<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, 1998
-----------------
Commission file numbers 333-2245 and 2-89905.
--------------------
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
in respect of NML Variable Annuity Account A & NML Variable Annuity Account C
-----------------------------------------------------------------------------
(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 12(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 .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. X
-----
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days.
Not Applicable
--------------
Indicate the number of shares outstanding of each of the registrant'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 62.
<PAGE> 2
The Northwestern Mutual Life Insurance Company
Form 10-K
PART I
Item 1. Business
Founded in 1857, The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual") is a mutual
insurance company organized under the laws of the
State of Wisconsin. Northwestern Mutual's products
consist of a complete range of permanent and term
life insurance, disability income insurance,
long-term care insurance, mutual funds and annuities
for personal, estate, retirement, business and
benefits planning. Northwestern Mutual markets its
insurance products and services in all 50 states of
the United States and in the District of Columbia
through an exclusive network of approximately 7,400
agents at December 31, 1998 associated with over 100
general agencies. At December 31, 1998, Northwestern
Mutual had approximately 3,700 full and part-time
employees.
Northwestern Mutual's three principal lines of
business are: (i) life insurance, which provides a
full range of individual life insurance products,
including traditional whole life, CompLife, variable
life and term policies to meet the needs of middle to
upper income individuals, small business owners and
professionals, estates and selected large
corporations; (ii) disability income insurance, which
provides a complete line of individual and group
products, including individual non-cancelable,
guaranteed renewable loss of earnings, buyout, key
person, and short and long-term group coverages,
marketed primarily to middle to upper income
individuals, professionals, and small- to
medium-sized businesses and their owners; and (iii)
annuity and accumulation products, which provide
individual variable, fixed and immediate annuities
offered in conjunction with qualified pension plans,
retirement plans for self employed individuals,
individual retirement and personal non-tax qualified
situations, group annuities and a family of retail
mutual funds known as Mason Street Funds, marketed
primarily to middle to upper income individuals,
small business owners and professionals. A new
business line for Northwestern Mutual, long-term care
insurance, commenced in August 1998 with the
introduction of its QuietCare product. For the years
ended December 31, 1998, 1997 and 1996, Northwestern
Mutual had total premiums, including annuity
considerations and deposit funds, of $8.0 billion,
$7.3 billion, and $6.7 billion, respectively, of
which $6.5 billion, $5.9 billion and $5.3 billion,
respectively, was attributable to life insurance,
$0.5 billion, $0.5 billion and $0.5 billion,
respectively, was attributable to disability income
insurance and $1.0 billion, $0.9 billion and $0.9
billion, respectively, was attributable to annuity
and accumulation products.
The life insurance industry is mature and highly
competitive. Competitiveness in the life insurance
business is affected by various factors including,
but not limited to, product quality, financial
strength and stability, claims-paying ratings, size
and competence of agency force, range of product
lines, customer service, and reputation. At the end
of 1998, there were more than 1,500 life insurance
companies in the United States and many of these
companies offer individual life insurance and annuity
products similar to those offered by Northwestern
Mutual. In addition, Northwestern Mutual competes
with banks, brokerage firms, investment advisers,
mutual funds and other financial entities for
investment and savings customers. In the individual
and group disability markets, Northwestern Mutual
competes with a limited number of major national and
regional companies offering these specialized
products. National banks, with their pre-existing
customer bases for financial services products, may
pose increasing competition in the future to insurers
who sell life insurance and annuity products,
including Northwestern Mutual. Recent United States
Supreme Court decisions have expanded the authority
of national banks to sell life insurance products and
annuities. From time to time, legislative proposals,
including repeal or modification of the
Glass-Steagall Act or the Bank Holding Company Act,
which would allow banks to diversify into other
businesses, including insurance, are put forth. Such
proposals, if enacted, could increase the competition
Northwestern Mutual will face.
Northwestern Mutual is licensed to transact its
insurance business in, and is subject to regulation
and supervision by, all 50 states of the United
States and the District of Columbia. Northwestern
Long Term Care Insurance Company, Northwestern's only
insurance subsidiary, is authorized and regulated in
all jurisdictions in which it conducts its long-term
care business. The extent of such regulation varies,
but most jurisdictions have laws and regulations
governing the financial aspects of insurance
companies, including standards of solvency, reserves,
reinsurance, capital adequacy and the business
conduct of insurance
2
<PAGE> 3
The Northwestern Mutual Life Insurance Company
Form 10-K
companies. In addition, statutes
and regulations usually require the licensing of
insurers and their agents, the approval of policy
forms and related materials and, for certain lines of
insurance, the approval of rates. Such statutes and
regulations also prescribe the permitted types and
concentration of investments.
Robert W. Baird & Co. Incorporated ("Baird"), a
subsidiary of Northwestern Mutual, is one of the
nation's largest regional investment banking firms
based on dollar volume of underwritings, amount of
equity capital, and the number of investment officers
and branch offices. Baird, a member of the New York
Stock Exchange, Inc., provides broker-dealer, asset
management, equity research, investment banking,
merchant banking and public finance services for
individuals, corporations, municipalities and
institutional investors.
On January 1, 1999, Northwestern Mutual acquired all
the outstanding common stock of Frank Russell Company
("Frank Russell"). Founded in 1936, Frank Russell is
a leading investment management and consulting firm,
providing investment advice, analytical tools and
funds to institutional and individual investors in
more than 30 countries. Through its subsidiaries, at
December 31, 1998, Frank Russell managed
approximately $45 billion in assets. Frank Russell is
also well known for its family of market indices,
including the Russell 2000, which provide complete
sets of performance benchmarks for investors in
Australia, Canada, Japan and the United States.
This Annual Report on Form 10-K of Northwestern
Mutual is filed with respect to its NML Variable
Annuity Account A and NML Variable Annuity Account C.
These Variable Annuity Accounts are segregated asset
accounts of Northwestern Mutual used to fund variable
annuity contracts for HR-10 and corporate pension and
profit-sharing plans which qualify for special tax
treatment under the Internal Revenue Code. While
certain information in this Form 10-K relates to
Northwestern Mutual as a whole, this Form 10-K is
intended to provide information with respect to such
Variable Annuity Accounts where relevant.
Item 2. Properties
Northwestern Mutual owns and occupies all of the
space in its home office complex in Milwaukee,
Wisconsin. Northwestern Mutual is the lessee of ten
leases covering its real estate regional offices in
locations throughout the United States.
Item 3 is on page 4.
3
<PAGE> 4
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 3. Legal Proceedings
Northwestern Mutual is engaged in litigation of various kinds,
which in its judgment is not material in relation to its total
assets. The litigation includes various administrative or
judicial proceedings, relating to investments of Northwestern
Mutual, 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. Northwestern Mutual 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
Not applicable. As a mutual life insurance company,
Northwestern Mutual has no shareholders.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Not applicable. As a mutual life insurance company,
Northwestern Mutual has no common equity securities.
Item 6 is on page 5.
4
<PAGE> 5
The Northwestern Mutual Life Insurance Company
Form 10K
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Results of Operations for NML Variable Annuity Account A for each of the five years ending December 31, follows:
1998 1997 1996 1995 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investment Income
Dividend Income from Northwestern
Mutual Series Fund, Inc.
Aggressive Growth Stock Portfolio... $ 3,294,065 $ 5,046,819 $ 2,456,762 $ 256,787 $ 248,438
Dividend Income from Northwestern
Mutual Series Fund, Inc.
International Equity Portfolio...... 2,854,899 1,627,765 1,820,972 217,966 853,704
Dividend Income from Northwestern
Mutual Series Fund, Inc.
Growth Stock Portfolio.............. 460,727 769,950 379,453 128,854 18,971 ##
Dividend Income from Northwestern
Mutual Series Fund, Inc.
Growth and Income Stock Portfolio... 294,097 5,154,785 1,206,606 465,091 53,075 ##
Dividend Income from Northwestern
Mutual Series Fund, Inc. Index
500 Stock Portfolio................. 4,267,429 3,229,605 1,906,168 522,842 2,155,181
Dividend Income from Northwestern
Mutual Series Fund, Inc.
Balanced Portfolio.................. 19,089,250 13,244,993 14,325,426 8,146,698 33,071,685
Dividend Income from Northwestern
Mutual Series Fund, Inc. High
Yield Bond Portfolio................ 951,201 1,418,106 473,729 199,805 68,840 ##
Dividend Income from Northwestern
Mutual Series Fund, Inc.
Select Bond Portfolio............... 1,767,739 1,556,695 906,892 652,667 2,990,731
Dividend Income from Northwestern
Mutual Series Fund, Inc. Money
Market Portfolio.................... 1,254,017 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 NA
----------- ----------- ----------- ------------ -----------
Total Income........................ 34,233,424 33,252,128 24,500,542 11,709,964 40,169,184
Annuity Rate and Expense Guarantees... 8,068,866 7,048,888 5,783,739 5,072,064 4,466,142
----------- ----------- ----------- ------------ -----------
Net Investment Income................. $26,164,558 $26,203,240 $18,716,803 $ 6,637,900 $35,703,042
=========== =========== =========== ============ ===========
Realized and Unrealized Gain (Loss) on
Investments
Realized Gain on Investments.......... $37,627,804 $23,135,675 $13,967,988 $13,141,169 $ 1,687,702
Unrealized Appreciation (
Depreciation) of Investments
During the Year..................... 36,249,405 56,364,111 33,051,905 76,916,515 (39,969,923)
------------ ------------ ------------ ------------ ------------
Net Gain (Loss) on Investments........ $73,877,209 $79,499,786 $47,019,893 $90,057,684 ($38,282,221)
=========== =========== =========== =========== ===========
</TABLE>
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on pages 23-24.
5
<PAGE> 6
The Northwestern Mutual Life Insurance Company
Form 10K
Item 6. (continued)
<TABLE>
<CAPTION>
Changes in Equity for NML Variable Annuity Account A for each of the five years ending December 31, follows:
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
From Investment Activities
Net Investment Income $ 26,164,558 $ 26,203,240 $ 18,716,803 $ 6,637,900 $ 35,703,042
Net Realized Gain on Investments 37,627,804 23,135,675 13,967,988 13,141,169 1,687,702
Net Change in Unrealized
Appreciation (Depreciation) of
Investments
36,249,405 56,364,111 33,051,905 76,916,515 (39,969,923)
------------- ------------- ------------- ------------- -------------
Increase (Decrease) in Equity
Derived from Investment
Activities 100,041,767 105,703,026 65,736,696 96,695,584 (2,579,179)
------------- ------------- ------------- ------------- -------------
From Equity Transactions
Contract Owners' Net Payments 62,320,941 61,964,558 65,169,358 49,124,853 52,262,816
Annuity Payments (1,305,331) (1,046,956) (830,996) (610,983) (603,158)
Surrenders and Other (Net) (83,817,967) (65,746,579) (52,376,445) (62,309,189) (33,008,630)
------------- ------------- ------------- ------------- -------------
Increase (Decrease) in Equity
Derived from Equity
Transactions (22,802,357) (4,828,977) 11,961,917 (13,795,319) 18,651,028
------------- ------------- ------------- ------------- -------------
Net Increase (Decrease) in Equity 77,239,410 100,874,049 77,698,613 82,900,265 16,071,849
Equity, Beginning of Year 648,394,089 547,520,040 469,821,427 386,921,162 370,849,313
------------- ------------- ------------- ------------- -------------
Equity, End of Year $ 725,633,499 $ 648,394,089 $ 547,520,040 $ 469,821,427 $ 386,921,162
============= ============= ============= ============= =============
</TABLE>
See Notes to Financial Statements on pages 23-24.
