<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, 1997 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 66 pages.
The Exhibit Index is located on page 42.
<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 fifth largest life insurance company in
the United States with total assets in excess of $71 billion
on December 31, 1997.
The Registrant's principal products are life insurance
contracts distributed by approximately 6,000 full-time
producing agents. Sales of life insurance contracts as a
percentage of total sales is as follows:
1997 81.43%
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, 1997, the Registrant had 3,818 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>
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income
Dividend Income from Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock Portfolio ............................ $ 5,046,819 $ 2,456,762 $ 256,787 $ 248,438
Dividend Income from Northwestern Mutual Series Fund, Inc.
International Equity Portfolio ............................... 1,627,765 1,820,972 217,966 853,704
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth Stock Portfolio ....................................... 769,950 379,453 128,854 18,971##
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth and Income Stock Portfolio ............................ 5,154,785 1,206,606 465,091 53,075##
Dividend Income from Northwestern Mutual Series Fund, Inc. Index
500 Stock Portfolio .......................................... 3,229,605 1,906,168 522,842 2,155,181
Dividend Income from Northwestern Mutual Series Fund, Inc.
Balanced Portfolio ........................................... 13,244,993 14,325,426 8,146,698 33,071,685
Dividend Income from Northwestern Mutual Series Fund, Inc. High
Yield Bond Portfolio ......................................... 1,418,106 473,729 199,805 68,840##
Dividend Income from Northwestern Mutual Series Fund, Inc.
Select Bond Portfolio ........................................ 1,556,695 906,892 652,667 2,990,731
Dividend Income from Northwestern Mutual Series Fund, Inc. Money
Market Portfolio ............................................. 1,203,410 1,024,534 1,119,254 708,559
Dividend Income from Northwestern Mutual Capital
Appreciation Stock Fund, Inc. ................................ NA NA NA NA
------------ ------------ ------------ ------------
Total Income ................................................. 33,252,128 24,500,542 11,709,964 40,169,184
Annuity Rate and Expense Guarantees ............................ 7,048,888 5,783,739 5,072,064 4,466,142
------------ ------------ ------------ ------------
Net Investment Income .......................................... $ 26,203,240 $ 18,716,803 $ 6,637,900 $ 35,703,042
============ ============ ============ ============
Realized and Unrealized Gain (Loss) on Investments
Realized Gain on Investments ................................... $ 23,135,675 $ 13,967,988 $ 13,141,169 $ 1,687,702
Unrealized Appreciation (Depreciation) of Investments During the
Year ......................................................... 56,364,111 33,051,905 76,916,515 (39,969,923)
------------ ------------ ------------ ------------
Net Gain (Loss) on Investments ................................. $ 79,499,786 $ 47,019,893 $ 90,057,684 ($38,282,221)
============ ============ ============ ============
<CAPTION>
1993
------------
<S> <C>
Dividend Income from Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock Portfolio ............................ $ 359,370
Dividend Income from Northwestern Mutual Series Fund, Inc.
International Equity Portfolio ............................... 97,043#
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth Stock Portfolio ....................................... NA
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth and Income Stock Portfolio ............................ NA
Dividend Income from Northwestern Mutual Series Fund, Inc. Index
500 Stock Portfolio .......................................... 256,688
Dividend Income from Northwestern Mutual Series Fund, Inc.
Balanced Portfolio ........................................... 13,161,961
Dividend Income from Northwestern Mutual Series Fund, Inc. High
Yield Bond Portfolio ......................................... NA
Dividend Income from Northwestern Mutual Series Fund, Inc.
Select Bond Portfolio ........................................ 1,423,472
Dividend Income from Northwestern Mutual Series Fund, Inc. Money
Market Portfolio ............................................. 520,596
Dividend Income from Northwestern Mutual Capital
Appreciation Stock Fund, Inc. ................................ 976,621**
------------
Total Income ................................................. 16,795,751
Annuity Rate and Expense Guarantees ............................ 4,074,129
------------
Net Investment Income .......................................... $ 2,721,622
============
Realized and Unrealized Gain (Loss) on Investments
Realized Gain on Investments ................................... $ 2,347,432
Unrealized Appreciation (Depreciation) of Investments During the
Year ......................................................... 14,612,044
------------
Net Gain (Loss) on Investments ................................. $ 16,959,476
============
</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
Item 6. (continued)
Changes in Equity for NML Variable Annuity Account A for each of the
five years ending December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
From Investment Activities
Net Investment Income ........................................ $ 26,203,240 $ 18,716,803 $ 6,637,900
Net Realized Gain on Investments ............................. 23,135,675 13,967,988 13,141,169
Net Change in Unrealized Appreciation (Depreciation) of
Investments ................................................ 56,364,111 33,051,905 76,916,515
------------- ------------- -------------
Increase (Decrease) in Equity Derived from Investment
Activities ........................................ 105,703,026 65,736,696 96,695,584
------------- ------------- -------------
From Equity Transactions
Contract Owners' Net Payments ................................ 61,964,558 65,169,358 49,124,853
Annuity Payments ............................................. (1,046,956) (830,996) (610,983)
Surrenders and Other (Net) ................................... (65,746,579) (52,376,445) (62,309,189)
------------- ------------- -------------
Increase (Decrease) in Equity Derived from Equity
Transactions ...................................... (4,828,977) 11,961,917 (13,795,319)
------------- ------------- -------------
Net Increase (Decrease) in Equity ................................. 100,874,049 77,698,613 82,900,265
Equity, Beginning of Year ......................................... 547,520,040 469,821,427 386,921,162
------------- ------------- -------------
Equity, End of Year ............................................... $ 648,394,089 $ 547,520,040 $ 469,821,427
============= ============= =============
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
From Investment Activities
Net Investment Income ........................................ $ 35,703,042 $ 12,721,622
Net Realized Gain on Investments ............................. 1,687,702 2,347,432
Net Change in Unrealized Appreciation (Depreciation) of
Investments ................................................ (39,969,923) 14,612,044
------------- -------------
Increase (Decrease) in Equity Derived from Investment
Activities ........................................ (2,579,179) 29,681,098
------------- -------------
From Equity Transactions
Contract Owners' Net Payments ................................ 52,262,816 51,044,522
Annuity Payments ............................................. (603,158) (522,956)
Surrenders and Other (Net) ................................... (33,008,630) (33,141,406)
------------- -------------
Increase (Decrease) in Equity Derived from Equity
Transactions ...................................... 18,651,028 17,380,160
------------- -------------
Net Increase (Decrease) in Equity ................................. 16,071,849 47,061,258
Equity, Beginning of Year ......................................... 370,849,313 323,788,055
------------- -------------
Equity, End of Year ............................................... $ 386,921,162 $ 370,849,313
============= =============
</TABLE>
See Notes to Financial Statements on page 22-23.
6
<PAGE> 7
Item 6. (continued)
Total Assets of NML Variable Annuity Account A for each of the five
following years at December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series Fund, Inc. Aggressive Growth
Stock Portfolio .......................................... $ 89,428,723 $ 78,087,972 $ 56,491,009
Northwestern Mutual Series Fund, Inc. International Equity
Portfolio ................................................ 50,148,435 41,497,787 31,789,148
Northwestern Mutual Series Fund, Inc. Growth Stock
Portfolio ................................................ 17,260,514 9,523,179 4,284,669
Northwestern Mutual Series Fund, Inc. Growth and Income
Stock Portfolio .......................................... 23,575,574 13,199,558 7,891,655
Northwestern Mutual Series Fund, Inc. Index 500 Stock
Portfolio ................................................ 111,140,823 80,917,025 62,391,687
Northwestern Mutual Series Fund, Inc. Balanced Portfolio.... 302,749,909 270,745,111 257,867,967
Northwestern Mutual Series Fund, Inc. High Yield Bond
Portfolio ................................................ 8,743,385 4,907,490 2,060,076
Northwestern Mutual Series Fund, Inc. Select Bond
Portfolio ................................................ 25,252,973 26,648,961 25,742,752
Northwestern Mutual Series Fund, Inc. Money Market Portfolio 21,586,115 23,380,205 21,556,895
Due from NML Insurance Company ...................................... 322,747 123,152 491,572
Due from Sale of Fund Shares ........................................ 1,555,441 387,086 78,037
------------ ------------ ------------
Total Assets ............................................. $651,764,639 $549,417,526 $470,645,467
============ ============ ============
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Northwestern Mutual Series Fund, Inc. Aggressive Growth
Stock Portfolio .......................................... $ 36,256,480 $ 22,946,546
Northwestern Mutual Series Fund, Inc. International Equity
Portfolio ................................................ 28,832,978 11,844,559#
Northwestern Mutual Series Fund, Inc. Growth Stock
Portfolio ................................................ 1,397,703## NA
Northwestern Mutual Series Fund, Inc. Growth and Income
Stock Portfolio .......................................... 3,282,764## NA
Northwestern Mutual Series Fund, Inc. Index 500 Stock
Portfolio ................................................ 43,545,408 43,534,827
Northwestern Mutual Series Fund, Inc. Balanced Portfolio.... 230,871,659 252,635,446
Northwestern Mutual Series Fund, Inc. High Yield Bond
Portfolio ................................................ 1,242,382## NA
Northwestern Mutual Series Fund, Inc. Select Bond
Portfolio ................................................ 22,258,901 24,004,669
Northwestern Mutual Series Fund, Inc. Money Market
Portfolio................................................. 20,120,832 17,036,899
Due from NML Insurance Company ...................................... 179,152 182,546
Due from Sale of Fund Shares ........................................ 319,392 418,356
------------ ------------
Total Assets ............................................. $388,307,651 $372,603,848
============ ============
</TABLE>
# Commenced operations on April 30, 1993.
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 22-23.
7
<PAGE> 8
Item 6. (continued)
Results of Operations for NML Variable Annuity Account C for each of the
five years ending December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------------
<S> <C> <C> <C>
Investment Income
Dividend Income from Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock Portfolio ........................... $ 6,049,655 $ 2,574,462 $ 242,583
Dividend Income from Northwestern Mutual Series Fund, Inc.
International Equity Portfolio .............................. 1,945,549 1,805,160 190,138
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth Stock Portfolio ...................................... 712,380 366,920 59,271
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth and Income Stock Portfolio ........................... 5,940,640 1,146,200 276,923
Dividend Income from Northwestern Mutual Series Fund, Inc.
Index 500 Stock Portfolio ................................... 3,755,769 2,082,261 544,553
Dividend Income from Northwestern Mutual Series Fund, Inc.
Balanced Portfolio .......................................... 6,460,653 7,534,370 4,212,478
Dividend Income from Northwestern Mutual Series Fund, Inc. High
Yield Bond Portfolio ........................................ 1,028,027 309,003 55,220
Dividend Income from Northwestern Mutual Series Fund, Inc.
Select Bond Portfolio ....................................... 1,057,558 566,451 395,357
Dividend Income from Northwestern Mutual Series Fund, Inc.
Money Market Portfolio ...................................... 738,932 609,543 494,253
Dividend Income from Northwestern Mutual Capital Appreciation
Stock Fund, Inc. ............................................ NA NA NA
------------ ------------ ------------
Total Income ..................................... 27,689,163 16,994,370 6,470,776
Annuity Rate and Expense Guarantees ........................... 2,501,975 1,738,625 856,764
------------ ------------ ------------
Net Investment Income ......................................... $ 25,187,188 $ 15,255,745 $ 5,614,012
============ ============ ============
Realized and Unrealized Gain (Loss) on Investments
Realized Gain on Investments .................................. $ 18,686,284 $ 8,855,390 $ 9,884,364
Unrealized Appreciation (Depreciation) of Investments During
the Year .................................................... 44,241,434 29,832,124 53,407,857
------------ ------------ ------------
Net Gain (Loss) on Investments ................................ $ 62,927,718 $ 38,687,514 $ 63,292,221
============ ============ ============
<CAPTION>
1994 1993
------------ -------------
<S> <C> <C>
Dividend Income from Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock Portfolio ........................... $ 232,345 $ 342,725
Dividend Income from Northwestern Mutual Series Fund, Inc.
