<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file numbers 2-64683,
2-94234 and 2-89905.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its Charter)
Wisconsin 39-0509570
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414/271-1444
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None None
---- ----
Securities registered pursuant to Section 23(g) of the Act:
None
----
"Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ."
------- -------
"State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. (See definition of affiliate in Rule 405.)"
Not Applicable
--------------
"Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date."
None
----
"DOCUMENTS INCORPORATED BY REFERENCE"
None
----
This Form 10-K report contains 70 pages.
The Exhibit Index is located on page 46.
<PAGE> 2
The Northwestern Mutual Life Insurance Company
Form 10-K
PART I
Item 1. Business
(a) General development of business.
There have been no material changes or developments since the
beginning of the fiscal year in the business done or intended
to be done by the Registrant and its subsidiaries.
(b) Financial information about industry segments.
The registrant is a mutual life insurance company whose
principal product is life insurance. The Registrant also
sells annuity contracts, including variable annuity
contracts.
(c) Description of business.
The Registrant is the seventh largest life insurance company
in the United States with total assets in excess of $62
billion on December 31, 1996.
The Registrant's principal products are life insurance
contracts distributed by approximately 5,900 full-time
producing agents. Sales of life insurance contracts as a
percentage of total sales is as follows:
1996 80.78%
1995 81.22%
1994 80.60%
1993 82.44%
1992 81.44%
1991 81.11%
1990 82.64%
1989 83.12%
1988 84.18%
As of December 31, 1996, the Registrant had 3,513 employees.
(d) Not applicable.
Item 2. Properties
- ------- ----------
The principal properties used in the business are located
at 720 East Wisconsin Avenue and 818 East Mason Street,
Milwaukee, Wisconsin. The properties, which house the
Registrant's home office, include approximately three and
one-half square blocks improved with three office
buildings and a parking structure. Title to land and
buildings is held in fee.
Item 3 is on page 3.
2
<PAGE> 3
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 3. Legal Proceedings
The Northwestern Mutual Life Insurance Company is engaged in
litigation of various kinds, which in its judgment is not of
material importance in relation to its total assets. The
litigation includes various administrative or judicial proceedings,
relating to investments of the Registrant, arising under Federal,
State or local provisions that have been enacted or adopted
regulating the discharge of materials into the environment or
primarily for the purpose of protecting the environment. The
Registrant believes that these proceedings, singly and in the
aggregate, are not material. In addition, NML Variable Annuity
Accounts A and C are not engaged in any litigation which is
considered material to their total assets.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Not applicable. The Registrant is a mutual life
insurance company and has no stockholders as such.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 5 is on page 4.
3
<PAGE> 4
The Northwestern Mutual Life Insurance Company
Form 10-K
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
(a) Not applicable. The Registrant is a mutual life
insurance company and has no equity securities or stockholders
as such.
(b) Not applicable.
(c) Not applicable.
Item 6 is on page 5.
4
<PAGE> 5
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 6. Selected Financial Data
- ------- -----------------------
Results of Operations for NML Variable Annuity Account A for each of
the five years ending December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment Income
Dividend Income from Northwestern Mutual Series
Fund, Inc. Growth Stock Portfolio.............. $ 379,453 $ 128,854 $ 18,971## NA NA
Dividend Income from Northwestern Mutual Series
Fund, Inc. Aggressive Growth Stock Portfolio... 2,456,762 256,787 248,438 359,370 52,183
Dividend Income from Northwestern Mutual Series
Fund, Inc. International Equity Portfolio...... 1,820,972 217,966 853,704 97,043# NA
Dividend Income from Northwestern Mutual Series
Fund, Inc. Growth and Income Stock Portfolio... 1,206,606 465,091 53,075## NA NA
Dividend Income from Northwestern Mutual Series
Fund, Inc. Index 500 Stock Portfolio........... 1,906,168 522,842 2,155,181 256,688 191,946
Dividend Income from Northwestern Mutual Series
Fund, Inc. Money Market Portfolio.............. 1,024,534 1,119,254 708,559 520,596 620,178
Dividend Income from Northwestern Mutual Series
Fund, Inc. Balanced Portfolio.................. 14,325,426 8,146,698 33,071,685 13,161,961 9,729,580
Dividend Income from Northwestern Mutual Series
Fund, Inc. Select Bond Portfolio............... 906,892 652,667 2,990,731 1,423,472 1,251,161
Dividend Income from Northwestern Mutual Series
Fund, Inc. High Yield Bond Portfolio........... 473,729 199,805 68,840## NA NA
Dividend Income from Northwestern Mutual Capital
Appreciation Stock Fund, Inc................... NA NA NA 976,621** 714,398
----------- ------------- ------------- ------------ -------------
Total Income................................... 24,500,542 11,709,964 40,169,184 16,795,751 12,559,446
Annuity Rate and Expense Guarantees.............. 5,783,739 5,072,064 4,466,142 4,074,129 3,496,742
----------- ------------- ------------- ------------ -------------
Net Investment Income............................ $18,716,803 $ 6,637,900 $ 35,703,042 $ 2,721,622 $ 9,062,704
=========== ============= ============= ============ =============
Realized and Unrealized Gain (Loss) on Investments
Realized Gain on Investments..................... $13,967,988 $ 13,141,169 $ 1,687,702 $ 2,347,432 $ 858,030
Unrealized Appreciation (Depreciation) of
Investments During the Year.................... 33,051,905 76,916,515 (39,969,923) 14,612,044 2,977,783
----------- ------------- ------------- ------------ -------------
Net Gain (Loss) on Investments................... $47,019,893 $ 90,057,684 ($38,282,221) $ 16,959,476 $ 3,835,813
=========== ============= ============= ============ =============
</TABLE>
** Represents operations through April 29, 1993.
# Commenced operations on April 30, 1993.
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 22-23.
5
<PAGE> 6
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 6. (continued)
- ------- -----------
Changes in Equity for NML Variable Annuity Account A for each of the five years
ending December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
From Investment Activities
Net Investment Income............ $ 18,716,803 $ 6,637,900 $ 35,703,042 $ 12,721,622 $ 9,062,704
Net Realized Gain on Investments. 13,967,988 13,141,169 1,687,702 2,347,432 858,030
Net Change in Unrealized
Appreciation (Depreciation) of
Investments...................... 33,051,905 76,916,515 (39,969,923) 14,612,044 2,977,783
------------ ----------- ------------ ------------ -------------
Increase (Decrease) in Equity
Derived from Investment
Activities..................... 65,736,696 96,695,584 (2,579,179) 29,681,098 12,898,517
------------ ----------- ------------ ------------ -------------
From Equity Transactions
Contract Owners' Net Payments.... 65,169,358 49,124,853 52,262,816 51,044,522 48,215,264
Annuity Payments................. (830,996) (610,983) (603,158) (522,956) (497,390)
Surrenders and Other (Net)....... (52,376,445) (62,309,189) (33,008,630) (33,141,406) (27,934,737)
------------ ------------ ------------ ------------ -------------
Increase (Decrease in Equity
Derived from Equity
Transactions.................. 11,961,917 (13,795,319) 18,651,028 17,380,160 19,783,137
------------ ------------ ------------ ------------ -------------
Net Increase (Decrease) in Equity 77,698,613 82,900,265 16,071,849 47,061,258 32,681,654
Equity, Beginning of Year.......... 469,821,427 386,921,162 370,849,313 323,788,055 291,106,401
------------ ------------ ------------ ------------ -------------
Equity, End of Year................ $547,520,040 $469,821,427 $386,921,162 $370,849,313 $ 323,788,055
============ ============ ============ ============ =============
</TABLE>
See Notes to Financial Statements on page 22-23.
6
<PAGE> 7
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 6. (continued)
Total Assets of NML Variable Annuity Account A for each of the five following
years at December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- -------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series
Fund, Inc. Growth Stock
Portfolio..................... $ 9,523,179 $ 4,284,669 $ 1,397,703 ## NA NA
Northwestern Mutual Series
Fund, Inc. Aggressive Growth
Stock Portfolio............... 78,087,972 56,491,009 36,256,480 22,946,546 13,743,522
Northwestern Mutual Series
Fund, Inc. International
Equity Portfolio.............. 41,497,787 31,789,148 28,832,978 11,844,559 # NA
Northwestern Mutual Series
Fund, Inc. Growth and Income
Stock Portfolio............... 13,199,558 7,891,655 3,282,764 ## NA NA
Northwestern Mutual Series
Fund, Inc. Index 500 Stock
Portfolio..................... 80,917,025 62,391,687 43,545,408 43,534,827 7,067,703
Northwestern Mutual Series
Fund, Inc. Money Market
Portfolio..................... 23,380,205 21,556,895 20,120,832 17,036,899 19,413,335
Northwestern Mutual Series
Fund, Inc. Balanced Portfolio. 270,745,111 257,867,967 230,871,659 252,635,446 233,054,698
Northwestern Mutual Series
Fund, Inc. Select Bond
Portfolio..................... 26,648,961 25,742,752 22,258,901 24,004,669 20,752,581
Northwestern Mutual Series
Fund, Inc. High Yield Bond
Portfolio..................... 4,907,490 2,060,076 1,242,382 ## NA NA
Northwestern Mutual Capital
Appreciation Stock Fund, Inc.. NA NA NA 0 ** 30,340,518
Due from NML Insurance Company 123,152 491,572 179,152 182,546 142,654
Due from Sale of Fund Shares.. 387,086 78,037 319,392 418,356 243,505
------------ ------------ ------------ ------------ ------------
Total Assets.................. $549,417,526 $470,645,467 $388,307,651 $372,603,848 $324,758,516
============ ============ ============ ============ ============
</TABLE>
** Capital Appreciation Stock Fund was merged into Index 500 Stock Fund on
April 30, 1993.
# Commenced operations on April 30, 1993.
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 22-23.
7
<PAGE> 8
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 6. (continued)
Results of Operations for NML Variable Annuity Account C for each of the five
years ending December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- --------------- ------------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Investment Income
Dividend Income from Northwestern Mutual Series
Fund, Inc. Growth Stock Portfolio............... $ 366,920 $ 59,271 $ 4,518 ## NA NA
Dividend Income from Northwestern Mutual Series
Fund, Inc. Aggressive Growth Stock Portfolio.... 2,574,462 242,583 232,345 342,725 38,628
Dividend Income from Northwestern Mutual Series
Fund, Inc. International Equity Portfolio....... 1,805,160 190,138 703,931 26,336 # NA
Dividend Income from Northwestern Mutual Series
Fund, Inc. Growth and Income Stock Portfolio.... 1,146,200 276,923 19,233 ## NA NA
Dividend Income from Northwestern Mutual Series
Fund, Inc. Index 500 Stock Portfolio............ 2,082,261 544,553 2,226,240 260,710 125,787
Dividend Income from Northwestern Mutual Series
Fund, Inc. Money Market Portfolio............... 609,543 494,253 443,639 269,586 315,038
Dividend Income from Northwestern Mutual Series
Fund, Inc. Balanced Portfolio................... 7,534,370 4,212,478 17,046,665 6,769,160 4,909,056
Dividend Income from Northwestern Mutual Series
Fund, Inc. Select Bond Portfolio................ 566,451 395,357 1,874,182 813,051 670,892
Dividend Income from Northwestern Mutual Series
Fund, Inc. High Yield Bond Portfolio............ 309,003 55,220 11,456 ## NA NA
Dividend Income from Northwestern Mutual Capital
Appreciation Stock Fund, Inc.................... NA NA NA 1,078,208 ** 760,962
----------- ----------- ------------- ----------- ----------
Total Income................................... 16,994,370 6,470,776 22,562,209 9,559,776 6,820,363
Annuity Rate and Expense Guarantees.............. 1,738,625 856,764 509,648 235,930 80,714
----------- ----------- ------------- ----------- ----------
Net Investment Income............................ $15,255,745 $ 5,614,012 $ 22,052,561 $ 9,323,846 $6,739,649
=========== =========== ============= =========== ==========
Realized and Unrealized Gain (Loss) on Investments
Realized Gain on Investments..................... $8,855,390 $ 9,884,364 $ 5,949,795 $ 3,670,743 $ 855,374
Unrealized Appreciation (Depreciation) of
Investments During the Year..................... 29,832,124 53,407,857 (27,055,878) 7,227,689 1,645,252
----------- ----------- ------------- ----------- ----------
Net Gain (Loss) on Investments.................. $38,687,514 $63,292,221 $ (21,106,083) $10,898,432 $2,500,626
=========== =========== ============= =========== ==========
</TABLE>
** Represents operations through April 29, 1993.
# Commenced operations on April 30, 1993.
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 31-32.
8
<PAGE> 9
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 6. (continued)
Changes in Equity for NML Variable Annuity Account C for each of the five years
ending December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
From Investment Activities
Net Investment Income.................. $ 15,255,745 $ 5,614,012 $ 22,052,561 $ 9,323,846 $ 6,739,649
Net Realized Gain (Loss) on Investments 8,855,390 9,884,364 5,949,795 3,670,743 855,374
Net Change in Unrealized Appreciation
(Depreciation) of Investments.......... 29,832,124 53,407,857 (27,055,878) 7,227,689 1,645,252
------------- ------------ ------------ ------------ ------------
Increase in Equity Derived from
Investment Activities............... 53,943,259 68,906,233 946,478 20,222,278 9,240,275
------------- ------------ ------------ ------------ ------------
From Equity Transactions
Contract Owners' Net Payments.......... 89,650,916 59,390,267 48,709,729 39,748,661 40,797,216
Surrenders and Other (Net)............. (34,747,640) 60,872,729 (26,720,946) (22,334,176) (22,756,886)
------------- ------------ ------------ ------------ ------------
Increase in Equity Derived from Equity
Transactions........................... 54,903,276 (1,482,462) 21,988,783 17,414,485 18,040,330
------------ ------------ ------------ ------------ ------------
Net Increase in Equity................. 108,846,535 67,423,771 22,935,261 37,636,763 27,280,605
Equity, Beginning of Year.............. 317,806,038 250,382,267 227,447,006 189,810,243 162,529,638
------------ ------------ ------------ ------------ ------------
Equity, End of Year.................... $426,652,573 $317,806,038 $250,382,267 $227,447,006 $189,810,243
============ ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements on page 31-32.