6
<PAGE> 7
The Northwestern Mutual Life Insurance Company
Form 10K
Item 6. (continued)
<TABLE>
<CAPTION>
Total Assets of NML Variable Annuity Account A at December 31, follows:
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series Fund,
Inc. Aggressive Growth Stock
Portfolio .................... $ 87,973,307 $ 89,428,723 $ 78,087,972 $ 56,491,009 $ 36,256,480
Northwestern Mutual Series Fund,
Inc. International Equity
Portfolio .................... 44,994,454 50,148,435 41,497,787 31,789,148 28,832,978
Northwestern Mutual Series Fund,
Inc. Growth Stock Portfolio .. 26,774,398 17,260,514 9,523,179 4,284,669 1,397,703 ##
Northwestern Mutual Series Fund,
Inc. Growth and Income Stock
Portfolio .................... 36,439,779 23,575,574 13,199,558 7,891,655 3,282,764 ##
Northwestern Mutual Series Fund,
Inc. Index 500 Stock
Portfolio .................... 143,375,448 111,140,823 80,917,025 62,391,687 43,545,408
Northwestern Mutual Series Fund,
Inc. Balanced Portfolio ...... 325,287,406 302,749,909 270,745,111 257,867,967 230,871,659
Northwestern Mutual Series Fund,
Inc. High Yield Bond
Portfolio .................... 9,287,355 8,743,385 4,907,490 2,060,076 1,242,382 ##
Northwestern Mutual Series Fund,
Inc. Select Bond
Portfolio .................... 25,969,869 25,252,973 26,648,961 25,742,752 22,258,901
Northwestern Mutual Series Fund,
Inc. Money Market Portfolio .. 26,910,774 21,586,115 23,380,205 21,556,895 20,120,832
Due from NML Insurance Company .......... 22,305 322,747 123,152 491,572 179,152
Due from Sale of Fund Shares ............ 1,407,778 1,555,441 387,086 78,037 319,392
------------ ------------ ------------ ------------ ------------
Total Assets ................. $728,442,873 $651,764,639 $549,417,526 $470,645,467 $388,307,651
============ ============ ============ ============ ============
</TABLE>
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on pages 23-24.
7
<PAGE> 8
The Northwestern Mutual Life Insurance Company
Form 10K
Item 6. (continued)
Results of Operations for NML Variable Annuity Account C for each of the five
years ending December 31, follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Aggressive Growth Stock Portfolio $ 4,152,153 $ 6,049,655 $ 2,574,462 $ 242,583 $ 232,345
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
International Equity Portfolio .. 3,732,935 1,945,549 1,805,160 190,138 703,931
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Growth Stock Portfolio .......... 447,543 712,380 366,920 59,271 4,518 ##
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Growth and Income Stock Portfolio 343,472 5,940,640 1,146,200 276,923 19,233 ##
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Index 500 Stock Portfolio ....... 5,270,794 3,755,769 2,082,261 544,553 2,226,240
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Balanced Portfolio .............. 9,908,961 6,460,653 7,534,370 4,212,478 17,046,665
Dividend Income from Northwestern
Mutual Series Fund, Inc. High
Yield Bond Portfolio ............ 883,190 1,028,027 309,003 55,220 11,456 ##
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Select Bond Portfolio ........... 1,357,040 1,057,558 566,451 395,357 1,874,182
Dividend Income from Northwestern
Mutual Series Fund, Inc. ........
Money Market Portfolio .......... 899,183 738,932 609,543 494,253 443,639
Dividend Income from Northwestern
Mutual Capital Appreciation
Stock Fund, Inc. ................ NA NA NA NA NA
----------- ----------- ----------- ---------- -----------
Total Income ......... 26,995,271 27,689,163 16,994,370 6,470,776 22,562,209
Annuity Rate and Expense Guarantees 3,154,686 2,501,975 1,738,625 856,764 509,648
----------- ----------- ----------- ---------- -----------
Net Investment Income ............. $23,840,585 $25,187,188 $15,255,745 $5,614,012 $22,052,561
=========== =========== =========== ========== ===========
Realized and Unrealized Gain (Loss) on
Investments
Realized Gain on Investments ........... $29,250,486 $18,686,284 $ 8,855,390 $ 9,884,364 $ 5,949,795
Unrealized Appreciation
(Depreciation) of Investments
During the Year ...................... 37,105,560 44,241,434 29,832,124 53,407,857 (27,055,878)
----------- ----------- ----------- ----------- ------------
Net Gain (Loss) on Investments.......... $66,356,046 $62,927,718 $38,687,514 $63,292,221 $(21,106,083)
=========== =========== =========== =========== ============
</TABLE>
## Commenced operations on May 3, 1994.
Notes to Financial Statements on pages 32-33. 8
<PAGE> 9
The Northwestern Mutual Life Insurance Company
Form 10K
Item 6. (continued)
<TABLE>
<CAPTION>
Changes in Equity for NML Variable Annuity Account C for each of the five years ending December 31, follows:
1998 1997 1996 1995 1994
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
From Investment Activities
Net Investment Income ................. $ 23,840,585 $ 25,187,188 $ 15,255,745 $ 5,614,012 $ 22,052,561
Net Realized Gain (Loss) on
Investments ......................... 29,250,486 18,686,284 8,855,390 9,884,364 5,949,795
Net Change in Unrealized Appreciation
(Depreciation) of Investments ....... 37,105,561 44,241,434 29,832,124 53,407,857 (27,055,878)
------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Investment Activities.. 90,196,632 88,114,906 53,943,259 68,906,233 946,478
------------- ------------- ------------- ------------- -------------
From Equity Transactions
Contract Owners' Net Payments ......... 93,658,882 91,195,224 89,650,916 59,390,267 48,709,729
Surrenders and Other (Net) ............ (86,757,540) (57,974,180) (34,747,640) 60,872,729 (26,720,946)
------------- ------------- ------------- ------------- -------------
Increase in Equity Derived
from Equity Transactions ... 6,901,342 33,221,044 54,903,276 (1,482,462) 21,988,783
------------- ------------- ------------- ------------- -------------
Net Increase in Equity ..................... 97,097,974 121,335,950 108,846,535 67,423,771 22,935,261
Equity, Beginning of Year .................. 547,988,523 426,652,573 317,806,038 250,382,267 227,447,006
------------- ------------- ------------- ------------- -------------
Equity, End of Year ........................ $ 645,086,497 $ 547,988,523 $ 426,652,573 $ 317,806,038 $ 250,382,267
============= ============= ============= ============= =============
</TABLE>
See Notes to Financial Statements on pages 32-33.
9
<PAGE> 10
The Northwestern Mutual Life Insurance Company
Form 10K
Item 6. (continued)
<TABLE>
<CAPTION>
Total Assets of NML Variable Annuity Account C at December 31, follows:
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Investments at Market Value:
Northwestern Mutual Series Fund,
Inc. Aggressive Growth Stock
Portfolio .................... $ 112,355,230 $ 111,586,520 $ 95,276,983 $ 57,421,016 $ 33,266,862
Northwestern Mutual Series Fund,
Inc. International Equity
Portfolio .................... 59,264,930 63,877,146 49,461,520 30,039,223 24,647,586
Northwestern Mutual Series Fund,
Inc. Growth Stock Portfolio .. 27,819,393 15,850,257 9,734,427 2,084,697 329,792 ##
Northwestern Mutual Series Fund,
Inc. Growth and Income Stock
Portfolio .................... 40,353,938 27,484,626 13,034,961 4,888,505 1,159,187 ##
Northwestern Mutual Series Fund,
Inc. Index 500 Stock Portfolio 183,326,114 133,927,705 93,249,123 64,560,752 45,552,429
Northwestern Mutual Series Fund,
Inc. Balanced Portfolio ...... 172,971,811 153,733,599 131,324,909 132,469,239 119,452,506
Northwestern Mutual Series Fund,
Inc. High Yield Bond Portfolio 8,611,383 6,568,438 2,983,258 736,774 201,656 ##
Northwestern Mutual Series Fund,
Inc. Select Bond Portfolio ... 20,754,940 18,059,926 17,803,016 16,281,140 14,262,125
Northwestern Mutual Series Fund,
Inc. Money Market Portfolio .. 19,628,758 16,900,306 13,784,374 9,324,692 11,510,121
Due from NML Insurance Company ...... 355,553 196,511 1,662,368 808,493 279,107
Due from Sale of Fund Shares ........ 495,042 2,927,350 52,909 36 79,226
------------- ------------- ------------- ------------- -------------
Total Assets ...... $ 645,937,092 $ 551,112,384 $ 428,367,848 $ 318,614,567 $ 250,740,600
============ ============= ============= ============= =============
</TABLE>
## Commenced operations on May 3, 1994.
See Notes to Financial Statements on pages 32-33.
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
Liquidity
The assets of the NML Variable Annuity Accounts A and
C are invested solely in shares of Northwestern
Mutual Series Fund, Inc. (the "Fund") Index 500 Stock
Portfolio, Aggressive Growth Stock Portfolio,
International Equity Portfolio, Select Bond
Portfolio, Growth and Income Stock Portfolio, High
Yield Bond Portfolio, Growth Stock Portfolio,
Balanced Portfolio and the Money Market Portfolio.
The Fund is an open-end investment company registered
under the Investment Company Act of 1940. In order to
pay annuity benefits and expenses, the Accounts
redeem shares in the Fund.
Capital Resources
All payments from contract owners of NML Variable
Annuity Accounts A and C are invested in shares of
the Fund. 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 Fund, minus
payment of annuity benefits and expenses.
Results of Operations
NML Variable Annuity Account A
<TABLE>
<CAPTION>
Accumulation Unit Values
Contracts Issued Prior to December 17, 1981:
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Aggressive
Growth Stock.... $3.964849 6.75% $3.714008 13.02% $3.286265
International
Equity.......... 1.947470 4.04 1.871861 11.44 1.679665
Growth Stock.... 2.549324 25.75 2.027359 28.89 1.572985
Growth and
Income Stock.... 2.437983 22.22 1.994748 29.06 1.545596
Index 500 Stock. 4.202480 27.76 3.289255 32.21 2.487952
Balanced........ 7.372322 17.99 6.248153 20.61 5.180408
High Yield Bond. 1.582307 -2.57 1.624115 14.99 1.412413
Select Bond..... 7.718724 6.27 7.263164 8.65 6.685035
Money Market.... 2.646458 4.64 2.529098 4.69 2.415898
</TABLE>
11
<PAGE> 12
The Northwestern Mutual Life Insurance Company
Form 10K
Item 7. (continued)
<TABLE>
<CAPTION>
Accumulation Unit Values
Contracts Issued on or After December 17, 1981 and Prior to March 31, 1995:
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock..... $3.808330 6.22% $3.585281 12.45% $3.188266
International
Equity........... 1.893030 3.52 1.828649 10.89 1.649102
Growth Stock..... 2.490522 25.12 1.990509 28.24 1.552125
Growth and
Income Stock..... 2.381813 21.61 1.958555 28.42 1.525144
Index 500 Stock.. 4.036666 27.13 3.175298 31.55 2.413788
Balanced......... 6.771353 17.40 5.767570 20.01 4.805896
High Yield Bond.. 1.545816 -3.06 1.594619 14.42 1.393713
Select Bond...... 7.088069 5.74 6.703164 8.11 6.200523
Money Market..... 2.430915 4.12 2.334748 4.16 2.241420
<CAPTION>
Accumulation Unit Values
Contracts Issued On or After March 31, 1995:
Front Load Version
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock...... $1.858751 7.12% $1.735135 13.41% $1.529999
International
Equity............ 1.604722 4.40 1.537080 11.83 1.374484
Growth Stock...... 2.375383 26.18 1.882500 29.33 1.455537
Growth and Income
Stock............. 2.270962 22.64 1.851666 29.51 1.429760
Index 500 Stock... 2.597374 28.21 2.025922 32.67 1.527085
Balanced.......... 1.912247 18.40 1.615054 21.03 1.334426
High Yield Bond... 1.495835 -2.24 1.530051 15.39 1.326020
Select Bond....... 1.350384 6.64 1.266282 9.03 1.161454
Money Market...... 1.203067 5.01 1.145720 5.05 1.090643
</TABLE>
12
<PAGE> 13
The Northwestern Mutual Life Insurance Company
Form 10K
Item 7. (continued)
<TABLE>
<CAPTION>
Accumulation Unit Values
Contracts Issued On or After March 31, 1995:
Back Load Version
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock...... $3.808330 6.22% $3.585281 12.45% $3.188266
International
Equity............ 1.893030 3.52 1.828649 10.89 1.649102
Growth Stock...... 2.490522 25.12 1.990509 28.24 1.552125
Growth and Income
Stock............. 2.381813 21.61 1.958555 28.42 1.525144
Index 500 Stock... 4.036666 27.13 3.175298 31.55 2.413788
Balanced.......... 6.771353 17.40 5.767570 20.01 4.805896
High Yield Bond... 1.545816 -3.06 1.594619 14.42 1.393713
Select Bond....... 7.088069 5.74 6.703164 8.11 6.200523
Money Market...... 2.430915 4.12 2.334748 4.16 2.241420
Equity:
12/31/98 12/31/97 12/31/96
-------- -------- --------
$725,633,499 $648,394,089 $547,520,040
<CAPTION>
The change in these amounts is largely derived from investment
activities within the Account: A $100,041,767 increase for the
year ended December 31, 1998, a $105,703,026 increase for the
year ended December 31, 1997, and a $65,736,696 increase for
the year ended December 31, 1996. Net contributions
(surrenders) from contract owners amounted to $(22,802,357)
for the year ended December 31, 1998, ($4,828,977) for the
year ended December 31, 1997, and $11,961,917 for the year
ended December 31, 1996.
