securities and Corporate Bonds 

Custodian 

The Funds have entered into arrangements with their Custodian whereby custody credits realized as a result of uninvested cash 

balances are used to reduce a portion of the Funds’ expenses. During the period ended December 31, 2008, the Funds’ custodian 

fees were reduced by the following amounts under these arrangements which are included in expense reductions on the 

Statements of Operations: 

Funds 

Custody Credit 

Amount 

Multi-Style Equity $ 5,505 

Aggressive Equity 3,298 

Non-U.S. 5,950 

Core Bond 8,505 

Real Estate Securities 465 

Brokerage Commissions 

The Funds effect certain transactions through various brokers as part of Russell’s commission recapture program as administered 

by BNY ConvergeFX Group — Execution Solutions LLC (“BNY”) is a registered broker and is not an affiliate of the Funds or 

RIMCo. Trades placed through BNY and its correspondents are used to generate commission rebates to the Funds on whose 

behalf the trades were made. For purposes of trading to generate commission rebates to the Funds, the Funds’ money managers 

are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through BNY and its 

correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. In 

addition, RIMCo recommends targets for the amount of trading that money managers allocate through BNY based upon asset 

class, investment style and other factors. 

BNY may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through BNY and their 

correspondents in the form of commission recapture. Commission recapture is paid solely to those Funds generating the 

applicable trades. Commission recapture is generated on the instructions of the Soft Dollar Committee once RIMCo’s research 

budget has been met, as determined annually in the Soft Dollar Committee budgeting process. 

Effective January 1, 2008, transactions effected through BNY are used solely to generate commission rebate to the Funds and no 

longer to obtain research services. 




Additionally, the Fund paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to 

the Adviser. 

4. Related Party Transactions, Fees and Expenses 

Adviser and Administrator 

RIMCo is the Funds’ investment adviser and RFSC is the Funds’ administrator. RFSC is a wholly-owned subsidiary of RIMCo. 

RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance 

Company). Frank Russell Company provides ongoing money manager research and trade placement services to RIF and RIMCo. 

The Investment Company Funds are permitted to invest their cash reserves (i.e., cash awaiting investment or cash held to meet 

redemption requests or to pay expenses) in the RIC Russell Money Market Fund. As of December 31, 2008, $91,920,000 

represents Investment Company Funds in the RIC Russell Money Market Fund. RIC is a registered investment company that 

employs the same investment adviser as the Investment Company. 

The advisory and administrative fees are based upon the average daily net assets of each Fund at the rates specified in the table 

below, are payable monthly and total $13,234,201 and $866,655 respectively, for the period ended December 31, 2008. 

Annual Rate 

Funds Advisor Administrator 

Multi-Style Equity 0.73% 0.05% 

Aggressive Equity 0.90 0.05 

Non-U.S. Equity 0.90 0.05 

Core Bond 0.55 0.05 

Real Estate Securities 0.80 0.05 

RIMCo agreed to certain waivers of its advisory fees as follows: 

Multi-Style Equity Fund — RIMCo contractually agreed to waive, at least until April 29, 2009, a portion of its 0.73% advisory 

fee, up to the full amount of that fee, equal to the amount by which the Fund’s total direct Fund-level operating expenses exceed 

0.87% of the Fund’s average daily net assets on an annual basis and then to reimburse the Fund for all remaining expenses, after 

fee waivers, that exceed 0.87% of the average daily net assets on an annual basis. Direct Fund-level expenses do not include 

expenses of other investment companies in which the Fund invests which are borne indirectly by the Fund. The total amount of 

the waiver for the period ended December 31, 2008 was $62,146. There were no reimbursements during the period. 

Aggressive Equity Fund — RIMCo contractually agreed to waive, at least until April 29, 2009, a portion of its 0.90% advisory 

fee, up to the full amount of that fee, equal to the amount by which the Fund’s total direct Fund-level operating expenses exceed 

1.05% of the Fund’s average daily net assets on an annual basis and to then reimburse the Fund for all remaining expenses, after 

fee waivers, that exceed 1.05% of the average daily net assets on an annual basis. Direct Fund-level expenses do not include 



Non-U.S. Fund — RIMCo contractually agreed to waive, at least until April 29, 2009, a portion of its 0.90% advisory fee, up to 

the full amount of that fee, equal to amount by which the Fund’s total direct Fund-level operating expenses exceed 1.15% of the 

Fund’s average daily net assets on an annual basis and to then reimburse the Fund for all remaining expenses, after fee waivers, 

that exceed 1.15% of the average daily net assets on an annual basis. Direct Fund-level expenses do not include expenses of 

other investment companies in which the Fund invests which are borne indirectly by the Fund. The total amount of the waiver for 

the period ended December 31, 2008 was $209,156. There were no reimbursements during the period. 

Core Bond Fund — RIMCo contractually agreed to waive, at least until April 29, 2009, a portion of its 0.55% advisory fee, up to 

the full amount of that fee, equal to the amount by which the Fund’s total direct Fund-level operating expenses exceed 0.70% of 

the Fund’s average daily net assets on an annual basis and to then reimburse the Fund for all remaining expenses, after fee 

waivers, that exceed 0.70% of the average daily net assets on an annual basis. Direct Fund-level expenses do not include 



Real Estate Securities Fund — RIMCo contractually agreed to waive, at least until April 29, 2009, a portion of its 0.80% 

advisory fee, up to the full amount of that fee, equal to the amount by which the Fund’s total direct Fund-level operating expenses 

exceed 1.10% of the Fund’s average daily net assets on an annual basis and then to reimburse the Fund for all remaining 

expenses, after fee waivers, that exceed 1.10% of the average daily net assets on an annual basis. Direct Fund-level expenses do 

not include expenses of other investment companies in which the Fund invests which are borne indirectly by the Fund. There 

were no amounts waived or reimbursed during the period. 

RIMCo do not have the ability to recover amounts waived or reimbursed from previous periods. 




Transfer and Dividend Disbursing Agent 

RFSC serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo and RFSC are 

paid a fee for transfer agency and dividend disbursing services provided to the Funds. RIMCo and RFSC retain a portion of this 

fee for their services provided to the Funds and pay the balance to unaffiliated agents who assist in providing these services. Total 

transfer agency fees paid by the Funds presented herein for the period ended December 31, 2008 were $76,266. 

Accrued Fees Payable to Affiliates 

Accrued fees payable to affiliates as of December 31, 2008 were as follows: 


Fund 


Fund 

Non-U.S. 

Fund 

Core Bond 

Fund 

Real Estate 


Advisory Fees $ 173,754 $ 58,607 $ 164,264 $ 130,236 $ 188,841 

Administrative Fees 12,174 4,967 10,313 13,399 11,803 

Transfer agent Fees 1,075 447 904 1,138 1,068 

Trustee Fees 1,461 736 1,205 1,057 2,050 

$ 188,464 $ 64,757 $ 176,686 $ 145,830 $ 203,762 

Distributor 

On June 2, 2008, Russell Fund Distributors, Inc., a wholly-owned subsidiary of RIMCo, changed its name to Russell Financial 

Services, Inc. (the “Distributor’). The Distributor serves as distributor for RIF, pursuant to the Distribution Agreement with the 

Investment Company. The Distributor receives no compensation from the Investment Company for its services. 

Affiliated Brokerage Commissions 

The Funds will effect certain transactions through Russell Implementation Services Inc. (“RIS”) and its global network of 

unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed 

through RIS and its correspondents are made (i) to manage trading associated with changes in managers, rebalancing across 

existing managers, cash flows and other portfolio transitions or (ii) to execute portfolio securities transactions for each Fund’s 

assets that RIMCo determines not to allocate to money managers and for each Fund’s cash reserves. 

Board of Trustees 

The Russell Fund Complex consists of RIC, which has 38 Funds, and RIF, which has nine Funds. Each of the Trustees is a 

Trustee of both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of 

$60,000 per year, $6,500 for each regular quarterly meeting attended in person, $2,500 for each special meeting attended in 

person, and $2,500 for each Audit Committee meeting, Nominating and Governance Committee meeting, Investment Committee 

meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives 

a $1,000 fee for attending the quarterly and special meetings and a $500 fee for attending the committee meeting by phone 

instead of receiving the full fee had the member attended in person. Trustees’ out of pocket expenses are also paid by the Russell 

Fund Complex. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the 

Nominating and Governance Committee Chair is paid a fee of $6,000 per year. The chairman of the Board receives additional 

annual compensation of $52,000. 

5. Federal Income Taxes 

At December 31, 2008, the following Funds had net tax basis capital loss carryforwards which may be applied against any 

realized net 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: 

Funds 12/31/16 Totals 

Multi-Style Equity $ 47,156,528 $ 47,156,528 

Aggressive Equity 35,188,160 35,188,160 

Non-U.S. 51,015,389 51,015,389 

Real Estate 26,296,790 26,296,790 




At December 31, 2008, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and 

undistributed long-term capital gains for income tax purposes were as follows: 


Fund 


Fund 

Non-U.S. 

Fund 

Core Bond 

Fund 

Real Estate 


Cost of Investments for Tax Purposes $ 439,265,952 $ 212,648,127 $ 341,459,535 $ 452,500,958 $ 487,921,333 

Unrealized Appreciation $ 14,217,717 $ 5,963,920 $ 10,861,747 $ 17,775,512 $ 53,131,098 

Unrealized Depreciation (106,549,192) (46,286,435) (82,369,953) (53,495,923) (138,795,460) 

Net Tax Unrealized Appreciation (Depreciation) $ (92,331,475) $ (40,322,515) $ (71,508,206) $ (35,720,411) $ (85,664,362) 

Undistributed Ordinary Income $ 1,690,300 $ — $ 3,432,328 $ 3,174,296 $ 4,032,989 

Undistributed Long-Term Gains (Capital Loss 

Carryforward) $ (47,156,528) $ (35,188,160) $ (51,015,389) $ 348,882 $ (26,296,790) 

Tax Composition of Distributions: 

Ordinary Income $ 5,807,059 $ 1,580,838 $ 1,321 $ 18,795,290 $ 8,442,892 

Long-Term Capital Gains $ 3,971,718 $ 41,420 $ 3,343,645 $ 2,360,093 $ — 

Post October Loss Deferrals $ 23,941,457 $ 17,044,024 $ 23,686,099 $ — $ 16,705,163 

6. Fund Share Transactions (amounts in thousands) 

Share transactions for the periods ended December 31, 2008 and December 31, 2007 were as follows: 

Shares 

Dollars 


2008 2007 2008 2007 

Proceeds from shares sold 4,217 3,423 $ 50,056 $ 54,038 

Proceeds from reinvestment of distributions 720 1,528 9,779 23,579 

Payments for shares redeemed (2,477) (2,246) (31,519) (35,711) 

Total net increase (decrease) 2,460 2,705 $ 28,316 $ 41,906 





Total net increase (decrease) (482) 2,135 $ (4,937) $ 27,672 

Non-U.S. Fund 







Proceeds from reinvestment of distributions 2,179 1,601 21,155 16,240 


Total net increase (decrease) 647 7,316 $ 9,603 $ 74,651 





Total net increase (decrease) 533 2,801 $ (771) $ 39,596 

7. Interfund Lending Program 

The Investment Company Funds have received permission from the Securities and Exchange Commission to participate in a joint 

lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from each other for temporary 

purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. Typically, 

Funds will borrow from the RIC Russell Money Market Fund. The RIC Russell Money Market Fund will lend through the program 




only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves and the 

portfolio manager determines it is in the best interest of the RIC Russell Money Market Fund. The Investment Company Funds 

will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and 

borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business 

day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not 

renewed. Any delay in repayment to the RIC Russell Money Market Fund could result in a lost investment opportunity or 

additional borrowing costs. For the period ended December 31, 2008, the Funds presented herein did not borrow through the 

interfund lending program. 

8. Record Ownership 

As of December 31, 2008, the following table includes shareholders of record with greater than 10% of the total outstanding 

shares of each respective Fund. The Northwestern Mutual Life Insurance Company separate accounts were the largest 

shareholder in each Fund. 

# of Shareholders % 

Multi-Style Equity Fund 2 83.0 

Aggressive Equity Fund 2 83.5 

Non-U.S. Fund 2 86.6 

Core Bond Fund 2 79.0 

Real Estate Securities Fund 2 90.0 

9. Restricted Securities 

Restricted securities are subject to contractual limitations on resale, are often issued in private placement transactions, and are 

not registered under the Securities Act of 1933 (the “Act”). The most common types of restricted securities are those sold under 

Rule 144A of the Act and commercial paper sold under Section 4(2) of the Act. 

A Fund may invest a portion of its net assets not to exceed 15% in securities that are illiquid. Illiquid securities are securities 

that may not be readily marketable, and that cannot be sold within seven days in the ordinary course of business at the 

approximate amount at which the Fund has valued the securities. Restricted securities are generally considered to be illiquid. 




The following table lists restricted securities held by a Fund that are illiquid. The following table does not include (1) securities 

deemed liquid by RIMCo or a money manager pursuant to Board approved policies and procedures or (2) illiquid securities that 

are not restricted securities as designated on the Fund’s Schedule of Investments. 

Fund - % of Net Assets 

Securities 

Acquisition 

Date 

Principal 

Amount ($) 

or Shares 

Cost per 

Unit 

$ 

Cost 

(000) 

$ 

Market Value 

(000) 

$ 

Aggressive Equity Fund - 0.2% 

Monterey Gourmet Foods, Inc. 03/10/08 125,695 2.84 357 133 

Retractable Technologies, Inc. 03/10/08 72,750 1.52 110 62 

195 

Non-U.S. Fund - 0.4% 

East Japan Railway Co. 11/18/08 52 7,885.95 410 415 

Mizuho Financial Group, Inc. 02/28/08 168 2,598.19 436 501 

916 

Core Bond Fund - 1.2% 

Adam Aircraft Industries 02/13/08 55,855 99.05 55 5 

Americo Life, Inc. 12/12/06 75,000 102.07 77 71 

Ballyrock CDO, Ltd. 02/13/08 1,000,000 80.04 800 764 

Black Diamond CLO, Ltd. 09/11/08 1,000,000 83.02 830 700 

BNP Paribas Capital Trust 06/01/06 450,000 112.14 505 276 

Bombardier, Inc. 11/10/06 EUR 125,000 128.47 161 104 

Callidus Debt Partners Fund, Ltd. 09/26/08 973,409 77.81 757 779 

Catlin Insurance Co., Ltd. 01/11/07 100,000 100.00 100 40 

CIT Mortgage Loan Trust 10/05/07 327,778 100.00 328 267 



DG Funding Trust 11/04/03 49 10,537.12 516 491 

Freddie Mac REMICS 07/09/06 125,232 101.94 128 113 

Freddie Mac REMICS 06/28/07 126,022 0.17 — — 

Freddie Mac REMICS 07/17/07 60,120 109.13 66 69 

Symetra Financial Corp. 06/26/06 150,000 98.47 148 123 

Washington Mutual Mortgage Pass Through Certificates 04/01/05 196,509 100.00 197 24 

3,936 

Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of 

Trustees. 



To the Board of Trustees and Shareholders 

of Russell Investment Funds: 



respects, the financial position of Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate 

Securities Fund, and Core Bond Fund (five of the portfolios constituting the Russell Investment Funds, hereafter referred 

to as the “Funds”) at December 31, 2008, 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 each of 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 

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 the standards of the Public Company Accounting 

Oversight Board (United States). Those standards require that we plan and perform the audits 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, 2008 by 

correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion. 

Seattle, Washington 




Tax Information — December 31, 2008 (Unaudited) 

For the tax year ended December 31, 2008, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable 

income as qualified dividends taxed at individual net capital gain rates. 

The Form 1099 you receive in January 2009 will show the tax status of all distributions paid to your account in calendar year 2008. 

The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate 

shareholders as follows: 

Multi-Style Equity 100.0% 

Aggressive Equity 100.0% 

Non-U.S. 0.0% 

Real Estate Securities 4.1% 

Core Bond 0.0% 

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, 2008: 

Long-Term 

Capital Gains 

Multi-Style Equity $ 3,971,718 

Aggressive Equity 41,420 

Non-U.S. 3,343,645 

Real Estate Securities 0 

Core Bond 2,360,093 

Please consult a tax adviser for any questions about federal or state income tax laws. 

The Non-U.S Fund paid foreign taxes of $1,007,175 and recognized $9,878,146 of foreign source income during the taxable year 

ended December 31, 2008. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $.0295 per share of foreign 

taxes paid and $.2891 of gross income per share earned from foreign sources in the taxable year ended December 31, 2008. 

Tax Information 115


Basis for Approval of Investment Advisory Contracts (Unaudited) 

Approval of Investment Advisory Agreement 

The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory 

agreement with RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Funds 

(collectively, the “portfolio management contracts”) at a meeting held on April 22, 2008. During the course of a year, the Trustees 

receive a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds’ shares, 

and the management of the Funds by RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and 

assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo 

relating to the services provided by RIMCo (and its affiliates) to the Funds; and (2) information (the “Third-Party Information”) 

received from an independent, nationally recognized provider of investment company information comparing the performance of each 

of the Funds and their respective operating expenses over various periods of time with other peer funds (“Comparable Funds”) not 

managed by RIMCo, believed by the provider to be generally comparable in investment objectives and size to the Funds; The 

foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Renewal Information.” 

The Trustees’ evaluations also reflected the knowledge and familiarity gained as Board members of the Funds and other funds in the 

same complex with respect to services provided by RIMCo, RIMCo’s affiliates and each Money Manager. The Trustees received a 

memorandum from counsel to the Funds discussing the legal standards for their consideration of the continuations of the RIMCo 

Agreement and the portfolio management contracts and the Independent Trustees separately received a memorandum regarding their 

responsibilities from their independent counsel. 

On April 21, 2008, the Independent Trustees met to review the Agreement Renewal Information in a private session with their 

independent counsel at which no representatives of RIMCo or the Funds’ management were present. At the April 22 meeting of the 

Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and 

the portfolio management contracts with management, counsel to the Funds and independent counsel to the Independent Trustees. 

Presentations made by RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for 

which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a 

private session with their independent counsel to evaluate additional information and analyses received from RIMCo and 

management at the Board meeting. The discussion below reflects all of these reviews. 

In evaluating the portfolio management contracts, the Board considered that the Funds, in employing a manager-of-managers method 

of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other 

investment companies, an advisory fee is paid by the investment company to its adviser which, in turn, employs and compensates 

individual portfolio managers to make specific securities selections consistent with the adviser’s style and investment philosophy. 

RIMCo has engaged multiple unaffiliated Money Managers for all Funds. 

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for determining, 

implementing and maintaining the investment program for each Fund. Assets of each Fund generally have been allocated among the 

multiple Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo manages directly a portion of certain 

Funds’ assets employing a “select holdings strategy,” as described below, and directly manages the investment of each Fund’s cash 

reserves. RIMCo also may manage directly any portion of each Fund’s assets that RIMCo determines not to allocate to the Money 

Managers and portions of a Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo 

pursuant to authority provided by the RIMCo Agreement. 

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Fund and for actively managing allocations 

and reallocations of assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios in a risk 

aware manner. Each Money Manager for a Fund in effect performs the function of an individual portfolio manager who is responsible 

for selecting portfolio securities for the portion of the Fund assigned to it by RIMCo (each, a “segment”) in accordance with the 

Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio 

securities and the Money Manager’s specified role in a Fund. RIMCo is responsible for communicating performance expectations to 

each Money Manager; supervising compliance by each Money Manager with each Fund’s investment objective and policies; 

authorizing Money Managers to engage in certain investment strategies for a Fund; and recommending annually to the Board whether 

portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the 

renewal, modification or termination of portfolio management contracts, RIMCo is responsible for recommending to the Board 

additions of new Money Managers or replacements of existing Money Managers at any time when, based on RIMCo’s research and 

ongoing review and analysis, such actions are appropriate. RIMCo may impose specific investment constraints from time to time for 

each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of 

Money Managers for the Fund in a complementary manner. Therefore, RIMCo’s selection of Money Managers is made not only on the 

basis of performance considerations but anticipated compatibility with other Money Managers in the same Fund. In light of the 

foregoing, the overall performance of each Fund over appropriate periods reflects, in great part, the performance of RIMCo in 

designing the Fund’s investment program, structuring the Fund, selecting an effective Money Manager with a particular investment 

style or sub-style for a segment that is complementary to the styles of the Money Managers of other Fund segments, and allocating 

assets among the Money Managers in a manner designed to achieve the objectives of the Fund. 

116 Basis for Approval of Investment Advisory Contracts


Basis for Approval of Investment Advisory Contracts, continued (Unaudited) 

The Board considered that the prospectuses for the Funds and other public disclosures emphasize to investors RIMCo’s role as the 

principal investment manager for each Fund, rather than the investment selection role of the Funds’ Money Managers, and describe 

the manner in which the Funds operate so that investors may take that information into account when deciding to purchase shares of 

any such Fund. 