9
<PAGE> 10
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 6. (continued)
Total Assets of NML Variable Annuity Account C for each of the five following
years at December 31, follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- -------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series
Fund, Inc. Growth Stock
Portfolio....................... $ 9,734,427 $ 2,084,697 $ 329,792 ## NA NA
Northwestern Mutual Series
Fund, Inc. Aggressive Growth
Stock Portfolio................. 95,276,983 57,421,016 33,266,862 21,836,950 10,964,260
Northwestern Mutual Series
Fund, Inc. International Equity
Portfolio....................... 49,461,520 30,039,223 24,647,586 3,183,126 # NA
Northwestern Mutual Series
Fund, Inc. Growth and Income
Stock Portfolio................. 13,034,961 4,888,505 1,159,187 ## NA NA
Northwestern Mutual Series
Fund, Inc. Index 500 Stock
Portfolio....................... 93,249,123 64,560,752 45,552,429 45,850,766 5,456,402
Northwestern Mutual Series
Fund, Inc. Money Market
Portfolio....................... 13,784,374 9,324,692 11,510,121 9,930,082 9,242,596
Northwestern Mutual Series
Fund, Inc. Balanced Portfolio... 131,324,909 132,469,239 119,452,506 131,574,218 118,944,619
Northwestern Mutual Series
Fund, Inc. Select Bond
Portfolio....................... 17,803,016 16,281,140 14,262,125 15,071,860 11,641,722
Northwestern Mutual Series
Fund, Inc. High Yield Bond
Portfolio....................... 2,983,258 736,774 201,656 ## NA NA
Northwestern Mutual Capital
Appreciation Stock Fund, Inc.... NA NA NA 0 ** 33,555,890
Due from NML Insurance Company..... 1,662,368 808,493 279,107 35,475 23,303
Due from Sale of Fund Shares....... 52,909 36 79,226 145,027 32,679
-------------- -------------- ---------------- ------------ ------------
Total Assets....................... $428,367,848 $318,614,567 $250,740,600 $227,627,504 $189,861,471
============== ============== ================ ============ ============
</TABLE>
** Capital Appreciation Stock Fund was merged into Index 500 Stock Fund on
April 30, 1993.
# Commenced operations on April 30, 1993.
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 31-32.
Item 7 is on page 11.
10
<PAGE> 11
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity
The assets of the Northwestern Mutual Life Insurance Company
Variable Annuity Account A and C are invested solely in shares
of Northwestern Mutual Series Fund, Inc. Index 500 Stock
Portfolio, Northwestern Mutual Series Fund, Inc. Aggressive
Growth Stock Portfolio, Northwestern Mutual Series Fund, Inc.
International Equity Portfolio, Northwestern Mutual Series Fund,
Inc. Select Bond Portfolio, Northwestern Mutual Series Fund,
Inc. Growth and Income Stock Portfolio, Northwestern Mutual
Series Fund, Inc. Balanced Portfolio, Northwestern Mutual Series
Fund, Inc. Money Market Portfolio, Northwestern Mutual Series
Fund, Inc. Growth Stock Portfolio, and Northwestern Mutual
Series Fund, Inc. High Yield Bond Portfolio (the "Funds"). The
Funds are open-end investment companies registered under the
Investment Act of 1940. In order to pay annuity benefits and
expenses, the Accounts redeem shares in these Funds. The
Registrant's liquidity is not expected to change in a material
way.
(b) Capital Resources
All payments from contract owners of NML Variable Annuity
Accounts A and C are invested in shares of the Funds. The
capital resources of NML Variable Annuity Accounts A and C are
the equity in the respective Accounts. This consists of
payments from the contract owners, plus unrealized and realized
appreciation on the investment of these payments, plus
investment income received from the Funds, minus payment of
annuity benefits and expenses.
(c) Results of Operations
NML Variable Annuity Account A
Accumulation Unit Values
Contracts Issued Prior to December 17, 1981:
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 12/31/94
- -------- --------- ----------- --------- ----------- ---------
<C> <C> <C> <C> <C> <C>
Growth Stock........ $1.572985 20.00% $1.310823 29.85% $1.009479
Agressive Growth
Stock............... 3.286265 16.82 2.813200 38.26 2.034747
International Equity 1.679665 20.11 1.398467 13.72 1.229716
Growth and Income
Stock............... 1.545596 19.07 1.298065 30.15 0.997398
Index 500 Stock..... 2.487952 21.83 2.042204 36.23 1.499054
Money Market........ 2.415898 4.49 2.311989 5.04 2.201139
Balanced............ 5.180408 12.60 4.600659 25.45 3.667322
Select Bond......... 6.685035 2.54 6.519655 18.21 5.515295
High Yield Bond..... 1.412413 18.87 1.188188 15.91 1.025095
</TABLE>
11
<PAGE> 12
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 7. (continued)
- ------- -----------
Accumulation Unit Values
Contracts Issued After December 16, 1981 and Prior to
March 31, 1995:
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 12/31/94
- -------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $1.552125 19.40% $1.299976 29.20% $1.006136
Aggressive Growth
Stock............... 3.188266 16.23 2.743106 37.57 1.993956
International Equity 1.649102 19.50 1.379966 13.16 1.219510
Growth and Income
Stock............... 1.525144 18.47 1.287355 29.50 0.994105
Index 500 Stock..... 2.413788 21.21 1.991330 35.56 1.469006
Money Market........ 2.241420 3.97 2.155845 4.51 2.062740
Balanced............ 4.805896 12.04 4.289623 24.83 3.436463
Select Bond......... 6.200523 2.02 6.077689 17.62 5.167101
High Yield Bond..... 1.393713 18.27 1.178371 15.33 1.021705
</TABLE>
Accumulation Unit Values
Contracts Issued On or After March 31, 1995:
Front Load Version
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 3/31/95
- -------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $1.455537 20.42% $1.208718 20.87% $1.000000
Aggressive Growth
Stock............... 1.529999 17.22 1.305186 30.52 1.000000
International Equity 1.374484 20.53 1.140398 14.04 1.000000
Growth and Income
Stock............... 1.429760 19.49 1.196596 19.66 1.000000
Index 500 Stock..... 1.527085 22.25 1.249114 24.91 1.000000
Money Market........ 1.090643 4.86 1.040089 4.01 1.000000
Balanced............ 1.334426 13.00 1.180953 18.10 1.000000
Select Bond......... 1.161454 2.90 1.128765 12.88 1.000000
High Yield Bond..... 1.326020 19.29 1.111614 11.16 1.000000
</TABLE>
12
<PAGE> 13
Form 10-K
Item 7. (continued)
- ------- -----------
Accumulation Unit Values
Contracts Issued On or After March 31, 1995:
Back Load Version
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 3/31/95
- -------- ------------ ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $ 1.552125 19.40% $ 1.299976 20.11% $1.082329
Aggressive Growth
Stock............... 3.188266 16.23 2.743106 29.69 2.115045
International Equity 1.649102 19.50 1.379966 13.32 1.217764
Growth and Income
Stock............... 1.525144 18.47 1.287355 18.91 1.082672
Index 500 Stock..... 2.413788 21.21 1.991330 24.12 1.604306
Money Market........ 2.241420 3.97 2.155845 3.35 2.085911
Balanced............ 4.805896 12.04 4.289623 17.35 3.655399
Select Bond......... 6.200523 2.02 6.077689 12.16 5.418578
High Yield Bond..... 1.393713 18.27 1.178371 10.46 1.066782
Equity:
12/31/96 12/31/95 12/31/94
-------- -------- --------
$547,520,040 $469,821,427 $386,921,162
</TABLE>
The change in these amounts is largely derived from investment
activities within the Account: A $2,579,179 decrease for the year
ended December 31, 1994, a $96,695,584 increase for the year ended
December 31, 1995, and a $65,736,696 increase for the year ended
December 31, 1996. Net contributions (surrenders) from contract
owners amounted to $18,651,028 for the year ended December 31, 1994,
$(13,795,319) for the year ended December 31, 1995, and $11,961,917
for the year ended December 31, 1996.
NML Variable Annuity Account C
Accumulation Unit Values
Contracts Issued Prior to December 17, 1981 or between April 30, 1984
and December 31, 1991:
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 12/31/94
- -------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $16.046821 20.91% $13.271899 30.82% $10.144941
Aggressive Growth
Stock............... 32.542621 17.70 27.648691 39.29 19.849331
International Equity 1.726413 21.01 1.426613 14.57 1.245144
Growth and Income
Stock............... 15.767435 19.97 13.142782 31.12 10.023581
Index 500 Stock..... 27.133645 22.75 22.104982 37.25 16.105431
Money Market........ 26.011476 5.29 24.705630 5.82 23.346279
Balanced............ 58.832423 13.45 51.855817 26.39 41.028821
Select Bond......... 76.681608 3.31 74.222515 19.10 62.322013
High Yield Bond..... 14.408967 19.77 12.030416 16.78 10.301956
</TABLE>
13
<PAGE> 14
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 7. (continued)
- ------- ----------------------------------------------------------------------
Accumulation Unit Values
Contracts Issued After December 16, 1981 or Prior to May 1, 1984:
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 12/31/94
- -------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $15.834243 20.30% $13.162242 30.17% $10.111365
Aggressive Growth
Stock............... 31.591115 17.11 26.975930 38.60 19.463084
International Equity 1.695019 20.41 1.407741 14.00 1.234814
Growth and Income
Stock............... 15.558532 19.37 13.034162 30.47 9.990409
Index 500 Stock..... 26.337300 22.13 21.564611 36.57 15.790165
Money Market........ 24.167111 4.76 23.069838 5.30 21.909448
Balanced............ 54.595947 12.88 48.364840 25.76 38.457844
Select Bond......... 71.125132 2.79 69.192181 18.50 58.388451
High Yield Bond..... 14.218083 19.17 11.931003 16.20 10.267863
</TABLE>
Accumulation Unit Values
Contracts Issued After December 31, 1991 - Front Load Version:
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 12/31/94
- -------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $1.577134 20.12% $1.312966 29.98% $1.010139
Aggressive Growth
Stock............... 2.077739 16.93 1.776871 38.39 1.283916
International Equity 1.685759 20.23 1.402156 13.83 1.231747
Growth and Income
Stock............... 1.549666 19.19 1.300190 30.27 0.998049
Index 500 Stock..... 1.937139 21.95 1.588496 36.37 1.164877
Money Market........ 1.192105 4.60 1.139693 5.14 1.083976
Balanced............ 1.599774 12.71 1.419325 25.57 1.130270
Select Bond......... 1.370157 2.64 1.334934 18.33 1.128176
High Yield Bond..... 1.416152 18.99 1.190149 16.02 1.025776
</TABLE>
14
<PAGE> 15
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 7. (continued)
- ------- -----------
Accumulation Unit Values
Contracts Issued After December 31, 1991 - Simplified Load Version:
<TABLE>
<CAPTION>
Division 12/31/96 % of Change 12/31/95 % of Change 12/31/94
- -------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Growth Stock........ $1.552125 19.40% $1.299976 29.20% $1.006136
Aggressive Growth
Stock............... 3.199964 16.23 2.753170 37.57 2.001269
International Equity 1.649102 19.50 1.379966 13.16 1.219510
Growth and Income
Stock............... 1.525144 18.47 1.287355 29.50 0.994105
Index 500 Stock..... 2.463008 21.22 2.031929 35.56 1.498956
Money Market........ 2.246287 3.97 2.160533 4.51 2.067227
Balanced............ 4.829655 12.04 4.310821 24.83 3.453452
Select Bond......... 6.260939 2.02 6.136911 17.62 5.217451
High Yield Bond..... 1.393713 18.27 1.178371 15.33 1.021705
</TABLE>
Equity:
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94
------------ ------------ ------------
<S> <C> <C>
$426,652,573 $317,806,038 $250,382,267
</TABLE>
These changes are largely derived from investment activities within
the Account: A $946,478 increase for the year ended December 31,
1994, a $68,906,233 increase for the year ended December 31, 1995 and
a $53,943,259 increase for the year ended December 31, 1996. Net
contributions (surrenders) from contract owners amounted to
$21,988,786 for the year ended December 31, 1994, $(1,482,462) for
the year ended December 31, 1995, and $54,903,276 for the year ended
December 31, 1996.
Item 8 is on page 16.
15
<PAGE> 16
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. Financial Statements and Supplementary Data
NML VARIABLE ANNUITY ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
1996 1995
------------ ------------
<S> <C> <C>
Assets
Investments at market value:
Northwestern Mutual Series Fund, Inc.