NML Variable Annuity Account C
Accumulation Unit Values
Contracts Issued Prior to December 17, 1981 or between April
30, 1984 and December 31, 1991:
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock..... $39.854126 7.56% $37.054456 13.86% $32.542621
International
Equity........... 2.031842 4.82 1.938399 12.28 1.726413
Growth Stock..... 26.398692 26.69 20.837268 29.85 16.046821
Growth and
Income Stock..... 25.245888 23.14 20.502206 30.03 15.767435
Index 500 Stock.. 46.522428 28.72 36.141676 33.20 27.133645
Balanced......... 84.986573 18.88 71.490869 21.52 58.832423
High Yield Bond.. 16.385350 -1.84 16.692972 15.85 14.408967
Select Bond...... 89.873176 7.07 83.938645 9.46 76.681608
Money Market..... 28.923541 5.43 27.434762 5.47 26.011476
</TABLE>
13
<PAGE> 14
The Northwestern Mutual Life Insurance Company
Form 10K
Item 7. (continued)
<TABLE>
<CAPTION>
Accumulation Unit Values
Contracts Issued After December 16, 1981 and Prior to May 1, 1984:
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock..... $38.303948 7.02% $35.791674 13.30% $31.591115
International
Equity........... 1.975051 4.30 1.893664 11.72 1.695019
Growth Stock..... 25.790044 26.06 20.458788 29.21 15.834243
Growth and
Income Stock..... 24.663747 22.52 20.129770 29.38 15.558532
Index 500 Stock.. 44.708227 28.08 34.906216 32.54 26.337300
Balanced......... 78.082648 18.29 66.012286 20.91 54.595947
High Yield Bond.. 16.007423 -2.33 16.389706 15.27 14.218083
Select Bond...... 82.531570 6.54 77.468103 8.92 71.125132
Money Market..... 26.605346 4.90 25.362364 4.95 24.167111
<CAPTION>
Accumulation Unit Values
Contracts Issued After December 31, 1991 - Front Load Version:
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock..... $2.511728 6.86% $2.350498 13.13% $2.077739
International
Equity........... 1.958397 4.14 1.880500 11.55 1.685759
Growth Stock..... 2.561090 25.87 2.034708 29.01 1.577134
Growth and
Income Stock..... 2.449237 22.34 2.001981 29.19 1.549666
Index 500 Stock.. 3.278539 27.89 2.563560 32.34 1.937139
Balanced......... 2.281157 18.11 1.931409 20.73 1.599774
High Yield Bond.. 1.589625 -2.48 1.630023 15.10 1.416152
Select Bond...... 1.585144 6.38 1.490112 8.75 1.370157
Money Market..... 1.308441 4.74 1.249188 4.79 1.192105
</TABLE>
14
<PAGE> 15
The Northwestern Mutual Life Insurance Company
Form 10K
Item 7. (continued)
<TABLE>
<CAPTION>
Accumulation Unit Values
Contracts Issued After December 31, 1991 - Simplified Load Version:
Division 12/31/98 % Change 12/31/97 % of Change 12/31/96
<S> <C> <C> <C> <C> <C>
Aggressive
Growth Stock..... $3.822308 6.22% $3.598431 12.45% $3.199964
International
Equity........... 1.893030 3.52 1.828649 10.89 1.649102
Growth Stock..... 2.490522 25.12 1.990509 28.24 1.552125
Growth and
Income Stock..... 2.381813 21.61 1.958555 28.42 1.525144
Index 500 Stock.. 4.119000 27.13 3.240055 31.55 2.463008
Balanced......... 6.804809 17.40 5.796067 20.01 4.829655
High Yield Bond.. 1.545816 -3.06 1.594619 14.42 1.393713
Select Bond...... 7.157135 5.74 6.768475 8.11 6.260939
Money Market..... 2.436196 4.12 2.339812 4.16 2.246287
Equity: 12/31/98 12/31/97 12/31/96
-------- -------- --------
$645,086,497 $547,988,523 $426,652,573
</TABLE>
These changes are largely derived from investment activities
within the Account: A $90,196,631 increase for the year ended
December 31, 1998, an $88,114,906 increase for the year ended
December 31, 1997, and a $53,943,259 increase for the year
ended December 31, 1996. Net contributions (surrenders) from
contract owners amounted to $6,901,342 for the year ended
December 31, 1998, $33,221,044 for the year ended December 31,
1997, and $54,903,276 for the year ended December 31, 1996.
Year 2000 Issue
Northwestern Mutual's state of readiness:
Northwestern Mutual recognized the Year 2000 issue early and
has been preparing since 1996 for the century change and the
expected impact on computers and programs. Northwestern Mutual
fully expects to be ready for January 1, 2000, the leap year,
and other significant dates before they occur. Renovation and
testing of operating and application systems had been
completed by November 1998. Facilities and infrastructure
assessment and renovation/replacement began in 1996, as well,
and is complete. Year 2000 activity for the remainder of 1999
will be focused on detailing contingency plans and time warp
testing of mission critical systems. Northwestern Mutual's
internal auditors have conducted favorable Year 2000 audits.
Important business partners for Northwestern Mutual reside
prominently in two economic sectors, financial institutions
and information technology vendors. Business partners were
assessed and readiness disclosures requested from all critical
vendors in 1998. Positive responses have been received from 62%
of the critical vendors. Northwestern Mutual is in the process
of following up with partners who have not responded to date.
The costs to address the Northwestern Mutual's Year 2000
issues:
The total cost for addressing all phases of Year 2000 issues
is expected to be approximately $34.4 million spread over five
years, 1996 through 2000. The amount incurred by the
Information Systems Department through December 31, 1998, was
approximately $20.1 million. The amount budgeted by
Northwestern Mutual for 1999 is approximately $13.3 million,
primarily earmarked for contingency plan implementation and
time warp testing. The remaining $1.0 million would be
expended in 2000 to address any remaining issues.
15
<PAGE> 16
The Northwestern Mutual Life Insurance Company
Form 10K
Item 7. (continued)
The risks of Northwestern Mutual's Year 2000 issues:
Northwestern Mutual's operations rely heavily upon its
computer software and hardware. Malfunctions in Northwestern
Mutual's systems could lead to business delays and
disruptions. Interruptions to electrical service and public
perception are factors in Northwestern Mutual's preparations
for Year 2000. Large electrical companies have provided
substantial assurance for being prepared for Year 2000. There
is only speculation about how the grid network will effect the
supply of electricity. An apprehensive public may cause some
policyowners to seek available cash before Year 2000. Markets
may experience unusual behavior. Northwestern Mutual is
prepared for these contingencies and believes that, while
there is no absolute assurance due to inherent uncertainties
associated with Year 2000, these matters will have no material
impact on future operations.
Northwestern Mutual's contingency plans:
Contingency plans are being documented to minimize the
potential impact on Northwestern Mutual's operations of an
unforeseen failure of critical business systems. These plans
include assuring policyowners about Northwestern Mutual's
state of Year 2000 readiness, preparing for a potential pre-
Year 2000 search for cash by policyowners, and emergency
processes to maintain critical business functions and service
to policyowners after January 1, 2000. Northwestern Mutual has
contracted temporary electric generators to avoid
inaccessibility to computer systems from any interruption of
electrical service.
The Year 2000 discussion above contains a number of
forward-looking statements concerning plans, costs, risks and
uncertainties facing Northwestern Mutual as a result of the
Year 2000 Issue. The Year 2000 Issue has many elements and
potential consequences, some of which may not be reasonably
foreseeable, and there can be no assurance that every Year
2000 problem will be identified and addressed or that
unforeseen consequences will not arise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The assets of NML Variable Annuity Account A and NML Variable Annuity
Account C consist entirely of shares of the nine portfolios of the
Fund, together with current amounts due from the sale of Fund shares
and due from Northwestern Mutual. The liabilities of each Variable
Annuity Account consist of current amounts due to participants, due to
Northwestern Mutual and due on purchase of fund shares. Neither of the
Variable Annuity Accounts enters into any market risk sensitive
instruments, either for trading purposes or for purposes other than
trading purposes.
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Fund 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 and futures.
The Fund held the following positions for hedging purposes at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Derivative Financial Instrument Notional Value Risks Reduced
- ------------------------------- -------------- -------------
December 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C> <C>
Common Stock Futures $279,931,137 $124,340,532 Stock market price fluctuation.
Bond Futures 6,002,781 77,675,938 Bond market price fluctuation.
</TABLE>
The notional or contractual amounts of derivative financial
instruments are used to denominate these types of transactions
and do not represent the amounts exchanged between the
parties.
Stock futures are reported at fair value. Resulting gains and
losses on these contracts are unrealized until expiration of
the contract. Changes in the value of derivative investments
are expected to offset gains and losses on the hedged
investments. The effect of derivative instruments in 1998,
1997 was not material to the Fund's results of
operations.
Item 8 is on page 17.