International Equity Portfolio .............................. 703,931 26,336#
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth Stock Portfolio ...................................... 4,518## NA
Dividend Income from Northwestern Mutual Series Fund, Inc.
Growth and Income Stock Portfolio ........................... 19,233## NA
Dividend Income from Northwestern Mutual Series Fund, Inc.
Index 500 Stock Portfolio ................................... 2,226,240 260,710
Dividend Income from Northwestern Mutual Series Fund, Inc.
Balanced Portfolio .......................................... 17,046,665 6,769,160
Dividend Income from Northwestern Mutual Series Fund, Inc. High
Yield Bond Portfolio ........................................ 11,456 ## NA
Dividend Income from Northwestern Mutual Series Fund, Inc.
Select Bond Portfolio ....................................... 1,874,182 813,051
Dividend Income from Northwestern Mutual Series Fund, Inc.
Money Market Portfolio ...................................... 443,639 269,586
Dividend Income from Northwestern Mutual Capital Appreciation
Stock Fund, Inc. ............................................ NA 1,078,208 **
------------ ------------
Total Income ..................................... 22,562,209 9,559,776
Annuity Rate and Expense Guarantees ........................... 509,648 235,930
------------ ------------
Net Investment Income ......................................... $ 22,052,561 $ 9,323,846
============ ============
Realized and Unrealized Gain (Loss) on Investments
Realized Gain on Investments .................................. $ 5,949,795 $ 3,670,743
Unrealized Appreciation (Depreciation) of Investments During
the Year .................................................... (27,055,878) 7,227,689
------------ ------------
Net Gain (Loss) on Investments ................................ $(21,106,083) $ 10,898,432
============ ============
</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
Item 6. (continued)
Changes in Equity for NML Variable Annuity Account C for each of the five
years ending December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
From Investment Activities
Net Investment Income .......................................... $ 25,187,188 $ 15,255,745 $ 5,614,012
Net Realized Gain (Loss) on Investments ........................ 18,686,284 8,855,390 9,884,364
Net Change in Unrealized Appreciation (Depreciation) of
Investments .................................................. 44,241,434 29,832,124 53,407,857
------------- ------------- -------------
Increase in Equity Derived from Investment Activities ... 88,114,906 53,943,259 68,906,233
------------- ------------- -------------
From Equity Transactions
Contract Owners' Net Payments .................................. 91,195,224 89,650,916 59,390,267
Surrenders and Other (Net) ..................................... (57,974,180) (34,747,640) 60,872,729
------------- ------------- -------------
Increase in Equity Derived from Equity Transactions....... 33,221,044 54,903,276 (1,482,462)
------------- ------------- -------------
Net Increase in Equity .............................................. 121,335,950 108,846,535 67,423,771
Equity, Beginning of Year ........................................... 426,652,573 317,806,038 250,382,267
------------- ------------- -------------
Equity, End of Year ................................................. $ 547,988,523 $ 426,652,573 $ 317,806,038
============= ============= =============
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
From Investment Activities
Net Investment Income .......................................... $ 22,052,561 $ 9,323,846
Net Realized Gain (Loss) on Investments ........................ 5,949,795 3,670,743
Net Change in Unrealized Appreciation (Depreciation) of
Investments .................................................. (27,055,878) 7,227,689
------------- -------------
Increase in Equity Derived from Investment Activities ... 946,478 20,222,278
------------- -------------
From Equity Transactions
Contract Owners' Net Payments .................................. 48,709,729 39,748,661
Surrenders and Other (Net) ..................................... (26,720,946) (22,334,176)
------------- -------------
Increase in Equity Derived from Equity Transactions ...
21,988,783 17,414,485
------------- -------------
Net Increase in Equity .............................................. 22,935,261 37,636,763
Equity, Beginning of Year ........................................... 227,447,006 189,810,243
------------- -------------
Equity, End of Year ................................................. $ 250,382,267 $ 227,447,006
============= =============
</TABLE>
See Notes to Financial Statements on page 31-32.
9
<PAGE> 10
Item 6. (continued)
Total Assets of NML Variable Annuity Account C for each of the five
following years at December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
Assets
<S> <C> <C> <C>
Investments at Market Value:
Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock
Portfolio .................................................... $111,586,520 $ 95,276,983 $ 57,421,016
Northwestern Mutual Series Fund, Inc. International Equity
Portfolio .................................................... 63,877,146 49,461,520 30,039,223
Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio ... 15,850,257 9,734,427 2,084,697
Northwestern Mutual Series Fund, Inc. Growth and Income Stock
Portfolio .................................................... 27,484,626 13,034,961 4,888,505
Northwestern Mutual Series Fund, Inc. Index 500 Stock
Portfolio .................................................... 133,927,705 93,249,123 64,560,752
Northwestern Mutual Series Fund, Inc. Balanced
Portfolio..................................................... 153,733,599 131,324,909 132,469,239
Northwestern Mutual Series Fund, Inc. High Yield Bond
Portfolio..................................................... 6,568,438 2,983,258 736,774
Northwestern Mutual Series Fund, Inc. Select Bond
Portfolio..................................................... 18,059,926 17,803,016 16,281,140
Northwestern Mutual Series Fund, Inc. Money Market
Portfolio .................................................... 16,900,306 13,784,374 9,324,692
Due from NML Insurance Company ...................................... 196,511 1,662,368 808,493
Due from Sale of Fund Shares ........................................ 2,927,350 52,909 36
------------ ------------ ------------
Total Assets ...................................... $551,112,384 $428,367,848 $318,614,567
============ ============ ============
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock
Portfolio .................................................... $ 33,266,862 $ 21,836,950
Northwestern Mutual Series Fund, Inc. International Equity
Portfolio .................................................... 24,647,586 3,183,126#
Northwestern Mutual Series Fund, Inc. Growth Stock
Portfolio .................................................... 329,792## NA
Northwestern Mutual Series Fund, Inc. Growth and Income Stock
Portfolio .................................................... 1,159,187## NA
Northwestern Mutual Series Fund, Inc. Index 500 Stock
Portfolio .................................................... 45,552,429 45,850,766
Northwestern Mutual Series Fund, Inc. Balanced
Portfolio .................................................... 119,452,506 131,574,218
Northwestern Mutual Series Fund, Inc. High Yield Bond
Portfolio .................................................... 201,656## NA
Northwestern Mutual Series Fund, Inc. Select Bond
Portfolio .................................................... 14,262,125 15,071,860
Northwestern Mutual Series Fund, Inc. Money Market
Portfolio .................................................... 11,510,121 9,930,082
Due from NML Insurance Company ...................................... 279,107 35,475
Due from Sale of Fund Shares ........................................ 79,226 145,027
------------ ------------
Total Assets ...................................... $250,740,600 $227,627,504
============ ============
</TABLE>
# 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, 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 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Agressive Growth
Stock................. $3.714008 13.02% $3.286265 16.82% $2.813200
International Equity.. 1.871861 11.44 1.679665 20.11 1.398467
Growth Stock.......... 2.027359 28.89 1.572985 20.00 1.310823
Growth and Income
Stock................. 1.994748 29.06 1.545596 19.07 1.298065
Index 500 Stock....... 3.289255 32.21 2.487952 21.83 2.042204
Balanced.............. 6.248153 20.61 5.180408 12.60 4.600659
High Yield Bond....... 1.624115 14.99 1.412413 18.87 1.188188
Select Bond........... 7.263164 8.65 6.685035 2.54 6.519655
Money Market.......... 2.529098 4.69 2.415898 4.49 2.311989
</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 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock......................... $3.585281 12.45% $3.188266 16.23% $2.743106
International Equity.......... 1.828649 10.89 1.649102 19.50 1.379966
Growth Stock.................. 1.990509 28.24 1.552125 19.40 1.299976
Growth and Income
Stock......................... 1.958555 28.42 1.525144 18.47 1.287355
Index 500 Stock............... 3.175298 31.55 2.413788 21.21 1.991330
Balanced...................... 5.767570 20.01 4.805896 12.04 4.289623
High Yield Bond............... 1.594619 14.42 1.393713 18.27 1.178371
Select Bond................... 6.703164 8.11 6.200523 2.02 6.077689
Money Market.................. 2.334748 4.16 2.241420 3.97 2.155845
</TABLE>
Accumulation Unit Values
Contracts Issued On or After March 31, 1995:
Front Load Version
<TABLE>
<CAPTION>
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock........................ $1.735135 13.41% $1.529999 17.22% $1.305186
International Equity......... 1.537080 11.83 1.374484 20.53 1.140398
Growth Stock................. 1.882500 29.33 1.455537 20.42 1.208718
Growth and Income
Stock........................ 1.851666 29.51 1.429760 19.49 1.196596
Index 500 Stock.............. 2.025922 32.67 1.527085 22.25 1.249114
Balanced..................... 1.615054 21.03 1.334426 13.00 1.180953
High Yield Bond.............. 1.530051 15.39 1.326020 19.29 1.111614
Select Bond.................. 1.266282 9.03 1.161454 2.90 1.128765
Money Market................. 1.145720 5.05 1.090643 4.86 1.040089
</TABLE>
12
<PAGE> 13
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 7. (continued)
Accumulation Unit Values
Contracts Issued On or After March 31, 1995:
Back Load Version
<TABLE>
<CAPTION>
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- ------------ ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock................ $ 3.585281 12.45% $ 3.188266 16.23% $2.743106
International Equity. 1.828649 10.89 1.649102 19.50 1.379966
Growth Stock......... 1.990509 28.24 1.552125 19.40 1.299976
Growth and Income
Stock................ 1.958555 28.42 1.525144 18.47 1.287355
Index 500 Stock...... 3.175298 31.55 2.413788 21.21 1.991330
Balanced............. 5.767570 20.01 4.805896 12.04 4.289623
High Yield Bond...... 1.594619 14.42 1.393713 18.27 1.178371
Select Bond.......... 6.703164 8.11 6.200523 2.02 6.077689
Money Market......... 2.334748 4.16 2.241420 3.97 2.155845
Equity:
12/31/97 12/31/96 12/31/95
------------ ------------- ------------
$648,394,089 $547,520,040 $469,821,427
</TABLE>
The change in these amounts is largely derived from investment
activities within the Account: A $96,695,584 increase for the year
ended December 31, 1995, a $65,736,696 increase for the year ended
December 31, 1996, and a $105,703,026 increase for the year ended
December 31, 1997. Net contributions (surrenders) from contract
owners amounted to $(13,795,319) for the year ended December 31,
1995, $11,961,917 for the year ended December 31, 1996, and
$(4,828,977) for the year ended December 31, 1997.