Growth Stock
1996: 6,504,903 shares (cost $8,193,212)........... $ 9,523,178
1995: 3,392,454 shares (cost $3,733,506)........... $ 4,284,669
Aggressive Growth Stock
1996: 24,829,244 shares (cost $54,025,343)......... 78,087,971
1995: 20,408,602 shares (cost $38,233,857)......... 56,491,009
International Equity
1996: 26,635,293 shares (cost $34,100,468)......... 41,497,787
1995: 23,460,626 shares (cost $28,902,664)......... 31,789,148
Growth and Income Stock
1996: 10,014,839 shares (cost $11,804,187)......... 13,199,558
1995: 6,516,643 shares (cost $7,030,408)........... 7,891,655
Index 500 Stock
1996: 39,375,681 shares (cost $51,893,158)......... 80,917,025
1995: 36,232,106 shares (cost $43,680,571)......... 62,391,687
Money Market
1996: 23,380,205 shares (cost $23,380,205)......... 23,380,205
1995: 21,556,895 shares (cost $21,556,895)......... 21,556,895
Balanced
1996: 157,593,196 shares (cost $210,643,607)....... 270,745,111
1995: 160,765,565 shares (cost $209,057,927)....... 257,867,967
Select Bond
1996: 21,772,027 shares (cost $25,386,654)......... 26,648,961
1995: 20,963,153 shares (cost $24,227,622)......... 25,742,752
High Yield Bond
1996: 4,465,414 shares (cost $4,847,740)........... 4,907,490
1995: 2,007,871 shares (cost $2,071,600)........... 2,060,076
------------ ------------
548,907,286 470,075,858
Due from Sales of Fund Shares................................. 387,086 78,037
Due from Northwestern Mutual Life Insurance Company........... 123,152 491,572
------------ ------------
Total Assets........................................ $549,417,524 $470,645,467
============ ============
Liabilities
Due to Participants........................................... $ 1,387,248 $254,431
Due to Northwestern Mutual Life Insurance Company............. 387,086 78,037
Due from Purchase of Fund Shares.............................. 123,150 491,572
------------ ------------
Total Liabilities.................................. $ 1,897,484 $ 824,040
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE> 17
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
---------------------------------
Equity 1996 1995
-------------- -----------------
<S> <C> <C>
Contracts Issued Prior to December 17, 1981:
Growth Stock Division
1996: 118,168 Accumulation Units @ 1.572985.... $185,861
1995: 1,782 Accumulation Units @ 1.310823...... $2,336
Annuity Reserves................................ 9,807 0
-------------- -----------------
195,668 2,336
-------------- -----------------
Aggressive Growth Stock Division
1996: 890,850 Accumulation Units @ 3.286265.... 2,927,568
1995: 861,229 Accumulation Units @ 2.813200.... 2,422,811
Annuity Reserves................................ 75,244 74,993
-------------- -----------------
3,002,812 2,497,804
-------------- -----------------
International Equity Division
1996: 1,332,812 Accumulation Units @ 1.679665.. 2,238,678
1995: 1,166,796 Accumulation Units @ 1.398467.. 1,631,726
Annuity Reserves................................ 147,829 2,889
-------------- -----------------
2,386,507 1,634,615
-------------- -----------------
Growth and Income Stock Division
1996: 69,566 Accumulation Units @ 1.545596..... 107,521
1995: 9,498 Accumulation Units @ 1.298065...... 12,329
Annuity Reserves................................ 180,931 29,486
-------------- -----------------
288,452 41,815
-------------- -----------------
Index 500 Stock Division
1996: 9,600,286 Accumulation Units @ 2.487952.. 23,885,052
1995: 10,111,615 Accumulation Units @ 2.042204. 20,649,980
Annuity Reserves................................ 1,300,177 1,273,520
-------------- -----------------
25,185,229 21,923,500
-------------- -----------------
Money Market Division
1996: 1,103,625 Accumulation Units @ 2.415898.. 2,666,245
1995: 1,264,988 Accumulation Units @ 2.311989.. 2,924,637
Annuity Reserves................................ 60,981 63,276
-------------- -----------------
2,727,226 2,987,913
-------------- -----------------
Balanced Division
1996: 4,743,812 Accumulation Units @ 5.180408.. 24,574,880
1995: 5,651,599 Accumulation Units @ 4.600659.. 26,001,081
Annuity Reserves................................ 1,454,827 1,442,962
-------------- -----------------
26,029,707 27,444,043
-------------- -----------------
Select Bond Division
1996: 1,215,131 Accumulation Units @ 6.685035.. 8,123,192
1995: 1,172,420 Accumulation Units @ 6.519655.. 7,643,772
Annuity Reserves................................ 75,632 244,850
-------------- -----------------
8,198,824 7,888,622
-------------- -----------------
High Yield Bond Division
1996: 428,588 Accumulation Units @ 1.412413.... 605,343
1995: NA....................................... 0
Annuity Reserves................................ 7,644 0
-------------- -----------------
612,987 0
-------------- -----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE> 18
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-----------------------------
Equity (cont'd.) 1996 1995
------------- --------------
<S> <C> <C>
Contracts Issued After December 16, 1981 and
Prior to March 31, 1995:
Growth Stock Division
1996: 4,845,965 Accumulation Units @ 1.552125.. $7,521,543
1995: 2,970,905 Accumulation Units @ 1.299976.. $3,862,105
Annuity Reserves................................ 0 0
------------- --------------
7,521,543 3,862,105
------------- --------------
Aggressive Growth Stock Division
1996: 21,479,837 Accumulation Units @ 3.188266. 68,483,433
1995: 19,083,707 Accumulation Units @ 2.743106. 52,348,631
Annuity Reserves................................ 191,587 167,625
------------- --------------
68,675,020 52,516,256
------------- --------------
International Equity Division
1996: 22,132,206 Accumulation Units @ 1.649102. 36,498,266
1995: 21,338,268 Accumulation Units @ 1.379966. 29,446,084
Annuity Reserves................................ 100,731 153,834
------------- --------------
36,598,997 29,599,918
------------- --------------
Growth and Income Stock Division
1996: 7,054,484 Accumulation Units @ 1.525144.. 10,759,104
1995: 5,605,215 Accumulation Units @ 1.287355.. 7,215,902
Annuity Reserves:............................... 0 160,662
------------- --------------
10,759,104 7,376,564
------------- --------------
Index 500 Stock Division
1996: 20,092,060 Accumulation Units @ 2.413788. 48,497,973
1995: 18,961,291 Accumulation Units @ 1.991330. 37,758,187
Annuity Reserves................................ 1,673,310 1,340,376
------------- --------------
50,171,283 39,098,563
------------- --------------
Money Market Division
1996: 7,029,739 Accumulation Units @ 2.241420.. 15,756,598
1995: 7,896,022 Accumulation Units @ 2.155845.. 17,022,599
Annuity Reserves................................ 368,369 387,730
------------- --------------
16,124,967 17,410,329
------------- --------------
Balanced Division
1996: 48,457,793 Accumulation Units @ 4.805896. 232,883,113
1995: 52,575,295 Accumulation Units @ 4.289623. 225,528,193
Annuity Reserves................................ 3,048,888 2,924,538
------------- --------------
235,932,001 228,452,731
------------- --------------
Select Bond Division
1996: 2,691,481 Accumulation Units @ 6.200523.. 16,688,589
1995: 2,778,441 Accumulation Units @ 6.077689.. 16,886,499
Annuity Reserves................................ 580,678 597,617
------------- --------------
17,269,267 17,484,116
------------- --------------
High Yield Bond Division
1996: 2,456,295 Accumulation Units @ 1.393713.. 3,423,371
1995: 1,609,770 Accumulation Units @ 1.178371.. 1,896,907
Annuity Reserves................................ 0 0
------------- --------------
3,423,371 1,896,907
------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE> 19
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-------------------------------
Equity (cont'd.) 1996 1995
-------------- ---------------
<S> <C> <C>
Contracts Issued On or After March 31, 1995 -
Back Load Version:
Growth Stock Division
1996: 922,390 Accumulation Units @ 1.552125... $1,431,665
1995: 227,218 Accumulation Units @ 1.299976... $295,378
Aggressive Growth Stock Division
1996: 1,734,023 Accumulation Units @ 3.188266. 5,528,526
1995: 407,729 Accumulation Units @ 2.743106... 1,118,443
International Equity Division
1996: 1,281,128 Accumulation Units @ 1.649102. 2,112,711
1995: 374,986 Accumulation Units @ 1.379966... 517,469
Growth and Income Stock Division
1996: 1,215,721 Accumulation Units @ 1.525144. 1,854,150
1995: 310,321 Accumulation Units @ 1.287355... 399,493
Index 500 Stock Division
1996: 1,970,961 Accumulation Units @ 2.413788. 4,757,482
1995: 471,752 Accumulation Units @ 1.991330... 939,414
Money Market Division
1996: 1,123,081 Accumulation Units @ 2.241420. 2,517,297
1995: 379,473 Accumulation Units @ 2.155845... 818,085
Balanced Division
1996: 1,347,427 Accumulation Units @ 4.805896. 6,475,593
1995: 372,457 Accumulation Units @ 4.289623... 1,597,701
Select Bond Division
1996: 182,907 Accumulation Units @ 6.200523... 1,134,116
1995: 50,828 Accumulation Units @ 6.077689.... 308,917
High Yield Bond Division
1996: 572,121 Accumulation Units @ 1.393713... 797,373
1995: 138,470 Accumulation Units @ 1.178371... 163,170
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE> 20
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
--------------------------------
Equity (cont'd.) 1996 1995
--------------- ---------------
<S> <C> <C>
Contracts Issued On or After March 31, 1995 -
Front Load Version:
Growth Stock Division
1996: 257,158 Accumulation Units @ 1.455537... $374,303
1995: 103,292 Accumulation Units @ 1.208718... $124,851
Aggressive Growth Stock Division
1996: 568,732 Accumulation Units @ 1.529999... 870,160
1995: 255,895 Accumulation Units @ 1.305186... 333,991
International Equity Division
1996: 286,469 Accumulation Units @ 1.374484... 393,747
1995: 32,573 Accumulation Units @ 1.140398.... 37,146
Growth and Income Stock Division
1996: 208,323 Accumulation Units @ 1.429760... 297,852
1995: 114,414 Accumulation Units @ 1.196596... 136,908
Index 500 Stock Division
1996: 454,096 Accumulation Units @ 1.527085... 693,444
1995: 278,235 Accumulation Units @ 1.249114... 347,547
Money Market Division
1996: 1,843,605 Accumulation Units @ 1.090643. 2,010,713
1995: 327,441 Accumulation Units @ 1.040089... 340,568
Balanced Division
1996: 786,271 Accumulation Units @ 1.334426... 1,049,220
1995: 164,303 Accumulation Units @ 1.180953... 194,035
Select Bond Division
1996: 38,713 Accumulation Units @ 1.161454.... 44,963
1995: 26,732 Accumulation Units @ 1.128765.... 30,174
High Yield Bond Division
1996: 55,625 Accumulation Units @ 1.326020.... 73,760
1995: NA...................................... 0
Total Equity.................................. 547,520,040 469,821,427
----------- -----------
Total Liabilities and Equity.................. 549,417,524 470,645,467
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE> 21
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
For the Years Ended December 31
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Investment Income
Dividend Income........................................... $ 24,500,542 $ 11,709,964 $40,169,184
Annuity Rate and Expense Guarantees....................... 5,783,739 5,072,064 4,466,142
------------ ------------ ------------
Net Investment Income..................................... 18,716,803 6,637,900 35,703,042
------------ ------------ ------------
Realized and Unrealized Gain on Investments
Net Unrealized Gain on Investments........................ 13,967,988 13,141,169 1,687,702
Unrealized Appreciation (Depreciation) During the Year.... 33,051,905 76,916,515 (39,969,923)
------------ ------------ -------------
Net Gain (Loss) on Investments............................ 47,019,893 90,057,684 (38,282,221)
------------ ------------ -------------
Increase (Decrease) in Equity Derived from Investment Activity 65,736,696 96,695,584 (2,579,179)
------------ ------------ ------------
Equity Transactions
Contract Owners' Net Payments............................. 65,169,358 49,124,853 52,262,816
Annuity Payments.......................................... (830,996) (610,983) (603,158)
Surrenders and Other (Net)................................ (52,376,445) (62,309,189) (33,008,630)
------------ ------------ ------------
Increase (Decrease) in Equity Derived from Equity Transactions 11,961,917 (13,795,319) 18,651,028
------------ ------------ ------------
Net Increase in Equity........................................ 77,698,613 82,900,265 16,071,849
Equity, Beginning of Year..................................... 469,821,427 386,921,162 370,849,313
------------ ------------ ------------
Equity, End of Year........................................... $547,520,040 $469,821,427 $386,921,162
============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE> 22
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
Note 1--NML Variable Annuity Account A (the "Account") is a segregated asset
account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual
Life") used to fund variable annuity contracts ("contracts") for HR-10 and
corporate pension and profit-sharing plans which qualify for special tax
treatment under the Internal Revenue Code. Beginning March 31, 1995, two
versions of the contract are offered: Front Load contracts with a sales charge
up to 4% of purchase payments and Back Load contracts with a withdrawal charge
of 0-8%.
Note 2--The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
Note 3--All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the
"Fund"). The shares are valued at the Fund's offering and redemption price
per share.
On May 3, 1994, five new portfolios commenced operations in the Fund:
Aggressive Growth Stock Portfolio, International Equity Portfolio, Growth Stock
Portfolio, Growth and Income Stock Portfolio and High Yield Bond Portfolio.
Additionally, on May 3, 1994, the assets of Northwestern Mutual Life's Variable
Annuity funds were merged into the respective portfolio of the Fund in a
tax-free exchange of shares.
The Fund is an open-end investment company registered under the Investment
Company Act of 1940.
Note 4--Annuity reserves are based on published annuity tables with age
adjustment and benefit payments which reflect actual investment experience.
For variable payment plans issued prior to January 1, 1974, annuity reserves
are based on the 1955 American Annuity Table with assumed interest rates of 3%,
3 1/2% or 5%. For variable payment plans issued on or after January 1, 1974
and before January 1, 1985, annuity reserves are based on the 1971 Individual
Annuity Table with assumed interest rates of 3 1/2% or 5%. For variable
payment plans issued on or after January 1, 1985, annuity reserves are based on
the 1983 Table with assumed interest rates of 3 1/2% or 5%.
Note 5--Dividend income from the Fund is recorded on the record date of the
dividends. Transactions in Fund shares are accounted for on the trade date.
The basis for determining cost on sale of Fund shares is identified cost.
Purchases and sales of Fund shares for the years ended December 31 by each
Division are shown below:
<TABLE>
<CAPTION>
Purchases 1996 1995 1994
- --------- ------------ ------------ ------------
<S> <C> <C> <C>
Growth Stock Division $ 4,830,460 $ 2,702,664 $ 1,651,267
Aggressive Growth Division 17,797,661 10,658,292 14,415,626
International Equity Division 8,274,087 4,305,567 19,932,991
Growth & Income Stock Division 5,756,071 4,147,264 3,579,504
Index 500 Stock Division 11,279,772 7,998,931 7,554,309
Money Market Division 13,328,217 14,421,123 12,836,216
Balanced Division 20,896,761 14,258,034 42,118,207
Select Bond Division 5,463,472 3,837,930 5,853,201
High Yield Bond Division 3,296,028 1,411,373 1,328,717
Sales
- -----
Growth Stock Division 508,512 427,690 236,591
Aggressive Growth Division 4,234,497 5,672,013 2,578,041
International Equity Division 3,828,530 5,324,662 1,723,339
Growth & Income Stock Division 1,277,020 576,160 214,192
Index 500 Stock Division 5,728,800 5,165,148 5,927,056
Money Market Division 11,504,938 12,987,931 9,752,283
Balanced Division 26,932,275 36,790,058 30,795,275
Select Bond Division 4,528,222 3,928,823 3,922,478
High Yield Bond Division 568,230 673,375 32,399
</TABLE>
22
<PAGE> 23
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
Note 6--On April 30, 1993, Northwestern Mutual Capital Appreciation Stock Fund
was merged into the Northwestern Mutual Index 500 Stock Fund in a tax-free
exchange of fund shares. 21,689,286 shares of Northwestern Mutual Capital
Appreciation Stock Fund, Inc. were exchanged for 22,749,651 shares of
Northwestern Mutual Index 500 Stock Fund, Inc. The shares exchanged were
valued at $30,719,638 for each Division.
Note 7--A deduction for annuity rate and expense guarantees is determined daily
and paid to Northwestern Mutual Life as compensation for assuming the risk that
annuity payments will continue for longer periods than anticipated because the
annuitants as a group live longer than expected, and the risk that the charges
made by Northwestern Mutual Life may be insufficient to cover the actual costs
incurred in connection with the contracts.
For contracts issued on or after March 31, 1995, for the Front Load version and
the Back Load version, the deduction for annuity rate and expense guarantees is
determined daily at annual rates of 4/10 of 1% and a1 1/4%, respectively, of
the net assets of each Division attributable to these contracts and is paid to
Northwestern Mutual Life. For these contracts, the rates may be increased or
decreased by the Board of Trustees of Northwestern Mutual Life not to exceed
3/4 of 1% and 1 1/2%, respectively.