16
<PAGE> 17
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 1998 1997
------------- -------------
<S> <C> <C>
Investments at market value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
1998: 25,396,541 shares (cost $66,276,258)................. $ 87,973,307
1997: 26,799,138 shares (cost $63,803,191)................. $ 89,428,723
International Equity
1998: 26,830,324 shares (cost $38,805,844)................. 44,994,454
1997: 29,691,199 shares (cost $40,304,940)................. 50,148,435
Growth 8tock
1998: 11,915,620 shares (cost $20,533,350).................. 26,774,398
1997: 9,536,195 shares (cost $13,891,054).................. 17,260,514
Growth and Income Stock
1998: 22,438,287 shares (cost $31,395,228)................. 36,439,779
1997: 17,712,678 shares (cost $23,485,676)................. 23,575,574
Index 500 Stock
1998: 43,592,413 shares (cost $75,957,867)................. 143,375,448
1997: 42,035,107 shares (cost $62,642,616)................. 111,140,823
Balanced
1998: 146,262,322 shares (cost $214,781,294)............... 325,287,407
1997: 152,059,221 shares (cost $210,403,734)............... 302,749,909
High Yield Bond
1998: 9,922,388 shares (cost $10,685,890).................. 9,287,355
1997: 8,225,197 shares (cost $9,217,130)................... 8,743,385
Select Bond
1998: 20,792,528 shares (cost $24,420,052)................. 25,969,868
1997: 20,089,875 shares (cost $23,555,171)................. 25,252,973
Money Market
1998: 26,910,773 shares (cost $26,910,773)................. 26,910,774
1997: 21,586,115 shares (cost $21,586,115)................. 21,586,115
------------- -------------
727,012,790 649,886,451
Due from Sales of Fund Shares............................................ 1,407,778 1,555,441
Due from Northwestern Mutual Life Insurance Company...................... 22,304 322,747
------------- -------------
Total Assets................................................ $ 728,442,872 $ 651,764,639
============= =============
Liabilities
Due to Participants...................................................... $ 1,374,691 $ 1,492,363
Due to Northwestern Mutual Life Insurance Company........................ 1,407,778 1,555,441
Due from Purchase of Fund Shares......................................... 26,904 322,747
------------- -------------
Total Liabilities........................................... $ 2,809,373 $ 3,370,551
============= =============
</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 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued Prior to December 17, 1981:
Aggressive Growth Stock Division
1998: 479,410 Accumulation Units @ 3.964849.................... $ 1,900,789
1997: 640,838 Accumulation Units @ 3.714008.................... $ 2,380,076
Annuity Reserves................................................ 63,360 71,827
------------- -------------
1,964,149 2,451,903
------------- -------------
International Equity Division
1998: 647,766 Accumulation Units @ 1.947470.................... 1,261,505
1997: 1,297,660 Accumulation Units @ 1.871861.................. 2,429,039
Annuity Reserves................................................ 143,068 150,892
------------- -------------
1,404,573 2,579,931
Growth Stock Division
1998: 247,490 Accumulation Units @ 2.549324.................... 630,934
1997: 327,731 Accumulation Units @ 2.027359.................... 664,427
Annuity Reserves................................................ 0 0
------------- -------------
630,934 664,427
------------- -------------
Growth and Income Stock Division
1998: 310,014 Accumulation Units @ 2.437983.................... 755,809
1997: 348,188 Accumulation Units @ 1.994748.................... 694,546
Annuity Reserves................................................ 0 0
------------- -------------
755,809 694,546
------------- -------------
Index 500 Stock Division
1998: 7,343,356 Accumulation Units @ 4.202480.................. 30,860,310
1997: 8,175,537 Accumulation Units @ 3.289255.................. 26,891,427
Annuity Reserves................................................ 1,568,449 1,305,930
------------- -------------
32,428,759 28,197,357
------------- -------------
Balanced Division
1998: 3,013,625 Accumulation Units @ 7.372322.................. 22,217,418
1997: 3,845,538 Accumulation Units @ 6.248153.................. 24,027,509
Annuity Reserves................................................ 2,367,898 1,640,281
------------- -------------
24,585,316 25,667,790
------------- -------------
High Yield Bond Division
1998: 183,181 Accumulation Units @ 1.582307.................... 289,848
1997: 600,752 Accumulation Units @ 1.624115.................... 975,690
Annuity Reserves................................................ 0 0
------------- -------------
289,848 975,690
-------------- -------------
Select Bond Division
1998: 899,838 Accumulation Units @ 7.718724.................... 6,945,608
1997: 1,012,083 Accumulation Units @ 7.263164.................. 7,350,925
Annuity Reserves................................................ 102,541 273,840
------------- -------------
7,048,149 7,624,765
------------- -------------
Money Market Division
1998: 1,723,331 Accumulation Units @ 2.646458.................. 4,560,725
1997: 893,452 Accumulation Units @ 2.529098.................... 2,259,628
Annuity Reserves................................................ 53,415 58,694
------------- -------------
4,614,140 2,318,322
------------- -------------
</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.) 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued After December 16, 1981 and Prior to March 31, 1995:
Aggressive Growth Stock Division
1998: 18,213,134 Accumulation Units @ 3.808330 $ 69,361,627
1997: 20,861,309 Accumulation Units @ 3.585281................. $ 74,793,655
Annuity Reserves................................................ 144,879 137,989
------------- -------------
69,506,506 74,931,644
------------- -------------
International Equity Division
1998: 19,261,447 Accumulation Units @ 1.893030 36,462,499
1997: 22,910,908 Accumulation Units @ 1.828649................. 41,896,009
Annuity Reserves................................................ 214,477 174,073
------------- -------------
36,676,976 42,070,082
------------- -------------
Growth Stock Division
1998: 7,215,893 Accumulation Units @ 2.490522.................. 17,971,343
1997: 6,045,075 Accumulation Units @ 1.990509.................. 12,032,777
Annuity Reserves................................................ 28,537 11,803
------------- -------------
17,999,880 12,044,580
------------- -------------
Growth and Income Stock Division
1998: 10,866,892 Accumulation Units @ 2.381813................. 25,882,906
1997: 8,963,724 Accumulation Units @ 1.958555.................. 17,555,947
Annuity Reserves:............................................... 476,032 332,207
------------- -------------
26,358,938 17,888,154
------------- -------------
Index 500 Stock Division
1998: 21,467,930 Accumulation Units @ 4.036666................. 86,658,865
1997: 21,531,879 Accumulation Units @ 3.175298................. 68,370,132
Annuity Reserves................................................ 2,980,558 2,462,112
------------- -------------
89,639,423 70,832,244
------------- -------------
Balanced Division
1998: 40,487,925 Accumulation Units @ 6.771353................. 274,158,039
1997: 44,638,127 Accumulation Units @ 5.767570................. 257,453,521
Annuity Reserves................................................ 4,964,030 3,937,936
------------- -------------
279,122,069 261,391,457
------------- -------------
High Yield Bond Division
1998: 3,974,655 Accumulation Units @ 1.545816.................. 6,144,087
1997: 3,770,055 Accumulation Units @ 1.594619.................. 6,011,801
Annuity Reserves................................................ 60,760 67,256
------------- -------------
6,204,847 6,079,057
------------- -------------
Select Bond Division
1998: 2,171,878 Accumulation Units @ 7.088069.................. 15,394,427
1997: 2,252,704 Accumulation Units @ 6.703164.................. 15,100,242
Annuity Reserves................................................ 593,977 591,284
------------- -------------
15,988,404 15,691,526
------------- -------------
Money Market Division
1998: 6,699,738 Accumulation Units @ 2.430915.................. 16,286,495
1997: 6,270,333 Accumulation Units @ 2.334748.................. 14,639,648
Annuity Reserves................................................ 444,677 454,275
------------- -------------
16,731,172 15,093,923
------------- -------------
</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.) 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued On or After March 31, 1995 - Back Load Version:
Aggressive Growth Stock Division
1998: 3,703,652 Accumulation Units @ 3.808330.................. $ 14,104,732
1997: 2,926,218 Accumulation Units @ 3.585281.................. $ 10,491,351
Annuity Reserves................................................ 27,177 27,274
------------- -------------
14,131,909 10,518,625
------------- -------------
International Equity Division
1998: 3,028,502 Accumulation Units @ 1.893030.................. 5,733,046
1997: 2,488,184 Accumulation Units @ 1.828649.................. 4,550,016
Annuity Reserves................................................ 0 0
------------- -------------
5,733,046 4,550,016
------------- -------------
Growth Stock Division
1998: 2,761,432 Accumulation Units @ 2.490522.................. 6,877,407
1997: 1,870,296 Accumulation Units @ 1.990509.................. 3,722,840
Annuity Reserves................................................ 31,578 26,907
------------- -------------
6,908,985 3,749,747
------------- -------------
Growth and Income Stock Division
1998: 3,046,516 Accumulation Units @ 2.381813.................. 7,256,233
1997: 1,940,827 Accumulation Units @ 1.958555.................. 3,801,216
Annuity Reserves................................................ 30,040 26,336
------------- -------------
7,286,273 3,827,552
------------- -------------
Index 500 Stock Division
1998: 4,504,321 Accumulation Units @ 4.036666.................. 18,182,442
1997: 3,279,176 Accumulation Units @ 3.175298.................. 10,412,362
Annuity Reserves................................................ 112,142 0
------------- -------------
18,294,584 10,412,362
------------- -------------
Balanced Division
1998: 2,565,265 Accumulation Units @ 6.771353.................. 17,370,319
1997: 2,109,606 Accumulation Units @ 5.767570.................. 12,167,299
Annuity Reserves................................................ 257,473 219,112
------------- -------------
17,627,792 12,386,411
------------- -------------
High Yield Bond Division
1998: 1,400,603 Accumulation Units @ 1.545816.................. 2,165,075
1997: 967,188 Accumulation Units @ 1.594619.................... 1,542,185
Annuity Reserves................................................ 0 0
------------- -------------
2,165,075 1,542,185
------------- -------------
Select Bond Division
1998: 368,314 Accumulation Units @ 7.088069.................... 2,610,636
1997: 271,027 Accumulation Units @ 6.703164.................... 1,816,737
Annuity Reserves................................................ 0 0
------------- -------------
2,610,636 1,816,737
------------- -------------
Money Market Division
1998: 1,515,127 Accumulation Units @ 2.430915.................. 3,683,147
1997: 1,081,227 Accumulation Units @ 2.334748.................. 2,524,393
Annuity Reserves................................................ 0 0
------------- -------------
3,683,147 2,524,393
------------- -------------
</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
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-----------------------------------------
Equity (cont'd.) 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued On or After March 31, 1995 - Front Load Version:
Aggressive Growth Stock Division
1998: 1,195,051 Accumulation Units @ 1.858751.................. $ 2,221,302
1997: 832,513 Accumulation Units @ 1.735135.................... $ 1,444,522
Annuity Reserves................................................ 55,688 55,374
------------- -------------
2,276,990 1,499,896
------------- -------------
International Equity Division
1998: 669,024 Accumulation Units @ 1.604722.................... 1,073,598
1997: 575,775 Accumulation Units @ 1.537080.................... 885,012
Annuity Reserves................................................ 23,666 24,148
------------- -------------
1,097,264 909,160
------------- -------------
Growth Stock Division
1998: 447,934 Accumulation Units @ 2.375383.................... 1,064,015
1997: 422,029 Accumulation Units @ 1.882500.................... 794,469
Annuity Reserves................................................ 0 0
------------- -------------
1,064,015 794,469
------------- -------------
Growth and Income Stock Division
1998: 736,836 Accumulation Units @ 2.270962.................... 1,673,327
1997: 540,977 Accumulation Units @ 1.851666.................... 1,001,708
Annuity Reserves................................................ 153,898 133,668
------------- -------------
1,827,225 1,135,376
------------- -------------
Index 500 Stock Division
1998: 1,057,935 Accumulation Units @ 2.597374.................. 2,747,852
1997: 690,248 Accumulation Units @ 2.025922.................... 1,398,389
Annuity Reserves................................................ 65,122 54,108
------------- -------------
2,812,974 1,452,497
------------- -------------
Balanced Division
1998: 1,768,956 Accumulation Units @ 1.912247.................. 3,382,680
1997: 1,296,330 Accumulation Units @ 1.615054.................. 2,093,642
Annuity Reserves................................................ 84,632 95,364
------------- -------------
3,467,312 2,189,006
------------- -------------
High Yield Bond Division
1998: 400,132 Accumulation Units @ 1.495835.................... 598,531
1997: 95,718 Accumulation Units @ 1.530051..................... 146,453
Annuity Reserves................................................ 0 0
------------- -------------
598,531 146,453
------------- -------------
Select Bond Division
1998: 159,609 Accumulation Units @ 1.350384.................... 215,534
1997: 72,941 Accumulation Units @ 1.266282..................... 92,364
Annuity Reserves................................................ 0 0
------------- -------------
215,534 92,364
------------- -------------
Money Market Division
1998: 1,564,597 Accumulation Units @ 1.203067.................. 1,882,315
1997: 1,439,686 Accumulation Units @ 1.145720.................. 1,649,477
Annuity Reserves................................................ 0 0
------------- -------------
1,882,315 1,649,477
------------- -------------
Total Equity................................................ $ 725,633,499 $ 648,394,124
------------- -------------
Total Liabilities and Equity................................ $ 728,442,872 $ 651,764,675
============= =============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE> 22
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT A
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
For the Years Ended December 31
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Investment Income
Dividend Income.......................................................... $ 34,233,423 $ 33,252,128 $ 24,500,542
Annuity Rate and Expense Guarantees...................................... 8,068,865 7,048,888 5,783,739
------------- ------------ ------------
Net Investment Income.................................................... 26,164,558 26,203,240 18,716,803
------------ ------------ ------------
Realized and Unrealized Gain on Investments
Net Unrealized Gain on Investments....................................... 37,627,804 23,135,675 13,967,988
Unrealized Appreciation (Depreciation) During the Year................... 36,249,405 56,364,111 33,051,905
------------ ------------ ------------
Net Gain (Loss) on Investments........................................... 73,877,209 79,499,786 47,019,893
------------ ------------ ------------
Increase (Decrease) in Equity Derived from Investment Activity................ 100,041,767 105,703,026 65,736,696
------------ ------------ ------------
Equity Transactions
Contract Owners' Net Payments............................................ 62,320,941 61,964,558 65,169,358
Annuity Payments......................................................... (1,305,331) (1,046,956) (830,996)
Surrenders and Other (Net)............................................... (83,817,967) (65,746,579) (52,376,445)
------------ ------------ ------------
Increase (Decrease) in Equity Derived from Equity Transactions................ (22,802,357) (4,828,977) 11,961,917
------------ ------------ ------------
Net Increase in Equity........................................................ 77,239,410 100,874,049 77,698,613
Equity, Beginning of Year..................................................... 648,394,089 547,520,040 469,821,427
------------ ------------ ------------
Equity, End of Year........................................................... $725,633,499 $648,394,089 $547,520,040
============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
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 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 1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Aggressive Growth Division $10,360,035 $13,774,024 $17,797,661
International Equity Division 6,698,885 9,401,229 8,274,087
Growth Stock Division 9,097,053 6,679,256 4,830,460
Growth & Income Stock Division 10,667,937 13,074,930 5,756,071
Index 500 Stock Division 18,355,852 14,059,126 11,279,772
Balanced Division 28,049,864 21,076,301 20,896,761
High Yield Bond Division 5,801,403 5,687,823 3,296,028
Select Bond Division 5,372,185 4,506,469 5,463,472
Money Market Division 24,597,925 13,132,202 13,328,217
Sales
Aggressive Growth Division $14,639,276 $ 8,367,827 $ 4,234,497
International Equity Division 11,198,223 4,431,627 3,828,530
Growth Stock Division 4,198,359 1,576,559 508,512
Growth & Income Stock Division 3,780,324 2,076,927 1,277,020
Index 500 Stock Division 13,607,476 8,104,812 5,728,800
Balanced Division 40,333,474 32,274,893 26,932,275
High Yield Bond Division 4,113,088 1,516,721 568,230
Select Bond Division 4,608,524 6,636,325 4,528,222
Money Market Division 19,273,286 14,926,292 11,504,938
</TABLE>
23
<PAGE> 24
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 a 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 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.