The Board also considered the demands and complexity of managing the Funds pursuant to the manager-of-managers structure, the 

special expertise of RIMCo with respect to the manager-of-managers structure of the Funds and the likelihood that, at the current 

expense ratio of each Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms 

given the need to continue the manager-of-managers strategy of such Fund selected by shareholders in purchasing their shares. 

In addition to these general factors relating to the manager-of-managers structure of the Funds, the Trustees considered, with respect 

to each Fund, various specific factors in evaluating renewal of the RIMCo Agreement, including the following: 

1. The nature, scope and quality of the services provided to the Fund by RIMCo; 

2. The advisory fee paid by the Fund to RIMCo and the fact that it encompasses all investment advisory fees paid by the Fund, 

including the fees for any Money Managers of such Fund; 

3. Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund, including any 

administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in 

connection with portfolio securities transactions; 

4. Information provided by RIMCo as to expenses incurred by the Fund; and 

5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the 

Fund. 

As noted above, RIMCo, pursuant to the terms of the RIMCo Agreement, directly managed a portion—up to 10%—of the assets of 

the Multi-Style Equity Fund (the “Participating Fund”) during the past year utilizing a select holdings strategy, the actual allocation 

being determined by the Participating Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing 

such assets for the Participating Fund is designed to increase the Participating Fund’s exposure to stocks that are viewed as 

attractive by multiple Money Managers of the Participating Fund. The Board reviewed the results of the select holdings strategy in 

respect of the Participating Fund since implementation, taking into account that the strategy has been utilized for a limited period of 

time. The Trustees considered that RIMCo is not required to pay investment advisory fees to a Money Manager with respect to assets 

for which the select holdings strategy is utilized and that the profits derived by RIMCo generally and from the Participating Fund 

consequently may increase incrementally. The Board, however, also considered RIMCo’s advice that it pays certain Money Managers 

additional fees for providing information and other services in connection with the select holdings strategy and incurs additional 

costs in carrying out the select holdings strategy, the limited amount of assets that are managed directly by RIMCo pursuant to the 

select holdings strategy, and the fact that the aggregate investment advisory fees paid by the Participating Fund are not increased as 

a result of the select holdings strategy. 

In evaluating the reasonableness of the Funds’ investment advisory fees in light of Fund performance, the Board considered that 

RIMCo, in the Agreement Renewal Information and at past meetings, noted differences between the investment strategies of certain 

Funds and their respective Comparable Funds in pursuing their investment objectives, including Fund strategies which seek to 

achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and 

resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for 

certain Funds during the periods covered by the Third-Party Information did result, in lower performance than that of some of their 

respective Comparable Funds. According to RIMCo, the strategies pursued by the Funds, among other things, are intended to result 

in less volatile, more moderate returns relative to each Fund’s performance benchmark rather than more volatile, more extreme 

returns that its Comparable Funds may experience over time. 

The Board considered for each Fund whether economies of scale have been realized and whether the fees for such Fund 

appropriately reflect or should be revised to reflect any such economies. The Board determined that, after giving effect to any 

applicable fee or expense caps, waivers and/or reimbursements, the investment advisory fees for each Fund appropriately reflect any 

economies of scale realized by that Fund, based upon such factors as the variability of Money Manager investment advisory fees and 

other factors associated with the manager-of-managers structure employed by the Funds. The Trustees considered that fees payable 

to RIMCo by institutional clients with investment objectives similar to those of the Funds and other funds under the Board’s 

supervision are lower, and may, in some cases by substantially lower that the rates paid by funds supervised by the Board, including 

the Funds. The Trustees considered the differences in the scope of services it provides to institutional clients and the Funds. In 

response to the Trustees’ inquiries, RIMCO has previously noted, among other things, that institutional clients have fewer 

administrative needs than the Funds. RIMCo noted that since the Funds must constantly issue and redeem their shares, they are 

more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard 

these fee differences as relevant to their deliberations. 

Basis for Approval of Investment Advisory Contracts 117



On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the 

course of the current year or prior years or presented at the April 22 Board meeting by RIMCo, the Board, in respect of each Fund, 

found, after giving effect to any applicable waivers and/or reimbursements, (1) the advisory fee charged by RIMCo to be reasonable 

in light of the nature, scope and quality of the services provided to the Funds; (2) the relative expense ratio of the Fund was 

comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was 

reasonable; and (4) RIMCo’s profitability with respect to the Fund was not excessive in light of the nature, scope and quality of the 

services provided by RIMCo. 

The Board further concluded that, under the circumstances, the performance of each of the Funds supported continuation of the 

RIMCo Agreement except that the Board concluded that, as discussed below, performance of the Non-U.S. Fund did not support a 

determination against continuation of the RIMCo Agreement in respect of that Fund. The Board, in assessing the Funds’ 

performance, focused upon each Fund’s performance for the 1-, 3- and 5-year periods as most relevant. 

With respect to the RIF Non-U.S. Fund, the Third-Party Information showed that the Fund’s performance was ranked in the fourth 

quintile for the 1- and 3-year periods ended December 31, 2007 and in the third quintile for the 5- and 10-year periods ended such 

date. RIMCo noted that the quantitative investment strategy employed by one Money Manager for the Fund, like quantitative 

strategies generally, had been adversely affected by market conditions in the past year and that another Money Manager performed 

below expectations in a market environment that should have been more favorable for it and was subsequently replaced by a higher 

confidence manager. RIMCo noted further that the relatively small size of the RIF Non-U.S. Fund has constrained the number of 

Money Managers that may be employed to manage its portfolio, limiting its exposure to multiple, different investment strategies. 

Lastly, RIMCo noted that the Comparable Funds for the RIF Non-U.S. Fund have had greater emerging markets exposure and that 

the Fund tends to invest in larger cap stocks than the Comparable Funds, a tendency which has put it at a disadvantage in periods 

when emerging markets stocks and smaller cap stocks were the best performers. 

In evaluating performance, the Board considered each Fund’s absolute performance and its performance relative to appropriate 

benchmarks and indices and its Comparable Funds. In assessing performance, the Board also considered RIMCo’s investment 

strategy of managing the Funds in a risk aware manner. 

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its 

current terms and conditions would be in the best interests of the Funds and their respective shareholders and voted to approve the 

continuation of the Agreement. 

At the April 22 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers, 

the Board received and considered information from RIMCo reporting, among other things, for each Money Manager, the Money 

Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant 

business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Funds’ underwriter; and 

RIMCo’s recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or 

to terminate the Money Manager. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has 

advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management 

contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length 

negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees 

agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. 

The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the aggregate investment 

advisory fees paid by each Fund and the fact that each Money Manager’s fee is paid by RIMCo. 

Based substantially upon RIMCo’s recommendations, together with the information received from RIMCo in support of its 

recommendations at the April 22 meeting, the Board concluded that the fees paid to the Money Managers of each Fund are 

reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management 

contract with each Money Manager of each Fund would be in the best interests of the Fund and its shareholders. 

In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s 

recommendation, the portfolio management contract with any Money Manager that was all-important or controlling and each Trustee 

attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a 

Fund-by-Fund basis and their determinations were made in respect of each Fund. 

Subsequently, the Board of Trustees received a proposal from RIMCo at a meeting held on October 10, 2008, to effect a money 

manager change for the Multi-Style Equity Fund resulting from a change of control of one of the Fund’s Money Managers. In the case 

the proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon 

RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the 

Money Manager and RIMCo or Russell Financial Services, Inc. the Fund’s underwriter; RIMCo’s explanation as to the lack of 

relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money 

Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by 




the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of 

the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 22, 

2008 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate 

investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager 

change because the money managers’ investment advisory fee is paid by RIMCo. 



Shareholder Requests for Additional Information — December 31, 2008 (Unaudited) 

A complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third 

quarters of each year. These reports are available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) on the 

Securities and Exchange Commission’s website at www.sec.gov, and (iii) at the Securities and Exchange Commission’s public 

reference room. 

The Board has delegated to RIMCo, as RIF’s investment adviser, the primary responsibility for monitoring, evaluating and voting 

proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. RIMCo has established a 

proxy voting committee (“Committee”) and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting 

guidelines (“Guidelines”). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of 

disclosure to shareholders and third parties of information regarding the portfolio investments held by the Funds. A description of 

the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Trustees are contained in the 

Funds’ Statement of Additional Information (“SAI”). The SAI is available (i) free of charge, upon request, by calling the Funds at 

(800) 787-7354, and (ii) on the Securities and Exchange Commission’s website at www.sec.gov. 

If possible, depending on contract owner registration and address information, and unless you have otherwise opted out, only one 

copy of the RIF prospectus and each annual and semi-annual report will be sent to contract owners at the same address. If you would 

like to receive a separate copy of these documents, please contact your Insurance Company. If you currently receive multiple copies 

of the prospectus, annual report and semi-annual report and would like to request to receive a single copy of these documents in the 

future, please call your Insurance Company. 

Some Insurance Companies may offer electronic delivery of the Funds’ prospectus and annual and semiannual reports. Please 

contact your Insurance Company for further details. 

120 Shareholder Requests for Additional Information


Disclosure of Information about Fund Trustees and Officers — December 31, 2008 

(Unaudited) 

The following tables provide information for each officer and trustee of the Russell Fund Complex. The Russell Fund Complex 

consists of Russell Investment Company (“RIC”), which has 38 funds, and Russell Investment Funds (“RIF”), which has 9 funds. 

Each of the trustees is a trustee of both RIC and RIF. The first table provides information for the interested trustee. The second table 

provides information for the independent trustees. The third table provides information for the trustees emeritus. The fourth table 

provides information for the officers. 

Name, 

Age, 

Address 

INTERESTED TRUSTEES 

#Greg J. Stark 

Born May 3, 1968 

909 A Street 

Tacoma, Washington 

98402-1616 

Position(s) Held 

with Fund and 

Length of 

Time Served 


Executive Officer 

since 2004 

Trustee since 2007 

INDEPENDENT TRUSTEES 

Thaddas L. Alston Trustee since 2006 

Born April 7, 1945 

909 A Street 


98402-1616 

Term 

of 

Office* 

Appointed until 

successor is 

duly elected and 

qualified 

Until successor 

is chosen and 

qualified by 

Trustees 


successor is 


qualified 

Principal Occupation(s) 

During the 

Past 5 Years 

• President and CEO RIC and RIF 

• Chairman of the Board, President and 

CEO, RIMCo 


CEO, Russell Fund Services 

Company (“RFSC”) 


CEO, Russell Financial Services, Inc. 

• Chairman of the Board and President, 

Russell Insurance Agency, Inc. 

(insurance agency (“RIA”)) 

• Until 2004, Managing Director, of 

Individual Investor Services, FRC 

• 2000 to 2004 Managing Director, 

Sales and Client Service, RIMCo 

• Senior Vice President, Larco 

Investments, Ltd. (real estate firm) 

No. of 

Portfolios 

in Russell 

Fund 

Complex 

Overseen 

by Trustee 

47 None 

47 None 

Other Directorships 

Held by Trustee 

Kristianne Blake, 

Born January 22, 1954 

909 A Street Tacoma, 

Washington 98402-1616 


Chairman since 2005 


successor is 


qualified 

Annual 

• Director and Chairman of the Audit 

Committee, Avista Corp. 

• Trustee and Chairman of the 

Operations Committee, Principal 

Investors Funds and Principal 

Variable Contracts Funds 

• Regent, University of Washington 

• President, Kristianne Gates Blake, 

P.S. (accounting services) 

• February 2002 to June 2005, 

Chairman of the Audit Committee, 

RIC and RIF Trustee and Chairman 

of the Operations and Distribution 

Committee, WM Group of Funds, 

1999–2006 

47 • Director, Avista 

Corp; (electric 

utilities) 

• Trustee, Principal 

Investors Funds 

(investment 

company); 

• Trustee, 

Principal 

Variable 

Contracts Funds 

(investment 

company) 

Daniel P. Connealy 

Born June 6, 1946 

909 A Street 


98402-1616 


Chairman of Audit 

Committee since 

2005 


successor is 


qualified 


successor is 


qualified 

• June 2004 to present, Senior Vice 

President and Chief Financial 

Officer, Waddell & Reed Financial, 

Inc. 

• 2001–2003, Vice President and Chief 

Financial Officer, Janus Capital 

Group Inc. 

47 None 

# Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee. 

Disclosure of Information about Fund Trustees and Officers 121


Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2008 

(Unaudited) 

Name, 

Age, 

Address 


With Fund and 

Length of 

Time Served 

Term 

of 

Office* 


During the 

Past 5 Years 

No. of 

Portfolios 

in Russell 

Fund 

Complex 

Overseen 

by Trustee 

Other 

Directorships Held 

by Trustee 

INDEPENDENT TRUSTEES (continued) 

Jonathan Fine 

Born July 8, 1954 

909 A Street 


98402-1616 

Trustee 

since 2004 


successor is 


qualified 

• President and Chief Executive 

Officer, United Way of King County, 

WA 

47 None 

Raymond P. Tennison, Jr. 

Born December 21, 1955 

909 A Street 


98402-1616 

Trustee 

since 2000 

Chairman of the 

Nominating and 

Governance 


2007 


successor is 


qualified. 


successor is 


qualified 

• President, Simpson Investment 

Company and several additional 

subsidiary companies, including 

Simpson Timber Company, Simpson 

Paper Company and Simpson Tacoma 

Kraft Company 

47 None 

Jack R. Thompson, 

Born March 21, 1949 

909 A Street 


98402-1616 



successor is 


qualified 

• September 2003 to present, 

Independent Board Chair and 


Sparx Asia Funds 

• September 2007 to present, Director, 

Board Chairman, and Audit 

Committee Chairman, LifeVantage 

Corporation (health products 

company) 

• May 1999 to May 2003, President, 

Chief Executive Officer and Director, 

Berger Financial Group, LLC 

• May 1999 to May 2003, President 

and Trustee, Berger Funds 

47 • Director, Sparx 

Asia Funds 

(investment 

company) 

• Director, Board 

Chairman, and 

Audit 

Committee 

Chairman, 

LifeVantage 

Corporation 

(health products 

company) 

Julie W. Weston, 

Born October 2, 1943 

909 A Street 


98402-1616 

Trustee 

since 2002 

Chairperson of the 

Investment 


2006 


successor is 


qualified 


successor is 


qualified 

• Retired 47 None 

* Each Trustee is subject to mandatory retirement at age 72. 

122 Disclosure of Information about Fund Trustees and Officers



(Unaudited) 

Name, 

Age, 

Address 


with Fund and 

Length of 

Time Served 

Term 

of 

Office 


During the 

Past 5 Years 

No. of 

Portfolios 

in Russell 

Fund 

Complex 

Overseen 

by Trustee 

Other 


by Trustee 

TRUSTEES EMERITUS 

*George F. Russell, Jr., 


909 A Street 


98402-1616 

Trustee Emeritus and 

Chairman Emeritus 

since 1999 

Until resignation 

or removal 

• Director Emeritus, Frank Russell 

Company (investment consultant to 

institutional investors (“FRC”)); and 

RIMCo 

• Chairman Emeritus, RIC and RIF; 

Russell Implementation Services 

Inc. (broker-dealer and investment 

adviser (“RIS”)); Russell 20-20 

Association (non-profit corporation); 

and Russell Trust Company (nondepository 

trust company (“RTC”)) 

• Chairman, Sunshine Management 

Services, LLC (investment adviser) 

47 None 

Paul E. Anderson, 


909 A Street 


98402-1616 

Trustee Emeritus 

since 2007 

Five year term 

• President, Anderson Management 

Group LLC (private investments 

consulting) 

• February 2002 to June 2005, Lead 

Trustee, RIC and RIF 

• Trustee of RIC and RIF until 2006 

• Chairman of the Nominating and 

Governance Committee 2006 

47 None 

William E. Baxter, 



since 2004 

Five year term • Retired since 1986 


47 None 

909 A Street 


98402-1616 

Lee C. Gingrich, 


909 A Street 


98402-1616 


since 2006 




Governance Committee 2001–2005 

47 None 

Eleanor W. Palmer, 



since 2004 



47 None 

909 A Street 


98402-1616 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF. 




(Unaudited) 

Name, 

Age, 

Address 


with Fund and 

Length of 

Time Served 

Term 

of 

Office 


During the 

Past 5 Years 

OFFICERS 

Cheryl Wichers 


909 A Street 


98402-1616 

Chief Compliance 

Officer since 2005 

Until removed 

by Independent 

Trustees 

• Chief Compliance Officer, RIC 

• Chief Compliance Officer, RIF 

• Chief Compliance Officer, RIMCo 

• Chief Compliance Officer, RFSC 

• April 2002–May 2005, Manager, Global Regulatory Policy 

Greg J. Stark, 


909 A Street 


98402-1616 



since 2004 


is chosen and 

qualified by 

Trustees 

• President and CEO, RIC and RIF 

• Chairman of the Board, President and CEO, RIMCo 

• Chairman of the Board, President and CEO, Russell Financial 


• Chairman of the Board, President and CEO, RFSC 

• Chairman of the Board and President, Russell Insurance Agency, 

Inc. (insurance agency (“RIA”)) 

• Until 2004, Managing Director of Individual Investor Services, FRC 

• 2000 to 2004, Managing Director, Sales and Client Service, RIMCo 

Mark E. Swanson, 

Born November 26, 1963 



Treasurer and Chief 

Accounting Officer 

since 1998 


is chosen and 

qualified by 

Trustees 

• Treasurer, Chief Accounting Officer and CFO, RIC and RIF 

• Director, Funds Administration, RIMCo, RFSC, RTC and Russell 

Financial Services, Inc. 

• Treasurer and Principal Accounting Officer, SSgA Funds 

Peter Gunning, 

Born February 22, 1967 

Chief Investment 


Until removed 

by Trustees 

• Chief Investment Officer, RIC, RIF 

• 1996 to 2008 Chief Investment Officer, Russell, Asia Pacific 

909 A Street 


98402-1616 

Gregory J. Lyons, 

Born August 24, 1960 

909 A Street 


98402-1616 

Secretary since 2007 


is chosen and 

qualified by 

Trustees 

• Associate General Counsel and Assistant Secretary FRC and RIA 

• Director and Secretary, RIMCo, RFSC and Russell Financial 


• Secretary and Chief Legal Counsel, RIC and RIF 



909 A Street, Tacoma, Washington 98402 

(800) 787-7354 

Interested Trustees 

Greg J. Stark 

Independent Trustees 

Thaddas L. Alston 

Kristianne Blake 


Jonathan Fine 


Jack R. Thompson 

Julie W. Weston 

Trustees Emeritus 

George F. Russell, Jr. 

Paul E. Anderson 

William E. Baxter 

Lee C. Gingrich 

Eleanor W. Palmer 

Officers 

Greg J. Stark, President and Chief Executive Officer 

Cheryl Wichers, Chief Compliance Officer 

Peter Gunning, Chief Investment Officer 

Mark E. Swanson, Treasurer and Chief Accounting Officer 

Gregory J. Lyons, Secretary 

Adviser 


909 A Street 

Tacoma, WA 98402 

Administrator and Transfer and Dividend Disbursing 

Agent 

Russell Fund Services Company 

909 A Street 


Custodian 

State Street Bank and Trust Company 

Josiah Quincy Building 

200 Newport Avenue 

North Quincy, MA 02171 

Office of Shareholder Inquiries 

909 A Street 


(800) 787-7354 

Legal Counsel 

Dechert LLP 

200 Clarendon Street, 27th Floor 

Boston, MA 02116-5021 

Distributor 

Russell Financial Services, Inc. 

909 A Street 


Independent Registered Public Accounting Firm 

PricewaterhouseCoopers LLP 

1420 5 th Avenue 

Suite 1900 

Seattle, WA 98101 

Money Managers as of December 31, 2008 


Arnhold and S. Bleichroeder Advisers, LLC, New York, NY 

Columbus Circle Investors, Stamford, CT 

DePrince, Race & Zollo, Inc., Winter Park, FL 

Institutional Capital LLC, Chicago, IL 

Jacobs Levy Equity Management, Inc., Florham Park, NJ 

Montag & Caldwell, Inc., Atlanta, GA 

Suffolk Capital Management, LLC, New York, NY 

Turner Investment Partners, Inc., Berwyn, PA 


ClariVest Asset Management LLC, San Diego, CA 


Gould Investment Partners LLC, Berwyn, PA 


PanAgora Asset Management, Inc., Boston, MA 

Ranger Investment Management, L.P., Dallas, TX 

Signia Capital Management, LLC, Spokane, WA 

Tygh Capital Management, Inc., Portland, OR 

Non-U.S. Fund 

Altrinsic Global Advisors, LLC, Stamford, CT 

AQR Capital Management, LLC, Greenwich, CT 

MFS Institutional Advisors, Inc., Boston, MA 

Wellington Management Company, LLP, Boston, MA 


AEW Management and Advisors, L.P., Boston, MA 

Cohen & Steers Capital Management, Inc., New York, NY 

Heitman Real Estate Securities LLC, Chicago, IL 

INVESCO Institutional (N.A.), Inc. which acts as a money 

manager to the Fund through its INVESCO Real Estate division, 

Dallas, TX 

RREEF America L.L.C., Chicago, IL 


Goldman Sachs Asset Management, L.P., New York, NY 

Metropolitan West Asset Management, LLC, Los Angeles, CA 

Pacific Investment Management Company LLC, Newport Beach, CA 

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 Russell Investment Funds. Such offering is made only by 

Prospectus, which includes details as to offering price and other material information. 