For contracts issued after December 16, 1981 and prior to March 31, 1995, the
deduction is at an annual rate of 1 1/4% of the net assets of each Division
attributable to these contracts. For these contracts, the rate may be
increased or decreased by the Board of Trustees of Northwestern Mutual Life not
to exceed a 1 1/2% annual rate.
For contracts issued prior to December 17, 1981, the deduction is at an annual
rate of 3/4 of 1% of the net assets of each Division attributable to these
contracts. For these contracts, the rate may be increased or decreased by the
Board of Trustees of Northwestern Mutual Life not to exceed a 1% annual rate.
Beginning in 1995, Northwestern Mutual Life paid a dividend to certain
contracts. The dividend was reinvested in the Account and has been reflected
as a Contract Owners' Net Payment in the accompanying financial statements.
Note 8--Northwestern Mutual Life is taxed as a "life insurance company" under
the Internal Revenue Code and the operations of the Account form a part of and
are taxed with those of Northwestern Mutual Life. Under current law, no
federal income taxes are payable with respect to the Account. Accordingly, no
provision for any such liability has been made.
23
<PAGE> 24
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and
Contract Owners of NML Variable Annuity Account A
In our opinion, the statements appearing on pages 16 through 23 present fairly,
in all material respects, the financial position of NML Variable Annuity
Account A at December 31, 1996 and 1995, and the results of its operations and
the changes in its equity for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of The
Northwestern Mutual Life Insurance Company's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
January 22, 1997
<PAGE> 25
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-------------------------------------
Assets 1996 1995
---------------- -------------------
<S> <C> <C>
Investments at market value:
Northwestern Mutual Series Fund, Inc.
Growth Stock
1996: 6,649,199 shares (cost $9,029,280).......... $ 9,734,427
1995: 1,650,591 shares (cost $1,947,392).......... $ 2,084,697
Aggressive Growth Stock
1996: 30,294,748 shares (cost $70,855,533)........ 95,276,983
1995: 20,744,587 shares (cost $40,636,758)........ 57,421,016
International Equity
1996: 31,746,803 shares (cost $41,642,844)........ 49,461,520
1995: 22,169,169 shares (cost $27,851,615)........ 30,039,223
Growth and Income Stock
1996: 9,889,955 shares (cost $12,379,951)......... 13,034,961
1995: 4,036,751 shares (cost $4,620,194).......... 4,888,505
Index 500 Stock
1996: 45,376,702 shares (cost $63,645,634)........ 93,249,123
1995: 37,491,726 shares (cost $46,641,879)........ 64,560,752
Money Market
1996: 13,784,374 shares (cost $13,784,374)........ 13,784,374
1995: 9,324,692 shares (cost $9,324,692).......... 9,324,692
Balanced
1996: 76,440,576 shares (cost $108,531,164)....... 131,324,909
1995: 82,586,808 shares (cost $113,566,515)....... 132,469,239
Select Bond
1996: 14,544,948 shares (cost $16,953,280)........ 17,803,016
1995: 13,258,257 shares (cost $15,437,346)........ 16,281,140
High Yield Bond
1996: 2,714,521 shares (cost $2,978,850).......... 2,983,258
1995: 718,103 shares (cost $760,109).............. 736,774
---------------- -------------------
426,652,571 317,806,039
Due from Sales of Fund Shares......................... 52,909 36
Due from Northwestern Mutual Life Insurance Company 1,662,368 808,493
---------------- -------------------
Total Assets....................................... $428,367,848 $318,614,568
================ ===================
Liabilities
Due to Northwestern Mutual Life Insurance Company $ 52,909 $ 36
Due from Purchase of Fund Shares....................... 1,662,368 808,493
---------------- -------------------
Total Liabilities.................................. $ 1,715,277 $ 808,529
================ ===================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE> 26
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-------------------------------
Equity 1996 1995
-------------- ---------------
<S> <C> <C>
Contracts Issued Before December 17, 1981 or
Between April 30, 1984 and December 31, 1991:
Growth Stock Division
1996: 378,236 Accumulation Units @ 16.046821... $ 6,069,485
1995: 63,881 Accumulation Units @ 13.271899.... $ 847,822
Aggressive Growth Stock Division
1996: 1,944,411 Accumulation Units @ 32.542621. 63,276,230
1995: 1,397,886 Accumulation Units @ 27.648691.. 38,649,707
International Equity Division
1996: 20,439,570 Accumulation Units @ 1.726413. 35,287,138
1995: 14,747,735 Accumulation Units @ 1.426613. 21,039,310
Growth and Income Stock Division
1996: 424,144 Accumulation Units @ 15.767435... 6,687,664
1995: 117,004 Accumulation Units @ 13.142782... 1,537,752
Index 500 Stock Division
1996: 2,386,284 Accumulation Units @ 27.133645. 64,748,577
1995: 2,232,985 Accumulation Units @ 22.104982. 49,360,095
Money Market Division
1996: 57,013 Accumulation Units @ 26.011476.... 1,483,002
1995: 62,209 Accumulation Units @ 24.705630.... 1,536,924
Balanced Division
1996: 1,489,658 Accumulation Units @ 58.832423. 87,640,161
1995: 1,889,324 Accumulation Units @ 51.855817. 97,972,463
Select Bond Division
1996: 97,868 Accumulation Units @ 76.681608.... 7,504,704
1995: 124,163 Accumulation Units @ 74.222515... 9,215,714
High Yield Bond Division
1996: 119,423 Accumulation Units @ 14.408967... 1,720,768
1995: 21,583 Accumulation Units @ 12.030416.... 259,657
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE> 27
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
---------------------------------
Equity (Cont'd.) 1996 1995
---------------- ---------------
<S> <C> <C>
Contracts Issued After December 16, 1981 and
Prior to May 1, 1984:
Aggressive Growth Stock Division
1996: 4,243 Accumulation Units @ 31.591115... $ 134,035
1995: 5,527 Accumulation Units @ 26.975930... $ 149,103
Annuity Reserves.............................. 31,590 0
---------------- ---------------
165,625 149,103
---------------- ---------------
International Equity Division
1996: 109,569 Accumulation Units @ 1.695019.. 185,722
1995: 497,710 Accumulation Units @ 1.407741.. 700,647
Annuity Reserves.............................. 16,637 0
---------------- ---------------
202,359 700,647
---------------- ---------------
Growth and Income Stock Division
1996: 1,252 Accumulation Units @ 15.558532... 19,472
1995: N/A.................................... 0
Annuity Reserves.............................. 33,791 0
---------------- ---------------
53,263 0
---------------- ---------------
Index 500 Stock Division
1996: 45,781 Accumulation Units @ 26.337300.. 1,205,748
1995: 49,450 Accumulation Units @ 21.564611.. 1,066,361
Annuity Reserves.............................. 34,467 0
---------------- ---------------
1,240,215 1,066,361
---------------- ---------------
Money Market Division
1996: 14,233 Accumulation Units @ 24.167111.. 343,966
1995: 14,478 Accumulation Units @ 23.069838.. 334,015
Annuity Reserves.............................. 7,669 0
---------------- ---------------
351,635 334,015
---------------- ---------------
Balanced Division
1996: 90,172 Accumulation Units @ 54.595947.. 4,923,025
1995: 113,109 Accumulation Units @ 48.364840. 5,470,492
Annuity Reserves.............................. 429,289 405,494
---------------- ---------------
5,352,314 5,875,986
---------------- ---------------
Select Bond Division
1996: 7,598 Accumulation Units @ 71.125132... 540,440
1995: 7,287 Accumulation Units @ 69.192181... 504,224
Annuity Reserves.............................. 39,535 0
---------------- ---------------
579,975 504,324
---------------- ---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE> 28
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
Equity (cont'd) 1996 1995
---------- ----------
<S> <C> <C>
Contracts Issued After December 31, 1991 Front Load Version:
Growth Stock Division
1996: 587,482 Accumulation Units @ 1.577134................ $ 926,538
1995: 361,207 Accumulation Units @ 1.312966................ $ 474,252
Aggressive Growth Stock Division
1996: 3,197,341 Accumulation Units @ 2.077739.............. 6,643,240
1995: 2,242,402 Accumulation Units @ 1.776871.............. 3,984,459
International Equity Division
1996: 2,709,249 Accumulation Units @ 1.685759.............. 4,567,140
1995: 2,009,228 Accumulation Units @ 1.402156.............. 2,817,251
Growth and Income Stock Division
1996: 1,357,354 Accumulation Units @ 1.549666.............. 2,103,446
1995: 861,211 Accumulation Units @ 1.300190................ 1,119,738
Index 500 Stock Division
1996: 3,880,961 Accumulation Units @ 1.937139.............. 7,517,961
1995: 2,399,586 Accumulation Units @ 1.588496.............. 3,811,733
Money Market Division
1996: 2,829,669 Accumulation Units @ 1.192105.............. 3,373,263
1995: 2,956,017 Accumulation Units @ 1.139693.............. 3,368,952
Balanced Division
1996: 5,934,240 Accumulation Units @ 1.599774.............. 9,493,443
1995: 5,275,308 Accumulation Units @ 1.419325.............. 7,487,377
Select Bond Division
1996: 2,676,832 Accumulation Units @ 1.370157.............. 3,667,680
1995: 1,800,898 Accumulation Units @ 1.334934.............. 2,404,080
High Yield Bond Division
1996: 275,323 Accumulation Units @ 1.416152................ 389,899
1995: 90,184 Accumulation Units @ 1.190149................. 107,332
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE> 29
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-------------------------------
Equity (cont'd) 1996 1995
-------------- ---------------
<S> <C> <C>
Contracts Issued After December 31, 1991
Simplified Load Version:
Growth Stock Division
1996: 1,742,522 Accumulation Units @ 1.552125. $ 2,704,613
1995: 586,644 Accumulation Units @ 1.299976... $ 762,623
Aggressive Growth Stock Division
1996: 7,872,553 Accumulation Units @ 3.199964. 25,191,889
1995: 5,316,689 Accumulation Units @ 2.753170. 14,637,748
International Equity Division
1996: 5,703,032 Accumulation Units @ 1.649102. 9,404,881
1995: 3,972,573 Accumulation Units @ 1.379966. 5,482,016
Growth and Income Stock Division
1996: 2,769,823 Accumulation Units @ 1.525144. 4,224,380
1995: 1,733,022 Accumulation Units @ 1.287355. 2,231,015
Index 500 Stock Division
1996: 8,015,553 Accumulation Units @ 2.463008. 19,742,371
1995: 5,080,179 Accumulation Units @ 2.031929. 10,322,563
Money Market Division
1996: 3,818,067 Accumulation Units @ 2.246287. 8,576,475
1995: 1,890,645 Accumulation Units @ 2.160533. 4,084,801
Balanced Division
1996: 5,971,232 Accumulation Units @ 4.829655. 28,838,992
1995: 4,902,410 Accumulation Units @ 4.310821. 21,133,413
Select Bond Division
1996: 966,414 Accumulation Units @ 6.260939... 6,050,655
1995: 677,396 Accumulation Units @ 6.136911... 4,157,122
High Yield Bond Division
1996: 626,090 Accumulation Units @ 1.393713... 872,590
1995: 313,810 Accumulation Units @ 1.178371... 369,785
------------ ------------
Total Equity................................. $426,652,571 $317,806,038
------------ ------------
Total Liabilities and Equity................. $428,367,848 $318,614,567
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statempents.
29
<PAGE> 30
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
For the Years Ended December 31
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Investment Income
Dividend Income................................................. $ 16,994,370 $ 6,470,776 $ 22,562,209
Annuity Rate and Expense Guarantees............................. 1,738,625 856,764 509,648
-------------- -------------- -------------
Net Investment Income........................................... 15,255,745 5,614,012 22,052,561
-------------- -------------- -------------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain (Loss) on Investments......................... 8,855,390 9,884,364 5,949,795
Unrealized Appreciation (Depreciation) During the Year.......... 29,832,124 53,407,857 (27,055,878)
-------------- -------------- -------------
Net Gain (Loss) on Investments.................................. 38,687,514 63,292,221 (21,106,083)
-------------- -------------- -------------
Increase in Equity Derived from Investment Activity............. 53,943,259 68,906,233 946,478
-------------- -------------- -------------
Equity Transactions
Contract Owners' Net Payments................................... 89,650,916 59,390,267 48,709,729
Surrenders and Other (Net)...................................... (34,747,640) (60,872,729) (26,720,946)
-------------- -------------- -------------
Increase (Decrease) in Equity Derived from Equity Transactions.. 54,903,276 (1,482,462) 21,988,783
-------------- -------------- -------------
Net Increase in Equity.......................................... 108,846,535 67,423,771 22,935,261
Equity, Beginning of Year....................................... 317,806,038 250,382,267 227,447,006
-------------- -------------- -------------
Equity, End of Year............................................. $426,652,573 $317,806,038 $250,382,267
============== ============== =============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE> 31
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
Note 1--NML Variable Annuity Account C (the "Account") is a segregated asset
account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual
Life" or "Sponsor") used to fund variable annuity contracts ("contracts") for
HR-10 and corporate pension and profit-sharing plans which qualify for special
tax treatment under the Internal Revenue Code. Beginning December 31, 1991,
two versions of the contract are offered: Front Load contracts with a sales
charge up to 4.5% of purchase payments and Simplified Load contracts with an
installation fee of $750.
Note 2--The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Principal
accounting policies are summarized below.
Note 3--All assets of each Division of the Account are invested in shares of
the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the
"Fund"). The shares are valued at the Fund's offering and redemption price per
share.
On May 3, 1994, five new portfolios commenced operations in the Fund:
Aggressive Growth Stock Portfolio, International Equity Portfolio, Growth Stock
Portfolio, Growth and Income Stock Portfolio and High Yield Bond Portfolio.
Additionally, on May 3, 1994, the assets of Northwestern Mutual Life's Variable
Annuity funds were merged into the respective portfolio of the Fund in a
tax-free exchange of shares.
The Fund is an open-end investment company registered under the Investment
Company Act of 1940.
Note 4--Annuity reserves are based on published annuity tables with age
adjustment and benefit payments which reflect actual investment experience.
Annuity reserves are based on the 1983 Table with assumed interest rates of 3
1/2% or 5%.
Note 5--Dividend income from the Fund is recorded on the record date of the
dividends. Transactions in Fund shares are accounted for on the trade date.
The basis for determining cost on sale of Fund shares is identified cost.