24
<PAGE> 25
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
Report of Independent Accountants
To The Northwestern Mutual Life Insurance Company and
Contract Owners of NML Variable Annuity Account A
In our opinion, the statements appearing on pages 17 through 24 present fairly,
in all material respects, the financial position of NML Variable Annuity Account
A at December 31, 1998 and 1997, and the results of its operations and the
changes in its equity for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of The Northwestern Mutual Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PriceWaterhouseCoopers LLP
Milwaukee, Wisconsin
January 25, 1999
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
-----------------------------------------
Assets 1998 1997
------------- -------------
<S> <C> <C>
Investments at market value:
Northwestern Mutual Series Fund, Inc.
Aggressive Growth Stock
1998: 32,435,113 shares (cost $90,546,838)................. $ 112,355,230
1997: 33,439,173 shares (cost $85,858,851)................. $ 111,586,520
International Equity
1998: 35,339,851 shares (cost $52,600,652)................. 59,264,930
1997: 37,819,506 shares (cost $52,786,634)................. 63,877,146
Growth Stock
1998: 12,380,682 shares (cost $21,943,825)................. 27,819,393
1997: 8,757,048 shares (cost $13,278,855).................. 15,850,257
Growth and Income Stock
1998: 24,848,484 shares (cost $35,764,080)................. 40,353,938
1997: 20,649,607 shares (cost $28,811,270)................. 27,484,626
Index 500 Stock
1998: 55,739,165 shares (cost $103,423,250)................ 183,326,114
1997: 50,653,443 shares (cost $81,303,357)................. 133,927,705
Balanced
1998: 77,775,095 shares (cost $122,950,926)................ 172,971,811
1997: 77,214,264 shares (cost $114,230,115)................ 153,733,599
High Yield Bond
1998: 9,200,196 shares (cost $10,065,238).................. 8,611,383
1997: 6,179,152 shares (cost $6,940,417)................... 6,568,438
Select Bond
1998: 16,617,246 shares (cost $19,964,276)................. 20,754,940
1997: 14,367,483 shares (cost $16,785,623)................. 18,059,926
Money Market
1998: 19,628,758 shares (cost $19,628,758)................. 19,628,758
1997: 16,900,306 shares (cost $16,900,306)................. 16,900,306
------------- -------------
645,086,497 547,988,523
Due from Sales of Fund Shares............................................ 495,042 2,927,350
Due from Northwestern Mutual Life Insurance Company...................... 355,553 196,511
------------- -------------
Total Assets................................................ $ 645,937,092 $ 551,112,384
============= =============
Liabilities
Due to Northwestern Mutual Life Insurance Company $ 495,042 $ 2,927,350
Due from Purchase of Fund Shares......................................... 355,553 196,511
------------- -------------
Total Liabilities........................................... $ 850,595 $ 3,123,861
============= =============
</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 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued Before December 17, 1981 or Between April 30, 1984 and
December 31, 1991:
Aggressive Growth Stock Division
1998: 1,801,179 Accumulation Units @ 39.854126................. $ 71,784,423
1997: 1,935,434 Accumulation Units @ 37.054456................. $ 71,716,451
International Equity Division
1998: 20,139,789 Accumulation Units @ 2.031842................. 40,920,871
1997: 23,069,550 Accumulation Units @ 1.938399................. 44,717,992
Growth Stock Division
1998: 651,555 Accumulation Units @ 26.398692................... 17,200,222
1997: 482,897 Accumulation Units @ 20.837268................... 10,062,263
Growth and Income Stock Division
1998: 801,963 Accumulation Units @ 25.245888................... 20,246,304
1997: 711,558 Accumulation Units @ 20.502206................... 14,588,507
Index 500 Stock Division
1998: 2,699,180 Accumulation Units @ 46.522428................. 125,572,411
1997: 2,558,205 Accumulation Units @ 36.141676................. 92,457,808
Balanced Division
1998: 1,211,838 Accumulation Units @ 84.986573................. 102,989,851
1997: 1,341,930 Accumulation Units @ 71.490869................. 95,935,733
High Yield Bond Division
1998: 301,661 Accumulation Units @ 16.385350................... 4,942,825
1997: 235,585 Accumulation Units @ 16.692972................... 3,932,608
Select Bond Division
1998: 84,033 Accumulation Units @ 89.873176.................... 7,552,345
1997: 85,036 Accumulation Units @ 83.938645.................... 7,137,800
Money Market Division
1998: 45,208 Accumulation Units @ 28.923541.................... 1,307,598
1997: 38,584 Accumulation Units @ 27.434762.................... 1,058,532
</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.) 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued After December 16, 1981 and Prior to May 1, 1984:
Aggressive Growth Stock Division
1998: 1,469 Accumulation Units @ 38.303948..................... $ 56,266
1997: 1,141 Accumulation Units @ 35.791674..................... $ 40,847
Annuity Reserves................................................ 33,440 33,487
------------- -------------
89,706 74,334
------------- -------------
International Equity Division
1998: 119,120 Accumulation Units @ 1.975051.................... 235,268
1997: 109,646 Accumulation Units @ 1.893664.................... 207,632
Annuity Reserves................................................ 16,925 17,392
------------- -------------
252,193 225,024
------------- -------------
Growth Stock Division
1998: 137 Accumulation Units @ 25.790044....................... 3,536
1997: 137 Accumulation Units @ 20.458788....................... 2,809
Annuity Reserves................................................ 48,049 40,850
------------- -------------
51,585 43,659
------------- -------------
Growth and Income Stock Division
1998: 4,298 Accumulation Units @ 24.663747..................... 105,994
1997: 2,270 Accumulation Units @ 20.129770..................... 45,701
Annuity Reserves................................................ 0 0
------------- -------------
105,994 45,701
------------- -------------
Index 500 Stock Division
1998: 13,564 Accumulation Units @ 44.708227.................... 606,427
1997: 19,041 Accumulation Units @ 34.906216.................... 664,652
Annuity Reserves................................................ 51,080 42,741
------------- -------------
657,507 707,393
------------- -------------
Balanced Division
1998: 80,125 Accumulation Units @ 78.082648.................... 6,256,421
1997: 86,634 Accumulation Units @ 66.012286.................... 5,718,908
Annuity Reserves................................................ 539,064 486,559
------------- -------------
6,795,485 6,205,467
------------- -------------
High Yield Division
1998: 157 Accumulation Units @ 16.007423....................... 3,536
1997: N/A......................................................
Annuity Reserves................................................ 0 0
------------- -------------
3,536 0
------------- -------------
Select Bond Division
1998: 480 Accumulation Units @ 82.531570....................... 39,623
1997: 532 Accumulation Units @ 77.468103....................... 41,227
Annuity Reserves................................................ 40,052 40,290
------------- -------------
79,675 81,517
------------- -------------
Money Market Division
1998: 946 Accumulation Units @ 26.605346....................... 25,162
1997: 871 Accumulation Units @ 25.362364....................... 22,084
Annuity Reserves................................................ 7,371 7,530
------------- -------------
32,533 29,614
------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE> 29
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-----------------------------------------
Equity (cont'd) 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued After December 31, 1991 Front Load Version:
Aggressive Growth Stock Division
1998: 2,921,308 Accumulation Units @ 2.511728.................. $ 7,337,533
1997: 3,169,006 Accumulation Units @ 2.350498.................. $ 7,448,743
International Equity Division
1998: 2,807,888 Accumulation Units @ 1.958397.................. 5,498,960
1997: 3,021,349 Accumulation Units @ 1.880500.................. 5,681,647
Growth Stock Division
1998: 845,190 Accumulation Units @ 2.561090.................... 2,164,608
1997: 710,110 Accumulation Units @ 2.034708.................... 1,444,866
Growth and Income Stock Division
1998: 2,452,149 Accumulation Units @ 2.449237.................. 6,005,593
1997: 1,970,478 Accumulation Units @ 2.001981.................. 3,944,860
Index 500 Stock Division
1998: 4,231,423 Accumulation Units @ 3.278539.................. 13,872,886
1997: 3,966,706 Accumulation Units @ 2.563560.................. 10,168,888
Balanced Division
1998: 6,324,559 Accumulation Units @ 2.281157.................. 14,427,311
1997: 6,187,478 Accumulation Units @ 1.931409.................. 11,950,551
High Yield Bond Division
1998: 441,272 Accumulation Units @ 1.589625.................... 701,458
1997: 423,726 Accumulation Units @ 1.630023.................... 690,684
Select Bond Division
1998: 2,718,375 Accumulation Units @ 1.585144.................. 4,309,016
1997: 2,574,248 Accumulation Units @ 1.490112.................. 3,835,918
Money Market Division
1998: 1,905,815 Accumulation Units @ 1.308441.................. 2,493,647
1997: 1,710,473 Accumulation Units @ 1.249188.................. 2,136,703
</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
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31
-----------------------------------------
Equity (cont'd) 1998 1997
------------- -------------
<S> <C> <C>
Contracts Issued After December 31, 1991 Simplified Load Version:
Aggressive Growth Stock Division
1998: 8,671,088 Accumulation Units @ 3.822308.................. $ 33,143,567
1997: 8,989,193 Accumulation Units @ 3.598431.................. $ 32,346,992
International Equity Division
1998: 6,652,248 Accumulation Units @ 1.893030.................. 12,592,906
1997: 7,247,144 Accumulation Units @ 1.828649.................. 13,252,483
Growth Stock Division
1998: 3,373,983 Accumulation Units @ 2.490522.................. 8,402,978
1997: 2,159,985 Accumulation Units @ 1.990509.................. 4,299,469
Growth and Income Stock Division
1998: 5,876,089 Accumulation Units @ 2.381813.................. 13,995,745
1997: 4,547,004 Accumulation Units @ 1.958555.................. 8,905,558
Index 500 Stock Division
1998: 10,493,642 Accumulation Units @ 4.119000................. 43,223,310
1997: 9,442,314 Accumulation Units @ 3.240055.................. 30,593,616
Balanced Division
1998: 7,165,398 Accumulation Units @ 6.804809.................. 48,759,164
1997: 6,839,439 Accumulation Units @ 5.796067.................. 39,641,848
High Yield Bond Division
1998: 1,917,813 Accumulation Units @ 1.545816.................. 2,964,586
1997: 1,219,819 Accumulation Units @ 1.594619.................. 1,945,147
Select Bond Division
1998: 1,231,485 Accumulation Units @ 7.157135.................. 8,813,904
1997: 1,034,899 Accumulation Units @ 6.768475.................. 7,004,691
Money Market Division
1998: 6,483,460 Accumulation Units @ 2.436196.................. 15,794,980
1997: 5,844,682 Accumulation Units @ 2.339812.................. 13,675,458
------------- -------------
Total Equity....................................... $ 645,087,216 $ 547,988,525
------------- -------------
Total Liabilities and Equity....................... $645,937,811 $551,112,386
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE> 31
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY
For the Years Ended December 31
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
Investment Income
<S> <C> <C> <C>
Dividend Income........................................................ $ 26,995,272 $ 27,689,163 $ 16,994,370
Annuity Rate and Expense Guarantees.................................... 3,154,687 2,501,975 1,738,625
------------ ------------ ------------
Net Investment Income.................................................. 23,840,585 25,187,188 15,255,745
------------ ------------ ------------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain (Loss) on Investments................................ 29,250,486 18,686,284 8,855,390
Unrealized Appreciation (Depreciation) During the Year................. 37,105,561 44,241,434 29,832,124
------------ ------------ ------------
Net Gain (Loss) on Investments......................................... 66,356,047 62,927,718 38,687,514
------------ ------------ ------------
Increase in Equity Derived from Investment Activity......................... 90,196,632 88,114,906 53,943,259
------------ ------------ ------------
Equity Transactions
Contract Owners' Net Payments.......................................... 93,658,882 91,195,224 89,650,916
Surrenders and Other (Net)............................................. (86,757,540) (57,974,180) (34,747,640)
------------ ------------ ------------
Increase (Decrease) in Equity Derived from Equity Transactions.............. 6,901,342 33,221,044 54,903,276
------------ ------------ ------------
Net Increase in Equity...................................................... 97,097,974 121,335,950 108,846,535
Equity, Beginning of Year................................................... 547,988,523 426,652,573 317,806,038
------------ ------------ ------------
Equity, End of Year......................................................... $645,086,497 $547,988,523 $426,652,573
============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE> 32
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
NML VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
Note 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 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Aggressive Growth Division $15,042,444 $21,563,810 $30,690,195
International Equity Division 10,115,335 14,484,423 15,119,614
Growth Stock Division 11,736,176 5,929,895 7,308,964
Growth & Income Stock Division 12,220,296 18,445,529 8,410,421
Index 500 Stock Division 27,128,970 22,292,577 19,824,136
Balanced Division 25,547,459 18,920,420 19,426,753
High Yield Bond Division 4,842,682 4,398,102 2,362,508
Select Bond Division 7,219,542 4,295,571 5,445,050
Money Market Division 28,689,880 20,035,837 20,346,897
Sales
Aggressive Growth Division $18,315,682 $12,675,291 $ 1,045,256
International Equity Division 13,861,624 4,352,840 1,571,810
Growth Stock Division 4,445,344 2,395,716 303,927
Growth & Income Stock Division 6,047,669 2,674,188 839,196
Index 500 Stock Division 12,386,814 10,114,507 5,253,981
Balanced Division 24,616,712 17,783,563 29,797,911
High Yield Bond Division 1,661,445 480,911 158,086
Select Bond Division 4,504,138 4,561,008 3,918,139
Money Market Division 25,961,429 16,919,905 15,887,232
</TABLE>
32
<PAGE> 33
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 is 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.