Adviser, Money Managers and Service Providers 125

Russell Investment Funds 909 A Street 800-787-7354 

Tacoma, Washington 98402 Fax: 253-591-3495 

www.russell.com 

Cert no. SCS-COC-0063 

36-08-023

2008 ANNUAL REPORT 

Russell 

Investment Funds 

LifePoints ® Funds Variable Target Portfolio Series 

DECEMBER 31, 2008 

FUND 

Moderate Strategy Fund 

Balanced Strategy Fund 

Growth Strategy Fund 

Equity Growth Strategy Fund


Russell Investment Funds is a 

series investment company with 

nine different investment portfolios 

referred to as Funds. These 

financial statements report on four 

of these Funds.


LifePoints ® Funds 

Variable Target Portfolio Series 




Page 

To Our Shareholders .................................................... 3 

Market Summary ....................................................... 4 

Moderate Strategy Fund ................................................ 10 

Balanced Strategy Fund ................................................ 16 

Growth Strategy Fund ................................................... 22 

Equity Growth Strategy Fund ........................................... 28 

Statements of Assets and Liabilities ..................................... 33 

Statements of Operations ............................................... 34 

Statements of Changes in Net Assets .................................... 36 

Financial Highlights .................................................... 38 

Notes to Financial Highlights ........................................... 40 

Notes to Financial Statements ........................................... 41 

Report of Independent Registered Public Accounting Firm .............. 48 

Tax Information ........................................................ 49 

Basis for Approval of Investment Advisory Contracts .................... 50 

Shareholder Requests for Additional Information ........................ 54 

Disclosure of Information about Fund Trustees and Officers ............. 55 

Adviser, Money Managers and Service Providers ........................ 59

Russell Investment Funds - LifePoints ® Funds Variable Target Portfolio Series 

Copyright© Russell Investments 2009. All rights reserved. 

Russell Investments is a Washington, USA corporation, which operates through subsidiaries worldwide and is a 

subsidiary of The Northwestern Mutual Life Insurance Company. 

Fund objectives, risks, charges and expenses should be carefully considered before 

investing. A prospectus containing this and other important information must precede 

or accompany this material. Please read the prospectus carefully before investing. 

Securities products and services offered through Russell Financial Services, Inc. (effective June 2, 

2008, the name changed from Russell Fund Distributors, Inc.), member FINRA, part of Russell 

Investments. 

Indices and benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, 

are not a guarantee of future performance, and are not indicative of any specific investment. Index return 

information is provided by vendors and although deemed reliable, is not guaranteed by Russell Investments or its 

affiliates. 

Russell Investments is the owner of the trademarks, service marks, and copyrights related to its respective indexes. 

Performance quoted represents past performance and does not guarantee future results. 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. Current performance may be lower or higher than the performance data quoted.

To Our Shareholders 

We are pleased to provide you with the Russell Investment Funds 2008 Annual Report. It includes portfolio 

management discussions and fund-specific details that will give you an in-depth understanding of fund performance for 

the fiscal year ended December 31, 2008. 

It would be an understatement to say that 2008 has been a difficult year and the market crisis of the past couple of 

months has defied all predictions. Virtually no sector of the financial industry or the economy has been spared. 

All of us at Russell want you to know that we are sensitive to investor concerns. While market events have impacted the 

performance of the funds, we believe that investors are well-served by remaining focused on long-term disciplined 

investing in well-diversified, asset allocated portfolios. 

The Russell Investments team has years of experience in managing people’s money through various market cycles, 

trends and turnarounds. As always, we are monitoring our investment managers closely to ensure their adherence to their 

long-term strategies despite the recent disruptions. 

As we all collectively weather this storm, we believe now is the perfect time for you to talk with your financial advisor to 

ensure that your portfolio remains aligned with your long term goals. 

Each and every day we strive to improve financial security for people. We will not waiver in that commitment and 

sincerely appreciate your continued support. 

Best regards, 

Greg Stark 

Chief Executive Officer, Chairman and President 


To Our Shareholders 3


Market Summary as of December 31, 2008 (Unaudited) 

U.S. Equity Markets 

For the fiscal year ending December 31, 2008, U.S. equity markets were remarkably weak, with the broad market 

Russell 3000 ® Index posting a 37.3% drop amid the worst financial crisis in almost a century. Major bankruptcies, the 

freezing of credit markets, and the widespread global recession fears which ensued — particularly during the third 

quarter and first half of the fourth quarter — drove investors to sell riskier assets as fear and panic pervaded the market. 

The economic crisis stemmed from issues in the financial sector. The U.S. housing market stood at the center of the 

financial sector’s problems. The housing slowdown that began in the summer of 2006 and continued in 2007 intensified 

throughout this fiscal year and led to rising loan default rates and home foreclosures which, in turn, led to further 

housing weakness. As home prices dropped and default rates increased, the value of derivative instruments, such as 

mortgage-backed securities, whose values were based on these mortgages, plummeted. This forced banks to take massive 

write-downs of book values as required by mark-to-market accounting. With the lack of certainty about the real book 

value of assets on the balance sheets of banks, banks have been unable and/or hesitant to lend funds to other banks. 

Despite aggressive interest rate cuts by the Federal Reserve Board (the “Federal Reserve”), which took the Federal 

Funds rate from 5.25% (in third quarter 2007) to a range between 0% and 0.25% (at fiscal year end), mortgage and other 

lending rates did not come down as quickly as banks used the wider lending spread to offset their substantial writedowns 

on book values. Over the last month and a half of the year, however, these rates did start to drop sharply. In 

addition to higher interest rates, banks having stricter lending standards had a profound impact on the availability of 

affordable credit for potential homebuyers, small businesses, and other borrowers. 

Due to write-downs, dwindling capital bases and a crisis of confidence in their businesses, several large banks, brokers, 

mortgage companies and insurance companies filed for bankruptcy, were seized by the federal government and resold, or 

were bailed out by the government during the fiscal year, with the most notable ones being Countrywide Financial, Bear 

Stearns, IndyMac Bancorp, Lehman Brothers, Federal National Mortgage Association (Fannie Mae), Federal Home Loan 

Mortgage Corporation (Freddie Mac), American International Group (AIG), Washington Mutual and Wachovia. Amid 

concerns of additional bankruptcies and uncertainty surrounding which institutions may be bailed out by the 

government, the fear-driven environment has persisted. In addition, there have been a number of problems at hedge 

funds, leading to massive deleveraging, or forced selling of assets, in order to meet client redemptions. This forced 

selling of assets has put severe downward pressure on many securities, particularly the highly-liquid larger cap U.S. 

stocks, regardless of those securities’ fundamentals. 

After more than four years of strong growth, corporate profits had dipped fairly sharply by the end of 2008, especially in 

the financial services sector. The growth rate of gross domestic product also fell, although it stayed marginally positive 

until the third quarter report which showed a contraction of 0.5%, the worst since the 2001 recession. There was 

significant deterioration since then, as fourth quarter GDP estimates are -4.2% on average. A significant reduction in 

consumer spending had the most substantial negative impact on the GDP number, as consumers became fearful due to 

rising unemployment levels, declining home values and increased difficulty in getting loans. The Consumer Confidence 

Index released by the Conference Board decreased to 38 in October — the lowest value in the history of the Index 

(started in February 1967). It increased slightly in November, before dropping back to the all-time low of 38 in 

December. The first half of the year also featured the negative impact of higher energy prices on consumer spending. Oil 

prices reached $147/barrel in mid-July before dropping sharply to below $40/barrel in December. 

Although the domestic economy slowed during the fiscal year, some segments of the U.S. equity market were helped in 

the first half of the year by strong exports to faster-growing, developing, non-U.S. economies. With approximately 40% of 

U.S. corporations’ revenues derived from international customers, the declining U.S. dollar in the first half of 2008 

provided increased demand for U.S. products abroad. During the second half of the year, however, the U.S. dollar rallied 

and the global economy slowed considerably. After being rewarded in the first half of 2008, exposure to companies tied 

to the global economy underwent a strong reversal that began in July 2008 and has been swift and dramatic. Higher 

valuation cyclical (more linked to the economic cycle) companies and those with more debt on their balance sheets were 

among the most negatively impacted over the course of the year. Companies that have high forecasted growth rates have 

also been hit hard as investors have become less confident that these growth rates can be sustained going forward. 

4 Market Summary


In the wake of these powerful macroeconomic forces, the fiscal year presented a very difficult active management 

environment which was marked by three distinct themes: 1) largely indiscriminate selling of U.S. stocks by panic-driven, 

risk-averse investors concerned first about a U.S. recession and then about a global recession, 2) intense selling of 

financial stocks for a majority of the period, and 3) the strength of global companies for roughly the first half of the fiscal 

year as multinational companies with exposure to developing markets outpaced domestically-driven companies and 

commodity-related companies (especially energy) outperformed the general market by a wide margin. 

The weakening of the global economy over the last half of the year caused oil prices to fall from their record highs and 

led the other energy sector to sell off sharply. Over the course of the year, the worst performing sectors in the Russell 

3000 ® Index were other energy -53.6%, financial services -51.1%, the other sector (which is dominated by GE and 

contains other large conglomerates, (-50.9%), and materials & processing -47.3%. Meanwhile, the best performing 

sectors in the Russell 3000 ® Index were those that are considered to be more defensive. The slower-growing, less 

economically-sensitive consumer staples sector was the best relative performer -17.7%, followed by integrated oils 

-21.7%, health care -22.4%, and utilities -29%. 

Weakness was experienced across investment styles as well as the capitalization spectrum. While both the growth and 

value investment styles were down substantially, value outperformed growth in the small cap segment (Russell 2000 ® 

Value -28.9%, Russell 2000 ® Growth -38.5%) and to a lesser degree in the large cap segment (Russell 1000 ® Value 

-36.9%, Russell 1000 ® Growth -38.4%). In general, small cap stocks outperformed large caps (-33.8% and -37.6% for 

the Russell 2000 ® Index and Russell 1000 ® Index, respectively). Midcap and microcap stocks underperformed by the 

widest margins with the Russell Midcap ® Index down 41.5%, and the Russell Microcap ® Index down 39.8%. 

During 2008, the market environment was largely hostile for active management as investors sold stocks regardless of 

fundamentals, the basic determinants of a stock’s value. Small cap fund managers had the most difficult time relative to 

their benchmark. Growth managers across the capitalization spectrum also struggled as the shift away from higher growth 

stocks came quickly and sharply. Core, or market-oriented, managers struggled less than style-focused managers in 

fiscal year 2008. The Lipper ® Small Cap Core Funds Average trailed the Russell 2000 ® Index by 2.7%, the Lipper ® 

Small Cap Growth Funds Average underperformed the Russell 2000 ® Growth Index by 3.6% and the Lipper ® Small Cap 

Value Funds Average underperformed the Russell 2000 ® Value Index by 4.9%. The Lipper ® Large Cap Core Funds 

Average outperformed the Russell 1000 ® Index by 0.1%, the Lipper ® Large Cap Growth Funds Average 

underperformed the Russell 1000 ® Growth Index by 1.8% and the Lipper ® Large Cap Value Funds Average 

underperformed the Russell 1000 ® Value Index by 0.6%. 

Real Estate Securities Market 

For the fiscal year ending December 31, 2008, U.S. real estate investment trusts (REITs) generated a 37.7% loss, as 

measured by the FTSE NAREIT Equity Index (Index). During this period, REITs performed slightly better than the 

broader equity market, which finished down 37.3% as measured by the Russell 3000 Index. The negative REIT 

performance was accompanied by an unprecedented amount of volatility during the period. Not only were monthly 

returns erratic, demonstrated by the worst and best monthly returns in the history of the Index occurring in October 

-31.7% and December 16.4%, respectively, but the largest percentage gain and loss achieved in a single day also both 

occurred during the year. 

Following the sharp decline in the commercial mortgage-backed securities market and escalating problems in the credit 

market, investors began 2008 more risk averse. As recessionary fears began to emerge, the Federal Reserve became 

active in an attempt to stave off concerns of a recession by cutting rates aggressively, twice in January alone, and 

injecting liquidity into the financial markets through a variety of initiatives. First and second quarter REIT earnings held 

up well, although many companies took the opportunity to revise 2009 estimates downwards. 

By September 2008, consumer spending had slowed, the unemployment rate was climbing and both corporate and 

consumer credit markets remained tight. The collapse of Lehman Brothers Holdings Inc. on September 15 sparked panic 

within the financial markets and REITs were heavily sold off over the ensuing weeks. Mirroring the broader equity 

market, REITs traded down sharply through October and most of November. A marked change in investor sentiment 

occurred in December as investors became less defensive and REITs staged a modest recovery as the year closed. 

An overriding theme during the year was the elevated correlation between REITs and the financial services sector of the 

broader equity market. This is due to the fact that most broad equity indexes include REITs in the financial services 

sector. This weighed heavily on REIT performance during the period, as many general equity investors avoided financial 

services stocks and other investors took short positions in individual stocks and exchange traded funds in the financial 

Market Summary 5


services sector. This was also a contributing factor to the exceptionally high volatility observed in the REIT market 


Another key trend during the year was a flight towards quality REIT names, with the market especially rewarding 

companies that have made a concerted effort to mitigate risk. Companies with the lowest leverage levels, limited near 

term refinancing needs and limited development pipelines held up the best. Neither dividend yield nor market 

capitalization appeared to be contributing factors to differences in individual company performance. 

During the year, returns were disappointing across all property sectors. The poorest performing sectors were industrial 

and regional malls. Leverage ratios for the industrial and regional malls companies tend to be higher than the overall 

REIT universe, which has negatively impacted those stocks. In addition, meaningful development pipelines in the 

leading industrial companies have put added pressure on earnings forecasts due to weaker leasing market conditions. 

Two of the better performing property sectors were self storage and health care. Due to the stable nature of the cash flows 

embedded in many health care leases, investors sought out this defensive sector given the slowing economy. The self 

storage sector is generally driven by the performance of one company that dominates the sector, Public Storage, which 

was one of the few stocks to post a positive return for the year. Public Storage held up well due to its strong balance 

sheet, including minimal leverage and high levels of cash. 

The U.S. REIT market outperformed relative to the international real estate securities market by a wide margin during 

the fiscal year. The largest price correction occurred in the Asia Pacific region, with smaller corrections taking place in 

Continental Europe and the United Kingdom. While the effects of the global economic slowdown and credit crisis have 

spread to the other regions, the U.S. REIT market has fared relatively better, mirroring trends in the broader global 

equity markets. 

Non-U.S. Developed Equity Markets 

Non-U.S. developed stocks fell 43.38% as measured by the MSCI EAFE ® Index for the fiscal year ended December 31, 

2008. Appreciation of the U.S. dollar relative to foreign currencies, mainly as a result of the flight to safety in the second 

half of the fiscal year ended, exacerbated already weak non-U.S. equity returns. In local currencies, the MSCI EAFE ® 

Index fell 40.27% over the 12-month period. 

The market struggled under increasing concern over the health of the global financial system. While these concerns 

affected markets for nearly the full 12 months, most of the decline in equity values came in September and October 

2008, as several prominent financial companies in the U.S. and Europe encountered financial distress. In nearly all 

cases, government “bailouts” were necessary for these companies to avoid bankruptcy. 

The additional impact of already declining global economic growth increasingly weighed on markets during the period. 

Expectations for global economic growth were revised downwards throughout the year. The latter part of the fiscal year 

experienced contraction in economic output in Europe and Asia. Output growth of 5% in 2007 slowed sharply for 2008 

with abbreviated expectations for growth in developed economies in 2009. 

The change in market conditions was evident in a marked increase in market volatility as investors’ complacency 

towards risk was quickly replaced by acute risk aversion. Stocks with prices most directly tied to high, long-term growth 

prospects suffered some of the steepest declines, as investors doubted the ability of these companies to post strong 

growth in a decelerating economic environment. However, due to the sharp declines of financials, the largest sector of 

the value index, value lagged growth by 1.39% in the period (the MCSI EAFE Growth Index lost 42.70% and the MSCI 

EAFE Value Index lost 44.09%). 

Market sectors most leveraged to global economic growth or in the nexus of the financial sector meltdown were the most 

severely impacted, though no areas of the market were immune. Financials ended the 12-month period down 55.21% (as 

measured by the MSCI EAFE Index financials sector grouping). The strong gains of materials early in the period were 

quickly reversed. The sector ended the period down nearly 53.02% as measured by the MSCI EAFE materials sector 

grouping. Energy stocks also fell sharply as the price of a barrel of oil fell from a high of more than $145 to below $36. 

However, the sector’s one-year stock price decline of 38.18% (as measured by the MSCI EAFE energy sector) was better 

than all but the traditionally defensive sectors. Among the defensive sectors of the market, health care, led by 

pharmaceutical stocks, held up best with a decline of 18.95% as measured by the MSCI EAFE health care sector. 

Utilities and consumer staples, down 28.16% and 31.33% as measured by the MSCI EAFE utilities and MSCI EAFE 

consumer staples sector groupings, respectively, were the next best performers. Sector groupings are based on the Global 

Industry Classification Standard definitions. 

6 Market Summary


Regional results were generally tied to sensitivity to global economic conditions. The MSCI Pacific ex-Japan ® Index 

declined the most, down 50.50%. MSCI Europe ex-United Kingdom ® Index fell 45.54%, while the MSCI United 

Kingdom ® Index fell 48.34%. In all three regions, currency impact had a pronounced impact on returns with the regions 

down 42.17%, 43.24%, and 28.48%, respectively, in local currencies. MSCI Japan ® Index fell 42.56% in yen, but had 

one of the few currencies that managed to appreciate versus the U.S. dollar and fell only 29.21% in U.S. Dollars. 

Emerging Markets 

During 2008, the MSCI Emerging Markets Index (“Index”) declined 53.18%, the biggest calendar year decline in the 

history of the asset class with large return dispersions across sectors and countries. The turmoil in the world’s financial 

system meant increasing risk aversion, growing macro risks and heightened levels of volatility and dispersion across 

countries, sectors and currencies. Emerging Markets in general may be better positioned and more resilient to a 

downturn than developed economies, however, as the crisis changed from financial to economic, emerging markets faced 

massive asset de-leveraging and indiscriminate selling as investors adopted a zero tolerance to risk. Price momentum 

(i.e. stocks exhibiting trending relative price appreciation) benefited from the continued rally of commodity-related 

sectors through the latter part of 2007 and well into 2008 but this reversed as global equity markets began falling 

sharply. The faltering global economy and the steep pull-back in commodity prices affected cyclical areas of the market 

including industrials, materials and energy sectors while defensive sectors such as healthcare, consumer staples and 

utilities were relative safe havens during the period. From a country perspective, smaller markets in general held up 

relatively better than the larger markets. In addition to the weak equity returns, most emerging markets currencies 

depreciated against the U.S. Dollar with some, such as the South African Rand, Korean Won, Turkish Lira and Brazilian 

Real, losing in excess of 30% over the course of the year as investors fled to quality and more liquid currencies. 

In terms of regions, Latin America was the top performer, down 51.28% (as measured by the MSCI EM Latin America 

Index), supported by the relative outperformance from Mexico and the smaller Latin countries. The Asia region (-52.77% 

as measured by the MSCI EM Asia Index) finished behind Latin America but ahead of the broader market. The Europe, 

Middle East and Africa region (-55.60% as measured by the MSCI EM Europe, Middle East and Africa Index) 

underperformed the broader market due in large part to the significant underperformance from Russia. The BRIC (Brazil, 

Russia, India and China) economies, with the exception of China, underperformed the broader Index. China held up 

reasonably well over the period due to favorable monetary and fiscal policies during the latter half of the year in an effort 

to shore up its slowing economy. Other notable relative underperformers included Pakistan (-74.05% as measured by the 

MSCI Pakistan Index) and Turkey (-62.10% as measured by the MSCI Turkey Index). 

U.S. Fixed Income Markets 

The Barclays Capital U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, 

returned 5.24% for the year ended December 31, 2008. Similar to the prior year, the index and its major sectors trailed 

equivalent-duration U.S. Treasuries, as the subprime mortgage crisis that started in the summer of 2007 deepened and 

developed into a severe liquidity crisis, the size and scope of which had not been seen since the U.S. Great Depression of 

the 1930s. During 2008, investors moved their capital away from riskier investments to the safest possible investments 

(i.e., U.S. Treasuries), continuing the “flight to quality” trend started in the prior period. 