NML Variable Annuity Account
Accumulation Unit Values
Contracts Issued Prior to December 17, 1981 or between April 30, 1984
and December 31, 1991:
<TABLE>
<CAPTION>
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock................ $37.054456 13.86% $32.542621 17.70% $27.648691
International Equity. 1.938399 12.28 1.726413 21.01 1.426613
Growth Stock......... 20.837268 29.85 16.046821 20.91 13.271899
Growth and Income
Stock................ 20.502206 30.03 15.767435 19.97 13.142782
Index 500 Stock...... 36.141676 33.20 27.133645 22.75 22.104982
Balanced............. 71.490869 21.52 58.832423 13.45 51.855817
High Yield Bond...... 16.692972 15.85 14.408967 19.77 12.030416
Select Bond.......... 83.938645 9.46 76.681608 3.31 74.222515
Money Market......... 27.434762 5.47 26.011476 5.29 24.705630
</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 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock................... $35.791674 13.30% $31.591115 17.11% $26.975930
International Equity.... 1.893664 11.72 1.695019 20.41 1.407741
Growth Stock............ 20.458788 29.21 15.834243 20.30 13.162242
Growth and Income
Stock................... 20.129770 29.38 15.558532 19.37 13.034162
Index 500 Stock......... 34.906216 32.54 26.337300 22.13 21.564611
Balanced................ 66.012286 20.91 54.595947 12.88 48.364840
High Yield Bond......... 16.389706 15.27 14.218083 19.17 11.931003
Select Bond............. 77.468103 8.92 71.125132 2.79 69.192181
Money Market............ 25.362364 4.95 24.167111 4.76 23.069838
</TABLE>
Accumulation Unit Values
Contracts Issued After December 31, 1991 - Front Load Version:
<TABLE>
<CAPTION>
Division 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock........................ $2.350498 13.13% $2.077739 16.93% $1.776871
International Equity......... 1.880500 11.55 1.685759 20.23 1.402156
Growth Stock................. 2.034708 29.01 1.577134 20.12 1.312966
Growth and Income
Stock........................ 2.001981 29.19 1.549666 19.19 1.300190
Index 500 Stock.............. 2.563560 32.34 1.937139 21.95 1.588496
Balanced..................... 1.931409 20.73 1.599774 12.71 1.419325
High Yield Bond.............. 1.630023 15.10 1.416152 18.99 1.190149
Select Bond.................. 1.490112 8.75 1.370157 2.64 1.334934
Money Market................. 1.249188 4.79 1.192105 4.60 1.139693
</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 12/31/97 % of Change 12/31/96 % of Change 12/31/95
-------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Aggressive Growth
Stock.................... $3.598431 12.45% $3.199964 16.23% $2.753170
International Equity..... 1.828649 10.89 1.649102 19.50 1.379966
Growth Stock............. 1.990509 28.24 1.552125 19.40 1.299976
Growth and Income
Stock.................... 1.958555 28.42 1.525144 18.47 1.287355
Index 500 Stock.......... 3.240055 31.55 2.463008 21.22 2.031929
Balanced................. 5.796067 20.01 4.829655 12.04 4.310821
High Yield Bond.......... 1.594619 14.42 1.393713 18.27 1.178371
Select Bond.............. 6.768475 8.11 6.260939 2.02 6.136911
Money Market............. 2.339812 4.16 2.246287 3.97 2.160533
Equity:
12/31/97 12/31/96 12/31/95
------------ ------------ ------------
<C> <C> <C>
$547,988,523 $426,652,573 $317,806,038
</TABLE>
These changes are largely derived from investment activities within
the Account: A $68,906,233 increase for the year ended December 31,
1995, a $53,943,259 increase for the year ended December 31, 1996,
and a $88,114,906 increase for the year ended December 31, 1997. Net
contributions (surrenders) from contract owners amounted to
$(1,482,462) for the year ended December 31, 1995, $54,903,276 for
the year ended December 31, 1996, and $33,221,044 for the year ended
December 31, 1997.
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
--------------------------------
Assets 1997 1996
--------------- ---------------
<S> <C> <C>
Investments at market value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
1997: 26,799,138 shares (cost $63,803,191)..... $ 89,428,723 $ 78,087,972
1996: 24,829,244 shares (cost $54,025,343).....
International Equity
1997: 29,691,199 shares (cost $40,304,940)..... 50,148,435 41,497,787
1996: 26,635,293 shares (cost $34,100,468).....
Growth Stock
1997: 9,536,195 shares (cost $13,891,054)...... 17,260,514 9,523,179
1996: 6,504,903 shares (cost $8,193,212).......
Growth and Income Stock
1997: 17,712,678 shares (cost $23,485,676)..... 23,575,574 13,199,558
1996: 10,014,839 shares (cost $11,804,187).....
Index 500 Stock
1997: 42,035,107 shares (cost $62,642,616)..... 111,140,823 80,917,025
1996: 39,375,681 shares (cost $51,893,158).....
Balanced
1997: 152,059,221 shares (cost $210,403,734)... 302,749,909 270,745,111
1996: 157,593,196 shares (cost $210,643,607)...
High Yield Bond
1997: 8,225,197 shares (cost $9,217,130)....... 8,743,385 4,907,490
1996: 4,465,414 shares (cost $4,847,740).......
Select Bond
1997: 20,089,875 shares (cost $23,555,171)..... 25,252,973 26,648,961
1996: 21,772,027 shares (cost $25,386,654).....
Money Market
1997: 21,586,115 shares (cost $21,586,115)..... 21,586,115 23,380,205
1996: 23,380,205 shares (cost $23,380,205).....
--------------- ---------------
649,886,451 548,907,288
Due from Sales of Fund Shares...................... 1,555,441 387,086
Due from Northwestern Mutual Life Insurance Company 322,747 123,152
--------------- ---------------
Total Assets.................................... $ 651,764,639 $ 549,417,526
=============== ===============
Liabilities
Due to Participants................................ $ 1,492,363 $ 1,387,248
Due to Northwestern Mutual Life Insurance Company.. 1,555,441 387,086
Due from Purchase of Fund Shares................... 322,747 123,152
--------------- ---------------
Total Liabilities............................... $ 3,370,551 $ 1,897,484
=============== ===============
</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 1997 1996
---------------- ----------------
<S> <C> <C>
Contracts Issued Prior to December 17, 1981:
Aggressive Growth Stock Division
1997: 640,838 Accumulation Units @ 3.714008.......... $ 2,380,076
1996: 890,850 Accumulation Units @ 3.286265.......... $ 2,927,568
Annuity Reserves...................................... 71,827 75,244
---------------- ----------------
2,451,903 3,002,812
---------------- ----------------
International Equity Division
1997: 1,297,660 Accumulation Units @ 1.871861........ 2,429,039
1996: 1,332,812 Accumulation Units @ 1.679665........ 2,238,678
Annuity Reserves...................................... 150,892 147,829
---------------- ----------------
2,579,931 2,386,507
---------------- ----------------
Growth Stock Division
1997: 327,731 Accumulation Units @ 2.027359.......... 664,427
1996: 118,168 Accumulation Units @ 1.572985.......... 185,861
Annuity Reserves...................................... 0 9,807
---------------- ----------------
664,427 195,668
---------------- ----------------
Growth and Income Stock Division
1997: 348,188 Accumulation Units @ 1.994748.......... 694,546
1996: 69,566 Accumulation Units @ 1.545596........... 107,521
Annuity Reserves...................................... 0 180,931
---------------- ----------------
694,546 288,452
---------------- ----------------
Index 500 Stock Division
1997: 8,175,537 Accumulation Units @ 3.289255........ 26,891,427
1996: 9,600,286 Accumulation Units @ 2.487952........ 23,885,052
Annuity Reserves...................................... 1,305,930 1,300,177
---------------- ----------------
28,197,357 25,185,229
---------------- ----------------
Balanced Division
1997: 3,845,538 Accumulation Units @ 6.248153........ 24,027,509
1996: 4,743,812 Accumulation Units @ 5.180408........ 24,574,880
Annuity Reserves...................................... 1,640,281 1,454,827
---------------- ----------------
25,667,790 26,029,707
---------------- ----------------
High Yield Bond Division
1997: 600,752 Accumulation Units @ 1.624115.......... 975,690
1996: 428,588 Accumulation Units @ 1.412413.......... 605,343
Annuity Reserves...................................... 0 7,644
---------------- ----------------
975,690 612,987
---------------- ----------------
Select Bond Division
1997: 1,012,083 Accumulation Units @ 7.263164........ 7,350,925
1996: 1,215,131 Accumulation Units @ 6.685035........ 8,123,192
Annuity Reserves...................................... 273,840 75,632
---------------- ----------------
7,624,765 8,198,824
---------------- ----------------
Money Market Division
1997: 893,452 Accumulation Units @ 2.529098.......... 2,259,628
1996: 1,103,625 Accumulation Units @ 2.415898........ 2,666,245
Annuity Reserves...................................... 58,694 60,981
---------------- ----------------
2,318,322 2,727,226
---------------- ----------------
</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.) 1997 1996
---------------- ----------------
<S> <C> <C>
Contracts Issued After December 16, 1981 and
Prior to March 31, 1995:
Aggressive Growth Stock Division
1997: 20,861,309 Accumulation Units @ 3.585281.......... $ 74,793,655
1996: 21,479,837 Accumulation Units @ 3.188266.......... $ 68,483,433
Annuity Reserves......................................... 137,989 191,587
---------------- ----------------
74,931,644 68,675,020
---------------- ----------------
International Equity Division
1997: 22,910,908 Accumulation Units @ 1.828649.......... 41,896,009
1996: 22,132,206 Accumulation Units @ 1.649102.......... 36,498,266
Annuity Reserves......................................... 174,073 100,731
---------------- ----------------
42,070,082 36,598,997
---------------- ----------------
Growth Stock Division
1997: 6,045,075 Accumulation Units @ 1.990509........... 12,032,777
1996: 4,845,965 Accumulation Units @ 1.552125........... 7,521,543
Annuity Reserves......................................... 11,803
---------------- ----------------
12,044,580 7,521,543
---------------- ----------------
Growth and Income Stock Division
1997: 8,963,724 Accumulation Units @ 1.958555........... 17,555,947
1996: 7,054,484 Accumulation Units @ 1.525144........... 10,759,104
Annuity Reserves:........................................ 332,207
---------------- ----------------
17,888,154 10,759,104
---------------- ----------------
Index 500 Stock Division
1997: 21,531,879 Accumulation Units @ 3.175298.......... 68,370,132
1996: 20,092,060 Accumulation Units @ 2.413788.......... 48,497,973
Annuity Reserves......................................... 2,462,112 1,673,310
---------------- ----------------
70,832,244 50,171,283
---------------- ----------------
Balanced Division
1997: 44,638,127 Accumulation Units @ 5.767570.......... 257,453,521
1996: 48,457,793 Accumulation Units @ 4.805896.......... 232,883,113
Annuity Reserves......................................... 3,937,936 3,048,888
---------------- ----------------
261,391,457 235,932,001
---------------- ----------------
High Yield Bond Division
1997: 3,770,055 Accumulation Units @ 1.594619........... 6,011,801
1996: 2,456,295 Accumulation Units @ 1.393713........... 3,423,371
Annuity Reserves......................................... 67,256
---------------- ----------------
6,079,057 3,423,371
---------------- ----------------
Select Bond Division
1997: 2,252,704 Accumulation Units @ 6.703164........... 15,100,242
1996: 2,691,481 Accumulation Units @ 6.200523........... 16,688,589
Annuity Reserves......................................... 591,284 580,678