33
<PAGE> 34
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 8. (continued)
Report of Independent Accountants
To The Northwestern Mutual Life Insurance Company and
Contract Owners of NML Variable Annuity Account C
In our opinion, the statements appearing on pages 26 through 33 present fairly,
in all material respects, the financial position of NML Variable Annuity Account
C at December 31, 1998 and 1997, and the results of its operations and the
changes in its equity for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of The Northwestern Mutual Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PriceWaterhouseCoopers LLP
Milwaukee, Wisconsin
January 25, 1999
34
<PAGE> 35
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 10 is on page 36.
35
<PAGE> 36
The Northwestern Mutual Life Insurance Company
Form 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
The following information as of March 1, 1999, 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>
Year EXPIRATION OF
TRUSTEE(2) AGE ELECTED TERM OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT
---------- --- ------- --------- ----------------------------------------------
<S> <C> <C> <C> <C>
R. Quintus Anderson 68 1984 May 1999 (1) Chairman, Audit Committee; Member, Ad Hoc Committee
Edward E. Barr 62 1991 May 1999 (1) Member, Human Resources and Public Policy Committee
Gordon T. Beaham, III 67 1988 May 2001 Member, Operations and Technology Committee
Robert C. Buchanan 58 1991 May 1999 (1) Member, Audit, Executive and Finance Committees
Robert E. Carlson 63 1989 May 2002 Executive Vice President(Strategic Marketing); Member,
Executive Committee
George A. Dickerman 60 1994 May 2000 Member, Agency and Marketing Committee
Pierre S. du Pont 64 1985 May 2002 Member, Agency and Marketing Committee
James D. Ericson 63 1989 May 2000 President and C.E.O.; Member, Human Resources and
Public Policy, Agency and Marketing, and Operations
and Technology Committees; Chairman, Executive and
Finance Committees
J. E. Gallegos 63 1985 May 2000 Member, Audit Committee
Stephen N. Graff 64 1996 May 2000 Member, Executive, Finance, and Operations and
Technology Committees
Patricia Albjerg Graham 64 1980 May 2000 Member, Human Resources and Public Policy Committee
Stephen F. Keller 60 1984 May 1999 (1) Member, Human Resources and Public Policy Committee
Barbara A. King 52 1996 May 2002 Member, Agency and Marketing Committee
J. Thomas Lewis 62 1978 May 2002 Chairman, Human Resources and Public Policy and Ad
Hoc Committees
Daniel F. McKeithan, Jr. 63 1988 May 1999 (1) Member, Executive, Finance, and Human Resources and
Public Policy Committees
</TABLE>
36
<PAGE> 37
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
YEAR EXPIRATION OF
TRUSTEE(2) AGE ELECTED TERM OF OFFICE OTHER POSITIONS PRESENTLY HELD WITH REGISTRANT
---------- --- ------- --------- ----------------------------------------------
<S> <C> <C> <C> <C>
Guy A. Osborn 63 1994 May 2001 Member, Operations and Technology, Executive and
Finance Committees
Timothy D. Proctor 49 1997 May 2001 Member, Audit Committee
Donald J. Schuenke (3) 70 1980 May 2002 Member, Agency and Marketing, Executive and Finance
and Ad Hoc Committees
H. Mason Sizemore, Jr. 57 1993 May 1999 (1) Member, Agency and Marketing Committee
Harold B. Smith 65 1973 May 2000 Member, Operations and Technology Committee
Sherwood H. Smith, Jr. 64 1992 May 2002 Chairman, Agency and Marketing Committee; Member,
Ad Hoc Committee
John E. Steuri 59 1994 May 1999 (1) Chairman, Operations and Technology Committee; Member,
Ad Hoc Committee
John J. Stollenwerk 59 1993 May 2001 Member, Agency and Marketing, Executive and Finance
Committees
Barry L. Williams 54 1987 May 2001 Member, Human Resources and Public Policy Committee
Kathryn D. Wriston 60 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 1999 Annual meeting of Policyowners. If
re-elected, these Trustees' terms will expire in May of 2003.
(2) Peter M. Sommerhauser (56) is a candidate proposed for election to
the Board at the May 1999 Annual Meeting of Policyowners. If
elected, his term will expire in 2002.
(3) Retiring from the Board on May 26, 1999.
37
<PAGE> 38
The Northwestern Mutual Life Insurance Company
Form 10-K
Item 10. (continued)
The following information as of March 1, 1999, is provided
with respect to each Executive Officer of the Registrant.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James D. Ericson 63 President and Chief Executive Officer; Trustee
John M. Bremer 51 Executive Vice President, General Counsel and Secretary (Administration and Law)
Peter W. Bruce 53 Executive Vice President (Accumulation Products and Long Term Care)
Robert E. Carlson 63 Executive Vice President (Strategic Marketing); Trustee
Edward J. Zore 53 Executive Vice President (Life and Disability Income Insurance)
Deborah A. Beck 51 Senior Vice President (Insurance Operations/Chief Compliance Officer)
William H. Beckley 51 Senior Vice President (Agencies)
Mark G. Doll 49 Senior Vice President (Public Markets)
Richard L. Hall 53 Senior Vice President (Life Marketing)
William C. Koenig 51 Senior Vice President and Chief Actuary
Donald L. Mellish 60 Senior Vice President (Field Financial Services)
Bruce L. Miller 56 Senior Vice President (Corporate Planning and Development)
Mason G. Ross 55 Senior Vice President (Investment Administration and Real Estate)
Leonard F. Stecklein 52 Senior Vice President (Agency Services)
Frederic H. Sweet 55 Senior Vice President (Corporate and Government Relations)
Dennis Tamcsin 60 Senior Vice President (Field Relations)
Walt J. Wojcik 59 Senior Vice President (Information Systems)
Robert J. Berdan 52 Vice President (Compliance/Best Practices)
Steven T. Catlett 49 Vice President (New Business)
Thomas E. Dyer 53 Vice President (Corporate Services)
Gary E. Long 54 Vice President and Controller
Susan A. Lueger 45 Vice President (Human Resources)
Meridee J. Maynard 43 Vice President (Annuity and Accumulation Products)
Gregory C. Oberland 41 Vice President (Disability Income)
Barbara F. Piehler 48 Vice President (Policyowner Services)
James F. Reiskytl 61 Vice President (Tax and Financial Planning)
John E. Schlifske 39 Vice President (Securities)
Martha M. Valerio 52 Vice President (Corporate Development)
W. Ward White 59 Vice President (Communications)
</TABLE>
All of the Executive Officers, except Susan A. Lueger and
Bruce L. Miller, have been associated with Northwestern
Mutual, although not necessarily in their present positions,
for more than five years.
Susan A. Lueger has been Vice President of Northwestern Mutual
since May, 1994. Prior thereto she had been Vice President of
Human Resources at Wisconsin Electric Power Company since
1992.
Bruce L. Miller has been Senior Vice President of Northwestern
Mutual since July, 1996. Prior thereto he participated in
private equity investing, operating and serving as a
consultant to various firms in the financial services and
healthcare industries since 1989.
38
<PAGE> 39
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, 1999.
No one of the Executive Officers, Trustees or nominees is
related to any other to the best of our knowledge.
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 (diversified metal products Cold Metal Products Company,
manufacturing), Jamestown, New York, since 1997. Prior thereto, Inc. Oneida, Ltd.
Chairman, The Aarque Companies.
Edward E. Barr Chairman, Sun Chemical Group, B.V.(graphic arts) , Fort Lee, New Jersey, First Union Corporation
since 1998. Chairman and CEO 1997-1998. Prior thereto President and United Water Resources
Chief Executive Officer 1987-1997.
Gordon T. Beaham, III Chairman and President, Faultless Starch/Bon Ami
Company(consumer products manufacturer), Kansas City,
Missouri, since 1987.
Robert C. Buchanan President and Chief Executive Officer, Fox Valley W.H. Brady Corporation
Corporation(manufacturer of gift wrap and writing paper), Appleton, Firstar Corporation
Wisconsin, since 1980.
Robert E. Carlson Executive Vice President of Northwestern Mutual since 1987.
George A. Dickerman Chairman of the Board, Spalding Sports Worldwide(manufacturer of
sporting equipment), Chicopee, Massachusetts, since 1997. Prior
thereto, President 1981-1997.
Pierre S. du Pont Partner with Richards, Layton & Finger(law firm), Wilmington, Delaware, Whitman Corporation
since 1985.
James D. Ericson President and Chief Executive Officer of NML since 1993. MGIC Investment Corporation
Kohl's Corporation
Consolidated Paper Inc.
Mason Street Funds, Inc.
Green Bay Packaging, Inc.
Northwestern Mutual Series
Fund, Inc.
J. E. Gallegos Attorney, Gallegos Law Firm, Santa Fe, New Mexico since 1988.
</TABLE>
39
<PAGE> 40
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen N. Graff Office Managing Partner (retired), Arthur Andersen LLP, Milwaukee, Mason Street Funds, Inc.
Wisconsin, 1981-1994. Regal-Beloit Corporation
Northwestern Mutual Series
Fund, Inc.
Patricia Albjerg Graham President, Spencer Foundation(social and behavioral
sciences), Chicago, Illinois, since 1991; and Professor of the
History of American Education, Harvard University,
Cambridge, Massachusetts, since 1974..
Stephen F. Keller Attorney since 1996. Prior thereto, Chairman, The Santa Anita
Companies, Los Angeles, California, since 1993.
Barbara A. King President, Landscape Structures, Inc.(manufacturer of playground
equipment), Delano, Minnesota, since 1973.
J. Thomas Lewis Attorney, (sole practitioner) since 1998. Prior thereto,
associated with Monroe & Lemann (law firm), New Orleans, Louisiana,
1965-1998.
Daniel F. McKeithan, Jr. President, Tamarack Petroleum Co. Inc.(operator of oil and gas wells), Firstar Corporation
Milwaukee, Wisconsin, since 1982. The Marcus Corporation
WICOR, Inc.
Guy A. Osborn Retired Chairman, Universal Foods Corp., Milwaukee, Wisconsin, since Fleming Companies, Inc.
1997. Chairman,1996-1997. Chairman and Chief Executive Officer, WICOR, Inc.
1990-1996
Timothy D. Proctor Director, Worldwide Human Resources, Glaxo Wellcome
plc(pharmaceuticals), Greenford, Middlesex, United Kingdom, since 1998.