Throughout 2008, in an effort to deal with credit market illiquidity and a slowing economy, the Federal Reserve lowered 

the target Federal Funds rate eight times, including two non-scheduled “surprise” cuts of 0.75% in January and 0.50% 

in October. The target rate started the year at 4.25% and ended at a 0.00% to 0.25% range after the eighth rate cut on 

December 16, 2008. 

The downward shift in the yield curve started in 2007 and continued in earnest in 2008, with the curve “steepening” 

significantly below the 10-year mark; i.e., yields on shorter-maturity Treasuries declined by a greater degree than longermaturity 

Treasuries, resulting in a steeper, upward sloping curve. The change was driven by the Federal Reserve’s 

lowering of rates (affecting the short end) and investors’ increasing demand for safe haven U.S. Treasuries (driving down 

longer-maturity yields). In 2008, yields on 2-year Treasuries declined by 2.28% to 0.76% while 10-year Treasuries 

declined by 1.81% to 2.21%. 

The subprime mortgage crisis and deflating housing market were still major issues throughout the year. Home price 

depreciation continued to accelerate. By the end of October, the average U.S. national home price as tracked by the 

S&P/Case-Shiller Composite 20 Index, had declined 18% from the end of 2007, reaching a level that was down 23% 

from its July 2006 peak. Subprime mortgage foreclosures increased from 8.65% at the end of December 2007 to 12.55% 

at the end of September 2008, the most recent available data from the Mortgage Bankers Association. Total foreclosures 

increased from 2.04% to 2.97% during the same period. Writedowns on the values of mortgages had a large negative 

Market Summary 7


impact on bank balance sheets. During the year, writedowns at financial institutions world-wide amounted to 

approximately $930.3 billion, bringing total writedowns since the start of the subprime crisis to approximately $997.4 

billion. 

During the early months of 2008 the market continued its downward trend, which was capped in mid-March by Bear 

Stearns receiving emergency funding from the Federal Reserve and JPMorgan Chase as a three-day run on the bank 

depleted its cash reserves. Two days later JPMorgan Chase acquired Bear Stearns for seven percent of its market value 

in a sale brokered by the Federal Reserve and the U.S. Department of the Treasury (U.S. Treasury). Investors took this as 

a sign that the U.S. government would stand behind financial institutions and credit markets rallied for the next few 

months. 

During the first part of the year, the U.S. government had become increasingly concerned that the credit crisis would 

significantly slow the U.S. economy — particularly the spending of consumers, who account for approximately two-thirds 

of GDP. In April, the U.S. Internal Revenue Service started distributing tax rebates as part of a $168 billion economic 

stimulus plan. 

However, markets continued to weaken as illiquidity reached extreme levels and the financial crisis became global in 

scope. In July, IndyMac Bancorp, the then-second-biggest independent U.S. mortgage lender, was seized by federal 

regulators after a run by depositors depleted its cash. In August, Commerzbank AG agreed to buy Allianz SE’s Dresdner 

Bank for 9.8 billion euros in Germany’s biggest banking takeover in three years. 

September started with the U.S. government seizing control of Fannie Mae and Freddie Mac, the largest U.S. mortgagefinance 

companies. In the middle of the month, the U.S. government did not arrange a deal or otherwise bail out Lehman 

Brothers, and the 158-year old firm filed the largest bankruptcy in U.S. history. This was followed by the bankruptcy of 

119-year old Washington Mutual. AIG accepted an $85 billion loan from the Federal Reserve to avert what would have 

been the worst financial collapse in history, with the U.S. government taking a substantial ownership stake in AIG. 

In the same month, the investment banking business model fundamentally changed, with Goldman Sachs and Morgan 

Stanley receiving approval to become deposit-taking commercial banks regulated by the Federal Reserve, as tight credit 

markets forced Wall Street’s two remaining independent investment banks to widen their sources of funding. Similar 

events occurred in Europe and throughout the world, with large financial institutions either merging or with governments 

providing support in return for equity stakes. 

September finally ended with the U.S. Treasury proposing the Financial Market Rescue Bill, including the Troubled 

Asset Relief Program (TARP), which authorized the U.S. Treasury to spend up to $700 billion to buy mortgages and 

other distressed assets. The House initially rejected the bill, but subsequently passed it. The bill was signed into law in 

early October. 

The events of September contributed to the extreme market illiquidity in October, evidenced by spikes in overnight and 

three-month LIBOR (the rates at which banks lend to one another). The Federal Reserve took significant steps to 

improve liquidity in the short duration markets, which included the creation of the Commercial Paper Funding Facility 

(CPFF) and the Money Market Investor Funding Facility (MMIFF). 

In November, the U.S. Treasury gave additional support to AIG by announcing the purchase of $40 billion in new 

preferred stock. The U.S. Treasury then guaranteed $306 billion in residential and commercial mortgage-backed 

securities of Citi ® in exchange for $7 billion in preferred stock. In addition, the U.S. Treasury purchased another $20 

billion in preferred stocks from Citi. Shortly thereafter, the Government Sponsored Enterprise (GSE) Debt and Mortgage- 

Backed Security Purchase Program was announced stating that the Federal Reserve will buy $100 billion in Fannie Mae, 

Freddie Mac and the Federal Home Loan Bank debentures and $500 billion in agency mortgage-backed securities. 

Simultaneously, the Term Asset-Backed Securities Loan Facility (TALF) was announced by the U.S. Treasury offering to 

provide $200 billion in three-year loans to U.S. companies who can provide high quality AAA-rated auto loans, student 

loans, credit card loans or small business loans as collateral. 

This trend continued in December as Congress agreed to provide $13.4 billion in short term loans to General Motors and 

$4 billion to Chrysler in an effort to aid the suffering auto industry. 

December ended on an up note with a majority of fixed income sectors outperforming equivalent-duration Treasuries. 

Most notably, the commercial mortgage-backed securities sector (CMBS) returned 16.98% (15.14% above equivalentduration 

Treasuries) during the month. The year ended with the Barclays Capital U.S. Aggregate Bond Index returning 

5.24%, underperforming by 7.10% U.S. Treasuries. 

8 Market Summary






$12,000 

$11,000 


Russell 1000® Index*** 


$10,000 

$9,000 

$8,000 

$7,000 

$6,000 

Inception* 2007 2008 



Total 

Return 

1 Year (20.39)% 

Inception* (10.92)%§ 

Barclays Capital U.S. Aggregate Bond Index ** 

Total 

Return 

1 Year 5.24% 

Inception * 6.05%§ 

Russell 1000 ® Index*** 

Total 

Return 

1 Year (37.60)% 

Inception * (24.45)%§ 

* The Fund commenced operation on April 30, 2007. 

** On October 31, 2008, Barclays Capital, which acquired the Lehman family of indexes in September 2008, announced that it would be re-branding 

Lehman indexes under the Barclays Capital name; the underlying index structures are to remain unchanged. As a result, the Lehman Brothers Aggregate 

Bond Index has been renamed the Barclays Capital U.S. Aggregate Bond Index. 


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. 

*** Russell 1000 ® Index includes the 1,000 largest companies in the Russell 3000 ® Index. The Russell 1000 ® Index represents the universe of stocks from 

which most active money managers typically select. The Russell 1000 ® Index return reflects adjustments from income dividends and capital gain 

distributions reinvested as of the ex-dividend dates. 



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. 

10 Moderate Strategy Fund




The Fund is a fund of funds that invests in other Russell 

Investment Funds and Russell Investment Company mutual 

funds (the “Underlying Funds”). The Underlying Funds allocate 

most of their assets among multiple money managers. Russell 

Investment Management Company (“RIMCo”), as the 

Underlying Funds' advisor, may change the allocation of the 

Underlying Funds' assets among money managers at any time. 

An exemptive order from the Securities and Exchange 

Commission (SEC) permits RIMCo to engage or terminate a 

money manager in an Underlying Fund at any time, subject to 

the approval by the Underlying Fund’s Board without a 

shareholder vote. 


The Moderate Strategy Fund (“Fund”) seeks to provide high 

current income and moderate long term capital appreciation. 



For the fiscal year ended December 31, 2008, the Moderate 

Strategy Fund lost 20.39%. This compared to the Barclays 



expenses, whereas the Index returns are unmanaged and do not 

include expenses of any kind. The Fund was negatively 

impacted by its allocation to all equity Underlying Funds and 

the fixed income Underlying Fund’s overweight to non-Treasury 

sectors. 

For the year ended December 31, 2008, the Moderate Strategy 

Lipper Composite – lost 20.53%. This result serves as a peer 

comparison and is expressed net of operating expenses. 

Each Underlying Fund has a benchmark reflective of its 

respective asset class. These benchmarks may be different than 

the Fund’s benchmark. The Fund’s benchmark represents the 

largest asset class of the Underlying Funds in which it invests. 



The Fund is a fund of funds and its performance is based on the 

performance of the Underlying Funds in which it invests. The 

Fund’s performance was negatively impacted by the financial 

crisis that affected virtually all asset classes during the fiscal 

year. The Fund’s benchmark relative performance was 

negatively impacted by the fixed income Underlying Fund’s 

overweight to non-treasury sectors. 

The largest impact on the Fund’s underperformance relative to 

its benchmark was from its exposure to large cap U.S. equities 

and non-U.S. developed market equities. The performance of 

the equity Underlying Funds (approximately 40% of the Fund) 

detracted from returns relative to the Fund’s all-fixed income 

benchmark, the Barclays Capital U.S. Aggregate Bond Index. 

The extreme volatility of the financial markets during the fiscal 

period created a headwind for most active managers. In this 

challenging environment, all underlying equity asset class 

funds lagged their respective benchmarks but one; yet, four of 

eight Underlying Funds outperformed their peers within their 

asset classes as measured by their respective Lipper ® 

Averages. The Barclays Capital U.S. Aggregate Bond Index, the 

benchmark for the RIF Core Bond Underlying Fund, was the 

only Underlying Fund benchmark with a positive absolute 

return. The returns of this index benefited from the inclusion of 

Treasuries. The RIF Core Bond Underlying Fund held a 

significant underweight to Treasuries relative to the benchmark. 

In absolute terms, bonds as measured by the Barclays Capital 

U.S. Aggregate Bond Index performed better than equities. 


employed by the Fund and its money managers of the 

Underlying Funds affect the Fund’s performance? 

At the Fund level, all Underlying Funds contributed negatively 

to the Fund’s returns relative to the Barclays Capital U.S. 

Aggregate Bond Index. The RIF Core Bond Underlying Fund, 

however, detracted less from the Fund’s benchmark-relative 

performance than the equity Underlying Funds. 

By far, the largest affect on the fixed income Underlying Fund’s 

underperformance relative to its benchmark was from the 

re-pricing of risk (i.e., the market demanding increased 

compensation for assuming a given level of risk), the 

fundamental concern regarding the consumer’s ability to make 

mortgage payments, and the negative impact that market and 

credit issues had on virtually all non-Treasury segments of the 

fixed income markets. This Underlying Fund had a material 

overweight to mortgage-backed securities. This contributed 

significantly to this Underlying Fund’s benchmark-relative 

underperformance. The decrease in interest rates across the 

yield curve had little impact on that Underlying Fund’s 

performance as its money managers implemented offsetting 

duration strategies. Yet, as the Federal Reserve decreased the 

federal funds target rate, short-term yields declined relative to 

intermediate- and long-term yields resulting in a yield curve 

“steepening.” Several of the Underlying Fund’s money 

managers anticipated the change and varied the maturities of 

their securities accordingly, positioning their portfolios to 

benefit from these changes. 

The U.S. equity Underlying Funds maintained an overall 

preference for companies with above-average growth rates and 

attractive valuations. This positioning was not rewarded in 2008 

where investors were driven by fear, looking for relative safety 

and selling stocks regardless of fundamentals. U.S. large cap 

managers in the Underlying Fund using quantitative investment 

strategies added to returns by shorting several of the financial 

stocks that underperformed in the fiscal period. Yet, this was 

offset by managers employing growth and momentum strategies, 

which underperformed in this environment. 

Managers in the small cap U.S. equity Underlying Fund 

negatively impacted the Fund by underweighting the financials 

sector and overweighting the other energy sector. Small cap 

financials rebounded from their lows as the Federal Reserve 

and Treasury offered wide ranging forms of financial support. 

The prices of other energy stocks fell as the price of oil fell. 

Moderate Strategy Fund 11




Managers in non-U.S. developed markets Underlying Fund 

performed better than managers in global equity and emerging 

markets Underlying Funds. Yet the Fund’s higher allocation to 

the Non-U.S. developed markets Underlying Fund resulted in 

larger negative impact on the Fund’s benchmark relative 

performance. This Underlying Fund’s multi-style discipline 

provided some risk control during the fiscal period given the 

extreme variability in investment style and market leadership. 

More defensive strategies helped moderate the negative impact 

of strategies more focused on deteriorating economic conditions. 

In emerging markets, the returns of emerging markets 

Underlying Fund declined along with the returns of the asset 

class, which experienced its biggest calendar year decline in 

the history of the asset class. The asset class endured massive 

asset deleveraging and extreme levels of market volatility. 

Commodity-related sectors suffered most as the global economic 

slowdown cut demand. 

The real estate Underlying Fund focused primarily on the larger 

and more liquid REITs during the fiscal year. With the 

exceptional volatility experienced during the period due to the 

global economic crisis and cash outflows, this positioning hurt 

Fund performance. The Underlying Fund’s exposure to non-U.S. 

REITs, though beneficial in the last quarter of the fiscal period, 

negatively impacted returns for the year. 

The Funds’ performance shown throughout this report was 

based on the Underlying Funds’ valuations calculated in 

accordance with Generally Accepted Accounting Principles 

(GAAP) and in accordance with a newly effective accounting 

statement (SFAS 157), reflects the December 31, 2008 market 

value of the pooled investment vehicle in which the Underlying 

Funds invested their cash collateral received in securities 

lending transactions. The market value was lower than the 

vehicle’s amortized cost per unit. This had a negative impact on 

the Fund’s benchmark relative performance. 

Describe any changes to the Fund’s structure or 

allocation to the Underlying Funds. 

In September, 2008, certain of the Underlying Funds in which 

the Fund invested (the “Former Underlying Funds”) changed as 

set forth below as the result of the reorganization (the 

“Reorganizations”) of the Former Underlying Funds into other 

Russell Investment Company Funds (the “New Underlying 

Funds”). 

Former Underlying Fund 

Quantitative Equity Fund 

New Underlying Fund 

Russell U.S. Quantitative 

Equity Fund 

The New Underlying Fund has the same investment objective, 

principal investment strategies, investment policies and 

principal risks as the Former Underlying Fund which it 

replaced and the allocation of the Fund’s assets to the New 

Underlying Fund is the same as it was to the Former Underlying 

Fund. 

The views expressed in this report reflect those of the 

portfolio managers only through the end of the period 

covered by the report. These views do not necessarily 

represent the views of RIMCo, or any other person in 

RIMCo or any other affiliated organization. These views 

are subject to change at any time based upon market 

conditions or other events, and RIMCo disclaims any 

responsibility to update the views contained herein. 

These views should not be relied on as investment 

advice and, because investment decisions for a Russell 

Investment Fund (RIF) or Russell Investment Company 

(RIC) Fund are based on numerous factors, should not 

be relied on as an indication of investment decisions of 

any RIF or RIC Fund. 





Fund Expenses 






Example 

As a shareholder of the Fund, you incur two types of costs: 

(1) transaction costs, and (2) ongoing costs, including 

management fees and other Fund expenses. The Example is 

intended to help you understand your ongoing costs (in dollars) 

of investing in the Fund and to compare these costs with the 

ongoing costs of investing in other mutual funds. The Example 

is based on an investment of $1,000 invested at the beginning 

of the period and held for the entire period indicated, which for 

this Fund is from July 1, 2008 to December 31, 2008. 



































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 834.70 $ 1,024.58 


Period* $ 0.51 $ 0.56 






Moderate Strategy Fund 13





Investments -100.1% 

Other Russell Investment Funds 

(“RIF”) and Russell Investment 

Company (“RIC”) Series Mutual 

Funds 

Shares 

Market 

Value 

$ 

Bonds - 60.2% 

RIF Core Bond Fund 1,244,532 11,616 

Domestic Equities - 26.0% 

RIF Aggressive Equity Fund 79,710 572 

RIF Multi-Style Equity Fund 213,609 1,923 

RIF Real Estate Securities Fund 62,369 580 

RIC Russell U.S. Quantitative Equity Fund 91,374 1,942 

5,017 

International Equities - 13.9% 

RIF Non-U.S. Fund 230,326 1,724 

RIC Russell Emerging Markets Fund 38,863 383 

RIC Russell Global Equity Fund 100,888 579 

2,686 




Net - (0.1%) (11) 

Net Assets - 100.0% 19,308 








$12,000 

$11,000 

$10,000 

$9,000 

$8,000 

$7,000 

$6,000 


Russell 1000® Index*** 

MSCI EAFE® Index Net (USD)**** 


$5,000 




Total 

Return 

1 Year (27.70)% 


Russell 1000 ® Index*** 

Total 

Return 

1 Year (37.60)% 



Total 

Return 

1 Year 5.24% 


MSCI EAFE ® Index Net (USD)**** 

Total 

Return 

1 Year (43.38)% 



** On October 31, 2008, Barclays Capital, which acquired the Lehman family of indexes in September 2008, announced that it would be re-branding Lehman 






*** Russell 1000 ® Index includes the 1,000 largest companies in the Russell 3000 ® Index. The Russell 1000 ® Index represents the universe of stocks from which 



**** Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of 


on a total-return basis, which included reinvestment of gross dividends before deduction of withholding taxes. 





16 Balanced Strategy Fund






asset classes as measured by their respective Lipper ® exceptional volatility experienced during the period due to the 





only Underlying Fund benchmark with a positive return. The 

returns of this index benefited from the inclusion of Treasuries. 

Investment Management Company (“RIMCo”), as the The RIF Core Bond Underlying Fund held a significant 



underweight to Treasuries relative to the benchmark. In 

absolute terms, bonds as measured by the Barclays Capital U.S. 

An exemptive order from the Securities and Exchange Aggregate Bond Index performed better than equities. 

Commission (SEC) permits RIMCo to engage or terminate a How did the investment strategies and techniques 

money manager in an Underlying Fund at any time, subject to employed by the Fund and its money managers of the 

the approval by the Underlying Fund’s Board without a Underlying Funds affect the Fund’s performance? 


At the Fund level, all Underlying Funds contributed negatively 


The Balanced Strategy Fund (“Fund”) seeks to provide above 

average capital appreciation and a moderate level of current 

income. 

to the Fund’s returns relative to the Barclays Capital U.S. 

Aggregate Bond Index. The RIF Core Bond, however, detracted 

less from the Fund’s benchmark-relative performance than the 

equity Underlying Funds. 





For the fiscal year ended December 31, 2008, the Balanced 


Strategy Fund lost 27.70%. This compared to the Barclays 






expenses, whereas the Index returns are unmanaged and do not 


include expenses of any kind. The Fund was negatively 


impacted by its allocation to all equity Underlying Funds and 


the fixed income Underlying Fund’s overweight to non-Treasury 


sectors. 


For the year ended December 31, 2008, the Balanced Strategy 


Lipper Composite lost 27.65%. This result serves as a peer 




Each Underlying Fund has a benchmark reflective of its and Treasury offered wide ranging forms of financial support. 

respective asset class. These benchmarks may be different than The prices of other energy stocks fell as the price of oil fell. 


Managers in the non-U.S. developed market Underlying Fund 



How did the market conditions described in the Market markets Underlying Funds. Yet the Fund’s higher allocation to 


the Non-U.S. developed markets Underlying Fund resulted in a 

The Fund is a fund of funds and its performance is based on the larger negative impact on the Fund’s benchmark relative 

performance of the Underlying Funds in which it invests. The performance. This Underlying Fund’s multi-style discipline 

Fund’s performance was negatively impacted by the financial provided some risk control during the fiscal period given the 

crisis that affected virtually all asset classes during the fiscal extreme variability in investment style and market leadership. 

year. The largest impact on the Fund’s underperformance More defensive strategies helped moderate the negative impact 

relative to its benchmark was from its exposure to large cap U.S. of strategies more focused on deteriorating economic conditions. 

equities and non-U.S. developed market equities. The 

performance of the equity Underlying Funds (approximately In emerging markets, the returns of emerging markets 

60% of the Fund) detracted from returns relative to the Fund’s Underlying Fund declined along with the returns of the asset 

all-fixed income benchmark the Barclays Capital U.S. class, which experienced its biggest calendar year decline in 

Aggregate Bond Index. 



The extreme volatility of the financial markets during the fiscal Commodity-related sectors suffered most as the global economic 

period created a headwind for most active managers. In this slowdown cut demand. 

challenging environment, all but one underlying equity asset 

class funds lagged their respective benchmarks; yet, four of 




Balanced Strategy Fund 17






REITs, though beneficial in the last quarter of the fiscal period, 

negatively impacted returns for the year. 