Purchases and sales of Fund shares for the years ended December 31 by each
Division are shown below:
<TABLE>
<CAPTION>
Purchases 1996 1995 1994
- --------- -------------- ------------ --------------
<S> <C> <C> <C>
Growth Stock Division $ 7,308,964 $ 1,794,866 $ 356,487
Aggressive Growth Division 30,690,195 15,956,497 12,289,757
International Equity Division 15,119,614 6,724,373 23,854,689
Growth & Income Stock Division 8,410,421 3,709,640 1,282,402
Index 500 Stock Division 19,824,136 9,719,794 8,659,996
Money Market Division 20,346,897 10,821,340 11,074,834
Balanced Division 19,426,753 17,257,735 31,432,161
Select Bond Division 5,445,050 4,302,192 5,219,278
High Yield Bond Division 2,362,508 632,095 303,059
Sales
- -----
Growth Stock Division $303,927 213,213 24,577
Aggressive Growth Division 1,045,256 6,866,522 2,229,844
International Equity Division 1,571,810 4,899,939 1,132,149
Growth & Income Stock Division 839,196 310,894 108,587
Index 500 Stock Division 5,253,981 7,360,855 7,244,819
Money Market Division 15,887,232 13,008,176 9,494,795
Balanced Division 29,797,911 29,565,575 26,386,243
Select Bond Division 3,918,139 4,475,998 3,718,654
High Yield Bond Division 158,086 87,219 91,658
</TABLE>
31
<PAGE> 32
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
Note 6--On April 30, 1993, Northwestern Mutual Capital Appreciation Stock Fund
was merged into the Northwestern Mutual Index 500 Stock Fund in a tax-free
exchange of fund shares. 23,586,477 shares of Northwestern Mutual Capital
Appreciation Stock Fund, Inc. were exchanged for 24,739,593 shares of
Northwestern Mutual Index 500 Stock Fund, Inc. The shares exchanged were
valued at $33,406,725 for each Division.
Note 7--A deduction for annuity rate and expense guarantees is determined daily
and paid to Northwestern Mutual Life as compensation for assuming the risk that
annuity payments will continue for longer periods than anticipated because the
annuitants as a group live longer than expected and the risk that the charges
made by Northwestern Mutual Life may be insufficient to cover the actual costs
incurred in connection with the contracts.
Generally, for contracts issued after December 31, 1991, for the Front Load
Version and the Simplified Load Version, the deduction for annuity rate and
expense guarantees if determined daily at annual rates of 6.5/10 of 1% and 1
1/4%, respectively, of the net assets of each Division attributable to these
contracts and is paid to Northwestern Mutual Life. For these contracts, the
rates may be increased or decreased by the Board of Trustees of Northwestern
Mutual Life not to exceed 1% and 1 1/2% annual rates, respectively.
Generally, the deduction for contracts issued before December 17, 1981 or
between April 30, 1984 and December 31, 1991, as provided for in the contracts
has been waived by the Board of Trustees of Northwestern Mutual Life. For
these contracts, the rate may be determined by the Board of Trustees of
Northwestern Mutual Life not to exceed a 1/4 of 1% annual rate.
For contracts issued after December 16, 1981, and prior to May 1, 1984, the
deduction is determined daily at an annual rate of 1/2 of 1% of the net assets
of each Division attributable to these contracts and is paid to Northwestern
Mutual Life. For these contracts, the rate may be increased or decreased by
the Board of Trustees of Northwestern Mutual Life not to exceed a 3/4 of 1%
annual rate.
Note 8--Northwestern Mutual Life is taxed as a "life insurance company" under
the Internal Revenue Code and the operations of the Account form a part of and
are taxed with those of Northwestern Mutual Life. Under current law, no
federal income taxes are payable with respect to the Account. Accordingly, no
provision for any such liability has been made.
Item 9 is on page 34.
32
<PAGE> 33
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and
Contract Owners of NML Variable Annuity Account C
In our opinion, the statements appearing on pages 25 through 32 present fairly,
in all material respects, the financial position of NML Variable Annuity
Account C at December 31, 1996 and 1995, and the results of its operations and
the changes in its equity for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of The
Northwestern Mutual Life Insurance Company's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
January 22, 1997
<PAGE> 34
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 9. Disagreements on Accounting and Financial Disclosure
------- ----------------------------------------------------
Not applicable.
Item 10 is on page 35.
34
<PAGE> 35
The Northwestern Mutual Life Insurance Company
Form 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) The following information as of March 1, 1997, is provided with
respect to each director, including persons chosen to become
directors, of the Registrant. The Registrant uses the title of
Trustee to denote the directors.
<TABLE>
<CAPTION>
EXPIRATION OF TERM
TRUSTEE AGE YEAR ELECTED OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT
- ----------------------- --- ------------ -------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Quintus Anderson 66 1984 May 1999 Chairman, Audit Committee
Edward E. Barr 60 1991 May 1999 Member, Human Resources and Public Policy Committee
Gordon T. Beaham, III 65 1988 May 1997 (1) Member, Operations and Technology Committee
Robert C. Buchanan 56 1991 May 1999 Member, Audit, Executive and Finance Committee
Robert E. Carlson 61 1989 May 1998 Executive Vice President; Member, Executive Committee
George A. Dickerman 58 1994 May 2000 Member, Agency and Marketing Committee
Thomas I. Dolan 69 1986 May 2000 Member, Human Resources and Public Policy Committee
Pierre S. DuPont 62 1985 May 1998 Member, Agency and Marketing Committee
James D. Ericson 61 1989 May 2000 President and C.E.O.; Member, Human Resources and Public Policy,
Agency & Marketing, and Operations and Technology Committees;
Chairman, Executive and Finance Committees
J. E. Gallegos 61 1985 May 2000 Member, Audit Committee
Stephen N. Graff 62 1996 May 2000 Member, Executive, Finance, and Operations and Technology
Committees
Patricia Albjerg Graham 62 1980 May 2000 Member, Human Resources and Public Policy Committee
Stephen F. Keller 58 1984 May 1999 Member, Audit Committee
Barbara A. King 50 1996 May 1998 Member, Agency and Marketing Committtee
J. Thomas Lewis 60 1978 May 1998 Chairman, Human Resources and Public Policy Committee
</TABLE>
(1) Candidate proposed for re-election by the Board of Trustees for the
election to be held at the May 1997 Annual meeting of policyholders. If
re-elected, these Trustees' terms will expire in May of 2001.
* Retiring on May 28, 1997.
35
<PAGE> 36
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
YEAR EXPIRATION OF
TRUSTEE AGE ELECTED TERM OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT
------- --- ------- --------------- ----------------------------------------------
<S> <C> <C> <C> <C>
Daniel F. McKeithan, Jr. 61 1988 May 1999 Member, Executive, Finance, and Human Resources and Public Policy
Committees
Guy A. Osborn 61 1994 May 1997 (1) Member, Operations and Technology, Executive and Finance Committees
Donald J. Schuenke 68 1980 May 1998 Member, Agency and Marketing, Executive and Finance Committees
H. Mason Sizemore, Jr. 55 1993 May 1999 Member, Agency and Marketing Committee
Harold B. Smith 63 1973 May 2000 Member, Operations and Technology Committee
Sherwood H. Smith, Jr. 60 1992 May 1998 Chairman, Agency & Marketing Committee
John E. Steuri 57 1994 May 1999 Chariman, Operations and Technology Committee
John J. Stollenwerk 57 1993 May 1997 (1) Member, Agency and Marketing, Executive and Finance Committees
Barry L. Williams 52 1987 May 1997 (1) Member, Human Resources and Public Policy Committee
Kathryn D. Wriston 58 1986 May 1997 (1) Member, Audit Committee
</TABLE>
(1) Candidate proposed for re-election by the Board of Trustees for the
election to be held at the May 1997 Annual meeting of policyholders. If
re-elected, these Trustees' terms will expire in May of 2001.
36
<PAGE> 37
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 10. (continued)
(b) The following information as of March 1, 1997, is provided
with respect to each Executive Officer of the Registrant.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- ----------------------------------------------------------
<S> <C> <C>
James D. Ericson 61 President and Chief Executive Officer, Trustee
Robert E. Carlson 61 Executive Vice President (Agencies and Marketing), Trustee
Peter W. Bruce 51 Executive Vice President (Operations and Administration)
Frederic H. Sweet 53 Senior Vice President (Government Relations)
Dennis Tamcsin 58 Senior Vice President (Agencies)
James W. Ehrenstrom 60 Senior Vice President
Walt J. Wojcik 57 Senior Vice President (Information Systems)
Edward J. Zore 51 Executive Vice President (Finance and Investments)
Mason G. Ross 52 Senior Vice President (Real Estate)
Richard L. Hall 51 Senior Vice President (Marketing)
John M. Bremer 49 Senior Vice President, General Counsel and Secretary
Mark G. Doll 47 Senior Vice President (Public Markets)
William C. Koenig 49 Senior Vice President and Chief Actuary
Gary E. Long 52 Vice President and Controller
Deborah A. Beck 49 Senior Vice President (Insurance Operations)
Donald L. Mellish 58 Vice President (Field Financial Services)
Barbara F. Piehler 46 Vice President (Policyowner Services)
James F. Reiskytl 59 Vice President (Tax and Financial Planning
Leonard F. Stecklein 50 Vice President (Agency Services)
Martha M. Valerio 50 Vice President (Corporate Development)
W. Ward White 57 Vice President (Communications)
Thomas E. Dyer 51 Vice President (New Business)
Steven T. Catlett 47 Vice President (Corporate Services)
Gregory C. Oberland 39 Vice President (Policy Benefits)
Meridee J. Maynard 41 Vice President (Annuity and Accumulation Products)
Susan A. Lueger 43 Vice President (Human Resources)
William H. Beckley 49 Vice President (Agencies)
Robert J. Berdan 50 Vice President (Compliance/Best Practices)
John E. Schlifske 37 Vice President (Securities)
Bruce L. Miller 50 Senior Vice President (Corporate Planning and Development)
</TABLE>
All of the Executive Officers, except Susan A. Lueger and Bruce L.
Miller, have been associated with the Registrant, although not
necessarily in their present positions, for more than five years.
Susan A. Lueger has been Vice President of NML since May, 1994;
Vice President of Human Resources at Wisconsin Electric Power
Company 1992-1994; prior thereto with WEPC in the following
positions: Assistant Vice President-Human Resources 1/92 to 11/92;
Director-Human Resources 5/91 to 1/92; Manager-Compensation &
Benefits Division 7/90 to 5/91; Project Specialist-Employment and
Training Division 2/88 to 7/90. Bruce L. Miller has been Senior
Vice President of NML since july, 1996. Prior thereto consultant
for Medication Delivery Services 1995-96; CoreSource, Inc. 1992-94;
Crabtree Capital Corporation 1989-92; Aon Corporation 1980-89;
Glover, Inc. 1977-80; Whitman Corporation 1973-77; McKinsey &
Company, Inc. 1966-73.
37
<PAGE> 38
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
Item 10. (continued)
- -------- ----------------------------------------------------------------------------
<S> <C>
Term of office for all Executive Officers is one year expiring May 31, 1997.
(c) Not applicable
(d) No one of the Executive Officers or Trustees is related to any
other to the best of our knowledge.
(e) Business experience and directorships of Trustees are as
follows:
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
R. Quintus Anderson Chairman, The Aarque Capital Corporation, Jamestown, New York. Cold Metal Products Company, Inc.
Oneida, Ltd.
Edward E. Barr President and Chief Executive Officer, Sun Chemical First Union Corporation
Corporation, Fort Lee, New Jersey. United Water Resources
Gordon T. Beaham, III Chairman and President, Faultless Starch/Bon Ami Company,
Kansas City, Missouri, since 1987. Prior thereto, President
and Chief Executive Officer.
Robert C. Buchanan President and Chief Executive Officer, Fox Valley Grady, W. H. Company
Corporation, Appleton, Wisconsin. Firstar Corporation
Robert E. Carlson Executive Vice President of NML since 1987. Senior Vice
President 1982-1987. Prior thereto, Vice President-Research,
Life Insurance Marketing and Research Association,
Farmington, Connecticut.
George A. Dickerman President, Spalding Sports Worldwide, Chicopee, Evenflo & Spalding Holdings Corp.
Massachusetts, since 1981.
Thomas I. Dolan Retired Chairman, A. O. Smith Corp., Milwaukee, Wisconsin, A. O. Smith Corporation
since 1992. Chairman, 1989-1992; Chairman and Chief
Executive Officer 1984-1989; prior thereto President.
Pierre S. Du Pont Attorney, Richards, Layton & Finger, Wilmington, Delaware, Louisiana-Pacific Corporation
since 1985; prior thereto, Governor of Delaware. Pet Incorporated
Whitman Corporation
James D. Ericson Senior Vice President-Investments 1980-1987. MGIC Investment Corporation
President and Chief Executive Officer of NML since 10-1-93.
President and Chief Operating Officer 1991-1993. President
1990-1991; Executive Vice President 1987-1990; prior thereto,
Senior Vice President- Investments 1980-1987.
</TABLE>
38
<PAGE> 39
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEAS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. E. Gallegos Attorney, Gallegos Law Firm, Santa Fe, New Mexico since 1988;
prior thereto, Chairman of the Board, Enviromed Inc., Santa
Fe, New Mexico, since 1987; prior thereto, President, Jones,
Gallegos, Snead & Wertheim, P.A., Santa Fe, New Mexico.
Stephen N. Graff Office Managing Partner (retired), Arthur Andersen LLP, Mason Street Funds
Milwaukee, Wisconsin, since 1994. Managing Partner Regal-Beloit
(Milwaukee office) 1981-93; head of Audit Division
Patricia Albjerg Graham President, Spencer Foundation, Chicago, Illinois, since 1991;
and Professor of the History of American Education, Harvard
University, Cambridge, Massachusetts, since 1974. Dean of
the Graduate School of Education at Harvard 1982-1991.
Stephen F. Keller Former Chairman, The Santa Anita Companies, and Attorney, Los
Angeles, California, since August 1996. Chairman, The Santa
Anita Companies, 1993-1996. Chairman, Santa Anita Realty
Enterprises; and President, Santa Anita Operating Company,
Arcadia, California, 1992-1993. President and C.O.O., The
Santa Anita Companies, Arcadia, California, 7/91 to 1/92.
Attorney, Fulbright & Jaworski, Los Angeles, California, 1/91
to 7/91. attorney, Seidler, Amdec Securities, Inc., Los
Angeles, California 1987-1991. Prior thereto, Attorney,
Lillick McHose & Charles, Los Angeles, California.
Barbara A. King President, Landscape Structures, Inc., Delano, Minnesota,
since 1973.