---------------- ----------------
15,691,526 17,269,267
---------------- ----------------
Money Market Division
1997: 6,270,333 Accumulation Units @ 2.334748........... 14,639,648
1996: 7,029,739 Accumulation Units @ 2.241420........... 15,756,598
Annuity Reserves......................................... 454,275 368,369
---------------- ----------------
15,093,923 16,124,967
---------------- ----------------
</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.) 1997 1996
--------------- ---------------
<S> <C> <C>
Contracts Issued On or After March 31, 1995 - Back Load Version:
Aggressive Growth Stock Division
1997: 2,926,218 Accumulation Units @ 3.585281................ $ 10,491,351
1996: 1,734,023 Accumulation Units @ 3.188266................ $ 5,528,526
Annuity Reserves.............................................. 27,274
--------------- ---------------
10,518,625 5,528,526
--------------- ---------------
International Equity Division
1997: 2,488,184 Accumulation Units @ 1.828649................ 4,550,016
1996: 1,281,128 Accumulation Units @ 1.649102................ 2,112,711
Annuity Reserves.............................................. 0
--------------- ---------------
4,550,016 2,112,711
--------------- ---------------
Growth Stock Division
1997: 1,870,296 Accumulation Units @ 1.990509................ 3,722,840
1996: 922,390 Accumulation Units @ 1.552125.................. 1,431,665
Annuity Reserves.............................................. 26,907
--------------- ---------------
3,749,747 1,431,665
--------------- ---------------
Growth and Income Stock Division
1997: 1,940,827 Accumulation Units @ 1.958555................ 3,801,216
1996: 1,215,721 Accumulation Units @ 1.525144................ 1,854,150
Annuity Reserves.............................................. 26,336
--------------- ---------------
3,827,552 1,854,150
--------------- ---------------
Index 500 Stock Division
1997: 3,279,176 Accumulation Units @ 3.175298................ 10,412,362
1996: 1,970,961 Accumulation Units @ 2.413788................ 4,757,482
Annuity Reserves.............................................. 0
--------------- ---------------
10,412,362 4,757,482
--------------- ---------------
Balanced Division
1997: 2,109,606 Accumulation Units @ 5.767570................ 12,167,299
1996: 1,347,427 Accumulation Units @ 4.805896................ 6,475,593
Annuity Reserves.............................................. 219,112
--------------- ---------------
12,386,411 6,475,593
--------------- ---------------
High Yield Bond Division
1997: 967,188 Accumulation Units @ 1.594619.................. 1,542,185
1996: 572,121 Accumulation Units @ 1.393713.................. 797,373
Annuity Reserves.............................................. 0
--------------- ---------------
1,542,185 797,373
--------------- ---------------
Select Bond Division
1997: 271,027 Accumulation Units @ 6.703164.................. 1,816,737
1996: 182,907 Accumulation Units @ 6.200523.................. 1,134,116
Annuity Reserves.............................................. 0
--------------- ---------------
1,816,737 1,134,116
--------------- ---------------
Money Market Division
1997: 1,081,227 Accumulation Units @ 2.334748................ 2,524,393
1996: 1,123,081 Accumulation Units @ 2.241420................ 2,517,297
Annuity Reserves.............................................. 0
--------------- ---------------
2,524,393 2,517,297
--------------- ---------------
</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.) 1997 1996
--------------- ---------------
<S> <C> <C>
Contracts Issued On or After March 31, 1995 - Front Load Version:
Aggressive Growth Stock Division
1997: 832,513 Accumulation Units @ 1.735135................... $ 1,444,522
1996: 568,732 Accumulation Units @ 1.529999................... $ 870,160
Annuity Reserves............................................... 55,374
--------------- ---------------
1,499,896 870,160
--------------- ---------------
International Equity Division
1997: 575,775 Accumulation Units @ 1.537080................... 885,012
1996: 286,469 Accumulation Units @ 1.374484................... 393,747
Annuity Reserves............................................... 24,148
--------------- ---------------
909,160 393,747
--------------- ---------------
Growth Stock Division
1997: 422,029 Accumulation Units @ 1.882500................... 794,469
1996: 257,158 Accumulation Units @ 1.455537................... 374,303
Annuity Reserves............................................... 0
--------------- ---------------
794,469 374,303
--------------- ---------------
Growth and Income Stock Division
1997: 540,977 Accumulation Units @ 1.851666................... 1,001,708
1996: 208,323 Accumulation Units @ 1.429760................... 297,852
Annuity Reserves............................................... 133,668
--------------- ---------------
1,135,376 297,852
--------------- ---------------
Index 500 Stock Division
1997: 690,248 Accumulation Units @ 2.025922................... 1,398,389
1996: 454,096 Accumulation Units @ 1.527085................... 693,444
Annuity Reserves............................................... 54,108
--------------- ---------------
1,452,497 693,444
--------------- ---------------
Balanced Division
1997: 1,296,330 Accumulation Units @ 1.615054................. 2,093,642
1996: 786,271 Accumulation Units @ 1.334426................... 1,049,220
Annuity Reserves............................................... 95,364
--------------- ---------------
2,189,006 1,049,220
--------------- ---------------
High Yield Bond Division
1997: 95,718 Accumulation Units @ 1.530051.................... 146,453
1996: 55,625 Accumulation Units @ 1.326020.................... 73,760
Annuity Reserves............................................... 0
--------------- ---------------
146,453 73,760
--------------- ---------------
Select Bond Division
1997: 72,941 Accumulation Units @ 1.266282.................... 92,364
1996: 38,713 Accumulation Units @ 1.161454.................... 44,963
Annuity Reserves............................................... 0
--------------- ---------------
92,364 44,963
--------------- ---------------
Money Market Division
1997: 1,439,686 Accumulation Units @ 1.145720................. 1,649,477
1996: 1,843,605 Accumulation Units @ 1.090643................. 2,010,715
Annuity Reserves............................................... 0
--------------- ---------------
1,649,477 2,010,715
--------------- ---------------
Total Equity............................................. $ 648,394,124 $ 547,520,042
--------------- ---------------
Total Liabilities and Equity............................. $ 651,764,675 $ 549,417,526
=============== ===============
</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>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Investment Income
Dividend Income.............................................. $ 33,252,128 $ 24,500,542 $ 11,709,964
Annuity Rate and Expense Guarantees.......................... 7,048,888 5,783,739 5,072,064
------------ ------------ ------------
Net Investment Income........................................ 26,203,240 18,716,803 6,637,900
------------ ------------ ------------
Realized and Unrealized Gain on Investments
Net Unrealized Gain on Investments........................... 23,135,675 13,967,988 13,141,169
Unrealized Appreciation (Depreciation) During the Year....... 56,364,111 33,051,905 76,916,515
------------ ------------ ------------
Net Gain (Loss) on Investments............................... 79,499,786 47,019,893 90,057,684
------------ ------------ ------------
Increase (Decrease) in Equity Derived from Investment Activity 105,703,026 65,736,696 96,695,584
------------ ------------ ------------
Equity Transactions
Contract Owners' Net Payments................................ 61,964,558 65,169,358 49,124,853
Annuity Payments............................................. (1,046,956) (830,996) (610,983)
Surrenders and Other (Net)................................... (65,746,579) (52,376,445) (62,309,189)
------------ ------------ ------------
Increase (Decrease) in Equity Derived from Equity Transactions (4,828,977) 11,961,917 (13,795,319)
------------ ------------ ------------
Net Increase in Equity........................................ 100,874,049 77,698,613 82,900,265
Equity, Beginning of Year..................................... 547,520,040 469,821,427 386,921,162
------------ ------------ ------------
Equity, End of Year........................................... $648,394,089 $547,520,040 $469,821,427
============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
<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 1997 1996 1995
- --------- ------------ ------------ ------------
<S> <C> <C> <C>
Aggressive Growth Division $13,774,024 $17,797,661 $10,658,292
International Equity Division 9,401,229 8,274,087 4,305,567
Growth Stock Division 6,679,256 4,830,460 2,702,664
Growth & Income Stock Division 13,074,930 5,756,071 4,147,264
Index 500 Stock Division 14,059,126 11,279,772 7,998,931
Balanced Division 21,076,301 20,896,761 14,258,034
High Yield Bond Division 5,687,823 3,296,028 1,411,373
Select Bond Division 4,506,469 5,463,472 3,837,930
Money Market Division 13,132,202 13,328,217 14,421,123
Sales
- -----
Aggressive Growth Division $ 8,367,827 $ 4,234,497 $ 5,672,013
International Equity Division 4,431,627 3,828,530 5,324,662
Growth Stock Division 1,576,559 508,512 427,690
Growth & Income Stock Division 2,076,927 1,277,020 576,160
Index 500 Stock Division 8,104,812 5,728,800 5,165,148
Balanced Division 32,274,893 26,932,275 36,790,058
High Yield Bond Division 1,516,721 568,230 673,375
Select Bond Division 6,636,325 4,528,222 3,928,823
Money Market Division 14,926,292 11,504,938 12,987,931
</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.
Since 1995, Northwestern Mutual Life has paid a dividend to certain contracts.
The dividend is 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
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 1997 1996
-------------- ----------------
<S> <C> <C>
Investments at market value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
1997: 33,439,173 shares (cost $85,858,851)..... $111,586,520 $ 95,276,983
1996: 30,294,748 shares (cost $70,855,533).....
International Equity
1997: 37,819,506 shares (cost $52,786,634)..... 63,877,146 49,461,520
1996: 31,746,803 shares (cost $41,642,844).....
Growth Stock
1997: 8,757,048 shares (cost $13,278,855)...... 15,850,257
1996: 6,649,199 shares (cost $9,029,280)....... 9,734,427
Growth and Income Stock
1997: 20,649,607 shares (cost $28,811,270)..... 27,484,626 13,034,961
1996: 9,889,955 shares (cost $12,379,951)......
Index 500 Stock
1997: 50,653,443 shares (cost $81,303,357)..... 133,927,705
1996: 45,376,702 shares (cost $63,645,634)..... 93,249,123
Balanced
1997: 77,214,264 shares (cost $114,230,115).... 153,733,599
1996: 76,440,576 shares (cost $108,531,164).... 131,324,909
High Yield Bond
1997: 6,179,152 shares (cost $6,940,417)....... 6,568,438
1996: 2,714,521 shares (cost $2,978,850)....... 2,983,258
Select Bond
1997: 14,367,483 shares (cost $16,785,623)..... 18,059,926
1996: 14,544,948 shares (cost $16,953,280)..... 17,803,016
Money Market
1997: 16,900,306 shares (cost $16,900,306)..... 16,900,306 13,784,374
1996: 13,784,374 shares (cost $13,784,374).....