By far, the largest affect on the fixed income Underlying Fund’s 

underperformance relative to its benchmark was from the 

re-pricing of risk (i.e., the market demanding increased 

compensation for assuming a given level of risk), the 

fundamental concern regarding the consumer’s ability to make 

mortgage payments, and the negative impact that market and 

credit issues had on virtually all non-Treasury segments of the 

fixed income markets. This Underlying Fund had a material 

overweight to mortgage-backed securities. This contributed 

significantly to this Underlying Fund’s benchmark-relative 

underperformance. The decrease in interest rates across the 

yield curve had little impact on that Underlying Fund’s 








benefit from these changes 


















Funds”). 





Equity Fund 






Fund. 



















Fund Expenses 






Example 












































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 773.77 $ 1,024.73 


Period* $ 0.36 $ 0.41 






Balanced Strategy Fund 19





Investments - 100.0% 




Funds 

Shares 

Market 

Value 

$ 

Bonds - 39.3% 

RIF Core Bond Fund 2,535,119 23,663 


RIF Aggressive Equity Fund 337,912 2,427 

RIF Multi-Style Equity Fund 1,007,644 9,069 

RIF Real Estate Securities Fund 337,627 3,138 


23,806 


RIF Non-U.S. Fund 1,131,869 8,472 

RIC Russell Emerging Markets Fund 183,498 1,808 

RIC Russell Global Equity Fund 422,530 2,425 

12,705 




Net - (0.0%) (16) 

Net Assets - 100.0% 60,158 








$12,000 

$11,000 

$10,000 

$9,000 

$8,000 

$7,000 

$6,000 



MSCI EAFE® Index Net (USD)*** 

Barclays Capital U.S. Aggregate Bond Index**** 

$5,000 




Total 

Return 

1 Year (34.73)% 


MSCI EAFE ® Index Net (USD)*** 

Total 

Return 

1 Year (43.38)% 


Russell 1000 ® Index** 

Total 

Return 

1 Year (37.60)% 


Barclays Capital U.S. Aggregate Bond Index**** 

Total 

Return 

1 Year 5.24% 






*** Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of 



**** On October 31, 2008, Barclays Capital, which acquired the Lehman family of indexes in September 2008, announced that it would be re-branding Lehman 










22 Growth Strategy Fund

















The Growth Strategy Fund (“Fund”) seeks to provide high long 

term capital appreciation with low current income. 



For the fiscal year ended December 31, 2008, the Growth 

Strategy Fund lost 34.73%. This compared to the Russell 

1000 ® Index, which lost 37.60% during the same period. The 

Fund’s performance includes operating expenses, whereas the 

Index returns are unmanaged and do not include expenses of 

any kind. The Fund’s performance was negatively impacted 

mostly by its allocation to all equities. This was partly offset by 

the Fund’s allocation to fixed income. 

For the year ended December 31, 2008, the Growth Strategy 

Lipper Composite lost 34.19%. This result serves as a peer 












year. The largest positive contribution to the Fund’s 

performance relative to its all-equity benchmark was from its 

exposure to fixed income through its investment in the RIF Core 

Bond Underlying Fund. The performance of the equity 

Underlying Funds (approximately 80% of the Fund) detracted 

from returns relative to the Fund’s benchmark, the Russell 

1000 ® Index. 




class funds lagged their respective benchmarks; yet, four of 





only Underlying Fund benchmark with a positive absolute 

return. The returns of this index benefited from the inclusion of 

Treasuries. The RIF Core Bond Underlying Fund held a 

significant underweight to Treasuries relative to the benchmark. 

In absolute terms, bonds as measured by the Barclays Capital 

U.S. Aggregate Bond Index performed better than equities. 




At the Fund level, exposure to the RIF Multi-Style Equity, RIF 

Non-U.S. and Russell U.S. Quantitative Equity Underlying 

Funds dampened returns relative to the Russell 1000 ® Index. 

The RIF Core Bond Underlying Fund contributed positively to 

the Fund’s benchmark-relative performance. 

















Managers in the non-U.S. developed markets Underlying Fund 










In emerging markets, the returns of emerging markets 










Growth Strategy Fund 23






REITs added to the Fund excess weighted performance relative 

to the benchmark for the year. 

While the fixed income Underlying Fund contributed positively 

to the Fund’s benchmark relative performance, this Underlying 

Fund underperformed its benchmark. By far, the largest affect 

on the Underlying Fund’s underperformance relative to its 

benchmark was from the re-pricing of risk (i.e., the market 

demanding increased compensation for assuming a given level 

of risk), the fundamental concern regarding the consumer’s 

ability to make mortgage payments, and the negative impact 

that market and credit issues had on virtually all non-Treasury 

segments of the fixed income markets. This Underlying Fund 

had a material overweight to mortgage-backed securities. This 

contributed significantly to this Underlying Fund’s benchmarkrelative 

underperformance. The decrease in interest rates across 

the yield curve had little impact on that Underlying Fund’s 








benefit from these changes. 


















Funds”). 





Equity Fund 






Fund. 



















Fund Expenses 






Example 































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 714.01 $ 1,024.94 




















Growth Strategy Fund 25









Funds 

Shares 

Market 

Value 

$ 

Bonds - 20.3% 

RIF Core Bond Fund 755,265 7,050 


RIF Aggressive Equity Fund 288,062 2,069 


RIF Real Estate Securities Fund 237,447 2,207 


18,364 


RIF Non-U.S. Fund 785,740 5,881 

RIC Russell Emerging Markets Fund 140,727 1,386 

RIC Russell Global Equity Fund 360,983 2,072 

9,339 




Net - (0.0%) (11) 

Net Assets - 100.0% 34,742 





Equity Growth Strategy Fund 



$11,000 



MSCI EAFE Index Net (USD)*** 

$10,000 

$9,000 

$8,000 

$7,000 

$6,000 

$5,000 




Total 

Return 

1 Year (41.18)% 


MSCI EAFE ® Index Net (USD) *** 

Total 

Return 

1 Year (43.38)% 


Russell 1000 ® Index ** 

Total 

Return 

1 Year (37.60)% 






*** Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of 







28 Equity Growth Strategy Fund

















The Equity Growth Strategy Fund (“Fund”) seeks to provide 

high long term capital appreciation. 



For the fiscal year ended December 31, 2008, the Equity 

Growth Strategy Fund lost 41.18%. This compared to the 

Russell 1000 ® Index, which lost 37.60% during the same 

period. The Fund’s performance includes operating expenses, 

whereas the Index returns are unmanaged and do not include 

expenses of any kind. The Fund’s performance was negatively 

impacted mostly by its allocation to the large cap and non-U.S 

equity asset classes, which are not included in the Fund’s 

benchmark. 

For the year ended December 31, 2008, the Equity Growth 

Strategy Lipper Composite – lost 39.68%. This result serves as 

a peer comparison and is expressed net of operating expenses. 











year. The largest impact on the Fund’s weighted excess return 

relative to the Russell 1000 ® Index was negative from its 

exposure to the RIF Multi-Style Equity, RIF Non-U.S., RIF 

Emerging Markets, Russell Global Equity and the RIF 

Aggressive Equity Underlying Funds. 




class funds lagged their respective benchmarks; yet three of 

seven Underlying Funds outperformed their peers within their 


Averages. 




















Managers in the non-U.S. developed markets Underlying Fund 










In emerging markets, the returns of the emerging markets 












REITs added to the Fund excess weighted performance relative 

to the benchmark for the year. 









Equity Growth Strategy Fund 29













Funds”). 





Equity Fund 






Fund. 



















Fund Expenses 






Example 












































Actual 

Performance 

Hypothetical 

Performance 

(5% return 



July 1, 2008 $ 1,000.00 $ 1,000.00 


December 31, 2008 $ 657.02 $ 1,024.94 


Period* $ 0.17 $ 0.20 






Equity Growth Strategy Fund 31









Funds 

Shares 

Market 

Value 

$ 


RIF Aggressive Equity Fund 122,594 881 


RIF Real Estate Securities Fund 97,129 903 


8,231 


RIF Non-U.S. Fund 385,493 2,885 

RIC Russell Emerging Markets Fund 63,499 625 

RIC Russell Global Equity Fund 153,703 882 

4,392 




Net - (0.1%) (10) 

Net Assets - 100.0% 12,613 





Statements of Assets and Liabilities — December 31, 2008 


Moderate Strategy 

Fund 

Balanced Strategy 

Fund 

Growth Strategy 

Fund 

Equity Growth 

Strategy Fund 

Assets 

Investments, at identified cost ............................ $ 23,496 $ 81,252 $ 52,231 $ 20,009 

Investments, at market ................................. 19,319 60,174 34,753 12,623 

Receivables: 

Investments sold ................................ 65 — — — 

Fund shares sold ................................ 6 42 8 6 

From Transfer Agent ............................. — — 2 1 

Prepaid expenses ..................................... — 1 — — 

Total assets ................................... 19,390 60,217 34,763 12,630 

Liabilities 

Payables: 

Investments purchased ............................ — 42 9 5 

Fund shares redeemed ............................ 71 — — — 

Accrued fees to affiliates ........................... 1 5 2 1 

Other accrued expenses ........................... 10 12 10 11 

Total liabilities ................................. 82 59 21 17 

Net Assets ..................................... $ 19,308 $ 60,158 $ 34,742 $ 12,613 

Net Assets Consist of: 

Undistributed (overdistributed) net investment income ............ $ 172 $ 80 $ 8 $ 32 

Accumulated net realized gain (loss) ........................ (901) (1,155) (481) (1,063) 

Unrealized appreciation (depreciation) on investments ............ (4,177) (21,078) (17,478) (7,386) 

Shares of beneficial interest .............................. 25 88 57 23 

Additional paid-in capital ............................... 24,189 82,223 52,636 21,007 

Net Assets ..................................... $ 19,308 $ 60,158 $ 34,742 $ 12,613 

Net Asset Value, offering and redemption price per share: 

Net asset value per share* ............................. $ 7.67 $ 6.80 $ 6.11 $ 5.42 

Net assets ....................................... $ 19,308,456 $ 60,158,172 $ 34,742,243 $ 12,612,657 

Shares outstanding ($.01 par value) ..................... 2,515,767 8,846,816 5,685,013 2,328,684 

* Net asset value per share equals net assets divided by shares of beneficial interest outstanding. 





Statements of Operations — For the Fiscal Year Ended December 31, 2008 



Fund 


Fund 


Fund 

Equity Growth 

Strategy Fund 


Income distributions from Underlying Funds ............. $ 674 $ 1,568 $ 669 $ 128 

Expenses 

Advisory fees ................................... 35 111 71 28 

Administrative fees .............................. 9 28 18 7 

Custodian fees .................................. 15 19 17 14 

Transfer agent fees ............................... 1 2 2 1 

Professional fees ................................ 21 23 22 21 

Trustees’ fees .................................. — 1 1 — 

Offering fees ................................... 5 5 5 5 

Miscellaneous .................................. 5 5 4 6 

Expenses before reductions ......................... 91 194 140 82 

Expense reductions .............................. (72) (150) (126) (76) 

Net expenses ........................................ 19 44 14 6 

Net investment income (loss) ............................. 655 1,524 655 122 

Net Realized and Unrealized Gain (Loss) 


Investments .................................... (990) (1,448) (675) (1,102) 

Capital gain distributions from Underlying Funds .......... 121 330 214 87 

Net realized gain (loss) ................................. (869) (1,118) (461) (1,015) 

Net change in unrealized appreciation (depreciation) on investments .. (4,012) (19,597) (15,965) (6,201) 

Net realized and unrealized gain (loss) ....................... (4,881) (20,715) (16,426) (7,216) 

Net Increase (Decrease) in Net Assets from Operations .. $ (4,226) $ (19,191) $ (15,771) $ (7,094) 






Statements of Changes in Net Assets — For the Fiscal Years Ended December 31, 


Fund 

Amounts in thousands 2008 2007* 

Increase (Decrease) in Net Assets 

Operations 

Net investment income (loss) ......................................................... $ 655 $ 194 

Net realized gain (loss) ............................................................. (869) 142 

Net change in unrealized appreciation (depreciation) ......................................... (4,012) (165) 

Net increase (decrease) in net assets from operations .............................................. (4,226) 171 

Distributions 

From net investment income .......................................................... (482) (207) 

From net realized gain .............................................................. (160) (2) 

Net decrease in net assets from distributions .................................................... (642) (209) 

Share Transactions 

Net increase (decrease) in net assets from share transactions ................................... 15,522 8,692 

Total Net Increase (Decrease) in Net Assets ........................................... 10,654 8,654 

Net Assets 

Beginning of period ................................................................ 8,654 — 

End of period .................................................................... $ 19,308 $ 8,654 

Undistributed (overdistributed) net investment income included in net assets ............................. $ 172 $ — 

* For the period April 30, 2007 (commencement of operations) to December 31, 2007. 




Fund 


Fund 

Equity Growth Strategy 

Fund 

2008 2007* 2008 2007* 2008 2007* 

$ 1,524 $ 889 $ 655 $ 638 $ 122 $ 347 

(1,118) 1,114 (461) 1,101 (1,015) 709 

(19,597) (1,481) (15,965) (1,513) (6,201) (1,185) 

(19,191) 522 (15,771) 226 (7,094) (129) 

(1,462) (901) (647) (651) (89) (358) 

(1,120) (2) (1,109) — (748) — 

(2,582) (903) (1,756) (651) (837) (358) 

46,234 36,078 24,879 27,815 7,538 13,493 

24,461 35,697 7,352 27,390 (393) 13,006 

35,697 — 27,390 — 13,006 — 

$ 60,158 $ 35,697 $ 34,742 $ 27,390 $ 12,613 $ 13,006 

$ 80 $ — $ 8 $ — $ 32 $ — 






For a Share Outstanding Throughout the Period. 


$ 


Beginning of 

Period 

$ 

Net 

Investment 

Income (Loss)(a)(b) 

$ 

Net Realized 

and Unrealized 

Gain (Loss) 

$ 

Total Income 

(Loss) from 

Operations 

$ 

Distributions 

from Net 


$ 

Distributions 

from Net 

Realized Gain 

December 31, 2008 9.99 .33 (2.32) (1.99) (.23) (.10) 

December 31, 2007* 10.00 .46 (.11) .35 (.36) —(g) 


December 31, 2008 9.93 .23 (2.88) (2.65) (.21) (.27) 

December 31, 2007* 10.00 .47 (.20) .27 (.34) —(g) 


December 31, 2008 9.90 .15 (3.46) (3.31) (.14) (.34) 

December 31, 2007* 10.00 .45 (.24) .21 (.31) — 


December 31, 2008 9.83 .07 (3.92) (3.85) (.05) (.51) 

December 31, 2007* 10.00 .50 (.38) .12 (.29) — 



$ 

Total 

Distributions 

$ 


End of 

Period 

% 

Total 

Return(c) 

$ 

Net Assets, 

End of Period 

(000) 

% 


to Average 

Net Assets, 

Net(d)(e)(f) 

% 


to Average 

Net Assets, 

Gross(d)(e) 

% 

Ratio of Net 


to Average 

Net Assets(c)(f) 

% 

Portfolio 

Turnover Rate(c) 

(.33) 7.67 (20.39) 19,308 .11 .53 3.77 39 

(.36) 9.99 3.54 8,654 .11 2.01 5.37 24 

(.48) 6.80 (27.70) 60,158 .08 .35 2.75 16 

(.34) 9.93 2.73 35,697 .08 .74 5.37 11 

(.48) 6.11 (34.73) 34,742 .04 .40 1.85 10 

(.31) 9.90 2.13 27,390 .04 .84 5.05 3 

(.56) 5.42 (41.18) 12,613 .04 .58 0.87 24 

(.29) 9.83 1.25 13,006 .04 1.36 5.59 6 





Notes to Financial Highlights — December 31, 2008 


(a) Average month-end shares outstanding were used for this calculation. 

(b) Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the Underlying Funds in which the Fund invests. 

(c) Periods less than one year are not annualized. 

(d) The ratios for periods less than one year are annualized. 

(e) The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the Underlying Funds in which the Fund 

invests. 

(f) May reflect amounts waived and reimbursed by RIMCo and RFSC. 

(g) Less than $.01 per share. 


40 Notes to Financial Highlights



Notes to Financial Statements — December 31, 2008 

1. Organization 

Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with nine different investment 

portfolios referred to as Funds. These financial statements report on four of these Funds (each a “Fund” and collectively the 

“Funds”). The Investment Company provides the investment base for one or more variable insurance products issued by one or 

more insurance companies. 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 

an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended 

and restated master trust agreement dated October 1, 2008. The Investment Company’s master trust agreement permits the Board 

of Trustees (the “Board”) to issue an unlimited number of shares of beneficial interest. 

Russell Investment Management Company (“RIMCo”) is the Funds’ adviser and Russell Fund Services Company (“RFSC”), a 

wholly-owned subsidiary of RIMCo, is the Funds’ administrator and transfer agent. 

The Funds seek to achieve their objective by investing in a combination of Russell Investment Company (“RIC”) funds and other 

of the Investment Company’s funds (the “Underlying Funds”) as set forth in the table below. RIMCo may modify the target asset 

allocation for any Fund and/or the Underlying Funds in which the Funds invest. From time to time, each Fund may adjust its 

investments within the ranges below based on RIMCo’s outlook for the economy, financial markets generally and relative market 

valuation of the asset classes represented by each Underlying Fund. Additionally, each Fund may deviate from the ranges when, 

in RIMCo’s opinion, it is necessary to do so to pursue the Fund’s investment objective. In the future, the Funds may also invest in 

other funds which are not currently Underlying Funds. 

Asset Class/Underlying Funds 

Moderate 

Strategy Fund 

Asset Allocation Targets as of April 30, 2008 

Balanced 

Strategy Fund 

Growth 

Strategy Fund 

Equity Growth 

Strategy Fund 

Bonds 

RIF Core Bond Fund 55-65% 35-45% 15-25% 0% 

Domestic Equities 

RIF Aggressive Equity Fund 0-8 0-9 1-11 2-12 

RIF Multi-Style Equity Fund 5-15 10-20 16-26 21-31 

RIF Real Estate Securities Fund 0-8 0-10 1-11 2-12 

RIC Russell U.S. Quantitative Equity Fund 5-15 10-20 15-25 20-30 

International Equities 

RIF Non-U.S. Fund 14-24 9-19 12-22 18-28 

RIC Russell Emerging Markets Fund 0-7 0-8 0-9 0-10 

RIC Russell Global Equity Fund 0-8 0-9 1-11 2-12 

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 and assumptions at the date of the financial statements. 

Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently 

followed by each Fund in the preparation of its financial statements. 

Security Valuation 

The Funds value their portfolio securities, the shares of the Underlying Funds, at the current net asset value per share of each 

Underlying Fund. 

The Underlying Funds value portfolio securities according to Board-approved securities valuation procedures and pricing 

services which include market value procedures, fair value procedures and a description of the pricing services used by the 

Underlying Funds. Money market fund securities are priced using the amortized cost method of valuation, as are debt obligation 

securities maturing within 60 days at the time of purchase, unless the Board determines that amortized cost does not represent 

market value of short-term debt obligations. The Board has delegated the responsibility for administration of the securities 

valuation procedures to RFSC. 

Ordinarily, the Underlying Funds value each portfolio security based on market quotations provided by pricing services or 

alternative pricing services or dealers (when permitted by the market value procedures). Generally, Underlying Fund securities 

are valued at the close of the market on which they are traded as follows: 

• U.S. listed equities, equity and fixed income options and Rights/Warrants: Last sale price; last bid price if no last sale price. 





• U.S. over-the-counter equities: Official closing price; last bid price if no closing price. 

• Listed ADRs/GDRs: Last sale price; last bid price if no last sale price. 

• Municipal bonds, U.S. bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price;. 

• Futures: Settlement price; 

• Bank loans and Forwards: mean between bid and asking price. 

• Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the 

close of the New York Stock Exchange, whichever is earlier; 

• The value of swap agreements is 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. 

• Equity securities traded on a national foreign securities exchange or a foreign over the counter market are valued on the basis 

of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the 

security is traded. 

If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, 

the Underlying Funds will use the security’s fair value, as determined in accordance with the fair value procedures. The effect of 

fair value pricing is that securities may not be priced on the basis of quotations from the primary market on which they are traded, 

but rather may be priced by another method that the Board believes reflects fair value. The fair value procedures may involve 

subjective judgments as to the fair value of securities. The use of fair value pricing by an Underlying Fund may cause the net 

asset value of its shares to differ significantly from the net asset value that would be calculated using normal pricing methods. 

Fair value pricing could also cause discrepancies between the daily movement of the value of Underlying Fund shares and daily 

movement of the benchmark index if the index is valued using another pricing method. 

This policy is intended to assure that the Underlying Funds’ net asset values fairly reflect security values as of the time of pricing. 