J. Thomas Lewis Attorney, Monroe & Lemann, New Orleans, Louisiana.
Daniel F. McKeithan, Jr. President, Tamarack Petroleum Co. Inc., Milwaukee, Wisconsin, Firstar Corporation
since 1982. Marcus Corporation
WICOR Corporation
Guy A. Osborn Chairman, Universal Foods Corp., Milwaukee, Wisconsin, since Firstar Corporation
October 1996. Chairman and Chief Executive Officer, Firstar Bank Milwaukee
Universal Foods Corp., Milwaukee, Wisconsin, 1990-1996. Fleming Cos.
Prior thereto, Chief Executive Officer 1988-1990. Universal Foods Corporation
WICOR
Wisconsin Gas Company
Donald J. Schuenke Chairman of the Board Northern Telecom Limited since April A. O. Smith Corporation
1994. Retired Chairman of NML since 2-1-94. Chairman of the Badger Meter, Inc.
Board of NML 10-1-93 to 1-31-94. Chairman and Chief Federal Home Loan Mortgage
Executive Officer 1990-1993. President and Chief Executive Corporation (Freddie Mac)
Officer 1983-1990; President and Chief Operating Officer Northern Telecom, Ltd.
1981-1983; President 1980-1981; prior thereto, Senior Vice
President-Investments.
</TABLE>
39
<PAGE> 40
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
H. Mason Sizemore, Jr. President and Chief Operating Officer, The Seattle Times,
Seattle, Washington since 1985.
Harold B. Smith Chairman, Executive Committee, Illinois Tool Works Inc., Grainger, W. W., Inc.
Glenview, Illinois since 1982; Vice Chairman, 1981; prior Illinois Tool Works Inc.
thereto, President. Northern Trust Corporation
Sherwood H. Smith, Jr. Chairman of the Board, Carolina Power & Light Company, Carolina Power & Light Co.
Raleigh, North Carolina, since October 1996. Chairman and Northern Telecom Ltd.
Chief Executive Officer, Carolina Power & Light Company, Springs Industries, Inc.
Raleigh, North Carolina, 1992-1996. Prior thereto, Wachovia Corporation
Chairman/President and CEO 1980-1992; President and CEO
1979-1980; President 1976-1979.
John E. Steuri Retired Chairman and CEO *ALLTEL Information Services, Inc., National Computer Systems
Little Rock, Arkansas, since May 1996. Chairman and CEO
1989-1996.
John J. Stollenwerk President and Owner, Allen-Edmonds Shoe Corporation, Port Badger Meter, Inc.
Washington, Wisconsin since 1980. Firstar Bank Milwaukee N.A.
Koss Corporation
Barry L. Williams President and Chief Executive Officer, Williams Pacific American President Companies
Ventures, Inc., San Francisco, California, since 1/1993. Pacific Gas & Electric
Prior thereto: President 1987-1992; President and Chief Simpson Manufacturing Company
Executive Officer, C. N. Flagg Power, Inc., Meriden, Tenera L.P.
Connecticut 1988-1992. Prior thereto, Managing Principal,
Bechtel Investments, Inc. and Sequoia Investments, Inc., San
Francisco, California.
Kathryn D. Wriston Director of various corporations. Santa Fe Energy Resources
Stanley Works, The
</TABLE>
* Note: Prior to 2/15/95, this company was known as Systematics
Information Services, Inc.
40
<PAGE> 41
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 10. (continued)
(f) To the best of the Registrant's knowledge, none of the
Registrant's Executive Officers or Trustees have been involved in
any of the items required to be reported in response to Item 401(f)
of Regulation S-K.
(g) Not applicable.
Item 11 is on page 42.
41
<PAGE> 42
Form 10-K
Item 11. Executive Compensation
Not applicable. NML Variable Annuity Accounts A and C have no directors or
executive officers, the Executive Officers and Trustees of The Northwestern
Mutual Life Insurance Company spend no substantial portion of their time on
matters relating to NML Variable Annuity Accounts A and C, and the amounts of
compensation received by the Executive Officers and Trustees of The Northwestern
Mutual Life Insurance Company have no bearing on the values associated with
variable annuity contracts issued in connection with Northwestern Mutual
Variable Annuity Accounts A and C.
42
<PAGE> 43
Form 10-K
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Not applicable. The Registrant is a mutual life insurance
company and has no stockholders as such.
(b) Not applicable.
(c) Not applicable.
Item 13 is on page 44.
43
<PAGE> 44
Form 10-K
Item 13. Certain Relationships and Related Transactions
(a) (1) The Registrant's second-tier subsidiary, Northwestern Mutual
Investment Services, Inc. ("NMIS"), serves as the investment
advisor to Northwestern Mutual Series Fund, Inc. (the
"Fund"), a series company registered as an open-end
management company under the Investment Company Act of 1940
and consisting of nine portfolios; and the Registrant is a
party to an investment advisory agreement with each of these
portfolios: the Index 500 Stock Portfolio, the Select Bond
Portfolio, the Money Market Portfolio, the Balanced
Portfolio, the Growth and Income Stock Portfolio, the Growth
Stock Portfolio, the Aggressive Growth Stock Portfolio, the
High Yield Bond Portfolio and the International Equity
Portfolio. The investment advisory agreements with the Index
500 Stock Portfolio, the Select Bond Portfolio, the Money
Market Portfolio and the Balanced Portfolio were renewed
during the fiscal year. The investment advisory agreements
between Registrant, NMIS and the Growth and Income Stock
Portfolio, the Growth Stock Portfolio and the High Yield
Bond Portfolio were entered into on April 15, 1994. The
investment advisory agreements between Registrant, NMIS and
the Aggressive Growth Stock Portfolio and the International
Equity Portfolio were entered into on April 29, 1994.
Various Trustees and Officers of the Registrant serve as
directors and officers of the Fund and may be deemed to have
a direct or indirect material interest in the existence of
the investment advisory agreements.
(2) Various Trustees and Officers of the Registrant have
securities accounts with Robert W. Baird and Co.
Incorporated ("Baird") and effected transactions through
such accounts during the fiscal year. Baird is a regional
broker-dealer firm and a member of the New York Stock
Exchange. Baird is a majority-owned indirect subsidiary of
the Registrant.
44
<PAGE> 45
Form 10-K
Item 13. (continued)
(b) The Registrant, during 1994, retained the following law
firms with whom certain Trustees of the Registrant are affiliated:
Gibbs, Roper, Loots & Williams, of which Wayne J. Roper, a Trustee
of the Registrant, for a portion of 1994, is a member, and
Monroe & Lerman, of which J. Thomas Lewis, a Trustee of the
Registrant, is a member. The firms were retained to perform
certain legal functions for the Registrant.
(c) Loans are made to Trustees and officers in accordance with
the provisions of insurance policies which they may own. Such
loans are made in the ordinary course of business and are
administered solely according to the terms of the policy.
(d) Not applicable. The Registrant was not organized within
the past five years.
Item 14 is on page 46.
45
<PAGE> 46
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page
- -------- ------------------------------------------------------------------- ----
<S> <C> <C>
(a) Financial Statements and Exhibits 16
(1) NML Variable Annuity Account A (in Part II, Item 8)
Statement of Assets and Liabilities, December 31, 1996
and 1995
Statement of Operations and Changes in Equity, for years
ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Report of Independent Accountants
(2) NML Variable Annuity Account C (in Part II, Item 8) 25
Statement of Assets and Liabilities, December 31, 1996
and 1995
Statement of Operations and Changes in Equity, for years
ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Report of Independent Accountants
(3) The Northwestern Mutual Life Insurance Company 47
Attached are:
Report of Independent Accountants
Consolidated Statement of Financial Position,
December 31, 1996 and 1995
Consolidated Statement of Operations, for years ended
December 31, 1996, 1995 and 1994
Consolidated Statement of General Contingency Reserve,
for years ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows, for years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
(b) No reports on Form 8-K have been filed during
the last quarter of the year ended December 31, 1996.
(c) Compensation amounts deferred in 1996 are included as Exhibit I. 65
Financial Statements of majority owned subsidiaries of the Registrant
not consolidated have been omitted because, considered in the
aggregate as a single subsidiary, they do not constitute a significant
subsidiary.
(d) Not applicable.
</TABLE>
46
<PAGE> 47
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
GENERAL DISTRIBUTION
DECEMBER 31, 1996 AND 1995
47
<PAGE> 48
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statement of financial position
of The Northwestern Mutual Life Insurance Company and its subsidiary as of
December 31, 1996 and 1995, and the related consolidated summary of operations
and consolidated statements of general contingency reserve and of cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our report dated January 24, 1996, we expressed an opinion that the 1995
consolidated financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Departments of the states in which the
Company and its subsidiary are domiciled (statutory basis of accounting,), were
presented fairly, in all material respects, in conformity with generally
accepted accounting principles. As described in Note 1 to these financial
statements, pursuant to the pronouncement of the Financial Accounting
Standards Board, financial statements of mutual life insurance enterprises
prepared using accounting practices prescribed or permitted by insurance
regulators (statutory basis of accounting) are no longer considered
presentations in conformity with generally accepted accounting principles.
Accordingly, our present opinion on the presentation of the 1995 financial
statements, as presented herein, is different from the expressed in our
previous report.
<PAGE> 49
As described in Note 1, these consolidated financial statements were prepared in
conformity with accounting practices prescribed or permitted by the Insurance
Departments of the states in which the Company and its subsidiary are domiciled
(statutory basis of accounting), which practices differ from generally accepted
accounting principles. Accordingly, the consolidated financial statements are
not intended to represent a presentation in accordance with generally accepted
accounting principles. The effects on the consolidated financial statements of
the variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the consolidated financial statements audited by us (1) do not
present fairly in conformity with generally accepted accounting principles, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1996 and 1995, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1996 because of the effects of the variances between the statutory basis of
accounting and generally accepted accounting principles referred to in the
preceding paragraph and (2) do present fairly, in all material respects, the
financial position of The Northwestern Mutual Life Insurance Company and its
subsidiary at December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, on the basis of accounting described in Note 1.
Price Waterhouse LLP
January 22, 1997
<PAGE> 50
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions)
<TABLE>
<CAPTION>
ASSETS
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Bonds
United States Government $ 5,417 $ 3,282
Industrial and other 23,659 22,236
------- -------
29,076 25,518
------- -------
Stocks
Common 3,356 2,894
Unconsolidated subsidiaries 612 531
Preferred 760 546
------- -------
4,728 3,971
------- -------
Mortgage loans 9,564 8,429
Real estate
Investment 1,257 1,294
Home office 128 135
------- -------
1,385 1,429
------- -------
Loans on policies 6,802 6,476
Other investments 1,714 1,589
Cash and temporary investments 1,131 544
Due and accrued investment income 764 721
------- -------
Total invested assets 55,164 48,677
------- -------
Separate account business 6,339 5,000
Other assets 1,177 1,199
------- -------
Total Assets $62,680 $54,876
======= =======
<CAPTION>
LIABILITIES AND RESERVES
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Liability for policy benefits
Insurance and annuity reserves $43,209 $39,545
Policy benefits in process or left for
future payments 1,140 1,109
Premium deposits 427 427
Policyowner dividends payable 2,350 2,115
------- -------
47,126 43,196
------- -------
Other liabilities
Interest maintenance reserve 299 281
Income taxes 942 895
Miscellaneous 2,921 1,336
------- -------
4,162 2,512
------- -------
Separate account business 6,339 5,000
------- -------
Asset valuation reserve 1,538 1,382
------- -------
Total liabilities 59,165 52,090
------- -------
General contingency reserve 3,515 2,786
------- -------
Total Liabilities and Contingency Reserve $62,680 $54,876
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
49
<PAGE> 51
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED SUMMARY OF OPERATIONS
(In millions)
<TABLE>
<CAPTION>
For the year ended
December 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Premiums $ 6,760 $ 6,196 $ 5,743
Net investment income 3,836 3,673 3,106
Policy benefits left with
Company and other income 666 733 636
------- ------- -------
Total income 11,262 10,602 9,485
------- ------- -------
Disposition of income
Costs
Agents' compensation 529 508 492
Other insurance costs 418 398 334
Premium and other taxes or
assessments 96 120 120
------- ------- -------
1,043 1,026 946
------- ------- -------
Benefits to policyowners and
beneficiaries
Death benefits 673 655 609
Surrender benefits 1,182 1,375 904
Disability benefits 202 174 151
Annuity benefits 128 92 94
Matured endowments 52 48 54
Payments from policy benefits
left with Company 684 590 568
Net transfers to separate accounts 579 236 344
Net additions to policy reserves 3,701 3,506 3,313
------- ------- -------
7,201 6,676 6,037
------- ------- --------
Total disposition of income 8,244 7,702 6,983
------- ------- --------
Savings from operations before income
taxes and dividends 3,018 2,900 2,502
Income tax expense 452 467 281
------- ------- --------
Savings from operations before
dividends 2,566 2,433 2,221
Policyowner dividends 2,341 2,111 1,942
------- -------- --------
Net savings from operations 225 322 279
Net realized capital gains, less tax
expense of $208, $98 and 85,
respectively 395 137 119
------- -------- --------
Contribution to general contingency
reserve from operations $ 620 $ 459 $ 398
======= ======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
50
<PAGE> 52
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF GENERAL CONTINGENCY RESERVE
(In millions)
<TABLE>
<CAPTION>
For the year ended
December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning of year balance $2,786 $2,225 $2,030
Contribution to general contingency reserve
from operations 620 459 398
Change in net unrealized capital gains 295 373 (242)
Change in asset valuation reserve (156) (192) 37
Other-net (30) (79) 2
------ ------ ------
End of year balance $3,515 $2,786 $2,225
====== ====== ======
</TABLE>
51
The accompanying notes are an integral
part of the financial statements.
<PAGE> 53
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
For the year ended
December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Insurance premiums, annuities and other
considerations $ 7,361 $ 6,864 $ 6,299
Net investment income received 3,634 3,480 3,013
Net loans on policies (326) (331) (297)
Benefits paid to policyholders and
beneficiaries (2,912) (2,939) (2,357)
Net transfers to separate accounts (579) (236) (344)
Policyowner dividends paid (2,105) (1,945) (1,777)
Expenses and taxes (1,424) (1,279) (1,033)
Other-net 1,558 381 89
------- ------- -------
Net cash provided by operating
activities 5,207 3,995 3,593
Cash flows from investing activities
Proceeds from investments sold or matured
Bonds 31,942 25,317 27,096
Stocks 4,570 2,465 1,469
Mortgage loans 1,253 431 512
Real estate 178 48 164
Other invested assets 316 149 213
Capital gain (tax) benefit (239) (85) 28
------- ------- -------
38,020 28,325 29,482
Cost of investments acquired
Bonds 35,342 27,596 29,672
Stocks 4,463 2,562 1,606
Mortgage loans 2,455 1,883 1,356
Real estate 125 202 6
Other invested assets 255 336 413
-------- ------- -------
42,640 32,579 33,055
Net cash used in investing activities (4,620) (4,254) (3,573)
------- ------- -------
Net (decrease) increase in cash and temporary
investments 587 (259) 20
Cash and temporary investments, beginning of
year 544 803 783
------- ------- -------
Cash and temporary investments, end of year $ 1,131 $ 544 $ 803
======= ======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
52
<PAGE> 54
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - PRINCIPAL ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company (the "Company") and
its wholly-owned life insurance subsidiary. The Company offers life, annuity
and disability income products to the personal, business, estate and
tax-qualified markets.