-------------- ----------------
547,988,523 426,652,571
Due from Sales of Fund Shares...................... 2,927,350 52,909
Due from Northwestern Mutual Life Insurance Company 196,511 1,662,368
-------------- ----------------
Total Assets.................................... $ 551,112,384 $ 428,367,848
============== ================
Liabilities
Due to Northwestern Mutual Life Insurance Company . $ 2,927,350 $ 52,909
Due from Purchase of Fund Shares................... 196,511 1,662,368
-------------- ----------------
Total Liabilities............................... $ 3,123,861 $ 1,715,277
============== ================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<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
----------------------------
Equity 1997 1996
------------- -------------
<S> <C> <C>
Contracts Issued Before December 17, 1981 or
Between April 30, 1984 and December 31, 1991:
Aggressive Growth Stock Division
1997: 1,935,434 Accumulation Units @ 37.054456......... $71,716,451
1996: 1,944,411 Accumulation Units @ 32.542621......... $63,276,230
International Equity Division
1997: 23,069,550 Accumulation Units @ 1.938399......... 44,717,992
1996: 20,439,570 Accumulation Units @ 1.726413......... 35,287,138
Growth Stock Division
1997: 482,897 Accumulation Units @ 20.837268........... 10,062,263
1996: 378,236 Accumulation Units @ 16.046821........... 6,069,485
Growth and Income Stock Division
1997: 711,558 Accumulation Units @ 20.502206........... 14,588,507
1996: 424,144 Accumulation Units @ 15.767435........... 6,687,664
Index 500 Stock Division
1997: 2,558,205 Accumulation Units @ 36.141676......... 92,457,808
1996: 2,386,284 Accumulation Units @ 27.133645......... 64,748,577
Balanced Division
1997: 1,341,930 Accumulation Units @ 71.490869......... 95,935,733
1996: 1,489,658 Accumulation Units @ 58.832423......... 87,640,161
High Yield Bond Division
1997: 235,585 Accumulation Units @ 16.692972........... 3,932,608
1996: 119,423 Accumulation Units @ 14.408967........... 1,720,768
Select Bond Division
1997: 85,036 Accumulation Units @ 83.938645............ 7,137,800
1996: 97,868 Accumulation Units @ 76.681608............ 7,504,704
Money Market Division
1997: 38,584 Accumulation Units @ 27.434762............ 1,058,532
1996: 57,013 Accumulation Units @ 26.011476............ 1,483,002
</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 (Cont'd.) 1997 1996
----------------- ----------------
<S> <C> <C>
Contracts Issued After December 16, 1981 and Prior to May 1, 1984:
Aggressive Growth Stock Division
1997: 1,141 Accumulation Units @ 35.791674..................... $ 40,847
1996: 4,243 Accumulation Units @ 31.591115..................... $ 134,035
Annuity Reserves................................................ 33,487 31,590
----------------- ----------------
74,334 165,625
----------------- ----------------
International Equity Division
1997: 109,646 Accumulation Units @ 1.893664.................... 207,632
1996: 109,569 Accumulation Units @ 1.695019.................... 185,722
Annuity Reserves................................................ 17,392 16,637
----------------- ----------------
225,024 202,359
----------------- ----------------
Growth Stock Division
1997: 137 Accumulation Units @ 20.458788....................... 2,809
1996: N/A...................................................... 0
Annuity Reserves................................................ 40,850 0
----------------- ----------------
43,659 0
----------------- ----------------
Growth and Income Stock Division
1997: 2,270 Accumulation Units @ 20.129770..................... 45,701
1996: 1,252 Accumulation Units @ 15.558532..................... 19,472
Annuity Reserves................................................ 0 33,791
----------------- ----------------
45,701 53,263
----------------- ----------------
Index 500 Stock Division
1997: 19,041 Accumulation Units @ 34.906216.................... 664,652
1996: 45,781 Accumulation Units @ 26.337300.................... 1,205,748
Annuity Reserves................................................ 42,741 34,467
----------------- ----------------
707,393 1,240,215
----------------- ----------------
Balanced Division
1997: 86,634 Accumulation Units @ 66.012286.................... 5,718,908
1996: 90,172 Accumulation Units @ 54.595947.................... 4,923,025
Annuity Reserves................................................ 486,559 429,289
----------------- ----------------
6,205,467 5,352,314
----------------- ----------------
Select Bond Division
1997: 532 Accumulation Units @ 77.468103....................... 41,227
1996: 7,598 Accumulation Units @ 71.125132..................... 540,440
Annuity Reserves................................................ 40,290 39,535
----------------- ----------------
81,517 579,975
----------------- ----------------
Money Market Division
1997: 871 Accumulation Units @ 25.362364....................... 22,084
1996: 14,233 Accumulation Units @ 24.167111.................... 343,966
Annuity Reserves................................................ 7,530 7,669
----------------- ----------------
29,614 351,635
----------------- ----------------
</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) 1997 1996
-------------- --------------
<S> <C> <C>
Contracts Issued After December 31, 1991 Front Load Version:
Aggressive Growth Stock Division
1997: 3,169,006 Accumulation Units @ 2.350498............ $ 7,448,743
1996: 3,197,341 Accumulation Units @ 2.077739............ $ 6,643,240
International Equity Division
1997: 3,021,349 Accumulation Units @ 1.880500............ 5,681,647
1996: 2,709,249 Accumulation Units @ 1.685759............ 4,567,140
Growth Stock Division
1997: 710,110 Accumulation Units @ 2.034708.............. 1,444,866
1996: 587,482 Accumulation Units @ 1.577134.............. 926,538
Growth and Income Stock Division
1997: 1,970,478 Accumulation Units @ 2.001981............ 3,944,860
1996: 1,357,354 Accumulation Units @ 1.549666............ 2,103,446
Index 500 Stock Division
1997: 3,966,706 Accumulation Units @ 2.563560............ 10,168,888
1996: 3,880,961 Accumulation Units @ 1.937139............ 7,517,961
Balanced Division
1997: 6,187,478 Accumulation Units @ 1.931409............ 11,950,551
1996: 5,934,240 Accumulation Units @ 1.599774............ 9,493,443
High Yield Bond Division
1997: 423,726 Accumulation Units @ 1.630023.............. 690,684
1996: 275,323 Accumulation Units @ 1.416152.............. 389,899
Select Bond Division
1997: 2,574,248 Accumulation Units @ 1.490112............ 3,835,918
1996: 2,676,832 Accumulation Units @ 1.370157............ 3,667,680
Money Market Division
1997: 1,710,473 Accumulation Units @ 1.249188............ 2,136,703
1996: 2,829,669 Accumulation Units @ 1.192105............ 3,373,263
</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) 1997 1996
------------- -------------
<S> <C> <C>
Contracts Issued After December 31, 1991 Simplified Load Version:
Aggressive Growth Stock Division
1997: 8,989,193 Accumulation Units @ 3.598431................. $ 32,346,992
1996: 7,872,553 Accumulation Units @ 3.199964................. $ 25,191,889
International Equity Division
1997: 7,247,144 Accumulation Units @ 1.828649................. 13,252,483
1996: 5,703,032 Accumulation Units @ 1.649102................. 9,404,881
Growth Stock Division
1997: 2,159,985 Accumulation Units @ 1.990509................. 4,299,469
1996: 1,742,522 Accumulation Units @ 1.552125................. 2,704,613
Growth and Income Stock Division
1997: 4,547,004 Accumulation Units @ 1.958555................. 8,905,558
1996: 2,769,823 Accumulation Units @ 1.525144................. 4,224,380
Index 500 Stock Division
1997: 9,442,314 Accumulation Units @ 3.240055................. 30,593,616
1996: 8,015,553 Accumulation Units @ 2.463008................. 19,742,371
Balanced Division
1997: 6,839,439 Accumulation Units @ 5.796067................. 39,641,848
1996: 5,971,232 Accumulation Units @ 4.829655................. 28,838,992
High Yield Bond Division
1997: 1,219,819 Accumulation Units @ 1.594619................. 1,945,147
1996: 626,090 Accumulation Units @ 1.393713................... 872,590
Select Bond Division
1997: 1,034,899 Accumulation Units @ 6.768475................. 7,004,691
1996: 966,414 Accumulation Units @ 6.260939................... 6,050,655
Money Market Division
1997: 5,844,682 Accumulation Units @ 2.339812................. 13,675,458
1996: 3,818,067 Accumulation Units @ 2.246287................. 8,576,475
------------- -------------
Total Equity............................................... $ 547,988,525 $ 426,652,571
------------- -------------
Total Liabilities and Equity............................... $ 551,112,386 $ 428,367,848
============= =============
</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
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
For the Years Ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Investment Income
Dividend Income.................................................. $ 27,689,163 $ 16,994,370 $ 6,470,776
Annuity Rate and Expense Guarantees.............................. 2,501,975 1,738,625 856,764
------------- ------------- -------------
Net Investment Income............................................ 25,187,188 15,255,745 5,614,012
------------- ------------- -------------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain (Loss) on Investments.......................... 18,686,284 8,855,390 9,884,364
Unrealized Appreciation (Depreciation) During the Year........... 44,241,434 29,832,124 53,407,857
------------- ------------- -------------
Net Gain (Loss) on Investments................................... 62,927,718 38,687,514 63,292,221
------------- ------------- -------------
Increase in Equity Derived from Investment Activity............... 88,114,906 53,943,259 68,906,233
------------- ------------- -------------
Equity Transactions
Contract Owners' Net Payments.................................... 91,195,224 89,650,916 59,390,267
Surrenders and Other (Net)....................................... (57,974,180) (34,747,640) (60,872,729)
------------- ------------- -------------
Increase (Decrease) in Equity Derived from Equity Transactions ... 33,221,044 54,903,276 (1,482,462)
------------- ------------- -------------
Net Increase in Equity............................................ 121,335,950 108,846,535 67,423,771
Equity, Beginning of Year......................................... 426,652,573 317,806,038 250,382,267
------------- ------------- -------------
Equity, End of Year............................................... $ 547,988,523 $ 426,652,573 $ 317,806,038
============= ============= =============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE> 30
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 1997 1996 1995
- --------- ----------- ----------- -----------
<S> <C> <C> <C>
Aggressive Growth Division $21,563,810 $30,690,195 $15,956,497
International Equity Division 14,484,423 15,119,614 6,724,373
Growth Stock Division 5,929,895 7,308,964 1,794,866
Growth & Income Stock Division 18,445,529 8,410,421 3,709,640
Index 500 Stock Division 22,292,577 19,824,136 9,719,794
Balanced Division 18,920,420 19,426,753 17,257,735
High Yield Bond Division 4,398,102 2,362,508 632,095
Select Bond Division 4,295,571 5,445,050 4,302,192
Money Market Division 20,035,837 20,346,897 10,821,340
Sales
- -----
Aggressive Growth Division $12,675,291 $ 1,045,256 $ 6,866,522
International Equity Division 4,352,840 1,571,810 4,899,939
Growth Stock Division 2,395,716 303,927 213,213
Growth & Income Stock Division 2,674,188 839,196 310,894
Index 500 Stock Division 10,114,507 5,253,981 7,360,855
Balanced Division 17,783,563 29,797,911 29,565,575
High Yield Bond Division 480,911 158,086 87,219
Select Bond Division 4,561,008 3,918,139 4,475,998
Money Market Division 16,919,905 15,887,232 13,008,176
</TABLE>
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 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.
Since 1996, Northwestern Mutual Life has paid a dividend to certain contracts.
The dividend is re-invested 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.
Item 9 is on page 34.
31
<PAGE> 32
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.
32
<PAGE> 33
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, 1998, 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 67 1984 May 1999 Chairman, Audit Committee
Edward E. Barr 61 1991 May 1999 Member, Human Resources and Public Policy Committee
Gordon T. Beaham, III 66 1988 May 2001 Member, Operations and Technology Committee
Robert C. Buchanan 57 1991 May 1999 Member, Audit, Executive and Finance Committees
Robert E. Carlson 62 1989 May 1998 (1) Executive Vice President; Member, Executive Committee
George A. Dickerman 59 1994 May 2000 Member, Agency and Marketing Committee
Pierre S. DuPont 63 1985 May 1998 (1) Member, Agency and Marketing Committee
James D. Ericson 62 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 62 1985 May 2000 Member, Audit Committee
Stephen N. Graff 63 1996 May 2000 Member, Executive, Finance, and Operations and Technology
Committees
Patricia Albjerg Graham 63 1980 May 2000 Member, Human Resources and Public Policy Committee
Stephen F. Keller 59 1984 May 1999 Member, Human Resources and Public Policy Committee
Barbara A. King 51 1996 May 1998 (1) Member, Agency and Marketing Committtee
J. Thomas Lewis 61 1978 May 1998 (1) Chairman, Human Resources and Public Policy Committee
Daniel F. McKeithan, Jr. 62 1988 May 1999 Member, Executive, Finance, and Human Resources and Public Policy
Committees
</TABLE>
(1) Candidate proposed for re-election by the Board of Trustees for the
election to be held at the May 1998 Annual meeting of policyholders. If
re-elected, these Trustees' terms will expire in May of 2002.