Events or circumstances affecting the values of Underlying Fund securities that occur between the closing of the principal 

markets on which they trade and the time the net asset value of Underlying Fund shares is determined may be reflected in the 

calculation of net asset values for each applicable Underlying Fund (and each Fund which invests in such Underlying Fund) 

when the Underlying Funds deem that the particular event or circumstance would materially affect such Underlying Fund’s net 

asset value. Underlying Funds that invest primarily in frequently traded exchange-listed securities will use fair value pricing in 

limited circumstances since reliable market quotations will often be readily available. Underlying Funds that invest in foreign 

securities are likely to use fair value pricing more often since significant events may occur between the close of foreign markets 

and the time of pricing which would trigger fair value pricing of the foreign securities. Underlying Funds that invest in low-rated 

debt securities are also likely to use fair value pricing more often since the markets in which such securities are traded are 

generally thinner, more limited and less active than those for higher rated securities. Examples of events that could trigger fair 

value pricing of one or more securities are: a material market movement of the US securities market (defined in the fair value 

procedures as the movement by a single major US Index greater than a certain percentage) or other significant event; foreign 

market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company 

development; a natural disaster; or an armed conflict. 

Because foreign securities can trade on non-business days, the net asset value of a Fund’s portfolio that includes an Underlying 

Fund which invests in foreign securities may change on days when shareholders will not be able to purchase or redeem fund 

shares. 

The Funds adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair 

Value Measurements (“SFAS 157”), effective January 1, 2008. In accordance with SFAS 157, fair value is defined as the price 

that the Funds would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most 

advantageous market of the investment. SFAS 157 established a three-tier hierarchy to maximize the use of observable market 

data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure 

purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset, including assumptions 

about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including a pricing model 

and/or risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are 

inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data 

obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own 

assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best 

information available in the circumstances. 





The three-tier hierarchy of inputs is summarized in the three broad levels listed below. 

• Level 1 — quoted prices in active markets for identical investments 

• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment 

speeds, credit risk, etc.) 

• Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of 

investments) 

Inputs used in valuing the Funds’ investments for the period ended December 31, 2008, were as follows: 

Moderate 

Strategy Fund 


Securities 

Balanced 

Strategy Fund 


Securities 

Growth 

Strategy Fund 


Securities 

Equity Growth 

Strategy Fund 


Securities 

Level 1 $ — $ — $ — $ — 

Level 2 19,319,025 60,174,298 34,752,751 12,623,205 

Level 3 — — — — 

As of December 31, 2008, there were no Level 3 securities held by the Funds. 

$ 19,319,025 $ 60,174,298 $ 34,752,751 $ 12,623,205 

Investment Transactions 

Investment transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are 

recorded on the basis of specific identified cost. 


Distributions of income and capital gains from the Underlying Funds are recorded on the ex-dividend date. 

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 is required for the Funds. 

In accordance with provisions set forth in the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, 

an Interpretation of FASB Statement No. 109” (“FIN 48”), adopted by the Funds on January 1, 2007, management has reviewed 

the Funds’ tax positions for all open tax years, and concluded that adoption had no effect on the Funds’ financial position or 

results of operations. At December 31, 2008, the Funds have recorded no liabilities for net unrecognized tax benefits relating to 

uncertain income tax positions they have taken or expect to take in future tax returns. 

Each Fund files a U. S. tax return. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for 

the fiscal years ending December 31, 2005, through December 31, 2007, no examinations are in progress or anticipated at this 

time. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax 

benefits will significantly change in the next twelve months. 

Dividends and Distributions to Shareholders 

Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Income dividends are generally 

declared and paid quarterly. 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) from investment 

transactions for a reporting period may differ significantly from distributions during such period. The differences between tax 

regulations and GAAP relate primarily to investments in the Underlying Funds sold at a loss, wash sale deferrals and capital loss 





carryforwards. Accordingly, the Funds may periodically make reclassifications among certain of their capital accounts without 

impacting their net asset value. 

Expenses 

Expenses included in the accompanying financial statements reflect the expenses of each Fund and do not include those 

expenses incurred by the Underlying Funds. Because the Underlying Funds have varied expense and fee levels and the Funds 

may own different proportions of the Underlying Funds at different times, the amount of the fees and expenses incurred indirectly 

by the Funds will vary. 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. 

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 

During the period ended December 31, 2008, purchases and sales of the Underlying Funds (excluding short-term investments) 

were as follows: 

Funds Purchases Sales 

Moderate Strategy $ 22,507,185 $ 6,839,969 

Balanced Strategy 54,479,438 8,963,036 

Growth Strategy 27,506,639 3,505,289 

Equity Growth Strategy 10,289,401 3,369,110 

4. Related Party Transactions, Fees and Expenses 

Adviser and Administrator 

RIMCo is the Funds’ investment adviser and RFSC is the Funds’ administrator. RFSC is a wholly-owned subsidiary of RIMCo. 

RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance 

Company). Frank Russell Company provides ongoing money manager research and trade placement services to RIC and RIMCo. 

RIMCo has contractually agreed to waive, at least through April 29, 2009, its 0.20% advisory fee for each Fund. RIMCo and 

RFSC have contractually agreed to waive and/or reimburse, at least through April 29, 2009, each Fund for other direct Fund-level 

expenses to the extent that direct Fund-level expenses exceed 0.11%, 0.08%, 0.04% and 0.04% of the average daily net assets of 

the Moderate Strategy, Balanced Strategy, Growth Strategy and Equity Growth Strategy Funds, respectively, on an annual basis. 

Direct Fund-level expenses for the Funds do not include the expenses of other investment companies in which the Fund invests 

which are borne indirectly by the Fund. These arrangements may not be terminated during the relevant period except at the 

Board’s discretion. 

The Administrative fee of 0.05% is based upon the average daily net assets of each Fund. 

For the period ended December 31, 2008, the fees waived and reimbursed by RIMCo and RFSC amounted to: 

Funds RIMCo RFSC Total 

Moderate Strategy $ 34,738 $ 37,363 $ 72,101 

Balanced Strategy 110,766 39,259 150,025 

Growth Strategy 70,744 55,262 126,006 

Equity Growth Strategy 28,041 47,590 75,631 

RIMCo and RFSC do not have the ability to recover amounts waived or reimbursed from previous periods. 

Transfer and Dividend Disbursing Agent 

RFSC is the Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RFSC is paid a fee for 

transfer agency and dividend disbursing services provided to the Funds. RFSC retains a portion of this fee for its services 

provided to the Funds and pays the balance to unaffiliated agents who assisted in providing these services. 





Accrued Fees Payable to Affiliates 

Accrued fees payable to affiliates for the period ended December 31, 2008, were as follows: 


Fund 

Balanced 

Strategy Fund 


Fund 

Equity Growth 

Strategy Fund 

Administration Fees $ 785 $ 4,705 $ 1,399 $ 494 

Transfer Agent Fees 69 214 124 44 

Trustee Fees 20 113 134 59 

$ 874 $ 5,032 $ 1,657 $ 597 

Distributor 

On June 2, 2008, Russell Fund Distributors, Inc., a wholly-owned subsidiary of RIMCo, changed its name to Russell Financial 

Services, Inc. (“Distributor”). The Distributor serves as distributor for RIF, pursuant to the Distribution Agreement with the 

Investment Company. The Distributor receives no compensation from the Investment Company for its services. 

Board of Trustees 

The Russell Fund Complex consists of RIC, which has 38 Funds, and RIF, which has nine Funds. Each of the Trustees is a 

Trustee of both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of 

$60,000 per year, $6,500 for each regular quarterly meeting attended in person, $2,500 for each special meeting attended in 

person, and $2,500 for each Audit Committee meeting, Nominating and Governance Committee meeting, Investment Committee 

meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives 

a $1,000 fee for attending the quarterly and special meetings and a $500 fee for attending the committee meeting by phone 

instead of receiving the full fee had the member attended in person. Trustees’ out of pocket expenses are also paid by the Russell 

Fund Complex. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the 

Nominating and Governance Committee Chair is paid a fee of $6,000 per year. The chairman of the Board receives additional 

annual compensation of $52,000. 

Transactions With Affiliated Companies 

An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities or under common 

control. Transactions during the period ended December 31, 2008, with Underlying Funds which are an affiliated company or 

under common control are as follows: 

Affiliate 

Market 

Value 

Purchases 

Cost 

Sales 

Cost 

Realized Gain 

(Loss) 

Income 

Distributions 

Capital Gains 

Distributions 


RIF Core Bond Fund $ 11,616,680 $ 12,045,579 $ 4,650,835 $ (283,992) $ 605,092 $ 75,808 

RIF Aggressive Equity Fund 572,565 794,728 250,889 (65,586) 5,503 102 

RIF Multi-Style Equity Fund 1,922,578 2,597,647 724,308 (127,238) 24,657 14,651 

RIC Russell U.S. Quantitative Equity Fund 1,941,688 449,330 162,091 (61,456) 11,977 — 

RIF Real Estate Securities Fund 579,739 869,806 404,619 (92,663) 10,253 — 

RIC Russell Emerging Markets Fund 382,802 605,880 171,290 (47,356) — 18,228 

RIC Russell Global Equity Fund 579,098 798,632 207,118 (36,795) 9,201 — 

RIF Non-U.S. Fund 1,723,875 2,276,651 630,329 (158,774) — 12,557 

RIC Quantitative Equity Fund (1) — 2,068,932 628,900 (116,550) 7,312 

$ 19,319,025 $ 22,507,185 $ 7,830,379 $ (990,410) $ 673,995 $ 121,346 


RIF Core Bond Fund $ 23,663,254 $ 17,824,158 $ 6,424,844 $ (480,454) $ 1,252,067 $ 141,698 

RIF Aggressive Equity Fund 2,427,255 2,453,632 225,239 (51,919) 22,766 333 


RIC Russell U.S. Quantitative Equity Fund 9,171,902 1,716,415 129,494 (61,804) 54,900 — 

RIF Real Estate Securities Fund 3,138,362 3,447,419 1,128,447 (318,787) 54,603 — 

RIC Russell Emerging Markets Fund 1,807,454 2,286,358 156,160 (52,488) — 86,370 

RIC Russell Global Equity Fund 2,425,322 2,494,605 155,153 (21,707) 37,741 — 

RIF Non-U.S. Fund 8,471,481 8,563,152 731,474 (197,105) — 47,603 


$ 60,174,298 $ 54,479,438 $ 10,410,544 $ (1,447,508) $ 1,567,823 $ 329,566 





Affiliate 

Market 

Value 

Purchases 

Cost 

Sales 

Cost 

Realized Gain 

(Loss) 

Income 

Distributions 

Capital Gains 

Distributions 


RIF Core Bond Fund $ 7,049,778 $ 4,288,231 $ 2,087,711 $ (166,477) $ 397,423 $ 46,107 

RIF Aggressive Equity Fund 2,069,177 1,742,315 101,844 (22,719) 21,059 377 



RIF Real Estate Securities Fund 2,207,150 1,812,228 419,571 (121,596) 41,786 — 

RIC Russell Emerging Markets Fund 1,386,160 1,586,734 119,980 (36,724) — 66,347 

RIC Russell Global Equity Fund 2,072,044 1,828,431 105,741 (11,290) 32,870 — 

RIF Non-U.S. Fund 5,880,874 5,080,230 406,274 (113,410) — 44,109 


$ 34,752,751 $ 27,506,639 $ 4,179,759 $ (674,470) $ 668,839 $ 213,588 


RIF Aggressive Equity Fund $ 880,602 $ 713,306 $ 281,798 $ (66,220) $ 9,247 $ 194 

RIF Multi-Style Equity Fund 3,271,627 2,624,719 1,043,658 (198,054) 51,215 30,967 


RIF Real Estate Securities Fund 902,850 928,295 743,554 (204,398) 18,909 — 

RIC Russell Emerging Markets Fund 625,469 666,124 211,439 (67,862) — 29,500 

RIC Russell Global Equity Fund 882,254 714,480 224,435 (40,902) 13,700 — 

RIF Non-U.S. Fund 2,885,222 2,302,751 901,903 (264,119) — 26,476 


$ 12,623,205 $ 10,289,401 $ 4,470,924 $ (1,101,814) $ 127,687 $ 87,137 

(1) Quantitative Equity Fund merged into Russell U.S. Quantitative Equity Fund as of September 22, 2008. 

5. Federal Income Taxes 

At December 31, 2008, the following Fund 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: 

Funds 12/31/2016 Totals 

Equity Growth Strategy $ 134,219 $ 134,219 

At December 31, 2008, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and 

undistributed long-term capital gains for income tax purposes were as follows: 

Moderate 

Strategy Fund 

Balanced 

Strategy Fund 

Growth 

Strategy Fund 

Equity Growth 

Strategy Fund 

Cost of Investments for Tax Purposes $ 24,524,329 $ 82,502,736 $ 52,768,220 $ 20,937,830 

Unrealized Appreciation $ — $ — $ — $ — 

Unrealized Depreciation (5,205,304) (22,328,438) (18,015,469) (8,314,625) 

Net Tax Unrealized Appreciation (Depreciation) $ (5,205,304) $ (22,328,438) $ (18,015,469) $ (8,314,625) 

Undistributed Ordinary Income $ 237,035 $ 79,930 $ 7,955 $ 31,779 

Undistributed Long-Term Gains (Capital Loss Carryforward) $ 62,862 $ 96,500 $ 56,058 $ (134,219) 

Tax Composition of Distributions: 

Ordinary Income $ 482,474 $ 1,443,808 $ 646,736 $ 95,429 

Long-Term Capital Gains $ 159,653 $ 1,138,562 $ 1,108,503 $ 741,432 

6. Fund Share Transactions (amounts in thousands) 

Share transactions for the periods ended December 31, 2008 and December 31, 2007 were as follows: 

Shares 

Dollars 

2008 2007* 2008 2007* 


Proceeds from shares sold 2,261 950 $ 21,043 $ 9,530 

Proceeds from reinvestment of distributions 71 22 642 209 

Payments for shares redeemed (682) (106) (6,163) (1,047) 

Total net increase (decrease) 1,650 866 $ 15,522 $ 8,692 





6. Fund Share Transactions (amounts in thousands) (continued) 

Shares 

Dollars 

2008 2007* 2008 2007* 



Proceeds from reinvestment of distributions 306 91 2,582 903 

Payments for shares redeemed (856) (197) (7,050) (2,003) 


Shares 

Dollars 

2008 2007* 2008 2007* 



Proceeds from reinvestment of distributions 212 66 1,755 651 

Payments for shares redeemed (344) (61) (2,791) (623) 


Shares 

Dollars 

2008 2007* 2008 2007* 



Proceeds from reinvestment of distributions 100 37 837 358 

Payments for shares redeemed (428) (46) (3,448) (458) 



7. Interfund Lending Program 

The Investment Company Funds have received permission from the Securities and Exchange Commission to participate in a joint 

lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from each other for temporary 

purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. Typically, 

Funds will borrow from the RIC Russell Money Market Fund. The RIC Russell Money Market Fund will lend through the program 

only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves and the 

portfolio manager determines it is in the best interest of the RIC Russell Money Market Fund. The Investment Company Funds 

will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and 

borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business 

day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not 

renewed. Any delay in repayment to the RIC Russell Money Market Fund could result in a lost investment opportunity or 

additional borrowing costs. For the period ended December 31, 2008, the Funds presented herein did not borrow through the 

interfund lending program. 

8. Record Ownership 

As of December 31, 2008, the following table includes shareholders of record with greater than 10% of the total outstanding 

shares of each respective Fund. The Northwestern Mutual Life Insurance Company accounts were the largest shareholders in 

each Fund. 

Funds # of Shareholders % 

Moderate Strategy 1 97.7 

Balanced Strategy 1 97.2 

Growth Strategy 1 98.3 

Equity Growth Strategy 1 97.9 



To the Board of Trustees and Shareholders 

of Russell Investment Funds: 



respects, the financial position of Moderate Strategy Fund, Balanced Strategy Fund, Growth Strategy Fund, and Equity 

Growth Strategy Fund (four of the portfolios constituting the Russell Investment Funds, hereafter referred to as the 

“Funds”) at December 31, 2008, the results of each of their operations for the year then ended, and the changes in each 

of their 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 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 

require that we plan and perform the audits 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, 2008 by correspondence with the transfer agent, provide a reasonable basis 

for our opinion. 

Seattle, Washington 




Tax Information — December 31, 2008 (Unaudited) 

For the tax year ended December 31, 2008, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable 

income as qualified dividends taxed at individual net capital gain rates. 

The Form 1099 you receive in January 2009 will show the tax status of all distributions paid to your account in calendar year 2008. 

The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate 

shareholders as follows: 

Moderate Strategy 12.0% 

Balanced Strategy 17.6% 

Growth Strategy 35.0% 

Equity Growth Strategy 100.0% 

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, 2008: 

Long-Term 

Capital Gains 

Moderate Strategy 159,653 

Balanced Strategy 1,138,562 

Growth Strategy 1,108,503 

Equity Growth Strategy 741,432 

Please consult a tax adviser for any questions about federal or state income tax laws. 

Tax Information 49


LifePoints® Funds Variable Target Portfolio Series 

Basis for Approval of Investment Advisory Contracts (Unaudited) 

Approval of Investment Advisory Agreement 

The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory 

agreement with RIMCo (the “RIMCo Agreement”) and the portfolio management contract (collectively, the “portfolio management 

contracts”) with each Money Manager of the funds in which the Funds invest (the “Underlying Funds”) at a meeting held on 

April 22, 2008. During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of 

the Funds, sales and redemptions of the Funds’ and Underlying Funds’ shares, and the management of the Funds and the Underlying 

Funds by RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their 

independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the 

services provided by RIMCo (and its affiliates) to the Funds and the Underlying Funds; and (2) information (the “Third-Party 

Information”) received from an independent, nationally recognized provider of investment company information comparing the 

performance of each of the Funds and the Underlying Funds and their respective operating expenses over various periods of time 

with other peer funds (“Comparable Funds”) not managed by RIMCo believed by the provider to be generally comparable in 

investment objectives and size to the Funds and the Underlying Funds. The foregoing information requested by the Trustees or 

provided by RIMCo is collectively called the “Agreement Renewal Information.” The Trustees’ evaluations also reflected the 

knowledge and familiarity gained as Board members of the Funds and other funds in the same complex with respect to services 

provided by RIMCo, RIMCo’s affiliates and each Money Manager. The Trustees received a memorandum from counsel to the Funds 

discussing the legal standards for their consideration of the continuations of the RIMCo Agreement and the portfolio management 

contracts and the Independent Trustees separately received a memorandum regarding their responsibilities from their independent 

counsel. 

On April 21, 2008, the Independent Trustees met to review the Agreement Renewal Information in a private session with their 

independent counsel at which no representatives of RIMCo or management were present. At the April 22 meeting of the Board of 

Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the 

portfolio management contracts with management and independent counsel to the Independent Trustees. Presentations made by 

RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has 

supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a private session with 

their independent counsel to evaluate additional information and analyses received from RIMCo and management at the Board 

meeting. The discussion below reflects all of these reviews. 

In evaluating the portfolio management contracts, the Board considered that the Underlying Funds, in employing a 

manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. 

In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn 

employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser’s style and 

investment philosophy. RIMCo has engaged multiple unaffiliated Money Managers for all Underlying Funds. 

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for allocating assets 

of each Fund among its Underlying Funds and for determining, implementing and maintaining the investment program for each 

Underlying Fund. The assets of each Fund are invested in different combinations of the Underlying Funds pursuant to target asset 

allocations set by RIMCo. RIMCo may modify the target asset allocation for any Fund and/or the Underlying Funds in which the 

Funds invest. Assets of each Underlying Fund generally have been allocated among the multiple Money Managers selected by 

RIMCo, subject to Board approval, for that Underlying Fund. RIMCo manages directly a portion of certain Underlying Funds’ assets 

employing a “select holdings strategy,” as described below, and directly manages the investment of each Underlying Fund’s cash 

reserves. RIMCo also may manage directly any portion of each Underlying Fund’s assets that RIMCo determines not to allocate to 

the Money Managers and portions of an Underlying Fund during transitions between Money Managers. In all cases, assets are 

managed directly by RIMCo pursuant to authority granted by the RIMCo Agreement. 

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Underlying Fund and for actively managing 

allocations and reallocations of its assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios 

in a risk aware manner. Each Money Manager for an Underlying Fund in effect performs the function of an individual portfolio 

manager who is responsible for selecting portfolio securities for the portion of the Underlying Fund assigned to it by RIMCo (each, a 

“segment”) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by 

RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in an Underlying Fund. RIMCo is 

responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager 

with each Underlying Fund’s investment objective and policies; authorizing Money Managers to engage in certain investment 

strategies for an Underlying Fund; and recommending annually to the Board whether portfolio management contracts should be 

renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio 

management contracts, RIMCo is responsible for recommending to the Board additions of new Money Managers or replacements of 

existing Money Managers at any time when, based on RIMCo’s research and ongoing review and analysis, such actions are 





appropriate. RIMCo may impose specific investment constraints from time to time for each Money Manager intended to capitalize on 

the strengths of that Money Manager or to coordinate the investment activities of Money Managers for an Underlying Fund in a 

complementary manner. Therefore, the performance of individual Money Managers for an Underlying Fund may reflect the roles 

assigned to them by RIMCo in the Underlying Funds’ investment activities and any constraints placed by RIMCo upon their 

selection of portfolio securities. In light of the foregoing, the overall performance of each Underlying Fund over appropriate periods 

reflects, in great part, the performance of RIMCo in designing the Underlying Fund’s investment program, structuring an Underlying 

Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment that is complementary to 

the styles of the Money Managers of other Underlying Fund segments, and allocating assets among the Money Managers in a manner 

designed to achieve the objectives of the Underlying Fund. 