The consolidated financial statements have been prepared using accounting
policies prescribed or permitted by the Insurance Departments of the states in
which the Company and its subsidiary are domiciled (statutory basis of
accounting). Prior to December 15, 1995, these policies were considered
generally accepted accounting principles ("GAAP") for mutual life insurance
enterprises. However, in April 1993, the Financial Accounting Standards Board
issued Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance Companies and Other Enterprises," which
established a different definition of GAAP for mutual life insurance
enterprises. Under the Interpretation, financial statements of mutual life
insurance enterprises for periods beginning after December 15, 1995 which are
prepared on the statutory basis of accounting are no longer characterized as
being in conformity with GAAP.
The consolidated financial statements are prepared on the statutory basis of
accounting and are not intended to represent a presentation in accordance with
GAAP. Financial statements prepared on a statutory basis of accounting vary
from financial statements prepared on a GAAP basis primarily because on a GAAP
basis policy acquisition costs are deferred and amortized, investment
valuations and insurance reserves are based on different assumptions, deferred
taxes are provided for book and tax differences and premiums on annuity
contracts are accounted for as deposits to policyholders' accounts.
The preparation of financial statements in conformity with the statutory basis
of accounting 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.
Investments
The Company's investments are valued on the following bases:
Bonds - Amortized cost using the interest method; loan-
backed and structured securities are amortized using
estimated prepayment rates and, generally, the
prospective adjustment method.
-53-
<PAGE> 55
<TABLE>
<S> <C> <C>
Common Stocks - Market value
Unconsolidated Subsidiaries - Equity in subsidiaries' net assets
Preferred Stocks - Cost
Mortgage Loans - Amortized cost
Investment Real Estate - Lower of cost, less depreciation and
encumbrances, or estimated net
realizable value
Home Office Real Estate - Cost, less depreciation
Loans on Policies - Cost
Other Investments - Joint Ventures - Lower of equity in or market value
of ventures' net assets
</TABLE>
Separate Account Business
This business consists of annuities funded by specific assets held in separate
accounts. The assets in these accounts are carried at market value. The policy
values reflect the investment performance of the respective accounts.
Insurance, Annuity and Disability Income Reserves
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method with interest rates
ranging from 3-1/2% to 5-1/2%. Other policy reserves are based primarily on the
net level premium method employing various mortality tables at interest rates
ranging from 2% to 4-1/2%.
Deferred annuity reserves on policies issued since 1985 are valued using the
Commissioner's Annuity Reserve Valuation Method with interest rates ranging
from 3-1/2% to 6-1/4%. Other deferred annuity reserves are based on the
contract value. Immediate annuity reserves are present values of expected
benefit payments at interest rates ranging from 3-1/2% to 7-1/2%.
Active life reserves for disability income ("DI") policies issued since 1987
are primarily based on the two-year preliminary term method using a 4% interest
rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for
morbidity. Previous DI business uses the net level premium method, using a 3%
or 4% interest rate and the 1964 Commissioner's Disability Table for morbidity.
Disabled life reserves for DI policies are based on the present values of
expected benefit payments using primarily the 1985 CIDA (modified for Company
experience in the first two years of disability) with interest rates ranging
from 3% to 5-1/2%.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future experience
could differ from these estimates.
Interest Maintenance Reserve
The Company is required to maintain an interest maintenance reserve ("IMR").
The IMR establishes a reserve for realized gains and losses, net of tax,
resulting from changes in interest rates on short and long-term fixed income
investments. Net realized gains and losses charges to
-54-
<PAGE> 56
the IMR are amortized into investment income over the approximate remaining
life of the investment sold.
Asset Value Reserve
The Company is also required to maintain an asset valuation reserve ("AVR").
The AVR establishes a reserve for certain invested assets held by the Company.
In the aggregate, AVR was 83.8% of the allowable maximum at December 31, 1996.
Premium Income
Life insurance premiums are recognized as income at the beginning of each
policy year.
Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers under excess coverage
and co-insurance contracts. In 1996, the Company increased its use of
coinsurance on term insurance. As of December 31, 1996, total life insurance
inforce approximated $430 billion, of which approximately $146 billion,
comprised principally of term insurance, had been ceded to various reinsurers.
The Company retains a maximum of $15 million of coverage per individual life
and $20 million maximum of coverage per joint life.
Operating Costs
Operating costs, including costs of acquiring new policies, are charged to
operations as incurred.
Income Taxes
Provisions for income taxes are based on current income tax returns without
recognition of deferred taxes due to timing differences. The portion of the
federal income tax based on mutual life insurance company equity is reflected
as a component of income tax expense, including related adjustments for prior
years.
The Company files a consolidated life-nonlife federal income tax return.
Federal income tax returns for years through 1988 are closed as to further
assessment of tax. Adequate provision has been made in the financial statements
for any additional taxes which may become due with respect to the open years.
The Company's effective tax rate on savings from operations before income tax
expense (after dividends) in 1996 was approximately 67%. Two significant
factors cause the Company's effective tax rate to exceed the federal corporate
rate of 35%. First, the Company pays a tax that is assessed only on mutual
life insurance companies, which is an amount that purports to equate a portion
of policyholder dividends with nondeductible dividends paid to shareholders of
stock
-55-
<PAGE> 57
companies. Second, the Company must capitalize and amortize (as opposed to
immediately deducting) an amount deemed to represent the cost of acquiring new
business ("DAC tax").
Policyowner Dividends
Dividends payable in the following year on participating policies are charged to
current operations. All life insurance policies issued by the Company are
participating.
Reclassification
Certain amounts in previously issued financial statements have been
reclassified to conform to current year presentation.
NOTE 2 - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following summarizes the bases used by the Company in estimating its fair
value disclosures for financial instruments:
Bonds and common and preferred stocks - Fair values are based upon
quoted market prices, if available. For securities not actively traded,
fair values are estimated using independent pricing services or
internally developed pricing models.
Mortgage loans - Fair values are derived by discounting the future
estimated cash flows using current interest rates of debt securities
with similar credit risk and maturities, or utilizing net realizable
values.
Loans on policies - The carrying amount reported in the statement of
financial position approximates fair value since loans on policies
reduce the amount payable at death or at surrender of the contract.
Cash and temporary investments and due and accrued investment income -
The carrying amounts reported in the statement of financial position
approximate fair value.
Annuity reserves (without mortality/morbidity features) - Fair values
are derived by discounting the future estimated cash flows using current
interest rates with similar maturities.
Other deposit liabilities - The carrying amounts reported in the
statement of financial position approximate fair value.
-56-
<PAGE> 58
NOTE 3 - INVESTMENTS
Net Investment Income
The Company's net investment income for the years ended December 31, 1996,
1995 and 1994 of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
(In millions)
<S> <C> <C> <C>
Interest, dividends, rents, equity in
unconsolidated subsidiaries' earnings
and joint venture income $4,125 $3,952 $3,395
Less: Investment expenses and depreciation (289) (279) (289)
------ ------ ------
Net investment income $3,836 $3,673 $3,106
====== ====== ======
</TABLE>
Realized Gains and Losses
During 1996, 1995 and 1994, the Company, in its normal course of business, sold
certain invested assets realizing gains and losses before transfer to the IMR
and capital gains tax from such sales as follows:
<TABLE>
<CAPTION>
For the year ended For the year ended For the year ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------------------ ----------------------------- -----------------------------
Net Net Net
Realized Realized Realized
Realized Realized Gains Realized Realized Gains Realized Realized Gains
Gains Losses (Losses) Gains Losses (Losses) Gains Losses (Losses)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bonds $ 396 $(383) $ 13 $ 576 $(130) $446 $171 $(535) $(364)
Stocks 580 (115) 465 574 (429) 145 499 (291) 208
Mortgage loans 2 (15) (13) 2 (32) (30) - (37) (37)
Real estate 36 0 36 14 (3) 11 16 (7) 9
Other invested assets 204 (51) 153 188 (95) 93 110 (98) 12
------ ----- ---- ------ ----- ---- ---- ----- -----
$1,218 $(564) $654 $1,354 $(689) $665 $796 $(968) $(172)
====== ===== ==== ====== ===== ==== ==== ===== =====
</TABLE>
Debt Securities
Debt securities consist of all bonds, fixed maturity preferred stocks and
short term fixed income investments.
-57-
<PAGE> 59
The statement values, which principally represent amortized cost, and estimated
market values of the Company's debt securities at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
December 31, 1996 Reconciliation to Estimated Market Value
- ----------------- ----------------------------------------
Gross Gross Estimated
Statement Unrealized Unrealized Market
Value Appreciation Depreciation Value
--------- ------------ ------------ ---------
(In millions)
<S> <C> <C> <C> <C>
US Government and
political obligations $ 4,809 $ 171 $ (2) $ 4,978
Mortgage-backed
securities 6,747 179 (38) 6,888
Corporate and other
debt securities 18,722 776 (99) 19,399
------- ------ ----- -------
30,278 1,126 (139) 31,265
Preferred stocks 84 6 (1) 89
------- ------ ----- -------
Total $30,362 $1,132 $(140) $31,354
======= ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 Reconciliation to Estimated Market Value
- ----------------- ----------------------------------------
Gross Gross Estimated
Statement Unrealized Unrealized Market
Value Appreciation Depreciation Value
--------- ------------ ------------ ---------
(In millions)
<S> <C> <C> <C> <C>
US Government and
political obligations $ 3,267 $ 296 $ (1) $ 3,562
Mortgage-backed
securities 6,734 336 (12) 7,058
Corporate and other
debt securities 15,999 1,250 (47) 17,202
------- ------ ----- -------
26,000 1,882 (60) 27,822
Preferred stocks 108 3 (2) 109
------- ------ ----- -------
Total $26,108 $1,885 $ (62) $27,931
======= ====== ===== =======
</TABLE>
-58-
<PAGE> 60
The amortized cost and estimated value of debt securities at December 31, 1996
and 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------- ---------------------
Estimated Estimated
Statement Market Statement Market
Value Value Value Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,659 $ 1,713 $ 977 $ 979
Due after one year
through five years 4,077 4,205 3,658 3,879
Due after five years
through ten years 7,802 8,092 6,879 7,347
Due after ten years 10,077 10,456 7,860 8,668
------- ------- ------- -------
23,615 24,466 19,374 20,873
Mortgage-backed securities 6,747 6,888 6,734 7,058
------- ------- ------- -------
$30,362 $31,354 $26,108 $27,931
======= ======= ======= =======
</TABLE>
The fair value of perpetual preferred stocks as of December 31, 1996 and 1995
approximates $892 million and $578 million, respectively, compared to the
statement values of $676 million and $439 million, respectively.
The Company has entered into a securities lending agreement whereby blocks of
securities are loaned to third parties, primarily major brokerage firms. As of
December 31, 1996 the estimated fair value of loaned securities was $2.2
billion. The Company's policy requires a minimum of 102 percent of the fair
value of the loaned securities as collateral, calculated on a daily basis in
the form of either cash or securities. Cash collateral received and related
amounts due to counterparties are reflected in the consolidated statement of
financial position. To further minimize the credit risks related to this
program, the financial condition of counterparties is monitored on a regular
basis.
-59-
<PAGE> 61
Mortgage Loans
As of December 31, 1996 and 1995, the mortgage loan portfolio was distributed
as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- -------------------
Statement % of Statement % of
Geographic Location Value Total Value Total
------------------- --------- ------ --------- ------
(In millions) (In millions)
<S> <C> <C> <C> <C>
Middle Atlantic $1,170 12.3% $ 945 11.2%
South Atlantic 2,845 29.7 2,346 27.8
North Central 1,675 17.5 1,560 18.5
South Central 1,035 10.8 1,018 12.1
Pacific Northwest 578 6.1 454 5.4
Pacific 1,998 20.9 1,803 21.4
Canada 263 2.7 303 3.6
------ ----- ------ -----
$9,564 100.0% $8,429 100.0%
====== ===== ====== =====
Property Type
-------------
Retail $3,099 32.4% $2,897 34.4%
Office Building 2,963 31.0 2,677 31.8
Residential 2,340 24.5 1,804 21.4
Commercial 818 8.5 792 9.4
Other 344 3.6 259 3.9
------ ----- ------ -----
$9,564 100.0% $8,429 100.0%
====== ===== ====== =====
</TABLE>
The fair value of mortgage loans as of December 31, 1996 and 1995 approximates
$9,823 million and $8,983 million, respectively.
-60-
<PAGE> 62
Affiliates
The Company has a 17.7% investment in MGIC Investment Corporation ("MGIC"), an
affiliate. At December 31, 1996, the market value of the Company's investment
in MGIC (10.4 million shares) exceeded the statement value by $466 million.
During 1996, NML sold 1.2 million shares of MGIC resulting in a realized gain
of $50.0 million.
In July 1995, the Company entered into a forward contact with a brokerage firm
to deliver 4.4 million to 5.4 million shares of MGIC (or cash) in August 1998
for a price determined by the market value of the MGIC shares at that time in
exchange for a fixed cash payment of $247 million ($48 per share). The
Company's objective in entering into the forward contract is to hedge against
depreciation in the value of its MGIC holdings during the contract period below
the initial spot price of $48, while partially participating in appreciation,
if any, during the forward contract's duration.
Real Estate
For real estate and joint venture properties acquired subsequent to December
1990, the Company calculates depreciation using the straight-line method in
accordance with guidelines established by the National Association of Insurance
Commissioners. For properties acquired prior to December 1990, the Company
calculates depreciation using either the straight-line method or the
constant-yield method. Home office real estate is depreciated using the
straight-line method.
At December 31, 1996, investment real estate includes $119 million of real
estate acquired through foreclosure. In 1996, the Company recorded writedowns
of $31 million and $12 million for the excess of carrying value over fair value
of certain real estate investments and mortgage loans, respectively. Valuation
allowances for real estate and mortgage loans with fair values that are less
than statement values are adequately covered by normal AVR reserves and by a
$110 million special investment reserve established by the Company for real
estate, mortgage loans and other invested assets.