33
<PAGE> 34
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
EXPIRATION OF TERM
TRUSTEE AGE YEAR ELECTED OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT
- ---------------------- --- ------------ -------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Guy A. Osborn 62 1994 May 2001 Member, Operations and Technology, Executive and Finance Committees
Timothy D. Proctor 48 1997 May 2001 Member, Audit Committee
Donald J. Schuenke 69 1980 May 1998 (1) Member, Agency and Marketing, Executive and Finance Committees
H. Mason Sizemore, Jr. 56 1993 May 1999 Member, Agency and Marketing Committee
Harold B. Smith 64 1973 May 2000 Member, Operations and Technology Committee
Sherwood H. Smith, Jr. 61 1992 May 1998 (1) Chairman, Agency and Marketing Committee
John E. Steuri 58 1994 May 1999 Chairman, Operations and Technology Committee
John J. Stollenwerk 58 1993 May 2001 Member, Agency and Marketing, Executive and Finance Committees
Barry L. Williams 53 1987 May 2001 Member, Human Resources and Public Policy Committee
Kathryn D. Wriston 59 1986 May 2001 Member, Audit Committee
</TABLE>
(1) Candidate proposed for re-election by the Board of Trustees for the
election to be held at the May 1998 Annual meeting of policyholders. If
re-elected, these Trustees' terms will expire in May of 2002.
34
<PAGE> 35
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 10. (continued)
(b) The following information as of March 1, 1998, is provided
with respect to each Executive Officer of the Registrant.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
James D. Ericson 62 President and Chief Executive Officer, Trustee
Robert E. Carlson 62 Executive Vice President (Strategic Marketing), Trustee
Peter W. Bruce 52 Executive Vice President (Accumulation Products and Long-Term Care)
Frederic H. Sweet 54 Senior Vice President (Government Relations)
Dennis Tamcsin 59 Senior Vice President (Field Relations)
James W. Ehrenstrom 61 Senior Vice President
Walt J. Wojcik 58 Senior Vice President (Information Systems)
Edward J. Zore 52 Executive Vice President (Life and Disability Income Insurance)
Mason G. Ross 53 Senior Vice President (Investment Administration and Real Estate)
Richard L. Hall 52 Senior Vice President (Life and Disability Income Market Development)
John M. Bremer 50 Executive Vice President, General Counsel and Secretary
(Administration and Law)
Mark G. Doll 48 Senior Vice President (Public Markets)
William C. Koenig 50 Senior Vice President and Chief Actuary
Gary E. Long 53 Vice President and Controller
Deborah A. Beck 50 Senior Vice President (Insurance Operations/Chief Compliance Officer)
Donald L. Mellish 59 Senior Vice President (Field Financial Services)
Barbara F. Piehler 47 Vice President (Policyowner Services)
James F. Reiskytl 60 Vice President (Tax and Financial Planning)
Leonard F. Stecklein 51 Senior Vice President (Agency Services)
Martha M. Valerio 51 Vice President (Corporate Development)
W. Ward White 58 Vice President (Communications)
Thomas E. Dyer 52 Vice President (New Business)
Steven T. Catlett 48 Vice President (Corporate Services)
Gregory C. Oberland 40 Vice President (Policy Benefits)
Meridee J. Maynard 42 Vice President (Annuity and Accumulation Products)
Susan A. Lueger 44 Vice President (Human Resources)
William H. Beckley 50 Senior Vice President (Agencies)
Robert J. Berdan 51 Vice President (Compliance/Best Practices)
John E. Schlifske 38 Vice President (Securities)
Bruce L. Miller 51 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.
35
<PAGE> 36
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 10. (continued)
Term of office for all Executive Officers is one year expiring May 31,
1998.
(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>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
R. Quintus Anderson Chairman, The Aarque Capital Corporation, Jamestown, New York, since Cold Metal Products Company, Inc.
1966. Chairman, The Aarque Companies, 1980-1996. Oneida, Ltd.
Edward E. Barr Chairman, Sun Chemical Corporation, Fort Lee, New Jersey. First Union Corporation
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 Corporation, Grady, W. H. Company
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 Chairman of the Board, Spalding Sports Worldwide, Chicopee, Evenflo & Spalding Holdings Corp.
Massachusetts, since 1981.
Pierre S. Du Pont Attorney, Richards, Layton & Finger, Wilmington, Delaware, since Louisiana-Pacific Corporation
1985; prior thereto, Governor of Delaware. Pet Incorporated
Whitman Corporation
James D. Ericson President and Chief Executive Officer of NML since 10-1-93. MGIC Investment Corporation
President and Chief Operating Officer 1991-1993. President Kohl's Corporation
1990-1991; Executive Vice President 1987-1990; prior thereto, Senior Consolidated Paper Inc.
Vice President-Investments 1980-1987. Mason Street Funds, Inc.
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.
</TABLE>
36
<PAGE> 37
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen N. Graff Office Managing Partner (retired), Arthur Andersen LLP, Milwaukee, Mason Street Funds, Inc.
Wisconsin, since 1994. Managing Partner (Milwaukee office) 1981-93; Regal-Beloit Corporation
head of Audit Division 1978-81.
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, since Firstar Corporation
1982. Marcus Corporation
WICOR Corporation
Guy A. Osborn Retired Chairman, Universal Foods Corp., Milwaukee, Wisconsin, since Firstar Corporation
April 1997. Chairman, October 1996-1997. Chairman and Chief Firstar Bank Milwaukee
Executive Officer, 1990-1996. Prior thereto, Chief Executive Fleming Cos.
Officer 1988-1990. Universal Foods Corporation
WICOR
Wisconsin Gas Company
Timothy D. Proctor Senior Vice President Human Resources, General Counsel and
Secretary, Glaxo Wellcome Inc., since 1996. Senior Vice President,
General Counsel and Secretary, 1994-1996; Vice President and General
Counsel, 1993-1994. Prior thereto Vice President and Associate
General Counsel, Merck & Co., Inc., 1980-1993.
</TABLE>
37
<PAGE> 38
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donald J. Schuenke Chairman of the Board, Northern Telecom Limited since April 1994. A. O. Smith Corporation
Retired Chairman of NML since 2-1-94. Chairman of the Board of NML Badger Meter, Inc.
10-1-93 to 1-31-94. Chairman and Chief Executive Officer 1990-1993. Federal Home Loan Mortgage
President and Chief Executive Officer 1983-1990; President and Corporation (Freddie Mac)
Chief Operating Officer 1981-1983; President 1980-1981; prior Northern Telecom, Ltd.
thereto, Senior Vice President-Investments.
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., Glenview, Grainger, W. W., Inc.
Illinois since 1982; Vice Chairman, 1981; prior thereto, President. Illinois Tool Works Inc.
Northern Trust Corporation
Sherwood H. Smith, Jr. Chairman of the Board, Carolina Power & Light Company, Raleigh, Carolina Power & Light Co.
North Carolina, since October 1996. Chairman and Chief Executive Northern Telecom Ltd.
Officer, 1992-1996. Prior thereto, Chairman/President and CEO Springs Industries, Inc.
1980-1992; President and CEO 1979-1980; President 1976-1979. Wachovia Corporation
John E. Steuri Chairman, Advanced Thermal Technologies, Little Rock, Arkansas, National Computer Systems
since May 1997. Retired Chairman and CEO *ALLTEL Information
Services, Inc., Little Rock, Arkansas, 1996-1997. 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 Ventures, American President Companies
Inc., San Francisco, California, since 1/1993. Prior thereto: Pacific Gas & Electric
President 1987-1992; President and Chief Executive Officer, C. N. Simpson Manufacturing Company
Flagg Power, Inc., Meriden, Connecticut 1988-1992. Prior thereto, Tenera L.P.
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.
38
<PAGE> 39
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.
39
<PAGE> 40
The Northwestern Mutual Life Insurance Company
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.
40
<PAGE> 41
The Northwestern Mutual Life Insurance Company
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.
41
<PAGE> 42
The Northwestern Mutual Life Insurance Company
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. and Mason
Street Funds, Inc. (the "Funds"), series companies registered
as open-end management companies under the Investment Company
Act of 1940 and each consisting of nine portfolios; and the
Registrant is a party to investment advisory agreements with
both funds. The investment advisory agreements were entered
into or renewed during the fiscal year. Various Trustees and
Officers of the Registrant serve as directors and officers of
the Funds 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.
42
<PAGE> 43
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 13. (continued)
(b) Not applicable.
(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.
43
<PAGE> 44
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<S><C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page
(a) Financial Statements and Exhibits 16
(1) NML Variable Annuity Account A (in Part II, Item 8)
Statement of Assets and Liabilities,
December 31, 1997 and 1996
Statement of Operations and Changes in
Equity, for years ended December 31,
1997, 1996 and 1995
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, 1997
and 1996
Statement of Operations and Changes in
Equity, for years ended December 31,
1997, 1996 and 1995
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, 1997 and 1996
Consolidated Statement of Operations, for
years ended December 31, 1997, 1996 and
1995
Consolidated Statement of General
Contingency Reserve, for years ended
December 31, 1997, 1996 and 1995
Consolidated Statement of Cash Flows, for
years ended December 31, 1997, 1996 and
1995
Notes to Financial
Statements
(b) No reports on Form 8-K have been filed during
the last quarter of the year ended December 31, 1997.
(c) Compensation amounts deferred in 1997 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>
44
<PAGE> 45
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
GENERAL DISTRIBUTION
DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 46
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, 1997 and 1996, and the related consolidated statements of
operations, of changes in general contingency reserve and of cash flows for
each of the three years in the period ended December 31, 1997. 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 were 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 that expressed in our previous report.
<PAGE> 47
As described in Note 1, these consolidated financial statements were prepared
in conformity with accounting practices prescribed or permitted by the Office
of the Commissioner of Insurance of the State of Wisconsin (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, 1997 and 1996, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1997 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, 1997 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, on the basis of accounting described in Note 1.