Senior Vice President Human Resources, General Counsel and Secretary,
Glaxo Wellcome Inc., since 1996. Senior Vice President, General Counsel
and Secretary, 1994-1996.
Donald J. Schuenke Chairman of the Board, Northern Telecom Limited since 1994. Retired A. O. Smith Corporation
Chairman of Northwestern Mutual 1993-1994. Chairman of the Board of NML Badger Meter, Inc.
10-1-93 to 1-31-94 Federal Home Loan Mortgage
Corporation (Freddie Mac)
Northern Telecom, Limited
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.(engineered W.W. Grainger, Inc.
components and industrial systems and consumables), Glenview, Illinois, Illinois Tool Works Inc.
since 1982 Northern Trust Corporation
</TABLE>
40
<PAGE> 41
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
TRUSTEE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sherwood H. Smith, Jr. Chairman of the Board, Carolina Power & Light Company, Raleigh, North Carolina Power & Light Company
Carolina, since October 1996. Prior thereto, Chairman and Chief Northern Telecom Limited
Executive Officer, 1992-1996 Springs Industries, Inc.
Wachovia Corporation
Peter M. Sommerhauser Attorney, Godfrey & Kahn, S.C.(law firm), Milwaukee, Wisconsin, since Kohl's Corporation
(proposed for election 1969.
to the Board on 5/26/99)
John E. Steuri Chairman, Advanced Thermal Technologies(heating, air conditioning and National Computer Systems Inc.
humidity control), Little Rock, Arkansas, since May 1997. Prior Intelligroup, Inc.
thereto, Chairman and CEO ALLTEL Information Services, Inc., Little
Rock, Arkansas, since 1989.
John J. Stollenwerk President and Chief Executive Officer, Allen-Edmonds Shoe Corporation, Firstar Corporation
Port Washington, Wisconsin since 1998. Prior thereto President and Badger Meter, Inc.
Owner 1980-1998. Koss Corporation
Barry L. Williams President and Chief Executive Officer, Williams Pacific Ventures, R. H. Donnelly Corporation
Inc.(venture capital), San Francisco, California, since 1993. Pacific Gas & Electric Company
Simpson Manufacturing Co., Inc.
Comp USA, Inc.
The Newhall Land and Farming
Company
CH2M Hill Companies, Ltd.
Kathryn D. Wriston Director of various corporations. Santa Fe Energy Resources, Inc.
The Stanley Works
</TABLE>
Item 11 is on page 42.
41
<PAGE> 42
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 Northwestern Mutual 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 have no bearing on the values
associated with variable annuity contracts issued in connection with
NML Variable Annuity Accounts A and C.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Not applicable. As a mutual life insurance company, Northwestern
Mutual has no shareholders.
Item 13. Certain Relationships and Related Transactions
Northwestern Mutual's subsidiary, Northwestern Mutual Investment
Services, LLC ("NMIS"), serves as the investment advisor to the Fund
a series company registered as an open-end management company under
the Investment Company Act of 1940, consisting of nine portfolios.
Northwestern Mutual is a party to investment advisory agreement with
the Fund. The investment advisory agreements was entered into or
renewed during the fiscal year. Various Trustees and Executive
officers of Northwestern Mutual serve as directors and officers of
the Fund and may be deemed to have a direct or indirect material
interest in the existence of the investment advisory agreement.
Various Trustees and Executive Officers of Northwestern Mutual have
securities accounts with Baird and effected transactions through such
accounts during the fiscal year.
Loans are made to Trustees and Executive 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.
Item 14 is on page 43.
42
<PAGE> 43
The Northwestern Mutual Life Insurance Company
Form 10-K
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page
<S> <C>
(a) Financial Statements and Exhibits 17
(1) NML Variable Annuity Account A (in Part II, Item 8)
Statement of Assets and Liabilities, December 31,
1998 and 1997 Combined Statement of Operations
and Changes in Equity,
for years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Report of Independent Accountants
(2) NML Variable Annuity Account C (in Part II, Item 8) 26
Statement of Assets and Liabilities, December 31, 1998 and 1997
Combined Statement of Operations and Changes in Equity,
for years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Report of Independent Accountants
(3) The Northwestern Mutual Life Insurance Company 44
Attached are:
Report of Independent Accountants
Consolidated Statement of Financial Position, December 31,
1998 and 1997
Consolidated Statement of Operations, for years ended
December 31, 1998, 1997 and 1996
Consolidated Statement of Changes in Surplus,
for years ended December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows, for years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Statutory Financial Statements
(b) No reports on Form 8-K have been filed during the last quarter
of the year ended December 31, 1998.
(c) See Index to Exhibits on page 62, which is incorporated herein by reference 62
(d) Financial Statements of majority owned subsidiaries of
Northwestern Mutual not consolidated have been omitted
because, considered in the aggregate as a single subsidiary,
they do not constitute a significant subsidiary.
</TABLE>
43
<PAGE> 44
The Northwestern Mutual Life Insurance Company
Form 10-K
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, 1998 and 1997, and the related consolidated statements of operations, of
changes in surplus and of cash flows for each of the three years in the period
ended December 31, 1998. 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.
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, 1998 and 1997, or the results of their operations or
their cash flows for each of the three years in the period ended December 31,
1998 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, 1998 and 1997 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, on the basis of accounting described in Note 1.
/s/ PriceWaterhouseCoopers LLP
Milwaukee, Wisconsin
January 25, 1999
44
<PAGE> 45
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Assets
Bonds $ 34,888 $ 32,359
Common and preferred stocks 6,576 6,524
Mortgage loans 12,250 10,835
Real estate 1,481 1,372
Policy loans 7,580 7,163
Other investments 1,839 2,026
Cash and temporary investments 1,275 572
Due and accrued investment income 827 795
Other assets 1,313 1,275
Separate account assets 9,966 8,160
-------- --------
Total assets $ 77,995 $ 71,081
======== ========
Liabilities and Surplus
Reserves for policy benefits $ 51,815 $ 47,343
Policy benefit and premium deposits 1,709 1,624
Policyowner dividends payable 2,870 2,640
Interest maintenance reserve 606 461
Asset valuation reserve 1,994 1,974
Income taxes payable 1,161 1,043
Other liabilities 3,133 3,735
Separate account liabilities 9,966 8,160
-------- --------
Total liabilities 73,254 66,980
Surplus 4,741 4,101
-------- --------
Total liabilities and surplus $ 77,995 $ 71,081
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE> 46
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue
Premium income $ 8,021 $ 7,294 $ 6,667
Net investment income 4,536 4,171 3,836
Other income 922 861 759
-------- -------- --------
Total revenue 13,479 12,326 11,262
-------- -------- --------
Benefits and expenses
Benefit payments to policyowners and beneficiaries 3,602 3,329 2,921
Net additions to policy benefit reserves 4,521 4,026 3,701
Net transfers to separate accounts 564 566 579
-------- --------- ---------
Total benefits 8,687 7,921 7,201
Operating expenses 1,297 1,138 1,043
-------- -------- --------
Total benefits and expenses 9,984 9,059 8,244
-------- -------- --------
Gain from operations before dividends and taxes 3,495 3,267 3,018
Policyowner dividends 2,869 2,636 2,341
-------- -------- --------
Gain from operations before taxes 626 631 677
Income tax expense 301 356 452
-------- -------- --------
Net gain from operations 325 275 225
Net realized capital gains 484 414 395
-------- -------- --------
Net income $ 809 $ 689 $ 620
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE> 47
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SURPLUS
(IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Beginning of year balance $ 4,101 $ 3,515 $ 2,786
Net income 809 689 620
Increase (decrease) in net unrealized gains (147) 576 295
Increase in investment reserves (20) (526) (176)
Other, net (2) (153) (10)
------- ------- -------
Net increase in surplus 640 586 729
------- ------- -------
End of year balance $ 4,741 $ 4,101 $ 3,515
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE> 48
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Insurance and annuity premiums $ 8,876 $ 8,093 $ 7,361
Investment income received 4,216 3,928 3,634
Disbursement of policy loans, net of repayments (416) (360) (326)
Benefits paid to policyowners and beneficiaries (3,572) (3,316) (2,912)
Net transfers to separate accounts (564) (565) (579)
Policyowner dividends paid (2,639) (2,347) (2,105)
Operating expenses and taxes (1,749) (1,722) (1,663)
Other, net (83) 124 (59)
-------- -------- --------
Net cash provided by operating activities 4,069 3,835 3,351
-------- -------- --------
Cash flows from investing activities
Proceeds from investments sold or matured
Bonds 28,720 38,284 31,942
Common and preferred stocks 10,359 9,057 4,570
Mortgage loans 1,737 1,012 1,253
Real estate 159 302 178
Other investments 768 398 316
-------- -------- --------
41,743 49,053 38,259
-------- -------- --------
Cost of investments acquired
Bonds 30,873 41,169 35,342
Common and preferred stocks 9,642 9,848 4,463
Mortgage loans 3,135 2,309 2,455
Real estate 268 202 125
Other investments 567 359 255
-------- -------- --------
44,485 53,887 42,640
-------- -------- --------
Net increase (decrease) in securities lending and other (624) 440 1,617
-------- -------- --------
Net cash used in investing activities (3,366) (4,394) (2,764)
-------- -------- --------
Net increase (decrease) in cash and temporary investments 703 (559) 587
Cash and temporary investments, beginning of year 572 1,131 544
-------- -------- --------
Cash and temporary investments, end of year $ 1,275 $ 572 $ 1,131
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE> 49
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 and its Subsidiary offer life, annuity, disability income and
long term care 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").
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted the Codification of Statutory Accounting Principles, which will
replace the current Accounting Practices and Procedures manual as the
NAIC's primary guidance on statutory accounting. The NAIC is now
considering amendments to the codification guidance that would also be
effective upon its planned implementation effective January 1, 2001. It
is expected that the Office of the Commissioner of Insurance of the
State of Wisconsin ("OCI") will adopt the codification, but it is not
known whether the OCI will make any changes to that guidance. The
potential effect of the codification on the Company will depend upon
the guidance adopted by the OCI.
Financial statements prepared on the statutory basis of accounting vary
from financial statements prepared on the basis of Generally Accepted
Accounting Principles ("GAAP") 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
Common and preferred stocks - Common stocks are carried at
fair value, preferred stocks
are generally carried at cost,
and unconsolidated subsidiaries
are recorded using the equity
method
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
venture investments which are
valued at equity in ventures'
net assets
Cash and temporary investments - Amortized cost, which
approximates fair value
TEMPORARY INVESTMENTS
Temporary investments consist of debt securities that have maturities
of one year or less at acquisition.
49
<PAGE> 50
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 share of joint venture income.
Net investment income is reduced by investment management expenses,
real estate depreciation, depletion related to energy assets and costs
associated with securities lending.
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.
INVESTMENT RESERVES
The Company is required to maintain an asset valuation reserve ("AVR").
The AVR establishes a general reserve for invested asset valuation
using a formula prescribed by state regulations. The AVR is designed to
stabilize surplus against potential declines in the value of
investments. In addition, the Company maintained a $200 million
voluntary investment reserve at December 31, 1998 and 1997 to absorb
potential investment losses exceeding those considered by the AVR
formula. Increases or decreases in these investment reserves are
recorded directly to surplus.
SEPARATE ACCOUNTS
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. Variable product policyowners also have the option to
invest in a fixed interest rate annuity in the general account of the
Company. Separate account assets are reported at fair value.
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.
OTHER INCOME
Other income includes considerations on supplementary contracts, ceded
reinsurance expense allowances and miscellaneous policy charges.
BENEFIT PAYMENTS TO POLICYOWNERS AND BENEFICIARIES
Benefit payments to policyowners and beneficiaries include death,
surrender and disability benefits, matured endowments and supplementary
contract payments.
RESERVES FOR POLICY BENEFITS
Reserves for policy benefits are determined using 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.
POLICYOWNER DIVIDENDS
Almost 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.
50
<PAGE> 51
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
RECLASSIFICATION
Certain financial statement balances for 1997 and 1996 have been
reclassified to conform to the current year presentation.
2. INVESTMENTS
DEBT SECURITIES
Debt securities consist of all bonds and fixed-maturity preferred
stocks. The estimated fair 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. The Company records unrealized
losses for debt securities considered impaired.