Derivative Financial Instruments
The Company's current utilization of derivative financial instruments is
limited. The Company's derivative transactions are used to reduce or modify
risks of volatility related to foreign currency, interest rate movements and
stock price fluctuation. These hedging strategies use forwards, futures,
options and swaps.
-61-
<PAGE> 63
At December 31, 1996 the Company held the following positions:
<TABLE>
<CAPTION>
Notional
Contract
Derivative Financial Instruments: Amounts Risks Reduced
- --------------------------------- -------- -------------
($ millions)
<S> <C> <C>
Foreign Currency Forward Contracts $854 Currency exposure on foreign
denominated investments.
Stock Futures 279 Stock market price fluctuation.
Option to acquire an Interest Rate Swap 320 Interest rate payable on Fixed Annuities.
Foreign Currency and Interest Rate Swaps 251 Interest rates on variable rate notes and
currency on foreign denominated bonds.
</TABLE>
The hedges are recorded by the Company in the same manner as the underlying
investments. Changes in the values of these contracts are expected to offset
the gains and losses on the hedged investments. On hedges marked to market,
gains and losses are unrealized before contract settlement and realized on
settlement.
The effect of derivative transactions is not significant to the Company's
results of operations or financial position.
NOTE 4 - ANNUITIES AND OTHER DEPOSIT LIABILITIES
The value of annuities (without mortality/morbidity features) and other deposit
liabilities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------- --------------------
Statement Fair Statement Fair
Value Value Value Value
----------- ------- ----------- ------
(In millions)
<S> <C> <C> <C> <C>
Annuities $2,554 $2,477 $2,631 $2,437
Other deposit liabilities 797 797 783 783
</TABLE>
-62-
<PAGE> 64
NOTE 5 - BENEFIT PLANS
The Company maintains non-contributory defined benefit retirement plans for all
eligible employees and agents as well as a 401(k) plan for eligible employees
and a non-contributory defined contribution plan for all full-time agents.
These plans are funded currently and plan assets of $1.3 billion at December
31, 1996 are primarily included in the separate accounts of the Company. As of
January 1, 1996, the most recent actuarial valuation date available, the
defined benefit plans were fully funded.
In addition to pension benefits, the Company provides certain health care and
life insurance benefits ("postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if they
reach retirement age while working for the Company.
Postretirement benefit cost for the year ended December 31, 1996 was a benefit
of $12 million; it includes the expected cost of postretirement benefits for
newly eligible and vested employees and interest cost totaling $6 million offset
by gains from differences between actuarial assumptions and actual experience of
$18 million. At December 31, 1996 and 1995, the unfunded postretirement benefit
obligation for retirees and other fully eligible or vested employees was $35
million and $49 million, respectively. The estimated postretirement benefit
obligation for active non-vested employees was $43 million. The discount rate
used to determine the postretirement benefit obligation was 7% and the health
care cost trend rate was 10% in 1996, declining by 1% per year to an ultimate
rate of 5% over 5 years. If the health care cost trend rate assumptions were
increased by 1%, the postretirement benefit obligation as of December 31, 1996
would be increased by $5 million.
At December 31, 1996, the plan assets attributable to postretirement health
care benefits totaled $34 million.
-63-
<PAGE> 65
NOTE 6 - REINSURANCE
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance activity. Reserves at December 31, 1996 are stated net of
reinsurance of $355 million. The effect of reinsurance on premiums and benefits
for the year ended December 31, 1996 and 1995 are as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1996
------ ------ -----
<S> <C> <C>
Direct premiums $7,064 $6,452 $5,977
Reinsurance ceded (304) (256) (234)
------ ------ ------
Net premiums $6,760 $6,196 $5,743
====== ====== ======
Benefits to policyholders and beneficiaries $7,348 $6,818 $6,178
Reinsurance recoveries (147) (142) (141)
------ ------ ------
Net benefits to policyholders
and beneficiaries $7,201 $6,676 $6,037
====== ====== ======
</TABLE>
In addition, the Company received credits of $93 million for reinsurers
representing reimbursements of commissions and other expenses. The credits are
included in other income in the consolidated summary of operations.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.
NOTE 7 - CONTINGENCIES
In the normal course of business, the Company enters into transactions to
reduce its exposure to fluctuations in interest rates and market volatility.
These instruments may involve credit risk and may also be subject to risk of
loss due to interest rate fluctuations.
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $120 million at December 31, 1996 and are
generally supported by the underlying net asset values of the affiliates.
The Company is engaged in various legal actions in the normal course of its
investment and insurance operations. In the opinion of management, any losses
resulting from such actions would not have a material effect on the Company's
financial condition.
-64-
<PAGE> 66
Form 10-K
EXHIBIT I
Reference is made to a form of deferred compensation agreement filed as Exhibit
B-2 with Form 10-K for 1970 and The Northwestern Mutual Employee Savings Plan
filed as Exhibit II for 1985. Pursuant to such contracts the following amounts
were deferred in 1996:
<TABLE>
<CAPTION>
Executive Officers
------------------
<C> <C>
James D. Ericson 391,500
Robert E. Carlson 176,000
Walt J. Wojcik 188,600
Mason G. Ross 72,211
Frederic H. Sweet 19,680
James F. Reiskytl 21,650
Richard L. Hall 39,200
Madonna M. Hostetter 7,042
Gary E. Long 57,200
Donald L. Mellish 100,437
Deborah A. Beck 38,000
Edward J. Zore 83,000
Dennis Tamcsin 42,500
Peter W. Bruce 68,040
Mark G. Doll 87,000
John M. Bremer 100,000
James W. Ehrenstrom 68,500
William C. Koenig 18,920
Leonard F. Stecklein 69,000
Martha M. Valerio 148,805
Virgil Renne, Jr. 14,000
W. Ward White 67,000
Barbara F. Piehler 71,680
Thomas E. Dyer 44,670
Steven T. Catlett 14,350
Gregory C. Oberland 13,936
Susan A. Lueger 33,710
Ralph A. Pelton 26,000
Meridee J. Maynard 78,430
William H. Beckley 22,560
Robert J. Berdan 14,000
Trustees
--------
Stephen F. Keller 41,500
R. Quintus Anderson 43,750
Jake E. Gallegos 39,000
Patricia Albjerg Graham 41,500
Richard H. Holton 6,000
Robert C. Buchanan 37,900
Edward E. Barr 41,500
Sherwood H. Smith, Jr. 42,250
John J. Stollenwerk 77,900
Herman M. Sizemore 41,500
George A. Dickerman 35,000
John E. Steuri 42,750
$2,688,171
==========
</TABLE>
65
<PAGE> 67
The Northwestern Mutual Life Insurance Company
Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
(Registrant)
By James D. Ericson
-------------------------------------
James D. Ericson
President and Chief Executive Officer
By Gary E. Long
-------------------------------------
Gary E. Long
Vice President and Controller
Date: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Title
James D. Ericson Trustee, President and Chief Executive Officer
- ---------------------
James D. Ericson
Dated March 24, 1997
66
<PAGE> 68
The Northwestern Mutual Life Insurance Company
Form 10-K
SIGNATURES (continued)
R. QUINTUS ANDERSON* Trustee
- ----------------------------
R. Quintus Anderson
EDWARD E. BARR Trustee
- ----------------------------
Edward E. Barr
GORDON T. BEAHAM, III* Trustee
- ----------------------------
Gordon T. Beaham, III
FRANK H. BERTSCH* Trustee
- ----------------------------
Frank H. Bertsch
ROBERT C. BUCHANAN* Trustee
- ----------------------------
Robert C. Buchanan
ROBERT E. CARLSON* Trustee
- ----------------------------
Robert E. Carlson
GEORGE A. DICKERMAN* Trustee
- ----------------------------
George A. Dickerman
THOMAS I. DOLAN* Trustee
- ----------------------------
Thomas I. Dolan
PIERRE S. DU PONT, IV* Trustee Dated March 24, 1997
- ----------------------------
Pierre S. Du Pont, IV
JAMES D. ERICSON* Trustee
- ----------------------------
James D. Ericson
J. E. GALLEGOS* Trustee
- ----------------------------
J. E. Gallegos
PATRICIA ALBJERG GRAHAM* Trustee
67
<PAGE> 69
The Northwestern Mutual Life Insurance Company
Form 10-K
SIGNATURES (continued)
RICHARD H. HOLTON* Trustee
- ------------------------------------
Richard H. Holton
STEPHEN F. KELLER* Trustee
- ------------------------------------
Stephen F. Keller
J. THOMAS LEWIS* Trustee
- ------------------------------------
J. Thomas Lewis
FRED G. LUBER* Trustee
- ------------------------------------
Fred G. Luber
DANIEL F. McKEITHAN, JR.* Trustee
- ------------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN Trustee
- ------------------------------------
Guy A. Osborn
DONALD J. SCHUENKE* Trustee Dated March 24, 1997
- ------------------------------------
Donald J. Schuenke
H. MASON SIZEMORE, JR. Trustee
- ------------------------------------
H. Mason Sizemore, Jr.
HAROLD B. SMITH* Trustee
- ------------------------------------
Harold B. Smith
SHERWOOD H. SMITH, JR.* Trustee
- ------------------------------------
Sherwood H. Smith, Jr.
JOHN J. STOLLENWERK* Trustee
- ------------------------------------
John J. Stollenwerk
BARRY L. WILLIAMS* Trustee
- ------------------------------------
Barry L. Williams
KATHRYN D. WRISTON* Trustee
- ------------------------------------
Kathryn D. Wriston
*By JAMES D. ERICSON*
--------------------------------
James D. Ericson, Attorney in
fact, pursuant to the Power of
Attorney attached hereto
68
<PAGE> 70
Form 10-K
POWER OF ATTORNEY
The undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
hereby constitute and appoint James D. Ericson and Robert E. Carlson, or either
of them, their true and lawful attorneys and agents to sign the names of the
undersigned Trustees to (1) the registration statement or statements to be
filed under the Securities Act of 1933 and to any instrument or document filed
as part thereof or in connection therewith or in any way related thereto, and
any and all amendments thereto in connection with variable contracts issued or
sold by The Northwestern Mutual Life Insurance Company or any separate account
credited therein and (2) the Form 10-K Annual Report or Reports of The
Northwestern Mutual Life Insurance Company and/or its separate accounts for its
or their fiscal year ended December 31, 1995 to be filed as part thereof or in
connection therewith or in any way related thereto, and any and all amendments
thereto. "Variable contracts" as used herein means any contracts providing for
benefits or values which may vary according to the investment experience of any
separate account maintained by The Northwestern Mutual Life Insurance Company,
including variable annuity contracts and variable life insurance policies.
Each of the undersigned hereby ratifies and confirms all that said attorneys
and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents
this 27th day of July, 1994.
R. QUINTUS ANDERSON Trustee
------------------------------------------
R. Quintus Anderson
EDWARD E. BARR Trustee
------------------------------------------
Edward E. Barr
GORDON T. BEAHAM, III Trustee
------------------------------------------
Gordon T. Beaham, III
FRANK H. BERTSCH Trustee
------------------------------------------
Frank H. Bertsch
ROBERT C. BUCHANAN Trustee
------------------------------------------
Robert C. Buchanan
ROBERT E. CARLSON Trustee
------------------------------------------
Robert E. Carlson
GEORGE A. DICKERMAN Trustee
------------------------------------------
George A. Dickerman
THOMAS I. DOLAN Trustee
------------------------------------------
Thomas I. Dolan
PIERRE S. DU PONT, IV Trustee
------------------------------------------
Pierre S. Du Pont, IV
JAMES D. ERICSON Trustee
------------------------------------------
James D. Ericson
J. E. GALLEGOS Trustee
------------------------------------------
J. E. Gallegos
PATRICIA ALBJERG GRAHAM Trustee
------------------------------------------
Patricia Albjerg Graham
69
<PAGE> 71
Form 10-K
RICHARD H. HOLTON Trustee
---------------------------------------------
Richard H. Holton
STEPHEN F. KELLER Trustee
---------------------------------------------
Stephen F. Keller
J. THOMAS LEWIS Trustee
---------------------------------------------
J. Thomas Lewis
FRED G. LUBER Trustee
---------------------------------------------
Fred G. Luber
DANIEL F. McKEITHAN, JR. Trustee
---------------------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN Trustee
---------------------------------------------
Guy A. Osborn
DONALD J. SCHUENKE Trustee
---------------------------------------------
Donald J. Schuenke
H. MASON SIZEMORE, JR. Trustee
---------------------------------------------
H. Mason Sizemore, Jr.
HAROLD B. SMITH Trustee
---------------------------------------------
Harold B. Smith
SHERWOOD H. SMITH, JR. Trustee
---------------------------------------------
Sherwood H. Smith, Jr.
JOHN E. STEURI Trustee
---------------------------------------------
John E. Steuri
JOHN J. STOLLENWERK Trustee
---------------------------------------------
John J. Stollenwerk
BARRY L. WILLIAMS Trustee
---------------------------------------------
Barry L. Williams
KATHRYN D. WRISTON Trustee
---------------------------------------------
Kathryn D. Wriston
70
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN
MUTUAL LIFE VARIABLE ANNUITY ACCOUNT A, DECEMBER 31, 1996 FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH POST-EFFECTIVE AMENDMENT.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> ACCOUNT A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 424,275
<INVESTMENTS-AT-VALUE> 548,907
<RECEIVABLES> 510
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 549,417
<PAYABLE-FOR-SECURITIES> 123
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,774
<TOTAL-LIABILITIES> 1,897
<SENIOR-EQUITY> 547,520
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 240,088
<SHARES-COMMON-PRIOR> 157,092
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 547,520
<DIVIDEND-INCOME> 24,501
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 5,784
<NET-INVESTMENT-INCOME> 18,717
<REALIZED-GAINS-CURRENT> 13,968
<APPREC-INCREASE-CURRENT> 33,052
<NET-CHANGE-FROM-OPS> 65,737
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN
MUTUAL LIFE VARIABLE ANNUITY ACCOUNT C, DECEMBER 31, 1996 FORM 10K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH POST-EFFECTIVE AMENDMENT.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> ACCOUNT B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 339,801
<INVESTMENTS-AT-VALUE> 426,653
<RECEIVABLES> 1,715
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 428,368
<PAYABLE-FOR-SECURITIES> 1,662
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53
<TOTAL-LIABILITIES> 1,715
<SENIOR-EQUITY> 426,653
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 88,544
<SHARES-COMMON-PRIOR> 63,813
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 426,653
<DIVIDEND-INCOME> 16,994
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,739
<NET-INVESTMENT-INCOME> 15,255
<REALIZED-GAINS-CURRENT> 8,855
<APPREC-INCREASE-CURRENT> 29,832
<NET-CHANGE-FROM-OPS> 53,942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