January 26, 1998
<PAGE> 48
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------ ------
Assets
<S> <C> <C>
Bonds $32,359 $29,076
Common and preferred stocks 6,524 4,728
Mortgage loans 10,835 9,564
Real estate 1,372 1,385
Policy loans 7,163 6,802
Other investments 2,026 1,714
Cash and temporary investments 572 1,131
Due and accrued investment income 795 764
Other assets 1,275 1,177
Separate account assets 8,160 6,339
------- -------
Total assets $71,081 $62,680
======= =======
Liabilities and General Contingency Reserve
Reserves for policy benefits $47,343 $43,209
Policy benefit and premium deposits 1,624 1,567
Policyowner dividends payable 2,640 2,350
Interest maintenance reserve 461 299
Asset valuation reserve 1,974 1,538
Income taxes payable 1,043 942
Other liabilities 3,735 2,921
Separate account liabilities 8,160 6,339
------- -------
Total liabilities 66,980 59,165
General contingency reserve 4,101 3,515
------- -------
Total liabilities and general
contingency reserve $71,081 $62,680
======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 49
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------
1997 1996 1995
------ ------ ------
Revenue
<S> <C> <C> <C>
Premiums $7,294 $6,667 $6,196
Net investment income 4,171 3,836 3,673
Policy benefits left with Company and other income 861 759 733
------ ------ ------
Total revenue 12,326 11,262 10,602
------ ------ ------
Benefits and expenses
Benefit payments to policyowners and beneficiaries:
Death benefits 775 673 655
Surrender benefits 1,422 1,182 1,375
Disability benefits 227 202 174
Annuity benefits 140 128 92
Matured endowments 58 52 48
Payments from policy benefits left with Company 707 684 590
------ ------ ------
Benefits paid 3,329 2,921 2,934
Net transfers to separate accounts 566 579 236
Net additions to policy reserves 4,026 3,701 3,506
------ ------ ------
Total benefits 7,921 7,201 6,676
Operating expenses 1,138 1,043 1,026
------ ------ ------
Total benefits and expenses 9,059 8,244 7,702
------ ------ ------
Gain from operations before income taxes and dividends 3,267 3,018 2,900
Policyowner dividends 2,636 2,341 2,111
------ ------ ------
Gain from operations before taxes 631 677 789
Income tax expense 356 452 467
------ ------ ------
Net gain from operations 275 225 322
Net realized capital gains 414 395 137
------ ------ ------
Net income $ 689 $ 620 $ 459
====== ====== ======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 50
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN GENERAL CONTINGENCY RESERVE
(in millions)
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Beginning of year balance $3,515 $2,786 $2,225
Net income 689 620 459
Increase in net unrealized capital gains 576 295 373
Increase in investment reserves (526) (176) (237)
Other, net (153) (10) (34)
------ ------ ------
Net increase in general contingency reserve 586 729 561
------ ------ ------
End of year balance $4,101 $3,515 $2,786
====== ====== ======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 51
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Insurance and annuity premiums $8,093 $7,361 $6,864
Investment income received 3,928 3,634 3,480
Net disbursement of policy loans (360) (326) (331)
Benefits paid to policyowners and beneficiaries (3,316) (2,912) (2,939)
Net transfers to separate accounts (565) (579) (236)
Policyowner dividends paid (2,347) (2,105) (1,945)
Operating expenses and taxes (1,722) (1,663) (1,364)
Other, net 564 1,558 381
------- ------- -------
Net cash provided by operating activities 4,275 4,968 3,910
------- ------- -------
Cash flows from investing activities
Proceeds from investments sold or matured
Bonds 38,284 31,942 25,317
Common and preferred stocks 9,057 4,570 2,465
Mortgage loans 1,012 1,253 431
Real estate 302 178 48
Other invested assets 398 316 149
------- ------- -------
49,053 38,259 28,410
------- ------- -------
Cost of investments acquired
Bonds 41,169 35,342 27,596
Common and preferred stocks 9,848 4,463 2,562
Mortgage loans 2,309 2,455 1,883
Real estate 202 125 202
Other invested assets 359 255 336
------- ------- -------
53,887 42,640 32,579
------- ------- -------
Net cash used in investing activities (4,834) (4,381) (4,169)
------- ------- -------
Net (decrease) increase in cash
and temporary investments (559) 587 (259)
Cash and temporary investments, beginning of year 1,131 544 803
------- ------- -------
Cash and temporary investments, end of year $ 572 $ 1,131 $ 544
======= ======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 52
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - PRINCIPAL ACCOUNTING POLICIES
The accompanying consolidated statutory financial statements include the
accounts of The Northwestern Mutual Life Insurance Company ("Company") and its
wholly-owned life insurance subsidiary, Northwestern Long Term Care Insurance
Company ( "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 Office of the Commissioner of Insurance
of the State of Wisconsin ("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.
Financial statements prepared on the statutory basis of accounting vary from
financial statements prepared on a GAAP basis primarily because on a GAAP basis
(1) policy acquisition costs are deferred and amortized, (2) investment
valuations and insurance reserves are based on different assumptions, (3) funds
received under deposit-type contracts are not reported as premium revenue, and
(4) deferred taxes are provided for temporary differences between book and tax
basis of certain assets and liabilities. The effects on the financial
statements of the differences between the statutory basis of accounting and
GAAP are material to the Company.
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 future results could differ from these 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
- 1 -
<PAGE> 53
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Common and preferred stocks - Common stocks are carried at market value,
preferred stocks are generally carried at
cost, and unconsolidated subsidiaries are
recorded as equity in subsidiaries' net
assets
Mortgage loans - Amortized cost
Real estate - Lower of cost, less depreciation and
encumbrances, or estimated net realizable
value
Policy loans - Unpaid principal balance, which
approximates fair value
Other investments - Consists primarily of joint ventures which
are valued at equity in ventures' net
assets
Cash and temporary investments - Amortized cost, which approximates fair
value
Cash and Temporary Investments
Temporary investments consist of debt securities that have maturities of one
year or less at acquisition.
Net Investment Income
Net investment income includes interest and dividends received or due and
accrued on debt securities and stocks, equity in unconsolidated subsidiaries'
earnings and the Company's prorated portion of joint venture income. Net
investment income is reduced by investment management expenses, real estate
depreciation and depletion related to energy assets.
Interest Maintenance Reserve
The Company is required to maintain an interest maintenance reserve ("IMR").
The IMR is used to defer realized gains and losses, net of tax, on fixed income
investments resulting from changes in interest rates. Net realized gains and
losses deferred to the IMR are amortized into investment income over the
approximate remaining term to maturity of the investment sold.
Asset Valuation Reserve
The Company is required to maintain an asset valuation reserve ("AVR"). The
AVR establishes a general reserve for invested assets held by the Company
using a formula prescribed by state regulations. The AVR is designed to
stabilize the general contingency reserves against potential declines in the
value of investments.
- 2 -
<PAGE> 54
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Separate Account Business
Separate account assets and related policy liabilities represent the segregation
of funds deposited by "variable" life insurance and annuity policyowners.
Policyowners bear the investment performance risk associated with variable
products. Separate account assets are invested at the direction of the
policyowner in a variety of Company-managed mutual funds and/or a fixed interest
rate option. Separate account assets are reported at fair market value.
Reserves for Policy Benefits
Reserves for policy benefits are determined by actuarial estimates based on
mortality and morbidity experience tables and valuation interest rates
prescribed by the Office of the Commissioner of Insurance of the State of
Wisconsin. See Note 3.
Premium Revenue and Operating Expenses
Life insurance premiums are recognized as revenue at the beginning of each
policy year. Annuity and disability income premiums are recognized when
received by the Company. Operating expenses, including costs of acquiring new
policies, are charged to operations as incurred.
Policyowner Dividends
All life insurance policies, and certain annuity and disability income
policies, issued by the Company are participating. Annually, the Company's
Board of Trustees approves dividends payable on participating policies in the
following fiscal year, which are accrued and charged to operations when
approved.
Reclassification
Certain 1996 and 1995 financial statement balances have been reclassified to
conform to the current year presentation.
NOTE 2 - INVESTMENTS
Debt Securities
Debt securities consist of all bonds and fixed-maturity preferred stocks. The
estimated market values of debt securities 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.
- 3 -
<PAGE> 55
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Statement value, which principally represents amortized cost, and estimated
market value of the Company's debt securities at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
December 31, 1997 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 $ 3,695 $ 336 $ (3) $ 4,028
Mortgage-backed securities 7,015 264 (4) 7,275
Corporate and other
debt securities 21,649 1,098 (208) 22,539
--------- -------------- -------------- --------------
32,359 1,698 (215) 33,842
Preferred stocks 167 4 (2) 169
--------- -------------- -------------- --------------
Total $ 32,526 $ 1,702 $ (217) $ 34,011
========= ============== ============== ==============
<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 $ 4,789 $ 171 $ (2) $ 4,958
Mortgage-backed securities 6,747 179 (38) 6,888
Corporate and other
debt securities 17,540 776 (99) 18,217
--------- -------------- -------------- --------------
29,076 1,126 (139) 30,063
Preferred stocks 84 6 (1) 89
--------- -------------- -------------- --------------
Total $ 29,160 $ 1,132 $ (140) $ 30,152
========= ============== ============== ==============
</TABLE>
- 4 -
<PAGE> 56
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
The statement value of debt securities by contractual maturity at December 31,
1997 and 1996 is 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.
December 31, December 31,
1997 1996
------------ -------------
(in millions)
Due in one year or less $ 605 $ 457
Due after one year through five years 4,878 4,077
Due after five years through ten years 9,760 7,802
Due after ten years 10,268 10,077
-------- ---------
25,511 22,413
Mortgage-backed securities 7,015 6,747
-------- ---------
$ 32,526 $ 29,160
======== =========
Stocks
The estimated market values of common and perpetual preferred stocks 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.
The cost of common and preferred stock held by the Company at December 31, 1997
and 1996 is $5.0 billion and $3.7 billion, respectively.
Mortgage Loans and Real Estate
Mortgage loans are collateralized by properties located throughout the United
States and Canada. The Company attempts to minimize mortgage loan investment
risk by diversification of geographic locations and types of properties.
The fair value of mortgage loans as of December 31, 1997 and 1996 was
approximately $11.5 billion and $9.8 billion, respectively. The fair value of
the mortgage loan portfolio is estimated 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.
- 5 -
<PAGE> 57
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
At December 31, 1997, real estate includes $61 million acquired through
foreclosure and $124 million of home office real estate. In 1997 and 1996, the
Company recorded unrealized losses of $2 million and $43 million, respectively,
for the excess of carrying value over fair value of certain real estate
investments and mortgage loans.
Realized Gains and Losses
Realized investment gains and losses for the years ended December 31, 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
For the year ended For the year ended For the year ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------------------- ---------------------------- ----------------------------
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 $ 518 $ (269) $ 249 $ 396 $ (383) $ 13 $ 576 $ (130) $ 446
Common and
preferred Stocks 533 (150) 383 580 (115) 465 574 (429) 145
Mortgage loans 14 (14) - 2 (15) (13) 2 (32) (30)
Real estate 100 (2) 98 36 0 36 14 (3) 11
Other invested
assets 338 (105) 233 204 (51) 153 188 (95) 93
------- ------- ------ ------- ------- ------ ------ ------- ------
$ 1,503 $ (540) $ 963 $ 1,218 $ (564) $ 654 $1,354 $ (689) $ 665
======= ======= ====== ======= ======= ====== ====== ======= ======
Less: Capital
gains taxes 340 224 239
Less: IMR deferrals 209 35 289
------ ------ ------
Net realized
capital gains $ 414 $ 395 $ 137
====== ====== ======
</TABLE>
Securities Lending
The Company has entered into a securities lending agreement whereby certain
securities are loaned to third parties, primarily major brokerage firms. 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. Collateral assets received and related liability due
to counterparties of $1.5 billion and $1.0 billion are included in the
consolidated statements of financial position at December 31, 1997 and 1996,
respectively, and approximate the statement value of securities loaned at those
dates.
- 6 -
<PAGE> 58
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Investment in MGIC
The Company owns 18.4% (20.9 million shares) of the outstanding common stock of
MGIC Investment Corporation ("MGIC"). This investment is accounted for using
the equity method. At December 31, 1997, the market value of the Company's
investment in MGIC exceeded the statement value of $273 million by $768
million.
In July 1995, the Company entered into a forward contract with a brokerage firm
to deliver 8.8 million to 10.7 million shares of MGIC (or cash in an amount
equal to the market value of the MGIC shares at contract maturity) in August,
1998, in exchange for a fixed cash payment of $247 million ($24 per share).
The Company's objective in entering into the forward contract was to hedge
against depreciation in the value of its MGIC holdings during the contract
period below the initial spot price of $24, while partially participating in
appreciation, if any, during the forward contract's duration.
Derivative Financial Instruments
In the normal course of business, the Company enters into transactions to
reduce its exposure to fluctuations in interest rates, foreign currency
exchange rates and market volatility. These hedging strategies include the use
of forwards, futures, options and swaps. In addition to the use of derivatives
for hedging purposes, equity swaps were held for investment purposes during
1997.
The Company held the following positions for hedging purposes at December 31,
1997:
<TABLE>
<CAPTION>
Notional
Derivative Financial Instrument Amounts Risks Reduced
- -------------------------------------- ---------------- ----------------------------------------
<S> <C> <C>
(inmillions)
Foreign Currency Forward Contracts $564 Currency exposure on foreign-
denominated investments.