The Board considered that the prospectuses for the Funds and the Underlying Funds and other public disclosures emphasize to 

investors RIMCo’s role as the principal investment manager for each Underlying Fund, rather than the investment selection role of 

the Underlying Funds’ Money Managers, and describe the manner in which the Funds or Underlying Funds operate so that investors 

may take that information into account when deciding to purchase shares of any Fund. 

The Board also considered the demands and complexity of managing the Underlying Funds pursuant to the manager-or-managers 

structure, the special expertise of RIMCo with respect to the manager-of-managers structure of the Underlying Funds and the 

likelihood that, at the current expense ratio of each Underlying Fund, there would be no acceptable alternative investment managers 

to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy of each Underlying Fund 

selected by shareholders in purchasing their shares of a Fund or Underlying Fund. 

In addition to these general factors relating to the manager-of-managers structure of the Underlying Funds, the Trustees considered, 

with respect to each Fund and Underlying Fund, various specific factors in evaluating renewal of the RIMCo Agreement, including 

the following: 

1. The nature, scope and quality of the services provided to the Fund and the Underlying Fund by RIMCo; 

2. The advisory fee paid by the Fund or the Underlying Fund to RIMCo and the fact that it encompasses all investment advisory 

fees paid by the Fund or Underlying Fund, including the fees for any Money Managers of such Underlying Fund; 

3. Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund or Underlying 

Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and 

commissions in connection with portfolio securities transactions; 

4. Information provided by RIMCo as to expenses incurred by the Fund or the Underlying Fund; and 

5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the 

Fund or Underlying Fund. 

As noted above, RIMCo pursuant to the terms of the RIMCo Agreement directly managed a portion—up to 10%—of the assets of the 

RIF Multi-Style Equity Fund and the Russell Investment Company (“RIC”) Quantitative Equity Fund (each a “Participating 

Underlying Fund”) during the past year utilizing a select holdings strategy, the actual allocation being determined by each 

Participating Underlying Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing such assets 

for a Participating Underlying Fund is designed to increase the Participating Underlying Fund’s exposure to stocks that are viewed 

as attractive by multiple Money Managers of that Participating Underlying Fund. The Board reviewed the results of the select 

holdings strategy in respect of each Participating Underlying Fund since implementation taking into account that the strategy has 

been utilized for a limited period of time. With respect to each Participating Underlying Fund, the Trustees considered that RIMCo 

is not required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy is 

utilized and that the profits derived by RIMCo generally and from the Participating Underlying Fund consequently may increase 

incrementally. The Board, however, also considered RIMCo’s advice that it pays certain Money Managers additional fees for 

providing information and other services in connection with the select holdings strategy and incurs additional costs in carrying out 

the select holdings strategy, the limited amount of assets that are managed directly by RIMCo pursuant to the select holdings 

strategy, and the fact that the aggregate investment advisory fees paid by the Participating Underlying Fund are not increased as a 

result of the select holdings strategy. 

In evaluating the reasonableness of the Funds’ and Underlying Funds’ investment advisory fees in light of Fund and Underlying 

Fund performance, the Board considered that RIMCo, in the Agreement Renewal Information and at past meetings, noted differences 

between the investment strategies of certain Underlying Funds and their respective Comparable Funds in pursuing their investment 

objectives, including Fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, 





between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, 

these strategies may be expected to result, and for certain Underlying Funds during the periods covered by the Third-Party 

Information did result, in lower performance of the Funds than that of some of their respective Comparable Funds. According to 

RIMCo, the strategies pursued by the Underlying Funds, among other things, are intended to result in less volatile, more moderate 

returns relative to each Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds 

may experience over time. 

The Board considered for each Fund and Underlying Fund whether economies of scale have been realized and whether the fees for 

such Fund or Underlying Fund appropriately reflect or should be revised to reflect any such economies. The Board determined that, 

after giving effect to any applicable fee or expense caps, waivers or reimbursements, the investment advisory fees for each Fund or 

Underlying Fund appropriately reflect any economies of scale realized by such Fund, based upon such factors as the variability of 

Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the 

Underlying Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives similar to 

those of the Funds and other funds under the Board’s supervision, including the Underlying Funds are lower, and may, in some 

cases, be substantially lower, than the rates paid by funds supervised by the Board, including the Funds. The Trustees considered 

the differences in the scope of services it provides to institutional clients and the funds under its supervision, including the 

Underlying Funds. In response to the Trustees’ inquiries, RIMCo has previously noted, among other things, that institutional clients 

have fewer administrative needs than the Funds. RIMCo has in the past noted that since the Funds must constantly issue and redeem 

their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the 

Trustees did not regard these fee differences as relevant to their deliberations. 

On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the 

course of the current year or prior years or presented at the April 22 Board meeting by RIMCo, the Board, in respect of each Fund 

and Underlying Fund, found, after giving effect to waivers and/or reimbursements and considering differences in the composition 

and investment strategies of their respective Comparable Funds (1) the advisory fee charged by RIMCo to be reasonable in light of 

the nature, scope and quality of the services provided to the Funds or Underlying Funds; (2) the relative expense ratio of each Fund 

and Underlying Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of 

operating funds in the complex was reasonable; and (4) RIMCo’s profitability with respect to the Fund and each Underlying Fund 

was not excessive in light of the nature, scope and quality of the services provided by RIMCo. 

The Board further concluded that, under the circumstances, the performance of each of the Funds supported continuation of the 

RIMCo Agreement. In evaluating performance, the Board considered each Fund’s and Underlying Fund’s absolute performance and 

its performance relative to appropriate benchmarks and indices and its Comparable Funds. In assessing performance, the Board also 

considered RIMCo’s investment strategy of managing the Underlying Funds in a risk aware manner. 

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its 

current terms and conditions would be in the best interests of the Funds and their respective shareholders and voted to approve the 

continuation of the Agreement. 

At the April 22 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers 

for the Underlying Funds, the Board received and considered information from RIMCo reporting, among other things, for each Money 

Manager, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of the Money Manager; 

any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Funds’ and 

Underlying Funds’ underwriter; and RIMCo’s recommendation to retain the Money Manager at the current fee rate, to retain the 

Money Manager at a reduced fee rate or to terminate the Money Manager. RIMCo recommended that each Money Manager be 

retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its 

evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such 

capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other 

clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of 

investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the 

reasonableness of the aggregate investment advisory fees paid by each Fund and Underlying Fund and the fact that each Money 

Manager’s fee is paid by RIMCo. 

Based substantially upon RIMCo’s recommendations together with the information received from RIMCo in support of its 

recommendations at the April 22 meeting, the Board concluded that the fees paid to the Money Managers of each Underlying Fund 

are reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management 

contract with each Money Manager of each Underlying Fund would be in the best interests of the Fund and its shareholders. 





In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s 

recommendation, the portfolio management contract with any Money Manager for an Underlying Fund that was all-important or 

controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information 

available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund and Underlying Fund. 

Subsequently, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 20, 2008, to effect a 

money manager change for the Russell Global Equity Fund; (2) at a meeting held on August 26, 2008, to effect a money manager 

change for the Russell U.S. Quantitative Equity Fund; and (3) at a meeting held on October 10, 2008, to effect a money manager 

change for the Multi-Style Equity Fund resulting from a change of control of one of the Fund’s Money Managers. In the case of each 

such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon 

RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the 

Money Manager and RIMCo or Russell Financial Services, Inc. the Fund’s underwriter; RIMCo’s explanation as to the lack of 

relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money 

Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by 

the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of 

the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 22, 

2008 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate 

investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager 

change because the money managers’ investment advisory fee is paid by RIMCo. 




Shareholder Requests for Additional Information — December 31, 2008 (Unaudited) 

A complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third 

quarters of each year. These reports are available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) on the 

Securities and Exchange Commission’s website at www.sec.gov, and (iii) at the Securities and Exchange Commission’s public 

reference room. 

The Board has delegated to RIMCo, as RIF’s investment adviser, the primary responsibility for monitoring, evaluating and voting 

proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. RIMCo has established a 

proxy voting committee (“Committee”) and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting 

guidelines (“Guidelines”). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of 

disclosure to shareholders and third parties of information regarding the portfolio investments held by the Funds. A description of 

the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Trustees are contained in the 

Funds’ Statement of Additional Information (“SAI”). The SAI is available (i) free of charge, upon request, by calling the Funds at 

(800) 787-7354, and (ii) on the Securities and Exchange Commission’s website at www.sec.gov. 

Financial Statements of the Underlying Funds can be obtained at no charge by calling the Funds at (800) 787-7354. 

If possible, depending on contract owner registration and address information, and unless you have otherwise opted out, only one 

copy of the RIF prospectus and each annual and semi-annual report will be sent to contract owners at the same address. If you would 

like to receive a separate copy of these documents, please contact your Insurance Company. If you currently receive multiple copies 

of the prospectus, annual report and semi-annual report and would like to request to receive a single copy of these documents in the 

future, please call your Insurance Company. 

Some Insurance Companies may offer electronic delivery of the Funds’ prospectus and annual and semiannual reports. Please 

contact your Insurance Company for further details. 

54 Shareholder Requests for Additional Information



Disclosure of Information about Fund Trustees and Officers — December 31, 2008 

(Unaudited) 

The following tables provide information for each officer and trustee of the Russell Fund Complex. The Russell Fund Complex 

consists of Russell Investment Company (“RIC”), which has 38 funds, and Russell Investment Funds (“RIF”), which has 9 funds. 

Each of the trustees is a trustee of both RIC and RIF. The first table provides information for the interested trustee. The second table 

provides information for the independent trustees. The third table provides information for the trustees emeritus. The fourth table 

provides information for the officers. 

Name, 

Age, 

Address 


with Fund and 

Length of 

Time Served 

Term 

of 

Office* 


During the 

Past 5 Years 

No. of 

Portfolios 

in Russell 

Fund 

Complex 

Overseen 

by Trustee 

Other 


by Trustee 

INTERESTED TRUSTEES 

#Greg J. Stark 


909 A Street 


98402-1616 



since 2004 



successor is duly 

elected and 

qualified 


is chosen and 

qualified by 

Trustees 

• President and CEO RIC and RIF 

• Chairman of the Board, President 

and CEO, RIMCo 


and CEO, Russell Fund Services 

Company (“RFSC”) 


and CEO, Russell Financial 


• Chairman of the Board and 

President, Russell Insurance 

Agency, Inc. (insurance agency 

(“RIA”)) 

• Until 2004, Managing Director, of 

Individual Investor Services, FRC 

• 2000 to 2004 Managing Director, 

Sales and Client Service, RIMCo 

47 None 

909 A Street 


98402-1616 

INDEPENDENT TRUSTEES 

Thaddas L. Alston Trustee since 2006 

Born April 7, 1945 



elected and 

qualified 

• Senior Vice President, Larco 

Investments, Ltd. (real estate firm) 

47 None 

Kristianne Blake, 

Born January 22, 1954 




Chairman since 2005 



elected and 

qualified 

Annual 

• Director and Chairman of the Audit 

Committee, Avista Corp. 

• Trustee and Chairman of the 

Operations Committee, Principal 

Investors Funds and Principal 

Variable Contracts Funds 

• Regent, University of Washington 

• President, Kristianne Gates Blake, 

P.S. (accounting services) 

• February 2002 to June 2005, 


RIC and RIF Trustee and Chairman 

of the Operations and Distribution 

Committee, WM Group of Funds, 

1999–2006 

47 • Director, 

Avista Corp; 

(electric 

utilities) 

• Trustee, 

Principal 

Investors 

Funds 

(investment 

company); 

• Trustee, 

Principal 

Variable 

Contracts 

Funds 

(investment 

company) 

# Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee. 




Disclosure of Information about Fund Trustees and Officers, continued — 

December 31, 2008 (Unaudited) 

Name, 

Age, 

Address 


With Fund and 

Length of 

Time Served 

Term 

of 

Office* 


During the 

Past 5 Years 

No. of 

Portfolios 

in Russell 

Fund 

Complex 

Overseen 

by Trustee 

Other 


by Trustee 

INDEPENDENT TRUSTEES (continued) 



909 A Street 


98402-1616 


Chairman of Audit 


2005 



elected and 

qualified 



elected and 

qualified 

• June 2004 to present, Senior Vice 

President and Chief Financial Officer, 

Waddell & Reed Financial, Inc. 

• 2001–2003, Vice President and Chief 

Financial Officer, Janus Capital 

Group Inc. 

47 None 

Jonathan Fine 


909 A Street 


98402-1616 

Trustee 

since 2004 



elected and 

qualified 

• President and Chief Executive 

Officer, United Way of King County, 

WA 

47 None 



909 A Street 


98402-1616 

Trustee 

since 2000 

Chairman of the 

Nominating and 

Governance 


2007 



elected and 

qualified. 



elected and 

qualified 

• President, Simpson Investment 

Company and several additional 

subsidiary companies, including 

Simpson Timber Company, Simpson 

Paper Company and Simpson Tacoma 

Kraft Company 

47 None 

Jack R. Thompson, 

Born March 21, 1949 

909 A Street 


98402-1616 




elected and 

qualified 

• September 2003 to present, 

Independent Board Chair and 


Sparx Asia Funds 

• September 2007 to present, Director, 

Board Chairman, and Audit 

Committee Chairman, LifeVantage 

Corporation (health products 

company) 

• May 1999 to May 2003, President, 

Chief Executive Officer and Director, 

Berger Financial Group, LLC 

• May 1999 to May 2003, President and 

Trustee, Berger Funds 

47 • Director, Sparx 

Asia Funds 

(investment 

company) 

• Director, Board 

Chairman, and 

Audit 

Committee 

Chairman, 

LifeVantage 

Corporation 

(health 

products 

company) 

Julie W. Weston, 


909 A Street 


98402-1616 

Trustee 

since 2002 

Chairperson of the 

Investment 


2006 



elected and 

qualified 



elected and 

qualified 

• Retired 47 None 

* Each Trustee is subject to mandatory retirement at age 72. 






Name, 

Age, 

Address 


with Fund and 

Length of 

Time Served 

Term 

of 

Office 


During the 

Past 5 Years 

No. of 

Portfolios 

in Russell 

Fund 

Complex 

Overseen 

by Trustee 

Other 


by Trustee 

TRUSTEES EMERITUS 

*George F. Russell, Jr., 


909 A Street 


98402-1616 

Trustee Emeritus and 

Chairman Emeritus 

since 1999 

Until resignation 

or removal 

• Director Emeritus, Frank Russell 

Company (investment consultant to 

institutional investors (“FRC”)); and 

RIMCo 

• Chairman Emeritus, RIC and RIF; 

Russell Implementation Services 

Inc. (broker-dealer and investment 

adviser (“RIS”)); Russell 20-20 

Association (non-profit corporation); 

and Russell Trust Company (nondepository 

trust company (“RTC”)) 

• Chairman, Sunshine Management 

Services, LLC (investment adviser) 

47 None 

Paul E. Anderson, 


909 A Street 


98402-1616 


since 2007 

Five year term 

• President, Anderson Management 

Group LLC (private investments 

consulting) 

• February 2002 to June 2005, Lead 

Trustee, RIC and RIF 



Governance Committee 2006 

47 None 

William E. Baxter, 



since 2004 



47 None 

909 A Street 


98402-1616 

Lee C. Gingrich, 


909 A Street 


98402-1616 


since 2006 




Governance Committee 2001–2005 

47 None 

Eleanor W. Palmer, 



since 2004 



47 None 

909 A Street 


98402-1616 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF. 






Name, 

Age, 

Address 


with Fund and 

Length of 

Time Served 

Term 

of 

Office 


During the 

Past 5 Years 

OFFICERS 

Cheryl Wichers 


909 A Street 


98402-1616 

Chief Compliance 


Until removed 

by Independent 

Trustees 

• Chief Compliance Officer, RIC 

• Chief Compliance Officer, RIF 

• Chief Compliance Officer, RIMCo 

• Chief Compliance Officer, RFSC 

• April 2002–May 2005, Manager, Global Regulatory Policy 

Greg J. Stark, 


909 A Street 


98402-1616 



since 2004 


is chosen and 

qualified by 

Trustees 

• President and CEO, RIC and RIF 

• Chairman of the Board, President and CEO, RIMCo 

• Chairman of the Board, President and CEO, Russell Financial 


• Chairman of the Board, President and CEO, RFSC 

• Chairman of the Board and President, Russell Insurance Agency, 

Inc. (insurance agency (“RIA”)) 

• Until 2004, Managing Director of Individual Investor Services, FRC 

• 2000 to 2004, Managing Director, Sales and Client Service, RIMCo 

Mark E. Swanson, 

Born November 26, 1963 



Treasurer and Chief 

Accounting Officer 

since 1998 


is chosen and 

qualified by 

Trustees 

• Treasurer, Chief Accounting Officer and CFO, RIC and RIF 

• Director, Funds Administration, RIMCo, RFSC, RTC and Russell 

Financial Services, Inc. 

• Treasurer and Principal Accounting Officer, SSgA Funds 

Peter Gunning, 

Born February 22, 1967 

Chief Investment 


Until removed 

by Trustees 

• Chief Investment Officer, RIC, RIF 

• 1996 to 2008 Chief Investment Officer, Russell, Asia Pacific 

909 A Street 


98402-1616 

Gregory J. Lyons, 

Born August 24, 1960 

909 A Street 


98402-1616 

Secretary since 2007 


is chosen and 

qualified by 

Trustees 

• Associate General Counsel and Assistant Secretary FRC and RIA 

• Director and Secretary, RIMCo, RFSC and Russell Financial 


• Secretary and Chief Legal Counsel, RIC and RIF 




909 A Street, Tacoma, Washington 98402 

(800) 787-7354 

Interested Trustees 

Greg J. Stark 

Independent Trustees 

Thaddas L. Alston 

Kristianne Blake 


Jonathan Fine 


Jack R. Thompson 

Julie W. Weston 

Trustees Emeritus 

George F. Russell, Jr. 

Paul E. Anderson 

William E. Baxter 

Lee C. Gingrich 

Eleanor W. Palmer 

Officers 

Greg J. Stark, President and Chief Executive Officer 

Cheryl Wichers, Chief Compliance Officer 

Peter Gunning, Chief Investment Officer 

Mark E. Swanson, Treasurer and Chief Accounting Officer 

Gregory J. Lyons, Secretary 

Adviser 


909 A Street 


Administrator and Transfer and Dividend Disbursing 

Agent 

Russell Fund Services Company 

909 A Street 


Custodian 

State Street Bank and Trust Company 

Josiah Quincy Building 

200 Newport Avenue 

North Quincy, MA 02171 

Office of Shareholder Inquiries 

909 A Street 


(800) 787-7354 

Legal Counsel 

Dechert LLP 

200 Clarendon Street, 27th Floor 

Boston, MA 02116-5021 

Distributor 

Russell Financial Services, Inc. 

909 A Street 


Independent Registered Public Accounting Firm 

PricewaterhouseCoopers LLP 

1420 5th Avenue 

Suite 1900 

Seattle, WA 98101 

Money Managers of Underlying Funds as of 


RIF Core Bond Fund 


Metropolitan West Asset Management, LLC, Los Angeles, CA 

Pacific Investment Management Company LLC, Newport Beach, CA 

RIF Aggressive Equity Fund 



Gould Investment Partners LLC, Berwyn, PA 


PanAgora Asset Management, Inc., Boston, MA 

Ranger Investment Management, L.P., Dallas, TX 

Signia Capital Management, LLC, Spokane, WA 

Tygh Capital Management, Inc., Portland, OR 

RIF Multi-Style Equity Fund 

Arnhold and S. Bleichroeder Advisers, LLC, New York, NY 

Columbus Circle Investors, Stamford, CT 


Institutional Capital LLC, Chicago, IL 


Montag & Caldwell, Inc., Atlanta, GA 

Suffolk Capital Management, LLC, New York, NY 

Turner Investment Partners, Inc., Berwyn, PA 

RIC Russell U.S. Quantitative Equity Fund 

Aronson+Johnson+Ortiz, LP, Philadelphia, PA 

Franklin Portfolio Associates, LLC, Boston, MA 


INTECH Investment Management, LLC, West Palm Beach, FL 


RIF Real Estate Securities Fund 

AEW Management and Advisors, L.P., Boston, MA 

Cohen & Steers Capital Management, Inc., New York, NY 

Heitman Real Estate Securities LLC, Chicago, IL 

INVESCO Institutional (N.A.), Inc. which acts as a money manager 

to the Fund through its INVESCO Real Estate division, Dallas, 

TX 

RREEF America L.L.C., Chicago, IL 

RIC Russell Emerging Markets Fund 

AllianceBernstein L.P., New York, NY 

Arrowstreet Capital, Limited Partnership, Boston, MA 

Genesis Asset Managers, LLP, London, United Kingdom 

Harding, Loevner LLC, Somerville, NJ 

T. Rowe Price International, Inc., Baltimore, MD 

UBS Global Asset Management (Americas) Inc., Chicago, IL 

RIC Russell Global Equity Fund 


Gartmore Global Partners, London, United Kingdom 

Harris Associates, L.P., Chicago, IL 

Tradewinds Global Investors, LLC, Los Angeles, CA 

T. Rowe Price International, Inc., Baltimore, MD 

RIF Non-U.S. Fund 

Altrinsic Global Advisors, LLC, Stamford, CT 

AQR Capital Management, LLC, Greenwich, CT 

MFS Institutional Advisors, Inc., Boston, MA 

Wellington Management Company, LLP, Boston, MA 

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 Russell Investment Funds. Such offering is made only by 

Prospectus, which includes details as to offering price and other material information. 