51
<PAGE> 52
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
Statement value, which principally represents amortized cost, and estimated fair
value of the Company's debt securities at December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
December 31, 1998 Reconciliation to Estimated Fair Value
- ----------------- ----------------------------------------------
Gross
Gross Unrealized Estimated
Statement Unrealized Depreciation Fair
Value Appreciation (in millions) Value
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
US Government and
political obligations $ 3,904 $ 461 $ (11) $ 4,354
Mortgage-backed securities 7,357 280 (15) 7,622
Corporate and other
debt securities 23,627 1,240 (382) 24,485
---------- --------- -------- --------
34,888 1,981 (408) 36,461
Preferred stocks 189 4 (1) 192
---------- -------- -------- --------
Total $ 35,077 $ 1,985 $ (409) $ 36,653
========== ======== ======== ========
<CAPTION>
December 31, 1997 Reconciliation to Estimated Fair Value
- ----------------- ----------------------------------------------
Gross
Unrealized
Gross Depreciation Estimated
Statement Unrealized (in Fair
Value Appreciation millions) Value
---------- ------------ ------------ ---------
<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
========== ======== ======== ========
</TABLE>
The statement value of debt securities by contractual maturity at December 31,
1998 and 1997 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.
52
<PAGE> 53
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
(in millions)
<S> <C> <C>
Due in one year or less $ 655 $ 605
Due after one year through five years 5,031 4,878
Due after five years through ten years 10,286 9,760
Due after ten years 11,748 10,268
------- -------
27,720 25,511
Mortgage-backed securities 7,357 7,015
------- -------
$35,077 $32,526
======= =======
</TABLE>
STOCKS
The estimated fair 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 adjusted cost of common and preferred stock held by the Company at
December 31, 1998 and 1997 was $4.8 billion and $5.0 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 collateral properties.
The fair value of mortgage loans as of December 31, 1998 and 1997 was
approximately $12.9 billion and $11.5 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.
53
<PAGE> 54
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
At December 31, 1998 and 1997, real estate includes $61 million
acquired through foreclosure at each date and $120 million and $124
million, respectively, of home office real estate. In 1998, 1997 and
1996, the Company recorded unrealized losses of $5 million, $2 million
and $43 million, respectively, for the excess of statement 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,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
For the year ended For the year ended For the year ended
December 31, 1998 December 31, 1997 December 31, 1996
------------------------------ ------------------------------ ----------------------------
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) (in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bonds $ 514 $(231) $ 283 $ 518 $(269) $249 $ 396 $(383) $ 13
Common and preferred stocks 885 (240) 645 533 (150) 383 580 (115) 465
Mortgage loans 18 (11) 7 14 (14) - 2 (15) (13)
Real estate 41 - 41 100 (2) 98 36 - 36
Other investments 330 (267) 63 338 (105) 233 204 (51) 153
------ ------ ------ ------ ----- ---- ------ ----- ----
1,788 (749) 1,039 1,503 (540) 963 1,218 (564) 654
------ ------ ------ ------ ----- ---- ------ ----- ----
Less: Capital gains taxes 358 340 224
Less: IMR deferrals 197 209 35
------ ---- ----
Net realized capital gains $ 484 $414 $395
------ ---- ----
</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 are included in the consolidated statements of financial
position for each of the periods ended at December 31, 1998 and 1997,
and approximate the statement value of securities loaned at those
dates.
INVESTMENT IN MGIC
The Company owns 11.0% (11.9 million shares) of the outstanding common
stock of MGIC Investment Corporation ("MGIC"). This investment is
accounted for using the equity method. At December 31, 1998 and 1997,
the fair value of the Company's investment in MGIC exceeded the
statement value of $180 million and $273 million, respectively, by $296
million and $768 million, respectively.
In July 1995, the Company entered into a forward contract with a
brokerage firm to deliver 8.9 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. In August
1998, the Company delivered 8.9 million shares to settle the forward
contract. In conjunction with the settlement, the Company recorded a
$114 million realized gain.
54
<PAGE> 55
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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.
The Company held the following positions for hedging purposes at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Derivative Financial Instrument Notional Amounts Risks Reduced
- ------------------------------- ---------------- -------------
(in millions)
December 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Foreign Currency $601 $564 Currency exposure on foreign-
denominated investments
Forward Contracts
Common Stock Futures 657 327 Stock market price fluctuation.
Bond Futures 379 95 Bond market price fluctuation.
Options to Acquire Interest 419 530 Interest rates payable on certain
Rate Swaps annuity and insurance contracts.
Foreign Currency and Interest 94 209 Interest rates on variable rate notes
Rate Swaps and currency exposure on
foreign-denominated bonds.
</TABLE>
The notional or contractual amounts of derivative financial instruments
are used to denominate these types of transactions and do not represent
the amounts exchanged between the parties.
In addition to the use of derivatives for hedging purposes, equity
swaps were held for investment purposes during 1997 and 1998. The
notional amount of equity swaps outstanding at December 31, 1998 and
1997 was $188 million and $143 million, respectively.
Foreign currency forwards, foreign currency swaps, stock futures and
equity swaps are reported at fair value. Resulting gains and losses on
these contracts are unrealized until expiration of the contract. There
is no statement value reported for interest rate swaps, bond futures
and options to acquire interest rate swaps prior to the settlement of
the contract, at which time realized gains and losses are deferred to
IMR. Changes in the value of derivative instruments are expected to
offset gains and losses on the hedged investments. During 1998, net
realized and unrealized gains on investments were partially offset by
net realized losses of $104 million and net unrealized losses of $58
million on derivative instruments. The effect of derivative instruments
in 1997 and 1996 was not material to the Company's results of
operations.
3. RESERVES FOR POLICY BENEFITS
Life insurance reserves on substantially all policies issued since 1978
are based on the Commissioner's Reserve Valuation Method with interest
rates ranging from 3-1/2% to 5-1/2%. Other life policy reserves are
primarily based on the net level premium method employing various
mortality tables at interest rates ranging from 2% to 4-1/2%.
55
<PAGE> 56
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
Deferred annuity reserves on contracts issued since 1985 are valued
primarily using the Commissioner's Annuity Reserve Valuation Method
with interest rates ranging from 3-1/2% to 6-1/4%. Other deferred
annuity reserves are based on 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 based on 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 primarily using 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.
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, 1998, the most
recent actuarial valuation date available, the qualified defined
benefit plans were fully funded. The Company recorded a liability of
$98 million and $87 million for nonqualified defined benefit plans at
December 31, 1998 and 1997, respectively. 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 made to the
plans. The Company recorded $29 million, $27 million and $25 million of
total expense related to its defined benefit and defined contribution
plans for the years ended December 31, 1998, 1997 and 1996,
respectively. The defined benefit and defined contribution plans'
assets of $1.9 billion and $1.7 billion at December 31, 1998 and 1997,
respectively, were primarily invested in the separate accounts of the
Company.
In addition to pension and retirement 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 costs for the years
ended December 31, 1998, 1997 and 1996 were a net expense (benefit) of
$1.8 million, ($1.3) million and ($12.0) million, respectively. Net
benefits were primarily a result of favorable differences between
actuarial assumptions and actual experience.
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Unfunded postretirement benefit obligation
for retirees and other fully eligible employees $35 million $34 million
(Accrued in statement of financial position)
Estimated postretirement benefit obligation
for active non-vested employees (Not accrued
until employee vests) $56 million $50 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>
56
<PAGE> 57
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
If the health care cost trend rate assumptions were increased by 1%,
the accrued postretirement benefit obligation as of December 31, 1998
and 1997 would have been increased by $5 million and $4 million,
respectively.
At December 31, 1998 and 1997, the recorded postretirement benefit
obligation was reduced by $23 million and $20 million, respectively,
for assets funded for postretirement health care benefits.
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
coinsurance contracts. The Company retains a maximum of $25 million of
coverage per individual life and $35 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. Policy benefit reserves at December 31, 1998
and 1997 were reported net of ceded reserves of $518 million and $435
million, respectively. The effect of reinsurance on premiums and
benefits for the years ended December 31, 1998, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in millions)
<S> <C> <C> <C>
Direct premiums $8,426 $7,647 $7,064
Premiums ceded (405) (353) (397)
------ ------ ------
Net premium revenue $8,021 $7,294 $6,667
====== ====== ======
Benefits to policyowners and beneficiaries 8,869 $8,057 $7,348
Benefits ceded (182) (136) (147)
------ ------ ------
Net benefits to policyowners and beneficiaries $8,687 $7,921 $7,201
====== ====== ======
</TABLE>
In addition, the Company received $121 million, $115 million and $93
million for the years ended December 31, 1998, 1997 and 1996,
respectively, from reinsurers representing allowances for 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 policyowners. 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.
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
57
<PAGE> 58
The Northwestern Mutual Life Insurance Company
Form 10-K
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 taxes
for the years ended December 31, 1998, 1997 and 1996 was 48%, 56%, and
67% respectively. The Company's effective tax rate exceeds the federal
corporate rate of 35% primarily because, (1) the Company pays a tax
that is assessed only on the surplus of mutual life insurance 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").
7. ACQUISITION OF FRANK RUSSELL COMPANY
Pursuant to an Agreement and Plan of Merger, dated as of August 10,
1998, the Company acquired Frank Russell Company effective January 1,
1999 for a purchase price of approximately $950 million. Frank Russell
is a leading investment management and consulting firm, providing
investment advice, analytical tools and investment vehicles to
institutional and individual investors in more than 30 countries.
In connection with its acquisition of Frank Russell Company, the
Company will be required in 1999 to charge-off directly from surplus
approximately $341 million, which represents the amount of acquisition
goodwill less 10% of the Company's surplus at December 31, 1998. In
addition, the Company will request permission from the OCI to
charge-off the remaining $474 million of acquisition goodwill in 1999
and currently intends to do so.
In connection with the acquisition, the Company has unconditionally
guaranteed certain debt obligations of Frank Russell Company, including
$350 million of senior notes and up to $150 million of other credit
facilities.
8. CONTINGENCIES
The Company has guaranteed certain obligations of its affiliates. These
guarantees totaled approximately $133 million at December 31, 1998 and
are generally supported by the underlying net asset values of the
affiliates.
In addition, the Company routinely makes commitments to fund mortgage
loans or other investments in the normal course of business. These
commitments aggregated to $2.1 billion at December 31, 1998 and were
extended at market interest rates and terms.
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 position.
58
<PAGE> 59
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
Date: March 25 , 1999
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
Gary E. Long
- ------------------------------- Vice President and Controller
Gary E. Long (Principal Financial and Accounting Officer)
59
<PAGE> 60
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
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
60
<PAGE> 61
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
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
Each of the above signatures is affixed as of March 25, 1999
*By James D. Ericson
-------------------------------
James D. Ericson, Attorney in fact, pursuant to
the Power of Attorney attached as exhibit 24.1
hereto.
61
<PAGE> 62
The Northwestern Mutual Life Insurance Company
Form 10-K
Index To Exhibits
Exhibit Description Page
- ------- ----------- ----
24.1 Power of Attorney 63
27.1 NML Variable Annuity Account A Financial Data Schedule 65
27.2 NML Variable Annuity Account C Financial Data Schedule 66
62
<PAGE> 1
The Northwestern Mutual Life Insurance Company
Form 10-K
Exhibit 24.1
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 22nd day of July, 1998.
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
63
<PAGE> 2
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
64
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NML
VARIABLE ANNUITY ACCOUNT A, DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> Annuity Account A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 509762
<INVESTMENTS-AT-VALUE> 727012
<RECEIVABLES> 1430
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 728442
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2809
<TOTAL-LIABILITIES> 2809
<SENIOR-EQUITY> 725633
<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> 725633
<DIVIDEND-INCOME> 34233
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8067
<NET-INVESTMENT-INCOME> 26166
<REALIZED-GAINS-CURRENT> 37625
<APPREC-INCREASE-CURRENT> 36250
<NET-CHANGE-FROM-OPS> 100041
<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 NML
VARIABLE ANNUITY ACCOUNT C, DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> Annuity Account C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 476888
<INVESTMENTS-AT-VALUE> 645086
<RECEIVABLES> 851
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 645937
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 851
<TOTAL-LIABILITIES> 851
<SENIOR-EQUITY> 645086
<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> 645086
<DIVIDEND-INCOME> 26993
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3155
<NET-INVESTMENT-INCOME> 23838
<REALIZED-GAINS-CURRENT> 29249
<APPREC-INCREASE-CURRENT> 37108
<NET-CHANGE-FROM-OPS> 90195
<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>