Common Stock Futures 327 Stock market price fluctuation.
Bond Futures 95 Bond market price fluctuation.
Options to acquire Interest Rate Swaps 530 Interest rates payable on
certain annuity and insurance contracts.
Foreign Currency and Interest Rate Swaps 209 Interest rates on variable rate
notes and currency exposure on foreign- denominated bonds.
</TABLE>
The notional or contractual amounts of derivative financial instruments are
used to denominate
- 7 -
<PAGE> 59
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
these types of transactions and do not represent the amounts exchanged between
the parties.
The notional amount of equity swaps outstanding at December 31, 1997 was $143
million.
The hedges are recorded by the Company in the same manner as the underlying
investments. Foreign currency forwards, foreign currency swaps, stock futures,
and options to acquire interest rate swaps are reported at market value. There
is no statement value reported for interest rate swaps and bond futures prior
to the settlement of the contract. Changes in the values of these contracts
are expected to offset gains and losses on the hedged items. For hedges
reported at market value, gains and losses are unrealized until expiration of
the contract. The effect of derivative transactions is not material to the
Company's results of operations or financial position.
NOTE 3 - RESERVES FOR POLICY BENEFITS
Life insurance reserves on substantially all policies issued since 1978 are
based on the Commissioner's Reserve Valuation Method ("CRVM") with interest
rates ranging from 3-1/2% to 5-1/2%. Other life 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 contracts issued since 1985 are valued using CRVM
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 based
on 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. Active life reserves for prior DI policies are estimated using the
net level premium method, a 3% to 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.
- 8 -
<PAGE> 60
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 - EMPLOYEE AND AGENT BENEFIT PLANS
The Company sponsors noncontributory defined benefit retirement plans for all
eligible employees and agents. The expense associated with these plans is
generally recorded by the Company in the period contributions to the plans are
funded. As of January 1, 1997, the most recent actuarial valuation date
available, the defined benefit plans were fully funded. In addition, the
Company has a contributory 401(k) plan for eligible employees and a
noncontributory defined contribution plan for all full-time agents. The
Company's contributions are expensed in the period contributions are required
under the plan. The defined benefit and defined contribution plans' assets of
$1.4 billion at December 31, 1997 are primarily invested in the separate
accounts of the Company.
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, 1997 was a net benefit of $1.3 million; it
includes the expected cost of postretirement benefits for newly eligible and
vested employees, interest cost and return on plan assets totaling $3.6 million,
offset by gains from favorable differences between actuarial assumptions and
actual experience of $4.9 million.
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ -----------
<S> <C> <C>
Unfunded postretirement benefit obligation
for retirees and other fully eligible employees $34 million $35 million
(Accrued in statement of financial position)
Estimated postretirement benefit obligation
for active non-vested employees (Not accrued
until employee vests) $50 million $43 million
Discount rate 7% 7%
Health care cost trend rate 10% to an ultimate 10% to an ultimate
5%, declining 1% 5%, declining 1%
for 5 years for 5 years
</TABLE>
If the health care cost trend rate assumptions were increased by 1%, the
accrued postretirement benefit obligation as of December 31, 1997 would be
increased by $4 million.
At December 31, 1997, the recorded postretirement benefit obligation was
reduced by $20 million for assets funded for postretirement health care
benefits.
- 9 -
<PAGE> 61
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 5 - 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
to reinsurers under excess coverage and co-insurance contracts. The Company
retains a maximum of $15 million of coverage per individual life and $20
million maximum of coverage per joint life. The Company has an excess
reinsurance contract for disability income policies with retention limits
varying based upon on coverage type.
The amounts shown in the accompanying consolidated financial statements are net
of reinsurance activity. Benefit reserves at December 31, 1997 and 1996 are
reported net of reinsurance of $435 million and $355 million, respectively.
The effect of reinsurance on premiums and benefits for the years ended December
31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions)
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Direct premiums $7,647 $7,064 $6,452
Reinsurance ceded (353) (397) (256)
------ ------- ------
Net premium revenue $7,294 $6,667 $6,196
====== ======= ======
Benefits to policyowners and beneficiaries $8,057 $7,348 $6,818
Reinsurance recoveries (136) (147) (142)
------ ------- ------
Net benefits to policyowners and beneficiaries $7,921 $7,201 $6,676
====== ======= ======
</TABLE>
In addition, the Company received $115 million, $93 million and $67 million in
1997, 1996 and 1995 respectively, from reinsurers representing reimbursement of
commissions and other expenses. These amounts are included in other income in
the consolidated statement 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
- 10 -
<PAGE> 62
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 6 - INCOME TAXES
Provisions for income taxes are based on current income tax payable without
recognition of deferred taxes. 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 gains from operations before income tax
expense (after dividends) in 1997, 1996 and 1995 were 56%, 67% and 60%,
respectively. The Company's effective tax rate exceeds the federal corporate
rate of 35% because, (1) the Company pays a tax that is assessed only on mutual
life insurance companies which treats a portion of policyholder dividends like
nondeductible dividends paid to shareholders of stock companies ("equity tax"),
and (2) the Company must capitalize and amortize (as opposed to immediately
deducting) an amount deemed to represent the cost of acquiring new business
("DAC tax").
NOTE 7 - CONTINGENCIES
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $112 million at December 31, 1997 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.
Doc. No. 79585
- 11 -
<PAGE> 63
The Northwestern Mutual Life Insurance Company
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 1997:
Executive Officers
- ------------------
James D. Ericson $ 224,500
Robert E. Carlson 81,500
Walt J. Wojcik 202,000
Mason G. Ross 18,300
Frederic H. Sweet 15,780
James F. Reiskytl 16,700
Richard L. Hall 27,950
Gary E. Long 57,500
Donald L. Mellish 46,800
Deborah A. Beck 33,500
Edward J. Zore 33,500
Dennis Tamcsin 71,500
Peter W. Bruce 58,220
Mark G. Doll 57,500
John M. Bremer 45,500
James W. Ehrenstrom 60,500
William C. Koenig 15,000
Leonard F. Stecklein 14,100
Martha M. Valerio 111,830
W. Ward White 32,508
Barbara F. Piehler 38,500
Thomas E. Dyer 31,900
Steven T. Catlett 11,856
Gregory C. Oberland 9,500
Susan A. Lueger 41,760
Meridee J. Maynard 47,200
William H. Beckley 19,100
Robert J. Berdan 17,300
Bruce L. Miller 24,500
John E. Schlifske 13,520
Trustees
- --------
Stephen F. Keller 45,750
R. Quintus Anderson #2 51,250
Jake E. Gallegos #2 45,750
Patricia Albjerg Graham #2 46,750
Robert C. Buchanan 42,150
Edward E. Barr 46,750
Sherwood H. Smith, Jr. 50,250
John J. Stollenwerk 83,650
Herman M. Sizemore 45,750
George A. Dickerman 43,250
John E. Steuri 50,250
Barbara A. King 28,000
$2,059,374
==========
<PAGE> 64
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 23, 1998
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 23, 1998
<PAGE> 65
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
ROBERT C. BUCHANAN* Trustee
- -------------------------------
Robert C. Buchanan
ROBERT E. CARLSON* Trustee
- -------------------------------
Robert E. Carlson
GEORGE A. DICKERMAN* Trustee
- -------------------------------
George A. Dickerman
PIERRE S. DU PONT* Trustee Dated March 23, 1998
- -------------------------------
Pierre S. Du Pont
J. E. GALLEGOS* Trustee
- -------------------------------
J. E. Gallegos
STEPHEN N. GRAFF* Trustee
- -------------------------------
Stephen N. Graff
PATRICIA ALBJERG GRAHAM* Trustee
- -------------------------------
Patricia Alberg Graham
<PAGE> 66
The Northwestern Mutual Life Insurance Company
Form 10-K
SIGNATURES (continued)
STEPHEN F. KELLER* Trustee
- -------------------------------------
Stephen F. Keller
BARBARA A. KING* Trustee
- -------------------------------------
Barbara A. King
J. THOMAS LEWIS* Trustee
- -------------------------------------
J. Thomas Lewis
DANIEL F. McKEITHAN, JR.* Trustee
- -------------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN* Trustee
- -------------------------------------
Guy A. Osborn
TIMOTHY D. PROCTOR* Trustee
- -------------------------------------
Timothy D. Proctor
DONALD J. SCHUENKE* Trustee Dated March 23, 1998
- -------------------------------------
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
*By JAMES D. ERICSON*
---------------------------------
James D. Ericson, Attorney in
fact, pursuant to the Power of
Attorney attached hereto
<PAGE> 67
The Northwestern Mutual Life Insurance Company
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, 1998 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 23rd day of July, 1997.
R. QUINTUS ANDERSON Trustee
------------------------------
R. Quintus Anderson
EDWARD E. BARR Trustee
------------------------------
Edward E. Barr
GORDON T. BEAHAM, III Trustee
------------------------------
Gordon T. Beaham, III
ROBERT C. BUCHANAN Trustee
------------------------------
Robert C. Buchanan
ROBERT E. CARLSON Trustee
------------------------------
Robert E. Carlson
GEORGE A. DICKERMAN Trustee
------------------------------
George A. Dickerman
PIERRE S. DU PONT Trustee
------------------------------
Pierre S. Du Pont
JAMES D. ERICSON Trustee
------------------------------
James D. Ericson
J. E. GALLEGOS Trustee
------------------------------
J. E. Gallegos
STEPHEN N. GRAFF Trustee
------------------------------
Stephen N. Graff
PATRICIA ALBJERG GRAHAM Trustee
------------------------------
Patricia Albjerg Graham
<PAGE> 68
The Northwestern Mutual Life Insurance Company
Form 10-K
STEPHEN F. KELLER Trustee
------------------------------
Stephen F. Keller
BARBARA A. KING Trustee
------------------------------
Barbara A. King
J. THOMAS LEWIS Trustee
------------------------------
J. Thomas Lewis
DANIEL F. McKEITHAN, JR. Trustee
------------------------------
Daniel F. McKeithan, Jr.
GUY A. OSBORN Trustee
------------------------------
Guy A. Osborn
TIMOTHY D. PROCTOR Trustee
------------------------------
Timothy D. Proctor
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTHWESTERN
MUTUAL VARIABLE LIFE ACCOUNT, DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH POST-EFFECTIVE AMENDMENT.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 468,890
<INVESTMENTS-AT-VALUE> 649,887
<RECEIVABLES> 1,878
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 651,765
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,370
<TOTAL-LIABILITIES> 3,370
<SENIOR-EQUITY> 648,395
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 348,395
<DIVIDEND-INCOME> 33,253
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 7,047
<NET-INVESTMENT-INCOME> 26,206
<REALIZED-GAINS-CURRENT> 23,135
<APPREC-INCREASE-CURRENT> 56,364
<NET-CHANGE-FROM-OPS> 105,705
<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 VARIABLE LIFE ACCOUNT, DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH POST-EFFECTIVE AMENDMENT.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 381,997
<INVESTMENTS-AT-VALUE> 493,768
<RECEIVABLES> 1,387
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 495,155
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,387
<TOTAL-LIABILITIES> 1387
<SENIOR-EQUITY> 493,768
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 493,768
<DIVIDEND-INCOME> 20,337
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,119
<NET-INVESTMENT-INCOME> 19,218
<REALIZED-GAINS-CURRENT> 9,097
<APPREC-INCREASE-CURRENT> 24,920
<NET-CHANGE-FROM-OPS> 53,235
<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>