Adviser, Money Managers and Service Providers 59

Russell Investment Funds 909 A Street 800-787-7354 

Tacoma, Washington 98402 Fax: 253-591-3495 

www.russell.com 

Cert no. SCS-COC-0063 

36-08-195

Prospectus Supplements


Supplement Dated January 2, 2009 to the 

Prospectus Dated April 30, 2008 

The following information supplements the Prospectus for the Northwestern Mutual Series Fund, Inc. (the 

“Series Fund”) dated April 30, 2008 (the “Prospectus”), a copy of which you have already received. You 

should read this Supplement together with the Prospectus. Please retain this Supplement for future 

reference. 

Temporary Management Fee Waiver for Money Market Portfolio 

In light of current economic and market conditions, Mason Street Advisors, LLC (“Mason Street 

Advisors”), investment adviser to the Money Market Portfolio of the Series Fund (the “Portfolio”) has 

elected to waive the 30 basis point fee it receives for managing the Portfolio’s assets on a temporary 

basis, effective December 31, 2008. This fee waiver, which is voluntary, will be reviewed periodically by 

Mason Street Advisors in light of market and economic developments and may be revised or discontinued 

at any time. 

An investment in the Portfolio is not insured or 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, it is possible to lose money by investing in the Portfolio.


NML VARIABLE ANNUITY ACCOUNT A 

SUPPLEMENT TO THE PROSPECTUSES 

FLEXIBLE PAYMENT VARIABLE ANNUITY (DATED APRIL 30, 2008) 

INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY (FEE-BASED) (DATED APRIL 30, 2008) 

________________________________________________________ 

NML VARIABLE ANNUITY ACCOUNT B 



FLEXIBLE PAYMENT VARIABLE ANNUITY (FEE-BASED) (DATED APRIL 30, 2008) 

________________________________________________________ 

NML VARIABLE ANNUITY ACCOUNT C 


GROUP COMBINATION ANNUITY (DATED APRIL 30, 2008) 

INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY (NETWORK EDITION) 

(DATED APRIL 30, 2008) 

________________________________________________________ 

This Supplement revises certain information with regard to the total annual operating expenses of the Money Market 

Portfolio contained in the Prospectuses referenced above dated April 30, 2008. 

The following replaces the row with regard to the Money Market Portfolio in the table under “Annual Portfolio 

Operating Expenses”: 

Portfolio 

Investment 

Advisory 

Fees 

Other 

Expenses 

12b-1 

Fees 

Acquired 

Fund Fees & 

Expenses 

Total 

Operating 

Expenses 

Total Net Operating 

Expenses (Including 

Contractual Waivers, 

Limitations and 

Reimbursements) 

Money Market Portfolio * .......................... 0.30% 0.02% 0.00% 0.00% 0.32% 0.32% 

The following footnote is added to the table under “Annual Portfolio Operating Expenses”: 

* 

Money Market Portfolio In light of current economic and market conditions, MSA has elected to waive the 30 basis point fee it 

receives for managing the Portfolio’s assets on a temporary basis, effective December 31, 2008. This fee waiver, which is voluntary, will be 

reviewed periodically by MSA in light of market and economic developments and may be revised or discontinued at any time. “Other Expenses” 

has been updated to reflect fees paid by the Portfolio to participate in the U.S. Department of Treasury's Temporary Guarantee Program for 

Money Market Funds. Due to the temporary nature of the Program, this expense has not been annualized. 

Please read this Supplement carefully and keep it with your Prospectus for future reference. 

This Supplement is dated January 12, 2009.





________________________________________________________ 




________________________________________________________ 

This Supplement revises certain information with regard to the Reinvestment of Redemptions and Waiver of Withdrawal 

Charges sections of the Prospectuses referenced above dated April 30, 2008. 

The following underlined language is added to the section titled “Reinvestment of Redemptions”: 

Reinvestment of Redemptions In special limited circumstances, we will allow Purchase Payments to be made 

without the deduction of a sales load (or with a refund of a withdrawal charge) for those Contract Owners who make a 

Purchase Payment in connection with a request to void a redemption made within 60 days (or whatever period that 

may be required under applicable state law) of our receipt of the redemption request. Such Purchase Payments and the 

amount of any withdrawal charge deducted upon redemption will be reinvested at the accumulation unit value next 

determined for each investment option after our receipt of the signed request for reinvestment in good order at our 

Home Office. Purchase payments will be applied to the same investment option(s) from which the initial 

redemption(s) were made. We will not process a request for reinvestment where redemption proceeds were paid by 

check made payable to the Contract Owner and such check was cashed. Similarly, we may refuse to process requests 

for reinvestment where it is not administratively feasible. Any redemptions, whether paid by check, wire, or direct 

deposit, that – but for the Worker, Retiree, and Employer Recovery Act of 2008 (the “Act”) would have been 

considered “required minimum distributions” (“RMDs”) for the 2009 calendar year – may be reinvested, as described 

above, without the deduction of a sales load so long as you request such reinvestment within 60 days of the date such 

distribution is made. Decisions regarding requests for reinvestment will take into consideration differences in costs 

and services and will not be unfairly discriminatory. For further information, contact your financial representative. 

The last paragraph of the section titled “Waiver of Withdrawal Charges” is amended with the following underlined language: 

As a matter of administrative practice, which we reserve the right to change at any time in our sole discretion, we are 

currently waiving withdrawal charges for Required Minimum Distributions (except for withdrawals from GIF8) when 

submitted on our Required Minimum Distribution Request form. For Contract Owners or Beneficiaries affected by 

section 201 of the Worker, Retiree, and Employer Recovery Act of 2008 (the “Act”), we will waive withdrawal 

charges during the 2009 calendar year for withdrawals in an amount that, but for the Act, would have been Required 

Minimum Distributions (except for withdrawals from GIF8) using the RMD form described above. 


This Supplement is dated January 12, 2009.





INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY (FEE-BASED) (DATED APRIL 30, 2008) 

________________________________________________________ 




FLEXIBLE PAYMENT VARIABLE ANNUITY (FEE-BASED) (DATED APRIL 30, 2008) 

________________________________________________________ 

NML VARIABLE ANNUITY ACCOUNT C 


GROUP COMBINATION ANNUITY (DATED APRIL 30, 2008) 

INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY (NETWORK EDITION) 

(DATED APRIL 30, 2008) 

________________________________________________________ 

This Supplement revises certain information contained in the Prospectuses referenced above dated April 30, 2008 

with regard to the Mid Cap Value Portfolio of the Northwestern Mutual Series Fund, Inc. 

Effective February 23, 2009, in the section titled, “The Funds”, under the heading for Northwestern Mutual Series 

Fund, Inc., the disclosure is replaced with the following: 

Northwestern Mutual Series Fund, Inc. The principal investment adviser for the Portfolios of the 

Northwestern Mutual Series Fund is Mason Street Advisors, LLC (“MSA”), our wholly-owned company. 

The investment advisory agreements for the respective Portfolios provide that MSA will provide services 

and bear certain expenses of the Portfolios. MSA employs a staff of investment professionals to manage the 

assets of the Fund and the other advisory clients of MSA. We provide related facilities and personnel, 

which MSA uses in performing its investment advisory functions. MSA has retained and oversees 

Templeton Investment Counsel, LLC, Capital Guardian Trust Company, T. Rowe Price Associates, Inc., 

Janus Capital Management LLC, American Century Investment Management, Inc., Massachusetts 

Financial Services Company, and Pacific Investment Management Company LLC under investment subadvisory 

agreements to provide day-to-day management of the Portfolios indicated below. Templeton 

Investment Counsel, LLC has appointed Franklin Templeton Investments (Asia) Limited as an additional 

sub-adviser for the International Equity Portfolio. Each such sub-adviser may be replaced without the 

approval of shareholders. Please see the attached prospectus for the Northwestern Mutual Series Fund for 

more information. 

Effective February 23, 2009, in the section titled, “The Funds”, under the heading for Northwestern Mutual Series 

Fund, Inc., the table is amended to contain the following information for the Mid Cap Value Portfolio: 

Portfolio Investment Objective Sub-adviser (if applicable) 

Mid Cap Value Portfolio Long-term capital growth; 

current income is a secondary 

objective 

American Century Investment 

Management, Inc. 


This Supplement is dated February 11, 2009.


Supplement Dated February 11, 2009 to the 


This Supplement revises certain information contained in the Prospectus for the 

Northwestern Mutual Series Fund, Inc. (the “Fund”) dated April 30, 2008, a copy of which you 

have already received, as supplemented to date (the “Prospectus”). You should read this 

Supplement together with the Prospectus. Please retain this Supplement for future reference. 


Effective February 23, 2009, American Century Investment Management, Inc. 

(“American Century”) will replace AllianceBernstein L.P. as the sub-adviser for the Fund’s Mid 

Cap Value Portfolio. American Century will provide investment sub-advisory services for the 

Portfolio pursuant to an Investment Sub-Advisory Agreement approved by the Fund’s Board of 

Directors on November 4, 2008. In approving the Investment Sub-Advisory Agreement, the 

Fund relied on an Exemptive Order issued by the Securities and Exchange Commission that 

permits the Fund and its adviser to engage or terminate a sub-adviser at any time without 

shareholder approval so long as, among other conditions, shareholders are provided notice of the 

change. 

As a result of the change in sub-adviser, certain sections of the Prospectus shall be 

amended effective February 23, 2009, as follows: 

The second, third and fifth paragraphs of the “Objective and Strategy” section of the 

Portfolio Summary with respect to the Mid Cap Value Portfolio shall be amended to read as 

follows: 

“Normally, the Portfolio invests at least 80% of net assets (plus any borrowings 

for investment purposes) in equity securities of mid-sized companies. The 

Portfolio invests primarily in a diversified portfolio of equity securities of midsized 

companies that are determined by Portfolio’s Adviser to be undervalued. 

At the time of investment, companies purchased typically will fall within the 

capitalization range of the Russell 3000® Index, excluding the largest 100 such 

companies ($7.4 million to $18.6 billion as of December 31, 2008). The Adviser 

intends to manage the Portfolio so that its weighted capitalization falls within the 

capitalization range of the members of the Russell Midcap® Index ($24.1 million 

to $14.9 billion as of December 31, 2008). 

In managing the Portfolio, the Adviser uses its own fundamental value approach. 

In selecting securities for the Portfolio, the Adviser attempts to identify 

companies whose long-term earnings, cash flows and/or assets are not reflected 

in the current market price of their securities and hold each security until it has 

returned to favor in the market and the price has increased to, or is higher than a 

level the Adviser believes more accurately reflects the fair value of the company. 

The Adviser also may consider whether the companies’ securities have a 

favorable income-paying history and whether income payments are expected to 

continue or increase.

The Adviser may sell a stock from the Portfolio if it believes the stock no longer 

meets established valuation criteria, the stock’s risk parameters outweigh its 

return opportunity, specific events alter a stock’s prospects or more attractive 

alternatives are identified. In seeking to achieve its investment objective, the 

Adviser may sell stocks from the Portfolio without regard to the length of time a 

security has been held.” 

In addition, the following bullet points are added to the “Principal Risks” section of the 

Portfolio Summary with respect to such Portfolio: 

 

 

High Portfolio Turnover Risk 

Preferred Stock Risk 

Finally, the following text replaces the information set forth under the “Mid Cap Value 

Portfolio” paragraph of the “Portfolio Managers” sub-section of the section titled, “THE 

INVESTMENT ADVISER AND SUB-ADVISERS:” 

“American Century Investments uses teams of portfolio managers and analysts to 

manage funds. These teams are organized by broad investment categories. The 

individuals listed below are the portfolio managers for the Portfolio. As such, 

they are ultimately responsible for the day to day management of the Portfolio, 

which includes security selection and portfolio construction, as well as 

compliance with stated investment objectives. Other members of the investment 

team provide research and analytical support, but generally do not make day-today 

investment decisions for the Portfolio. 

Phillip N. Davidson, Chief Investment Officer Value Equity, Senior Vice 

President and Senior Portfolio Manager, is a member of the team that manages 

the Mid Cap Value Portfolio. Prior to joining American Century Investments in 

1993 as a portfolio manager, he spent 11 years at Boatman’s Trust Company in 

St. Louis and served as vice president and portfolio manager responsible for 

institutional value equity clients. He has a bachelor’s degree in finance and an 

MBA from Illinois State University. He is a CFA charterholder. 

Michael Liss, Vice President and Portfolio Manager, is a member of the team 

that manages the Mid Cap Value Portfolio. He joined American Century 

Investments in 1998. He became a senior investment analyst in 2003 and then 

became a portfolio manager in 2004. He has a bachelor’s degree in accounting 

and finance from Albright College and an MBA in finance from Indiana 

University. He is a CFA charterholder. 

Kevin Toney, Vice President and Portfolio Manager, is a member of the team 

that manages the Mid Cap Value Portfolio. He joined American Century 

Investments in 1999 as an investment analyst and became a portfolio manager in 

2006. He has a bachelor’s degree from the University of Virginia and an MBA 

from The Wharton School at the University of Pennsylvania. He is a CFA 

charterholder.”


Effective January 31, 2009, the last sentence of second paragraph of the “Objective and 

Strategy” section for the Portfolio Summary with respect to the Small Cap Value Portfolio is 

amended by deleting the phrase, “up to 15% of net assets in stocks of mid-sized companies, 

and,” so that the amended sentence shall read as follows: 

“The Portfolio may also invest in equity securities of micro cap companies 

(defined as companies with stock market capitalizations less than $500 million at 

the time of investment).” 

As a result of the amendment, the portfolio managers responsible for the Portfolio’s 

selection of stocks of mid-sized companies will no longer serve as portfolio managers for the 

Small Cap Value Portfolio. Accordingly, the Prospectus is hereby amended by replacing the 

information currently set forth under the “Small Cap Value Portfolio” paragraph of the “Portfolio 

Managers” sub-section of the section titled, “THE INVESTMENT ADVISER AND SUB- 

ADVISERS” in its entirety, with the following information: 

“The Small Cap Value Portfolio is managed by an investment advisory 

committee. Preston G. Athey, as committee chairman, has day-to-day 

responsibility for managing the Portfolio and works with the committee in 

developing and executing its investment program. Mr. Athey, a Vice President of 

T. Rowe Price, has been chairman of the Portfolio’s committee since 2001, joined 

T. Rowe Price in 1978 and has been managing investments since 1982.” 


Effective November 9, 2008, Seth Plunkett is no longer a portfolio manager for the 

Inflation Protection Portfolio. 

Extension of Treasury’s Temporary Guarantee Program for Money Market Funds 

The U.S Department of the Treasury (“Treasury”) has extended the Temporary Guarantee 

Program for Money Market Funds (“Program”) through April 30, 2009. The Money Market 

Portfolio is participating in the Program for this extension period and has paid a fee of 0.022% of 

its net assets as of September 19, 2008 in order to participate for the period from December 19, 

2008 through April 30, 2009. The terms and conditions of the Program and qualifications for 

participation and insurance coverage under the Program remain the same as for the initial period. 

The term of the Program may be further extended by the Secretary of the Treasury 

through September 19, 2009. If the Program is extended for an additional period, the Money 

Market Portfolio would have to renew its participation and pay any additional fees required to 

maintain coverage. The duration and terms of any such extension have not been determined, and 

there is no guarantee that the Program will be extended beyond April 30, 2009 or that the Money 

Market Portfolio will elect or be eligible to participate in the Program extension. 

Neither this Supplement nor the Money Market Portfolio itself is in any manner 

approved, endorsed, sponsored or authorized by the U.S. Department of the Treasury.

Amendments to Investment Sub-Advisory Agreements with T. Rowe Price Associates, Inc. 

Effective November 4, 2008, the Board of Directors of the Fund approved an Amended 

and Restated Investment Sub-Advisory Agreement between Mason Street Advisors, LLC 

(“Mason Street Advisors”) and T. Rowe Price Associates, Inc. (“T. Rowe Price”) with respect to 

the Small Cap Value Portfolio and the Equity Income Portfolio (the “Amended Agreement”). In 

approving the Amended Agreement, the Fund relied on an Exemptive Order issued by the 

Securities and Exchange Commission that permits the Fund and Mason Street Advisors to amend 

investment sub-advisory agreements without shareholder approval so long as, among other 

conditions, shareholders are provided notice of the amendment. 

The Amended Agreement, which conformed the existing agreements with T. Rowe Price 

to Mason Street Advisors’ current form of Investment Sub-Advisory Agreement, place 

heightened obligations on T. Rowe Price with respect to reporting amendments to, and violations 

of, codes of ethics and other procedures, as well as violations of law. The Amended Agreement 

also includes an obligation to cooperate with the Fund’s and Mason Street Advisors’ chief 

compliance officers in connection with compliance matters. Finally, the Amended Agreement 

provides additional clarity regarding T. Rowe Price’s responsibility in connection with the 

performance of various operational matters. The Amended Agreement did not include any 

changes to fees.


Supplement Dated February 11, 2009 to the 


The following information supplements the Prospectus for the Northwestern Mutual Series 

Fund, Inc. (the “Series Fund”) dated April 30, 2008 (the “Prospectus”), a copy of which you have already 

received. You should read this Supplement together with the Prospectus. Please retain this Supplement 

for future reference. 

Portfolio Manager Changes 


Effective February 28, 2009, James S. Kang will no longer serve as a portfolio manager for the 

Large Cap Blend Portfolio. 


Effective February 28, 2009, Gene D. Barron will be replaced by Darcy Kopcho on the portfolio 

management team for the Domestic Equity Portfolio. The Prospectus is hereby amended to delete the 

biography for Gene D. Barron currently set forth under the “Domestic Equity Portfolio” paragraph of the 

“Portfolio Managers” sub-section of the section titled, “THE INVESTMENT ADVISER AND SUB- 

ADVISERS,” and to add the following biography for Ms. Kopcho: 

“Darcy Kopcho, Senior Vice President, CGTC, has been employed by CGTC or an 

affiliate for 23 years and has served as a portfolio manager selecting equity securities 

during the past five years. Ms. Kopcho holds an MBA from the Graduate School of 

Management at the University of California and a BA in Religious Studies from the 

University of California.”

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PAID 

NORTHWESTERN 

MUTUAL 

This booklet contains information about the Northwestern Mutual variable insurance product and the 

mutual funds identified on the front cover. The mutual funds correspond with the investment divisions 

available under the variable insurance product (“Product”). The information is prepared for Product 

owners and does not represent an offer of the Product, nor should it be used in connection with any 

offer, except when accompanied or preceded by the current Product prospectus or offering circular 

and the mutual fund prospectuses, which contain detailed information about mutual fund investment 

objectives and operations, and applicable fees, expenses and sales charges. Prospectuses or offering 

circulars may be obtained by calling the telephone number or visiting the website address listed below. 

You should read and carefully consider this information before you invest or send money. 

The mutual fund reports are prepared from the books and records of the funds. Discussions of 

investment performance in the reports represent the views of the funds’ portfolio managers as of the 

dates of the reports. They are not guarantees of investment results, nor should they be relied upon as 

investment advice or indications of current or future trading strategies of the portfolio managers. 

Portfolio manager views and security holdings are subject to change at any time. 

The Northwestern Mutual Life Insurance Company (Northwestern Mutual), 1-888-455-2232, 

www.northwesternmutual.com 

Product Distributor: Northwestern Mutual Investment Services, LLC (NMIS), Suite 600, 

611 East Wisconsin Avenue, Milwaukee, WI 53202-4797, 1-866-664-7737, member FINRA and SIPC. 

The Northwestern Mutual 

Life Insurance Company • Milwaukee, WI 

www.northwesternmutual.com 

14-1558 (0107) (REV 0109)

Annual Reports - Northwestern Mutual

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